10-Q 1 fhlbdallas-93011x10q.htm FORM 10-Q FHLB Dallas-9.30.11-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51405
FEDERAL HOME LOAN BANK OF DALLAS
(Exact name of registrant as specified in its charter)
Federally chartered corporation
(State or other jurisdiction of incorporation
or organization)
 
71-6013989
(I.R.S. Employer
Identification Number)
 
 
 
8500 Freeport Parkway South, Suite 600
Irving, TX
(Address of principal executive offices)
 
75063-2547
(Zip code)
(214) 441-8500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and [2] has been subject to such filing requirements for the past 90 days.
Yes þ 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 (17 C.F.R. §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ 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 þ
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At October 31, 2011, the registrant had outstanding 11,523,427 shares of its Class B Capital Stock, $100 par value per share.
 


FEDERAL HOME LOAN BANK OF DALLAS
TABLE OF CONTENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CONDITION
(Unaudited; in thousands, except share data)
 
September 30,
2011
 
December 31,
2010
ASSETS
 

 
 

Cash and due from banks
$
1,231,895

 
$
1,631,899

Interest-bearing deposits
281

 
208

Security purchased under agreement to resell
500,000

 

Federal funds sold
1,825,000

 
3,767,000

Trading securities (Note 12)
5,656

 
5,317

Available-for-sale securities (Notes 3 and 12)
2,057,131

 

Held-to-maturity securities (a) (Notes 4 and 12)
6,862,558

 
8,496,429

Advances (Notes 5 and 6)
18,648,722

 
25,455,656

Mortgage loans held for portfolio, net of allowance for credit losses of $209 and $225 at September 30, 2011 and December 31, 2010, respectively (Note 6)
173,378

 
207,168

Accrued interest receivable
51,192

 
43,248

Premises and equipment, net
23,081

 
24,660

Derivative assets (Notes 9 and 12)
33,486

 
38,671

Other assets
14,936

 
19,814

TOTAL ASSETS
$
31,427,316

 
$
39,690,070

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
1,695,477

 
$
1,070,028

Non-interest bearing
29

 
24

Total deposits
1,695,506

 
1,070,052

 
 
 
 
Consolidated obligations, net (Note 7)
 
 
 
Discount notes
7,977,769

 
5,131,978

Bonds
19,423,747

 
31,315,605

Total consolidated obligations, net
27,401,516

 
36,447,583

 
 
 
 
Mandatorily redeemable capital stock
7,604

 
8,076

Accrued interest payable
96,590

 
94,417

Affordable Housing Program (Note 8)
32,924

 
41,044

Payable to REFCORP (Note 10)

 
5,593

Derivative liabilities (Notes 9 and 12)
2,147

 
1,310

Other liabilities, including $3,888 and $11,156 of optional advance commitments carried at fair value under the fair value option at September 30, 2011 and December 31, 2010, respectively (Notes 3, 12 and 13)
527,248

 
31,583

Total liabilities
29,763,535

 
37,699,658

 
 
 
 
Commitments and contingencies (Notes 6 and 13)


 


 
 
 
 
CAPITAL (Note 10)
 
 
 
Capital stock — Class B putable ($100 par value) issued and outstanding shares: 12,439,428 and 16,009,091 shares at September 30, 2011 and December 31, 2010, respectively
1,243,943

 
1,600,909

Retained earnings
 
 
 
Unrestricted
475,700

 
452,205

Restricted
2,360

 

Total retained earnings
478,060

 
452,205

Accumulated other comprehensive income (loss) (Note 16)
 

 
 

Net unrealized losses on available-for-sale securities, net of unrealized gains and losses relating to hedged interest rate risk included in net income (Notes 3 and 12)
(6,094
)
 

Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities (Note 4)
(52,645
)
 
(63,263
)
Postretirement benefits
517

 
561

Total accumulated other comprehensive income (loss)
(58,222
)
 
(62,702
)
Total capital
1,663,781

 
1,990,412

TOTAL LIABILITIES AND CAPITAL
$
31,427,316

 
$
39,690,070

_____________________________
(a)
Fair values: $6,927,317 and $8,602,589 at September 30, 2011 and December 31, 2010, respectively.
The accompanying notes are an integral part of these financial statements.

1


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF INCOME
(Unaudited, in thousands)

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2011
 
2010
 
2011
 
2010
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
49,907

 
$
86,973

 
$
162,889

 
$
249,343

Prepayment fees on advances, net
 
2,598

 
3,567

 
7,560

 
9,922

Interest-bearing deposits
 
108

 
106

 
230

 
223

Securities purchased under agreements to resell
 
165

 

 
410

 

Federal funds sold
 
201

 
1,408

 
1,838

 
4,019

Trading securities
 

 
23

 

 
23

Available-for-sale securities
 
1,015

 

 
1,015

 

Held-to-maturity securities
 
19,072

 
29,899

 
63,865

 
107,736

Mortgage loans held for portfolio
 
2,485

 
3,159

 
7,895

 
10,018

Other
 
2

 
7

 
8

 
15

Total interest income
 
75,553

 
125,142

 
245,710

 
381,299

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
39,523

 
67,469

 
128,619

 
184,512

Discount notes
 
1,106

 
2,854

 
2,435

 
8,965

Deposits
 
40

 
125

 
210

 
512

Mandatorily redeemable capital stock
 
12

 
7

 
47

 
27

Other borrowings
 
1

 
1

 
2

 
3

Total interest expense
 
40,682

 
70,456

 
131,313

 
194,019

 
 
 
 
 
 
 
 
 
NET INTEREST INCOME
 
34,871

 
54,686

 
114,397

 
187,280

 
 
 
 
 
 
 
 
 
OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on held-to-maturity securities
 
(2,381
)
 

 
(8,059
)
 
(7,031
)
Net non-credit impairment losses recognized in other comprehensive income
 
766

 
(379
)
 
2,722

 
4,981

Credit component of other-than-temporary impairment losses on held-to-maturity securities
 
(1,615
)
 
(379
)
 
(5,337
)
 
(2,050
)
 
 
 
 
 
 
 
 
 
Service fees
 
778

 
779

 
2,114

 
2,136

Net gain (loss) on trading securities
 
(549
)
 
303

 
(375
)
 
187

Net losses on derivatives and hedging activities
 
(8,959
)
 
(2,644
)
 
(29,532
)
 
(28,062
)
Gains on other liabilities carried at fair value under the fair value option
 
6,508

 
124

 
10,641

 
124

Gains on early extinguishment of debt
 

 
176

 
415

 
176

Letter of credit fees
 
1,244

 
1,488

 
4,018

 
4,354

Other, net
 
(2
)
 
(21
)
 
6

 
52

Total other loss
 
(2,595
)
 
(174
)
 
(18,050
)
 
(23,083
)
 
 
 
 
 
 
 
 
 
OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
10,172

 
9,226

 
32,026

 
28,846

Other operating expenses
 
7,081

 
6,976

 
20,779

 
19,976

Finance Agency
 
1,306

 
622

 
3,929

 
1,950

Office of Finance
 
607

 
405

 
1,737

 
1,312

Total other expense
 
19,166

 
17,229

 
58,471

 
52,084

 
 
 
 
 
 
 
 
 
INCOME BEFORE ASSESSMENTS
 
13,110

 
37,283

 
37,876

 
112,113

 
 
 
 
 
 
 
 
 
Affordable Housing Program
 
1,312

 
3,044

 
3,343

 
9,154

REFCORP
 

 
6,848

 
4,494

 
20,592

Total assessments
 
1,312

 
9,892

 
7,837

 
29,746

 
 
 
 
 
 
 
 
 
NET INCOME
 
$
11,798

 
$
27,391

 
$
30,039

 
$
82,367

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

2


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Unaudited, in thousands)

 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
Capital Stock
Class B - Putable
 
Retained Earnings
 
Other
Comprehensive
 
Total
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
Income (Loss)
 
Capital
BALANCE, JANUARY 1, 2011
16,009

 
$
1,600,909

 
$
452,205

 
$

 
$
452,205

 
$
(62,702
)
 
$
1,990,412

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
3,068

 
306,824

 

 

 

 

 
306,824

Repurchase/redemption of capital stock
(6,066
)
 
(606,568
)
 

 

 

 

 
(606,568
)
Shares reclassified to mandatorily redeemable capital stock
(612
)
 
(61,197
)
 

 

 

 

 
(61,197
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
27,679

 
2,360

 
30,039

 

 
30,039

Other comprehensive income (a)

 

 

 

 

 
4,480

 
4,480

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income

 

 

 

 

 

 
34,519

Dividends on capital stock (at 0.375 percent annualized rate)
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 
(134
)
 

 
(134
)
 

 
(134
)
Mandatorily redeemable capital stock

 

 
(75
)
 

 
(75
)
 

 
(75
)
Stock
40

 
3,975

 
(3,975
)
 

 
(3,975
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2011
12,439

 
$
1,243,943

 
$
475,700

 
$
2,360

 
$
478,060

 
$
(58,222
)
 
$
1,663,781

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2010
25,317

 
$
2,531,715

 
$
356,282

 
$

 
$
356,282

 
$
(65,965
)
 
$
2,822,032

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
3,257

 
325,700

 

 

 

 

 
325,700

Repurchase/redemption of capital stock
(10,283
)
 
(1,028,273
)
 

 

 

 

 
(1,028,273
)
Shares reclassified to mandatorily redeemable capital stock
(2
)
 
(231
)
 

 

 

 

 
(231
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
82,367

 

 
82,367

 

 
82,367

Other comprehensive income (a)

 

 

 

 

 
8,752

 
8,752

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income

 

 

 

 

 

 
91,119

Dividends on capital stock (at 0.375 percent annualized rate)
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 
(136
)
 

 
(136
)
 

 
(136
)
Mandatorily redeemable capital stock

 

 
(2
)
 

 
(2
)
 

 
(2
)
Stock
66

 
6,621

 
(6,621
)
 

 
(6,621
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2010
18,355

 
$
1,835,532

 
$
431,890

 
$

 
$
431,890

 
$
(57,213
)
 
$
2,210,209

_____________________________
(a)
For the three months ended September 30, 2011 and 2010, total comprehensive income of $9,271 and $32,385, respectively, includes net income of $11,798 and $27,391, respectively, and other comprehensive income (loss) of $(2,527) and $4,994, respectively. For the components of other comprehensive income (loss) for the three and nine months ended September 30, 2011 and 2010, see Note 16.
The accompanying notes are an integral part of these financial statements.



3


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
For the Nine Months Ended
 
September 30,
 
2011
 
2010
OPERATING ACTIVITIES
 
 
 
Net income
$
30,039

 
$
82,367

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
 
 
 
Net premiums and discounts on advances, consolidated obligations, investments and mortgage loans
(43,873
)
 
(82,757
)
Concessions on consolidated obligation bonds
3,108

 
7,093

Premises, equipment and computer software costs
5,110

 
4,548

Non-cash interest on mandatorily redeemable capital stock
37

 
20

Credit component of other-than-temporary impairment losses on held-to-maturity securities
5,337

 
2,050

Gains on early extinguishment of debt
(415
)
 
(176
)
Gains on other liabilities carried at fair value under the fair value option
(10,641
)
 
(124
)
Net increase in trading securities
(339
)
 
(941
)
Loss due to change in net fair value adjustment on derivative and hedging activities
86,832

 
123,301

Decrease (increase) in accrued interest receivable
(7,952
)
 
14,771

Decrease (increase) in other assets
2,960

 
(9,664
)
Decrease in Affordable Housing Program (AHP) liability
(8,120
)
 
(2,932
)
Increase (decrease) in accrued interest payable
2,163

 
(40,286
)
Decrease in payable to REFCORP
(5,593
)
 
(3,064
)
Increase in other liabilities
5,279

 
6,368

Total adjustments
33,893

 
18,207

Net cash provided by operating activities
63,932

 
100,574

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net increase in interest-bearing deposits
(421,502
)
 
(110,428
)
Net increase in securities purchased under agreements to resell
(500,000
)
 

Net decrease (increase) in federal funds sold
1,942,000

 
(3,997,000
)
Increase in short-term trading securities held for investment

 
(999,910
)
Purchases of available-for-sale securities
(1,509,140
)
 

Proceeds from maturities of long-term held-to-maturity securities
1,659,473

 
3,230,753

Purchases of long-term held-to-maturity securities

 
(1,078,810
)
Principal collected on advances
231,245,552

 
202,765,577

Advances made
(224,290,705
)
 
(182,589,155
)
Principal collected on mortgage loans held for portfolio
33,463

 
37,047

Purchases of premises, equipment and computer software
(3,829
)
 
(5,103
)
Net cash provided by investing activities
8,155,312

 
17,252,971

 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits and pass-through reserves
570,683

 
(889,328
)
Net proceeds from (payments on) derivative contracts with financing elements
151,834

 
(14,614
)
Net proceeds from issuance of consolidated obligations
 
 
 
Discount notes
125,726,444

 
100,424,313

Bonds
6,285,726

 
23,194,842

Proceeds from assumption of debt from other FHLBank
167,381

 

Debt issuance costs
(819
)
 
(4,729
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(122,878,821
)
 
(105,876,304
)
Bonds
(18,265,279
)
 
(32,817,969
)
Payment to other FHLBank for assumption of debt
(14,738
)
 

Proceeds from issuance of capital stock
306,824

 
325,700

Proceeds from issuance of mandatorily redeemable capital stock

 
97

Payments for redemption of mandatorily redeemable capital stock
(61,781
)
 
(2,619
)
Payments for repurchase/redemption of capital stock
(606,568
)
 
(1,028,273
)
Cash dividends paid
(134
)
 
(136
)
Net cash used in financing activities
(8,619,248
)
 
(16,689,020
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(400,004
)
 
664,525

Cash and cash equivalents at beginning of the period
1,631,899

 
3,908,242

Cash and cash equivalents at end of the period
$
1,231,895

 
$
4,572,767

 
 
 
 

4


Supplemental Disclosures:
 
 
 
Interest paid
$
118,809

 
$
194,555

AHP payments, net
$
11,463

 
$
12,086

REFCORP payments
$
10,087

 
$
23,656

Stock dividends issued
$
3,975

 
$
6,621

Dividends paid through issuance of mandatorily redeemable capital stock
$
75

 
$
2

Capital stock reclassified to mandatorily redeemable capital stock
$
61,197

 
$
231

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


5


FEDERAL HOME LOAN BANK OF DALLAS
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

Note 1—Basis of Presentation
The accompanying interim financial statements of the Federal Home Loan Bank of Dallas (the “Bank”) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions provided by Article 10, Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of the Bank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.
The Bank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2010. The interim financial statements presented herein should be read in conjunction with the Bank’s audited financial statements and notes thereto, which are included in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 25, 2011 (the “2010 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2010 10-K.
The Bank is one of 12 district Federal Home Loan Banks, each individually a “FHLBank” and collectively the “FHLBanks,” and, together with the Office of Finance, a joint office of the FHLBanks, the “FHLBank System.” The Office of Finance manages the sale and servicing of the FHLBanks’ consolidated obligations. The Federal Housing Finance Agency (“Finance Agency”), an independent agency in the executive branch of the United States Government, supervises and regulates the FHLBanks and the Office of Finance.
     Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make assumptions and estimates. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Significant assumptions include those that are used by the Bank in its periodic evaluation of its holdings of non-agency mortgage-backed securities for other-than-temporary impairment (“OTTI”). Significant estimates include the valuations of the Bank’s investment securities, as well as its derivative instruments and any associated hedged items. Actual results could differ from these estimates.

Note 2—Recently Issued Accounting Guidance
     Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”), which amends the existing disclosure requirements to require a greater level of disaggregated information about the credit quality of financing receivables and the allowance for credit losses. The requirements are intended to enhance transparency regarding the nature of an entity’s credit risk associated with its financing receivables and an entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. The disclosures that relate to information as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010 for the Bank). Except for disclosures related to troubled debt restructurings, which were deferred until interim and annual reporting periods beginning on or after June 15, 2011, the disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 (January 1, 2011 for the Bank). The required disclosures are presented in Note 6. The adoption of this guidance did not have any impact on the Bank’s results of operations or financial condition.
     A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. On April 5, 2011, the FASB issued ASU 2011-02 “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring” (“ASU 2011-02”), which clarifies when a loan modification or restructuring constitutes a troubled debt restructuring. A restructuring is considered a troubled debt restructuring if both of the following conditions exist: (1) the restructuring constitutes a concession and (2) the borrower is experiencing financial difficulties. The guidance in ASU 2011-02 also requires presentation of the disclosures related to troubled debt restructurings that are required by the provisions of ASU 2010-20. The provisions of ASU 2011-02 are effective for interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for the Bank) and are to be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption (January 1, 2011 for the Bank). Because the Bank has not had any restructurings occur on or after January 1, 2011, the adoption of this guidance did not have any impact on the Bank’s results of operations or financial condition, nor did it expand the Bank’s footnote disclosures.

6


     Reconsideration of Effective Control for Repurchase Agreements. On April 29, 2011, the FASB issued ASU 2011-03 “Reconsideration of Effective Control for Repurchase Agreements” (“ASU 2011-03”), which eliminates from U.S. GAAP the requirement for entities to consider whether a transferor has the ability to repurchase the financial assets in a repurchase agreement. The guidance is intended to focus the assessment of effective control over financial assets on a transferor’s contractual rights and obligations with respect to transferred financial assets and not on whether the transferor has the practical ability to exercise those rights or honor those obligations. In addition to removing the criterion for entities to consider a transferor’s ability to repurchase the financial assets, ASU 2011-03 also removes the collateral maintenance implementation guidance related to that criterion. The guidance is effective prospectively for transactions, or modifications of existing transactions, that occur during or after the first interim or annual reporting period beginning on or after December 15, 2011 (January 1, 2012 for the Bank). Early adoption is not permitted. The adoption of this guidance is not expected to have a significant impact on the Bank’s results of operations or financial condition.
     Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”). On May 12, 2011, the FASB issued ASU 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and provides for certain additional disclosures regarding fair value measurements. The guidance is intended to result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011 (January 1, 2012 for the Bank) and is to be applied prospectively. Early adoption is not permitted. While the adoption of this guidance is not expected to have a significant impact on the Bank’s results of operations or financial condition, such adoption will result in increased financial statement footnote disclosures for the Bank.
     Presentation of Comprehensive Income. On June 16, 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income,” which eliminates the option to present components of other comprehensive income as part of the statements of capital and requires, among other things, that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement must present total net income and its components followed consecutively by a second statement that must present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The guidance is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to earnings. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011 (January 1, 2012 for the Bank) and is to be applied retrospectively. Early adoption is permitted. The Bank intends to adopt this guidance effective January 1, 2012. The adoption of this guidance will not impact the Bank’s results of operations or financial condition.
Disclosures about an Employer's Participation in a Multiemployer Plan. On September 21, 2011, the FASB issued ASU 2011-09 “Disclosures about an Employer's Participation in a Multiemployer Plan” (“ASU 2011-09”), which amends the existing disclosure requirements to require that employers provide additional separate disclosures for multiemployer pension and other postretirement benefit plans. The requirements are intended to provide users of the financial statements with more detailed information about an employer's involvement in such plans, including: the significant multiemployer plans in which an employer participates; the level of the employer's participation in the significant multiemployer plans, including the employer's contributions to the plans and an indication of whether the employer's contributions represent more than five percent of the total contributions made to the plan by all contributing employers; the financial health of the significant multiemployer plans, including, among other things, an indication of the funded status; and the nature of the employer commitments to the plan. The guidance is effective for annual periods ending after December 15, 2011 (December 31, 2011 for the Bank), with early adoption permitted. The adoption of this guidance will result in increased financial statement footnote disclosures for the Bank, but will not have any impact on the Bank’s results of operations or financial condition.



7


Note 3—Available-for-Sale Securities
     Major Security Types. Available-for-sale securities as of September 30, 2011 were as follows (in thousands):
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
Government-sponsored enterprises
$
1,921,638

 
$
717

 
$
6,577

 
$
1,915,778

Other
141,587

 

 
234

 
141,353

Total
$
2,063,225

 
$
717

 
$
6,811

 
$
2,057,131


Included in the table above are securities that were purchased but which had not yet settled as of September 30, 2011. The amount due of $500,984,000 is included in other liabilities on the statement of condition.

Other debentures are fully secured by government guaranteed obligations and the payment of interest on the debentures is guaranteed by an agency of the U.S. government. The amortized cost of the Bank's available-for-sale securities includes hedging adjustments. The Bank did not hold any securities classified as available-for-sale at December 31, 2010. The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of September 30, 2011.
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
20

 
$
1,414,794

 
$
6,577

 

 
$

 
$

 
20

 
$
1,414,794

 
$
6,577

Other
7

 
141,353

 
234

 

 

 

 
7

 
141,353

 
234

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
27

 
$
1,556,147

 
$
6,811

 

 
$

 
$

 
27

 
$
1,556,147

 
$
6,811


At September 30, 2011, the gross unrealized losses on the Bank’s available-for-sale securities were $6,811,000. All of the Bank's available-for-sale securities are either issued by government-sponsored enterprises (“GSEs”) or fully secured by collateral that is guaranteed by the U.S government. As of September 30, 2011, the U.S. government and the issuers of the Bank’s holdings of GSE debentures were rated triple-A by Moody’s Investors Service (“Moody’s”) and Fitch Ratings, Ltd. (”Fitch”) and AA+ by Standard and Poor’s (“S&P”). The issuer of the Bank's other debentures was rated Aaa by Moody's and AA+ by S&P at that date; the issuer of the other debentures is not rated by Fitch. Based upon the Bank’s assessment of the creditworthiness of the issuers of the GSE debentures and the credit ratings assigned by each of the nationally recognized statistical ratings organizations (“NRSROs”), the Bank expects that its holdings of GSE debentures that were in an unrealized loss position at September 30, 2011 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. In addition, based on the creditworthiness of the issuer of the Bank's holdings of other debentures, the U.S. government's guaranty of the payment of principal and interest on the collateral securing those debentures, and the U.S. government's guaranty of the payment of interest on the debentures, the Bank expects that its holdings of other debentures that were in an unrealized loss position at September 30, 2011 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Because the current market value deficits associated with the Bank's available-for-sale securities are not attributable to credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these investments to be other-than-temporarily impaired at September 30, 2011.

8


Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2011 are presented below (in thousands).
 
 
September 30, 2011
Maturity
 
Amortized Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
Due after one year through five years
 
$
207,757

 
$
207,517

Due after five years through ten years
 
1,855,468

 
1,849,614

Total
 
$
2,063,225

 
$
2,057,131

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as available-for-sale at September 30, 2011 (in thousands):
 
September 30, 2011
Amortized cost of available-for-sale securities
 
Fixed-rate
$
1,988,225

Variable-rate
75,000

 
 
Total
$
2,063,225


Note 4—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of September 30, 2011 were as follows (in thousands):

 
Amortized
Cost
 
OTTI Recorded in
Accumulated Other
Comprehensive
Income (Loss)
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
$
46,538

 
$

 
$
46,538

 
$
267

 
$
88

 
$
46,717

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
17,505

 

 
17,505

 
36

 
3

 
17,538

Government-sponsored enterprises
6,531,824

 

 
6,531,824

 
98,722

 
3,771

 
6,626,775

Non-agency residential mortgage-backed securities
319,336

 
52,645

 
266,691

 

 
30,404

 
236,287

 
6,868,665

 
52,645

 
6,816,020

 
98,758

 
34,178

 
6,880,600

Total
$
6,915,203

 
$
52,645

 
$
6,862,558

 
$
99,025

 
$
34,266

 
$
6,927,317



9


Held-to-maturity securities as of December 31, 2010 were as follows (in thousands):

 
Amortized
Cost
 
OTTI Recorded in
Accumulated Other
Comprehensive
Income (Loss)
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
$
51,946

 
$

 
$
51,946

 
$
331

 
$
217

 
$
52,060

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
20,038

 

 
20,038

 
70

 

 
20,108

Government-sponsored enterprises
8,096,361

 

 
8,096,361

 
128,732

 
2,068

 
8,223,025

Non-agency residential mortgage-backed securities
391,347

 
63,263

 
328,084

 

 
20,688

 
307,396

 
8,507,746

 
63,263

 
8,444,483

 
128,802

 
22,756

 
8,550,529

Total
$
8,559,692

 
$
63,263

 
$
8,496,429

 
$
129,133

 
$
22,973

 
$
8,602,589


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of September 30, 2011. The unrealized losses include other-than-temporary impairments recognized in accumulated other comprehensive income (loss) and gross unrecognized holding losses and are aggregated by major security type and length of time that individual securities have been in a continuous loss position.

 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
2

 
$
20,067

 
$
88

 

 
$

 
$

 
2

 
$
20,067

 
$
88

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
3

 
2,975

 
3

 

 

 

 
3

 
2,975

 
3

Government-sponsored enterprises
52

 
822,256

 
1,244

 
34

 
667,547

 
2,527

 
86

 
1,489,803

 
3,771

Non-agency residential mortgage-backed securities

 

 

 
35

 
236,287

 
83,049

 
35

 
236,287

 
83,049

 
55

 
825,231

 
1,247

 
69

 
903,834

 
85,576

 
124

 
1,729,065

 
86,823

Total
57

 
$
845,298

 
$
1,335

 
69

 
$
903,834

 
$
85,576

 
126

 
$
1,749,132

 
$
86,911



10


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2010.

 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed obligations
2

 
$
21,303

 
$
217

 

 
$

 
$

 
2

 
$
21,303

 
$
217

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
23

 
398,522

 
434

 
34

 
792,031

 
1,634

 
57

 
1,190,553

 
2,068

Non-agency residential mortgage-backed securities

 

 

 
39

 
307,396

 
83,951

 
39

 
307,396

 
83,951

 
23

 
398,522

 
434

 
73

 
1,099,427

 
85,585

 
96

 
1,497,949

 
86,019

Total
25

 
$
419,825

 
$
651

 
73

 
$
1,099,427

 
$
85,585

 
98

 
$
1,519,252

 
$
86,236


At September 30, 2011, the gross unrealized losses on the Bank’s held-to-maturity securities were $86,911,000, of which $83,049,000 was attributable to its holdings of non-agency (i.e., private-label) residential mortgage-backed securities and $3,862,000 was attributable to securities that are either guaranteed by the U.S. government or issued and guaranteed by GSEs. As of September 30, 2011, the U.S. government and the issuers of the Bank’s holdings of GSE mortgage-backed securities were rated triple-A by Moody’s and Fitch and AA+ by S&P.
Based upon the Bank’s assessment of the strength of the government guarantees of the debentures and government guaranteed mortgage-backed securities (“MBS”) held by the Bank, the credit ratings assigned by the NRSROs and the strength of the GSEs’ guarantees of the Bank’s holdings of agency MBS, the Bank expects that its holdings of U.S. government guaranteed debentures, U.S. government guaranteed MBS and GSE MBS that were in an unrealized loss position at September 30, 2011 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Because the current market value deficits associated with these securities are not attributable to credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these investments to be other-than-temporarily impaired at September 30, 2011.
The deterioration in the U.S. housing markets that began in 2007, as reflected by declines in the values of residential real estate and higher levels of delinquencies, defaults and losses on residential mortgages, including the mortgages underlying the Bank’s non-agency residential MBS (“RMBS”), has generally increased the risk that the Bank may not ultimately recover the entire cost bases of some of its non-agency RMBS. Based on its analysis of the securities in this portfolio, however, the Bank believes that the unrealized losses as of September 30, 2011 were principally the result of liquidity risk related discounts in the non-agency RMBS market and do not accurately reflect the actual historical or currently likely future credit performance of the securities.
Because the ultimate receipt of contractual payments on the Bank’s non-agency RMBS will depend upon the credit and prepayment performance of the underlying loans and the credit enhancements for the senior securities owned by the Bank, the Bank closely monitors these investments in an effort to determine whether the credit enhancement associated with each security is sufficient to protect against potential losses of principal and interest on the underlying mortgage loans. The credit enhancement for each of the Bank’s non-agency RMBS is provided by a senior/subordinate structure, and none of the securities owned by the Bank are insured by third-party bond insurers. More specifically, each of the Bank’s non-agency RMBS represents a single security class within a securitization that has multiple classes of securities. Each security class has a distinct claim on the cash flows from the underlying mortgage loans, with the subordinate securities having a junior claim relative to the more senior securities. The Bank’s non-agency RMBS have a senior claim on the cash flows from the underlying mortgage loans.
To assess whether the entire amortized cost bases of its 35 non-agency RMBS will be recovered, the Bank performed a cash flow analysis for each security as of September 30, 2011 using two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (“CBSAs”), which are based upon an assessment of the individual housing markets. (The term “CBSA” refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people.) The Bank’s housing price forecast as of September 30,

11


2011 assumed current-to-trough home price declines ranging from 0 percent (for those housing markets that are believed to have reached their trough) to 8.0 percent. For those markets for which further home price declines are anticipated, such declines were projected to occur over the 3- to 9-month period beginning July 1, 2011. From the trough, home prices were projected to recover using one of five different recovery paths that vary by housing market. Under those recovery paths, home prices were projected to increase within a range of 0 percent to 2.8 percent in the first year, 0 percent to 3.0 percent in the second year, 1.5 percent to 4.0 percent in the third year, 2.0 percent to 5.0 percent in the fourth year, 2.0 percent to 6.0 percent in each of the fifth and sixth years, and 2.3 percent to 5.6 percent in each subsequent year. The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities is derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero.
Based on the results of its cash flow analyses, the Bank determined that it is likely that it will not fully recover the amortized cost bases of five of its non-agency RMBS and, accordingly, these securities were deemed to be other-than-temporarily impaired as of September 30, 2011. All of these securities had previously been deemed to be other-than-temporarily impaired. The difference between the present value of the cash flows expected to be collected from these five securities and their amortized cost bases (i.e., the credit losses) totaled $1,615,000 as of September 30, 2011. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their remaining amortized cost bases (that is, their previous amortized cost bases less the current-period credit losses), only the amounts related to the credit losses were recognized in earnings. Credit losses totaling $450,000 associated with one of the previously impaired securities were reclassified from accumulated other comprehensive income (loss) to earnings during the three months ended September 30, 2011. The estimated fair value of this security was greater than its carrying amount at that date.
In addition to the five securities that were determined to be other-than-temporarily impaired at September 30, 2011, nine other securities were previously deemed to be other-than-temporarily impaired. The following tables set forth additional information for each of the securities that were other-than-temporarily impaired as of September 30, 2011, including those securities that were deemed to be other-than-temporarily impaired in a prior period but which were not further impaired as of September 30, 2011 (in thousands). All of the Bank’s RMBS are rated by Moody’s, S&P and/or Fitch. The credit ratings presented in the first table represent the lowest rating assigned to the security by these NRSROs as of September 30, 2011.

 
 
 
 
 
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2011
 
Period of
Initial
Impairment
 
Credit
Rating
 
Credit
Component
of OTTI
 
Non-Credit
Component
of OTTI
 
Total
OTTI
 
Credit
Component
of OTTI
 
Non-Credit
Component
of OTTI
 
Total
OTTI
Security #1
Q1 2009
 
Triple-C
 
$

 
$

 
$

 
$
1,071

 
$
(1,071
)
 
$

Security #2
Q1 2009
 
Triple-C
 

 

 

 
625

 
(625
)
 

Security #3
Q2 2009
 
Single-C
 
666

 
70

 
736

 
839

 
(103
)
 
736

Security #4
Q2 2009
 
Triple-C
 
450

 
(450
)
 

 
554

 
(554
)
 

Security #5
Q3 2009
 
Triple-C
 

 

 

 
1,116

 
(1,116
)
 

Security #6
Q3 2009
 
Triple-C
 

 

 

 
455

 
(393
)
 
62

Security #7
Q3 2009
 
Single-B
 

 

 

 

 

 

Security #8
Q1 2010
 
Triple-C
 

 

 

 
9

 
(9
)
 

Security #9
Q1 2010
 
Single-B
 
25

 
292

 
317

 
31

 
286

 
317

Security #10
Q4 2010
 
Triple-C
 
355

 
19

 
374

 
420

 
286

 
706

Security #11
Q4 2010
 
Triple-C
 

 

 

 

 

 

Security #12
Q4 2010
 
Triple-C
 

 

 

 
71

 
(71
)
 

Security #13
Q4 2010
 
Triple-C
 

 

 

 
6

 
266

 
272

Security #14
Q2 2011
 
Single-B
 
119

 
835

 
954

 
140

 
5,826

 
5,966

Totals
 
 
 
 
$
1,615

 
$
766

 
$
2,381

 
$
5,337

 
$
2,722

 
$
8,059


12


 
September 30, 2011
 
Cumulative from Period of Initial Impairment Through September 30, 2011
 
September 30, 2011
 
Unpaid
Principal
Balance
 
Amortized
Cost
 
Non-Credit
Component of
OTTI
 
Accretion of
Non-Credit
Component
 
Carrying
Value
 
Estimated
Fair
Value
Security #1
$
15,914

 
$
13,024

 
$
10,271

 
$
5,869

 
$
8,622

 
$
8,468

Security #2
16,764

 
16,075

 
12,389

 
6,242

 
9,928

 
10,018

Security #3
32,934

 
28,589

 
15,785

 
8,129

 
20,933

 
20,933

Security #4
11,748

 
11,093

 
7,930

 
4,012

 
7,175

 
7,488

Security #5
19,726

 
18,026

 
10,047

 
5,058

 
13,037

 
12,017

Security #6
16,785

 
15,877

 
9,661

 
4,607

 
10,823

 
10,090

Security #7
6,519

 
6,444

 
3,575

 
1,472

 
4,341

 
4,178

Security #8
9,319

 
9,297

 
4,968

 
1,837

 
6,166

 
5,647

Security #9
4,225

 
4,188

 
2,208

 
746

 
2,726

 
2,726

Security #10
7,605

 
7,185

 
3,331

 
603

 
4,457

 
4,457

Security #11
9,463

 
9,462

 
3,061

 
752

 
7,153

 
6,193

Security #12
4,964

 
4,881

 
1,820

 
343

 
3,404

 
2,968

Security #13
5,869

 
5,854

 
2,418

 
537

 
3,973

 
3,765

Security #14
22,840

 
22,701

 
5,826

 
438

 
17,313

 
17,313

Totals
$
184,675

 
$
172,696

 
$
93,290

 
$
40,645

 
$
120,051

 
$
116,261


For those securities for which an other-than-temporary impairment was determined to have occurred as of September 30, 2011, the following table presents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings during the three months ended September 30, 2011 (dollars in thousands):
 
 
 
 
 
 
 
Significant Inputs(2)
 
 
 
Year of
Securitization
 
Collateral
Type(1)
 
Unpaid Principal Balance as of
September 30, 2011

 
Projected Prepayment
Rate
 
Projected Default
Rate
 
Projected Loss
Severity
 
Current Credit Enhancement as of September 30, 2011(3)
Security #3
2006
 
Alt-A/Fixed Rate
 
$
32,934

 
7.7%
 
37.8%
 
47.1%
 
5.3
%
Security #4
2005
 
Alt-A/Option ARM
 
11,748

 
2.5%
 
77.8%
 
44.1%
 
44.5
%
Security #9
2005
 
Alt-A/Option ARM
 
4,225

 
3.7%
 
64.7%
 
37.2%
 
41.4
%
Security #10
2005
 
Alt-A/Option ARM
 
7,605

 
3.4%
 
76.7%
 
47.1%
 
41.6
%
Security #14
2005
 
Alt-A/Fixed Rate
 
22,840

 
9.9%
 
21.0%
 
42.4%
 
9.2
%
Total
 
 
 
 
$
79,352

 
 
 
 
 
 
 
 
_____________________________
(1) 
Security #14 is the only security presented in the table above that was labeled as Alt-A at the time of issuance; however, based upon their current collateral or performance characteristics, all of the other-than-temporarily impaired securities presented in the table above were analyzed using Alt-A assumptions.
(2) 
Prepayment rates reflect the weighted average of projected future voluntary prepayments. Default rates reflect the total balance of loans projected to default as a percentage of the current unpaid principal balance of the underlying loan pool. Loss severities reflect the total projected loan losses as a percentage of the total balance of loans that are projected to default.
(3) 
Current credit enhancement percentages reflect the ability of subordinated classes of securities to absorb principal losses and interest shortfalls before the senior class held by the Bank is impacted (i.e., the losses, expressed as a percentage of the outstanding principal balances, that could be incurred in the underlying loan pool before the security held by the Bank would be impacted, assuming that all of those losses occurred on the measurement date). Depending upon the timing and amount of losses in the underlying loan pool, it is possible that the senior classes held by the Bank could bear losses in scenarios where the cumulative loan losses do not exceed the current credit enhancement percentage.

13


The following table presents a rollforward for the three and nine months ended September 30, 2011 and 2010 of the amount related to credit losses on the Bank’s non-agency RMBS holdings for which a portion of an other-than-temporary impairment has been recognized in other comprehensive income (in thousands).

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Balance of credit losses, beginning of period
$
10,298

 
$
5,693

 
$
6,576

 
$
4,022

Credit losses on securities for which an other-than-temporary impairment was not previously recognized

 

 
140

 
17

Credit losses on securities for which an other-than-temporary impairment was previously recognized
1,615

 
379

 
5,197

 
2,033

Balance of credit losses, end of period
$
11,913

 
$
6,072

 
$
11,913

 
$
6,072

Because the Bank currently expects to recover the entire amortized cost basis of each of its other 30 non-agency RMBS holdings (including the 9 securities that were previously deemed to be other-than-temporarily impaired), and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these other non-agency RMBS to be other-than-temporarily impaired (or, in the case of the 9 previously impaired securities, further impaired) at September 30, 2011.
     Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2011 and December 31, 2010 are presented below (in thousands). The expected maturities of some debentures could differ from the contractual maturities presented because issuers may have the right to call such debentures prior to their final stated maturities.

 
 
September 30, 2011
 
December 31, 2010
Maturity
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
2,031

 
$
2,031

 
$
2,050

 
$
2,555

 
$
2,555

 
$
2,598

Due after five years through ten years
 
24,351

 
24,351

 
24,599

 
27,871

 
27,871

 
28,159

Due after ten years
 
20,156

 
20,156

 
20,068

 
21,520

 
21,520

 
21,303

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