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EX-31.1 - EXHIBIT 31.1 - Federal Home Loan Bank of Indianapolisex311september302015.htm
EX-31.3 - EXHIBIT 31.3 - Federal Home Loan Bank of Indianapolisex313september302015.htm
EX-32 - EXHIBIT 32 - Federal Home Loan Bank of Indianapolisex32section1350certificati.htm
EX-31.2 - EXHIBIT 31.2 - Federal Home Loan Bank of Indianapolisex312september302015.htm


 
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, 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 October 31, 2015

Class B Stock, par value $100
14,854,522




Table of Contents
Page
 
 
Number
PART I.
FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS (unaudited)
 
 
 
 
 
Statements of Condition as of September 30, 2015 and December 31, 2014
 
 
 
 
Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014
 
 
 
 
Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014
 
 
 
 
Statements of Capital for the Nine Months Ended September 30, 2014 and 2015
 
 
 
 
Statements of Cash Flows for the Nine Months Ended September 30, 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 and Other Entities
 
 
 
 
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 in thousands, except par value per share and number of shares)
 
September 30,
2015
 
December 31,
2014
Assets:
 
 
 
Cash and due from banks
$
3,431,274

 
$
3,550,939

Interest-bearing deposits
221

 
483

Securities purchased under agreements to resell
750,000

 

Federal funds sold
270,000

 

Available-for-sale securities (Notes 3 and 5)
3,551,371

 
3,556,165

Held-to-maturity securities (estimated fair values of $6,251,199 and $7,098,616, respectively) (Notes 4 and 5)
6,142,413

 
6,982,115

Advances (Note 6)
24,297,197

 
20,789,667

Mortgage loans held for portfolio, net of allowance for loan losses of $(1,125) and $(2,500), respectively (Notes 7 and 8)
8,084,138

 
6,820,262

Accrued interest receivable
85,931

 
82,866

Premises, software, and equipment, net
38,275

 
38,418

Derivative assets, net (Note 9)
43,182

 
25,487

Other assets
41,753

 
6,630

 
 
 
 
Total assets
$
46,735,755

 
$
41,853,032

 
 
 
 
Liabilities:
 

 
 
Deposits
$
749,019

 
$
1,084,042

Consolidated obligations (Note 10):
 

 
 
Discount notes
14,425,407

 
12,567,696

Bonds
28,872,703

 
25,503,138

Total consolidated obligations
43,298,110

 
38,070,834

Accrued interest payable
83,679

 
77,034

Affordable Housing Program payable (Note 11)
32,983

 
36,899

Derivative liabilities, net (Note 9)
104,808

 
103,253

Mandatorily redeemable capital stock (Note 12)
14,184

 
15,673

Other liabilities
151,510

 
90,027

Total liabilities
44,434,293

 
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: 14,529,559 and 15,509,811, respectively
1,452,956

 
1,550,981

Class B-2 issued and outstanding shares: 371 and 0, respectively
37

 

     Total capital stock putable
1,452,993

 
1,550,981

Retained earnings:
 
 
 
Unrestricted
697,976

 
672,159

Restricted
124,001

 
105,470

Total retained earnings
821,977

 
777,629

Total accumulated other comprehensive income (Note 13)
26,492

 
46,660

Total capital
2,301,462

 
2,375,270

 
 
 
 
Total liabilities and capital
$
46,735,755

 
$
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Interest Income:
 
 
 
 
 
 
 
Advances
$
32,584

 
$
26,392

 
$
90,263

 
$
78,951

Prepayment fees on advances, net
7

 
617

 
299

 
1,678

Interest-bearing deposits
51

 
52

 
158

 
166

Securities purchased under agreements to resell
468

 
6

 
935

 
163

Federal funds sold
718

 
553

 
1,882

 
1,249

Available-for-sale securities
8,556

 
6,715

 
23,382

 
19,726

Held-to-maturity securities
28,353

 
32,999

 
87,100

 
96,422

Mortgage loans held for portfolio
68,676

 
57,075

 
195,076

 
172,691

Other interest income, net
(784
)
 
(112
)
 
(739
)
 
423

Total interest income
138,629

 
124,297

 
398,356

 
371,469

Interest Expense:
 
 
 
 
 
 
 
Consolidated obligation discount notes
4,834

 
2,021

 
11,307

 
4,770

Consolidated obligation bonds
85,536

 
76,689

 
242,455

 
229,041

Deposits
20

 
18

 
62

 
63

Mandatorily redeemable capital stock
135

 
129

 
391

 
874

Total interest expense
90,525

 
78,857

 
254,215

 
234,748

 
 
 
 
 
 
 
 
Net interest income
48,104

 
45,440

 
144,141

 
136,721

Provision for (reversal of) credit losses
(180
)
 
(126
)
 
(568
)
 
(916
)
 
 
 
 
 
 
 
 
Net interest income after provision for credit losses
48,284

 
45,566

 
144,709

 
137,637

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

 

 

 

Non-credit portion reclassified to (from) other comprehensive income, net
(29
)
 
(42
)
 
(61
)
 
(270
)
Net other-than-temporary impairment losses, credit portion
(29
)
 
(42
)
 
(61
)
 
(270
)
Net gains (losses) on derivatives and hedging activities
(659
)
 
677

 
4,724

 
6,783

Service fees
256

 
220

 
644

 
662

Standby letters of credit fees
162

 
114

 
501

 
407

Other, net (Note 16)
308

 
5,851

 
5,747

 
15,085

Total other income
38

 
6,820

 
11,555

 
22,667

 
 
 
 
 
 
 
 
Other Expenses:
 
 
 
 
 
 
 
Compensation and benefits
10,181

 
10,084

 
31,879

 
30,598

Other operating expenses
5,493

 
5,126

 
16,126

 
13,622

Federal Housing Finance Agency
595

 
626

 
1,905

 
2,044

Office of Finance
621

 
544

 
2,271

 
1,987

Other
350

 
307

 
1,090

 
943

Total other expenses
17,240

 
16,687

 
53,271

 
49,194

 
 
 
 
 
 
 
 
Income before assessments
31,082

 
35,699

 
102,993

 
111,110

 
 
 
 
 
 
 
 
Affordable Housing Program assessments
3,121

 
3,583

 
10,338

 
11,199

 
 
 
 
 
 
 
 
Net income
$
27,961

 
$
32,116

 
$
92,655

 
$
99,911


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,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
27,961

 
$
32,116

 
$
92,655

 
$
99,911

 
 
 
 
 
 
 
 
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
Net change in unrealized gains (losses) on available-for-sale securities
(13,280
)
 
9,696

 
(14,684
)
 
22,273

 
 
 
 
 
 
 
 
Non-credit portion of other-than-temporary impairment losses on available-for-sale securities:
 
 
 
 
 
 
 
Reclassification of non-credit portion to other income (loss)
29

 
42

 
61

 
270

Net change in fair value not in excess of cumulative non-credit losses
(86
)
 
(46
)
 
(192
)
 
(227
)
Unrealized gains (losses)
(2,615
)
 
569

 
(4,146
)
 
13,442

Net non-credit portion of other-than-temporary impairment losses on available-for-sale securities
(2,672
)
 
565

 
(4,277
)
 
13,485

 
 
 
 
 
 
 
 
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities:
 
 
 
 
 
 
 
Accretion of non-credit portion
9

 
22

 
33

 
54

Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
9

 
22

 
33

 
54

 
 
 
 
 
 
 
 
Pension benefits, net
(413
)
 
(36
)
 
(1,240
)
 
(108
)
 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
(16,356
)
 
10,247

 
(20,168
)
 
35,704

 
 
 
 
 
 
 
 
Total comprehensive income
$
11,605

 
$
42,363

 
$
72,487

 
$
135,615



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, 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
 
 
 
 
 
79,928

 
19,983

 
99,911

 
35,704

 
135,615

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
 
1,159

 
115,902

 
 
 
 
 
 
 
 
 
115,902

Repurchase/redemption of capital stock
 
(1
)
 
(100
)
 
 
 
 
 
 
 
 
 
(100
)
Shares reclassified to 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

 
$
675,028

 
$
102,134

 
$
777,162

 
$
57,424

 
$
2,560,272

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2014
 
15,510

 
$
1,550,981

 
$
672,159

 
$
105,470

 
$
777,629

 
$
46,660

 
$
2,375,270

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
74,124

 
18,531

 
92,655

 
(20,168
)
 
72,487

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
 
1,423

 
142,347

 
 
 
 
 
 
 
 
 
142,347

Repurchase/redemption of capital stock
 
(2,403
)
 
(240,335
)
 
 
 
 
 
 
 
 
 
(240,335
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on capital stock
(4.08% annualized)
 
 
 
 
 
(48,307
)
 

 
(48,307
)
 
 
 
(48,307
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2015
 
14,530

 
$
1,452,993

 
$
697,976

 
$
124,001

 
$
821,977

 
$
26,492

 
$
2,301,462




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,
 
2015
 
2014
Operating Activities:
 
 
 
Net income
$
92,655

 
$
99,911

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization and depreciation
41,702

 
15,031

Prepayment fees on advances, net of related swap termination fees
(1,862
)
 
(475
)
Changes in net derivative and hedging activities
35,970

 
41,733

Net other-than-temporary impairment losses, credit portion
61

 
270

Provision for (reversal of) credit losses
(568
)
 
(916
)
Changes in:
 
 
 
Accrued interest receivable
(3,197
)
 
(216
)
Other assets
(3,331
)
 
17,038

Accrued interest payable
6,645

 
1,332

Other liabilities
24,809

 
13,812

Total adjustments, net
100,229

 
87,609

 
 
 
 
Net cash provided by operating activities
192,884

 
187,520

 
 
 
 
Investing Activities:
 
 


Changes in:
 
 
 
Interest-bearing deposits
(21,831
)
 
101,874

Securities purchased under agreements to resell
(750,000
)
 

Federal funds sold
(270,000
)
 

Purchases of premises, software, and equipment
(3,248
)
 
(3,787
)
Available-for-sale securities:
 
 
 
Proceeds from maturities
60,350

 
65,799

Purchases
(79,866
)
 

Held-to-maturity securities:
 
 
 
Proceeds from maturities
1,144,000

 
745,720

Purchases
(316,868
)
 
(574,885
)
Advances:
 
 
 
Principal collected
65,787,838

 
51,216,136

Disbursed to members
(69,257,792
)
 
(53,260,098
)
Mortgage loans held for portfolio:
 
 
 
Principal collected
1,027,539

 
660,265

Purchases from members
(2,306,586
)
 
(945,230
)
 
 
 
 
Net cash used in investing activities
(4,986,464
)
 
(1,994,206
)
 


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,
 
2015
 
2014
Financing Activities:
 
 
 
Changes in deposits
(336,453
)
 
(47,099
)
Net payments on derivative contracts with financing elements
(45,278
)
 
(46,171
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
58,752,115

 
35,623,619

Bonds
17,396,692

 
15,948,090

Payments for matured and retired consolidated obligations:
 
 
 
Discount notes
(56,898,077
)
 
(32,952,279
)
Bonds
(14,047,300
)
 
(15,656,000
)
Other Federal Home Loan Banks:
 
 
 
Proceeds from borrowings

 
22,000

Principal payments

 
(22,000
)
Proceeds from sale of capital stock
142,347

 
115,902

Payments for redemption/repurchase of mandatorily redeemable capital stock
(1,489
)
 
(697
)
Payments for redemption/repurchase of capital stock
(240,335
)
 
(100
)
Cash dividends paid on capital stock
(48,307
)
 
(52,524
)
 
 
 
 
Net cash provided by financing activities
4,673,915

 
2,932,741

 
 
 
 
Net (decrease) increase in cash and due from banks
(119,665
)
 
1,126,055

 
 
 
 
Cash and due from banks at beginning of period
3,550,939

 
3,318,564

 
 
 
 
Cash and due from banks at end of period
$
3,431,274

 
$
4,444,619

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
234,740

 
$
224,198

Affordable Housing Program payments
14,254

 
12,363

Capitalized interest on certain held-to-maturity securities
1,245

 
2,459

Par value of shares reclassified to mandatorily redeemable capital stock, net

 
47

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 significant changes to these policies through September 30, 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 GAAP 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 held for portfolio has been reported through retroactive application of the change in accounting principle to all periods presented. For the three and nine months ended September 30, 2014, the effect of this change was a decrease to net income of $1,636 and $642, respectively.





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


The following table presents the impact of the change in amortization and accretion methodology on amounts previously reported in our financial statements as of and for the three and nine months ended September 30, 2014.
 
 
For the Three Months Ended September 30, 2014
 
 
Previous Method
 
New Method
 
Effect of Change
Statements of Income:
 
 
 
 
 
 
Interest income - mortgage loans held for portfolio
 
$
58,893

 
$
57,075

 
$
(1,818
)
Net interest income after provision for credit losses
 
47,384

 
45,566

 
(1,818
)
Income before assessments
 
37,517

 
35,699

 
(1,818
)
Affordable Housing Program assessments
 
3,765

 
3,583

 
(182
)
Net income
 
$
33,752

 
$
32,116

 
$
(1,636
)
 
 
 
 
 
 
 
Statements of Comprehensive Income:
 
 
 
 
 
 
Net income
 
$
33,752

 
$
32,116

 
$
(1,636
)
Total comprehensive income
 
$
43,999

 
$
42,363

 
$
(1,636
)






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


 
 
As of and for the Nine Months Ended September 30, 2014
 
 
Previous Method
 
New Method
 
Effect of Change
Statements of Condition:
 
 
 
 
 
 
Mortgage loans held for portfolio, net
 
$
6,471,714

 
$
6,448,824

 
$
(22,890
)
Total assets
 
41,038,155

 
41,015,265

 
(22,890
)
Affordable Housing Program payable
 
41,685

 
41,614

 
(71
)
Total liabilities
 
38,455,064

 
38,454,993

 
(71
)
Unrestricted retained earnings
 
694,433

 
675,028

 
(19,405
)
Restricted retained earnings
 
105,548

 
102,134

 
(3,414
)
Total retained earnings
 
799,981

 
777,162

 
(22,819
)
Total capital
 
2,583,091

 
2,560,272

 
(22,819
)
Total liabilities and capital
 
$
41,038,155

 
$
41,015,265

 
$
(22,890
)
 
 
 
 
 
 
 
Statements of Income:
 
 
 
 
 
 
Interest income - mortgage loans held for portfolio
 
$
173,404

 
$
172,691

 
$
(713
)
Net interest income after provision for credit losses
 
138,350

 
137,637

 
(713
)
Income before assessments
 
111,823

 
111,110

 
(713
)
Affordable Housing Program assessments
 
11,270

 
11,199

 
(71
)
Net income
 
$
100,553

 
$
99,911

 
$
(642
)
 
 
 
 
 
 
 
Statements of Comprehensive Income:
 
 
 
 
 
 
Net income
 
$
100,553

 
$
99,911

 
$
(642
)
Total comprehensive income
 
$
136,257

 
$
135,615

 
$
(642
)
 
 
 
 
 
 
 
Statements of Capital:
 
 
 
 
 
 
Total retained earnings, as of beginning of year
 
$
751,952

 
$
729,775

 
$
(22,177
)
Total comprehensive income
 
136,257

 
135,615

 
(642
)
Total retained earnings, as of end of period
 
799,981

 
777,162

 
(22,819
)
Total capital
 
$
2,583,091

 
$
2,560,272

 
$
(22,819
)
 
 
 
 
 
 
 
Statements of Cash Flows:
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
Net income
 
$
100,553

 
$
99,911

 
$
(642
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Amortization and depreciation
 
14,318

 
15,031

 
713

Changes in:
 
 
 
 
 
 
Other liabilities
 
13,883

 
13,812

 
(71
)
Total adjustments, net
 
86,967

 
87,609

 
642

Net cash provided by operating activities
 
$
187,520

 
$
187,520

 
$






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


Note 2 - Recently Adopted and Issued Accounting Guidance

Customer's 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, but its effect on our financial condition, results of operations, and cash flows is not expected to be material.

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 that unamortized debt issuance costs related to a recognized debt liability be presented on the statement of condition as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of 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 period presented on the statement of condition. The adoption of this guidance will result in a reclassification of unamortized debt issuance costs from other assets to consolidated obligations on our statement of condition and a reclassification on the statement of cash flows from operating activities to financing activities.

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.

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 recognizing revenue arising from contracts with customers and supercedes 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, and lease contracts.

The guidance provides entities with the option of using either of the following adoption methods: (i) a full retrospective method, retrospectively to each prior reporting period presented; or (ii) a modified retrospective method, retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. On August 12, 2015, the FASB issued an amendment to defer the effective date of the guidance issued in May 2014 by one year. The guidance is effective for interim and annual periods beginning on January 1, 2018. Early application is permitted only as of the interim and annual reporting periods beginning after December 15, 2016. 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.





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


Note 3 - Available-for-Sale Securities

Major Security Types. The following table presents information on our AFS securities by type of security.
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
Amortized
 
Non-Credit
 
Unrealized
 
Unrealized
 
Estimated
September 30, 2015
 
Cost (1)
 
OTTI
 
Gains
 
Losses
 
Fair Value
GSE and TVA debentures
 
$
3,126,782

 
$

 
$
6,011

 
$
(3,660
)
 
$
3,129,133

GSE MBS
 
80,893

 

 

 
(957
)
 
79,936

Private-label RMBS
 
308,407

 
(258
)
 
34,153

 

 
342,302

Total AFS securities
 
$
3,516,082

 
$
(258
)
 
$
40,164

 
$
(4,617
)
 
$
3,551,371

 
 
 
 
 
 
 
 
 
 
 
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
September 30, 2015
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses
GSE and TVA debentures
 
$
342,303

 
$
(2,337
)
 
$
108,355

 
$
(1,323
)
 
$
450,658

 
$
(3,660
)
GSE MBS
 
79,936

 
(957
)
 

 

 
79,936

 
(957
)
Private-label RMBS
 

 

 
4,696

 
(258
)
 
4,696

 
(258
)
Total impaired AFS securities
 
$
422,239

 
$
(3,294
)
 
$
113,051

 
$
(1,581
)
 
$
535,290

 
$
(4,875
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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
)

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.
 
 
September 30, 2015
 
December 31, 2014
 
 
Amortized
 
Estimated
 
Amortized
 
Estimated
Year of Contractual Maturity
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Due in one year or less
 
$
621,667

 
$
622,754

 
$

 
$

Due after one year through five years
 
1,904,018

 
1,907,238

 
2,484,379

 
2,497,034

Due after five years through ten years
 
601,097

 
599,141

 
654,658

 
658,081

Total non-MBS
 
3,126,782

 
3,129,133

 
3,139,037

 
3,155,115

Total MBS
 
389,300

 
422,238

 
362,878

 
401,050

Total AFS securities
 
$
3,516,082

 
$
3,551,371

 
$
3,501,915

 
$
3,556,165


Realized Gains and Losses. There were no sales of AFS securities during the three and nine months ended September 30, 2015 or 2014. As of September 30, 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.





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 by type of security.
 
 
 
 
 
 
 
 
Gross
 
Gross
 
 
 
 
 
 
 
 
 
 
Unrecognized
 
Unrecognized
 
 
 
 
Amortized
 
Non-Credit
 
Carrying
 
Holding
 
Holding
 
Estimated
September 30, 2015
 
Cost (1)
 
OTTI
 
Value
 
Gains
 
Losses
 
 Fair Value
GSE debentures
 
$
100,000

 
$

 
$
100,000

 
$
46

 
$

 
$
100,046

MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations -guaranteed MBS
 
2,862,269

 

 
2,862,269

 
23,175

 
(3,854
)
 
2,881,590

GSE MBS
 
3,089,944

 

 
3,089,944

 
91,823

 
(864
)
 
3,180,903

Private-label RMBS
 
78,812

 

 
78,812

 
284

 
(813
)
 
78,283

Manufactured housing loan ABS
 
10,026

 

 
10,026

 

 
(1,029
)
 
8,997

Home equity loan ABS
 
1,504

 
(142
)
 
1,362

 
67

 
(49
)
 
1,380

Total MBS and ABS
 
6,042,555

 
(142
)
 
6,042,413

 
115,349

 
(6,609
)
 
6,151,153

Total HTM securities
 
$
6,142,555

 
$
(142
)
 
$
6,142,413

 
$
115,395

 
$
(6,609
)
 
$
6,251,199

 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2015 or December 31, 2014.
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
September 30, 2015
 
Fair Value
 
Losses
 
Fair Value
 
Losses
 
Fair Value
 
Losses (1)
MBS and ABS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations - guaranteed MBS
 
$
468,001

 
$
(579
)
 
$
624,370

 
$
(3,275
)
 
$
1,092,371

 
$
(3,854
)
GSE MBS
 
467,300

 
(864
)
 

 

 
467,300

 
(864
)
Private-label RMBS
 
5,305

 
(9
)
 
27,542

 
(804
)
 
32,847

 
(813
)
Manufactured housing loan ABS
 

 

 
8,997

 
(1,029
)
 
8,997

 
(1,029
)
Home equity loan ABS
 

 

 
1,379

 
(124
)
 
1,379

 
(124
)
Total MBS and ABS
 
940,606

 
(1,452
)
 
662,288

 
(5,232
)
 
1,602,894

 
(6,684
)
Total impaired HTM securities
 
$
940,606

 
$
(1,452
)
 
$
662,288

 
$
(5,232
)
 
$
1,602,894

 
$
(6,684
)
 
 
 
 
 
 
 
 
 
 
 
 
 
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 do not agree to total gross unrecognized holding losses at September 30, 2015 and December 31, 2014 of $(49) and $(77), respectively. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI of $(142) and $(175), respectively, and gross unrecognized holding gains on previously OTTI securities of $67 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.
 
 
September 30, 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

 
$
100,046

 
$
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

 
100,046

 
269,000

 
269,000

 
269,199

Total MBS and ABS
 
6,042,555

 
6,042,413

 
6,151,153

 
6,713,290

 
6,713,115

 
6,829,417

Total HTM securities
 
$
6,142,555

 
$
6,142,413

 
$
6,251,199

 
$
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. On a quarterly basis, we evaluate our individual AFS and HTM securities that have been previously OTTI or are in an unrealized loss position for OTTI. 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