UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
––––––––––––––––––––––––––––––––––––––––––––––––––––
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172019
OR
o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number: 000-51402
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
FEDERAL HOME LOAN BANK OF BOSTON
(Exact name of registrant as specified in its charter) 
 
Federally chartered corporation
04-6002575
(State or other jurisdiction of incorporation or organization) 
04-6002575
(I.R.S. employer identification number)
 
     
 
800 Boylston Street,
BostonMA
02199
(Address of principal executive offices) 
02199
(Zip code)
 
(617)(617) 292-9600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered

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, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer,” "smaller reporting company," and emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
 
Non-accelerated filerxSmaller reporting companyo
☐
Emerging growth companyo☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o☐ Yes  x☒ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
  
Shares outstanding as of
October 31, 2017
  Shares outstanding as of October 31, 2019
Class A Stock, par value$100 zero$100 0
Class B Stock, par value$100 22,785,171$100 17,295,615




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

PART I.
FINANCIAL INFORMATION
3
   
Item 1.
Financial Statements (unaudited)
3
 
Statements of Condition
3
 
Statements of Operations
4
 
Statements of Comprehensive Income
5
 
Statements of Capital
6
 
Statements of Cash Flows
7
 
Notes to Financial Statements
9
 
Note 1 — Basis of Presentation
9
 
Note 2 — Summary of Significant Accounting Policies
9
 
Note 3 — Recently Issued and Adopted Accounting Guidance
910
 
Note 4 — Trading Securities
1112
 
Note 5 — Available-for-Sale Securities
12
 
Note 6 — Held-to-Maturity Securities
1415
 
Note 7 — Other-Than-Temporary Impairment
1617
 
Note 8 — Advances
18
 
Note 9 — Mortgage Loans Held for Portfolio
20
 
Note 10 — Allowance for Credit Losses
2021
 
Note 11 — Derivatives and Hedging Activities 
24
 
Note 12 — Deposits
2931
 
Note 13 — Consolidated Obligations
2931
 
Note 14 — Affordable Housing Program
3032
 
Note 15 — Capital
3033
 
Note 16 — Accumulated Other Comprehensive Loss
3134
 
Note 17 — Fair Value
3336
 
Note 18 — Commitments and Contingencies
3841
 
Note 19 — Transactions with Shareholders
3942
 
Note 20 — Subsequent Events
4043
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
4144
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
7776
Item 4.
Controls and Procedures
8179
   
PART II.
OTHER INFORMATION
8180
   
Item 1.
Legal Proceedings
8180
Item 1A.
Risk Factors
8280
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
8280
Item 3.
Defaults Upon Senior Securities
8280
Item 4.
Mine Safety Disclosures
8281
Item 5.
Other Information
8281
Item 6.
Exhibits
8281




Table of Contents



PART I.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)
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
ASSETS      
Cash and due from banks$31,774
 $520,031
$20,139
 $10,431
Interest-bearing deposits225,012
 278
327,851
 593,199
Securities purchased under agreements to resell2,999,000
 5,999,000
3,900,000
 6,499,000
Federal funds sold6,250,000
 2,700,000
—
 1,500,000
Investment securities:   
   
Trading securities509,463
 612,622
1,536,880
 163,038
Available-for-sale securities - includes $1,630 and $7,968 pledged as collateral at September 30, 2017, and December 31, 2016, respectively that may be repledged7,559,111
 6,588,664
Held-to-maturity securities - includes $7,021 and $23,618 pledged as collateral at September 30, 2017, and December 31, 2016, respectively that may be repledged (a)1,798,011
 2,130,767
Available-for-sale securities - includes $3,025 pledged as collateral at December 31, 2018 that may be repledged6,707,850
 5,849,944
Held-to-maturity securities - includes $692 and $3,456 pledged as collateral at September 30, 2019, and December 31, 2018, respectively that may be repledged (a)1,120,439
 1,295,023
Total investment securities9,866,585
 9,332,053
9,365,169
 7,308,005
Advances37,467,404
 39,099,339
38,539,591
 43,192,222
Mortgage loans held for portfolio, net of allowance for credit losses of $500 and $650 at September 30, 2017, and December 31, 2016, respectively3,942,776
 3,693,894
Mortgage loans held for portfolio, net of allowance for credit losses of $500 at September 30, 2019, and December 31, 20184,459,120
 4,299,402
Accrued interest receivable84,886
 84,653
109,324
 112,751
Premises, software, and equipment, net5,999
 5,211
Derivative assets, net48,163
 61,598
122,522
 22,403
Other assets53,856
 49,529
80,244
 55,904
Total Assets$60,975,455
 $61,545,586
$56,923,960
 $63,593,317
LIABILITIES 
  
 
  
Deposits      
Interest-bearing$465,776
 $444,897
$565,099
 $448,247
Non-interest-bearing26,855
 37,266
60,774
 26,631
Total deposits492,631
 482,163
625,873
 474,878
Consolidated obligations (COs):   
   
Bonds28,492,595
 27,171,434
25,864,142
 25,912,684
Discount notes28,047,762
 30,053,964
26,896,215
 33,065,822
Total consolidated obligations56,540,357
 57,225,398
52,760,357
 58,978,506
Mandatorily redeemable capital stock36,042
 32,687
17,107
 31,868
Accrued interest payable100,148
 80,822
128,489
 112,043
Affordable Housing Program (AHP) payable77,329
 81,627
83,046
 83,965
Derivative liabilities, net309,675
 357,876
12,027
 255,800
Other liabilities191,657
 40,235
60,634
 48,898
Total liabilities57,747,839
 58,300,808
53,687,533
 59,985,958
Commitments and contingencies (Note 18)

 



 


CAPITAL 
  
 
  
Capital stock – Class B – putable ($100 par value), 22,726 shares and 24,113 shares issued and outstanding at September 30, 2017, and December 31, 2016, respectively2,272,648
 2,411,306
Capital stock – Class B – putable ($100 par value), 20,317 shares and 25,289 shares issued and outstanding at September 30, 2019, and December 31, 2018, respectively2,031,651
 2,528,854
Retained earnings:      
Unrestricted1,011,532
 987,711
1,085,463
 1,084,342
Restricted253,750
 229,275
335,110
 310,670
Total retained earnings1,265,282
 1,216,986
1,420,573
 1,395,012
Accumulated other comprehensive loss(310,314) (383,514)(215,797) (316,507)
Total capital3,227,616
 3,244,778
3,236,427
 3,607,359
Total Liabilities and Capital$60,975,455
 $61,545,586
$56,923,960
 $63,593,317

(a)   Fair values of held-to-maturity securities were $2,076,5701,333,568 and $2,372,290$1,528,929 at September 30, 20172019, and December 31, 2016,2018, respectively.

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



3
Table of Contents


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 September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 20162019 2018 2019 2018
INTEREST INCOME              
Advances$136,260
 $84,830
 $370,579
 $244,060
$204,511
 $226,546
 $676,257
 $617,916
Prepayment fees on advances, net202
 (35) 496
 2,897
329
 (2) 31,066
 161
Securities purchased under agreements to resell8,074
 2,697
 18,822
 8,603
28,121
 20,865
 104,192
 44,494
Federal funds sold16,622
 5,200
 39,614
 15,992
8,603
 29,329
 46,158
 81,126
Investment securities:              
Trading securities2,767
 2,182
 8,077
 6,623
7,918
 1,934
 12,165
 6,947
Available-for-sale securities30,625
 28,452
 78,161
 76,767
27,657
 35,532
 70,603
 113,531
Held-to-maturity securities19,754
 21,423
 60,129
 65,811
16,396
 19,525
 52,287
 57,622
Prepayment fees on investments42
 85
 123
 416
Total investment securities53,188
 52,142
 146,490
 149,617
51,971
 56,991
 135,055
 178,100
Mortgage loans held for portfolio31,656
 29,874
 92,592
 90,856
36,990
 33,967
 111,946
 100,774
Other822
 171
 1,549
 414
7,014
 1,122
 16,097
 2,270
Total interest income246,824
 174,879
 670,142
 512,439
337,539
 368,818
 1,120,771
 1,024,841
INTEREST EXPENSE              
Consolidated obligations:              
Bonds109,052
 86,574
 311,395
 267,214
152,814
 142,086
 458,346
 397,843
Discount notes65,120
 23,011
 157,767
 68,287
126,465
 147,463
 455,657
 385,804
Total consolidated obligations174,172
 109,585
 469,162
 335,501
279,279
 289,549
 914,003
 783,647
Deposits1,144
 180
 2,434
 441
1,638
 1,337
 5,252
 3,600
Mandatorily redeemable capital stock399
 334
 1,105
 1,032
248
 472
 814
 1,427
Other borrowings—
 1
 8
 3
—
 —
 27
 38
Total interest expense175,715
 110,100
 472,709
 336,977
281,165
 291,358
 920,096
 788,712
NET INTEREST INCOME71,109
 64,779
 197,433
 175,462
56,374
 77,460
 200,675
 236,129
Provision (reduction of provision) for credit losses28
 (94) (148) (194)
NET INTEREST INCOME AFTER PROVISION (REDUCTION OF PROVISION) FOR CREDIT LOSSES71,081
 64,873
 197,581
 175,656
Provision for credit losses48
 —
 63
 6
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES56,326
 77,460
 200,612
 236,123
OTHER INCOME (LOSS)              
Total other-than-temporary impairment losses on investment securities(12) (568) (102) (1,653)
Net amount of impairment losses reclassified (from) to accumulated other comprehensive loss(420) 197
 (1,316) (1,068)
Net other-than-temporary impairment losses on investment securities, credit portion(432) (371) (1,418) (2,721)(411) (71) (828) (407)
Litigation settlements—
 —
 —
 19,584
3
 12,769
 3
 12,769
Loss on early extinguishment of debt—
 (184) —
 (1,484)(164) —
 (10,029) —
Service fees2,228
 1,948
 6,362
 5,850
3,438
 2,719
 9,731
 7,538
Net unrealized losses on trading securities(1,591) (2,849) (3,857) (892)
Net losses on derivatives and hedging activities(6) (1,922) (388) (11,120)
Net unrealized (losses) gains on trading securities(162) (714) 892
 (3,702)
Net (losses) gains on derivatives and hedging activities(657) 487
 (1,071) 2,085
Other397
 (65) 358
 (203)23
 (82) 311
 340
Total other income (loss)596
 (3,443) 1,057
 9,014
2,070
 15,108
 (991) 18,623
OTHER EXPENSE              
Compensation and benefits11,463
 10,396
 32,120
 30,746
10,151
 10,309
 30,338
 31,085
Other operating expenses5,749
 5,792
 17,704
 16,939
5,928
 5,818
 18,464
 17,992
Federal Housing Finance Agency (the FHFA)934
 819
 2,870
 2,640
989
 832
 2,967
 2,593
Office of Finance734
 732
 2,321
 2,274
924
 911
 2,541
 2,538
Other2,092
 3,034
 7,528
 5,796
4,679
 2,788
 9,437
 8,090
Total other expense20,972
 20,773
 62,543
 58,395
22,671
 20,658
 63,747
 62,298
INCOME BEFORE ASSESSMENTS50,705
 40,657
 136,095
 126,275
35,725
 71,910
 135,874
 192,448
AHP5,110
 4,099
 13,720
 12,731
AHP assessments3,597
 7,238
 13,669
 19,387
NET INCOME$45,595
 $36,558
 $122,375
 $113,544
$32,128
 $64,672
 $122,205
 $173,061
 


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

4
Table of Contents



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

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017 2016 2017 2016
Net income $45,595
 $36,558
 $122,375
 $113,544
Other comprehensive income:        
Net unrealized (losses) gains on available-for-sale securities (61) (17,325) 42,439
 62,446
Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities        
Net amount of impairment losses reclassified to (from) non-interest income 420
 (196) 1,316
 1,068
Accretion of noncredit portion 8,178
 8,586
 24,593
 26,938
Total net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities 8,598
 8,390
 25,909
 28,006
Net unrealized (losses) gains relating to hedging activities        
Unrealized (losses) gains (856) 1,082
 (5,937) (25,688)
Reclassification adjustment for previously deferred hedging gains and losses included in net income 2,161
 5,341
 9,875
 19,445
Total net unrealized gains (losses) relating to hedging activities 1,305
 6,423
 3,938
 (6,243)
Pension and postretirement benefits 305
 210
 914
 (2,256)
Total other comprehensive income (loss) 10,147
 (2,302) 73,200
 81,953
Comprehensive income $55,742
 $34,256
 $195,575
 $195,497
FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2019 2018 2019 2018
Net income $32,128
 $64,672
 $122,205
 $173,061
Other comprehensive income:        
Net unrealized gains (losses) on available-for-sale securities 14,367
 (8,690) 84,725
 (54,280)
Net noncredit portion of other-than-temporary impairment recoveries on held-to-maturity securities 6,021
 7,133
 18,537
 22,155
Net unrealized gains (losses) relating to hedging activities 1,002
 3,526
 (2,903) 17,229
Pension and postretirement benefits 175
 (392) 526
 (1,177)
Total other comprehensive income (loss) 21,565
 1,577
 100,885
 (16,073)
Comprehensive income $53,693
 $66,249
 $223,090
 $156,988

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

5
Table of Contents




FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(dollars and shares in thousands)
(unaudited)

FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018
(dollars and shares in thousands)
(unaudited)


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 and 2018
(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, 201523,367
 $2,336,662
 $934,214
 $194,634
 $1,128,848
 $(442,597) $3,022,913
BALANCE, JUNE 30, 201824,801
 $2,480,110
 $1,067,943
 $288,994
 $1,356,937
 $(344,590) $3,492,457
Comprehensive income    90,835
 22,709
 113,544
 81,953
 195,497
    51,738
 12,934
 64,672
 1,577
 66,249
Proceeds from sale of capital stock3,143
 314,274
         314,274
4,356
 435,553
         435,553
Repurchase of capital stock(3,176) (317,634)         (317,634)(4,388) (438,787)         (438,787)
Shares reclassified to mandatorily redeemable capital stock(1) (40)         (40)
Cash dividends on capital stock    (62,251)   (62,251)   (62,251)    (35,143)   (35,143)   (35,143)
BALANCE, SEPTEMBER 30, 201623,333
 $2,333,262
 $962,798
 $217,343
 $1,180,141
 $(360,644) $3,152,759
BALANCE, SEPTEMBER 30, 201824,769
 $2,476,876
 $1,084,538
 $301,928
 $1,386,466
 $(343,013) $3,520,329
                          
BALANCE, DECEMBER 31, 201624,113
 $2,411,306
 $987,711
 $229,275
 $1,216,986
 $(383,514) $3,244,778
BALANCE, JUNE 30, 201919,953
 $1,995,252
 $1,087,641
 $328,685
 $1,416,326
 $(237,362) $3,174,216
Comprehensive income    97,900
 24,475
 122,375
 73,200
 195,575
    25,703
 6,425
 32,128
 21,565
 53,693
Proceeds from sale of capital stock7,314
 731,366
         731,366
5,750
 574,991
         574,991
Repurchase of capital stock(8,614) (861,354)         (861,354)(5,386) (538,592)         (538,592)
Shares reclassified to mandatorily redeemable capital stock(87) (8,670)         (8,670)
Cash dividends on capital stock    (74,079)   (74,079)   (74,079)    (27,881)   (27,881)   (27,881)
BALANCE, SEPTEMBER 30, 201722,726
 $2,272,648
 $1,011,532
 $253,750
 $1,265,282
 $(310,314) $3,227,616
BALANCE, SEPTEMBER 30, 201920,317
 $2,031,651
 $1,085,463
 $335,110
 $1,420,573
 $(215,797) $3,236,427

BALANCE, DECEMBER 31, 201722,837
 $2,283,721
 $1,041,033
 $267,316
 $1,308,349
 $(326,940) $3,265,130
Comprehensive income    138,449
 34,612
 173,061
 (16,073) 156,988
Proceeds from sale of capital stock13,115
 1,311,464
         1,311,464
Repurchase of capital stock(11,180) (1,118,018)         (1,118,018)
Shares reclassified to mandatorily redeemable capital stock(3) (291)         (291)
Cash dividends on capital stock    (94,944)   (94,944)   (94,944)
BALANCE, SEPTEMBER 30, 201824,769
 $2,476,876
 $1,084,538
 $301,928
 $1,386,466
 $(343,013) $3,520,329
              
BALANCE, DECEMBER 31, 201825,289
 $2,528,854
 $1,084,342
 $310,670
 $1,395,012
 $(316,507) $3,607,359
Cumulative effect of change in accounting principle    175
 
 175
 (175) —
Comprehensive income    97,765
 24,440
 122,205
 100,885
 223,090
Proceeds from sale of capital stock14,115
 1,411,495
         1,411,495
Repurchase of capital stock(19,087) (1,908,698)         (1,908,698)
Cash dividends on capital stock    (96,819)   (96,819)   (96,819)
BALANCE, SEPTEMBER 30, 201920,317
 $2,031,651
 $1,085,463
 $335,110
 $1,420,573
 $(215,797) $3,236,427

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





6
Table of Contents




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 Nine Months Ended September 30,For the Nine Months Ended September 30,
2017 20162019 2018
OPERATING ACTIVITIES 
  
 
  
Net income$122,375
 $113,544
$122,205
 $173,061
Adjustments to reconcile net income to net cash provided by operating activities: 
   
  
Depreciation and amortization(5,690) (23,463)(2,678) (5,205)
Reduction of provision for credit losses(148) (194)
Change in net fair-value adjustments on derivatives and hedging activities(10,293) 17,856
Provision for credit losses63
 6
Net change in derivatives and hedging activities(339,823) 62,198
Net other-than-temporary impairment losses on investment securities, credit portion1,418
 2,721
828
 407
Loss on early extinguishment of debt—
 1,484
10,029
 —
Other adjustments3,741
 3,207
4,306
 4,057
Net change in: 
   
  
Market value of trading securities3,857
 892
(892) 3,702
Accrued interest receivable(238) 7,390
3,427
 (8,366)
Other assets(1,522) (304)(3,578) (19,509)
Accrued interest payable19,326
 11,849
16,445
 28,618
Other liabilities(1,343) (11,614)(622) 9,183
Total adjustments9,108
 9,824
(312,495) 75,091
Net cash provided by operating activities131,483
 123,368
Net cash (used in) provided by operating activities(190,290) 248,152
      
INVESTING ACTIVITIES 
  
 
  
Net change in: 
  
 
  
Interest-bearing deposits(195,156) (111,135)173,526
 (442,598)
Securities purchased under agreements to resell3,000,000
 2,951,000
2,599,000
 (150,000)
Federal funds sold(3,550,000) (3,380,000)1,500,000
 (2,200,000)
Premises, software, and equipment(1,901) (1,638)
Loans to other FHLBanks—
 400,000
Trading securities: 
  
 
  
Proceeds717,022
 9,471
133,757
 767,897
Purchases(618,051) (399,155)(1,506,707) (749,072)
Available-for-sale securities: 
  
 
  
Proceeds from long-term902,513
 901,082
Purchases of long-term(1,710,033) (1,608,830)
Proceeds1,323,624
 979,365
Purchases(2,019,222) (3,150)
Held-to-maturity securities: 
  
 
  
Proceeds from long-term376,797
 425,936
Proceeds209,055
 283,819
Advances to members: 
  
 
  
Proceeds361,435,261
 255,534,514
Disbursements(359,828,724) (256,626,490)
Repaid381,261,806
 508,490,355
Originated(376,495,340) (511,902,406)
Mortgage loans held for portfolio: 
  
 
  
Proceeds352,393
 408,128
367,755
 320,586
Purchases(608,887) (550,511)(534,974) (517,010)
Proceeds from sale of foreclosed assets3,239
 4,368
Other investing activities(518) 1,907
Net cash provided by (used in) investing activities274,473
 (2,443,260)7,011,762
 (4,720,307)
      
FINANCING ACTIVITIES 
  
 
  
Net change in deposits10,348
 127,432
150,755
 9,013
Net payments on derivatives with a financing element(4,100) (10,493)(73,773) —
Net proceeds from issuance of consolidated obligations: 
  
 
  

7
Table of Contents



Discount notes125,580,345
 114,582,795
109,846,074
 149,554,769
Bonds7,821,400
 15,435,348
8,410,772
 8,128,518
Payments for maturing and retiring consolidated obligations: 
  
 
  
Discount notes(127,600,947) (114,339,603)(116,012,506) (143,869,342)
Bonds(6,491,880) (13,483,496)(8,524,303) (9,661,015)
Proceeds from issuance of capital stock731,366
 314,274
1,411,495
 1,311,464
Payments for repurchase of capital stock(1,908,698) (1,118,018)
Payments for redemption of mandatorily redeemable capital stock(5,315) (8,217)(14,761) (4,346)
Payments for repurchase of capital stock(861,354) (317,634)
Cash dividends paid(74,076) (62,251)(96,819) (94,947)
Net cash (used in) provided by financing activities(894,213) 2,238,155
(6,811,764) 4,256,096
Net decrease in cash and due from banks(488,257) (81,737)
Net increase (decrease) in cash and due from banks9,708
 (216,059)
Cash and due from banks at beginning of the period520,031
 254,218
10,431
 261,673
Cash and due from banks at end of the period$31,774
 $172,481
$20,139
 $45,614
Supplemental disclosures:      
Interest paid$471,076
 $363,979
$929,581
 $754,566
AHP payments$16,217
 $12,739
$11,995
 $13,384
Noncash receipt of trading securities$—
 $7,130
Noncash transfers of mortgage loans held for portfolio to other assets$1,588
 $2,657
$1,555
 $1,413
Lease liabilities arising from obtaining right-of-use assets$12,571
 $—


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




8
FEDERAL HOME LOAN BANK OF BOSTON
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



Note 1 — Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments considered necessary have been included. All such adjustments consist of normal recurring accruals. The presentationpreparation 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, 2017. The unaudited2019. These interim financial statements do not include all the information and footnotes required by GAAP for complete annual financial statements and accordingly 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, 2016,2018, filed with the Securities and Exchange Commission (the SEC) on March 24, 201722, 2019 (the 20162018 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 — Summary of Significant Accounting Policies

As of September 30, 2017,2019, we have not made any significant changes to the summary of significant accounting policies described in Item 8 — Financial Statements and Supplementary Data — Note 182 — Fair ValuesSummary of Significant Accounting Policies in the 20162018 Annual Report other than described below. These changes relate to the Financial Accounting Standards Board (FASB) guidance that became effective January 1, 2019 for Targeted Improvements to Accounting for Hedging Activities as well as for Leases. See Note 3 — Recently Issued and Adopted Accounting Guidance for additional information.

Investment Securities

Available-for-sale. We classify certain investments that are not classified as held-to-maturity or trading as available-for-sale and carry them at fair value. Changes in fair value of available-for-sale securities not being hedged by derivatives, or in an economic hedging relationship, are recorded in other comprehensive income (loss) as net unrealized gains (losses) on available-for-sale securities. For available-for-sale securities that have been hedged under fair-value hedge designations, we record the portion of the change in the fair value of the investment related to the risk being hedged in available-for-sale interest income together with the related change in the fair value of the derivative. Prior to January 1, 2019, this amount was recorded in other income as net gains (losses) on derivatives and hedging activities. The remainder of the change in the fair value of the investment is recorded in other comprehensive income (loss) as net unrealized gains (losses) on available-for-sale securities.

Advances

Advance Modifications. In cases in which we fund a new advance concurrently with or within a short period of time of the prepayment of an existing advance by the same member, we evaluate whether the new advance meets the accounting criteria to qualify as a modification of the existing advance or whether it constitutes a new advance. We compare the present value of cash flows on the new advance with the present value of cash flows remaining on the existing advance. If there is at least a 10 percent difference in the present value of cash flows or if we conclude the difference between the advances is more than minor based on a qualitative assessment of the modifications made to the advance's original contractual terms, the advance is accounted for as a new advance. In all other instances, the new advance is accounted for as a modification.

If a new advance qualifies as a modification of the existing advance, the net prepayment fee on the prepaid advance is deferred, recorded in the basis of the modified advance, and amortized to interest income over the life of the modified advance using the level-yield method. This amortization is recorded in advance-interest income. If the modified advance is hedged, changes in fair value are recorded after the amortization of the basis adjustment in advance interest income. Prior to January 1, 2019, this amortization resulted in offsetting amounts being recorded in net interest income and net gains (losses) on derivatives and hedging activities in other income.

For prepaid advances that were hedged and meet the hedge-accounting requirements, we terminate the hedging relationship upon prepayment and record the prepayment fee net of the hedging fair-value adjustment in the basis of the advance as advance-interest income. If we fund a new advance to a member concurrent with or within a short period of time after the prepayment of a previous advance to that member, we evaluate whether the new advance qualifies as a modification of the original hedged advance. If the new advance qualifies as a modification of the original hedged advance, the hedging fair-value adjustment and the prepayment fee are included in the carrying amount of the modified advance and are amortized in interest

income over the life of the modified advance using the level-yield method. If the modified advance is also hedged and the hedge meets the hedging criteria, the modified advance is marked to fair value after the modification, and subsequent fair-value changes are recorded in advance interest income. Prior to January 1, 2019, subsequent fair value changes were recorded in other income as net gains (losses) on derivatives and hedging activities.

If a new advance does not qualify as a modification of an existing advance, prepayment of the existing advance is treated as an advance termination and any prepayment fee, net of hedging adjustments, is recorded to advance-interest income in the statement of operations.

Derivatives

Accounting for Fair-Value and Cash-Flow Hedges. If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the hedging relationship and an expectation to be highly effective, they qualify for fair-value or cash-flow hedge accounting. For cash-flow hedges, we measure effectiveness using the hypothetical derivative method, which compares the cumulative change in fair value of the actual derivative designated as the hedging instrument to the cumulative change in fair value of a hypothetical derivative having terms that identically match the critical terms of the hedged forecasted transaction.

Derivatives that are used in fair-value hedges are typically executed at the same time as the hedged items, and we designate the hedged item in a qualifying hedge relationship as of the trade date. We then record the changes in fair value of the derivative and the hedged item beginning on the trade date. Beginning January 1, 2019, we adopted new hedge accounting guidance which, among other things, impacts the presentation of gains (losses) on derivatives and hedging activities for qualifying hedges as follows:

Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in net interest income in the same line as the earnings effect of the hedged item.
Changes in the fair value of a derivative that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), a component of capital, until the hedged transaction affects earnings.

Prior to January 1, 2019, for both fair-value and cash-flow hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction attributable to the hedged risk) was recorded in non-interest income as net gains (losses) on derivatives and hedging activities.

Premises, Software, Equipment and Leases

We utilize two derivatives clearing organizations (DCOs),record premises, software, and equipment at cost less accumulated depreciation and amortization and compute depreciation on a straight-line basis over estimated useful lives ranging from three years to 10 years. We amortize leasehold improvements on a straight-line basis over the shorter of the estimated useful life of the improvement or the remaining term of the lease. We capitalize improvements and major renewals but expense ordinary maintenance and repairs when incurred. We include gains and losses on disposal of premises, software, and equipment in other income (loss) on the statement of operations. The cost of purchased software and certain costs incurred in developing computer software for all cleared derivative transactions, Chicago Mercantile Exchange, Inc. (CME Inc.)internal use are capitalized and LCH Limited (LCH Ltd.). Effective January 3, 2017, CME Inc.amortized over future periods.

We lease office space and office equipment to run our business operations. For leases with a term of 12 months or less, we have made certain amendmentsan accounting policy election to its rulebook changingnot recognize lease right-of-use assets and lease liabilities. At September 30, 2019, we included in the legal characterizationstatement of variation margin payments to be daily settlement payments, rather than collateral transfers.condition $10.9 million of lease right-of-use assets in other assets as well as $11.1 million of lease liabilities in other liabilities. We continue to characterize our variation margin related to LCH Ltd. contracts as cash collateral. At both DCOs, initial margin is considered cash collateral.have recognized lease costs in the other operating expense line of the statement of operations of $646,000 and $1.9 million for the three and nine months ended September 30, 2019.

Note 3 — Recently Issued and Adopted Accounting Guidance

Effective January 1, 2019

Inclusion of the Overnight Indexed Swap Rate Based on the Secured Overnight Financing Rate (SOFR) as a Benchmark Interest Rate for Hedge Accounting Purposes.On October 25, 2018, the FASB issued amended guidance to permit use of the overnight-index swap (OIS) rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes. This

guidance became effective for us on January 1, 2019. Upon adoption, SOFR became an eligible benchmark interest rate which we may elect to apply to future hedge relationships.

Targeted Improvements to Accounting for Hedging Activities,Activities. On August 28, 2017, the Financial Accounting Standards Board (FASB)FASB issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair valuefair-value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flowcash-flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:

Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.inception;
Measurement of the hedged item in a partial-term fair valuefair-value hedge of interest-rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.hedged;
Consideration only of how changes in the benchmark interest rate alone affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest-rate risk.risk;
For a cash flowcash-flow hedge of interest-rate risk of a variable-rate financial instrument, an entity could designate as the hedged risk the variability in cash flows attributable to the contractually specified interest-rate.interest rate;
For a closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, an entity can designate an amount that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows (the “last-of-layer” method) into a hedging relationship.relationship; and
An entity can perform subsequent assessments of hedge effectiveness qualitatively in instances where initial quantitative testing is required.
For financial instruments eligible to be designated as a hedged item under the last-of-layer method, a one-time reclassification of prepayable financial instruments from held-to-maturity to available-for-sale at the date of adoption is permitted.

9
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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



ThisWe adopted this guidance becomes effective for us for interim and annual periods beginning on January 1, 2019, and early adoption is permitted.2019. For all cash flowcash-flow hedges existing on the date of adoption, this guidance should bewas applied through a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the year of adoption. The amended presentation and disclosure guidance is required only prospectively. We do not intend to adopt this guidance early. We are in the process of evaluating this guidance, and its anticipated effect on ourwere applied prospectively; prior period comparative financial condition, results of operations, and cash flowsinformation has not yet been determined.

Premium Amortization on Purchased Callable Debt Securities.On March 30, 2017, the FASB issued amended guidancereclassified to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premiumconform to be amortized to the earliest call date.current presentation. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). This guidance is effective for us for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. We do not intend to adopt this guidance early. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We currently do not have a significant amount of assets that are in scope to be evaluated under the updated guidance. As such, adoption of this guidance isdid not expected to have a material effect on our financial condition, results of operations, or cash flows. See Note 2 — Summary of Significant Accounting Policies and Note 11 — Derivatives and Hedging Activities for additional information.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.Leases. On March 10, 2017,February 25, 2016, the FASB issued amended 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 improverecognize on the presentationstatement of net periodic pension costcondition a liability to make lease payments and net periodic postretirement benefit cost.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 amendments require that employers disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This guidance isbecame effective for us for interim and annual periods beginning on January 1, 2018, and early2019. Upon adoption is permitted. This guidance should be applied retrospectively for the presentation of the service cost componentnew guidance, we recognized right-of-use assets and lease liabilities of approximately $11.9 million and $12.5 million, respectively, on the other componentsstatement of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after thecondition. See Note 2 — Summary of Significant Accounting Policies for additional information.

Becoming effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The changes outlined in the guidance will primarily impact the presentation of the income statement, but will not impact net income. As such, adoption of this guidance is not expected to have a material effect on our financial condition, results of operations, or cash flows.January 1, 2020

Financial Instruments - Credit Losses. On June 16, 2016, the FASB issued amended guidance for the accounting of credit losses on financial instruments. The amendments require entities to measure expected credit losses based on relevant information about past events (including historical experience), current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The new guidance requires a financial asset, or a group of financial assets, measured at amortized cost to be presented at the net amount expected to be collected over the contractual term of the financial asset(s). The guidance also requires, among other things, the following:that we:

TheReflect in the statement of income reflectsoperations the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.
Entities determine
Determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost in a similar manner to other financial assets measured at amortized cost. The initial allowance for credit losses is required to be added to the purchase price.
Entities recordRecord credit losses relating to available-for-sale debt securities through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost.
Public entities furtherFurther disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination.

This guidance is effective for us for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018.2018; however, we do not intend to adopt the new guidance early. This guidance is required to be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, entities are required to use a prospective transition approach for

10
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


purchased financial assets with a more-than-insignificant amount of credit deterioration since origination and for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We do not intend to adopt the new guidance early. While we are in the process of evaluating this guidance, we expect the adoption of the guidance will result in an increase in the allowance for credit losses given the requirement to assess losses for the entire estimated life of the financial asset.
The overall effect on our financial condition, results of operations, and cash flows will depend upon the composition of our financial assets held at the date of adoption date as well as the economic conditions and forecasts at that time.

Contingent Put and Call Options in Debt Instruments. On March 14, 2016, the FASB issued amendments 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. We adopted this guidance on January 1, 2017. The adoption of this guidance did not have any effect However, based on our financial condition, results of operations, or cash flows.

Recognition and Measurement of Financial Assets and Financial Liabilities. On January 5, 2016,preliminary assessment, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes, but is not limited to, the following:

Requires equity investments (with certain exceptions) to be measured at fair value with changes in fair value recognized in net income;
Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments;
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the statement of condition or the accompanying notes to the financial statements; and
Eliminates the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the statement of condition.

This guidance becomes effective for us for the interim and annual periods beginning on January 1, 2018, and early adoption is only permitted for certain provisions. The amendments, in general, are required to be applied by means of a cumulative-effect adjustment on the statement of condition as of the beginning of the period of adoption. We do not invest in equity securities and we have not previously elected the fair value option for our own debt securities. Accordingly, adoption of this guidance is not expected to have a material effect on our financial condition, results of operations, or cash flows, though it is expected to result in certain immaterial revisions to our disclosures.

flows.
Note 4 — Trading Securities
Major Security Types. Our trading securities as of September 30, 2017, and December 31, 2016, were (dollars in thousands):
Table 4.1 - Trading Securities by Major Security Type
(dollars in thousands)

Table 4.1 - Trading Securities by Major Security Type
(dollars in thousands)

September 30, 2019 December 31, 2018
Corporate bonds$6,211
 $6,102
U.S. Treasury obligations1,508,289
 —
September 30, 2017 December 31, 20161,514,500
 6,102
U.S. Treasury obligations$309,498
 $399,521
      
Mortgage backed securities (MBS) 
   
  
U.S. government-guaranteed – single-family7,207
 8,494
4,371
 5,344
Government-sponsored enterprise (GSE)s – single-family440
 768
GSEs – multifamily192,318
 203,839
Government sponsored enterprise (GSE) – single-family96
 148
GSE – multifamily17,913
 151,444
199,965
 213,101
22,380
 156,936
Total$509,463
 $612,622
$1,536,880
 $163,038



11
Table of Contents


Net unrealized gains or losses on trading securities for the nine months ended September 30, 2017,2019 and 2016,2018, amounted to $3.9net gains of $892 thousand and net losses of $3.7 million, and $892,000 for securities held on September 30, 2017, and 2016, respectively.

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

Note 5 — Available-for-Sale Securities

Major Security Types. Our available-for-sale securities as of September 30, 2017, were (dollars in thousands):


Table 5.1 - Available-for-Sale Securities by Major Security Type
(dollars in thousands)

 September 30, 2019
   Amounts Recorded in Accumulated Other Comprehensive Loss  
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
State housing-finance-agency obligations (HFA securities)$59,720
 $—
 $(3,855) $55,865
Supranational institutions440,326
 —
 (15,216) 425,110
U.S. government-owned corporations339,744
 —
 (33,785) 305,959
GSE136,707
 —
 (8,612) 128,095
 976,497
 —
 (61,468) 915,029
MBS 
  
  
  
U.S. government guaranteed – single-family63,632
 10
 (1,650) 61,992
U.S. government guaranteed – multifamily318,310
 —
 (1,425) 316,885
GSE – single-family2,889,264
 6,585
 (12,164) 2,883,685
GSE – multifamily2,528,380
 4,473
 (2,594) 2,530,259
 5,799,586
 11,068
 (17,833) 5,792,821
Total$6,776,083
 $11,068
 $(79,301) $6,707,850
 December 31, 2018
   Amounts Recorded in Accumulated Other Comprehensive Loss  
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
HFA securities$55,500
 $—
 $(5,899) $49,601
Supranational institutions419,222
 —
 (14,067) 405,155
U.S. government-owned corporations297,729
 —
 (24,560) 273,169
GSE122,423
 —
 (6,796) 115,627
 894,874
 —
 (51,322) 843,552
MBS 
  
  
  
U.S. government guaranteed – single-family79,075
 20
 (3,437) 75,658
U.S. government guaranteed – multifamily368,103
 —
 (6,969) 361,134
GSE – single-family3,649,964
 681
 (88,486) 3,562,159
GSE – multifamily1,010,886
 168
 (3,613) 1,007,441
 5,108,028
 869
 (102,505) 5,006,392
Total$6,002,902
 $869
 $(153,827) $5,849,944
   Amounts Recorded in Accumulated Other Comprehensive Loss  
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
State or local housing-finance-agency obligations (HFA securities)$20,470
 $—
 $(1,927) $18,543
Supranational institutions445,886
 —
 (24,394) 421,492
U.S. government-owned corporations317,205
 —
 (30,812) 286,393
GSEs130,269
 —
 (10,236) 120,033
 913,830
 —
 (67,369) 846,461
MBS 
  
  
  
U.S. government guaranteed – single-family104,886
 66
 (2,253) 102,699
U.S. government guaranteed – multifamily470,866
 —
 (2,896) 467,970
GSEs – single-family4,551,950
 5,441
 (29,370) 4,528,021
GSEs – multifamily1,611,949
 2,945
 (934) 1,613,960
 6,739,651
 8,452
 (35,453) 6,712,650
Total$7,653,481
 $8,452
 $(102,822) $7,559,111
_______________________
(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, 2016, were (dollars in thousands):
   Amounts Recorded in Accumulated Other Comprehensive Loss  
 
Amortized
Cost (1)
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
 Value
HFA securities$9,350
 $—
 $(1,204) $8,146
Supranational institutions452,021
 —
 (29,401) 422,620
U.S. government-owned corporations317,588
 —
 (45,631) 271,957
GSEs130,798
 —
 (13,330) 117,468
 909,757
 —
 (89,566) 820,191
MBS 
  
  
  
U.S. government guaranteed – single-family127,032
 16
 (2,321) 124,727
U.S. government guaranteed – multifamily565,593
 45
 (2,277) 563,361
GSEs – single-family4,447,803
 1,765
 (45,713) 4,403,855
GSEs – multifamily675,288
 1,242
 —
 676,530
 5,815,716
 3,068
 (50,311) 5,768,473
Total$6,725,473
 $3,068
 $(139,877) $6,588,664
_______________________
Table 5.2 - Available-for-Sale Securities in a Continuous Unrealized Loss Position
(dollars in thousands)

 September 30, 2019
 Continuous Unrealized Loss Less than 12 Months Continuous Unrealized Loss 12 Months or More Total
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
 
Fair
 Value
 
Unrealized
 Losses
HFA securities$12,605
 $(1,265) $43,260
 $(2,590) $55,865
 $(3,855)
Supranational institutions—
 —
 425,110
 (15,216) 425,110
 (15,216)
U.S. government-owned corporations—
 —
 305,959
 (33,785) 305,959
 (33,785)
GSE—
 —
 128,095
 (8,612) 128,095
 (8,612)
 12,605
 (1,265) 902,424
 (60,203) 915,029
 (61,468)
            
MBS 
  
  
  
  
  
U.S. government guaranteed – single-family12,130
 (7) 48,463
 (1,643) 60,593
 (1,650)
U.S. government guaranteed – multifamily—
 —
 316,885
 (1,425) 316,885
 (1,425)
GSE – single-family43,825
 (64) 1,733,458
 (12,100) 1,777,283
 (12,164)
GSE – multifamily966,554
 (1,852) 184,846
 (742) 1,151,400
 (2,594)
 1,022,509
 (1,923) 2,283,652
 (15,910) 3,306,161
 (17,833)
Total temporarily impaired$1,035,114
 $(3,188) $3,186,076

$(76,113)
$4,221,190

$(79,301)

12
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


(1)Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and fair-value hedge accounting adjustments.

The following table summarizes our available-for-sale securities with unrealized losses as of September 30, 2017, 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$18,543
 $(1,927) $—
 $—
 $18,543
 $(1,927)
Supranational institutions—
 —
 421,492
 (24,394) 421,492
 (24,394)
U.S. government-owned corporations—
 —
 286,393
 (30,812) 286,393
 (30,812)
GSEs—
 —
 120,033
 (10,236) 120,033
 (10,236)
 18,543
 (1,927) 827,918
 (65,442) 846,461
 (67,369)
            
MBS 
  
  
  
  
  
U.S. government guaranteed – single-family75,908
 (2,253) —
 —
 75,908
 (2,253)
U.S. government guaranteed – multifamily293,802
 (1,418) 174,168
 (1,478) 467,970
 (2,896)
GSEs – single-family2,437,249
 (16,871) 779,735
 (12,499) 3,216,984
 (29,370)
GSEs – multifamily962,206
 (934) —
 —
 962,206
 (934)
 3,769,165
 (21,476) 953,903
 (13,977) 4,723,068
 (35,453)
Total temporarily impaired$3,787,708
 $(23,403) $1,781,821

$(79,419)
$5,569,529

$(102,822)

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

December 31, 2018
Less than 12 Months 12 Months or More TotalContinuous Unrealized Loss Less than 12 Months Continuous Unrealized Loss 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$8,146
 $(1,204) $—
 $—
 $8,146
 $(1,204)$11,118
 $(1,682) $38,483
 $(4,217) $49,601
 $(5,899)
Supranational institutions—
 —
 422,620
 (29,401) 422,620
 (29,401)—
 —
 405,155
 (14,067) 405,155
 (14,067)
U.S. government-owned corporations—
 —
 271,957
 (45,631) 271,957
 (45,631)—
 —
 273,169
 (24,560) 273,169
 (24,560)
GSEs—
 —
 117,468
 (13,330) 117,468
 (13,330)
GSE—
 —
 115,627
 (6,796) 115,627
 (6,796)
8,146
 (1,204) 812,045
 (88,362) 820,191
 (89,566)11,118
 (1,682) 832,434
 (49,640) 843,552
 (51,322)
MBS 
  
  
  
  
  
 
  
  
  
  
  
U.S. government guaranteed – single-family31,606
 (4) 90,854
 (2,317) 122,460
 (2,321)—
 —
 57,679
 (3,437) 57,679
 (3,437)
U.S. government guaranteed – multifamily326,126
 (1,261) 165,246
 (1,016) 491,372
 (2,277)—
 —
 361,134
 (6,969) 361,134
 (6,969)
GSEs – single-family3,517,094
 (39,181) 351,331
 (6,532) 3,868,425
 (45,713)
GSE – single-family53,122
 (388) 3,417,076
 (88,098) 3,470,198
 (88,486)
GSE – multifamily902,850
 (3,613) —
 —
 902,850
 (3,613)
3,874,826
 (40,446) 607,431
 (9,865) 4,482,257
 (50,311)955,972
 (4,001) 3,835,889
 (98,504) 4,791,861
 (102,505)
Total temporarily impaired$3,882,972
 $(41,650) $1,419,476
 $(98,227) $5,302,448
 $(139,877)$967,090
 $(5,683) $4,668,323

$(148,144) $5,635,413
 $(153,827)


Redemption Terms. The amortized cost and fair value of our available-for-sale securities by contractual maturity at September 30, 2017, and December 31, 2016, were (dollars in thousands):


13
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



Table 5.3 - Available-for-Sale Securities by Contractual Maturity
(dollars in thousands)
Table 5.3 - Available-for-Sale Securities by Contractual Maturity
(dollars in thousands)
September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
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$—
 $—
 $—
 $—
$7,600
 $7,511
 $—
 $—
Due after one year through five years16,950
 15,523
 9,350
 8,146
47,900
 44,632
 55,500
 49,601
Due after five years through 10 years449,405
 424,512
 171,589
 161,746
493,829
 477,098
 465,248
 450,102
Due after 10 years447,475
 406,426
 728,818
 650,299
427,168
 385,788
 374,126
 343,849
913,830
 846,461
 909,757
 820,191
976,497
 915,029
 894,874
 843,552
MBS (1)
6,739,651
 6,712,650
 5,815,716
 5,768,473
5,799,586
 5,792,821
 5,108,028
 5,006,392
Total$7,653,481
 $7,559,111
 $6,725,473
 $6,588,664
$6,776,083
 $6,707,850
 $6,002,902
 $5,849,944
_______________________
(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 6 — Held-to-Maturity Securities

Table 6.1 - Held-to-Maturity Securities by Major Security Type
(dollars in thousands)

 September 30, 2019
 Amortized Cost Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Loss Carrying Value Gross Unrecognized Holding Gains Gross Unrecognized Holding Losses Fair Value
HFA securities$91,460
 $—
 $91,460
 $—
 $(4,860) $86,600
 

 

 

 

 

 

MBS 
  
  
  
  
  
U.S. government guaranteed – single-family7,258
 —
 7,258
 140
 —
 7,398
GSE – single-family329,147
 —
 329,147
 6,072
 (195) 335,024
GSE – multifamily200,961
 —
 200,961
 1,363
 —
 202,324
Private-label602,230
 (110,617) 491,613
 212,405
 (1,796) 702,222
 1,139,596
 (110,617) 1,028,979
 219,980
 (1,991) 1,246,968
Total$1,231,056
 $(110,617) $1,120,439
 $219,980
 $(6,851) $1,333,568


 December 31, 2018
 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$208
 $—
 $208
 $—
 $—
 $208
HFA securities104,465
 —
 104,465
 4
 (4,612) 99,857
 104,673
 —
 104,673
 4
 (4,612) 100,065
MBS           
U.S. government guaranteed – single-family8,173
 —
 8,173
 158
 —
 8,331
GSE – single-family412,639
 —
 412,639
 6,861
 (1,389) 418,111
GSE – multifamily209,786
 —
 209,786
 1,728
 —
 211,514
Private-label688,905
 (129,153) 559,752
 234,083
 (2,927) 790,908
 1,319,503
 (129,153) 1,190,350
 242,830
 (4,316) 1,428,864
Total$1,424,176
 $(129,153) $1,295,023
 $242,834
 $(8,928) $1,528,929
Major Security Types. Our held-to-maturity securities as of September 30, 2017, 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$1,391
 $—
 $1,391
 $28
 $—
 $1,419
HFA securities157,479
 —
 157,479
 23
 (17,525) 139,977
 158,870
 —
 158,870
 51
 (17,525) 141,396
MBS 
  
  
  
  
  
U.S. government guaranteed – single-family10,705
 —
 10,705
 233
 —
 10,938
U.S. government guaranteed – multifamily373
 —
 373
 —
 —
 373
GSEs – single-family619,442
 —
 619,442
 12,841
 (147) 632,136
GSEs – multifamily294,039
 —
 294,039
 8,839
 —
 302,878
Private-label – residential871,152
 (166,346) 704,806
 278,651
 (4,195) 979,262
Asset-backed securities (ABS) backed by home equity loans9,899
 (123) 9,776
 280
 (469) 9,587
 1,805,610
 (166,469) 1,639,141
 300,844
 (4,811) 1,935,174
Total$1,964,480
 $(166,469) $1,798,011
 $300,895
 $(22,336) $2,076,570

Our held-to-maturity securities as of December 31, 2016, were (dollars in thousands):
Table 6.2 - Held-to-Maturity Securities in a Continuous Unrealized Loss Position
(dollars in thousands)

 September 30, 2019
 Continuous Unrealized Loss Less than 12 Months Continuous Unrealized Loss 12 Months or More Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
HFA securities$6,196
 $(9) $80,404
 $(4,851) $86,600
 $(4,860)
            
MBS         
  
GSE – single-family16,059
 (39) 19,769
 (156) 35,828
 (195)
Private-label11,232
 (145) 89,083
 (2,936) 100,315
 (3,081)
 27,291
 (184) 108,852
 (3,092) 136,143
 (3,276)
Total$33,487
 $(193) $189,256
 $(7,943) $222,743
 $(8,136)

14
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)

 December 31, 2018
 Continuous Unrealized Loss Less than 12 Months Continuous Unrealized Loss 12 Months or More Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
HFA securities$6,196
 $(9) $92,822
 $(4,603) $99,018
 $(4,612)
            
MBS         
  
GSE – single-family69,377
 (580) 52,237
 (809) 121,614
 (1,389)
Private-label25,680
 (331) 114,937
 (4,587) 140,617
 (4,918)
 95,057
 (911) 167,174
 (5,396) 262,231
 (6,307)
Total$101,253
 $(920) $259,996
 $(9,999) $361,249
 $(10,919)

 Amortized Cost Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Loss Carrying Value Gross Unrecognized Holding Gains Gross Unrecognized Holding Losses Fair Value
U.S. agency obligations$2,159
 $—
 $2,159
 $56
 $—
 $2,215
HFA securities162,568
 —
 162,568
 11
 (19,291) 143,288
 164,727
 —
 164,727
 67
 (19,291) 145,503
MBS           
U.S. government guaranteed – single-family12,719
 —
 12,719
 246
 —
 12,965
U.S. government guaranteed – multifamily1,532
 —
 1,532
 —
 —
 1,532
GSEs – single-family812,836
 —
 812,836
 16,881
 (519) 829,198
GSEs – multifamily318,667
 —
 318,667
 11,692
 —
 330,359
Private-label – residential999,149
 (191,804) 807,345
 240,818
 (8,373) 1,039,790
ABS backed by home equity loans13,515
 (574) 12,941
 602
 (600) 12,943
 2,158,418
 (192,378) 1,966,040
 270,239
 (9,492) 2,226,787
Total$2,323,145
 $(192,378) $2,130,767
 $270,306
 $(28,783) $2,372,290


The following table summarizes our held-to-maturity securities with unrealized losses as of September 30, 2017, 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$—
 $—
 $126,190
 $(17,525) $126,190
 $(17,525)
            
MBS         
  
GSEs – single-family17,966
 (12) 18,635
 (135) 36,601
 (147)
Private-label – residential—
 —
 190,124
 (7,644) 190,124
 (7,644)
ABS backed by home equity loans—
 —
 8,480
 (471) 8,480
 (471)
 17,966
 (12) 217,239
 (8,250) 235,205
 (8,262)
Total$17,966
 $(12) $343,429
 $(25,775) $361,395
 $(25,787)

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

15
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


 Less than 12 Months 12 Months or More Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
 Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
HFA securities$—
 $—
 $140,959
 $(19,291) $140,959
 $(19,291)
            
MBS         
  
GSEs – single-family83,291
 (393) 13,405
 (126) 96,696
 (519)
Private-label – residential16,915
 (128) 397,407
 (28,781) 414,322
 (28,909)
ABS backed by home equity loans—
 —
 11,898
 (720) 11,898
 (720)
 100,206
 (521) 422,710
 (29,627) 522,916
 (30,148)
Total$100,206
 $(521) $563,669
 $(48,918) $663,875
 $(49,439)


Redemption Terms. The amortized cost, carrying value, and fair value of our held-to-maturity securities by contractual maturity at September 30, 2017, and December 31, 2016, 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.
Table 6.3 - Held-to-Maturity Securities by Contractual Maturity
(dollars in thousands)

Table 6.3 - Held-to-Maturity Securities by Contractual Maturity
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
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$109
 $109
 $111
 $—
 $—
 $—
$—
 $—
 $—
 $1,043
 $1,043
 $1,047
Due after one year through five years15,046
 15,046
 15,095
 16,637
 16,637
 16,663
6,205
 6,205
 6,196
 6,205
 6,205
 6,196
Due after five years through 10 years—
 —
 —
 —
 —
 —
16,145
 16,145
 15,922
 16,865
 16,865
 16,639
Due after 10 years143,715
 143,715
 126,190
 148,090
 148,090
 128,840
69,110
 69,110
 64,482
 80,560
 80,560
 76,183
158,870
 158,870
 141,396
 164,727
 164,727
 145,503
91,460
 91,460
 86,600
 104,673
 104,673
 100,065
MBS (2)
1,805,610
 1,639,141
 1,935,174
 2,158,418
 1,966,040
 2,226,787
1,139,596
 1,028,979
 1,246,968
 1,319,503
 1,190,350
 1,428,864
Total$1,964,480
 $1,798,011
 $2,076,570
 $2,323,145
 $2,130,767
 $2,372,290
$1,231,056
 $1,120,439
 $1,333,568
 $1,424,176
 $1,295,023
 $1,528,929
_______________________
(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 7 — 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 September 30, 20172019. At September 30, 20172019, 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.

Held-to-Maturity Securities


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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


HFA Securities and Agency MBS. We have reviewed our investments in HFA securities and agency MBS and have determined that all unrealized losses are temporary. 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. Webasis, and we do not consider these investments to be other-than-temporarily impaired at September 30, 20172019.

Private-Label Residential MBS and ABSAsset-Backed Securities (ABS) Backed by Home Equity Loans. For those securities for which a credit loss was recognized during the three months ended September 30, 20172019, the following tableTable 7.1 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).MBS.


Table 7.1 - Significant Inputs and Current Credit Enhancement for Securities with a Current Period Credit Loss
(dollars in thousands)

Table 7.1 - Significant Inputs and Current Credit Enhancement for Securities with a Current Period Credit Loss
(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
  Par Value 
Projected
Prepayment Rates
 
Projected
Default Rates
 
Projected
Loss Severities
 
Alt-A - Private-label residential MBS (1)
 $58,723
 8.7% 32.2% 36.5% 11.8%
Private-label residential MBS - Alt-A (1)
 $45,287
 12.9% 23.7% 57.9% 3.8%
_______________________
(1)Securities are classified based upon the current performance characteristics of the underlying loan pool and therefore the manner in which the loan pool backing the security has been modeled (as prime, Alt-A, or subprime), rather than their classification of the security at the time of issuance.

The following table sets forth our securities for which other-than-temporary impairment credit losses were recognized during the life of the security through September 30, 2017 (dollars in thousands). Securities are classified in the table below based on their classifications at the time of issuance.
Table 7.2 - Total MBS Other-than-Temporarily Impaired During the Life of the Security
(dollars in thousands)

Table 7.2 - Total MBS Other-than-Temporarily Impaired During the Life of the Security
(dollars in thousands)

September 30, 2017September 30, 2019
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$32,645
 $27,934
 $21,911
 $30,054
$20,881
 $17,751
 $14,089
 $19,541
Private-label residential MBS – Alt-A976,435
 722,033
 561,711
 832,077
715,269
 511,623
 404,682
 611,578
ABS backed by home equity loans – Subprime1,230
 995
 872
 1,153
143
 135
 121
 135
Total other-than-temporarily impaired securities$1,010,310
 $750,962
 $584,494
 $863,284
$736,293
 $529,509
 $418,892
 $631,254

_______________________
(1)Securities are classified based on the classifications of their underlying loan composition at the time of issuance. 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).
Table 7.3 - Roll Forward of the Amounts Related to Credit Loss Recognized into Earnings
(dollars in thousands)

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
Balance at beginning of period$407,947
 $437,315
 $422,035
 $452,523
Additions:       
Credit losses for which other-than-temporary impairment was not previously recognized—
 —
 128
 —
Additional credit losses for which an other-than-temporary impairment charge was previously recognized411
 71
 700
 407
Reductions:       
Securities matured during the period—
 —
 (485) —
Portion of increase in cash flows expected to be collected over the remaining life of the security that are recognized in the current period as interest income(6,881) (7,997) (20,901) (23,541)
Balance at end of period$401,477
 $429,389
 $401,477
 $429,389

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2017 2016 2017 2016
Balance at beginning of period$468,706
 $516,922
 $490,404
 $533,888
Additions:       
Credit losses for which other-than-temporary impairment was not previously recognized—
 6
 —
 6
Additional credit losses for which an other-than-temporary impairment charge was previously recognized(1)
432
 365
 1,418
 2,715
Reductions:       
Securities matured during the period(2)
—
 —
 (5,565) —
Increase in cash flows expected to be collected which are recognized over the remaining life of the security(3)
(8,356) (9,613) (25,475) (28,929)
Balance at end of period$460,782
 $507,680
 $460,782
 $507,680
_______________________
(1)
For the three months ended September 30, 2017 and 2016, additional credit losses for which an other-than-temporary impairment charge was previously recognized relate to securities that were also previously impaired prior to July 1, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, 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, 2017 and 2016, respectively.
(2)Represents reductions related to securities having reached final maturity during the period and, therefore, are no longer held by us at the end of the period.
(3)Represents amounts accreted as interest income during the current period.

Note 8 — Advances


General Terms. At both September 30, 20172019, and December 31, 2016,2018, we had advances outstanding with interest rates ranging from zero(0.19) percent to 7.72 percent and 0.00 percent to 7.72 percent. Advances with negative interest rates contain embedded interest-rate features that have met the requirements to be separated from the host contract and are recorded as summarized below (dollars in thousands).stand-alone derivatives, and which we economically hedge with derivatives containing offsetting interest-rate features.

Table 8.1 - Advances Outstanding by Year of Contractual Maturity
(dollars in thousands)

Table 8.1 - Advances Outstanding by Year of Contractual Maturity
(dollars in thousands)

September 30, 2019 December 31, 2018
September 30, 2017 December 31, 2016Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
Year of Contractual MaturityAmount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
Overdrawn demand-deposit accounts$7,177
 1.46% $3,780
 0.92%$379
 2.35% $12,332
 2.88%
Due in one year or less19,459,542
 1.40
 18,783,802
 1.05
25,276,169
 2.27
 24,029,592
 2.48
Due after one year through two years9,114,490
 1.47
 10,966,780
 1.15
5,778,629
 2.38
 11,413,640
 2.55
Due after two years through three years3,213,137
 1.76
 2,508,459
 1.67
2,942,922
 2.35
 2,832,290
 2.47
Due after three years through four years1,564,384
 1.81
 2,177,432
 1.64
1,960,276
 2.74
 1,648,076
 2.37
Due after four years through five years2,264,058
 1.77
 2,041,269
 1.80
1,510,908
 2.34
 1,980,468
 2.24
Thereafter1,885,862
 2.16
 2,633,333
 1.70
1,032,468
 2.84
 1,351,987
 2.99
Total par value37,508,650
 1.52% 39,114,855
 1.23%38,501,751
 2.33% 43,268,385
 2.50%
Premiums19,382
  
 22,633
  
14,699
  
 13,347
  
Discounts(30,511)  
 (25,847)  
(39,007)  
 (38,036)  
Fair value of bifurcated derivatives (1)
812
   (153)  36,864
   13,051
  
Hedging adjustments(30,929)  
 (12,149)  
25,284
  
 (64,525)  
Total$37,467,404
  
 $39,099,339
  
$38,539,591
  
 $43,192,222
  

_________________________

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


(1)
At September 30, 20172019, and December 31, 2016,2018, 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 September 30, 2017, and December 31, 2016, 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 $6.0 billion and $7.9 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
September 30, 2017 December 31, 2016
Overdrawn demand-deposit accounts$7,177
 $3,780
Due in one year or less25,208,717
 26,447,977
Due after one year through two years3,766,490
 3,693,780
Due after two years through three years3,037,937
 2,508,459
Due after three years through four years1,554,384
 2,002,232
Due after four years through five years2,102,058
 1,891,269
Thereafter1,831,887
 2,567,358
Total par value$37,508,650
 $39,114,855
_______________________
(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 September 30, 2017, and December 31, 2016, we had putable advances outstanding totaling $2.2 billion and $3.4 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):
Table 8.2 - Advances Outstanding by Year of Contractual Maturity or Next Call Date
(dollars in thousands)

Table 8.2 - Advances Outstanding by Year of Contractual Maturity or Next Call Date
(dollars in thousands)

September 30, 2019 December 31, 2018
Year of Contractual Maturity or Next Put Date, Par ValueSeptember 30, 2017 December 31, 2016
Overdrawn demand-deposit accounts$7,177
 $3,780
$379
 $12,332
Due in one year or less20,854,942
 20,788,552
28,864,944
 32,748,467
Due after one year through two years9,514,740
 10,946,530
3,278,629
 3,913,640
Due after two years through three years3,124,637
 2,455,709
2,723,322
 2,672,290
Due after three years through four years1,407,484
 1,974,932
1,510,076
 1,261,176
Due after four years through five years1,602,058
 1,736,769
1,113,833
 1,362,468
Thereafter997,612
 1,208,583
1,010,568
 1,298,012
Total par value$37,508,650
 $39,114,855
$38,501,751
 $43,268,385



Table 8.3 - Advances Outstanding by Year of Contractual Maturity or Next Put Date
(dollars in thousands)

Year of Contractual Maturity or Next Put Date, Par ValueSeptember 30, 2019 December 31, 2018
Overdrawn demand-deposit accounts$379
 $12,332
Due in one year or less26,448,169
 25,199,892
Due after one year through two years5,843,629
 11,652,840
Due after two years through three years2,809,922
 2,834,790
Due after three years through four years1,121,776
 1,367,576
Due after four years through five years1,404,908
 1,152,468
Thereafter872,968
 1,048,487
Total par value$38,501,751
 $43,268,385
Interest-Rate-Payment Terms. The following table details interest-rate-payment types for our outstanding advances (dollars in thousands):

Table 8.4 - Advances by Current Interest Rate Terms
(dollars in thousands)

Table 8.4 - Advances by Current Interest Rate Terms
(dollars in thousands)

Par value of advancesSeptember 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Fixed-rate$30,721,798
 $30,526,192
$33,894,397
 $33,570,278
Variable-rate6,786,852
 8,588,663
4,607,354
 9,698,107
Total par value$37,508,650
 $39,114,855
$38,501,751
 $43,268,385


Credit-Risk Exposure and Security Terms. Our potential credit risk from advances is principally concentrated in commercial banks, insurance companies, savings institutions, and credit unions. At September 30, 20172019, and December 31, 2016,2018, we had $12.1$14.6 billion and $16.216.4 billion, respectively, of advances issued to members with at least $1.0 billion of advances outstanding. These advances were made to five5 and 6 borrowers and six borrowers, respectively, as ofat September 30, 20172019, and December 31, 2016,2018, representing 32.3

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


38.0 percent and 41.537.9 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 10 — Allowance for Credit Losses.Losses.

Prepayment Fees.

Table 8.5 - Advances Prepayment Fees
(dollars in thousands)

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2019 2018 2019 2018
Prepayment fees received from borrowers $206
 $8
 $29,061
 $73
Hedging fair-value adjustments on prepaid advances (90) 150
 1,836
 248
Net (premiums) discounts associated with prepaid advances —
 (160) 157
 (160)
Deferred recognition of prepayment fees received from borrowers on advance prepayments deemed to be loan modifications —
 —
 (201) —
Prepayment fees recognized in income on advance restructurings deemed to be extinguishments 213
 —
 213
 —
Advance prepayment fees recognized in income, net $329
 $(2) $31,066
 $161


Note 9 — Mortgage Loans Held for Portfolio


We invest in mortgage loans through the Mortgage Partnership Finance® (MPF® program). (MPF) program. These mortgage loans are either guaranteed or insured by federal agencies, as is the case with government mortgage loans, or are credit-enhanced, directly or indirectly, 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):
Table 9.1 - Mortgage Loans Held for Portfolio
(dollars in thousands)

Table 9.1 - Mortgage Loans Held for Portfolio
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Real estate 
  
 
  
Fixed-rate 15-year single-family mortgages$489,503
 $528,486
$350,088
 $392,128
Fixed-rate 20- and 30-year single-family mortgages3,382,217
 3,098,476
4,039,538
 3,839,078
Premiums70,092
 67,523
67,533
 67,671
Discounts(1,555) (1,696)(1,680) (1,800)
Deferred derivative gains, net3,019
 1,755
4,141
 2,825
Total mortgage loans held for portfolio3,943,276
 3,694,544
4,459,620
 4,299,902
Less: allowance for credit losses(500) (650)(500) (500)
Total mortgage loans, net of allowance for credit losses$3,942,776
 $3,693,894
$4,459,120
 $4,299,402


The following table details the par value of mortgage loans held for portfolio (dollars in thousands):
Table 9.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type
(dollars in thousands)


Table 9.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type
(dollars in thousands)


September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Conventional mortgage loans$3,500,469
 $3,235,835
$4,086,247
 $3,902,555
Government mortgage loans371,251
 391,127
303,379
 328,651
Total par value$3,871,720
 $3,626,962
$4,389,626
 $4,231,206


See Note 10 — 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 10 — 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 1011 — Allowance for Credit Losses in the 20162018 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,borrower. This approach includes 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 September 30, 20172019, and December 31, 2016,2018, 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 secured member credit products during the nine months ended ended September 30, 20172019, and 20162018.

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)




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 September 30, 20172019, and December 31, 2016.2018. At September 30, 20172019, and December 31, 2016,2018, 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 2016 Annual Report.

Government Mortgage Loans Held for Portfolio

BasedDue to government guarantees or insurance 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 September 30, 20172019, and December 31, 2016. In addition,2018. Additionally, 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 1011 — Allowance for Credit Losses in the 20162018 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 1011 — Allowance for Credit Losses in the 20162018 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 setTable 10.1 sets forth certain key credit quality indicators for our investments in mortgage loans at September 30, 2017,2019, and December 31, 20162018 (dollars in thousands):

Table 10.1 - Recorded Investment in Delinquent Mortgage Loans
(dollars in thousands)

Table 10.1 - Recorded Investment in Delinquent Mortgage Loans
(dollars in thousands)

September 30, 2017September 30, 2019
 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$24,577
 $12,131
 $36,708
$27,042
 $11,857
 $38,899
Past due 60-89 days delinquent5,741
 3,190
 8,931
6,217
 3,310
 9,527
Past due 90 days or more delinquent15,492
 5,121
 20,613
8,540
 5,498
 14,038
Total past due45,810
 20,442
 66,252
41,799
 20,665
 62,464
Total current loans3,535,765
 360,928
 3,896,693
4,129,846
 290,450
 4,420,296
Total mortgage loans$3,581,575
 $381,370
 $3,962,945
$4,171,645
 $311,115
 $4,482,760
Other delinquency statistics          
In process of foreclosure, included above (1)
$7,201
 $1,888
 $9,089
$3,212
 $2,222
 $5,434
Serious delinquency rate (2)
0.45% 1.34% 0.54%0.21% 1.77% 0.32%
Past due 90 days or more still accruing interest$—
 $5,121
 $5,121
$—
 $5,498
 $5,498
Loans on nonaccrual status (3)
$16,020
 $—
 $16,020
$9,605
 $—
 $9,605
_______________________
(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.


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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



December 31, 2016December 31, 2018
 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$26,757
 $14,878
 $41,635
$23,045
 $10,884
 $33,929
Past due 60-89 days delinquent5,508
 3,846
 9,354
7,019
 3,344
 10,363
Past due 90 days or more delinquent16,379
 5,807
 22,186
7,384
 6,670
 14,054
Total past due48,644
 24,531
 73,175
37,448
 20,898
 58,346
Total current loans3,262,671
 377,438
 3,640,109
3,947,096
 316,285
 4,263,381
Total mortgage loans$3,311,315
 $401,969
 $3,713,284
$3,984,544
 $337,183
 $4,321,727
Other delinquency statistics          
In process of foreclosure, included above (1)
$7,495
 $1,502
 $8,997
$3,467
 $2,086
 $5,553
Serious delinquency rate (2)
0.53% 1.44% 0.63%0.20% 1.98% 0.34%
Past due 90 days or more still accruing interest$—
 $5,807
 $5,807
$—
 $6,670
 $6,670
Loans on nonaccrual status (3)
$16,940
 $—
 $16,940
$7,975
 $—
 $7,975
_______________________
(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.

Credit Enhancements.

For additional information on how we collectively and individually evaluate mortgage loans for impairment see Item 8 — Financial Statements and Supplementary Data — Note 1011 — Allowance for Credit Losses in the 20162018 Annual Report.

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 September 30, 2017, and December 31, 2016, and the average recorded investment and interest income recognized on these loans during the three and nine months ended September 30, 2017 and 2016 (dollars in thousands).
  As of September 30, 2017 As of December 31, 2016
  Recorded Investment Par Value Recorded Investment Par Value
Individually evaluated impaired mortgage loans with no related allowance $18,786
 $18,751
 $22,945
 $22,905


  For the Three Months Ended September 30,
  2017 2016
  Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Individually evaluated impaired mortgage loans with no related allowance $18,645
 $91
 $23,492
 $116



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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


  For the Nine Months Ended September 30,
  2017 2016
  Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
Individually evaluated impaired mortgage loans with no related allowance $19,614
 $314
 $24,728
 $298


Credit Enhancements. Our allowance for credit losses factors in the credit enhancements associated with conventional mortgage loans under the MPF program. These credit enhancements apply after the homeowner's equity is exhausted and can include primary and/or supplemental mortgage insurance or other kinds of credit enhancement. The credit-enhancement amounts estimated to protect us against credit losses are determined through the use of a model. Any incurred losses that would be recovered from the credit enhancements are not reserved as part of our allowance for loan losses. In such cases, a receivable is generally established to reflect the expected recovery from credit-enhancement arrangements.

Previously, conventional mortgage loans were required to be credit enhanced so that the risk of loss was limited to the losses equivalent to an investment in a double-A rated MBS at the time of purchase. The FHFA final rule on acquired member assets (AMA) went into effect on January 18, 2017, allowing each FHLBank to utilize its own model to determine the credit enhancement for AMA loan assets and pool loans in lieu of a nationally recognized statistical ratings organization (NRSRO) ratings model. Upon effectiveness of the final AMA rule, we determined that assets delivered to us must be credit enhanced at our determined “AMA investment grade” of a double-A rated MBS. In March 2017, we determined that assets delivered to us must be credit enhanced at our revised determination of “AMA investment grade” of a single-A-minus rated MBS. This revision had no impact on the September 30, 2017, allowance for credit losses. We share the risk of credit losses on our investments in mortgage loans with the related participating financial institution by structuring potential losses on these investments into layers with respect to each master commitment. We analyze the risk characteristics of our mortgage loans using a third-party model to determine the credit enhancement amount at the time of purchase. This credit-enhancement amount is broken into a first-loss account and a credit-enhancement obligation of each participating financial institution, which may be calculated based on the risk analysis to equal the difference between the amounts needed for the master commitment to have a rating equivalent to a single-A-minus rated MBS and our initial first-loss account exposure.

Roll-Forward of Allowance for Credit Losses on Mortgage Loans. The following tableTable 10.2 presents a roll-forwardroll forward of the allowance for credit losses on conventional mortgage loans for the three and nine months ended September 30, 20172019 and 20162018, as well as the recorded investment in mortgage loans by impairment methodology at September 30, 20172019 and 20162018 (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.


Table 10.2 - Allowance for Credit Losses on Conventional Mortgage Loans
(dollars in thousands)

Table 10.2 - Allowance for Credit Losses on Conventional Mortgage Loans
(dollars in thousands)

For the Three Months Ended September 30, For the Nine Months Ended September 30,For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 20162019 2018 2019 2018
Allowance for credit losses              
Balance, beginning of period$500
 $900
 $650
 $1,025
$500
 $500
 $500
 $500
Charge-offs, net of recoveries(28) (6) (2) (31)
Provision (reduction of provision) for credit losses28
 (94) (148) (194)
Charge-offs(48) —
 (63) (6)
Provision for credit losses48
 —
 63
 6
Balance, end of period$500
 $800
 $500
 $800
$500
 $500
 $500
 $500
Ending balance, individually evaluated for impairment$—
 $—
 $—
 $—
$—
 $—
 $—
 $—
Ending balance, collectively evaluated for impairment$500
 $800
 $500
 $800
$500
 $500
 $500
 $500
Recorded investment, end of period (1)
              
Individually evaluated for impairment$18,786
 $22,950
 $18,786
 $22,950
$14,952
 $15,671
 $14,952
 $15,671
Collectively evaluated for impairment$3,562,789
 $3,296,946
 $3,562,789
 $3,296,946
$4,156,693
 $3,852,352
 $4,156,693
 $3,852,352
_________________________

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


(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.

Note 11 — Derivatives and Hedging Activities

Table 11.1 - Fair Value of Derivative Instruments
(dollars in thousands)

 September 30, 2019 December 31, 2018
 
Notional
Amount of
Derivatives
 
Derivative
Assets
 
Derivative
Liabilities
 Notional
Amount of
Derivatives		 Derivative
Assets		 Derivative
Liabilities
Derivatives designated as hedging instruments 
  
  
      
Interest-rate swaps$11,975,948
 $8,537
 $(14,994) $11,980,699
 $12,811
 $(296,324)
Forward-start interest-rate swaps44,000
 1
 (6) 282,000
 —
 (753)
Total derivatives designated as hedging instruments12,019,948
 8,538
 (15,000) 12,262,699
 12,811
 (297,077)
            
Derivatives not designated as hedging instruments           
Economic hedges:           
Interest-rate swaps2,210,800
 80
 (37,526) 927,800
 682
 (12,475)
Mortgage-delivery commitments (1)
38,486
 65
 (22) 50,773
 339
 —
Total derivatives not designated as hedging instruments2,249,286
 145
 (37,548) 978,573
 1,021
 (12,475)
Total notional amount of derivatives$14,269,234
  
  
 $13,241,272
  
  
Total derivatives before netting and collateral adjustments 
 8,683
 (52,548)   13,832
 (309,552)
Netting adjustments and cash collateral, including related accrued interest (2)
 
 113,839
 40,521
   8,571
 53,752
Derivative assets and derivative liabilities 
 $122,522
 $(12,027)   $22,403
 $(255,800)
The following table presents the notional amount and fair value of derivatives (excluding fair value adjustments related to variation margin for daily settled contracts) and total derivatives assets and liabilities. Total derivative assets and liabilities include the effect of netting adjustments, cash collateral, and variation margin for daily settled contracts as of September 30, 2017, and December 31, 2016 (dollars in thousands):
_______________________
 September 30, 2017 December 31, 2016
 
Notional
Amount of
Derivatives
 
Derivative
Assets
 
Derivative
Liabilities
 Notional
Amount of
Derivatives		 Derivative
Assets		 Derivative
Liabilities
Derivatives designated as hedging instruments 
  
  
      
Interest-rate swaps$14,385,569
 $41,366
 $(341,616) $18,215,809
 $52,715
 $(413,026)
Forward-start interest-rate swaps527,800
 —
 (41,974) 527,800
 —
 (36,250)
Total derivatives designated as hedging instruments14,913,369
 41,366
 (383,590) 18,743,609
 52,715
 (449,276)
            
Derivatives not designated as hedging instruments           
Economic hedges:           
Interest-rate swaps1,206,400
 1,699
 (7,191) 1,199,000
 2,293
 (10,840)
CO bond firm commitments50,000
 56
 —
 —
 —
 —
Mortgage-delivery commitments (1)
62,221
 76
 (110) 22,524
 70
 (171)
Total derivatives not designated as hedging instruments1,318,621
 1,831
 (7,301) 1,221,524
 2,363
 (11,011)
Total notional amount of derivatives$16,231,990
  
  
 $19,965,133
  
  
Total derivatives before netting and collateral adjustments 
 43,197
 (390,891)   55,078
 (460,287)
Netting adjustments, cash collateral, and variation margin for daily settled contracts including related accrued interest (2)
 
 4,966
 81,216
   6,520
 102,411
Derivative assets and derivative liabilities 
 $48,163
 $(309,675)   $61,598
 $(357,876)
_______________________
(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 $48.5$154.6 million and $109.8$62.8 million at September 30, 20172019, and December 31, 2016,2018, 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 $731,000231 thousand and $850,000$471 thousand at September 30, 20172019, and December 31, 2016,2018, respectively. Variation margin for daily settled contracts was $38.5 million at September 30, 2017.

NetBeginning on January 1, 2019, changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair-value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item. For designated cash-flow hedges, the entire change in the fair value of the hedging instrument (assuming it is included in the assessment of hedge effectiveness) is reported in other comprehensive income until the hedged transaction affects earnings. At that time, this amount is reclassified from other comprehensive income and recorded in net interest income in the same line as the earnings effect of the hedged item. Prior to January 1, 2019, for both fair value and cash-flow hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction attributable to the hedged risk) was recorded in noninterest income as net gains (losses) gains on derivatives and hedging activities recordedactivities.

Tables 11.2 and 11.3 presents the net gains (losses) on qualifying fair-value and cash flow hedging relationships. Beginning on January 1, 2019, gains (losses) on derivatives include unrealized changes in Other Income (Loss) for the three and nine months endedSeptember 30, 2017 and 2016, werefair value as follows (dollars in thousands):well as net interest settlements.

Table 11.2 - Net Gains (Losses) on Fair Value Hedging Relationships
(dollars in thousands)

  For the Three Months Ended September 30, 2019
  Advances Available-for-sale Securities CO Bonds
Total interest income (expense) in the statements of operations $204,511
 $27,657
 $(152,814)
       
Gains (losses) on fair value hedging relationships      
Changes in fair value:      
Derivatives $(16,059) $(63,779) $3,064
Hedged items 15,487
 61,961
 (2,623)
Net changes in fair value before price alignment interest (572) (1,818) 441
Price alignment interest(1)
 852
 1,046
 (7)
Net interest settlements on derivatives(2)(3)
 8,304
 (4,856) (2,706)
Net gains (losses) on qualifying fair-value hedging relationships 8,584
 (5,628) (2,272)
Amortization/accretion of discontinued fair-value hedging relationships (562) —
 690
Net gains (losses) on derivatives and hedging activities recorded in net interest income $8,022
 $(5,628) $(1,582)


  For the Three Months Ended September 30, 2018
  Advances Available-for-sale Securities CO Bonds
Total income (expense) in the statements of operations $226,546
 $35,532
 $(142,086)
       
Gains (losses) on fair value hedging relationships      
Changes in fair value:      
Derivatives $(1,975) $19,287
 $(3,069)
Hedged items 1,855
 (18,832) 3,479
Net changes in fair value (120) 455
 410
Net interest settlements on derivatives(2)(3)
 15,769
 (6,200) (8,787)
Amortization/accretion of active hedging relationships (188) —
 —
Net gains (losses) on qualifying fair-value hedging relationships 15,461
 (5,745) (8,377)
Amortization/accretion of discontinued fair-value hedging relationships (343) —
 1,003
Less: net changes in fair value(4)
 120
 (455) (411)
Net gains (losses) on derivatives and hedging activities recorded in net interest income $15,238
 $(6,200) $(7,785)


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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)

  For the Nine Months Ended September 30, 2019
  Advances Available-for-sale Securities CO Bonds
Total interest income (expense) in the statements of operations $676,257
 $70,603
 $(458,346)
       
Gains (losses) on fair value hedging relationships      
Changes in fair value:      
Derivatives $(89,199) $(118,501) $72,386
Hedged items 89,809
 112,346
 (73,192)
Net changes in fair value before price alignment interest 610
 (6,155) (806)
Price alignment interest(1)
 470
 2,618
 (98)
Net interest settlements on derivatives(2)(3)
 37,057
 (16,406) (18,074)
Net gains (losses) on qualifying fair-value hedging relationships 38,137
 (19,943) (18,978)
Amortization/accretion of discontinued fair-value hedging relationships (1,612) —
 1,984
Net gains (losses) on derivatives and hedging activities recorded in net interest income $36,525
 $(19,943) $(16,994)

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017 2016 2017 2016
Derivatives designated as hedging instruments        
Interest-rate swaps $(876) $(3,278) $(2,287) $(8,529)
Forward-start interest-rate swaps (18) (22) 213
 (558)
Total net losses related to derivatives designated as hedging instruments (894) (3,300) (2,074) (9,087)
         
Derivatives not designated as hedging instruments:        
Economic hedges:        
Interest-rate swaps 14
 1,186
 (208) (3,531)
Interest-rate caps or floors —
 (59) —
 (59)
CO bond firm commitments 56
 —
 56
 —
Mortgage-delivery commitments 692
 251
 1,556
 1,557
Total net gains (losses) related to derivatives not designated as hedging instruments 762
 1,378
 1,404
 (2,033)
         
Other(1)
 126
 —
 282
 —
         
Net losses on derivatives and hedging activities $(6) $(1,922) $(388) $(11,120)


______________
  For the Nine Months Ended September 30, 2018
  Advances Available-for-sale Securities CO Bonds
Total income (expense) in the statements of operations $617,916
 $113,531
 $(397,843)
       
Gains (losses) on fair value hedging relationships      
Changes in fair value:      
Derivatives $46,793
 $68,879
 $(51,171)
Hedged items (45,039) (67,270) 49,683
Net changes in fair value 1,754
 1,609
 (1,488)
Net interest settlements on derivatives(2)(3)
 36,001
 (19,975) (20,317)
Amortization/accretion of active hedging relationships 266
 —
 —
Net gains (losses) on qualifying fair-value hedging relationships 38,021
 (18,366) (21,805)
Amortization/accretion of discontinued fair-value hedging relationships (1,161) —
 3,324
Less: net changes in fair value(4)
 (1,754) (1,609) 1,488
Net gains (losses) on derivatives and hedging activities recorded in net interest income $35,106
 $(19,975) $(16,993)
_______________________
(1)Consists of price alignment amount onRelates to derivatives for which variation margin ispayments are characterized as a daily settlement amount.settled contracts.

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 nine months endedSeptember 30, 2017 and 2016 (dollars in thousands):
 For the Three Months Ended September 30, 2017
 
Gain on
Derivative
 
Loss on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
Advances$9,382
 $(8,881) $501
 $(2,878)
Investments5,007
 (4,503) 504
 (7,879)
COs – bonds2,018
 (3,899) (1,881) 242
Total$16,407
 $(17,283) $(876) $(10,515)


 For 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)
Hedged Item: 
  
  
  
Advances$71,032
 $(70,859) $173
 $(22,547)
Investments10,255
 (9,810) 445
 (8,788)
COs – bonds(16,705) 12,809
 (3,896) 6,500
Total$64,582
 $(67,860) $(3,278) $(24,835)

25
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


 For the Nine Months Ended September 30, 2017
 
Gain on
Derivative
 
Loss on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
Advances$19,150
 $(18,780) $370
 $(24,566)
Investments8,412
 (7,047) 1,365
 (24,319)
COs – bonds19,813
 (23,835) (4,022) 6,965
Total$47,375
 $(49,662) $(2,287) $(41,920)

 For the Nine Months Ended September 30, 2016
 
Loss on
Derivative
 
Gain/(Loss) on
Hedged Item
 
Net Fair-Value
Hedge
Ineffectiveness
 
Effect of
Derivatives on
Net Interest
Income (1)
Hedged Item: 
  
  
  
Advances$(23,045) $22,029
 $(1,016) $(78,799)
Investments(66,030) 67,215
 1,185
 (26,682)
COs – bonds(5,874) (2,824) (8,698) 21,730
Total$(94,949) $86,420
 $(8,529) $(83,751)
______________
(1)(2)The netRepresents interest income/expense on derivatives in qualifying fair-value hedgehedging relationships. Net interest settlements on derivatives that are not in qualifying fair-value hedging relationships is presentedare reported in other income.
(3)Excludes the statement of operations as interest income or interest income/expense of the respective hedged item.items recorded in net interest income.
(4)In 2018, net changes in fair value were recorded in net (losses) gains on derivatives and hedging activities in other income.

The following table presents the losses recognized in accumulated other comprehensive loss, the losses reclassified from accumulated other comprehensive loss into income, and the effect of our hedging activities on our net losses 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 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 on Derivatives and Hedging Activities
(Ineffective Portion)
Interest-rate swaps - CO bonds        
For the Three Months Ended September 30, 2017 $(856) Interest expense $(2,158) $(18)
For the Three Months Ended September 30, 2016 1,082
 Interest expense (5,337) (22)
         
For the Nine Months Ended September 30, 2017 (5,937) Interest expense (9,865) 213
For the Nine Months Ended September 30, 2016 (25,688) Interest expense (19,434) (558)

Table 11.3 - Net Gains (losses) on Cash Flow Hedging Relationships
(dollars in thousands)

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2019 2018 2019 2018
Forward-start interest rate swaps - CO Bonds        
Losses reclassified from accumulated other comprehensive loss into interest expense $(1,570) $(537) $(3,487) $(2,485)
(Losses) gains recognized in other comprehensive income (568) 2,985
 (6,390) 14,733
Gains recognized in net (losses) gains on derivatives and hedging activities   83
   244

For the nine months ended September 30, 20172019 and 20162018, 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 September 30, 2017,2019, the maximum length of time over which we are hedging our exposure to the variability in future cash flows for forecasted transactions is seventwo years.

As of September 30, 2017,2019, the amount of deferred net losses on derivatives accumulated in other comprehensive loss related to cash flowcash-flow hedges expected to be reclassified to earnings during the next 12 months is $7.0 million.


Table 11.4 - Cumulative Basis Adjustments for Fair-Value Hedges
(dollars in thousands)

  September 30, 2019
Line Item in Statement of Condition of Hedged Item 
Amortized Cost of Hedged Asset/ (Liability)(1)
 Basis Adjustments for Active Hedging Relationships Included in Amortized Cost Basis Adjustments for Discontinued Hedging Relationships Included in Amortized Cost Cumulative Amount of Fair Value Hedging Basis Adjustments
Advances $5,250,997
 $62,148
 $10,656
 $72,804
Available-for-sale securities 2,966,722
 315,379
 —
 315,379
Consolidated bonds (4,265,384) (12,261) (37,573) (49,834)
_______________________
(1)Includes only the portion of amortized cost representing the hedged items in fair-value hedging relationships.

Table 11.5 - Net Gains and Losses on Derivatives and Hedging Activities
(dollars in thousands)

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2019 2018 2019 2018
Derivatives designated as hedging instruments:        
Total net gains related to fair-value hedges(1)
   $557
   $2,140
Total net gains related to cash-flow hedges(2)
   83
   244
Total net gains related to derivatives designated as hedging instruments   640
   2,384
         
Derivatives not designated as hedging instruments:        
Economic hedges:        
Interest-rate swaps $(1,044) 7
 $(2,531) 729
Mortgage-delivery commitments 375
 131
 1,445
 (336)
Total net (losses) gains related to derivatives not designated as hedging instruments (669) 138
 (1,086) 393
         
Other(3)
 12
 (291) 15
 (692)
         
Net (losses) gains on derivatives and hedging activities $(657) $487
 $(1,071) $2,085
______________________
(1)Consists of interest-rate swaps.
(2)Consists of forward-start interest-rate swaps.
(3)Consists of price alignment amount on derivatives for which variation margin is characterized as a daily settlement amount.

$3.4 millionTermination of Derivatives and Impact on Statement of Cash Flows. During the nine months ended September 30, 2019, we terminated certain uncleared interest-rate exchange agreements with a total notional amount of $611.9 million and were indexed to three-month London Interbank Offered Rate (LIBOR) on the floating leg of the swaps. The net fair value of these derivative transactions, from our perspective, was $(251.5) million, which was transferred to the bilateral counterparty upon termination, and securities collateral that we had pledged against this obligation was returned to us. This cash payment is included in net change in derivatives and hedging activities, within the operating activities section of the statement of cash flows for the nine months ended September 30, 2019.

Simultaneously with the termination of these derivatives, we entered into replacement interest-rate exchange agreements (the replacement derivatives) having the same notional amount of $611.9 million and which are indexed to the OIS rate based on the federal funds effective rate on the floating leg of the swaps. Upon settlement of the replacement derivatives, the Bank received

an initial upfront payment of $251.5 million. The replacement derivatives are cleared through a derivatives clearing organization (DCO), which called for variation margin to be delivered. Because the replacement derivatives include off-market terms and this large initial upfront payment, all payments for the replacement derivatives are classified as net payments on derivative contracts with a financing element, within the financing activities section of the statement of cash flows.
Managing Credit Risk on Derivatives. We enter into derivatives that we clear (cleared derivatives) with a DCO, our counterparty for such derivatives. We also enter into derivatives that are not cleared (uncleared derivatives) under master-

26
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


nettingmaster-netting agreements. Certain of our uncleared derivatives master-netting agreements contain provisions that require us to post additional collateral with our uncleared derivatives counterparties if our credit ratings are lowered. Under the terms that govern such agreements, if our credit rating is lowered by Moody's Investors Services (Moody's) or Standard & 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 September 30, 20172019, was $328.046.1 million for which we had delivered collateral with a post-haircut value of $304.546.0 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 arrangements. The following tableTable 11.5 sets forth the post-haircut value of incremental collateral that certain uncleared derivatives counterparties could have required us to deliver in case of anbased on incremental credit rating downgrades at September 30, 20172019.

Post Haircut Value of Incremental Collateral to be Delivered
as of September 30, 2017
(dollars in thousands)
Table 11.6 - Post Haircut Value of Incremental Collateral to be Delivered as of September 30, 2019
(dollars in thousands)

Table 11.6 - Post Haircut Value of Incremental Collateral to be Delivered as of September 30, 2019
(dollars in thousands)

Ratings Downgrade (1)
Ratings Downgrade (1)
  
Ratings Downgrade (1)
  
From To Incremental Collateral To Incremental Collateral
AA+ AA or AA- $8,662
 AA or AA- $526
AA or AA- A+, A or A- 8,344
A+, A or A- below A- 24,524
AA- A+, A or A- —
A- below A- 6,098
_______________________
(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.

Cleared Derivatives. For cleared derivatives, the DCO is our counterparty. The DCO notifies the clearing member of the required initial and variation margin and our agent (clearing member) in turn notifies us. We utilize two DCOs, for all cleared derivative transactions, CME Inc. and LCH Ltd. Effective January 3, 2017, CME Inc. made certain amendments to its rulebook, changing the legal characterization ofBased upon their rulebooks, we characterize variation margin payments to beas daily settlement payments, rather than collateral. We continue to characterize our variation margin related to LCH Ltd. contracts as cash collateral. At both DCOs, posted initial margin is considered cash collateral. We post initial margin and exchange variation margin through a clearing member whowhich acts as our agent to the DCO and whowhich guarantees our performance to the DCO, subject to the terms of relevant agreements. These arrangements expose us to credit risk in the event that one of our clearing members or one of the DCOs fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because the DCO, which is fully secured at all times through margin received from its clearing members, is substituted for the credit risk exposure of individual counterparties in uncleared derivatives, and collateral is posted at least once daily for changes in the fair value of cleared derivatives through a clearing member.

We have analyzed the rights, rules, and regulations governing our cleared derivatives and determined that those rights, rules, and regulations should result in a net claim through each of our clearing members with the related DCO upon an event of default including a bankruptcy, insolvency or similar proceeding involving the DCO or one of our clearing members, or both. For this purpose, net claim generally means a single net amount reflecting the aggregation of all amounts indirectly owed by us to the relevant DCO and indirectly payable to us from the relevant DCO.

For cleared derivatives, the DCO determines initial margin requirements. We clear our trades via clearing members of the DCOs. TheThese clearing members who act as our agent to the DCOs are U.S. Commodity Futures Trading Commission (the CFTC) registered-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 September 30, 20172019.

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


We have analyzed the rights, rules, and regulations governing our cleared and non-cleared derivatives and determined that those rights, rules, and regulations should result in a net claim with each of our counterparties (which, in the context of cleared derivatives is through each of our clearing members with the related DCO) upon an event of default (solely in the case of non-cleared derivatives) or the bankruptcy, insolvency or a similar proceeding involving our counterparty (and/or one of our
27
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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


clearing members, in the case of cleared derivatives). For this purpose, "net claim" generally means a single net amount reflecting the aggregation of all amounts indirectly owed by us to the relevant counterparty and indirectly payable to us from the relevant counterparty.

The following tableTable 11.7 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 nettingmaster-netting arrangements or similar agreements as of September 30, 2017,2019, and December 31, 20162018, and the fair value of derivatives that are not subject to such netting. Derivatives subject to netting (dollars in thousands). Such netting includesinclude any related cash collateral received from or pledged to counterparties and variation margin for daily settled contracts.counterparties.

  September 30, 2017 December 31, 2016
  Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities
Derivatives meeting netting requirements        
Gross recognized amount        
Uncleared derivatives $8,964
 $(335,850) $12,594
 $(405,310)
Cleared derivatives 34,157
 (54,931) 42,414
 (54,806)
Total gross recognized amount 43,121
 (390,781) 55,008
 (460,116)
Gross amounts of netting adjustments, cash collateral, and variation margin for daily settled contracts        
Uncleared derivatives (8,277) 26,285
 (12,028) 47,605
Cleared derivatives 13,243
 54,931
 18,548
 54,806
Total gross amounts of netting adjustments, cash collateral, and variation margin for daily settled contracts 4,966
 81,216
 6,520
 102,411
Net amounts after netting adjustments, cash collateral, and variation margin for daily settled contracts        
Uncleared derivatives 687
 (309,565) 566
 (357,705)
Cleared derivatives 47,400
 —
 60,962
 —
Total net amounts after netting adjustments, cash collateral, and variation margin for daily settled contracts 48,087
 (309,565) 61,528
 (357,705)
Derivatives not meeting netting requirements        
Mortgage delivery commitments 76
 (110) 70
 (171)
Total derivative assets and total derivative liabilities        
Uncleared derivatives 687
 (309,565) 566
 (357,705)
Cleared derivatives 47,400
 —
 60,962
 —
Mortgage delivery commitments 76
 (110) 70
 (171)
Total derivative assets and total derivative liabilities presented in the statement of condition 48,163
 (309,675) 61,598
 (357,876)
         
Non-cash collateral received or pledged not offset (1)
        
Can be sold or repledged        
Uncleared derivatives —
 8,715
 —
 30,306
Cannot be sold or repledged        
Uncleared derivatives —
 283,008
 —
 290,444
Total non-cash collateral received or pledged, not offset —
 291,723
 —
 320,750
 Net amount        
Uncleared derivatives 687
 (17,842) 566
 (36,955)
Cleared derivatives 47,400
 —
 60,962
 —
Mortgage delivery commitments 76
 (110) 70
 (171)
Total net amount $48,163
 $(17,952) $61,598
 $(37,126)
Table 11.7 - Netting of Derivative Assets and Derivative Liabilities
(dollars in thousands)

 September 30, 2019
 Derivative Instruments Meeting Netting Requirements     
Non-cash Collateral (Received) or Pledged Not Offset(2)
  
 Gross Recognized Amount
Gross Amounts of Netting Adjustments (1)
 Mortgage Delivery Commitments Total Derivative Assets and Total Derivative Liabilities Can Be Sold or RepledgedCannot Be Sold or Repledged Net Amount
Derivative Assets           
Uncleared$7,126
$(5,241) $65
 $1,950
 $(1,197)$—
 $753
Cleared1,492
119,080
   120,572
 —
—
 120,572
Total     $122,522
    $121,325
            
Derivative Liabilities           
Uncleared$(51,795)$39,790
 $(22) $(12,027) $617
$10,620
 $(790)
Cleared(732)732
   —
 —
—
 —
Total     $(12,027)    $(790)
_______________________

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


(1)
Includes gross amounts of netting adjustments and cash collateral.
(2)Includes non-cash collateral at fair value. Any overcollateralization with a counterparty is not included in the determination of the net amount. At September 30, 2017, and December 31, 2016,2019, we had additional net credit exposure of $32,000 and $2.0 million, respectively,$381 thousand due to instances where our collateral pledged to a counterparty exceeded our net derivative liability position.

 December 31, 2018
 Derivative Instruments Meeting Netting Requirements     
Non-cash Collateral (Received) or Pledged Not Offset(2)
  
 Gross Recognized Amount
Gross Amounts of Netting Adjustments (1)
 Mortgage Delivery Commitments Total Derivative Assets and Total Derivative Liabilities Can Be Sold or RepledgedCannot Be Sold or Repledged Net Amount
Derivative Assets           
Uncleared$12,861
$(11,885) $339
 $1,315
 $(396)$—
 $919
Cleared631
20,457
   21,088
 —
—
 21,088
Total     $22,403
    $22,007
            
Derivative Liabilities           
Uncleared$(306,848)$51,048
 $—
 $(255,800) $6,104
$237,054
 $(12,642)
Cleared(2,704)2,704
   —
 —
—
 —
Total     $(255,800)    $(12,642)
_______________________
(1)Includes gross amounts of netting adjustments and cash collateral.

(2)Includes non-cash collateral at fair value. Any overcollateralization with a counterparty is not included in the determination of the net amount. At December 31, 2018, we had additional net credit exposure of $639 thousand due to instances where our collateral pledged to a counterparty exceeded our net derivative liability position.

Note 12 — Deposits

We offer demand, overnight and overnightterm deposits for members and qualifying nonmembers. In addition,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, which we offer short-term interest-bearing deposit programs to members. We classify these items as "other" in the following table.

The following table details interest- and noninterest-bearing deposits (dollars in thousands):
Table 12.1 - Deposits
(dollars in thousands)

Table 12.1 - Deposits
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Interest-bearing 
   
  
Demand and overnight$463,622
 $440,731
$562,601
 $444,486
Term800
 800
Other2,154
 4,166
1,698
 2,961
Noninterest-bearing 
  
 
  
Other26,855
 37,266
60,774
 26,631
Total deposits$492,631
 $482,163
$625,873
 $474,878


Note 13 — Consolidated Obligations

COs -CO Bonds. The following table sets forth the outstanding CO bonds for which we werehave received issuance proceeds and are primarily liable at were as follows:September 30, 2017, and December 31, 2016, by year of contractual maturity (dollars in thousands):

Table 13.1 - CO Bonds Outstanding by Contractual Maturity
(dollars in thousands)

Table 13.1 - CO Bonds Outstanding by Contractual Maturity
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
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$12,269,090
 1.36% $8,734,955
 1.43%$10,775,295
 2.13% $9,638,270
 2.01%
Due after one year through two years6,396,080
 1.44
 7,752,420
 1.19
5,731,555
 2.19
 5,375,845
 2.24
Due after two years through three years3,077,000
 1.89
 3,297,120
 1.63
3,126,265
 2.15
 3,864,560
 2.17
Due after three years through four years1,776,055
 1.72
 1,637,335
 1.87
1,381,205
 2.38
 1,891,975
 2.20
Due after four years through five years1,938,535
 1.83
 2,574,375
 1.65
1,152,205
 2.55
 1,338,515
 2.39
Thereafter2,995,650
 2.75
 3,135,745
 2.70
3,606,070
 3.24
 3,792,150
 3.25
Total par value28,452,410
 1.62% 27,131,950
 1.58%25,772,595
 2.33% 25,901,315
 2.30%
Premiums94,425
  
 118,145
  
92,577
  
 88,434
  
Discounts(14,320)  
 (14,906)  
(13,291)  
 (16,133)  
Hedging adjustments(39,920)  
 (63,755)  
12,261
  
 (60,932)  
$28,492,595
  
 $27,171,434
  
$25,864,142
  
 $25,912,684
  
_______________________
(1)The CO bonds' weighted-average rate excludes concession fees.

Our CO bonds outstanding at September 30, 2017, and December 31, 2016, included (dollars in thousands):
Table 13.2 - CO Bonds Outstanding by Call Feature
(dollars in thousands)

Table 13.2 - CO Bonds Outstanding by Call Feature
(dollars in thousands)

September 30, 2017 December 31, 2016
Par value of CO bonds 
  
Par Value of CO bondsSeptember 30, 2019 December 31, 2018
Noncallable and nonputable$24,469,410
 $22,388,950
$21,987,595
 $20,419,315
Callable3,983,000
 4,743,000
3,785,000
 5,482,000
Total par value$28,452,410
 $27,131,950
$25,772,595
 $25,901,315


29
Table 13.3 - CO Bonds Outstanding by Contractual Maturity or Next Call Date
(dollars in thousands)

Year of Contractual Maturity or Next Call Date September 30, 2019 December 31, 2018
Due in one year or less $13,317,295
 $13,435,270
Due after one year through two years 5,661,555
 5,602,845
Due after two years through three years 2,666,265
 2,802,560
Due after three years through four years 1,351,205
 1,366,975
Due after four years through five years 945,205
 1,156,515
Thereafter 1,831,070
 1,537,150
Total par value $25,772,595
 $25,901,315
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



The following is a summary of the CO bonds for which we were primarily liable at September 30, 2017, and December 31, 2016, by year of contractual maturity or next call date for callable CO bonds (dollars in thousands):
Year of Contractual Maturity or Next Call Date September 30, 2017 December 31, 2016
Due in one year or less $15,274,090
 $12,858,955
Due after one year through two years 6,376,080
 7,013,420
Due after two years through three years 2,956,000
 2,904,120
Due after three years through four years 1,039,055
 1,289,335
Due after four years through five years 1,128,535
 1,242,375
Thereafter 1,678,650
 1,823,745
Total par value $28,452,410
 $27,131,950
Table 13.4 - CO Bonds by Interest-Rate Payment Type
(dollars in thousands)

Par Value of CO bondsSeptember 30, 2019 December 31, 2018
Fixed-rate$18,824,595
 $21,216,315
Simple variable-rate5,738,000
 2,853,000
Step-up1,210,000
 1,832,000
Total par value$25,772,595
 $25,901,315


The following table sets forth the CO bonds for which we were primarily liable by interest-rate-payment type at September 30, 2017, and December 31, 2016 (dollars in thousands):
 September 30, 2017 December 31, 2016
Par value of CO bonds 
  
Fixed-rate$20,483,410
 $20,289,950
Simple variable-rate6,492,000
 5,300,000
Step-up1,477,000
 1,542,000
Total par value$28,452,410
 $27,131,950


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):follows:
 Book Value Par Value 
Weighted Average
Rate (1)
September 30, 2017$28,047,762
 $28,074,966
 1.03%
December 31, 2016$30,053,964
 $30,070,103
 0.47%
Table 13.5 - CO Discount Notes Outstanding
(dollars in thousands)

 Book Value Par Value 
Weighted Average
Rate (1)
September 30, 2019$26,896,215
 $26,958,676
 2.01%
December 31, 2018$33,065,822
 $33,147,065
 2.37%
_______________________
(1)The CO discount notes' weighted-average rate represents a yield to maturity excluding concession fees.

Note 14 — Affordable Housing Program

The following table presents a roll-forward of the AHP liability for the nine months ended September 30, 2017, and year ended December 31, 2016 (dollars in thousands):
Table 14.1 - AHP Liability
(dollars in thousands)

Table 14.1 - AHP Liability
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Balance at beginning of period$81,627
 $82,081
$83,965
 $81,600
AHP expense for the period13,720
 19,397
13,669
 24,299
AHP direct grant disbursements(16,217) (18,575)(11,995) (17,729)
AHP subsidy for AHP advance disbursements(1,876) (1,378)(2,617) (4,360)
Return of previously disbursed grants and subsidies75
 102
24
 155
Balance at end of period$77,329
 $81,627
$83,046
 $83,965


Note 15 — Capital

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

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)

guidance:

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 four4 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 five5 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 mayhas authority to 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 September 30, 2017, and December 31, 2016 (dollars in thousands):
Table 15.1 - Regulatory Capital Requirements
(dollars in thousands)

Table 15.1 - Regulatory Capital Requirements
(dollars in thousands)

Risk-Based Capital RequirementsSeptember 30,
2017		 December 31,
2016		September 30,
2019		 December 31,
2018
      
Permanent capital 
  
 
  
Class B capital stock$2,272,648
 $2,411,306
$2,031,651
 $2,528,854
Mandatorily redeemable capital stock36,042
 32,687
17,107
 31,868
Retained earnings1,265,282
 1,216,986
1,420,573
 1,395,012
Total permanent capital$3,573,972
 $3,660,979
$3,469,331
 $3,955,734
   
Risk-based capital requirement 
  
 
  
Credit-risk capital$348,381
 $355,182
$263,821
 $289,080
Market-risk capital166,807
 118,765
128,345
 187,183
Operations-risk capital154,556
 142,184
117,650
 142,879
Total risk-based capital requirement$669,744
 $616,131
$509,816
 $619,142
   
Permanent capital in excess of risk-based capital requirement$2,904,228
 $3,044,848
$2,959,515
 $3,336,592

 September 30, 2017 December 31, 2016 September 30, 2019 December 31, 2018
 Required Actual Required Actual Required Actual Required Actual
Capital Ratio                
Risk-based capital $669,744
 $3,573,972
 $616,131
 $3,660,979
 $509,816
 $3,469,331
 $619,142
 $3,955,734
Total regulatory capital $2,439,018
 $3,573,972
 $2,461,823
 $3,660,979
 $2,276,958
 $3,469,331
 $2,543,733
 $3,955,734
Total capital-to-asset ratio 4.0% 5.9% 4.0% 5.9% 4.0% 6.1% 4.0% 6.2%
                
Leverage Ratio                
Leverage capital $3,048,773
 $5,360,958
 $3,077,279
 $5,491,469
 $2,846,198
 $5,203,997
 $3,179,666
 $5,933,601
Leverage capital-to-assets ratio 5.0% 8.8% 5.0% 8.9% 5.0% 9.1% 5.0% 9.3%


We are a cooperative whose members own most of our capital stock. Former members (including certain nonmembers that own our capital stock as a result of merger or acquisition, relocation, or involuntary termination of membership) own the remaining capital stock to support business transactions still carried on our statement of condition. Shares of capital stock cannot be purchased or sold except between us and our members at $100 per share par value. We have only issued Class B stock and each member is required to purchase Class B stock equal to the sum of 0.20 percent of certain member assets eligible to secure advances under the FHLBank Act (the membership stock investment requirement), and 3.00 percent for overnight advances, 4.00 percent for all other advances, and 0.25 percent for outstanding letters of credit (collectively, the activity-based stock-investment requirement). Prior to January 16, 2019, the membership stock investment requirement was equal to 0.35 percent of certain member assets eligible to secure advances under the FHLBank Act.

Note 16 — Accumulated Other Comprehensive Loss

The following table presents a summary of changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



Table 16.1 - Accumulated Other Comprehensive Loss
(dollars in thousands)
Table 16.1 - Accumulated Other Comprehensive Loss
(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 Gain (Loss) Relating to Hedging Activities Pension and Postretirement Benefits Total
 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, June 30, 2016 $(57,947) $(210,169) $(83,903) $(6,323) $(358,342)
Balance, June 30, 2018 $(167,921) $(143,196) $(26,733) $(6,740) $(344,590)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized (losses) gains (17,325) —
 1,082
 —
 (16,243) (8,690) —
 2,985
 —
 (5,705)
Noncredit other-than-temporary impairment losses —
 (486) —
 —
 (486)
Accretion of noncredit loss —
 8,586
 —
 —
 8,586
 —
 7,127
 —
 —
 7,127
Net actuarial loss —
 —
 —
 (15) (15) —
 —
 —
 (729) (729)
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 —
 290
 —
 —
 290
 —
 6
 —
 —
 6
Amortization - hedging activities (2)
 —
 —
 5,341
 —
 5,341
 —
 —
 541
 —
 541
Amortization - pension and postretirement benefits (3)
 —
 —
 —
 225
 225
 —
 —
 —
 337
 337
Other comprehensive (loss) income (17,325) 8,390
 6,423
 210
 (2,302) (8,690) 7,133
 3,526
 (392) 1,577
Balance, September 30, 2016 $(75,272) $(201,779) $(77,480) $(6,113) $(360,644)
Balance, September 30, 2018 $(176,611) $(136,063) $(23,207) $(7,132) $(343,013)
                    
Balance, June 30, 2017 $(94,309) $(175,068) $(45,554) $(5,530) $(320,461)
Balance, June 30, 2019 $(82,600) $(116,638) $(33,199) $(4,925) $(237,362)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized losses (61) —
 (856) —
 (917)
Net unrealized gains (losses) 14,367
 —
 (568) —
 13,799
Accretion of noncredit loss —
 8,178
 —
 —
 8,178
 —
 5,646
 —
 —
 5,646
Net actuarial gain —
 —
 —
 112
 112
 —
 —
 —
 10
 10
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 —
 420
 —
 —
 420
 —
 375
 —
 —
 375
Amortization - hedging activities (4)
 —
 —
 2,161
 —
 2,161
 —
 —
 1,570
 —
 1,570
Amortization - pension and postretirement benefits (3)
 —
 —
 —
 193
 193
 —
 —
 —
 165
 165
Other comprehensive (loss) income (61) 8,598
 1,305
 305
 10,147
Balance, September 30, 2017 $(94,370) $(166,470) $(44,249) $(5,225) $(310,314)
Other comprehensive income 14,367
 6,021
 1,002
 175
 21,565
Balance, September 30, 2019 $(68,233) $(110,617) $(32,197) $(4,750) $(215,797)
_______________________
(1)Recorded in net amount ofother-than-temporary impairment losses reclassified to (from) accumulated other comprehensive lossin investment securities, credit portion in the statement of operations.
(2)Amortization of hedging activities includes $5.3 million$537 thousand recorded in CO bond interest expense and $4,000$4 thousand recorded in net gains (losses) 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 $2.2 million recordedRecorded in CO bond interest expense and $4,000 recorded in net gains (losses) on derivatives and hedging activities in the statement of operations.expense.


32
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



Table 16.1 - Accumulated Other Comprehensive Loss
(dollars in thousands)
Table 16.1 - Accumulated Other Comprehensive Loss
(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 Gain (Loss) Relating to Hedging Activities Pension and Postretirement Benefits Total
 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, 2015 $(137,718) $(229,785) $(71,237) $(3,857) $(442,597)
Balance, December 31, 2017 $(122,331) $(158,218) $(40,436) $(5,955) $(326,940)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized gains (losses) 62,446
 —
 (25,688) —
 36,758
Noncredit other-than-temporary impairment losses —
 (1,142) —
 —
 (1,142)
Net unrealized (losses) gains (54,280) —
 14,733
 —
 (39,547)
Accretion of noncredit loss —
 26,938
 —
 —
 26,938
 —
 21,945
 —
 —
 21,945
Net actuarial loss —
 —
 —
 (2,931) (2,931) —
 —
 —
 (2,189) (2,189)
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 —
 2,210
 —
 —
 2,210
 —
 210
 —
 —
 210
Amortization - hedging activities (2)
 —
 —
 19,445
 —
 19,445
 —
 —
 2,496
 —
 2,496
Amortization - pension and postretirement benefits (3)
 —
 —
 —
 675
 675
 —
 —
 —
 1,012
 1,012
Other comprehensive income (loss) 62,446
 28,006
 (6,243) (2,256) 81,953
Balance, September 30, 2016 $(75,272) $(201,779) $(77,480) $(6,113) $(360,644)
Other comprehensive (loss) income (54,280) 22,155
 17,229
 (1,177) (16,073)
Balance, September 30, 2018 $(176,611) $(136,063) $(23,207) $(7,132) $(343,013)
                    
Balance, December 31, 2016 $(136,809) $(192,379) $(48,187) $(6,139) $(383,514)
Balance, December 31, 2018 $(152,958) $(129,154) $(29,119) $(5,276) $(316,507)
Cumulative effect of change in accounting principle —
 —
 (175) —
 (175)
Other comprehensive income (loss) before reclassifications:                    
Net unrealized gains (losses) 42,439
 —
 (5,937) —
 36,502
 84,725
 —
 (6,390) —
 78,335
Noncredit other-than-temporary impairment losses —
 (181) —
 —
 (181)
Accretion of noncredit loss —
 24,593
 —
 —
 24,593
 —
 18,125
 —
 —
 18,125
Net actuarial gain —
 —
 —
 336
 336
 —
 —
 —
 29
 29
Reclassifications from other comprehensive income to net income                    
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)
 —
 1,316
 —
 —
 1,316
 —
 593
 —
 —
 593
Amortization - hedging activities (4)
 —
 —
 9,875
 —
 9,875
 —
 —
 3,487
 —
 3,487
Amortization - pension and postretirement benefits (3)
 —
 —
 —
 578
 578
 —
 —
 —
 497
 497
Other comprehensive income 42,439
 25,909
 3,938
 914
 73,200
Balance, September 30, 2017 $(94,370) $(166,470) $(44,249) $(5,225) $(310,314)
Other comprehensive income (loss) 84,725
 18,537
 (2,903) 526
 100,885
Balance, September 30, 2019 $(68,233) $(110,617) $(32,197) $(4,750) $(215,797)
_______________________
(1)Recorded in net amount ofother-than-temporary impairment losses reclassified to (from) accumulated other comprehensive lossin investment securities, credit portion in the statement of operations.
(2)Amortization of hedging activities includes $19.4$2.5 million recorded in CO bond interest expense and $11,000$11 thousand recorded in net gains (losses) 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 $9.9 million recordedRecorded in CO bond interest expense and $11,000 recorded in net gains (losses) on derivatives and hedging activities in the statement of operations.expense.

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


33
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


Statements and Supplementary Data — Note 1819 — Fair Values in the 20162018 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 ninethree months ended September 30, 2017.2019.

TheTable 17.1 presents the carrying values,value, fair values,value, and fair-valuefair value hierarchy of our financial instrumentsassets and liabilities at September 30, 2017,2019, and December 31, 2016, were as follows (dollars in thousands). These2018. We record trading securities, available-for-sale securities, derivative assets, derivative liabilities, and certain other assets at fair values do not represent an estimate of our overall market value ason a going concern, which would take into account, amongrecurring basis, and on occasion certain private-label MBS, certain mortgage loans, and certain other things, our future business opportunities and the net profitability of ourassets on a non-recurring basis. We record all other financial assets and liabilities.
 September 30, 2017
 
Carrying
Value
 Total Fair Value Level 1 Level 2 Level 3 Netting Adjustments and Cash Collateral
Financial instruments 
  
        
Assets: 
  
        
Cash and due from banks$31,774
 $31,774
 $31,774
 $—
 $—
 $—
Interest-bearing deposits225,012
 225,012
 225,012
 —
 —
 —
Securities purchased under agreements to resell2,999,000
 2,998,922
 —
 2,998,922
 —
 —
Federal funds sold6,250,000
 6,249,958
 —
 6,249,958
 —
 —
Trading securities(1)
509,463
 509,463
 —
 509,463
 —
 —
Available-for-sale securities(1)
7,559,111
 7,559,111
 —
 7,540,568
 18,543
 —
Held-to-maturity securities1,798,011
 2,076,570
 —
 947,744
 1,128,826
 —
Advances37,467,404
 37,615,598
 —
 37,615,598
 —
 —
Mortgage loans, net3,942,776
 4,001,298
 —
 3,976,898
 24,400
 —
Accrued interest receivable84,886
 84,886
 —
 84,886
 —
 —
Derivative assets(1)
48,163
 48,163
 —
 43,197
 —
 4,966
Other assets (1)
21,760
 21,760
 9,121
 12,639
 —
 —
Liabilities:

  
        
Deposits(492,631) (492,621) —
 (492,621) —
 —
COs:

          
Bonds(28,492,595) (28,607,952) —
 (28,607,952) —
 —
Discount notes(28,047,762) (28,047,925) —
 (28,047,925) —
 —
Mandatorily redeemable capital stock(36,042) (36,042) (36,042) —
 —
 —
Accrued interest payable(100,148) (100,148) —
 (100,148) —
 —
Derivative liabilities(1)
(309,675) (309,675) —
 (390,891) —
 81,216
Other:

          
Commitments to extend credit for advances—
 (4,385) —
 (4,385) —
 —
Standby letters of credit(892) (892) —
 (892) —
 —
_______________________
(1)Carriedliabilities at amortized cost. Refer to Table 17.2 for further details about the financial assets and liabilities held at fair value on either a recurring or nonrecurring basis.


34
Table 17.1 - Fair Value Summary
(dollars in thousands)

 September 30, 2019
 Carrying Value Total Fair Value Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral(2)
Financial instruments 
  
        
Assets: 
  
        
Cash and due from banks$20,139
 $20,139
 $20,139
 $—
 $—
 $—
Interest-bearing deposits327,851
 327,851
 327,851
 —
 —
 —
Securities purchased under agreements to resell3,900,000
 3,900,066
 —
 3,900,066
 —
 —
Trading securities(1)
1,536,880
 1,536,880
 —
 1,536,880
 —
 —
Available-for-sale securities(1)
6,707,850
 6,707,850
 —
 6,651,985
 55,865
 —
Held-to-maturity securities1,120,439
 1,333,568
 —
 544,746
 788,822
 —
Advances38,539,591
 38,691,821
 —
 38,691,821
 —
 —
Mortgage loans, net4,459,120
 4,600,479
 —
 4,579,972
 20,507
 —
Accrued interest receivable109,324
 109,324
 —
 109,324
 —
 —
Derivative assets(1)
122,522
 122,522
 —
 8,683
 —
 113,839
Other assets (1)
30,963
 30,963
 12,029
 18,934
 —
 —
Liabilities:

  
        
Deposits(625,873) (625,854) —
 (625,854) —
 —
COs:

          
Bonds(25,864,142) (26,230,966) —
 (26,230,966) —
 —
Discount notes(26,896,215) (26,899,037) —
 (26,899,037) —
 —
Mandatorily redeemable capital stock(17,107) (17,107) (17,107) —
 —
 —
Accrued interest payable(128,489) (128,489) —
 (128,489) —
 —
Derivative liabilities(1)
(12,027) (12,027) —
 (52,548) —
 40,521
Other:

          
Commitments to extend credit for advances—
 (2,163) —
 (2,163) —
 —
Standby letters of credit(1,498) (1,498) —
 (1,498) —
 —
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)



December 31, 2016December 31, 2018
Carrying
Value
 
Total Fair
Value
 Level 1 Level 2 Level 3 Netting Adjustments and Cash CollateralCarrying Value Total Fair Value Level 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral(2)
Financial instruments 
  
         
  
        
Assets: 
  
         
  
        
Cash and due from banks$520,031
 $520,031
 $520,031
 $—
 $—
 $—
$10,431
 $10,431
 $10,431
 $—
 $—
 $—
Interest-bearing deposits278
 278
 278
 —
 —
 —
593,199
 593,199
 593,199
 —
 —
 —
Securities purchased under agreements to resell5,999,000
 5,998,799
 —
 5,998,799
 —
 —
6,499,000
 6,499,078
 —
 6,499,078
 —
 —
Federal funds sold2,700,000
 2,699,949
 —
 2,699,949
 —
 —
1,500,000
 1,500,002
 —
 1,500,002
 —
 —
Trading securities(1)
612,622
 612,622
 —
 612,622
 —
 —
163,038
 163,038
 —
 163,038
 —
 —
Available-for-sale securities(1)
6,588,664
 6,588,664
 —
 6,580,518
 8,146
 —
5,849,944
 5,849,944
 —
 5,800,343
 49,601
 —
Held-to-maturity securities2,130,767
 2,372,290
 —
 1,176,269
 1,196,021
 —
1,295,023
 1,528,929
 —
 638,164
 890,765
 —
Advances39,099,339
 39,273,044
 —
 39,273,044
 —
 —
43,192,222
 43,167,700
 —
 43,167,700
 —
 —
Mortgage loans, net3,693,894
 3,736,548
 —
 3,708,123
 28,425
 —
4,299,402
 4,238,087
 —
 4,217,487
 20,600
 —
Accrued interest receivable84,653
 84,653
 —
 84,653
 —
 —
112,751
 112,751
 —
 112,751
 —
 —
Derivative assets(1)
61,598
 61,598
 —
 55,078
 —
 6,520
22,403
 22,403
 —
 13,832
 —
 8,571
Other assets(1)
17,779
 17,779
 8,394
 9,385
 —
 —
25,059
 25,059
 9,988
 15,071
 —
 —
Liabilities: 
  
         
  
        
Deposits(482,163) (482,158) —
 (482,158) —
 —
(474,878) (474,848) —
 (474,848) —
 —
COs:                      
Bonds(27,171,434) (27,298,499) —
 (27,298,499) —
 —
(25,912,684) (25,843,163) —
 (25,843,163) —
 —
Discount notes(30,053,964) (30,054,085) —
 (30,054,085) —
 —
(33,065,822) (33,062,585) —
 (33,062,585) —
 —
Mandatorily redeemable capital stock(32,687) (32,687) (32,687) —
 —
 —
(31,868) (31,868) (31,868) —
 —
 —
Accrued interest payable(80,822) (80,822) —
 (80,822) —
 —
(112,043) (112,043) —
 (112,043) —
 —
Derivative liabilities(1)
(357,876) (357,876) —
 (460,287) —
 102,411
(255,800) (255,800) —
 (309,552) —
 53,752
Other:                      
Commitments to extend credit for advances—
 (4,412) —
 (4,412) —
 —
—
 (4,164) —
 (4,164) —
 —
Standby letters of credit(1,064) (1,064) —
 (1,064) —
 —
(1,257) (1,257) —
 (1,257) —
 —

_______________________
(1)Carried at fair value and measured 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 September 30, 2017, and December 31, 2016, by fair-value hierarchy level (dollars in thousands):


35
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


 September 30, 2017
 Level 1 Level 2 Level 3 
Netting
Adjustment (1)
 Total
Assets: 
  
  
  
  
Trading securities:         
U.S. Treasury obligations$—
 $309,498
 $—
 $—
 $309,498
U.S. government-guaranteed – single-family MBS—
 7,207
 —
 —
 7,207
GSEs – single-family MBS—
 440
 —
 —
 440
GSEs – multifamily MBS—
 192,318
 —
 —
 192,318
Total trading securities—
 509,463
 —
 —
 509,463
Available-for-sale securities: 
  
  
  
  
State or local HFA securities—
 —
 18,543
 —
 18,543
Supranational institutions—
 421,492
 —
 —
 421,492
U.S. government-owned corporations—
 286,393
 —
 —
 286,393
GSEs—
 120,033
 —
 —
 120,033
U.S. government guaranteed – single-family MBS—
 102,699
 —
 —
 102,699
U.S. government guaranteed – multifamily MBS—
 467,970
 —
 —
 467,970
GSEs – single-family MBS—
 4,528,021
 —
 —
 4,528,021
GSEs – multifamily MBS—
 1,613,960
 —
 —
 1,613,960
Total available-for-sale securities—
 7,540,568
 18,543
 —
 7,559,111
Derivative assets: 
  
  
  
  
Interest-rate-exchange agreements—
 43,121
 —
 4,966
 48,087
Mortgage delivery commitments—
 76
 —
 —
 76
Total derivative assets—
 43,197
 —
 4,966
 48,163
Other assets9,121
 12,639
 —
 —
 21,760
Total assets at fair value$9,121
 $8,105,867
 $18,543
 $4,966
 $8,138,497
Liabilities: 
  
  
  
  
Derivative liabilities 
  
  
  
  
Interest-rate-exchange agreements$—
 $(390,781) $—
 $81,216
 $(309,565)
Mortgage delivery commitments—
 (110) —
 —
 (110)
Total liabilities at fair value$—
 $(390,891) $—
 $81,216
 $(309,675)
_______________________
(1)(2)These amounts represent the applicationeffect of the netting requirements whichmaster-netting agreements intended to 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.


36
Table of Contents
FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)

Fair Value Measured on a Recurring and Nonrecurring Basis.


Table 17.2 - Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis
(dollars in thousands)

Table 17.2 - Fair Value of Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis
(dollars in thousands)

December 31, 2016September 30, 2019
Level 1 Level 2 Level 3 
Netting
Adjustment (1)
 TotalLevel 1 Level 2 Level 3 
Netting Adjustments and Cash Collateral (1)
 Total
Assets: 
  
  
  
  
 
  
  
  
  
Carried at fair value on a recurring basis         
Trading securities:                  
Corporate bonds$—
 $6,211
 $—
 $—
 $6,211
U.S. Treasury obligations$—
 $399,521
 $—
 $—
 $399,521
—
 1,508,289
 —
 —
 1,508,289
U.S. government-guaranteed – single-family MBS—
 8,494
 —
 —
 8,494
—
 4,371
 —
 —
 4,371
GSEs – single-family MBS—
 768
 —
 —
 768
GSEs – multifamily MBS—
 203,839
 —
 —
 203,839
GSE – single-family MBS—
 96
 —
 —
 96
GSE – multifamily MBS—
 17,913
 —
 —
 17,913
Total trading securities—
 612,622
 —
 —
 612,622
—
 1,536,880
 —
 —
 1,536,880
Available-for-sale securities: 
  
  
  
  
 
  
  
  
  
State or local HFA securities—
 —
 8,146
 —
 8,146
HFA securities—
 —
 55,865
 —
 55,865
Supranational institutions—
 422,620
 —
 —
 422,620
—
 425,110
 —
 —
 425,110
U.S. government-owned corporations—
 271,957
 —
 —
 271,957
—
 305,959
 —
 —
 305,959
GSEs—
 117,468
 —
 —
 117,468
GSE—
 128,095
 —
 —
 128,095
U.S. government guaranteed – single-family MBS—
 124,727
 —
 —
 124,727
—
 61,992
 —
 —
 61,992
U.S. government guaranteed – multifamily MBS—
 563,361
 —
 —
 563,361
—
 316,885
 —
 —
 316,885
GSEs – single-family MBS—
 4,403,855
 —
 —
 4,403,855
GSEs – multifamily MBS—
 676,530
 —
 —
 676,530
GSE – single-family MBS—
 2,883,685
 —
 —
 2,883,685
GSE – multifamily MBS—
 2,530,259
 —
 —
 2,530,259
Total available-for-sale securities—
 6,580,518
 8,146
 —
 6,588,664
—
 6,651,985
 55,865
 —
 6,707,850
Derivative assets: 
  
  
  
  
 
  
  
  
  
Interest-rate-exchange agreements—
 55,008
 —
 6,520
 61,528
—
 8,618
 —
 113,839
 122,457
Mortgage delivery commitments—
 70
 —
 —
 70
—
 65
 —
 —
 65
Total derivative assets—
 55,078
 —
 6,520
 61,598
—
 8,683
 —
 113,839
 122,522
Other assets8,394
 9,385
 —
 —
 17,779
12,029
 18,934
 —
 —
 30,963
Total assets at fair value$8,394
 $7,257,603
 $8,146
 $6,520
 $7,280,663
Total assets carried at fair value on a recurring basis$12,029
 $8,216,482
 $55,865
 $113,839
 $8,398,215
Carried at fair value on a nonrecurring basis(2)
         
Held-to-maturity securities:         
Private-label residential MBS$—
 $—
 $6,856
 $—
 $6,856
Mortgage loans held for portfolio—
 —
 774
 —
 774
REO—
 —
 80
 —
 80
Total assets carried at fair value on a nonrecurring basis$—
 $—
 $7,710
 $—
 $7,710
Liabilities: 
  
  
  
  
 
  
  
  
  
Carried at fair value on a recurring basis         
Derivative liabilities 
  
  
  
  
 
  
  
  
  
Interest-rate-exchange agreements$—
 $(460,116) $—
 $102,411
 $(357,705)$—
 $(52,526) $—
 $40,521
 $(12,005)
Mortgage delivery commitments—
 (171) —
 —
 (171)—
 (22) —
 —
 (22)
Total liabilities at fair value$—
 $(460,287) $—
 $102,411
 $(357,876)
Total liabilities carried at fair value on a recurring basis$—
 $(52,548) $—
 $40,521
 $(12,027)




 December 31, 2018
 Level 1 Level 2 Level 3 
Netting
Adjustments and Cash Collateral  (1)
 Total
Assets: 
  
  
  
  
Carried at fair value on a recurring basis         
Trading securities:         
Corporate bonds$—
 $6,102
 $—
 $—
 $6,102
U.S. government-guaranteed – single-family MBS—
 5,344
 —
 —
 5,344
GSE – single-family MBS—
 148
 —
 —
 148
GSE – multifamily MBS—
 151,444
 —
 —
 151,444
Total trading securities—
 163,038
 —
 —
 163,038
Available-for-sale securities: 
  
  
  
  
HFA securities—
 —
 49,601
 —
 49,601
Supranational institutions—
 405,155
 —
 —
 405,155
U.S. government-owned corporations—
 273,169
 —
 —
 273,169
GSE—
 115,627
 —
 —
 115,627
U.S. government guaranteed – single-family MBS—
 75,658
 —
 —
 75,658
U.S. government guaranteed – multifamily MBS—
 361,134
 —
 —
 361,134
GSE – single-family MBS—
 3,562,159
 —
 —
 3,562,159
GSE – multifamily MBS—
 1,007,441
 —
 —
 1,007,441
Total available-for-sale securities—
 5,800,343
 49,601
 —
 5,849,944
Derivative assets: 
  
  
  
  
Interest-rate-exchange agreements—
 13,493
 —
 8,571
 22,064
Mortgage delivery commitments—
 339
 —
 —
 339
Total derivative assets—
 13,832
 —
 8,571
 22,403
Other assets9,988
 15,071
 —
 —
 25,059
Total assets carried at fair value on a recurring basis$9,988
 $5,992,284
 $49,601
 $8,571
 $6,060,444
Carried at fair value on a nonrecurring basis(2)
         
Held-to-maturity securities:         
Private-label residential MBS$—
 $—
 $1,668
 $—
 $1,668
Mortgage loans held for portfolio—
 —
 1,144
 —
 1,144
REO—
 —
 361
 —
 361
Total assets carried at fair value on a nonrecurring basis$—
 $—
 $3,173
 $—
 $3,173
Liabilities: 
  
  
  
  
Carried at fair value on a recurring basis         
Derivative liabilities 
  
  
  
  
Interest-rate-exchange agreements$—
 $(309,552) $—
 $53,752
 $(255,800)
Total liabilities carried at fair value on a recurring basis$—
 $(309,552) $—
 $53,752
 $(255,800)

_______________________
(1)These amounts represent the applicationeffect of the netting requirements whichmaster-netting agreements intended to 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.
(2)We measure certain held-to-maturity investment securities, mortgage loans held for portfolio, and real estate owned property (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 fair values presented are as of the date the fair value adjustment was recorded.

The following tableTable 17.3 presents a reconciliation of available-for-sale securities that are measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2017. There were no Level 3 available-for-sale securities during the nine months ended September 30, 2016 (dollars in thousands).2019 and 2018.

  For the Three Months Ended For the Nine Months Ended
  September 30, 2017 September 30, 2017
Balance at beginning of period $15,414
 $8,146
Purchases 3,520
 11,120
Unrealized losses included in other comprehensive income (391) (723)
Balance at end of period $18,543
 $18,543




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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


Fair Value on a Nonrecurring Basis

We measure certain held-to-maturity investment securities, mortgage loans held for portfolio, and real-estate-owned property (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. The fair values presented are as of the date the fair value adjustment was recorded (dollars in thousands).

 September 30, 2017
 Level 1 Level 2 Level 3 Total
Held-to-maturity securities:       
Private-label residential MBS$—
 $—
 $2,050
 $2,050
Mortgage loans held for portfolio—
 —
 4,783
 4,783
REO—
 —
 397
 397
        
Total assets recorded at fair value on a nonrecurring basis$—
 $—
 $7,230
 $7,230

 December 31, 2016
 Level 1 Level 2 Level 3 Total
Held-to-maturity securities:       
Private-label residential MBS$—
 $—
 $8,498
 $8,498
Mortgage loans held for portfolio—
 —
 5,618
 5,618
REO—
 —
 786
 786
        
Total assets recorded at fair value on a nonrecurring basis$—
 $—
 $14,902
 $14,902
Table 17.3 - Roll Forward of Level 3 Available-for-Sale Securities
(dollars in thousands)

  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2019 2018 2019 2018
Balance at beginning of period $51,560
 $37,600
 $49,601
 $37,683
Purchases 4,220
 3,150
 4,220
 3,150
Unrealized gains (losses) included in other comprehensive income 85
 (413) 2,044
 (496)
Balance at end of period $55,865
 $40,337
 $55,865
 $40,337


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 September 30, 20172019, and through the filing of this report, we do not believe thereit is only a remote likelihoodlikely 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 the FHLBank Act, as implemented 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, the FHLBanks' 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 September 30, 20172019, and December 31, 2016.2018. The par amounts of other FHLBanks' outstanding COs for which we are jointly and severally liable totaled $972.2957.5 billion and $932.1972.6 billion at September 30, 20172019, and December 31, 2016,2018, respectively. See Note 13 — Consolidated Obligations for additional information.


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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


Off-Balance-Sheet Commitments. The following table sets forth our off-balance-sheet commitments as of September 30, 2017, and December 31, 2016 (dollars in thousands):Commitments

Table 18.1 - Off-Balance Sheet Commitments
(dollars in thousands)

Table 18.1 - Off-Balance Sheet Commitments
(dollars in thousands)

 September 30, 2017 December 31, 2016 September 30, 2019 December 31, 2018
 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)
 $4,820,514
 $204,938
 $5,025,452
 $4,050,447
 $179,632
 $4,230,079
 $7,993,979
 $229,526
 $8,223,505
 $6,028,851
 $226,438
 $6,255,289
Commitments for unused lines of credit - advances (2)
 1,268,507
 —
 1,268,507
 1,255,140
 —
 1,255,140
 1,163,754
 —
 1,163,754
 1,177,377
 —
 1,177,377
Commitments to make additional advances 71,901
 51,136
 123,037
 44,865
 65,972
 110,837
 14,016
 57,395
 71,411
 159,401
 59,894
 219,295
Commitments to invest in mortgage loans 62,221
 —
 62,221
 22,524
 —
 22,524
 38,486
 —
 38,486
 50,773
 —
 50,773
Unsettled CO bonds, at par 197,000
 —
 197,000
 —
 —
 —
 81,000
 —
 81,000
 105,400
 —
 105,400
Unsettled CO discount notes, at par 2,605
 —
 2,605
 —
 —
 —
 —
 —
 —
 600,000
 —
 600,000
__________________________

(1)
The amount of standby letters of credit outstanding excludes commitments to issue standby letters of credit that expire within one year. At September 30, 20172019, and December 31, 2016,2018, these amounts totaled $3.9195.1 million and $2.732.6 million, respectively. Also excluded are commitments to issue standby letters of credit that expire after one year totaling $100,000 and $285,000$675 thousand at September 30, 2017 and December 31, 2016, respectively.2018.
(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.

Standby Letters of Credit. AWe issue standby letterletters of credit is a financing arrangement pursuanton behalf of our members to which we agreesupport certain obligations of the members to third-party beneficiaries. These standby letters of credit are subject to the same collateralization and borrowing limits that are applicable to advances. Standby letters of credit may be offered to assist members in facilitating residential housing finance, community lending, and asset-liability management, and to provide liquidity. In particular, members often use standby letters of credit as collateral for deposits from state and local government agencies. Standby letters of credit are executed for members for a fee to fund the associated obligation to a third-party beneficiary should the primary obligor fail to fund such obligation.fee. 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. Historically, standby letters of credit usually expire without being drawn upon. The original terms of these standby letters of credit have original expiration periods of up to 20 years,, currently expiring no later than 2026.2027. Currently, we offer new standby letters of credit with expiration periods of up to 10 years. Our unearnedUnearned fees for the value of the guarantees related to standby letters of credit are recorded in other liabilities and totaled $892,0001.5 million and $1.1$1.3 million at September 30, 20172019, and December 31, 2016,2018, 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 11 — 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

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 follo

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FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)


wing tables present transactions with shareholders whose holdings of capital stock exceed 10 percent or more of total capital stock outstanding at September 30, 2017, and December 31, 2016 (dollars in thousands):any time during the period.

Table 19.1 - Shareholder Concentrations, Balance Sheet
(dollars in thousands)

Table 19.1 - Shareholder Concentrations, Balance Sheet
(dollars in thousands)

Capital 
Stock
Outstanding
 
Percent
of Total Capital Stock
 
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 September 30, 2017           
As of September 30, 2019           
State Street Bank and Trust Company$250,000
 12.2% $6,000,000
 15.6% $3,434
 6.1%
Citizens Bank, N.A.$246,748
 10.7% $5,358,737
 14.3% $2,284
 5.6%149,219
 7.3
 3,205,868
 8.3
 1,908
 3.4
                      
As of December 31, 2016           
As of December 31, 2018           
State Street Bank and Trust Company$105,000
 4.1% $2,000,000
 4.6% $893
 1.5%
Citizens Bank, N.A.$357,508
 14.6% $7,260,446
 18.6% $2,625
 7.3%339,003
 13.2
 7,656,146
 17.7
 5,005
 8.3



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 nine months endedSeptember 30, 2017 and 2016, as follows (dollars in thousands):
Table 19.2 - Shareholder Concentrations, Income Statement
(dollars in thousands)

Table 19.2 - Shareholder Concentrations, Income Statement
(dollars in thousands)

 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
State Street Bank and Trust Company        
Interest income on advances $4,629
 $—
 $6,929
 $—
 For the Three Months Ended September 30, For the Nine Months Ended September 30,        
Citizens Bank, N.A. 2017 2016 2017 2016        
Interest income on advances $14,316
 $7,837
 $46,968
 $24,123
 $16,534
 $33,144
 $77,605
 $89,228
Fees on letters of credit 1,002
 756
 2,448
 2,375
 1,486
 1,257
 5,005
 3,338


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
 
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 September 30, 2017$112,241
 4.9% $2,117,289
 5.6% $2,190
 5.3%
As of December 31, 201691,374
 3.7
 1,554,753
 4.0
 1,631
 4.5
Table 19.3 - Transactions with Directors' Institutions
(dollars in thousands)

 
Capital Stock
Outstanding
 
Percent
of Total Capital Stock
 
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 September 30, 2019$80,975
 4.0% $1,617,743
 4.2% $2,912
 5.2%
As of December 31, 2018113,337
 4.4
 2,147,602
 5.0
 3,576
 6.0


Note 20 — Subsequent Events

On October 27, 2017,25, 2019, the board of directors declared a cash dividend at an annualized rate of 4.335.73 percent based on capital stock balances outstanding during the third quarter of 2017.2019. The dividend, including dividends classified as interest on mandatorily redeemable capital stock, amounted to $25.2$26.2 million and was paid on November 2, 2017.
4, 2019.

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

Index to Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
4244
Executive Summary
4345
Economic Conditions
4446
Selected Financial Data
4447
Results of Operations
4649
Financial Condition
5655
Liquidity and Capital Resources
6768
Critical Accounting Estimates
75
Recent Accounting Developments
75
Legislative and Regulatory Developments
7675

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Table of Contents



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 involve matters related to, but not limited to, projections of revenues, income, earnings, capital expenditures, dividends, capital structure, or other financial items; repurchases of excess stock, our minimum retained earnings target, or the interest-rate environment in which we do business; statements of management’s plans or objectives for future operations; expectations of future economic performance; or statements of assumptions underlying certain of the foregoing types of 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 20162018 Annual Report and Part II — Item 1A — Risk Factors of this quarterly report andalong with the risks set forth below. Accordingly, we caution that actualActual results could differ materially from those expressed or implied in these forward-looking statements or could impactaffect 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. These forward-looking statements speak only as of the date they are made, and 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,Some of the risks and dividend payouts;uncertainties that could affect our forward-looking statements include the following:
repurchases
the effects of stock in excesseconomic, financial, credit, and market conditions on our financial and regulatory condition and results 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 asoperations, including changes in advances balanceseconomic growth, general liquidity conditions, inflation and the size of our portfolio of investmentsdeflation, employment rates, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, members’ deposit flows, liquidity needs, and loan demand; changes 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,benchmark interest rates, including but not limited to:
to the anticipated cessation of the LIBOR benchmark rate, the development of alternative rates, including SOFR, and the adverse consequences these could have for market participants, including the Bank and its members; 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 the condition of the mortgage and housing markets on our advances and other products;
mortgage-related assets, including the willingnesslevel of mortgage prepayments; the condition of the capital markets on our members to do business with us;COs;
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 executive branch, legislative, regulatory, judicial, or other developments impacting the scope of our business, investor demand for COs, our financial obligations with respect to COs, our ability to access the capital markets, our members, our counterparties, the manner in which we operate, or the organization and structure of the FHLBank System;
our ability to declare and pay dividends consistent with past practices as well as any plans to repurchase excess capital stock;
competitive forces including, without limitation, other sources of funding available to our members and other entities borrowing funds in the capital markets,markets;
changes in the value and liquidity of collateral we hold as security for obligations of our abilitymembers and counterparties;
the impact of new accounting standards and the application of accounting rules, including the impact of regulatory guidance on our application of such standards and rules;

changes in the fair value and economic value of, impairments of, and risks, including risks related to attractchanges in or cessation of benchmark interest rates, associated with the Bank’s investments in mortgage loans and retain skilled employees;MBS or other assets and the related credit enhancement protections;
membership conditions and changes, including changes resulting from member failures, mergers or changing financial health, changes due to member eligibility, changes in the principal place of business of members, or the addition of new members;
external events, such as general economic and financial instabilities, political instability, wars and natural disaster, including disasters caused by significant climate change, which could damage the facilities of our members, damage or destroy collateral that members have pledged to secure advances or mortgages that we hold for our portfolio, and which could cause us to experience losses or be exposed to a greater risk that pledged collateral would be inadequate in the event of a default;
the pace of technological change and our ability to develop and support technology andinternal controls, information systems, sufficient toand other operating technologies that effectively manage the risks of our business effectively;
the addition of new members;
•
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,face, including but not limited to, private-label MBS;failures, interruptions, or security breaches (including cyber-attacks); and
our ability to introduce new (or adequately adapt current) productsattract and services and successfully manage the risks associated with our products and services, including new types of collateral used to secure advances;retain skilled employees.
losses arising from litigation filed against us or one or more of the other FHLBanks;

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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 20162018 Annual Report.

EXECUTIVE SUMMARY

ForNet income for the three months endedquarter ending September 30, 2017,2019, was $32.1 million, compared with net income increased to $45.6 million, from $36.6of $64.7 million for the three months ended September 30, 2016.same period in 2018. The increasedecrease in net income was primarily due to an increasea decrease of $6.2$21.1 million in net interest income after provision for credit losses a $1.9 million reduction in losses on derivatives and hedging activities and a $1.3$12.8 million reductiondecrease in net unrealized losses on trading securities.

Net interest income after provision for credit losses for the three months ended September 30, 2017, was $71.1litigation settlement income. The $21.1 million compared with $64.9 million for the same period in 2016. The $6.2 million increasedecrease in net interest income after provision for credit losses was primarily attributable to higher interest rates,mainly a two basis point increase in our net interest spread andresult of an increase of $133.0 million$8.7 billion decrease in average earning assets, which increasedas well as higher premium amortization on U.S. Agency mortgage-backed securities resulting from $57.9 billion forhigher expected mortgage refinancing activity due to a significant drop in mortgage rates during the three months ended September 30, 2016, to $58.1 billion for the three months ended September 30, 2017.
third quarter of 2019. Our return on average equity was 5.644.28 percent for three months ended September 30, 2019, compared with 7.56 percent for the three months ended September 30, 2017, compared2018, a decrease of 328 basis points. Advances balances dropped $4.7 billion to $38.5 billion during the period. Our business model is designed to allow for variability in demand for advances and changes in interest rates. While the decrease in advances balances and lower interest rates contributed to reduced net income, our financial condition continued to strengthen with 4.55 percent for the three months endedretained earnings of $1.4 billion at September 30, 2016, an increase2019, a surplus of 109 basis points.
•
Our financial condition continued to strengthen with retained earnings of $1.3 billion at September 30, 2017, a surplus of $565.3 million over our minimum retained earnings target, as we continued to satisfy all regulatory capital requirements as of September 30, 2017.

$720.6 million over our minimum retained earnings target, as we continued to satisfy all regulatory capital requirements as of September 30, 2019. On October 27, 2017,25, 2019, our board of directors declared a cash dividend that was equivalent to an annual yield of 4.335.73 percent, the approximate daily average three-month London Interbank Offered Rate (LIBOR)LIBOR yield for the third quarter of 20172019 plus 300350 basis points.

Net Interest Margin

For the three months ended September 30, 2017,2019, net interest margin was 0.490.43 percent, an increasea decrease of fourseven basis points from the three months ended September 30, 2016. Net interest margin benefited from improvement2018. The decrease in net interest spread and an increase inmargin reflects the negative impact of higher premium amortization on U.S. Agency mortgage-backed securities as long-term interest rates.rates dropped, having risen during the prior-year period.

Core Mission AssetAdvances Balances

We continue to deliver on our primary mission, supplying liquidity and funding to our members, with advancesmembers. Advances balances of $37.5totaled $38.5 billion at September 30, 2017, down from $39.12019, compared to $43.2 billion at December 31, 2016.2018. The decrease in advances was primarily concentrated in variable-rate indexed advances and fixed-rate putable advances. Mortgage loans held for portfolio increased to $3.9 billion at September 30, 2017, up from $3.7 billion at December 31, 2016. We cannot predict whether these trends will continue.

Accretable yields from investments in private-label MBS

For the three months ended September 30, 20172019 and 2016,2018, we recognized $8.4$6.9 million and $9.6$8.0 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 12 — Summary of Significant Accounting Policies — Investment Securities — Other-than-Temporary Impairment — Interest Income Recognition in the 20162018 Annual Report.


The amortized cost of our total investments in private-label MBS and ABS backed by home-equity loans has declined to $881.1$602.2 million at September 30, 2017.2019. Other-than-temporary impairment credit losses were $432,000$411 thousand for the three months ended September 30, 2017.

Repurchases of Excess Stock

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On June 1, 2017, we initiated daily repurchases of excess stock. For additional information see below under Liquidity and Capital Resources — Internal Capital Practices and Policies. Excess stock repurchases for the three months ended September 30, 2017 amounted to $343.6 million. At September 30, 2017, shareholders held $106.8 million of excess stock as compared to $78.3 million at December 31, 2016.2019.

Regulatory Developments

The FHFA has issued or proposed regulationsregulatory guidance during the quarter as described in — Legislative and Regulatory Developments.Developments. Such developments affect the way we conduct business and could impact the way we satisfy our mission as well as the value of our membership. Executive branch efforts at regulatory reform may

LIBOR Transition Preparations

In July 2017, the United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced its intention to stop persuading or compelling the major banks that sustain LIBOR to submit rate quotations after 2021. We recognize that the discontinuance of LIBOR as an interest rate benchmark and the transition to alternative reference rates, including SOFR, present significant risks and challenges that could affect our business. Many of our assets and liabilities are indexed to LIBOR, and we continue to assess legacy contracts across products and monitor risks to determine the development or implementationeffect of LIBOR discontinuance. Under a steering committee comprised of members of senior management and a working group of representatives from departments across the Bank, we have developed and continue to implement a multi-year plan and initiative to transition from LIBOR. We are also working with the other FHLBanks and the Office of Finance as we transition our floating-rate note issuance from LIBOR. We are updating our operational processes and models to support new regulations affecting us.alternative reference rate activity. For further details see Item 1A — Risk Factors — Market and Liquidity Risks — Changes to and replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, and results of operations, as well as, Operational Risks — We use derivatives to manage interest-rate risk, however, we could be unable to enter into effective derivative instruments on acceptable terms in the 2018 Annual Report. Additional information is provided in — Legislative and Regulatory Developments as well as in Financial Condition — Transition of LIBOR to Alternative Reference Rates.

ECONOMIC CONDITIONS

Economic Environment

In the third quarter of 2017, the U.S.The labor market continued to strengthen in the third quarter of 2019. The national unemployment rate decreased from 3.7 percent in June 2019 to 3.5 percent in September 2019. Jobs gains were strong and economic activityaveraged a net gain of 157,000 jobs per month during the third quarter. The New England region also continued to expand at a moderate pace. Nonfarm payroll employment decreased by 33,000see improvements in September 2017, due likely to the impact of Hurricanes Harvey and Irma. However, thelabor market. The August 2019 unemployment rate also decreased to 4.2for the six New England states as a whole was 3.0 percent, the lowest level of the year. The Federal Open Market Committee of the Federal Reserve System (FOMC) stated that the storms are unlikely to materially alter the course of the national economy over the medium term. Household spending has been expanding at a moderate rate, and housing prices continued to increase year over year. Inflation continued to be muted, running slightly below 20.1 percent during the period reported.decrease from May 2019. In August 2019, year-over-year job gains were positive in all six New England states.

Interest-Rate Environment

On November 1, 2017,October 30, 2019, the FOMC announced that it would maintainFederal Open Market Committee (FOMC) lowered the target range for the federal funds rate at 1by 25 basis points to 1.50 percent to 1.25 percent.1.75 percent, citing the implications of global developments for economic outlook and muted inflation. The FOMC also initiated a balance sheet normalization programstated that it views sustained economic expansion, strong labor market conditions, and inflation near the FOMC’s 2.0 percent objective to be the most likely scenario going forward. During the third quarter, the yield curve remained in October, allowing its bond portfolioan inverted position with an average 10-year/3-month Treasury spread of negative 23 basis points during the quarter. These trends caused prepayment expectations for fixed-rate residential mortgages to gradually decrease over time. Long-term interest rates trended downward for the first two months ofincrease during the quarter and upward in the final month of the quarter.ending September 30, 2019.

The following chart illustrates the interest-rate environment.


Table 1 - Key Interest Rates

 Three Month Average Nine Month Average Ending Rate
 September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018 September 30, 2019 December 31, 2018
Federal funds effective rate2.20% 1.92% 2.33% 1.70% 1.90% 2.40%
3-month LIBOR2.20% 2.34% 2.46% 2.20% 2.09% 2.81%
3-month U.S. Treasury yield2.01% 2.06% 2.25% 1.83% 1.81% 2.37%
2-year U.S. Treasury yield1.68% 2.66% 2.10% 2.43% 1.62% 2.49%
5-year U.S. Treasury yield1.63% 2.80% 2.07% 2.70% 1.54% 2.51%
10-year U.S. Treasury yield1.79% 2.92% 2.25% 2.87% 1.66% 2.69%
 Three Month Average Nine Month Average Ending rate
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 September 30, 2017 December 31, 2016
Federal funds effective rate1.15% 0.40% 0.94% 0.38% 1.06% 0.55%
3-month LIBOR1.31% 0.79% 1.20% 0.69% 1.33% 1.00%
3-month U.S. Treasury yield1.04% 0.28% 0.84% 0.27% 1.04% 0.50%
2-year U.S. Treasury yield1.36% 0.72% 1.29% 0.77% 1.48% 1.19%
5-year U.S. Treasury yield1.81% 1.12% 1.85% 1.24% 1.94% 1.93%
10-year U.S. Treasury yield2.24% 1.56% 2.31% 1.73% 2.33% 2.44%
________________
Source: Bloomberg

SELECTED FINANCIAL DATA

The following financial highlights for the statement of condition and statement of operations for December 31, 2016,2018, have been derived from our audited financial statements. Financial highlights for the quarter-ends have been derived from our unaudited financial statements.




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SELECTED FINANCIAL DATA
STATEMENT OF CONDITION
(dollars in thousands)
Table 2 - Selected Financial Data
(dollars in thousands)

Table 2 - Selected Financial Data
(dollars in thousands)

  
 September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018
Statement of Condition                    
Total assets $60,975,455
 $60,754,247
 $56,568,802
 $61,545,586
 $60,543,301
 $56,923,960
 $55,779,532
 $52,327,612
 $63,593,317
 $64,693,803
Investments(1)
 19,340,597
 18,142,252
 17,215,779
 18,031,331
 19,264,484
 13,593,020
 13,963,431
 15,543,790
 15,900,204
 19,321,695
Advances 37,467,404
 38,427,616
 35,479,424
 39,099,339
 37,195,148
 38,539,591
 37,096,797
 32,152,009
 43,192,222
 40,927,639
Mortgage loans held for portfolio, net(2)
 3,942,776
 3,804,581
 3,675,598
 3,693,894
 3,714,283
 4,459,120
 4,421,028
 4,368,333
 4,299,402
 4,192,425
Deposits and other borrowings 492,631
 469,173
 490,268
 482,163
 610,783
 625,873
 594,848
 555,031
 474,878
 484,761
Consolidated obligations:                    
Bonds 28,492,595
 28,518,424
 27,978,423
 27,171,434
 27,345,898
 25,864,142
 25,292,490
 24,913,714
 25,912,684
 26,741,036
Discount notes 28,047,762
 27,865,529
 24,179,050
 30,053,964
 28,725,374
 26,896,215
 26,424,978
 23,585,929
 33,065,822
 33,431,980
Total consolidated obligations 56,540,357
 56,383,953
 52,157.473
 57,225,398
 56,071,272
 52,760,357
 51,717,468
 48,499,643
 58,978,506
 60,173,016
Mandatorily redeemable capital stock 36,042
 37,380
 32,677
 32,687
 33,812
 17,107
 17,107
 17,413
 31,868
 31,868
Class B capital stock outstanding-putable(3)
 2,272,648
 2,408,647
 2,458,667
 2,411,306
 2,333,262
 2,031,651
 1,995,252
 1,830,240
 2,528,854
 2,476,876
Unrestricted retained earnings 1,011,532
 1,000,694
 994,011
 987,711
 962,798
 1,085,463
 1,087,641
 1,090,811
 1,084,342
 1,084,538
Restricted retained earnings 253,750
 244,631
 236,755
 229,275
 217,343
 335,110
 328,685
 321,561
 310,670
 301,928
Total retained earnings 1,265,282
 1,245,325
 1,230,766
 1,216,986
 1,180,141
 1,420,573
 1,416,326
 1,412,372
 1,395,012
 1,386,466
Accumulated other comprehensive loss (310,314) (320,461) (343,572) (383,514) (360,644) (215,797) (237,362) (278,808) (316,507) (343,013)
Total capital 3,227,616
 3,333,511
 3,345,861
 3,244,778
 3,152,759
 3,236,427
 3,174,216
 2,963,804
 3,607,359
 3,520,329
Results of Operations          
Net interest income after provision for (reduction of) credit losses $56,326
 $57,721
 $86,565
 $76,021
 $77,460
Net impairment losses on held-to-maturity securities recognized in earnings (411) (314) (103) (125) (71)
Litigation settlements 3
 —
 —
 —
 12,769
Other income (loss), net 2,478
 3,989
 (6,633) 2,328
 2,410
Other expense 22,671
 21,789
 19,287
 29,604
 20,658
AHP assessments 3,597
 3,987
 6,085
 4,912
 7,238
Net income $32,128
 $35,620
 $54,457
 $43,708
 $64,672
Other Information           
 
 


 
Total regulatory capital ratio(4)
 5.86% 6.08% 6.58% 5.95% 5.86%
Dividends declared $27,881
 $31,666
 $37,272
 $35,162
 $35,143
Dividend payout ratio 86.78% 88.90% 68.44% 80.45% 54.34%
Weighted-average dividend rate(4)
 6.04
 6.22
 6.17
 5.87
 5.87
Return on average equity(5)
 4.28
 4.77
 6.94
 5.04
 7.56
Return on average assets 0.24
 0.27
 0.37
 0.28
 0.42
Net interest margin(6)
 0.43
 0.43
 0.59
 0.49
 0.50
Average equity to average assets 5.66
 5.57
 5.33
 5.56
 5.55
Total regulatory capital ratio(7)
 6.09
 6.15
 6.23
 6.22
 6.02
_______________________
(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 $500,000, $500,000, $625,000, $650,000, and $800,000,$500 thousand for each of the quarters ended September 30, 2017,2019, June 30, 2017,2019, March 31, 2017,2019, December 31, 2016,2018, and September 30, 2016, respectively.2018.
(3)Capital stock is putable at the option of a member upon five years' written notice, subject to applicable restrictions. We also initiated daily repurchases of excess stock from members on June 1, 2017. See below under Liquidity and Capital Resources — Internal Capital Practices and Policies.
(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 15 — Capital.


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SELECTED FINANCIAL DATA
RESULTS OF OPERATIONS AND OTHER INFORMATION
 (dollars in thousands)
   
  Results of Operations for the Three Months Ended
  September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
Net interest income $71,109
 $63,820
 $62,504
 $76,287
 $64,779
Provision (reduction of provision) for credit losses 28
 (125) (51) (83) (94)
Net impairment losses on held-to-maturity securities recognized in earnings (432) (568) (418) (589) (371)
Litigation settlements —
 —
 —
 19,627
 —
Other income (loss) 1,028
 1,020
 427
 1,272
 (3,072)
Other expense 20,972
 20,597
 20,974
 30,351
 20,773
AHP assessments 5,110
 4,418
 4,192
 6,666
 4,099
Net income $45,595
 $39,382
 $37,398
 $59,663
 $36,558
Other Information          
Dividends declared $25,637
 $24,822
 $23,619
 $22,818
 $21,574
Dividend payout ratio 56.23% 63.03% 63.16% 38.24% 59.01%
Weighted-average dividend rate(1)
 4.22
 4.08
 3.94
 3.80
 3.65
Return on average equity(2)
 5.64
 4.74
 4.56
 7.38
 4.55
Return on average assets 0.31
 0.26
 0.25
 0.40
 0.25
Net interest margin(3)
 0.49
 0.43
 0.43
 0.51
 0.45
Average equity to average assets 5.50
 5.56
 5.55
 5.39
 5.48
_______________________
(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.dividends.
(2)(5)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)(6)Net interest margin is net interest income before provision for credit losses as a percentage of average earning assets.

(7)
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 15 — Capital.

RESULTS OF OPERATIONS

Net Income

Third Quarter of 20172019 Compared with Third Quarter of 20162018

Net income increaseddecreased to $45.632.1 million for the three months ended September 30, 2017,2019, from $36.664.7 million for the three months ended September 30, 2016.same period in 2018. The reasons for the increasedecrease are discussed above withinunder — Executive Summary.Summary.

Nine Months Ended September 30, 2017,2019 Compared with Nine Months Ended September 30, 20162018

Net income increaseddecreased to $122.4$122.2 million for the nine months ended September 30, 2017,2019, from $113.5$173.1 million for the nine months ended September 30, 2016,same period in 2018. The decrease is primarily due to an increase of $21.9a $35.5 million decrease in net interest income after provision for credit losses, and a $10.7$12.8 million reduction in losses on derivatives and hedging activities, partially offset by a decrease in litigation settlement income, and a $10.0 million increase in losses on early extinguishment of $19.6 million.debt, partially offset by a $4.6 million increase in net unrealized gains on trading securities.

Net Interest Income

Third Quarter of 20172019 Compared with Third Quarter of 20162018

Net interest income after provision for credit losses for the three months endedquarter ending September 30, 20172019, was $71.1$56.3 million, compared with $64.9$77.5 million for the same period in 2016.2018. The $6.2$21.1 million increasedecrease in net interest income after provision for

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credit losses was primarily attributable tomainly a four basis point increase in net interest margin and a $133.0 million increaseresult of an $8.7 billion decrease in average earning assets, as well as higher premium amortization on U.S. Agency mortgage-backed securities resulting from $57.9 billion foran expected increase in mortgage refinancing activity following a significant drop in mortgage rates during the three months ended September 30, 2016, to $58.1 billion for the three months ended September 30, 2017.third quarter of 2019. The increasedecrease in average earning assets was driven byprimarily consisted of a $212.4 million increase in average mortgage loans and a $106.8 million increase in average investments balances partially offset by an $186.3 million$6.5 billion decrease in average advances, balances.a $2.7 billion decrease in average short-term investments, and a $1.1 billion decrease in average mortgage-backed securities. These decreases were partially offset by a $1.4 billion increase in average U.S. Treasury Notes. For additional information see — Executive Summary as well as Rate and Volume Analysis.

Net interest spread was 0.410.30 percent for the three months ended September 30, 2017, a two2019, an eight basis point increasedecrease from the same period in 2016,2018, and net interest margin was 0.490.43 percent, a fourseven basis point increasedecrease from the same period in 2016.2018. The increasedecrease in net interest spread reflects a 4916 basis point increase in the average yield on earning assets and a 4724 basis point increase in the average yield on interest-bearing liabilities. The increasedecreases in both net interest spread and net interest margin benefited from net interest spread expansion andmainly reflect the negative impact of higher interest rates.premium amortization on U.S. Agency mortgage-backed securities.

Nine Months Ended September 30, 2017,2019 Compared with Nine Months Ended September 30, 20162018

Net interest income after provision for credit losses for the nine months ended September 30, 20172019, was $197.6$200.6 million, compared with $175.7$236.1 million for the same period in 2016.2018. The $21.9$35.5 million increasedecrease in net interest income after provision for credit losses was primarily attributable tomainly a five basis point increase in net interest margin andresult of a $697.6 million increase$6.6 billion decrease in average earning assets as well as higher premium amortization on U.S. Agency mortgage-backed securities resulting from $58.4 billion fora significant drop in mortgage rates during the nine months ended September 30, 2016, to $59.1 billion for the nine months ended September 30, 2017.2019. The increasedecrease in average earning assets was driven byprimarily consisted of a $1.5 billion increase in average advances balances partially offset by a $1.0$5.2 billion decrease in average investments balances. For additional information see — Rateadvances and Volume Analysis. Partially offsetting the increase toa $1.6 billion decrease in average mortgage-backed securities. This decrease in net interest income after provision for credit losses was a $2.7 milliondecreasepartially offset by an increase in net prepayment fees on advances from advances and investments from $3.3 million$161 thousand in the nine months ended September 30, 2016,2018 to $619,000$31.1 million for the same period in the nine months ended September 30, 2017.2019.

Net interest spread was 0.380.35 percent for the nine months ended September 30, 2017,2019, a threefive basis point increasedecrease from the same period in 2016,2018, and net interest margin was 0.450.49 percent, a fivetwo basis point increasedecrease from the same period in 2016.2018. The increasedecrease in net interest spread reflects a 3550 basis point increase in the average yield on earning assets and a 3255 basis point increase in the average yield on interest-bearing liabilities. The increasedecrease in net interest margin benefited from net interest spread expansion andreflects the negative impact of higher interest rates.premium amortization on U.S. Agency mortgage-backed securities, partially offset by the prepayment fees on advances discussed above.

The following tableTable 3 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.


47
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Net Interest Spread and Margin
(dollars in thousands)
Table 3 - Net Interest Spread and Margin
(dollars in thousands)
Table 3 - Net Interest Spread and Margin
(dollars in thousands)
             
 For the Three Months Ended September 30, For the Three Months Ended September 30,
 2017 2016 2019 2018 
 
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 $35,810,374
 $136,462
 1.51% $35,996,668
 $84,795
 0.94% $31,728,922
 $204,840
 2.56% $38,229,447
 $226,544
 2.35% 
Securities purchased under agreements to resell 3,028,348
 8,074
 1.06
 3,109,326
 2,697
 0.35
 4,922,283
 28,121
 2.27
 4,211,500
 20,865
 1.97
 
Federal funds sold 5,645,848
 16,622
 1.17
 5,155,967
 5,200
 0.40
 1,510,793
 8,603
 2.26
 5,973,043
 29,329
 1.95
 
Investment securities(2)
 9,402,709
 53,188
 2.24
 9,781,842
 52,142
 2.12
 8,405,222
 51,971
 2.45
 8,147,357
 56,991
 2.78
 
Mortgage loans 3,879,748
 31,656
 3.24
 3,667,314
 29,874
 3.24
 4,441,996
 36,990
 3.30
 4,135,495
 33,967
 3.26
 
Other earning assets 287,032
 822
 1.14
 209,976
 171
 0.32
 1,250,354
 7,014
 2.23
 237,482
 1,122
 1.87
 
Total interest-earning assets 58,054,059
 246,824
 1.69
 57,921,093
 174,879
 1.20
 52,259,570
 337,539
 2.56
 60,934,324
 368,818
 2.40
 
Other non-interest-earning assets 278,801
     346,965
     214,909
     279,700
     
Fair-value adjustments on investment securities 4,384
     87,557
     97,521
     (117,303)     
Total assets $58,337,244
 $246,824
 1.68% $58,355,615
 $174,879
 1.19% $52,572,000
 $337,539
 2.55% $61,096,721
 $368,818
 2.39% 
Liabilities and capital                         
Consolidated obligations                         
Discount notes $24,962,389
 $65,120
 1.03% $25,981,154
 $23,011
 0.35% $22,810,011
 $126,465
 2.20% $29,484,044
 $147,463
 1.98% 
Bonds 28,964,110
 109,052
 1.49
 27,769,228
 86,574
 1.24
 25,865,100
 152,814
 2.34
 27,064,773
 142,086
 2.08
 
Deposits 501,179
 1,144
 0.91
 502,769
 180
 0.14
 570,627
 1,638
 1.14
 506,073
 1,337
 1.05
 
Mandatorily redeemable capital stock 36,601
 399
 4.32
 34,952
 334
 3.80
 17,107
 248
 5.75
 31,867
 472
 5.87
 
Other borrowings —
 —
 —
 701
 1
 0.57
Total interest-bearing liabilities 54,464,279
 175,715
 1.28
 54,288,804
 110,100
 0.81
 49,262,845
 281,165
 2.26
 57,086,757
 291,358
 2.02
 
Other non-interest-bearing liabilities 666,221
     868,420
     332,667
     617,491
     
Total capital 3,206,744
     3,198,391
     2,976,488
     3,392,473
     
Total liabilities and capital $58,337,244
 $175,715
 1.20% $58,355,615
 $110,100
 0.75% $52,572,000
 $281,165
 2.12% $61,096,721
 $291,358
 1.89% 
Net interest income  
 $71,109
    
 $64,779
    
 $56,374
    
 $77,460
   
Net interest spread  
  
 0.41%  
  
 0.39%  
  
 0.30%  
  
 0.38% 
Net interest margin  
  
 0.49%  
  
 0.45%  
  
 0.43%  
  
 0.50% 
             
             
 For the Nine Months Ended September 30,
 2019 2018 
 Average
Balance		 Interest
Income /
Expense		 Average
Yield(1)		 Average
Balance		 Interest
Income /
Expense		 Average
Yield(1)		 
Assets  
  
  
  
  
  
 
Advances $33,878,481
 $707,323
 2.79% $39,047,542
 $618,077
 2.12% 
Securities purchased under agreements to resell 5,801,264
 104,192
 2.40
 3,423,542
 44,494
 1.74
 
Federal funds sold 2,574,674
 46,158
 2.40
 6,302,960
 81,126
 1.72
 
Investment securities(2) 7,490,130
 135,055
 2.41
 8,639,490
 178,100
 2.76
 
Mortgage loans 4,394,636
 111,946
 3.41
 4,066,300
 100,774
 3.31
 
Other earning assets 915,252
 16,097
 2.35
 182,585
 2,270
 1.66
 
Total interest-earning assets 55,054,437
 1,120,771
 2.72% 61,662,419
 1,024,841
 2.22% 
Other non-interest-earning assets 255,398
     276,428
     
Fair-value adjustments on investment securities 10,573
     (102,651)     
Total assets $55,320,408
 $1,120,771
 2.71% $61,836,196
 $1,024,841
 2.22% 
Liabilities and capital        
  
  
 
Consolidated obligations        
  
  
 
Discount notes $25,704,322
 $455,657
 2.37% $29,809,249
 $385,804
 1.73% 

Bonds 25,568,810
 458,346
 2.40
 27,477,005
 397,843
 1.94
 
Deposits 521,474
 5,252
 1.35
 507,186
 3,600
 0.95
 
Mandatorily redeemable capital stock 18,110
 814
 6.01
 33,333
 1,427
 5.72
 
Other borrowings 1,459
 27
 2.47
 3,022
 38
 1.68
 
Total interest-bearing liabilities 51,814,175
 920,096
 2.37% 57,829,795
 788,712
 1.82% 
Other non-interest-bearing liabilities 456,512
     625,328
     
Total capital 3,049,721
     3,381,073
     
Total liabilities and capital $55,320,408
 $920,096
 2.22% $61,836,196
 $788,712
 1.71% 
Net interest income  
 $200,675
    
$236,129
   
Net interest spread  
  
 0.35%  
  
 0.40% 
Net interest margin  
  
 0.49%  
  
 0.51% 
_________________________
(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.



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Net Interest Spread and Margin
(dollars in thousands)
                        
  For the Nine Months Ended September 30,
  2017 2016
  
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield(1)
 
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield(1)
Assets            
Advances $37,333,691
 $371,075
 1.33% $35,785,458
 $246,957
 0.92%
Securities purchased under agreements to resell 3,024,824
 18,822
 0.83
 3,499,307
 8,603
 0.33
Federal funds sold 5,618,242
 39,614
 0.94
 5,666,230
 15,992
 0.38
Investment securities(2)
 9,131,332
 146,490
 2.14
 9,641,011
 149,617
 2.07
Mortgage loans 3,762,675
 92,592
 3.29
 3,611,442
 90,856
 3.36
Other earning assets 216,100
 1,549
 0.96
 185,846
 414
 0.30
Total interest-earning assets 59,086,864
 670,142
 1.52
 58,389,294
 512,439
 1.17
Other non-interest-earning assets 329,834
     322,433
    
Fair-value adjustments on investment securities (23,843)     29,087
    
Total assets $59,392,855
 $670,142
 1.51% $58,740,814
 $512,439
 1.17%
Liabilities and capital            
Consolidated obligations            
Discount notes $26,468,987
 $157,767
 0.80% $26,747,661
 $68,287
 0.34%
Bonds 28,454,655
 311,395
 1.46
 27,503,032
 267,214
 1.30
Deposits 468,524
 2,434
 0.69
 490,595
 441
 0.12
Mandatorily redeemable capital stock 35,058
 1,105
 4.21
 37,359
 1,032
 3.69
Other borrowings 1,099
 8
 0.97
 874
 3
 0.46
Total interest-bearing liabilities 55,428,323
 472,709
 1.14
 54,779,521
 336,977
 0.82
Other non-interest-bearing liabilities 676,974
     830,264
    
Total capital 3,287,558
     3,131,029
    
Total liabilities and capital $59,392,855
 $472,709
 1.06% $58,740,814
 $336,977
 0.77%
Net interest income  
 $197,433
    
 $175,462
  
Net interest spread  
  
 0.38%  
  
 0.35%
Net interest margin  
  
 0.45%  
  
 0.40%
_________________________
(1)Yields are annualizedannualized.
(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 tableTable 4 summarizes changes in interest income and interest expense for the three and nine months ended September 30, 20172019 and 20162018. 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.

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Rate and Volume Analysis
(dollars in thousands)
Table 4 - Rate and Volume Analysis
(dollars in thousands)

Table 4 - Rate and Volume Analysis
(dollars in thousands)

 
For the Three Months Ended
 September 30, 2017 vs. 2016
 
For the Nine Months Ended
 September 30, 2017 vs. 2016
 
For the Three Months Ended
 September 30, 2019 vs. 2018
 For the Nine Months Ended
September 30, 2019 vs. 2018
 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 $(427) $52,094
 $51,667
 $11,106
 $113,012
 $124,118
 $(40,780) $19,076
 $(21,704) $(89,475) $178,721
 $89,246
Securities purchased under agreements to resell (71) 5,448
 5,377
 (1,312) 11,531
 10,219
 3,804
 3,452
 7,256
 38,517
 21,181
 59,698
Federal funds sold 547
 10,875
 11,422
 (137) 23,759
 23,622
 (24,793) 4,067
 (20,726) (59,316) 24,348
 (34,968)
Investment securities (1,812) 2,858
 1,046
 (8,073) 4,946
 (3,127) 1,759
 (6,779) (5,020) (22,165) (20,880) (43,045)
Mortgage loans 2,013
 (231) 1,782
 3,750
 (2,014) 1,736
 2,547
 476
 3,023
 8,306
 2,866
 11,172
Other earning assets 84
 567
 651
 78
 1,057
 1,135
 5,644
 248
 5,892
 12,532
 1,295
 13,827
Total interest income 334
 71,611
 71,945
 5,412
 152,291
 157,703
 (51,819) 20,540
 (31,279) (111,601) 207,531
 95,930
Interest expense        
  
  
        
  
  
Consolidated obligations        
  
  
        
  
  
Discount notes (922) 43,031
 42,109
 (719) 90,199
 89,480
 (35,829) 14,831
 (20,998) (58,458) 128,311
 69,853
Bonds 4,072
 18,406
 22,478
 9,497
 34,684
 44,181
 (6,504) 17,232
 10,728
 (29,114) 89,617
 60,503
Deposits (1) 965
 964
 (21) 2,014
 1,993
 179
 122
 301
 104
 1,548
 1,652
Mandatorily redeemable capital stock 17
 48
 65
 (66) 139
 73
 (214) (10) (224) (681) 68
 (613)
Other borrowings (1) —
 (1) 1
 4
 5
 —
 —
 —
 (25) 14
 (11)
Total interest expense 3,165
 62,450
 65,615
 8,692
 127,040
 135,732
 (42,368) 32,175
 (10,193) (88,174) 219,558
 131,384
Change in net interest income $(2,831) $9,161
 $6,330
 $(3,280) $25,251
 $21,971
 $(9,451) $(11,635) $(21,086) $(23,427) $(12,027) $(35,454)

Average Balance of Advances Outstanding


The average balance of total advances increased $1.5decreased $5.2 billion, or 4.313.2 percent, for the nine months ended September 30, 20172019, compared with the same period in 2016. However, advances balances declined by $1.6 billion over the nine month period ended September 30, 2017.2018. We cannot predict whether this trend will continue. The following table summarizes average balances of advances outstanding during the nine months ended September 30, 2017 and 2016, by product type.


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Average Balance of Advances Outstanding by Product Type
(dollars in thousands)
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017 2016 2017 2016
Fixed-rate advances—par value        
Long-term $13,833,016
 $13,379,046
 $13,535,505
 $13,519,952
Short-term 12,297,210
 11,348,160
 12,037,843
 11,304,599
Putable 1,995,574
 2,477,805
 2,343,896
 2,161,985
Overnight 1,188,930
 750,195
 1,366,174
 816,945
Amortizing 925,847
 861,330
 895,765
 864,734
All other fixed-rate advances 40,000
 57,457
 45,018
 78,482
  30,280,577
 28,873,993
 30,224,201
 28,746,697
         
Variable-rate indexed advances—par value        
Simple variable (1)
 4,866,698
 6,254,069
 6,476,560
 6,361,059
Putable 645,006
 663,391
 614,478
 477,595
All other variable-rate indexed advances 39,967
 38,967
 41,954
 39,726
  5,551,671
 6,956,427
 7,132,992
 6,878,380
Total average par value 35,832,248
 35,830,420
 37,357,193
 35,625,077
Net (discounts) premiums (11,293) 3,497
 (8,152) 4,468
Market value of bifurcated derivatives 2,224
 7,135
 889
 4,467
Hedging adjustments (12,805) 155,616
 (16,239) 151,446
Total average balance of advances $35,810,374
 $35,996,668
 $37,333,691
 $35,785,458
_____________________
(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 $8.9 billion for the nine months ended September 30, 2017. 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. The average balance of all such advances totaled $29.4 billion for the nine months ended September 30, 2017, representing 78.8 percent of the total average balance of advances outstanding during the nine months ended September 30, 2017. The average balance of all such advances totaled $28.0 billion for the nine months ended September 30, 2016, representing 78.1 percent of the total average balance of advances outstanding during the nine months ended September 30, 2016.

For the nine months ended September 30, 20172019 and 20162018, net prepayment fees on advances were $31.1 million and investments were $619,000 and $3.3 million,$161 thousand, 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. For additional information see Note 2 — Summary of Significant Accounting Policies — Advances in the 2018 Annual Report.

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 $492.2$617.9 million, or 5.36.2 percent, for the nine months ended September 30, 2017,2019, compared with the same period in 20162018. The yield earned on short-term money-market investments is highly correlated to short-term market interest rates. As a result of the FOMC’s increases of the target range for the federal funds rate, in late 2016 and the first half of 2017, average yields on overnight federal funds sold increased from 0.381.72 percent during the nine months ended September 30, 20162018 to 0.942.40 percent during the nine months ended September 30, 2017,2019, while average yields on securities purchased under agreements to resell increased from 0.331.74 percent for the nine months ended September 30, 20162018 to 0.832.40 percent for the nine months ended September 30, 2017.2019. These investments are used for liquidity management and tomanagement.

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manage our leverage ratio in response to fluctuations in other asset balances. For the nine months ended September 30, 2017, average balances of securities purchased under agreements to resell decreased $474.5 million and average balances of federal funds sold decreased $48.0 million in comparison to the nine months ended September 30, 2016.

Average investment-securities balances decreased $509.7 million,$1.1 billion, or 5.2913.3 percent for the nine months ended September 30, 2017,2019, compared with the same period in 20162018, a decrease consisting primarily of a $854.8 million decrease$1.6 billion in MBS, and a $342.7 millionoffset by an increase in average U.S. Treasury obligations.obligations of $460.8 million.

Average Balance of COs

Average CO balances increased $672.9 million,decreased $6.0 billion, or 1.210.5 percent, for the nine months ended September 30, 2017,2019, compared with the same period in 20162018, resulting from our increaseddecreased funding needs principally due to the increasedecrease in our average advances and investments balances. This overall increasedecrease consisted of an increasea decline of $951.6 million$4.1 billion in CO bondsdiscount notes and a decrease of $278.7 million$1.9 billion in CO discount notes.bonds.

The average balance of CO discount notes represented approximately 48.250.1 percent of total average COs during the nine months ended September 30, 2017,2019, compared with 49.352.0 percent of total average COs during the nine months ended September 30, 2016.2018. The average balance of CO bonds represented 51.849.9 percent and 50.748.0 percent of total average COs outstanding during the nine months ended September 30, 20172019 and 20162018, 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. Beginning January 1, 2019, the fair value gains and losses of derivatives and hedged items designated in fair-value hedge relationships are also recognized as interest income or interest expense. Prior to January 1, 2019, the portion of fair value gains and losses of derivatives and hedged items representing hedge ineffectiveness were recorded in non-interest income. We enter into derivatives to manage the interest-rate-risk exposures inherent in otherwise unhedged assets and liabilities and achieve our risk-management objectives. 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 nine months endedSeptember 30, 2017 and 2016 (dollars in thousands).


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  For the Three Months Ended September 30, 2017 
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Other Total 
Net interest income             
Amortization / accretion of hedging activities in net interest income (1)
 $(507) $—
 $(60) $786
 $—
 $219
 
Net interest settlements included in net interest income (2)
 (2,878) (7,879) —
 242
 —
 (10,515) 
Total net interest income (3,385) (7,879) (60) 1,028
 —
 (10,296) 
              
Net gains (losses) on derivatives and hedging activities             
Gains (losses) on fair-value hedges 501
 504
 —
 (1,881) —
 (876) 
Losses on cash-flow hedges —
 —
 —
 (18) —
 (18) 
(Losses) gains on derivatives not receiving hedge accounting (5) 75
 —
 —
 —
 70
 
Mortgage delivery commitments —
 —
 692
 —
 —
 692
 
Other (3)
 —
 —
 —
 —
 126
 126
 
Net gains (losses) on derivatives and hedging activities 496
 579
 692
 (1,899) 126
 (6) 
              
Subtotal (2,889) (7,300) 632
 (871) 126
 (10,302) 
              
Net losses on trading securities —
 (1,591) —
 —
 —
 (1,591) 
Total net effect of derivatives and hedging activities $(2,889) $(8,891) $632
 $(871) $126
 $(11,893) 
Table 5 - Effect of Derivative and Hedging Activities
(dollars in thousands)

  For the Three Months Ended September 30, 2019
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Other Total
Net interest income            
Amortization / accretion of hedging activities (1)
 $(562) $—
 $(155) $(880) $—
 $(1,597)
Gains (losses) on designated fair-value hedges 280
 (772) —
 434
 —
 (58)
Net interest settlements on derivatives(2)
 8,304
 (4,856) —
 (2,706) —
 742
Total effect on net interest income 8,022
 (5,628) (155) (3,152) —
 (913)
             
Net gains (losses) on derivatives and hedging activities            
Losses on derivatives not receiving hedge accounting (29) (1,015) —
 —
 —
 (1,044)
Mortgage delivery commitments —
 —
 375
 —
 —
 375
Price alignment amount(3)
 —
 —
 —
 —
 12
 12
Net (losses) gains on derivatives and hedging activities (29) (1,015) 375
 —
 12
 (657)
             
Subtotal 7,993
 (6,643) 220
 (3,152) 12
 (1,570)
             
Net losses on trading securities(4)
 —
 (111) —
 —
 —
 (111)
Total net effect of derivatives and hedging activities $7,993
 $(6,754) $220
 $(3,152) $12
 $(1,681)
_____________________
(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.
(3)
Amount in Other includesRepresents the price alignment amount onfor derivatives for which variation margin is characterized as a daily settlement amount, as further described in Item 1 —Notes to the Financial Statements — Note 11 — Derivatives and Hedging Activities.

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  For the Three Months Ended September 30, 2016
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total 
Net interest income           
Amortization / accretion of hedging activities in net interest income (1)
 $(679) $—
 $(155) $(947) $(1,781) 
Net interest settlements included in net interest income (2)
 (22,547) (8,788) —
 6,500
 (24,835) 
Total net interest income (23,226) (8,788) (155) 5,553
 (26,616) 
            
Net (losses) gains on derivatives and hedging activities           
Gains (losses) on fair-value hedges 173
 445
 —
 (3,896) (3,278) 
Losses on cash-flow hedges —
 —
 —
 (22) (22) 
Gains on derivatives not receiving hedge accounting 20
 1,105
 —
 61
 1,186
 
Mortgage delivery commitments —
 —
 251
 (59) 192
 
Net gains (losses) on derivatives and hedging activities 193
 1,550
 251
 (3,916) (1,922) 
            
Subtotal (23,033) (7,238) 96
 1,637
 (28,538) 
            
Net losses on trading securities —
 (2,849) —
 —
 (2,849) 
Total net effect of derivatives and hedging activities $(23,033) $(10,087) $96
 $1,637
 $(31,387) 
_____________________
(1)Represents the amortization/accretion of hedging fair-value adjustments.amount.
(2)(4)Represents interest income/expenseIncludes only those gains (losses) on derivatives included in net interest income.trading securities that have an assigned economic derivative.




  For the Nine Months Ended September 30, 2017
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Other Total
Net interest income            
Amortization / accretion of hedging activities in net interest income (1)
 $(1,676) $—
 $(223) $1,033
 $—
 $(866)
Net interest settlements included in net interest income (2)
 (24,566) (24,319) —
 6,965
 —
 (41,920)
Total net interest income (26,242) (24,319) (223) 7,998
 —
 (42,786)
             
Net gains (losses) on derivatives and hedging activities            
Gains (losses) on fair-value hedges 370
 1,365
 —
 (4,022) —
 (2,287)
Gains on cash-flow hedges —
 —
 —
 213
 —
 213
(Losses) gains on derivatives not receiving hedge accounting (16) (140) —
 4
 —
 (152)
Mortgage delivery commitments —
 —
 1,556
 —
 —
 1,556
Other (3)
 —
 —
 —
 —
 282
 282
Net gains (losses) on derivatives and hedging activities 354
 1,225
 1,556
 (3,805) 282
 (388)
             
Subtotal (25,888) (23,094) 1,333
 4,193
 282
 (43,174)
             
Net losses on trading securities —
 (3,857) —
 —
 —
 (3,857)
Total net effect of derivatives and hedging activities $(25,888) $(26,951) $1,333
 $4,193
 $282
 $(47,031)

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  For the Three Months Ended September 30, 2018
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Other Total
Net interest income            
Amortization / accretion of hedging activities(1)
 $(343) $—
 $(102) $466
 $—
 $21
Net interest settlements included(2)
 15,769
 (6,200) —
 (8,787) —
 782
Total net interest income 15,426
 (6,200) (102) (8,321) —
 803
             
Net gains (losses) on derivatives and hedging activities            
(Losses) gains on fair-value hedges (308) 455
 —
 410
 —
 557
Gains on cash-flow hedges —
 —
 —
 83
 —
 83
Gains (losses) on derivatives not receiving hedge accounting 17
 (10) —
 —
 —
 7
Mortgage delivery commitments —
 —
 131
 —
 —
 131
Price alignment amount(3)
 —
 —
 —
 —
 (291) (291)
Net (losses) gains on derivatives and hedging activities (291) 445
 131
 493
 (291) 487
             
Subtotal 15,135
 (5,755) 29
 (7,828) (291) 1,290
             
Net losses on trading securities(4)
 —
 (1,006) —
 —
 —
 (1,006)
Total net effect of derivatives and hedging activities $15,135
 $(6,761) $29
 $(7,828) $(291) $284
_____________________
(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.
(3)
Amount in Other includesRepresents the price alignment amount onfor derivatives for which variation margin is characterized as a daily settlement amount, as further described in Item 1 —Notes to the Financial Statements — Note 11 — Derivatives and Hedging Activities.
amount.
(4)Includes only those gains (losses) on trading securities that have an assigned economic derivative.

 For the Nine Months Ended September 30, 2016 For the Nine Months Ended September 30, 2019
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Total Advances Investments Mortgage Loans CO Bonds Other Total
Net interest income                      
Amortization / accretion of hedging activities in net interest income (1)
 $(2,028) $—
 $(437) $(5,580) $(8,045)
Net interest settlements included in net interest income (2)
 (78,799) (26,682) —
 21,730
 (83,751)
Total net interest income (80,827) (26,682) (437) 16,150
 (91,796)
Amortization / accretion of hedging activities (1)
 $(1,612) $—
 $(419) $(1,503) $—
 $(3,534)
Gains (losses) on designated fair-value hedges 1,080
 (3,537) —
 (904) —
 (3,361)
Net interest settlements on derivatives(2)
 37,057
 (16,406) —
 (18,074) —
 2,577
Total effect on net interest income 36,525
 (19,943) (419) (20,481) —
 (4,318)
                      
Net (losses) gains on derivatives and hedging activities          
(Losses) gains on fair-value hedges (1,016) 1,185
 —
 (8,698) (8,529)
Losses on cash-flow hedges —
 —
 —
 (558) (558)
(Losses) gains on derivatives not receiving hedge accounting (86) (3,547) —
 102
 (3,531)
Net gains (losses) on derivatives and hedging activities            
Losses on derivatives not receiving hedge accounting (87) (2,444) —
 —
 —
 (2,531)
Mortgage delivery commitments —
 —
 1,557
 (59) 1,498
 —
 —
 1,445
 —
 —
 1,445
Price alignment amount(3)
 —
 —
 —
 —
 15
 15
Net (losses) gains on derivatives and hedging activities (1,102) (2,362) 1,557
 (9,213) (11,120) (87) (2,444) 1,445
 —
 15
 (1,071)
                      
Subtotal (81,929) (29,044) 1,120
 6,937
 (102,916) 36,438
 (22,387) 1,026
 (20,481) 15
 (5,389)
                      
Net losses on trading securities(4) —
 (892) —
 —
 (892) —
 (863) —
 —
 —
 (863)
Total net effect of derivatives and hedging activities $(81,929) $(29,936) $1,120
 $6,937
 $(103,808) $36,438
 $(23,250) $1,026
 $(20,481) $15
 $(6,252)

_____________________
(1)Represents the amortization/accretion of hedging fair-value adjustments.adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive loss.
(2)Represents interest income/expense on derivatives included in net interest income.

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 $3.6 million and $4.5 million for the nine months endedSeptember 30, 2017 and 2016, respectively.

Other Income (Loss)
The following table presents a summary of other income (loss) for the three and nine months endedSeptember 30, 2017 and 2016. 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.

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Other Income (Loss)
(dollars in thousands)
     
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017 2016 2017 2016
Gains (losses) on derivatives and hedging activities:        
Net losses related to fair-value hedge ineffectiveness $(875) $(3,276) $(2,286) $(8,527)
Net (losses) gains related to cash-flow hedge ineffectiveness (18) (22) 213
 (558)
Net unrealized (losses) gains related to derivatives not receiving hedge accounting associated with:        
Advances (6) 21
 (16) (86)
Trading securities 1,187
 2,542
 3,459
 950
CO Bonds —
 1
 29
 11
Mortgage delivery commitments 692
 251
 1,556
 1,557
Net interest-accruals related to derivatives not receiving hedge accounting (1,112) (1,439) (3,625) (4,467)
Other(1)
 126
 —
 282
 —
Net losses on derivatives and hedging activities (6) (1,922) (388) (11,120)
Net other-than-temporary impairment credit losses on held-to-maturity securities recognized in income (432) (371) (1,418) (2,721)
Litigation settlements —
 —
 —
 19,584
Loss on early extinguishment of debt —
 (184) —
 (1,484)
Service-fee income 2,228
 1,948
 6,362
 5,850
Net unrealized losses on trading securities (1,591) (2,849) (3,857) (892)
Other 397
 (65) 358
 (203)
Total other income (loss) $596
 $(3,443) $1,057
 $9,014
______________
(1)(3)
Consists of price alignmentRepresents the amount onfor derivatives for which variation margin is characterized as a daily settlement amount.
(4)Includes only those gains (losses) on trading securities that have an assigned economic derivative.

  For the Nine Months Ended September 30, 2018
Net Effect of Derivatives and Hedging Activities Advances Investments Mortgage Loans CO Bonds Other Total
Net interest income            
Amortization / accretion of hedging activities(1)
 $(1,161) $—
 $(294) $839
 $—
 $(616)
Net interest settlements included(2)
 36,001
 (19,975) —
 (20,317) —
 (4,291)
Total net interest income 34,840
 (19,975) (294) (19,478) —
 (4,907)
             
Net gains (losses) on derivatives and hedging activities            
Gains (losses) on fair-value hedges 2,020
 1,608
 —
 (1,488) —
 2,140
Gains on cash-flow hedges —
 —
 —
 244
 —
 244
(Losses) gains on derivatives not receiving hedge accounting (22) 751
 —
 —
 —
 729
Mortgage delivery commitments —
 —
 (336) —
 —
 (336)
Price alignment amount(3)
 —
 —
 —
 —
 (692) (692)
Net gains (losses) on derivatives and hedging activities 1,998
 2,359
 (336) (1,244) (692) 2,085
             
Subtotal 36,838
 (17,616) (630) (20,722) (692) (2,822)
             
Net losses on trading securities(4)
 —
 (3,753) —
 —
   (3,753)
Total net effect of derivatives and hedging activities $36,838
 $(21,369) $(630) $(20,722) $(692) $(6,575)
_____________________
(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.
(3)Represents the amount for derivatives for which variation margin is characterized as further described in Item 1 —Notes to the Financial Statements — Note 11 — Derivatives and Hedging Activities.a daily settlement amount.
(4)Includes only those gains (losses) on trading securities that have an assigned economic derivative.

FINANCIAL CONDITION

Advances

At September 30, 20172019, the advances portfolio totaled $37.538.5 billion, a decrease of $1.64.7 billion compared with $39.143.2 billion at December 31, 20162018.

The following table summarizes advances outstanding by product type at September 30, 2017, and December 31, 2016.

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Advances Outstanding by Product Type
(dollars in thousands)

Table 6 - Advances Outstanding by Product Type
(dollars in thousands)

Table 6 - Advances Outstanding by Product Type
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Par Value Percent of Total Par Value Percent of TotalPar Value Percent of Total Par Value Percent of Total
Fixed-rate advances 
  
  
  
 
  
  
  
Short-term$16,735,216
 43.5% $15,325,612
 35.4%
Long-term$14,024,963
 37.4% $13,051,558
 33.4%13,206,520
 34.3
 13,415,001
 31.0
Short-term12,860,167
 34.3
 12,260,502
 31.3
Overnight1,884,646
 4.9
 3,075,277
 7.1
Putable1,528,750
 4.1
 2,735,050
 7.0
1,231,500
 3.2
 791,700
 1.9
Overnight1,329,389
 3.5
 1,577,162
 4.0
Amortizing938,529
 2.5
 861,920
 2.2
826,515
 2.1
 920,088
 2.1
All other fixed-rate advances40,000
 0.1
 40,000
 0.1
10,000
 —
 42,600
 0.1
30,721,798
 81.9
 30,526,192
 78.0
33,894,397
 88.0
 33,570,278
 77.6
              
Variable-rate advances 
  
  
  
 
  
  
  
Simple variable (1)
6,003,175
 16.0
 7,895,783
 20.2
4,448,775
 11.6
 8,908,875
 20.6
Putable707,400
 1.9
 616,000
 1.6
99,500
 0.3
 733,300
 1.7
All other variable-rate indexed advances76,277
 0.2
 76,880
 0.2
59,079
 0.1
 55,932
 0.1
6,786,852
 18.1
 8,588,663
 22.0
4,607,354
 12.0
 9,698,107
 22.4
Total par value$37,508,650
 100.0% $39,114,855
 100.0%$38,501,751
 100.0% $43,268,385
 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 8 — Advances for disclosures relating to redemption terms of the advances portfolio.

At September 30, 2017, we had advances outstanding to 316, or 71.3 percent, of our 443 members. At December 31, 2016, we had advances outstanding to 315, or 70.5 percent, of our 447 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 collateral discounts, or haircuts, assignedto the market value or unpaid principal balance, as applicable, 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.collateral. 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 financial weakness or 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 September 30, 2017, along with their corresponding collateral balances.


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Advances Outstanding by Borrower Credit Status Category
As of September 30, 2017
(dollars in thousands)
Table 7 - Advances Outstanding by Borrower Credit Status Category
(dollars in thousands)

Table 7 - Advances Outstanding by Borrower Credit Status Category
(dollars in thousands)

       As of September 30, 2019
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-1272
 $34,203,696
 $86,335,039
 252.4%248
 $34,013,680
 $106,707,699
 313.7%
Category-214
 475,926
 907,830
 190.8
14
 338,035
 888,647
 262.9
Category-320
 504,151
 696,404
 138.1
20
 405,737
 598,070
 147.4
Insurance companies19
 2,324,877
 3,106,494
 133.6
20
 3,744,299
 4,696,082
 125.4
Total325
 $37,508,650
 $91,045,767
 242.7%302
 $38,501,751
 $112,890,498
 293.2%

The method by which a borrower pledges collateral is dependent upon the type of borrower (depository vs. non-depository), the category to which itthe borrower 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 owner-occupied residential mortgage loans at a lower discount than is allowed if the collateral is not specifically listed and identified.
Based on the financial reviews and other conditions of the members, the
The Bank may adjust the credit status category of a member from time to time. Due to their weaker profile,time based on the financial reviews and other conditions of the members. The Bank requires Category-3 members (as well as all non-depository members) to deliver collateral to the Bank or its custodian. Based upon the method by which borrowers pledgecustodian, and all securities collateral to us, the following table shows the total potential lending valueis delivered, regardless of the collateral that borrowers have pledged to us, net of our collateral valuation discounts as of September 30, 2017.

Collateral by Pledge Type
(dollars in thousands)
 Discounted Collateral
Collateral not specifically listed and identified$28,591,280
Collateral specifically listed and identified56,632,840
Collateral delivered to us11,561,620

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 2016 Annual Report. At September 30, 2017, and December 31, 2016, the amount of pledged nontraditional and subprime loan collateral was 10 percent and nine percent, respectively, of total member discounted collateral.a member's Category.

We have not recorded any allowance for credit losses on advances at September 30, 20172019, and December 31, 2016,2018, for the reasons discussed in Item 1 — Notes to the Financial Statements — Note 10 — Allowance for Credit Losses.Losses

The following table presents the top five advance-borrowing institutions at September 30, 2017, and the interest earned on outstanding advances to such institutions for the three and nine months ended September 30, 2017.


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Top Five Advance-Borrowing Institutions
(dollars in thousands)
Table 8 - Top Five Advance-Borrowing Institutions
(dollars in thousands)

Table 8 - Top Five Advance-Borrowing Institutions
(dollars in thousands)

 September 30, 2017   September 30, 2019  
Name 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, 2017
Advances Interest Income for the
Nine Months Ended
September 30, 2017
 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, 2019
Advances Interest Income for the
Nine Months Ended September 30, 2019
State Street Bank and Trust Company $6,000,000
 15.6% 2.33% $4,629
$6,929
Citizens Bank, N.A. $5,358,737
 14.3% 1.35% $14,316
$46,968
 3,205,868
 8.3
 2.41
 16,534
77,605
People's United Bank, N.A. 2,804,872
 7.5
 1.27
 8,240
18,900
 2,934,303
 7.6
 2.18
 13,851
40,009
Webster Bank, N.A. 1,507,679
 4.0
 1.49
 5,240
17,413
 1,392,849
 3.6
 2.13
 5,910
19,834
Berkshire Bank 1,354,433
 3.6
 1.33
 4,391
10,543
Massachusetts Mutual Life Insurance Co. 1,100,000
 2.9
 2.14
 6,076
17,975
Mass Mutual Life Insurance Company 1,100,000
 2.9
 2.34
 6,671
19,709
Total of top five advance-borrowing institutions $12,125,721
 32.3%   $38,263
$111,799
 $14,633,020
 38.0%   $47,595
$164,086
_______________________
(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 September 30, 20172019, investment securities and short-term money-market instruments totaled $19.313.6 billion, an increase of $1.3a decrease from $15.9 billion fromat December 31, 20162018.

Short-term money-market investments increased $774.7 milliondecreased $4.4 billion to $9.54.2 billion at September 30, 20172019, compared with December 31, 2016.2018. The increasedecrease was attributable to a $3.6$2.6 billion increasedecline in securities purchased under agreements to resell, a decrease of $1.5 billion in federal funds sold, and a $224.7$265.3 million increase in interest-bearing deposits offset by a $3.0 billion decrease in securities purchased under agreements to resell.interest bearing deposits.


Investment securities increased $534.5 million$2.1 billion to $9.9$9.4 billion at September 30, 2017,2019, compared with December 31, 2016.2018. The increase was attributable to a $604.1 million increase in MBS partially offset by a $90.0 million decrease inpurchases of $1.5 billion of U.S. Treasury obligations.

Our MBS investment portfolio consistsobligations as well as an increase of the following categories of securities as of September 30, 2017, and December 31, 2016. The percentages$490.5 million in the table below are based on carrying value.

Mortgage-Backed Securities
 September 30, 2017 December 31, 2016
Single-family MBS - U.S. government-guaranteed and GSE61.6% 67.5%
Multifamily MBS - U.S. government-guaranteed and GSE30.0
 22.2
Private-label residential MBS8.3
 10.1
ABS backed by home-equity loans0.1
 0.2
Total MBS100.0% 100.0%
MBS.

Investments Credit Risk

We are subject to credit risk on unsecured investments consisting primarily of short-term (meaning under one year and under to maturity and currently only consisting only of overnight)overnight risk) 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. WeCurrently 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. All of these placements currently either expire within one day.day or are payable upon demand.

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

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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.signals such as credit default swap spreads. We endeavor tomay 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 September 30, 2017
(dollars in thousands)
Table 9 - Credit Ratings of Investments at Carrying Value
(dollars in thousands)

Table 9 - Credit Ratings of Investments at Carrying Value
(dollars in thousands)

 As of September 30, 2019
 
Long-Term Credit Rating (1)
 Long-Term Credit Rating
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):
  
  
  
  
  
  
Money-market instruments: (1)
  
  
  
  
  
  
Interest-bearing deposits $—
 $262
 $224,750
 $—
 $—
 $—
 $—
 $170
 $327,681
 $—
 $—
 $—
Securities purchased under agreements to resell —
 —
 1,000,000
 1,999,000
 —
 —
 —
 500,000
 1,900,000
 1,500,000
 —
 —
Federal funds sold —
 1,650,000
 4,600,000
 —
 —
 —
Total money-market instruments —
 1,650,262
 5,824,750
 1,999,000
 —
 —
 —
 500,170
 2,227,681
 1,500,000
 —
 —
                        
Investment securities:(2)                        
                        
Non-MBS:  
  
  
  
  
    
  
  
  
  
  
U.S. agency obligations —
 1,391
 —
 —
 —
 —
U.S. Treasury obligations —
 309,498
 —
 —
 —
 —
 —
 1,508,289
 —
 —
 —
 —
Corporate bonds —
 —
 —
 —
 —
 6,211
U.S. government-owned corporations —
 286,393
 —
 —
 —
 —
 —
 305,959
 —
 —
 —
 —
GSEs —
 120,033
 —
 —
 —
 —
GSE —
 128,095
 —
 —
 —
 —
Supranational institutions 421,492
 —
 —
 —
 —
 —
 425,110
 —
 —
 —
 —
 —
HFA securities 27,284
 45,739
 102,999
 —
 —
 —
 37,348
 62,892
 11,920
 35,165
 —
 —
Total non-MBS 448,776
 763,054
 102,999
 —
 —
 —
 462,458
 2,005,235
 11,920
 35,165
 —
 6,211
                        
MBS:                        
U.S. government guaranteed - single-family (2)
 —
 120,611
 —
 —
 —
 —
 —
 73,621
 —
 —
 —
 —
U.S. government guaranteed - multifamily (2)
 —
 468,343
 —
 —
 —
 —
 —
 316,885
 —
 —
 —
 —
GSE – single-family (2)
 —
 5,147,903
 —
 —
 —
 —
 —
 3,212,928
 —
 —
 —
 —
GSE – multifamily (2)
 —
 2,100,317
 —
 —
 —
 —
 —
 2,749,133
 —
 —
 —
 —
Private-label – residential —
 3,913
 11,111
 61,738
 611,474
 16,570
ABS backed by home-equity loans 598
 1,136
 4,786
 1,569
 1,687
 —
Private-label 4,180
 19,522
 14,393
 18,547
 386,408
 48,563
Total MBS 598
 7,842,223
 15,897
 63,307
 613,161
 16,570
 4,180
 6,372,089
 14,393
 18,547
 386,408
 48,563

 

 

         

 

        
Total investment securities 449,374
 8,605,277
 118,896
 63,307
 613,161
 16,570
 466,638
 8,377,324
 26,313
 53,712
 386,408
 54,774
                        
Total investments $449,374
 $10,255,539
 $5,943,646
 $2,062,307
 $613,161
 $16,570
 $466,638
 $8,877,494
 $2,253,994
 $1,553,712
 $386,408
 $54,774
_______________________
(1)
RatingsThe counterparty rating is used for money-market instruments. Counterparty ratings are obtained from Moody's, Fitch, Inc. (Fitch), and S&P and are each as of September 30, 2017.2019. If there is a split rating, the lowest rating is used.

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(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 thensubstituted. If there is a split rating, the lowest rating is determined.

At September 30, 2017, our unsecured credit exposure related to money-market instruments and debentures, including accrued interest, was $7.6 billion to 22 counterparties and issuers, of which $6.3 billion was for federal funds sold, $1.1 billion was for debentures issued by the U.S. Treasury, GSEs, and supranational institutions, and $225.0 million was for interest-bearing deposits.

Private-Label MBS

Of our $8.9 billion in par value of MBS and ABS investments at September 30, 2017, $1.1 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)
            
 September 30, 2017 December 31, 2016
Private-label MBS (1)
Fixed
Rate (2)
 
Variable
Rate (2)
 Total 
Fixed
Rate (2)
 
Variable
Rate (2)
 Total
Private-label residential MBS 
  
  
  
  
  
Prime$7,892
 $84,639
 $92,531
 $8,780
 $102,747
 $111,527
Alt-A16,205
 1,021,549
 1,037,754
 18,808
 1,161,415
 1,180,223
Total private-label residential MBS24,097
 1,106,188
 1,130,285
 27,588
 1,264,162
 1,291,750
ABS backed by home equity loans 
  
  
  
  
  
Subprime—
 10,134
 10,134
 —
 13,848
 13,848
Total par value of private-label MBS$24,097
 $1,116,322
 $1,140,419
 $27,588
 $1,278,010
 $1,305,598
_______________________
 (1)We have instituted litigation relatedused. In certain instances where a counterparty is unrated, the Bank may assign a deemed rating 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. Itcounterparty and that deemed rating 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.used.
(2)The determination of fixed or variable rateissue rating is based uponused for investment securities. Issue ratings are obtained from Moody’s, Fitch, and S&P. If there is a split rating, the contractual coupon type of the security.lowest rating is used.


Table 10 - Unsecured Money-Market Instruments and Debentures by Carrying Value
(dollars in thousands)

  Carrying Value
  September 30, 2019 December 31, 2018
Interest-bearing deposits $327,851
 $593,199
U.S. Treasury obligations 1,508,289
 —
Supranational institutions 425,110
 405,155
U.S. government-owned corporations 305,959
 273,169
Federal funds sold —
 1,500,000
GSE 128,095
 115,627
U.S. agency obligations —
 208

Private-Label MBS

The following tableTable 11 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. Average current credit enhancements as of September 30, 20172019, reflect the percentage of subordinated class outstanding balances as of September 30, 20172019, to our senior class outstanding balances as of September 30, 20172019, weighted by the par value of our respective senior class securities. Average current credit enhancements as of September 30, 20172019, are indicative of the ability of subordinated classes to absorb loan collateral lost principal and interest shortfall before senior classes are impacted.


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Private-Label MBS and ABS Backed by Home Equity
As of September 30, 2017
(dollars in thousands)
Table 11 - Private-Label Residential MBS and Home Equity ABS
(dollars in thousands)

Table 11 - Private-Label Residential MBS and Home Equity ABS
(dollars in thousands)

 
TotalSeptember 30, 2019
Par value by credit rating 
 
Triple-A$598
$4,180
Double-A5,049
19,522
Single-A15,897
15,593
Triple-B63,307
18,546
Below Investment Grade  
Double-B26,283
11,488
Single-B46,180
19,428
Triple-C486,551
372,664
Double-C269,474
218,635
Single-C16,555
4,600
Single-D189,159
52,876
Unrated21,366
71,499
Total par value$1,140,419
$809,031
  
Amortized cost$881,051
$602,230
Gross unrealized gains115,913
103,073
Gross unrealized losses(8,115)(3,081)
Fair value$988,849
$702,222
  
Weighted average percentage of fair value to par value86.71%86.80%
Original weighted average credit support27.36
27.93
Weighted average credit support8.20
7.28
Weighted average collateral delinquency (1)
19.42
16.25
_______________________
(1)Represents loans that are 60 days or more delinquent.

Mortgage Loans

We invest in mortgages through the MPF program. The MPF program is further described under — Mortgage Loans Credit Risk and in Item 1 — Business — Business Lines — Mortgage Loan Finance in the 20162018 Annual Report.

As of September 30, 20172019, our mortgage loan investment portfolio totaled $3.94.5 billion, an increase of $248.9159.7 million from December 31, 20162018. We expect continued competition from Fannie Mae and Freddie Mac, as well as from private mortgage loan acquirers, for loan investment opportunities.

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 20162018 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:Table 12.


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State Concentrations by Outstanding Principal Balance
 Percentage of Total Outstanding Principal Balance of Conventional Mortgage Loans
 September 30, 2017 December 31, 2016
  
  
Massachusetts55% 51%
Maine12
 13
Wisconsin7
 9
Connecticut8
 7
New Hampshire6
 6
All others12
 14
Total100% 100%

Allowance for Credit Losses on Mortgage Loans. The allowance for credit losses on mortgage loans was $500,000 at September 30, 2017, compared with $650,000 at December 31, 2016.

For information on the determination of the allowance at September 30, 2017, see Item 1 — Notes to the Financial Statements — Note 10 — 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 2016 Annual Report.
Table 12 - State Concentrations by Outstanding Principal Balance

 Percentage of Total Outstanding Principal Balance of Conventional Mortgage Loans
 September 30, 2019 December 31, 2018
  
  
Massachusetts58% 57%
Maine10
 10
Connecticut9
 10
All others23
 23
Total100% 100%

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 againstexcluded from 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)
Table 13 - Delinquent Mortgage Loans
(dollars in thousands)

Table 13 - Delinquent Mortgage Loans
(dollars in thousands)

September 30, 2017 December 31, 2016September 30, 2019 December 31, 2018
Total par value of government loans past due 90 days or more and still accruing interest$4,925
 $5,527
$5,317
 $6,433
Nonaccrual loans, par value15,895
 16,918
9,564
 7,960
Troubled debt restructurings (not included above)6,403
 6,846
6,812
 7,199

Mortgage Insurance Companies. We are exposed to credit risk from supplemental mortgage insurance (SMI) companies that provide credit enhancement in place of the participating financial institution and from primary mortgage insurance coverage (PMI) on individual loans. As of September 30, 2017,2019, we were the beneficiary of PMI coverage of $95.1$144.6 million on $371.2$553.5 million of conventional mortgage loans. These amounts relate to loans originated with PMI and SMI coverage of $15.4 million on mortgage pools with a totalfor which current loan-to-value ratios exceed 78 percent (determined by recalculating the original loan-to-value ratio using the current unpaid principal balance divided by the appraised home value at the time of $108.4 million.origination).

We have analyzed our potential loss exposure to all of the mortgage insurance companies and do not expect incremental losses based on these exposures at this time.

Impact of Hurricanes HarveyDeposits

At September 30, 2019, and Irma. As a result of the devastation caused by Hurricanes HarveyDecember 31, 2018, deposits totaled $625.9 million and Irma in the southern United States during the third quarter of 2017, the Federal Emergency Management Agency declared portions of several states and territories as areas covered by either a major disaster declaration or an emergency declaration. The Bank has exposure to these areas primarily though whole-loan purchases under the MPF program and investments in private-label mortgage backed securities. Based on our assessment, management does not expect these losses will have a material effect on our financial condition or results of operations.$474.9 million, respectively.

Table 14 - Term Deposits Greater Than $100,000
(dollars in thousands)

  September 30, 2019 December 31, 2018
Term deposits by maturity Amount Weighted Average Rate Amount Weighted Average Rate
Three months or less $—
 —% $—
 —%
Over three months through six months 800
 1.82
 —
 —
Over six months through 12 months —
 —
 800
 2.34
Greater than 12 months —
 —
 —
 —
Total par value $800
 1.82% $800
 2.34%

Consolidated Obligations


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

Derivative Instruments

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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 $48.2$122.5 million and $61.6$22.4 million as of September 30, 2017,2019, and December 31, 2016,2018, respectively. Derivative liabilities' net fair value, net of cash collateral and accrued interest, totaled $309.7$12.0 million and $357.9$255.8 million as of September 30, 2017,2019, and December 31, 2016,2018, 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 September 30, 2017,2019, and December 31, 2016.2018. 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 derivatives hedging specific or nonspecific assets, liabilities, or firm commitments that do 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)
Table 15 - Hedged Item and Hedge-Accounting Treatment
(dollars in thousands)

Table 15 - Hedged Item and Hedge-Accounting Treatment
(dollars in thousands)

 September 30, 2017 December 31, 2016 September 30, 2019 December 31, 2018
Hedged Item Derivative Designation 
Notional
Amount
 
Fair
 Value
 
Notional
Amount
 
Fair
Value
 Derivative 
Designation(2)
 
Notional
Amount
 
Fair
 Value
 
Notional
Amount
 
Fair
Value
Advances (1)
 Swaps Fair value $7,822,664
 $30,737
 $9,976,494
 $11,504
 Swaps Fair value $5,178,193
 $(9,077) $5,343,804
 $5,773
 Swaps Economic 964,400
 (845) 857,000
 136
 Swaps Economic 710,800
 (37,022) 769,800
 (13,144)
Total associated with advances 8,787,064
 29,892
 10,833,494
 11,640
 5,888,993
 (46,099) 6,113,604
 (7,371)
Available-for-sale securities Swaps Fair value 611,915
 (283,098) 611,915
 (290,312) Swaps Fair value 2,582,205
 6,389
 611,915
 (228,905)
Trading securities Swaps Economic 192,000
 (5,820) 192,000
 (9,279) Swaps Economic 1,500,000
 (1,812) 158,000
 (487)
COs Swaps Fair value 5,950,990
 (40,304) 7,627,400
 (60,904) Swaps Fair value 4,215,550
 (7,171) 6,024,980
 (54,791)
 Firm commitments Fair value 50,000
 56
 —
 —
 Forward starting swaps Cash Flow 44,000
 (6) 282,000
 (753)
 Swaps Economic 50,000
 (55) 150,000
 (30)
 Forward starting swaps Cash Flow 527,800
 (41,974) 527,800
 (36,250)
Total associated with COs 6,578,790
 (82,277) 8,305,200
 (97,184) 4,259,550
 (7,177) 6,306,980
 (55,544)
Total     16,169,769
 (341,303) 19,942,609
 (385,135)     14,230,748
 (48,699) 13,190,499
 (292,307)
Mortgage delivery commitments     62,221
 (34) 22,524
 (101)     38,486
 43
 50,773
 339
Total derivatives     $16,231,990
 (341,337) $19,965,133
 (385,236)     $14,269,234
 (48,656) $13,241,272
 (291,968)
Accrued interest      
 (6,357)  
 (19,973)      
 4,791
  
 (3,752)
Netting adjustments, cash collateral, and variation margin for daily settled contracts including related accrued interest   86,182
   108,931
Cash collateral, including related accrued interest   154,360
   62,323
Net derivatives      
 $(261,512)  
 $(296,278)      
 $110,495
  
 $(233,397)
Derivative asset      
 $48,163
  
 $61,598
      
 $122,522
  
 $22,403
Derivative liability      
 (309,675)  
 (357,876)      
 (12,027)  
 (255,800)
Net derivatives      
 $(261,512)  
 $(296,278)      
 $110,495
  
 $(233,397)
 _______________________
(1)
As of September 30, 20172019, and December 31, 2016,2018, embedded derivatives separated from the advance contract with notional amounts of $964.4$710.8 million and $857.0$769.8 million, respectively, and fair values of $812,00036.9 million and $(153,000),$13.1 million, respectively, are not included in the table.
(2)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 either LIBOR or the OIS rate based on the federal funds effective rate. 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 derivative hedging specific or nonspecific assets, liabilities, or firm commitments that do not qualify or were not designated for fair-value or cash-flow hedge accounting but are acceptable hedging strategies under our risk-management policy.

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The following tablesTables 16 and 17 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 $13.89.4 billion, representing 84.965.8 percent of all derivatives outstanding as of September 30, 20172019. 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 September 30, 2017
(dollars in thousands)
Table 16 - Fair-Value Hedge Relationships of Advances By Year of Contractual Maturity
(dollars in thousands)

Table 16 - Fair-Value Hedge Relationships of Advances By Year of Contractual Maturity
(dollars in thousands)

As of September 30, 2019
        
Weighted-Average Yield (4)
        
Weighted-Average Yield (4)
Derivatives 
Advances(2)
   Derivatives  Derivatives 
Advances(2)
   Derivatives  
MaturityNotional 
Fair Value (1)
 
Hedged
Amount
 
Fair-Value
Adjustment(3)
 Advances 
Receive
Floating
Rate
 
Pay
Fixed
Rate
 
Net Receive
Result
Notional 
Fair Value(1)
 Hedged Amount 
Fair-Value Adjustment(3)
 Advances Receive Floating Rate Pay Fixed Rate Net Receive Result
Due in one year or less$2,155,085
 $(2,771) $2,155,085
 $2,762
 2.01% 1.31% 1.85% 1.47%$1,861,165
 $1,468
 $1,861,165
 $(1,307) 1.88% 2.73% 1.61% 3.00%
Due after one year through two years1,331,261
 6,492
 1,331,261
 (6,581) 1.61
 1.32
 1.33
 1.60
1,188,213
 (2,070) 1,188,213
 2,114
 2.16
 2.30
 1.75
 2.71
Due after two years through three years1,485,840
 10,152
 1,485,840
 (10,121) 1.73
 1.31
 1.48
 1.56
1,293,115
 (9,805) 1,293,115
 9,626
 2.20
 2.75
 1.77
 3.18
Due after three years through four years939,613
 7,246
 939,613
 (7,341) 1.93
 1.31
 1.51
 1.73
349,700
 (7,498) 349,700
 7,408
 2.34
 2.39
 2.01
 2.72
Due after four years through five years1,002,365
 2,122
 1,002,365
 (2,265) 2.13
 1.32
 1.77
 1.68
293,750
 (6,075) 293,750
 5,973
 2.28
 4.45
 1.71
 5.02
Thereafter908,500
 7,496
 908,500
 (7,383) 1.28
 1.31
 0.85
 1.74
192,250
 (1,557) 192,250
 1,470
 1.74
 2.12
 1.15
 2.71
Total$7,822,664
 $30,737
 $7,822,664
 $(30,929) 1.81% 1.31% 1.52% 1.60%$5,178,193
 $(25,537) $5,178,193
 $25,284
 2.07% 2.69% 1.70% 3.06%
_______________________
(1)Not included in the fair value is $3.0$16.5 million of variation margin receivedpaid for daily settled contracts.
(2)Included in the advances hedged amount are $1.4 billion$641.2 million of putable advances, which would accelerate the termination date of the derivative and the hedged item if the put option is exercised.
(3)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.which is either LIBOR or OIS based on the federal funds effective rate.
(4)
The yield for floating-rate instrumentsinstruments and the floating-rate leg of interest-rate swaps is the coupon rate in effect as of September 30, 20172019.

Fair-Value Hedge Relationships of Consolidated Obligations
By Year of Contractual Maturity
As of September 30, 2017
(dollars in thousands)
Table 17 - Fair-Value Hedge Relationships of Consolidated Obligations By Year of Contractual Maturity
(dollars in thousands)

Table 17 - Fair-Value Hedge Relationships of Consolidated Obligations By Year of Contractual Maturity
(dollars in thousands)

As of September 30, 2019
        
Weighted-Average Yield (4)
        
Weighted-Average Yield (4)
Derivatives 
CO Bonds (2)
   Derivatives  Derivatives 
CO Bonds (2)
   Derivatives  
Year of MaturityNotional 
Fair Value (1)
 Hedged Amount 
Fair-Value
Adjustment(3)
 CO Bonds 
Receive
Fixed Rate
 
Pay
Floating
 Rate
 
Net Pay
Result
Notional 
Fair Value(1)
 Hedged Amount 
Fair-Value Adjustment(3)
 CO Bonds Receive Fixed Rate Pay Floating Rate Net Pay Result
Due in one year or less$2,269,335
 $(5,290) $2,269,335
 $5,045
 1.10% 1.07% 1.27% 1.30%$1,227,485
 $1,701
 $1,227,485
 $(1,837) 2.01% 2.06% 2.18% 2.13%
Due after one year through two years1,321,220
 (8,872) 1,321,220
 8,457
 1.07
 1.08
 1.24
 1.23
1,039,990
 2,141
 1,039,990
 (1,945) 1.62
 1.97
 2.35
 2.00
Due after two years through three years235,990
 (1,646) 235,990
 1,492
 1.47
 1.47
 1.21
 1.21
1,007,220
 6,418
 1,007,220
 (6,512) 1.92
 1.98
 2.21
 2.15
Due after three years through four years744,445
 (5,536) 744,445
 5,243
 1.21
 1.21
 1.20
 1.20
160,000
 196
 160,000
 (286) 2.06
 2.15
 2.25
 2.16
Due after four years through five years735,000
 (6,516) 735,000
 6,463
 1.55
 1.55
 1.15
 1.15
120,000
 (233) 120,000
 214
 1.87
 2.00
 2.12
 1.99
Thereafter645,000
 (12,444) 645,000
 12,144
 1.75
 1.75
 1.18
 1.18
660,855
 1,656
 660,855
 (1,980) 2.65
 1.86
 2.20
 2.99
Total$5,950,990
 $(40,304) $5,950,990
 $38,844
 1.25% 1.24% 1.22% 1.23%$4,215,550
 $11,879
 $4,215,550
 $(12,346) 1.99% 1.99% 2.23% 2.23%
_______________________
(1)Not included in the fair value is $6.7$19.1 million of variation margin paidreceived for daily settled contracts.
(2)Included in the CO bonds hedged amount are $3.1$2.0 billion of callable CO bonds, which would accelerate the termination date of the derivative and the hedged item if the call option is exercised.

(3) 
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, which is either LIBOR or OIS based on the federal funds effective rate, plus remaining unamortized premiums or discounts on hedged CO bonds where applicable.

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(4)
The yield for floating-rate instruments and the floating-rate leg of interest-rate swaps is the coupon rate in effect as of September 30, 20172019.

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, arisingderivatives. This risk arises from the possibilityrisk of counterparty default on the derivative contract. The amount of unsecured credit exposure to derivative counterparty default is the amount by which the replacement cost of the defaulted derivative contract exceeds 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 (if we are the net obligor on the derivative contract). We accept cash and 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 tableTable 18 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 pledge to counterparties cash or securities collateral whose fair value is greater than the current net negative fair-value of derivative positions outstanding with them adjusted for any applicable exposure threshold. Similarly, from time to time, due to timing differences or derivatives valuation differences, we receive from counterparties cash or securities collateral whose fair value is less than the current net positive fair-value of derivatives positions outstanding 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 September 30, 2017.


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Derivatives Counterparty Current Credit Exposure
As of September 30, 2017
(dollars in thousands)

Table 18 - Credit Exposure to Derivatives Counterparties
(dollars in thousands)

Table 18 - Credit Exposure to Derivatives Counterparties
(dollars in thousands)

 As of September 30, 2019
Credit Rating (1)
 Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged to Counterparty and Variation Margin for Daily Settled Contracts 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
Asset positions with credit exposure:                    
Uncleared derivatives                    
Double-A $1,436,900
 $(3,346) $3,635
 $—
 $289
Single-A 1,881,250
 (3,003) 3,345
 —
 342
 $251,500
 $1,249
 $—
 $(1,197) $52
Unrated Asset 50,000
 56
 —
 —
 56
Cleared derivatives 6,446,755
 856
 85,091
 —
 85,947
                    
Liability positions with credit exposure:                    
Uncleared derivatives                    
Double-A $142,000
 $(4,927) $4,939
 $—
 $12
Single-A 123,250
 (585) —
 617
 32
 2,170,900
 (31,858) 21,777
 10,921
 840
Triple-B 276,000
 (783) 250
 698
 165
Cleared derivatives 7,946,814
 (20,774) 68,174
 —
 47,400
 4,011,603
 (95) 34,720
 —
 34,625
Total derivative positions with nonmember counterparties to which we had credit exposure 11,438,214
 (27,652) 75,154
 617
 48,119
Total derivative positions with counterparties to which we had credit exposure 13,298,758
 (35,558) 146,777
 10,422
 121,641
                    
Mortgage delivery commitments (2)
 62,221
 76
 —
 —
 76
 38,486
 65
 —
 —
 65
Total $11,500,435
 $(27,576) $75,154
 $617
 $48,195
 $13,337,244
 $(35,493) $146,777
 $10,422
 $121,706
                    
Derivative positions without credit exposure: (3)
                    
Single-A 2,475,000
         $801,200
        
Triple-B 2,256,555
         130,790
        
Total derivative positions without credit exposure $4,731,555
 
       $931,990
 
      
_______________________
(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 representRepresents derivatives positions with counterparties for which we are in a net liability position and for which we have delivered 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 20162018 Annual Report.

Transition of LIBOR to Alternative Reference Rates

In July 2017, the United Kingdom's Financial Conduct Authority, the regulator for LIBOR, announced that after 2021 it will no longer persuade or compel the major banks that sustain LIBOR to submit rates for the calculation of LIBOR. The Alternative Reference Rates Committee (ARRC), which was established in 2014 by the Federal Reserve Board and the Federal Reserve

Bank of New York to help ensure a successful transition in the U.S. from LIBOR, recommended SOFR as the alternative reference rate to U.S. Dollar LIBOR. SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR in the second quarter of 2018.

Many of our assets and liabilities are indexed to LIBOR, with exposure extending beyond December 31, 2021. We are currently evaluating and planning for the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement. As a result, we have developed a LIBOR transition plan, which addresses considerations such as LIBOR exposure, contract “fallback” language (which provides for contractual alternatives to the use of LIBOR when LIBOR cannot be determined based on the method provided in the agreement), operational preparedness, and balance sheet management, as well as contingencies for the potential unavailability of the index prior to December 31, 2021.

In assessing our current exposure to LIBOR, we have developed an inventory of financial instruments impacted and identified contracts that may require adding or adjusting the fallback language. We have added or adjusted fallback language to our advances agreements with members, and the FHLBank System has added fallback language to consolidated obligations. We continue to monitor market-wide efforts to address fallbacks related to LIBOR-based derivatives and investment securities as well as fallback language for other financial instruments. We are in the process of assessing our operational readiness, to include updating processes and information technology systems to support the transition from LIBOR to an alternative reference rate.

The Bank participated in the FHLBank System’s first issuance of SOFR-indexed COs in November 2018, and we have continued to participate in SOFR-indexed CO issuances throughout 2019 as our funding needs required. Market activity in SOFR-indexed financial instruments continues to increase. During the nine months ended September 30, 2019, we have issued $3.9 billion in SOFR-indexed COs. In October 2019, the Bank began to offer a SOFR-based advance.

In March 2019, the Bank began to implement OIS based on the federal funds effective rate as an alternative interest rate hedging strategy for certain financial instruments, rather than using LIBOR when entering into new derivative transactions. In addition, a SOFR-based derivative market has begun to emerge.

On September 27, 2019, the FHFA issued a Supervisory Letter (the Supervisory Letter) that limits certain activities of the FHLBanks with respect to new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021. See Legislative and Regulatory Developments for more information on the Supervisory Letter.

We have exposures to advances, investment securities, COs, and derivatives with interest rates indexed to LIBOR. Table 19 presents exposure to LIBOR-indexed advances, investment securities, COs, and derivatives at September 30, 2019.

Table 19 - LIBOR-Indexed Variable Rate Financial Instruments at September 30, 2019
dollars in thousands

  Due Prior to December 31, 2021 Due After December 31, 2021
Advances, par amount by redemption term(1)
 $397,100
 $—
Investment securities, par amount by contractual maturity    
Non-MBS 6,205
 89,857
MBS(2)
 12,137
 2,795,562
Total investment securities 18,342
 2,885,419
Consolidated bonds, par amount by contractual maturity 1,820,000
 —
Total financial instruments $2,235,442
 $2,885,419
     
Derivatives, notional amount by contractual termination date(3)
 $5,787,068
 $2,609,400
_______________________
(1)For advances that have a conversion from a floating rate indexed to LIBOR to a fixed rate, the LIBOR exposure is considered to be due by the date which the financial instrument converts to a fixed rate.
(2)Contractual maturity will likely differ from the expected maturity because borrowers of the underlying loans or securities are subject to a call right or prepayment right, with or without call or prepayment fees.

(3)Contractual termination date for derivatives does not take into account optional early termination provisions that may exist in certain derivative contracts.

The following table presents our variable rate advances, investment securities, consolidated bonds, and derivatives by interest-rate index.

Table 20 - Variable Rate Financial Instruments by Interest-Rate Index
dollars in thousands

  Par Value of Advances Par Value of Non-MBS Par Value of MBS Par Value of CO Bonds Notional Amount of Derivatives
LIBOR $397,100
 $96,062
 $2,807,699
 $1,820,000
 $8,396,468
SOFR —
 —
 —
 3,918,000
 —
OIS-Federal Funds —
 —
 —
 —
 5,834,280
Other 4,210,254
 —
 135,295
 —
 —
Total $4,607,354
 $96,062
 $2,942,994
 $5,738,000
 $14,230,748

LIQUIDITY AND CAPITAL RESOURCES

LiquidityOur 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 of the 2018 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.


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Liquidity

We are required to maintain liquidity in accordance with the FHLBank Act, FHFA regulations and guidance, and policies established by our management and board of directors. We seek to be in a position to meet the credit and liquidity needs of our members and to meet all current and future financial commitments by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of our assets and liabilities.

We may not be able to predict future trends in member credit needs because they are driven by complex interactions among a number of factors, including members' asset growth or reductions, deposit growth or reductions, and the attractiveness of advances compared to other wholesale borrowing alternatives. We regularly monitor current trends and anticipate future debt issuance needs and maintain a portfolio of highly liquid assets in an effort to be prepared to fund our members' credit needs and our investment opportunities. Our abilityWe are able to expand our balance sheet and corresponding liquidity requirementsCO debt issuance in response to our members' increased credit needs is correlated to our members' requirements for advances and to increase our acquisitions of mortgage loans. Alternatively, in response to reduced member credit needs, we may allow our COs to mature without replacement, transfer debt to another FHLBank, or repurchase and retire outstanding consolidated obligations,COs, allowing our balance sheet to shrink.

As an FHLBank, through our ability to issue COs, we have comparatively stable access to funding through a diverse investor base at relatively favorable spreads to U.S. Treasury rates. For instance, during the financial crisis of 2008, when credit markets experienced their most severe constrictions in 70 years, the FHLBanks’ access to short-term funding was readily available.

Sources and Uses of Liquidity. Our primary sources of liquidity are proceeds from the issuance of COs and advance repayments, as well as cash and investment holdings that are primarily high-quality short-, and intermediate-term financial instruments. COs are not obligations of the United States and are not guaranteed by either the United States or any government agency, but have historically received the same credit rating as the government bond credit rating of the United States. As of October 31, 2017, our COs were rated AA+/Aaa (with outlook stable) by S&P and Moody's.

During the nine months ended September 30, 2017,2019, we maintained continual access to funding and adapted our debt issuance to meet the needs of our members. During the nine months ended September 30, 2017, ourOur short-term funding was generally driven by member demand and was achieved primarily through the issuance of discount notes and short-term CO bonds. Access to short-term debt markets has been reliable because investors driven by increased liquidity preferences and risk aversion, including the effects of money market fund reform, have soughtcontinue to view our short-term debt as an asset of choice, which has led to advantageousconsistently low funding opportunitiescosts compared to those of other high-quality issuers and increased utilization of debt maturing in one year or less.

Our primary uses of liquidity are advance originations and consolidated obligation payments. Other uses of liquidity are mortgage loan and investment purchases, dividend payments, and other contractual payments. We may usealso maintain liquidity to

redeem or repurchase excess capital stock, through our daily excess stock repurchases, upon the request of a portion of the short-term COs issued to fund both short- and long-term floating-rate assets. Funding longer-term floating-rate assets with shorter-term liabilities generally does not expose us to significant interest rate risk because the rates on both the floating-rate assets and liabilities reset similarly (either through rate resetsmember or re-issuance of the obligations). However, deviations in the cost ofas required under our short-term liabilities relative to resetting assets can cause fluctuations in our net interest margin. Accordingly, we measure and monitor interest rate risk with commonly used methods and metrics, which include the calculations of market value of equity, duration of equity, duration gap, and earnings at risk. See Item 3 — Quantitative and Qualitative Disclosures About Market Risk for additional information. We have also established funding gap limits designed to limit our exposure to refinancing risk. See Item 2 — Management’s Discussion and Analysis — Liquidity and Capital Resources — Balance Sheet Funding Gap Policy for additional information.capital plan.

Secondary sources of liquidity include payments collected on mortgage loans, proceeds from the issuance of capital stock, and deposits from members. In addition, by law,under the Secretary ofFHLBank Act, the U.S. Treasury may acquirepurchase up to $4 billion of COs of the FHLBanks. The terms, conditions, and interest rates in such a purchase would be determined by the U.S. Treasury. This authority may be exercised at the discretion of the U.S. Treasury with the agreement of the FHFA only if alternative means cannot be effectively employed to permit the FHLBanks to continue to supply reasonable amounts of funds to the mortgage market, and the ability to supply such funds is substantially impaired because of monetary stringency and a high level of interest rates. Any funds borrowed under this process shall be repaidThere were no such purchases by the FHLBanks atU.S. Treasury during the earliest practicable date.nine months ended September 30, 2019.

Our primary usescontingency liquidity plans, as discussed further below, are intended to ensure that we are able to meet our obligations and the liquidity needs of liquidity are advance originationsmembers in the event of operational disruptions at the Bank or the Office of Finance or short-term disruptions of the capital markets.

For information and consolidated obligation payments. Other usesdiscussion of liquidity are mortgage loan and investment purchases, dividend payments,our guarantees and other contractual payments. We also maintain liquidity to redeem or repurchase excess capital stock, at our discretion, uponcommitments we may have, see — Off-Balance-Sheet Arrangements and Aggregate Contractual Obligations below, and for further information and discussion of the request of a member or under our capital plan.joint and several liability for FHLBank COs, see — Debt Financing— Consolidated Obligations below.

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.


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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 assets 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 twoa liquidity management action triggers:

trigger pertaining to net cash flow: if structural liquidity is less than negative $1.0 billionprojected net cash flow falls below zero on or before the fifth business21st 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 exceed either of these thresholds at any time during the nine months ended September 30, 2017. If either of these thresholds is exceeded,date, then management of the Bank is notified and determines whether any corrective action is necessary. We did not exceed this threshold at any time during the nine months ended September 30, 2019.

The following table presents our projected net cash flow and structural liquidity as of September 30, 2017.


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Projected Net Cash Flow and Structural Liquidity
As of September 30, 2017
(dollars in thousands)

Table 21 - Projected Net Cash Flow
(dollars in thousands)

Table 21 - Projected Net Cash Flow
(dollars in thousands)

 As of September 30, 2019
 5 Business Days 21 Days 21 Days
Uses of funds      
Interest payable $11,535
 $33,804
 $38,917
Maturing liabilities 3,753,100
 10,556,879
 6,457,990
Committed asset settlements 60,000
 60,000
 5,066
Capital outflow 106,801
 106,801
 85,565
MPF delivery commitments 62,221
 62,221
 38,486
Other 2,079
Gross uses of funds 3,993,657
 10,819,705
 6,628,103
      
Sources of funds      
Interest receivable 42,326
 75,273
 98,664
Maturing or projected amortization of assets 11,495,388
 17,135,829
 17,023,064
Committed liability settlements 129,793
 129,793
 81,323
Cash and due from banks and interest bearing deposits 256,443
 256,443
 347,087
Other 2,188
 2,188
Gross sources of funds 11,926,138
 17,599,526
 17,550,138
      
Projected net cash flow 7,932,481
 $6,779,821
 $10,922,035
    
Less: Secondary uses of funds    
Deposit runoff 434,124
  
Drawdown of standby letters of credit and lines of credit 665,557
  
Rollover of all maturing advances 3,227,244
  
Projected funding of MPF master commitments 181,558
  
Total secondary uses of funds 4,508,483
 
    
Structural liquidity $3,423,998
 

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 nine months ended September 30, 2017.2019. As of September 30, 20172019 and December 31, 2016,2018, we held a surplus of $13.5$16.3 billion and $13.4$17.4 billion, respectively, of contingency liquidity for the following five business days, exclusive of access to the proceeds of CO debt issuance.


Table 22 - Contingency Liquidity
(dollars in thousands)

  As of September 30, 2019
  5 Business Days
Cumulative uses of funds  
Interest payable $11,001
Maturing liabilities 1,623,985
Committed asset settlements 5,066
Drawdown of standby letters of credit 239,055
Other 2,079
Gross uses of funds 1,881,186
   
Cumulative sources of funds  
Interest receivable 64,305
Maturing or amortizing advances 9,751,716
Committed liability settlements 81,323
Gross sources of funds 9,897,344
   
Plus: sources of contingency liquidity  
Marketable securities 951,079
Self-liquidating assets 3,400,000
Cash and due from banks and interest bearing deposits 347,087
Marketable securities available for repo 3,620,379
Total sources of contingency liquidity 8,318,545
   
Net contingency liquidity $16,334,703

Base Case Liquidity Requirement. On August 27, 2018, the FHFA issued new guidance on liquidity, Advisory Bulletin 2018-07 (Liquidity Guidance AB), which communicates the FHFA’s expectations with respect to the maintenance of sufficient liquidity to enable us to provide advances and letters of credit for members for a specified time without access to the capital markets or other unsecured funding sources. The Liquidity Guidance AB, which outlines a phased-in compliance approach, rescinded the 2009 liquidity guidance issued by the FHFA. Contemporaneously with the issuance of the Liquidity Guidance AB, the FHFA issued a supervisory letter that identifies initial thresholds for measures of liquidity. For additional information, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments in the 2018 Annual Report.

The following table presents our contingencyLiquidity Guidance AB provides guidance on the level of on-balance sheet liquid assets related to base case liquidity. As part of the base case liquidity asmeasure, the guidance also includes a separate provision covering off-balance sheet commitments from standby letters of September 30, 2017.credit. In addition, the Liquidity Guidance AB provides guidance related to asset/liability maturity funding gap limits.

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Contingency Liquidity
As of September 30, 2017
(dollars in thousands)

  5 Business Days
Cumulative uses of funds  
Interest payable $11,535
Maturing liabilities 3,753,100
Committed asset settlements 60,000
Drawdown of standby letters of credit 146,088
Gross uses of funds 3,970,723
   
Cumulative sources of funds  
Interest receivable 42,326
Maturing or amortizing advances 3,227,245
Committed liability settlements 129,793
Other 2,188
Gross sources of funds 3,401,552
   
Plus: sources of contingency liquidity  
Marketable securities 1,310,109
Self-liquidating assets 8,249,000
Cash and due from banks and interest bearing deposits 256,443
Marketable securities available for repo 4,264,475
Total sources of contingency liquidity 14,080,027
   
Net contingency liquidity $13,510,856

Additional Liquidity Requirements. TheWith respect to base case liquidity, the FHFA requires usrevised previous guidance that required the FHLBanks to have available at all times an amount greater than or equalassume a 5-day period without access to the current deposits received from our members invested in advances with maturities not to exceed five years, deposits in banks or trust companies, and obligations of the U.S. Treasury. The FHFA also requires us to maintain, in the aggregate, qualifying assets free from any lien or pledge in an amount at least equal to the amount of our participation in total COs outstanding.

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.

The first scenario assumes that we cannot borrow funds from the capital markets for a periodand rollover of between 10 to 20 days, with initial guidance set at 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 a period of between three to seven days, with initial guidance set at five business days, and that during that period we will renew maturing and called advances for all members except very large, highly rated members.members due to a change in certain assumptions underlying that guidance. Under the Liquidity Guidance AB, FHLBanks are required to hold positive cash flow while rolling over maturing advances to all members and assuming no access to capital markets for an increased period of between 10 and 30 calendar days, with a specific measurement period set forth in the supervisory letter. The Liquidity Guidance AB also sets forth the initial cash flow assumptions and formula to calculate base case liquidity. With respect to standby letters of credit, the guidance states that FHLBanks should maintain a liquidity reserve of between one percent and 20 percent of its outstanding standby letters of credit commitments, as specified in the supervisory letter.


We were in compliance with these additional liquidity requirements at all times during the nine months ended September 30, 2017.

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 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.

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2019.

Balance Sheet Funding Gap Policy. TheWe may use a portion of the short-term COs issued to fund assets with longer terms, including longer-term floating-rate assets. Funding longer-term floating-rate assets with shorter-term liabilities generally does not expose us to significant interest-rate risk because the interest rates on both the floating-rate assets and liabilities typically reset similarly (either through rate resets or re-issuance of the obligations). However, deviations in the cost of our short-term liabilities relative to resetting assets can cause fluctuations in our net interest margin.

Additionally, the Bank is exposed to refinancing risk due to the fact that over certain time horizons, it has more liabilities than assets maturing. To adequately fund assets the maturing liabilities must be replaced by new liabilities at potentially higher cost, putting spread margin at risk. In order to manage the Bank’s refinancing risk, we maintain an appropriate funding balance between financial assets and financial liabilities and maintain a policy that limits the potential difference between the amount of financial assets and the amount of financial liabilities expected to mature within three-month and one-year time horizons inclusive of projected mortgage-related prepayment and call activity. We measure this difference, or gap, as a percentage of total assets under two alternative formats. One funding gap format effectively assumes that all floating rate advances indexed todifferent measurement horizons - three months and one year. In conformity with the discount note auction rate that both mature beyond the three-month or one-year time horizon and are prepayable without fees on coupon reset dates mature within the three-month or one-year time horizon; this assumption results in an adjustment that reduces the funding gap measurement. (Such advances are not subject to margin compression because the costprovisions of the refinanced debt definesLiquidity Guidance AB, the reset rate on the advance coupon.) The other funding gap format includes no such adjustment. The Bank has instituted a limit and management action trigger framework around these metrics as follows:

Funding Gap Metric (1)
 Limit Management Action Trigger Actual as of September 30, 2017
3-month Funding Gap      
No Adjustment for Floating Rate Advances Indexed to Discount Note Auction 35% 25% 9.1 %
Floating Rate Advances Indexed to Discount Note Auction assumed to have less than three-month maturity 20% 10% (0.3)%
       
1-year Funding Gap      
No Adjustment for Floating Rate Advances Indexed to Discount Note Auction 35% 25% 14.2 %
Floating Rate Advances Indexed to Discount Note Auction assumed to have less than one-year maturity 20% 10% 5.0 %
Table 23 - Funding Gap Metric

Funding Gap Metric (1)
 Limit Management Action Trigger 
Three-Month Average
 September 30, 2019
 
Three-Month Average
December 31, 2018
         
3-month Funding Gap 15% 13% 5.3% 10.6%
         
1-year Funding Gap 30% 25% 7.1% 12.9%
_______________________
(1)
The funding gap metric is a positive value when maturing liabilities exceed maturing assets, as defined, within the given time period.
Compliance with Limits and Management Action Triggers are evaluated against the rolling 3-month average of the month end gaps.

Funding Concentration Policy. To limit the liquidity risk potentially associated with a high volume of short-term debt refinancing, we have adopted a funding concentration policy that limits the volume of discount notes outstanding as a proportion of total assets, effective March 24, 2017. The policy establishes a management action trigger when discount notes (excluding the amount of discount notes matched to short-term advances) exceed 40 percent of total assets. In addition, we have adopted a separate management action trigger that is triggered when total discount notes exceed 50 percent of assets. Finally, discount notes are limited to no more than 65 percent of total assets.

External Sources of Liquidity

Amended and Restated FHLBanks P&I Funding Contingency Plan Agreement. We have a source of emergency external liquidity through the Amended and Restated FHLBanks 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 2016 Annual Report.Agreement. Under the terms of that agreement, in the event we do not fund our principal and interest payments under adue with respect to any CO bywithin deadlines established in the agreement, the other FHLBanks will be obligated to fund any shortfall to the extent that any of the other FHLBanks has a net positive settlement balance (that is, the amount by which end-of-day proceeds received by such FHLBank from the sale of COs on that day exceeds payments by such FHLBank on COs on the same day) in its account with the Office of Finance on the day the shortfall occurs. We would then be required to repay the funding FHLBanks. We have never drawn funding under this agreement.

Debt Financing — Consolidated Obligations

At September 30, 2017,2019, and December 31, 2016,2018, outstanding COs for which we are primarily liable, including both CO bonds and CO discount notes, totaled $56.5$52.8 billion and $57.2$59.0 billion, respectively.


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CO bonds outstanding for which we are primarily liable at September 30, 2019, and December 31, 2018, include issued callable bonds totaling $4.0$3.8 billion and $4.7$5.5 billion, at September 30, 2017, and December 31, 2016, respectively.

CO discount notes comprised 49.651.0 percent and 52.556.1 percent of the outstanding COs for which we are primarily liable at September 30, 2017,2019, and December 31, 2016,2018, respectively, but accounted for 94.192.9 percent and 88.194.8 percent of the proceeds from the issuance of such COs during the nine months endedSeptember 30, 20172019 and 20162018, respectively.

Financial Conditions for Consolidated Obligations

Overall, we have experienced relatively low COcontinued to experience steady demand for COs among investors and our issuance costs during the period covered by this report were consistent with those of recent quarters, reflecting continued high demand for all tenors of COs with the strongest demand for short-term COs. We participated in the FHLBank System’s first SOFR-indexed CO in November 2018, and we have continued to participate in SOFR-indexed CO issuances throughout 2019 as our funding needs required. We have

been able to issue debt in the amounts and structures required to meet our funding and risk-management needs. We note that capacity among our CO underwriters has been occasionally somewhat constrained as a resultIn the first nine months of the imposition of higher capital requirements on many of our underwriters. So far, this development has not impeded our ability2019, COs continued to meet our funding needs. Throughout the third quarter of 2017, COs werebe issued at yields that were generally at or below equivalent-maturity U.S. dollar LIBOR interest rate swap yields for debt maturing in less than fivetwo years, while longer-term issues bore funding costs that were typically higher than equivalent maturity LIBOR swap yields. During the period covered by this report,first nine months of 2019, CO yields generally moved downward with U.S. dollar interest rate swaps and comparable U.S. Treasury yields, though minor spread fluctuations occurred between these series. We believe that the market’s reaction to recent and expected changes in FOMC monetary policies, including the decision to reduce the Federal Reserve’s holdingsrecent intervention through daily repurchase agreement offerings and announced purchases of U.S. Treasury obligations and mortgage-backed securities,Bills, is a potentially an important factor that could continue to shape investor demand for debt, including COs, for the remainderin 2019. Moreover, potential increases in U.S. Treasury security issuance in response to higher fiscal deficits or any change or roll back of 2017.regulations governing money market investorsmay also have an impact on our funding costs.

Capital

Total capital at September 30, 2017, and at year end 20162019, was $3.2 billion.billion compared with $3.6 billion at year-end 2018.

Capital stock decreased $497.2 million from December 31, 2018 to $2.0 billion at September 30, 2019, resulting from capital stock repurchases of $1.9 billion offset by the issuance of $1.4 billion of capital stock to support new advances borrowings by members. The decrease in capital stock was primarily attributable to the decrease in advances and a reduction in membership stock investment requirement.

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 September 30, 2017,2019, as discussed in Item 1 — Notes to the Financial Statements — Note 15 — Capital.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 $36.0 million and $32.7 million at September 30, 2017, and December 31, 2016, 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 12 — Summary of Significant Accounting Policies — Mandatorily Redeemable Capital Stock in the 20162018 Annual Report.

The following table sets forth the amount of mandatorily redeemable capital stock by year of expiry of the redemption-notice period at September 30, 2017, and December 31, 2016 (dollars in thousands).

Table 24 - Mandatorily Redeemable Capital Stock by Expiry of Redemption Notice Period
(dollars in thousands)

Table 24 - Mandatorily Redeemable Capital Stock by Expiry of Redemption Notice Period
(dollars in thousands)

 September 30, 2019 December 31, 2018
Expiry of Redemption-Notice Period September 30, 2017 December 31, 2016
Past redemption date (1)
 $420
 $528
 $3,765
 $4,076
Due in one year or less 4,138
 —
 13,200
 27,379
Due after one year through two years 128
 4,687
 —
 —
Due after two years through three years 27,304
 27,378
 92
 —
Due after three years through four years —
 54
 30
 363
Due after four years through five years 4,022
 —
 10
 40
Thereafter (2)
 30
 40
 10
 10
Total $36,042
 $32,687
 $17,107
 $31,868
_______________________
(1)Amount represents mandatorily redeemable capital stock that has reached the end of the five-year redemption-notice period but the member-related activity (for example, advances) remains outstanding. Accordingly, these shares of stock will not be redeemed until the activity is no longer outstanding.

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(2)Amount represents 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, had their memberships terminated prior to February 19, 2017.

Capital Rule


The FHFA'sFHFA’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 September 18, 2017,25, 2019, the Director of the FHFA notified us that, based on June 30, 20172019 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 2016 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. For information on our minimum retained earnings target, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Internal Capital Practices and Policies — Retained Earnings and the Minimum Retained Earnings Target in the 2016 Annual Report and, for information on limitations on dividends, see Item 5 — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in the 2016 Annual Report.

Targeted Capital Ratio Operating Range

We target an operating capital ratio range as required by FHFA regulations. Currently, this range is set at 4.0 percent to 7.5 percent. Our capital ratio was 5.96.1 percent at September 30, 2017.2019.

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 be at least equal to the sum of 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 September 30, 2017,2019, this internal minimum capital requirement equaled $3.0$2.8 billion, which was satisfied by our actual regulatory capital of $3.6$3.5 billion.

Minimum Retained Earnings Target

At September 30, 2019, we had total retained earnings of $1.4 billion compared with our minimum retained earnings target of $700.0 million. We generally view our minimum retained earnings target as a floor for retained earnings rather than as a retained earnings limit and expect to continue to grow our retained earnings modestly even though we exceed the target.

For information on limitations on dividends, including limitations when we are under our minimum retained earnings target, see Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in the 2018 Annual Report.

Reduction of Activity-BasedMembership Stock Investment Requirement

On April 18, 2017, we announced that we would reduceEffective January 16, 2019, the activity-basedmembership stock investment requirement (ABSIR) for advances with original maturities of more than three months(MSIR) was reduced from 4.50.35 percent to 4.0 percent. On May 1, 2017, we provided written notice to shareholders0.20 percent of the effective datevalue of this change, which is the closecertain member assets eligible to secure advances, subject to a minimum balance of business on May 31, 2017.$10,000 and a maximum balance of $10.0 million. We reduced our ABSIRMSIR in an effort to gain efficiency in our capital structure, as we currently exceed internal and regulatory minimum capital requirements.

Repurchases of Excess Stock

We have the authority, but are not obligated, to repurchase excess stock, as discussed under Item 1 — Business — Capital Resources — Repurchase of Excess Stock in the 20162018 Annual Report and as further discussed below under Liquidity and Capital Resources — Internal Capital Practices and Policies — Repurchase of Excess Stock. At September 30, 2017, and December 31, 2016, excess capital stock totaled $106.8 million and $78.3 million, respectively,well as set forth in the following table (dollars in thousands):


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below.

 
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
September 30, 2017$700,811
 $1,501,056
 $2,201,889
 $2,308,690
 $106,801
December 31, 2016670,301
 1,695,397
 2,365,720
 2,443,993
 78,273
Table 25 - Capital Stock Requirements and Excess Capital Stock
(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
September 30, 2019$420,902
 $1,542,270
 $1,963,193
 $2,048,758
 $85,565
December 31, 2018755,723
 1,716,251
 2,471,996
 2,560,722
 88,726
_______________________

(1)Total stock Investment Requirementinvestment requirement is rounded up to the nearest $100 on an individual member basis.
(2) 
Class B capital stock outstanding includes mandatorily redeemable capital stock.

On April 3, 2017, we conducted a partial repurchaseAs discussed under Item 1 — Business — Capital Resources — Repurchase of excess capital stock under the Excess Stock Management Program. This excess stock repurchase transaction was initiated in response to the decline in advances that2018 Annual Report, we experienced during the quarter ending March 31, 2017.

On May 1, 2017, we provided a notice to our shareholders that we would replace our existing system of making periodic repurchases of excess capital stock when aggregate excess stock balances exceeded $200 million. We announced that on June 1, 2017, we would begincurrently conduct daily repurchases of excess stock held by any shareholder whose excess stock exceeds the lesser of $10.0 million or 25 percent of the shareholder's total stock investment requirement, subject to a minimum repurchase of $100,000. On July 27, 2017, we announced that effective on August 11, 2017, we would change the calculation that determines whether a shareholder’s excess stock balances will be subject to a daily repurchase of excess stock. We announced that beginning on August 11, 2017, we would repurchase excess stock held by any shareholder whose excess stock exceeds the lesser of $10.0 million or 10 percent of the shareholder’s total stock investment requirement, subject to a minimum repurchase of $100,000.

Excess stock We plan to continue with this practice, subject to regulatory requirements and our anticipated capital needs, although continued repurchases for the three months ended September 30, 2017 amounted to $343.6 million, and for the nine months ended September 30, 2017 amounted to $861.4 million.remain at our sole discretion.

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 1920 — Commitments and Contingencies in the 20162018 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 fivethree 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, and accounting for deferred premiums and discounts on prepayable assets, the allowance for loan losses, and other-than-temporary-impairment of investment securities.assets. 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 20162018 Annual Report.

As of September 30, 2017,2019, 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

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See Item 1 —Notes— Notes to the Financial Statements — Note 3 — Recently Issued and Adopted Accounting Guidance for a discussion of recent accounting developments impacting or that could impact us.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

Recent significant regulatory actions and developments are summarized below.

Information Security Management Advisory Bulletin.Bulletin (AB 2019-03) - Capital Stock Management. On September 28, 2017,August 14, 2019, the FHFA issued an Advisory Bulletin (the AB) providing guidance that supersedes previous guidance on an FHLBank’s information security program. The Advisory Bulletin describes three main components of an information security programaugments existing statutory and provides the expectation thatregulatory capital requirements to require each FHLBank will useto maintain a risk-based approachratio of at least two percent of capital stock to implement its information security program. The Advisory Bulletin contains expectations relatedtotal assets in order to (i) governance, including guidance relatedhelp preserve the cooperative structure incentives that encourage members to roles and responsibilities, risk assessments, industry standards, and cyber-insurance; (ii) engineering and architecture, including guidance on network security, software security, and security of endpoints; and (iii) operations, including guidance on continuous monitoring, vulnerability management, baseline configuration, asset life cycle, awareness and training, incident response and recovery, user access management, data classification and protection,remain fully engaged in the oversight of third parties, and threat intelligence sharing.their investment in the Bank. Beginning in February 2020, the FHFA will consider the proportion of capital stock to assets, measured on a daily average basis at month end, when assessing each FHLBank’s capital management practices.

We doThe Bank does not expect this advisory bulletinthe AB to materially affect ourhave a material impact on the Bank’s capital management practices, financial condition, or results of operations.


Minority and Women Inclusion.FHFA Supervisory Letter - Planning for LIBOR Phase-Out. On July 25, 2017,September 27, 2019, the FHFA publishedissued a final rule, effective August 24, 2017, amending its MinoritySupervisory Letter to the FHLBanks that the FHFA stated is designed to ensure the FHLBanks will be able to identify and Women Inclusion regulationsprudently manage the risks associated with the termination of LIBOR in a safe and sound manner. The Supervisory Letter provides that the FHLBanks should, by March 31, 2020, cease entering into new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021 for all product types except investments. With respect to clarifyinvestments, the scope ofFHLBanks should, by December 31, 2019, stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out dates do not apply to collateral accepted by the FHLBanks’ obligationFHLBanks. The Supervisory Letter also directs the FHLBanks to promote diversity and ensure inclusion.update their pledged collateral certification reporting requirements by March 31, 2020 in an effort to encourage members to distinguish LIBOR-linked collateral maturing after December 31, 2021. The final rule updatesFHLBanks are expected to cease entering into LIBOR-indexed financial instruments maturing after December 31, 2021 by the existingdeadlines specified in the Supervisory Letter, subject to limited exceptions granted by the FHFA regulations aimed at promoting diversity andunder the inclusion and use of minorities, women, and individuals with disabilities, and the businesses they own (MWDOB) in all FHLBank business and activities, including management, employment, and contracting. The final rule:Supervisory Letter for LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes that do not currently have readily available alternatives.

requires 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;
encourages the FHLBanks to expand contracting opportunities for minorities, women, and individuals with disabilities through subcontracting arrangements;
requires the FHLBanks to develop policies that address reasonable accommodations for employees to observe their religious beliefs;
requires the FHLBanks to amend their policies on equal opportunity in employment by adding sexual orientation, gender identity, and status as a parentPrior to the listissuance of protected classifications;
requires the FHLBanks to provide information in their annual reportsSupervisory Letter, the Bank had suspended entering into LIBOR-indexed derivatives that terminate after December 31, 2021. The Bank had ceased purchasing investments that reference LIBOR and mature after December 31, 2021 prior to the FHFA about their efforts to advance diversity and inclusion through financial transactions, identification of ways in which FHLBanks might be able to improve MWDOB business with the FHLBank by enhancing customer access by MWDOB businesses, including through its affordable housing and community investment programs and strategies for promoting the diversity of supervisors and managers; and
requires the FHLBanks to classify and provide additional data in their annual reports about the number of and amounts paid under its contracts with MWDOB.

We do not expect this final rule to materially affect our financial condition or results of operations, but anticipate that it may result in increased compliance costs and substantially increase the amount of tracking, monitoring, and reporting that would be required of us.

FHLBank Capital Requirements. On July 3, 2017, the FHFA published a proposed rule to adopt, with amendments, the regulationsissuance of the Federal Housing Finance Board (predecessorletter, also. Finally, early in 2019, the Bank limited the maturities of certain advances that are linked to the FHFA) pertainingLIBOR to the capital requirementsDecember 31, 2021. See Financial Condition — Transition of LIBOR to Alternative Reference Rates for the FHLBanks. The proposed rule would carry over most of the existing regulations without material change but would substantively revise the credit risk component of the risk-based capital requirement, as well as the limitations on extensions of unsecured credit. The main revisions would remove requirements that the FHLBanks calculate credit risk capital charges and unsecured credit limits based on ratings issued by a NRSRO, and instead, require that the FHLBanks establish and use their own internal rating methodology. With respect to derivatives, the proposed rule would impose a capital charge for cleared derivatives, to align with the Dodd-Frank Act’s clearing mandate. The proposed rule also would revise the percentages used in the regulation’s tables to calculate credit risk capital charges for advances and for non-mortgage assets. The FHFA proposes to retain, for now, the percentages used in the tables to calculate capital charges for mortgage-related assets, and to address the methodology for residential mortgage assets at a later date. While a March 2009 regulatory directive pertaining to certainadditional information.

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liquidity matters will remain in place, the FHFA also proposes to rescind certain minimum regulatory liquidity requirements for the FHLBanks and address these liquidity requirements in a separate rulemaking.

We submitted a joint comment letter with the other FHLBanks on August 31, 2017. We are continuing to evaluate the proposed rule but doThe Bank does not expect this rule, if adopted in final form,the Supervisory Letter to materially affect ourhave a material impact on the Bank’s financial condition or results of operations.

Other Significant Developments

Mandatory Contractual Stay Requirements for Qualified Financial Contracts (QFCs). On September 12, 2017, the Federal Reserve Board (FRB) published a final rule, effective November 13, 2017, requiring certain global systemically important banking institutions (GSIBs) regulated by the FRB to amend their covered qualified financial contracts (QFCs) to limit a counterparty’s immediate termination or exercise of default rights under the QFCs in the event of bankruptcy or receivership of the GSIB or an affiliate of the GSIB. Covered QFCs include derivatives, repurchase agreements (known as repos) and reverse repos, and securities lending and borrowing agreements. On September 27, 2017, the Federal Deposit Insurance Corporation (FDIC) adopted a substantively identical final rule, effective January 1, 2018, with respect to QFCs entered into with certain FDIC-supervised institutions.

Although we are not a covered entity under these rules, as a counterparty to covered entities under QFCs, we may be required to amend QFCs entered into with FRB-regulated GSIBs or applicable FDIC-supervised institutions. These rules may impact our ability to terminate business relationships with covered entities and could adversely impact the amount we recover in the event of the bankruptcy or receivership of a covered entity. We do not expect these final rules to materially affect our financial condition or results of operations.

LIBOR. On July 27, 2017, the United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced its intention to stop persuading or compelling the group of major banks that sustains LIBOR to submit rate quotations after 2021. Previously, the FRB had convened the Alternative Reference Rates Committee (ARRC) to identify a set of alternative reference interest rates for possible use as market benchmarks. In June 2017, the ARRC recommended an alternative reference rate, and in August 2017, the FRB requested public comment on a proposal to begin publishing that rate and two other alternative rates beginning in 2018. Other financial services regulators and industry groups are evaluating the possible phase-out of LIBOR and the development of alternative interest rate indices or reference rates. As noted throughout this report, many of our assets and liabilities are indexed to LIBOR. At this time, it is not possible to predict whether LIBOR will cease to be available after 2021 or what the anticipated impact of these developments will be on our business, results of operations and financial condition.

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. The majority of our balance sheet is comprised of assets that can be funded individually or collectively without imposing significant residual interest-rate risk on ourselves. 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 20162018 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 September 30, 2017,2019, fixed-rate noncallable debt, not hedged by interest-rate swaps, amounted to $15.1$14.0 billion, compared with $13.5$14.9 billion at December 31, 2016)2018);
the useissuance of derivatives and/or COs with embedded call options to hedge themitigate interest-rate risk of our debt (at September 30, 2017,2019, fixed-rate callable debt not hedged by interest-rate swaps amounted to $897.0 million$1.8 billion compared with $667.0 million$2.1 billion at December 31, 2016)2018);
the issuance of CO bonds together with interest-rate swaps that receive a coupon rate that offsets the bond coupon rate and any optionality embedded in the bond, thereby effectively creating a floating-rate liability (total CO bond debt used in

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conjunction with interest-rate-exchange agreements was $5.9$4.2 billion, or 20.816.4 percent of our total outstanding CO bonds at September 30, 2017,2019, compared with $7.6$6.0 billion, or 28.123.2 percent of total outstanding CO bonds, at December 31, 2016)2018);
the issuance of advances together with interest-rate swaps that pay a coupon rate that offsets the advance coupon rate and any optionality embedded in the advance, thereby effectively creating a floating-rate asset (total advances used in conjunction with interest-rate-exchange agreements, including both fair-value hedge relationships and economic hedge relationships, was $5.9 billion, or 15.3 percent of our total outstanding advances at September 30, 2019, compared with $6.1 billion, or 14.1 percent of total outstanding advances, at December 31, 2018);
the purchase of available-for-sale securities together with interest-rate swaps that pay a coupon rate that offsets the security’s coupon rate and any optionality embedded in the security, thereby effectively creating a floating-rate asset (total available-for-sale securities used in conjunction with interest-rate-exchange agreements was $2.6 billion, or 40.6 percent of

our total outstanding available-for-sale securities at September 30, 2019, compared with $611.9 million, or 10.7 percent of total outstanding available-for-sale securities, at December 31, 2018);
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.investments; and
the use of derivatives to hedge the interest-rate risk of anticipated future CO debt issuance (at September 30, 2019, forward starting interest-rate swaps hedging the anticipated future issuance of CO debt was $44.0 million compared to $282.0 million at December 31, 2018).

Each of the foregoingOur strategies and techniques isare more fully discussed under Item 7A — Quantitative and Qualitative Disclosures About Market Risk — Strategies to Manage Market and Interest-Rate Risk in the 20162018 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),VaR, duration of equity, convexity,MVE sensitivity, 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.

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. However, these valuations may not be fully representative of future realized prices. Valuations are based on market curves and prices of individual assets, liabilities, and derivatives, and therefore embed elements of option, credit, and liquidity risk which may not be representative of future net income to be earned from the spread between asset yields and funding costs. Further, MVE does not consider future new business activities, or income or expense derived from sources other than financial assets or liabilities. For purposes of measuring this ratio, the BVE is equal to the par value of capital stock including mandatorily redeemable capital stock, retained earnings, and accumulated other comprehensive loss.

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 is calculated as the estimated percentage change to MVE for a 100 basis point parallel shift in rates;
MVE sensitivity, which is the estimated 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 nonlinearbasis changes to our funding curve and LIBOR.

We maintain limits and management action triggers in connection with eachsome 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 20162018 Annual Report.


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The following table sets forth each of the foregoing metrics together with any targets, associated limits and management actions triggers at September 30, 2017, and December 31, 2016.


Interest/Market-Rate Risk Metric September 30, 2017 December 31, 2016 Target, Limit or Management Action Trigger
MVE $3.6 billion $3.6 billion None
MVE/BVE 100% 98% None
MVE/Par Stock 155% 148% Maintain above 102% (management action trigger) and 100% or higher (limit)
Economic Capital Ratio 5.8% 5.8% Maintain above 4.5% (management action trigger) and 4.0% (limit)
VaR $166.8 million $118.8 million Maintain below $225.0 million (management action trigger) and $275.0 million (limit)
Duration of Equity -0.04 years +1.67 years Maintain between +/- 3.5 years (management action trigger) and +/- 4.0 years (limit)
MVE Sensitivity in a +/- 200 basis point parallel rate shock (5.6)% (6.3)% Maintain above -10% (management action trigger) and -15% (limit)
Duration Gap -0.03 months +1.17 months None
MPF Portfolio VaR $84.9 million $76.9 million Maintain below 25% of the VaR limit ($275 million) (management action trigger)
Income Simulation based on an instantaneous rise in interest rates of 300 basis points Return on regulatory capital is 160 basis points above the average yield on three-month LIBOR Return on regulatory capital is 207 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)

MPF Portfolio Management Action Trigger of 25 Percent of Our VaR Limit. We have established a management action trigger for VaR exposure from our investments in mortgage loans through the MPF program such that the VaR from these investments shall not exceed 25 percent of our overall VaR limit. While we seek to limit interest-rate risk through matching asset maturity and optionality with its corresponding funding, mortgage loans cannot be perfectly match funded due to factors including, but not limited to, borrower prepayment behavior and basis risk between the swap and our funding curves. This management action trigger was $68.8 million at September 30, 2017 and December 31, 2016, based on our overall VaR limit of $275.0 million. Our actual MPF portfolio VaR exposure at September 30, 2017, was $84.9 million, compared with $76.9 million as of December 31, 2016.

We exceeded the MPF Portfolio VaR management action trigger at both December 31, 2016 and September 30, 2017. This was largely the result of the recent increase in interest rates and projected extension of the MPF portfolio beyond that experienced by the CO debt used to fund this portfolio. Management reviewed the risk exposure in the MPF portfolio and the risk exposure of the entire balance sheet as required by the trigger. The risk of the overall balance sheet as measured by VaR remained well below both its management action trigger and limit, and management decided that no reduction to the MPF risk profile was required. Should we continue to exceed our MPF VaR management action trigger, and should our VaR increase closer to its trigger and limit, we expect that management could reduce our risk exposure by making changes to the balance sheet including but not limited to altering the debt profile, which could have an adverse impact on income.
Table 26 - Interest Rate / Market-Rate Risk Metrics

Interest/Market-Rate Risk Metric September 30, 2019 December 31, 2018 Target, Limit or Management Action Trigger
MVE $3.4 billion $3.9 billion None
MVE/BVE 105% 107% None
MVE/Par Stock 166% 152% Maintain above 130% (management action trigger) with a floor of 125%
Economic Capital Ratio 5.9% 6.1% Maintain above 4.5% (management action trigger) and 4.0% (limit)
VaR $128.3 million $187.2 million Maintain below $275.0 million (management action trigger) and $350.0 million (limit)
Duration of Equity -0.65 years -0.32 years Maintain between +/- 3.5 years (management action trigger) and +/- 4.0 years (limit)
MVE Sensitivity in a +/- 200 basis point parallel rate shock (3.7)% (5.9)% Maintain above -10% (management action trigger) and -15% (limit)
Duration Gap -0.46 months -0.23 months None

Value at Risk. The table below presents the historical simulation VaR estimate as of September 30, 20172019, and December 31, 20162018, 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-day6-month time horizon.horizon that is measured monthly beginning with the most current month-end and going back to 1992.

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Table 27 - Value-at-Risk
(dollars in millions)

Table 27 - Value-at-Risk
(dollars in millions)

 
Value-at-Risk
(Gain) Loss Exposure (1)
 
Value-at-Risk
(Gain) Loss Exposure (1)
 September 30, 2017 December 31, 2016 September 30, 2019 December 31, 2018
Confidence Level 
% of
MVE (2)
 $ million 
% of
MVE (2)
 $ million 
% of
MVE (2)
 Amount 
% of
MVE (2)
 Amount
50% 0.15% $5.3
 (0.01)% $(0.4) (0.09)% $(3.0) 0.16% $6.4
75% 1.08
 38.7
 0.51
 18.5
 0.51
 17.4
 1.08
 41.9
95% 3.14
 112.3
 1.87
 67.4
 1.62
 55.1
 3.25
 126.4
99% 4.67
 166.8
 3.29
 118.8
 3.77
 128.3
 4.81
 187.2
_______________________
(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.

Income Simulation and Repricing Gaps. To provide an additional perspective on market and interest-rate risks, we have an income-simulation model that projects adjusted net income over the ensuing 12-month period using 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. The income simulation metric is based on projections of adjusted net income divided by regulatory capital. Regulatory capital is capital stock (including mandatorily redeemable capital stock) plus total retained earnings. Projections of adjusted net income exclude a) projected prepayment penalties; b) loss on early extinguishment of debt; and c) changes in fair values from hedging activities. The changes in fair values of trading securities are included in the projections of adjusted net income. The simulations are solely based on simulated movements in the swap and the CO curve and do not reflect potential impacts of credit events, including, but not limited to, potential, additional other-than-temporary impairment charges.

Management has put in place management action triggers whereby senior management is explicitly informed of instances where our projected base case return on regulatory capital (RORC) would fall below the average yield on three-month LIBOR over a 12-month horizon in a variety of assumed interest-rate shock scenarios. The results of this analysis for September 30, 2019, showed that in the base case our RORC was 206 basis points over three-month LIBOR, and in the worst case fell 56 basis points to 150 basis points over three-month LIBOR in the down 200 basis point scenario. For December 31, 2018, the results of this analysis showed that in the base case our RORC was 203 basis points over three-month LIBOR, and in the worst case fell 117 basis points to 86 basis points over three-month LIBOR in the down 300 basis point scenario. In both the nine months ended September 30, 2019 and throughout 2018, our RORC spread to three-month LIBOR remained positive in all projected interest rate shock scenarios that were modeled and subject to management action triggers.

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).

Table 28 - Market and Interest-Rate Risk Metrics
(dollars in millions)

Table 28 - Market and Interest-Rate Risk Metrics
(dollars in millions)

 September 30, 2017 September 30, 2019
 
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 $3,297 $3,373 $3,498 $3,575 $3,516 $3,401 $3,264 $3,374 $3,364 $3,323 $3,401 $3,370 $3,274 $3,161
Percent change in MVE from base (7.8)% (5.6)% (2.2)% —% (1.6)% (4.9)% (8.7)% (0.8)% (1.1)% (2.3)% —% (0.9)% (3.7)% (7.1)%
MVE/BVE 92% 94% 98% 100% 98% 95% 91% 104% 103% 102% 105% 104% 101% 97%
MVE/Par Stock 143% 146% 151% 155% 152% 147% 141% 165% 164% 162% 166% 165% 160% 154%
Duration of Equity -1.26 years -2.98 years -3.53 years -0.04 years +2.71 years +3.70 years +4.40 years +0.03 years +2.52 years -2.27 years -0.65 years +2.14 years +3.20 years +3.68 years
Return on Regulatory Capital less 3-month LIBOR (2)
 2.0% 2.1% 2.7% 2.7% 2.4% 2.0% 1.6% 1.61% 1.50% 1.52% 2.06% 2.26% 2.21% 2.05%
Net income percent change from base (55.1)% (52.1)% (24.6)% —% 16.2% 31.3% 44.9% (57.58)% (59.87)% (40.99)% —% 31.86% 57.20% 79.56%
____________________________
(1)In an 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 September 30, 2017 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; and d) changes in fair values from trading securities and hedging activities.


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 December 31, 2016 December 31, 2018
 
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(2)
 $3,385 $3,485 $3,618 $3,606 $3,506 $3,379 $3,240 $3,628 $3,661 $3,829 $3,891 $3,869 $3,819 $3,755
Percent change in MVE from base (6.1)% (3.3)% 0.3% —% (2.8)% (6.3)% (10.1)% (6.8)% (5.9)% (1.6)% —% (0.6)% (1.9)% (3.5)%
MVE/BVE 92% 95% 99% 98% 96% 92% 89% 100% 101% 105% 107% 106% 105% 103%
MVE/Par Stock 138% 143% 148% 148% 143% 138% 133% 142% 143% 150% 152% 151% 149% 147%
Duration of Equity -1.64 years -3.35 years -1.11 years +1.67 years +3.39 years +3.93 years +4.42 years - 0.61 years -5.50 years -3.03 years -0.32 years +1.05 years +1.50 years +1.90 years
Return on Regulatory Capital less 3-month LIBOR (2)
 2.4% 2.6% 2.9% 2.9% 2.6% 2.4% 2.1% 0.86% 1.01% 1.67% 2.03% 2.13% 2.10% 2.01%
Net income percent change from base (41.6)% (37.3)% (22.7)% —% 18.2% 37.1% 55.2% (82.41)% (64.03)% (29.11)% —% 23.63% 44.57% 64.22%
____________________________
(1)In an 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, 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; and 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 haveOur management has 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.September 30, 2019. 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.September 30, 2019.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2017,2019, 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 20162018 Annual Report.Report and in Part II, Item 1 - Legal Proceedings in the Quarterly Report on Form 10-Q (i) for the quarter ended March 31, 2019, filed with the SEC on May 9, 2019 and (ii) for the quarter ended June 30, 2019, filed with the SEC on August 8, 2019.


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TableWe 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. (Credit Suisse); Nomura Holding America, Inc. (Nomura); and RBS Holdings USA Inc. On August 20, 2019, a Massachusetts Superior Court denied in part and granted in part Nomura’s and Credit Suisse’s motions for summary judgment. In addition, our action against Moody’s Investors Service, Inc. and Moody’s Corporation relating to certain of Contents

our private label MBS holdings is ongoing. In that action, on March 26, 2019, an order of the New York Supreme Court was entered granting in part and denying in part the defendants’ motion to dismiss. On October 17, 2019, the New York Supreme Court Appellate Division affirmed the order of the New York Supreme Court denying the defendants’ motion to dismiss.

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 20162018 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.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS
Number Exhibit DescriptionReference
31.1
10.1		 Federal Home Loan Bank of Boston Endorsement Split-Dollar Agreement between Frank Nitkiewicz and the Federal Home Loan Bank of Boston dated May 24, 2005*
Filed within this Form 10-Q
10.2Federal Home Loan Bank of Boston Endorsement Split-Dollar Agreement between M. Susan Elliott and the Federal Home Loan Bank of Boston dated May 24, 2005*
Filed within this Form 10-Q
10.32020 Director Compensation Policy*
Exhibit 10.1 to our 8-K filed with the SEC on October 25, 2019
31.1Certification of the president and chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed within this Form 10-Q
31.2
 
Certification of the chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed within this Form 10-Q
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
Filed within this Form 10-Q
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
Filed within this Form 10-Q
101.INS XBRL Instance Document - theThe instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema DocumentFiled within this Form 10-Q
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase DocumentFiled within this Form 10-Q
101.LAB Inline XBRL Taxonomy Extension Label Linkbase DocumentFiled within this Form 10-Q
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled within this Form 10-Q
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase DocumentFiled within this Form 10-Q
104The cover page of the Bank’s Quarterly report on Form 10-Q, formatted in Inline XBRLIncluded within the Exhibit 101 attachments
*    Management contract or compensatory plan.

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.


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Date FEDERAL HOME LOAN BANK OF BOSTON (Registrant)
November 8, 20172019 By:/s/Edward A. Hjerpe III 
    
Edward A. Hjerpe III
President and Chief Executive Officer
November 8, 20172019 By:/s/Frank Nitkiewicz 
    
Frank Nitkiewicz
Executive Vice President and Chief Financial Officer


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