10-Q 1 d83263e10vq.htm FORM 10-Q e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51405
FEDERAL HOME LOAN BANK OF DALLAS
(Exact name of registrant as specified in its charter)
     
Federally chartered corporation
(State or other jurisdiction of incorporation
or organization)
  71-6013989
(I.R.S. Employer
Identification Number)
     
8500 Freeport Parkway South, Suite 600
Irving, TX

(Address of principal executive offices)
  75063-2547
(Zip code)
(214) 441-8500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant [1] has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and [2] has been subject to such filing requirements for the past 90 days.
Yes þ No o
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 (17 C.F.R. §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
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 þ (Do not check if a smaller reporting company)   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At July 31, 2011, the registrant had outstanding 12,271,814 shares of its Class B Capital Stock, $100 par value per share.
 
 

 


 

FEDERAL HOME LOAN BANK OF DALLAS
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 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CONDITION
(Unaudited; in thousands, except share data)
                 
    June 30,     December 31,  
    2011     2010  
ASSETS
               
Cash and due from banks
  $ 2,117,941     $ 1,631,899  
Interest-bearing deposits
    260       208  
Federal funds sold
    1,948,000       3,767,000  
Trading securities (Note 11)
    6,135       5,317  
Held-to-maturity securities (a) (Notes 3 and 11)
    7,331,221       8,496,429  
Advances (Notes 4 and 5)
    19,684,428       25,455,656  
Mortgage loans held for portfolio, net of allowance for credit losses of $218 and $225 at June 30, 2011 and December 31, 2010, respectively (Note 5)
    183,908       207,168  
Accrued interest receivable
    37,367       43,248  
Premises and equipment, net
    24,047       24,660  
Derivative assets (Notes 8 and 11)
    37,159       38,671  
Other assets
    17,293       19,814  
 
           
TOTAL ASSETS
  $ 31,387,759     $ 39,690,070  
 
           
 
               
LIABILITIES AND CAPITAL
               
Deposits
               
Interest-bearing
  $ 1,533,122     $ 1,070,028  
Non-interest bearing
    30       24  
 
           
Total deposits
    1,533,152       1,070,052  
 
           
 
               
Consolidated obligations, net (Note 6)
               
Discount notes
    2,849,954       5,131,978  
Bonds
    25,124,418       31,315,605  
 
           
Total consolidated obligations, net
    27,974,372       36,447,583  
 
           
 
               
Mandatorily redeemable capital stock
    17,176       8,076  
Accrued interest payable
    97,545       94,417  
Affordable Housing Program (Note 7)
    36,360       41,044  
Payable to REFCORP
    1,611       5,593  
Derivative liabilities (Notes 8 and 11)
    1,397       1,310  
Other liabilities, including $10,395 and $11,156 of optional advance commitments carried at fair value under the fair value option at June 30, 2011 and December 31, 2010, respectively (Notes 11 and 12)
    29,779       31,583  
 
           
Total liabilities
    29,691,392       37,699,658  
 
           
 
               
Commitments and contingencies (Notes 5 and 12)
               
 
               
CAPITAL (Note 9)
               
Capital stock — Class B putable ($100 par value) issued and outstanding shares: 12,845,590 and 16,009,091 shares at June 30, 2011 and December 31, 2010, respectively
    1,284,559       1,600,909  
Retained earnings
    467,503       452,205  
Accumulated other comprehensive income (loss) (Note 15)
               
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities (Note 3)
    (56,226 )     (63,263 )
Postretirement benefits
    531       561  
 
           
Total accumulated other comprehensive income (loss)
    (55,695 )     (62,702 )
 
           
Total capital
    1,696,367       1,990,412  
 
           
TOTAL LIABILITIES AND CAPITAL
  $ 31,387,759     $ 39,690,070  
 
           
 
(a)   Fair values: $7,417,674 and $8,602,589 at June 30, 2011 and December 31, 2010, respectively.
The accompanying notes are an integral part of these financial statements.

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Table of Contents

FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF INCOME
(Unaudited, in thousands)
                                 
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
INTEREST INCOME
                               
Advances
  $ 53,577     $ 80,833     $ 112,982     $ 162,370  
Prepayment fees on advances, net
    3,696       3,682       4,962       6,355  
Interest-bearing deposits
    50       75       122       117  
Securities purchased under agreements to resell
    141             245        
Federal funds sold
    432       1,468       1,637       2,611  
Held-to-maturity securities
    20,661       39,620       44,793       77,837  
Mortgage loans held for portfolio
    2,630       3,336       5,410       6,859  
Other
          5       6       8  
 
                       
Total interest income
    81,187       129,019       170,157       256,157  
 
                       
 
                               
INTEREST EXPENSE
                               
Consolidated obligations
                               
Bonds
    43,628       57,939       89,096       117,043  
Discount notes
    85       2,432       1,329       6,111  
Deposits
    53       231       170       387  
Mandatorily redeemable capital stock
    17       7       35       20  
Other borrowings
    1       1       1       2  
 
                       
Total interest expense
    43,784       60,610       90,631       123,563  
 
                       
 
                               
NET INTEREST INCOME
    37,403       68,409       79,526       132,594  
 
                               
OTHER INCOME (LOSS)
                               
Total other-than-temporary impairment losses on held-to-maturity securities
    (5,678 )           (5,678 )     (7,031 )
Net non-credit impairment losses recognized in other comprehensive income
    3,334       (1,103 )     1,956       5,360  
 
                       
Credit component of other-than-temporary impairment losses on held-to-maturity securities
    (2,344 )     (1,103 )     (3,722 )     (1,671 )
 
                               
Service fees
    766       794       1,336       1,357  
Net gain (loss) on trading securities
    45       (235 )     174       (116 )
Net gains (losses) on derivatives and hedging activities
    (14,058 )     1,288       (20,573 )     (25,418 )
Gains on other liabilities carried at fair value under the fair value option
    4,994             4,133        
Gains on early extinguishment of debt
    46             415        
Letter of credit fees
    1,345       1,435       2,774       2,867  
Other, net
    18       45       8       72  
 
                       
Total other income (loss)
    (9,188 )     2,224       (15,455 )     (22,909 )
 
                       
 
                               
OTHER EXPENSE
                               
Compensation and benefits
    10,269       9,623       21,854       19,620  
Other operating expenses
    7,004       6,409       13,698       13,000  
Finance Agency
    1,478       622       2,623       1,328  
Office of Finance
    397       369       1,130       907  
 
                       
Total other expense
    19,148       17,023       39,305       34,855  
 
                       
 
                               
INCOME BEFORE ASSESSMENTS
    9,067       53,610       24,766       74,830  
 
                       
 
                               
Affordable Housing Program
    748       4,376       2,031       6,110  
REFCORP
    1,611       9,847       4,494       13,744  
 
                       
Total assessments
    2,359       14,223       6,525       19,854  
 
                       
 
                               
NET INCOME
  $ 6,708     $ 39,387     $ 18,241     $ 54,976  
 
                       
The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Unaudited, in thousands)
                                         
                            Accumulated        
    Capital Stock             Other        
    Class B - Putable     Retained     Comprehensive     Total  
    Shares     Par Value     Earnings     Income (Loss)     Capital  
BALANCE, JANUARY 1, 2011
    16,009     $ 1,600,909     $ 452,205     $ (62,702 )   $ 1,990,412  
 
Proceeds from sale of capital stock
    1,833       183,347                   183,347  
Repurchase/redemption of capital stock
    (4,412 )     (441,291 )                 (441,291 )
Shares reclassified to mandatorily redeemable capital stock
    (612 )     (61,184 )                 (61,184 )
Comprehensive income
                                       
Net income
                18,241             18,241  
Other comprehensive income (a)
                      7,007       7,007  
 
                                     
 
                                       
Total comprehensive income
                            25,248  
 
                                     
 
                                       
Dividends on capital stock (at 0.375 percent annualized rate)
                                       
Cash
                (90 )           (90 )
Mandatorily redeemable capital stock
                (75 )           (75 )
Stock
    28       2,778       (2,778 )            
 
                             
 
                                       
BALANCE, JUNE 30, 2011
    12,846     $ 1,284,559     $ 467,503     $ (55,695 )   $ 1,696,367  
 
                             
 
                                       
BALANCE, JANUARY 1, 2010
    25,317     $ 2,531,715     $ 356,282     $ (65,965 )   $ 2,822,032  
 
                                       
Proceeds from sale of capital stock
    2,398       239,830                   239,830  
Repurchase/redemption of capital stock
    (5,150 )     (515,048 )                 (515,048 )
Shares reclassified to mandatorily redeemable capital stock
    (1 )     (109 )                 (109 )
Comprehensive income
                                       
Net income
                54,976             54,976  
Other comprehensive income (a)
                      3,758       3,758  
 
                                     
 
                                       
Total comprehensive income
                            58,734  
 
                                     
 
                                       
Dividends on capital stock (at 0.375 percent annualized rate)
                                       
Cash
                (91 )           (91 )
Mandatorily redeemable capital stock
                (2 )           (2 )
Stock
    45       4,557       (4,557 )            
 
                             
 
                                       
BALANCE, JUNE 30, 2010
    22,609     $ 2,260,945     $ 406,608     $ (62,207 )   $ 2,605,346  
 
                             
 
(a)   For the three months ended June 30, 2011 and 2010, total comprehensive income of $7,756 and $45,357, respectively, includes net income of $6,708 and $39,387, respectively, and other comprehensive income of $1,048 and $5,970, respectively. For the components of other comprehensive income for the three and six months ended June 30, 2011 and 2010, see Note 15.
The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
                 
    For the Six Months Ended  
    June 30,  
    2011     2010  
OPERATING ACTIVITIES
               
Net income
  $ 18,241     $ 54,976  
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation and amortization
               
Net premiums and discounts on advances, consolidated obligations, investments and mortgage loans
    (35,240 )     (56,923 )
Concessions on consolidated obligation bonds
    2,220       4,845  
Premises, equipment and computer software costs
    3,350       3,001  
Non-cash interest on mandatorily redeemable capital stock
    21       14  
Credit component of other-than-temporary impairment losses on held-to-maturity securities
    3,722       1,671  
Gains on early extinguishment of debt
    (415 )      
Gains on other liabilities carried at fair value under the fair value option
    (4,133 )      
Net increase in trading securities
    (818 )     (483 )
Loss due to change in net fair value adjustment on derivative and hedging activities
    40,043       109,561  
Decrease in accrued interest receivable
    5,897       6,700  
Decrease (increase) in other assets
    1,847       (837 )
Decrease in Affordable Housing Program (AHP) liability
    (4,684 )     (3,177 )
Increase (decrease) in accrued interest payable
    3,120       (56,206 )
Decrease in payable to REFCORP
    (3,982 )     (65 )
Increase in other liabilities
    2,301       1,235  
 
           
Total adjustments
    13,249       9,336  
 
           
Net cash provided by operating activities
    31,490       64,312  
 
           
 
               
INVESTING ACTIVITIES
               
Net increase in interest-bearing deposits
    (26,302 )     (54,757 )
Net decrease (increase) in federal funds sold
    1,819,000       (649,000 )
Proceeds from maturities of long-term held-to-maturity securities
    1,182,792       2,440,730  
Purchases of long-term held-to-maturity securities
          (1,078,810 )
Principal collected on advances
    125,066,626       112,947,658  
Advances made
    (119,302,910 )     (106,990,959 )
Principal collected on mortgage loans held for portfolio
    22,882       24,085  
Purchases of premises, equipment and computer software
    (3,379 )     (2,959 )
 
           
Net cash provided by investing activities
    8,758,709       6,635,988  
 
           
 
               
FINANCING ACTIVITIES
               
Net increase (decrease) in deposits and pass-through reserves
    430,213       (619,683 )
Net payments on derivative contracts with financing elements
    (9,958 )     (9,670 )
Net proceeds from issuance of consolidated obligations
               
Discount notes
    113,048,535       66,500,234  
Bonds
    1,939,769       21,769,842  
Proceeds from assumption of debt from other FHLBank
    167,381        
Debt issuance costs
    (706 )     (3,504 )
Payments for maturing and retiring consolidated obligations
               
Discount notes
    (115,328,111 )     (69,181,852 )
Bonds
    (8,226,328 )     (26,337,895 )
Payment to other FHLBank for assumption of debt
    (14,738 )      
Proceeds from issuance of capital stock
    183,347       239,830  
Proceeds from issuance of mandatorily redeemable capital stock
          97  
Payments for redemption of mandatorily redeemable capital stock
    (52,180 )     (1,598 )
Payments for repurchase/redemption of capital stock
    (441,291 )     (515,048 )
Cash dividends paid
    (90 )     (91 )
 
           
Net cash used in financing activities
    (8,304,157 )     (8,159,338 )
 
           
Net increase (decrease) in cash and cash equivalents
    486,042       (1,459,038 )
Cash and cash equivalents at beginning of the period
    1,631,899       3,908,242  
 
           
 
               
Cash and cash equivalents at end of the period
  $ 2,117,941     $ 2,449,204  
 
           
 
               
Supplemental Disclosures:
               
Interest paid
  $ 94,964     $ 144,712  
 
           
AHP payments, net
  $ 6,715     $ 9,287  
 
           
REFCORP payments
  $ 8,476     $ 13,809  
 
           
Stock dividends issued
  $ 2,778     $ 4,557  
 
           
Dividends paid through issuance of mandatorily redeemable capital stock
  $ 75     $ 2  
 
           
Capital stock reclassified to mandatorily redeemable capital stock
  $ 61,184     $ 109  
 
           
The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF DALLAS
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
Note 1—Basis of Presentation
     The accompanying interim financial statements of the Federal Home Loan Bank of Dallas (the “Bank”) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions provided by Article 10, Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of the Bank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.
     The Bank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2010. The interim financial statements presented herein should be read in conjunction with the Bank’s audited financial statements and notes thereto, which are included in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 25, 2011 (the “2010 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2010 10-K.
     The Bank is one of 12 district Federal Home Loan Banks, each individually a “FHLBank” and collectively the “FHLBanks,” and, together with the Office of Finance, a joint office of the FHLBanks, the “FHLBank System.” The Office of Finance manages the sale and servicing of the FHLBanks’ consolidated obligations. The Federal Housing Finance Agency (“Finance Agency”), an independent agency in the executive branch of the United States Government, supervises and regulates the FHLBanks and the Office of Finance.
     Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make assumptions and estimates. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Significant assumptions include those that are used by the Bank in its periodic evaluation of its holdings of non-agency mortgage-backed securities for other-than-temporary impairment (“OTTI”). Significant estimates include the valuations of the Bank’s investment securities, as well as its derivative instruments and any associated hedged items. Actual results could differ from these estimates.
Note 2—Recently Issued Accounting Guidance
     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 Accounting Standards Update (“ASU”) 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”), which amends the existing disclosure requirements to require a greater level of disaggregated information about the credit quality of financing receivables and the allowance for credit losses. The requirements are intended to enhance transparency regarding the nature of an entity’s credit risk associated with its financing receivables and an entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes. The disclosures that relate to information as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010 for the Bank). Except for disclosures related to troubled debt restructurings, which have been deferred until interim and annual reporting periods beginning on or after June 15, 2011, the 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 required disclosures are presented in Note 5. The adoption of this guidance did not have any impact on the Bank’s results of operations or financial condition.

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     A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. On April 5, 2011, the FASB issued ASU 2011-02 “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring” (“ASU 2011-02”), which clarifies when a loan modification or restructuring constitutes a troubled debt restructuring. A restructuring is considered a troubled debt restructuring if both of the following conditions exist: (1) the restructuring constitutes a concession and (2) the borrower is experiencing financial difficulties. The guidance in ASU 2011-02 also requires presentation of the disclosures related to troubled debt restructurings that are required by the provisions of ASU 2010-20. The provisions of ASU 2011-02 are effective for interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for the Bank) and are to be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption (January 1, 2011 for the Bank). The adoption of this guidance is not expected to have a significant impact on the Bank’s results of operations or financial condition, nor is it expected to significantly expand the Bank’s footnote disclosures.
     Reconsideration of Effective Control for Repurchase Agreements. On April 29, 2011, the FASB issued ASU 2011-03 “Reconsideration of Effective Control for Repurchase Agreements” (“ASU 2011-03”), which eliminates from U.S. GAAP the requirement for entities to consider whether a transferor has the ability to repurchase the financial assets in a repurchase agreement. The guidance is intended to focus the assessment of effective control over financial assets on a transferor’s contractual rights and obligations with respect to transferred financial assets and not on whether the transferor has the practical ability to exercise those rights or honor those obligations. In addition to removing the criterion for entities to consider a transferor’s ability to repurchase the financial assets, ASU 2011-03 also removes the collateral maintenance implementation guidance related to that criterion. The guidance is effective prospectively for transactions, or modifications of existing transactions, that occur during or after the first interim or annual reporting period beginning on or after December 15, 2011 (January 1, 2012 for the Bank). Early adoption is not permitted. The adoption of this guidance is not expected to have a significant impact on the Bank’s results of operations or financial condition.
     Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”). On May 12, 2011, the FASB issued ASU 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and provides for certain additional disclosures regarding fair value measurements. The guidance is intended to result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011 (January 1, 2012 for the Bank) and is to be applied prospectively. Early adoption is not permitted. The adoption of this guidance is not expected to have any impact on the Bank’s results of operations or financial condition.
     Presentation of Comprehensive Income. On June 16, 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income,” which eliminates the option to present components of other comprehensive income as part of the statements of capital and requires, among other things, that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement must present total net income and its components followed consecutively by a second statement that must present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The guidance is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to earnings. The guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011 (January 1, 2012 for the Bank) and is to be applied retrospectively. Early adoption is permitted. The Bank intends to adopt this guidance effective January 1, 2012. The adoption of this guidance will not impact the Bank’s results of operations or financial condition.

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Note 3—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of June 30, 2011 were as follows (in thousands):
                                                 
            OTTI Recorded in             Gross     Gross        
            Accumulated Other             Unrecognized     Unrecognized     Estimated  
    Amortized     Comprehensive     Carrying     Holding     Holding     Fair  
    Cost     Income (Loss)     Value     Gains     Losses     Value  
Debentures
                                               
U.S. government guaranteed obligations
  $ 48,644     $     $ 48,644     $ 332     $ 61     $ 48,915  
 
                                               
Mortgage-backed securities
                                               
U.S. government guaranteed obligations
    18,305             18,305       37       3       18,339  
Government-sponsored enterprises
    6,982,499             6,982,499       107,327       2,110       7,087,716  
Non-agency residential mortgage-backed securities
    337,999       56,226       281,773             19,069       262,704  
 
                                   
 
    7,338,803       56,226       7,282,577       107,364       21,182       7,368,759  
 
                                   
 
                                               
Total
  $ 7,387,447     $ 56,226     $ 7,331,221     $ 107,696     $ 21,243     $ 7,417,674  
 
                                   
     Held-to-maturity securities as of December 31, 2010 were as follows (in thousands):
                                                 
            OTTI Recorded in             Gross     Gross        
            Accumulated Other             Unrecognized     Unrecognized     Estimated  
    Amortized     Comprehensive     Carrying     Holding     Holding     Fair  
    Cost     Income (Loss)     Value     Gains     Losses     Value  
Debentures
                                               
U.S. government guaranteed obligations
  $ 51,946     $     $ 51,946     $ 331     $ 217     $ 52,060  
 
                                               
Mortgage-backed securities
                                               
U.S. government guaranteed obligations
    20,038             20,038       70             20,108  
Government-sponsored enterprises
    8,096,361             8,096,361       128,732       2,068       8,223,025  
Non-agency residential mortgage-backed securities
    391,347       63,263       328,084             20,688       307,396  
 
                                   
 
    8,507,746       63,263       8,444,483       128,802       22,756       8,550,529  
 
                                   
 
                                               
Total
  $ 8,559,692     $ 63,263     $ 8,496,429     $ 129,133     $ 22,973     $ 8,602,589  
 
                                   
     The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of June 30, 2011. The unrealized losses include other-than-temporary impairments recognized in accumulated other comprehensive income (loss) and gross unrecognized holding losses and are aggregated by major security type and length of time that individual securities have been in a continuous loss position.
                                                                         
    Less than 12 Months     12 Months or More     Total  
            Estimated     Gross             Estimated     Gross             Estimated     Gross  
    Number of     Fair     Unrealized     Number of     Fair     Unrealized     Number of     Fair     Unrealized  
    Positions     Value     Losses     Positions     Value     Losses     Positions     Value     Losses  
Debentures
                                                                       
U.S. government guaranteed obligations
    2     $ 20,593     $ 61           $     $       2     $ 20,593     $ 61  
 
                                                                       
Mortgage-backed securities
                                                                       
U.S. government guaranteed obligations
    3       3,090       3                         3       3,090       3  
Government-sponsored enterprises
    33       424,999       372       35       705,860       1,738       68       1,130,859       2,110  
Non-agency residential mortgage-backed securities
                      36       262,704       75,295       36       262,704       75,295  
 
                                                     
 
    36       428,089       375       71       968,564       77,033       107       1,396,653       77,408  
 
                                                     
 
                                                                       
Total
    38     $ 448,682     $ 436       71     $ 968,564     $ 77,033       109     $ 1,417,246     $ 77,469  
 
                                                     

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     The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of December 31, 2010.
                                                                         
    Less than 12 Months     12 Months or More     Total  
            Estimated     Gross             Estimated     Gross             Estimated     Gross  
    Number of     Fair     Unrealized     Number of     Fair     Unrealized     Number of     Fair     Unrealized  
    Positions     Value     Losses     Positions     Value     Losses     Positions     Value     Losses  
Debentures
                                                                       
U.S. government guaranteed obligations
    2     $ 21,303     $ 217           $     $       2     $ 21,303     $ 217  
 
                                                                       
Mortgage-backed securities
                                                                       
Government-sponsored enterprises
    23       398,522       434       34       792,031       1,634       57       1,190,553       2,068  
Non-agency residential mortgage-backed securities
                      39       307,396       83,951       39       307,396       83,951  
 
                                                     
 
    23       398,522       434       73       1,099,427       85,585       96       1,497,949       86,019  
 
                                                     
 
                                                                       
Total
    25     $ 419,825     $ 651       73     $ 1,099,427     $ 85,585       98     $ 1,519,252     $ 86,236  
 
                                                     
     At June 30, 2011, the gross unrealized losses on the Bank’s held-to-maturity securities were $77,469,000, of which $75,295,000 was attributable to its holdings of non-agency (i.e., private-label) residential mortgage-backed securities and $2,174,000 was attributable to securities that are either guaranteed by the U.S. government or issued by government-sponsored enterprises (“GSEs”). As of June 30, 2011, the U.S. government and the issuers of the Bank’s holdings of GSE mortgage-backed securities were rated triple-A by each of the following nationally recognized statistical ratings organizations (“NRSROs”): (1) Moody’s Investors Service (“Moody’s”), (2) Standard and Poor’s (“S&P”) and (3) Fitch Ratings, Ltd. (”Fitch”). In July 2011, S&P placed the AAA long-term U.S. sovereign credit rating on CreditWatch Negative and Moody’s placed the Aaa long-term U.S. government bond rating on review for possible downgrade. On August 2, 2011, Moody’s confirmed its Aaa long-term U.S. government bond rating with a negative outlook. On August 5, 2011, S&P lowered its long-term sovereign credit rating on the U.S. from AAA to AA+ with a negative outlook. These actions impacted the issuer ratings of certain entities whose ratings are linked to those of the U.S. government, including the issuers of the Bank’s holdings of GSE mortgage-backed securities. Fitch has not taken any ratings actions on the U.S. government or the issuers of the Bank’s holdings of GSE mortgage-backed securities since the U.S. government’s debt ceiling was raised on August 2, 2011.
     Based upon the Bank’s assessment of the strength of the government guarantees of the debentures and government guaranteed mortgage-backed securities (“MBS”) held by the Bank, the credit ratings assigned by the NRSROs and the strength of the GSEs’ guarantees of the Bank’s holdings of agency MBS, the Bank expects that its holdings of U.S. government guaranteed debentures, U.S. government guaranteed MBS and GSE MBS that were in an unrealized loss position at June 30, 2011 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Because the current market value deficits associated with these securities are not attributable to credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these investments to be other-than-temporarily impaired at June 30, 2011.
     The deterioration in the U.S. housing markets that began in 2007, as reflected by declines in the values of residential real estate and higher levels of delinquencies, defaults and losses on residential mortgages, including the mortgages underlying the Bank’s non-agency residential MBS (“RMBS”), has generally increased the risk that the Bank may not ultimately recover the entire cost bases of some of its non-agency RMBS. Based on its analysis of the securities in this portfolio, however, the Bank believes that the unrealized losses as of June 30, 2011 were principally the result of liquidity risk related discounts in the non-agency RMBS market and do not accurately reflect the actual historical or currently likely future credit performance of the securities.
     Because the ultimate receipt of contractual payments on the Bank’s non-agency RMBS will depend upon the credit and prepayment performance of the underlying loans and the credit enhancements for the senior securities owned by the Bank, the Bank closely monitors these investments in an effort to determine whether the credit enhancement associated with each security is sufficient to protect against potential losses of principal and interest on the underlying mortgage loans. The credit enhancement for each of the Bank’s non-agency RMBS is provided by a

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senior/subordinate structure, and none of the securities owned by the Bank are insured by third-party bond insurers. More specifically, each of the Bank’s non-agency RMBS represents a single security class within a securitization that has multiple classes of securities. Each security class has a distinct claim on the cash flows from the underlying mortgage loans, with the subordinate securities having a junior claim relative to the more senior securities. The Bank’s non-agency RMBS have a senior claim on the cash flows from the underlying mortgage loans.
     To assess whether the entire amortized cost bases of its non-agency RMBS will be recovered, the Bank performed a cash flow analysis for each security as of June 30, 2011 using two third-party models. The first 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 are based upon an assessment of the individual housing markets. (The term “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 Bank’s housing price forecast as of June 30, 2011 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 3- to 9-month period beginning April 1, 2011 followed in each case by a 3-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 balance is reduced to zero.
     Based on the results of its cash flow analyses, the Bank determined that it is likely that it will not fully recover the amortized cost bases of eight of its non-agency RMBS and, accordingly, these securities were deemed to be other-than-temporarily impaired as of June 30, 2011. All but one of these securities had previously been deemed to be other-than-temporarily impaired in 2009 and/or 2010. The difference between the present value of the cash flows expected to be collected from these eight securities and their amortized cost bases (i.e., the credit losses) totaled $2,344,000 as of June 30, 2011. Because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their remaining amortized cost bases (that is, their previous amortized cost bases less the current-period credit losses), only the amounts related to the credit losses were recognized in earnings. Credit losses totaling $2,197,000 associated with five of the previously impaired securities were reclassified from accumulated other comprehensive income (loss) to earnings during the three months ended June 30, 2011. The estimated fair values of four of the five securities were greater than their carrying amounts at that date.
     In addition to the eight securities that were determined to be other-than-temporarily impaired at June 30, 2011, six other securities were previously deemed to be other-than-temporarily impaired. The following tables set forth additional information for each of the securities that were other-than-temporarily impaired as of June 30, 2011, including those securities that were deemed to be other-than-temporarily impaired in a prior period but which were not further impaired as of June 30, 2011 (in thousands). All of the Bank’s RMBS are rated by Moody’s, S&P and/or Fitch. The credit ratings presented in the first table represent the lowest rating assigned to the security by these NRSROs as of June 30, 2011.

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                    Three Months Ended June 30, 2011     Six Months Ended June 30, 2011  
    Period of             Credit     Non-Credit             Credit     Non-Credit        
    Initial     Credit     Component     Component     Total     Component     Component     Total  
    Impairment     Rating     of OTTI     of OTTI     OTTI     of OTTI     of OTTI     OTTI  
Security #1
    Q1 2009     Triple-C   $ 793     $ (793 )   $     $ 1,071     $ (1,071 )   $  
Security #2
    Q1 2009     Triple-C     316       (316 )           625       (625 )      
Security #3
    Q2 2009     Single-C     173       (173 )           173       (173 )      
Security #4
    Q2 2009     Triple-C                       104       (104 )      
Security #5
    Q3 2009     Triple-C     522       (522 )           1,116       (1,116 )      
Security #6
    Q3 2009     Triple-C     455       (393 )     62       455       (393 )     62  
Security #7
    Q3 2009     Single-B                                    
Security #8
    Q1 2010     Triple-C                       9       (9 )      
Security #9
    Q1 2010     Single-B                       6       (6 )      
Security #10
    Q4 2010     Triple-C     58       274       332       65       267       332  
Security #11
    Q4 2010     Triple-C                                    
Security #12
    Q4 2010     Triple-C                       71       (71 )      
Security #13
    Q4 2010     Triple-C     6       266       272       6       266       272  
Security #14
    Q2 2011     Single B     21       4,991       5,012       21       4,991       5,012  
 
                                                   
Totals
                  $ 2,344     $ 3,334     $ 5,678     $ 3,722     $ 1,956     $ 5,678  
 
                                                   
                                                 
    Cumulative from Period of Initial  
    June 30, 2011     Impairment Through June 30, 2011     June 30, 2011  
    Unpaid             Non-Credit     Accretion of             Estimated  
    Principal     Amortized     Component of     Non-Credit     Carrying     Fair  
    Balance     Cost     OTTI     Component     Value     Value  
Security #1
  $ 16,148     $ 13,261     $ 10,271     $ 5,483     $ 8,473     $ 8,951  
Security #2
    17,526       16,838       12,389       5,764       10,213       11,285  
Security #3
    34,238       30,562       15,715       7,514       22,361       26,575  
Security #4
    11,989       11,784       8,380       3,666       7,070       7,731  
Security #5
    20,131       18,434       10,047       4,623       13,010       13,089  
Security #6
    17,083       16,176       9,661       4,176       10,691       10,691  
Security #7
    6,600       6,525       3,575       1,314       4,264       4,461  
Security #8
    9,735       9,713       4,968       1,605       6,350       6,006  
Security #9
    4,274       4,262       1,916       641       2,987       2,876  
Security #10
    7,791       7,727       3,312       407       4,822       4,822  
Security #11
    9,719       9,719       3,061       517       7,175       6,593  
Security #12
    5,127       5,045       1,820       237       3,462       3,244  
Security #13
    6,106       6,091       2,418       351       4,024       4,024  
Security #14
    23,861       23,844       4,991             18,853       18,853  
 
                                   
Totals
  $ 190,328     $ 179,981     $ 92,524     $ 36,298     $ 123,755     $ 129,201  
 
                                   
     For those securities for which an other-than-temporary impairment was determined to have occurred as of June 30, 2011, the following table presents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings during the three months ended June 30, 2011 (dollars in thousands):

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                            Significant Inputs(2)     Current Credit  
                    Unpaid Principal     Projected     Projected     Projected     Enhancement  
    Year of     Collateral     Balance as of     Prepayment     Default     Loss     as of  
    Securitization     Type(1)     June 30, 2011     Rate     Rate     Severity     June 30, 2011(3)  
Security #1
    2005     Alt-A/Option ARM   $ 16,148       7.5 %     73.8 %     54.9 %     32.8 %
Security #2
    2005     Alt-A/Option ARM     17,526       10.3 %     63.7 %     60.7 %     48.0 %
Security #3
    2006     Alt-A/Fixed Rate     34,238       13.0 %     31.4 %     50.0 %     5.8 %
Security #5
    2005     Alt-A/Option ARM     20,131       8.4 %     74.0 %     54.6 %     43.7 %
Security #6
    2005     Alt-A/Option ARM     17,083       8.8 %     56.5 %     37.2 %     23.3 %
Security #10
    2005     Alt-A/Option ARM     7,791       8.3 %     66.1 %     47.8 %     42.7 %
Security #13
    2005     Alt-A/Option ARM     6,106       11.1 %     57.1 %     39.2 %     45.4 %
Security #14
    2005     Alt-A/Fixed Rate     23,861       12.0 %     19.9 %     38.8 %     9.7 %
 
                                                     
Total
                  $ 142,884                                  
 
                                                     
 
(1)   Security #1, Security #5, and Security #14 are the only securities presented in the table above that were labeled as Alt-A at the time of issuance; however, based upon their current collateral or performance characteristics, all of the other-than-temporarily impaired securities presented in the table above were analyzed using Alt-A assumptions.
 
(2)   Prepayment rates reflect the weighted average of projected future voluntary prepayments. Default rates reflect the total balance of loans projected to default as a percentage of the current unpaid principal balance of the underlying loan pool. Loss severities reflect the total projected loan losses as a percentage of the total balance of loans that are projected to default.
 
(3)   Current credit enhancement percentages reflect the ability of subordinated classes of securities to absorb principal losses and interest shortfalls before the senior class held by the Bank is impacted (i.e., the losses, expressed as a percentage of the outstanding principal balances, that could be incurred in the underlying loan pool before the security held by the Bank would be impacted, assuming that all of those losses occurred on the measurement date). Depending upon the timing and amount of losses in the underlying loan pool, it is possible that the senior classes held by the Bank could bear losses in scenarios where the cumulative loan losses do not exceed the current credit enhancement percentage.
     The following table presents a rollforward for the three and six months ended June 30, 2011 and 2010 of the amount related to credit losses on the Bank’s non-agency RMBS holdings for which a portion of an other-than-temporary impairment has been recognized in other comprehensive income (in thousands).
                                 
    Three Months     Six Months  
    Ended June 30,     Ended June 30,  
    2011     2010     2011     2010  
Balance of credit losses, beginning of period
  $ 7,954     $ 4,590     $ 6,576     $ 4,022  
Credit losses on securities for which an other-than-temporary impairment was not previously recognized
    21             21       17  
Credit losses on securities for which an other-than-temporary impairment was previously recognized
    2,323       1,103       3,701       1,654  
 
                       
 
                               
Balance of credit losses, end of period
  $ 10,298     $ 5,693     $ 10,298     $ 5,693  
 
                       
     Because the Bank currently expects to recover the entire amortized cost basis of each of its other non-agency RMBS holdings, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of its other non-agency RMBS to be other-than-temporarily impaired at June 30, 2011.

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     Redemption Terms. The amortized cost, carrying value and estimated fair value of held-to-maturity securities by contractual maturity at June 30, 2011 and December 31, 2010 are presented below (in thousands). The expected maturities of some debentures could differ from the contractual maturities presented because issuers may have the right to call such debentures prior to their final stated maturities.
                                                 
    June 30, 2011     December 31, 2010  
                    Estimated                     Estimated  
    Amortized     Carrying     Fair     Amortized     Carrying     Fair  
Maturity   Cost     Value     Value     Cost     Value     Value  
Debentures
                                               
Due in one year or less
  $     $     $     $     $     $  
Due after one year through five years
    2,036       2,036       2,065       2,555       2,555       2,598  
Due after five years through ten years
    25,955       25,955       26,257       27,871       27,871       28,159  
Due after ten years
    20,653       20,653       20,593       21,520       21,520       21,303  
 
                                   
 
    48,644       48,644       48,915       51,946       51,946       52,060  
 
                                               
Mortgage-backed securities
    7,338,803       7,282,577       7,368,759       8,507,746       8,444,483       8,550,529  
 
                                   
Total
  $ 7,387,447     $ 7,331,221     $ 7,417,674     $ 8,559,692     $ 8,496,429     $ 8,602,589  
 
                                   
     The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net purchase discounts of $90,745,000 and $105,046,000 at June 30, 2011 and December 31, 2010, respectively.
     Interest Rate Payment Terms. The following table provides interest rate payment terms for investment securities classified as held-to-maturity at June 30, 2011 and December 31, 2010 (in thousands):
                 
    June 30, 2011     December 31, 2010  
Amortized cost of variable-rate held-to-maturity securities other than mortgage-backed securities
  $ 48,644     $ 51,946  
 
               
Amortized cost of held-to-maturity mortgage-backed securities
               
Fixed-rate pass-through securities
    750       821  
Collateralized mortgage obligations
               
Fixed-rate
    1,480       1,620  
Variable-rate
    7,336,573       8,505,305  
 
           
 
    7,338,803       8,507,746  
 
           
 
               
Total
  $ 7,387,447     $ 8,559,692  
 
           
     All of the Bank’s variable-rate collateralized mortgage obligations classified as held-to-maturity securities have coupon rates that are subject to interest rate caps, none of which were reached during 2010 or the six months ended June 30, 2011.

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Note 4—Advances
     Redemption Terms. At June 30, 2011 and December 31, 2010, the Bank had advances outstanding at interest rates ranging from 0.04 percent to 8.61 percent and 0.05 percent to 8.61 percent, respectively, as summarized below (in thousands).
                                 
    June 30, 2011     December 31, 2010  
            Weighted             Weighted  
            Average             Average  
Contractual Maturity   Amount     Interest Rate     Amount     Interest Rate  
Overdrawn demand deposit accounts
  $ 60       4.05 %   $ 171       4.10 %
 
                               
Due in one year or less
    7,371,965       0.85       12,362,781       0.70  
Due after one year through two years
    2,871,588       2.00       1,511,311       3.15  
Due after two years through three years
    2,050,663       1.52       2,927,555       2.17  
Due after three years through four years
    610,706       3.06       1,419,491       1.11  
Due after four years through five years
    498,830       2.78       736,210       2.97  
Due after five years
    3,301,889       3.75       3,389,605       3.78  
Amortizing advances
    2,591,388       4.33       2,713,632       4.40  
 
                           
Total par value
    19,297,089       2.18 %     25,060,756       1.93 %
 
                               
Deferred prepayment fees
    (27,393 )             (31,290 )        
Commitment fees
    (128 )             (105 )        
Hedging adjustments
    414,860               426,295          
 
                           
 
                               
Total
  $ 19,684,428             $ 25,455,656          
 
                           
     Amortizing advances require repayment according to predetermined amortization schedules.
     The Bank offers advances to members that may be prepaid on specified dates without the member incurring prepayment or termination fees (prepayable and callable advances). The prepayment of other advances requires the payment of a fee to the Bank (prepayment fee) if necessary to make the Bank financially indifferent to the prepayment of the advance. At June 30, 2011 and December 31, 2010, the Bank had aggregate prepayable and callable advances totaling $157,505,000 and $170,349,000, respectively.
     The following table summarizes advances at June 30, 2011 and December 31, 2010, by the earliest of contractual maturity, next call date, or the first date on which prepayable advances can be repaid without a prepayment fee (in thousands):
                 
Contractual Maturity or Next Call Date   June 30, 2011     December 31, 2010  
Overdrawn demand deposit accounts
  $ 60     $ 171  
 
               
Due in one year or less
    7,442,889       12,437,799  
Due after one year through two years
    2,888,306       1,534,056  
Due after two years through three years
    2,072,592       2,953,639  
Due after three years through four years
    621,574       1,433,491  
Due after four years through five years
    518,938       750,082  
Due after five years
    3,161,342       3,237,886  
Amortizing advances
    2,591,388       2,713,632  
 
           
Total par value
  $ 19,297,089     $ 25,060,756  
 
           
     The Bank also offers putable advances. With a putable advance, the Bank purchases a put option from the member that allows the Bank to terminate the fixed rate advance on specified dates and offer, subject to certain conditions, replacement funding at prevailing market rates. At June 30, 2011 and December 31, 2010, the Bank had putable advances outstanding totaling $3,264,321,000 and $3,486,421,000, respectively.

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     The following table summarizes advances at June 30, 2011 and December 31, 2010, by the earlier of contractual maturity or next possible put date (in thousands):
                 
Contractual Maturity or Next Put Date   June 30, 2011     December 31, 2010  
Overdrawn demand deposit accounts
  $ 60     $ 171  
 
               
Due in one year or less
    10,267,536       15,288,601  
Due after one year through two years
    2,541,488       1,494,561  
Due after two years through three years
    1,928,662       2,476,955  
Due after three years through four years
    518,306       1,409,091  
Due after four years through five years
    372,330       565,210  
Due after five years
    1,077,319       1,112,535  
Amortizing advances
    2,591,388       2,713,632  
 
           
Total par value
  $ 19,297,089     $ 25,060,756  
 
           
     Interest Rate Payment Terms. The following table provides interest rate payment terms for advances at June 30, 2011 and December 31, 2010 (in thousands, based upon par amount):
                 
    June 30, 2011     December 31, 2010  
Fixed-rate
               
Due in one year or less
  $ 6,108,667     $ 7,688,427  
Due after one year
    9,851,920       10,607,136  
 
           
Total fixed-rate
    15,960,587       18,295,563  
 
           
Variable-rate
               
Due in one year or less
    1,274,502       4,690,851  
Due after one year
    2,062,000       2,074,342  
 
           
Total variable-rate
    3,336,502       6,765,193  
 
           
Total par value
  $ 19,297,089     $ 25,060,756  
 
           
     At June 30, 2011 and December 31, 2010, 49 percent and 47 percent, respectively, of the Bank’s fixed-rate advances were swapped to a variable rate.
     Prepayment Fees. When a member/borrower prepays an advance, the Bank could suffer lower future income if the principal portion of the prepaid advance is reinvested in lower-yielding assets that continue to be funded by higher-cost debt. To protect against this risk, the Bank generally charges a prepayment fee that makes it financially indifferent to a borrower’s decision to prepay an advance. The Bank records prepayment fees received from members/borrowers on prepaid advances net of any associated hedging adjustments on those advances. These fees are reflected as interest income in the statements of income either immediately (as prepayment fees on advances) or over time (as interest income on advances) as further described below. In cases in which the Bank funds a new advance concurrent with or within a short period of time before or after the prepayment of an existing advance and the advance meets the accounting criteria to qualify as a modification of the prepaid advance, the net prepayment fee on the prepaid advance is deferred, recorded in the basis of the modified advance, and amortized into interest income over the life of the modified advance using the level-yield method. Gross advance prepayment fees received from members/borrowers were $12,779,000 and $8,821,000 during the three months ended June 30, 2011 and 2010, respectively, and were $15,170,000 and $13,956,000 during the six months ended June 30, 2011 and 2010, respectively. None of the gross advance prepayment fees were deferred during the three months ended June 30, 2011. The Bank deferred $51,000 of the gross advance prepayment fees during the six months ended June 30, 2011. The Bank deferred $4,573,000 and $6,188,000 of the gross advance prepayment fees during the three and six months ended June 30, 2010, respectively.

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Note 5—Allowance for Credit Losses
     An allowance for credit losses is separately established for each of the Bank’s identified portfolio segments, if necessary, to provide for probable losses inherent in its financing receivables portfolio and other off-balance sheet credit exposures as of the balance sheet date. To the extent necessary, an allowance for credit losses for off-balance sheet credit exposures is recorded as a liability.
     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. The Bank has developed and documented a systematic methodology for determining an allowance for credit losses for the following portfolio segments: (1) advances and other extensions of credit to members, collectively referred to as “extensions of credit to members;” (2) government-guaranteed/insured mortgage loans held for portfolio; and (3) conventional mortgage loans held for portfolio.
     Classes of financing receivables are generally a disaggregation of a portfolio segment and are determined on the basis of their initial measurement attribute, the risk characteristics of the financing receivable and an entity’s method for monitoring and assessing credit risk. Because the credit risk arising from the Bank’s financing receivables is assessed and measured at the portfolio segment level, the Bank does not have separate classes of financing receivables within each of its portfolio segments.
     During the six months ended June 30, 2011, there were no purchases or sales of financing receivables, nor were any financing receivables reclassified to held for sale.
     Advances and Other Extensions of Credit to Members. In accordance with federal statutes, including the Federal Home Loan Bank Act of 1932, as amended (the “FHLB Act”), the Bank lends to financial institutions within its five-state district that are involved in housing finance. The FHLB Act requires the Bank to obtain and maintain sufficient collateral for advances and other extensions of credit to protect against losses. The Bank makes advances and otherwise extends credit only against eligible collateral, as defined by regulation. To ensure the value of collateral pledged to the Bank is sufficient to secure its advances and other extensions of credit, the Bank applies various haircuts, or discounts, to determine the value of the collateral against which borrowers may borrow. As additional security, the Bank has a statutory lien on each borrower’s capital stock in the Bank.
     On at least a quarterly basis, the Bank evaluates all outstanding extensions of credit to members/borrowers for potential credit losses. These evaluations include a review of: (1) the amount, type and performance of collateral available to secure the outstanding obligations; (2) metrics that may be indicative of changes in the financial condition and general creditworthiness of the member/borrower; and (3) the payment status of the obligations. Any outstanding extensions of credit that exhibit a potential credit weakness that could jeopardize the full collection of the outstanding obligations would be classified as substandard, doubtful or loss. The Bank did not have any advances or other extensions of credit to members/borrowers that were classified as substandard, doubtful or loss at June 30, 2011 or December 31, 2010.
     The Bank considers the amount, type and performance of collateral to be the primary indicator of credit quality with respect to its extensions of credit to members/borrowers. At June 30, 2011 and December 31, 2010, the Bank had rights to collateral on a borrower-by-borrower basis with an estimated value in excess of each borrower’s outstanding extensions of credit.
     The Bank continues to evaluate and, as necessary, modify its credit extension and collateral policies based on market conditions. At June 30, 2011 and December 31, 2010, the Bank did not have any advances that were past due, on non-accrual status, or considered impaired. There have been no troubled debt restructurings related to advances.
     The Bank has never experienced a credit loss on an advance or any other extension of credit to a member/borrower and, based on its credit extension and collateral policies, management currently does not anticipate any credit losses on its extensions of credit to members/borrowers. Accordingly, the Bank has not provided any allowance for credit losses on advances, nor has it recorded any liabilities to reflect an allowance for credit losses related to its off-balance sheet credit exposures.

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     Mortgage Loans — Government-guaranteed/Insured. The Bank’s government-guaranteed/insured fixed-rate mortgage loans are insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs. Any losses from such loans are expected to be recovered from those entities. Any losses from such loans that are not recovered from those entities are absorbed by the servicers. Therefore, the Bank has not established an allowance for credit losses on government-guaranteed/insured mortgage loans. Government-guaranteed/insured loans are not placed on non-accrual status.
     Mortgage Loans — Conventional Mortgage Loans. The Bank’s conventional mortgage loans were acquired through the Mortgage Partnership Finance (“MPF”) Program, as more fully described in the Bank’s 2010 10-K. The allowance for losses on conventional mortgage loans is determined by an analysis that includes consideration of various data such as past performance, current performance, loan portfolio characteristics, collateral-related characteristics, industry data, and prevailing economic conditions. The allowance for losses on conventional mortgage loans also factors in the credit enhancement under the MPF Program. Any incurred losses that are expected to be recovered from the credit enhancements are not reserved as part of the Bank’s allowance for loan losses.
     The Bank places a conventional mortgage loan on non-accrual status when the collection of the contractual principal or interest is 90 days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. The Bank records cash payments received on non-accrual loans first as interest income until it recovers all interest, and then as a reduction of principal. A loan on non-accrual status may be restored to accrual status when (1) none of its contractual principal and interest is due and unpaid, and the Bank expects repayment of the remaining contractual interest and principal, or (2) the loan otherwise becomes well secured and in the process of collection.
     A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collateral-dependent loans that are on non-accrual status are measured for impairment based on the fair value of the underlying property less estimated selling costs. Loans are considered collateral-dependent if repayment is expected to be provided solely by the sale of the underlying property; that is, there is no other available and reliable source of repayment. A collateral-dependent loan is impaired if the fair value of the underlying collateral is insufficient to recover the unpaid principal and interest on the loan. Interest income on impaired loans is recognized in the same manner as it is for non-accrual loans noted above.
     The Bank evaluates whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include, but are not limited to, the occurrence of foreclosure or notification of a claim against any of the credit enhancements. A charge-off is recorded if the recorded investment in the loan will not be recovered.

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     The Bank considers the key credit quality indicator for conventional mortgage loans to be the payment status of each loan. The table below summarizes the unpaid principal balance by payment status for mortgage loans at June 30, 2011 and December 31, 2010 (dollar amounts in thousands). The unpaid principal balance approximates the recorded investment in the loans.
                                                 
    June 30, 2011     December 31, 2010  
            Government-                     Government-        
            Guaranteed/                     Guaranteed/        
    Conventional Loans     Insured Loans     Total     Conventional Loans     Insured Loans     Total  
Mortgage loans:
                                               
30-59 days delinquent
  $ 1,719     $ 4,452     $ 6,171     $ 2,092     $ 4,993     $ 7,085  
60-89 days delinquent
    469       585       1,054       919       1,406       2,325  
90 days or more delinquent
    1,185       858       2,043       1,254       857       2,111  
 
                                   
Total past due
    3,373       5,895       9,268       4,265       7,256       11,521  
 
                                   
 
                                               
Total current loans
    91,433       82,210       173,643       103,866       90,611       194,477  
 
                                   
 
                                               
Total mortgage loans
  $ 94,806     $ 88,105     $ 182,911     $ 108,131     $ 97,867     $ 205,998  
 
                                   
 
                                               
Other delinquency statistics:
                                               
 
                                               
In process of foreclosure(1)
  $ 799     $ 185     $ 984     $ 678     $ 73     $ 751  
 
                                   
 
                                               
Serious delinquency rate (2)
    1.2 %     1.0 %     1.1 %     1.2 %     0.9 %     1.0 %
 
                                   
 
                                               
Past due 90 days or more and still accruing interest (3)
  $     $ 858     $ 858     $     $ 857     $ 857  
 
                                   
 
                                               
Non-accrual loans
  $ 1,185     $     $ 1,185     $ 1,254     $     $ 1,254  
 
                                   
 
                                               
Troubled debt restructurings
  $     $     $     $     $     $  
 
                                   
 
(1)   Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been made.
 
(2)   Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio.
 
(3)   Only government-guaranteed/insured mortgage loans continue to accrue interest after they become 90 days past due.
     At June 30, 2011 and December 31, 2010, the Bank’s other assets included $298,000 and $126,000, respectively, of real estate owned.
     Mortgage loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based upon current information and events, it is probable that the Bank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement. Each non-accrual mortgage loan is specifically reviewed for impairment. At June 30, 2011 and December 31, 2010, the estimated value of the collateral securing each of these loans was in excess of the outstanding loan amount. Therefore, none of these loans were considered impaired and no specific reserve was established for any of these mortgage loans. The remaining conventional mortgage loans were evaluated for impairment on a pool basis. Based upon the current and past performance of these loans, the underwriting standards in place at the time the loans were acquired, and current economic conditions, the Bank determined that an allowance for loan losses of $218,000 was adequate to reserve for credit losses in its conventional mortgage loan portfolio at June 30, 2011. The following table presents the activity in the allowance for credit losses on conventional mortgage loans held for portfolio during the three and six months ended June 30, 2011 and 2010 (in thousands):

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    Three Months Ended June 30,     Six Months Ended June 30,  
    2011     2010     2011     2010  
Balance, beginning of period
  $ 225     $ 234     $ 225     $ 240  
Chargeoffs
    (7 )           (7 )     (6 )
 
                       
Balance, end of period
  $ 218     $ 234     $ 218     $ 234  
 
                       
         
    June 30, 2011  
Ending balance of reserve related to loans collectively evaluated for impairment
  $ 218  
 
     
 
       
Unpaid principal balance
       
Individually evaluated for impairment
  $ 1,185  
 
     
Collectively evaluated for impairment
  $ 93,621  
 
     
Note 6—Consolidated Obligations
     Consolidated obligations are the joint and several obligations of the FHLBanks and consist of consolidated obligation bonds and discount notes. Consolidated obligations are backed only by the financial resources of the 12 FHLBanks. Consolidated obligations are not obligations of, nor are they guaranteed by, the United States Government. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. In connection with each debt issuance, one or more of the FHLBanks specifies the amount of debt it wants issued on its behalf; the Bank receives the proceeds only of the debt issued on its behalf and is the primary obligor only for the portion of bonds and discount notes for which it has received the proceeds. The Bank records on its statements of condition only that portion of the consolidated obligations for which it is the primary obligor. Consolidated obligation bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated obligation discount notes are issued to raise short-term funds and have maturities of one year or less. These notes are issued at a price that is less than their face amount and are redeemed at par value when they mature. For additional information regarding the FHLBanks’ joint and several liability on consolidated obligations, see Note 12.
     The par amounts of the 12 FHLBanks’ outstanding consolidated obligations, including consolidated obligations held as investments by other FHLBanks, were approximately $727 billion and $796 billion at June 30, 2011 and December 31, 2010, respectively. The Bank was the primary obligor on $27.8 billion and $36.2 billion (at par value), respectively, of these consolidated obligations.
     Interest Rate Payment Terms. The following table summarizes the Bank’s consolidated obligation bonds outstanding by interest rate payment terms at June 30, 2011 and December 31, 2010 (in thousands, at par value).
                 
    June 30, 2011     December 31, 2010  
Fixed-rate
  $ 13,357,315     $ 14,582,605  
Simple variable-rate
    8,139,700       13,411,000  
Step-up
    3,126,500       3,001,500  
Fixed that converts to variable
    201,000       83,000  
Step-down
    100,000        
 
           
Total par value
  $ 24,924,515     $ 31,078,105  
 
           
     At June 30, 2011 and December 31, 2010, 82 percent and 82 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped to a variable rate and 3 percent and 14 percent, respectively, of the Bank’s variable-rate consolidated obligation bonds were swapped to a different variable-rate index.

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     Redemption Terms. The following is a summary of the Bank’s consolidated obligation bonds outstanding at June 30, 2011 and December 31, 2010, by contractual maturity (in thousands):
                                 
    June 30, 2011     December 31, 2010  
            Weighted             Weighted  
            Average             Average  
            Interest             Interest  
Contractual Maturity   Amount     Rate     Amount     Rate  
Due in one year or less
  $ 14,152,790       1.19 %   $ 18,269,685       0.86 %
Due after one year through two years
    4,130,500       2.35       6,107,905       2.17  
Due after two years through three years
    1,459,440       3.29       1,465,000       2.59  
Due after three years through four years
    1,049,965       2.38       1,400,440       2.65  
Due after four years through five years
    1,269,000       3.35       883,255       2.69  
Thereafter
    2,862,820       2.97       2,951,820       3.28  
 
                           
Total par value
    24,924,515       1.87 %     31,078,105       1.56 %
 
                               
Premiums
    50,613               51,349          
Discounts
    (9,905 )             (11,977 )        
Hedging adjustments
    159,195               198,128          
 
                           
Total
  $ 25,124,418             $ 31,315,605          
 
                           
     At June 30, 2011 and December 31, 2010, the Bank’s consolidated obligation bonds outstanding included the following (in thousands, at par value):
                 
    June 30, 2011     December 31, 2010  
Non-callable bonds
  $ 20,667,300     $ 26,278,890  
Callable bonds
    4,257,215       4,799,215  
 
           
Total par value
  $ 24,924,515     $ 31,078,105  
 
           
     The following table summarizes the Bank’s consolidated obligation bonds outstanding at June 30, 2011 and December 31, 2010, by the earlier of contractual maturity or next possible call date (in thousands, at par value):
                 
Contractual Maturity or Next Call Date   June 30, 2011     December 31, 2010  
Due in one year or less
  $ 17,658,610     $ 21,479,505  
Due after one year through two years
    4,494,500       6,594,905  
Due after two years through three years
    1,239,440       1,545,000  
Due after three years through four years
    549,965       440,440  
Due after four years through five years
    580,000       336,255  
Thereafter
    402,000       682,000  
 
           
Total par value
  $ 24,924,515     $ 31,078,105  
 
           
     Discount Notes. At June 30, 2011 and December 31, 2010, the Bank’s consolidated obligation discount notes, all of which are due within one year, were as follows (in thousands):
                         
                    Weighted  
                    Average Implied  
    Book Value     Par Value     Interest Rate  
June 30, 2011
  $ 2,849,954     $ 2,850,000       0.02 %
 
                 
 
                       
December 31, 2010
  $ 5,131,978     $ 5,132,613       0.15 %
 
                 
     At December 31, 2010, 18 percent of the Bank’s consolidated obligation discount notes were swapped to a variable rate. None of the Bank’s discount notes were swapped at June 30, 2011.

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Note 7—Affordable Housing Program (“AHP”)
     The following table summarizes the changes in the Bank’s AHP liability during the six months ended June 30, 2011 and 2010 (in thousands):
                 
    Six Months Ended June 30,  
    2011     2010  
Balance, beginning of period
  $ 41,044     $ 43,714  
AHP assessment
    2,031       6,110  
Grants funded, net of recaptured amounts
    (6,715 )     (9,287 )
             
Balance, end of period
  $ 36,360     $ 40,537  
Note 8—Derivatives and Hedging Activities
     Hedging Activities. As a financial intermediary, the Bank is exposed to interest rate risk. This risk arises from a variety of financial instruments that the Bank enters into on a regular basis in the normal course of its business. The Bank enters into interest rate swap, swaption, cap and forward rate agreements (collectively, interest rate exchange agreements) to manage its exposure to changes in interest rates. The Bank may use these instruments to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives. The Bank has not entered into any credit default swaps or foreign exchange-related derivatives.
     The Bank uses interest rate exchange agreements in two ways: either by designating the agreement as a fair value hedge of a specific financial instrument or firm commitment or by designating the agreement as a hedge of some defined risk in the course of its balance sheet management (referred to as an “economic hedge”). For example, the Bank uses interest rate exchange agreements in its overall interest rate risk management activities to adjust the interest rate sensitivity of consolidated obligations to approximate more closely the interest rate sensitivity of its assets (both advances and investments), and/or to adjust the interest rate sensitivity of advances or investments to approximate more closely the interest rate sensitivity of its liabilities. In addition to using interest rate exchange agreements to manage mismatches between the coupon features of its assets and liabilities, the Bank also uses interest rate exchange agreements to manage embedded options in assets and liabilities, to preserve the market value of existing assets and liabilities, to hedge the duration risk of prepayable instruments, to offset interest rate exchange agreements entered into with members (the Bank serves as an intermediary in these transactions), and to reduce funding costs.
     The Bank, consistent with Finance Agency regulations, enters into interest rate exchange agreements only to reduce potential market risk exposures inherent in otherwise unhedged assets and liabilities or to act as an intermediary between its members and the Bank’s derivative counterparties. The Bank is not a derivatives dealer and it does not trade derivatives for short-term profit.
     At inception, the Bank formally documents the relationships between derivatives designated as hedging instruments and their hedged items, its risk management objectives and strategies for undertaking the hedge transactions, and its method for assessing the effectiveness of the hedging relationships. This process includes linking all derivatives that are designated as fair value hedges to: (1) specific assets and liabilities on the statements of condition or (2) firm commitments. The Bank also formally assesses (both at the inception of the hedging relationship and on a monthly basis thereafter) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value of hedged items and whether those derivatives may be expected to remain effective in future periods. The Bank uses regression analyses to assess the effectiveness of its hedges.
     Investments — The Bank has invested in agency and non-agency mortgage-backed securities. The interest rate and prepayment risk associated with these investment securities is managed through consolidated obligations and/or derivatives. The Bank may manage prepayment and duration risk presented by some investment securities with either callable or non-callable consolidated obligations or interest rate exchange agreements, including caps and interest rate swaps.
     A substantial portion of the Bank’s held-to-maturity securities are variable-rate mortgage-backed securities that include caps that would limit the variable-rate coupons if short-term interest rates rise dramatically. To hedge a

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portion of the potential cap risk embedded in these securities, the Bank enters into interest rate cap agreements. These derivatives are treated as economic hedges.
     Advances — The Bank issues both fixed-rate and variable-rate advances. When appropriate, the Bank uses interest rate exchange agreements to adjust the interest rate sensitivity of its fixed-rate advances to approximate more closely the interest rate sensitivity of its liabilities. With issuances of putable advances, the Bank purchases from the member a put option that enables the Bank to terminate a fixed-rate advance on specified future dates. This embedded option is clearly and closely related to the host advance contract. The Bank typically hedges a putable advance by entering into a cancelable interest rate exchange agreement where the Bank pays a fixed coupon and receives a variable coupon, and sells an option to cancel the swap to the swap counterparty. This type of hedge is treated as a fair value hedge. The swap counterparty can cancel the interest rate exchange agreement on the call date and the Bank can cancel the putable advance and offer, subject to certain conditions, replacement funding at prevailing market rates.
     A small portion of the Bank’s variable-rate advances are subject to interest rate caps that would limit the variable-rate coupons if short-term interest rates rise above a predetermined level. To hedge the cap risk embedded in these advances, the Bank generally enters into interest rate cap agreements. This type of hedge is treated as a fair value hedge.
     The Bank may hedge a firm commitment for a forward-starting advance through the use of an interest rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The carrying value of the firm commitment will be included in the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance.
     The Bank enters into optional advance commitments with its members. In an optional advance commitment, the Bank sells an option to the member that provides the member with the right to enter into an advance at a specified fixed rate and term on a specified future date, provided the member has satisfied all of the customary requirements for such advance. Optional advance commitments involving Community Investment Program (“CIP”) and Economic Development Program (“EDP”) advances with a commitment period of three months or less are currently provided at no cost to members. The Bank may hedge an optional advance commitment through the use of an interest rate swaption. In this case, the swaption will function as the hedging instrument for both the commitment and, if the option is exercised by the member, the subsequent advance. These swaptions are treated as economic hedges.
     Consolidated Obligations - While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank is the primary obligor for the consolidated obligations it has issued or assumed from another FHLBank. The Bank generally enters into derivative contracts to hedge the interest rate risk associated with its specific debt issuances.
     To manage the interest rate risk of certain of its consolidated obligations, the Bank will match the cash outflow on a consolidated obligation with the cash inflow of an interest rate exchange agreement. With issuances of fixed-rate consolidated obligation bonds, the Bank typically enters into a matching interest rate exchange agreement in which the counterparty pays fixed cash flows to the Bank that are designed to mirror in timing and amount the cash outflows the Bank pays on the consolidated obligation. In this transaction, the Bank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate assets, typically one-month or three-month LIBOR. Such transactions are treated as fair value hedges. On occasion, the Bank may enter into fixed-for-floating interest rate exchange agreements to hedge the interest rate risk associated with certain of its consolidated obligation discount notes. The derivatives associated with the Bank’s discount note hedging are treated as economic hedges. The Bank may also use interest rate exchange agreements to convert variable-rate consolidated obligation bonds from one index rate (e.g., the daily federal funds rate) to another index rate (e.g., one- or three-month LIBOR); these transactions are treated as economic hedges.
     The Bank has not issued consolidated obligations denominated in currencies other than U.S. dollars.

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     Balance Sheet Management — From time to time, the Bank may enter into interest rate basis swaps to reduce its exposure to changing spreads between one-month and three-month LIBOR. In addition, to reduce its exposure to reset risk, the Bank may occasionally enter into forward rate agreements. These derivatives are treated as economic hedges.
     Intermediation — The Bank offers interest rate swaps, caps and floors to its members to assist them in meeting their hedging needs. In these transactions, the Bank acts as an intermediary for its members by entering into an interest rate exchange agreement with a member and then entering into an offsetting interest rate exchange agreement with one of the Bank’s approved derivative counterparties. All interest rate exchange agreements related to the Bank’s intermediary activities with its members are accounted for as economic hedges.
     Accounting for Derivatives and Hedging Activities. The Bank accounts for derivatives and hedging activities in accordance with the guidance in Topic 815 of the FASB’s Accounting Standards Codification (“ASC”) entitled “Derivatives and Hedging” (“ASC 815”). All derivatives are recognized on the statements of condition at their fair values, including accrued interest receivable and payable. For purposes of reporting derivative assets and derivative liabilities, the Bank offsets the fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement (including any cash collateral remitted to or received from the counterparty).
     Changes in the fair value of a derivative that is effective as — and that is designated and qualifies as — a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect gains or losses on firm commitments), are recorded in current period earnings. Any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item) is recorded in other income (loss) as “net gains (losses) on derivatives and hedging activities.” Net interest income/expense associated with derivatives that qualify for fair value hedge accounting under ASC 815 is recorded as a component of net interest income. An economic hedge is defined as a derivative hedging specific or non-specific assets or liabilities that does not qualify or was not designated for hedge accounting under ASC 815, but is an acceptable hedging strategy under the Bank’s Risk Management Policy. These hedging strategies also comply with Finance Agency regulatory requirements prohibiting speculative hedge transactions. An economic hedge by definition introduces the potential for earnings variability as changes in the fair value of a derivative designated as an economic hedge are recorded in current period earnings with no offsetting fair value adjustment to an asset or liability. Both the net interest income/expense and the fair value adjustments associated with derivatives in economic hedging relationships are recorded in other income (loss) as “net gains (losses) on derivatives and hedging activities.” Cash flows associated with derivatives are reported as cash flows from operating activities in the statements of cash flows, unless the derivatives contain an other-than-insignificant financing element, in which case the cash flows are reported as cash flows from financing activities.
     If hedging relationships meet certain criteria specified in ASC 815, they are eligible for hedge accounting and the offsetting changes in fair value of the hedged items may be recorded in earnings. The application of hedge accounting generally requires the Bank to evaluate the effectiveness of the hedging relationships on an ongoing basis and to calculate the changes in fair value of the derivatives and related hedged items independently. This is commonly known as the “long-haul” method of hedge accounting. Transactions that meet more stringent criteria qualify for the “short-cut” method of hedge accounting in which an assumption can be made that the change in fair value of a hedged item exactly offsets the change in value of the related derivative. The Bank considers hedges of committed advances to be eligible for the short-cut method of accounting as long as the settlement of the committed advance occurs within the shortest period possible for that type of instrument based on market settlement conventions, the fair value of the swap is zero at the inception of the hedging relationship, and the transaction meets all of the other criteria for short-cut accounting specified in ASC 815. The Bank has defined the market settlement convention to be five business days or less for advances. The Bank records the changes in fair value of the derivative and the hedged item beginning on the trade date.
     The Bank may issue debt, make advances, or purchase financial instruments in which a derivative instrument is “embedded” and the financial instrument that embodies the embedded derivative instrument is not remeasured at fair value with changes in fair value reported in earnings as they occur. Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the

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economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as either (1) a hedging instrument in a fair value hedge or (2) a stand-alone derivative instrument pursuant to an economic hedge. However, if the entire contract were to be measured at fair value, with changes in fair value reported in current earnings, or if the Bank could not reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the statement of condition at fair value and no portion of the contract would be separately accounted for as a derivative.
     The Bank discontinues hedge accounting prospectively when: (1) management determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item; (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (3) a hedged firm commitment no longer meets the definition of a firm commitment; or (4) management determines that designating the derivative as a hedging instrument in accordance with ASC 815 is no longer appropriate.
     When fair value hedge accounting for a specific derivative is discontinued due to the Bank’s determination that such derivative no longer qualifies for hedge accounting treatment, the Bank will continue to carry the derivative on the statement of condition at its fair value, cease to adjust the hedged asset or liability for changes in fair value, and amortize the cumulative basis adjustment on the formerly hedged item into earnings over its remaining term using the level-yield method. In all cases in which hedge accounting is discontinued and the derivative remains outstanding, the Bank will carry the derivative at its fair value on the statement of condition, recognizing changes in the fair value of the derivative in current period earnings.
     When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Bank continues to carry the derivative on the statement of condition at its fair value, removing from the statement of condition any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.

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     Impact of Derivatives and Hedging Activities. The following table summarizes the notional balances and estimated fair values of the Bank’s outstanding derivatives at June 30, 2011 and December 31, 2010 (in thousands).
                                                 
    June 30, 2011     December 31, 2010  
    Notional     Estimated Fair Value     Notional     Estimated Fair Value  
    Amount of     Derivative     Derivative     Amount of     Derivative     Derivative  
    Derivatives     Assets     Liabilities     Derivatives     Assets     Liabilities  
Derivatives designated as hedging instruments under ASC 815
                                               
Interest rate swaps
                                               
Advances
  $ 7,876,169     $ 20,012     $ 478,757     $ 8,538,084     $ 29,201     $ 501,545  
Consolidated obligation bonds
    13,892,830       274,152       27,143       14,650,120       352,710       53,502  
Interest rate caps related to advances
    43,000       368             83,000       632        
 
                                   
 
                                               
Total derivatives designated as hedging instruments under ASC 815
    21,811,999       294,532       505,900       23,271,204       382,543       555,047  
 
                                   
 
                                               
Derivatives not designated as hedging instruments under ASC 815
                                               
Interest rate swaps
                                               
Advances
    2,500             47       6,000             59  
Consolidated obligation bonds
    100,000       169             1,600,000       2,262        
Consolidated obligation discount notes
                      912,722       2,825        
Basis swaps (1)
    5,700,000       8,742             6,700,000       14,886        
Intermediary transactions
    86,758       1,390       1,210       44,200       508       426  
Interest rate swaptions related to optional advance commitments
    200,000       9,912             150,000       10,409        
Interest rate caps
                                               
Advances
    10,000                   13,000              
Held-to-maturity securities
    3,900,000       9,749             3,700,000       19,585        
Intermediary transactions
    30,000       10       589                    
 
                                   
 
                                               
Total derivatives not designated as hedging instruments under ASC 815
    10,029,258       29,972       1,846       13,125,922       50,475       485  
 
                                   
 
                                               
Total derivatives before netting and collateral adjustments
  $ 31,841,257       324,504       507,746     $ 36,397,126       433,018       555,532  
 
                                   
 
                                               
Cash collateral and related accrued interest
            (22,586 )     (241,590 )             (55,481 )     (215,356 )
Netting adjustments
            (264,759 )     (264,759 )             (338,866 )     (338,866 )
 
                                       
Total collateral and netting adjustments (2)
            (287,345 )     (506,349 )             (394,347 )     (554,222 )
 
                                       
 
                                               
Net derivative balances reported in statements of condition
          $ 37,159     $ 1,397             $ 38,671     $ 1,310  
 
                                       
 
(1)   The Bank’s basis swaps are used to reduce its exposure to changing spreads between one-month and three-month LIBOR.
 
(2)   Amounts represent the effect of legally enforceable master netting agreements between the Bank and its derivative counterparties that allow the Bank to offset positive and negative positions as well as the cash collateral held or placed with those same counterparties.

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     The following table presents the components of net gains (losses) on derivatives and hedging activities as presented in the statements of income for the three and six months ended June 30, 2011 and 2010 (in thousands).
                                 
    Gain (Loss) Recognized in Earnings     Gain (Loss) Recognized in Earnings  
    for the Three Months Ended June 30,     for the Six Months Ended June 30,  
    2011     2010     2011     2010  
Derivatives and hedged items in ASC 815 fair value hedging relationships
                               
Interest rate swaps
  $ (982 )   $ (2,373 )   $ (603 )   $ 135  
Interest rate caps
    (285 )     (473 )     (263 )     (527 )
 
                       
Total net loss related to fair value hedge ineffectiveness
    (1,267 )     (2,846 )     (866 )     (392 )
 
                       
 
                               
Derivatives not designated as hedging instruments under ASC 815
                               
Net interest income on interest rate swaps
    1,435       2,068       3,103       10,563  
Interest rate swaps
                               
Advances
    31       27       91       26  
Consolidated obligation bonds
    (716 )     (2,866 )     (1,825 )     (9,386 )
Consolidated obligation discount notes
          862       (497 )     (760 )
Basis swaps (1)
    (1,946 )     10,798       (5,855 )     10,244  
Intermediary transactions
    2       1       97       1  
Interest rate swaptions related to optional advance commitments
    (4,822 )           (3,720 )      
Interest rate caps
                               
Advances
          (1 )           (6 )
Held-to-maturity securities
    (6,780 )     (6,755 )     (11,106 )     (35,708 )
Intermediary transactions
    5             5        
 
                       
Total net gain (loss) related to derivatives not designated as hedging instruments under ASC 815
    (12,791 )     4,134       (19,707 )     (25,026 )
 
                       
 
                               
Net gains (losses) on derivatives and hedging activities reported in the statements of income
  $ (14,058 )   $ 1,288     $ (20,573 )   $ (25,418 )
 
                       
 
(1)   The Bank’s basis swaps are used to reduce its exposure to changing spreads between one-month and three-month LIBOR.
     The following table presents, by type of hedged item, the gains (losses) on derivatives and the related hedged items in ASC 815 fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income for the three and six months ended June 30, 2011 and 2010 (in thousands).
                                 
    Gain (Loss)             Net Fair Value     Derivative Net  
    on     Gain (Loss) on     Hedge     Interest Income  
Hedged Item   Derivatives     Hedged Items     Ineffectiveness (1)     (Expense)(2)  
Three months ended June 30, 2011
                               
Advances
  $ (79,127 )   $ 78,928     $ (199 )   $ (54,815 )
Consolidated obligation bonds
    26,084       (27,152 )     (1,068 )     69,988  
 
                       
Total
  $ (53,043 )   $ 51,776     $ (1,267 )   $ 15,173  
 
                       
 
                               
Three months ended June 30, 2010
                               
Advances
  $ (134,581 )   $ 134,256     $ (325 )   $ (70,860 )
Consolidated obligation bonds
    6,925       (9,446 )     (2,521 )     109,886  
 
                       
Total
  $ (127,656 )   $ 124,810     $ (2,846 )   $ 39,026  
 
                       
 
Six months ended June 30, 2011
                               
Advances
  $ (3,791 )   $ 3,995     $ 204     $ (111,993 )
Consolidated obligation bonds
    (37,874 )     36,804       (1,070 )     139,661  
 
                       
Total
  $ (41,665 )   $ 40,799     $ (866 )   $ 27,668  
 
                       
 
                               
Six months ended June 30, 2010
                               
Advances
  $ (158,430 )   $ 158,329     $ (101 )   $ (149,474 )
Consolidated obligation bonds
    28,495       (28,786 )     (291 )     242,483  
 
                       
Total
  $ (129,935 )   $ 129,543     $ (392 )   $ 93,009  
 
                       
 
(1)   Reported as net gains (losses) on derivatives and hedging activities in the statements of income.
 
(2)   The net interest income (expense) associated with derivatives in ASC 815 fair value hedging relationships is reported in the statements of income in the interest income/expense line item for the indicated hedged item.

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     Credit Risk Related to Derivatives. The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative agreements. To mitigate this risk, the Bank has entered into master swap and credit support agreements with all of its derivative counterparties. These agreements provide for the netting of all transactions with a derivative counterparty and the delivery of collateral when certain thresholds (generally ranging from $100,000 to $500,000) are met. The Bank manages derivative counterparty credit risk through the use of these agreements, credit analysis, and adherence to the requirements set forth in the Bank’s Risk Management Policy and Finance Agency regulations. Based on the netting provisions and collateral requirements of its master swap and credit support agreements and the creditworthiness of its derivative counterparties, Bank management does not currently anticipate any credit losses on its derivative agreements.
     The notional amount of its interest rate exchange agreements does not measure the Bank’s credit risk exposure, and the maximum credit exposure for the Bank is substantially less than the notional amount. The maximum credit risk exposure is the estimated cost, on a present value basis, of replacing at current market rates all interest rate exchange agreements with a counterparty with whom the Bank is in a net gain position, if the counterparty were to default. In determining its maximum credit exposure to a counterparty, the Bank, as permitted under master netting provisions of its interest rate exchange agreements, nets its obligations to the counterparty (i.e., derivative liabilities) against the counterparty’s obligations to the Bank (i.e., derivative assets). Maximum credit risk also considers the impact of cash collateral held or remitted by the Bank. As of June 30, 2011 and December 31, 2010, the Bank held as collateral cash balances of $22,583,000 and $55,471,000, respectively. The cash collateral held is included in derivative assets/liabilities in the statements of condition.
     At June 30, 2011 and December 31, 2010, the Bank’s maximum credit risk, as defined above, was approximately $26,186,000 and $34,183,000, respectively. In early July 2011 and early January 2011, additional/excess cash collateral of $25,030,000 and $33,006,000, respectively, was delivered/returned to the Bank pursuant to counterparty credit arrangements.
     The Bank transacts most of its interest rate exchange agreements with large financial institutions. Some of these institutions (or their affiliates) buy, sell, and distribute consolidated obligations. Assets pledged by the Bank to these counterparties are further described in Note 12.
     When entering into interest rate exchange agreements with its members, the Bank requires the member to post eligible collateral in an amount equal to the sum of the net market value of the member’s derivative transactions with the Bank (if the value is positive to the Bank) plus a percentage of the notional amount of any interest rate swaps, with market values determined on at least a monthly basis. At June 30, 2011 and December 31, 2010, the net market value of the Bank’s derivatives with its members totaled $628,000 and ($53,000), respectively.
     The Bank has an agreement with one of its derivative counterparties that contains provisions that may require the Bank to deliver collateral to the counterparty if there is a deterioration in the Bank’s long-term credit rating to AA+ or below by S&P or Aa1 or below by Moody’s and the Bank loses its status as a government-sponsored enterprise. If this were to occur, the counterparty to the agreement would be entitled to collateral equal to its exposure to the extent such exposure exceeded $1,000,000. However, the Bank would not be required to deliver collateral unless the amount to be delivered is at least $500,000. The derivative instruments subject to this agreement were in a net asset position for the Bank on June 30, 2011.

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Note 9—Capital
     At all times during the six months ended June 30, 2011, the Bank was in compliance with all applicable statutory and regulatory capital requirements. The following table summarizes the Bank’s compliance with those capital requirements as of June 30, 2011 and December 31, 2010 (dollars in thousands):
                                 
    June 30, 2011     December 31, 2010  
    Required     Actual     Required     Actual  
Regulatory capital requirements:
                               
Risk-based capital
  $ 361,979     $ 1,769,238     $ 402,820     $ 2,061,190  
 
                               
Total capital
  $ 1,255,510     $ 1,769,238     $ 1,587,603     $ 2,061,190  
Total capital-to-assets ratio
    4.00 %     5.64 %     4.00 %     5.19 %
 
                               
Leverage capital
  $ 1,569,388     $ 2,653,857     $ 1,984,503     $ 3,091,785  
Leverage capital-to-assets ratio
    5.00 %     8.46 %     5.00 %     7.79 %
     Shareholders are required to maintain an investment in Class B stock equal to the sum of a membership investment requirement and an activity-based investment requirement. Currently, the membership investment requirement is 0.05 percent of each member’s total assets as of the previous calendar year-end, subject to a minimum of $1,000 and a maximum of $10,000,000. The activity-based investment requirement is currently 4.10 percent of outstanding advances.
     The Bank generally repurchases surplus stock at the end of the month following the end of each calendar quarter (e.g., January 31, April 30, July 31 and October 31). For the repurchases that occurred on January 31, 2011, April 29, 2011 and July 29, 2011, surplus stock was defined as the amount of stock held by a member in excess of 105 percent of the member’s minimum investment requirement. The Bank’s practice has been that a member’s surplus stock will not be repurchased if the amount of that member’s surplus stock is $250,000 or less or if, subject to certain exceptions, the member is on restricted collateral status. On January 31, 2011, April 29, 2011 and July 29, 2011, the Bank repurchased surplus stock totaling $102,459,000, $147,036,000 and $94,004,000, respectively, of which $0, $119,000 and $0, respectively, was classified as mandatorily redeemable capital stock at those dates.
     Effective February 28, 2011, the Bank entered into a Joint Capital Enhancement Agreement (the “JCE Agreement”) with the other 11 FHLBanks. Effective August 5, 2011, the FHLBanks amended the JCE Agreement, and the Finance Agency approved an amendment to the Bank's capital plan to incorporate its provisions on that same date. The amended JCE Agreement provides that upon satisfaction of the FHLBanks’ obligations to REFCORP, the Bank (and each of the other FHLBanks) will, on a quarterly basis, allocate at least 20 percent of its net income to a restricted retained earnings account (“RRE Account”). Pursuant to the provisions of the amended JCE Agreement, the Bank will be required to build its RRE Account to an amount equal to one percent of its total outstanding consolidated obligations, which for this purpose is based on the most recent quarter’s average carrying value of all outstanding consolidated obligations, excluding hedging adjustments. Amounts allocated to the Bank’s RRE Account will not be available to pay dividends.
     On August 5, 2011, the Finance Agency certified that the FHLBanks had fully satisfied their obligations to REFCORP with their July 2011 payments to REFCORP, which were derived from the FHLBanks’ earnings for the three months ended June 30, 2011. Accordingly, under the terms of the amended JCE Agreement the allocations to the Bank’s RRE Account will begin in the third quarter of 2011.

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Note 10—Employee Retirement Plans
     The Bank sponsors a retirement benefits program that includes health care and life insurance benefits for eligible retirees. Components of net periodic benefit cost related to this program for the three and six months ended June 30, 2011 and 2010 were as follows (in thousands):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Service cost
  $ 3     $ 3     $ 7     $ 6  
Interest cost
    28       28       56       57  
Amortization of prior service credit
    (9 )     (8 )     (18 )     (17 )
Amortization of net actuarial gain
    (6 )     (6 )     (12 )     (12 )
 
                       
Net periodic benefit cost
  $ 16     $ 17     $ 33     $ 34  
 
                       
Note 11—Estimated Fair Values
     Fair value is defined under GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. GAAP establishes a fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP also requires an entity to disclose the level within the fair value hierarchy in which the measurements fall for assets and liabilities that are carried at fair value (that is, those assets and liabilities that are measured at fair value on a recurring basis) and for assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition (for example, impaired assets). The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:
     Level 1 Inputs — Quoted prices (unadjusted) in active markets for identical assets and liabilities.
     Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active or in which little information is released publicly; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, volatilities and prepayment speeds); and (4) inputs that are derived principally from or corroborated by observable market data (e.g., implied spreads).
     Level 3 Inputs — Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value measurement of such asset or liability. None of the Bank’s assets or liabilities that are recorded at fair value on a recurring basis were measured using Level 3 inputs.
     The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of June 30, 2011 and December 31, 2010. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for many of the Bank’s financial instruments (e.g., advances, non-agency RMBS and mortgage loans held for portfolio), in certain cases, their fair values are not subject to precise quantification or verification. Therefore, the estimated fair values presented below in the Fair Value Summary Table may not be indicative of the amounts that would have been realized in market transactions at the reporting dates. Further, the fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities.

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     The valuation techniques used to measure the fair values of the Bank’s financial instruments are described below.
     Cash and due from banks. The estimated fair value equals the carrying value.
     Interest-bearing deposit assets. Interest-bearing deposit assets earn interest at floating market rates; therefore, the estimated fair value of the deposits approximates their carrying value.
     Federal funds sold. All federal funds sold represent overnight balances and are carried at cost. The estimated fair value approximates the carrying value.
     Trading securities. The Bank obtains quoted prices for identical securities.
     Held-to-maturity securities. To value its MBS holdings, the Bank obtains prices from up to four designated third-party pricing vendors when available. These pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing. A price is established for each MBS using a formula that is based upon the number of prices received. If four prices are received, the average of the middle two prices is used; if three prices are received, the middle price is used; if two prices are received, the average of the two prices is used; and if one price is received, it is used subject to some type of validation as described below. The computed prices are tested for reasonableness using specified tolerance thresholds. Computed prices within these thresholds are generally accepted unless strong evidence suggests that using the formula-driven price would not be appropriate. Preliminary estimated fair values that are outside the tolerance thresholds, or that management believes may not be appropriate based on all available information (including those limited instances in which only one price is received), are subject to further analysis including, but not limited to, comparison to the prices for similar securities and/or to non-binding dealer estimates. As of June 30, 2011, four vendor prices were received for substantially all of the Bank’s MBS holdings and all of the computed prices fell within the specified tolerance thresholds. The relative lack of dispersion among the vendor prices received for each of the securities supports the Bank’s conclusion that the final computed prices are reasonable estimates of fair value. The Bank estimates the fair values of debentures using a pricing model.
     Advances. The Bank determines the estimated fair values of advances by calculating the present value of expected future cash flows from the advances and reducing this amount for accrued interest receivable. The discount rates used in these calculations are the replacement advance rates for advances with similar terms.
     Mortgage loans held for portfolio. The Bank estimates the fair values of mortgage loans held for portfolio based on observed market prices for agency mortgage-backed securities. Individual mortgage loans are pooled based on certain criteria such as loan type, weighted average coupon, and origination year and matched to reference securities with a similar collateral composition to derive benchmark pricing. The prices for agency mortgage-backed securities used as a benchmark are subject to certain market conditions including, but not limited to, the market’s expectations of future prepayments, the current and expected level of interest rates, and investor demand.
     Accrued interest receivable and payable. The estimated fair value approximates the carrying value due to their short-term nature.
     Derivative assets/liabilities. With the exception of its interest rate basis swaps, the fair values of the Bank’s interest rate swap and swaption agreements are estimated using a pricing model with inputs that are observable in the market (e.g., the relevant interest rate swap curve and, for agreements containing options, swaption volatility). As the provisions of the Bank’s master netting and collateral exchange agreements with its derivative counterparties significantly reduce the risk from nonperformance (see Note 8), the Bank does not consider its own nonperformance risk or the nonperformance risk associated with each of its counterparties to be a significant factor in the valuation of its derivative assets and liabilities. The Bank compares the fair values obtained from its pricing model to non-binding dealer estimates and may also compare its fair values to those of similar instruments to ensure that such fair values are reasonable. For the Bank’s interest rate basis swaps, fair values are obtained from dealers (for each basis swap, one dealer estimate is received); these non-binding fair value estimates are corroborated using a pricing model and observable market data (i.e., the interest rate swap curve).

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     For the Bank’s interest rate caps, fair values are obtained from dealers (for each interest rate cap, one dealer estimate is received). These non-binding fair value estimates are corroborated using a pricing model and observable market data (e.g., the interest rate swap curve and cap volatility).
     The fair values of the Bank’s derivative assets and liabilities include accrued interest receivable/payable and cash collateral remitted to/received from counterparties; the estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. The fair values of derivatives are netted by counterparty pursuant to the provisions of the Bank’s master swap and credit support agreements. If these netted amounts are positive, they are classified as an asset and, if negative, as a liability.
     Deposit liabilities. The Bank determines the estimated fair values of its deposit liabilities with fixed rates and more than three months to maturity by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rates used in these calculations are based on replacement funding rates for liabilities with similar terms. The estimated fair value approximates the carrying value for deposits with floating rates and fixed rates with three months or less to their maturity or repricing date.
     Consolidated obligations. The Bank estimates the fair values of consolidated obligations by calculating the present value of expected future cash flows using discount rates that are based on replacement funding rates for liabilities with similar terms and reducing this amount for accrued interest payable.
     Mandatorily redeemable capital stock. The fair value of capital stock subject to mandatory redemption is generally equal to its par value ($100 per share), as adjusted for any estimated dividend earned but unpaid at the time of reclassification from equity to liabilities. The Bank’s capital stock cannot, by statute or implementing regulation, be purchased, redeemed, repurchased or transferred at any amount other than its par value.
     Commitments. The Bank determines the estimated fair values of optional commitments to fund advances by calculating the present value of expected future cash flows from the instruments using replacement advance rates for advances with similar terms and swaption volatility. The estimated fair value of the Bank’s other commitments to extend credit, including advances and letters of credit, was not material at June 30, 2011 or December 31, 2010.

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     The carrying values and estimated fair values of the Bank’s financial instruments at June 30, 2011 and December 31, 2010, were as follows (in thousands):
FAIR VALUE SUMMARY TABLE
                                 
    June 30, 2011     December 31, 2010  
    Carrying     Estimated     Carrying     Estimated  
Financial Instruments   Value     Fair Value     Value     Fair Value  
Assets:
                               
Cash and due from banks
  $ 2,117,941     $ 2,117,941     $ 1,631,899     $ 1,631,899  
Interest-bearing deposits
    260       260       208       208  
Federal funds sold
    1,948,000       1,948,000       3,767,000       3,767,000  
Trading securities
    6,135       6,135       5,317       5,317  
Held-to-maturity securities
    7,331,221       7,417,674       8,496,429       8,602,589  
Advances
    19,684,428       19,896,872       25,455,656       25,672,203  
Mortgage loans held for portfolio, net
    183,908       202,445       207,168       225,336  
Accrued interest receivable
    37,367       37,367       43,248       43,248  
Derivative assets
    37,159       37,159       38,671       38,671  
 
                               
Liabilities:
                               
Deposits
    1,533,152       1,533,150       1,070,052       1,070,044  
Consolidated obligations:
                               
Discount notes
    2,849,954       2,849,861       5,131,978       5,132,290  
Bonds
    25,124,418       25,281,466       31,315,605       31,444,058  
Mandatorily redeemable capital stock
    17,176       17,176       8,076       8,076  
Accrued interest payable
    97,545       97,545       94,417       94,417  
Derivative liabilities
    1,397       1,397       1,310       1,310  
Optional advance commitments (other liabilities)
    10,395       10,395       11,156       11,156  
     The following table summarizes the Bank’s assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2011 by their level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level input that is significant to the fair value measurement.
                                         
                            Netting        
    Level 1     Level 2     Level 3     Adjustment(1)     Total  
Assets
                                       
Trading securities
  $ 6,135     $     $     $     $ 6,135  
Derivative assets
          324,504             (287,345 )     37,159  
 
                             
Total assets at fair value
  $ 6,135     $ 324,504     $     $ (287,345 )   $ 43,294  
 
                             
 
                                       
Liabilities
                                       
Derivative liabilities
  $     $ 507,746     $     $ (506,349 )   $ 1,397  
Optional advance commitments (other liabilities)
          10,395                   10,395  
 
                             
Total liabilities at fair value
  $     $ 518,141     $     $ (506,349 )   $ 11,792  
 
                             
 
(1)   Amounts represent the impact of legally enforceable master netting agreements between the Bank and its derivative counterparties that allow the Bank to offset positive and negative positions as well as the cash collateral held or placed with those same counterparties.
     During the three and six months ended June 30, 2011, the Bank recorded total other-than-temporary impairment losses on four of its non-agency RMBS classified as held-to-maturity. At June 30, 2011, the four securities had an aggregate unpaid principal balance and estimated fair value of $54,841,000 and $38,390,000, respectively. Based on the lack of significant market activity for non-agency RMBS, the nonrecurring fair value measurements for these

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four impaired securities fell within Level 3 of the fair value hierarchy. Four third-party vendor prices were received for each of these securities and, as described above, the average of the middle two prices was used to determine the final fair value measurements.
     The following table summarizes the Bank’s assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2010 by their level within the fair value hierarchy (in thousands).
                                         
                            Netting        
    Level 1     Level 2     Level 3     Adjustment(1)     Total  
Assets
                                       
Trading securities
  $ 5,317     $     $     $     $ 5,317  
Derivative assets
          433,018             (394,347 )     38,671  
 
                             
Total assets at fair value
  $ 5,317     $ 433,018     $     $ (394,347 )   $ 43,988  
 
                             
 
                                       
Liabilities
                                       
Derivative liabilities
  $     $ 555,532     $     $ (554,222 )   $ 1,310  
Optional advance commitments (other liabilities)
          11,156                   11,156  
 
                             
Total liabilities at fair value
  $     $ 566,688     $     $ (554,222 )   $ 12,466  
 
                             
 
(1)   Amounts represent the impact of legally enforceable master netting agreements between the Bank and its derivative counterparties that allow the Bank to offset positive and negative positions as well as the cash collateral held or placed with those same counterparties.
     As of June 30, 2011 and December 31, 2010, the Bank had entered into optional advance commitments with par values totaling $200,000,000 and $150,000,000, respectively, excluding commitments to fund CIP/EDP advances. Under each of these commitments, the Bank sold an option to a member that provides the member with the right to enter into an advance at a specified fixed rate and term on a specified future date, provided the member has satisfied all of the customary requirements for such advance. The Bank hedged these commitments through the use of interest rate swaptions, which are treated as economic hedges. The Bank has irrevocably elected to carry these optional advance commitments at fair value under the fair value option in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships. Gains and losses on optional advance commitments carried at fair value under the fair value option are reported in other income (loss) in the statements of income. The optional advance commitments are reported in other liabilities in the statements of condition. At June 30, 2011 and December 31, 2010, other liabilities included items with an aggregate carrying value of $19,384,000 and $20,427,000, respectively, that were not eligible for the fair value option.
Note 12—Commitments and Contingencies
     Joint and several liability. The Bank is jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the 12 FHLBanks. At June 30, 2011, the par amount of the other 11 FHLBanks’ outstanding consolidated obligations was approximately $700 billion. The Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, regardless of whether there has been a default by a FHLBank having primary liability. To the extent that a FHLBank makes any consolidated obligation payment on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the FHLBank with primary liability. However, if the Finance Agency determines that the primary obligor is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever failed to make any payment on a consolidated obligation for which it was the primary obligor; as a result, the regulatory provisions for directing other FHLBanks to make payments on behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked. If the Bank were to determine that a loss was probable under its joint and several liability and the amount of such loss could be

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reasonably estimated, the Bank would charge to income the amount of the expected loss. Based upon the creditworthiness of the other FHLBanks, the Bank currently believes that the likelihood of a loss arising from its joint and several liability is remote.
     Other commitments and contingencies. At June 30, 2011 and December 31, 2010, the Bank had commitments to make additional advances totaling approximately $263,320,000 and $199,773,000, respectively. In addition, outstanding standby letters of credit totaled $3,847,178,000 and $4,595,290,000 at June 30, 2011 and December 31, 2010, respectively. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have any provision for credit losses on these letters of credit (see Note 5).
     At June 30, 2011 and December 31, 2010, the Bank had commitments to issue $555,000,000 and $115,000,000, respectively, of consolidated obligation bonds, of which $530,000,000 and $115,000,000, respectively, were hedged with associated interest rate swaps.
     The Bank executes interest rate exchange agreements with large financial institutions with which it has bilateral collateral exchange agreements. As of June 30, 2011 and December 31, 2010, the Bank had pledged cash collateral of $241,571,000 and $215,322,000, respectively, to institutions that had credit risk exposure to the Bank related to interest rate exchange agreements; at those dates, the Bank had not pledged any securities as collateral. The pledged cash collateral (i.e., interest-bearing deposit asset) is netted against derivative assets and liabilities in the statements of condition.
     In the ordinary course of its business, the Bank is subject to the risk that litigation may arise. Currently, the Bank is not a party to any material pending legal proceedings.
Note 13— Transactions with Shareholders
     Affiliates of two of the Bank’s derivative counterparties (Citigroup and Wells Fargo) acquired member institutions on March 31, 2005 and October 1, 2006, respectively. Since the acquisitions were completed, the Bank has continued to enter into interest rate exchange agreements with Citigroup and Wells Fargo in the normal course of business and under the same terms and conditions as before. Effective October 1, 2006, Citigroup terminated the Ninth District charter of the affiliate that acquired the member institution and, as a result, an affiliate of Citigroup became a non-member shareholder of the Bank.
Note 14 — Transactions with Other FHLBanks
     Occasionally, the Bank loans (or borrows) short-term federal funds to (from) other FHLBanks. During the six months ended June 30, 2011, interest income from loans to other FHLBanks totaled $1,000. The following table summarizes the Bank’s loans to other FHLBanks during the six months ended June 30, 2011 (in thousands).
         
    Six Months Ended  
    June 30, 2011  
Balance at January 1, 2011
  $  
Loans made to
       
FHLBank of San Francisco
    200,000  
FHLBank of Atlanta
    6,000  
Collections from
       
FHLBank of San Francisco
    (200,000 )
FHLBank of Atlanta
    (6,000 )
 
     
Balance at June 30, 2011
  $  
 
     

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     During the six months ended June 30, 2011, interest expense on borrowings from other FHLBanks totaled $278. The following table summarizes the Bank’s borrowings from other FHLBanks during the six months ended June 30, 2011 (in thousands).
         
    Six Months Ended  
    June 30, 2011  
Balance at January 1, 2011
  $  
Borrowing from FHLBank of Indianapolis
    50,000  
Repayment to FHLBank of Indianapolis
    (50,000 )
 
     
Balance at June 30, 2011
  $  
 
     
There were no loans to or borrowings from other FHLBanks during the six months ended June 30, 2010.
     The Bank has, from time to time, assumed the outstanding debt of another FHLBank rather than issue new debt. In connection with these transactions, the Bank becomes the primary obligor for the transferred debt. During the three months ended March 31, 2011, the Bank assumed consolidated obligations from the FHLBank of New York with par amounts totaling $150,000,000. The net premium associated with these transactions totaled $17,381,000. The Bank did not assume any other debt from other FHLBanks during the six months ended June 30, 2011 or 2010.
     Occasionally, the Bank transfers debt that it no longer needs to other FHLBanks. In connection with these transactions, the assuming FHLBank becomes the primary obligor for the transferred debt. During the three months ended June 30, 2011, the Bank transferred a consolidated obligation with a par amount of $15,000,000 to the FHLBank of San Francisco. A gain of $32,000 was recognized on the transfer. The Bank did not transfer any other debt to other FHLBanks during the six months ended June 30, 2011 or 2010.
Note 15 — Other Comprehensive Income
     The following table presents the components of other comprehensive income for the three and six months ended June 30, 2011 and 2010 (in thousands).
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities
  $ (5,531 )   $     $ (5,531 )   $ (6,958 )
Reclassification adjustment for non-credit portion of other-than-temporary impairment losses recognized as credit losses in net income
    2,197       1,103       3,575       1,598  
Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
    4,397       4,881       8,993       9,147  
Postretirement benefit plan
                               
Amortization of prior service credit included in net periodic benefit cost
    (9 )     (8 )     (18 )     (17 )
Amortization of net actuarial gain included in net periodic benefit cost
    (6 )     (6 )     (12 )     (12 )
 
                       
 
Total other comprehensive income
  $ 1,048     $ 5,970     $ 7,007     $ 3,758  
 
                       

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included in “Item 1. Financial Statements.”
Forward-Looking Information
This quarterly report contains forward-looking statements that reflect current beliefs and expectations of the Federal Home Loan Bank of Dallas (the “Bank”) about its future results, performance, liquidity, financial condition, prospects and opportunities, including the prospects for the payment of dividends. These statements are identified by the use of forward-looking terminology, such as “anticipates,” “plans,” “believes,” “could,” “estimates,” “may,” “should,” “would,” “will,” “might,” “expects,” “intends” or their negatives or other similar terms. The Bank cautions that forward-looking statements involve risks or uncertainties that could cause the Bank’s actual results to differ materially from those expressed or implied in these forward-looking statements, or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, undue reliance should not be placed on such statements.
These risks and uncertainties include, without limitation, evolving economic and market conditions, political events, and the impact of competitive business forces. The risks and uncertainties related to evolving economic and market conditions include, but are not limited to, changes in interest rates, changes in the Bank’s access to the capital markets, changes in the cost of the Bank’s debt, changes in ratings on the Bank’s debt, adverse consequences resulting from a significant regional or national economic downturn, credit and prepayment risks, or changes in the financial health of the Bank’s members or non-member borrowers. Among other things, political events could possibly lead to changes in the Bank’s regulatory environment or its status as a government-sponsored enterprise (“GSE”), or to changes in the regulatory environment for the Bank’s members or non-member borrowers. Risks and uncertainties related to competitive business forces include, but are not limited to, the potential loss of large members or large borrowers through acquisitions or other means or changes in the relative competitiveness of the Bank’s products and services for member institutions. For a more detailed discussion of the risk factors applicable to the Bank, see “Item 1A — Risk Factors” in the Bank’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 25, 2011 (the “2010 10-K”). The Bank undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason.
Overview
Business
The Bank is one of 12 district Federal Home Loan Banks (each individually a “FHLBank” and collectively the “FHLBanks” and, together with the Office of Finance, a joint office of the FHLBanks, the “FHLBank System”) that were created by the Federal Home Loan Bank Act of 1932, as amended. The FHLBanks serve the public by enhancing the availability of credit for residential mortgages, community lending, and targeted community development. As independent, member-owned cooperatives, the FHLBanks seek to maintain a balance between their public purpose and their ability to provide adequate returns on the capital supplied by their members. The Federal Housing Finance Agency (“Finance Agency”), an independent agency in the executive branch of the United States Government, is responsible for supervising and regulating the FHLBanks and the Office of Finance. The Finance Agency’s stated mission is to provide effective supervision, regulation and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. Consistent with this mission, the Finance Agency establishes policies and regulations covering the operations of the FHLBanks.
The Bank serves eligible financial institutions in Arkansas, Louisiana, Mississippi, New Mexico and Texas (collectively, the Ninth District of the FHLBank System). The Bank’s primary business is lending relatively low cost funds (known as advances) to its member institutions, which include commercial banks, thrifts, insurance companies and credit unions. Community Development Financial Institutions that are certified under the Community Development Banking and Financial Institutions Act of 1994 are also eligible for membership in the

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Bank. While not members of the Bank, state and local housing authorities that meet certain statutory criteria may also borrow from the Bank. The Bank also maintains a portfolio of highly rated investments for liquidity purposes and to provide additional earnings. Additionally, the Bank holds interests in a portfolio of government-guaranteed/insured and conventional mortgage loans that were acquired through the Mortgage Partnership Finance® (“MPF”®) Program offered by the FHLBank of Chicago. Shareholders’ return on their investment includes dividends (which are typically paid quarterly in the form of capital stock) and the value derived from access to the Bank’s products and services. Historically, the Bank has balanced the financial rewards to shareholders by seeking to pay a dividend that meets or exceeds the return on alternative short-term money market investments available to shareholders, while lending funds at the lowest rates expected to be compatible with that objective and its objective to build retained earnings over time.
The Bank’s capital stock is not publicly traded and can be held only by members of the Bank, by non-member institutions that acquire stock by virtue of acquiring member institutions, by a federal or state agency or insurer acting as a receiver of a closed institution, or by former members of the Bank that retain capital stock to support advances or other activity that remains outstanding or until any applicable stock redemption or withdrawal notice period expires. All members must purchase stock in the Bank. The Bank’s capital stock has a par value of $100 per share and is purchased, redeemed, repurchased and transferred only at its par value. Members may redeem excess stock, or withdraw from membership and redeem all outstanding capital stock, with five years’ written notice to the Bank.
The FHLBanks’ debt instruments (known as consolidated obligations) are their primary source of funds and are the joint and several obligations of all 12 FHLBanks. Consolidated obligations are issued through the Office of Finance acting as agent for the FHLBanks and generally are publicly traded in the over-the-counter market. The Bank records on its statements of condition only those consolidated obligations for which it is the primary obligor. Consolidated obligations are not obligations of the United States government and the United States government does not guarantee them. Consolidated obligations are currently rated Aaa/P-1 by Moody’s Investors Service (“Moody’s”) and AA+/A-1+ by Standard & Poor’s (“S&P”). Each of these nationally recognized statistical rating organizations (“NRSROs”) has assigned a negative outlook to their long-term rating on the consolidated obligations. These ratings indicate that Moody’s and S&P have concluded that the FHLBanks have a very strong capacity to meet their commitments to pay principal and interest on consolidated obligations. The ratings also reflect the FHLBank System’s status as a GSE. As further discussed below, consolidated obligations were rated AAA/A-1+ by S&P prior to August 8, 2011. Historically, the FHLBanks’ GSE status and highest available credit ratings on consolidated obligations have provided the FHLBanks with excellent capital markets access (see additional discussion in Part II Item 1A, Risk Factors beginning on page 79 of this report). Deposits, other borrowings and the proceeds from capital stock issued to members are also sources of funds for the Bank.
In addition to ratings on the FHLBanks’ consolidated obligations, each FHLBank is rated individually by both S&P and Moody’s. These individual FHLBank ratings apply to the individual obligations of the respective FHLBanks, such as interest rate derivatives, deposits, and letters of credit. As of August 8, 2011, Moody’s had assigned a deposit rating of Aaa/P-1 to each of the FHLBanks. At that same date, each of the FHLBanks was rated AA+/A-1+ by S&P. The outlook on each of the NRSRO’s long-term ratings is negative.
On April 20, 2011, S&P had affirmed its AAA long-term credit rating on the FHLBank System’s consolidated obligations while revising its outlook on the consolidated obligations from stable to negative. Concurrently, S&P affirmed the AAA long-term counterparty credit ratings of 10 of the FHLBanks, including the Bank, while revising its outlook for each of those FHLBanks from stable to negative. In its announcement, S&P indicated that these changes reflected its revision of the outlook on the sovereign rating of the United States from stable to negative. The outlooks for the other 2 FHLBanks, both of which had long-term counterparty credit ratings of AA+, were not affected by these changes. Further, S&P indicated that it would not raise its outlooks and ratings relating to the FHLBanks above those on the U.S. government as long as the ratings and outlook on the United States remained unchanged. Conversely, S&P indicated that if it were to lower the ratings on the United States, it would also likely lower the ratings on the FHLBank System’s consolidated obligations as well as its counterparty credit ratings on relevant individual FHLBanks.
On July 15, 2011, S&P placed the AAA long-term credit rating of the FHLBank System’s consolidated obligations on CreditWatch Negative. Concurrently, S&P placed the AAA long-term counterparty credit ratings of 10 of the FHLBanks, including the Bank, on CreditWatch Negative. S&P affirmed the A-1+ short-term ratings of all FHLBanks and the FHLBank System’s debt issues. These ratings actions reflected S&P’s placement of the long-term

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sovereign credit rating of the United States on CreditWatch Negative on July 14, 2011. On August 5, 2011, S&P lowered its long-term sovereign credit rating on the U.S. from AAA to AA+ with a negative outlook. Subsequently, on August 8, 2011, S&P lowered the long-term credit rating of the FHLBank System’s consolidated obligations from AAA to AA+ with a negative outlook and it also lowered the long-term counterparty credit ratings of 10 FHLBanks, including the Bank, from AAA to AA+ with a negative outlook. S&P again affirmed the A-1+ short-term ratings of all FHLBanks and the FHLBank System’s debt issues.
On July 13, 2011, Moody’s placed the Aaa government bond rating of the United States, and consequently the ratings of the GSEs, including those of the FHLBanks, on review for possible downgrade. This review was prompted by the risk that the U.S. statutory debt limit might not be raised in time to prevent a default on the U.S. government’s debt obligations. Following the increase in the U.S. statutory debt limit on August 2, 2011, Moody’s confirmed the Aaa government bond rating of the United States and also, consequently, the Aaa ratings of the GSEs, including those of the FHLBanks. Concurrently, Moody’s assigned a negative outlook to the U.S. government’s long-term bond rating and the long-term ratings of the GSEs, including the FHLBanks.
Shareholders, bondholders and prospective shareholders and bondholders should understand that these ratings are not a recommendation to buy, hold or sell securities and they may be subject to revision or withdrawal at any time by the NRSRO. The ratings from each of the NRSROs should be evaluated independently.
The Bank conducts its business and fulfills its public purpose primarily by acting as a financial intermediary between its members and the capital markets. The intermediation of the timing, structure, and amount of its members’ credit needs with the investment requirements of the Bank’s creditors is made possible by the extensive use of interest rate exchange agreements, including interest rate swaps, caps and swaptions. The Bank’s interest rate exchange agreements are accounted for in accordance with the provisions of Topic 815 of the Financial Accounting Standards Board Accounting Standards Codification entitled “Derivatives and Hedging” (“ASC 815”).
The Bank considers its “core earnings” to be net earnings exclusive of: (1) gains or losses on the sales of investment securities, if any; (2) gains or losses on the retirement or transfer of debt, if any; (3) prepayment fees on advances; (4) fair value adjustments (except for net interest payments) associated with derivatives and hedging activities and assets and liabilities carried at fair value; and (5) realized gains and losses associated with early terminations of derivative transactions. The Bank’s core earnings are generated primarily from net interest income and typically tend to rise and fall with the overall level of interest rates, particularly short-term money market rates. Because the Bank is a cooperatively owned wholesale institution, the spread component of its net interest income is much smaller than a typical commercial bank, and a relatively larger portion of its net interest income is derived from the investment of its capital. The Bank endeavors to maintain a fairly neutral interest rate risk profile. As a result, the Bank’s capital is effectively invested in shorter-term assets and its core earnings and returns on capital stock (based on core earnings) generally tend to follow short-term interest rates.
The Bank’s profitability objective is to achieve a rate of return on members’ capital stock investment sufficient to allow the Bank to meet its retained earnings growth objectives and pay dividends on capital stock at rates that equal or exceed the average federal funds rate. The Bank’s quarterly dividends are based upon its operating results, shareholders’ average capital stock holdings and the average federal funds rate for the immediately preceding quarter. While the Bank has had a long-standing practice of paying quarterly dividends, future dividend payments cannot be assured.
The Bank operates in only one reportable segment. All of the Bank’s revenues are derived from U.S. operations.

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The following table summarizes the Bank’s membership, by type of institution, as of June 30, 2011 and December 31, 2010.
                 
MEMBERSHIP SUMMARY  
    June 30,     December 31,  
    2011     2010  
Commercial banks
    730       741  
Thrifts
    82       83  
Credit unions
    76       73  
Insurance companies
    21       21  
 
           
 
               
Total members
    909       918  
 
               
Housing associates
    8       8  
Non-member borrowers
    11       12  
 
           
 
               
Total
    928       938  
 
           
 
               
Community Financial Institutions (“CFIs”) (1)
    756       768  
 
           
 
(1)   The figures presented above reflect the number of members that were CFIs as of June 30, 2011 and December 31, 2010 based upon the definitions of CFIs that applied as of those dates.
For 2011, Community Financial Institutions (“CFIs”) are defined to include all institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) with average total assets as of December 31, 2010, 2009 and 2008 of less than $1.040 billion. For 2010, CFIs were defined as FDIC-insured institutions with average total assets as of December 31, 2009, 2008 and 2007 of less than $1.029 billion.
Financial Market Conditions
Economic conditions showed some signs of improvement during the first half of 2011 but the rate of improvement was slow. The gross domestic product increased 1.3 percent during the second quarter of 2011, as compared to 0.4 percent (revised from the original estimate of 1.8 percent) during the first quarter. The nationwide unemployment rate fell from 9.4 percent at the end of 2010 to 8.8 percent at March 31, 2011, but increased to 9.2 percent at June 30, 2011. While housing prices improved in some areas, the national trend in housing prices during the period was downward, and many housing markets remain depressed. Despite some signs of economic improvement during the first half of the year, the sustainability and extent of those improvements, and the prospects for and potential timing of further improvements (in particular, employment growth and housing market conditions), remain uncertain.
Credit market conditions during the first three months of 2011 continued the trend of noticeable improvement observed during 2010. During the second quarter of 2011, concerns over the sovereign debt crisis in Europe resulted in greater demand for high-quality short-term debt. On August 2, 2011, the U.S. government’s debt limit was raised, averting a default on the nation’s debt obligations. This increase is projected to be sufficient to fund the U.S. government’s obligations into 2013.
During the first half of 2011, the Federal Reserve continued a $600 billion bond purchase program that was announced in November 2010. Under this program, the Federal Reserve purchased longer-term U.S. Government bonds at a pace of about $75 billion per month in an effort to promote a stronger pace of economic recovery and foster maximum employment and price stability. While this program expired on June 30, 2011, the Federal Open

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Market Committee announced that it intends to continue to reinvest the proceeds from maturities of agency and mortgage-backed debt in U.S. Treasury securities.
Interest rates declined slightly during the first six months of 2011. The Federal Open Market Committee maintained its target for the federal funds rate at a range between 0 and 0.25 percent throughout 2009, 2010 and the first half of 2011. During these periods, the Federal Reserve paid interest on required and excess reserves held by depository institutions at a rate of 0.25 percent, equivalent to the upper boundary of the target range for federal funds. A significant and sustained increase in bank reserves during the past few years combined with the rate of interest being paid on those reserves has contributed to a decline in the volume of transactions taking place in the overnight federal funds market and an effective federal funds rate that has generally been below the upper end of the targeted range for most of 2010 and the first half of 2011.
One- and three-month LIBOR rates declined slightly during the second quarter of 2011, with one- and three-month LIBOR ending the quarter at 0.19 percent and 0.25 percent, respectively, as compared to 0.24 percent and 0.30 percent, respectively, at the end of the first quarter of 2011 and 0.26 percent and 0.30 percent, respectively, at the end of 2010. Stable one- and three-month LIBOR rates, combined with the small spreads between those two indices and between those indices and overnight lending rates, suggest the inter-bank lending markets are relatively stable.
The following table presents information on various market interest rates at June 30, 2011 and December 31, 2010 and various average market interest rates for the three- and six-month periods ended June 30, 2011 and 2010.
                                                 
    Ending Rate   Average Rate   Average Rate
    June 30,   December 31,   Second Quarter   Second Quarter   Six Months Ended   Six Months Ended
    2011   2010   2011   2010   June 30, 2011   June 30, 2010
Federal Funds Target (1)
    0.25 %     0.25 %     0.25 %     0.25 %     0.25 %     0.25 %
Average Effective
                                               
Federal Funds Rate (2)
    0.07 %     0.13 %     0.09 %     0.19 %     0.12 %     0.16 %
1-month LIBOR (1)
    0.19 %     0.26 %     0.20 %     0.32 %     0.23 %     0.27 %
3-month LIBOR (1)
    0.25 %     0.30 %     0.26 %     0.44 %     0.29 %     0.35 %
2-year LIBOR (1)
    0.70 %     0.80 %     0.75 %     1.16 %     0.82 %     1.16 %
5-year LIBOR (1)
    2.03 %     2.17 %     2.07 %     2.49 %     2.20 %     2.59 %
10-year LIBOR (1)
    3.28 %     3.38 %     3.29 %     3.51 %     3.41 %     3.64 %
3-month U.S. Treasury (1)
    0.03 %     0.12 %     0.05 %     0.15 %     0.09 %     0.13 %
2-year U.S. Treasury (1)
    0.45 %     0.61 %     0.56 %     0.87 %     0.63 %     0.89 %
5-year U.S. Treasury (1)
    1.76 %     2.01 %     1.85 %     2.25 %     1.99 %     2.34 %
10-year U.S. Treasury (1)
    3.18 %     3.30 %     3.20 %     3.49 %     3.33 %     3.60 %
 
(1)   Source: Bloomberg
 
(2)   Source: Federal Reserve Statistical Release
Year-to-Date 2011 Summary
    The Bank ended the second quarter of 2011 with total assets of $31.4 billion and total advances of $19.7 billion, a decrease from $39.7 billion and $25.5 billion, respectively, at the end of 2010. Advances to the Bank’s top five borrowers decreased by $4.1 billion, including the maturity of $3.3 billion in advances to the Bank’s two largest borrowers. In addition, $0.8 billion of maturing advances were repaid following the consolidation of several members’ charters into the charter of an out-of-district institution. The remaining decline in advances during the six-month period was attributable to a general decline in member demand that the Bank believes was due largely to members’ higher liquidity levels, which were primarily the result of higher deposit levels, and reduced lending activity due to weak economic conditions.
 
    The Bank’s net income for the three and six months ended June 30, 2011 was $6.7 million and $18.2 million, respectively, including net interest income of $37.4 million and $79.5 million, respectively, and $14.1 million and $20.6 million in net losses on derivatives and hedging activities, respectively. The Bank’s net interest income excludes net interest payments associated with economic hedge derivatives, which also contributed to the Bank’s overall income before assessments of $9.1 million and $24.8 million

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      for the three and six months ended June 30, 2011, respectively. Had the interest income on economic hedge derivatives been included in net interest income, the Bank’s net interest income would have been higher (and its net losses on derivatives and hedging activities would have been higher) by $1.4 million and $3.1 million for the three and six months ended June 30, 2011, respectively.
 
    For the three and six months ended June 30, 2011, the $14.1 million and $20.6 million, respectively, in net losses on derivatives and hedging activities included $1.4 million and $3.1 million, respectively, of net interest income on interest rate swaps accounted for as economic hedge derivatives, $14.2 million and $22.8 million, respectively, of net losses on economic hedge derivatives (excluding net interest settlements) and net ineffectiveness-related losses on fair value hedges of $1.3 million and $0.9 million, respectively. The net losses on the Bank’s economic hedge derivatives during the three and six months ended June 30, 2011 were due largely to fair value losses of $6.8 million and $11.1 million, respectively, on its stand-alone interest rate caps, $4.8 million and $3.7 million, respectively, on its interest rate swaptions and $1.9 million and $5.9 million, respectively, on its interest rate basis swaps.
 
    The Bank held $6.1 billion (notional) of interest rate swaps and swaptions recorded as economic hedge derivatives with a net positive fair value of $18.0 million (excluding accrued interest) at June 30, 2011, including $9.9 million related to the Bank’s swaptions. If these derivatives are held to maturity, their values will ultimately decline to zero and be recorded as losses in future periods. The timing of these losses will depend upon a number of factors including the relative level and volatility of future interest rates. In the case of the Bank’s swaptions, the largely offsetting fair value of the hedged items (i.e., the optional advance commitments) would also decline to zero in this scenario. At June 30, 2011, the carrying value of the optional advance commitments totaled $10.4 million. In addition, as of June 30, 2011, the Bank held $3.9 billion (notional) of stand-alone interest rate cap agreements with a fair value of $9.7 million that hedge a portion of the interest rate risk posed by interest rate caps embedded in its collateralized mortgage obligation (“CMO”) LIBOR floaters. If these agreements are held to maturity, the value of the caps will ultimately decline to zero and be recorded as a loss in net gains (losses) on derivatives and hedging activities in future periods.
 
    Unrealized losses on the Bank’s holdings of non-agency residential mortgage-backed securities, all of which are classified as held-to-maturity, totaled $75.3 million (22 percent of amortized cost) at June 30, 2011, as compared to $84.0 million (22 percent of amortized cost) at December 31, 2010. Based on its quarter-end analysis of the 36 securities in this portfolio, the Bank believes that the unrealized losses were principally the result of liquidity risk related discounts in the non-agency residential mortgage-backed securities market and do not accurately reflect the actual historical or currently expected future credit performance of the securities. The Bank’s operating results for the three and six months ended June 30, 2011 included credit-related other-than-temporary impairment charges of $2.3 million and $3.7 million, respectively, on certain of its investments in non-agency residential mortgage-backed securities. For a discussion of the Bank’s analysis, see “Item 1. Financial Statements” (specifically, Note 3 beginning on page 7 of this report). If the actual and/or projected performance of the loans underlying the Bank’s holdings of non-agency residential mortgage-backed securities deteriorates beyond its current expectations, the Bank could recognize further losses on the securities that it has already determined to be other-than-temporarily impaired and/or losses on its other investments in non-agency residential mortgage-backed securities.
 
    At all times during the first half of 2011, the Bank was in compliance with all of its regulatory capital requirements. In addition, the Bank’s retained earnings increased to $467.5 million at June 30, 2011 from $452.2 million at December 31, 2010.
 
    During the first half of 2011, the Bank paid dividends totaling $2.9 million; the Bank’s first and second quarter dividends were paid at an annualized rate of 0.375 percent, which exceeded the upper end of the Federal Reserve’s target for the federal funds rate of 0.25 percent for each of the preceding quarters by 12.5 basis points.

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    On August 5, 2011, the Finance Agency certified that the FHLBanks had fully satisfied their obligations to the Resolution Funding Corporation (“REFCORP”) with their July 2011 payments to REFCORP, which were derived from the FHLBanks’ earnings for the three months ended June 30, 2011. Accordingly, the Bank’s earnings will no longer be reduced by this assessment beginning July 1, 2011. In addition, beginning in the third quarter of 2011, the Bank will allocate, on a quarterly basis, at least 20 percent of its net income to a newly established restricted retained earnings account. Among other things, the Bank will be prohibited from paying dividends out of this account; however, the allocations to, and restrictions associated with, this account are not currently expected to have an effect on the Bank’s dividend payment practices. For additional discussion, see “Item 1. Financial Statements” (specifically, Note 9 on page 27 of this report).
 
    While the Bank cannot predict how long the current economic conditions will continue, it expects that its lending activities may be reduced for some period of time. As advances are reduced, the Bank’s general practice is to repurchase capital stock in proportion to the reduction in the advances. As a result of the decrease in the Bank’s advances, total assets and capital stock, its future core earnings will likely be lower than they would have been otherwise. However, the Bank expects that its ability to adjust its capital levels in response to reductions in advances outstanding and the accumulation of retained earnings in recent years will help to mitigate the negative impact that these reductions would otherwise have on the Bank’s shareholders. While there can be no assurances about earnings or dividends for the remainder of 2011, based on its current expectations the Bank anticipates that its earnings will be sufficient both to continue paying dividends at a rate equal to or slightly above the upper end of the Federal Reserve’s target for the federal funds rate for the applicable quarterly periods of 2011 and to continue building retained earnings. In addition, the Bank currently expects to continue its quarterly repurchases of surplus stock.

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Selected Financial Data
SELECTED FINANCIAL DATA
(dollars in thousands)
                                         
    2011     2010  
    Second Quarter     First Quarter     Fourth Quarter     Third Quarter     Second Quarter  
Balance sheet (at quarter end)
                                       
Advances
  $ 19,684,428     $ 21,804,806     $ 25,455,656     $ 27,341,487     $ 41,453,540  
Investments (1)
    9,285,616       10,545,849       12,268,954       19,385,091       12,813,354  
Mortgage loans
    184,126       194,703       207,393       222,365       235,469  
Allowance for credit losses on mortgage loans
    218       225       225       234       234  
Total assets
    31,387,759       33,169,709       39,690,070       51,644,281       57,063,342  
Consolidated obligations — discount notes
    2,849,954       500,000       5,131,978       3,301,048       6,070,294  
Consolidated obligations — bonds
    25,124,418       29,302,425       31,315,605       41,919,784       46,956,288  
Total consolidated obligations(2)
    27,974,372       29,802,425       36,447,583       45,220,832       53,026,582  
Mandatorily redeemable capital stock(3)
    17,176       18,131       8,076       6,894       7,787  
Capital stock — putable
    1,284,559       1,427,810       1,600,909       1,835,532       2,260,945  
Retained earnings
    467,503       462,188       452,205       431,890       406,608  
Accumulated other comprehensive loss
    (55,695 )     (56,743 )     (62,702 )     (57,213 )     (62,207 )
Total capital
    1,696,367       1,833,255       1,990,412       2,210,209       2,605,346  
Dividends paid(3)
    1,393       1,550       2,057       2,109       2,264  
 
Income statement (for the quarter)
                                       
Net interest income (4)
  $ 37,403     $ 42,123     $ 47,086     $ 54,686     $ 68,409  
Other income (loss)
    (9,188 )     (6,267 )     8,824       (174 )     2,224  
Other expense
    19,148       20,157       25,458       17,229       17,023  
Assessments
    2,359       4,166       8,080       9,892       14,223  
Net income
    6,708       11,533       22,372       27,391       39,387  
 
Performance ratios
                                       
Net interest margin(5)
    0.47 %     0.46 %     0.46 %     0.42 %     0.48 %
Return on average assets
    0.08       0.13       0.22       0.21       0.28  
Return on average equity
    1.54       2.45       4.37       4.28       6.11  
Return on average capital stock (6)
    2.02       3.10       5.41       4.99       7.00  
Total average equity to average assets
    5.47       5.27       4.93       4.80       4.57  
Regulatory capital ratio(7)
    5.64       5.75       5.19       4.40       4.69  
Dividend payout ratio (3)(8)
    20.77       13.44       9.19       7.70       5.75  
 
Average effective federal funds rate (9)
    0.09 %     0.15 %     0.19 %     0.19 %     0.19 %
 
(1)   Investments consist of federal funds sold, interest-bearing deposits, securities purchased under agreements to resell and securities classified as held-to-maturity and trading.
 
(2)   The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all of the FHLBanks. At June 30, 2011, March 31, 2011, December 31, 2010, September 30, 2010, and June 30, 2010, the outstanding consolidated obligations (at par value) of all 12 FHLBanks totaled approximately $727 billion, $766 billion, $796 billion, $806 billion, and $846 billion, respectively. As of those dates, the Bank’s outstanding consolidated obligations (at par value) were $27.8 billion, $29.6 billion, $36.2 billion, $44.8 billion, and $52.7 billion, respectively.
 
(3)   Mandatorily redeemable capital stock represents capital stock that is classified as a liability under generally accepted accounting principles. Dividends on mandatorily redeemable capital stock are recorded as interest expense and excluded from dividends paid. Dividends paid on mandatorily redeemable capital stock totaled $18 thousand, $6 thousand, $9 thousand, $7 thousand, and $6 thousand for the quarters ended June 30, 2011, March 31, 2011, December 31, 2010, September 30, 2010, and June 30, 2010, respectively.
 
(4)   Net interest income excludes the net interest income/expense associated with interest rate exchange agreements that do not qualify for hedge accounting. The net interest income associated with such agreements totaled $1.4 million, $1.7 million, $3.2 million, $4.9 million, and $2.1 million for the quarters ended June 30, 2011, March 31, 2011, December 31, 2010, September 30, 2010, and June 30, 2010, respectively.
 
(5)   Net interest margin is net interest income as a percentage of average earning assets.
 
(6)   Return on average capital stock is derived by dividing net income by average capital stock balances excluding mandatorily redeemable capital stock.
 
(7)   The regulatory capital ratio is computed by dividing regulatory capital (the sum of capital stock — putable, mandatorily redeemable capital stock and retained earnings) by total assets at each quarter-end.
 
(8)   Dividend payout ratio is computed by dividing dividends paid by net income for each quarter.
 
(9)   Rates obtained from the Federal Reserve Statistical Release.

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Legislative and Regulatory Developments
Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the President of the United States signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd Frank-Act makes significant changes to a number of aspects of the regulation of financial institutions. Although the FHLBanks were exempted from several provisions of the Dodd-Frank Act, the Bank’s business operations, hedging costs, rights, obligations, and/or the environment in which it carries out its housing finance mission are likely to be affected by the Dodd-Frank Act. Certain regulatory actions resulting from the Dodd-Frank Act that may have a significant impact on the Bank are summarized in the Bank’s 2010 10-K (see “Business — Legislative and Regulatory Developments” beginning on page 20 of that report). The more significant regulatory activities relating to the Dodd-Frank Act that have occurred since the Bank’s 2010 10-K was filed are summarized below and should be read in conjunction with the summary included in that report. Because the Dodd-Frank Act requires the issuance of numerous regulations, orders, determinations and reports, the full effect of this legislation on the Bank and its activities will become known only after the required regulations, orders, determinations and reports have been issued and implemented.
On May 11, 2011, the Prudential Regulators (i.e., the bank regulators) published proposed margin rules. Under these proposed rules, the Bank would have to post for uncleared derivative transactions both initial margin and variation margin to the Bank’s derivative counterparties, but may be eligible with respect to both types of margin for modest unsecured thresholds as “low-risk financial end users.” Pursuant to additional Finance Agency provisions, the Bank will be required to collect both initial margin and variation margin from the Bank’s derivative counterparties, without any unsecured thresholds. These margin requirements and any related capital requirements could adversely impact the liquidity and pricing of certain uncleared derivative transactions entered into by the Bank and thus make uncleared trades more costly for the Bank.
On May 23, 2011, the Commodity Futures Trading Commission (the “CFTC”) and SEC published joint proposed rules further defining the term “swap” under the Dodd-Frank Act. These proposed rules and accompanying interpretive guidance attempt to clarify that certain products will and will not be regulated as “swaps.” While it is unlikely that advances transactions between the Bank and its members will be treated as “swaps,” the proposed rules and accompanying interpretive guidance are not entirely clear on this issue.
On June 9, 2011, the CFTC published a proposed rule which would require that collateral posted by clearinghouse customers in connection with cleared swaps be legally segregated on a customer-by-customer basis. However, in connection with this proposed rule the CFTC left open the possibility that customer collateral would not have to be legally segregated but could instead be commingled with all collateral posted by other customers of the clearing member. Such commingling would put the Bank’s collateral at risk in the event of a default by another customer of the Bank’s clearing member. To the extent the CFTC’s final rule places the Bank’s posted collateral at greater risk of loss in the clearing structure than under the current over-the-counter market structure, the Bank could be adversely impacted.
On July 27, 2011, the CFTC published a final rule regarding the process by which it will determine which types of swaps will be subject to mandatory clearing, but it has not yet made any such determinations. Based on the effective date of this rule and the time periods set forth in the rule for CFTC determinations regarding mandatory clearing, it is not expected that any of the Bank’s derivatives will be required to be cleared until the last week of 2011, at the very earliest, and it is possible that such date will be some time in 2012.
While certain provisions of the Dodd-Frank Act took effect on July 16, 2011, the CFTC has issued an order temporarily exempting persons or entities with respect to provisions of Title VII of the Dodd-Frank Act that reference “swap dealer,” “major swap participant,” “eligible contract participant” and “swap.” These exemptions will expire upon the earlier of: (1) the effective date of the applicable final rule further defining the relevant term; or (2) December 31, 2011. In addition, the provisions of the Dodd-Frank Act that will have the most impact on the Bank did not take effect on July 16, 2011, but will take effect no less than 60 days after the CFTC publishes final regulations implementing such provisions. The CFTC is expected to publish those final regulations between the date of this report and the end of 2011, but it is currently expected that such final regulations will not become effective until the end of 2011, and delays beyond that time are possible.

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Finance Agency Actions
Conservatorship and Receivership
On June 20, 2011, the Finance Agency issued a final conservatorship and receivership regulation for the FHLBanks. The final regulation, which became effective on July 20, 2011, addresses the nature of a conservatorship or receivership and provides greater specificity on their operations, in line with procedures set forth in similar regulatory regimes (for example, the FDIC receivership authorities). The regulation clarifies the relationship among various classes of creditors and equity holders under a conservatorship or receivership and the priorities for contract parties and other claimants in a receivership. In adopting the final regulation, the Finance Agency explained that its general approach was to set out the basic framework for conservatorships and receiverships. Under the final regulation:
    Claims of FHLBank members arising from their deposit accounts, service agreements, advances, and other transactions with the FHLBanks are distinct from such members’ equity claims as holders of FHLBank stock. The final regulation clarifies that the lowest priority position for equity claims only applies to members’ claims in regard to their FHLBank stock and not to claims arising from other member transactions with a FHLBank;
 
    A FHLBank’s claim for repayment/reimbursement in regard to its payment of any consolidated obligations of another FHLBank in conservatorship or receivership following that FHLBank’s default in making such payment would be treated as a general creditor claim against the defaulting FHLBank. The Finance Agency noted in the preamble to the final regulation that it could also address such reimbursement in policy statements or discretionary decisions; and
 
    With respect to property held by a FHLBank in trust or in custodial arrangements, the Finance Agency confirmed that it expects to follow FDIC and bankruptcy practice and such property would not be considered part of a receivership estate nor would it be available to satisfy general creditor claims.
Prudential Management Standards
On June 20, 2011, the Finance Agency issued a proposed rule, as required by the Housing and Economic Recovery Act of 2008, to establish prudential standards with respect to 10 categories of operation and management of the FHLBanks, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, the “Regulated Entities”), including, among others, internal controls, interest rate risk and market risk. The Finance Agency has proposed to adopt the standards as guidelines, which generally provide principles and would leave to the Regulated Entities the obligation to organize and manage their affairs to ensure that the standards are met, subject to Finance Agency oversight. The proposed rule also includes procedural provisions relating to the consequences of failing to meet applicable standards, such as requirements regarding the submission of a corrective action plan to the Finance Agency. Comments on the proposal are due by August 19, 2011.
Other Developments
In the wake of the financial crisis and related housing problems, both Congress and the Obama Administration are considering potential changes to the housing finance system that could impact the role and structure of the housing GSEs, including the FHLBanks. For additional discussion regarding potential housing GSE reform and other recent legislative and regulatory developments, see “Business — Legislative and Regulatory Developments” in the Bank’s 2010 10-K.

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Financial Condition
The following table provides selected period-end balances as of June 30, 2011 and December 31, 2010, as well as selected average balances for the six-month period ended June 30, 2011 and the year ended December 31, 2010. As shown in the table, the Bank’s total assets decreased by 20.9 percent (or $8.3 billion) between December 31, 2010 and June 30, 2011, due primarily to decreases of $5.8 billion, $1.2 billion and $1.3 billion in advances, held-to-maturity securities and its short-term liquidity holdings, respectively. As the Bank’s assets decreased, the funding for those assets also decreased. During the six months ended June 30, 2011, total consolidated obligations decreased by $8.5 billion as consolidated obligation bonds and discount notes declined by $6.2 billion and $2.3 billion, respectively.
The activity in each of the major balance sheet captions is discussed in the sections following the table.
SUMMARY OF CHANGES IN FINANCIAL CONDITION
(dollars in millions)
                                 
    June 30, 2011     Balance at  
            Increase (Decrease)     December 31,  
    Balance     Amount     Percentage     2010  
Advances
  $ 19,684     $ (5,772 )     (22.7) %   $ 25,456  
Short-term liquidity holdings
                               
Non-interest bearing excess cash balances (1)
    2,100       500       31.3       1,600  
Federal funds sold
    1,948       (1,819 )     (48.3 )     3,767  
Held-to-maturity securities
    7,331       (1,165 )     (13.7 )     8,496  
Mortgage loans, net
    184       (23 )     (11.1 )     207  
Total assets
    31,388       (8,302 )     (20.9 )     39,690  
Consolidated obligations — bonds
    25,124       (6,192 )     (19.8 )     31,316  
Consolidated obligations — discount notes
    2,850       (2,282 )     (44.5 )     5,132  
Total consolidated obligations
    27,974       (8,474 )     (23.2 )     36,448  
Mandatorily redeemable capital stock
    17       9       112.5       8  
Capital stock
    1,285       (316 )     (19.7 )     1,601  
Retained earnings
    468       16       3.5       452  
Average total assets
    34,044       (19,099 )     (35.9 )     53,143  
Average capital stock
    1,418       (710 )     (33.4 )     2,128  
Average mandatorily redeemable capital stock
    17       10       142.9       7  
 
(1)   Represents excess cash held at the Federal Reserve Bank of Dallas. These amounts are classified as “Cash and due from banks” in the Bank’s statements of condition.

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Advances
The following table presents advances outstanding, by type of institution, as of June 30, 2011 and December 31, 2010.
ADVANCES OUTSTANDING BY BORROWER TYPE
(par value, dollars in millions)
                                 
    June 30, 2011     December 31, 2010  
    Amount     Percent     Amount     Percent  
Commercial banks
  $ 14,153       73 %   $ 19,708       79 %
Thrift institutions
    3,485       18       3,686       15  
Credit unions
    1,109       6       1,215       5  
Insurance companies
    358       2       336       1  
 
                       
 
                               
Total member advances
    19,105       99       24,945       100  
 
                               
Housing associates
    33             60        
Non-member borrowers
    159       1       56        
 
                       
 
                               
Total par value of advances
  $ 19,297       100 %   $ 25,061       100 %
 
                       
 
                               
Total par value of advances outstanding to CFIs (1)
  $ 6,802       35 %   $ 6,908       28 %
 
                       
 
(1)   The figures presented above reflect the advances outstanding to Community Financial Institutions (“CFIs”) as of June 30, 2011 and December 31, 2010 based upon the definitions of CFIs that applied as of those dates.
At June 30, 2011 and December 31, 2010, the carrying value of the Bank’s advances portfolio totaled $19.7 billion and $25.5 billion, respectively. The par value of outstanding advances at those dates was $19.3 billion and $25.1 billion, respectively.
During the first six months of 2011, advances outstanding to the Bank’s five largest borrowers decreased by $4.1 billion, including the maturity of $2.8 billion and $0.5 billion in advances to Wells Fargo Bank South Central, National Association and Comerica Bank, respectively (the Bank’s two largest borrowers). In addition, $0.8 billion of maturing advances were repaid following the consolidation of several members’ charters into the charter of an out-of-district institution. The remaining decline in outstanding advances of $0.9 billion during the first six months of 2011 was spread broadly across the Bank’s members. The Bank believes the decline in advances was due largely to members’ higher liquidity levels, which were primarily the result of higher deposit levels, and reduced lending activity due to weak economic conditions.
At June 30, 2011, advances outstanding to the Bank’s five largest borrowers totaled $5.4 billion, representing 28.0 percent of the Bank’s total outstanding advances as of that date. In comparison, advances outstanding to the Bank’s five largest borrowers totaled $9.5 billion at December 31, 2010, representing 37.8 percent of the total outstanding balances at that date. The following table presents the Bank’s five largest borrowers as of June 30, 2011.

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FIVE LARGEST BORROWERS AS OF JUNE 30, 2011
(Par value, dollars in millions)
                 
            Percent of  
    Par Value of     Total Par Value  
Name   Advances     of Advances  
Comerica Bank
  $ 2,000       10.4 %
Wells Fargo Bank South Central, National Association
    1,200       6.2  
Beal Bank Nevada (1)
    1,075       5.6  
First National Bank (Edinburg, Texas)
    581       3.0  
International Bank of Commerce
    550       2.8  
 
           
 
               
 
  $ 5,406       28.0 %
 
           
 
(1)   Beal Bank Nevada is chartered in Nevada, but maintains its home office in Plano, TX.
The following table presents information regarding the composition of the Bank’s advances by product type as of June 30, 2011 and December 31, 2010.
ADVANCES OUTSTANDING BY PRODUCT TYPE
(dollars in millions)
                                 
    June 30, 2011     December 31, 2010  
            Percentage             Percentage  
    Balance     of Total     Balance     of Total  
Fixed rate
  $ 13,370       69.3 %   $ 15,582       62.2 %
Adjustable/variable rate indexed
    3,336       17.3       6,765       27.0  
Amortizing
    2,591       13.4       2,714       10.8  
 
                       
Total par value
  $ 19,297       100.0 %   $ 25,061       100.0 %
 
                       
The Bank is required by statute and regulation to obtain sufficient collateral from members/borrowers to fully secure all advances and other extensions of credit. The Bank’s collateral arrangements with its members/borrowers and the types of collateral it accepts to secure advances are described in the 2010 10-K. To ensure the value of collateral pledged to the Bank is sufficient to secure its advances, the Bank applies various haircuts, or discounts, to determine the value of the collateral against which borrowers may borrow. From time to time, the Bank reevaluates the adequacy of its collateral haircuts under a range of stress scenarios to ensure that its collateral haircuts are sufficient to protect the Bank from credit losses on advances. In addition, as described in the 2010 10-K, the Bank reviews the financial condition of its depository institution borrowers on at least a quarterly basis to identify any borrowers whose financial condition indicates they might pose an increased credit risk and, as needed, takes appropriate action. The Bank has not experienced any credit losses on advances since it was founded in 1932 and, based on its credit extension and collateral policies, management currently does not anticipate any credit losses on advances. Accordingly, the Bank has not provided any allowance for losses on advances.

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Short-Term Liquidity Portfolio
At June 30, 2011, the Bank’s short-term liquidity portfolio was comprised of $1.9 billion of overnight federal funds sold to domestic bank counterparties and $2.1 billion of non-interest bearing excess cash balances held at the Federal Reserve Bank of Dallas. At December 31, 2010, the Bank’s short-term liquidity portfolio was comprised of $3.8 billion of overnight federal funds sold to domestic bank counterparties and $1.6 billion of non-interest bearing excess cash balances held at the Federal Reserve Bank of Dallas. As of June 30, 2011, the Bank’s overnight federal funds sold consisted of $1.7 billion sold to counterparties rated single-A and $0.2 billion sold to counterparties rated triple-B. The credit ratings presented in the preceding sentence represent the lowest long-term rating assigned to the counterparty by Moody’s, S&P or Fitch Ratings, Ltd. (“Fitch”). The amount of the Bank’s short-term liquidity portfolio fluctuates in response to several factors, including the anticipated demand for advances, the timing and extent of advance prepayments, changes in the Bank’s deposit balances, the Bank’s pre-funding activities, changes in the returns provided by short-term investment alternatives relative to the Bank’s discount note funding costs, and the level of liquidity needed to satisfy Finance Agency requirements. (For a discussion of the Finance Agency’s liquidity requirements, see the section below entitled “Liquidity and Capital Resources.”)
Long-Term Investments
At June 30, 2011 and December 31, 2010, the Bank’s long-term investment portfolio (at carrying value) was comprised of approximately $7.3 billion and $8.4 billion, respectively, of MBS, substantially all of which were LIBOR-indexed floating rate CMOs, and approximately $50 million of U.S. agency debentures. All of the Bank’s long-term investments were classified as held-to-maturity at both of these dates.
The Bank did not acquire or sell any long-term investments during the six months ended June 30, 2011. During this same six-month period, the proceeds from maturities and paydowns of long-term securities totaled approximately $1.2 billion.
The Bank is currently precluded from purchasing additional MBS if such purchase would cause the aggregate amortized cost of its MBS holdings to exceed 300 percent of the Bank’s total regulatory capital (an amount equal to the Bank’s retained earnings plus amounts paid in for Class B stock, regardless of its classification as equity or liabilities for financial reporting purposes). At June 30, 2011, the Bank held $7.3 billion of MBS, which represented 415 percent of its total regulatory capital. The Bank is not required to sell any previously purchased mortgage securities as it was in compliance with the applicable limit at the time of purchase. Due to the shrinkage of its capital base due to reductions in member borrowings, the Bank does not currently anticipate that it will have the capacity to purchase additional MBS throughout the remainder of 2011. Currently, the Bank has capacity under applicable policies and regulations to purchase certain other types of highly rated long-term investments. In July 2011, the Bank purchased $1.2 billion (par value) of GSE debentures; these investments were classified as available-for-sale and substantially all of the investments were hedged with fixed-for-floating interest rate swaps. During the remainder of 2011, the Bank may elect to purchase additional highly rated long-term investments if attractive opportunities to do so are available.
The following table provides the unpaid principal balances of the Bank’s MBS portfolio, by coupon type, as of June 30, 2011 and December 31, 2010.

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UNPAID PRINCIPAL BALANCE OF MORTGAGE-BACKED SECURITIES BY COUPON TYPE
(In millions of dollars)
                                                 
    June 30, 2011     December 31, 2010  
    Fixed     Variable             Fixed     Variable        
    Rate     Rate     Total     Rate     Rate     Total  
U.S. government guaranteed obligations
  $     $ 18     $ 18     $     $ 20     $ 20  
Government-sponsored enterprises
    2       7,072       7,074       2       8,199       8,201  
Non-agency residential MBS
                                               
Prime(1)
          279       279             323       323  
Alt-A(1)
          69       69             75       75  
Total MBS
  $ 2     $ 7,438     $ 7,440     $ 2     $ 8,617     $ 8,619  
 
(1)   Reflects the label assigned to the securities at the time of issuance.
Gross unrealized losses on the Bank’s MBS investments decreased from $86 million at December 31, 2010 to $77 million at June 30, 2011. As of June 30, 2011, $75 million (or 97 percent) of the unrealized losses related to the Bank’s holdings of non-agency residential MBS (“RMBS”).
The Bank evaluates outstanding held-to-maturity securities in an unrealized loss position as of the end of each quarter for other-than-temporary impairment (“OTTI”). An investment security is impaired if the fair value of the investment is less than its amortized cost. For a summary of the Bank’s OTTI evaluation, see “Item 1. Financial Statements” (specifically, Note 3 beginning on page 7 of this report).
The deterioration in the U.S. housing markets that began in 2007, as reflected by declines in the values of residential real estate and higher levels of delinquencies, defaults and losses on residential mortgages, including the mortgages underlying the Bank’s non-agency RMBS, has generally increased the risk that the Bank may not ultimately recover the entire cost bases of some of its non-agency RMBS. Based on its analysis of the securities in this portfolio, however, the Bank believes that the unrealized losses as of June 30, 2011 were principally the result of liquidity risk related discounts in the non-agency RMBS market and do not accurately reflect the actual historical or currently likely future credit performance of the securities.
All of the Bank’s non-agency RMBS are rated by one or more of the following NRSROs: Moody’s, S&P and/or Fitch. The following table presents the credit ratings assigned to the Bank’s non-agency RMBS holdings as of June 30, 2011. The credit ratings presented in the table represent the lowest rating assigned to the security by Moody’s, S&P or Fitch.
NON-AGENCY RMBS CREDIT RATINGS
(dollars in thousands)
                                                 
    Number of     Unpaid     Amortized     Carrying     Estimated     Unrealized  
Credit Rating   Securities     Principal Balance     Cost     Value     Fair Value     Losses  
Triple-A
    10     $ 67,579     $ 67,586     $ 67,586     $ 63,983     $ 3,603  
Double-A
    3       9,562       9,565       9,565       9,221       344  
Triple-B
    1       1,657       1,657       1,657       1,576       81  
Double-B
    1       202       202       202       191       11  
Single-B
    9       96,120       96,016       87,489       70,311       25,705  
Triple-C
    11       138,981       132,411       92,913       90,847       41,564  
Single-C
    1       34,238       30,562       22,361       26,575       3,987  
 
                                   
Total
    36     $ 348,339     $ 337,999     $ 281,773     $ 262,704     $ 75,295  
 
                                   

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As of June 30, 2011, one of the securities rated triple-A in the table above was on negative watch. This security had a carrying value of $5.4 million and an estimated fair value of $5.1 million at June 30, 2011. None of the Bank’s non-agency RMBS holdings were downgraded or placed on negative watch during the period from July 1, 2011 through August 8, 2011.
As of June 30, 2011, the U.S. government and the issuers of the Bank’s holdings of GSE MBS were rated triple-A by Moody’s, S&P and Fitch. In July 2011, S&P placed the AAA long-term U.S. sovereign credit rating on CreditWatch Negative and Moody’s placed the Aaa long-term U.S. government bond rating on review for possible downgrade. On August 2, 2011, Moody’s confirmed its Aaa long-term U.S. government bond rating with a negative outlook. On August 5, 2011, S&P lowered its long-term sovereign credit rating on the U.S. from AAA to AA+ with a negative outlook. These actions impacted the issuer ratings of certain entities whose ratings are linked to those of the U.S. government, including the issuers of the Bank’s holdings of GSE MBS. Fitch has not taken any ratings actions on the U.S. government or the issuers of the Bank’s holdings of GSE MBS since the U.S. government’s debt ceiling was raised on August 2, 2011.
At June 30, 2011, the Bank’s portfolio of non-agency RMBS was comprised of 17 securities with an aggregate unpaid principal balance of $137 million that are backed by first lien fixed-rate loans and 19 securities with an aggregate unpaid principal balance of $211 million that are backed by first lien option adjustable-rate mortgage (“option ARM”) loans. In comparison, as of December 31, 2010, the Bank’s non-agency RMBS portfolio was comprised of 20 securities backed by fixed-rate loans that had an aggregate unpaid principal balance of $177 million and 19 securities backed by option ARM loans that had an aggregate unpaid principal balance of $221 million. Three of the Bank’s non-agency RMBS were paid in full during the six months ended June 30, 2011. The following table provides a summary of the Bank’s non-agency RMBS as of June 30, 2011 by classification at the time of issuance, collateral type and year of securitization (the Bank does not hold any MBS that were labeled as subprime at the time of issuance).

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NON-AGENCY RMBS BY UNDERLYING COLLATERAL TYPE
(dollars in millions)
                                                                         
                                                    Credit Enhancement Statistics  
            Unpaid                             Weighted Average     Current     Original        
  Number of     Principal     Amortized     Estimated     Unrealized     Collateral     Weighted     Weighted     Minimum  
Classification and Year of Securitization   Securities     Balance     Cost     Fair Value     Losses     Delinquency(1)(2)     Average (1)(3)     Average(1)     Current(4)  
Prime(5)
                                                                       
Fixed rate collateral
                                                                       
2006
    1     $ 34     $ 31     $ 27     $ 4       13.00 %     5.80 %     8.89 %     5.80 %
2004
    3       5       5       5             7.37 %     38.57 %     5.82 %     34.23 %
2003
    8       65       64       61       3       1.76 %     6.96 %     3.95 %     5.41 %
2000
    1                               0.00 %     39.17 %     2.00 %     39.17 %
 
                                                     
Total fixed rate prime collateral
    13       104       100       93       7       5.73 %     8.20 %     5.67 %     5.41 %
 
                                                     
 
                                                                       
Option ARM collateral
                                                                       
2005
    15       163       161       112       49       33.99 %     44.87 %     43.13 %     23.30 %
2004
    2       12       12       8       4       31.48 %     31.96 %     29.89 %     30.01 %
 
                                                     
Total option ARM prime collateral
    17       175       173       120       53       33.82 %     44.00 %     42.25 %     23.30 %
 
                                                     
Total prime collateral
    30       279       273       213       60       23.34 %     30.65 %     28.60 %     5.41 %
 
                                                     
Alt-A(5)
                                                                       
Fixed rate collateral
                                                                       
2005
    1       24       24       19       5       13.78 %     9.66 %     6.84 %     9.66 %
2004
    1       2       2       2             13.12 %     51.96 %     6.85 %     51.96 %
2002
    2       7       7       7             6.18 %     20.25 %     4.54 %     16.98 %
 
                                                     
Total fixed rate Alt-A collateral
    4       33       33       28       5       12.02 %     14.18 %     6.32 %     9.66 %
 
                                                     
 
                                                                       
Option ARM collateral
                                                                       
2005
    2       36       32       22       10       53.00 %     38.88 %     39.52 %     32.84 %
 
                                                     
Total Alt-A collateral
    6       69       65       50       15       33.48 %     27.11 %     23.71 %     9.66 %
 
                                                     
 
                                                                       
Total non-agency RMBS
    36     $ 348     $ 338     $ 263     $ 75       25.36 %     29.95 %     27.63 %     5.41 %
 
                                                     
 
                                                                       
Total fixed rate collateral
    17     $ 137     $ 133     $ 121     $ 12       7.25 %     9.64 %     5.82 %     5.41 %
Total option ARM collateral
    19       211       205       142       63       37.11 %     43.12 %     41.78 %     23.30 %
 
                                                     
 
                                                                       
Total non-agency RMBS
    36     $ 348     $ 338     $ 263     $ 75       25.36 %     29.95 %     27.63 %     5.41 %
 
                                                     
 
(1)   Weighted average percentages are computed based upon unpaid principal balances.
 
(2)   Collateral delinquency reflects the percentage of underlying loans that are 60 or more days past due, including loans in foreclosure and real estate owned; as of June 30, 2011, actual cumulative loan losses in the pools of loans underlying the Bank’s non-agency RMBS portfolio ranged from 0 percent to 7.44 percent.
 
(3)   Current credit enhancement percentages reflect the ability of subordinated classes of securities to absorb principal losses and interest shortfalls before the senior classes held by the Bank are impacted (i.e., the losses, expressed as a percentage of the outstanding principal balances, that could be incurred in the underlying loan pools before the securities held by the Bank would be impacted, assuming that all of those losses occurred on the measurement date). Depending upon the timing and amount of losses in the underlying loan pools, it is possible that the senior classes held by the Bank could bear losses in scenarios where the cumulative loan losses do not exceed the current credit enhancement percentage.
 
(4)   Minimum credit enhancement reflects the security in each vintage year with the lowest current credit enhancement.
 
(5)   Reflects the label assigned to the securities at the time of issuance.
The geographic concentration by state of the loans underlying the Bank’s non-agency RMBS as of December 31, 2010 is provided in the Bank’s 2010 10-K. There were no substantial changes in these concentrations during the six months ended June 30, 2011.
To assess whether the entire amortized cost bases of its non-agency RMBS will be recovered, the Bank performed a cash flow analysis for each of its non-agency RMBS holdings as of June 30, 2011 under a base case (or best estimate) scenario. The procedures used in this analysis, together with the results thereof, are summarized in “Item 1. Financial Statements” (specifically, Note 3 beginning on page 7 of this report). A summary of the significant inputs that were used in the Bank’s analysis of its entire non-agency RMBS portfolio as of June 30, 2011 is set forth in the table below.

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SUMMARY OF SIGNIFICANT INPUTS FOR ALL NON-AGENCY RMBS
(dollars in thousands)
                                                                                 
            Projected     Projected     Projected  
    Unpaid Principal     Prepayment Rates(2)     Default Rates(2)     Loss Severities(2)  
    Balance at     Weighted     Range     Weighted     Range     Weighted     Range  
Year of Securitization   June 30, 2011     Average     Low     High     Average     Low     High     Average     Low     High  
Prime (1)
                                                                               
2004
  $ 5,143       15.13 %     13.17 %     16.27 %     6.76 %     6.11 %     8.32 %     27.85 %     25.20 %     30.34 %
2003
    64,514       40.95 %     21.49 %     53.13 %     0.90 %     0.00 %     3.00 %     18.77 %     0.00 %     43.21 %
2000
    202       100.00 %     100.00 %     100.00 %     0.00 %     0.00 %     0.00 %     0.00 %     0.00 %     0.00 %
 
                                                           
Total prime collateral
    69,859       39.22 %     13.17 %     100.00 %     1.33 %     0.00 %     8.32 %     19.38 %     0.00 %     43.21 %
 
                                                           
Alt-A (1)
                                                                               
2006
    34,238       12.97 %     12.97 %     12.97 %     31.38 %     31.38 %     31.38 %     49.95 %     49.95 %     49.95 %
2005
    223,375       10.04 %     7.49 %     12.40 %     55.02 %     19.86 %     73.97 %     43.78 %     33.22 %     60.67 %
2004
    13,383       9.14 %     6.99 %     12.11 %     51.02 %     17.42 %     60.57 %     43.73 %     41.40 %     46.95 %
2002
    7,484       14.53 %     13.36 %     17.42 %     6.29 %     4.41 %     10.97 %     24.22 %     19.73 %     35.31 %
 
                                                           
Total Alt-A collateral
    278,480       10.48 %     6.99 %     17.42 %     50.61 %     4.41 %     73.97 %     44.01 %     19.73 %     60.67 %
 
                                                           
Total non-agency RMBS
  $ 348,339       16.24 %     6.99 %     100.00 %     40.73 %     0.00 %     73.97 %     39.07 %     0.00 %     60.67 %
 
                                                           
 
(1)   The Bank’s non-agency RMBS holdings are classified as prime or Alt-A in the table above based upon the assumptions that were used to analyze the securities.
 
(2)   Prepayment rates reflect the weighted average of projected future voluntary prepayments. Default rates reflect the total balance of loans projected to default as a percentage of the current unpaid principal balance of each of the underlying loan pools. Loss severities reflect the total projected loan losses as a percentage of the total balance of loans that are projected to default.
In addition to evaluating its non-agency RMBS under a best estimate scenario, the Bank also performed a cash flow analysis for each of these securities as of June 30, 2011 under a more stressful housing price scenario. This more stressful scenario was based on a housing price forecast that was 5 percentage points lower at the trough than the base case scenario followed by a flatter recovery path. Under the more stressful scenario, current-to-trough home price declines were projected to range from 5.0 percent to 13.0 percent over the 3- to 9-month period beginning April 1, 2011 followed in each case by a 3-month period of flat prices. Thereafter, home prices were projected to increase within a range of 0 percent to 1.9 percent in the first year, 0 percent to 2.0 percent in the second year, 1.0 percent to 2.7 percent in the third year, 1.3 percent to 3.4 percent in the fourth year, 1.3 percent to 4.0 percent in each of the fifth and sixth years, and 1.5 percent to 3.8 percent in each subsequent year.
As set forth in the table below, under the more stressful housing price scenario, 15 of the Bank’s non-agency RMBS would have been deemed to be other-than-temporarily impaired as of June 30, 2011 (as compared to 8 securities in the Bank’s best estimate scenario as of that date). The stress test scenario and associated results do not represent the Bank’s current expectations and therefore should not be construed as a prediction of the actual performance of these securities. Rather, the results from this hypothetical stress test scenario provide a measure of the credit losses that the Bank might incur if home price declines (and subsequent recoveries) are more adverse than those projected in its OTTI assessment.

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NON-AGENCY RMBS STRESS-TEST SCENARIO
(dollars in thousands)
                                                                         
                                            Credit Losses     Hypothetical                
                                            Recorded     Credit                
                    Unpaid                     in Earnings     Losses Under             Current
    Year of   Collateral     Principal     Carrying     Fair     During the     Stress-Test     Collateral   Credit
    Securitization   Type     Balance     Value     Value     Second Quarter     Scenario (2)     Delinquency (3)   Enhancement (4)
Prime (1)
                                                                       
Security #2
    2005     Option ARM       $ 17,526     $ 10,213     $ 11,285     $ 316     $ 964       52.3 %     48.0 %
Security #3
    2006     Fixed Rate     34,238       22,361       26,575       173       834       13.0 %     5.8 %
Security #4
    2005     Option ARM     11,989       7,070       7,731             278       26.0 %     45.2 %
Security #6
    2005     Option ARM     17,083       10,691       10,691       455       1,222       26.8 %     23.3 %
Security #7
    2004     Option ARM     6,600       4,264       4,461             149       24.1 %     30.0 %
Security #8
    2005     Option ARM     9,735       6,350       6,006             64       24.2 %     42.1 %
Security #9
    2005     Option ARM     4,274       2,987       2,876                   31.8 %     42.5 %
Security #10
    2005     Option ARM     7,791       4,822       4,822       58       349       47.7 %     42.7 %
Security #11
    2005     Option ARM     9,719       7,175       6,593             70       50.6 %     48.7 %
Security #12
    2004     Option ARM     5,127       3,462       3,244             77       41.1 %     34.5 %
Security #13
    2005     Option ARM     6,106       4,024       4,024       6       69       36.2 %     45.4 %
Security #15
    2005     Option ARM     4,390       4,390       3,200             4       30.3 %     49.6 %
Security #16
    2005     Option ARM     15,440       15,440       9,853             55       28.8 %     39.9 %
 
                                                             
Total Prime
                    150,018       103,249       101,361       1,008       4,135                  
 
                                                             
 
                                                                       
Alt-A(1)
                                                                       
Security #1
    2005     Option ARM     16,148       8,473       8,951       793       1,624       51.4 %     32.8 %
Security #5
    2005     Option ARM     20,131       13,010       13,089       522       1,456       54.3 %     43.7 %
Security #14
    2005     Fixed Rate     23,861       18,853       18,853       21       121       13.8 %     9.7 %
 
                                                             
Total Alt-A
                    60,140       40,336       40,893       1,336       3,201                  
 
                                                             
 
                  $ 210,158     $ 143,585     $ 142,254     $ 2,344     $ 7,336                  
 
                                                             
 
(1)   Security #1, Security #5 and Security #14 are the only securities presented in the table above that were labeled as Alt-A at the time of issuance; however, based upon their current collateral or performance characteristics, all of the securities presented in the table above were analyzed using Alt-A assumptions.
 
(2)   Represents the credit losses that would have been recorded in earnings during the quarter ended June 30, 2011 if the more stressful housing price scenario had been used in the Bank’s OTTI assessment as of June 30, 2011.
 
(3)   Collateral delinquency reflects the percentage of underlying loans that are 60 or more days past due, including loans in foreclosure and real estate owned; as of June 30, 2011, actual cumulative loan losses in the pools of loans underlying the securities presented in the table ranged from 1.15 percent to 7.44 percent.
 
(4)   Current credit enhancement percentages reflect the ability of subordinated classes of securities to absorb principal losses and interest shortfalls before the senior classes held by the Bank are impacted (i.e., the losses, expressed as a percentage of the outstanding principal balances, that could be incurred in the underlying loan pools before the securities held by the Bank would be impacted, assuming that all of those losses occurred on the measurement date). Depending upon the timing and amount of losses in the underlying loan pools, it is possible that the senior classes held by the Bank could bear losses in scenarios where the cumulative loan losses do not exceed the current credit enhancement percentage.
While substantially all of its MBS portfolio is comprised of CMOs with floating rate coupons ($7.4 billion par value at June 30, 2011) that do not expose the Bank to interest rate risk if interest rates rise moderately, such securities include caps that would limit increases in the floating rate coupons if short-term interest rates rise above the caps. In addition, if interest rates rise, prepayments on the mortgage loans underlying the securities would likely decline, thus lengthening the time that the securities would remain outstanding with their coupon rates capped. As of June 30, 2011, one-month LIBOR was 0.19 percent and the effective interest rate caps on one-month LIBOR (the interest cap rate minus the stated spread on the coupon) embedded in the CMO floaters ranged from 6.0 percent to 15.3 percent. The largest concentration of embedded effective caps ($6.2 billion) was between 6.0 percent and 7.0 percent. As of June 30, 2011, one-month LIBOR rates were approximately 581 basis points below the lowest effective interest rate cap embedded in the CMO floaters. To hedge a portion of the potential cap risk embedded in these securities, the Bank held (i) $2.9 billion of interest rate caps with remaining maturities ranging from 30 months to 59 months as of June 30, 2011, and strike rates ranging from 6.00 percent to 6.75 percent and (ii) four forward-starting interest rate caps, each of which has a notional amount of $250 million. Two of the forward-starting caps have terms that commence in June 2012; these forward-starting caps mature in June 2015 and June 2016 and have strike rates of 6.50 percent and 7.00 percent, respectively. The other two forward-starting caps have terms that commence in October 2012; these forward-starting caps mature in October 2014 and October 2015 and have strike rates of 6.50 percent and 7.00 percent, respectively. If interest rates rise above the strike rates specified in these interest rate cap agreements, the Bank will be entitled to receive interest payments according to the terms and conditions of such agreements. Such payments would be based upon the notional amounts of those agreements and the difference between the specified strike rate and either one-month or three-month LIBOR.

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The following table provides a summary of the notional amounts, strike rates and expiration periods of the Bank’s portfolio of stand-alone CMO-related interest rate cap agreements as of June 30, 2011.
SUMMARY OF CMO-RELATED INTEREST RATE CAP AGREEMENTS
(dollars in millions)
                 
Expiration   Notional Amount     Strike Rate  
First quarter 2014
  $ 500       6.00 %
First quarter 2014
    500       6.50 %
Third quarter 2014
    700       6.50 %
Fourth quarter 2014
    250       6.00 %
Fourth quarter 2014 (1)
    250       6.50 %
First quarter 2015
    150       6.75 %
Second quarter 2015 (2)
    250       6.50 %
Third quarter 2015
    150       6.75 %
Third quarter 2015
    200       6.50 %
Fourth quarter 2015
    250       6.00 %
Fourth quarter 2015 (1)
    250       7.00 %
Second quarter 2016
    200       6.50 %
Second quarter 2016 (2)
    250       7.00 %
 
             
 
  $ 3,900          
 
             
 
(1)   These caps are effective beginning in October 2012.
 
(2)   These caps are effective beginning in June 2012.
Consolidated Obligations and Deposits
As of June 30, 2011, the carrying values of the Bank’s consolidated obligation bonds and discount notes totaled $25.1 billion and $2.8 billion, respectively. At that date, the par value of the Bank’s outstanding bonds was $24.9 billion and the par value of the Bank’s outstanding discount notes was $2.9 billion. In comparison, at December 31, 2010, the carrying values of consolidated obligation bonds and discount notes totaled $31.3 billion and $5.1 billion, respectively, and the par values of the Bank’s outstanding bonds and discount notes totaled $31.1 billion and $5.1 billion, respectively.
During the six months ended June 30, 2011, the Bank’s outstanding consolidated obligation bonds (at par value) decreased by $6.2 billion due primarily to decreases in the Bank’s outstanding advances. The following table presents the composition of the Bank’s outstanding bonds at June 30, 2011 and December 31, 2010.

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COMPOSITION OF CONSOLIDATED OBLIGATION BONDS OUTSTANDING
(Par value, dollars in millions)
                                 
    June 30, 2011     December 31, 2010  
    Balance     Percentage
of Total
    Balance     Percentage
of Total
 
Fixed rate
                               
Non-callable
  $ 12,693       50.9 %   $ 13,023       41.9 %
Callable
    665       2.7       1,560       5.0  
Single-index variable rate
    8,140       32.7       13,411       43.2  
Callable step-up
    3,126       12.5       3,001       9.6  
Fixed that converts to variable
    201       0.8       83       0.3  
Callable step-down
    100       0.4              
 
                       
Total par value
  $ 24,925       100.0 %   $ 31,078       100.0 %
 
                       
Due to the decrease in outstanding advances, the Bank’s funding needs remained relatively low during the first half of 2011, with only $1.9 billion of consolidated obligation bonds issued during this period. The proceeds of these issuances were generally used to replace maturing or called consolidated obligations. The consolidated obligations issued by the Bank during the six months ended June 30, 2011 were primarily swapped fixed rate callable bonds, including step-up bonds, and unswapped non-callable bonds.
The average LIBOR cost of consolidated obligation bonds issued during the first half of 2011 was lower than the average LIBOR cost of consolidated obligation bonds issued during 2010. The weighted average cost of swapped and floating rate consolidated obligation bonds issued by the Bank decreased from approximately LIBOR minus 17 basis points during the year ended December 31, 2010 to approximately LIBOR minus 25 basis points in the first quarter of 2011 and approximately LIBOR minus 23 basis points in the second quarter of 2011. The lower cost of consolidated obligation bonds issued during the six months ended June 30, 2011, as compared to those issued during the year ended December 31, 2010, was primarily due to the Bank’s reduced need for funding, which allowed it to issue debt only when costs were very favorable. In addition, the Bank issued approximately $11.9 billion of floating rate bonds in 2010. No floating rate bonds were issued during the six months ended June 30, 2011. The reduced issuance of floating rate bonds, which typically bear a higher LIBOR cost than the LIBOR cost that results from converting structured debt such as callable bonds to LIBOR, also contributed to the Bank’s more favorable funding costs during the first half of 2011.
The Bank’s discount note balance decreased during the first half of 2011, with only $2.8 billion of discount notes outstanding at June 30, 2011. The Bank did not replace its discount notes as they matured during the first quarter of 2011. During the second quarter, the Bank replaced some of its maturing consolidated obligation bonds with discount notes to better match the maturities of its short-term assets.
Demand and term deposits were $1.5 billion and $1.1 billion at June 30, 2011 and December 31, 2010, respectively. The size of the Bank’s deposit base varies as market factors change, including the attractiveness of the Bank’s deposit pricing relative to the rates available to members on alternative money market investments, members’ investment preferences with respect to the maturity of their investments, and member liquidity.
Capital
The Bank’s outstanding capital stock (excluding mandatorily redeemable capital stock) was approximately $1.3 billion and $1.6 billion at June 30, 2011 and December 31, 2010, respectively. The Bank’s average outstanding capital stock (excluding mandatorily redeemable capital stock) decreased from $2.1 billion for the year ended December 31, 2010 to $1.4 billion for the six months ended June 30, 2011. The decrease in outstanding capital stock from December 31, 2010 to June 30, 2011 was attributable primarily to a decline in members’ activity-based investment requirements resulting from the decline in outstanding advance balances.

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Mandatorily redeemable capital stock outstanding at June 30, 2011 and December 31, 2010 was $17.2 million and $8.1 million, respectively. Although mandatorily redeemable capital stock is excluded from capital (equity) for financial reporting purposes, such stock is considered capital for regulatory purposes.
At June 30, 2011 and December 31, 2010, the Bank’s five largest shareholders held $261 million and $463 million, respectively, of capital stock, which represented 20.1 percent and 28.8 percent, respectively, of the Bank’s total outstanding capital stock (including mandatorily redeemable capital stock) as of those dates. The following table presents the Bank’s five largest shareholders as of June 30, 2011.
FIVE LARGEST SHAREHOLDERS AS OF JUNE 30, 2011
(Par value, dollars in millions)
                 
            Percent of  
    Par Value of     Total Par Value  
Name   Capital Stock     of Capital Stock  
Comerica Bank
  $ 92,118       7.1 %
Wells Fargo Bank South Central, National Association
    59,344       4.5  
Beal Bank Nevada (1)
    48,270       3.7  
International Bank of Commerce
    35,914       2.8  
First National Bank (Edinburg, Texas)
    25,824       2.0  
 
           
 
  $ 261,470       20.1 %
 
           
 
(1)   Beal Bank Nevada is chartered in Nevada, but maintains its home office in Plano, TX.
As of June 30, 2011, all of the stock held by the five institutions shown in the table above was classified as capital in the statement of condition.
Members are required to maintain an investment in Class B stock equal to the sum of a membership investment requirement and an activity-based investment requirement. Effective April 18, 2011, the membership investment requirement was reduced from 0.06 percent to 0.05 percent of each member’s total assets as of the previous calendar year-end, subject to a minimum of $1,000 and a maximum of $10,000,000. The activity-based investment requirement remains unchanged at 4.10 percent of outstanding advances.
Periodically, the Bank repurchases a portion of members’ excess capital stock. Excess stock is defined as the amount of stock held by a member (or former member) in excess of that institution’s minimum investment requirement. The portion of members’ excess capital stock subject to repurchase is known as surplus stock. The Bank generally repurchases surplus stock on the last business day of the month following the end of each calendar quarter (e.g., January 31, April 30, July 31 and October 31). For the quarterly repurchases that occurred on January 31, 2011, April 29, 2011 and July 29, 2011, surplus stock was defined as the amount of stock held by a member in excess of 105 percent of the member’s minimum investment requirement. The Bank’s practice has been that a member’s surplus stock will not be repurchased if the amount of that member’s surplus stock is $250,000 or less or if, subject to certain exceptions, the member is on restricted collateral status. From time to time, the Bank may modify the definition of surplus stock or the timing and/or frequency of surplus stock repurchases.

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The following table sets forth the repurchases of surplus stock that have occurred since December 31, 2010.
SURPLUS STOCK REPURCHASED UNDER QUARTERLY REPURCHASE PROGRAM
(dollars in thousands)
                         
                    Amount Classified as  
                    Mandatorily Redeemable  
Date of Repurchase   Shares     Amount of     Capital Stock at Date of  
by the Bank   Repurchased     Repurchase     Repurchase  
January 31, 2011
    1,024,586     $ 102,459     $  
April 29, 2011
    1,470,359       147 036       119  
July 29, 2011
    940,037       94,004        
At June 30, 2011, the Bank’s excess stock totaled $236.4 million, which represented 0.8 percent of the Bank’s total assets as of that date.
The following table presents outstanding capital stock, by type of institution, as of June 30, 2011 and December 31, 2010.
CAPITAL STOCK OUTSTANDING BY INSTITUTION TYPE
(dollars in millions)
                                 
    June 30, 2011     December 31, 2010  
    Amount     Percent     Amount     Percent  
Commercial banks
  $ 969       74 %   $ 1,256       78 %
Thrifts
    190       15       218       14  
Credit unions
    100       8       101       6  
Insurance companies
    26       2       26       2  
 
                       
 
                               
Total capital stock classified as capital
    1,285       99       1,601       100  
 
                               
Mandatorily redeemable capital stock
    17       1       8        
 
                       
 
                               
Total regulatory capital stock
  $ 1,302       100 %   $ 1,609       100 %
 
                       
During the six months ended June 30, 2011, the Bank’s retained earnings increased by $15.3 million, from $452.2 million to $467.5 million. During this same period, the Bank paid dividends on capital stock totaling $2.9 million, which represented an annualized dividend rate of 0.375 percent. The Bank’s first and second quarter 2011 dividend rates exceeded the upper end of the Federal Reserve’s target for the federal funds rate for the quarters ended December 31, 2010 and March 31, 2011, respectively, by 12.5 basis points. The first quarter dividend, applied to average capital stock held during the period from October 1, 2010 through December 31, 2010, was paid on March 31, 2011. The second quarter dividend, applied to average capital stock held during the period from January 1, 2011 through March 31, 2011, was paid on June 30, 2011.
The Bank has had a long-standing practice of benchmarking the dividend rate that it pays on capital stock to the average federal funds rate. Consistent with that practice, the Bank manages its balance sheet so that its returns (attributable to core earnings) generally track short-term interest rates.
While there can be no assurances, taking into consideration its current earnings expectations and anticipated market conditions, the Bank currently expects to pay dividends for the remainder of 2011 at or slightly above the upper end of the Federal Reserve’s target for the federal funds rate for the applicable dividend period (i.e., for each calendar

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quarter during this period, the upper end of the Federal Reserve’s target for the federal funds rate for the preceding quarter). Consistent with its long-standing practice, the Bank expects to pay these dividends in the form of capital stock with any fractional shares paid in cash.
The Bank is required to maintain at all times permanent capital (defined under the Finance Agency’s rules as retained earnings and amounts paid in for Class B stock, regardless of its classification as equity or liabilities for financial reporting purposes) in an amount at least equal to its risk-based capital requirement, which is the sum of its credit risk capital requirement, its market risk capital requirement, and its operations risk capital requirement, as further described in the Bank’s 2010 10-K. At June 30, 2011, the Bank’s total risk-based capital requirement was $362 million, comprised of credit risk, market risk and operations risk capital requirements of $137 million, $141 million and $84 million, respectively.
In addition to the risk-based capital requirement, the Bank is subject to two other capital requirements. First, the Bank must, at all times, maintain a minimum total capital-to-assets ratio of 4.0 percent. For this purpose, total capital is defined by Finance Agency rules and regulations as the Bank’s permanent capital and the amount of any general allowance for losses (i.e., those reserves that are not held against specific assets). Second, the Bank is required to maintain at all times a minimum leverage capital-to-assets ratio in an amount at least equal to 5.0 percent of its total assets. In applying this requirement to the Bank, leverage capital includes the Bank’s permanent capital multiplied by a factor of 1.5 plus the amount of any general allowance for losses. The Bank did not have any general reserves at June 30, 2011 or December 31, 2010. Under the regulatory definitions, total capital and permanent capital exclude accumulated other comprehensive income (loss). At all times during the six months ended June 30, 2011, the Bank was in compliance with all of its regulatory capital requirements. For a summary of the Bank’s compliance with the Finance Agency’s capital requirements as of June 30, 2011 and December 31, 2010, see “Item 1. Financial Statements” (specifically, Note 9 on page 27 of this report).
The Bank’s Risk Management Policy contains a minimum total regulatory capital-to-assets target ratio of 4.1 percent, which is higher than the 4.0 percent ratio required under the Finance Agency’s capital rules. At all times during the six months ended June 30, 2011, the Bank was in compliance with its target capital-to-assets ratio.
Derivatives and Hedging Activities
The Bank enters into interest rate swap, swaption, cap and forward rate agreements (collectively, interest rate exchange agreements) with highly rated financial institutions to manage its exposure to changes in interest rates and/or to adjust the effective maturity, repricing index and/or frequency or option characteristics of financial instruments. This use of derivatives is integral to the Bank’s financial management strategy, and the impact of these interest rate exchange agreements permeates the Bank’s financial statements. For additional discussion, see “Item 1. Financial Statements” (specifically, Note 8 beginning on page 20 of this report). As a result of using interest rate exchange agreements extensively to fulfill its role as a financial intermediary, the Bank has a large notional amount of interest rate exchange agreements relative to its size. As of June 30, 2011 and December 31, 2010, the Bank’s notional balance of interest rate exchange agreements was $31.8 billion and $36.4 billion, respectively, while its total assets were $31.4 billion and $39.7 billion, respectively.

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The following table provides the notional balances of the Bank’s derivative instruments, by balance sheet category and accounting designation, as of June 30, 2011 and December 31, 2010.
COMPOSITION OF DERIVATIVES BY BALANCE SHEET CATEGORY AND ACCOUNTING DESIGNATION
(In millions of dollars)
                                 
    Short-Cut     Long-Haul     Economic        
    Method     Method     Hedges     Total  
June 30, 2011
                               
Advances
  $ 6,239     $ 1,680     $ 212     $ 8,131  
Investments
                3,900       3,900  
Consolidated obligation bonds
          13,893       100       13,993  
Balance sheet
                5,700       5,700  
Intermediary positions
                117       117  
 
                       
Total notional balance
  $ 6,239     $ 15,573     $ 10,029     $ 31,841  
 
                       
 
                               
December 31, 2010
                               
Advances
  $ 6,786     $ 1,835     $ 169     $ 8,790  
Investments
                3,700       3,700  
Consolidated obligation bonds
          14,650       1,600       16,250  
Consolidated obligation discount notes
                913       913  
Balance sheet
                6,700       6,700  
Intermediary positions
                44       44  
 
                       
Total notional balance
  $ 6,786     $ 16,485     $ 13,126     $ 36,397  
 
                       
The following table presents the earnings impact of derivatives and hedging activities, and the changes in fair value of any hedged items recorded at fair value during the three and six months ended June 30, 2011 and 2010.

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NET EARNINGS IMPACT OF DERIVATIVES AND HEDGING ACTIVITIES
(Dollars in millions)
                                                         
                    Consolidated     Consolidated     Optional              
                    Obligation     Obligation     Advance     Balance        
    Advances     Investments     Bonds     Discount Notes     Commitments     Sheet     Total  
Three months ended June 30, 2011
                                                       
Amortization/accretion of hedging activities in net interest income (1)
  $ 1     $     $ (7 )   $     $     $     $ (6 )
Net interest settlements included in net interest income (2)
    (56 )           78                         22  
 
                                                       
Net gain (loss) on derivatives and hedging activities
                                                       
Net losses on fair value hedges
                (1 )                       (1 )
Net losses on economic hedges
          (7 )                 (5 )     (2 )     (14 )
Net interest settlements on economic hedges
                                  1       1  
 
                                         
Total net loss on derivatives and hedging activities
          (7 )     (1 )           (5 )     (1 )     (14 )
 
                                         
 
Net impact of derivatives and hedging activities
    (55 )     (7 )     70             (5 )     (1 )     2  
 
                                         
 
Net gain on hedged financial instruments carried at fair value
                            5             5  
 
                                         
 
  $ (55 )   $ (7 )   $ 70     $     $     $ (1 )   $ 7  
 
                                         
 
                                                       
Three months ended June 30, 2010
                                                       
Amortization/accretion of hedging activities in net interest income (1)
  $     $     $ (7 )   $     $     $     $ (7 )
Net interest settlements included in net interest income (2)
    (73 )           118                         45  
 
                                                       
Net gain (loss) on derivatives and hedging activities
                                                       
Net losses on fair value hedges
                (2 )                       (2 )
Net gains (losses) on economic hedges
          (6 )     (3 )     1             11       3  
Net interest settlements on economic hedges
                2                   (1 )     1  
 
                                         
Total net gain (loss) on derivatives and hedging activities
          (6 )     (3 )     1             10       2  
 
                                         
 
                                                       
Net impact of derivatives and hedging activities
  $ (73 )   $ (6 )   $ 108     $ 1     $     $ 10     $ 40  
 
                                         
 
                                                       
Six months ended June 30, 2011
                                                       
Amortization/accretion of hedging activities in net interest income (1)
  $ 2     $     $ (15 )   $     $     $     $ (13 )
Net interest settlements included in net interest income (2)
    (115 )           156                         41  
 
                                                       
Net gain (loss) on derivatives and hedging activities
                                                       
Net losses on fair value hedges
                (1 )                       (1 )
Net losses on economic hedges
          (11 )     (1 )     (1 )     (4 )     (6 )     (23 )
Net interest settlements on economic hedges
                1       1             1       3  
 
                                         
Total net loss on derivatives and hedging activities
          (11 )     (1 )           (4 )     (5 )     (21 )
 
                                         
 
 
                                                       
Net impact of derivatives and hedging activities
    (113 )     (11 )     140             (4 )     (5 )     7  
 
                                         
 
                                                       
Net gain on hedged financial instruments carried at fair value
                            4             4  
 
                                         
 
  $ (113 )   $ (11 )   $ 140     $     $     $ (5 )   $ 11  
 
                                         
 
                                                       
Six months ended June 30, 2010
                                                       
Amortization/accretion of hedging activities in net interest income (1)
  $     $     $ (14 )   $     $     $     $ (14 )
Net interest settlements included in net interest income (2)
    (153 )           258                         105  
 
                                                       
Net gain (loss) on derivatives and hedging activities
                                                       
Net losses on economic hedges
          (35 )     (9 )     (1 )           10       (35 )
Net interest settlements on economic hedges
                9       2             (1 )     10  
 
                                         
Total net gain (loss) on derivatives and hedging activities
          (35 )           1             9       (25 )
 
                                         
 
Net impact of derivatives and hedging activities
  $ (153 )   $ (35 )   $ 244     $ 1     $     $ 9     $ 66  
 
                                         
 
(1)   Represents the amortization/accretion of hedging fair value adjustments for both open and closed hedge positions.
 
(2)   Represents interest income/expense on derivatives included in net interest income.
By entering into interest rate exchange agreements with highly rated financial institutions (with which it has in place master swap agreements and credit support addendums), the Bank generally exchanges a defined market risk for the risk that the counterparty will not be able to fulfill its obligation in the future. The Bank manages this credit risk by spreading its transactions among as many highly rated counterparties as is practicable, by entering into collateral exchange agreements with all counterparties that include minimum collateral thresholds, and by monitoring its exposure to each counterparty at least monthly and as often as daily. In addition, all of the Bank’s collateral

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exchange agreements include master netting arrangements whereby the fair values of all interest rate derivatives (including accrued interest receivables and payables) with each counterparty are offset for purposes of measuring credit exposure. The collateral exchange agreements require the delivery of collateral consisting of cash or very liquid, highly rated securities (generally consisting of U.S. government guaranteed or agency debt securities) if credit risk exposures rise above the minimum thresholds. As of June 30, 2011 and December 31, 2010, only cash collateral had been delivered under the terms of these collateral exchange agreements.
The notional amount of interest rate exchange agreements does not reflect the Bank’s credit risk exposure, which is much less than the notional amount. The maximum credit risk exposure is the estimated cost, on a present value basis, of replacing at current market rates all interest rate exchange agreements with a counterparty with which the Bank is in a net gain position, if the counterparty were to default. Maximum credit risk exposure also considers the existence of any cash collateral held or remitted by the Bank. The Bank’s collateral exchange agreements with its counterparties generally establish maximum unsecured credit exposure thresholds (typically ranging from $100,000 to $500,000) that one party may have to the other party. Once the counterparties agree to the valuations of the interest rate exchange agreements, and if it is determined that the unsecured credit exposure exceeds the threshold, then, upon a request made by the unsecured counterparty, the party that has the unsecured obligation to the counterparty bearing the risk of the unsecured credit exposure generally must deliver sufficient collateral to reduce the unsecured credit exposure to zero.
The following table provides information regarding the Bank’s derivative counterparty credit exposure as of June 30, 2011 and December 31, 2010.

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DERIVATIVES COUNTERPARTY CREDIT EXPOSURE
(Dollars in millions)
                                         
                    Maximum     Cash        
Credit   Number of     Notional     Credit     Collateral     Net Credit  
Rating(1)   Counterparties     Principal(2)     Exposure     Due(3)     Exposure  
June 30, 2011
                                       
Aaa
    1     $ 255.0     $     $     $  
Aa(4)
    10       25,150.7       25.3       24.1       1.2  
A(5)
    3       6,377.2       0.9       0.9        
 
                             
 
    14       31,782.9     $ 26.2     $ 25.0     $ 1.2  
 
                             
 
                                       
Member institutions (6)
    8       58.4                          
 
                                   
Total
    22     $ 31,841.3                          
 
                                   
 
                                       
December 31, 2010
                                       
Aaa
    1     $ 234.0     $ 3.8     $ 3.8     $  
Aa(4)
    10       28,790.3       29.2       28.1       1.1  
A(5)
    3       7,350.7       1.2       1.1       0.1  
 
                             
 
    14       36,375.0     $ 34.2     $ 33.0     $ 1.2  
 
                             
 
                                       
Member institutions (6)
    5       22.1                          
 
                                   
Total
    19     $ 36,397.1                          
 
                                   
 
(1)   Credit ratings shown in the table are obtained from Moody’s and are as of June 30, 2011 and December 31, 2010, respectively.
 
(2)   Includes amounts that had not settled as of June 30, 2011 and December 31, 2010.
 
(3)   Amount of collateral to which the Bank had contractual rights under counterparty credit agreements based on June 30, 2011 and December 31, 2010 credit exposures. Cash collateral totaling $25.0 million and $33.0 million was delivered under these agreements in early July 2011 and early January 2011, respectively.
 
(4)   The figures for Aa-rated counterparties as of June 30, 2011 and December 31, 2010 include transactions with a counterparty that is affiliated with a member institution. Transactions with this counterparty had an aggregate notional principal of $1.5 billion and $1.8 billion as of June 30, 2011 and December 31, 2010, respectively. These transactions represented a maximum credit exposure of $3.6 million and $4.9 million to the Bank as of June 30, 2011 and December 31, 2010, respectively.
 
(5)    The figures for A-rated counterparties as of June 30, 2011 and December 31, 2010 include transactions with one counterparty that is affiliated with a non-member shareholder of the Bank. Transactions with that counterparty had an aggregate notional principal of $4.2 billion and $4.5 billion as of June 30, 2011 and December 31, 2010, respectively. These transactions did not represent a credit exposure to the Bank at June 30, 2011 and represented a maximum credit exposure of $1.1 million to the Bank as of December 31, 2010.
 
(6)   This product offering and the collateral provisions associated therewith are discussed in the paragraph below.
The Bank offers interest rate swaps, caps and floors to its members to assist them in meeting their risk management objectives. In derivative transactions with its members, the Bank acts as an intermediary by entering into an interest rate exchange agreement with the member and then entering into an offsetting interest rate exchange agreement with one of the Bank’s derivative counterparties discussed above. When entering into interest rate exchange agreements with its members, the Bank requires the member to post eligible collateral in an amount equal to the sum of the net market value