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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ 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.


(In millions-except par value)	June 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
Assets
Cash and due from banks	$	811		$	19,632		$	6,115		$	19,632
Federal funds sold		16,658			9,431			7,086			9,431
Trading securities^(a)		34			35			32			35
Held-to-maturity securities (fair values were $38,150 and $44,270, respectively)^(b)		42,241			51,205
Advances (includes $34,869 and $38,573 at fair value under the fair value option, respectively)		174,732			235,664
Held-to-maturity securities (fair values were $37,137 and $44,270, respectively)^(b)								38,825			51,205
Advances (includes $27,381 and $38,573 at fair value under the fair value option, respectively)								154,962			235,664
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $2 and $1, respectively		3,357			3,712			3,172			3,712
Accrued interest receivable		462			865			371			865
Premises and equipment, net		20			20			21			20
Derivative assets		452			467			458			467
Receivable from REFCORP		—			51			19			51
Other assets		157			162			151			162

Total Assets	$	238,924		$	321,244		$	211,212		$	321,244
Liabilities and Capital
Liabilities:
Deposits:
Interest-bearing:
Demand and overnight	$	189		$	491		$	174		$	491
Term		63			103			48			103
Other		2			8			1			8
Non-interest-bearing – Other		3			2
Non-interest-bearing - Other								2			2

Total deposits		257			604			225			604

Consolidated obligations, net:
Bonds (includes $35,157 and $30,286 at fair value under the fair value option, respectively)		176,200			213,114
Bonds (includes $26,205 and $30,286 at fair value under the fair value option, respectively)								154,869			213,114
Discount notes		49,009			91,819			43,901			91,819

Total consolidated obligations		225,209			304,933			198,770			304,933

Mandatorily redeemable capital stock		3,165			3,747			3,159			3,747
Accrued interest payable		1,002			1,451			878			1,451
Affordable Housing Program		203			180			180			180
Payable to REFCORP		55			—
Derivative liabilities		231			437			197			437
Other liabilities		94			107			95			107

Total Liabilities		230,216			311,459			203,504			311,459

Commitments and Contingencies (Note 11)
Capital (Note 7):
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
103 shares and 96 shares, respectively		10,253			9,616			10,244			9,616
Restricted retained earnings		1,172			176			1,065			176
Accumulated other comprehensive income/(loss)		(2,717	)		(7	)
Accumulated other comprehensive loss								(3,601	)		(7	)

Total Capital		8,708			9,785			7,708			9,785

Total Liabilities and Capital	$	238,924		$	321,244		$	211,212		$	321,244


	For the Three Months Ended June 30,						For the Six Months Ended June 30,					For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In millions)	2009			2008			2009			2008		2009			2008			2009			2008

Interest Income:
Advances	$	754		$	1,864		$	1,817		$	4,448	$	546		$	1,841		$	2,363		$	6,289
Prepayment fees on advances, net		18			—			20			—		2			(10	)		22			(10	)
Federal funds sold		6			77			13			209		5			78			18			287
Trading securities		1			1			1			2		—			—			1			2
Held-to-maturity securities		369			582			804			1,199		358			585			1,162			1,784
Mortgage loans held for portfolio		36			48			79			97		39			48			118			145

Total Interest Income		1,184			2,572			2,734			5,955		950			2,542			3,684			8,497

Interest Expense:
Consolidated obligations:
Bonds		588			1,683			1,448			4,031		418			1,673			1,866			5,704
Discount notes		112			541			368			1,331		67			462			435			1,793
Deposits		—			7			—			17		—			6			—			23
Mandatorily redeemable capital stock		—			3			—			6		7			8			7			14

Total Interest Expense		700			2,234			1,816			5,385		492			2,149			2,308			7,534

Net Interest Income		484			338			918			570		458			393			1,376			963

Provision for credit losses on mortgage loans		1			—			1			—		—			—			1			—

Net Interest Income After Mortgage Loan Loss Provision		483			338			917			570		458			393			1,375			963

Other (Loss)/Income:
Other Loss:
Services to members		1			—			1			—		—			1			1			1
Net gain on trading securities		—			—			1			—		—			—			1			—
Total other-than-temporary impairment loss on held-to-maturity securities		(1,283	)		—			(2,439	)		—		(1,385	)		—			(3,824	)		—
Portion of loss recognized in other comprehensive income		1,195			—			2,263			—		1,069			—			3,332			—

Net impairment loss on held-to-maturity securities (credit loss)		(88	)		—			(176	)		—
Net other-than-temporary impairment loss on held-to-maturity securities (credit-related loss)													(316	)		—			(492	)		—
Net (loss)/gain on advances and consolidated obligation bonds held at fair value		(178	)		(228	)		(361	)		46		(62	)		99			(423	)		145
Net gain/(loss) on derivatives and hedging activities		224			217			258			62
Net (loss)/gain on derivatives and hedging activities													(166	)		(326	)		92			(264	)
Other		2			1			2			2		1			1			3			3

Total Other (Loss)/Income		(39	)		(10	)		(275	)		110
Total Other Loss													(543	)		(225	)		(818	)		(115	)

Other Expense:
Compensation and benefits		15			12			30			26		14			13			44			39
Other operating expense		13			8			24			15		12			12			36			27
Federal Housing Finance Agency/Federal Housing Finance Board		2			2			5			4		3			3			8			7
Office of Finance		1			2			3			4		2			1			5			5

Total Other Expense		31			24			62			49		31			29			93			78

Income Before Assessments		413			304			580			631
(Loss)/Income Before Assessments													(116	)		139			464			770

REFCORP		76			56			106			116		(21	)		25			85			141
Affordable Housing Program		34			25			48			52		(10	)		13			38			65

Total Assessments		110			81			154			168		(31	)		38			123			206

Net Income	$	303		$	223		$	426		$	463
Net (Loss)/Income												$	(85	)	$	101		$	341		$	564


	Capital Stock Class B—Putable					Retained Earnings								Accumulated Other Comprehensive Income/(Loss)			Total Capital				Capital Stock Class B—Putable							Retained Earnings										Accumulated Other Comprehensive Income/(Loss)			Total Capital
(In millions)	Shares		Par Value			Restricted		Unrestricted			Total						Total Capital			Shares			Par Value				Restricted			Unrestricted				Total				Accumulated Other Comprehensive Income/(Loss)			Total Capital
														Accumulated Other Comprehensive Income/(Loss)
Balance, December 31, 2007	134		$	13,403		$	227	$	—		$	227		$	(3	)	$	13,627			134			$	13,403			$	227		$	—			$	227		$	(3	)	$	13,627
Adjustments to opening balance^(a)									16			16						16														16				16						16
Issuance of capital stock	9			882														882			16				1,587																	1,587
Repurchase/redemption of capital stock	(9	)		(920	)													(920	)		(12	)			(1,196	)																(1,196	)
Capital stock reclassified to mandatorily redeemable capital stock				(2	)													(2	)		(37	)			(3,707	)																(3,707	)
Comprehensive income:
Net income									463			463						463														564				564						564
Other comprehensive income:
Net amounts recognized as earnings															1			1																					1			1
Additional minimum liability on benefit plans															(1	)		(1	)

Total comprehensive income																		463																								565

Transfers to restricted retained earnings							79		(79	)		—						—											53			(53	)			—						—
Dividends on capital stock (5.96%)
Dividends on capital stock (5.24%)
Stock issued	4			400					(400	)		(400	)					—			5				527							(527	)			(527	)					—

Balance, June 30, 2008	138		$	13,763		$	306	$	—		$	306		$	(3	)	$	14,066
Balance, September 30, 2008																					106			$	10,614			$	280		$	—			$	280		$	(2	)	$	10,892
Balance, December 31, 2008	96		$	9,616		$	176	$	—		$	176		$	(7	)	$	9,785			96			$	9,616			$	176		$	—			$	176		$	(7	)	$	9,785
Adjustments to opening balance^(b)									570			570			(570	)		—														570				570			(570	)		—
Issuance of capital stock	1			55														55			1				56																	56
Capital stock reclassified from mandatorily redeemable capital stock, net	6			582														582			6				572																	572
Comprehensive income/(loss):
Net income									426			426						426														341				341						341
Other comprehensive income/(loss):
Other-than-temporary impairment loss - noncredit portion															(2,390	)		(2,390	)
Additional minimum liability on benefit plans																																							(1	)		(1	)
Other-than-temporary impairment loss related to all other factors																																							(3,740	)		(3,740	)
Reclassified to income for previously impaired securities															127			127																					408			408
Accretion of impairment loss															123			123																					309			309

Other-than-temporary impairment loss related to all other factors															(2,140	)		(2,140	)
Total other-than-temporary impairment loss related to all other factors																																							(3,023	)		(3,023	)

Total comprehensive income/(loss)																		(1,714	)																							(2,683	)

Transfers to restricted retained earnings							996		(996	)		—						—											889			(889	)			—						—
Dividends on capital stock (0.28%)
Cash dividends paid																									—				—			(22	)			(22	)					(22	)

Balance, June 30, 2009	103		$	10,253		$	1,172	$	—		$	1,172		$	(2,717	)	$	8,708
Balance, September 30, 2009																					103			$	10,244			$	1,065		$	—			$	1,065		$	(3,601	)	$	7,708


	For the Six Months Ended June 30,						For the Nine Months Ended September 30,
(In millions)	2009			2008			2009			2008

Cash Flows from Operating Activities:
Net Income	$	426		$	463		$	341		$	564
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization		(238	)		(170	)		(232	)		(230	)
Provision for credit losses on mortgage loans		1			—			1			—
Non-cash interest on mandatorily redeemable capital stock		—			6			—			14
Change in net fair value adjustment on trading securities		(1	)		—			(1	)		—
Change in net fair value adjustment on advances and consolidated obligation bonds held at fair value		361			(46	)		423			(145	)
Change in net fair value adjustment on derivatives and hedging activities		(518	)		(559	)		(597	)		(65	)
Other-than-temporary impairment charge on held-to-maturity securities		176			—
Net other-than-temporary impairment loss on held-to-maturity securities								492			—
Other adjustments								1			—
Net change in:
Accrued interest receivable		416			518			547			539
Other assets		11			(52	)		7			(67	)
Accrued interest payable		(456	)		(536	)		(585	)		(628	)
Other liabilities		116			55			20			36

Total adjustments		(132	)		(784	)		76			(546	)

Net cash provided by/(used in) operating activities		294			(321	)
Net cash provided by operating activities								417			18

Cash Flows from Investing Activities:
Net change in:
Federal funds sold		(7,227	)		(4,372	)		2,345			(3,720	)
Premises and equipment		(3	)		(6	)		(6	)		(7	)
Trading securities:
Proceeds from maturities		3			4			4			21
Held-to-maturity securities:
Net decrease in short-term		2,799			544			3,324			6,105
Proceeds from maturities of long-term		3,827			3,236			5,933			4,646
Purchases of long-term		—			(11,321	)		(406	)		(12,105	)
Advances:
Principal collected		596,074			783,317			835,367			1,177,982
Made to members		(535,969	)		(778,184	)		(755,682	)		(1,190,091	)
Mortgage loans held for portfolio:
Principal collected		345			229			530			336

Net cash provided by/(used in) investing activities		59,849			(6,553	)		91,409			(16,833	)


	For the Six Months Ended June 30,						For the Nine Months Ended September 30,
(In millions)	2009			2008			2009			2008

Cash Flows from Financing Activities:
Net change in:
Deposits		(830	)		238			(834	)		428
Borrowings from other Federal Home Loan Banks		—			(955	)		—			(955	)
Other borrowings		—			(100	)		—			(100	)
Net payments on derivative contracts with financing elements		32			—			106			(116	)
Net proceeds from consolidated obligations:
Bonds issued		34,210			78,767			57,264			108,270
Discount notes issued		89,224			393,770			126,457			657,679
Bonds transferred from other Federal Home Loan Banks		—			164			—			164
Payments for consolidated obligations:
Bonds matured or retired		(69,861	)		(70,709	)		(114,199	)		(98,085	)
Discount notes matured or retired		(131,794	)		(394,207	)		(174,155	)		(648,355	)
Proceeds from issuance of capital stock		55			882			56			1,587
Payments for repurchase/redemption of mandatorily redeemable capital stock		—			(48	)		(16	)		(52	)
Payments for repurchase/redemption of capital stock		—			(920	)		—			(1,196	)

Cash dividends paid								(22	)		—
Net cash (used in)/provided by financing activities		(78,964	)		6,882			(105,343	)		19,269

Net (decrease)/increase in cash and cash equivalents		(18,821	)		8			(13,517	)		2,454

Cash and cash equivalents at beginning of period		19,632			5			19,632			5

Cash and cash equivalents at end of period	$	811		$	13		$	6,115		$	2,459

Supplemental Disclosures:
Interest paid during the period	$	2,816		$	7,063		$	3,528		$	9,437
Affordable Housing Program payments during the period		25			17			38			30
REFCORP payments during the period		—			118			53			174
Transfers of mortgage loans to real estate owned		1			1			3			2
Non-cash dividends on capital stock		—			400			—			527

On July 30, 2008, the Housing and Economic Recovery Act of 2008 (Housing Act) was ~~enacted and, among other things,~~enacted. The Housing Act created a new federal agency, the Federal Housing Finance Agency (Finance Agency), which became the new federal regulator of the Federal Home Loan Banks (FHLBanks) effective on the date of enactment of the Housing Act. On October 27, 2008, the Federal Housing Finance Board (Finance Board), the federal regulator of the FHLBanks prior to the creation of the Finance Agency, merged into the Finance Agency. Pursuant to the Housing Act, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the Finance Board will remain in effect until modified, terminated, set aside, or superseded by the Director of the Finance Agency, any court of competent jurisdiction, or operation of law. References throughout these notes to regulations of the Finance Agency also include the regulations of the Finance Board where they remain applicable.

The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial statements reflects all adjustments that, ~~are,~~ in the opinion of management, are necessary for a fair statement of results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed. The results of operations in these interim statements are not necessarily indicative of the results to be expected for any subsequent period or for the entire year ending December 31, 2009. These unaudited financial statements should be read in conjunction with the Bank’s Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K).

Use of Estimates.The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if applicable, and the reported amounts of income, expenses, gains, and losses during the reporting period. The most significant of these estimates include the fair value of derivatives, investments classified as other-than-temporarily impaired, certain advances, and certain consolidated obligations that are reported at fair value in the Statements of Condition. In addition, significant judgments, estimates, and assumptions were made in the determination of other-than-temporarily impaired securities. Changes in judgments, estimates, and assumptions could potentially affect the Bank’s financial position and results of operations significantly. Although management believes these judgments, estimates, and assumptions to be reasonable, actual results may differ.

~~Reclassifications.~~ During the third quarter of 2008, on a retrospective basis, the Bank reclassified its investments in certain held-to-maturity negotiable certificates of deposit from “interest-bearing deposits in banks” to “held-to-maturity securities” in its Statements of Condition, Statements of Income, and Statements of Cash Flows based on the definition of a security under Statement of Financial Accounting Standards (SFAS) No. 115,~~Accounting for Certain Investments in Debt and Equity Securities~~ (SFAS 115). These financial instruments have been reclassified as held-to-maturity securities based on their short-term nature and the Bank’s history of holding them until maturity. This reclassification had no effect on the total assets, net interest income, or net income of the Bank. The effect of the reclassifications on the Bank’s prior period financial statements is presented below:

Descriptions of the Bank’s significant accounting policies are included in Note 1 (Summary of Significant Accounting Policies) to the Financial Statements in the Bank’s 2008 Form 10-K. Other changes to these policies as of ~~June~~September 30, 2009, are discussed in Note 2.

Note 2 – Recently Issued and Adopted Accounting ~~Standards and Interpretations~~Guidance

Fair Value Measurements and Disclosures - Measuring Liabilities at Fair Value. On ~~June 30,~~August 28, 2009, the ~~FASB issued SFAS No. 168,~~~~The Statement of~~ Financial Accounting Standards ~~Codification and~~Board (FASB) issued an amendment to existing fair value measurement guidance with respect to measuring liabilities in a hypothetical transaction (assuming the ~~Hierarchy~~transfer of ~~Generally Accepted Accounting Principles,~~ a ~~replacement of SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles~~(SFAS 168). SFAS 168 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity withliability to a third party), as currently required by U.S. GAAP. ~~SFAS 168 establishes~~This guidance reaffirms that fair value measurement of a liability assumes the ~~FASB Accounting Standards Codification (ASC)~~transfer of a liability to a market participant as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the ~~Securities~~measurement date; that is, the liability is

presumed to continue and ~~Exchange Commission (SEC) under authority~~is not settled with the counterparty. In addition, this guidance emphasizes that a fair value measurement of ~~federal securities laws are also sources of authoritative GAAP for SEC registrants. The ASC~~a liability includes nonperformance risk and that such risk does not change ~~current GAAP, but it introduces~~after transfer of the liability. In a ~~new structure~~manner consistent with this underlying premise (that is, a transfer notion), this guidance requires that ~~organizes~~an entity should first determine whether a quoted price of an identical liability traded in an active market exists (that is, a Level 1 fair value measurement). This guidance clarifies that the ~~authoritative standards by topic~~quoted price for the identical liability, when traded as an asset in an active market, is also a Level 1 measurement for that liability when no adjustment to the quoted price is required. In the absence of a quoted price in an active market for the identical liability, an entity must use one ~~place. SFAS 168~~or more of the following valuation techniques to estimate fair value:

In addition, this guidance clarifies that when estimating the fair value of a liability, a reporting entity should not include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The guidance is effective for ~~financial statements issued for~~the first reporting period (including interim ~~and annual periods ending~~periods) beginning after ~~September 15, 2009 (September 30,~~issuance (October 1, 2009, for the Bank). Entities may also elect to adopt this guidance early if financial statements have not been issued. The Bank does not ~~believe that~~expect the adoption of ~~SFAS 168 will~~this guidance to have a material ~~effect~~impact on ~~its~~the Bank’s results of operations, financial condition, or cash flows.

~~SFAS 167.~~Accounting for Consolidation of Variable Interest Entities.On June 12, 2009, the FASB issued ~~SFAS No. 167,~~~~Amendments to FASB Interpretation No. 46(R)~~~~(SFAS 167), which is intended to amend~~guidance for amending certain requirements of ~~FASB Interpretation No. 46 (revised December 2003),~~~~Consolidation~~consolidation of ~~Variable Interest Entities~~,variable interest entities. This guidance is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ~~SFAS 167~~This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins 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. Earlier application is prohibited. The Bank ~~does~~has not ~~believe that~~yet determined what effect, if any, the adoption of ~~SFAS 167~~this guidance will have ~~a material effect~~ on its results of operations, financial condition, or cash flows.

~~SFAS 166.~~Accounting for Transfers of Financial Assets.On June 12, 2009, the FASB issued ~~SFAS No. 166,~~~~Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140~~~~(SFAS 166), which is~~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. ~~SFAS 166~~This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins 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. Earlier application is prohibited. The Bank has not yet determined what effect, if any, the adoption of this guidance will have on its results of operations, financial condition, or cash flows.

Employers’ Disclosures About Postretirement Benefit Plan Assets. On December 30, 2008, the FASB issued guidance requiring additional disclosures about plan assets of a defined benefit pension or other

postretirement plan. This guidance requires more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentration of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. This guidance is effective for fiscal years ending after December 15, 2009 (December 31, 2009, for the Bank). In periods after initial adoption, this guidance requires comparative disclosures only for periods ending subsequent to initial adoption and does not require earlier periods to be disclosed for comparative purposes at initial adoption. Because this guidance affects financial statement disclosures only, its adoption will not have a material impact on the Bank’s results of operations, financial condition, or cash flows. Its adoption will result in increased financial statement disclosures.

Accounting Standards Codification. On June 29, 2009, the FASB issued the FASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by non-government entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification is not intended to change current U.S. GAAP; rather, its intent is to organize the authoritative accounting literature by topic in one place. The Codification modifies the U.S. GAAP hierarchy to include only two levels of GAAP, authoritative and non-authoritative. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. Following the establishment of the Codification, the FASB will issue new accounting guidance in the form of Accounting Standards Updates (ASU). The ASU will serve only to update the Codification, provide background information about the guidance, and provide the basis for conclusions regarding the changes to the Codification. The Codification is effective for financial statements issued for interim and annual ~~reporting~~ periods ~~thereafter. Earlier application is prohibited.~~ending after September 15, 2009. The Bank ~~does~~adopted the Codification for the interim period ended September 30, 2009. Because the Codification is not ~~believe that~~intended to change or alter previous U.S. GAAP, its adoption did not have any impact on the ~~adoption of SFAS 166 will have a material effect on its financial condition,~~Bank’s results of operations, financial condition, or cash flows.

~~Adoption of SFAS 165.~~Subsequent Events.On May 28, 2009, the FASB issued ~~SFAS No. 165,~~~~Subsequent Events~~ ~~(SFAS 165), which is intended to establish~~guidance establishing general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ~~SFAS 165~~This guidance sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date, including disclosure of the date through which an entity has evaluated subsequent events and whether that represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. ~~SFAS 165~~This guidance does not apply to subsequent events or transactions that are within the scope of other applicable U.S. GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. ~~SFAS 165~~This guidance is effective for interim and annual financial periods ending after June 15, ~~2009 (June 30, 2009, for the Bank).~~2009. The Bank adopted ~~SFAS 165~~this guidance for the period ended June 30, 2009. Its adoption resulted in increased financial statement disclosures. Subsequent events have been evaluated until the time of the Form 10-Q filing with the SEC on ~~August~~November 12, 2009.

~~Adoption~~Federal Home Loan Bank of ~~SFAS 161.~~ ~~On March 19, 2008, the FASB issued SFAS No. 161,~~~~Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133~~ ~~(SFAS 161)~~. SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Bank adopted SFAS 161 on January 1, 2009. Its adoption resulted in increased financial statement disclosures.San Francisco

~~Adoption~~Recognition and Presentation of ~~FSP FAS 115-2 and FAS 124-2.~~Other-Than-Temporary Impairments.On April 9, 2009, the FASB issued ~~FASB Staff Position (FSP) No. FAS 115-2~~guidance amending the recognition and ~~FAS 124-2,~~~~Recognition and Presentation~~reporting requirements of ~~Other-Than-Temporary Impairments~~ ~~(FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 amends~~ the other-than-temporary impairment (OTTI) guidance in U.S. GAAP for debt securities classified as available-for-sale and held-to-maturity to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. ~~FSP FAS 115-2 and FAS 124-2~~This OTTI guidance clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired and changes the presentation and calculation of the OTTI on debt securities recognized in earnings in the financial statements. ~~FSP FAS 115-2 and FAS 124-2~~This OTTI guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. ~~FSP FAS 115-2 and FAS 124-2~~This OTTI guidance expands and increases the frequency of existing OTTI disclosures for debt and equity securities and requires new disclosures to help users of financial statements understand the significant inputs used in determining a credit loss as well as a rollforward of that amount each period.

For impaired debt securities, ~~FSP FAS 115-2 and FAS 124-2~~this guidance requires an entity to assess whether (i) it has the intent to sell the debt security, or (ii) it is more likely than not that it will be required to sell the debt security before its anticipated ~~recovery.~~recovery of the remaining amortized cost basis of the security. If either of these conditions is met, an OTTI on the security must be recognized.

~~In instances in which a determination is made that~~any debt security, a credit loss ~~(defined by FSP FAS 115-2 and FAS 124-2~~is defined as the ~~difference between~~amount by which the amortized cost basis exceeds the present value of the cash flows expected to be ~~collected and the amortized cost basis)~~collected. If a credit loss exists but the entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (that is, the amortized cost basis less any current-period credit loss), ~~FSP FAS 115-2 and FAS 124-2~~the OTTI guidance changes the presentation and amount of the OTTI recognized in the statements of earnings. ~~In these instances, the~~The impairment is separated into (i) the amount of the total impairment related to ~~the~~ credit loss, and (ii) the amount of the total impairment related to all other factors. The amount of the total OTTI related to ~~the~~ credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income and will be accreted prospectively, based on the amount and timing of future estimated cash flows, over the remaining life of the debt security as an increase in the carrying value of the security, with no effect on earnings unless the security is subsequently sold or there are additional decreases in cash flows expected to be collected. The total OTTI is presented in the statements of earnings with an offset for the amount of the total OTTI that is recognized in other comprehensive income. This new presentation provides additional information about the amounts that the entity does not expect to collect related to a debt security.

~~Upon~~Following implementation of ~~FSP FAS 115-2 and FAS 124-2,~~this OTTI guidance, the present value of the cash flows expected to be collected with respect to any debt security is compared to the amortized cost basis of the security to determine whether a credit loss exists. OnFor securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional impairment on the security, the yield of the security is adjusted on a prospective basis when there is a significant increase in the expected cash flows. This accretion is included in net interest income in the Statements of Income.

~~FSP FAS 115-2 and FAS 124-2~~This OTTI guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. ~~Earlier~~This OTTI guidance is to be applied to existing and new investments held by an entity as of the beginning of the interim period in which it is adopted. For debt securities held at the beginning of the interim period of adoption for ~~periods ending before March 15, 2009,~~which an other-than-temporary impairment was previously recognized, if an entity does not intend to sell the security and it is not ~~permitted.~~more likely than not that the entity will be required to sell the security before recovery of its amortized cost

basis, the entity shall recognize the cumulative effect of initially applying this guidance as an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income. If an entity elects to adopt ~~either FSP No. FAS 157-4,~~~~Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly~~ ~~(FSP FAS 157-4), or FSP No. FAS 107-1 and APB 28-1,~~~~Interim Disclosures about Fair Value of Financial Instruments~~ ~~(FSP FAS 107-1 and APB 28-1) early, the entity is also required to adopt FSP FAS 115-2 and FAS 124-2 early. In addition, if an entity elects to adopt FSP FAS 115-2 and FAS 124-2~~this OTTI guidance early, it ~~is required to~~must also concurrently adopt ~~FSP FAS 157-4 early. FSP FAS 115-2~~recently issued guidance regarding the determination of fair value when there has been a significant decrease in the volume and ~~FAS 124-2~~level of activity for an asset or liability or when price quotations are associated with transactions that are not orderly (discussed below). This OTTI guidance does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and in periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption. The Bank adopted ~~FSP FAS 115-2 and FAS 124-2~~this OTTI guidance as of January 1, 2009, and recognized the effects ~~of applying FSP FAS 115-2 and FAS 124-2~~ as a change in accounting principle. The Bank recognized the cumulative effect of initially applying ~~FSP FAS 115-2 and FAS 124-2,~~this OTTI guidance, totaling $570, as an increase in the retained earnings balance at January 1, 2009, with a corresponding change in accumulated other comprehensive ~~income/(loss).~~loss. This adjustment did not affect either the Bank’s Affordable Housing Program or Resolution Funding Corporation expense or accruals, because these assessments are calculated based on GAAP net income. Had the Bank elected not to adopt ~~FSP FAS 115-2 and FAS 124-2~~this OTTI guidance early, the Bank would have recognized the entire first quarter 2009 OTTI amount in other income in the first quarter of 2009. The adoption of ~~FSP FAS 115-2 and FAS 124-2~~this OTTI guidance also increased financial statement disclosures.

~~Adoption~~Determining Fair Value When the Volume and Level of ~~FSP FAS 157-4.~~Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.On April 9, 2009, the FASB issued ~~FSP FAS 157-4, which provides~~guidance providing additional guidance for estimating fair value ~~in accordance with SFAS No. 157,~~~~Fair Value Measurements~~, when the volume and level of activity for the asset or liability have significantly ~~decreased. FSP FAS 157-4~~decreased and also ~~includes~~including guidance on identifying circumstances that indicate a transaction is not orderly. This guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement under U.S. GAAP remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current conditions. In addition, the guidance requires enhanced disclosures regarding fair value measurements.

~~FSP FAS 157-4~~This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and will be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. ~~Earlier adoption for periods ending before March 15, 2009, is not permitted.~~ If an entity elects to adopt ~~either FSP FAS 115-2 and FAS 124-2 or FSP FAS 107-1 and APB 28-1 early, the entity is also required to adopt FSP FAS 157-4~~

~~early. In addition, if an entity elects to adopt FSP FAS 157-4~~this guidance early, it ismust also ~~required to~~concurrently adopt ~~FSP FAS 115-2 and FAS 124-2 early. FSP FAS 157-4~~the new OTTI guidance discussed above. This guidance does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and in periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption. The Bank adopted ~~FSP FAS 157-4~~this guidance as of January 1, ~~2009. FSP FAS 157-4~~2009, and the adoption did not have a material impact on the Bank’s results of operations, financial condition, or cash flows.

~~Adoption~~Interim Disclosures About Fair Value of ~~FSP FAS 107-1 and APB 28-1.~~Financial Instruments.On April 9, 2009, the FASB issued ~~FSP FAS 107-1~~guidance amending the disclosure requirements for the fair value of financial instruments, including disclosures of the method(s) and ~~APB 28-1, which amends SFAS No. 107,~~~~Disclosures about Fair Value of Financial Instruments~~,significant assumptions used to ~~require disclosures about~~estimate the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ~~FSP FAS 107-1~~In addition, the guidance requires disclosure in interim and ~~APB 28-1 also amends APB Opinion No. 28,~~~~Interim Financial Reporting,~~annual financial statements of any changes in the methods and significant assumptions used to ~~require those disclosures in summarized~~estimate the fair value of financial ~~information at interim reporting periods. FSP FAS 107-1 and APB 28-1~~instruments. This guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may adopt ~~FSP FAS 107-1 and APB 28-1~~this guidance early only if it also ~~elects to adopt FSP FAS 157-4~~concurrently adopts the new guidance discussed in the preceding paragraphs on OTTI and ~~FSP FAS 115-2 and FAS 124-2 early. FSP FAS 107-1 and APB 28-1~~fair value. This guidance does not require disclosures for earlier periods presented for comparative purposes at initial adoption, and in periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption. The Bank adopted ~~FSP FAS 107-1 and APB 28-1~~this guidance as of January 1, 2009. Its adoption resulted in increased financial statement disclosures.

~~Adoption of FSP FAS 157-2.~~Enhanced Disclosures about Derivative Instruments and Hedging Activities. On March 19, 2008, the FASB issued guidance requiring enhanced disclosures about an entity’s derivative instruments and hedging activities including: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under U.S. GAAP; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with earlier application encouraged. The Bank adopted this guidance on January 1, 2009. Its adoption resulted in increased financial statement disclosures.

Determining Fair Value for Non-Financial Assets and Liabilities.On February 12, 2008, the FASB issued ~~FSP No. FAS 157-2,~~~~Effective Date of FASB Statement No. 157~~ ~~(FSP FAS 157-2), which delayed~~guidance delaying the effective date of ~~SFAS No. 157,~~~~Fair Value Measurements~~ ~~(SFAS 157), until January 1, 2009,~~fair value measurement guidance for non-financial assets and non-financial liabilities except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Bank adopted ~~FSP FAS 157-2~~the fair value measurement guidance for these items as of January 1, 2009, and its adoption did not have a material impact on the Bank’s results of operations, financial condition, or cash flows.

~~FSP FAS 132(R)-1.~~ ~~On December 30, 2008, the FASB issued FSP No. FAS 132(R)-1,~~~~Employers’ Disclosures about Postretirement Benefit Plan Assets~~~~(FSP FAS 132(R)-1), which amends SFAS 132(R),~~~~Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106~~, to provide guidance on additional disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 requires more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentration of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009 (December 31, 2009, for the Bank). In periods after initial adoption, FSP FAS 132(R)-1 requires comparative disclosures only for periods ending subsequent to initial adoption and does not require earlier periods to be disclosed for comparative purposes at initial adoption. Because FSP FAS 132(R)-1 affects financial statement disclosures only, its adoption will not have a material impact on the Bank’s results of operations, financial condition, or cash flows. Its adoption will result in increased financial statement disclosures.

The Bank classifies the following securities as held-to-maturity because the Bank has the positive intent and ability to hold these securities to maturity:


	Amortized Cost⁽¹⁾		OTTI Related to All Other Factors Recognized in Accumulated Other Comprehensive Income/ (Loss)⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Estimated Fair Value		Amortized Cost⁽¹⁾		OTTI Related to All Other Factors Recognized in Accumulated Other Comprehensive Loss⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains⁽²⁾		Gross Unrecognized Holding Losses⁽²⁾			Estimated Fair Value
Interest-bearing deposits in banks	$	6,303	$	—		$	6,303	$	—	$	—		$	6,303	$	7,029	$	—		$	7,029	$	—	$	—		$	7,029
Commercial paper		2,250		—			2,250		—		—			2,250		1,000		—			1,000		—		—			1,000
Housing finance agency bonds		777		—			777		—		(35	)		742		769		—			769		—		(24	)		745
Subtotal		9,330		—			9,330		—		(35	)		9,295		8,798		—			8,798		—		(24	)		8,774
Mortgage-backed securities (MBS):
Ginnie Mae		17		—			17		—		—			17		16		—			16		—		—			16
Freddie Mac		3,891		—			3,891		120		(2	)		4,009		3,639		—			3,639		153		(3	)		3,789
Fannie Mae		9,230		—			9,230		231		(2	)		9,459		9,031		—			9,031		302		(15	)		9,318
Non-agency		22,483		(2,710	)		19,773		70		(4,473	)		15,370
Private-label residential MBS (PLRMBS)																20,934		(3,593	)		17,341		287		(2,388	)		15,240
Total MBS		35,621		(2,710	)		32,911		421		(4,477	)		28,855		33,620		(3,593	)		30,027		742		(2,406	)		28,363
Total	$	44,951	$	(2,710	)	$	42,241	$	421	$	(4,512	)	$	38,150	$	42,418	$	(3,593	)	$	38,825	$	742	$	(2,430	)	$	37,137

As of ~~June~~September 30, 2009, all of the interest-bearing deposits in banks had a credit rating of at least A, all of the commercial paper had a credit rating of A, and all of the housing finance agency bonds had a credit rating of at least AA. In addition, as of ~~June~~September 30, 2009, all of the residential agency MBS, which are backed by Ginnie Mae, Freddie Mac, or Fannie Mae, had a credit rating of AAA, and ~~63%~~50% of the ~~non-agency MBS~~PLRMBS were rated above investment grade ~~(28%~~(15% had a credit rating of AAA based on the amortized cost), ~~with~~and the ~~remainder~~remaining 50% were rated below investment grade. Credit ratings of BB and lower are below investment grade. The credit ratings used by the Bank are based on the lowest of Moody’s Investors Service (Moody’s), Standard & Poor’s Rating Services (Standard & Poor’s), or comparable Fitch ratings. ~~All of the Bank’s agency and non-agency MBS are collateralized by residential mortgages.~~

The following tables summarize the held-to-maturity securities with unrealized losses as of ~~June~~September 30, 2009, and December 31, 2008. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position.

As indicated in the tables above, as of ~~June~~September 30, 2009, the Bank’s investments classified as held-to-maturity had gross unrealized losses totaling ~~$7,222,~~$6,023, primarily relating to ~~non-agency MBS.~~PLRMBS. The gross unrealized losses associated with the ~~non-agency MBS~~PLRMBS were primarily due to extraordinarily high investor yield requirements resulting from an extremely illiquid market, significant uncertainty about the future condition of the mortgage market and the economy, and continued deterioration in the credit performance of loan collateral underlying these securities, causing these assets to be valued at significant discounts to their acquisition cost.

For a discussion of the Bank’s OTTI analysis, see Other-Than-Temporary Impairment section below.

Redemption Terms.The amortized cost, carrying value, and estimated fair value of certain securities by contractual maturity (based on contractual final principal payment) and MBS as of September 30, 2009, and December 31, 2008, are shown below. Expected maturities of certain securities and MBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.

The carrying value of the Bank’s MBS classified as held-to-maturity included net discounts of $4,133 at September 30, 2009, and net discounts of $597 at December 31, 2008. At September 30, 2009, net discounts included $512 from the OTTI related to credit losses and $3,593 from the OTTI related to all other factors. At December 31, 2008, net discounts included $20 from the OTTI related to credit losses and $570 from the OTTI related to all other factors.

Interest Rate Payment Terms.Interest rate payment terms for held-to-maturity securities at September 30, 2009, and December 31, 2008, are detailed in the following table:

Certain MBS classified as fixed rate passthrough securities and fixed rate collateralized mortgage obligations have an initial fixed interest rate that subsequently converts to an adjustable interest rate on a specified date.

The Bank does not own MBS that are backed by mortgage loans purchased by another FHLBank from either (i) members of the Bank or (ii) members of other FHLBanks.

Other-Than-Temporary Impairment.On a quarterly basis, the Bank evaluates its individual held-to-maturity investment securities in an unrealized loss position ~~because~~for OTTI. As part of ~~factors other than movements in interest rates, such as widening of mortgage asset spreads,~~this evaluation, the Bank considers whether orit intends to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery of the amortized cost basis. If either of these conditions is met, the Bank recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities in an unrealized loss position that meet neither of these conditions, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing its best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. ~~The difference between~~If the Bank’s best estimate of the present value of the cash flows expected to be collected ~~and~~is less than the amortized cost basis, the difference is considered the credit loss.

For all the securities in its held-to-maturity portfolio, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

The Bank has determined that, as of September 30, 2009, all of the gross unrealized losses on its interest-bearing deposits in banks and commercial paper are temporary because the gross unrealized losses were caused by movements in interest rates and not by the deterioration of the issuers’ creditworthiness; the interest-bearing deposits in banks and commercial paper were all with issuers that had credit ratings of at least A at September 30, 2009; and all of the securities had maturity dates within 45 days of September 30, 2009. As a result, the Bank expects to recover the entire amortized cost basis of these securities.

As of September 30, 2009, the Bank’s investments in housing finance agency bonds, which were issued by the California Housing Finance Agency, had gross unrealized losses totaling $24. These gross unrealized losses were mainly due to extraordinarily high investor yield requirements resulting from an illiquid market, causing these investments to be valued at a discount to their acquisition cost. The Bank has determined that, as of September 30, 2009, all of the gross unrealized losses on these bonds are temporary because the strength of the underlying collateral and credit enhancements was sufficient to protect the Bank from losses based on current expectations and the California Housing Finance Agency had a credit rating of AA– at September 30, 2009 (based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings). As a result, the Bank expects to recover the entire amortized cost basis of these securities.

not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank has determined that, as of ~~June~~September 30, 2009, all of the gross unrealized losses on its agency MBS are temporary.

To assess whether it expects to recover the entire amortized cost basis of its ~~non-agency MBS,~~PLRMBS, the Bank performed a cash flow analysis for ~~each~~all but five of its ~~non-agency MBS that was determined to be other-than-temporarily impaired in a previous reporting period as well as those with adverse risk characteristics~~PLRMBS as of ~~June~~September 30, 2009. ~~The adverse risk characteristics~~For the remaining five PLRMBS, for which underlying collateral data is not available, alternative procedures were used to ~~select~~assess these securities for cash flow analysis included: the duration and magnitude of the unrealized loss; below investment grade rating agency actions on the security; and criteria related to the credit performance of the underlying collateral, including the ratio of credit enhancement to expected collateral losses and the ratio of seriously delinquent loans to credit enhancement. For these purposes, expected collateral losses are those that are implied by current delinquencies taking into account a default probability based on the state of delinquency and a loss severity assumption based on product and vintage; seriously delinquent loans are those that are 60 or more days past due, including loans in foreclosure and real estate owned.OTTI.

in conjunction with assumptions about future changes in home prices, interest rates, and other assumptions, to project prepayments, default rates, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and ~~core based~~core-based statistical areas ~~(CBSA), which are~~(CBSAs) based on an assessment of the relevant housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and ~~Budget; as~~Budget. As currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast assumed CBSA-level current-to-trough housing price declines ranging from 0 percent to 20 percent over the next 9 to 15 ~~months (resulting in peak-to-trough home price declines of up to 51 percent).~~months. Thereafter, home prices are projected to increase 10 percent in the first ~~year,~~six months, 0.5 percent in the next six months, 3 percent in the second year, and 4 percent in each subsequent year. The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, default rates, and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in each securitization structure in accordance with ~~its~~the structure’s prescribed cash flow and loss allocation rules. When the credit enhancement for the senior securities in a securitization is derived from the presence of subordinated securities, losses are generally allocated first to the subordinated securities until their principal balance is reduced to zero. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations.

cash flows determined based on the model approach described above reflects a best-estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path.

For ~~those~~ securities ~~with OTTI~~determined to be other-than-temporarily impaired as of ~~June~~September 30, 2009 (that is, securities for which the Bank determined that it was more likely than not that the entire amortized cost basis would not be recovered), the following table presents a summary of the significant inputs used ~~to measure~~in measuring the amount of credit loss recognized in earnings ~~during~~in the ~~second~~third quarter of ~~2009:~~2009.


												Significant Inputs						Current

				Significant Inputs						Current		Prepayment Rates		Default Rates		Loss Severities		Credit Enhancement
				Prepayment Rates		Default Rates		Loss Severities		Credit Enhancement
Year of Securitization	Number of Securities	Unpaid Principal Balance		Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %
Prime
2005	1	$	24	13.8	13.8	10.1	10.1	36.7	36.7	19.4	19.4
Alt-A
2004 and earlier												16.6	13.5 – 18.2	17.7	12.5 – 28.2	18.4	11.2 – 33.2	17.3	14.4 – 23.1
2005	33		1,940	15.9	9.1 – 23.4	39.1	17.1 – 69.6	39.2	31.3 – 49.8	20.8	9.4 – 34.6	10.0	6.8 – 14.7	41.7	16.4 – 78.0	43.4	33.1 – 57.8	19.0	9.1 – 34.0
2006	17		1,447	13.2	7.9 – 18.6	50.4	26.6 – 81.3	40.9	29.2 – 52.0	20.9	12.2 – 43.7	9.6	2.8 – 12.6	48.0	23.6 – 89.1	44.8	35.0 – 57.9	25.4	11.4 – 43.1
2007	24		3,243	12.4	6.7 – 19.7	53.9	19.5 – 82.2	38.8	23.3 – 48.5	28.9	10.0 –46.7	8.5	4.9 – 13.0	61.5	17.5 – 87.8	44.2	37.5 – 54.2	29.8	10.0 – 46.2
2008	1		292	17.4	17.4	35.7	35.7	35.6	35.6	31.1	31.1	11.5	10.5 – 11.7	48.8	47.6 – 49.2	41.7	41.7	31.3	31.3
Total Alt-A	75		6,922	13.8	6.7 – 23.4	48.3	17.1 – 82.2	39.2	23.3 – 52.0	25.1	9.4 – 46.7
Total	76	$	6,946	13.8	6.7 – 23.4	48.1	10.1 – 82.2	39.2	23.3 – 52.0	25.0	9.4 – 46.7	9.3	2.8 – 18.2	52.3	12.5 – 89.1	43.9	11.2 – 57.9	25.9	9.1 – 46.2

Based on ~~these analyses and reviews,~~ the ~~Bank determined that 76 of its non-agency MBS were other-than-temporarily impaired at June 30, 2009, because~~analysis described above, the Bank determined it was likely that it would not recover the entire amortized cost basis of each of these securities. These securities included the 15 securities that had previously been identified as other-than-temporarily impaired prior to January 1, 2009, and 28 and 33 securities that were first identified as other-than-temporarily impaired in the first and second quarters of 2009, respectively. The Bank recorded OTTI ~~charges for these securities during the three and six months ended June 30, 2009, as follows:~~

~~In accordance with FSP FAS 115-2 and FAS 124-2, the impairment~~ related to ~~the~~ credit loss of ~~$88~~$316 and ~~$176~~$492 that was ~~reflected~~recognized in “Other ~~(loss)/income”~~Loss” for the ~~second~~third quarter of 2009 and the first ~~six~~nine months of 2009, respectively, and ~~the impairment~~recognized OTTI related to all other factors of ~~$1,195~~$1,069 and ~~$2,263 was reflected~~$3,332 in “Other comprehensive income/(loss)” for the ~~second~~third quarter of 2009 and the first ~~six~~nine months of 2009, respectively. For each security, the estimated impairment related to all other factors for each security will be accreted prospectively, based on the amount and timing of future estimated cash flows, over the remaining life of the security as an increase in the carrying value of the security (with no effect on earnings unless the security is subsequently sold or there are additional decreases in the cash flows expected to be collected). The Bank does not intend to sell these securities and it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis. At ~~June~~September 30, 2009, the estimated weighted average life of these securities was approximately ~~three~~four years.

The following table presents the OTTI related to credit loss, which is recognized in earnings, and the OTTI related to all other factors, which is recognized in ~~other~~“Other comprehensive ~~income.~~income/(loss).”


																	Three Months Ended September 30, 2009								Nine Months Ended September 30, 2009
	Three Months Ended June 30, 2009								Six Months Ended June 30, 2009
	OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI			OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI			OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI			OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI

Balance, beginning of the period⁽¹⁾	$	108	$	1,608		$	1,716		$	20	$	570		$	590		$	196	$	2,710		$	2,906		$	20	$	570		$	590
Charges on securities for which OTTI was first recognized after January 1, 2009		48		1,196			1,244			86		2,211			2,297
Additional charges on securities for which OTTI was first recognized prior to January 1, 2009		40		(1	)		39			90		52			142
Charges on securities for which OTTI was not previously recognized																		34		1,219			1,253			308		3,368			3,676
Additional charges on securities for which OTTI was previously recognized⁽²⁾																		282		(150	)		132			184		(36	)		148
Accretion of impairment related to all other factors		—		(93	)		(93	)		—		(123	)		(123	)		—		(186	)		(186	)		—		(309	)		(309	)

Balance, end of the period	$	196	$	2,710		$	2,906		$	196	$	2,710		$	2,906		$	512	$	3,593		$	4,105		$	512	$	3,593		$	4,105

~~In determining~~To determine the estimated fair value of ~~non-agency MBS~~PLRMBS at December 31, 2008, March 31, 2009, and June 30, 2009, the Bank used a weighting of its internal price (based on valuation models using market-based inputs obtained from broker-dealer data and price indications) and the price from an external pricing service to determine the estimated fair value that the Bank ~~believes~~believed market participants would use to purchase the ~~non-agency MBS.~~PLRMBS. In evaluating the resulting estimated fair value of ~~non-agency MBS at June 30, 2009,~~PLRMBS, the Bank compared the estimated implied yields to a range of broker indications of yields for similar transactions or to a range of yields that brokers reported market participants would use in purchasing ~~non-agency MBS. The~~PLRMBS.

Beginning with the quarter ended September 30, 2009, the Bank ~~primarily~~changed the methodology used ~~prices from an external pricing service~~ to estimate the fair value of PLRMBS in an effort to achieve consistency among all the FHLBanks in applying a fair value methodology. In this regard, the FHLBanks formed the MBS Pricing Governance Committee with the responsibility for developing a fair value methodology that all FHLBanks could adopt. Under the methodology approved by the MBS Pricing Governance Committee and adopted by the Bank, the Bank requests prices for all mortgage-backed securities from four specific third-party vendors. Depending on the number of prices received for each security, the Bank selects a median or average price as determined by the methodology. The methodology also incorporates variance thresholds to assist in identifying median or average prices that may require further review. In certain limited instances (for example, when prices are outside of variance thresholds or the third-party services do not provide a price), the Bank will obtain a price from securities dealers or internally model a price that is deemed appropriate after consideration of the relevant facts and

circumstances that a market participant would consider. Prices for PLRMBS held in common with other FHLBanks are reviewed with those FHLBanks for consistency. In adopting this common methodology, the Bank remains responsible for the selection and application of its ~~agency MBS~~fair value methodology and the reasonableness of assumptions and inputs used.

This change in fair value methodology did not have a significant impact on the Bank’s estimated fair values of its PLRMBS at ~~June~~September 30, 2009.

~~Because there~~The following table presents the Bank’s other-than-temporarily impaired PLRMBS that incurred an OTTI charge during the three months ended September 30, 2009, by loan collateral type:

The following table presents the Bank’s OTTI related to credit loss and OTTI related to all other factors on its other-than-temporarily impaired PLRMBS during the three months and nine months ended September 30, 2009:

The following tables present the other-than-temporarily impaired PLRMBS for the three and nine months ended September 30, 2009, by loan collateral type and the length of time that the individual securities were in a continuous loss position prior to the current period write-down:

For the Bank’s PLRMBS that were not other-than-temporarily impaired as of September 30, 2009, the Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a ~~continuing risk~~result, the Bank has determined that, as of September 30, 2009, the gross unrealized losses on these remaining PLRMBS are temporary. Thirty-seven percent of the PLRMBS that were not other-than-temporarily impaired were rated investment grade (10% were rated AAA based on the amortized cost), with the remainder rated below investment grade. These securities were included in the securities that the Bank reviewed and analyzed for OTTI as discussed above, and the analyses performed indicated that these securities were not other-than-temporarily impaired. The credit ratings used by the Bank are based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings.

At September 30, 2009, PLRMBS representing 43% of the amortized cost of the Bank’s MBS portfolio were labeled Alt-A by the issuer. Alt-A securities are generally collateralized by mortgage loans that are considered less risky than subprime loans, but more risky than prime loans. These loans are generally made to borrowers who have sufficient credit ratings to qualify for a conforming mortgage loan, but the loans may not meet standard guidelines for documentation requirements, property type, or loan-to-value ratios. In addition, the property securing the loan may be non-owner-occupied.

From October 1, 2009, through October 30, 2009, the rating agencies downgraded certain PLRMBS held by the Bank with a carrying value of approximately $159 and an estimated fair value of approximately $141. These downgraded securities were included in the Bank’s OTTI analysis performed as of September 30, 2009, and no additional OTTI charges were required as a result of these downgrades. The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank has determined that, as of September 30, 2009, all of the gross unrealized losses on these securities are temporary.

If current conditions in the mortgage markets and general business and economic conditions continue or deteriorate further, ~~declines in~~ the fair value of ~~the Bank’s~~ MBS may ~~occur~~decline further and ~~that~~ the Bank may ~~record~~experience OTTI of additional ~~material~~MBS in future periods, as well as further impairment of PLRMBS that were identified as other-than-temporarily impaired as of September 30, 2009. Additional future OTTI charges ~~in future periods,~~could adversely affect the Bank’s earnings and retained earnings and its ability to pay dividends and repurchase capital ~~stock could~~stock. The Bank cannot predict whether it will be ~~adversely affected.~~required to record additional OTTI charges on its MBS in the future.

Federal and state government authorities, as well as private entities, such as financial institutions and the servicers of residential mortgage loans, have begun or promoted implementation of programs designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures. These loan modification programs, as well as future legislative, regulatory, or other actions, including amendments to the bankruptcy laws, that result in the modification of outstanding mortgage loans, may adversely affect the value of, and the returns on, these mortgage loans or MBS related to these mortgage loans.

~~The following tables present the Bank’s other-than-temporarily impaired non-agency MBS by loan collateral type:~~

The following tables present the other-than-temporarily impaired non-agency MBS for the three and six months ended June 30, 2009, by loan collateral type and the length of time that the individual securities were in a continuous loss position prior to the current period write-down:

For the Bank’s non-agency MBS that were not other-than-temporarily impaired as of June 30, 2009, the Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank has determined that, as of June 30, 2009, the unrealized losses on these remaining non-agency MBS are temporary. Fifty-five percent of the non-agency MBS that were not other-than-temporarily impaired were rated investment grade (24% were rated AAA based on the amortized cost), with the remainder rated below investment grade. The securities rated below investment grade were included in the securities with adverse characteristics that the Bank reviewed and analyzed for OTTI as discussed above, and the analyses performed indicated that these securities were not other-than-temporarily impaired. The credit ratings used by the Bank are based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings.

If current conditions in the mortgage markets and general business and economic conditions continue or deteriorate further, the fair value of MBS may decline further and the Bank may experience OTTI of additional MBS in future periods, as well as further impairments of securities that were identified as other-than-temporarily impaired as of June 30, 2009. Additional future OTTI charges could adversely affect the Bank’s earnings and retained earnings. The Bank cannot predict whether it will be required to record additional OTTI charges on its MBS in the future.

At June 30, 2009, MBS representing 43% of the amortized cost of the Bank’s MBS portfolio were labeled Alt-A by the issuer. Alt-A securities are generally collateralized by mortgage loans that are considered less risky than subprime loans, but more risky than prime loans. These loans are generally made to borrowers who have sufficient credit ratings to qualify for a conforming mortgage loan, but the loans may not meet standard guidelines for documentation requirements, property type, or loan-to-value ratios. In addition, the property securing the loan may be non-owner-occupied.

From July 1, 2009, through August 7, 2009, the rating agencies downgraded certain non-agency MBS held by the Bank with a carrying value of approximately $3.2 billion and a fair value of approximately $2.7 billion, and placed approximately $3 million of the Bank’s non-agency MBS on negative watch without downgrading them. Following these rating agency actions, the Bank performed OTTI reviews on the two securities that were downgraded to below investment grade status and had not previously been reviewed. The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank has determined that, as of June 30, 2009, all of the gross unrealized losses on these securities are temporary.

The Bank has determined that, as of June 30, 2009, all of the gross unrealized losses on its interest-bearing deposits in banks and commercial paper are temporary because: (i) the gross unrealized losses were caused by movements in interest rates and not by the deterioration of the issuers’ creditworthiness, (ii) the interest-bearing deposits in banks and commercial paper were all with issuers that had credit ratings of at least A at June 30, 2009, (iii) all of the securities had maturity dates within 45 days of quarter-end, (iv) the Bank does not intend to sell these securities, (v) it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and (vi) the Bank expects to recover the entire amortized cost basis of these securities.

As of June 30, 2009, the Bank’s investments in housing finance agency bonds, which were issued by the California Housing Finance Agency, had gross unrealized losses totaling $35. These gross unrealized losses were mainly due to extraordinarily high investor yield requirements resulting from an illiquid market, causing these investments to be valued at a discount to their acquisition cost. The Bank has determined that, as of June 30, 2009, all of the gross unrealized losses on these bonds are temporary because: (i) the strength of the underlying collateral and credit enhancements was sufficient to protect the Bank from losses based on current expectations, (ii) the California Housing Finance Agency had a credit rating of AA- at June 30, 2009 (based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings), (iii) the Bank does not intend to sell these securities, (iv) it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and (v) the Bank expects to recover the entire amortized cost basis of these securities.

~~Redemption Terms.~~The amortized cost, carrying value, and estimated fair value of certain securities by contractual maturity (based on contractual final principal payment) and MBS as of June 30, 2009, and December 31, 2008, are shown below. Expected maturities of certain securities and MBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.

The carrying value of the Bank’s MBS classified as held-to-maturity included net discounts of $2,920 at June 30, 2009, and net discounts of $597 at December 31, 2008. At June 30, 2009, net discounts included $196 from the OTTI related to credit losses and $2,710 from the OTTI related to all other factors. At December 31, 2008, net discounts included $20 from the OTTI related to credit losses and $570 from the OTTI related to all other factors.

~~Interest Rate Payment Terms.~~~~Interest rate payment terms for held-to-maturity securities at June 30, 2009, and December 31, 2008, are detailed in the following table:~~

~~The Bank does not own MBS that are backed by mortgage loans purchased by another FHLBank from either (i) members of the Bank or (ii) members of other FHLBanks.~~

Redemption Terms. The Bank had advances outstanding, excluding overdrawn demand deposit accounts, at interest rates ranging from ~~0.00%~~0.05% to 8.57% at ~~June~~September 30, 2009, and ~~0.05% to 8.57% at~~ December 31, 2008, as summarized below.

The following table summarizes advances at ~~June~~September 30, 2009, and December 31, 2008, by the earlier of the year of contractual maturity or next call date for callable advances.


Earlier of Contractual Maturity or Next Call Date	June 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008

Within 1 year	$	101,863	$	140,147	$	94,745	$	140,147
After 1 year through 2 years		31,153		41,678		28,908		41,678
After 2 years through 3 years		18,693		25,851		11,196		25,851
After 3 years through 4 years		8,141		5,858		8,193		5,858
After 4 years through 5 years		5,542		11,589		3,068		11,589
After 5 years		7,434		7,804		7,131		7,804

Total par amount	$	172,826	$	232,927	$	153,241	$	232,927

The following table summarizes advances at ~~June~~September 30, 2009, and December 31, 2008, by the earlier of the year of contractual maturity or next put date for putable advances.


Earlier of Contractual Maturity or Next Put Date	June 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008

Within 1 year	$	104,497	$	143,424	$	97,416	$	143,424
After 1 year through 2 years		31,261		41,200		29,078		41,200
After 2 years through 3 years		18,070		25,755		10,299		25,755
After 3 years through 4 years		7,688		5,099		7,875		5,099
After 4 years through 5 years		5,336		11,189		2,800		11,189
After 5 years		5,974		6,260		5,773		6,260

Total par amount	$	172,826	$	232,927	$	153,241	$	232,927

Security Terms. The Bank lends to member financial institutions that have a principal place of business in Arizona, California, or Nevada. The Bank is required by the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), to obtain sufficient collateral for advances to protect against losses and to accept as collateral for advances only certain U.S. government or government agency securities, residential mortgage loans or MBS, other eligible real estate-related assets, and cash or deposits in the Bank. The capital stock of the Bank owned by each borrowing member is pledged as additional collateral for the member’s indebtedness to the Bank. The Bank may also accept small business, small farm, and small agribusiness loans ~~fully secured by collateral other than real estate~~ or securities representing a whole interest in such loans as collateral from members that qualify as community financial institutions. The Housing Act added secured loans for community development activities as ~~a permitted purpose and as eligible~~ collateral that the Bank may accept from community financial institutions. The Housing Act ~~defines~~defined community financial institutions for 2008 as FDIC-insured depository institutions with average total assets over the preceding three-year period of $1,000 or less. The Finance Agency adjusts the average total asset cap for inflation annually. Effective January 1, 2009, the cap was $1,011. In addition, the Bank has advances outstanding to former members and member successors, which are also subject to these security terms. For more information on security terms, see Note 6 to the Financial Statements in the Bank’s 2008 Form 10-K.

Credit and Concentration Risk.The Bank’s potential credit risk from advances is concentrated in three institutions whose advances outstanding represented 10% or more of the Bank’s total par amount of advances outstanding. The following tables present the concentration in advances to these three institutions as of ~~June~~September 30, 2009, and December 31, 2008. The tables also present the interest income from these advances before the impact of interest rate exchange agreements associated with these advances for the ~~second~~third quarter of 2009 and 2008 and for the first ~~six~~nine months of 2009 and 2008.


	Three Months Ended
	June 30, 2009				June 30, 2008					September 30, 2009				December 31, 2008
Name of Borrower	Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances			Advances Outstanding⁽¹⁾		Percentage of Total Advances Outstanding		Advances Outstanding⁽¹⁾		Percentage of Total Advances Outstanding

Citibank, N.A.	$	124	12	%	$	632	31	%		$	49,025	32	%	$	80,026	34	%
JPMorgan Chase Bank, National Association⁽²⁾		344	34			401	20				29,123	19			57,528	25
Wachovia Mortgage, FSB⁽³⁾		61	6			236	12				16,231	11			24,015	10

Subtotal											94,379	62			161,569	69
Others											58,862	38			71,358	31

Total par amount										$	153,241	100	%	$	232,927	100	%


Concentration of Interest Income from Advances									Concentration of Interest Income from Advances
										Three Months Ended
										September 30, 2009				September 30, 2008
Name of Borrower										Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances

Citibank, N.A.										$	57	7	%	$	568	28	%
JPMorgan Chase Bank, National Association⁽²⁾											299	36			447	22
Wachovia Mortgage, FSB⁽³⁾											45	5			232	12

Subtotal		529	52			1,269	63				401	48			1,247	62
Others		478	48			738	37				439	52			748	38
Total	$	1,007	100	%	$	2,007	100	%		$	840	100	%	$	1,995	100	%

	Six Months Ended
	June 30, 2009				June 30, 2008					Nine Months Ended
										September 30, 2009				September 30, 2008
Name of Borrower	Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances			Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances

Citibank, N.A.	$	357	16	%	$	1,579	34	%		$	414	13	%	$	2,147	33	%
JPMorgan Chase Bank, National Association⁽²⁾		741	32			967	21				1,040	33			1,414	21
Wachovia Mortgage, FSB⁽³⁾		163	7			487	11				208	7			719	11

Subtotal		1,261	55			3,033	66				1,662	53			4,280	65
Others		1,027	45			1,574	34				1,466	47			2,322	35
Total	$	2,288	100	%	$	4,607	100	%		$	3,128	100	%	$	6,602	100	%

The Bank held a security interest in collateral from each of its three largest advances borrowers sufficient to support their respective advances outstanding, and the Bank does not expect to incur any credit losses on these advances. As of ~~June~~September 30, 2009, and December 31, 2008, the Bank’s three largest advances borrowers (Citibank, N.A.; JPMorgan Chase Bank, National Association; and Wachovia Mortgage, FSB) each owned more than 10% of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock.

On July 11, 2008, the OTS closed IndyMac Bank, F.S.B., and appointed the FDIC as receiver for IndyMac Bank, F.S.B. In connection with the receivership, the OTS chartered IndyMac Federal Bank, FSB, and appointed the FDIC as conservator for IndyMac Federal Bank, FSB. IndyMac Federal Bank, FSB, assumed the outstanding Bank advances of IndyMac Bank, F.S.B., and acquired the associated Bank capital stock. Bank capital stock acquired by IndyMac Federal Bank, FSB, was classified as mandatorily redeemable capital stock (a liability). On March 19, 2009, OneWest Bank, FSB, became a member of the Bank, assumed the outstanding advances of IndyMac Federal Bank, FSB, and acquired the associated Bank capital stock. Bank capital stock acquired by OneWest Bank, FSB, is no longer classified as mandatorily redeemable capital stock (a liability). However, the ~~residual~~ capital stock remaining with IndyMac Federal Bank, FSB, totaling $49, remains classified as mandatorily redeemable capital stock (a liability).

During the first ~~six~~nine months of 2009, ~~eight~~16 member institutions were placed into ~~receivership. One~~receivership or liquidation. Three of these institutions had no advances outstanding at the time ~~it was~~they were placed into ~~receivership.~~receivership or liquidation. The advances outstanding to ~~three of~~ the other 13 institutions were either repaid prior to ~~June~~September 30, 2009, or assumed by other institutions, and no losses were incurred by the Bank. ~~The advances of a fifth institution were assumed by a nonmember institution.~~ Bank capital stock held by ~~these five~~11 of the 16 institutions totaling ~~$36~~$46 was classified as mandatorily redeemable capital stock (a liability). The ~~advances and~~ capital stock of the other ~~three~~five institutions ~~were assumed by~~was transferred to other member institutions.

From ~~July~~October 1, 2009, to ~~August 7,~~October 30, 2009, ~~two~~five member institutions were placed into receivership. The outstanding advances ~~outstanding~~ to ~~one institution~~four institutions were assumed by a nonmember institution, and the Bank capital stock held by the ~~institution~~institutions totaling $6$115 was classified as mandatorily redeemable capital stock (a liability). The outstanding advances and capital stock of the ~~second~~other institution were assumed by another member institution.

The Bank has policies and procedures in place to manage the credit risk of advances. Based on the collateral pledged as security for advances, management’s credit analyses of members’ financial condition, and prior repayment history, the Bank expects to collect all amounts due according to the contractual terms of the advances. Therefore, no allowance for losses on advances is deemed necessary by management. The Bank has never experienced any credit losses on advances to a member.

Interest Rate Payment Terms.Interest rate payment terms for advances at ~~June~~September 30, 2009, and December 31, 2008, are detailed below:


	June 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008
Par amount of advances:
Fixed rate	$	91,585	$	115,681	$	82,383	$	115,681
Adjustable rate		81,241		117,246		70,858		117,246
Total par amount	$	172,826	$	232,927	$	153,241	$	232,927

Under the Mortgage Partnership Finance^® (MPF^®) Program, the Bank purchased conventional fixed rate residential mortgage loans directly from its participating members from May 2002 through October 2006. (“Mortgage Partnership Finance” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.) The mortgage loans are held-for-portfolio loans. Participating members originated or purchased the mortgage loans, credit-enhanced them and sold them to the Bank, and generally retained the servicing of the loans.

The following table presents information as of ~~June~~September 30, 2009, and December 31, 2008, on mortgage loans, all of which are on one- to four-unit residential properties and single-unit second homes.


	June 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
Fixed rate medium-term mortgage loans	$	1,049		$	1,172		$	982		$	1,172
Fixed rate long-term mortgage loans		2,328			2,551			2,210			2,551
Subtotal		3,377			3,723			3,192			3,723
Net unamortized discounts		(18	)		(10	)		(18	)		(10	)
Mortgage loans held for portfolio		3,359			3,713			3,174			3,713
Less: Allowance for credit losses		(2	)		(1	)		(2	)		(1	)
Total mortgage loans held for portfolio	$	3,357		$	3,712		$	3,172		$	3,712

Medium-term loans have original contractual terms of 15 years or less, and long-term loans have contractual terms of more than 15 years.

For taking on the credit enhancement obligation, the Bank pays the participating member or any successor a credit enhancement fee, which is calculated on the remaining unpaid principal balance of the mortgage loans. The Bank records credit enhancement fees as a reduction to interest income. In the ~~second~~third quarter of 2009 and 2008, the Bank reduced net interest income for credit enhancement fees totaling $1 and $1, respectively. In the first ~~six~~nine months of 2009 and 2008, the Bank reduced net interest income for credit enhancement fees totaling $2 and ~~$2,~~$3, respectively.

Concentration Risk.The Bank had the following concentration in MPF loans with institutions whose outstanding total of mortgage loans sold to the Bank represented 10% or more of the Bank’s total outstanding mortgage loans at ~~June~~September 30, 2009, and December 31, 2008.


Name of Institution								Mortgage Loan Balances Outstanding		Percentage of Total Mortgage Loan Balances Outstanding		Number of Mortgage Loans Outstanding	Percentage of Total Number of Mortgage Loans Outstanding
JPMorgan Chase Bank, National Association⁽¹⁾								$	2,489	78	%	19,160	73	%
OneWest Bank, FSB⁽²⁾									432	14		5,046	19
Subtotal									2,921	92		24,206	92
Others									271	8		2,197	8
Total								$	3,192	100	%	26,403	100	%

December 31, 2008
Name of Institution	Mortgage Loan Balances Outstanding		Percentage of Total Mortgage Loan Balances Outstanding		Number of Mortgage Loans Outstanding	Percentage of Total Number of Mortgage Loans Outstanding		Mortgage Loan Balances Outstanding		Percentage of Total Mortgage Loan Balances Outstanding		Number of Mortgage Loans Outstanding	Percentage of Total Number of Mortgage Loans Outstanding
JPMorgan Chase Bank, National Association⁽¹⁾	$	2,879	77	%	21,435	72	%	$	2,879	77	%	21,435	72	%
IndyMac Federal Bank, FSB⁽²⁾		509	14		5,532	19			509	14		5,532	19
Subtotal		3,388	91		26,967	91			3,388	91		26,967	91
Others		335	9		2,601	9			335	9		2,601	9
Total	$	3,723	100	%	29,568	100	%	$	3,723	100	%	29,568	100	%

Credit Risk. A mortgage loan is considered to be impaired when it is reported 90 days or more past due (nonaccrual) or when it is probable, based on current information and events, that the Bank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement.

The following table presents information on delinquent mortgage loans as of ~~June~~September 30, 2009, and December 31, 2008.


	June 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
Days Past Due	Number of Loans	Mortgage Loan Balance		Number of Loans	Mortgage Loan Balance		Number of Loans	Mortgage Loan Balance		Number of Loans	Mortgage Loan Balance

Between 31 and 59 days	215	$	27	235	$	29
Between 30 and 59 days							195	$	23	235	$	29
Between 60 and 89 days	73		8	44		5	79		9	44		5
Over 90 days	130		16	84		9	159		20	84		9

Total	418	$	51	363	$	43	433	$	52	363	$	43

At ~~June~~September 30, 2009, the Bank had ~~418~~433 loans that were 30 days or more delinquent totaling ~~$51,~~$52, of which ~~130~~159 loans totaling ~~$16~~$20 were classified as nonaccrual or impaired. For 82111 of these loans, totaling ~~$9,~~$13, the loan was in foreclosure or the borrower of the loan was in bankruptcy. At December 31, 2008, the Bank had 363 loans that were 30 days or more delinquent totaling $43, of which 84 loans totaling $9 were classified as nonaccrual or impaired. For 51 of these loans, totaling $5, the loan was in foreclosure or the borrower of the loan was in bankruptcy.


	Three Months Ended				Six Months Ended				Three Months Ended					Nine Months Ended
	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008		September 30, 2009			September 30, 2008		September 30, 2009		September 30, 2008

Balance, beginning of the period	$	1.1	$	0.9	$	1.0	$	0.9	$	2.0		$	0.9	$	1.0	$	0.9
Chargeoffs		—		—		—		—		—			—		—		—
Recoveries		—		—		—		—		—			—		—		—
Provision for credit losses		0.9		—		1.0		—

Provision for/(recovery of) credit losses										(0.1	)		0.1		0.9		0.1
Balance, end of the period	$	2.0	$	0.9	$	2.0	$	0.9	$	1.9		$	1.0	$	1.9	$	1.0

For more information on how the Bank determines its estimated allowance for credit losses on mortgage loans, see Note 7 to the Financial Statements in the Bank’s 2008 Form 10-K.

The Bank’s average recorded investment in impaired loans totaled ~~$15~~$17 for the ~~second~~third quarter of 2009 and $7$6 for the ~~second~~third quarter of 2008. The Bank’s average recorded investment in impaired loans totaled ~~$12~~$13 and $6 for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, respectively. The Bank did not recognize any interest income for impaired loans in the ~~second~~third quarter of 2009 and 2008 and in the first ~~six~~nine months of 2009 and 2008.

At ~~June~~September 30, 2009, the Bank’s other assets included $2 of real estate owned resulting from the foreclosure of 1320 mortgage loans held by the Bank. At December 31, 2008, the Bank’s other assets included $1 of real estate owned resulting from the foreclosure of 7 mortgage loans held by the Bank.

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are jointly issued by the FHLBanks through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the FHLBank Act or the regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. For a discussion of the joint and several liability regulation, see Note 18 to the Financial Statements in the Bank’s 2008 Form 10-K. In connection with each debt issuance, each FHLBank specifies the type, term, and amount of debt it requests to have issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of the consolidated obligations issued and is the primary obligor for that portion of the consolidated obligations issued. The Finance Agency, the successor agency to the Finance Board, and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance.

Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds at ~~June~~September 30, 2009, and December 31, 2008.


	June 30, 2009				December 31, 2008				September 30, 2009				December 31, 2008
Contractual Maturity	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate

Within 1 year	$	103,581	1.55	%	$	116,069	2.29	%	$	78,243	1.41	%	$	116,069	2.29	%
After 1 year through 2 years		26,475	3.05			37,803	2.88			33,905	2.69			37,803	2.88
After 2 years through 3 years		16,539	4.28			21,270	4.37			13,631	3.53			21,270	4.37
After 3 years through 4 years		7,275	4.11			3,862	4.67			10,131	4.16			3,862	4.67
After 4 years through 5 years		8,077	4.32			14,195	4.24			5,470	3.87			14,195	4.24
After 5 years		11,443	5.01			15,840	5.14			10,725	4.90			15,840	5.14
Index amortizing notes		7	4.61			8	4.61			6	4.61			8	4.61

Total par amount		173,397	2.50	%		209,047	3.00	%		152,111	2.40	%		209,047	3.00	%

Unamortized premiums/(discounts)		311				154				281				154
SFAS 133 valuation adjustments		2,410				3,863
SFAS 159 valuation adjustments		82				50
Valuation adjustments for hedging activities										2,409				3,863
Fair value option valuation adjustments										68				50

Total	$	176,200			$	213,114			$	154,869			$	213,114

The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of ~~$15,637~~$20,504 at ~~June~~September 30, 2009, and $24,429 at December 31, 2008. Contemporaneous with the issuance of a callable bond for which the Bank is the primary obligor, the Bank routinely enters into an interest rate swap (in which the Bank pays a variable rate and receives a fixed rate) with a call feature that mirrors the call option embedded in the bond (a sold callable swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of ~~$4,932~~$13,769 at ~~June~~September 30, 2009, and $8,484 at December 31, 2008. The combined sold callable swap and callable bond enable the Bank to meet its funding needs at costs not otherwise directly attainable solely through the issuance of non-callable debt, while effectively converting the Bank’s net payment to an adjustable rate.


	June 30, 2009		December 31, 2008
					September 30, 2009		December 31, 2008
Par amount of consolidated obligation bonds:
Non-callable	$	157,760	$	184,618	$	131,607	$	184,618
Callable		15,637		24,429		20,504		24,429

Total par amount	$	173,397	$	209,047	$	152,111	$	209,047

The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at ~~June~~September 30, 2009, and December 31, 2008, by the earlier of the year of contractual maturity or next call date.


Earlier of Contractual Maturity or Next Call Date	June 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008

Within 1 year	$	115,518	$	131,783	$	95,047	$	131,783
After 1 year through 2 years		29,165		43,003		33,535		43,003
After 2 years through 3 years		14,704		19,795		9,551		19,795
After 3 years through 4 years		3,775		819		6,521		819
After 4 years through 5 years		5,767		8,755		3,010		8,755
After 5 years		4,461		4,884		4,441		4,884
Index amortizing notes		7		8		6		8

Total par amount	$	173,397	$	209,047	$	152,111	$	209,047

Consolidated obligation discount notes are consolidated obligations issued to raise short-term funds; discount notes have original maturities up to one year. These notes are issued at less than their face amount and

redeemed at par value when they mature. The Bank’s participation in consolidated obligation discount notes, all of which are due within one year, was as follows:


	June 30, 2009					December 31, 2008					September 30, 2009					December 31, 2008
	Amount Outstanding			Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate

Par amount	$	49,105		0.56	%	$	92,155		1.49	%	$	43,945		0.50	%	$	92,155		1.49	%
Unamortized discounts		(96	)				(336	)				(44	)				(336	)

Total	$	49,009				$	91,819				$	43,901				$	91,819

Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at ~~June~~September 30, 2009, and December 31, 2008, are detailed in the following table. For information on the general terms and types of consolidated obligations outstanding, see Note 10 to the Financial Statements in the Bank’s 2008 Form 10-K.


	June 30, 2009		December 31, 2008
					September 30, 2009		December 31, 2008
Par amount of consolidated obligations:
Bonds:
Fixed rate	$	94,896	$	112,952	$	96,694	$	112,952
Adjustable rate		77,884		95,570		51,934		95,570
Step-up		80		196		3,265		196
Step-down		—		18		—		18
Adjustable rate that converts to fixed rate		480		100		125		100
Range bonds		50		203		87		203
Index amortizing notes		7		8		6		8

Total bonds, par		173,397		209,047		152,111		209,047
Discount notes, par		49,105		92,155		43,945		92,155

Total consolidated obligations, par	$	222,502	$	301,202	$	196,056	$	301,202

Capital Requirements.~~The Bank~~Under the Housing Act, the director of the Finance Agency is ~~subject to~~responsible for setting the risk-based capital standards for the FHLBanks. The FHLBank Act and the regulations governing the operations of the FHLBanks require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. Regulatory capital and permanent capital are defined as retained earnings and Class B stock, which includes mandatorily redeemable capital stock that is classified as a liability for financial reporting purposes. Regulatory capital and permanent capital do not include accumulated other comprehensive income/(loss).

The risk-based capital requirements must be met with permanent ~~capital. Permanent~~ capital, ~~is defined as Class B stock and retained earnings,~~ which must be at least equal to the sum of the Bank’s credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules of the Finance Agency. The Finance Agency may require an FHLBank to maintain a greater amount of permanent capital than is required by the risk-based capital requirements as defined. In addition, the Bank is subject to a 5% minimum leverage capital ratio with a 1.5 weighting factor for permanent capital, and a 4% minimum total capital-to-assets ratio calculated without reference to the 1.5 weighting factor. As of ~~June~~September 30, 2009, and December 31, 2008, the Bank was in compliance with these capital rules and requirements. The FHLBank Act and the regulations governing the operations of the FHLBanks require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. Regulatory capital and permanent capital are defined as retained earnings and total capital stock, which includes mandatorily redeemable capital stock that is classified as a liability for financial reporting purposes under SFAS No. 150,~~Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity~~ (SFAS 150). Regulatory capital and permanent capital do not include accumulated other comprehensive income/(loss). Under the Housing Act, the director of the Finance Agency is responsible for setting the risk-based capital standards for the FHLBanks.

The following table shows the Bank’s compliance with the Finance Agency’s capital requirements at ~~June~~September 30, 2009, and December 31, 2008.


	June 30, 2009						December 31, 2008						September 30, 2009						December 31, 2008
	Required			Actual			Required			Actual				Required			Actual			Required			Actual
Risk-based capital	$	8,226		$	14,590		$	8,635		$	13,539		$	7,309		$	14,468		$	8,635		$	13,539
Total regulatory capital	$	9,557		$	14,590		$	12,850		$	13,539		$	8,448		$	14,468		$	12,850		$	13,539
Total capital-to-assets ratio		4.00	%		6.11	%		4.00	%		4.21	%		4.00	%		6.85	%		4.00	%		4.21	%
Leverage capital	$	11,946		$	21,844		$	16,062		$	20,308		$	10,561		$	21,701		$	16,062		$	20,308
Leverage ratio		5.00	%		9.16	%		5.00	%		6.32	%		5.00	%		10.27	%		5.00	%		6.32	%

The Bank’s total capital-to-assets ratio increased to ~~6.11%~~6.85% at ~~June~~September 30, 2009, from 4.21% at December 31, 2008, primarily because of increased excess capital stock resulting from the decline in advances outstanding coupled with the Bank’s decision not to repurchase excess capital stock, as noted below.

On September 9, 2008, each of the FHLBanks, including the Bank, entered into a lending agreement with the U.S. Treasury. Pursuant to that lending agreement between the Bank and the U.S. Treasury, the Bank must notify the U.S. Treasury promptly if the Bank fails or is about to fail to meet applicable regulatory capital requirements. The Bank’s capital requirements are discussed more fully in Note 13 to the Financial Statements in the Bank’s 2008 Form 10-K.

Mandatorily Redeemable Capital Stock.The Bank had mandatorily redeemable capital stock totaling ~~$3,165~~$3,159 at ~~June~~September 30, 2009, and $3,747 at December 31, 2008. The decrease in mandatorily redeemable capital stock is primarily due to members’ acquisition of mandatorily redeemable capital stock held by nonmembers.

The changes in mandatorily redeemable capital stock for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, were as follows:


	Three Months Ended									Three Months Ended
	June 30, 2009					June 30, 2008				September 30, 2009					September 30, 2008
	Number of Institutions		Amount			Number of Institutions	Amount			Number of Institutions		Amount			Number of Institutions		Amount
Balance at the beginning of the period	33		$	3,145		18	$	213		34		$	3,165		19		$	189
Reclassified from capital during the period:
Reclassified from/(to) capital during the period:
Termination of membership	2			20		—		—		6			10		6			3,702
Withdrawal from membership				—		1		—		—			—		1			3
Merger of nonmember institution	(1	)		—		—		—		1			—		(1	)		—
Repurchase of mandatorily redeemable capital stock	—			—		—		(27	)
Redemption of mandatorily redeemable capital stock										(2	)		(16	)	—			—
Repurchase of excess mandatorily redeemable capital stock										—			—		—			(4	)
Dividends accrued on mandatorily redeemable capital stock	—			—		—		3		—			—		—			8
Balance at the end of the period	34		$	3,165		19	$	189		39		$	3,159		25		$	3,898

	Six Months Ended									Nine Months Ended
	June 30, 2009					June 30, 2008				September 30, 2009					September 30, 2008
	Number of Institutions		Amount			Number of Institutions	Amount			Number of Institutions		Amount			Number of Institutions		Amount
Balance at the beginning of the period	30		$	3,747		16	$	229		30		$	3,747		16		$	229
Reclassified from capital during the period:
Reclassified from/(to) capital during the period:
Termination of membership	4			36		—		—		10			46		6			3,702
Withdrawal from membership	—			—		3		2		—			—		4			5
Reclassified to capital during the period	—			(618	)⁽¹⁾	—		—
Repurchase of mandatorily redeemable capital stock	—			—		—		(48	)
Acquired by/transferred to new members										—			(618	)⁽¹⁾	—			—
Merger of nonmember institution										1			—		(1	)		—
Redemption of mandatorily redeemable capital stock										(2	)		(16	)	—			—
Repurchase of excess mandatorily redeemable capital stock										—			—		—			(52	)
Dividends accrued on mandatorily redeemable capital stock	—			—		—		6		—			—		—			14
Balance at the end of the period	34		$	3,165		19	$	189		39		$	3,159		25		$	3,898

During 2008, JPMorgan Chase Bank, National Association, a nonmember, assumed Washington Mutual Bank’s outstanding Bank advances and acquired the associated Bank capital stock. JPMorgan Bank and Trust Company, National Association, an affiliate of JPMorgan Chase Bank, National Association, became a member of the Bank. During the first quarter of 2009, the Bank allowed the transfer of excess stock totaling $300 from JPMorgan Chase Bank, National Association, to JPMorgan Bank and Trust Company, National Association, to enable JPMorgan Bank and Trust Company, National Association, to satisfy its activity-based stock requirement. The capital stock transferred is no longer classified as mandatorily redeemable capital stock (a liability). However, the residual capital stock remaining with JPMorgan Chase Bank, National Association, totaling $2,695, remains classified as mandatorily redeemable capital stock (a liability).

The Bank’s mandatorily redeemable capital stock is discussed more fully in Note 13 to the Financial Statements in the Bank’s 2008 Form 10-K.

~~The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at June 30, 2009, and December 31, 2008.~~

~~During July 2009, the Bank redeemed $4 of~~The following table presents mandatorily redeemable capital stock ~~held~~amounts by ~~two institutions. Following the redemption, the Bank continued to meet its regulatory requirements for total capital, leverage capital, and risk-based capital.~~

~~In September 2009, the~~contractual redemption period ~~for $13 of mandatorily redeemable capital stock held by one institution will end,~~at September 30, 2009, and ~~the Bank will redeem the stock provided that all the conditions specified in the Bank’s capital plan are met.~~December 31, 2008.

Retained Earnings and Dividend Policy. The Bank’s Retained Earnings and Dividend Policy establishes amounts to be retained in restricted retained earnings, which are not made available for dividends in the current dividend period.

Retained Earnings Related to ~~SFAS 133 and SFAS 159~~Valuation Adjustments– In accordance with the Retained Earnings and Dividend Policy, the Bank retains in restricted retained earnings any cumulative net gains in earnings (net of applicable assessments) resulting from ~~the application of SFAS 133~~gains or losses on derivatives and ~~SFAS 159.~~associated hedged items and financial instruments carried at fair value (valuation adjustments). As the ~~SFAS 133- and SFAS 159-related~~ cumulative net gains are reversed by ~~SFAS 133- and SFAS 159-related~~ periodic net losses and settlements of contractual interest cash flows, the amount of cumulative net gains decreases. The amount of retained earnings required by this provision of the policy is therefore decreased, and that portion of the previously restricted retained earnings becomes unrestricted and may be made available for dividends. Retained earnings restricted in accordance with these provisions totaled ~~$170~~$116 at ~~June~~September 30, 2009, and $52 at December 31, 2008. In accordance with this provision, the amount increased by ~~$118~~$64 in the first ~~six~~nine months of 2009 as a result of net unrealized gains resulting from ~~SFAS 133 and SFAS 159~~valuation adjustments during ~~the second quarter of 2009.~~this period.

Other Retained Earnings–Targeted Buildup – In addition to any cumulative net gains resulting from ~~the application of SFAS 133 and SFAS 159,~~valuation adjustments, the Bank holds an additional amount in restricted retained earnings intended to protect members’ paid-in capital from the effects of an extremely adverse credit event, an extremely adverse operations risk event, ~~and/or~~ an extremely ~~adverse SFAS 133 or SFAS 159 quarterly result, combined with an extremely low~~high level of ~~pre-SFAS 133~~quarterly losses related to the Bank’s derivatives and ~~pre-SFAS 159~~associated hedged items and financial instruments carried at fair value, and the risk of higher-than-anticipated credit losses related to other-than-temporary impairment of PLRMBS, especially in periods of extremely low net income resulting from an adverse interest rate ~~environment, as well as~~environment. In September 2009, the ~~risk~~Board of ~~a write-down~~Directors increased the targeted amount to $1,800. Most of the increase in the target was due to an increase in the projected losses on ~~MBS with unrealized losses if~~ the ~~losses were determined to be other than temporary.~~collateral underlying the Bank’s PLRMBS under stress case assumptions about housing market conditions. The retained earnings restricted in accordance with this provision of the Retained Earnings and Dividend Policy totaled ~~$1,002~~$949 at ~~June~~September 30, 2009, and $124 at December 31, 2008.

For more information on these two categories of restricted retained earnings and the Bank’s Retained Earnings and Dividend Policy, see Note 13 to the Financial Statements in the Bank’s 2008 Form 10-K. In addition, on May 29, 2009, the Bank’s Board of Directors amended the Bank’s Retained Earnings and Dividend Policy to change the way the Bank determines the amount of earnings to be restricted for the targeted buildup. Instead of retaining a fixed percentage of earnings toward the retained earnings target each quarter, the Bank will designate any earnings not restricted for other reasons or not paid out in dividends as restricted retained earnings for the purpose of meeting the target.

Dividend Payments –Finance Agency rules state that FHLBanks may declare and pay dividends only from previously retained earnings or current net earnings, and may not declare or pay dividends based on projected or anticipated earnings. There is no requirement that the Board of Directors declare and pay any dividend. A decision by the Board of Directors to declare ~~or not declare~~ a dividend is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks.

On July 30, 2009, the Bank’s Board of Directors declared a cash dividend for the second quarter of 2009 at an annualized rate of 0.84%. The total amount of the dividend is $28. The Bank did not pay a dividend for the first quarter of 2009. The Bank’s dividend rate was 6.19% (annualized) for the second quarter of 2008 and 5.96% (annualized) for the first six months of 2008.

~~The~~On October 29, 2009, the Bank announced that it would not pay a dividend for the ~~second~~third quarter of 2009 ~~will be paid in cash rather than in shares of Class B capital stock to comply with Finance Agency rules. Under Finance Agency rules, an FHLBank may~~and would not pay dividends in the form of capital stock or issue excess stock to members if the FHLBank’s excess stock exceeds 1% of its total assets or if the issuance of stock would cause the FHLBank’s excess stock to exceed 1% of its total assets. At June 30, 2009, the Bank’srepurchase excess capital stock ~~totaled $4,586, or 2%~~during the fourth quarter of ~~total assets.~~2009. The Bank continues to face a number of uncertainties in the current economic environment. Market conditions continue to be volatile, particularly in the MBS market, which could result in additional OTTI charges on the Bank’s PLRMBS. In light of these and other uncertainties in the Bank’s operating environment, the Bank determined that it is essential to preserve the Bank’s capital. The Bank will continue to monitor the condition of the Bank’s MBS portfolio, its overall financial performance and retained earnings, developments in the mortgage and credit markets, and other relevant information as the basis for determining the status of dividends and capital stock repurchases in future quarters.

Excess and Surplus Capital Stock. The Bank may repurchase some or all of a member’s excess capital stock and any excess mandatorily redeemable capital stock, at the Bank’s discretion and subject to certain statutory and regulatory requirements. The Bank must give the member 15 days’ written notice; however, the member may waive this notice period. The Bank may also repurchase some or all of a member’s excess capital stock at the member’s request, at the Bank’s discretion and subject to certain statutory and regulatory requirements. Excess capital stock is defined as any stock holdings in excess of a member’s minimum capital stock requirement, as established by the Bank’s capital plan.

The Bank’s surplus capital stock repurchase policy provides for the Bank to repurchase excess stock that constitutes surplus stock, at the Bank’s discretion and subject to certain statutory and regulatory requirements, if a member has surplus capital stock as of the last business day of the quarter. A member’s surplus capital stock is defined as any stock holdings in excess of 115% of the member’s minimum capital stock requirement, generally excluding stock dividends earned and credited for the current year.

On a quarterly basis, the Bank determines whether it will repurchase excess capital stock, including surplus capital stock. ~~Prior to January 2009,~~Although the Bank ~~generally repurchased capital~~continues to redeem stock ~~approximately one month after the end of each quarter. The repurchase date was subject to change at the discretion~~upon expiration of the Bank. When a member submits a request for the repurchase of all excess capital stock, the amount of excess stock to be repurchased, if any, will be calculated on the last business day of the quarter, rather than on the repurchase date (the last business day of the following month). On the scheduled repurchase date, iffive-year redemption period, the Bank has ~~determined that it will repurchase~~not repurchased excess stock since the ~~Bank will recalculate the amount~~fourth quarter of ~~stock to be repurchased to ensure that each member will continue to meet its minimum stock requirement after the stock repurchase.~~

~~On July 14, 2009, the Bank notified members that it would not repurchase excess capital stock on July 31, 2009, in order~~2008 to preserve the Bank’s ~~capital in light of~~capital. As noted above, the ~~ongoing potential for additional OTTI charges because of uncertainty regarding future conditions in the mortgage and capital markets. The~~ Bank ~~will continue~~does not intend to monitor the condition of its MBS portfolio, its overall financial performance and retained earnings, developments in the mortgage and credit markets, and other relevant information in determining the status ofrepurchase any excess capital stock ~~repurchases in future quarters.~~during the fourth quarter of 2009.

InFor the ~~first and second quarters of~~nine months ended September 30, 2009, the Bank did not repurchase any capital stock. In the first ~~and second quarters~~nine months of 2008, the Bank repurchased surplus capital stock totaling ~~$97~~$727 and ~~$459 respectively. The Bank also repurchased~~ excess capital stock that was not surplus capital stock totaling ~~$21 and $391 in the first and second quarters of 2008, respectively.~~$521.

Excess capital stock totaled ~~$4,586~~$5,467 as of ~~June~~September 30, 2009, which included surplus capital stock of ~~$2,615.~~$4,605.

For more information on excess and surplus capital stock, see Note 13 to the Financial Statements in the Bank’s 2008 Form 10-K.

Concentration.The following table presents the concentration in capital stock held by institutions whose capital stock ownership represented 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of ~~June~~September 30, 2009, or December 31, 2008.


	June 30, 2009				December 31, 2008				September 30, 2009				December 31, 2008
Name of Institution	Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding

Citibank, N.A.	$	3,877	29	%	$	3,877	29	%	$	3,877	29	%	$	3,877	29	%
JPMorgan Chase Bank, National Association⁽¹⁾		2,695	20			2,995	22			2,695	20			2,995	22
Wachovia Mortgage, FSB⁽²⁾		1,572	12			1,572	12			1,572	12			1,572	12

Subtotal		8,144	61			8,444	63			8,144	61			8,444	63
Others		5,274	39			4,919	37			5,259	39			4,919	37

Total	$	13,418	100	%	$	13,363	100	%	$	13,403	100	%	$	13,363	100	%

The Bank ~~analyzes~~uses an analysis of financial performance based on the balances and adjusted net interest income of two operating segments, the advances-related business and the mortgage-related business, ~~based on~~as well as other financial information, to review and assess financial performance and to determine the ~~Bank’s method~~allocation of ~~internal reporting.~~resources to these two major business segments. For purposes of segment reporting, adjusted net interest income includes interest income and expenses associated with economic hedges that are recorded in “Net gain/(loss) on derivatives and hedging activities” in other income and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” ~~It is at the adjusted net interest income level that~~Other key financial information, such as any OTTI loss on the Bank’s ~~chief operating decision maker reviews~~held-to-maturity PLRMBS, other expenses, and ~~analyzes~~assessments, are not included in the segment reporting analysis, but are incorporated into management’s overall assessment of financial performance and determines the allocation of resources to the two operating segments. Except for the interest income and expenses associated with economic hedges, the Bank does not allocate other income, other expense, or assessments to its operating segments.performance.

For more information on these operating segments, see Note 15 to the Financial Statements in the Bank’s 2008 Form 10-K.

The following table presents the Bank’s adjusted net interest income by operating segment and reconciles total adjusted net interest income to (loss)/income before assessments for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008.

Reconciliation of Adjusted Net Interest Income and (Loss)/Income Before Assessments

The following table presents total assets by operating segment at ~~June~~September 30, 2009, and December 31, 2008.


	Advances- Related Business		Mortgage- Related Business		Total Assets		Advances- Related Business		Mortgage- Related Business		Total Assets

June 30, 2009	$	202,406	$	36,518	$	238,924
September 30, 2009							$	177,784	$	33,428	$	211,212
December 31, 2008		278,221		43,023		321,244		278,221		43,023		321,244

General.The Bank may enter into interest rate swaps (including callable, putable, and basis swaps); swaptions; and cap, floor, corridor, and collar agreements (collectively, interest rate exchange agreements or derivatives). Most of the Bank’s interest rate exchange agreements are executed in conjunction with the origination of advances and the issuance of consolidated obligation bonds to create variable rate structures. The interest rate exchange agreements are generally executed at the same time as the advances and bonds are transacted and generally have the same maturity dates as the related advances and bonds.

Additional active uses of interest rate exchange agreements include: (i) offsetting interest rate caps, floors, corridors, or collars embedded in adjustable rate advances made to members, (ii) hedging the anticipated issuance of debt, (iii) matching against consolidated obligation discount notes or bonds to create the equivalent of callable fixed rate debt, (iv) modifying the repricing intervals between variable rate assets and

variable rate liabilities, and (v) exactly offsetting other derivatives executed with members (with the Bank serving as an intermediary). The Bank’s use of interest rate exchange agreements results in one of the following classifications: (i) a fair value hedge of an underlying financial instrument, (ii) a forecasted transaction, (iii) a cash flow hedge of an underlying financial instrument, (iv) an economic hedge for specific asset and liability management purposes, ~~(a non-SFAS 133-qualifying economic hedge),~~ or (v) an intermediary transaction for members.

Interest Rate Swaps –An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable rate index for the same period of time. The variable rate received or paid by the Bank in most interest rate exchange agreements is the London Inter-Bank Offered Rate.

Swaptions – A swaption is an option on a swap that gives the buyer the right to enter into a specified interest rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank against future interest rate changes when it is planning to lend or borrow funds in the future. The Bank purchases receiver swaptions. A receiver swaption is the option to receive fixed interest payments at a later date.

Interest Rate Caps and Floors –In a cap agreement, a cash flow is generated if the price or rate of an underlying variable rate rises above a certain threshold (or cap) price. In a floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold (or floor) price. Caps may be used in conjunction with liabilities and floors may be used in conjunction with assets. Caps and floors are designed as protection against the interest rate on a variable rate asset or liability rising above or falling below a certain level.

Hedging Activities.The Bank documents all relationships between derivative hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value or cash flow hedges to (i) assets and liabilities on the balance sheet, (ii) firm commitments, or (iii) forecasted transactions. The Bank also formally assesses (both at the hedge’s inception and at least quarterly on an ongoing basis) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain effective in future periods. The Bank typically uses regression analyses or other statistical analyses to assess the effectiveness of its hedges. When it is determined that a derivative has not been or is not expected to be effective as a hedge, the Bank discontinues hedge accounting prospectively.

The Bank discontinues hedge accounting prospectively when (i) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (ii) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur in the originally expected period; (iv) a hedged firm commitment no longer meets the definition of a firm commitment; or (v) management determines that designating the derivative as a hedging instrument ~~in accordance with SFAS 133~~ is no longer ~~appropriate.~~appropriate; or (vi) management decides to use the derivative to offset changes in the fair value of other derivatives or instruments carried at fair value.

Intermediation– As an additional service to its members, the Bank enters into offsetting interest rate exchange agreements, acting as an intermediary between exactly offsetting derivatives transactions with members and other counterparties. This intermediation allows members indirect access to the derivatives market. Derivatives in which the Bank is an intermediary may also arise when the Bank enters into derivatives to offset the economic effect of other derivatives that are no longer designated to advances, investments, or consolidated obligations. The offsetting derivatives used in intermediary activities do not receive ~~SFAS 133~~ hedge accounting treatment and are separately marked to market through earnings. The net result of the accounting for these derivatives does not significantly affect the operating results of the Bank. These amounts are recorded in other income and presented as “Net gain/(loss) on derivatives and hedging activities.”

Derivatives in which the Bank is an intermediary may arise when the Bank (i) enters into derivatives with members and offsetting derivatives with other counterparties to meet the needs of its members, and (ii) enters into derivatives to offset the economic effect of other derivatives that are no longer designated to advances, investments, or consolidated obligations. The notional principal of the interest rate exchange agreements ~~arising from the Bank entering into~~associated with derivatives with members and offsetting derivatives with other counterparties was ~~$426~~$606 at ~~June~~September 30, 2009, and $346 at December 31, 2008. The Bank did not have any interest rate exchange agreements outstanding at ~~June~~September 30, 2009, and December 31, 2008, that were used to offset the economic effect of other derivatives that were no longer designated to advances, investments, or consolidated obligations.

Investments– The Bank may invest in U.S. Treasury and agency obligations, MBS rated AAA at the time of acquisition, and the taxable portion of highly rated state or local housing finance agency obligations. The interest rate risk and prepayment risk associated with these investment securities isare managed through a combination of debt issuance and derivatives. The Bank may manage prepayment risk and interest rate risk by funding investment securities with consolidated obligations that have call features or by hedging the prepayment risk with a combination of consolidated obligations and callable swaps or swaptions. The Bank executes callable swaps and purchases swaptions in conjunction with the issuance of certain liabilities to create funding equivalent to fixed rate callable debt. Although these derivatives are economic hedges against prepayment risk and are designated to individual liabilities, they do not receive either fair value or cash flow hedge accounting treatment. The derivatives are marked to market through earnings and cause modest income volatility. Investment securities may be classified as held-to-maturity or trading.

The Bank may also manage the risk arising from changing market prices or cash flows of investment securities classified as trading by entering into interest rate exchange agreements (economic hedges) that offset the changes in fair value or cash flows of the securities. The market value changes of both the trading securities and the associated interest rate exchange agreements are included in other income in the Statements of Income.

Advances– The Bank offers a wide array of advance structures to meet members’ funding needs. These advances may have maturities up to 30 years with ~~variable~~fixed or ~~fixed~~adjustable interest rates and may include early termination features or options. The Bank may use derivatives to adjust the repricing and/or options characteristics of advances to more closely match the characteristics of the Bank’s funding liabilities. In general, whenever a member executes a fixed rate advance or ~~a variable~~an adjustable rate advance with embedded options, the Bank will simultaneously execute an interest rate exchange agreement with terms that offset the terms and embedded options, if any, in the advance. The combination of the advance and the interest rate exchange agreement effectively creates a variable rate asset. This type of hedge is treated as a fair value ~~hedge in accordance with SFAS 133.~~hedge.

Mortgage Loans – The Bank’s investment portfolio includes fixed rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in estimated prepayment speeds. The Bank manages the interest rate risk and prepayment risk associated with fixed rate mortgage loans through a combination of debt issuance and

derivatives. The Bank uses both callable and non-callable debt to achieve cash flow patterns and market value sensitivities for liabilities similar to those expected on the mortgage loans. Net income could be reduced if the Bank replaces prepaid mortgages with lower-yielding assets and the Bank’s higher funding costs are not reduced accordingly.

The Bank executes callable swaps and purchases swaptions in conjunction with the issuance of certain consolidated obligations to create funding equivalent to fixed rate callable bonds. Although these derivatives are economic hedges against the prepayment risk of specific loan pools and are referenced to individual liabilities, they do not receive either fair value or cash flow hedge accounting treatment. The derivatives are marked to market through earnings and are presented as “Net gain/(loss) on derivatives and hedging activities.”

Consolidated Obligations– Although the joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor, FHLBanks individually are counterparties to interest rate exchange agreements associated with specific debt issues. The Office of Finance acts as agent of the FHLBanks in the debt issuance process. In connection with each debt issuance, each FHLBank specifies the terms and the amount of debt it requests to have issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of consolidated obligations and is the primary obligor for its specific portion of consolidated obligations issued. Because the Bank knows the amount and structure of consolidated obligations issued on its behalf, it has the ability to structure hedging instruments to match its specific debt. The hedge transactions may be executed on or after the date of issuance of the consolidated obligations and are accounted for based on ~~SFAS 133.~~the accounting for derivative instruments and hedging activities.

Consolidated obligation bonds are structured to meet the Bank’s and/or investors’ needs. Common structures include fixed rate bonds with or without call options and ~~variable~~adjustable rate bonds with or without embedded options. In general, when bonds with these structures are issued, the Bank will simultaneously execute an interest rate exchange agreement with terms that offset the terms and embedded options, if any, of the consolidated obligation bond. This combination of the consolidated obligation bond and the interest rate exchange agreement effectively creates ~~a variable~~an adjustable rate bond. The cost of this funding combination is generally lower than the cost that would be available through the issuance of just ~~a variable~~an adjustable rate bond. These transactions generally receive fair value hedge accounting ~~treatment under SFAS 133.~~treatment.

The Bank did not have any consolidated obligations denominated in currencies other than U.S. dollars outstanding during the ~~six~~nine months ended ~~June~~September 30, 2009, or the twelve months ended December 31, 2008.

Firm Commitments– ~~In accordance with SFAS No. 149,~~~~Amendment of Statement 133 on Derivative Instruments and Hedging Activities~~ ~~(SFAS 149), which amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS 133, a~~A firm commitment for a forward starting advance hedged through the use of an offsetting forward starting interest rate swap is considered a derivative. In this case, the interest rate swap functions as the hedging instrument for both the firm commitment and the subsequent advance. When the commitment is terminated and the advance is made, the current market value associated with the firm commitment is included with the basis of the advance. The basis adjustment is then amortized into interest income over the life of the advance.

Anticipated Debt Issuance– The Bank may enter into interest rate swaps for the anticipated issuances of fixed rate bonds to hedge the cost of funding. These hedges are designated and accounted for as cash flow hedges.

The interest rate swap is terminated upon issuance of the fixed rate bond, with the effective portion of the realized gain or loss on the interest rate swap recorded in other comprehensive income. Realized gains and losses reported in accumulated other comprehensive income are recognized as earnings in the periods in which earnings are affected by the cash flows of the fixed rate bonds.

Credit Risk –The Bank is subject to credit risk as a result of the risk of nonperformance by counterparties to the derivative agreements. All of the Bank’s derivative agreements contain master netting provisions to help mitigate the credit risk exposure to each counterparty. The Bank manages counterparty credit risk through credit analyses and collateral requirements and by following the requirements of the Bank’s risk management policies and credit guidelines. Based on the master netting provisions in each agreement, credit analyses, and the collateral requirements in place with each counterparty, ~~management of~~ the Bank does not ~~anticipate~~expect to incur any credit losses on derivative agreements.

The notional amount of an interest rate exchange agreement serves as a basis for calculating periodic interest payments or cash flows and is not a measure of the amount of credit risk from that transaction. The Bank had notional amounts outstanding of ~~$281,723~~$261,907 and $331,643 at ~~June~~September 30, 2009, and December 31, 2008, respectively. The notional amount does not represent the exposure to credit loss. The amount potentially subject to credit loss is the estimated cost of replacing an interest rate exchange agreement that has a net positive market value if the counterparty defaults; this amount is substantially less than the notional amount.

Maximum credit risk is defined as the estimated cost of replacing all interest rate exchange agreements the Bank has transacted with counterparties where the Bank is in a net favorable position (has a net unrealized gain) if the counterparties all defaulted and the related collateral proved to be of no value to the Bank. At ~~June~~September 30, 2009, the Bank’s maximum credit risk, as defined above, was estimated at ~~$1,983,~~$2,055, including ~~$497~~$541 of net accrued interest and fees receivable. At December 31, 2008, the Bank’s maximum credit risk was estimated at $2,493, including $493 of net accrued interest and fees receivable. Accrued interest and fees receivable and payable and the legal right to offset assets and liabilities by counterparty (under which amounts recognized for individual transactions may be offset against amounts recognized for other derivatives transactions with the same counterparty) are considered in determining the maximum credit risk. The Bank held cash, investment grade securities, and mortgage loans valued at ~~$1,998~~$2,057 and $2,508 as collateral from counterparties as of ~~June~~September 30, 2009, and December 31, 2008, respectively. This collateral has not been sold or repledged. A significant number of the Bank’s interest rate exchange agreements are transacted with financial institutions such as major banks and highly rated derivatives dealers. Some of these financial institutions or their broker-dealer affiliates buy, sell, and distribute consolidated obligations. Assets pledged as collateral by the Bank to these counterparties are more fully discussed in Note 11.

Certain of the Bank’s derivatives agreements contain provisions that link the Bank’s credit rating from each of the major credit rating agencies to various rights and obligations. In several of the Bank’s derivatives agreements, if the Bank’s debt rating falls below A, the Bank’s counterparty would have the right, but not the obligation, to terminate all of its outstanding derivatives transactions with the Bank. In addition, the amount of collateral that the Bank is required to deliver to a counterparty depends on the Bank’s credit rating. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net derivative liability position (before cash collateral and related accrued interest) at ~~June~~September 30, 2009, was ~~$184,~~$187, for which the Bank had posted collateral of ~~$139~~$118 in the normal course of business. If the credit rating of the Bank’s debt had been lowered to AAA/AA, then the Bank would have been required to deliver up to an additional ~~$38~~$54 of collateral to its derivatives counterparties at ~~June~~September 30, 2009. The Bank’s credit ratings continue to be AAA/AAA.

The following table summarizes the fair value of derivative instruments without the effect of netting arrangements or collateral as of ~~June~~September 30, 2009, and December 31, 2008. For purposes of this disclosure, the ~~derivative~~derivatives values include the fair value of derivatives and related accrued interest.


	June 30, 2009								December 31, 2008								September 30, 2009								December 31, 2008
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities

Derivatives designated as hedging instruments under SFAS 133:
Derivatives designated as hedging instruments:
Interest rate swaps	$	107,890	$	2,974		$	1,027		$	114,374	$	4,216		$	1,340		$	112,677	$	2,986		$	977		$	114,374	$	4,216		$	1,340

Total		107,890		2,974			1,027			114,374		4,216			1,340			112,677		2,986			977			114,374		4,216			1,340

Derivatives not designated as hedging instruments under SFAS 133:
Derivatives not designated as hedging instruments:
Interest rate swaps		171,868		939			1,087			215,374		923			1,699			147,585		865			1,007			215,374		923			1,699
Interest rate caps. floors, corridors, and/or collars		1,965		8			17			1,895		1			20			1,645		10			19			1,895		1			20

Total		173,833		947			1,104			217,269		924			1,719			149,230		875			1,026			217,269		924			1,719

Total derivatives before netting and collateral adjustments	$	281,723		3,921			2,131		$	331,643		5,140			3,059		$	261,907		3,861			2,003		$	331,643		5,140			3,059

Netting adjustments by counterparty				(1,939	)		(1,939	)				(2,647	)		(2,647	)				(1,806	)		(1,806	)				(2,647	)		(2,647	)
Cash collateral and related accrued interest				(1,530	)		39					(2,026	)		25					(1,597	)		—					(2,026	)		25

Total collateral and netting adjustments⁽¹⁾				(3,469	)		(1,900	)				(4,673	)		(2,622	)				(3,403	)		(1,806	)				(4,673	)		(2,622	)

Derivative assets and derivative liabilities as reported on the Statements of Condition			$	452		$	231				$	467		$	437				$	458		$	197				$	467		$	437

The following table presents the components of net gain/(loss) on derivatives and hedging activities as presented in the Statements of Income for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008.


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008			September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008
	Gain/(Loss)			Gain/(Loss)			Gain/(Loss)			Gain/(Loss)			Gain/(Loss)			Gain/(Loss)			Gain/(Loss)			Gain/(Loss)
Derivatives and hedged items in SFAS 133 fair value hedging relationships – hedge ineffectiveness by derivative type:
Derivatives and hedged items in fair value hedging relationships – hedge ineffectiveness by derivative type:
Interest rate swaps	$	8		$	24		$	24		$	44		$	(10	)	$	(1	)	$	14		$	43

Total net gain/(loss) related to fair value hedge ineffectiveness		8			24			24			44			(10	)		(1	)		14			43

Derivatives not designated as hedging instruments under SFAS 133:
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps		348			189			449			(22	)		(21	)		(276	)		428			(298	)
Interest rate swaptions		—			(2	)		—			(20	)		—			—			—			(20	)
Interest rate caps, floors, corridors, and/or collars		8			10			10			(3	)		(1	)		(1	)		9			(4	)
Net interest settlements		(140	)		(4	)		(225	)		63			(134	)		(48	)		(359	)		15

Total net gain/(loss) related to derivatives not designated as hedging instruments under SFAS 133		216			193			234			18

Total net gain/(loss) related to derivatives not designated as hedging instruments														(156	)		(325	)		78			(307	)
Net gain/(loss) on derivatives and hedging activities	$	224		$	217		$	258		$	62		$	(166	)	$	(326	)	$	92		$	(264	)

The following tables present, by type of hedged item, the gains and losses on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008.


	Three Months Ended																								Three Months Ended
	June 30, 2009												June 30, 2008												September 30, 2009											September 30, 2008
Hedged Item Type	Gain/ (Loss) on Derivative			Gain/ (Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income⁽¹⁾			Gain/ (Loss) on Derivative			Gain/ (Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income⁽¹⁾			Gain/ (Loss) on Derivative		Gain/ (Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income⁽¹⁾			Gain/ (Loss) on Derivative			Gain/ (Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income⁽¹⁾

Advances	$	261		$	(253	)	$	8		$	(237	)	$	756		$	(754	)	$	2		$	(141	)	$	44	$	(56	)	$	(12	)	$	(281	)	$	2		$	(77	)	$	(75	)	$	(151	)
Consolidated obligation bonds		(772	)		772			—			532			(1,935	)		1,957			22			565			2		—			2			556			(48	)		122			74			502

Total	$	(511	)	$	519		$	8		$	295		$	(1,179	)	$	1,203		$	24		$	424		$	46	$	(56	)	$	(10	)	$	275		$	(46	)	$	45		$	(1	)	$	351


	Six Months Ended
	June 30, 2009												June 30, 2008
Hedged Item Type	Gain/ (Loss) on Derivative			Gain/ (Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income⁽¹⁾			Gain/ (Loss) on Derivative			Gain/ (Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income⁽¹⁾

Advances	$	393		$	(421	)	$	(28	)	$	(428	)	$	(26	)	$	23		$	(3	)	$	(154	)
Consolidated obligation bonds		(1,175	)		1,227			52			1,022			(52	)		99			47			752

Total	$	(782	)	$	806		$	24		$	594		$	(78	)	$	122		$	44		$	598

For the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, there were no reclassifications from other comprehensive income/(loss) into earnings as a result of the discontinuance of cash flow hedges because the original forecasted transactions occurred by the end of the originally specified time period or within a two-month period thereafter.

As of ~~June~~September 30, 2009, the amount of unrecognized net losses on derivative instruments accumulated in other comprehensive income expected to be reclassified to earnings during the next 12 months was immaterial. The maximum length of time over which the Bank is hedging its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is less than three months.

The following table presents outstanding notional balances and estimated fair values of the derivatives outstanding at ~~June~~September 30, 2009, and December 31, 2008.


	June 30, 2009					December 31, 2008					September 30, 2009					December 31, 2008
Type of Derivative and Hedge Classification	Notional		Estimated Fair Value			Notional		Estimated Fair Value			Notional Amount of Derivatives		Estimated Fair Value			Notional Amount of Derivatives		Estimated Fair Value

Interest rate swaps:
Fair value	$	107,890	$	1,526		$	114,374	$	2,486		$	112,677	$	1,578		$	114,374	$	2,486
Economic		171,868		(213	)		215,374		(907	)		147,585		(235	)		215,374		(907	)
Interest rate caps, floors, corridors, and/or collars:
Economic		1,965		(8	)		1,895		(18	)		1,645		(9	)		1,895		(18	)

Total	$	281,723	$	1,305		$	331,643	$	1,561		$	261,907	$	1,334		$	331,643	$	1,561

Total derivatives excluding accrued interest			$	1,305				$	1,561				$	1,334				$	1,561
Accrued interest, net				485					520					524					520
Cash collateral held from counterparties – liabilities⁽¹⁾				(1,569	)				(2,051	)				(1,597	)				(2,051	)

Net derivative balances			$	221				$	30				$	261				$	30

Derivative assets			$	452				$	467				$	458				$	467
Derivative liabilities				(231	)				(437	)				(197	)				(437	)

Net derivative balances			$	221				$	30				$	261				$	30

Embedded derivatives are bifurcated, and their estimated fair values are accounted for in accordance with ~~SFAS 133.~~the accounting for derivative instruments and hedging activities. The estimated fair values of the embedded derivatives are included as valuation adjustments to the host contract and are not included in the table above. The estimated fair values of these embedded derivatives were immaterial as of ~~June~~September 30, 2009, and December 31, 2008.

Fair Value Measurement. ~~The Bank adopted SFAS 157 on January 1, 2008. SFAS 157~~Fair value measurement guidance defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. ~~SFAS 157~~The Bank adopted the fair value measurement guidance on January 1, 2008. This guidance applies whenever other accounting pronouncements require or permit assets or liabilities to be measured at fair value. The Bank uses fair value measurements to record fair value adjustments for certain financial assets and liabilities and to determine fair value disclosures.

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. Fair value is a market-based measurement, and the price used to measure fair value is an exit price considered from the perspective of the market participant that holds the asset or owes the liability.

~~SFAS 157~~This guidance establishes a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

In general, fair values are based on quoted or market list prices in the principal market when they are available. If listed prices or quotes are not available, fair values are based on dealer prices and prices of similar instruments. If dealer prices and prices of similar instruments are not available, fair value is based on internally developed models that use primarily market-based or independently sourced inputs, including interest rate yield curves and option volatilities. Adjustments may be made to fair value measurements to ensure that financial instruments are recorded at fair value.

The following assets and liabilities, including those for which the Bank has elected the fair value option, ~~in accordance with SFAS 159,~~ are carried at fair value on the Statements of Condition as of ~~June~~September 30, 2009:

These assets and liabilities are measured at fair value on a recurring basis and are summarized in the following table by ~~SFAS 157 valuation~~fair value hierarchy (as described above).


	Fair Value Measurement Using:						Netting					Fair Value Measurement Using:					Netting
	Level 1		Level 2		Level 3		Adjustments⁽¹⁾			Total		Level 1		Level 2	Level 3		Adjustments⁽¹⁾			Total
Assets:
Trading securities	$	—	$	34	$	—	$	—		$	34	$	—	$ 32	$	—	$	—		$	32
Advances⁽²⁾		—		37,063		—		—			37,063		—	29,415		—		—			29,415
Derivative assets		—		3,921		—		(3,469	)		452		—	3,861		—		(3,403	)		458

Total assets	$	—	$	41,018	$	—	$	(3,469	)	$	37,549	$	—	$33,308	$	—	$	(3,403	)	$	29,905

Liabilities:
Consolidated obligation bonds⁽³⁾	$	—	$	36,664	$	—	$	—		$	36,664
Consolidated obligation bonds⁽³⁾												$	—	$28,231	$	—	$	—		$	28,231
Derivative liabilities		—		2,131		—		(1,900	)		231		—	2,003		—		(1,806	)		197

Total liabilities	$	—	$	38,795	$	—	$	(1,900	)	$	36,895	$	—	$30,234	$	—	$	(1,806	)	$	28,428


December 31, 2008
	Fair Value Measurement Using:						Netting
	Level 1		Level 2		Level 3		Adjustments⁽¹⁾			Total
Assets:
Trading securities	$	—	$	35	$	—	$	—		$	35
Advances⁽²⁾		—		41,599		—		—			41,599
Derivative assets		—		5,140		—		(4,673	)		467

Total assets	$	—	$	46,774	$	—	$	(4,673	)	$	42,101

Liabilities:
Consolidated obligation bonds⁽³⁾	$	—	$	32,243	$	—	$	—		$	32,243
Derivative liabilities		—		3,059		—		(2,622	)		437

Total liabilities	$	—	$	35,302	$	—	$	(2,622	)	$	32,680

The following is a description of the Bank’s valuation methodologies for assets and liabilities measured at fair value. These valuation methodologies were applied to all of the assets and liabilities carried at fair value, whether as a result of electing the fair value option ~~in accordance with SFAS 159~~ or because they were previously carried at fair value.

Trading Securities – The Bank’s trading securities portfolio currently consists of agency MBS investments collateralized by residential mortgages. These securities are recorded at fair value on a recurring basis. Fair value measurement is based on ~~pricing models~~prices from four specific third-party vendors. Depending on the number of prices received for each security, the Bank selects a median or other model-based valuation techniques, such as the present value of future cash flows adjusted for the security’s credit rating, prepayment assumptions, and other factors such as credit loss assumptions.average price. Because quoted prices are not available for these securities, the Bank has primarily relied on ~~market observable~~the pricing vendors’ use of market-observable inputs and model-based valuation techniques for the fair value measurements, and the Bank classifies these investments as Level 2 within the valuation hierarchy.

The contractual interest income on the trading securities is recorded as part of net interest income on the Statements of Income. The remaining changes in the fair values of the trading securities are included in the other income section on the Statements of Income.

Advances –Certain advances either elected for the fair value option or accounted for in a qualifying full fair value hedging relationship are recorded at fair value on a recurring basis. Because quoted prices are not

~~Advances –~~Certain advances either elected for the fair value option in accordance with SFAS 159 or accounted for in an SFAS 133-qualifying full fair value hedging relationship are recorded at fair value on a recurring basis. Because quoted prices are not available for advances, the fair values are measured using model-based valuation techniques (such as the present value of future cash flows), creditworthiness of members, advance collateral ~~type,~~types, prepayment assumptions, and other factors, such as credit loss assumptions, as necessary.

Because no principal market exists for the sale of advances, the Bank has defined the most advantageous market as a hypothetical market in which an advance sale could occur with a hypothetical financial institution. The Bank’s primary inputs for measuring the fair value of advances are market-based consolidated obligation yield curve (CO Curve) inputs obtained from the Office of Finance and provided to the Bank. The CO Curve is then adjusted to reflect the rates on replacement advances with similar terms and collateral. These adjustments are not market observable and are evaluated for significance in the overall fair value measurement and fair value hierarchy level of the advance. In addition, the Bank obtains ~~market observable~~market-observable inputs from derivatives dealers for complex advances. Pursuant to the Finance Agency’s advances regulation, advances with an original term to maturity or repricing period greater than six months generally require a prepayment fee sufficient to make the Bank financially indifferent to the borrower’s decision to prepay the advances, and the Bank has determined that no adjustment is required to the fair value measurement of advances for prepayment fees. The inputs used in the Bank’s fair value measurement of these advances are primarily market observable, and the Bank classifies these advances as Level 2 within the valuation hierarchy.

The contractual interest income on advances is recorded as part of net interest income on the Statements of Income. The remaining changes in fair values of the advances are included in the other income section on the Statements of Income.

Derivative Assets and Derivative Liabilities –In general, derivative instruments held by the Bank for risk management activities are traded in over-the-counter markets where quoted market prices are not readily available. For these derivatives, the Bank measures fair value using internally developed models that use primarily ~~market observable~~market-observable inputs, such as yield curves and option volatilities adjusted for counterparty credit risk, as necessary.

The Bank is subject to credit risk in derivatives transactions because of potential nonperformance by the derivatives counterparties. To mitigate this risk, the Bank only executes transactions with highly rated derivatives dealers and major banks (derivatives dealer counterparties) that meet the Bank’s eligibility criteria. In addition, the Bank has entered into master netting agreements and bilateral security agreements with all active derivatives dealer counterparties that provide for delivery of collateral at specified levels tied to counterparty credit ratings to limit the Bank’s net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivatives dealer counterparty is limited to the lesser of (i) a percentage of the counterparty’s capital, or (ii) an absolute credit exposure limit, both according to the counterparty’s credit rating, as determined by rating agency long-term credit ratings of the counterparty’s debt securities or deposits. All credit exposure from derivatives transactions entered into by the Bank with member counterparties that are not derivatives dealers must be fully secured by eligible collateral. The Bank has evaluated the potential for the fair value of the instruments to be affected by counterparty credit risk and has determined that no adjustments were significant to the overall fair value measurements.

The inputs used in the Bank’s fair value measurement of these derivative instruments are primarily market observable, and the Bank classifies these derivatives as Level 2 within the valuation hierarchy. The fair values are netted by counterparty where such legal right of offset exists. If these netted amounts are positive, they are classified as an asset and, if negative, as a liability.

The Bank ~~accounts for derivatives in accordance with SFAS 133, which requires that~~records all derivative instruments ~~be recorded~~ on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in net gain/(loss) on derivatives and hedging activities or other comprehensive income, depending on whether or not a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The gains and losses on derivative instruments that are reported in

other comprehensive income are recognized as earnings in the periods in which earnings are affected by the variability of the cash flows of the hedged item. The difference between the gains or losses on derivatives and on the related hedged items that qualify asfor fair value ~~hedges under SFAS 133~~hedge accounting represents hedge ineffectiveness and is recognized in net gain/(loss) on derivatives and hedging activities. Changes in the fair value of a derivative instrument that does not qualify as a hedge of an asset or liability ~~under SFAS 133~~ for asset/liability management (economic hedge) are also recorded each period in net gain/(loss) on derivatives and hedging activities. For additional information, see Note 9.

Consolidated Obligation Bonds –Certain consolidated obligation bonds either elected for the fair value option ~~in accordance with SFAS 159~~ or accounted for in ~~an SFAS 133-qualifying~~a qualifying full fair value hedging relationship are recorded at fair value on a recurring basis. Because quoted prices in active markets are not generally available for identical liabilities, the Bank measures fair values using internally developed models that use primarily ~~market observable~~market-observable inputs. The Bank’s primary inputs for measuring the fair value of consolidated obligation bonds are market-based inputs obtained from the Office of Finance and provided to the Bank. For consolidated obligation bonds with embedded options, the Bank also obtains ~~market observable~~market-observable quotes and inputs from ~~derivative~~derivatives dealers. For example, the Bank uses swaption volatilities as an input.

Adjustments may be necessary to reflect the Bank’s credit quality or the credit quality of the FHLBank System when valuing consolidated obligation bonds measured at fair value. The Bank monitors its own creditworthiness and the creditworthiness of the other 11 FHLBanks and the FHLBank System to determine whether any adjustments are necessary for creditworthiness in its fair value measurement of consolidated obligation bonds. The credit ratings of the FHLBank System and any changes to ~~the~~those credit ratings are the basis for the Bank to determine whether the fair values of consolidated obligations have been significantly affected during the reporting period by changes in the instrument-specific credit risk.

The inputs used in the Bank’s fair value measurement of these consolidated obligation bonds are primarily market observable, and the Bank classifies these consolidated obligation bonds as Level 2 within the valuation hierarchy. For complex transactions, ~~market observable~~market-observable inputs may not be available and the inputs are evaluated to determine whether they may result in a Level 3 classification in the fair value hierarchy.

The contractual interest expense on the consolidated obligation bonds is recorded as net interest income on the Statements of Income. The remaining changes in fair values of the consolidated obligation bonds are included in the other income section on the Statements of Income.

Nonrecurring Fair Value Measurements –Certain assets and liabilities are measured at fair value on a nonrecurring ~~basis –~~ basis—that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustment in certain circumstances (for example, when there is evidence of impairment). At ~~June~~September 30, 2009, and December 31, 2008, the Bank measured certain of its held-to-maturity investment securities ~~(non-agency MBS)~~ at fair value on a nonrecurring basis. The following tables present the investment securities as of ~~June~~September 30, 2009, and December 31, 2008, for which a nonrecurring change in fair value was recorded during the ~~second~~third quarter of 2009 and during the fourth quarter of 2008, by level within the ~~SFAS 157 valuation~~fair value hierarchy.

~~Held-to-maturity investment securities (non-agency MBS collateralized by residential mortgages)~~PLRMBS with a carrying value of ~~$5,332~~$4,960 were written down to their fair value of ~~$4,049,~~$3,575, resulting in an OTTI charge taken in the ~~second~~third quarter of 2009 of ~~$88~~$141 for the OTTI related to ~~the~~ credit losses, which was ~~recorded~~recognized in “Other (loss)/income,” and ~~$1,195~~$1,244 for the OTTI related to all other factors, which was ~~recorded~~recognized in “Other comprehensive income/(loss).”


							Three Months Ended December 31, 2008														Three Months Ended December 31, 2008
	Fair Value Measurement Using:						OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI			Fair Value Measurement Using:						OTTI Related to Credit Loss		OTTI Related to All Other Factors		Total OTTI
	Level 1		Level 2		Level 3						Level 1				Level 2		Level 3
Assets:
Held-to-maturity securities	$	—	$	—	$	924	$	20	$	570			$	590
Held-to-maturity securities – PLRMBS															$	—	$	—	$	924	$	20	$	570	$	590

~~Held-to-maturity investment securities (non-agency MBS collateralized by residential mortgages)~~PLRMBS with a carrying ~~amount~~value of $1,514 were written down to their fair value of $924, resulting in an OTTI charge taken in the fourth quarter of 2008 of $590, which was recorded in “Other ~~(loss)/income.~~Loss.” The Bank adopted ~~FSP FAS 115-2 and FAS 124-2~~OTTI guidance as of January 1, 2009, and recognized the cumulative effect of initially applying ~~FSP FAS 115-2 and FAS 124-2,~~this OTTI guidance, totaling $570, as an increase in the retained earnings balance at January 1, 2009, with a corresponding change in accumulated other comprehensive ~~income/(loss).~~loss.

~~In determining~~To determine the estimated fair value of ~~non-agency MBS~~PLRMBS at December 31, 2008, March 31, 2009, and June 30, 2009, the Bank used a weighting of its internal price (based on valuation models using market-based inputs obtained from broker-dealer data and price indications) and the price from an external pricing service to determine the estimated fair value that the Bank ~~believes~~believed market participants would use to purchase the ~~non-agency MBS.~~PLRMBS. The divergence among prices obtained from third-party broker/dealers and pricing services, which were derived from third parties’ proprietary models, led the Bank to conclude that the prices received were reflective of significant unobservable inputs. Because of the significant unobservable inputs used by the pricing services, the Bank considered these to be Level 3 inputs.

Beginning with the quarter ended September 30, 2009, the Bank changed the methodology used to estimate the fair value of PLRMBS. In an effort to achieve consistency among all the FHLBanks in applying a fair value methodology, the FHLBanks formed the MBS Pricing Governance Committee with the responsibility for developing a fair value methodology that all FHLBanks could adopt. Under the methodology approved by the MBS Pricing Governance Committee and adopted by the Bank, the Bank requests prices for all mortgage-backed securities from four specific third-party vendors. Depending on the number of prices received for each security, the Bank selects a median or average price as determined by the methodology. The methodology also incorporates variance thresholds to assist in identifying median or average prices that may require further review. In certain limited instances (for example, when prices are outside of variance thresholds or the third-party services do not provide a price), the Bank will obtain a price from securities dealers or internally model a price that is deemed appropriate after consideration of the relevant facts and circumstances that a market participant would consider. Prices for PLRMBS held in common with other FHLBanks are reviewed with those FHLBanks for consistency. In adopting this common methodology, the Bank remains responsible for the selection and application of its fair value methodology and the reasonableness of assumptions and inputs used.

This change in fair value methodology did not have a significant impact on the Bank’s estimated fair values of its PLRMBS at September 30, 2009.

Fair Value Option.The ~~Bank adopted SFAS 159 on January 1, 2008. SFAS 159 provides~~fair value option permits an ~~option~~entity to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. The Bank elected the fair value option ~~in accordance with SFAS 159~~ for certain financial instruments on ~~the adoption date.~~January 1, 2008.

The fair value option requires entities to display the fair value of those assets and liabilities for which the ~~company~~entity has chosen to use fair value on the face of the balance sheet. Under ~~SFAS 159,~~the fair value option, fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in other income and presented as “Net (loss)/gain on advances and consolidated obligation bonds held at fair value.”

For more information, see Note 2 and Note 17 to the Financial Statements in the Bank’s 2008 Form 10-K.

The following tables summarize the activity related to financial assets and liabilities for which the Bank elected the fair value option ~~in accordance with SFAS 159~~ during the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008:


													Three Months Ended
	Three Months Ended												September 30, 2009						September 30, 2008
	June 30, 2009						June 30, 2008						Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
	Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
Balance, beginning of the period	$	35,676		$	36,262		$	19,990		$	20,141		$	34,869		$	35,157		$	22,497		$	26,406
New transactions elected for fair value option		150			4,925			3,722			6,728			50			2,737			18,463			3,854
Maturities and terminations		(828	)		(6,075	)		(956	)		(439	)		(7,426	)		(11,675	)		(2,223	)		(370	)
Net (loss)/gain on advances and net loss/(gain) on consolidated obligation bonds held at fair value		(130	)		48			(256	)		(28	)		(72	)		(10	)		(143	)		(242	)
Change in accrued interest		1			(3	)		(3	)		4			(40	)		(4	)		72			10

Balance, end of the period	$	34,869		$	35,157		$	22,497		$	26,406		$	27,381		$	26,205		$	38,666		$	29,658


													Nine Months Ended
	Six Months Ended												September 30, 2009						September 30, 2008
	June 30, 2009						June 30, 2008						Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
	Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
Balance, beginning of the period	$	38,573		$	30,286		$	15,985		$	1,247		$	38,573		$	30,286		$	15,985		$	1,247
New transactions elected for fair value option		193			18,585			8,961			26,625			243			21,322			27,424			30,479
Maturities and terminations		(3,563	)		(13,746	)		(2,432	)		(1,453	)		(10,989	)		(25,421	)		(4,655	)		(1,823	)
Net (loss)/gain on advances and net loss/(gain) on consolidated obligation bonds held at fair value		(321	)		40			(17	)		(63	)		(393	)		30			(160	)		(305	)
Change in accrued interest		(13	)		(8	)		—			50			(53	)		(12	)		72			60

Balance, end of the period	$	34,869		$	35,157		$	22,497		$	26,406		$	27,381		$	26,205		$	38,666		$	29,658

For advances and consolidated obligations recorded under the fair value option, ~~in accordance with SFAS 159,~~ the estimated impact of changes in credit risk for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, was not material.

The following tables present the changes in fair value included in the Statements of Income for each item for which the fair value option has been ~~elected in accordance with SFAS 159:~~elected:


	Three Months Ended																						Three Months Ended
	June 30, 2009											June 30, 2008											September 30, 2009											September 30, 2008
	Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings			Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings			Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings			Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings
Advances	$	302	$	—		$	(130	)	$	172		$	191	$	—		$	(256	)	$	(65	)	$	257	$	—		$	(72	)	$	185		$	286	$	—		$	(143	)	$	143
Consolidated obligation bonds		—		(49	)		(48	)		(97	)		—		(142	)		28			(114	)		—		(45	)		10			(35	)		—		(168	)		242			74

Total	$	302	$	(49	)	$	(178	)	$	75		$	191	$	(142	)	$	(228	)	$	(179	)	$	257	$	(45	)	$	(62	)	$	150		$	286	$	(168	)	$	99		$	217


																							Nine Months Ended
	Six Months Ended																						September 30, 2009											September 30, 2008
	June 30, 2009											June 30, 2008											Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings			Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings
	Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings			Interest Income on Advances		Interest Expense on Consolidated Obligation Bonds			Net (Loss)/ Gain on Advances and Consolidated Obligation Bonds Held at Fair Value			Total Changes in Fair Value Included in Current Period Earnings
Advances	$	621	$	—		$	(321	)	$	300		$	381	$	—		$	(17	)	$	364		$	878	$	—		$	(393	)	$	485		$	667	$	—		$	(160	)	$	507
Consolidated obligation bonds		—		(95	)		(40	)		(135	)		—		(210	)		63			(147	)		—		(140	)		(30	)		(170	)		—		(378	)		305			(73	)

Total	$	621	$	(95	)	$	(361	)	$	165		$	381	$	(210	)	$	46		$	217		$	878	$	(140	)	$	(423	)	$	315		$	667	$	(378	)	$	145		$	434

The following table presents the difference between the aggregate fair value and aggregate remaining contractual principal balance outstanding of advances and consolidated obligation bonds for which the fair value option has been ~~elected in accordance with SFAS 159:~~elected:


	At June 30, 2009						At December 31, 2008						At September 30, 2009						At December 31, 2008
	Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance
Advances⁽¹⁾	$	33,916	$	34,869	$	953	$	37,274	$	38,573	$	1,299	$	26,541	$	27,381	$	840	$	37,274	$	38,573	$	1,299
Consolidated obligation bonds		35,075		35,157		82		30,236		30,286		50		26,137		26,205		68		30,236		30,286		50
(1) At June 30, 2009, and December 31, 2008, none of these advances were 90 days or more past due or had been placed on nonaccrual status.

Estimated Fair Values of Financial Instruments.The tables below show the estimated fair values of the Bank’s financial instruments at ~~June~~September 30, 2009, and December 31, 2008. These estimates are based on pertinent information available to the Bank as of ~~June~~September 30, 2009, and December 31, 2008. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases fair values are not subject to precise quantification or verification and may change as economic and market factors, and evaluation of those factors, change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment of how market participants would estimate fair values. The fair value summary tables do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities.

Subjectivity of Estimates Related to Fair Values of Financial Instruments. Estimates of the fair value of advances with options, mortgage instruments, derivatives with embedded options, and consolidated obligation bonds with options using the methods described below and other methods are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific date, they are susceptible to material near term changes.

The assumptions used in estimating the fair values of the Bank’s financial instruments at ~~June~~September 30, 2009, and at December 31, 2008, are discussed below.

Cash and Due from Banks– The estimated fair value approximates the recorded carrying value.

Federal Funds Sold– The estimated fair value of these instruments has been determined based on quoted prices or by calculating the present value of expected cash flows for the instruments excluding accrued interest. The discount rates used in these calculations are the replacement rates for comparable instruments with similar terms.

Trading and Held-to-Maturity Securities– The estimated fair value of interest-bearing deposits in banks has been determined based on quoted prices or by calculating the present value of expected cash flows for the instruments excluding accrued interest. The discount rates used in these calculations are the replacement rates for comparable instruments with similar terms. The estimated fair value of all other instruments has been determined by calculating the present value of expected cash flows using ~~market observable~~market-observable inputs as of the last business day of the quarter excluding accrued interest, or by using industry standard analytical models and certain actual and estimated market information. The discount rates used in these calculations are the replacement rates for securities with similar terms. The estimated fair value of trading securities is measured as described in “Fair Value Measurement – Trading Securities” above and the estimated fair value of held-to-maturity MBS is measured as described in Note 3.

Advances– The estimated fair value of these instruments is measured as described in “Fair Value Measurement – Advances” above.

Mortgage Loans Held for Portfolio– The estimated fair value for mortgage loans represents modeled prices based on observable market spreads for agency passthrough MBS adjusted for differences in credit, coupon, average loan rate, and seasoning. Market prices are highly dependent on the underlying prepayment assumptions. Changes in the prepayment ~~rates~~speeds often have a material effect on the fair value estimates.

Accrued Interest Receivable and Payable– The estimated fair value approximates the recorded carrying value of accrued interest receivable and accrued interest payable.

Derivative Assets and Liabilities– The estimated fair value of these instruments is measured as described in “Fair Value Measurement – Derivative Assets and Derivative Liabilities” above.

Deposits and Other Borrowings– For deposits and other borrowings, the estimated fair value has been determined by calculating the present value of expected future cash flows from the deposits and other borrowings excluding accrued interest. The discount rates used in these calculations are the cost of deposits and borrowings with similar terms.

Consolidated Obligations– The estimated fair value of these instruments is measured as described in “Fair Value Measurement – Consolidated Obligation Bonds” above.

Mandatorily Redeemable Capital Stock– The fair value of capital stock subject to mandatory redemption is generally at par value. Fair value includes estimated dividends earned at the time of reclassification from capital to liabilities, until such amount is paid, and any subsequently declared stock dividend. The Bank’s stock can only be acquired by members at par value and redeemed at par value, subject to statutory and regulatory requirements. The Bank’s stock is not traded, and no market mechanism exists for the exchange of Bank stock outside the cooperative ownership structure.

Commitments– The estimated fair value of the Bank’s commitments to extend credit, including letters of credit, was immaterial at ~~June~~September 30, 2009, and December 31, 2008.


	June 30, 2009				December 31, 2008				September 30, 2009				December 31, 2008
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets
Cash and due from banks	$	811	$	811	$	19,632	$	19,632	$	6,115	$	6,115	$	19,632	$	19,632
Federal funds sold		16,658		16,658		9,431		9,431		7,086		7,086		9,431		9,431
Trading securities		34		34		35		35		32		32		35		35
Held-to-maturity securities		42,241		38,150		51,205		44,270		38,825		37,137		51,205		44,270
Advances (includes $34,869 and $38,573 at fair value under the fair value option, respectively)		174,732		174,823		235,664		235,626
Advances (includes $27,381 and $38,573 at fair value under the fair value option, respectively)										154,962		155,190		235,664		235,626
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans		3,357		3,360		3,712		3,755		3,172		3,258		3,712		3,755
Accrued interest receivable		462		462		865		865		371		371		865		865
Derivative assets⁽¹⁾		452		452		467		467		458		458		467		467
Liabilities
Deposits	$	257	$	257	$	604	$	604	$	225	$	225	$	604	$	604
Consolidated obligations:
Bonds (includes $35,157 and $30,286 at fair value under the fair value option, respectively)		176,200		176,313		213,114		213,047
Bonds (includes $26,205 and $30,286 at fair value under the fair value option, respectively)										154,869		155,226		213,114		213,047
Discount notes		49,009		49,064		91,819		92,096		43,901		43,934		91,819		92,096
Mandatorily redeemable capital stock		3,165		3,165		3,747		3,747		3,159		3,159		3,747		3,747
Accrued interest payable		1,002		1,002		1,451		1,451		878		878		1,451		1,451
Derivative liabilities⁽¹⁾		231		231		437		437		197		197		437		437

As of ~~June~~September 30, 2009, the Bank’s investment in held-to-maturity securities had net unrecognized holding losses totaling ~~$4,091.~~$1,688. These net unrecognized holding losses were primarily in MBS and were mainly due to extraordinarily high investor yield requirements resulting from an extremely illiquid market, significant uncertainty about the future condition of the mortgage market and the economy, and continued deterioration in the credit performance of loan collateral underlying these securities, causing these assets to be valued at significant discounts to their acquisition cost. For more information, see Note 3.

As of December 31, 2008, the Bank’s investment in held-to-maturity securities had net unrealized losses totaling $6,935. These net unrealized losses were primarily in MBS and were mainly due to extraordinarily high investor yield requirements resulting from an extremely illiquid market and significant uncertainty about the future condition of the mortgage market and the economy, causing these assets to be valued at significant discounts to their acquisition cost. For more information, see Note 5 to the Financial Statements in the Bank’s 2008 Form 10-K.

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of ~~June~~September 30, 2009, and through the filing date of this report, does not believe that is probable that it will be asked to do so. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was ~~$1,055,863~~$973,579 at ~~June~~September 30, 2009, and $1,251,542 at December 31, 2008. The par value of the Bank’s participation in consolidated obligations

was ~~$222,502~~$196,056 at ~~June~~September 30, 2009, and $301,202 at December 31, 2008. For more information on the joint and several liability regulation, see Note 18 to the Financial Statements in the Bank’s 2008 Form 10-K.

In 2008, the Bank entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s Government-Sponsored Enterprise Credit Facility (GSE Credit Facility), as authorized by the Housing Act. The GSE Credit Facility is designed to serve as a contingent source of liquidity for the housing government-sponsored enterprises, including the FHLBanks. Any borrowings by one or more of the FHLBanks under the GSE Credit Facility are considered consolidated obligations with the same joint and several liability as all other consolidated obligations. The terms of any borrowings are to be agreed to at the time of the borrowing. Loans under the Lending Agreement are to be secured by collateral acceptable to the U.S. Treasury, which may consist of FHLBank member advances that have been collateralized in accordance with regulatory standards or MBS issued by Fannie Mae or Freddie Mac. Each FHLBank is required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury, a listing of eligible collateral, updated on a weekly basis, that could be used as security in the event of a borrowing. As of ~~June~~September 30, 2009, the Bank gave the U.S. Treasury a collateral listing of advances ~~collateral~~ totaling $35,890, which would provide for a maximum possible borrowing of $31,224, if needed. The amount of collateral can be increased or decreased (subject to approval of the U.S. Treasury) at any time ~~through the~~by delivery of an updated listing of collateral. As of ~~June~~September 30, 2009, and through ~~August 7,~~October 30, 2009, none of the FHLBanks had drawn on the GSE Credit Facility. The Lending Agreement will terminate on December 31, 2009, but will remain in effect as to any loan outstanding on that date.

Commitments that legally obligate the Bank for additional advances totaled ~~$600~~$1,250 at ~~June~~September 30, 2009, and $470 at December 31, 2008. Advance commitments are generally for periods up to 12 months. Standby letters of credit are generally issued for a fee on behalf of members to support their obligations to third parties. A standby letter of credit is a financing agreement between the Bank and its member. If the Bank is required to make payment for a beneficiary’s drawing under a letter of credit, the amount is charged to the member’s demand deposit account with the Bank. The Bank’s outstanding standby letters of credit were as follows:


	June 30, 2009	December 31, 2008
			September 30, 2009	December 31, 2008
Outstanding notional	$5,751	$5,723	$5,170	$5,723
Original terms	23 days to 10 years	23 days to 10 years	23 days to 10 years	23 days to 10 years
Final expiration year	2019	2018	2019	2018

The value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to ~~$33~~$28 at ~~June~~September 30, 2009, and $39 at December 31, 2008. Based on management’s credit analyses of members’ financial condition and collateral requirements, no allowance for losses is deemed necessary by management on these advance commitments and letters of credit. Advances funded under these advance commitments and letters of credit are fully collateralized at the time of funding or issuance (see Note 4). The estimated fair value of advance commitments and letters of credit was immaterial to the balance sheet as of ~~June~~September 30, 2009, and December 31, 2008.

The Bank executes interest rate exchange agreements with major banks and derivatives entities affiliated with broker-dealers that have, or are supported by, guarantees from related entities that have long-term credit ratings equivalent to single-A or better from both Standard & Poor’s and Moody’s. The Bank also executes interest rate exchange agreements with its members. The Bank enters into master agreements with netting provisions with all counterparties and into bilateral security agreements with all active derivatives dealer counterparties. All member counterparty master agreements, excluding those with derivatives dealers, are subject to the terms of the Bank’s Advances and Security Agreement with members, and all member counterparties (except for those that are derivatives dealers) must fully collateralize the Bank’s net credit exposure. As of ~~June~~September 30, 2009, the Bank had pledged as collateral securities with a carrying value of ~~$139,~~$118, all of which ~~$24 may not be sold or repledged and $115~~ may be sold or repledged, to counterparties that had market risk exposure from the Bank related to derivatives. As of December 31, 2008, the Bank had pledged as collateral securities with a carrying value of $307, all of which may be sold or repledged, to counterparties that had market risk exposure from the Bank related to derivatives.

The Bank may be subject to various pending legal proceedings that may arise in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.

At ~~June~~September 30, 2009, the Bank had committed to the issuance of ~~$1,085~~$2,540 in consolidated obligation bonds, all of which ~~$1,000~~ were hedged with associated interest rate swaps. At December 31, 2008, the Bank had committed to the issuance of $960 in consolidated obligation bonds, of which $500 were hedged with associated interest rate swaps.

The Bank entered into interest rate exchange agreements that had traded but not yet settled with notional amounts totaling ~~$1,000~~$2,540 at ~~June~~September 30, 2009, and $1,230 at December 31, 2008.

Note 12 – Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks

Transactions with Certain Members and Certain Nonmembers.The following tables set forth information at the dates and for the periods indicated with respect to transactions with (i) members and nonmembers holding more than 10% of the outstanding shares of the Bank’s capital stock, including mandatorily redeemable capital stock, at each respective period end, (ii) members that had an officer or director serving on the Bank’s Board of Directors at any time during the periods indicated, and (iii) affiliates of the foregoing members and nonmembers. All transactions with members, the nonmembers described in the preceding sentence, and their respective affiliates are entered into in the normal course of business.


	June 30, 2009		December 31, 2008
					September 30, 2009		December 31, 2008
Assets:
Cash and due from banks	$	1	$	1	$	—	$	1
Federal funds sold		2,302		460		1,333		460
Held-to-maturity securities⁽¹⁾		4,183		4,268		2,853		4,268
Advances		117,125		164,349		99,395		164,349
Mortgage loans held for portfolio		2,631		2,880		2,492		2,880
Accrued interest receivable		325		537		150		537
Derivative assets		1,015		1,350		1,043		1,350

Total	$	127,582	$	173,845	$	107,266	$	173,845

Liabilities:
Deposits	$	1,053	$	1,384	$	1,039	$	1,384
Mandatorily redeemable capital stock		2,720		3,021		2,720		3,021
Derivative liabilities		—		39		—		39

Total	$	3,773	$	4,444	$	3,759	$	4,444

Notional amount of derivatives	$	56,453	$	62,819	$	57,364	$	62,819
Letters of credit		4,488		4,579		3,885		4,579


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008			September 30, 2009			September 30, 2008			September 30, 2009			September 30, 2008

Interest Income:
Federal funds sold	$	1		$	—		$	1		$	1		$	1		$	1		$	2		$	2
Held-to-maturity securities		38			38			82			84			32			34			114			118
Advances⁽¹⁾		526			1,294			1,250			3,089			382			1,270			1,632			4,359
Mortgage loans held for portfolio		33			37			68			76			31			37			99			113

Total	$	598		$	1,369		$	1,401		$	3,250		$	446		$	1,342		$	1,847		$	4,592

Interest Expense:
Deposits	$	—		$	—		$	—		$	1		$	—		$	1		$	—		$	2
Mandatorily redeemable capital stock														6			2			6			2
Consolidated obligations⁽¹⁾		(161	)		(11	)		(305	)		(12	)		(179	)		(10	)		(484	)		(22	)

Total	$	(161	)	$	(11	)	$	(305	)	$	(11	)	$	(173	)	$	(7	)	$	(478	)	$	(18	)

Other (Loss)/Income:
Net (loss)/gain on derivatives and hedging activities	$	(249	)	$	(67	)	$	(322	)	$	(14	)	$	26		$	(41	)	$	(296	)	$	(55	)
Other income		1			1			2			1			1			1			3			2

Total	$	(248	)	$	(66	)	$	(320	)	$	(13	)	$	27		$	(40	)	$	(293	)	$	(53	)

Transactions with Other FHLBanks.Transactions with other FHLBanks are identified on the face of the Bank’s financial statements, which begin on page 1.

The Bank has evaluated events subsequent to ~~June~~September 30, 2009, until the time of the Form 10-Q filing with the SEC on ~~August~~November 12, 2009, and no material subsequent events were identified, other than those discussed below.

On ~~July 30,~~December 31, 2008, Wells Fargo & Company, a nonmember, acquired Wachovia Corporation, the parent company of Wachovia Mortgage, FSB. Wachovia Mortgage, FSB, continued to operate as a separate entity and continued to be a member of the Bank. Effective November 1, 2009, Wells Fargo Financial National Bank, an affiliate of Wells Fargo & Company, became a member of the ~~Bank’s Board~~Bank, and the Bank allowed the transfer of ~~Directors declared a cash dividend for the second quarter of 2009 at an annualized rate of 0.84%. The dividend will be paid in cash rather than in shares of Class B~~excess capital stock totaling $5 from Wachovia Mortgage, FSB, to ~~comply with Finance Agency rules.~~Wells Fargo Financial National Bank to enable Wells Fargo Financial National Bank to satisfy its initial membership stock requirement. Also effective November 1, 2009, Wachovia Mortgage, FSB, merged into Wells Fargo Bank, N.A., a subsidiary of Wells Fargo & Company. As a result of the merger, Wells Fargo Bank, N.A., assumed all outstanding Bank advances and the remaining Bank capital stock of Wachovia Mortgage, FSB. The Bank ~~expects~~has reclassified the capital stock transferred to ~~pay the second quarter dividend of $28 in August 2009.~~Wells Fargo Bank, N.A., totaling $1,567, to mandatorily redeemable capital stock (a liability).

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of San Francisco (Bank) or the Federal Home Loan Bank System, are “forward-looking statements.” These statements may use forward-looking terms, such as ~~“anticipates,~~“anticipate,” ~~“believes,~~“believe,” “could,” ~~“estimates,~~“estimate,” “expect,” “intend,” “likely,” “may,” “probable,” “project,” “should,” “will,” or their negatives or other variations on these terms. The Bank cautions that by their nature, forward-looking statements involve risk or uncertainty that could cause actual results to differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These risks and uncertainties include, among others, the following:

Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties throughout this report, as well as those discussed under “Item 1A. Risk Factors” in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K).

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Bank’s interim financial statements and notes, which begin on page 1, and the Bank’s 2008 Form 10-K.

On July 30, 2008, the Housing and Economic Recovery Act of 2008 (Housing Act) was ~~enacted and, among other things,~~enacted. The Housing Act created a new federal agency, the Federal Housing Finance Agency (Finance Agency), which became the new federal regulator of the FHLBanks effective on the date of enactment of the Housing Act. On October 27, 2008, the Federal Housing Finance Board (Finance Board), the federal regulator of the FHLBanks prior to the creation of the Finance Agency, merged into the Finance Agency. Pursuant to the Housing Act, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the Finance Board will remain in effect until modified, terminated, set aside, or superseded by the Director of the Finance Agency, any court of competent jurisdiction, or operation of law. References throughout this report to regulations of the Finance Agency also include the regulations of the Finance Board where they remain applicable.

~~Housing~~Financial and ~~financial~~housing markets have been in ~~tremendous~~ turmoil ~~since the middle of 2007,~~for over two years, with repercussions throughout the U.S. and global economies. As a result of the extensive efforts of the U.S. government and other governments around the world to stimulate economic activity, support companies close to failure, and provide liquidity to the capital markets, the U.S. and world economies have been stabilizing. The U.S. economy ~~is in a~~appears to be emerging from its recession, and ~~according to many observers,~~ the ~~current economic crisis is~~U.S. gross national product reportedly grew by 3.5% during the ~~deepest the nation has experienced since the 1930s. Limited liquidity in the credit markets, increasing mortgage delinquencies and foreclosures, falling real estate values, the collapse~~third quarter of ~~the secondary market for mortgage-backed securities (MBS), loss of investor confidence, a highly volatile stock market, fluctuations in short- and long-term interest rates, rising~~2009. However, unemployment and underemployment are at high levels and still rising. In addition, many government programs that support the ~~failure of~~financial and housing markets remain in place, and there may be risks to the economy as these programs wind down and the government withdraws its support from a number of ~~large~~markets and ~~small financial institutions—all~~institutions.

The housing market continues to be weak, with great variations in market performance from region to region throughout the country. Housing prices are ~~symptoms~~low and still falling in many areas, although there are signs of increasing stability in other areas. Delinquency and foreclosure rates have continued to rise. While the ~~severe economic crisis facing~~agency mortgage-backed securities (MBS) market is active in funding new mortgage originations, the ~~U.S. and~~private-label MBS market has not recovered. In addition, the ~~rest of the world.~~commercial real estate market is still trending downwards.

These economic conditions, ~~particularly in the housing and financial markets,~~ combined with ongoing uncertainty about the depth and duration of the financial crisis and the recession, continued to affect the Federal Home Loan Bank of San Francisco’s (Bank) business and results of operations and the Bank’s members in the ~~second~~third quarter of 2009 and may continue to exert a significant negative effect in the immediate future. ~~Nevertheless,~~

For the third quarter of 2009, the Bank ~~continues~~had a net loss of $85 million, compared with net income of $101 million in the third quarter of 2008. The loss in the third quarter of 2009 was primarily due to ~~fulfill its mission of providing liquidity to members while taking action to maintain~~credit-related other-than-temporary impairment (OTTI) losses on certain private-label residential MBS (PLRMBS) in the Bank’s ~~safety~~held-to-maturity securities portfolio and ~~soundness~~to net losses associated with derivatives, hedged items, and ~~protect~~financial instruments carried at fair value.

Net interest income for the ~~members’ collective investment~~third quarter of 2009 rose $65 million, or 17%, to $458 million from $393 million for the third quarter of 2008. Most of the increase in net interest income was related to economically hedged assets and liabilities. Net interest income on economically hedged assets and liabilities is generally offset by

net interest expense on derivative instruments used in economic hedges, which is reflected in other income. Net interest income for the third quarter of 2009 also reflected lower earnings on the Bank’s invested capital, which declined relative to the same period in 2008 because of the lower interest rate environment in the ~~Bank.~~third quarter of 2009.

~~Ongoing weakness~~Other income for the third quarter of 2009 was a net loss of $543 million, compared to a net loss of $225 million for the third quarter of 2008. The losses in other income for the third quarter of 2009 reflected a credit-related OTTI charge of $316 million on certain PLRMBS; a net loss of $94 million associated with derivatives, hedged items, and financial instruments carried at fair value; and net interest expense of $134 million on derivative instruments used in economic hedges, which was generally offset by net interest income on the economically hedged assets and liabilities.

The $94 million net loss associated with derivatives, hedged items, and financial instruments carried at fair value for the third quarter of 2009 was less than the $179 million net loss for the third quarter of 2008. This decrease was primarily driven by changes in overall interest rate spreads and an increase in swaption volatilities. Net gains and losses on these financial instruments are primarily a matter of timing and will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity, or by the exercised call or put dates. As of June 30, 2009, cumulative net gains associated with derivatives, hedged items, and financial instruments carried at fair value totaled $232 million. Most of the losses in the third quarter of 2009 reflected reversals of prior-period net gains.

The credit-related OTTI charge of $316 million resulted from an increase in projected losses on the loan collateral underlying the Bank’s PLRMBS. Each quarter, the Bank updates its OTTI analysis to reflect current and anticipated housing ~~markets~~market conditions and updated information on the loans supporting the Bank’s PLRMBS and revises the assumptions in its collateral loss projection models based on more recent information. The increase in projected collateral loss rates in the Bank’s OTTI analysis for the third quarter of 2009 was caused by increases in projected loan defaults and in the projected severity of losses on defaulted loans. Several factors contributed to these increases, including lower forecasted housing prices, ~~and~~greater-than-expected deterioration in the ~~expectation that this weakness will persist for at least the near term based on current observations of the regional and national economies, continued to affect the current and projected~~ credit quality of the loan collateral, ~~underlying certain MBS in~~and changes to the Bank’s ~~held-to-maturity portfolio. Changes~~collateral loss projection model assumptions that resulted in ~~the external environment also led the Bank~~slower projected prepayment speeds–leading to ~~assume more moderate rates of housing price recovery~~an increase in projected loan defaults–and higher projected losses on defaulted loans.

Based on the cash flow ~~models used to analyze these MBS as of June 30, 2009. All of these factors contributed to higher projected loss rates~~analysis performed on the ~~collateral supporting some of the~~ Bank’s ~~non-agency MBS, which required the Bank to write down the securities to fair value. The continuing severe lack of liquidity in the MBS market also adversely affected the valuation of MBS.~~

~~Based on analyses and reviews of the Bank’s non-agency MBS,~~PLRMBS, the Bank determined that 76105 of its ~~non-agency MBS~~PLRMBS were other-than-temporarily impaired at ~~June~~September 30, 2009, because the Bank determined it was likely that it would not recover the entire amortized cost basis of each of these securities. These securities included the 15 ~~securities~~PLRMBS that had ~~previously~~ been identified as other-than-temporarily impaired prior to January 1, 2009, and the 28, 33, and ~~33 securities~~29 PLRMBS that were first identified as other-than-temporarily impaired inat the end of the first, second, and ~~second~~third quarters of 2009, respectively.

Nine of these securities did not have additional impairment in the third quarter of 2009. The Bank recorded ~~other-than-temporary impairment (OTTI)~~OTTI charges for 96 of these securities during the three months ended ~~June~~September 30, 2009, as follows:


(Dollars in millions)	For the Three Months Ended June 30, 2009						For the Three Months Ended September 30, 2009
Identified as Other-Than-Temporarily Impaired	Number of Securities	OTTI Related to Credit Losses		OTTI Related to All Other Factors
First Identified as Other-Than-Temporarily Impaired							Number of Securities	OTTI Related to Credit Losses		OTTI Related to All Other Factors

Prior to January 1, 2009	15	$	40	$	(1	)	15	$	94	$	(88	)
During the three months ended March 31, 2009	28		36		(1	)
During the three months ended June 30, 2009	33		12		1,197
At March 31, 2009							25		129		(70	)
At June 30, 2009							27		59		8
At September 30, 2009							29		34		1,219

Total	76	$	88	$	1,195		96	$	316	$	1,069

In early 2009, the FASB issued additional guidance related to the recognition and presentation of other-than-temporary impairments (OTTI guidance). In accordance with ~~FASB Staff Position (FSP) No. FAS 115-2 and FAS 124-2,~~~~Recognition and Presentation of Other-Than-Temporary Impairments~~ ~~(FSP FAS 115-2 and FAS 124-2),~~the OTTI guidance, for the ~~second~~third quarter of 2009, the ~~impairment~~OTTI related to ~~the~~ credit loss of ~~$88~~$316 million was ~~reflected~~recognized in “Other ~~(loss)/income”~~Loss” and the ~~impairment~~OTTI related to all other factors of ~~$1,195~~$1,069 million was ~~reflected~~recognized in “Other comprehensive income/(loss).” The non-credit-related charge was primarily related to securities that were identified as other-than-temporarily impaired for the first time in the third quarter of 2009 as a result of the updated OTTI analysis. The continued severe lack of liquidity in the PLRMBS market adversely affected the valuation of these PLRMBS, contributing to the large non-credit-related OTTI charge recorded in accumulated other comprehensive income.

For each security, the amount of the non-credit-related impairment will be accreted prospectively, based on the amount and timing of future estimated cash flows, over the remaining life of the security as an increase in the carrying value of the security, with no effect on earnings unless the security is subsequently sold or there are additional decreases in the cash flows expected to be collected. The Bank does not intend to sell these securities and it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis. At ~~June~~September 30, 2009, the estimated weighted average life of ~~these~~the affected securities was approximately ~~three~~four years.

Because there is a continuing risk that further declines in the fair value of the Bank’s MBS may occur and that the Bank may record additional material OTTI charges in future periods, the Bank’s earnings and retained earnings and its ability to pay dividends and repurchase ~~or redeem~~ capital stock could be adversely affected. To preserve the Bank’s capital, the Bank did not pay a dividend for the third quarter of 2009 and will not repurchase excess capital stock during the fourth quarter of 2009. The Bank will continue to monitor the condition of the Bank’s MBS portfolio, its overall financial performance and retained earnings, developments in the mortgage and credit markets, and other relevant information as the basis for determining the status of dividends and capital stock repurchases in future quarters.

As of ~~June~~September 30, 2009, the Bank was in compliance with all of its regulatory capital requirements. The Bank’s total regulatory capital-to-assets ratio was ~~6.11%~~6.85%, exceeding the 4.00% requirement, and its risk-based capital was ~~$14.6~~$14.5 billion, exceeding its ~~$8.2~~$7.3 billion requirement.

On July 30, 2009, the Bank’s Board of Directors declared a cash dividend for the second quarter of 2009 at an annualized rate of 0.84%. The total amount of the dividend is $28 million. The second quarter dividend will be paid in cash rather than in shares of Class B capital stock to comply with Federal Housing Finance Agency (Finance Agency) rules. Under Finance Agency rules, an FHLBank may not pay dividends in the form of capital stock or issue excess stock to members if the FHLBank’s excess stock exceeds 1% of its total assets or if the issuance of stock would cause the FHLBank’s excess stock to exceed 1% of its total assets. At June 30, 2009, the Bank’s excess capital stock totaled $4,586 million, or 2% of total assets.

Net income for the second quarter of 2009 rose $80 million, or 36%, to $303 million from $223 million in the second quarter of 2008. The increase primarily reflected net gains associated with derivatives, hedged items, and financial instruments carried at fair value, partially offset by OTTI losses on certain MBS in the Bank’s held-to-maturity portfolio.

Net interest income for the second quarter of 2009 rose $146 million, or 43%, to $484 million from $338 million for the second quarter of 2008. Most of the increase in net interest income was related to economically hedged assets and liabilities and was offset by net interest expense on derivative instruments used in economic hedges (reflected in other income), which totaled $140 million for the second quarter of 2009, compared to $4 million for the second quarter of 2008.

Other income for the second quarter of 2009 was a net loss of $39 million, compared to a net loss of $10 million for the second quarter of 2008. In addition to the increase in net interest expense on derivative instruments used in economic hedges, the decrease in other income reflected a credit impairment charge of $88 million related to certain non-agency MBS. The losses in other income were partially offset by a net gain of $186 million for the second quarter of 2009 associated with derivatives, hedged items, and financial instruments carried at fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,~~Accounting for Derivative Instruments and Hedging Activities,~~ ~~as amended by SFAS No. 138,~~~~Accounting for Certain Derivative Instruments and Certain Hedging Activities~~~~; SFAS No. 149,~~~~Amendment of Statement 133 on Derivative Instruments and Hedging Activities~~~~; and SFAS No. 155,~~~~Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140~~ ~~(together referred to as SFAS 133), and SFAS No. 159,~~~~The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115~~(SFAS 159), compared to a net loss of $7 million for the second quarter of 2008. The large difference between the amount of the net gain and the net loss in these periods was primarily driven by changes in overall interest rate spreads and an increase in swaption volatilities. In general, net gains or losses on these financial instruments are primarily a matter of timing and will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity, or by the exercised call or put dates.

During the first ~~six~~nine months of 2009, total assets decreased ~~$82.3~~$110 billion, or ~~26%~~34%, to ~~$238.9~~$211.2 billion from $321.2 billion at December 31, 2008, primarily as a result of a decline in advances, which decreased by ~~$61.0~~$80.7 billion, or ~~26%~~34%, to ~~$174.7~~$155.0 billion at ~~June~~September 30, 2009, from $235.7 billion at December 31, 2008. Members decreased their use of Bank advances during the first ~~six~~nine months of 2009 for a variety of reasons, including increases in core deposits, reduced lending activity, the use of Troubled Asset Relief Program funds, active Temporary Liquidity Guarantee Program issuances, access to the Federal Reserve Bank discount window, and reductions in the borrowing capacity of collateral pledged to the Bank. ~~In addition~~Held-to-maturity securities decreased to $38.8 billion at September 30, 2009, from $51.2 billion at December 31, 2008, primarily because of lower investment balances in the ~~decline~~MBS portfolio resulting from run-off (paydowns, prepayments, and maturities) in ~~advances, cash~~the portfolio, OTTI recognized on the PLRMBS, and a substantial reduction in the purchase of new MBS investments. During the first nine months of 2009, the Bank purchased $0.4 billion of MBS, all of which were residential agency MBS. Cash and due from banks decreased to ~~$0.8~~$6.1 billion at ~~June~~September 30, 2009, from $19.6 billion at December 31, 2008. The decrease was primarily in cash held at the Federal Reserve Bank of San Francisco (FRBSF), reflecting a reduction in the Bank’s short-term liquidity needs.

All advances made by the Bank are required to be fully collateralized in accordance with the Bank’s credit and collateral requirements. The Bank monitors the creditworthiness of its members on an ongoing basis. In addition, the Bank has a comprehensive process for assigning values to collateral and determining how much it will lend against the collateral pledged. During the ~~second~~third quarter of 2009, the Bank continued to review and adjust its general lending parameters based on market conditions and to require additional collateral, when necessary, to ensure that advances remained fully collateralized. Based on the Bank’s risk assessments of mortgage market conditions and of individual members and their collateral, the Bank also continued to adjust collateral terms for individual members during the ~~second~~third quarter of 2009.

~~Four~~Eight member institutions were placed into receivership or liquidation during the ~~second~~third quarter of 2009. Two of these institutions had no advances outstanding as of the date of the receivership or liquidation. The advances outstanding to ~~one institution~~the other six institutions were either repaid prior to ~~June~~September 30, 2009, or assumed by other institutions, and no losses were incurred by the Bank. The Bank capital stock held by ~~this institution and by a second institution with no advances outstanding at~~six of the ~~time of receivership, which totaled $19~~eight institutions totaling $10 million was classified as ~~mandatorily~~mandatory redeemable capital stock (a liability). The ~~advances and~~ capital stock of the ~~third institution and the capital stock of the fourth institution, which had no advances outstanding at the time of receivership, were assumed by~~other two institutions was transferred to other member institutions.

From ~~July~~October 1, 2009, to ~~August 7,~~October 30, 2009, ~~two~~five member institutions were placed into receivership. The advances outstanding to ~~one institution~~four institutions were assumed by a nonmember institution, and the Bank capital stock held by the ~~institution~~four institutions totaling $6$115 million was classified as mandatorily redeemable capital stock (a liability). The outstanding advances and capital stock of the ~~second~~other institution were assumed by a member institution.

The U.S. government’s ~~continued~~ongoing support of the ~~Agency~~agency debt markets ~~has~~ improved the FHLBanks’ ability to issue term ~~debt.~~debt in 2009. On November 25, 2008, the Federal Reserve announced it would initiate a program to

purchase the direct obligations of Fannie Mae, Freddie Mac, and the FHLBanks and MBS backed by Fannie Mae, Freddie Mac, and Ginnie Mae. The Federal Reserve stated that this action was taken to reduce the cost and increase the availability of credit for the purchase of homes, which in turn was expected to support housing markets and foster improved conditions in financial markets ~~more~~ generally. The Federal Reserve indicated that purchases of up to $100 billion in government-sponsored enterprise (GSE) direct obligations under the program would be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions and would begin in early December 2008. ~~Furthermore, on March 18,~~The Federal Reserve subsequently increased the total purchase capacity to $200 billion. On November 4, 2009, the Federal Reserve ~~reaffirmed~~announced that it will purchase a total of about $175 billion of GSE debt. The Federal Reserve stated that it will gradually slow the pace of its ~~intent~~purchases and anticipates that these transactions will be executed by ~~expanding~~ the ~~GSE direct obligation purchase program by up to $100 billion, bringing~~end of the ~~total purchase capacity up to $200 billion in 2009.~~first quarter of 2010. During the first ~~six~~nine months of 2009, the Federal Reserve purchased ~~$81.9~~$116.1 billion in agency term obligations, including ~~$19.5~~$25.5 billion in FHLBank consolidated obligation bonds. The combination of declining ~~FHLB~~FHLBank funding needs, Federal Reserve purchases of ~~FHLB~~FHLBank direct obligations, and a monthly debt issuance calendar for global bonds has generally improved the FHLBanks’ ability to issue debt at reasonable costs. During the first ~~six~~nine months of 2009, the FHLBanks issued ~~$48.1~~$69.4 billion in global bonds and over ~~$226~~$440 billion in auctioned discount notes.

The following table presents a summary of certain financial information for the Bank for the periods indicated.


(Dollars in millions)	June 30, 2009			March 31, 2009			December 31, 2008			September 30, 2008			June 30, 2008			September 30, 2009			June 30, 2009			March 31, 2009			December 31, 2008			September 30, 2008

Selected Balance Sheet Items at Quarter End
Total Assets⁽¹⁾	$	238,924		$	270,287		$	321,244		$	341,429		$	328,474
Total Assets																$	211,212		$	238,924		$	270,287		$	321,244		$	341,429
Advances		174,732			203,904			235,664			263,045			246,008			154,962			174,732			203,904			235,664			263,045
Held-to-Maturity Securities⁽²⁾		42,241			47,183			51,205			53,830			60,484
Held-to-Maturity Securities																	38,825			42,241			47,183			51,205			53,830
Federal Funds Sold		16,658			12,384			9,431			16,360			16,052			7,086			16,658			12,384			9,431			16,360
Consolidated Obligations:⁽³⁾
Consolidated Obligations:⁽¹⁾
Bonds		176,200			189,382			213,114			235,290			233,510			154,869			176,200			189,382			213,114			235,290
Discount Notes		49,009			66,239			91,819			87,455			77,753			43,901			49,009			66,239			91,819			87,455
Mandatorily Redeemable Capital Stock⁽⁴⁾		3,165			3,145			3,747			3,898			189
Capital Stock – Class B – Putable⁽⁴⁾		10,253			10,238			9,616			10,614			13,763
Mandatorily Redeemable Capital Stock																	3,159			3,165			3,145			3,747			3,898
Capital Stock – Class B – Putable																	10,244			10,253			10,238			9,616			10,614
Retained Earnings		1,172			869			176			280			306			1,065			1,172			869			176			280
Accumulated Other Comprehensive Income/(Loss)		(2,717	)		(1,615	)		(7	)		(2	)		(3	)
Total Capital⁽⁴⁾		8,708			9,492			9,785			10,892			14,066
Accumulated Other Comprehensive Loss																	(3,601	)		(2,717	)		(1,615	)		(7	)		(2	)
Total Capital																	7,708			8,708			9,492			9,785			10,892
Selected Operating Results for the Quarter
Net Interest Income	$	484		$	434		$	468		$	393		$	338		$	458		$	484		$	434		$	468		$	393
Provision for Credit Losses on Mortgage Loans		1			—			—			—			—			—			1			—			—			—
Other (Loss)/Income		(39	)		(236	)		(575	)		(225	)		(10	)
Other Loss																	(543	)		(39	)		(236	)		(575	)		(225	)
Other Expense		31			31			34			29			24			31			31			31			34			29
Assessments		110			44			(38	)		38			81			(31	)		110			44			(38	)		38

Net Income	$	303		$	123		$	(103	)	$	101		$	223
Net (Loss)/Income																$	(85	)	$	303		$	123		$	(103	)	$	101

Selected Other Data for the Quarter
Net Interest Margin⁽⁵⁾		0.77	%		0.60	%		0.58	%		0.48	%		0.42	%
Net Interest Margin⁽²⁾																	0.81	%		0.77	%		0.60	%		0.58	%		0.48	%
Operating Expenses as a Percent of Average Assets		0.04			0.03			0.04			0.03			0.02			0.05			0.04			0.03			0.04			0.03
Return on Assets		0.47			0.17			(0.13	)		0.12			0.27			(0.15	)		0.47			0.17			(0.13	)		0.12
Return on Equity		12.49			4.95			(3.99	)		2.96			6.37			(3.84	)		12.49			4.95			(3.99	)		2.96
Annualized Dividend Rate⁽⁶⁾		0.84			—			—			3.85			6.19
Spread of Dividend Rate to Dividend Benchmark⁽⁶⁾⁽⁷⁾		(1.93	)		(2.00	)		(2.24	)		0.87			3.13
Dividend Payout Ratio⁽⁶⁾⁽⁸⁾		7.08			—			—			125.29			93.69
Annualized Dividend Rate⁽³⁾																	—			0.84			—			—			3.85
Spread of Dividend Rate to Dividend Benchmark⁽³⁾⁽⁴⁾																	(1.86	)		(1.93	)		(2.00	)		(2.24	)		0.87
Dividend Payout Ratio⁽³⁾⁽⁵⁾																	—			7.08			—			—			125.29
Selected Other Data at Quarter End
Capital to Assets Ratio⁽¹⁾⁽⁹⁾		6.11			5.27			4.21			4.33			4.34
Capital to Assets Ratio⁽⁶⁾																	6.85			6.11			5.27			4.21			4.33
Duration Gap (in months)		2			4			3			2			3			4			2			4			3			2

The primary source of Bank earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments, less the interest paid on consolidated obligations, deposits, and other borrowings. The following Average Balance Sheets table presents average balances of earning asset categories and the sources that fund those earning assets (liabilities and capital) for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008, together with the related interest income and expense. They also present the average rates on total earning assets and the average costs of total funding sources. The Change in Net Interest Income table details the changes in interest income and interest expense for the ~~second~~third quarter of 2009 compared to the ~~second~~third quarter of 2008 and for the first ~~six~~nine months of 2009 compared to the first ~~six~~nine months of 2008. Changes in both volume and interest rates influence changes in net interest income and the net interest margin.


	Three Months Ended														Three Months Ended
	June 30, 2009							June 30, 2008							September 30, 2009							September 30, 2008
(Dollars in millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate

Assets
Interest-earning assets:
Resale agreements															$	24		$	—	0.17	%	$			$	—	—	%
Federal funds sold	$	12,702		$	6	0.19	%	$	12,770		$	77	2.43	%		13,874			5	0.14			13,764			78	2.25
Trading securities:
MBS		33			1	12.15			54			1	7.45			32			—	4.45			38			—	5.17
Held-to-maturity securities:
MBS		36,557			361	3.96			40,017			470	4.72			34,583			353	4.05			40,933			485	4.71
Other investments⁽¹⁾		9,633			8	0.33			17,245			112	2.61
Other investments																9,053			5	0.22			15,034			100	2.65
Mortgage loans		3,485			36	4.14			3,965			48	4.87			3,259			39	4.75			3,848			48	4.96
Advances⁽²⁾		190,531			772	1.63			252,890			1,864	2.96
Advances⁽¹⁾																164,187			548	1.32			253,195			1,831	2.88
Loans to other FHLBanks		366			—	0.12			14			—	2.08			193			—	0.11			20			—	2.08

Total interest-earning assets		253,307			1,184	1.87			326,955			2,572	3.16			225,205			950	1.67			326,832			2,542	3.09
Other assets^(3)(4)(5)		4,625			—	—			7,810			—	—
Other assets^(2)(3)(4)																2,894			—	—			5,575			—	—

Total Assets	$	257,932		$	1,184	1.84	%	$	334,765		$	2,572	3.09	%	$	228,099		$	950	1.65	%	$	332,407		$	2,542	3.04	%

Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽²⁾	$	177,312		$	588	1.33	%	$	230,264		$	1,683	2.94	%
Bonds⁽¹⁾															$	163,394		$	418	1.01	%	$	235,671		$	1,673	2.82	%
Discount notes		60,502			112	0.74			81,329			541	2.68			46,278			67	0.57			75,457			462	2.44
Deposits⁽³⁾		1,954			—	0.05			1,356			7	2.08
Deposits⁽²⁾																1,880			—	0.03			1,436			6	1.66
Borrowings from other FHLBanks		15			—	0.14			22			—	2.09			3			—	0.15			42			—	0.77
Mandatorily redeemable capital stock		3,160			—	—			195			3	6.19			3,164			7	0.84			811			8	3.85
Other borrowings		7			—	0.11			9			—	2.40			—			—	—			28			—	1.79

Total interest-bearing liabilities		242,950			700	1.16			313,175			2,234	2.87			214,719			492	0.91			313,445			2,149	2.73
Other liabilities⁽³⁾⁽⁴⁾		5,249			—	—			7,486			—	—
Other liabilities⁽²⁾⁽³⁾																4,533			—	—			5,352			—	—

Total Liabilities		248,199			700	1.13			320,661			2,234	2.80			219,252			492	0.89			318,797			2,149	2.68
Total Capital		9,733			—	—			14,104			—	—			8,847			—	—			13,610			—	—

Total Liabilities and Capital	$	257,932		$	700	1.09		$	334,765		$	2,234	2.68	%	$	228,099		$	492	0.86		$	332,407		$	2,149	2.57	%

Net Interest Income				$	484						$	338						$	458						$	393

Net Interest Spread⁽⁶⁾						0.71	%						0.29	%
Net Interest Spread⁽⁵⁾																				0.76	%						0.36	%

Net Interest Margin⁽⁷⁾						0.77	%						0.42	%
Net Interest Margin⁽⁶⁾																				0.81	%						0.48	%

Interest-earning Assets/Interest-bearing Liabilities		104.26	%						104.40	%
Interest-earning Assets/ Interest-bearing Liabilities																104.88	%						104.27	%

Total Average Assets/Capital Ratio⁽⁸⁾		20.0	x						23.4	x
Total Average Assets/Capital Ratio⁽⁷⁾																19.0	x						23.1	x

Three Months Ended ~~June~~September 30, 2009, Compared to Three Months Ended ~~June~~September 30, 2008


										Increase/ (Decrease)			Attributable to Changes in⁽¹⁾
	Increase/			Attributable to Changes in⁽¹⁾
(In millions)	(Decrease)			Average Volume			Average Rate						Average Volume			Average Rate

Interest-earning assets:
Federal funds sold	$	(71	)	$	—		$	(71	)	$	(73	)	$	1		$	(74	)
Trading securities:
MBS		—			—			—			—			—			—
Held-to-maturity securities:
MBS		(109	)		(38	)		(71	)		(132	)		(69	)		(63	)
Other investments⁽²⁾		(104	)		(35	)		(69	)
Other investments											(95	)		(29	)		(66	)
Mortgage loans		(12	)		(5	)		(7	)		(9	)		(7	)		(2	)
Advances⁽³⁾		(1,092	)		(386	)		(706	)
Advances⁽²⁾											(1,283	)		(506	)		(777	)

Total interest-earning assets		(1,388	)		(464	)		(924	)		(1,592	)		(610	)		(982	)

Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽³⁾		(1,095	)		(324	)		(771	)
Bonds⁽²⁾											(1,255	)		(406	)		(849	)
Discount notes		(429	)		(112	)		(317	)		(395	)		(133	)		(262	)
Deposits		(7	)		2			(9	)		(6	)		1			(7	)
Mandatorily redeemable capital stock		(3	)		3			(6	)		(1	)		9			(10	)

Total interest-bearing liabilities		(1,534	)		(431	)		(1,103	)		(1,657	)		(529	)		(1,128	)

Net interest income	$	146		$	(33	)	$	179		$	65		$	(81	)	$	146

Net interest income in the ~~second~~third quarter of 2009 was ~~$484~~$458 million, a ~~43%~~17% increase from ~~$338~~$393 million in the ~~second~~third quarter of 2008. This increase was driven primarily by the following:

Interest income from ~~advances~~the mortgage portfolio decreased ~~$1.1 billion~~$141 million in the ~~second~~third quarter of 2009 compared to the ~~second~~third quarter of 2008. The decrease consisted of a ~~$0.7~~$65 million decrease attributable to lower average yields on MBS investments and mortgage loans, a $69 million decrease attributable to a 16% decrease in average MBS outstanding, and a $7 million decrease attributable to a 15% decrease in average mortgage loans outstanding. Interest income from the mortgage portfolio includes the impact of cumulative retrospective adjustments for the amortization of net purchase discounts from the acquisition dates of the MBS and mortgage loans, which increased interest income by an immaterial amount in the third quarter of 2009 and increased interest income by $5 million in the third quarter of 2008. This decrease was primarily due to slower projected prepayment speeds during 2009.

Interest income from advances decreased $1.3 billion in the third quarter of 2009 compared to the third quarter of 2008. The decrease consisted of a $0.8 billion decrease attributable to lower average yields and a ~~$0.4~~$0.5 billion decrease attributable to a ~~25%~~35% decrease in average advances outstanding, reflecting lower member demand during the ~~second~~third quarter of 2009 relative to the ~~second~~third quarter of 2008. Interest income from advances also includes the impact of advance prepayments, which increased interest income by $2 million in the third quarter of 2009 and reduced interest income by $10 million in the third quarter of 2008. The increase in the third quarter of 2009 primarily reflects prepayment fees received on the advances, partially offset by net losses on the interest rate exchange agreements hedging the prepaid advances.

As a result of these factors, the net interest margin was 7781 basis points for the ~~second~~third quarter of 2009, 3533 basis points higher than the net interest margin for the ~~second~~third quarter of 2008, which was 4248 basis points. The net interest spread was 7176 basis points for the ~~second~~third quarter of 2009, 4240 basis points higher than the net interest spread for the ~~second~~third quarter of 2008, which was 2936 basis points. The increase primarily reflected a higher net interest spread on the Bank’s fixed rate advances accounted for in accordance with ~~SFAS 159~~the fair value option and the fixed rate mortgage portfolio resulting from the favorable impact of lower interest rates on the associated adjustable rate funding. This increase was partially offset by lower yields on the Bank’s invested capital during the third quarter of 2009 relative to the same period in 2008 because of the lower interest rate environment in the third quarter of 2009.

The increase in net interest income was also partially offset by the increase in net interest expense on derivative instruments used in economic hedges, ~~as noted~~recognized in “Other (Loss)/Income.” The increase reflected economic hedges used to hedge fixed rate assets with interest rate swaps having a fixed rate pay leg and an adjustable rate receive leg. The decrease in the London Inter-Bank Offered Rate (LIBOR) ~~rates throughout~~ —the ~~second quarter of 2009~~rate received on the adjustable rate ~~leg~~leg—throughout the third quarter of 2009 significantly increased the interest rate swaps’ net interest expense.

Member demand for wholesale funding from the Bank can vary greatly depending on a number of factors, including economic and market conditions, competition from other wholesale funding sources, member deposit inflows and outflows, the activity level of the primary and secondary mortgage markets, and strategic decisions made by individual member institutions. As a result, Bank asset levels and operating results may vary significantly from period to period.

The following table presents the components of ~~other (loss)/income~~“Other Loss” for the three months ended ~~June~~September 30, 2009 and 2008.

Net Other-Than-Temporary Impairment ~~Losses~~Loss on Held-to-Maturity Securities ~~(Credit Losses)~~(Credit-Related Loss) –The Bank ~~realized an $88~~recognized a $316 million OTTI charge related to credit loss on ~~non-agency MBS~~PLRMBS during the ~~second~~third quarter of 2009. Additional information about the OTTI charge is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” and in Note 3 to the Financial Statements.

Net ~~Loss~~(Loss)/Gain on Advances and Consolidated Obligation Bonds Held at Fair Value – Fair value adjustments on advances and consolidated obligation bonds carried at fair value in accordance with ~~SFAS 159~~the fair value option were unrealized fair value losses of ~~$178~~$62 million for the ~~second~~third quarter of 2009 compared to unrealized fair value ~~losses~~gains of ~~$228~~$99 million for the ~~second~~third quarter of 2008. For the ~~second~~third quarter of 2009, the ~~$178~~$62 million in unrealized fair value losses, primarily driven by the ~~increase~~decrease in market rates in the ~~second~~third quarter of 2009 relative to the ~~first~~second quarter of 2009, consisted of ~~$130~~$72 million in unrealized fair value losses on ~~$34.9 billion of~~ advances carried at fair value and ~~$48~~$10 million in unrealized fair value ~~losses~~gains on ~~$35.2 billion of~~ consolidated obligation bonds carried at fair value. For the ~~second~~third quarter of 2008, the ~~$228~~$99 million in unrealized fair value ~~losses,~~gains, primarily driven by the increase in market rates in the ~~second~~third quarter of 2008 relative to the ~~first~~second quarter of 2008, consisted of ~~$256~~$242 million in unrealized fair value gains on consolidated obligation bonds carried at fair value, partially offset by $143 million in unrealized fair value losses on ~~$22.5 billion of~~ advances ~~carried at fair value, partially offset by $28 million in unrealized fair value gains on $26.4 billion of consolidated obligation bonds~~ carried at fair value. In general, transactions elected for the fair value option ~~in accordance with SFAS 159~~ are in economic hedge relationships.

Net (Loss)/Gain on Derivatives and Hedging Activities –The following table shows the accounting classification of hedges and the categories of hedged items that contributed to the gains and losses on derivatives and hedged items that were recorded in “Net (loss)/gain on derivatives and hedging activities” in the ~~second~~third quarter of 2009 and 2008.

Sources of Gains/(Losses) Recorded in Net (Loss)/Gain on Derivatives and Hedging Activities

Three Months Ended ~~June~~September 30, 2009, Compared to Three Months Ended ~~June~~September 30, 2008


(In millions)	Three Months Ended																									Three Months Ended
	June 30, 2009												June 30, 2008
	Gain/(Loss)							Net Interest Income/ (Expense) on					Gain/(Loss)							Net Interest Income/ (Expense) on
Hedged Item																										September 30, 2009													September 30, 2008
																										Gain/(Loss)						Net Interest Income/ (Expense) on			Total				Gain/(Loss)								Net Interest Income/ (Expense) on			Total
	Fair Value Hedges, net		Cash Flow Hedges		Economic Hedges			Economic Hedges			Total		Fair Value Hedges, net		Cash Flow Hedges		Economic Hedges			Economic Hedges			Total			Fair Value Hedges, Net			Economic Hedges			Economic Hedges						Fair Value Hedges, Net				Economic Hedges				Economic Hedges				Total

Advances:																																			Total
Elected for fair value option	$	—	$	—	$	220		$	(193	)	$	27	$	—	$	—	$	309		$	(51	)	$	258		$	—		$	51		$	(201	)	$	(150	)		$	—			$	10			$	(60	)	$	(50	)
Not elected for fair value option		8		—		60			(39	)		29		2		—		(3	)		4			3			(12	)		7			(35	)		(40	)			(75	)			4				2			(69	)
Consolidated obligations:
Elected for fair value option		—		—		88			(29	)		59		—		—		(49	)		(18	)		(67	)		—			13			13			26				—				(176	)			(23	)		(199	)
Not elected for fair value option		—		—		(12	)		121			109		22		—		(60	)		61			23			2			(93	)		89			(2	)			74				(115	)			33			(8	)

Total	$	8	$	—	$	356		$	(140	)	$	224	$	24	$	—	$	197		$	(4	)	$	217		$	(10	)	$	(22	)	$	(134	)	$	(166	)		$	(1	)		$	(277	)		$	(48	)	$	(326	)

During the ~~second~~third quarter of 2009, net ~~gains~~losses on derivatives and hedging activities totaled ~~$224~~$166 million compared to net ~~gains~~losses of ~~$217~~$326 million in the ~~second~~third quarter of 2008. These amounts included net interest

expense on derivative instruments used in economic hedges of ~~$140~~$134 million in the ~~second~~third quarter of 2009, compared to net interest expense on derivative instruments used in economic hedges of $4$48 million in the ~~second~~third quarter of 2008.

Excluding the ~~$140~~$134 million impact from net interest expense on derivative instruments used in economic hedges, net ~~gains~~losses for the ~~second~~third quarter of 2009 totaled ~~$364~~$32 million. The ~~$364~~$32 million in net ~~gains~~losses were primarily attributable to changes in overall interest rate spreads and an increase in swaption volatilities during the ~~second~~third quarter of 2009. These net ~~gains~~losses consisted of net ~~gains~~losses of ~~$220~~$5 million attributable to the hedges related to advances and net losses of $91 million attributable to the hedges related to consolidated obligations accounted for under the ~~fair value option in accordance with SFAS 159,~~accounting for derivative instruments and hedging activities, partially offset by net gains of ~~$88~~$51 million attributable to the hedges related to advances and net gains of $13 million attributable to the hedges related to consolidated obligations accounted for under the fair value option in accordance with SFAS 159, and net gains of $68 million attributable to the hedges related to advances under SFAS 133, partially offset by net losses of $12 million attributable to the hedges related to consolidated obligations under SFAS 133. Most of the economic hedges matched to advances were associated with the advances accounted for under the fair value option in accordance with SFAS 159. Most of the economic hedges matched to consolidated obligations were associated with consolidated obligation bonds and discount notes in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133.option.

The ~~$140~~$134 million of net interest expense on derivative instruments used in economic hedges for the ~~second~~third quarter of 2009 consisted of ~~$193~~$201 million of net interest expense primarily attributable to interest rate swaps associated with advances accounted for under the fair value option ~~in accordance with SFAS 159, $39~~and $35 million of net interest expense attributable to interest rate swaps associated with advances in hedge relationships that do not qualify as fair value or cash flow hedges under ~~SFAS 133,~~the accounting for derivative instruments and ~~$29~~hedging activities. These amounts were partially offset by $89 million of net interest ~~expense~~income attributable to interest rate swaps associated with consolidated obligation bonds and discount notes in hedge relationships that do not qualify as fair value or cash flow hedges under the accounting for derivative instruments and hedging activities and $13 million of net interest income attributable to interest rate swaps associated with consolidated obligation bonds accounted for under the fair value option in accordance with SFAS 159. These amounts were partially offset by $121 million of net interest income attributable to interest rate swaps associated with consolidated obligation bonds and discounts notes in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133. The net interest expense attributable to interest rate swaps associated with advances and the net interest income attributable to interest rate swaps associated with consolidated obligations were primarily due to the impact of the decrease in the LIBOR rates throughout the second quarter of 2009 on the floating leg of the interest rate swaps.

Excluding the $4 million impact from net interest expense on derivative instruments used in economic hedges, net gains for the second quarter of 2008 totaled $221 million. The $221 million in net gains were primarily attributable to an increase in interest rates and a decrease in swaption volatility levels during the second quarter of 2008. These net gains consisted of net gains of $309 million attributable to the hedges related to advances accounted for under the fair value option in accordance with SFAS 159, partially offset by net losses of $49 million attributable to the hedges related to consolidated obligations accounted for under the fair value option in accordance with SFAS 159, net losses of $38 million attributable to the hedges related to consolidated obligations under SFAS 133, and net losses of $1 million attributable to advances under SFAS 133. Most of the economic hedges matched to advances were associated with the advances accounted for under the fair value option in accordance with SFAS 159. Most of the economic hedges matched to consolidated obligations were associated with consolidated obligation bonds and discounts notes in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133.

The $4 million of net interest expense on derivative instruments used in economic hedges for the second quarter of 2008 consisted of $51 million of net interest expense attributable to interest rate swaps associated with advances accounted for under the fair value option in accordance with SFAS 159 and $18 million of net interest expense attributable to interest rate swaps associated with consolidated obligation bonds accounted for under the fair value option in accordance with SFAS 159. These amounts were partially offset by $61 million of net interest income attributable to interest rate swaps associated with consolidated obligation bonds and discounts notes in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133 and $4 million of net interest income attributable to interest rate swaps associated with advances in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133.option. The net interest expense attributable to interest rate swaps associated with advances and the net interest income attributable to interest rate swaps associated with consolidated obligations were primarily due to the impact of the decrease in LIBOR throughout the third quarter of 2009 on the floating leg of the interest rate swaps.

Excluding the $48 million impact from net interest expense on derivative instruments used in economic hedges, net losses for the third quarter of 2008 totaled $278 million. The $278 million in net losses were primarily attributable to significant increases in short-term interest rates toward the end of the third quarter of 2008. These net losses consisted of net losses of $176 million attributable to the hedges related to consolidated obligations accounted for under the fair value option, net losses of $71 million attributable to the hedges related to advances, and net losses of $41 million attributable to the hedges related to consolidated obligations under the accounting for derivative instruments and hedging activities, partially offset by net gains of $10 million attributable to the hedges related to advances accounted for under the fair value option.

The $48 million of net interest expense on derivative instruments used in ~~early~~economic hedges for the third quarter of 2008 consisted of $60 million and $23 million of net interest expense attributable to interest rate swaps associated with advances and with consolidated obligation bonds, respectively, accounted for under the fair value option. These amounts were partially offset by $33 million and $2 million of net interest income attributable to interest rate swaps associated with consolidated obligation bonds and discount notes and with advances, respectively, in hedge relationships that do not qualify as fair value or cash flow hedges under the accounting for derivative instruments and hedging activities. The net interest expense attributable to interest rate swaps associated with advances and the net interest income attributable to interest rate swaps associated with consolidated obligations were primarily due to the impact of the decrease in LIBOR throughout most of 2008 on the floating leg of the interest rate swaps.

~~SFAS 133-~~The hedging and ~~SFAS 159-related income effects~~fair value option valuation adjustments during the ~~second~~third quarter of 2009 were primarily driven by (i) changes in overall interest rate spreads; (ii) the reversal of prior period gains and losses; and (iii) increases in swaption volatilities. The positive fair value impact resulted in primarily unrealized net gains. These gains are generally expected to reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining term to maturity.

The ongoing impact of ~~SFAS 133 and SFAS 159~~these valuation adjustments on the Bank cannot be predicted, and the Bank’s retained earnings in the future may not be sufficient to fully offset the impact of ~~SFAS 133 and SFAS 159.~~these valuation adjustments. The effects of ~~SFAS 133 and SFAS 159~~these valuation adjustments may lead to significant volatility in future earnings, ~~other comprehensive income, and~~including earnings available for dividends.

~~Six~~Nine Months Ended ~~June~~September 30, 2009, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2008


	Six Months Ended														Nine Months Ended
	June 30, 2009							June 30, 2008							September 30, 2009							September 30, 2008
(In millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate

Assets
Interest-earning assets:
Resale agreements															$	8		$	—	0.17	%	$	—		$	—	—	%
Federal funds sold	$	14,226		$	13	0.18	%	$	14,451		$	209	2.91	%		14,107			18	0.17			14,221			287	2.70
Trading securities:
MBS		34			1	5.93			55			2	7.31			33			1	4.05			49			2	5.45
Held-to-maturity securities:
MBS		37,640			783	4.19			37,063			910	4.94			36,610			1,136	4.15			38,362			1,395	4.86
Other investments⁽¹⁾		11,452			21	0.37			18,320			289	3.17
Other investments																10,644			26	0.33			17,217			389	3.02
Mortgage loans		3,573			79	4.46			4,023			97	4.85			3,467			118	4.55			3,965			145	4.88
Advances⁽²⁾		206,095			1,837	1.80			250,217			4,448	3.57
Advances⁽¹⁾																191,972			2,385	1.66			251,217			6,279	3.34
Loans to other FHLBanks		341			—	0.11			16			—	2.77			291			—	0.11			17			—	2.50

Total interest-earning assets		273,361			2,734	2.02			324,145			5,955	3.69			257,132			3,684	1.92			325,048			8,497	3.49
Other assets^(3)(4)(5)		6,391			—	—			8,792			—	—
Other assets^(2)(3)(4)																5,213			—	—			7,711			—	—

Total Assets	$	279,752		$	2,734	1.97	%	$	332,937		$	5,955	3.60	%	$	262,345		$	3,684	1.88	%	$	332,759		$	8,497	3.41	%

Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽²⁾	$	188,994		$	1,448	1.55	%	$	227,117		$	4,031	3.57	%
Bonds⁽¹⁾															$	180,367		$	1,866	1.38	%	$	229,989		$	5,704	3.31	%
Discount notes		69,485			368	1.07			81,512			1,331	3.28			61,664			435	0.94			79,479			1,793	3.01
Deposits⁽³⁾		2,286			—	0.06			1,374			17	2.49
Deposits⁽²⁾																2,149			—	0.05			1,395			23	2.20
Borrowings from other FHLBanks		10			—	0.16			16			—	1.45			8			—	0.16			25			—	1.06
Mandatorily redeemable capital stock		3,358			—	—			206			6	5.96			3,292			7	0.28			409			14	5.24
Other borrowings		13			—	0.08			8			—	3.10			9			—	0.08			15			—	2.27

Total interest-bearing liabilities		264,146			1,816	1.39			310,233			5,385	3.49			247,489			2,308	1.25			311,312			7,534	3.23
Other liabilities⁽³⁾⁽⁴⁾		5,703			—	—			8,684			—	—
Other liabilities⁽²⁾⁽³⁾																5,309			—	—			7,565			—	—

Total Liabilities		269,849			1,816	1.36			318,917			5,385	3.40			252,798			2,308	1.22			318,877			7,534	3.16
Total Capital		9,903			—	—			14,020			—	—			9,547			—	—			13,882			—	—

Total Liabilities and Capital	$	279,752		$	1,816	1.31	%	$	332,937		$	5,385	3.25	%	$	262,345		$	2,308	1.18	%	$	332,759		$	7,534	3.02	%

Net Interest Income				$	918						$	570						$	1,376						$	963

Net Interest Spread⁽⁶⁾						0.63	%						0.20	%
Net Interest Spread⁽⁵⁾																				0.67	%						0.26	%

Net Interest Margin⁽⁷⁾						0.68	%						0.35	%
Net Interest Margin⁽⁶⁾																				0.72	%						0.40	%

Interest-earning Assets/ Interest-bearing Liabilities		103.49	%						104.48	%						103.90	%						104.41	%

Total Average Assets/Capital Ratio⁽⁸⁾		21.1	x						23.4	x
Total Average Assets/Capital Ratio⁽⁷⁾																20.4	x						23.3	x

~~Six~~Nine Months Ended ~~June~~September 30, 2009, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2008


										Increase/ (Decrease)			Attributable to Changes in⁽¹⁾
	Increase/			Attributable to Changes in⁽¹⁾
(In millions)	(Decrease)			Average Volume			Average Rate						Average Volume			Average Rate

Interest-earning assets:
Federal funds sold	$	(196	)	$	(3	)	$	(193	)	$	(269	)	$	(2	)	$	(267	)
Trading securities:
MBS		(1	)		(1	)		—			(1	)		(1	)		—
Held-to-maturity securities:
MBS		(127	)		14			(141	)		(259	)		(62	)		(197	)
Other investments⁽²⁾		(268	)		(80	)		(188	)
Other investments											(363	)		(109	)		(254	)
Mortgage loans		(18	)		(10	)		(8	)		(27	)		(17	)		(10	)
Advances⁽³⁾		(2,611	)		(684	)		(1,927	)
Advances⁽²⁾											(3,894	)		(1,244	)		(2,650	)
Loans to other FHLBanks											—			1			(1	)

Total interest-earning assets		(3,221	)		(764	)		(2,457	)		(4,813	)		(1,434	)		(3,379	)

Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽³⁾		(2,583	)		(590	)		(1,993	)
Bonds⁽²⁾											(3,838	)		(1,037	)		(2,801	)
Discount notes		(963	)		(173	)		(790	)		(1,358	)		(334	)		(1,024	)
Deposits		(17	)		7			(24	)		(23	)		8			(31	)
Mandatorily redeemable capital stock		(6	)		6			(12	)		(7	)		20			(27	)

Total interest-bearing liabilities		(3,569	)		(750	)		(2,819	)		(5,226	)		(1,343	)		(3,883	)

Net interest income	$	348		$	(14	)	$	362		$	413		$	(91	)	$	504

Net interest income in the first ~~six~~nine months of 2009 was ~~$918~~$1,376 million, a ~~61%~~43% increase from ~~$570~~$963 million in the first ~~six~~nine months of 2008. The increase was driven primarily by the following:

Interest income from the mortgage portfolio decreased ~~$146~~$287 million in the first ~~six~~nine months of 2009 compared to the first ~~six~~nine months of 2008. The decrease consisted of a ~~$149~~$207 million decrease attributable to lower average yields on MBS investments and mortgage loans, ~~and~~ a ~~$10~~$63 million decrease attributable to ~~an 11%~~a 5% decrease in average MBS investments outstanding, and a $17 million decrease attributable to a 13% decrease in average mortgage loans ~~outstanding, partially offset by a $13 million increase attributable to a 1% increase in average MBS investments~~ outstanding. Interest income from the mortgage portfolio includes the impact of cumulative retrospective adjustments for the amortization of net purchase discounts from the acquisition dates of the MBS and mortgage loans, ~~in accordance with SFAS 91,~~ which decreased interest income by $23 million in the first ~~six~~nine months of 2009 and increased interest income by $2$7 million in the first ~~six~~nine months of 2008. This decrease was primarily due to ~~a higher mortgage rate environment during 2009, resulting in~~ slower projected prepayment ~~rates.~~speeds during 2009.

Interest income from advances decreased ~~$2.6~~$3.9 billion in the first ~~six~~nine months of 2009 compared to the first ~~six~~nine months of 2008. The decrease consisted of a ~~$1.9~~$2.7 billion decrease attributable to lower average yields and a ~~$0.7~~$1.2 billion decrease attributable to ~~an 18%~~a 24% decrease in average advances outstanding, reflecting lower member demand during the first ~~six~~nine months of 2009 relative to the first ~~six~~nine months of 2008. Interest income from advances also includes the impact of advance prepayments, which increased interest income by $22 million in the first nine months of 2009. In the first nine months of 2008, interest income was decreased by prepayment credits of $10 million. The increase in the first nine months of 2009 primarily reflects prepayment fees received on the advances, partially offset by net losses on the interest rate exchange agreements hedging the prepaid advances.

As a result of these factors, the net interest margin was 6872 basis points for the first ~~six~~nine months of 2009, 3332 basis points higher than the net interest margin for the first ~~six~~nine months of 2008, which was 3540 basis points. The net interest spread was 6367 basis points for the first ~~six~~nine months of 2009, 4341 basis points higher than the net interest spread for the first ~~six~~nine months of 2008, which was 2026 basis points. The increase primarily reflected a higher net interest spread on the Bank’s fixed rate advances ~~accounted for in accordance with SFAS 159~~ and the fixed rate mortgage portfolio resulting from the favorable impact of lower interest rates on the associated adjustable rate funding. This increase was primarily offset by lower yields on the Bank’s invested capital during the first nine months of 2009 relative to the same period in 2008 because of the lower interest rate environment in the first nine months of 2009.

The increase in net interest income was partially offset by the increase in net interest expense on derivative instruments used in economic hedges, ~~as noted~~recognized in “Other (Loss)/Income.” The increase reflected economic hedges used to hedge fixed rate ~~assets~~advances and MBS with interest rate swaps having a fixed rate pay leg and an adjustable rate receive leg. The decrease in LIBOR—the ~~LIBOR rates throughout the first six months of 2009~~rate received on the adjustable rate ~~leg~~leg—throughout the first nine months of 2009 significantly increased the interest rate swaps’ net interest expense.

The following table presents the various components of ~~other (loss)/income~~“Other Loss” for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008.


	Six Months Ended					Nine Months Ended
(In millions)	June 30, 2009			June 30, 2008		September 30, 2009			September 30, 2008

Other (Loss)/Income:
Other Loss:
Services to members	$	1		$	—	$	1		$	1
Net gain on trading securities		1			—		1			—
Total OTTI losses on held-to-maturity securities		(2,439	)		—
Total other-than-temporary impairment loss on held-to-maturity securities							(3,824	)		—

Portion of loss recognized in other comprehensive income/(loss)		2,263			—		3,332			—

Net impairment losses on held-to-maturity securities (credit losses)		(176	)		—
Net other-than-temporary impairment loss on held-to-maturity securities (credit-related loss)							(492	)		—
Net (loss)/gain on advances and consolidation obligation bonds held at fair value		(361	)		46		(423	)		145
Net gain on derivatives and hedging activities		258			62
Net gain/(loss) on derivatives and hedging activities							92			(264	)
Other		2			2		3			3

Total Other (Loss)/Income	$	(275	)	$	110
Total Other Loss						$	(818	)	$	(115	)

Net Other-Than-Temporary Impairment ~~Losses~~Loss on Held-to-Maturity Securities ~~(Credit Losses)~~(Credit-Related Loss) –The Bank realized a ~~$176~~$492 million OTTI charge related to credit loss on ~~non-agency MBS~~PLRMBS during the first ~~six~~nine months of 2009. Additional information about the OTTI charge is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” and in Note 3 to the Financial Statements.

Net (Loss)/Gain on Advances and Consolidated Obligation Bonds Held at Fair Value – Fair value adjustments on advances and consolidated obligation bonds carried at fair value in accordance with ~~SFAS 159~~the fair value option were unrealized net fair value losses of ~~$361~~$423 million for the first ~~six~~nine months of 2009 compared to unrealized net fair value gains of ~~$46~~$145 million for the first ~~six~~nine months of 2008. For the first ~~six~~nine months of 2009, the ~~$361~~$423 million unrealized net fair value losses were primarily driven by the decline in interest rates and an increase in swaption volatility, and consisted of $393 million in unrealized fair value losses on advances carried at fair value and $30 million in unrealized fair value losses on consolidated obligation bonds carried at fair value. For the first nine months of 2008, the $145 million unrealized net fair value gains, primarily driven by the decline in interest rates and an increase in swaption volatility during the first six months of 2009 consisted of $321 million in unrealized fair value losses on $34.9 billion of advances carried at fair value and $40 million in unrealized fair value losses on $35.2 billion of consolidated obligation bonds carried at fair value. For the first six months of 2008, the $46 million unrealized net fair value gains, primarily driven by the sharp decline in interest rates and an increase in swaption volatility during the first sixnine months of 2008, consisted of ~~$63~~$305 million in unrealized fair value gains ~~of $26.4 billion of~~on consolidated obligation bonds carried at fair value, partially offset by ~~$17~~$160 million in unrealized fair value losses on ~~$22.5 billion of~~ advances carried at fair value. In general, transactions elected for the fair value option ~~in accordance with SFAS 159~~ are in economic hedge relationships.

Sources of Gains/(Losses) Recorded in Net (Loss)/Gain on Derivatives and Hedging Activities

~~Six~~Nine Months Ended ~~June~~September 30, 2009, Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2008


(In millions)	Six Months Ended																												Nine Months Ended
	June 30, 2009														June 30, 2008
	Gain/(Loss)								Net Interest Income/ (Expense) on						Gain/(Loss)								Net Interest Income/ (Expense) on
Hedged Item																													September 30, 2009													September 30, 2008
																													Gain/(Loss)						Net Interest Income/ (Expense) on			Total				Gain/(Loss)								Net Interest Income/ (Expense) on			Total
	Fair Value Hedges, net			Cash Flow Hedges		Economic Hedges			Economic Hedges			Total			Fair Value Hedges, net			Cash Flow Hedges		Economic Hedges			Economic Hedges			Total			Fair Value Hedges, Net			Economic Hedges			Economic Hedges						Fair Value Hedges, Net				Economic Hedges				Economic Hedges				Total

Advances:																																						Total
Elected for fair value option	$	—		$	—	$	353		$	(342	)	$	11		$	—		$	—	$	18		$	(57	)	$	(39	)	$	—		$	404		$	(543	)	$	(139	)		$	—			$	28			$	(118	)	$	(90	)
Not elected for fair value option		(28	)		—		102			(86	)		(12	)		(3	)		—		—			9			6			(40	)		109			(121	)		(52	)			(78	)			4				12			(62	)
Consolidated obligations:
Elected for fair value option		—			—		130			(109	)		21			—			—		(63	)		(20	)		(83	)		—			143			(96	)		47				—				(238	)			(43	)		(281	)
Not elected for fair value option		52			—		(126	)		312			238			47			—		—			131			178			54			(219	)		401			236				121				(116	)			164			169

Total	$	24		$	—	$	459		$	(225	)	$	258		$	44		$	—	$	(45	)	$	63		$	62		$	14		$	437		$	(359	)	$	92			$	43			$	(322	)		$	15		$	(264	)

During the first ~~six~~nine months of 2009, net gains on derivatives and hedging activities totaled ~~$258~~$92 million compared to net ~~gains~~losses of ~~$62~~$264 million in the first ~~six~~nine months of 2008. These amounts included net interest expense on derivative instruments used in economic hedges of ~~$225~~$359 million in the first ~~six~~nine months of 2009, compared to net interest income on derivative instruments used in economic hedges of ~~$63~~$15 million in the first ~~six~~nine months of 2008.

Excluding the ~~$225~~$359 million impact from net interest expense on derivative instruments used in economic hedges, net gains for the first ~~six~~nine months of 2009 totaled ~~$483~~$451 million. The ~~$483~~$451 million in net gains were primarily attributable to changes in overall interest rate spreads and an increase in swaption volatilities during the first ~~six~~nine months of 2009. These net gains consisted of net gains of ~~$353~~$404 million attributable to the hedges related to advances ~~accounted for under the fair value option in accordance with SFAS 159,~~and net gains of ~~$130~~$143 million attributable to the hedges related to consolidated obligations accounted for under the fair value option, ~~in accordance with SFAS 159,~~ and net gains of ~~$74~~$109 million attributable to the hedges related to advances accounted for under ~~SFAS 133,~~the accounting for derivative instruments and hedging activities. These amounts were partially offset by net losses of ~~$74~~$219 million attributable to the hedges related to consolidated obligations under ~~SFAS 133. Most of~~ the ~~economic hedges matched to advances were associated with the advances accounted~~accounting for ~~under the fair value option in accordance with SFAS 159. The economic hedges matched to consolidated obligations were associated with consolidated obligation bonds~~derivative instruments and discount notes in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133, as well as consolidated obligation bonds accounted for under the fair value option in accordance with SFAS 159.hedging activities.

The ~~$225~~$359 million of net interest expense on derivative instruments used in economic hedges for the first ~~six~~nine months of 2009 consisted of ~~$342~~$543 million of net interest expense attributable to interest rate swaps associated with advances accounted for under the fair value option, ~~in accordance with SFAS 159, $109~~$96 million of net interest expense attributable to interest rate swaps associated with consolidated obligation bonds accounted for under the fair value option, ~~in accordance with SFAS 159,~~ and ~~$86~~$121 million of net interest expense attributable to interest rate swaps associated with advances in hedge relationships that do not qualify as fair value or cash flow hedges under ~~SFAS 133.~~the accounting for derivative instruments and hedging activities. These amounts were partially offset by ~~$312~~$401 million of net interest income attributable to interest rate swaps associated with consolidated obligation bonds and discount notes in hedge relationships that do not qualify as fair value or cash flow hedges under ~~SFAS 133.~~the accounting for derivative instruments and hedging activities. The net interest expense attributable to interest rate swaps associated with advances and the net interest income attributable to interest rate swaps associated with consolidated obligations were primarily due to the impact of the decrease in ~~the~~ LIBOR ~~rates~~ throughout the first ~~six~~nine months of 2009 on the floating leg of the interest rate swaps.

Excluding the ~~$63~~$15 million impact from net interest income on derivative instruments used in economic hedges, net losses for the first ~~six~~nine months of 2008 totaled $1$279 million. The $1$279 million in net losses, primarily attributable to the ~~sharp~~ decline in interest rates ~~during the latter half of 2007~~ through the first ~~six~~nine months of 2008, consisted of net losses of ~~$63~~$238 million attributable to the hedges related to consolidated obligations accounted for under the fair value option ~~in accordance with SFAS 159,~~and net losses of $3$74 million attributable to the hedges related to advances under ~~SFAS 133,~~the accounting for derivative instruments and hedging activities, partially offset by net gains of ~~$47~~$28 million attributable to the ~~hedges related to consolidated obligations under SFAS 133 and net gains of $18 million attributable to~~ hedges related to advances accounted for under the fair value option ~~in accordance with SFAS 159. Most~~and net gains of $5 million attributable to the ~~economic~~ hedges ~~matched to advances were associated with the advances accounted for under the fair value option in accordance with SFAS 159. The economic hedges matched~~related to consolidated obligations were associated with consolidated obligation bonds and discount notes in hedge relationships that do not qualify as fair value or cash flow hedges under SFAS 133, as well as consolidated obligation bonds accounted for under the ~~fair value option in accordance with SFAS 159.~~accounting for derivative instruments and hedging activities.

The ~~$63~~$15 million of net interest income on derivative instruments used in economic hedges for the first ~~six~~nine months of 2008 consisted of ~~$131~~$164 million and $12 million of net interest income attributable to interest rate swaps associated with consolidated obligation bonds and ~~discounts~~discount notes ~~in hedge relationships that do not qualify as fair value~~

~~or cash flow hedges under SFAS 133~~ and ~~$9 million of net interest income attributable to interest rate swaps associated~~ with advances, respectively, in hedge relationships that do not qualify as fair value or cash flow hedges under ~~SFAS 133.~~the accounting for derivative instruments and hedging activities. These amounts were partially offset by ~~$57~~$118 million and $43 million of net interest expense attributable to interest rate swaps associated with advances and consolidated obligation bonds, respectively, accounted for under the fair value option in accordance with SFAS 159 and $20 million of net interest expense attributable to interest rate swaps associated with consolidated obligation bonds accounted for under the fair value option in accordance with SFAS 159.option. The net interest income on derivative instruments used in economic hedges for the first ~~six~~nine months of 2008 was primarily due to the ~~abrupt and significant~~ decrease in interest rates that occurred ~~in early~~during 2008, which had

a favorable effect on certain LIBOR-based interest rate swaps that effectively converted the repricing frequency of the interest rate swaps from three months to one month. The favorable effect resulted from the one-month leg of the interest rate swaps repricing at the lower interest rates more quickly than the three-month leg of the interest rate swaps.

~~SFAS 133-~~The hedging and ~~SFAS 159-related income effects~~fair value option valuation adjustments during the first ~~six~~nine months of 2009 were primarily driven by (i) changes in overall interest rate spreads; (ii) the reversal of prior period gains and losses; and (iii) increases in swaption volatilities. The positive fair value impact resulted in primarily unrealized net gains. These gains are generally expected to reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining term to maturity.

Return on equity (ROE) was ~~12.49%~~(3.84)% (annualized) for the ~~second~~third quarter of 2009, ~~an increase~~a decrease of ~~612~~680 basis points from the ~~second~~third quarter of 2008. This ~~increase~~decrease primarily reflected the ~~increase~~decrease in net income in the ~~second~~third quarter of 2009 coupled with a decrease in average equity compared to the same period in 2008.

ROE was ~~8.68%~~4.77% (annualized) for the first ~~six~~nine months of 2009, ~~an increase~~a decrease of ~~203~~67 basis points ~~from~~compared to the first ~~six~~nine months of 2008. This ~~increase~~decrease reflected the ~~decrease~~decline in average equity, which decreased ~~29%~~32%, to ~~$9.9~~$9.5 billion in the first ~~six~~nine months of 2009 from ~~$14.0~~$13.9 billion in the first ~~six~~nine months of ~~2008.~~2008, coupled with a decrease in net income in the first nine months of 2009.

By regulations governing the operations of the FHLBanks, dividends may be paid only out of current net earnings or previously retained earnings. As required by the regulations, the Bank has a formal ~~retained earnings policy~~Retained Earnings and Dividend Policy that is reviewed at least annually by the Bank’s Board of Directors. The Board of Directors may amend the Retained Earnings and Dividend Policy from time to time. The Bank’s Retained Earnings and Dividend Policy establishes amounts to be retained in restricted retained earnings, which are not made available for dividends in the current dividend period. The Bank may be restricted from paying dividends if it is not in compliance with any of its minimum capital requirements or if payment would cause the Bank to fail to meet any of its minimum capital requirements. In addition, the Bank may not pay dividends if any principal or interest due on any consolidated ~~obligations~~obligation has not been paid in full or is not expected to be paid in full, or, under certain circumstances, if the Bank fails to satisfy certain liquidity requirements under applicable regulations.

The regulatory liquidity requirements state that each FHLBank must (i) maintain eligible high quality assets (advances with a maturity not exceeding five years, U.S. Treasury securities investments, and deposits in banks or trust companies) in an amount equal to or greater than the deposits received from members, and (ii) hold contingency liquidity in an amount sufficient to meet its liquidity needs for at least five business days

without access to the consolidated obligations markets. At ~~June~~September 30, 2009, advances maturing within five years totaled ~~$165.4~~$146.1 billion, significantly in excess of the ~~$0.3~~$0.2 billion of member deposits on that date. At December 31, 2008, advances maturing within five years totaled $225.1 billion, also significantly in excess of the $0.6 billion of member deposits on that date. In addition, as of ~~June~~September 30, 2009, and December 31, 2008, the Bank’s estimated total sources of funds obtainable from liquidity investments, repurchase agreement borrowings collateralized by the Bank’s marketable securities, and advance repayments would have allowed the Bank to meet its liquidity needs for more than 90 days without access to the consolidated obligations markets.

Retained Earnings Related to ~~SFAS 133 and SFAS 159~~Valuation Adjustments –In accordance with the Bank’s Retained Earnings and Dividend Policy, the Bank retains in restricted retained earnings any cumulative net gains in earnings (net of applicable assessments) resulting from ~~SFAS 133. Effective January 1, 2008,~~ the ~~Bank’s Retained Earnings~~accounting for derivative instruments and ~~Dividend Policy was amended to also include in restricted retained earnings~~hedging activities and any cumulative net gains resulting from the transition impact of adopting ~~SFAS 159~~the fair value option and the ongoing impact from the application of ~~SFAS 159.~~the fair value option. As ~~SFAS 133- and SFAS 159-related~~the cumulative net gains are reversed by periodic ~~SFAS 133- and SFAS 159-related~~ net losses and settlements of contractual interest cash flows, the amount of the cumulative net gains decreases. The amount of retained earnings required by this provision of the policy is therefore decreased, and that portion of the previously restricted retained earnings becomes unrestricted and may be made available for dividends. The retained earnings restricted in accordance with this provision of the Bank’s Retained Earnings and Dividend Policy totaled ~~$170~~$116 million at ~~June~~September 30, 2009, and $52 million at December 31, 2008.

Other Retained Earnings – Targeted Buildup –In addition to any cumulative net gains resulting from ~~the application of SFAS 133 and SFAS 159,~~valuation adjustments, the Bank holds an additional amount ~~of other~~in restricted retained earnings intended to protect members’ paid-in capital from the effects of an extremely adverse credit event, an extremely adverse operations risk event, ~~and/or~~ an extremely ~~adverse SFAS 133 or SFAS 159 quarterly result, combined with an extremely low~~high level of ~~pre-SFAS 133~~quarterly losses related to the Bank’s derivatives and ~~pre-SFAS 159~~associated hedged items and financial instruments carried at fair value, and the risk of higher-than-anticipated credit losses related to other-than-temporary impairment of PLRMBS, especially in periods of extremely low net income resulting from an adverse interest rate ~~environment, as well as the risk of a write-down on MBS with unrealized losses if the losses were determined to be other than temporary.~~environment. The retained earnings restricted in accordance with this provision of the Retained Earnings and Dividend Policy totaled ~~$1,002~~$949 million at ~~June~~September 30, 2009, and $124 million at December 31, 2008. ~~The Bank’s current target is $1.2 billion.~~ On May 29, 2009, the Bank’s Board of Directors amended the Bank’s Retained Earnings and Dividend Policy to change the way the Bank determines the amount of earnings to be restricted for the targeted buildup. Instead of retaining a fixed percentage of earnings toward the retained earnings target each quarter, the Bank will designate any earnings not restricted for other reasons or not paid out in dividends as restricted retained earnings for the purpose of meeting the target. In September 2009, the Board of Directors increased the targeted amount to $1.8 billion. Most of the increase in the target was due to an increase in the projected losses on the collateral underlying the Bank’s PLRMBS under stress case assumptions about housing market conditions.

Dividends –On ~~July 30,~~October 29, 2009, the ~~Bank’s Board of Directors declared a cash dividend for the second quarter of 2009 at an annualized rate of 0.84%. The total amount of the dividend is $28 million. The~~ Bank ~~did~~announced that it would not pay a dividend for the ~~first quarter of 2009. The Bank’s dividend rate was 6.19% (annualized) for the second quarter of 2008 and 5.96% (annualized) for the first six months of 2008.~~

~~The dividend for the second~~third quarter of 2009 will be paid in cash rather than in shares of Class B capital stock to comply with Finance Agency rules. Under Finance Agency rules, an FHLBank may not pay dividends in the form of capital stock or issue excess stock to members if the FHLBank’s excess stock exceeds 1% of its total assets or if the issuance of stock would cause the FHLBank’s excess stock to exceed 1% of its total assets. At June 30, 2009, the Bank’s excess capital stock totaled $4.6 billion, or 2% of total assets.

~~On July 14, 2009, the Bank notified members that it~~and would not repurchase excess capital stock during the fourth quarter of 2009. The Bank continues to focus on ~~July 31, 2009, in order to preserve the Bank’s~~preserving capital in ~~light of~~response to the ongoing ~~potential for additional OTTI charges because of uncertainty regarding future conditions~~challenges in the housing and mortgage markets and ~~capital markets.~~the possibility of future OTTI charges. The Bank will continue to monitor the condition of its MBS portfolio, its overall financial performance and retained earnings, developments in the mortgage and credit markets, and other relevant information in determining the status of dividends and excess capital stock repurchases in future quarters. The Bank’s dividend rate was 3.85% (annualized) for the third quarter of 2008 and 5.24% (annualized) for the first nine months of 2008.

For more information on the Bank’s Retained Earnings and Dividend Policy, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Comparison of 2008 to 2007 – Dividends” in the Bank’s 2008 Form 10-K.

Total assets were ~~$238.9~~$211.2 billion at ~~June~~September 30, 2009, a ~~26%~~34% decrease from $321.2 billion at December 31, 2008, primarily as a result of decline in advances, which decreased by ~~$61.0~~$80.7 billion or ~~26%~~34%, to ~~$174.7~~$155.0 billion at ~~June~~September 30, 2009, from $235.7 billion at December 31, 2008. In addition to the decline in advances, cash and due from banks decreased to ~~$0.8~~$6.1 billion at ~~June~~September 30, 2009, from $19.6 billion at December 31, 2008, and held-to-maturity securities decreased to $38.8 billion at September 30, 2009, from $51.2 billion at December 31, 2008. Average total assets were ~~$257.9~~$228.1 billion for the ~~second~~third quarter of 2009, a ~~23%~~31% decrease compared to ~~$334.8~~$332.4 billion for the ~~second~~third quarter of 2008. Average total assets were ~~$279.8~~$262.3 billion for the first ~~six~~nine months of 2009, a ~~16%~~21% decrease compared to ~~$332.9~~$332.8 billion for the first ~~six~~nine months of 2008. Average advances were ~~$190.5~~$164.2 billion for the ~~second~~third quarter of 2009, a ~~25%~~35% decrease from ~~$252.9~~$253.2 billion in the ~~second~~third quarter of 2008. Average advances were ~~$206.1~~$192.0 billion for the first ~~six~~nine months of 2009, ~~an 18%~~a 24% decrease from ~~$250.2~~$251.2 billion in the first ~~six~~nine months of 2008.

Members decreased their use of Bank advances during the first ~~six~~nine months of 2009 for a variety of reasons, including increases in core deposits, reduced lending activity, the use of Troubled Asset Relief Program funds, active Temporary Liquidity Guarantee Program issuances, access to the Federal Reserve Bank discount window, and reductions in the borrowing capacity of collateral pledged to the Bank. Held-to-maturity securities decreased primarily because of lower investment balances in the MBS portfolio resulting from run-off (paydowns, prepayments, and maturities) in the portfolio, OTTI recognized on the PLRMBS, and a substantial reduction in purchases of new MBS. The decrease in cash and due from banks was primarily in cash held at the FRBSF, reflecting a reduction in the Bank’s short-term liquidity needs.

Advances outstanding at ~~June~~September 30, 2009, included unrealized gains of ~~$1.8~~$1.7 billion, of which ~~$885~~$822 million represented unrealized gains on advances hedged in accordance with ~~SFAS 133~~the accounting for derivative instruments and ~~$953~~hedging activities and $840 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with ~~SFAS 159.~~the fair value option. Advances outstanding at December 31, 2008, included unrealized gains of $2.7 billion, of which $1.4 billion represented unrealized gains on advances hedged in accordance with ~~SFAS 133~~the accounting for derivative instruments and hedging activities and $1.3 billion represented unrealized gains on economically hedged advances that are carried at fair value in accordance with ~~SFAS 159.~~the fair value option. The overall decrease in the unrealized gains of the hedged advances and advances carried at fair value from December 31, 2008, to ~~June~~September 30, 2009, was primarily attributable to lower interest rates on advances during the first ~~six~~nine months of 2009.

Total liabilities were ~~$230.2~~$203.5 billion at ~~June~~September 30, 2009, a ~~26%~~35% decrease from $311.5 billion at December 31, 2008, reflecting decreases in consolidated obligations outstanding from $304.9 billion at December 31, 2008, to ~~$225.2~~$198.8 billion at ~~June~~September 30, 2009. The decrease in consolidated obligations outstanding paralleled the decrease in assets during the first ~~six~~nine months of 2009. Average total liabilities were ~~$248.2~~$219.2 billion for the ~~second~~third quarter of 2009, a ~~23%~~31% decrease compared to ~~$320.7~~$318.8 billion for the ~~second~~third quarter of 2008. Average total liabilities were ~~$269.8~~$252.8 billion for the first ~~six~~nine months of 2009, a ~~15%~~21% decrease compared to $318.9 billion for the first ~~six~~nine months of 2008. The decrease in average liabilities reflects decreases in average consolidated obligations, paralleling the decline in average assets. Average consolidated obligations were ~~$237.8~~$209.6 billion in the ~~second~~third quarter of 2009 and ~~$311.6~~$311.1 billion in the ~~second~~third quarter of 2008. Average consolidated obligations were ~~$258.5~~$242.0 billion in the first ~~six~~nine months of 2009 and ~~$308.6~~$309.5 billion in the first ~~six~~nine months of 2008.

Consolidated obligations outstanding at ~~June~~September 30, 2009, included unrealized losses of $2.4 billion on consolidated obligation bonds hedged in accordance with ~~SFAS 133~~the accounting for derivative instruments and ~~$82~~hedging activities and $68 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with ~~SFAS 159.~~the fair value option. Consolidated obligations outstanding at December 31, 2008, included unrealized losses of $3.9 billion on consolidated

obligation bonds hedged in accordance with ~~SFAS 133~~the accounting for derivative instruments and hedging activities and $50 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with ~~SFAS 159.~~the fair value option. The overall decrease in the unrealized losses on the hedged consolidated obligation bonds and the consolidated obligation bonds carried at fair value from December 31, 2008, to ~~June~~September 30, 2009, was primarily attributable to ~~higher interest rates during~~ the ~~first six months~~reversal of ~~2009.~~prior period losses.

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of ~~June~~September 30, 2009, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was ~~$1,055.9~~$973.6 billion at ~~June~~September 30, 2009, and $1,251.5 billion at December 31, 2008.

As of ~~June~~September 30, 2009, Standard & Poor’s Rating Services (Standard & Poor’s) rated the FHLBanks’ consolidated obligations AAA/A-1+, and Moody’s Investors Service (Moody’s) rated them Aaa/P-1. As of ~~June~~September 30, 2009, Standard & Poor’s assigned ten FHLBanks, including the Bank, a long-term credit rating of AAA, the FHLBank of Seattle a long-term credit rating of AA+, and the FHLBank of Chicago a long-term credit rating of ~~AA.~~AA+. As of ~~June~~September 30, 2009, Moody’s continued to assign all the FHLBanks a long-term credit rating of Aaa. Changes in the long-term credit ratings of individual FHLBanks do not necessarily affect the credit rating of the consolidated obligations issued on behalf of the FHLBanks. Rating agencies may change a rating from time to time because of various factors, including operating results or actions taken, business developments, or changes in their opinion regarding, among other factors, the general outlook for a particular industry or the economy.

The Bank evaluated the publicly disclosed FHLBank regulatory actions and long-term credit ratings of other FHLBanks as of ~~June~~September 30, 2009, and as of each period end presented, and determined that they have not materially increased the likelihood that the Bank will be required by the Finance Agency to repay any principal or interest associated with consolidated obligations for which the Bank is not the primary obligor.

The Bank ~~analyzes its~~uses an analysis of financial performance based on the balances and adjusted net interest income of two operating ~~segments:~~segments, the advances-related business and the mortgage-related ~~business.~~business, as well as other financial information, to review and assess financial performance and to determine the allocation of resources to these two major business segments. For purposes of segment reporting, adjusted net interest income includes ~~net~~ interest ~~expense on derivative instruments used in~~income and expenses associated with economic hedges that are recorded in “Net gain/(loss) on derivatives and hedging activities” in other income and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Other key financial information, such as any OTTI loss on the Bank’s held-to-maturity PLRMBS, other expenses, and assessments, are not included in the segment reporting analysis, but are incorporated into management’s overall assessment of financial performance. For a reconciliation of the Bank’s operating segment adjusted net interest income to the Bank’s total net interest income, see Note 8 to the Financial Statements.

Advances-Related Business. The advances-related business consists of advances and other credit products, related financing and hedging instruments, liquidity and other non-MBS investments associated with the Bank’s role as a liquidity provider, and capital stock.

Assets associated with this segment decreased to ~~$202.4~~$177.8 billion ~~(85%~~(84% of total assets) at ~~June~~September 30, 2009, from $278.2 billion (87% of total assets) at December 31, 2008, representing a decrease of ~~$75.8~~$100.4 billion, or ~~27%~~36%. The decrease primarily reflected lower demand for advances by the Bank’s members.

Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on advances and non-MBS investments and the cost of the consolidated obligations funding these assets, including the cash flows from associated interest rate exchange agreements.

Adjusted net interest income for this segment was ~~$189~~$159 million in the ~~second~~third quarter of 2009, a decrease of ~~$34~~$73 million, or ~~15%~~31%, compared to ~~$223~~$232 million in the ~~second~~third quarter of 2008. In the first ~~six~~nine months of 2009, adjusted net interest income for this segment was ~~$393~~$552 million, a decrease of ~~$56~~$129 million, or ~~12%~~19%, compared to ~~$449~~$681 million in the first ~~six~~nine months of 2008. The declines were primarily attributable to the lower yield on invested capital ~~due to~~because of the lower interest rate environment during 2009, lower net interest spreads on the non-MBS investment portfolio, and lower average balances of advances. ~~These decreases were partially offset by a higher spread on advances, which was due, in part, to the refinancing of certain short-term and callable debt at lower interest rate levels.~~ Members and nonmember borrowers prepaid ~~$11.4 billion~~$391 million of advances in the ~~second~~third quarter of 2009 compared to ~~$0.4~~$2.0 billion in the ~~second~~third quarter of 2008. Members and nonmember borrowers prepaid ~~$14.1~~$14.5 billion of advances in the first ~~six~~nine months of 2009 compared to ~~$1.2~~$3.1 billion in the first ~~six~~nine months of 2008. ~~Advance prepayment fees totaled $18~~Interest income from advances also includes the impact of advance prepayments, which increased interest income by $2 million in the ~~second~~third quarter of ~~2009 and were immaterial in~~2009. In the ~~second~~third quarter of ~~2008. Advance~~2008, interest income was decreased by prepayment ~~fees totaled $20~~credits of $10 million. Interest income from advances also includes the impact of advance prepayments, which increased interest income by $22 million in the first ~~six~~nine months of ~~2009 and totaled $0.5 million in~~2009. In the first ~~six~~nine months of ~~2008.~~2008, interest income was decreased by prepayment credits of $10 million. The increase in advance prepayments in the first ~~six~~nine months of 2009 reflected members’ reduced liquidity needs, as described below.

Adjusted net interest income for this segment represented ~~62%~~51% and 66% of total adjusted net interest income for the ~~second~~third quarter of 2009 and 2008, respectively, and ~~61%~~58% and ~~68%~~67% of total adjusted net interest income for the first ~~six~~nine months of 2009 and 2008, respectively. The decrease was primarily the result of lower earnings from the Bank’s invested capital.

Advances –The par amount of advances outstanding decreased by ~~$60.1~~$79.7 billion, or ~~26%~~34%, to ~~$172.8~~$153.2 billion at ~~June~~September 30, 2009, from $232.9 billion at December 31, 2008. The decrease reflects a ~~$24.1~~$33.3 billion decrease in fixed rate advances, ~~and~~ a ~~$36.0~~$46.3 billion decrease in adjustable rate advances, ~~partially offset by~~and a ~~$16~~$52 million ~~increase~~decrease in daily variable rate advances.

Advances outstanding to the Bank’s three largest borrowers totaled ~~$112.4~~$94.4 billion at ~~June~~September 30, 2009, a net decrease of ~~$49.2~~$67.2 billion from $161.6 billion at December 31, 2008. The remaining ~~$10.9~~$12.5 billion decrease in total advances outstanding was attributable to a net decrease in advances to other members of varying asset sizes and charter types. In total, 6158 institutions increased their advances during the first ~~six~~nine months of 2009, while ~~221~~233 institutions decreased their advances.

Average advances were ~~$190.5~~$164.2 billion in the ~~second~~third quarter of 2009, a ~~25%~~35% decrease from ~~$252.9~~$253.2 billion in the ~~second~~third quarter of 2008. Average advances were ~~$206.1~~$192.0 billion in the first ~~six~~nine months of 2009, ~~an 18%~~a 24% decrease from ~~$250.2~~$251.2 billion in the first ~~six~~nine months of 2008. Members decreased their use of Bank advances during the first ~~six~~nine months of 2009 for a variety of reasons, including increases in core deposits, ~~including~~ reduced lending activity, the use of Troubled Asset Relief Program funds, active Temporary Liquidity Guarantee Program issuances, access to the Federal Reserve Bank discount window, and reductions in the borrowing capacity of collateral pledged to the Bank.

The components of the advances portfolio at ~~June~~September 30, 2009, and December 31, 2008, are presented in the following table.


(In millions)	June 30, 2009		December 31, 2008		September 30, 2009		December 31, 2008

Standard advances:
Adjustable – LIBOR	$	75,745	$	111,603	$	65,933	$	111,603
Adjustable – other indices		291		444		288		444
Fixed		59,244		80,035		56,915		80,035
Daily variable rate		3,580		3,564		3,512		3,564

Subtotal		138,860		195,646		126,648		195,646

Customized advances:
Adjustable – LIBOR, with caps and/or floors		—		10		—		10
Adjustable – LIBOR, with caps and/or floors and partial prepayment symmetry (PPS)⁽¹⁾		1,625		1,625		1,125		1,625
Fixed – amortizing		516		578		504		578
Fixed with PPS⁽¹⁾		27,259		30,156		20,590		30,156
Fixed – callable at member’s option		270		315		169		315
Fixed – putable at Bank’s option		3,793		4,009		3,702		4,009
Fixed – putable at Bank’s option with PPS⁽¹⁾		503		588		503		588

Subtotal		33,966		37,281		26,593		37,281

Total par value		172,826		232,927		153,241		232,927
SFAS 133 valuation adjustments		885		1,353
SFAS 159 valuation adjustments		953		1,299
Hedging valuation adjustments						822		1,353
Fair value option valuation adjustments						840		1,299
Net unamortized premiums		68		85		59		85

Total	$	174,732	$	235,664	$	154,962	$	235,664

Non-MBS Investments –The Bank’s non-MBS investment portfolio consists of financial instruments that are used primarily to facilitate the Bank’s role as a cost-effective provider of credit and liquidity to members. These investments are also used as a source of liquidity to meet the Bank’s financial obligations on a timely basis, which may supplement or reduce earnings. The Bank’s total non-MBS investment portfolio was ~~$26.0~~$15.9 billion as of ~~June~~September 30, 2009, ~~an increase~~a decrease of ~~$4.4~~$5.7 billion, or ~~20%~~26%, from $21.6 billion as of December 31, 2008. During the first ~~six~~nine months of 2009, Federal funds sold ~~increased $7.2~~decreased $2.3 billion and ~~commercial paper increased $2.1 billion, while~~ interest-bearing deposits in banks decreased ~~$4.9~~$4.2 billion, while commercial paper increased $0.8 billion.

The weighted average maturity of non-MBS investments other than housing finance agency bonds shortened to 17 days as of ~~June~~September 30, 2009, from 21 days as of December 31, 2008. ~~As of June~~From December 31, 2008, to September 30, 2009, the ~~Bank funded a greater percentage~~proportion of ~~the portfolio for~~ short-term (under one month) non-MBS investments for cash management purposes ~~instead~~increased relative to the proportion of ~~match-funding~~non-MBS investments with one-month to three-month maturities.

Cash and Due from Banks– Cash and due from banks decreased to ~~$0.8~~$6.1 billion at ~~June~~September 30, 2009, from $19.6 billion at December 31, 2008. The decrease was primarily in cash held at the ~~Federal Reserve Bank of San Francisco (FRBSF),~~FRBSF, reflecting a reduction in the Bank’s short-term liquidity needs.

Borrowings –Consistent with the decrease in advances, total liabilities (primarily consolidated obligations) funding the advances-related business decreased ~~$74.7~~$98.3 billion, or ~~28%~~37%, from $268.4 billion at December 31, 2008, to ~~$193.7~~$170.1 billion at ~~June~~September 30, 2009. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

To meet the specific needs of certain investors, fixed and adjustable rate consolidated obligation bonds may contain embedded call options or other features that result in complex coupon payment terms. When these consolidated obligation bonds are issued on behalf of the Bank, typically the Bank simultaneously enters into interest rate exchange agreements with features that offset the complex features of the bonds and, in effect, convert the bonds to adjustable rate instruments tied to an index, primarily LIBOR. For example, the Bank uses fixed rate callable bonds that are typically offset with interest rate exchange agreements with call features that offset the call options embedded in the callable bonds. This combined financing structure enables the Bank to meet its funding needs at costs not generally attainable solely through the issuance of comparable term non-callable debt.

At ~~June~~September 30, 2009, the notional amount of interest rate exchange agreements associated with the advances-related business totaled ~~$261.2~~$242.1 billion, of which ~~$176.2~~$73.6 billion were hedging advances, $167.9 billion were hedging consolidated obligations, ~~$84.6 billion were hedging advances,~~ and ~~$0.4~~$0.6 billion were interest rate exchange agreements that the Bank entered into as an intermediary between exactly offsetting derivatives transactions with members and other counterparties. At December 31, 2008, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $308.9 billion, of which $87.9 billion were hedging advances, $220.7 billion were hedging consolidated obligations, and $0.3 billion were interest rate exchange agreements that the Bank entered into as an intermediary between exactly offsetting derivatives transactions with members and other counterparties. The hedges associated with advances and consolidated obligations were primarily used to convert the fixed rate cash flows and non-LIBOR-indexed cash flows of the advances and consolidated obligations to adjustable rate LIBOR-indexed cash flows or to manage the interest rate sensitivity and net repricing gaps of assets, liabilities, and interest rate exchange agreements.

FHLBank System consolidated obligation bonds and discount notes, along with similar debt securities issued by other GSEs such as Fannie Mae and Freddie Mac, are generally referred to as agency debt. The agency debt market is a large sector of the debt capital markets. The costs of fixed rate debt issued by the FHLBanks and the other GSEs generally rise and fall with increases and decreases in general market interest rates. However, starting in the third quarter of 2008, market conditions significantly increased volatility in GSE debt pricing and funding costs compared to recent historical levels. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quarterly Overview.”

Since December 16, 2008, the Federal Open Market Committee has not changed the target Federal funds rate. During the first ~~six~~nine months of 2009, rates on ~~short-term and~~ long-term U.S. Treasury securities increased because of market expectations of increased Treasury issuance and investor concern about inflation. Since December 31, 2008, 3-month LIBOR declined from 1.43% to 0.29% as conditions in the short-term interbank lending market improved. The following table provides selected market interest rates as of the dates shown.


Market Instrument	June 30, 2009		December 31, 2008		June 30, 2008		December 31, 2007		September 30, 2009		December 31, 2008		September 30, 2008		December 31, 2007
Federal Reserve target rate for overnight Federal funds	0-0.25	%	0-0.25	%	2.00	%	4.25	%	0-0.25	%	0-0.25	%	2.00	%	4.25	%
3-month Treasury bill	0.19		0.13		1.72		3.24		0.13		0.13		0.91		3.24
3-month LIBOR	0.60		1.43		2.78		4.70		0.29		1.43		4.05		4.70
2-year Treasury note	1.12		0.77		2.63		3.06		0.95		0.77		1.97		3.06
5-year Treasury note	2.56		1.55		3.34		3.46		2.31		1.55		2.97		3.46

The average cost of fixed rate FHLBank System consolidated obligation bonds and discount notes was lower in the first ~~six~~nine months of 2009 than in the first ~~six~~nine months of 2008 as a result of the general decline in market interest rates and the purchase of GSE debt by the Federal Reserve.

The following table presents a comparison of the average cost of FHLBank System consolidated obligation bonds relative to 3-month LIBOR and discount notes relative to comparable term LIBOR ~~rates~~ in the first ~~six~~nine months of 2009 and 2008. ~~Continued~~Lower issuance and strong investor demand for ~~short-term~~ GSE debt resulted in lowered borrowing costs on the FHLBank ~~System’s~~System bonds and discount notes relative to LIBOR compared to a year ago. ~~However, lower investor demand for longer-term GSE debt increased the System’s bond costs relative to LIBOR compared to a year ago.~~


	Spread to LIBOR of Average Cost of Consolidated Obligations for the Six Months Ended		Spread to LIBOR of Average Cost of Consolidated Obligations for the Nine Months Ended
(In basis points)	June 30, 2009	June 30, 2008	September 30, 2009	September 30, 2008

Consolidated obligation bonds	–16.4	–19.4	–18.3	–17.3
Consolidated obligation discount notes (one month and greater)	–61.5	–47.7	–48.6	–46.5

At ~~June~~September 30, 2009, the Bank had ~~$142.4~~$122.5 billion of swapped non-callable bonds, ~~$28.9~~$32.4 billion of swapped ~~discounts~~discount notes, and ~~$4.9~~$13.0 billion of swapped callable bonds that primarily funded advances and non-MBS investments. The swapped non-callable and callable bonds combined represented ~~84%~~88% of the Bank’s total consolidated obligation bonds outstanding. At December 31, 2008, the Bank had $157.6 billion of swapped non-callable bonds and $8.5 billion of swapped callable bonds that primarily funded advances and non-MBS investments. These swapped non-callable and callable bonds combined represented 78% of the Bank’s total consolidated obligation bonds outstanding.

These swapped callable and non-callable bonds are used in part to fund the Bank’s advances portfolio. In general, the Bank does not match-fund advances with consolidated obligations. Instead, the Bank uses interest rate exchange agreements, in effect, to convert the advances to floating rate LIBOR-indexed assets (except overnight advances and adjustable rate advances that are already indexed to LIBOR) and, in effect, to convert the consolidated obligation bonds to floating rate LIBOR-indexed liabilities.

Mortgage-Related Business.The mortgage-related business consists of MBS investments, mortgage loans acquired through the Mortgage Partnership Finance^® (MPF^®) Program, and the related financing and hedging instruments. (“Mortgage Partnership Finance” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.) Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on the MBS and mortgage loans and the cost of the consolidated obligations funding those assets, including the cash flows from associated interest rate exchange agreements, less the provision for credit losses on mortgage loans.

At ~~June~~September 30, 2009, assets associated with this segment were ~~$36.5~~$33.4 billion ~~(15%~~(16% of total assets), a decrease of ~~$6.5~~$9.6 billion, or ~~15%~~22%, from $43.0 billion at December 31, 2008 (13% of total assets). The decrease was due to lower investment balances in the MBS portfolio primarily because of run-off (paydowns, prepayments, and maturities) in the portfolio, OTTI recognized on the ~~portfolio~~PLRMBS, and ~~OTTI write-downs and because~~a substantial reduction in the purchase of new MBS investments. During the first nine months of 2009, the Bank ~~did not purchase any additional~~purchased $0.4 billion of MBS, ~~during the first six months~~all of ~~2009.~~which were residential agency MBS. The MBS portfolio decreased ~~$6.2~~$9.0 billion to ~~$32.9~~$30.1 billion at ~~June~~September 30, 2009, from $39.1 billion at December 31, 2008, and mortgage loan balances decreased ~~$0.3~~$0.5 billion to ~~$3.4~~$3.2 billion at ~~June~~September 30, 2009, from $3.7 billion at December 31, 2008.

In the ~~second~~third quarter of 2009, average MBS investments were ~~$36.6~~$34.6 billion, a decrease of ~~$3.5~~$6.4 billion compared to ~~$40.1~~$41.0 billion in the ~~second~~third quarter of 2008. In the first ~~six~~nine months of 2009, average MBS investments ~~increased $0.6~~decreased $1.8 billion to ~~$37.7~~$36.6 billion compared to ~~$37.1~~$38.4 billion in the first ~~six~~nine months of 2008. This increase was due to the growth in capital and the availability of MBS that met the Bank’s risk-adjusted spread and credit enhancement requirements during 2008. There were no purchases of MBS investments in the first six months of 2009.

Average mortgage loans were ~~$3.5~~$3.3 billion in the ~~second~~third quarter of 2009, a decrease of $0.5 billion from ~~$4.0~~$3.8 billion in the ~~second~~third quarter of 2008. Average mortgage loans decreased ~~$0.4~~$0.5 billion to ~~$3.6~~$3.5 billion in the first ~~six~~nine months of 2009 from $4.0 billion in the first ~~six~~nine months of 2008.

Adjusted net interest income for this segment was ~~$118~~$151 million in the ~~second~~third quarter of 2009, an increase of $1$29 million, or 1%24%, from ~~$117~~$122 million in the ~~second~~third quarter of 2008. InThe increase was primarily the ~~second quarter~~result of ~~2009,~~a rise in the average profit spread on the mortgage portfolio, reflecting the favorable impact of lower interest rates and a steeper yield ~~curve were substantially offset by~~curve. Lower interest rates provided the ~~unfavorable $32 million retrospective SFAS 91 adjustment in~~Bank with the ~~second quarter of 2009 from the amortization of MBS~~opportunity to call fixed rate callable debt and ~~net discounts on~~refinance that debt with new callable debt at a lower cost. In addition, hybrid adjustable rate mortgage loans ~~and by the impact of lower investment balances in the~~have been converting to adjustable rate mortgage ~~portfolio. The unfavorable $32 million retrospective SFAS 91 adjustment was primarily due to a higher mortgage rate environment during 2009, resulting in slower projected prepayment rates.~~loans with attractive spreads.

In the first ~~six~~nine months of 2009, adjusted net interest income for this segment was ~~$254~~$405 million, an increase of ~~$47~~$76 million, or 23%, from ~~$207~~$329 million in the first ~~six~~nine months of 2008. The increase for the first ~~six~~nine months of 2009 was primarily the result of a rise in the average profit spread on the mortgage portfolio, reflecting the favorable impact of lower interest rates and a steeper yield curve. Lower interest rates provided the Bank with the opportunity to call fixed rate callable debt and refinance that debt with new callable debt at a lower cost. The steeper yield curve further reduced the cost of financing the Bank’s investment in MBS and mortgage loans. ~~These factors were partially offset by the unfavorable $23 million retrospective SFAS 91 adjustment.~~In addition, hybrid adjustable rate mortgage loans have been converting to adjustable rate mortgage loans with attractive spreads.

Adjusted net interest income for this segment represented ~~38%~~49% and 34% of total adjusted net interest income for the ~~second~~third quarter of 2009 and 2008, respectively, and ~~39%~~42% and ~~32%~~33% of total adjusted net interest income for the first ~~six~~nine months of 2009 and 2008, respectively.

MPF Program –Under the MPF Program, the Bank purchased conventional fixed rate conforming residential mortgage loans directly from eligible members. Participating members originated or purchased the mortgage loans, credit-enhanced them and sold them to the Bank, and generally retained the servicing of the loans. For each loan, the Bank manages the interest rate risk, prepayment risk, and liquidity risk of the loan. The Bank and the member that sold the loan share in the credit risk of the ~~loans.~~loan. For more information regarding credit risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” in the Bank’s 2008 Form 10-K.

At ~~June~~September 30, 2009, and December 31, 2008, the Bank held conventional fixed rate conforming mortgage loans purchased under one of two MPF products, MPF Plus or Original MPF, which are described in greater detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” in the Bank’s 2008 Form 10-K. Mortgage loan balances at ~~June~~September 30, 2009, and December 31, 2008, were as follows:


(In millions)	September 30, 2009			December 31, 2008

MPF Plus	$	2,921		$	3,387
Original MPF		271			336

Subtotal		3,192			3,723
Net unamortized discounts		(18	)		(10	)

Mortgage loans held for portfolio		3,174			3,713
Less: Allowance for credit losses		(2	)		(1	)

Mortgage loans held for portfolio, net	$	3,172		$	3,712

The Bank periodically reviews its mortgage loan portfolio to identify probable credit losses in the portfolio and to determine the likelihood of collection of the loans in the portfolio. The Bank maintains an allowance for credit losses, net of credit enhancements, on mortgage loans acquired under the MPF Program at levels management believes to be adequate to absorb estimated probable losses inherent in the total mortgage loan portfolio. The Bank established an allowance for credit losses on mortgage loans totaling $2 million at ~~June~~

September 30, 2009, and $1 million at December 31, 2008. For more information on how the Bank determines its estimated allowance for credit losses on mortgage loans, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Allowance for Credit Losses – Mortgage Loans Acquired Under the MPF Program” in the Bank’s 2008 Form 10-K.

A mortgage loan is considered to be impaired when it is reported 90 days or more past due (nonaccrual) or when it is probable, based on current information and events, that the Bank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement.

The following table presents information on delinquent mortgage loans as of ~~June~~September 30, 2009, and December 31, 2008.


(Dollars in millions)	June 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
Days Past Due	Number of Loans	Mortgage Loan Balance		Number of Loans	Mortgage Loan Balance		Number of Loans	Mortgage Loan Balance		Number of Loans	Mortgage Loan Balance
Between 31 and 59 days	215	$	27	235	$	29
Between 30 and 59 days							195	$	23	235	$	29
Between 60 and 89 days	73		8	44		5	79		9	44		5
Over 90 days	130		16	84		9	159		20	84		9

Total	418	$	51	363	$	43	433	$	52	363	$	43

At ~~June~~September 30, 2009, the Bank had ~~418~~433 loans that were 30 days or more delinquent totaling ~~$51~~$52 million, of which ~~130~~159 loans totaling ~~$16~~$20 million were classified as nonaccrual or impaired. For 82111 of these loans, totaling $9$13 million, the loan was in foreclosure or the borrower of the loan was in bankruptcy. At December 31, 2008, the Bank had 363 loans that were 30 days or more delinquent totaling $43 million, of which 84 loans totaling $9 million were classified as nonaccrual or impaired. For 51 of these loans, totaling $5 million, the loan was in foreclosure or the borrower of the loan was in bankruptcy.

At ~~June~~September 30, 2009, the Bank’s other assets included $2 million of real estate owned resulting from the foreclosure of 1320 mortgage loans held by the Bank. At December 31, 2008, the Bank’s other assets included $1 million of real estate owned resulting from the foreclosure of 7 mortgage loans held by the Bank.

The Bank manages the interest rate risk and prepayment risk of the mortgage loans by funding these assets with callable and non-callable debt and by limiting the size of the fixed rate mortgage loan portfolio.

MBS Investments –The Bank’s MBS portfolio was ~~$32.9~~$30.1 billion, or ~~226%~~208% of Bank capital (as determined in accordance with regulations governing the operations of the FHLBanks), at ~~June~~September 30, 2009, compared to $39.1 billion, or 289% of Bank capital, at December 31, 2008. ~~The~~During the first nine months of 2009, the Bank’s MBS portfolio decreased primarily because of run-off (paydowns, prepayments, and maturities) in the portfolio, OTTI recognized on the ~~portfolio~~PLRMBS, and ~~OTTI write-downs and because~~a substantial reduction in the purchase of new MBS investments. The Bank ~~did not purchase any additional~~purchased $0.4 billion of MBS, all of which were residential agency MBS, during the first ~~six~~nine months of 2009. For a discussion of the composition of the Bank’s MBS portfolio and the Bank’s OTTI analysis of that portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management ~~– Investments.~~–Investments.”

Intermediate-term and long-term fixed rate MBS investments are subject to prepayment risk, and long-term adjustable rate MBS investments are subject to interest rate cap risk. The Bank has managed these risks by predominately purchasing intermediate-term fixed rate MBS (rather than long-term fixed rate MBS), funding

the fixed rate MBS with a mix of non-callable and callable debt, and using interest rate exchange agreements with interest rate risk characteristics similar to callable debt.

Borrowings –Total consolidated obligations funding the mortgage-related business decreased ~~$6.5~~$9.6 billion, or ~~15%~~22%, from $43.0 billion at December 31, 2008, to ~~$36.5~~$33.4 billion at ~~June~~September 30, 2009, paralleling the decrease in mortgage portfolio assets. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

At ~~June~~September 30, 2009, the notional amount of interest rate exchange agreements associated with the mortgage-related business totaled ~~$20.5~~$19.8 billion, almost all of which hedged or was associated with consolidated obligations funding the mortgage portfolio.

At December 31, 2008, the notional amount of interest rate exchange agreements associated with the mortgage-related business totaled $22.7 billion, of which $21.9 billion were economic hedges associated with consolidated obligations and $0.8 billion were fair value hedges associated with consolidated obligations.

A derivatives transaction or interest rate exchange agreement is a financial contract whose fair value is generally derived from changes in the value of an underlying asset or liability. The Bank uses interest rate swaps; options to enter into interest rate swaps (swaptions); interest rate cap, floor, corridor, and collar agreements; and callable and putable interest rate swaps (collectively, interest rate exchange agreements) to manage its exposure to interest rate risks inherent in its normal course of business – lending, investment, and funding activities. For more information on the primary strategies that the Bank employs for using interest rate exchange agreements and the associated market risks, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Market Risk – Interest Rate Exchange Agreements” in the Bank’s 2008 Form 10-K.

The following table summarizes the Bank’s interest rate exchange agreements by type of hedged item, hedging instrument, associated hedging strategy, accounting designation as specified under ~~SFAS 133,~~the accounting for derivative instruments and hedging activities, and notional amount as of ~~June~~September 30, 2009, and December 31, 2008.

(In millions)

Notional Amount

Hedging Instrument

Hedging Strategy

Accounting

Designation

June 30,
2009

December 31,
2008

Hedging Strategy

Accounting

Designation

September 30,

2009

December 31,
2008

Hedged Item: Advances

Pay fixed, receive floating interest rate swap

Fixed rate advance converted to a LIBOR floating rate

Fair Value Hedge

43,038

36,106

Fixed rate advance converted to a LIBOR floating rate

Fair Value Hedge

40,798

36,106

Basis swap

Adjustable rate advance converted to a LIBOR floating rate

Economic Hedge⁽¹⁾

3,500

2,000

Adjustable rate advance converted to a LIBOR floating rate

Economic Hedge⁽¹⁾

4,000

2,000

Receive fixed, pay floating interest rate swap

LIBOR index rate advance converted to a fixed rate

Economic Hedge⁽¹⁾

150

LIBOR floating rate advance converted to a fixed rate

Economic Hedge⁽¹⁾

150

Basis swap

Floating rate index advance converted to another floating rate index to reduce interest rate sensitivity and repricing gaps

Economic Hedge⁽¹⁾

161

314

Floating rate index advance converted to another floating rate index to reduce interest rate sensitivity and repricing gaps

Economic Hedge⁽¹⁾

158

314

Pay fixed, receive floating interest rate swap

Fixed rate advance converted to a LIBOR floating rate

Economic Hedge⁽¹⁾

3,956

12,342

Fixed rate advance converted to a LIBOR floating rate

Economic Hedge⁽¹⁾

2,067

12,342

Pay fixed, receive floating interest rate swap; swap may be callable at the Bank’s option or putable at the counterparty’s option

Fixed rate advance converted to a LIBOR floating rate; advance and swap may be callable or putable; matched to advance accounted for under the fair value option in accordance with SFAS 159

Economic Hedge⁽¹⁾

32,132

35,357

Fixed rate advance converted to a LIBOR floating rate; advance and swap may be callable or putable; matched to advance accounted for under the fair value option

Economic Hedge⁽¹⁾

25,254

35,357


(In millions)	(In millions)
				Notional Amount					Notional Amount
Hedging Instrument		Hedging Strategy	Accounting Designation	June 30, 2009	December 31, 2008		Hedging Strategy	Accounting Designation	September 30, 2009	December 31, 2008
Interest rate cap, floor, corridor, and/or collar		Interest rate cap, floor, corridor, and/or collar embedded in an adjustable rate advance; matched to advance accounted for under the fair value option in accordance with SFAS 159	Economic Hedge⁽¹⁾	1,625	1,635		Interest rate cap, floor, corridor, and/or collar embedded in an adjustable rate advance; matched to advance accounted for under the fair value option	Economic Hedge⁽¹⁾	1,125	1,635
Subtotal Economic Hedges⁽¹⁾	Subtotal Economic Hedges⁽¹⁾			41,524	51,798	Subtotal Economic Hedges⁽¹⁾			32,754	51,798
Total				84,562	87,904				73,552	87,904
Hedged Item: Non-Callable Bonds	Hedged Item: Non-Callable Bonds					Hedged Item: Non-Callable Bonds
Receive fixed or structured, pay floating interest rate swap		Fixed rate or structured rate non-callable bond converted to a LIBOR floating rate	Fair Value Hedge	60,430	71,071		Fixed rate or structured rate non-callable bond converted to a LIBOR floating rate	Fair Value Hedge	62,332	71,071
Receive fixed or structured, pay floating interest rate swap		Fixed rate or structured rate non-callable bond converted to a LIBOR floating rate	Economic Hedge⁽¹⁾	9,836	9,988		Fixed rate or structured rate non-callable bond converted to a LIBOR floating rate	Economic Hedge⁽¹⁾	12,230	9,988
Receive fixed or structured, pay floating interest rate swap		Fixed rate or structured rate non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under the fair value option in accordance with SFAS 159	Economic Hedge⁽¹⁾	495	15		Fixed rate or structured rate non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	495	15
Basis swap		Non-LIBOR index non-callable bond converted to a LIBOR floating rate	Economic Hedge⁽¹⁾	300	4,730		Non-LIBOR index non-callable bond converted to a LIBOR floating rate	Economic Hedge⁽¹⁾	—	4,730
Basis swap		Non-LIBOR index non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under the fair value option in accordance with SFAS 159	Economic Hedge⁽¹⁾	34,530	29,978		Non-LIBOR index non-callable bond converted to a LIBOR floating rate; matched to non-callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	25,430	29,978
Basis swap		Floating rate index non-callable bond converted to another floating rate index to reduce interest rate sensitivity and repricing gaps	Economic Hedge⁽¹⁾	42,245	44,993		Floating rate index non-callable bond converted to another floating rate index to reduce interest rate sensitivity and repricing gaps	Economic Hedge⁽¹⁾	29,121	44,993
Pay fixed, receive floating interest rate swap		Floating rate bond converted to fixed rate non-callable debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾	3,385	1,810		Floating rate bond converted to fixed rate non-callable debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾	3,480	1,810
Subtotal Economic Hedges⁽¹⁾	Subtotal Economic Hedges⁽¹⁾			90,791	91,514	Subtotal Economic Hedges⁽¹⁾			70,756	91,514
Total				151,221	162,585				133,088	162,585
Hedged Item: Callable Bonds	Hedged Item: Callable Bonds					Hedged Item: Callable Bonds
Receive fixed or structured, pay floating interest rate swap with an option to call at the counterparty’s option		Fixed or structured rate callable bond converted to a LIBOR floating rate; swap is callable	Fair Value Hedge	4,422	7,197		Fixed or structured rate callable bond converted to a LIBOR floating rate; swap is callable	Fair Value Hedge	9,547	7,197
Receive fixed or structured, pay floating interest rate swap with an option to call at the counterparty’s option		Fixed or structured rate callable bond converted to a LIBOR floating rate; swap is callable	Economic Hedge⁽¹⁾	460	1,044		Fixed or structured rate callable bond converted to a LIBOR floating rate; swap is callable	Economic Hedge⁽¹⁾	3,960	1,044
Receive fixed or structured, pay floating interest rate swap with an option to call at the counterparty’s option		Fixed or structured rate callable bond converted to a LIBOR floating rate; swap is callable; matched to callable bond accounted for under the fair value option in accordance with SFAS 159	Economic Hedge⁽¹⁾	50	243		Fixed or structured rate callable bond converted to a LIBOR floating rate; swap is callable; matched to callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	262	243
Subtotal Economic Hedges⁽¹⁾	Subtotal Economic Hedges⁽¹⁾			510	1,287	Subtotal Economic Hedges⁽¹⁾			4,222	1,287
Total									13,769	8,484
Hedged Item: Discount Notes						Hedged Item: Discount Notes
Pay fixed, receive floating callable interest rate swap							Discount note converted to fixed rate callable debt that offsets the prepayment risk of mortgage assets	Economic Hedge⁽¹⁾	1,950	4,000


(In millions)	(In millions)
				Notional Amount							Notional Amount
Hedging Instrument		Hedging Strategy	Accounting Designation	June 30, 2009		December 31, 2008			Hedging Strategy	Accounting Designation	September 30, 2009		December 31, 2008
Total					4,932		8,484
Hedged Item: Discount Notes
Pay fixed, receive floating callable interest rate swap		Discount note converted to fixed rate callable debt that offsets the prepayment risk of mortgage assets	Economic Hedge⁽¹⁾		2,045		4,000
Basis swap or receive fixed, pay floating interest rate swap		Discount note converted to one-month LIBOR or other short-term floating rate to hedge repricing gaps	Economic Hedge⁽¹⁾		38,198		68,014		Discount note converted to one-month LIBOR or other short-term floating rate to hedge repricing gaps	Economic Hedge⁽¹⁾		38,603		68,014
Pay fixed, receive floating non-callable interest rate swap		Discount note converted to fixed rate non-callable debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾		330		300		Discount note converted to fixed rate non-callable debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾		330		300
Total					40,573		72,314					40,883		72,314
Hedged Item: Trading Securities	Hedged Item: Trading Securities							Hedged Item: Trading Securities
Pay MBS rate, receive floating interest rate swap		MBS rate converted to a LIBOR floating rate	Economic Hedge⁽¹⁾		9		10		MBS rate converted to a LIBOR floating rate	Economic Hedge⁽¹⁾		9		10
Hedged Item: Intermediary Positions	Hedged Item: Intermediary Positions							Hedged Item: Intermediary Positions
Pay fixed, receive floating interest rate swap, and receive fixed, pay floating interest rate swap		Interest rate swaps executed with members offset by executing interest rate swaps with derivatives dealer counterparties	Economic Hedge⁽¹⁾		86		86		Interest rate swaps executed with members offset by executing interest rate swaps with derivatives dealer counterparties	Economic Hedge⁽¹⁾		86		86
Interest rate cap/floor		Stand-alone interest rate cap and/or floor executed with a member offset by executing an interest rate cap and/or floor with derivatives dealer counterparties	Economic Hedge⁽¹⁾		340		260		Stand-alone interest rate cap and/or floor executed with a member offset by executing an interest rate cap and/or floor with derivatives dealer counterparties	Economic Hedge⁽¹⁾		520		260
Total					426		346					606		346
Total Notional Amount	Total Notional Amount			$	281,723	$	331,643	Total Notional Amount			$	261,907	$	331,643

At ~~June~~September 30, 2009, the total notional amount of interest rate exchange agreements outstanding was ~~$281.7~~$261.9 billion, compared with $331.6 billion at December 31, 2008. The ~~$49.9~~$69.7 billion decrease in the notional amount of derivatives during the first ~~six~~nine months of 2009 was primarily due to a net ~~$31.7~~$31.4 billion decrease in interest rate exchange agreements hedging consolidated obligation discount notes, a net ~~$14.9~~$24.2 billion decrease in interest rate exchange agreements hedging consolidated obligation bonds, and a net ~~$3.3~~$14.4 billion decrease in interest rate exchange agreements hedging the market risk of fixed rate ~~advances.~~advances, partially offset by a net $0.3 billion increase in interest rate exchange agreements hedging intermediary positions. The decrease in interest rate exchange agreements hedging consolidated obligation discount notes reflected decreased use of interest rate exchange agreements that effectively converted the repricing frequency from three months to one month, and is consistent with the decline in the amount of discount notes outstanding at ~~June~~September 30, 2009, relative to December 31, 2008. By category, the Bank experienced large changes in the levels of interest rate exchange agreements, which reflected the January 1, 2008, transition of certain hedging instruments from a fair value hedge classification under ~~SFAS 133~~the accounting for derivative instruments and hedging activities to an economic hedge classification under ~~SFAS 159.~~the fair value option. The notional amount serves as a basis for calculating periodic interest payments or cash flows received and paid.

The following tables categorize the notional amounts and estimated fair values of the Bank’s interest rate exchange agreements, unrealized gains and losses from the related hedged items, and estimated fair value gains and losses from financial instruments carried at fair value by product and type of accounting treatment as of ~~June~~September 30, 2009, and December 31, 2008.

~~(In millions)~~


(In millions)

September 30, 2009
	Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference

Fair value hedges:
Advances	$	40,798	$	(817	)	$	822		$	—		$	5
Non-callable bonds		62,332		2,309			(2,324	)		—			(15	)
Callable bonds		9,547		86			(84	)		—			2

Subtotal		112,677		1,578			(1,586	)		—			(8	)

Not qualifying for hedge accounting (economic hedges):
Advances		32,754		(823	)		—			733			(90	)
Non-callable bonds		70,572		544			—			(53	)		491
Non-callable bonds with embedded derivatives		184		1			—			—			1
Callable bonds		4,222		7			—			3			10
Discount notes		40,883		27			—			—			27
MBS – trading		9		—			—			—			—
Intermediated		606		—			—			—			—

Subtotal		149,230		(244	)		—			683			439

Total excluding accrued interest		261,907		1,334			(1,586	)		683			431
Accrued interest		—		524			(500	)		89			113

Total	$	261,907	$	1,858		$	(2,086	)	$	772		$	544


(In millions)

December 31, 2008
	Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference			Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference

Fair value hedges:
Advances	$	36,106	$	(1,304	)	$	1,353		$	—		$	49		$	36,106	$	(1,304	)	$	1,353		$	—		$	49
Non-callable bonds		71,071		3,589			(3,651	)		—			(62	)		71,071		3,589			(3,651	)		—			(62	)
Callable bonds		7,197		201			(211	)		—			(10	)		7,197		201			(211	)		—			(10	)

Subtotal		114,374		2,486			(2,509	)		—			(23	)		114,374		2,486			(2,509	)		—			(23	)

Not qualifying for hedge accounting (economic hedges):
Advances		51,798		(1,361	)		—			1,139			(222	)		51,798		(1,361	)		—			1,139			(222	)
Non-callable bonds		91,330		366			—			(23	)		343			91,330		366			—			(23	)		343
Non-callable bonds with embedded derivatives		184		1			—			—			1			184		1			—			—			1
Callable bonds		1,287		16			—			2			18			1,287		16			—			2			18
Discount notes		72,314		53			—			—			53			72,314		53			—			—			53
MBS – trading		10		—			—			—			—			10		—			—			—			—
Intermediated		346		—			—			—			—			346		—			—			—			—

Subtotal		217,269		(925	)		—			1,118			193			217,269		(925	)		—			1,118			193

Total excluding accrued interest		331,643		1,561			(2,509	)		1,118			170			331,643		1,561			(2,509	)		1,118			170
Accrued interest		—		520			(704	)		130			(54	)		—		520			(704	)		130			(54	)

Total	$	331,643	$	2,081		$	(3,213	)	$	1,248		$	116		$	331,643	$	2,081		$	(3,213	)	$	1,248		$	116

Embedded derivatives are bifurcated, and their estimated fair values are accounted for in accordance with ~~SFAS 133.~~the accounting for derivative instruments and hedging activities. The estimated fair values of the embedded derivatives are included as valuation adjustments to the host contract and are not included in the above table. The estimated fair values of these embedded derivatives were immaterial as of ~~June~~September 30, 2009, and December 31, 2008.

Because the periodic and cumulative net gains or losses on the Bank’s derivatives, hedged instruments, and certain assets and liabilities that are carried at fair value are primarily a matter of timing, the net gains or losses will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual term to maturity, call date, or put date of the hedged financial instruments, associated interest rate exchange agreements, and financial instruments carried at fair value. However, the Bank may have instances in which the financial instruments or hedging relationships are terminated prior to maturity or prior to the call or put date. Terminating the financial instruments or hedging relationship may result in a realized gain or loss. In addition, the Bank may have instances in which it may sell trading securities prior to maturity, which may also result in a realized gain or loss.

~~SFAS 133-~~The hedging and ~~SFAS 159-related income effects~~fair value option valuation adjustments during the first ~~six~~nine months of 2009 were primarily driven by (i) changes in overall interest rate spreads; (ii) reversal of prior period gains and losses; and (iii) increases in swaption volatilities. The positive fair value impact resulted in primarily unrealized net gains. These gains are generally expected to reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining term to maturity.

The ongoing impact of ~~SFAS 133 and SFAS 159~~these valuation adjustments on the Bank cannot be predicted, and the Bank’s retained earnings in the future may not be sufficient to offset the impact of ~~SFAS 133 and SFAS 159.~~these valuation adjustments. The effects of ~~SFAS 133 and SFAS 159~~these valuation adjustments may lead to significant volatility in future earnings, ~~other comprehensive income, and~~including earnings available for dividends.

Credit Risk. For a discussion of derivatives credit exposure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Derivatives Counterparties.”

Concentration Risk. The following table presents the concentration in derivatives with derivatives dealer counterparties whose outstanding notional balances represented 10% or more of the Bank’s total notional amount of derivatives outstanding as of ~~June~~September 30, 2009, and December 31, 2008.


(Dollars in millions)		June 30, 2009				December 31, 2008					September 30, 2009				December 31, 2008
Derivatives Counterparty	Credit Rating⁽¹⁾	Notional Amount		Percentage of Total Notional		Notional Amount		Percentage of Total Notional		Credit Rating⁽¹⁾	Notional Amount		Percentage of Total Notional Amount		Notional Amount		Percentage of Total Notional Amount

Deutsche Bank AG	A	$	48,572	17	%	$	75,316	23	%	A	$	41,505	16	%	$	75,316	23	%
JPMorgan Chase Bank, National Association	AA		47,016	17			51,287	15		AA		40,435	15			51,287	15
Barclays Bank PLC	AA		42,270	15			50,015	15		AA		35,759	14			50,015	15

Subtotal			137,858	49			176,618	53				117,699	45			176,618	53
Others	At least A		143,865	51			155,025	47		At least A		144,208	55			155,025	47

Total		$	281,723	100	%	$	331,643	100	%		$	261,907	100	%	$	331,643	100	%

The Bank’s financial strategies are designed to enable the Bank to expand and contract its assets, liabilities, and capital in response to changes in membership composition and member credit needs. The Bank’s liquidity and capital resources are designed to support these financial strategies. The Bank’s primary source of liquidity is its access to the capital markets through consolidated obligation issuance. The Bank’s equity capital resources are governed by the Bank’s capital plan. For more information, see “Management’s Discussion and Analysis and Results of Operations – Quarterly Overview – Funding and Liquidity.”

The Bank strives to maintain the liquidity necessary to meet member credit demands, repay maturing consolidated obligations for which it is the primary obligor, meet other obligations and commitments, and respond to significant changes in membership composition. The Bank monitors its financial position in an effort to ensure that it has ready access to sufficient liquid funds to meet normal transaction requirements, take advantage of investment opportunities, and cover unforeseen liquidity demands.

The Bank maintains contingency liquidity plans to meet its obligations and the liquidity needs of members in the event of short-term operational disruptions at the Bank or the Office of Finance or short-term disruptions of the capital markets. Finance Agency guidelines require each FHLBank to maintain sufficient liquidity, through short-term investments, in an amount at least equal to its anticipated cash outflows under two different scenarios. One scenario assumes that the ~~Bank can not~~FHLBank cannot access the capital markets for a targeted period of 15 days and that during that time members do not renew any maturing, prepaid, and called advances. The second scenario assumes that the ~~Bank can not~~FHLBank cannot access the capital markets for a targeted period of five days and that during that period the Bank will automatically renew maturing and called advances for all members except very large, highly rated members. As early as the second quarter of 2008, Bank management

had already implemented similar contingent liquidity guidelines, which were easily adapted to satisfy the Finance Agency’s final guidelines released in March 2009.

The Bank has a regulatory contingency liquidity requirement to maintain at least five days of liquidity to enable it to meet its obligations without issuance of new consolidated obligations. The regulatory requirement

does not stipulate that the Bank renew any maturing advances during the five-day timeframe. In addition to the regulatory requirement and Finance Agency guidelines on contingency liquidity, the Bank’s asset-liability management committee has a formal guideline to maintain at least three months of liquidity to enable the Bank to meet its obligations in the event of a longer-term consolidated obligations ~~markets~~market disruption. This guideline allows the Bank to consider its mortgage assets as a source of funds by using those assets as collateral in the repurchase agreement markets. ~~The~~Under this guideline, the Bank maintained at least three months of liquidity at all times during the first ~~six~~nine months of 2009 and during 2008. On a daily basis, the Bank models its cash commitments and expected cash flows for the next 90 days to determine the ~~Bank’~~Bank’s projected liquidity position.

The following table shows the Bank’s principal financial obligations due, estimated sources of funds available to meet those obligations, and the net difference of funds available and funds needed for the five-business-day and 90-day periods following ~~June~~September 30, 2009, and December 31, 2008. Also shown are additional contingent sources of funds from on-balance sheet collateral available for repurchase agreement borrowings.


	As of June 30, 2009					As of December 31, 2008					As of September 30, 2009				As of December 31, 2008
(In millions)	5 Business Days		90 Days			5 Business Days		90 Days			5 Business Days		90 Days		5 Business Days		90 Days

Obligations due:
Commitments for new advances	$	600	$	600		$	470	$	470		$	1,250	$	1,250	$	470	$	470
Demand deposits		1,763		1,763			2,552		2,552			1,774		1,774		2,552		2,552
Maturing member term deposits		15		56			63		103			6		48		63		103
Discount note and bond maturities and expected exercises of bond call options		4,809		69,048			14,686		101,157			5,911		51,467		14,686		101,157

Subtotal obligations		7,187		71,467			17,771		104,282			8,941		54,539		17,771		104,282

Sources of available funds:
Maturing investments		12,688		24,211			10,986		20,781			8,156		15,115		10,986		20,781
Cash at FRBSF		810		810			19,630		19,630			6,114		6,114		19,630		19,630
Proceeds from scheduled settlements of discount notes and bonds		1,075		1,085			960		960			165		2,540		960		960
Maturing advances and scheduled prepayments		6,104		44,237			6,349		62,727			4,823		45,542		6,349		62,727

Subtotal sources		20,677		70,343			37,925		104,098			19,258		69,311		37,925		104,098

Net funds available		13,490		(1,124	)		20,154		(184	)		10,317		14,772		20,154		(184	)

Additional contingent sources of funds:⁽¹⁾
Estimated borrowing capacity of securities available for repurchase agreement borrowings:
MBS		—		25,008			—		27,567			—		23,852		—		27,567
Housing finance agency bonds		—		544			—		561			—		538		—		561
Marketable money market investments		4,868		—			5,909		—			4,350		—		5,909		—

Subtotal contingent sources		4,868		25,552			5,909		28,128			4,350		24,390		5,909		28,128

Total contingent funds available	$	18,358	$	24,428		$	26,063	$	27,944		$	14,667	$	39,162	$	26,063	$	27,944

For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Funding and Liquidity,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk” in the Bank’s 2008 Form 10-K.

Total capital as of ~~June~~September 30, 2009, was ~~$8.7~~$7.7 billion, ~~an 11%~~a 21% decrease from $9.8 billion as of December 31, 2008. The decrease was primarily due to the impairment loss related to all other factors recorded in other comprehensive income in the first ~~six~~nine months of 2009 on the Bank’s ~~non-agency MBS,~~PLRMBS, partially offset by an increase in retained earnings and the acquisition by members of mandatorily redeemable capital stock previously held by nonmembers. Bank capital stock acquired by members from nonmembers is reclassified from mandatorily redeemable capital stock (a liability) to capital stock.

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (i) total regulatory capital in an amount equal to at least 4% of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount at least equal to its regulatory risk-based capital requirement. Regulatory capital and permanent capital are both defined as total capital stock outstanding, including mandatorily redeemable capital stock, and retained earnings. Regulatory capital and permanent capital do not include accumulated other comprehensive income/(loss). Leverage capital is defined as the sum of permanent capital, weighted by a 1.5 multiplier, plus non-permanent capital. (Non-permanent capital consists of Class A capital stock, which is redeemable upon six months’ notice. The Bank’s capital plan does not provide for the issuance of Class A capital stock.) The risk-based capital requirements must be met with permanent capital, which must be at least equal to the sum of the Bank’s credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules of the Finance Agency.

The following table shows the Bank’s compliance with the Finance Agency’s capital requirements at ~~June~~September 30, 2009, and December 31, 2008. During the first ~~six~~nine months of 2009, the Bank’s required risk-based capital decreased from $8.6 billion at December 31, 2008, to ~~$8.2~~$7.3 billion at ~~June~~September 30, 2009. The decrease was due to lower market risk capital requirements, reflecting the improvement in the Bank’s market value of capital relative to its book value of capital.


	June 30, 2009						December 31, 2008						September 30, 2009						December 31, 2008
(Dollars in millions)	Required			Actual			Required			Actual			Required			Actual			Required			Actual

Risk-based capital	$	8,226		$	14,590		$	8,635		$	13,539		$	7,309		$	14,468		$	8,635		$	13,539
Total regulatory capital	$	9,557		$	14,590		$	12,850		$	13,539		$	8,448		$	14,468		$	12,850		$	13,539
Total capital-to-assets ratio		4.00	%		6.11	%		4.00	%		4.21	%		4.00	%		6.85	%		4.00	%		4.21	%
Leverage capital	$	11,946		$	21,884		$	16,062		$	20,308		$	10,561		$	21,701		$	16,062		$	20,308
Leverage ratio		5.00	%		9.16	%		5.00	%		6.32	%		5.00	%		10.27	%		5.00	%		6.32	%

The Bank’s total capital-to-assets ratio increased to ~~6.11%~~6.85% at ~~June~~September 30, 2009, from 4.21% at December 31, 2008, primarily because of increased excess capital stock resulting from the decline in advances outstanding, coupled with the Bank’s decision not to repurchase excess capital stock, as noted previously.

The Bank’s capital requirements are more fully discussed in the Bank’s 2008 Form 10-K in Note 13 to the Financial Statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital.”

The Bank has an integrated corporate governance and internal control framework designed to support effective management of the Bank’s business activities and the risks inherent in these activities. As part of this framework, the Bank’s Board of Directors has adopted a Risk Management Policy and a Member Products

Policy, which are reviewed regularly and reapproved at least annually. The Risk Management Policy establishes risk guidelines, limits (if applicable), and standards for credit risk, market risk, liquidity risk, operations risk, and business risk in accordance with Finance Agency regulations, the risk profile established by the Board of Directors, and other applicable guidelines in connection with the Bank’s capital plan and overall risk management. For more detailed information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the Bank’s 2008 Form 10-K.

Advances.The Bank manages the credit risk associated with lending to members by monitoring the creditworthiness of the members and the quality and value of the assets that they pledge as collateral. Creditworthiness is determined and periodically assessed using the financial information provided by ~~the member,~~members, quarterly financial reports filed by members with their primary regulators, regulatory examination reports and known regulatory enforcement actions, and public information.

Pursuant to the Bank’s lending agreements with its members, the Bank limits the amount it will lend to a specified percentage of the value assigned to pledged collateral. This percentage, known as the “borrowing capacity,” varies according to several factors, including the collateral type, the results of the Bank’s collateral field review of the member’s collateral, the pledging method used for loan collateral (specific identification or blanket lien), data reporting frequency (monthly or quarterly), the member’s financial strength and condition, and the concentration of collateral type. Under the terms of the Bank’s lending agreements, the aggregate borrowing capacity of a member’s pledged eligible collateral must meet or exceed the total amount of the member’s outstanding advances, other extensions of credit, and certain other member obligations and liabilities. The Bank monitors each member’s aggregate borrowing capacity and collateral requirements on a daily basis, by comparing the member’s borrowing capacity to its ~~outstanding credit.~~obligations to the Bank, as required.

When a nonmember financial institution acquires some or all of the assets and liabilities of a member, including outstanding advances and Bank capital stock, the Bank may allow the advances to remain outstanding, at its discretion. The nonmember borrower is required to meet all the Bank’s credit and collateral requirements, including requirements regarding creditworthiness and collateral borrowing capacity.

The following tables present a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank’s member and nonmember borrowers as of ~~June~~September 30, 2009, and December 31, 2008. During the first ~~six~~nine months of 2009, the Bank’s internal credit ratings reflected continued financial deterioration of some members and nonmember borrowers resulting from market conditions and other factors. Credit quality ratings are determined based on results from the Bank’s credit model and on other qualitative information, including regulatory examination reports. The Bank assigns each member and nonmember borrower an internal rating from one to ten, with one as the highest rating. Changes in the number of members and nonmember borrowers in each of the credit quality rating categories may occur because of the addition of new Bank members as well as changes to the credit quality ratings of the institutions based on the analysis discussed above.


	All Members and Nonmembers	Members and Nonmembers with Credit Outstanding								All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
					Collateral Borrowing Capacity⁽²⁾									Collateral Borrowing Capacity⁽²⁾
Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding⁽¹⁾		Total		Used			Number	Number	Credit Outstanding⁽¹⁾		Total		Used

1-3	124	104	$	24,128	$	49,077	49	%		73	52	$	24,855	$	33,026	75	%
4-6	268	203		201,726		224,398	90			217	148		120,710		190,215	63
7-10	49	40		12,802		16,144	79			140	111		12,852		19,240	67

Total	441	347	$	238,656	$	289,619	82	%		430	311	$	158,417	$	242,481	65	%


December 31, 2008									December 31, 2008

										All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
														Collateral Borrowing Capacity⁽²⁾
Member or Nonmember Credit Quality Rating										Number	Number	Credit Outstanding⁽¹⁾		Total		Used

1-3										124	104	$	24,128	$	49,077	49	%
4-6										268	203		201,726		224,398	90
7-10										49	40		12,802		16,144	79

Total										441	347	$	238,656	$	289,619	82	%

Securities pledged as collateral are assigned borrowing capacities that reflect the securities’ pricing volatility and market liquidity risks. Securities are delivered to the Bank’s custodian when they are pledged. The Bank prices securities collateral on a daily basis or twice a month, depending on the availability and reliability of external pricing sources. Securities that are normally priced twice a month may be priced more frequently in volatile market conditions. The Bank benchmarks the borrowing capacities for securities collateral to the market on a periodic basis and may review and change the borrowing capacity for any security type at any time. As of ~~June~~September 30, 2009, the borrowing capacities assigned to U.S. Treasury and ~~Agency~~agency securities ranged from 95% to 99.5% of their market value. The borrowing capacities assigned to ~~non-agency~~private-label MBS, which must be rated AAA or AA when initially pledged, generally ranged from 50% to 85% of their market value, depending on the underlying collateral (residential mortgages, home equity loans, or commercial real estate). None of the MBS pledged as collateral were labeled as subprime.

The following table presents the securities collateral pledged by all members and by nonmembers with credit outstanding at ~~June~~September 30, 2009, and December 31, 2008.

With respect to loan collateral, most members may choose to pledge loan collateral using a specific identification method or a blanket lien method. Members pledging under the specific identification method must provide a detailed listing of pledged loans on a monthly or quarterly basis, and only those loans are pledged to the Bank. Under the blanket lien method, a member generally pledges all loans secured by real estate; all loans made for commercial, corporate, or business purposes; and all participations in these ~~loans,~~loans; whether or not the loans are eligible to receive borrowing capacity. Members pledging under the blanket lien method may provide a detailed listing of loans or may use a summary reporting method.

The Bank may require certain members to deliver pledged loan collateral to the Bank for one or more reasons, including the following: the member is a de novo institution (chartered within the last three years), the Bank is concerned about the member’s creditworthiness, or the Bank is concerned about the maintenance of its collateral or the priority of its security interest. Members required to deliver loan collateral must pledge those loans under the blanket lien method with detailed reporting. The Bank’s largest borrowers are required

to report detailed data on a monthly basis and may pledge loan collateral using either the specific identification method or the blanket lien method with detailed reporting.

As of ~~June~~September 30, 2009, ~~58%~~68% of the loan collateral pledged to the Bank was pledged by 6164 institutions under specific identification, ~~30%~~17% was pledged by ~~163~~170 institutions under blanket lien with detailed reporting, and ~~12%~~15% was pledged by ~~167~~137 institutions under blanket lien with summary reporting.

As of ~~June~~September 30, 2009, the Bank’s maximum borrowing capacities for loan collateral ranged from ~~40%~~30% to 93% of the value assigned to the collateral. For example, the maximum borrowing capacities for collateral pledged under blanket lien with detailed reporting were as follows: 93% for first lien residential mortgage loans, ~~75%~~68% for multifamily mortgage loans, 60% for commercial mortgage loans, 50% for small business, small farm, and small agribusiness loans, and ~~40%~~30% for second lien residential mortgage loans. The highest borrowing capacities are available to members that pledge under blanket lien with detailed reporting because the detailed loan information allows the Bank to assess the value of the collateral more precisely and because additional collateral is pledged under the blanket lien that may not receive borrowing capacity but may be liquidated to repay advances in the event of default. The Bank may review and change the maximum borrowing capacity for any type of loan collateral at any time.

The table below presents the mortgage loan collateral pledged by all members and by nonmembers with credit outstanding at ~~June~~September 30, 2009, and December 31, 2008.


	June 30, 2009				December 31, 2008				September 30, 2009				December 31, 2008
Loan Type	Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity

First lien residential mortgage loans	$	223,062	$	119,434	$	260,598	$	142,004	$	216,031	$	115,428	$	260,598	$	142,004
Second lien residential mortgage loans and home equity lines of credit		103,085		32,646		111,275		34,568		90,405		23,070		111,275		34,568
Multifamily mortgage loans		39,837		25,038		41,437		26,517		39,871		22,844		41,437		26,517
Commercial mortgage loans		64,957		33,366		71,207		36,643		62,274		32,148		71,207		36,643
Loan participations		23,716		13,151		20,728		11,679		21,435		11,738		20,728		11,679
Small business, small farm, and small agribusiness loans		3,908		860		4,252		963		3,733		746		4,252		963
Other		1,269		378		6,357		1,807		1,154		343		6,357		1,807

Total	$	459,834	$	224,873	$	515,854	$	254,181	$	434,903	$	206,317	$	515,854	$	254,181

The Bank holds a security interest in subprime residential mortgage loans ~~(loans~~(defined as loans with a borrower FICO score of 620 or less) pledged as collateral. At ~~June~~September 30, 2009, the amount of these loans totaled ~~$23~~$20 billion. The Bank reviews and assigns borrowing capacities to subprime mortgage loans as it does for all other types of loan collateral, taking into account the known credit attributes in assigning the appropriate secondary market discounts. In addition, members with concentrations in nontraditional and subprime mortgage loans are subject to more frequent analysis to assess the credit quality and value of the loans. All advances, including those made to members pledging subprime mortgage loans, are required to be fully collateralized.

Investments.The Bank has adopted credit policies and exposure limits for investments that promote risk diversification and liquidity. These policies restrict the amounts and terms of the Bank’s investments with any given counterparty according to the Bank’s own capital position as well as the capital and creditworthiness of the counterparty.

The Bank monitors its investments for substantive changes in relevant market conditions and any declines in fair value. For securities in an unrealized loss position because of factors other than movements in interest rates, such as widening of mortgage asset spreads, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing its best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. ~~The difference between~~If the Bank’s best estimate of the present value of the cash flows expected to be collected ~~and~~is less than the amortized cost basis, the difference is considered the credit loss.

When the fair value of an individual investment security falls below its amortized cost, the Bank evaluates whether the decline is other than temporary. The Bank recognizes an other-than-temporary impairment when it determines that it will be unable to recover the entire amortized cost basis of the security and the fair value of the investment security is less than its amortized cost. The Bank considers several quantitative and qualitative factors when determining whether other-than-temporary impairment has occurred, including recent external rating agency actions or changes in a security’s external credit rating, credit quality of the underlying collateral, sufficiency of the credit enhancement, and the length of time that and extent to which fair value has been less than the amortized cost, as well as the Bank’sits intent to hold the security and whether it is more likely than not that the Bank will be required to sell the security before its anticipated recovery of the remaining amortized cost basis, and other factors. The Bank generally views changes in the fair value of the securities caused by movements in interest rates to be temporary.

The following tables present the Bank’s investment credit exposure at the dates indicated, based on counterparties’ long-term credit ratings as provided by Moody’s, Standard & Poor’s, or comparable Fitch ratings.


	Carrying Value																Carrying Value
	Credit Rating⁽¹⁾																Credit Rating⁽¹⁾
Investment Type	AAA		AA		A		BBB		BB		B		CCC		Total		AAA		AA		A		BBB		BB		B		CCC		CC		C		Total

Federal funds sold	$	—	$	11,582	$	5,076	$	—	$	—	$	—	$	—	$	16,658	$	—	$	4,933	$	2,153	$	—	$	—	$	—	$	—	$	—	$	—	$	7,086
Trading securities:
MBS:
Ginnie Mae		25		—		—		—		—		—		—		25		24		—		—		—		—		—		—		—		—		24
Fannie Mae		9		—		—		—		—		—		—		9		8		—		—		—		—		—		—		—		—		8

Total trading securities		34		—		—		—		—		—		—		34		32		—		—		—		—		—		—		—		—		32

Held-to-maturity securities:
Interest-bearing deposits in banks		—		2,790		3,513		—		—		—		—		6,303		—		2,780		4,249		—		—		—		—		—		—		7,029
Commercial paper(2)		—		1,000		1,250		—		—		—		—		2,250		—		1,000		—		—		—		—		—		—		—		1,000
Housing finance agency bonds		28		749		—		—		—		—		—		777		28		741		—		—		—		—		—		—		—		769
MBS:
Ginnie Mae		17		—		—		—		—		—		—		17		16		—		—		—		—		—		—		—		—		16
Freddie Mac		3,891		—		—		—		—		—		—		3,891		3,639		—		—		—		—		—		—		—		—		3,639
Fannie Mae		9,230		—		—		—		—		—		—		9,230		9,031		—		—		—		—		—		—		—		—		9,031
Non-agency		6,042		1,414		2,598		3,455		3,347		1,887		1,030		19,773
PLRMBS																		3,162		1,789		2,493		2,746		2,614		1,411		2,254		808		64		17,341

Total held-to-maturity securities		19,208		5,953		7,361		3,455		3,347		1,887		1,030		42,241		15,876		6,310		6,742		2,746		2,614		1,411		2,254		808		64		38,825

Total investments	$	19,242	$	17,535	$	12,437	$	3,455	$	3,347	$	1,887	$	1,030	$	58,933	$	15,908	$	11,243	$	8,895	$	2,746	$	2,614	$	1,411	$	2,254	$	808	$	64	$	45,943


	Carrying Value												Carrying Value
	Credit Rating⁽¹⁾												Credit Rating⁽¹⁾
Investment Type	AAA		AA		A		BBB		B		Total		AAA		AA		A		BBB		B		Total

Federal funds sold	$	—	$	7,335	$	2,015	$	81	$	—	$	9,431	$	—	$	7,335	$	2,015	$	81	$	—	$	9,431
Trading securities:
MBS:
Ginnie Mae		25		—		—		—		—		25		25		—		—		—		—		25
Fannie Mae		10		—		—		—		—		10		10		—		—		—		—		10

Total trading securities		35		—		—		—		—		35		35		—		—		—		—		35

Held-to-maturity securities:
Interest-bearing deposits in banks		—		3,340		7,860		—		—		11,200		—		3,340		7,860		—		—		11,200
Commercial paper(2)		—		150		—		—		—		150		—		150		—		—		—		150
Housing finance agency bonds		31		771		—		—		—		802		31		771		—		—		—		802
MBS:
Ginnie Mae		19		—		—		—		—		19		19		—		—		—		—		19
Freddie Mac		4,408		—		—		—		—		4,408		4,408		—		—		—		—		4,408
Fannie Mae		10,083		—		—		—		—		10,083		10,083		—		—		—		—		10,083
Non-agency		22,014		667		847		817		198		24,543
PLRMBS														22,014		667		847		817		198		24,543

Total held-to-maturity securities		36,555		4,928		8,707		817		198		51,205		36,555		4,928		8,707		817		198		51,205

Total investments	$	36,590	$	12,263	$	10,722	$	898	$	198	$	60,671	$	36,590	$	12,263	$	10,722	$	898	$	198	$	60,671

For all the securities in its held-to-maturity portfolio and Federal funds sold, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized
cost basis.

The Bank invests in short-term unsecured Federal funds sold, negotiable certificates of deposit (interest-bearing deposits in banks), and commercial paper with member and nonmember counterparties. The Bank has determined that, as of ~~June~~September 30, 2009, all of the gross unrealized losses on its short-term unsecured Federal funds sold, interest-bearing deposits in banks, and commercial paper are temporary ~~because: (i)~~because the gross unrealized losses were caused by movements in interest rates and not by the deterioration of the issuers’ ~~creditworthiness, (ii)~~creditworthiness; the short-term unsecured Federal funds sold, interest-bearing deposits in banks, and commercial paper were all with issuers that had credit ratings of at least A at ~~June~~September 30, ~~2009, (iii)~~2009; and all of the securities had maturity dates within 45 days of quarter-end, (iv) the Bank does not intend to sell these securities, (v) it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and (vi) the Bank expects to recover the entire amortized cost basis of these securities.September 30, 2009.

The Bank’s investments may also include housing finance agency bonds issued by housing finance agencies located in Arizona, California, and Nevada, the three states that make up the Bank’s district, which is the 11^th District of the FHLBank System. These bonds are mortgage revenue bonds (federally taxable) and are collateralized by pools of first liens on residential mortgage loans and credit-enhanced by bond insurance. The bonds held by the Bank are issued by the California Housing Finance Agency (CHFA) and insured by either Ambac Assurance Corporation (Ambac), MBIA Insurance Corporation (MBIA), or Financial Security Assurance Incorporated (FSA). ~~During 2008,~~At September 30, 2009, all ~~but one~~ of the bonds were ~~downgraded from AAA to~~rated at least AA by Moody’s, Standard & Poor’s, or Fitch Ratings. There were no rating downgrades to the Bank’s housing finance agency bonds from ~~January~~October 1, 2009, to ~~August 7,~~October 30, 2009. As of ~~August 7,~~October 30, 2009, ~~$580~~$390 million of the AA-rated ~~housing finance agency bonds and $28 million of the AAA-rated~~ housing finance agency bonds issued by CHFA and insured by FSA were on negative watch according

At ~~June~~September 30, 2009, the Bank’s investments in housing finance agency bonds had gross unrealized losses totaling ~~$35~~$24 million. These gross unrealized losses were mainly due to extraordinarily high investor yield requirements resulting from an illiquid market, causing these investments to be valued at a discount to their acquisition cost. The Bank has determined that, as of ~~June~~September 30, 2009, all of the gross unrealized losses on its housing finance agency bonds are temporary ~~because: (i)~~because the strength of the underlying collateral and credit enhancements was sufficient to protect the Bank from losses based on current expectations ~~(ii)~~and the California Housing Finance Agency had a credit rating of ~~AA–~~AA- at ~~June~~September 30, 2009 (based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings), (iii) the Bank does not intend to sell these securities, (iv) it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and (v). As a result, the Bank expects to recover the entire amortized cost basis of these securities.

The Bank’s investments also include residential agency MBS, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae, and ~~residential non-agency MBS,~~PLRMBS, some of which were issued by and/or purchased from members, former members, or their respective affiliates. At ~~June~~September 30, 2009, ~~MBS~~PLRMBS representing 43% of the amortized cost of the Bank’s MBS portfolio were labeled Alt-A by the issuer. Alt-A MBS are generally collateralized by mortgage loans that are considered less risky than subprime loans but more risky than prime loans. These loans are generally made to borrowers who have sufficient credit ratings to qualify for a conforming mortgage loan but the loans may not meet standard guidelines for documentation requirements, property type, or loan-to-value ratios. In addition, the property securing the loan may be non-owner-occupied.

As of ~~June~~September 30, 2009, the Bank’s investment in MBS classified as held-to-maturity had gross unrealized losses totaling ~~$7.2~~$6.0 billion, most of which were related to ~~non-agency MBS.~~PLRMBS. These gross unrealized losses were primarily due to extraordinarily high investor yield requirements resulting from an extremely illiquid market, significant uncertainty about the future condition of the mortgage market and the economy, and continued deterioration in the credit performance of loan collateral underlying these securities, causing these assets to be valued at significant discounts to their acquisition cost.

For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because it 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. ~~In addition, all of the Bank’s agency MBS had~~As a credit rating of AAA at June 30, 2009. Because of these factors and because the Bank expects to recover the entire amortized cost basis of these securities, does not intend to sell these securities, and it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis,result, the Bank has determined that, as of ~~June~~September 30, 2009, all of the gross unrealized losses on its agency MBS are temporary.

To assess whether it expects to recover the entire amortized cost basis of its ~~non-agency MBS,~~PLRMBS, the Bank performed a cash flow analysis for ~~each~~all but five of its ~~non-agency MBS that was determined to be other-than-temporarily impaired in a previous reporting period as well as those with adverse risk characteristics~~PLRMBS as of ~~June~~September 30, 2009. ~~The adverse risk characteristics~~For the remaining five PLRMBS for which underlying collateral data is not available, alternative procedures were used to ~~select~~assess these securities for cash flow analysis included: the duration and magnitude of the unrealized loss; below investment grade rating agency actions on the security; and criteria related to the credit performance of the underlying collateral, including the ratio of credit enhancement to expected collateral losses and the ratio of seriously delinquent loans to credit enhancement.

For these purposes, expected collateral losses are those that are implied by current delinquencies taking into account a default probability based on the state of delinquency and a loss severity assumption based on product and vintage; seriously delinquent loans are those that are 60 or more days past due, including loans in foreclosure and real estate owned.OTTI.

In performing the cash flow analysis for each ~~of these securities,~~security, the Bank used two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices, interest rates, and other assumptions, to project prepayments, default rates, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and ~~core based~~core-based statistical areas ~~(CBSA), which are~~(CBSAs) based on an assessment of the relevant housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and ~~Budget; as~~Budget. As currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast assumed CBSA-level current-to-trough home price declines ranging from 0 percent to 20 percent over the

next 9 to 15 ~~months (resulting in peak-to-trough home price declines of up to 51 percent).~~months. Thereafter, home prices are projected to increase 10 percent in the first ~~year,~~six months, 0.5 percent in the next six months, 3 percent in the second year, and 4 percent in each subsequent year. The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, default rates, and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in each securitization structure in accordance with ~~its~~the structure’s prescribed cash flow and loss allocation rules. When the credit enhancement for the senior securities in a securitization is derived from the presence of subordinated securities, losses are generally allocated first to the subordinated securities until their principal balance is reduced to zero. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach described above reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path.

In addition to ~~evaluating~~ the ~~risk-based selection~~cash flow analysis of ~~its non-agency MBS~~the Bank’s PLRMBS under a base case ~~(or best~~(best estimate) housing price scenario, ~~the Bank also performed~~ a cash flow analysis ~~for each of these securities under~~was also performed based on a ~~more stressful~~ housing price ~~scenario.~~scenario that is more adverse than the base case (adverse case housing price scenario). The ~~more stressful~~adverse case housing price scenario was based on a projection of housing ~~price forecast~~prices that was 5 percentage points lower at the trough ~~than~~compared to the base case scenario, ~~followed by~~had a flatter recovery ~~path.~~path, and had housing prices increase at a long-term annual rate of 3 percent compared to 4 percent in the base case. Under the ~~more stressful~~adverse case housing price scenario, current-to-trough ~~home~~housing price declines were projected to range from 5 percent to 25 percent over the next 9 to 15 months. Thereafter, home prices were projected to increase 0 percent in the first year, 1 percent in the second year, ~~and~~ 2 percent in the third and fourth year, and 3 percent in each subsequent year.

The following table shows the base case scenario and what the impact on OTTI would have been under the more stressful housing price scenario:


											Three Months Ended September 30, 2009
	Three Months Ended June 30, 2009										Housing Price Scenario
	Base Case Scenario					Adverse Scenario					Base Case							Adverse Case
(Dollars in millions)	Number of Securities	Unpaid Principal Balance		OTTI Related to Credit Loss		Number of Securities	Unpaid Principal Balance		OTTI Related to Credit Loss		Number of Securities	Unpaid Principal Balance		OTTI Related to Credit Loss		OTTI Related to All Other Factors		Number of Securities	Unpaid Principal Balance		OTTI Related to Credit Loss		OTTI Related to All Other Factors

Other-than-temporarily impaired non-agency MBS backed by loans classified as:
Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	5	$	1,203	$	15	4	$	912	$	42	8	$	1,396	$	26	$	91	8	$	1,396	$	78	$	38
Alt-A	71		5,743		73	84		7,110		282	88		8,288		290		978	123		10,493		594		1,295

Total	76	$	6,946	$	88	88	$	8,022	$	324	96	$	9,684	$	316	$	1,069	131	$	11,889	$	672	$	1,333

The Bank uses models in projecting the cash flows for ~~non-agency MBS~~PLRMBS with unrealized losses for its analysis of OTTI. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations.

For more information on the Bank’s OTTI analysis and reviews, see Note 3 to the Financial Statements.

The following table presents the ratings of the Bank’s ~~non-agency MBS~~PLRMBS investments as of ~~June~~September 30, 2009, by year of issuance.

Unpaid Principal Balance of ~~Non-Agency MBS~~PLRMBS by Year of Issuance and Credit Rating


	Unpaid Principal Balance																Unpaid Principal Balance
	Credit Rating⁽¹⁾																Credit Rating⁽¹⁾
Year of Issuance	AAA		AA		A		BBB		BB		B		CCC		Total		AAA		AA		A		BBB		BB		B		CCC		CC		C		Total

Prime
2004 and earlier	$	3,588	$	257	$	121	$	—	$	—	$	—	$	—	$	3,966	$	2,471	$	673	$	426	$	—	$	26	$	—	$	—	$	—	$	—	$	3,596
2005		133		61		144		—		—		—		—		338		119		59		135		—		—		—		—		—		—		313
2006		299		70		403		324		131		138		—		1,365		274		—		352		325		104		—		128		—		—		1,183
2007		427		—		25		252		103		—		231		1,038		—		—		24		108		100		—		630		138		—		1,000
2008		44		—		376		—		—		—		—		420		—		—		—		44		283		—		—		78		—		405

Total Prime		4,491		388		1,069		576		234		138		231		7,127		2,864		732		937		477		513		—		758		216		—		6,497

Alt-A
2004 and earlier		503		609		614		97		—		—		—		1,823		268		653		728		92		—		—		—		—		—		1,741
2005		209		356		883		2,256		1,614		976		81		6,375		27		344		893		1,871		1,348		804		730		102		—		6,119
2006		130		—		73		307		502		314		618		1,944		—		—		—		115		361		57		804		537		—		1,874
2007		997		123		90		118		1,650		1,276		802		5,056		—		118		—		—		1,309		1,557		1,348		441		115		4,888
2008		—		—		—		346		—		—		—		346		—		—		—		318		—		—		—		—		—		318

Total Alt-A		1,839		1,088		1,660		3,124		3,766		2,566		1,501		15,544		295		1,115		1,621		2,396		3,018		2,418		2,882		1,080		115		14,940

Total par amount	$	6,330	$	1,476	$	2,729	$	3,700	$	4,000	$	2,704	$	1,732	$	22,671	$	3,159	$	1,847	$	2,558	$	2,873	$	3,531	$	2,418	$	3,640	$	1,296	$	115	$	21,437

For the Bank’s ~~non-agency MBS,~~PLRMBS, the following table shows the amortized cost, estimated fair value, OTTI charges, performance of the underlying collateral based on the classification at the time of origination, and credit enhancement statistics by type of collateral and year of issuance. Credit enhancement is defined as the percentage of subordinated tranches and over-collateralization, if any, in a security structure that will absorb losses before the Bank will experience a loss on the security. The credit enhancement figures include the additional credit enhancement required by the Bank (above the amounts required for an AAA rating by the credit rating agencies) for selected securities starting in late 2004, and for all securities starting in late 2005. The calculated original, average, and current credit enhancement amounts represent the dollar-weighted averages of all the MBS in each category shown.


							For the Three Months Ended June 30, 2009						Underlying Collateral Performance and Credit Enhancement Statistics														For the Nine Months Ended September 30, 2009						Underlying Collateral Performance and Credit Enhancement Statistics
Year of Issuance	Amortized Cost		Gross Unrecognized Holding Losses		Estimated Fair Value		OTTI Related to Credit Loss		OTTI Related to All Other Factors		Total OTTI		60+ Days Collateral Delinquency Rate		Original Weighted Average Credit Support		Current Weighted Average Credit Support		Minimum Current Credit Support		Amortized Cost		Gross Unrealized Losses		Estimated Fair Value		OTTI Related to Credit Loss		OTTI Related to All Other Factors		Total OTTI		Weighted- Average 60+ Days Collateral Delinquency Rate		Original Weighted Average Credit Support		Current Weighted Average Credit Support		Minimum Current Credit Support

Prime
2004 and earlier	$	3,970	$	598	$	3,372	$	—	$	—	$	—	3.60	%	3.92	%	7.69	%	3.80	%	$	3,600	$	370	$	3,229	$	—	$	—	$	—	4.67	%	3.95	%	7.99	%	3.94	%
2005		337		99		238		—		—		—	10.16		11.54		16.31		6.02			312		68		245		—		11		11	12.06		11.66		16.58		6.29
2006		1,340		219		1,092		—		29		29	5.56		8.86		9.74		6.50			1,161		152		1,017		2		27		29	6.94		9.06		9.90		6.76
2007		1,023		73		672		15		223		238	16.23		23.15		23.27		7.18			965		343		627		35		266		301	18.94		23.12		22.80		7.23
2008		425		28		337		—		60		60	16.00		30.00		31.12		31.12			407		104		302		4		99		103	19.45		30.00		31.25		31.25

Total Prime		7,095		1,017		5,711		15		312		327	6.86		9.57		12.14		3.80			6,445		1,037		5,420		41		403		444	8.56		9.83		12.48		3.94

Alt-A
2004 and earlier		1,844		514		1,330		—		—		—	11.07		7.92		16.49		8.65			1,760		346		1,415		—		12		12	12.06		7.92		16.54		8.73
2005		6,342		1,460		4,135		25		375		400	15.66		13.98		17.92		5.28			5,976		1,957		4,133		160		920		1,080	17.37		14.00		17.67		5.52
2006		1,868		242		1,141		21		57		78	27.59		22.71		23.29		10.20			1,723		576		1,209		133		277		410	29.90		22.69		22.53		10.06
2007		4,988		1,097		2,850		27		451		478	26.10		32.96		33.30		10.03			4,712		1,903		2,907		158		1,720		1,878	29.01		32.96		32.91		9.96
2008		346		143		203		—		—		—	13.83		31.80		32.54		32.54			318		162		156		—		—		—	14.95		31.80		32.80		32.80

Total Alt-A		15,388		3,456		9,659		73		883		956	19.97		20.93		23.75		5.28			14,489		4,944		9,820		451		2,929		3,380	22.08		20.96		23.45		5.52

Total	$	22,483	$	4,473	$	15,370	$	88	$	1,195	$	1,283	15.85	%	17.36	%	20.10	%	—	%	$	20,934	$	5,981	$	15,240	$	492	$	3,332	$	3,824	17.98	%	17.59	%	20.13	%	3.94	%

The following table presents the weighted average delinquency of the collateral underlying the Bank’s ~~non-agency MBS~~PLRMBS by collateral type based on the classification at the time of origination and current credit rating.

~~Weighted Average Collateral Delinquency~~Credit Ratings of ~~Non-Agency MBS~~PLRMBS as of ~~June~~September 30, 2009


(Dollars in millions)	Unpaid Principal Balance		Amortized Cost		Carrying Value		Gross Unrecognized Holding Losses		60+ Days Collateral Delinquency		Unpaid Principal Balance		Amortized Cost		Carrying Value		Gross Unrealized Losses		Weighted- Average 60+ Days Collateral Delinquency Rate

Prime
AAA-rated	$	4,491	$	4,486	$	4,347	$	606	4.68	%	$	2,864	$	2,864	$	2,864	$	264	3.43	%
AA-rated		388		386		386		93	9.16			732		729		729		113	8.11
A-rated		1,068		1,064		1,004		179	10.39			937		930		920		170	8.75
BBB-rated		576		562		509		76	9.10			477		473		440		58	9.20
BB-rated		235		232		232		58	3.35			513		514		430		121	13.38
B-rated		138		136		107		5	15.93
CCC-rated		231		229		144		—	21.57			758		737		485		256	21.08
CC-rated												216		198		143		55	20.49

Total Prime	$	7,127	$	7,095	$	6,729	$	1,017	6.86	%	$	6,497	$	6,445	$	6,011	$	1,037	8.56	%

Alt-A
AAA-rated	$	1,839	$	1,839	$	1,695	$	421	16.24	%	$	295	$	298	$	298	$	56	12.16	%
AA-rated		1,088		1,093		1,028		246	15.01			1,115		1,121		1,060		307	15.98
A-rated		1,660		1,662		1,594		467	13.02			1,621		1,629		1,573		401	12.27
BBB-rated		3,124		3,110		2,946		949	14.05			2,396		2,398		2,306		739	14.59
BB-rated		3,766		3,718		3,116		871	21.25			3,018		2,957		2,184		1,023	20.27
B-rated		2,566		2,521		1,779		417	27.16			2,418		2,330		1,412		999	27.61
CCC-rated		1,501		1,445		886		85	32.62			2,882		2,672		1,768		1,064	30.96
CC-rated												1,080		974		665		309	31.73
C-rated												115		110		64		46	19.21

Total Alt-A	$	15,544	$	15,388	$	13,044	$	3,456	19.97	%	$	14,940	$	14,489	$	11,330	$	4,944	22.08	%

Unpaid Principal Balance of ~~Non-Agency MBS~~PLRMBS by Collateral Type Classified at Origination


	September 30, 2009						December 31, 2008
(In millions)	Fixed Rate		Adjustable Rate		Total		Fixed Rate		Adjustable Rate		Total

PLRMBS:
Prime	$	3,586	$	2,911	$	6,497	$	6,616	$	1,823	$	8,439
Alt-A		8,581		6,359		14,940		10,274		6,415		16,689

Total	$	12,167	$	9,270	$	21,437	$	16,890	$	8,238	$	25,128

~~Weighted Average Collateral Delinquency Rates and Credit Ratings of Non-Agency MBS~~PLRMBS in a Loss Position

at ~~June~~September 30, 2009, and Credit Ratings as of ~~August 7,~~October 30, 2009

The following table presents the fair value of the Bank’s ~~non-agency MBS~~PLRMBS as a percentage of the unpaid principal balance by collateral type and year of securitization.

Fair Value of ~~Non-Agency MBS~~PLRMBS as a Percentage of Unpaid Principal Balance by Year of Securitization


Collateral Type at Origination and Year of Securitization	September 30, 2009		June 30, 2009		March 31, 2009		December 31, 2008		September 30, 2008

Prime
2004 and earlier	89.79	%	85.02	%	80.49	%	83.03	%	94.79	%
2005	78.16		70.43		63.61		74.71		84.99
2006	85.95		80.03		73.38		78.77		90.98
2007	62.69		64.78		63.10		73.05		84.96
2008	74.55		80.25		72.77		69.63		86.88
Weighted average of all Prime	83.41	%	80.14	%	75.50	%	79.78	%	91.92	%

Alt-A
2004 and earlier	81.27	%	72.98	%	72.24	%	76.77	%	85.00	%
2005	67.55		64.85		60.84		65.50		75.97
2006	64.48		58.69		57.38		63.44		71.15
2007	59.48		56.36		55.19		58.10		70.53
2008	49.16		58.72		66.20		72.40		92.16
Weighted average of all Alt-A	65.73	%	62.14	%	60.07	%	64.39	%	75.13	%

Weighted average of all PLRMBS	71.09	%	67.80	%	65.13	%	69.56	%	80.84	%

The following table summarizes rating agency downgrade actions on ~~non-agency MBS~~PLRMBS that occurred ~~after June~~from October 1, 2009, to October 30, 2009. The credit ratings used by the Bank are based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings.

~~Non-Agency MBS~~PLRMBS Downgraded from ~~July~~October 1, 2009, to ~~August 7,~~October 30, 2009

~~Non-Agency MBS Downgraded to Below Investment Grade from July 1, 2009, to August 7, 2009~~

~~Between July 1, 2009, and August 7, 2009, one $3 million AAA-rated non-agency MBS held by the Bank was placed on negative watch, but was not downgraded by the rating agencies.~~

The ~~Bank had already performed OTTI reviews on all but two of the~~ securities that were downgraded from October 1, 2009, to ~~below investment grade status. Following~~October 30, 2009, were included in the Bank’s OTTI analysis performed as of September 30, 2009, and no additional OTTI charges were required as a result of these ~~rating agency actions, the Bank performed OTTI reviews on the two securities.~~ downgrades.

The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank has determined that, as of ~~June~~September 30, 2009, all of the gross unrealized losses on these ~~two~~ securities are temporary.

The Bank believes that, as of ~~June~~September 30, 2009, the gross unrealized losses on the ~~remainder of the held-to-maturity MBS~~remaining PLRMBS that did not have an OTTI charge are primarily due to unusually wide mortgage-asset spreads, generally resulting from an illiquid market, which caused these assets to be valued at significant discounts to their acquisition costs. The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. The Bank will continue to monitor and analyze the performance of these securities to assess the likelihood of the recovery of the entire amortized cost basis of these securities as of each balance sheet date. If market conditions and the performance of mortgage assets continue to deteriorate, however, the Bank may recognize significant OTTI charges in the future.

Derivatives Counterparties.The Bank has also adopted credit policies and exposure limits for derivatives credit exposure. All credit exposure from derivatives transactions entered into by the Bank with member counterparties that are not derivatives dealers (including interest rate swaps, caps, floors, corridors, and collars), for which the Bank serves as an intermediary, must be fully secured by eligible collateral, and all such derivatives transactions are subject to both the Bank’s Advances and Security Agreement and a master netting agreement.

For all derivatives dealer counterparties, the Bank selects only highly rated derivatives dealers and major banks that meet the Bank’s eligibility criteria. In addition, the Bank has entered into master netting agreements and bilateral security agreements with all active derivatives dealer counterparties that provide for delivery of collateral at specified levels tied to counterparty credit ratings to limit the Bank’s net unsecured credit exposure to these counterparties.

Under these policies and agreements, the amount of unsecured credit exposure to an individual derivatives dealer counterparty is limited to the lesser of (i) a percentage of the counterparty’s capital, or (ii) an absolute credit exposure limit, both according to the counterparty’s credit rating, as determined by rating agency long-term credit ratings of the counterparty’s debt securities or deposits. The following table presents the Bank’s credit exposure to its derivatives counterparties at the dates indicated.


September 30, 2009

Counterparty Credit Rating⁽¹⁾	Notional Balance		Gross Credit Exposure		Collateral		Net Unsecured Exposure		Notional Balance		Gross Credit Exposure		Collateral		Net Unsecured Exposure

AA	$	118,657	$	1,138	$	1,133	$	5	$	104,792	$	1,168	$	1,156	$	12
A⁽²⁾		162,853		845		823		22		156,812		887		881		6

Subtotal		281,510		1,983		1,956		27		261,604		2,055		2,037		18
Member institutions⁽³⁾		213		—		—		—		303		—		—		—

Total derivatives	$	281,723	$	1,983	$	1,956	$	27	$	261,907	$	2,055	$	2,037	$	18


December 31, 2008
Counterparty Credit Rating⁽¹⁾	Notional Balance		Gross Credit Exposure		Collateral		Net Unsecured Exposure		Notional Balance		Gross Credit Exposure		Collateral		Net Unsecured Exposure

AA	$	150,584	$	1,466	$	1,462	$	4	$	150,584	$	1,466	$	1,462	$	4
A⁽²⁾		180,886		1,027		1,010		17		180,886		1,027		1,010		17

Subtotal		331,470		2,493		2,472		21		331,470		2,493		2,472		21
Member institutions⁽³⁾		173		—		—		—		173		—		—		—

Total derivatives	$	331,643	$	2,493	$	2,472	$	21	$	331,643	$	2,493	$	2,472	$	21

At ~~June~~September 30, 2009, the Bank had a total of ~~$281.7~~$261.9 billion in notional amounts of derivatives contracts outstanding. Of this total:

Gross credit exposure on derivatives contracts at ~~June~~September 30, 2009, was ~~$2.0~~$2.1 billion, which consisted of:

At December 31, 2008, the Bank had a total of $331.6 billion in notional amounts of derivatives contracts outstanding. Of this total:

Gross credit exposure on derivatives contracts at December 31, 2008, was $2.5 billion, which consisted of:

The Bank’s gross credit exposure with derivatives dealer counterparties, representing net gain amounts due to the Bank, was ~~$2.0~~$2.1 billion at ~~June~~September 30, 2009, and $2.5 billion at December 31, 2008. The gross credit exposure reflects the fair value of derivatives contracts, including interest amounts accrued through the reporting date, and is netted by counterparty because the Bank has the legal right to do so under its master netting agreement with each counterparty.

The Bank’s gross credit exposure decreased ~~$0.5~~$0.4 billion from December 31, 2008, to ~~June~~September 30, 2009. In general, the Bank is a net receiver of fixed interest rates and a net payer of floating interest rates under its derivatives contracts with counterparties. From December 31, 2008, to ~~June~~September 30, 2009, interest rates decreased, causing interest rate swaps in which the Bank is a net receiver of fixed interest rates to increase in value.

An increase or decrease in the notional amounts of derivatives contracts may not result in a corresponding increase or decrease in gross credit exposure because the fair values of derivatives contracts are generally zero at inception.

Based on the master netting arrangements, its credit analyses, and the collateral requirements in place with each counterparty, ~~management of~~ the Bank does not ~~anticipate~~expect to incur any credit losses on its derivatives agreements.

For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” in the Bank’s 2008 Form 10-K.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if applicable, and the reported amounts of income, expenses, gains, and losses during the reporting period. Changes in these judgments, estimates, and assumptions could potentially affect the Bank’s financial position and results of operations significantly. Although management believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.

In the Bank’s 2008 Form 10-K, the following accounting policies and estimates ~~have been~~were identified as critical because they require management to make subjective or complex judgments about matters that are inherently

uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates are: estimating the allowance for

credit losses on the advances and mortgage loan portfolios; accounting for derivatives; estimating fair values of investments classified as trading and other-than-temporarily impaired, derivatives and associated hedged items carried at fair value in accordance with ~~SFAS 133,~~the accounting for derivative instruments and associated hedging activities, and financial instruments ~~elected under SFAS 159 to be~~ carried at fair ~~value;~~value under the fair value option; and estimating the prepayment speeds on MBS and mortgage loans for the accounting of amortization of premiums and accretion of discounts on MBS and mortgage loans.

Any significant changes in the judgments and assumptions made during the first ~~six~~nine months of 2009 in applying the Bank’s critical accounting policies are described below. In addition, these policies and the judgments, estimates, and assumptions are also described in greater detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 to the Financial Statements in the Bank’s 2008 Form 10-K and in Note 10 to the Financial Statements.

Other-Than-Temporary Impairment for Investment Securities.On April 9, 2009, the FASB issued ~~FSP FAS 115-2 and FAS 124-2,~~guidance which ~~amends~~amended the existing OTTI guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. ~~FSP FAS 115-2 and FAS 124-2~~This OTTI guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.

For impaired debt securities, ~~FSP FAS 115-2 and FAS 124-2 requires~~ an entity is required to assess whether (i) it has the intent to sell the debt security, or (ii) it is more likely than not that it will be required to sell the debt security before its anticipated ~~recovery.~~recovery of the remaining amortized cost basis of the security. If either of these conditions is met, an OTTI on the security must be recognized.

~~On April 28, 2009, and May 7, 2009, the Finance Agency provided the FHLBanks with guidance on the process for determining OTTI with~~With respect to any debt security, a credit loss is defined as the FHLBanks’ holdings of non-agency MBS and their adoption of FSP FAS 115-2 and FAS 124-2 in the first quarter of 2009. The goal of the guidance is to promote consistency among all FHLBanks in the process for determining OTTI for non-agency MBS.

Beginning with the second quarter of 2009, consistent with the objectives of the Finance Agency guidance, the FHLBanks formed an OTTI Governance Committee (OTTI Committee) with the responsibility for reviewing and approving the key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI for non-agency MBS. The OTTI Committee charter was approved on June 11, 2009, and provides a formal processamount by which the ~~FHLBanks can provide input on and approve the assumptions.~~

Each FHLBank is responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historicalamortized cost bases and yields. FHLBanks that hold the same non-agency MBS are required to consult with one another to make sure that any decision that a commonly held non-agency 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.

~~For the three months ended June 30, 2009, the Bank completed its OTTI analysis and made its impairment determination using the key modeling assumptions approved by the OTTI Committee and by the Bank.~~

~~In instances in which a determination is made that a credit loss (defined by FSP FAS 115-2 and FAS 124-2 as the difference between~~basis exceeds the present value of the cash flows expected to be ~~collected and the amortized cost basis)~~collected. If a credit loss exists but the entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (that is, the amortized cost basis less any current-period credit loss), ~~FSP FAS 115-2 and FAS 124-2~~the guidance changes the presentation and amount of the OTTI recognized in the statements of earnings. ~~In these instances, the~~The impairment is separated into (i) the amount of the total OTTI related to ~~the~~ credit loss, and (ii) the amount of the total OTTI related to all other factors. The amount of the total OTTI related to ~~the~~ credit loss is recognized in earnings. The amount of the total OTTI related to all other factors is recognized in other comprehensive income and will be accreted prospectively, based on the amount and timing of future estimated cash flows, over the remaining life of the debt security as an increase in the carrying value of the security, with no effect on earnings unless the security is subsequently sold or there are additional decreases in cash flows expected to be collected. The total OTTI is presented in the statements of earnings with an offset for the amount of the total OTTI that is recognized in other comprehensive income. This new presentation provides additional information about the amounts that the entity does not expect to collect related to a debt security.

On April 28, 2009, and May 7, 2009, the Finance Agency provided the FHLBanks with guidance on the process for determining OTTI with respect to the FHLBanks’ holdings of PLRMBS and their adoption of the OTTI guidance in the first quarter of 2009. The goal of the Finance Agency guidance is to promote consistency among all FHLBanks in the process for determining OTTI for PLRMBS.

Beginning with the second quarter of 2009, consistent with the objectives of the Finance Agency guidance, the FHLBanks formed an OTTI Governance Committee (OTTI Committee) with the responsibility for reviewing and approving the key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI for PLRMBS. 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.

Each FHLBank is responsible for making its own determination of impairment and of the reasonableness of the assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historical cost bases and yields. FHLBanks that hold the same private-label MBS are required to consult with one another to make sure 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.

Additional information about OTTI charges associated with the Bank’s ~~non-agency MBS~~PLRMBS is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” and in Note 3 to the Financial Statements.

To determine the estimated fair value of PLRMBS at December 31, 2008, March 31, 2009, and June 30, 2009, the Bank used a weighting of its internal price (based on valuation models using market-based inputs obtained from broker-dealer data and price indications) and the price from an external pricing service to determine the estimated fair value that the Bank believed market participants would use to purchase the PLRMBS. In evaluating the resulting estimated fair value of PLRMBS, the Bank compared the estimated implied yields to a range of broker indications of yields for similar transactions or to a range of yields that brokers reported market participants would use in purchasing PLRMBS. As a result of this methodology, the Bank has primarily used prices from an external pricing service to estimate the fair value of its PLRMBS.

Beginning with the quarter ended September 30, 2009, the Bank changed the methodology used to estimate the fair value of PLRMBS in an effort to achieve consistency among all the FHLBanks in applying a fair value methodology. In this regard, the FHLBanks formed the MBS Pricing Governance Committee with the responsibility for developing a fair value methodology that all FHLBanks could adopt. Under the methodology approved by the MBS Pricing Governance Committee and adopted by the Bank, the Bank requests prices for all mortgage-backed securities from four specific third-party vendors. Depending on the number of prices received for each security, the Bank selects a median or average price as determined by the methodology. The methodology also incorporates variance thresholds to assist in identifying median or average prices that may require further review. In certain limited instances (for example, when prices are outside of variance thresholds or the third-party services do not provide a price), the Bank will obtain a price from securities dealers or internally model a price that is deemed appropriate after consideration of the relevant facts and circumstances that a market participant would consider. Prices for PLRMBS held in common with other FHLBanks are reviewed with those FHLBanks for consistency. In adopting this common methodology, the Bank remains responsible for the selection and application of its fair value methodology and the reasonableness of assumptions and inputs used.

This change in fair value methodology did not have a significant impact on the Bank’s estimated fair values of its PLRMBS at September 30, 2009.

See Note 2 to the Financial Statements for a discussion of recently issued accounting standards and interpretations.

Capital Classification and Prompt Corrective Action Authority over ~~FHLBanks~~.FHLBanks. Pursuant to the Housing and Economic Recovery Act of 2008 (Housing Act), to implement the Finance Agency’s prompt corrective action authority over the FHLBanks, the Finance Agency published an interim final rule on January 30, 2009, that establishes the criteria for each of the following capital classifications for the FHLBanks specified in the Housing Act: adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the rule, unless the Finance Agency has reclassified an FHLBank based on factors other than its capital levels, an FHLBank is adequately capitalized if it has sufficient total and permanent capital to meet or exceed both its risk-based and minimum capital requirements; is undercapitalized if it fails to meet one or more of its risk-based or minimum capital requirements, but is not significantly undercapitalized; is significantly undercapitalized if the total or permanent capital held by the FHLBank is equal to or less than 75 percent of what is required to meet any of its requirements, but is not critically undercapitalized; and is critically undercapitalized if it fails to maintain an amount of total or permanent capital equal to two percent of its total assets. For additional information on the prompt corrective action capital categories, see “Business – Regulatory Oversight, Audits, and Examinations” in the Bank’s 2008 Form 10-K.

By letter dated July 29, 2009, the Director of the Finance Agency notified the Bank that, based on March 31, 2009, financial information, the Bank met the definition of adequately capitalized under the Finance Agency’s Capital Classification and Prompt Corrective Action rule.

On August 4, 2009, the Finance Agency published a final rule that seeks to clarify the interim final rule and makes certain changes to the rule, including the following: (i) provides that the restriction on acquiring an interest in any entity imposed on any FHLBank that is not adequately capitalized applies to the acquisition of any equity interest in another operating entity and clarifies that the restriction is not meant to prevent an FHLBank from enforcing any security interest granted to it or otherwise taking possession of collateral in the normal course of business; (ii) extends the period of time for an FHLBank to submit a capital restoration plan to 15 business days after the FHLBank receives written notification that such a plan is required; (iii) provides that all mandatory and discretionary restrictions or obligations applicable to an undercapitalized FHLBank continue to apply to that FHLBank if it is reclassified as significantly undercapitalized; (iv) provides that restrictions and obligations previously imposed on a significantly undercapitalized FHLBank continue to apply to that FHLBank if it is reclassified as critically undercapitalized until such time as the Finance Agency is appointed conservator or receiver; and (v) further specifies the type of information that an FHLBank should include in any capital restoration plan submitted to the Finance Agency.

~~Proposed Rule to Amend FHLBank Membership Regulations for Community Development Financial Institutions.~~~~On May 15,~~By letter dated September 30, 2009, the Finance Agency published a proposed rule to amend its membership regulations to authorize non-federally insured Community Development Financial Institutions (CDFIs) to become members of an FHLBank. The proposed rule specifies that the newly eligible CDFIs include community development loan funds, venture capital funds, and state-chartered credit unions without federal insurance. The proposed rule sets forth the eligibility and procedural requirements for CDFIs that want to become members of an FHLBank. Comments were due on or before July 14, 2009.

~~Executive Compensation.~~On June 5, 2009, the Finance Agency published a proposed rule with a request for comment to set forth requirements and processes with respect to compensation provided to executive officers by Fannie Mae, Freddie Mac, FHLBanks (regulated entities), and the Office of Finance. The rule addresses the authorityDirector of the Finance Agency ~~Director (Director) to approve, disapprove, modify, prohibit, or withhold compensation~~notified the Bank that, based on June 30, 2009, financial information, the Bank met the definition of executive officers of the regulated entities. The proposed regulation also addresses the Director’s authority to pre-approve agreements or contracts of executive officers that provide compensation in connection with termination of employment. In addition, the proposed regulation requires the submission of relevant information by the regulated entities and the Office of Finance toadequately capitalized under the Finance ~~Agency on a timely basis. The proposed rule also prohibits a regulated entity or the Office of Finance from paying compensation to an executive officer that is not reasonable~~Agency’s Capital Classification and comparable with compensation paid by similar businesses involving similar duties and responsibilities. Failure by a regulated entity or the Office of Finance to comply with the requirements of the proposed rule may result in supervisory action by the Finance Agency, including an enforcement action to require an individual to make restitution to or reimbursement of excessive compensation or inappropriately paid termination benefits. Comments were due on or before August 4, 2009.Prompt Corrective Action rule.

Board of Directors of Federal Home Loan Bank System Office of Finance.On August 4, 2009, the Finance Agency published a notice of proposed rulemaking and request for comment on a proposal to ~~increase the size of~~expand the Board of Directors of the Office of Finance ~~and have it consist of~~to include the 12 FHLBank presidents and three to five independent directors. The proposed rule provides that independent directors serve as the audit committee of the Office of

Finance’s preparation of accurate combined financial ~~reports.~~reports for the FHLBanks. The proposed rule also gives ~~responsibilities to~~ the audit committee the responsibility to ensure that the FHLBanks adopt consistent accounting policies and procedures. If the FHLBanks are not able to agree on such consistent accounting policies and procedures, the audit committee, in consultation with the Finance Agency, may prescribe them. Comments were due on or before November 4, 2009.

Board of Directors: Eligibility and Elections – Final Rule. On October 7, 2009, the Finance Agency published a final rule on the eligibility and election of FHLBank directors. The final rule amends the interim final rule regarding the eligibility and election of the FHLBank directors published on September 26, 2008. See “Part I. Item 4. Submission of Matters to a Vote of Security Holders,” “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments,” and “Part III. Item 10. Directors, Executive Officers and Corporate Governance” of the Bank’s 2008 Form 10-K for additional information on the eligibility and election of FHLBank directors under the interim final rule. The final rule clarifies and changes the interim final rule in certain respects, including the following: if only one individual is nominated by the Board of Directors of an FHLBank for each open independent directorship, that individual must receive at least 20 percent of the eligible votes to be elected; and if the number of individuals nominated by the Board of Directors of an FHLBank exceeds the number of open independent directorships, the individuals with the highest number of votes may be declared elected by the FHLBank.

Directors’ Compensation. On October 23, 2009, the Finance Agency published a proposed rule and a request for comment to set forth requirements and processes with respect to compensation provided to directors of the FHLBanks. The proposed rule implements changes made by HERA relating to director compensation, eliminating the former statutory caps on director compensation and authorizing the FHLBanks to pay “reasonable compensation and expenses” subject to Finance Agency oversight and authority to disapprove. The proposed rule would also add new regulatory reporting requirements and additional disclosures in an FHLBank’s annual report relating to director compensation and attendance at board meetings. Comments on the proposed rule are due on or before ~~October 5,~~December 7, 2009.

In accordance with regulations governing the operations of the FHLBanks, each FHLBank, including the Bank, is jointly and severally liable for the FHLBank System’s consolidated obligations issued under Section 11(a) of the FHLBank Act, and in accordance with the FHLBank Act, each FHLBank, including the Bank, is jointly and severally liable for consolidated obligations issued under Section 11(c) of the FHLBank Act. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor.

The Bank’s joint and several contingent liability is a guarantee, ~~as defined by FASB Interpretation No. 45,~~Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 ~~(FIN 45),~~ but is excluded from ~~the~~ initial recognition and measurement provisions because the joint and several obligations are mandated by Finance Agency regulations and are not the result of ~~FIN 45.~~arms-length transactions among the FHLBanks. The Bank has no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligations. The valuation of this contingent liability is therefore not recorded on the balance sheet of the Bank. The par amount of the outstanding consolidated obligations of all 12 FHLBanks was ~~$1,055.9~~$973.6 billion at ~~June~~September 30, 2009, and $1,251.5 billion at December 31, 2008. The par value of the Bank’s participation in consolidated obligations was ~~$222.5~~$196.1 billion at ~~June~~September 30, 2009, and $301.2 billion at December 31, 2008. At ~~June~~September 30, 2009, the Bank had committed to the issuance of ~~$1.1~~$2.5 billion in consolidated obligation bonds, ~~$1.0 billion~~all of which were hedged with associated interest rate swaps. At December 31, 2008, the Bank had committed to the issuance of $960 million in consolidated obligation bonds, of which $500 million were hedged with associated interest rate swaps. For additional information on the Bank’s joint and several liability contingent obligation, see Notes 10 and 18 to the Financial Statements in the Bank’s 2008 Form 10-K.

In 2008, the Bank entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s Government-Sponsored Enterprise Credit Facility (GSE Credit Facility), as authorized by the Housing Act. The GSE Credit Facility is designed to serve as a contingent source of liquidity for the housing GSEs, including the FHLBanks. Any borrowings by one or more of the FHLBanks under the GSE Credit Facility are considered consolidated obligations with the same joint and several liability as all other consolidated obligations. The terms of any borrowings are to be agreed to at the time of the borrowing. Loans under the Lending Agreement are to be secured by collateral acceptable to the U.S. Treasury, which may consist of FHLBank member advances that have been collateralized in accordance with regulatory standards or mortgage-backed securities issued by Fannie Mae or Freddie Mac. Each FHLBank is required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury, a listing of eligible collateral, updated on a weekly basis, that could be used as security in the event of a borrowing. As of ~~June~~September 30, 2009, the Bank gave the U.S. Treasury a collateral listing of advances ~~collateral~~ totaling $35.9 billion, which would provide for a maximum possible borrowing of $31.2 billion, if needed. The amount of collateral can be increased or decreased (subject to approval of the U.S. Treasury) at any time ~~through the~~by delivery of an updated listing of collateral. As of ~~June~~September 30, 2009, and through ~~August 7,~~October 30, 2009, none of the FHLBanks had drawn on the GSE Credit Facility. The Lending Agreement will terminate on December 31, 2009, but will remain in effect as to any loan outstanding on that date.

In addition, in the ordinary course of business, the Bank engages in financial transactions that, in accordance with U.S. GAAP, are not recorded on the Bank’s balance sheet or may be recorded on the Bank’s balance sheet in amounts that are different from the full contract or notional amount of the transactions. For example, the Bank routinely enters into commitments to extend advances and issues standby letters of credit.

These commitments and standby letters of credit may represent future cash requirements of the Bank, although the standby letters of credit usually expire without being drawn upon. Standby letters of credit are subject to the same underwriting and collateral requirements as advances made by the Bank. At ~~June~~September 30, 2009, the Bank had ~~$600 million~~$1.3 billion of advance commitments and ~~$5.8~~$5.2 billion in standby letters of credit outstanding. At December 31, 2008, the Bank had $470 million of advance commitments and $5.7 billion in standby letters of credit outstanding. The estimated fair values of these advance commitments and standby letters of credit were immaterial to the balance sheet at ~~June~~September 30, 2009, and December 31, 2008.

The Bank’s financial statements do not include a liability for future statutorily mandated payments from the Bank to the Resolution Funding Corporation (REFCORP). No liability is recorded because each FHLBank must pay 20% of net earnings (after its Affordable Housing Program obligation) to the REFCORP to support the payment of part of the interest on the bonds issued by the REFCORP, and each FHLBank is unable to estimate its future required payments because the payments are based on the future earnings of that FHLBank and the other FHLBanks and are not estimable under ~~SFAS 5,~~~~Accounting~~the accounting for ~~Contingencies~~.contingencies. Accordingly, the REFCORP payments are disclosed as a long-term statutory payment requirement and, for accounting purposes, are treated, accrued, and recognized like an income tax.

The Federal Home Loan Bank of San Francisco’s (Bank) market risk management objective is to maintain a relatively low exposure of the value of capital and future earnings (excluding the impact of ~~SFAS 133~~any cumulative net gains or losses on derivatives and ~~SFAS 159)~~associated hedged items and on financial instruments carried at fair value) to changes in interest rates. This profile reflects the Bank’s objective of maintaining a conservative asset-liability mix and its commitment to providing value to its members through products and dividends without subjecting their investments in Bank capital stock to significant interest rate risk.

In May 2008, the Bank’s Board of Directors modified the market risk management objective in the Bank’s Risk Management Policy to maintaining a relatively low exposure of net portfolio value of capital and future earnings (excluding the impact of ~~SFAS 133~~any net cumulative gains or losses on derivatives and ~~SFAS 159)~~associated hedged items and on financial instruments carried at fair value) to changes in interest rates. See “Total Bank Market Risk” below for a discussion of the modification.

Market risk identification and measurement are primarily accomplished through ~~(i)~~ market value of capital sensitivity analyses and net portfolio value of capital sensitivity analyses ~~(ii)~~and net interest income sensitivity ~~analyses, and (iii) repricing gap~~ analyses. The Risk Management Policy approved by the Bank’s Board of Directors establishes market risk policy limits and market risk measurement standards at the total Bank level. Additional guidelines approved by the Bank’s asset-liability management committee (ALCO) apply to the Bank’s two business segments, the advances-related business and the mortgage-related business. These guidelines provide limits that are monitored at the segment level and are consistent with the total Bank policy limits. Interest rate risk is managed for each business segment on a daily basis, as discussed below in “Segment Market Risk.” At least monthly, compliance with Bank policies and management guidelines is presented to the ALCO or the Board of Directors, along with a corrective action plan if applicable.

Market Value of Capital Sensitivity and Net Portfolio Value of Capital Sensitivity

The Bank uses market value of capital sensitivity (the interest rate sensitivity of the net fair value of all assets, liabilities, and interest rate exchange agreements) as an important measure of the Bank’s exposure to changes in interest rates. As presented below, the Bank continues to measure, monitor, and report on market value of capital sensitivity, but no longer has a policy limit as of May 2008.

In May 2008, the Board of Directors approved a modification to the Bank’s Risk Management Policy to use net portfolio value of capital sensitivity as the primary metric for measuring the Bank’s exposure to changes

in interest ~~rates~~rate risk and to establish a policy limit on net portfolio value of capital sensitivity. This new approach uses ~~risk measurement~~ valuation methods that estimate the value of mortgage-backed securities (MBS) and mortgage loans in alternative interest rate environments based on valuation spreads that existed at the time the Bank acquired the MBS and mortgage loans (acquisition spreads), rather than valuation spreads implied by the current market prices of MBS and mortgage loans (market spreads). Risk metrics based on spreads existing at the time of acquisition of mortgage assets better reflect the interest rate risk of the Bank, since the Bank’s mortgage asset portfolio is primarily classified as held-to-maturity, while the use of market spreads calculated from estimates of current market prices (which include large embedded liquidity spreads) ~~results in a disconnect between measured risk and~~would not reflect the actual risks faced by the Bank. Because the Bank intends to and is able to hold its MBS and mortgage loans to maturity, the risks of value loss implied by current market prices of MBS and mortgage loans are not likely to be faced by the Bank. In the case of specific assets classified as other-than-temporarily impaired, ~~market spreads are used from~~ the ~~date~~total principal of the ~~impairment charge~~impaired security is ~~determined.~~reduced by the cumulative amount of the projected principal shortfall. The Bank continues to monitor both the market value of capital sensitivity and the net portfolio value of capital sensitivity.

The Bank’s net portfolio value of capital sensitivity policy limits the potential adverse impact of an instantaneous parallel shift of a plus or minus 100-basis-point change in interest rates from current rates (base case) to no worse than –3% of the estimated net portfolio value of capital. In addition, the policy limits the potential adverse impact of an instantaneous plus or minus 100-basis-point change in interest rates measured from interest rates that are 200 basis points above or below the base case to no worse than –4% of the estimated net portfolio value of capital. The Bank’s measured net portfolio value of capital sensitivity was within the policy limit as of ~~June~~September 30, 2009. In combination, these parameters limit the potential adverse impact of an instantaneous parallel shift of a plus or minus 200-basis-point change in interest rates from current rates (base case) to no worse than –7% of the estimated net portfolio value of capital.

To determine the Bank’s estimated risk sensitivities to interest rates for both the market value of capital sensitivity and net portfolio value of capital sensitivity, the Bank uses a third-party proprietary asset and liability system to calculate estimated net portfolio values under alternative interest rate scenarios. The system

analyzes all of the Bank’s financial instruments including derivatives on a transaction-level basis using sophisticated valuation models with consistent and appropriate behavioral assumptions and current position data. The system also includes a mortgage prepayment model.

At least annually, the Bank reexamines the major assumptions and methodologies used in the model, including interest rate curves, spreads for discounting, and prepayment assumptions. The Bank also compares the prepayment assumptions in the third-party model to other sources, including actual prepayment history.

The Market Value of Capital Sensitivity table below ~~measures and reports on~~presents the sensitivity of capital value ~~and future earnings (excluding the impact of SFAS 133 and SFAS 159)~~ to changes in interest rates. The table presents the estimated percentage change in the Bank’s market value of capital that would be expected to result from changes in interest rates under different interest rate scenarios, using market spread assumptions.

Interest Rate Scenario⁽¹⁾

June 30, 2009

December 31, 2008

September 30, 2009

December 31, 2008

+200 basis-point change above current rates

–6.4

–17.2

–10.4

–17.2

+100 basis-point change above current rates

–4.4

–11.2

–6.6

–11.2

–100 basis-point change below current rates⁽²⁾

+13.4

+20.6

+10.9

+20.6

–200 basis-point change below current rates⁽²⁾

+21.4

+38.3

+25.4

+38.3

(1) Instantaneous change from actual rates at dates indicated.

(2) Interest rates for each maturity are limited to non-negative interest rates.

The Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of ~~June~~September 30, 2009, show less sensitivity than the estimates as of December 31, 2008. Compared to interest rates as of December 31, 2008, interest rates as of ~~June~~September 30, 2009, were 4074 basis points lower for terms of 1 year, 8452 basis points higher for terms of 5 years, and ~~122~~90 basis points higher for terms of 10 years. As indicated by the table above, the market value of capital sensitivity is adversely ~~impacted~~affected when rates increase. In general, mortgage assets, including MBS, are expected to remain outstanding for a longer period of time when interest rates increase and prepayment ~~rates~~speeds decline as a result of reduced incentives to refinance. Because most of the Bank’s MBS were purchased when mortgage asset spreads to pricing benchmarks were significantly lower than what is currently required by investors, the adverse spread difference gives rise to an embedded negative impact on the market value of MBS, which directly reduces the estimated market value of Bank capital. If interest rates increase and MBS consequently remain outstanding for a longer period of time, the adverse spread difference will exist for a longer period of time, giving rise to an even larger embedded negative market value impact than exists at current interest rate levels. This creates additional downward pressure on the measured market value of capital. As a result, the Bank’s measured market value of capital sensitivity to changes in rates is higher than it would be if it were measured based on the fundamental underlying repricing and option risks (a greater decline in the market value of capital when rates increase and a greater increase in the market value of capital when rates decrease). Based on the credit enhancement protection of these securities and the Bank’s held-to-maturity classification, management does not believe the market value of capital sensitivity is the best indication of risk from a held-to-maturity perspective, and management has therefore provided additional net portfolio value of capital sensitivities. If mortgage asset spreads were closer to the historical average and the assets were priced ~~closer to par,~~based on the historical spreads, the Bank’s market value sensitivity would indicate considerably less risk and would be substantially unchanged from prior periods.

The Net Portfolio Value of Capital Sensitivity table below ~~measures and reports on~~presents the sensitivity of the net portfolio value of capital ~~and future earnings (excluding the impact of SFAS 133 and SFAS 159, but including effects resulting from other-than-temporary impairment)~~ to changes in interest rates. The table presents the estimated percentage change in the Bank’s net portfolio value of capital that would be expected to result from changes in interest rates under different interest rate ~~scenarios.~~scenarios based on pricing mortgage assets at spreads that existed at the time of purchase rather than current market spreads. The Bank’s estimates of the net portfolio value of capital sensitivity to changes in interest rates as of ~~June~~September 30, 2009, show ~~greater~~substantially the same sensitivity compared to the estimates as of December 31, 2008. ~~This change is primarily due to the increasing amount of other-than-temporarily impaired MBS priced at discount market levels at the time of impairment.~~

Interest Rate Scenario⁽¹⁾

June 30, 2009

December 31, 2008

September 30, 2009

December 31, 2008

+200 basis-point change above current rates

–3.8

–2.9

–3.5

–2.9

+100 basis-point change above current rates

–2.0

–1.1

–1.3

–1.1

–100 basis-point change below current rates⁽²⁾

+2.3

+2.5

+0.6

+2.5

–200 basis-point change below current rates⁽²⁾

+5.0

+2.9

+0.7

+2.9

(1) Instantaneous change from actual rates at dates indicated.

(2) Interest rates for each maturity are limited to non-negative interest rates.

The potential dividend yield is a measure used by the Bank to assess financial performance. The potential dividend yield is based on current period economic earnings that exclude the effects of unrealized net gains ~~recognized in accordance with SFAS 133, SFAS 157,~~resulting from the Bank’s derivatives and ~~SFAS 159,~~associated hedged items and from financial instruments carried at fair value, which will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity or by the call or put date of the assets and liabilities held at fair value, hedged assets and liabilities, and derivatives. Economic earnings also exclude the interest expense on mandatorily redeemable stock.

The Bank limits the sensitivity of projected financial performance through a Board of Directors’ policy limit on projected adverse changes in the potential dividend yield. The Bank’s potential dividend yield sensitivity policy limits the potential adverse impact of an instantaneous parallel shift of a plus or minus 200-basis-point change in interest rates from current rates (base case) to no worse than –120 basis points from the base case projected potential dividend yield. In the downward shift, interest rates were limited to non-negative rates. With the indicated interest rate shifts, the potential dividend yield for the projected period ~~July~~September 2009 through ~~June~~August 2010 would be expected to decrease by 123 basis points, well within the policy limit of –120 basis points.

Repricing gap analysis shows the interest rate sensitivity of assets, liabilities, and interest rate exchange agreements by term-to-maturity (fixed rate instruments) or repricing interval (adjustable rate instruments). In assigning assets to repricing periods, management considers expected prepayment speeds, amortization of principal, repricing frequency, where applicable, and contractual maturities of financial instruments. The repricing gap analysis excludes the reinvestment of cash received or paid for maturing instruments. The Bank monitors the net repricing gaps at the total Bank level but does not have a policy limit. The amounts shown in the following table represent the net difference between total asset and liability repricings, including the impact of interest rate exchange agreements, for a specified time period (periodic gap). For example, the positive periodic gap for the “6 months or less” time period indicates that, as of June 30, 2009, there were $3.8 billion more assets than liabilities repricing or maturing during the 6-month period beginning on June 30, 2009. The positive net periodic gap in the first 6-month period equals approximately 43% of the Bank’s total

capital, is consistent with the Bank’s interest rate risk management strategies, and indicates that: (i) the market value risk for a large portion of invested Bank capital, as measured by net periodic gaps, is maintained at a low level, and (ii) the income sensitivity for a large portion of invested Bank capital is responsive to changes in short-term interest rates.

Duration gap is the difference between the estimated durations (market value sensitivity) of assets and liabilities (including the impact of interest rate exchange agreements) and reflects the extent to which estimated maturity and repricing cash flows for assets and liabilities are matched. The Bank monitors duration gap analysis at the total Bank level but does not have a policy limit. The Bank’s duration gap was ~~two~~four months at ~~June~~September 30, 2009, and three months at December 31, 2008.


	June 30, 2009			December 31, 2008
	Amount (In millions)		Duration Gap⁽¹⁾ (In months)	Amount (In millions)		Duration Gap⁽¹⁾ (In months)	September 30, 2009			December 31, 2008
							Amount (In millions)		Duration Gap⁽¹⁾ (In months)	Amount (In millions)		Duration Gap⁽¹⁾ (In months)
Assets	$	238,924	7	$	321,244	7	$	211,212	9	$	321,244	7
Liabilities		230,216	5		311,459	4		203,504	5		311,459	4

Net	$	8,708	2	$	9,785	3	$	7,708	4	$	9,785	3

The duration gap as of ~~June~~September 30, 2009, ~~decreased~~increased slightly compared to December 31, 2008. Since duration gap is a measure of market value sensitivity, the impact of the extraordinarily wide mortgage asset spreads on duration gap is the same as described in the analysis in “Market Value of Capital Sensitivity” above. As a result of the credit enhancement protection of these securities and the Bank’s held-to-maturity classification, management does not believe that market ~~value based~~value-based sensitivity risk measures provide a fundamental indication of risk. If mortgage asset spreads were closer to the historical average, and the assets were priced ~~closer to par,~~based on the historical spreads, the Bank’s duration gap would indicate considerably less risk and would be substantially unchanged from prior periods.

The financial performance and interest rate risks of each business segment are managed within prescribed guidelines, which, when combined, are consistent with the policy limits for the total Bank.

Interest rate risk arises from the advances-related business primarily through the use of member-contributed capital to fund fixed rate investments of targeted amounts and maturities. In general, advances result in very little net interest rate risk for the Bank because most fixed rate advances with original maturities greater than three months and advances with embedded options are hedged contemporaneously with an interest rate swap or option with terms offsetting the advance. The interest rate swap or option generally is maintained as a hedge for the life of the advance. These hedged advances effectively create a pool of variable rate assets, which, in combination with the strategy of raising debt swapped to variable rate liabilities, creates an advances portfolio with low net interest rate risk.

Non-MBS investments have maturities of less than three months or are variable rate investments. These investments also effectively match the interest rate risk of the Bank’s variable rate funding.

The interest rate risk in the advances-related business is primarily associated with the Bank’s strategy for investing the members’ contributed capital. The Bank invests approximately 50% of its capital in short-term assets (maturities of three months or less) and approximately 50% of its capital in a portfolio of intermediate-term fixed rate financial instruments with maturities out to four years (targeted gaps).

The strategy to invest 50% of members’ contributed capital in short-term assets is intended to mitigate the market value of capital risks associated with potential repurchase or redemption of members’ excess capital stock. The strategy to invest 50% of capital in a laddered portfolio of instruments with maturities to four

years is intended to take advantage of the higher earnings available from a generally positively sloped yield curve, when intermediate-term investments generally have higher yields than short-term investments. Excess capital stock primarily results from a decline in a member’s advances. Under the Bank’s capital plan, capital stock, when repurchased or redeemed, is required to be repurchased or redeemed at its par value of $100 per share, subject to certain regulatory and statutory limits.

Management updates the repricing and maturity gaps for actual asset, liability, and derivatives transactions that occur in the advances-related segment each day. Management regularly compares the targeted repricing and maturity gaps to the actual repricing and maturity gaps to identify rebalancing needs for the targeted gaps. On a weekly basis, management evaluates the projected impact of expected maturities and scheduled repricings of assets, liabilities, and interest rate exchange agreements on the interest rate risk of the advances-related segment. The analyses are prepared under base case and alternate interest rate scenarios to assess the effect of put options and call options embedded in the advances, related financing, and hedges. These analyses are also used to measure and manage potential reinvestment risk (when the remaining term of advances is shorter than the remaining term of the financing) and potential refinancing risk (when the remaining term of advances is longer than the remaining term of the financing).

Because of the short-term and variable rate nature of the assets, liabilities, and derivatives of the advances-related business, the Bank’s interest rate risk guidelines address the amounts of net assets that are expected to mature or reprice in a given period. The repricing gap analysis table as of June 30, 2009, in “Repricing Gap Analysis” above shows that approximately $6.5 billion of net assets for the advances-related business (75% of capital) were scheduled to mature or reprice in the six-month period following June 30, 2009, which is consistent with the Bank’s guidelines. Net market value sensitivity analysis and net interest income simulations are also used to identify and measure risk and variances to the target interest rate risk exposure in the advances-related segment.

The Bank’s mortgage assets include MBS, most of which are classified as held-to-maturity and a small amount of which are classified as trading, and mortgage loans held for portfolio purchased under the MPF Program. The Bank is exposed to interest rate risk from the mortgage-related business because the principal cash flows of the mortgage assets and the liabilities that fund them are not exactly matched through time and across all possible interest rate scenarios, given the uncertainty of mortgage prepayments and the existence of interest rate caps on certain adjustable rate MBS.

The Bank purchases a mix of intermediate-term fixed rate and floating rate MBS. Generally, purchases of long-term fixed rate MBS have been relatively small; any MPF loans that have been acquired are long-term fixed rate mortgage assets. This results in a mortgage portfolio that has a diversified set of interest rate risk attributes.

The estimated market risk of the mortgage-related business is managed both at the time an individual asset is purchased and on a total portfolio level. At the time of purchase (for all significant mortgage asset acquisitions), the Bank analyzes the estimated earnings sensitivity and estimated net market value sensitivity, ~~and~~taking into consideration the estimated prepayment sensitivity of the mortgage assets and anticipated funding and hedging under various interest rate scenarios. The related funding and hedging transactions are executed at or close to the time of purchase of a mortgage asset.

At least monthly, management reviews the estimated market risk of the entire portfolio of mortgage assets and related funding and hedges. Rebalancing strategies to modify the estimated mortgage portfolio market risks are then considered. Periodically, management performs more in-depth analyses, which include the impacts of non-parallel shifts in the yield curve and assessments of unanticipated prepayment behavior. Based on these analyses, management may take actions to rebalance the mortgage portfolio’s estimated market risk profile. These rebalancing strategies may include entering into new funding and hedging transactions,

forgoing or modifying certain funding or hedging transactions normally executed with new mortgage purchases, or terminating certain funding and hedging transactions for the mortgage asset portfolio.

The Bank manages the estimated interest rate risk and prepayment risk associated with mortgage assets through a combination of debt issuance and derivatives. The Bank may obtain funding through callable and non-callable FHLBank System debt and execute derivatives transactions to achieve principal cash flow patterns and market value sensitivities for the liabilities and derivatives similar to those expected on the mortgage assets. Debt issued to finance mortgage assets may be fixed rate debt, callable fixed rate debt, or adjustable rate debt. Derivatives may be used as temporary hedges of anticipated debt issuance, temporary hedges of mortgage

loan purchase commitments, or long-term hedges of debt used to finance the mortgage assets. The derivatives used to hedge the interest rate risk of fixed rate mortgage assets generally may be options to enter into interest rate swaps (swaptions) or callable and non-callable pay-fixed interest rate swaps. Derivatives used to hedge the periodic cap risks of adjustable rate mortgages may be receive-adjustable, pay-adjustable swaps with embedded caps that offset the periodic caps in the mortgage assets.

In May 2008, the Board of Directors approved a modification to the Bank’s Risk Management Policy to use net portfolio value of capital sensitivity as a primary metric for measuring the Bank’s exposure to interest ~~rates~~rate risk and to establish a policy limit on net portfolio value of capital sensitivity. This new approach uses ~~risk measurement~~ valuation methods that estimate the value of MBS and mortgage loans in alternative interest rate environments based on valuation spreads that existed at the time the Bank acquired the MBS and mortgage loans (acquisition spreads), rather than valuation spreads implied by the current market prices of MBS and mortgage loans (market spreads). Risk metrics based on spreads existing at the time of acquisition of mortgage assets better reflect the interest rate risk of the Bank, since the Bank’s mortgage asset portfolio is primarily classified as held-to-maturity, while the use of market spreads calculated from estimates of current market prices (which include large embedded liquidity spreads) ~~results in a disconnect between measured risk and~~would not reflect the actual risks faced by the Bank. Because the Bank intends to and is able to hold its MBS and mortgage loans to maturity, the risks of value loss implied by current market prices of MBS and mortgage loans are not likely to be faced by the Bank. In the case of specific assets classified as other-than-temporarily impaired, ~~market spreads are used from~~ the ~~date~~total principal of the ~~impairment charge~~impaired security is ~~determined.~~reduced by the cumulative amount of the projected principal shortfall. The Bank continues to monitor both the market value of capital sensitivity and the net portfolio value of capital sensitivity.

The following table presents results of the estimated market value of capital sensitivity analysis attributable to the mortgage-related business as of ~~June~~September 30, 2009, and December 31, 2008.

Interest Rate Scenario⁽¹⁾

June 30, 2009

December 31, 2008

September 30, 2009

December 31, 2008

+200 basis-point change

–3.7

–15.0

–7.9

–15.0

+100 basis-point change

–3.0

–10.0

–5.3

–10.0

–100 basis-point change⁽²⁾

+11.4

+16.7

+9.4

+16.7

–200 basis-point change⁽²⁾

+18.0

+31.3

+22.6

+31.3

(1) Instantaneous change from actual rates at dates indicated.

(2) Interest rates for each maturity are limited to non-negative interest rates.

assets, including MBS, are expected to remain outstanding for a longer period of time when interest rates increase and prepayment ~~rates~~speeds decline as a result of reduced incentives to refinance. Because most of the Bank’s MBS were purchased when mortgage asset spreads to pricing benchmarks were significantly lower than what is currently required by investors, the adverse spread difference gives rise to an embedded negative impact on the market value of MBS, which directly reduces the estimated market value of Bank capital. If interest rates increase and MBS consequently remain outstanding for a longer period of time, the adverse spread difference will exist for a longer period of time, giving rise to an even larger embedded

negative market value impact than exists at current interest rate levels. This creates additional downward pressure on the measured market value of capital. As a result, the Bank’s measured market value of capital sensitivity to changes in rates is higher than it would be if it were measured based on the fundamental underlying repricing and option risks (a greater decline in the market value of capital when rates increase and a greater increase in the market value of capital when rates decrease). Based on the credit enhancement protection of these securities and the Bank’s held-to-maturity classification, management does not believe the market value of capital sensitivity is the best indication of risk from a held-to-maturity perspective, and management has therefore provided additional net portfolio value of capital sensitivities. If mortgage asset spreads were closer to the historical average and the assets were priced ~~closer to par,~~based on the historical spreads, the Bank’s market value sensitivity would indicate considerably less risk and would be substantially unchanged from prior periods.

The Bank’s interest rate risk guidelines for the mortgage-related business address the net portfolio value of capital sensitivity of the assets, liabilities, and derivatives of the mortgage-related business. The following table presents the estimated percentage change in the value of Bank capital attributable to the mortgage-related business that would be expected to result from changes in interest rates under different interest rate ~~scenarios.~~scenarios based on pricing mortgage assets at spreads that existed at the time of purchase rather than current market spreads. The Bank’s estimates of the net portfolio value of capital sensitivity to changes in interest rates as of ~~June~~September 30, 2009, show ~~greater~~substantially the same sensitivity compared to the estimates as of December 31, 2008. ~~This change is primarily due to the increasing amount of other-than-temporarily impaired mortgage-related assets priced at discount market levels at the time of impairment.~~

Interest Rate Scenario⁽¹⁾

June 30, 2009

December 31, 2008

September 30, 2009

December 31, 2008

+200 basis-point change above current rates

–2.2

–2.0

+100 basis-point change above current rates

–1.1

–0.6

–100 basis-point change below current rates⁽²⁾

+1.2

+0.9

–0.3

+0.9

–200 basis-point change below current rates⁽²⁾

+3.0

+0.1

–0.9

+0.1

(1) Instantaneous change from actual rates at dates indicated.

(2) Interest rates for each maturity are limited to non-negative interest rates.

The Federal Home Loan Bank of San Francisco’s (Bank) senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Securities Exchange Act of 1934 (1934 Act) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Bank’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Bank’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the Bank’s disclosure controls and procedures, the Bank’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Bank’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures.

Management of the Bank has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the participation of the president and chief executive officer, executive vice president and chief operating officer, senior vice president and chief financial officer, and senior vice president and controller as of the end of the quarterly period covered by this report. Based on that evaluation, the Bank’s president and chief executive officer, executive vice president and chief operating officer, senior vice president and chief financial officer, and senior vice president and controller have concluded that the Bank’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the fiscal quarter covered by this report.

~~For~~During the ~~first six~~three months ofended September 30, 2009, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

The Bank’s disclosure controls and procedures include controls and procedures for accumulating and communicating information in compliance with the Bank’s disclosure and financial reporting requirements relating to the joint and several liability for the consolidated obligations of other FHLBanks. Because the FHLBanks are independently managed and operated, the Bank’s management relies on information that is provided or disseminated by the Federal Housing Finance Agency (Finance Agency), the Office of Finance, and the other FHLBanks, as well as on published FHLBank credit ratings, in determining whether the joint and several liability regulation is reasonably likely to result in a direct obligation for the Bank or whether it is reasonably possible that the Bank will accrue a direct liability.

The Bank’s management also relies on the operation of the joint and several liability regulation, which is located in Section 966.9 of Title 12 of the Code of Federal Regulations. The joint and several liability regulation requires that each FHLBank file with the Finance Agency a quarterly certification that it will remain capable of making full and timely payment of all of its current obligations, including direct obligations, coming due during the next quarter. In addition, if an FHLBank cannot make such a certification or if it projects that it may be unable to meet its current obligations during the next quarter on a timely basis, it must file a notice with the Finance Agency. Under the joint and several liability regulation, the Finance Agency may order any FHLBank to make principal and interest payments on any consolidated obligations of any other FHLBank, or allocate the outstanding liability of an FHLBank among all remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis.

The Federal Home Loan Bank of San Francisco (Bank) may be subject to various legal proceedings arising in the normal course of business. After consultation with legal counsel, management is not aware of any legal proceedings that might result in the Bank’s ultimate liability in an amount that will have a material effect on the Bank’s financial condition or results of operations or that are otherwise material to the Bank.

For a discussion of risk factors, see “Part I. Item 1A. Risk Factors” in the Federal Home Loan Bank of San Francisco’s (Bank’s) Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K). There have been no material changes from the risk factors disclosed in the “Risk Factors” section of the Bank’s 2008 Form 10-K.

~~None.~~2009 President’s Incentive Plan (2009 PIP), 2009 Executive Incentive Plan (2009 EIP), and the 2009-2011 Executive Performance Unit Plan (2009 EPUP). In May 2009, the Board of Directors (Board) approved the 2009 PIP, the 2009 EIP, and the 2009 EPUP. The Board’s approval is subject to the completion of the Federal Housing Finance Agency’s review. The incentive compensation plans are designed to provide incentive compensation opportunities to the Federal Home Loan Bank of San Francisco’s (Bank) officers for accomplishing Bank goals that are approved by the Board, as well as individual goals.

The 2009 PIP is solely for the Bank’s president, a named executive officer. The 2009 EIP, which includes the Bank’s other named executive officers, is for any Bank executive vice president and senior vice president, but does not apply to the Bank’s internal audit director (also a named executive officer). Awards under the 2009 PIP and the 2009 EIP are based on the total weighted achievement level of Bank goals and individual goals during 2009. Bank goals are given significant weight in the calculation of awards for senior officers because these officers have a direct impact on the Bank’s overall performance.

Any award determination under the 2009 PIP and the 2009 EIP will be at the discretion of the Board. Award recommendations will be considered by the Board in 2010. The Board also approved a potential 2009 incentive compensation pool in the amount of $4.0 million that may be used for incentive award payments under the 2009 PIP and the 2009 EIP (and the 2009 Audit Executive Incentive Plan, discussed below). Awards made under the 2009 PIP and the 2009 EIP (and the 2009 Audit Executive Incentive Plan, as discussed below) in the aggregate may be greater or less than the pool amount, at the discretion of the Board. Awards, if any, under the 2009 PIP and the 2009 EIP are to be paid following Board approval and completion of any required regulatory review.

For the 2009 PIP and the 2009 EIP, awards are based on total weighted achievement levels ranging from 75% of target (threshold) to 200% of target (far exceeding target). The Board has discretion to modify any and all incentive payments under these two plans. Any awards for achievement below the threshold total weighted achievement level are also at the discretion of the Board.

The 2009 EPUP is for the Bank’s president, executive vice president, and senior vice presidents, including the named executive officers (except the Bank’s internal audit director). Awards under the Bank’s 2009 EPUP are based on the three-year performance period 2009-2011. A new three-year performance period is established each year, so that there are three separate performance periods in effect at one time. Any award determination under the 2009 EPUP will be at the discretion of the Board. Award recommendations will be considered by the Board in 2012.

Awards for an executive under the 2009 EPUP are based on the total weighted achievement level of specified Bank goals over the three-year performance period, multiplied by a target award percentage, multiplied by the executive’s base salary in the first year of the three-year performance period. For the 2009 EPUP, awards are to be calculated based on total weighted achievement levels ranging from 75% of target (threshold) to 200% of target (far exceeding target). If the total weighted achievement level of Bank goals is between 100% and 200% of target, the range of awards as a percentage of base salary are as follows: 50% to 100% for the president; 40% to 80% for the executive vice president; and 35% to 70% for senior vice presidents. If the total weighted achievement level is at least 75% but below 100% of target, the award as a percentage of base salary may begin at 25% for the president, 20% for the executive vice president, and 18% for senior vice presidents. The Board has the discretion to increase or decrease awards under the 2009 EPUP by 25% to account for performance that is not captured by the performance metrics. Any awards for achievement below the threshold total weighted achievement level are also at the discretion of the Board. Awards, if any, are to be paid following Board approval after the end of the three-year performance period and completion of any required regulatory review.

2009 Audit Executive Incentive Plan (2009 AEIP) and the 2009-2011 Audit Performance Unit Plan (2009 APUP). In July 2009, the Audit Committee of the Bank approved the 2009 AEIP and the 2009 APUP. The Audit Committee’s approval is subject to the completion of the Federal Housing Finance Agency’s review. The 2009 AEIP is designed to provide incentive compensation opportunities to motivate the Bank’s internal audit director (a named executive officer) to exceed individual and internal audit department goals (approved by the Audit Committee), that support the overall internal audit plan. The 2009 APUP is designed to motivate the internal audit director to exceed goals (approved by the Audit Committee) on a long-term basis that directly support the annual audit plans and strategic departmental objectives.

The 2009 AEIP is solely for the Bank’s internal audit director, a named executive officer. An award under the 2009 AEIP is based on the total weighted achievement level of individual goals and internal audit department goals during 2009. Individual goals are assessed annually by the Audit Committee. Internal audit department goals are given significant weight in the calculation of awards for the internal audit director because this officer has a direct impact on the internal audit department’s overall performance.

Any award determination under the 2009 AEIP will be at the discretion of the Audit Committee and the Board. Award recommendations will be considered by the Audit Committee and the Board in 2010. As discussed above, the Board approved a potential 2009 incentive compensation pool in the amount of $4.0 million that may be used for incentive award payments under the 2009 PIP, the 2009 EIP, and the 2009 AEIP based on the overall goal achievement levels. Awards made under the 2009 AEIP along with awards under the 2009 PIP and the 2009 EIP (as discussed above) in the aggregate may be greater or less than the pool amount, at the discretion of the Board. Awards, if any, under the 2009 AEIP are to be paid following Audit Committee and Board approval and completion of any required regulatory review.

For the 2009 AEIP, awards are based on total weighted achievement levels ranging from 75% of target (threshold) to 200% of target (far exceeding target goal). The Audit Committee and the Board have discretion to modify any and all incentive payments under this plan. Any awards for achievement below the threshold total weighted achievement level are also at the discretion of the Audit Committee and the Board.

An award under the 2009 APUP is based on the average of the actual department goal achievement levels under short-term incentive plans for 2009, 2010, and 2011 over the three-year performance period multiplied by a target award percentage, multiplied by the executive’s base salary in the first year of the three-year performance period. Unlike the short-term incentive plans (for example, the 2009 AEIP), the 2009 APUP does not have an individual goal component. For the 2009 APUP, an award is to be calculated based on ranges from 75% of target (threshold) to 200% of target (far exceeding target). If the average of the actual department goal achievement levels under short-term incentive plans for 2009, 2010, and 2011 is between 100% and 200% of target, the range of awards as a percentage of base salary will be between 35% and 70%. If the average of the actual department goal achievement level is at least 75% but below 100% of target, the award as a percentage of base salary may begin at 18%. The Audit Committee has the discretion to increase or decrease awards under the 2009 APUP by 25% to account for performance that is not captured by the performance metrics. Achievement below the threshold achievement level will normally not result in an incentive award. All awards under the 2009 APUP will be considered by the Audit Committee and Board following the end of the three-year performance period. An award, if any, is to be paid following Audit Committee and Board approval, and after the completion of any required regulatory review.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~August~~November 12, 2009.


Federally chartered corporation		94-6000630
(State or other jurisdiction of incorporation or organization)		~~94-6000630~~ (I.R.S. employer identification number)

600 California Street San Francisco, CA		94108
(Address of principal executive offices)		~~94108~~ (Zip code)


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Statements of Condition (Unaudited)	1
	Statements of Income (Unaudited)	2
	Statements of Capital Accounts (Unaudited)	3
	Statements of Cash Flows (Unaudited)	4
	Notes to Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5355
	Quarterly Overview	5456
	Financial Highlights	5860
	Results of Operations	6061
	Financial Condition	7475
	Liquidity and Capital Resources	8788
	Risk Management	90
	Critical Accounting Policies and Estimates	106
	Recently Issued Accounting Standards and Interpretations	~~108~~109
	Recent Developments	~~108~~109
	Off-Balance Sheet Arrangements, Guarantees, and Other Commitments	110

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	111

Item 4.	Controls and Procedures	~~120~~118

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	~~121~~119

Item 1A.	Risk Factors	~~121~~119

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~121~~120

Item 3.	Defaults Upon Senior Securities	~~121~~120

Item 4.	Submission of Matters to a Vote of Security Holders	~~121~~120

Item 5.	Other Information	~~121~~120

Item 6.	Exhibits	122

Signatures			123


		Shares outstanding as of ~~July 31,~~October 30, 2009
Class B Stock, par value $100		~~134,140,741~~134,050,083


	Before Reclassification			Reclassification			After Reclassification

Statements of Income
Three months ended June 30, 2008:
Interest income: Interest-bearing deposits in banks	$	91		$	(91	)	$	—
Interest income: Held-to-maturity securities		491			91			582
Six months ended June 30, 2008:
Interest income: Interest-bearing deposits in banks		230			(230	)		—
Interest income: Held-to-maturity securities		969			230			1,199
Statement of Cash Flows for the Six Months Ended June 30, 2008
Investing Activities:
Net change in interest-bearing deposits in banks		(342	)		342			—
Held-to-maturity securities: Net decrease/(increase) in short-term		886			(342	)		544


	Amortized Cost⁽¹⁾		Gross Unrealized Gains⁽²⁾		Gross Unrealized Losses⁽²⁾			Estimated Fair Value

Interest-bearing deposits in banks	$	11,200	$	—	$	—		$	11,200
Commercial paper		150		—		—			150
Housing finance agency bonds		802		4		—			806

Subtotal		12,152		4		—			12,156

MBS:
Ginnie Mae		19		—		(1	)		18
Freddie Mac		4,408		57		(8	)		4,457
Fannie Mae		10,083		99		(22	)		10,160
PLRMBS		24,543		—		(7,064	)		17,479

Total MBS		39,053		156		(7,095	)		32,114

Total	$	51,205	$	160	$	(7,095	)	$	44,270


	Amortized Cost⁽¹⁾		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Interest-bearing deposits in banks	$	11,200	$	—	$	—		$	11,200
Commercial paper		150		—		—			150
Housing finance agency bonds		802		4		—			806
Subtotal		12,152		4		—			12,156
MBS:
Ginnie Mae		19		—		(1	)		18
Freddie Mac		4,408		57		(8	)		4,457
Fannie Mae		10,083		99		(22	)		10,160
Non-agency		24,543		—		(7,064	)		17,479
Total MBS		39,053		156		(7,095	)		32,114
Total	$	51,205	$	160	$	(7,095	)	$	44,270


	Less than 12 months			12 months or more				Total
	Estimated Fair Value		Unrealized Losses	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

Interest-bearing deposits in banks	$	7,029	—	$	—	$	—	$	7,029	$	—
Housing finance agency bonds		745	24		—		—		745		24

Subtotal		7,774	24		—		—		7,774		24

MBS:
Ginnie Mae		10	—		6		—		16		—
Freddie Mac		44	2		40		1		84		3
Fannie Mae		483	11		182		4		665		15
PLRMBS⁽¹⁾		1	—		15,239		5,981		15,240		5,981

Total	$	8,312	37	$	15,467	$	5,986	$	23,779	$	6,023


��	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

MBS:
Ginnie Mae	$	10	$	—	$	8	$	1	$	18	$	1
Freddie Mac		707		6		44		2		751		8
Fannie Mae		2,230		20		117		2		2,347		22
PLRMBS		3,708		1,145		12,847		5,919		16,555		7,064

Total	$	6,655	$	1,171	$	13,016	$	5,924	$	19,671	$	7,095


Year of Contractual Maturity	Amortized Cost⁽¹⁾		Carrying Value⁽¹⁾		Estimated Fair Value		Weighted Average Interest Rate

Held-to-maturity securities other than MBS:
Due in one year or less	$	8,029	$	8,029	$	8,029	0.18	%
Due after one year through five years		12		12		12	0.63
Due after five years through ten years		27		27		26	0.60
Due after ten years		730		730		707	0.72

Subtotal		8,798		8,798		8,774	0.22

MBS:
Ginnie Mae		16		16		16	1.32
Freddie Mac		3,639		3,639		3,789	4.84
Fannie Mae		9,031		9,031		9,318	4.17
PLRMBS		20,934		17,341		15,240	3.85

Total MBS		33,620		30,027		28,363	4.04

Total	$	42,418	$	38,825	$	37,137	3.26	%


	September 30, 2009		December 31, 2008
Amortized cost of held-to-maturity securities other than MBS:
Fixed rate	$	8,029	$	11,350
Adjustable rate		769		802

Subtotal		8,798		12,152

Amortized cost of held-to-maturity MBS:
Passthrough securities:
Fixed rate		3,556		4,120
Adjustable rate		90		100
Collateralized mortgage obligations:
Fixed rate		18,712		24,604
Adjustable rate		11,262		10,229

Subtotal		33,620		39,053

Total	$	42,418	$	51,205


	For the Three Months Ended June 30, 2009					For the Six Months Ended June 30, 2009
Identified as Other-Than-Temporarily Impaired	Number of Securities	OTTI Related to Credit Losses		OTTI Related to All Other Factors		Number of Securities	OTTI Related to Credit Losses		OTTI Related to All Other Factors
Prior to January 1, 2009	15	$	40	$ (1	)	15	$	90	$ 52
During the three months ended March 31, 2009	28		36	(1	)	28		74	1,014
During the three months ended June 30, 2009	33		12	1,197		33		12	1,197
Total	76	$	88	$ 1,195		76	$	176	$ 2,263


	Three Months Ended September 30, 2009

	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors

	Less than 12 months		12 months or more		Total		Less than 12 months			12 months or more		Total

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	8	$	18	$	26	$	(8	)	$	99	$	91
Alt-A, option ARM		—		121		121		—			425		425
Alt-A, other		—		169		169		—			553		553

Total	$	8	$	308	$	316	$	(8	)	$	1,077	$	1,069


	Nine Months Ended September 30, 2009

	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors

	Less than 12 months		12 months or more		Total		Less than 12 months			12 months or more		Total

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	17	$	24	$	41	$	(9	)	$	412	$	403
Alt-A, option ARM		—		171		171		—			981		981
Alt-A, other		—		280		280		—			1,948		1,948

Total	$	17	$	475	$	492	$	(9	)	$	3,341	$	3,332


	Three Months Ended June 30, 2009
	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors
	Less than 12 months		12 months or more		Total		Less than 12 months		12 months or more		Total
Other-than-temporarily impaired non-agency MBS backed by loans classified as:
Prime	$	9	$	6	$	15	$	—	$	312	$	312
Alt-A		—		73		73		—		883		883
Total	$	9	$	79	$	88	$	—	$	1,195	$	1,195

	Six Months Ended June 30, 2009
	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors
	Less than 12 months		12 months or more		Total		Less than 12 months		12 months or more		Total
Other-than-temporarily impaired non-agency MBS backed by loans classified as:
Prime	$	9	$	6	$	15	$	—	$	312	$	312
Alt-A		—		161		161		—		1,951		1,951
Total	$	9	$	167	$	176	$	—	$	2,263	$	2,263


Contractual Redemption Period	June 30, 2009		December 31, 2008

Within 1 year	$	19	$	17
After 1 year through 2 years		30		3
After 2 years through 3 years		42		63
After 3 years through 4 years		85		91
After 4 years through 5 years		2,989		3,573

Total	$	3,165	$	3,747


	Advances- Related Business		Mortgage- Related Business		Adjusted Net Interest Income		Amortization of Basis Adjustments⁽³⁾			Net Interest Income/ (Expense) on Economic Hedges⁽¹⁾			Interest Expense on Mandatorily Redeemable Capital Stock⁽²⁾		Net Interest Income		Other (Loss)/ Income			Other Expense		Income Before Assessments

Three months ended:
June 30, 2009	$	189	$	118	$	307	$	(36	)	$	(140	)	$	—	$	483	$	(39	)	$	31	$	413
June 30, 2008		223		117		340		3			(4	)		3		338		(10	)		24		304
Six months ended:
June 30, 2009	$	393	$	254	$	647	$	(45	)	$	(225	)	$	—	$	917	$	(275	)	$	62	$	580
June 30, 2008		449		207		656		17			63			6		570		110			49		631


	Par amount
June 30, 2009	$	1,055,863
March 31, 2009		1,135,379
December 31, 2008		1,251,542
September 30, 2008		1,327,904
June 30, 2008		1,255,475


	Par amount
September 30, 2009	$	973,579
June 30, 2009		1,055,863
March 31, 2009		1,135,379
December 31, 2008		1,251,542
September 30, 2008		1,327,904


(Dollars in millions) June 30, 2009
Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding⁽¹⁾		Collateral Borrowing Capacity⁽²⁾

0% - 10%	37	$	66,392	$	67,661
11% - 25%	35		20,948		25,395
26% - 50%	93		77,893		115,831
More than 50%	162		13,350		54,540

Total	327	$	178,583	$	263,427

December 31, 2008
Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding⁽¹⁾		Collateral Borrowing Capacity⁽²⁾

0% - 10%	71	$	195,344	$	200,892
11% - 25%	51		20,814		25,232
26% - 50%	81		11,051		17,308
More than 50%	144		11,447		46,187

Total	347	$	238,656	$	289,619


	June 30, 2009				December 31, 2008
Securities Type with Current Credit Ratings	Current Par		Borrowing Capacity		Current Par		Borrowing Capacity

U.S. Treasury (bills, notes, bonds)	$	287	$	278	$	217	$	216
Agency (notes, subordinate debt, structured notes, indexed amortization notes, and Small Business Administration pools)		6,802		6,681		2,004		1,982
Agency pools and collateralized mortgage obligations		29,027		28,076		26,020		25,032
Non-agency residential MBS – publicly registered AAA-rated senior tranches		1,468		983		6,523		3,903
Non-agency home equity MBS – publicly registered AAA-rated senior tranches		201		77		420		178
Non-agency commercial MBS – publicly registered AAA-rated senior tranches		1,491		904		1,394		817
Non-agency residential MBS – publicly registered AA-rated senior tranches		277		99		1,619		545
Non-agency residential MBS – publicly registered A-rated senior tranches		211		28		5,329		625
Non-agency residential MBS – publicly registered BBB-rated senior tranches		439		29		321		17
Non-agency residential MBS – publicly registered AAA- or AA-rated subordinate tranches		112		5		1,599		176
Non-agency home equity MBS – publicly registered AAA- or AA-rated subordinate tranches		1,762		328		2,279		509
Non-agency commercial MBS – publicly registered AAA-rated subordinate tranches		3,014		1,002		3,018		907
Non-agency residential MBS – private placement AAA-rated senior tranches		2		1		3		2
Term deposits with the FHLBank of San Francisco		63		63		89		89
Other		—		—		4,403		440

Total	$	45,156	$	38,554	$	55,238	$	35,438


	June 30, 2009												August 7, 2009
(Dollars in millions)	Unpaid Principal Balance		Amortized Cost		Carrying Value		Gross Unrealized Losses		Weighted- Average Collateral Delinquency Rate		% Rated AAA		% Rated AAA		% Rated Investment Grade		% Rated Below Investment Grade		% on Watchlist

Non-agency MBS backed by:
Prime	$	7,127	$	7,095	$	6,729	$	1,017	6.86	%	63.02	%	45.04	%	77.86	%	22.14	%	2.62	%
Alt-A		15,544		15,388		13,044		3,456	19.97		11.83		4.91		39.43		60.57		1.19

Total	$	22,671	$	22,483	$	19,773	$	4,473	15.85	%	27.92	%	17.52	%	51.51	%	48.49	%	1.64	%


	September 30, 2009												October 30, 2009
PLRMBS backed by loans classified at origination as:	Unpaid Principal Balance		Amortized Cost		Carrying Value		Gross Unrealized Losses		Weighted- Average 60+ Days Collateral Delinquency Rate		% Rated AAA		% Rated AAA		% Rated Investment Grade		% Rated Below Investment Grade		% on Watchlist

Prime	$	6,497	$	6,445	$	6,011	$	1,037	8.56	%	44.09	%	42.40	%	77.11	%	22.88	%	—	%
Alt-A		14,940		14,489		11,330		4,944	22.08		1.98		1.98		36.33		63.67		1.19

Total	$	21,437	$	20,934	$	17,341	$	5,981	17.98	%	14.74	%	14.23	%	48.69	%	51.31	%	0.83	%


Collateral Type and Year of Securitization	June 30, 2009		March 31, 2009		December 31, 2008		September 30, 2008		June 30, 2008

Prime
2004 and earlier	85.02	%	80.49	%	83.03	%	94.79	%	95.75	%
2005	70.43		63.61		74.71		84.99		88.92
2006	80.03		73.38		78.77		90.98		94.83
2007	64.78		63.10		73.05		84.96		93.94
2008	80.25		72.77		69.63		86.88		91.76
Weighted average of all Prime	80.14	%	75.50	%	79.78	%	91.92	%	94.84	%

Alt-A
2004 and earlier	72.98	%	72.24	%	76.77	%	85.00	%	92.31	%
2005	64.85		60.84		65.50		75.97		82.43
2006	58.69		57.38		63.44		71.15		78.93
2007	56.36		55.19		58.10		70.53		79.35
2008	58.72		66.20		72.40		92.16		96.13
Weighted average of all Alt-A	62.14	%	60.07	%	64.39	%	75.13	%	82.58	%

Weighted average of all non-agency MBS	67.80	%	65.13	%	69.56	%	80.84	%	86.80	%


	To AA				To A				To BBB				To Below Investment Grade				Total
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value

Non-agency MBS:
Downgrade from AAA	$	544	$	455	$	607	$	478	$	45	$	34	$	874	$	718	$	2,070	$	1,685
Downgrade from AA		—		—		—		—		69		54		29		24		98		78
Downgrade from A		—		—		—		—		—		—		539		492		539		492
Downgrade from BBB		—		—		—		—		—		—		491		399		491		399

Total	$	544	$	455	$	607	$	478	$	114	$	88	$	1,933	$	1,633	$	3,198	$	2,654


	To BB				To B				To CCC				To CC				To C				Total Below Investment Grade
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value

Non-agency MBS:
Downgrade from AAA	$	404	$	248	$	—	$	—	$	470	$	470	$	—	$	—	$	—	$	—	$	874	$	718
Downgrade from AA		29		24		—		—		—		—		—		—		—		—		29		24
Downgrade from A		346		324		—		—		—		—		193		168		—		—		539		492
Downgrade from BBB		62		42		106		67		78		41		181		185		64		64		491		399

Subtotal		841		638		106		67		548		511		374		353		64		64		1,933		1,633

Downgrade from BB		—		—		71		52		436		283		321		264		—		—		828		599
Downgrade from B		—		—		—		—		408		371		136		139		—		—		544		510

Total	$	841	$	638	$	177	$	119	$	1,392	$	1,165	$	831	$	756	$	64	$	64	$	3,305	$	2,742


	Interest Rate Sensitivity Period
(In millions)	6 Months or Less			> 6 Months to 1 Year			> 1 to 5 Years			Over 5 Years

Advances-related business:
Assets
Investments	$	26,799		$	—		$	—		$	—
Advances		115,072			21,850			34,348			3,462
Other assets		875			—			—			—

Total Assets		142,746			21,850			34,348			3,462

Liabilities
Consolidated obligations:
Bonds		92,052			9,863			41,678			5,600
Discount notes		35,022			4,477			—			—
Deposits		257			—			—			—
Mandatorily redeemable capital stock		—			—			3,165			—
Other liabilities		1,286			—			203			95

Total Liabilities		128,617			14,340			45,046			5,695

Interest rate exchange agreements		(7,606	)		(6,847	)		12,302			2,151

Periodic gap of advances-related business		6,523			663			1,604			(82	)

Mortgage-related business:
Assets
MBS		9,137			2,721			14,205			6,882
Mortgage loans		345			222			1,344			1,446
Other assets		216			—			—			—

Total Assets		9,698			2,943			15,549			8,328

Liabilities
Consolidated obligations:
Bonds		5,555			2,255			13,421			5,776
Discount notes		7,964			1,546			—			—
Other liabilities		1			—			—			—

Total Liabilities		13,520			3,801			13,421			5,776

Interest rate exchange agreements		1,052			1,208			(1,110	)		(1,150	)

Periodic gap of mortgage-related business		(2,770	)		350			1,018			1,402

Total periodic gap		3,753			1,013			2,622			1,320

Cumulative gap	$	3,753		$	4,766		$	7,388		$	8,708


10.1+		2009 Executive Incentive Plan

10.2+		2009 President’s Incentive Plan

10.3		2009 Executive Performance Unit Plan

10.4		2009 Audit Executive Incentive Plan

10.5		2009 Audit Performance Unit Plan

31.1		Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4		Certification of the Controller pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Operating Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.4		Certification of the Controller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Computation of Ratio of Earnings to Fixed Charges – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2009

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company