10-Q 1 fhlbdallas-93012x10q.htm 10-Q FHLB Dallas-9.30.12-10Q
 
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, 2012
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, 2012, the registrant had outstanding 10,957,100 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,
2012
 
December 31,
2011
ASSETS
 

 
 

Cash and due from banks
$
21,004

 
$
1,152,467

Interest-bearing deposits
321

 
223

Securities purchased under agreements to resell
2,000,000

 
500,000

Federal funds sold
2,438,000

 
1,645,000

Trading securities (Note 12)
7,370

 
6,034

Available-for-sale securities, including $185,745 and $512,474 of securities pledged as collateral to derivatives counterparties at September 30, 2012 and December 31, 2011, respectively (Notes 3 and 12)
5,810,799

 
4,927,697

Held-to-maturity securities (a) (Note 4)
5,163,659

 
6,423,610

Advances (Notes 5 and 6)
19,480,464

 
18,797,834

Mortgage loans held for portfolio, net of allowance for credit losses of $183 and $192 at September 30, 2012 and December 31, 2011, respectively (Note 6)
130,947

 
162,645

Loan to other FHLBank (Note 15)

 
35,000

Accrued interest receivable
87,382

 
72,584

Premises and equipment, net
20,628

 
22,182

Derivative assets (Notes 9 and 12)
15,369

 
8,750

Other assets
12,198

 
15,941

TOTAL ASSETS
$
35,188,141

 
$
33,769,967

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
1,075,931

 
$
1,521,396

Non-interest bearing
29

 
29

Total deposits
1,075,960

 
1,521,425

 
 
 
 
Consolidated obligations (Note 7)
 
 
 
Discount notes
5,692,560

 
9,799,010

Bonds
26,286,910

 
20,070,056

Total consolidated obligations
31,979,470

 
29,869,066

 
 
 
 
Loan from other FHLBank (Note 15)
40,000

 

Mandatorily redeemable capital stock
4,531

 
14,980

Accrued interest payable
77,173

 
65,451

Affordable Housing Program (Note 8)
30,775

 
32,313

Derivative liabilities (Notes 9 and 12)
183,973

 
531,164

Other liabilities, including $2 and $2,498 of optional advance commitments carried at fair value under the fair value option at September 30, 2012 and December 31, 2011, respectively (Notes 12 and 13)
23,736

 
30,733

Total liabilities
33,415,618

 
32,065,132

 
 
 
 
Commitments and contingencies (Notes 6 and 13)


 


 
 
 
 
CAPITAL (Note 10)
 
 
 
Capital stock — Class B putable ($100 par value) issued and outstanding shares: 12,482,792 and 12,557,934 shares at September 30, 2012 and December 31, 2011, respectively
1,248,279

 
1,255,793

Retained earnings
 
 
 
Unrestricted
536,951

 
488,739

Restricted
18,824

 
5,918

Total retained earnings
555,775

 
494,657

Accumulated other comprehensive income (loss) (Note 16)
(31,531
)
 
(45,615
)
Total capital
1,772,523

 
1,704,835

TOTAL LIABILITIES AND CAPITAL
$
35,188,141

 
$
33,769,967

_____________________________
(a)
Fair values: $5,242,190 and $6,482,402 at September 30, 2012 and December 31, 2011, 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,
 
 
2012
 
2011
 
2012
 
2011
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
46,339

 
$
49,907

 
$
143,913

 
$
162,889

Prepayment fees on advances, net
 
4,264

 
2,598

 
7,859

 
7,560

Interest-bearing deposits
 
404

 
108

 
888

 
230

Securities purchased under agreements to resell
 
1,350

 
165

 
2,871

 
410

Federal funds sold
 
501

 
201

 
1,616

 
1,838

Available-for-sale securities
 
7,989

 
1,015

 
23,515

 
1,015

Held-to-maturity securities
 
16,558

 
19,072

 
52,430

 
63,865

Mortgage loans held for portfolio
 
1,896

 
2,485

 
6,104

 
7,895

Other
 
1

 
2

 
2

 
8

Total interest income
 
79,302

 
75,553

 
239,198

 
245,710

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
35,683

 
39,523

 
110,251

 
128,619

Discount notes
 
1,805

 
1,106

 
5,793

 
2,435

Deposits
 
79

 
40

 
202

 
210

Mandatorily redeemable capital stock
 
4

 
12

 
16

 
47

Other borrowings
 
4

 
1

 
6

 
2

Total interest expense
 
37,575

 
40,682

 
116,268

 
131,313

NET INTEREST INCOME
 
41,727

 
34,871

 
122,930

 
114,397

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

 
(2,381
)
 
(204
)
 
(8,059
)
Net non-credit impairment losses on held-to-maturity securities recognized in other comprehensive income
 

 
766

 
(156
)
 
2,722

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

 
(1,615
)
 
(360
)
 
(5,337
)
 
 
 
 
 
 
 
 
 
Service fees
 
725

 
778

 
2,001

 
2,114

Net gain (loss) on trading securities
 
309

 
(549
)
 
369

 
(375
)
Net losses on derivatives and hedging activities
 
(7,108
)
 
(8,959
)
 
(4,570
)
 
(29,532
)
Unrealized gains on other liabilities carried at fair value under the fair value option
 
130

 
6,508

 
2,495

 
10,641

Gains on early extinguishment of debt
 

 

 

 
415

Letter of credit fees
 
1,148

 
1,244

 
3,547

 
4,018

Other, net
 
(7
)
 
(2
)
 
(206
)
 
6

Total other income (loss)
 
(4,803
)
 
(2,595
)
 
3,276

 
(18,050
)
OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
9,115

 
10,172

 
30,491

 
32,026

Other operating expenses
 
6,893

 
7,081

 
20,369

 
20,779

Finance Agency
 
577

 
1,306

 
1,954

 
3,929

Office of Finance
 
610

 
607

 
1,689

 
1,737

Total other expense
 
17,195

 
19,166

 
54,503

 
58,471

INCOME BEFORE ASSESSMENTS
 
19,729

 
13,110

 
71,703

 
37,876

Affordable Housing Program
 
1,973

 
1,312

 
7,172

 
3,343

REFCORP
 

 

 

 
4,494

Total assessments
 
1,973

 
1,312

 
7,172

 
7,837

NET INCOME
 
$
17,756

 
$
11,798

 
$
64,531

 
$
30,039

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

2


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

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
17,756

 
$
11,798

 
$
64,531

 
$
30,039

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities, net of unrealized gains and losses relating to hedged interest rate risk included in net income
 
10,897

 
(6,094
)
 
6,371

 
(6,094
)
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
 

 
(1,216
)
 
(195
)
 
(6,747
)
Reclassification adjustment for non-credit portion of other-than-temporary impairment losses recognized as credit losses in net income
 

 
450

 
351

 
4,025

Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
2,367

 
4,347

 
7,609

 
13,340

Postretirement benefit plan
 
 
 
 
 
 
 
 
Amortization of prior service credit included in net periodic benefit cost
 
(8
)
 
(9
)
 
(26
)
 
(27
)
Amortization of net actuarial gain included in net periodic benefit cost
 
(9
)
 
(5
)
 
(26
)
 
(17
)
Total other comprehensive income (loss)
 
13,247

 
(2,527
)
 
14,084

 
4,480

TOTAL COMPREHENSIVE INCOME
 
$
31,003

 
$
9,271

 
$
78,615

 
$
34,519


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

3




FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(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, 2012
12,557

 
$
1,255,793

 
$
488,739

 
$
5,918

 
$
494,657

 
$
(45,615
)
 
$
1,704,835

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from sale of capital stock
5,351

 
535,053

 

 

 

 

 
535,053

Repurchase/redemption of capital stock
(5,442
)
 
(544,197
)
 

 

 

 

 
(544,197
)
Shares reclassified to mandatorily redeemable capital stock
(16
)
 
(1,632
)
 

 

 

 

 
(1,632
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
51,625

 
12,906

 
64,531

 

 
64,531

Other comprehensive income

 

 

 

 

 
14,084

 
14,084

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

 

 
(135
)
 

 
(135
)
 

 
(135
)
Mandatorily redeemable capital stock

 

 
(16
)
 

 
(16
)
 

 
(16
)
Stock
33

 
3,262

 
(3,262
)
 

 
(3,262
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2012
12,483

 
$
1,248,279

 
$
536,951

 
$
18,824

 
$
555,775

 
$
(31,531
)
 
$
1,772,523

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 

 

 
4,480

 
4,480

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


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



4


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
For the Nine Months Ended
 
September 30,
 
2012
 
2011
OPERATING ACTIVITIES
 
 
 
Net income
$
64,531

 
$
30,039

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
28,290

 
(43,873
)
Concessions on consolidated obligation bonds
3,204

 
3,108

Premises, equipment and computer software costs
4,716

 
5,110

Non-cash interest on mandatorily redeemable capital stock
21

 
37

Credit component of other-than-temporary impairment losses on held-to-maturity securities
360

 
5,337

Gains on early extinguishment of debt

 
(415
)
Unrealized gains on other liabilities carried at fair value under the fair value option
(2,495
)
 
(10,641
)
Net increase in trading securities
(1,336
)
 
(339
)
Loss due to change in net fair value adjustment on derivative and hedging activities
74,486

 
86,832

Increase in accrued interest receivable
(14,896
)
 
(7,952
)
Decrease in other assets
2,119

 
2,960

Decrease in Affordable Housing Program (AHP) liability
(1,538
)
 
(8,120
)
Increase in accrued interest payable
11,722

 
2,163

Decrease in payable to REFCORP

 
(5,593
)
Increase (decrease) in other liabilities
(4,554
)
 
5,279

Total adjustments
100,099

 
33,893

Net cash provided by operating activities
164,630

 
63,932

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net increase in interest-bearing deposits, including swap collateral pledged
(556,529
)
 
(421,502
)
Net increase in securities purchased under agreements to resell
(1,500,000
)
 
(500,000
)
Net decrease (increase) in federal funds sold
(793,000
)
 
1,942,000

Decrease in loan to other FHLBank
35,000

 

Purchases of available-for-sale securities
(806,724
)
 
(1,509,140
)
Proceeds from maturities of long-term held-to-maturity securities
1,506,559

 
1,659,473

Purchases of long-term held-to-maturity securities
(220,250
)
 

Principal collected on advances
351,439,739

 
231,245,552

Advances made
(352,127,455
)
 
(224,290,705
)
Principal collected on mortgage loans held for portfolio
31,659

 
33,463

Purchases of premises, equipment and computer software
(2,540
)
 
(3,829
)
Net cash provided by (used in) investing activities
(2,993,541
)
 
8,155,312

 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits, including swap collateral held
(445,818
)
 
570,683

Net proceeds from (payments on) derivative contracts with financing elements
(48,091
)
 
151,834

Increase in loan from other FHLBank
40,000

 

Net proceeds from issuance of consolidated obligations
 
 
 
Discount notes
309,237,355

 
125,726,444

Bonds
20,435,132

 
6,285,726

Proceeds from assumption of debt from other FHLBank

 
167,381

Debt issuance costs
(2,407
)
 
(819
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(313,342,672
)
 
(122,878,821
)
Bonds
(14,154,655
)
 
(18,265,279
)
Payment to other FHLBank for assumption of debt

 
(14,738
)
Proceeds from issuance of capital stock
535,053

 
306,824

Payments for redemption of mandatorily redeemable capital stock
(12,117
)
 
(61,781
)
Payments for repurchase/redemption of capital stock
(544,197
)
 
(606,568
)
Cash dividends paid
(135
)
 
(134
)
Net cash provided by (used in) financing activities
1,697,448

 
(8,619,248
)
 
 
 
 
Net decrease in cash and cash equivalents
(1,131,463
)
 
(400,004
)
Cash and cash equivalents at beginning of the period
1,152,467

 
1,631,899

Cash and cash equivalents at end of the period
$
21,004

 
$
1,231,895

 
 
 
 

5


 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
126,211

 
$
118,809

AHP payments, net
$
8,710

 
$
11,463

REFCORP payments
$

 
$
10,087

Stock dividends issued
$
3,262

 
$
3,975

Dividends paid through issuance of mandatorily redeemable capital stock
$
16

 
$
75

Capital stock reclassified to mandatorily redeemable capital stock
$
1,632

 
$
61,197

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


6


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 (“U.S. 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, 2011. 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, 2011 filed with the SEC on March 23, 2012 (the “2011 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2011 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 U.S. government, supervises and regulates the FHLBanks and the Office of Finance.
     Use of Estimates. The preparation of financial statements in conformity with U.S. 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 residential 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
     Reconsideration of Effective Control for Repurchase Agreements. On April 29, 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 was not permitted. The adoption of this guidance did not have any 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 clarifies and, in some cases, amends the existing guidance 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 was not permitted. The adoption of this guidance did not have any impact on the Bank’s results of operations or financial condition. The required additional disclosures are presented in Note 12.
  

7


   Presentation of Comprehensive Income. On June 16, 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income” ("ASU 2011-05"), which eliminates the option to present components of other comprehensive income as part of the statement 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.
On December 23, 2011, the FASB issued ASU 2011-12 "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" ("ASU 2011-12"), which defers indefinitely the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. ASU 2011-12 was issued in order to allow the FASB time to reconsider whether it is necessary to require companies to present reclassification adjustments by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. The guidance in ASU 2011-12 did not defer the requirement to report comprehensive income either in a single continuous statement or in two separate but consecutive financial statements.
The guidance in both ASU 2011-05 and ASU 2011-12 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 was permitted. The Bank adopted this guidance effective January 1, 2012. The adoption of this guidance did not have any impact on the Bank’s results of operations or financial condition.
Disclosures about Offsetting Assets and Liabilities. On December 16, 2011, the FASB issued ASU 2011-11 "Disclosures about Offsetting Assets and Liabilities," which requires enhanced disclosures about financial instruments and derivative instruments that are either offset in the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset. This information is intended to enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The International Accounting Standards Board concurrently issued similar disclosure guidance.
The eligibility criteria for offsetting are different in IFRSs and U.S. GAAP. Unlike IFRSs, U.S. GAAP allows entities the option to present net in their balance sheets derivatives that are subject to a legally enforceable netting arrangement with the same party where rights of set-off are only available in the event of default or bankruptcy. The new disclosure requirements allow investors to better compare financial statements prepared in accordance with IFRSs or U.S. GAAP. The common disclosure requirements also improve transparency in the reporting of how entities mitigate credit risk, including disclosure of related collateral pledged or received.
The guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods (January 1, 2013 for the Bank), and is to be applied retrospectively to all periods presented. The adoption of this guidance may 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.
Asset Classification and Charge-offs. On April 9, 2012, the Finance Agency issued Advisory Bulletin 2012-02, "Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention" ("AB 2012-02"). The guidance establishes a standard and uniform methodology for classifying assets and prescribes the timing of asset charge-offs, excluding investment securities. The guidance in AB 2012-02 is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. AB 2012-02 states that it was effective upon issuance. The FHLBanks are currently assessing the provisions of AB 2012-02 in coordination with the Finance Agency and therefore have not yet determined when they will implement the guidance. The adoption of the accounting guidance in AB 2012-02 is not expected to have a significant impact on the Bank's results of operations or financial condition.



8


Note 3—Available-for-Sale Securities
     Major Security Types. Available-for-sale securities as of September 30, 2012 were as follows (in thousands):
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
56,315

 
$
205

 
$
23

 
$
56,497

Government-sponsored enterprises
5,282,452

 
12,775

 
1,965

 
5,293,262

Other
460,464

 
783

 
207

 
461,040

Total
$
5,799,231

 
$
13,763

 
$
2,195

 
$
5,810,799


Available-for-sale securities as of December 31, 2011 were as follows (in thousands):
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
54,708

 
$
157

 
$

 
$
54,865

Government-sponsored enterprises
4,643,191

 
7,971

 
3,391

 
4,647,771

Other
224,601

 
505

 
45

 
225,061

Total
$
4,922,500

 
$
8,633

 
$
3,436

 
$
4,927,697


Other debentures are fully secured by U.S. 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 following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of September 30, 2012. The unrealized losses 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
3

 
$
29,931

 
$
23

 

 
$

 
$

 
3

 
$
29,931

 
$
23

Government-sponsored enterprises
47

 
673,821

 
1,965

 

 

 

 
47

 
673,821

 
1,965

Other
15

 
130,954

 
207

 

 

 

 
15

 
130,954

 
207

Total
65

 
$
834,706

 
$
2,195

 

 
$

 
$

 
65

 
$
834,706

 
$
2,195


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 2011. The unrealized losses 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
67

 
$
1,532,618

 
$
3,391

 

 
$

 
$

 
67

 
$
1,532,618

 
$
3,391

Other
5

 
19,703

 
45

 

 

 

 
5

 
19,703

 
45

Total
72

 
$
1,552,321

 
$
3,436

 

 
$

 
$

 
72

 
$
1,552,321

 
$
3,436




9


At September 30, 2012, the gross unrealized losses on the Bank’s available-for-sale securities were $2,195,000. All of the Bank's available-for-sale securities are either guaranteed by the U.S. government, issued by government-sponsored enterprises (“GSEs”), or fully secured by collateral that is guaranteed by the U.S government. As of September 30, 2012, 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 Bank's holdings of other debentures were rated Aaa by Moody's and AA+ by S&P at that date; the other debentures are not rated by Fitch. Based upon the U.S. government's guaranty of the payment of principal and interest, the Bank expects that its holdings of U.S. government-guaranteed debentures that were in an unrealized loss position at September 30, 2012 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. In addition, 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 rating organizations (“NRSROs”), the Bank expects that its holdings of GSE debentures that were in an unrealized loss position at September 30, 2012 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Further, 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 guaranty of the payment of interest on the debentures by an agency of the U.S. government, the Bank expects that its holdings of other debentures that were in an unrealized loss position at September 30, 2012 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, 2012.
Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2012 and December 31, 2011 are presented below (in thousands).
 
 
 
September 30, 2012
 
December 31, 2011
 
Maturity
 
Amortized Cost
 
Estimated
Fair Value
 
Amortized Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
2,675,733

 
$
2,680,420

 
$
568,889

 
$
570,229

 
Due after five years through ten years
 
3,098,384

 
3,105,008

 
4,275,148

 
4,279,140

 
Due after ten years
 
25,114

 
25,371

 
78,463

 
78,328

 
Total
 
$
5,799,231

 
$
5,810,799

 
$
4,922,500

 
$
4,927,697

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as available-for-sale at September 30, 2012 and December 31, 2011 (in thousands):
 
September 30, 2012
 
December 31, 2011
Amortized cost of available-for-sale securities
 
 
 
Fixed-rate
$
5,724,231

 
$
4,847,500

Variable-rate
75,000

 
75,000

 
 
 
 
Total
$
5,799,231

 
$
4,922,500

At September 30, 2012 and December 31, 2011, all of the Bank's fixed-rate available-for-sale securities were swapped to a variable rate.



10


Note 4—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of September 30, 2012 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
$
39,945

 
$

 
$
39,945

 
$
177

 
$
196

 
$
39,926

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
14,210

 

 
14,210

 
73

 

 
14,283

Government-sponsored enterprises
4,899,406

 

 
4,899,406

 
85,168

 
309

 
4,984,265

Non-agency residential mortgage-backed securities
253,762

 
43,664

 
210,098

 

 
6,382

 
203,716

 
5,167,378

 
43,664

 
5,123,714

 
85,241

 
6,691

 
5,202,264

Total
$
5,207,323

 
$
43,664

 
$
5,163,659

 
$
85,418

 
$
6,887

 
$
5,242,190


Held-to-maturity securities as of December 31, 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
$
45,342

 
$

 
$
45,342

 
$
290

 
$
291

 
$
45,341

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
16,692

 

 
16,692

 
40

 

 
16,732

Government-sponsored enterprises
6,109,080

 

 
6,109,080

 
93,138

 
2,682

 
6,199,536

Non-agency residential mortgage-backed securities
303,925

 
51,429

 
252,496

 

 
31,703

 
220,793

 
6,429,697

 
51,429

 
6,378,268

 
93,178

 
34,385

 
6,437,061

Total
$
6,475,039

 
$
51,429

 
$
6,423,610

 
$
93,468

 
$
34,676

 
$
6,482,402


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of September 30, 2012. 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.


11


 
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

 
$
18,224

 
$
196

 
2

 
$
18,224

 
$
196

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
1

 
73,264

 
57

 
14

 
154,260

 
252

 
15

 
227,524

 
309

Non-agency residential mortgage-backed securities

 

 

 
30

 
203,716

 
50,046

 
30

 
203,716

 
50,046

 
1

 
73,264

 
57

 
44

 
357,976

 
50,298

 
45

 
431,240

 
50,355

Total
1

 
$
73,264

 
$
57

 
46

 
$
376,200

 
$
50,494

 
47

 
$
449,464

 
$
50,551


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 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
1

 
$
9,136

 
$
174

 
1

 
$
10,357

 
$
117

 
2

 
$
19,493

 
$
291

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
18

 
423,121

 
383

 
42

 
723,500

 
2,299

 
60

 
1,146,621

 
2,682

Non-agency residential mortgage-backed securities

 

 

 
34

 
220,793

 
83,132

 
34

 
220,793

 
83,132

 
18

 
423,121

 
383

 
76

 
944,293

 
85,431

 
94

 
1,367,414

 
85,814

Total
19

 
$
432,257

 
$
557

 
77

 
$
954,650

 
$
85,548

 
96

 
$
1,386,907

 
$
86,105


At September 30, 2012, the gross unrealized losses on the Bank’s held-to-maturity securities were $50,551,000, of which $50,046,000 was attributable to its holdings of non-agency (i.e., private-label) residential mortgage-backed securities and $505,000 was attributable to securities that are either guaranteed by the U.S. government or issued and guaranteed by GSEs. As of September 30, 2012, the U.S. government and the issuers of the Bank’s holdings of GSE mortgage-backed securities ("MBS") 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 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 and GSE MBS that were in an unrealized loss position at September 30, 2012 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, 2012.
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, 2012 were principally the result of liquidity risk related discounts in the non-agency RMBS market and do not accurately reflect the 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

12


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 30 non-agency RMBS are likely to be recovered, the Bank performed a cash flow analysis for each security as of September 30, 2012 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 U.S. 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, 2012 assumed current-to-trough home price declines ranging from 0 percent (for those housing markets that management believes have reached their trough) to 4.0 percent. For those markets for which management anticipates further home price declines, such declines were projected to occur over the 3- to 9-month period beginning July 1, 2012. For the vast majority of markets for which further home price declines are anticipated, the declines were projected to range from 1 percent to 2 percent over the 3-month period beginning July 1, 2012. 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 as set forth in the table below.
Months
 
Range of Annualized Rates
1 - 6
 
0.0 - 2.8
7 - 18
 
0.0 - 3.0
19 - 24
 
1.0 - 4.0
25 - 30
 
2.0 - 4.0
31 - 42
 
2.0 - 5.0
43 - 66
 
2.0 - 6.0
Thereafter
 
2.3 - 5.6
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 fully recover the remaining amortized cost bases of all of its non-agency RMBS. 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, none of these securities were deemed to be other-than-temporarily impaired as of September 30, 2012.
Prior to July 1, 2012, 14 of the Bank's holdings of non-agency RMBS were determined to be other-than-temporarily impaired. The following table sets forth additional information for each of the securities that were deemed to be other-than-temporarily impaired in a prior period (in thousands). All of the Bank’s RMBS are rated by Moody’s, S&P and/or Fitch. The credit ratings presented in the table represent the lowest rating assigned to the security by these NRSROs as of September 30, 2012.



13


 
 
 
 
September 30, 2012
 
Cumulative from Period of Initial Impairment Through September 30, 2012
 
September 30, 2012
 
 
Period of
Initial
Impairment
 
Credit
Rating
 
Unpaid
Principal
Balance
 
Amortized
Cost
 
Non-Credit
Component of OTTI
 
Accretion of
Non-Credit
Component
 
Carrying
Value
 
Estimated
Fair
Value
Security #1
 
Q1 2009
 
Triple-C
 
$
14,830

 
$
11,925

 
$
10,271

 
$
6,738

 
$
8,392

 
$
8,547

Security #2
 
Q1 2009
 
Triple-C
 
15,457

 
14,765

 
12,389

 
7,199

 
9,575

 
10,817

Security #3
 
Q2 2009
 
Single-C
 
26,818

 
21,943

 
15,283

 
9,666

 
16,326

 
19,159

Security #4
 
Q2 2009
 
Triple-C
 
10,406

 
9,695

 
7,890

 
4,740

 
6,545

 
7,418

Security #5
 
Q3 2009
 
Triple-C
 
17,879

 
16,168

 
10,047

 
6,041

 
12,162

 
11,576

Security #6
 
Q3 2009
 
Triple-C
 
15,550

 
14,155

 
10,567

 
5,675

 
9,263

 
11,356

Security #7
 
Q3 2009
 
Single-B
 
5,932

 
5,855

 
3,575

 
1,838

 
4,118

 
4,405

Security #8
 
Q1 2010
 
Triple-C
 
8,525

 
8,503

 
4,968

 
2,394

 
5,929

 
5,960

Security #9
 
Q1 2010
 
Triple-C
 
3,715

 
3,678

 
2,208

 
1,036

 
2,506

 
2,767

Security #10
 
Q4 2010
 
Triple-C
 
6,971

 
6,549

 
3,331

 
1,102

 
4,320

 
4,445

Security #11
 
Q4 2010
 
Triple-C
 
8,536

 
8,531

 
4,096

 
1,358

 
5,793

 
6,144

Security #12
 
Q4 2010
 
Triple-C
 
4,623

 
4,540

 
1,820

 
614

 
3,334

 
3,356

Security #13
 
Q4 2010
 
Triple-C
 
5,369

 
5,353

 
2,418

 
922

 
3,857

 
3,993

Security #14
 
Q2 2011
 
Triple-C
 
17,603

 
17,375

 
5,942

 
1,818

 
13,251

 
13,856

Totals
 
 
 
 
 
$
162,214

 
$
149,035

 
$
94,805

 
$
51,141

 
$
105,371

 
$
113,799


The following table presents a rollforward for the three and nine months ended September 30, 2012 and 2011 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 (loss) (in thousands).
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Balance of credit losses, beginning of period
$
13,039

 
$
10,298

 
$
12,679

 
$
6,576

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

 

 

 
140

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

 
1,615

 
360

 
5,197

Balance of credit losses, end of period
$
13,039

 
$
11,913

 
$
13,039

 
$
11,913

     Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2012 and December 31, 2011 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, 2012
 
December 31, 2011
Contractual Maturity
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
1,007

 
$
1,007

 
$
1,009

 
$

 
$

 
$

Due after one year through five years
 
7,031

 
7,031

 
7,077

 
1,521

 
1,521

 
1,541

Due after five years through ten years
 
22,966

 
22,966

 
23,019

 
24,037

 
24,037

 
24,307

Due after ten years
 
8,941

 
8,941

 
8,821

 
19,784

 
19,784

 
19,493

 
 
39,945

 
39,945

 
39,926

 
45,342

 
45,342

 
45,341

Mortgage-backed securities
 
5,167,378

 
5,123,714

 
5,202,264

 
6,429,697

 
6,378,268

 
6,437,061

Total
 
$
5,207,323

 
$
5,163,659

 
$
5,242,190

 
$
6,475,039

 
$
6,423,610

 
$
6,482,402


14



The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net purchase discounts of $59,623,000 and $79,050,000 at September 30, 2012 and December 31, 2011, respectively.
     Interest Rate Payment Terms.