10-Q 1 a33113form10q.htm 10-Q 3/31/13 Form 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, 2013

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, 2013

Class B Stock, par value $100
18,704,829




Table of Contents
Page
 
 
Number
PART I.
 
Item 1.
 
 
Statements of Condition as of March 31, 2013 and December 31, 2012
 
Statements of Income for the Three Months Ended March 31, 2013 and 2012
 
 
Statements of Capital for the Three Months Ended March 31, 2013 and 2012
 
Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012
 
 
 
Note 1 - Summary of Significant Accounting Policies
 
Note 2 - Recently Adopted and Issued Accounting Guidance
 
Note 3 - Available-for-Sale Securities
 
Note 4 - Held-to-Maturity Securities
 
Note 5 - Other-Than-Temporary Impairment Analysis
 
Note 6 - Advances
 
Note 7 - Mortgage Loans Held for Portfolio
 
Note 8 - Allowance for Credit Losses
 
Note 9 - Derivatives and Hedging Activities
 
Note 10 - Deposits
 
Note 11 - Consolidated Obligations
 
Note 12 - Affordable Housing Program
 
Note 13 - Capital
 
Note 14 - Accumulated Other Comprehensive Income (Loss)
 
Note 15 - Segment Information
 
Note 16 - Estimated Fair Values
 
Note 17 - Commitments and Contingencies
 
Note 18 - Transactions with Related Parties
 
Note 19 - Subsequent Events
 
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,
2013
 
December 31,
2012
Assets:
 
 
 
Cash and Due from Banks
$
37,381

 
$
105,472

Interest-Bearing Deposits
211

 
48

Securities Purchased Under Agreements to Resell
2,100,000

 
3,250,000

Federal Funds Sold
1,121,000

 
2,110,000

Available-for-Sale Securities (Notes 3 and 5)
3,979,103

 
3,980,580

Held-to-Maturity Securities (Estimated Fair Values of $7,479,309 and $7,738,596, respectively) (Notes 4 and 5)
7,262,618

 
7,504,643

Advances (Note 6)
18,949,756

 
18,129,458

Mortgage Loans Held for Portfolio, net of allowance for credit losses of $(5,250) and $(10,000), respectively (Notes 7 and 8)
6,093,325

 
6,001,405

Accrued Interest Receivable
85,732

 
87,455

Premises, Software, and Equipment, net
30,477

 
28,144

Derivative Assets, net (Note 9)
1,979

 
821

Other Assets
31,004

 
29,610

Total Assets
$
39,692,586

 
$
41,227,636

 
 
 
 
Liabilities:
 

 
 
Deposits (Note 10):
 

 
 
Interest-Bearing
$
832,732

 
$
706,488

Non-Interest-Bearing
612,266

 
1,080,663

Total Deposits
1,444,998

 
1,787,151

Consolidated Obligations (Note 11):
 

 
 
Discount Notes
7,937,470

 
8,924,085

Bonds
27,416,084

 
27,407,530

Total Consolidated Obligations
35,353,554

 
36,331,615

Accrued Interest Payable
98,132

 
87,777

Affordable Housing Program Payable (Note 12)
37,167

 
34,362

Derivative Liabilities, net (Note 9)
193,798

 
201,115

Mandatorily Redeemable Capital Stock (Note 13)
160,499

 
450,716

Other Liabilities
67,125

 
119,058

Total Liabilities
37,355,273

 
39,011,794

 
 
 
 
Commitments and Contingencies (Note 17)


 


 
 
 
 
Capital (Note 13):
 

 
 
Capital Stock Putable (at par value of $100 per share):
 
 
 
Class B-1 issued and outstanding shares: 16,764 and 16,327, respectively
1,676,393

 
1,632,720

Class B-2 issued and outstanding shares: 16 and 16, respectively
1,613

 
1,580

     Total Capital Stock Putable
1,678,006

 
1,634,300

Retained Earnings:
 
 
 
Unrestricted
567,005

 
549,773

Restricted
49,716

 
41,827

Total Retained Earnings
616,721

 
591,600

Total Accumulated Other Comprehensive Income (Loss) (Note 14)
42,586

 
(10,058
)
Total Capital
2,337,313

 
2,215,842

 
 
 
 
Total Liabilities and Capital
$
39,692,586

 
$
41,227,636


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,
 
2013
 
2012
Interest Income:
 
 
 
Advances
$
32,852

 
$
45,369

Prepayment Fees on Advances, net
982

 
474

Interest-Bearing Deposits
225

 
194

Securities Purchased Under Agreements to Resell
555

 
636

Federal Funds Sold
638

 
387

Available-for-Sale Securities
9,062

 
10,459

Held-to-Maturity Securities
35,942

 
43,992

Mortgage Loans Held for Portfolio, net
63,134

 
69,231

Other, net
742

 
941

Total Interest Income
144,132

 
171,683

Interest Expense:
 
 
 
Consolidated Obligation Discount Notes
2,244

 
792

Consolidated Obligation Bonds
79,506

 
104,107

Deposits
22

 
30

Mandatorily Redeemable Capital Stock
2,408

 
3,911

Total Interest Expense
84,180

 
108,840

 
 
 
 
Net Interest Income
59,952

 
62,843

Provision for (Reversal of) Credit Losses
(4,356
)
 
419

 
 
 
 
Net Interest Income After Provision for Credit Losses
64,308

 
62,424

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

 
(6
)
Non-Credit Portion Reclassified to (from) Other Comprehensive Income, net
(1,924
)
 
(3,282
)
Net Other-Than-Temporary Impairment Losses, credit portion
(1,924
)
 
(3,288
)
Net Gains (Losses) on Derivatives and Hedging Activities
(3,772
)
 
1,176

Service Fees
228

 
233

Standby Letters of Credit Fees
166

 
249

Other, net
304

 
277

Total Other Income (Loss)
(4,998
)
 
(1,353
)
Other Expenses:
 
 
 
Compensation and Benefits
9,322

 
8,767

Other Operating Expenses
4,008

 
3,930

Federal Housing Finance Agency
820

 
1,010

Office of Finance
807

 
675

Other
258

 
198

Total Other Expenses
15,215

 
14,580

 
 
 
 
Income Before Assessments
44,095

 
46,491

Assessments:
 
 
 
Affordable Housing Program
4,650

 
5,040

Total Assessments
4,650

 
5,040

 
 
 
 
Net Income
$
39,445

 
$
41,451


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,
 
2013
 
2012
Net Income
$
39,445

 
$
41,451

 
 
 
 
Other Comprehensive Income:
 
 
 
Net Change in Unrealized Gains (Losses) on Available-for-Sale Securities
16,935

 
(3,416
)
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities:
 
 
 
Reclassification of Non-Credit Portion to Other Income
1,924

 
3,286

Net Change in Fair Value Not in Excess of Cumulative Non-Credit Losses
15,838

 
26,602

Unrealized Gains
17,500

 
4,124

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities
35,262

 
34,012

 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities:
 
 
 
Reclassification of Non-Credit Portion from Other Income (Loss)

 
(4
)
Accretion of Non-Credit Portion
20

 
27

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities
20

 
23

 
 
 
 
Pension Benefits
427

 
308

 
 
 
 
Total Other Comprehensive Income
52,644

 
30,927

 
 
 
 
Total Comprehensive Income
$
92,089

 
$
72,378



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, 2013 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, 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
 
16,343

 
$
1,634,300

 
$
549,773

 
$
41,827

 
$
591,600

 
$
(10,058
)
 
$
2,215,842

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
437

 
43,706

 
 
 
 
 
 
 
 
 
43,706

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 

 

 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
31,556

 
7,889

 
39,445

 
52,644

 
92,089

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 

 

 

 
 
 

Cash Dividends on Capital Stock
(3.50% annualized)
 
 
 
 
 
(14,324
)
 

 
(14,324
)
 
 
 
(14,324
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2013
 
16,780

 
$
1,678,006

 
$
567,005

 
$
49,716

 
$
616,721

 
$
42,586

 
$
2,337,313




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,
 
2013
 
2012
Operating Activities:
 
 
 
Net Income
$
39,445

 
$
41,451

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:
 
 
 
Amortization and Depreciation
17,497

 
13,595

Swap termination fees associated with modified Advances
(4,850
)
 
(19,188
)
Change in Net Derivative and Hedging Activities
11,366

 
16,728

Net Other-Than-Temporary Impairment Losses, credit portion
1,924

 
3,288

Provision for (Reversal of) Credit Losses
(4,356
)
 
419

Changes in:
 
 
 
Accrued Interest Receivable (adjusted for capitalized interest)
1,767

 
(1,489
)
Other Assets
(729
)
 
(519
)
Accrued Interest Payable
10,354

 
1,082

Other Liabilities
(12,430
)
 
(1,836
)
Total Adjustments, net
20,543

 
12,080

Net Cash provided by Operating Activities
59,988

 
53,531

 
 
 
 
Investing Activities:
 
 
 
Changes in:
 
 
 
Interest-Bearing Deposits
74,863

 
26,620

Securities Purchased Under Agreements to Resell
1,150,000

 
(1,750,000
)
Federal Funds Sold
989,000

 
1,317,000

Purchases of Premises, Software, and Equipment
(2,889
)
 
(169
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities of Long-Term
17,020

 
17,880

Purchases of Long-Term

 
(375,000
)
Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities of Long-Term
279,198

 
1,195,448

Purchases of Long-Term
(76,558
)
 
(357,553
)
Advances:
 
 
 
Principal Collected
9,269,257

 
11,430,444

Disbursed to Members
(10,172,999
)
 
(10,942,276
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
382,087

 
341,303

Purchases of Loans and Participation Interests
(472,048
)
 
(227,920
)
Net Cash provided by Investing Activities
1,436,931

 
675,777

 


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,
 
2013
 
2012
Financing Activities:
 
 
 
Changes in Deposits
(342,153
)
 
682,816

Net Payments on Derivative Contracts with Financing Elements
(19,951
)
 
(20,476
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
23,049,704

 
29,251,337

Bonds
6,494,257

 
6,441,808

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(24,036,482
)
 
(29,818,225
)
Bonds
(6,449,550
)
 
(7,471,500
)
Proceeds from Sale of Capital Stock
43,706

 
5,377

Payments for Redemption of Mandatorily Redeemable Capital Stock
(290,217
)
 

Cash Dividends Paid on Capital Stock
(14,324
)
 
(11,760
)
Net Cash used in Financing Activities
(1,565,010
)
 
(940,623
)
 
 
 
 
Net Increase (Decrease) in Cash and Cash Equivalents
(68,091
)
 
(211,315
)
Cash and Cash Equivalents at Beginning of Period
105,472

 
512,682

Cash and Cash Equivalents at End of Period
$
37,381

 
$
301,367

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest Paid
$
75,420

 
$
104,126

Affordable Housing Program Payments
1,845

 
2,287

Capitalized Interest on Certain Held-to-Maturity Securities
3,296

 
5,288

Par Value of 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 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 2012 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 2012 Form 10-K. There have been no significant changes to these policies through March 31, 2013.

We use certain acronyms and terms throughout these financial statements, which are defined in the Glossary of Terms. Unless the context otherwise requires, the terms "we," "us," and "our" refer to the Federal Home Loan Bank of Indianapolis or its management.

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, Total Capital, or Cash Flows.

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.

Financial Instruments with Legal Right of Offset. We have certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to enforceable master netting arrangements or similar agreements. We have elected to offset our derivative asset and liability positions, as well as cash collateral received or pledged, under these master agreements. We did not have any offsetting liabilities related to securities purchased under agreements to resell at March 31, 2013 and December 31, 2012.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset based on the terms of the individual master agreement between us and our derivative counterparty. Additional information regarding these agreements is provided in Note 9 - Derivatives and Hedging Activities. Based on the fair value of the related collateral held, the securities purchased under agreement to resell were fully collateralized for the periods presented.

Note 2 - Recently Adopted and Issued Accounting Guidance

Joint and Several Liability Arrangements. On February 28, 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This guidance requires an entity to measure these obligations as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, this guidance requires an entity to disclose the nature and the amount of the obligation as well as other information about those obligations. This guidance is effective for interim and annual periods beginning on or after December 15, 2013 and should be applied retrospectively to obligations with joint and several liabilities existing at the beginning of an entity's fiscal year of adoption. This guidance is not expected to materially 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 February 5, 2013, the FASB issued guidance to improve the transparency of reporting classifications out of AOCI. This guidance does not change the current requirements for reporting net income or comprehensive income in financial statements. However, it does require us to provide information about the amounts reclassified out of AOCI by component. In addition, we are required to present, either on the face of the financial statement where net income is presented or in the notes, significant amounts reclassified out of AOCI. These amounts must be presented based on the respective lines of net income if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, we are required to cross-reference to other required disclosures that provide additional detail about these other amounts. This guidance became effective for interim and annual periods beginning on January 1, 2013 and was applied prospectively. The adoption of this guidance resulted in additional financial statement disclosures, but did not have any effect on our financial condition, results of operations or cash flows. See Note 14 - Accumulated Other Comprehensive Income (Loss)for additional disclosures required by this guidance.

Disclosures about Offsetting Assets and Liabilities. On December 16, 2011, the FASB 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 was amended on January 31, 2013 to clarify that its scope includes only certain financial instruments that are either offset on the statement of condition or are subject to an enforceable master netting arrangement or similar agreement. This guidance requires us to disclose both gross and net information about derivative, repurchase and security lending instruments that meet this criteria. This guidance, as amended, became effective for interim and annual periods beginning on January 1, 2013, and was applied retrospectively for all comparative periods presented. The adoption of this guidance resulted in expanded interim and annual financial statement disclosures, but did not have any effect on our financial condition, results of operations or cash flows. See Note 9 - Derivatives and Hedging Activities for additional disclosures required by this 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. Such classification methodology and accounting treatment differ from our current methodology and accounting policy. AB-2012-02 states that it was effective upon issuance. However, the Finance Agency issued additional guidance that extended the effective date for financial reporting purposes to January 1, 2014 and has indicated that it may further extend the effective date for classification purposes to January 1, 2014 and the effective date for financial reporting purposes to January 1, 2015. We, along with the other FHLBanks, are in the process of implementing this guidance. The effect on our financial condition, results of operations and cash flows is still uncertain, but we do not expect it to be material.

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, 2013
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
3,293,305

 
$

 
$
29,489

 
$
(219
)
 
$
3,322,575

Private-label RMBS
 
630,950

 
(2,364
)
 
27,942

 

 
656,528

Total AFS securities
 
$
3,924,255

 
$
(2,364
)
 
$
57,431

 
$
(219
)
 
$
3,979,103

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
3,328,103

 
$

 
$
13,007

 
$
(672
)
 
$
3,340,438

Private-label RMBS
 
649,826

 
(20,126
)
 
10,442

 

 
640,142

Total AFS securities
 
$
3,977,929

 
$
(20,126
)
 
$
23,449

 
$
(672
)
 
$
3,980,580


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





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


Premiums and Discounts. At March 31, 2013 and December 31, 2012, the amortized cost of our RMBS classified as AFS securities included OTTI credit losses, OTTI-related accretion adjustments, and unamortized purchase discounts totaling net discounts of $110,092 and $110,664, 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
March 31, 2013
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
24,090

 
$
(219
)
 
$

 
$

 
$
24,090

 
$
(219
)
Total Non-MBS
 
24,090

 
(219
)
 

 

 
24,090

 
(219
)
Private-label RMBS
 

 

 
191,081

 
(2,364
)
 
191,081

 
(2,364
)
Total impaired AFS securities
 
$
24,090

 
$
(219
)
 
$
191,081

 
$
(2,364
)
 
$
215,171

 
$
(2,583
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
398,265

 
$
(672
)
 
$

 
$

 
$
398,265

 
$
(672
)
Total Non-MBS
 
398,265

 
(672
)
 

 

 
398,265

 
(672
)
Private-label RMBS
 

 

 
471,359

 
(20,126
)
 
471,359

 
(20,126
)
Total impaired AFS securities
 
$
398,265

 
$
(672
)
 
$
471,359

 
$
(20,126
)
 
$
869,624

 
$
(20,798
)

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, 2013
 
December 31, 2012
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in one year or less
 
$

 
$

 
$

 
$

Due after one year through five years
 
2,018,709

 
2,032,786

 
2,038,791

 
2,048,429

Due after five years through ten years
 
1,184,878

 
1,198,758

 
1,197,884

 
1,200,979

Due after ten years
 
89,718

 
91,031

 
91,428

 
91,030

Total Non-MBS
 
3,293,305

 
3,322,575

 
3,328,103

 
3,340,438

Total MBS
 
630,950

 
656,528

 
649,826

 
640,142

Total AFS securities
 
$
3,924,255

 
$
3,979,103

 
$
3,977,929

 
$
3,980,580


Securities Transferred. There were no transfers from HTM to AFS during the three months ended March 31, 2013 or 2012.

Realized Gains and Losses. There were no sales of AFS securities during the three months ended March 31, 2013 or 2012. However, on April 4, 2013 we sold six OTTI AFS securities, only one of which was in an unrealized loss position. See Note 19 - Subsequent Events for more information. As of March 31, 2013, we had no intention of selling the remaining AFS securities in an unrealized loss position 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
 
 
 
 
 
 
 
 
 
 
Unrecognized
 
Unrecognized
 
Estimated
 
 
Amortized
 
Non-Credit
 
Carrying
 
Holding
 
Holding
 
Fair
March 31, 2013
 
Cost (1)
 
OTTI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
Value
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,997

 
$

 
$
268,997

 
$
505

 
$

 
$
269,502

Total Non-MBS
 
268,997

 

 
268,997

 
505

 

 
269,502

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
3,080,053

 

 
3,080,053

 
79,472

 
(2,671
)
 
3,156,854

GSE RMBS
 
3,690,400

 

 
3,690,400

 
142,172

 
(13
)
 
3,832,559

Private-label RMBS
 
206,771

 

 
206,771

 
1,093

 
(1,641
)
 
206,223

Manufactured housing loan ABS
 
14,338

 

 
14,338

 

 
(2,030
)
 
12,308

Home equity loan ABS
 
2,351

 
(292
)
 
2,059

 
56

 
(252
)
 
1,863

Total MBS and ABS
 
6,993,913

 
(292
)
 
6,993,621

 
222,793

 
(6,607
)
 
7,209,807

Total HTM securities
 
$
7,262,910

 
$
(292
)
 
$
7,262,618

 
$
223,298

 
$
(6,607
)
 
$
7,479,309

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,996

 
$

 
$
268,996

 
$
357

 
$

 
$
269,353

Total Non-MBS
 
268,996

 

 
268,996

 
357

 

 
269,353

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
3,123,784

 

 
3,123,784

 
84,169

 
(1,345
)
 
3,206,608

GSE RMBS
 
3,859,172

 

 
3,859,172

 
155,044

 
(76
)
 
4,014,140

Private-label RMBS
 
235,778

 

 
235,778

 
992

 
(2,577
)
 
234,193

Manufactured housing loan ABS
 
14,779

 

 
14,779

 

 
(2,276
)
 
12,503

Home equity loan ABS
 
2,446

 
(312
)
 
2,134

 
5

 
(340
)
 
1,799

Total MBS and ABS
 
7,235,959

 
(312
)
 
7,235,647

 
240,210

 
(6,614
)
 
7,469,243

Total HTM securities
 
$
7,504,955

 
$
(312
)
 
$
7,504,643

 
$
240,567

 
$
(6,614
)
 
$
7,738,596


(1) 
Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal, 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, 2013 and December 31, 2012, 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 $48,945 and $51,784, 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. None of our non-MBS were in an unrealized loss position at March 31, 2013 or December 31, 2012.
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
March 31, 2013
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
$
238,368

 
$
(500
)
 
$
454,516

 
$
(2,171
)
 
$
692,884

 
$
(2,671
)
GSE RMBS
 

 

 
10,688

 
(13
)
 
10,688

 
(13
)
Private-label RMBS
 
11,636

 
(42
)
 
102,839

 
(1,599
)
 
114,475

 
(1,641
)
Manufactured housing loan ABS
 

 

 
12,308

 
(2,030
)
 
12,308

 
(2,030
)
Home equity loan ABS
 

 

 
1,863

 
(488
)
 
1,863

 
(488
)
Total MBS and ABS
 
250,004

 
(542
)
 
582,214

 
(6,301
)
 
832,218

 
(6,843
)
Total impaired HTM securities
 
$
250,004

 
$
(542
)
 
$
582,214

 
$
(6,301
)
 
$
832,218

 
$
(6,843
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
$
274,784

 
$
(432
)
 
$
460,152

 
$
(913
)
 
$
734,936

 
$
(1,345
)
GSE RMBS
 
124,225

 
(76
)
 

 

 
124,225

 
(76
)
Private-label RMBS
 
7,258

 
(36
)
 
155,651

 
(2,541
)
 
162,909

 
(2,577
)
Manufactured housing loan ABS
 

 

 
12,503

 
(2,276
)
 
12,503

 
(2,276
)
Home equity loan ABS
 

 

 
1,799

 
(647
)
 
1,799

 
(647
)
Total MBS and ABS
 
406,267

 
(544
)
 
630,105

 
(6,377
)
 
1,036,372

 
(6,921
)
Total impaired HTM securities
 
$
406,267

 
$
(544
)
 
$
630,105

 
$
(6,377
)
 
$
1,036,372

 
$
(6,921
)

(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.

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.
 
 
March 31, 2013
 
December 31, 2012
 
 
 
 
 
 
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
 
$

 
$

 
$

 
$

 
$

 
$

Due after one year through five years
 
268,997

 
268,997

 
269,502

 
268,996

 
268,996

 
269,353

Due after five years through ten years
 

 

 

 

 

 

Due after ten years
 

 

 

 

 

 

Total Non-MBS
 
268,997

 
268,997

 
269,502

 
268,996

 
268,996

 
269,353

Total MBS and ABS
 
6,993,913

 
6,993,621

 
7,209,807

 
7,235,959

 
7,235,647

 
7,469,243

Total HTM securities
 
$
7,262,910

 
$
7,262,618

 
$
7,479,309

 
$
7,504,955

 
$
7,504,643

 
$
7,738,596


(1) 
Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal, 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, 2013 or 2012.





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


Note 5 - Other-Than-Temporary Impairment Analysis

OTTI Evaluation Process and Results - Private-label RMBS and ABS. 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 in earnings equal to the entire difference between the debt security's amortized cost and its estimated fair value as of the Statement of Condition date. For the three months ended March 31, 2013, we recorded an OTTI credit charge of $1,924, representing the entire difference between our amortized cost basis and its estimated fair value, on one security for which we changed our previous intention to hold until recovery of its amortized cost. We did not have any such change in intent during the three months ended March 31, 2012.

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 of each security as described in Note 6 - Other-Than-Temporary Impairment Analysis of our 2012 Form 10-K. We recognize OTTI losses on those securities for which we determine that it is likely that we will not recover the entire amortized cost. This analysis includes a projection of future cash flows based on an assessment of the structure of each security and certain assumptions. Significant modeling assumptions include the forecast of future housing price changes, prepayment rates, default rates, and loss severities and are used to determine the amount of credit loss recognized in earnings. As a result of our analysis, we recognized OTTI credit losses of $0 and $3,288 during the three months ended March 31, 2013 and 2012, respectively. We determined that the unrealized losses on the remaining private-label RMBS and ABS were temporary as we expect to recover the entire amortized cost.
 
 
 
 
 
 
 
 
 
 
The following table presents a rollforward of the amounts related to credit losses recognized in earnings. The rollforward excludes accretion of credit losses for securities that have not experienced a significant increase in cash flows.
 
 
Three Months Ended
 
 
 
March 31,
 
Credit Loss Rollforward
 
2013
 
2012
 
Balance at beginning of period
 
$
109,169

 
$
105,636

 
Additions:
 
 
 
 
 
Additional credit losses for which OTTI was previously recognized
 
1,924

 
3,288

 
Reductions:
 
 
 
 
 
Unamortized life-to-date credit losses on security that we intend to sell before recovery of its amortized cost basis
 
(8,300
)
 

 
Balance at end of period
 
$
102,793

 
$
108,924

 

The following table presents the March 31, 2013 classification and balances of OTTI securities impaired prior to March 31, 2013 (i.e., life to date). Securities are classified based on the originator's classification at the time of origination or based on the classification by the NRSROs upon issuance. Because there is no universally accepted definition of prime, Alt-A or subprime underwriting standards, such classifications are subjective.
 
 
March 31, 2013
 
 
HTM Securities
 
AFS Securities
 
 
 
 
 
 
 
 
Estimated
 
 
 
 
 
Estimated
OTTI Life-to-Date
 
UPB
 
Amortized Cost
 
Carrying Value
 
Fair
Value
 
UPB
 
Amortized Cost
 
Fair
Value
Private-label RMBS - prime
 
$

 
$

 
$

 
$

 
$
706,750

 
$
605,483

 
$
630,786

Private-label RMBS - Alt-A
 

 

 

 

 
34,292

 
25,467

 
25,742

Home equity loan ABS - subprime
 
943

 
905

 
613

 
669

 

 

 

Total OTTI securities
 
$
943

 
$
905

 
$
613

 
$
669

 
$
741,042

 
$
630,950

 
$
656,528






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


OTTI Evaluation Process and Results - All Other AFS and HTM Securities.

Other U.S. and GSE Obligations and TVA Debentures. For other U.S. obligations, GSE obligations, and TVA debentures, we determined that the strength of the issuers' guarantees through direct obligations of or support from the United States government is sufficient to protect us from any losses based on current expectations. As a result, we have determined that, as of March 31, 2013, all of the gross unrealized losses are temporary.

Note 6 - Advances

We had Advances outstanding, as presented below by year of contractual maturity, with interest rates ranging from 0.07% to 8.34%.
 
 
March 31, 2013
 
December 31, 2012
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$

 

 
$
15,004

 
2.50

Due in 1 year or less
 
3,749,796

 
1.33

 
3,761,551

 
1.57

Due after 1 year through 2 years
 
1,567,182

 
2.07

 
1,365,251

 
2.66

Due after 2 years through 3 years
 
2,752,528

 
2.76

 
2,287,033

 
3.11

Due after 3 years through 4 years
 
3,645,783

 
2.70

 
3,435,097

 
2.61

Due after 4 years through 5 years
 
2,544,001

 
1.94

 
2,448,083

 
2.22

Thereafter
 
4,026,669

 
2.33

 
4,070,200

 
2.49

Total Advances, par value
 
18,285,959

 
2.19

 
17,382,219

 
2.38

Unamortized discounts (including AHP)
 
(1,226
)
 
 

 
(1,284
)
 
 

Hedging adjustments
 
500,344

 
 

 
577,225

 
 

Unamortized swap termination fees associated with modified Advances
 
164,679

 
 

 
171,298

 
 

Total Advances
 
$
18,949,756

 
 

 
$
18,129,458

 
 


We offer our members certain Advances that provide them the right, at predetermined future dates, to prepay the Advance prior to maturity without incurring prepayment or termination fees. In exchange for receiving this right, a member typically pays a higher fixed rate for the Advance relative to a non-callable, fixed-rate Advance with an equivalent maturity or pays a higher spread on an adjustable rate Advance relative to a non-callable variable rate Advance with an equivalent maturity. If the call option is exercised, replacement funding may be available. Borrowers typically exercise their call options for fixed-rate Advances when interest rates decline or for adjustable-rate Advances when spreads change. At March 31, 2013 and December 31, 2012, we had such Advances outstanding of $3.2 billion and $3.7 billion, respectively. All other Advances may only be prepaid by paying a fee (prepayment fee) that is sufficient to make us financially indifferent to the prepayment of the Advance.

We offer putable and convertible Advances. Under the terms of a putable Advance, we retain the right to extinguish or put the fixed-rate Advance to the member on predetermined future dates, and offer, subject to certain conditions, replacement funding at prevailing market rates. At March 31, 2013 and December 31, 2012, we had putable Advances outstanding totaling $247,000 and $351,500, respectively. Under the terms of a convertible Advance, we may convert an Advance from one interest payment term structure to another. We had no convertible Advances outstanding at March 31, 2013 or December 31, 2012.




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



The following table presents Advances by the earlier of the year of contractual maturity or the next call date and next put date:
 
 
Year of Contractual Maturity
or Next Call Date
 
Year of Contractual Maturity
or Next Put Date
 
 
March 31,
2013
 
December 31,
2012
 
March 31,
2013
 
December 31,
2012
Overdrawn demand and overnight deposit accounts
 
$

 
$
15,004

 
$

 
$
15,004

Due in 1 year or less
 
5,827,161

 
5,800,961

 
3,973,796

 
4,070,551

Due after 1 year through 2 years
 
1,565,182

 
1,348,251

 
1,554,182

 
1,327,251

Due after 2 years through 3 years
 
2,544,278

 
2,163,783

 
2,736,028

 
2,250,533

Due after 3 years through 4 years
 
4,014,783

 
3,539,097

 
3,605,783

 
3,405,097

Due after 4 years through 5 years
 
2,241,251

 
2,310,333

 
2,439,501

 
2,328,583

Thereafter
 
2,093,304

 
2,204,790

 
3,976,669

 
3,985,200

Total Advances, par value
 
$
18,285,959

 
$
17,382,219

 
$
18,285,959

 
$
17,382,219


Prepayment Fees. When a borrower prepays an Advance, future income will be lower if the principal portion of the prepaid Advance is reinvested in lower-yielding assets that continue to be funded by higher-costing debt. To protect against this risk, we generally charge a prepayment fee. Advance prepayment fees, excluding any associated hedging basis adjustments, at the time of the prepayment were $5,648 and $891 for the three months ended March 31, 2013 and 2012, respectively.

In cases in which we fund a new Advance concurrent with or within a short period of time before or after the prepayment of an existing Advance and the Advance meets the accounting criteria to qualify as a modification of the prepaid Advance, any prepayment fee, net of hedging basis adjustments, is deferred, recorded in the basis of the modified Advance, and amortized using a level-yield methodology over the life of the modified Advance, or as an adjustment to the interest coupon accrual of the modified Advance. For the three months ended March 31, 2013 and 2012, we deferred $7,231 and $20,799, respectively, of these gross Advance prepayment fees.

Credit Risk Exposure and Security Terms. At March 31, 2013 and December 31, 2012, we had a total of $9.0 billion and $8.4 billion, respectively, of Advances outstanding, at par, to single borrowers with balances that were greater than or equal to $1.0 billion. These Advances, representing 49% and 48%, respectively, of total Advances at par outstanding on those dates, were made to five borrowers. At March 31, 2013 and December 31, 2012, we held $17.0 billion and $17.9 billion, respectively, of UPB of collateral to cover the Advances to these borrowers.

See Note 8 - Allowance for Credit Losses for information related to credit risk on Advances and allowance methodology for credit losses.

Note 7 - Mortgage Loans Held for Portfolio

The following tables present information on Mortgage Loans Held for Portfolio:
 
 
March 31, 2013
By Term
 
MPP
 
MPF
 
Total
Fixed-rate medium-term (1) mortgages
 
$
1,012,634

 
$
60,467

 
$
1,073,101

Fixed-rate long-term (2) mortgages
 
4,634,413

 
296,216

 
4,930,629

Total Mortgage Loans Held for Portfolio, UPB
 
5,647,047

 
356,683

 
6,003,730

Unamortized premiums
 
90,013

 
8,346

 
98,359

Unamortized discounts
 
(11,988
)
 

 
(11,988
)
Hedging adjustments
 
7,904

 
570

 
8,474

Allowance for loan losses
 
(5,000
)
 
(250
)
 
(5,250
)
Total Mortgage Loans Held for Portfolio, net
 
$
5,727,976

 
$
365,349

 
$
6,093,325






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


 
 
December 31, 2012
By Term
 
MPP
 
MPF
 
Total
Fixed-rate medium-term (1) mortgages
 
$
960,944

 
$
41,014

 
$
1,001,958

Fixed-rate long-term (2) mortgages
 
4,735,020

 
189,166

 
4,924,186

Total Mortgage Loans Held for Portfolio, UPB
 
5,695,964

 
230,180

 
5,926,144

Unamortized premiums
 
81,459

 
6,323

 
87,782

Unamortized discounts
 
(12,266
)
 

 
(12,266
)
Hedging adjustments
 
8,859

 
886

 
9,745

Allowance for loan losses
 
(9,850
)
 
(150
)
 
(10,000
)
Total Mortgage Loans Held for Portfolio, net
 
$
5,764,166

 
$
237,239

 
$
6,001,405


 
 
March 31, 2013
By Type
 
MPP
 
MPF
 
Total
Conventional
 
$
4,804,665