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EX-31.1 - EX-31.1 - Federal Home Loan Bank of Bostonex3112010q3.htm
EX-31.2 - EX-31.2 - Federal Home Loan Bank of Bostonex3122010q3.htm
EX-32.1 - EX-32.1 - Federal Home Loan Bank of Bostonex3212010q3.htm
EX-32.2 - EX-32.2 - Federal Home Loan Bank of Bostonex3222010q3.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
––––––––––––––––––––––––––––––––––––––––––––––––––––
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 000-51402 
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
FEDERAL HOME LOAN BANK OF BOSTON
(Exact name of registrant as specified in its charter)
 
 
Federally chartered corporation
(State or other jurisdiction of incorporation or organization)
 
04-6002575
(I.R.S. employer identification number)
 
 
 
 
 
 
 
111 Huntington Avenue
Boston, MA
(Address of principal executive offices)
 
02199
(Zip code)
 
 (617) 292-9600
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes  o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes  o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
 
Shares outstanding
as of October 31, 2010
Class B Stock, par value $100
 
37,504,737
 

Federal Home Loan Bank of Boston
Form 10-Q
Table of Contents
 
 
 
 
 3
 
 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CONDITION
(dollars and shares in thousands, except par value)
(unaudited)
 
September 30, 2010
 
December 31, 2009
ASSETS
 
 
 
Cash and due from banks
$
5,719
 
 
$
191,143
 
Interest-bearing deposits
51
 
 
81
 
Securities purchased under agreements to resell
5,200,000
 
 
1,250,000
 
Federal funds sold
4,440,000
 
 
5,676,000
 
Investments:
 
 
 
 
Trading securities
4,483,194
 
 
107,338
 
Available-for-sale securities - includes $102,818 and $82,148 pledged as collateral at September 30, 2010, and December 31, 2009, respectively that may be repledged
7,532,763
 
 
6,486,632
 
Held-to-maturity securities - includes $134,966 and $118,211 pledged as collateral at September 30, 2010, and December 31, 2009, respectively that may be repledged (a)
6,627,275
 
 
7,427,413
 
Advances
30,205,259
 
 
37,591,461
 
Mortgage loans held for portfolio, net of allowance for credit losses of $2,900 and $2,100 at September 30, 2010, and December 31, 2009, respectively
3,274,414
 
 
3,505,975
 
Accrued interest receivable
144,434
 
 
147,689
 
Resolution Funding Corporation (REFCorp) prepaid assessment
19,495
 
 
40,236
 
Premises, software, and equipment, net
4,649
 
 
5,840
 
Derivative assets
17,995
 
 
16,803
 
Other assets
47,399
 
 
40,389
 
Total Assets
$
62,002,647
 
 
$
62,487,000
 
LIABILITIES
 
 
 
 
 
Deposits:
 
 
 
 
 
Interest-bearing
$
712,219
 
 
$
754,976
 
Non-interest-bearing
31,690
 
 
17,481
 
Total deposits
743,909
 
 
772,457
 
Consolidated obligations:
 
 
 
 
Bonds
39,031,906
 
 
35,409,147
 
Discount notes
17,751,082
 
 
22,277,685
 
Total consolidated obligations, net
56,782,988
 
 
57,686,832
 
Mandatorily redeemable capital stock
86,608
 
 
90,896
 
Accrued interest payable
170,338
 
 
178,121
 
Affordable Housing Program (AHP) payable
23,431
 
 
23,994
 
Derivative liabilities
905,572
 
 
768,309
 
Other liabilities
114,890
 
 
202,333
 
Total liabilities
58,827,736
 
 
59,722,942
 
Commitments and contingencies (Note 16)
 
 
 
 
 
CAPITAL
 
 
 
 
 
Capital stock - Class B - putable ($100 par value), 36,623 shares and 36,431 shares issued and outstanding at September 30, 2010, and December 31, 2009, respectively
3,662,292
 
 
3,643,101
 
Retained earnings
225,569
 
 
142,606
 
Accumulated other comprehensive loss:
 
 
 
 
Net unrealized loss on available-for-sale securities
(15,508
)
 
(90,060
)
Net unrealized loss relating to hedging activities
(345
)
 
(356
)
Net noncredit portion of other-than-temporary impairment losses on investment securities
(696,081
)
 
(929,508
)
Pension and postretirement benefits
(1,016
)
 
(1,725
)
Total accumulated other comprehensive loss
(712,950
)
 
(1,021,649
)
Total capital
3,174,911
 
 
2,764,058
 
Total Liabilities and Capital
$
62,002,647
 
 
$
62,487,000
 
(a)   Fair values of held-to-maturity securities were $6,755,534 and $7,422,681 at September 30, 2010, and December 31, 2009, respectively.
 
The accompanying notes are an integral part of these financial statements.

3


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2010
 
2009
 
2010
 
2009
INTEREST INCOME
 
 
 
 
 
 
 
 
 
Advances
$
105,897
 
 
$
132,797
 
 
$
313,989
 
 
$
551,408
 
Prepayment fees on advances, net
5,342
 
 
1,004
 
 
7,529
 
 
8,614
 
Interest-bearing deposits
 
 
80
 
 
 
 
10,855
 
Securities purchased under agreements to resell
2,772
 
 
1,074
 
 
4,174
 
 
4,364
 
Federal funds sold
2,306
 
 
3,075
 
 
9,032
 
 
6,602
 
Investments:
 
 
 
 
 
 
 
 
 
Trading securities
5,249
 
 
638
 
 
9,878
 
 
2,111
 
Available-for-sale securities
19,998
 
 
2,641
 
 
52,683
 
 
8,178
 
Held-to-maturity securities
40,148
 
 
57,195
 
 
131,086
 
 
174,675
 
Prepayment fees on investments
3
 
 
353
 
 
34
 
 
501
 
Mortgage loans held for portfolio
41,074
 
 
46,470
 
 
126,646
 
 
148,474
 
Other
 
 
 
 
 
 
1
 
Total interest income
222,789
 
 
245,327
 
 
655,051
 
 
915,783
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
Consolidated obligations:
 
 
 
 
 
 
 
 
 
Bonds
138,855
 
 
148,959
 
 
413,334
 
 
545,448
 
Discount notes
8,354
 
 
14,351
 
 
23,085
 
 
145,845
 
Deposits
252
 
 
149
 
 
521
 
 
604
 
Other borrowings
8
 
 
49
 
 
11
 
 
150
 
Total interest expense
147,469
 
 
163,508
 
 
436,951
 
 
692,047
 
NET INTEREST INCOME
75,320
 
 
81,819
 
 
218,100
 
 
223,736
 
Provision for credit losses
453
 
 
400
 
 
888
 
 
1,300
 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
74,867
 
 
81,419
 
 
217,212
 
 
222,436
 
OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on investment securities
(2,684
)
 
(175,778
)
 
(41,397
)
 
(1,281,435
)
Net amount of impairment losses reclassified (from) to accumulated other comprehensive loss
(3,192
)
 
1,588
 
 
(17,745
)
 
909,807
 
Net impairment losses on investment securities recognized in income
(5,876
)
 
(174,190
)
 
(59,142
)
 
(371,628
)
Loss on early extinguishment of debt
 
 
(66
)
 
 
 
(66
)
Service fees
1,890
 
 
925
 
 
5,036
 
 
2,750
 
Net unrealized gains on trading securities
8,357
 
 
192
 
 
18,798
 
 
1,580
 
Net losses on derivatives and hedging activities
(9,113
)
 
(123
)
 
(26,402
)
 
(2,116
)
Other
85
 
 
125
 
 
223
 
 
262
 
Total other loss
(4,657
)
 
(173,137
)
 
(61,487
)
 
(369,218
)
OTHER EXPENSE
 
 
 
 
 
 
 
 
 
Operating
12,048
 
 
12,106
 
 
37,009
 
 
41,145
 
Finance Agency and Office of Finance
1,577
 
 
1,284
 
 
4,905
 
 
4,167
 
Other
319
 
 
312
 
 
889
 
 
969
 
Total other expense
13,944
 
 
13,702
 
 
42,803
 
 
46,281
 
INCOME (LOSS) BEFORE ASSESSMENTS
56,266
 
 
(105,420
)
 
112,922
 
 
(193,063
)
AHP
4,593
 
 
 
 
9,218
 
 
 
REFCorp
10,335
 
 
 
 
20,741
 
 
 
Total assessments
14,928
 
 
 
 
29,959
 
 
 
NET INCOME (LOSS)
$
41,338
 
 
$
(105,420
)
 
$
82,963
 
 
$
(193,063
)
 
 
The accompanying notes are an integral part of these financial statements.

4


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
THREE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
(dollars and shares in thousands)
(unaudited)
 
Capital Stock
Class B - Putable
 
 
 
Accumulated
Other Comprehensive Loss
 
 
 
Shares
 
Par Value
 
Retained Earnings
 
 
Total
Capital
BALANCE, JUNE 30, 2009
36,155
 
 
$
3,615,466
 
 
$
241,714
 
 
$
(1,257,593
)
 
$
2,599,587
 
Proceeds from sale of capital stock
134
 
 
13,428
 
 
 
 
 
 
13,428
 
Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
(105,420
)
 
 
 
(105,420
)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale securities
 
 
 
 
 
 
19,086
 
 
19,086
 
Noncredit portion of other-than-temporary impairment losses on investment securities
 
 
 
 
 
 
(133,305
)
 
(133,305
)
Reclassification adjustment of noncredit component of impairment losses included in net income relating to investment securities
 
 
 
 
 
 
131,717
 
 
131,717
 
Accretion of noncredit portion of impairment losses on investment securities
 
 
 
 
 
 
97,747
 
 
97,747
 
Reclassification adjustment for previously deferred hedging gains and losses included in income
 
 
 
 
 
 
4
 
 
4
 
Pension and postretirement benefits
 
 
 
 
 
 
237
 
 
237
 
Total comprehensive income
 
 
 
 
 
 
 
 
10,066
 
BALANCE, SEPTEMBER 30, 2009
36,289
 
 
$
3,628,894
 
 
$
136,294
 
 
$
(1,142,107
)
 
$
2,623,081
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2010
36,589
 
 
$
3,658,866
 
 
$
184,231
 
 
$
(806,144
)
 
$
3,036,953
 
Proceeds from sale of capital stock
34
 
 
3,426
 
 
 
 
 
 
3,426
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
41,338
 
 
 
 
41,338
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale securities
 
 
 
 
 
 
23,888
 
 
23,888
 
Noncredit portion of other-than-temporary impairment losses on investment securities
 
 
 
 
 
 
(1,216
)
 
(1,216
)
Reclassification adjustment of noncredit component of impairment losses included in net income relating to investment securities
 
 
 
 
 
 
4,408
 
 
4,408
 
Accretion of noncredit portion of impairment losses on investment securities
 
 
 
 
 
 
65,985
 
 
65,985
 
Reclassification adjustment for previously deferred hedging gains and losses included in income
 
 
 
 
 
 
4
 
 
4
 
Pension and postretirement benefits
 
 
 
 
 
 
125
 
 
125
 
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
134,532
 
BALANCE, SEPTEMBER 30, 2010
36,623
 
 
$
3,662,292
 
 
$
225,569
 
 
$
(712,950
)
 
$
3,174,911
 
 
The accompanying notes are an integral part of these financial statements.

5


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
(dollars and shares in thousands)
(unaudited)
 
Capital Stock
Class B - Putable
 
(Accumulated
Deficit) Retained Earnings
 
Accumulated
Other Comprehensive Loss
 
 
 
Shares
 
Par Value
 
 
 
Total
Capital
BALANCE, DECEMBER 31, 2008
35,847
 
 
$
3,584,720
 
 
$
(19,749
)
 
$
(134,746
)
 
$
3,430,225
 
Cumulative effect of adjustments to opening balance
 
 
 
 
349,106
 
 
(349,106
)
 
 
Proceeds from sale of capital stock
432
 
 
43,202
 
 
 
 
 
 
43,202
 
Repurchase/redemption of capital stock
(15
)
 
(1,548
)
 
 
 
 
 
(1,548
)
Reclassification of net shares from mandatorily redeemable capital stock
25
 
 
2,520
 
 
 
 
 
 
2,520
 
Comprehensive loss:
 
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
(193,063
)
 
 
 
(193,063
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale securities
 
 
 
 
 
 
23,171
 
 
23,171
 
Noncredit portion of other-than-temporary impairment losses on investment securities
 
 
 
 
 
 
(1,093,703
)
 
(1,093,703
)
Reclassification adjustment of noncredit component of impairment losses included in net income relating to investment securities
 
 
 
 
 
 
183,896
 
 
183,896
 
Accretion of noncredit portion of impairment losses on investment securities
 
 
 
 
 
 
225,719
 
 
225,719
 
Reclassification adjustment for previously deferred hedging gains and losses included in income
 
 
 
 
 
 
20
 
 
20
 
Pension and postretirement benefits
 
 
 
 
 
 
2,642
 
 
2,642
 
Total comprehensive loss
 
 
 
 
 
 
 
 
(851,318
)
BALANCE, SEPTEMBER 30, 2009
36,289
 
 
$
3,628,894
 
 
$
136,294
 
 
$
(1,142,107
)
 
$
2,623,081
 
 
 
 
 
 
 
 
 
 
 
BALANCE, DECEMBER 31, 2009
36,431
 
 
$
3,643,101
 
 
$
142,606
 
 
$
(1,021,649
)
 
$
2,764,058
 
Proceeds from sale of capital stock
192
 
 
19,191
 
 
 
 
 
 
19,191
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
82,963
 
 
 
 
82,963
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Net unrealized gains on available-for-sale securities
 
 
 
 
 
 
74,552
 
 
74,552
 
Noncredit portion of other-than-temporary impairment losses on investment securities
 
 
 
 
 
 
(31,756
)
 
(31,756
)
Reclassification adjustment of noncredit component of impairment losses included in net income relating to investment securities
 
 
 
 
 
 
49,501
 
 
49,501
 
Accretion of noncredit portion of impairment losses on investment securities
 
 
 
 
 
 
215,682
 
 
215,682
 
Reclassification adjustment for previously deferred hedging gains and losses included in income
 
 
 
 
 
 
11
 
 
11
 
Pension and postretirement benefits
 
 
 
 
 
 
709
 
 
709
 
Total comprehensive income
 
 
 
 
 
 
 
 
391,662
 
BALANCE, SEPTEMBER 30, 2010
36,623
 
 
$
3,662,292
 
 
$
225,569
 
 
$
(712,950
)
 
$
3,174,911
 
 
The accompanying notes are an integral part of these financial statements.

6


FEDERAL HOME LOAN BANK OF BOSTON
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2010
 
2009
OPERATING ACTIVITIES
 
 
 
 
 
Net income (loss)
$
82,963
 
 
$
(193,063
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
6,883
 
 
(244,103
)
Provision for credit losses on mortgage loans
888
 
 
1,300
 
Change in net fair-value adjustments on derivatives and hedging activities
30,672
 
 
18,170
 
Net impairment losses on investment securities recognized in income
59,142
 
 
371,628
 
Other adjustments
(226
)
 
(162
)
Net change in:
 
 
 
 
Market value of trading securities
(18,798
)
 
(1,580
)
Accrued interest receivable
3,255
 
 
159,741
 
Other assets
2,320
 
 
6,341
 
Net derivative accrued interest
(1,483
)
 
88,077
 
Accrued interest payable
(7,783
)
 
(75,980
)
Other liabilities
21,010
 
 
(14,951
)
Total adjustments
95,880
 
 
308,481
 
Net cash provided by operating activities
178,843
 
 
115,418
 
INVESTING ACTIVITIES
 
 
 
 
 
Net change in:
 
 
 
 
 
Interest-bearing deposits
30
 
 
3,278,950
 
Securities purchased under agreements to resell
(3,950,000
)
 
2,000,000
 
Federal funds sold
1,236,000
 
 
(5,290,000
)
Premises, software, and equipment
(225
)
 
(782
)
Trading securities:
 
 
 
 
 
Net increase in short-term
(4,210,000
)
 
 
Proceeds from maturities
3,686
 
 
7,174
 
Purchases
(150,744
)
 
 
Available-for-sale securities:
 
 
 
 
 
Net decrease (increase) in short-term
2,600,000
 
 
(545,000
)
Proceeds from maturities
369,479
 
 
34,865
 
Proceeds from sales
 
 
21,685
 
Purchases
(3,827,482
)
 
(582,627
)
Held-to-maturity securities:
 
 
 
 
 
Net increase in short-term
 
 
(280,000
)
Proceeds from maturities
1,694,008
 
 
1,406,548
 
Purchases
(812,019
)
 
(774,192
)
Advances to members:
 
 
 
 
 
Proceeds
114,511,345
 
 
272,019,264
 
Disbursements
(106,952,575
)
 
(253,309,443
)
Mortgage loans held for investment:
 
 
 
 
 
Proceeds
494,829
 
 
802,212
 
Purchases
(275,542
)
 
(305,131
)
Proceeds from sale of foreclosed assets
7,469
 
 
5,894
 
Net cash provided by investing activities
738,259
 
 
18,489,417
 
FINANCING ACTIVITIES
 
 
 
 
 
Net change in deposits
(16,524
)
 
35,741
 
Net payments on derivative contracts with a financing element
(29,425
)
 
(20,287
)
Net proceeds from issuance of consolidated obligations:
 
 
 
 
 
Discount notes
939,738,636
 
 
976,309,977
 
Bonds
26,303,500
 
 
17,988,528
 
Bonds transferred from other FHLBanks
114,729
 
 
 
Payments for maturing and retiring consolidated obligations:
 
 
 
 
 
Discount notes
(944,260,672
)
 
(994,982,508
)
Bonds
(22,967,673
)
 
(17,953,645
)
Proceeds from issuance of capital stock
19,191
 
 
43,202
 
Payments for redemption of mandatorily redeemable capital stock
(4,288
)
 
 
Payments for repurchase/redemption of capital stock
 
 
(1,548
)
Net cash used in financing activities
(1,102,526
)
 
(18,580,540
)
Net (decrease) increase in cash and due from banks
(185,424
)
 
24,295
 
Cash and due from banks at beginning of the year
191,143
 
 
5,735
 
Cash and due from banks at period end
$
5,719
 
 
$
30,030
 
Supplemental disclosures:
 
 
 
Interest paid
$
439,192
 
 
$
945,534
 
AHP payments
$
7,889
 
 
$
5,877
 
Noncash transfers of mortgage loans held for investment to real estate owned (REO)
$
9,546
 
 
$
5,291
 
 
The accompanying notes are an integral part of these financial statements. 

7


FEDERAL HOME LOAN BANK OF BOSTON
NOTES TO FINANCIAL STATEMENTS
(unaudited)
 
Note 1 — Basis of Presentation
 
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments considered necessary have been included. All such adjustments consist of normal recurring accruals. The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2010. The unaudited financial statements should be read in conjunction with the Bank's audited financial statements and related notes in the Bank's Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (the SEC) on March 22, 2010 (the 2009 Annual Report on Form 10-K).
 
Note 2 — Recently Issued Accounting Standards and Interpretations
 
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the Financial Accounting Standards Board (FASB) issued amended guidance to enhance disclosures about an entity's allowance for credit losses and the credit quality of its financing receivables. The amended guidance requires all public and nonpublic entities with financing receivables, including loans, lease receivables, and other long-term receivables, to provide disclosure of the following: (i) the nature of credit risk inherent in financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, and (iii) the changes and reasons for those changes in the allowance for credit losses. Both new and existing disclosures must be disaggregated by portfolio segment or class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or at the lower of cost or fair value, and debt securities are exempt from this amended guidance. For public entities, the required disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010, for the Bank). The required disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 (January 1, 2011, for the Bank). The adoption of this amended guidance will likely result in increased financial statement disclosures, but is not expected to affect the Bank's financial condition, results of operations or cash flows.
 
Scope Exception Related to Embedded Credit Derivatives. On March 5, 2010, the FASB issued amended guidance to clarify that the only type of embedded credit derivative feature related to the transfer of credit risk that is exempt from derivative bifurcation requirements is one that is in the form of subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination will need to assess those embedded credit derivatives to determine if bifurcation and separate accounting as a derivative is required. This guidance was effective at the beginning of the first interim reporting period beginning after June 15, 2010 (July 1, 2010, for the Bank). Adoption of this guidance did not have a material impact on the Bank's financial condition, results of operations, or cash flows.
 
Fair-Value Measurements and Disclosures-Improving Disclosures about Fair-Value Measurements. On January 21, 2010, the FASB issued amended guidance for fair-value measurements and disclosures. The update requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair-value measurements and describes the reasons for the transfers. Furthermore, this update requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair-value measurements using significant unobservable inputs; clarifies existing fair-value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value; and amends guidance on employers' disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2009 (January 1, 2010, for the Bank), except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair-value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 (January 1, 2011, for the Bank), and for interim periods within those fiscal years. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Early adoption is permitted. The Bank's adoption of this amended guidance will result in increased annual and interim financial statement disclosures but will not affect the Bank's results of operations, financial condition, or cash flows.
 

8


Accounting for the Consolidation of Variable Interest Entities. On June 12, 2009, the FASB issued guidance which is intended to improve financial reporting by enterprises involved with variable interest entities by providing more relevant and reliable information to users of financial statements. This guidance amends the manner in which entities evaluate whether consolidation is required for variable interest entities. An entity must first perform a qualitative analysis in determining whether it must consolidate a variable interest entity, and if the qualitative analysis is not determinative, the entity must perform a quantitative analysis. This guidance also requires that an entity continually evaluate variable interest entities for consolidation, rather than making such an assessment based upon the occurrence of triggering events. Additionally, the guidance requires enhanced disclosures about how an entity's involvement with a variable interest entity affects its financial statements and its exposure to risks. The Bank adopted this guidance as of January 1, 2010. Its adoption did not have a material effect on the Bank's financial condition, results of operations, or cash flows.
 
Accounting for Transfers of Financial Assets. On June 12, 2009, the FASB issued guidance intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement in transferred financial assets. Key provisions of the guidance include (1) the removal of the concept of qualifying special purpose entities, (2) the introduction of the concept of a participating interest, in circumstances in which a portion of a financial asset has been transferred, and (3) the requirement that to qualify for sale accounting, the transferor must evaluate whether it maintains effective control over transferred financial assets either directly or indirectly. The guidance also requires enhanced disclosures about transfers of financial assets and a transferor's continuing involvement. The guidance is effective as of the beginning of the first annual reporting period after November 15, 2009 (January 1, 2010, for the Bank), for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Bank adopted this guidance as of January 1, 2010. Its adoption did not have a material impact on the Bank's financial condition, results of operations, and cash flows.
 
Note 3 — Trading Securities
 
Major Security Types. Trading securities as of September 30, 2010, and December 31, 2009, were as follows (dollars in thousands):
 
 
September 30, 2010
 
December 31, 2009
Certificates of deposit
$
4,209,954
 
 
$
 
Mortgage-backed securities
 
 
 
 
U.S. government-guaranteed - residential
22,025
 
 
23,972
 
Government-sponsored enterprises - residential
9,047
 
 
10,458
 
Government-sponsored enterprises - commercial
242,168
 
 
72,908
 
 
273,240
 
 
107,338
 
 
 
 
 
Total
$
4,483,194
 
 
$
107,338
 
 
Net unrealized gains on trading securities for the nine months ended September 30, 2010 and 2009, amounted to $18.8 million and $1.6 million for securities held on September 30, 2010 and 2009, respectively.
 
The Bank does not participate in speculative trading practices and typically holds these investments over a longer time horizon.
 
Note 4 — Available-for-Sale Securities
 
Major Security Types. Available-for-sale securities as of September 30, 2010, were as follows (dollars in thousands):
 

9


 
 
 
Amounts Recorded in
Accumulated Other
Comprehensive Loss
 
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair Value
Supranational banks
$
479,540
 
 
$
 
 
$
(43,800
)
 
$
435,740
 
Corporate bonds (1)
1,170,987
 
 
8,334
 
 
 
 
1,179,321
 
U.S. government corporations
304,991
 
 
 
 
(43,658
)
 
261,333
 
Government-sponsored enterprises
3,503,738
 
 
72,729
 
 
(17,375
)
 
3,559,092
 
 
5,459,256
 
 
81,063
 
 
(104,833
)
 
5,435,486
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
73,621
 
 
370
 
 
 
 
73,991
 
Government-sponsored enterprises - residential
1,704,908
 
 
9,378
 
 
(67
)
 
1,714,219
 
Government-sponsored enterprises - commercial
310,486
 
 
64
 
 
(1,483
)
 
309,067
 
 
2,089,015
 
 
9,812
 
 
(1,550
)
 
2,097,277
 
Total
$
7,548,271
 
 
$
90,875
 
 
$
(106,383
)
 
$
7,532,763
 
(1)         Consists of corporate debentures guaranteed by the Federal Deposit Insurance Corporation (the FDIC) under the Temporary Liquidity Guarantee Program. The FDIC guarantee carries the full faith and credit of the U.S. Government.
 
Available-for-sale securities as of December 31, 2009, were as follows (dollars in thousands):
 
 
 
 
Amounts Recorded in
Accumulated Other
Comprehensive Loss
 
 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
Certificates of deposit
$
2,600,000
 
 
$
 
 
$
 
 
$
2,600,000
 
Supranational banks
415,744
 
 
 
 
(34,733
)
 
381,011
 
Corporate bonds (1)
702,754
 
 
1,022
 
 
(1,997
)
 
701,779
 
U.S. government corporations
253,009
 
 
 
 
(31,507
)
 
221,502
 
Government-sponsored enterprises
1,772,115
 
 
 
 
(19,796
)
 
1,752,319
 
 
5,743,622
 
 
1,022
 
 
(88,033
)
 
5,656,611
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
16,551
 
 
153
 
 
 
 
16,704
 
Government-sponsored enterprises - residential
503,047
 
 
1,600
 
 
(1,105
)
 
503,542
 
Government-sponsored enterprises - commercial
313,472
 
 
90
 
 
(3,787
)
 
309,775
 
 
833,070
 
 
1,843
 
 
(4,892
)
 
830,021
 
Total
$
6,576,692
 
 
$
2,865
 
 
$
(92,925
)
 
$
6,486,632
 
(1)         Consists of corporate debentures guaranteed by the FDIC under the Temporary Liquidity Guarantee Program. The FDIC guarantee carries the full faith and credit of the U.S. Government.
 

10


The following table summarizes available-for-sale securities with unrealized losses as of September 30, 2010, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands).
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value
 
Unrealized Losses
 
Estimated
Fair Value
 
Unrealized Losses
 
Estimated
Fair Value
 
Unrealized Losses
Supranational banks
$
 
 
$
 
 
$
435,740
 
 
$
(43,800
)
 
$
435,740
 
 
$
(43,800
)
U.S. government corporations
 
 
 
 
261,333
 
 
(43,658
)
 
261,333
 
 
(43,658
)
Government-sponsored enterprises
 
 
 
 
111,323
 
 
(17,375
)
 
111,323
 
 
(17,375
)
 
 
 
 
 
808,396
 
 
(104,833
)
 
808,396
 
 
(104,833
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises - residential
42,789
 
 
(67
)
 
 
 
 
 
42,789
 
 
(67
)
Government-sponsored enterprises - commercial
53,415
 
 
(7
)
 
229,859
 
 
(1,476
)
 
283,274
 
 
(1,483
)
 
96,204
 
 
(74
)
 
229,859
 
 
(1,476
)
 
326,063
 
 
(1,550
)
Total temporarily impaired
$
96,204
 
 
$
(74
)
 
$
1,038,255
 
 
$
(106,309
)
 
$
1,134,459
 
 
$
(106,383
)
 
The Bank evaluates individual available-for-sale investment securities for other-than-temporary impairment on at least a quarterly basis. As part of this process, the Bank considers whether it intends to sell each debt security or whether it is more likely than not that the Bank will be required to sell the security before the anticipated recovery of the remaining amortized cost. If either of these conditions is met, the Bank recognizes an other-than-temporary impairment charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance-sheet date. For securities that meet neither of these conditions, the Bank performs an analysis to determine if any of these securities are at risk for other-than-temporary impairment.
 
As a result of these evaluations, the Bank determined that none of its available-for-sale securities were other-than-temporarily impaired at September 30, 2010. The Bank's available-for-sale securities portfolio has experienced unrealized losses that reflect the impact of normal yield and spread fluctuations attendant with security markets. However, the decline is considered temporary as the Bank expects to recover the entire amortized cost basis on these available-for-sale securities in an unrealized loss position and neither intends to sell these securities nor is it more likely than not that the Bank will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. Regarding securities that were in an unrealized loss position as of September 30, 2010:
 
•      Debentures issued by a supranational entity that were in an unrealized loss position as of September 30, 2010, are expected to return contractual principal and interest,and such supranational entity is rated triple-A by each of the three nationally recognized statistical rating organizations (NRSROs).
 
•    Debentures issued by U.S. government corporations are not obligations of the U.S. government and not guaranteed by the U.S. government. However, these securities are rated triple-A by the three NRSROs. These ratings reflect the U.S. government's implicit support of the government corporation as well as the entity's underlying business and financial risk.
  
•    The Bank has concluded that the probability of default on issued debt for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) is remote given their status as government-sponsored enterprises (GSEs) and their support from the U.S. government. Further, mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac are backed by mortgage loans conforming with those GSEs' underwriting requirements and the GSEs' credit guarantees as to full return of principal and interest.
 

11


The following table summarizes available-for-sale securities with unrealized losses as of December 31, 2009, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands).
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Supranational banks
$
 
 
$
 
 
$
381,011
 
 
$
(34,733
)
 
$
381,011
 
 
$
(34,733
)
U.S. government corporations
 
 
 
 
221,502
 
 
(31,507
)
 
221,502
 
 
(31,507
)
Corporate bonds
301,204
 
 
(1,997
)
 
 
 
 
 
301,204
 
 
(1,997
)
Government-sponsored enterprises
1,654,798
 
 
(9,369
)
 
97,521
 
 
(10,427
)
 
1,752,319
 
 
(19,796
)
 
1,956,002
 
 
(11,366
)
 
700,034
 
 
(76,667
)
 
2,656,036
 
 
(88,033
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises - residential
265,102
 
 
(1,105
)
 
 
 
 
 
265,102
 
 
(1,105
)
Government-sponsored enterprises - commercial
 
 
 
 
254,336
 
 
(3,787
)
 
254,336
 
 
(3,787
)
 
265,102
 
 
(1,105
)
 
254,336
 
 
(3,787
)
 
519,438
 
 
(4,892
)
Total temporarily impaired
$
2,221,104
 
 
$
(12,471
)
 
$
954,370
 
 
$
(80,454
)
 
$
3,175,474
 
 
$
(92,925
)
 
Redemption Terms. The amortized cost and fair value of available-for-sale securities by contractual maturity at September 30, 2010, and December 31, 2009, are shown below (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
 
September 30, 2010
 
December 31, 2009
Year of Maturity
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
519,937
 
 
$
523,854
 
 
$
2,600,000
 
 
$
2,600,000
 
Due after one year through five years
4,026,089
 
 
4,103,235
 
 
2,366,921
 
 
2,356,577
 
Due after five years through 10 years
 
 
 
 
 
 
 
Due after 10 years
913,230
 
 
808,397
 
 
776,701
 
 
700,034
 
 
5,459,256
 
 
5,435,486
 
 
5,743,622
 
 
5,656,611
 
Mortgage-backed securities
2,089,015
 
 
2,097,277
 
 
833,070
 
 
830,021
 
Total
$
7,548,271
 
 
$
7,532,763
 
 
$
6,576,692
 
 
$
6,486,632
 
 
As of September 30, 2010, the amortized cost of the Bank's available-for-sale securities included net premiums of $128.6 million. Of that amount, $134.0 million of net premiums related to non-MBS and $5.4 million of net discounts related to MBS. As of December 31, 2009, the amortized cost of the Bank's available-for-sale securities included net premiums of $80.8 million. Of that amount, $82.7 million of net premiums relate to non-MBS and $1.9 million of net discounts relate to MBS.
 
Note 5 — Held-to-Maturity Securities
 
Major Security Types. Held-to-maturity securities as of September 30, 2010, were as follows (dollars in thousands):
 

12


 
Amortized Cost
 
Other-Than-
Temporary
Impairment
Recognized in
Accumulated
Other
Comprehensive
Loss
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Fair Value
U.S. agency obligations
$
26,486
 
 
$
 
 
$
26,486
 
 
$
2,543
 
 
$
 
 
$
29,029
 
State or local housing-finance-agency obligations
236,121
 
 
 
 
236,121
 
 
657
 
 
(50,482
)
 
186,296
 
Government-sponsored enterprises
73,028
 
 
 
 
73,028
 
 
2,764
 
 
 
 
75,792
 
 
335,635
 
 
 
 
335,635
 
 
5,964
 
 
(50,482
)
 
291,117
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed -residential
69,818
 
 
 
 
69,818
 
 
1,226
 
 
 
 
71,044
 
Government-sponsored enterprises - residential
3,125,225
 
 
 
 
3,125,225
 
 
87,685
 
 
(1,477
)
 
3,211,433
 
Government-sponsored enterprises - commercial
1,170,106
 
 
 
 
1,170,106
 
 
100,996
 
 
 
 
1,271,102
 
Private-label - residential
2,498,556
 
 
(695,363
)
 
1,803,193
 
 
113,926
 
 
(121,544
)
 
1,795,575
 
Private-label - commercial
94,332
 
 
 
 
94,332
 
 
888
 
 
(1,077
)
 
94,143
 
Asset-backed securities (ABS) backed by home equity loans
29,684
 
 
(718
)
 
28,966
 
 
152
 
 
(7,998
)
 
21,120
 
 
6,987,721
 
 
(696,081
)
 
6,291,640
 
 
304,873
 
 
(132,096
)
 
6,464,417
 
Total
$
7,323,356
 
 
$
(696,081
)
 
$
6,627,275
 
 
$
310,837
 
 
$
(182,578
)
 
$
6,755,534
 
 
Held-to-maturity securities as of December 31, 2009, were as follows (dollars in thousands):
 
 
Amortized Cost
 
Other-Than-
Temporary
Impairment
Recognized in
Accumulated
Other
Comprehensive
Loss
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Fair Value
U.S. agency obligations
$
30,801
 
 
$
 
 
$
30,801
 
 
$
2,260
 
 
$
 
 
$
33,061
 
State or local housing-finance-agency obligations
246,257
 
 
 
 
246,257
 
 
749
 
 
(31,876
)
 
215,130
 
Government-sponsored enterprises
18,897
 
 
 
 
18,897
 
 
 
 
(300
)
 
18,597
 
 
295,955
 
 
 
 
295,955
 
 
3,009
 
 
(32,176
)
 
266,788
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed -residential
98,610
 
 
 
 
98,610
 
 
154
 
 
(367
)
 
98,397
 
Government-sponsored enterprises - residential
3,766,047
 
 
 
 
3,766,047
 
 
64,456
 
 
(14,545
)
 
3,815,958
 
Government-sponsored enterprises - commercial
1,106,319
 
 
 
 
1,106,319
 
 
65,646
 
 
 
 
1,171,965
 
Private-label - residential
2,926,608
 
 
(928,532
)
 
1,998,076
 
 
134,435
 
 
(212,175
)
 
1,920,336
 
Private-label - commercial
132,405
 
 
 
 
132,405
 
 
37
 
 
(4,507
)
 
127,935
 
ABS backed by home equity loans
30,977
 
 
(976
)
 
30,001
 
 
136
 
 
(8,835
)
 
21,302
 
 
8,060,966
 
 
(929,508
)
 
7,131,458
 
 
264,864
 
 
(240,429
)
 
7,155,893
 
Total
$
8,356,921
 
 
$
(929,508
)
 
$
7,427,413
 
 
$
267,873
 
 
$
(272,605
)
 
$
7,422,681
 
 
The following table summarizes the held-to-maturity securities with unrealized losses as of September 30, 2010, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands).

13


 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
State or local housing-finance-agency obligations
$
 
 
$
 
 
$
145,554
 
 
$
(50,482
)
 
$
145,554
 
 
$
(50,482
)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises - residential
86,252
 
 
(203
)
 
135,814
 
 
(1,274
)
 
222,066
 
 
(1,477
)
Private-label - residential
1,853
 
 
(638
)
 
1,787,032
 
 
(703,127
)
 
1,788,885
 
 
(703,765
)
Private-label - commercial
 
 
 
 
82,731
 
 
(1,077
)
 
82,731
 
 
(1,077
)
ABS backed by home equity loans
 
 
 
 
21,120
 
 
(8,563
)
 
21,120
 
 
(8,563
)
 
88,105
 
 
(841
)
 
2,026,697
 
 
(714,041
)
 
2,114,802
 
 
(714,882
)
Total
$
88,105
 
 
$
(841
)
 
$
2,172,251
 
 
$
(764,523
)
 
$
2,260,356
 
 
$
(765,364
)
 
The following table summarizes the held-to-maturity securities with unrealized losses as of December 31, 2009, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands).
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
State or local housing-finance-agency obligations
$
165
 
 
$
 
 
$
167,264
 
 
$
(31,876
)
 
$
167,429
 
 
$
(31,876
)
Government-sponsored enterprises
18,597
 
 
(300
)
 
 
 
 
 
18,597
 
 
(300
)
 
18,762
 
 
(300
)
 
167,264
 
 
(31,876
)
 
186,026
 
 
(32,176
)
Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government guaranteed - residential
95,317
 
 
(358
)
 
1,155
 
 
(9
)
 
96,472
 
 
(367
)
Government-sponsored enterprises - residential
818,526
 
 
(4,082
)
 
334,118
 
 
(10,463
)
 
1,152,644
 
 
(14,545
)
Private-label - residential
32,592
 
 
(26,319
)
 
1,882,499
 
 
(981,115
)
 
1,915,091
 
 
(1,007,434
)
Private-label - commercial
 
 
 
 
117,383
 
 
(4,507
)
 
117,383
 
 
(4,507
)
ABS backed by home equity loans
2,534
 
 
(1,278
)
 
18,768
 
 
(8,397
)
 
21,302
 
 
(9,675
)
 
948,969
 
 
(32,037
)
 
2,353,923
 
 
(1,004,491
)
 
3,302,892
 
 
(1,036,528
)
Total
$
967,731
 
 
$
(32,337
)
 
$
2,521,187
 
 
$
(1,036,367
)
 
$
3,488,918
 
 
$
(1,068,704
)
 

14


Redemption Terms. The amortized cost and fair value of held-to-maturity securities by contractual maturity at September 30, 2010, and December 31, 2009, are shown below (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
 
September 30, 2010
 
December 31, 2009
Year of Maturity
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
 
Amortized
Cost
 
Carrying
Value (1)
 
Fair
Value
Due in one year or less
$
1,266
 
 
$
1,266
 
 
$
1,277
 
 
$
355
 
 
$
355
 
 
$
355
 
Due after one year through five years
74,890
 
 
74,890
 
 
77,794
 
 
24,030
 
 
24,030
 
 
23,811
 
Due after five years through 10 years
54,760
 
 
54,760
 
 
57,731
 
 
62,522
 
 
62,522
 
 
65,190
 
Due after 10 years
204,719
 
 
204,719
 
 
154,315
 
 
209,048
 
 
209,048
 
 
177,432
 
 
335,635
 
 
335,635
 
 
291,117
 
 
295,955
 
 
295,955
 
 
266,788
 
Mortgage-backed securities
6,987,721
 
 
6,291,640
 
 
6,464,417
 
 
8,060,966
 
 
7,131,458
 
 
7,155,893
 
Total
$
7,323,356
 
 
$
6,627,275
 
 
$
6,755,534
 
 
$
8,356,921
 
 
$
7,427,413
 
 
$
7,422,681
 
(1)         Carrying value of held-to-maturity securities represents the sum of amortized cost and the amount of noncredit-related other-than-temporary impairment recognized in accumulated other comprehensive loss.
 
As of September 30, 2010, the amortized cost of the Bank's held-to-maturity securities includes net discounts of $511.0 million. Of that amount, net premiums of $5.7 million relate to non-MBS and net discounts of $516.7 million relate to MBS. As of December 31, 2009, the amortized cost of the Bank's held-to-maturity securities includes net discounts of $482.3 million. Of that amount, net premiums of $1.5 million relate to non-MBS and net discounts of $483.8 million relate to MBS.
 
Other-Than-Temporary Impairment Analysis of Held-to-Maturity Securities.
 
The Bank evaluates individual held-to-maturity securities for other-than-temporary impairment on a quarterly basis. As part of this process, the Bank considers whether it intends to sell each debt security or whether it is more likely than not that the Bank will be required to sell the security before the anticipated recovery of the remaining amortized cost. If either of these conditions is met, the Bank recognizes an other-than-temporary impairment charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance-sheet date. For securities that meet neither of these conditions and for all residential private-label MBS, the Bank performs an analysis to determine if any of these securities are at risk for credit loss impairment.
 
State or Local Housing-Finance-Agency Obligations. Management has reviewed the state and local housing-finance-agency (HFA) obligations and has determined that unrealized losses reflect the impact of normal market yield and spread fluctuations attendant with security markets. The Bank has determined that all unrealized losses reflected above are temporary given the creditworthiness of the issuers and the underlying collateral. As of September 30, 2010, none of the Bank's held-to-maturity investments in HFA obligations were rated below investment grade by an NRSRO. Because the decline in market value is attributable to changes in interest rates and credit spreads and illiquidity in the credit markets and not to a deterioration in the fundamental credit quality of these obligations, and because the Bank does not intend to sell the investments. Since it is not more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis, the Bank does not consider these investments to be other-than-temporarily impaired at September 30, 2010.
 
Mortgage-Backed Securities. For MBS issued by GSEs, the Bank determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses based on current expectations. As a result, the Bank has determined that, as of September 30, 2010, all of the gross unrealized losses on such MBS are temporary. Additionally, based upon the Bank's assessment of the creditworthiness of the issuers of private-label commercial MBS, the credit ratings assigned by the NRSROs, and the performance of the underlying loans and the credit support provided by the subordinate securities, the Bank expects that its holdings of private-label commercial MBS would not be settled at an amount less than the amortized cost bases in these investments. Furthermore, since the Bank does not believe that the declines in market value of these securities are attributable to credit quality, the Bank does not intend to sell the investments, and it is not more likely than not that the Bank will be required to sell the investments before recovery of the amortized cost basis. As a result, the Bank does not consider any of these investments to be other-than-temporarily impaired at September 30, 2010.
 
The FHLBanks' OTTI Governance Committee, which is comprised of representatives from all 12 FHLBanks, has reviewed and approved the key modeling assumptions, inputs, and methodologies used by the