10-Q 1 a930201510q.htm 10-Q 10-Q

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, 2015
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, 2015, the registrant had outstanding 15,036,634 shares of its Class B Capital Stock, $100 par value per share.
 



FEDERAL HOME LOAN BANK OF DALLAS
TABLE OF CONTENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-4.1
 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,
2015
 
December 31,
2014
ASSETS
 

 
 

Cash and due from banks
$
1,264,764

 
$
1,507,708

Interest-bearing deposits
231

 
266

Securities purchased under agreements to resell (Note 10)
3,000,000

 
350,000

Federal funds sold
3,780,000

 
5,613,000

Trading securities (Notes 3, 10 and 15) ($35,985 pledged at December 31, 2014, which could be rehypothecated)
214,260

 
408,563

Available-for-sale securities (Notes 4, 10 and 15) ($197,211 pledged at September 30, 2015, which could be rehypothecated)
8,419,288

 
6,388,502

Held-to-maturity securities (a) (Note 5)
3,359,556

 
4,662,013

Advances (Notes 6 and 7)
22,769,525

 
18,942,400

Mortgage loans held for portfolio, net of allowance for credit losses of $141 and $143 at
September 30, 2015 and December 31, 2014, respectively (Note 7)
59,093

 
71,411

Accrued interest receivable
78,904

 
65,168

Premises and equipment, net
19,097

 
18,368

Derivative assets (Notes 10 and 11)
16,125

 
10,454

Other assets
9,245

 
8,015

TOTAL ASSETS
$
42,990,088

 
$
38,045,868

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
981,986

 
$
797,390

Non-interest bearing
19

 
24

Total deposits
982,005

 
797,414

 
 
 
 
Consolidated obligations (Note 8)
 
 
 
Discount notes
20,253,360

 
19,131,832

Bonds
19,130,108

 
16,078,700

Total consolidated obligations
39,383,468

 
35,210,532

 
 
 
 
Mandatorily redeemable capital stock
4,358

 
5,059

Accrued interest payable
45,313

 
39,726

Affordable Housing Program (Note 9)
22,814

 
25,998

Derivative liabilities (Notes 10 and 11)
18,877

 
21,521

Other liabilities (Notes 3 and 4)
389,113

 
26,705

Total liabilities
40,845,948

 
36,126,955

 
 
 
 
Commitments and contingencies (Notes 7 and 15)


 


 
 
 
 
CAPITAL (Note 12)
 
 
 
Capital stock — Class B putable ($100 par value) issued and outstanding shares: 14,643,063 and 12,227,376 shares at September 30, 2015 and December 31, 2014, respectively
1,464,306

 
1,222,738

Retained earnings
 
 
 
Unrestricted
688,811

 
650,224

Restricted
60,054

 
49,552

Total retained earnings
748,865

 
699,776

Accumulated other comprehensive income (loss) (Note 18)
(69,031
)
 
(3,601
)
Total capital
2,144,140

 
1,918,913

TOTAL LIABILITIES AND CAPITAL
$
42,990,088

 
$
38,045,868

_____________________________
(a)
Fair values: $3,401,767 and $4,727,130 at September 30, 2015 and December 31, 2014, 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,
 
 
2015
 
2014
 
2015
 
2014
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
30,955

 
$
30,533

 
$
89,608

 
$
92,327

Prepayment fees on advances, net
 
1,039

 
491

 
8,178

 
5,354

Interest-bearing deposits
 
172

 
155

 
537

 
471

Securities purchased under agreements to resell
 
718

 
203

 
1,936

 
394

Federal funds sold
 
1,628

 
610

 
5,823

 
1,361

Trading securities
 
152

 
108

 
243

 
386

Available-for-sale securities
 
11,185

 
5,649

 
26,632

 
15,912

Held-to-maturity securities
 
6,856

 
9,628

 
22,354

 
30,946

Mortgage loans held for portfolio
 
881

 
1,117

 
2,802

 
3,565

Total interest income
 
53,586

 
48,494

 
158,113

 
150,716

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
19,613

 
17,797

 
56,226

 
55,573

Discount notes
 
5,568

 
3,150

 
12,919

 
6,938

Deposits
 
55

 
17

 
121

 
60

Mandatorily redeemable capital stock
 
4

 
3

 
12

 
11

Other borrowings
 
(3
)
 

 
5

 
4

Total interest expense
 
25,237

 
20,967

 
69,283

 
62,586

NET INTEREST INCOME
 
28,349

 
27,527

 
88,830

 
88,130

 
 
 
 
 
 
 
 
 
OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on held-to-maturity securities
 
(11
)
 

 
(111
)
 

Net non-credit impairment losses on held-to-maturity securities recognized in other comprehensive income
 
8

 

 
83

 

Credit component of other-than-temporary impairment losses on held-to-maturity securities
 
(3
)
 

 
(28
)
 

 
 
 
 
 
 
 
 
 
Net gains on trading securities
 
1,169

 
61

 
1,508

 
620

Net gains (losses) on derivatives and hedging activities
 
(10,832
)
 
1,491

 
1,854

 
2,459

Realized gains on sales of held-to-maturity securities
 
3,297

 

 
13,410

 

Realized gains on sales of available-for-sale securities
 
1,457

 

 
3,802

 

Gains on early extinguishment of debt
 

 

 

 
723

Letter of credit fees
 
983

 
1,259

 
3,202

 
3,600

Other, net
 
619

 
358

 
1,615

 
1,445

Total other income (loss)
 
(3,310
)
 
3,169

 
25,363

 
8,847

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
11,019

 
8,935

 
31,478

 
29,090

Other operating expenses
 
6,565

 
8,625

 
20,473

 
22,503

Finance Agency
 
520

 
502

 
1,671

 
1,667

Office of Finance
 
642

 
572

 
1,935

 
1,715

Other
 
126

 
30

 
288

 
63

Total other expense
 
18,872

 
18,664

 
55,845

 
55,038

INCOME BEFORE ASSESSMENTS
 
6,167

 
12,032

 
58,348

 
41,939

Affordable Housing Program assessment
 
617

 
1,204

 
5,836

 
4,195

NET INCOME
 
$
5,550

 
$
10,828

 
$
52,512

 
$
37,744

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

2


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

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
NET INCOME
 
$
5,550

 
$
10,828

 
$
52,512

 
$
37,744

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
 
(69,013
)
 
4,853

 
(63,977
)
 
35,221

Reclassification adjustment for realized gains on sales of available-for-sale securities included in net income
 
(1,457
)
 

 
(3,802
)
 

Unrealized loss on cash flow hedge
 
(2,415
)
 

 
(2,415
)
 

Reclassification adjustment for losses on cash flow hedge included in net income
 
107

 

 
107

 

Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
 
(8
)
 

 
(83
)
 

Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
1,495

 
1,783

 
4,796

 
5,490

Postretirement benefit plan
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic benefit cost
 
2

 
1

 
6

 
2

Amortization of net actuarial gain included in net periodic benefit cost
 
(21
)
 
(24
)
 
(62
)
 
(71
)
Total other comprehensive income (loss)
 
(71,310
)
 
6,613

 
(65,430
)
 
40,642

TOTAL COMPREHENSIVE INCOME (LOSS)
 
$
(65,760
)
 
$
17,441

 
$
(12,918
)
 
$
78,386


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, 2015 AND 2014
(Unaudited, in thousands)

 
 
 
 
 
 
 
 
 
 
 
Accumulated
 Other
Comprehensive
 Income (Loss)
 
 
 
Capital Stock
Class B - Putable
 
Retained Earnings
 
 
Total
 Capital
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, JANUARY 1, 2015
12,227

 
$
1,222,738

 
$
650,224

 
$
49,552

 
$
699,776

 
$
(3,601
)
 
$
1,918,913

Proceeds from sale of capital stock
8,941

 
894,107

 

 

 

 

 
894,107

Repurchase/redemption of capital stock
(6,545
)
 
(654,493
)
 

 

 

 

 
(654,493
)
Shares reclassified to mandatorily redeemable capital stock
(13
)
 
(1,344
)
 

 

 

 

 
(1,344
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
42,010

 
10,502

 
52,512

 

 
52,512

Other comprehensive income (loss)

 

 

 

 

 
(65,430
)
 
(65,430
)
Dividends on capital stock (at 0.375 percent annualized rate)
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 
(123
)
 

 
(123
)
 

 
(123
)
Mandatorily redeemable capital stock

 

 
(2
)
 

 
(2
)
 

 
(2
)
Stock
33

 
3,298

 
(3,298
)
 

 
(3,298
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2015
14,643

 
$
1,464,306

 
$
688,811

 
$
60,054

 
$
748,865

 
$
(69,031
)
 
$
2,144,140

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2014
11,237

 
$
1,123,675

 
$
615,620

 
$
39,850

 
$
655,470

 
$
(32,641
)
 
$
1,746,504

Proceeds from sale of capital stock
8,570

 
857,028

 

 

 

 

 
857,028

Repurchase/redemption of capital stock
(7,397
)
 
(739,683
)
 

 

 

 

 
(739,683
)
Shares reclassified to mandatorily redeemable capital stock
(25
)
 
(2,559
)
 

 

 

 

 
(2,559
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
30,195

 
7,549

 
37,744

 

 
37,744

Other comprehensive income

 

 

 

 

 
40,642

 
40,642

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

 

 
(128
)
 

 
(128
)
 

 
(128
)
Mandatorily redeemable capital stock

 

 
(3
)
 

 
(3
)
 

 
(3
)
Stock
29

 
2,937

 
(2,937
)
 

 
(2,937
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2014
12,414

 
$
1,241,398

 
$
642,747

 
$
47,399

 
$
690,146

 
$
8,001

 
$
1,939,545


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,
 
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net income
$
52,512

 
$
37,744

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
70,845

 
52,687

Concessions on consolidated obligation bonds
2,106

 
1,435

Premises, equipment and computer software costs
2,897

 
2,638

Non-cash interest on mandatorily redeemable capital stock
10

 
11

Credit component of other-than-temporary impairment losses on held-to-maturity securities
28

 

Gains on early extinguishment of debt

 
(723
)
Gains on sales of held-to-maturity securities
(13,410
)
 

Gains on sales of available-for-sale securities
(3,802
)
 

Net loss on disposition of premises, equipment and computer software

 
72

Net increase in trading securities
(1,530
)
 
(664
)
Loss due to change in net fair value adjustment on derivative and hedging activities
26,481

 
67,917

Increase in accrued interest receivable
(13,712
)
 
(13,904
)
Decrease (increase) in other assets
(1,714
)
 
3,310

Decrease in Affordable Housing Program (AHP) liability
(3,184
)
 
(5,608
)
Increase (decrease) in accrued interest payable
5,589

 
(5,903
)
Increase (decrease) in other liabilities
(466
)
 
2,066

Total adjustments
70,138

 
103,334

Net cash provided by operating activities
122,650

 
141,078

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net decrease in interest-bearing deposits, including swap collateral pledged
27,190

 
169,372

Net increase in securities purchased under agreements to resell
(2,650,000
)
 
(200,000
)
Net decrease (increase) in federal funds sold
1,833,000

 
(2,124,000
)
Net decrease in short-term trading securities held for investment
297,151

 
549,329

Purchases of available-for-sale securities
(2,555,885
)
 
(646,094
)
Proceeds from maturities of available-for-sale securities
21,927

 
5,029

Proceeds from sales of available-for-sale securities
740,794

 

Proceeds from sales of held-to-maturity securities
761,800

 

Proceeds from maturities of long-term held-to-maturity securities
597,638

 
772,838

Purchases of long-term held-to-maturity securities
(35,000
)
 
(453,459
)
Principal collected on advances
488,493,239

 
346,985,821

Advances made
(492,312,269
)
 
(349,805,603
)
Principal collected on mortgage loans held for portfolio
12,442

 
15,297

Purchases of premises, equipment and computer software
(4,122
)
 
(1,749
)
Net cash used in investing activities
(4,772,095
)
 
(4,733,219
)
 
 
 
 

5


 
For the Nine Months Ended
 
September 30,
 
2015
 
2014
FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits, including swap collateral held
198,803

 
(265,214
)
Net payments on derivative contracts with financing elements
(138,398
)
 
(126,130
)
Net proceeds from issuance of consolidated obligations
 

 
 
Discount notes
625,012,807

 
190,366,204

Bonds
13,362,767

 
9,756,396

Debt issuance costs
(1,328
)
 
(2,270
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(623,891,793
)
 
(178,917,910
)
Bonds
(10,373,790
)
 
(13,926,855
)
Proceeds from issuance of capital stock
894,107

 
857,028

Proceeds from issuance of mandatorily redeemable capital stock
2

 
9

Payments for redemption of mandatorily redeemable capital stock
(2,060
)
 
(989
)
Payments for repurchase/redemption of capital stock
(654,493
)
 
(739,683
)
Cash dividends paid
(123
)
 
(128
)
Net cash provided by financing activities
4,406,501

 
7,000,458

 
 
 
 
Net increase (decrease) in cash and cash equivalents
(242,944
)
 
2,408,317

Cash and cash equivalents at beginning of the period
1,507,708

 
911,081

Cash and cash equivalents at end of the period
$
1,264,764

 
$
3,319,398

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
71,414

 
$
88,704

AHP payments, net
$
9,020

 
$
9,803

Stock dividends issued
$
3,298

 
$
2,937

Dividends paid through issuance of mandatorily redeemable capital stock
$
2

 
$
3

Net capital stock reclassified to mandatorily redeemable capital stock
$
1,344

 
$
2,559


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, 2014. 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, 2014 filed with the SEC on March 26, 2015 (the “2014 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2014 10-K.
The Bank is one of 11 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 housing government-sponsored enterprises ("GSEs"), including 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 ("MBS") 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
    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 was effective January 1, 2015, did not have a significant impact on the Bank's results of operations or financial condition.
Foreclosure of Residential Real Estate. On January 17, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure” (“ASU 2014-04”), which clarifies when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or a similar legal agreement. Additionally, ASU 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.
For public business entities, the guidance in ASU 2014-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014 (January 1, 2015 for the Bank) and may be applied either retrospectively by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the guidance is effective or prospectively to all instances of an entity receiving

7


physical possession of residential real estate property collateralized by consumer mortgage loans that occur after the date of adoption. Early adoption was permitted. The Bank adopted this guidance effective January 1, 2015. The adoption of this guidance did not have a significant impact on the Bank's results of operations or financial condition.
Revenue from Contracts with Customers. On May 28, 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" ("ASU 2014-09"), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In addition, ASU 2014-09 amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. ASU 2014-09 applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, and lease contracts. The guidance in ASU 2014-09 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 (January 1, 2017 for the Bank). Early application was not permitted. On August 12, 2015, the FASB issued ASU 2015-14 "Deferral of Effective Date," which deferred the effective date of ASU 2014-09 by one year. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Bank has not yet determined the date that it will adopt ASU 2014-09 or the effect, if any, that the adoption of ASU 2014-09 will have on its results of operations or financial condition.
Repurchase-to-Maturity Transactions and Repurchase Financings. On June 12, 2014, the FASB issued ASU 2014-11 "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures" ("ASU 2014-11"), which changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. In addition, ASU 2014-11 requires disclosures about transfers accounted for as sales in transactions that are economically similar to repurchase agreements and about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes in ASU 2014-11 and the disclosures for certain transactions accounted for as a sale are effective for public business entities for the first interim or annual period beginning after December 15, 2014 (January 1, 2015 for the Bank). For public business entities, the disclosures for transactions accounted for as secured borrowings are required to be presented for annual periods beginning after December 15, 2014 (January 1, 2015 for the Bank), and interim periods beginning after March 15, 2015 (April 1, 2015 for the Bank). Earlier application for a public business entity was prohibited. The adoption of this guidance did not have any impact on the Bank's results of operations or financial condition.
Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. On August 8, 2014, the FASB issued ASU 2014-14 “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure” (“ASU 2014-14”), which requires that government-guaranteed mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (i) the loan has a government guarantee that is not separable from the loan before foreclosure, (ii) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (iii) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. For public business entities, the guidance in ASU 2014-14 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014 (January 1, 2015 for the Bank) and may be applied using either the modified retrospective transition method or the prospective transition method. Early adoption was permitted. The Bank adopted this guidance effective January 1, 2015. The adoption of this guidance did not have a significant impact on the Bank's results of operations or financial condition.
Simplifying the Presentation of Debt Issuance Costs. On April 7, 2015, the FASB issued ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the statement of condition as a direct deduction from that debt liability, consistent with the presentation of a debt discount. For public business entities, the guidance in ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 (January 1, 2016 for the Bank). Early adoption is permitted for financial statements that have not been previously issued. The guidance is required to be applied on a retrospective basis to each individual period presented on the statement of condition. The adoption of this guidance will not have a material impact on the Bank's financial condition and the adoption will not impact the Bank's results of operations.
On August 18, 2015, the FASB issued ASU 2015-15 "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" ("ASU 2015-15"). ASU 2015-15 clarifies that, given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not
object to an entity deferring and presenting debt issuance costs related to line-of-credit arrangements as an asset and
subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this guidance on January 1, 2016 is not expected to have any impact on the Bank's results of operations or financial condition.

8


Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. On April 15, 2015, the FASB issued ASU 2015-05 "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement" ("ASU 2015-05"), which clarifies when fees paid in a cloud computing arrangement pertain to the acquisition of a software license, services, or both. For public business entities, the guidance in ASU 2015-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 (January 1, 2016 for the Bank). Early adoption is permitted. The Bank can elect to adopt ASU 2015-05 either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. The Bank has not yet determined the effect, if any, that the adoption of ASU 2015-05 will have on its results of operations or financial condition.

Note 3—Trading Securities
Trading securities as of September 30, 2015 and December 31, 2014 were as follows (in thousands):
 
September 30, 2015
 
December 31, 2014
U.S. Treasury Notes
$
205,744

 
$

U.S. Treasury Bills

 
399,794

Other
8,516

 
8,769

Total
$
214,260

 
$
408,563

Other trading securities consist solely of mutual fund investments associated with the Bank's non-qualified deferred compensation plans.
Included in the table above are U.S. Treasury Notes that were purchased but which had not yet settled as of September 30, 2015. The amount due of $101,486,000 is included in other liabilities on the statement of condition at that date.


Note 4—Available-for-Sale Securities
 Major Security Types. Available-for-sale securities as of September 30, 2015 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
102,060

 
$
155

 
$
359

 
$
101,856

GSE obligations
4,807,880

 
12,978

 
5,713

 
4,815,145

Other
394,467

 
145

 
1,146

 
393,466

 
5,304,407

 
13,278

 
7,218

 
5,310,467

GSE commercial MBS
3,160,248

 
23

 
51,450

 
3,108,821

Total
$
8,464,655

 
$
13,301

 
$
58,668

 
$
8,419,288

Included in the table above are GSE debentures and GSE commercial MBS that were purchased but which had not yet settled as of September 30, 2015. The amounts due of $146,697,000 and $114,636,000, respectively, are included in other liabilities on the statement of condition at that date.
Available-for-sale securities as of December 31, 2014 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
49,666

 
$
308

 
$

 
$
49,974

GSE obligations
4,890,484

 
31,066

 

 
4,921,550

Other
411,145

 
701

 
535

 
411,311

 
5,351,295

 
32,075

 
535

 
5,382,835

GSE commercial MBS
1,014,795

 
322

 
9,450

 
1,005,667

Total
$
6,366,090

 
$
32,397

 
$
9,985

 
$
6,388,502


9


Other debentures are comprised of securities issued by the Private Export Funding Corporation ("PEFCO"). These 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, 2015. 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
2

 
$
56,436

 
$
359

 

 
$

 
$

 
2

 
$
56,436

 
$
359

GSE obligations
26

 
688,368

 
5,713

 

 

 

 
26

 
688,368

 
5,713

Other
23

 
200,198

 
631

 
5

 
42,082

 
515

 
28

 
242,280

 
1,146

GSE commercial MBS
73

 
2,294,734

 
32,601

 
26

 
786,414

 
18,849

 
99

 
3,081,148

 
51,450

Total
124

 
$
3,239,736

 
$
39,304

 
31

 
$
828,496

 
$
19,364

 
155

 
$
4,068,232

 
$
58,668


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 2014. 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
18

 
$
163,153

 
$
535

 

 
$

 
$

 
18

 
$
163,153

 
$
535

GSE commercial MBS
29

 
863,159

 
9,450

 

 

 

 
29

 
863,159

 
9,450

Total
47

 
$
1,026,312

 
$
9,985

 

 
$

 
$

 
47

 
$
1,026,312

 
$
9,985


At September 30, 2015, the gross unrealized losses on the Bank’s available-for-sale securities were $58,668,000. All of the Bank's available-for-sale securities are either guaranteed by the U.S. government, issued by GSEs, or fully secured by collateral that is guaranteed by the U.S government. As of September 30, 2015, the U.S. government and the issuers of the Bank’s holdings of GSE debentures and GSE MBS 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 PEFCO debentures are rated triple-A by Moody's and Fitch, and A by S&P. 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, 2015 would not be settled at an amount less than the Bank's amortized cost bases 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, 2015 would not be settled at an amount less than the Bank's amortized cost bases in these investments. Further, based upon the Bank's assessment of the strength of the GSEs' guarantees of the Bank's holdings of GSE commercial MBS and the credit ratings assigned by each of the NRSROs, the Bank expects that its holdings of GSE commercial MBS that were in an unrealized loss position at September 30, 2015 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Finally, based upon PEFCO's creditworthiness, the U.S. government's guaranty of the payment of principal and interest on the collateral securing the PEFCO 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 PEFCO debentures that were in an unrealized loss position at September 30, 2015 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, 2015.

10


Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2015 and December 31, 2014 are presented below (in thousands).
 
 
 
September 30, 2015
 
December 31, 2014
 
Maturity
 
Amortized Cost
 
Estimated
Fair Value
 
Amortized Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
230,138

 
$
230,263

 
$
87,379

 
$
87,418

 
Due after one year through five years
 
3,420,232

 
3,427,002

 
4,224,231

 
4,245,122

 
Due after five years through ten years
 
1,480,070

 
1,480,853

 
1,039,685

 
1,050,295

 
Due after ten years
 
173,967

 
172,349

 

 

 
 
 
5,304,407

 
5,310,467

 
5,351,295

 
5,382,835

 
GSE commercial MBS
 
3,160,248

 
3,108,821

 
1,014,795

 
1,005,667

 
Total
 
$
8,464,655

 
$
8,419,288

 
$
6,366,090

 
$
6,388,502

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as available-for-sale at September 30, 2015 and December 31, 2014 (in thousands):
 
September 30, 2015
 
December 31, 2014
Amortized cost of available-for-sale securities other than MBS
 
 
 
Fixed-rate
$
5,229,407

 
$
5,276,295

Variable-rate
75,000

 
75,000

 
5,304,407

 
5,351,295

Amortized cost of fixed-rate multi-family MBS
3,160,248

 
1,014,795

Total
$
8,464,655

 
$
6,366,090

At September 30, 2015 and December 31, 2014, substantially all of the Bank's fixed-rate available-for-sale securities were swapped to a variable rate.
Sales of Securities. During the three and nine months ended September 30, 2015, the Bank sold available-for-sale securities with an amortized cost (determined by the specific identification method) of $199,068,000 and $736,992,000, respectively. Proceeds from the sales totaled $200,525,000 and $740,794,000, respectively, resulting in realized gains of $1,457,000 and $3,802,000, respectively. There were no sales of available-for-sale securities during the nine months ended September 30, 2014.
                                                                
Note 5—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of September 30, 2015 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
$
22,231

 
$

 
$
22,231

 
$
21

 
$
137

 
$
22,115

State housing agency obligation
35,000

 

 
35,000

 
7

 

 
35,007

 
57,231

 

 
57,231

 
28

 
137

 
57,122

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
5,349

 

 
5,349

 
22

 

 
5,371

GSE residential MBS
3,108,357

 

 
3,108,357

 
29,091

 
351

 
3,137,097

Non-agency residential MBS
149,438

 
22,636

 
126,802

 
16,979

 
3,238

 
140,543

GSE commercial MBS
61,817

 

 
61,817

 

 
183

 
61,634

 
3,324,961

 
22,636

 
3,302,325

 
46,092

 
3,772

 
3,344,645

Total
$
3,382,192

 
$
22,636

 
$
3,359,556

 
$
46,120

 
$
3,909

 
$
3,401,767


11



Held-to-maturity securities as of December 31, 2014 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
$
27,119

 
$

 
$
27,119

 
$
143

 
$

 
$
27,262

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
6,642

 

 
6,642

 
34

 

 
6,676

GSE residential MBS
4,424,542

 

 
4,424,542

 
46,767

 
398

 
4,470,911

Non-agency residential MBS
169,240

 
27,349

 
141,891

 
21,982

 
3,469

 
160,404

GSE commercial MBS
61,819

 

 
61,819

 
58

 

 
61,877

 
4,662,243

 
27,349

 
4,634,894

 
68,841

 
3,867

 
4,699,868

Total
$
4,689,362

 
$
27,349

 
$
4,662,013

 
$
68,984

 
$
3,867

 
$
4,727,130


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of September 30, 2015. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income (loss) ("AOCI") and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential MBS, 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
3

 
$
14,570

 
$
137

 

 
$

 
$

 
3

 
$
14,570

 
$
137

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
3

 
147,638

 
25

 
5

 
228,578

 
326

 
8

 
376,216

 
351

Non-agency residential MBS

 

 

 
25

 
121,257

 
9,459

 
25

 
121,257

 
9,459

GSE commercial MBS
3

 
61,634

 
183

 

 

 

 
3

 
61,634

 
183

Total
9

 
$
223,842

 
$
345

 
30

 
$
349,835

 
$
9,785

 
39

 
$
573,677

 
$
10,130


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2014. The unrealized losses include other-than-temporary impairments recorded in AOCI and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential MBS, 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
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
1

 
$
10,798

 
$
5

 
17

 
$
485,626

 
$
393

 
18

 
$
496,424

 
$
398

Non-agency residential MBS
1

 
6,874

 
223

 
24

 
131,265

 
9,917

 
25

 
138,139

 
10,140

Total
2

 
$
17,672

 
$
228

 
41

 
$
616,891

 
$
10,310

 
43

 
$
634,563

 
$
10,538



12


At September 30, 2015, the gross unrealized losses on the Bank’s held-to-maturity securities were $10,130,000, of which $9,459,000 were attributable to its holdings of non-agency (i.e., private-label) residential MBS and $671,000 were attributable to securities that are either guaranteed by the U.S. government or issued and guaranteed by GSEs.
As of September 30, 2015, the U.S. government and the issuers of the Bank’s holdings of GSE MBS were rated triple-A by Moody’s and Fitch and AA+ by S&P. Based upon the credit ratings assigned by the NRSROs and the Bank's assessment of the strength of the GSEs’ guarantees of the Bank’s holdings of GSE 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, 2015 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, 2015.
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. However, based upon its analysis of the securities in this portfolio, the Bank believes that the unrealized losses as of September 30, 2015 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 27 non-agency RMBS holdings are likely to be recovered, the Bank performed a cash flow analysis for each security as of September 30, 2015 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, 2015 assumed changes in home prices ranging from declines of 3 percent to increases of 8 percent over the 12-month period beginning July 1, 2015. For the vast majority of markets, the changes were projected to range from increases of 2 percent to 5 percent. Thereafter, home price changes for each market were projected to return (at varying rates and over varying transition periods based on historical housing price patterns) to their long-term historical equilibrium levels. Following these transition periods, the constant long-term annual rates of appreciation for the vast majority of markets were projected to range between 2 percent and 5 percent.
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 was not likely that it would fully recover the remaining amortized cost basis of one of its previously other-than-temporarily impaired non-agency RMBS and, accordingly, this security was deemed to be other-than-temporarily impaired as of September 30, 2015. The difference between the present value of the cash flows expected to be collected from this security and its amortized cost basis (i.e., the credit loss) totaled $3,000 at September 30, 2015. Because the Bank does not intend to sell the investment and it is not more likely than not that the Bank will be required to sell the investment before recovery of its remaining amortized cost basis, only the amount related to the credit loss was recognized in earnings. None of the Bank's other non-agency RMBS were deemed to be other-than-temporarily impaired at September 30, 2015.

13


For the security for which an other-than-temporary impairment was determined to have occurred as of September 30, 2015, the following table presents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings (dollars in thousands):
 
 
 
 
 
 
Significant Inputs(2)
 
 
Year of
Securitization
 
Collateral
Type(1)
 
Unpaid Principal Balance as of
September 30, 2015
 
Projected
 Prepayment Rate
 
Projected
 Default Rate
 
Projected
 Loss Severity
 
Current Credit Enhancement as of
 September 30, 2015(3)
2005
 
Alt-A/Option ARM
 
$
11,184

 
7.2
%
 
21.4
%
 
35.5
%
 
32.4
%
________________________________________
(1) 
Although the other-than-temporarily impaired security was not labeled as Alt-A at the time of issuance, based upon its current collateral and performance characteristics, it was analyzed using Alt-A assumptions.
(2) 
The prepayment rate reflects the weighted average of projected future voluntary prepayments. The default rate reflects the total balance of loans projected to default as a percentage of the current unpaid principal balance of the underlying loan pool. The loss severity reflects the total projected loan losses as a percentage of the total balance of loans that are projected to default.
(3) 
The current credit enhancement percentage reflects the ability of subordinated classes of securities to absorb principal losses and interest shortfalls before the senior class held by the Bank is impacted (i.e., the losses, expressed as a percentage of the outstanding principal balances, that could be incurred in the underlying loan pool before the security held by the Bank would be impacted, assuming that all of those losses occurred on the measurement date). Depending upon the timing and amount of losses in the underlying loan pool, it is possible that the senior class held by the Bank could bear losses in scenarios where the cumulative loan losses do not exceed the current credit enhancement percentage.
In addition to the security that was determined to be other-than-temporarily impaired at September 30, 2015, 14 of the Bank's holdings of non-agency RMBS were determined to be other-than-temporarily impaired in periods prior to 2013. The following table presents a rollforward for the three and nine months ended September 30, 2015 and 2014 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,
 
2015
 
2014
 
2015
 
2014
Balance of credit losses, beginning of period
$
12,100

 
$
12,770

 
$
12,512

 
$
12,901

Credit losses on securities for which an other-than-temporary impairment was previously recognized
3

 

 
28

 

Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities)
(213
)
 
(64
)
 
(650
)
 
(195
)
Balance of credit losses, end of period
11,890

 
12,706

 
11,890

 
12,706

Cumulative principal shortfalls on securities held at end of period
(1,602
)
 
(1,192
)
 
(1,602
)
 
(1,192
)
Cumulative amortization of the time value of credit losses at end of period
335

 
279

 
335

 
279

Credit losses included in the amortized cost bases of other-than-temporarily impaired securities at end of period
$
10,623

 
$
11,793

 
$
10,623

 
$
11,793

     Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2015 and December 31, 2014 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, 2015
 
December 31, 2014
Maturity
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
9,025

 
$
9,025

 
$
9,046

 
$
12,544

 
$
12,544

 
$
12,649

Due after five years through ten years
 
13,206

 
13,206

 
13,069

 
14,575

 
14,575

 
14,613

Due after ten years
 
35,000

 
35,000

 
35,007

 

 

 

 
 
57,231

 
57,231

 
57,122

 
27,119

 
27,119

 
27,262

Mortgage-backed securities
 
3,324,961

 
3,302,325

 
3,344,645

 
4,662,243

 
4,634,894

 
4,699,868

Total
 
$
3,382,192

 
$
3,359,556

 
$
3,401,767

 
$
4,689,362

 
$
4,662,013

 
$
4,727,130



14


The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net purchase discounts of $14,568,000 and $26,510,000 at September 30, 2015 and December 31, 2014, respectively.
     Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as held-to-maturity at September 30, 2015 and December 31, 2014 (in thousands):
 
September 30, 2015
 
December 31, 2014
Amortized cost of variable-rate held-to-maturity securities other than MBS
$
57,231

 
$
27,119

Amortized cost of held-to-maturity MBS
 
 
 
Fixed-rate pass-through securities
240

 
276

Collateralized mortgage obligations
 
 
 
Fixed-rate
496

 
624

Variable-rate
3,262,408

 
4,599,524

Variable-rate multi-family MBS
61,817

 
61,819

 
3,324,961

 
4,662,243

Total
$
3,382,192

 
$
4,689,362


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 2014 or the nine months ended September 30, 2015.
Sales of Securities. During the three and nine months ended September 30, 2015, the Bank sold held-to-maturity securities with an amortized cost (determined by the specific identification method) of $159,952,000 and $748,390,000, respectively. Proceeds from the sales totaled $163,249,000 and $761,800,000, respectively, resulting in realized gains of $3,297,000 and $13,410,000, respectively. For each of these securities, the Bank had previously collected at least 85 percent of the principal outstanding at the time of acquisition. As such, the sales were considered maturities for purposes of security classification. There were no sales of held-to-maturity securities during the nine months ended September 30, 2014.

Note 6—Advances
     Redemption Terms. At September 30, 2015 and December 31, 2014, the Bank had advances outstanding at interest rates ranging from 0.10 percent to 8.27 percent and from 0.05 percent to 8.48 percent, respectively, as summarized below (dollars in thousands).
 
 
September 30, 2015
 
December 31, 2014
Contractual Maturity
 
Amount
 
Weighted Average
Interest Rate
 
Amount
 
Weighted Average
Interest Rate
Overdrawn demand deposit accounts
 
$
5,111

 
4.09
%
 
$
79,477

 
4.04
%
 
 
 
 
 
 
 
 
 
Due in one year or less
 
14,588,326

 
0.29

 
11,908,892

 
0.31

Due after one year through two years
 
2,483,054

 
1.07

 
1,085,057

 
1.46

Due after two years through three years
 
1,542,119

 
2.46

 
1,590,017

 
2.39

Due after three years through four years