Held-to-Maturity Securities

Major Security Types. Held-to-maturity securities as of September 30, 2013 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	$	33,373	$	—	$	33,373	$	126	$	161	$	33,338
Mortgage-backed securities
U.S. government-guaranteed obligations	10,746		—		10,746		50		—		10,796
Government-sponsored enterprises	4,936,998		—		4,936,998		48,991		7,831		4,978,158
Non-agency residential mortgage-backed securities	208,001		35,293		172,708		14,238		—		186,946
	5,155,745		35,293		5,120,452		63,279		7,831		5,175,900
Total	$	5,189,118	$	35,293	$	5,153,825	$	63,405	$	7,992	$	5,209,238

Held-to-maturity securities as of December 31, 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	$	38,759	$	—	$	38,759	$	176	$	175	$	38,760
Mortgage-backed securities
U.S. government-guaranteed obligations	12,973		—		12,973		60		—		13,033
Government-sponsored enterprises	4,947,206		—		4,947,206		78,023		271		5,024,958
Non-agency residential mortgage-backed securities	242,374		41,437		200,937		6,277		—		207,214
	5,202,553		41,437		5,161,116		84,360		271		5,245,205
Total	$	5,241,312	$	41,437	$	5,199,875	$	84,536	$	446	$	5,283,965

The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of September 30, 2013. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income (loss) and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential mortgage-backed securities, gross unrecognized holding gains) 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	$	16,524	$	161	2	$	16,524	$	161
Mortgage-backed securities
Government-sponsored enterprises	54	1,703,842		7,372		12	93,651		459		66	1,797,493		7,831
Non-agency residential mortgage-backed securities	—	—		—		29	170,099		21,367		29	170,099		21,367
	54	1,703,842		7,372		41	263,750		21,826		95	1,967,592		29,198
Total	54	$	1,703,842	$	7,372	43	$	280,274	$	21,987	97	$	1,984,116	$	29,359

The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2012. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income (loss) and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential mortgage-backed securities, gross unrecognized holding gains) 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	$	17,874	$	175	2	$	17,874	$	175
Mortgage-backed securities
Government-sponsored enterprises	5	27,577		9		13	125,534		262		18	153,111		271
Non-agency residential mortgage-backed securities	—	—		—		30	207,214		35,160		30	207,214		35,160
	5	27,577		9		43	332,748		35,422		48	360,325		35,431
Total	5	$	27,577	$	9	45	$	350,622	$	35,597	50	$	378,199	$	35,606

At September 30, 2013, the gross unrealized losses on the Bank’s held-to-maturity securities were $29,359,000, of which $21,367,000 was attributable to its holdings of non-agency (i.e., private-label) residential mortgage-backed securities and $7,992,000 was attributable to securities that are either guaranteed by the U.S. government or issued and guaranteed by GSEs. As of September 30, 2013, 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, 2013 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, 2013.

The deterioration in the U.S. housing markets that occurred primarily during the period from 2007 through 2011, as reflected during that period 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”), 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, 2013 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 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 holdings are likely to be recovered, the Bank performed a cash flow analysis for each security as of September 30, 2013 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, 2013 assumed changes in home prices ranging from declines of 5 percent to increases of 8 percent over the 12-month period beginning July 1, 2013. For the vast majority of markets, the changes were projected to range from declines of 3 percent to increases of 7 percent. Thereafter, 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	%	-	3.0%
7 - 12	1.0	%	-	4.0%
13 - 18	2.0	%	-	4.0%
19 - 30	2.0	%	-	5.0%
31 - 54	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 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, 2013.

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 was deemed to be other-than-temporarily impaired in a prior period (in thousands). All of the Bank’s non-agency 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 any of these NRSROs as of September 30, 2013.



		September 30, 2013					Cumulative from Period of Initial Impairment Through September 30, 2013				September 30, 2013
	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	$	13,288	$	10,438	$	10,271	$	7,405	$	7,572	$	9,622
Security #2	Q1 2009	Triple-C	13,174		12,479		12,389		7,975		8,065		10,833
Security #3	Q2 2009	Single-D	20,824		16,535		15,283		10,921		12,173		16,847
Security #4	Q2 2009	Triple-C	9,341		8,627		7,890		5,288		6,025		7,910
Security #5	Q3 2009	Triple-C	16,289		14,569		10,047		6,800		11,322		13,201
Security #6	Q3 2009	Triple-C	14,271		12,870		10,567		6,567		8,870		11,257
Security #7	Q3 2009	Single-B	5,093		5,015		3,575		2,130		3,570		4,546
Security #8	Q1 2010	Triple-C	7,641		7,619		4,968		2,840		5,491		6,645
Security #9	Q1 2010	Triple-C	3,182		3,145		2,208		1,257		2,194		2,672
Security #10	Q4 2010	Triple-C	6,309		5,884		3,331		1,479		4,032		5,110
Security #11	Q4 2010	Triple-C	7,745		7,740		4,096		1,870		5,514		6,435
Security #12	Q4 2010	Triple-C	4,145		4,061		1,820		815		3,056		3,466
Security #13	Q4 2010	Triple-C	4,938		4,923		2,418		1,216		3,721		4,224
Security #14	Q2 2011	Triple-C	12,226		11,995		5,942		2,949		9,002		10,181
Totals			$	138,466	$	125,900	$	94,805	$	59,512	$	90,607	$	112,949

The following table presents a rollforward for the three and nine months ended September 30, 2013 and 2012 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 was recognized in other comprehensive income (loss) (in thousands).



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013			2012		2013			2012
Balance of credit losses, beginning of period	$	13,039		$	13,039	$	13,039		$	12,679
Credit losses on securities for which an other-than-temporary impairment was previously recognized	—			—		—			360
Principal shortfalls during the period	(614		)	—		(614		)	—
Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities)	(70		)	—		(70		)	—
Balance of credit losses, end of period	$	12,355		$	13,039	$	12,355		$	13,039

Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2013 and December 31, 2012 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, 2013						December 31, 2012
Maturity	Amortized Cost		Carrying Value		Estimated Fair Value		Amortized Cost		Carrying Value		Estimated Fair Value
Debentures
Due in one year or less	$	—	$	—	$	—	$	503	$	503	$	505
Due after one year through five years	16,688		16,688		16,814		10,331		10,331		10,423
Due after five years through ten years	8,483		8,483		8,410		19,355		19,355		19,364
Due after ten years	8,202		8,202		8,114		8,570		8,570		8,468
	33,373		33,373		33,338		38,759		38,759		38,760
Mortgage-backed securities	5,155,745		5,120,452		5,175,900		5,202,553		5,161,116		5,245,205
Total	$	5,189,118	$	5,153,825	$	5,209,238	$	5,241,312	$	5,199,875	$	5,283,965

The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net purchase discounts of $38,439,000 and $52,608,000 at September 30, 2013 and December 31, 2012, respectively.

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as held-to-maturity at September 30, 2013 and December 31, 2012 (in thousands):



	September 30, 2013		December 31, 2012
Amortized cost of variable-rate held-to-maturity securities other than mortgage-backed securities	$	33,373	$	38,759
Amortized cost of held-to-maturity mortgage-backed securities
Fixed-rate pass-through securities	380		454
Collateralized mortgage obligations
Fixed-rate	883		1,050
Variable-rate	5,154,482		5,201,049
	5,155,745		5,202,553
Total	$	5,189,118	$	5,241,312

All of the Bank’s variable-rate collateralized mortgage obligations classified as held-to-maturity securities have coupon rates that are subject to interest rate caps, none of which were reached during 2012 or the nine months ended September 30, 2013.