10-Q 1 ind6301210q.htm IND 6/30/12 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 June 30, 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 July 31, 2012

Class B Stock, par value $100
20,593,353




Table of Contents
Page
 
 
Number
PART I.
 
Item 1.
 
 
Statements of Condition as of June 30, 2012 and December 31, 2011
 
Statements of Income for the Three and Six Months Ended June 30, 2012 and 2011
 
 
Statements of Capital for the Six Months Ended June 30, 2011 and 2012
 
Statements of Cash Flows for the Six Months Ended June 30, 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)
 
June 30,
2012
 
December 31,
2011
Assets:
 
 
 
Cash and Due from Banks
$
198,325

 
$
512,682

Interest-Bearing Deposits
110

 
15

Securities Purchased Under Agreements to Resell
1,700,000

 

Federal Funds Sold
2,237,000

 
3,422,000

Available-for-Sale Securities (Notes 3 and 5)
3,836,762

 
2,949,446

Held-to-Maturity Securities (Estimated Fair Values of $7,663,673 and $8,972,081, respectively) (Notes 4 and 5)
7,464,699

 
8,832,178

Advances (Note 6)
18,813,684

 
18,567,702

Mortgage Loans Held for Portfolio, net (Notes 7 and 8)
5,779,558

 
5,955,142

Accrued Interest Receivable
86,296

 
87,314

Premises, Software, and Equipment, net
12,864

 
12,626

Derivative Assets, net (Note 9)
425

 
493

Other Assets
35,513

 
35,892

Total Assets
$
40,165,236

 
$
40,375,490

 
 
 
 
Liabilities:
 

 
 
Deposits:
 

 
 
Interest-Bearing
$
771,162

 
$
620,702

Non-Interest-Bearing
11,783

 
8,764

Total Deposits
782,945

 
629,466

Consolidated Obligations (Note 10):
 

 
 
Discount Notes
7,557,115

 
6,536,109

Bonds
28,719,874

 
30,358,210

Total Consolidated Obligations
36,276,989

 
36,894,319

Accrued Interest Payable
89,918

 
102,060

Affordable Housing Program Payable
34,550

 
32,845

Derivative Liabilities, net (Note 9)
188,326

 
174,573

Mandatorily Redeemable Capital Stock (Note 11)
450,898

 
453,885

Other Liabilities
264,479

 
141,154

Total Liabilities
38,088,105

 
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: 16,048 and 15,592, respectively
1,604,797

 
1,559,196

Class B-2 issued and outstanding shares: 31 and 39, respectively
3,127

 
3,860

     Total Capital Stock Putable
1,607,924

 
1,563,056

Retained Earnings:
 
 
 
Unrestricted
520,819

 
484,511

Restricted
28,098

 
13,162

Total Retained Earnings
548,917

 
497,673

Total Accumulated Other Comprehensive Income (Loss) (Note 12)
(79,710
)
 
(113,541
)
Total Capital
2,077,131

 
1,947,188

 
 
 
 
Total Liabilities and Capital
$
40,165,236

 
$
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
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Interest Income:
 
 
 
 
 
 
 
Advances
$
43,544

 
$
39,465

 
$
88,913

 
$
80,613

Prepayment Fees on Advances, net
2,359

 
280

 
2,833

 
1,414

Interest-Bearing Deposits
280

 
8

 
474

 
18

Securities Purchased Under Agreements to Resell
824

 
94

 
1,460

 
683

Federal Funds Sold
593

 
1,973

 
980

 
4,914

Available-for-Sale Securities
10,315

 
13,113

 
20,774

 
27,990

Held-to-Maturity Securities
40,709

 
45,458

 
84,701

 
90,971

Mortgage Loans Held for Portfolio, net
63,887

 
76,532

 
133,118

 
156,661

Other, net
(188
)
 
71

 
753

 
592

Total Interest Income
162,323

 
176,994

 
334,006

 
363,856

Interest Expense:
 
 
 
 
 
 
 
Consolidated Obligation Discount Notes
1,811

 
2,082

 
2,603

 
5,281

Consolidated Obligation Bonds
97,742

 
115,130

 
201,849

 
233,650

Deposits
21

 
60

 
51

 
133

Mandatorily Redeemable Capital Stock
3,326

 
3,737

 
7,237

 
8,562

Total Interest Expense
102,900

 
121,009

 
211,740

 
247,626

Net Interest Income
59,423

 
55,985

 
122,266

 
116,230

Provision for Credit Losses
1,864

 
1,183

 
2,283

 
2,159

Net Interest Income After Provision for Credit Losses
57,559

 
54,802

 
119,983

 
114,071

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

 

 
(6
)
 
(2,972
)
Non-Credit Portion Reclassified to (from) Other Comprehensive Income (Loss), net
(292
)
 
(3,336
)
 
(3,574
)
 
(18,745
)
Net Other-Than-Temporary Impairment Losses, credit portion
(292
)
 
(3,336
)
 
(3,580
)
 
(21,717
)
Net Realized Losses from Sale of Available-for-Sale Securities

 
(1,943
)
 

 
(1,943
)
Net Gains (Losses) on Derivatives and Hedging Activities
(5,563
)
 
(3,406
)
 
(4,387
)
 
(3,533
)
Service Fees
254

 
265

 
487

 
528

Standby Letters of Credit Fees
239

 
462

 
488

 
800

Loss on Extinguishment of Debt

 

 

 
(397
)
Other, net
228

 
239

 
505

 
421

Total Other Income (Loss)
(5,134
)
 
(7,719
)
 
(6,487
)
 
(25,841
)
Other Expenses:
 
 
 
 
 
 
 
Compensation and Benefits
9,282

 
8,320

 
18,049

 
17,063

Other Operating Expenses
4,199

 
3,686

 
8,129

 
6,516

Federal Housing Finance Agency
826

 
860

 
1,836

 
1,776

Office of Finance
605

 
523

 
1,280

 
1,344

Other
227

 
259

 
425

 
514

Total Other Expenses
15,139

 
13,648

 
29,719

 
27,213

Income Before Assessments
37,286

 
33,435

 
83,777

 
61,017

Assessments:
 
 
 
 
 
 
 
Affordable Housing Program
4,061

 
3,111

 
9,101

 
5,855

Resolution Funding Corporation

 
5,939

 

 
10,907

Total Assessments
4,061

 
9,050

 
9,101

 
16,762

Net Income
$
33,225

 
$
24,385

 
$
74,676

 
$
44,255


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
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Net Income
$
33,225

 
$
24,385

 
$
74,676

 
$
44,255

 
 
 
 
 
 
 
 
Other Comprehensive Income:
 
 
 
 
 
 
 
Net Change in Unrealized Gains (Losses) on Available-for-Sale Securities
(1,769
)
 
5,886

 
(5,185
)
 
10,149

 
 
 
 
 
 
 
 
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
5,183

 
(6,328
)
 
31,785

 
(1,062
)
Unrealized Gains (Losses)
630

 
(4,546
)
 
4,754

 
(709
)
Reclassification of Net Realized Losses From Sale to Other Income (Loss)

 
1,943

 

 
1,943

Reclassification of Non-Credit Portion to Other Income (Loss)
292

 
3,336

 
3,578

 
21,076

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities
6,105

 
(5,595
)
 
40,117

 
18,917

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

 

 
(4
)
 

Accretion of Non-Credit Portion
19

 
832

 
46

 
1,902

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities
19

 
832

 
42

 
1,902

 
 
 
 
 
 
 
 
Pension Benefits
(1,451
)
 
1,356

 
(1,143
)
 
1,648

 
 
 
 
 
 
 
 
Total Other Comprehensive Income
2,904

 
2,479

 
33,831

 
32,616

 
 
 
 
 
 
 
 
Total Comprehensive Income
$
36,129

 
$
26,864

 
$
108,507

 
$
76,871



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

3



Federal Home Loan Bank of Indianapolis
Statements of Capital
Six Months Ended June 30, 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
 
349

 
34,898

 
 
 
 
 
 
 
 
 
34,898

Repurchase/Redemption of Capital Stock
 
(1,497
)
 
(149,694
)
 
 
 
 
 
 
 
 
 
(149,694
)
Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(54
)
 
(5,389
)
 
 
 
 
 
 
 
 
 
(5,389
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
44,255

 

 
44,255

 
32,616

 
76,871

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(11
)
 

 
(11
)
 
 
 
(11
)
Cash Dividends on Capital Stock
(2.5% annualized)
 
 
 
 
 
(20,487
)
 

 
(20,487
)
 
 
 
(20,487
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2011
 
14,899

 
$
1,489,875

 
$
451,314

 
$

 
$
451,314

 
$
(57,630
)
 
$
1,883,559

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
483

 
48,381

 
 
 
 
 
 
 
 
 
48,381

Repurchase/Redemption of Capital Stock
 

 

 
 
 
 
 
 
 
 
 

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(35
)
 
(3,513
)
 
 
 
 
 
 
 
 
 
(3,513
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
59,740

 
14,936

 
74,676

 
33,831

 
108,507

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(27
)
 

 
(27
)
 
 
 
(27
)
Cash Dividends on Capital Stock
(3.0% annualized)
 
 
 
 
 
(23,405
)
 

 
(23,405
)
 
 
 
(23,405
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2012
 
16,079

 
$
1,607,924

 
$
520,819

 
$
28,098

 
$
548,917

 
$
(79,710
)
 
$
2,077,131




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)
 
Six Months Ended
 
June 30,
 
2012
 
2011 (1)
Operating Activities:
 
 
 
Net Income
$
74,676

 
$
44,255

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:
 
 
 
Amortization and Depreciation
12,976

 
13,423

Change in Net Derivative and Hedging Activities
44,797

 
51,004

Net Other-Than-Temporary Impairment Losses, credit portion
3,580

 
21,717

Loss on Extinguishment of Debt

 
397

Provision for Credit Losses
2,283

 
2,159

Net Realized Losses from Sale of Available-for-Sale Securities

 
1,943

Changes in:
 
 
 
Accrued Interest Receivable (adjusted for capitalized interest)
977

 
19,925

Other Assets
5,140

 
(138
)
Accrued Interest Payable
(12,142
)
 
(10,176
)
Other Liabilities
(300
)
 
(8,811
)
Total Adjustments, net
57,311

 
91,443

Net Cash provided by Operating Activities
131,987

 
135,698

 
 
 
 
Investing Activities:
 
 
 
Changes in:
 
 
 
Interest-Bearing Deposits
(12,387
)
 
(10,956
)
Securities Purchased Under Agreements to Resell
(1,700,000
)
 
750,000

Federal Funds Sold
1,185,000

 
4,420,000

Purchases of Premises, Software, and Equipment
(5,666
)
 
(894
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities of Long-Term
35,428

 
107,740

Proceeds from Sales of Long-Term

 
66,520

Purchases of Long-Term
(777,000
)
 

Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities of Long-Term
2,233,961

 
753,507

Purchases of Long-Term
(842,141
)
 
(975,136
)
Advances:
 
 
 
Principal Collected
24,083,868

 
7,986,310

Disbursed to Members
(24,317,570
)
 
(7,174,205
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
727,263

 
664,708

Purchases
(557,825
)
 
(248,416
)
Other Federal Home Loan Banks:
 
 
 
Principal Collected on Loans

 
50,000

Loans Made

 
(50,000
)
Net Cash provided by Investing Activities
52,931

 
6,339,178

 
(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)
 
Six Months Ended
 
June 30,
 
2012
 
2011
Financing Activities:
 
 
 
Changes in Deposits
153,479

 
121,672

Net Payments on Derivative Contracts with Financing Elements
(42,481
)
 
(54,171
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
56,295,065

 
259,944,888

Bonds
11,810,870

 
9,923,131

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(55,274,157
)
 
(258,875,922
)
Bonds
(13,460,500
)
 
(15,723,077
)
Proceeds from Sale of Capital Stock
48,381

 
34,898

Payments for Redemption of Mandatorily Redeemable Capital Stock
(6,527
)
 
(148,633
)
Payments for Repurchase/Redemption of Capital Stock

 
(149,694
)
Cash Dividends Paid on Capital Stock
(23,405
)
 
(20,487
)
Net Cash used in Financing Activities
(499,275
)
 
(4,947,395
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(314,357
)
 
1,527,481

Cash and Cash Equivalents at Beginning of Period
512,682

 
11,676

Cash and Cash Equivalents at End of Period
$
198,325

 
$
1,539,157

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest Paid
$
219,689

 
$
259,993

Affordable Housing Program Payments
7,397

 
8,813

Resolution Funding Corporation Assessments Paid

 
15,302

Capitalized Interest on Certain Held-to-Maturity Securities
9,416

 
16,434

Par Value of Net Shares Reclassified to Mandatorily Redeemable Capital Stock
3,513

 
5,389

 

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 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 Note 1 - Summary of Significant Accounting Policies in our 2011 Form 10-K. There have been no significant changes to these policies through June 30, 2012.

We use certain acronyms and terms throughout these financial statements, which are defined in the Glossary of Terms located on page 40. 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 Comprehensive 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 have elected to revise our previously issued Statements of Cash Flows in these financial statements 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:
 
 
Six Months Ended
 
 
June 30, 2011
 
 
As Previously Reported
 
As Revised
Operating Activities:
 
 
 
 
Net Change in: Accrued Interest Receivable
 
$
9,051

 
$
19,925

Total Adjustments, net
 
80,569

 
91,443

Net Cash provided by Operating Activities
 
124,824

 
135,698

 
 
 
 
 
Investing Activities:
 
 
 
 
Held-to-Maturity Securities:
Proceeds from Maturities of Long-Term
 
764,381

 
753,507

Net Cash provided by Investing Activities
 
6,350,052

 
6,339,178

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.




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


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 states that it was effective upon issuance. We are in the process of implementing this guidance and, along with the other FHLBanks, are in discussions with the Finance Agency to resolve various accounting and operational issues raised by AB-2012-02. We are evaluating its effect 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. 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. 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 to net income 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
June 30, 2012
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE debentures
 
$
2,904,385

 
$

 
$
11,881

 
$
(2,181
)
 
$
2,914,085

TLGP debentures
 
319,507

 

 
195

 

 
319,702

Private-label RMBS
 
682,132

 
(81,001
)
 
1,844

 

 
602,975

Total AFS securities
 
$
3,906,024

 
$
(81,001
)
 
$
13,920

 
$
(2,181
)
 
$
3,836,762

 
 
 
 
 
 
 
 
 
 
 
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 not included in Unrealized Gains (Losses) in AOCI, but 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
 
June 30,
2012
 
December 31,
2011
Gross unrealized gains included in estimated fair value
 
$
13,920

 
$
15,655

Gross unrealized losses included in estimated fair value
 
(2,181
)
 
(3,485
)
Less: unrealized gains (losses) on previously OTTI securities
 
1,844

 
(2,910
)
Net unrealized gains (losses) on AFS securities recognized in AOCI (Note 12)
 
$
9,895

 
$
15,080


Net Non-Credit Portion of OTTI Losses on AFS Securities
 
June 30,
2012
 
December 31,
2011
Non-Credit OTTI
 
$
(81,001
)
 
$
(116,364
)
     Plus: unrealized gains (losses) on previously OTTI securities
 
1,844

 
(2,910
)
Net non-credit portion of OTTI losses on AFS securities recognized in AOCI (Note 12)
 
$
(79,157
)
 
$
(119,274
)




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


Premiums and Discounts. At June 30, 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 $117,512 and $116,699, respectively.

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
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
June 30, 2012
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
532,649

 
$
(2,181
)
 
$

 
$

 
$
532,649

 
$
(2,181
)
TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 
532,649

 
(2,181
)
 

 

 
532,649

 
(2,181
)
Private-label RMBS
 

 

 
543,536

 
(81,001
)
 
543,536

 
(81,001
)
Total impaired AFS securities
 
$
532,649

 
$
(2,181
)
 
$
543,536

 
$
(81,001
)
 
$
1,076,185

 
$
(83,182
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
June 30, 2012
 
December 31, 2011
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in one year or less
 
$
319,507

 
$
319,702

 
$
321,175

 
$
322,442

Due after one year through five years
 
1,718,735

 
1,729,286

 
941,496

 
950,264

Due after five years through ten years
 
1,100,920

 
1,101,237

 
1,070,386

 
1,075,431

Due after ten years
 
84,730

 
83,562

 

 

Total Non-MBS
 
3,223,892

 
3,233,787

 
2,333,057

 
2,348,137

Total MBS
 
682,132

 
602,975

 
720,583

 
601,309

Total AFS securities
 
$
3,906,024

 
$
3,836,762

 
$
3,053,640

 
$
2,949,446


Realized Gains and Losses. The following table presents the proceeds, previously recognized OTTI credit losses including accretion, and gross gains and losses related to the sale of two AFS securities in the three months ended June 30, 2011. We compute gains and losses on sales of investment securities using the specific identification method.
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
Sales of AFS Securities
 
2012
 
2011
 
2012
 
2011
Proceeds from sale
 
$

 
$
66,520

 
$

 
$
66,520

 
 
 
 
 
 
 
 
 
Previously recognized OTTI credit losses including accretion
 
$

 
$
16,585

 
$

 
$
16,585

 
 
 
 
 
 
 
 
 
Gross gains
 
$

 
$
904

 
$

 
$
904

Gross losses
 

 
(2,847
)
 

 
(2,847
)
Net Realized Losses from Sale of Available-for-Sale Securities
 
$

 
$
(1,943
)
 
$

 
$
(1,943
)





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


As of June 30, 2012, we had no intention of selling 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. The following table presents our HTM securities:
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
OTTI
 
 
 
Unrecognized
 
Unrecognized
 
Estimated
 
 
Amortized
 
Recognized
 
Carrying
 
Holding
 
Holding
 
Fair
June 30, 2012
 
Cost (1)
 
In AOCI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
Value
Non-MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,995

 
$

 
$
268,995

 
$
1,404

 
$

 
$
270,399

TLGP debentures
 
218,765

 

 
218,765

 
35

 

 
218,800

Total Non-MBS and ABS
 
487,760

 

 
487,760

 
1,439

 

 
489,199

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
2,893,029

 

 
2,893,029

 
70,279

 
(6,779
)
 
2,956,529

GSE RMBS
 
3,762,456

 

 
3,762,456

 
145,065

 
(675
)
 
3,906,846

Private-label RMBS
 
303,472

 

 
303,472

 
586

 
(6,853
)
 
297,205

Manufactured housing loan ABS
 
15,792

 

 
15,792

 

 
(3,655
)
 
12,137

Home equity loan ABS
 
2,540

 
(350
)
 
2,190

 

 
(433
)
 
1,757

Total MBS and ABS
 
6,977,289

 
(350
)
 
6,976,939

 
215,930

 
(18,395
)
 
7,174,474

Total HTM securities
 
$
7,465,049

 
$
(350
)
 
$
7,464,699

 
$
217,369

 
$
(18,395
)
 
$
7,663,673

 
 
 
 
 
 
 
 
 
 
 
 
 
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 June 30, 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 $54,844 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
June 30, 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
 
179,214

 
(149
)
 
821,576

 
(6,630
)
 
1,000,790

 
(6,779
)
GSE RMBS
 
83,167

 
(103
)
 
116,700

 
(572
)
 
199,867

 
(675
)
Private-label RMBS
 
32,454

 
(154
)
 
219,012

 
(6,699
)
 
251,466

 
(6,853
)
Manufactured housing loan ABS
 

 

 
12,137

 
(3,655
)
 
12,137

 
(3,655
)
Home equity loan ABS
 

 

 
1,757

 
(783
)
 
1,757

 
(783
)
Total MBS and ABS
 
294,835

 
(406
)
 
1,171,182

 
(18,339
)
 
1,466,017

 
(18,745
)
Total impaired HTM securities
 
$
294,835

 
$
(406
)
 
$
1,171,182

 
$
(18,339
)
 
$
1,466,017

 
$
(18,745
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
June 30, 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:
 
 
 
 
 
&