UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
––––––––––––––––––––––––––––––––––––––––––––––––––––
 
 xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2016
OR
 oTRANSITION 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
JulyOctober 31, 2016
Class A Stock, par value $100 zero
Class B Stock, par value $100 24,172,62224,144,469




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

   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   



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)
FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CONDITION
(dollars and shares in thousands, except par value)
(unaudited)
FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CONDITION
(dollars and shares in thousands, except par value)
(unaudited)
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
ASSETS      
Cash and due from banks$413,908
 $254,218
$172,481
 $254,218
Interest-bearing deposits298
 197
249
 197
Securities purchased under agreements to resell5,799,000
 6,700,000
3,749,000
 6,700,000
Federal funds sold3,840,000
 2,120,000
5,500,000
 2,120,000
Investment securities:   
   
Trading securities226,630
 230,134
618,932
 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 repledged7,423,099
 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
Available-for-sale securities - includes $11,169 and $22,822 pledged as collateral at September 30, 2016, and December 31, 2015, respectively that may be repledged7,125,064
 6,314,285
Held-to-maturity securities - includes $26,702 and $42,703 pledged as collateral at September 30, 2016, and December 31, 2015, respectively that may be repledged (a)2,271,239
 2,654,565
Total investment securities10,037,189
 9,198,984
10,015,235
 9,198,984
Advances38,241,920
 36,076,167
37,195,148
 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, 20153,628,464
 3,581,788
Mortgage loans held for portfolio, net of allowance for credit losses of $800 and $1,025 at September 30, 2016, and December 31, 20153,714,283
 3,581,788
Accrued interest receivable82,995
 84,442
77,045
 84,442
Premises, software, and equipment, net3,440
 3,360
3,869
 3,360
Derivative assets, net61,402
 40,117
62,947
 40,117
Other assets51,538
 43,396
53,044
 43,396
Total Assets$62,160,154
 $58,102,669
$60,543,301
 $58,102,669
LIABILITIES 
  
 
  
Deposits      
Interest-bearing$604,426
 $458,513
$571,287
 $458,513
Non-interest-bearing30,569
 24,089
39,496
 24,089
Total deposits634,995
 482,602
610,783
 482,602
Consolidated obligations (COs):   
   
Bonds27,139,771
 25,427,277
27,345,898
 25,427,277
Discount notes30,483,963
 28,479,097
28,725,374
 28,479,097
Total consolidated obligations57,623,734
 53,906,374
56,071,272
 53,906,374
Mandatorily redeemable capital stock35,076
 41,989
33,812
 41,989
Accrued interest payable76,098
 81,268
93,117
 81,268
Affordable Housing Program (AHP) payable82,979
 82,081
81,271
 82,081
Derivative liabilities, net502,864
 442,007
463,758
 442,007
Other liabilities43,895
 43,435
36,529
 43,435
Total liabilities58,999,641
 55,079,756
57,390,542
 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, respectively2,353,698
 2,336,662
Capital stock – Class B – putable ($100 par value), 23,333 shares and 23,367 shares issued and outstanding at September 30, 2016, and December 31, 2015, respectively2,333,262
 2,336,662
Retained earnings:      
Unrestricted955,126
 934,214
962,798
 934,214
Restricted210,031
 194,634
217,343
 194,634
Total retained earnings1,165,157
 1,128,848
1,180,141
 1,128,848
Accumulated other comprehensive loss(358,342) (442,597)(360,644) (442,597)
Total capital3,160,513
 3,022,913
3,152,759
 3,022,913
Total Liabilities and Capital$62,160,154
 $58,102,669
$60,543,301
 $58,102,669

(a)   Fair values of held-to-maturity securities were $2,613,7542,512,030 and $2,923,124 at JuneSeptember 30, 2016, and December 31, 2015, respectively.

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


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
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,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2016 2015 2016 20152016 2015 2016 2015
INTEREST INCOME              
Advances$81,011
 $58,441
 $159,230
 $115,849
$84,830
 $59,163
 $244,060
 $175,012
Prepayment fees on advances, net863
 279
 2,932
 4,021
(35) 1,506
 2,897
 5,527
Securities purchased under agreements to resell2,713
 1,104
 5,906
 1,907
2,697
 1,366
 8,603
 3,273
Federal funds sold5,176
 1,223
 10,792
 2,850
5,200
 1,669
 15,992
 4,519
Investment securities:              
Trading securities2,205
 2,296
 4,441
 4,614
2,182
 2,274
 6,623
 6,888
Available-for-sale securities23,170
 23,603
 48,315
 44,175
28,452
 24,313
 76,767
 68,488
Held-to-maturity securities22,218
 24,264
 44,388
 49,135
21,423
 22,997
 65,811
 72,132
Prepayment fees on investments6
 94
 331
 257
85
 29
 416
 286
Total investment securities47,599
 50,257
 97,475
 98,181
52,142
 49,613
 149,617
 147,794
Mortgage loans held for portfolio29,906
 30,190
 60,982
 61,241
29,874
 30,392
 90,856
 91,633
Other136
 14
 243
 25
171
 18
 414
 43
Total interest income167,404
 141,508
 337,560
 284,074
174,879
 143,727
 512,439
 427,801
INTEREST EXPENSE              
Consolidated obligations:              
Bonds89,780
 79,923
 180,640
 162,164
86,574
 80,695
 267,214
 242,859
Discount notes22,579
 4,909
 45,276
 10,422
23,011
 6,391
 68,287
 16,813
Total consolidated obligations112,359
 84,832
 225,916
 172,586
109,585
 87,086
 335,501
 259,672
Deposits146
 19
 261
 33
180
 13
 441
 46
Mandatorily redeemable capital stock319
 468
 698
 803
334
 472
 1,032
 1,275
Other borrowings1
 2
 2
 2
1
 
 3
 2
Total interest expense112,825
 85,321
 226,877
 173,424
110,100
 87,571
 336,977
 260,995
NET INTEREST INCOME54,579
 56,187
 110,683
 110,650
64,779
 56,156
 175,462
 166,806
Reduction of provision for credit losses(111) (223) (100) (283)(94) (159) (194) (442)
NET INTEREST INCOME AFTER REDUCTION OF PROVISION FOR CREDIT LOSSES54,690
 56,410
 110,783
 110,933
64,873
 56,315
 175,656
 167,248
OTHER INCOME (LOSS)              
Total other-than-temporary impairment losses on investment securities(643) (356) (1,085) (580)(568) (230) (1,653) (810)
Net amount of impairment losses reclassified from accumulated other comprehensive loss(360) (1,073) (1,265) (1,195)
Net amount of impairment losses reclassified to (from) accumulated other comprehensive loss197
 (823) (1,068) (2,018)
Net other-than-temporary impairment losses on investment securities, credit portion(1,003) (1,429) (2,350) (1,775)(371) (1,053) (2,721) (2,828)
Litigation settlements19,584
 134,690
 19,584
 134,713

 
 19,584
 134,713
Loss on early extinguishment of debt(742) (129) (1,300) (129)(184) (82) (1,484) (211)
Service fees1,934
 2,089
 3,902
 4,008
1,948
 2,094
 5,850
 6,102
Net unrealized gains (losses) on trading securities84
 (2,393) 1,957
 (1,112)
Net unrealized (losses) gains on trading securities(2,849) 780
 (892) (332)
Net losses on derivatives and hedging activities(2,963) (1,142) (9,198) (4,501)(1,922) (7,653) (11,120) (12,154)
Other(100) (333) (138) (452)(65) 123
 (203) (329)
Total other income16,794
 131,353
 12,457
 130,752
Total other (loss) income(3,443) (5,791) 9,014
 124,961
OTHER EXPENSE              
Compensation and benefits10,023
 13,865
 20,350
 23,298
10,396
 9,419
 30,746
 32,717
Other operating expenses5,895
 5,303
 11,147
 10,156
5,792
 4,973
 16,939
 15,129
Federal Housing Finance Agency (the FHFA)818
 883
 1,821
 1,903
819
 884
 2,640
 2,787
Office of Finance726
 836
 1,542
 1,527
732
 666
 2,274
 2,193
Other1,226
 563
 2,762
 1,150
3,034
 689
 5,796
 1,839
Total other expense18,688
 21,450
 37,622
 38,034
20,773
 16,631
 58,395
 54,665
INCOME BEFORE ASSESSMENTS52,796
 166,313
 85,618
 203,651
40,657
 33,893
 126,275
 237,544
AHP5,312
 16,678
 8,632
 20,445
4,099
 3,437
 12,731
 23,882
NET INCOME$47,484
 $149,635
 $76,986
 $183,206
$36,558
 $30,456
 $113,544
 $213,662
 

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

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

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

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, For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2016 2015 2016 2015 2016 2015 2016 2015
Net income $47,484
 $149,635
 $76,986
 $183,206
 $36,558
 $30,456
 $113,544
 $213,662
Other comprehensive income:                
Net unrealized gains (losses) on available-for-sale securities 27,941
 (14,793) 79,771
 5,796
Net unrealized (losses) gains on available-for-sale securities (17,325) (1,962) 62,446
 3,834
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
Net amount of impairment losses reclassified (from) to non-interest income (196) 823
 1,068
 2,018
Accretion of noncredit portion 9,211
 11,990
 18,352
 23,453
 8,586
 10,072
 26,938
 33,525
Total net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities 9,570
 13,063
 19,616
 24,648
 8,390
 10,895
 28,006
 35,543
Net unrealized gains (losses) relating to hedging activities                
Unrealized (losses) gains (9,731) 12,773
 (26,770) 630
Unrealized gains (losses) 1,082
 (15,959) (25,688) (15,329)
Reclassification adjustment for previously deferred hedging gains and losses included in net income 6,893
 5,631
 14,104
 10,527
 5,341
 6,231
 19,445
 16,758
Total net unrealized (losses) gains relating to hedging activities (2,838) 18,404
 (12,666) 11,157
Total net unrealized gains (losses) relating to hedging activities 6,423
 (9,728) (6,243) 1,429
Pension and postretirement benefits (2,585) 92
 (2,466) 322
 210
 162
 (2,256) 484
Total other comprehensive income 32,088
 16,766
 84,255
 41,923
Total other comprehensive (loss) income (2,302) (633) 81,953
 41,290
Comprehensive income $79,572
 $166,401
 $161,241
 $225,129
 $34,256
 $29,823
 $195,497
 $254,952

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

FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(dollars and shares in thousands)
(unaudited)


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(dollars and shares in thousands)
(unaudited)


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(dollars and shares in thousands)
(unaudited)


              
Capital Stock Class B – Putable Retained Earnings Accumulated Other Comprehensive Loss  Capital Stock Class B – Putable Retained Earnings Accumulated Other Comprehensive Loss  
Shares Par Value Unrestricted Restricted Total 
Total
Capital
Shares Par Value Unrestricted Restricted Total 
Total
Capital
BALANCE, DECEMBER 31, 201424,131
 $2,413,114
 $764,888
 $136,770
 $901,658
 $(436,986) $2,877,786
24,131
 $2,413,114
 $764,888
 $136,770
 $901,658
 $(436,986) $2,877,786
Proceeds from sale of capital stock987
 98,708
         98,708
1,631
 163,063
         163,063
Repurchase of capital stock(295) (29,524)         (29,524)(335) (33,525)         (33,525)
Shares reclassified to mandatorily redeemable capital stock(1) (54)         (54)(1) (54)         (54)
Comprehensive income    146,565
 36,641
 183,206
 41,923
 225,129
    170,930
 42,732
 213,662
 41,290
 254,952
Cash dividends on capital stock    (21,010)   (21,010)   (21,010)    (41,142)   (41,142)   (41,142)
BALANCE, JUNE 30, 201524,822
 $2,482,244
 $890,443
 $173,411
 $1,063,854
 $(395,063) $3,151,035
BALANCE, SEPTEMBER 30, 201525,426
 $2,542,598
 $894,676
 $179,502
 $1,074,178
 $(395,696) $3,221,080
                          
BALANCE, DECEMBER 31, 201523,367
 $2,336,662
 $934,214
 $194,634
 $1,128,848
 $(442,597) $3,022,913
23,367
 $2,336,662
 $934,214
 $194,634
 $1,128,848
 $(442,597) $3,022,913
Proceeds from sale of capital stock2,258
 225,813
         225,813
3,143
 314,274
         314,274
Repurchase of capital stock(2,087) (208,737)         (208,737)(3,176) (317,634)         (317,634)
Shares reclassified to mandatorily redeemable capital stock(1) (40)         (40)(1) (40)         (40)
Comprehensive income    61,589
 15,397
 76,986
 84,255
 161,241
    90,835
 22,709
 113,544
 81,953
 195,497
Cash dividends on capital stock    (40,677)   (40,677)   (40,677)    (62,251)   (62,251)   (62,251)
BALANCE, JUNE 30, 201623,537
 $2,353,698
 $955,126
 $210,031
 $1,165,157
 $(358,342) $3,160,513
BALANCE, SEPTEMBER 30, 201623,333
 $2,333,262
 $962,798
 $217,343
 $1,180,141
 $(360,644) $3,152,759

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

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


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


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


For the Six Months Ended June 30,For the Nine Months Ended September 30,
2016 20152016 2015
OPERATING ACTIVITIES 
  
 
  
Net income$76,986
 $183,206
$113,544
 $213,662
Adjustments to reconcile net income to net cash provided by operating activities: 
   
  
Depreciation and amortization(10,722) (29,823)(23,463) (43,968)
Reduction of provision for credit losses(100) (283)(194) (442)
Change in net fair-value adjustments on derivatives and hedging activities23,851
 3,124
17,856
 1,317
Net other-than-temporary impairment losses on investment securities, credit portion2,350
 1,775
2,721
 2,828
Loss on early extinguishment of debt1,300
 129
1,484
 211
Other adjustments1,018
 (202)3,207
 (442)
Net change in: 
   
  
Market value of trading securities(1,957) 1,112
892
 332
Accrued interest receivable1,447
 (417)7,390
 2,530
Other assets(15) (2,412)(304) (64)
Accrued interest payable(5,170) (11,717)11,849
 8,157
Other liabilities(2,278) 10,515
(11,614) 10,113
Total adjustments9,724
 (28,199)9,824
 (19,428)
Net cash provided by operating activities86,710
 155,007
123,368
 194,234
      
INVESTING ACTIVITIES 
  
 
  
Net change in: 
  
 
  
Interest-bearing deposits(150,602) (15,297)(111,135) (70,426)
Securities purchased under agreements to resell901,000
 200,000
2,951,000
 (2,400,000)
Federal funds sold(1,720,000) (980,000)(3,380,000) 125,000
Premises, software, and equipment(848) (551)(1,638) (794)
Trading securities: 
  
 
  
Proceeds from long-term5,461
 6,443
9,471
 8,314
Purchases of long-term(399,155) 
Available-for-sale securities: 
  
 
  
Proceeds from long-term530,343
 441,729
901,082
 739,421
Purchases of long-term(1,501,952) (873,647)(1,608,830) (1,529,058)
Held-to-maturity securities: 
  
 
  
Proceeds from long-term294,084
 452,744
425,936
 617,803
Advances to members: 
  
 
  
Proceeds173,556,118
 160,347,563
255,534,514
 258,113,231
Disbursements(175,623,844) (161,008,371)(256,626,490) (258,602,004)
Mortgage loans held for portfolio: 
  
 
  
Proceeds248,017
 286,838
408,128
 439,681
Purchases(300,648) (388,956)(550,511) (551,753)
Proceeds from sale of foreclosed assets3,078
 4,273
4,368
 6,189
Net cash used in investing activities(3,759,793) (1,527,232)(2,443,260) (3,104,396)
      
FINANCING ACTIVITIES 
  
 
  
Net change in deposits151,644
 34,724
127,432
 128,400
Net payments on derivatives with a financing element(6,707) (7,996)(10,493) (14,302)
Net proceeds from issuance of consolidated obligations: 
  
 
  
Discount notes76,298,504
 72,190,118

Discount notes114,582,795
 110,227,338
Bonds9,716,022
 5,262,645
15,435,348
 8,525,179
Bonds transferred from other Federal Home Loan Banks
 87,782

 87,782
Payments for maturing and retiring consolidated obligations: 
  
 
  
Discount notes(74,297,930) (71,527,562)(114,339,603) (108,999,969)
Bonds(7,998,206) (4,754,583)(13,483,496) (7,680,907)
Proceeds from issuance of capital stock225,813
 98,708
314,274
 163,063
Payments for redemption of mandatorily redeemable capital stock(6,953) (241,385)(8,217) (256,010)
Payments for repurchase of capital stock(208,737) (29,524)(317,634) (33,525)
Cash dividends paid(40,677) (21,010)(62,251) (41,142)
Net cash provided by financing activities3,832,773
 1,091,917
2,238,155
 2,105,907
Net increase (decrease) in cash and due from banks159,690
 (280,308)
Net decrease in cash and due from banks(81,737) (804,255)
Cash and due from banks at beginning of the year254,218
 1,124,536
254,218
 1,124,536
Cash and due from banks at end of the period$413,908
 $844,228
$172,481
 $320,281
Supplemental disclosures:      
Interest paid$254,901
 $218,112
$363,979
 $307,832
AHP payments$7,025
 $9,233
$12,739
 $14,080
Noncash transfers of mortgage loans held for portfolio to real-estate-owned (REO)$1,604
 $3,698
$2,657
 $5,611

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

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

Classification of Certain Cash Receipts and Cash Payments.On August 26, 2016, the Financial Accounting Standards Board (FASB) issued amendments to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified on the statement of cash flows. This guidance is effective for us for interim and annual periods beginning on January 1, 2018, and early adoption is permitted. This guidance should be applied using a retrospective transition method to each period presented. We are in the process of evaluating this guidance, and its effect on our cash flows has not yet been determined. The adoption of this guidance will have no effect on our financial condition or combined results of operations.

Financial Instruments - Credit Losses. On June 16, 2016, the Financial Accounting Standards Board (FASB)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.


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 JuneSeptember 30, 2016, and December 31, 2015, were (dollars in thousands):
September 30, 2016 December 31, 2015
U.S. Treasury obligations$399,129
 $
June 30, 2016 December 31, 2015   
Mortgage-backed securities (MBS) 
   
  
U.S. government-guaranteed – single-family$9,416
 $10,296
8,995
 10,296
Government-sponsored enterprise (GSEs) – single-family1,056
 1,449
911
 1,449
GSEs – multifamily216,158
 218,389
209,897
 218,389
219,803
 230,134
Total$226,630
 $230,134
$618,932
 $230,134

Net unrealized gains (losses)losses on trading securities for the sixnine months ended JuneSeptember 30, 2016 and 2015, amounted to gains of $2.0 million$892,000 and losses of $1.1 million$332,000 for securities held on JuneSeptember 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 JuneSeptember 30, 2016, were (dollars in thousands):


  Amounts Recorded in Accumulated Other Comprehensive Loss    Amounts Recorded in Accumulated Other Comprehensive Loss  
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
Supranational institutions$494,000
 $
 $(34,114) $459,886
$487,018
 $
 $(31,827) $455,191
U.S. government-owned corporations360,432
 
 (61,826) 298,606
358,677
 
 (57,339) 301,338
GSEs146,965
 
 (18,227) 128,738
145,893
 
 (16,933) 128,960
1,001,397
 
 (114,167) 887,230
991,588
 
 (106,099) 885,489
MBS 
  
  
  
 
  
  
  
U.S. government guaranteed – single-family142,021
 56
 (1,550) 140,527
133,518
 60
 (1,815) 131,763
U.S. government guaranteed – multifamily685,781
 2,290
 (575) 687,496
650,353
 1,267
 (718) 650,902
GSEs – single-family4,969,866
 54,949
 (638) 5,024,177
4,743,432
 33,843
 (3,115) 4,774,160
GSEs – multi-family681,981
 1,688
 
 683,669
681,445
 1,305
 
 682,750
6,479,649
 58,983
 (2,763) 6,535,869
6,208,748
 36,475
 (5,648) 6,239,575
Total$7,481,046
 $58,983
 $(116,930) $7,423,099
$7,200,336
 $36,475
 $(111,747) $7,125,064
_______________________
(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 corporations323,404
 
 (57,436) 265,968
GSEs133,691
 
 (15,899) 117,792
 924,372
 
 (101,699) 822,673
MBS 
  
  
  
U.S. government guaranteed – single-family159,232
 181
 (2,771) 156,642
U.S. government guaranteed – multifamily747,205
 430
 (2,873) 744,762
GSEs – single-family4,621,194
 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 JuneSeptember 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 TotalLess than 12 Months 12 Months or More Total
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
Supranational institutions$
 $
 $459,886
 $(34,114) $459,886
 $(34,114)$
 $
 $455,191
 $(31,827) $455,191
 $(31,827)
U.S. government-owned corporations
 
 298,606
 (61,826) 298,606
 (61,826)
 
 301,338
 (57,339) 301,338
 (57,339)
GSEs
 
 128,738
 (18,227) 128,738
 (18,227)
 
 128,960
 (16,933) 128,960
 (16,933)

 
 887,230
 (114,167) 887,230
 (114,167)
 
 885,489
 (106,099) 885,489
 (106,099)
MBS 
  
  
  
  
  
 
  
  
  
  
  
U.S. government guaranteed – single-family36,136
 (12) 101,810
 (1,538) 137,946
 (1,550)
 
 95,287
 (1,815) 95,287
 (1,815)
U.S. government guaranteed – multifamily102,494
 (178) 100,512
 (397) 203,006
 (575)197,057
 (299) 95,059
 (419) 292,116
 (718)
GSEs – single-family382,995
 (262) 139,376
 (376) 522,371
 (638)921,794
 (2,575) 138,407
 (540) 1,060,201
 (3,115)
521,625
 (452) 341,698
 (2,311) 863,323
 (2,763)1,118,851
 (2,874) 328,753
 (2,774) 1,447,604
 (5,648)
Total temporarily impaired$521,625
 $(452) $1,228,928

$(116,478)
$1,750,553

$(116,930)$1,118,851
 $(2,874) $1,214,242

$(108,873)
$2,333,093

$(111,747)

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 – multifamily537,059
 (2,040) 109,138
 (833) 646,197
 (2,873)
GSEs – single-family3,113,057
 (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 JuneSeptember 30, 2016, and December 31, 2015, were (dollars in thousands):

June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Year of Maturity
Amortized
Cost
 
Fair
 Value
 
Amortized
Cost
 
Fair
 Value
 
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 years134,736
 126,731
 128,473
 121,722
 183,811
 173,686
 128,473
 121,722
Due after 10 years866,661
 760,499
 795,899
 700,951
 807,777
 711,803
 795,899
 700,951
1,001,397
 887,230
 924,372
 822,673
 991,588
 885,489
 924,372
 822,673
MBS (1)
6,479,649
 6,535,869
 5,527,631
 5,491,612
 6,208,748
 6,239,575
 5,527,631
 5,491,612
Total$7,481,046
 $7,423,099
 $6,452,003
 $6,314,285
 $7,200,336
 $7,125,064
 $6,452,003
 $6,314,285
_______________________

(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 JuneSeptember 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 ValueAmortized 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
$2,545
 $
 $2,545
 $82
 $
 $2,627
State or local housing-finance-agency obligations (HFA securities)168,223
 
 168,223
 16
 (22,111) 146,128
166,169
 
 166,169
 11
 (22,064) 144,116
171,048
 
 171,048
 125
 (22,111) 149,062
168,714
 
 168,714
 93
 (22,064) 146,743
MBS 
  
  
  
  
  
 
  
  
  
  
  
U.S. government guaranteed – single-family14,378
 
 14,378
 305
 
 14,683
13,594
 
 13,594
 263
 
 13,857
U.S. government guaranteed – multifamily7,411
 
 7,411
 11
 
 7,422
3,609
 
 3,609
 1
 
 3,610
GSEs – single-family955,485
 
 955,485
 25,398
 (168) 980,715
884,287
 
 884,287
 22,195
 (227) 906,255
GSEs – multifamily348,936
 
 348,936
 20,949
 
 369,885
347,739
 
 347,739
 18,014
 
 365,753
Private-label – residential1,085,887
 (209,548) 876,339
 215,097
 (12,895) 1,078,541
1,041,072
 (201,181) 839,891
 233,117
 (10,334) 1,062,674
Asset-backed securities (ABS) backed by home equity loans14,484
 (621) 13,863
 531
 (948) 13,446
14,003
 (598) 13,405
 548
 (815) 13,138
2,426,581
 (210,169) 2,216,412
 262,291
 (14,011) 2,464,692
2,304,304
 (201,779) 2,102,525
 274,138
 (11,376) 2,365,287
Total$2,597,629
 $(210,169) $2,387,460
 $262,416
 $(36,122) $2,613,754
$2,473,018
 $(201,779) $2,271,239
 $274,231
 $(33,440) $2,512,030

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 securities170,928
 
 170,928
 18
 (21,356) 149,590
 174,533
 
 174,533
 198
 (21,356) 153,375
MBS           
U.S. government guaranteed – single-family15,999
 
 15,999
 354
 
 16,353
U.S. government guaranteed – multifamily17,794
 
 17,794
 21
 (7) 17,808
GSEs – single-family1,093,124
 
 1,093,124
 26,562
 (142) 1,119,544
GSEs – multifamily386,635
 
 386,635
 18,118
 
 404,753
Private-label – residential1,180,661
 (229,117) 951,544
 257,312
 (12,262) 1,196,594
ABS backed by home equity loans15,604
 (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

The following table summarizes our held-to-maturity securities with unrealized losses as of JuneSeptember 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 TotalLess than 12 Months 12 Months or More Total
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
HFA securities$
 $
 $143,134
 $(22,111) $143,134
 $(22,111)$
 $
 $141,786
 $(22,064) $141,786
 $(22,064)
                      
MBS         
  
         
  
GSEs – single-family12,423
 (10) 15,134
 (158) 27,557
 (168)47,792
 (70) 14,341
 (157) 62,133
 (227)
Private-label – residential115,916
 (3,774) 460,904
 (51,283) 576,820
 (55,057)30,379
 (317) 469,423
 (41,023) 499,802
 (41,340)
ABS backed by home equity loans204
 (14) 12,176
 (1,153) 12,380
 (1,167)
 
 12,091
 (1,000) 12,091
 (1,000)
128,543
 (3,798) 488,214
 (52,594) 616,757
 (56,392)78,171
 (387) 495,855
 (42,180) 574,026
 (42,567)
Total$128,543
 $(3,798) $631,348
 $(74,705) $759,891
 $(78,503)$78,171
 $(387) $637,641
 $(64,244) $715,812
 $(64,631)

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 - multifamily5,842
 (7) 
 
 5,842
 (7)
GSEs – single-family22,261
 (6) 16,417
 (136) 38,678
 (142)
Private-label – residential105,318
 (1,729) 493,228
 (45,051) 598,546
 (46,780)
ABS backed by home equity loans205
 (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 JuneSeptember 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 September 30, 2016 December 31, 2015
Year of Maturity
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
 
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
 
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 years20,803
 20,803
 20,849
 21,583
 21,583
 21,677
 19,864
 19,864
 19,922
 21,583
 21,583
 21,677
Due after five years through 10 years
 
 
 
 
 
 
 
 
 
 
 
Due after 10 years150,245
 150,245
 128,213
 152,950
 152,950
 131,698
 148,850
 148,850
 126,821
 152,950
 152,950
 131,698
171,048
 171,048
 149,062
 174,533
 174,533
 153,375
 168,714
 168,714
 146,743
 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
 2,304,304
 2,102,525
 2,365,287
 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
 $2,473,018
 $2,271,239
 $2,512,030
 $2,884,350
 $2,654,565
 $2,923,124
_______________________

(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 JuneSeptember 30, 2016. At JuneSeptember 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 JuneSeptember 30, 2016:

Debentures issued by a supranational institution that were in an unrealized loss position as of JuneSeptember 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 JuneSeptember 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 JuneSeptember 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

shortfalls of principal or interest on any such security. As a result, we have determined that, as of JuneSeptember 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 JuneSeptember 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 2.01.0 percent to an increase of 10.0 percent over the 12- month period beginning AprilJuly 1, 2016. For the vast majority of markets, the projected short-term housing price changes range from an increase of 2.03.0 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 JuneSeptember 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
   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
 
Private-label MBS Par Value 
Projected
Prepayment Rates
 
Projected
Default Rates
 
Projected
Loss Severities
 
Weighted Average Current
Credit Enhancement
Alt-A - Private-label residential MBS (1)
 $115,845
 9.1% 28.4% 39.3% 6.1% $61,461
 9.8% 26.4% 40.2% 
_______________________
(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 JuneSeptember 30, 2016 (dollars in thousands). Securities are classified in the table below based on their classifications at the time of issuance.
June 30, 2016 September 30, 2016
Other-Than-Temporarily Impaired Investment (1)
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Amortized
Cost
 
Carrying
Value
 
Fair
Value
Private-label residential MBS – Prime$43,629
 $37,789
 $29,895
 $38,071
 $41,212
 $35,774
 $28,288
 $36,406
Private-label residential MBS – Alt-A1,190,864
 880,834
 679,181
 885,991
 1,146,687
 849,232
 655,536
 880,398
ABS backed by home equity loans – Subprime3,927
 3,575
 2,954
 3,485
 3,884
 3,545
 2,948
 3,496
Total other-than-temporarily impaired securities$1,238,420
 $922,198
 $712,030
 $927,547
 $1,191,783
 $888,551
 $686,772
 $920,300
_______________________
(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,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2016 2015 2016 20152016 2015 2016 2015
Balance at beginning of period$525,809
 $559,725
 $533,888
 $568,652
$516,922
 $551,341
 $533,888
 $568,652
Additions:              
Credit losses for which other-than-temporary impairment was not previously recognized6
 
 6
 
Additional credit losses for which an other-than-temporary impairment charge was previously recognized(1)
1,003
 1,429
 2,350
 1,775
365
 1,053
 2,715
 2,828
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)(9,613) (9,585) (28,929) (28,671)
Balance at end of period$516,922
 $551,341
 $516,922
 $551,341
$507,680
 $542,809
 $507,680
 $542,809
_______________________
(1)
For the three months ended JuneSeptember 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 AprilJuly 1, 2016 and 2015. For the sixnine months ended JuneSeptember 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 JuneSeptember 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).

June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Year of Contractual MaturityAmount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
Overdrawn demand-deposit accounts$10,245
 0.68% $7,546
 0.65% $2,816
 0.69% $7,546
 0.65%
Due in one year or less19,407,150
 0.80
 18,282,139
 0.72
 18,305,745
 0.89
 18,282,139
 0.72
Due after one year through two years9,108,416
 1.18
 8,970,109
 1.31
 9,152,992
 1.09
 8,970,109
 1.31
Due after two years through three years2,697,227
 1.80
 3,170,267
 1.94
 2,471,819
 1.67
 3,170,267
 1.94
Due after three years through four years2,020,420
 1.71
 1,495,494
 1.89
 2,213,426
 1.64
 1,495,494
 1.89
Due after four years through five years1,909,821
 1.51
 1,845,396
 1.71
 1,548,385
 1.52
 1,845,396
 1.71
Thereafter2,883,735
 2.13
 2,196,832
 2.70
 3,368,092
 1.84
 2,196,832
 2.70
Total par value38,037,014
 1.15% 35,967,783
 1.20% 37,063,275
 1.15% 35,967,783
 1.20%
Premiums21,392
  
 24,183
  
 24,626
  
 24,183
  
Discounts(18,839)  
 (17,437)  
 (20,809)  
 (17,437)�� 
Fair value of bifurcated derivatives (1)
9,068
   1,241
   5,629
   1,241
  
Hedging adjustments193,285
  
 100,397
  
 122,427
  
 100,397
  
Total$38,241,920
  
 $36,076,167
  
 $37,195,148
  
 $36,076,167
  
_________________________
(1)
At JuneSeptember 30, 2016, and December 31, 2015, we had certain advances with embedded features that met the requirements to be separated from the host contract and designated as stand-alone derivatives.

At JuneSeptember 30, 2016, and December 31, 2015, we had callable advances and floating-rate advances that may be prepaid on a floating-rate reset date without prepayment or termination fees outstanding totaling $7.0$7.3 billion and $6.5 billion, respectively.

The following table sets forth our advances outstanding by the year of contractual maturity or next call date for callable advances (dollars in thousands):

Year of Contractual Maturity or Next Call Date (1), Par Value
June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Overdrawn demand-deposit accounts$10,245
 $7,546
 $2,816
 $7,546
Due in one year or less25,076,325
 23,728,314
 24,264,920
 23,728,314
Due after one year through two years3,871,416
 3,983,109
 3,597,992
 3,983,109
Due after two years through three years2,666,227
 3,130,267
 2,458,819
 3,130,267
Due after three years through four years2,010,420
 1,455,494
 2,038,226
 1,455,494
Due after four years through five years1,734,621
 1,670,196
 1,548,385
 1,670,196
Thereafter2,667,760
 1,992,857
 3,152,117
 1,992,857
Total par value$38,037,014
 $35,967,783
 $37,063,275
 $35,967,783
_______________________
(1)Also includes certain floating-rate advances that may be contractually prepaid by the borrower on a floating-rate reset date without incurring prepayment or termination fees.

At JuneSeptember 30, 2016, and December 31, 2015, we had putable advances outstanding totaling $3.13.5 billion and $2.2 billion, respectively.

The following table sets forth our advances outstanding by the year of contractual maturity or next put date for putable advances (dollars in thousands):

Year of Contractual Maturity or Next Put Date, Par ValueJune 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Overdrawn demand-deposit accounts$10,245
 $7,546
 $2,816
 $7,546
Due in one year or less21,424,950
 19,924,939
 20,350,745
 19,924,939
Due after one year through two years8,524,366
 7,909,809
 9,026,742
 7,909,809
Due after two years through three years2,634,477
 2,870,517
 2,462,069
 2,870,517
Due after three years through four years1,787,420
 1,383,244
 2,028,426
 1,383,244
Due after four years through five years1,615,821
 1,783,896
 1,191,385
 1,783,896
Thereafter2,039,735
 2,087,832
 2,001,092
 2,087,832
Total par value$38,037,014
 $35,967,783
 $37,063,275
 $35,967,783

Interest-Rate-Payment Terms. The following table details interest-rate-payment types for our outstanding advances (dollars in thousands):
Par value of advancesJune 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Fixed-rate$30,363,970
 $29,257,362
$29,007,364
 $29,257,362
Variable-rate7,673,044
 6,710,421
8,055,911
 6,710,421
Total par value$38,037,014
 $35,967,783
$37,063,275
 $35,967,783

Credit-Risk Exposure and Security Terms. At JuneSeptember 30, 2016, and December 31, 2015, we had $15.5$14.3 billion and $14.2 billion, respectively, of advances issued to members with at least $1.0 billion of advances outstanding. These advances were made to sixfive borrowers at Juneeach of September 30, 2016, and five borrowers at December 31, 2015, representing 40.638.5 percent and 39.4 percent, respectively, of total par value of outstanding advances. For information related to our credit risk on advances and allowance for credit losses, see Note 9 — Allowance for Credit Losses.

Prepayment Fees. For the three and sixnine months ended JuneSeptember 30, 2016 and 2015, net advance prepayment fees recognized in income are reflected in the following table (dollars in thousands):
 For the Three Months Ended June 30, For the Six Months Ended June 30, For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2016 2015 2016 2015 2016 2015 2016 2015
Prepayment fees received from borrowers $2,808
 $279
 $6,664
 $3,896
 $2,983
 $15,377
 $9,647
 $19,273
Less: hedging fair-value adjustments on prepaid advances (1,037) 
 (2,226) (2,731) (1,009) (12,674) (3,235) (15,405)
Less: net premiums associated with prepaid advances (18) 
 (1,774) 
 (317) 
 (2,091) 
Less: deferred recognition of prepayment fees received from borrowers on advance prepayments deemed to be loan modifications (890) 
 (1,408) (246) (1,692) (1,197) (3,100) (1,443)
Prepayment fees recognized in income on advance restructurings deemed to be extinguishments 
 
 1,676
 3,102
 
 
 1,676
 3,102
Net prepayment fees recognized in income $863
 $279
 $2,932
 $4,021
 $(35) $1,506
 $2,897
 $5,527

Note 8 — Mortgage Loans Held for Portfolio

We invest in mortgage loans through the Mortgage Partnership Finance® (MPF® program). These investments (MPF loans) are either guaranteed or insured by federal agencies, as is the case with government mortgage loans, or are credit-enhanced by the related entity that sold the loan (a participating financial institution), as is the case with conventional mortgage loans. All such investments are held for portfolio.

The following table presents certain characteristics of these investments (dollars in thousands):

June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Real estate 
  
 
  
Fixed-rate 15-year single-family mortgages$550,970
 $568,786
$545,986
 $568,786
Fixed-rate 20- and 30-year single-family mortgages3,011,348
 2,949,589
3,098,790
 2,949,589
Premiums65,639
 63,994
68,408
 63,994
Discounts(1,883) (2,141)(1,759) (2,141)
Deferred derivative gains, net3,290
 2,585
3,658
 2,585
Total mortgage loans held for portfolio3,629,364
 3,582,813
3,715,083
 3,582,813
Less: allowance for credit losses(900) (1,025)(800) (1,025)
Total mortgage loans, net of allowance for credit losses$3,628,464
 $3,581,788
$3,714,283
 $3,581,788

The following table details the par value of mortgage loans held for portfolio (dollars in thousands):
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Conventional mortgage loans$3,159,409
 $3,107,415
$3,242,305
 $3,107,415
Government mortgage loans402,909
 410,960
402,471
 410,960
Total par value$3,562,318
 $3,518,375
$3,644,776
 $3,518,375

See Note 9 — Allowance for Credit Losses for information related to our credit risk from our investments in mortgage loans and allowance for credit losses based on these investments.

"Mortgage Partnership Finance," and "MPF" are registered trademarks of the Federal Home Loan Bank of Chicago.

Note 9 — Allowance for Credit Losses

An allowance for credit losses is a valuation allowance separately established for each identified portfolio segment, if necessary, to provide for probable losses inherent in our portfolio as of the statement of condition date. To the extent necessary, an allowance for credit losses for off-balance-sheet credit exposure is recorded as a liability.

For additional information see Item 8 — Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses in the 2015 Annual Report.

Secured Member Credit Products

We manage our credit exposure to secured member credit products through an integrated approach that generally includes establishing a credit limit for each borrower, an ongoing review of each borrower's financial condition, and collateral and lending policies that are intended to limit risk of loss while balancing borrowers' needs for a reliable source of funding.

At JuneSeptember 30, 2016, and December 31, 2015, none of our secured member credit products outstanding were past due, on nonaccrual status, or considered impaired. In addition, there were no troubled debt restructurings related to credit products during the three months ended JuneSeptember 30, 2016 and 2015.

Based upon the collateral held as security, our credit extension and collateral policies, management's credit analysis, and the repayment history on secured member credit products, we have not recorded any allowance for credit losses on our secured member credit products at JuneSeptember 30, 2016, and December 31, 2015. At JuneSeptember 30, 2016, and December 31, 2015, no liability to reflect an allowance for credit losses for off-balance-sheet credit exposures was recorded. See Note 18 — Commitments and Contingencies for additional information on our off-balance-sheet credit exposure.

For additional information see Item 8 — Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses in the 2015 Annual Report.

Government Mortgage Loans Held for Portfolio


Based on our assessment of our servicers for our government loans, there is no allowance for credit losses for the government mortgage loan portfolio as of JuneSeptember 30, 2016, and December 31, 2015. In addition, these mortgage loans are not placed on nonaccrual status due to the government guarantee or insurance on these loans and the contractual obligation of the loan servicers to repurchase their related loans when certain criteria are met.

For additional information see Item 8 — Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses in the 2015 Annual Report.

Conventional Mortgage Loans Held for Portfolio

For information on our conventional mortgage loans held for portfolio see Item 8 — Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses in the 2015 Annual Report.

Credit Quality Indicators. Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The tables below set forth certain key credit quality indicators for our investments in mortgage loans at JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands):
June 30, 2016September 30, 2016
 Recorded Investment in Conventional Mortgage Loans  Recorded Investment in Government Mortgage Loans Total Recorded Investment in Conventional Mortgage Loans  Recorded Investment in Government Mortgage Loans Total
Past due 30-59 days delinquent$21,242
 $13,958
 $35,200
$25,623
 $13,419
 $39,042
Past due 60-89 days delinquent5,867
 3,109
 8,976
5,597
 4,161
 9,758
Past due 90 days or more delinquent20,209
 4,887
 25,096
17,038
 5,761
 22,799
Total past due47,318
 21,954
 69,272
48,258
 23,341
 71,599
Total current loans3,186,254
 392,073
 3,578,327
3,271,638
 390,365
 3,662,003
Total mortgage loans$3,233,572
 $414,027
 $3,647,599
$3,319,896
 $413,706
 $3,733,602
Other delinquency statistics          
In process of foreclosure, included above (1)
$9,660
 $1,837
 $11,497
$8,278
 $1,560
 $9,838
Serious delinquency rate (2)
0.65% 1.18% 0.71%0.55% 1.39% 0.64%
Past due 90 days or more still accruing interest$
 $4,887
 $4,887
$
 $5,761
 $5,761
Loans on nonaccrual status (3)
$20,466
 $
 $20,466
$17,526
 $
 $17,526
_______________________
(1)Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu of foreclosure has been reported.
(2)Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the recorded investment in the total loan portfolio class.
(3)
Includes conventional mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest as well as loans modified within the previous six months under our temporary loan modification plan.


 December 31, 2015
  Recorded Investment in Conventional Mortgage Loans  Recorded Investment in Government Mortgage Loans Total
Past due 30-59 days delinquent$22,270
 $13,784
 $36,054
Past due 60-89 days delinquent8,428
 5,230
 13,658
Past due 90 days or more delinquent22,408
 5,665
 28,073
Total past due53,106
 24,679
 77,785
Total current loans3,125,664
 397,667
 3,523,331
Total mortgage loans$3,178,770
 $422,346
 $3,601,116
Other delinquency statistics     
In process of foreclosure, included above (1)
$10,812
 $2,341
 $13,153
Serious delinquency rate (2)
0.73% 1.34% 0.80%
Past due 90 days or more still accruing interest$
 $5,665
 $5,665
Loans on nonaccrual status (3)
$22,408
 $
 $22,408
_______________________
(1)Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu of foreclosure has been reported.
(2)
Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the recorded investment in the total loan portfolio class.
(3)
Includes conventional mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.

Collectively Evaluated Mortgage Loans. We evaluate the credit risk of our investments in conventional mortgage loans for impairment on a collective basis that considers loan-pool-specific attribute data at the master commitment pool level, including historical delinquency migration, applies estimated loss severities, and incorporates available credit enhancements to establish our best estimate of probable incurred losses at the reporting date. Migration analysis is a methodology for estimating the rate of default experienced on pools of similar loans based on our historical experience. We apply migration analysis to conventional loans that are currently not past due, loans that are 30 to 59 days past due, 60 to 89 days past due, and 90 to 179 days past due. We then estimate the dollar amount of loans in these categories that we believe are likely to migrate to a realized loss position and apply a loss severity factor to estimate losses that would be incurred at the statement of condition date. The losses are then reduced by the probable cash flows resulting from available credit enhancement. Credit enhancement cash flows that are projected and assessed as not probable of receipt are not considered in reducing estimated losses.

Individually Evaluated Mortgage Loans. Certain conventional mortgage loans, primarily impaired mortgage loans that are considered collateral-dependent, may be specifically identified for purposes of calculating the allowance for credit losses. A mortgage loan is considered collateral-dependent if repayment is only expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default and there is no credit enhancement from a participating financial institution to offset losses under the master commitment. The estimated credit losses on impaired collateral-dependent loans may be separately determined because sufficient information exists to make a reasonable estimate of the inherent loss on these loans on an individual loan basis. Loans that are considered collateral-dependent are measured for impairment based on the fair value of the underlying property less estimated selling costs. The resulting incurred loss is equal to the difference between the carrying value of the loan and the estimated fair value of the collateral less estimated selling costs. Additionally, for our investments in loans modified under our temporary loan modification plan, on the effective date of a loan modification we measure the present value of expected future cash flows discounted at the loan's effective interest rate and reduce the carrying value of the loan accordingly.

Charge-Off Policy. A charge-off is recorded if it is estimated that the recorded investment in a loan will not be recovered. We evaluate whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include, but are not limited to, the occurrence of foreclosure or notification of a claim against any of the credit enhancements. We charge off the portion of outstanding conventional mortgage loan balances in excess of fair value of the underlying property, less cost to sell and adjusted for any available credit enhancements for loans that are 180 or more days past due, when the borrower has filed for bankruptcy protection and the loan is at least 30 days past due, or when there is evidence of fraud.

Individually Evaluated Impaired Loans. The following tables present the recorded investment, par value and any related allowance for impaired loans individually assessed for impairment at JuneSeptember 30, 2016, and December 31, 2015, and the average recorded investment and interest income recognized on these loans during the three and sixnine months ended JuneSeptember 30, 2016 and 2015 (dollars in thousands).
  As of June 30, 2016 As of December 31, 2015
  Recorded Investment Par Value Recorded Investment Par Value
Individually evaluated impaired mortgage loans with no related allowance $24,583
 $24,546
 $26,668
 $26,622
  As of September 30, 2016 As of December 31, 2015
  Recorded Investment Par Value Recorded Investment Par Value
Individually evaluated impaired mortgage loans with no related allowance $22,950
 $22,909
 $26,668
 $26,622

  For the Three Months Ended June 30,
  2016 2015
  Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Individually evaluated impaired mortgage loans with no related allowance $24,770
 $102
 $31,759
 $129

  For the Six Months Ended June 30,
  2016 2015
  Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Individually evaluated impaired mortgage loans with no related allowance $25,217
 $182
 $32,557
 $249
  2016 2015
  Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Individually evaluated impaired mortgage loans with no related allowance:        
For the Three Months Ended September 30, $23,492
 $116
 $30,295
 $105
         
For the Nine Months Ended September 30, $24,728
 $298
 $31,907
 $354

Roll-Forward of Allowance for Credit Losses on Mortgage Loans. The following table presents a roll-forward of the allowance for credit losses on conventional mortgage loans for the three and sixnine months ended JuneSeptember 30, 2016 and 2015, as well as the recorded investment in mortgage loans by impairment methodology at JuneSeptember 30, 2016 and 2015, (dollars in thousands). The recorded investment in a loan is the par amount of the loan, adjusted for accrued interest, unamortized premiums or discounts, deferred derivative gains and losses, and direct write-downs. The recorded investment is net of any valuation allowance.
For the Three Months Ended June 30, For the Six Months Ended June 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2016 2015 2016 20152016 2015 2016 2015
Allowance for credit losses              
Balance, beginning of period$1,025
 $1,350
 $1,025
 $2,012
$900
 $1,100
 $1,025
 $2,012
Charge-offs, net of recoveries(14) (27) (25) (629)(6) 59
 (31) (570)
Reduction of provision for credit losses(111) (223) (100) (283)(94) (159) (194)��(442)
Balance, end of period$900
 $1,100
 $900
 $1,100
$800
 $1,000
 $800
 $1,000
Ending balance, individually evaluated for impairment$
 $
 $
 $
$
 $
 $
 $
Ending balance, collectively evaluated for impairment$900
 $1,100
 $900
 $1,100
$800
 $1,000
 $800
 $1,000
Recorded investment, end of period (1)
              
Individually evaluated for impairment$24,583
 $31,153
 $24,583
 $31,153
$22,950
 $29,050
 $22,950
 $29,050
Collectively evaluated for impairment$3,208,989
 $3,131,698
 $3,208,989
 $3,131,698
$3,296,946
 $3,138,248
 $3,296,946
 $3,138,248
_________________________
(1)These amounts exclude government mortgage loans because we make no allowance for credit losses based on our investments in government mortgage loans, as discussed above under — Government Mortgage Loans Held for Portfolio.

REO. At JuneSeptember 30, 2016, and December 31, 2015, we had $2.62.4 million and $3.6 million, respectively, in assets classified as REO. During the sixnine months ended JuneSeptember 30, 2016 and 2015, we sold REO assets with a recorded carrying value of $2.13.2 million and $3.65.1 million, respectively. Upon the sale of these REO properties, and inclusive of any proceeds received from primary

mortgage-insurance coverage, we recognized net gains totaling $334,000476,000 and $321,000600,000 during the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively. Gains and losses on the sale of REO assets are recorded in other income.

Note 10 — Derivatives and Hedging Activities


The following table presents the fair value of derivatives, including the effect of netting adjustments and cash collateral as of JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands):

June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Notional
Amount of
Derivatives
 
Derivative
Assets
 
Derivative
Liabilities
 Notional
Amount of
Derivatives
 Derivative
Assets
 Derivative
Liabilities
Notional
Amount of
Derivatives
 
Derivative
Assets
 
Derivative
Liabilities
 Notional
Amount of
Derivatives
 Derivative
Assets
 Derivative
Liabilities
Derivatives designated as hedging instruments 
  
  
       
  
  
      
Interest-rate swaps$17,843,429
 $26,652
 $(624,319) $15,195,012
 $26,874
 $(468,982)$18,830,355
 $16,435
 $(541,145) $15,195,012
 $26,874
 $(468,982)
Forward-start interest-rate swaps527,800
 
 (62,854) 527,800
 
 (35,547)527,800
 
 (61,793) 527,800
 
 (35,547)
Total derivatives designated as hedging instruments18,371,229
 26,652
 (687,173) 15,722,812
 26,874
 (504,529)19,358,155
 16,435
 (602,938) 15,722,812
 26,874
 (504,529)
                      
Derivatives not designated as hedging instruments                      
Economic hedges:                      
Interest-rate swaps1,009,500
 29
 (24,680) 562,500
 246
 (16,623)1,152,000
 250
 (18,522) 562,500
 246
 (16,623)
Interest-rate caps or floors
 
 
 300,000
 
 

 
 
 300,000
 
 
CO bond firm commitments100,000
 
 (59) 
 
 
Mortgage-delivery commitments (1)
46,100
 309
 
 24,714
 18
 (25)60,355
 77
 (40) 24,714
 18
 (25)
Total derivatives not designated as hedging instruments1,055,600
 338
 (24,680) 887,214
 264
 (16,648)1,312,355
 327
 (18,621) 887,214
 264
 (16,648)
Total notional amount of derivatives$19,426,829
  
  
 $16,610,026
  
  
$20,670,510
  
  
 $16,610,026
  
  
Total derivatives before netting and collateral adjustments 
 26,990
 (711,853)   27,138
 (521,177) 
 16,762
 (621,559)   27,138
 (521,177)
Netting adjustments and cash collateral including related accrued interest (2)
 
 34,412
 208,989
   12,979
 79,170
 
 46,185
 157,801
   12,979
 79,170
Derivative assets and derivative liabilities 
 $61,402
 $(502,864)   $40,117
 $(442,007) 
 $62,947
 $(463,758)   $40,117
 $(442,007)
_______________________
(1)Mortgage-delivery commitments are classified as derivatives with changes in fair value recorded in other income.
(2)
Amounts represent the effect of master-netting agreements intended to allow us to settle positive and negative positions with the same counterparty. Cash collateral and related accrued interest posted was $243.4$204.0 million and $92.9 million at JuneSeptember 30, 2016, and December 31, 2015, respectively. The change in cash collateral posted is included in the net change in interest-bearing deposits in the statement of cash flows. Cash collateral and related accrued interest received was $750,000 at December 31, 2015.

Net (losses) gains on derivatives and hedging activities recorded in Other Income (Loss) for the three and sixnine months ended JuneSeptember 30, 2016 and 2015 were as follows (dollars in thousands):


 For the Three Months Ended June 30, For the Six Months Ended June 30, For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2016 2015 2016 2015 2016 2015 2016 2015
Derivatives designated as hedging instruments                
Interest-rate swaps $(2,218) $(1,087) $(5,251) $(1,715) $(3,278) $(4,690) $(8,529) $(6,405)
Forward-start interest-rate swaps (190) 184
 (536) 104
 (22) (205) (558) (101)
Total net losses related to derivatives designated as hedging instruments (2,408) (903) (5,787) (1,611) (3,300) (4,895) (9,087) (6,506)
                
Derivatives not designated as hedging instruments:                
Economic hedges:                
Interest-rate swaps (1,245) 403
 (4,717) (2,675) 1,186
 (3,313) (3,531) (5,988)
CO bond firm commitments (59) 
 (59) 
Mortgage-delivery commitments 690
 (642) 1,306
 (215) 251
 555
 1,557
 340
Total net losses related to derivatives not designated as hedging instruments (555) (239) (3,411) (2,890)
Total net gains (losses) related to derivatives not designated as hedging instruments 1,378
 (2,758) (2,033) (5,648)
Net losses on derivatives and hedging activities $(2,963) $(1,142) $(9,198) $(4,501) $(1,922) $(7,653) $(11,120) $(12,154)

The following tables present, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair-value hedge relationships and the impact of those derivatives on our net interest income for the three and sixnine months ended JuneSeptember 30, 2016 and 2015, (dollars in thousands):
For the Three Months Ended June 30, 2016For the Three Months Ended September 30, 2016
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
 
  
  
  
Advances$(25,621) $24,655
 $(966) $(26,128)$71,032
 $(70,859) $173
 $(22,547)
Investments(26,830) 27,186
 356
 (8,883)10,255
 (9,810) 445
 (8,788)
COs – bonds564
 (2,172) (1,608) 7,158
(16,705) 12,809
 (3,896) 6,500
Total$(51,887) $49,669
 $(2,218) $(27,853)$64,582
 $(67,860) $(3,278) $(24,835)
              
For the Three Months Ended June 30, 2015For the Three Months Ended September 30, 2015
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
 
  
  
  
Advances$39,168
 $(38,764) $404
 $(32,611)$(21,993) $21,422
 $(571) $(32,932)
Investments54,244
 (53,694) 550
 (9,439)(39,947) 40,227
 280
 (9,405)
COs – bonds(11,130) 9,089
 (2,041) 15,265
13,107
 (17,506) (4,399) 18,475
Total$82,282
 $(83,369) $(1,087) $(26,785)$(48,833) $44,143
 $(4,690) $(23,862)


For the Six Months Ended June 30, 2016For the Nine Months Ended September 30, 2016
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Loss on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
 
  
  
  
Advances$(94,077) $92,888
 $(1,189) $(56,252)$(23,045) $22,029
 $(1,016) $(78,799)
Investments(76,285) 77,025
 740
 (17,894)(66,030) 67,215
 1,185
 (26,682)
COs – bonds10,831
 (15,633) (4,802) 15,230
(5,874) (2,824) (8,698) 21,730
Total$(159,531) $154,280
 $(5,251) $(58,916)$(94,949) $86,420
 $(8,529) $(83,751)
              
For the Six Months Ended June 30, 2015For the Nine Months Ended September 30, 2015
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Gain/(Loss) on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
 
  
  
  
Advances$33,311
 $(32,878) $433
 $(64,510)$11,318
 $(11,456) $(138) $(97,442)
Investments27,245
 (26,368) 877
 (18,921)(12,702) 13,859
 1,157
 (28,326)
COs – bonds4,269
 (7,294) (3,025) 30,963
17,376
 (24,800) (7,424) 49,438
Total$64,825
 $(66,540) $(1,715) $(52,468)$15,992
 $(22,397) $(6,405) $(76,330)
____________
(1)The net interest on derivatives in fair-value hedge relationships is presented in the statement of operations as interest income or interest expense of the respective hedged item.

The following table presents the gains (losses) recognized in accumulated other comprehensive loss, the gains (losses) reclassified from accumulated other comprehensive loss into income, and the effect of our hedging activities on our net (losses) gainslosses on derivatives and hedging activities in the statement of income for our forward-start interest-rate swaps associated with hedged CO bonds in cash-flow hedge relationships (dollars in thousands).
Derivatives and Hedged Items in Cash Flow Hedging Relationships 
(Losses) Gains Recognized in Other Comprehensive Loss on Derivatives
(Effective Portion)
 
Location of (Losses) Gains Reclassified
from Accumulated Other Comprehensive Loss into Net Income
(Effective Portion)
 
Losses Reclassified
from Accumulated Other Comprehensive Loss into Net Income
(Effective Portion)
 
(Losses) Gains Recognized in Net (Losses) Gains on Derivatives and Hedging Activities
(Ineffective Portion)
Interest-rate swaps - CO bonds        
For the Three Months Ended June 30, 2016 $(9,731) Interest expense $(6,889) $(190)
For the Three Months Ended June 30, 2015 12,773
 Interest expense (5,628) 184
         
For the Six Months Ended June 30, 2016 (26,770) Interest expense (14,097) (536)
For the Six Months Ended June 30, 2015 630
 Interest expense (10,520) 104
Derivatives and Hedged Items in Cash Flow Hedging Relationships 
Gains (Losses) Recognized in Other Comprehensive Loss on Derivatives
(Effective Portion)
 
Location of Losses Reclassified
from Accumulated Other Comprehensive Loss into Net Income
(Effective Portion)
 
Losses Reclassified
from Accumulated Other Comprehensive Loss into Net Income
(Effective Portion)
 
Losses Recognized in Net Losses on Derivatives and Hedging Activities
(Ineffective Portion)
Interest-rate swaps - CO bonds        
For the Three Months Ended September 30, 2016 $1,082
 Interest expense $(5,337) $(22)
For the Three Months Ended September 30, 2015 (15,959) Interest expense (6,227) (205)
         
For the Nine Months Ended September 30, 2016 (25,688) Interest expense (19,434) (558)
For the Nine Months Ended September 30, 2015 (15,329) Interest expense (16,747) (101)

For the sixnine months ended JuneSeptember 30, 2016 and 2015, there were no reclassifications from accumulated other comprehensive loss into earnings as a result of the discontinuance of cash-flow hedges because the original forecasted transactions were not expected to occur by the end of the originally specified time period or within a two-month period thereafter. As of JuneSeptember 30, 2016, the maximum length of time over which we are hedging our exposure to the variability in future cash flows for forecasted transactions is eight years.years.

As of JuneSeptember 30, 2016, the amount of deferred net losses on derivatives accumulated in other comprehensive loss related to cash flow hedges expected to be reclassified to earnings during the next 12 months is $17.414.2 million.

Managing Credit Risk on Derivatives. We enter into derivatives that we clear (cleared derivatives) with a derivatives clearing organization (DCO), our counterparty for such derivatives. We also enter into derivatives that are not cleared (bilateral derivatives) under master-netting agreements. Certain of our bilateral derivatives master-netting agreements contain provisions that require us to post additional collateral with our bilateral derivatives counterparties if our credit ratings are lowered. Under the terms that govern such agreements, if our credit rating is lowered by Moody's Investor Services (Moody's) or Standard and Poor's Rating Service (S&P) to a certain level, we are required to deliver additional collateral on uncleared derivatives in a net

liability position. In the event of a split between such credit ratings, the lower rating governs. The aggregate fair value of all uncleared derivatives with these provisions that were in a net-liability position (before cash collateral and related accrued interest) at JuneSeptember 30, 2016, was $532.4486.8 million for which we had delivered cash or securities collateral with a post-haircut value of $471.1438.2 million in accordance with the terms of the master-netting agreements. Securities collateral is subject to valuation haircuts in accordance with the terms of the master-netting agreements. The following table sets forth the post-haircut value of incremental collateral that certain uncleared derivatives counterparties could have required us to deliver based on incremental credit rating downgrades at JuneSeptember 30, 2016 (dollars in thousands).

Post Haircut Value of Incremental Collateral to be Delivered
as of June 30, 2016
Post Haircut Value of Incremental Collateral to be Delivered
as of September 30, 2016
(dollars in thousands)
Post Haircut Value of Incremental Collateral to be Delivered
as of September 30, 2016
(dollars in thousands)
Ratings Downgrade (1)
Ratings Downgrade (1)
  
Ratings Downgrade (1)
  
From To Incremental Collateral To Incremental Collateral
AA+ AA or AA- $24,789
 AA or AA- $20,103
AA- A+, A or A- 19,256
 A+, A or A- 12,988
A- below A- 33,026
 below A- 23,528
_______________________
(1)Ratings are expressed in this table according to S&P's conventions but include the equivalent of such rating by Moody's. If there is a split rating, the lower rating is used.

For cleared derivatives, the DCO determines initial margin requirements. We note that we clear our trades via clearing members of the DCOs. These clearing members who act as our agent to the DCOs are U.S. Commodity Futures Trading Commission (the CFTC) - registered futures commission merchants. Our clearing members may require us to post margin in excess of DCO requirements based on our credit or other considerations, including but not limited to, credit rating downgrades. We were not required to post any such excess margin by our clearing members based on credit considerations at JuneSeptember 30, 2016.

Offsetting of Certain Derivatives. We present derivatives, any related cash collateral, including initial and variation margin, received or pledged, and associated accrued interest, on a net basis by counterparty.

The following table presents separately the fair value of derivatives that are subject to netting due to a legal right of offset based on the terms of our master netting arrangements or similar agreements as of JuneSeptember 30, 2016, and December 31, 2015 and the fair value of derivatives that are not subject to such netting (dollars in thousands). Such netting includes any related cash collateral received from or pledged to counterparties.


 June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
 Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities
Derivatives meeting netting requirements                
Gross recognized amount                
Uncleared derivatives $8,978
 $(541,387) $8,342
 $(463,154) $4,459
 $(491,321) $8,342
 $(463,154)
Cleared derivatives 17,703
 (170,466) 18,778
 (57,998) 12,226
 (130,198) 18,778
 (57,998)
Total gross recognized amount 26,681
 (711,853) 27,120
 (521,152) 16,685
 (621,519) 27,120
 (521,152)
Gross amounts of netting adjustments and cash collateral                
Uncleared derivatives (8,978) 38,523
 (7,628) 21,172
 (4,205) 27,603
 (7,628) 21,172
Cleared derivatives 43,390
 170,466
 20,607
 57,998
 50,390
 130,198
 20,607
 57,998
Total gross amounts of netting adjustments and cash collateral 34,412
 208,989
 12,979
 79,170
 46,185
 157,801
 12,979
 79,170
Net amounts after netting adjustments and cash collateral                
Uncleared derivatives 
 (502,864) 714
 (441,982) 254
 (463,718) 714
 (441,982)
Cleared derivatives 61,093
 
 39,385
 
 62,616
 
 39,385
 
Total net amounts after netting adjustments and cash collateral 61,093
 (502,864) 40,099
 (441,982) 62,870
 (463,718) 40,099
 (441,982)
Derivatives not meeting netting requirements                
Mortgage delivery commitments 309
 
 18
 (25) 77
 (40) 18
 (25)
Total derivative assets and total derivative liabilities                
Uncleared derivatives 
 (502,864) 714
 (441,982) 254
 (463,718) 714
 (441,982)
Cleared derivatives 61,093
 
 39,385
 
 62,616
 
 39,385
 
Mortgage delivery commitments 309
 
 18
 (25) 77
 (40) 18
 (25)
Total derivative assets and total derivative liabilities presented in the statement of condition 61,402
 (502,864) 40,117
 (442,007) 62,947
 (463,758) 40,117
 (442,007)
                
Non-cash collateral received or pledged not offset (1)
                
Can be sold or repledged                
Uncleared derivatives 
 49,911
 
 64,391
 
 37,623
 
 64,391
Cannot be sold or repledged                
Uncleared derivatives 
 408,662
 
 331,716
 
 385,382
 
 331,716
Total non-cash collateral received or pledged, not offset 
 458,573
 
 396,107
 
 423,005
 
 396,107
Net amount                
Uncleared derivatives 
 (44,291) 714
 (45,875) 254
 (40,713) 714
 (45,875)
Cleared derivatives 61,093
 
 39,385
 
 62,616
 
 39,385
 
Mortgage delivery commitments 309
 
 18
 (25) 77
 (40) 18
 (25)
Total net amount $61,402
 $(44,291) $40,117
 $(45,900) $62,947
 $(40,753) $40,117
 $(45,900)
_______________________
(1)
Includes non-cash collateral at fair value. Any overcollateralization with a counterparty is not included in the determination of the net amount. At JuneSeptember 30, 2016, and December 31, 2015, we had additional net credit exposure of $6.11.3 million and $3.1 million, respectively, due to instances where our collateral pledged to a counterparty exceeded our net derivative liability position.

Note 11 — Deposits

We offer demand and overnight deposits for members and qualifying nonmembers. In addition, we offer short-term interest-bearing deposit programs to members. Members that service mortgage loans may deposit funds collected in connection with mortgage loans pending disbursement of such funds to the owners of the mortgage loans. We classify these items as "other" in the following table.


The following table details interest- and noninterest-bearing deposits (dollars in thousands):
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Interest-bearing 
   
  
Demand and overnight$599,561
 $454,087
$567,776
 $454,087
Other4,865
 4,426
3,511
 4,426
Noninterest-bearing 
  
 
  
Other30,569
 24,089
39,496
 24,089
Total deposits$634,995
 $482,602
$610,783
 $482,602

Note 12 — Consolidated Obligations

COs - Bonds. The following table sets forth the outstanding CO bonds for which we were primarily liable at JuneSeptember 30, 2016, and December 31, 2015, by year of contractual maturity (dollars in thousands):
June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Year of Contractual MaturityAmount 
Weighted
Average
Rate (1)
 Amount 
Weighted
Average
Rate (1)
 Amount 
Weighted
Average
Rate (1)
 Amount 
Weighted
Average
Rate (1)
 
  
  
  
Due in one year or less$10,932,920
 0.94% $8,990,295
 1.00% $8,800,090
 1.14% $8,990,295
 1.00%
Due after one year through two years6,946,535
 1.50
 6,101,990
 1.70
 7,970,550
 1.33
 6,101,990
 1.70
Due after two years through three years2,767,045
 1.55
 3,389,580
 1.59
 3,783,850
 1.50
 3,389,580
 1.59
Due after three years through four years2,056,115
 2.08
 2,056,215
 1.97
 1,985,855
 1.98
 2,056,215
 1.97
Due after four years through five years1,696,720
 1.79
 1,329,210
 2.11
 1,640,360
 1.65
 1,329,210
 2.11
Thereafter2,614,460
 2.94
 3,440,045
 2.95
 3,058,460
 2.73
 3,440,045
 2.95
Total par value27,013,795
 1.48% 25,307,335
 1.65% 27,239,165
 1.52% 25,307,335
 1.65%
Premiums134,595
  
 148,903
  
 128,382
  
 148,903
  
Discounts(15,741)  
 (20,451)  
 (15,962)  
 (20,451)  
Hedging adjustments7,122
  
 (8,510)  
 (5,687)  
 (8,510)  
$27,139,771
  
 $25,427,277
  
 $27,345,898
  
 $25,427,277
  
_______________________
(1)The CO bonds' weighted-average rate excludes concession fees.

Our CO bonds outstanding at JuneSeptember 30, 2016, and December 31, 2015, included (dollars in thousands):
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Par value of CO bonds 
  
 
  
Noncallable and nonputable$23,786,795
 $21,714,335
$23,088,165
 $21,714,335
Callable3,227,000
 3,593,000
4,151,000
 3,593,000
Total par value$27,013,795
 $25,307,335
$27,239,165
 $25,307,335

The following is a summary of the CO bonds for which we were primarily liable at JuneSeptember 30, 2016, and December 31, 2015, by year of contractual maturity or next call date for callable CO bonds (dollars in thousands):

Year of Contractual Maturity or Next Call Date June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Due in one year or less $13,413,920
 $11,937,295
 $11,996,090
 $11,937,295
Due after one year through two years 6,048,535
 5,802,990
 7,229,550
 5,802,990
Due after two years through three years 2,467,045
 2,729,580
 3,263,850
 2,729,580
Due after three years through four years 1,926,115
 1,831,215
 1,757,855
 1,831,215
Due after four years through five years 1,083,720
 991,210
 913,360
 991,210
Thereafter 2,074,460
 2,015,045
 2,078,460
 2,015,045
Total par value $27,013,795
 $25,307,335
 $27,239,165
 $25,307,335

The following table sets forth the CO bonds for which we were primarily liable by interest-rate-payment type at JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands):
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Par value of CO bonds 
  
 
  
Fixed-rate$21,283,795
 $21,847,335
$21,332,165
 $21,847,335
Simple variable-rate5,055,000
 3,145,000
4,900,000
 3,145,000
Step-up675,000
 315,000
1,007,000
 315,000
Total par value$27,013,795
 $25,307,335
$27,239,165
 $25,307,335

COs – Discount Notes. Outstanding CO discount notes for which we were primarily liable, all of which are due within one year, were as follows (dollars in thousands):
Book Value Par Value 
Weighted Average
Rate (1)
Book Value Par Value 
Weighted Average
Rate (1)
June 30, 2016$30,483,963
 $30,495,259
 0.34%
September 30, 2016$28,725,374
 $28,733,626
 0.31%
December 31, 2015$28,479,097
 $28,487,577
 0.24%$28,479,097
 $28,487,577
 0.24%
_______________________
(1)The CO discount notes' weighted-average rate represents a yield to maturity excluding concession fees.

Note 13 — Affordable Housing Program

The following table presents a roll-forward of the AHP liability for the sixnine months ended JuneSeptember 30, 2016, and year ended December 31, 2015 (dollars in thousands):
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Balance at beginning of year$82,081
 $66,993
$82,081
 $66,993
AHP expense for the period8,632
 32,328
12,731
 32,328
AHP direct grant disbursements(7,025) (16,716)(12,739) (16,716)
AHP subsidy for AHP advance disbursements(725) (1,255)(835) (1,255)
Return of previously disbursed grants and subsidies16
 731
33
 731
Balance at end of period$82,979
 $82,081
$81,271
 $82,081

Note 14 — Capital

We are subject to capital requirements under our capital plan, the Federal Home Loan Bank Act of 1932, as amended (the FHLBank Act), and FHFA regulations:

1.
Risk-based capital. We are required to maintain at all times permanent capital, defined as Class B stock, including Class B stock classified as mandatorily redeemable capital stock, and retained earnings, in an amount at least equal to the sum of our credit-risk capital requirement, market-risk capital requirement, and operations-risk capital requirement, calculated in accordance with FHFA rules and regulations, referred to herein as the risk-based capital requirement. Only permanent capital satisfies the risk-based capital requirement.

2.
Total regulatory capital. We are required to maintain at all times a total capital-to-assets ratio of at least four percent. Total regulatory capital is the sum of permanent capital, the amount paid-in for Class A stock, the amount of any general loss allowance if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the FHFA as available to absorb losses. We have never issued Class A stock.

3.
Leverage capital. We are required to maintain at all times a leverage capital-to-assets ratio of at least five percent. Leverage capital is defined as the sum of permanent capital weighted 1.5 times and all other capital without a weighting factor.


The FHFA may require us to maintain a greater amount of permanent capital than is required as defined by the risk-based capital requirements.

The following tables demonstrate our compliance with our regulatory capital requirements at JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands):
Risk-Based Capital RequirementsJune 30,
2016
 December 31,
2015
September 30,
2016
 December 31,
2015
      
Permanent capital 
  
 
  
Class B capital stock$2,353,698
 $2,336,662
$2,333,262
 $2,336,662
Mandatorily redeemable capital stock35,076
 41,989
33,812
 41,989
Retained earnings1,165,157
 1,128,848
1,180,141
 1,128,848
Total permanent capital$3,553,931
 $3,507,499
$3,547,215
 $3,507,499
Risk-based capital requirement 
  
 
  
Credit-risk capital$376,729
 $381,176
$377,774
 $381,176
Market-risk capital101,049
 83,875
127,678
 83,875
Operations-risk capital143,333
 139,515
151,635
 139,515
Total risk-based capital requirement$621,111
 $604,566
$657,087
 $604,566
Permanent capital in excess of risk-based capital requirement$2,932,820
 $2,902,933
$2,890,128
 $2,902,933
 June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
 Required Actual Required Actual Required Actual Required Actual
Capital Ratio                
Risk-based capital $621,111
 $3,553,931
 $604,566
 $3,507,499
 $657,087
 $3,547,215
 $604,566
 $3,507,499
Total regulatory capital $2,486,406
 $3,553,931
 $2,324,107
 $3,507,499
 $2,421,732
 $3,547,215
 $2,324,107
 $3,507,499
Total capital-to-asset ratio 4.0% 5.7% 4.0% 6.0% 4.0% 5.9% 4.0% 6.0%
                
Leverage Ratio                
Leverage capital $3,108,008
 $5,330,897
 $2,905,133
 $5,261,249
 $3,027,165
 $5,320,823
 $2,905,133
 $5,261,249
Leverage capital-to-assets ratio 5.0% 8.6% 5.0% 9.1% 5.0% 8.8% 5.0% 9.1%

Note 15 — Accumulated Other Comprehensive Loss

The following table presents a summary of changes in accumulated other comprehensive loss for the three and sixnine months ended JuneSeptember 30, 2016 and 2015, (dollars in thousands):








 Net Unrealized Loss on Available-for-sale Securities Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities Net Unrealized Loss Relating to Hedging Activities Pension and Postretirement Benefits Total Accumulated Other Comprehensive Loss Net Unrealized Loss on Available-for-sale Securities Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities Net Unrealized Loss Relating to Hedging Activities Pension and Postretirement Benefits Total Accumulated Other Comprehensive Loss
Balance, March 31, 2015 $(53,034) $(264,357) $(88,675) $(5,763) $(411,829)
Balance, June 30, 2015 $(67,827) $(251,294) $(70,271) $(5,671) $(395,063)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized (losses) gains (14,793) 
 12,773
 
 (2,020) (1,962) 
 (15,959) 
 (17,921)
Accretion of noncredit loss 
 11,990
 
 
 11,990
 
 10,072
 
 
 10,072
Net actuarial loss 
 
 
 (8) (8) 
 
 
 (4) (4)
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 
 1,073
 
 
 1,073
 
 823
 
 
 823
Amortization - hedging activities (2)
 
 
 5,631
 
 5,631
 
 
 6,231
 
 6,231
Amortization - pension and postretirement benefits (3)
 
 
 
 100
 100
 
 
 
 166
 166
Other comprehensive (loss) income (14,793) 13,063
 18,404
 92
 16,766
 (1,962) 10,895
 (9,728) 162
 (633)
Balance, June 30, 2015 $(67,827) $(251,294) $(70,271) $(5,671) $(395,063)
Balance, September 30, 2015 $(69,789) $(240,399) $(79,999) $(5,509) $(395,696)
                    
Balance, March 31, 2016 $(85,888) $(219,739) $(81,065) $(3,738) $(390,430)
Balance, June 30, 2016 $(57,947) $(210,169) $(83,903) $(6,323) $(358,342)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized gains (losses) 27,941
 
 (9,731) 
 18,210
Net unrealized (losses) gains (17,325) 
 1,082
 
 (16,243)
Noncredit other-than-temporary impairment losses 
 (420) 
 
 (420) 
 (486) 
 
 (486)
Accretion of noncredit loss 
 9,211
 
 
 9,211
 
 8,586
 
 
 8,586
Net actuarial loss 
 
 
 (2,918) (2,918) 
 
 
 (15) (15)
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 
 779
 
 
 779
 
 290
 
 
 290
Amortization - hedging activities (4)
 
 
 6,893
 
 6,893
 
 
 5,341
 
 5,341
Amortization - pension and postretirement benefits (3)
 
 
 
 333
 333
 
 
 
 225
 225
Other comprehensive income (loss) 27,941
 9,570
 (2,838) (2,585) 32,088
Balance, June 30, 2016 $(57,947) $(210,169) $(83,903) $(6,323) $(358,342)
Other comprehensive (loss) income (17,325) 8,390
 6,423
 210
 (2,302)
Balance, September 30, 2016 $(75,272) $(201,779) $(77,480) $(6,113) $(360,644)
_______________________
(1)Recorded in net amount of impairment losses reclassified to (from) accumulated other comprehensive loss in the statement of operations.
(2)Amortization of hedging activities includes $5.6$6.2 million recorded in CO bond interest expense and $4,000 recorded in net (losses) gains on derivatives and hedging activities in the statement of operations.
(3)Recorded in other operating expenses in the statement of operations.
(4)Amortization of hedging activities includes $6.9$5.3 million recorded in CO bond interest expense and $4,000 recorded in net (losses) gains on derivatives and hedging activities in the statement of operations.


 Net Unrealized Loss on Available-for-sale Securities Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities Net Unrealized Loss Relating to Hedging Activities Pension and Postretirement Benefits Total Accumulated Other Comprehensive Loss Net Unrealized Loss on Available-for-sale Securities Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities Net Unrealized Loss Relating to Hedging Activities Pension and Postretirement Benefits Total Accumulated Other Comprehensive Loss
Balance, December 31, 2014 $(73,623) $(275,942) $(81,428) $(5,993) $(436,986) $(73,623) $(275,942) $(81,428) $(5,993) $(436,986)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized gains 5,796
 
 630
 
 6,426
 3,834
 
 (15,329) 
 (11,495)
Accretion of noncredit loss 
 23,453
 
 
 23,453
 
 33,525
 
 
 33,525
Net actuarial loss 
 
 
 (8) (8) 
 
 
 (12) (12)
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 
 1,195
 
 
 1,195
 
 2,018
 
 
 2,018
Amortization - hedging activities (2)
 
 
 10,527
 
 10,527
 
 
 16,758
 
 16,758
Amortization - pension and postretirement benefits (3)
 
 
 
 330
 330
 
 
 
 496
 496
Other comprehensive income 5,796
 24,648
 11,157
 322
 41,923
 3,834
 35,543
 1,429
 484
 41,290
Balance, June 30, 2015 $(67,827) $(251,294) $(70,271) $(5,671) $(395,063)
Balance, September 30, 2015 $(69,789) $(240,399) $(79,999) $(5,509) $(395,696)
                    
Balance, December 31, 2015 $(137,718) $(229,785) $(71,237) $(3,857) $(442,597) $(137,718) $(229,785) $(71,237) $(3,857) $(442,597)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized gains (losses) 79,771
 
 (26,770) 
 53,001
 62,446
 
 (25,688) 
 36,758
Noncredit other-than-temporary impairment losses 
 (656) 
 
 (656) 
 (1,142) 
 
 (1,142)
Accretion of noncredit loss 
 18,352
 
 
 18,352
 
 26,938
 
 
 26,938
Net actuarial loss 
 
 
 (2,917) (2,917) 
 
 
 (2,931) (2,931)
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 
 1,920
 
 
 1,920
 
 2,210
 
 
 2,210
Amortization - hedging activities (4)
 
 
 14,104
 
 14,104
 
 
 19,445
 
 19,445
Amortization - pension and postretirement benefits (3)
 
 
 
 451
 451
 
 
 
 675
 675
Other comprehensive income (loss) 79,771
 19,616
 (12,666) (2,466) 84,255
 62,446
 28,006
 (6,243) (2,256) 81,953
Balance, June 30, 2016 $(57,947) $(210,169) $(83,903) $(6,323) $(358,342)
Balance, September 30, 2016 $(75,272) $(201,779) $(77,480) $(6,113) $(360,644)
_______________________
(1)Recorded in net amount of impairment losses reclassified to (from) accumulated other comprehensive loss in the statement of operations.
(2)Amortization of hedging activities includes $10.5$16.7 million recorded in CO bond interest expense and $7,000$11,000 recorded in net (losses) gains on derivatives and hedging activities in the statement of operations.
(3)Recorded in other operating expenses in the statement of operations.
(4)Amortization of hedging activities includes $14.1$19.4 million recorded in CO bond interest expense and $7,000$11,000 recorded in net (losses) gains on derivatives and hedging activities in the statement of operations.

Note 16 — Employee Retirement Plans

Qualified Defined Benefit Multiemployer Plan. We participate in the Pentegra Defined Benefit Plan for Financial Institutions (the Pentegra Defined Benefit Plan), a funded, tax-qualified, noncontributory defined-benefit pension plan. The Pentegra Defined Benefit Plan is treated as a multiemployer plan for accounting purposes, but operates as a multiple-employer plan

under the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code. Accordingly, certain multiemployer plan disclosures are not applicable to the Pentegra Defined Benefit Plan.

Qualified Defined Contribution Plan. We also participate in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution plan. The plan covers substantially all of our employees. We contribute a percentage of the participants' compensation by making a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations. Our matching contributions are charged to compensation and benefits expense.

Nonqualified Defined Contribution Plan. We also maintain the Thrift Benefit Equalization Plan, a nonqualified, unfunded deferred compensation plan covering certain of our senior officers and directors. The plan's liability consists of the accumulated compensation deferrals and the accumulated earnings on these deferrals. We maintain a rabbi trust, intended to satisfy future benefit obligations which is recorded in other assets on the statement of condition.condition, intended to satisfy future benefit obligations.

The following table sets forth our net pension costs under our defined benefit plan and expenses relating to our defined contribution plans (dollars in thousands):
For the Three Months Ended June 30, For the Six Months Ended June 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2016 2015 2016 20152016 2015 2016 2015
Qualified Defined Benefit Multiemployer Plan - Pentegra Defined Benefit Plan$106
 $5,102
 $214
 $5,205
$468
 $122
 $682
 $5,327
Qualified Defined Contribution Plan - Pentegra Defined Contribution Plan303
 280
 570
 528
259
 237
 829
 765
Nonqualified Defined Contribution Plan - Thrift Benefit Equalization Plan8
 9
 174
 119
16
 12
 190
 131

Nonqualified Supplemental Defined Benefit Retirement Plan. We also maintain a nonqualified, single-employer unfunded defined-benefit plan covering certain senior officers, for which our obligation is detailed below. We maintain a rabbi trust, which is recorded in other assets on the statement of condition, intended to meetsatisfy future benefit obligations.

Postretirement Benefits. We sponsor a fully insured postretirement benefit program that includes life insurance benefits for eligible retirees. We provide life insurance to all employees who retire on or after age 55 after completing six years of service. No contributions are required from the retirees. There are no funded plan assets that have been designated to provide postretirement benefits.

The following table presents the components of net periodic benefit cost for our nonqualified supplemental defined benefit retirement plan and postretirement benefits for the three and sixnine months ended JuneSeptember 30, 2016 and 2015, (dollars in thousands):

 Nonqualified Supplemental Defined Benefit Retirement Plan For the Three Months Ended June 30, Postretirement Benefits For the Three Months Ended June 30, Nonqualified Supplemental Defined Benefit Retirement Plan For the Three Months Ended September 30, Postretirement Benefits For the Three Months Ended September 30,
 2016 2015 2016 2015 2016 2015 2016 2015
Net Periodic Benefit Cost                
Service cost $342
 $172
 $7
 $12
 $255
 $171
 $9
 $9
Interest cost 186
 121
 9
 9
 159
 121
 9
 7
Amortization of net actuarial loss 331
 97
 2
 3
 225
 163
 
 3
Net periodic benefit cost $859
 $390
 $18
 $24
 $639
 $455
 $18
 $19


 Nonqualified Supplemental Defined Benefit Retirement Plan For the Six Months Ended June 30, Postretirement Benefits For the Six Months Ended June 30, Nonqualified Supplemental Defined Benefit Retirement Plan For the Nine Months Ended September 30, Postretirement Benefits For the Nine Months Ended September 30,
 2016 2015 2016 2015 2016 2015 2016 2015
Net Periodic Benefit Cost                
Service cost $513
 $343
 $16
 $19
 $769
 $514
 $25
 $28
Interest cost 319
 242
 17
 16
 478
 363
 26
 23
Amortization of net actuarial loss 448
 326
 3
 4
 672
 489
 3
 7
Net periodic benefit cost $1,280
 $911
 $36
 $39
 $1,919
 $1,366
 $54
 $58

Note 17 — Fair Values

A fair-value hierarchy is used to prioritize the inputs of valuation techniques used to measure fair value. A description of the application of the fair-value hierarchy, valuation techniques, and significant inputs is disclosed in Item 8 — Financial Statements and Supplementary Data — Note 18 — Fair Values in the 2015 Annual Report. There have been no material changes in the fair-value hierarchy classification of financial assets and liabilities, valuation techniques, or significant inputs during the sixnine months ended JuneSeptember 30, 2016.

The carrying values, fair values, and fair-value hierarchy of our financial instruments at JuneSeptember 30, 2016, and December 31, 2015, were as follows (dollars in thousands). These fair values do not represent an estimate of our overall market value as a going concern, which would take into account, among other things, our future business opportunities and the net profitability of our assets and liabilities.

June 30, 2016September 30, 2016
Carrying
Value
 Total Fair Value Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral
Carrying
Value
 Total Fair Value Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral
Financial instruments 
  
         
  
        
Assets: 
  
         
  
        
Cash and due from banks$413,908
 $413,908
 $413,908
 $
 $
 $
$172,481
 $172,481
 $172,481
 $
 $
 $
Interest-bearing deposits298
 298
 298
 
 
 
249
 249
 249
 
 
 
Securities purchased under agreements to resell5,799,000
 5,798,911
 
 5,798,911
 
 
3,749,000
 3,748,880
 
 3,748,880
 
 
Federal funds sold3,840,000
 3,839,982
 
 3,839,982
 
 
5,500,000
 5,499,887
 
 5,499,887
 
 
Trading securities(1)
226,630
 226,630
 
 226,630
 
 
618,932
 618,932
 
 618,932
 
 
Available-for-sale securities(1)
7,423,099
 7,423,099
 
 7,423,099
 
 
7,125,064
 7,125,064
 
 7,125,064
 
 
Held-to-maturity securities2,387,460
 2,613,754
 
 1,375,639
 1,238,115
 
2,271,239
 2,512,030
 
 1,292,102
 1,219,928
 
Advances38,241,920
 38,503,180
 
 38,503,180
 
 
37,195,148
 37,454,932
 
 37,454,932
 
 
Mortgage loans, net3,628,464
 3,775,949
 
 3,746,992
 28,957
 
3,714,283
 3,869,578
 
 3,841,460
 28,118
 
Accrued interest receivable82,995
 82,995
 
 82,995
 
 
77,045
 77,045
 
 77,045
 
 
Derivative assets(1)
61,402
 61,402
 
 26,990
 
 34,412
62,947
 62,947
 
 16,762
 
 46,185
Other assets (1)
17,417
 17,417
 7,222
 10,195
 
 
17,788
 17,788
 8,002
 9,786
 
 
Liabilities:

  
        

  
        
Deposits(634,995) (634,993) 
 (634,993) 
 
(610,783) (610,779) 
 (610,779) 
 
COs:

          

          
Bonds(27,139,771) (27,608,287) 
 (27,608,287) 
 
(27,345,898) (27,756,392) 
 (27,756,392) 
 
Discount notes(30,483,963) (30,485,960) 
 (30,485,960) 
 
(28,725,374) (28,727,163) 
 (28,727,163) 
 
Mandatorily redeemable capital stock(35,076) (35,076) (35,076) 
 
 
(33,812) (33,812) (33,812) 
 
 
Accrued interest payable(76,098) (76,098) 
 (76,098) 
 
(93,117) (93,117) 
 (93,117) 
 
Derivative liabilities(1)
(502,864) (502,864) 
 (711,853) 
 208,989
(463,758) (463,758) 
 (621,559) 
 157,801
Other:

          

          
Commitments to extend credit for advances
 (1,235) 
 (1,235) 
 

 (2,062) 
 (2,062) 
 
Standby letters of credit(699) (699) 
 (699) 
 
(734) (734) 
 (734) 
 
_______________________
(1)Carried at fair value on a recurring basis.


 December 31, 2015
 
Carrying
Value
 
Total Fair
Value
 Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral
Financial instruments 
  
        
Assets: 
  
        
Cash and due from banks$254,218
 $254,218
 $254,218
 $
 $
 $
Interest-bearing deposits197
 197
 197
 
 
 
Securities purchased under agreements to resell6,700,000
 6,699,852
 
 6,699,852
 
 
Federal funds sold2,120,000
 2,119,962
 
 2,119,962
 
 
Trading securities(1)
230,134
 230,134
 
 230,134
 
 
Available-for-sale securities(1)
6,314,285
 6,314,285
 
 6,314,285
 
 
Held-to-maturity securities2,654,565
 2,923,124
 
 1,562,243
 1,360,881
 
Advances36,076,167
 36,209,343
 
 36,209,343
 
 
Mortgage loans, net3,581,788
 3,666,146
 
 3,635,073
 31,073
 
Accrued interest receivable84,442
 84,442
 
 84,442
 
 
Derivative assets(1)
40,117
 40,117
 
 27,138
 
 12,979
Other assets(1)
15,292
 15,292
 6,373
 8,919
 
 
Liabilities: 
  
        
Deposits(482,602) (482,595) 
 (482,595) 
 
COs:           
Bonds(25,427,277) (25,578,547) 
 (25,578,547) 
 
Discount notes(28,479,097) (28,479,076) 
 (28,479,076) 
 
Mandatorily redeemable capital stock(41,989) (41,989) (41,989) 
 
 
Accrued interest payable(81,268) (81,268) 
 (81,268) 
 
Derivative liabilities(1)
(442,007) (442,007) 
 (521,177) 
 79,170
Other:           
Commitments to extend credit for advances
 (689) 
 (689) 
 
Standby letters of credit(831) (831) 
 (831) 
 
_______________________
(1)Carried at fair value on a recurring basis.

Fair Value Measured on a Recurring Basis.

The following tables present our assets and liabilities that are measured at fair value on the statement of condition, which are recorded on a recurring basis at JuneSeptember 30, 2016, and December 31, 2015, by fair-value hierarchy level (dollars in thousands):


June 30, 2016September 30, 2016
Level 1 Level 2 Level 3 
Netting
Adjustment (1)
 TotalLevel 1 Level 2 Level 3 
Netting
Adjustment (1)
 Total
Assets: 
  
  
  
  
 
  
  
  
  
Trading securities:                  
U.S. Treasury obligations$
 $399,129
 $
 $
 $399,129
U.S. government-guaranteed – single-family MBS$
 $9,416
 $
 $
 $9,416

 8,995
 
 
 8,995
GSEs – single-family MBS
 1,056
 
 
 1,056

 911
 
 
 911
GSEs – multi-family MBS
 216,158
 
 
 216,158

 209,897
 
 
 209,897
Total trading securities
 226,630
 
 
 226,630

 618,932
 
 
 618,932
Available-for-sale securities: 
  
  
  
  
 
  
  
  
  
Supranational institutions
 459,886
 
 
 459,886

 455,191
 
 
 455,191
U.S. government-owned corporations
 298,606
 
 
 298,606

 301,338
 
 
 301,338
GSEs
 128,738
 
 
 128,738

 128,960
 
 
 128,960
U.S. government guaranteed – single-family MBS
 140,527
 
 
 140,527

 131,763
 
 
 131,763
U.S. government guaranteed – multifamily MBS
 687,496
 
 
 687,496

 650,902
 
 
 650,902
GSEs – single-family MBS
 5,024,177
 
 
 5,024,177

 4,774,160
 
 
 4,774,160
GSEs – multi-family MBS
 683,669
 
 
 683,669

 682,750
 
 
 682,750
Total available-for-sale securities
 7,423,099
 
 
 7,423,099

 7,125,064
 
 
 7,125,064
Derivative assets: 
  
  
  
  
 
  
  
  
  
Interest-rate-exchange agreements
 26,681
 
 34,412
 61,093

 16,685
 
 46,185
 62,870
Mortgage delivery commitments
 309
 
 
 309

 77
 
 
 77
Total derivative assets
 26,990
 
 34,412
 61,402

 16,762
 
 46,185
 62,947
Other assets7,222
 10,195
 
 
 17,417
8,002
 9,786
 
 
 17,788
Total assets at fair value$7,222
 $7,686,914
 $
 $34,412
 $7,728,548
$8,002
 $7,770,544
 $
 $46,185
 $7,824,731
Liabilities: 
  
  
  
  
 
  
  
  
  
Derivative liabilities 
  
  
  
  
 
  
  
  
  
Interest-rate-exchange agreements$
 $(711,853) $
 $208,989
 $(502,864)$
 $(621,519) $
 $157,801
 $(463,718)
Mortgage delivery commitments
 (40) 
 
 (40)
Total liabilities at fair value$
 $(711,853) $
 $208,989
 $(502,864)$
 $(621,559) $
 $157,801
 $(463,758)
_______________________
(1)These amounts represent the application of the netting requirements which allow us to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing member and/or counterparty.


 December 31, 2015
 Level 1 Level 2 Level 3 
Netting
Adjustment (1)
 Total
Assets: 
  
  
  
  
Trading securities:         
U.S. government-guaranteed – single-family MBS$
 $10,296
 $
 $
 $10,296
GSEs – single-family MBS
 1,449
 
 
 1,449
GSEs – multifamily MBS
 218,389
 
 
 218,389
Total trading securities
 230,134
 
 
 230,134
Available-for-sale securities: 
  
  
  
  
Supranational institutions
 438,913
 
 
 438,913
U.S. government-owned corporations
 265,968
 
 
 265,968
GSEs
 117,792
 
 
 117,792
U.S. government guaranteed – single-family MBS
 156,642
 
 
 156,642
U.S. government guaranteed – multifamily MBS
 744,762
 
 
 744,762
GSEs – single-family MBS
 4,590,208
 
 
 4,590,208
Total available-for-sale securities
 6,314,285
 
 
 6,314,285
Derivative assets: 
  
  
  
  
Interest-rate-exchange agreements
 27,120
 
 12,979
 40,099
Mortgage delivery commitments
 18
 
 
 18
Total derivative assets
 27,138
 
 12,979
 40,117
Other assets6,373
 8,919
 
 
 15,292
Total assets at fair value$6,373
 $6,580,476
 $
 $12,979
 $6,599,828
Liabilities: 
  
  
  
  
Derivative liabilities 
  
  
  
  
Interest-rate-exchange agreements$
 $(521,152) $
 $79,170
 $(441,982)
Mortgage delivery commitments
 (25) 
 
 (25)
Total liabilities at fair value$
 $(521,177) $
 $79,170
 $(442,007)
_______________________
(1)These amounts represent the application of the netting requirements which allow us to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing member and/or counterparty.

Fair Value on a Nonrecurring Basis

We measure certain held-to-maturity investment securities, mortgage loans held for portfolio, and REO at fair value on a nonrecurring basis, that is, they are not measured at fair value on an ongoing basis but are subject to fair-value adjustments only in certain circumstances (for example, upon recognizing an other-than-temporary impairment on a held-to-maturity security).

The following tables present financial assets by level within the fair-value hierarchy which were recorded at fair value on a nonrecurring basis during the sixnine months ended JuneSeptember 30, 2016, and year ended December 31, 2015 (dollars in thousands):


For the Six Months Ended June 30, 2016For the Nine Months Ended September 30, 2016
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
Held-to-maturity securities:              
Private-label residential MBS$
 $
 $9,386
 $9,386
$
 $
 $8,586
 $8,586
Mortgage loans held for portfolio
 
 5,413
 5,413

 
 5,534
 5,534
REO
 
 1,492
 1,492

 
 1,011
 1,011
              
Total assets recorded at fair value on a nonrecurring basis$
 $
 $16,291
 $16,291
$
 $
 $15,131
 $15,131

 For the Year Ended December 31, 2015
 Level 1 Level 2 Level 3 Total
Held-to-maturity securities:       
Private-label residential MBS$
 $
 $16,653
 $16,653
Mortgage loans held for portfolio
 
 5,376
 5,376
REO
 
 2,284
 2,284
        
Total assets recorded at fair value on a nonrecurring basis$
 $
 $24,313
 $24,313

Note 18 — Commitments and Contingencies

Joint and Several Liability. COs are backed by the financial resources of the FHLBanks. The FHFA has authority to require any FHLBank to repay all or a portion of the principal and interest on COs for which another FHLBank is the primary obligor. No FHLBank has ever been asked or required to repay the principal or interest on any CO on behalf of another FHLBank. We evaluate the financial condition of the other FHLBanks primarily based on known regulatory actions, publicly available financial information, and individual long-term credit-rating action as of each period-end presented. Based on this evaluation, as of JuneSeptember 30, 2016, and through the filing of this report, we believe there is a remote likelihood that we will be required to repay the principal or interest on any CO on behalf of another FHLBank.

We have considered applicable FASB guidance and determined it is not necessary to recognize a liability for the fair value of our joint and several liability for all of the COs. The joint and several obligation is mandated by FHFA regulations and is not the result of an arms-length transaction among the FHLBanks. The FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligation. Because the FHLBanks are subject to the authority of the FHFA as it relates to decisions involving the allocation of the joint and several liability for the FHLBanks' COs, each FHLBank's joint and several obligation is excluded from the initial recognition and measurement provisions. Accordingly, we have not recognized a liability for our joint and several obligation related to other FHLBanks' COs at JuneSeptember 30, 2016, and December 31, 2015. The par amounts of other FHLBanks' outstanding COs for which we are jointly and severally liable totaled $906.2911.8 billion and $851.4 billion at JuneSeptember 30, 2016, and December 31, 2015, respectively. See Note 12 — Consolidated Obligations for additional information.

Off-Balance-Sheet Commitments

The following table sets forth our off-balance-sheet commitments as of JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands):


 June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
 Expire within one year Expire after one year Total Expire within one year Expire after one year Total Expire within one year Expire after one year Total Expire within one year Expire after one year Total
Standby letters of credit outstanding (1)
 $3,922,777
 $68,855
 $3,991,632
 $3,998,609
 $77,477
 $4,076,086
 $4,228,471
 $59,125
 $4,287,596
 $3,998,609
 $77,477
 $4,076,086
Commitments for unused lines of credit - advances (2)
 1,254,875
 
 1,254,875
 1,263,182
 
 1,263,182
 1,258,079
 
 1,258,079
 1,263,182
 
 1,263,182
Commitments to make additional advances 1,133,755
 44,680
 1,178,435
 650,890
 54,308
 705,198
 334,240
 43,910
 378,150
 650,890
 54,308
 705,198
Commitments to invest in mortgage loans 46,100
 
 46,100
 24,714
 
 24,714
 60,355
 
 60,355
 24,714
 
 24,714
Unsettled CO bonds, at par (3)
 322,500
 
 322,500
 25,000
 
 25,000
 390,000
 
 390,000
 25,000
 
 25,000
Unsettled CO discount notes, at par 408,000
 
 408,000
 700,000
 
 700,000
 121,691
 
 121,691
 700,000
 
 700,000
__________________________
(1)
The amount of standby letters of credit outstanding excludes commitments to issue standby letters of credit that expire within one year. At JuneSeptember 30, 2016, and December 31, 2015, these amounts totaled $14.022.5 million and $27.3 million, respectively. Also excluded are commitments to issue standby letters of credit that expire after one year totaling $4.0 million at December 31, 2015.
(2)
Commitments for unused line-of-credit advances are generally for periods of up to 12 months. Since many of these commitments are not expected to be drawn upon, the total commitment amount does not necessarily indicate future liquidity requirements.
(3)We had $390.0 million and $25.0 million in unsettled CO bonds that were hedged with associated interest-rate swaps at September 30, 2016 and December 31, 2015.

Standby Letters of Credit. A standby letter of credit is a financing arrangement pursuant to which we agree for a fee to fund the associated obligation to a third-party beneficiary should the primary obligor fail to fund such obligation. If we are required to make payment for a beneficiary's draw, our strategy is to take prompt action to recover the funds paid to the third-party beneficiary, including converting the payment amount into a collateralized advance to the primary obligor, withdrawing the payment amount from the primary obligor’s demand deposit account with us, or selling collateral pledged by the primary obligor in a commercially reasonable manner to offset the payment amount. The original terms of these standby letters of credit have original expiration periods of up to 20 years, currently expiring no later than 2024. Our unearned fees for the value of the guarantees related to standby letters of credit are recorded in other liabilities and totaled $699,000$734,000 and $831,000 at JuneSeptember 30, 2016, and December 31, 2015, respectively.

Commitments to Invest in Mortgage Loans. Commitments to invest in mortgage loans are generally for periods not to exceed 45 business days. Such commitments are recorded as derivatives at their fair values on the statement of condition.

Pledged Collateral. We have pledged securities, as collateral, related to derivatives. See Note 10 — Derivatives and Hedging Activities for additional information about our pledged collateral and other credit-risk-related contingent features.

Legal Proceedings. We are subject to various legal proceedings arising in the normal course of business from time to time. We would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount can be reasonably estimated. Management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on our financial condition, results of operations, or cash flows.

Note 19 — Transactions with Shareholders

Related Parties. We define related parties as members with 10 percent or more of the voting interests of our capital stock outstanding. Under the FHLBank Act and FHFA regulations, each member directorship is designated to one of the six states in our district. Each member eligible to vote is entitled to cast by ballot one vote for each share of stock that it was required to hold as of the record date, which is December 31, of the year prior to each election, subject to the limitation that no member may cast more votes than the average number of shares of our stock that is required to be held by all members located in such member's state. Eligible members are permitted to vote all their eligible shares for one candidate for each open member directorship in the state in which the member is located and for each open independent directorship. A nonmember stockholder is not entitled to cast votes for the election of directors unless it was a member as of the record date. At JuneSeptember 30, 2016, and

and December 31, 2015, no shareholder owned more than 10 percent of the total voting interests due to statutory limits on members' voting rights, therefore, we did not have any related parties.

Shareholder Concentrations. We consider shareholder concentrations as members or nonmembers whose capital stock holdings (including mandatorily redeemable capital stock) are in excess of 10 percent of total capital stock outstanding. The following tables present transactions with shareholders whose holdings of capital stock exceed 10 percent or more of total capital stock outstanding at JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands):

Capital Stock
Outstanding
 
Percent
of Total
 
Par
Value of
Advances
 
Percent of Total Par Value
of Advances
 
Total Accrued
Interest
Receivable
 
Percent of Total
Accrued Interest
Receivable on
Advances
Capital Stock
Outstanding
 
Percent
of Total
 
Par
Value of
Advances
 
Percent of Total Par Value
of Advances
 
Total Accrued
Interest
Receivable
 
Percent of Total
Accrued Interest
Receivable on
Advances
As of June 30, 2016           
As of September 30, 2016           
Citizens Bank, N.A.$313,618
 13.1% $6,260,716
 16.5% $789
 2.4%$326,244
 13.8% $6,560,582
 17.7% $1,224
 3.5%
                      
As of December 31, 2015                      
Citizens Bank, N.A.$308,280
 13.0% $6,015,163
 16.7% $1,583
 4.5%$308,280
 13.0% $6,015,163
 16.7% $1,583
 4.5%

We held sufficient collateral to support the advances to the above institution such that we do not expect to incur any credit losses on these advances.

We recognized interest income on outstanding advances and fees on letters of credit from Citizens Bank, N.A. during the three and sixnine months ended JuneSeptember 30, 2016 and 2015 as follows (dollars in thousands):
 For the Three Months Ended June 30, For the Six Months Ended June 30, For the Three Months Ended September 30, For the Nine Months Ended September 30,
Citizens Bank, N.A. 2016 2015 2016 2015 2016 2015 2016 2015
Interest income on advances $8,082
 $3,447
 $16,286
 $7,163
 $7,837
 $2,802
 $24,123
 $9,965
Fees on letters of credit 779
 1,050
 1,619
 2,039
 756
 862
 2,375
 2,901

Transactions with Directors' Institutions. We provide, in the ordinary course of business, products and services to members whose officers or directors serve on our board of directors. In accordance with FHFA regulations, transactions with directors' institutions are conducted on the same terms as those with any other member.

The following table presents the outstanding balances of capital stock, advances, and accrued interest receivable with members whose officers or directors serve on our board of directors, and those balances as a percentage of our total balance as reported on our statement of condition (dollars in thousands):
Capital Stock
Outstanding
 
Percent
of Total Capital Stock Outstanding
 
Par
Value of
Advances
 
Percent of Total Par Value
of Advances
 
Total Accrued
Interest
Receivable
 
Percent of Total
Accrued Interest
Receivable on
Advances
Capital Stock
Outstanding
 
Percent
of Total Capital Stock Outstanding
 
Par
Value of
Advances
 
Percent of Total Par Value
of Advances
 
Total Accrued
Interest
Receivable
 
Percent of Total
Accrued Interest
Receivable on
Advances
As of June 30, 2016$86,354
 3.6% $1,454,518
 3.8% $1,388
 4.2%
As of September 30, 2016$87,497
 3.7% $1,425,878
 3.8% $1,466
 4.2%
As of December 31, 201572,251
 3.0
 1,064,489
 3.0
 1,297
 3.7
72,251
 3.0
 1,064,489
 3.0
 1,297
 3.7

Note 20 — Subsequent Events

On July 29,October 28, 2016,, the board of directors declared a cash dividend at an annualized rate of 3.653.80 percent based on capital stock balances outstanding during the secondthird quarter of 2016. The dividend, including dividends on mandatorily redeemable capital stock, amounted to $21.9$23.2 million and was paid on AugustNovember 2, 2016.


On November 4, 2016, we agreed with certain defendants to settle certain of our claims against them arising out of certain investments in private-label mortgage-backed securities, for an aggregate amount of $19.6 million (which amount is net of legal fees and expenses).


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
 
This report includes statements describing anticipated developments, projections, estimates, or future predictions of ours that are “forward-looking statements.” These statements may use forward-looking terminology such as, but not limited to, “anticipates,” “believes,” “expects,” “plans,” “intends,” “may,” “could,” “estimates,” “assumes,” “should,” “will,” “likely,” or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the risk factors set forth in Item 1A — Risk Factors in the 2015 Annual Report and Part II — Item 1A — Risk Factors of this quarterly report and the risks set forth below. Accordingly, we caution that actual results could differ materially from those expressed or implied in these forward-looking statements or could impact the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements. We do not undertake to update any forward-looking statement herein or that may be made from time to time on our behalf.
 
Forward-looking statements in this report may include, among others, our expectations for:

income, retained earnings, and dividend payouts;
repurchases of stock in excess of a shareholder’s total stock investment requirement (excess stock);
credit losses on advances and investments in mortgage loans and ABS, particularly private-label MBS;
balance-sheet changes and components thereof, such as changes in advances balances and the size of our portfolio of investments in mortgage loans;
our minimum retained earnings target; and
the interest-rate environment in which we do business.

Actual results may differ from forward-looking statements for many reasons, including, but not limited to:
 
changes in interest rates, the rate of inflation (or deflation), housing prices, employment rates, and the general economy, including changes resulting from changes in U.S. fiscal policy or ratings of the U.S. federal government;
changes in demand for our advances and other products;
the willingness of our members to do business with us;
changes in the financial health of our members;
changes in borrower defaults on mortgage loans;
changes in the credit performance and loss severities of our investments;
changes in prepayment rates on advances and investments;
the value of collateral we hold as security for obligations of our members and counterparties;
issues and events across the FHLBank System and in the political arena that may lead to legislative, regulatory, judicial, or other developments impacting demand for COs, our financial obligations with respect to COs, our ability to access the capital markets, our members, the manner in which we operate, or the organization and structure of the FHLBank System;
competitive forces including, without limitation, other sources of funding available to our members, other entities borrowing funds in the capital markets, and our ability to attract and retain skilled employees;
the pace of technological change and our ability to develop and support technology and information systems sufficient to manage the risks of our business effectively;
the loss of members due to, among other ways, member withdrawals, mergers and acquisitions;
changes in investor demand for COs;
changes in the terms or availability of derivatives and other agreements we enter into in support of our business operations;
the timing and volume of market activity;
the volatility of reported results due to changes in the fair value of certain assets and liabilities, including, but not limited to, private-label MBS;
our ability to introduce new (or adequately adapt current) products and services and successfully manage the risks associated with our products and services, including new types of collateral used to secure advances;
losses arising from litigation filed against us or one or more of the other FHLBanks;

gains resulting from legal claims we have;
losses arising from our joint and several liability on COs;
significant business disruptions resulting from vendor or third-party failure, natural or other disasters, cyberincidents, acts of war, or terrorism; and
new accounting standards.

The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our interim financial statements and notes, which begin on page three, and the 2015 Annual Report.

EXECUTIVE SUMMARY

For the quarter ended JuneSeptember 30, 2016, our net income decreasedincreased to $47.5$36.6 million from $149.6$30.5 million for the quarter ended JuneSeptember 30, 2015,2015. This increase was largely due to a decreasean $8.6 million increase of $115.1net interest income partially offset by $2.3 million in litigation settlement income. Forof interest-rate subsidies under the quarterJobs for New England and Helping to House New England programs, subsidized advance programs that support members’ small business lending and affordable rental and homeownership initiatives, respectively. Net interest income for the three months ended JuneSeptember 30, 2016, was $64.8 million compared with $56.2 million for the same period in 2015. This increase was primarily attributable to a $3.2 billion increase in average earning assets increased by $4.8 billion, primarily consisting of a $4.0$4.3 billion increase in average advances balances andthat was partially offset by a $797.6 million increase$1.1 billion decrease in average investments balances. DespiteAlso offsetting the benefit from the increase in average earning assets net interest income after reduction of provision for credit losses decreased by $1.7was a $1.5 million compared to the same period in 2015, primarily caused by a five basis point decrease in net interest spread attributable primarilyprepayment fees from advances and investments from $1.5 million in the three months ended September 30, 2015, to higher net premium amortization on agency MBS resulting from a decrease$50,000 in long term interest rates.the three months ended September 30, 2016. Our retained earnings waswere $1.2 billion at JuneSeptember 30, 2016, compared to $1.1 billion at December 31, 2015, a surplus of $465.2$480.1 million over our minimum retained earnings target. We continuecontinued to satisfy all regulatory capital requirements as of JuneSeptember 30, 2016.

On July 29,October 28, 2016, our board of directors declared a cash dividend that was equivalent to an annual yield of 3.653.80 percent, the approximate daily average three-month London Interbank Offered Rate (LIBOR) yield for the secondthird quarter of 2016 plus 300 basis points. Our board of directors expects to follow this formula for declaring dividends through 2016, though a quarterly loss or a significant, adverse event or trend could cause a dividend to be suspended.

Net Interest Margin

For the three months ended JuneSeptember 30, 2016, net interest margin was 0.370.45 percent, compared with 0.420.41 percent for the three months ended JuneSeptember 30, 2015. This decreaseincrease was primarily attributable to a decrease inthe increase of higher-yielding long term assets such as long-term interest rates.advances and mortgage-backed securities.

Advances Balances

Advances balances increased to $38.2$37.2 billion at JuneSeptember 30, 2016, from $36.1 billion at December 31, 2015. The $1.1 billion increase was concentrated in short-term fixed-rate putable advances and variable-rate advances. For the three months ended JuneSeptember 30, 2016, the average balance of total advances was $36.1$36.0 billion, compared to $32.1$31.7 billion during the same period in 2015. The $4.0$4.3 billion increase was concentratedbroad-based, with the largest increases in fixed-ratevariable-rate advances and short-term and variable-rate advances. We cannot predict whether this trend will continue.

Accretable yields from investments in private-label MBS

For both the three months ended JuneSeptember 30, 2016 and 2015, we recognized $9.99.6 million and $9.8 million, respectively, in interest income resulting from the increased accretable yields of certain private-label MBS for which we had previously recognized credit losses. For a discussion of this accounting treatment, see Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1 — Summary of Significant Accounting Policies — Investment Securities — Other-than-Temporary Impairment — Interest Income Recognition.

The amortized cost of our total investments in private-label MBS and ABS backed by home-equity loans has declined to $1.1 billion at June 30, 2016, compared with $6.4 billion at its peak in September 30, 2007, and other-than-temporary2016. Other-than-temporary impairment credit losses recognized in recent periods have dropped significantly from those earlier periods.were $371,000 for the quarter ending September 30, 2016.

Excess Stock Management Program


Under the excess stock management program adopted by our board of directors on July 24, 2015, we repurchased $101.7$105.0 million in excess stock in the secondthird quarter of 2016. For additional information see — Liquidity and Capital Resources — Internal Capital Practices and Policies — Excess Stock Management Program.

ECONOMIC CONDITIONS

Economic Environment

The U.S.Economic data from third quarter 2016 suggests that the labor market was stable inhas continued to strengthen and the second quarterpace of 2016, with a slight decline ineconomic activity has increased compared to the first half of the year. While the unemployment rate from 5.0 percentis little changed in March to 4.9 percent in June.recent months, job gains have been consistent, on average. Household spending has grown, but business fixed investment has remained soft. The New England region’s labor market was steady with unemploymenteconomy generally continues to improve, but at a moderately slower pace than the rest of the U.S. economy. Unemployment rates remaining relatively stable across the six New England states from March to May.were relatively stable, on average, in the third quarter.

Interest-Rate Environment

On July 27,November 2, 2016, the Federal Open Market Committee (FOMC) announced that it decided to maintain the target range for the federal funds rate at 0.25 to 0.5 percent. The FOMC also noted that the labor market has strengthened and that inflation continued to run below the 2 percent objective. After remaining relatively stable in April and May, long-term interest rates declined materially in June following the announcement that British voters elected to leave the European Union.

The following chart illustrates the interest-rate environment.


The federal funds target rate had remained constant at zero to 0.25 percent from the fourth quarter of 2008 through the third quarter 2015 until it was raised in the fourth quarter of 2015. On December 17, 2015,Long-term interest rates increased slightly from July through September.

The following table illustrates the FOMC raised the target range for the federal funds rate by 25 basis points, from 0.25 to 0.50 percent.interest-rate environment.
 Three Month Average Nine Month Average Ending rate
 September 30, 2016 September 30, 2015 September 30, 2016 September 30, 2015 September 30, 2016 December 31, 2015
3-month LIBOR0.79% 0.31% 0.69% 0.28% 0.85% 0.61%
2-year U.S. Treasury yield0.72% 0.68% 0.77% 0.62% 0.76% 1.05%
5-year U.S. Treasury yield1.12% 1.55% 1.24% 1.51% 1.15% 1.76%
10-year U.S. Treasury yield1.56% 2.22% 1.73% 2.11% 1.59% 2.27%

SELECTED FINANCIAL DATA

The following financial highlights for the statement of condition for December 31, 2015, have been derived from our audited financial statements. Financial highlights for the quarter-ends have been derived from our unaudited financial statements.



SELECTED FINANCIAL DATASTATEMENT OF CONDITION (dollars in thousands)
    
 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
Statement of Condition                    
Total assets $62,160,154
 $58,669,046
 $58,102,669
 $57,397,372
 $56,449,865
 $60,543,301
 $62,160,154
 $58,669,046
 $58,102,669
 $57,397,372
Investments(1)
 19,676,487
 20,319,265
 18,019,181
 19,376,223
 17,768,044
 19,264,484
 19,676,487
 20,319,265
 18,019,181
 19,376,223
Advances 38,241,920
 34,524,912
 36,076,167
 33,954,689
 34,105,443
 37,195,148
 38,241,920
 34,524,912
 36,076,167
 33,954,689
Mortgage loans held for portfolio, net(2)
 3,628,464
 3,575,262
 3,581,788
 3,580,269
 3,574,835
 3,714,283
 3,628,464
 3,575,262
 3,581,788
 3,580,269
Deposits and other borrowings 634,995
 562,622
 482,602
 495,871
 402,066
 610,783
 634,995
 562,622
 482,602
 495,871
Consolidated obligations:                    
Bonds 27,139,771
 27,961,818
 25,427,277
 26,412,714
 26,075,429
 27,345,898
 27,139,771
 27,961,818
 25,427,277
 26,412,714
Discount notes 30,483,963
 26,358,590
 28,479,097
 26,538,537
 25,972,593
 28,725,374
 30,483,963
 26,358,590
 28,479,097
 26,538,537
Total consolidated obligations 57,623,734
 54,320,408
 53,906,374
 52,951,251
 52,048,022
 56,071,272
 57,623,734
 54,320,408
 53,906,374
 52,951,251
Mandatorily redeemable capital stock 35,076
 35,244
 41,989
 42,643
 57,268
 33,812
 35,076
 35,244
 41,989
 42,643
Class B capital stock outstanding-putable(3)
 2,353,698
 2,301,039
 2,336,662
 2,542,598
 2,482,244
 2,333,262
 2,353,698
 2,301,039
 2,336,662
 2,542,598
Unrestricted retained earnings 955,126
 938,287
 934,214
 894,676
 890,443
 962,798
 955,126
 938,287
 934,214
 894,676
Restricted retained earnings 210,031
 200,534
 194,634
 179,502
 173,411
 217,343
 210,031
 200,534
 194,634
 179,502
Total retained earnings 1,165,157
 1,138,821
 1,128,848
 1,074,178
 1,063,854
 1,180,141
 1,165,157
 1,138,821
 1,128,848
 1,074,178
Accumulated other comprehensive loss (358,342) (390,430) (442,597) (395,696) (395,063) (360,644) (358,342) (390,430) (442,597) (395,696)
Total capital 3,160,513
 3,049,430
 3,022,913
 3,221,080
 3,151,035
 3,152,759
 3,160,513
 3,049,430
 3,022,913
 3,221,080
Other Information                    
Total regulatory capital ratio(4)
 5.72% 5.92% 6.04% 6.38% 6.38% 5.86% 5.72% 5.92% 6.04% 6.38%
_______________________
(1)Investments include available-for-sale securities, held-to-maturity securities, trading securities, interest-bearing deposits, securities purchased under agreements to resell and federal funds sold.
(2)
The allowance for credit losses amounted to $900,000800,000, $900,000, $1.0 million, $1.0 million, $1.0 million, and $1.1$1.0 million for the quarters ended September 30, 2016, June 30, 2016, March 31, 2016, December 31, 2015, September 30, 2015, and JuneSeptember 30, 2015, respectively.
(3)Capital stock is putable at the option of a member, subject to applicable restrictions.
(4)Total regulatory capital ratio is capital stock (including mandatorily redeemable capital stock) plus total retained earnings as a percentage of total assets. See Item 1 — Notes to Financial Statements — Note 14 — Capital.


SELECTED FINANCIAL DATARESULTS OF OPERATIONS AND OTHER INFORMATION (dollars in thousands)
    
 Results of Operations for the Three Months Ended Results of Operations for the Three Months Ended
 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 June 30, 2015 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015
Net interest income $54,579
 $56,104
 $58,891
 $56,156
 $56,187
 $64,779
 $54,579
 $56,104
 $58,891
 $56,156
(Reduction of) provision for credit losses (111) 11
 112
 (159) (223) (94) (111) 11
 112
 (159)
Net impairment losses on held-to-maturity securities recognized in earnings (1,003) (1,347) (1,231) (1,053) (1,429) (371) (1,003) (1,347) (1,231) (1,053)
Litigation settlements 19,584
 
 50,166
 
 134,690
 
 19,584
 
 50,166
 
Other loss (1,787) (2,990) (1,895) (4,738) (1,908) (3,072) (1,787) (2,990) (1,895) (4,738)
Other expense 18,688
 18,934
 21,717
 16,631
 21,450
 20,773
 18,688
 18,934
 21,717
 16,631
AHP assessments 5,312
 3,320
 8,446
 3,437
 16,678
 4,099
 5,312
 3,320
 8,446
 3,437
Net income $47,484
 $29,502
 $75,656
 $30,456
 $149,635
 $36,558
 $47,484
 $29,502
 $75,656
 $30,456
Other Information                    
Dividends declared $21,148
 $19,529
 $20,987
 $20,132
 $10,525
 $21,574
 $21,148
 $19,529
 $20,987
 $20,132
Dividend payout ratio 44.54% 66.20% 27.74% 66.10% 7.03% 59.01% 44.54% 66.20% 27.74% 66.10%
Weighted-average dividend rate(1)
 3.63
 3.42
 3.32
 3.28
 1.76
 3.65
 3.63
 3.42
 3.32
 3.28
Return on average equity(2)
 6.09
 3.88
 10.13
 3.80
 19.57
 4.55
 6.09
 3.88
 10.13
 3.80
Return on average assets 0.32
 0.20
 0.52
 0.22
 1.11
 0.25
 0.32
 0.20
 0.52
 0.22
Net interest margin(3)
 0.37
 0.39
 0.41
 0.41
 0.42
 0.45
 0.37
 0.39
 0.41
 0.41
Average equity to average assets 5.31
 5.20
 5.17
 5.79
 5.66
 5.48
 5.31
 5.20
 5.17
 5.79
_______________________
(1)Weighted-average dividend rate is the dividend amount declared divided by the average daily balance of capital stock eligible for dividends during the preceding quarter.
(2)Return on average equity is net income divided by the total of the average daily balance of outstanding Class B capital stock, accumulated other comprehensive loss, and total retained earnings.
(3)Net interest margin is net interest income before provision for credit losses as a percentage of average earning assets.

RESULTS OF OPERATIONS

SecondNet Income

Third Quarter of 2016 Compared with SecondThird Quarter of 2015

Net income decreasedincreased to $47.5$36.6 million for the three months ended JuneSeptember 30, 2016, from $149.6$30.5 million for the three months ended JuneSeptember 30, 2015, largely due to a decreasean increase of $115.1$8.6 million in litigation settlement income.of net interest income partially offset by $2.3 million subsidies for Jobs for New England and Helping to House New England programs.

SixNine Months Ended JuneSeptember 30, 2016, Compared with SixNine Months Ended JuneSeptember 30, 2015

Net income decreased to $77.0$113.5 million for the sixnine months ended JuneSeptember 30, 2016, from $183.2$213.7 million for the sixnine months ended JuneSeptember 30, 2015, largely due to a decrease of $115.1 million in litigation settlement income.income, offset in part by an $8.4 million increase in net interest income after reduction of provision for credit losses.
 
Net Interest Income

SecondThird Quarter of 2016 Compared with SecondThird Quarter of 2015

Net interest income after reduction of provision for credit losses for the quarter ended JuneSeptember 30, 2016, was $54.7$64.9 million, compared to $56.4$56.3 million for the same period in 2015. For additional information see — Executive Summary as well as Rate and Volume Analysis.

Net interest spread was 0.39 percent for the quarter ended September 30, 2016, a three basis point increase from the same period in 2015. Net interest margin was 0.45 percent for the quarter ended September 30, 2016, a four basis point increase from the same period in 2015. The increase in net interest spread reflects a 16 basis point increase in the average yield on earning assets and a 13 basis point increase in the average yield on interest-bearing liabilities. The expansion of net interest spread and net interest margin was primarily attributable to the increase of higher-yielding long term assets such as long-term advances and mortgage-backed securities.

Nine Months Ended September 30, 2016, Compared with Nine Months Ended September 30, 2015

Net interest income after reduction of provision for credit losses for the nine months ended September 30, 2016, was $175.7 million, compared with $167.2 million for the same period in 2015. The $1.7$8.4 million decreaseincrease was primarily attributable to a decrease$3.6 billion increase in long-term interest rates late in the quarter, which is expected to trigger accelerated mortgage refinance activity. Averageaverage earning assets increased by $4.8 billion to $58.6from $54.7 billion for the quarternine months ended JuneSeptember 30, 2016, compared2015, to $53.8$58.3 billion for the same period in 2015.nine months ended September 30, 2016. The increasegrowth in average earning assets was driven by a $4.0 billion increase in average advances balances andthat was partially offset by a $797.6$397.6 million increasedecrease in average investments balances. For additional information see — RateAlso partially offsetting the benefit from the increase in average earning assets was a $2.5 million decrease in net prepayment fees from advances and Volume Analysis.

investments from $5.8 million in the nine months ended September 30, 2015, to $3.3 million in the nine months ended September 30, 2016.

Net interest spread was 0.330.35 percent for the quarternine months ended JuneSeptember 30, 2016, a fivetwo basis point decrease from the same period in 2015. Net2015, and net interest margin was 0.370.40 percent, for the quarter ended June 30, 2016, a fiveone basis point decrease from the same period in 2015. The decrease in net interest spread reflects a nine12 basis point increase in the average yield on earning assets and a 14 basis point increase in the average yield on interest-bearing liabilities.

Six Months Ended June 30, 2016, Compared with Six Months Ended June 30, 2015

Net interest income after provision for credit losses for the six months ended June 30, 2016, was $110.8 million, compared with $110.9 million for the same period in 2015. The $150,000 decrease was primarily attributable to a $1.0 million decline of prepayment fee income as well as a higher net premium amortization on agency MBS, partially offset by an increase in net interest income driven by a $3.8 billion increase in average earning assets to $58.5 billion for the six months ended June 30, 2016, from $54.7 billion for the same period in 2015. The increase in average earning assets was primarily due to a $3.8 billion increase in average advances balances. For additional information see — Rate and Volume Analysis.

Net interest spread was 0.33 percent for the six months ended June 30, 2016, a four basis point decrease from the same period in 2015, and net interest margin was 0.38 percent, a three basis point decrease from 2015. The decrease in net interest spread reflects an 11 basis point increaseand net interest margin was mainly a result of the aforementioned decrease in the average yield on earning assetsnet prepayment fees from advances and a 15 basis point increase in the average yield on interest-bearing liabilities.investments.

The following table presents major categories of average balances, related interest income/expense, and average yields for interest-earning assets and interest-bearing liabilities. Our primary source of earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments less interest paid on COs, deposits, and other sources of funds.


Net Interest Spread and Margin
(dollars in thousands)
Net Interest Spread and Margin
(dollars in thousands)
Net Interest Spread and Margin
(dollars in thousands)
 For the Three Months Ended June 30, For the Three Months Ended September 30,
 2016 2015 2016 2015
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
Assets                        
Advances $36,073,581
 $81,874
 0.91% $32,105,867
 $58,720
 0.73% $35,996,668
 $84,795
 0.94% $31,731,983
 $60,669
 0.76%
Securities purchased under agreements to resell 3,375,374
 2,713
 0.32
 4,774,451
 1,104
 0.09
 3,109,326
 2,697
 0.35
 4,679,891
 1,366
 0.12
Federal funds sold 5,578,077
 5,176
 0.37
 4,371,154
 1,223
 0.11
 5,155,967
 5,200
 0.40
 5,331,685
 1,669
 0.12
Investment securities(2)
 9,843,307
 47,599
 1.94
 8,902,458
 50,257
 2.26
 9,781,842
 52,142
 2.12
 9,232,488
 49,613
 2.13
Mortgage loans 3,588,569
 29,906
 3.35
 3,560,480
 30,190
 3.40
 3,667,314
 29,874
 3.24
 3,579,328
 30,392
 3.37
Other earning assets 91,473
 136
 0.60
 42,574
 14
 0.13
 111,603
 171
 0.61
 38,744
 18
 0.18
Total interest-earning assets 58,550,381
 167,404
 1.15
 53,756,984
 141,508
 1.06
 57,822,720
 174,879
 1.20
 54,594,119
 143,727
 1.04
Other non-interest-earning assets 401,603
     415,211
     445,338
     430,867
    
Fair-value adjustments on investment securities 21,935
     (17,687)     87,557
     (45,997)    
Total assets $58,973,919
 $167,404
 1.14% $54,154,508
 $141,508
 1.05% $58,355,615
 $174,879
 1.19% $54,978,989
 $143,727
 1.04%
Liabilities and capital                        
Consolidated obligations                        
Discount notes $26,396,173
 $22,579
 0.34% $24,180,863
 $4,909
 0.08% $25,981,154
 $23,011
 0.35% $23,910,270
 $6,391
 0.11%
Bonds 28,101,663
 89,780
 1.28
 25,588,252
 79,923
 1.25
 27,769,228
 86,574
 1.24
 26,666,807
 80,695
 1.20
Deposits 489,348
 146
 0.12
 405,273
 19
 0.02
 502,769
 180
 0.14
 404,010
 13
 0.01
Mandatorily redeemable capital stock 35,242
 319
 3.65
 57,264
 468
 3.28
 34,952
 334
 3.80
 56,314
 472
 3.33
Other borrowings 689
 1
 0.58
 6,458
 2
 0.12
 701
 1
 0.57
 653
 
 0.24
Total interest-bearing liabilities 55,023,115
 112,825
 0.82
 50,238,110
 85,321
 0.68
 54,288,804
 110,100
 0.81
 51,038,054
 87,571
 0.68
Other non-interest-bearing liabilities 817,129
     849,485
     868,420
     759,257
    
Total capital 3,133,675
     3,066,913
     3,198,391
     3,181,678
    
Total liabilities and capital $58,973,919
 $112,825
 0.77% $54,154,508
 $85,321
 0.63% $58,355,615
 $110,100
 0.75% $54,978,989
 $87,571
 0.63%
Net interest income  
 $54,579
    
 $56,187
    
 $64,779
    
 $56,156
  
Net interest spread  
  
 0.33%  
  
 0.38%  
  
 0.39%  
  
 0.36%
Net interest margin  
  
 0.37%  
  
 0.42%  
  
 0.45%  
  
 0.41%
_________________________
(1)Yields are annualized.

(2)The average balances of held-to-maturity securities and available-for-sale securities are reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value or the noncredit component of a previously recognized other-than-temporary impairment reflected in accumulated other comprehensive loss.


Net Interest Spread and Margin
(dollars in thousands)
Net Interest Spread and Margin
(dollars in thousands)
Net Interest Spread and Margin
(dollars in thousands)
 For the Six Months Ended June 30, For the Nine Months Ended September 30,
 2016 2015 2016 2015
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield
(1)
Assets                        
Advances $35,678,693
 $162,162
 0.91% $31,865,531
 $119,870
 0.76% $35,785,458
 $246,957
 0.92% $31,820,526
 $180,539
 0.76%
Securities purchased under agreements to resell 3,696,440
 5,906
 0.32
 4,833,608
 1,907
 0.08
 3,499,307
 8,603
 0.33
 4,781,806
 3,273
 0.09
Federal funds sold 5,924,165
 10,792
 0.37
 5,475,823
 2,850
 0.10
 5,666,230
 15,992
 0.38
 5,427,249
 4,519
 0.11
Investment securities(2)
 9,569,822
 97,475
 2.05
 8,962,171
 98,181
 2.21
 9,641,011
 149,617
 2.07
 9,053,267
 147,794
 2.18
Mortgage loans 3,583,199
 60,982
 3.42
 3,530,607
 61,241
 3.50
 3,611,442
 90,856
 3.36
 3,547,026
 91,633
 3.45
Other earning assets 83,717
 243
 0.58
 33,028
 25
 0.15
 93,080
 414
 0.59
 34,954
 43
 0.16
Total interest-earning assets 58,536,036
 337,560
 1.16
 54,700,768
 284,074
 1.05
 58,296,528
 512,439
 1.17
 54,664,828
 427,801
 1.05
Other non-interest-earning assets 399,963
     412,836
     415,199
     418,912
    
Fair-value adjustments on investment securities (469)     (21,490)     29,087
     (29,749)    
Total assets $58,935,530
 $337,560
 1.15% $55,092,114
 $284,074
 1.04% $58,740,814
 $512,439
 1.17% $55,053,991
 $427,801
 1.04%
Liabilities and capital                        
Consolidated obligations                        
Discount notes $27,135,126
 $45,276
 0.34% $25,148,007
 $10,422
 0.08% $26,747,661
 $68,287
 0.34% $24,730,894
 $16,813
 0.09%
Bonds 27,368,472
 180,640
 1.33
 25,629,431
 162,164
 1.28
 27,503,032
 267,214
 1.30
 25,979,023
 242,859
 1.25
Deposits 484,440
 261
 0.11
 399,770
 33
 0.02
 490,595
 441
 0.12
 401,199
 46
 0.02
Mandatorily redeemable capital stock 38,576
 698
 3.64
 67,181
 803
 2.41
 37,359
 1,032
 3.69
 63,519
 1,275
 2.68
Other borrowings 961
 2
 0.42
 3,523
 2
 0.11
 874
 3
 0.46
 2,556
 2
 0.10
Total interest-bearing liabilities 55,027,575
 226,877
 0.83
 51,247,912
 173,424
 0.68
 54,779,521
 336,977
 0.82
 51,177,191
 260,995
 0.68
Other non-interest-bearing liabilities 810,976
     853,831
     830,264
     821,959
    
Total capital 3,096,979
     2,990,371
     3,131,029
     3,054,841
    
Total liabilities and capital $58,935,530
 $226,877
 0.77% $55,092,114
 $173,424
 0.63% $58,740,814
 $336,977
 0.77% $55,053,991
 $260,995
 0.63%
Net interest income  
 $110,683
    
 $110,650
    
 $175,462
    
 $166,806
  
Net interest spread  
  
 0.33%  
  
 0.37%  
  
 0.35%  
  
 0.37%
Net interest margin  
  
 0.38%  
  
 0.41%  
  
 0.40%  
  
 0.41%
_________________________
(1)Yields are annualized.

(2)The average balances of held-to-maturity securities and available-for-sale securities are reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value or the noncredit component of a previously recognized other-than-temporary impairment reflected in accumulated other comprehensive loss.

Rate and Volume Analysis

Changes in both average balances (volume) and interest rates influence changes in net interest income and net interest margin. The following table summarizes changes in interest income and interest expense for the three and sixnine months ended JuneSeptember 30, 2016 and 2015. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.


Rate and Volume Analysis
(dollars in thousands)
Rate and Volume Analysis
(dollars in thousands)
Rate and Volume Analysis
(dollars in thousands)
 For the Three Months Ended June 30, 2016 vs. June 30, 2015 For the Six Months Ended June 30, 2016 vs. June 30, 2015 
For the Three Months Ended
September 30, 2016 vs. September 30, 2015
 
For the Nine Months Ended
September 30, 2016 vs. September 30, 2015
 Increase (Decrease) due to Increase (Decrease) due to Increase (Decrease) due to Increase (Decrease) due to
 Volume Rate Total Volume Rate Total Volume Rate Total Volume Rate Total
Interest income        
  
  
        
  
  
Advances $7,850
 $15,304
 $23,154
 $15,434
 $26,858
 $42,292
 $8,848
 $15,278
 $24,126
 $24,274
 $42,144
 $66,418
Securities purchased under agreements to resell (408) 2,017
 1,609
 (547) 4,546
 3,999
 (590) 1,921
 1,331
 (1,091) 6,421
 5,330
Federal funds sold 421
 3,532
 3,953
 252
 7,690
 7,942
 (57) 3,588
 3,531
 208
 11,265
 11,473
Investment securities 4,988
 (7,646) (2,658) 6,427
 (7,133) (706) 2,931
 (402) 2,529
 9,326
 (7,503) 1,823
Mortgage loans 237
 (521) (284) 905
 (1,164) (259) 736
 (1,254) (518) 1,646
 (2,423) (777)
Other earning assets 30
 92
 122
 77
 141
 218
 69
 84
 153
 144
 227
 371
Total interest income 13,118
 12,778
 25,896
 22,548
 30,938
 53,486
 11,937
 19,215
 31,152
 34,507
 50,131
 84,638
Interest expense        
  
  
        
  
  
Consolidated obligations        
  
  
        
  
  
Discount notes 490
 17,180
 17,670
 887
 33,967
 34,854
 600
 16,020
 16,620
 1,480
 49,994
 51,474
Bonds 7,996
 1,861
 9,857
 11,294
 7,182
 18,476
 3,394
 2,485
 5,879
 14,582
 9,773
 24,355
Deposits 5
 122
 127
 8
 220
 228
 4
 163
 167
 12
 383
 395
Mandatorily redeemable capital stock (196) 47
 (149) (422) 317
 (105) (197) 59
 (138) (628) 385
 (243)
Other borrowings (3) 2
 (1) (2) 2
 
 
 1
 1
 (2) 3
 1
Total interest expense 8,292
 19,212
 27,504
 11,765
 41,688
 53,453
 3,801
 18,728
 22,529
 15,444
 60,538
 75,982
Change in net interest income $4,826
 $(6,434) $(1,608) $10,783
 $(10,750) $33
 $8,136
 $487
 $8,623
 $19,063
 $(10,407) $8,656

Average Balance of Advances Outstanding

The average balance of total advances increased $3.8$4.0 billion, or 12.012.5 percent, for the sixnine months ended JuneSeptember 30, 2016, compared with the same period in 2015. This increase of average advances balances was broad based, consisting of increases in fixed- rate short-term and long-term advances and variable-rate advances. The following table summarizes average balances of advances outstanding during the sixnine months ended JuneSeptember 30, 2016 and 2015, by product type.


Average Balance of Advances Outstanding by Product Type
(dollars in thousands)
Average Balance of Advances Outstanding by Product Type
(dollars in thousands)
Average Balance of Advances Outstanding by Product Type
(dollars in thousands)
 For the Six Months Ended June 30, For the Nine Months Ended September 30,
 2016 2015 2016 2015
Fixed-rate advances—par value        
Long-term $13,474,678
 $12,708,066
 $13,519,952
 $12,831,168
Short-term 11,282,580
 9,229,553
 11,304,599
 9,619,496
Putable 2,084,840
 2,121,081
 2,161,985
 2,090,742
Overnight 850,687
 896,539
 816,945
 935,806
Amortizing 866,455
 863,908
 864,734
 869,974
All other fixed-rate advances 89,110
 72,000
 78,482
 72,483
 28,648,350
 25,891,147
 28,746,697
 26,419,669
        
Variable-rate indexed advances—par value        
Simple variable (1)
 6,415,141
 5,666,553
 6,361,059
 5,107,421
Putable 417,676
 52,448
 477,595
 49,392
All other variable-rate indexed advances 40,110
 45,085
 39,726
 48,267
 6,872,927
 5,764,086
 6,878,380
 5,205,080
Total average par value 35,521,277
 31,655,233
 35,625,077
 31,624,749
Net premiums 4,959
 14,102
 4,468
 13,016
Market value of bifurcated derivatives 3,118
 2,114
 4,467
 2,117
Hedging adjustments 149,339
 194,082
 151,446
 180,644
Total average balance of advances $35,678,693
 $31,865,531
 $35,785,458
 $31,820,526
_____________________
(1)Includes floating-rate advances that may be contractually prepaid by the borrower on a floating-rate reset date without incurring prepayment or termination fees.

In addition, the average balance of fixed-rate advances that were hedged with interest-rate swaps to yield an effective floating rate totaled $2.1$9.0 billion for the sixnine months ended JuneSeptember 30, 2016. Therefore, a significant portion of our advances, including overnight advances, short-term fixed-rate advances, fixed-rate putable advances, certain fixed-rate bullet advances, and variable-rate advances, either earn a short-term interest rate or are swapped to a short-term index, resulting in yields that closely follow short-term market interest-rate trends. For the sixnine months ended JuneSeptember 30, 2016, the average balance of all such advances totaled $27.8$28.0 billion, representing 77.978.1 percent of the total average balance of advances outstanding during that period. The average balance of all such advances totaled $21.121.4 billion for the sixnine months ended JuneSeptember 30, 2015, representing 66.367.3 percent of the total average balance of advances outstanding during that period.

For the sixnine months ended JuneSeptember 30, 2016 and 2015, net prepayment fees on advances and investments were $3.3 million and $4.3$5.8 million, respectively. Prepayment-fee income is unpredictable and inconsistent from period to period, occurring only when advances and investments are prepaid prior to the scheduled maturity or repricing dates, and generally when prevailing reinvestment yields are lower than those of the prepaid advances.

Average Balance of Investments

Average short-term money market investments, consisting of interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold, decreased $631.9$981.3 million, or 6.19.6 percent, for the sixnine months ended JuneSeptember 30, 2016, compared with the same period in 2015. The yield earned on short-term money market investments is highly correlated to short-term market interest rates and asrates. As a result of the FOMC’s decision to raise the target range for the federal funds rate, in December 2015, average yields on overnight federal funds sold increased from 0.100.11 percent during the sixnine months ended JuneSeptember 30, 2015 to 0.370.38 percent during the sixnine months ended JuneSeptember 30, 2016, while average yields on securities purchased under agreements to resell increased from 0.080.09 percent for the sixnine months ended JuneSeptember 30, 2015 to 0.320.33 percent for the sixnine months ended JuneSeptember 30, 2016. These investments are used for liquidity management and to manage our leverage ratio in response to fluctuations in other asset balances. For the sixnine months ended JuneSeptember 30, 2016, average balances of securities purchased under agreements to resell

decreased $1.1$1.3 billion and average balances of federal funds sold increased $448.3$239.0 million in comparison to the sixnine months ended JuneSeptember 30, 2015.

Average investment-securities balances increased $607.7$587.7 million, or 6.86.5 percent for the sixnine months ended JuneSeptember 30, 2016, compared with the same period in 2015, an increase consisting primarily of a $618.6$597.2 million increase in MBS.

Average Balance of COs

Average CO balances increased $3.7$3.5 billion, or 7.37.0 percent, for the sixnine months ended JuneSeptember 30, 2016, compared with the same period in 2015, resulting from our increased funding needs principally due to the increase in our average advances balances. This overall increase consisted of an increaseincreases of $2.0 billion and $1.5 billion in CO discount notes and an increase of $1.7 billion in CO bonds.bonds, respectively.

The average balance of CO discount notes represented approximately 49.849.3 percent of total average COs during the sixnine months ended JuneSeptember 30, 2016, compared with 49.548.8 percent of total average COs during the sixnine months ended JuneSeptember 30, 2015. The average balance of CO bonds represented 50.250.7 percent and 50.551.2 percent of total average COs outstanding during the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively.

Impact of Derivatives and Hedging Activities

Net interest income includes interest accrued on interest-rate-exchange agreements that are associated with advances, investments, deposits, and debt instruments that qualify for hedge accounting. We generally use derivative instruments that qualify for hedge accounting as interest rate risk-management tools. These derivatives serve to stabilize net interest income and net interest margin when interest rates fluctuate. Accordingly, the impact of derivatives on net interest income and net interest margin should be viewed in the overall context of our risk-management strategy. The following tables show the net effect of derivatives and hedging activities on net interest income, net gains (losses) on derivatives and hedging activities, and net unrealized gains (losses) on trading securities for the three and sixnine months ended JuneSeptember 30, 2016 and 2015 (dollars in thousands).

 For the Three Months Ended June 30, 2016  For the Three Months Ended September 30, 2016 
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total  Advances Investments Mortgage Loans CO Bonds Total 
Net interest income                      
Amortization / accretion of hedging activities in net interest income (1)
 $(518) $
 $(189) $(2,409) $(3,116)  $(679) $
 $(155) $(947) $(1,781) 
Net interest settlements included in net interest income (2)
 (26,128) (8,883) 
 7,158
 (27,853)  (22,547) (8,788) 
 6,500
 (24,835) 
Total net interest income (26,646) (8,883) (189) 4,749
 (30,969)  (23,226) (8,788) (155) 5,553
 (26,616) 
                      
Net (losses) gains on derivatives and hedging activities                      
(Losses) gains on fair-value hedges (966) 356
 
 (1,608) (2,218) 
Gains (losses) on fair-value hedges 173
 445
 
 (3,896) (3,278) 
Losses on cash-flow hedges 
 
 
 (190) (190)  
 
 
 (22) (22) 
(Losses) gains on derivatives not receiving hedge accounting (85) (1,161) 
 1
 (1,245) 
Gains on derivatives not receiving hedge accounting 20
 1,105
 
 61
 1,186
 
Mortgage delivery commitments 
 
 690
 
 690
  
 
 251
 (59) 192
 
Net (losses) gains on derivatives and hedging activities (1,051) (805) 690
 (1,797) (2,963) 
Net gains (losses) on derivatives and hedging activities 193
 1,550
 251
 (3,916) (1,922) 
                      
Subtotal (27,697) (9,688) 501
 2,952
 (33,932)  (23,033) (7,238) 96
 1,637
 (28,538) 
                      
Net gains on trading securities 
 84
 
 
 84
 
Net losses on trading securities 
 (2,849) 
 
 (2,849) 
Total net effect of derivatives and hedging activities $(27,697) $(9,604) $501
 $2,952
 $(33,848)  $(23,033) $(10,087) $96
 $1,637
 $(31,387) 
_____________________
(1)Represents the amortization/accretion of hedging fair-value adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive loss.
(2)Represents interest income/expense on derivatives included in net interest income.


 For the Three Months Ended June 30, 2015  For the Three Months Ended September 30, 2015 
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total  Advances Investments Mortgage Loans CO Bonds Total 
Net interest income                      
Amortization / accretion of hedging activities in net interest income (1)
 $(1,170) $
 $(184) $(1,147) $(2,501)  $(1,124) $
 $(152) $(1,478) $(2,754) 
Net interest settlements included in net interest income (2)
 (32,611) (9,439) 
 15,265
 (26,785)  (32,932) (9,405) 
 18,475
 (23,862) 
Total net interest income (33,781) (9,439) (184) 14,118
 (29,286)  (34,056) (9,405) (152) 16,997
 (26,616) 
                      
Net gains (losses) on derivatives and hedging activities                      
Gains (losses) on fair-value hedges 404
 550
 
 (2,041) (1,087) 
Gains on cash-flow hedges 
 
 
 184
 184
 
(Losses) gains on fair-value hedges (571) 280
 
 (4,399) (4,690) 
Losses on cash-flow hedges 
 
 
 (205) (205) 
(Losses) gains on derivatives not receiving hedge accounting (1) 366
 
 38
 403
  (5) (3,342) 
 34
 (3,313) 
Mortgage delivery commitments 
 
 (642) 
 (642)  
 
 555
 
 555
 
Net gains (losses) on derivatives and hedging activities 403
 916
 (642) (1,819) (1,142) 
Net (losses) gains on derivatives and hedging activities (576) (3,062) 555
 (4,570) (7,653) 
                      
Subtotal (33,378) (8,523) (826) 12,299
 (30,428)  (34,632) (12,467) 403
 12,427
 (34,269) 
                      
Net losses on trading securities 
 (2,393) 
 
 (2,393) 
Net gains on trading securities 
 780
 
 
 780
 
Total net effect of derivatives and hedging activities $(33,378) $(10,916) $(826) $12,299
 $(32,821)  $(34,632) $(11,687) $403
 $12,427
 $(33,489) 
_____________________
(1)Represents the amortization/accretion of hedging fair-value adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive loss.
(2)Represents interest income/expense on derivatives included in net interest income.

 For the Six Months Ended June 30, 2016  For the Nine Months Ended September 30, 2016 
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total  Advances Investments Mortgage Loans CO Bonds Total 
Net interest income                      
Amortization / accretion of hedging activities in net interest income (1)
 $(1,349) $
 $(282) $(4,633) $(6,264)  $(2,028) $
 $(437) $(5,580) $(8,045) 
Net interest settlements included in net interest income (2)
 (56,252) (17,894) 
 15,230
 (58,916)  (78,799) (26,682) 
 21,730
 (83,751) 
Total net interest income (57,601) (17,894) (282) 10,597
 (65,180)  (80,827) (26,682) (437) 16,150
 (91,796) 
                      
Net (losses) gains on derivatives and hedging activities                      
(Losses) gains on fair-value hedges (1,189) 740
 
 (4,802) (5,251)  (1,016) 1,185
 
 (8,698) (8,529) 
Losses on cash-flow hedges 
 
 
 (536) (536)  
 
 
 (558) (558) 
(Losses) gains on derivatives not receiving hedge accounting (106) (4,652) 
 41
 (4,717)  (86) (3,547) 
 102
 (3,531) 
Mortgage delivery commitments 
 
 1,306
 
 1,306
  
 
 1,557
 (59) 1,498
 
Net (losses) gains on derivatives and hedging activities (1,295) (3,912) 1,306
 (5,297) (9,198)  (1,102) (2,362) 1,557
 (9,213) (11,120) 
                      
Subtotal (58,896) (21,806) 1,024
 5,300
 (74,378)  (81,929) (29,044) 1,120
 6,937
 (102,916) 
                      
Net gains on trading securities 
 1,957
 
 
 1,957
 
Net losses on trading securities 
 (892) 
 
 (892) 
Total net effect of derivatives and hedging activities $(58,896) $(19,849) $1,024
 $5,300
 $(72,421)  $(81,929) $(29,936) $1,120
 $6,937
 $(103,808) 
_____________________
(1)Represents the amortization/accretion of hedging fair-value adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive loss.

(2)Represents interest income/expense on derivatives included in net interest income.

 For the Six Months Ended June 30, 2015  For the Nine Months Ended September 30, 2015 
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans��CO Bonds Total  Advances Investments Mortgage Loans CO Bonds Total 
Net interest income                      
Amortization / accretion of hedging activities in net interest income (1)
 $(2,461) $
 $(309) $(1,655) $(4,425)  $(3,585) $
 $(461) $(3,133) $(7,179) 
Net interest settlements included in net interest income (2)
 (64,510) (18,921) 
 30,963
 (52,468)  (97,442) (28,326) 
 49,438
 (76,330) 
Total net interest income (66,971) (18,921) (309) 29,308
 (56,893)  (101,027) (28,326) (461) 46,305
 (83,509) 
                      
Net gains (losses) on derivatives and hedging activities                      
Gains (losses) on fair-value hedges 433
 877
 
 (3,025) (1,715) 
Gains on cash-flow hedges 
 
 
 104
 104
 
Gains (losses) on derivatives not receiving hedge accounting 1
 (2,773) 
 97
 (2,675) 
(Losses) gains on fair-value hedges (138) 1,157
 
 (7,424) (6,405) 
Losses on cash-flow hedges 
 
 
 (101) (101) 
(Losses) gains on derivatives not receiving hedge accounting (4) (6,115) 
 131
 (5,988) 
Mortgage delivery commitments 
 
 (215) 
 (215)  
 
 340
 
 340
 
Net gains (losses) on derivatives and hedging activities 434
 (1,896) (215) (2,824) (4,501) 
Net (losses) gains on derivatives and hedging activities (142) (4,958) 340
 (7,394) (12,154) 
                      
Subtotal (66,537) (20,817) (524) 26,484
 (61,394)  (101,169) (33,284) (121) 38,911
 (95,663) 
                      
Net losses on trading securities 
 (1,112) 
 
 (1,112)  
 (332) 
 
 (332) 
Total net effect of derivatives and hedging activities $(66,537) $(21,929) $(524) $26,484
 $(62,506)  $(101,169) $(33,616) $(121) $38,911
 $(95,995) 
_____________________
(1)Represents the amortization/accretion of hedging fair-value adjustments.
(2)Represents interest income/expense on derivatives included in net interest income.
 
Net interest margin for the three months ended JuneSeptember 30, 2016 and 2015 was 0.37 percent and 0.42 percent, respectively. If derivatives had not been used as hedges to mitigate the impact of interest-rate fluctuations, net interest margin would have been 0.57 percent and 0.62 percent, respectively.

Net interest margin for the six months ended June 30, 2016 and 2015 was 0.380.45 percent and 0.41 percent, respectively. If derivatives had not been used as hedges to mitigate the impact of interest-rate fluctuations, net interest margin would have been 0.62 percent and 0.58 percent, respectively.

Net interest margin for the nine months ended September 30, 2016 and 0.602015 was 0.40 percent and 0.41 percent, respectively. If derivatives had not been used as hedges to mitigate the impact of interest-rate fluctuations, net interest margin would have been 0.59 percent for each period.

Interest paid and received on interest-rate-exchange agreements that are economic hedges is classified as net losses on derivatives and hedging activities in other income. As shown under — Other Income (Loss) below, interest accruals on derivatives classified as economic hedges totaled a net expense of $1.5$1.4 million and $1.7 million, respectively for the three months ended JuneSeptember 30, 2016 and 2015. For the sixnine months ended JuneSeptember 30, 2016 and 2015 interest accruals on derivatives classified as economic hedges totaled a net expense of $3.0$4.5 million and $3.5$5.2 million, respectively.

Other Income (Loss)

The following table presents a summary of other income (loss) for the three and sixnine months ended JuneSeptember 30, 2016 and 2015. Additionally, detail on the components of net gains (losses) on derivatives and hedging activities is provided, indicating the source of these gains and losses by type of hedging relationship and hedge accounting treatment.


Other Income (Loss)
(dollars in thousands)
Other Income (Loss)
(dollars in thousands)
Other Income (Loss)
(dollars in thousands)
         
 For the Three Months Ended June 30, For the Six Months Ended June 30, For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2016 2015 2016 2015 2016 2015 2016 2015
Gains (losses) on derivatives and hedging activities:        
(Losses) gains on derivatives and hedging activities:        
Net losses related to fair-value hedge ineffectiveness $(2,218) $(1,087) $(5,251) $(1,715) $(3,276) $(4,690) $(8,527) $(6,405)
Net (losses) gains related to cash-flow hedge ineffectiveness (190) 184
 (536) 104
Net losses related to cash-flow hedge ineffectiveness (22) (205) (558) (101)
Net unrealized gains (losses) related to derivatives not receiving hedge accounting associated with:                
Advances (86) (1) (107) 1
 21
 (5) (86) (4)
Trading securities 329
 2,130
 (1,592) 771
 2,542
 (1,593) 950
 (822)
CO Bonds 2
 7
 10
 47
 1
 13
 11
 60
Mortgage delivery commitments 690
 (642) 1,306
 (215) 251
 555
 1,557
 340
Net interest-accruals related to derivatives not receiving hedge accounting (1,490) (1,733) (3,028) (3,494) (1,439) (1,728) (4,467) (5,222)
Net losses on derivatives and hedging activities (2,963) (1,142) (9,198) (4,501) (1,922) (7,653) (11,120) (12,154)
Net other-than-temporary impairment credit losses on held-to-maturity securities recognized in income (1,003) (1,429) (2,350) (1,775) (371) (1,053) (2,721) (2,828)
Litigation settlements 19,584
 134,690
 19,584
 134,713
 
 
 19,584
 134,713
Loss on early extinguishment of debt (742) (129) (1,300) (129) (184) (82) (1,484) (211)
Service-fee income 1,934
 2,089
 3,902
 4,008
 1,948
 2,094
 5,850
 6,102
Net unrealized gains (losses) on trading securities 84
 (2,393) 1,957
 (1,112)
Net unrealized (losses) gains on trading securities (2,849) 780
 (892) (332)
Other (100) (333) (138) (452) (65) 123
 (203) (329)
Total other income $16,794
 $131,353
 $12,457
 $130,752
Total other (loss) income $(3,443) $(5,791) $9,014
 $124,961

As evident in the Other Income (Loss) table above, accounting for derivatives and hedged items results in the potential for considerable timing differences between income recognition from assets or liabilities and income effects of hedging instruments entered into to mitigate interest-rate risk and cash-flow activity.

FINANCIAL CONDITION

Advances

At JuneSeptember 30, 2016, the advances portfolio totaled $38.237.2 billion, an increase of $2.21.1 billion compared with $36.1 billion at December 31, 2015. The increase was concentrated primarily in short-term fixed-ratevariable-rate advances and variable-ratefixed-rate putable advances.

The following table summarizes advances outstanding by product type at JuneSeptember 30, 2016, and December 31, 2015.

 
Advances Outstanding by Product Type
(dollars in thousands)

Advances Outstanding by Product Type
(dollars in thousands)

Advances Outstanding by Product Type
(dollars in thousands)

June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Par Value Percent of Total Par Value Percent of TotalPar Value Percent of Total Par Value Percent of Total
Fixed-rate advances 
  
  
  
 
  
  
  
Long-term$13,271,535
 34.9% $13,392,525
 37.2%$13,227,695
 35.7% $13,392,525
 37.2%
Short-term12,344,504
 32.5
 11,777,324
 32.8
11,361,787
 30.7
 11,777,324
 32.8
Putable2,489,800
 6.5
 2,022,200
 5.6
2,817,800
 7.6
 2,022,200
 5.6
Amortizing854,792
 2.3
 887,558
 2.5
Overnight1,319,941
 3.5
 1,080,755
 3.0
697,290
 1.9
 1,080,755
 3.0
Amortizing880,190
 2.3
 887,558
 2.5
All other fixed-rate advances58,000
 0.1
 97,000
 0.3
48,000
 0.1
 97,000
 0.3
30,363,970
 79.8
 29,257,362
 81.4
29,007,364
 78.3
 29,257,362
 81.4
              
Variable-rate advances 
  
  
  
 
  
  
  
Simple variable (1)
6,940,599
 18.3
 6,504,375
 18.1
7,300,495
 19.7
 6,504,375
 18.1
Putable652,000
 1.7
 157,500
 0.4
682,000
 1.8
 157,500
 0.4
All other variable-rate indexed advances80,445
 0.2
 48,546
 0.1
73,416
 0.2
 48,546
 0.1
7,673,044
 20.2
 6,710,421
 18.6
8,055,911
 21.7
 6,710,421
 18.6
Total par value$38,037,014
 100.0% $35,967,783
 100.0%$37,063,275
 100.0% $35,967,783
 100.0%
_____________________
(1)Includes floating-rate advances that may be contractually prepaid by the borrower on a floating-rate reset date without incurring prepayment or termination fees.
 
See Item 1 — Notes to the Financial Statements — Note 7 — Advances for disclosures relating to redemption terms of the advances portfolio.

At JuneSeptember 30, 2016, we had advances outstanding to 315,314, or 70.670.2 percent of our 446447 members. At December 31, 2015, we had advances outstanding to 321, or 72.0 percent of our 446 members.

Advances Credit Risk

We endeavor to minimize credit risk on advances by monitoring the financial condition of our borrowers and by holding sufficient collateral to protect the Bank from credit losses. All pledged collateral is subject to haircuts assigned based on our opinion of the risk that such collateral presents. We are prohibited by Section 10(a) of the FHLBank Act from making advances without sufficient collateral to secure the advance. We have never experienced a credit loss on an advance.

We assign each non-insurance company borrower to one of the following three credit status categories based primarily on our assessment of the borrower's overall financial condition and other factors:

Category-1: members that are generally in satisfactory financial condition;
Category-2: members that show weakening financial trends in key financial indices and/or regulatory findings; and
Category-3: members with financial weaknesses that present an elevated level of concern. We also place housing associates and non-member borrowers in Category-3.

We monitor the financial condition of our insurance company members quarterly. We lend to them based on our assessment of their financial condition and their pledge of sufficient amounts of eligible collateral.

The following table provides information regarding advances outstanding with our borrowers in Category-1, Category-2, Category-3, and insurance company members, at JuneSeptember 30, 2016, along with their corresponding collateral balances.


Advances Outstanding by Borrower Credit Status Category
As of June 30, 2016
(dollars in thousands)
Advances Outstanding by Borrower Credit Status Category
As of September 30, 2016
(dollars in thousands)
Advances Outstanding by Borrower Credit Status Category
As of September 30, 2016
(dollars in thousands)
              
Number of Borrowers Par Value of Advances Outstanding Discounted Collateral Ratio of Discounted Collateral to AdvancesNumber of Borrowers Par Value of Advances Outstanding Discounted Collateral Ratio of Discounted Collateral to Advances
Category-1269
 $34,459,865
 $75,885,966
 220.2%267
 $33,720,338
 $77,490,775
 229.8%
Category-218
 422,101
��877,317
 207.8
17
 438,302
 864,658
 197.3
Category-313
 414,744
 651,832
 157.2
16
 406,466
 649,059
 159.7
Insurance companies20
 2,740,304
 3,110,555
 113.5
20
 2,498,169
 2,932,688
 117.4
Total320
 $38,037,014
 $80,525,670
 211.7%320
 $37,063,275
 $81,937,180
 221.1%

The method by which a borrower pledges collateral is dependent upon the category to which it is assigned and on the type of collateral that the borrower pledges. Moreover, borrowers in Category-1 are permitted to specifically list and identify single-family residential mortgage loans at a lower discount than is allowed if the collateral is not specifically listed and identified. Based upon the method by which borrowers pledge collateral to us, the following table shows the total potential lending value of the collateral that borrowers have pledged to us, net of our collateral valuation discounts as of JuneSeptember 30, 2016.

Collateral by Pledge Type
(dollars in thousands)
Collateral by Pledge Type
(dollars in thousands)
Collateral by Pledge Type
(dollars in thousands)
Discounted CollateralDiscounted Collateral
Collateral not specifically listed and identified$32,272,711
$32,634,434
Collateral specifically listed and identified43,462,487
44,927,888
Collateral delivered to us11,605,868
11,386,363

We accept nontraditional and subprime loans that are underwritten in accordance with applicable regulatory guidance as eligible collateral for our advances as discussed under Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Advances Credit Risk in the 2015 Annual Report. At both JuneSeptember 30, 2016 and December 31, 2015, the amount of pledged nontraditional and subprime loan collateral was nine percent of total member discounted collateral.

We have not recorded any allowance for credit losses on credit products at JuneSeptember 30, 2016, and December 31, 2015, for the reasons discussed in Item 1 Notes to the Financial Statements Note 9 Allowance for Credit Losses.

The following table presents the top five advance-borrowing institutions at JuneSeptember 30, 2016, and the interest earned on outstanding advances to such institutions for the three and sixnine months ended JuneSeptember 30, 2016.

Top Five Advance-Borrowing Institutions
(dollars in thousands)
Top Five Advance-Borrowing Institutions
(dollars in thousands)
Top Five Advance-Borrowing Institutions
(dollars in thousands)
 June 30, 2016   September 30, 2016  
Name Par Value of Advances Percent of Total Par Value of Advances 
Weighted-Average Rate (1)
 
Advances Interest Income for the
Three Months Ended June 30, 2016
Advances Interest Income for the
Six Months Ended June 30, 2016
 Par Value of Advances Percent of Total Par Value of Advances 
Weighted-Average Rate (1)
 
Advances Interest Income for the
Three Months Ended September 30, 2016
Advances Interest Income for the
Nine Months Ended September 30, 2016
Citizens Bank, N.A. $6,260,717
 16.5% 0.54% $8,082
$16,286
 $6,560,582
 17.7% 0.54% $7,837
$24,123
People's United Bank, N.A. 3,305,125
 8.7
 0.49
 3,583
6,854
 3,005,075
 8.1
 0.51
 4,020
10,874
Webster Bank, N.A. 2,463,039
 6.5
 0.82
 5,102
10,175
 2,587,969
 7.0
 0.81
 4,883
15,058
Massachusetts Mutual Life Insurance Co. 1,100,000
 3.0
 2.22
 6,228
18,549
Berkshire Bank 1,230,623
 3.2
 0.64
 1,880
3,710
 1,033,520
 2.8
 0.66
 1,924
5,634
Massachusetts Mutual Life Insurance Co. 1,100,000
 2.9
 2.22
 6,161
12,321
Total of top five advance-borrowing institutions $14,359,504
 37.8%   $24,808
$49,346
 $14,287,146
 38.6%   $24,892
$74,238

_______________________
(1)Weighted-average rates are based on the contract rate of each advance without taking into consideration the effects of interest-rate-exchange agreements that we may use as hedging instruments.

Investments

At JuneSeptember 30, 2016, investment securities and short-term money market instruments totaled $19.719.3 billion, compared with $18.0 billion at December 31, 2015.

Short-term money-market investments increased by $819.1$429.1 million to $9.69.2 billion at JuneSeptember 30, 2016, compared with $8.8 billion at December 31, 2015. The increase was attributable to an increase in federal funds sold of $1.7$3.4 billion offset, in part, by a decrease in securities purchased under agreements to resell of $901.0 million.$3.0 billion.

Investment securities increased by $838.2816.3 million to $10.0 billion at JuneSeptember 30, 2016, compared with $9.2 billion at December 31, 2015. The increase was attributable to the purchase of $399.2 million of U.S. Treasury obligations in the third quarter of 2016 and a $777.1$360.1 million increase in MBS and a $64.6 million increase in agency and supranational institutions' debentures.MBS.

Our MBS investment portfolio consists of the following categories of securities as of JuneSeptember 30, 2016, and December 31, 2015. The percentages in the table below are based on carrying value.

Mortgage-Backed Securities
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Single-family MBS - U.S. government-guaranteed and GSE68.4% 71.5%67.9% 71.5%
Multifamily MBS - U.S. government-guaranteed and GSE21.6
 16.7
22.1
 16.7
Private-label residential MBS9.8
 11.6
9.8
 11.6
ABS backed by home-equity loans0.2
 0.2
0.2
 0.2
Total MBS100.0% 100.0%100.0% 100.0%

See Item 1 — Notes to the Financial Statements — Note 3 — Trading Securities, Note 4 — Available-for-Sale Securities, Note
5 — Held-to-Maturity Securities, and Note 6 — Other-Than-Temporary Impairment for additional information on our
investment securities

Investments Credit Risk

We are subject to credit risk on unsecured investments consisting primarily of short-term (meaning under one year to maturity) money market instruments issued by high-quality financial institutions and long-term (original maturity in excess of one year) debentures issued or guaranteed by U.S. agencies, U.S government-owned corporations, GSEs, and supranational institutions. We place short-term funds with large, high-quality financial institutions with long-term credit ratings no lower than single-A (or equivalent) on an unsecured basis. Most of these placements expire within one business day.

In addition to these unsecured short-term investments, we also make secured investments in the form of securities purchased under agreements to resell secured by U.S. Treasury and agency obligations, whose terms to maturity are up to 35 days. We have also invested in and are subject to secured credit risk related to MBS, ABS, and HFA securities that are directly or indirectly supported by underlying mortgage loans.

We actively monitor our investments' credit exposures and the credit quality of our counterparties, including assessments of each counterparty's financial performance, capital adequacy, and sovereign support as well as related market signals. We endeavor to reduce or suspend credit limits and/or seek to reduce existing exposures, as appropriate, as a result of these monitoring activities.

Credit ratings of our investments are provided in the following table.


Credit Ratings of Investments at Carrying Value
As of June 30, 2016
(dollars in thousands)
Credit Ratings of Investments at Carrying Value
As of September 30, 2016
(dollars in thousands)
Credit Ratings of Investments at Carrying Value
As of September 30, 2016
(dollars in thousands)
 
Long-Term Credit Rating (1)
 
Long-Term Credit Rating (1)
Investment Category Triple-A Double-A Single-A Triple-B 
Below
Triple-B
 Unrated Triple-A Double-A Single-A Triple-B 
Below
Triple-B
 Unrated
Money market instruments: (2)
  
  
  
  
  
    
  
  
  
  
  
Interest-bearing deposits $
 $298
 $
 $
 $
 $
 $
 $249
 $
 $
 $
 $
Securities purchased under agreements to resell 
 2,600,000
 1,200,000
 1,999,000
 
 
 
 750,000
 1,000,000
 1,999,000
 
 
Federal funds sold 
 1,200,000
 2,640,000
 
 
 
 
 1,450,000
 4,050,000
 
 
 
Total money market instruments 
 3,800,298
 3,840,000
 1,999,000
 
 
 
 2,200,249
 5,050,000
 1,999,000
 
 
                        
Investment securities:                        
                        
Non-MBS:  
  
  
  
  
    
  
  
  
  
  
U.S. agency obligations 
 2,825
 
 
 
 
 
 2,545
 
 
 
 
U.S Treasury obligations 
 399,129
 
 
 
 
U.S. government-owned corporations 
 298,606
 
 
 
 
 
 301,338
 
 
 
 
GSEs 
 128,738
 
 
 
 
 
 128,960
 
 
 
 
Supranational institutions 459,886
 
 
 
 
 
 455,191
 
 
 
 
 
HFA securities 20,165
 39,240
 108,818
 
 
 
 20,165
 39,105
 106,899
 
 
 
Total non-MBS 480,051
 469,409
 108,818
 
 
 
 475,356
 871,077
 106,899
 
 
 
                        
MBS:                        
U.S. government guaranteed - single-family (2)
 
 164,321
 
 
 
 
 
 154,352
 
 
 
 
U.S. government guaranteed - multifamily(2)
 
 694,907
 
 
 
 
 
 654,511
 
 
 
 
GSE – single-family (2)
 
 5,980,718
 
 
 
 
 
 5,659,358
 
 
 
 
GSE – multifamily (2)
 
 1,248,763
 
 
 
 
 
 1,240,386
 
 
 
 
Private-label – residential 
 1,767
 19,477
 79,300
 775,790
 5
 
 2,443
 12,630
 79,243
 738,679
 6,896
ABS backed by home-equity loans 580
 1,136
 6,389
 1,789
 3,969
 
 594
 1,136
 6,013
 1,707
 3,955
 
Total MBS 580
 8,091,612
 25,866
 81,089
 779,759
 5
 594
 7,712,186
 18,643
 80,950
 742,634
 6,896

 

 

         

 

        
Total investment securities 480,631
 8,561,021
 134,684
 81,089
 779,759
 5
 475,950
 8,583,263
 125,542
 80,950
 742,634
 6,896
                        
Total investments $480,631
 $12,361,319
 $3,974,684
 $2,080,089
 $779,759
 $5
 $475,950
 $10,783,512
 $5,175,542
 $2,079,950
 $742,634
 $6,896
_______________________
(1)
Ratings are obtained from Moody's, Fitch, Inc. (Fitch), and S&P and are each as of JuneSeptember 30, 2016. If there is a split rating, the lowest rating is used.
(2)The issuer rating is used for these investments, and if a rating is on negative credit watch, the rating in the next lower rating category is used and then the lowest rating is determined.

At JuneSeptember 30, 2016, our unsecured credit exposure related to money market instruments and debentures, including accrued interest, was $4.76.8 billion to 1318 counterparties and issuers, of which $3.85.5 billion was for federal funds sold, and $903.8 million1.3 billion was for Treasury bills, debentures issued by GSEs, and supranational institutions. The followingAs of September 30, 2016 no issuers/counterparties individually accounted for greater than 10 percent of total unsecured credit exposure as of June 30, 2016:exposure.


Issuers / Counterparties Representing Greater Than
10 Percent of Total Unsecured Credit Related to Money-Market Instruments and to Debentures
As of June 30, 2016
Issuer / counterpartyPercent
National Australia Bank LTD(1)
14.8%
Bank of Nova Scotia(1)
12.0
Bank of Tokyo-Mitsubishi UFJ, LTD(1)
12.0
Nordea Bank Finland PLC(1)
10.5
Cooperatieve Rabobank U.A.(1)
10.5
Landesbank Baden-Wuerttemberg(1)
10.5
_______________________
(1)Consists of overnight federal funds sold. We sold federal funds to either the U.S. branch or agency of the named commercial bank.

Private-Label MBS


Of our $9.48.9 billion in par value of MBS and ABS investments at JuneSeptember 30, 2016, $1.4 billion in par value are private-label MBS and ABS backed by home equity loans, as set forth in the table below:

Unpaid Principal Balance of Private-Label MBS and ABS Backed by Home Equity Loans
by Fixed Rate or Variable Rate
(dollars in thousands)
Unpaid Principal Balance of Private-Label MBS and ABS Backed by Home Equity Loans
by Fixed Rate or Variable Rate
(dollars in thousands)
Unpaid Principal Balance of Private-Label MBS and ABS Backed by Home Equity Loans
by Fixed Rate or Variable Rate
(dollars in thousands)
                      
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Private-label MBS
Fixed
Rate (1)
 
Variable
Rate (1)
 Total 
Fixed
Rate (1)
 
Variable
Rate (1)
 Total
Fixed
Rate (1)
 
Variable
Rate (1)
 Total 
Fixed
Rate (1)
 
Variable
Rate (1)
 Total
Private-label residential MBS 
  
  
  
  
  
 
  
  
  
  
  
Prime$10,023
 $114,791
 $124,814
 $10,680
 $126,518
 $137,198
$9,621
 $108,807
 $118,428
 $10,680
 $126,518
 $137,198
Alt-A20,933
 1,256,199
 1,277,132
 23,178
 1,361,942
 1,385,120
19,831
 1,205,852
 1,225,683
 23,178
 1,361,942
 1,385,120
Total private-label residential MBS30,956
 1,370,990
 1,401,946
 33,858
 1,488,460
 1,522,318
29,452
 1,314,659
 1,344,111
 33,858
 1,488,460
 1,522,318
ABS backed by home equity loans 
  
  
  
  
  
 
  
  
  
  
  
Subprime
 14,855
 14,855
 
 15,999
 15,999

 14,346
 14,346
 
 15,999
 15,999
Total par value of private-label MBS$30,956
 $1,385,845
 $1,416,801
 $33,858
 $1,504,459
 $1,538,317
$29,452
 $1,329,005
 $1,358,457
 $33,858
 $1,504,459
 $1,538,317
_______________________
 (1)The determination of fixed or variable rate is based upon the contractual coupon type of the security.

The following table provides additional information related to our investments in MBS issued by private trusts and ABS backed by home equity loans. The table sets forth the credit ratings and summary credit enhancements associated with our private-label MBS and ABS, stratified by year of securitization. Average current credit enhancements as of JuneSeptember 30, 2016, reflect the percentage of subordinated class outstanding balances as of JuneSeptember 30, 2016, to our senior class outstanding balances as of JuneSeptember 30, 2016, weighted by the par value of our respective senior class securities. Average current credit enhancements as of JuneSeptember 30, 2016, are indicative of the ability of subordinated classes to absorb loan collateral lost principal and interest shortfall before senior classes are impacted.


Private-Label MBS and ABS Backed by Home Equity
As of June 30, 2016
(dollars in thousands)
Private-Label MBS and ABS Backed by Home Equity
As of September 30, 2016
(dollars in thousands)
Private-Label MBS and ABS Backed by Home Equity
As of September 30, 2016
(dollars in thousands)
  
TotalTotal
Par value by credit rating 
 
Triple-A$598
$598
Double-A2,903
3,579
Single-A25,867
18,643
Triple-B81,258
81,075
Below Investment Grade  
Double-B52,769
43,272
Single-B49,136
54,861
Triple-C591,571
562,246
Double-C268,768
252,614
Single-C24,329
23,518
Single-D319,597
311,138
Unrated5
6,913
Total$1,416,801
$1,358,457
  
Amortized cost$1,100,371
$1,055,075
Gross unrealized gains47,840
63,077
Gross unrealized losses(56,224)(42,340)
Fair value$1,091,987
$1,075,812
  
Weighted average percentage of fair value to par value77.07%79.19%
Original weighted average credit support26.80
26.91
Weighted average credit support9.04
8.84
Weighted average collateral delinquency (1)
22.04
21.69
_______________________
 (1)Represents loans that are 60 days or more delinquent.

Mortgage Loans

We invest in mortgages through the MPF program. The MPF program is described under — Mortgage Loans Credit Risk and
in Item 1 — Business — Business Lines — Mortgage Loan Finance in the 2015 Annual Report. As of JuneSeptember 30, 2016, our mortgage loan investment portfolio totaled $3.63.7 billion, an increase of $46.7132.5 million from December 31, 2015.

Mortgage Loans Credit Risk

We are subject to credit risk from the mortgage loans in which we invest due to our exposure to the credit risk of the underlying borrowers and the credit risk of the participating financial institutions when the participating financial institutions retain credit-enhancement and/or servicing obligations. For additional information on the credit risks arising from our participation in the MPF program, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Mortgage Loans — Mortgage Loans Credit Risk in the 2015 Annual Report.

Although our mortgage loan portfolio includes loans throughout the U.S., concentrations of five percent or greater of the outstanding principal balance of our conventional mortgage loan portfolio are shown in the following table:


State Concentrations by Outstanding Principal Balance
Percentage of Total Outstanding Principal Balance of Conventional Mortgage LoansPercentage of Total Outstanding Principal Balance of Conventional Mortgage Loans
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
 
  
 
  
Massachusetts48% 46%49% 46%
Maine13
 12
13
 12
Wisconsin10
 11
9
 11
Connecticut7
 7
7
 7
New Hampshire5
 5
5
 5
All others17
 19
17
 19
Total100% 100%100% 100%

Allowance for Credit Losses on Mortgage Loans. The allowance for credit losses on mortgage loans was $900,000800,000 and $1.0 million at JuneSeptember 30, 2016, and December 31, 2015, respectively.

For information on the determination of the allowance at JuneSeptember 30, 2016, see Item 1 — Notes to the Financial Statements — Note 9 — Allowance for Credit Losses, and for information on our methodology for estimating the allowance, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Allowance for Loan Losses in the 2015 Annual Report.

We place conventional mortgage loans on nonaccrual status when the contractual principal or interest is 90 days or more past due. Accrued interest on nonaccrual loans is reversed against interest income. We monitor the delinquency levels of the mortgage loan portfolio on a monthly basis. Our investments in conventional mortgage loans that are delinquent are shown in the following table:

Delinquent Mortgage Loans
(dollars in thousands)
Delinquent Mortgage Loans
(dollars in thousands)
Delinquent Mortgage Loans
(dollars in thousands)
June 30, 2016 December 31, 2015September 30, 2016 December 31, 2015
Total par value of government loans past due 90 days or more and still accruing interest$4,670
 $5,403
$5,489
 $5,403
Nonaccrual loans, par value20,431
 22,361
17,494
 22,361
Troubled debt restructurings (not included above)6,338
 7,130
7,029
 7,130

Mortgage Insurance Companies. We are exposed to credit risk from mortgage insurance companies that provide credit enhancement in place of the participating financial institution and for primary mortgage insurance coverage on individual loans. As of JuneSeptember 30, 2016, we were the beneficiary of primary mortgage insurance coverage of $69.6$76.5 million on $277.8$305.6 million of conventional mortgage loans, and supplemental mortgage insurance coverage of $18.1 million on mortgage pools with a total unpaid principal balance of $208.9$192.8 million.

Consolidated Obligations

See — Liquidity and Capital Resources for information regarding our COs.

Derivative Instruments
 
All derivatives are recorded on the statement of condition at fair value and classified as either derivative assets or derivative liabilities. Bilateral and cleared derivatives outstanding are classified as assets or liabilities according to the net fair value of derivatives aggregated by each counterparty. Derivative assets' net fair value, net of cash collateral and accrued interest, totaled $61.462.9 million and $40.1 million as of JuneSeptember 30, 2016, and December 31, 2015, respectively. Derivative liabilities' net fair value, net of cash collateral and accrued interest, totaled $502.9463.8 million and $442.0 million as of JuneSeptember 30, 2016, and December 31, 2015, respectively.

The following table presents a summary of the notional amounts and estimated fair values of our outstanding derivatives, excluding accrued interest, and related hedged item by product and type of accounting treatment as of JuneSeptember 30, 2016, and

December 31, 2015. The notional amount represents the hypothetical principal basis used to determine periodic interest

payments received and paid. However, the notional amount does not represent an actual amount exchanged or our overall exposure to credit and market risk. The hedge designation “fair value” represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge changes in fair value attributable to changes in the designated benchmark interest rate, which is LIBOR. The hedge designation "cash flow" represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge the exposure to variability in expected future cash flows. The hedge designation “economic” represents a derivative hedging specific or nonspecific assets, liabilities, or firm commitments that does not qualify or was not designated for fair-value or cash-flow hedge accounting, but are acceptable hedging strategies under our risk-management policy.

Hedged Item and Hedge-Accounting Treatment
(dollars in thousands)
Hedged Item and Hedge-Accounting Treatment
(dollars in thousands)
Hedged Item and Hedge-Accounting Treatment
(dollars in thousands)
 June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Hedged Item Derivative Designation 
Notional
Amount
 
Fair
 Value
 
Notional
Amount
 
Fair
Value
 Derivative Designation 
Notional
Amount
 
Fair
 Value
 
Notional
Amount
 
Fair
Value
Advances (1)
 Swaps Fair value $9,597,569
 $(196,738) $8,195,652
 $(102,381) Swaps Fair value $10,038,795
 $(125,669) $8,195,652
 $(102,381)
 Swaps Economic 793,000
 (9,179) 342,000
 (1,246) Swaps Economic 857,000
 (5,720) 342,000
 (1,246)
Total associated with advances 10,390,569
 (205,917) 8,537,652
 (103,627) 10,895,795
 (131,389) 8,537,652
 (103,627)
Available-for-sale securities Swaps Fair value 611,915
 (391,607) 611,915
 (314,571) Swaps Fair value 611,915
 (381,729) 611,915
 (314,571)
 Caps Economic 
 
 300,000
 
 Caps Economic 
 
 300,000
 
Total associated with available-for-sale securities 611,915
 (391,607) 911,915
 (314,571) 611,915
 (381,729) 911,915
 (314,571)
Trading securities Swaps Economic 198,000
 (15,714) 202,000
 (14,438) Swaps Economic 195,000
 (12,969) 202,000
 (14,438)
COs Swaps Fair value 7,633,945
 15,153
 6,387,445
 2,201
 Swaps Fair value 8,179,645
 (1,501) 6,387,445
 2,201
 Swaps Economic 18,500
 (1) 18,500
 (11) Firm commitments Fair value 100,000
 (59) 
 
 Forward starting swaps Cash Flow 527,800
 (62,854) 527,800
 (35,547) Swaps Economic 100,000
 60
 18,500
 (11)
 Forward starting swaps Cash Flow 527,800
 (61,793) 527,800
 (35,547)
Total associated with COs 8,180,245
 (47,702) 6,933,745
 (33,357) 8,907,445
 (63,293) 6,933,745
 (33,357)
Total     19,380,729
 (660,940) 16,585,312
 (465,993)     20,610,155
 (589,380) 16,585,312
 (465,993)
Mortgage delivery commitments     46,100
 309
 24,714
 (7)     60,355
 37
 24,714
 (7)
Total derivatives     $19,426,829
 (660,631) $16,610,026
 (466,000)     $20,670,510
 (589,343) $16,610,026
 (466,000)
Accrued interest      
 (24,232)  
 (28,039)      
 (15,454)  
 (28,039)
Cash collateral and accrued interest   243,401
   92,149
   203,986
   92,149
Net derivatives      
 $(441,462)  
 $(401,890)      
 $(400,811)  
 $(401,890)
Derivative asset      
 $61,402
  
 $40,117
      
 $62,947
  
 $40,117
Derivative liability      
 (502,864)  
 (442,007)      
 (463,758)  
 (442,007)
Net derivatives      
 $(441,462)  
 $(401,890)      
 $(400,811)  
 $(401,890)
 _______________________
(1)
As of JuneSeptember 30, 2016, and December 31, 2015, embedded derivatives separated from the advance contract with notional amounts of $793.0$857.0 million and $342.0 million, respectively, and fair values of $9.15.6 million and $1.2 million, respectively, are not included in the table.

The following tables provide a summary of our hedging relationships for fair-value hedges of advances and COs that qualify for hedge accounting by year of contractual maturity. Interest accruals on interest-rate-exchange agreements in qualifying hedge relationships are recorded as interest income on advances and interest expense on COs in the statement of operations. The notional amount of derivatives in qualifying fair-value hedge relationships of advances and COs totals $17.218.2 billion, representing 88.788.1 percent of all derivatives outstanding as of JuneSeptember 30, 2016. Economic hedges and cash-flow hedges are not included within the two tables below.


Fair-Value Hedge Relationships of Advances
By Year of Contractual Maturity
As of June 30, 2016
(dollars in thousands)
Fair-Value Hedge Relationships of Advances
By Year of Contractual Maturity
As of September 30, 2016
(dollars in thousands)
Fair-Value Hedge Relationships of Advances
By Year of Contractual Maturity
As of September 30, 2016
(dollars in thousands)
        
Weighted-Average Yield (3)
        
Weighted-Average Yield (3)
Derivatives 
Advances(1)
   Derivatives  Derivatives 
Advances(1)
   Derivatives  
MaturityNotional Fair Value 
Hedged
Amount
 
Fair-Value
Adjustment(2)
 Advances 
Receive
Floating
Rate
 
Pay
Fixed
Rate
 
Net Receive
Result
Notional Fair Value 
Hedged
Amount
 
Fair-Value
Adjustment(2)
 Advances 
Receive
Floating
Rate
 
Pay
Fixed
Rate
 
Net Receive
Result
Due in one year or less$2,500,355
 $(18,939) $2,500,355
 $18,732
 1.95% 0.65% 1.76% 0.84%$2,823,055
 $(21,558) $2,823,055
 $21,286
 2.28% 0.80% 2.11% 0.97%
Due after one year through two years2,029,185
 (44,136) 2,029,185
 43,889
 2.49
 0.64
 2.33
 0.80
1,960,085
 (26,761) 1,960,085
 26,634
 2.12
 0.77
 1.93
 0.96
Due after two years through three years1,459,875
 (26,676) 1,459,875
 26,321
 1.90
 0.64
 1.58
 0.96
1,228,562
 (6,621) 1,228,562
 6,302
 1.60
 0.79
 1.26
 1.13
Due after three years through four years1,032,676
 (26,688) 1,032,676
 26,340
 1.89
 0.64
 1.61
 0.92
1,188,940
 (19,878) 1,188,940
 19,415
 1.82
 0.77
 1.56
 1.03
Due after four years through five years1,161,688
 (29,298) 1,161,688
 28,446
 1.81
 0.64
 1.44
 1.01
906,613
 (14,819) 906,613
 14,321
 1.85
 0.77
 1.42
 1.20
Thereafter1,413,790
 (51,001) 1,413,790
 49,557
 1.65
 0.64
 1.22
 1.07
1,931,540
 (36,032) 1,931,540
 34,469
 1.27
 0.82
 0.88
 1.21
Total$9,597,569
 $(196,738) $9,597,569
 $193,285
 1.99% 0.64% 1.72% 0.91%$10,038,795
 $(125,669) $10,038,795
 $122,427
 1.88% 0.79% 1.61% 1.06%
_______________________
(1)Included in the advances hedged amount are $2.5$2.8 billion of putable advances, which would accelerate the termination date of the derivative and the hedged item if the put option is exercised.
(2)The fair-value adjustment of hedged advances represents the amounts recorded for changes in the fair value attributable to changes in the designated benchmark interest rate, LIBOR.
(3)
The yield for floating-rate instruments and the floating-rate leg of interest-rate swaps is the coupon rate in effect as of JuneSeptember 30, 2016.

Fair-Value Hedge Relationships of Consolidated Obligations
By Year of Contractual Maturity
As of June 30, 2016
(dollars in thousands)
Fair-Value Hedge Relationships of Consolidated Obligations
By Year of Contractual Maturity
As of September 30, 2016
(dollars in thousands)
Fair-Value Hedge Relationships of Consolidated Obligations
By Year of Contractual Maturity
As of September 30, 2016
(dollars in thousands)
        
Weighted-Average Yield (3)
        
Weighted-Average Yield (3)
Derivatives 
CO Bonds (1)
   Derivatives  Derivatives 
CO Bonds (1)
   Derivatives  
Year of MaturityNotional Fair Value Hedged Amount 
Fair-Value
Adjustment(2)
 CO Bonds 
Receive
Fixed Rate
 
Pay
Floating
 Rate
 
Net Pay
Result
Notional Fair Value Hedged Amount 
Fair-Value
Adjustment(2)
 CO Bonds 
Receive
Fixed Rate
 
Pay
Floating
 Rate
 
Net Pay
Result
Due in one year or less$3,927,315
 $1,925
 $3,927,315
 $(1,714) 0.60% 0.63% 0.54% 0.51%$2,882,210
 $190
 $2,882,210
 $111
 0.73% 0.76% 0.77% 0.74%
Due after one year through two years2,394,495
 11,100
 2,394,495
 (11,247) 1.16
 1.19
 0.59
 0.56
2,394,335
 2,553
 2,394,335
 (2,974) 1.11
 1.08
 0.77
 0.80
Due after two years through three years419,135
 865
 419,135
 (956) 1.21
 1.21
 0.55
 0.55
1,221,310
 (722) 1,221,310
 445
 1.04
 1.04
 0.79
 0.79
Due after three years through four years130,000
 287
 130,000
 (320) 1.37
 1.37
 0.56
 0.56
224,790
 26
 224,790
 (129) 1.38
 1.38
 0.81
 0.81
Due after four years through five years613,000
 1,144
 613,000
 (1,266) 1.35
 1.35
 0.53
 0.53
727,000
 (794) 727,000
 691
 1.17
 1.17
 0.82
 0.82
Thereafter150,000
 (168) 150,000
 200
 1.45
 1.45
 0.53
 0.53
730,000
 (2,754) 730,000
 2,653
 1.58
 1.58
 0.83
 0.83
Total$7,633,945
 $15,153
 $7,633,945
 $(15,303) 0.90% 0.93% 0.56% 0.53%$8,179,645
 $(1,501) $8,179,645
 $797
 1.02% 1.02% 0.78% 0.78%
_______________________
(1)Included in the CO bonds hedged amount are $2.8$3.6 billion of callable CO bonds, which would accelerate the termination date of the derivative and the hedged item if the call option is exercised.
(2) 
The fair-value adjustment of hedged CO bonds represents the amounts recorded for changes in the fair value attributable to changes in the designated benchmark interest rate, LIBOR, plus remaining unamortized premiums or discounts on hedged CO bonds where applicable.
(3)
The yield for floating-rate instruments and the floating-rate leg of interest-rate swaps is the coupon rate in effect as of JuneSeptember 30, 2016.

We may engage in derivatives directly with affiliates of certain of our members that act as derivatives dealers to us. These derivatives are entered into for our own risk-management purposes and are not related to requests from our members to enter into such contracts.

Derivative Instruments Credit Risk. We are subject to credit risk on derivatives. This risk arises from the risk of counterparty default on the derivative.derivative contract. The amount of loss createdunsecured credit exposure to derivative counterparty default is the amount by default iswhich the replacement cost of the defaulted derivative contract netexceeds the value of any collateral held by us (if the counterparty is the net obligor on the derivative contract) or is exceeded by the value of collateral pledged by us to

counterparties (unsecured derivatives exposure)(if we are the net obligor on the derivative contract). We accept cash or securities collateral in accordance with the terms of the applicable master netting agreement for uncleared derivatives (principal-to-principal

derivatives that are not centrally cleared) from counterparties with whom we are in a current positive fair-value position (i.e., we are in the money) by an amount that exceeds an exposure threshold (if any) defined in our master netting agreement with the counterparty. The resulting net exposure at fair value is reflected in the derivatives table below. We pledge cash and securities collateral in accordance with the terms of the applicable master netting agreement for uncleared derivatives to counterparties with whom we are in a current negative fair-value position (i.e., we are out-of-the-money) by an amount that exceeds an exposure threshold (if any) defined in our master netting agreement with the counterparty. From time to time, due to timing differences or derivatives valuation differences between our calculated derivatives values and those of our counterparties, and to the contractual haircuts applied to securities, we receive from counterparties cash or securities collateral whose fair value is less than the current positive fair-value positions with them adjusted for any applicable exposure threshold. We pledge only cash collateral, including initial and variation margin, for cleared derivatives, but may also pledge securities for initial margin as allowed by the applicable DCO and clearing member. The table below details our counterparty credit exposure as of JuneSeptember 30, 2016.

Derivatives Counterparty Current Credit Exposure
As of June 30, 2016
(dollars in thousands)

Derivatives Counterparty Current Credit Exposure
As of September 30, 2016
(dollars in thousands)

Derivatives Counterparty Current Credit Exposure
As of September 30, 2016
(dollars in thousands)

Credit Rating (1)
 Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged To /(From) Counterparty Non-cash Collateral Pledged To Counterparty Net Credit Exposure to Counterparties Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged To Counterparty Non-cash Collateral Pledged To Counterparty Net Credit Exposure to Counterparties
Liability positions with credit exposure:                    
Uncleared derivatives                    
Single-A $395,750
 $(11,450) $
 $11,996
 $546
 $1,741,355
 $(13,179) $1,881
 $12,134
 $836
Triple-B 3,012,915
 (443,223) 
 448,756
 5,533
 837,750
 (14,879) 
 15,595
 716
Cleared derivatives 10,999,519
 (152,763) 213,856
 
 61,093
 10,563,695
 (117,973) 180,588
 
 62,615
Total derivative positions with nonmember counterparties to which we had credit exposure 14,408,184
 (607,436) 213,856
 460,752
 67,172
 13,142,800
 (146,031) 182,469
 27,729
 64,167
                    
Mortgage delivery commitments (2)
 46,100
 309
 
 
 309
 60,355
 77
 
 
 77
Total $14,454,284
 $(607,127) $213,856
 $460,752
 $67,481
 $13,203,155
 $(145,954) $182,469
 $27,729
 $64,244
                    
Derivative positions without credit exposure: (3)
                    
CO bond firm commitments $100,000
        
Double-A $735,000
         1,244,500
        
Single-A 3,883,155
         3,493,300
        
Triple-B 354,390
         2,629,555
        
Total derivative positions without credit exposure $4,972,545
 
       $7,467,355
 
      
_______________________
(1)Uncleared derivatives counterparty ratings are obtained from Moody's, Fitch, and S&P. Each rating classification includes all rating levels within that category. If there is a split rating, the lowest rating is used. In the case where the obligations are unconditionally and irrevocably guaranteed, the rating of the guarantor is used.
(2)Total fair-value exposures related to commitments to invest in mortgage loans are offset by certain pair-off fees. Commitments to invest in mortgage loans are reflected as derivatives. We do not collateralize these commitments. However, should the participating financial institution fail to deliver the mortgage loans as agreed, the participating financial institution is charged a fee to compensate us for the nonperformance.
(3)These represent derivatives positions with counterparties for which we are in a net liability position and for which we have delivered securities collateral to the counterparty in an amount equal to or less than the net derivative liability, or derivative positions with counterparties for which we are in a net asset position and for which the counterparty has delivered collateral to us in an amount that exceeds our net derivative asset.


For information on our approach to the credit risks arising from our use of derivatives, see Item 7 — Management’s Discussion
and Analysis and Results of Operations — Financial Condition — Derivative Instruments — Derivative Instruments Credit

Risk in the 2015 Annual Report.

LIQUIDITY AND CAPITAL RESOURCES

Our financial structure is designed to enable us to expand and contract our assets, liabilities, and capital in response to changes in membership composition and member credit needs. Our primary source of liquidity is our access to the capital markets through CO issuance, which is described in Item 1 — Business — Consolidated Obligations in the 2015 Annual Report. Outstanding COs and the condition of the market for COs are discussed below under — Debt Financing — Consolidated Obligations. Our equity capital resources are governed by our capital plan, certain portions of which are described under — Capital below as well as by applicable legal and regulatory requirements.

Liquidity

Internal Liquidity Sources / Liquidity Management

We have developed a methodology and policies by which we measure and manage the Bank’s short-term liquidity needs based on projected net cash flow and contingent obligations.

Projected Net Cash Flow. We define projected net cash flow as projected sources of funds less projected uses of funds based on contractual maturities or expected option exercise periods, and settlement of committed asset and liabilities, as applicable. For mortgage-related cash flows and callable debt, we incorporate projected prepayments and call exercise.

Structural Liquidity. We define structural liquidity as projected net cash flow (defined above) less assumed secondary uses of funds, for which we assume the following:

all maturing advances are renewed;
member overnight deposits are withdrawn at a rate of 50 percent per day;
outstanding standby letters of credit are drawn down at a rate of 50 percent spread equally over 86 days;
uncommitted lines of credit are drawn upon at a rate of 10 percent of the previous day's balance; and
MPF master commitments are funded at a rate of 10 percent of the previous days' total amount on the first day and at a rate of one percent on each day thereafter.

The above assumptions for secondary uses of funds are in excess of our ordinary experience, and therefore represent a more stressful scenario than we expect to experience. We review these assumptions periodically.

This methodology for measuring projected net cash flow and structural liquidity has been established by management to monitor our liquidity position on a daily basis, and to help ensure that we meet all of our obligations as they come due and to meet our members' potential demand for liquidity from us in all cases. We may adjust the amount of liquidity maintained as market conditions change from time to time using projected net cash flow and structural liquidity measurements.

Liquidity Management Action Triggers. We maintain two liquidity management action triggers:

if structural liquidity is less than negative $1.0 billion on or before the fifth business day following the measurement date; and
if projected net cash flow falls below zero on or before the 21st day following the measurement date.

We did not breach either of these thresholds at any time during the quarter ended JuneSeptember 30, 2016. If either of these thresholds are breached, then Senior managementManagement is notified if either liquidity threshold is breached and is required to determinedetermines whether or not any corrective action is necessary as a result.necessary.

The following table presents our projected net cash flow and structural liquidity as of JuneSeptember 30, 2016.


Projected Net Cash Flow and Structural Liquidity
As of June 30, 2016
(dollars in thousands)

Projected Net Cash Flow and Structural Liquidity
As of September 30, 2016
(dollars in thousands)

Projected Net Cash Flow and Structural Liquidity
As of September 30, 2016
(dollars in thousands)

 5 Business Days 21 Days 5 Business Days 21 Days
Uses of funds        
Interest payable $3,540
 $25,770
 $7,353
 $27,656
Maturing liabilities 5,764,280
 11,764,140
 3,929,698
 12,898,417
Committed asset settlements 1,122,740
 1,122,740
 322,025
 322,025
Capital outflow 13,000
 13,000
 78,000
 78,000
MPF delivery commitments 46,100
 46,100
 60,355
 60,355
Gross uses of funds 6,949,660
 12,971,750
 4,397,431
 13,386,453
        
Sources of funds        
Interest receivable 32,203
 61,330
 31,396
 58,206
Maturing or projected amortization of assets 13,439,238
 19,402,958
 10,963,036
 16,206,783
Committed liability settlements 730,556
 730,556
 121,675
 251,675
Cash and due from banks 413,908
 413,908
 172,481
 172,481
Other 1,640
 1,640
 5,211
 5,211
Gross sources of funds 14,617,545
 20,610,392
 11,293,799
 16,694,356
        
Projected net cash flow 7,667,885
 $7,638,642
 6,896,368
 $3,307,903
        
Less: Secondary uses of funds        
Deposit runoff 556,921
   530,820
  
Drawdown of standby letters of credit and lines of credit 629,919
   639,836
  
Rollover of all maturing advances 4,783,706
   2,696,733
  
Projected funding of MPF master commitments 195,732
   182,694
  
Total secondary uses of funds 6,166,278
 
 4,050,083
 
        
Structural liquidity $1,501,607
 
 $2,846,285
 

Contingency Liquidity. FHFA regulations require that we hold contingency liquidity in an amount sufficient to enable us to cover our operational requirements for a minimum of five business days without access to the CO debt markets. The FHFA defines contingency liquidity as projected sources of funds less uses of funds, excluding reliance on access to the CO debt markets and including funding a portion of outstanding standby letters of credit. For this purpose, outstanding standby letters of credit are assumed to be drawn down at a rate of 50 percent spread equally over 86 days following the measurement date. As defined by FHFA regulations, additional contingent sources of liquidity include the following:

marketable securities with a maturity greater than one week and less than one year that can be sold;
self-liquidating assets with a maturity of seven days or less;
assets that are generally accepted as collateral in the repurchase agreement market, for which we include 50 percent of unencumbered marketable securities with a maturity greater than one year; and
irrevocable lines of credit from financial institutions rated not lower than the second highest rating category by an NRSRO.

We complied with this regulatory requirement at all times during the quarter ended JuneSeptember 30, 2016. As of JuneSeptember 30, 2016, and December 31, 2015, we held a surplus of $13.3$12.6 billion and $12.0 billion, respectively, of contingency liquidity for the following five business days, exclusive of access to the proceeds of CO debt issuance.

The following table presents our contingency liquidity as of JuneSeptember 30, 2016.

Contingency Liquidity
As of June 30, 2016
(dollars in thousands)

Contingency Liquidity
As of September 30, 2016
(dollars in thousands)

Contingency Liquidity
As of September 30, 2016
(dollars in thousands)

 5 Business Days 5 Business Days
Cumulative uses of funds    
Interest payable $3,540
 $7,353
Maturing liabilities 5,764,280
 3,929,698
Committed asset settlements 1,122,740
 322,025
Drawdown of standby letters of credit 116,035
 124,640
Gross uses of funds 7,006,595
 4,383,716
    
Cumulative sources of funds    
Interest receivable 32,203
 31,396
Maturing or amortizing advances 4,783,706
 2,696,733
Committed liability settlements 730,556
 121,675
Other 1,640
 5,211
Gross sources of funds 5,548,105
 2,855,015
    
Plus: sources of contingency liquidity    
Marketable securities 1,250,000
 1,400,000
Self-liquidating assets 8,639,000
 8,249,000
Cash and due from banks 413,908
 172,481
Marketable securities available for repo 4,466,056
 4,281,370
Total sources of contingency liquidity 14,768,964
 14,102,851
    
Net contingency liquidity $13,310,474
 $12,574,150

Additional Liquidity Requirements. In addition, certain FHFA guidance requires us to maintain sufficient liquidity through short-term investments in an amount at least equal to our anticipated cash outflows under two different scenarios. One scenario assumes that we cannot borrow funds from the capital markets for a period of 15 business days and that during that time we do not renew any maturing, prepaid, and put or called advances. The second scenario assumes that we cannot raise funds in the capital markets for five business days and that during that period we will renew maturing and called advances for all members except very large, highly rated members. We were in compliance with these liquidity requirements at all times during the three months ended JuneSeptember 30, 2016.
 
Balance Sheet Funding Gap Policy. Further, we are sensitive to maintaining an appropriate funding balance between our assets and liabilities and maintain a policy that limits the potential gap between assets inclusive of projected prepayments, maturing in one year or longer (excluding floating rate advances indexed to discount note yields), funded by liabilities, inclusive of projected calls, maturing in less than one year. The established policy limits this imbalance to a gap of 20 percent of total assets and sets a management action trigger at a gap of 10 percent of total assets. We maintained compliance with this limit and its management action trigger at all times during the sixnine months endedJuneSeptember 30, 2016. During the three months ended JuneSeptember 30, 2016, this gap averaged 6.63.3 percent (the maximum level at any month-end during the quarter was 7.86.1 percent and the minimum level at any month-end during the quarter was 5.91.2 percent). As of JuneSeptember 30, 2016, this gap was 7.82.5 percent, compared with 5.0 percent at December 31, 2015.

We are focused on maintaining a liquidity and funding balance between our financial assets and financial liabilities. The FHLBanks work collectively to manage the System-wide liquidity and funding management and the FHLBanks jointly monitor the System’s collective risk arising out of an inability to fully access the capital markets to fund our obligations. In managing and monitoring the amounts of assets that require refunding, we may consider contractual maturities of our financial assets, as

well as certain assumptions regarding expected cash flows (i.e. estimated prepayments and scheduled amortizations) and other factors in our discretion.

External Sources of Liquidity

FHLBank P&I Funding Contingency Plan Agreement. We have a source of emergency external liquidity through the FHLBank P&I Funding Contingency Plan Agreement as discussed in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — External Sources of Liquidity in the 2015 Annual Report. We have never drawn funding under this agreement.

Debt Financing Consolidated Obligations
 
At JuneSeptember 30, 2016, and December 31, 2015, outstanding COs, including both CO bonds and CO discount notes, totaled $57.6$56.1 billion and $53.9 billion, respectively.

CO bonds outstanding for which we are primarily liable at JuneSeptember 30, 2016, and December 31, 2015, include issued callable bonds totaling $3.2$4.2 billion and $3.6 billion, respectively.

CO discount notes comprised 52.951.2 percent and 52.8 percent of the outstanding COs for which we are primarily liable at JuneSeptember 30, 2016, and December 31, 2015, respectively, but accounted for 88.788.1 percent and 93.192.8 percent of the proceeds from the issuance of such COs during the sixnine months ended JuneSeptember 30, 2016 and 2015, respectively.

Financial Conditions for Consolidated Obligations

We have experienced relatively low CO issuance costs during the period covered by this report, reflecting the low interest-rate environment together with continuing investor preferences for low-risk investments. We have experienced good market demand for all tenors of COs with the strongest demand for short-term COs, and have been able to issue debt in the amounts and structures required to meet our funding and risk-management needs. However, duringDuring the period covered by this report, we continuedCO yield spreads appeared to observe that CO yields were relatively high as comparedbe trending back to yields inhistorical averages relative to market benchmarks, including U.S. dollar interest rate swaps for funding terms of longer than one year based on long-term historical averages, though CO issuance costs improved slightly relative to yields on comparableand U.S. Treasury Notes. Nonetheless, investorInvestor demand for COs during the period remained strong and stable. We note that capacity among our CO underwriters has been occasionally somewhat constrained as a result of the imposition of higher capital requirements on many of our underwriters. So far, this development has not impeded our ability to meet our funding needs. While the June 23, 2016, decision by a majority of voters in the United Kingdom to exit the European Union triggered significant, immediate market movement, the impact on our ability to issue debt has not been significant.

Capital

Total capital was $3.2 billion and $3.0 billion at JuneSeptember 30, 2016, and December 31, 2015, respecively.respectively.

The FHLBank Act and FHFA regulations specify that each FHLBank is required to satisfy certain minimum regulatory capital requirements. We were in compliance with these requirements at JuneSeptember 30, 2016, as discussed in Item 1 — Notes to the Financial Statements — Note 14 — Capital.

Subject to applicable law following the expiry of the stock redemption period (which is five years for Class B stock), we redeem capital stock for any member that requests redemption of its excess stock, gives notice of intent to withdraw from membership, or becomes a nonmember due to merger, acquisition, charter termination, or involuntary termination of membership. Capital stock subject to a stock redemption period is reclassified to mandatorily redeemable capital stock in the liability section of the statement of condition. Mandatorily redeemable capital stock totaled $35.1$33.8 million and $42.0 million at JuneSeptember 30, 2016, and December 31, 2015, respectively. For additional information on the redemption of our capital stock, see Item 1 — Business — Capital Resources — Redemption of Excess Stock and Item 8 — Financial Statements and Supplementary Data —Notes to the Financial Statements — Note 1 — Summary of Significant Accounting Policies — Mandatorily Redeemable Capital Stock in the 2015 Annual Report.

The following table sets forth the amount of mandatorily redeemable capital stock by year of expiry of the redemption-notice period at JuneSeptember 30, 2016, and December 31, 2015 (dollars in thousands).


Expiry of Redemption-Notice Period June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Past redemption date (1)
 $566
 $629
 $528
 $629
Due in one year or less 
 
 
 
Due after one year through two years 4,741
 
 4,687
 
Due after two years through three years 175
 4,856
 128
 4,856
Due after three years through four years 29,554
 36,450
 28,429
 36,450
Due after four years through five years 
 54
 
 54
Thereafter(2) 40
 
 40
 
Total $35,076
 $41,989
 $33,812
 $41,989
_______________________
(1)Amount represents mandatorily redeemable capital stock that has reached the end of the five-year redemption-notice period but the member-related activity remains outstanding. Accordingly, these shares of stock will not be redeemed until the activity is no longer outstanding.
(2)Consists of reclassifications to mandatorily redeemable capital stock resulting from an FHFA rule effective February 19, 2016, that makes captive insurance companies ineligible for membership. Captive insurance company members that were admitted as members prior to September 12, 2014, will have their memberships terminated no later than February 19, 2021. Captive insurance company members that were admitted as members on or after September 12, 2014, will have their memberships terminated no later than February 19, 2017.

We have the authority, but are not obliged, to repurchase excess stock, at our discretion, subject to continuing to meet all of our minimum capital requirements, as discussed under Item 1 — Business — Capital Resources — Repurchase of Excess Stock in the 2015 Annual Report. At JuneSeptember 30, 2016, and December 31, 2015, excess capital stock totaled $70.778.1 million and $158.9 million, respectively, as set forth in the following table (dollars in thousands):

Membership Stock
Investment
Requirement
 
Activity-Based
Stock Investment
Requirement
 
Total Stock
Investment
Requirement (1)
 
Outstanding Class B
Capital Stock (2)
 
Excess Class B
Capital Stock
Membership Stock
Investment
Requirement
 
Activity-Based
Stock Investment
Requirement
 
Total Stock
Investment
Requirement (1)
 
Outstanding Class B
Capital Stock (2)
 
Excess Class B
Capital Stock
June 30, 2016$668,736
 $1,649,312
 $2,318,071
 $2,388,774
 $70,703
September 30, 2016$669,547
 $1,619,359
 $2,288,928
 $2,367,074
 $78,146
December 31, 2015653,642
 1,566,057
 2,219,722
 2,378,651
 158,929
653,642
 1,566,057
 2,219,722
 2,378,651
 158,929
_______________________
(1)Total stock-investment requirement is rounded up to the nearest $100 on an individual member basis.
(2) 
Class B capital stock outstanding includes mandatorily redeemable capital stock.

Repurchases of excess stock have led to reductions in our capital levels, including reductions to mandatorily redeemable capital stock from $42.0 million at December 31, 2015, to $35.1$33.8 million at JuneSeptember 30, 2016. Dividend payments on mandatorily redeemable capital stock are classified as interest expense, so the repurchase of this stock should lead to a reduction in interest expense, all other things being equal. For the three months ended JuneSeptember 30, 2016, interest expense on mandatorily redeemable capital stock amounted to $319,000$334,000 compared with $468,000$472,000 for the three months ended JuneSeptember 30, 2015. For the sixnine months ended JuneSeptember 30, 2016, interest expense on mandatorily redeemable capital stock amounted to $698,000$1.0 million compared with $803,000$1.3 million for the sixnine months ended JuneSeptember 30, 2015.

Capital Rule

The FHFA's regulation on FHLBank capital classification and critical capital levels (the Capital Rule), among other things, establishes criteria for four capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. The Capital Rule requires the Director of the FHFA to determine on no less than a quarterly basis the capital classification of each FHLBank. By letter dated June 15,September 20, 2016, the Director of the FHFA notified us that, based on March 31,June 30, 2016 financial information, we met the definition of adequately capitalized under the Capital Rule.

For additional information on the Capital Rule, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Capital Rule in the 2015 Annual Report.

Internal Capital Practices and Policies


We also take steps as we believe prudent beyond legal or regulatory requirements in an effort to protect our capital, reflected in our targeted capital ratio operating range, internal minimum capital requirement in excess of regulatory requirements, minimum retained earnings target, and limitations on dividends.

Targeted Capital Ratio Operating Range

We target our operating capital ratio to be within the range of 4.0 percent to 7.5 percent. Our capital ratio was 5.75.9 percent at JuneSeptember 30, 2016.

Internal Minimum Capital Requirement in Excess of Regulatory Requirements

To provide further protection for our capital base, we maintain an internal minimum capital requirement whereby the amount of paid-in capital stock and retained earnings (together, our actual regulatory capital) must exceed four percent of our total assets plus an amount we measure as our risk exposure with 99 percent confidence using our economic capital model (together, our internal minimum capital requirement). As of JuneSeptember 30, 2016, this internal minimum capital requirement equaled $3.0 billion, which was satisfied by our actual regulatory capital of $3.6$3.5 billion.

Excess Stock Management Program

On July 24, 2015, our board of directors authorized management to implement an excess stock management program, under which we are authorized to repurchase excess stock to target a range for excess stock between zero and $200 million. As of JuneSeptember 30, 2016, our shareholders held $70.7$78.1 million in excess stock. We used the Excess Stock Management program in the secondthird quarter of 2016, to unilaterally repurchase $101.7$105.0 million of excess stock from shareholders on a pro rata basis. In accordance with our capital plan, we repurchased other excess stock during the second quarter of 2016 at the request of certain members.

Off-Balance-Sheet Arrangements and Aggregate Contractual Obligations

Our significant off-balance-sheet arrangements consist of the following:

commitments that obligate us for additional advances;
 •standby letters of credit;
 •commitments for unused lines-of-credit advances; and
 •unsettled COs.

Off-balance-sheet arrangements are more fully discussed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 19 — Commitments and Contingencies in the 2015 Annual Report.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expenses during the reported periods. Although management believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.

We have identified five accounting estimates that we believe are critical because they require us to make subjective or complex judgments about matters that are inherently uncertain, and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These estimates include accounting for derivatives, the use of fair-value estimates, accounting for deferred premiums and discounts on prepayable assets, the allowance for loan losses, and other-than-temporary-impairment of investment securities. The Audit Committee of our board of directors has reviewed these estimates. The assumptions involved in applying these policies are discussed in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates in the 2015 Annual Report.

As of JuneSeptember 30, 2016, we have not made any significant changes to the estimates and assumptions used in applying our critical accounting policies and estimates from those used to prepare our audited financial statements.

RECENT ACCOUNTING DEVELOPMENTS
 
See Item 1 —Notes to the Financial Statements — Note 2 — Recently Issued and Adopted Accounting Guidance for a discussion of recent accounting developments impacting or that could impact us.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

Significant regulatory actions and developments for the period covered by this report are summarized below.
Minority and Women Inclusion. On October 27, 2016, the Finance Agency proposed amendments to its Minority and Women Inclusion regulations that, if adopted, would clarify the scope of the FHLBanks’ obligation to promote diversity and ensure inclusion, in part by greatly expanding recordkeeping and reporting requirements. These proposed amendments update existing Finance Agency regulations aimed at promoting diversity and the inclusion and utilization of minorities, women, and individuals with disabilities in all Bank business and activities, including management, employment and contracting.

FHFA DevelopmentsThe proposed amendments would:

require the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;
encourage the FHLBanks to expand contracting opportunities for minorities, women, and individuals with disabilities through subcontracting arrangements;
require the FHLBanks to amend their policies on equal opportunity in employment and contracting by adding sexual orientation, gender identity, and status as a parent to the list of protected classifications; and
require the FHLBanks in their annual reports to the Finance Agency to provide extensive data on contracting and detailed descriptions of their efforts to advance diversity and inclusion through capital market transactions, affordable housing and community investment programs, initiatives to improve access to mortgage credit, and strategies for promoting the diversity of supervisors and managers.

Comments on the proposed amendments are due by December 27, 2016. We are currently assessing the effect of the proposed amendments, if adopted, on the Bank.

Joint Proposed Rule on Incentive-Based Compensation ArrangementsFHLBank Membership for Non-Federally-Insured Credit Unions. On April 26,September 28, 2016, the FHFA, jointlyFinance Agency proposed amendments to regulations governing FHLBank membership that would implement statutory amendments to the Federal Home Loan Bank Act (the Bank Act) authorizing FHLBanks to accept applications for membership from state-chartered credit unions without Federal share insurance, provided that certain prerequisites have been met. The new rule, if adopted, would generally treat these credit unions the same as other depository institutions with five other federal regulators, issuedan additional requirement that they obtain an affirmative statement from their state regulator that they meet the rule contemplated by Section 956requirements for Federal insurance as of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which requires implementationdate of regulationstheir application for FHLBank membership; a written statement from the state regulator that it cannot or guidelineswill not make any determination regarding eligibility for Federal insurance; or if the regulator fails or refuses to (1) prohibit incentive-based payment arrangements that these regulators determine encourage inappropriate risks by certain financial institutions by providing excessive compensation or that could lead to material financial loss; and (2) require those financial institutions to disclose information concerning incentive-based compensation arrangementsrespond to the appropriate federal regulator.credit union’s request within six months, confirmation of the failure to receive a response.

Comments are due on the proposed rule by November 28, 2016. We are currently assessing the effect of the proposed rule but do not anticipate that, if adopted, it would materially impact the Bank.

Indemnification Payments. On September 20, 2016, the Finance Agency issued a re-proposed rule that, if adopted, would establish standards for identifying whether an indemnification payment by an FHLBank or the OF to an officer, director, employee, or other entity-affiliated party in connection with an administrative proceeding or civil action initiated by the Finance Agency is prohibited or permissible. Under the proposed rule, those payments with respect to an administrative proceeding or civil action initiated by the Finance Agency are only permitted if they relate to:

premiums for professional liability insurance or fidelity bonds for directors and officers, to the extent that the insurance or fidelity bond covers expenses and restitution, but not a judgment in favor of the Finance Agency or a civil money penalty;
expenses of defending an action, subject to an agreement to repay those expenses in certain instances; and
amounts due under an indemnification agreement entered into on or prior to September 20, 2016.

The proposed rule identifies three categoriesalso outlines the process a board of institutions that would be covereddirectors must undertake prior to making any permitted indemnification payment for expenses of defending an action initiated by these regulations based on average total consolidated assets, applying less prescriptive incentive-based compensation program requirements to the smallest covered institutions (Level 3) and progressively more rigorous requirements to the larger covered institutions (Level 1). The proposed rule specifies that the Bank would fall into the middle category, Level 2. The proposed rule would supplement existing FHFA executive compensation rules.Finance Agency.

The proposed rule would prohibit us from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risks by “senior executive officers” and “significant risk-takers” (each as defined inComments are due on the proposed rule together, “covered persons”) that could lead to a material financial loss atby December 21, 2016. We are currently assessing the effect of the proposed rule on the Bank.

If
FHLBank New Business Activities. On August 23, 2016, the Finance Agency proposed a rule that, if adopted, in its current form,would reduce the scope of new business activities (NBAs) for which a FHLBank must seek approval from the Finance Agency and would establish more certain timelines for Finance Agency review and approval of NBA notices. The proposed rule also would clarify the protocol for Finance Agency review of NBAs. Under the proposed rule, acceptance of new types of legally permissible collateral by the FHLBanks would among other things, impose requirements relatednot constitute a new business activity or require approval from the Finance Agency prior to our incentive-based compensation arrangements for covered persons, related to:acceptance. Instead, the Finance Agency would review new collateral types as part of the annual exam process.

mandatory deferrals of 50 percent and 40 percent of annual and long-term incentive-based compensation payments for senior executive officers and significant risk takers, respectively, over no less than three years for annual incentive-based compensation and one year for compensation awarded under a long-term incentive plan;
risk of downward adjustment and forfeiture of awards;
clawbacks of vested compensation; and
limits onOn October 24, 2016, the maximum incentive-based compensation opportunity

Together with other FHLBanks we provided comments onto the proposed rule, on July 22, 2016. Thewhich primarily related to certain procedures under the proposed rule. We do not anticipate that the proposed rule, if adopted, would materially impact the design and operation of our compensation policies and practices, including our incentive compensation policies and practices, if adopted as proposed.Bank.

Other Significant Developments

Joint Proposed Rule Regarding Net Stable Funding Ratio.Mandatory Contractual Stay Requirements for Qualified Financial Contracts (QFCs). On August 19, 2016, the Office of the Comptroller of the Currency (OCC) issued a proposed rule, which, if adopted, would require certain systemically important financial institutions (SIFI) regulated by the OCC to limit a counterparty’s immediate termination or exercise of default rights in the event of bankruptcy or receivership of the SIFI or an affiliate of the SIFI. Covered QFCs include derivatives, repurchase agreements (know as “repos”) and reserve repos, and securities lending and borrowing agreements. On May 3, 2016, the Federal Reserve Board (FRB), issued a substantively identical proposed rule with respect to QFCs entered into with globally systemically important banking organizations (GSIBs) and their affiliates that are subject to regulation in the Department of Treasury andU.S. Further, on October 26, 2016, the Federal Deposit Insurance Corporation jointly(FDIC) issued a parallel proposed rule that would implement a stable funding requirement, the net stable funding ratio (NSFR), for large and internationally active banking organizations. The NSFR will require large and internationally active banking organizations, which does not included the FHLBanks,applicable to maintain liquidity to match their assets over a one-year time horizon. The FRB is proposing a modified NSFR requirement for bank holding companies and certain savings and loan holding companies that, in each case, have $50 billion or more, but less than $250 billion, in total consolidated assets and less than $10 billion in total on-balance sheet foreign exposure. If adopted in its current form, the proposed rule would provide that secured funding with maturities between six months and one year, including FHLBank advances, would be assigned 50 percent liquidity credit for purposes of calculating compliance with the NSFR, which could affect demand for the Bank’s advances.FDIC-supervised institutions.

The Council of FHLBanks provided comments toon the FRB proposed rule on August 2, 2016.5, 2016 and to the OCC proposed rule on October 18, 2016, which primarily seek clarification of an exemption and the recognition of a safe harbor. We do not anticipate that the proposed rule, if adopted, would materially impact the Bank.

European Union (EU) Market Abuse Regulation. The EU issued updated Market Abuse Regulations (MAR) that became effective July 3, 2016, and which contain rules on insider dealing, unlawful disclosure of inside information and market manipulation for debt and equity securities on European securities exchanges, which differ in certain respects from U.S. regulations. MAR applies to issuers with securities admitted to trading on EU exchanges, including EU exchanges on which FHLBank COs are listed. MAR contains an exemption to its requirements for certain public bodies and central banks of third countries. The OF and the FHLBanks are examining whether this exemption applies. If the exemption does not apply, we anticipate that the most significant impact of the MAR on us will be more stringent and detailed recordkeeping, creation of detailed lists on parties who have access to inside information, and notification requirements.

Financial Industry Regulatory Authority (FINRA) Rule 4210 establishing margin requirements on certain “to-be-announced” (TBA) transactions. On June 15, 2016, the SEC approved a proposed rule by FINRA to require the margining of certain TBA transactions. Specifically, the approved FINRA Rule 4210 will require FINRA members to collect from, but not post to, their customer’s maintenance margin (i.e. initial margin) and variation margin on transactions that are “Covered Agency Transactions,” subject to certain exemptions. A “Covered Agency Transaction” includes (certain terms are defined under FINRA rules):

TBA transactions inclusive of adjustable-rate mortgage transactions, and Specified Pool Transactions, for which the difference between the trade date and contractual settlement date is greater than one business day; and
Collateralized mortgage obligations issued in conformity with a program of an agency or a GSE for which the difference between the trade date and contractual settlement date is greater than three business days.

Covered Agency Transactions in multifamily housing securities are exempt from the margin requirements provided that certain requirements are met.

Under the rule, we are exempt from posting initial margin but would be required to post variation margin to their FINRA-member counterparty in connection with covered transactions, provided the Bank has more than $10 million in gross open positions with the counterparty. FINRA members will be required to comply with the new margin requirements beginning in December 2017.

We are currently assessing the financial and operational impacts of this rule on the Bank.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Sources and Types of Market and Interest-Rate Risk


Our balance sheet is comprised of different portfolios that require different types of market- and interest-rate-risk management strategies. Sources and types of market and interest-rate risk are described in Item 7A — Quantitative and Qualitative Disclosures About Market Risk — Sources and Types of Market and Interest-Rate Risk in the 2015 Annual Report.

Strategies to Manage Market and Interest-Rate Risk

General

We use various strategies and techniques in an effort to manage our market and interest-rate risk including the following and combinations of the following:

the issuance of COs that can be used to match interest-rate-risk exposures of our assets (at JuneSeptember 30, 2016, fixed-rate noncallable debt, not hedged by interest-rate swaps, amounted to $13.9 billion, compared with $14.3 billion at December 31, 2015);
the use of derivatives and/or COs with embedded call options to hedge the interest-rate risk of our debt (at JuneSeptember 30, 2016, fixed-rate callable debt not hedged by interest-rate swaps amounted to $390.0$175.0 million compared with $1.4 billion at December 31, 2015);
the issuance of CO bonds together with interest-rate swaps that receive a coupon that offsets the bond coupon and any optionality embedded in the bond, thereby effectively creating a floating-rate liability (total CO bond debt used in conjunction with interest-rate-exchange agreements, was $7.7$8.3 billion, or 28.330.4 percent of our total outstanding CO bonds at JuneSeptember 30, 2016, compared with $6.4 billion, or 25.2 percent of total outstanding CO bonds, at December 31, 2015;
contractual provisions for certain advances that require borrowers to pay us prepayment fees, to make us financially indifferent if the borrower prepays such advances prior to maturity; and
the use of callable debt for a portion of our investments in mortgage loans to manage the interest-rate and prepayment risks from these investments.

Each of the foregoing strategies and techniques is more fully discussed under Item 7A — Quantitative and Qualitative Disclosures About Market Risk — Strategies to Manage Market and Interest-Rate Risk in the 2015 Annual Report.

Measurement of Market and Interest-Rate Risk and Related Policy Constraints

We measure our exposure to market and interest-rate risk using several techniques applied to the balance sheet and to certain portfolios within the balance sheet. Principal among these measurements as applied to the balance sheet is the potential future change in market value of equity (MVE) and interest income due to potential changes in interest rates, interest-rate volatility, spreads, and market prices. We also measure Value at Risk (VaR), duration of equity, convexity, and the other metrics discussed below.

MVE is the net economic value of total assets and liabilities, including any off-balance-sheet items. In contrast to the GAAP-based shareholder's equity account, MVE represents the shareholder's equity account in present-value terms. Specifically, MVE equals the difference between the estimated market value of our assets and the estimated market value of our liabilities, net of the estimated market value of all derivatives.

MVE, and in particular, the ratio of MVE to the book value of equity (BVE), is a measure of the current value of shareholder investment based on market rates, spreads, prices, and volatility at the reporting date. BVE is equal to our permanent capital, which consists of the par value of capital stock including mandatorily redeemable capital stock, plus retained earnings. However, we caution that care must be taken to properly interpret the results of the MVE analysis as the basis for these valuations may not be fully representative of future realized prices. Further, valuations are based on market curves and prices respective of individual assets, liabilities, and derivatives, and therefore are not representative of future net income to be earned by us through the spread between asset market curves and the market curves for funding costs. MVE should not be considered indicative of our market value as a going concern because it does not consider future new business activities, risk-management strategies, or the net profitability of assets after funding costs are subtracted.

We measure our exposure to market and interest-rate risk using several metrics, including:

the ratio of MVE to BVE;

the ratio of MVE to the par value of our Class B Stock (Par Stock), which we refer to as the MVE to Par Stock ratio;
the ratio of MVE to the market value of assets, which we refer to as the economic capital ratio;

VaR, which measures the change in our MVE to a 99th percent confidence interval, based on a set of stress scenarios (VaR Stress Scenarios) using historical interest-rate and volatility movements that have been observed over six-month intervals starting at the most recent month-end and going back monthly to 1992;
duration of equity, which measures percentage change to market value for a 100 basis point shift in rates;
MVE sensitivity, which is the percent change in MVE in various shocked interest rate scenarios vs. base case MVE;
the duration gap of our assets and liabilities, which is the difference between the estimated durations (percentage change in market value for a 100 basis point shift in rates) of assets and liabilities (including the effect of related hedges) and reflects the extent to which estimated sensitivities to market changes, including, but not limited to, maturity and repricing cash flows for assets and liabilities are matched;
targeted metrics for our investments in mortgage loans; and
the use of an income-simulation model that projects net interest income over a range of potential interest-rate scenarios, including parallel interest-rate shocks, nonparallel interest-rate shocks, and nonlinear changes to our funding curve and LIBOR.

We maintain limits and management action triggers in connection with each of the foregoing metrics. Those limits, management action triggers, and the foregoing market and interest-rate risk metrics are more fully discussed under Item 7A — Quantitative and Qualitative Disclosures About Market Risk — Measurement of Market and Interest-Rate Risk and Related Policy Constraints in the 2015 Annual Report.

The following table sets forth each of the foregoing metrics together with any targets, associated limits and management actions triggers at JuneSeptember 30, 2016, and December 31, 2015.

Interest/Market-Rate Risk Metric June 30, 2016 December 31, 2015 Target, Limit or Management Action Trigger at December 31, 2015 September 30, 2016 December 31, 2015 Target, Limit or Management Action Trigger at December 31, 2015
MVE $3.4 billion $3.4 billion None $3.4 billion $3.4 billion None
MVE/BVE 95% 97% None 97% 97% None
MVE/Par Stock 141% 143% 102% (management action trigger) and 100% or higher (limit) 146% 143% 102% (management action trigger) and 100% or higher (limit)
Economic Capital Ratio 5.4% 5.8% Maintain above 4.5% (management action trigger) and 4.0% (limit) 5.6% 5.8% Maintain above 4.5% (management action trigger) and 4.0% (limit)
VaR $101.0 million $83.9 million Maintain below $225.0 million (management action trigger) and $275.0 million (limit) $127.7 million $83.9 million Maintain below $225.0 million (management action trigger) and $275.0 million (limit)
Duration of Equity -2.50 years +0.07 years Maintain between +/- 3.5 years (management action trigger) and +/- 4.0 years (limit) -2.54 years +0.07 years Maintain between +/- 3.5 years (management action trigger) and +/- 4.0 years (limit)
MVE Sensitivity in a +/- 200 basis point parallel rate shock (6.2)% (5.4)% Maintain above -10% (management action trigger) and -15% (limit) (6.6)% (5.4)% Maintain above -10% (management action trigger) and -15% (limit)
Duration Gap -1.61 months +0.05 months None -1.70 months +0.05 months None
MPF Portfolio VaR $66.6 million $66.6 million Maintain below 25% of the VaR limit (management action trigger) $67.9 million $66.6 million Maintain below 25% of the VaR limit (management action trigger)
Income Simulation based on an instantaneous rise in interest rates of 300 basis points Return on regulatory capital is 204 basis points above the average yield on three-month LIBOR Return on regulatory capital is 135 basis points above the average yield on three-month LIBOR Maintain projected return on regulatory capital above three-month LIBOR over the following 12 month horizon (management action trigger) Return on regulatory capital is 130 basis points above the average yield on three-month LIBOR Return on regulatory capital is 135 basis points above the average yield on three-month LIBOR Maintain projected return on regulatory capital above three-month LIBOR over the following 12 month horizon (management action trigger)

Value at Risk. The table below presents the historical simulation VaR estimate as of JuneSeptember 30, 2016, and December 31, 2015, and represents the estimates of potential reduction to our MVE from potential future changes in interest rates and other market factors. Estimated potential market value loss exposures are expressed as a percentage of the current MVE and are based on the historical relative behavior of interest rates and other market factors over a 120-business-day time horizon.

 
 
Value-at-Risk
(Gain) Loss Exposure (1)
 
Value-at-Risk
(Gain) Loss Exposure (1)
 June 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015
Confidence Level 
% of
MVE (2)
 $ million 
% of
MVE (2)
 $ million 
% of
MVE (2)
 $ million 
% of
MVE (2)
 $ million
50% 0.15% $5.2
 0.13% $4.6
 0.22% $7.5
 0.13% $4.6
75% 0.61
 20.4
 0.43
 14.7
 0.69
 23.8
 0.43
 14.7
95% 1.52
 51.3
 1.43
 48.6
 1.65
 56.7
 1.43
 48.6
99% 3.00
 101.0
 2.46
 83.9
 3.70
 127.7
 2.46
 83.9
_______________________
(1)To be consistent with FHFA guidance, we have excluded VaR stress scenarios prior to 1992 because market-risk stress conditions are effectively captured in those scenarios beginning in 1992 and therefore properly present our current VaR exposure.
(2)Loss exposure is expressed as a percentage of base MVE.

Certain Market and Interest-Rate Risk Metrics under Potential Interest-Rate Scenarios

We also monitor the sensitivities of MVE and the duration of equity to potential interest-rate scenarios. The following table presents certain market and interest-rate risk metrics under different interest-rate scenarios (dollars in millions).

 June 30, 2016 September 30, 2016
 
Down 300(1)
 
Down 200(1)
 
Down 100(1)
 Base Up 100 Up 200 Up 300 
Down 300(1)
 
Down 200(1)
 
Down 100(1)
 Base Up 100 Up 200 Up 300
MVE $3,121 $3,163 $3,258 $3,373 $3,383 $3,286 $3,146 $3,196 $3,220 $3,323 $3,447 $3,457 $3,362 $3,225
Percent change in MVE from base (7.5)% (6.2)% (3.4)% —% 0.3% (2.6)% (6.7)% (7.3)% (6.6)% (3.6)% —% 0.3% (2.5)% (6.4)%
MVE/BVE 87.8% 89.0% 91.7% 94.9% 95.2% 92.5% 88.5% 90.1% 90.8% 93.7% 97.2% 97.4% 94.8% 90.9%
MVE/Par Stock 131% 132% 136% 141% 142% 138% 132% 135% 136% 140% 146% 146% 142% 136%
Duration of Equity -0.52 years -2.17 years -3.65 years -2.50 years +1.68 years +3.61 years +4.84 years -0.22 years -1.97 years -4.17 years -2.54 years +1.59 years +3.44 years +4.63 years
Return on Regulatory Capital less 3-month LIBOR (2)
 2.5% 2.5% 2.7% 2.9% 2.8% 2.5% 2.0% 2.4% 2.4% 2.7% 2.6% 2.3% 1.9% 1.3%
Net income percent change from base (31.5)% (31.5)% (26.1)% —% 25.7% 44.5% 60.6% (32.2)% (32.2)% (24.5)% —% 18.9% 34.3% 47.1%
____________________________
(1)Given the current environment of low interest rates, downward rate shocks are floored as they approach zero, and therefore may not be fully representative of the indicated rate shock.
(2)The income simulation metric for JuneSeptember 30, 2016, is based on projections of adjusted net income over a range of potential interest-rate scenarios over the following 12-month horizon divided by regulatory capital. Regulatory capital is capital stock (including mandatorily redeemable capital stock) plus total retained earnings, and projections of adjusted net income exclude a) interest expense on mandatorily redeemable capital stock; b) projected prepayment penalties; c) loss on early extinguishment of debt; or d) changes in fair values from trading securities and hedging activities.


  December 31, 2015
  
Down 300(1)
 
Down 200(1)
 
Down 100(1)
 Base Up 100 Up 200 Up 300
MVE $3,101 $3,219 $3,364 $3,404 $3,359 $3,258 $3,130
Percent change in MVE from base (8.9)% (5.4)% (1.2)% —% (1.3)% (4.3)% (8.0)%
MVE/BVE 88.4% 91.8% 95.9% 97.0% 95.8% 92.9% 89.2%
MVE/Par Stock 130% 135% 141% 143% 141% 137% 132%
Duration of Equity -2.37 years -4.10 years -2.38 years +0.07 years +2.28 years +3.53 years +4.25 years
Return on Regulatory Capital less 3-month LIBOR (2)
 2.6% 2.5% 2.6% 2.4% 2.2% 1.8% 1.4%
Net income percent change from base (24.0)% (26.0)% (21.5)% —% 22.3% 41.0% 57.6%
____________________________
(1)Given the current environment of low interest rates, downward rate shocks are floored as they approach zero, and therefore may not be fully representative of the indicated rate shock.
(2)The income simulation metric for December 31, 2015, is based on projections of adjusted net income over a range of potential interest-rate scenarios over the following 12-month horizon divided by regulatory capital. Regulatory capital is capital stock (including mandatorily redeemable capital stock) plus total retained earnings, and projections of adjusted net income exclude a) interest expense on mandatorily redeemable capital stock; b) projected prepayment penalties; c) loss on early extinguishment of debt; or d) changes in fair values from trading securities and hedging activities.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures.

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, with the participation of the president and chief executive officer and chief financial officer, as of the end of the period covered by this report. Based on that evaluation, our president and chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the fiscal quarter covered by this report.

Changes in Internal Control over Financial Reporting

During the quarter ended JuneSeptember 30, 2016, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We describe our private-label MBS litigation in Item 3 — Legal Proceedings in the 2015 Annual Report.

Subsequent to the quarter covered by this report, we settled certain of our private-label MBS claims with certain defendants for an aggregate amount of $19.6 million, which amount is net of legal fees and expenses.

We continue our private-label MBS litigation against the following entities and/or their affiliates and subsidiaries and/or entities under their control or controlled by affiliates or subsidiaries thereof: Credit Suisse (USA), Inc.; Impac Mortgage Holdings, Inc.; Morgan Stanley; Nomura Holding America, Inc.; RBS Holdings USA Inc.; and UBS Americas Inc.

As reported in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (filed with the SEC on May 6, 2016), on May 2, 2016, the First Circuit for the United States Court of Appeals (the First Circuit) ruled favorably on our appeal of the dismissal of our claims against Moody’s Investors Service, Inc. and Moody’s Corporation (together Moody’s). The First Circuit vacated the United States District Court for the District of Massachusetts (the District Court), which had ruled that federal law does not permit the transfer of cases from one federal court to another where the first court is found to lack personal jurisdiction. The First Circuit remanded the case to the District Court to determine whether transfer of our claims to the Southern District of New York would be in the interest of justice, and such determination is pending. On August 1, 2016, Moody's filed a petition for writ of certiorari to the Supreme Court of the United States (the Supreme Court), asking the Supreme Court to review the First Circuit’s decision. AtOn October 11, 2016, the time of this report, we have yet to respond to Moody'sSupreme Court denied Moody’s petition.

From time to time, we are subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, we do not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations.

ITEM 1A. RISK FACTORS

In addition to the information presented in this report, readers should carefully consider the risk factors set forth in the 2015 Annual Report, which could materially impact our business, financial condition, or future results. These risks are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also materially impact us.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Number Exhibit Description
10.1MPF Consolidated Interbank Agreement dated as of July 22, 2016
31.1 Certification of the president and chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the president and chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of the chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date FEDERAL HOME LOAN BANK OF BOSTON (Registrant)
August 5,November 10, 2016 By:/s/Edward A. Hjerpe III 
    
Edward A. Hjerpe III
President and Chief Executive Officer
August 5,November 10, 2016 By:/s/Frank Nitkiewicz 
    
Frank Nitkiewicz
Executive Vice President and Chief Financial Officer



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