10-Q 1 seattle331201510q.htm 10-Q Seattle 3312015 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the quarterly period ended March 31, 2015
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 000-51406
FEDERAL HOME LOAN BANK OF SEATTLE
(Exact name of registrant as specified in its charter)
Federally chartered corporation
 
91-0852005
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
1001 Fourth Avenue, Suite 2600, Seattle, WA
 
98154
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (206) 340-2300

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.    Yes  x   No  o
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No  o
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
 
Accelerated filer o
Non-accelerated filer  x  
(Do not check if smaller reporting company)
 
Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  o No  x
Registrant's stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. As of April 30, 2015, the Federal Home Loan Bank of Seattle had outstanding 749,274 shares of its Class A capital stock and 21,541,453 shares of its Class B capital stock.




FEDERAL HOME LOAN BANK OF SEATTLE
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
March 31, 2015
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




2


PART I.

ITEM 1. FINANCIAL STATEMENTS

FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF CONDITION (Unaudited)
 
 
As of
 
As of
 
 
March 31, 2015
 
December 31, 2014
(in thousands, except par value)
 
 
 
 
Assets
 
 
 
 
Cash and due from banks
 
$
144

 
$
126

Deposits with other Federal Home Loan Banks (FHLBanks)
 
248

 
140

Securities purchased under agreements to resell
 
5,250,000

 
3,000,000

Federal funds sold
 
2,940,800

 
4,058,800

Investment securities:
 
 
 
 
Available-for-sale (AFS) securities (Notes 4 and 5)
 
15,929,939

 
7,877,334

Held-to-maturity (HTM) securities (fair values of $0 and $9,167,713)
 

 
9,110,269

Total investment securities
 
15,929,939

 
16,987,603

Advances (Note 6)
 
8,406,368

 
10,313,691

Mortgage loans held for portfolio, net (includes $717 and $1,404 of allowance for credit losses) (Notes 7 and 8)
 
618,475

 
647,179

Accrued interest receivable
 
42,970

 
49,558

Premises, software, and equipment, net
 
11,235

 
12,591

Derivative assets, net (Note 9)
 
49,545

 
46,254

Other assets
 
11,723

 
13,255

Total Assets
 
$
33,261,447

 
$
35,129,197

Liabilities
 
 

 
 

Deposits
 
$
377,743

 
$
410,773

Consolidated obligations (Note 10):
 
 

 
 

Discount notes (includes $0 and $499,930 at fair value under fair value option)
 
14,232,389

 
14,940,178

Bonds (includes $499,913 and $1,499,971 at fair value under fair value option)
 
14,948,504

 
16,850,429

Total consolidated obligations
 
29,180,893

 
31,790,607

Mandatorily redeemable capital stock (MRCS) (Note 11)
 
1,362,688

 
1,454,473

Accrued interest payable
 
51,299

 
51,382

Affordable Housing Program (AHP) payable
 
21,069

 
22,479

Derivative liabilities, net (Note 9)
 
70,791

 
76,712

Other liabilities
 
920,282

 
116,761

Total liabilities
 
31,984,765

 
33,923,187

Commitments and contingencies (Note 14)
 


 


Capital (Note 11)
 
 

 
 

Capital stock:
 
 

 
 

Class B capital stock putable ($100 par value) - issued and outstanding shares: 8,244 and 8,249
 
824,435

 
824,887

Class A capital stock putable ($100 par value) - issued and outstanding shares: 314 and 332
 
31,421

 
33,196

Total capital stock
 
855,856

 
858,083

Retained earnings:
 
 
 
 
Unrestricted
 
291,592

 
283,451

Restricted
 
65,013

 
62,924

Total retained earnings
 
356,605

 
346,375

Accumulated other comprehensive income (AOCI)
 
64,221

 
1,552

Total capital
 
1,276,682

 
1,206,010

Total Liabilities and Capital
 
$
33,261,447

 
$
35,129,197


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


3


FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF INCOME (Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(in thousands)
 
 
 
 
Interest Income
 
 
 
 
Advances
 
$
16,489

 
$
16,251

Prepayment fees on advances, net
 
558

 
21

Interest-bearing deposits
 
37

 
7

Securities purchased under agreements to resell
 
582

 
228

Federal funds sold
 
2,187

 
1,674

AFS securities
 
21,852

 
17,035

HTM securities
 
16,531

 
22,883

Mortgage loans held for portfolio
 
8,361

 
10,264

Total interest income
 
66,597

 
68,363

Interest Expense
 
 

 
 
Consolidated obligations - discount notes
 
3,471

 
2,347

Consolidated obligations - bonds
 
24,964

 
33,839

Deposits
 
29

 
30

Mandatorily redeemable capital stock
 
383

 
441

Total interest expense
 
28,847

 
36,657

Net Interest Income
 
37,750

 
31,706

Less: Provision (benefit) for credit losses
 
(208
)
 
236

Net Interest Income after Provision (Benefit) for Credit Losses
 
37,958

 
31,470

Other Income (Loss)
 
 

 
 
Net amount of other-than-temporary impairment (OTTI) loss reclassified from AOCI (Note 5)
 
(51,529
)
 
(3
)
Net loss on financial instruments under fair value option (Note 12)
 
(12
)
 
(90
)
Net realized gain on sale of AFS securities
 
52,321

 

Net gain (loss) on derivatives and hedging activities (Note 9)
 
1,630

 
(1,434
)
Net realized (loss) gain on early extinguishment of consolidated obligations
 
(264
)
 
63

Other, net
 
280

 
799

Total other income (loss)
 
2,426

 
(665
)
Other Expense
 
 

 
 
Operating:
 
 

 
 
Compensation and benefits
 
10,858

 
9,304

Other operating
 
16,562

 
8,171

Federal Housing Finance Agency (FHFA)
 
683

 
779

Office of Finance
 
548

 
595

Other, net
 
85

 
39

Total other expense
 
28,736

 
18,888

Income before Assessments
 
11,648

 
11,917

AHP assessments
 
1,203

 
1,236

Net Income
 
$
10,445

 
$
10,681


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


4


FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(in thousands)
 
 
 
 
Net income
 
$
10,445

 
$
10,681

Other comprehensive income:
 
 
 
 
Net unrealized gain on AFS securities:
 
 
 
 
      Unrealized gain
 
62,061

 
14,980

Reclassification of realized net gain on sale included in net income
 
(286
)
 

Total net unrealized gain on AFS securities
 
61,775

 
14,980

Unrealized gain (loss) on OTTI AFS securities:
 
 
 
 
Non-credit portion of OTTI losses transferred from HTM securities
 
(10,912
)
 

Net change in fair value of OTTI securities
 
818

 
30,870

Reclassification of net OTTI loss included in net income
 
51,529

 
3

Reclassification of realized net gain on sale included in net income
 
(52,035
)
 

Total unrealized (loss) gain on OTTI AFS securities
 
(10,600
)
 
30,873

Net non-credit portion of OTTI gain on HTM securities:
 
 
 
 
      Accretion of non-credit portion
 
547

 
740

Transfer of non-credit portion from HTM securities to AFS securities
 
10,912

 

Total net non-credit portion of OTTI gain on HTM securities
 
11,459

 
740

Pension benefits
 
35

 
5

            Total other comprehensive income
 
62,669

 
46,598

Comprehensive income
 
$
73,114

 
$
57,279


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



5


FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF CAPITAL (Unaudited)

For the Three Months Ended March 31, 2015 and 2014
 
Class A
Capital Stock *
 
Class B
Capital Stock *
 
Total
Capital Stock *
 
Retained Earnings
 
AOCI
 
Total Capital
 
Shares
 
Par
Value
 
Shares
 
Par
Value
 
Shares
 
Par
Value
 
Unrestricted (Note 11)
 
Restricted (Note 11)
 
Total
 
 
(amounts and shares in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2013
 
452

 
$
45,241

 
8,777

 
$
877,736

 
9,229

 
$
922,977

 
$
236,204

 
$
50,886

 
$
287,090

 
$
(71,768
)
 
$
1,138,299

Proceeds from issuance of capital stock
 

 

 
41

 
4,050

 
41

 
4,050

 

 

 

 

 
4,050

Repurchases of capital stock
 
(21
)
 
(2,127
)
 
(32
)
 
(3,182
)
 
(53
)
 
(5,309
)
 

 

 

 

 
(5,309
)
Net shares reclassified to MRCS
 
(16
)
 
(1,574
)
 
(69
)
 
(6,883
)
 
(85
)
 
(8,457
)
 

 

 

 

 
(8,457
)
Cash dividends
 

 

 

 

 

 

 
(231
)
 

 
(231
)
 

 
(231
)
Comprehensive income
 

 

 

 

 

 

 
8,545

 
2,136

 
10,681

 
46,598

 
57,279

Balance, March 31, 2014
 
415

 
$
41,540

 
8,717

 
$
871,721

 
9,132


$
913,261

 
$
244,518

 
$
53,022

 
$
297,540

 
$
(25,170
)
 
$
1,185,631

Balance, December 31, 2014
 
332

 
$
33,196

 
8,249

 
$
824,887

 
8,581

 
$
858,083

 
$
283,451

 
$
62,924

 
$
346,375

 
$
1,552

 
$
1,206,010

Proceeds from issuance of capital stock
 

 

 
121

 
12,178

 
121

 
12,178

 

 

 

 

 
12,178

Repurchases of capital stock
 
(16
)
 
(1,599
)
 
(103
)
 
(10,302
)
 
(119
)
 
(11,901
)
 

 

 

 

 
(11,901
)
Net shares reclassified to MRCS
 
(2
)
 
(176
)
 
(23
)
 
(2,328
)
 
(25
)
 
(2,504
)
 

 

 

 

 
(2,504
)
Cash dividends
 

 

 

 

 

 

 
(215
)
 

 
(215
)
 

 
(215
)
Comprehensive income
 

 

 

 

 

 

 
8,356

 
2,089

 
10,445

 
62,669

 
73,114

Balance, March 31, 2015
 
314

 
$
31,421

 
8,244

 
$
824,435


8,558

 
$
855,856

 
$
291,592

 
$
65,013

 
$
356,605

 
$
64,221

 
$
1,276,682


* Putable

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


6


FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF CASH FLOWS (Unaudited)
 
 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(in thousands)
 
 
 
 
Operating Activities
 
 
 
 
Net income
 
$
10,445

 
$
10,681

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
(5,608
)
 
(5,640
)
Net OTTI loss
 
51,529

 
3

Net realized gain on sale of AFS securities
 
(52,321
)
 

Net change in fair value adjustments on financial instruments under fair value option
 
12

 
90

Net change in derivatives and hedging activities
 
(9,374
)
 
(7,219
)
Net realized loss (gain) on early extinguishment of consolidated obligations
 
264

 
(63
)
Net realized gain on disposal of premises and equipment
 

 
(4
)
Provision (benefit) for credit losses
 
(208
)
 
236

Other adjustments
 
(178
)
 
(82
)
Net change in:
 
 
 
 
Accrued interest receivable
 
6,654

 
5,688

Other assets
 
1,424

 
2,699

Accrued interest payable
 
(83
)
 
228

Other liabilities
 
4,960

 
(4,468
)
Total adjustments
 
(2,929
)
 
(8,532
)
Net cash provided by operating activities
 
7,516


2,149

Investing Activities
 
 
 
 

Net change in:
 
 
 
 

Interest-bearing deposits
 
(37,289
)
 
9,991

Deposits with other FHLBanks
 
(108
)
 
(72
)
Securities purchased under agreements to resell
 
(2,250,000
)
 
(1,500,000
)
Federal funds sold
 
1,118,000

 
(589,900
)
Premises, software and equipment
 
185

 
(548
)
AFS securities:
 
 
 
 
Proceeds from short-term
 
239,000

 

Proceeds from long-term
 
1,831,232

 
678,144

Purchases of long-term
 
(367,930
)
 
(336,890
)
HTM securities:
 
 
 
 
Net decrease (increase) in short-term
 
117,000

 
(912,051
)
Proceeds from long-term
 
262,646

 
263,213

Purchases of long-term
 
(109,687
)
 
(21,511
)
Advances:
 
 
 
 
Principal collected
 
7,980,972

 
8,736,310

Made
 
(6,057,713
)
 
(7,662,959
)
Mortgage loans:
 
 
 
 
Principal collected
 
28,862

 
35,878

Net cash provided by (used in) investing activities
 
2,755,170

 
(1,300,395
)


7


FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)
 
 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(in thousands)
 
 
 
 
Financing Activities
 
 
 
 
Net change in:
 
 
 
 
Deposits
 
$
(33,030
)
 
$
21,717

Net payments on derivative contracts with financing elements
 
(6,991
)
 
(8,190
)
Net proceeds from issuance of consolidated obligations:
 
 
 
 
Discount notes
 
152,302,524

 
141,404,112

Bonds
 
2,168,943

 
2,398,209

Payments for maturing and retiring consolidated obligations:
 
 
 
 
Discount notes
 
(153,011,187
)
 
(140,838,585
)
Bonds
 
(4,088,700
)
 
(3,042,398
)
Proceeds from issuance of capital stock
 
12,178

 
4,050

Payments for repurchase of MRCS
 
(94,289
)
 
(94,190
)
Payments for repurchase of capital stock
 
(11,901
)
 
(5,309
)
Cash dividends paid
 
(215
)
 
(231
)
Net cash used in financing activities
 
(2,762,668
)
 
(160,815
)
Net change in cash and due from banks
 
18

 
(1,459,061
)
Cash and due from banks at beginning of the period
 
126

 
1,459,261

Cash and due from banks at end of the period
 
$
144

 
$
200

 
 
 

 
 

Supplemental Disclosures
 
 

 
 

Interest paid
 
$
28,930

 
$
36,429

AHP payments, net
 
$
2,613

 
$
955

Transfers of mortgage loans to real estate owned (REO)
 
$
351

 
$
463

Reclassifications of HTM securities to AFS securities
 
$
9,024,822

 
$

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


8


FEDERAL HOME LOAN BANK OF SEATTLE
CONDENSED NOTES TO FINANCIAL STATEMENTS

Background Information
These financial statements present the financial position and results of operations of the Federal Home Loan Bank of Seattle (Seattle Bank). The Seattle Bank, a federally chartered corporation and government-sponsored enterprise (GSE), is one of 12 district FHLBanks created by Congress under the authority of the Federal Home Loan Bank Act of 1932, as amended. The FHLBanks serve the public by enhancing the availability of credit for residential mortgages and targeted community development.
Note 1—The Merger
On September 25, 2014, the Federal Home Loan Bank of Des Moines (Des Moines Bank) and the Seattle Bank (together, the Banks) entered into an Agreement and Plan of Merger (Merger Agreement), pursuant to which the Seattle Bank will be merged (Merger) with and into the Des Moines Bank (the post-Merger bank being the Continuing Bank). The Merger Agreement provides that the Seattle Bank members will receive one share of Continuing Bank Class A stock for each share of Seattle Bank Class A stock they own immediately prior to the Merger and one share of Continuing Bank Class B stock for each share of Seattle Bank Class B stock they own immediately prior to the Merger. Pursuant to the Merger, no shares of Seattle Bank capital stock will remain outstanding and all of the Seattle Bank shares will automatically be cancelled.
On December 19, 2014, the FHFA approved the merger application submitted by the Banks in accordance with the Merger Agreement, subject to satisfaction of closing conditions set forth in the FHFA approval letter, including the ratification of the Merger Agreement by members of each bank. On February 27, 2015, the Banks announced that the Merger Agreement had been appropriately ratified by members of each bank. Subject to satisfaction of the remaining closing conditions contained in the Merger Agreement, including FHFA acceptance of the Continuing Bank's organization certificate, the Banks expect the Merger to become effective on May 31, 2015. If the Merger is completed, Seattle Bank members will immediately become members of the Continuing Bank with the rights, preferences, and obligations of a Continuing Bank member.
As part of the preparation for combining our balance sheet with that of the Des Moines Bank, during the first quarter of 2015, we, in consultation with the Des Moines Bank, disposed of our private-label mortgage-backed securities (PLMBS). In connection with such dispositions, we reinvested funds in other highly-rated investments, including agency mortgage-backed securities (MBS). See Note 4 and Note 5 for further information regarding the impact of the above transactions to our financial condition and results of operations.
Note 2—Basis of Presentation and Use of Estimates
Basis of Presentation
These unaudited financial statements and condensed notes should be read in conjunction with the audited financial statements and related notes for the years ended December 31, 2014, 2013, and 2012 included in the 2014 annual report on Form 10-K (2014 10-K) of the Seattle Bank. These unaudited financial statements and condensed notes have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and Article 10 of the Securities and Exchange Commission's (SEC) Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for the fair statement of the financial condition, operating results, and cash flows for the interim periods have been included. Our financial condition as of March 31, 2015 and the operating results for the three months ended March 31, 2015 are not necessarily indicative of the condition or results that may be expected as of or for the year ending December 31, 2015.
We have evaluated subsequent events for potential recognition or disclosure through the filing date of this report on Form 10-Q.


9


Use of Estimates
The preparation of financial statements in accordance with GAAP requires management 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.
Note 3—Recently Issued or Adopted Accounting Guidance
Simplifying the Presentation of Debt Issuance Costs
On April 7, 2015, the Financial Accounting Standards Board (FASB) issued guidance to simplify the presentation of debt issuance costs. This guidance requires a reclassification on the statement of condition of debt issuance costs related to a recognized debt liability from other assets to a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance becomes effective for the interim and annual periods beginning after December 15, 2015, and early adoption is permitted for the financial statements that have not been previously issued. The period-specific effects as a result of applying this guidance are required to be adjusted retrospectively to each individual period presented on the statement of condition. We are in the process of evaluating this guidance and its effect on the our financial condition, results of operations, and cash flows.
Amendments to the Consolidation Analysis
On February 18, 2015, the FASB issued an amendment intended to enhance consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (e.g., collateralized debt obligations, collateralized loan obligations, and MBS transactions). The new guidance primarily focuses on the following:
Placing more emphasis on risk of loss when determining a controlling financial interest. 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.
Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE).
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 reporting 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, and cash flows is not expected to be material.
Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure
On August 8, 2014, the FASB issued amended guidance relating to the classification and measurement of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this guidance require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. This guidance became effective for the interim and annual periods beginning on January 1, 2015, and was adopted prospectively. However, the adoption of this guidance did not have a material effect on our financial condition, results of operations, or cash flows.
Transfers and Servicing—Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure
On June 12, 2014, the FASB issued amended guidance for repurchase-to-maturity transactions and repurchase financing arrangements and requires enhanced disclosures about repurchase agreements and similar transactions. The new standard eliminates sale accounting treatment for repurchase-to-maturity transactions, which now must be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, the guidance requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty (a repurchase financing), which will also result in secured borrowing accounting for the repurchase agreement. This guidance also requires a transferor to disclose additional information about certain transactions, including those in which it retains substantially all of the exposure to the economic returns of the underlying transferred asset over the transaction’s term. This guidance became effective for the interim and annual periods beginning on January 1, 2015, and was adopted prospectively


10


by the Seattle Bank. However, the adoption of this guidance did not have a material effect on our financial condition, results of operations, or cash flows.
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure
On January 17, 2014, the FASB issued guidance clarifying when consumer mortgage loans collateralized by real estate should be reclassified to REO. Specifically, such collateralized mortgage loans should be reclassified to REO when either: (1) the creditor obtains legal title to the residential real estate upon completion of a foreclosure; or (2) the borrower conveys all interest in the residential real estate to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This guidance became effective for interim and annual periods beginning on January 1, 2015, and was adopted prospectively by the Seattle Bank. However, the adoption of this guidance did not have a material effect on our financial condition, results of operations, or cash flows.
Framework for Adversely Classifying Certain Assets
On April 9, 2012, the FHFA issued an advisory bulletin (AB), AB 2012-02, that establishes a standard and uniform methodology for classifying loans, REO, and certain other assets (excluding investment securities), and prescribes the timing of asset charge-offs based on these classifications. This guidance is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. The adverse classification requirements were implemented on January 1, 2014, and, in accordance with AB 2013-02 issued on May 13, 2013, the charge-off requirements of AB 2012-02 were implemented January 1, 2015 by the Seattle Bank. However, the adoption of these requirements did not have a material effect on our financial condition, results of operations, or cash flows. See Note 8 for more information on the financial statement impact of our adoption of the charge-off provisions of AB 2012-02.
Note 4—AFS Securities
Major Security Types
In connection with the Merger, during March 2015, we formalized the decision to dispose of our PLMBS. As a result, we determined that we no longer had both the ability and the intent to hold all of our securities classified as HTM to maturity, and we reclassified our HTM securities to AFS securities at fair value on the date of reclassification. See Note 5 for further information regarding the fair value of securities on the date of reclassification. The following tables summarize our AFS securities as of March 31, 2015 and December 31, 2014.
 
 
As of March 31, 2015
 
 
Amortized
Cost Basis (1)
 
OTTI Charges Recognized 
in AOCI
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
Other U.S. agency obligations (2)
 
$
4,304,683

 
$

 
$
6,027

 
$
(11,396
)
 
$
4,299,314

GSE obligations (3)
 
2,297,779

 

 
14,676

 
(6,742
)
 
2,305,713

State or local housing agency obligations (4)
 
2,002,315

 

 
3,968

 
(2,138
)
 
2,004,145

Total non-MBS
 
8,604,777

 

 
24,671

 
(20,276
)
 
8,609,172

MBS:
 
 
 
 
 
 
 
 
 
 
Other U.S. agency single-family MBS (2)
 
72,055

 

 
179

 

 
72,234

GSE single-family MBS (3)
 
4,625,846

 

 
62,535

 
(864
)
 
4,687,517

GSE multifamily MBS (3)
 
2,561,660

 

 
1,153

 
(1,797
)
 
2,561,016

Total MBS
 
7,259,561

 

 
63,867

 
(2,661
)
 
7,320,767

Total
 
$
15,864,338

 
$

 
$
88,538

 
$
(22,937
)
 
$
15,929,939



11


 
 
As of December 31, 2014
 
 
Amortized
Cost Basis (1)
 
OTTI Charges Recognized 
in AOCI
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
Other U.S. agency obligations (2)
 
$
4,359,947

 
$

 
$
4,066

 
$
(10,693
)
 
$
4,353,320

GSE obligations (3)
 
2,271,101

 

 
11,946

 
(1,493
)
 
2,281,554

Total non-MBS
 
6,631,048

 

 
16,012

 
(12,186
)
 
6,634,874

MBS:
 
 
 
 
 
 
 
 
 
 
Residential PLMBS (5)
 
1,231,860

 
(35,109
)
 
45,709

 

 
1,242,460

Total
 
$
7,862,908

 
$
(35,109
)
 
$
61,721

 
$
(12,186
)
 
$
7,877,334

(1)
Includes unpaid principal balance, accretable discounts and unamortized premiums, fair value hedge accounting adjustments, and OTTI charges recognized in earnings.
(2)
Consists of obligations or securities issued by one or more of the following: Government National Mortgage Association, U.S. Agency for International Development, Small Business Administration, Private Export Funding Corporation, and Export-Import Bank of the U.S.
(3)
Consists of obligations or securities issued by one or more of the following: Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association (Fannie Mae), and Tennessee Valley Authority.
(4)
Includes $140.0 million of unsecured housing obligations.
(5)
Amounts reported in "Gross Unrealized Gains" for Residential PLMBS represent net unrealized gains in fair value of previously other-than-temporarily impaired AFS securities above the amount of impairment losses recorded and are included in "Unrealized Gain (Loss) on OTTI AFS Securities" in Note 11.
Unrealized Losses on AFS Securities
The following tables summarize our AFS securities in an unrealized loss position as of March 31, 2015 and December 31, 2014, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
 
 
As of March 31, 2015
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. agency obligations
 
$
1,596,314

 
$
(7,961
)
 
$
1,293,894

 
$
(3,435
)
 
$
2,890,208

 
$
(11,396
)
GSE obligations
 
458,724

 
(6,742
)
 

 

 
458,724

 
(6,742
)
State or local housing agency obligations
 
165,243

 
(177
)
 
250,329

 
(1,961
)
 
415,572

 
(2,138
)
Total non-MBS
 
2,220,281

 
(14,880
)
 
1,544,223

 
(5,396
)
 
3,764,504

 
(20,276
)
MBS:
 
 
 
 
 
 
 
 
 
 
 
 
GSE single-family MBS
 
153,880

 
(117
)
 
383,960

 
(747
)
 
537,840

 
(864
)
GSE multifamily MBS
 
1,158,608

 
(1,705
)
 
17,418

 
(92
)
 
1,176,026

 
(1,797
)
Total MBS
 
1,312,488

 
(1,822
)
 
401,378

 
(839
)
 
1,713,866

 
(2,661
)
Total
 
$
3,532,769

 
$
(16,702
)
 
$
1,945,601

 
$
(6,235
)
 
$
5,478,370

 
$
(22,937
)


12


 
 
As of December 31, 2014
 
 
Less than 12 months
 
12 months or more
 
Total
 
 

Fair Value
 
Unrealized
Losses
 

Fair Value
 
Unrealized
Losses
 

Fair Value
 
Unrealized
Losses
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
 
 
 
 
Other U.S. agency obligations
 
$
2,140,887

 
$
(9,700
)
 
$
739,667

 
$
(993
)
 
$
2,880,554

 
$
(10,693
)
GSE obligations
 
555,755

 
(1,493
)
 

 

 
555,755

 
(1,493
)
Total non-MBS
 
2,696,642

 
(11,193
)
 
739,667

 
(993
)
 
3,436,309

 
(12,186
)
MBS:
 
 
 
 
 
 
 
 
 
 
 
 
Residential PLMBS *
 
103,454

 
(1,277
)
 
444,356

 
(33,832
)
 
547,810

 
(35,109
)
Total
 
$
2,800,096

 
$
(12,470
)
 
$
1,184,023

 
$
(34,825
)
 
$
3,984,119

 
$
(47,295
)
*     Includes investments for which a portion of OTTI has been recognized in AOCI.    
Redemption Terms
The amortized cost basis and fair value, as applicable, of non-MBS AFS securities by remaining contractual maturity as of March 31, 2015 and December 31, 2014 are shown below. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities due to call or prepayment rights.
 
 
As of March 31, 2015
 
As of December 31, 2014
 
 
Amortized
Cost Basis
 
Fair Value
 
Amortized
Cost Basis
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
 
Non-MBS:
 
 
 
 
 
 
 
 
Due in one year or less
 
$
194,165

 
$
194,194

 
$
170,136

 
$
170,176

Due after one year through five years
 
1,363,621

 
1,366,611

 
1,142,883

 
1,142,558

Due after five years through 10 years
 
3,691,742

 
3,696,491

 
3,164,162

 
3,169,375

Due after 10 years
 
3,355,249

 
3,351,876

 
2,153,867

 
2,152,765

Total non-MBS
 
8,604,777

 
8,609,172

 
6,631,048

 
6,634,874

Total MBS
 
7,259,561

 
7,320,767

 
1,231,860

 
1,242,460

Total
 
$
15,864,338

 
$
15,929,939

 
$
7,862,908

 
$
7,877,334

Interest-Rate Payment Terms
The following table summarizes the amortized cost of our AFS securities by interest-rate payment terms as of March 31, 2015 and December 31, 2014.
 
 
As of
 
As of
 
 
March 31, 2015
 
December 31, 2014
(in thousands)
 
 
 
 
Non-MBS:
 
 
 
 
Fixed
 
$
4,239,448

 
$
4,159,932

Variable
 
4,365,329

 
2,471,116

Total non-MBS
 
8,604,777

 
6,631,048

MBS:
 
 
 
 
Fixed
 
1,187,335

 

Variable
 
6,072,226

 
1,231,860

Total MBS
 
7,259,561

 
1,231,860

Total
 
$
15,864,338

 
$
7,862,908



13


Proceeds from and Net Gain on Sales of AFS Securities
During the three months ended March 31, 2015, we sold our PLMBS portfolio for total proceeds of $1.6 billion, which resulted in a net realized gain of $52.3 million. This amount is included under the caption net realized gain on sale of AFS securities in our statements of income. This gain is offset by $51.5 million of OTTI losses we recorded during the three months ended March 31, 2015 under the caption net amount of other-than-temporary impairment (OTTI) loss reclassified from AOCI. Both the net realized gain on sale and the OTTI loss are included in other income (loss) in our statements of income for the three months ended March 31, 2015, resulting in a net gain of $792,000. We sold no AFS securities during the three months ended March 31, 2014. See Note 5 for additional information regarding the reclassification of HTM securities to AFS securities and our assessment of OTTI during the period.
Note 5—Investment Classification and Assessment for OTTI
Reclassification of HTM Securities to AFS Securities
In connection with the Merger, during March 2015, we formalized the decision to dispose of our PLMBS. As a result, we determined that we no longer had both the ability and the intent to hold all of our securities classified as HTM to maturity, and we reclassified our HTM securities to AFS securities at fair value on the date of reclassification. The following table summarizes the HTM securities reclassified to AFS securities during the three months ended March 31, 2015. See Note 4 for further information regarding the resulting AFS portfolio as of March 31, 2015.
 
 
For the Three Months Ended March 31, 2015
 
 
Amortized Cost
 
OTTI Charges Recognized in AOCI (1)
 
Carrying Value
 
Net Unrecognized Holding Gains (Losses)(2)
 
Fair Value
(in thousands)
 
 
 
 
 
 
 
 
 
 
Non-MBS
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
$
239,000

 
$

 
$
239,000

 
$
3

 
$
239,003

Other U.S. agency obligations
 
15,615

 

 
15,615

 
134

 
15,749

State or local housing obligations
 
2,002,315

 

 
2,002,315

 
1,332

 
2,003,647

Total non-MBS
 
2,256,930

 

 
2,256,930

 
1,469

 
2,258,399

MBS:
 
 
 
 
 
 
 
 
 
 
Other U.S. agency single-family MBS
 
74,699

 

 
74,699

 
192

 
74,891

GSE single-family MBS
 
4,467,094

 

 
4,467,094

 
57,216

 
4,524,310

GSE multifamily MBS
 
1,896,685

 

 
1,896,685

 
(654
)
 
1,896,031

PLMBS
 
340,326

 
(10,912
)
 
329,414

 
(5,946
)
 
323,468

Total MBS
 
6,778,804

 
(10,912
)
 
6,767,892

 
50,808

 
6,818,700

Total
 
$
9,035,734

 
$
(10,912
)
 
$
9,024,822

 
$
52,277

 
$
9,077,099

(1)     HTM OTTI charges recognized in AOCI were transferred to AFS OTTI charges recognized in AOCI.
(2)
Gross unrecognized holding gains and losses were recorded as gross unrealized gains or losses in AOCI upon the reclassification of these securities from HTM to AFS.
Credit Risk
Our MBS investments have consisted of agency-guaranteed securities and senior tranches of privately issued prime and Alt-A MBS, collateralized by single- and multi-family residential mortgage loans, including hybrid adjustable-rate mortgages (ARMs) and option ARMs.
Assessment for OTTI
We evaluate each of our investments in an unrealized loss position for OTTI on a quarterly basis or when certain changes in circumstances occur. As part of this process, we consider (1) whether we intend to sell each such investment security and (2) whether it is more likely than not that we would be required to sell such security before the anticipated recovery of its


14


amortized cost basis. If either of these conditions is met, we recognize an OTTI charge in earnings equal to the entire difference between the security's amortized cost and its fair value as of the statement of condition date.
PLMBS
During March 2015, and in connection with the Merger, we determined that we intended to sell all of our PLMBS, and accordingly, for PLMBS whose fair value was less than their amortized cost, we recognized an OTTI loss in earnings equal to the difference between these securities' amortized costs and their fair values as of the date we changed our intent. The following table summarizes the total amount of OTTI losses recorded during the three months ended March 31, 2015.
 
 
For the Three Months Ended March 31, 2015
(in thousands)
 
 
PLMBS previously classified as AFS
 
 
OTTI charges recognized in AOCI
 
$
34,385

PLMBS reclassified from HTM to AFS
 
 
Non-credit portion of OTTI losses recognized in AOCI
 
10,912

Change in fair value of OTTI securities recognized in OCI on date of reclassification
 
(6,844
)
Gross unrealized losses recognized in AOCI
 
13,076

Total amount of OTTI reclassified from AOCI to earnings
 
$
51,529

During the three months ended March 31, 2015, we sold our PLMBS, which resulted in a net realized gain of $52.3 million. Both the net realized gain on sale and the OTTI losses are included in other income (loss) in our statements of income for the three months ended March 31, 2015, resulting in a net gain of $792,000.
In addition, as a result of the sale of our PLMBS, as of March 31, 2015, we no longer had credit losses on investment securities held for which a portion of OTTI losses were recognized in AOCI. As of December 31, 2014, $373.7 million net OTTI credit losses had been recognized in earnings on our PLMBS and during the three months ended March 31, 2015, $5.8 million net OTTI credit losses were accreted to net interest income resulting from significant improvements in expected cash flows.
See Note 4 for further information regarding proceeds from and net gain on sale of AFS securities.
All Other Securities
Certain of our remaining investment securities have experienced unrealized losses and decreases in fair value primarily due to illiquidity in the marketplace and interest-rate volatility in the U.S. mortgage and credit markets. Based on current information, we determined that, for these investments, the underlying collateral or the strength of the issuers' guarantees through direct obligations or U.S. government support is currently sufficient to protect us from losses. Further, as of March 31, 2015, the declines are considered temporary as we expect to recover the entire amortized cost basis of the remaining securities in unrealized loss positions and neither intend to sell these securities nor consider it is more likely than not that we will be required to sell them prior to the anticipated recovery of their amortized cost basis. As a result, we do not consider any of our other investments to be other-than-temporarily impaired as of March 31, 2015.
Note 6—Advances
Redemption Terms 
We offer a wide range of fixed and variable interest-rate advance products with different maturities, interest rates, payment terms, and optionality. Fixed interest-rate advances generally have maturities ranging from one day to 30 years. Variable interest-rate advances generally have maturities ranging from one to 10 years, where the interest rates reset periodically at a fixed spread to the London Interbank Offered Rate (LIBOR).


15


The following table summarizes the par value and weighted-average interest rates of our advances outstanding as of March 31, 2015 and December 31, 2014 by remaining term-to-maturity.
 
 
As of March 31, 2015
 
As of December 31, 2014
 
 
Amount
 
Weighted-Average Interest Rate
 
Amount
 
Weighted-Average Interest Rate
(in thousands, except interest rates)
 
 
 
 
 
 
 
 
Due in one year or less
 
$
3,575,403

 
0.56
 
$
3,722,410

 
0.46
Due after one year through two years
 
1,256,543

 
2.33
 
2,936,039

 
1.09
Due after two years through three years
 
1,118,987

 
3.27
 
1,141,114

 
3.21
Due after three years through four years
 
586,169

 
1.95
 
788,648

 
2.26
Due after four years through five years
 
532,538

 
2.06
 
451,505

 
2.10
Thereafter
 
1,229,939

 
2.97
 
1,183,122

 
3.00
Total par value
 
8,299,579

 
1.74
 
10,222,838

 
1.45
Commitment fees
 
(309
)
 
 
 
(320
)
 
 
Premium
 
6,252

 
 
 
6,586

 
 
Discount
 
(4,603
)
 
 
 
(5,052
)
 
 
Hedging adjustments
 
105,449

 
 
 
89,639

 
 
Total
 
$
8,406,368

 
 
 
$
10,313,691

 
 
We offer fixed-rate callable advances to members that may be prepaid on specified dates without incurring prepayment or termination fees (e.g., returnable or prepayable advances). As of March 31, 2015 and December 31, 2014, we had $15.8 million of callable advances. In exchange for receiving the right to call the advance on a predetermined call schedule, the member pays a higher fixed rate for the advance relative to an equivalent maturity non-callable, fixed-rate advance. If the call option is exercised, replacement funding may be available. We also offer choice advances on which the interest-rate resets at specified intervals based on a spread to our short-term cost of funds and which may be prepaid at any repricing date without incurring a prepayment fee. As of March 31, 2015, we had no choice advances outstanding. We had $125.0 million of choice advances as of December 31, 2014.
Other advances, including symmetrical prepayment advances, may only be prepaid subject to a fee sufficient to make us economically indifferent to a borrower's decision to prepay an advance or maintain the advance until contractual maturity. In the case of our standard advance products, the fee cannot be less than zero; however, the symmetrical prepayment advance removes this floor, resulting in a potential payment to the borrower under certain circumstances. Symmetrical prepayment advances outstanding as of March 31, 2015 and December 31, 2014 totaled $552.7 million and $554.1 million.
We also offer convertible and putable advances. Convertible advances allow us to convert the advance from variable to fixed interest rate on a pre-determined date after the lock-out period. The fixed interest rate on a convertible advance is determined at origination. In addition, after the conversion date, the convertible advance is putable on specific dates throughout the remaining term. We had no convertible advances outstanding that had not converted to fixed interest rates as of March 31, 2015 and December 31, 2014.
With a putable advance, we effectively purchase a put option from the member that allows us the right to put or extinguish the advance at par on predetermined exercise dates and at our discretion. We would typically exercise our right to terminate a putable advance when interest rates increase sufficiently above the interest rate that existed when the putable advance was issued. The borrower may then apply for a new advance at the prevailing market interest rate. We had putable advances outstanding of $853.5 million and $881.0 million as of March 31, 2015 and December 31, 2014.


16


The following table summarizes the par value of our advances by year of remaining contractual maturity or next put date as of March 31, 2015 and December 31, 2014.
 
 
As of
 
As of
 
 
March 31, 2015
 
December 31, 2014
(in thousands)
 
 
 
 
Due in one year or less
 
$
4,288,919

 
$
4,510,926

Due after one year through two years (1)
 
925,527

 
2,567,023

Due after two years through three years (2)
 
876,487

 
876,614

Due after three years through four years
 
576,169

 
763,648

Due after four years through five years
 
532,538

 
451,505

Thereafter
 
1,099,939

 
1,053,122

Total par value
 
$
8,299,579

 
$
10,222,838

(1) As of March 31, 2015, includes fixed-rate callable advances of $10.8 million with next call date of April 1, 2015.
(2) As of March 31, 2015, includes fixed-rate callable advances of $5.0 million with next call date of December 1, 2015.

The following table summarizes the par value of our advances by interest-rate payment terms as of March 31, 2015 and December 31, 2014.
 
 
As of
 
As of
 
 
March 31, 2015
 
December 31, 2014
(in thousands)
 
 
 
 
Fixed:
 
 
 
 
Due in one year or less
 
$
1,857,393

 
$
1,761,526

Due after one year
 
4,724,176

 
4,875,428

Total fixed
 
6,581,569

 
6,636,954

Variable:
 
 
 
 
Due in one year or less
 
1,718,010

 
1,960,884

Due after one year
 

 
1,625,000

Total variable
 
1,718,010

 
3,585,884

Total par value
 
$
8,299,579

 
$
10,222,838

Credit Risk Exposure and Security Terms
Our potential credit risk from advances is concentrated in commercial banks and thrifts. The par value of our top five borrowers was $5.3 billion and $6.8 billion as of March 31, 2015 and December 31, 2014, which represented 63.4% and 66.4% of total advances outstanding at March 31, 2015 and December 31, 2014.
In April 2013, as a result of a corporate restructuring, Bank of America Oregon, N.A., our then largest borrower, merged into its parent, Bank of America, N.A. (BANA). At that time, Bank of America Oregon, N.A.'s membership in the Seattle Bank was terminated and all outstanding advances and capital stock were assumed by BANA, a nonmember financial institution. As a result, BANA's outstanding advances will eventually decline to zero as the advances mature. During the first quarter of 2015, $1.5 billion of BANA advances matured and approximately 96% of the entity's remaining $1.6 billion of outstanding advances as of March 31, 2015 will mature in 2016.
We expect that the concentration of advances with our largest borrowers will remain significant for the foreseeable future. For information on our credit risk on advances and allowance for credit losses, see Note 8.
Prepayment Fees
We record prepayment fees received from members on prepaid advances net of fair value basis adjustments related to hedging activities, unamortized premiums, deferred fees, and other adjustments on those advances where prepaid advances were deemed extinguished. The net amount of prepayment fees is reflected as interest income in our statements of income.


17


The following table presents our gross prepayment fees, adjustments, net prepayment fees, and the amount of advance principal prepaid for the three months ended March 31, 2015 and 2014.
 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(in thousands)
 
 
 
 
Gross prepayment fees
 
$
539

 
$
80

Adjustments
 
19

 
(59
)
Net prepayment fees
 
$
558

 
$
21

Advance principal prepaid
 
$
136,510

 
$
9,343

Note 7—Mortgage Loans
Mortgage Loans Held for Portfolio
We historically purchased single-family mortgage loans originated or acquired by participating members (i.e., participating financial institutions, or PFIs) in our Mortgage Purchase Program (MPP); we have not purchased any mortgage loans since 2006 and have not sold any mortgage loans since 2011. These mortgage loans are guaranteed or insured by federal agencies or credit-enhanced by the PFI. We have no current plans to sell the remaining mortgage loans held for portfolio.
The following tables summarize our mortgage loans held for portfolio as of March 31, 2015 and December 31, 2014.
 
 
As of
 
As of
 
 
March 31, 2015
 
December 31, 2014
(in thousands)
 
 
 
 
Real Estate:
 
 
 
 
Fixed interest-rate, medium-term*, single-family
 
$
20,720

 
$
23,254

Fixed interest-rate, long-term, single-family
 
598,923

 
625,784

Total unpaid principal balance
 
619,643

 
649,038

Premiums
 
2,806

 
2,997

Discounts
 
(3,243
)
 
(3,438
)
Deferred loan costs, net
 
(14
)
 
(14
)
Mortgage loans held for portfolio before allowance for credit losses
 
619,192

 
648,583

Less: Allowance for credit losses on mortgage loans
 
(717
)
 
(1,404
)
Total mortgage loans held for portfolio, net
 
$
618,475

 
$
647,179


*
Medium-term is defined as a term of 15 years or less.
 
 
As of
 
As of
Unpaid Principal Balance of Mortgage Loans Held for Portfolio
 
March 31, 2015
 
December 31, 2014
(in thousands)
 
 
 
 
Government-guaranteed/insured
 
$
59,614

 
$
62,170

Conventional
 
560,029

 
586,868

Total unpaid principal balance
 
$
619,643

 
$
649,038

As of March 31, 2015 and December 31, 2014, approximately 77% of our outstanding mortgage loans had been purchased from our former member, Washington Mutual Bank, F.S.B. (which was acquired by JPMorgan Chase Bank, N.A., a nonmember).


18


Note 8—Allowance for Credit Losses
We have established a credit-loss allowance methodology for each of our asset portfolios: credit products, which include our advances, letters of credit, and other products; mortgage loans held for portfolio, including government-guaranteed and conventional mortgage loans; securities purchased under agreements to resell; and federal funds sold. See Note 9 "Part II. Item 8. Financial Statements and Supplementary Data—Audited Financial Statements—Notes to Financial Statements" in our 2014 10-K for a description of our allowance methodologies for each portfolio.
Credit Products
We consider the payment status, collateral types and concentrations, and our borrowers' financial condition to be primary indicators of credit quality for our credit products. As of March 31, 2015 and December 31, 2014, we had rights to collateral on a borrower-by-borrower basis with a value in excess of our outstanding extensions of credit. As of March 31, 2015 and December 31, 2014, we had no credit products that were past due, on nonaccrual status, or considered impaired.
Based upon the collateral held as security, our credit extension and collateral policies, our credit analysis, and the repayment history on credit products, we have not incurred any credit losses on credit products outstanding as of March 31, 2015 and December 31, 2014. Accordingly, we have not recorded any allowance for credit losses for this asset portfolio. In addition, as of March 31, 2015 and December 31, 2014, no liability was recorded to reflect an allowance for credit losses for credit exposures not recorded on the statements of condition. For additional information on credit exposure on unrecorded commitments, see Note 14.
Mortgage Loans Held for Portfolio
Government-Guaranteed
Government-guaranteed mortgage loans are mortgage loans insured or guaranteed by the Federal Housing Administration (FHA) and any losses from such loans are expected to be recovered from this entity. Any losses from such loans that are not recovered from this entity are absorbed by the mortgage servicers. Therefore, we record no allowance for credit losses on government-guaranteed mortgage loans. Furthermore, due to the FHA's guarantee, these mortgage loans are also not placed on nonaccrual status.
Conventional
We evaluate our conventional mortgage loans held for portfolio for credit losses by: (1) collectively evaluating homogeneous pools of residential mortgage loans; and (2) individually evaluating mortgage loans that meet certain criteria.
Allowance for Credit Losses on Mortgage Loans Held for Portfolio

Our credit risk analysis of conventional loans evaluated collectively for impairment and determination of allowance for credit losses considers loan pool specific attribute data, applies estimated loss severities, and factors in the credit enhancements to determine our best estimate of probable incurred losses for our allowance for credit losses. Specifically, the determination of the allowance generally factors in the presence of primary mortgage insurance (PMI) and lender risk account (LRA) funds. Incurred losses that would be recovered from the credit enhancements are not reserved as part of our allowance for loan losses. In such cases, a receivable is generally established to reflect the expected recovery from credit enhancements. Because we purchased most of our conventional mortgage loans prior to 2004, the LRA balances were almost fully distributed as of March 31, 2015. Once the LRA balance is exhausted, our mortgages will have no LRA coverage and our credit exposure will be reflected accordingly in our quarterly allowance for credit loss evaluations.        


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The following table presents a rollforward of the allowance for credit losses on our collectively evaluated conventional mortgage loans held for portfolio as of and for the three months ended March 31, 2015 and 2014, as well as the recorded investment in mortgage loans by impairment methodology as of March 31, 2015 and 2014.
 
 
As of and For the Three Months Ended March 31,
 
 
2015
 
2014
(in thousands)
 
 
 
 
Balance, beginning of period
 
$
1,404

 
$
934

Charge-offs (1)
 
(479
)
 
(29
)
Provision (benefit) for credit losses
 
(208
)
 
236

Balance, end of period - collectively evaluated for impairment
 
$
717

 
$
1,141

Recorded investments of mortgage loans, end of period (2):
 
 
 
 
Individually evaluated for impairment
 
$
31,651

 
$
14,262

Collectively evaluated for impairment
 
$
530,098

 
$
678,311

(1)
For the three months ended March 31, 2015, comprised of charge-offs from individually evaluated impaired mortgage loans due to the adoption of the charge-off requirements under AB 2012-02 beginning January 1, 2015.
(2)
Includes the unpaid principal balance of the mortgage loans, adjusted for accrued interest, unamortized premiums or discounts, and direct write-downs. The recorded investment excludes any valuation allowance.

As a result of our March 31, 2015 analysis, we determined that the credit enhancement provided by our members in the form of the LRA and our previously recorded allowance for credit losses was in excess of the amount required to absorb the expected credit losses on our mortgage loan portfolio. Accordingly, we recorded a benefit for credit losses of $208,000 for the three months ended March 31, 2015. We recorded a provision for credit losses of $236,000 for the three months ended March 31, 2014.
In addition to PMI and LRA, we formerly maintained supplemental mortgage insurance (SMI) to cover losses on our conventional mortgage loans over and above the losses covered by the LRA in order to achieve the minimum level of portfolio credit protection required by regulation. Under FHFA regulation, SMI from an insurance provider rated "AA" or equivalent by a nationally recognized statistical rating organization must be obtained, unless this requirement is waived by the regulator. In 2008, because the credit rating on our SMI provider was lowered from "AA-" to "A," we cancelled our SMI policies. As of March 31, 2015, while we have determined that the LRA and our previously recorded allowance for credit losses were in excess of the amount required to absorb the expected credit losses on our mortgage loan portfolio, we remain in technical violation of the regulatory requirement to provide SMI on our MPP conventional mortgage loans.


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Credit Quality Indicators
Key credit quality indicators for mortgage loans include the migration of past-due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The table below summarizes our key credit quality indicators for mortgage loans held for portfolio as of March 31, 2015 and December 31, 2014.
 
 
As of March 31, 2015
 
As of December 31, 2014
Recorded Investment (1) in
Delinquent Mortgage Loans
 
Conventional
 
Government-Guaranteed
 
Total
 
Conventional
 
Government-Guaranteed
 
Total
(in thousands, except percentages)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans:
 
 
 
 
 
 
 
 
 
 
 
 
Past due 30-59 days delinquent and not in foreclosure
 
$
14,537

 
$
5,938

 
$
20,475

 
$
18,508

 
$
7,818

 
$
26,326

Past due 60-89 days delinquent and not in foreclosure
 
7,225

 
2,308

 
9,533

 
5,687

 
2,831

 
8,518

Past due 90 days or more delinquent (2)
 
23,291

 
6,066

 
29,357

 
25,960

 
6,772

 
32,732

Total past due
 
45,053

 
14,312

 
59,365

 
50,155

 
17,421

 
67,576

Total current loans
 
516,696

 
45,891

 
562,587

 
538,534

 
45,363

 
583,897

Total mortgage loans
 
$
561,749

 
$
60,203

 
$
621,952

 
$
588,689

 
$
62,784

 
$
651,473

Accrued interest - mortgage loans
 
$
2,481

 
$
279

 
$
2,760

 
$
2,599

 
$
291

 
$
2,890

Other delinquency statistics:
 
 
 
 
 
 
 
 
 
 
 
 
In process of foreclosure included above (2) (3)
 
$
18,687

 
none

 
$
18,687

 
$
18,762

 
none

 
$
18,762

Serious delinquency rate (4)
 
4.1
%
 
10.1
%
 
4.7
%
 
4.4
%
 
10.8
%
 
5.0
%
Past due 90 days or more still accruing
interest
 
$

 
$
6,066

 
$
6,066

 
$

 
$
6,772

 
$
6,772

Loans in non-accrual status (5)
 
$
23,291

 
none

 
$
23,291

 
$
25,960

 
none

 
$
25,960

REO(6)
 
$
1,410

 
none

 
$
1,410

 
$
1,279

 
none

 
$
1,279

(1)
Includes the unpaid principal balance of the mortgage loans, adjusted for accrued interest, unamortized premiums or discounts, and direct writedowns. The recorded investment excludes any valuation allowance.
(2)
Conventional mortgage loans includes loans classified as troubled debt restructurings (TDRs). As of March 31, 2015 and December 31, 2014, $6.0 million of the $18.3 million and $6.7 million of the $17.9 million recorded investment in TDRs was 90 days or more past due and in the process of foreclosure.
(3)
Includes mortgage loans where the decision of foreclosure has been reported.
(4)
Mortgage loans that are 90 days or more past due or in the process of foreclosure, expressed as a percentage of the unpaid principal balance of the total mortgage loan portfolio class.
(5)
Generally represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.
(6)
Reflected at carrying value.
Individually Evaluated Mortgage Loans
We individually evaluate our TDRs and certain other mortgage loans for impairment when determining our allowance for credit losses and typically remove the credit loss amount from the general allowance for credit losses and record it as a reduction to the mortgage loan carrying value.
TDRs
A TDR is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties and that concession would not have been considered otherwise. We have granted a concession when we do not expect to collect all amounts due to us under the original contract as a result of the restructuring. Our TDR loans resulting from modification of terms primarily involve loans where an agreement permits the recapitalization of past-due amounts up to the original loan amount. Under this type of modification, no other terms of the original loan are modified, including the borrower's original interest rate and contractual maturity. Loans that are discharged in Chapter 7 bankruptcy and have not been reaffirmed by the borrowers are also considered to be TDRs, except in cases where all contractual amounts due are still expected to be collected as a result of government guarantees.
Credit losses in these cases are measured by factoring in expected cash shortfalls incurred as of the reporting date and the economic loss attributable to delaying the original contractual principal and interest due dates. As of March 31, 2015 and