10-Q 1 ind9301210q.htm 10-Q IND 9/30/12 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 September 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 October 31, 2012

Class B Stock, par value $100
20,801,463




Table of Contents
Page
 
 
Number
PART I.
 
Item 1.
 
 
Statements of Condition as of September 30, 2012 and December 31, 2011
 
Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011
 
 
Statements of Capital for the Nine Months Ended September 30, 2011 and 2012
 
Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Reactivation of our Participation in the MPF Program
 
 
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)
 
September 30,
2012
 
December 31,
2011
Assets:
 
 
 
Cash and Due from Banks
$
94,938

 
$
512,682

Interest-Bearing Deposits
126

 
15

Securities Purchased Under Agreements to Resell
2,150,000

 

Federal Funds Sold
2,763,000

 
3,422,000

Available-for-Sale Securities (Notes 3 and 5)
4,304,067

 
2,949,446

Held-to-Maturity Securities (Estimated Fair Values of $7,521,174 and $8,972,081, respectively) (Notes 4 and 5)
7,280,782

 
8,832,178

Advances (Note 6)
18,652,306

 
18,567,702

Mortgage Loans Held for Portfolio, net of allowance for credit losses of $(10,000) and $(3,300), respectively (Notes 7 and 8)
5,843,943

 
5,955,142

Accrued Interest Receivable
88,426

 
87,314

Premises, Software, and Equipment, net
12,773

 
12,626

Derivative Assets, net (Note 9)
2,919

 
493

Other Assets
38,059

 
35,892

Total Assets
$
41,231,339

 
$
40,375,490

 
 
 
 
Liabilities:
 

 
 
Deposits:
 

 
 
Interest-Bearing
$
753,429

 
$
620,702

Non-Interest-Bearing
18,571

 
8,764

Total Deposits
772,000

 
629,466

Consolidated Obligations (Note 10):
 

 
 
Discount Notes
9,560,858

 
6,536,109

Bonds
27,768,383

 
30,358,210

Total Consolidated Obligations
37,329,241

 
36,894,319

Accrued Interest Payable
95,787

 
102,060

Affordable Housing Program Payable
34,547

 
32,845

Derivative Liabilities, net (Note 9)
206,612

 
174,573

Mandatorily Redeemable Capital Stock (Note 11)
450,716

 
453,885

Other Liabilities
196,672

 
141,154

Total Liabilities
39,085,575

 
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: 16,133 and 15,592, respectively
1,613,278

 
1,559,196

Class B-2 issued and outstanding shares: 32 and 39, respectively
3,253

 
3,860

     Total Capital Stock Putable
1,616,531

 
1,563,056

Retained Earnings:
 
 
 
Unrestricted
535,537

 
484,511

Restricted
34,726

 
13,162

Total Retained Earnings
570,263

 
497,673

Total Accumulated Other Comprehensive Income (Loss) (Note 12)
(41,030
)
 
(113,541
)
Total Capital
2,145,764

 
1,947,188

 
 
 
 
Total Liabilities and Capital
$
41,231,339

 
$
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Interest Income:
 
 
 
 
 
 
 
Advances
$
42,089

 
$
38,835

 
$
131,002

 
$
119,448

Prepayment Fees on Advances, net
1,497

 
4,307

 
4,330

 
5,721

Interest-Bearing Deposits
271

 
110

 
745

 
128

Securities Purchased Under Agreements to Resell
1,074

 
185

 
2,534

 
868

Federal Funds Sold
672

 
772

 
1,652

 
5,686

Available-for-Sale Securities
10,843

 
11,056

 
31,617

 
39,046

Held-to-Maturity Securities
38,477

 
43,883

 
123,178

 
134,854

Mortgage Loans Held for Portfolio, net
62,615

 
72,402

 
195,733

 
229,063

Other, net
569

 
(1,193
)
 
1,322

 
(601
)
Total Interest Income
158,107

 
170,357

 
492,113

 
534,213

Interest Expense:
 
 
 
 
 
 
 
Consolidated Obligation Discount Notes
2,492

 
1,944

 
5,095

 
7,225

Consolidated Obligation Bonds
93,158

 
109,351

 
295,007

 
343,001

Deposits
20

 
32

 
71

 
165

Mandatorily Redeemable Capital Stock
3,355

 
3,067

 
10,592

 
11,629

Total Interest Expense
99,025

 
114,394

 
310,765

 
362,020

Net Interest Income
59,082

 
55,963

 
181,348

 
172,193

Provision for Credit Losses
5,634

 
1,550

 
7,917

 
3,709

Net Interest Income After Provision for Credit Losses
53,448

 
54,413

 
173,431

 
168,484

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

 
(1,586
)
 
(6
)
 
(4,558
)
Non-Credit Portion Reclassified to (from) Other Comprehensive Income (Loss), net
(14
)
 
(3,081
)
 
(3,588
)
 
(21,826
)
Net Other-Than-Temporary Impairment Losses, credit portion
(14
)
 
(4,667
)
 
(3,594
)
 
(26,384
)
Net Realized Gains from Sale of Available-for-Sale Securities

 
6,187

 

 
4,244

Net Gains (Losses) on Derivatives and Hedging Activities
(3,056
)
 
(7,315
)
 
(7,443
)
 
(10,848
)
Service Fees
236

 
265

 
723

 
793

Standby Letters of Credit Fees
192

 
456

 
680

 
1,256

Loss on Extinguishment of Debt

 

 

 
(397
)
Other, net
474

 
264

 
979

 
685

Total Other Income (Loss)
(2,168
)
 
(4,810
)
 
(8,655
)
 
(30,651
)
Other Expenses:
 
 
 
 
 
 
 
Compensation and Benefits
8,516

 
9,672

 
26,565

 
26,735

Other Operating Expenses
3,893

 
4,310

 
12,022

 
10,826

Federal Housing Finance Agency
838

 
917

 
2,674

 
2,693

Office of Finance
592

 
714

 
1,872

 
2,058

Other
243

 
245

 
668

 
759

Total Other Expenses
14,082

 
15,858

 
43,801

 
43,071

Income Before Assessments
37,198

 
33,745

 
120,975

 
94,762

Assessments:
 
 
 
 
 
 
 
Affordable Housing Program
4,056

 
3,681

 
13,157

 
9,536

Resolution Funding Corporation

 

 

 
10,907

Total Assessments
4,056

 
3,681

 
13,157

 
20,443

Net Income
$
33,142

 
$
30,064

 
$
107,818

 
$
74,319


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net Income
$
33,142

 
$
30,064

 
$
107,818

 
$
74,319

 
 
 
 
 
 
 
 
Other Comprehensive Income:
 
 
 
 
 
 
 
Net Change in Unrealized Gains (Losses) on Available-for-Sale Securities
3,606

 
(2,433
)
 
(1,579
)
 
7,716

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

 
(1,199
)
 

 
(3,530
)
Non-Credit Losses Transferred from Held-to-Maturity Securities

 
(4,311
)
 

 
(4,311
)
Net Change in Fair Value Not in Excess of Cumulative Non-Credit Losses
32,311

 
(16,738
)
 
64,096

 
(17,800
)
Unrealized Gains (Losses)
3,301

 
(6,164
)
 
8,055

 
(6,873
)
Reclassification of Net Realized Losses From Sale to Other Income (Loss)

 
(6,187
)
 

 
(4,244
)
Reclassification of Non-Credit Portion to Other Income (Loss)
14

 
4,029

 
3,592

 
25,105

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities
35,626

 
(30,570
)
 
75,743

 
(11,653
)
 
 
 
 
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities:
 
 
 
 
 
 
 
Non-Credit Portion

 

 
(4
)
 

Non-Credit Losses Transferred to Available-for-Sale Securities

 
4,311

 

 
4,311

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

 
251

 

 
251

Accretion of Non-Credit Portion
18

 
592

 
64

 
2,494

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities
18

 
5,154

 
60

 
7,056

 
 
 
 
 
 
 
 
Pension Benefits
(570
)
 
824

 
(1,713
)
 
2,472

 
 
 
 
 
 
 
 
Total Other Comprehensive Income (Loss)
38,680

 
(27,025
)
 
72,511

 
5,591

 
 
 
 
 
 
 
 
Total Comprehensive Income
$
71,822

 
$
3,039

 
$
180,329

 
$
79,910



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

3



Federal Home Loan Bank of Indianapolis
Statements of Capital
Nine Months Ended September 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
 
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
569

 
56,988

 
 
 
 
 
 
 
 
 
56,988

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(35
)
 
(3,513
)
 
 
 
 
 
 
 
 
 
(3,513
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
86,254

 
21,564

 
107,818

 
72,511

 
180,329

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(27
)
 

 
(27
)
 
 
 
(27
)
Cash Dividends on Capital Stock
(3.0% annualized)
 
 
 
 
 
(35,201
)
 

 
(35,201
)
 
 
 
(35,201
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2012
 
16,165

 
$
1,616,531

 
$
535,537

 
$
34,726

 
$
570,263

 
$
(41,030
)
 
$
2,145,764




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)
 
Nine Months Ended
 
September 30,
 
2012
 
2011
Operating Activities:
 
 
 
Net Income
$
107,818

 
$
74,319

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:
 
 
 
Amortization and Depreciation
35,627

 
(24,411
)
Change in Net Derivative and Hedging Activities
64,779

 
80,495

Net Other-Than-Temporary Impairment Losses, credit portion
3,594

 
26,384

Loss on Extinguishment of Debt

 
397

Provision for Credit Losses
7,917

 
3,709

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

 
(4,244
)
Changes in:
 
 
 
Accrued Interest Receivable (adjusted for capitalized interest)
(1,115
)
 
31,359

Other Assets
4,384

 
5,446

Accrued Interest Payable
(6,273
)
 
(22,227
)
Other Liabilities
3,932

 
(16,626
)
Total Adjustments, net
112,845

 
80,282

Net Cash provided by Operating Activities
220,663

 
154,601

 
 
 
 
Investing Activities:
 
 
 
Changes in:
 
 
 
Interest-Bearing Deposits
(17,635
)
 
(773,196
)
Securities Purchased Under Agreements to Resell
(2,150,000
)
 
250,000

Federal Funds Sold
659,000

 
3,855,000

Purchases of Premises, Software, and Equipment
(9,073
)
 
(2,093
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities of Long-Term
53,162

 
149,045

Proceeds from Sales of Long-Term

 
155,847

Purchases of Long-Term
(1,310,060
)
 

Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities of Long-Term
2,740,889

 
1,019,559

Purchases of Long-Term
(1,144,255
)
 
(1,369,604
)
Advances:
 
 
 
Principal Collected
34,329,908

 
14,773,928

Disbursed to Members
(34,401,609
)
 
(14,848,518
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
1,108,146

 
943,592

Purchases of Loans and Participation Interests
(1,006,139
)
 
(357,203
)
Loans to Other Federal Home Loan Banks:
 
 
 
Principal Collected

 
50,000

Disbursed

 
(50,000
)
Net Cash provided by (used in) Investing Activities
(1,147,666
)
 
3,796,357

 


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)
 
Nine Months Ended
 
September 30,
 
2012
 
2011
Financing Activities:
 
 
 
Changes in Deposits
142,535

 
654,809

Net Payments on Derivative Contracts with Financing Elements
(62,539
)
 
(76,993
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
102,721,071

 
278,663,234

Bonds
18,821,982

 
21,168,157

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(99,696,868
)
 
(280,606,169
)
Bonds
(21,432,000
)
 
(23,186,697
)
Proceeds from Sale of Capital Stock
56,988

 
106,424

Payments for Redemption of Mandatorily Redeemable Capital Stock
(6,709
)
 
(189,089
)
Payments for Repurchase/Redemption of Capital Stock

 
(149,744
)
Cash Dividends Paid on Capital Stock
(35,201
)
 
(30,325
)
Net Cash provided by (used in) Financing Activities
509,259

 
(3,646,393
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(417,744
)
 
304,565

Cash and Cash Equivalents at Beginning of Period
512,682

 
11,676

Cash and Cash Equivalents at End of Period
$
94,938

 
$
316,241

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest Paid
$
307,498

 
$
380,332

Affordable Housing Program Payments
11,454

 
13,327

Resolution Funding Corporation Assessments Paid

 
21,232

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

 
13,822

Capitalized Interest on Certain Held-to-Maturity Securities
14,610

 
21,781

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

 
14,122

 

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 September 30, 2012.

We use certain acronyms and terms throughout these financial statements, which are defined in the Glossary of Terms located on page 41. 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.

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. 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.





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


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.

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 the substantially agreed-upon 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.





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


Note 3 - Available-for-Sale Securities

Major Security Types. The following table presents our AFS securities:
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Non-Credit
 
Unrealized
 
Unrealized
 
Estimated
September 30, 2012
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE debentures
 
$
3,351,189

 
$

 
$
14,547

 
$
(1,009
)
 
$
3,364,727

TLGP debentures
 
318,436

 

 

 
(37
)
 
318,399

Private-label RMBS
 
664,472

 
(48,676
)
 
5,145

 

 
620,941

Total AFS securities
 
$
4,334,097

 
$
(48,676
)
 
$
19,692

 
$
(1,046
)
 
$
4,304,067

 
 
 
 
 
 
 
 
 
 
 
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
 
September 30,
2012
 
December 31,
2011
Gross unrealized gains included in estimated fair value
 
$
19,692

 
$
15,655

Gross unrealized losses included in estimated fair value
 
(1,046
)
 
(3,485
)
Less: unrealized gains (losses) on previously OTTI securities
 
5,145

 
(2,910
)
Net unrealized gains (losses) on AFS securities recognized in AOCI (Note 12)
 
$
13,501

 
$
15,080


Net Non-Credit Portion of OTTI Losses on AFS Securities
 
September 30,
2012
 
December 31,
2011
Non-Credit OTTI
 
$
(48,676
)
 
$
(116,364
)
     Plus: unrealized gains (losses) on previously OTTI securities
 
5,145

 
(2,910
)
Net non-credit portion of OTTI losses on AFS securities recognized in AOCI (Note 12)
 
$
(43,531
)
 
$
(119,274
)

Premiums and Discounts. At September 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 $113,991 and $116,699, respectively.





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
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
September 30, 2012
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
370,888

 
$
(1,009
)
 
$

 
$

 
$
370,888

 
$
(1,009
)
TLGP debentures
 
200,164

 
(37
)
 

 

 
200,164

 
(37
)
Total Non-MBS
 
571,052

 
(1,046
)
 

 

 
571,052

 
(1,046
)
Private-label RMBS
 

 

 
526,943

 
(48,676
)
 
526,943

 
(48,676
)
Total impaired AFS securities
 
$
571,052

 
$
(1,046
)
 
$
526,943

 
$
(48,676
)
 
$
1,097,995

 
$
(49,722
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
September 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
 
$
318,436

 
$
318,399

 
$
321,175

 
$
322,442

Due after one year through five years
 
1,965,273

 
1,976,240

 
941,496

 
950,264

Due after five years through ten years
 
1,293,844

 
1,297,007

 
1,070,386

 
1,075,431

Due after ten years
 
92,072

 
91,480

 

 

Total Non-MBS
 
3,669,625

 
3,683,126

 
2,333,057

 
2,348,137

Total MBS
 
664,472

 
620,941

 
720,583

 
601,309

Total AFS securities
 
$
4,334,097

 
$
4,304,067

 
$
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 four and six AFS securities in the three and nine months ended September 30, 2011, respectively. There were no sales of AFS securities during the three and nine months ended September 30, 2012. 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
 
2012
 
2011
 
2012
 
2011
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, 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.




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


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 amortized cost of $18,134, OTTI recognized in AOCI of $(4,312) and an estimated fair value of $17,243. As a result of the transfer, we recorded an unrealized gain of $3,421. There have been no such transfers in 2012.

Note 4 - Held-to-Maturity Securities

Major Security Types. The following table presents our HTM securities:
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
 
 
 
 
Unrecognized
 
Unrecognized
 
Estimated
 
 
Amortized
 
Non-Credit
 
Carrying
 
Holding
 
Holding
 
Fair
September 30, 2012
 
Cost (1)
 
OTTI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
Value
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,996

 
$

 
$
268,996

 
$
686

 
$

 
$
269,682

TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 
268,996

 

 
268,996

 
686

 

 
269,682

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
3,027,189

 

 
3,027,189

 
79,694

 
(4,400
)
 
3,102,483

GSE RMBS
 
3,699,964

 

 
3,699,964

 
170,819

 
(406
)
 
3,870,377

Private-label RMBS
 
267,208

 

 
267,208

 
914

 
(3,930
)
 
264,192

Manufactured housing loan ABS
 
15,248

 

 
15,248

 

 
(2,655
)
 
12,593

Home equity loan ABS
 
2,509

 
(332
)
 
2,177

 
23

 
(353
)
 
1,847

Total MBS and ABS
 
7,012,118

 
(332
)
 
7,011,786

 
251,450

 
(11,744
)
 
7,251,492

Total HTM securities
 
$
7,281,114

 
$
(332
)
 
$
7,280,782

 
$
252,136

 
$
(11,744
)
 
$
7,521,174

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
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
 
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 September 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 $51,025 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
September 30, 2012
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$

 
$

 
$

 
$

 
$

 
$

TLGP debentures
 

 

 

 

 

 

Total Non-MBS
 

 

 

 

 

 

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
115,755

 
(157
)
 
811,244

 
(4,243
)
 
926,999

 
(4,400
)
GSE RMBS
 
14,976

 
(15
)
 
38,765

 
(391
)
 
53,741

 
(406
)
Private-label RMBS
 
10,292

 
(33
)
 
181,589

 
(3,897
)
 
191,881

 
(3,930
)
Manufactured housing loan ABS
 

 

 
12,593

 
(2,655
)
 
12,593

 
(2,655
)
Home equity loan ABS
 

 

 
1,847

 
(662
)
 
1,847

 
(662
)
Total MBS and ABS
 
141,023

 
(205
)
 
1,046,038

 
(11,848
)
 
1,187,061

 
(12,053
)
Total impaired HTM securities
 
$
141,023

 
$
(205
)
 
$
1,046,038

 
$
(11,848
)
 
$
1,187,061

 
$
(12,053
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$

 
$

 
$

 
$

 
$

 
$

TLGP debentures
 
224,955

 
(45
)
 

 

 
224,955

 
(45
)
Total Non-MBS
 
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 home equity loan ABS may not agree to the gross unrecognized holding losses on home equity loan ABS 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 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.
 
 
September 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:
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$

 
$

 
$

 
$
1,883,334

 
$
1,883,334

 
$
1,885,794

Due after one year through five years
 
268,996

 
268,996

 
269,682

 
268,994

 
268,994