10-Q 1 a331201910q.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 March 31, 2019
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated
filer o
 
Accelerated
filer o
 
Non-accelerated
filer þ
 
Smaller reporting
company o
 
Emerging growth
company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
None
 
Not applicable
 
Not applicable
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At May 3, 2019, the registrant had outstanding 25,564,636 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)
 
March 31,
2019
 
December 31,
2018
ASSETS
 

 
 

Cash and due from banks
$
47,497

 
$
35,157

Interest-bearing deposits
1,256,255

 
2,500,317

Securities purchased under agreements to resell (Note 11)
5,515,000

 
6,215,000

Federal funds sold
2,125,000

 
1,731,000

Trading securities (Note 3)
3,592,104

 
1,818,178

Available-for-sale securities (Notes 4, 11 and 16) ($742,649 and $712,547 pledged at March 31, 2019 and December 31, 2018, respectively, which could be rehypothecated)
16,135,812

 
15,825,155

Held-to-maturity securities (a) (Note 5)
1,416,816

 
1,462,279

Advances (Notes 6 and 8)
36,096,595

 
40,793,813

Mortgage loans held for portfolio, net of allowance for credit losses of $611 and $493 at March 31, 2019 and December 31, 2018, respectively (Notes 7 and 8)
2,594,412

 
2,185,503

Accrued interest receivable
162,010

 
152,670

Premises and equipment, net
15,908

 
16,419

Derivative assets (Notes 11 and 12)
52,328

 
9,878

Other assets (including $12,341 and $12,376 of securities held at fair value at March 31, 2019 and December 31, 2018, respectively)
27,755

 
27,921

TOTAL ASSETS
$
69,037,492

 
$
72,773,290

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
792,026

 
$
963,972

Non-interest bearing
20

 
20

Total deposits
792,046

 
963,992

Consolidated obligations (Note 9)
 
 
 
Discount notes
37,369,065

 
35,731,713

Bonds
26,746,361

 
31,931,929

Total consolidated obligations
64,115,426

 
67,663,642

 
 
 
 
Mandatorily redeemable capital stock
7,753

 
6,979

Accrued interest payable
134,076

 
122,938

Affordable Housing Program (Note 10)
45,736

 
44,358

Derivative liabilities (Notes 11 and 12)
20,090

 
45,991

Other liabilities (Note 4)
210,971

 
161,134

Total liabilities
65,326,098

 
69,009,034

 
 
 
 
Commitments and contingencies (Notes 8 and 16)


 


 
 
 
 
CAPITAL (Note 13)
 
 
 
Capital stock
 
 
 
Capital stock — Class B-1 putable ($100 par value) issued and outstanding shares: 9,881,836 and 9,169,206 shares at March 31, 2019 and December 31, 2018, respectively
988,183

 
916,921

Capital stock — Class B-2 putable ($100 par value) issued and outstanding shares: 14,433,936 and 16,379,675 shares at March 31, 2019 and December 31, 2018, respectively
1,443,394

 
1,637,967

Total Class B Capital Stock
2,431,577

 
2,554,888

Retained earnings
 
 
 
Unrestricted
960,243

 
932,675

Restricted
160,372

 
148,692

Total retained earnings
1,120,615

 
1,081,367

Accumulated other comprehensive income (Note 19)
159,202

 
128,001

Total capital
3,711,394

 
3,764,256

TOTAL LIABILITIES AND CAPITAL
$
69,037,492

 
$
72,773,290

_____________________________
(a) 
Fair values: $1,431,789 and $1,478,691 at March 31, 2019 and December 31, 2018, 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
 
 
March 31,
 
 
2019
 
2018
INTEREST INCOME
 
 
 
 
Advances
 
$
237,864

 
$
155,345

Prepayment fees on advances, net
 
124

 
1,981

Interest-bearing deposits
 
11,121

 
769

Securities purchased under agreements to resell
 
25,297

 
7,179

Federal funds sold
 
18,504

 
28,988

Trading securities
 
18,025

 
569

Available-for-sale securities
 
119,008

 
79,958

Held-to-maturity securities
 
11,053

 
10,232

Mortgage loans held for portfolio
 
23,094

 
8,622

Total interest income
 
464,090

 
293,643

INTEREST EXPENSE
 
 
 
 
Consolidated obligations
 
 
 
 
Bonds
 
190,768

 
128,145

Discount notes
 
196,251

 
94,536

Deposits
 
4,922

 
2,785

Mandatorily redeemable capital stock
 
52

 
25

Other borrowings
 
1

 
59

Total interest expense
 
391,994

 
225,550

NET INTEREST INCOME
 
72,096

 
68,093

Provision for mortgage loan losses
 
118

 

 
 
 
 
 
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
 
71,978

 
68,093

 
 
 
 
 
OTHER INCOME (LOSS)
 
 
 
 
Net gains (losses) on trading securities
 
3,227

 
(2,348
)
Net gains on derivatives and hedging activities
 
8,766

 
1,823

Net gains on other assets carried at fair value
 
913

 
13

Realized gains on sales of available-for-sale securities
 
440

 

Letter of credit fees
 
2,780

 
2,146

Other, net
 
851

 
640

Total other income
 
16,977

 
2,274

OTHER EXPENSE
 
 
 
 
Compensation and benefits
 
13,566

 
12,552

Other operating expenses
 
8,034

 
7,849

Finance Agency
 
1,183

 
963

Office of Finance
 
948

 
930

Discretionary grants and donations
 
38

 
1,388

Derivative clearing fees
 
296

 
309

Total other expense
 
24,065

 
23,991

INCOME BEFORE ASSESSMENTS
 
64,890

 
46,376

Affordable Housing Program assessment
 
6,494

 
4,640

NET INCOME
 
$
58,396

 
$
41,736

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

2


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

 
 
For the Three Months Ended
 
 
March 31,
 
 
2019
 
2018
NET INCOME
 
$
58,396

 
$
41,736

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
Net unrealized gains on available-for-sale securities, net of unrealized gains and losses relating to hedged interest rate risk included in net income
 
52,263

 
40,399

Reclassification adjustment for realized gains on sales of available-for-sale securities included in net income
 
(440
)
 

Unrealized gains (losses) on cash flow hedges
 
(20,390
)
 
13,840

Reclassification adjustment for (gains) losses on cash flow hedges included in net income
 
(807
)
 
310

Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
593

 
773

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

 
5

Amortization of net actuarial gain included in net periodic benefit credit
 
(23
)
 
(26
)
Total other comprehensive income
 
31,201

 
55,301

TOTAL COMPREHENSIVE INCOME
 
$
89,597

 
$
97,037


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

3




FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Unaudited, in thousands)

 
Capital Stock
Class B-1 - Putable
(Membership/Excess)
 
Capital Stock
Class B-2 - Putable
(Activity)
 
 
 
 
 
 
 
Accumulated
 Other
Comprehensive
 Income
 
 
 
 
 
Retained Earnings
 
 
Total
 Capital
 
Shares
 
Par Value
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, JANUARY 1, 2019
9,169

 
$
916,921

 
16,380

 
$
1,637,967

 
$
932,675

 
$
148,692

 
$
1,081,367

 
$
128,001

 
$
3,764,256

Net transfers of shares between Class B-1 and Class B-2 Stock
5,329

 
532,841

 
(5,329
)
 
(532,841
)
 

 

 

 

 

Proceeds from sale of capital stock
3

 
342

 
3,383

 
338,268

 

 

 

 

 
338,610

Repurchase/redemption of capital stock
(4,786
)
 
(478,639
)
 

 

 

 

 

 

 
(478,639
)
Shares reclassified to mandatorily redeemable capital stock
(23
)
 
(2,326
)
 

 

 

 

 

 

 
(2,326
)
Adjustment to initially apply new lease accounting guidance (Note 2)

 

 

 

 
(25
)
 

 
(25
)
 

 
(25
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
46,716

 
11,680

 
58,396

 

 
58,396

Other comprehensive income

 

 

 

 

 

 

 
31,201

 
31,201

Dividends on capital stock (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 
(66
)
 

 
(66
)
 

 
(66
)
Mandatorily redeemable capital stock

 

 

 

 
(13
)
 

 
(13
)
 

 
(13
)
Stock
190

 
19,044

 

 

 
(19,044
)
 

 
(19,044
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, MARCH 31, 2019
9,882

 
$
988,183

 
14,434

 
$
1,443,394

 
$
960,243

 
$
160,372

 
$
1,120,615

 
$
159,202

 
$
3,711,394

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2018
8,534

 
$
853,462

 
14,645

 
$
1,464,475

 
$
832,826

 
$
108,937

 
$
941,763

 
$
220,326

 
$
3,480,026

Net transfers of shares between Class B-1 and Class B-2 Stock
5,245

 
524,463

 
(5,245
)
 
(524,463
)
 

 

 

 

 

Proceeds from sale of capital stock
7

 
736

 
4,803

 
480,269

 

 

 

 

 
481,005

Repurchase/redemption of capital stock
(4,586
)
 
(458,612
)
 

 

 

 

 

 

 
(458,612
)
Shares reclassified to mandatorily redeemable capital stock
(3
)
 
(386
)
 

 

 

 

 

 

 
(386
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 

 

 
33,388

 
8,348

 
41,736

 

 
41,736

Other comprehensive income

 

 

 

 

 

 

 
55,301

 
55,301

Dividends on capital stock (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 
(65
)
 

 
(65
)
 

 
(65
)
Stock
110

 
10,999

 

 

 
(10,999
)
 

 
(10,999
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, March 31, 2018
9,307

 
$
930,662

 
14,203

 
$
1,420,281

 
$
855,150

 
$
117,285

 
$
972,435

 
$
275,627

 
$
3,599,005


(a) Dividends were paid at annualized rates of 2.35 percent and 3.35 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the first quarter of 2019.

(b) Dividends were paid at annualized rates of 1.33 percent and 2.33 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the first quarter of 2018.
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 Three Months Ended
 
March 31,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
58,396

 
$
41,736

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
Depreciation and amortization
 
 
 
Net premiums and discounts on advances, consolidated obligations, investments and mortgage loans
26,926

 
17,524

Concessions on consolidated obligations
1,669

 
1,113

Premises, equipment and computer software costs
1,058

 
919

Non-cash interest on mandatorily redeemable capital stock
50

 
22

Provision for mortgage loan losses
118

 

Gains on sales of available-for-sale securities
(440
)
 

Net gains on other assets carried at fair value
(913
)
 
(13
)
Net losses (gains) on trading securities
(3,227
)
 
2,348

Loss (gain) due to changes in net fair value adjustment on derivative and hedging activities
(289,965
)
 
169,357

Increase in accrued interest receivable
(9,236
)
 
(6,034
)
Decrease (increase) in other assets
3,757

 
(3,371
)
Increase in Affordable Housing Program (AHP) liability
1,378

 
928

Increase in accrued interest payable
11,160

 
7,790

Decrease in other liabilities
(5,924
)
 
(9,754
)
Total adjustments
(263,589
)
 
180,829

Net cash provided by (used in) operating activities
(205,193
)
 
222,565

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net decrease (increase) in interest-bearing deposits, including swap collateral pledged
1,281,703

 
(60,218
)
Net decrease in securities purchased under agreements to resell
700,000

 
1,750,000

Net decrease (increase) in federal funds sold
(394,000
)
 
1,105,000

Purchases of trading securities
(10,804,787
)
 

Proceeds from sales of trading securities
8,841,671

 

Proceeds from maturities of trading securities
200,000

 

Purchases of available-for-sale securities
(507,626
)
 
(766,072
)
Proceeds from maturities of available-for-sale securities
180,799

 
33,102

Proceeds from sales of available-for-sale securities
411,145

 

Proceeds from maturities of held-to-maturity securities
46,317

 
80,732

Principal collected on advances
149,506,560

 
189,611,459

Advances made
(144,760,729
)
 
(188,490,335
)
Principal collected on mortgage loans held for portfolio
35,395

 
16,703

Purchases of mortgage loans held for portfolio
(443,923
)
 
(158,773
)
Purchases of premises, equipment and computer software
(663
)
 
(1,002
)
Net cash provided by investing activities
4,291,862

 
3,120,596

 
 
 
 

5


 
For the Three Months Ended
 
March 31,
 
2019
 
2018
FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits, including swap collateral held
(171,768
)
 
153,533

Net receipts (payments) on derivative contracts with financing elements
(73,692
)
 
50,608

Net proceeds from issuance of consolidated obligations
 

 
 
Discount notes
65,649,636

 
80,172,581

Bonds
4,442,865

 
7,069,552

Debt issuance costs
(1,935
)
 
(1,334
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(64,037,381
)
 
(86,049,099
)
Bonds
(9,740,345
)
 
(4,804,290
)
Proceeds from issuance of capital stock
338,610

 
481,005

Payments for redemption of mandatorily redeemable capital stock
(1,614
)
 
(5,517
)
Payments for repurchase/redemption of capital stock
(478,639
)
 
(458,612
)
Cash dividends paid
(66
)
 
(65
)
Net cash used in financing activities
(4,074,329
)
 
(3,391,638
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
12,340

 
(48,477
)
Cash and cash equivalents at beginning of the period
35,157

 
87,965

Cash and cash equivalents at end of the period
$
47,497

 
$
39,488

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
353,761

 
$
211,069

AHP payments, net
$
5,116

 
$
3,712

Stock dividends issued
$
19,044

 
$
10,999

Dividends paid through issuance of mandatorily redeemable capital stock
$
13

 
$

Variation margin recharacterized as settlement payments on derivative contracts (Note 11)
$

 
$
250,468

Net capital stock reclassified to mandatorily redeemable capital stock
$
2,326

 
$
386

Right-of-use assets acquired by lease
$
2,539

 
$


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, 2018. 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, 2018 filed with the SEC on March 25, 2019 (the “2018 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2018 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 Adopted Accounting Guidance
Leases. On February 25, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases" (“ASU 2016-02”), which requires entities that lease assets (lessees) to recognize in the balance sheet assets and liabilities for the rights and obligations created by those leases. Specifically, ASU 2016-02 requires a lessee of operating or finance leases to recognize a right-of-use asset and a liability to make lease payments for leases with terms of more than 12 months. Lessor accounting will remain largely unchanged from current U.S. GAAP. The guidance is to be applied using a retrospective transition method to each period presented or, alternatively, by recognizing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The transition method allowing for a cumulative effect adjustment to the opening balance of retained earnings is provided by ASU 2018-11, "Leases: Targeted Improvements" ("ASU 2018-11"). ASU 2018-11 was issued by the FASB on July 30, 2018. ASU 2016-02 also requires extensive quantitative and qualitative disclosures to help financial statement users understand the amount, timing and uncertainty of cash flows arising from leases. For public business entities, the guidance in ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for the Bank). Early adoption was permitted. The Bank adopted ASU 2016-02 effective January 1, 2019. In conjunction with the adoption of ASU 2016-02 (as amended by ASU 2018-11), the Bank recorded (on January 1, 2019) a cumulative effect adjustment to retained earnings of $25,000 and right-of-use assets and lease liabilities approximating $2,500,000. These assets and liabilities are included in other assets and other liabilities, respectively. Because these amounts are insignificant, the Bank has not provided any quantitative or qualitative disclosures regarding its right-of-use assets and lease liabilities in these financial statements.
Premium Amortization on Purchased Callable Debt Securities. On March 30, 2017, the FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. For public business entities, the guidance in ASU 2017-08 is effective for fiscal years beginning after December 15, 2018 (January 1, 2019 for the Bank), and interim periods within those fiscal years. Early adoption, including adoption in an interim period, was permitted. If an entity early adopted ASU 2017-08 in an interim period, any adjustments were to be reflected as of the beginning of the fiscal year that included that interim period. The guidance was to be applied using a modified retrospective transition approach, with the cumulative-effect adjustment recognized in retained earnings as of the beginning of the period of adoption. The Bank

7


adopted ASU 2017-08 on January 1, 2019. The adoption of this guidance did not have any impact on the Bank's results of operations or financial condition.
Derivatives and Hedging. On August 28, 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition, the guidance provides for, but does not require, the use of a qualitative method of assessing hedge ineffectiveness. Among other things, the guidance also permits, but does not require, the following:
For fair value hedges, measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.
Partial-term fair value hedges of interest-rate risk, in which it can be assumed that the hedged item has a term that reflects only the designated cash flows being hedged.
For prepayable financial instruments, consideration only of how changes in the benchmark interest rate affect a decision to settle a debt instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest rate risk.
For a cash flow hedge of interest-rate risk of a variable-rate financial instrument, designation of the variability in cash flows attributable to the contractually specified interest rate as the hedged risk (when the contractually specified variable rate is not a benchmark rate).
For a closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, designation of an amount that is not expected to be affected by prepayments, defaults and other events affecting the timing and amount of cash flows as a hedged item (commonly referred to as the "last-of-layer" method).
For public business entities, the guidance in ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 (January 1, 2019 for the Bank), and interim periods within those fiscal years. Early adoption, including adoption in an interim period, was permitted. If an entity early adopted ASU 2017-12 in an interim period, any adjustments were to be reflected as of the beginning of the fiscal year that included that interim period. For cash flow hedges existing on the date of adoption, an entity was required to eliminate the separate measurement of ineffectiveness in earnings by means of a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings. Among other things, an entity could elect at transition to modify the measurement methodology for hedged items in existing fair value hedges to the benchmark rate component of the contractual coupon cash flows. The cumulative effect of applying this election was to be recognized as an adjustment to the basis adjustment of the hedged item recognized on the balance sheet with a corresponding adjustment to the opening balance of retained earnings. The amended presentation and disclosure guidance is required only prospectively.
The Bank adopted ASU 2017-12 effective January 1, 2019. At adoption, the Bank did not modify any of its then existing fair value or cash flow hedging relationships. Because the Bank had not had any ineffectiveness associated with its cash flow hedges, a cumulative effect adjustment relating to such hedges was not required. The impact of recording fair value hedge ineffectiveness in the same line where the earnings effect of the hedged item is presented reduced net interest income by $9,340,000 and increased net gains on derivatives and hedging activities by an equal and offsetting amount for the three months ended March 31, 2019. The amended presentation and disclosure guidance was applied prospectively; prior period comparative financial information has not been reclassified to conform to the current period presentation. Upon adoption, the Bank did not elect to change the way in which it assesses the effectiveness of its hedging relationships. The Bank is continuing to assess other opportunities that are available under the new guidance including, but not limited to, the use of the benchmark rate component to measure the hedged item in some of its fair value hedging relationships entered into after March 31, 2019 and the use of the last-of-layer method for its mortgage loans held for portfolio.
Inclusion of the Secured Overnight Financing Rate Overnight Index Swap Rate as a Benchmark Interest Rate. On October 25, 2018, the FASB issued ASU 2018-16, "Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes" ("ASU 2018-16"). ASU 2018-16 adds the OIS rate based on SOFR (a swap rate based on the underlying overnight SOFR rate) as an eligible benchmark interest rate for purposes of applying hedge accounting. SOFR is a volume-weighted median interest rate that is calculated daily based on overnight transactions from the prior day's trading activity in specified segments of the U.S. Treasury repo market. SOFR was selected by the Alternative Reference Rates Committee as its preferred alternative reference rate to LIBOR.

8


For entities that had not already adopted ASU 2017-12, the guidance in ASU 2018-16 was required to be adopted concurrently with the adoption of ASU 2017-12. The guidance is to be applied prospectively to qualifying new or redesignated hedging relationships entered into on and after the date of adoption. The Bank adopted ASU 2018-16 effective January 1, 2019. The adoption of this guidance did not have any impact on the Bank's results of operations or financial condition.

Note 3—Trading Securities
Trading securities as of March 31, 2019 and December 31, 2018 were as follows (in thousands):
 
March 31, 2019
 
December 31, 2018
U.S. Treasury Notes
$
1,770,509

 
$
1,818,178

U.S. Treasury Bills
1,821,595

 

Total
$
3,592,104

 
$
1,818,178


Note 4—Available-for-Sale Securities
 Major Security Types. Available-for-sale securities as of March 31, 2019 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
451,916

 
$
7,386

 
$

 
$
459,302

GSE obligations
5,552,561

 
86,879

 
2,181

 
5,637,259

Other
44,668

 
406

 

 
45,074

 
6,049,145

 
94,671

 
2,181

 
6,141,635

GSE commercial mortgage-backed securities
9,915,864

 
95,947

 
17,634

 
9,994,177

Total
$
15,965,009

 
$
190,618

 
$
19,815

 
$
16,135,812

Included in the table above are GSE commercial mortgage-backed securities ("MBS") that were purchased but which had not yet settled as of March 31, 2019. The aggregate amount due of $179,106,000 is included in other liabilities on the statement of condition at that date.
Available-for-sale securities as of December 31, 2018 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
447,365

 
$
5,652

 
$
21

 
$
452,996

GSE obligations
5,610,796

 
77,868

 
1,831

 
5,686,833

Other
170,367

 
461

 

 
170,828

 
6,228,528

 
83,981

 
1,852

 
6,310,657

GSE commercial MBS
9,477,647

 
73,052

 
36,201

 
9,514,498

Total
$
15,706,175

 
$
157,033

 
$
38,053

 
$
15,825,155

Included in the table above are GSE commercial MBS that were purchased but which had not yet settled as of December 31, 2018. The aggregate amount due of $125,927,000 is included in other liabilities on the statement of condition at that date.
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 March 31, 2019. 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
GSE debentures
3

 
$
78,072

 
$
461

 
2

 
$
150,442

 
$
1,720

 
5

 
$
228,514

 
$
2,181

GSE commercial MBS
59

 
1,888,462

 
10,052

 
27

 
890,440

 
7,582

 
86

 
2,778,902

 
17,634

Total
62

 
$
1,966,534

 
$
10,513

 
29

 
$
1,040,882

 
$
9,302

 
91

 
$
3,007,416

 
$
19,815


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 2018. 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

 
$
59,050

 
$
21

 

 
$

 
$

 
2

 
$
59,050

 
$
21

GSE debentures
4

 
224,072

 
1,831

 

 

 

 
4

 
224,072

 
1,831

GSE commercial MBS
105

 
3,523,623

 
35,435

 
7

 
38,844

 
766

 
112

 
3,562,467

 
36,201

Total
111

 
$
3,806,745

 
$
37,287

 
7

 
$
38,844

 
$
766

 
118

 
$
3,845,589

 
$
38,053


At March 31, 2019, the gross unrealized losses on the Bank’s available-for-sale securities were $19,815,000. 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 March 31, 2019, 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 AA+ by S&P Global Ratings (“S&P”). The Bank's holdings of PEFCO debentures are rated triple-A by Moody's and are not rated by S&P. Based upon the Bank's assessment of the creditworthiness of the issuers of the GSE debentures that were in an unrealized loss position at March 31, 2019 and the credit ratings assigned by Moody's and S&P, the Bank expects that these debentures 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 strength of the GSEs' guarantees of the Bank's holdings of GSE commercial MBS and the credit ratings assigned by Moody's and S&P, the Bank expects that its holdings of GSE commercial MBS that were in an unrealized loss position at March 31, 2019 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 March 31, 2019.
Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at March 31, 2019 and December 31, 2018 are presented below (in thousands).
 
 
 
March 31, 2019
 
December 31, 2018
 
Maturity
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
224,002

 
$
224,410

 
$
445,731

 
$
446,227

 
Due after one year through five years
 
2,438,116

 
2,459,969

 
2,398,495

 
2,420,763

 
Due after five years through ten years
 
3,305,261

 
3,372,974

 
3,256,389

 
3,312,322

 
Due after ten years
 
81,766

 
84,282

 
127,913

 
131,345

 
 
 
6,049,145

 
6,141,635

 
6,228,528

 
6,310,657

 
GSE commercial MBS
 
9,915,864

 
9,994,177

 
9,477,647

 
9,514,498

 
Total
 
$
15,965,009

 
$
16,135,812

 
$
15,706,175

 
$
15,825,155


10


Interest Rate Payment Terms. At March 31, 2019 and December 31, 2018, all of the Bank's available-for-sale securities were fixed rate securities which were swapped to a variable rate.
Sales of Securities. During the three months ended March 31, 2019, the Bank sold available-for-sale securities with an amortized cost (determined by the specific identification method) of $410,705,000. Proceeds from the sales totaled $411,145,000, resulting in realized gains of $440,000. There were no sales of available-for-sale securities during the three months ended March 31, 2018.

Note 5—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of March 31, 2019 were as follows (in thousands):
 
Amortized
Cost
 
OTTI Recorded in
Accumulated Other
Comprehensive
Income
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
7,106

 
$

 
$
7,106

 
$
16

 
$

 
$
7,122

State housing agency obligations
135,000

 

 
135,000

 
10

 
588

 
134,422

 
142,106

 

 
142,106

 
26

 
588

 
141,544

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
464

 

 
464

 

 
1

 
463

GSE residential MBS
1,210,755

 

 
1,210,755

 
4,741

 
1,848

 
1,213,648

Non-agency residential MBS
73,565

 
10,074

 
63,491

 
13,059

 
416

 
76,134

 
1,284,784

 
10,074

 
1,274,710

 
17,800

 
2,265

 
1,290,245

Total
$
1,426,890

 
$
10,074

 
$
1,416,816

 
$
17,826

 
$
2,853

 
$
1,431,789


Held-to-maturity securities as of December 31, 2018 were as follows (in thousands):
 
Amortized
Cost
 
OTTI Recorded in
 Accumulated Other
Comprehensive
Income
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
7,604

 
$

 
$
7,604

 
$
11

 
$

 
$
7,615

State housing agency obligations
135,000

 

 
135,000

 
10

 
1,043

 
133,967

 
142,604

 

 
142,604

 
21

 
1,043

 
141,582

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
475

 

 
475

 
1

 

 
476

GSE residential MBS
1,253,573

 

 
1,253,573

 
6,022

 
1,117

 
1,258,478

Non-agency residential MBS
76,294

 
10,667

 
65,627

 
13,222

 
694

 
78,155

 
1,330,342

 
10,667

 
1,319,675

 
19,245

 
1,811

 
1,337,109

Total
$
1,472,946

 
$
10,667

 
$
1,462,279

 
$
19,266

 
$
2,854

 
$
1,478,691



11


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of March 31, 2019. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income ("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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State housing agency obligations

 
$

 
$

 
1

 
$
34,412

 
$
588

 
1

 
$
34,412

 
$
588

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
1

 
434

 
1

 

 

 

 
1

 
434

 
1

GSE residential MBS
40

 
580,718

 
1,728

 
3

 
25,096

 
120

 
43

 
605,814

 
1,848

Non-agency residential MBS
3

 
11,945

 
173

 
10

 
28,477

 
1,071

 
13

 
40,422

 
1,244

Total
44

 
$
593,097

 
$
1,902

 
14

 
$
87,985

 
$
1,779

 
58

 
$
681,082

 
$
3,681


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2018. 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State housing agency obligations

 
$

 
$

 
1

 
$
33,957

 
$
1,043

 
1

 
$
33,957

 
$
1,043

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
32

 
467,427

 
1,000

 
4

 
31,220

 
117

 
36

 
498,647

 
1,117

Non-agency residential MBS
3

 
12,346

 
295

 
10

 
29,070

 
1,487

 
13

 
41,416

 
1,782

Total
35

 
$
479,773

 
$
1,295

 
15

 
$
94,247

 
$
2,647

 
50

 
$
574,020

 
$
3,942


At March 31, 2019, the gross unrealized losses on the Bank’s held-to-maturity securities were $3,681,000, of which $1,244,000 were attributable to its holdings of non-agency (i.e., private-label) residential MBS, $1,849,000 were attributable to securities that are either guaranteed by the U.S. government or issued and guaranteed by GSEs and $588,000 were attributable to a security issued by a state housing agency.
As of March 31, 2019, the U.S. government and the issuers of the Bank’s holdings of GSE residential MBS (“RMBS”) were rated triple-A by Moody’s and AA+ by S&P. Based upon the credit ratings assigned by Moody's and S&P and the Bank's assessment of the strength of the GSEs’ guarantees of the Bank’s holdings of GSE RMBS, the Bank expects that its holdings of GSE RMBS that were in an unrealized loss position at March 31, 2019 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. In addition, based upon the Bank's assessment of the creditworthiness of the state housing agency and the triple-A credit ratings assigned by Moody's and S&P, the Bank expects that the state housing agency debenture that was in an unrealized loss position at March 31, 2019 would not be settled at an amount less than the Bank’s amortized cost basis in this investment. 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 March 31, 2019.
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 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 March 31, 2019 were principally the

12


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 22 non-agency RMBS holdings are likely to be recovered, the Bank performed a cash flow analysis for each security as of March 31, 2019 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 March 31, 2019 assumed changes in home prices ranging from declines of 6 percent to increases of 14 percent over the 12-month period beginning January 1, 2019. 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 is likely that it will fully recover the remaining amortized cost bases of all of its non-agency RMBS. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their remaining amortized cost bases, none of the Bank's non-agency RMBS were deemed to be other-than-temporarily impaired at March 31, 2019.
During the year ended December 31, 2016, one of the Bank's non-agency RMBS was determined to be other-than-temporarily impaired. In addition, 14 of the Bank's 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 months ended March 31, 2019 and 2018 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 (in thousands).
 
Three Months Ended
 
March 31,
 
2019
 
2018
Balance of credit losses, beginning of period
$
8,551

 
$
9,443

Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities)
(193
)
 
(240
)
Balance of credit losses, end of period
8,358

 
9,203

Cumulative principal shortfalls on securities held at end of period
(2,105
)
 
(2,048
)
Cumulative amortization of the time value of credit losses at end of period
861

 
636

Credit losses included in the amortized cost bases of other-than-temporarily impaired securities at end of period
$
7,114

 
$
7,791


13


Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at March 31, 2019 and December 31, 2018 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.
 
 
March 31, 2019
 
December 31, 2018
Maturity
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
2,998

 
$
2,998

 
$
3,000

 
$
3,497

 
$
3,497

 
$
3,499

Due after five years through ten years
 
4,108

 
4,108

 
4,122

 
4,107

 
4,107

 
4,116

Due after ten years
 
135,000

 
135,000

 
134,422

 
135,000

 
135,000

 
133,967

 
 
142,106

 
142,106

 
141,544

 
142,604

 
142,604

 
141,582

Mortgage-backed securities
 
1,284,784

 
1,274,710

 
1,290,245

 
1,330,342

 
1,319,675

 
1,337,109

Total
 
$
1,426,890

 
$
1,416,816

 
$
1,431,789

 
$
1,472,946

 
$
1,462,279

 
$
1,478,691


The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net purchase discounts of $2,334,000 and $2,457,000 at March 31, 2019 and December 31, 2018, respectively.
     Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as held-to-maturity at March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
Amortized cost of variable-rate held-to-maturity securities other than MBS
$
142,106

 
$
142,604

Amortized cost of held-to-maturity MBS
 
 
 
Fixed-rate pass-through securities
52

 
57

Collateralized mortgage obligations
 
 
 
Fixed-rate
118

 
135

Variable-rate
1,284,614

 
1,330,150

 
1,284,784

 
1,330,342

Total
$
1,426,890

 
$
1,472,946


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 2018 or the three months ended March 31, 2019.
Sales of Securities. There were no sales of held-to-maturity securities during the three months ended March 31, 2019 or 2018.


14


Note 6—Advances
     Redemption Terms. At March 31, 2019 and December 31, 2018, the Bank had advances outstanding at interest rates ranging from 0.89 percent to 8.27 percent and 0.88 percent to 8.27 percent, respectively, as summarized below (dollars in thousands).
 
 
March 31, 2019
 
December 31, 2018
Contractual Maturity
 
Amount
 
Weighted Average
Interest Rate
 
Amount
 
Weighted Average
Interest Rate
Due in one year or less
 
$
17,032,491

 
2.50
%
 
$
21,718,709

 
2.49
%
Due after one year through two years
 
3,229,333

 
2.54

 
2,986,350

 
2.48

Due after two years through three years
 
986,411

 
2.53

 
1,272,214

 
2.42

Due after three years through four years
 
929,184

 
2.52

 
951,787

 
2.49

Due after four years through five years
 
819,127

 
2.92

 
632,862

 
2.84

Due after five years
 
13,049,950

 
2.46

 
13,230,406

 
2.42

Total par value
 
36,046,496

 
2.50
%
 
40,792,328

 
2.47
%
 
 
 
 
 
 
 
 
 
Premiums
 
11

 
 
 
12

 
 
Deferred net prepayment fees
 
(8,165
)
 
 
 
(8,683
)
 
 
Commitment fees
 
(106
)
 
 
 
(108
)
 
 
Hedging adjustments
 
58,359

 
 
 
10,264

 
 
Total
 
$
36,096,595

 
 
 
$
40,793,813

 
 
The Bank offers advances to members that may be prepaid on specified dates without the member incurring prepayment or termination fees (prepayable and callable advances). The prepayment of other advances requires the payment of a fee to the Bank (prepayment fee) if necessary to make the Bank financially indifferent to the prepayment of the advance. At March 31, 2019 and December 31, 2018, the Bank had aggregate prepayable and callable advances totaling $10,523,968,000 and $10,446,628,000, respectively.
The following table summarizes advances outstanding at March 31, 2019 and December 31, 2018, by the earlier of contractual maturity or next call date, or the first date on which prepayable advances can be repaid without a prepayment fee (in thousands):
Contractual Maturity or Next Call Date
 
March 31, 2019
 
December 31, 2018
Due in one year or less
 
$
27,399,689

 
$
32,024,714

Due after one year through two years
 
2,684,080

 
2,434,821

Due after two years through three years
 
919,299

 
1,178,054

Due after three years through four years
 
833,122

 
848,047

Due after four years through five years
 
691,029

 
565,334

Due after five years
 
3,519,277

 
3,741,358

Total par value
 
$
36,046,496

 
$
40,792,328


The Bank also offers putable advances. With a putable advance, the Bank purchases a put option from the member that allows the Bank to terminate the fixed-rate advance on specified dates and offer, subject to certain conditions, replacement funding at prevailing market rates. At March 31, 2019 and December 31, 2018, the Bank had putable advances outstanding totaling $3,007,800,000 and $3,094,300,000, respectively.


15


The following table summarizes advances outstanding at March 31, 2019 and December 31, 2018, by the earlier of contractual maturity or next possible put date (in thousands):
Contractual Maturity or Next Put Date
 
March 31, 2019
 
December 31, 2018
Due in one year or less
 
$
19,894,791

 
$
24,612,509

Due after one year through two years
 
3,331,833

 
3,136,850

Due after two years through three years
 
1,019,411

 
1,312,214

Due after three years through four years
 
929,184

 
951,787

Due after four years through five years
 
791,927

 
611,662

Due after five years
 
10,079,350

 
10,167,306

Total par value
 
$
36,046,496

 
$
40,792,328

    
 Interest Rate Payment Terms. The following table provides interest rate payment terms for advances outstanding at March 31, 2019 and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
Fixed-rate
 
 
 
Due in one year or less
$
16,651,106

 
$
21,558,023

Due after one year
8,582,807

 
8,503,772

Total fixed-rate
25,233,913

 
30,061,795

Variable-rate
 
 
 
Due in one year or less
381,386

 
160,686

Due after one year
10,431,197

 
10,569,847

Total variable-rate
10,812,583

 
10,730,533

Total par value
$
36,046,496

 
$
40,792,328


At March 31, 2019 and December 31, 2018, 29 percent and 24 percent, respectively, of the Bank’s fixed-rate advances were swapped to a variable rate.
     Prepayment F