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EX-32.2 - CERTIFICATION 906 CFO - Federal Home Loan Bank of Bostonex322_q22016.htm
EX-32.1 - CERTIFICATION 906 CEO - Federal Home Loan Bank of Bostonex321_q22016.htm
EX-31.2 - CERTIFICATION 302 CFO - Federal Home Loan Bank of Bostonex312_q22016.htm
EX-31.1 - CERTIFICATION 302 CEO - Federal Home Loan Bank of Bostonex311_q22016.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, 2016
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, 2016
Class A Stock, par value $100
 
zero
Class B Stock, par value $100
 
24,172,622




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, 2016
 
December 31, 2015
ASSETS
 
 
 
Cash and due from banks
$
413,908

 
$
254,218

Interest-bearing deposits
298

 
197

Securities purchased under agreements to resell
5,799,000

 
6,700,000

Federal funds sold
3,840,000

 
2,120,000

Investment securities:
 
 
 

Trading securities
226,630

 
230,134

Available-for-sale securities - includes $16,268 and $22,822 pledged as collateral at June 30, 2016, and December 31, 2015, respectively that may be repledged
7,423,099

 
6,314,285

Held-to-maturity securities - includes $33,898 and $42,703 pledged as collateral at June 30, 2016, and December 31, 2015, respectively that may be repledged (a)
2,387,460

 
2,654,565

Total investment securities
10,037,189

 
9,198,984

Advances
38,241,920

 
36,076,167

Mortgage loans held for portfolio, net of allowance for credit losses of $900 and $1,025 at June 30, 2016, and December 31, 2015
3,628,464

 
3,581,788

Accrued interest receivable
82,995

 
84,442

Premises, software, and equipment, net
3,440

 
3,360

Derivative assets, net
61,402

 
40,117

Other assets
51,538

 
43,396

Total Assets
$
62,160,154

 
$
58,102,669

LIABILITIES
 

 
 

Deposits
 
 
 
Interest-bearing
$
604,426

 
$
458,513

Non-interest-bearing
30,569

 
24,089

Total deposits
634,995

 
482,602

Consolidated obligations (COs):
 
 
 

Bonds
27,139,771

 
25,427,277

Discount notes
30,483,963

 
28,479,097

Total consolidated obligations
57,623,734

 
53,906,374

Mandatorily redeemable capital stock
35,076

 
41,989

Accrued interest payable
76,098

 
81,268

Affordable Housing Program (AHP) payable
82,979

 
82,081

Derivative liabilities, net
502,864

 
442,007

Other liabilities
43,895

 
43,435

Total liabilities
58,999,641

 
55,079,756

Commitments and contingencies (Note 18)


 


CAPITAL
 

 
 

Capital stock – Class B – putable ($100 par value), 23,537 shares and 23,367 shares issued and outstanding at June 30, 2016, and December 31, 2015, respectively
2,353,698

 
2,336,662

Retained earnings:
 
 
 
Unrestricted
955,126

 
934,214

Restricted
210,031

 
194,634

Total retained earnings
1,165,157

 
1,128,848

Accumulated other comprehensive loss
(358,342
)
 
(442,597
)
Total capital
3,160,513

 
3,022,913

Total Liabilities and Capital
$
62,160,154

 
$
58,102,669

_______________________________________
(a)   Fair values of held-to-maturity securities were $2,613,754 and $2,923,124 at June 30, 2016, and December 31, 2015, 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,
 
2016
 
2015
 
2016
 
2015
INTEREST INCOME
 
 
 
 
 
 
 
Advances
$
81,011

 
$
58,441

 
$
159,230

 
$
115,849

Prepayment fees on advances, net
863

 
279

 
2,932

 
4,021

Securities purchased under agreements to resell
2,713

 
1,104

 
5,906

 
1,907

Federal funds sold
5,176

 
1,223

 
10,792

 
2,850

Investment securities:
 
 
 
 
 
 
 
Trading securities
2,205

 
2,296

 
4,441

 
4,614

Available-for-sale securities
23,170

 
23,603

 
48,315

 
44,175

Held-to-maturity securities
22,218

 
24,264

 
44,388

 
49,135

Prepayment fees on investments
6

 
94

 
331

 
257

Total investment securities
47,599

 
50,257

 
97,475

 
98,181

Mortgage loans held for portfolio
29,906

 
30,190

 
60,982

 
61,241

Other
136

 
14

 
243

 
25

Total interest income
167,404

 
141,508

 
337,560

 
284,074

INTEREST EXPENSE
 
 
 
 
 
 
 
Consolidated obligations:
 
 
 
 
 
 
 
Bonds
89,780

 
79,923

 
180,640

 
162,164

Discount notes
22,579

 
4,909

 
45,276

 
10,422

Total consolidated obligations
112,359

 
84,832

 
225,916

 
172,586

Deposits
146

 
19

 
261

 
33

Mandatorily redeemable capital stock
319

 
468

 
698

 
803

Other borrowings
1

 
2

 
2

 
2

Total interest expense
112,825

 
85,321

 
226,877

 
173,424

NET INTEREST INCOME
54,579

 
56,187

 
110,683

 
110,650

Reduction of provision for credit losses
(111
)
 
(223
)
 
(100
)
 
(283
)
NET INTEREST INCOME AFTER REDUCTION OF PROVISION FOR CREDIT LOSSES
54,690

 
56,410

 
110,783

 
110,933

OTHER INCOME (LOSS)
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on investment securities
(643
)
 
(356
)
 
(1,085
)
 
(580
)
Net amount of impairment losses reclassified from accumulated other comprehensive loss
(360
)
 
(1,073
)
 
(1,265
)
 
(1,195
)
Net other-than-temporary impairment losses on investment securities, credit portion
(1,003
)
 
(1,429
)
 
(2,350
)
 
(1,775
)
Litigation settlements
19,584

 
134,690

 
19,584

 
134,713

Loss on early extinguishment of debt
(742
)
 
(129
)
 
(1,300
)
 
(129
)
Service fees
1,934

 
2,089

 
3,902

 
4,008

Net unrealized gains (losses) on trading securities
84

 
(2,393
)
 
1,957

 
(1,112
)
Net losses on derivatives and hedging activities
(2,963
)
 
(1,142
)
 
(9,198
)
 
(4,501
)
Other
(100
)
 
(333
)
 
(138
)
 
(452
)
Total other income
16,794

 
131,353

 
12,457

 
130,752

OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
10,023

 
13,865

 
20,350

 
23,298

Other operating expenses
5,895

 
5,303

 
11,147

 
10,156

Federal Housing Finance Agency (the FHFA)
818

 
883

 
1,821

 
1,903

Office of Finance
726

 
836

 
1,542

 
1,527

Other
1,226

 
563

 
2,762

 
1,150

Total other expense
18,688

 
21,450

 
37,622

 
38,034

INCOME BEFORE ASSESSMENTS
52,796

 
166,313

 
85,618

 
203,651

AHP
5,312

 
16,678

 
8,632

 
20,445

NET INCOME
$
47,484

 
$
149,635

 
$
76,986

 
$
183,206

 

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,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
47,484

 
$
149,635

 
$
76,986

 
$
183,206

Other comprehensive income:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities
 
27,941

 
(14,793
)
 
79,771

 
5,796

Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
 
 
 
 
 
 
 
 
Net amount of impairment losses reclassified to non-interest income
 
359

 
1,073

 
1,264

 
1,195

Accretion of noncredit portion
 
9,211

 
11,990

 
18,352

 
23,453

Total net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
 
9,570

 
13,063

 
19,616

 
24,648

Net unrealized gains (losses) relating to hedging activities
 
 
 
 
 
 
 
 
Unrealized (losses) gains
 
(9,731
)
 
12,773

 
(26,770
)
 
630

Reclassification adjustment for previously deferred hedging gains and losses included in net income
 
6,893

 
5,631

 
14,104

 
10,527

Total net unrealized (losses) gains relating to hedging activities
 
(2,838
)
 
18,404

 
(12,666
)
 
11,157

Pension and postretirement benefits
 
(2,585
)
 
92

 
(2,466
)
 
322

Total other comprehensive income
 
32,088

 
16,766

 
84,255

 
41,923

Comprehensive income
 
$
79,572

 
$
166,401

 
$
161,241

 
$
225,129


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, 2016 AND 2015
(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, 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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, DECEMBER 31, 2015
23,367

 
$
2,336,662

 
$
934,214

 
$
194,634

 
$
1,128,848

 
$
(442,597
)
 
$
3,022,913

Proceeds from sale of capital stock
2,258

 
225,813

 
 
 
 
 
 
 
 
 
225,813

Repurchase of capital stock
(2,087
)
 
(208,737
)
 
 
 
 
 
 
 
 
 
(208,737
)
Shares reclassified to mandatorily redeemable capital stock
(1
)
 
(40
)
 
 
 
 
 
 
 
 
 
(40
)
Comprehensive income
 
 
 
 
61,589

 
15,397

 
76,986

 
84,255

 
161,241

Cash dividends on capital stock
 
 
 
 
(40,677
)
 
 
 
(40,677
)
 
 
 
(40,677
)
BALANCE, JUNE 30, 2016
23,537

 
$
2,353,698

 
$
955,126

 
$
210,031

 
$
1,165,157

 
$
(358,342
)
 
$
3,160,513


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,
 
2016
 
2015
OPERATING ACTIVITIES
 

 
 

Net income
$
76,986

 
$
183,206

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

 
 
Depreciation and amortization
(10,722
)
 
(29,823
)
Reduction of provision for credit losses
(100
)
 
(283
)
Change in net fair-value adjustments on derivatives and hedging activities
23,851

 
3,124

Net other-than-temporary impairment losses on investment securities, credit portion
2,350

 
1,775

Loss on early extinguishment of debt
1,300

 
129

Other adjustments
1,018

 
(202
)
Net change in:
 

 
 
Market value of trading securities
(1,957
)
 
1,112

Accrued interest receivable
1,447

 
(417
)
Other assets
(15
)
 
(2,412
)
Accrued interest payable
(5,170
)
 
(11,717
)
Other liabilities
(2,278
)
 
10,515

Total adjustments
9,724

 
(28,199
)
Net cash provided by operating activities
86,710

 
155,007

 
 
 
 
INVESTING ACTIVITIES
 

 
 

Net change in:
 

 
 

Interest-bearing deposits
(150,602
)
 
(15,297
)
Securities purchased under agreements to resell
901,000

 
200,000

Federal funds sold
(1,720,000
)
 
(980,000
)
Premises, software, and equipment
(848
)
 
(551
)
Trading securities:
 

 
 

Proceeds from long-term
5,461

 
6,443

Available-for-sale securities:
 

 
 

Proceeds from long-term
530,343

 
441,729

Purchases of long-term
(1,501,952
)
 
(873,647
)
Held-to-maturity securities:
 

 
 

Proceeds from long-term
294,084

 
452,744

Advances to members:
 

 
 

Proceeds
173,556,118

 
160,347,563

Disbursements
(175,623,844
)
 
(161,008,371
)
Mortgage loans held for portfolio:
 

 
 

Proceeds
248,017

 
286,838

Purchases
(300,648
)
 
(388,956
)
Proceeds from sale of foreclosed assets
3,078

 
4,273

Net cash used in investing activities
(3,759,793
)
 
(1,527,232
)
 
 
 
 
FINANCING ACTIVITIES
 

 
 

Net change in deposits
151,644

 
34,724

Net payments on derivatives with a financing element
(6,707
)
 
(7,996
)
Net proceeds from issuance of consolidated obligations:
 

 
 

Discount notes
76,298,504

 
72,190,118


7


Bonds
9,716,022

 
5,262,645

Bonds transferred from other Federal Home Loan Banks

 
87,782

Payments for maturing and retiring consolidated obligations:
 

 
 

Discount notes
(74,297,930
)
 
(71,527,562
)
Bonds
(7,998,206
)
 
(4,754,583
)
Proceeds from issuance of capital stock
225,813

 
98,708

Payments for redemption of mandatorily redeemable capital stock
(6,953
)
 
(241,385
)
Payments for repurchase of capital stock
(208,737
)
 
(29,524
)
Cash dividends paid
(40,677
)
 
(21,010
)
Net cash provided by financing activities
3,832,773

 
1,091,917

Net increase (decrease) in cash and due from banks
159,690

 
(280,308
)
Cash and due from banks at beginning of the year
254,218

 
1,124,536

Cash and due from banks at end of the period
$
413,908

 
$
844,228

Supplemental disclosures:
 
 
 
Interest paid
$
254,901

 
$
218,112

AHP payments
$
7,025

 
$
9,233

Noncash transfers of mortgage loans held for portfolio to real-estate-owned (REO)
$
1,604

 
$
3,698


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

8



FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS

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, 2016. 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, 2015, filed with the Securities and Exchange Commission (the SEC) on March 18, 2016 (the 2015 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

Financial Instruments - Credit Losses. On June 16, 2016, the Financial Accounting Standards Board (FASB) issued new guidance to introduce a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The guidance applies to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. The guidance is effective for us on January 1, 2020. Early application of the guidance is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are in the process of evaluating this guidance and its effect on our financial condition, results of operations, and cash flows.

Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force). On March 14, 2016, the FASB issued updated guidance to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Specifically, the updated guidance clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The guidance becomes effective for us for the interim and annual periods beginning on January 1, 2017, and early adoption is permitted. We are in the process of evaluating this guidance and its effect on our financial condition, results of operations, and cash flows.

Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force). On March 10, 2016, the FASB issued final guidance clarifying that the novation of a derivative contract (that is, a change in the counterparty) in a hedge accounting relationship does not, in and of itself, require de-designation of that hedge accounting relationship. Hedge accounting relationships could continue as long as all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance becomes effective for us for the interim and annual periods beginning on January 1, 2017, and early adoption is permitted. We elected to early adopt the guidance prospectively on January 1, 2016. The adoption of this guidance had no effect on our financial condition, results of operations, and cash flows.

Leases. On February 25, 2016, the FASB issued guidance that requires recognition of lease assets and lease liabilities on the statement of condition and disclosure of key information about leasing arrangements. In particular, this guidance requires a lessee of operating or finance leases to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Under previous GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the statement of condition. The guidance becomes effective for us for the interim and annual periods beginning on January 1, 2019, and early application is permitted. We are in the process of evaluating this guidance and its effect on our financial condition, results of operations, and cash flows.


9


Revenue from Contracts with Customers. On May 28, 2014, the FASB issued its guidance on revenue from contracts with customers. This guidance 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 August of 2015, the FASB deferred the effective date for the new revenue recognition guidance until January 1, 2018. In March of 2016, the FASB issued additional guidance related to distinguishing when an entity is acting as a principal versus an agent in contracts with customers. The distinction is relevant to reporting revenue gross (as principal) or net (as agent). In April of 2016, the FASB issued additional guidance for identifying performance obligations and licensing agreements for purposes of revenue recognition. Financial instruments and other contractual rights within the scope of other GAAP guidance are excluded from the scope of this new revenue recognition guidance. This guidance will be effective for us beginning January 1, 2018, and is not expected to have a material impact on our financial condition, results of operations, and cash flows.

Accounting for Cloud Computing Arrangements. On April 15, 2015, the 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. We adopted this new guidance on January 1, 2016, using the prospective approach, for all arrangements entered into or materially modified after the adoption date. The adoption of this new guidance did not have a material impact 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 to simplify the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented on the statement of condition as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. The guidance became effective for us for the interim and annual periods beginning on January 1, 2016, and was adopted retrospectively. The adoption of this guidance resulted in a $6.1 million reclassification of unamortized debt issuance costs from other assets to consolidated obligations on the statement of condition at December 31, 2015. The adoption of this guidance did not have any effect on our results of operations and cash flows.

Note 3 — Trading Securities

Major Security Types. Our trading securities as of June 30, 2016, and December 31, 2015, were (dollars in thousands):
 
June 30, 2016
 
December 31, 2015
Mortgage-backed securities (MBS)
 

 
 
U.S. government-guaranteed – single-family
$
9,416

 
$
10,296

Government-sponsored enterprise (GSEs) – single-family
1,056

 
1,449

GSEs – multifamily
216,158

 
218,389

Total
$
226,630

 
$
230,134


Net unrealized gains (losses) on trading securities for the six months ended June 30, 2016 and 2015, amounted to gains of $2.0 million and losses of $1.1 million for securities held on June 30, 2016 and 2015, 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, 2016, were (dollars in thousands):


10


 
 
 
Amounts Recorded in Accumulated Other Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational institutions
$
494,000

 
$

 
$
(34,114
)
 
$
459,886

U.S. government-owned corporations
360,432

 

 
(61,826
)
 
298,606

GSEs
146,965

 

 
(18,227
)
 
128,738

 
1,001,397

 

 
(114,167
)
 
887,230

MBS
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
142,021

 
56

 
(1,550
)
 
140,527

U.S. government guaranteed – multifamily
685,781

 
2,290

 
(575
)
 
687,496

GSEs – single-family
4,969,866

 
54,949

 
(638
)
 
5,024,177

GSEs – multi-family
681,981

 
1,688

 

 
683,669

 
6,479,649

 
58,983

 
(2,763
)
 
6,535,869

Total
$
7,481,046

 
$
58,983

 
$
(116,930
)
 
$
7,423,099

_______________________
(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, 2015, were (dollars in thousands):
 
 
 
 
Amounts Recorded in Accumulated Other Comprehensive Loss
 
 
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational institutions
$
467,277

 
$

 
$
(28,364
)
 
$
438,913

U.S. government-owned corporations
323,404

 

 
(57,436
)
 
265,968

GSEs
133,691

 

 
(15,899
)
 
117,792

 
924,372

 

 
(101,699
)
 
822,673

MBS
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
159,232

 
181

 
(2,771
)
 
156,642

U.S. government guaranteed – multifamily
747,205

 
430

 
(2,873
)
 
744,762

GSEs – single-family
4,621,194

 
6,248

 
(37,234
)
 
4,590,208

 
5,527,631

 
6,859

 
(42,878
)
 
5,491,612

Total
$
6,452,003

 
$
6,859

 
$
(144,577
)
 
$
6,314,285

_______________________
(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, 2016, 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):

11


 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
Supranational institutions
$

 
$

 
$
459,886

 
$
(34,114
)
 
$
459,886

 
$
(34,114
)
U.S. government-owned corporations

 

 
298,606

 
(61,826
)
 
298,606

 
(61,826
)
GSEs

 

 
128,738

 
(18,227
)
 
128,738

 
(18,227
)
 

 

 
887,230

 
(114,167
)
 
887,230

 
(114,167
)
MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
36,136

 
(12
)
 
101,810

 
(1,538
)
 
137,946

 
(1,550
)
U.S. government guaranteed – multifamily
102,494

 
(178
)
 
100,512

 
(397
)
 
203,006

 
(575
)
GSEs – single-family
382,995

 
(262
)
 
139,376

 
(376
)
 
522,371

 
(638
)
 
521,625

 
(452
)
 
341,698

 
(2,311
)
 
863,323

 
(2,763
)
Total temporarily impaired
$
521,625

 
$
(452
)
 
$
1,228,928


$
(116,478
)

$
1,750,553


$
(116,930
)

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

 
$

 
$
438,913

 
$
(28,364
)
 
$
438,913

 
$
(28,364
)
U.S. government-owned corporations

 

 
265,968

 
(57,436
)
 
265,968

 
(57,436
)
GSEs

 

 
117,792

 
(15,899
)
 
117,792

 
(15,899
)
 

 

 
822,673

 
(101,699
)
 
822,673

 
(101,699
)
MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family

 

 
113,626

 
(2,771
)
 
113,626

 
(2,771
)
U.S. government guaranteed – multifamily
537,059

 
(2,040
)
 
109,138

 
(833
)
 
646,197

 
(2,873
)
GSEs – single-family
3,113,057

 
(28,878
)
 
373,634

 
(8,356
)
 
3,486,691

 
(37,234
)
 
3,650,116

 
(30,918
)
 
596,398

 
(11,960
)
 
4,246,514

 
(42,878
)
Total temporarily impaired
$
3,650,116

 
$
(30,918
)
 
$
1,419,071

 
$
(113,659
)
 
$
5,069,187

 
$
(144,577
)

Redemption Terms. The amortized cost and fair value of our available-for-sale securities by contractual maturity at June 30, 2016, and December 31, 2015, were (dollars in thousands):

 
June 30, 2016
 
December 31, 2015
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
134,736

 
126,731

 
128,473

 
121,722

Due after 10 years
866,661

 
760,499

 
795,899

 
700,951

 
1,001,397

 
887,230

 
924,372

 
822,673

MBS (1)
6,479,649

 
6,535,869

 
5,527,631

 
5,491,612

Total
$
7,481,046

 
$
7,423,099

 
$
6,452,003

 
$
6,314,285

_______________________

12


(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, 2016, 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
$
2,825

 
$

 
$
2,825

 
$
109

 
$

 
$
2,934

State or local housing-finance-agency obligations (HFA securities)
168,223

 

 
168,223

 
16

 
(22,111
)
 
146,128

 
171,048

 

 
171,048

 
125

 
(22,111
)
 
149,062

MBS
 

 
 

 
 

 
 

 
 

 
 

U.S. government guaranteed – single-family
14,378

 

 
14,378

 
305

 

 
14,683

U.S. government guaranteed – multifamily
7,411

 

 
7,411

 
11

 

 
7,422

GSEs – single-family
955,485

 

 
955,485

 
25,398

 
(168
)
 
980,715

GSEs – multifamily
348,936

 

 
348,936

 
20,949

 

 
369,885

Private-label – residential
1,085,887

 
(209,548
)
 
876,339

 
215,097

 
(12,895
)
 
1,078,541

Asset-backed securities (ABS) backed by home equity loans
14,484

 
(621
)
 
13,863

 
531

 
(948
)
 
13,446

 
2,426,581

 
(210,169
)
 
2,216,412

 
262,291

 
(14,011
)
 
2,464,692

Total
$
2,597,629

 
$
(210,169
)
 
$
2,387,460

 
$
262,416

 
$
(36,122
)
 
$
2,613,754


Our held-to-maturity securities as of December 31, 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
$
3,605

 
$

 
$
3,605

 
$
180

 
$

 
$
3,785

HFA securities
170,928

 

 
170,928

 
18

 
(21,356
)
 
149,590

 
174,533

 

 
174,533

 
198

 
(21,356
)
 
153,375

MBS
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed – single-family
15,999

 

 
15,999

 
354

 

 
16,353

U.S. government guaranteed – multifamily
17,794

 

 
17,794

 
21

 
(7
)
 
17,808

GSEs – single-family
1,093,124

 

 
1,093,124

 
26,562

 
(142
)
 
1,119,544

GSEs – multifamily
386,635

 

 
386,635

 
18,118

 

 
404,753

Private-label – residential
1,180,661

 
(229,117
)
 
951,544

 
257,312

 
(12,262
)
 
1,196,594

ABS backed by home equity loans
15,604

 
(668
)
 
14,936

 
682

 
(921
)
 
14,697

 
2,709,817

 
(229,785
)
 
2,480,032

 
303,049

 
(13,332
)
 
2,769,749

Total
$
2,884,350

 
$
(229,785
)
 
$
2,654,565

 
$
303,247

 
$
(34,688
)
 
$
2,923,124


13



The following table summarizes our held-to-maturity securities with unrealized losses as of June 30, 2016, 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
$

 
$

 
$
143,134

 
$
(22,111
)
 
$
143,134

 
$
(22,111
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 
 
 
 
 
 
 
 
 

 
 

GSEs – single-family
12,423

 
(10
)
 
15,134

 
(158
)
 
27,557

 
(168
)
Private-label – residential
115,916

 
(3,774
)
 
460,904

 
(51,283
)
 
576,820

 
(55,057
)
ABS backed by home equity loans
204

 
(14
)
 
12,176

 
(1,153
)
 
12,380

 
(1,167
)
 
128,543

 
(3,798
)
 
488,214

 
(52,594
)
 
616,757

 
(56,392
)
Total
$
128,543

 
$
(3,798
)
 
$
631,348

 
$
(74,705
)
 
$
759,891

 
$
(78,503
)

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

 
$

 
$
146,594

 
$
(21,356
)
 
$
146,594

 
$
(21,356
)
 
 
 
 
 
 
 
 
 
 
 
 
MBS
 
 
 
 
 
 
 
 
 

 
 

U.S. government guaranteed - multifamily
5,842

 
(7
)
 

 

 
5,842

 
(7
)
GSEs – single-family
22,261

 
(6
)
 
16,417

 
(136
)
 
38,678

 
(142
)
Private-label – residential
105,318

 
(1,729
)
 
493,228

 
(45,051
)
 
598,546

 
(46,780
)
ABS backed by home equity loans
205

 
(16
)
 
13,348

 
(1,064
)
 
13,553

 
(1,080
)
 
133,626

 
(1,758
)
 
522,993

 
(46,251
)
 
656,619

 
(48,009
)
Total
$
133,626

 
$
(1,758
)
 
$
669,587

 
$
(67,607
)
 
$
803,213

 
$
(69,365
)

Redemption Terms. The amortized cost, carrying value, and fair value of our held-to-maturity securities by contractual maturity at June 30, 2016, and December 31, 2015, 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, 2016
 
December 31, 2015
Year of Maturity
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
 
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
Due in one year or less
$

 
$

 
$

 
$

 
$

 
$

Due after one year through five years
20,803

 
20,803

 
20,849

 
21,583

 
21,583

 
21,677

Due after five years through 10 years

 

 

 

 

 

Due after 10 years
150,245

 
150,245

 
128,213

 
152,950

 
152,950

 
131,698

 
171,048

 
171,048

 
149,062

 
174,533

 
174,533

 
153,375

MBS (2)
2,426,581

 
2,216,412

 
2,464,692

 
2,709,817

 
2,480,032

 
2,769,749

Total
$
2,597,629

 
$
2,387,460

 
$
2,613,754

 
$
2,884,350

 
$
2,654,565

 
$
2,923,124

_______________________

14


(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 individual available-for-sale and held-to-maturity securities 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, 2016. At June 30, 2016, 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 available-for-sale securities that were in an unrealized loss position as of June 30, 2016:

Debentures issued by a supranational institution that were in an unrealized loss position as of June 30, 2016, are expected 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 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, 2016, 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, 2016.

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

15


shortfalls of principal or interest on any such security. As a result, we have determined that, as of June 30, 2016, 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, 2016.

Private-Label Residential MBS and ABS Backed by Home Equity Loans. To ensure consistency in determination of the other-than-temporary impairment for private-label residential MBS and certain home equity loan investments (including home equity ABS) among all 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 2015 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 increase of 10.0 percent over the 12- month period beginning April 1, 2016. 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 6.0 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 a credit loss was recognized during the three months ended June 30, 2016, 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 average of Alt-A other-than-temporarily impaired private-label residential MBS (dollars in thousands).
 
 
 
 
Weighted Average of Significant Inputs
 
Weighted Average Current
Credit Enhancement
Private-label MBS by Classification
 
Par Value
 
Projected
Prepayment Rates
 
Projected
Default Rates
 
Projected
Loss Severities
 
Alt-A - Private-label residential MBS (1)
 
$
115,845

 
9.1
%
 
28.4
%
 
39.3
%
 
6.1
%
_______________________
(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.


16


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, 2016 (dollars in thousands). Securities are classified in the table below based on their classifications at the time of issuance.
 
June 30, 2016
Other-Than-Temporarily Impaired Investment (1)
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
Private-label residential MBS – Prime
$
43,629

 
$
37,789

 
$
29,895

 
$
38,071

Private-label residential MBS – Alt-A
1,190,864

 
880,834

 
679,181

 
885,991

ABS backed by home equity loans – Subprime
3,927

 
3,575

 
2,954

 
3,485

Total other-than-temporarily impaired securities
$
1,238,420

 
$
922,198

 
$
712,030

 
$
927,547

_______________________
(1)
We have instituted litigation related 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.

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 for 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,
 
2016
 
2015
 
2016
 
2015
Balance at beginning of period
$
525,809

 
$
559,725

 
$
533,888

 
$
568,652

Additions:
 
 
 
 
 
 
 
Additional credit losses for which an other-than-temporary impairment charge was previously recognized(1)
1,003

 
1,429

 
2,350

 
1,775

Reductions:
 
 
 
 
 
 
 
Increase in cash flows expected to be collected which are recognized over the remaining life of the security(2)
(9,890
)
 
(9,813
)
 
(19,316
)
 
(19,086
)
Balance at end of period
$
516,922

 
$
551,341

 
$
516,922

 
$
551,341

_______________________
(1)
For the three months ended June 30, 2016 and 2015, 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, 2016 and 2015. For the six months ended June 30, 2016 and 2015, 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, 2016 and 2015.
(2)
Represents amounts accreted as interest income during the current period.

Note 7 — Advances

General Terms. At both June 30, 2016, and December 31, 2015, we had advances outstanding with interest rates ranging from zero percent to 7.72 percent, as summarized below (dollars in thousands).

17


 
June 30, 2016
 
December 31, 2015
Year of Contractual Maturity
Amount
 
Weighted
Average
Rate
 
Amount
 
Weighted
Average
Rate
Overdrawn demand-deposit accounts
$
10,245

 
0.68
%