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EX-32.2 - EXHIBIT 32.2 - Federal Home Loan Bank of Des Moinesexhibit322june302010.htm
EX-32.1 - EXHIBIT 32.1 - Federal Home Loan Bank of Des Moinesexhibit321june302010.htm
EX-10.1 - EXHIBIT 10.1 - Federal Home Loan Bank of Des Moinesexhibit101june302010.htm
EX-31.2 - EXHIBIT 31.2 - Federal Home Loan Bank of Des Moinesexhibit312june302010.htm
EX-31.1 - EXHIBIT 31.1 - Federal Home Loan Bank of Des Moinesexhibit311june302010.htm
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2010
OR
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
Commission File Number: 000-51999
 
 
FEDERAL HOME LOAN BANK OF DES MOINES
(Exact name of registrant as specified in its charter)
Federally chartered corporation
(State or other jurisdiction of incorporation or organization) 
 
42-6000149
(I.R.S. employer identification number)
 
 
 
Skywalk Level
801 Walnut Street, Suite 200
Des Moines, IA
(Address of principal executive offices) 
 
 
 
50309
(Zip code)
 
Registrant's telephone number, including area code: (515) 281-1000
 
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 (section 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).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer x
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
Shares outstanding as of
 
 
July 31, 2010
Class B Stock, par value $100
 
22,969,688
 
 
 
 
 
 

Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I—FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CONDITION
(In thousands, except shares)
(Unaudited)
 
June 30,
2010
 
December 31,
2009
ASSETS
 
 
 
Cash and due from banks
$
97,253
 
 
$
298,841
 
Interest-bearing deposits
12,013
 
 
10,570
 
Securities purchased under agreements to resell
250,000
 
 
 
Federal funds sold
2,079,500
 
 
3,133,000
 
Investments
 
 
 
Trading securities (Note 3)
1,678,007
 
 
4,434,522
 
Available-for-sale securities (Note 4)
6,822,111
 
 
7,737,413
 
Held-to-maturity securities (estimated fair value of $8,561,508 and $5,535,975 at June 30, 2010 and December 31, 2009) (Note 5)
8,337,173
 
 
5,474,664
 
Advances (Note 7)
32,491,197
 
 
35,720,398
 
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $5,600 and $1,887 at June 30, 2010 and December 31, 2009 (Note 8)
7,531,115
 
 
7,716,549
 
Accrued interest receivable
87,670
 
 
81,703
 
Premises, software, and equipment, net
8,841
 
 
9,062
 
Derivative assets (Note 9)
11,626
 
 
11,012
 
Other assets
35,853
 
 
28,939
 
Total assets
$
59,442,359
 
 
$
64,656,673
 
 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
LIABILITIES
 
 
 
Deposits
 
 
 
Interest-bearing
$
1,232,932
 
 
$
1,144,225
 
Non-interest-bearing demand
66,174
 
 
80,966
 
Total deposits
1,299,106
 
 
1,225,191
 
Consolidated obligations (Note 10)
 
 
 
Discount notes
3,485,140
 
 
9,417,182
 
Bonds (includes $4,181,915 and $5,997,867 at fair value under the fair value option at June 30, 2010 and December 31, 2009)
51,075,150
 
 
50,494,474
 
Total consolidated obligations
54,560,290
 
 
59,911,656
 
Mandatorily redeemable capital stock (Note 11)
6,627
 
 
8,346
 
Accrued interest payable
236,036
 
 
243,693
 
Affordable Housing Program (AHP) Payable
39,176
 
 
40,479
 
Payable to REFCORP
3,401
 
 
10,124
 
Derivative liabilities (Note 9)
351,166
 
 
280,384
 
Other liabilities
35,305
 
 
26,245
 
Total liabilities
56,531,107
 
 
61,746,118
 
 
 
 
 
Commitments and contingencies (Note 14)
 
 
 
 
 
 
 
CAPITAL (Note 11)
 
 
 
Capital stock - Class B putable ($100 par value) authorized, issued, and outstanding 23,074,317 and 24,604,186 shares at June 30, 2010 and December 31, 2009
2,307,432
 
 
2,460,419
 
Retained earnings
501,137
 
 
484,071
 
Accumulated other comprehensive income (loss)
 
 
 
Net unrealized gain (loss) on available-for-sale securities (Note 4)
103,988
 
 
(32,533
)
Pension and postretirement benefits
(1,305
)
 
(1,402
)
Total capital
2,911,252
 
 
2,910,555
 
Total liabilities and capital
$
59,442,359
 
 
$
64,656,673
 
 
The accompanying notes are an integral part of these financial statements.

3


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2010
 
2009
 
2010
 
2009
INTEREST INCOME
 
 
 
 
 
 
 
Advances
$
101,038
 
 
$
177,738
 
 
$
208,554
 
 
$
386,251
 
Advance prepayment fees, net
17,243
 
 
1,682
 
 
18,914
 
 
3,248
 
Interest-bearing deposits
83
 
 
109
 
 
143
 
 
231
 
Securities purchased under agreements to resell
460
 
 
325
 
 
580
 
 
1,159
 
Federal funds sold
1,787
 
 
6,913
 
 
3,303
 
 
13,196
 
Investments
 
 
 
 
 
 
 
Trading securities
10,147
 
 
20,794
 
 
25,672
 
 
35,269
 
Available-for-sale securities
24,936
 
 
11,543
 
 
49,877
 
 
22,159
 
Held-to-maturity securities
62,726
 
 
45,426
 
 
104,488
 
 
91,327
 
Mortgage loans held for portfolio
91,236
 
 
122,402
 
 
183,570
 
 
253,915
 
Total interest income
309,656
 
 
386,932
 
 
595,101
 
 
806,755
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
Discount notes
1,899
 
 
38,654
 
 
4,554
 
 
107,710
 
Bonds
235,047
 
 
284,553
 
 
465,162
 
 
625,095
 
Deposits
294
 
 
640
 
 
523
 
 
1,468
 
Borrowings from other FHLBanks
2
 
 
4
 
 
2
 
 
21
 
Mandatorily redeemable capital stock
34
 
 
28
 
 
74
 
 
82
 
Total interest expense
237,276
 
 
323,879
 
 
470,315
 
 
734,376
 
 
 
 
 
 
 
 
 
NET INTEREST INCOME
72,380
 
 
63,053
 
 
124,786
 
 
72,379
 
Provision for credit losses on mortgage loans held for portfolio
3,827
 
 
250
 
 
3,952
 
 
250
 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
68,553
 
 
62,803
 
 
120,834
 
 
72,129
 
 
 
 
 
 
 
 
 
OTHER (LOSS) INCOME
 
 
 
 
 
 
 
Service fees
438
 
 
627
 
 
858
 
 
1,231
 
Net gain on trading securities
32,433
 
 
33,661
 
 
53,632
 
 
53,753
 
Net loss on sale of available-for-sale securities
 
 
(42,769
)
 
 
 
(42,769
)
Net loss on bonds held at fair value
(7,240
)
 
(10,586
)
 
(1,145
)
 
(12,227
)
Net gain on loans held for sale
 
 
1,342
 
 
 
 
1,342
 
Net (loss) gain on derivatives and hedging activities
(64,776
)
 
103,851
 
 
(89,230
)
 
96,416
 
Loss on extinguishment of debt
 
 
(36,378
)
 
(4,027
)
 
(52,358
)
Other, net
1,532
 
 
1,485
 
 
4,792
 
 
2,345
 
Total other (loss) income
(37,613
)
 
51,233
 
 
(35,120
)
 
47,733
 
 
 
 
 
 
 
 
 
OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
7,542
 
 
7,209
 
 
15,292
 
 
14,179
 
Operating
4,367
 
 
4,436
 
 
8,772
 
 
8,102
 
Federal Housing Finance Agency
637
 
 
551
 
 
1,357
 
 
1,143
 
Office of Finance
434
 
 
600
 
 
1,042
 
 
1,108
 
Total other expense
12,980
 
 
12,796
 
 
26,463
 
 
24,532
 
 
 
 
 
 
 
 
 
INCOME BEFORE ASSESSMENTS
17,960
 
 
101,240
 
 
59,251
 
 
95,330
 
 
 
 
 
 
 
 
 
AHP
1,470
 
 
7,791
 
 
4,845
 
 
7,791
 
REFCORP
3,298
 
 
17,508
 
 
10,881
 
 
17,508
 
Total assessments
4,768
 
 
25,299
 
 
15,726
 
 
25,299
 
 
 
 
 
 
 
 
 
NET INCOME
$
13,192
 
 
$
75,941
 
 
$
43,525
 
 
$
70,031
 
 
The accompanying notes are an integral part of these financial statements.

4


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENT OF CHANGES IN CAPITAL
(In thousands)
(Unaudited)
 
 
Capital Stock
Class B (putable)
 
 
 
Accumulated
Other
 
 
 
Shares
 
Par Value
 
Retained Earnings
 
Comprehensive
Income
 
Total
Capital
 
 
 
 
 
 
 
 
 
 
BALANCE DECEMBER 31, 2009
24,604
 
 
$
2,460,419
 
 
$
484,071
 
 
$
(33,935
)
 
$
2,910,555
 
Proceeds from issuance of capital stock
2,282
 
 
228,174
 
 
 
 
 
 
228,174
 
Repurchase/redemption of capital stock
(3,781
)
 
(378,074
)
 
 
 
 
 
(378,074
)
Net shares reclassified to mandatorily redeemable capital stock
(31
)
 
(3,087
)
 
 
 
 
 
(3,087
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
43,525
 
 
 
 
43,525
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Net unrealized gain on available-for-sale securities
 
 
 
 
 
 
136,521
 
 
136,521
 
Pension and postretirement benefits
 
 
 
 
 
 
97
 
 
97
 
Total comprehensive income
 
 
 
 
 
 
 
 
180,143
 
Cash dividends on capital stock (2.00% annualized)
 
 
 
 
(26,459
)
 
 
 
(26,459
)
BALANCE JUNE 30, 2010
23,074
 
 
$
2,307,432
 
 
$
501,137
 
 
$
102,683
 
 
$
2,911,252
 
 
The accompanying notes are an integral part of these financial statements.

5


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENT OF CHANGES IN CAPITAL
(In thousands)
(Unaudited)
 
 
Capital Stock
Class B (putable)
 
 
 
Accumulated
Other
 
 
 
Shares
 
Par Value
Retained Earnings
Comprehensive
Loss
Total
Capital
 
 
 
 
 
 
 
 
 
 
BALANCE DECEMBER 31, 2008
27,809
 
 
$
2,780,927
 
 
$
381,973
 
 
$
(145,533
)
 
$
3,017,367
 
Proceeds from issuance of capital stock
1,437
 
 
143,725
 
 
 
 
 
 
143,725
 
Repurchase/redemption of capital stock
*
 
(11
)
 
 
 
 
 
(11
)
Net shares reclassified to mandatorily redeemable capital stock
(12
)
 
(1,235
)
 
 
 
 
 
(1,235
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
70,031
 
 
 
 
70,031
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Net unrealized gain on available-for-sale securities
 
 
 
 
 
 
96,502
 
 
96,502
 
Reclassification adjustment for losses included in net income relating to the sale of available-for-sale securities
 
 
 
 
 
 
26,347
 
 
26,347
 
Pension and postretirement benefits
 
 
 
 
 
 
87
 
 
87
 
Total comprehensive income
 
 
 
 
 
 
 
 
192,967
 
Cash dividends on capital stock (1.00% annualized)
 
 
 
 
(14,567
)
 
 
 
(14,567
)
BALANCE JUNE 30, 2009
29,234
 
 
$
2,923,406
 
 
$
437,437
 
 
$
(22,597
)
 
$
3,338,246
 
 
* Amount is less than 1,000 shares.
 
The accompanying notes are an integral part of these financial statements.

6


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2010
 
2009
OPERATING ACTIVITIES
 
 
 
Net income
$
43,525
 
 
$
70,031
 
 
 
 
 
Adjustments to reconcile net income to net cash used in operating activities
 
 
 
Depreciation and amortization:
 
 
 
Net premiums, discounts, and basis adjustments on investments, advances, mortgage loans, and consolidated obligations
(1,801
)
 
(20,737
)
Concessions on consolidated obligations
2,993
 
 
2,879
 
Premises, software, and equipment
922
 
 
623
 
Other
(12
)
 
134
 
Provision for credit losses on mortgage loans held for portfolio
3,952
 
 
250
 
Loss on extinguishment of debt
4,027
 
 
52,358
 
Net change in fair value on trading securities
(53,632
)
 
(53,165
)
Net loss on sale of available-for-sale securities
 
 
42,769
 
Net gain on loans held for sale
 
 
(1,342
)
Net change in fair value on bonds held at fair value
1,145
 
 
12,227
 
Net change in fair value on derivatives and hedging activities
6,930
 
 
(90,061
)
Net realized loss on disposal of premises, software, and equipment
556
 
 
6
 
Other adjustments
(1,896
)
 
 
Net change in:
 
 
 
Accrued interest receivable
(5,974
)
 
6,468
 
Accrued interest on derivatives
6,171
 
 
22,063
 
Other assets
(5,444
)
 
(827
)
Accrued interest payable
(4,750
)
 
(81,283
)
AHP Payable and discount on AHP advances
(1,312
)
 
(17
)
Payable to REFCORP
(6,723
)
 
17,507
 
Other liabilities
9,157
 
 
(4,371
)
 
 
 
 
Total adjustments
(45,691
)
 
(94,519
)
 
 
 
 
Net cash used in operating activities
(2,166
)
 
(24,488
)
 
The accompanying notes are an integral part of these financial statements.

7


FEDERAL HOME LOAN BANK OF DES MOINES
STATEMENTS OF CASH FLOWS (continued from previous page)
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2010
 
2009
INVESTING ACTIVITIES
 
 
 
Net change in:
 
 
 
Interest-bearing deposits
(65,743
)
 
196,863
 
Securities purchased under agreements to resell
(250,000
)
 
 
Federal funds sold
1,053,500
 
 
(1,189,000
)
Trading securities:
 
 
 
Proceeds from sales
2,810,147
 
 
501,000
 
Purchases
 
 
(3,666,880
)
Available-for-sale securities:
 
 
 
Proceeds from sales and maturities
1,238,318
 
 
1,180,727
 
Purchases
(172,968
)
 
(2,587,986
)
Held-to-maturity securities:
 
 
 
Net increase in short-term
(300,000
)
 
(10,067
)
Proceeds from maturities
1,343,392
 
 
714,034
 
Purchases
(3,904,199
)
 
(794,913
)
Advances to members:
 
 
 
Principal collected
17,788,475
 
 
29,311,838
 
Originated
(14,330,235
)
 
(25,044,567
)
Mortgage loans held for portfolio:
 
 
 
Principal collected
574,100
 
 
1,449,578
 
Originated or purchased
(405,881
)
 
(1,149,440
)
Mortgage loans held for sale:
 
 
 
  Principal collected
 
 
128,045
 
  Proceeds from sales
 
 
2,123,595
 
Proceeds from sale of foreclosed assets
11,462
 
 
7,276
 
Additions to premises, software, and equipment
(1,259
)
 
(1,388
)
Proceeds from sale of premises, software, and equipment
2
 
 
179
 
Net cash provided by investing activities
5,389,111
 
 
1,168,894
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
107,316
 
 
(206,570
)
Net payments on derivative contracts with financing elements
(5,582
)
 
(4,794
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
202,001,654
 
 
443,126,755
 
Bonds
21,598,924
 
 
13,561,122
 
Payments for maturing, transferring and retiring consolidated obligations:
 
 
 
Discount notes
(207,929,151
)
 
(443,187,291
)
Bonds
(21,180,529
)
 
(14,559,186
)
Proceeds from issuance of capital stock
228,174
 
 
143,725
 
Payments for repurchase of mandatorily redeemable capital stock
(4,806
)
 
(392
)
Payments for repurchase/redemption of capital stock
(378,074
)
 
(11
)
Cash dividends paid
(26,459
)
 
(14,567
)
Net cash used in financing activities
(5,588,533
)
 
(1,141,209
)
 
 
 
 
Net (decrease) increase in cash and due from banks
(201,588
)
 
3,197
 
Cash and due from banks at beginning of the period
298,841
 
 
44,368
 
Cash and due from banks at end of the period
$
97,253
 
 
$
47,565
 
 
 
 
 
Supplemental disclosures
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
931,307
 
 
$
1,155,407
 
AHP
$
6,425
 
 
$
7,811
 
REFCORP
$
17,604
 
 
$
 
Unpaid principal balance transferred from mortgage loans held for portfolio to real estate owned
$
12,418
 
 
$
7,032
 
The accompanying notes are an integral part of these financial statements.

8


FEDERAL HOME LOAN BANK OF DES MOINES
 
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
 
Background Information
 
The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation organized on October 31, 1932, that is exempt from all federal, state, and local taxation except real property taxes and is one of 12 district Federal Home Loan Banks (FHLBanks). The FHLBanks were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act), which was amended by the Housing and Economic Recovery Act of 2008. The FHLBanks are regulated by the Federal Housing Finance Agency (Finance Agency), whose mission is to provide effective supervision, regulation, and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing and finance and affordable housing, and support a stable and liquid mortgage market. The Finance Agency establishes policies and regulations governing the operations of the FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and Board of Directors.
 
The FHLBanks serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank provides a readily available, low cost source of funds to its member institutions and eligible housing associates in Iowa, Minnesota, Missouri, North Dakota, and South Dakota. Commercial banks, savings institutions, credit unions, insurance companies, and community development financial institutions may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock.
 
The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets as of the preceding December 31st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank.
 
The Bank's current members own nearly all of the outstanding capital stock of the Bank. Former members own the remaining capital stock to support business transactions still carried on the Bank's Statements of Condition. All stockholders, including current members and former members, may receive dividends on their investment to the extent declared by the Bank's Board of Directors.
 
Note 1—Basis of Presentation
 
The accompanying unaudited financial statements of the Bank for the three and six months ended June 30, 2010 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 required by GAAP for full year information and should be read in conjunction with the audited financial statements for the year ended December 31, 2009, which are contained in the Bank's annual report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2010 (2009 Form 10-K).
 
In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, for a fair statement of results for the interim periods. The presentation of financial statements in conformity with GAAP requires management 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 full year ending December 31, 2010.
 
Descriptions of the Bank's significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” of the Bank's 2009 Form 10-K.
 
Reclassifications
 
During the fourth quarter of 2009, the Bank classified all proceeds from sale of foreclosed assets as investing activities in the Statements of Cash Flows. Prior period amounts were reclassified to be consistent with the presentation for the six months ended June 30, 2010.
 

9


Note 2—Recently Issued and Adopted Accounting Standards & Interpretations
 
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the Financial Accounting Standards Board (FASB) issued amended guidance to enhance financial statement disclosures about an entity's allowance for credit losses and the credit quality of its financing receivables. The amended guidance requires all public and nonpublic entities with financing receivables, including loans, lease receivables and other long-term receivables, to provide disclosures that facilitate a financial statement user's evaluation of the following: (i) the nature of credit risk inherent in the entity's portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, and (iii) the changes and reasons for those changes in its allowance for credit losses. Both new and existing disclosures must be disaggregated by portfolio segment or class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or at the lower of cost or fair value, and debt securities are exempt from this amended guidance. For public entities, the required disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010 for the Bank). The required disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 (January 1, 2011 for the Bank). For nonpublic entities, the required disclosures will be effective for annual reporting periods ending on or after December 15, 2011. The Bank's adoption of this amended guidance will likely result in increased interim and annual financial statement disclosures, but will not impact the Bank's financial condition, results of operations, or cash flows.
  
Scope Exception Related to Embedded Credit Derivatives. On March 5, 2010, the FASB issued amended guidance to clarify that the only type of embedded credit derivative feature related to the transfer of credit risk that is exempt from derivative bifurcation requirements is one that is in the form of subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination will need to assess those embedded credit derivatives to determine if bifurcation and separate accounting as a derivative is required. This amended guidance is effective at the beginning of the first interim reporting period beginning after June 15, 2010 (July 1, 2010 for the Bank). The Bank's adoption of this amended guidance did not impact its financial condition, results of operations, or cash flows.
 
 Fair Value Measurements and Disclosures - Improving Disclosures about Fair Value Measurements. On January 21, 2010, the FASB issued amended guidance for fair value measurements and disclosures. The update requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. Furthermore, the update requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs; clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value; and amends guidance on employers' disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009 (January 1, 2010 for the Bank), except for the disclosures about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs. Those disclosures are effective for fiscal years beginning after December 15, 2010 (January 1, 2011 for the Bank), and for interim periods within those fiscal years. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. The Bank adopted this amended guidance effective January 1, 2010, with the exception of disclosures about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs. The Bank's adoption of this amended guidance resulted in increased interim and annual financial statement disclosures but did not impact the Bank's financial condition, results of operations, or cash flows.
 
Accounting for the Consolidation of Variable Interest Entities. On June 12, 2009, the FASB issued guidance to improve financial reporting by enterprises involved with variable interest entities (VIEs) and to provide more relevant and reliable information to users of financial statements. This guidance amends the manner in which entities evaluate whether consolidation is required for VIEs. An entity must first perform a qualitative analysis in determining whether it must consolidate a VIE, and if the qualitative analysis is not determinative, the entity must perform a quantitative analysis. The guidance also requires an entity to continually evaluate VIEs for consolidation, rather than making such an assessment based upon the occurrence of triggering events. Additionally, the guidance requires enhanced disclosures about how an entity's involvement with a VIE affects its financial statements and its exposure to risks.
 

10


The Bank's investments in VIEs may include, but are not limited to, senior interests in private-label mortgage-backed securities (MBS) and Mortgage Partnership Finance (MPF) shared funding securities (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago). The Bank does not have the power to significantly affect the economic performance of any of its investments in VIEs since it does not act as a key decision-maker and does not have the unilateral ability to replace a key decision-maker. Additionally, since the Bank holds a senior interest, rather than residual interest, in its investments in VIEs, it does not have either the obligation to absorb losses of, or the right to receive benefits from, any of its investments in VIEs that could potentially be significant to the VIEs. Furthermore, the Bank does not design, sponsor, transfer, service, or provide credit or liquidity support in any of its investments in VIEs. The Bank's maximum loss exposure for these investments is limited to the carrying value.
 
This guidance is effective as of January 1, 2010 for the Bank. The Bank evaluated its investments in VIEs and determined that consolidation accounting is not required under the new accounting guidance since the Bank is not the primary beneficiary as described above. Therefore, the Bank's adoption of this guidance did not impact its financial condition, results of operations, or cash flows.    
 
Accounting for Transfers of Financial Assets. On June 12, 2009, the FASB issued guidance intended to improve the relevance, representational faithfulness, and comparability of the information a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement in transferred financial assets. Key provisions of the guidance include: (i) the removal of the concept of qualifying special purpose entities; (ii) the introduction of the concept of a participating interest, in circumstances in which a portion of a financial asset has been transferred; and (iii) the requirement that in order to qualify for sale accounting, the transferor must evaluate whether it maintains effective control over transferred financial assets either directly or indirectly. The guidance also requires enhanced disclosures about transfers of financial assets and a transferor's continuing involvement in transferred financial assets. This guidance is effective as of January 1, 2010 for the Bank. The adoption of this guidance did not impact the Bank's financial condition, results of operations, or cash flows.    
 
Note 3—Trading Securities
 
 Major Security Types. Trading securities were as follows (dollars in thousands):
 
 
June 30,
2010
 
December 31,
2009
TLGP1
$
1,216,533
 
 
$
3,692,984
 
Taxable municipal bonds2
461,474
 
 
741,538
 
Total
$
1,678,007
 
 
$
4,434,522
 
 
1
 
Temporary Liquidity Guarantee Program (TLGP) securities represented corporate debentures of the issuing party that are backed by the full faith and credit of the U.S. Government.
 
 
 
2
 
Taxable municipal bonds represented investments in U.S. Government subsidized Build America Bonds that provide the bondholder with a higher yield than traditional tax-exempt municipal bonds.
 
The following table summarizes net gains on trading securities (dollars in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2010
 
2009
 
2010
 
2009
Realized gain on sale of trading securities
$
12,039
 
 
$
152
 
 
$
23,704
 
 
$
588
 
Holding gain on trading securities
20,394
 
 
33,509
 
 
29,928
 
 
53,165
 
Net gain on trading securities
$
32,433
 
 
$
33,661
 
 
$
53,632
 
 
$
53,753
 
 
 

11


Note 4—Available-for-Sale Securities
 
 Major Security Types. Available-for-sale securities at June 30, 2010 were as follows (dollars in thousands):
 
 
 
 
 
 
Amounts Recorded in
Accumulated Other
Comprehensive Income
 
 
 
Amortized
Cost
 
Hedging
Adjustments
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
TLGP1
$
563,688
 
 
$
942
 
 
$
2,541
 
 
$
 
 
$
567,171
 
Government-sponsored enterprise obligations2
571,172
 
 
11,090
 
 
29,176
 
 
 
 
611,438
 
Total non-mortgage-backed securities
1,134,860
 
 
12,032
 
 
31,717
 
 
 
 
1,178,609
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise3
5,571,231
 
 
 
 
77,404
 
 
5,133
 
 
5,643,502
 
 
 
 
 
 
 
 
 
 
 
Total
$
6,706,091
 
 
$
12,032
 
 
$
109,121
 
 
$
5,133
 
 
$
6,822,111
 
 
 
Available-for-sale securities at December 31, 2009 were as follows (dollars in thousands):
 
 
 
 
 
 
Amounts Recorded in
Accumulated Other
Comprehensive Loss
 
 
 
Amortized
Cost
 
Hedging
Adjustments
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
 
Fair Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
TLGP1
$
563,688
 
 
$
41
 
 
$
2,028
 
 
$
 
 
$
565,757
 
Government-sponsored enterprise obligations2
491,136
 
 
(1,847
)
 
5,793
 
 
1,798
 
 
493,284
 
Total non-mortgage-backed securities
1,054,824
 
 
(1,806
)
 
7,821
 
 
1,798
 
 
1,059,041
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise3
6,716,928
 
 
 
 
10,514
 
 
49,070
 
 
6,678,372
 
 
 
 
 
 
 
 
 
 
 
Total
$
7,771,752
 
 
$
(1,806
)
 
$
18,335
 
 
$
50,868
 
 
$
7,737,413
 
 
1
 
TLGP securities represented corporate debentures of the issuing party that are backed by the full faith and credit of the U.S. Government.
 
 
 
2
 
Government-sponsored enterprise (GSE) obligations represented Export-Import Bank of the U.S., Tennessee Valley Authority (TVA), and Federal Farm Credit Bank (FFCB) bonds.
 
 
 
3
 
GSE MBS represented Fannie Mae and Freddie Mac securities.
 

12


The following table summarizes the available-for-sale securities with unrealized losses at June 30, 2010. The unrealized losses are aggregated by major security type and the 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
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 Government-sponsored enterprise
$
 
 
$
 
 
$
793,158
 
 
$
5,133
 
 
$
793,158
 
 
$
5,133
 
 
The following table summarizes the available-for-sale securities with unrealized losses at December 31, 2009. The unrealized losses are aggregated by major security type and the 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
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise obligations
$
143,278
 
 
$
1,798
 
 
$
 
 
$
 
 
$
143,278
 
 
$
1,798
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise
2,784,687
 
 
14,134
 
 
2,932,739
 
 
34,936
 
 
5,717,426
 
 
49,070
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
2,927,965
 
 
$
15,932
 
 
$
2,932,739
 
 
$
34,936
 
 
$
5,860,704
 
 
$
50,868
 
 
 Redemption Terms. The following table summarizes the amortized cost and fair value of available-for-sale securities categorized by contractual maturity (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
 
 
June 30, 2010
 
December 31, 2009
Year of Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
586,477
 
 
$
591,425
 
 
$
573,425
 
 
$
575,703
 
Due after five years through ten years
 
441,982
 
 
476,097
 
 
456,150
 
 
458,139
 
Due after ten years
 
106,401
 
 
111,087
 
 
25,249
 
 
25,199
 
 
 
1,134,860
 
 
1,178,609
 
 
1,054,824
 
 
1,059,041
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
5,571,231
 
 
5,643,502
 
 
6,716,928
 
 
6,678,372
 
 
 
 
 
 
 
 
 
 
Total
 
$
6,706,091
 
 
$
6,822,111
 
 
$
7,771,752
 
 
$
7,737,413
 
 
 At June 30, 2010 and December 31, 2009, the amortized cost of the Bank's MBS classified as available-for-sale included net discounts of $0.8 million and $1.6 million.
 
Sales. During the three and six months ended June 30, 2010, the Bank sold an available-for-sale security at par of $91.0 million and therefore recognized no gain or loss on the sale. During the three and six months ended June 30, 2009, the Bank sold available-for-sale securities with a total par value of $800.0 million and recognized losses of $42.8 million in other (loss) income.

13


Note 5—Held-to-Maturity Securities
 
 Major Security Types. Held-to-maturity securities at June 30, 2010 were as follows (dollars in thousands):
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
Negotiable certificates of deposit
$
300,000
 
 
$
 
 
$
28
 
 
$
299,972
 
Government-sponsored enterprise obligations1
312,262
 
 
31,876
 
 
 
 
344,138
 
State or local housing agency obligations2
115,695
 
 
4,884
 
 
 
 
120,579
 
TLGP3
1,250
 
 
39
 
 
 
 
1,289
 
Other4
6,755
 
 
13
 
 
 
 
6,768
 
Total non-mortgage-backed securities
735,962
 
 
36,812
 
 
28
 
 
772,746
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
Government-sponsored enterprise5
7,497,904
 
 
196,875
 
 
3,408
 
 
7,691,371
 
U.S. government agency-guaranteed6
38,558
 
 
116
 
 
27
 
 
38,647
 
MPF shared funding
30,390
 
 
 
 
534
 
 
29,856
 
Other7
34,359
 
 
 
 
5,471
 
 
28,888
 
Total mortgage-backed securities
7,601,211
 
 
196,991
 
 
9,440
 
 
7,788,762
 
 
 
 
 
 
 
 
 
Total
$
8,337,173
 
 
$
233,803
 
 
$
9,468
 
 
$
8,561,508
 
 
 

14


Held-to-maturity securities at December 31, 2009 were as follows (dollars in thousands):
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Non-mortgage-backed securities
 
 
 
 
 
 
 
Negotiable certificates of deposit
$
450,000
 
 
$
659
 
 
$
 
 
$
450,659
 
Government-sponsored enterprise obligations1
312,962
 
 
233
 
 
5,851
 
 
307,344
 
State or local housing agency obligations2
123,608
 
 
486
 
 
424
 
 
123,670
 
TLGP3
1,250
 
 
29
 
 
 
 
1,279
 
Other4
6,742
 
 
94
 
 
 
 
6,836
 
Total non-mortgage-backed securities
894,562
 
 
1,501
 
 
6,275
 
 
889,788
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
Government-sponsored enterprise5
4,468,928
 
 
88,482
 
 
14,942
 
 
4,542,468
 
U.S. government agency-guaranteed6
42,620
 
 
36
 
 
142
 
 
42,514
 
MPF shared funding
33,202
 
 
247
 
 
405
 
 
33,044
 
Other7
35,352
 
 
 
 
7,191
 
 
28,161
 
Total mortgage-backed securities
4,580,102
 
 
88,765
 
 
22,680
 
 
4,646,187
 
 
 
 
 
 
 
 
 
Total
$
5,474,664
 
 
$
90,266
 
 
$
28,955
 
 
$
5,535,975
 
 
1
 
GSE obligations represented TVA and FFCB bonds.
 
 
 
2
 
State or local housing agency obligations represented HFA bonds that were purchased by the Bank from housing associates in the Bank's district.
 
 
 
3
 
TLGP securities represented corporate debentures issued by the Bank's members that are backed by the full faith and credit of the U.S. Government.
 
 
 
4
 
Other non-MBS investments represented investments in municipal bonds and Small Business Investment Company.
 
 
 
5
 
GSE MBS represented Fannie Mae and Freddie Mac securities.
 
 
 
6
 
U.S. government agency-guaranteed MBS represented Government National Mortgage Association securities and Small Business Administration (SBA) Pool Certificates. SBA Pool Certificates represent undivided interests in pools of the guaranteed portions of SBA loans. The SBA's guarantee of the Pool Certificates is backed by the full faith and credit of the U.S. Government.
 
 
 
7
 
Other MBS investments represented private-label MBS.
 

15


The following table summarizes the held-to-maturity securities with unrealized losses at June 30, 2010. The unrealized losses are aggregated by major security type and the 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
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Negotiable certificates of deposit
$
299,972
 
 
$
28
 
 
$
 
 
$
 
 
$
299,972
 
 
$
28
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise
828
 
 
1
 
 
448,268
 
 
3,407
 
 
449,096
 
 
3,408
 
U.S. government agency-guaranteed
 
 
 
 
5,847
 
 
27
 
 
5,847
 
 
27
 
MPF shared funding
28,312
 
 
204
 
 
1,544
 
 
330
 
 
29,856
 
 
534
 
Other
 
 
 
 
28,888
 
 
5,471
 
 
28,888
 
 
5,471
 
Total mortgage-backed securities
29,140
 
 
205
 
 
484,547
 
 
9,235
 
 
513,687
 
 
9,440
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
329,112
 
 
$
233
 
 
$
484,547
 
 
$
9,235
 
 
$
813,659
 
 
$
9,468
 
 
The following table summarizes the held-to-maturity securities with unrealized losses at December 31, 2009. The unrealized losses are aggregated by major security type and the 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
Non-mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise obligations
$
280,715
 
 
$
5,851
 
 
$
 
 
$
 
 
$
280,715
 
 
$
5,851
 
State or local housing agency obligations
33,171
 
 
424
 
 
 
 
 
 
33,171
 
 
424
 
Total non-mortgage-backed securities
313,886
 
 
6,275
 
 
 
 
 
 
313,886
 
 
6,275
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise
365,866
 
 
1,017
 
 
1,898,140
 
 
13,925
 
 
2,264,006
 
 
14,942
 
U.S. government agency-guaranteed
 
 
 
 
37,246
 
 
142
 
 
37,246
 
 
142
 
MPF shared funding
 
 
 
 
1,564
 
 
405
 
 
1,564
 
 
405
 
Other
 
 
 
 
28,161
 
 
7,191
 
 
28,161
 
 
7,191
 
Total mortgage-backed securities
365,866
 
 
1,017
 
 
1,965,111
 
 
21,663
 
 
2,330,977
 
 
22,680
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
679,752
 
 
$
7,292
 
 
$
1,965,111
 
 
$
21,663
 
 
$
2,644,863
 
 
$
28,955
 
 
 

16


Redemption Terms. The following table summarizes the amortized cost and fair value of held-to-maturity securities by contractual maturity (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
 
 
June 30, 2010
 
December 31, 2009
Year of Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
302,990
 
 
$
302,975
 
 
$
452,989
 
 
$
453,742
 
Due after one year through five years
 
1,250
 
 
1,289
 
 
1,250
 
 
1,279
 
Due after five years through ten years
 
2,030
 
 
2,043
 
 
2,600
 
 
2,614
 
Due after ten years
 
429,692
 
 
466,439
 
 
437,723
 
 
432,153
 
 
 
735,962
 
 
772,746
 
 
894,562
 
 
889,788
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
7,601,211
 
 
7,788,762
 
 
4,580,102
 
 
4,646,187
 
 
 
 
 
 
 
 
 
 
Total
 
$
8,337,173
 
 
$
8,561,508
 
 
$
5,474,664
 
 
$
5,535,975
 
 
At June 30, 2010 and December 31, 2009, the amortized cost of the Bank's MBS classified as held-to-maturity included net discounts of $10.7 million and $17.4 million.
 
Note 6—Other-Than-Temporary Impairment
 
The Bank evaluates its individual available-for-sale and held-to-maturity securities in an unrealized loss position for other-than-temporary impairment (OTTI) on at least a quarterly basis. As part of its OTTI evaluation, the Bank considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, the Bank will recognize an OTTI charge to earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance sheet date. For securities in an unrealized loss position that meet neither of these conditions, the Bank performs an analysis to determine if any of these securities are other-than-temporarily impaired.
 
For its agency MBS and GSE obligations in an unrealized loss position, the Bank determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. Government was sufficient to protect the Bank from losses based on current expectations. For its MPF shared funding securities in an unrealized loss position, the Bank determined that credit enhancements resulting from subordination were sufficient to protect the Bank from losses based on current expectations. As a result, the Bank determined that, at June 30, 2010, all gross unrealized losses on its agency MBS, GSE obligations, and MPF shared funding securities are temporary. Furthermore, the declines in market value of these securities are not attributable to credit quality. The Bank does not intend to sell these securities, and it is not more likely than not that the Bank will be required to sell these securities before recovery of their amortized cost bases. As a result, the Bank does not consider any of these securities to be other-than-temporarily impaired at June 30, 2010.
 

17


For its private-label MBS, the Bank performs cash flow analyses to determine whether the entire amortized cost bases of these securities are expected to be recovered. In 2009, the FHLBanks formed an OTTI Governance Committee, comprised of representation from all 12 FHLBanks, which is responsible for reviewing and approving the key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate cash flow projections used in analyzing credit losses and determining OTTI for private-label MBS. In accordance with this methodology, the Bank may engage another designated FHLBank to perform the cash flow analyses underlying its OTTI determination. In order to promote consistency in the application of the assumptions, inputs, and implementation of the OTTI methodology, the FHLBanks established control procedures whereby the FHLBanks performing the cash flow analyses select a sample group of private-label MBS and each perform cash flow analyses on all such test MBS, using the assumptions approved by the OTTI Governance Committee. These FHLBanks exchange and discuss the results and make any adjustments necessary to achieve consistency among their respective cash flow models.
 
Utilizing this methodology, the Bank is responsible for making its own determination of impairment, which includes determining the reasonableness of assumptions, inputs, and methodologies used. At June 30, 2010, the Bank obtained cash flow analyses from its designated FHLBanks for all five of its private-label MBS. The cash flow analyses use two third-party models. The first third-party model considers borrower characteristics and the particular attributes of the loans underlying the Bank's securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which is based upon an assessment of the individual housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the U.S. Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The Bank's housing price forecast as of June 30, 2010 assumed CBSA level current-to-trough home price declines ranging from 0 to 12 percent over the 3 to 9 month period beginning April 1, 2010. Thereafter, home prices are projected to remain flat in the first six months, and to increase 0.5 percent in the next six months, 3 percent in the second year, and 4 percent in each subsequent year.
 
The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults, and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. The scenario of cash flows determined based on the model approach described above reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path described in the prior paragraph. If this estimate results in a present value of expected cash flows that is less than the amortized cost basis of the security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit loss and the Bank does not intend to sell or it is not more likely than not it will be required to sell, any impairment is considered temporary.
 
At June 30, 2010, the Bank's private-label MBS cash flow analyses did not project any credit losses. Even under an adverse scenario that delays recovery of the housing price index, no credit losses were projected. The Bank does not intend to sell these securities and it is not more likely than not that the Bank will be required to sell these securities before recovery of their amortized cost bases. As a result, the Bank does not consider any of these securities to be other-than-temporarily impaired at June 30, 2010.
 

18


Note 7—Advances
 
 Redemption Terms. The following table summarizes the Bank's advances outstanding by year of maturity (dollars in thousands):
 
 
 
June 30, 2010
 
December 31, 2009
Year of Maturity
 
Amount
 
Weighted
Average
Interest
Rate %
 
Amount
 
Weighted
Average
Interest
Rate %
 
 
 
 
 
 
 
 
 
Overdrawn demand deposit accounts
 
$
356
 
 
 
 
$
90
 
 
 
Due in one year or less
 
7,452,344
 
 
2.31
 
 
7,810,541
 
 
2.56
 
Due after one year through two years
 
3,521,008
 
 
2.74
 
 
4,802,348
 
 
2.71
 
Due after two years through three years
 
6,038,445
 
 
1.86
 
 
6,080,490
 
 
1.71
 
Due after three years through four years
 
3,154,773
 
 
1.88
 
 
4,938,047
 
 
1.86
 
Due after four years through five years
 
1,536,121
 
 
2.60
 
 
990,975
 
 
3.34
 
Thereafter
 
9,871,143
 
 
3.45
 
 
10,409,938