10-Q 1 ind3311510-q.htm 10-Q IND 3/31/15 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 March 31, 2015

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, 2015

Class B Stock, par value $100
16,002,994




Table of Contents
Page
 
 
Number
PART I.
FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS (unaudited)
 
 
 
 
 
Statements of Condition as of March 31, 2015 and December 31, 2014
 
 
 
 
Statements of Income for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
Statements of Capital for the Three Months Ended March 31, 2014 and 2015
 
 
 
 
Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014
 
 
 
 
Notes to Financial Statements:
 
 
Note 1 - Summary of Significant Accounting Policies and Change in Accounting Principle
 
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
 
Selected Financial Data
 
Results of Operations and Changes in Financial Condition
 
Operating 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)
 
March 31,
2015
 
December 31,
2014
Assets:
 
 
 
Cash and due from banks
$
3,582,894

 
$
3,550,939

Interest-bearing deposits
289

 
483

Securities purchased under agreements to resell
500,000

 

Available-for-sale securities (Notes 3 and 5)
3,544,966

 
3,556,165

Held-to-maturity securities (estimated fair values of $6,693,510 and $7,098,616, respectively) (Notes 4 and 5)
6,561,611

 
6,982,115

Advances (Note 6)
21,845,827

 
20,789,667

Mortgage loans held for portfolio, net of allowance for loan losses of $(2,250) and $(2,500), respectively (Notes 7 and 8)
7,411,764

 
6,820,262

Accrued interest receivable
84,312

 
82,866

Premises, software, and equipment, net
38,515

 
38,418

Derivative assets, net (Note 9)
42,693

 
25,487

Other assets
38,269

 
6,630

 
 
 
 
Total assets
$
43,651,140

 
$
41,853,032

 
 
 
 
Liabilities:
 

 
 
Deposits
$
1,431,905

 
$
1,084,042

Consolidated obligations (Note 10):
 

 
 
Discount notes
11,161,162

 
12,567,696

Bonds
28,243,211

 
25,503,138

Total consolidated obligations
39,404,373

 
38,070,834

Accrued interest payable
77,998

 
77,034

Affordable Housing Program payable (Note 11)
35,759

 
36,899

Derivative liabilities, net (Note 9)
108,682

 
103,253

Mandatorily redeemable capital stock (Note 12)
15,553

 
15,673

Other liabilities
167,704

 
90,027

Total liabilities
41,241,974

 
39,477,762

 
 
 
 
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: 15,719 and 15,510, respectively
1,571,870

 
1,550,981

     Total capital stock putable
1,571,870

 
1,550,981

Retained earnings:
 
 
 
Unrestricted
679,638

 
672,159

Restricted
111,592

 
105,470

Total retained earnings
791,230

 
777,629

Total accumulated other comprehensive income (Note 13)
46,066

 
46,660

Total capital
2,409,166

 
2,375,270

 
 
 
 
Total liabilities and capital
$
43,651,140

 
$
41,853,032


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,
 
2015
 
2014
Interest Income:
 
 
 
Advances
$
27,728

 
$
28,116

Prepayment fees on advances, net
191

 
1,049

Interest-bearing deposits
54

 
54

Securities purchased under agreements to resell
115

 
89

Federal funds sold
619

 
280

Available-for-sale securities
6,812

 
6,146

Held-to-maturity securities
29,401

 
32,110

Mortgage loans held for portfolio
62,226

 
58,105

Other interest income, net
153

 
114

Total interest income
127,299

 
126,063

Interest Expense:
 
 
 
Consolidated obligation discount notes
3,016

 
1,402

Consolidated obligation bonds
75,391

 
76,442

Deposits
19

 
23

Mandatorily redeemable capital stock
134

 
610

Total interest expense
78,560

 
78,477

 
 
 
 
Net interest income
48,739

 
47,586

Provision for (reversal of) credit losses
563

 
(704
)
 
 
 
 
Net interest income after provision for credit losses
48,176

 
48,290

 
 
 
 
Other Income (Loss):
 
 
 
Total other-than-temporary impairment losses

 

Non-credit portion reclassified to (from) other comprehensive income, net

 
(170
)
Net other-than-temporary impairment losses, credit portion

 
(170
)
Net gains (losses) on derivatives and hedging activities
(1,880
)
 
2,968

Service fees
188

 
215

Standby letters of credit fees
151

 
159

Other, net (Note 16)
5,117

 
2,713

Total other income (loss)
3,576

 
5,885

 
 
 
 
Other Expenses:
 
 
 
Compensation and benefits
10,700

 
9,947

Other operating expenses
5,092

 
4,044

Federal Housing Finance Agency
720

 
799

Office of Finance
863

 
818

Other
352

 
291

Total other expenses
17,727

 
15,899

 
 
 
 
Income before assessments
34,025

 
38,276

 
 
 
 
Affordable Housing Program assessments
3,416

 
3,889

 
 
 
 
Net income
$
30,609

 
$
34,387


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,
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
30,609

 
$
34,387

 
 
 
 
Other Comprehensive Income:
 
 
 
Net change in unrealized gains (losses) on available-for-sale securities
1,504

 
12,039

 
 
 
 
Non-credit portion of other-than-temporary impairment losses on available-for-sale securities:
 
 
 
Reclassification of non-credit portion to other income (loss)

 
170

Net change in fair value not in excess of cumulative non-credit losses
1

 
(219
)
Unrealized gains (losses)
(2,359
)
 
4,254

Net non-credit portion of other-than-temporary impairment losses on available-for-sale securities
(2,358
)
 
4,205

 
 
 
 
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:
 
 
 
Accretion of non-credit portion
12

 
13

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
12

 
13

 
 
 
 
Pension benefits, net
248

 
136

 
 
 
 
Total other comprehensive income (loss)
(594
)
 
16,393

 
 
 
 
Total comprehensive income
$
30,015

 
$
50,780



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, 2014 and 2015
(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, 2013
 
16,099

 
$
1,609,931

 
$
647,624

 
$
82,151

 
$
729,775

 
$
21,720

 
$
2,361,426

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
27,510

 
6,877

 
34,387

 
16,393

 
50,780

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
 
59

 
5,926

 
 
 
 
 
 
 
 
 
5,926

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(5.50% annualized)
 
 
 
 
 
(22,166
)
 

 
(22,166
)
 
 
 
(22,166
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2014
 
16,158

 
$
1,615,857

 
$
652,968

 
$
89,028

 
$
741,996

 
$
38,113

 
$
2,395,966

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
 
15,510

 
$
1,550,981

 
$
672,159

 
$
105,470

 
$
777,629

 
$
46,660

 
$
2,375,270

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
24,487

 
6,122

 
30,609

 
(594
)
 
30,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
 
209

 
20,889

 
 
 
 
 
 
 
 
 
20,889

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(4.00% annualized)
 
 
 
 
 
(17,008
)
 

 
(17,008
)
 
 
 
(17,008
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2015
 
15,719

 
$
1,571,870

 
$
679,638

 
$
111,592

 
$
791,230

 
$
46,066

 
$
2,409,166




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,
 
2015
 
2014
Operating Activities:
 
 
 
Net income
$
30,609

 
$
34,387

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and depreciation
12,942

 
4,275

Prepayment fees on advances, net of related swap termination fees
(1,862
)
 

Changes in net derivative and hedging activities
11,760

 
7,233

Net other-than-temporary impairment losses, credit portion

 
170

Provision for (reversal of) credit losses
563

 
(704
)
Changes in:
 
 
 
Accrued interest receivable
(1,442
)
 
1,683

Other assets
(4,213
)
 
14,932

Accrued interest payable
964

 
4,924

Other liabilities
13,005

 
95

Total adjustments, net
31,717

 
32,608

 
 
 
 
Net cash provided by operating activities
62,326

 
66,995

 
 
 
 
Investing Activities:
 
 


Changes in:
 
 
 
Interest-bearing deposits
(32,525
)
 
51,737

Securities purchased under agreements to resell
(500,000
)
 
(1,300,000
)
Federal funds sold

 
(225,000
)
Purchases of premises, software, and equipment
(1,373
)
 
(1,105
)
Available-for-sale securities:
 
 
 
Proceeds from maturities
18,976

 
17,928

Held-to-maturity securities:
 
 
 
Proceeds from maturities
432,967

 
182,296

Purchases
(16,197
)
 

Advances:
 
 
 
Principal collected
17,944,283

 
15,213,277

Disbursed to members
(18,971,601
)
 
(15,010,095
)
Mortgage loans held for portfolio:
 
 
 
Principal collected
331,548

 
196,048

Purchases
(891,413
)
 
(184,457
)
 
 
 
 
Net cash used in investing activities
(1,685,335
)
 
(1,059,371
)
 


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,
 
2015
 
2014
Financing Activities:
 
 
 
Changes in deposits
346,283

 
101,100

Net payments on derivative contracts with financing elements
(15,620
)
 
(15,750
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
13,840,829

 
9,327,578

Bonds
7,224,218

 
3,178,564

Payments for matured and retired consolidated obligations:
 
 
 
Discount notes
(15,248,157
)
 
(10,343,928
)
Bonds
(4,496,350
)
 
(3,596,000
)
Other Federal Home Loan Banks:
 
 
 
Proceeds from borrowings

 
22,000

Payments for maturities

 
(22,000
)
Proceeds from sale of capital stock
20,889

 
5,926

Payments for redemption/repurchase of mandatorily redeemable capital stock
(120
)
 
(1
)
Cash dividends paid on capital stock
(17,008
)
 
(22,166
)
 
 
 
 
Net cash provided by (used in) financing activities
1,654,964

 
(1,364,677
)
 
 
 
 
Net increase (decrease) in cash and due from banks
31,955

 
(2,357,053
)
 
 
 
 
Cash and due from banks at beginning of period
3,550,939

 
3,318,564

 
 
 
 
Cash and due from banks at end of period
$
3,582,894

 
$
961,511

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
74,690

 
$
72,949

Affordable Housing Program payments
4,556

 
3,456

Capitalized interest on certain held-to-maturity securities
598

 
751

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 and Change in Accounting Principle

Basis of Presentation. The accompanying interim financial statements of the Federal Home Loan Bank of Indianapolis have been prepared in accordance with GAAP and SEC requirements 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 2014 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 2014 Form 10-K. There have been no material changes to these policies through March 31, 2015.

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. When preparing financial statements in accordance with GAAP, we are required 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. The most significant estimates include the determination of other-than-temporary impairment of certain private-label RMBS, the fair values of derivatives and other financial instruments, and the allowance for credit losses. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates.

Change in Accounting Principle. Effective October 1, 2014, we changed our method of accounting for the amortization and accretion of premiums and discounts, deferred loan fees or costs, and hedging basis adjustments on our mortgage loans held for portfolio to the contractual interest method. The contractual method recognizes the income effects of premiums and discounts in a manner that reflects the actual prepayments and other activity of the mortgage loans during that period and the contractual terms of the loans without regard to estimated prepayments based upon assumptions about future borrower activity. Historically, we deferred and amortized premiums and accreted discounts into interest income using the retrospective interest method, which used both actual prepayment experience and estimates of future principal repayments in calculating the estimated lives of the loans. While both the retrospective interest and contractual interest methods are acceptable under GAAP, the contractual interest method has become preferable for recognizing net unamortized premiums on our mortgage loans held for portfolio because (i) it reduces our reliance on subjective assumptions and estimates that affect the reported amounts of assets, capital and income in the financial statements and (ii) it represents the base accounting model articulated in GAAP applicable to accounting for the amortization of premiums and the accretion of discounts, whereas the retrospective method is only permitted by the guidance in narrowly defined circumstances.

The change to the contractual method for amortizing premiums and accreting discounts, deferred loan fees or costs, and hedging basis adjustments on our mortgage loans has been reported through retroactive application of the change in accounting principle to all periods presented. For the three months ended March 31, 2014, the effect of this change was an increase to net income of $727.





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


The following table illustrates the impact of the change in amortization and accretion methodology on our previously reported financial statements as of and for the three months ended March 31, 2014.
 
 
As of and for the Three Months Ended March 31, 2014
 
 
Previous Method
 
New Method
 
Effect of Change
Statements of Condition:
 
 
 
 
 
 
Mortgage loans held for portfolio, net
 
$
6,175,018

 
$
6,153,649

 
$
(21,369
)
Total assets
 
36,521,508

 
36,500,139

 
(21,369
)
Affordable Housing Program payable
 
43,130

 
43,211

 
81

Total liabilities
 
34,104,092

 
34,104,173

 
81

Unrestricted retained earnings
 
671,277

 
652,968

 
(18,309
)
Restricted retained earnings
 
92,169

 
89,028

 
(3,141
)
Total retained earnings
 
763,446

 
741,996

 
(21,450
)
Total capital
 
2,417,416

 
2,395,966

 
(21,450
)
Total liabilities and capital
 
$
36,521,508

 
$
36,500,139

 
$
(21,369
)
 
 
 
 
 
 
 
Statements of Income:
 
 
 
 
 
 
Interest income - mortgage loans held for portfolio
 
$
57,297

 
$
58,105

 
$
808

Net interest income after provision for credit losses
 
47,482

 
48,290

 
808

Income before assessments
 
37,468

 
38,276

 
808

Affordable Housing Program assessments
 
3,808

 
3,889

 
81

Net income
 
$
33,660

 
$
34,387

 
$
727

 
 
 
 
 
 
 
Statements of Comprehensive Income:
 
 
 
 
 
 
Net income
 
$
33,660

 
$
34,387

 
$
727

Total comprehensive income
 
$
50,053

 
$
50,780

 
$
727

 
 
 
 
 
 
 
Statements of Capital:
 
 
 
 
 
 
Total retained earnings, as of beginning of year
 
$
751,952

 
$
729,775

 
$
(22,177
)
Total comprehensive income
 
50,053

 
50,780

 
727

Total retained earnings, as of end of year
 
763,446

 
741,996

 
(21,450
)
Total capital
 
$
2,417,416

 
$
2,395,966

 
$
(21,450
)
 
 
 
 
 
 
 
Statements of Cash Flows:
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
Net income
 
$
33,660

 
$
34,387

 
$
727

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Amortization and depreciation
 
5,083

 
4,275

 
(808
)
Changes in:
 
 
 
 
 
 
Other liabilities
 
14

 
95

 
81

Total adjustments, net
 
33,335

 
32,608

 
(727
)
Net cash provided by operating activities
 
$
66,995

 
$
66,995

 
$








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


Note 2 - Recently Adopted and Issued Accounting Guidance

Customers Accounting for Fees Paid in a Cloud Computing Arrangement. On April 15, 2015, the FASB issued amendments to clarify a customer's accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers on determining whether a cloud computing arrangement includes a software license that should be accounted for as internal-use software. If the arrangement does not contain a software license, it would be accounted for as a service contract. This guidance becomes effective for the interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We can elect to adopt the amendments either (i) prospectively to all arrangements entered into or materially modified after the effective date or (ii) retrospectively. We are in the process of evaluating this guidance and its effect on our financial condition, results of operations, and cash flows.

Simplifying the Presentation of Debt Issuance Costs. On April 7, 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance requires a reclassification on the statement of condition of debt issuance costs related to a recognized debt liability from other assets to a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance becomes effective for the interim and annual periods beginning after December 15, 2015, and early adoption is permitted for financial statements that have not been previously issued. The guidance is required to be applied on a retrospective basis to each individual period presented on the statement of condition. We are in the process of evaluating the effect of this guidance on our financial condition, results of operations, and cash flows.

Amendments to the Consolidation Analysis. On February 18, 2015, the FASB issued amended guidance intended to enhance consolidation analysis for legal entities such as limited partnerships, limited liability companies, and securitization structures (collateralized debt obligations, collateralized loan obligations, and MBS transactions). The new guidance primarily focuses on: (i) placing more emphasis on risk of loss when determining a controlling financial interest, such that a reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement when certain criteria are met; (ii) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE; and (iii) changing consolidation conclusions for entities in several industries that typically make use of limited partnerships or VIEs. This guidance becomes effective for the interim and annual periods beginning after December 15, 2015, and early adoption is permitted, including adoption in an interim period. We are in the process of evaluating this guidance, but its effect on our financial condition, results of operations, or cash flows is not expected to be material.

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 became effective for the interim and annual periods beginning on January 1, 2015, and was adopted prospectively. However, this guidance did not have any effect on our financial condition, results of operations or cash flows.

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 became effective for the interim and annual periods beginning January 1, 2015 and was adopted prospectively. However, this guidance did not have any effect on our financial condition, results of operations or cash flows.

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 became effective for interim and annual periods on January 1, 2015, and was adopted prospectively. However, this guidance did not have any effect on our financial condition, results of operations or cash flows.





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


Advisory Bulletin 2012-02. On April 9, 2012, the Finance Agency issued an Advisory Bulletin that established a standard and uniform methodology for adversely classifying loans, other real estate owned, and certain other assets (excluding investment securities), and prescribes the timing of asset charge-offs based on these classifications. Such requirements differed from our previous methodology and accounting policy, particularly in that, among other differences, the Advisory Bulletin 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 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. The adverse classification requirements were implemented as of January 1, 2014, and the financial reporting and charge-off requirements were implemented on January 1, 2015. However, the adoption of these requirements did not 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 by type of security.
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Non-Credit
 
Unrealized
 
Unrealized
 
Estimated
March 31, 2015
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
3,146,549

 
$

 
$
18,112

 
$
(530
)
 
$
3,164,131

Private-label RMBS
 
345,021

 
(126
)
 
35,940

 

 
380,835

Total AFS securities
 
$
3,491,570

 
$
(126
)
 
$
54,052

 
$
(530
)
 
$
3,544,966

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
3,139,037

 
$

 
$
17,430

 
$
(1,352
)
 
$
3,155,115

Private-label RMBS
 
362,878

 
(127
)
 
38,299

 

 
401,050

Total AFS securities
 
$
3,501,915

 
$
(127
)
 
$
55,729

 
$
(1,352
)
 
$
3,556,165


(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), 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, 2015
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$
189,267

 
$
(530
)
 
$

 
$

 
$
189,267

 
$
(530
)
Private-label RMBS
 

 

 
5,411

 
(126
)
 
5,411

 
(126
)
Total impaired AFS securities
 
$
189,267

 
$
(530
)
 
$
5,411

 
$
(126
)
 
$
194,678

 
$
(656
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
GSE and TVA debentures
 
$
264,959

 
$
(1,352
)
 
$

 
$

 
$
264,959

 
$
(1,352
)
Private-label RMBS
 

 

 
5,656

 
(127
)
 
5,656

 
(127
)
Total impaired AFS securities
 
$
264,959

 
$
(1,352
)
 
$
5,656

 
$
(127
)
 
$
270,615

 
$
(1,479
)





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


Contractual Maturity. 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.
 
 
March 31, 2015
 
December 31, 2014
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due after one year through five years
 
$
2,480,103

 
$
2,491,979

 
$
2,484,379

 
$
2,497,034

Due after five years through ten years
 
666,446

 
672,152

 
654,658

 
658,081

Total non-MBS
 
3,146,549

 
3,164,131

 
3,139,037

 
3,155,115

Total RMBS
 
345,021

 
380,835

 
362,878

 
401,050

Total AFS securities
 
$
3,491,570

 
$
3,544,966

 
$
3,501,915

 
$
3,556,165


Realized Gains and Losses. There were no sales of AFS securities during the three months ended March 31, 2015 or 2014. As of March 31, 2015, 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.
 
 
 
 
 
 
 
 
 
Note 4 - Held-to-Maturity Securities

Major Security Types. The following table presents information on our HTM securities by type of security.
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
 
 
 
 
Unrecognized
 
Unrecognized
 
 
 
 
Amortized
 
Non-Credit
 
Carrying
 
Holding
 
Holding
 
Estimated
March 31, 2015
 
Cost (1)
 
OTTI
 
Value
 
Gains
 
Losses
 
 Fair Value
GSE debentures
 
$
100,000

 
$

 
$
100,000

 
$
132

 
$

 
$
100,132

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
2,922,180

 

 
2,922,180

 
33,476

 
(3,237
)
 
2,952,419

GSE MBS
 
3,434,203

 

 
3,434,203

 
103,325

 
(441
)
 
3,537,087

Private-label RMBS
 
92,982

 

 
92,982

 
552

 
(825
)
 
92,709

Manufactured housing loan ABS
 
10,786

 

 
10,786

 

 
(1,109
)
 
9,677

Home equity loan ABS
 
1,623

 
(163
)
 
1,460

 
84

 
(58
)
 
1,486

Total MBS and ABS
 
6,461,774

 
(163
)
 
6,461,611

 
137,437

 
(5,670
)
 
6,593,378

Total HTM securities
 
$
6,561,774

 
$
(163
)
 
$
6,561,611

 
$
137,569

 
$
(5,670
)
 
$
6,693,510

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
GSE debentures
 
$
269,000

 
$

 
$
269,000

 
$
199

 
$

 
$
269,199

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
3,032,494

 

 
3,032,494

 
30,598

 
(5,959
)
 
3,057,133

GSE MBS
 
3,567,958

 

 
3,567,958

 
93,583

 
(104
)
 
3,661,437

Private-label RMBS
 
99,879

 

 
99,879

 
360

 
(1,049
)
 
99,190

Manufactured housing loan ABS
 
11,243

 

 
11,243

 

 
(1,164
)
 
10,079

Home equity loan ABS
 
1,716

 
(175
)
 
1,541

 
114

 
(77
)
 
1,578

Total MBS and ABS
 
6,713,290

 
(175
)
 
6,713,115

 
124,655

 
(8,353
)
 
6,829,417

Total HTM securities
 
$
6,982,290

 
$
(175
)
 
$
6,982,115

 
$
124,854

 
$
(8,353
)
 
$
7,098,616


(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).






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, 2015 or December 31, 2014.
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
March 31, 2015
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
179,422

 
$
(6
)
 
$
689,949

 
$
(3,231
)
 
$
869,371

 
$
(3,237
)
GSE MBS
 
386,733

 
(441
)
 

 

 
386,733

 
(441
)
Private-label RMBS
 
2,890

 
(2
)
 
39,141

 
(823
)
 
42,031

 
(825
)
Manufactured housing loan ABS
 

 

 
9,677

 
(1,109
)
 
9,677

 
(1,109
)
Home equity loan ABS
 

 

 
1,486

 
(137
)
 
1,486

 
(137
)
Total MBS and ABS
 
569,045

 
(449
)
 
740,253

 
(5,300
)
 
1,309,298

 
(5,749
)
Total impaired HTM securities
 
$
569,045

 
$
(449
)
 
$
740,253

 
$
(5,300
)
 
$
1,309,298

 
$
(5,749
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
528,242

 
$
(1,254
)
 
$
702,768

 
$
(4,705
)
 
$
1,231,010

 
$
(5,959
)
GSE MBS
 
31,554

 
(8
)
 
26,013

 
(96
)
 
57,567

 
(104
)
Private-label RMBS
 
3,274

 
(3
)
 
41,050

 
(1,046
)
 
44,324

 
(1,049
)
Manufactured housing loan ABS
 

 

 
10,080

 
(1,164
)
 
10,080

 
(1,164
)
Home equity loan ABS
 

 

 
1,579

 
(138
)
 
1,579

 
(138
)
Total MBS and ABS
 
563,070

 
(1,265
)
 
781,490

 
(7,149
)
 
1,344,560

 
(8,414
)
Total impaired HTM securities
 
$
563,070

 
$
(1,265
)
 
$
781,490

 
$
(7,149
)
 
$
1,344,560

 
$
(8,414
)

(1) 
For home equity loan ABS, total unrealized losses does not agree to total gross unrecognized holding losses at March 31, 2015 and December 31, 2014 of $(58) and $(77), respectively. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI of $(163) and $(175), respectively, and gross unrecognized holding gains on previously OTTI securities of $84 and $114, respectively.

Contractual Maturity. 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.
 
 
March 31, 2015
 
December 31, 2014
 
 
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
 
$
100,000

 
$
100,000

 
$
100,132

 
$
169,000

 
$
169,000

 
$
169,099

Due after one year through five years
 

 

 

 
100,000

 
100,000

 
100,100

Total non-MBS
 
100,000

 
100,000

 
100,132

 
269,000

 
269,000

 
269,199

Total MBS and ABS
 
6,461,774

 
6,461,611

 
6,593,378

 
6,713,290

 
6,713,115

 
6,829,417

Total HTM securities
 
$
6,561,774

 
$
6,561,611

 
$
6,693,510

 
$
6,982,290

 
$
6,982,115

 
$
7,098,616


(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. 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 equal to the entire difference between the security's amortized cost basis and its estimated fair value at the Statement of Condition date. 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 basis of the security as described in Note 1 - Summary of Significant Accounting Policies and Note 6 - Other-Than-Temporary Impairment in our 2014 Form 10-K.

OTTI - Significant Inputs. 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 8% over a twelve-month period. For the vast majority of housing markets, the changes range from an increase of 1% to an increase of 5%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.
 
 
 
 
 
 
 
 
 
Results of OTTI Evaluation Process. As a result of our analysis, OTTI credit losses were recognized for no securities for the three months ended March 31, 2015 and one security for the three months ended March 31, 2014. 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
 
2015
 
2014
Balance at beginning of period
 
$
69,626

 
$
72,287

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

 
170

Reductions:
 
 
 
 
Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities)
 
(1,252
)
 

Balance at end of period
 
$
68,374

 
$
72,457


(1) 
For the three months ended March 31, 2014, the amount relates to one security impaired prior to January 1, 2014.

The following table presents the March 31, 2015 classification and balances 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.
 
 
March 31, 2015
 
 
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
 
$

 
$

 
$

 
$

 
$
406,606

 
$
345,021

 
$
380,835

Home equity loan ABS - subprime
 
713

 
683

 
521

 
604

 

 

 

Total
 
$
713

 
$
683

 
$
521

 
$
604

 
$
406,606

 
$
345,021

 
$
380,835


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 March 31, 2015 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 0.02% to 7.53%.
 
 
March 31, 2015
 
December 31, 2014
Year of Contractual Maturity
 
Amount
 
WAIR %
 
Amount
 
WAIR %
Overdrawn demand and overnight deposit accounts
 
$

 

 
$

 

Due in 1 year or less
 
7,342,449

 
0.82

 
7,406,652

 
0.83

Due after 1 year through 2 years
 
2,477,483

 
1.33

 
2,529,649

 
1.28

Due after 2 years through 3 years
 
2,957,011

 
1.61

 
2,331,427

 
1.57

Due after 3 years through 4 years
 
1,718,911

 
2.18

 
2,047,262

 
2.05

Due after 4 years through 5 years
 
2,186,026

 
1.78

 
1,571,567

 
2.51

Thereafter
 
4,975,641

 
1.40

 
4,743,645

 
1.31

Total advances, par value
 
21,657,521

 
1.33

 
20,630,202

 
1.33

Fair-value hedging adjustments
 
147,516

 
 

 
117,118

 
 

Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees
 
40,790

 
 

 
42,347

 
 

Total advances
 
$
21,845,827

 
 

 
$
20,789,667

 
 


Prepayments. At March 31, 2015 and December 31, 2014, we had $5.8 billion and $5.6 billion, respectively, of advances that can be prepaid without incurring prepayment or termination fees. All other advances may only be prepaid by paying a fee that is sufficient to make us financially indifferent to the prepayment of the advance.

At March 31, 2015 and December 31, 2014, we had putable advances outstanding totaling $184,000 and $179,000, respectively.

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,
2015
 
December 31,
2014
 
March 31,
2015
 
December 31,
2014
Overdrawn demand and overnight deposit accounts
 
$

 
$

 
$

 
$

Due in 1 year or less
 
11,662,064

 
11,293,767

 
7,489,949

 
7,574,152

Due after 1 year through 2 years
 
2,746,483

 
2,533,649

 
2,437,483

 
2,499,649

Due after 2 years through 3 years
 
2,619,261

 
2,208,677

 
2,879,511

 
2,233,927

Due after 3 years through 4 years
 
1,488,911

 
1,847,262

 
1,693,911

 
2,012,262

Due after 4 years through 5 years
 
1,551,026

 
1,506,567

 
2,206,026

 
1,566,567

Thereafter
 
1,589,776

 
1,240,280

 
4,950,641

 
4,743,645

Total advances, par value
 
$
21,657,521

 
$
20,630,202

 
$
21,657,521

 
$
20,630,202


Credit Risk Exposure and Security Terms. At March 31, 2015 and December 31, 2014, we had a total of $11.4 billion and $8.3 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 53% and 40%, respectively, of total advances at par outstanding on those dates, were made to seven and five borrowers, respectively. At March 31, 2015 and December 31, 2014, we held $21.9 billion and $15.1 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.





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


Note 7 - Mortgage Loans Held for Portfolio

The following tables present information on mortgage loans held for portfolio by term and by type.
 
 
March 31, 2015
Term
 
MPP
 
MPF
 
Total
Fixed-rate long-term mortgages
 
$
5,766,259

 
$
416,641

 
$
6,182,900

Fixed-rate medium-term (1) mortgages
 
1,015,285

 
75,788

 
1,091,073

Total mortgage loans held for portfolio, UPB
 
6,781,544

 
492,429

 
7,273,973

Unamortized premiums
 
130,595

 
8,382

 
138,977

Unamortized discounts
 
(3,990
)
 
(292
)
 
(4,282
)
Fair-value hedging adjustments
 
5,807

 
(461
)
 
5,346

Allowance for loan losses
 
(2,000
)
 
(250
)
 
(2,250
)
Total mortgage loans held for portfolio, net
 
$
6,911,956

 
$
499,808

 
$
7,411,764


 
 
December 31, 2014
Term
 
MPP
 
MPF
 
Total
Fixed-rate long-term mortgages
 
$
5,233,682

 
$
428,758

 
$
5,662,440

Fixed-rate medium-term (1) mortgages
 
963,083

 
78,919

 
1,042,002

Total mortgage loans held for portfolio, UPB
 
6,196,765

 
507,677

 
6,704,442

Unamortized premiums
 
107,876

 
8,726

 
116,602

Unamortized discounts
 
(1,874
)
 
(302
)
 
(2,176
)
Fair-value hedging adjustments
 
4,369

 
(475
)
 
3,894

Allowance for loan losses
 
(2,250
)
 
(250
)
 
(2,500
)
Total mortgage loans held for portfolio, net
 
$
6,304,886

 
$
515,376

 
$
6,820,262


(1) 
Defined as a term of 15 years or less at origination.