10-Q 1 ind93013form10q.htm 10-Q IND 9/30/13 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 September 30, 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 October 31, 2013

Class B Stock, par value $100
16,908,928




Table of Contents
Page
 
 
Number
PART I.
 
Item 1.
 
 
Statements of Condition as of September 30, 2013 and December 31, 2012
 
Statements of Income for the Three and Nine Months Ended September 30, 2013 and 2012
 
 
Statements of Capital for the Nine Months Ended September 30, 2013 and 2012
 
Statements of Cash Flows for the Nine Months Ended September 30, 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 - Employee Retirement and Deferred Compensation Plans
 
Note 16 - Segment Information
 
Note 17 - Estimated Fair Values
 
Note 18 - Commitments and Contingencies
 
Note 19 - Transactions with Related Parties
 
Note 20 - 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)
 
September 30,
2013
 
December 31,
2012
Assets:
 
 
 
Cash and Due from Banks
$
514,383

 
$
105,472

Interest-Bearing Deposits
487

 
48

Securities Purchased Under Agreements to Resell
2,700,000

 
3,250,000

Federal Funds Sold
245,000

 
2,110,000

Available-for-Sale Securities (Notes 3 and 5)
3,688,783

 
3,980,580

Held-to-Maturity Securities (Estimated Fair Values of $7,437,226 and $7,738,596, respectively) (Notes 4 and 5)
7,321,459

 
7,504,643

Advances (Note 6)
18,796,297

 
18,129,458

Mortgage Loans Held for Portfolio, net of allowance for credit losses of $(5,500) and $(10,000), respectively (Notes 7 and 8)
6,159,647

 
6,001,405

Accrued Interest Receivable
81,966

 
87,455

Premises, Software, and Equipment, net
34,047

 
28,144

Derivative Assets, net (Note 9)
7,655

 
821

Other Assets
27,111

 
29,610

Total Assets
$
39,576,835

 
$
41,227,636

 
 
 
 
Liabilities:
 

 
 
Deposits (Note 10):
$
1,114,509

 
$
1,787,151

Consolidated Obligations (Note 11):
 

 
 
Discount Notes
7,804,773

 
8,924,085

Bonds
27,623,120

 
27,407,530

Total Consolidated Obligations
35,427,893

 
36,331,615

Accrued Interest Payable
94,866

 
87,777

Affordable Housing Program Payable (Note 12)
39,774

 
34,362

Derivative Liabilities, net (Note 9)
187,234

 
201,115

Mandatorily Redeemable Capital Stock (Note 13)
255,319

 
450,716

Other Liabilities
71,733

 
119,058

Total Liabilities
37,191,328

 
39,011,794

 
 
 
 
Commitments and Contingencies (Note 18)


 


 
 
 
 
Capital (Note 13):
 

 
 
Capital Stock Putable (at par value of $100 per share):
 
 
 
Class B-1 issued and outstanding shares: 16,798 and 16,327, respectively
1,679,835

 
1,632,720

Class B-2 issued and outstanding shares: 42 and 16, respectively
4,180

 
1,580

     Total Capital Stock Putable
1,684,015

 
1,634,300

Retained Earnings:
 
 
 
Unrestricted
617,186

 
549,773

Restricted
69,404

 
41,827

Total Retained Earnings
686,590

 
591,600

Total Accumulated Other Comprehensive Income (Loss) (Note 14)
14,902

 
(10,058
)
Total Capital
2,385,507

 
2,215,842

 
 
 
 
Total Liabilities and Capital
$
39,576,835

 
$
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Interest Income:
 
 
 
 
 
 
 
Advances
$
30,531

 
$
42,089

 
$
93,763

 
$
131,002

Prepayment Fees on Advances, net
273

 
1,497

 
8,127

 
4,330

Interest-Bearing Deposits
87

 
271

 
476

 
745

Securities Purchased Under Agreements to Resell
71

 
1,074

 
954

 
2,534

Federal Funds Sold
380

 
672

 
1,572

 
1,652

Available-for-Sale Securities
6,983

 
10,843

 
23,440

 
31,617

Held-to-Maturity Securities
34,998

 
38,477

 
106,008

 
123,178

Mortgage Loans Held for Portfolio, net
59,763

 
62,615

 
186,186

 
195,733

Other, net
574

 
569

 
1,121

 
1,322

Total Interest Income
133,660

 
158,107

 
421,647

 
492,113

Interest Expense:
 
 
 
 
 
 
 
Consolidated Obligation Discount Notes
1,732

 
2,492

 
6,101

 
5,095

Consolidated Obligation Bonds
77,552

 
93,158

 
235,630

 
295,007

Deposits
25

 
20

 
70

 
71

Mandatorily Redeemable Capital Stock
2,225

 
3,355

 
6,713

 
10,592

Total Interest Expense
81,534

 
99,025

 
248,514

 
310,765

 
 
 
 
 
 
 
 
Net Interest Income
52,126

 
59,082

 
173,133

 
181,348

Provision for (Reversal of) Credit Losses
314

 
5,634

 
(3,451
)
 
7,917

 
 
 
 
 
 
 
 
Net Interest Income After Provision for Credit Losses
51,812

 
53,448

 
176,584

 
173,431

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

 

 

 
(6
)
Non-Credit Portion Reclassified to (from) Other Comprehensive Income, net

 
(14
)
 
(1,924
)
 
(3,588
)
Net Other-Than-Temporary Impairment Losses, credit portion

 
(14
)
 
(1,924
)
 
(3,594
)
Net Realized Gains from Sale of Available-for-Sale Securities

 

 
17,135

 

Net Gains (Losses) on Derivatives and Hedging Activities
(125
)
 
(3,056
)
 
10,671

 
(7,443
)
Service Fees
225

 
236

 
684

 
723

Standby Letters of Credit Fees
119

 
192

 
873

 
680

Other, net
332

 
474

 
1,024

 
979

Total Other Income (Loss)
551

 
(2,168
)
 
28,463

 
(8,655
)
Other Expenses:
 
 
 
 
 
 
 
Compensation and Benefits
14,101

 
8,516

 
33,153

 
26,565

Other Operating Expenses
4,520

 
3,893

 
13,002

 
12,022

Federal Housing Finance Agency
550

 
838

 
1,914

 
2,674

Office of Finance
640

 
592

 
2,104

 
1,872

Other
354

 
243

 
925

 
668

Total Other Expenses
20,165

 
14,082

 
51,098

 
43,801

 
 
 
 
 
 
 
 
Income Before Assessments
32,198

 
37,198

 
153,949

 
120,975


 
 
 
 
 
 
 
Affordable Housing Program Assessments
3,442

 
4,056

 
16,066

 
13,157

 
 
 
 
 
 
 
 
Net Income
$
28,756

 
$
33,142

 
$
137,883

 
$
107,818


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,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Net Income
$
28,756

 
$
33,142

 
$
137,883

 
$
107,818

 
 
 
 
 
 
 
 
Other Comprehensive Income:
 
 
 
 
 
 
 
Net Change in Unrealized Gains (Losses) on Available-for-Sale Securities
2,392

 
3,606

 
(9,468
)
 
(1,579
)
 
 
 
 
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities:
 
 
 
 
 
 
 
Reclassification of Non-Credit Portion to Other Income

 
14

 
1,924

 
3,592

Net Change in Fair Value Not in Excess of Cumulative Non-Credit Losses
(84
)
 
32,311

 
35,095

 
64,096

Unrealized Gains (Losses)
2,474

 
3,301

 
7,615

 
8,055

Reclassification of Net Realized Gains From Sale to Other Income

 

 
(17,135
)
 

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities
2,390

 
35,626

 
27,499

 
75,743

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

 

 

 
(4
)
Accretion of Non-Credit Portion
18

 
18

 
55

 
64

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

 
18

 
55

 
60

 
 
 
 
 
 
 
 
Pension Benefits
6,175

 
(570
)
 
6,874

 
(1,713
)
 
 
 
 
 
 
 
 
Total Other Comprehensive Income
10,975

 
38,680

 
24,960

 
72,511

 
 
 
 
 
 
 
 
Total Comprehensive Income
$
39,731

 
$
71,822

 
$
162,843

 
$
180,329



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, 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
 
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
(3.00% 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
1,451

 
145,156

 
 
 
 
 
 
 
 
 
145,156

Net Shares Reclassified to Mandatorily Redeemable Capital Stock
 
(954
)
 
(95,441
)
 
 
 
 
 
 
 
 
 
(95,441
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 
 
 
 
 
110,306

 
27,577

 
137,883

 
24,960

 
162,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions on Mandatorily Redeemable Capital Stock
 
 
 
 
 
(137
)
 

 
(137
)
 
 
 
(137
)
Cash Dividends on Capital Stock
(3.50% annualized)
 
 
 
 
 
(42,756
)
 

 
(42,756
)
 
 
 
(42,756
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2013
 
16,840

 
$
1,684,015

 
$
617,186

 
$
69,404

 
$
686,590

 
$
14,902

 
$
2,385,507




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,
 
2013
 
2012
Operating Activities:
 
 
 
Net Income
$
137,883

 
$
107,818

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:
 
 
 
Amortization and Depreciation
74,755

 
71,124

Prepayment Fees on Advances, net of related swap termination fees
(4,335
)
 
(35,497
)
Changes in Net Derivative and Hedging Activities
33,983

 
64,779

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

 
3,594

Provision for (Reversal of) Credit Losses
(3,451
)
 
7,917

Net Realized Gains from Sale of Available-for-Sale Securities
(17,135
)
 

Changes in:
 
 
 
Accrued Interest Receivable (adjusted for capitalized interest)
5,626

 
(1,115
)
Other Assets
7,526

 
4,384

Accrued Interest Payable
7,088

 
(6,273
)
Other Liabilities
1,141

 
3,932

Total Adjustments, net
107,122

 
112,845

Net Cash provided by Operating Activities
245,005

 
220,663

 
 
 
 
Investing Activities:
 
 


Changes in:
 
 
 
Interest-Bearing Deposits
280,168

 
(17,635
)
Securities Purchased Under Agreements to Resell
550,000

 
(2,150,000
)
Federal Funds Sold
1,865,000

 
659,000

Purchases of Premises, Software, and Equipment
(7,781
)
 
(9,073
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities of Long-Term
64,978

 
53,162

Proceeds from Sales of Long-Term
129,471

 

Purchases of Long-Term

 
(1,310,060
)
Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities of Long-Term
835,899

 
2,740,889

Purchases of Long-Term
(696,238
)
 
(1,144,255
)
Advances:
 
 
 
Principal Collected
31,058,385

 
34,329,908

Disbursed to Members
(32,041,661
)
 
(34,401,609
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
1,095,371

 
1,108,146

Purchases of Loans and Participation Interests
(1,263,177
)
 
(1,006,139
)
Net Cash provided by (used in) Investing Activities
1,870,415

 
(1,147,666
)
 


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,
 
2013
 
2012
Financing Activities:
 
 
 
Changes in Deposits
(671,842
)
 
142,535

Net Payments on Derivative Contracts with Financing Elements
(54,118
)
 
(62,539
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
52,000,451

 
102,721,071

Bonds
16,351,138

 
18,821,982

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(53,119,138
)
 
(99,696,868
)
Bonds
(16,024,425
)
 
(21,432,000
)
Other Federal Home Loan Banks:
 
 
 
Proceeds from Borrowings
427,000

 

Payments for Maturities
(427,000
)
 

Proceeds from Sale of Capital Stock
145,156

 
56,988

Payments for Redemption/Repurchase of Mandatorily Redeemable Capital Stock
(290,975
)
 
(6,709
)
Cash Dividends Paid on Capital Stock
(42,756
)
 
(35,201
)
Net Cash provided by (used in) Financing Activities
(1,706,509
)
 
509,259

 
 
 
 
Net Increase (Decrease) in Cash and Due from Banks
408,911

 
(417,744
)
Cash and Due from Banks at Beginning of Period
105,472

 
512,682

Cash and Due from Banks at End of Period
$
514,383

 
$
94,938

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest Paid
$
250,138

 
$
307,498

Affordable Housing Program Payments
10,654

 
11,455

Capitalized Interest on Certain Held-to-Maturity Securities
6,562

 
14,610

Par Value of Net Shares Reclassified to Mandatorily Redeemable Capital Stock
95,441

 
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 material changes to these policies through September 30, 2013, except as noted below.

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 present certain financial instruments, including derivative instruments and securities purchased under agreements to resell, on a net basis when they have a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). For these financial instruments, we have elected to offset our derivative asset and liability positions, as well as cash collateral received or pledged, when we have met the netting requirements. We did not have any offsetting liabilities related to securities purchased under agreements to resell at September 30, 2013 and December 31, 2012.

The net exposure for these financial instruments can change daily; 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 that meet the netting requirements, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these transactions is provided in Note 9 - Derivatives and Hedging Activities. Based on the estimated fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented.





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


Note 2 - Recently Adopted and Issued Accounting Guidance

Inclusion of the Fed Funds Effective Swap Rate (or OIS) as a Benchmark Interest Rate for Hedge Accounting Purposes. On July 17, 2013, the FASB amended existing guidance to include the Fed Funds Effective Swap Rate, also referred to as OIS, as a United States benchmark interest rate for hedge accounting purposes. Including OIS as an acceptable United States benchmark interest rate, in addition to United States Treasuries and LIBOR, will provide a more comprehensive spectrum of interest rate resets to use as the designated benchmark interest rate risk component under the hedge accounting guidance. The amendments also remove the restriction on using different benchmark interest rates for similar hedges. The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate, and are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. However, we continue to designate LIBOR as our benchmark interest rate, and therefore, the adoption of this guidance has not had a material effect on our hedging activities.

Joint and Several Liability ArrangementsOn 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 will not have any effect on our financial condition, results of operations or cash flows.

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.





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


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 adversely 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 classification purposes to January 1, 2014 and the effective date for financial reporting purposes to January 1, 2015. We are in the process of implementing this guidance and evaluating its effect on our financial condition, results of operations and cash flows, but we do not expect it to be material.

Note 3 - Available-for-Sale Securities

Major Security Types. The following table presents information on our AFS securities:
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Non-Credit
 
Unrealized
 
Unrealized
 
Estimated
September 30, 2013
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
3,197,347

 
$

 
$
8,646

 
$
(5,779
)
 
$
3,200,214

Private-label RMBS
 
470,754

 
(242
)
 
18,057

 

 
488,569

Total AFS securities
 
$
3,668,101

 
$
(242
)
 
$
26,703

 
$
(5,779
)
 
$
3,688,783

 
 
 
 
 
 
 
 
 
 
 
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.

Premiums and Discounts. At September 30, 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 resulting in net discounts of $68,584 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
September 30, 2013
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$
998,420

 
$
(5,779
)
 
$

 
$

 
$
998,420

 
$
(5,779
)
Private-label RMBS
 

 

 
7,719

 
(242
)
 
7,719

 
(242
)
Total impaired AFS securities
 
$
998,420

 
$
(5,779
)
 
$
7,719

 
$
(242
)
 
$
1,006,139

 
$
(6,021
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
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
)





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


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 actual maturities will likely differ from contractual maturities as borrowers have the right to prepay obligations with or without prepayment fees.
 
 
September 30, 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
 
2,040,424

 
2,048,487

 
2,038,791

 
2,048,429

Due after five years through ten years
 
1,123,231

 
1,118,511

 
1,197,884

 
1,200,979

Due after ten years
 
33,692

 
33,216

 
91,428

 
91,030

Total Non-MBS
 
3,197,347

 
3,200,214

 
3,328,103

 
3,340,438

Total MBS
 
470,754

 
488,569

 
649,826

 
640,142

Total AFS securities
 
$
3,668,101

 
$
3,688,783

 
$
3,977,929

 
$
3,980,580


Realized Gains and Losses. The following table presents the proceeds, previously recognized OTTI credit losses including accretion, and gross realized gains and losses related to the sale of six OTTI AFS securities, only one of which was in an unrealized loss position. In the first quarter of 2013, we recorded an OTTI credit charge for this security, representing the entire difference between our amortized cost basis and its estimated fair value, which resulted in no gross realized losses related to the sale. We compute gains and losses on sales of investment securities using the specific identification method.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Sales of AFS Securities
 
2013
 
2012
 
2013
 
2012
Proceeds from sale
 
$

 
$

 
$
129,471

 
$

 
 
 
 
 
 
 
 
 
Previously recognized OTTI credit losses including accretion
 
$

 
$

 
$
38,806

 
$

 
 
 
 
 
 
 
 
 
Gross realized gains
 
$

 
$

 
$
17,135

 
$

Gross realized losses
 

 

 

 

Net Realized Gains from Sale of Available-for-Sale Securities
 
$

 
$

 
$
17,135

 
$


As of September 30, 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 information on our HTM securities:
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
 
 
 
 
Unrecognized
 
Unrecognized
 
 
 
 
Amortized
 
Non-Credit
 
Carrying
 
Holding
 
Holding
 
Estimated
September 30, 2013
 
Cost (1)
 
OTTI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
 Fair Value
GSE debentures
 
$
268,998

 
$

 
$
268,998

 
$
663

 
$

 
$
269,661

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
3,090,243

 

 
3,090,243

 
53,058

 
(11,493
)
 
3,131,808

GSE RMBS
 
3,781,786

 

 
3,781,786

 
81,713

 
(4,828
)
 
3,858,671

Private-label RMBS
 
165,093

 

 
165,093

 
488

 
(1,802
)
 
163,779

Manufactured housing loan ABS
 
13,410

 

 
13,410

 

 
(2,010
)
 
11,400

Home equity loan ABS
 
2,186

 
(257
)
 
1,929

 
105

 
(127
)
 
1,907

Total MBS and ABS
 
7,052,718

 
(257
)
 
7,052,461

 
135,364

 
(20,260
)
 
7,167,565

Total HTM securities
 
$
7,321,716

 
$
(257
)
 
$
7,321,459

 
$
136,027

 
$
(20,260
)
 
$
7,437,226

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
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 September 30, 2013 and December 31, 2012, the amortized cost of our MBS and ABS HTM securities included unamortized purchase premiums and discounts, OTTI credit losses, and OTTI-related accretion adjustments resulting in net premiums of $47,662 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 September 30, 2013 or December 31, 2012.
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
September 30, 2013
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
$
1,415,791

 
$
(7,734
)
 
$
435,953

 
$
(3,759
)
 
$
1,851,744

 
$
(11,493
)
GSE RMBS
 
1,357,575

 
(4,805
)
 
7,590

 
(23
)
 
1,365,165

 
(4,828
)
Private-label RMBS
 
48,662

 
(311
)
 
64,397

 
(1,491
)
 
113,059

 
(1,802
)
Manufactured housing loan ABS
 

 

 
11,399

 
(2,010
)
 
11,399

 
(2,010
)
Home equity loan ABS
 

 

 
1,907

 
(279
)
 
1,907

 
(279
)
Total MBS and ABS
 
2,822,028

 
(12,850
)
 
521,246

 
(7,562
)
 
3,343,274

 
(20,412
)
Total impaired HTM securities
 
$
2,822,028

 
$
(12,850
)
 
$
521,246

 
$
(7,562
)
 
$
3,343,274

 
$
(20,412
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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) 
Total unrealized losses on home equity loan ABS will not agree to total gross unrecognized holding losses. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI and gross unrecognized holding gains on previously OTTI securities.

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 certain borrowers have the right to prepay obligations with or without prepayment fees.
 
 
September 30, 2013
 
December 31, 2012
 
 
Amortized
 
Carrying
 
Estimated
 
Amortized
 
Carrying
 
Estimated
Year of Contractual Maturity
 
Cost (1)
 
Value (2)
 
Fair Value
 
Cost (1)
 
Value (2)
 
Fair Value
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$

 
$

 
$

 
$

 
$

 
$

Due after one year through five years
 
268,998

 
268,998

 
269,661

 
268,996

 
268,996

 
269,353

Due after five years through ten years
 

 

 

 

 

 

Due after ten years
 

 

 

 

 

 

Total Non-MBS
 
268,998

 
268,998

 
269,661

 
268,996

 
268,996

 
269,353

Total MBS and ABS
 
7,052,718

 
7,052,461

 
7,167,565

 
7,235,959

 
7,235,647

 
7,469,243

Total HTM securities
 
$
7,321,716

 
$
7,321,459

 
$
7,437,226

 
$
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.




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. On a quarterly basis, we evaluate for OTTI our individual AFS and HTM securities that have been previously OTTI or are in an unrealized loss position. 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 nine months ended September 30, 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 September 30, 2013 or the three and nine months ended September 30, 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. As a result of our analysis, there were no additional OTTI credit losses recognized for the three and nine months ended September 30, 2013 and we recognized additional credit losses of $14 and $3,594 during the three and nine months ended September 30, 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
 
Nine Months Ended
 
 
September 30,
 
September 30,
Credit Loss Rollforward
 
2013
 
2012
 
2013
 
2012
Balance at beginning of period
 
$
72,287

 
$
109,214

 
$
109,169

 
$
105,636

Additions:
 
 
 
 
 
 
 
 
Additional credit losses for which OTTI was previously recognized
 

 
14

 
1,924

 
3,594

Reductions:
 
 
 
 
 
 
 
 
Credit losses on securities sold, matured, paid down or prepaid
 

 

 
(30,506
)
 
(2
)
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
 
$
72,287

 
$
109,228

 
$
72,287

 
$
109,228


The following table presents the September 30, 2013 classification and balances of OTTI securities impaired prior to September 30, 2013 (i.e., life to date) but not necessarily as of September 30, 2013. 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.
 
 
September 30, 2013
 
 
HTM Securities
 
AFS Securities
OTTI Life-to-Date
 
UPB
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
 
UPB
 
Amortized Cost
 
Estimated Fair Value
Private-label RMBS - prime
 
$

 
$

 
$

 
$

 
$
539,339

 
$
470,754

 
$
488,569

Private-label RMBS - Alt-A
 

 

 

 

 

 

 

Home equity loan ABS - subprime
 
920

 
884

 
627

 
732

 

 

 

Total OTTI securities
 
$
920

 
$
884

 
$
627

 
$
732

 
$
539,339

 
$
470,754

 
$
488,569






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 September 30, 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% to 8.34%.
 
 
September 30, 2013
 
December 31, 2012
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$
17

 
2.50

 
$
15,004

 
2.50

Due in 1 year or less
 
4,184,443

 
0.67

 
3,761,551

 
1.57

Due after 1 year through 2 years
 
2,019,963

 
2.56

 
1,365,251

 
2.66

Due after 2 years through 3 years
 
3,832,451

 
2.40

 
2,287,033

 
3.11

Due after 3 years through 4 years
 
2,969,219

 
2.35

 
3,435,097

 
2.61

Due after 4 years through 5 years
 
2,027,387

 
2.23

 
2,448,083

 
2.22

Thereafter
 
3,332,013

 
2.04

 
4,070,200

 
2.49

Total Advances, par value
 
18,365,493

 
1.93

 
17,382,219

 
2.38

Unamortized discounts (including AHP)
 
(3,220
)
 
 

 
(1,284
)
 
 

Hedging adjustments
 
323,670

 
 

 
577,225

 
 

Unamortized swap termination fees associated with modified Advances