10-Q 1 ind9301410-q.htm 10-Q IND 9/30/14 10-Q


 
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, 2014

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, 2014

Class B Stock, par value $100
17,533,151




Table of Contents
Page
 
 
Number
PART I.
FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS (unaudited)
 
 
 
 
 
Statements of Condition as of September 30, 2014 and December 31, 2013
 
 
 
 
Statements of Income for the Three and Nine Months Ended September 30, 2014 and 2013
 
 
 
 
Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013
 
 
 
 
Statements of Capital for the Nine Months Ended September 30, 2013 and 2014
 
 
 
 
Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013
 
 
 
 
Notes to Financial Statements:
 
 
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
 
Note 6 - Advances
 
Note 7 - Mortgage Loans Held for Portfolio
 
Note 8 - Allowance for Credit Losses
 
Note 9 - Derivatives and Hedging Activities
 
Note 10 - Consolidated Obligations
 
Note 11 - Affordable Housing Program
 
Note 12 - Capital
 
Note 13 - Accumulated Other Comprehensive Income
 
Note 14 - Segment Information
 
Note 15 - Estimated Fair Values
 
Note 16 - Commitments and Contingencies
 
Note 17 - Transactions with Related Parties
 
 
 
 
GLOSSARY OF TERMS
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
Special Note Regarding Forward-Looking Statements
 
Executive Summary
 
Summary of Selected Financial Data
 
Results of Operations and Changes in Financial Condition
 
Business Segments
 
Analysis of Financial Condition
 
Liquidity and Capital Resources
 
Off-Balance Sheet Arrangements
 
Critical Accounting Policies and Estimates
 
Recent Accounting and Regulatory Developments
 
Risk Management
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4.
CONTROLS AND PROCEDURES
 
 
 
PART II.
OTHER INFORMATION
 
Item 1.
LEGAL PROCEEDINGS
Item 1A.
RISK FACTORS
Item 6.
EXHIBITS
 
Signatures
 
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,
2014
 
December 31,
2013
Assets:
 
 
 
Cash and Due from Banks
$
4,444,619

 
$
3,318,564

Interest-Bearing Deposits
285

 
485

Available-for-Sale Securities (Notes 3 and 5)
3,574,036

 
3,632,835

Held-to-Maturity Securities (Estimated Fair Values of $7,190,400 and $7,244,318, respectively) (Notes 4 and 5)
7,072,395

 
7,146,250

Advances (Note 6)
19,324,702

 
17,337,418

Mortgage Loans Held for Portfolio, net of allowance for loan losses of $(3,000) and $(4,500), respectively (Notes 7 and 8)
6,471,714

 
6,189,804

Accrued Interest Receivable
79,329

 
79,072

Premises, Software, and Equipment, net
37,878

 
36,278

Derivative Assets, net (Note 9)
18,989

 
7,214

Other Assets
14,208

 
38,270

 
 
 
 
Total Assets
$
41,038,155

 
$
37,786,190

 
 
 
 
Liabilities:
 

 
 
Deposits
$
1,020,313

 
$
1,066,632

Consolidated Obligations (Note 10):
 

 
 
Discount Notes
10,105,640

 
7,434,890

Bonds
26,914,095

 
26,583,925

Total Consolidated Obligations
37,019,735

 
34,018,815

Accrued Interest Payable
82,089

 
80,757

Affordable Housing Program Payable (Note 11)
41,685

 
42,778

Derivative Liabilities, net (Note 9)
92,009

 
109,744

Mandatorily Redeemable Capital Stock (Note 12)
16,137

 
16,787

Other Liabilities
183,096

 
67,074

Total Liabilities
38,455,064

 
35,402,587

 
 
 
 
Commitments and Contingencies (Note 16)


 


 
 
 
 
Capital (Note 12):
 

 
 
Capital Stock Putable (at par value of $100 per share):
 
 
 
Class B-1 issued and outstanding shares: 17,223 and 16,058, respectively
1,722,322

 
1,605,796

Class B-2 issued and outstanding shares: 34 and 41, respectively
3,364

 
4,135

     Total Capital Stock Putable
1,725,686

 
1,609,931

Retained Earnings:
 
 
 
Unrestricted
694,433

 
666,515

Restricted
105,548

 
85,437

Total Retained Earnings
799,981

 
751,952

Total Accumulated Other Comprehensive Income (Note 13)
57,424

 
21,720

Total Capital
2,583,091

 
2,383,603

 
 
 
 
Total Liabilities and Capital
$
41,038,155

 
$
37,786,190


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,
 
2014
 
2013
 
2014
 
2013
Interest Income:
 
 
 
 
 
 
 
Advances
$
26,392

 
$
30,531

 
$
78,951

 
$
93,763

Prepayment Fees on Advances, net
617

 
273

 
1,678

 
8,127

Interest-Bearing Deposits
52

 
87

 
166

 
476

Securities Purchased Under Agreements to Resell
6

 
71

 
163

 
954

Federal Funds Sold
553

 
380

 
1,249

 
1,572

Available-for-Sale Securities
6,715

 
6,983

 
19,726

 
23,440

Held-to-Maturity Securities
32,999

 
34,998

 
96,422

 
106,008

Mortgage Loans Held for Portfolio, net
58,893

 
59,763

 
173,404

 
186,186

Other Interest Income, net
(112
)
 
574

 
423

 
1,121

Total Interest Income
126,115

 
133,660

 
372,182

 
421,647

Interest Expense:
 
 
 
 
 
 
 
Consolidated Obligation Discount Notes
2,021

 
1,732

 
4,770

 
6,101

Consolidated Obligation Bonds
76,689

 
77,552

 
229,041

 
235,630

Deposits
18

 
25

 
63

 
70

Mandatorily Redeemable Capital Stock
129

 
2,225

 
874

 
6,713

Total Interest Expense
78,857

 
81,534

 
234,748

 
248,514

 
 
 
 
 
 
 
 
Net Interest Income
47,258

 
52,126

 
137,434

 
173,133

Provision for (Reversal of) Credit Losses
(126
)
 
314

 
(916
)
 
(3,451
)
 
 
 
 
 
 
 
 
Net Interest Income After Provision for Credit Losses
47,384

 
51,812

 
138,350

 
176,584

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

 

 

 

Non-Credit Portion Reclassified to (from) Other Comprehensive Income, net
(42
)
 

 
(270
)
 
(1,924
)
Net Other-Than-Temporary Impairment Losses, credit portion
(42
)
 

 
(270
)
 
(1,924
)
Net Realized Gains from Sale of Available-for-Sale Securities

 

 

 
17,135

Net Gains (Losses) on Derivatives and Hedging Activities
677

 
(125
)
 
6,783

 
10,671

Service Fees
220

 
225

 
662

 
684

Standby Letters of Credit Fees
114

 
119

 
407

 
873

Other, net (Note 16)
5,851

 
332

 
15,085

 
1,024

Total Other Income (Loss)
6,820

 
551

 
22,667

 
28,463

 
 
 
 
 
 
 
 
Other Expenses:
 
 
 
 
 
 
 
Compensation and Benefits
10,084

 
14,101

 
30,598

 
33,153

Other Operating Expenses
5,126

 
4,520

 
13,622

 
13,002

Federal Housing Finance Agency
626

 
550

 
2,044

 
1,914

Office of Finance
544

 
640

 
1,987

 
2,104

Other
307

 
354

 
943

 
925

Total Other Expenses
16,687

 
20,165

 
49,194

 
51,098

 
 
 
 
 
 
 
 
Income Before Assessments
37,517

 
32,198

 
111,823

 
153,949

 
 
 
 
 
 
 
 
Affordable Housing Program Assessments
3,765

 
3,442

 
11,270

 
16,066

 
 
 
 
 
 
 
 
Net Income
$
33,752

 
$
28,756

 
$
100,553

 
$
137,883


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,
 
2014
 
2013
 
2014
 
2013
Net Income
$
33,752

 
$
28,756

 
$
100,553

 
$
137,883

 
 
 
 
 
 
 
 
Other Comprehensive Income:
 
 
 
 
 
 
 
Net Change in Unrealized Gains (Losses) on Available-for-Sale Securities
9,696

 
2,392

 
22,273

 
(9,468
)
 
 
 
 
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities:
 
 
 
 
 
 
 
Reclassification of Non-Credit Portion to Other Income (Loss)
42

 

 
270

 
1,924

Net Change in Fair Value Not in Excess of Cumulative Non-Credit Losses
(46
)
 
(84
)
 
(227
)
 
35,095

Unrealized Gains (Losses)
569

 
2,474

 
13,442

 
7,615

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

 

 

 
(17,135
)
Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Available-for-Sale Securities
565

 
2,390

 
13,485

 
27,499

 
 
 
 
 
 
 
 
Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities:
 
 
 
 
 
 
 
Accretion of Non-Credit Portion
22

 
18

 
54

 
55

Net Non-Credit Portion of Other-Than-Temporary Impairment Losses on Held-to-Maturity Securities
22

 
18

 
54

 
55

 
 
 
 
 
 
 
 
Pension Benefits, net
(36
)
 
6,175

 
(108
)
 
6,874

 
 
 
 
 
 
 
 
Total Other Comprehensive Income
10,247

 
10,975

 
35,704

 
24,960

 
 
 
 
 
 
 
 
Total Comprehensive Income
$
43,999

 
$
39,731

 
$
136,257

 
$
162,843



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 2014
(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, 2012
 
16,343

 
$
1,634,300

 
$
549,773

 
$
41,827

 
$
591,600

 
$
(10,058
)
 
$
2,215,842

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 

 

 
110,306

 
27,577

 
137,883

 
24,960

 
162,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
1,451

 
145,156

 

 

 

 

 
145,156

Shares Reclassified (to) from Mandatorily Redeemable Capital Stock, net
 
(954
)
 
(95,441
)
 

 

 

 

 
(95,441
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2013
 
16,099

 
$
1,609,931

 
$
666,515

 
$
85,437

 
$
751,952

 
$
21,720

 
$
2,383,603

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Comprehensive Income
 

 

 
80,442

 
20,111

 
100,553

 
35,704

 
136,257

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Sale of Capital Stock
 
1,159

 
115,902

 

 

 

 

 
115,902

Repurchase/Redemption of Capital Stock
 
(1
)
 
(100
)
 

 

 

 
 
 
(100
)
Shares Reclassified (to) from Mandatorily Redeemable Capital Stock, net
 

 
(47
)
 

 

 

 
 
 
(47
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Dividends on Capital Stock
(4.33% annualized)
 

 

 
(52,524
)
 

 
(52,524
)
 

 
(52,524
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2014
 
17,257

 
$
1,725,686

 
$
694,433

 
$
105,548

 
$
799,981

 
$
57,424

 
$
2,583,091




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,
 
2014
 
2013
Operating Activities:
 
 
 
Net Income
$
100,553

 
$
137,883

Adjustments to reconcile Net Income to Net Cash provided by Operating Activities:
 
 
 
Amortization and Depreciation
14,318

 
74,755

Prepayment Fees on Advances, net of related swap termination fees
(475
)
 
(4,335
)
Changes in Net Derivative and Hedging Activities
41,733

 
33,983

Net Other-Than-Temporary Impairment Losses, credit portion
270

 
1,924

Provision for (Reversal of) Credit Losses
(916
)
 
(3,451
)
Net Realized Gains from Sale of Available-for-Sale Securities

 
(17,135
)
Changes in:
 
 
 
Accrued Interest Receivable
(216
)
 
5,626

Other Assets
17,038

 
7,526

Accrued Interest Payable
1,332

 
7,088

Other Liabilities
13,883

 
1,141

Total Adjustments, net
86,967

 
107,122

 
 
 
 
Net Cash provided by Operating Activities
187,520

 
245,005

 
 
 
 
Investing Activities:
 
 


Changes in:
 
 
 
Interest-Bearing Deposits
101,874

 
280,168

Securities Purchased Under Agreements to Resell

 
550,000

Federal Funds Sold

 
1,865,000

Purchases of Premises, Software, and Equipment
(3,787
)
 
(7,781
)
Available-for-Sale Securities:
 
 
 
Proceeds from Maturities
65,799

 
64,978

Proceeds from Sales

 
129,471

Held-to-Maturity Securities:
 
 
 
Proceeds from Maturities
745,720

 
835,899

Purchases
(574,885
)
 
(696,238
)
Advances:
 
 
 
Principal Collected
51,216,136

 
31,058,385

Disbursed to Members
(53,260,098
)
 
(32,041,661
)
Mortgage Loans Held for Portfolio:
 
 
 
Principal Collected
660,265

 
1,095,371

Purchases of Loans from Members and Participation Interests from Other Federal Home Loan Banks
(945,230
)
 
(1,263,177
)
 
 
 
 
Net Cash provided by (used in) Investing Activities
(1,994,206
)
 
1,870,415

 


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,
 
2014
 
2013
Financing Activities:
 
 
 
Changes in Deposits
(47,099
)
 
(671,842
)
Net Payments on Derivative Contracts with Financing Elements
(46,171
)
 
(54,118
)
Net Proceeds from Issuance of Consolidated Obligations:
 
 
 
Discount Notes
35,623,619

 
52,000,451

Bonds
15,948,090

 
16,351,138

Payments for Matured and Retired Consolidated Obligations:
 
 
 
Discount Notes
(32,952,279
)
 
(53,119,138
)
Bonds
(15,656,000
)
 
(16,024,425
)
Other Federal Home Loan Banks:
 
 
 
Proceeds from Borrowings
22,000

 
427,000

Payments for Maturities
(22,000
)
 
(427,000
)
Proceeds from Sale of Capital Stock
115,902

 
145,156

Payments for Redemption/Repurchase of Mandatorily Redeemable Capital Stock
(697
)
 
(290,975
)
Payments for Redemption/Repurchase of Capital Stock
(100
)
 

Cash Dividends Paid on Capital Stock
(52,524
)
 
(42,756
)
 
 
 
 
Net Cash provided by (used in) Financing Activities
2,932,741

 
(1,706,509
)
 
 
 
 
Net Increase in Cash and Due from Banks
1,126,055

 
408,911

 
 
 
 
Cash and Due from Banks at Beginning of Period
3,318,564

 
105,472

 
 
 
 
Cash and Due from Banks at End of Period
$
4,444,619

 
$
514,383

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest Paid
$
224,198

 
$
250,138

Affordable Housing Program Payments
12,363

 
10,654

Capitalized Interest on Certain Held-to-Maturity Securities
2,459

 
6,562

Par Value of Shares Reclassified to Mandatorily Redeemable Capital Stock, net
47

 
95,441

Net Transfers of Mortgage Loans to Real Estate Owned
117

 

 

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, and the instructions promulgated by the SEC, for interim financial information. 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 2013 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 2013 Form 10-K. There have been no material changes to these policies through September 30, 2014.

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 Capital, or net 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. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates.

Financial Instruments Meeting Netting Requirements. We present certain financial instruments, including derivative instruments and securities purchased under agreements to resell, on a net basis when we 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, 2014 or December 31, 2013.

Note 2 - Recently Adopted and Issued Accounting Guidance

Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern. On August 27, 2014, the FASB issued guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year after the date the financial statements are issued or within one year after the financial statements are available to be issued, when applicable. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations for the assessed period. This guidance becomes effective for the interim and annual periods ending after December 15, 2016, and early adoption is permitted. This guidance is not expected to affect our financial condition, results of operations and cash flows.





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


Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. On August 8, 2014, the FASB issued amended guidance relating to the classification and measurement of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this guidance require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. This guidance becomes effective for the interim and annual periods beginning after December 15, 2014, and may be adopted using either the modified retrospective transition method or the prospective transition method. We are in the process of evaluating this guidance, but its effect on our financial condition, results of operations and cash flows is not expected to be material.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. On June 12, 2014, the FASB issued amended guidance for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings. This amendment requires entities to account for repurchase-to-maturity transactions as secured borrowings rather than as sales with forward repurchase agreements. In addition, this guidance requires additional disclosures, particularly on transfers accounted for as sales that are economically similar to repurchase agreements and on the nature of collateral pledged in repurchase agreements accounted for as secured borrowings. This guidance becomes effective for the first interim or annual period beginning after December 15, 2014, and early adoption is prohibited. The changes in accounting for transactions outstanding on the effective date are required to be presented as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are in the process of evaluating this guidance, but its effect on our financial condition, results of operations and cash flows is not expected to be material.

Revenue from Contracts with Customers. On May 28, 2014, the FASB issued guidance on revenue from contracts with customers. This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of other standards, such as financial instruments, certain guarantees, insurance contracts, or lease contracts. This guidance becomes effective for the interim and annual reporting periods beginning after December 15, 2016, and early application is not permitted. The guidance provides entities with the option of using either of the following two methods upon adoption: (i) a full retrospective method, retrospectively to each prior reporting period presented; or (ii) a transition method, retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We are in the process of evaluating this guidance, but its effect on our financial condition, results of operations and cash flows is not expected to be material.

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. On January 17, 2014, the FASB issued guidance clarifying when consumer mortgage loans collateralized by real estate should be reclassified to REO. Specifically, such collateralized mortgage loans should be reclassified to REO when either the creditor obtains legal title to the residential real estate property upon completion of a foreclosure, or the borrower conveys all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed-in-lieu of foreclosure or through a similar legal agreement. This guidance is effective for interim and annual periods beginning on or after December 15, 2014 and may be adopted under either the modified retrospective transition method or the prospective transition method. We are in the process of evaluating this guidance, but its effect on our financial condition, results of operations and cash flows is not expected to be material.





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 accounting guidance differs from our current methodology and accounting policy, particularly in that, among other differences, AB 2012-02 states that, with certain exceptions, any loss exposure on a loan more than 180 days past due should be adversely classified and charged off. The Finance Agency has stated that, when a loan is 180 days delinquent, their review of the data indicates that, under most circumstances, the likelihood of full repayment is remote. The charge-off amount is generally the excess of the loan balance over the fair value of the underlying property, less costs to sell, and adjusted for credit enhancements. 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 implemented the classification methodology effective January 1, 2014, which did not have an effect on our financial condition, results of operations, or cash flows. We do not expect the implementation of the financial reporting guidance, effective January 1, 2015, to have a material effect on our financial condition, results of operations or cash flows.

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, 2014
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
3,132,599

 
$

 
$
22,590

 
$

 
$
3,155,189

Private-label RMBS
 
379,426

 
(192
)
 
39,613

 

 
418,847

Total AFS securities
 
$
3,512,025

 
$
(192
)
 
$
62,203

 
$

 
$
3,574,036

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
3,162,833

 
$

 
$
6,623

 
$
(6,306
)
 
$
3,163,150

Private-label RMBS
 
443,749

 
(234
)
 
26,170

 

 
469,685

Total AFS securities
 
$
3,606,582

 
$
(234
)
 
$
32,793

 
$
(6,306
)
 
$
3,632,835


(1) 
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.

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, 2014
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$

 
$

 
$

 
$

 
$

 
$

Private-label RMBS
 

 

 
5,869

 
(192
)
 
5,869

 
(192
)
Total impaired AFS securities
 
$

 
$

 
$
5,869

 
$
(192
)
 
$
5,869

 
$
(192
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
880,095

 
$
(6,306
)
 
$

 
$

 
$
880,095

 
$
(6,306
)
Private-label RMBS
 

 

 
7,135

 
(234
)
 
7,135

 
(234
)
Total impaired AFS securities
 
$
880,095

 
$
(6,306
)
 
$
7,135

 
$
(234
)
 
$
887,230

 
$
(6,540
)





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 their obligations with or without prepayment fees.
 
 
September 30, 2014
 
December 31, 2013
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due after one year through five years
 
$
2,492,564

 
$
2,506,984

 
$
2,046,472

 
$
2,052,348

Due after five years through ten years
 
640,035

 
648,205

 
1,083,608

 
1,078,558

Due after ten years
 

 

 
32,753

 
32,244

Total Non-MBS
 
3,132,599

 
3,155,189

 
3,162,833

 
3,163,150

Total MBS
 
379,426

 
418,847

 
443,749

 
469,685

Total AFS securities
 
$
3,512,025

 
$
3,574,036

 
$
3,606,582

 
$
3,632,835


Realized Gains and Losses. There were no sales of AFS securities during the three and nine months ended September 30, 2014. However, on April 4, 2013, we sold six OTTI AFS securities, only one of which was in an unrealized loss position. Prior to the sale, 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 from this sale.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Sales of AFS Securities
 
2014
 
2013
 
2014
 
2013
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, 2014, we had no intention of selling the 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, 2014
 
Cost (1)
 
OTTI
 
Value (2)
 
Gains (3)
 
Losses (3)
 
 Fair Value
GSE debentures
 
$
268,999

 
$

 
$
268,999

 
$
257

 
$

 
$
269,256

RMBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
3,042,915

 

 
3,042,915

 
40,774

 
(2,365
)
 
3,081,324

GSE RMBS
 
3,635,901

 

 
3,635,901

 
83,087

 
(2,005
)
 
3,716,983

Private-label RMBS
 
111,369

 

 
111,369

 
566

 
(1,095
)
 
110,840

Manufactured housing loan ABS
 
11,618

 

 
11,618

 

 
(1,241
)
 
10,377

Home equity loan ABS
 
1,780

 
(187
)
 
1,593

 
112

 
(85
)
 
1,620

Total RMBS and ABS
 
6,803,583

 
(187
)
 
6,803,396

 
124,539

 
(6,791
)
 
6,921,144

Total HTM securities
 
$
7,072,582

 
$
(187
)
 
$
7,072,395

 
$
124,796

 
$
(6,791
)
 
$
7,190,400

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
268,998

 
$

 
$
268,998

 
$
399

 
$

 
$
269,397

RMBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed RMBS
 
3,119,458

 

 
3,119,458

 
45,171

 
(7,406
)
 
3,157,223

GSE RMBS
 
3,592,695

 

 
3,592,695

 
70,572

 
(6,554
)
 
3,656,713

Private-label RMBS
 
150,287

 

 
150,287

 
185

 
(2,663
)
 
147,809

Manufactured housing loan ABS
 
12,933

 

 
12,933

 

 
(1,590
)
 
11,343

Home equity loan ABS
 
2,120

 
(241
)
 
1,879

 
67

 
(113
)
 
1,833

Total RMBS and ABS
 
6,877,493

 
(241
)
 
6,877,252

 
115,995

 
(18,326
)
 
6,974,921

Total HTM securities
 
$
7,146,491

 
$
(241
)
 
$
7,146,250

 
$
116,394

 
$
(18,326
)
 
$
7,244,318


(1) 
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) 
Represents amortized cost after adjustment for non-credit OTTI recognized in AOCI.
(3) 
Represents the difference between estimated fair value and carrying value.





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, 2014 or December 31, 2013.
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
September 30, 2014
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
RMBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
$

 
$

 
$
719,220

 
$
(2,365
)
 
$
719,220

 
$
(2,365
)
GSE RMBS
 
325,911

 
(1,562
)
 
91,784

 
(443
)
 
417,695

 
(2,005
)
Private-label RMBS
 
4,477

 
(7
)
 
45,271

 
(1,088
)
 
49,748

 
(1,095
)
Manufactured housing loan ABS
 

 

 
10,377

 
(1,241
)
 
10,377

 
(1,241
)
Home equity loan ABS
 

 

 
1,621

 
(160
)
 
1,621

 
(160
)
Total RMBS and ABS
 
330,388

 
(1,569
)
 
868,273

 
(5,297
)
 
1,198,661

 
(6,866
)
Total impaired HTM securities
 
$
330,388

 
$
(1,569
)
 
$
868,273

 
$
(5,297
)
 
$
1,198,661

 
$
(6,866
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
RMBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed RMBS
 
$
1,094,158

 
$
(3,365
)
 
$
546,459

 
$
(4,041
)
 
$
1,640,617

 
$
(7,406
)
GSE RMBS
 
1,338,255

 
(6,542
)
 
6,766

 
(12
)
 
1,345,021

 
(6,554
)
Private-label RMBS
 
61,059

 
(561
)
 
58,363

 
(2,102
)
 
119,422

 
(2,663
)
Manufactured housing loan ABS
 

 

 
11,343

 
(1,590
)
 
11,343

 
(1,590
)
Home equity loan ABS
 

 

 
1,833

 
(287
)
 
1,833

 
(287
)
Total RMBS and ABS
 
2,493,472

 
(10,468
)
 
624,764

 
(8,032
)
 
3,118,236

 
(18,500
)
Total impaired HTM securities
 
$
2,493,472

 
$
(10,468
)
 
$
624,764

 
$
(8,032
)
 
$
3,118,236

 
$
(18,500
)

(1) 
For home equity loan ABS, total unrealized losses does 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 their obligations with or without prepayment fees.
 
 
September 30, 2014
 
December 31, 2013
 
 
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
 
$
168,999

 
$
168,999

 
$
169,133

 
$

 
$

 
$

Due after one year through five years
 
100,000

 
100,000

 
100,123

 
268,998

 
268,998

 
269,397

Total Non-MBS
 
268,999

 
268,999

 
269,256

 
268,998

 
268,998

 
269,397

Total RMBS and ABS
 
6,803,583

 
6,803,396

 
6,921,144

 
6,877,493

 
6,877,252

 
6,974,921

Total HTM securities
 
$
7,072,582

 
$
7,072,395

 
$
7,190,400

 
$
7,146,491

 
$
7,146,250

 
$
7,244,318


(1) 
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) 
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

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. A description of the OTTI evaluation process, uniform framework, and the two third-party models we utilize is disclosed in Note 1 - Summary of Significant Accounting Policies and Note 6 - Other-Than-Temporary Impairment in our 2013 Form 10-K.

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 the 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 or nine months ended September 30, 2014 or the three months ended September 30, 2013.

As a result of our analysis, additional OTTI credit losses were recognized for one security for the three and nine months ended September 30, 2014 but not for the three or nine months ended September 30, 2013. 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.

OTTI - Significant Modeling Assumptions. The FHLBanks' OTTI Governance Committee developed a short-term housing price forecast with projected changes ranging from a decrease of 3% to an increase of 9% over a twelve-month period. For the vast majority of housing markets, the changes range from 0% to an increase of 6%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.
 
 
 
 
 
The following table presents the other significant modeling assumptions used to determine the amount of credit loss recognized in earnings for the one security that was determined to be OTTI during the three months ended September 30, 2014. The related current credit enhancement is also presented. Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before we will experience a loss on the security. A credit enhancement percentage of zero reflects a security that has no remaining credit support and is likely to have experienced an actual principal loss. The calculated averages represent the dollar-weighted averages of the private-label RMBS in each category shown. The classification (prime, Alt-A or subprime) is based on the model used to estimate the cash flows for the security, which may not be the same as the classification by the rating agency at the time of origination.
 
 
Significant Modeling Assumptions
for OTTI private-label RMBS
for the three months ended September 30, 2014
 
Year of Securitization
 
Prepayment Rates (1)
 
Default Rates (1)
 
Loss Severities (1)
 
Current Credit
 Enhancement (1)
Prime - 2006
 
15.5
%
 
16.6
%
 
40.3
%
 
0.0
%

(1) 
Weighted Average based on UPB.





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


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
 
2014
 
2013
 
2014
 
2013
Balance at beginning of period
 
$
71,584

 
$
72,287

 
$
72,287

 
$
109,169

Additions:
 
 
 
 
 
 
 
 
Additional credit losses for which OTTI was previously recognized (1)
 
42

 

 
270

 
1,924

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

 

 

 
(30,506
)
Unamortized life-to-date credit losses on security that we intend to sell before recovery of its amortized cost basis
 

 

 

 
(8,300
)
Significant increases in cash flows expected to be collected, recognized over the remaining life of the securities (2)
 
(938
)
 

 
(1,869
)
 

Balance at end of period
 
$
70,688

 
$
72,287

 
$
70,688

 
$
72,287


(1) 
For the three months ended September 30, 2014 and 2013, relates to all securities that were impaired prior to July 1, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, relates to all securities that were impaired prior to January 1, 2014 and 2013, respectively.
(2) 
Represents amounts to be accreted as interest income over the remaining life of the applicable securities.

The following table presents the classification and balances at September 30, 2014 of OTTI securities impaired prior to that date (i.e., life-to-date) but not necessarily as of that 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.
 
 
September 30, 2014
 
 
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
 
$

 
$

 
$

 
$

 
$
443,803

 
$
379,426

 
$
418,847

Home equity loan ABS - subprime
 
737

 
705

 
518

 
630

 

 

 

Total
 
$
737

 
$
705

 
$
518

 
$
630

 
$
443,803

 
$
379,426

 
$
418,847


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, based on current expectations, 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. As a result, all of the gross unrealized losses as of September 30, 2014 are considered temporary.





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


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, 2014
 
December 31, 2013
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$
959

 
2.43

 
$
1,092

 
2.50

Due in 1 year or less
 
6,194,403

 
0.64

 
5,952,161

 
0.58

Due after 1 year through 2 years
 
2,640,043

 
1.90

 
1,695,355

 
2.61

Due after 2 years through 3 years
 
2,383,572

 
1.74

 
2,289,954

 
1.59

Due after 3 years through 4 years
 
2,105,242

 
2.18

 
2,190,551

 
1.86

Due after 4 years through 5 years
 
1,019,474

 
1.94

 
1,803,488

 
2.17

Thereafter
 
4,832,053

 
1.43

 
3,199,181

 
1.93

Total Advances, par value
 
19,175,746

 
1.39

 
17,131,782

 
1.50

Fair-value hedging adjustments
 
126,822

 
 

 
181,211