10-Q 1 ind3311210q.htm IND 3/31/12 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 March 31, 2012

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 April 30, 2012

Class B Stock, par value $100
20,349,940




Table of Contents
Page
 
 
Number
PART I.
 
Item 1.
 
 
Statements of Condition as of March 31, 2012 and December 31, 2011
 
Statements of Income for the Three Months Ended March 31, 2012 and 2011
 
 
Statements of Capital for the Three Months Ended March 31, 2012 and 2011
 
Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Results of Operations and Changes in Financial Condition
 
 
 
 
 
 
 
Item 3.
Item 4.
PART II.
 
Item 1.
Item 1A.
Item 6.
 
 
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)
 
March 31,
2012
 
December 31,
2011
Assets:
 
 
 
Cash and Due from Banks
$
301,367

 
$
512,682

Interest-Bearing Deposits
144

 
15

Securities Purchased Under Agreements to Resell
1,750,000

 

Federal Funds Sold
2,105,000

 
3,422,000

Available-for-Sale Securities (Note 3)
3,336,755

 
2,949,446

Held-to-Maturity Securities (Estimated Fair Values of $8,112,824 and $8,972,081, respectively) (Note 4)
7,957,238

 
8,832,178

Advances (Note 6)
18,042,308

 
18,567,702

Mortgage Loans Held for Portfolio, net (Notes 7 and 8)
5,840,182

 
5,955,142

Accrued Interest Receivable
88,776

 
87,314

Premises, Software, and Equipment, net
12,344

 
12,626

Derivative Assets, net (Note 9)
317

 
493

Other Assets
34,930

 
35,892

Total Assets
$
39,469,361

 
$
40,375,490

 
 
 
 
Liabilities:
 

 
 
Deposits:
 

 
 
Interest-Bearing
$
1,302,142

 
$
620,702

Non-Interest-Bearing
10,140

 
8,764

Total Deposits
1,312,282

 
629,466

Consolidated Obligations (Note 10):
 

 
 
Discount Notes
5,968,864

 
6,536,109

Bonds
29,337,472

 
30,358,210

Total Consolidated Obligations, net
35,306,336

 
36,894,319

Accrued Interest Payable
103,142

 
102,060

Affordable Housing Program Payable
35,598

 
32,845

Derivative Liabilities, net (Note 9)
125,435

 
174,573

Mandatorily Redeemable Capital Stock (Note 11)
457,425

 
453,885

Other Liabilities
119,500

 
141,154

Total Liabilities
37,459,718

 
38,428,302

Commitments and Contingencies (Note 15)


 


Capital (Note 11):
 

 
 
Capital Stock Putable (at par value of $100 per share):
 
 
 
Class B-1, issued and outstanding shares: 15,610 and 15,592, respectively
1,560,952

 
1,559,196

Class B-2, issued and outstanding shares: 40 and 39, respectively
3,968

 
3,860

Total Capital Stock Putable
1,564,920

 
1,563,056

Retained Earnings:
 
 
 
Unrestricted
505,885

 
484,511

Restricted
21,452

 
13,162

Total Retained Earnings
527,337

 
497,673

Accumulated Other Comprehensive Income (Loss) (Note 12)
(82,614
)
 
(113,541
)
Total Capital
2,009,643

 
1,947,188

Total Liabilities and Capital
$
39,469,361

 
$
40,375,490


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
 
 
March 31,
 
 
2012
 
2011
Interest Income:
 
 
 
 
Advances
 
$
45,369

 
$
41,148

Prepayment Fees on Advances, net
 
474

 
1,134

Interest-Bearing Deposits
 
194

 
10

Securities Purchased Under Agreements to Resell
 
636

 
589

Federal Funds Sold
 
387

 
2,941

Available-for-Sale Securities
 
10,459

 
14,877

Held-to-Maturity Securities
 
43,992

 
45,513

Mortgage Loans Held for Portfolio, net
 
69,231

 
80,129

Other, net
 
941

 
521

Total Interest Income
 
171,683

 
186,862

Interest Expense:
 
 
 
 
Consolidated Obligation Discount Notes
 
792

 
3,199

Consolidated Obligation Bonds
 
104,107

 
118,520

Deposits
 
30

 
73

Mandatorily Redeemable Capital Stock
 
3,911

 
4,825

Total Interest Expense
 
108,840

 
126,617

Net Interest Income
 
62,843

 
60,245

Provision for Credit Losses
 
419

 
976

Net Interest Income After Provision for Credit Losses
 
62,424

 
59,269

Other Income (Loss):
 
 
 
 
Total Other-Than-Temporary Impairment Losses
 
(6
)
 
(2,972
)
Non-Credit Portion Reclassified to (from) Other Comprehensive Income (Loss), net
 
(3,282
)
 
(15,409
)
Net Other-Than-Temporary Impairment Losses, credit portion
 
(3,288
)
 
(18,381
)
Net Gains (Losses) on Derivatives and Hedging Activities
 
1,176

 
(127
)
Service Fees
 
233

 
263

Standby Letters of Credit Fees
 
249

 
338

Loss on Extinguishment of Debt
 

 
(397
)
Other, net
 
277

 
182

Total Other Income (Loss)
 
(1,353
)
 
(18,122
)
Other Expenses:
 
 
 
 
Compensation and Benefits
 
8,767

 
8,743

Other Operating Expenses
 
3,930

 
2,830

Federal Housing Finance Agency
 
1,010

 
916

Office of Finance
 
675

 
821

Other
 
198

 
255

Total Other Expenses
 
14,580

 
13,565

Income Before Assessments
 
46,491

 
27,582

Assessments:
 
 
 
 
Affordable Housing Program
 
5,040

 
2,744

Resolution Funding Corporation
 

 
4,968

Total Assessments
 
5,040

 
7,712

Net Income
 
$
41,451

 
$
19,870


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

2



Federal Home Loan Bank of Indianapolis
Statements of Comprehensive Income
(Unaudited, $ amounts in thousands)
 
 
Three Months Ended
 
 
March 31,
 
 
2012
 
2011
Net Income
 
$
41,451

 
$
19,870

 
 
 
 
 
Other Comprehensive Income:
 
 
 
 
Net Change in Unrealized Gains (Losses) on Available-for-Sale Securities
 
(3,416
)
 
4,263

 
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities:
 
 
 
 
Non-Credit Portion
 

 
(2,331
)
Net Change in Fair Value Not in Excess of Cumulative Non-Credit Losses
 
26,602

 
5,266

Unrealized Gains (Losses)
 
4,124

 
3,837

Reclassification of Non-Credit Portion to Other Income (Loss)
 
3,286

 
17,740

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities
 
34,012

 
24,512

 
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities:
 
 
 
 
Non-Credit Portion
 
(4
)
 

Accretion of Non-Credit Portion
 
27

 
1,070

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities
 
23

 
1,070

 
 
 
 
 
Pension Benefits
 
308

 
292

 
 
 
 
 
Total Other Comprehensive Income
 
30,927

 
30,137

 
 
 
 
 
Total Comprehensive Income
 
$
72,378

 
$
50,007



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

3



Federal Home Loan Bank of Indianapolis
Statements of Capital
Three Months Ended March 31, 2011 and 2012
(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, 2010
 
16,101

 
$
1,610,060

 
$
427,557

 
$

 
$
427,557

 
$
(90,246
)
 
$
1,947,371

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
142

 
14,243

 
 
 
 
 
 
 
 
 
14,243

Repurchase/Redemption of Capital Stock
 
(100
)
 
(10,000
)
 
 
 
 
 
 
 
 
 
(10,000
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
19,870

 

 
19,870

 
30,137

 
50,007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Dividends on Capital Stock
(2.50% annualized)
 
 
 
 
 
(10,558
)
 

 
(10,558
)
 
 
 
(10,558
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2011
 
16,143

 
$
1,614,303

 
$
436,869

 
$

 
$
436,869

 
$
(60,109
)
 
$
1,991,063

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
 
15,631

 
$
1,563,056

 
$
484,511

 
$
13,162

 
$
497,673

 
$
(113,541
)
 
$
1,947,188

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
54

 
5,377

 
 
 
 
 
 
 
 
 
5,377

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(35
)
 
(3,513
)
 
 
 
 
 
 
 
 
 
(3,513
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
33,161

 
8,290

 
41,451

 
30,927

 
72,378

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(27
)
 

 
(27
)
 
 
 
(27
)
Cash Dividends on Capital Stock
(3.00% annualized)
 
 
 
 
 
(11,760
)
 

 
(11,760
)
 
 
 
(11,760
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2012
 
15,650

 
$
1,564,920

 
$
505,885

 
$
21,452

 
$
527,337

 
$
(82,614
)
 
$
2,009,643




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

4



Federal Home Loan Bank of Indianapolis
Statements of Cash Flows
(Unaudited, $ amounts in thousands)
 
Three Months Ended
 
March 31,
 
2012
 
2011 (1)
Operating Activities:
 
 
 
Net Income
$
41,451

 
$
19,870

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:
 
 
 
Depreciation and Amortization
(5,593
)
 
9,260

Change in Net Derivatives and Hedging Activities
16,728

 
10,158

Net Other-Than-Temporary Impairment Losses, credit portion
3,288

 
18,381

Loss on Extinguishment of Debt

 
397

Provision for Credit Losses
419

 
976

Changes in:
 
 
 
Accrued Interest Receivable (adjusted for capitalized interest)
(1,489
)
 
6,484

Other Assets
(519
)
 
(438
)
Accrued Interest Payable
1,082

 
10,506

Other Liabilities
(1,836
)
 
(7,602
)
Total Adjustments, net
12,080

 
48,122

Net Cash provided by Operating Activities
53,531

 
67,992

 
 
 
 
Investing Activities:
 
 
 
Changes in:
 
 
 
Interest-Bearing Deposits
26,620

 
15,600

Securities Purchased Under Agreements to Resell
(1,750,000
)
 
625,000

Federal Funds Sold
1,317,000

 
(196,000
)
Purchases of Premises, Software, and Equipment
(169
)
 
(161
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities of Long-Term
17,880

 
57,053

Purchases of Long-Term
(375,000
)
 

Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities of Long-Term
1,195,448

 
510,201

Purchases of Long-Term
(357,553
)
 
(524,794
)
Advances:
 
 
 
Principal Collected
11,430,444

 
4,613,298

Disbursed to Members
(10,942,276
)
 
(4,110,957
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
341,303

 
413,076

Purchases
(227,920
)
 
(180,668
)
Other Federal Home Loan Banks:
 
 
 
Principal Collected on Loans

 
50,000

Loans Made

 
(50,000
)
Net Cash provided by Investing Activities
675,777

 
1,221,648

 
(1) 
Certain amounts have been revised. See Note 1 - Summary of Significant Accounting Policies - Correction of an Error.

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

5



Federal Home Loan Bank of Indianapolis
Statements of Cash Flows, continued
(Unaudited, $ amounts in thousands)
 
Three Months Ended
 
March 31,
 
2012
 
2011
Financing Activities:
 
 
 
Changes in Deposits
682,816

 
49,038

Net Payments on Derivative Contracts with Financing Elements
(20,476
)
 
(26,438
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
29,251,337

 
159,640,997

Bonds
6,441,808

 
4,526,882

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(29,818,225
)
 
(160,076,190
)
Bonds
(7,471,500
)
 
(5,094,277
)
Proceeds from Sale of Capital Stock
5,377

 
14,243

Payments for Repurchase/Redemption of Capital Stock

 
(10,000
)
Cash Dividends Paid on Capital Stock
(11,760
)
 
(10,558
)
Net Cash used in Financing Activities
(940,623
)
 
(986,303
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(211,315
)
 
303,337

Cash and Cash Equivalents at Beginning of the Period
512,682

 
11,676

Cash and Cash Equivalents at End of the Period
$
301,367

 
$
315,013

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest Paid
$
104,126

 
$
113,663

Affordable Housing Program Payments
2,287

 
3,531

Resolution Funding Corporation Assessments Paid

 
10,387

Capitalized Interest on Certain Held-to-Maturity Securities
5,288

 
8,017

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
3,513

 

 

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

6



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 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 2011 Form 10-K.

The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair presentation 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 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 2011 Form 10-K. There have been no significant changes to these policies as of March 31, 2012.

All dollar amounts included in the Notes to Financial Statements are presented in thousands, unless otherwise indicated. We use certain acronyms and terms throughout these financial statements which are defined in the Glossary of Terms located on page 38. 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, as previously disclosed in the September 30, 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 Operating Activities and Investing Activities sections of the Statements of Cash Flows. Such non-cash transactions should have had no impact on those sections; however the effects of the error were fully offsetting in total. We have evaluated the effects of these errors and concluded that none of them are material to any of our previously issued interim or annual Financial Statements. Nevertheless, we elected to revise our previously issued Statements of Cash Flows in these financial statements and future filings 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, Comprehensive Income, or Capital.

The amounts on previously issued Statements of Cash Flows that have been revised are presented below:
 
 
Three Months Ended
 
 
March 31, 2011
 
 
As Previously Reported
 
As Revised
Operating Activities:
 
 
 
 
Net Change in: Accrued Interest Receivable
 
$
1,040

 
$
6,484

Total Adjustments, net
 
42,678

 
48,122

Net Cash provided by Operating Activities
 
62,548

 
67,992

 
 
 
 
 
Investing Activities:
 
 
 
 
Held-to-Maturity Securities:
Proceeds from Maturities of Long-Term
 
515,645

 
510,201

Net Cash provided by Investing Activities
 
1,227,092

 
1,221,648





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


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.

Note 2 - Recently Adopted and Issued Accounting Guidance

Advisory Bulletin 2012-02. On April 9, 2012, the Finance Agency issued Advisory Bulletin 2012-02, Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention ("AB-2012-02"). The guidance establishes a standard and uniform methodology for classifying certain assets other than investment securities, and prescribes the timing of asset charge-offs based on these classifications. This guidance is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. AB-2012-02 was effective upon issuance. We are currently evaluating the effect of this guidance on our financial condition, results of operations and cash flows, but we do not expect it to be material.

Disclosures about Offsetting Assets and Liabilities. On December 16, 2011, the FASB and the International Accounting Standards Board issued common disclosure requirements intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a company's financial position, whether a company's financial statements are prepared on the basis of GAAP or International Financial Reporting Standards. This guidance will require us to disclose both gross and net information about financial instruments, including derivative instruments, which are either offset on the statement of condition or subject to an enforceable master netting arrangement or similar agreement. This guidance will be effective for interim and annual periods beginning on January 1, 2013 and will be applied retrospectively for all comparative periods presented. The adoption of this guidance will result in expanded interim and annual financial statement disclosures, but will not affect our financial condition, results of operations or 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 eliminated the option to present other comprehensive income in the statement of changes in stockholders' equity (or statement of capital, in our case). We elected the two-statement approach for interim and annual periods beginning on January 1, 2012 and applied this guidance retrospectively for all periods presented in accordance with the guidance. The adoption of this guidance was limited to the presentation of certain information contained in the interim and annual financial statements and did not affect our financial condition, results of operations or cash flows. See Note 12 - Accumulated Other Comprehensive Income (Loss) for additional disclosures required under this guidance.

On December 23, 2011, the FASB issued guidance to defer the effective date of the new requirement to separately present reclassifications of items out of AOCI in the income statement. This deferral became effective for interim and annual periods beginning on January 1, 2012 and did not affect our adoption of the remaining guidance contained in the new accounting standard for the presentation of comprehensive income.

Fair Value Measurements and Disclosures. 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 became effective for interim and annual periods beginning on January 1, 2012 and was applied prospectively. The adoption of this guidance resulted in additional interim and annual financial statement disclosures, but did not have any effect on our financial condition, results of operations or cash flows. See Note 14 - Estimated Fair Values for additional disclosures required under this guidance.




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


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 was effective for interim and annual periods beginning on January 1, 2012 and was applied prospectively to transactions or modifications of existing transactions that occur on or after January 1, 2012. The adoption of this guidance did not have any effect on our financial condition, results of operations or cash flows.

Note 3 - Available-for-Sale Securities

Major Security Types. The following table presents our AFS securities:
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Non-Credit
 
Unrealized
 
Unrealized
 
Estimated
March 31, 2012
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE debentures
 
$
2,389,988

 
$

 
$
11,289

 
$
(81
)
 
$
2,401,196

TLGP debentures
 
320,573

 

 
456

 

 
321,029

Private-label RMBS
 
699,792

 
(86,476
)
 
1,214

 

 
614,530

Total AFS securities
 
$
3,410,353

 
$
(86,476
)
 
$
12,959

 
$
(81
)
 
$
3,336,755

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
2,011,882

 
$

 
$
14,045

 
$
(232
)
 
$
2,025,695

TLGP debentures
 
321,175

 

 
1,267

 

 
322,442

Private-label RMBS
 
720,583

 
(116,364
)
 
343

 
(3,253
)
 
601,309

Total AFS securities
 
$
3,053,640

 
$
(116,364
)
 
$
15,655

 
$
(3,485
)
 
$
2,949,446


(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) and fair-value hedge accounting adjustments.

Unrealized gains and losses in the fair value of previously OTTI AFS securities are netted against the non-credit portion of OTTI in AOCI. The following tables reconcile the amounts in the table above to the AOCI rollforward presentation in Note 12 - Accumulated Other Comprehensive Income (Loss):
Net Unrealized Gains (Losses) on AFS Securities
 
March 31,
2012
 
December 31,
2011
Gross unrealized gains included in Estimated Fair Value
 
$
12,959

 
$
15,655

Gross unrealized losses included in Estimated Fair Value
 
(81
)
 
(3,485
)
Less: unrealized gains (losses) on previously OTTI securities
 
1,214

 
(2,910
)
Net unrealized gains (losses) on AFS securities recognized in AOCI (Note 12)
 
$
11,664

 
$
15,080


Net Non-Credit Portion of OTTI Losses on AFS Securities
 
March 31,
2012
 
December 31,
2011
Non-Credit OTTI
 
$
(86,476
)
 
$
(116,364
)
Unrealized gains (losses) on previously OTTI securities
 
1,214

 
(2,910
)
Net non-credit portion of OTTI losses on AFS securities recognized in AOCI (Note 12)
 
$
(85,262
)
 
$
(119,274
)





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


Premiums and Discounts. At March 31, 2012 and December 31, 2011, the amortized cost of our MBS classified as AFS securities included OTTI credit losses, OTTI-related accretion adjustments, and unamortized purchase premiums and discounts on OTTI securities totaling net discounts of $119,077 and $116,699, respectively.

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
March 31, 2012
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
245,380

 
$
(81
)
 
$

 
$

 
$
245,380

 
$
(81
)
TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 
245,380

 
(81
)
 

 

 
245,380

 
(81
)
Private-label RMBS
 
89,566

 
(7,147
)
 
460,030

 
(79,329
)
 
549,596

 
(86,476
)
Total impaired AFS securities
 
$
334,946

 
$
(7,228
)
 
$
460,030

 
$
(79,329
)
 
$
794,976

 
$
(86,557
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$

 
$

 
$
113,361

 
$
(232
)
 
$
113,361

 
$
(232
)
TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 

 

 
113,361

 
(232
)
 
113,361

 
(232
)
Private-label RMBS
 
88,161

 
(13,121
)
 
495,251

 
(106,496
)
 
583,412

 
(119,617
)
Total impaired AFS securities
 
$
88,161

 
$
(13,121
)
 
$
608,612

 
$
(106,728
)
 
$
696,773

 
$
(119,849
)

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.
 
 
March 31, 2012
 
December 31, 2011
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in one year or less
 
$
320,573

 
$
321,028

 
$
321,175

 
$
322,442

Due after one year through five years
 
1,170,602

 
1,177,282

 
941,496

 
950,264

Due after five years through ten years
 
1,198,825

 
1,203,233

 
1,070,386

 
1,075,431

Due after ten years
 
20,561

 
20,682

 

 

Total Non-MBS
 
2,710,561

 
2,722,225

 
2,333,057

 
2,348,137

Total MBS
 
699,792

 
614,530

 
720,583

 
601,309

Total AFS securities
 
$
3,410,353

 
$
3,336,755

 
$
3,053,640

 
$
2,949,446


Realized Gains and Losses. There were no sales of AFS securities during the three months ended March 31, 2012 or 2011. As of March 31, 2012, we had no intention to sell the 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.





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


Note 4 - Held-to-Maturity Securities

Major Security Types. The following table presents our HTM securities:
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
OTTI
 
 
 
Unrecognized
 
Unrecognized
 
Estimated
 
 
Amortized
 
Recognized
 
Carrying
 
Holding
 
Holding
 
Fair
March 31, 2012
 
Cost (1)
 
In AOCI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
Value
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,995

 
$

 
$
268,995

 
$
1,505

 
$

 
$
270,500

TLGP debentures
 
977,836

 

 
977,836

 
858

 

 
978,694

Total Non-MBS and ABS
 
1,246,831

 

 
1,246,831

 
2,363

 

 
1,249,194

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
2,721,985

 

 
2,721,985

 
61,699

 
(10,231
)
 
2,773,453

GSE RMBS
 
3,614,724

 

 
3,614,724

 
115,853

 
(1,958
)
 
3,728,619

Private-label RMBS
 
355,219

 
(4
)
 
355,215

 
227

 
(8,342
)
 
347,100

Manufactured housing loan ABS
 
16,227

 

 
16,227

 

 
(3,575
)
 
12,652

Home equity loan ABS
 
2,621

 
(365
)
 
2,256

 

 
(450
)
 
1,806

Total MBS and ABS
 
6,710,776

 
(369
)
 
6,710,407

 
177,779

 
(24,556
)
 
6,863,630

Total HTM securities
 
$
7,957,607

 
$
(369
)
 
$
7,957,238

 
$
180,142

 
$
(24,556
)
 
$
8,112,824

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,994

 
$

 
$
268,994

 
$
1,361

 
$

 
$
270,355

TLGP debentures
 
1,883,334

 

 
1,883,334

 
2,505

 
(45
)
 
1,885,794

Total Non-MBS and ABS
 
2,152,328

 

 
2,152,328

 
3,866

 
(45
)
 
2,156,149

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
2,746,474

 

 
2,746,474

 
48,915

 
(13,258
)
 
2,782,131

GSE RMBS
 
3,511,831

 

 
3,511,831

 
118,839

 
(2,537
)
 
3,628,133

Private-label RMBS
 
402,464

 

 
402,464

 
227

 
(12,143
)
 
390,548

Manufactured housing loan ABS
 
16,757

 

 
16,757

 

 
(3,482
)
 
13,275

Home equity loan ABS
 
2,716

 
(392
)
 
2,324

 

 
(479
)
 
1,845

Total MBS and ABS
 
6,680,242

 
(392
)
 
6,679,850

 
167,981

 
(31,899
)
 
6,815,932

Total HTM securities
 
$
8,832,570

 
$
(392
)
 
$
8,832,178

 
$
171,847

 
$
(31,944
)
 
$
8,972,081


(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 March 31, 2012 and December 31, 2011, the amortized cost of our MBS and ABS HTM securities included OTTI credit losses, OTTI-related accretion adjustments, and unamortized purchase premiums and discounts totaling net premiums of $53,605 and $54,153, respectively.





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


Unrealized Loss Positions. The following table presents impaired HTM securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
March 31, 2012
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$

 
$

 
$

 
$

 
$

 
$

TLGP debentures
 

 

 

 

 

 

Total Non-MBS and ABS
 

 

 

 

 

 

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
776,797

 
(4,070
)
 
544,777

 
(6,161
)
 
1,321,574

 
(10,231
)
GSE RMBS
 
416,592

 
(929
)
 
213,678

 
(1,029
)
 
630,270

 
(1,958
)
Private-label RMBS
 
15,344

 
(130
)
 
288,352

 
(8,216
)
 
303,696

 
(8,346
)
Manufactured housing loan ABS
 

 

 
12,652

 
(3,575
)
 
12,652

 
(3,575
)
Home equity loan ABS
 

 

 
1,806

 
(815
)
 
1,806

 
(815
)
Total MBS and ABS
 
1,208,733

 
(5,129
)
 
1,061,265

 
(19,796
)
 
2,269,998

 
(24,925
)
Total impaired HTM securities
 
$
1,208,733

 
$
(5,129
)
 
$
1,061,265

 
$
(19,796
)
 
$
2,269,998

 
$
(24,925
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$

 
$

 
$

 
$

 
$

 
$

TLGP debentures
 
224,955

 
(45
)
 

 

 
224,955

 
(45
)
Total Non-MBS and ABS
 
224,955

 
(45
)
 

 

 
224,955

 
(45
)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
599,050

 
(4,477
)
 
548,564

 
(8,781
)
 
1,147,614

 
(13,258
)
GSE RMBS
 
480,432

 
(897
)
 
196,632

 
(1,640
)
 
677,064

 
(2,537
)
Private-label RMBS
 
57,366

 
(677
)
 
297,791

 
(11,466
)
 
355,157

 
(12,143
)
Manufactured housing loan ABS
 

 

 
13,275

 
(3,482
)
 
13,275

 
(3,482
)
Home equity loan ABS
 

 

 
1,845

 
(871
)
 
1,845

 
(871
)
Total MBS and ABS
 
1,136,848

 
(6,051
)
 
1,058,107

 
(26,240
)
 
2,194,955

 
(32,291
)
Total impaired HTM securities
 
$
1,361,803

 
$
(6,096
)
 
$
1,058,107

 
$
(26,240
)
 
$
2,419,910

 
$
(32,336
)

(1) 
As a result of OTTI accounting guidance, the total unrealized losses on private-label RMBS may not agree to the gross unrecognized holding losses on private-label RMBS in the major security types table above.





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


Redemption Terms. The amortized cost, carrying value and estimated fair value of non-MBS and ABS HTM securities by contractual maturity are presented below. MBS and ABS are not presented by contractual maturity because their actual maturities will likely differ from contractual maturities as borrowers may have the right to prepay obligations with or without prepayment fees.
 
 
March 31, 2012
 
December 31, 2011
 
 
 
 
 
 
Estimated
 
 
 
 
 
Estimated
 
 
Amortized
 
Carrying
 
Fair
 
Amortized
 
Carrying
 
Fair
Year of Contractual Maturity
 
Cost (1)
 
Value (2)
 
Value
 
Cost (1)
 
Value (2)
 
Value
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
977,836

 
$
977,836

 
$
978,694

 
$
1,883,334

 
$
1,883,334

 
$
1,885,794

Due after one year through five years
 
268,995

 
268,995

 
270,500

 
268,994

 
268,994

 
270,355

Due after five years through ten years
 

 

 

 

 

 

Due after ten years
 

 

 

 

 

 

Total Non-MBS and ABS
 
1,246,831

 
1,246,831

 
1,249,194

 
2,152,328

 
2,152,328

 
2,156,149

Total MBS and ABS
 
6,710,776

 
6,710,407

 
6,863,630

 
6,680,242

 
6,679,850

 
6,815,932

Total HTM securities
 
$
7,957,607

 
$
7,957,238

 
$
8,112,824

 
$
8,832,570

 
$
8,832,178

 
$
8,972,081


(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.

Realized Gains and Losses. There were no sales of HTM securities during the three months ended March 31, 2012 or 2011.

Note 5 - Other-Than-Temporary Impairment Analysis

We evaluate our individual AFS and HTM securities that have been previously OTTI or are in an unrealized loss position for OTTI on a quarterly basis. As part of our evaluation, we consider whether we intend to sell each security and whether it is more likely than not that we will be required to sell the security before its anticipated recovery. If either of these conditions is met, we recognize an OTTI loss equal to the entire difference between the security's amortized cost basis and its estimated fair value at the Statement of Condition date. For those securities that meet neither of these conditions, we perform a cash flow analysis to determine whether we expect to recover the entire amortized cost basis of the security as described in Note 7 - Other-Than-Temporary Impairment Analysis in our 2011 Form 10-K.

OTTI Evaluation Process and Results - Private-label RMBS and ABS. Our evaluation includes a projection of the cash flows that we are likely to collect based on an assessment of the structure of each security and certain assumptions.

A significant modeling assumption is the forecast of future housing price changes for the relevant states and core based statistical areas, which are based upon an assessment of the individual housing markets. Our housing price forecast as of March 31, 2012 assumes core based statistical area level current-to-trough home price declines ranging from 0% (for those housing markets that are believed to have reached their trough) to 8%. For those markets for which further home price declines are anticipated, such declines were projected to occur over the 3- to 9-month period beginning January 1, 2012. From the trough, home prices are projected to recover using one of five different recovery paths that vary by housing market.

The following table presents projected home price recovery by month at March 31, 2012.
Months
 
Recovery Range %
1 - 6
 
0.0%
2.8%
7 - 18
 
0.0%
3.0%
19 - 24
 
1.0%
4.0%
25 - 30
 
2.0%
4.0%
31 - 42
 
2.0%
5.0%
43 - 66
 
2.0%
6.0%
Thereafter
 
2.3%
5.6%





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


OTTI - Significant Modeling Assumptions. For those securities that were determined to be OTTI during the three months ended March 31, 2012, the following table presents the significant modeling assumptions used to determine the amount of credit loss recognized in earnings during this period. The related current credit enhancement is also presented. Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before we will experience a loss on the security. A zero or negative credit enhancement percentage reflects securities that have no remaining credit support from subordinated tranches and are likely to have experienced an actual principal loss. The calculated averages represent the dollar-weighted averages of the private-label RMBS in each category shown. The classification (prime, Alt-A and subprime) is based on the model used to estimate the cash flows for the security, which may not be the same as the classification by the rating agency at the time of origination.
 
 
Significant Modeling Assumptions for OTTI private-label RMBS
 
Current Credit
 
 
Prepayment Rates
 
Default Rates
 
Loss Severities
 
Enhancement
 
 
Weighted
 
 
 
Weighted
 
 
 
Weighted
 
 
 
Weighted
 
 
 
 
Average
 
Range
 
Average
 
Range
 
Average
 
Range
 
Average
 
Range
Year of Securitization
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
2007 - Prime
 
6.3
 
6.2 - 6.5
 
43.4
 
41.2 - 44.5
 
45.2
 
42.3 - 46.6
 
2.1
 
1.5 - 3.3
2006 - Prime
 
9.7
 
8.7 - 12.6
 
24.7
 
16.1 - 26.6
 
43.6
 
36.3 - 45.7
 
2.7
 
0.4 - 4.2
Total OTTI private-label RMBS
 
7.8
 
6.2 - 12.6
 
35.0
 
16.1 - 44.5
 
44.5
 
36.3 - 46.6
 
2.4
 
0.4 - 4.2

Results of OTTI Evaluation Process - Private-label RMBS and ABS. As a result of our evaluations, for the three months ended March 31, 2012 and 2011, we recognized OTTI losses after we determined that it was likely that we would not recover the entire amortized cost of each of these securities.

The table below presents the credit losses and net OTTI reclassified to (from) OCI for the three months ended March 31, 2012 and 2011. Securities are classified based on the originator's classification at the time of origination or based on the classification by the NRSROs upon issuance.
 
 
Total
 
Net OTTI
 
 OTTI
 
 
OTTI
 
Reclassified
 
Related to
Three Months Ended March 31, 2012
 
Losses
 
to (from) OCI
 
Credit Loss
Private-label RMBS:
 
 
 
 
 
 
Prime
 
$
(6
)
 
$
(3,282
)
 
$
(3,288
)
Alt-A
 

 

 

Total OTTI securities
 
$
(6
)
 
$
(3,282
)
 
$
(3,288
)
 
 
 
 
 
 
 
Three Months Ended March 31, 2011
 
 
 
 
 
 
Private-label RMBS:
 
 
 
 
 
 
Prime
 
$

 
$
(17,740
)
 
$
(17,740
)
Alt-A
 
(2,972
)
 
2,331

 
(641
)
Total OTTI securities
 
$
(2,972
)
 
$
(15,409
)
 
$
(18,381
)

The following table presents a reconciliation of the non-credit losses reclassified to Other Income (Loss) as presented in the Statement of Comprehensive Income to the non-credit losses reclassified to (from) OCI as presented in the Statement of Income:
 
 
Three Months Ended
 
 
March 31,
Reconciliation of Non-credit Losses
 
2012
 
2011
Reclassification of non-credit portion to Other Income (Loss)
 
$
(3,286
)
 
$
(17,740
)
Non-credit losses recognized in OCI
 
4

 
2,331

Non-Credit Portion Reclassified to (from) Other Comprehensive Income (Loss)
 
$
(3,282
)
 
$
(15,409
)





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


The following table presents a rollforward of the cumulative credit losses. The rollforward excludes accretion of credit losses for securities that have not experienced a significant increase in cash flows.
 
 
Three Months Ended