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EX-32.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION - Federal Home Loan Bank of Seattleexh32-1.htm
EX-31.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION - Federal Home Loan Bank of Seattleexh31-1.htm
EX-31.2 - CHIEF ACCOUNTING AND ADMINISTRATIVE OFFICER CERTIFICATION - Federal Home Loan Bank of Seattleexh31-2.htm
EX-32.2 - CHIEF ACCOUNTING AND ADMINISTRATIVE OFFICER CERTIFICATION - Federal Home Loan Bank of Seattleexh32-2.htm



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
 
FORM 10-Q
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
 
Commission File No. 000-51406

 
FEDERAL HOME LOAN BANK OF SEATTLE
(Exact name of registrant as specified in its charter)
 
 
 
   
Federally chartered corporation
91-0852005
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
   
1501 Fourth Avenue, Suite 1800, Seattle, WA
98101-1693
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (206) 340-2300

 
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  x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o 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  x  (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  x
 
The registrant’s stock is not publicly traded and is generally only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, and subject to certain regulatory and statutory limits. As of October 31, 2009, the registrant had 1,588,642 shares of Class A capital stock and 26,367,991 shares of Class B capital stock outstanding.

 
 
 

 

 
FEDERAL HOME LOAN BANK OF SEATTLE
 
Form 10-Q for the quarterly period ended September 30, 2009
 
 
     
   
Page
 
 
PART I. FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements:
 
     
  3
     
  4
     
  5
     
 
     
  8
     
Item 2.
37
     
Item 3.
73 
     
Item 4T.
76 
   
PART II. OTHER INFORMATION
 
     
Item 1.
79 
     
Item 1A.
79 
     
Item 2.
80 
     
Item 3.
80 
     
Item 4.
80 
     
Item 5.
80 
 
   
Item 6.
80
   
81
 

       
 
2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

FEDERAL HOME LOAN BANK OF SEATTLE
(unaudited)
 
 
   
As of
   
As of
 
   
September 30, 2009
   
December 31, 2008
 
(in thousands, except par value)
           
Assets
           
Cash and due from banks
  $ 8,873     $ 1,395  
Interest-bearing deposits (Other FHLBanks: $72 as of September 30, 2009)
    72          
Securities purchased under agreements to resell
    4,750,000       3,900,000  
Federal funds sold
    5,862,300       2,320,300  
Available-for-sale securities (Note 2)
    664,728          
Held-to-maturity securities* (Note 3)
    13,431,347       9,784,891  
Advances (Note 5)
    24,908,356       36,943,851  
Mortgage loans held for portfolio, net of allowance for credit losses of $271
               
and $0 as of September 30, 2009 and December 31, 2008 (Note 6)
    4,292,454       5,087,323  
Accrued interest receivable
    110,054       241,124  
Premises, software, and equipment, net
    15,376       14,228  
Derivative assets (Note 9)
    4,237       31,984  
Other assets
    39,607       36,594  
Total Assets
  $ 54,087,404     $ 58,361,690  
Liabilities and Capital
               
Liabilities
               
Deposits:
               
Interest-bearing
  $ 284,507     $ 582,258  
Total deposits
    284,507       582,258  
Consolidated obligations, net (Note 7):
               
Discount notes
    21,678,303       15,878,281  
Bonds
    29,754,273       38,590,399  
Total consolidated obligations, net
    51,432,576       54,468,680  
Mandatorily redeemable capital stock (Note 8)
    942,156       917,876  
Accrued interest payable
    196,722       337,303  
Affordable Housing Program (AHP)
    10,097       16,210  
Derivative liabilities (Note 9)
    259,278       235,417  
Other liabilities
    34,655       37,621  
Total liabilities
    53,159,991       56,595,365  
Commitments and contingencies (Note 13)
               
Capital (Note 8)
               
Capital stock:
               
Class B capital stock putable ($100 par value) - issued and
               
outstanding shares: 17,181 and 17,302 shares as of September 30, 2009
               
and December 31, 2008
    1,718,174       1,730,287  
Class A capital stock putable ($100 par value) - issued and
               
outstanding shares: 1,346 and 1,179 shares as of September 30, 2009
               
and December 31, 2008
    134,563       117,853  
Total capital stock
    1,852,737       1,848,140  
Retained earnings (accumulated deficit)
    70,206       (78,876 )
Accumulated other comprehensive loss (Note 8)
    (995,530 )     (2,939 )
Total capital
    927,413       1,766,325  
Total Liabilities and Capital
  $ 54,087,404     $ 58,361,690  

*
Estimated fair values of held-to-maturity securities were $12,885,820 and $7,857,197 as of September 30, 2009 and December 31, 2008.
 


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

        
 
3


(Unaudited)
 
 

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
(in thousands)
                       
Interest Income
                       
Advances
  $ 74,354     $ 271,851     $ 358,858     $ 982,384  
Prepayment fees on advances, net
    1,869       21       7,502       21,958  
Interest-bearing deposits
    24               203          
Securities purchased under agreements to resell
    1,808       8,357       6,564       8,730  
Federal funds sold
    1,965       58,473       4,813       186,168  
Available-for-sale securities
            1               1  
Held-to-maturity securities (Other FHLBanks' consolidated obligations -
                               
$0 and $23,078 for the nine months ended September 30, 2009 and 2008)
    50,472        118,136        162,693        357,200  
Mortgage loans held for portfolio
    53,382       66,070       180,799       205,341  
Loans to other FHLBanks
            21               37  
Total interest income
    183,874       522,930       721,432       1,761,819  
Interest Expense
                               
Consolidated obligations - discount notes
    9,826       150,617       63,224       414,881  
Consolidated obligations - bonds
    125,992       320,545       486,982       1,165,367  
Deposits
    158       5,264       885       19,598  
Securities sold under agreements to repurchase
            2,919               2,924  
Mandatorily redeemable capital stock and other borrowings
            391               1,013  
Total interest expense
    135,976       479,736       551,091       1,603,783  
Net Interest Income Before Provision for Credit Losses
    47,898       43,194       170,341       158,036  
Provision for credit losses on mortgage loans held for portfolio
    (14 )             (271 )        
Net Interest Income
    47,884       43,194       170,070       158,036  
Other Loss
                               
Service fees
    845       453       1,989       1,344  
Net realized gain from sale of held-to-maturity securities
                            1,374  
Total other-than-temporary impairment (OTTI) loss (Note 4)
    (84,979 )     (49,830 )     (1,240,173 )     (49,830 )
Portion of OTTI losses recognized in other comprehensive loss, net
    (45,121 )             976,654          
Net OTTI loss recognized in income
    (130,100 )     (49,830 )     (263,519 )     (49,830 )
Net gain (loss) on derivatives and hedging activities
    2,553       5,557       (8,413 )     17,605  
Net realized loss on early extinguishment of consolidated obligations
    (301 )     (2,541 )     (5,268 )     (25,213 )
Other (loss) income, net
    (15 )     19       2       (89 )
Total other loss
    (127,018 )     (46,342 )     (275,209 )     (54,809 )
Other Expense
                               
Operating:
                               
Compensation and benefits
    8,579       6,240       22,173       18,832  
Other operating
    5,026       4,478       13,762       13,564  
Federal Housing Finance Agency
    446       502       1,389       1,507  
Office of Finance
    494       575       1,430       1,462  
Provision for credit loss on receivable
            10,430               10,430  
Other, net
    127       155       407       393  
Total other expense
    14,672       22,380       39,161       46,188  
(Loss) Income Before Assessments
    (93,806 )     (25,528 )     (144,300 )     57,039  
Assessments
                               
Affordable Housing Program
            (2,044 )             4,759  
REFCORP
            (4,697 )     33       10,456  
Total assessments
            (6,741 )     33       15,215  
Net (Loss) Income
  $ (93,806 )   $ (18,787 )   $ (144,333 )   $ 41,824  


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

        
 
4


 

 
(Unaudited)
 
 

For the Nine Months Ended
 
Class A Capital Stock*
   
Class B Capital Stock*
   
Retained Earnings (Accumulated
   
Accumulated Other Comprehensive
       
September 30, 2009 and 2008
 
Shares
   
Par Value
   
Shares
   
Par Value
   
Deficit)
   
Loss
   
Total Capital
 
(amounts and shares in thousands)
                                         
Balance, December 31, 2007
    2,874     $ 287,449       21,411     $ 2,141,141     $ 148,723     $ (1,420 )   $ 2,575,893  
Proceeds from sale of capital stock
    5,678       567,754       4,021       402,086                       969,840  
Repurchase/redemption of capital stock
    (4,589 )     (458,947 )                                     (458,947 )
Net shares reclassified to mandatorily
                                                       
redeemable capital stock
                    (632 )     (63,272 )                     (63,272 )
Comprehensive income:
                                                       
Net income
                                    41,824               41,824  
Other comprehensive income (Note 8)
                                            159       159  
Total comprehensive income
                                                    41,983  
Dividends on capital stock:
                                                       
Cash
                                    (28,235 )             (28,235 )
Balance, September 30, 2008
    3,963     $ 396,256       24,800     $ 2,479,955     $ 162,312     $ (1,261 )   $ 3,037,262  
Balance, December 31, 2008
    1,179     $ 117,853       17,302     $ 1,730,287     $ (78,876 )   $ (2,939 )   $ 1,766,325  
Cumulative effect adjustment (Notes 1 and 8)
                                    293,415       (293,415 )        
Proceeds from sale of capital stock
    195       19,535       100       10,012                       29,547  
Net shares reclassified to mandatorily
                                                       
redeemable capital stock
    (28 )     (2,825 )     (221 )     (22,125 )                     (24,950 )
Comprehensive loss:
                                                       
Net loss
                                    (144,333 )             (144,333 )
Other comprehensive loss (Note 8)
                                            (699,176 )     (699,176 )
Total comprehensive loss
                                                    (843,509 )
Balance, September 30, 2009
    1,346     $ 134,563       17,181     $ 1,718,174     $ 70,206     $ (995,530 )   $ 927,413  
                                                         
* Putable.
                                                       


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

        
 
5


(Unaudited)
 
 
   
For the Nine Months Ended September 30,
 
   
2009
   
2008
 
(in thousands)
           
Operating Activities
           
Net (loss) income
  $ (144,333 )   $ 41,824  
Adjustments to reconcile net (loss) income to net cash (used in)
               
provided by operating activities:
               
Depreciation and amortization
    (121,399 )     (232 )
Provision for credit losses on mortgage loans
    271          
Change in net fair value adjustment on derivative and hedging activities
    (24,385 )     145,758  
Loss on extinguishment of consolidated obligations
    5,269       25,213  
Gain on sale of held-to-maturity securities
            (1,374 )
Net other-than-temporary impairment loss
    263,519       49,830  
Other
    14       501  
Net change in:
               
Accrued interest receivable
    131,067       135,434  
Other assets
    (941 )     4,923  
Accrued interest payable
    (140,580 )     (200,025 )
Other liabilities
    (9,263 )     (6,062 )
Total adjustments
    103,572       153,966  
Net cash (used in) provided by operating activities
    (40,761 )     195,790  
                 
Investing Activities
               
Net change in:
               
Interest-bearing deposits
    32,311          
Deposits with other FHLBanks
    (72 )        
Securities purchased under agreements to resell
    (850,000 )     (2,000,000 )
Federal funds sold
    (3,542,000 )     (8,931,200 )
Premises, software and equipment
    (3,723 )     (2,851 )
Available for sale securities:
               
Proceeds from sales
            1,940  
Purchases
            (1,940 )
Held-to-maturity securities:
               
Net increase in short-term
    (5,353,000 )     (3,261,361 )
Proceeds from maturities
    1,748,028       2,867,332  
Proceeds from sales
            502,093  
Purchases of long-term
    (1,670,845 )     (1,053,324 )
Advances:
               
Proceeds
    49,869,976       100,682,644  
Made
    (38,009,029 )     (101,525,795 )
Mortgage loans held for portfolio:
               
Principal collections
    790,806       448,883  
Net cash provided by (used in) investing activities
    3,012,452       (12,273,579 )


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

        
 
6


FEDERAL HOME LOAN BANK OF SEATTLE
STATEMENTS OF CASH FLOWS – (CONTINUED)
(Unaudited)
 
 


 
       
   
For the Nine Months Ended September 30,
 
   
2009
   
2008
 
(in thousands)
           
Financing Activities
           
Net change in:
           
Deposits
  $ (281,392 )   $ 436,372  
Securities sold under agreements to repurchase
            262,000  
Net proceeds from issuance of consolidated obligations:
               
Discount notes
    780,550,600       868,082,639  
Bonds
    18,875,945       22,713,728  
Payments for maturing and retiring consolidated obligations:
               
Discount notes
    (774,645,157 )     (852,762,078 )
Bonds
    (27,493,087 )     (26,849,512 )
Proceeds from issuance of capital stock
    29,547       969,840  
Net payments on consolidated obligations transferred to other FHLBanks
            (287,230 )
Payments for repurchase of capital stock
            (458,947 )
Payments for redemption of mandatorily redeemable capital stock
    (669 )        
Cash dividends paid
            (28,235 )
Net cash (used in) provided by financing activities
    (2,964,213 )     12,078,577  
Net increase in cash and cash equivalents
    7,478       788  
Cash and cash equivalents at beginning of the period
    1,395       1,197  
Cash and cash equivalents at end of the period
  $ 8,873     $ 1,985  
                 
Supplemental Disclosures
               
Interest paid
  $ 691,673     $ 1,803,418  
AHP payments
  $ 6,113     $ 5,244  
REFCORP payments
          $ 20,212  
Transfers from mortgage loans held for portfolio to real estate owned
  $ 1,438     $ 238  
Transfers of investments from held-to-maturity to available-for-sale
  $ 664,728          

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

        
 
7



 
NOTE 1. BASIS OF PRESENTATION, USE OF ESTIMATES, SIGNIFICANT ACCOUNTING POLICIES, AND RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS
 
Basis of Presentation
These unaudited financial statements and condensed notes should be read in conjunction with the 2008 audited financial statements and related notes (2008 Audited Financials) included in the 2008 annual report on Form 10-K of the Federal Home Loan Bank of Seattle (Seattle Bank). These unaudited financial statements and condensed notes have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the financial condition, operating results, and cash flows for the interim periods presented have been included. The financial condition as of September 30, 2009 and December 31, 2008 and the operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the condition or results that may be expected as of or for the year ending December 31, 2009. In connection with our preparation of these unaudited financial statements and condensed notes, we evaluated subsequent events after the statement of condition date of September 30, 2009 through November 12, 2009, which is the date the financial statements were issued.
 
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the reported amounts recorded or disclosed in the financial statements. Actual results could differ from our estimates.
 
Significant Accounting Policies
Classification of Investment Securities
The Seattle Bank classifies as held-to-maturity (HTM) debt securities for which it has both the ability and intent to hold to maturity and carries them at amortized cost. Certain other debt securities are classified as available-for-sale (AFS) and carried at their estimated fair values.
 
In accordance with accounting guidance related to accounting for debt securities, changes in circumstances may cause the Seattle Bank to change its previously asserted intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Accordingly, the sale or transfer of a HTM security due to certain changes in circumstances, such as evidence of significant deterioration in the issuer’s creditworthiness, is not considered to be inconsistent with its original classification.
 
On September 30, 2009, we transferred certain of our private-label mortgage-backed securities (PLMBS) with an amortized cost of $1.2 billion and a fair value of $664.7 million from our HTM portfolio to AFS portfolio (see Notes 2 and 3). Upon transfer, the carrying value of these securities was increased by $108.2 million (and recorded in other comprehensive income) to reflect the securities at fair value. These transferred PLMBS had other-than-temporary impairment (OTTI) losses recognized during the quarter ended September 30, 2009, which we believe evidences a significant decline in the issuers’ creditworthiness. We transferred the securities to the AFS portfolio to increase our financial flexibility with respect to these securities.
 
For a description of the Seattle Bank's other significant accounting policies, see Note 1 in our 2008 Audited Financials included in our 2008 annual report on Form 10-K.
 
Recently Issued or Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) established the FASB Accounting Standards CodificationTM (Codification or FASB ASC) as the sole source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (SEC), which remain authoritative for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead it will issue Accounting Standards Updates (ASUs). An ASU will not be considered authoritative in its own right, but will serve to update the Codification, provide background information about the guidance, and provide the basis for conclusion on the change(s) in the Codification. As the Codification is not intended to change or alter existing GAAP, our adoption of the Codification effective September 30, 2009 had no impact on our financial condition, results of operations, or cash flows. Technical references to GAAP in these condensed notes to the financial statements are provided using the new FASB ASC numbering system.
 
In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (ASU 2009-05). ASU 2009-05 amends FASB ASC 820, Fair Value Measurements and Disclosures, to reduce ambiguity in financial reporting when measuring the fair value of liabilities. The guidance in the update is effective for the Seattle Bank for the fourth quarter of 2009.  We do not expect ASU 2009-05 to have a significant effect on our financial condition, results of operations, or cash flows.
 
We adopted guidance issued by the FASB in May 2009 and subsequently codified in FASB ASC 855, Subsequent Events. FASB ASC 855 establishes general standards of accounting and disclosure for events that occur after the statement of condition date but before financial statements are issued or available to be issued. FASB ASC 855 sets forth the period after the date of the statement of condition date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements and also addresses the circumstances under which an entity should recognize events or transactions occurring after the statement of condition date and the disclosures that an entity should make. Our adoption of this guidance effective June 30, 2009 had no effect on our financial condition, results of operations, or cash flows.
In June 2009, the FASB issued guidance relating to the accounting for transfers of financial assets, which eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures to provide greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This guidance is effective in the first quarter of 2010 for the Seattle Bank. We are currently evaluating this guidance to determine its impact on our financial condition, results of operations, and cash flows.
 
In June 2009, the FASB issued guidance relating to the consolidation of variable interest entities (VIEs). This guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE using an approach that focuses on identifying which enterprise has the power to direct the activities of a VIE and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the guidance provides more timely and useful information about an enterprise’s involvement with a VIE. This guidance is effective for the Seattle Bank in the first quarter of 2010. We are currently evaluating this guidance to determine its impact on our financial condition, results of operations, and cash flows.
 
In February 2008, the FASB issued guidance which delayed the effective date of FASB ASC 820 by one year for non-financial assets and liabilities, except for items that are recognized or disclosed in the financial statements on a recurring basis. Application of FASB ASC 820 as of January 1, 2009 to our non-financial assets and liabilities, which consisted primarily of real estate owned, did not have a significant effect on our financial condition, results of operations, and cash flows.
 
We also adopted new guidance which clarifies the application of FASB ASC 820 when there is no active market or where the price inputs being used represent distressed sales and provides additional direction for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and for identifying transactions that are not orderly. Our adoption of this guidance for the quarter ended March 31, 2009, had no material impact on our financial condition, results of operations, or cash flows.
 
We adopted new guidance affecting FASB ASC 825, Financial Instruments, which requires disclosures about the fair value of financial instruments, including disclosure of the method(s) and significant assumptions used to estimate fair value, in interim as well as annual financial statements. We adopted this guidance for the quarter ended March 31, 2009, with no effect on our financial condition, results of operations, cash flows, or existing interim disclosures.
 
In April 2009, the FASB issued guidance affecting FASB ASC 320, Investments – Debt and Equity Securities, which amends GAAP for debt securities regarding OTTI. The guidance clarifies the interaction of the factors to be considered when determining whether a debt security is other-than-temporarily impaired and changes the presentation and calculation of the OTTI on debt securities in the financial statements. In addition, the guidance expands and increases the frequency of existing disclosures about OTTI and requires new disclosures concerning the significant inputs used in determining a credit loss, as well as a rollforward of credit losses each period. If the fair value of a debt security is less than its amortized cost basis, an entity must assess whether (a) it has the intent to sell the debt security or (b) it is more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI on the security must be recognized in the statement of income for the difference between the fair value of the debt security and its amortized cost basis.
 
In instances in which a determination is made that a credit loss (defined in FASB ASC 320 as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its amortized cost basis (i.e., the previous amortized cost basis less any current-period credit loss), the guidance changes the presentation and amount of the OTTI recognized in the statement of income. In these instances, the impairment is separated into (a) the amount related to the credit loss and (b) the amount related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total OTTI related to all other factors (i.e., the “non-credit” component) is recognized in other comprehensive income and is amortized over the remaining life of the debt security as an increase in the carrying value of the security (with no effect on earnings unless the security is subsequently sold or there are additional decreases in cash flows expected to be collected). Previously, in all cases, if an impairment was determined to be other than temporary, an impairment loss was recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value.
 
We early adopted this guidance as of January 1, 2009, and recognized the effects of application as a change in accounting principle. To reclassify the non-credit component of OTTI recognized in prior periods, we recorded a $293.4 million cumulative effect adjustment, as an increase to our retained earnings at January 1, 2009, with a corresponding adjustment to accumulated other comprehensive loss. Application of the new guidance increased our net loss by $45.1 million and decreased our net loss by $976.7 million for the three and nine months ended September 30, 2009; these amounts represent the non-credit portion of our total OTTI losses for these periods. The guidance also increased financial statement disclosures (see Note 4).
 
We adopted new guidance affecting FASB ASC 815, Derivatives and Hedging, which requires enhanced disclosures on the effects of derivative instruments and hedging activities on an entity’s financial position, financial performance, and cash flows. Our adoption of this guidance as of January 1, 2009 resulted in additional financial statement disclosures (see Note 9), but did not impact our financial condition, results of operations, or cash flows.
 
 
NOTE 2. AVAILABLE-FOR-SALE SECURITIES
 
On September 30, 2009, we transferred certain of our PLMBS with an amortized cost of $1.2 billion and a fair value of $664.7 million from our HTM portfolio to AFS. Upon transfer, the carrying value of these securities was increased by $108.2 million (and recorded in other comprehensive loss) to reflect the securities at fair value. The transferred PLMBS had OTTI losses recognized during the three months ended September 30, 2009, which the Seattle Bank considers to be evidence of a significant deterioration in the issuers' creditworthiness. The Seattle Bank transferred the securities to the AFS portfolio to increase its financial flexibility with respect to these securities.
 
Major Security Types
The following table summarizes our AFS securities as of September 30, 2009.
 
   
As of September 30, 2009
 
AFS Securities
 
Amortized Cost Basis (1)
   
OTTI Recognized in Other Comprehensive Loss
   
Gross Unrealized Gains
   
Estimated Fair Value
 
(in thousands)
                       
Residential Mortgage-Backed Securities
                       
Private-label
  1,248,485     692,000     108,243     664,728  
Total
  $ 1,248,485     $ 692,000     $ 108,243     $ 664,728  
 
(1)
In accordance with the FASB’s new accounting guidance for OTTI, the amortized cost basis includes unpaid principal balance, unamortized purchase premiums and discounts, and previous other-than-temporary impairments recognized in earnings.

The amortized cost of our PLMBS classified as AFS includes net purchase discounts of $18,000, credit losses of $198.4 million and OTTI related accretion adjustments of $381,000 as of September 30, 2009.
 
As of September 30, 2009, we held $412.0 million of AFS securities originally purchased from members or affiliates of members who own more than 10% of our total outstanding capital stock and outstanding mandatorily redeemable capital stock or members with representatives serving on our Board of Directors (Board). These securities were transferred from our HTM portfolio on September 30, 2009. See Note 12 for additional information concerning these related parties.
 
The following table presents a reconciliation of the accumulated other comprehensive loss related to AFS securities as of September 30, 2009.
 
   
As of
 
Accumulated Other Comprehensive Loss Related to AFS Securities
 
September 30, 2009
 
(in thousands)
     
OTTI loss recognized in accumulated other comprehensive loss
  $ 692,000  
Subsequent unrealized changes in fair value
    (108,243 )
Accumulated other comprehensive loss related to AFS securities
  $ 583,757  

Unrealized Losses on Available-for-Sale Securities
The following table summarizes our AFS securities with gross unrealized losses, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2009. The unrealized losses include other-than-temporary impairments recognized in other comprehensive loss and gross unrecognized holding gains and losses, as applicable.
 
   
As of September 30, 2009
 
   
12 months or more
   
Total
 
AFS Securities in Unrealized Loss Positions
 
Estimated
   
Unrealized
   
Estimated
   
Unrealized
 
 
Fair Value
   
Losses
   
Fair Value
   
Losses
 
(in thousands)
                       
Residential Mortgage-Backed Securities
                       
Other-than-temporarily impaired private-label
  $ 664,728     $ 583,757     $ 664,728     $ 583,757  
Total
  $ 664,728     $ 583,757     $ 664,728     $ 583,757  

 
Redemption Terms
The amortized cost and estimated fair value of AFS securities by contractual maturity as of September 30, 2009 are shown below. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
   
As of September 30, 2009
 
   
Amortized
   
Estimated
 
Year of Maturity
 
Cost Basis
   
Fair Value
 
(in thousands)
           
Residential Mortgage-Backed Securities
           
Due after 10 years
  $ 1,248,485     $ 664,728  
Total
  $ 1,248,485     $ 664,728  

 
Credit Risk
A detailed discussion of credit risk on our PLMBS, including those classified as AFS, and our assessment of OTTI of such securities is included in Note 4.
 
NOTE 3. HELD-TO-MATURITY SECURITIES
 
For accounting policies and additional information concerning HTM securities, see Notes 1 and 5 in our 2008 Audited Financials included in our 2008 annual report on Form 10-K.
 
On September 30, 2009, the Seattle Bank transferred certain PLMBS from its HTM portfolio to its AFS portfolio (see Note 2).
 
Major Security Types
The following tables summarize our HTM securities as of September 30, 2009 and December 31, 2008.
 
 
   
As of September 30, 2009
 
         
OTTI
                     
         
Recognized in
     
Gross
   
Gross
       
Held-to-Maturity Securities
 
Amortized 
Cost Basis (1)
   
Other Comprehensive Loss
 
Carrying
Value (2)
 
Unrecognized Holding 
Gains (3)
   
 Unrecognized Holding
Losses (3)
   
Estimated Fair Value
 
(in thousands)
                               
Certificates of deposit (4)
  $ 6,603,000    $     $ 6,603,000   $ 409     $ (48 )   $ 6,603,361  
Other U.S. agency obligations (5)
    53,010           53,010     783       (85 )     53,708  
Government-sponsored enterprises (6)
    595,233           595,233     54,937               650,170  
State or local housing agency obligations
    4,460           4,460                     4,460  
      Subtotal
    7,255,703           7,255,703     56,129       (133 )     7,311,699  
Residential Mortgage-Backed Securities
                                         
Government-sponsored enterprises (6)
    3,134,024           3,134,024     35,902       (12,450 )     3,157,476  
Other U.S. agency obligations(5)
    4,386           4,386     85               4,471  
Private-label
    3,445,419    
 (408,185)
    3,037,234     56,854       (681,914 )     2,412,174  
     Subtotal
    6,583,829    
 (408,185)
    6,175,644     92,841       (694,364 )     5,574,121  
Total
  $ 13,839,532    $
 (408,185)
  $ 13,431,347   $ 148,970     $ (694,497 )   $ 12,885,820  
 
 
   
As of December 31, 2008
 
       
Gross
   
Gross
       
   
Amortized
 
Unrealized
   
Unrealized
   
Estimated
 
Held-to-Maturity Securities
 
Cost Basis (2)
 
Gains (3)
   
Losses (3)
   
Fair Value
 
(in thousands)
                     
Other U.S. agency obligations (5)
  $ 64,164   $ 876     $ (68 )   $ 64,972  
Government-sponsored enterprises (6)
    875,604     62,480               938,084  
State or local housing agency obligations
    5,700     1               5,701  
Other (7)
    1,250,000     1,118               1,251,118  
      Subtotal
    2,195,468     64,475       (68 )     2,259,875  
Residential Mortgage-Backed Securities
                             
Government-sponsored enterprises (6)
    1,997,942     12,855       (24,074 )     1,986,723  
Other U.S. agency obligations (5)
    4,759     10       (19 )     4,750  
Private-label
    5,586,722             (1,980,873 )     3,605,849  
     Subtotal
    7,589,423     12,865       (2,004,966 )     5,597,322  
Total
  $ 9,784,891   $ 77,340     $ (2,005,034 )   $ 7,857,197  
 
(1)
In accordance with the FASB’s new accounting guidance for OTTI, effective January 1, 2009, the amortized cost basis includes unpaid principal balance, unamortized purchase premiums and discounts, and previous other-than-temporary impairments recognized in earnings.
(2)
In accordance with the FASB’s new accounting guidance for OTTI, effective January 1, 2009, the carrying value of HTM securities represents amortized cost after adjustment for any non-credit related impairment (including subsequent accretion) recognized in other comprehensive loss. As of December 31, 2008, carrying value equaled amortized cost.
(3)
Gross unrecognized holding gains/(losses) represent the difference between fair value and carrying value, while gross unrealized gains (losses) represent the difference between fair value and amortized cost.
(4)
Consists of certificates of deposit that meet the definition of a debt security.
(5)
Primarily consists of Government National Mortgage Association (Ginnie Mae) or Small Business Association (SBA) investment pools.
(6)
Primarily consists of debt securities issued by Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), or Tennessee Valley Authority (TVA).
(7)
Consists of promissory notes guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP).
 
The amortized cost of our MBS investments classified as HTM included net purchase discounts of $33.8 million, credit losses of $73.8 million and OTTI related accretion adjustments of $257,000 as of September 30, 2009.  As of December 31, 2008, the amortized cost of our MBS investments classified as HTM included net purchase discounts of $23.0 million.
 
As of September 30, 2009, we had $7.0 million par value in securities pledged as collateral to banks and major broker-dealers under bilateral collateral agreements that cannot be sold or repledged.
 
As of September 30, 2009 and December 31, 2008, we held $948.1 million and $938.8 million of HTM securities purchased from members or affiliates of members who own more than 10% of our total outstanding capital stock and outstanding mandatorily redeemable capital stock or members with representatives serving on our Board. See Note 12 for additional information concerning these related parties.
 
Unrealized Losses on Held-to-Maturity Securities
The following tables summarize our HTM securities with gross unrealized losses, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2009 and December 31, 2008. The unrealized losses include other-than-temporary impairments recognized in other comprehensive loss and gross unrecognized holding losses.
 
   
As of September 30, 2009
 
   
Less than 12 months
   
12 months or more
   
Total
 
         
Gross
         
Gross
         
Gross
 
Held-to-Maturity Securities in Unrealized Loss Positions
 
Estimated
   
Unrealized
   
Estimated
   
Unrealized
   
Estimated
   
Unrealized
 
 
Fair Value
   
Losses
   
Fair Value
   
Losses
   
Fair Value
   
Losses
 
(in thousands)
                                   
Certificates of deposit
  $ 1,751,952     $ (48 )    $      $     $ 1,751,952     $ (48 )
Other U.S. agency obligations (1)
    6,564       (23 )     6,874       (62 )     13,438       (85 )
      Subtotal
    1,758,516       (71 )     6,874       (62 )     1,765,390       (133 )
Residential Mortgage-Backed Securities
                                               
Government-sponsored enterprises (2)
    1,317,307       (8,124 )     183,924       (4,326 )     1,501,231       (12,450 )
Temporarily impaired private-label
    10,544       (23 )     1,872,920       (681,891 )     1,883,464       (681,914 )
Other-than-temporarily impaired private-label
                    400,724       (408,185 )     400,724       (408,185 )
     Subtotal
    1,327,851       (8,147 )     2,457,568       (1,094,402 )     3,785,419       (1,102,549 )
Total
  $ 3,086,367     $ (8,218 )   $ 2,464,442     $ (1,094,464 )   $ 5,550,809     $ (1,102,682 )
                                                 
 
 
   
As of December 31, 2008
 
   
Less than 12 months
   
12 months or more
   
Total
 
         
Gross
         
Gross
         
Gross
 
Held-to-Maturity Securities in Unrealized Loss Positions
 
Estimated
   
Unrealized
   
Estimated
   
Unrealized
   
Estimated
   
Unrealized
 
 
Fair Value
   
Losses
   
Fair Value
   
Losses
   
Fair Value
   
Losses
 
(in thousands)
                                   
Other U.S. agency obligations (1)
  $ 8,107     $ (68 )    $      $     $ 8,107     $ (68 )
      Subtotal
    8,107       (68 )                 8,107       (68 )
Residential Mortgage-Backed Securities
                                     
Other U.S. agency obligations (1)
    4,118       (19 )                 4,118       (19 )
Government-sponsored enterprises (2)
    536,268       (15,380 )     429,243       (8,694 )     965,511       (24,074 )
Private-label
    1,045,671       (219,697 )     2,401,023       (1,761,176 )     3,446,694       (1,980,873 )
     Subtotal
    1,586,057       (235,096 )     2,830,266       (1,769,870 )     4,416,323       (2,004,966 )
Total
  $ 1,594,164     $ (235,164 )   $ 2,830,266     $ (1,769,870 )   $ 4,424,430     $ (2,005,034 )
                                                 
 
(1)
Primarily consists of Ginnie Mae or SBA investment pools.
(2)
Primarily consists of securities issued by Freddie Mac, Fannie Mae, or TVA.

 
As of September 30, 2009, 170 of our HTM investments had gross unrealized losses totaling $1.1 billion, with the total estimated fair value of these positions approximating 89.7% of their carrying value. Of these 170 positions, 139 had gross unrealized losses for at least 12 months. As of December 31, 2008, 186 of our HTM investments had gross unrealized losses totaling $2.0 billion, with the total estimated fair value of these positions approximating 68.8% of their carrying value. Of these 186 positions, 127 had gross unrealized losses for at least 12 months.
 
Redemption Terms
The amortized cost, carrying value, and estimated fair value, as applicable, of HTM securities by contractual maturity as of September 30, 2009 and December 31, 2008 are shown below. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
      As of September 30, 2009    
As of December 31, 2008
 
   
Amortized
   
Carrying
   
Estimated
   
Amortized
   
Estimated
 
Year of Maturity
 
Cost Basis
   
Value
   
Fair Value
   
Cost Basis (1)
   
Fair Value
 
(in thousands)
                             
Non-Mortgage-Backed Securities
                             
Due in one year or less
  $ 6,812,267     $ 6,812,267     $ 6,817,041     $ 1,524,889     $ 1,527,528  
Due after one year through five years
    405,024       405,024       456,074       628,059       689,602  
Due after five years through 10 years
    7,629       7,629       7,623       4,622       4,636  
Due after 10 years
    30,783       30,783       30,961       37,898       38,109  
      Subtotal
    7,255,703       7,255,703       7,311,699       2,195,468       2,259,875  
Mortgage-Backed Securities
    6,583,829       6,175,644       5,574,121       7,589,423       5,597,322  
Total
  $ 13,839,532     $ 13,431,347     $ 12,885,820     $ 9,784,891     $ 7,857,197  
 
(1)
As of December 31, 2008, the amortized cost basis of HTM securities equaled their carrying value.
 
12

Credit Risk
A detailed discussion of credit risk on our investments, including those classified as HTM, and our assessment of OTTI of such securities is included in Note 4.
 
NOTE 4. INVESTMENT CREDIT RISK AND ASSESSMENT FOR OTHER-THAN-TEMPORARY IMPAIRMENT
 
Credit Risk
Our MBS investments consist of agency-guaranteed securities and senior tranches of privately issued prime, Alt-A, and subprime MBS, collateralized by residential mortgage loans, including hybrid adjustable-rate mortgages (ARMs), and option ARMs. Our exposure to the risk of loss on our investments in MBS increases when the loans underlying the MBS exhibit high rates of delinquency and foreclosure, as well as losses on the sale of foreclosed properties. In order to reduce our risk of loss on these investments, all of the MBS owned by the Seattle Bank contain one or more of the following forms of credit protection:
 
 
Subordination – where the MBS is structured such that payments to junior classes are subordinated to senior classes to ensure cash flows to the senior classes.
 
Excess spread – where the weighted-average coupon rate of the underlying mortgage loans in the pool is higher than the weighted-average coupon rate on the MBS. The spread differential may be used to cover any losses that may occur.
 
Over-collateralization – where the total outstanding balance on the underlying mortgage loans in the pool is greater than the outstanding MBS balance. The excess collateral is available to cover any losses that may occur.
 
Insurance wrap – where a third-party bond insurance company (e.g., a monoline insurer) guarantees timely payment of principal and interest on the MBS. The bond insurance company is obligated to cover any losses that occur. As of September 30, 2009, the Seattle Bank held $3.4 million in investments with unrealized losses of $1.5 million that had been credit-enhanced by a monoline insurer, MBIA. We also have additional credit enhancements on these securities such that we expect to collect all amounts due according to their contractual terms.
 
Our investments in PLMBS were rated “AAA” (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody’s Investor Service (Moody’s) or Standard & Poor’s (S&P), at their respective purchase dates. The AAA-rated securities achieved their ratings through credit enhancement, primarily subordination and over-collateralization.
 
The following table summarizes the unpaid principal balance, amortized cost, carrying value, and gross unrealized loss of our PLMBS by credit rating and year of issuance, as well as the weighted-average credit enhancement on the applicable securities as of September 30, 2009.
 
 
     
As of September 30, 2009
 
Private-Label Mortgage-Backed Securities Ratings
   
Unpaid
Principal Balance
   
Amortized
Cost
   
Carrying Value
   
Gross
Unrealized Loss
   
Current
Weighted-Average
Credit Enhancement (1)
 
(in thousands, except percentages)
                               
Prime
                               
AAA
                               
2004 and earlier
    $ 796,494     $ 790,913     $ 790,913     $ (26,084 )     7.33  
   A                                          
2004 and earlier
      30,155       30,254       30,254       (907 )     5.68  
Total prime
      826,649       821,167       821,167       (26,991 )     7.27  
                                             
Alt-A
                                         
AAA
                                         
2004 and earlier
      448,217       446,814       446,814       (30,977 )     6.17  
       2005       4,426       4,435       4,435       (1,817 )     46.63  
       2008       328,115       327,739       327,739       (115,448 )     33.16  
AA
                                         
2004 and earlier
      43,579       43,665       43,665       (11,632 )     13.70  
       2005       42,025       42,041       42,041       (24,555 )     29.85  
   A                                          
    2004 and earlier
      15,283       15,205       15,205       (2,262 )     11.30  
       2005       7,220       7,012       3,406       (3,606 )     31.40  
       2007       77,621       77,621       77,621       (40,989 )     44.06  
BBB
                                         
       2005       21,807       21,771       16,345       (10,841 )     42.34  
       2006       49,168       49,168       49,168       (14,812 )     54.03  
       2007       67,909       67,854       67,854       (33,088 )     44.68  
       2008       77,412       76,271       47,866       (28,405 )     40.87  
BB