10-Q 1 a630201610q.htm 10-Q Document

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 June 30, 2016
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 August 5, 2016, the registrant had outstanding 18,589,281 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)
 
June 30,
2016
 
December 31,
2015
ASSETS
 

 
 

Cash and due from banks
$
123,907

 
$
837,202

Interest-bearing deposits
300

 
260

Securities purchased under agreements to resell (Note 10)
3,250,000

 
1,000,000

Federal funds sold
3,944,000

 
2,171,000

Trading securities (Note 3)
118,886

 
211,056

Available-for-sale securities (Notes 4, 10 and 15) ($643,922 and $300,184 pledged at June 30, 2016 and December 31, 2015, respectively, which could be rehypothecated)
12,827,358

 
9,713,191

Held-to-maturity securities (a) (Note 5)
2,841,724

 
3,228,011

Advances (Notes 6 and 7)
31,122,698

 
24,746,802

Mortgage loans held for portfolio, net of allowance for credit losses of $141 at both
June 30, 2016 and December 31, 2015, respectively (Note 7)
66,868

 
55,117

Accrued interest receivable
82,527

 
69,676

Premises and equipment, net
18,756

 
18,520

Derivative assets (Notes 10 and 11)
32,856

 
23,080

Other assets
8,330

 
8,112

TOTAL ASSETS
$
54,438,210

 
$
42,082,027

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
850,643

 
$
1,045,939

Non-interest bearing
19

 
19

Total deposits
850,662

 
1,045,958

Consolidated obligations (Note 8)
 
 
 
Discount notes
30,047,547

 
20,541,329

Bonds
20,747,687

 
18,024,692

Total consolidated obligations
50,795,234

 
38,566,021

Mandatorily redeemable capital stock
3,251

 
8,929

Accrued interest payable
33,223

 
38,972

Affordable Housing Program (Note 9)
21,295

 
22,710

Derivative liabilities (Notes 10 and 11)
5,867

 
6,964

Other liabilities (Note 4)
257,903

 
193,161

Total liabilities
51,967,435

 
39,882,715

 
 
 
 
Commitments and contingencies (Notes 7 and 15)


 


 
 
 
 
CAPITAL (Note 12)
 
 
 
Capital stock
 
 
 
Capital stock — Class B-1 putable ($100 par value) issued and outstanding shares: 6,351,474 and 6,324,540 shares at June 30, 2016 and December 31, 2015, respectively
635,147

 
632,454

Capital stock — Class B-2 putable ($100 par value) issued and outstanding shares: 11,756,216 and 9,076,781 shares at June 30, 2016 and December 31, 2015, respectively
1,175,622

 
907,678

Total Class B Capital Stock
1,810,769

 
1,540,132

Retained earnings
 
 
 
Unrestricted
715,278

 
699,213

Restricted
68,885

 
62,990

Total retained earnings
784,163

 
762,203

Accumulated other comprehensive income (loss) (Note 18)
(124,157
)
 
(103,023
)
Total capital
2,470,775

 
2,199,312

TOTAL LIABILITIES AND CAPITAL
$
54,438,210

 
$
42,082,027

_____________________________
(a) 
Fair values: $2,859,952 and $3,262,283 at June 30, 2016 and December 31, 2015, 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 Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
50,928

 
$
29,556

 
$
95,350

 
$
58,653

Prepayment fees on advances, net
 
558

 
4,419

 
1,342

 
7,139

Interest-bearing deposits
 
800

 
177

 
1,519

 
365

Securities purchased under agreements to resell
 
1,271

 
825

 
2,165

 
1,218

Federal funds sold
 
4,983

 
2,263

 
9,202

 
4,195

Trading securities
 
864

 
48

 
1,757

 
91

Available-for-sale securities
 
31,170

 
8,569

 
55,823

 
15,447

Held-to-maturity securities
 
7,505

 
7,326

 
15,328

 
15,498

Mortgage loans held for portfolio
 
777

 
930

 
1,564

 
1,921

Total interest income
 
98,856

 
54,113

 
184,050

 
104,527

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
31,924

 
19,453

 
60,595

 
36,613

Discount notes
 
28,613

 
3,212

 
48,836

 
7,351

Deposits
 
500

 
40

 
1,055

 
66

Mandatorily redeemable capital stock and other borrowings
 
6

 
11

 
17

 
16

Total interest expense
 
61,043

 
22,716

 
110,503

 
44,046

NET INTEREST INCOME
 
37,813

 
31,397

 
73,547

 
60,481

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

 
(61
)
 
(310
)
 
(100
)
Net non-credit impairment losses on held-to-maturity securities recognized in other comprehensive income
 
(4
)
 
42

 
298

 
75

Credit component of other-than-temporary impairment losses on held-to-maturity securities
 
(4
)
 
(19
)
 
(12
)
 
(25
)
 
 
 
 
 
 
 
 
 
Net gains on trading securities
 
3,013

 
62

 
9,930

 
339

Net gains (losses) on derivatives and hedging activities
 
(3,821
)
 
8,449

 
(20,760
)
 
12,686

Realized gains on sales of held-to-maturity securities
 
259

 
3,887

 
729

 
10,113

Realized gains on sales of available-for-sale securities
 
3,564

 

 
4,215

 
2,345

Letter of credit fees
 
1,573

 
1,070

 
2,845

 
2,219

Other, net
 
809

 
524

 
1,350

 
996

Total other income (loss)
 
5,393

 
13,973

 
(1,703
)
 
28,673

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
11,971

 
10,070

 
23,601

 
20,459

Other operating expenses
 
5,638

 
7,001

 
11,182

 
13,172

Finance Agency
 
630

 
520

 
1,374

 
1,151

Office of Finance
 
735

 
744

 
1,480

 
1,293

Discretionary grant programs
 
413

 
432

 
949

 
736

Derivative clearing fees
 
275

 
76

 
506

 
162

Total other expense
 
19,662

 
18,843

 
39,092

 
36,973

INCOME BEFORE ASSESSMENTS
 
23,544

 
26,527

 
32,752

 
52,181

Affordable Housing Program assessment
 
2,355

 
2,653

 
3,277

 
5,219

NET INCOME
 
$
21,189

 
$
23,874

 
$
29,475

 
$
46,962

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 Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
NET INCOME
 
$
21,189

 
$
23,874

 
$
29,475

 
$
46,962

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
 
(11,129
)
 
3,031

 
(5,464
)
 
5,036

Reclassification adjustment for realized gains on sales of available-for-sale securities included in net income
 
(3,564
)
 

 
(4,215
)
 
(2,345
)
Unrealized losses on cash flow hedges
 
(9,768
)
 

 
(15,127
)
 

Reclassification adjustment for losses on cash flow hedges included in net income
 
941

 

 
1,580

 

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

 
(42
)
 
(302
)
 
(75
)
Reclassification adjustment for non-credit portion of other-than-temporary impairment losses recognized as credit losses in net income
 
4

 

 
4

 

Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
1,183

 
1,627

 
2,429

 
3,301

Postretirement benefit plan
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic benefit cost
 
5

 
2

 
10

 
4

Amortization of net actuarial gain included in net periodic benefit cost
 
(25
)
 
(20
)
 
(49
)
 
(41
)
Total other comprehensive income (loss)
 
(22,353
)
 
4,598

 
(21,134
)
 
5,880

TOTAL COMPREHENSIVE INCOME (LOSS)
 
$
(1,164
)
 
$
28,472

 
$
8,341

 
$
52,842


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

3




FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(Unaudited, in thousands)

 
Capital Stock
Class B-1 - Putable
(Membership/Excess)
 
Capital Stock
Class B-2 - Putable
(Activity)
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 Other
Comprehensive
 Income (Loss)
 
 
 
 
 
Capital Stock
Class B - Putable
 
Retained Earnings
 
 
Total
 Capital
 
Shares
 
Par Value
 
Shares
 
Par Value
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, JANUARY 1, 2016
6,325

 
$
632,454

 
9,077

 
$
907,678

 

 
$

 
$
699,213

 
$
62,990

 
$
762,203

 
$
(103,023
)
 
$
2,199,312

Net transfers of shares between Class B-1 and Class B-2 Stock
3,805

 
380,542

 
(3,805
)
 
(380,542
)
 

 

 

 

 

 

 

Proceeds from sale of capital stock
46

 
4,663

 
6,484

 
648,486

 

 

 

 

 

 

 
653,149

Repurchase/redemption of capital stock
(3,898
)
 
(389,846
)
 

 

 

 

 

 

 

 

 
(389,846
)
Shares reclassified to mandatorily redeemable capital stock

 
(43
)
 

 

 

 

 

 

 

 

 
(43
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 

 
23,580

 
5,895

 
29,475

 

 
29,475

Other comprehensive loss

 

 

 

 

 

 

 

 

 
(21,134
)
 
(21,134
)
Dividends on capital stock (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 

 

 
(133
)
 

 
(133
)
 

 
(133
)
Mandatorily redeemable capital stock

 

 

 

 

 

 
(5
)
 

 
(5
)
 

 
(5
)
Stock
73

 
7,377

 

 

 

 

 
(7,377
)
 

 
(7,377
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2016
6,351

 
$
635,147

 
11,756

 
$
1,175,622

 

 
$

 
$
715,278

 
$
68,885

 
$
784,163

 
$
(124,157
)
 
$
2,470,775

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 

 

 
5,776

 
577,596

 

 

 

 

 
577,596

Repurchase/redemption of capital stock

 

 

 

 
(3,989
)
 
(398,874
)
 

 

 

 

 
(398,874
)
Shares reclassified to mandatorily redeemable capital stock

 

 

 

 
(13
)
 
(1,312
)
 

 

 

 

 
(1,312
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 

 

 

 

 
37,570

 
9,392

 
46,962

 

 
46,962

Other comprehensive income

 

 

 

 

 

 

 

 

 
5,880

 
5,880

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

 

 

 

 

 

 
(83
)
 

 
(83
)
 

 
(83
)
Mandatorily redeemable capital stock

 

 

 

 

 

 
(2
)
 

 
(2
)
 

 
(2
)
Stock

 

 

 

 
21

 
2,138

 
(2,138
)
 

 
(2,138
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2015

 
$

 

 
$

 
14,022

 
$
1,402,286

 
$
685,571

 
$
58,944

 
$
744,515

 
$
2,279

 
$
2,149,080


(a) Dividends were paid at annualized rates of 0.375 percent and 1.251 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the first quarter of 2016 and 0.431 percent and 1.431 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the second quarter of 2016.

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 Six Months Ended
 
June 30,
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
Net income
$
29,475

 
$
46,962

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
42,928

 
46,800

Concessions on consolidated obligations
2,247

 
1,555

Premises, equipment and computer software costs
1,902

 
1,909

Non-cash interest on mandatorily redeemable capital stock
14

 
8

Credit component of other-than-temporary impairment losses on held-to-maturity securities
12

 
25

Gains on sales of held-to-maturity securities
(729
)
 
(10,113
)
Gains on sales of available-for-sale securities
(4,215
)
 
(2,345
)
Net increase in trading securities
(10,106
)
 
(101
)
Loss due to change in net fair value adjustment on derivative and hedging activities
44,499

 
16,807

Decrease (increase) in accrued interest receivable
(12,878
)
 
7,890

Decrease in other assets
(52
)
 
(665
)
Increase (decrease) in Affordable Housing Program (AHP) liability
(1,415
)
 
855

Increase (decrease) in accrued interest payable
(5,749
)
 
6,071

Decrease in other liabilities
(3,675
)
 
(2,913
)
Total adjustments
52,783

 
65,783

Net cash provided by operating activities
82,258

 
112,745

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net decrease (increase) in interest-bearing deposits, including swap collateral pledged
(557,025
)
 
148,893

Net increase in securities purchased under agreements to resell
(2,250,000
)
 
(5,350,000
)
Net decrease (increase) in federal funds sold
(1,773,000
)
 
1,947,000

Net decrease in short-term trading securities held for investment
102,215

 
189,705

Purchases of available-for-sale securities
(5,030,544
)
 
(1,220,043
)
Proceeds from maturities of available-for-sale securities
3,030

 
16,024

Proceeds from sales of available-for-sale securities
2,454,292

 
540,269

Proceeds from sales of held-to-maturity securities
114,950

 
598,551

Proceeds from maturities of long-term held-to-maturity securities
276,129

 
404,562

Purchases of long-term held-to-maturity securities

 
(35,000
)
Principal collected on advances
328,938,105

 
265,409,868

Advances made
(335,250,133
)
 
(268,138,403
)
Principal collected on mortgage loans held for portfolio
6,981

 
8,349

Purchases of mortgage loans held for portfolio
(18,797
)
 

Purchases of premises, equipment and computer software
(2,278
)
 
(3,410
)
Net cash used in investing activities
(12,986,075
)
 
(5,483,635
)
 
 
 
 

5


 
For the Six Months Ended
 
June 30,
 
2016
 
2015
FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits, including swap collateral held
(194,153
)
 
153,333

Net payments on derivative contracts with financing elements
(31,885
)
 
(120,577
)
Net proceeds from issuance of consolidated obligations
 

 
 
Discount notes
159,471,548

 
585,043,279

Bonds
11,372,371

 
10,960,752

Debt issuance costs
(2,021
)
 
(1,258
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(149,977,168
)
 
(585,540,120
)
Bonds
(8,705,600
)
 
(6,421,935
)
Proceeds from issuance of capital stock
653,149

 
577,596

Payments for redemption of mandatorily redeemable capital stock
(5,740
)
 
(1,965
)
Payments for repurchase/redemption of capital stock
(389,846
)
 
(398,874
)
Cash dividends paid
(133
)
 
(83
)
Net cash provided by financing activities
12,190,522

 
4,250,148

 
 
 
 
Net decrease in cash and cash equivalents
(713,295
)
 
(1,120,742
)
Cash and cash equivalents at beginning of the period
837,202

 
1,507,708

Cash and cash equivalents at end of the period
$
123,907

 
$
386,966

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
98,680

 
$
50,747

AHP payments, net
$
4,692

 
$
4,364

Stock dividends issued
$
7,377

 
$
2,138

Dividends paid through issuance of mandatorily redeemable capital stock
$
5

 
$
2

Net capital stock reclassified to mandatorily redeemable capital stock
$
43

 
$
1,312


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, 2015. 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, 2015 filed with the SEC on March 22, 2016 (the “2015 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2015 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 and Assumptions. 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 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
   Simplifying the Presentation of Debt Issuance Costs. On April 7, 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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). The guidance is required to be applied on a retrospective basis to each individual period presented on the statement of condition. Accordingly, $1,267,000 of unamortized debt issuance costs were reclassified as a reduction of consolidated obligation bonds in the accompanying statement of condition as of December 31, 2015. Previously, these unamortized debt issuance costs were included in other assets. The adoption of this guidance did not have any impact on 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 did not have any impact on the Bank's results of operations or financial condition.
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 was permitted. The Bank could elect to adopt ASU 2015-05 either (i) prospectively to all arrangements entered into or materially modified after the effective date or (ii) retrospectively. The Bank elected to adopt this guidance prospectively. The adoption of this guidance has not had any impact on the Bank's results of operations or financial condition.

7


Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. On March 10, 2016, the FASB issued ASU 2016-05, "Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships" ("ASU 2016-05"), which clarifies the hedge accounting impact when there is a change in one of the counterparties to the derivative contract (i.e., a novation). ASU 2016-05 clarifies that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. An entity will, however, still need to evaluate whether it is probable that the counterparty will perform under the contract as part of its ongoing effectiveness assessment for hedge accounting. For public business entities, the guidance in ASU 2016-05 is effective for fiscal years beginning after December 15, 2016 (January 1, 2017 for the Bank), and interim periods within those fiscal years. Early adoption is permitted. Entities have the option to adopt ASU 2016-05 on a prospective basis to new derivative contract novations or on a modified retrospective basis. The Bank elected to adopt this guidance on a prospective basis beginning January 1, 2016. The adoption of ASU 2016-05 has not had any impact on the Bank's results of operations or financial condition.
Contingent Put and Call Options in Debt Instruments. On March 14, 2016, the FASB issued ASU 2016-06, "Contingent Put and Call Options in Debt Instruments" ("ASU 2016-06"), which clarifies the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The guidance requires entities to apply only the four-step decision sequence when assessing whether the economic characteristics and risks of call or put options are clearly and closely related to the economic characteristics and risks of their debt hosts. Consequently, when a call or put option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call or put option is related to interest rates or credit risks. For public business entities, the guidance in ASU 2016-06 is effective for fiscal years beginning after December 15, 2016 (January 1, 2017 for the Bank), and interim periods within those fiscal years. Early adoption is permitted. The guidance is to be applied on a modified retrospective basis to existing debt instruments as of the beginning of the period for which the amendments are effective. The Bank has not yet determined the effect, if any, that the adoption of ASU 2016-06 will have on its results of operations or financial condition.
Credit Losses on Financial Instruments. On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which amends the guidance for the accounting for credit losses on financial instruments by replacing the current incurred loss methodology with an expected credit loss methodology. Among other things, ASU 2016-13 requires:
entities to present financial assets, or groups of financial assets, measured at amortized cost at the net amount expected to be collected, which is computed by deducting an allowance for credit losses from the amortized cost basis of the financial asset(s);
the measurement of expected credit losses to be based upon relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount;
the statement of income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases in expected credit losses that have taken place during the period;
entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") that are measured at amortized cost in a manner similar to other financial assets measured at amortized cost (the initial allowance for credit losses on PCD assets is added to the purchase price rather than being reported as a credit loss expense);
credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses, the amount of which is limited to the amount by which fair value is below amortized cost; and
public business entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by year of origination.
For public business entities that are SEC filers, the guidance in ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 (January 1, 2020 for the Bank), and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the amendments are adopted. However, entities are required to use a prospective transition approach for debt securities for which an other-than-temporary impairment had been recognized before the date of adoption. The Bank has not yet determined the effect that the adoption of ASU 2016-13 will have on its results of operations or financial condition.




8


Note 3—Trading Securities
Trading securities as of June 30, 2016 and December 31, 2015 were as follows (in thousands):
 
June 30, 2016
 
December 31, 2015
U.S. Treasury Notes
$
109,566

 
$
202,199

Other
9,320

 
8,857

Total
$
118,886

 
$
211,056

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 June 30, 2016 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
521,340

 
$
254

 
$
2,018

 
$
519,576

GSE obligations
6,687,878

 
16,977

 
3,814

 
6,701,041

Other
373,812

 
487

 
236

 
374,063

 
7,583,030

 
17,718

 
6,068

 
7,594,680

GSE commercial mortgage-backed securities
5,336,285

 
2,172

 
105,779

 
5,232,678

Total
$
12,919,315

 
$
19,890

 
$
111,847

 
$
12,827,358

Available-for-sale securities as of December 31, 2015 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
498,185

 
$
1,315

 
$
1,748

 
$
497,752

GSE obligations
5,328,125

 
12,597

 
1,775

 
5,338,947

Other
372,532

 
10

 
1,002

 
371,540

 
6,198,842

 
13,922

 
4,525

 
6,208,239

GSE commercial mortgage-backed securities
3,596,627

 
766

 
92,441

 
3,504,952

Total
$
9,795,469

 
$
14,688

 
$
96,966

 
$
9,713,191

Included in the tables above are GSE debentures and GSE commercial mortgage-backed securities ("MBS") that were purchased but which had not yet settled as of June 30, 2016 and December 31, 2015. The aggregate amounts due of $233,268,000 and $164,889,000, respectively, are included in other liabilities on the statements of condition at those dates.
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.

9


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of June 30, 2016. 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
8

 
$
465,399

 
$
2,018

 

 
$

 
$

 
8

 
$
465,399

 
$
2,018

GSE obligations
24

 
1,605,395

 
3,814

 

 

 

 
24

 
1,605,395

 
3,814

Other
4

 
38,268

 
10

 
8

 
50,408

 
226

 
12

 
88,676

 
236

GSE commercial MBS
65

 
2,347,412

 
27,202

 
75

 
2,494,877

 
78,577

 
140

 
4,842,289

 
105,779

Total
101

 
$
4,456,474

 
$
33,044

 
83

 
$
2,545,285

 
$
78,803

 
184

 
$
7,001,759

 
$
111,847


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 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
7

 
$
229,793

 
$
1,748

 

 
$

 
$

 
7

 
$
229,793

 
$
1,748

GSE obligations
28

 
802,283

 
1,775

 

 

 

 
28

 
802,283

 
1,775

Other
22

 
279,138

 
522

 
8

 
48,567

 
480

 
30

 
327,705

 
1,002

GSE commercial MBS
80

 
2,401,148

 
63,602

 
29

 
849,297

 
28,839

 
109

 
3,250,445

 
92,441

Total
137

 
$
3,712,362

 
$
67,647

 
37

 
$
897,864

 
$
29,319

 
174

 
$
4,610,226

 
$
96,966


At June 30, 2016, the gross unrealized losses on the Bank’s available-for-sale securities were $111,847,000. 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 June 30, 2016, 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 are not rated 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 June 30, 2016 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 June 30, 2016 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 June 30, 2016 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 June 30, 2016 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 June 30, 2016.

10


Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at June 30, 2016 and December 31, 2015 are presented below (in thousands).
 
 
 
June 30, 2016
 
December 31, 2015
 
Maturity
 
Amortized Cost
 
Estimated
Fair Value
 
Amortized Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
332,723

 
$
333,055

 
$
133,117

 
$
133,077

 
Due after one year through five years
 
2,701,142

 
2,708,921

 
3,637,966

 
3,643,909

 
Due after five years through ten years
 
4,284,240

 
4,286,700

 
2,313,112

 
2,316,854

 
Due after ten years
 
264,925

 
266,004

 
114,647

 
114,399

 
 
 
7,583,030

 
7,594,680

 
6,198,842

 
6,208,239

 
GSE commercial MBS
 
5,336,285

 
5,232,678

 
3,596,627

 
3,504,952

 
Total
 
$
12,919,315

 
$
12,827,358

 
$
9,795,469

 
$
9,713,191

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as available-for-sale at June 30, 2016 and December 31, 2015 (in thousands):
 
June 30, 2016
 
December 31, 2015
Amortized cost of available-for-sale securities other than MBS
 
 
 
Fixed-rate
$
7,583,030

 
$
6,123,842

Variable-rate

 
75,000

 
7,583,030

 
6,198,842

Amortized cost of fixed-rate multi-family MBS
5,336,285

 
3,596,627

Total
$
12,919,315

 
$
9,795,469

At June 30, 2016 and December 31, 2015, 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 six months ended June 30, 2016, the Bank sold available-for-sale securities with an amortized cost (determined by the specific identification method) of $1,576,267,000 and $2,450,077,000, respectively. Proceeds from the sales totaled $1,579,831,000 and $2,454,292,000, respectively, resulting in realized gains of $3,564,000 and $4,215,000, respectively. During the six months ended June 30, 2015, the Bank sold available-for-sale securities with an amortized cost (determined by the specific identification method) of $537,924,000. Proceeds from the sales totaled $540,269,000, resulting in realized gains of $2,345,000. There were no sales of available-for-sale securities during the three months ended June 30, 2015.
                                                                

11


Note 5—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of June 30, 2016 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
$
18,760

 
$

 
$
18,760

 
$
7

 
$
137

 
$
18,630

State housing agency obligations
110,000

 

 
110,000

 
32

 

 
110,032

 
128,760

 

 
128,760

 
39

 
137

 
128,662

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
3,549

 

 
3,549

 
5

 

 
3,554

GSE residential MBS
2,540,329

 

 
2,540,329

 
14,792

 
5,857

 
2,549,264

Non-agency residential MBS
126,517

 
19,245

 
107,272

 
12,832

 
3,199

 
116,905

GSE commercial MBS
61,814

 

 
61,814

 

 
247

 
61,567

 
2,732,209

 
19,245

 
2,712,964

 
27,629

 
9,303

 
2,731,290

Total
$
2,860,969

 
$
19,245

 
$
2,841,724

 
$
27,668

 
$
9,440

 
$
2,859,952


Held-to-maturity securities as of December 31, 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
$
21,546

 
$

 
$
21,546

 
$
15

 
$
151

 
$
21,410

State housing agency obligations
110,000

 

 
110,000

 

 

 
110,000

 
131,546

 

 
131,546

 
15

 
151

 
131,410

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
4,040

 

 
4,040

 
11

 

 
4,051

GSE residential MBS
2,909,065

 

 
2,909,065

 
22,457

 
766

 
2,930,756

Non-agency residential MBS
142,920

 
21,376

 
121,544

 
16,118

 
2,963

 
134,699

GSE commercial MBS
61,816

 

 
61,816

 

 
449

 
61,367

 
3,117,841

 
21,376

 
3,096,465

 
38,586

 
4,178

 
3,130,873

Total
$
3,249,387

 
$
21,376

 
$
3,228,011

 
$
38,601

 
$
4,329

 
$
3,262,283



12


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of June 30, 2016. 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
2

 
$
11,827

 
$
137

 

 
$

 
$

 
2

 
$
11,827

 
$
137

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
51

 
1,136,782

 
5,424

 
2

 
73,458

 
433

 
53

 
1,210,240

 
5,857

Non-agency residential MBS
3

 
17,181

 
535

 
20

 
92,858

 
9,536

 
23

 
110,039

 
10,071

GSE commercial MBS

 

 

 
3

 
61,567

 
247

 
3

 
61,567

 
247

Total
56

 
$
1,165,790

 
$
6,096

 
25

 
$
227,883

 
$
10,216

 
81

 
$
1,393,673

 
$
16,312


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2015. 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
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
2

 
$
12,683

 
$
151

 

 
$

 
$

 
2

 
$
12,683

 
$
151

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
19

 
503,000

 
697

 
1

 
44,782

 
69

 
20

 
547,782

 
766

Non-agency residential MBS

 

 

 
24

 
107,302

 
9,060

 
24

 
107,302

 
9,060

  GSE commercial MBS

 

 

 
3

 
61,366

 
449

 
3

 
61,366

 
449

Total
21

 
$
515,683

 
$
848

 
28

 
$
213,450

 
$
9,578

 
49

 
$
729,133

 
$
10,426


At June 30, 2016, the gross unrealized losses on the Bank’s held-to-maturity securities were $16,312,000, of which $10,071,000 were attributable to its holdings of non-agency (i.e., private-label) residential MBS and $6,241,000 were attributable to securities that are either guaranteed by the U.S. government or issued and guaranteed by GSEs.
As of June 30, 2016, 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 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 June 30, 2016 would not be settled at an amount less than the Bank's amortized cost bases in these investments. In addition, 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 GSE MBS that were in an unrealized loss position at June 30, 2016 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 June 30, 2016.
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.

13


However, based upon its analysis of the securities in this portfolio, the Bank believes that the unrealized losses as of June 30, 2016 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 24 non-agency RMBS holdings are likely to be recovered, the Bank performed a cash flow analysis for each security as of June 30, 2016 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 June 30, 2016 assumed changes in home prices ranging from declines of 2 percent to increases of 10 percent over the 12-month period beginning April 1, 2016. For the vast majority of markets, the changes were projected to range from increases of 2 percent to 6 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 June 30, 2016. 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 $4,000 at June 30, 2016. 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. The credit loss associated with this security was reclassified from AOCI to earnings during the three months ended June 30, 2016 as the estimated fair value of the security was greater than its carrying value at that date. None of the Bank's other non-agency RMBS were deemed to be other-than-temporarily impaired at June 30, 2016.

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For the security for which an other-than-temporary impairment was determined to have occurred as of June 30, 2016, 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
June 30, 2016
 
Projected
 Prepayment Rate
 
Projected
 Default Rate<