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EX-32.2 - EXHIBIT 32.2 - Federal Home Loan Bank of Des Moinesexhibit322september302010.htm
EX-31.1 - EXHIBIT 31.1 - Federal Home Loan Bank of Des Moinesexhibit311september302010.htm
EX-31.2 - EXHIBIT 31.2 - Federal Home Loan Bank of Des Moinesexhibit312september302010.htm
EX-32.1 - EXHIBIT 32.1 - Federal Home Loan Bank of Des Moinesexhibit321september302010.htm
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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
 
 
October 31, 2010
Class B Stock, par value $100
 
22,485,725
 
 
 
 
 
 

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)
 
September 30,
2010
 
December 31,
2009
ASSETS
 
 
 
Cash and due from banks
$
106,400
 
 
$
298,841
 
Interest-bearing deposits
11,051
 
 
10,570
 
Securities purchased under agreements to resell
2,250,000
 
 
 
Federal funds sold
2,036,000
 
 
3,133,000
 
Investments
 
 
 
Trading securities (Note 3)
1,496,680
 
 
4,434,522
 
Available-for-sale securities (Note 4)
6,549,195
 
 
7,737,413
 
Held-to-maturity securities (estimated fair value of $8,148,383 and $5,535,975 at September 30, 2010 and December 31, 2009) (Note 5)
7,897,150
 
 
5,474,664
 
Advances (Note 7)
32,014,188
 
 
35,720,398
 
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $6,800 and $1,887 at September 30, 2010 and December 31, 2009 (Note 8)
7,548,744
 
 
7,716,549
 
Accrued interest receivable
88,752
 
 
81,703
 
Premises, software, and equipment, net
9,185
 
 
9,062
 
Derivative assets (Note 9)
8,571
 
 
11,012
 
Other assets
52,423
 
 
28,939
 
Total assets
$
60,068,339
 
 
$
64,656,673
 
 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
LIABILITIES
 
 
 
Deposits
 
 
 
Interest-bearing
$
1,379,237
 
 
$
1,144,225
 
Non-interest-bearing demand
124,580
 
 
80,966
 
Total deposits
1,503,817
 
 
1,225,191
 
Consolidated obligations (Note 10)
 
 
 
Discount notes
7,470,727
 
 
9,417,182
 
Bonds (includes $1,510,607 and $5,997,867 at fair value under the fair value option at September 30, 2010 and December 31, 2009)
47,518,521
 
 
50,494,474
 
Total consolidated obligations
54,989,248
 
 
59,911,656
 
Mandatorily redeemable capital stock (Note 11)
4,697
 
 
8,346
 
Accrued interest payable
234,898
 
 
243,693
 
Affordable Housing Program (AHP) Payable
41,204
 
 
40,479
 
Payable to REFCORP
9,907
 
 
10,124
 
Derivative liabilities (Note 9)
271,722
 
 
280,384
 
Other liabilities
40,857
 
 
26,245
 
Total liabilities
57,096,350
 
 
61,746,118
 
 
 
 
 
Commitments and contingencies (Note 14)
 
 
 
 
 
 
 
CAPITAL (Note 11)
 
 
 
Capital stock - Class B putable ($100 par value) authorized, issued, and outstanding 22,962,260 and 24,604,186 shares at September 30, 2010 and December 31, 2009
2,296,226
 
 
2,460,419
 
Retained earnings
529,213
 
 
484,071
 
Accumulated other comprehensive income (loss)
 
 
 
Net unrealized gain (loss) on available-for-sale securities (Note 4)
147,812
 
 
(32,533
)
Pension and postretirement benefits
(1,262
)
 
(1,402
)
Total capital
2,971,989
 
 
2,910,555
 
Total liabilities and capital
$
60,068,339
 
 
$
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2010
 
2009
 
2010
 
2009
INTEREST INCOME
 
 
 
 
 
 
 
Advances
$
98,989
 
 
$
148,880
 
 
$
307,543
 
 
$
535,131
 
Advance prepayment fees, net
133,521
 
 
3,471
 
 
152,435
 
 
6,719
 
Interest-bearing deposits
111
 
 
108
 
 
254
 
 
339
 
Securities purchased under agreements to resell
913
 
 
466
 
 
1,493
 
 
1,625
 
Federal funds sold
542
 
 
2,449
 
 
3,845
 
 
15,645
 
Investments
 
 
 
 
 
 
 
Trading securities
7,648
 
 
14,667
 
 
33,320
 
 
49,936
 
Available-for-sale securities
24,225
 
 
17,960
 
 
74,102
 
 
40,119
 
Held-to-maturity securities
62,110
 
 
42,541
 
 
166,598
 
 
133,868
 
Mortgage loans
88,997
 
 
95,057
 
 
272,567
 
 
348,972
 
Total interest income
417,056
 
 
325,599
 
 
1,012,157
 
 
1,132,354
 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
Discount notes
2,667
 
 
18,829
 
 
7,221
 
 
126,539
 
Bonds
210,138
 
 
247,929
 
 
675,300
 
 
873,024
 
Deposits
350
 
 
582
 
 
873
 
 
2,050
 
Borrowings from other FHLBanks
 
 
 
 
2
 
 
21
 
Mandatorily redeemable capital stock
32
 
 
117
 
 
106
 
 
199
 
Total interest expense
213,187
 
 
267,457
 
 
683,502
 
 
1,001,833
 
 
 
 
 
 
 
 
 
NET INTEREST INCOME
203,869
 
 
58,142
 
 
328,655
 
 
130,521
 
Provision for credit losses on mortgage loans held for portfolio
1,695
 
 
91
 
 
5,647
 
 
341
 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
202,174
 
 
58,051
 
 
323,008
 
 
130,180
 
 
 
 
 
 
 
 
 
OTHER (LOSS) INCOME
 
 
 
 
 
 
 
Service fees
380
 
 
416
 
 
1,238
 
 
1,647
 
Net gain (loss) on trading securities
7,925
 
 
(1,697
)
 
61,557
 
 
52,056
 
Net gain (loss) on sale of available-for-sale securities
 
 
31,059
 
 
 
 
(11,710
)
Net gain (loss) on bonds held at fair value
3,027
 
 
(3,165
)
 
1,882
 
 
(15,392
)
Net gain on loans held for sale
 
 
 
 
 
 
1,342
 
Net (loss) gain on derivatives and hedging activities
(23,562
)
 
1,881
 
 
(112,792
)
 
98,297
 
Loss on extinguishment of debt
(127,308
)
 
(28,567
)
 
(131,335
)
 
(80,925
)
Other, net
2,941
 
 
1,551
 
 
7,733
 
 
3,896
 
Total other (loss) income
(136,597
)
 
1,478
 
 
(171,717
)
 
49,211
 
 
 
 
 
 
 
 
 
OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
7,386
 
 
6,874
 
 
22,678
 
 
21,053
 
Operating
3,197
 
 
3,410
 
 
11,969
 
 
11,512
 
Federal Housing Finance Agency
637
 
 
551
 
 
1,994
 
 
1,694
 
Office of Finance
414
 
 
468
 
 
1,456
 
 
1,576
 
Total other expense
11,634
 
 
11,303
 
 
38,097
 
 
35,835
 
 
 
 
 
 
 
 
 
INCOME BEFORE ASSESSMENTS
53,943
 
 
48,226
 
 
113,194
 
 
143,556
 
 
 
 
 
 
 
 
 
AHP
4,406
 
 
3,948
 
 
9,251
 
 
11,739
 
REFCORP
9,908
 
 
8,856
 
 
20,789
 
 
26,364
 
Total assessments
14,314
 
 
12,804
 
 
30,040
 
 
38,103
 
 
 
 
 
 
 
 
 
NET INCOME
$
39,629
 
 
$
35,422
 
 
$
83,154
 
 
$
105,453
 
 
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
3,633
 
 
363,246
 
 
 
 
 
 
363,246
 
Repurchase/redemption of capital stock
(5,234
)
 
(523,356
)
 
 
 
 
 
(523,356
)
Net shares reclassified to mandatorily redeemable capital stock
(41
)
 
(4,083
)
 
 
 
 
 
(4,083
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
83,154
 
 
 
 
83,154
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net unrealized gain on available-for-sale securities
 
 
 
 
 
 
180,345
 
 
180,345
 
Pension and postretirement benefits
 
 
 
 
 
 
140
 
 
140
 
Total comprehensive income
 
 
 
 
 
 
 
 
263,639
 
Cash dividends on capital stock (2.00% annualized)
 
 
 
 
(38,012
)
 
 
 
(38,012
)
BALANCE SEPTEMBER 30, 2010
22,962
 
 
$
2,296,226
 
 
$
529,213
 
 
$
146,550
 
 
$
2,971,989
 
 
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
1,898
 
 
189,804
 
 
 
 
 
 
189,804
 
Repurchase/redemption of capital stock
(23
)
 
(2,285
)
 
 
 
 
 
(2,285
)
Net shares reclassified to mandatorily redeemable capital stock
(165
)
 
(16,573
)
 
 
 
 
 
(16,573
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
105,453
 
 
 
 
105,453
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Net unrealized gain on available-for-sale securities
 
 
 
 
 
 
185,824
 
 
185,824
 
Reclassification adjustment for losses included in net income relating to the sale of available-for-sale securities
 
 
 
 
 
 
(64,524
)
 
(64,524
)
Pension and postretirement benefits
 
 
 
 
 
 
138
 
 
138
 
Total comprehensive income
 
 
 
 
 
 
 
 
226,891
 
Cash dividends on capital stock (1.34% annualized)
 
 
 
 
(29,040
)
 
 
 
(29,040
)
BALANCE SEPTEMBER 30, 2009
29,519
 
 
$
2,951,873
 
 
$
458,386
 
 
$
(24,095
)
 
$
3,386,164
 
 
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)
 
Nine Months Ended September 30,
 
2010
 
2009
OPERATING ACTIVITIES
 
 
 
Net income
$
83,154
 
 
$
105,453
 
 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization:
 
 
 
Net premiums, discounts, and basis adjustments on investments, advances, mortgage loans, and consolidated obligations
29,097
 
 
(33,799
)
Concessions on consolidated obligations
7,407
 
 
3,395
 
Premises, software, and equipment
1,383
 
 
996
 
Other
(26
)
 
279
 
Provision for credit losses on mortgage loans held for portfolio
5,647
 
 
341
 
Loss on extinguishment of debt
131,335
 
 
80,925
 
Net gain on trading securities
(61,557
)
 
(52,056
)
Net loss on sale of available-for-sale securities
 
 
11,710
 
Net gain on loans held for sale
 
 
(1,342
)
Net change in fair value on bonds held at fair value
(1,882
)
 
15,392
 
Net change in fair value on derivatives and hedging activities
(24,198
)
 
(84,618
)
Net realized loss on disposal of premises, software, and equipment
557
 
 
4
 
Net gain on real estate owned
(3,172
)
 
 
Net change in:
 
 
 
Accrued interest receivable
(7,067
)
 
8,398
 
Accrued interest on derivatives
(15,323
)
 
16,033
 
Other assets
1,228
 
 
443
 
Accrued interest payable
(9,165
)
 
(27,694
)
AHP Payable and discount on AHP advances
712
 
 
692
 
Payable to REFCORP
(217
)
 
8,878
 
Other liabilities
3,587
 
 
(2,997
)
 
 
 
 
Total adjustments
58,346
 
 
(55,020
)
 
 
 
 
Net cash provided by operating activities
141,500
 
 
50,433
 
 
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)
 
Nine Months Ended September 30,
 
2010
 
2009
INVESTING ACTIVITIES
 
 
 
Net change in:
 
 
 
Interest-bearing deposits
(125,781
)
 
171,967
 
Securities purchased under agreements to resell
(2,250,000
)
 
 
Federal funds sold
1,097,000
 
 
(1,060,000
)
Trading securities:
 
 
 
Proceeds from sales
2,999,401
 
 
754,626
 
Purchases
 
 
(3,844,300
)
Available-for-sale securities:
 
 
 
Proceeds from sales and maturities
1,589,609
 
 
3,270,871
 
Purchases
(189,880
)
 
(4,638,468
)
Held-to-maturity securities:
 
 
 
Net (increase) decrease in short-term
(335,000
)
 
384,933
 
Proceeds from maturities
1,819,314
 
 
1,082,735
 
Purchases
(3,904,199
)
 
(1,249,913
)
Advances to members:
 
 
 
Principal collected
30,921,415
 
 
35,776,149
 
Originated
(26,859,854
)
 
(30,551,036
)
Mortgage loans held for portfolio:
 
 
 
Principal collected
1,061,580
 
 
1,943,767
 
Originated or purchased
(920,359
)
 
(1,368,885
)
Mortgage loans held for sale:
 
 
 
  Principal collected
 
 
128,045
 
  Proceeds from sales
 
 
2,123,595
 
Proceeds from sales of foreclosed assets
17,183
 
 
11,452
 
Additions to premises, software, and equipment
(2,073
)
 
(1,717
)
Proceeds from sale of premises, software, and equipment
10
 
 
185
 
Net cash provided by investing activities
4,918,366
 
 
2,934,006
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Net change in:
 
 
 
Deposits
337,399
 
 
(276,045
)
Net proceeds (payments) on derivative contracts with financing elements
20,725
 
 
(7,787
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Discount notes
247,309,644
 
 
607,196,488
 
Bonds
31,276,702
 
 
20,766,716
 
Payments for maturing, transferring and retiring consolidated obligations:
 
 
 
Discount notes
(249,251,189
)
 
(614,333,936
)
Bonds
(34,739,734
)
 
(16,495,849
)
Proceeds from issuance of capital stock
363,246
 
 
189,804
 
Payments for repurchase of mandatorily redeemable capital stock
(7,732
)
 
(9,976
)
Payments for repurchase/redemption of capital stock
(523,356
)
 
(2,285
)
Cash dividends paid
(38,012
)
 
(29,040
)
Net cash used in financing activities
(5,252,307
)
 
(3,001,910
)
 
 
 
 
Net decrease in cash and due from banks
(192,441
)
 
(17,471
)
Cash and due from banks at beginning of the period
298,841
 
 
44,368
 
Cash and due from banks at end of the period
$
106,400
 
 
$
26,897
 
 
 
 
 
Supplemental disclosures
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
1,366,257
 
 
$
1,552,789
 
AHP
$
8,526
 
 
$
11,135
 
REFCORP
$
21,006
 
 
$
17,486
 
Unpaid principal balance transferred from mortgage loans held for portfolio to real estate owned
$
21,323
 
 
$
11,896
 
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 nine months ended September 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 third quarter of 2010, the Bank changed its calculation of adjusted net interest income for segment reporting and renamed this measure core net interest income. Prior period amounts were reclassified to be consistent with the presentation for the three and nine months ended September 30, 2010. Refer to "Note 12 - Segment Information" for further information.
 

9


During the fourth quarter of 2009, the Bank classified all proceeds from sales 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 nine months ended September 30, 2010.
 
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). 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 became effective as of 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 became 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 are not 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.
 

10


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.
 
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 became 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 became 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.    
 

11


Note 3—Trading Securities
 
Major Security Types. Trading securities were as follows (dollars in thousands):
 
 
September 30,
2010
 
December 31,
2009
TLGP1
$
1,216,305
 
 
$
3,692,984
 
Taxable municipal bonds2
280,375
 
 
741,538
 
Total
$
1,496,680
 
 
$
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.
 
The following table summarizes net gain (loss) on trading securities (dollars in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2010
 
2009
 
2010
 
2009
Realized gain on sale of trading securities
$
4,882
 
 
$
3,038
 
 
$
28,586
 
 
$
3,626
 
Holding gain (loss) on trading securities
3,043
 
 
(4,735
)
 
32,971
 
 
48,430
 
Net gain (loss) on trading securities
$
7,925
 
 
$
(1,697
)
 
$
61,557
 
 
$
52,056
 
 
 

12


Note 4—Available-for-Sale Securities
 
Major Security Types. Available-for-sale securities at September 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
 
 
$
1,277
 
 
$
2,086
 
 
$
 
 
$
567,051
 
Taxable municipal bonds2
28,077
 
 
(61
)
 
78
 
 
3
 
 
28,091
 
Other U.S. obligations3
79,752
 
 
 
 
3,235
 
 
 
 
82,987
 
Government-sponsored enterprise obligations4
489,431
 
 
17,761
 
 
40,312
 
 
 
 
547,504
 
Total non-mortgage-backed securities
1,160,948
 
 
18,977
 
 
45,711
 
 
3
 
 
1,225,633
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise5
5,221,458
 
 
 
 
105,369
 
 
3,265
 
 
5,323,562
 
 
 
 
 
 
 
 
 
 
 
Total
$
6,382,406
 
 
$
18,977
 
 
$
151,080
 
 
$
3,268
 
 
$
6,549,195
 
 
 
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 obligations4
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 enterprise5
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 
 
Taxable municipal bonds represented investments in U.S. Government subsidized Build America Bonds and State of Iowa IJOBS Program Special Obligations.
 
 
 
3 
 
Other U.S. obligations represented Export-Import Bank bonds.
 
 
 
4 
 
Government-sponsored enterprise (GSE) obligations represented Tennessee Valley Authority (TVA) and Federal Farm Credit Bank (FFCB) bonds.
 
 
 
5 
 
GSE MBS represented Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) securities.
    

13


The following table summarizes the available-for-sale securities with unrealized losses at September 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
 
 
 
 
 
 
 
 
 
 
 
Taxable municipal bonds
$
11,101
 
 
$
64
 
 
$
 
 
$
 
 
$
11,101
 
 
$
64
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 Government-sponsored enterprise
 
 
 
 
548,212
 
 
3,265
 
 
548,212
 
 
3,265
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
11,101
 
 
$
64
 
 
$
548,212
 
 
$
3,265
 
 
$
559,313
 
 
$
3,329
 
 
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.
 
 
 
September 30, 2010
 
December 31, 2009
Year of Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
 
 
 
 
Due after one year through five years
 
$
586,471
 
 
$
591,781
 
 
$
573,425
 
 
$
575,703
 
Due after five years through ten years
 
445,736
 
 
497,654
 
 
456,150
 
 
458,139
 
Due after ten years
 
128,741
 
 
136,198
 
 
25,249
 
 
25,199
 
 
 
1,160,948
 
 
1,225,633
 
 
1,054,824
 
 
1,059,041
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
5,221,458
 
 
5,323,562
 
 
6,716,928
 
 
6,678,372
 
 
 
 
 
 
 
 
 
 
Total
 
$
6,382,406
 
 
$
6,549,195
 
 
$
7,771,752
 
 
$
7,737,413
 
 
At September 30, 2010 and December 31, 2009, the amortized cost of the Bank's MBS classified as available-for-sale included net discounts of $0.7 million and $1.6 million.
 

14


Sales. During the three months ended September 30, 2010, the Bank did not sell any available-for-sale securities. During the nine months ended September 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 months ended September 30, 2009, the Bank received $1.9 billion in proceeds from the sale of of available-for-sale securities and recognized gross gains of $31.3 million and gross losses of $0.2 million in other (loss) income. During the nine months ended September 30, 2009, the Bank received $2.7 billion in proceeds from the sale of of available-for-sale securities and recognized gross gains of $31.3 million and gross losses of $43.0 million in other (loss) income.
 
Note 5—Held-to-Maturity Securities
 
Major Security Types. Held-to-maturity securities at September 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
$
335,000
 
 
$
 
 
$
34
 
 
$
334,966
 
Government-sponsored enterprise obligations1
311,903
 
 
49,718
 
 
 
 
361,621
 
State or local housing agency obligations2
110,311
 
 
4,869
 
 
 
 
115,180
 
TLGP3
1,250
 
 
39
 
 
 
 
1,289
 
Other4
3,779
 
 
 
 
 
 
3,779
 
Total non-mortgage-backed securities
762,243
 
 
54,626
 
 
34
 
 
816,835
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
Government-sponsored enterprise5
7,036,318
 
 
203,644
 
 
1,919
 
 
7,238,043
 
U.S. government agency-guaranteed6
36,197
 
 
170
 
 
1
 
 
36,366
 
MPF shared funding
28,609
 
 
130
 
 
310
 
 
28,429
 
Other7
33,783
 
 
 
 
5,073
 
 
28,710
 
Total mortgage-backed securities
7,134,907
 
 
203,944
 
 
7,303
 
 
7,331,548
 
 
 
 
 
 
 
 
 
Total
$
7,897,150
 
 
$
258,570
 
 
$
7,337
 
 
$
8,148,383
 
 
    

15


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 Housing Finance Authority (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.
 

16


The following table summarizes the held-to-maturity securities with unrealized losses at September 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
$
334,966
 
 
$
34
 
 
$
 
 
$
 
 
$
334,966
 
 
$
34
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprise
2,015
 
 
1
 
 
426,552
 
 
1,918
 
 
428,567
 
 
1,919
 
U.S. government agency-guaranteed
 
 
 
 
882
 
 
1
 
 
882
 
 
1
 
MPF shared funding
 
 
 
 
1,488
 
 
310
 
 
1,488
 
 
310
 
Other
 
 
 
 
28,710
 
 
5,073
 
 
28,710
 
 
5,073
 
Total mortgage-backed securities
2,015
 
 
1
 
 
457,632
 
 
7,302
 
 
459,647
 
 
7,303
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
336,981
 
 
$
35
 
 
$
457,632
 
 
$
7,302
 
 
$
794,613
 
 
$
7,337
 
 
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
 
 
    

17


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.
 
 
 
September 30, 2010
 
December 31, 2009
Year of Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
335,000
 
 
$
334,966
 
 
$
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
 
1,920
 
 
1,932
 
 
2,600
 
 
2,614
 
Due after ten years
 
424,073
 
 
478,648
 
 
437,723
 
 
432,153
 
 
 
762,243
 
 
816,835
 
 
894,562
 
 
889,788
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
7,134,907
 
 
7,331,548
 
 
4,580,102
 
 
4,646,187
 
 
 
 
 
 
 
 
 
 
Total
 
$
7,897,150
 
 
$
8,148,383
 
 
$
5,474,664
 
 
$
5,535,975
 
 
At September 30, 2010 and December 31, 2009, the amortized cost of the Bank's MBS classified as held-to-maturity included net discounts of $9.5 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 and GSE MBS 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 taxable municipal bonds and negotiable certificates of deposit in an unrealized loss position, the Bank determined that the creditworthiness of the issuers' 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 September 30, 2010, all gross unrealized losses on its agency and GSE MBS, taxable municipal bonds, negotiable certificates of deposit, 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 September 30, 2010.
 

18


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 September 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 September 30, 2010 assumed CBSA level current-to-trough home price declines ranging from 0 to 10 percent over the 3 to 9 month period beginning July 1, 2010. Thereafter, home prices are projected to remain flat in the first year, and to increase 1 percent in the second year, 3 percent in the third year, 4 percent in the fourth year, 5 percent in the fifth year, 6 percent in the sixth 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 September 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 September 30, 2010.
 
The Bank did not consider any of its investments to be other-than-temporarily impaired at December 31, 2009.
 

19


Note 7—Advances
 
Redemption Terms. The following table summarizes the Bank's advances outstanding by year of maturity (dollars in thousands):
 
 
 
September 30, 2010
 
December 31, 2009
Year of Maturity
 
Amount
 
Weighted
Average
Interest
Rate %
 
Amount
 
Weighted
Average
Interest
Rate %
 
 
 
 
 
 
 
 
 
Overdrawn demand deposit accounts
 
$
170
 
 
 
$
90
 
 
Due in one year or less
 
7,942,326
 
 
2.02
 
7,810,541
 
 
2.56
Due after one year through two years
 
3,650,215
 
 
2.51
 
4,802,348
 
 
2.71
Due after two years through three years
 
6,159,283
 
 
1.65
 
6,080,490
 
 
1.71
Due after three years through four years
 
1,298,802
 
 
2.88
 
4,938,047
 
 
1.86
Due after four years through five years
 
2,056,268
 
 
1.92
 
990,975
 
 
3.34
Thereafter
 
9,863,804
 
 
2.98
 
10,409,938
 
 
3.45
 
 
 
 
 
 
 
 
 
Total par value
 
30,970,868
 
 
2.34
 
35,032,429
 
 
2.62
 
 
 
 
 
 
 
 
 
Discounts on AHP advances
 
(1
)
 
 
 
(14
)
 
 
Premiums
 
254
 
 
 
 
308
 
 
 
Discounts
 
(3
)
 
 
 
(4
)
 
 
Fair value hedging adjustments