10-Q 1 fhlbdallas0930201310q.htm 10-Q FHLB Dallas 09.30.2013 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, 2013
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, 2013, the registrant had outstanding 9,288,398 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,
2013
 
December 31,
2012
ASSETS
 

 
 

Cash and due from banks
$
883,037

 
$
920,780

Interest-bearing deposits
368

 
254

Securities purchased under agreements to resell (Note 10)
500,000

 
3,000,000

Federal funds sold
1,706,000

 
2,219,000

Trading securities (Note 3)
708,603

 
7,541

Available-for-sale securities (Note 4)
5,516,079

 
5,772,153

Held-to-maturity securities (a) (Note 5)
5,153,825

 
5,199,875

Advances (Notes 6 and 7)
16,634,235

 
18,394,797

Mortgage loans held for portfolio, net of allowance for credit losses of $175 and $183 at September 30, 2013 and December 31, 2012, respectively (Note 7)
96,263

 
121,478

Accrued interest receivable
78,440

 
72,531

Premises and equipment, net
18,818

 
20,202

Derivative assets (Notes 10 and 11)
14,441

 
13,947

Other assets
9,715

 
12,771

TOTAL ASSETS
$
31,319,824

 
$
35,755,329

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
875,867

 
$
1,177,935

Non-interest bearing
29

 
29

Total deposits
875,896

 
1,177,964

 
 
 
 
Consolidated obligations (Note 8)
 
 
 
Discount notes
6,513,829

 
6,984,378

Bonds
22,041,996

 
25,697,936

Total consolidated obligations
28,555,825

 
32,682,314

 
 
 
 
Mandatorily redeemable capital stock
30,086

 
4,504

Accrued interest payable
48,859

 
53,940

Affordable Housing Program (Note 9)
30,916

 
29,620

Derivative liabilities (Notes 10 and 11)
9,996

 
11,268

Other liabilities (Note 14)
27,326

 
25,085

Total liabilities
29,578,904

 
33,984,695

 
 
 
 
Commitments and contingencies (Notes 7 and 15)


 


 
 
 
 
CAPITAL (Note 12)
 
 
 
Capital stock — Class B putable ($100 par value) issued and outstanding shares: 11,401,713 and 12,169,858 shares at September 30, 2013 and December 31, 2012, respectively
1,140,171

 
1,216,986

Retained earnings
 
 
 
Unrestricted
602,183

 
549,617

Restricted
36,223

 
22,276

Total retained earnings
638,406

 
571,893

Accumulated other comprehensive income (loss) (Note 18)
(37,657
)
 
(18,245
)
Total capital
1,740,920

 
1,770,634

TOTAL LIABILITIES AND CAPITAL
$
31,319,824

 
$
35,755,329

_____________________________
(a)
Fair values: $5,209,238 and $5,283,965 at September 30, 2013 and December 31, 2012, 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,
 
 
2013
 
2012
 
2013
 
2012
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
34,627

 
$
46,339

 
$
108,121

 
$
143,913

Prepayment fees on advances, net
 
10,145

 
4,264

 
13,819

 
7,859

Interest-bearing deposits
 
208

 
404

 
956

 
888

Securities purchased under agreements to resell
 
30

 
1,350

 
1,116

 
2,871

Federal funds sold
 
388

 
501

 
1,576

 
1,616

Trading securities
 
132

 

 
132

 

Available-for-sale securities
 
5,658

 
7,989

 
17,361

 
23,515

Held-to-maturity securities
 
12,594

 
16,558

 
40,755

 
52,430

Mortgage loans held for portfolio
 
1,402

 
1,896

 
4,571

 
6,104

Other
 

 
1

 
1

 
2

Total interest income
 
65,184

 
79,302

 
188,408

 
239,198

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
21,352

 
35,683

 
69,454

 
110,251

Discount notes
 
1,438

 
1,805

 
5,169

 
5,793

Deposits
 
24

 
79

 
88

 
202

Mandatorily redeemable capital stock
 
9

 
4

 
17

 
16

Other borrowings
 
2

 
4

 
6

 
6

Total interest expense
 
22,825

 
37,575

 
74,734

 
116,268

NET INTEREST INCOME
 
42,359

 
41,727

 
113,674

 
122,930

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

 

 

 
(204
)
Net non-credit impairment losses on held-to-maturity securities recognized in other comprehensive income
 

 

 

 
(156
)
Credit component of other-than-temporary impairment losses on held-to-maturity securities
 

 

 

 
(360
)
 
 
 
 
 
 
 
 
 
Net gains on trading securities
 
687

 
309

 
927

 
369

Net gains (losses) on derivatives and hedging activities
 
(663
)
 
(7,108
)
 
4,213

 
(4,570
)
Gains on other liabilities carried at fair value under the fair value option
 

 
130

 

 
2,495

Gains on early extinguishment of debt
 
5,642

 

 
5,642

 

Letter of credit fees
 
1,152

 
1,148

 
3,457

 
3,547

Other, net
 
741

 
718

 
2,032

 
1,795

Total other income (loss)
 
7,559

 
(4,803
)
 
16,271

 
3,276

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
10,032

 
9,115

 
30,107

 
30,491

Other operating expenses
 
5,927

 
6,893

 
18,785

 
20,369

Finance Agency
 
495

 
577

 
1,710

 
1,954

Office of Finance
 
643

 
610

 
1,852

 
1,689

Other
 
7

 

 
8

 

Total other expense
 
17,104

 
17,195

 
52,462

 
54,503

INCOME BEFORE ASSESSMENTS
 
32,814

 
19,729

 
77,483

 
71,703

Affordable Housing Program assessment
 
3,282

 
1,973

 
7,750

 
7,172

NET INCOME
 
$
29,532

 
$
17,756

 
$
69,733

 
$
64,531

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,
 
 
2013
 
2012
 
2013
 
2012
NET INCOME
 
$
29,532

 
$
17,756

 
$
69,733

 
$
64,531

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
 
(5,822
)
 
10,897

 
(25,314
)
 
6,371

Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
 

 

 

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

 

 

 
351

Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
2,044

 
2,367

 
6,144

 
7,609

Postretirement benefit plan
 
 
 
 
 
 
 
 
Prior service cost
 

 

 
(211
)
 

Amortization of prior service credit included in net periodic benefit cost
 
(5
)
 
(8
)
 
(13
)
 
(26
)
Amortization of net actuarial gain included in net periodic benefit cost
 
(6
)
 
(9
)
 
(18
)
 
(26
)
Total other comprehensive income (loss)
 
(3,789
)
 
13,247

 
(19,412
)
 
14,084

TOTAL COMPREHENSIVE INCOME
 
$
25,743

 
$
31,003

 
$
50,321

 
$
78,615


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, 2013 AND 2012
(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, 2013
12,170

 
$
1,216,986

 
$
549,617

 
$
22,276

 
$
571,893

 
$
(18,245
)
 
$
1,770,634

Proceeds from sale of capital stock
7,169

 
716,886

 

 

 

 

 
716,886

Repurchase/redemption of capital stock
(7,709
)
 
(770,885
)
 

 

 

 

 
(770,885
)
Net shares reclassified to mandatorily redeemable capital stock
(259
)
 
(25,882
)
 

 

 

 

 
(25,882
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
55,786

 
13,947

 
69,733

 

 
69,733

Other comprehensive loss

 

 

 

 

 
(19,412
)
 
(19,412
)
Dividends on capital stock (at 0.375 percent annualized rate)
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 
(130
)
 

 
(130
)
 

 
(130
)
Mandatorily redeemable capital stock

 

 
(24
)
 

 
(24
)
 

 
(24
)
Stock
31

 
3,066

 
(3,066
)
 

 
(3,066
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2013
11,402

 
$
1,140,171

 
$
602,183

 
$
36,223

 
$
638,406

 
$
(37,657
)
 
$
1,740,920

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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


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,
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net income
$
69,733

 
$
64,531

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
25,529

 
28,290

Concessions on consolidated obligation bonds
1,418

 
3,204

Premises, equipment and computer software costs
3,614

 
4,716

Non-cash interest on mandatorily redeemable capital stock
10

 
21

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

 
360

Gains on early extinguishment of debt
(5,642
)
 

Gains on other liabilities carried at fair value under the fair value option

 
(2,495
)
Net increase in trading securities
(1,777
)
 
(1,336
)
Loss due to change in net fair value adjustment on derivative and hedging activities
65,549

 
74,486

Increase in accrued interest receivable
(5,791
)
 
(14,896
)
Decrease in other assets
1,498

 
2,119

Increase (decrease) in Affordable Housing Program (AHP) liability
1,296

 
(1,538
)
Increase (decrease) in accrued interest payable
(5,081
)
 
11,722

Increase (decrease) in other liabilities
1,999

 
(4,554
)
Total adjustments
82,622

 
100,099

Net cash provided by operating activities
152,355

 
164,630

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net decrease (increase) in interest-bearing deposits, including swap collateral pledged
335,298

 
(556,529
)
Net decrease (increase) in securities purchased under agreements to resell
2,500,000

 
(1,500,000
)
Net decrease (increase) in federal funds sold
513,000

 
(793,000
)
Decrease in loan to other FHLBank

 
35,000

Net increase in short-term trading securities held for investment
(699,164
)
 

Purchases of available-for-sale securities

 
(806,724
)
Proceeds from maturities of long-term held-to-maturity securities
1,399,387

 
1,506,559

Purchases of long-term held-to-maturity securities
(1,331,882
)
 
(220,250
)
Principal collected on advances
366,535,440

 
351,439,739

Advances made
(365,019,232
)
 
(352,127,455
)
Principal collected on mortgage loans held for portfolio
24,888

 
31,659

Purchases of premises, equipment and computer software
(981
)
 
(2,540
)
Net cash provided by (used in) investing activities
4,256,754

 
(2,993,541
)
 
 
 
 

5


 
For the Nine Months Ended
 
September 30,
 
2013
 
2012
FINANCING ACTIVITIES
 
 
 
Net decrease in deposits, including swap collateral held
(301,131
)
 
(445,818
)
Net payments on derivative contracts with financing elements
(151,296
)
 
(48,091
)
Increase in loan from other FHLBank

 
40,000

Net proceeds from issuance of consolidated obligations
 

 
 
Discount notes
138,034,921

 
309,237,355

Bonds
5,672,427

 
20,435,132

Debt issuance costs
(971
)
 
(2,407
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(138,504,767
)
 
(313,342,672
)
Bonds
(9,141,573
)
 
(14,154,655
)
Proceeds from issuance of capital stock
716,886

 
535,053

Proceeds from issuance of mandatorily redeemable capital stock
18

 

Payments for redemption of mandatorily redeemable capital stock
(351
)
 
(12,117
)
Payments for repurchase/redemption of capital stock
(770,885
)
 
(544,197
)
Cash dividends paid
(130
)
 
(135
)
Net cash provided by (used in) financing activities
(4,446,852
)
 
1,697,448

 
 
 
 
Net decrease in cash and cash equivalents
(37,743
)
 
(1,131,463
)
Cash and cash equivalents at beginning of the period
920,780

 
1,152,467

Cash and cash equivalents at end of the period
$
883,037

 
$
21,004

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
111,311

 
$
126,211

AHP payments, net
$
6,454

 
$
8,710

Stock dividends issued
$
3,066

 
$
3,262

Dividends paid through issuance of mandatorily redeemable capital stock
$
24

 
$
16

Net capital stock reclassified to mandatorily redeemable capital stock
$
25,882

 
$
1,632


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, 2012. 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, 2012 filed with the SEC on March 25, 2013 (the “2012 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2012 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
     Presentation of Comprehensive Income. On February 5, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02 "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which requires an entity to report, either on the face of the statement where net income is presented or in the notes, the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The guidance in ASU 2013-02 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012 (January 1, 2013 for the Bank). The adoption of this guidance did not have any impact on the Bank’s results of operations or financial condition. The required disclosures are presented in Note 18.
Disclosures about Offsetting Assets and Liabilities. On December 16, 2011, the FASB issued ASU 2011-11 "Disclosures about Offsetting Assets and Liabilities," which, as clarified, requires enhanced disclosures about derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions 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 these types of financial instruments.
The eligibility criteria for offsetting are different in International Financial Reporting Standards ("IFRSs") and U.S. GAAP. For example, unlike IFRSs, U.S. GAAP provides 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 setoff 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 and improve transparency in the reporting of how entities mitigate credit risk, including disclosure of related collateral pledged or received.

7


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 did not have any impact on the Bank’s results of operations or financial condition. The required disclosures are presented in Note 10.
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. The adoption of the accounting guidance in AB 2012-02, which is effective January 1, 2015, is not expected to have a significant impact on the Bank's results of operations or financial condition.
Joint and Several Liability Arrangements. On February 28, 2013, the FASB issued ASU 2013-04 “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”), which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. ASU 2013-04 requires an entity to measure these obligations as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The guidance in ASU 2013-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (January 1, 2014 for the Bank) and is to be applied retrospectively to all prior periods presented. The adoption of this guidance will not have any impact on the Bank's results of operations or financial condition.

Note 3—Trading Securities
Trading securities as of September 30, 2013 and December 31, 2012 were as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
U.S. Treasury Bills
$
699,587

 
$

Other
9,016

 
7,541

Total
$
708,603

 
$
7,541


Other trading securities consist solely of mutual fund investments associated with the Bank's non-qualified deferred compensation plans.

Note 4—Available-for-Sale Securities
 Major Security Types. Available-for-sale securities as of September 30, 2013 were as follows (in thousands):
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
54,564

 
$
62

 
$
108

 
$
54,518

Government-sponsored enterprises
5,023,165

 
4,570

 
6,440

 
5,021,295

Other
441,137

 
360

 
1,231

 
440,266

Total
$
5,518,866

 
$
4,992

 
$
7,779

 
$
5,516,079



8


Available-for-sale securities as of December 31, 2012 were as follows (in thousands):
 
Amortized
Cost
 
Gross Unrealized Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
56,119

 
$
301

 
$
3

 
$
56,417

Government-sponsored enterprises
5,236,358

 
22,280

 
644

 
5,257,994

Other
457,149

 
867

 
274

 
457,742

Total
$
5,749,626

 
$
23,448

 
$
921

 
$
5,772,153


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, 2013. 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

 
$
35,198

 
$
108

 

 
$

 
$

 
3

 
$
35,198

 
$
108

Government-sponsored enterprises
119

 
2,134,921

 
6,440

 

 

 

 
119

 
2,134,921

 
6,440

Other
23

 
242,636

 
1,122

 
3

 
14,850

 
109

 
26

 
257,486

 
1,231

Total
145

 
$
2,412,755

 
$
7,670

 
3

 
$
14,850

 
$
109

 
148

 
$
2,427,605

 
$
7,779


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 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
1

 
$
11,340

 
$
3

 

 
$

 
$

 
1

 
$
11,340

 
$
3

Government-sponsored enterprises
23

 
448,123

 
629

 
1

 
2,373

 
15

 
24

 
450,496

 
644

Other
18

 
141,151

 
274

 

 

 

 
18

 
141,151

 
274

Total
42

 
$
600,614

 
$
906

 
1

 
$
2,373

 
$
15

 
43

 
$
602,987

 
$
921


At September 30, 2013, the gross unrealized losses on the Bank’s available-for-sale securities were $7,779,000. 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, 2013, 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 Bank's assessment of the strength of the government guaranty, the Bank expects that the U.S. government-guaranteed debentures 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 basis in the 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, 2013 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,

9


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 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, 2013.
Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2013 and December 31, 2012 are presented below (in thousands).
 
 
 
September 30, 2013
 
December 31, 2012
 
Maturity
 
Amortized Cost
 
Estimated
Fair Value
 
Amortized Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
5,016

 
$
5,019

 
$

 
$

 
Due after one year through five years
 
3,871,921

 
3,874,920

 
3,340,880

 
3,349,030

 
Due after five years through ten years
 
1,641,929

 
1,636,140

 
2,401,976

 
2,416,299

 
Due after ten years
 

 

 
6,770

 
6,824

 
Total
 
$
5,518,866

 
$
5,516,079

 
$
5,749,626

 
$
5,772,153

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as available-for-sale at September 30, 2013 and December 31, 2012 (in thousands):
 
September 30, 2013
 
December 31, 2012
Amortized cost of available-for-sale securities
 
 
 
Fixed-rate
$
5,443,866

 
$
5,674,626

Variable-rate
75,000

 
75,000

 
 
 
 
Total
$
5,518,866

 
$
5,749,626

At September 30, 2013 and December 31, 2012, all of the Bank's fixed-rate available-for-sale securities were swapped to a variable rate.

 
Note 5—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



10


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.


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

 
$
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.

12


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



13


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

 
$