Federal Home Loan Bank of Atlanta - FORM 10-K

Attached files

file	filename
EX-31.2 - CERTIFICATION OF THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - Federal Home Loan Bank of Atlanta	dex312.htm
EX-10.4 - DIRECTORS' COMPENSATION POLICY - Federal Home Loan Bank of Atlanta	dex104.htm
EX-31.1 - CERTIFICATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER - Federal Home Loan Bank of Atlanta	dex311.htm
EX-99.1 - AUDIT COMMITTEE REPORT - Federal Home Loan Bank of Atlanta	dex991.htm
EX-12.1 - STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES - Federal Home Loan Bank of Atlanta	dex121.htm
EX-32.1 - CERTIFICATION OF PRESIDENT & CHIEF EXECUTIVE OFFICER & EXECUTIVE VICE PRESIDENT - Federal Home Loan Bank of Atlanta	dex321.htm
EX-3.2 - BYLAWS OF THE FEDERAL HOME LOAN BANK OF ATLANTA (REVISED AND RESTATED) - Federal Home Loan Bank of Atlanta	dex32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-51845

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)


Federally chartered corporation		56-6000442
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1475 Peachtree Street, NE, Atlanta, Ga.		30309
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (404) 888-8000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class B Stock, par value $100

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small 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 ¨		Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x No

Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2009, the aggregate par value of the stock held by current and former members of the registrant was $8,224,819,700, and 82,248,197 total shares were outstanding as of that date. At February 28, 2010, 83,226,135 total shares were outstanding.

Table of Contents


PART I

Item 1.	Business	4
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments	28
Item 2.	Properties	28
Item 3.	Legal Proceedings	28
Item 4.	(Removed and Reserved)	28

PART II

Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	83
Item 8.	Financial Statements and Supplementary Data	84
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	146
Item 9A.	Controls and Procedures	146
Item 9B.	Other Information	146

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	147
Item 11.	Executive Compensation	154
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	172
Item 13.	Certain Relationships, Related Transactions and Director Independence	173
Item 14.	Principal Accountant Fees and Services	174

PART IV

Item 15.	Exhibits and Financial Statement Schedules	175
SIGNATURES		S-1

Important Notice About Information in this Annual Report

In this annual report on Form 10-K, which we refer to as this “Report,” unless the context suggests otherwise, references to the “Bank” mean the Federal Home Loan Bank of Atlanta. “FHLBanks” means the 12 district Federal Home Loan Banks, including the Bank, and “FHLBank System” means the Federal Home Loan Banks and the Federal Home Loan Banks Office of Finance (“Office of Finance”), as regulated by the Federal Housing Finance Agency, or the “Finance Agency,” successor to the Federal Housing Finance Board (the “Finance Board”) effective on July 30, 2008. “FHLBank Act” means the Federal Home Loan Bank Act of 1932, as amended.

The information contained in this Report is accurate only as of the date of this Report and as of the dates specified herein.

The product and service names used in this Report are the property of the Bank and, in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services, and company names mentioned in this Report are the property of their respective owners.

Special Cautionary Notice Regarding Forward-looking Statements

Some of the statements made in this Report may be “forward-looking statements,” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided by the same. Forward-looking statements include statements with respect to the Bank’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, many of which may be beyond the Bank’s control and which may cause the Bank’s actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. The reader can identify these forward-looking statements through the Bank’s use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. Such forward-looking statements include statements regarding any one or more of the following topics:

•

The Bank’s business strategy and changes in operations, including, without limitation, product growth and change in product mix

•

Future performance, including profitability, dividends, developments, or market forecasts

•

Forward-looking accounting and financial statement effects

•

Those other factors identified and discussed in the Bank’s public filings with the Securities and Exchange Commission (“SEC”).

It is important to note that the description of the Bank’s business is a statement about the Bank’s operations as of a specific date. It is not meant to be construed as a policy, and the Bank’s operations, including the portfolio of assets held by the Bank, are subject to reevaluation and change without notice.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, any one or more of the following factors:

•

Future economic and market conditions, including, for example, inflation and deflation, the timing and volume of market activity, general consumer confidence and spending habits, the strength of local economies in which the Bank conducts its business, and interest-rate changes that affect the housing markets

•

Demand for Bank advances resulting from changes in members’ deposit flows and credit demands, as well as from other sources of funding and liquidity available to members

•

Volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for the obligations of Bank members and counterparties to interest-rate exchange agreements and similar agreements

•

The risks of changes in interest rates on the Bank’s interest-rate sensitive assets and liabilities

•

Changes in various governmental monetary or fiscal policies, as well as legislative and regulatory changes, including changes in accounting principles generally accepted in the United States of America, or “GAAP,” and related industry practices and standards, or the application thereof

•

Political, national, and world events, including acts of war, terrorism, natural disasters or other catastrophic events, and legislative, regulatory, judicial, or other developments that affect the economy, the Bank’s market area, the Bank, its members, counterparties, its federal regulator, and/or investors in the consolidated obligations of the 12 FHLBanks

•

Competitive forces, including other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled individuals

•

The Bank’s ability to develop, implement, promote the efficient performance of, and support technology and information systems, including the Internet, sufficient to measure and manage effectively the risks of the Bank’s business

•

Changes in investor demand for consolidated obligations of the FHLBanks and/or the terms of interest-rate exchange agreements and similar agreements, including changes in investor preference and demand for certain terms of these instruments, which may be less attractive to the Bank, or which the Bank may be unable to offer

•

The Bank’s ability to introduce, support, and manage the growth of new products and services and to manage successfully the risks associated with those products and services

•

The Bank’s ability to manage successfully the risks associated with any new types of collateral securing advances

•

The availability from acceptable counterparties, upon acceptable terms, of options, interest-rate and currency swaps, and other derivative financial instruments of the types and in the quantities needed for investment funding and risk-management purposes

•

The uncertainty and costs of litigation, including litigation filed against one or more of the 12 FHLBanks

•

Changes in the FHLBank Act or Finance Agency regulations that affect FHLBank operations and regulatory oversight

•

Adverse developments or events, including financial restatements, affecting or involving one or more other FHLBanks or the FHLBank System in general

•

Other factors and other information discussed herein under the caption “Risk Factors” and elsewhere in this Report, as well as information included in the Bank’s future filings with the SEC.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, those risk factors provided under Item 1A of this Report and in future reports and other filings made by the Bank with the SEC. The Bank operates in a changing economic environment, and new risk factors emerge from time to time. Management cannot predict accurately any new factors, nor can it assess the effect, if any, of any new factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements.

All written or oral statements that are made by or are attributable to the Bank are expressly qualified in their entirety by this cautionary notice. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. The Bank has no obligation and does not undertake publicly to update, revise, or correct any of the forward-looking statements after the date of this Report, or after the respective dates on which these statements otherwise are made, whether as a result of new information, future events, or otherwise, except as otherwise may be required by law.

PART I.

Item 1.

Business.

Overview

The Bank is a federally chartered corporation organized in 1932 and one of 12 district FHLBanks. The FHLBanks, along with the Finance Agency and the Office of Finance, comprise the FHLBank System. The FHLBanks are U.S. government-sponsored enterprises (“GSEs”) organized under the authority of the FHLBank Act. Each FHLBank operates as a separate entity within a defined geographic district and has its own management, employees, and board of directors. The Bank’s defined geographic district includes Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and the District of Columbia.

The Bank is a cooperative owned by member institutions that are required to purchase capital stock in the Bank as a condition of membership. All federally insured depository institutions, insurance companies and certified community development financial institutions (“CDFIs”) chartered in the Bank’s defined geographic district and engaged in residential housing finance are eligible to apply for membership. The Bank’s stock is owned entirely by current or former members and is not publicly traded. As of December 31, 2009, the Bank’s membership totaled 1,195 financial institutions, comprising 874 commercial banks, 112 savings banks, 48 thrifts, 148 credit unions, and 13 insurance companies. On February 4, 2010, the Bank began accepting membership applications from certified CDFIs pursuant to a final rule issued by the Finance Agency establishing membership eligibility and procedural requirements for certified CDFIs.

The primary function of the Bank is to provide a readily available, competitively priced source of funds to these member institutions. The Bank serves the public by providing its member institutions with a source of liquidity, thereby enhancing the availability of credit for residential mortgages and targeted community development. In addition, the Bank has in the past given members a means of selling to the Bank home mortgage loans satisfying prescribed criteria through its mortgage purchase programs.

A primary source of funds for the Bank is proceeds from the sale to the public of FHLBank debt instruments, known as “consolidated obligations,” or “COs,” which are the joint and several obligations of all of the FHLBanks. Deposits, other borrowings, and the issuance of capital stock provide additional funds to the Bank. The Bank accepts deposits from both member and eligible nonmember financial institutions and federal instrumentalities. The Bank also provides members and nonmembers with correspondent banking services such as safekeeping, wire transfer, and cash management.

The Bank is exempt from ordinary federal, state, and local taxation, except real property taxes, and it does not have any subsidiaries nor does it sponsor any off-balance sheet special purpose entities.

As of December 31, 2009, the Bank had total assets of $151.3 billion, total advances of $114.6 billion, total deposits of $3.0 billion, total COs of $138.6 billion, and a retained earnings balance of $872.8 million. The Bank’s net income for the year ended December 31, 2009 was $283.5 million.

As of December 31, 2009, the FHLBanks’ consolidated debt obligations were rated Aaa/P-1 by Moody’s Investors Service (“Moody’s”) and AAA/A-1+ by Standard & Poor’s (“S&P”), which are the highest ratings available from these nationally recognized statistical rating organizations (“NRSROs”). These ratings indicate that Moody’s and S&P have concluded that the FHLBanks have an extremely strong capacity to meet their commitments to pay principal and interest on COs, and that COs are judged to be of the highest quality, with minimal credit risk. The ratings also reflect the FHLBank System’s status as a GSE. Individually, the Bank’s deposit rating at December 31, 2009 was Aaa/P-1 from Moody’s and its long-term counterparty credit rating was AAA/A-1+ from S&P. Investors should understand that these ratings are not a recommendation to buy, sell or hold 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 Finance Board, an independent agency in the executive branch of the U.S. government, supervised and regulated the FHLBanks and the Office of Finance through July 29, 2008. With the passage of the Housing and Economic Recovery Act of 2008 (the “Housing Act”), the Finance Agency was established and became the new independent federal regulator of the FHLBanks, effective July 30, 2008. The Finance Board was merged into the Finance Agency as of October 27, 2008. The Office of Finance, a joint office of the FHLBanks established by the predecessor of the Finance Board, facilitates the issuing and servicing of the FHLBank’s debt instruments and prepares the combined quarterly and annual financial reports of all 12 FHLBanks.

Products and Services

The Bank’s products and services include the following:

•

Credit Products

•

Mortgage Loan Purchase Programs

•

Community Investment Services

•

Cash Management and Other Services

Credit Products

The credit products that the Bank offers to its members include both advances and standby letters of credit.

Advances

Advances are the Bank’s primary product. Advances are fully secured loans made to members and eligible housing finance agencies, called housing associates. The book value of the Bank’s outstanding advances was $114.6 billion and $165.9 billion as of December 31, 2009 and 2008, respectively, and advances represented 75.7 percent and 79.5 percent of total assets as of December 31, 2009 and 2008, respectively. Advances generated 39.1 percent, 71.3 percent, and 74.5 percent of total interest income for the years ended December 31, 2009, 2008 and 2007, respectively. For further discussion of the decrease in total interest income from 2008, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Net Interest Income.”

Advances serve as a funding source to the Bank’s members for a variety of conforming and nonconforming mortgages. Thus, advances support important housing markets, including those focused on low- and moderate-income households. For those members that choose to sell or securitize their mortgages, advances can supply interim funding.

The Bank does not restrict the purpose for which members may use advances, other than indirectly through limitations on eligible collateral and as described below. Generally, member institutions use the Bank’s advances for one or more of the following purposes:

•

Providing funding for single-family mortgages and multifamily mortgages held in the member’s portfolio, including both conforming and nonconforming mortgages

•

Providing temporary funding during the origination, packaging, and sale of mortgages into the secondary market

•

Providing funding for commercial real estate loans

•

Assisting with asset-liability management by matching the maturity and prepayment characteristics of mortgage loans or adjusting the sensitivity of the member’s balance sheet to interest-rate changes

•

Providing a cost-effective alternative to meet contingent liquidity needs.

Pursuant to statutory and regulatory requirements, the Bank may make long-term advances only for the purpose of enabling a member to purchase or fund new or existing residential housing finance assets, which include, for community financial institutions, defined small business loans, small farm loans, small agri-business loans, and community development activities.

The Bank obtains a security interest in eligible collateral to secure a member’s advance prior to the time it originates or renews an advance. Eligible collateral is defined by the FHLBank Act, Finance Agency regulations, and the Bank’s credit and collateral policy. The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank’s security interest in all collateral pledged by the borrower. The Bank perfects its security interest in collateral prior to making an advance to the borrower. As additional security for a member’s indebtedness, the Bank has a statutory and contractual lien on the member’s capital stock in the Bank. The Bank also may require additional or substitute collateral from a borrower, as provided in the FHLBank Act and the financing documents between the Bank and its borrowers.

The Bank assesses member creditworthiness and financial condition typically on a quarterly basis to determine the term and maximum dollar amount of the advances the Bank will lend to a particular member. In addition, the Bank discounts eligible collateral and periodically revalues the collateral pledged by each member to secure its outstanding advances. The Bank has never experienced a credit loss on an advance.

The FHLBank Act affords any security interest granted to the Bank by any member of the Bank, or any affiliate of any such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), other than claims and rights that (1) would be entitled to priority under otherwise applicable law; and (2) are held by actual bona fide purchasers for value or by actual secured parties that are secured by actual perfected security interests.

Pursuant to its regulations, the Federal Deposit Insurance Corporation (“FDIC”) has recognized the priority of an FHLBank’s security interest under the FHLBank Act, and the right of an FHLBank to require delivery of collateral held by the FDIC as receiver for a failed depository institution.

The Bank offers the following standard advance products, which comprise 13.1 percent of total advances:

Adjustable Rate Credit Advance (ARC Advance). The ARC Advance is a long-term advance available for a term of up to 10 years with rate resets at periodic intervals.

Fixed Rate Credit Advance (FRC Advance). The FRC Advance offers fixed-rate funds with principal due at maturity from one month to 10 years; may be shorter or longer if requested.

Daily Rate Credit Advance (DRC Advance). The DRC Advance provides short-term funding with rate resets on a daily basis; similar to federal funds lines. The DRC Advance is available from one day to 24 months.

Advances also are typically customized to fit member needs. The Bank’s customized advances include, among other products, the following:

Callable Advance. The callable advance is a fixed- or variable-rate advance with a fixed maturity and the option for the member to prepay the advance on an option exercise date(s) before maturity without a fee. The options can be Bermudan (periodically during the life of the advance) or European (one-time). The Bank offers this product with a maturity of up to 10 years with options from three months to 10 years.

Hybrid Advance. The hybrid advance is a fixed- or variable-rate advance that allows the inclusion of interest-rate caps and/or floors.

Convertible Advance. The Bank purchases an option from the member that allows the Bank to modify the interest rate on the advance from fixed to variable on certain specified dates. The Bank’s option can be Bermudan or European. The Bank offers this product with a maturity of up to 15 years with options from three months to 15 years.

Capped and Floored Advances. The capped advance includes an interest-rate cap, while the floored advance includes an interest-rate floor. The interest rate on the advance adjusts according to the difference between the interest-rate cap/floor and the established index. The Bank offers this product with a maturity of one year to 10 years.

Expander Advance. The expander advance is a fixed-rate advance with a fixed maturity and an option by the borrower to increase the amount of the advance in the future at a predetermined interest rate. The option may be Bermudan or European. The Bank has established internal limits on the amount of such options that may be sold to mature in any given quarter. The Bank offers this product with a maturity of two years to 20 years with an option exercise date that can be set from one month to 10 years.

The following table sets forth the par value of these customized advances outstanding (in thousands):


	As of December 31,
	2009		2008
Callable advances	$	1,000	$	6,000
Hybrid advances		54,511,300		67,958,600
Convertible advances		19,908,115		30,156,995
Capped/floor advances		19,881,000		21,486,000
Expander advances		1,110,600		1,312,600

Total par value	$	95,412,015	$	120,920,195

The Bank establishes interest rates on advances using the Bank’s cost of funds and the interest-rate swap market. For short-term advances, interest rates are driven primarily by the Bank’s discount note pricing, and for longer term advances, interest rates are driven primarily by CO and interest-rate swap pricing. The Bank establishes an interest rate applicable to each type of advance each day and then adjusts those rates during the day to reflect changes in the cost of funds and interest rates.

The Bank includes prepayment fee provisions in most advance transactions. With respect to callable advances, prepayment fees apply to prepayments on a date other than an option exercise date(s). As required by Finance Agency regulations, the prepayment fee is intended to make the Bank economically indifferent to a borrower’s decision to prepay an advance before maturity or, with respect to a callable advance, on a date other than an option exercise date.

In addition to making advances to member institutions, the Bank makes advances to “housing associates”—nonmembers that are approved mortgagees under Title II of the National Housing Act. Housing associates must be legally chartered and subject to inspection and supervision by a governmental agency. Additionally, their principal activity in the mortgage field must be the lending of their own funds. Housing associates are not subject to certain provisions of the FHLBank Act applicable to members, such as the capital stock purchase requirements. However, with respect to advances, housing associates generally are subject to similar regulatory and policy lending requirements, except that most advances to housing associates are collateralized by cash and securities. Advances to housing associates represented $4.8 million and $111.0 million of the outstanding advances as of December 31, 2009 and 2008, respectively.

The following table presents information on the Bank’s 10 largest borrowers of advances (dollar amounts in thousands):


10 Largest Borrowers of Advances
		As of December 31, 2009
Institution	City, State	Advances Par Value		Percentage of Total Advances	Weighted-average Interest Rate (%)*
Bank of America, National Association	Charlotte, NC	$	37,363,459	34.03	3.80
Branch Banking and Trust Company	Winston Salem, NC		10,687,165	9.73	3.95
Regions Bank	Birmingham, AL		8,283,743	7.54	3.19
Navy Federal Credit Union	Vienna, VA		6,842,685	6.23	4.56
Capital One, National Association	McLean, VA		3,201,889	2.92	4.62
E*TRADE Bank	Arlington, VA		2,303,600	2.10	4.17
BankUnited	Miami Lakes, FL		2,015,350	1.84	3.67
SunTrust Bank	Atlanta, GA		1,992,252	1.81	4.50
Compass Bank	Birmingham, AL		1,481,481	1.35	2.81
Pentagon Federal Credit Union	Alexandria, VA		1,246,000	1.13	4.27

Subtotal (10 largest borrowers)			75,417,624	68.68	4.07
Subtotal (all other borrowers)			34,394,931	31.32	3.42

Total par value		$	109,812,555	100.00	3.77

*	The average interest rate of the member’s advance portfolio weighted by each advance’s outstanding balance.

A description of the Bank’s credit risk management and valuation methodology as it relates to its advance activity is contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk.”

Standby Letters of Credit

The Bank provides members with irrevocable standby letters of credit to support certain obligations of the members to third parties. Members may use standby letters of credit for residential housing finance and community lending or for liquidity and asset-liability management. The Bank requires its borrowers to collateralize fully the face amount of any letter of credit issued by the Bank during the term of the letter of credit. If the Bank is required to make payment for a beneficiary’s draw, these amounts are converted into an advance to the member. The Bank’s underwriting and collateral requirements for standby letters of credit are the same as the underwriting and collateral requirements for advances. Letters of credit are not subject to activity-based capital stock purchase requirements. The Bank has never experienced a credit loss related to a standby letter of credit reimbursement obligation. Unlike advances, standby letters of credit are accounted for as contingent liabilities because a standby letter of credit may expire in accordance with its terms without ever being drawn upon by the beneficiary. The Bank had $18.9 billion and $10.2 billion of outstanding standby letters of credit as of December 31, 2009 and 2008, respectively.

The following table presents information on the Bank’s 10 largest borrowers of advances and standby letters of credit combined (dollar amounts in thousands):


10 Largest Borrowers of Advances and Letters of Credit
		As of December 31, 2009
Institution	City, State	Advances Par Value and Standby Letters of Credit Balance		Percentage of Total Advances Par Value and Standby Letters of Credit
Bank of America, National Association	Charlotte, NC	$	41,977,772	32.61
Branch Banking and Trust Company	Winston Salem, NC		10,732,429	8.34
SunTrust Bank	Atlanta, GA		9,614,974	7.47
Regions Bank	Birmingham, AL		8,356,560	6.49
Navy Federal Credit Union	Vienna, VA		6,842,685	5.32
Compass Bank	Birmingham, AL		4,050,831	3.15
Capital One, National Association	McLean, VA		3,416,398	2.65
E*TRADE Bank	Arlington, VA		2,303,600	1.79
RBC Bank (USA)	Rocky Mount, NC		2,141,852	1.66
BankUnited	Miami Lakes, FL		2,015,350	1.57

Subtotal (10 largest borrowers)			91,452,451	71.05
Subtotal (all other borrowers)			37,269,115	28.95

Total advances par value and standby letters of credit		$	128,721,566	100.00

Mortgage Loan Purchase Programs

Until the middle of 2008, the Bank offered mortgage loan purchase programs to members to provide them an alternative to holding mortgage loans in portfolio or selling them into the secondary market. These programs, the Mortgage Partnership Finance^® Program (“MPF^® Program”) and the Mortgage Purchase Program (“MPP”), are authorized under applicable regulations. Under both the MPF Program and MPP, the Bank purchased loans directly from participating financial institutions (“PFIs”) and not through an intermediary such as a trust. The loans consisted of one-to-four family residential properties with original maturities ranging from five years to 30 years. Depending upon the program, the acquired loans may have included qualifying conventional conforming, government Federal Housing Administration (“FHA”) insured, and Veterans Administration (“VA”) guaranteed fixed-rate mortgage loans. Before 2006, the Bank also purchased participation interests in loans through its Affordable Multifamily Participation Program (“AMPP”).

The Bank stopped accepting additional MPF master commitments as of February 4, 2008, and as of March 31, 2008, ceased purchasing assets under the MPF Program. Early in the third quarter of 2008, the Bank suspended new acquisitions of mortgage loans under the MPP. The Bank plans to continue to support its existing portfolio of MPP and MPF loans.

Regulatory interpretive guidance provides that an FHLBank may sell loans acquired through its mortgage loan purchase programs, so long as it also sells the related credit enhancement obligation, which is discussed below. The Bank currently is not selling loans it has acquired through its mortgage loan purchase programs.

The following table identifies the PFIs from which the Bank has purchased during the year more than 10 percent of its mortgage loans through the above programs:


	Years Ended December 31,
	2009		2008
	Percent of total MPF	Percent of total MPP	Percent of total MPF	Percent of total MPP
First Federal Savings & Loan Association of Charleston	—	—	54.03	—
Branch Banking and Trust Company	—	—	41.72	—
Eastern Financial Florida Credit Union	—	—	*	23.73
Robins Federal Credit Union	—	—	—	24.17
Lee Financial Corporation	—	—	—	19.53
Bank of Dudley	—	—	—	15.65

*	Represents less than 10 percent.

The Bank requires each PFI to make certain representations and warranties to the Bank indicating that it meets the various requirements set forth in the program guides and documents for the MPF Program and MPP. If a PFI breaches its representations or warranties with respect to a loan that the PFI sold to the Bank, the Bank may require the PFI to repurchase the mortgage loan. During 2009, PFIs repurchased six loans from the Bank related to the MPF Program with outstanding principal and interest of $742 thousand and PFIs repurchased one loan from the Bank related to MPP with outstanding principal and interest of $416 thousand.

Descriptions of the MPF Program and MPP underwriting and eligibility standards and credit enhancement structures are contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk.”

MPF Program

The unpaid principal balance of MPF loans held by the Bank was $2.2 billion and $2.9 billion at December 31, 2009 and 2008, respectively. There are several different products available under the MPF Program, which specify varying levels of loss allocation and credit enhancement structures. These products include: Original MPF^®, MPF^® 100, MPF^® 125, and MPF^® Plus. The following table shows the unpaid principal loan balances for certain of the Bank’s MPF Program products (in thousands):


	Original MPF^®		MPF^® 100		MPF^® 125		MPF^® Plus
As of December 31, 2009	$	253,356	$	1,400	$	97,286	$	1,650,445
As of December 31, 2008		283,053		2,235		113,291		2,179,167

Through another program, MPF^® Government products, the Bank purchased FHA-insured and VA-guaranteed loans from PFIs. These government-insured/guaranteed loans are not subject to the credit enhancement obligations applicable to other products of the MPF Program. The Bank held $209.6 million and $289.1 million in FHA/VA loans under this program as of December 31, 2009 and 2008, respectively.

As of December 31, 2009, one of the Bank’s MPF PFIs, Branch Banking and Trust Company, which like all PFIs currently is inactive, was among the Bank’s top 10 borrowers.

MPP

The unpaid principal balance of MPP loans held by the Bank was $299.1 million and $369.6 million as of December 31, 2009 and 2008, respectively. The purpose and design of MPP is similar to the MPF program discussed above. However, because the Bank operates its MPP independently of other FHLBanks, it has greater

control over the prices offered to its customers, the quality of customer service, the relationship with any third-party service provider, and program changes. Certain benefits of greater Bank control include the Bank’s ability to control operating costs and to manage its regulatory relationship directly with the Finance Agency.

Under MPP, a PFI that originates or purchases fixed-rate residential mortgages may sell qualifying loans to the Bank under a master commitment. The Bank is responsible for the development and maintenance of the program including origination, servicing and underwriting standards, operational support, marketing MPP to its members and funding loans acquired through the program.

The PFIs may retain or sell servicing to third parties. The Bank does not service the loans, nor does it own any servicing rights. The Bank must approve any servicer, including a member-servicer, and any transfers of servicing to third parties. The PFIs or servicers are responsible for servicing loans, for which they receive a servicing fee, in accordance with MPP servicing guidelines. The Bank has appointed JP Morgan Chase as the MPP master servicer. As of December 31, 2009, there were no MPP PFIs that were among the Bank’s top 10 borrowers.

Under MPP, the Bank also could purchase FHA loans from PFIs. These government-insured loans are not subject to the same credit enhancement obligations applicable to other products of the MPP. The Bank held no FHA loans under MPP as of December 31, 2009 or 2008.

Affordable Multifamily Participation Program

Prior to 2006, the Bank offered AMPP. Through AMPP, members and participants in housing consortia could sell to the Bank participation interests in loans on affordable multifamily rental properties. The Bank held participation interests in AMPP loans with an unpaid principal balance of $22.2 million and $22.8 million as of December 31, 2009 and 2008, respectively. In 2006, the Bank stopped purchasing assets under this program but retains its existing portfolio.

Community Investment Services

Each FHLBank contributes 10 percent of its annual regulatory net income to its Affordable Housing Program (“AHP”), or such additional prorated sums as may be required to assure that the aggregate annual contribution of the FHLBanks is not less than $100 million.

AHP provides direct subsidy funds or subsidized advances to members to support the financing of rental and for-sale housing for very low-, low-, and moderate-income individuals and families. The Bank’s AHP is a competitive program that supports projects that provide affordable housing to those individuals and families. In addition to the competitive AHP, the Bank offers the following programs to facilitate affordable housing and promote community economic development:

•

The First-time Homebuyer Program (“FHP”), which provides funds through member financial institutions to be used for down payment and closing costs to families at or below 80 percent of the area median income

•

The Community Investment Program, or “CIP,” and the Economic Development Program, or “EDP,” each of which provides the Bank’s members with access to low-cost funding to create affordable rental and homeownership opportunities and to engage in commercial and economic development activities that benefit low- and moderate-income individuals and neighborhoods.

For the years ended December 31, 2009 and 2008, AHP assessments were $31.7 million and $28.4 million, respectively. Historically, the Bank has allocated up to 15 percent of its annual AHP contribution to fund the FHP. In 2008, the Bank allocated the maximum 35 percent of its annual AHP contribution to fund the FHP. The Bank maintained a 35 percent allocation in 2009 to fund the FHP.

In 2008 and 2009, the Bank adopted certain changes to its AHP to position AHP and FHP as a resource to address the credit and foreclosure crisis in the Bank’s district. These changes included a revised AHP application scoring framework that rewards projects that are a part of a locally-coordinated foreclosure recovery initiative and projects that benefit from funding from Bank members. Other changes include the incorporation of a district-wide foreclosure prevention counseling platform for FHP customers.

Cash Management and Other Services

The Bank historically has provided a variety of services to help members meet day-to-day cash management needs. These services include cash management services that support member advance activity, such as daily investment accounts, automated clearing house transactions and custodial mortgage accounts. In addition to cash management services, the Bank provides other noncredit services, including wire transfer services and safekeeping services. These cash management, wire transfer, and safekeeping services do not generate material amounts of income and are performed primarily as ancillary services for the Bank’s members.

The Bank also acts as an intermediary for its members that have limited or no access to the capital markets but need to enter into interest-rate exchange agreements. This service assists members with asset-liability management by giving them indirect access to the capital markets. These intermediary transactions involve the Bank’s entering into an interest-rate exchange agreement with a member and then entering into a mirror-image interest-rate exchange agreement with one of the Bank’s approved counterparties. The interest-rate exchange agreements entered into by the Bank as a result of its intermediary activities do not qualify for hedge accounting treatment and are separately marked to fair value through earnings. The Bank attempts to earn income from this service sufficient to cover its operating expenses through the minor difference in rates on these mirror-image interest-rate exchange agreements. The net result of the accounting for these interest-rate exchange agreements is not material to the operating results of the Bank. The Bank may require both the member and the counterparty to post collateral for any market value exposure that may exist during the life of the transaction.

Investments

The Bank maintains a portfolio of short- and long-term investments for liquidity purposes, to provide for the availability of funds to meet member credit needs and to provide additional earnings for the Bank. Investment income also enhances the Bank’s capacity to meet its commitments to affordable housing and community investment, cover operating expenses and satisfy the Bank’s annual Resolution Funding Corporation (“REFCORP”) assessment, discussed below. The long-term investment portfolio generally provides the Bank with higher returns than those available in short-term investments.

The Bank’s short-term investments were $10.3 billion and $10.8 billion as of December 31, 2009 and 2008, respectively. The Bank’s long-term investments were $22.6 billion and $27.6 billion as of December 31, 2009 and 2008, respectively. Short- and long-term investments represented 21.8 percent and 18.4 percent of the Bank’s total assets as of December 31, 2009 and 2008, respectively. These investments generated 54.2, 25.9 and 23.4 percent of total interest income for the years ended December 31, 2009, 2008 and 2007, respectively.

The Bank’s short-term investments consist of overnight and term federal funds, certificates of deposit and interest-bearing deposits. The Bank’s long-term investments consist of mortgage-backed securities (“MBS”) issued by government-sponsored mortgage agencies or private securities that, at the time of purchase, carry the highest rating from Moody’s or S&P, securities issued by the U.S. government or U.S. government agencies, state and local housing agency obligations and COs issued by other FHLBanks.

The Bank’s MBS investment practice is to purchase MBS from a select group of Bank-approved dealers, which may include “primary dealers.” Primary dealers are banks and securities brokerages that trade in U.S. Government securities with the Federal Reserve System. The Bank does not purchase MBS from its members, except in the case in which a member or its affiliate is a dealer on the Bank’s list of approved dealers. The Bank

bases its investment decisions in all cases on the relative rates of return of competing investments and does not consider whether an MBS is being purchased from or issued by a member or an affiliate of a member. The MBS balance at December 31, 2009 included MBS with a book value of $4.6 billion issued by one of the Bank’s members and its affiliates with dealer relationships. The MBS balance at December 31, 2008 included MBS with a book value of $6.7 billion issued by two of the Bank’s members and their affiliates with dealer relationships. See Notes 5 and 6 to the audited financial statements for a tabular presentation of the available-for-sale and held-to-maturity securities issued by members or affiliates of members.

Finance Agency regulations prohibit the Bank from investing in certain types of securities. These restrictions are set out in more detail in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk.”

Finance Agency regulations further limit the Bank’s investment in MBS and asset-backed securities by requiring that the total book value of MBS owned by the Bank not exceed 300 percent, or in certain cases 600 percent, of the Bank’s previous month-end capital plus mandatorily redeemable capital stock on the day it purchases the securities. For discussion regarding the Bank’s compliance with this regulatory requirement, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition–Investments.”

The Bank periodically invests in the outstanding COs issued by other FHLBanks as a part of its investment strategy. A description of the FHLBanks’ COs appears below under the heading “Funding Sources—Consolidated Obligations.” The terms of these consolidated obligations generally are similar to the terms of COs issued by the Bank. The purchase of these investments is funded by a pool of liabilities and capital of the Bank and is not funded by specific or “matched” COs issued by the Bank.

The Bank purchases COs issued by other FHLBanks through third-party dealers as long-term investments. These investments provide a relatively predictable source of liquidity while at the same time maximizing earnings and the Bank’s leveraged capital ratio (as these longer-term investments typically earn a higher yield than short-term investments such as term federal funds sold). The Bank purchases long-term debt issued by other GSEs for the same reason, and generally the rates of return on such other long-term debt are similar to those on COs of the same maturity.

In determining whether to invest in COs issued by other FHLBanks, the Bank, as in the case of any of its investment decisions, compares the features of such investments, including rates of return, terms of maturity, and overall structure, to alternative permissible uses of available funds for investment, including the repayment of outstanding indebtedness of the Bank. At the time of such investment decision, however, indebtedness of the Bank may not be available for repurchase.

While the Bank seeks to manage its entire portfolio of investments to achieve an overall rate of return in excess of the Bank’s funding costs, certain individual investments, including consolidated obligations issued by other FHLBanks, may have a stated interest rate that is less than the Bank’s cost of funds at the time of purchase as a result of various factors, such as the changing nature of market interest rates and the hedging strategies adopted by the Bank. Although the stated interest rate on any series of consolidated obligations is based in part on the joint and several liability of the FHLBanks, particular series of COs may have different structures and remaining maturities; consequently, they may have different rates of return to investors, including the Bank. The FHLBanks’ joint and several liability is the same for all COs issued by the FHLBanks, regardless of whether the Bank owns a particular series of them. Normally, at the time of purchase of these investments, the Bank also enters into interest-rate exchange agreements with mirror-image terms to the investments to offset price movements in the investment. This hedging helps maintain an appropriate repricing balance between assets and liabilities.

Investment by the Bank in COs issued by other FHLBanks is not currently, nor is it anticipated to be, precluded by Finance Agency regulations. Current regulations do not impose any express limitation on the ability of the

Bank to receive payments on COs issued by other FHLBanks in the event that the issuing FHLBank is unable to make such payments itself, and the other FHLBanks, including the Bank, are required to make such payments. However, 12 CFR Section 966.8(c) prohibits COs from being placed directly with any FHLBank. Regulatory interpretative guidance on this provision has clarified that the regulation also prohibits purchases from underwriters in an initial offering of COs. The Bank does not purchase COs issued by other FHLBanks during their period of initial issuance, so this guidance has not affected its investment strategy in this regard. At the request of the Office of Finance, the Finance Board approved a waiver to Section 966.8(c) in December 2005 to permit the direct placement by an FHLBank of COs with another FHLBank to ensure the timely payment by an FHLBank of all the principal and interest due on COs on a particular day. The request resulted from a revision by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) to its daylight overdraft policies. Under the Federal Reserve Board’s policies, the Federal Reserve System will not make payments on COs until it has received sufficient funds from the obligor FHLBank through its fiscal agent, the Office of Finance.

The following table sets forth the Bank’s investments in U.S. agency securities (dollar amounts in thousands):


	As of December 31,
	2009				2008
	Amount		Percent of Total Investments	Weighted- average Yield (%)	Amount		Percent of Total Investments	Weighted- average Yield (%)
Government-sponsored enterprises debt obligations	$	3,470,402	10.54	4.20	$	4,171,725	10.87	4.28
Other FHLBanks’ Bonds (1)		71,910	0.22	15.17		300,135	0.78	7.45
Mortgage-backed securities:
U.S. agency obligations guaranteed		776,548	2.36	1.21		38,545	0.10	5.71
Government-sponsored enterprises		6,598,400	20.03	4.32		7,060,082	18.40	4.77

(1)	Includes one inverse floating-rate consolidated obligation bond.

The Bank is subject to credit and market risk on certain investments. For discussion as to how the Bank manages these risks, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management.”

Funding Sources

Consolidated Obligations

Consolidated obligations or “COs,” consisting of bonds and discount notes, are the joint and several obligations of the FHLBanks, backed only by the financial resources of the 12 FHLBanks. COs are not obligations of the U.S. government, and the United States does not guarantee the COs. The Bank, working through the Office of Finance, is able to customize COs to meet investor demands. Customized features can include different indices and embedded interest-rate derivatives. These customized features are offset predominately by interest-rate exchange agreements to reduce the market risk associated with the COs.

Although the Bank is primarily liable for its portion of COs (i.e., those issued on its behalf), the Bank also is jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on COs of all the FHLBanks. If the principal or interest on any CO issued on behalf of the Bank is not paid in full when due, the Bank may not pay any extraordinary expenses or pay dividends to, or redeem or repurchase shares of stock from, any member of the Bank. The Finance Agency, under 12 CFR Section 966.9(d), may at any time require any FHLBank to make principal or interest payments due on any COs, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation.

To the extent that an FHLBank makes any payment on a CO on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank. However, if the Finance Agency determines that the noncomplying FHLBank is unable to satisfy its obligations, 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 COs outstanding or on any other basis the Finance Agency may determine.

Finance Agency regulations also state that the Bank must maintain the following types of assets free from any lien or pledge in an aggregate amount at least equal to the amount of the Bank’s portion of the COs outstanding, provided that any assets that are subject to a lien or pledge for the benefit of the holders of any issue of COs shall be treated as if they were assets free from any lien or pledge for purposes of this negative pledge requirement:

•

Cash

•

Obligations of, or fully guaranteed by, the United States

•

Secured advances

•

Mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States

•

Investments described in Section 16(a) of the FHLBank Act which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located

•

Other securities that have been assigned a rating or assessment by a NRSRO that is equivalent to or higher than the rating or assessment assigned by that NRSRO to the COs (currently Aaa by Moody’s or AAA by S&P).

The following table presents the Bank’s compliance with this requirement (in thousands):


	Outstanding Debt		Aggregate Unencumbered Assets
As of December 31, 2009	$	138,577,093	$	150,885,359
As of December 31, 2008		193,376,111		207,181,050

The Office of Finance has responsibility for facilitating and executing the issuance of the COs. It also services all outstanding debt.

Consolidated Obligation Bonds. Consolidated obligation bonds satisfy longer-term funding requirements. Typically, the maturity of these securities ranges from one year to 10 years, but the maturity is not subject to any statutory or regulatory limit. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with approved underwriters or selling group members. The FHLBanks also use the TAP issue program for fixed-rate, noncallable bonds. Under this program, the FHLBanks offer debt obligations at specific maturities that may be reopened daily, generally during a three-month period through competitive auctions. The goal of the TAP program is to aggregate frequent smaller issues into a larger bond issue that may have greater market liquidity.

Consolidated Obligation Discount Notes. Through the Office of Finance, the FHLBanks also issue consolidated obligation discount notes to provide short-term funds for advances to members, for the Bank’s short-term investments, and for the Bank’s variable-rate and convertible advance programs. These securities have maturities up to 366 days and are offered daily through a consolidated obligation discount-note selling group. Discount notes are issued at a discount and mature at par.

The following table shows the net amount of the Bank’s outstanding consolidated obligation bonds and discount notes (in thousands). The net amount is described in more detail in the table summarizing the Bank’s participation in COs outstanding included within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Consolidated Obligations.”


	As of December 31,
	2009		2008
Consolidated obligations, net:
Bonds	$	121,449,798	$	138,181,334
Discount notes		17,127,295		55,194,777

Total	$	138,577,093	$	193,376,111

Certification and Reporting Obligations. Under Finance Agency regulations, before the end of each calendar quarter and before paying any dividends for that quarter, the president of the Bank must certify to the Finance Agency that, based upon known current facts and financial information, the Bank will remain in compliance with applicable liquidity requirements and will remain capable of making full and timely payment of all current obligations (which includes the Bank’s obligation to pay principal and interest on COs issued on its behalf through the Office of Finance) coming due during the next quarter. The Bank is required to provide notice to the Finance Agency upon the occurrence of any of the following:

•

The Bank is unable to provide the required certification

•

The Bank projects at any time that it will fail to comply with its liquidity requirements or will be unable to meet all of its current obligations due during the quarter

•

The Bank actually fails to comply with its liquidity requirements or to meet all of its current obligations due during the quarter

•

The Bank negotiates to enter or enters into an agreement with one or more other FHLBanks to obtain financial assistance to meet its current obligations due during the quarter.

An FHLBank must file a consolidated obligation payment plan for Finance Agency approval upon the occurrence of any of the following:

•

The FHLBank becomes a noncomplying FHLBank as a result of failing to provide a required certification related to liquidity requirements and ability to meet all current obligations

•

The FHLBank becomes a noncomplying FHLBank as a result of being required to provide notice to the Finance Agency of certain matters related to liquidity requirements or inability to meet current obligations

•

The Finance Agency determines that the FHLBank will cease to be in compliance with its liquidity requirements or will lack the capacity to meet all of its current obligations due during the quarter.

Regulations permit a noncompliant FHLBank to continue to incur and pay normal operating expenses in the regular course of business. However, a noncompliant FHLBank may not incur or pay any extraordinary expenses, declare or pay dividends, or redeem any capital stock until such time as the Finance Agency has approved the FHLBank’s CO payment plan or inter-FHLBank assistance agreement or has ordered another remedy, and the noncompliant FHLBank has paid all its direct obligations.

Deposits

The FHLBank Act allows the Bank to accept deposits from its members, any institution for which it is providing correspondent services, other FHLBanks, or other governmental instrumentalities. Deposit programs provide some of the Bank’s funding resources while also giving members a low-risk earning asset that satisfies their regulatory liquidity requirements. In 2009 and 2008, the Bank offered several types of deposit programs,

including demand and overnight deposits. In May 2008, the Bank discontinued acting as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. As of December 31, 2009 and 2008, the Bank had demand and overnight deposits of $3.0 billion and $3.6 billion, respectively.

To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than its current deposits from members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies, or certain advances with maturities not exceeding five years. As of December 31, 2009 and 2008, the Bank had excess deposit reserves of $93.2 billion and $133.2 billion, respectively.

Capital, Capital Rules, Retained Earnings, and Dividends

Capital and Capital Rules

The Bank is required to comply with regulatory requirements for total capital, leverage capital, and risk-based capital. Under these requirements, the Bank must maintain total capital in an amount equal to at least four percent of total assets and weighted leverage capital in an amount equal to at least five percent of total assets. “Weighted leverage capital” is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times. In addition, the Bank must maintain permanent capital, defined by the FHLBank Act and applicable regulations as the sum of paid-in capital for Class B stock and retained earnings, in an amount equal to or greater than the risk-based capital (“RBC”) requirements set forth in the Gramm-Leach-Bliley Act of 1999. The regulatory definition of permanent capital results in a calculation of permanent capital different from that determined in accordance with GAAP because the regulatory definition treats mandatorily redeemable capital stock as capital. RBC is the sum of credit, market, and operating risk capital requirements.

Credit risk capital is the sum of the capital charges for the Bank’s assets, off-balance sheet items, and derivatives contracts. The Bank calculates these charges using the methodology and risk weights assigned to each classification by the Finance Agency. Market risk capital is the sum of the market value of the Bank’s portfolio at risk from movement in interest rates, foreign exchange rates, commodity prices, and equity prices that could occur during times of market stress and the amount, if any, by which the market value of total capital is less than 85 percent of the book value of total capital. Operational risk capital is equal to 30 percent of the sum of the credit risk capital component and the market risk capital component. Regulations define “total capital” as the sum of:

•

Permanent capital

•

The amount of paid-in Class A stock, if any (the Bank does not issue Class A stock)

•

The amount of the Bank’s general allowance for losses (if any)

•

The amount of any other instruments identified in the Bank’s capital plan that the Finance Agency has determined to be available to absorb losses.

To satisfy these capital requirements, the Bank implemented a capital plan on December 17, 2004, as last amended effective March 6, 2009. Each member’s minimum stock requirement is an amount equal to the sum of a “membership” stock component and an “activity-based” stock component under the plan. The FHLBank Act and applicable regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum leverage and risk-based capital requirements. If necessary, the Bank may adjust the minimum stock requirement from time to time within the ranges established in the capital plan. Each member is required to comply promptly with any adjustment to the minimum stock requirement.

The capital plan permits the Bank’s board of directors to set the membership and activity-based stock requirements within a range as set forth in the capital plan. As of December 31, 2009, the membership stock

requirement was 0.18 percent (18 basis points) of the member’s total assets, subject to a cap of $26 million effective as of March 30, 2009. On March 12, 2010, the Bank announced that, effective March 26, 2010, the membership stock requirement will change from 0.18 percent (18 basis points) to 0.15 percent (15 basis points) of the member’s total assets. The $26 million cap will not change.

As of December 31, 2009, the activity-based stock requirement was the sum of the following:

•

4.50 percent of the member’s outstanding par value of advances

•

8.00 percent of any outstanding targeted debt/equity investment (investments similar to AMPP assets) sold by the member to the Bank on or after December 17, 2004.

In addition, the activity-based stock requirement may include a percentage of any outstanding balance of acquired member assets (such as MPF and MPP assets), although this percentage was set at zero percent as of December 31, 2009. As of December 31, 2009, all of the Bank’s AMPP assets had been acquired from a nonmember, and, therefore, the 8.00 percent activity-based stock requirement did not apply with respect to those AMPP assets.

Although applicable regulations allow the Bank to issue Class A stock or Class B stock, or both, to its members, the Bank’s capital plan allows it to issue only Class B stock. For additional information regarding the Bank’s stock, refer to Item 5, “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Retained Earnings and Dividends

The Bank has established a capital management policy to help preserve the value of the members’ investment in the Bank and reasonably mitigate the effect on capital of unanticipated operating and accounting events. At least quarterly, the Bank assesses the adequacy of its retained earnings. This assessment considers forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk and credit risk. Quarterly, the board sets the targeted amount of retained earnings the Bank is required to hold after the payment of dividends based on this assessment. Based upon this quantitative analysis, the board of directors established the target amount of retained earnings at $685.8 million as of December 31, 2009. The Bank’s retained earnings at December 31, 2009 were higher than this target by $187.0 million, as discussed in more detail in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

The Bank may pay dividends on its capital stock only out of its retained earnings or current net earnings. The Bank’s board of directors has discretion to declare or not declare dividends and to determine the rate of any dividends declared. The board of directors may neither declare nor require the Bank to pay dividends when it is not in compliance with all of its capital requirements or if, after giving effect to the dividend, the Bank would fail to meet any of its capital requirements. The Bank also may not declare a dividend if the dividend would create a financial safety and soundness issue for the Bank.

The Finance Agency prohibits any FHLBank from issuing dividends in the form of stock or otherwise issuing new “excess stock” if that FHLBank has excess stock greater than one percent of that FHLBank’s total assets or if issuing such dividends or new excess stock would cause that FHLBank to exceed the one percent excess stock limitation. Excess stock is FHLBank capital stock not required to be held by the member to meet its minimum stock requirement under an FHLBank’s capital plan. At December 31, 2009, the Bank’s excess capital stock outstanding was 1.27 percent of the Bank’s total assets due to maturing and prepaid advances during 2009 and the Bank’s suspension in 2009 of automatic daily repurchases of excess activity-based capital stock, as further discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” Historically, the Bank has not issued dividends in the form of stock, and a member’s existing excess activity-based stock is applied to any activity-based stock requirements related to new advances.

Derivatives

Finance Agency regulations and policy and the Bank’s Risk Management Policy (“RMP”) establish guidelines for derivatives. These policies and regulations prohibit trading in or the speculative use of these instruments and limit permissible credit risk arising from these instruments. The Bank enters into derivatives only to manage the interest-rate risk exposures inherent in otherwise unhedged assets and funding positions, and to achieve the Bank’s risk management objectives. These derivatives consist of interest-rate swaps (including callable swaps and putable swaps), swaptions, interest-rate cap and floor agreements, and futures and forward contracts. Generally, the Bank uses derivatives in its overall interest-rate risk management to accomplish one or more of the following objectives:

•

Reduce the interest-rate net sensitivity of consolidated obligations, advances, investments, and mortgage loans by, in effect, converting them to a short-term interest rate, usually based on the London Interbank Offered Rate (“LIBOR”)

•

Manage embedded options in assets and liabilities

•

Hedge the market value of existing assets or liabilities

•

Hedge the duration risk of pre-payable instruments.

The total notional amount of the Bank’s outstanding derivatives was $192.0 billion and $240.2 billion as of December 31, 2009 and 2008, respectively. The contractual or notional amount of a derivative is not a measure of the amount of credit risk from that transaction. Rather, the notional amount serves as a basis for calculating periodic interest payments or cash flows.

The Bank may enter into derivatives concurrently with the issuance of consolidated obligations with embedded options. Issuing bonds while simultaneously entering into derivatives converts, in effect, fixed-rate liabilities into variable-rate liabilities. The continued attractiveness of such debt depends on price relationships in both the bond market and interest-rate exchange markets. If conditions in these markets change, the Bank may alter the types or terms of the bonds issued. Similarly, the Bank may enter into derivatives in conjunction with the origination of fixed-rate advances to create the equivalent of variable-rate earning assets.

The Bank is subject to credit risk in all derivatives due to potential nonperformance by the derivative counterparty. The Bank reduces this risk by executing derivatives only with highly-rated financial institutions. In addition, the legal agreements governing the Bank’s derivatives require the credit exposure of all derivatives with each counterparty to be netted. As of December 31, 2009, the Bank had credit risk exposure to five counterparties, before considering collateral, in an aggregate amount of $113.1 million. The Bank’s net uncollateralized exposure to these counterparties was $21.3 million as of December 31, 2009.

The market risk of derivatives can be measured meaningfully only on a portfolio basis, taking into account the entire balance sheet and all derivatives. The market risk of the derivatives and the hedged items is included in the measurement of the Bank’s effective duration gap (the difference between the expected weighted average maturities of the Bank’s assets and liabilities). As of December 31, 2009, the Bank’s effective duration gap was a negative 0.06 years, or essentially flat. This means the Bank’s exposure to rising and falling interest rates is almost equal. A positive duration gap generally indicates an overall exposure to rising interest rates; conversely, a negative duration gap normally indicates an overall exposure to falling interest rates.

For further discussion as to how the Bank manages its credit risk and market risk on its derivatives see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Risk Management.”

Competition

Advances. A number of factors affect demand for the Bank’s advances, including, but not limited to, the cost of other available sources of liquidity for the Bank’s members, such as brokered deposits and the repurchase

market. The Bank individually competes with other suppliers of secured and unsecured wholesale funding. Such other suppliers may include investment banks, commercial banks, and in certain circumstances, other FHLBanks. Smaller members may have access to alternative funding sources through sales of securities under agreements to repurchase, while larger members may have access to all the alternatives listed. Large members also may have independent access to the national and global credit markets. The availability of alternative funding sources to members can influence significantly the demand for the Bank’s advances and can vary as a result of a number of factors including, among others, market conditions, members’ creditworthiness, and availability of collateral. During most of 2009, the Bank faced competition from several government programs created in light of the credit crisis, which have provided competitive alternatives to the Bank’s members, including the Troubled Asset Relief Program, the Federal Reserve’s Term Auction Facility, and the Temporary Liquidity Guarantee Program. In addition, members have experienced increasing liquidity during 2009, in part due to higher FDIC deposit insurance limits, which has increased members’ deposits and decreased member demand for advances. On May 20, 2009, the standard maximum deposit insurance amount was increased to $250,000 per depositor through December 31, 2013. The authorizing legislation provides that the standard maximum deposit insurance amount will return to $100,000 on January 1, 2014. On August 26, 2009, the FDIC extended its temporary Transaction Account Guaranty Program, which provides depositors with unlimited coverage for noninterest-bearing accounts, through June 30, 2010.

Debt Issuance. The Bank competes with Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than otherwise would be the case. In addition, the availability and cost of funds raised through the issuance of certain types of unsecured debt may be affected adversely by regulatory initiatives that tend to reduce investments by certain depository institutions in unsecured debt with greater price volatility or interest-rate sensitivity than fixed-rate, fixed-maturity instruments of the same maturity. Further, a perceived or actual higher level of government support for other GSEs may increase demand for their debt securities relative to similar FHLBank securities.

Interest-rate Exchange Agreements. The sale of callable debt and the simultaneous execution of callable interest-rate swaps that mirror the debt have been important sources of competitive funding for the Bank. As such, the availability of markets for callable debt and interest-rate swaps may be an important determinant of the Bank’s relative cost of funds. There is considerable competition among high credit quality issuers in the markets for these instruments.

Regulatory Oversight, Audits, and Examinations

The Finance Agency, an independent agency in the executive branch of the federal government, supervises and regulates the FHLBanks. The Finance Agency is responsible for ensuring that (1) the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive and resilient national housing finance markets; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. In this capacity, the Finance Agency issues regulations and policies that govern, among other things, the permissible activities, powers, investments, risk-management practices, and capital requirements of the FHLBanks, and the authorities and duties of FHLBank directors. The Finance Agency conducts annual, on-site examinations of the Bank as well as periodic off-site reviews. In addition, the Bank must submit to the Finance Agency monthly financial information on the condition and results of operations of the Bank.

Effective May 16, 2006, in accordance with the Finance Board’s regulation, the Bank registered its Class B stock with the SEC under Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Housing Act codified the regulatory requirement that each FHLBank register a class of its common stock under Section 12(g) of the Exchange Act. As a result of this registration, the Bank is required to comply with the

disclosure and reporting requirements of the Exchange Act and to file with the SEC annual, quarterly, and current reports, as well as meet other SEC requirements, subject to certain exemptive relief obtained from the SEC by the Bank and under the Housing Act.

The Government Corporation Control Act provides that, before a government corporation (which includes the FHLBanks) issues and offers obligations to the public, the Secretary of the Treasury shall prescribe: (1) the form, denomination, maturity, interest rate, and conditions of the obligations; (2) the time and manner in which issued; and (3) the selling price. Under the Housing Act, the Secretary of the Treasury has the authority, at his or her discretion, to purchase COs, subject to the federal debt ceiling limits. Previously, the FHLBank Act had authorized the Secretary of the Treasury, at his or her discretion, to purchase COs up to an aggregate principal amount of $4 billion. No borrowings under this latter authority have been outstanding since 1977. The U.S. Department of the Treasury receives the Finance Agency’s annual report to the Congress, weekly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks. The Department of the Treasury recently has adopted additional procedures relating to the review of other GSE debt issuance and may review the procedures under which the FHLBanks issue debt.

The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, he or she must report the results and provide his or her recommendations to the Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General also may conduct his or her own audit of any financial statements of the Bank.

The Bank has an internal audit department, the Bank’s board of directors has an audit committee, and an independent registered public accounting firm audits the annual financial statements of the Bank. The independent registered public accounting firm conducts these audits following the standards of the Public Company Accounting Oversight Board (United States) and Government Auditing Standards issued by the Comptroller General. The FHLBanks, the Finance Agency, and the Congress receive the Bank’s Report and audited financial statements. The Bank must submit annual management reports to the Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General. These reports include a statement of financial condition, a statement of operations, a statement of cash flows, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on the financial statements.

Personnel

As of December 31, 2009, the Bank employed 401 full-time and 16 part-time employees.

Taxation/Assessments

Although the Bank is exempt from all federal, state, and local taxation, except for real property taxes, the Bank is obligated to make payments to REFCORP. Each FHLBank is required to pay to REFCORP 20 percent of its annual income calculated in accordance with GAAP after the assessment for AHP, but before the assessment for REFCORP.

The FHLBanks will continue to expense and pay these amounts until the aggregate amounts actually paid by all 12 FHLBanks are equivalent to a $300 million annual annuity (or a scheduled payment of $75 million per quarter) whose final maturity date is April 15, 2030, at which point the required payment of each FHLBank to REFCORP will be fully satisfied. The cumulative amount to be paid to REFCORP by the Bank is not determinable at this time because it depends on the future earnings of all FHLBanks and interest rates. If the Bank experienced a net loss during a quarter but still had net income for the year, the Bank’s obligation to the

REFCORP would be calculated based on the Bank’s year-to-date GAAP net income. If the Bank had net income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. The Bank would be entitled to either a refund or a credit for amounts paid for the full year that were in excess of its calculated annual obligation. If the Bank experienced a net loss for a full year, the Bank would have no obligation to the REFCORP for the year.

The Finance Agency is required to extend the term of the FHLBanks’ obligation to the REFCORP for each calendar quarter in which the FHLBanks’ quarterly payment falls short of $75 million.

The FHLBanks’ aggregate payments through 2009 generally have exceeded the scheduled payments, effectively accelerating payment of the REFCORP obligation and shortening its remaining term to April 15, 2012, effective December 31, 2009. The FHLBanks’ aggregate payments through 2009 have satisfied $2.3 million of the $75 million scheduled payment due for the second quarter of 2012 and all scheduled payments thereafter. This date assumes that the FHLBanks will pay exactly $300 million annually after December 31, 2009 until the annuity is satisfied.

The benchmark payments or portions of them could be reinstated if the actual REFCORP payments of the FHLBanks fall short of $75 million in a quarter. The maturity date of the REFCORP obligation may be extended beyond April 15, 2030 if such extension is necessary to ensure that the value of the aggregate amounts paid by the FHLBanks exactly equals a $300 million annual annuity. Any payment beyond April 15, 2030, will be paid to the Department of the Treasury.

Each year the Bank must set aside for its AHP 10 percent of its regulatory income, or such prorated sums as may be required to assure that the aggregate contribution of the FHLBanks is not less than $100 million. Regulatory income is defined as GAAP income before interest expense related to mandatorily redeemable capital stock and the assessment for AHP, but after the assessment for REFCORP. If an FHLBank experienced a regulatory loss for a full year, the FHLBank would have no obligation to the AHP for that year, since each FHLBank’s required annual AHP contribution is limited to its annual net earnings.

REFCORP has been designated as the calculation agent for AHP and REFCORP assessments. The combined REFCORP and AHP assessments for the Bank were $102.5 million for the year ended December 31, 2009. These assessments were the equivalent of a 26.6 percent effective annual income tax rate for the Bank.

Item 1A. Risk Factors.

The following discussion summarizes some of the more important risks that the Bank faces. This discussion is not exhaustive, and there may be other risks that the Bank faces, which are not described below. These risks should be read in conjunction with the other information included in this Report, including, without limitation, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the financial statements and notes and “Special Cautionary Notice Regarding Forward-looking Statements.” The risks described below, if realized, could affect negatively the Bank’s business operations, financial condition, and future results of operations and, among other things, could result in the Bank’s inability to pay dividends on its capital stock.

The Bank is jointly and severally liable for payment of principal and interest on the consolidated obligations issued by the other 11 FHLBanks.

Each of the FHLBanks relies upon the issuance of COs as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether the Bank receives all or any portion of the proceeds from any particular issuance of COs.

The Finance Agency may by regulation require any FHLBank to make principal or interest payments due on any CO at any time, whether or not the FHLBank that was the primary obligor has defaulted on the payment of that obligation. The Finance Agency may allocate the liability among one or more FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. Accordingly, the Bank could incur significant liability beyond its primary obligation under COs due to the failure of other FHLBanks to meet their obligations, which could affect negatively the Bank’s financial condition and results of operations.

During 2009, at least one of the other FHLBanks received notice from the Finance Agency that it was undercapitalized. In addition, several FHLBanks recently have announced matters related to net losses, suspension of dividends, suspension of stock repurchases and risk-based capital deficiencies, primarily in light of declines in the value of private-label MBS due to the ongoing turmoil in the capital and mortgage markets.

The Bank’s funding depends upon its ability to access the capital markets.

The Bank seeks to be in a position to meet its members’ credit and liquidity needs and pay its obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. The Bank’s primary source of funds is the sale of consolidated obligations in the capital markets, including the short-term discount note market. The Bank’s ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of the reduction of liquidity in financial markets, which are beyond the Bank’s control.

The severe financial and economic disruptions, and the U.S. government’s dramatic measures enacted to mitigate their effects, have changed the traditional bases on which market participants value GSE debt securities and consequently have affected the Bank’s funding costs and practices. During the first half of 2009, the Bank’s funding costs associated with issuing long-term consolidated obligation bonds were more volatile and rose sharply compared to LIBOR and U.S. Treasury securities, reflecting dealers’ reluctance to sponsor, and investors’ current reluctance to buy, longer-term GSE debt, coupled with strong investor demand for high-quality, short-term debt instruments, such as U.S. Treasury securities and FHLBank consolidated obligation discount notes. As a result, the Bank generally decreased its term money market holdings and maintained the bulk of its liquidity in overnight investments. During the first half of 2009, the Bank also was more reliant on the issuance of consolidated obligation discount notes, with maturities of one year or less, for funding. During the second half of 2009, the Bank experienced an improvement in its funding costs and ability to issue longer-term and structured debt compared to the first half of 2009, as a decrease in LIBOR rates and general economic improvement increased investor appetite for this type of debt. Nonetheless, given the continued uncertainty of the markets, the Bank cannot make any assurance that it will be able to obtain funding on terms acceptable to the Bank, if at all. If the Bank cannot access funding when needed on acceptable terms, its ability to support and continue its operations could be adversely affected, which could negatively affect its financial condition and results of operations, and the value of Bank membership.

Changes in the Bank’s credit ratings may affect adversely the Bank’s ability to issue consolidated obligations on acceptable terms.

The Bank currently has the highest credit rating from Moody’s and S&P. In addition, the consolidated obligations of the FHLBanks have been rated Aaa/P-1 by Moody’s and AAA/A-1+ by S&P. These ratings are subject to revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Negative ratings actions or negative guidance may affect adversely the Bank’s cost of funds and ability to issue consolidated obligations on acceptable terms, which could have a negative effect on the Bank’s financial condition and results of operations.

The Bank relies heavily on advances as its primary product offering.

Advances represent the Bank’s primary product offering. For the year ended December 31, 2009, advances represented 75.7 percent of the Bank’s total assets. The Bank competes with other suppliers of wholesale

funding, both secured and unsecured, including investment banks, commercial banks, and in certain circumstances, other FHLBanks. The Bank’s members have access to alternative funding sources, which may offer more favorable terms on their loans than the Bank does on its advances, including more flexible credit or collateral standards. In addition, many of the Bank’s competitors are not subject to the same body of regulation applicable to the Bank, which enables those competitors to offer products and terms that the Bank is not able to offer.

Several government programs created in light of the credit crisis have provided competitive alternatives to the Bank’s members, including the Troubled Asset Relief Program, the Federal Reserve’s Term Auction Facility, the Temporary Liquidity Guarantee Program, and the FDIC’s increased deposit insurance coverage. The availability of alternative funding sources to the Bank’s members that are more attractive than those funding products offered by the Bank may decrease significantly the demand for the Bank’s advances. Any change made by the Bank in the pricing of its advances in an effort to compete effectively with these competitive funding sources may decrease the Bank’s profitability on advances. A decrease in the demand for the Bank’s advances or a decrease in the Bank’s profitability on advances could have a material adverse effect on the Bank’s financial condition and results of operations.

The Bank’s efforts to make advance pricing attractive to members may affect earnings.

The board of directors and management believe that the primary benefits of Bank membership should accrue to borrowing members in the form of low-cost advances. However, any decision to lower advance spreads further to gain volume or increase the benefits to borrowing members could result in lower earnings, which could result in lower dividend yields to members.

The Bank is subject to a complex body of laws and regulations, which could change in a manner detrimental to the Bank’s operations.

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and as such, are governed by federal laws and regulations as adopted and applied by the Finance Agency. From time to time, Congress has amended the FHLBank Act in ways that have affected the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on the Bank’s ability to conduct business or on the cost of doing business.

Changes in regulatory requirements could result in, among other things, an increase in the FHLBanks’ cost of funding and regulatory compliance, a change in permissible business activities, or a decrease in the size, scope, or nature of the FHLBanks’ lending activities, which could affect the Bank’s financial condition and results of operations.

Please refer to the information set forth below under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments” for a discussion of recent regulatory and legislative activity that could affect the Bank.

Recent government actions in response to the credit crisis can adversely affect the Bank’s business.

On February 27, 2009, the FDIC approved a final rule to raise an insured institution’s base assessment rate based upon its ratio of secured liabilities to domestic deposits. Under the rule, an institution’s ratio of secured liabilities to domestic deposits (if greater than 25 percent) would increase its assessment rate, but the resulting base assessment rate after any such increase could be no more than 50 percent greater than it was before the adjustment. The rule became effective on April 1, 2009. Because all of the Bank’s advances are secured liabilities, the rule may affect member demand for advances.

Federal legislation has been proposed that would allow bankruptcy cramdowns on first mortgages of owner-occupied homes. The proposed legislation would allow a bankruptcy court in a Chapter 13 consumer bankruptcy to modify residential mortgage loans by reducing the balance (“cramdown”) of a mortgage securing a principal residence to the current value of the debt, reducing the interest rate, or by extending the repayment period. Utilization of the cramdown provision, if signed into law, may increase the Bank’s credit losses on MBS, since bankruptcy losses may be shared equally among or have different loss priorities depending on how each investment allocates the bankruptcy cramdown losses to the various prime and subordinate investor classes. Application of the cramdown provision may also make more likely the determination that MBS are other-than-temporarily impaired, thereby increasing the mark-to-market accounting losses flowing through the income statement. The value of collateral supporting advances may also be reduced, requiring members to pledge additional qualifying collateral. Since final passage and the scope of the law’s application are undetermined, it is impossible to predict the actual effects of this proposed legislation on the Bank’s collateral valuations and MBS.

The Bank is exposed to risks because of customer concentration.

The Bank is subject to customer concentration risk as a result of the Bank’s reliance on a relatively small number of member institutions for a large portion of the Bank’s total advances and resulting interest income. As of December 31, 2009, the Bank’s largest borrower, Bank of America, National Association, accounted for $37.4 billion of the Bank’s total advances then outstanding, which represented 34.0 percent of the Bank’s total advances then outstanding. As of December 31, 2008, Bank of America, National Association accounted for $3.8 billion of the Bank’s total advances then outstanding, which represented 2.4 percent of the Bank’s total advances then outstanding. As of December 31, 2008, Countrywide Bank, FSB accounted for $42.7 billion of the Bank’s total advances then outstanding, which represented 27.3 percent of the Bank’s total advances then outstanding. In April 2009, Countrywide Bank, FSB merged with and into Bank of America, National Association, and Bank of America, National Association assumed all of the outstanding advances of Countrywide Bank, FSB. As of December 31, 2009 and 2008, 10 of the Bank’s member institutions (including Bank of America, National Association for 2009 and Countrywide Bank, FSB for 2008) collectively accounted for $75.4 billion and $102.7 billion, respectively, of the Bank’s total advances then outstanding, which represented 68.7 percent and 65.7 percent, respectively, of the Bank’s total advances then outstanding. If, for any reason, the Bank were to lose, or experience a decrease in the amount of, its business relationships with its largest borrower or a combination of several of its large borrowers—whether as the result of any such member becoming a party to a merger or other transaction, or as a result of market conditions, competition or otherwise—the Bank’s financial condition and results of operations could be affected negatively.

The financial services industry has seen a significant increase in the number of failed financial institutions during 2009, and this trend is expected to continue through 2010. All or a portion of the assets and liabilities of a failed financial institution may be acquired by another financial institution. This consolidation of the industry may reduce the number of potential members in the Bank’s district and result in a loss of overall business for the Bank.

Changes in interest rates could affect significantly the Bank’s earnings.

Like many financial institutions, the Bank realizes income primarily from the spread between interest earned on the Bank’s outstanding loans and investments and interest paid on the Bank’s borrowings and other liabilities. Although the Bank uses a number of measures to monitor and attempt to manage changes in interest rates, the Bank may experience “gaps” in the interest-rate sensitivities of its assets and liabilities resulting from both duration and convexity mismatches. The existence of gaps in interest-rate sensitivities means that either the Bank’s interest-bearing liabilities will be more sensitive to changes in interest rates than its interest-earning assets, or vice versa. In either case, if interest rates move contrary to the Bank’s position, any such gap could affect adversely the net present value of the Bank’s interest-sensitive assets and liabilities, which could affect negatively the Bank’s financial condition and results of operations.

The Bank relies upon derivative instruments to hedge interest-rate risk exposure, achieve the Bank’s risk management objectives, and act as an intermediary between its members and counterparties. The Bank may be limited in its ability to enter into derivative instruments that achieve these purposes.

The Bank uses derivative instruments to attempt to reduce its interest-rate risk and mortgage prepayment risk. The Bank’s management determines the nature and quantity of hedging transactions based on various factors, including market conditions and the expected volume and terms of advances. As a result, the Bank’s effective use of these instruments depends upon the ability of the Bank’s management to determine the appropriate hedging positions in light of the Bank’s assets, liabilities, and prevailing and anticipated market conditions. In addition, the effectiveness of the Bank’s hedging strategy depends upon the Bank’s ability to enter into these instruments with acceptable parties, upon terms satisfactory to the Bank, and in the quantities necessary to hedge the Bank’s corresponding obligations. If the Bank is unable to manage its hedging positions properly or is unable to enter into hedging instruments upon acceptable terms, the Bank may be unable to manage its interest-rate and other risks, or may be required to decrease its MBS holdings, which could affect the Bank’s financial condition and results of operations.

Federal legislation has been proposed that would regulate the U.S. market for financial derivatives by providing for, in certain circumstances, centralized clearing of derivatives, trading of standardized products on regulated exchanges, and regulation of swap dealers and major swap participants. The proposed legislation also may require higher margin and capital requirements for non-standardized derivatives. The proposed legislation, if enacted, could materially affect the Bank’s ability to hedge its interest-rate risk exposure from advances, achieve the Bank’s risk management objectives, and act as an intermediary between its members and counterparties.

Please refer to the information set forth below under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operation” for a discussion of the effect of the Bank’s use of derivative instruments on the Bank’s net income.

Prepayment of mortgage assets could affect earnings.

The Bank invests in both MBS and whole mortgage loans. Changes in interest rates can affect significantly the prepayment patterns of these assets, and such prepayment patterns could affect the Bank’s earnings. In management’s experience, it is difficult to hedge prepayment risk in mortgage loans. Therefore, prepayments of mortgage assets could have an adverse effect on the income of the Bank.

The insolvency or other inability of a significant counterparty to perform its obligations could affect the Bank adversely.

The Bank assumes credit risk when entering into securities transactions, money market transactions, supplemental mortgage insurance agreements and derivative contracts with counterparties. The Bank routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. The insolvency or other inability of a significant counterparty to perform its obligations under a derivative contract or other agreement could have an adverse effect on the Bank’s financial condition and results of operations. In addition, the Bank’s credit risk may be exacerbated based on market movements or when the collateral pledged to the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank.

The Bank uses master derivatives contracts that contain provisions that require the Bank to net the exposure under all transactions with the counterparty to one amount to calculate collateral requirements. At times, the Bank enters into derivative contracts with foreign counterparties in jurisdictions in which it is uncertain whether the netting provisions would be enforceable in the event of insolvency of the foreign counterparty. Although the Bank attempts to monitor the credit rating of all counterparties, it is possible that the Bank may not be able to terminate the agreement with a foreign counterparty before the counterparty would become subject to an insolvency proceeding.

An economic downturn or natural disaster in the Bank’s region could affect the Bank’s profitability and financial condition adversely.

Economic recession over a prolonged period or other unfavorable economic conditions in the Bank’s region could have an adverse effect on the Bank’s business, including the demand for Bank products and services, and the value of the Bank’s collateral securing advances, investments and mortgage loans held in portfolio. Portions of the Bank’s region also are subject to risks from hurricanes, tornadoes, floods or other natural disasters. These natural disasters, including those resulting from significant climate changes, could damage or dislocate the facilities of the Bank’s members, may damage or destroy collateral that members have pledged to secure advances, may affect adversely the viability of the Bank’s mortgage purchase programs or the livelihood of borrowers of the Bank’s members, or otherwise could cause significant economic dislocation in the affected areas of the Bank’s region.

The Bank relies heavily upon information systems and other technology.

The Bank relies heavily upon information systems and other technology to conduct and manage its business. The Bank owns some of these systems and technology, and third parties own and provide to the Bank some of the systems and technology. To the extent that the Bank experiences a failure or interruption in any of these systems or other technology, the Bank may be unable to conduct and manage its business effectively, including, without limitation, its hedging and advances activities. The Bank can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of, any such failure or interruption. Any failure or interruption could harm significantly the Bank’s customer relations, risk management, and profitability, which could have a negative effect on the Bank’s financial condition and results of operations.

An increase in the percentage of AHP contributions that the Bank is required to make could decrease the Bank’s dividends payable to its members.

If the aggregate AHP contributions of the 12 FHLBanks were to fall below $100 million, the Finance Agency would prorate the remaining sums among the FHLBanks, subject to certain conditions, as may be required to meet the minimum $100 million annual contribution. Increasing the Bank’s AHP contribution in such a scenario would reduce the Bank’s earnings and potentially reduce the dividend paid to members.

The Bank may not be able to pay dividends at rates consistent with past practices.

The Bank’s board of directors may declare dividends on the Bank’s capital stock, payable to members, from the Bank’s retained earnings and current net earnings. The Bank’s ability to pay dividends also is subject to statutory and regulatory liquidity requirements. For example, the Bank has adopted a capital management policy to address regulatory guidance issued to all FHLBanks regarding retained earnings. The Bank’s capital management policy requires the Bank to establish a target amount of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank’s control. Accordingly, events such as changes in interest rates, collateral value, credit quality of members and any future other-than-temporary impairment losses may affect the adequacy of the Bank’s retained earnings and may require the Bank to reduce its dividends from historical ratios to achieve and maintain the targeted amount of retained earnings.

The Bank’s exposure to credit risk could have an adverse effect on the Bank’s financial condition and results of operations.

Any substantial devaluation of the collateral, an inability to liquidate collateral, or any disruptions in the servicing of collateral in the event of a default could create credit losses for the Bank, which, if significant, could have an adverse effect on the Bank’s financial condition and results of operations. In addition, a significant failure to properly perfect the Bank’s security interests in the property pledged by members could have an adverse effect on the Bank’s financial condition and results of operations.

The Bank is exposed to credit risk on its investments.

The Bank invests in U.S. agency (Fannie Mae, Freddie Mac and Ginnie Mae) and private-label MBS rated AAA by S&P or Fitch or Aaa by Moody’s at the time of purchase. As of December 31, 2009, a substantial portion of the Bank’s MBS portfolio consisted of private-label MBS. Market prices for many of the private-label MBS the Bank holds have deteriorated during 2009 due to continued market uncertainty and illiquidity. The significant widening of credit spreads that has occurred during 2009 further reduced the fair value of the Bank’s MBS portfolio.

Credit losses in the Bank’s MBS portfolio, if significant, could have an adverse effect on the Bank’s financial condition and results of operations. Given current market conditions and the significant judgments involved, there is a risk that further declines in fair value in the Bank’s MBS portfolio may occur and that the Bank may record additional material other-than-temporary impairment losses in future periods, which could materially adversely affect the Bank’s earnings and retained earnings and the value of Bank membership.

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

The Bank owns approximately 235,000 square feet of office space at 1475 Peachtree Street, NE, Atlanta, Georgia 30309. The Bank occupies approximately 200,000 square feet of this space. The Bank leases 18,032 square feet of office space in an off-site backup facility located in Norcross, Georgia. The Bank also leases 3,193 square feet of office space located in Washington, D.C. for its government relations personnel. The Bank believes these facilities are well maintained and are adequate for the purposes for which they currently are used.

Item 3.

Legal Proceedings.

The Bank is subject to various legal proceedings and actions from time to time in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material adverse effect on the Bank’s financial condition or results of operations.

Item 4.

(Removed and Reserved).

PART II

Item 5.

Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Bank’s members or former members own all the stock of the Bank. The Bank’s stock is not publicly traded or quoted, and there is no established marketplace for it, nor does the Bank expect a market to develop. The Bank’s capital plan prohibits the trading of its capital stock, except in connection with merger or acquisition activity.

A member may request that the Bank redeem at par its “excess stock” five years after the Bank receives a written request by the member, subject to certain regulatory requirements and to the satisfaction of any ongoing stock investment requirements applicable to the member. Excess stock is Bank capital stock not required to be held by the member to meet its minimum stock requirement under the Bank’s capital plan. In addition, any member may withdraw from membership upon five years’ written notice to the Bank. Subject to the member’s satisfaction of any outstanding indebtedness and other statutory requirements, the Bank shall redeem at par the member’s stock upon withdrawal from membership. The Bank, in its discretion, may repurchase shares held by a member in excess of its required stock holdings. Historically, it was the Bank’s general practice to promptly repurchase a member’s excess activity-based stock, subject to certain limitations and thresholds in the Bank’s capital plan. During the first quarter of 2009, the Bank notified members of an increase in the excess stock threshold amount from $100 thousand to $2.5 billion and a change from the automatic daily repurchase of excess stock to a quarterly evaluation process. The par value of all capital stock is $100 per share. As of December 31, 2009, the Bank had 1,195 members and 83.1 million shares of its common stock outstanding (including mandatorily redeemable shares); 1.21 million of those outstanding shares represented excess membership stock and 18.0 million of those outstanding shares represented excess activity-based stock. The Bank did not repurchase excess activity-based stock during the third or fourth quarters of 2009. For further discussion of excess activity-based stock, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Business Outlook.”

Dividends declared in a quarter may be determined based on the Bank’s financial results of that same quarter or a previous quarter, and dividends declared in a quarter may be paid in that same quarter or a later quarter. The Bank declared quarterly cash dividends in 2009 and 2008 as outlined in the table below (dollar amount in thousands).

Quarterly Dividends Declared


	2009			2008
	Amount		Annualized Rate (%)	Amount		Annualized Rate (%)
First	$	—	—	$	114,439	6.00
Second		—	—		114,292	5.75
Third		15,775	0.84		58,946	2.89
Fourth		8,352	0.41		—	—

The Bank did not pay a dividend for the first quarter of 2009. On August 10, 2009, the Bank’s board of directors declared a cash dividend for the second quarter of 2009 at an annualized dividend rate of 0.84 percent, which was paid on August 14, 2009. On October 29, 2009, the Bank’s board of directors declared a cash dividend for the third quarter of 2009 at an annualized dividend rate of 0.41 percent, which the Bank paid on November 2, 2009. In each case, the dividend rate was equal to the average three-month LIBOR for the respective quarter. As of March 24, 2010, the Bank has not made a dividend determination for the fourth quarter of 2009.

dividends declared. The Bank’s board of directors may neither declare nor require the Bank to pay dividends if, after giving effect to the dividend, the Bank would fail to meet any of its capital requirements. The Bank also may not declare any dividend when it is not in compliance with all of its capital requirements or if it is determined that the dividend would create a financial safety and soundness issue for the Bank.

The Bank’s board of directors has adopted a capital management policy that includes a targeted amount of retained earnings. In the near future, dividends paid, if any, may be lower than dividends paid in previous quarters, reflecting a conservative financial management approach during this period of continued volatility. For further discussion of the Bank’s dividends, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Because only member institutions, not individuals, may own the Bank’s capital stock, the Bank has no equity compensation plans.

The Bank also issues standby letters of credit in the ordinary course of its business. From time to time, the Bank provides standby letters of credit to support members’ obligations, members’ letters of credit or obligations issued to support unaffiliated, third-party offerings of notes, bonds, or other securities. The Bank issued $13.2 billion, $5.7 billion, and $5.7 billion in letters of credit in 2009, 2008, and 2007, respectively. To the extent that these standby letters of credit are securities for purposes of the Securities Act of 1933, the issuance of the standby letter of credit by the Bank is exempt from registration pursuant to section 3(a)(2) thereof.

Item 6.

Selected Financial Data.

The following selected historical financial data of the Bank should be read in conjunction with the audited financial statements and related notes thereto, and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Report. The following data, insofar as it relates to each of the years 2005 to 2009, have been derived from annual financial statements, including the statement of condition at December 31, 2009 and 2008 and the related statements of income and of cash flows for the three years ended December 31, 2009 and notes thereto appearing elsewhere in this Report. The financial information presented in the following table, and in the financial statements included in this Report, is not necessarily indicative of the financial condition, results of operations, or cash flows of any other interim or yearly periods (dollar amounts in thousands):


	For the Years Ended December 31,
	2009			2008			2007			2006			2005
Statements of Condition (at year end)
Total assets	$	151,310,659		$	208,564,340		$	188,937,764		$	140,533,763		$	142,992,260
Investments (1)		32,939,938			38,375,940			41,526,466			35,090,036			38,171,638
Mortgage loans		2,523,397			3,251,930			3,527,428			3,004,173			2,860,539
Allowance for loan losses		(1,107	)		(856	)		(846	)		(774	)		(557	)
Advances, net		114,580,012			165,855,546			142,867,373			101,476,335			101,264,208
REFCORP prepayment		—			14,028			—			—			—
Deposits		2,989,474			3,572,709			7,135,027			4,478,109			5,157,809
Consolidated obligations, net:
Discount notes		17,127,295			55,194,777			28,347,939			4,934,073			9,579,425
Bonds		121,449,798			138,181,334			142,237,042			122,067,636			119,172,487
Total consolidated obligations, net (2)		138,577,093			193,376,111			170,584,981			127,001,709			128,751,912
Mandatorily redeemable capital stock		188,226			44,428			55,538			215,705			143,096
Affordable Housing Program payable		124,765			139,300			156,184			130,006			105,911
Payable to REFCORP		20,552			—			30,681			23,606			20,766
Capital stock—putable		8,123,803			8,462,995			7,556,016			5,771,798			5,753,203
Retained earnings		872,760			434,883			468,779			406,376			328,369
Accumulated other comprehensive loss		(743,975	)		(4,942	)		(2,559	)		(4,537	)		—
Total capital		8,252,588			8,892,936			8,022,236			6,173,637			6,081,572

Statements of Income
Net interest income		404,321			846,028			703,548			671,219			633,707
Provision for credit losses on mortgage loans held for portfolio		251			10			72			217			17
Net impairment losses recognized in earnings		(316,376	)		(186,063	)		—			—			—
Net (losses) gains on trading securities		(135,492	)		200,373			106,718			(99,241	)		(215,108	)
Net gains (losses) on derivatives and hedging activities		543,212			(229,289	)		(96,424	)		91,176			136,520
Other income (loss) (3)		3,242			984			3,230			4,242			4,494
Other expenses		112,636			286,432			110,181			102,381			86,190
Income before assessments		386,020			345,591			606,819			564,798			473,406
Assessments		102,536			91,810			161,916			150,600			126,365
Income before cumulative effect of change in accounting principle		283,484			253,781			444,903			414,198			347,041
Cumulative effect of change in accounting principle (4)		—			—			—			—			(2,905	)
Net income		283,484			253,781			444,903			414,198			344,136

Return on equity (5)		3.58	%		2.95	%		6.47	%		6.59	%		5.83	%
Return on assets (6)		0.16	%		0.13	%		0.28	%		0.29	%		0.25	%
Net interest margin (7)		0.22	%		0.42	%		0.44	%		0.48	%		0.46	%
Regulatory capital ratio (at period end) (8)		6.07	%		4.29	%		4.28	%		4.55	%		4.35	%
Ratio of earnings to fixed charges		1.21			1.06			1.08			1.09			1.11
Equity to assets ratio (9)		4.34	%		4.25	%		4.27	%		4.41	%		4.26	%
Dividend payout ratio (10)		8.51	%		113.4	%		86.0	%		81.2	%		67.5	%

(1)	Investments consist of interest-bearing deposits, federal funds sold, and securities classified as trading, available-for-sale and held-to-maturity.

(2)

The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. As of December 31, 2009, 2008, 2007, 2006 and 2005, the par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $793.3 billion, $1.1 trillion, $1.0 trillion, $823.9 billion and $807.1 billion, respectively.

(3)	Other income (loss) includes service fees and other.

(4)	Effective January 1, 2005, the Bank changed its method of accounting for deferred premiums and discounts on mortgage-backed securities under GAAP from the estimated life method to contractual method.

(5)	Calculated as net income divided by average total equity.

(6)	Calculated as net income divided by average total assets.

(7)	Net interest margin is net interest income as a percentage of average earning assets.

(8)	Regulatory capital ratio is regulatory capital stock plus retained earnings as a percentage of total assets at year end. See Note 13 to the 2009 financial statements for a discussion of regulatory capital.

(9)	Calculated as average equity divided by average total assets.

(10)	Calculated as dividends declared divided by net income.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis relates to the Bank’s financial condition as of December 31, 2009 and 2008, and results of operations for the years ended December 31, 2009, 2008, and 2007. This section explains the changes in certain key items in the Bank’s financial statements from year to year, the primary factors driving those changes, the Bank’s risk management processes and results, known trends or uncertainties that the Bank believes may have a material effect on the Bank’s future performance, as well as how certain accounting principles affect the Bank’s financial statements.

This discussion should be read in conjunction with the Bank’s audited financial statements and related notes for the year ended December 31, 2009 included in Item 8 of this Report. Readers also should review carefully “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A, “Risk Factors” for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank’s actual results to differ, perhaps materially, from these forward-looking statements.

Executive Summary

Financial Condition

As of December 31, 2009, total assets were $151.3 billion, a decrease of $57.3 billion, or 27.5 percent, from December 31, 2008. This decrease was due primarily to a $51.3 billion, or 30.9 percent, decrease in advances and a $6.0 billion, or 26.1 percent, decrease in held-to-maturity securities during the year. Advances, the largest asset on the Bank’s balance sheet, decreased during the year due to maturing advances, prepayments as a result of member failures, and a decrease in demand for new advances resulting from members’ increased deposit balances, slower loan growth, and access to alternative sources of funding. The decrease in held-to-maturity securities during the year was due primarily to $5.0 billion in proceeds received for principal repayments and maturities, the continued decline in the Bank’s purchase of MBS, and total other-than-temporary impairment losses of $1.1 billion recorded on held-to-maturity securities which were subsequently transferred to the Bank’s available-for-sale portfolio. Available-for-sale securities were $2.3 billion as of December 31, 2009 compared to $0 as of December 31, 2008. These securities represent private-label MBS previously held in the Bank’s held-to-maturity portfolio for which the Bank has recorded an other-than-temporary impairment loss and subsequently transferred to the Bank’s available-for-sale portfolio.

As of December 31, 2009, total liabilities were $143.1 billion, a decrease of $56.6 billion, or 28.4 percent, from December 31, 2008. This decrease was due primarily to a $54.8 billion, or 28.3 percent, decrease in COs during the year. The decrease in COs corresponds to the decrease in demand for advances by the Bank’s members during the year.

Total capital was $8.3 billion at December 31, 2009, a decrease of $640.3 million, or 7.20 percent, from December 31, 2008. This decrease was due to a $739.0 million increase in accumulated other comprehensive loss and a $339.2 million decrease in capital stock, which was partially offset by a $437.9 million increase in retained earnings during the year. The increase in accumulated other comprehensive loss was due primarily to the recording of $560.6 million in other comprehensive loss related to the Bank’s private-label MBS during 2009 and the adoption of other-than-temporary impairment guidance as of January 1, 2009, which resulted in a $178.5 million cumulative effect adjustment to retained earnings (increase) and accumulated other comprehensive loss (increase) as of the date of adoption. The decrease in capital stock was due to the repurchase/redemption of $1.1 billion in capital stock during the first six-months of 2009 and the reclassification of $153.8 million in capital stock to mandatorily redeemable capital stock, which was partially offset by the issuance of $925.7 million in capital stock during the year. The Bank’s retained earnings were $872.8 million as of December 31, 2009, an increase of $437.9 million, or 100.7 percent, from December 31, 2008. The increase in retained earnings was due to the adoption of other-than-temporary impairment guidance, as previously discussed, and the recording of $283.5 million in net income for the year. These increases were partially offset by the payment of $24.1 million in dividends during the year.

Results of Operations

The Bank’s net income for 2009 was $283.5 million, a $29.7 million, or 11.7 percent, increase from net income of $253.8 million for 2008. The increase in net income in 2009 compared to 2008 was due primarily to a decrease in other expense, primarily related to the establishment of a reserve on the Bank’s receivable from Lehman Brothers Special Financing, Inc. (“LBSF”) of $170.5 million in 2008. Net interest income decreased by $441.7 million, due primarily to accelerated write-offs of hedging adjustments on advances that were prepaid during 2009. This decrease was partially offset by an increase in other income of $308.6 million, due to an increase of $436.6 million in other income from the Bank’s hedging activities and trading securities, caused by changes in interest rates and accelerated write-offs of basis adjustments on discontinued hedges, offset by an increase of $130.3 million in other-than-temporary impairment losses recognized in earnings during 2009. There was also a decrease in compensation and benefits expense of $9.8 million, due primarily to a reduction of incentive compensation.

One way in which the Bank analyzes its performance is by comparing its annualized return on equity (“ROE”) to three-month average LIBOR. The Bank’s ROE was 3.58 percent for 2009, compared to 2.95 percent for 2008. ROE increased between the periods primarily as a result of increased net income, as discussed above, and a decrease in average capital. ROE spread to three-month average LIBOR increased in 2009 compared to 2008, equaling 2.89 percent for 2009 as compared to 0.02 percent for 2008. The increase in this spread was due primarily to the increase in ROE and a decrease in three-month LIBOR during the year.

The Bank’s interest rate spread decreased by 10 basis points in 2009 compared to 2008. This decrease was due primarily to lower yields on advances due to the write-off of hedging-related basis adjustments on advances that were prepaid during 2009.

Business Outlook

The continued instability of the financial market, increasing financial institution failures, and high levels of member liquidity could continue to impact negatively advance demand and the market value of the Bank’s private-label MBS portfolio, which could affect the Bank’s financial condition and results of operations.

The uncertainty as to the depth and duration of the market instability has led to a significant reduction in the market values of MBS. During 2009, the Bank recorded net impairment losses recognized in earnings of $316.4 million related to private-label MBS in the Bank’s held-to-maturity and available-for-sale securities portfolios, compared to $186.1 million during 2008 related to private-label MBS in the Bank’s held-to-maturity securities portfolio. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and the Bank may record additional material other-than-temporary impairment losses in future periods.

Advance demand decreased steadily during 2009 as a result of increased liquidity of the markets, scheduled repayments, prepayments as a result of member closures, members’ significant deposit holdings, and slower loan growth. The Bank expects this trend to continue throughout 2010.

On February 27, 2009 the Bank announced certain capital management changes to facilitate capital management during the continuing market uncertainty. These changes included an increase in the Subclass B1 membership stock requirement cap from $25 million to $26 million and a change from the Bank’s historical practice of automatically repurchasing excess activity-based stock on a daily basis to evaluating and approving excess activity-based stock repurchases on a quarterly review cycle. During the second half of 2009, the Bank’s board of directors determined not to repurchase excess activity-based stock due to the continuing market instability, the Bank’s other-than-temporary impairment losses and a conservative approach to capital management. This decision has resulted in significantly higher capital ratios than in previous years.

paid on August 14, 2009. On October 29, 2009, the Bank’s board of directors declared a cash dividend for the third quarter of 2009 at an annualized dividend rate of 0.41 percent, which the Bank paid on November 2, 2009. In each case, the dividend rate was equal to the average three-month LIBOR for the respective quarter. As of March 24, 2010, the board of directors has not made a dividend determination for the fourth quarter of 2009. In 2008, the Bank declared cash dividends for the first, second and third quarters at an annualized dividend rate of 6.00 percent, 5.75 percent and 2.89 percent, respectively. The Bank’s dividend payout ratio for 2009 and 2008 was 8.51 percent and 113.4 percent, respectively.

Given the continued fragile state of the economy, financial markets and member institutions, and after consultation with its regulator, the board of directors determined that retaining a larger portion of earnings and significantly higher capital ratios than in previous years was important to maintaining the Bank’s stable financial condition. However, as advances continue to decrease, the corresponding increase in excess activity-based stock may have a negative impact on the Bank’s ROE if the Bank is unable to profitably leverage the excess capital and may affect adversely member demand for advances. The board of directors will continue to review excess activity-based stock repurchases and potential dividends on a quarterly basis after quarterly results are known. As markets improve, the board of directors will review its retained earnings and capital management approach.

Financial Condition

The Bank’s principal assets consist of advances, short- and long-term investments, and mortgage loans held for portfolio. The Bank obtains funding to support its business primarily through the issuance by the Office of Finance on the Bank’s behalf of debt securities in the form of consolidated obligations.

The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated (dollar amounts in thousands). These items are discussed in more detail below.


	As of December 31,
	2009					2008					Increase/(Decrease)
	Amount			Percent of Total		Amount			Percent of Total		Amount			Percent
Advances, net	$	114,580,012		75.72		$	165,855,546		79.52		$	(51,275,534	)	(30.92	)
Long-term investments		22,593,863		14.93			27,604,052		13.24			(5,010,189	)	(18.15	)
Short-term investments		10,346,075		6.84			10,771,888		5.16			(425,813	)	(3.95	)
Mortgage loans, net		2,522,290		1.67			3,251,074		1.56			(728,784	)	(22.42	)
Other assets		1,268,419		0.84			1,081,780		0.52			186,639		17.25

Total assets	$	151,310,659		100.00		$	208,564,340		100.00		$	(57,253,681	)	(27.45	)

Consolidated obligations, net:
Bonds	$	121,449,798		84.90		$	138,181,334		69.20		$	(16,731,536	)	(12.11	)
Discount notes		17,127,295		11.97			55,194,777		27.64			(38,067,482	)	(68.97	)
Deposits		2,989,474		2.09			3,572,709		1.79			(583,235	)	(16.32	)
Other liabilities		1,491,504		1.04			2,722,584		1.37			(1,231,080	)	(45.22	)

Total liabilities	$	143,058,071		100.00		$	199,671,404		100.00		$	(56,613,333	)	(28.35	)

Capital stock	$	8,123,803		98.44		$	8,462,995		95.17		$	(339,192	)	(4.01	)
Retained earnings		872,760		10.58			434,883		4.89			437,877		100.69
Accumulated other comprehensive loss		(743,975	)	(9.02	)		(4,942	)	(0.06	)		(739,033	)	(14,954.13	)

Total capital	$	8,252,588		100.00		$	8,892,936		100.00		$	(640,348	)	(7.20	)

Advances

The following table sets forth the Bank’s advances outstanding by year of maturity and the related weighted- average interest rate (dollar amounts in thousands):


	As of December 31,
	2009				2008
	Amount			Weighted- average Interest Rate (%)	Amount			Weighted- average Interest Rate (%)
Year of contractual maturity:
Overdrawn demand deposit accounts	$	—		—	$	550		5.46
Due in one year or less		32,808,199		3.68		39,739,223		2.97
Due after one year through two years		21,565,179		4.30		34,187,680		4.09
Due after two years through three years		14,665,398		4.06		23,761,810		4.61
Due after three years through four years		10,756,841		3.87		17,692,714		4.32
Due after four years through five years		5,910,320		3.33		10,566,914		4.06
Due after five years		24,106,618		3.87		30,320,265		3.94

Total par value		109,812,555		3.89		156,269,156		3.88
Discount on AHP advances		(13,455	)			(14,028	)
Discount on EDGE advances		(12,179	)			(13,253	)
Hedging adjustments		4,799,059				9,617,925
Deferred commitment fees		(5,968	)			(4,254	)

Total	$	114,580,012			$	165,855,546

Advances were $114.6 billion as of December 31, 2009, a decrease of $51.3 billion, or 30.9 percent, from December 31, 2008. This decrease was due to maturing advances, prepayments as a result of member failures and decreased demand for advances by the Bank’s members. The decreased demand for advances by the Bank’s members was primarily a result of their increased deposits, slower loan growth and government programs that provide them with alternative sources of funding. At December 31, 2009, 89.0 percent of the Bank’s advances were fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of advances to convert the rates on them, in effect, into a short-term interest rate, usually based on LIBOR. Of the par value of $109.8 billion of advances outstanding at December 31, 2009, $91.1 billion, or 82.9 percent, had their terms reconfigured through the use of interest-rate exchange agreements. The comparable notional amount of such outstanding derivatives at December 31, 2008 was $118.9 billion, or 76.1 percent, of the par value of advances. The majority of the Bank’s variable-rate advances were indexed to LIBOR. The Bank also offers variable-rate advances tied to federal funds rate, prime rate and CMS (constant maturity swap) rates.

The concentration of the Bank’s advances to its 10 largest borrowing member institutions was as follows (dollar amounts in billions):


	Advances to 10 largest borrowing member institutions		Percent of total advances outstanding
December 31, 2009	$	75.4	68.7
December 31, 2008		102.7	65.7

A breakdown of these advance holdings as of December 31, 2009 is contained in Item 1, “Business—Credit Products—Advances.” Management believes that the Bank holds sufficient collateral, on a member-specific basis, to secure the advances to all borrowers, including these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.

Supplementary financial data on the Bank’s advances is set forth under Item 8, “Financial Statements and Supplementary Information.”

Investments

The Bank maintains a portfolio of investments for liquidity purposes, to provide for the availability of funds to meet member credit needs and to provide additional earnings. Investment income also enhances the Bank’s capacity to meet its commitment to affordable housing and community investment, to cover operating expenses, and to satisfy the Bank’s annual REFCORP assessment.

The Bank’s short-term investments consist of overnight and term federal funds, certificates of deposit and interest-bearing deposits. The Bank’s long-term investments consist of MBS issued by government-sponsored mortgage agencies or private securities that, at purchase, carry the highest rating from Moody’s or S&P, securities issued by the U.S. government or U.S. government agencies, state and local housing agency obligations, and consolidated obligations issued by other FHLBanks. The long-term investment portfolio generally provides the Bank with higher returns than those available in the short-term money markets. The following table sets forth more detailed information regarding short- and long-term investments held by the Bank (dollar amounts in thousands):


	As of December 31,				Increase/ (Decrease)
	2009		2008		Amount			Percent
Short-term investments:
Deposits with other FHLBanks	$	2,375	$	2,888	$	(513	)	(17.76	)
Held-to-maturity-Certificates of deposit		300,000		—		300,000		(NM	)
Federal funds sold		10,043,700		10,769,000		(725,300	)	(6.74	)

Total short-term investments		10,346,075		10,771,888		(425,813	)	(3.95	)

Long-term investments:

Trading securities:
Government-sponsored enterprises debt obligations		3,470,402		4,171,725		(701,323	)	(16.81	)
Other FHLBanks’ bonds		71,910		300,135		(228,225	)	(76.04	)
State or local housing agency obligations		10,435		14,069		(3,634	)	(25.83	)

Available-for-sale securities:

Mortgage-backed securities:
Private label		2,256,065		—		2,256,065		(NM	)

Held-to-maturity securities:
State or local housing agency obligations		115,400		101,105		14,295		14.14
Mortgage-backed securities:
U.S. agency obligations-guaranteed		776,548		38,545		738,003		1,914.65
Government-sponsored enterprises		6,598,400		7,060,082		(461,682	)	(6.54	)
Private label		9,294,703		15,918,391		(6,623,688	)	(41.61	)

Total long-term investments		22,593,863		27,604,052		(5,010,189	)	(18.15	)

Total investments	$	32,939,938	$	38,375,940	$	(5,436,002	)	(14.17	)

(NM)—Not meaningful

Short-term investments were $10.3 billion at December 31, 2009, a $425.8 million, or 3.95 percent, decrease from December 31, 2008. The decrease in short-term investments was due primarily to a $2.1 billion decrease in overnight federal funds during the year as market conditions improved and the Bank’s need for this source of liquidity eased. This decrease was partially offset by a $1.4 billion increase in term federal funds and a $300.0 million increase in certificates of deposit during the year. The Bank expects its federal funds holdings to remain at this level for the near-term.

Long-term investments were $22.6 billion at December 31, 2009, a decrease of $5.0 billion, or 18.2 percent, from December 31, 2008. The decrease in long-term investments was due primarily to principal repayments and maturities and the continued decline in the Bank’s purchase of MBS during the year. In addition, during 2009, the Bank recorded total other-than-temporary impairment losses of $1.3 billion related to its private-label MBS, of which $316.4 million was recognized in earnings.

The total MBS investment balance was $18.9 billion at December 31, 2009, compared to $23.0 billion at December 31, 2008. The MBS balance at December 31, 2009 included MBS with a book value of $4.6 billion issued by one of the Bank’s members and their affiliates with dealer relationships. The MBS balance at December 31, 2008 included MBS with a book value of $6.7 billion issued by two of the Bank’s members and their affiliates with dealer relationships.

The Finance Agency limits an FHLBank’s investment in MBS and asset-backed securities by requiring that the total book value of MBS owned by the FHLBank generally may not exceed 300 percent, or in certain circumstances 600 percent, of the FHLBank’s previous month-end capital plus its mandatorily redeemable capital stock on the day it purchases the securities. In light of current market conditions, the Bank attempts to maintain this ratio at 250 percent to 275 percent to help to maximize and stabilize earnings. These investments amounted to 224 percent and 258 percent of total capital plus mandatorily redeemable capital stock at December 31, 2009 and 2008, respectively. The Bank was below its target range at December 31, 2009 due to the lack of quality MBS at attractive prices.

As of December 31, 2009, the Bank had a total of 32 securities classified as available-for-sale in an unrealized loss position, with total gross unrealized losses of $739.1 million, and a total of 187 securities classified as held-to-maturity in an unrealized loss position, with total gross unrealized losses of $882.9 million. As of December 31, 2008, the Bank had a total of 279 securities classified as held-to-maturity in an unrealized loss position, with total gross unrealized losses of $3.7 billion.

The Bank evaluates its individual investment securities holdings for other-than-temporary impairment on a quarterly basis, or more frequently if events or changes in circumstances indicate that these investments may be other-than-temporarily impaired. The Bank recognizes an other-than-temporary impairment loss when the Bank determines it will not recover the entire amortized cost basis of a security. Securities in the Bank’s private-label MBS portfolio are evaluated by estimating the present value of cash flows the Bank expects to collect based on the structure of the security and certain economic environment assumptions, such as delinquency and default rates, loss severity, home price appreciation, interest rates, and securities prepayment speeds, while factoring in underlying collateral and credit enhancement.

On April 28, 2009 and May 7, 2009, the Finance Agency provided the FHLBanks with guidance on the process for determining other-than-temporary impairment with respect to private-label MBS and the Bank’s adoption of recent Financial Accounting Standards Board (“FASB”) guidance governing the accounting for other-than-temporary impairment in the first quarter of 2009. The goal of the Finance Agency guidance is to promote consistency in the determination of other-than-temporary impairment for private-label MBS among all FHLBanks. Recognizing that many of the FHLBanks desired to early adopt the FASB other-than-temporary impairment guidance, the Finance Agency guidance also required that all FHLBanks early adopt the FASB other- than-temporary impairment guidance in order to achieve consistency among the 12 FHLBanks and to follow certain guidelines for determining other-than-temporary impairment. The Bank adopted the FASB other-than-temporary impairment guidance, applied in accordance with the Finance Agency guidance as further described below, effective January 1, 2009.

Beginning with the second quarter of 2009, consistent with the objectives in the Finance Agency guidance, the FHLBanks formed an Other-than-Temporary Impairment Governance Committee (the “OTTI Committee”) with the responsibility for reviewing and approving the key modeling assumptions, inputs and methodologies to be used by the FHLBanks to generate cash flow projections used in analyzing credit losses and determining other-than-temporary impairment for private-label MBS. The OTTI Committee charter was approved on June 11, 2009 and provides a formal process by which the FHLBanks can provide input on and approve the assumptions.

In accordance with Finance Agency guidance, the Bank engaged FHLBank Dallas to perform the cash flow analysis underlying its other-than-temporary impairment determination. Each FHLBank is responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and performing the required present value calculations using appropriate historical cost bases and yields. FHLBanks that hold common private-label MBS are required to consult with one another to ensure that any decision that a commonly held private-label MBS is other-than-temporarily impaired, including the determination of fair value and the credit loss component of the unrealized loss, is consistent among those FHLBanks. With respect to such commonly-owned securities (of which there were 19 at December 31, 2009), FHLBank San Francisco performed the cash flow analysis underlying the Bank’s other-than-temporary impairment determination.

In order to promote consistency in the application of the assumptions and implementation of the other-than-temporary impairment methodology, the FHLBanks have established control procedures whereby the FHLBanks performing cash flow analysis select a sample group of private-label MBS and each performs cash flow analyses on all such test MBS, using the assumptions approved by the OTTI Committee. These FHLBanks exchange and discuss the results and make any adjustments necessary to achieve consistency among their respective cash flow models.

For the year ended December 31, 2009, the Bank completed its other-than-temporary impairment analysis and made its other-than-temporary impairment determination utilizing the key modeling assumptions approved by the OTTI Committee (on which the Bank had representation). Based on the impairment analysis described above, the Bank recognized a total other-than-temporary impairment loss of $1.3 billion related to 32 private-label MBS in its investment securities portfolio. The total amount of other-than-temporary impairment is calculated as the difference between the security’s amortized cost basis and its fair value. The $316.4 million credit related portion of this other-than-temporary impairment loss for the year ended December 31, 2009 is reported in the Statements of Income as “Net impairment losses recognized in earnings,” while the noncredit portion of $989.9 million is recorded as a component of other comprehensive loss. The remainder of the Bank’s investment securities portfolio that has not been designated as other-than-temporarily impaired has experienced unrealized losses and decreases in fair value due to interest-rate volatility, illiquidity in the marketplace, and credit deterioration in the U.S. mortgage markets. This decline in fair value is considered temporary as the Bank presently expects to collect all contractual cash flows and the Bank does not intend to sell the securities and it is not more likely than not that the Bank will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, which may be at maturity. This assessment is based on the determination that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.

During the third quarter of 2009, in an effort to achieve consistency among all the FHLBanks in determining fair value of commonly owned private-label MBS, the FHLBanks formed a MBS Pricing Governance Committee with the responsibility for developing a fair value methodology that participating FHLBanks may adopt. The methodology approved by the MBS Pricing Governance Committee is consistent with the Bank’s existing methodology to estimate the fair value of private-label MBS.

Based on the Bank’s impairment analysis for the year ended December 31, 2008, the Bank recognized an other-than-temporary impairment loss of $186.1 million related to five private-label MBS in its held-to-maturity securities portfolio. The Bank concluded that these securities were other-than-temporarily impaired based on an analysis of both quantitative and qualitative factors, including rating agency actions, default rates, loss severity, home price depreciation and the potential for continued adverse developments.

For the year ended December 31, 2007, the Bank did not recognize any other-than-temporary impairment loss.

Supplementary financial data on the Bank’s investment securities is set forth under Item 8, “Financial Statements and Supplementary Data.”

Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio were $2.5 billion at December 31, 2009, a decrease of $728.8 million, or 22.4 percent, from December 31, 2008. The decrease in mortgage loans held was due to the maturity of these assets during the year. In 2006, the Bank ceased purchasing assets under the AMPP, and in 2008 the Bank ceased purchasing assets under the MPF Program. Early in the third quarter of 2008, the Bank suspended acquisitions of mortgage loans under the MPP. If the Bank does not resume purchasing mortgage loans under these programs, each of the existing mortgage loans held for portfolio will mature according to the terms of its note. The Bank purchased loans with maturity dates extending out to 2038.

The following table presents information on mortgage loans held for portfolio (in thousands).


	As of December 31,
	2009			2008
Mortgage loans held for portfolio:
Fixed-rate medium-term* single-family mortgages	$	619,541		$	813,351
Fixed-rate long-term single-family mortgages		1,886,116			2,421,652
Multifamily mortgages		22,227			22,762

Total unpaid principal balance		2,527,884			3,257,765
Premiums		11,678			15,882
Discounts		(16,326	)		(21,896	)
Delivery commitments basis adjustments		161			179

Total	$	2,523,397		$	3,251,930

*	Medium-term is defined as a term of 15 years or less.

As of December 31, 2009 and 2008, the Bank’s mortgage loan portfolio was concentrated in the southeastern United States because those members selling loans to the Bank were located primarily in that region. The following table provides the percentage of unpaid principal balance of MPF Program and MPP loans held for portfolio for the five largest state concentrations.


	As of December 31,
	2009	2008
	Percent of Total	Percent of Total
South Carolina	23.0	23.0
Florida	19.0	16.0
North Carolina	16.0	17.0
Georgia	15.0	14.0
Virginia	10.0	10.0
All other	17.0	20.0

Total	100.0	100.0

Supplementary financial data on the Bank’s mortgage loans is set forth under Item 8, “Financial Statements and Supplementary Data.”

Consolidated Obligations

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. Consolidated obligation issuances financed 91.6 percent of the $151.3 billion in total assets at December 31, 2009, remaining relatively stable from the financing ratio of 92.7 percent as of December 31, 2008.

Consolidated obligation bonds were $121.4 billion at December 31, 2009, a decrease of $16.7 billion, or 12.1 percent, from December 31, 2008. Consolidated obligation discount notes were $17.1 billion at December 31, 2009, a decrease of $38.1 billion, or 69.0 percent, from December 31, 2008. The decrease in consolidated obligations corresponds to the decrease in demand for advances by the Bank’s members during 2009 and the increase in liquidity from advance prepayments as a result of member failures. Also reflected is a slight shift in investor demand towards consolidated obligation bonds from consolidated obligation discount notes. Consolidated obligation bonds outstanding at December 31, 2009 and 2008 were primarily fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of consolidated obligation bonds to convert the rates on them, in effect, into short-term interest rates, usually based on LIBOR. Of the par value of $120.2 billion of consolidated obligation bonds outstanding at December 31, 2009, $85.2 billion, or 70.9 percent, had their terms reconfigured through the use of interest-rate exchange agreements. The comparable notional amount of such outstanding derivatives at December 31, 2008 was 92.7 billion, or 68.3 percent, of the par value of consolidated obligation bonds.

As of December 31, 2009, callable consolidated obligation bonds constituted 27.7 percent of the total par value of consolidated obligation bonds outstanding, compared to 31.8 percent at December 31, 2008. This decrease was due to market conditions that made the issuance of noncallable fixed maturity debt more attractive to the Bank. The derivatives that the Bank may employ to hedge against the interest-rate risk associated with the Bank’s consolidated obligation bonds generally are callable by the counterparty. The Bank generally would call the hedged consolidated obligation bond if the call features of the derivatives were exercised. These call features could require the Bank to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Call options on unhedged callable consolidated obligation bonds generally are exercised when the bond can be replaced at a lower economic cost.

The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding (dollar amounts in thousands):


	As of December 31,
	2009				2008
	Amount			Weighted- average Interest Rate (%)	Amount			Weighted- average Interest Rate (%)
Year of contractual maturity:
Due in one year or less	$	63,382,600		1.27	$	73,667,975		2.63
Due after one year through two years		17,743,400		1.76		22,242,000		3.40
Due after two years through three years		11,805,515		2.39		8,245,900		3.90
Due after three years through four years		9,726,250		3.60		5,402,015		4.57
Due after four years through five years		6,016,320		3.67		13,548,750		4.13
Due after five years		11,498,400		4.43		12,631,750		5.13

Total par value		120,172,485		2.05		135,738,390		3.30
Premiums		115,893				100,767
Discounts		(60,661	)			(109,228	)
Hedging adjustments		1,222,426				2,452,134
Deferred net losses on terminated hedges		(345	)			(729	)

Total	$	121,449,798			$	138,181,334

The Bank’s consolidated obligation bonds outstanding by type (in thousands):


	As of December 31,
	2009		2008
Noncallable	$	86,905,665	$	92,597,640
Callable		33,266,820		43,140,750

Total par value	$	120,172,485	$	135,738,390

Supplementary financial data on the Bank’s short-term borrowings is set forth under Item 8, “Financial Statements and Supplementary Data.”

Deposits

The Bank offers demand and overnight deposit programs to members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loan. For demand deposits, the Bank pays interest at the overnight rate. Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may be volatile. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank. Deposits totaled $3.0 billion as of December 31, 2009, compared to $3.6 billion as of December 31, 2008.

To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than the current deposits received from members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies, or advances with maturities not exceeding five years. The Bank was in compliance with this depository liquidity requirement as of December 31, 2009.

Capital

Total capital was $8.3 billion at December 31, 2009, a decrease of $640.3 million, or 7.20 percent, from December 31, 2008. This decrease was due to a $739.0 million increase in accumulated other comprehensive loss and a $339.2 million decrease in capital stock, which was partially offset by a $437.9 million increase in retained earnings during the year. The increase in accumulated other comprehensive loss was due primarily to the recording of $560.6 million in other comprehensive loss related to the Bank’s private-label MBS during 2009 and the adoption of other-than-temporary impairment guidance as of January 1, 2009, which resulted in a $178.5 million cumulative effect adjustment to retained earnings (increase) and accumulated other comprehensive loss (increase) as of the date of adoption. The decrease in capital stock was due to the repurchase/redemption of $1.1 billion in capital stock during the first half of 2009 and the reclassification of $153.8 million in capital stock to mandatorily redeemable capital stock, which was partially offset by the issuance of $925.7 million in capital stock during the year. The Bank’s retained earnings were $872.8 million as of December 31, 2009, an increase of $437.9 million, or 100.7 percent, from December 31, 2008. The increase in retained earnings was due to the adoption of other-than-temporary impairment guidance, as previously discussed, and the recording of $283.5 million in net income for the year. These increases were partially offset by the payment of $24.1 million in dividends during the second half of the year.

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (1) total capital in an amount equal to at least four percent of its total assets; (2) leverage capital in an amount equal to at least five percent of its total assets, and (3) permanent capital in an amount equal to at least its regulatory risk-based capital requirement. Permanent capital is defined by the FHLBank Act and applicable regulations as the sum of paid-in capital for Class B stock and retained earnings. Mandatorily redeemable capital stock is considered capital for regulatory purposes.

The Bank was in compliance with these regulatory capital rules and requirements as shown in the following table (dollar amounts in thousands):


	As of December 31,
	2009						2008
	Required			Actual			Required			Actual
Regulatory capital requirements:
Risk based capital	$	3,010,240		$	9,184,789		$	5,715,678		$	8,942,306
Total capital-to-assets ratio		4.00	%		6.07	%		4.00	%		4.29	%
Total regulatory capital*	$	6,052,426		$	9,184,789		$	8,342,574		$	8,942,306
Leverage ratio		5.00	%		9.11	%		5.00	%		6.43	%
Leverage capital	$	7,565,533		$	13,777,184		$	10,428,217		$	13,413,459

*	Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $188.2 million and $44.4 million in mandatorily redeemable capital stock at December 31, 2009 and 2008, respectively.

On August 4, 2009, Finance Agency issued a final rule that established criteria based on the amount and type of capital held by an FHLBank for four capital classifications as follows:

•

Adequately Capitalized—FHLBank meets both risk-based and minimum capital requirements

•

Undercapitalized—FHLBank does not meet one or both of its risk-based or minimum capital requirements

•

Significantly Undercapitalized—FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements

•

Critically Undercapitalized—FHLBank total capital is two percent or less of total assets.

Under the regulation, the Director will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. The regulation delineates the types of prompt corrective actions the Director may order in the event an FHLBank is not adequately capitalized, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On January 12, 2010, the Bank received notification from the Director that, based on September 30, 2009 data, the Bank meets the definition of “adequately capitalized.”

As of December 31, 2009, the Bank had capital stock subject to mandatory redemption from 45 members and former members, consisting of B1 membership stock and B2 activity-based stock, compared to 13 members and former members as of December 31, 2008, consisting of B2 activity-based stock. The Bank is not required to redeem or repurchase such stock until the expiration of the five-year redemption period or, with respect to activity-based stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding. Historically, if activity-based stock became excess stock as a result of an activity no longer remaining outstanding, the Bank generally repurchased the excess activity-based stock if the dollar amount of excess stock exceeded the threshold specified by the Bank, which in 2008 was $100 thousand. The Bank’s excess stock threshold and standard repurchase practice may be changed at the Bank’s discretion with proper notice to members. On February 26, 2009, the Bank notified members of an increase in the excess stock threshold amount to $2.5 billion and a change from the automatic daily repurchase of excess stock to a quarterly evaluation process.

As of December 31, 2009 and 2008, the Bank’s activity-based stock included $1.9 billion and $13.2 million, respectively, of excess shares subject to repurchase by the Bank at its discretion.

Results of Operations

The following is a discussion and analysis of the Bank’s results of operations for the years ended December 31, 2009, 2008, and 2007.

Net Income

The following table sets forth the Bank’s significant income and expense items for the years ended December 31, 2009, 2008, and 2007, and provides information regarding the changes during each of these periods (dollar amounts in thousands):

Components of Net Income


	For the Years Ended December 31,					Increase/ (Decrease) 2009/2008			Increase/ (Decrease) % 2009/2008		For the Year Ended December 31, 2007		Increase/ (Decrease) 2008/2007			Increase/ (Decrease) % 2008/2007
	2009		2008			Increase/ (Decrease) 2009/2008			Increase/ (Decrease) % 2009/2008		For the Year Ended December 31, 2007		Increase/ (Decrease) 2008/2007			Increase/ (Decrease) % 2008/2007
Net interest income	$	404,321	$	846,028		$	(441,707	)	(52.21	)	$	703,548	$	142,480		20.25
Other income (loss)		94,586		(213,995	)		308,581		144.20			13,524		(227,519	)	(1,682.34	)
Other expense		112,636		286,432			(173,796	)	(60.68	)		110,181		176,251		159.96
Total assessments		102,536		91,810			10,726		11.68			161,916		(70,106	)	(43.30	)
Net income		283,484		253,781			29,703		11.70			444,903		(191,122	)	(42.96	)

The Bank’s net income for 2009 was $283.5 million, an increase of $29.7 million, or 11.7 percent, from net income of $253.8 million for 2008. The increase in net income during the year was due primarily to net gains on derivatives and hedging activities of $543.2 million in 2009 compared to net losses on derivatives and hedging activities of $229.3 million in 2008 and a $173.8 million decrease in other expense, offset by a $441.7 million decrease in net interest income, net losses on trading securities of $135.5 million in 2009 compared to net gains on trading securities of $200.4 million in 2008, a $130.3 million increase in net impairment losses recognized in earnings on the Bank’s private-label MBS and a $10.7 million increase in total assessments. The increase in net gains on derivatives and hedging activities resulted from a decrease in LIBOR during the year and mark-to-market gains on swaps in discontinued hedging relationships. The decrease in other expense was due primarily to the establishment of a $170.5 million reserve for a credit loss on a receivable due from LBSF, with a corresponding charge to other expense during 2008. The decrease in net interest income was due primarily to the write-off of hedging-related basis adjustments on advances that were prepaid during 2009 and amortization related to discontinued hedging activities, as well as a decrease in interest rates and the size of the Bank’s balance sheet. The increase in net losses on trading securities was due to an increase in long-term interest rates due to the steepening of the yield curve.

The Bank’s net income for 2008 was $253.8 million, a decrease of $191.1 million, or 43.0 percent, from net income of $444.9 million for 2007. The decrease in net income was due primarily to the establishment of a $170.5 million reserve for a credit loss on a receivable due from LBSF, with a corresponding charge to other expense, and a $186.1 million other-than-temporary impairment loss on the Bank’s private-label MBS. These losses were partially offset by a $142.5 million increase in net interest income during the period.

Net Interest Income

A primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on consolidated obligations, deposits, and other borrowings. Also included in net interest income are miscellaneous related items such as prepayment fees earned and the amortization of debt issuance discounts, concession fees and derivative instruments and hedging activities related adjustments.

Net interest income for 2009 was $404.3 million, a decrease of $441.7 million or 52.2 percent, from net interest income of $846.0 million for 2008. Approximately $300.0 million of the reduction was due to the write-off of hedging-related basis adjustments on advances that were prepaid during 2009, amortization related to discontinued hedging activities and the transfer of interest from net interest income to other income on derivatives in non qualifying hedging relationships. This $300.0 million also is reflected as an increase to other income. The remaining decrease in net interest income was due to a decrease in interest rates and a reduction in the size of the Bank’s balance sheet.

Net interest income for 2008 was $846.0 million, an increase of $142.5 million, or 20.3 percent, from net interest income of $703.5 million for 2007. This increase was due primarily to reduced interest expense on COs resulting from increased demand in the marketplace for short-term debt and a corresponding decrease in demand for long-term debt. This reduction in borrowing costs more than offset the reduction in interest income on interest-earning assets due to declining interest rates during the year.

The following table summarizes key components of net interest income for the years presented (in thousands):


	Years Ended December 31,
	2009		2008		2007
Interest income:
Advances	$	888,631	$	4,729,461	$	6,272,406
Investments		1,231,374		1,720,928		1,967,693
Mortgage loans held for portfolio		151,610		182,721		175,679
Loans to other FHLBanks		2		77		60

Total		2,271,617		6,633,187		8,415,838

Interest expense:
Consolidated obligations		1,862,113		5,673,829		7,419,087
Deposits		3,646		109,726		266,562
Other		1,537		3,604		26,641

Total		1,867,296		5,787,159		7,712,290

Net interest income	$	404,321	$	846,028	$	703,548

The following table presents spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 2009, 2008 and 2007 (dollar amounts in thousands). The interest-rate spread is affected by the inclusion or exclusion of net interest income/expense associated with the Bank’s derivatives. For example, if the derivatives qualify for fair-value hedge accounting, the net interest income/expense associated with the derivative is included in the calculation of interest-rate spread. If the derivatives do not qualify for fair-value hedge accounting (“non-qualifying hedges”), the net interest income/expense associated with the derivatives is excluded from the calculation of the interest-rate spread. Net interest income includes the interest earned on trading securities, which was $196.5 million, $284.0 million and $265.7 million for the years ended December 31, 2009, 2008, and 2007, respectively. The interest income (expense) on the associated interest-rate swaps used to hedge trading securities is recorded in other income (loss). There are also numerous amortizations associated with basis adjustments that are reflected in net interest income, which affect interest-rate spread. As noted in the table below, the interest-rate spread decreased by 10 basis points for 2009 compared to 2008. This decrease was due primarily to lower yields on advances due to the write-off of hedging-related basis adjustments on advances that were prepaid during 2009. The interest-rate spread increased by five basis points for 2008 compared to 2007. This increase was due primarily to an increase in the use of short-term, lower rate funding during 2008. Short-term funding rates also decreased more than long-term funding rates during 2008.

Spread and Yield Analysis


	For the Years Ended December 31,
	2009						2008						2007
	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)	Average Balance			Interest		Yield/ Rate (%)
Assets
Federal funds sold	$	11,637,385		$	21,692	0.19	$	11,994,159		$	239,198	1.99	$	13,433,764		$	697,244	5.19
Interest-bearing deposits (1)		4,426,571			7,419	0.17		1,839,302			28,887	1.57		177,636			8,557	4.82
Certificates of deposit		17,260			32	0.19		553,210			17,384	3.14		784,610			42,115	5.37
Long-term investments (2)		25,096,021			1,202,231	4.79		28,426,447			1,435,459	5.05		23,816,403			1,219,777	5.12
Advances		136,867,865			888,631	0.65		153,841,077			4,729,461	3.07		116,626,559			6,272,406	5.38
Mortgage loans held for portfolio (3)		2,860,623			151,610	5.30		3,420,441			182,721	5.34		3,299,680			175,679	5.32
Loans to other FHLBanks		1,090			2	0.18		3,604			77	2.14		1,170			60	5.13

Total interest-earning assets		180,906,815			2,271,617	1.26		200,078,240			6,633,187	3.32		158,139,822			8,415,838	5.32

Allowance for credit losses on mortgage loans		(954	)					(925	)					(738	)
Other assets		1,402,683						2,631,277						2,826,822

Total assets	$	182,308,544					$	202,708,592					$	160,965,906

Liabilities and Capital
Demand and overnight deposits	$	3,976,844			3,500	0.09	$	5,738,281			109,291	1.90	$	5,178,340			260,440	5.03
Term deposits		—			—	—		—			—	—		8,018			323	4.03
Other interest-bearing deposits (4)		89,655			146	0.16		26,405			435	1.65		109,508			5,799	5.30
Short-term borrowings		38,199,981			260,425	0.68		38,505,038			988,758	2.57		13,661,082			671,466	4.92
Long-term debt		124,513,947			1,601,720	1.29		143,613,951			4,685,564	3.26		130,744,063			6,748,405	5.16
Other borrowings		380,090			1,505	0.40		104,142			3,111	2.99		482,496			25,857	5.36

Total interest-bearing liabilities		167,160,517			1,867,296	1.12		187,987,817			5,787,159	3.08		150,183,507			7,712,290	5.13

Noninterest-bearing deposits		—						5,965						25,666
Other liabilities		7,236,351						6,101,964						3,882,182
Total capital		7,911,676						8,612,846						6,874,551

Total liabilities and capital	$	182,308,544					$	202,708,592					$	160,965,906

Net interest income and net yield on interest-earning assets				$	404,321	0.22				$	846,028	0.42				$	703,548	0.44

Interest rate spread						0.14						0.24						0.19

Average interest-earning assets to interest-bearing liabilities						108.22						106.43						105.30

(1)	Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.

(2)	Includes trading securities at fair value and available-for-sale securities at amortized cost.

(3)	Nonperforming loans are included in average balances used to determine average rate.

(4)	Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.

Net interest income for the years presented was affected by changes in average balances (volume change) and changes in average rates (rate change) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected the Bank’s interest income and interest expense (in thousands). As noted in the table, the overall change in net interest income between 2009 and 2008 was primarily rate related and the overall change in net interest income between 2008 and 2007 was primarily volume related.

Volume and Rate Table *


	2009 vs. 2008									2008 vs. 2007
	Volume			Rate			Increase (Decrease)			Volume			Rate			Increase (Decrease)
Increase (decrease) in interest income:
Federal funds sold	$	(6,910	)	$	(210,596	)	$	(217,506	)	$	(67,899	)	$	(390,147	)	$	(458,046	)
Interest-bearing deposits		18,434			(39,902	)		(21,468	)		29,723			(9,393	)		20,330
Certificates of deposit		(8,802	)		(8,550	)		(17,352	)		(10,280	)		(14,451	)		(24,731	)
Long-term investments		(162,175	)		(71,053	)		(233,228	)		233,019			(17,337	)		215,682
Advances		(471,293	)		(3,369,537	)		(3,840,830	)		1,635,453			(3,178,398	)		(1,542,945	)
Mortgage loans held for portfolio		(29,681	)		(1,430	)		(31,111	)		6,449			593			7,042
Loans to other FHLBanks		(32	)		(43	)		(75	)		68			(51	)		17

Total		(660,459	)		(3,701,111	)		(4,361,570	)		1,826,533			(3,609,184	)		(1,782,651	)

Increase (decrease) in interest expense:
Demand and overnight deposits		(25,758	)		(80,033	)		(105,791	)		25,568			(176,717	)		(151,149	)
Term deposits		—			—			—			(161	)		(162	)		(323	)
Other interest-bearing deposits		360			(649	)		(289	)		(2,812	)		(2,552	)		(5,364	)
Short-term borrowings		(7,772	)		(720,561	)		(728,333	)		759,249			(441,957	)		317,292
Long-term debt		(555,202	)		(2,528,642	)		(3,083,844	)		612,698			(2,675,539	)		(2,062,841	)
Other borrowings		2,856			(4,462	)		(1,606	)		(14,540	)		(8,206	)		(22,746	)

Total		(585,516	)		(3,334,347	)		(3,919,863	)		1,380,002			(3,305,133	)		(1,925,131	)

(Decrease) increase in net interest income	$	(74,943	)	$	(366,764	)	$	(441,707	)	$	446,531		$	(304,051	)	$	142,480

Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is the change in rate multiplied by the previous volume. The rate/volume change, change in rate multiplied by change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of its total.

Management generally uses derivative instruments with a primary goal of mitigating interest-rate risk and cash-flow variability. The table below outlines the overall effect of derivatives and hedging activities on net interest income and other income (loss) related results (in thousands):


	For the Years Ended December 31,
	2009			2008			2007
Net interest income	$	404,321		$	846,028		$	703,548

Interest components of hedging activities included in net interest income:
Hedging advances	$	(3,527,095	)	$	(1,394,959	)	$	639,994
Hedging consolidated obligations		1,594,563			771,507			(398,172	)
Hedging related amortization		(519,349	)		(97,391	)		(28,948	)

Net (decrease) increase in net interest income	$	(2,451,881	)	$	(720,843	)	$	212,874

Interest components of derivative activity included in other income (loss):
Purchased options	$	30,642		$	22,500		$	1,138
Synthetic macro funding		(31,488	)		(68,866	)		(11,028	)
Trading securities		(148,842	)		(108,481	)		(14,578	)
Other		41			57			100

Net decrease in other income (loss)	$	(149,647	)	$	(154,790	)	$	(24,368	)

The following discussion provides information on each of the components presented in the table above.

Hedged Advances and Hedged Consolidated Obligations. Management generally uses hedging instruments to change, in effect, fixed interest rates into variable interest rates for advances and consolidated obligations, which, during recent periods, initially were lower than fixed rates. However, as the interest-rate environment changes over time, the variable interest rates may increase above the fixed interest rate existing at the time the hedge was established. The hedging activities generally use interest-rate swaps to convert the interest rates on both advances and consolidated obligations to a short-term interest rate, usually based on LIBOR.

When this type of hedging relationship qualifies for hedge accounting treatment, the interest components shown above are included in net interest income. The combined result of these activities on interest income and interest expense may increase or decrease net interest income. Because the purpose of management’s hedging activities is to protect the interest-rate spread related to net interest income from interest-rate risk, the absolute increase or decrease for either interest income from advances or interest expense on consolidated obligations is not as important as the relationship of the various hedging activities to overall net interest income and the interest-rate spread. The effect of such hedging activities varies from year to year, depending on interest-rate movements and the amount of the Bank’s hedging activity.

Hedging-related Amortization. If a hedging relationship is discontinued, the Bank will cease marking the hedged item to fair value and will amortize the cumulative fair-value adjustment that has occurred as a part of the hedge as interest income or interest expense over the remaining life of the associated hedged item. The associated derivative will continue to be marked to fair value through earnings until it matures or is terminated. Therefore, the amount and nature of the fair-value adjustment may change dramatically from period to period, depending on the mix of hedging strategies, the amortization periods of various items, and whether the amortization is associated primarily with assets or liabilities.

The above table illustrates that, due to hedging activities and hedging related amortization, net interest income decreased by $2.5 billion and $720.8 million in 2009 and 2008, respectively, and increased by $212.9 million in 2007.

The amounts reflected above for the following items must be considered in conjunction with the discussion set forth under “Other Income (Loss)” as the interest on these derivatives will appear as a component of “Other Income (Loss).”

Purchased Options. This component relates to hedging activities in which the Bank generally has paid for protection against future interest-rate movements, but which generally do not qualify for hedge accounting treatment. Often these activities are used to hedge exposure to prepayment activity in the mortgage loan portfolio. Generally, one would expect that these hedging actions would result in an expense over time because the Bank is purchasing protection. However, if conditions arise that are favorable for exercising the option, the benefit of increased income or reduced expense can be significant. The above table shows that the interest component derived from purchased option activity was $30.6 million for the year ended December 31, 2009, due to a decrease in interest rates. Since these options are derivatives, both changes in fair value and any related interest income or interest expense, if exercised, are recognized currently in the income statement as a component of “Other Income (Loss).”

Synthetic Macro Funding. This component relates to the Bank using derivatives to create a profile similar to that of having longer-term debt outstanding than the actual underlying debt. Because there is only the existing short-term debt and long-term debt outstanding, these activities are called “synthetic.” Consequently, these activities do not qualify for hedge accounting treatment because they do not have a direct link to a hedged item and are considered non-qualifying hedges. These structures contain a derivative, and therefore changes in the fair value of the derivative are recognized in the income statement as a component of “Other Income (Loss).”

Trading Securities Hedging. As discussed above, management hedges the Bank’s exposure to the fair-value fluctuations related to marking trading securities to market through earnings, but the related hedging activity does not qualify for hedge accounting treatment. The hedge is intended to mirror the trading security to convert, in effect, the trading securities into variable-rate instruments. The effect of this synthetic variable-rate instrument can be seen by combining the interest received on the security with the net amount paid or received on the derivative. Through hedging activities, the yield on trading securities is targeted to correlate with short-term interest rates. The tables in the “Other Income (Loss)” section presented below disclose the hedging of the mark-to-market adjustments for trading securities. The “Other Income (Loss)” caption also includes the fair-value adjustment from the interest-rate swaps used to hedge the trading securities. Changes in these adjustments normally occur due to changes in the spread relationships between government agency securities and the swap curve.

Other Income (Loss)

The Bank’s other income (loss) is composed primarily of net impairment losses recognized in earnings, net (losses) gains on trading securities and net gains (losses) on derivatives and hedging activities. The following table presents the components of other income (loss) (in thousands):


	For the Years Ended December 31,									Increase(Decrease)
	2009			2008			2007			2009/2008			2008/2007
Other Income (Loss):
Net impairment losses recognized in earnings	$	(316,376	)	$	(186,063	)	$	—		$	(130,313	)	$	(186,063	)
Service fees		1,737			2,336			2,488			(599	)		(152	)
Net (losses) gains on trading securities		(135,492	)		200,373			106,718			(335,865	)		93,655
Net gains (losses) on derivatives and hedging activities		543,212			(229,289	)		(96,424	)		772,501			(132,865	)
Other		1,505			(1,352	)		742			2,857			(2,094	)

Total other income (loss)	$	94,586		$	(213,995	)	$	13,524		$	308,581		$	(227,519	)

The overall changes in other income (loss) during 2009 compared to 2008, and during 2008 compared to 2007, were due primarily to adjustments required to report trading securities at fair value, as required by GAAP, and hedging-related adjustments, which are reported in the overall net gains (losses) on derivatives and hedging activities classification (including those related to trading securities). The Bank hedges trading securities with derivatives, and the income effect of the market-value change for these securities was offset by market-value changes in the related derivatives. In addition, during 2009 and 2008, the Bank recorded $316.4 million and $186.1 million, respectively, of net impairment losses recognized in earnings as part of other income (loss).

The Bank also records all gains or losses, comprising changes in fair value and interest paid or received, on derivatives not designated in hedging relationships (“Non-qualifying hedges”) in the net gains (losses) on derivatives and hedging activities classification. The following table details each of these components of net gains (losses) on derivatives and hedging activities (in thousands):

Net Gains (Losses) on Derivatives and Hedging Activities


	Advances			Purchased Options, Macro Hedging and Synthetic Macro Funding			Investments			MPF/MPP Loans			Consolidated Obligations Bonds			Consolidated Obligations Discount Notes			Intermediary Positions and Other			Total
For the Year Ended December 31, 2009
Interest-related	$	—		$	(846	)	$	(148,842	)	$	—		$	—		$	—		$	41		$	(149,647	)
Qualifying fair value hedges		517,405			—			—			—			(38,709	)		(8,856	)		—			469,840
Non-qualifying hedges and other		—			24,802			198,249			—			—			—			(32	)		223,019

Total gains (losses)	$	517,405		$	23,956		$	49,407		$	—		$	(38,709	)	$	(8,856	)	$	9		$	543,212

For the Year Ended December 31, 2008
Interest-related	$	—		$	(46,366	)	$	(108,481	)	$	—		$	—		$	—		$	57		$	(154,790	)
Qualifying fair value hedges		(71,511	)		—			—			—			15,286			9,683			—			(46,542	)
Non-qualifying hedges and other		—			(2,412	)		(349,920	)		(204	)		—			—			324,579			(27,957	)

Total (losses) gains	$	(71,511	)	$	(48,778	)	$	(458,401	)	$	(204	)	$	15,286		$	9,683		$	324,636		$	(229,289	)

For the Year Ended December 31, 2007
Interest-related	$	—		$	(9,890	)	$	(14,578	)	$	—		$	—		$	—		$	100		$	(24,368	)
Qualifying fair value hedges		12,117			—			61			—			16,495			665			—			29,338
Non-qualifying hedges and other		—			12,571			(114,461	)		546			—			—			(50	)		(101,394	)

Total gains (losses)	$	12,117		$	2,681		$	(128,978	)	$	546		$	16,495		$	665		$	50		$	(96,424	)

Non-interest Expense

The following table presents non-interest expense (in thousands).


	For the Years Ended December 31,						Increase (Decrease) 2009/2008			Increase (Decrease) 2008/2007
	2009		2008		2007		Increase (Decrease) 2009/2008			Increase (Decrease) 2008/2007
Other expense:
Compensation and benefits	$	55,042	$	64,800	$	64,564	$	(9,758	)	$	236
Cost of quarters		3,718		3,457		3,453		261			4
Other operating expenses		41,726		35,519		29,887		6,207			5,632

Total operating expenses		100,486		103,776		97,904		(3,290	)		5,872

Finance Agency and Office of Finance		11,121		10,840		9,073		281			1,767
Provision for losses on receivable		—		170,486		—		(170,486	)		170,486
Other		1,029		1,330		3,204		(301	)		(1,874	)

Total other expense		112,636		286,432		110,181		(173,796	)		176,251

Assessments:
Affordable Housing Program		31,665		28,365		50,690		3,300			(22,325	)
REFCORP		70,871		63,445		111,226		7,426			(47,781	)

Total assessments		102,536		91,810		161,916		10,726			(70,106	)

Total non-interest expense	$	215,172	$	378,242	$	272,097	$	(163,070	)	$	106,145

Non-interest expense decreased 43.1 percent in 2009 compared to 2008 due primarily to a $170.5 million provision for credit loss on the LBSF receivable recorded in other expense during 2008. Non-interest expense increased 39.0 percent in 2008 compared to 2007 due primarily to the provision for credit loss on the LBSF receivable, partially offset by lower assessment in 2008.

Liquidity and Capital Resources

Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called consolidated obligations, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, and the Bank attempts to be in a position to meet member funding needs on a timely basis.

Finance Agency regulations and Bank policy require the Bank to maintain contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets. In addition, during 2009 the Bank attempted to maintain sufficient liquidity to service debt obligations for at least 90 days, assuming restricted debt market access. The Bank met both the regulatory liquidity requirement and this 90-day debt service goal at December 31, 2009.

In light of stress and instability in domestic and international credit markets, the Finance Agency in September 2008 provided liquidity guidance to each FHLBank. In March 2009, the Finance Agency updated this guidance, generally to provide ranges of days within which each FHLBank should maintain positive cash balances based upon different assumptions and scenarios. The Bank has operated within these ranges since the Finance Agency issued this guidance.

The Bank has determined that changing the Bank’s liquidity goal from 90 days to 45 days would more closely align the Bank’s internal measures with those recommended by the Finance Agency and would more accurately reflect the Bank’s practice of not committing to consolidated obligation settlements beyond 30 days. The Bank implemented this 45-day debt service goal effective January 28, 2010, and as of February 28, 2010 the Bank is in compliance with this 45-day debt service goal.

The Bank’s principal source of liquidity is consolidated obligation debt instruments, which carry government-sponsored enterprise status and are rated Aaa/P-1 by Moody’s and AAA/A-1+ by S&P. To provide liquidity, the Bank also may use other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and loans from other FHLBanks. These funding sources depend on the Bank’s ability to access the capital markets at competitive market rates. Although the Bank maintains secured and unsecured lines of credit with money market counterparties, the Bank’s income and liquidity would be affected adversely if it were not able to access the capital markets at competitive rates for an extended period. Historically, the FHLBanks have had excellent capital market access, although the FHLBanks experienced a decrease in investor demand for consolidated obligation bonds beginning in mid-July 2008 and continuing through the first half of 2009. During that time, the Bank increased its issuance of short-term discount notes as an alternative source of funding. During the third quarter of 2009, the Bank experienced an improvement in its funding costs and ability to issue longer-term and structured debt compared to the third quarter of 2008, as the decrease in LIBOR rates during the period caused investors to seek this type of debt, as compared to discount notes, for additional yields.

During the third quarter of 2008, each FHLBank entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (“GSECF”), as authorized by the Housing Act. The GSECF was designed to serve as a contingent source of liquidity for the housing GSEs, including each of the 12 FHLBanks. Any borrowings by one or more of the FHLBanks under the GSECF would have been considered consolidated obligations with the same joint and several liability as all other consolidated obligations. The terms of any borrowings were to be agreed to at the time of issuance. Loans under the Lending Agreement were to be secured by collateral acceptable to the U.S. Treasury, which consists of FHLBank advances to members that had been collateralized in accordance with regulatory standards and MBS issued by Fannie Mae or Freddie Mac. Each FHLBank was required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury, a list of eligible collateral, updated on a weekly basis. The amount of collateral available was subject to an increase or decrease (subject to the approval of the U.S. Treasury) at any time through the delivery of an updated listing of collateral. The GSECF expired on December 31, 2009. No FHLBank has drawn on this available source of liquidity.

Contingency plans are in place that prioritize the allocation of liquidity resources in the event of operational disruptions at the Bank or the Office of Finance, as well as systemic Federal Reserve wire transfer system disruptions. Under the Housing Act, the Secretary of Treasury has the authority, at his or her discretion, to purchase COs, subject to the general federal debt ceiling limits. Previously, the FHLBank Act had authorized the Secretary of Treasury, at his or her discretion, to purchase COs up to an aggregate principal amount of $4 billion. No borrowings under this latter authority have been outstanding since 1977 and the Bank has no immediate plans to request the Treasury to exercise the authority under the Housing Act.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Liquidity Risk” for further discussion.

Off-Balance Sheet Commitments

The Bank’s primary off-balance sheet commitments are as follows:

•

The Bank has joint and several liability for all of the consolidated obligations issued by the Office of Finance on behalf of the FHLBanks

•

The Bank has outstanding commitments arising from standby letters of credit.

Should an FHLBank be unable to satisfy its payment obligation under a consolidated obligation for which it is the primary obligor, any of the other FHLBanks, including the Bank, could be called upon to repay all or any part of such payment obligation, as determined or approved by the Finance Agency. The Bank considers the joint and several liability as a related party guarantee. These related-party guarantees meet the scope exception under GAAP. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other

FHLBanks’ consolidated obligations at December 31, 2009 and 2008. As of December 31, 2009, the FHLBanks had $930.6 billion in aggregate par value of consolidated obligations issued and outstanding, $137.3 billion of which was attributable to the Bank. No FHLBank ever has defaulted on its principal or interest payments under any consolidated obligation, and the Bank has never been required to make payments under any consolidated obligation as a result of the failure of another FHLBank to meet its obligations.

As of December 31, 2009, the Bank had outstanding standby letters of credit of $18.9 billion with original terms of less than four months to 19 years, with the longest final expiration in 2025. As of December 31, 2008, the Bank had outstanding standby letters of credit of $10.2 billion with original terms of less than three months to 15 years, with the longest final expiration in 2023. Increasingly, these outstanding standby letters of credit contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. Outstanding standby letters of credit have increased due to increased acceptance of standby letters of credit by public unit depositors as collateral for public deposits, a decrease in the credit ratings of other standby letter of credit issuers, a decrease in the number of financial institutions providing standby letters of credit or alternative forms of credit enhancement, and provisions of the Housing Act which permitted the use of FHLBank standby letters of credit as credit enhancement for tax-exempt bonds. The Housing Act provisions apply only to tax-exempt bonds issued or refunded from July 30, 2008 through December 31, 2010. It is uncertain at this time whether the Housing Act provisions related to FHLBank standby letters of credit will be extended. The Bank expects its standby letter of credit activity to continue to grow for the near future, but improvement in the financial markets and expiration of the Housing Act authority could result in a decrease in future standby letter of credit activity.

Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit for the account of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. The Bank requires its borrowers, upon the effective date of the letter of credit through its expiration, to collateralize fully the face amount of any standby letter of credit issued by the Bank, as if such face amount were an advance to the borrower. Standby letters of credit are not subject to activity-based capital stock purchase requirements. If the Bank is required to make payment for a beneficiary’s draw, the Bank may convert such paid amount to an advance to the member and will require a corresponding activity-based capital stock purchase. The Bank’s underwriting and collateral requirements for standby letters of credit are the same as those requirements for advances. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have an allowance for credit losses for these unfunded standby letters of credit as of December 31, 2009. Management regularly reviews its standby letter of credit pricing in light of several factors, including the Bank’s potential liquidity needs related to draws on its standby letters of credit.

Contractual Obligations

The tables below present the payment due dates or expiration terms of the Bank’s contractual obligations and commitments (in thousands):


	Contractual Obligations As of December 31, 2009 Payments Due By Period
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Contractual obligations:
Long-term debt	$	120,172,485	$	63,382,600	$	29,548,915	$	15,742,570	$	11,498,400
Operating leases		4,269		1,310		2,245		461		253
Mandatorily redeemable capital stock		188,226		—		11,347		158,370		18,509

Total contractual obligations	$	120,364,980	$	63,383,910	$	29,562,507	$	15,901,401	$	11,517,162

Other commitments:
Standby letters of credit	$	18,909,011	$	3,117,596	$	4,565,651	$	624,778	$	10,600,986

Total other commitments	$	18,909,011	$	3,117,596	$	4,565,651	$	624,778	$	10,600,986

Critical Accounting Policies and Estimates

The preparation of the Bank’s financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect the Bank’s reported results and disclosures. Several of the Bank’s accounting policies inherently are subject to valuation assumptions and other subjective assessments and are more critical than others to the Bank’s results. The Bank has identified the following policies that, given the assumptions and judgment used, are critical to an understanding of the Bank’s financial condition and results of operation:

•

Fair Value Measurements

•

Other-than-temporary Impairment Analysis

•

Allowance for Credit Losses.

In addition to the above policies that inherently are subject to assumptions and judgment, the Bank’s accounting for derivatives and hedging activities accounting policy also is critical to understanding the Bank’s financial condition and results of operation.

Fair Value Measurements

The Bank carries certain assets and liabilities, including investments classified as trading and available-for-sale, and all derivatives on the balance sheet at fair value. Fair value is defined 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, representing an exit price.

Fair values play an important role in the valuation of certain of the assets, liabilities and hedging transactions of the Bank. Fair values are based on quoted market prices or market-based prices, if such prices are available, even in situations in which trading volume may be low when compared with prior periods as has been the case during the current market disruption. If quoted market prices or market-based prices are not available, the Bank determines fair values based on valuation models that use discounted cash flows, using market estimates of interest rates and volatility.

Valuation models and their underlying assumptions are based on the best estimates of management of the Bank with respect to:

•

market indices (primarily LIBOR);

•

discount rates;

•

prepayments;

•

market volatility; and

•

other factors, including default and loss rates.

These assumptions, particularly estimates of market indices and discount rates, may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the income and expense related thereto. The use of different assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings. The assumptions used in the models are corroborated by and independently verified against market observable data where possible.

The Bank categorizes its financial instruments carried at fair value into a three-level classification in accordance with GAAP. The valuation hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

As of December 31, 2008, the Bank did not carry any financial assets or liabilities, measured on a recurring basis, at fair value based on unobservable inputs. However, as of December 31, 2009, the fair value of the Bank’s available-for-sale and held-to-maturity private-label MBS investment portfolio is determined using unobservable inputs.

For further discussion regarding how the Bank measures financial assets and financial liabilities at fair value, see “Note 17—Estimated Fair Values” to the Bank’s 2009 financial statements.

Other-than-temporary Impairment Analysis

The Bank evaluates its individual available-for-sale and held-to-maturity investment securities for other-than-temporary impairment on at least a quarterly basis. The Bank recognizes an other-than-temporary impairment loss when the Bank determines it will not recover the entire amortized cost basis of a security. Securities in the Bank’s private-label MBS portfolio are evaluated by estimating the projected cash flows using a model that incorporates projections and assumptions based on the structure of the security and certain economic environment assumptions such as delinquency and default rates, loss severity, home price appreciation, interest rates, and securities prepayment speeds while factoring in the underlying collateral and credit enhancement.

If the present value of the expected cash flows of a particular security is less than the security’s amortized cost basis, the security is considered to be other-than temporarily impaired. The amount of the other-than-temporary impairment is separated into two components: (1) the amount of the total impairment related to credit loss; and (2) the amount of the total impairment related to all other factors. The portion of the other-than-temporary impairment loss that is attributable to the credit loss (that is, the difference between the present value of the cash flows expected to be collected and the amortized cost basis) is recognized in other income (loss). If the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis, the portion of the impairment loss that is not attributable to the credit loss is recognized through other comprehensive loss.

If the Bank determines that an other-than-temporary impairment exists, the Bank accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment loss at an

amortized cost basis equal to the previous amortized cost basis less the other-than-temporary impairment recognized in income. For debt securities classified as held-to-maturity the difference between the new amortized cost basis and the cash flows expected to be collected is accreted into interest income prospectively over the remaining life of the security.

Allowance for Credit Losses

The Bank is required to assess potential credit losses and establish an allowance for credit losses, if required. The Bank considers the application of these standards to its advance and mortgage loan portfolio a critical accounting policy, as determining the appropriate amount of the allowance for credit losses requires the Bank to make a number of assumptions. The Bank’s assumptions are based on information available as of the date of the financial statements. Actual results may differ from these estimates.

Advances

Finance Agency regulations require the Bank to obtain eligible collateral from borrowing members to protect against potential credit losses. Eligible collateral is defined by statute and regulation. The Bank monitors the financial condition of borrowers and regularly verifies the existence and characteristics of a risk-based sample of mortgage collateral pledged to secure advances. Each borrower’s collateral requirements and the scope and frequency of its collateral verification reviews are dependent upon certain risk factors. Since its establishment in 1932, the Bank has never experienced a credit loss on an advance. Management believes that an allowance for credit losses on advances is unnecessary as of December 31, 2009 and 2008, based on the Bank’s historical loss experience and its policies and practice related to securing advances with eligible collateral pledged by the member. Refer to Item 8, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk” for further discussion regarding the Bank’s credit risk policies and practice.

Mortgage Loans

The allowance for credit losses represents management’s estimate of probable credit losses inherent in the Bank’s mortgage loan portfolio as of the balance sheet date. The allowance for credit losses is based on management’s periodic evaluation of the factors discussed below, as well as other pertinent factors that, in management’s judgment, deserve consideration under existing economic conditions in estimating probable credit losses. Realized credit losses on the Bank’s mortgage loan portfolio are charged off against the allowance while recoveries of amounts previously charged off are credited to the allowance. The Bank’s allowance for credit losses related to its mortgage loan portfolio was $1.1 million and $856 thousand as of December 31, 2009 and 2008, respectively, all attributable to multifamily mortgages in AMPP.

The Bank considers the following factors in establishing the allowance for credit losses: (1) the amount and timing of expected future cash flows and collateral values on mortgage loans independently reviewed and rated; (2) the estimated losses on pools of homogeneous loans based on historical loss experience; and (3) the current economic trends and conditions. Each of the above requires estimation based on management’s judgment. As current economic conditions change, the adequacy of the allowance also could change significantly.

The allowance for credit losses for mortgage loans held consists of three components: (1) specific reserves established for losses on multifamily residential mortgage loans based on a detailed credit quality review; (2) a general reserve established for the remaining multifamily residential mortgage loans not subject to specific reserve allocations; and (3) a general reserve for single-family residential mortgage loans based on the Bank’s loss exposure adjusted for credit enhancements from the PFI.

The following discussion provides details regarding the establishment of the allowance for credit losses for conventional multifamily residential mortgage loans and conventional single-family residential mortgage loans.

An allowance for credit losses is not calculated for government-insured/guaranteed single-family residential mortgage loans because of the U.S. government guarantee of the loans and the contractual obligation of the loan servicer.

Multifamily Residential Mortgage Loans

An independent third-party loan review is performed annually on all the Bank’s multifamily residential mortgage loans in AMPP to identify credit risks and to assess the overall ability of the Bank to collect on those loans. Management may shorten this time frame if it notes significant changes in the portfolio’s performance in the quarterly review report provided on each loan. The Bank’s allowance for credit losses related to multifamily residential mortgage loans is comprised of a specific reserve and a general reserve.

The Bank establishes a specific reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. 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, including principal and interest, according to the contractual terms of the loan. The loans are collateral dependent; that is, the ability to repay the loan is dependent on amounts generated by the collateral. Therefore, should a loan be classified as impaired, the loan will be adjusted to reflect the fair value of the underlying collateral less cost to sell.

To identify the loans that will be subject to review for impairment, the Bank reviews all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. The Bank uses six grade categories when assigning credit ratings to individual loans. These credit ratings involve a high degree of judgment in estimating the amount and timing of future cash flows and collateral values. While the Bank’s allowance for credit losses is sensitive to the credit ratings assigned to a loan, a hypothetical one-level downgrade or upgrade in the Bank’s credit ratings for all multifamily residential mortgage loans would not result in a change in the allowance for credit losses that would be material as a proportion of the unpaid principal balance of the Bank’s mortgage loan portfolio.

A general reserve is maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigns a risk classification to this population of loans. A specified percentage is allocated to the general reserve for designated risk classification levels. The loans and risk classification designations are reviewed by the Bank on an annual basis.

As of December 31, 2009 and 2008, the allowance for credit losses on multifamily residential mortgage loans in AMPP was $1.1 million and $856 thousand, respectively.

Single-family Residential Mortgage Loans

The Bank calculates the allowance for credit losses on conventional single-family residential mortgage loans based on all conventional single-family residential mortgage loans within the Bank’s mortgage portfolio and an estimate of expected credit losses in the portfolio as of the balance sheet date. Data used to estimate expected credit losses includes actual observable losses for mortgage portfolios in the same vintage with similar credit characteristics, the loan portfolio’s historical and current delinquency performance, credit enhancements from the PFI or mortgage insurer, industry data, and the prevailing economic conditions. A general reserve related to the portfolio of loans is recorded if the estimated expected loss exposure exceeds the available credit enhancements under the terms of each Master Commitment.

As of December 31, 2009 and 2008, there was no allowance for credit losses on single-family residential mortgage loans.

See “Note 1—Summary of Significant Accounting Policies—Mortgage Loans Held in Portfolio” to the Bank’s 2009 financial statements and Item 8, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk” for a further discussion of management’s estimate of credit losses.

Accounting for Derivatives and Hedging Activities

General

The Bank records all derivatives on the balance sheet at fair value with changes in fair value recognized in current period earnings. The Bank designates derivatives as either fair-value hedging instruments or non-qualifying hedging instruments for which hedge accounting is not applied. The Bank has not entered into any cash-flow hedges as of December 31, 2009. The Bank uses derivatives in its risk management program for the following purposes:

•

Conversion of a fixed rate to a variable rate

•

Conversion of a variable rate with a fixed component to another variable rate

•

Macro hedging of balance sheet risks.

To qualify for hedge accounting, the Bank documents the following concurrently with the execution of each hedging relationship:

•

The hedging strategy

•

Identification of the hedging instrument and the hedged item

•

Determination of the appropriate accounting designation

•

The method used for the determination of effectiveness for transactions qualifying for hedge accounting

•

The method for recording ineffectiveness for hedging relationships.

The Bank also evaluates each debt issuance, advance made, and financial instrument purchased to determine whether the cash item contains embedded derivatives that meet the criteria for bifurcation. If, after evaluation, it is determined that an embedded derivative must be bifurcated, the Bank will measure the fair value of the embedded derivative.

Assessment of Hedge Effectiveness

An assessment must be made to determine the effectiveness of qualifying hedging relationships; the Bank uses two methods to make such an assessment. If the hedging instrument is a swap and meets specific criteria, the hedging relationship may qualify for the short-cut method of assessing effectiveness. The short-cut method allows for an assumption of no ineffectiveness, which means that the change in the fair value of the hedged item is assumed to be equal and offsetting of the change in fair value of the hedging instrument. For periods beginning after May 31, 2005, management determined that it would no longer apply the short-cut method to new hedging relationships.

The long-haul method of effectiveness is used to assess effectiveness for hedging relationships that qualify for hedge accounting but do not meet the criteria for the use of the short-cut method. The long-haul method requires separate valuations of both the hedged item and the hedging instrument. If the hedging relationship is determined to be highly effective, the change in fair value of the hedged item related to the designated risk is recognized in current period earnings in the same period as the change in fair value of the hedging instrument. If the hedging relationship is determined not to be highly effective, hedge accounting either will not be allowed or will cease at that point. The Bank performs effectiveness testing on a monthly basis and uses statistical regression analysis techniques to determine whether a long-haul hedging relationship is highly effective.

Accounting for Ineffectiveness and Hedge De-designation

The Bank accounts for any ineffectiveness for all long-haul fair-value hedges using the dollar offset method. In the case of non-qualifying hedges that do not qualify for hedge accounting, the Bank reports only the change in fair value of the derivative. The Bank reports all ineffectiveness for qualifying hedges and non-qualifying hedges in the income statement caption “Net gains (losses) on derivatives and hedging activities” which is included in the “Other Income (Loss)” section of the income statement.

The Bank may discontinue hedge accounting for a hedging transaction (de-designation) if it fails effectiveness testing or for other asset-liability-management reasons. The Bank also treats modifications to hedged items as a discontinuance of a hedging relationship. When a hedge relationship is discontinued, the Bank will cease marking the hedged item to fair value and will amortize the cumulative basis adjustment resulting from hedge accounting. The Bank reports related amortization as interest income or expense over the remaining life of the associated hedged item. The associated derivative will continue to be marked to fair value through earnings until it matures or is terminated.

Recently Issued and Adopted Accounting Guidance

See “Note 2—Recently Issued and Adopted Accounting Guidance” to the Bank’s 2009 financial statements for a discussion of recent accounting guidance.

Legislative and Regulatory Developments

Capital Classifications and Capital Levels

On January 30, 2009, the Finance Agency adopted an interim final rule establishing capital classifications and critical capital levels for the FHLBanks. On August 4, 2009, the Finance Agency adopted the interim final rule as a final regulation. For additional information regarding the Capital Regulation, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital.”

On February 8, 2010, the Finance Agency issued a notice of proposed rulemaking to implement provisions of the Housing Act authorizing the Director, by order, to temporarily increase an FHLBank’s established minimum capital level when the Director determines that such an increase is necessary for safe and sound operations. Under the proposed rule, the Director will provide notice to the affected FHLBank 30 days in advance of the effective date of such increase unless circumstances do not permit such notice. The proposed rule also provides that the Director shall rescind the temporary minimum capital level when the Director determines circumstances no longer justify the temporary level. The proposed rule would establish standards for any determination to increase temporarily an FHLBank’s minimum capital requirement.

Other-Than-Temporary Impairment

On April 28, 2009 and May 7, 2009, the Finance Agency provided the Bank and the other 11 FHLBanks with guidance regarding the process for determining other-than-temporary impairment with respect to non-agency residential mortgage-backed securities. The goal of the guidance is to promote consistency among all FHLBanks in making such determinations, based on the Finance Agency’s understanding that investors in the FHLBanks’ consolidated obligations can better understand and utilize the information in the FHLBanks’ combined financial reports if it is prepared on a consistent basis. For more discussion, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments.”

Executive Compensation

On June 5, 2009, the Finance Agency issued a proposed rule giving the Director the authority to prohibit executive compensation that is not reasonable and comparable with compensation in similar businesses involving

similar duties and responsibilities. The proposed rule also discusses the factors the Director may consider in determining whether executive compensation is reasonable and comparable. In addition to withholding compensation, the Director would have the authority to approve certain compensation and termination benefits if the proposed rule is adopted as proposed. The comment period ended August 4, 2009. On October 27, 2009, the Finance Agency issued Advisory Bulletin 2009-AB-02, “Principles for Executive Compensation at the Federal Home Loan Banks and the Office of Finance” (“AB 2009-02”). In AB 2009-02, the Finance Agency outlines several principles for sound incentive compensation practices to which the FHLBanks should adhere in setting executive compensation policies and practices, as further described in Item 11, “Executive Compensation.”

Indemnification Payments and Golden Parachute Payments

On January 29, 2009, the Finance Agency issued a final rule setting forth: (1) the definition of “golden parachute payments”; (2) the factors to be considered by the Director in carrying out his or her authority to prohibit or limit golden parachute payments by an FHLBank that is insolvent, in conservatorship or receivership, or is in a troubled condition as determined by the Director; and (3) a list of factors the Director must consider in determining whether to prohibit or limit golden parachute payments.

On June 29, 2009, the Finance Agency published a proposed amendment to this rule to include provisions addressing prohibited and permissible indemnification payments and describing more specifically benefits included or excluded from the term “golden parachute payment.” As discussed in Item 11, “Executive Compensation,” the Bank has entered into agreements with certain of its named executive officers. The final rule and the proposed indemnification amendments may reduce payments that might otherwise be payable to those named executive officers. The comment period for the proposed amendment to the rule ended July 29, 2009.

Director Eligibility and Elections

On September 26, 2008, the Finance Agency issued an interim final rule, effective September 26, 2008, regarding the eligibility and election of individuals to serve on the boards of directors of the FHLBanks. The interim rule established a minimum number of directors, established two categories of directorships (member directors and independent directors), established eligibility requirements for each category of directorships, established election procedures (including a requirement that each FHLBank consult with its Affordable Housing Advisory Council on nominations for independent directors), and required that each FHLBank revise its bylaws to incorporate these director eligibility requirements and election procedures. On October 7, 2009, the Finance Agency issued a final rule, effective November 6, 2009, substantively similar to the interim final rule.

On December 1, 2009, the Finance Agency published a notice of proposed rulemaking, with a request for comments, regarding the process by which successor FHLBank directors are chosen after an FHLBank directorship is redesignated to a new state prior to the end of its term as a result of the Finance Agency’s annual designation of FHLBank directorships. Currently, the redesignation of the directorship would create a vacancy on an FHLBank’s board of directors, which vacancy would be filled by the FHLBank’s remaining directors. The proposed amendment would deem the redesignation of the directorship to cause the original directorship to terminate and a new directorship to be created, which new directorship would be filled by an election of the FHLBank’s members. Comments on the proposed rule were due to the Finance Agency by December 31, 2009.

For information regarding the composition of the Bank’s board of directors, see Item 10, “Directors, Executive Officers and Corporate Governance.”

FHLBank Directors’ Compensation and Expenses

On October 23, 2009, the Finance Agency published a notice of proposed rulemaking, with a request for comments, regarding payment by FHLBanks of their directors’ compensation and expenses. Comments on the proposed rule could be submitted to the Finance Agency through December 7, 2009. The proposed rule would

specify that each FHLBank may pay its directors reasonable compensation for the time required of them, and their necessary expenses, in the performance of their duties, as determined by the FHLBank’s board of directors, subject to the authority of the Director to object to, and to prohibit prospectively, compensation and/or expenses that the Directors deems are not reasonable. For information regarding the compensation of the Bank’s directors, see Item 11, “Executive Compensation.”

Board of Directors of the Office of Finance

On August 4, 2009, the Finance Agency published a notice of proposed rulemaking, with a request for comments, regarding the board of directors of the Office of Finance. The proposed rule would expand the board of directors of the Office of Finance to include all of the FHLBank presidents as well as three to five independent directors, and establish eligibility requirements for independent directors who would serve as the audit committee of the Office of Finance board of directors. The proposed rule would authorize the audit committee to ensure that the FHLBanks adopt consistent accounting policies and procedures as part of the audit committee’s oversight of preparation of the FHLBanks’ combined financial reports and, in consultation with the Finance Agency, to establish common accounting policies and procedures for the information submitted by the FHLBanks to the Office of Finance for the combined financial reports where the audit committee determines such information provided by the FHLBanks is inconsistent. The extended comment period ended November 4, 2009.

Community Development Financial Institutions

On May 15, 2009, the Finance Agency issued a proposed rule amending its membership regulations to authorize CDFIs certified by the CDFI Fund of the U.S. Treasury Department to become members of an FHLBank. On January 5, 2010, the Finance Agency issued a final rule effective February 4, 2010 establishing the eligibility and procedural requirements for certified CDFIs that wish to become FHLBank members. CDFIs are private nonprofit and for-profit financial institutions providing financial services dedicated to economic development and community revitalization in underserved markets. The four categories of institutions eligible for CDFI certification and CDFI Fund financial support are: (1) federally regulated insured depository institutions and holding companies (bank CDFIs); (2) credit union CDFIs, whether federally or state chartered; (3) community development loan funds; and (4) community development venture capital funds. Although the Bank has announced that it is now accepting membership applications from certified CDFIs, it is unclear how many CDFIs in its district might seek membership or the effect on the Bank of their becoming members.

Minority and Women Inclusion

On January 11, 2010, the Finance Agency issued a proposed rule requiring each FHLBank: (1) to establish or designate an office of minority and women inclusion that is responsible for carrying out all matters relating to diversity in management, employment, and business practices; and (2) to adopt and maintain policies and procedures to ensure to the maximum extent possible, the inclusion of minorities, women, persons with disabilities, and businesses owned by them in all business and activities and at all levels of the FHLBank, including management, employment, procurement, insurance, and all types of contracts. The propose rule would require each FHLBank to submit an annual report, beginning February 1, 2011, to the Finance Agency regarding its diversity efforts during the preceding calendar year. The comment period was extended to April 26, 2010.

Reporting of Fraudulent Financial Instruments

On June 17, 2009, the Finance Agency issued a proposed rule to effect the provisions of the Housing Act that require the FHLBanks to report to the Finance Agency any fraudulent loans or other financial instruments that they purchased or sold. On January 27, 2010, the Finance Agency issued a final rule effective February 26, 2010. The final rule requires an FHLBank to notify the Director of any fraud or possible fraud occurring in connection with a loan, a series of loans or other financial instruments that the FHLBank has purchased or sold, including AHP grants, advances collateral, and individual loans backing MBS. The FHLBank must notify the Director

promptly after identifying such fraud or after the FHLBank is notified about such fraud by law enforcement or other government authority. The rule also requires each FHLBank to establish and maintain internal controls and procedures and an operational training program to assure the FHLBank has an effective system to detect and report such fraud. The rule defines “fraud” broadly as a misstatement, misrepresentation, or omission that cannot be corrected and that was relied upon by an FHLBank to purchase or sell a loan or financial instrument, and does not require that the party making the misstatement, misrepresentation or omission had any intent to defraud. The rule broadly defines a “purchase or sale” transaction by an FHLBank to include, among other things, collateral pledged by a member to an FHLBank, grants by an FHLBank under its affordable housing program or community investment program, and all programs and products of an FHLBank.

Community Development Loans; Secured Lending

On February 23, 2010, the Finance Agency issued a proposed rule with a comment deadline of April 26, 2010 that would: (1) implement the Housing Act provision allowing community financial institutions to secure advances from FHLBanks with community development loans; and (2) deem all secured extensions of credit by an FHLBank to a member of any FHLBank to be an advance subject to applicable Finance Agency regulations on advances.

Risk Management

The Bank’s lending, investment, and funding activities and the use of derivative hedge instruments expose the Bank to a number of risks, including any one or more of the following:

•

Market risk, which is the risk that the market value, or estimated fair value, of the Bank’s portfolio will decline as a result of changes in interest rates

•

Liquidity risk, which is the risk that the Bank will be unable to meet its obligations as they come due or meet the credit needs of its members and associates in a timely and cost-efficient manner

•

Credit risk, which is the risk that the market value of an obligation will decline as a result of deterioration in creditworthiness, or that the amount will not be realized

•

Operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events, as well as reputation and legal risks associated with business practices or market conduct that the Bank may undertake

•

Business risk, which is the risk of an adverse effect on the Bank’s profitability resulting from external factors that may occur in both the short term and long term.

The Bank’s board of directors establishes the risk management philosophies for the Bank and works with management to align the Bank’s objectives to those philosophies. To manage the Bank’s risk exposure, the Bank’s board of directors has adopted the RMP. The RMP governs the Bank’s approach to managing the above risks. The Bank’s board of directors reviews the RMP annually and formally re-adopts the RMP at least once every three years. It also reviews and approves amendments to the RMP from time to time as necessary. In addition to the RMP, the Bank also is subject to Finance Agency regulations and policies regarding risk management.

To ensure compliance with the RMP, the Bank has established multiple internal management committees to provide oversight over these risks. The Bank produces a comprehensive risk assessment report on an annual basis that is reviewed by the board of directors.

Market Risk

General

The Bank is exposed to market risk in that changes in interest rates and spreads can have a direct effect on the value of the Bank’s assets and liabilities. As a result of the volume of its interest-earning assets and interest- bearing liabilities, the component of market risk having the greatest effect on the Bank’s financial condition and results of operations is interest-rate risk.

Interest-rate risk represents the risk that the aggregate market value or estimated fair value of the Bank’s asset, liability, and derivative portfolios will decline as a result of interest-rate volatility or that net earnings will be affected significantly by interest-rate changes. Interest-rate risk can occur in a variety of forms. These include repricing risk, yield-curve risk, basis risk, and option risk. The Bank faces repricing risk whenever an asset and a liability reprice at different times and with different rates, resulting in interest-margin sensitivity to changes in market interest rates. Yield-curve risk reflects the possibility that changes in the shape of the yield curve may affect the market value of the Bank’s assets and liabilities differently because a liability used to fund an asset may be short-term while the asset is long-term, or vice versa. Basis risk occurs when yields on assets and costs on liabilities are based on different bases, such as LIBOR, versus the Bank’s cost of funds. Different bases can move at different rates or in different directions, which can cause erratic changes in revenues and expenses. Option risk is presented by the optionality that is embedded in some assets and liabilities. Mortgage assets represent the primary source of option risk.

The primary goal of the Bank’s interest-rate risk measurement and management efforts is to control the above risks through prudent asset-liability management strategies so that the Bank may provide members with dividends that consistently are competitive with existing market interest rates on alternative short-term and variable-rate investments. The Bank attempts to manage interest-rate risk exposure by using appropriate funding instruments and hedging strategies. Hedging may occur at the micro level, for one or more specifically identified transactions, or at the macro level. Management evaluates the Bank’s macro hedge position and funding strategies on a daily basis and makes adjustments as necessary.

The Bank measures its potential market risk exposure in a number of ways. These include asset, liability, and equity duration analyses; earnings forecast scenario analyses that reflect repricing gaps; and convexity characteristics under assumed changes in interest rates, the shape of the yield curve, and market basis relationships. The Bank establishes tolerance limits for these financial metrics and uses internal models to measure each of these risk exposures at least monthly.

Use of Derivatives

The Bank enters into derivatives to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions. The Bank does not engage in speculative trading of these instruments. The Bank’s management attempts to use derivatives to reduce interest-rate exposure in the most cost-efficient manner. The Bank’s derivative position includes interest-rate swaps, options, swaptions, interest-rate cap and floor agreements, and forward contracts. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk-management objectives. Within its risk management strategy, the Bank uses derivative financial instruments in two ways:

As a fair-value hedge of an underlying financial instrument or a firm commitment. For example, the Bank uses derivatives to reduce the interest-rate net sensitivity of consolidated obligations, advances, investments, and mortgage loans by, in effect, converting them to a short-term interest rate, usually based on LIBOR. The Bank also uses derivatives to manage embedded options in assets and liabilities, and to hedge the market value of existing assets and liabilities. The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques used or adopt new strategies as deemed prudent.

As an asset-liability management tool, for which hedge accounting is not applied (“non-qualifying hedge”). The Bank may enter into derivatives that do not qualify for hedge accounting. As a result, the Bank recognizes the change in fair value and interest income/expense of these derivatives in the “Other Income (Loss)” section of the income statement as “Net gains (losses) on derivatives and hedging activities” with no offsetting fair-value adjustments of the hedged asset, liability, or firm commitment. Consequently, these transactions can introduce earnings volatility.

The following table summarizes the fair-value amounts of derivative financial instruments, excluding accrued interest, by product type (in thousands). The category “Fair value hedges” represents hedge strategies for which hedge accounting is achieved. The category “Non-qualifying hedges” represents hedge strategies for which the derivatives are not in designated hedge relationships that meet the hedge accounting requirements under GAAP.


	As of December 31,
	2009					2008
	Total Notional		Estimated Fair Value Gain /(Loss) (excludes accrued interest)			Total Notional		Estimated Fair Value Gain /(Loss) (excludes accrued interest)
Advances:
Fair value hedges	$	89,316,208	$	(4,677,101	)	$	116,095,763	$	(9,392,889	)
Non-qualifying hedges		1,763,400		(72,534	)		2,768,400		(162,994	)

Total		91,079,608		(4,749,635	)		118,864,163		(9,555,883	)

Investments:
Non-qualifying hedges		3,217,607		(288,771	)		4,015,855		(512,160	)

Total		3,217,607		(288,771	)		4,015,855		(512,160	)

Consolidated obligation bonds:
Fair value hedges		82,705,255		1,133,264			83,307,558		2,358,057
Non-qualifying hedges		2,512,000		5,840			9,430,000		(10,418	)

Total		85,217,255		1,139,104			92,737,558		2,347,639

Consolidated obligation discount notes:
Fair value hedges		6,510,215		8,214			18,623,263		54,753
Non-qualifying hedges		—		—			243,030		1,903

Total		6,510,215		8,214			18,866,293		56,656

Balance sheet:
Non-qualifying hedges		3,796,467		9,669			3,198,038		15,827

Total		3,796,467		9,669			3,198,038		15,827

Intermediary positions:
Intermediaries		2,207,544		42			2,532,251		108

Total		2,207,544		42			2,532,251		108

Total notional and fair value	$	192,028,696	$	(3,881,377	)	$	240,214,158	$	(7,647,813	)

Total derivatives excluding accrued interest			$	(3,881,377	)			$	(7,647,813	)
Accrued interest				47,927					56,762
Cash collateral held by counterparty—assets				3,555,111					6,338,420
Cash collateral held from counterparty—liabilities				(91,772	)				(69,755	)

Net derivative balance			$	(370,111	)			$	(1,322,386	)

Net derivative assets balance			$	38,710				$	91,406
Net derivative liabilities balance				(408,821	)				(1,413,792	)

Net derivative balance			$	(370,111	)			$	(1,322,386	)

Interest-rate Risk Exposure Measurement

The Bank measures interest-rate risk exposure by various methods, including calculating the effective duration of assets, liabilities, and equity under various scenarios and calculating the theoretical market value of equity.

Effective duration, normally expressed in years or months, measures the price sensitivity of the Bank’s interest bearing assets and liabilities to changes in interest rates. As effective duration lengthens, market-value changes become more sensitive to interest-rate changes. The Bank employs sophisticated modeling systems to measure effective duration.

Effective duration of equity aggregates the estimated sensitivity of market value for each of the Bank’s financial assets and liabilities to changes in interest rates. Effective duration of equity is computed by taking the market value-weighted effective duration of assets, less the market value-weighted effective duration of liabilities, and dividing the remainder by the market value of equity. Due to current market conditions, market value of equity is not indicative of the market value of the Bank as a going concern or the value of the Bank in a liquidation scenario. An effective duration gap is the measure of the difference between the estimated durations of portfolio assets and liabilities and summarizes the extent to which the estimated cash flows for assets and liabilities are matched, on average, over time and across interest-rate scenarios.

A positive effective duration of equity or a positive effective duration gap results when the effective duration of assets is greater than the effective duration of liabilities. A negative effective duration of equity or a negative effective duration gap results when the effective duration of assets is less than the effective duration of liabilities. A positive effective duration of equity or a positive effective duration gap generally indicates that the Bank has some exposure to interest-rate risk in a rising rate environment, and a negative effective duration of equity or a negative effective duration gap indicates some exposure to interest-rate risk in a declining interest-rate environment. Higher effective duration numbers, whether positive or negative, indicate greater volatility of market value of equity in response to changing interest rates.

The table below reflects the Bank’s effective duration exposure measurements as calculated in accordance with regulatory requirements. Under the Bank’s RMP, the Bank must maintain its effective duration of equity within a range of +60 months to – 60 months, assuming current interest rates, and within a range of +84 months to – 84 months, assuming an instantaneous parallel increase or decrease in market interest rates of 200 basis points.

Effective Duration Exposure

(In years)


	As of December 31,
	2009					2008
	Up 200 Basis Points	Current		Down 200 Basis Points*		Up 200 Basis Points	Current	Down 200 Basis Points*
Assets	0.68	0.50		0.27		0.58	0.43	0.23
Liabilities	0.52	0.56		0.51		0.44	0.39	0.40
Equity	3.05	(0.31	)	(3.57	)	4.07	1.58	(4.29	)
Effective duration gap	0.16	(0.06	)	(0.24	)	0.14	0.04	(0.17	)

*	The “down 200 basis points” scenarios shown above are considered to be “constrained shocks”; to prevent the possibility of negative interest rates when a designated low rate environment exists.

The Bank uses both sophisticated computer models and an experienced professional staff to measure the amount of interest-rate risk in the balance sheet, thus allowing management to monitor the risk against policy and regulatory limits. Management regularly reviews the major assumptions and methodologies used in the Bank’s models, and makes adjustments to the Bank’s models in response to rapid changes in economic conditions. Management believes that the use of market spreads calculated from estimates of current market prices (which include large embedded liquidity spreads), as opposed to valuation spreads that existed at the time the Bank acquired the MBS and mortgage loans (acquisition spreads), results in a disconnect between measured interest-rate risk and the actual interest-rate risks faced by the Bank. Because the Bank intends to and is able to hold its MBS and mortgage loans to maturity, the impact on duration of risks of value loss implied by current market

prices of MBS and mortgage loans is overstated. As a result, management does not believe that the increased sensitivity indicates a fundamental change in interest-rate risk.

In light of these conditions, in the third quarter of 2008, management refined its duration model to reflect mortgage asset spreads closer to the historical average and price assets closer to book value. The resulting durations reflect more closely the impact of changing interest rates on the Bank. However, management believes that further refinement is necessary in light of ongoing credit concerns and lack of liquidity in the MBS market. The use of book value for private-label MBS in base case duration negates the impact of interest-rate changes subsequent to the purchase of private-label MBS. Changes in volatility and the pure level of rates are not captured in these book-value based calculations. In addition, recent accounting changes related to determining other-than-temporary impairment where certain private-label MBS are held as available for sale results in a book value that is closer to market value than original purchase price. This causes the book value approach to become less meaningful as some securities are valued at true book value (original purchase price) and others are valued at fair value.

Under normal circumstances, effective duration is computed by calculating an option adjusted spread based on market price. This method works well if the market price is dependent on interest rates instead of credit or liquidity. In light of the ongoing credit concerns and lack of liquidity in the private-label MBS market, however, market prices are influenced more by credit and liquidity than interest rates, resulting in very low prices and very high option adjusted spreads which distort the duration impact. Thus, in the third quarter of 2009, management changed its method of calculating duration and market value using the option adjusted spread at a date prior to the current market disruptions. To capture interest-rate changes, management further adjusted its option adjusted spread by adding a spread to reflect option adjusted spread changes in callable debt instruments with like duration characteristics. These changes provide duration and market values for the Bank’s MBS that more accurately reflect the interest-rate risk inherent in the Bank’s position. The changes between the Bank’s effective duration of equity and duration gap between December 31, 2009 and 2008 in the table above are based on this difference in calculation method. If these changes had not been made to the model, management estimates that the Bank’s effective duration of equity would have been calculated at 2.22 years and the effective duration gap would have been calculated at 0.09 years at December 31, 2009.

Management has determined that it would be useful to consider interest-rate movements of a lesser magnitude than the +/-200 basis point shifts required by the Bank’s RMP. The table below shows effective duration exposure to increases and decreases in interest rates in 50 basis point increments as of December 31, 2009.

Additional Duration Exposure Scenarios

(In years)


	As of December 31, 2009
	Up 150 Basis Points	Up 100 Basis Points	Up 50 Basis Points	Current		Down 50 Basis Points*		Down 100 Basis Points*		Down 150 Basis Points*
Assets	0.66	0.62	0.55	0.50		0.40		0.33		0.27
Liabilities	0.53	0.53	0.55	0.56		0.52		0.50		0.51
Equity	2.57	1.81	0.60	(0.31	)	(1.42	)	(2.27	)	(3.24	)
Effective duration gap	0.13	0.09

Federal Home Loan Bank of Atlanta - FORM 10-K - March 25, 2010

Attached files