Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Federal Home Loan Bank of DallasFinancial_Report.xls
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - Federal Home Loan Bank of Dallasfhlbdallas-093014xex_312.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Federal Home Loan Bank of Dallasfhlbdallas-093014xex_311.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER - Federal Home Loan Bank of Dallasfhlbdallas-093014xex_32.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51405
FEDERAL HOME LOAN BANK OF DALLAS
(Exact name of registrant as specified in its charter)
Federally chartered corporation
(State or other jurisdiction of incorporation
or organization)
 
71-6013989
(I.R.S. Employer
Identification Number)
 
 
 
8500 Freeport Parkway South, Suite 600
Irving, TX
(Address of principal executive offices)
 
75063-2547
(Zip code)
(214) 441-8500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and [2] has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (17 C.F.R. §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer þ
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At October 31, 2014, the registrant had outstanding 9,932,479 shares of its Class B Capital Stock, $100 par value per share.
 



FEDERAL HOME LOAN BANK OF DALLAS
TABLE OF CONTENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CONDITION
(Unaudited; in thousands, except share data)
 
September 30,
2014
 
December 31,
2013
ASSETS
 

 
 

Cash and due from banks
$
3,319,398

 
$
911,081

Interest-bearing deposits
328

 
344

Security purchased under agreement to resell (Note 10)
200,000

 

Federal funds sold
3,592,000

 
1,468,000

Trading securities (Notes 3, 10 and 15) ($24,993 pledged at September 30, 2014, which
can be rehypothecated)
458,326

 
1,007,757

Available-for-sale securities (Note 4)
6,075,291

 
5,455,693

Held-to-maturity securities (a) (Note 5)
4,892,313

 
5,198,549

Advances (Notes 6 and 7)
18,758,139

 
15,978,945

Mortgage loans held for portfolio, net of allowance for credit losses of $148 and $165 at
September 30, 2014 and December 31, 2013, respectively (Note 7)
75,692

 
91,110

Accrued interest receivable
78,345

 
64,425

Premises and equipment, net
18,250

 
18,477

Derivative assets (Notes 10 and 11)
8,187

 
15,909

Other assets
8,333

 
11,534

TOTAL ASSETS
$
37,484,602

 
$
30,221,824

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
622,949

 
$
885,638

Non-interest bearing
24

 
29

Total deposits
622,973

 
885,667

 
 
 
 
Consolidated obligations (Note 8)
 
 
 
Discount notes
17,433,491

 
5,984,530

Bonds
17,356,431

 
21,486,712

Total consolidated obligations
34,789,922

 
27,471,242

 
 
 
 
Mandatorily redeemable capital stock
4,655

 
3,065

Accrued interest payable
41,132

 
47,035

Affordable Housing Program (Note 9)
26,256

 
31,864

Derivative liabilities (Notes 10 and 11)
12,116

 
10,991

Other liabilities (Note 4)
48,003

 
25,456

Total liabilities
35,545,057

 
28,475,320

 
 
 
 
Commitments and contingencies (Notes 7 and 15)


 


 
 
 
 
CAPITAL (Note 12)
 
 
 
Capital stock — Class B putable ($100 par value) issued and outstanding shares: 12,413,978 and 11,236,747 shares at September 30, 2014 and December 31, 2013, respectively
1,241,398

 
1,123,675

Retained earnings
 
 
 
Unrestricted
642,747

 
615,620

Restricted
47,399

 
39,850

Total retained earnings
690,146

 
655,470

Accumulated other comprehensive income (loss) (Note 18)
8,001

 
(32,641
)
Total capital
1,939,545

 
1,746,504

TOTAL LIABILITIES AND CAPITAL
$
37,484,602

 
$
30,221,824

_____________________________
(a)
Fair values: $4,958,415 and $5,258,422 at September 30, 2014 and December 31, 2013, respectively.
The accompanying notes are an integral part of these financial statements.

1


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

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
30,533

 
$
34,627

 
$
92,327

 
$
108,121

Prepayment fees on advances, net
 
491

 
10,145

 
5,354

 
13,819

Interest-bearing deposits
 
155

 
208

 
471

 
956

Securities purchased under agreements to resell
 
203

 
30

 
394

 
1,116

Federal funds sold
 
610

 
388

 
1,361

 
1,576

Trading securities
 
108

 
132

 
386

 
132

Available-for-sale securities
 
5,649

 
5,658

 
15,912

 
17,361

Held-to-maturity securities
 
9,628

 
12,594

 
30,946

 
40,755

Mortgage loans held for portfolio
 
1,117

 
1,402

 
3,565

 
4,571

Other
 

 

 

 
1

Total interest income
 
48,494

 
65,184

 
150,716

 
188,408

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
17,797

 
21,352

 
55,573

 
69,454

Discount notes
 
3,150

 
1,438

 
6,938

 
5,169

Deposits
 
17

 
24

 
60

 
88

Mandatorily redeemable capital stock
 
3

 
9

 
11

 
17

Other borrowings
 

 
2

 
4

 
6

Total interest expense
 
20,967

 
22,825

 
62,586

 
74,734

NET INTEREST INCOME
 
27,527

 
42,359

 
88,130

 
113,674

 
 
 
 
 
 
 
 
 
OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
Service fees
 
737

 
744

 
1,880

 
2,060

Net gains on trading securities
 
61

 
687

 
620

 
927

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

 
(663
)
 
2,459

 
4,213

Gains on early extinguishment of debt
 

 
5,642

 
723

 
5,642

Letter of credit fees
 
1,259

 
1,152

 
3,600

 
3,457

Other, net
 
(379
)
 
(3
)
 
(435
)
 
(28
)
Total other income
 
3,169

 
7,559

 
8,847

 
16,271

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
8,935

 
10,032

 
29,090

 
30,107

Other operating expenses
 
8,625

 
5,927

 
22,503

 
18,785

Finance Agency
 
502

 
495

 
1,667

 
1,710

Office of Finance
 
572

 
643

 
1,715

 
1,852

Other
 
30

 
7

 
63

 
8

Total other expense
 
18,664

 
17,104

 
55,038

 
52,462

INCOME BEFORE ASSESSMENTS
 
12,032

 
32,814

 
41,939

 
77,483

Affordable Housing Program assessment
 
1,204

 
3,282

 
4,195

 
7,750

NET INCOME
 
$
10,828

 
$
29,532

 
$
37,744

 
$
69,733

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

2


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

 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2014
 
2013
 
2014
 
2013
NET INCOME
 
$
10,828

 
$
29,532

 
$
37,744

 
$
69,733

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities, net of unrealized gains and losses relating to hedged interest rate risk included in net income
 
4,853

 
(5,822
)
 
35,221

 
(25,314
)
Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
1,783

 
2,044

 
5,490

 
6,144

Postretirement benefit plan
 
 
 
 
 
 
 
 
Prior service cost
 

 

 

 
(211
)
Amortization of prior service cost (credit) included in net periodic benefit cost
 
1

 
(5
)
 
2

 
(13
)
Amortization of net actuarial gain included in net periodic benefit cost
 
(24
)
 
(6
)
 
(71
)
 
(18
)
Total other comprehensive income (loss)
 
6,613

 
(3,789
)
 
40,642

 
(19,412
)
TOTAL COMPREHENSIVE INCOME
 
$
17,441

 
$
25,743

 
$
78,386

 
$
50,321


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

3




FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited, in thousands)

 
 
 
 
 
 
 
 
 
 
 
Accumulated
 Other
Comprehensive
 Income (Loss)
 
 
 
Capital Stock
Class B - Putable
 
Retained Earnings
 
 
Total
 Capital
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, JANUARY 1, 2014
11,237

 
$
1,123,675

 
$
615,620

 
$
39,850

 
$
655,470

 
$
(32,641
)
 
$
1,746,504

Proceeds from sale of capital stock
8,570

 
857,028

 

 

 

 

 
857,028

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

 

 

 

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

 

 

 

 
(2,559
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
30,195

 
7,549

 
37,744

 

 
37,744

Other comprehensive income

 

 

 

 

 
40,642

 
40,642

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

 

 
(128
)
 

 
(128
)
 

 
(128
)
Mandatorily redeemable capital stock

 

 
(3
)
 

 
(3
)
 

 
(3
)
Stock
29

 
2,937

 
(2,937
)
 

 
(2,937
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2014
12,414

 
$
1,241,398

 
$
642,747

 
$
47,399

 
$
690,146

 
$
8,001

 
$
1,939,545

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2013
12,170

 
$
1,216,986

 
$
549,617

 
$
22,276

 
$
571,893

 
$
(18,245
)
 
$
1,770,634

Proceeds from sale of capital stock
7,169

 
716,886

 

 

 

 

 
716,886

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

 

 

 

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

 

 

 

 
(25,882
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 
55,786

 
13,947

 
69,733

 

 
69,733

Other comprehensive loss

 

 

 

 

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

 

 
(130
)
 

 
(130
)
 

 
(130
)
Mandatorily redeemable capital stock

 

 
(24
)
 

 
(24
)
 

 
(24
)
Stock
31

 
3,066

 
(3,066
)
 

 
(3,066
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, SEPTEMBER 30, 2013
11,402

 
$
1,140,171

 
$
602,183

 
$
36,223

 
$
638,406

 
$
(37,657
)
 
$
1,740,920


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



4


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
For the Nine Months Ended
 
September 30,
 
2014
 
2013
OPERATING ACTIVITIES
 
 
 
Net income
$
37,744

 
$
69,733

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
 
 
 
Net premiums and discounts on advances, consolidated obligations, investments and mortgage loans
52,687

 
25,529

Concessions on consolidated obligation bonds
1,435

 
1,418

Premises, equipment and computer software costs
2,638

 
3,614

Non-cash interest on mandatorily redeemable capital stock
11

 
10

Gains on early extinguishment of debt
(723
)
 
(5,642
)
Net loss on disposition of premises, equipment and computer software
72

 

Net increase in trading securities
(664
)
 
(1,777
)
Loss due to change in net fair value adjustment on derivative and hedging activities
67,917

 
65,549

Increase in accrued interest receivable
(13,904
)
 
(5,791
)
Decrease in other assets
3,310

 
1,498

Increase (decrease) in Affordable Housing Program (AHP) liability
(5,608
)
 
1,296

Decrease in accrued interest payable
(5,903
)
 
(5,081
)
Increase in other liabilities
2,066

 
1,999

Total adjustments
103,334

 
82,622

Net cash provided by operating activities
141,078

 
152,355

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net decrease in interest-bearing deposits, including swap collateral pledged
169,372

 
335,298

Net decrease (increase) in securities purchased under agreements to resell
(200,000
)
 
2,500,000

Net decrease (increase) in federal funds sold
(2,124,000
)
 
513,000

Net decrease (increase) in short-term trading securities held for investment
549,329

 
(699,164
)
Purchases of available-for-sale securities
(646,094
)
 

Proceeds from maturities of available-for-sale securities
5,029

 

Proceeds from maturities of long-term held-to-maturity securities
772,838

 
1,399,387

Purchases of long-term held-to-maturity securities
(453,459
)
 
(1,331,882
)
Principal collected on advances
346,985,821

 
366,535,440

Advances made
(349,805,603
)
 
(365,019,232
)
Principal collected on mortgage loans held for portfolio
15,297

 
24,888

Purchases of premises, equipment and computer software
(1,749
)
 
(981
)
Net cash provided by (used in) investing activities
(4,733,219
)
 
4,256,754

 
 
 
 

5


 
For the Nine Months Ended
 
September 30,
 
2014
 
2013
FINANCING ACTIVITIES
 
 
 
Net decrease in deposits, including swap collateral held
(265,214
)
 
(301,131
)
Net payments on derivative contracts with financing elements
(126,130
)
 
(151,296
)
Net proceeds from issuance of consolidated obligations
 

 
 
Discount notes
190,366,204

 
138,034,921

Bonds
9,756,396

 
5,672,427

Debt issuance costs
(2,270
)
 
(971
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(178,917,910
)
 
(138,504,767
)
Bonds
(13,926,855
)
 
(9,141,573
)
Proceeds from issuance of capital stock
857,028

 
716,886

Proceeds from issuance of mandatorily redeemable capital stock
9

 
18

Payments for redemption of mandatorily redeemable capital stock
(989
)
 
(351
)
Payments for repurchase/redemption of capital stock
(739,683
)
 
(770,885
)
Cash dividends paid
(128
)
 
(130
)
Net cash provided by (used in) financing activities
7,000,458

 
(4,446,852
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
2,408,317

 
(37,743
)
Cash and cash equivalents at beginning of the period
911,081

 
920,780

Cash and cash equivalents at end of the period
$
3,319,398

 
$
883,037

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
88,704

 
$
111,311

AHP payments, net
$
9,803

 
$
6,454

Stock dividends issued
$
2,937

 
$
3,066

Dividends paid through issuance of mandatorily redeemable capital stock
$
3

 
$
24

Net capital stock reclassified to mandatorily redeemable capital stock
$
2,559

 
$
25,882


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, 2013. 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, 2013 filed with the SEC on March 24, 2014 (the “2013 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2013 10-K.
The Bank is one of 12 district Federal Home Loan Banks, each individually a “FHLBank” and collectively the “FHLBanks,” and, together with the Office of Finance, a joint office of the FHLBanks, the “FHLBank System.” The Office of Finance manages the sale and servicing of the FHLBanks’ consolidated obligations. The Federal Housing Finance Agency (“Finance Agency”), an independent agency in the executive branch of the U.S. government, supervises and regulates the housing government-sponsored enterprises ("GSEs"), including the FHLBanks and the Office of Finance.
     Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Significant assumptions include those that are used by the Bank in its periodic evaluation of its holdings of non-agency residential mortgage-backed securities ("MBS") for other-than-temporary impairment (“OTTI”). Significant estimates include the valuations of the Bank’s investment securities, as well as its derivative instruments and any associated hedged items. Actual results could differ from these estimates.

Note 2—Recently Issued Accounting Guidance
    Asset Classification and Charge-offs. On April 9, 2012, the Finance Agency issued Advisory Bulletin 2012-02, "Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention" ("AB 2012-02"). The guidance establishes a standard and uniform methodology for classifying assets and prescribes the timing of asset charge-offs, excluding investment securities. The guidance in AB 2012-02 is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. The adoption of the accounting guidance in AB 2012-02, which is effective January 1, 2015, is not expected to have a significant impact on the Bank's results of operations or financial condition.
Joint and Several Liability Arrangements. On February 28, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-04 “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”), which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. ASU 2013-04 requires an entity to measure these obligations as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The guidance in ASU 2013-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (January 1, 2014 for the Bank) and is to be applied retrospectively to all prior periods presented. The adoption of this guidance did not have any impact on the Bank's results of operations or financial condition.
Revenue from Contracts with Customers. On May 28, 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers" ("ASU 2014-09"), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In addition, ASU 2014-09 amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. ASU 2014-09 applies to all contracts with customers except those that are within the scope of certain other standards,

7


such as financial instruments, certain guarantees, insurance contracts, and lease contracts. The guidance in ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 (January 1, 2017 for the Bank). Early application is not permitted. The Bank has not yet determined the effect, if any, that the adoption of ASU 2014-09 will have on its results of operations or financial condition.
Repurchase-to-Maturity Transactions and Repurchase Financings. On June 12, 2014, the FASB issued ASU 2014-11 "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures" ("ASU 2014-11"), which changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. In addition, ASU 2014-11 requires disclosures about transfers accounted for as sales in transactions that are economically similar to repurchase agreements and about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes in ASU 2014-11 and the disclosures for certain transactions accounted for as a sale are effective for public companies for the first interim or annual period beginning after December 15, 2014 (January 1, 2015 for the Bank). For public companies, the disclosures for transactions accounted for as secured borrowings are required to be presented for annual periods beginning after December 15, 2014 (January 1, 2015 for the Bank), and interim periods beginning after March 15, 2015 (April 1, 2015 for the Bank). Earlier application for a public company is prohibited. The adoption of this guidance is not expected to have any impact on the Bank's results of operations or financial condition.
Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. On August 8, 2014, the FASB issued ASU 2014-14 “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure” (“ASU 2014-14”), which requires that government-guaranteed mortgage loans be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (i) the loan has a government guarantee that is not separable from the loan before foreclosure, (ii) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (iii) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. For public business entities, the guidance in ASU 2014-14 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014 (January 1, 2015 for the Bank) and may be applied using either the modified retrospective transition method or the prospective transition method. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Bank's results of operations or financial condition.

Note 3—Trading Securities
Trading securities as of September 30, 2014 and December 31, 2013 were as follows (in thousands):
 
September 30, 2014
 
December 31, 2013
U.S. Treasury Bills
$
449,825

 
$
999,505

Other
8,501

 
8,252

Total
$
458,326

 
$
1,007,757


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

8




Note 4—Available-for-Sale Securities
 Major Security Types. Available-for-sale securities as of September 30, 2014 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
49,326

 
$
383

 
$

 
$
49,709

GSE obligations
4,891,049

 
38,024

 

 
4,929,073

Other
432,081

 
2,472

 
3

 
434,550

 
5,372,456

 
40,879

 
3

 
5,413,332

GSE commercial MBS
668,482

 

 
6,523

 
661,959

Total
$
6,040,938

 
$
40,879

 
$
6,526

 
$
6,075,291

Included in the table above are GSE commercial MBS that were purchased but which had not yet settled as of September 30, 2014. The amount due of $20,413,000 is included in other liabilities on the statement of condition at that date.
Available-for-sale securities as of December 31, 2013 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
54,195

 
$
48

 
$
101

 
$
54,142

GSE obligations
4,965,468

 
6,111

 
6,201

 
4,965,378

Other
436,898

 
418

 
1,143

 
436,173

Total
$
5,456,561

 
$
6,577

 
$
7,445

 
$
5,455,693


Other debentures are comprised of securities issued by the Private Export Funding Corporation ("PEFCO"). These debentures are fully secured by U.S. government-guaranteed obligations and the payment of interest on the debentures is guaranteed by an agency of the U.S. government. The amortized cost of the Bank's available-for-sale securities includes hedging adjustments. The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of September 30, 2014. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous loss position.
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number
 of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number
 of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number
 of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
3

 
$
23,458

 
$
3

 

 
$

 
$

 
3

 
$
23,458

 
$
3

GSE commercial MBS
24

 
661,959

 
6,523

 

 

 

 
24

 
661,959

 
6,523

Total
27

 
$
685,417

 
$
6,526

 

 
$

 
$

 
27

 
$
685,417

 
$
6,526



9


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 2013. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous loss position.
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
2

 
$
24,063

 
$
101

 

 
$

 
$

 
2

 
$
24,063

 
$
101

GSE obligations
108

 
1,628,306

 
6,201

 

 

 

 
108

 
1,628,306

 
6,201

Other
22

 
192,549

 
1,070

 
3

 
14,754

 
73

 
25

 
207,303

 
1,143

Total
132

 
$
1,844,918

 
$
7,372

 
3

 
$
14,754

 
$
73

 
135

 
$
1,859,672

 
$
7,445


At September 30, 2014, the gross unrealized losses on the Bank’s available-for-sale securities were $6,526,000. All of the Bank's available-for-sale securities are either guaranteed by the U.S. government, issued by GSEs, or fully secured by collateral that is guaranteed by the U.S government. As of September 30, 2014, the U.S. government and the issuers of the Bank’s holdings of GSE debentures and GSE MBS were rated triple-A by Moody’s Investors Service (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”) and AA+ by Standard and Poor’s (“S&P”). The Bank's holdings of PEFCO debentures were rated Aaa by Moody's and AA+ by S&P at that date; the PEFCO debentures are not rated by Fitch. Based upon the Bank’s assessment of the creditworthiness of the issuers of the GSE MBS and the credit ratings assigned by each of the nationally recognized statistical rating organizations (“NRSROs”), the Bank expects that its holdings of GSE MBS that were in an unrealized loss position at September 30, 2014 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Because the current market value deficits associated with the Bank's available-for-sale securities are not attributable to credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these investments to be other-than-temporarily impaired at September 30, 2014.
Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at September 30, 2014 and December 31, 2013 are presented below (in thousands).
 
 
 
September 30, 2014
 
December 31, 2013
 
Maturity
 
Amortized Cost
 
Estimated
Fair Value
 
Amortized Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
42,155

 
$
42,163

 
$
26,842

 
$
26,851

 
Due after one year through five years
 
4,185,812

 
4,210,766

 
3,910,837

 
3,914,956

 
Due after five years through ten years
 
1,144,489

 
1,160,403

 
1,518,882

 
1,513,886

 
 
 
5,372,456

 
5,413,332

 
5,456,561

 
5,455,693

 
GSE commercial MBS
 
668,482

 
661,959

 

 

 
Total
 
$
6,040,938

 
$
6,075,291

 
$
5,456,561

 
$
5,455,693

Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as available-for-sale at September 30, 2014 and December 31, 2013 (in thousands):
 
September 30, 2014
 
December 31, 2013
Amortized cost of available-for-sale securities other than MBS
 
 
 
Fixed-rate
$
5,297,456

 
$
5,381,561

Variable-rate
75,000

 
75,000

 
5,372,456

 
5,456,561

Amortized cost of fixed-rate multi-family MBS
668,482

 

Total
$
6,040,938

 
$
5,456,561

At September 30, 2014 and December 31, 2013, all of the Bank's fixed-rate available-for-sale securities were swapped to a variable rate.



10


Note 5—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of September 30, 2014 were as follows (in thousands):

 
Amortized
Cost
 
OTTI Recorded in
Accumulated Other
Comprehensive
Income (Loss)
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
27,803

 
$

 
$
27,803

 
$
215

 
$

 
$
28,018

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
7,150

 

 
7,150

 
34

 

 
7,184

GSE residential MBS
4,648,058

 

 
4,648,058

 
47,696

 
1,136

 
4,694,618

Non-agency residential MBS
175,192

 
27,710

 
147,482

 
23,446

 
4,164

 
166,764

GSE commercial MBS
61,820

 

 
61,820

 
37

 
26

 
61,831

 
4,892,220

 
27,710

 
4,864,510

 
71,213

 
5,326

 
4,930,397

Total
$
4,920,023

 
$
27,710

 
$
4,892,313

 
$
71,428

 
$
5,326

 
$
4,958,415


Held-to-maturity securities as of December 31, 2013 were as follows (in thousands):

 
Amortized
Cost
 
OTTI Recorded in
Accumulated Other
Comprehensive
Income (Loss)
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
32,689

 
$

 
$
32,689

 
$
126

 
$
156

 
$
32,659

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
10,110

 

 
10,110

 
58

 

 
10,168

GSE residential MBS
4,990,347

 

 
4,990,347

 
46,734

 
4,683

 
5,032,398

Non-agency residential MBS
198,603

 
33,200

 
165,403

 
17,794

 

 
183,197

 
5,199,060

 
33,200

 
5,165,860

 
64,586

 
4,683

 
5,225,763

Total
$
5,231,749

 
$
33,200

 
$
5,198,549

 
$
64,712

 
$
4,839

 
$
5,258,422



11


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of September 30, 2014. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income (loss) and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential mortgage-backed securities, gross unrecognized holding gains) and are aggregated by major security type and length of time that individual securities have been in a continuous loss position.

 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
1

 
$
11,666

 
$
7

 
22

 
$
804,086

 
$
1,129

 
23

 
$
815,752

 
$
1,136

Non-agency residential MBS

 

 

 
24

 
136,555

 
9,798

 
24

 
136,555

 
9,798

GSE commercial MBS
1

 
35,246

 
26

 

 

 

 
1

 
35,246

 
26

 
2

 
46,912

 
33

 
46

 
940,641

 
10,927

 
48

 
987,553

 
10,960

Total
2

 
$
46,912

 
$
33

 
46

 
$
940,641

 
$
10,927

 
48

 
$
987,553

 
$
10,960


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2013. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income (loss) and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential mortgage-backed securities, gross unrecognized holding gains) and are aggregated by major security type and length of time that individual securities have been in a continuous loss position.

 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations

 
$

 
$

 
2

 
$
16,157

 
$
156

 
2

 
$
16,157

 
$
156

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
42

 
1,591,628

 
4,353

 
13

 
102,236

 
330

 
55

 
1,693,864

 
4,683

Non-agency residential MBS
1

 
10,210

 
80

 
27

 
157,101

 
16,033

 
28

 
167,311

 
16,113

 
43

 
1,601,838

 
4,433

 
40

 
259,337

 
16,363

 
83

 
1,861,175

 
20,796

Total
43

 
$
1,601,838

 
$
4,433

 
42

 
$
275,494

 
$
16,519

 
85

 
$
1,877,332

 
$
20,952


At September 30, 2014, the gross unrealized losses on the Bank’s held-to-maturity securities were $10,960,000, of which $9,798,000 was attributable to its holdings of non-agency (i.e., private-label) residential MBS and $1,162,000 was attributable to securities that are issued and guaranteed by GSEs.
As of September 30, 2014, the issuers of the Bank’s holdings of GSE MBS were rated triple-A by Moody’s and Fitch and AA+ by S&P. Based upon the credit ratings assigned by the NRSROs and the Bank's assessment of the strength of the GSEs’ guarantees of the Bank’s holdings of agency MBS, the Bank expects that its holdings of GSE MBS that were in an unrealized loss position at September 30, 2014 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Because the current market value deficits associated with these securities are not attributable to credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these investments to be other-than-temporarily impaired at September 30, 2014.
The deterioration in the U.S. housing markets that occurred primarily during the period from 2007 through 2011, as reflected during that period by declines in the values of residential real estate and higher levels of delinquencies, defaults and losses on residential mortgages, including the mortgages underlying the Bank’s non-agency residential MBS (“RMBS”), generally increased the risk that the Bank may not ultimately recover the entire cost bases of some of its non-agency RMBS. However, based on its analysis of the securities in this portfolio, the Bank believes that the unrealized losses as of September 30, 2014 were principally the result of liquidity risk related discounts in the non-agency RMBS market and do not accurately reflect the currently likely future credit performance of the securities.
Because the ultimate receipt of contractual payments on the Bank’s non-agency RMBS will depend upon the credit and prepayment performance of the underlying loans and the credit enhancements for the senior securities owned by the Bank, the

12


Bank closely monitors these investments in an effort to determine whether the credit enhancement associated with each security is sufficient to protect against potential losses of principal and interest on the underlying mortgage loans. The credit enhancement for each of the Bank’s non-agency RMBS is provided by a senior/subordinate structure, and none of the securities owned by the Bank are insured by third-party bond insurers. More specifically, each of the Bank’s non-agency RMBS represents a single security class within a securitization that has multiple classes of securities. Each security class has a distinct claim on the cash flows from the underlying mortgage loans, with the subordinate securities having a junior claim relative to the more senior securities. The Bank’s non-agency RMBS have a senior claim on the cash flows from the underlying mortgage loans.
To assess whether the entire amortized cost bases of its 27 non-agency RMBS holdings are likely to be recovered, the Bank performed a cash flow analysis for each security as of September 30, 2014 using two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (“CBSAs”), which are based upon an assessment of the individual housing markets. (The term “CBSA” refers collectively to metropolitan and micropolitan statistical areas as defined by the U.S. Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people.) The Bank’s housing price forecast as of September 30, 2014 assumed changes in home prices ranging from declines of 3 percent to increases of 9 percent over the 12-month period beginning July 1, 2014. For the vast majority of markets, the changes were projected to range from no change to increases of 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 these securities were deemed to be other-than-temporarily impaired as of September 30, 2014.

13


Prior to 2013, 14 of the Bank's holdings of non-agency RMBS were determined to be other-than-temporarily impaired. The following table sets forth additional information for each of the securities that was deemed to be other-than-temporarily impaired in a prior period (in thousands). All of the Bank’s non-agency RMBS are rated by Moody’s, S&P and/or Fitch. The credit ratings presented in the table represent the lowest rating assigned to the security by any of these NRSROs as of September 30, 2014.

 
 
 
 
September 30, 2014
 
Cumulative from Period of Initial Impairment Through September 30, 2014
 
September 30, 2014
 
 
Period of
Initial
Impairment
 
Credit
Rating
 
Unpaid
Principal
Balance
 
Amortized
Cost
 
Non-Credit
Component of OTTI
 
Accretion of
Non-Credit
Component
 
Carrying
Value
 
Estimated
Fair
Value
Security #1
 
Q1 2009
 
Triple-C
 
$
12,225

 
$
9,625

 
$
10,271

 
$
8,035

 
$
7,389

 
$
10,132

Security #2
 
Q1 2009
 
Triple-C
 
11,900

 
11,201

 
12,389

 
8,732

 
7,544

 
10,569

Security #3
 
Q2 2009
 
Single-D
 
15,642

 
11,909

 
15,283

 
12,085

 
8,711

 
12,759

Security #4
 
Q2 2009
 
Triple-C
 
8,021

 
7,304

 
7,890

 
5,799

 
5,213

 
7,318

Security #5
 
Q3 2009
 
Triple-C
 
14,749

 
13,019

 
10,047

 
7,541

 
10,513

 
12,858

Security #6
 
Q3 2009
 
Triple-C
 
12,990

 
11,582

 
10,567

 
7,385

 
8,400

 
11,435

Security #7
 
Q3 2009
 
Single-B
 
4,480

 
4,400

 
3,575

 
2,399

 
3,224

 
4,044

Security #8
 
Q1 2010
 
Single-B
 
6,988

 
6,965

 
4,968

 
3,259

 
5,256

 
6,235

Security #9
 
Q1 2010
 
Triple-C
 
2,972

 
2,934

 
2,208

 
1,463

 
2,189

 
2,640

Security #10
 
Q4 2010
 
Triple-C
 
5,855

 
5,429

 
3,331

 
1,833

 
3,931

 
5,003

Security #11
 
Q4 2010
 
Triple-C
 
7,005

 
7,001

 
4,096

 
2,337

 
5,242

 
6,439

Security #12
 
Q4 2010
 
Triple-C
 
3,707

 
3,623

 
1,820

 
1,014

 
2,817

 
3,327

Security #13
 
Q4 2010
 
Triple-C
 
4,599

 
4,584

 
2,418

 
1,490

 
3,656

 
4,234

Security #14
 
Q2 2011
 
Triple-C
 
10,083

 
9,852

 
5,942

 
3,723

 
7,633

 
8,171

Totals
 
 
 
 
 
$
121,216

 
$
109,428

 
$
94,805

 
$
67,095

 
$
81,718

 
$
105,164

The following table presents a rollforward for the three and nine months ended September 30, 2014 and 2013 of the amount related to credit losses on the Bank’s non-agency RMBS holdings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income (loss) (in thousands).
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Balance of credit losses, beginning of period
$
12,770

 
$
13,039

 
$
12,901

 
$
13,039

Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities)
(64
)
 
(70
)
 
(195
)
 
(70
)
Balance of credit losses, end of period
12,706

 
12,969

 
12,706

 
12,969

Cumulative principal shortfalls on securities held at end of period
(1,192
)
 
(614
)
 
(1,192
)
 
(614
)
Cumulative amortization of the time value of credit losses at end of period
279

 
215

 
279

 
215

Credit losses included in the amortized cost bases of other-than-temporarily impaired securities at end of period
$
11,793

 
$
12,570

 
$
11,793

 
$
12,570


14


     Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at September 30, 2014 and December 31, 2013 are presented below (in thousands). The expected maturities of some debentures could differ from the contractual maturities presented because issuers may have the right to call such debentures prior to their final stated maturities.

 
 
September 30, 2014
 
December 31, 2013
Maturity
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
 
Amortized Cost
 
Carrying Value
 
Estimated Fair Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
12,856

 
$
12,856

 
$
12,977

 
$
16,376

 
$
16,376

 
$
16,502

Due after five years through ten years
 
14,947

 
14,947

 
15,041

 
8,483

 
8,483

 
8,411

Due after ten years
 

 

 

 
7,830

 
7,830

 
7,746

 
 
27,803

 
27,803

 
28,018

 
32,689

 
32,689

 
32,659

Mortgage-backed securities
 
4,892,220

 
4,864,510

 
4,930,397