10-Q 1 fhlb09301710q.htm FORM 10-Q Q3 2017 Document
 
 
 
 
 
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, 2017
OR
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 

Commission File Number: 000-51999
 

FEDERAL HOME LOAN BANK OF DES MOINES
(Exact name of registrant as specified in its charter)
 
Federally chartered corporation
(State or other jurisdiction of incorporation or organization)
 
42-6000149
(I.R.S. employer identification number)
 
 
 
 
 
 
 
Financial Center
666 Walnut Street
Des Moines, IA
(Address of principal executive offices)
 


50309
(Zip code)
 

Registrant’s telephone number, including area code: (515) 281-1000
 

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 requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 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, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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, 2017
 
Class B Stock, par value $100
 
57,074,826
 
 
 
 
 
 
 
 
 



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 15 - Activities with Stockholders
 
 
 
 
 
 
Note 16 - Activities with Other FHLBanks
 
 
 
 
 
 
Note 17 - Subsequent Events
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CONDITION
(dollars and shares in millions, except capital stock par value)
(Unaudited)
 
 
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
 
Cash and due from banks
 
$
218

 
$
223

Interest-bearing deposits
 
1

 
2

Securities purchased under agreements to resell
 
5,500

 
5,925

Federal funds sold
 
6,770

 
5,095

Investment securities
 
 
 
 
Trading securities (Note 3)
 
1,792

 
2,553

Available-for-sale securities (Note 4)
 
21,459

 
22,969

Held-to-maturity securities (fair value of $3,880 and $4,706) (Note 5)
 
3,819

 
4,674

Total investment securities
 
27,070

 
30,196

Advances (Note 7)
 
117,514

 
131,601

Mortgage loans held for portfolio, net of allowance for credit losses of $2 and $2 (Notes 8 and 9)
 
7,031

 
6,913

Loans to other FHLBanks

 
—

 
200

Accrued interest receivable
 
239

 
197

Derivative assets, net (Note 10)
 
119

 
191

Other assets
 
83

 
62

TOTAL ASSETS
 
$
164,545

 
$
180,605

LIABILITIES
 
 
 
 
Deposits
 
 
 
 
Interest-bearing
 
$
861

 
$
1,021

Non-interest-bearing
 
73

 
92

Total deposits
 
934

 
1,113

Consolidated obligations (Note 11)
 
 
 
 
Discount notes
 
52,976

 
80,947

Bonds
 
102,294

 
89,898

Total consolidated obligations
 
155,270

 
170,845

Mandatorily redeemable capital stock (Note 12)
 
422

 
664

Accrued interest payable
 
227

 
180

Affordable Housing Program payable
 
137

 
116

Derivative liabilities, net (Note 10)
 
3

 
76

Other liabilities
 
54

 
210

TOTAL LIABILITIES
 
157,047

 
173,204

Commitments and contingencies (Note 14)
 

 

CAPITAL (Note 12)
 
 
 
 
Capital stock - Class B putable ($100 par value); 56 and 59 issued and outstanding shares
 
5,624

 
5,917

Additional capital from merger
 
—

 
52

Retained earnings
 
 
 
 
Unrestricted
 
1,463

 
1,219

Restricted
 
311

 
231

Total retained earnings
 
1,774

 
1,450

Accumulated other comprehensive income (loss)
 
100

 
(18
)
TOTAL CAPITAL
 
7,498

 
7,401

TOTAL LIABILITIES AND CAPITAL
 
$
164,545

 
$
180,605

The accompanying notes are an integral part of these financial statements.

3

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF INCOME
(dollars in millions)
(Unaudited)
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
451

 
$
237

 
$
1,164

 
$
594

Prepayment fees on advances, net
 
—

 
1

 
1

 
6

Interest-bearing deposits
 
—

 
1

 
1

 
2

Securities purchased under agreements to resell
 
14

 
4

 
30

 
13

Federal funds sold
 
26

 
5

 
53

 
13

Trading securities
 
12

 
13

 
35

 
39

Available-for-sale securities
 
98

 
63

 
266

 
176

Held-to-maturity securities
 
20

 
19

 
60

 
59

Mortgage loans held for portfolio
 
59

 
56

 
176

 
176

Total interest income
 
680

 
399


1,786

 
1,078

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations - Discount notes
 
163

 
98

 
396

 
320

Consolidated obligations - Bonds
 
338

 
177

 
877

 
428

Deposits
 
1

 
1

 
3

 
1

Mandatorily redeemable capital stock
 
4

 
6

 
13

 
15

Total interest expense
 
506

 
282


1,289

 
764

NET INTEREST INCOME
 
174

 
117


497

 
314

Provision (reversal) for credit losses on mortgage loans
 
1

 
1

 
1

 
2

NET INTEREST INCOME AFTER PROVISION (REVERSAL) FOR CREDIT LOSSES
 
173

 
116


496

 
312

OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
Net gains (losses) on trading securities
 
1

 
(2
)
 
10

 
51

Net gains (losses) on derivatives and hedging activities
 
(2
)
 
(3
)
 
1

 
(76
)
Gains on litigation settlements, net
 
—

 
—

 
21

 
337

Other, net
 
5

 
—

 
13

 
7

Total other income (loss)
 
4

 
(5
)

45

 
319

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
12

 
13

 
39

 
39

Contractual services
 
2

 
1

 
8

 
7

Professional fees
 
5

 
4

 
15

 
8

Other operating expenses
 
6

 
5

 
16

 
14

Federal Housing Finance Agency
 
3

 
2

 
8

 
6

Office of Finance
 
1

 
2

 
5

 
5

Other, net
 
1

 
1

 
2

 
3

Total other expense
 
30

 
28


93

 
82

NET INCOME BEFORE ASSESSMENTS
 
147

 
83


448


549

Affordable Housing Program assessments
 
15

 
9

 
46

 
56

NET INCOME
 
$
132

 
$
74


$
402


$
493

The accompanying notes are an integral part of these financial statements.

4


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
(Unaudited)
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
132

 
$
74

 
$
402

 
$
493

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities
 
12

 
46

 
117

 
45

Pension and postretirement benefits
 
(1
)
 
—

 
1

 
—

Total other comprehensive income (loss)
 
11

 
46


118


45

TOTAL COMPREHENSIVE INCOME (LOSS)
 
$
143

 
$
120


$
520


$
538

The accompanying notes are an integral part of these financial statements.




5

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CAPITAL
(dollars and shares in millions)
(Unaudited)

 
Capital Stock Class B (putable)
 
Additional Capital from Merger
 
Shares
 
Par Value
 
BALANCE, DECEMBER 31, 2015
47

 
$
4,714

 
$
194

Comprehensive income (loss)
—

 
—

 
—

Proceeds from issuance of capital stock
48

 
4,792

 
—

Repurchases/redemptions of capital stock
(31
)
 
(3,116
)
 
—

Net shares reclassified (to) from mandatorily redeemable capital stock
(7
)
 
(732
)
 
—

Cash dividends on capital stock
—

 
—

 
(102
)
BALANCE, SEPTEMBER 30, 2016
57

 
$
5,658

 
$
92

 
 
 
 
 
 
BALANCE, DECEMBER 31, 2016
59

 
$
5,917

 
$
52

Comprehensive income (loss)
—

 
—

 
—

Proceeds from issuance of capital stock
43

 
4,364

 
—

Repurchases/redemptions of capital stock
(46
)
 
(4,617
)
 
—

Net shares reclassified (to) from mandatorily redeemable capital stock
—

 
(40
)
 
—

Cash dividends on capital stock
—

 
—

 
(52
)
BALANCE, SEPTEMBER 30, 2017
56

 
$
5,624

 
$
—

The accompanying notes are an integral part of these financial statements.

6

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CAPITAL (continued from previous page)
(dollars and shares in millions)
(Unaudited)
 
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total
Capital
 
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, DECEMBER 31, 2015
 
$
700

 
$
101

 
$
801

 
$
(84
)
 
$
5,625

Comprehensive income (loss)
 
394

 
99

 
493

 
45

 
538

Proceeds from issuance of capital stock
 
—

 
—

 
—

 
—

 
4,792

Repurchases/redemptions of capital stock
 
—

 
—

 
—

 
—

 
(3,116
)
Net shares reclassified (to) from mandatorily redeemable capital stock
 
—

 
—

 
—

 
—

 
(732
)
Cash dividends on capital stock
 
—

 
—

 
—

 
—

 
(102
)
BALANCE, SEPTEMBER 30, 2016
 
$
1,094

 
$
200

 
$
1,294

 
$
(39
)
 
$
7,005

 
 
 
 
 
 
 
 
 
 
 
BALANCE, DECEMBER 31, 2016
 
$
1,219

 
$
231

 
$
1,450

 
$
(18
)
 
$
7,401

Comprehensive income (loss)
 
322

 
80

 
402

 
118

 
520

Proceeds from issuance of capital stock
 
—

 
—

 
—

 
—

 
4,364

Repurchases/redemptions of capital stock
 
—

 
—

 
—

 
—

 
(4,617
)
Net shares reclassified (to) from mandatorily redeemable capital stock
 
—

 
—

 
—

 
—

 
(40
)
Cash dividends on capital stock
 
(78
)
 
—

 
(78
)
 
—

 
(130
)
BALANCE, SEPTEMBER 30, 2017
 
$
1,463

 
$
311

 
$
1,774

 
$
100

 
$
7,498

The accompanying notes are an integral part of these financial statements.


7

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS
(dollars in millions)
(Unaudited)
 
 
For the Nine Months Ended
 
 
September 30,
 
 
2017
 
2016
OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
402

 
$
493

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
 
Depreciation and amortization
 
30

 
37

Net (gains) losses on trading securities
 
(10
)
 
(51
)
Net change in derivatives and hedging activities
 
—

 
5

Other adjustments
 
7

 
(5
)
Net change in:
 
 
 
 
Accrued interest receivable
 
(85
)
 
(64
)
Other assets
 
(2
)
 
(1
)
Accrued interest payable
 
46

 
62

Other liabilities
 
(11
)
 
42

Total adjustments
 
(25
)
 
25

Net cash provided by (used in) operating activities
 
377

 
518

INVESTING ACTIVITIES
 
 
 
 
Net change in:
 
 
 
 
Interest-bearing deposits
 
40

 
(366
)
Securities purchased under agreements to resell
 
425

 
525

Federal funds sold
 
(1,675
)
 
(2,365
)
Premises, software, and equipment
 
(25
)
 
(7
)
Loans to other FHLBanks
 
200

 
—

Trading securities
 
 
 
 
Proceeds from maturities of long-term
 
771

 
1,617

Purchases of long-term
 
—

 
(1,597
)
Available-for-sale securities
 
 
 
 
Proceeds from sales and maturities of long-term
 
1,962

 
1,902

Purchases of long-term
 
(402
)
 
(3,465
)
Held-to-maturity securities
 
 
 
 
Proceeds from sales and maturities of long-term
 
844

 
1,178

Purchases of long-term
 
—

 
(64
)
Advances
 
 
 
 
Principal collected
 
211,223

 
134,568

Originated or purchased
 
(197,191
)
 
(171,179
)
Mortgage loans held for portfolio
 
 
 
 
Principal collected
 
790

 
931

Originated or purchased
 
(925
)
 
(988
)
Proceeds from sales of foreclosed assets
 
7

 
10

Net cash provided by (used in) investing activities
 
16,044

 
(39,300
)
The accompanying notes are an integral part of these financial statements.

8

FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS (continued from previous page)
(dollars in millions)
(Unaudited)
 
 
For the Nine Months Ended
 
 
September 30,
 
 
2017
 
2016
FINANCING ACTIVITIES
 
 
 
 
Net change in deposits
 
(171
)
 
(77
)
Net payments on derivative contracts with financing elements
 
(3
)
 
(4
)
Net proceeds from issuance of consolidated obligations
 
 
 
 
Discount notes
 
162,882

 
209,409

Bonds
 
53,241

 
77,918

Payments for maturing and retiring consolidated obligations
 
 
 
 
Discount notes
 
(190,878
)
 
(223,948
)
Bonds
 
(40,832
)
 
(26,667
)
Proceeds from issuance of capital stock
 
4,364

 
4,792

Payments for repurchases/redemptions of capital stock
 
(4,617
)
 
(3,116
)
Net payments for repurchases/redemptions of mandatorily redeemable capital stock
 
(282
)
 
(160
)
Cash dividends paid
 
(130
)
 
(102
)
Net cash provided by (used in) financing activities
 
(16,426
)
 
38,045

Net increase (decrease) in cash and due from banks
 
(5
)
 
(737
)
Cash and due from banks at beginning of the period
 
223

 
982

Cash and due from banks at end of the period
 
$
218

 
$
245

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES
 
 
 
 
Cash Transactions:
 
 
 
 
Interest paid
 
$
1,747

 
$
1,200

Affordable Housing Program payments
 
25

 
14

Non-Cash Transactions:
 
 
 
 
Capitalized interest on reverse mortgage investment securities
 
43

 
20

Mortgage loan charge-offs
 
1

 
2

Transfers of mortgage loans to other assets
 
5

 
6

Capital stock reclassified to (from) mandatorily redeemable capital stock, net
 
40

 
732

The accompanying notes are an integral part of these financial statements.

9

FEDERAL HOME LOAN BANK OF DES MOINES
CONDENSED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation organized on October 31, 1932, that is exempt from all federal, state, and local taxation (except real property taxes) and is one of 11 district Federal Home Loan Banks (FHLBanks). The FHLBanks were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act). With the passage of the Housing and Economic Recovery Act of 2008 (Housing Act), the Federal Housing Finance Agency (Finance Agency) was established and became the new independent federal regulator of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), as well as the FHLBanks and FHLBanks’ Office of Finance, effective July 30, 2008. The Finance Agency’s mission is to ensure that the Enterprises and FHLBanks operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. The Finance Agency establishes policies and regulations governing the operations of the Enterprises and FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.

The FHLBanks are government-sponsored enterprises (GSEs) that serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank provides a readily available source of funding to its member institutions and eligible housing associates in Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock.

The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets, subject to a minimum and maximum amount, as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank.

The Bank’s current and former members own all of the outstanding capital stock of the Bank. Former members own capital stock (included in mandatorily redeemable capital stock) to support business transactions still carried on the Bank’s Statements of Condition. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank’s Board of Directors.




10

Note 1 — Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements for the year ended December 31, 2016, which are contained in the Bank’s 2016 Annual Report on Form 10-K filed with the SEC on March 21, 2017 (2016 Form 10-K).

In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

FHLB Des Moines Headquarters. On June 22, 2017, a storm pipe broke at the Bank’s headquarters causing significant water damage to the Bank’s office space and rendering it totally uninhabitable. From June 23 through July 14 of this year, the Bank utilized its back-up data center, and employees worked out of a business recovery center located in Urbandale, Iowa, additional leased space in downtown Des Moines, and remotely. On July 17, 2017, the Bank resumed use of its primary data center at its headquarters, which was not damaged. However, as a result of the water damage, the estimated time to complete repairs, and the Bank’s plan to relocate its headquarters to a building in downtown Des Moines that it purchased in April of 2017, the Bank terminated its lease with Wells Fargo Financial, an affiliate of Wells Fargo Bank effective September 30, 2017. The Bank entered into a nine month lease agreement with Wells Fargo Financial effective September 30, 2017 to lease approximately 1,200 square feet of the former headquarters to support general business functions. In addition, in July and August 2017, the Bank amended the Bank’s lease at 666 Walnut St., Des Moines, Iowa to lease additional space for the Bank’s temporary headquarters. The Bank expects to remain at this location until its recently purchased building at 909 Locust St., Des Moines, Iowa is ready for occupancy, which is currently anticipated for late 2018. Through the date of this filing, there have been no material disruptions to the Bank’s operations or to its ability to serve its members.

The Bank incurred immaterial expenses related to damages caused by the storm drain break during the second and third quarters of 2017 primarily related to the write-off of equipment and lease costs related to back-up office space. The Bank anticipates that insurance, less applicable deductibles, will cover the majority of the costs incurred to maintain operations and repair or replace damaged Bank property and assets. The Bank does not expect any material expenses to be incurred during the fourth quarter.

SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Bank’s significant accounting policies during the nine months ended September 30, 2017, with the exception of one policy noted below which was updated in the first quarter 2017 Form 10-Q. Descriptions of all significant accounting policies are included in “Note 1 - Summary of Significant Accounting Policies” in the 2016 Form 10-K.

Derivatives. All derivatives are recognized on the Statements of Condition at their fair values and reported as either derivative assets or derivative liabilities, net of cash collateral, including initial margin, and accrued interest received from or pledged to clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent and/or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as a derivative asset and, if negative, they are classified as a derivative liability. Cash flows associated with derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative.

The Bank utilizes one Derivative Clearing Organization (Clearinghouse), CME Clearing, for all cleared derivative transactions. Effective January 3, 2017, CME Clearing made certain amendments to its rulebook changing the legal characterization of variation margin payments to be daily settlement payments, which are a component of the derivative fair value, rather than collateral. Initial margin is considered cash collateral.




11

Note 2 — Recently Adopted and Issued Accounting Guidance

ADOPTED ACCOUNTING GUIDANCE

Contingent Put and Call Options in Debt Instruments

On March 14, 2016, the Financial Accounting Standards Board (FASB) issued amendments to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The guidance requires entities to apply only the four-step decision sequence when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2017. The adoption of this guidance did not have an effect on the Bank’s financial conditions, results of operations, or cash flows.
ISSUED ACCOUNTING GUIDANCE
Targeted Improvements to Accounting for Hedging Activities
On August 28, 2017, the FASB issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income (OCI). In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:
•
Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determine at hedge inception.
•
Measurement of the hedged item in a partial-term fair value hedge of interest-rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.
•
Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its schedule maturity in calculating the change in the fair value of the hedged item attributable to interest-rate risk.
•
For a cash flow hedge of interest-rate risk of a variable-rate financial instrument, an entity could designate as the hedge risk the variability in cash flows attributable to the contractually specified interest-rate.
This guidance becomes effective for the Bank for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. For all cash flow hedges existing on the date of adoption, this guidance should be applied through a cumulative-effect adjustment to accumulated other comprehensive income (AOCI) with a corresponding adjustment to retained earnings as of the beginning of the year of adoption. The amended presentation and disclosure guidance is required only prospectively. The Bank does not intend to adopt this guidance early. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.
Premium Amortization on Purchased Callable Debt Securities

On March 30, 2017, FASB issued guidance for the amortization period for certain purchased callable debt securities held at a premium. Specifically, this guidance requires the premium to be amortized to the earliest call date. This guidance does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Bank is in the process of evaluating this guidance, but its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.


12

Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

On March 10, 2017, the FASB issued the guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. This guidance requires entities to disaggregate the service cost component from the other components of net benefit cost. The guidance also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2018, and early adoption is permitted. This guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Bank has evaluated this guidance and its effect on the Bank’s financial condition, results of operations, or cash flows is not expected to be material.

Classification of Certain Cash Receipts and Cash Payments

On August 26, 2016, the FASB issued amendments to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2018, and early adoption is permitted. This guidance should be applied using a retrospective transition method to each period presented. The Bank does not intend to adopt this guidance early. The adoption of this guidance will have no effect on the Bank’s financial condition, results of operations, or cash flows.
Measurement of Credit Losses on Financial Instruments

On June 16, 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The new guidance requires a financial asset, or a group of financial assets, measured at amortized cost to be presented at the net amount expected to be collected. The guidance also requires, among other things, the following:
•
The statement of income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.

•
Entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost in a similar manner to other financial assets measured at amortized cost. The initial allowance for credit losses is required to be added to the purchase price of the assets acquired.

•
Entities to record credit losses relating to available-for-sale (AFS) debt securities through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost.

•
Public entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).

This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. This guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for PCD assets upon adoption and for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Bank does not intend to adopt the new guidance early. While the Bank is in the process of evaluating this guidance, the Bank expects the adoption of the guidance may result in an increase in the allowance for credit losses, including an allowance for debt securities, given the requirement to assess losses for the entire estimated life of the financial asset. The effect on the Bank’s financial condition, results of operations, and cash flows will depend upon the composition of financial assets held by the Bank at the adoption date as well as the economic conditions and forecasts at that time.

13

Leases

On February 25, 2016, the FASB issued guidance which requires recognition of lease assets and lease liabilities on the statement of condition and disclosure of key information about leasing arrangements. Specifically, this guidance requires a lessee, of operating or finance leases, to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Under previous GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the statement of condition. While this guidance does not fundamentally change lessor accounting, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP.

This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early application is permitted. This guidance requires lessors and lessees to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach. The Bank does not intend to adopt this new guidance early. Upon adoption, the Bank expects to report higher assets and liabilities as a result of recording right-of-use assets and lease liabilities on its statements of condition. The Bank is in the process of evaluating this guidance, but its effect on the Bank’s financial condition, results of operations, or cash flows has not yet been determined.

Recognition and Measurement of Financial Assets and Financial Liabilities

On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes, but is not limited to, the following:

•
Requires an entity to present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

•
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the statements of condition or the accompanying notes to the financial statements.

•
Eliminates the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the statements of condition.

This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2018, and early adoption is only permitted for certain provisions. The amendments, in general, should be applied by means of a cumulative-effect adjustment to the statements of condition as of the beginning of the period of adoption. While this guidance will affect the Bank’s disclosures, the Bank does not expect the requirement to present the instrument-specific credit risk in OCI to have any effect on its financial condition, results of operations, or cash flows.

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 supersedes most current revenue recognition guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial 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 certain 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: a full retrospective method, retrospectively to each prior reporting period presented; or 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 this guidance issued in May 2014 by one year. In 2016, the FASB has issued additional amendments to clarify certain aspects of the new revenue guidance. However, these amendments do not change the core principle in the new revenue standard.


14

This guidance is effective for the Bank 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. The Bank does not intend to adopt this new guidance early. Given that the majority of the Bank’s financial instruments and other contractual rights that generate revenue are covered by other U.S. GAAP, the effect of this guidance on the Bank’s financial condition, results of operations, and cash flows is not expected to be material.

Note 3 — Trading Securities

MAJOR SECURITY TYPES

Trading securities were as follows (dollars in millions):
 
September 30,
2017
 
December 31,
2016
Non-mortgage-backed securities
 
 
 
Other U.S. obligations1
$
203

 
$
216

GSE and Tennessee Valley Authority obligations
861

 
1,611

Other2
274

 
273

     Total non-mortgage-backed securities
1,338

 
2,100

Mortgage-backed securities
 
 
 
GSE multifamily
454

 
453

Total fair value
$
1,792

 
$
2,553


1
Represents investment securities backed by the full faith and credit of the U.S. Government.

2
Consists of taxable municipal bonds.

NET GAINS (LOSSES) ON TRADING SECURITIES

The Bank did not sell any trading securities during the three and nine months ended September 30, 2017 and 2016. During the three and nine months ended September 30, 2017, the Bank recorded net holding gains of $1 million and $10 million on its trading securities compared to net holding losses of $2 million and net holding gains of $51 million for the same periods in 2016.


15

Note 4 — Available-for-Sale Securities

MAJOR SECURITY TYPES

AFS securities were as follows (dollars in millions):
 
September 30, 2017
 
Amortized
Cost1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 

Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
Other U.S. obligations2
$
3,204

 
$
7

 
$
(4
)
 
$
3,207

GSE and Tennessee Valley Authority obligations
1,248

 
27

 
—

 
1,275

State or local housing agency obligations
962

 
—

 
(1
)
 
961

Other3
273

 
8

 
—

 
281

Total non-mortgage-backed securities
5,687

 
42

 
(5
)
 
5,724

Mortgage-backed securities
 
 
 
 
 
 
 
Other U.S. obligations single-family2
3,831

 
12

 
(1
)
 
3,842

GSE single-family
1,046

 
9

 
—

 
1,055

GSE multifamily
10,792

 
52

 
(6
)
 
10,838

Total mortgage-backed securities
15,669

 
73

 
(7
)
 
15,735

Total
$
21,356

 
$
115

 
$
(12
)
 
$
21,459


 
December 31, 2016
 
Amortized
Cost1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 

Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
Other U.S. obligations2
$
3,537

 
$
5

 
$
(13
)
 
$
3,529

GSE and Tennessee Valley Authority obligations
1,341

 
11

 
(1
)
 
1,351

State or local housing agency obligations
1,010

 
—

 
(1
)
 
1,009

Other3
272

 
6

 
—

 
278

Total non-mortgage-backed securities
6,160

 
22

 
(15
)
 
6,167

Mortgage-backed securities
 
 
 
 
 
 
 
Other U.S. obligations single-family2
3,852

 
2

 
(16
)
 
3,838

GSE single-family
1,257

 
7

 
(3
)
 
1,261

GSE multifamily
11,714

 
30

 
(41
)
 
11,703

Total mortgage-backed securities
16,823

 
39

 
(60
)
 
16,802

Total
$
22,983

 
$
61

 
$
(75
)
 
$
22,969


1
Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, and/or fair value hedge accounting adjustments.

2
Represents investment securities backed by the full faith and credit of the U.S. Government.

3
Consists of taxable municipal bonds and/or Private Export Funding Corporation (PEFCO) bonds.



16

UNREALIZED LOSSES

The following tables summarize AFS securities with unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.
 
September 30, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations1
$
179

 
$
(1
)
 
$
2,173

 
$
(3
)
 
$
2,352

 
$
(4
)
State or local housing agency obligations
38

 
—

 
621

 
(1
)
 
659

 
(1
)
Total non-mortgage-backed securities
217

 
(1
)
 
2,794

 
(4
)
 
3,011

 
(5
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations single-family1
—

 
—

 
914

 
(1
)
 
914

 
(1
)
GSE single-family
—

 
—

 
57

 
—

 
57

 
—

GSE multifamily
791

 
—

 
2,912

 
(6
)
 
3,703

 
(6
)
Total mortgage-backed securities
791

 
—

 
3,883

 
(7
)
 
4,674

 
(7
)
Total
$
1,008

 
$
(1
)
 
$
6,677

 
$
(11
)
 
$
7,685

 
$
(12
)

 
December 31, 2016
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations1
$
209

 
$
—

 
$
2,972

 
$
(12
)
 
$
3,181

 
$
(12
)
GSE and Tennessee Valley Authority obligations
—

 
—

 
126

 
(1
)
 
126

 
(1
)
State or local housing agency obligations
354

 
(1
)
 
395

 
(1
)
 
749

 
(2
)
Total non-mortgage-backed securities
563

 
(1
)
 
3,493

 
(14
)
 
4,056

 
(15
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations single-family1
1,123

 
(2
)
 
2,076

 
(14
)
 
3,199

 
(16
)
GSE single-family
545

 
(3
)
 
32

 
—

 
577

 
(3
)
GSE multifamily
2,713

 
(6
)
 
6,315

 
(35
)
 
9,028

 
(41
)
Total mortgage-backed securities
4,381

 
(11
)
 
8,423

 
(49
)
 
12,804

 
(60
)
Total
$
4,944

 
$
(12
)
 
$
11,916

 
$
(63
)
 
$
16,860

 
$
(75
)

1
Represents investment securities backed by the full faith and credit of the U.S. Government.





17

CONTRACTUAL MATURITY

The following table summarizes AFS securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
 
 
September 30, 2017
 
December 31, 2016
Year of Contractual Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
Due in one year or less
 
$
200

 
$
202

 
$
133

 
$
134

Due after one year through five years
 
720

 
724

 
489

 
496

Due after five years through ten years
 
3,725

 
3,734

 
4,452

 
4,447

Due after ten years
 
1,042

 
1,064

 
1,086

 
1,090

Total non-mortgage-backed securities
 
5,687

 
5,724

 
6,160

 
6,167

Mortgage-backed securities
 
15,669

 
15,735

 
16,823

 
16,802

Total
 
$
21,356

 
$
21,459

 
$
22,983

 
$
22,969




18

Note 5 — Held-to-Maturity Securities

MAJOR SECURITY TYPES

Held-to-maturity (HTM) securities were as follows (dollars in millions):
 
September 30, 2017
 
Amortized
Cost1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
GSE and Tennessee Valley Authority obligations
$
394

 
$
66

 
$
—

 
$
460

State or local housing agency obligations
473

 
2

 
(4
)
 
471

Total non-mortgage-backed securities
867

 
68

 
(4
)
 
931

Mortgage-backed securities
 
 
 
 
 
 
 
Other U.S. obligations single-family2
17

 
—

 
—

 
17

Other U.S. obligations commercial2
3

 
—

 
—

 
3

GSE single-family
2,919

 
6

 
(9
)
 
2,916

Private-label residential
13

 
—

 
—

 
13

Total mortgage-backed securities
2,952

 
6

 
(9
)
 
2,949

Total
$
3,819

 
$
74

 
$
(13
)
 
$
3,880


 
December 31, 2016
 
Amortized
Cost1
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
GSE and Tennessee Valley Authority obligations
$
397

 
$
60

 
$
(1
)
 
$
456

State or local housing agency obligations
688

 
1

 
(11
)
 
678

Total non-mortgage-backed securities
1,085

 
61

 
(12
)
 
1,134

Mortgage-backed securities
 
 
 
 
 
 
 
Other U.S. obligations single-family2
26

 
—

 
—

 
26

Other U.S. obligations commercial2
4

 
—

 
—

 
4

GSE single-family
3,543

 
4

 
(20
)
 
3,527

Private-label residential
16

 
—

 
(1
)
 
15

Total mortgage-backed securities
3,589

 
4

 
(21
)
 
3,572

Total
$
4,674

 
$
65

 
$
(33
)
 
$
4,706


1
Amortized cost includes adjustments made to the cost basis of an investment for accretion or amortization.

2
Represents investment securities backed by the full faith and credit of the U.S. Government.



19

UNREALIZED LOSSES

The following tables summarize HTM securities with unrealized losses by major security type and the length of time that individual securities have been in a continuous unrealized loss position (dollars in millions). In cases where the gross unrealized losses for an investment category are less than $1 million, the losses are not reported.
 
September 30, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
State or local housing agency obligations
$
—

 
$
—

 
$
182

 
$
(4
)
 
$
182

 
$
(4
)
Total non-mortgage-backed securities
—

 
—

 
182

 
(4
)
 
182

 
(4
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations single-family1
9

 
—

 
1

 
—

 
10

 
—

Other U.S. obligations commercial1
—

 
—

 
2

 
—

 
2

 
—

GSE single-family
824

 
(7
)
 
803

 
(2
)
 
1,627

 
(9
)
Private-label residential
—

 
—

 
9

 
—

 
9

 
—

Total mortgage-backed securities
833

 
(7
)
 
815

 
(2
)
 
1,648

 
(9
)
Total
$
833

 
$
(7
)
 
$
997

 
$
(6
)
 
$
1,830

 
$
(13
)

 
December 31, 2016
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Non-mortgage backed securities
 
 
 
 
 
 
 
 
 
 
 
GSE and Tennessee Valley Authority obligations
$
73

 
$
(1
)
 
$
—

 
$
—

 
$
73

 
$
(1
)
State or local housing agency obligations
291

 
(11
)
 
10

 
—

 
301

 
(11
)
Total non-mortgage-backed securities
364

 
(12
)
 
10

 
—

 
374

 
(12
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations single-family1
12

 
—

 
—

 
—

 
12

 
—

Other U.S. obligations commercial1
—

 
—

 
3

 
—

 
3

 
—

GSE single-family
1,918

 
(15
)
 
1,224

 
(5
)
 
3,142

 
(20
)
Private-label residential
5

 
—

 
10

 
(1
)
 
15

 
(1
)
Total mortgage-backed securities
1,935

 
(15
)
 
1,237

 
(6
)
 
3,172

 
(21
)
Total
$
2,299

 
$
(27
)
 
$
1,247

 
$
(6
)
 
$
3,546

 
$
(33
)

1
Represents investment securities backed by the full faith and credit of the U.S. Government.


20

CONTRACTUAL MATURITY

The following table summarizes HTM securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in millions):
 
 
September 30, 2017
 
December 31, 2016
Year of Contractual Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
Due in one year or less
 
$
20

 
$
20

 
$
11

 
$
11

Due after one year through five years
 
72

 
72

 
62

 
62

Due after five years through ten years
 
343

 
377

 
367

 
399

Due after ten years
 
432

 
462

 
645

 
662

Total non-mortgage-backed securities
 
867

 
931

 
1,085

 
1,134

Mortgage-backed securities
 
2,952

 
2,949

 
3,589

 
3,572

Total
 
$
3,819

 
$
3,880

 
$
4,674

 
$
4,706


Note 6 — Other-Than-Temporary Impairment

The Bank evaluates its individual AFS and HTM securities in an unrealized loss position for other-than-temporary impairment (OTTI) on a quarterly basis. As part of its evaluation of securities for OTTI, the Bank considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, the Bank will recognize an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the reporting date. For securities in an unrealized loss position that meet neither of these conditions, the Bank performs analyses to determine if any of these securities are other-than-temporarily impaired. The analysis of the Bank’s AFS and HTM investment securities in an unrealized loss position at September 30, 2017 is discussed below:

•
Other U.S. obligations and GSE and Tennessee Valley Authority obligations. The unrealized losses were due primarily to changes in interest rates and credit spreads, and not to a significant deterioration in the fundamental credit quality of the obligations. The strength of the issuers’ guarantees through direct obligations or support from the U.S. Government was sufficient to protect the Bank from losses based on current expectations. The Bank expects to recover the amortized cost bases on these securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before recovery of their amortized cost bases. As such, the Bank did not consider these securities to be other-than-temporarily impaired at September 30, 2017.

•
State or local housing agency obligations. The unrealized losses were due to changes in interest rates, credit spreads, and illiquidity in the credit markets, and not to a significant deterioration in the fundamental credit quality of the obligations. The creditworthiness of the issuers and the strength of the underlying collateral and credit enhancements were sufficient to protect the Bank from losses based on current expectations. The Bank does not intend to sell these securities nor is it more likely than not that it will be required to sell these securities before recovery of their amortized cost bases. As such, the Bank did not consider these securities to be other-than-temporarily impaired at September 30, 2017.

•
Private-label residential mortgage-backed securities. On a quarterly basis, the Bank engages other designated FHLBanks to perform cash flow analyses on its private-label mortgage-backed securities (private-label MBS). As of September 30, 2017, the Bank compared the present value of cash flows expected to be collected with respect to its private-label MBS to the amortized cost bases of the securities to determine whether a credit loss existed. At September 30, 2017, the Bank’s cash flow analyses for private-label MBS did not project any credit losses. The Bank does not intend to sell its private-label MBS nor is it more likely than not that the Bank will be required to sell its private-label MBS before recovery of their amortized cost bases. As a result, the Bank did not consider any of its private-label MBS to be other-than-temporarily impaired at September 30, 2017.


21

Note 7 — Advances

CONTRACTUAL MATURITY

The following table summarizes the Bank’s advances outstanding by contractual maturity (dollars in millions):
 
 
September 30, 2017
 
December 31, 2016
Year of Contractual Maturity
 
Amount
 
Weighted
Average
Interest
Rate
 
Amount
 
Weighted
Average
Interest
Rate
Overdrawn demand deposit accounts
 
$
1

 
4.33
%
 
$
1

 
3.81
%
Due in one year or less
 
47,049

 
1.46

 
22,532

 
1.13

Due after one year through two years
 
20,734

 
1.52

 
29,791

 
1.12

Due after two years through three years
 
9,147

 
1.65

 
30,023

 
0.98

Due after three years through four years
 
24,354

 
1.55

 
17,615

 
1.00

Due after four years through five years
 
5,863

 
1.75

 
17,197