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EX-32.2 - CERTIFICATION 906 CFO - Federal Home Loan Bank of Bostonex322_q22015.htm
EX-31.2 - CERTIFICATION 302 CFO - Federal Home Loan Bank of Bostonex312_q22015.htm
EX-31.1 - CERTIFICATION 302 CEO - Federal Home Loan Bank of Bostonex311_q22015.htm
EX-32.1 - CERTIFICATION 906 CEO - Federal Home Loan Bank of Bostonex321_q22015.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 June 30, 2015
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)
 
 
 
 
 
 
 
800 Boylston Street
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). x 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
July 31, 2015
Class A Stock, par value $100
 
zero
Class B Stock, par value $100
 
25,613,237



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)
 
June 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Cash and due from banks
$
844,228

 
$
1,124,536

Interest-bearing deposits
267

 
163

Securities purchased under agreements to resell
5,050,000

 
5,250,000

Federal funds sold
3,530,000

 
2,550,000

Investment securities:
 
 
 

Trading securities
237,414

 
244,969

Available-for-sale securities - includes $21,817 and $641 pledged as collateral at June 30, 2015, and December 31, 2014, that may be repledged
6,011,270

 
5,481,978

Held-to-maturity securities - includes $64,334 and $66,279 pledged as collateral at June 30, 2015, and December 31, 2014, respectively that may be repledged (a)
2,939,093

 
3,352,189

Total investment securities
9,187,777

 
9,079,136

Advances
34,105,443

 
33,482,074

Mortgage loans held for portfolio, net of allowance for credit losses of $1,100 and $2,012 at June 30, 2015, and December 31, 2014, respectively
3,574,835

 
3,483,948

Accrued interest receivable
77,828

 
77,411

Premises, software, and equipment, net
3,693

 
3,951

Derivative assets, net
28,443

 
14,548

Other assets
47,351

 
40,910

Total Assets
$
56,449,865

 
$
55,106,677

LIABILITIES
 

 
 

Deposits
 
 
 
Interest-bearing
$
371,616

 
$
345,561

Non-interest-bearing
30,450

 
23,770

Total deposits
402,066

 
369,331

Consolidated obligations (COs):
 
 
 

Bonds
26,075,429

 
25,505,774

Discount notes
25,972,593

 
25,309,608

Total consolidated obligations
52,048,022

 
50,815,382

Mandatorily redeemable capital stock
57,268

 
298,599

Accrued interest payable
79,508

 
91,225

Affordable Housing Program (AHP) payable
77,600

 
66,993

Derivative liabilities, net
476,415

 
558,889

Other liabilities
157,951

 
28,472

Total liabilities
53,298,830

 
52,228,891

Commitments and contingencies (Note 18)


 


CAPITAL
 

 
 

Capital stock – Class B – putable ($100 par value), 24,822 shares and 24,131 shares issued and outstanding at June 30, 2015, and December 31, 2014, respectively
2,482,244

 
2,413,114

Retained earnings:
 
 
 
Unrestricted
890,443

 
764,888

Restricted
173,411

 
136,770

Total retained earnings
1,063,854

 
901,658

Accumulated other comprehensive loss
(395,063
)
 
(436,986
)
Total capital
3,151,035

 
2,877,786

Total Liabilities and Capital
$
56,449,865

 
$
55,106,677

_______________________________________
(a) Fair values of held-to-maturity securities were $3,260,144 and $3,710,815 at June 30, 2015, and December 31, 2014, 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 June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
INTEREST INCOME
 
 
 
 
 
 
 
Advances
$
58,441

 
$
56,821

 
$
115,849

 
$
112,692

Prepayment fees on advances, net
279

 
768

 
4,021

 
3,262

Securities purchased under agreements to resell
1,104

 
788

 
1,907

 
1,381

Federal funds sold
1,223

 
904

 
2,850

 
1,389

Trading securities
2,296

 
2,351

 
4,614

 
4,705

Available-for-sale securities
23,603

 
14,333

 
44,175

 
27,284

Held-to-maturity securities
24,264

 
28,455

 
49,135

 
58,470

Prepayment fees on investments
94

 
931

 
257

 
1,110

Mortgage loans held for portfolio
30,190

 
31,459

 
61,241

 
63,218

Other
14

 
2

 
25

 
2

Total interest income
141,508

 
136,812

 
284,074

 
273,513

INTEREST EXPENSE
 
 
 
 
 
 
 
Consolidated obligations - bonds
79,923

 
80,193

 
162,164

 
155,704

Consolidated obligations - discount notes
4,909

 
3,873

 
10,422

 
6,895

Deposits
19

 
14

 
33

 
21

Mandatorily redeemable capital stock
468

 
2,683

 
803

 
6,274

Other borrowings
2

 
2

 
2

 
3

Total interest expense
85,321

 
86,765

 
173,424

 
168,897

NET INTEREST INCOME
56,187

 
50,047

 
110,650

 
104,616

(Reduction of) provision for credit losses
(223
)
 
243

 
(283
)
 
(79
)
NET INTEREST INCOME AFTER (REDUCTION OF) PROVISION FOR CREDIT LOSSES
56,410

 
49,804

 
110,933

 
104,695

OTHER INCOME (LOSS)
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on investment securities
(356
)
 

 
(580
)
 

Net amount of impairment losses reclassified from accumulated other comprehensive loss
(1,073
)
 
(399
)
 
(1,195
)
 
(857
)
Net other-than-temporary impairment losses on investment securities, credit portion
(1,429
)
 
(399
)
 
(1,775
)
 
(857
)
Litigation settlements
134,690

 
159

 
134,713

 
4,469

Loss on early extinguishment of debt
(129
)
 
(369
)
 
(129
)
 
(2,592
)
Service fees
2,089

 
1,615

 
4,008

 
3,285

Net unrealized (losses) gains on trading securities
(2,393
)
 
2,209

 
(1,112
)
 
2,963

Net losses on derivatives and hedging activities
(1,142
)
 
(1,292
)
 
(4,501
)
 
(2,675
)
Other
(333
)
 
(263
)
 
(452
)
 
(399
)
Total other income
131,353

 
1,660

 
130,752

 
4,194

OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
13,865

 
9,066

 
23,298

 
18,857

Other operating expenses
5,303

 
5,243

 
10,156

 
10,312

Federal Housing Finance Agency (the FHFA)
883

 
576

 
1,903

 
1,384

Office of Finance
836

 
758

 
1,527

 
1,409

Other
563

 
730

 
1,150

 
1,365

Total other expense
21,450

 
16,373

 
38,034

 
33,327

INCOME BEFORE ASSESSMENTS
166,313

 
35,091

 
203,651

 
75,562

AHP
16,678

 
3,778

 
20,445

 
8,184

NET INCOME
$
149,635

 
$
31,313

 
$
183,206

 
$
67,378

 

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

4


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)

 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
149,635

 
$
31,313

 
$
183,206

 
$
67,378

Other comprehensive income:
 
 
 
 
 
 
 
 
Net unrealized (losses) gains on available-for-sale securities
 
(14,793
)
 
24,842

 
5,796

 
29,671

Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
 
 
 
 
 
 
 
 
Net amount of impairment losses reclassified to non-interest income
 
1,073

 
399

 
1,195

 
857

Accretion of noncredit portion
 
11,990

 
12,612

 
23,453

 
24,747

Total net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
 
13,063

 
13,011

 
24,648

 
25,604

Net unrealized (losses) gains relating to hedging activities
 
 
 
 
 
 
 
 
Unrealized gains (losses)
 
12,773

 
(13,726
)
 
630

 
(19,740
)
Reclassification adjustment for previously deferred hedging gains and losses included in net income
 
5,631

 
724

 
10,527

 
729

Total net unrealized gains (losses) relating to hedging activities
 
18,404

 
(13,002
)
 
11,157

 
(19,011
)
Pension and postretirement benefits
 
92

 
(247
)
 
322

 
(135
)
Total other comprehensive income
 
16,766

 
24,604

 
41,923

 
36,129

Total comprehensive income
 
$
166,401

 
$
55,917

 
$
225,129

 
$
103,507


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

5



FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
SIX MONTHS ENDED JUNE 30, 2015 and 2014
(dollars and shares in thousands)
(unaudited)

 
 
 
 
 
 
 
 
 
Capital Stock Class B – Putable
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
 
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
Total
Capital
BALANCE, DECEMBER 31, 2013
25,305

 
$
2,530,471

 
$
681,978

 
$
106,812

 
$
788,790

 
$
(481,516
)
 
$
2,837,745

Proceeds from sale of capital stock
860

 
86,021

 
 
 
 
 
 
 
 
 
86,021

Repurchase of capital stock
(1,263
)
 
(126,296
)
 
 
 
 
 
 
 
 
 
(126,296
)
Shares reclassified to mandatorily redeemable capital stock
(3
)
 
(337
)
 
 
 
 
 
 
 
 
 
(337
)
Comprehensive income
 
 
 
 
53,902

 
13,476

 
67,378

 
36,129

 
103,507

Cash dividends on capital stock
 
 
 
 
(18,609
)
 
 
 
(18,609
)
 
 
 
(18,609
)
BALANCE, JUNE 30, 2014
24,899

 
$
2,489,859

 
$
717,271

 
$
120,288

 
$
837,559

 
$
(445,387
)
 
$
2,882,031

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, DECEMBER 31, 2014
24,131

 
$
2,413,114

 
$
764,888

 
$
136,770

 
$
901,658

 
$
(436,986
)
 
$
2,877,786

Proceeds from sale of capital stock
987

 
98,708

 
 
 
 
 
 
 
 
 
98,708

Repurchase of capital stock
(295
)
 
(29,524
)
 
 
 
 
 
 
 
 
 
(29,524
)
Shares reclassified to mandatorily redeemable capital stock
(1
)
 
(54
)
 
 
 
 
 
 
 
 
 
(54
)
Comprehensive income
 
 
 
 
146,565

 
36,641

 
183,206

 
41,923

 
225,129

Cash dividends on capital stock
 
 
 
 
(21,010
)
 
 
 
(21,010
)
 
 
 
(21,010
)
BALANCE, JUNE 30, 2015
24,822

 
$
2,482,244

 
$
890,443

 
$
173,411

 
$
1,063,854

 
$
(395,063
)
 
$
3,151,035


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


6



FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)

 
For the Six Months Ended June 30,
 
2015
 
2014
OPERATING ACTIVITIES
 

 
 

Net income
$
183,206

 
$
67,378

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation and amortization
(29,823
)
 
(38,070
)
Reduction of provision for credit losses
(283
)
 
(79
)
Change in net fair-value adjustments on derivatives and hedging activities
3,124

 
(24,262
)
Net other-than-temporary impairment losses on investment securities, credit portion
1,775

 
857

Loss on early extinguishment of debt
129

 
2,592

Other adjustments
(202
)
 
305

Net change in:
 

 
 
Market value of trading securities
1,112

 
(2,963
)
Accrued interest receivable
(417
)
 
8,803

Other assets
(2,412
)
 
4,333

Accrued interest payable
(11,717
)
 
7,391

Other liabilities
10,515

 
129

Total adjustments
(28,199
)
 
(40,964
)
Net cash provided by operating activities
155,007

 
26,414

 
 
 
 
INVESTING ACTIVITIES
 

 
 

Net change in:
 

 
 

Interest-bearing deposits
(15,297
)
 
(16,491
)
Securities purchased under agreements to resell
200,000

 
(4,050,000
)
Federal funds sold
(980,000
)
 
(1,100,000
)
Premises, software, and equipment
(551
)
 
(396
)
Trading securities:
 

 
 

Proceeds from long-term
6,443

 
1,640

Available-for-sale securities:
 

 
 

Proceeds from long-term
441,729

 
974,949

Purchases of long-term
(873,647
)
 
(1,680,449
)
Held-to-maturity securities:
 

 
 

Proceeds from long-term
452,744

 
421,568

Advances to members:
 

 
 

Proceeds
160,347,563

 
143,670,518

Disbursements
(161,008,371
)
 
(148,487,199
)
Mortgage loans held for portfolio:
 

 
 

Proceeds
286,838

 
183,591

Purchases
(388,956
)
 
(177,407
)
Proceeds from sale of foreclosed assets
4,273

 
4,293

Net cash used in investing activities
(1,527,232
)
 
(10,255,383
)
 
 
 
 
FINANCING ACTIVITIES
 

 
 

Net change in deposits
34,724

 
(49,419
)
Net payments on derivatives with a financing element
(7,996
)
 
(8,816
)
Net proceeds from issuance of consolidated obligations:
 

 
 

Discount notes
72,190,118

 
65,226,706


7


Bonds
5,262,645

 
5,827,667

Bonds transferred from other Federal Home Loan Banks (the FHLBanks)
87,782

 

Payments for maturing and retiring consolidated obligations:
 

 
 

Discount notes
(71,527,562
)
 
(55,226,237
)
Bonds
(4,754,583
)
 
(5,482,099
)
Proceeds from issuance of capital stock
98,708

 
86,021

Payments for redemption of mandatorily redeemable capital stock
(241,385
)
 
(373,698
)
Payments for repurchase of capital stock
(29,524
)
 
(126,296
)
Cash dividends paid
(21,010
)
 
(18,553
)
Net cash provided by financing activities
1,091,917

 
9,855,276

Net decrease in cash and due from banks
(280,308
)
 
(373,693
)
Cash and due from banks at beginning of the year
1,124,536

 
641,033

Cash and due from banks at end of the period
$
844,228

 
$
267,340

Supplemental disclosures:
 
 
 
Interest paid
$
218,112

 
$
201,627

AHP payments
$
9,233

 
$
5,758

Noncash transfers of mortgage loans held for portfolio to real-estate-owned (REO)
$
3,698

 
$
5,468


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


8



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 us 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, 2015. The unaudited financial statements should be read in conjunction with the Federal Home Loan Bank of Boston's audited financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (the SEC) on March 23, 2015 (the 2014 Annual Report). Unless otherwise indicated or the context requires otherwise, all references in this discussion to “the Bank,” "we," "us," "our," or similar references mean the Federal Home Loan Bank of Boston.

Note 2 — Recently Issued and Adopted Accounting Guidance
 
Accounting for Cloud Computing Arrangements. On April 15, 2015, the Financial Accounting Standards Board (FASB) issued amendments to clarify a customer's accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers on determining whether a cloud computing arrangement includes a software license that should be accounted for as internal-use software. If the arrangement does not contain a software license, it would be accounted for as a service contract. This guidance becomes effective for us for the interim and annual periods beginning after December 15, 2015, and early adoption is permitted. We can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. We are in the process of evaluating this guidance and its effect on our financial condition, results of operations, and cash flows.

Simplifying the Presentation of Debt Issuance Costs. On April 7, 2015, the FASB issued guidance intended to simplify the presentation of debt issuance costs. This guidance requires a reclassification on the statement of condition of debt issuance costs related to a recognized debt liability from other assets to a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance becomes effective for us for the interim and annual periods beginning after December 15, 2015, and early adoption is permitted for the financial statements that have not been previously issued. The period-specific effects as a result of applying this guidance are required to be adjusted retrospectively to each individual period presented on the statement of condition. The adoption of this guidance will result in a reclassification of debt issuance costs from other assets to COs on our statement of condition. We do not expect that this guidance will have a material impact on our financial condition, results of operations, and cash flows.

Framework for Adversely Classifying Loans, Other REO, and Other Assets and Listing Assets for Special Mention. On April 9, 2012, the FHFA issued Advisory Bulletin 2012-02, Framework for Adversely Classifying Loans, Other REO, and Other Assets and Listing Assets for Special Mention (AB 2012-02). AB 2012-02 establishes a standard and uniform methodology for adversely classifying loans, other REO, and certain other assets (excluding investment securities), and prescribes the timing of asset charge-offs based on these classifications. The guidance is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. The adverse classification requirements were implemented as of January 1, 2014, and did not have a material effect on our results of operations or financial condition. The charge-off requirements were implemented on January 1, 2015, and did not have a material effect on our results of operations or financial condition.

Note 3 — Trading Securities
 
Major Security Types. Our trading securities as of June 30, 2015, and December 31, 2014, were (dollars in thousands):

9


 
June 30, 2015
 
December 31, 2014
Mortgage-backed securities (MBS)
 

 
 
U.S. government-guaranteed – single-family
$
11,254

 
$
12,235

Government-sponsored enterprise (GSE) – single-family
1,859

 
2,300

GSEs – multifamily
224,301

 
230,434

Total
$
237,414

 
$
244,969


Net unrealized losses or gains on trading securities for the six months ended June 30, 2015 and 2014, amounted to losses of $1.1 million and gains of $3.0 million for securities held on June 30, 2015 and 2014, respectively.

We do not participate in speculative trading practices and typically hold these investments over a longer time horizon.

Note 4 — Available-for-Sale Securities
 
Major Security Types. Our available-for-sale securities as of June 30, 2015, were (dollars in thousands):
 
 
 
 
Amounts Recorded in Accumulated Other Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational institutions
$
461,402

 
$

 
$
(22,571
)
 
$
438,831

U.S. government-owned corporations
311,311

 

 
(41,408
)
 
269,903

GSEs
129,544

 

 
(11,838
)
 
117,706

 
902,257

 

 
(75,817
)
 
826,440

MBS
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
180,356

 
246

 
(1,692
)
 
178,910

U.S. government guaranteed – multifamily
823,275

 
1,492

 
(904
)
 
823,863

GSEs – single-family
4,173,209

 
19,945

 
(11,097
)
 
4,182,057

 
5,176,840

 
21,683

 
(13,693
)
 
5,184,830

Total
$
6,079,097

 
$
21,683

 
$
(89,510
)
 
$
6,011,270

_______________________
(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.

Our available-for-sale securities as of December 31, 2014, were (dollars in thousands):
 
 
 
 
Amounts Recorded in Accumulated Other Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational institutions
$
472,440

 
$

 
$
(24,755
)
 
$
447,685

U.S. government-owned corporations
322,436

 

 
(37,439
)
 
284,997

GSEs
133,748

 

 
(10,295
)
 
123,453

 
928,624

 

 
(72,489
)
 
856,135

MBS
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
207,090

 
375

 
(1,437
)
 
206,028

U.S. government guaranteed – multifamily
874,817

 
204

 
(3,598
)
 
871,423

GSEs – single-family
3,545,070

 
14,742

 
(11,420
)
 
3,548,392

 
4,626,977

 
15,321

 
(16,455
)
 
4,625,843

Total
$
5,555,601

 
$
15,321

 
$
(88,944
)
 
$
5,481,978


10


_______________________
(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.

The following table summarizes our available-for-sale securities with unrealized losses as of June 30, 2015, 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 institutions
$

 
$

 
$
438,831

 
$
(22,571
)
 
$
438,831

 
$
(22,571
)
U.S. government-owned corporations

 

 
269,903

 
(41,408
)
 
269,903

 
(41,408
)
GSEs

 

 
117,706

 
(11,838
)
 
117,706

 
(11,838
)
 

 

 
826,440

 
(75,817
)
 
826,440

 
(75,817
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family

 

 
131,472

 
(1,692
)
 
131,472

 
(1,692
)
U.S. government guaranteed – multifamily
155,776

 
(244
)
 
203,264

 
(660
)
 
359,040

 
(904
)
GSEs – single-family
1,277,232

 
(5,061
)
 
415,932

 
(6,036
)
 
1,693,164

 
(11,097
)
 
1,433,008

 
(5,305
)
 
750,668

 
(8,388
)
 
2,183,676

 
(13,693
)
Total temporarily impaired
$
1,433,008

 
$
(5,305
)
 
$
1,577,108


$
(84,205
)

$
3,010,116


$
(89,510
)

The following table summarizes our available-for-sale securities with unrealized losses as of December 31, 2014, 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 institutions
$

 
$

 
$
447,685

 
$
(24,755
)
 
$
447,685

 
$
(24,755
)
U.S. government-owned corporations

 

 
284,997

 
(37,439
)
 
284,997

 
(37,439
)
GSEs

 

 
123,453

 
(10,295
)
 
123,453

 
(10,295
)
 

 

 
856,135

 
(72,489
)
 
856,135

 
(72,489
)
MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family

 

 
154,665

 
(1,437
)
 
154,665

 
(1,437
)
U.S. government guaranteed – multifamily
610,470

 
(3,497
)
 
23,567

 
(101
)
 
634,037

 
(3,598
)
GSEs – single-family
453,043

 
(888
)
 
915,354

 
(10,532
)
 
1,368,397

 
(11,420
)
 
1,063,513

 
(4,385
)
 
1,093,586

 
(12,070
)
 
2,157,099

 
(16,455
)
Total temporarily impaired
$
1,063,513

 
$
(4,385
)
 
$
1,949,721

 
$
(84,559
)
 
$
3,013,234

 
$
(88,944
)
 
Redemption Terms. The amortized cost and fair value of our available-for-sale securities by contractual maturity at June 30, 2015, and December 31, 2014, were (dollars in thousands):

11


 
June 30, 2015
 
December 31, 2014
Year of Maturity
Amortized
Cost
 
Fair
 Value
 
Amortized
Cost
 
Fair
 Value
Due in one year or less
$

 
$

 
$

 
$

Due after one year through five years

 

 

 

Due after five years through 10 years
16,988

 
16,378

 

 

Due after 10 years
885,269

 
810,062

 
928,624

 
856,135

 
902,257

 
826,440

 
928,624

 
856,135

MBS (1)
5,176,840

 
5,184,830

 
4,626,977

 
4,625,843

Total
$
6,079,097

 
$
6,011,270

 
$
5,555,601

 
$
5,481,978

_______________________
(1)
MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers of the underlying loans may have the right to call or prepay obligations with or without call or prepayment fees.

Note 5 — Held-to-Maturity Securities
 
Major Security Types. Our held-to-maturity securities as of June 30, 2015, were (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
$
4,739

 
$

 
$
4,739

 
$
286

 
$

 
$
5,025

State or local housing-finance-agency obligations (HFA securities)
175,692

 

 
175,692

 
30

 
(18,748
)
 
156,974

 
180,431

 

 
180,431

 
316

 
(18,748
)
 
161,999

MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
17,965

 

 
17,965

 
413

 

 
18,378

U.S. government guaranteed – multifamily
39,755

 

 
39,755

 
92

 

 
39,847

GSEs – single-family
1,256,108

 

 
1,256,108

 
36,320

 
(137
)
 
1,292,291

GSEs – multifamily
418,302

 

 
418,302

 
24,710

 

 
443,012

Private-label – residential
1,261,450

 
(250,575
)
 
1,010,875

 
291,252

 
(12,990
)
 
1,289,137

Asset-backed securities (ABS) backed by home equity loans
16,376

 
(719
)
 
15,657

 
775

 
(952
)
 
15,480

 
3,009,956

 
(251,294
)
 
2,758,662

 
353,562

 
(14,079
)
 
3,098,145

Total
$
3,190,387

 
$
(251,294
)
 
$
2,939,093

 
$
353,878

 
$
(32,827
)
 
$
3,260,144


Our held-to-maturity securities as of December 31, 2014, were (dollars in thousands):

12


 
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
$
5,777

 
$

 
$
5,777

 
$
360

 
$

 
$
6,137

HFA securities
178,387

 

 
178,387

 
30

 
(18,136
)
 
160,281

 
184,164

 

 
184,164

 
390

 
(18,136
)
 
166,418

MBS
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed – single-family
20,399

 

 
20,399

 
487

 

 
20,886

U.S. government guaranteed – multifamily
115,712

 

 
115,712

 
298

 
(6
)
 
116,004

GSEs – single-family
1,420,801

 

 
1,420,801

 
40,518

 
(157
)
 
1,461,162

GSEs – multifamily
542,130

 

 
542,130

 
29,949

 

 
572,079

Private-label – residential
1,327,967

 
(275,158
)
 
1,052,809

 
319,306

 
(13,957
)
 
1,358,158

ABS backed by home equity loans
16,958

 
(784
)
 
16,174

 
856

 
(922
)
 
16,108

 
3,443,967

 
(275,942
)
 
3,168,025

 
391,414

 
(15,042
)
 
3,544,397

Total
$
3,628,131

 
$
(275,942
)
 
$
3,352,189

 
$
391,804

 
$
(33,178
)
 
$
3,710,815


The following table summarizes our held-to-maturity securities with unrealized losses as of June 30, 2015, 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
HFA securities
$
14,916

 
$
(84
)
 
$
136,316

 
$
(18,664
)
 
$
151,232

 
$
(18,748
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 
 
 
 
 
 
 
 
 

 
 

GSEs – single-family

 

 
17,469

 
(137
)
 
17,469

 
(137
)
Private-label – residential
87,923

 
(1,636
)
 
490,916

 
(41,992
)
 
578,839

 
(43,628
)
ABS backed by home equity loans

 

 
14,054

 
(1,107
)
 
14,054

 
(1,107
)
 
87,923

 
(1,636
)
 
522,439

 
(43,236
)
 
610,362

 
(44,872
)
Total
$
102,839

 
$
(1,720
)
 
$
658,755

 
$
(61,900
)
 
$
761,594

 
$
(63,620
)

The following table summarizes our held-to-maturity securities with unrealized losses as of December 31, 2014, 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). 

13


 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
HFA securities
$
14,850

 
$
(150
)
 
$
139,544

 
$
(17,986
)
 
$
154,394

 
$
(18,136
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 
 
 
 
 
 
 
 
 

 
 

U.S. government guaranteed – multifamily
9,282

 
(6
)
 

 

 
9,282

 
(6
)
GSEs – single-family

 

 
38,121

 
(157
)
 
38,121

 
(157
)
Private-label – residential
80,439

 
(1,028
)
 
544,369

 
(45,104
)
 
624,808

 
(46,132
)
ABS backed by home equity loans
206

 
(3
)
 
14,641

 
(1,074
)
 
14,847

 
(1,077
)
 
89,927

 
(1,037
)
 
597,131

 
(46,335
)
 
687,058

 
(47,372
)
Total
$
104,777

 
$
(1,187
)
 
$
736,675

 
$
(64,321
)
 
$
841,452

 
$
(65,508
)

Redemption Terms. The amortized cost and fair value of our held-to-maturity securities by contractual maturity at June 30, 2015, and December 31, 2014, are shown below (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers of the underlying loans may have the right to call or prepay their obligations with or without call or prepayment fees.
 
June 30, 2015
 
December 31, 2014
Year of Maturity
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
 
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
Due in one year or less
$
100

 
$
100

 
$
100

 
$
150

 
$
150

 
$
150

Due after one year through five years
8,331

 
8,331

 
8,639

 
9,369

 
9,369

 
9,751

Due after five years through 10 years
17,020

 
17,020

 
16,944

 
17,115

 
17,115

 
16,973

Due after 10 years
154,980

 
154,980

 
136,316

 
157,530

 
157,530

 
139,544

 
180,431

 
180,431

 
161,999

 
184,164

 
184,164

 
166,418

MBS (2)
3,009,956

 
2,758,662

 
3,098,145

 
3,443,967

 
3,168,025

 
3,544,397

Total
$
3,190,387

 
$
2,939,093

 
$
3,260,144

 
$
3,628,131

 
$
3,352,189

 
$
3,710,815

_______________________
(1)
Carrying value of held-to-maturity securities represents the sum of amortized cost and the amount of noncredit-related 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 of the underlying loans may have the right to call or prepay their obligations with or without call or prepayment fees.

Note 6 — Other-Than-Temporary Impairment

We evaluate our available-for-sale and held-to-maturity securities on an individual basis for other-than-temporary impairment each quarter.

Available-for-Sale Securities

We determined that none of our available-for-sale securities were other-than-temporarily impaired at June 30, 2015. At June 30, 2015, we held certain available-for-sale securities in an unrealized loss position. These unrealized losses reflect the impact of normal yield and spread fluctuations attendant with security markets. We consider these unrealized losses temporary because we expect to recover the entire amortized cost basis on these available-for-sale securities in an unrealized loss position and neither intend to sell these securities nor is it more likely than not that we will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. Additionally, there have been no shortfalls of principal or interest on any available-for-sale security. Regarding securities that were in an unrealized loss position as of June 30, 2015:
 
We expect debentures issued by a supranational institution that were in an unrealized loss position as of June 30, 2015, to return contractual principal and interest based on our review and analysis of independent third-party credit reports on the

14


supranational institution, and the supranational institution's triple-A (or equivalent) rating by each of the nationally recognized statistical rating organizations (NRSROs) that rates it.
 
Debentures issued by U.S. government-owned corporations are not obligations of the U.S. government and not guaranteed by the U.S. government. However, these securities are rated at the same level as the U.S. government by the NRSROs. These ratings reflect the U.S. government's implicit support of the government-owned corporation as well as the entity's underlying business and financial risk.

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 GSEs and their support from the U.S. government.

The U.S. government-guaranteed securities that we hold are MBS issued by the Government National Mortgage Association (Ginnie Mae). The strength of Ginnie Mae's guarantees as a direct obligation from the U.S. government is sufficient to protect us from losses based on current expectations.

For MBS issued by Fannie Mae and Freddie Mac, which we sometimes refer to as agency MBS in this report, the strength of the issuers' guarantees through direct obligation or support from the U.S. government is sufficient to protect us from losses based on current expectations.

Held-to-Maturity Securities

HFA Securities. We have reviewed our investments in HFA securities and have determined that unrealized losses reflect the impact of normal market yield and spread fluctuations and illiquidity in the credit markets. We have determined that all unrealized losses are temporary given the creditworthiness of the issuers and the underlying collateral, including an assessment of past payment history (no shortfalls of principal or interest), property vacancy rates, debt service ratios, over-collateralization and other credit enhancement, and third-party bond insurance as applicable. As of June 30, 2015, none of our held-to-maturity investments in HFA securities that are in an unrealized loss position were rated below investment grade by an NRSRO. Because the decline in market value is attributable to changes in interest rates, credit spreads, and illiquidity in this market and not to a significant deterioration in the fundamental credit quality of these obligations, and because we do not intend to sell the investments nor is it more likely than not that we will be required to sell the investments before recovery of the amortized cost basis, we do not consider these investments to be other-than-temporarily impaired at June 30, 2015.
 
Agency MBS. For agency MBS, we determined that the strength of the issuers' guarantees through direct obligation or support from the U.S. government is sufficient to protect us from losses based on current expectations. Additionally, there have been no shortfalls of principal or interest on any such security. As a result, we have determined that, as of June 30, 2015, all of the gross unrealized losses on such MBS are temporary. We do not believe that the declines in market value of these securities are attributable to credit quality, and because we do not intend to sell the investments, nor is it more likely than not that we will be required to sell the investments before recovery of the amortized cost basis, we do not consider any of these investments to be other-than-temporarily impaired at June 30, 2015.

Private-Label Residential MBS and ABS Backed by Home Equity Loans. To ensure consistency when determining the other-than-temporary impairment for private-label residential MBS and certain home equity loan investments (including home equity ABS) among all FHLBanks, the FHLBanks use an FHLBank System governance committee (the OTTI Governance Committee) and 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. We use the FHLBanks' uniform framework and approved assumptions for purposes of our other-than-temporary impairment cash-flow analyses of our private-label residential MBS and certain home equity loan investments. For additional information see Item 8 — Financial Statements and Supplementary Data — Note 7 — Other-Than-Temporary Impairment in the 2014 Annual Report.
 
To assess whether the entire amortized cost basis of private-label residential MBS will be recovered, cash-flow analyses for each of our 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 our securities, in conjunction with assumptions about current home prices and future changes in home prices and interest rates, producing monthly projections of prepayments, defaults, loan modifications, and loss severities. A significant input to the first model is the forecast of future housing-price changes, based on an assessment of individual housing markets for the relevant states and core-based statistical areas (CBSA), as defined by the United States Office of Management and Budget. The OTTI Governance Committee developed a short-term housing-price forecast, with projected changes ranging from a decrease of 2.0 percent to an

15


increase of 8.0 percent over the 12-month period beginning April 1, 2015. For the vast majority of markets, the projected short-term housing-price changes range from an increase of 2.0 percent to an increase of 5.0 percent. Thereafter, we have projected a unique recovery path for each relevant geographic area based on an internally developed framework derived from historical data.

The month-by-month projections of future loan level performance are derived from the first model to determine projected prepayments, defaults, loan modifications, and loss severities. These projections are then input into a second model that allocates the cash flows and losses among the various classes in the securitization structure in accordance with the cash-flow and loss-allocation rules prescribed by the securitization structure. 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. The projected cash flows are based on a number of assumptions and expectations and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach described above reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path described in the prior paragraph.

For those securities for which an other-than-temporary impairment was determined to have occurred during the three months ended June 30, 2015, 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, as well as related current credit enhancement. Credit enhancement is defined as the percentage of subordinated tranches, over-collateralization, and other credit enhancement, if any, in a security structure that will generally absorb losses before we will experience a credit 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).
 
 
 
 
Weighted Average of Significant Inputs
 
Weighted Average Current
Credit Enhancement
Private-label MBS by Year of Securitization
 
Par Value
 
Projected
Prepayment Rates
 
Projected
Default Rates
 
Projected
Loss Severities
 
Alt-A Private-label residential MBS (1)
 
 
 
 
 
 
 
 
 
 
2007
 
$
50,731

 
6.3
%
 
44.1
%
 
37.5
%
 
%
2006
 
60,688

 
10.3

 
27.8

 
38.5

 

2005
 
23,273

 
7.0

 
26.8

 
38.0

 
30.6

2004 and prior
 
2,584

 
13.1

 
16.2

 
5.0

 
3.8

Total
 
$
137,276

 
8.3
%
 
33.4
%
 
37.4
%
 
5.3
%
_______________________
(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 their classification of the security at the time of issuance.
 
The following table sets forth our securities for which other-than-temporary impairment credit losses were recognized during the life of the security through June 30, 2015 (dollars in thousands). Securities are classified in the table below based on their classifications at the time of issuance. 
 
June 30, 2015
Other-Than-Temporarily Impaired Investment (1)
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
Private-label residential MBS – Prime
$
54,384

 
$
46,936

 
$
37,272

 
$
47,621

Private-label residential MBS – Alt-A
1,369,762

 
1,007,710

 
766,799

 
1,047,631

ABS backed by home equity loans – Subprime
4,101

 
3,680

 
2,961

 
3,735

Total other-than-temporarily impaired securities
$
1,428,247

 
$
1,058,326

 
$
807,032

 
$
1,098,987

_______________________
(1)
We have instituted litigation in relation to certain of the private-label MBS in which we invested. Our complaint asserts, among others, claims for untrue or misleading statements in the sale of securities. It is possible that classifications of private-label MBS as provided herein when based on classification at the time of issuance as disclosed by those securities' issuance documents, as well as other statements about the securities, are inaccurate.


16


The following table presents a roll-forward of the amounts related to credit losses recognized in earnings. The roll-forward is the amount of credit losses on investment securities on which we recognized a portion of other-than-temporary impairment charges into accumulated other comprehensive loss (dollars in thousands).
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Balance at beginning of year
$
559,725

 
$
595,560

 
$
568,652

 
$
603,786

Additions:
 
 
 
 
 
 
 
Additional credit losses for which an other-than-temporary impairment charge was previously recognized(1)
1,429

 
399

 
1,775

 
857

Reductions:
 
 
 
 
 
 
 
Increase in cash flows expected to be collected which are recognized over the remaining life of the security(2)
(9,813
)
 
(8,625
)
 
(19,086
)
 
(17,309
)
Balance at end of period
$
551,341

 
$
587,334

 
$
551,341

 
$
587,334

_______________________
(1)
For the three months ended June 30, 2015 and 2014, additional credit losses for which an other-than-temporary impairment charge was previously recognized relate to securities that were also previously impaired prior to April 1, 2015 and 2014. For the six months ended June 30, 2015 and 2014, additional credit losses for which an other-than-temporary impairment charge was previously recognized relate to securities that were also previously impaired prior to January 1, 2015 and 2014.
(2)
Represents amounts accreted as interest income during the current period.

Note 7 — Advances
 
General Terms. At June 30, 2015, and December 31, 2014, we had advances outstanding with interest rates ranging from (0.17) percent to 7.72 percent and (0.22) percent to 8.37 percent, respectively, as summarized below (dollars in thousands). Advances with negative interest rates contain embedded interest-rate features that have met the requirements to be separated from the host contract and are recorded as stand-alone derivatives, and which we economically hedge with derivatives containing offsetting interest-rate features.
 
June 30, 2015
 
December 31, 2014