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EX-31.2 - CERTIFICATION 302 CFO - Federal Home Loan Bank of Bostonex312_q32015.htm
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EX-31.1 - CERTIFICATION 302 CEO - Federal Home Loan Bank of Bostonex311_q32015.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 September 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
October 31, 2015
Class A Stock, par value $100
 
zero
Class B Stock, par value $100
 
22,973,912



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)
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Cash and due from banks
$
320,281

 
$
1,124,536

Interest-bearing deposits
238

 
163

Securities purchased under agreements to resell
7,650,000

 
5,250,000

Federal funds sold
2,425,000

 
2,550,000

Investment securities:
 
 
 

Trading securities
236,322

 
244,969

Available-for-sale securities - includes $26,744 and $641 pledged as collateral at September 30, 2015, and December 31, 2014, respectively that may be repledged
6,272,640

 
5,481,978

Held-to-maturity securities - includes $51,646 and $66,279 pledged as collateral at September 30, 2015, and December 31, 2014, respectively that may be repledged (a)
2,792,023

 
3,352,189

Total investment securities
9,300,985

 
9,079,136

Advances
33,954,689

 
33,482,074

Mortgage loans held for portfolio, net of allowance for credit losses of $1,000 and $2,012 at September 30, 2015, and December 31, 2014, respectively
3,580,269

 
3,483,948

Accrued interest receivable
74,881

 
77,411

Premises, software, and equipment, net
3,496

 
3,951

Derivative assets, net
41,238

 
14,548

Other assets
46,295

 
40,910

Total Assets
$
57,397,372

 
$
55,106,677

LIABILITIES
 

 
 

Deposits
 
 
 
Interest-bearing
$
474,274

 
$
345,561

Non-interest-bearing
21,597

 
23,770

Total deposits
495,871

 
369,331

Consolidated obligations (COs):
 
 
 

Bonds
26,412,714

 
25,505,774

Discount notes
26,538,537

 
25,309,608

Total consolidated obligations
52,951,251

 
50,815,382

Mandatorily redeemable capital stock
42,643

 
298,599

Accrued interest payable
99,382

 
91,225

Affordable Housing Program (AHP) payable
76,249

 
66,993

Derivative liabilities, net
480,197

 
558,889

Other liabilities
30,699

 
28,472

Total liabilities
54,176,292

 
52,228,891

Commitments and contingencies (Note 18)


 


CAPITAL
 

 
 

Capital stock – Class B – putable ($100 par value), 25,426 shares and 24,131 shares issued and outstanding at September 30, 2015, and December 31, 2014, respectively
2,542,598

 
2,413,114

Retained earnings:
 
 
 
Unrestricted
894,676

 
764,888

Restricted
179,502

 
136,770

Total retained earnings
1,074,178

 
901,658

Accumulated other comprehensive loss
(395,696
)
 
(436,986
)
Total capital
3,221,080

 
2,877,786

Total Liabilities and Capital
$
57,397,372

 
$
55,106,677

_______________________________________
(a) Fair values of held-to-maturity securities were $3,090,905 and $3,710,815 at September 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 September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
INTEREST INCOME
 
 
 
 
 
 
 
Advances
$
59,163

 
$
57,456

 
$
175,012

 
$
170,148

Prepayment fees on advances, net
1,506

 
1,179

 
5,527

 
4,441

Securities purchased under agreements to resell
1,366

 
886

 
3,273

 
2,267

Federal funds sold
1,669

 
1,027

 
4,519

 
2,416

Trading securities
2,274

 
2,346

 
6,888

 
7,051

Available-for-sale securities
24,313

 
18,911

 
68,488

 
46,195

Held-to-maturity securities
22,997

 
27,245

 
72,132

 
85,715

Prepayment fees on investments
29

 
130

 
286

 
1,240

Mortgage loans held for portfolio
30,392

 
30,918

 
91,633

 
94,136

Other
18

 
3

 
43

 
5

Total interest income
143,727

 
140,101

 
427,801

 
413,614

INTEREST EXPENSE
 
 
 
 
 
 
 
Consolidated obligations - bonds
80,695

 
82,489

 
242,859

 
238,193

Consolidated obligations - discount notes
6,391

 
4,620

 
16,813

 
11,515

Deposits
13

 
29

 
46

 
50

Mandatorily redeemable capital stock
472

 
1,358

 
1,275

 
7,632

Other borrowings

 
1

 
2

 
4

Total interest expense
87,571

 
88,497

 
260,995

 
257,394

NET INTEREST INCOME
56,156

 
51,604

 
166,806

 
156,220

(Reduction of) provision for credit losses
(159
)
 
373

 
(442
)
 
294

NET INTEREST INCOME AFTER (REDUCTION OF) PROVISION FOR CREDIT LOSSES
56,315

 
51,231

 
167,248

 
155,926

OTHER INCOME (LOSS)
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on investment securities
(230
)
 
(243
)
 
(810
)
 
(243
)
Net amount of impairment losses reclassified from accumulated other comprehensive loss
(823
)
 
(68
)
 
(2,018
)
 
(925
)
Net other-than-temporary impairment losses on investment securities, credit portion
(1,053
)
 
(311
)
 
(2,828
)
 
(1,168
)
Litigation settlements

 
17,543

 
134,713

 
22,012

Loss on early extinguishment of debt
(82
)
 
(163
)
 
(211
)
 
(2,755
)
Service fees
2,094

 
1,874

 
6,102

 
5,159

Net unrealized gains (losses) on trading securities
780

 
(2,387
)
 
(332
)
 
576

Net (losses) gains on derivatives and hedging activities
(7,653
)
 
1,411

 
(12,154
)
 
(1,264
)
Other
123

 
(182
)
 
(329
)
 
(581
)
Total other (loss) income
(5,791
)
 
17,785

 
124,961

 
21,979

OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
9,419

 
8,990

 
32,717

 
27,847

Other operating expenses
4,973

 
4,961

 
15,129

 
15,273

Federal Housing Finance Agency (the FHFA)
884

 
576

 
2,787

 
1,960

Office of Finance
666

 
654

 
2,193

 
2,063

Other
689

 
492

 
1,839

 
1,857

Total other expense
16,631

 
15,673

 
54,665

 
49,000

INCOME BEFORE ASSESSMENTS
33,893

 
53,343

 
237,544

 
128,905

AHP
3,437

 
5,470

 
23,882

 
13,654

NET INCOME
$
30,456

 
$
47,873

 
$
213,662

 
$
115,251

 

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 September 30,
 
For the Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
30,456

 
$
47,873

 
$
213,662

 
$
115,251

Other comprehensive income:
 
 
 
 
 
 
 
 
Net unrealized (losses) gains on available-for-sale securities
 
(1,962
)
 
(9,274
)
 
3,834

 
20,397

Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
 
 
 
 
 
 
 
 
Net amount of impairment losses reclassified to non-interest income
 
823

 
68

 
2,018

 
925

Accretion of noncredit portion
 
10,072

 
12,531

 
33,525

 
37,278

Total net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
 
10,895

 
12,599

 
35,543

 
38,203

Net unrealized (losses) gains relating to hedging activities
 
 
 
 
 
 
 
 
Unrealized losses
 
(15,959
)
 
(1,482
)
 
(15,329
)
 
(21,222
)
Reclassification adjustment for previously deferred hedging gains and losses included in net income
 
6,231

 
3,149

 
16,758

 
3,878

Total net unrealized (losses) gains relating to hedging activities
 
(9,728
)
 
1,667

 
1,429

 
(17,344
)
Pension and postretirement benefits
 
162

 
(67
)
 
484

 
(202
)
Total other comprehensive (loss) income
 
(633
)
 
4,925

 
41,290

 
41,054

Total comprehensive income
 
$
29,823

 
$
52,798

 
$
254,952

 
$
156,305


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

5



FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
NINE MONTHS ENDED SEPTEMBER 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
1,297

 
129,721

 
 
 
 
 
 
 
 
 
129,721

Repurchase of capital stock
(2,664
)
 
(266,346
)
 
 
 
 
 
 
 
 
 
(266,346
)
Shares reclassified to mandatorily redeemable capital stock
(3
)
 
(338
)
 
 
 
 
 
 
 
 
 
(338
)
Comprehensive income
 
 
 
 
92,200

 
23,051

 
115,251

 
41,054

 
156,305

Cash dividends on capital stock
 
 
 
 
(27,849
)
 
 
 
(27,849
)
 
 
 
(27,849
)
BALANCE, SEPTEMBER 30, 2014
23,935

 
$
2,393,508

 
$
746,329

 
$
129,863

 
$
876,192

 
$
(440,462
)
 
$
2,829,238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
1,631

 
163,063

 
 
 
 
 
 
 
 
 
163,063

Repurchase of capital stock
(335
)
 
(33,525
)
 
 
 
 
 
 
 
 
 
(33,525
)
Shares reclassified to mandatorily redeemable capital stock
(1
)
 
(54
)
 
 
 
 
 
 
 
 
 
(54
)
Comprehensive income
 
 
 
 
170,930

 
42,732

 
213,662

 
41,290

 
254,952

Cash dividends on capital stock
 
 
 
 
(41,142
)
 
 
 
(41,142
)
 
 
 
(41,142
)
BALANCE, SEPTEMBER 30, 2015
25,426

 
$
2,542,598

 
$
894,676

 
$
179,502

 
$
1,074,178

 
$
(395,696
)
 
$
3,221,080


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 Nine Months Ended September 30,
 
2015
 
2014
OPERATING ACTIVITIES
 

 
 

Net income
$
213,662

 
$
115,251

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

 
 
Depreciation and amortization
(43,968
)
 
(53,714
)
(Reduction of) provision for credit losses
(442
)
 
294

Change in net fair-value adjustments on derivatives and hedging activities
1,317

 
(61,402
)
Net other-than-temporary impairment losses on investment securities, credit portion
2,828

 
1,168

Loss on early extinguishment of debt
211

 
2,755

Other adjustments
(442
)
 
153

Net change in:
 

 
 
Market value of trading securities
332

 
(576
)
Accrued interest receivable
2,530

 
11,896

Other assets
(64
)
 
5,237

Accrued interest payable
8,157

 
16,978

Other liabilities
10,113

 
1,856

Total adjustments
(19,428
)
 
(75,355
)
Net cash provided by operating activities
194,234

 
39,896

 
 
 
 
INVESTING ACTIVITIES
 

 
 

Net change in:
 

 
 

Interest-bearing deposits
(70,426
)
 
(26,875
)
Securities purchased under agreements to resell
(2,400,000
)
 
250,000

Federal funds sold
125,000

 
(1,600,000
)
Premises, software, and equipment
(794
)
 
(716
)
Trading securities:
 

 
 

Proceeds from long-term
8,314

 
2,413

Available-for-sale securities:
 

 
 

Proceeds from long-term
739,421

 
1,123,129

Purchases of long-term
(1,529,058
)
 
(2,452,584
)
Held-to-maturity securities:
 

 
 

Proceeds from long-term
617,803

 
653,616

Advances to members:
 

 
 

Proceeds
258,113,231

 
210,734,280

Disbursements
(258,602,004
)
 
(214,711,518
)
Mortgage loans held for portfolio:
 

 
 

Proceeds
439,681

 
311,167

Purchases
(551,753
)
 
(358,866
)
Proceeds from sale of foreclosed assets
6,189

 
7,455

Net cash used in investing activities
(3,104,396
)
 
(6,068,499
)
 
 
 
 
FINANCING ACTIVITIES
 

 
 

Net change in deposits
128,400

 
4,821

Net payments on derivatives with a financing element
(14,302
)
 
(13,294
)
Net proceeds from issuance of consolidated obligations:
 

 
 

Discount notes
110,227,338

 
97,204,190


7


Bonds
8,525,179

 
9,192,605

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

 

Payments for maturing and retiring consolidated obligations:
 

 
 

Discount notes
(108,999,969
)
 
(90,706,106
)
Bonds
(7,680,907
)
 
(7,596,332
)
Proceeds from issuance of capital stock
163,063

 
129,721

Payments for redemption of mandatorily redeemable capital stock
(256,010
)
 
(733,641
)
Payments for repurchase of capital stock
(33,525
)
 
(266,346
)
Cash dividends paid
(41,142
)
 
(27,860
)
Net cash provided by financing activities
2,105,907

 
7,187,758

Net (decrease) increase in cash and due from banks
(804,255
)
 
1,159,155

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
$
320,281

 
$
1,800,188

Supplemental disclosures:
 
 
 
Interest paid
$
307,832

 
$
303,643

AHP payments
$
14,080

 
$
10,170

Noncash transfers of mortgage loans held for portfolio to real-estate-owned (REO)
$
5,611

 
$
7,141


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 September 30, 2015, and December 31, 2014, were (dollars in thousands):

9


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

 
 
U.S. government-guaranteed – single-family
$
10,765

 
$
12,235

Government-sponsored enterprise (GSE) – single-family
1,651

 
2,300

GSEs – multifamily
223,906

 
230,434

Total
$
236,322

 
$
244,969


Net unrealized losses or gains on trading securities for the nine months ended September 30, 2015 and 2014, amounted to net losses of $332,000 and net gains of $576,000 for securities held on September 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 September 30, 2015, were (dollars in thousands):
 
 
 
 
Amounts Recorded in Accumulated Other Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational institutions
$
476,597

 
$

 
$
(28,337
)
 
$
448,260

U.S. government-owned corporations
329,620

 

 
(53,111
)
 
276,509

GSEs
136,266

 

 
(15,921
)
 
120,345

 
942,483

 

 
(97,369
)
 
845,114

MBS
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
168,729

 
241

 
(1,994
)
 
166,976

U.S. government guaranteed – multifamily
758,333

 
3,303

 
(262
)
 
761,374

GSEs – single-family
4,472,884

 
30,778

 
(4,486
)
 
4,499,176

 
5,399,946

 
34,322

 
(6,742
)
 
5,427,526

Total
$
6,342,429

 
$
34,322

 
$
(104,111
)
 
$
6,272,640

_______________________
(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 September 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
$

 
$

 
$
448,260

 
$
(28,337
)
 
$
448,260

 
$
(28,337
)
U.S. government-owned corporations

 

 
276,509

 
(53,111
)
 
276,509

 
(53,111
)
GSEs

 

 
120,345

 
(15,921
)
 
120,345

 
(15,921
)
 

 

 
845,114

 
(97,369
)
 
845,114

 
(97,369
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family

 

 
121,814

 
(1,994
)
 
121,814

 
(1,994
)
U.S. government guaranteed – multifamily

 

 
111,128

 
(262
)
 
111,128

 
(262
)
GSEs – single-family
651,699

 
(2,403
)
 
398,759

 
(2,083
)
 
1,050,458

 
(4,486
)
 
651,699

 
(2,403
)
 
631,701

 
(4,339
)
 
1,283,400

 
(6,742
)
Total temporarily impaired
$
651,699

 
$
(2,403
)
 
$
1,476,815


$
(101,708
)

$
2,128,514


$
(104,111
)

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 September 30, 2015, and December 31, 2014, were (dollars in thousands):

11


 
September 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
17,465

 
16,601

 

 

Due after 10 years
925,018

 
828,513

 
928,624

 
856,135

 
942,483

 
845,114

 
928,624

 
856,135

MBS (1)
5,399,946

 
5,427,526

 
4,626,977

 
4,625,843

Total
$
6,342,429

 
$
6,272,640

 
$
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 September 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
$
4,235

 
$

 
$
4,235

 
$
249

 
$

 
$
4,484

State or local housing-finance-agency obligations (HFA securities)
173,784

 

 
173,784

 
41

 
(24,434
)
 
149,391

 
178,019

 

 
178,019

 
290

 
(24,434
)
 
153,875

MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
16,936

 

 
16,936

 
389

 

 
17,325

U.S. government guaranteed – multifamily
26,275

 

 
26,275

 
72

 

 
26,347

GSEs – single-family
1,174,680

 

 
1,174,680

 
35,597

 
(107
)
 
1,210,170

GSEs – multifamily
400,305

 

 
400,305

 
25,321

 

 
425,626

Private-label – residential
1,220,336

 
(239,706
)
 
980,630

 
275,163

 
(13,132
)
 
1,242,661

Asset-backed securities (ABS) backed by home equity loans
15,871

 
(693
)
 
15,178

 
698

 
(975
)
 
14,901

 
2,854,403

 
(240,399
)
 
2,614,004

 
337,240

 
(14,214
)
 
2,937,030

Total
$
3,032,422

 
$
(240,399
)
 
$
2,792,023

 
$
337,530

 
$
(38,648
)
 
$
3,090,905


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 September 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
$
14,821

 
$
(178
)
 
$
129,529

 
$
(24,256
)
 
$
144,350

 
$
(24,434
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 
 
 
 
 
 
 
 
 

 
 

GSEs – single-family

 

 
16,950

 
(107
)
 
16,950

 
(107
)
Private-label – residential
105,919

 
(2,113
)
 
485,188

 
(43,035
)
 
591,107

 
(45,148
)
ABS backed by home equity loans
203

 
(7
)
 
13,518

 
(1,146
)
 
13,721

 
(1,153
)
 
106,122

 
(2,120
)
 
515,656

 
(44,288
)
 
621,778

 
(46,408
)
Total
$
120,943

 
$
(2,298
)
 
$
645,185

 
$
(68,544
)
 
$
766,128

 
$
(70,842
)

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 September 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.
 
September 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
$

 
$

 
$

 
$
150

 
$
150

 
$
150

Due after one year through five years
7,213

 
7,213

 
7,494

 
9,369

 
9,369

 
9,751

Due after five years through 10 years
17,021

 
17,021

 
16,852

 
17,115

 
17,115

 
16,973

Due after 10 years
153,785

 
153,785

 
129,529

 
157,530

 
157,530

 
139,544

 
178,019

 
178,019

 
153,875

 
184,164

 
184,164

 
166,418

MBS (2)
2,854,403

 
2,614,004

 
2,937,030

 
3,443,967

 
3,168,025

 
3,544,397

Total
$
3,032,422

 
$
2,792,023

 
$
3,090,905

 
$
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 September 30, 2015. At September 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 September 30, 2015:
 

14


We expect debentures issued by a supranational institution that were in an unrealized loss position as of September 30, 2015, to return contractual principal and interest based on our review and analysis of independent third-party credit reports on the 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 September 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 September 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 September 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 September 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

15


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 3.0 percent to an increase of 8.0 percent over the 12-month period beginning July 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 September 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
 
$
47,097

 
6.3
%
 
42.3
%
 
36.9
%
 
%
2006
 
81,774

 
9.2

 
31.9

 
38.9

 
0.4

2005
 
21,963

 
8.0

 
22.2

 
35.8

 
22.7

2004 and prior
 
2,556

 
13.4

 
15.5

 
5.0

 
3.3

Total
 
$
153,390

 
8.2
%
 
33.4
%
 
37.3
%
 
3.5
%
_______________________
(1)
Securities are classified 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 September 30, 2015 (dollars in thousands). Securities are classified in the table below based on their classifications at the time of issuance. 
 
September 30, 2015
Other-Than-Temporarily Impaired Investment (1)
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
Private-label residential MBS – Prime
$
51,669

 
$
44,541

 
$
35,355

 
$
45,139

Private-label residential MBS – Alt-A
1,327,714

 
978,983

 
748,463

 
1,013,804

ABS backed by home equity loans – Subprime
4,071

 
3,667

 
2,974

 
3,672

Total other-than-temporarily impaired securities
$
1,383,454

 
$
1,027,191

 
$
786,792

 
$
1,062,615

_______________________
(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 September 30,
 
For the Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Balance at beginning of period
$
551,341

 
$
587,334

 
$
568,652

 
$
603,786

Additions:
 
 
 
 
 
 
 
Credit losses for which other-than-temporary impairment was not previously recognized

 
31

 

 
31

Additional credit losses for which an other-than-temporary impairment charge was previously recognized(1)
1,053

 
280

 
2,828

 
1,137

Reductions:
 
 
 
 
 
 
 
Securities matured during the period

 
(173
)
 

 
(173
)
Increase in cash flows expected to be collected which are recognized over the remaining life of the security(2)
(9,585
)
 
(8,991
)
 
(28,671
)
 
(26,300
)
Balance at end of period
$
542,809

 
$
578,481

 
$
542,809

 
$
578,481

_______________________
(1)
For the three months ended September 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 July 1,