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EX-31.1 - EXHIBIT 31.1 - Federal Home Loan Bank of Bostonex311_2011q1.htm
EX-32.2 - EXHIBIT 32.2 - Federal Home Loan Bank of Bostonex322_2011q1.htm
EX-31.2 - EXHIBIT 31.2 - Federal Home Loan Bank of Bostonex312_2011q1.htm
EX-32.1 - EXHIBIT 32.1 - Federal Home Loan Bank of Bostonex321_2011q1.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
––––––––––––––––––––––––––––––––––––––––––––––––––––
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 000-51402 
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
FEDERAL HOME LOAN BANK OF BOSTON
(Exact name of registrant as specified in its charter) 
 
Federally chartered corporation
(State or other jurisdiction of incorporation or organization)
 
04-6002575
(I.R.S. employer identification number)
 
 
 
 
 
 
 
111 Huntington Avenue
Boston, MA
(Address of principal executive offices)
 
02199
(Zip code)
 
 (617) 292-9600
(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. x Yes  o No
 
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes  o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No 
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
 
Shares outstanding
as of April 30, 2011
Class A Stock, par value $100
 
zero
Class B Stock, par value $100
 
37,823,270
 

Federal Home Loan Bank of Boston
Form 10-Q
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CONDITION
(dollars and shares in thousands, except par value)
(unaudited)
 
March 31, 2011
 
December 31, 2010
ASSETS
 
 
 
Cash and due from banks
$
390,656
 
 
$
6,151
 
Interest-bearing deposits
202
 
 
155
 
Securities purchased under agreements to resell
250,000
 
 
2,175,000
 
Federal funds sold
7,135,000
 
 
5,585,000
 
Investment securities:
 
 
 
 
Trading securities
5,611,733
 
 
5,579,741
 
Available-for-sale securities - includes $104,850 and $102,949 pledged as collateral at March 31, 2011, and December 31, 2010, respectively that may be repledged
6,293,246
 
 
7,335,035
 
Held-to-maturity securities - includes $19,246 and $62,770 pledged as collateral at March 31, 2011, and December 31, 2010, respectively that may be repledged (a)
6,617,420
 
 
6,459,544
 
Total investment securities
18,522,399
 
 
19,374,320
 
Advances
25,938,797
 
 
28,034,949
 
Mortgage loans held for portfolio, net of allowance for credit losses of $8,696 and $8,653 at March 31, 2011, and December 31, 2010, respectively
3,165,483
 
 
3,245,954
 
Accrued interest receivable
125,815
 
 
145,177
 
Resolution Funding Corporation (REFCorp) prepaid assessment
7,809
 
 
13,590
 
Premises, software, and equipment, net
4,154
 
 
4,547
 
Derivative assets
12,370
 
 
14,818
 
Other assets
43,018
 
 
47,640
 
Total Assets
$
55,595,703
 
 
$
58,647,301
 
LIABILITIES
 
 
 
 
 
Deposits:
 
 
 
 
 
Interest-bearing
$
794,416
 
 
$
711,222
 
Non-interest-bearing
16,113
 
 
34,299
 
Total deposits
810,529
 
 
745,521
 
Consolidated obligations, net:
 
 
 
 
Bonds
34,020,141
 
 
35,102,750
 
Discount notes
16,492,730
 
 
18,524,841
 
Total consolidated obligations, net
50,512,871
 
 
53,627,591
 
Mandatorily redeemable capital stock
106,608
 
 
90,077
 
Accrued interest payable
159,262
 
 
141,141
 
Affordable Housing Program (AHP) payable
23,695
 
 
23,138
 
Derivative liabilities
624,871
 
 
729,220
 
Other liabilities
13,348
 
 
15,108
 
Total liabilities
52,251,184
 
 
55,371,796
 
Commitments and contingencies (Note 18)
 
 
 
 
 
CAPITAL
 
 
 
 
 
Capital stock – Class B – putable ($100 par value), 36,460 shares and 36,644 shares issued and outstanding at March 31, 2011, and December 31, 2010, respectively
3,646,009
 
 
3,664,425
 
Retained earnings
269,544
 
 
249,191
 
Accumulated other comprehensive loss:
 
 
 
 
Net unrealized loss on available-for-sale securities
(19,930
)
 
(15,193
)
Net unrealized loss relating to hedging activities
(338
)
 
(341
)
Net noncredit portion of other-than-temporary impairment losses on investment securities
(549,742
)
 
(621,528
)
Pension and postretirement benefits
(1,024
)
 
(1,049
)
Total accumulated other comprehensive loss
(571,034
)
 
(638,111
)
Total capital
3,344,519
 
 
3,275,505
 
Total Liabilities and Capital
$
55,595,703
 
 
$
58,647,301
 
_______________________________________
(a)   Fair values of held-to-maturity securities were $6,731,104 and $6,564,181 at March 31, 2011, and December 31, 2010, respectively.
The accompanying notes are an integral part of these financial statements.

3


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
 
For the Three Months Ended March 31,
 
2011
 
2010
INTEREST INCOME
 
 
 
Advances
$
86,488
 
 
$
102,930
 
Prepayment fees on advances, net
1,193
 
 
572
 
Securities purchased under agreements to resell
540
 
 
284
 
Federal funds sold
2,401
 
 
2,665
 
Trading securities
5,397
 
 
1,852
 
Available-for-sale securities
18,188
 
 
13,437
 
Held-to-maturity securities
39,928
 
 
46,384
 
Prepayment fees on investments
14
 
 
 
Mortgage loans held for portfolio
38,334
 
 
43,326
 
Total interest income
192,483
 
 
211,450
 
INTEREST EXPENSE
 
 
 
Consolidated obligations - bonds
120,126
 
 
137,259
 
Consolidated obligations - discount notes
5,139
 
 
5,727
 
Deposits
129
 
 
91
 
Mandatorily redeemable capital stock
136
 
 
 
Other borrowings
2
 
 
2
 
Total interest expense
125,532
 
 
143,079
 
NET INTEREST INCOME
66,951
 
 
68,371
 
Provision for credit losses
51
 
 
431
 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
66,900
 
 
67,940
 
OTHER INCOME (LOSS)
 
 
 
Total other-than-temporary impairment losses on investment securities
(6,787
)
 
(20,547
)
Net amount of impairment losses reclassified from accumulated other comprehensive loss
(23,797
)
 
(2,276
)
Net other-than-temporary impairment losses on investment securities recognized in income
(30,584
)
 
(22,823
)
Service fees
2,045
 
 
1,444
 
Net unrealized (losses) gains on trading securities
(1,897
)
 
1,846
 
Net gains (losses) on derivatives and hedging activities
1,821
 
 
(2,832
)
Realized gain from sale of available-for-sale securities
8,369
 
 
 
Other
154
 
 
66
 
Total other loss
(20,092
)
 
(22,299
)
OTHER EXPENSE
 
 
 
Compensation and benefits
8,171
 
 
8,050
 
Other operating expenses
4,375
 
 
4,325
 
Federal Housing Finance Agency (Finance Agency)
1,298
 
 
910
 
Office of Finance
940
 
 
893
 
Other
536
 
 
292
 
Total other expense
15,320
 
 
14,470
 
INCOME BEFORE ASSESSMENTS
31,488
 
 
31,171
 
AHP
2,584
 
 
2,545
 
REFCorp
5,781
 
 
5,725
 
Total assessments
8,365
 
 
8,270
 
NET INCOME
$
23,123
 
 
$
22,901
 
 
The accompanying notes are an integral part of these financial statements.

4


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
THREE MONTHS ENDED MARCH 31, 2011 and 2010
(dollars and shares in thousands)
(unaudited)
 
 
Capital Stock
Class B – Putable
 
Retained Earnings
 
Accumulated
Other Comprehensive Loss
 
 
 
Shares
 
Par Value
 
 
 
Total
Capital
BALANCE, DECEMBER 31, 2009
36,431
 
 
$
3,643,101
 
 
$
142,606
 
 
$
(1,021,649
)
 
$
2,764,058
 
Proceeds from sale of capital stock
31
 
 
3,100
 
 
 
 
 
 
3,100
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
22,901
 
 
 
 
22,901
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale securities
 
 
 
 
 
 
15,059
 
 
15,059
 
Noncredit portion of other-than-temporary impairment losses on investment securities
 
 
 
 
 
 
(16,944
)
 
(16,944
)
Reclassification adjustment of noncredit component of impairment losses included in net income relating to investment securities
 
 
 
 
 
 
19,220
 
 
19,220
 
Accretion of noncredit portion of impairment losses on investment securities
 
 
 
 
 
 
77,532
 
 
77,532
 
Reclassification adjustment for previously deferred hedging gains and losses included in income
 
 
 
 
 
 
4
 
 
4
 
Pension and postretirement benefits
 
 
 
 
 
 
45
 
 
45
 
Total comprehensive income
 
 
 
 
 
 
 
 
117,817
 
BALANCE, MARCH 31, 2010
36,462
 
 
$
3,646,201
 
 
$
165,507
 
 
$
(926,733
)
 
$
2,884,975
 
 
 
 
 
 
 
 
 
 
 
BALANCE, DECEMBER 31, 2010
36,644
 
 
$
3,664,425
 
 
$
249,191
 
 
$
(638,111
)
 
$
3,275,505
 
Proceeds from sale of capital stock
16
 
 
1,584
 
 
 
 
 
 
1,584
 
Shares reclassified to mandatorily redeemable capital stock
(200
)
 
(20,000
)
 
 
 
 
 
(20,000
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
23,123
 
 
 
 
23,123
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale securities
 
 
 
 
 
 
3,632
 
 
3,632
 
Less: reclassification adjustment for realized gain included in net income relating to available-for-sale securities
 
 
 
 
 
 
(8,369
)
 
(8,369
)
Noncredit portion of other-than-temporary impairment losses on investment securities
 
 
 
 
 
 
(5,026
)
 
(5,026
)
Reclassification adjustment of noncredit component of impairment losses included in net income relating to investment securities
 
 
 
 
 
 
28,823
 
 
28,823
 
Accretion of noncredit portion of impairment losses on investment securities
 
 
 
 
 
 
47,989
 
 
47,989
 
Reclassification adjustment for previously deferred hedging gains and losses included in income
 
 
 
 
 
 
3
 
 
3
 
Pension and postretirement benefits
 
 
 
 
 
 
25
 
 
25
 
Total comprehensive income
 
 
 
 
 
 
 
 
90,200
 
Cash dividends on capital stock (0.30%)
 
 
 
 
(2,770
)
 
 
 
(2,770
)
BALANCE, MARCH 31, 2011
36,460
 
 
$
3,646,009
 
 
$
269,544
 
 
$
(571,034
)
 
$
3,344,519
 
 
The accompanying notes are an integral part of these financial statements.

5


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 
 
For the Three Months Ended March 31,
 
2011
 
2010
OPERATING ACTIVITIES
 
 
 
 
 
Net income
$
23,123
 
 
$
22,901
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
(316
)
 
(4,214
)
Provision for credit losses
51
 
 
431
 
Change in net fair-value adjustments on derivatives and hedging activities
3,614
 
 
6,707
 
Net other-than-temporary impairment losses on investment securities recognized in income
30,584
 
 
22,823
 
Other adjustments
(146
)
 
(69
)
Realized gain from sale of available-for-sale securities
(8,369
)
 
 
Net change in:
 
 
 
 
Market value of trading securities
1,897
 
 
(1,846
)
Accrued interest receivable
19,362
 
 
9,711
 
Other assets
1,366
 
 
1,685
 
Net derivative accrued interest
(24,838
)
 
(9,501
)
Accrued interest payable
18,121
 
 
11,671
 
Other liabilities
4,273
 
 
4,293
 
Total adjustments
45,599
 
 
41,691
 
Net cash provided by operating activities
68,722
 
 
64,592
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
Net change in:
 
 
 
 
 
Interest-bearing deposits
(47
)
 
(14
)
Securities purchased under agreements to resell
1,925,000
 
 
(250,000
)
Federal funds sold
(1,550,000
)
 
231,000
 
Premises, software, and equipment
(104
)
 
(50
)
Trading securities:
 
 
 
 
 
Net increase in short-term
(35,000
)
 
 
Proceeds from long-term maturities
1,111
 
 
1,312
 
Purchases of long-term
 
 
(150,744
)
Available-for-sale securities:
 
 
 
 
 
Net increase in short-term
 
 
(250,000
)
Proceeds from long-term maturities
127,680
 
 
40,735
 
Proceeds from long-term sales
1,378,772
 
 
 
Purchases of long-term
(492,011
)
 
(1,226,466
)
Held-to-maturity securities:
 
 
 
 
 
Proceeds from long-term maturities
376,270
 
 
491,343
 
Purchases of long-term
(489,575
)
 
(482,750
)
Advances to members:
 
 
 
 
 
Proceeds
44,133,804
 
 
45,069,636
 
Disbursements
(42,130,996
)
 
(42,664,453
)
Mortgage loans held for portfolio:
 
 
 
 
 
Proceeds
211,503
 
 
158,576
 
Purchases
(135,596
)
 
(49,609
)
Proceeds from sale of foreclosed assets
2,751
 
 
2,431
 
Net cash provided by investing activities
3,323,562
 
 
920,947
 

6


 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
Net change in deposits
65,326
 
 
(104,584
)
Net payments on derivative contracts with a financing element
(8,403
)
 
(9,878
)
Net proceeds from issuance of consolidated obligations:
 
 
 
 
 
Discount notes
225,522,901
 
 
301,530,700
 
Bonds
1,925,539
 
 
9,156,210
 
Payments for maturing and retiring consolidated obligations:
 
 
 
 
 
Discount notes
(227,553,487
)
 
(304,724,189
)
Bonds
(2,955,000
)
 
(6,751,321
)
Proceeds from issuance of capital stock
1,584
 
 
3,100
 
Payments for redemption of mandatorily redeemable capital stock
(3,469
)
 
(93
)
Cash dividends paid
(2,770
)
 
 
Net cash used in financing activities
(3,007,779
)
 
(900,055
)
Net increase in cash and due from banks
384,505
 
 
85,484
 
Cash and due from banks at beginning of the year
6,151
 
 
191,143
 
Cash and due from banks at period end
$
390,656
 
 
$
276,627
 
Supplemental disclosures:
 
 
 
Interest paid
$
127,518
 
 
$
131,876
 
AHP payments
$
1,930
 
 
$
1,781
 
Noncash transfers of mortgage loans held for portfolio to real estate owned (REO)
$
2,862
 
 
$
2,857
 
 
The accompanying notes are an integral part of these financial statements. 

7


FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)
 
 
Note 1 — Basis of Presentation
 
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments considered necessary have been included. All such adjustments consist of normal recurring accruals. The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2011. The unaudited financial statements should be read in conjunction with the Federal Home Loan Bank of Boston's (the Bank's) audited financial statements and related notes in the Bank's Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (the SEC) on March 18, 2011 (the 2010 Annual Report).
 
Note 2 — Recently Issued Accounting Standards and Interpretations
 
Reconsideration of Effective Control for Repurchase Agreements. On April 29, 2011, the Financial Accounting Standards Board (FASB) issued guidance to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This guidance amends the existing criteria for determining whether or not a transferor has retained effective control over financial assets transferred under a repurchase agreement. A secured borrowing is recorded when effective control over the transferred financial assets is maintained while a sale is recorded when effective control over the transferred financial assets has not been maintained. The new guidance removes from the assessment of effective control: (1) the criterion requiring the transferor to have the ability to repurchase or redeem financial assets before their maturity on substantially the agreed terms, even in the event of the transferee's default, and (2) the collateral maintenance implementation guidance related to that criterion. This guidance is effective for the Bank's interim and annual periods beginning on January 1, 2012. This guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Bank is currently evaluating the effect of the adoption of this guidance on the Bank's financial condition, results of operations, or cash flows.
 
A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. On April 5, 2011, the FASB issued guidance to clarify which debt modifications constitute troubled debt restructurings. It is intended to help creditors determine whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for presenting previously deferred disclosures related to troubled debt restructurings. This guidance is effective for interim and annual periods beginning on or after June 15, 2011 (July 1, 2011, for the Bank), and applies retrospectively to troubled debt restructurings occurring on or after the beginning of the annual period of adoption. Early adoption is permitted. The adoption of this amended guidance could result in increased annual and interim financial statement disclosures, but is not expected to have a material effect on the Bank's financial condition, results of operations, or cash flows.
 
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the FASB issued amended guidance to enhance disclosures about an entity's allowance for credit losses and the credit quality of its financing receivables. The required disclosures as of the end of a reporting period became effective for interim and annual reporting periods ending on December 31, 2010. The required disclosures about activity that occurs during a reporting period became effective for interim and annual reporting periods beginning on January 1, 2011. The adoption of this amended guidance resulted in increased annual and interim financial statement disclosures, but did not affect the Bank's financial condition, results of operations, or cash flows.
 
On January 19, 2011, the FASB issued guidance to temporarily defer the effective date of disclosures about troubled debt restructurings required by the amended guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The effective date for these new disclosures will be coordinated with the effective date of the guidance for determining what constitutes a troubled debt restructuring.
 
Fair-Value Measurements and Disclosures-Improving Disclosures about Fair-Value Measurements. On January 21, 2010, the

8


FASB issued amended guidance for fair-value measurements and disclosures. The Bank adopted this guidance on January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair-value measurements, which was adopted on January 1, 2011. In the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The adoption of this amended guidance resulted in increased annual and interim financial statement disclosures, but did not affect the Bank's financial condition, results of operations, or cash flows.
 
Note 3 — Trading Securities
 
Major Security Types. Trading securities as of March 31, 2011, and December 31, 2010, were as follows (dollars in thousands):
 
March 31, 2011
 
December 31, 2010
Certificates of deposit
$
5,354,930
 
 
$
5,319,921
 
Mortgage-backed securities (MBS)
 
 
 
 
United States (U.S.) government-guaranteed - residential
20,692
 
 
21,366
 
Government-sponsored enterprises - residential
7,973
 
 
8,438
 
Government-sponsored enterprises - commercial
228,138
 
 
230,016
 
 
256,803
 
 
259,820
 
Total
$
5,611,733
 
 
$
5,579,741
 
 
Net unrealized (losses) gains on trading securities for the three months ended March 31, 2011 and 2010, amounted to $(1.9) million and $1.8 million for securities held on March 31, 2011 and 2010, respectively.
 
The Bank does not participate in speculative trading practices and typically holds these investments over a longer time horizon.
 
Note 4 — Available-for-Sale Securities
 
Major Security Types. Available-for-sale securities as of March 31, 2011, were as follows (dollars in thousands):
 
 
 
 
Amounts Recorded in
Accumulated Other
Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational banks
$
428,305
 
 
$
 
 
$
(30,744
)
 
$
397,561
 
Corporate bonds (2)
567,129
 
 
1,765
 
 
 
 
568,894
 
U.S. government corporations
261,753
 
 
 
 
(25,001
)
 
236,752
 
Government-sponsored enterprises
3,193,387
 
 
40,170
 
 
(12,571
)
 
3,220,986
 
 
4,450,574
 
 
41,935
 
 
(68,316
)
 
4,424,193
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
159,304
 
 
354
 
 
(61
)
 
159,597
 
Government-sponsored enterprises - residential
1,451,920
 
 
6,967
 
 
(110
)
 
1,458,777
 
Government-sponsored enterprises - commercial
251,378
 
 
111
 
 
(810
)
 
250,679
 
 
1,862,602
 
 
7,432
 
 
(981
)
 
1,869,053
 
Total
$
6,313,176
 
 
$
49,367
 
 
$
(69,297
)
 
$
6,293,246
 
_______________________
(1)         Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and fair value hedge accounting adjustments.
(2)    Consists of corporate debentures guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the FDIC's Temporary Liquidity Guarantee Program. The FDIC guarantee carries the full faith and credit of the U.S. government.
 
Available-for-sale securities as of December 31, 2010, were as follows (dollars in thousands):
 

9


 
 
 
Amounts Recorded in
Accumulated Other
Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Supranational banks
$
437,525
 
 
$
 
 
$
(36,855
)
 
$
400,670
 
Corporate bonds (2)
1,169,173
 
 
5,628
 
 
 
 
1,174,801
 
U.S. government-owned corporations
269,291
 
 
 
 
(31,090
)
 
238,201
 
Government-sponsored enterprises
3,481,405
 
 
51,640
 
 
(14,587
)
 
3,518,458
 
 
5,357,394
 
 
57,268
 
 
(82,532
)
 
5,332,130
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
166,780
 
 
496
 
 
(75
)
 
167,201
 
Government-sponsored enterprises - residential
1,572,036
 
 
10,911
 
 
 
 
1,582,947
 
Government-sponsored enterprises - commercial
254,018
 
 
145
 
 
(1,406
)
 
252,757
 
 
1,992,834
 
 
11,552
 
 
(1,481
)
 
2,002,905
 
Total
$
7,350,228
 
 
$
68,820
 
 
$
(84,013
)
 
$
7,335,035
 
_______________________
(1)         Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and fair value hedge accounting adjustments.
(2)         Consists of corporate debentures guaranteed by the FDIC under the FDIC's Temporary Liquidity Guarantee Program. The FDIC guarantee carries the full faith and credit of the U.S. government.
 
The following table summarizes available-for-sale securities with unrealized losses as of March 31, 2011, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands). 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
Supranational banks
$
 
 
$
 
 
$
397,561
 
 
$
(30,744
)
 
$
397,561
 
 
$
(30,744
)
U.S. government-owned corporations
 
 
 
 
236,752
 
 
(25,001
)
 
236,752
 
 
(25,001
)
Government-sponsored enterprises
263,210
 
 
(3,264
)
 
102,355
 
 
(9,307
)
 
365,565
 
 
(12,571
)
 
263,210
 
 
(3,264
)
 
736,668
 
 
(65,052
)
 
999,878
 
 
(68,316
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
38,974
 
 
(61
)
 
 
 
 
 
38,974
 
 
(61
)
Government-sponsored enterprises - residential
188,242
 
 
(110
)
 
 
 
 
 
188,242
 
 
(110
)
Government-sponsored enterprises - commercial
 
 
 
 
225,467
 
 
(810
)
 
225,467
 
 
(810
)
 
227,216
 
 
(171
)
 
225,467
 
 
(810
)
 
452,683
 
 
(981
)
Total temporarily impaired
$
490,426
 
 
$
(3,435
)
 
$
962,135
 
 
$
(65,862
)
 
$
1,452,561
 
 
$
(69,297
)
 
The following table summarizes available-for-sale securities with unrealized losses as of December 31, 2010, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands).
 

10


 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
Supranational banks
$
 
 
$
 
 
$
400,670
 
 
$
(36,855
)
 
$
400,670
 
 
$
(36,855
)
U.S. government-owned corporations
 
 
 
 
238,201
 
 
(31,090
)
 
238,201
 
 
(31,090
)
Government-sponsored enterprises
264,775
 
 
(2,839
)
 
102,869
 
 
(11,748
)
 
367,644
 
 
(14,587
)
 
264,775
 
 
(2,839
)
 
741,740
 
 
(79,693
)
 
1,006,515
 
 
(82,532
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
96,978
 
 
(75
)
 
 
 
 
 
96,978
 
 
(75
)
Government-sponsored enterprises - commercial
 
 
 
 
227,216
 
 
(1,406
)
 
227,216
 
 
(1,406
)
 
96,978
 
 
(75
)
 
227,216
 
 
(1,406
)
 
324,194
 
 
(1,481
)
Total temporarily impaired
$
361,753
 
 
$
(2,914
)
 
$
968,956
 
 
$
(81,099
)
 
$
1,330,709
 
 
$
(84,013
)
 
Redemption Terms. The amortized cost and fair value of available-for-sale securities by contractual maturity at March 31, 2011, and December 31, 2010, are shown below (dollars in thousands).
 
March 31, 2011
 
December 31, 2010
Year of Maturity
Amortized
Cost
 
Fair
 Value
 
Amortized
Cost
 
Fair
 Value
Due in one year or less
$
452,086
 
 
$
454,843
 
 
$
1,370,953
 
 
$
1,379,527
 
Due after one year through five years
3,196,768
 
 
3,232,682
 
 
3,165,009
 
 
3,210,864
 
Due after five years through 10 years
 
 
 
 
 
 
 
Due after 10 years
801,720
 
 
736,668
 
 
821,432
 
 
741,739
 
 
4,450,574
 
 
4,424,193
 
 
5,357,394
 
 
5,332,130
 
Mortgage-backed securities (1)
1,862,602
 
 
1,869,053
 
 
1,992,834
 
 
2,002,905
 
Total
$
6,313,176
 
 
$
6,293,246
 
 
$
7,350,228
 
 
$
7,335,035
 
_______________________
(1)     MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
As of March 31, 2011, the amortized cost of the Bank's available-for-sale securities included net premiums of $118.8 million. Of that amount, $124.4 million of net premiums relate to non-MBS and $5.6 million of net discounts relate to MBS. As of December 31, 2010, the amortized cost of the Bank's available-for-sale securities included net premiums of $118.1 million. Of that amount, $123.7 million of net premiums related to non-MBS and $5.6 million of net discounts related to MBS.
 
At March 31, 2011, and December 31, 2010, 22.2 percent and 19.0 percent, respectively, of the Bank's fixed-rate available-for-sale securities were swapped to a floating rate.
 
Gain on Sale. During the three months ended March 31, 2011, the Bank sold non-MBS available-for-sale securities with a carrying value of $1.4 billion and recognized a gain of $8.4 million on the sale.
 
Note 5 — Held-to-Maturity Securities
 
Major Security Types. Held-to-maturity securities as of March 31, 2011, were as follows (dollars in thousands):
 
 

11


 
Amortized Cost
 
Other-Than-
Temporary
Impairment
Recognized in
Accumulated
Other
Comprehensive
Loss
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Fair Value
U.S. agency obligations
$
23,491
 
 
$
 
 
$
23,491
 
 
$
1,865
 
 
$
 
 
$
25,356
 
State or local housing-finance-agency obligations
232,775
 
 
 
 
232,775
 
 
112
 
 
(41,154
)
 
191,733
 
Government-sponsored enterprises
72,204
 
 
 
 
72,204
 
 
1,652
 
 
 
 
73,856
 
 
328,470
 
 
 
 
328,470
 
 
3,629
 
 
(41,154
)
 
290,945
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed -residential
60,005
 
 
 
 
60,005
 
 
946
 
 
(2
)
 
60,949
 
Government-sponsored enterprises - residential
3,095,677
 
 
 
 
3,095,677
 
 
69,353
 
 
(7,143
)
 
3,157,887
 
Government-sponsored enterprises - commercial
1,359,082
 
 
 
 
1,359,082
 
 
63,330
 
 
(10,785
)
 
1,411,627
 
Private-label - residential
2,260,630
 
 
(549,245
)
 
1,711,385
 
 
127,120
 
 
(86,718
)
 
1,751,787
 
Private-label - commercial
34,852
 
 
 
 
34,852
 
 
690
 
 
(110
)
 
35,432
 
Asset-backed securities (ABS) backed by home equity loans
28,446
 
 
(497
)
 
27,949
 
 
223
 
 
(5,695
)
 
22,477
 
 
6,838,692
 
 
(549,742
)
 
6,288,950
 
 
261,662
 
 
(110,453
)
 
6,440,159
 
Total
$
7,167,162
 
 
$
(549,742
)
 
$
6,617,420
 
 
$
265,291
 
 
$
(151,607
)
 
$
6,731,104
 
 
Held-to-maturity securities as of December 31, 2010, were as follows (dollars in thousands):
 
Amortized Cost
 
Other-Than-
Temporary
Impairment
Recognized in
Accumulated
Other
Comprehensive
Loss
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Fair Value
U.S. agency obligations
$
24,856
 
 
$
 
 
$
24,856
 
 
$
2,100
 
 
$
 
 
$
26,956
 
State or local housing-finance-agency obligations
235,735
 
 
 
 
235,735
 
 
413
 
 
(46,415
)
 
189,733
 
Government-sponsored enterprises
72,617
 
 
 
 
72,617
 
 
1,993
 
 
 
 
74,610
 
 
333,208
 
 
 
 
333,208
 
 
4,506
 
 
(46,415
)
 
291,299
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed -residential
64,975
 
 
 
 
64,975
 
 
1,184
 
 
 
 
66,159
 
Government-sponsored enterprises - residential
2,899,360
 
 
 
 
2,899,360
 
 
76,784
 
 
(7,109
)
 
2,969,035
 
Government-sponsored enterprises - commercial
1,303,343
 
 
 
 
1,303,343
 
 
75,665
 
 
(8,758
)
 
1,370,250
 
Private-label - residential
2,379,610
 
 
(620,927
)
 
1,758,683
 
 
117,796
 
 
(102,557
)
 
1,773,922
 
Private-label - commercial
71,799
 
 
 
 
71,799
 
 
743
 
 
(491
)
 
72,051
 
ABS backed by home equity loans
28,777
 
 
(601
)
 
28,176
 
 
229
 
 
(6,940
)
 
21,465
 
 
6,747,864
 
 
(621,528
)
 
6,126,336
 
 
272,401
 
 
(125,855
)
 
6,272,882
 
Total
$
7,081,072
 
 
$
(621,528
)
 
$
6,459,544
 
 
$
276,907
 
 
$
(172,270
)
 
$
6,564,181
 
  
The following table summarizes the held-to-maturity securities with unrealized losses as of March 31, 2011, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands). 

12


 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
State or local housing-finance-agency obligations
$
27,277
 
 
$
(9
)
 
$
152,925
 
 
$
(41,145
)
 
$
180,202
 
 
$
(41,154
)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
928
 
 
(2
)
 
 
 
 
 
928
 
 
(2
)
Government-sponsored enterprises - residential
323,796
 
 
(6,444
)
 
51,628
 
 
(699
)
 
375,424
 
 
(7,143
)
Government-sponsored enterprises - commercial
324,225
 
 
(10,785
)
 
 
 
 
 
324,225
 
 
(10,785
)
Private-label - residential
 
 
 
 
1,717,676
 
 
(509,646
)
 
1,717,676
 
 
(509,646
)
Private-label - commercial
 
 
 
 
24,211
 
 
(110
)
 
24,211
 
 
(110
)
ABS backed by home equity loans
 
 
 
 
22,477
 
 
(5,969
)
 
22,477
 
 
(5,969
)
 
648,949
 
 
(17,231
)
 
1,815,992
 
 
(516,424
)
 
2,464,941
 
 
(533,655
)
Total
$
676,226
 
 
$
(17,240
)
 
$
1,968,917
 
 
$
(557,569
)
 
$
2,645,143
 
 
$
(574,809
)
 
The following table summarizes the held-to-maturity securities with unrealized losses as of December 31, 2010, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands). 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
State or local housing-finance-agency obligations
$
 
 
$
 
 
$
149,256
 
 
$
(46,415
)
 
$
149,256
 
 
$
(46,415
)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises - residential
265,701
 
 
(6,399
)
 
54,754
 
 
(710
)
 
320,455
 
 
(7,109
)
Government-sponsored enterprises - commercial
172,958
 
 
(8,758
)
 
 
 
 
 
172,958
 
 
(8,758
)
Private-label - residential
 
 
 
 
1,767,929
 
 
(606,497
)
 
1,767,929
 
 
(606,497
)
Private-label - commercial
 
 
 
 
57,630
 
 
(491
)
 
57,630
 
 
(491
)
ABS backed by home equity loans
 
 
 
 
21,465
 
 
(7,312
)
 
21,465
 
 
(7,312
)
 
438,659
 
 
(15,157
)
 
1,901,778
 
 
(615,010
)
 
2,340,437
 
 
(630,167
)
Total
$
438,659
 
 
$
(15,157
)
 
$
2,051,034
 
 
$
(661,425
)
 
$
2,489,693
 
 
$
(676,582
)
 
Redemption Terms. The amortized cost and fair value of held-to-maturity securities by contractual maturity at March 31, 2011, and December 31, 2010, are shown below (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
March 31, 2011
 
December 31, 2010
Year of Maturity
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
 
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
Due in one year or less
$
1,266
 
 
$
1,266
 
 
$
1,265
 
 
$
1,266
 
 
$
1,266
 
 
$
1,277
 
Due after one year through five years
74,025
 
 
74,025
 
 
75,740
 
 
74,478
 
 
74,478
 
 
76,562
 
Due after five years through 10 years
65,960
 
 
65,960
 
 
66,466
 
 
68,470
 
 
68,470
 
 
69,158
 
Due after 10 years
187,219
 
 
187,219
 
 
147,474
 
 
188,994
 
 
188,994
 
 
144,302
 
 
328,470
 
 
328,470
 
 
290,945
 
 
333,208
 
 
333,208
 
 
291,299
 
Mortgage-backed securities (2)
6,838,692
 
 
6,288,950
 
 
6,440,159
 
 
6,747,864
 
 
6,126,336
 
 
6,272,882
 
Total
$
7,167,162
 
 
$
6,617,420
 
 
$
6,731,104
 
 
$
7,081,072
 
 
$
6,459,544
 
 
$
6,564,181
 
_______________________
(1)         Carrying value of held-to-maturity securities represents the sum of amortized cost and the amount of noncredit-related

13


other-than-temporary impairment recognized in accumulated other comprehensive loss.
(2)     MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
As of March 31, 2011, the amortized cost of the Bank's held-to-maturity securities includes net discounts of $536.1 million. Of that amount, net premiums of $4.9 million relate to non-MBS and net discounts of $541.0 million relate to MBS. As of December 31, 2010, the amortized cost of the Bank's held-to-maturity securities includes net discounts of $523.4 million. Of that amount, net premiums of $5.3 million relate to non-MBS and net discounts of $528.7 million relate to MBS.
 
Note 6 — Other-Than-Temporary Impairment
 
The Bank evaluates its individual available-for-sale and held-to-maturity securities for other-than-temporary impairment on a quarterly basis. As part of its evaluation of securities for other-than-temporary impairment, the Bank considers its intent to sell each debt security or whether it is more likely than not that the Bank will be required to sell the security before the anticipated recovery of the remaining amortized cost. If either of these conditions is met, the Bank recognizes an other-than-temporary impairment charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance-sheet date. For securities that meet neither of these conditions and for all residential private-label MBS, the Bank performs additional analysis to determine if any of these securities are other-than-temporarily impaired.
 
Available-for-Sale Securities
 
As a result of these evaluations, the Bank determined that none of its available-for-sale securities were other-than-temporarily impaired at March 31, 2011. The Bank's available-for-sale securities portfolio has experienced unrealized losses that reflect the impact of normal yield and spread fluctuations attendant with security markets. However, the declines are considered temporary as the Bank expects to recover the entire amortized cost basis on these available-for-sale securities in an unrealized loss position and neither intends to sell these securities nor is it more likely than not that the Bank will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. Regarding securities that were in an unrealized loss position as of March 31, 2011:
 
•    Debentures issued by a supranational bank that were in an unrealized loss position as of March 31, 2011, are expected to return contractual principal and interest, based on the Bank's review and analysis of independent third-party credit reports on the supranational entity, and such supranational entity is rated triple-A by each of the three nationally recognized statistical rating organizations (NRSROs).
 
•    Debentures issued by U.S. government corporations are not obligations of the U.S. government and not guaranteed by the U.S. government. However, these securities are rated triple-A by the three NRSROs. These ratings reflect the U.S. government's implicit support of the government corporation as well as the entity's underlying business and financial risk.
 
U.S government-guaranteed securities consist of MBS issued by the National Credit Union Administration. The Bank determined that the strength of the issuer's guarantees through direct obligation from the U.S. government is sufficient to protect the Bank from losses based on current expectations.
  
•    The Bank has concluded that the probability of default on debt issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) is remote given their status as government-sponsored enterprises (GSEs) and their support from the U.S. government. Further, MBS issued by Fannie Mae and Freddie Mac are backed by mortgage loans conforming with those GSEs' underwriting requirements and the GSEs' credit guarantees as to full return of principal and interest.
 
Held-to-Maturity Securities
 
State or Local Housing-Finance-Agency Obligations. Management has reviewed the state and local housing-finance-agency (HFA) obligations and has determined that unrealized losses reflect the impact of normal market yield and spread fluctuations and illiquidity in the credit markets. The Bank has determined that all unrealized losses are temporary given the creditworthiness of the issuers and the underlying collateral, including an assessment of past payment history, property vacancy rates, debt service ratios, overcollateralization, and third-party bond insurance as applicable. As of March 31, 2011, none of the Bank's held-to-maturity investments in HFA obligations were rated below investment grade by an NRSRO. Because the decline in market value is attributable to changes in interest rates and credit spreads and illiquidity in the credit markets and not to a significant deterioration in the fundamental credit quality of these obligations, and because the Bank does not intend to sell the

14


investments nor is it more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis, the Bank does not consider these investments to be other-than-temporarily impaired at March 31, 2011.
 
MBS Issued by GSEs. For MBS issued by GSEs, the Bank determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses based on current expectations. As a result, the Bank has determined that, as of March 31, 2011, all of the gross unrealized losses on such MBS are temporary. The Bank does not believe that the declines in market value of these securities are attributable to credit quality, and because the Bank does not intend to sell the investments, nor is it more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis. Accordingly, the Bank does not consider any of these investments to be other-than-temporarily impaired at March 31, 2011.
 
Private-Label Commercial MBS. Based upon the Bank's assessment of the creditworthiness of the issuers of private-label commercial MBS, the credit ratings assigned by the NRSROs, the performance of the underlying loans, and the credit support provided by the subordinate securities, the Bank expects that its holdings of private-label commercial MBS would not be settled at an amount less than the amortized cost bases in these investments. Furthermore, since the Bank does not believe that the declines in market value of these securities are attributable to credit quality, the Bank does not intend to sell the investments, nor is it more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis, the Bank does not consider any of these investments to be other-than-temporarily impaired at March 31, 2011.
 
Private-Label Residential MBS and Home Equity Loan Investments. The Bank invested in private-label residential MBS, which as of the date of purchase were all rated triple-A. Each private-label residential MBS may contain one or more forms of credit protection/enhancements, including but not limited to guarantee of principal and interest, subordination, over-collateralization and excess interest, and third-party bond insurance.
 
To ensure consistency in determination of the other-than-temporary impairment for private-label residential MBS and certain home equity loan investments (including home equity ABS) among all Federal Home Loan Banks (FHLBanks), the FHLBanks enhanced their overall other-than-temporary impairment process in 2009 by implementing a system-wide governance committee and establishing a formal process to ensure consistency in key other-than-temporary impairment modeling assumptions used for purposes of their cash-flow analyses for the majority of these securities. The Bank uses the FHLBanks' common framework and approved assumptions for purposes of its other-than-temporary impairment cash-flow analysis on its private-label residential MBS and certain home equity loan investments. For certain private-label residential MBS and home equity loan investments where underlying collateral data is not available, the Bank has used alternative procedures to assess these securities for other-than-temporary impairment. The Bank is responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historical cost bases and yields.
 
The Bank's evaluation includes estimating the projected cash flows that the Bank is likely to collect based on an assessment of all available information, including the structure of the applicable security and certain assumptions to determine whether the Bank will recover the entire amortized cost basis of the security, such as:
 
the remaining payment terms for the security;
prepayment speeds;
default rates;
loss severity on the collateral supporting each security based on underlying loan-level borrower and loan characteristics;
expected housing price changes, and
interest-rate assumptions
 
In performing a detailed cash-flow analysis, the Bank identifies the best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows (discounted at the security's effective yield) that is less than the amortized cost basis of a security (that is, a credit loss exists), other-than-temporary impairment is considered to have occurred. For determining the present value of variable-rate and hybrid private-label residential MBS, the Bank uses the effective interest rate derived from a variable-rate index such as, one-month London Interbank Offered Rate (LIBOR) plus the contractual spread, plus or minus a fixed spread adjustment when there is an existing discount or premium on the security. As the implied forward curve of the index changes over time, the effective interest rates derived from that index will also change over time.
 
In accordance with related guidance from the Finance Agency, the Bank has contracted with the FHLBanks of San Francisco and Chicago to perform the cash-flow analysis underlying the Bank's other-than-temporary impairment decisions in certain

15


instances. In the event that neither the FHLBank of San Francisco nor the FHLBank of Chicago have the ability to model a particular MBS owned by the Bank, the Bank projects the expected cash flows for that security based on the Bank's expectations as to how the underlying collateral and impact on deal structure resultant from collateral cash flows are forecasted to occur over time. These assumptions are based on factors including but not limited to loan-level data for each security and modeling variables expectations for securities similar in nature modeled by either the FHLBank of San Francisco or the FHLBank of Chicago. The Bank forms these expectations for those securities by reviewing, when available, loan-level data for each such security, and, when such loan-level data is not available for a security, by reviewing loan-level data for similar loan pools as a proxy for such data.
 
Specifically, the Bank has contracted with the FHLBank of San Francisco to perform cash-flow analyses for its residential private-label MBS other than subprime private-label MBS, and with the FHLBank of Chicago to perform cash-flow analyses for its subprime private-label MBS. The following table summarizes the analyses of the FHLBanks contracted to perform cash-flow analysis for the Bank (dollars in thousands).
 
As of March 31, 2011
 
Number of
Securities
 
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
FHLBank of San Francisco
173
 
$
2,703,164
 
 
$
2,187,154
 
 
$
1,655,063
 
 
$
1,699,211
 
FHLBank of Chicago
16
 
$
24,675
 
 
$
24,033
 
 
$
23,672
 
 
$
19,216
 
Bank's own cash-flow projections
13
 
$
89,942
 
 
$
74,268
 
 
$
56,978
 
 
$
52,198
 
 
To assess whether the entire amortized cost basis of private-label residential MBS will be recovered, cash-flow analyses for each of the Bank's private-label residential MBS were performed. These analyses use two third-party models.
 
The first third-party model considers borrower characteristics and the particular attributes of the loans underlying the Bank's securities, in conjunction with the assumptions about future changes in home prices and interest rates, and projects 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 United States 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, 2011, assumed current-to-trough home price declines ranging from 0.0 percent (for those housing markets that are believed to have reached their trough) to 10.0 percent. For those markets for which further home price declines are anticipated, such declines were projected to occur over the three- to nine-month period beginning January 1, 2011. From the trough, home prices were projected to recover using one of five different recovery paths that vary by housing market. Under those recovery paths, home prices were projected to increase within a range of 0.0 percent to 2.8 percent in the first year, 0.0 percent to 3.0 percent in the second year, 1.5 percent to 4.0 percent in the third year, 2.0 percent to 5.0 percent in the fourth year, 2.0 percent to 6.0 percent in each of the fifth and sixth years, and 2.3 percent to 5.6 percent in each subsequent year.
 
The month-by-month projections of future loan performance are derived from the first model to determine projected prepayments, defaults, and loss severities. These projections are then input into a second model that calculates the projected loan-level cash flows and then allocates those cash flows and losses to the various classes in the securitization structure in accordance with the cash-flow and loss-allocation rules prescribed by the securitization structure.
 
The Bank does not intend to sell these securities and believes it is not more likely than not that the Bank will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. The Bank recorded other-than-temporary impairment credit losses of $30.6 million for the three months ended March 31, 2011. For held-to-maturity securities, the portion of an other-than-temporary impairment charge that is recognized in other comprehensive loss is accreted from accumulated other comprehensive loss to the carrying value of the security over the remaining life of the security in a prospective manner based on the amount and timing of future estimated cash flows. This accretion continues until the security is sold or matures, or an additional other-than-temporary impairment charge is recorded in earnings, which could result in a reclassification adjustment and the establishment of a new amount to be accreted. For the three months ended March 31, 2011, the Bank accreted $48.0 million of noncredit impairment from accumulated other comprehensive loss to the carrying value of held-to-maturity securities. For certain other-than-temporarily impaired securities that were previously impaired and have subsequently incurred additional credit losses during the three months ended March 31, 2011, the additional credit losses, up to the amount in accumulated other comprehensive loss, were reclassified out of noncredit-related losses in accumulated other comprehensive loss and charged to earnings. This amount was $28.8 million for the three months ended March 31, 2011.
 
For those securities for which an other-than-temporary impairment was determined to have occurred during the quarter ended

16


March 31, 2011 (that is, a determination was made that less than the entire amortized cost basis is expected to be recovered), the following table presents a summary of the average projected values over the remaining lives of the securities for the significant inputs used to measure the amount of the credit loss recognized in earnings during the three months ended March 31, 2011, as well as related current credit enhancement. Credit enhancement is defined as the percentage of subordinated tranches and over-collateralization, if any, in a security structure that will generally absorb losses before the Bank will experience a loss on the security. The calculated averages represent the dollar-weighted averages of all the private-label residential MBS and home equity loan investments in each category shown (dollars in thousands).
 
 
 
 
 
Significant Inputs
 
 
 
 
 
 
 
 
Projected
Prepayment Rates
 
Projected
Default Rates
 
Projected
Loss Severities
 
Current
Credit Enhancement
Private-label MBS by
Year of Securitization
 
Par Value
 
Weighted
Average
Percent
 
Range
Percent
 
Weighted
Average
Percent
 
Range
Percent
 
Weighted
Average
Percent
 
Range
Percent
 
Weighted
Average
Percent
 
Range
Percent
Private-label residential MBS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prime (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2006
 
$
19,867
 
 
10.3
%
 
10.3
%
 
40.9
%
 
40.9
%
 
43.3
%
 
43.3
%
 
3.1
%
 
3.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alt-A (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2007
 
$
422,838
 
 
6.6
%
 
3.7 - 11.0
 
 
80.2
%
 
49.4 - 87.4
 
 
57.0
%
 
47.4 - 60.5
 
 
8.0
%
 
0.0 - 46.3
 
2006
 
915,143
 
 
6.8
 
 
   3.8 - 9.9
 
 
77.7
 
 
 64.4 - 89.7
 
 
56.7
 
 
 47.3 - 61.3
 
 
19.3
 
 
 0.0 - 45.2
 
2005
 
343,069
 
 
9.2
 
 
  6.9 - 12.8
 
 
56.7
 
 
 34.3 - 75.2
 
 
49.6
 
 
 37.6 - 59.6
 
 
18.2
 
 
 1.5 - 47.8
 
Total
 
$
1,681,050
 
 
7.2
%
 
3.7 - 12.8
 
 
74.0
%
 
34.3 - 89.7
 
 
55.3
%
 
37.6 - 61.3
 
 
16.2
%
 
0.0 - 47.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABS backed by home equity loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subprime (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2004 and prior
 
$
1,075
 
 
12.3
%
 
12.3
%
 
52.4
%
 
52.4
%
 
94.7
%
 
94.7
%
 
%
 
%
_______________________
(1)         Securities are classified in the table above based upon the current performance characteristics of the underlying loan pool and therefore the manner in which the loan pool backing the security has been modeled (as prime, Alt-A, or subprime), rather than the classification of the security at the time of issuance.
 
Certain private-label MBS owned by the Bank are insured by third-party bond insurers (monoline insurers). The FHLBanks performed analyses to assess the financial strength of these monoline insurers to establish an expected case regarding the time horizon of the bond insurers' ability to fulfill their financial obligations and provide credit support. The projected time horizon of credit protection provided by an insurer is a function of claims-paying resources and anticipated claims in the future. This assumption is referred to as the “burnout period” and is expressed in months. Of the five monoline insurers, the financial guarantee from Assured Guaranty Municipal Corp. is considered sufficient to cover all future claims and is, therefore, excluded from the burnout analysis discussed above. Conversely, the burnout period for three monoline insurers, Syncora Guarantee Inc., Financial Guarantee Insurance Corp., and Ambac Assurance Corp. (Ambac), are not considered applicable due to regulatory intervention that has generally suspended all claims payments to effectively zero. For the remaining monoline insurer, MBIA Insurance Corp. (MBIA), the burnout period as of March 31, 2011, is three months, ending in June 2011. No securities guaranteed by MBIA were determined to have an other-than-temporary impairment credit losses at March 31, 2011.
 
The following table displays the Bank's securities for which other-than-temporary impairment credit losses were recognized in the three months ending March 31, 2011 (dollars in thousands). Securities are classified in the table below based on the classification at the time of issuance.
 
March 31, 2011
Other-Than-Temporarily Impaired Investment
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
Private-label residential MBS – Prime
$
68,811
 
 
$
61,091
 
 
$
44,063
 
 
$
50,857
 
Private-label residential MBS – Alt-A
1,632,106