Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities

Investment Securities

NOTE 3 – INVESTMENT SECURITIES

Major Security Types: Trading and held-to-maturity securities as of June 30, 2011 are summarized in the following table (in thousands):

	Trading	Held-to-maturity
	Fair Value	Carrying Value	OTTI Recognized in OCI	Amortized Cost	Gross Unrecognized Gains	Gross Unrecognized Losses	Fair Value
Commercial paper	$2,064,650	$0	$0	$0	$0	$0	$0
Certificates of deposit	2,379,972	0	0	0	0	0	0
FHLBank1 obligations	122,414	0	0	0	0	0	0
Fannie Mae2obligations	348,430	0	0	0	0	0	0
Freddie Mac2obligations	887,415	0	0	0	0	0	0
State or local housing agency obligations	0	92,488	0	92,488	9	12,472	80,025
Subtotal	5,802,881	92,488	0	92,488	9	12,472	80,025
Mortgage-backed securities:
Fannie Mae residential2	228,951	2,264,210	0	2,264,210	24,439	1,789	2,286,860
Freddie Mac residential2	159,572	2,416,373	0	2,416,373	24,035	1,268	2,439,140
Ginnie Mae residential3	1,450	20,275	0	20,275	1,397	1	21,671
Private-label mortgage-backed securities:
Residential loans	0	957,407	18,429	975,836	6,360	62,319	919,877
Commercial loans	0	39,976	0	39,976	1,286	0	41,262
Home equity loans	0	1,551	547	2,098	373	170	2,301
Mortgage-backed securities	389,973	5,699,792	18,976	5,718,768	57,890	65,547	5,711,111
TOTAL	$6,192,854	$5,792,280	$18,976	$5,811,256	$57,899	$78,019	$5,791,136

1	See Note 17 for transactions with other FHLBanks.
2	Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are government sponsored enterprises (GSEs). Both entities were placed into conservatorship by the Federal Housing Finance Agency (Finance Agency) on September 7, 2008 with the Finance Agency named as conservator.
3	Government National Mortgage Association (Ginnie Mae) securities are guaranteed by the U.S. government.

Trading and held-to-maturity securities as of December 31, 2010 are summarized in the following table (in thousands):

	Trading	Held-to-maturity
	Fair Value	Carrying Value	OTTI Recognized in OCI	Amortized Cost	Gross Unrecognized Gains	Gross Unrecognized Losses	Fair Value
Commercial paper	$2,349,565	$0	$0	$0	$0	$0	$0
Certificates of deposit	1,755,013	0	0	0	0	0	0
U.S. Treasuries	282,996	0	0	0	0	0	0
FHLBank1 obligations	120,876	0	0	0	0	0	0
Fannie Mae2obligations	396,750	0	0	0	0	0	0
Freddie Mac2obligations	988,097	0	0	0	0	0	0
State or local housing agency obligations	0	99,012	0	99,012	10	12,754	86,268
Subtotal	5,893,297	99,012	0	99,012	10	12,754	86,268
Mortgage-backed securities:
Fannie Mae residential2	259,678	2,635,277	0	2,635,277	26,831	1,256	2,660,852
Freddie Mac residential2	180,430	2,738,943	0	2,738,943	27,799	898	2,765,844
Ginnie Mae residential3	1,534	23,048	0	23,048	1,279	1	24,326
Private-label mortgage-backed securities:
Residential loans	0	1,217,904	18,606	1,236,510	7,881	81,681	1,162,710
Commercial loans	0	40,022	0	40,022	1,800	0	41,822
Home equity loans	0	1,684	685	2,369	289	278	2,380
Manufactured housing loans	0	88	0	88	0	1	87
Mortgage-backed securities	441,642	6,656,966	19,291	6,676,257	65,879	84,115	6,658,021
TOTAL	$6,334,939	$6,755,978	$19,291	$6,775,269	$65,889	$96,869	$6,744,289

1	See Note 17 for transactions with other FHLBanks.
2	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
3	Ginnie Mae securities are guaranteed by the U.S. government.

The following table summarizes (in thousands) the held-to-maturity securities with unrecognized losses as of June 30, 2011. The unrecognized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrecognized loss position.

	Less Than 12 Months		12 Months or More		Total
	Fair Value	Unrecognized Losses	Fair Value	Unrecognized Losses	Fair Value	Unrecognized Losses
State or local housing agency obligations	$42,670	$5,874	$25,413	$6,598	$68,083	$12,472
Subtotal	42,670	5,874	25,413	6,598	68,083	12,472
Mortgage-backed securities:
Fannie Mae residential1	120,055	357	330,550	1,432	450,605	1,789
Freddie Mac residential1	108,624	144	296,399	1,124	405,023	1,268
Ginnie Mae residential2	702	1	0	0	702	1
Private-label mortgage-backed securities:
Residential loans	21,831	198	449,772	62,121	471,603	62,319
Home equity loans	806	42	446	128	1,252	170
Mortgage-backed securities	252,018	742	1,077,167	64,805	1,329,185	65,547
TOTAL TEMPORARILY IMPAIRED SECURITIES	$294,688	$6,616	$1,102,580	$71,403	$1,397,268	$78,019

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Ginnie Mae securities are guaranteed by the U.S. government.

The following table summarizes (in thousands) the held-to-maturity securities with unrecognized losses as of December 31, 2010. The unrecognized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrecognized loss position.

	Less Than 12 Months		12 Months or More		Total
	Fair Value	Unrecognized Losses	Fair Value	Unrecognized Losses	Fair Value	Unrecognized Losses
State or local housing agency obligations	$41,203	$12,467	$1,968	$287	$43,171	$12,754
Subtotal	41,203	12,467	1,968	287	43,171	12,754
Mortgage-backed securities:
Fannie Mae residential1	79,562	55	395,329	1,201	474,891	1,256
Freddie Mac residential1	51,402	57	343,999	841	395,401	898
Ginnie Mae residential2	466	1	0	0	466	1
Private-label mortgage-backed securities:
Residential loans	35,722	334	619,611	81,347	655,333	81,681
Home equity loans	0	0	1,219	278	1,219	278
Manufactured housing loans	0	0	87	1	87	1
Mortgage-backed securities	167,152	447	1,360,245	83,668	1,527,397	84,115
TOTAL TEMPORARILY IMPAIRED SECURITIES	$208,355	$12,914	$1,362,213	$83,955	$1,570,568	$96,869

1	Fannie Mae and Freddie Mac are GSEs. GSE securities are not guaranteed by the U.S. government.
2	Ginnie Mae securities are guaranteed by the U.S. government

Redemption Terms: The fair values of trading securities and the amortized cost, carrying value and fair values of held-to-maturity securities by contractual maturity as of June 30, 2011 and December 31, 2010 are shown in the following table (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	Trading		Held-to-maturity
	06/30/2011	12/31/2010	06/30/2011			12/31/2010
	Fair Value	Fair Value	Amortized Cost	Carrying Value	Fair Value	Amortized Cost	Carrying Value	Fair Value
Due in one year or less	$4,648,730	$4,360,368	$0	$0	$0	$0	$0	$0
Due after one year through five years	450,081	274,798	0	0	0	0	0	0
Due after five years through 10 years	704,070	1,258,131	5,545	5,545	5,547	5,740	5,740	5,742
Due after 10 years	0	0	86,943	86,943	74,478	93,272	93,272	80,526
Subtotal	5,802,881	5,893,297	92,488	92,488	80,025	99,012	99,012	86,268
Mortgage-backed securities	389,973	441,642	5,718,768	5,699,792	5,711,111	6,676,257	6,656,966	6,658,021
TOTAL	$6,192,854	$6,334,939	$5,811,256	$5,792,280	$5,791,136	$6,775,269	$6,755,978	$6,744,289

As of June 30, 2011 and December 31, 2010, 23.4 percent and 25.5 percent, respectively, of the FHLBank's fixed rate trading securities were swapped to a floating rate.

Interest Rate Payment Terms: The following table details interest rate payment terms for held-to-maturity securities as of June 30, 2011 and December 31, 2010 (in thousands):

	06/30/2011	12/31/2010
Amortized cost of held-to-maturity securities other than mortgage-backed securities:
Fixed rate	$23,563	$26,637
Variable rate	68,925	72,375
Subtotal	92,488	99,012
Amortized cost of held-to-maturity mortgage-backed securities:
Pass-through securities:
Fixed rate	371	435
Variable rate	5,134	5,409
Collateralized mortgage obligations:
Fixed rate	906,371	1,205,791
Variable rate	4,806,892	5,464,622
Subtotal	5,718,768	6,676,257
TOTAL	$5,811,256	$6,775,269

The carrying value of the FHLBank's mortgage-backed securities (MBS) included net discounts of $30,949,000, of which $8,296,000 represented credit related impairment discount and $18,976,000 represented non-credit related impairment discount, as of June 30, 2011. The carrying value of the FHLBank's MBS included net discounts of $30,507,000, of which $5,938,000 represented credit related impairment discount and $19,291,000 represented non-credit related impairment discount, as of December 31, 2010. No premiums or discounts were recorded on other held-to-maturity securities as of June 30, 2011 and December 31, 2010.

Gains and Losses: Net realized and unrealized gains (losses) on trading securities during the three- and six-month periods ended June 30, 2011 and 2010 were as follows (in thousands):

	Three-month Period Ended		Six-month Period Ended
	06/30/2011	06/30/2010	06/30/2011	06/30/2010
Net unrealized gains (losses) on trading securities held at June 30, 2011	$16,750	$43,184	$4,359	$48,714
Net unrealized gains (losses) on trading securities sold or matured prior to June 30, 2011	3,186	1,610	(792)	(595)
NET GAINS (LOSSES) ON TRADING SECURITIES RECORDED IN OTHER INCOME (LOSS)	$19,936	$44,794	$3,567	$48,119

Other-than-temporary Impairment: The FHLBank evaluates its individual held-to-maturity investment securities holdings in an unrealized loss position for other-than-temporary impairment (OTTI) at least quarterly, or more frequently if events or changes in circumstances indicate that these investments may be other-than-temporarily impaired. As part of this process, if the fair value of a security is less than its amortized cost basis, the FHLBank considers its intent to sell the debt security and whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, the FHLBank recognizes an OTTI charge in earnings equal to the entire difference between the debt security's amortized cost and its fair value as of the balance sheet date. For securities in unrealized loss positions that meet neither of these conditions, the FHLBank performs an analysis to determine if any of these securities are other-than-temporarily impaired.

For state and local housing agency obligations, the FHLBank determined that, as of June 30, 2011, all of the gross unrealized losses on these bonds are temporary because the strength of the underlying collateral and credit enhancements was sufficient to protect the FHLBank from losses based on current expectations.

For Agency MBS, the FHLBank determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the FHLBank from losses based on current expectations. As a result, the FHLBank has determined that, as of June 30, 2011, all of the gross unrealized losses on its Agency MBS are temporary.

The FHLBanks' OTTI Governance Committee, which is comprised of representation from all 12 FHLBanks, has responsibility 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. To support consistency among the FHLBanks, FHLBank Topeka completed its OTTI analysis primarily based upon cash flow analysis prepared by FHLBank of San Francisco on behalf of FHLBank Topeka using key modeling assumptions provided by the FHLBanks' OTTI Governance Committee for the majority of its private-label residential MBS and home equity loan investments. Certain private-label MBS backed by multi-family and commercial real estate loans, home equity lines of credit and manufactured housing loans were outside of the scope of the OTTI Governance Committee and were analyzed for OTTI by the FHLBank utilizing other methodologies.

For private-label commercial MBS, consistent with the other FHLBanks, the FHLBank assesses the creditworthiness of the issuer, the credit ratings assigned by the Nationally-Recognized Statistical Rating Organizations (NRSRO), the performance of the underlying loans and the credit support provided by the subordinate securities to make a conclusion as to whether the commercial MBS will be settled at an amount less than the amortized cost basis. The FHLBank had only one private-label commercial MBS as of June 30, 2011, and its fair value was higher than its amortized cost, so it was not reviewed for impairment.

An OTTI cash flow analysis is run by the FHLBank of San Francisco for each of the FHLBank's remaining private-label MBS using the FHLBank System's common platform and agreed-upon assumptions. For certain private-label MBS where underlying collateral data is not available, alternative procedures as determined by each FHLBank are used to assess these securities for OTTI.

The evaluation includes estimating projected cash flows that are likely to be collected based on assessments of all available information about each individual security, the structure of the security and certain assumptions as determined by the FHLBanks' OTTI Governance Committee, such as the remaining payment terms for the security, prepayment speeds, default rates, loss severity on the collateral supporting the FHLBank's security based on underlying borrower and loan characteristics, expected housing price changes and interest rate assumptions, to determine whether the FHLBank will recover the entire amortized cost basis of the security. In performing a detailed cash flow analysis, the FHLBank identifies the best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows (discounted at the security's effective yield) that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred.

To assess whether the entire amortized cost basis of securities will be recovered, the FHLBank of San Francisco, on behalf of the FHLBank, performed a cash flow analysis using two third-party models. The first third-party model considers borrower characteristics and the particular attributes of the loans underlying the FHLBank'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 are based upon an assessment of the individual housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The FHLBank's housing price forecast assumed current-to-trough home price declines ranging from 0 percent (for those housing markets that are believed to have reached their trough) to 8.0 percent. For those markets for which further home price declines are anticipated, such declines were projected to occur over the three- to nine-month period beginning April 1, 2011 followed in each case by a three-month period of flat prices. From the trough, home prices were projected to recover using one of five different recovery paths that vary by housing market. Under those recovery paths, home prices were projected to increase within a range of 0 percent to 2.8 percent in the first year, 0 percent to 3.0 percent in the second year, 1.5 percent to 4.0 percent in the third year, 2.0 percent to 5.0 percent in the fourth year, 2.0 percent to 6.0 percent in each of the fifth and sixth years, and 2.3 percent to 5.6 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. In a securitization in which the credit enhancement for the senior securities is derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balances are reduced to zero. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on model approach reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path.

As a result of these security-level evaluations, the projected cash flows as of June 30, 2011 on 17 private-label MBS indicated that the FHLBank would not receive all principal and interest payments throughout the remaining lives of these securities. Credit losses were recognized in earnings upon initial impairment on all of these securities because the present value of the expected cash flows was less than the amortized cost. Two additional securities that have been previously identified as other-than-temporarily impaired have had improvements in their cash flows such that neither principal nor interest shortfalls are currently projected. Consequently, the FHLBank expects to recover the entire amortized cost of these securities and to amortize the entire OTTI balance through to maturity. The 19 securities on which OTTI charges have been recorded included 10 private-label MBS that were initially identified as other-than-temporarily impaired prior to 2011, 7 private-label MBS that were first identified as other-than-temporarily impaired in the first quarter of 2011 and 2 private-label MBS that were first identified as other-than-temporarily impaired in the second quarter of 2011. The OTTI amount related to non-credit losses represents the difference between the current fair value of the security and the present value of the FHLBank's best estimate of the cash flows expected to be collected, which is calculated as described previously. The OTTI amount recognized in other comprehensive income (OCI) is accreted to the carrying value of the security on a prospective basis over the remaining life of the security. That accretion increases the carrying value of the security and continues until the security is sold or matures, or there is an additional OTTI that is recognized in earnings. The FHLBank does not intend to sell any of these securities, nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis of the 19 OTTI securities.

For those securities for which an OTTI was determined to have occurred as of June 30, 2011 (that is, securities for which the FHLBank determined that it was more likely than not that the amortized cost basis would not be recovered), the following table presents a summary of the significant inputs used to measure the amount of credit loss recognized in earnings during this period as well as related current credit enhancement. Credit enhancement is defined as the percentage of subordinated tranches and over-collateralization, if any, in a security structure that will generally absorb losses before the FHLBank will experience a loss on the security. The calculated averages represent the dollar-weighted averages of all the private-label MBS investments in each category shown. The classification (prime, Alt-A and subprime) is based on the model used to run the estimated cash flows for the CUSIP, which may not necessarily be the same as the classification at the time of origination.

Private-label residential MBS
Year of Securitization	Significant Inputs						Current Credit Enhancement
	Prepayment Rates		Default Rates		Loss Severities
	Weighted Average	Rates/ Range	Weighted Average	Rates/ Range	Weighted Average	Rates/ Range	Weighted Average	Rates/ Range
Prime:
2005	6.8%	6.8%	13.1%	13.1%	34.7%	34.7%	4.4%	4.4%
Alt-A:
2004 and prior	13.8	13.8	23.3	23.3	45.5	45.5	9.6	9.6
2005	10.4	7.7-11.8	25.4	16.2-64.6	44.0	39.7-45.5	6.6	2.7-20.1
Total Alt-A	10.9	7.7-13.8	25.1	16.2-64.6	44.2	39.7-45.5	7.0	2.7-20.1
TOTAL	10.5%	6.8-13.8%	24.1%	13.1-64.6%	43.4%	34.7-45.5%	6.8%	2.7-20.1%

Home Equity Loans
Year of Securitization	Significant Inputs						Current Credit Enhancement
	Prepayment Rates		Default Rates		Loss Severities
	Weighted Average	Rates/ Range	Weighted Average	Rates/ Range	Weighted Average	Rates/ Range	Weighted Average	Rates/ Range
Subprime:
2004 and prior	2.8%	2.8%	14.2%	14.2%	85.1%	85.1%	65.4%	65.4%

For the 6 private-label securities on which OTTI charges were recognized during the three-month period ended June 30, 2011, the FHLBank's reported balances as of June 30, 2011 are as follows (in thousands):

	Unpaid Principal Balance	Amortized Cost	Carrying Value	Fair Value
Private-label residential MBS:
Prime	$4,623	$4,604	$4,304	4,507
Alt-A	51,318	46,419	30,846	32,030
Total private-label residential MBS	55,941	51,023	35,150	36,537
Home equity loans:
Subprime	882	216	130	255
TOTAL	$56,823	$51,239	$35,280	$36,792

For the 19 private-label securities identified as other-than-temporarily impaired, the FHLBank's reported balances as of June 30, 2011 are as follows (in thousands):

	Unpaid Principal Balance	Amortized Cost	Carrying Value	Fair Value
Private-label residential MBS:
Prime	$74,119	$72,929	$71,145	$72,680
Alt-A	53,888	48,989	32,344	33,528
Total private-label residential MBS	128,007	121,918	103,489	106,208
Home equity loans:
Subprime	4,643	2,098	1,551	2,301
TOTAL	$132,650	$124,016	$105,040	$108,509

The FHLBank recognized OTTI on its held-to-maturity securities portfolio for the three- and six-month periods ended June 30, 2011 and 2010 based on the FHLBank's impairment analysis of its investment portfolio, as follows (in thousands):

	Three-month Period Ended
	06/30/2011			06/30/2010
	OTTI Related to Credit Losses	OTTI Related to Non-credit Losses	Total OTTI Losses	OTTI Related to Credit Losses	OTTI Related to Non-credit Losses	Total OTTI Losses
Private-label residential MBS:
Prime	$2	$(2)	$0	$133	$(133)	$0
Alt-A	644	2,280	2,924	1,548	(154)	1,394
Total private-label residential MBS	646	2,278	2,924	1,681	(287)	1,394
Home equity loans:
Subprime	75	(75)	0	272	(272)	0
TOTAL	$721	$2,203	$2,924	$1,953	$(559)	$1,394

	Six-month Period Ended
	06/30/2011			06/30/2010
	OTTI Related to Credit Losses	OTTI Related to Non-credit Losses	Total OTTI Losses	OTTI Related to Credit Losses	OTTI Related to Non-credit Losses	Total OTTI Losses
Private-label residential MBS:
Prime	$546	$757	$1,303	$256	$253	$509
Alt-A	1,833	1,091	2,924	2,131	14,842	16,973
Total private-label residential MBS	2,379	1,848	4,227	2,387	15,095	17,482
Home equity loans:
Subprime	75	(75)	0	998	(998)	0
TOTAL	$2,454	$1,773	$4,227	$3,385	$14,097	$17,482

The following table presents a roll-forward of OTTI activity for the three- and six-month periods ended June 30, 2011 and 2010 related to credit losses recognized in earnings and OTTI activity related to all other factors recognized in OCI (in thousands):

	Three-month Period Ended
	06/30/2011			06/30/2010
	OTTI Related to Credit Loss	OTTI Related to Other Factors	Total OTTI	OTTI Related to Credit Loss	OTTI Related to Other Factors	Total OTTI
Balance, beginning of period	$7,597	$17,639	$25,236	$3,140	$24,042	$27,182
Additional charge on securities for which OTTI was not previously recognized1	63	2,611	2,674	0	0	0
Additional charge on securities for which OTTI was previously recognized1	250	0	250	949	445	1,394
Reclassification adjustment of non-credit portion of OTTI included in net income	408	(408)	0	1,004	(1,004)	0
Amortization of credit component of OTTI2	(22)	0	(22)	65	0	65
Accretion of OTTI related to all other factors	0	(866)	(866)	0	(1,239)	(1,239)
Balance, end of period	$8,296	$18,976	$27,272	$5,158	$22,244	$27,402

__________

1

For the three-month period ended June 30, 2011, securities previously impaired represent all securities that were impaired prior to April 1, 2011. For the three-month period ended June 30, 2010, securities previously impaired represent all securities that were impaired prior to April 1, 2010.

2

The FHLBank amortizes the credit component based on estimated cash flows prospectively up to the amount of expected principal to be recovered. The discounted cash flows will move from the discounted loss value to the ultimate principal to be written off at the projected date of loss. If the expected cash flows improve, the amount of expected loss decreases which causes a corresponding decrease in the calculated amortization. Based on the level of improvement in the cash flows, the amortization could become a positive adjustment to income.

	Six-month Period Ended
	06/30/2011			06/30/2010
	OTTI Related to Credit Loss	OTTI Related to Other Factors	Total OTTI	OTTI Related to Credit Loss	OTTI Related to Other Factors	Total OTTI
Balance, beginning of period	$5,938	$19,291	$25,229	$2,034	$9,719	$11,753
Additional charge on securities for which OTTI was not previously recognized1	489	3,488	3,977	426	16,398	16,824
Additional charge on securities for which OTTI was previously recognized2	250	0	250	658	0	658
Reclassification adjustment of non-credit portion of OTTI included in net income	1,715	(1,715)	0	2,301	(2,301)	0
Amortization of credit component of OTTI2	(96)	0	(96)	(261)	0	(261)
Accretion of OTTI related to all other factors	0	(2,088)	(2,088)	0	(1,572)	(1,572)
Balance, end of period	$8,296	$18,976	$27,272	$5,158	$22,244	$27,402

1

For the six-month period ended June 30, 2011, securities previously impaired represent all securities that were impaired prior to January 1, 2011. For the six-month period ended June 30, 2010, securities previously impaired represent all securities that were impaired prior to January 1, 2010.

2

The FHLBank amortizes the credit component based on estimated cash flows prospectively up to the amount of expected principal to be recovered. The discounted cash flows will move from the discounted loss value to the ultimate principal to be written off at the projected date of loss. If the expected cash flows improve, the amount of expected loss decreases which causes a corresponding decrease in the calculated amortization. Based on the level of improvement in the cash flows, the amortization could become a positive adjustment to income.

The fair value of a portion of the FHLBank's held-to-maturity securities portfolio remains below the amortized cost of the securities due to interest rate volatility, illiquidity in the marketplace and credit deterioration in the U.S. mortgage markets since early 2008. However, the decline in fair value of these securities is considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining held-to-maturity securities in unrecognized loss positions and neither intends to sell these securities nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis.