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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

OR

☐ 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):

☐

Large accelerated filer

☐

Accelerated filer

☐

Emerging growth company

x

Non-accelerated Filer

☐

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.  o

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

☐  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, 2021
Class A Stock, par value $100			—
Class B Stock, par value $100			24,759,308

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Table of Contents						Page
						Number
			Special Note Regarding Forward-Looking Statements			3
PART I.			FINANCIAL INFORMATION
Item 1.			FINANCIAL STATEMENTS (unaudited)
			Statements of Condition as of June 30, 2021 and December 31, 2020			4
			Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020			5
			Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020			6
			Statements of Capital for the Three and Six Months Ended June 30, 2021 and 2020			7
			Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020			9
			Notes to Financial Statements:
			Note 1 - Summary of Significant Accounting Policies			11
			Note 2 - Recently Adopted and Issued Accounting Guidance			11
			Note 3 - Investments			11
			Note 4 - Advances			15
			Note 5 - Mortgage Loans Held for Portfolio			16
			Note 6 - Derivatives and Hedging Activities			19
			Note 7 - Consolidated Obligations			24
			Note 8 - Affordable Housing Program			26
			Note 9 - Capital			26
			Note 10 - Accumulated Other Comprehensive Income			28
			Note 11 - Segment Information			30
			Note 12 - Estimated Fair Values			31
			Note 13 - Commitments and Contingencies			35
			Note 14 - Related Party and Other Transactions			36
			Defined Terms			37
Item 2.			MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
			Presentation			39
			Executive Summary			39
			Selected Financial Data			41
			Results of Operations and Changes in Financial Condition			42
			Operating Segments			49
			Analysis of Financial Condition			50
			Liquidity and Capital Resources			57
			Off-Balance Sheet Arrangements			59
			Critical Accounting Policies and Estimates			59
			Recent Accounting and Regulatory Developments			59
			Risk Management			60
Item 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			63
Item 4.			CONTROLS AND PROCEDURES			66
PART II.			OTHER INFORMATION
Item 1.			LEGAL PROCEEDINGS			66
Item 1A.			RISK FACTORS			67
Item 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			68
Item 3.			DEFAULTS UPON SENIOR SECURITIES			68
Item 4.			MINE SAFETY DISCLOSURES			68
Item 5.			OTHER INFORMATION			68
Item 6.			EXHIBITS			69

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As used in this Form 10-Q, 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 that are defined herein or in the Defined Terms in Part I Item 1.

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 the availability of suitable interest rate indices, or other factors, resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, including those determined by the Federal Reserve 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;

◦changes in products or services we are able to provide;

◦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;

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

◦changes in the terms and conditions of ownership of our capital stock;

•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, changes in international political structures and alliances, 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;

•national or international health crises, such as the COVID-19 pandemic, including any resurgence of the pandemic, new and evolving pandemic strains, and the effects of health crises on our and our counterparties' operations, member demand, market liquidity, and the global funding markets, and the governmental, regulatory, and fiscal interventions undertaken to stabilize local, national, and global economic conditions;

•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, riots, insurrection 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.

3

Table of Contents

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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, 2021						December 31, 2020
Assets:
Cash and due from banks			$	1,363,012					$	1,811,544
Interest-bearing deposits (Note 3)			100,041						100,026
Securities purchased under agreements to resell (Note 3)			3,000,000						2,500,000
Federal funds sold (Note 3)			2,805,000						1,215,000
Trading securities (Note 3)			5,817,270						5,094,703
Available-for-sale securities, amortized cost of $9,084,093 and $10,007,978 (Note 3)			9,299,045						10,144,899
Held-to-maturity securities (estimated fair values of $4,594,682 and $4,723,796) (Note 3)			4,572,692						4,701,302
Advances (Note 4)			27,632,543						31,347,486
Mortgage loans held for portfolio, net (Note 5)			7,736,875						8,515,645
Accrued interest receivable			91,123						103,076
Premises, software, and equipment, net			32,635						33,993
Derivative assets, net (Note 6)			237,171						283,082
Other assets			83,651						74,000
Total assets			$	62,771,058					$	65,924,756
Liabilities:
Deposits			$	1,597,781					$	1,375,206
Consolidated obligations (Note 7):
Discount notes			14,444,886						16,617,079
Bonds			42,363,125						43,332,946
Total consolidated obligations, net			56,808,011						59,950,025
Accrued interest payable			71,930						63,581
Affordable Housing Program payable (Note 8)			30,765						34,402
Derivative liabilities, net (Note 6)			10,103						22,979
Mandatorily redeemable capital stock (Note 9)			232,893						250,768
Other liabilities			435,822						777,493
Total liabilities			59,187,305						62,474,454
Commitments and contingencies (Note 13)
Capital (Note 9):
Capital stock (putable at par value of $100 per share):
Class B issued and outstanding shares: 22,339,163 and 22,075,696, respectively			2,233,916						2,207,570
Retained earnings:
Unrestricted			878,581						868,904
Restricted			277,832						268,426
Total retained earnings			1,156,413						1,137,330
Total accumulated other comprehensive income (Note 10)			193,424						105,402
Total capital			3,583,753						3,450,302
Total liabilities and capital			$	62,771,058					$	65,924,756

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

4

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Federal Home Loan Bank of Indianapolis

Statements of Income

(Unaudited, $ amounts in thousands)

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Interest Income:
Advances			$	28,175					$	76,319					$	64,284					$	245,944
Interest-bearing deposits			121						313						277						5,032
Securities purchased under agreements to resell			215						226						652						10,059
Federal funds sold			651						323						1,454						9,613
Trading securities			14,421						25,520						30,591						49,316
Available-for-sale securities			21,184						13,341						51,020						50,144
Held-to-maturity securities			7,809						19,813						17,673						48,946
Mortgage loans held for portfolio			40,119						59,208						80,401						141,228
Total interest income			112,695						195,063						246,352						560,282
Interest Expense:
Consolidated obligation discount notes			1,733						27,575						5,932						100,089
Consolidated obligation bonds			52,674						97,199						106,470						321,051
Deposits			43						55						80						2,790
Mandatorily redeemable capital stock			929						2,772						2,033						5,739
Total interest expense			55,379						127,601						114,515						429,669
Net interest income			57,316						67,462						131,837						130,613
Provision for (reversal of) credit losses			(44)						50						44						47
Net interest income after provision for credit losses			57,360						67,412						131,793						130,566
Other Income:
Net gains (losses) on trading securities			(13,731)						(28,527)						(27,359)						21,306
Net gains (losses) on derivatives			186						(878)						(652)						(51,827)
Service fees			131						138						258						297
Standby letters of credit fees			254						163						425						318
Other, net			3,390						3,558						4,582						(20)
Total other income (loss)			(9,770)						(25,546)						(22,746)						(29,926)
Other Expenses:
Compensation and benefits			14,092						15,252						29,850						29,637
Other operating expenses			7,417						7,725						14,688						15,034
Federal Housing Finance Agency			1,474						1,168						2,947						2,335
Office of Finance			1,228						1,037						3,225						2,311
Other			4,226						1,710						5,857						3,191
Total other expenses			28,437						26,892						56,567						52,508
Income before assessments			19,153						14,974						52,480						48,132
Affordable Housing Program assessments			2,008						1,775						5,451						5,387
Net income			$	17,145					$	13,199					$	47,029					$	42,745

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

5

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Federal Home Loan Bank of Indianapolis

Statements of Comprehensive Income

(Unaudited, $ amounts in thousands)

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Net income			$	17,145					$	13,199					$	47,029					$	42,745
Other Comprehensive Income:
Net change in unrealized gains (losses) on available-for-sale securities			4,502						79,020						78,031						(69,811)
Pension benefits, net			8,995						(2,381)						9,991						(1,674)
Total other comprehensive income (loss)			13,497						76,639						88,022						(71,485)
Total comprehensive income (loss)			$	30,642					$	89,838					$	135,051					$	(28,740)

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

6

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Federal Home Loan Bank of Indianapolis

Statements of Capital

Three Months Ended June 30, 2021 and 2020

(Unaudited, $ amounts and shares in thousands)

						Capital Stock												Retained Earnings																		Accumulated Other Comprehensive Income (Loss)						Total Capital
						Shares						Par Value						Unrestricted						Restricted						Total
Balance, March 31, 2021						22,142						$	2,214,192					$	878,854					$	274,403					$	1,153,257					$	179,927					$	3,547,376
Total comprehensive income																		13,716						3,429						17,145						13,497						30,642
Proceeds from issuance of capital stock						200						20,005																														20,005
Shares reclassified to mandatorily redeemable capital stock, net						(3)						(281)																														(281)
Cash dividends on capital stock (2.57% annualized)																		(13,989)						—						(13,989)												(13,989)
Balance, June 30, 2021						22,339						$	2,233,916					$	878,581					$	277,832					$	1,156,413					$	193,424					$	3,583,753
Balance, March 31, 2020						20,982						$	2,098,222					$	867,141					$	256,763					$	1,123,904					$	(80,748)					$	3,141,378
Total comprehensive income																		10,559						2,640						13,199						76,639						89,838
Proceeds from issuance of capital stock						1,092						109,212																														109,212
Shares reclassified to mandatorily redeemable capital stock, net						(131)						(13,115)																														(13,115)
Partial recovery of prior capital distribution to Financing Corporation																		10,574						—						10,574												10,574
Cash dividends on capital stock (4.00% annualized)																		(19,946)						—						(19,946)												(19,946)
Balance, June 30, 2020						21,943						$	2,194,319					$	868,328					$	259,403					$	1,127,731					$	(4,109)					$	3,317,941

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

7

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Federal Home Loan Bank of Indianapolis

Statements of Capital

Six Months Ended June 30, 2021 and 2020

(Unaudited, $ amounts and shares in thousands)

						Capital Stock												Retained Earnings																		Accumulated Other Comprehensive Income (Loss)						Total Capital
						Shares						Par Value						Unrestricted						Restricted						Total
Balance, December 31, 2020						22,076						$	2,207,570					$	868,904					$	268,426					$	1,137,330					$	105,402					$	3,450,302
Total comprehensive income																		37,623						9,406						47,029						88,022						135,051
Proceeds from issuance of capital stock						266						26,627																														26,627
Shares reclassified to mandatorily redeemable capital stock, net						(3)						(281)																														(281)
Cash dividends on capital stock (2.53% annualized)																		(27,946)						—						(27,946)												(27,946)
Balance, June 30, 2021						22,339						$	2,233,916					$	878,581					$	277,832					$	1,156,413					$	193,424					$	3,583,753
Balance, December 31, 2019						19,741						$	1,974,076					$	864,454					$	250,854					$	1,115,308					$	67,376					$	3,156,760
Total comprehensive income (loss)																		34,196						8,549						42,745						(71,485)						(28,740)
Proceeds from issuance of capital stock						2,335						233,590																														233,590
Shares reclassified to mandatorily redeemable capital stock, net						(133)						(13,347)																														(13,347)
Partial recovery of prior capital distribution to Financing Corporation																		10,574						—						10,574												10,574
Cash dividends on capital stock (4.13% annualized)																		(40,896)						—						(40,896)												(40,896)
Balance, June 30, 2020						21,943						$	2,194,319					$	868,328					$	259,403					$	1,127,731					$	(4,109)					$	3,317,941

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

8

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Federal Home Loan Bank of Indianapolis

Statements of Cash Flows

(Unaudited, $ amounts in thousands)

			Six Months Ended June 30,
			2021						2020
Operating Activities:
Net income			$	47,029					$	42,745
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization and depreciation			42,309						31,413
Changes in net derivative and hedging activities			28,776						(521,675)
Provision for credit losses			44						47
Net losses (gains) on trading securities			27,359						(21,306)
Changes in:
Accrued interest receivable			11,601						9,122
Other assets			(12,783)						(7,639)
Accrued interest payable			8,349						(76,331)
Other liabilities			1,182						40,954
Total adjustments, net			106,837						(545,415)
Net cash provided by (used in) operating activities			153,866						(502,670)
Investing Activities:
Net change in:
Interest-bearing deposits			452,160						(390,531)
Securities purchased under agreements to resell			(500,000)						(1,500,000)
Federal funds sold			(1,590,000)						158,000
Trading securities:
Proceeds from maturities			850,000						1,850,000
Proceeds from sales			50,006						—
Purchases			(1,649,933)						(1,778,124)
Available-for-sale securities:
Proceeds from maturities			643,500						22,000
Purchases			(60,290)						(1,176,982)
Held-to-maturity securities:
Proceeds from maturities			538,805						868,888
Purchases			(584,749)						—
Advances:
Principal repayments			139,543,669						138,354,889
Disbursements to members			(136,081,315)						(140,017,580)
Mortgage loans held for portfolio:
Principal collections			1,776,690						1,895,751
Purchases from members			(1,145,532)						(1,049,039)
Purchases of premises, software, and equipment			(2,520)						(2,849)
Loans to other Federal Home Loan Banks:
Principal repayments			20,000						20,000
Disbursements			(20,000)						(20,000)
Net cash provided by (used in) investing activities			2,240,491						(2,765,577)

(continued)

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

9

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Federal Home Loan Bank of Indianapolis

Statements of Cash Flows, continued

(Unaudited, $ amounts in thousands)

			Six Months Ended June 30,
			2021						2020
Financing Activities:
Changes in deposits			222,576						184,887
Net payments on derivative contracts with financing elements			(7,551)						1,998
Net proceeds from issuance of consolidated obligations:
Discount notes			85,205,681						172,312,346
Bonds			22,129,860						21,703,579
Payments for matured and retired consolidated obligations:
Discount notes			(87,373,330)						(161,738,014)
Bonds			(23,000,650)						(29,484,440)
Proceeds from issuance of capital stock			26,627						233,590
Payments for redemption/repurchase of mandatorily redeemable capital stock			(18,156)						(36,581)
Partial recovery of prior capital distribution to Financing Corporation			—						10,574
Dividend payments on capital stock			(27,946)						(40,896)
Net cash provided by (used in) financing activities			(2,842,889)						3,147,043
Net increase (decrease) in cash and due from banks			(448,532)						(121,204)
Cash and due from banks at beginning of period			1,811,544						220,294
Cash and due from banks at end of period			$	1,363,012					$	99,090
Supplemental Disclosures:
Cash activities:
Interest payments			$	139,245					$	552,568
Affordable Housing Program payments			9,088						6,810
Non-cash activities:
Purchases of investment securities, traded but not yet settled			—						381,582
Capitalized interest on certain held-to-maturity securities			313						1,265
Par value of shares reclassified to mandatorily redeemable capital stock, net			281						13,347

 

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

10

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Notes to Financial Statements, continued

(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 in the Defined 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 2020 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 2020 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.

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. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates. The most significant estimates pertain to derivatives and hedging activities, and the fair value of financial instruments.

Significant Accounting Policies. Our significant accounting policies and certain other disclosures are set forth in our 2020 Form 10-K in Note 1 - Summary of Significant Accounting Policies. There have been no significant changes to these policies through June 30, 2021.

Note 2 - Recently Adopted and Issued Accounting Guidance

We did not adopt any new accounting guidance or elect to apply certain optional expedients prescribed by existing accounting guidance that are applicable and remain available in 2021. Further, the FASB has not issued any new and applicable accounting guidance since the filing of our 2020 Form 10-K. See Note 2 - Recently Adopted and Issued Accounting Guidance in our 2020 Form 10-K for additional detail.

Note 3 - Investments

Short-term Investments.

We invest in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that maintain a credit rating of triple-B or higher (investment grade) by an NRSRO. At June 30, 2021 and December 31, 2020, none of these investments were with counterparties rated below single-A and none were with unrated counterparties. The NRSRO ratings may differ from our internal ratings of the investments, if applicable.

11

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Investment Securities.

Trading Securities.

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

Security Type						June 30, 2021						December 31, 2020
Non-mortgage-backed securities:
U.S. Treasury obligations						$	5,817,270					$	5,094,703
Total trading securities at estimated fair value						$	5,817,270					$	5,094,703

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,
						2021						2020						2021						2020
Net unrealized gains (losses) on trading securities held at period end						$	(12,583)					$	(39,813)					$	(28,906)					$	8,650
Net realized gains (losses) on trading securities that matured/sold during the period						(1,148)						11,286						1,547						12,656
Net gains (losses) on trading securities						$	(13,731)					$	(28,527)					$	(27,359)					$	21,306

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, 2021						Cost (1)						Gains						Losses						Fair Value
GSE and TVA debentures						$	2,769,779					$	48,276					$	(3)					$	2,818,052
GSE MBS						6,314,314						167,844						(1,165)						6,480,993
Total AFS securities						$	9,084,093					$	216,120					$	(1,168)					$	9,299,045
December 31, 2020
GSE and TVA debentures						$	3,462,885					$	40,252					$	—					$	3,503,137
GSE MBS						6,545,093						98,263						(1,594)						6,641,762
Total AFS securities						$	10,007,978					$	138,515					$	(1,594)					$	10,144,899

(1)    Includes adjustments made to the cost basis for purchase discount or premium and related accretion or amortization, and, if applicable, fair-value hedging basis adjustments. Net unamortized premium at June 30, 2021 and December 31, 2020 totaled $15,263 and $16,300, respectively. The applicable fair value hedging basis adjustments at June 30, 2021 and December 31, 2020 totaled $348,271 and $627,619, respectively. Excludes accrued interest receivable at June 30, 2021 and December 31, 2020 of $32,232 and $34,616, respectively.

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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, 2021						Fair Value						Losses						Fair Value						Losses						Fair Value						Losses
GSE and TVA debentures						$	35,000					$	(3)					$	—					$	—					$	35,000					$	(3)
GSE MBS						132,980						(1,165)						—						—						132,980						(1,165)
Total impaired AFS securities						$	167,980					$	(1,168)					$	—					$	—					$	167,980					$	(1,168)
December 31, 2020
GSE MBS						$	132,054					$	(179)					$	179,387					$	(1,415)					$	311,441					$	(1,594)
Total impaired AFS securities						$	132,054					$	(179)					$	179,387					$	(1,415)					$	311,441					$	(1,594)

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

						June 30, 2021												December 31, 2020
						Amortized						Estimated						Amortized						Estimated
Year of Contractual Maturity						Cost						Fair Value						Cost						Fair Value
Due in 1 year or less						$	537,663					$	538,655					$	705,134					$	705,442
Due after 1 year through 5 years						1,276,368						1,298,677						1,215,038						1,225,187
Due after 5 years through 10 years						955,748						980,720						1,542,713						1,572,508
Total non-MBS						2,769,779						2,818,052						3,462,885						3,503,137
Total MBS						6,314,314						6,480,993						6,545,093						6,641,762
Total AFS securities						$	9,084,093					$	9,299,045					$	10,007,978					$	10,144,899

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

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, 2021						Cost (1)						Gains (2)						Losses (2)						Fair Value
MBS:
Other U.S. obligations - guaranteed MBS						$	2,780,225					$	9,906					$	(4,292)					$	2,785,839
GSE MBS						1,792,467						20,501						(4,125)						1,808,843
Total HTM securities						$	4,572,692					$	30,407					$	(8,417)					$	4,594,682
December 31, 2020
MBS:
Other U.S. obligations - guaranteed MBS						$	2,622,677					$	6,920					$	(4,590)					$	2,625,007
GSE MBS						2,078,625						21,640						(1,476)						2,098,789
Total HTM securities						$	4,701,302					$	28,560					$	(6,066)					$	4,723,796

(1)    Carrying value equals amortized cost, which includes adjustments made to the cost basis for purchase discount or premium and related accretion or amortization. Net unamortized premium at June 30, 2021 and December 31, 2020 totaled $24,716 and $7,101, respectively. Excludes accrued interest receivable at June 30, 2021 and December 31, 2020 of $2,202 and $2,689, respectively.

(2)    Gross unrecognized holding gains (losses) represent the cumulative increases (decreases) in estimated fair value.

Contractual Maturity. HTM securities are not presented by contractual maturity because they consisted entirely of MBS, whose actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

Allowance for Credit Losses on Investment Securities. At June 30, 2021 and December 31, 2020, 100% of our AFS and HTM securities were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security. These may differ from our internal ratings of the securities, if applicable.

AFS Securities. At June 30, 2021 and December 31, 2020, certain of our AFS securities were in an unrealized loss position; however, we did not record an allowance for credit losses because those losses were considered temporary and we expected to recover the entire amortized cost basis on these securities based upon the following factors: (i) all securities were highly-rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, (iii) the U.S., GSE, and other Agency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be zero, and (iv) we had no intention of selling any of these securities nor did we consider it more likely than not that we will be required to sell any of these securities before recovery of each security's remaining amortized cost basis.

HTM Securities. At June 30, 2021 and December 31, 2020, we did not record an allowance for credit losses on any of our HTM securities based on the following factors: (i) all securities were highly rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, (iii) the U.S., GSE, and other Agency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be zero, and (iv) we had no intention of selling any of these securities nor did we consider it more likely than not that we will be required to sell any of these securities.

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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, 2021												December 31, 2020
Redemption Term						Amount						WAIR %						Amount						WAIR %
Overdrawn demand and overnight deposit accounts						$	611					2.43						$	—					—
Due in 1 year or less						7,924,412						0.49						10,115,576						0.51
Due after 1 year through 2 years						2,599,641						1.78						2,149,839						1.57
Due after 2 years through 3 years						3,545,734						1.60						2,760,624						2.02
Due after 3 years through 4 years						2,348,662						1.45						3,725,103						1.36
Due after 4 years through 5 years						2,542,066						1.26						3,020,039						1.29
Thereafter						8,267,380						1.01						8,919,678						1.05
Total advances, par value						27,228,506						1.07						30,690,859						1.06
Fair-value hedging basis adjustments, net						394,134												645,946
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees						9,903												10,681
Total advances (1)						$	27,632,543											$	31,347,486

(1)    Carrying value equals amortized cost, which excludes accrued interest receivable at June 30, 2021 and December 31, 2020 of $12,757 and $14,961, respectively.

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, 2021						December 31, 2020						June 30, 2021						December 31, 2020
Overdrawn demand and overnight deposit accounts						$	611					$	—					$	611					$	—
Due in 1 year or less						12,951,619						15,296,034						12,453,912						14,645,076
Due after 1 year through 2 years						2,238,251						1,797,049						3,425,246						3,107,339
Due after 2 years through 3 years						2,224,234						2,440,024						3,859,734						3,160,729
Due after 3 years through 4 years						1,961,112						2,246,102						2,405,062						3,824,603
Due after 4 years through 5 years						1,548,716						2,076,839						2,029,066						2,585,439
Thereafter						6,303,963						6,834,811						3,054,875						3,367,673
Total advances, par value						$	27,228,506					$	30,690,859					$	27,228,506					$	30,690,859

Advance Concentrations. At June 30, 2021 and December 31, 2020, our top five borrowers held 42% and 44%, respectively, of total advances outstanding at par.

Allowance for Credit Losses on Advances. Based upon the collateral held as security, our credit extension and collateral policies, our credit analysis and the repayment history on advances, we have not recorded an allowance for credit losses on advances.

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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, 2021						December 31, 2020
Fixed-rate long-term mortgages						$	6,465,565					$	7,257,237
Fixed-rate medium-term (1) mortgages						1,090,837						1,065,329
Total mortgage loans held for portfolio, UPB						7,556,402						8,322,566
Unamortized premiums						178,501						187,425
Unamortized discounts						(2,224)						(1,638)
Hedging basis adjustments, net						4,521						7,642
Total mortgage loans held for portfolio						7,737,200						8,515,995
Allowance for credit losses						(325)						(350)
Total mortgage loans held for portfolio, net (2)						$	7,736,875					$	8,515,645

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

(2)    Excludes accrued interest receivable at June 30, 2021 and December 31, 2020 of $29,342 and $34,151, respectively.

Type						June 30, 2021						December 31, 2020
Conventional						$	7,346,360					$	8,069,274
Government-guaranteed or -insured						210,042						253,292
Total mortgage loans held for portfolio, UPB						$	7,556,402					$	8,322,566

Product						June 30, 2021						December 31, 2020
MPP						$	7,431,687					$	8,163,902
MPF Program						124,715						158,664
Total mortgage loans held for portfolio, UPB						$	7,556,402					$	8,322,566

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						2021						2020						2021						2020
Liability, beginning of period						$	214,264					$	190,280					$	207,305					$	186,585
Additions						6,247						8,060						13,364						12,314
Claims paid						(31)						(196)						(65)						(241)
Distributions to PFIs						(419)						(1,491)						(543)						(2,005)
Liability, end of period						$	220,061					$	196,653					$	220,061					$	196,653

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Credit Quality Indicators for Conventional Mortgage Loans and Other Delinquency Statistics. All qualifying COVID-related loan modifications considered to be formal, i.e. the legal terms of the loan were changed, are excluded from TDR classification and existing accounting policies and the loans are returned to current status upon modification. As of June 30, 2021 and December 31, 2020, we had $29,509, or 0.4%, and $12,309, or 0.2%, respectively, of our total conventional loans outstanding with formal modifications.

We have continued to apply our existing accounting policies for past due, non-accrual, and charge-offs resulting from COVID-related loan modifications considered to be informal, i.e. the legal terms of the loan were not changed. Based on information from our mortgage servicers, as of June 30, 2021 and December 31, 2020, the UPB of conventional loans in an informal forbearance arrangement, including current loans, totaled $55,607 and $111,516, respectively, or 0.8% and 1.4%, respectively, of our total conventional loans outstanding. As of June 30, 2021, no informal COVID-19-related loan modifications were classified as TDRs.

Payment status is the key credit quality indicator for conventional mortgage loans and allows us to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Other delinquency statistics include non-accrual loans and loans in process of foreclosure. The tables below present the key credit quality indicators and other delinquency statistics for our mortgage loans held for portfolio aggregated by (i) the most recent five origination years and (ii) all prior origination years. Amounts are based on amortized cost, which excludes accrued interest receivable.

						Origination Year
Payment Status as of June 30, 2021						Prior to 2017						2017 to 2021						Total
Past due:
30-59 days						$	16,483					$	9,892					$	26,375
60-89 days						4,638						2,234						6,872
90 days or more						28,469						27,302						55,771
Total past due						49,590						39,428						89,018
Total current						2,967,539						4,468,097						7,435,636
Total conventional mortgage loans, amortized cost						$	3,017,129					$	4,507,525					$	7,524,654

As of June 30, 2021, the UPB of conventional loans in an informal forbearance arrangement included amounts 30-59 days past due of $4,962, 60-89 days past due of $3,863, and 90 days or more past due of $41,285, for total past due of $50,110.

						Origination Year
Payment Status as of December 31, 2020						Prior to 2016						2016 to 2020						Total
Past due:
30-59 days						$	19,893					$	22,130					$	42,023
60-89 days						6,980						12,078						19,058
90 days or more						27,467						67,075						94,542
Total past due						54,340						101,283						155,623
Total current						2,468,908						5,635,070						8,103,978
Total conventional mortgage loans, amortized cost						$	2,523,248					$	5,736,353					$	8,259,601

As of December 31, 2020, the UPB of conventional loans in an informal forbearance arrangement included amounts 30-59 days past due of $10,214, 60-89 days past due of $12,661, and 90 days or more past due of $79,011, for total past due of $101,886.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Other Delinquency Statistics as of June 30, 2021						Conventional						Government						Total
In process of foreclosure (1)						$	1,631					$	—					$	1,631
Serious delinquency rate (2)						0.74		%				1.31		%				0.76		%
Past due 90 days or more still accruing interest (3)						$	24,526					$	2,273					$	26,799
On non-accrual status (4)						$	51,186					$	—					$	51,186
Other Delinquency Statistics as of December 31, 2020
In process of foreclosure (1)						$	2,689					$	—					$	2,689
Serious delinquency rate (2)						1.14		%				3.36		%				1.21		%
Past due 90 days or more still accruing interest (3)						$	36,585					$	7,933					$	44,518
On non-accrual status (4)						$	87,763					$	—					$	87,763

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

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

(3)    Although our past due scheduled/scheduled MPP loans are classified as loans past due 90 days or more based on the loan's delinquency status, we do not consider these loans to be on non-accrual status as they are well-secured and in the process of collection.

(4)    As of June 30, 2021 and December 31, 2020, $51,131 and $87,708, respectively, of UPB of these conventional mortgage loans on non-accrual status did not have a specifically assigned allowance for credit losses and $29,726 and $59,306, respectively, of UPB of these conventional mortgage loans were in informal forbearance related to the COVID-19 pandemic.

Allowance for Credit Losses.

Components and Rollforward of Allowance for Credit Losses. The following table presents the components of the allowance for credit losses, including the credit enhancement waterfall for MPP.

Components of Allowance						June 30, 2021						December 31, 2020
MPP expected losses remaining after borrower's equity, before credit enhancements						$	3,649					$	10,305
Portion of expected losses recoverable from credit enhancements:
PMI						(976)						(2,277)
LRA (1)						(1,767)						(6,847)
SMI						(688)						(963)
Total portion recoverable from credit enhancements						(3,431)						(10,087)
Allowance for unrecoverable PMI/SMI						32						32
Allowance for MPP credit losses						250						250
Allowance for MPF Program credit losses						75						100
Allowance for credit losses						$	325					$	350

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

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The table below presents a rollforward of our allowance for credit losses.

						Three Months Ended June 30,												Six Months Ended June 30,
Rollforward of Allowance						2021						2020						2021						2020
Balance, beginning of period						$	350					$	300					$	350					$	300
Charge-offs						—						(29)						(92)						(42)
Recoveries						19						4						23						20
Provision for (reversal of) credit losses						(44)						50						44						47
Balance, end of period						$	325					$	325					$	325					$	325

Government-Guaranteed or -Insured Mortgage Loans. Based on the U.S. government guarantee or insurance on these loans, our assessment of our servicers, and the collateral backing the loans, we did not record an allowance for credit losses for government-guaranteed or -insured mortgage loans at June 30, 2021 or December 31, 2020. Furthermore, none of these mortgage loans have been placed on non-accrual status due to the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

Note 6 - Derivatives and Hedging Activities

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

Uncleared Derivatives. For certain of our uncleared derivatives, we have credit support agreements that contain provisions requiring us to post additional collateral with our counterparties if there is deterioration in our credit rating. If our credit rating is lowered by an NRSRO, we could be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate estimated fair value of all uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest on cash collateral) at June 30, 2021 was $749, for which we have posted collateral in cash, including accrued interest, of $894 in the normal course of business. If our credit rating had been lowered by an NRSRO (from an S&P equivalent of AA+ to AA), we would not have been required to deliver additional collateral to our uncleared derivative counterparties at June 30, 2021.

Cleared Derivatives. The clearinghouse determines margin requirements which are generally not based on credit ratings. However, clearing agents may require additional margin to be posted by us based on credit considerations, including but not limited to any credit rating downgrades. At June 30, 2021, we were not required by our clearing agents to post any additional margin.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Financial Statement Effect and Additional Financial Information.

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

												Estimated Fair Value
						Notional						Derivative						Derivative
June 30, 2021						Amount						Assets						Liabilities
Derivatives designated as hedging instruments:
Interest-rate swaps						$	42,631,202					$	64,771					$	391,938
Total derivatives designated as hedging instruments						42,631,202						64,771						391,938
Derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps						9,977,000						3,120						16
Interest-rate caps/floors						625,500						716						—
Interest-rate forwards						141,800						101						46
MDCs						139,713						118						92
Total derivatives not designated as hedging instruments						10,884,013						4,055						154
Total derivatives before adjustments						$	53,515,215					68,826						392,092
Netting adjustments and cash collateral (1)												168,345						(381,989)
Total derivatives, net												$	237,171					$	10,103
December 31, 2020
Derivatives designated as hedging instruments:
Interest-rate swaps						$	40,227,966					$	13,018					$	761,330
Total derivatives designated as hedging instruments						40,227,966						13,018						761,330
Derivatives not designated as hedging instruments:
Economic hedges;
Interest-rate swaps						9,177,000						5,404						181
Interest-rate caps/floors						625,500						1,113						—
Interest-rate forwards						180,900						—						1,486
MDCs						180,152						1,022						—
Total derivatives not designated as hedging instruments						10,163,552						7,539						1,667
Total derivatives before adjustments						$	50,391,518					20,557						762,997
Netting adjustments and cash collateral (1)												262,525						(740,018)
Total derivatives, net												$	283,082					$	22,979

(1)    Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty. Cash collateral pledged to counterparties at June 30, 2021 and December 31, 2020, including accrued interest, totaled $551,227 and $1,003,437, respectively. Cash collateral received from counterparties and held at both June 30, 2021 and December 31, 2020, including accrued interest, totaled $894. At June 30, 2021 and December 31, 2020, no securities were pledged as collateral.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents separately the estimated fair value of derivative instruments meeting and not meeting netting requirements, including the effect of the related collateral.

						June 30, 2021												December 31, 2020
						Derivative Assets						Derivative Liabilities						Derivative Assets						Derivative Liabilities
Derivative instruments meeting netting requirements:
Gross recognized amount
Uncleared						$	65,444					$	381,587					$	13,793					$	755,118
Cleared						3,163						10,367						5,742						6,393
Total gross recognized amount						68,607						391,954						19,535						761,511
Gross amounts of netting adjustments and cash collateral
Uncleared						(65,194)						(371,622)						(13,793)						(733,625)
Cleared						233,539						(10,367)						276,318						(6,393)
Total gross amounts of netting adjustments and cash collateral						168,345						(381,989)						262,525						(740,018)
Net amounts after netting adjustments and cash collateral
Uncleared						250						9,965						—						21,493
Cleared						236,702						—						282,060						—
Total net amounts after netting adjustments and cash collateral						236,952						9,965						282,060						21,493
Derivative instruments not meeting netting requirements (1)						219						138						1,022						1,486
Total derivatives, at estimated fair value						$	237,171					$	10,103					$	283,082					$	22,979

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

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

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

Three Months Ended June 30, 2021						Advances						Investments						CO Bonds						Total
Changes in estimated fair value:
Hedged items (attributable to risk being hedged)						$	10,550					$	85,804					$	(39,212)					$	57,142
Derivatives						(12,105)						(87,733)						37,083						(62,755)
Net changes in estimated fair value before price alignment interest						(1,555)						(1,929)						(2,129)						(5,613)
Price alignment interest (1)						7						2						(1)						8
Net interest settlements on derivatives (2)						(46,173)						(28,327)						22,011						(52,489)
Amortization/accretion of gains (losses) on active hedging relationships						—						3,482						18						3,500
Net gains (losses) on qualifying fair-value hedging relationships						(47,721)						(26,772)						19,899						(54,594)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships						(56)						(7,403)						—						(7,459)
Net gains (losses) on derivatives and hedging activities in net interest income (3)						$	(47,777)					$	(34,175)					$	19,899					$	(62,053)

Three Months Ended June 30, 2020
Changes in estimated fair value:
Hedged items (attributable to risk being hedged)						$	6,442					$	40,745					$	25,337					$	72,524
Derivatives						(23,345)						(57,079)						(10,892)						(91,316)
Net changes in estimated fair value before price alignment interest						(16,903)						(16,334)						14,445						(18,792)
Price alignment interest (1)						56						44						(5)						95
Net interest settlements on derivatives (2)						(28,409)						(27,997)						18,778						(37,628)
Amortization/accretion of gains (losses) on active hedging relationships						(7)						337						783						1,113
Net gains (losses) on qualifying fair-value hedging relationships						(45,263)						(43,950)						34,001						(55,212)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships						—						—						—						—
Net gains (losses) on derivatives and hedging activities in net interest income (3)						$	(45,263)					$	(43,950)					$	34,001					$	(55,212)

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Six Months Ended June 30, 2021						Advances						Investments						CO Bonds						Total
Changes in estimated fair value:
Hedged items (attributable to risk being hedged)						$	(232,919)					$	(225,999)					$	84,060					$	(374,858)
Derivatives						234,748						234,193						(81,107)						387,834
Net changes in estimated fair value before price alignment interest						1,829						8,194						2,953						12,976
Price alignment interest (1)						36						17						(4)						49
Net interest settlements on derivatives (2)						(91,892)						(60,780)						34,237						(118,435)
Amortization/accretion of gains (losses) on active hedging relationships						—						4,160						161						4,321
Net gains (losses) on qualifying fair-value hedging relationships						(90,027)						(48,409)						37,347						(101,089)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships						(112)						(12,792)						—						(12,904)
Net gains (losses) on derivatives and hedging activities in net interest income (3)						$	(90,139)					$	(61,201)					$	37,347					$	(113,993)

Six Months Ended June 30, 2020
Changes in estimated fair value:
Hedged items (attributable to risk being hedged)						$	634,736					$	640,223					$	(39,452)					$	1,235,507
Derivatives						(633,084)						(667,567)						42,755						(1,257,896)
Net changes in estimated fair value before price alignment interest						1,652						(27,344)						3,303						(22,389)
Price alignment interest (1)						640						401						(149)						892
Net interest settlements on derivatives (2)						(28,439)						(33,681)						28,775						(33,345)
Amortization/accretion of gains (losses) on active hedging relationships						(14)						639						1,333						1,958
Net gains (losses) on qualifying fair-value hedging relationships						(26,161)						(59,985)						33,262						(52,884)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships						—						—						(36)						(36)
Net gains (losses) on derivatives and hedging activities in net interest income (3)						$	(26,161)					$	(59,985)					$	33,226					$	(52,920)

(1)    Relates to derivatives for which variation margin payments are characterized as daily settled contracts.

(2)    Represents interest income/expense on derivatives in qualifying fair-value hedging relationships. Net interest settlements on derivatives that are not in qualifying fair-value hedging relationships are reported in other income.

(3)    Excludes the interest income/expense of the respective hedged items recorded in net interest income.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

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

						Three Months Ended June 30,												Six Months Ended June 30,
Type of Hedge						2021						2020						2021						2020
Net gain (loss) on derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps						$	4,083					$	20,138					$	8,194					$	(20,281)
Swaptions						—						(16)						—						(323)
Interest-rate caps/floors						(528)						(28)						(396)						464
Interest-rate forwards						(1,344)						(3,544)						2,812						(10,923)
Net interest settlements						(3,285)						(20,527)						(8,238)						(28,912)
MDCs						1,260						3,099						(3,024)						8,148
Net gains (losses) on derivatives in other income						$	186					$	(878)					$	(652)					$	(51,827)

The following table presents the amortized cost of, and the related cumulative basis adjustments on, hedged items in qualifying fair-value hedging relationships.

June 30, 2021						Advances						Investments						CO Bonds
Amortized cost of hedged items (1)						$	15,724,635					$	9,084,093					$	20,685,126
Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)						$	393,447					$	49,065					$	(62,473)
For discontinued fair-value hedging relationships						687						299,206						—
Total cumulative fair-value hedging basis adjustments on hedged items						$	394,134					$	348,271					$	(62,473)

December 31, 2020
Amortized cost of hedged items (1)						$	17,219,312					$	9,882,225					$	17,406,679
Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)						$	645,146					$	501,865					$	21,605
For discontinued fair-value hedging relationships						799						125,754						—
Total cumulative fair-value hedging basis adjustments on hedged items						$	645,945					$	627,619					$	21,605

(1)    Includes only the portion of the amortized cost of the hedged items in qualifying fair-value hedging relationships.

(2)    Excludes any offsetting effect of the net estimated fair value of the associated derivatives.

Note 7 - Consolidated Obligations

In addition to being the primary obligor for all consolidated obligations issued on our behalf, we are jointly and severally liable with each of the other FHLBanks for the payment of the principal and interest on all of the FHLBanks' consolidated obligations outstanding. The par values of the FHLBanks' consolidated obligations outstanding at June 30, 2021 and December 31, 2020 totaled $666.7 billion and $746.8 billion, respectively. As provided by the Bank Act and Finance Agency regulations, consolidated obligations are backed only by the financial resources of all FHLBanks.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

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

Discount Notes						June 30, 2021						December 31, 2020
Book value						$	14,444,886					$	16,617,079
Par value						$	14,446,349					$	16,620,486
Weighted average effective interest rate						0.04		%				0.12		%

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

						June 30, 2021												December 31, 2020
Year of Contractual Maturity						Amount						WAIR%						Amount						WAIR%
Due in 1 year or less						$	21,345,360					0.25						$	31,126,310					0.29
Due after 1 year through 2 years						4,856,385						0.96						4,109,700						0.70
Due after 2 years through 3 years						1,615,625						0.85						1,753,010						1.34
Due after 3 years through 4 years						2,914,150						0.80						767,250						1.93
Due after 4 years through 5 years						4,697,500						1.08						837,300						1.13
Thereafter						6,917,000						2.18						4,652,000						2.91
Total CO bonds, par value						42,346,020						0.80						43,245,570						0.70
Unamortized premiums						98,853												87,133
Unamortized discounts						(12,063)												(12,703)
Unamortized concessions						(7,212)												(8,659)
Fair-value hedging basis adjustments, net						(62,473)												21,605
Total CO bonds						$	42,363,125											$	43,332,946

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

Redemption Feature						June 30, 2021						December 31, 2020
Non-callable / non-putable						$	27,105,520					$	36,809,070
Callable						15,240,500						6,436,500
Total CO bonds, par value						$	42,346,020					$	43,245,570

Year of Contractual Maturity or Next Call Date						June 30, 2021						December 31, 2020
Due in 1 year or less						$	33,340,860					$	34,272,810
Due after 1 year through 2 years						5,226,385						4,159,700
Due after 2 years through 3 years						694,625						1,608,010
Due after 3 years through 4 years						681,650						443,750
Due after 4 years through 5 years						470,500						563,300
Thereafter						1,932,000						2,198,000
Total CO bonds, par value						$	42,346,020					$	43,245,570

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents the par value of our CO bonds outstanding by interest-rate payment type.

Interest-Rate Payment Type						June 30, 2021						December 31, 2020
Fixed-rate						$	30,948,020					$	24,750,570
Step-up						315,000						15,000
Simple variable-rate						11,083,000						18,480,000
Total CO bonds, par value						$	42,346,020					$	43,245,570

Note 8 - Affordable Housing Program

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

						Three Months Ended June 30,												Six Months Ended June 30,
AHP Activity						2021						2020						2021						2020
Liability at beginning of period						$	35,690					$	39,423					$	34,402					$	38,084
Assessment (expense)						2,008						1,775						5,451						5,387
Subsidy usage, net (1)						(6,933)						(4,537)						(9,088)						(6,810)
Liability at end of period						$	30,765					$	36,661					$	30,765					$	36,661

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

Note 9 - Capital

Classes of Capital Stock. The following table presents the capital stock outstanding by sub-series.

Capital stock outstanding						June 30, 2021						December 31, 2020
Class B-1						$	952,690					$	797,196
Class B-2						1,281,226						1,410,374
Total Class B						$	2,233,916					$	2,207,570

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

						Three Months Ended June 30,												Six Months Ended June 30,
MRCS Activity						2021						2020						2021						2020
Liability at beginning of period						$	232,695					$	323,125					$	250,768					$	322,902
Reclassification from capital stock						281						13,115						281						13,347
Redemptions/repurchases						(83)						(36,572)						(18,156)						(36,581)
Accrued distributions						—						36						—						36
Liability at end of period						$	232,893					$	299,704					$	232,893					$	299,704

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

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

MRCS Contractual Year of Redemption						June 30, 2021						December 31, 2020
Year 1 (1)(2)						$	22,140					$	9,274
Year 2						23,163						—
Year 3						5,670						26,723
Year 4						162,194						150,957
Year 5						19,726						32,791
Thereafter (3)						—						31,023
Total MRCS						$	232,893					$	250,768

(1)    Balances at June 30, 2021 and December 31, 2020 include $915 and $624, respectively, of Class B stock that had reached the end of the five-year redemption period but will not be redeemed until the associated credit products and other obligations are no longer outstanding.

(2)    Balance at June 30, 2021 includes $12,960 of Class B stock held by one captive insurance company whose membership was terminated on February 19, 2021 but will not be redeemed until the associated credit products and other obligations are no longer outstanding. Such amount was properly classified as "thereafter" as of December 31, 2020.

(3)    Represents the five-year redemption period of Class B stock held by certain captive insurance companies which began immediately upon their respective terminations of membership on February 19, 2021. Upon their respective terminations, we repurchased their excess stock totaling $18,063.

The following table presents the distributions related to MRCS.

						Three Months Ended June 30,												Six Months Ended June 30,
MRCS Distributions						2021						2020						2021						2020
Recorded as interest expense						$	929					$	2,772					$	2,033					$	5,739
Recorded as distributions from retained earnings						1						36						84						36
Total						$	930					$	2,808					$	2,117					$	5,775

Capital Requirements. We are subject to three capital requirements under our capital plan and Finance Agency regulations as disclosed in Note 12 - Capital in our 2020 Form 10-K. As presented in the following table, we were in compliance with these requirements at June 30, 2021 and December 31, 2020.

						June 30, 2021												December 31, 2020
Regulatory Capital Requirements						Required						Actual						Required						Actual
Risk-based capital						$	697,611					$	3,623,222					$	630,661					$	3,595,668
Total regulatory capital						$	2,510,842					$	3,623,222					$	2,636,990					$	3,595,668
Total regulatory capital-to-assets ratio						4.00%						5.77%						4.00%						5.45%
Leverage capital						$	3,138,553					$	5,434,833					$	3,296,238					$	5,393,502
Leverage ratio						5.00%						8.66%						5.00%						8.18%

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 10 - Accumulated Other Comprehensive Income

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

AOCI Rollforward						Unrealized Gains (Losses) on AFS Securities						Pension Benefits						Total AOCI
Balance, March 31, 2021						$	210,450					$	(30,523)					$	179,927
OCI before reclassifications:
Net change in unrealized gains (losses)						4,502						—						4,502
Reclassifications from OCI to net income:
Pension benefits, net						—						8,995						8,995
Total other comprehensive income						4,502						8,995						13,497
Balance, June 30, 2021						$	214,952					$	(21,528)					$	193,424
Balance, March 31, 2020						$	(59,018)					$	(21,730)					$	(80,748)
OCI before reclassifications:
Net change in unrealized gains (losses)						79,020						—						79,020
Reclassifications from OCI to net income:
Pension benefits, net						—						(2,381)						(2,381)
Total other comprehensive income (loss)						79,020						(2,381)						76,639
Balance, June 30, 2020						$	20,002					$	(24,111)					$	(4,109)

AOCI Rollforward						Unrealized Gains (Losses) on AFS Securities						Pension Benefits						Total AOCI
Balance, December 31, 2020						$	136,921					$	(31,519)					$	105,402
OCI before reclassifications:
Net change in unrealized gains (losses)						78,031						—						78,031
Reclassifications from OCI to net income:
Pension benefits, net						—						9,991						9,991
Total other comprehensive income (loss)						78,031						9,991						88,022
Balance, June 30, 2021						$	214,952					$	(21,528)					$	193,424
Balance, December 31, 2019						$	89,813					$	(22,437)					$	67,376
OCI before reclassifications:
Net change in unrealized gains (losses)						(69,811)						—						(69,811)
Reclassifications from OCI to net income:
Pension benefits, net						—						(1,674)						(1,674)
Total other comprehensive income (loss)						(69,811)						(1,674)						(71,485)
Balance, June 30, 2020						$	20,002					$	(24,111)					$	(4,109)

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 11 - Segment Information

The following table presents our financial performance by operating segment.

						Three Months Ended June 30, 2021																		Three Months Ended June 30, 2020
						Traditional						Mortgage Loans						Total						Traditional						Mortgage Loans						Total
Net interest income						$	53,952					$	3,364					$	57,316					$	62,177					$	5,285					$	67,462
Provision for (reversal of) credit losses						—						(44)						(44)						—						50						50
Other income (loss)						(9,734)						(36)						(9,770)						(25,179)						(367)						(25,546)
Other expenses						24,221						4,216						28,437						22,845						4,047						26,892
Income (loss) before assessments						19,997						(844)						19,153						14,153						821						14,974
Affordable Housing Program assessments (credits)						2,093						(85)						2,008						1,693						82						1,775
Net income (loss)						$	17,904					$	(759)					$	17,145					$	12,460					$	739					$	13,199
						Six Months Ended June 30, 2021																		Six Months Ended June 30, 2020
						Traditional						Mortgage Loans						Total						Traditional						Mortgage Loans						Total
Net interest income						$	128,137					$	3,700					$	131,837					$	112,252					$	18,361					$	130,613
Provision for (reversal of) credit losses						—						44						44						—						47						47
Other income (loss)						(22,611)						(135)						(22,746)						(27,291)						(2,635)						(29,926)
Other expenses						48,339						8,228						56,567						44,609						7,899						52,508
Income (loss) before assessments						57,187						(4,707)						52,480						40,352						7,780						48,132
Affordable Housing Program assessments (credits)						5,922						(471)						5,451						4,609						778						5,387
Net income (loss)						$	51,265					$	(4,236)					$	47,029					$	35,743					$	7,002					$	42,745

The following table presents our asset balances by operating segment.

By Date						Traditional						Mortgage Loans						Total
June 30, 2021						$	55,034,183					$	7,736,875					$	62,771,058
December 31, 2020						57,409,111						8,515,645						65,924,756

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 12 - Estimated Fair Values

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

						June 30, 2021
												Estimated Fair Value
						Carrying																														Netting
Financial Instruments						Value						Total						Level 1						Level 2						Level 3						Adjustments (1)
Assets:
Cash and due from banks						$	1,363,012					$	1,363,012					$	1,363,012					$	—					$	—					$	—
Interest-bearing deposits						100,041						100,041						100,000						41						—						—
Securities purchased under agreements to resell						3,000,000						3,000,000						—						3,000,000						—						—
Federal funds sold						2,805,000						2,805,000						—						2,805,000						—						—
Trading securities						5,817,270						5,817,270						—						5,817,270						—						—
AFS securities						9,299,045						9,299,045						—						9,299,045						—						—
HTM securities						4,572,692						4,594,682						—						4,594,682						—						—
Advances						27,632,543						27,602,974						—						27,602,974						—						—
Mortgage loans held for portfolio, net						7,736,875						8,021,392						—						7,980,633						40,759						—
Accrued interest receivable						91,123						91,123						—						91,123						—						—
Derivative assets, net						237,171						237,171						—						68,826						—						168,345
Grantor trust assets (2)						59,973						59,973						59,973						—						—						—
Liabilities:
Deposits						1,597,781						1,597,781						—						1,597,781						—						—
Consolidated obligations:
Discount notes						14,444,886						14,444,674						—						14,444,674						—						—
Bonds						42,363,125						42,790,064						—						42,790,064						—						—
Accrued interest payable						71,930						71,930						—						71,930						—						—
Derivative liabilities, net						10,103						10,103						—						392,092						—						(381,989)
MRCS						232,893						232,893						232,893						—						—						—

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

						December 31, 2020
												Estimated Fair Value
						Carrying																														Netting
Financial Instruments						Value						Total						Level 1						Level 2						Level 3						Adjustments (1)
Assets:
Cash and due from banks						$	1,811,544					$	1,811,544					$	1,811,544					$	—					$	—					$	—
Interest-bearing deposits						100,026						100,026						100,000						26						—						—
Securities purchased under agreements to resell						2,500,000						2,500,000						—						2,500,000						—						—
Federal funds sold						1,215,000						1,215,000						—						1,215,000						—						—
Trading securities						5,094,703						5,094,703						—						5,094,703						—						—
AFS securities						10,144,899						10,144,899						—						10,144,899						—						—
HTM securities						4,701,302						4,723,796						—						4,723,796						—						—
Advances						31,347,486						31,290,664						—						31,290,664						—						—
Mortgage loans held for portfolio, net						8,515,645						8,922,185						—						8,860,853						61,332						—
Accrued interest receivable						103,076						103,076						—						103,076						—						—
Derivative assets, net						283,082						283,082						—						20,557						—						262,525
Grantor trust assets (2)						51,032						51,032						51,032						—						—						—
Liabilities:
Deposits						1,375,206						1,375,206						—						1,375,206						—						—
Consolidated obligations:
Discount notes						16,617,079						16,617,976						—						16,617,976						—						—
Bonds						43,332,946						43,952,206						—						43,952,206						—						—
Accrued interest payable						63,581						63,581						—						63,581						—						—
Derivative liabilities, net						22,979						22,979						—						762,997						—						(740,018)
MRCS						250,768						250,768						250,768						—						—						—

(1)    Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed with the same clearing agent and/or counterparty.

(2)    Included in other assets on the statement of condition.

Summary of Valuation Techniques and Significant Inputs. A description of the valuation techniques, significant inputs, and levels of fair value hierarchy is disclosed in Note 16 - Estimated Fair Values in our 2020 Form 10-K. No significant changes have been made in the current year.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

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

																														Netting
June 30, 2021						Total						Level 1						Level 2						Level 3						Adjustments (1)
Trading securities:
U.S. Treasury securities						$	5,817,270					$	—					$	5,817,270					$	—					$	—
Total trading securities						5,817,270						—						5,817,270						—						—
AFS securities:
GSE and TVA debentures						2,818,052						—						2,818,052						—						—
GSE MBS						6,480,993						—						6,480,993						—						—
Total AFS securities						9,299,045						—						9,299,045						—						—
Derivative assets:
Interest-rate related						237,053						—						68,708						—						168,345
MDCs						118						—						118						—						—
Total derivative assets, net						237,171						—						68,826						—						168,345
Other assets:
Grantor trust assets						59,973						59,973						—						—						—
Total assets at recurring estimated fair value						$	15,413,459					$	59,973					$	15,185,141					$	—					$	168,345
Derivative liabilities:
Interest-rate related						$	10,011					$	—					$	392,000					$	—					$	(381,989)
MDCs						92						—						92						—						—
Total derivative liabilities, net						10,103						—						392,092						—						(381,989)
Total liabilities at recurring estimated fair value						$	10,103					$	—					$	392,092					$	—					$	(381,989)
Mortgage loans held for portfolio (2)						$	1,141					$	—					$	—					$	1,141					$	—
Total assets at non-recurring estimated fair value						$	1,141					$	—					$	—					$	1,141					$	—

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

																														Netting
December 31, 2020						Total						Level 1						Level 2						Level 3						Adjustments (1)
Trading securities:
U.S. Treasury securities						$	5,094,703					$	—					$	5,094,703					$	—					$	—
Total trading securities						5,094,703						—						5,094,703						—						—
AFS securities:
GSE and TVA debentures						3,503,137						—						3,503,137						—						—
GSE MBS						6,641,762						—						6,641,762						—						—
Total AFS securities						10,144,899						—						10,144,899						—						—
Derivative assets:
Interest-rate related						282,060						—						19,535						—						262,525
MDCs						1,022						—						1,022						—						—
Total derivative assets, net						283,082						—						20,557						—						262,525
Other assets:
Grantor trust assets						51,032						51,032						—						—						—
Total assets at recurring estimated fair value						$	15,573,716					$	51,032					$	15,260,159					$	—					$	262,525
Derivative liabilities:
Interest-rate related						$	22,979					$	—					$	762,997					$	—					$	(740,018)
MDCs						—						—						—						—						—
Total derivative liabilities, net						22,979						—						762,997						—						(740,018)
Total liabilities at recurring estimated fair value						$	22,979					$	—					$	762,997					$	—					$	(740,018)
Mortgage loans held for portfolio (3)						$	1,460					$	—					$	—					$	1,460					$	—
Total assets at non-recurring estimated fair value						$	1,460					$	—					$	—					$	1,460					$	—

(1)    Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed with the same clearing agent and/or counterparty.

(2)    Amounts are as of the date the fair-value adjustment was recorded during the six months ended June 30, 2021.

(3)    Amounts are as of the date the fair-value adjustment was recorded during the year ended December 31, 2020.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 13 - Commitments and Contingencies

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

						June 30, 2021
Type of Commitment						Expire within one year						Expire after one year						Total
Standby letters of credit outstanding						$	60,405					$	304,577					$	364,982
Unused lines of credit (1)						813,721						—						813,721
Commitments to fund additional advances (2)						4,000						—						4,000
Commitments to fund or purchase mortgage loans, net (3)						139,713						—						139,713
Unsettled CO bonds, at par						453,000						—						453,000

(1)    Maximum line of credit amount per member is $100,000.

(2)    Generally for periods up to six months.

(3)    Generally for periods up to 91 days.

Liability for Credit Losses. We monitor the creditworthiness of our members that have standby letters of credit and lines of credit. As standby letters of credit and lines of credit are subject to the same collateralization and borrowing limits that apply to advances and are fully collateralized at the time of issuance, we have not recorded a liability for credit losses on these credit products.

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

Additional discussion of other commitments and contingencies is provided in Note 4 - Advances; Note 5 - Mortgage Loans Held for Portfolio; Note 6 - Derivatives and Hedging Activities; Note 7 - Consolidated Obligations; Note 9 - Capital; and Note 12 - Estimated Fair Values.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 14 - Related Party and Other Transactions

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

						June 30, 2021												December 31, 2020
Balances with Directors' Financial Institutions						Par value						% of Total						Par value						% of Total
Capital stock						$	433,736					18		%				$	426,003					17		%
Advances						3,387,988						12		%				5,397,433						18		%

The par values at June 30, 2021 reflect changes in the composition of directors' financial institutions effective January 1, 2021, due to changes in board membership resulting from the 2020 director election.

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

Transactions with Directors' Financial Institutions						Three Months Ended June 30,												Six Months Ended June 30,
						2021						2020						2021						2020
Net capital stock issuances (redemptions and repurchases)						$	—					$	71,775					$	—					$	77,621
Net advances (repayments)						(993,987)						(2,757,963)						(2,043,264)						(720,232)
Mortgage loan purchases						16,745						14,512						29,622						26,864

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

						Three Months Ended June 30,												Six Months Ended June 30,
Loans to other FHLBanks						2021						2020						2021						2020
Principal repayments						$	10,000					$	10,000					$	20,000					$	20,000
Disbursements						(10,000)						(10,000)						(20,000)						(20,000)

There were no loans to or borrowings from other FHLBanks outstanding at June 30, 2021 or December 31, 2020.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

DEFINED TERMS

2005 SERP: Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Retirement Plan, as amended

ABS: Asset-Backed Securities

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

AFS: Available-for-Sale

Agency: GSE and Ginnie Mae

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

CARES Act: Coronavirus Aid, Relief and Economic Security Act

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 Finance Agency 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

COVID-19: Coronavirus Disease 2019

DB Plan: Pentegra Defined Benefit Pension Plan for Financial Institutions, as amended

DC Plan: Collectively, the Pentegra Defined Contribution Retirement Savings Plan for Financial Institutions, as amended, in effect through October 1, 2020 and the Federal Home Loan Bank of Indianapolis Retirement Savings Plan, commencing October 2, 2020

DDCP: Directors' Deferred Compensation Plan

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

EFFR: Effective Federal Funds Rate

Exchange Act: Securities Exchange Act of 1934, as amended

Fannie Mae: Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FCA: United Kingdom Financial Conduct Authority

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 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

Freddie Mac: Federal Home Loan Mortgage Corporation

Frozen SERP: Federal Home Loan Bank of Indianapolis Supplemental Executive Retirement Plan, frozen effective December 31, 2004

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

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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

KESP: Key Employee Severance Policy

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

SBA: Small Business Administration

SEC: Securities and Exchange Commission

Securities Act: Securities Act of 1933, as amended

SERP: Collectively, the 2005 SERP and the Frozen SERP

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

SMI: Supplemental Mortgage Insurance

SOFR: Secured Overnight Financing Rate

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

WAIR: Weighted-Average Interest Rate

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

Presentation 

This discussion and analysis by management of the Bank's financial condition and results of operations should be read in conjunction with our 2020 Form 10-K and the interim Financial Statements and related Notes to Financial Statements contained in Item 1. Financial Statements.

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

Executive Summary

 

Overview. As an FHLBank, we are a regional wholesale bank that serves as a financial intermediary between the capital markets and our members. The Bank is structured as a financial cooperative. Therefore, it is generally designed to expand and contract in asset size as the needs of our members and their communities change. We primarily make secured loans in the form of advances to our members and purchase whole mortgage loans from our members. Additionally, we purchase other investments and provide other financial services to our members.

Our principal source of funding is the proceeds from the sale to the public of FHLBank debt instruments, called consolidated obligations, which are the joint and several obligation of all FHLBanks. We obtain additional funds from deposits, other borrowings, and by issuing capital stock to our members.

Our primary source of revenue is interest earned on advances, mortgage loans, and investments, including MBS.

 

Our net interest income is primarily determined by the spread between the interest rate earned on our assets and the interest rate paid on our share of the consolidated obligations. A substantial portion of net interest income is also derived from deploying our interest-free capital. We use funding and hedging strategies to manage the related interest-rate risk.

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

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

Business Environment. The Bank’s financial performance is influenced by several key regional and national economic and market factors, including fiscal and monetary policies, the strength of the housing markets and the level and volatility of market interest rates.

Economy and Financial Markets. The federal government has enacted several financial relief programs to help offset declines in business and family incomes. The American Rescue Plan Act of 2021, the third major COVID-19 relief bill, was passed by the U.S. Congress in March 2021. This legislation and presidential initiatives provide significant financial relief to businesses and individuals affected by the COVID-19 pandemic, including extending unemployment assistance programs to September 6, 2021.

In July 2021, the Bureau of Labor Statistics reported that the U.S. unemployment rate had declined to 5.9% in June 2021,

compared to 6.0% in March 2021 and 6.7% in December 2020. If COVID-19 vaccines continue to be successfully administered and the virus, along with its variants, is effectively contained, business conditions are expected to continue to improve and the unemployment rate could continue to decline in the United States.

U.S. real gross domestic product ("GDP") increased at an annual rate of 6.3% and 6.5% in the first and second quarters of 2021, according to the revised and advance estimates, respectively, reported by the Bureau of Economic Analysis, compared to the revised annual rates of (5.1)% and (31.2)% in the first and second quarters of 2020. Improvements in unemployment rates and GDP during 2021 reflect the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. However, the recent increase in the number of COVID-19 cases could impede future economic growth.

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Conditions in U.S. Housing Markets. The seasonally adjusted annual rate of U.S. existing home sales increased in the second quarter of 2021, compared to the second quarter of 2020, driven primarily by low mortgage interest rates. However, low housing inventory levels and higher home prices in the second quarter of 2021 continued to constrain sales growth.

Interest Rate Levels and Volatility. The level and volatility of interest rates and credit spreads were affected by several factors during the three and six months ended June 30, 2021, principally the continued economic recovery from the COVID-19 pandemic and efforts in response by the Federal Reserve to maintain low short-term interest rates and facilitate liquidity. Overall economic conditions and financial regulation also continue to be influencing factors.

On March 15, 2020, the FOMC lowered the federal funds rate in an unscheduled meeting to a target range of 0.0% to 0.25%, noting that the COVID-19 pandemic had harmed communities and disrupted economic activity in many countries, including the United States. In its July 2021 meeting, the FOMC stated that the path of the U.S. economy will depend significantly on the course of the COVID-19 pandemic, including progress on vaccinations, and that it is committed to using its full range of tools to support the U.S. economy in this challenging time. As a result, the FOMC decided to maintain the target range of the federal funds rate at 0.0% to 0.25% and continue its purchasing of Treasury securities and Agency MBS.

The following table presents certain key interest rates.

						Three-Month Average												Six-Month Average												Period End
						June 30,												June 30,												June 30,						December 31,
						2021						2020						2021						2020						2021						2020
Federal Funds Effective						0.07		%				0.06		%				0.07		%				0.64		%				0.08		%				0.09		%
SOFR						0.02		%				0.05		%				0.03		%				0.63		%				0.05		%				0.07		%
Overnight LIBOR						0.07		%				0.07		%				0.07		%				0.65		%				0.09		%				0.08		%
1-week OIS						0.07		%				0.06		%				0.07		%				0.63		%				0.10		%				0.09		%
3-month LIBOR						0.16		%				0.60		%				0.18		%				1.07		%				0.15		%				0.24		%
3-month U.S. Treasury yield						0.02		%				0.13		%				0.03		%				0.62		%				0.04		%				0.07		%
2-year U.S Treasury yield						0.17		%				0.19		%				0.15		%				0.64		%				0.25		%				0.12		%
10-year U.S. Treasury yield						1.58		%				0.68		%				1.45		%				1.03		%				1.47		%				0.92		%

The averages of short-term interest rates remained low and were little changed in the three months ended June 30, 2021, compared to the same period in 2020; however, average 3-month LIBOR and 3-month U.S. Treasury rates were lower in the second quarter of 2021. The averages of short-term interest rates were significantly lower during the six months ended June 30, 2021, compared to the same period in 2020, impacting the Bank's results of operations, primarily by decreasing both interest income and interest expense. In addition, changes in the short- and long-term interest rates impacted the fair values of certain assets and liabilities. The prevailing expectation of prolonged low interest rates will likely continue to be a significant factor driving the Bank's results of operations and changes in its financial condition.

Impact on Operating Results. Market interest rates and trends affect yields and margins on earning assets, including advances, purchased mortgage loans, and our investment portfolio, which contribute to our overall profitability. Additionally, market interest rates drive mortgage origination and prepayment activity, which can lead to net interest margin volatility in our MPP and MBS portfolios. A flat or inverted yield curve, in which the difference between short-term interest rates and long-term interest rates is low, or negative, respectively, can have an unfavorable impact on our net interest margins. A steep yield curve, in which the difference between short-term and long-term interest rates is high, can have a favorable impact on our net interest margins. The level of interest rates also directly affects our earnings on assets funded by our interest-free capital.

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

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Selected Financial Data

 

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

						As of and for the Three Months Ended
						June 30, 2021						March 31, 2021						December 31, 2020						September 30, 2020						June 30, 2020
Statement of Condition:
Advances						$	27,633					$	29,784					$	31,347					$	31,264					$	34,848
Mortgage loans held for portfolio, net						7,737						8,057						8,516						9,237						10,083
Cash and short-term investments						7,268						8,873						5,627						5,639						5,791
Investment securities						19,689						19,480						19,941						19,695						19,817
Total assets						62,771						66,680						65,925						66,342						71,070
Discount notes						14,445						17,573						16,617						19,462						28,234
CO bonds						42,363						42,794						43,333						41,148						36,973
Total consolidated obligations						56,808						60,367						59,950						60,610						65,207
MRCS						233						233						251						262						300
Capital stock						2,234						2,214						2,208						2,224						2,194
Retained earnings						1,157						1,153						1,137						1,124						1,128
AOCI						193						180						105						74						(4)
Total capital						3,584						3,547						3,450						3,422						3,318
Statement of Income:
Net interest income						$	57					$	75					$	72					$	61					$	67
Provision for (reversal of) credit losses						—						—						—						—						—
Other income (loss)						(10)						(13)						(9)						(17)						(25)
Other expenses						28						29						30						27						26
AHP assessments						2						3						4						2						2
Net income						$	17					$	30					$	29					$	15					$	14
Selected Financial Ratios:
Net interest margin (1)						0.36		%				0.44		%				0.43		%				0.35		%				0.37		%
Return on average equity (2)						1.94		%				3.40		%				3.49		%				1.70		%				1.64		%
Return on average assets (2)						0.11		%				0.18		%				0.18		%				0.08		%				0.07		%
Weighted average dividend rate (3)						2.57		%				2.50		%				3.00		%				3.50		%				4.00		%
Dividend payout ratio (4)						81.59		%				46.70		%				55.32		%				126.01		%				150.84		%
Average equity to average assets						5.47		%				5.24		%				5.19		%				4.86		%				4.39		%
Total capital ratio (5)						5.71		%				5.32		%				5.23		%				5.16		%				4.67		%
Total regulatory capital ratio (6)						5.77		%				5.40		%				5.45		%				5.44		%				5.10		%

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

(2)    Annualized, as appropriate.

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

(4)    Dividends paid in cash during the period divided by net income for the period. By dividing dividends paid in cash during the period by the net income for the prior period, the dividend payout ratios for each of the three months ended June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020 and June 30, 2020 would be 47%, 46%, 112%, 143% and 67%, respectively.

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

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

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Results of Operations and Changes in Financial Condition

 

Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020. The following table presents the comparative highlights of our results of operations ($ amounts in millions).

						Three Months Ended June 30,																								Six Months Ended June 30,
Condensed Statements of Comprehensive Income						2021						2020						$ Change						% Change						2021						2020						$ Change						% Change
Net interest income						$	57					$	67					$	(10)					(15)		%				$	132					$	131					$	1					1		%
Provision for (reversal of) credit losses						—						—						—												—						—						—
Net interest income after provision for credit losses						57						67						(10)						(15)		%				132						131						1						1		%
Other income (loss)						(10)						(25)						15												(23)						(30)						7
Other expenses						28						27						1												57						53						4
Income before assessments						19						15						4						28		%				52						48						4						9		%
AHP assessments						2						2						—												5						5						—
Net income						17						13						4						30		%				47						43						4						10		%
Total other comprehensive income (loss)						13						77						(64)												88						(72)						160
Total comprehensive income (loss)						$	30					$	90					$	(60)					(66)		%				$	135					$	(29)					$	164					570		%

Net income for the three months ended June 30, 2021 was $17.1 million, an increase of $3.9 million compared to the corresponding period in the prior year. The increase was primarily due to lower net hedging losses on qualifying fair-value hedging relationships, lower accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans, and an increase in net earnings on trading securities, partially offset by lower net interest income resulting from narrower interest spreads and the decline in average asset balances.

Net income for the six months ended June 30, 2021 was $47.0 million, an increase of $4.3 million compared to the corresponding period in the prior year. The increase was primarily due to net hedging gains on qualifying fair-value hedging relationships, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the decline in average asset balances.

Total other comprehensive income for the three months ended June 30, 2021 was $13.4 million, a decrease of $64.0 million compared to the corresponding period in the prior year. The decrease was due to lower net unrealized gains on AFS securities.

Total other comprehensive income for the six months ended June 30, 2021 was $88.0 million, an increase of $159.5 million compared to the corresponding period in the prior year. The increase was due to net unrealized gains on AFS securities in 2021.

Non-GAAP Financial Measure

The Bank reports its results of operations in accordance with GAAP. Management believes that a non-GAAP financial measure may also be useful to shareholders and other stakeholders as a key measure of its operating performance. Such measure can also provide additional insights into period-to-period comparisons of the Bank's operating results beyond its GAAP results, which are impacted by temporary changes in fair value and other factors driven by market volatility that hinder consistent performance measurement. The Bank is reporting adjusted net income as that non-GAAP financial measure.

Adjusted net income represents GAAP net income adjusted to exclude: (i) the mark-to-market adjustments and other transitory effects from derivatives and trading/hedging activities, (ii) interest expense on MRCS, (iii) realized gains and losses on sales of investment securities, and (iv) at the discretion of management, other eligible non-routine transactions. These adjustments reflect (i) the temporary nature of fair-value and certain other hedging gains (losses) due to the Bank's practice of holding its financial instruments to maturity, (ii) the reclassification of interest on MRCS as dividends and (iii) the non-routine sale of investment securities, primarily for liquidity purposes or to reduce exposure to LIBOR-indexed instruments, the gains (losses) on which arise from accelerating the recognition of future income (expense).

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Non-GAAP financial measures are not audited. In addition, non-GAAP financial measures have no standardized measurement prescribed by GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. While the Bank believes that adjusted net income is helpful in understanding the Bank's performance, this measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyses of earnings reported in accordance with GAAP.

The following table presents a reconciliation of the Bank's GAAP net income to adjusted net income ($ amounts in millions):

						Three Months Ended June 30,												Six Months Ended June 30,
Reconciliation of Net Income						2021						2020						2021						2020
GAAP net income						$	17.1					$	13.2					$	47.0					$	42.7
Adjustments to exclude:
Fair-value hedging (gains) losses (1)						5.6						18.8						(13.0)						22.4
Amortization/accretion of (gains) losses on active and discontinued fair-value hedging relationships (2)						7.5						(0.7)						12.9						(1.2)
Trading (gains) losses, net of economic hedging gains (losses)						10.1						8.9						19.1						(0.7)
Net unrealized (gains) losses on other economic hedges						0.1						(0.5)						0.5						(0.7)
Interest expense on MRCS						0.9						2.8						2.0						5.7
Total adjustments						24.2						29.3						21.5						25.5
AHP assessments on adjustments						(2.3)						(2.7)						(1.9)						(1.9)
Adjusted net income (non-GAAP measure)						$	39.0					$	39.8					$	66.6					$	66.3

(1)     Changes in fair value on hedged items (attributable to the risk being hedged) and associated derivatives in qualifying hedging relationships.

(2)     Gains (losses) resulting from cumulative basis adjustments on hedged items.

Adjusted net income for the three months ended June 30, 2021 was $39.0 million, a decrease of $0.8 million compared to the corresponding period in the prior year. The decrease was primarily due to lower net interest income resulting from narrower interest spreads and the decline in average asset balances, substantially offset by higher earnings (excluding net gains and losses) on trading securities and lower accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans.

Adjusted net income for the six months ended June 30, 2021 was $66.6 million, an increase of $0.3 million compared to the corresponding period in the prior year. The increase was primarily due to higher earnings (excluding net gains and losses) on trading securities, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the decline in average asset balances.

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Changes in Financial Condition for the Six Months Ended June 30, 2021. The following table presents the comparative

highlights of our changes in financial condition ($ amounts in millions).

Condensed Statements of Condition						June 30, 2021						December 31, 2020						$ Change						% Change
Advances						$	27,633					$	31,347					$	(3,714)					(12)		%
Mortgage loans held for portfolio, net						7,737						8,516						(779)						(9)		%
Cash and short-term investments (1)						7,268						5,627						1,641						29		%
Investment securities and other assets (2)						20,133						20,435						(302)						(1)		%
Total assets						$	62,771					$	65,925					$	(3,154)					(5)		%
Consolidated obligations						$	56,808					$	59,950					$	(3,142)					(5)		%
MRCS						233						251						(18)						(7)		%
Other liabilities						2,146						2,274						(128)						(6)		%
Total liabilities						59,187						62,475						(3,288)						(5)		%
Capital stock						2,234						2,208						26						1		%
Retained earnings (3)						1,157						1,137						20						2		%
AOCI						193						105						88						84		%
Total capital						3,584						3,450						134						4		%
Total liabilities and capital						$	62,771					$	65,925					$	(3,154)					(5)		%
Total regulatory capital (4)						$	3,624					$	3,596					$	28					1		%

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

(2)    Includes trading, AFS and HTM securities.

(3)    Includes restricted retained earnings at June 30, 2021 and December 31, 2020 of $278 million and $268 million, respectively.

(4)    Total capital less AOCI plus MRCS.

Total assets at June 30, 2021 were $62.8 billion, a net decrease of $3.2 billion, or 5%, from December 31, 2020, driven primarily by a net decrease in advances, partially offset by a net increase in the liquidity portfolio.

Advances outstanding at June 30, 2021, at carrying value, totaled $27.6 billion, a net decrease of $3.7 billion, or 12%, from December 31, 2020.

Mortgage loans held for portfolio at June 30, 2021 totaled $7.7 billion, a net decrease of $779 million, or 9%, from December 31, 2020, as principal repayments by borrowers significantly outpaced the Bank's purchases during the period.

The liquidity portfolio at June 30, 2021 totaled $13.1 billion, a net increase of $2.4 billion, or 22%, from December 31, 2020. Cash and short-term investments increased by $1.6 billion, or 29%, to $7.3 billion. U.S. Treasury securities, classified as trading securities, increased by $722 million, or 14%, to $5.8 billion. As a result, cash and short-term investments represented 56% of the liquidity portfolio at June 30, 2021, while U.S. Treasury securities represented 44%.

FHLBank Indianapolis' consolidated obligations outstanding at June 30, 2021 totaled $56.8 billion, a net decrease of $3.1 billion, or 5%, from December 31, 2020, which reflected the net decrease in the Bank's total assets.

Total capital at June 30, 2021 was $3.6 billion, a net increase of $134 million, or 4%, from December 31, 2020, substantially due to an increase in unrealized gains on our AFS securities.

The Bank's regulatory capital-to-assets ratio at June 30, 2021 was 5.77%, which exceeds all applicable regulatory capital requirements.

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Analysis of Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020.

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

			Three Months Ended June 30,
			2021																		2020
			Average Balance						Interest Income/ Expense (1)						Average Yield (1) (2)						Average Balance						Interest Income/ Expense (1)						Average Yield (1) (2)
Assets:
Federal funds sold and securities purchased under agreements to resell			$	7,219					$	1					0.05		%				$	4,608					$	1					0.05		%
Investment securities (3)			19,607						43						0.89		%				20,248						59						1.17		%
Advances (4)			29,010						28						0.39		%				36,207						77						0.85		%
Mortgage loans held for portfolio (4) (5)			7,875						40						2.04		%				10,423						58						2.28		%
Other assets (interest-earning) (6)			731						—						0.07		%				1,555						—						0.08		%
Total interest-earning assets			64,442						112						0.70		%				73,041						195						1.07		%
Other assets (7)			571																		831
Total assets			$	65,013																	$	73,872
Liabilities and Capital:
Interest-bearing deposits			$	1,694					—						0.01		%				$	1,560					—						0.01		%
Discount notes			16,497						2						0.04		%				29,757						28						0.37		%
CO bonds (4)			42,319						52						0.50		%				38,139						97						1.03		%
MRCS			233						1						1.60		%				305						3						3.66		%
Total interest-bearing liabilities			60,743						55						0.37		%				69,761						128						0.74		%
Other liabilities			716																		867
Total capital			3,554																		3,244
Total liabilities and capital			$	65,013																	$	73,872
Net interest income									$	57																	$	67
Net spread on interest-earning assets less interest-bearing liabilities (2)															0.33		%																0.33		%
Net interest margin (8)															0.36		%																0.37		%
Average interest-earning assets to interest-bearing liabilities			1.06																		1.05

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			Six Months Ended June 30,
			2021																		2020
			Average Balance						Interest Income/ Expense (1)						Average Yield/ Cost of Funds (1) (2)						Average Balance						Interest Income/ Expense (1)						Average Yield/Cost of Funds (1) (2)
Assets:
Federal funds sold and securities purchased under agreements to resell			$	7,757					$	2					0.05		%				$	5,200					$	20					0.76		%
Investment securities (3)			19,817						99						1.01		%				19,940						148						1.50		%
Advances (4)			29,317						65						0.44		%				34,476						246						1.43		%
Mortgage loans held for portfolio (4) (5)			8,077						80						2.01		%				10,583						141						2.68		%
Other assets (interest-earning) (6)			816						—						0.07		%				1,581						5						0.64		%
Total interest-earning assets			65,784						246						0.76		%				71,780						560						1.57		%
Other assets (7)			743																		405
Total assets			$	66,527																	$	72,185
Liabilities and Capital:
Interest-bearing deposits			$	1,602					—						0.01		%				$	1,457					2						0.39		%
Discount notes			17,629						6						0.07		%				24,920						100						0.81		%
CO bonds (4)			42,770						106						0.50		%				41,280						321						1.56		%
MRCS			238						2						1.73		%				314						6						3.68		%
Total interest-bearing liabilities			62,239						114						0.37		%				67,971						429						1.27		%
Other liabilities			727																		1,031
Total capital			3,561																		3,183
Total liabilities and capital			$	66,527																	$	72,185
Net interest income									$	132																	$	131
Net spread on interest-earning assets less interest-bearing liabilities (2)															0.39		%																0.30		%
Net interest margin (8)															0.40		%																0.36		%
Average interest-earning assets to interest-bearing liabilities			1.06																		1.06

(1)    Hedging gains (losses) on qualifying fair-value hedging relationships are reported in net interest income.

(2)    Annualized. 

(3)    Consists of trading, AFS and HTM securities. The average balances of AFS securities are based on amortized cost; therefore, the resulting yields do not reflect changes in the estimated fair value that are a component of OCI. Interest income/expense and average yield/cost of funds includes all other components of interest, including the impact of net interest payments or receipts on derivatives in qualifying hedging relationships and amortization of hedge accounting basis adjustment. Excluded are net interest payment or receipts on derivatives in economic hedging relationships.

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

(5)    Includes non-accrual loans.

(6)    Consists of interest-bearing deposits and loans to other FHLBanks (if applicable). Includes the rights or obligations to cash collateral, except for variation margin payments characterized as daily settled contracts.

(7)    Includes changes in the estimated fair value of AFS securities and grantor trust assets.

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

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The decrease in net interest income for the three months ended June 30, 2021 compared to the corresponding period in 2020 was primarily due to narrower interest spreads and the decline in average asset balances, partially offset by lower net hedging losses on qualifying fair-value hedging relationships and lower accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans. Net interest income for the three months ended June 30, 2021 included net hedging losses of $6 million, compared to net hedging losses for the corresponding period in 2020 of $19 million.

The increase in net interest income for the six months ended June 30, 2021 compared to the corresponding period in 2020 was due to net hedging gains on qualifying fair-value hedging relationships, substantially offset by lower interest income on the portion of the Bank's assets funded by its capital, narrower interest spreads, and the decline in average asset balances. Net interest income for the six months ended June 30, 2021 included net hedging gains of $13 million, compared to net hedging losses for corresponding period in 2020 of $22 million.

Yields/Cost of Funds. The average yield on total interest-earning assets for the three months ended June 30, 2021, including the impact of hedging gains and losses, was 0.70%, a decrease of 37 bps compared to the corresponding period in 2020, resulting primarily from decreases in market interest rates that led to lower yields on all of our interest-earning assets. The average cost of funds of total interest-bearing liabilities for the three months ended June 30, 2021, including the impact of hedging gains and losses, was 0.37%, a decrease of 37 bps due to lower funding costs on our consolidated obligations. The net effect was no change in the overall net interest spread between the two periods.

The average yield on total interest-earning assets for the six months ended June 30, 2021, including the impact of hedging gains and losses, was 0.76%, a decrease of 81 bps compared to the corresponding period in 2020, resulting primarily from decreases in market interest rates that led to lower yields on all of our interest-earning assets. The average cost of funds of total interest-bearing liabilities for the six months ended June 30, 2021, including the impact of hedging gains and losses, was 0.37%, a decrease of 90 bps due to lower funding costs on our consolidated obligations. The net effect was an increase in the overall net interest spread of 9 bps to 0.39% from 0.30% for the corresponding period in 2020.

Average Balances. The average balances outstanding of interest-earning assets for the three months ended June 30, 2021 decreased by 12% compared to the corresponding period in 2020. The average balances of advances and mortgage loans decreased by 20% and 24%, respectively, reflecting paydowns by our borrowers. The decrease in average interest-bearing liabilities reflected the decrease in average interest-earning assets. The average balances of total interest-earning assets, net of interest-bearing liabilities, increased by 13%.

The average balances outstanding of interest-earning assets for the six months ended June 30, 2021 decreased by 8% compared to the corresponding period in 2020. The average balances of advances and mortgage loans decreased by 15% and 24%, respectively, reflecting paydowns by our borrowers. The decrease in average interest-bearing liabilities reflected the decrease in average interest-earning assets. The average balances of total interest-earning assets, net of interest-bearing liabilities, decreased by 7%.

Provision for Credit Losses. The change in the provisions for (reversal of) credit losses for the three and six months ended June 30, 2021 compared to the corresponding periods in 2020 was insignificant.

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

						Three Months Ended June 30,												Six Months Ended June 30,
Components						2021						2020						2021						2020
Net unrealized gains (losses) on trading securities (1)						$	(13)					$	(40)					$	(29)					$	8
Net realized gains (losses) on trading securities (1)						(1)						11						2						13
Net gains (losses) on derivatives hedging trading securities						3						19						8						(21)
Net gains (losses) on trading securities, net of associated derivatives						(11)						(10)						(19)						—
Net interest settlements on derivatives						(3)						(20)						(8)						(29)
Net gains (losses) on other derivatives not designated as hedging instruments						—						—						(1)						(2)
Change in fair value of investments indirectly funding our SERP						3						3						4						(1)
Other, net						1						2						1						2
Total other income (loss)						$	(10)					$	(25)					$	(23)					$	(30)

(1)    Before impact of associated derivatives. 

The decreases in total other loss for the three and six months ended June 30, 2021 compared to the corresponding periods in 2020 were primarily due to lower net interest settlement expense on derivatives.

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

						Three Months Ended June 30,												Six Months Ended June 30,
Components						2021						2020						2021						2020
Compensation and benefits						$	14					$	15					$	30					$	30
Other operating expenses						7						8						15						15
Finance Agency and Office of Finance						3						2						6						5
Other						4						2						6						3
Total other expenses						$	28					$	27					$	57					$	53

The increases in other expenses for the three and six months ended June 30, 2021 compared to the corresponding periods in 2020 were primarily due to higher non-service costs associated with our non-qualified defined benefit supplemental retirement plan.

Total Other Comprehensive Income (Loss). Total OCI for the three months ended June 30, 2021 consisted primarily of a change in net pension benefits, compared to net unrealized gains on AFS securities for the corresponding period in 2020.

Total OCI for the six months ended June 30, 2021 consisted substantially of net unrealized gains on AFS securities, compared to net unrealized losses on AFS securities for the corresponding period in 2020. These amounts were primarily impacted by changes in interest rates, credit spreads and volatility, which were magnified by the disruptions in the financial markets during 2020.

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Operating Segments

 

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

 

Traditional. The following table presents the financial performance of our traditional segment ($ amounts in millions). 

						Three Months Ended June 30,												Six Months Ended June 30,
Traditional						2021						2020						2021						2020
Net interest income						$	53					$	62					$	128					$	113
Provision for (reversal of) credit losses						—						—						—						—
Other income (loss)						(10)						(25)						(23)						(27)
Other expenses						24						23						49						45
Income before assessments						19						14						56						41
AHP assessments						2						2						5						5
Net income						$	17					$	12					$	51					$	36

The increase in net income for the traditional segment for the three months ended June 30, 2021 compared to the corresponding period in 2020 was primarily due to lower net hedging losses on qualifying fair-value hedging relationships and an increase in net earnings on trading securities, partially offset by lower net interest income resulting from narrower spreads and the decline in average asset balances.

The increase in net income for the traditional segment for the six months ended June 30, 2021 compared to the corresponding period in 2020 was primarily due to net hedging gains on qualifying fair-value hedging relationships, substantially offset by lower net earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the decline in average asset balances.

Mortgage Loans. The following table presents the financial performance of our mortgage loans segment ($ amounts in millions). 

						Three Months Ended June 30,												Six Months Ended June 30,
Mortgage Loans						2021						2020						2021						2020
Net interest income						$	4					$	5					$	4					$	18
Provision for (reversal of) credit losses						—						—						—						—
Other income (loss)						—						—						—						(3)
Other expenses						4						4						8						8
Income (loss) before assessments						—						1						(4)						7
AHP assessments (credits)						—						—						—						—
Net income (loss)						$	—					$	1					$	(4)					$	7

The decrease in net income for the mortgage loans segment for the three months ended June 30, 2021 compared to the corresponding period in 2020 was due to lower net interest income resulting from narrower interest spreads and the decline in the average asset balance, substantially offset by lower accelerated amortization of purchase premium resulting from lower MPP loan prepayments.

The decrease in net income for the mortgage loans segment for the six months ended June 30, 2021 compared to the corresponding period in 2020 was due to lower net interest income resulting from narrower interest spreads and the decline in the average asset balance.

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Analysis of Financial Condition

 

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

						June 30, 2021												December 31, 2020
Major Asset Categories						Carrying Value						% of Total						Carrying Value						% of Total
Advances						$	27,633					44		%				$	31,347					48		%
Mortgage loans held for portfolio, net						7,737						12		%				8,516						13		%
Cash and short-term investments						7,268						12		%				5,627						9		%
Trading securities						5,817						9		%				5,095						8		%
Other investment securities						13,872						22		%				14,846						22		%
Other assets (1)						444						1		%				494						—		%
Total assets						$	62,771					100		%				$	65,925					100		%

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

The mix of our assets at June 30, 2021 changed compared to December 31, 2020 in that advances as a percent of total assets declined from 48% to 44% while cash and short-term investments increased from 9% to 12%, reflecting primarily the paydowns of short-term advances.

Advances. In general, advances fluctuate in accordance with our members' funding needs, primarily determined by their deposit levels, mortgage pipelines, loan growth, investment opportunities, available collateral, other balance sheet strategies, and the cost of alternative funding options.

Advances at June 30, 2021 at carrying value totaled $27.6 billion, a net decrease of $3.7 billion, or 12%, compared to December 31, 2020. The high levels of liquidity injected by the Federal Reserve and held by our members as deposits accompanied by their low loan demand, alternative sources of wholesale funds available to our members, continued consolidation in the financial services industry involving our members, and governmental relief efforts continue to pressure overall advance levels.

The par value of advances to depository institutions - comprising commercial banks, savings institutions and credit unions - and insurance companies decreased by 19% and 1%, respectively. Advances to depository institutions, as a percent of total advances outstanding at par value, were 52% at June 30, 2021, while advances to insurance companies were 48%.

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

						June 30, 2021												December 31, 2020
Borrower Type						Par Value						% of Total						Par Value						% of Total
Depository institutions:
Commercial banks and savings institutions (1)						$	11,715					43		%				$	14,749					48		%
Credit unions						2,318						8		%				2,548						8		%
Former members - depositories						226						1		%				268						1		%
Total depository institutions						14,259						52		%				17,565						57		%
Insurance companies:
Insurance companies						12,677						47		%				12,832						42		%
Former members - insurance						293						1		%				294						1		%
Total insurance companies						12,970						48		%				13,126						43		%
CDFIs						—						—		%				—						—		%
Total advances outstanding						$	27,229					100		%				$	30,691					100		%

(1)    Includes advances outstanding at June 30, 2021 and December 31, 2020 of $2.6 billion, or 10%, and $4.6 billion, or 15%, of total advances outstanding, respectively, to Flagstar Bank, FSB ("Flagstar"). The parent company of Flagstar announced a merger pursuant to which Flagstar would merge with a non-member depository. On the effective date of Flagstar's merger, any outstanding advances will be required to be repaid at their respective maturity dates. For more information, see Item 1A. Risk Factors.

Captive insurance companies that were admitted as FHLBank members prior to September 12, 2014, and did not meet the definition of "insurance company" or fall within another category of institution that is eligible for FHLBank membership under the Final Membership Rule, had their memberships terminated on February 19, 2021. The outstanding advances to one captive insurer at June 30, 2021 totaling $288 million are not required to be repaid prior to their various maturity dates through 2024.

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The following table presents the par value of advances outstanding by product type and redemption term, some of which contain call or put options ($ amounts in millions).

						June 30, 2021												December 31, 2020
Product Type and Redemption Term						Par Value						% of Total						Par Value						% of Total
Fixed-rate:
Fixed-rate (1)
Due in 1 year or less						$	7,453					28		%				$	10,023					33		%
Due after 1 year						6,978						26		%				7,998						26		%
Total						14,431						54		%				18,021						59		%
Putable
Due in 1 year or less						—						—		%				—						—		%
Due after 1 year						7,165						26		%				7,252						24		%
Total						7,165						26		%				7,252						24		%
Other (2)
Due in 1 year or less						23						—		%				32						—		%
Due after 1 year						135						—		%				147						—		%
Total						158						—		%				179						—		%
Total fixed-rate						21,754						80		%				25,452						83		%
Variable-rate:
Variable-rate (1)
Due in 1 year or less						370						1		%				24						—		%
Due after 1 year						—						—		%				—						—		%
Total						370						1		%				24						—		%
Callable or prepayable
Due in 1 year or less						78						—		%				36						—		%
Due after 1 year						5,026						19		%				5,179						17		%
Total						5,104						19		%				5,215						17		%
Total variable-rate						5,474						20		%				5,239						17		%
Overdrawn demand and overnight deposit accounts						1						—		%				—						—		%
Total advances						$	27,229					100		%				$	30,691					100		%

(1)     Includes advances without call or put options.

(2)    Includes callable or prepayable advances and hybrid, fixed-rate amortizing/mortgage matched advances.

During the six months ended June 30, 2021, the par value of advances due in one year or less decreased by 22%, while advances due after one year decreased by 6%. As a result, advances due in one year or less, as a percentage of the total outstanding at par, totaled 29% at June 30, 2021, a decrease from 33% at December 31, 2020. For additional information, see Notes to Financial Statements - Note 4 - Advances.

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Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio at June 30, 2021, at carrying value, totaled $7.7 billion, a net decrease of $779 million, or 9%, from December 31, 2020, as principal repayments by borrowers significantly outpaced the Bank's purchases. For the six months ended June 30, 2021, purchases of mortgage loans from the Bank's members under Advantage MPP totaled $1.1 billion, while MPP and MPF program repayments totaled $1.8 billion. In addition to low interest rates, ongoing Federal Reserve purchases of Fannie Mae and Freddie Mac MBS encourage continuing refinancing activity by borrowers.

A breakdown of the UPB of mortgage loans held for portfolio by primary product type is presented below ($ amounts in millions).

						June 30, 2021												December 31, 2020
Product Type						UPB						% of Total						UPB						% of Total
MPP:
Conventional Advantage						$	6,900					91		%				$	7,529					90		%
Conventional Original						351						5		%				417						5		%
FHA						180						2		%				218						3		%
Total MPP						7,431						98		%				8,164						98		%
MPF Program:
Conventional						95						2		%				123						2		%
Government						30						—		%				36						—		%
Total MPF Program						125						2		%				159						2		%
Total mortgage loans held for portfolio						$	7,556					100		%				$	8,323					100		%

We maintain an allowance for credit losses based on our best estimate of expected losses over the remaining life of each loan. Our estimate of MPP losses remaining after borrower's equity, but before credit enhancements, was $4 million and $10 million at June 30, 2021 and December 31, 2020, respectively. After consideration of the portion recoverable under the associated credit enhancements, the resulting allowance was less than $1 million at June 30, 2021 and December 31, 2020. For more information, see Notes to Financial Statements - Note 5 - Mortgage Loans Held for Portfolio.

Consistent with other lenders in the mortgage loan industry, we developed a loan forbearance program for our MPP in response to the COVID-19 pandemic. Under the forbearance program, our servicers can agree to reduce or suspend the borrower's monthly payments for a specified period. The forbearance may be granted up to 90 days from the date of the first reduced or suspended payment. Initially, written approval from us was required for longer periods. However, effective May 11, 2020, we issued additional guidelines to provide delegated authority to our servicers so they may extend forbearance periods and establish qualified forbearance resolution plans within our established parameters. In addition, we have authorized the suspension of foreclosure sales (with certain exceptions) through July 31, 2021, suspension of evictions through September 30, 2021 and, for borrowers under loss mitigation agreements related to the COVID-19 pandemic, the suspension of any negative credit reporting and the waiver of late fees.

The UPB of our conventional mortgage loans in COVID-19-related informal forbearance programs declined by $56 million from $112 million at December 31, 2020 to $56 million at June 30, 2021 as a result of borrowers becoming current, repaying their loans in full, or moving to a COVID-19-related formal forbearance program. The UPB of loans in COVID-19-related formal forbearance programs increased by $18 million from $12 million at December 31, 2020 to $30 million at June 30, 2021.

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

Components						June 30, 2021						December 31, 2020						Change
Cash and short-term investments:
Cash and due from banks						$	1,363					$	1,812					$	(449)
Interest-bearing deposits						100						100						—
Securities purchased under agreements to resell						3,000						2,500						500
Federal funds sold						2,805						1,215						1,590
Total cash and short-term investments						7,268						5,627						1,641
Trading securities:
U.S. Treasury obligations						5,817						5,095						722
Total trading securities						5,817						5,095						722
Other investment securities:
AFS securities:
GSE and TVA debentures						2,818						3,503						(685)
GSE MBS						6,481						6,642						(161)
Total AFS securities						9,299						10,145						(846)
HTM securities:
Other U.S. obligations - guaranteed MBS						2,781						2,623						158
GSE MBS						1,792						2,078						(286)
Total HTM securities						4,573						4,701						(128)
Total investment securities						19,689						19,941						(252)
Total cash and investments, carrying value						$	26,957					$	25,568					$	1,389

Cash and Short-Term Investments. Cash and short-term investments at June 30, 2021 totaled $7.3 billion, an increase of $1.6 billion, or 29%, from December 31, 2020. The total outstanding balance and composition of our short-term investments are influenced by our liquidity needs, regulatory requirements, member advance activity, market conditions and the availability of short-term investments at attractive interest rates, relative to our cost of funds.

Trading Securities. The Bank purchases U.S. Treasury securities as trading securities to enhance its liquidity. Such securities outstanding at June 30, 2021 totaled $5.8 billion, an increase of $722 million, or 14%, from December 31, 2020.

Other Investment Securities. AFS securities at June 30, 2021 totaled $9.3 billion, a net decrease of $846 million, or 8%, from December 31, 2020. The decrease resulted from changes in the fair-value hedging basis adjustments associated with these securities and principal payments on GSE and TVA debentures.

Net unrealized gains on AFS securities at June 30, 2021 totaled $215 million, a net increase of $78 million compared to December 31, 2020, primarily due to changes in interest rates, credit spreads and volatility.

HTM securities at June 30, 2021 totaled $4.6 billion, a net decrease of $128 million, or 3%, from December 31, 2020. The decrease resulted from principal payments on these securities.

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Interest-Rate Payment Terms. Our investment securities are presented below by interest-rate payment terms ($ amounts in millions).

    

						June 30, 2021												December 31, 2020
Interest-Rate Payment Terms						Estimated Fair Value						% of Total						Estimated Fair Value						% of Total
Trading Securities:
U.S. Treasury obligations fixed-rate						$	5,817					100		%				$	5,095					100		%
Total trading securities						$	5,817					100		%				$	5,095					100		%
						Amortized Cost						% of Total						Amortized Cost						% of Total
AFS Securities:
Total non-MBS fixed-rate						$	2,770					30		%				$	3,463					35		%
Total MBS fixed-rate						6,314						70		%				6,545						65		%
Total AFS securities						$	9,084					100		%				$	10,008					100		%
HTM Securities:
MBS:
Fixed-rate						$	240					5		%				$	283					6		%
Variable-rate						4,333						95		%				4,418						94		%
Total MBS						4,573						100		%				4,701						100		%
Total HTM securities						$	4,573					100		%				$	4,701					100		%
Total AFS and HTM securities:
Total fixed-rate						$	9,324					68		%				$	10,291					70		%
Total variable-rate						4,333						32		%				4,418						30		%
Total AFS and HTM securities						$	13,657					100		%				$	14,709					100		%

The mix of fixed- vs. variable-rate AFS and HTM securities at June 30, 2021 changed slightly from December 31, 2020, primarily due to principal payments on fixed-rate MBS. However, all of the fixed-rate AFS securities are swapped to effectively create variable-rate exposures, consistent with our balance sheet strategies to manage interest-rate risk.

Total Liabilities.

Deposits (Liabilities). Total deposits at June 30, 2021 were $1.6 billion, a net increase of $223 million, or 16%, from December 31, 2020. These deposits represent a relatively small portion of our funding. The balances of these accounts can fluctuate from period to period and vary depending upon such factors as the attractiveness of our deposit pricing relative to the rates available on alternative money market instruments, members' preferences with respect to the maturity of their investments, and members' liquidity.

Consolidated Obligations. The carrying value of consolidated obligations outstanding at June 30, 2021 totaled $56.8 billion, a net decrease of $3.1 billion, or 5%, from December 31, 2020. Such decrease reflected the net decrease in the Bank's total assets.

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

						June 30, 2021												December 31, 2020
By Term						Par Value						% of Total						Par Value						% of Total
Consolidated obligations due in 1 year or less:
Discount notes						$	14,446					25		%				$	16,620					28		%
CO bonds						21,345						38		%				31,127						52		%
Total due in 1 year or less						35,791						63		%				47,747						80		%
Long-term CO bonds						21,001						37		%				12,119						20		%
Total consolidated obligations						$	56,792					100		%				$	59,866					100		%

The percentage of consolidated obligations due in 1 year or less decreased from 80% at December 31, 2020 to 63% at June 30, 2021 as the Bank took advantage of market opportunities to replace maturing short-term debt with long-term callable debt at favorable terms. As a result, long-term CO bonds increased from 20% of total consolidated obligations at December 31, 2020 to 37% at June 30, 2021. We continue to seek to maintain a sufficient liquidity and funding balance between our financial assets and financial liabilities.

Derivatives. The volume of derivative hedges is often expressed in terms of notional amounts, which is the amount upon which interest payments are calculated. The following table presents the notional amounts by type of hedged item regardless of whether it is in a qualifying hedge relationship ($ amounts in millions).

Hedged Item						June 30, 2021						December 31, 2020
Advances						$	15,330					$	16,573
Investments						15,140						15,035
Mortgage loans						282						361
CO bonds						21,163						17,473
Discount notes						1,600						950
Total notional						$	53,515					$	50,392

The increase in the total notional amount during the six months ended June 30, 2021 of $3.1 billion, or 6%, was substantially due to an increase in derivatives hedging CO bonds, driven primarily by the increase in long-term CO bonds outstanding.

The following table presents the cumulative impact of fair-value hedging basis adjustments on our statement of condition ($ amounts in millions).

June 30, 2021						Advances						Investments						CO Bonds						Total
Cumulative fair-value hedging basis adjustments on hedged items						$	394					$	348					$	62					$	804
Estimated fair value of associated derivatives, net						(388)						(75)						(57)						(520)
Net cumulative fair-value hedging basis adjustments						$	6					$	273					$	5					$	284

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

Components						June 30, 2021						December 31, 2020
Capital stock						63		%				64		%
Retained earnings						32		%				33		%
AOCI						5		%				3		%
Total GAAP capital						100		%				100		%

The changes in the components of GAAP capital at June 30, 2021 compared to December 31, 2020 were substantially due to an increase in unrealized gains on AFS securities.

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

Reconciliation						June 30, 2021						December 31, 2020
Total GAAP capital						$	3,584					$	3,450
Exclude: AOCI						(193)						(105)
Add: MRCS						233						251
Total regulatory capital						$	3,624					$	3,596

Liquidity and Capital Resources

 

Liquidity. Our primary sources of liquidity are holdings of liquid assets, comprised of cash, short-term investments, and trading securities, as well as the issuance of consolidated obligations.

Our cash and short-term investments at June 30, 2021 totaled $7.3 billion. Our short-term investments generally consist of high-quality financial instruments, many of which mature overnight. Our trading securities at June 30, 2021 totaled $5.8 billion and consisted solely of U.S. Treasury securities. As a result, our liquidity portfolio at June 30, 2021 totaled $13.1 billion, or 21% of total assets.

During the six months ended June 30, 2021, we maintained sufficient access to funding; our net proceeds from the issuance of consolidated obligations totaled $107.3 billion.

Changes in Cash Flow. Net cash provided by operating activities for the six months ended June 30, 2021 was $154 million, compared to net cash used in operating activities for the six months ended June 30, 2020 of $503 million. The net increase in cash provided by operating activities of $657 million was substantially due to the fluctuation in variation margin payments on cleared derivatives. Such payments are treated by the clearinghouses as daily settled contracts.

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Capital Resources.

Total Regulatory Capital. The following table provides a breakdown of our outstanding capital stock and MRCS ($ amounts in millions).

						June 30, 2021												December 31, 2020
By Type of Member Institution						Amount						% of Total						Amount						% of Total
Capital Stock:
Depository institutions:
Commercial banks and savings institutions						$	1,119					45		%				$	1,108					45		%
Credit unions						301						12		%				298						12		%
Total depository institutions						1,420						57		%				1,406						57		%
Insurance companies						814						33		%				802						33		%
CDFIs						—						—		%				—						—		%
Total capital stock, putable at par value						2,234						90		%				2,208						90		%
MRCS:
Captive insurance companies (1)						13						1		%				31						1		%
Former members						220						9		%				220						9		%
Total MRCS						233						10		%				251						10		%
Total regulatory capital stock						$	2,467					100		%				$	2,459					100		%

(1)    Represents captive insurance companies whose membership was terminated on February 19, 2021. On that date, we repurchased their excess stock of $18.1 million. The remaining balance will not be redeemed until the associated credit products and other obligations are no longer outstanding.

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

Components						June 30, 2021						December 31, 2020
Member capital stock not subject to outstanding redemption requests						$	822					$	605
Member capital stock subject to outstanding redemption requests						18						—
MRCS						209						225
Total excess capital stock						$	1,049					$	830
Excess stock as a percentage of regulatory capital stock						43		%				34		%

The increase in excess stock during the six months ended June 30, 2021 resulted from advance activity.

Finance Agency rules limit the ability of an FHLBank to pay dividends in the form of additional shares of capital stock or otherwise issue excess stock under certain circumstances, including when its total excess stock exceeds 1% of total assets or if the issuance of excess stock would cause total excess stock to exceed 1% of total assets. Our excess stock at June 30, 2021 was 1.67% of our total assets. Therefore, as a result of these regulatory limitations, we are currently not permitted to distribute stock dividends or issue excess stock to our members, should we choose to do so.

On July 29, 2021, our board of directors authorized the repurchase of up to $181 million par value of excess MRCS held by former members or their successors-in-interest. The repurchase is scheduled to occur on or about September 2, 2021.

In addition, we expect to repurchase up to $11.3 million par value of excess stock subject to outstanding redemption requests on or about September 2, 2021.

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Capital Distributions. On July 29, 2021, our board of directors declared a cash dividend on Class B-2 activity-based stock at an annualized rate of 3.25% and on Class B-1 non-activity-based stock at an annualized rate of 1.00%. The dividends were paid in cash on July 30, 2021.

Adequacy of Capital. We must maintain sufficient permanent capital to meet the combined credit risk, market risk and operations risk components of the risk-based capital requirement. As presented in the following table, we were in compliance with the risk-based capital requirement at June 30, 2021 and December 31, 2020 ($ amounts in millions).

Risk-Based Capital Components						June 30, 2021						December 31, 2020
Credit risk						$	153					$	158
Market risk						384						327
Operations risk						161						146
Total risk-based capital requirement						$	698					$	631
Permanent capital						$	3,624					$	3,596

The increase in our total risk-based capital requirement was primarily caused by an increase in the market risk component due to changes in the market environment, including changes in interest rates and option adjusted spreads and changes in the composition of our balance sheet. Our permanent capital at June 30, 2021 remained well in excess of our total risk-based capital requirement.

Off-Balance Sheet Arrangements

At June 30, 2021, principal previously paid in full by our MPP servicers totaling less than $1 million remains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. An estimate of the losses is included in the MPP allowance for loan losses. For more information, see Notes to Financial Statements - Note 6 - Mortgage Loans Held for Portfolio in our 2020 Form 10-K.

Critical Accounting Policies and Estimates

A full discussion of our critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our 2020 Form 10-K. 

Recent Accounting and Regulatory Developments

 

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

Legislative and Regulatory Developments.

LIBOR Transition.

2021 ISDA Interest Rate Derivatives Definitions. On June 11, 2021, ISDA published 2021 ISDA Interest Rate Derivatives Definitions ("2021 ISDA Definitions"), which will update and consolidate the frequently supplemented 2006 ISDA Definitions as the standard definitions for cleared and uncleared interest rate derivatives. The 2021 ISDA Definitions incorporate prior supplements to the 2006 ISDA Definitions in addition to other changes made to conform to updates in market practice and regulation. Both the 2006 ISDA Definitions as supplemented effective January 25, 2021, and the 2021 ISDA Definitions contain ISDA-recommended fallbacks for interest rate derivatives referencing an Interbank Offered Rate, including U.S. Dollar LIBOR. ISDA has announced that implementation of the 2021 ISDA Definitions is expected to take place for clearing houses, trading venues and other market infrastructures between October 1-4, 2021. While the FHLBanks may continue to use the current 2006 ISDA Definitions, ISDA will not incorporate any further supplements following implementation of the 2021 ISDA Definitions.

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The Bank is considering using the 2021 ISDA Definitions for future derivatives transactions, and does not expect the implementation of the 2021 ISDA Definitions to have a material effect on its results of operations or financial condition.

COVID-19 Developments.

Federal Reserve Extension of Paycheck Protection Program Liquidity Facility. On June 25, 2021, the Federal Reserve announced a final extension of its Paycheck Protection Program Liquidity Facility ("PPPLF") by an additional month to July 30, 2021. The PPPLF provides collateralized Paycheck Protection Program ("PPP") loan liquidity to eligible Federal Reserve member financial institutions to facilitate PPP loan originations at such financial institutions. The extension allowed additional processing time for banks, community development financial institutions, and other financial institutions to pledge to the facility any PPP loans approved by the SBA through the June 30, 2021 expiration of the PPP program.

Additional COVID-19 Presidential, Legislative and Regulatory Developments. In light of the COVID-19 pandemic, the former and current Presidents of the United States, through executive orders, governmental agencies, including the SEC, OCC, Federal Reserve, FDIC, National Credit Union Administration, CFTC, Centers for Disease Control and Prevention, and the Finance Agency, as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, and the Congress has and may continue to enact pandemic relief legislation, some of which may have a direct or indirect impact on the Bank or its members. Many of these actions are temporary in nature. The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the Bank.

Affordable Housing and Community Investment. Legislation has been introduced in the U.S. Senate and House of Representatives that, if enacted in its proposed form, would require that the FHLBanks set aside higher percentages of their earnings, and higher annual minimum amounts, for their affordable housing and community investment programs than is currently required under law. The FHLBanks are actively monitoring these proposals.

Risk Management

We have exposure to a number of risks in pursuing our business objectives. These risks may be broadly classified as market, credit, liquidity, operational, and business. Market risk is discussed in Item 3. Quantitative and Qualitative Disclosures about Market Risk. For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management in our 2020 Form 10-K.

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

Advances and Other Credit Products. 

Concentration. Our credit risk is magnified due to the concentration of advances in a few borrowers. As of June 30, 2021, our top borrower held 13% of total advances outstanding, at par, and our top five borrowers held 42% of total advances outstanding, at par. As a result of this concentration, we perform frequent credit and collateral reviews on our largest borrowers. 

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

The following table presents the unsecured investment credit exposure to private counterparties, categorized by the domicile of the counterparty's ultimate parent, based on the lowest of the counterparty's NRSRO long-term credit ratings, stated in terms of the S&P equivalent. The table does not reflect the foreign sovereign government's credit rating ($ amounts in millions).

June 30, 2021						AA						A						Total
Domestic						$	—					$	100					$	100
Australia						960						—						960
Canada						—						1,230						1,230
Netherlands						—						615						615
Total unsecured credit exposure						$	960					$	1,945					$	2,905

A Finance Agency regulation provides that the total amount of our investments in MBS and ABS, calculated using amortized historical cost, must not exceed 300% of our total regulatory capital, as of the day we purchase the securities, based on the capital amount most recently reported to the Finance Agency. At June 30, 2021, these investments totaled 294% of total regulatory capital. Generally, our goal is to maintain these investments near the 300% limit in order to enhance earnings and capital for our members and diversify our revenue stream.

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

																														Below
																														Investment
June 30, 2021						AAA						AA						A						BBB						Grade						Total
Short-term investments:
Interest-bearing deposits						$	—					$	—					$	100					$	—					$	—					$	100
Securities purchased under agreements to resell						—						3,000						—						—						—						3,000
Federal funds sold						—						960						1,845						—						—						2,805
Total short-term investments						—						3,960						1,945						—						—						5,905
Trading securities:
U.S. Treasury obligations						—						5,817						—						—						—						5,817
Total trading securities						—						5,817						—						—						—						5,817
Other investment securities:
GSE and TVA debentures						—						2,818						—						—						—						2,818
GSE MBS						—						8,273						—						—						—						8,273
Other U.S. obligations - guaranteed RMBS						—						2,781						—						—						—						2,781
Total other investment securities						—						13,872						—						—						—						13,872
Total investments, carrying value						$	—					$	23,649					$	1,945					$	—					$	—					$	25,594
Percentage of total						—		%				92		%				8		%				—		%				—		%				100		%

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																														Below
																														Investment
December 31, 2020						AAA						AA						A						BBB						Grade						Total
Short-term investments:
Interest-bearing deposits						$	—					$	—					$	100					$	—					$	—					$	100
Securities purchased under agreements to resell						—						2,500						—						—						—						2,500
Federal funds sold						—						100						1,115						—						—						1,215
Total short-term investments						—						2,600						1,215						—						—						3,815
Trading securities:
U.S. Treasury obligations						—						5,095						—						—						—						5,095
Total trading securities						—						5,095						—						—						—						5,095
Other investment securities:
GSE and TVA debentures						—						3,503						—						—						—						3,503
GSE MBS						—						8,720						—						—						—						8,720
Other U.S. obligations - guaranteed RMBS						—						2,623						—						—						—						2,623
Total other investment securities						—						14,846						—						—						—						14,846
Total investments, carrying value						$	—					$	22,541					$	1,215					$	—					$	—					$	23,756
Percentage of total						—		%				95		%				5		%				—		%				—		%				100		%

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

						Three Months Ended June 30, 2021
LRA Activity						Original						Advantage						Total
Liability, beginning of period						$	4					$	210					$	214
Additions						—						6						6
Claims paid						—						—						—
Distributions to PFIs						—						—						—
Liability, end of period						$	4					$	216					$	220

						Six Months Ended June 30, 2021
LRA Activity						Original						Advantage						Total
Liability, beginning of period						$	4					$	203					$	207
Additions						—						13						13
Claims paid						—						—						—
Distributions to PFIs						—						—						—
Liability, end of period						$	4					$	216					$	220

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

June 30, 2021						Notional Amount						Net Estimated Fair Value Before Collateral						Cash Collateral Pledged To (From) Counterparties						Net Credit Exposure
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives - A						$	119					$	—					$	—					$	—
Cleared derivatives (1)						13,772						1						96						97
Liability positions with credit exposure
Uncleared derivatives - AA						200						(13)						13						—
Uncleared derivatives - A						8,264						(136)						136						—
Cleared derivatives (1)						14,050						(8)						148						140
Total derivative positions with credit exposure to non-member counterparties						36,405						(156)						393						237
Total derivative positions with credit exposure to member institutions (2)						71						—						—						—
Subtotal - derivative positions with credit exposure						36,476						$	(156)					$	393					$	237
Derivative positions without credit exposure						17,039
Total derivative positions						$	53,515

(1)    Represents derivative transactions cleared by two clearinghouses (one rated AA- and the other unrated).

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Measuring Market Risks

 

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

As part of our overall interest-rate risk management process, we continue to evaluate strategies to manage interest-rate risk. Certain strategies, if implemented, could have an adverse impact on future earnings. 

Market Value of Equity. MVE represents the difference between the estimated market value of total assets and the estimated market value of total liabilities, including any off-balance sheet positions. It measures, in present value terms, the long-term economic value of current capital and the long-term level and volatility of net interest income.

We also monitor the sensitivities of MVE to potential interest-rate scenarios. We measure potential changes in the market value to book value of equity based on the current month-end level of rates versus various large parallel and non-parallel shifts in rates. Our board of directors determines acceptable ranges for the change in MVE for 200 bps parallel upward or downward shift in the interest-rate curves as well as certain flattening and steepening scenarios.

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Key Metrics. The following table presents certain market and interest-rate metrics under different interest-rate scenarios ($ amounts in millions).

June 30, 2021						Down 200 (1)						Down 100 (1)						Base						Up 100						Up 200
MVE						$	3,860					$	3,773					$	3,753					$	3,769					$	3,754
Percent change in MVE from base						2.8		%				0.5		%				—		%				0.4		%				—		%
MVE/book value of equity						101.1		%				98.8		%				98.3		%				98.8		%				98.4		%
Duration of equity						1.1						1.6						(0.1)						(0.1)						0.9

December 31, 2020
MVE						$	3,621					$	3,605					$	3,559					$	3,579					$	3,590
Percent change in MVE from base						1.8		%				1.3		%				0		%				0.6		%				0.9		%
MVE/book value of equity						97.8		%				97.4		%				96.2		%				96.7		%				97.0		%
Duration of equity						—						0.8						0.7						(0.7)						0.4

(1)    Given the low interest rates in the short-to-medium term points of the yield curves, downward rate shocks are constrained to prevent rates from becoming negative.

The changes in those key metrics from December 31, 2020 resulted primarily from the change in market value of the Bank's assets and liabilities in response to changes in the market environment, changes in portfolio composition, and our hedging strategies.

Duration Gap. The base case duration gap was (0.04)% and 0.01% at June 30, 2021 and December 31, 2020, respectively.

For information about our use of derivative hedges, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Use of Derivative Hedges in our 2020 Form 10-K.

Replacement of the LIBOR Benchmark Interest Rate

In March 2021, the FCA announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, or, in the case of some more frequently used U.S. dollar LIBOR settings, immediately after June 30, 2023.

Most of our advances, investments, CO bonds, derivative assets, derivative liabilities, and related collateral are directly or indirectly indexed to LIBOR. Some of these assets and liabilities and related collateral have maturity dates that extend beyond the date in which the applicable LIBOR setting ceases to be provided or to be representative.

We continue to implement our transition plan that has the flexibility to evolve with market developments and standards, member needs, and guidance provided by the issuers of Agency securities.

For more information, see Item 1A. Risk Factors - Changes to or Replacement of the LIBOR Benchmark Interest Rate Could Adversely Affect Our Business, Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Form 10-K.

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The following table presents our LIBOR-rate indexed financial instruments outstanding at June 30, 2021 and December 31, 2020 by year of maturity ($ amounts in millions).

LIBOR-Indexed Financial Instruments						Year of Maturity
June 30, 2021						2021						2022						Through June 30, 2023						Thereafter						Total
Assets:
Advances, par value (1)						$	—					$	277					$	93					$	2,344					$	2,714
Mortgage-backed securities, par value (2)						—						—						—						3,096						3,096
Total						$	—					$	277					$	93					$	5,440					$	5,810
Interest-rate swaps - receive leg, notional (2):
Cleared						$	277					$	1,452					$	770					$	4,195					$	6,694
Uncleared						95						320						316						7,261						7,992
Total						$	372					$	1,772					$	1,086					$	11,456					$	14,686
Liabilities:
CO bonds, par value (2)						$	1,950					$	—					$	—					$	—					$	1,950
Interest-rate swaps - pay leg, notional (2):
Cleared						$	7,997					$	234					$	200					$	—					$	8,431
Uncleared						2,650						—						—						69						2,719
Total						$	10,647					$	234					$	200					$	69					$	11,150
Other derivatives, notional:
Interest-rate caps held (2)						$	—					$	15					$	—					$	611					$	626

December 31, 2020
Assets:
Advances, par value (1)						$	40					$	353					$	187					$	2,913					$	3,493
Mortgage-backed securities, par value (2)						—						32						—						3,555						3,587
Total						$	40					$	385					$	187					$	6,468					$	7,080
Interest-rate swaps - receive leg, notional (2):
Cleared						$	2,037					$	1,464					$	786					$	4,218					$	8,505
Uncleared						105						320						316						9,914						10,655
Total						$	2,142					$	1,784					$	1,102					$	14,132					$	19,160
Liabilities:
CO bonds, par value (2)						$	6,675					$	—					$	—					$	—					$	6,675
Interest-rate swaps - pay leg, notional (2):
Cleared						$	12,711					$	234					$	200					$	—					$	13,145
Uncleared						2,950						—						—						204						3,154
Total						$	15,661					$	234					$	200					$	204					$	16,299
Other derivatives, notional:
Interest-rate caps held (2)						$	—					$	15					$	—					$	611					$	626

(1)    Year of maturity on our advances is based on redemption term.

(2)    Year of maturity on our MBS, interest-rate swaps, CO bonds and interest-rate caps is based on contractual maturity. The actual maturities on MBS will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

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Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and (b) accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, to allow timely decisions regarding required disclosures.

As of June 30, 2021, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive officer), Chief Financial Officer (the principal financial officer) and Chief Accounting Officer (the principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. In making this evaluation, we used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

 

Internal Control Over Financial Reporting

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

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

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

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Item 1A. RISK FACTORS

Except as noted below, there have been no material changes in the risk factors described in Item 1A. Risk Factors of our 2020 Form 10-K.

A Loss of Significant Borrowers, PFIs, Acceptable Loan Servicers or Other Financial Counterparties Could Adversely Impact Our Profitability, Our Ability to Achieve Business Objectives, Our Ability to Pay Dividends or Redeem or Repurchase Capital Stock, and Our Risk Concentration.

The loss of any large borrower or PFI could adversely impact our profitability and our ability to achieve business objectives. The loss of a large borrower or PFI could result from a variety of factors, including acquisition, consolidation of charters within a bank holding company, a member's loss of market share, resolution of a financially distressed member, or regulatory changes relating to FHLBank membership.

On April 26, 2021, Flagstar Bancorp, Inc., the parent company of Flagstar Bank, FSB ("Flagstar"), historically one of our largest and most active borrowers, announced it had reached an agreement to merge with another institution and, pursuant to the agreement, Flagstar would merge with a non-member depository. At June 30, 2021, Flagstar had advances outstanding totaling $2.6 billion or 10% of the Bank's total advances outstanding, at par. Flagstar has not been an active PFI seller since 2011. The parties have stated that they currently expect that the Flagstar parent company merger will close early in the fourth quarter of 2021, with Flagstar's merger expected to close thereafter. On the effective date of the Flagstar merger, the successor bank would not be eligible for membership in our Bank. As a result, as with any loss of a large borrower, the consummation of the expected Flagstar merger could have a material adverse effect upon our future results of operations and financial condition.

As the financial industry continues to consolidate into a smaller number of institutions, this could lead to further loss of large members and a related decrease in our membership and significant loss of business. Our largest borrower had advances outstanding at June 30, 2021 totaling $3.6 billion, or 13% of the Bank's total advances outstanding, at par. If advances are concentrated in a smaller number of members, our risk of loss resulting from a single event could become greater. Loss of other large advance borrowers, without replacement of such advances by existing or new members, would be expected to reduce our interest income and profitability accordingly.

During the six months ended June 30, 2021, our top-selling PFI sold us mortgage loans totaling $152 million, or 14% of the total mortgage loans purchased by the Bank. Our larger PFIs originate mortgages on properties in several states. We also purchase mortgage loans from many smaller PFIs that predominantly originate mortgage loans on properties in Michigan and Indiana. Our concentration of MPP loans on properties in Michigan and Indiana could continue to increase over time, as we do not currently limit such concentration.

We do not service the mortgage loans we purchase. PFIs may elect to retain servicing rights for the loans sold to us, or they may elect to sell servicing rights to an MPP-approved servicer. Federal banking regulations and Dodd-Frank Act capital requirements are causing some mortgage servicing rights to be transitioned to non-depository institutions and may reduce the availability of buyers of mortgage servicing rights. A scarcity of mortgage servicers could adversely affect our results of operations.

The number of counterparties that meet our internal and regulatory standards for derivative, repurchase, federal funds sold, TBA, and other financial transactions, such as broker-dealers and their affiliates, has decreased over time. In addition, since the Dodd-Frank Act, the requirements for posting margin or other collateral to financial counterparties has tended to increase, both in terms of the amount of collateral to be posted and the types of transactions for which margin is now required. These factors tend to increase the risk exposure that we have to any one counterparty, and as such may tend to increase our reliance upon each of our counterparties. A failure of any one of our major financial counterparties, or continuing market consolidation, could affect our profitability, results of operations, and ability to enter into additional transactions with existing counterparties without exceeding internal or regulatory risk limits.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

 

EXHIBIT INDEX

Exhibit Number						Description
3.1*						Organization Certificate of the Federal Home Loan Bank of Indianapolis, incorporated by reference to Exhibit 3.1 of our Registration Statement on Form 10 (Commission File No. 000-51404) filed on February 14, 2006
3.2*						Bylaws of the Federal Home Loan Bank of Indianapolis, as amended effective June 28, 2019, incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q (Commission File No. 000-51404) filed on August 12, 2019
4.1*						Capital Plan of the Federal Home Loan Bank of Indianapolis, effective September 26, 2020, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K (Commission File No. 000-51404) filed on August 17, 2020
10.1*						Joint Capital Enhancement Agreement dated August 5, 2011, incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K (Commission File No. 000-51404) filed on August 5, 2011
10.2*						Severance and Release Agreement, dated April 2, 2021, between Federal Home Loan Bank of Indianapolis and William D. Miller, incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K/A (Commission File No. 00051404) filed on April 7, 2021
31.1						Certification of the President - Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of the Executive Vice President - Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3						Certification of the Senior Vice President - Chief Accounting Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
32						Certification of the President - Chief Executive Officer, Executive Vice President - Chief Financial Officer, and Senior Vice President - Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

* These documents are incorporated by reference.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

			FEDERAL HOME LOAN BANK OF INDIANAPOLIS
August 11, 2021			By:			/s/ CINDY L. KONICH
			Name:			Cindy L. Konich
			Title:			President - Chief Executive Officer
August 11, 2021			By:			/s/ GREGORY L. TEARE
			Name:			Gregory L. Teare
			Title:			Executive Vice President - Chief Financial Officer
August 11, 2021			By:			/s/ K. LOWELL SHORT, JR.
			Name:			K. Lowell Short, Jr.
			Title:			Senior Vice President - Chief Accounting Officer

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