10-Q 1 ind9301110q.htm FORM 10-Q IND 9/30/11 10Q



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

FORM 10-Q
 

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

For the quarterly period ended September 30, 2011

OR

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

x  Yes            o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x   Yes            o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
o  Large accelerated filer
o  Accelerated filer
x Non-accelerated filer (Do not check if a smaller reporting company)
o  Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o  Yes            x  No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Shares outstanding
as of October 31, 2011

Class B Stock, par value $100
20,047,071


Table of Contents
Page
 
 
Number
PART I.
 
Item 1.
 
 
Statements of Condition as of September 30, 2011, and December 31, 2010
 
Statements of Income for the Three and Nine Months Ended September 30, 2011, and 2010
 
Statements of Capital for the Nine Months Ended September 30, 2011, and 2010
 
Statements of Cash Flows for the Nine Months Ended September 30, 2011, and 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Results of Operations for the Three and Nine Months Ended September 30, 2011, and 2010
 
 
 
 
 
 
 
Item 3.
Item 4.
PART II.
 
Item 1.
Item 1A.
Item 6.
Glossary
 
 
Exhibit 31.1
 
 
Exhibit 31.2
 
 
Exhibit 31.3
 
 
Exhibit 32
 
 




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Federal Home Loan Bank of Indianapolis
Statements of Condition
(Unaudited, $ amounts and shares in thousands, except par value)
 
September 30,
2011
 
December 31,
2010
Assets:
 
 
 
Cash and Due from Banks
$
316,241

 
$
11,676

Interest-Bearing Deposits
82

 
3

Securities Purchased Under Agreements to Resell
500,000

 
750,000

Federal Funds Sold
3,470,000

 
7,325,000

Available-for-Sale Securities (Note 3)
3,013,080

 
3,237,916

Held-to-Maturity Securities (Estimated Fair Values of $8,984,045 and $8,513,391, respectively) (Note 4)
8,845,089

 
8,471,827

Advances (Note 6)
18,564,064

 
18,275,364

Mortgage Loans Held for Portfolio, net (Notes 7 and 8)
6,106,846

 
6,702,576

Accrued Interest Receivable
89,847

 
98,924

Premises, Software, and Equipment, net
11,712

 
10,830

Derivative Assets, net (Note 9)
1,474

 
6,173

Other Assets
31,438

 
39,584

Total Assets
$
40,949,873

 
$
44,929,873

Liabilities:
 

 
 
Deposits (Note 10):
 

 
 
Interest-Bearing
$
1,231,679

 
$
574,894

Non-Interest-Bearing
13,887

 
10,034

Total Deposits
1,245,566

 
584,928

Consolidated Obligations (Note 11):
 

 
 
Discount Notes
6,980,697

 
8,924,687

Bonds
29,854,611

 
31,875,237

Total Consolidated Obligations, net
36,835,308

 
40,799,924

Accrued Interest Payable
111,636

 
133,862

Affordable Housing Program Payable
31,857

 
35,648

Payable to Resolution Funding Corporation

 
10,325

Derivative Liabilities, net (Note 9)
140,325

 
657,030

Mandatorily Redeemable Capital Stock (Note 13)
483,407

 
658,363

Other Liabilities
162,272

 
102,422

Total Liabilities
39,010,371

 
42,982,502

Commitments and Contingencies (Note 17)


 


Capital (Notes 13 and 14):
 

 
 
Capital Stock Putable (at par value of $100 per share):
 
 
 
Class B-1 issued and outstanding shares: 15,483 and 16,072, respectively
1,548,329

 
1,607,116

Class B-2 issued and outstanding shares: 43 and 29, respectively
4,289

 
2,944

     Total Capital Stock Putable
1,552,618

 
1,610,060

Retained Earnings:
 
 
 
Unrestricted
465,526

 
427,557

Restricted
6,013

 

     Total Retained Earnings
471,539

 
427,557

Accumulated Other Comprehensive Income (Loss) (Note 14):
 

 
 
Net Unrealized Gains (Losses) on Available-for-Sale Securities (Note 3)
3,101

 
(4,615
)
Net Non-Credit Portion of Other-Than-Temporary Impairment Losses:
 
 
 
Available-for-Sale Securities (Note 3)
(80,459
)
 
(68,806
)
Held-to-Maturity Securities (Note 4)

 
(7,056
)
Pension and Postretirement Benefits
(7,297
)
 
(9,769
)
Total Accumulated Other Comprehensive Income (Loss)
(84,655
)
 
(90,246
)
Total Capital
1,939,502

 
1,947,371

Total Liabilities and Capital
$
40,949,873

 
$
44,929,873


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

1



Federal Home Loan Bank of Indianapolis
Statements of Income
(Unaudited, $ amounts in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Interest Income:
 
 
 
 
 
 
 
Advances
$
38,835

 
$
52,146

 
$
119,448

 
$
152,106

Prepayment Fees on Advances, net
4,307

 
12,120

 
5,721

 
15,658

Interest-Bearing Deposits
110

 
99

 
128

 
194

Securities Purchased Under Agreements to Resell
185

 
1,807

 
868

 
2,738

Federal Funds Sold
772

 
2,874

 
5,686

 
9,897

Available-for-Sale Securities
11,056

 
2,653

 
39,046

 
6,136

Held-to-Maturity Securities
43,883

 
63,048

 
134,854

 
189,599

Mortgage Loans Held for Portfolio, net
72,402

 
90,487

 
229,063

 
264,538

Other, net
(1,193
)
 
722

 
(601
)
 
557

Total Interest Income
170,357

 
225,956

 
534,213

 
641,423

Interest Expense:
 
 
 
 
 
 
 
Consolidated Obligation Discount Notes
1,944

 
3,541

 
7,225

 
10,742

Consolidated Obligation Bonds
109,351

 
138,085

 
343,001

 
421,285

Deposits
32

 
72

 
165

 
233

Mandatorily Redeemable Capital Stock
3,067

 
2,075

 
11,629

 
9,266

Total Interest Expense
114,394

 
143,773

 
362,020

 
441,526

Net Interest Income
55,963

 
82,183

 
172,193

 
199,897

Provision for Credit Losses
1,550

 

 
3,709

 

Net Interest Income After Provision for Credit Losses
54,413

 
82,183

 
168,484

 
199,897

Other Income (Loss):
 
 
 
 
 
 
 
Total Other-Than-Temporary Impairment Losses
(1,586
)
 

 
(4,558
)
 
(22,279
)
Portion of Impairment Losses Reclassified to (from) Other Comprehensive Income (Loss), net
(3,081
)
 
(618
)
 
(21,826
)
 
(46,099
)
Net Other-Than-Temporary Impairment Losses, credit portion
(4,667
)
 
(618
)
 
(26,384
)
 
(68,378
)
Net Realized Gains from Sale of Available-for-Sale Securities
6,187

 

 
4,244

 

Net Gains (Losses) on Derivatives and Hedging Activities
(7,315
)
 
2,547

 
(10,848
)
 
479

Service Fees
265

 
205

 
793

 
820

Standby Letters of Credit Fees
456

 
358

 
1,256

 
1,117

Loss on Extinguishment of Debt

 
(1,318
)
 
(397
)
 
(1,318
)
Other, net
264

 
184

 
685

 
566

Total Other Income (Loss)
(4,810
)
 
1,358

 
(30,651
)
 
(66,714
)
Other Expenses:
 
 
 
 
 
 
 
Compensation and Benefits
9,672

 
9,904

 
26,735

 
23,429

Other Operating Expenses
4,310

 
2,979

 
10,826

 
9,359

Federal Housing Finance Agency
917

 
535

 
2,693

 
1,667

Office of Finance
714

 
446

 
2,058

 
1,356

Other
245

 
245

 
759

 
807

Total Other Expenses
15,858

 
14,109

 
43,071

 
36,618

Income Before Assessments
33,745

 
69,432

 
94,762

 
96,565

Assessments:
 
 
 
 
 
 
 
Affordable Housing Program
3,681

 
5,879

 
9,536

 
8,828

Resolution Funding Corporation

 
12,711

 
10,907

 
17,548

Total Assessments
3,681

 
18,590

 
20,443

 
26,376

Net Income
$
30,064

 
$
50,842

 
$
74,319

 
$
70,189


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

2



Federal Home Loan Bank of Indianapolis
Statements of Capital
(Unaudited, $ amounts and shares in thousands)

 
 
Capital Stock
Class B
Putable
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Capital
 
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2009
 
17,260

 
$
1,726,000

 
$
349,013

 
$

 
$
349,013

 
$
(328,602
)
 
$
1,746,411

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
371

 
37,165

 
 
 
 
 
 
 
 
 
37,165

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(297
)
 
(29,724
)
 
 
 
 
 
 
 
 
 
(29,724
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
70,189

 

 
70,189

 
 
 
70,189

Other Comprehensive Income (Note 14)
 
 
 
 
 
 
 
 
 
 
 
73,763

 
73,763

Total Comprehensive Income
 
 
 
 
 
70,189

 

 
70,189

 
73,763

 
143,952

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(43
)
 

 
(43
)
 
 
 
(43
)
Cash Dividends on Capital Stock (1.83% annualized)
 
 
 
 
 
(23,650
)
 

 
(23,650
)
 
 
 
(23,650
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2010
 
17,334

 
$
1,733,441

 
$
395,509

 
$

 
$
395,509

 
$
(254,839
)
 
$
1,874,111

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2010
 
16,101

 
$
1,610,060

 
$
427,557

 
$

 
$
427,557

 
$
(90,246
)
 
$
1,947,371

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
1,063

 
106,424

 
 
 
 
 
 
 
 
 
106,424

Repurchase/Redemption of Capital Stock
 
(1,497
)
 
(149,744
)
 
 
 
 
 
 
 
 
 
(149,744
)
Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(141
)
 
(14,122
)
 
 
 
 
 
 
 
 
 
(14,122
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
 
 
 
 
68,306

 
6,013

 
74,319

 
 
 
74,319

Other Comprehensive Income (Note 14)
 
 
 
 
 
 
 
 
 
 
 
5,591

 
5,591

Total Comprehensive Income
 
 
 
 
 
68,306

 
6,013

 
74,319

 
5,591

 
79,910

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(12
)
 

 
(12
)
 
 
 
(12
)
Cash Dividends on Capital Stock (2.50% annualized)
 
 
 
 
 
(30,325
)
 

 
(30,325
)
 
 
 
(30,325
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2011
 
15,526

 
$
1,552,618

 
$
465,526

 
$
6,013

 
$
471,539

 
$
(84,655
)
 
$
1,939,502




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

3



Federal Home Loan Bank of Indianapolis
Statements of Cash Flows
(Unaudited, $ amounts in thousands)
 
Nine Months Ended
 
September 30,
 
2011
 
2010
Operating Activities:
 
 
 
Net Income
$
74,319

 
$
70,189

Adjustments to reconcile Net Income to Net Cash provided by (used in) Operating Activities:
 
 
 
Depreciation and Amortization
(24,411
)
 
(27,776
)
Net Other-Than-Temporary Impairment Losses, credit portion
26,384

 
68,378

Loss on Extinguishment of Debt
397

 
1,318

Provision for Credit Losses
3,709

 

Net Gain on Sale of Available-for-Sale Securities
(4,244
)
 

(Gain) Loss on Derivative and Hedging Activities
5,258

 
(4,836
)
Net Change in:
 
 
 
Accrued Interest Receivable
31,359

 
(11,604
)
Net Accrued Interest on Derivatives
75,237

 
129,723

Other Assets
5,446

 
3,303

Accrued Interest Payable
(22,227
)
 
(49,577
)
Other Liabilities
(16,626
)
 
5,581

Total Adjustments, net
80,282

 
114,510

Net Cash provided by (used in) Operating Activities
154,601

 
184,699

Investing Activities:
 
 
 
Net Change in:
 
 
 
Interest-Bearing Deposits
(773,196
)
 
(149,747
)
Securities Purchased Under Agreements to Resell
250,000

 
(1,250,000
)
Federal Funds Sold
3,855,000

 
(1,145,000
)
Premises, Software, and Equipment
(2,093
)
 
(548
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities of Long-Term
149,045

 

Proceeds from Sales of Long-Term
154,675

 

Purchases of Long-Term

 
(318,000
)
Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities of Long-Term
1,020,731

 
1,368,771

Purchases of Long-Term
(1,369,604
)
 
(2,642,430
)
Advances:
 
 
 
Principal Collected
14,743,468

 
16,226,757

Made to Members
(14,818,058
)
 
(12,531,738
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
943,592

 
1,113,062

Purchases
(357,203
)
 
(329,909
)
Proceeds from Sales of Foreclosed Properties

 
(271
)
Other Federal Home Loan Banks:
 
 
 
Principal Collected on Loans
50,000

 
236,735

Loans Made
(50,000
)
 
(236,735
)
Net Cash provided by (used in) Investing Activities
3,796,357

 
340,947

 


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

4



Federal Home Loan Bank of Indianapolis
Statements of Cash Flows, continued
(Unaudited, $ amounts in thousands)
 
Nine Months Ended
 
September 30,
 
2011
 
2010
Financing Activities:
 
 
 
Net Change in Deposits
654,809

 
(228,972
)
Net Payments on Derivative Contracts with Financing Elements
(76,993
)
 
(110,959
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
278,663,234

 
520,523,671

Bonds
21,168,157

 
25,459,202

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(280,606,169
)
 
(517,045,610
)
Bonds
(23,186,697
)
 
(30,843,348
)
Proceeds from Sale of Capital Stock
106,424

 
37,166

Payments for Redemption of Mandatorily Redeemable Capital Stock
(189,089
)
 
(3,375
)
Payments for Repurchase/Redemption of Capital Stock
(149,744
)
 

Cash Dividends Paid
(30,325
)
 
(23,650
)
Net Cash provided by (used in) Financing Activities
(3,646,393
)
 
(2,235,875
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
304,565

 
(1,710,229
)
Cash and Cash Equivalents at Beginning of the Period
11,676

 
1,722,077

Cash and Cash Equivalents at End of the Period
$
316,241

 
$
11,848

Supplemental Disclosures:
 
 
 
Interest Paid
$
380,332

 
$
484,992

Affordable Housing Program Payments
13,327

 
10,963

Resolution Funding Corporation Assessments Paid
21,232

 
13,529

Non-cash transfer of Held-to-Maturity Securities to Available-for-Sale Securities
13,822

 

 

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

5



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


Note 1 - Summary of Significant Accounting Policies

Basis of Presentation. The accompanying interim financial statements of the Federal Home Loan Bank of Indianapolis are unaudited and have been prepared in accordance with GAAP for interim financial information and with the instructions provided by Article 10, Rule 10-01 of Regulation S-X promulgated by the SEC. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. The interim financial statements presented herein should be read in conjunction with our audited financial statements and notes thereto, which are included in our 2010 Form 10-K.

The financial statements contain all adjustments which 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 fiscal year or any other interim period.

Our significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements in Note 1 - Summary of Significant Accounting Policies in our 2010 Form 10-K. There have been no significant changes to these policies as of September 30, 2011.

All dollar amounts included in the notes are presented in thousands, unless otherwise indicated. We use certain acronyms and terms throughout this Form 10-Q which are defined in the Glossary of Terms located after Item 6. Exhibits. Unless the context otherwise requires, the terms "we," "us," and "our" refer to the Federal Home Loan Bank of Indianapolis.

Reclassifications. We have reclassified certain amounts from the prior periods to conform to the current period presentation. These reclassifications had no effect on Net Income, Total Assets, or Total Capital.

Correction of an Error. During the preparation of the third quarter 2011 Form 10-Q, we determined that in periods prior to September 30, 2011, we incorrectly included the effects of certain non-cash transactions related to capitalized interest on Other U.S. obligations - guaranteed RMBS in the Net Cash provided by (used in) Operating Activities and Net Cash provided by (used in) Investing Activities sections of the Statements of Cash Flows. Such non-cash transactions should have had no impact on those sections. We have evaluated the effects of these errors and concluded that none of them are material to any of the Bank's previously issued quarterly or annual Financial Statements. Nevertheless, we have elected to revise in this report and future filings our Statements of Cash Flows to correct for the effect of these errors. The revision does not affect the net change in cash and cash equivalents for any of the periods, and has no effect on our Statements of Condition, Income or Capital.

The amounts on prior period Statements of Cash Flows that have been revised are summarized below:
 
 
Year Ended
 
Year Ended
 
 
December 31, 2010
 
December 31, 2009
 
 
As Previously Reported
 
As Revised
 
As Previously Reported
 
As Revised
Operating Activities:
 
 
 
 
 
 
 
 
Net Change in: Accrued Interest Receivable
 
$
15,326

 
$
(6,932
)
 
$
38,281

 
$
38,052

Total adjustments, net
 
1,651

 
(20,607
)
 
105,254

 
105,025

Net Cash provided by (used in) Operating Activities
 
112,613

 
90,355

 
225,732

 
225,503

 
 
 

 
 
 
 
 
 
Investing Activities:
 
 
 
 
 
 
 
 
Held-to-maturity securities:
Proceeds from Maturities of Long-Term
 
1,770,626

 
1,792,884

 
2,280,188

 
2,280,417

Net Cash provided by (used in) Investing Activities
 
127,597

 
149,855

 
10,418,613

 
10,418,842







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


 
 
Three Months Ended
 
Three Months Ended
 
 
March 31, 2011
 
March 31, 2010
 
 
As Previously Reported
 
As Revised
 
As Previously Reported
 
As Revised
Operating Activities:
 
 
 
 
 
 
 
 
Net Change in: Accrued Interest Receivable
 
$
1,040

 
$
6,484

 
$
4,025

 
$
(4,887
)
Total adjustments, net
 
42,678

 
48,122

 
23,140

 
14,228

Net Cash provided by (used in) Operating Activities
 
62,548

 
67,992

 
55,429

 
46,517

 
 
 
 
 
 
 
 
 
Investing Activities:
 
 
 
 
 
 
 
 
Held-to-maturity securities:
Proceeds from Maturities of Long-Term
 
515,645

 
510,201

 
491,928

 
500,840

Net Cash provided by (used in) Investing Activities
 
1,227,092

 
1,221,648

 
(690,125
)
 
(681,213
)

 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2011
 
June 30, 2010
 
 
As Previously Reported
 
As Revised
 
As Previously Reported
 
As Revised
Operating Activities:
 
 
 
 
 
 
 
 
Net Change in: Accrued Interest Receivable
 
$
9,051

 
$
19,925

 
$
9,139

 
$
(6,305
)
Total adjustments, net
 
80,569

 
91,443

 
104,420

 
88,976

Net Cash provided by (used in) Operating Activities
 
124,824

 
135,698

 
123,767

 
108,323

 
 
 
 
 
 
 
 
 
Investing Activities:
 
 
 
 
 
 
 
 
Held-to-maturity securities:
Proceeds from Maturities of Long-Term
 
764,381

 
753,507

 
958,802

 
974,246

Net Cash provided by (used in) Investing Activities
 
6,350,052

 
6,339,178

 
(463,479
)
 
(448,035
)

 
 
Nine Months Ended
 
 
September 30, 2010
 
 
As Previously Reported
 
As Revised
Operating Activities:
 
 
 
 
Net Change in: Accrued Interest Receivable
 
$
10,470

 
$
(11,604
)
Total adjustments, net
 
136,584

 
114,510

Net Cash provided by (used in) Operating Activities
 
206,773

 
184,699

 
 
 
 
 
Investing Activities:
 
 
 
 
Held-to-maturity securities: Proceeds from Maturities of Long-Term
 
1,346,697

 
1,368,771

Net Cash provided by (used in) Investing Activities
 
318,873

 
340,947


Use of Estimates. The preparation of financial statements in accordance with GAAP requires us 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. Actual results could differ significantly from these estimates.

Variable Interest Entities. We have investments in VIEs that include, but are not limited to, senior interests in private-label MBS and ABS. The carrying amounts of the investments are included in HTM and AFS securities on the Statement of Condition. We have no liabilities related to these VIEs. The maximum loss exposure to these VIEs is limited to the carrying value of our investments in the VIEs.





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


If we were to determine that we are the primary beneficiary of a VIE, we would be required to consolidate that VIE. On a quarterly basis we perform an evaluation to determine whether we are the primary beneficiary in any VIE. To perform this evaluation, we consider whether we possess both of the following characteristics:

the power to direct the VIE's activities that most significantly affect the VIE's economic performance; and
the obligation to absorb the VIE's losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Based on an evaluation of the above characteristics, we have determined that consolidation is not required for our VIEs as of September 30, 2011. In addition, we have not provided financial or other support (explicitly or implicitly) to any VIE during the three or nine months ended September 30, 2011. Furthermore, we were not previously contractually required to provide, nor do we intend to provide, such support to any VIE in the future.

Office of Finance Expenses. Effective January 1, 2011, our proportionate share of the Office of Finance operating and capital expenditures is calculated using a formula that is based upon two components as follows: (i) two-thirds based on our share of Consolidated Obligations outstanding and (ii) one-third based on equal pro-rata share among the 12 FHLBanks. These regular assessments are determined on a monthly basis. In addition, we are apportioned special assessments using the same calculation for specific system-wide expenditures related to audit fees and rating agency annual relationship fees. Any ratings agency subscription fees are assessed as incurred on a per user basis and directly to the applicable FHLBank(s).

Prior to January 1, 2011, we were assessed for the costs of operating the Office of Finance based equally on each FHLBank's percentage of Capital Stock, percentage of Consolidated Obligations issued and percentage of Consolidated Obligations outstanding.

Subsequent Events. In preparing this Form 10-Q, we have evaluated events and considered transactions through the time of filing our third quarter 2011 Form 10-Q with the SEC.

Note 2 - Recently Adopted and Issued Accounting Guidance

Fair Value Measurements and Disclosures. On January 21, 2010, the FASB issued amended guidance for fair value measurements and disclosures. We adopted this amended guidance as of January 1, 2010, except for required disclosures about purchases, sales, issuances, and settlements in the rollforward of activity for Level 3 fair value measurements, which we adopted as of January 1, 2011. The adoption of this amended guidance resulted in increased interim and annual financial statement disclosures, but did not have a material effect on our financial condition, results of operations or cash flows. See Note 16 - Estimated Fair Values for additional disclosures required under this amended guidance.

On May 12, 2011, the FASB and the International Accounting Standards Board issued substantially converged guidance on fair value measurement and disclosure requirements. This guidance clarifies how fair value accounting should be applied where its use is already required or permitted by other standards within GAAP or International Financial Reporting Standards; this guidance does not require additional fair value measurements. This guidance generally represents clarifications to the application of existing fair value measurement and disclosure requirements, as well as some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This guidance is effective for interim and annual periods beginning after December 31, 2011, and should be applied prospectively. Early application by public entities is not permitted. The adoption of this guidance may result in increased interim and annual financial statement disclosures, but is not expected to have a material effect on our financial condition, results of operations or cash flows.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the FASB issued amended guidance to enhance disclosures about the credit quality of an entity's financing receivables and the allowance for credit losses. The required disclosures as of the end of a reporting period became effective for interim and annual reporting periods ending on or after December 15, 2010. The required disclosures about activity that occurs during a reporting period became effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this amended guidance resulted in increased interim and annual financial statement disclosures, but did not have a material effect on our financial condition, results of operations or cash flows. See Note 8 - Allowance for Credit Losses for additional disclosures required under this amended guidance.




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


A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. On January 19, 2011, the FASB issued guidance to defer temporarily the effective date of disclosures about troubled debt restructurings required by the amended guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The effective date for these new disclosures was deferred pending further guidance for determining what constitutes a troubled debt restructuring.

On April 5, 2011, the FASB issued guidance to clarify which debt modifications constitute troubled debt restructurings. This guidance is intended to help creditors determine whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for presenting previously deferred disclosures related to troubled debt restructurings. This guidance became effective for interim and annual periods beginning on or after June 15, 2011. As required, we applied the new guidance to troubled debt restructurings occurring on or after January 1, 2011. The adoption of this amended guidance resulted in increased interim and annual financial statement disclosures but did not have a material effect on our financial condition, results of operations or cash flows. See Note 8 - Allowance for Credit Losses for the additional disclosures.

Reconsideration of Effective Control for Repurchase Agreements. On April 29, 2011, the FASB issued guidance to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This guidance amends the existing criteria for determining whether or not a transferor has retained effective control over financial assets transferred under a repurchase agreement. A secured borrowing is recorded when effective control over the transferred financial assets is maintained, while a sale is recorded when effective control over the transferred financial assets has not been maintained. The new guidance removes from the assessment of effective control: (i) the criterion requiring the transferor to have the ability to repurchase or redeem financial assets before their maturity on substantially the agreed terms, even in the event of the transferee's default, and (ii) the collateral maintenance implementation guidance related to that criterion. This guidance is effective for interim and annual periods beginning on or after December 15, 2011. This guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. We are currently evaluating the effect of the adoption of this amended guidance on our financial condition, results of operations and cash flows.

Presentation of Comprehensive Income. On June 16, 2011, the FASB issued guidance to increase the prominence of other comprehensive income in financial statements. This guidance requires an entity that reports items of other comprehensive income to present comprehensive income in either a single financial statement or in two consecutive financial statements. In a single continuous statement, an entity is required to present the components and amount of net income, the components of other comprehensive income and a total for other comprehensive income, as well as a total for comprehensive income. In a two-statement approach, an entity is required to present the components and amount of net income in its statement of net income. The statement of other comprehensive income should follow immediately and include the components of other comprehensive income as well as totals for both other comprehensive income and comprehensive income. This guidance eliminates the option to present other comprehensive income in the statement of changes in stockholders' equity. This guidance is effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begin after December 15, 2011. Early adoption is permitted. We plan to elect the two-statement approach noted above for interim and annual periods beginning on January 1, 2012, and will apply this guidance retrospectively for all periods presented in accordance with the guidance. The adoption of this guidance will be limited to increased interim and annual financial statement disclosures and will not affect our financial condition, results of operations or cash flows.

Disclosures about an Employer's Participation in a Multiemployer Plan. On September 21, 2011, the FASB issued guidance to enhance disclosures about an employer's participation in a multiemployer pension plan. These disclosures will provide users with the following: (i) additional administrative information about an employer's participation in significant multiemployer plans; (ii) an employer's participation level in these plans, including contributions made and whether contributions exceed 5% of total contributions made to a plan; (iii) the financial health of these plans, including information about funded status and funding improvement plans, as applicable; and (iv) the nature of employer commitments to the plan, including expiration dates of collective bargaining agreements and whether such agreements require minimum plan contributions. Previously, disclosures were limited primarily to the historical contributions made to all multiemployer pension plans. This guidance is effective for annual periods ending after December 15, 2011, and will be applied retrospectively for all prior periods presented. We participate in a multiple employer pension plan, but follow disclosure requirements for multiemployer pension plans. The adoption of this guidance will result in increased annual financial statement disclosures, but will not affect our financial condition, results of operations or cash flows.




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


Note 3 - Available-for-Sale Securities

Major Security Types. Our AFS securities were as follows:
 
 
 
 
OTTI
 
Gross
 
Gross
 
 
 
 
Amortized
 
Recognized
 
Unrealized
 
Unrealized
 
Estimated
September 30, 2011
 
Cost (1)
 
in AOCI
 
Gains
 
Losses
 
Fair Value
GSE debentures
 
$
1,763,742

 
$

 
$
260,226

 
$

 
$
2,023,968

TLGP debentures
 
321,683

 

 
1,123

 

 
322,806

Private-label RMBS
 
746,765

 
(80,606
)
 
147

 

 
666,306

Total AFS securities
 
$
2,832,190

 
$
(80,606
)
 
$
261,496

 
$

 
$
3,013,080

 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
1,771,077

 
$

 
$
163,110

 
$
(3,929
)
 
$
1,930,258

TLGP debentures
 
324,193

 

 
924

 

 
325,117

Private-label RMBS
 
1,051,347

 
(75,825
)
 
7,019

 

 
982,541

Total AFS securities
 
$
3,146,617

 
$
(75,825
)
 
$
171,053

 
$
(3,929
)
 
$
3,237,916


(1) 
Amortized cost of AFS securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and, if applicable, OTTI recognized in earnings (credit losses).

At September 30, 2011, and December 31, 2010, 95% and 85%, respectively, of amortized cost of our fixed-rate AFS securities were swapped to a variable rate, and none of our variable-rate AFS securities were swapped.

Premiums and Discounts. At September 30, 2011, and December 31, 2010, the amortized cost of our MBS classified as AFS securities included OTTI credit losses, OTTI-related accretion adjustments, and net purchase discounts on OTTI securities totaling $116,650 and $122,173, respectively.

Reconciliations of Amounts in AOCI. Subsequent unrealized gains and losses in the fair value of previously OTTI AFS securities are netted against the non-credit component of OTTI in AOCI in the Statement of Condition. The following tables reconcile the amounts in the AFS major security types table above to the Statement of Condition and AOCI rollforward presentation:
Net Unrealized Gains (Losses) on AFS Securities
 
September 30,
2011
 
December 31,
2010
Net unrealized gains included in Estimated Fair Value
 
$
261,496

 
$
167,124

Less:
 
 
 
 
Subsequent net unrealized gains on previously OTTI securities
 
147

 
7,019

Unrealized gains on hedged items recognized in Other Income (Loss)
 
258,248

 
164,720

Net unrealized gains (losses) on AFS securities recognized in AOCI
 
$
3,101

 
$
(4,615
)

Net Non-Credit Portion of OTTI Losses on AFS Securities
 
September 30,
2011
 
December 31,
2010
OTTI Recognized in AOCI
 
$
(80,606
)
 
$
(75,825
)
Subsequent net unrealized gains on previously OTTI securities
 
147

 
7,019

Net non-credit portion of OTTI losses on AFS securities
 
$
(80,459
)
 
$
(68,806
)





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), which are 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
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
September 30, 2011
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$

 
$

 
$

 
$

 
$

 
$

TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 

 

 

 

 

 

Private-label RMBS
 
98,475

 
(6,575
)
 
544,621

 
(74,031
)
 
643,096

 
(80,606
)
Total impaired AFS securities
 
$
98,475

 
$
(6,575
)
 
$
544,621

 
$
(74,031
)
 
$
643,096

 
$
(80,606
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
103,652

 
$
(3,929
)
 
$

 
$

 
$
103,652

 
$
(3,929
)
TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 
103,652

 
(3,929
)
 

 

 
103,652

 
(3,929
)
Private-label RMBS
 

 

 
777,955

 
(75,825
)
 
777,955

 
(75,825
)
Total impaired AFS securities
 
$
103,652

 
$
(3,929
)
 
$
777,955

 
$
(75,825
)
 
$
881,607

 
$
(79,754
)

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

 
 
September 30, 2011
 
December 31, 2010
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in one year or less
 
$

 
$

 
$

 
$

Due after one year through five years
 
952,843

 
1,036,920

 
324,193

 
325,117

Due after five years through ten years
 
1,132,582

 
1,309,854

 
1,771,077

 
1,930,258

Due after ten years
 

 

 

 

Total Non-MBS
 
2,085,425

 
2,346,774

 
2,095,270

 
2,255,375

Total MBS
 
746,765

 
666,306

 
1,051,347

 
982,541

Total AFS securities
 
$
2,832,190

 
$
3,013,080

 
$
3,146,617

 
$
3,237,916


Securities Transferred. In the three months ended September 30, 2011, we transferred one private-label RMBS from HTM to AFS due to management's change in intent to no longer necessarily hold this security to maturity resulting from a significant deterioration in the creditworthiness of the issuer and other factors. Such deterioration was evidenced by an OTTI credit loss for this security in the three months ended September 30, 2011. At the time of transfer, this security had an unpaid principal balance of $19,382 and a net carrying value (i.e., amortized cost net of non-credit losses) of $13,822. As a result of the transfer, we recorded an unrealized gain of $3,421.





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


Realized Gains and Losses. The following table presents the proceeds, gross gains and losses, and previously recognized OTTI credit losses including accretion related to the sale of four AFS securities in the three months ended September 30, 2011, and six securities in the nine months ended September 30, 2011. We compute gains and losses on sales of investment securities using the specific identification method.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Sales of AFS Securities
 
2011
 
2010
 
2011
 
2010
Proceeds from sale
 
$
88,155

 
$

 
$
154,675

 
$

 
 
 
 
 
 
 
 
 
Previously recognized OTTI credit losses including accretion
 
$
13,259

 
$

 
$
29,844

 
$

 
 
 
 
 
 
 
 
 
Gross gains
 
$
6,187

 
$

 
$
7,091

 
$

Gross losses
 

 

 
(2,847
)
 

Net Realized Gains from Sale of Available-for-Sale Securities
 
$
6,187

 
$

 
$
4,244

 
$


As of September 30, 2011, we had no intention to sell the remaining OTTI AFS securities, nor did we consider it more likely than not that we will be required to sell these securities before our anticipated recovery of each security's remaining amortized cost basis.

Note 4 - Held-to-Maturity Securities

Major Security Types. Our HTM securities were as follows:
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
OTTI
 
 
 
Unrecognized
 
Unrecognized
 
Estimated
 
 
Amortized
 
Recognized
 
Carrying
 
Holding
 
Holding
 
Fair
September 30, 2011
 
Cost (1)
 
In AOCI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
Value
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
293,541

 
$

 
$
293,541

 
$
2

 
$
(784
)
 
$
292,759

TLGP debentures
 
1,929,997

 

 
1,929,997

 
1,994

 
(108
)
 
1,931,883

Total Non-MBS and ABS
 
2,223,538

 

 
2,223,538

 
1,996

 
(892
)
 
2,224,642

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
2,768,888

 

 
2,768,888

 
45,354

 
(8,871
)
 
2,805,371

GSE RMBS
 
3,377,474

 

 
3,377,474

 
117,071

 
(1,597
)
 
3,492,948

Private-label RMBS
 
454,978

 

 
454,978

 
473

 
(10,869
)
 
444,582

Private-label ABS
 
20,211

 

 
20,211

 

 
(3,709
)
 
16,502

Total MBS and ABS
 
6,621,551

 

 
6,621,551

 
162,898

 
(25,046
)
 
6,759,403

Total HTM securities
 
$
8,845,089

 
$

 
$
8,845,089

 
$
164,894

 
$
(25,938
)
 
$
8,984,045

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
294,121

 
$

 
$
294,121

 
$
300

 
$
(214
)
 
$
294,207

TLGP debentures
 
2,065,994

 

 
2,065,994

 
4,530

 
(3
)
 
2,070,521

Total Non-MBS and ABS
 
2,360,115

 

 
2,360,115

 
4,830

 
(217
)
 
2,364,728

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
2,326,958

 

 
2,326,958

 
31,773

 
(7,849
)
 
2,350,882

GSE RMBS
 
3,044,129

 

 
3,044,129

 
53,049

 
(24,933
)
 
3,072,245

Private-label RMBS
 
725,493

 
(7,056
)
 
718,437

 
5,665

 
(18,277
)
 
705,825

Private-label ABS
 
22,188

 

 
22,188

 

 
(2,477
)
 
19,711

Total MBS and ABS
 
6,118,768

 
(7,056
)
 
6,111,712

 
90,487

 
(53,536
)
 
6,148,663

Total HTM securities
 
$
8,478,883

 
$
(7,056
)
 
$
8,471,827

 
$
95,317

 
$
(53,753
)
 
$
8,513,391






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


(1) 
Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and, if applicable, OTTI recognized in earnings (credit losses).
(2) 
Carrying value of HTM securities represents amortized cost after adjustment for non-credit OTTI recognized in AOCI.
(3) 
Gross unrecognized holding gains (losses) represents the difference between estimated fair value and carrying value.

Premiums and Discounts. At September 30, 2011, and December 31, 2010, the amortized cost of our MBS and ABS HTM securities included credit losses, OTTI-related accretion adjustments, and purchase premiums and discounts totaling $55,644 and $61,001, respectively.

Capitalized Interest. For the three and nine months ended September 30, 2011, we capitalized interest on Other U.S. obligations - guaranteed RMBS of $5,347 and $21,781, respectively, compared to $10,010 and $27,817 for the three and nine months ended September 30, 2010, respectively.

Unrealized Loss Positions. The following table presents impaired HTM securities (i.e., in an unrealized loss position), which are 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
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
September 30, 2011
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses (1)
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,210

 
$
(784
)
 
$

 
$

 
$
268,210

 
$
(784
)
TLGP debentures
 
149,892

 
(108
)
 

 

 
149,892

 
(108
)
Total Non-MBS and ABS
 
418,102

 
(892
)
 

 

 
418,102

 
(892
)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
834,089

 
(6,280
)
 
200,748

 
(2,591
)
 
1,034,837

 
(8,871
)
GSE RMBS
 
513,608

 
(1,205
)
 
143,885

 
(392
)
 
657,493

 
(1,597
)
Private-label RMBS
 
107,381

 
(1,056
)
 
296,149

 
(9,813
)
 
403,530

 
(10,869
)
Private-label ABS
 

 

 
16,502

 
(3,709
)
 
16,502

 
(3,709
)
Total MBS and ABS
 
1,455,078

 
(8,541
)
 
657,284

 
(16,505
)
 
2,112,362

 
(25,046
)
Total impaired HTM securities
 
$
1,873,180

 
$
(9,433
)
 
$
657,284

 
$
(16,505
)
 
$
2,530,464

 
$
(25,938
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
168,779

 
$
(214
)
 
$

 
$

 
$
168,779

 
$
(214
)
TLGP debentures
 
68,764

 
(3
)
 

 

 
68,764

 
(3
)
Total Non-MBS and ABS
 
237,543

 
(217
)
 

 

 
237,543

 
(217
)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
994,667

 
(7,849
)
 

 

 
994,667

 
(7,849
)
GSE RMBS
 
1,034,990