Federal Home Loan Bank of Seattle 10-Q 2013 FY Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2013

OR

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

Commission File No.: 000-51406

FEDERAL HOME LOAN BANK OF SEATTLE

(Exact name of registrant as specified in its charter)

Federally chartered corporation	91-0852005
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1001 Fourth Avenue, Suite 2600, Seattle, WA	98154
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (206) 340-2300

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

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

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

Large accelerated filero	Accelerated filero
Non-accelerated filer  x (Do not check if smaller reporting company)	Smaller reporting companyo

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

Registrant's stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. As of July 31, 2013, the Federal Home Loan Bank of Seattle had outstanding 1,197,781 shares of its Class A capital stock and 25,950,989 shares of its Class B capital stock.

FEDERAL HOME LOAN BANK OF SEATTLE

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

JUNE 30, 2013

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Statements of Condition - As of June 30, 2013 and December 31, 2012 (Unaudited)	3
	Statements of Income - For the Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)	4
	Statements of Comprehensive Income - For the Three and Six Months Ended June 30, 2013 and 2012 (Unaudited)	5
	Statements of Capital - For the Six Months Ended June 30, 2013 and 2012 (Unaudited)	6
	Statements of Cash Flows - For the Six Months Ended June 30, 2013 and 2012 (Unaudited)	7
	Condensed Notes to Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	48
	Overview	49
	Financial Condition as of June 30, 2013 and December 31, 2012	57
	Capital Resources and Liquidity	76
	Results of Operations for the Three and Six Months Ended June 30, 2013 and 2012	82
	Critical Accounting Policies and Estimates	92
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	93
Item 4.	Controls and Procedures	96
PART II.
Item 1.	Legal Proceedings	98
Item 1A.	Risk Factors	98
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	99
Item 3.	Defaults Upon Senior Securities	99
Item 4.	Mine Safety Disclosures	99
Item 5.	Other Information	100
Item 6.	Exhibits	100
SIGNATURES		101
List of Exhibits		102

2

PART I.

ITEM 1. FINANCIAL STATEMENTS

FEDERAL HOME LOAN BANK OF SEATTLE

STATEMENTS OF CONDITION (Unaudited)

	As of			As of
	June 30, 2013			December 31, 2012
(in thousands, except par value)
Assets
Cash and due from banks	$	189		$	454
Deposits with other Federal Home Loan Banks (FHLBanks)	37			70
Securities purchased under agreements to resell	6,000,000			5,600,000
Federal funds sold	6,194,800			7,143,200
Investment securities:
Available-for-sale (AFS) securities (Note 2)	4,395,092			3,877,964
Held-to-maturity (HTM) securities (fair values of $8,918,178 and $8,475,278) (Note 3)	8,897,553			8,418,411
Total investment securities	13,292,645			12,296,375
Advances (Note 5)	11,447,001			9,135,243
Mortgage loans held for portfolio, net (includes $2,165 and $2,326 of allowance for credit losses) (Notes 6 and 7)	914,450			1,059,308
Accrued interest receivable	38,002			44,350
Premises, software, and equipment, net	17,440			15,310
Derivative assets, net (Note 8)	101,259			105,582
Other assets	12,414			20,725
Total Assets	$	38,018,237		$	35,420,617
Liabilities
Interest-bearing deposits	$	478,590		$	541,408
Consolidated obligations (Note 9):
Discount notes (includes $349,881 and $1,249,442 at fair value under fair value option)	15,799,353			21,417,653
Bonds (includes $749,921 and $499,986 at fair value under fair value option)	18,428,946			10,496,762
Total consolidated obligations	34,228,299			31,914,415
Mandatorily redeemable capital stock (Note 10)	1,790,607			1,186,204
Accrued interest payable	72,168			69,172
Affordable Housing Program (AHP) payable	19,650			18,330
Derivative liabilities, net (Note 8)	55,574			85,893
Other liabilities	308,007			31,160
Total liabilities	36,952,895			33,846,582
Commitments and contingencies (Note 13)
Capital (Note 10)
Capital stock:
Class B capital stock putable ($100 par value) - issued and outstanding shares: 8,718 and 14,630	871,829			1,463,045
Class A capital stock putable ($100 par value) - issued and outstanding shares: 511 and 1,092	51,072			109,222
Total capital stock	922,901			1,572,267
Retained earnings:
Unrestricted	210,219			189,213
Restricted	44,274			39,023
Total retained earnings	254,493			228,236
Accumulated other comprehensive loss (AOCL) (Note 10)	(112,052		)	(226,468		)
Total capital	1,065,342			1,574,035
Total Liabilities and Capital	$	38,018,237		$	35,420,617

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

3

FEDERAL HOME LOAN BANK OF SEATTLE

STATEMENTS OF INCOME (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
(in thousands)
Interest Income
Advances	$	17,871		$	20,934		$	34,862		$	43,851
Prepayment fees on advances, net	1,516			2,796			1,680			8,435
Interest-bearing deposits	18			21			31			35
Securities purchased under agreements to resell	1,776			1,819			3,885			3,072
Federal funds sold	2,493			2,771			5,631			4,840
AFS securities	10,693			7,294			20,332			12,121
HTM securities	23,222			27,672			48,826			56,422
Mortgage loans held for portfolio	12,868			16,855			25,861			32,864
Total interest income	70,457			80,162			141,108			161,640
Interest Expense
Consolidated obligations - discount notes	3,211			3,697			7,713			5,184
Consolidated obligations - bonds	32,988			46,729			64,821			103,455
Deposits	33			41			77			58
Total interest expense	36,232			50,467			72,611			108,697
Net Interest Income	34,225			29,695			68,497			52,943
Less: Provision (benefit) for credit losses	12			—			(29		)	—
Net Interest Income after Provision (Benefit) for Credit Losses	34,213			29,695			68,526			52,943
Other (Loss) Income
Total other-than-temporary impairment (OTTI) loss (Note 4)	—			(161		)	—			(161		)
Net amount of OTTI loss reclassified from AOCL	—			(4,108		)	(342		)	(5,432		)
Net OTTI loss, credit portion	—			(4,269		)	(342		)	(5,593		)
Net (loss) gain on financial instruments held under fair value option (Note 11)	(158		)	38			(580		)	55
Net realized (loss) gain on sale of AFS securities	—			(51		)	903			(51		)
Net (loss) gain on derivatives and hedging activities (Note 8)	(601		)	18,245			10			30,251
Net realized loss on early extinguishment of consolidated obligations	(276		)	(587		)	(575		)	(2,547		)
Other, net	339			479			590			913
Total other (loss) income	(696		)	13,855			6			23,028
Other Expense
Operating:
Compensation and benefits	7,521			7,236			15,069			14,896
Other operating	9,045			9,282			17,451			17,833
Federal Housing Finance Agency (Finance Agency)	527			1,002			1,394			2,203
Office of Finance	597			545			1,276			1,163
Other, net	4,107			36			4,168			65
Total other expense	21,797			18,101			39,358			36,160
Income before Assessments	11,720			25,449			29,174			39,811
Assessments
AHP	1,172			2,545			2,917			3,981
Total assessments	1,172			2,545			2,917			3,981
Net Income	$	10,548		$	22,904		$	26,257		$	35,830

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

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FEDERAL HOME LOAN BANK OF SEATTLE

STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
(in thousands)
Net income	$	10,548		$	22,904		$	26,257		$	35,830
Other comprehensive income:
Net unrealized (loss) gain on AFS securities	(29,103		)	1,005			(20,431		)	(5,892		)
Net non-credit portion of OTTI gain (loss) on AFS securities:
Net change in fair value of OTTI securities	38,676			883			127,595			100,258
Reclassification of non-credit portion included in net income	—			4,269			342			5,593
Net unrealized gain on noncredit portion of impairment losses on AFS securities	793			—			6,161			—
Reclassification of net realized gain on sale of AFS securities included in net income	—			—			(903		)	—
Total net non-credit portion of OTTI gain (loss) on AFS securities	39,469			5,152			133,195			105,851
Net non-credit portion of OTTI gain (loss) on HTM securities:
Non-credit portion	—			(161		)	—			(161		)
Accretion of non-credit portion	804			441			1,622			950
Total net non-credit portion of OTTI gain (loss) on HTM securities	804			280			1,622			789
Pension benefits	15			11			30			183
Total comprehensive income	$	21,733		$	29,352		$	140,673		$	136,761

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

5

FEDERAL HOME LOAN BANK OF SEATTLE

STATEMENTS OF CAPITAL (Unaudited)

For the Six Months Ended June 30, 2013 and 2012	Class A Capital Stock (1)					Class B Capital Stock (1)					Retained Earnings						AOCL			Total Capital
	Shares		Par Value			Shares		Par Value			Unrestricted (Note 10)		Restricted (Note 10)		Total
(amounts and shares in thousands)
Balance, December 31, 2011	1,194		$	119,338		16,203		$	1,620,339		$	132,575	$	24,863	$	157,438	$	(610,612	)	$	1,286,503
Proceeds from issuance of capital stock	—		—			42		4,156			—		—		—		—			4,156
Net shares reclassified to mandatorily redeemable capital stock	—		—			(632	)	(63,159		)	—		—		—		—			(63,159		)
Comprehensive income	—		—			—		—			28,664		7,166		35,830		100,931			136,761
Balance, June 30, 2012	1,194		$	119,338		15,613		$	1,561,336		$	161,239	$	32,029	$	193,268	$	(509,681	)	$	1,364,261
Balance, December 31, 2012	1,092		$	109,222		14,630		$	1,463,045		$	189,213	$	39,023	$	228,236	$	(226,468	)	$	1,574,035
Proceeds from issuance of capital stock	—		—			49		4,879			—		—		—		—			4,879
Repurchases of capital stock	(92	)	(9,247		)	(134	)	(13,432		)	—		—		—		—			(22,679		)
Net shares reclassified to mandatorily redeemable capital stock	(489	)	(48,903		)	(5,827	)	(582,663		)	—		—		—		—			(631,566		)
Comprehensive income	—		—			—		—			21,006		5,251		26,257		114,416			140,673
Balance, June 30, 2013	511		$	51,072		8,718		$	871,829		$	210,219	$	44,274	$	254,493	$	(112,052	)	$	1,065,342

(1) Putable

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

6

FEDERAL HOME LOAN BANK OF SEATTLE

STATEMENTS OF CASH FLOWS (Unaudited)

	For the Six Months Ended June 30,
	2013			2012
(in thousands)
Operating Activities
Net income	$	26,257		$	35,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	(9,907		)	12,922
Net OTTI loss, credit portion	342			5,593
Net realized (gain) loss on sale of AFS securities	(903		)	51
Net change in fair value adjustments on financial instruments held under fair value option	580			(55		)
Net change in net fair value adjustment on derivatives and hedging activities	(1,164		)	13,806
Net realized loss on early extinguishment of consolidated obligations	575			2,547
Net realized loss on disposal of premises and equipment	4,009			—
(Benefit) provision for credit losses	(29		)	—
Other adjustments	512			265
Net change in:
Accrued interest receivable	6,349			18,752
Other assets	10,575			1,598
Accrued interest payable	2,996			(14,527		)
Other liabilities	328			(965		)
Total adjustments	14,263			39,987
Net cash provided by operating activities	40,520			75,817
Investing Activities
Net change in:
Interest-bearing deposits	(35,283		)	(13,068		)
Deposits with other FHLBanks	33			(94		)
Securities purchased under agreements to resell	(400,000		)	(1,300,000		)
Federal funds sold	948,400			(1,102,501		)
Premises, software and equipment	(8,799		)	(773		)
AFS securities:
Proceeds from maturities of long-term	697,130			6,404,146
Proceeds from sales of long-term	41,799			55,860
Purchases of long-term	(1,179,759		)	(240,914		)
HTM securities:
Net decrease (increase) in short-term	975			(512,927		)
Proceeds from maturities of long-term	1,303,493			865,482
Purchases of long-term	(1,558,870		)	(2,011,868		)
Advances:
Proceeds	21,728,104			19,537,240
Made	(24,155,471		)	(17,812,311		)
Mortgage loans:
Principal collected	143,391			150,505
Net cash (used in) provided by investing activities	(2,474,857		)	4,018,777

7

FEDERAL HOME LOAN BANK OF SEATTLE

STATEMENTS OF CASH FLOWS (CONTINUED)

	For the Six Months Ended June 30,
	2013			2012
(in thousands)
Financing Activities
Net change in:
Deposits	$	(55,312	)	$	103,787
Net proceeds on derivative contracts with financing elements	25,713			3,637
Net proceeds from issuance of consolidated obligations:
Discount notes	481,934,782			320,457,186
Bonds	11,913,689			18,179,903
Payments for maturing and retiring consolidated obligations:
Discount notes	(487,552,117		)	(318,075,087		)
Bonds	(3,787,720		)	(24,768,225		)
Proceeds from issuance of capital stock	4,879			4,156
Payments for repurchase/redemption of mandatorily redeemable capital stock	(27,163		)	—
Payments for repurchase of capital stock	(22,679		)	—
Net cash provided by (used in) financing activities	2,434,072			(4,094,643		)
Net change in cash and due from banks	(265		)	(49		)
Cash and due from banks at beginning of the period	454			1,286
Cash and due from banks at end of the period	$	189		$	1,237
Supplemental Disclosures
Interest paid	$	69,615		$	123,224
AHP payments, net	$	1,597		$	1,050
Transfers of mortgage loans to real estate owned (REO)	$	1,558		$	2,508

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

8

FEDERAL HOME LOAN BANK OF SEATTLE

CONDENSED NOTES TO FINANCIAL STATEMENTS

Note 1—Basis of Presentation, Use of Estimates, and Recently Issued or Adopted Accounting Guidance

Basis of Presentation

These unaudited financial statements and condensed notes should be read in conjunction with the financial statements and related notes for the years ended December 31, 2012, 2011, and 2010 (2012 Financial Statements) included in the 2012 annual report on Form 10-K, as amended, (2012 10-K) of the Federal Home Loan Bank of Seattle (Seattle Bank). These unaudited financial statements and condensed notes have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and Article 10 of the Securities and Exchange Commission's (SEC) Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair statement of the financial condition, operating results, and cash flows for the interim periods have been included. The financial condition as of June 30, 2013 and the operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the condition or results that may be expected as of or for the year ending December 31, 2013.

We have evaluated subsequent events for potential recognition or disclosure through the filing date of this report on Form 10-Q.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make subjective assumptions and estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. Actual results could differ significantly from these estimates.

Recently Issued or Adopted Accounting Guidance

Inclusion of the Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

On July 17, 2013, the Financial Accounting Standards Board (FASB) amended existing guidance to include the Federal Funds Effective Swap Rate (also referred to as Overnight Index Swap Rate (OIS)) as a U.S. benchmark interest rate for hedge accounting purposes. Including OIS as an acceptable U.S. benchmark interest rate, in addition to U.S. Treasuries and London Interbank Offered Rates (LIBOR), will provide a more comprehensive spectrum of interest-rate resets to utilize as the designated benchmark interest-rate risk component under hedge accounting guidance. The amendments also remove the restriction on using different benchmark interest rates for similar hedges. The amendments apply to all entities that elect to apply hedge accounting of the benchmark interest rate, and are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. We are currently in the process of evaluating the potential effects this guidance may have on each of our hedging strategies.

Joint and Several Liability Arrangements

On February 28, 2013, the FASB issued guidance for recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. This guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. In addition, this guidance requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The guidance is effective for interim and annual periods beginning on or after December 15, 2013 (January 1, 2014 for the Seattle Bank). We do not expect the guidance to affect our financial condition, results of operations, or cash flows.

Framework for Adversely Classifying Certain Assets

On April 9, 2012, the Finance Agency issued an advisory bulletin that establishes a standard and uniform methodology for classifying loans, REO, and certain other assets (excluding investment securities), and prescribes the timing of asset charge-offs based on these classifications. This guidance is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. The adverse classification requirements should be implemented by January 1, 2014 and the charge-off requirements should be implemented no later than January 1,

9

2015. We are currently assessing the provisions of this advisory bulletin, and we have not yet determined its effect on our financial condition, results of operations, or cash flows.

Disclosures about Offsetting Assets and Liabilities

On December 16, 2011, the FASB and the International Accounting Standards Board (IASB) issued common disclosure requirements intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on an entity's financial position, whether an entity's financial statements are prepared on the basis of GAAP or International Financial Reporting Standards (IFRS). This guidance, which was amended on January 31, 2013, clarifies that its scope includes only certain financial instruments that are either offset on the balance sheet or are subject to an enforceable master netting agreement or similar arrangement, requires an entity to disclose both gross and net information about derivative, repurchase, and security lending instruments that meet this criteria. This guidance, as amended, became effective for the Seattle Bank for interim and annual periods beginning on January 1, 2013 and was applied retrospectively for all comparative periods presented. The adoption of this guidance resulted in increased interim and annual financial statement disclosures, but did not affect our financial condition, results of operations, or cash flows.

Presentation of Comprehensive Income

On February 5, 2013, the FASB issued guidance intended to improve the transparency of reporting reclassifications out of accumulated other comprehensive income (AOCI). This guidance does not change the current requirements for reporting net income or comprehensive income in the financial statements. Rather, it requires an entity to present, either on the face of the financial statement where net income is presented or in the footnotes, significant amounts reclassified out of AOCI. These amounts are to be presented based on the respective lines of net income only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other required disclosures that provide additional detail about these other amounts. This guidance became effective for the Seattle Bank for interim and annual periods beginning on January 1, 2013 and was applied prospectively. The adoption of this guidance resulted in increased interim and annual financial statement disclosures, but did not affect our financial condition, results of operations, or cash flows.

Note 2—Available-for-Sale Securities

Major Security Types

The following tables summarize our AFS securities as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013
AFS Securities	Amortized Cost Basis (1)		OTTI Charges Recognized  in AOCL			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(in thousands)
Non-Mortgage-Backed Securities (MBS):
Other U.S. agency obligations (2)	$	1,925,121	$	—		$	8,774	$	(1,997	)	$	1,931,898
Government-sponsored enterprise (GSE) obligations (3)	1,178,105		—			638		(11,753		)	1,166,990
Total non-MBS	3,103,226		—			9,412		(13,750		)	3,098,888
MBS:
Residential private-label MBS (PLMBS)	1,387,070		(97,027		)	6,161		—			1,296,204
Total	$	4,490,296	$	(97,027	)	$	15,573	$	(13,750	)	$	4,395,092

10

	As of December 31, 2012
AFS Securities	Amortized Cost Basis (1)		OTTI Charges Recognized  in AOCL			Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(in thousands)
Non-MBS:
Other U.S. agency obligations (2)	$	1,159,869	$	—		$	7,081	$	(32	)	$	1,166,918
GSE obligations (3)	1,408,238		—			9,064		(20		)	1,417,282
Total non-MBS	2,568,107		—			16,145		(52		)	2,584,200
MBS:
Residential PLMBS	1,517,825		(224,061		)	—		—			1,293,764
Total	$	4,085,932	$	(224,061	)	$	16,145	$	(52	)	$	3,877,964

(1) Includes unpaid principal balance, accretable discounts and premiums, fair value hedge accounting adjustments, and OTTI charges recognized in earnings.

(2) Consists of obligations issued by one or more of the following: U.S. Agency for International Development (U.S. AID), Private Export Funding Corporation, and Export-Import Bank of the U.S. (Ex-Im Bank).

(3) Consists of obligations issued by one or more of the following: Federal Farm Credit Bank (FFCB), Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and Tennessee Valley Authority (TVA).

The amortized cost basis of our PLMBS classified as AFS includes credit-related OTTI losses of $389.4 million and $420.9 millionas of June 30, 2013 and December 31, 2012.

During the six months endedJune 30, 2013, we sold one AFS PLMBS security that had been determined to be other-than-temporarily impaired in previous periods. The proceeds of the sale was $41.8 million and resulted in a gain of $903,000. During the six months ended June 30, 2012, we sold one AFS security. The proceeds of the sale was $55.9 million and resulted in a net loss of $51,000.

As of June 30, 2013 and December 31, 2012, we held $481.8 million and $503.1 million of AFS securities originally purchased from members or affiliates of members that own more than 10% of our total outstanding capital stock, including mandatorily redeemable capital stock, or members with representatives serving on our Board of Directors (Board). See Note 12 for additional information concerning these related parties.

Unrealized Losses on AFS Securities

The following tables summarize our AFS securities in an unrealized loss position as of June 30, 2013 and December 31, 2012, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	As of June 30, 2013
	Less than 12 months					12 months or more					Total
AFS Securities in Unrealized Loss Positions	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(in thousands)
Non-MBS:
Other U.S. agency obligations	$	791,005	$	(1,997	)	$	—	$	—		$	791,005	$	(1,997	)
GSE obligations	813,450		(11,753		)	—		—			813,450		(11,753		)
Total non-MBS	1,604,455		(13,750		)	—		—			1,604,455		(13,750		)
MBS:
Residential PLMBS*	—		—			1,023,037		(97,027		)	1,023,037		(97,027		)
Total	$	1,604,455	$	(13,750	)	$	1,023,037	$	(97,027	)	$	2,627,492	$	(110,777	)

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	As of December 31, 2012
	Less than 12 months					12 months or more					Total
AFS Securities in Unrealized Loss Positions	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(in thousands)
Non-MBS:
Other U.S. agency obligations	$	29,088	$	(32	)	$	—	$	—		$	29,088	$	(32	)
GSE obligations	99,254		(20		)	—		—			99,254		(20		)
Total non-MBS	128,342		(52		)	—		—			128,342		(52		)
MBS:
Residential PLMBS*	—		—			1,293,764		(224,061		)	1,293,764		(224,061		)
Total	$	128,342	$	(52	)	$	1,293,764	$	(224,061	)	$	1,422,106	$	(224,113	)

*     Includes investments for which a portion of OTTI has been recognized in AOCL.

Redemption Terms

The amortized cost basis and fair value, as applicable, of AFS securities by contractual maturity as of June 30, 2013 and December 31, 2012 are shown below. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	As of June 30, 2013				As of December 31, 2012
Year of Maturity	Amortized Cost Basis		Fair Value		Amortized Cost Basis		Fair Value
(in thousands)
Non-MBS:
Due in less than one year	$	198,618	$	199,061	$	695,295	$	696,441
Due after one year through five years	195,860		195,896		244,834		245,150
Due after five years through 10 years	411,676		410,814		397,643		399,535
Due after 10 years	2,297,072		2,293,117		1,230,335		1,243,074
Total non-MBS	3,103,226		3,098,888		2,568,107		2,584,200
MBS:
Due after 10 years	1,387,070		1,296,204		1,517,825		1,293,764
Total	$	4,490,296	$	4,395,092	$	4,085,932	$	3,877,964

Interest-Rate Payment Terms

The following table summarizes the amortized cost of our AFS securities by interest-rate payment terms as of June 30, 2013 and December 31, 2012.

	As of		As of
Amortized Cost of AFS Securities by Interest-Rate Payment Terms	June 30, 2013		December 31, 2012
(in thousands)
Non-MBS:
Fixed	$	2,271,967	$	1,797,154
Variable	831,259		770,953
Total non-MBS	3,103,226		2,568,107
MBS:
Variable	1,387,070		1,517,825
Total	$	4,490,296	$	4,085,932

As of June 30, 2013 and December 31, 2012, the fair value of our GSE obligations reflected unfavorable basis adjustments of $89.7 million and favorable basis adjustments of $5.9 million related to fair value hedges. The portion of the change in fair value of the AFS securities related to the risk being hedged is recorded in other (loss) income as "net (loss) gain on derivatives and hedging activities" together with the related change in the fair value of the derivatives. The remainder of the

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change in fair value of the hedged AFS securities, as well as the change in fair value of our non-hedged AFS securities, is recorded in AOCL as "net unrealized (loss) gain on AFS securities." 

Credit Risk

A detailed discussion of credit risk on our PLMBS, including those classified as AFS, and our assessment of OTTI of such securities, are included in Note 4.

Note 3—Held-to-Maturity Securities

Major Security Types

The following tables summarize our HTM securities as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013
HTM Securities	Amortized Cost Basis (1)		OTTI Charges Recognized in AOCL			Carrying Value		Gross Unrecognized Holding Gains (2)		Gross Unrecognized Holding Losses (2)			Fair Value
(in thousands)
Non-MBS:
Certificates of deposit	$	268,000	$	—		$	268,000	$	2	$	—		$	268,002
Other U.S. agency obligations (3)	20,873		—			20,873		215		(4		)	21,084
State or local housing obligations	1,272,550		—			1,272,550		417		(10,969		)	1,261,998
Total non-MBS	1,561,423		—			1,561,423		634		(10,973		)	1,551,084
MBS:
Residential:
Other U.S. agency (3)	127,177		—			127,177		343		—			127,520
GSE (4)	5,497,060		—			5,497,060		46,961		(1,864		)	5,542,157
PLMBS	495,360		(15,994		)	479,366		8,156		(22,730		)	464,792
Commercial (multi-family):
GSE (4)	1,232,527		—			1,232,527		567		(469		)	1,232,625
Total MBS	7,352,124		(15,994		)	7,336,130		56,027		(25,063		)	7,367,094
Total	$	8,913,547	$	(15,994	)	$	8,897,553	$	56,661	$	(36,036	)	$	8,918,178

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	As of December 31, 2012
HTM Securities	Amortized Cost Basis (1)		OTTI Charges Recognized in AOCL			Carrying Value		Gross Unrecognized Holding Gains (2)		Gross Unrecognized Holding Losses (2)			Fair Value
(in thousands)
Non-MBS:
Certificates of deposit	$	269,000	$	—		$	269,000	$	11	$	—		$	269,011
Other U.S. agency obligations (3)	22,599		—			22,599		227		(4		)	22,822
GSE obligations (4)	299,954		—			299,954		3,617		—			303,571
State or local housing obligations	708,776		—			708,776		1,528		(307		)	709,997
Total non-MBS	1,300,329		—			1,300,329		5,383		(311		)	1,305,401
MBS:
Residential:
Other U.S. agency (3)	141,034		—			141,034		394		—			141,428
GSE (4)	6,213,529		—			6,213,529		84,932		(385		)	6,298,076
PLMBS	594,970		(17,616		)	577,354		4,839		(37,971		)	544,222
Commercial (multi-family):
GSE (4)	186,165		—			186,165		100		(114		)	186,151
Total MBS	7,135,698		(17,616		)	7,118,082		90,265		(38,470		)	7,169,877
Total	$	8,436,027	$	(17,616	)	$	8,418,411	$	95,648	$	(38,781	)	$	8,475,278

(1) Includes unpaid principal balance, accretable discounts and premiums, and OTTI charges recognized in earnings.

(2) Represents the difference between fair value and carrying value.

(3) Consists of obligations or securities issued by one or more of the following: Government National Mortgage Association (GNMA), Small Business Administration (SBA) and U.S. AID.

(4) Consists of securities issued by one or more of the following: Freddie Mac, Fannie Mae, and TVA.

The amortized cost basis of our HTM MBS investments determined to be other-than-temporarily impaired includes $786,000 and $803,000 of credit-related OTTI losses as of June 30, 2013 and December 31, 2012. The amortized cost of our other HTM MBS includes gross amortizable premium of $22.3 million and $21.7 million, and gross accretable discount of $7.2 million and $7.8 millionas of June 30, 2013 and December 31, 2012.

As of June 30, 2013 and December 31, 2012, we held $167.5 million and $190.5 million of HTM securities purchased from members or affiliates of members who own more than 10% of our total outstanding capital stock and outstanding mandatorily redeemable capital stock or members with representatives serving on our Board. See Note 12 for additional information concerning these related parties.

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Unrealized Losses on HTM Securities

The following tables summarize our HTM securities with gross unrealized losses, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2013 and December 31, 2012. The gross unrealized losses include OTTI charges recognized in AOCL and gross unrecognized holding losses.

	As of June 30, 2013
	Less than 12 months					12 months or more					Total
HTM Securities in Unrealized Loss Positions	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
(in thousands)
Non-MBS:
Other U.S. agency obligations	$	235	$	—		$	1,001	$	(4	)	$	1,236	$	(4	)
State or local housing obligations	812,843		(10,942		)	903		(27		)	813,746		(10,969		)
Total non-MBS	813,078		(10,942		)	1,904		(31		)	814,982		(10,973		)
MBS:
Residential:
GSEs	789,407		(1,805		)	69,567		(59		)	858,974		(1,864		)
PLMBS	47,590		(491		)	376,478		(38,233		)	424,068		(38,724		)
Commercial (multi-family):
GSEs	745,606		(469		)	—		—			745,606		(469		)
Total MBS	1,582,603		(2,765		)	446,045		(38,292		)	2,028,648		(41,057		)
Total	$	2,395,681	$	(13,707	)	$	447,949	$	(38,323	)	$	2,843,630	$	(52,030	)

	As of December 31, 2012
	Less than 12 months					12 months or more					Total
HTM Securities in Unrealized Loss Positions	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
(in thousands)
Non-MBS:
Other U.S. agency obligations	$	233	$	—		$	1,083	$	(4	)	$	1,316	$	(4	)
State or local housing obligations	1,485		(189		)	937		(118		)	2,422		(307		)
Total non-MBS	1,718		(189		)	2,020		(122		)	3,738		(311		)
MBS:
Residential:
GSEs	128,332		(356		)	63,313		(29		)	191,645		(385		)
PLMBS	—		—			405,275		(55,587		)	405,275		(55,587		)
Commercial (multi-family):
GSEs	102,150		(114		)	—		—			102,150		(114		)
Total MBS	230,482		(470		)	468,588		(55,616		)	699,070		(56,086		)
Total	$	232,200	$	(659	)	$	470,608	$	(55,738	)	$	702,808	$	(56,397	)

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Redemption Terms

The amortized cost basis, carrying value, and fair value, as applicable, of HTM securities by contractual maturity as of June 30, 2013 and December 31, 2012 are shown below. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	As of June 30, 2013						As of December 31, 2012
Year of Maturity	Amortized Cost Basis		Carrying Value (1)		Fair Value		Amortized Cost Basis		Carrying Value (1)		Fair Value
(in thousands)
Non-MBS:
Due in one year or less	$	279,460	$	279,460	$	279,464	$	578,259	$	578,259	$	581,889
Due after one year through five years	145,314		145,314		145,335		121,112		121,112		121,303
Due after five years through 10 years	301,308		301,308		300,153		138,114		138,114		138,432
Due after 10 years	835,341		835,341		826,132		462,844		462,844		463,777
Total non-MBS	1,561,423		1,561,423		1,551,084		1,300,329		1,300,329		1,305,401
Total MBS	7,352,124		7,336,130		7,367,094		7,135,698		7,118,082		7,169,877
Total	$	8,913,547	$	8,897,553	$	8,918,178	$	8,436,027	$	8,418,411	$	8,475,278

(1) Carrying value of HTM securities represents amortized cost after adjustment for non-credit-related impairment recognized in AOCL.

Interest-Rate Payment Terms

The following table summarizes our HTM securities by interest-rate payment terms as of June 30, 2013 and December 31, 2012.

	As of		As of
Amortized Cost of HTM Securities by Interest-Rate Payment Terms	June 30, 2013		December 31, 2012
(in thousands)
Non-MBS:
Fixed	$	333,475	$	598,340
Variable	1,227,948		701,989
Total non-MBS	1,561,423		1,300,329
MBS:
Fixed	885,576		1,120,271
Variable	6,466,548		6,015,427
Total MBS	7,352,124		7,135,698
Total	$	8,913,547	$	8,436,027

Credit Risk

A detailed discussion of credit risk on our investments, including those classified as HTM, and our assessment of OTTI of such securities, are included in Note 4.

Note 4—Investment Credit Risk and Assessment for OTTI

Credit Risk

Our MBS investments consist of agency-guaranteed securities and senior tranches of privately issued prime and Alt-A MBS, collateralized by single- and multi-family residential mortgage loans, including hybrid adjustable-rate mortgages (ARMs) and option ARMs. Our exposure to the risk of loss on our investments in MBS increases when the loans underlying the MBS exhibit high rates of delinquency, foreclosure, or losses on the sale of foreclosed properties.

Assessment for OTTI

We evaluate each of our AFS and HTM investments in an unrealized loss position for OTTI on a quarterly basis. As part of this process, we consider (1) our intent to sell each such investment security and (2) whether it is more likely than not that we

16

would be required to sell such security before its anticipated recovery. If either of these conditions is met, we recognize an OTTI charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value as of the statement of condition date. If neither condition is met, we perform a cash flow analysis to determine whether the entire amortized cost basis of the impaired security, including all previously recognized OTTI losses, will be recovered. If we do not expect to recover the entire amount, the security is considered to be other-than-temporarily impaired or further impaired. We then evaluate the OTTI to determine the amount of credit loss recognized in earnings, which is limited to the amount of each security's unrealized loss.

PLMBS

Our investments in PLMBS were rated "AAA" (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody's Investor Service (Moody's) or Standard & Poor's Ratings Services (S&P), at their respective purchase dates. The "AAA"-rated securities achieved their ratings primarily through credit enhancement, such as subordination and over-collateralization.

To ensure consistency in determination of OTTI for PLMBS among all FHLBanks, the FHLBanks utilize a system-wide governance committee and formal process to ensure consistency in key OTTI modeling assumptions used for the purposes of cash flow analysis for these securities. As part of our quarterly OTTI evaluation, we review and approve the key modeling assumptions determined by the FHLBanks' system-wide process, and we perform OTTI cash flow analyses on our entire PLMBS portfolio using the FHLBanks' common platform and approved assumptions.

Our evaluation includes estimating the cash flows that we are likely to collect, taking into account the loan-level characteristics and structure of the applicable security and certain modeling assumptions, to determine whether we will recover the entire amortized cost basis of the security, such as the remaining payment terms for the security, prepayment speeds, default rates, loss severity on the collateral supporting the PLMBS, expected housing price changes, and interest-rate assumptions.

OTTI Credit Loss

In performing a detailed cash flow analysis, we identify the most reasonable estimate of the cash flows expected to be collected from a security. If this estimate results in a present value of expected cash flows (discounted at the security's effective yield) that is less than the amortized cost basis of the security (i.e., a credit loss exists), an OTTI is considered to have occurred. For our variable interest-rate PLMBS, we use a spread-adjusted forward interest-rate curve to project the future estimated cash flows. We then use the effective interest rate for the security prior to impairment for determining the present value of the future estimated cash flows.

We update our estimate of future estimated cash flows on a quarterly basis. At each quarter-end, we perform our OTTI cash flow analyses using third-party models that consider individual borrower characteristics and the particular attributes of the loans underlying the PLMBS, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant modeling input is the forecast of future housing price changes for the relevant states and certain core-based statistical areas (CBSA), which are based upon an assessment of the relevant housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the U.S. Office of Management and Budget. As currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The OTTI Governance Committee developed a short-term housing price forecast using whole percentages, with projected changes ranging from (5.0)% to 7.0% over the twelve-month period beginning April 1, 2013. For the vast majority of housing markets, the short-term forecast has changes ranging from (3.0)% to 5.0%. Thereafter, home prices were projected to recover using one of five different recovery paths.

The table below presents the range of projected home price recovery by months as of June 30, 2013.

	As of June 30, 2013
	Annualized Recovery Range
Months	Low	High
(in percentages, except months)
1-6	—	3.0
7-12	1.0	4.0
13-18	2.0	4.0
19-30	2.0	5.0
31-54	2.0	6.0
Thereafter	2.3	5.6

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We also use a third-party model to allocate our month-by-month projected loan-level cash flows to the various security classes in each securitization structure in accordance with its prescribed cash flow and loss allocation rules. 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 these assumptions and expectations. The scenario of cash flows, based on the model approach described above, reflects a reasonable estimate scenario and includes a base-case current-to-trough price forecast and a base-case housing price recovery path.

Based on our analysis, we recorded no additional OTTI credit losses in second quarter 2013 on securities determined to be other-than-temporarily impaired in prior reporting periods. In addition, no additional securities were determined to be other-than-temporarily impaired during second quarter 2013. During the six months ended June 30, 2013, we sold one other-than-temporarily impaired security that had recovered its amortized cost basis. We have the intent and ability to hold our other-than-temporarily impaired securities until their fair values exceed their amortized cost bases. See Note 2 for additional information on this sale.

The following table summarizes key information as of June 30, 2013 for the PLMBS on which we have recorded OTTI charges during the life of the security (i.e., impaired prior to June 30, 2013).

	As of June 30, 2013
	HTM Securities								AFS Securities
Other-than-Temporarily Impaired Securities - Life to Date	Unpaid Principal Balance		Amortized Cost Basis		Carrying Value (1)		Fair Value		Unpaid Principal Balance		Amortized Cost Basis		Fair Value
(in thousands)
Alt-A PLMBS (2)	$	97,095	$	96,346	$	80,352	$	87,941	$	1,776,534	$	1,387,070	$	1,296,204

(1) Carrying value of HTM securities does not include gross unrealized gains or losses; therefore, amortized cost net of gross unrealized losses will not necessarily equal the fair value.

(2) Classification based on originator's classification at the time of origination or classification by an NRSRO upon issuance of the MBS.

The following table summarizes the credit loss components of our OTTI losses recognized in earnings for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Credit Loss Component of OTTI Loss	2013			2012			2013			2012
(in thousands)
Balance, beginning of period	$	410,840		$	514,553		$	430,064		$	513,229
Additions:
Additional OTTI credit losses on securities on which an OTTI loss was previously recognized*	—			4,269			342			5,593
Total additional credit losses recognized in period noted	—			4,269			342			5,593
Reductions:
Securities sold during the period	—			—			(19,010		)	—
Increases in cash flows expected to be collected, recognized over the remaining life of the securities (amount recognized in interest income in period noted)	(778		)	(2,533		)	(1,334		)	(2,533		)
Balance, end of period	$	410,062		$	516,289		$	410,062		$	516,289

*    Relates to securities that were determined to be other-than-temporarily impaired prior to the beginning of the period.

All Other AFS and HTM Securities

A few of our remaining AFS and HTM investment securities have experienced unrealized losses and decreases in fair value primarily due to illiquidity in the marketplace, temporary credit deterioration, and interest-rate volatility in the U.S. mortgage markets. However, the declines are considered temporary as we expect to recover the entire amortized cost basis of the remaining securities in unrealized loss positions and neither intend to sell these securities nor believe it is more likely than not

18

that we will be required to sell them prior to their anticipated recovery. As a result, we do not consider any of our other investments to be other-than-temporarily impaired as of June 30, 2013.

Note 5—Advances

Redemption Terms  

We offer a wide range of fixed and variable interest-rate advance products with different maturities, interest rates, payment terms, and optionality. Fixed interest-rate advances generally have maturities ranging from one day to 30 years. Variable interest-rate advances generally have maturities ranging from one to 10 years, where the interest rates reset periodically at a fixed spread to the LIBOR. We had advances outstanding at interest rates ranging from 0.19% to 8.22% as of June 30, 2013, and 0.23% to 8.22% as of December 31, 2012.

The following table summarizes our advances outstanding as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013				As of December 31, 2012
Term-to-Maturity and Weighted-Average Interest Rates	Amount			Weighted-Average Interest Rate	Amount			Weighted-Average Interest Rate
(in thousands, except interest rates)
Due in one year or less	$	3,553,678		0.47	$	4,450,765		0.57
Due after one year through two years	1,837,588			0.56	265,074			2.29
Due after two years through three years	2,586,875			1.11	659,953			2.40
Due after three years through four years	655,899			3.01	798,479			3.26
Due after four years through five years	1,063,118			3.50	992,986			3.84
Thereafter	1,614,600			2.66	1,713,882			2.72
Total par value	11,311,758			1.37	8,881,139			1.78
Commitment fees	(394		)		(421		)
Premium on advances	8,419				2,816
Discount on advances	(7,787		)		(8,018		)
Hedging adjustments	135,005				259,727
Total	$	11,447,001			$	9,135,243

We offer advances to members that may be prepaid on specified dates without incurring prepayment or termination fees (e.g., callable advances and choice advances, an advance on which the interest-rate resets at specified intervals based on a spread to our short-term cost of funds and may be prepaid at any repricing date without incurring a prepayment fee). As of June 30, 2013 and December 31, 2012, we had no callable or choice advances outstanding. Other advances, including symmetrical prepay advances, may only be prepaid subject to a fee sufficient to make us economically indifferent to a borrower's decision to prepay an advance or maintain the advance until contractual maturity. In the case of our standard advance products, the fee cannot be less than zero; however, the symmetrical prepayment advance removed this floor, resulting in a potential payment to the borrower under certain circumstances. We hedge these advances to ensure that we remain economically indifferent to the borrower's decision to prepay such an advance. Symmetrical prepay advances outstanding as of June 30, 2013 and December 31, 2012 totaled $387.0 million and $436.3 million.

We also offer putable and convertible advances. With a putable advance, we effectively purchase a put option from the member that allows us the right to terminate the advance at par on predetermined exercise dates and at our discretion. We would typically exercise our right to terminate a putable advance when interest rates increase sufficiently above the interest rate that existed when the putable advance was issued. The borrower may then apply for a new advance at the prevailing market interest rate. We had putable advances outstanding of $1.1 billion and $1.7 billion as of June 30, 2013 and December 31, 2012. Convertible advances allow us to convert an advance from one interest-payment term structure to another. When issuing convertible advances, we may purchase put options from a member that allow us to convert the variable interest-rate advance to a fixed interest-rate advance at the current market rate after an agreed-upon lockout period. The fixed interest rate on a convertible advance is determined at origination. These types of advances, among others, contain embedded derivatives, which are evaluated at the time of issuance for possible bifurcation. We had no variable-to-fixed interest-rate advances outstanding that had not converted to fixed interest rates as ofJune 30, 2013 and December 31, 2012.    

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The following table summarizes our advances by next put/convert date as of June 30, 2013 and December 31, 2012.

	As of		As of
Advances by Next Put/Convert Date	June 30, 2013		December 31, 2012
(in thousands)
Due in one year or less	$	4,694,194	$	6,053,281
Due after one year through two years	1,808,088		240,074
Due after two years through three years	2,248,859		493,453
Due after three years through four years	481,899		364,463
Due after four years through five years	694,118		470,986
Thereafter	1,384,600		1,258,882
Total par value	$	11,311,758	$	8,881,139

The following table summarizes our advances by interest-rate payment terms as of June 30, 2013 and December 31, 2012.

	As of		As of
Interest-Rate Payment Terms	June 30, 2013		December 31, 2012
(in thousands)
Fixed:
Due in one year or less	$	2,632,755	$	4,352,000
Due after one year	4,748,080		4,420,374
Total fixed	7,380,835		8,772,374
Variable:
Due in one year or less	920,923		98,765
Due after one year	3,010,000		10,000
Total variable	3,930,923		108,765
Total par value	$	11,311,758	$	8,881,139

Credit Risk Exposure and Security Terms

Our potential credit risk from advances is concentrated in commercial banks and savings institutions. As of June 30, 2013, our top five borrowers by holding company held 75.8% of the par value of our outstanding advances, with the top four borrowers holding 72.2% (Bank of America Corporation with 33.9%, Washington Federal, Inc. with 17.0%, Glacier Bancorp, Inc. with 10.7%, and Sterling Financial Corporation with 10.6%) and one borrower holding less than 10%. As of June 30, 2013, the weighted-average remaining term-to-maturity of the advances outstanding to these members was approximately 31 months. As of December 31, 2012, the top five borrowers by holding company held 71.2% of the par value of our outstanding advances, with the top three borrowers holding 61.5% (Bank of America Corporation with 29.1%, Washington Federal, Inc. with 21.2%, and Glacier Bancorp, Inc. with 11.2%) and the other two borrowers each holding less than 10%. As of December 31, 2012, the weighted-average remaining term-to-maturity of the advances outstanding to these members was approximately 29 months.

On April 1, 2013, as a result of a corporate restructuring, Bank of America Oregon, N.A., our then largest borrower, merged into its parent, Bank of America, N.A. (BANA). On that date, Bank of America Oregon, N.A.'s membership in the Seattle Bank was terminated and all outstanding advances and capital stock were assumed by BANA, a nonmember financial institution. As a result, BANA's outstanding advances will eventually decline to zero as the advances mature. Approximately 20% of the entity's $3.8 billion in outstanding advances will mature in 2013 and substantially all of its remaining advances mature between 2015 and 2016.

We expect that the concentration of advances with our largest borrowers will remain significant for the foreseeable future. See Note 12 for additional information on borrowers holding at least 10% of our total outstanding capital stock, including mandatorily redeemable capital stock, or members with representatives serving on our Board.

For information on our credit risk on advances and allowance for credit losses, see Note 7.

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Prepayment Fees

We record prepayment fees received from members on prepaid advances net of fair value basis adjustments related to hedging activities on those advances and termination fees on associated interest-rate exchange agreements. The net amount of prepayment fees is reflected as interest income in our statements of income.

The following table presents our gross prepayment fees, basis adjustments and termination fees, net prepayment fees, and the amount of advance principal prepaid for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
(in thousands)
Gross prepayment fees	$	3,468	$	2,922	$	4,265	$	9,643
Less: Basis adjustments and termination fees	1,952		126		2,585		1,208
Net prepayment fees	$	1,516	$	2,796	$	1,680	$	8,435
Advance principal prepaid	$	117,700	$	142,145	$	139,183	$	506,677

Note 6—Mortgage Loans

Mortgage Loans Held for Portfolio

We historically purchased single-family mortgage loans originated or acquired by participating members in our Mortgage Purchase Program (MPP), and we have not purchased any mortgage loans since 2006. These mortgage loans are guaranteed or insured by federal agencies or credit-enhanced by the participating members.

The following tables summarize our mortgage loans held for portfolio as of June 30, 2013 and December 31, 2012.

	As of			As of
Mortgage Loans Held for Portfolio	June 30, 2013			December 31, 2012
(in thousands)
Real Estate:
Fixed interest-rate, medium-term *, single-family	$	47,854		$	55,866
Fixed interest-rate, long-term *, single-family	867,529			1,004,557
Total loan principal	915,383			1,060,423
Premiums	8,722			7,117
Discounts	(7,275		)	(5,747		)
Deferred loan costs, net	(215		)	(159		)
Mortgage loans held for portfolio before allowance for credit losses	916,615			1,061,634
Less: Allowance for credit losses on mortgage loans	(2,165		)	(2,326		)
Total mortgage loans held for portfolio, net	$	914,450		$	1,059,308

*    Medium-term is defined as a term of 15 years or less; long-term is defined as a term greater than 15 years.

	As of		As of
Principal of Mortgage Loans Held for Portfolio	June 30, 2013		December 31, 2012
(in thousands)
Government-guaranteed/insured	$	83,940	$	95,023
Conventional	831,443		965,400
Total loan principal	$	915,383	$	1,060,423

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As of June 30, 2013 and December 31, 2012,77% of our outstanding mortgage loans had been purchased from our former member, Washington Mutual Bank, F.S.B. (which was acquired by JPMorgan Chase Bank, N.A., a nonmember).

As a result of the Consent Arrangement, we may not resume purchasing mortgage loans under the MPP. For further detail on the Consent Arrangement, see Note 10.

For information on our credit risk on mortgage loans and allowance methodology for credit losses, see Note 7.

MPF Xtra^® Product

On July 1, 2013, we began offering the MPF Xtra product to our members. The MPF Xtra product is offered under the Mortgage Partnership Finance® (“MPF”®) program offered by the FHLBank of Chicago. (“Mortgage Partnership Finance,” “MPF,” and "MPF Xtra" are registered trademarks of the FHLBank of Chicago.) The MPF Xtra product provides participating Seattle Bank members an alternative for selling mortgage loans into the secondary market. When using the MPF Xtra product, mortgage loans from participating members (i.e., participating financial institutions, or PFIs) are first sold to the FHLBank of Chicago, which, acting as a loan aggregator, concurrently sells the loans to Fannie Mae, enabling smaller lenders to benefit from the same competitive pricing that larger national lenders receive when selling into the secondary market. The mortgage loans are never under the control of the Seattle Bank and are not recorded on our statements of condition.

Through a purchase price adjustment, the FHLBank of Chicago receives a transaction fee for its administrative activities for the loans sold to Fannie Mae, and we receive a nominal fee from the FHLBank of Chicago for facilitating the sale of loans by Seattle Bank PFIs through the MPF Xtra product.

The credit risk on the mortgage loans sold through the MPF Xtra product is transferred to Fannie Mae. We are exposed to repurchase risk if all of the following occur: 1) a loan sold through the MPF Xtra product defaults; 2) the loan fails to meet underwriting guidelines; and 3) our PFI fails. We have a quality control process in place to ensure loans comply with underwriting guidelines and we monitor our PFIs financial condition on an ongoing basis. As a result, we believe the likelihood of a loss from loans sold using the MPFXtra product is remote. Further, we expect the fair value of any potential loss to be substantially zero.

Note 7—Allowance for Credit Losses

We have established a credit-loss allowance methodology for each of our asset portfolios: credit products, which include our advances, letters of credit, and other products; government-guaranteed or insured mortgage loans held for portfolio; conventional mortgage loans held for portfolio; securities purchased under agreements to resell; and federal funds sold. See Note 9 in our 2012 Financial Statements included in our 2012 10-K for a detailed description of the allowance methodologies established for each asset portfolio.

Credit Products

Using a risk-based approach, we consider the payment status, collateral types and concentration levels, and our borrowers' financial condition to be primary indicators of credit quality for our credit products. As ofJune 30, 2013 and December 31, 2012, we had rights to collateral on a borrower-by-borrower basis with a value in excess of our outstanding extensions of credit.As of June 30, 2013 and December 31, 2012, we hadno credit products that were past due, on nonaccrual status, or considered impaired.

Based upon the collateral held as security, our credit extension and collateral policies, our credit analysis, and the repayment history on credit products, we have not incurred any credit losses on credit products outstanding as of June 30, 2013and December 31, 2012. Accordingly, wehave not recorded any allowance for credit losses for this asset portfolio. In addition, as of June 30, 2013 and December 31, 2012, no liability was recorded to reflect an allowance for credit losses for credit exposures not recorded on the statements of condition. For additional information on credit exposure on unrecorded commitments, see Note 13.

MortgageLoans Held for Portfolio - Government-Guaranteed

Government-guaranteed mortgage loans are mortgage loans insured or guaranteed by the Federal Housing Administration (FHA) and any losses from such loans are expected to be recovered from this entity. Any losses from such loans that are not recovered from this entity are absorbed by the mortgage servicers. Therefore, we record no allowance for credit losses on government-guaranteed mortgage loans. Furthermore, due to the FHA's guarantee, these mortgage loans are also not placed on nonaccrual status.

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Mortgage Loans Held for Portfolio - Conventional

Our allowance for credit losses factors in the credit enhancements associated with conventional mortgage loans held for portfolio. Specifically, the determination of the allowance generally factors in the presence of primary mortgage insurance (PMI) and lender risk account (LRA) funds. Any incurred losses that would be recovered from the credit enhancements are not reserved as part of our allowance for loan losses.

Allowance for Credit Losses on Mortgage Loans Held for Portfolio

The following table presents a rollforward of the allowance for credit losses on our conventional mortgage loans held for portfolio for the three and six months ended June 30, 2013 and 2012, as well as the recorded investment in mortgage loans by impairment methodology as ofJune 30, 2013 and2012.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
Allowance for Credit Losses	2013		2012		2013			2012
(in thousands)
Balance, beginning of period	$	2,153	$	5,704	$	2,326		$	5,704
Charge-offs(1)	—		—		(132		)	—
Balance, net of charge-offs	2,153		5,704		2,194			5,704
Provision (benefit) for credit losses	12		—		(29		)	—
Balance, end of period	$	2,165	$	5,704	$	2,165		$	5,704
Ending balance, collectively evaluated for impairment	$	2,165	$	5,704	$	2,165		$	5,704
Recorded investments of mortgage loans, end of period (2):
Individually evaluated for impairment	$	13,667	$	—	$	13,667		$	—
Collectively evaluated for impairment	$	821,802	$	1,104,011	$	821,802		$	1,104,011

(1) For the six months ended June 30, 2013, includes $37,000 of charge-offs, which reduced the carrying value of the individually evaluated impaired mortgage loans.

(2) Excludes government-guaranteed mortgage loans. Includes the principal balance of the mortgage loans, adjusted for accrued interest, unamortized premiums or discounts, and direct write-downs. The recorded investment excludes any valuation allowance.

As a result of our June 30, 2013 analysis, we determined that the credit enhancement provided by our members in the form of the LRA and our previously recorded allowance for credit losses was not sufficient to absorb the expected credit losses on our mortgage loan portfolio, primarily due to reduced LRA balances and higher than forecast delinquent mortgage payments in second quarter 2013. Accordingly, we recorded a provision for credit losses of $12,000 for the three months ended June 30, 2013. This provision partially offset the benefit we recorded in first quarter 2013, which was due to more favorable estimates of future credit losses, primarily modest improvements in housing price assumptions. For the six months ended June 30, 2013,we recorded a benefit for credit losses of $29,000. There was no benefit or provision for credit losses required for the same periods in 2012.

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Credit Quality Indicators

Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The table below summarizes our key credit quality indicators for mortgage loans held for portfolio as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013									As of December 31, 2012
Recorded Investment (1) in Delinquent Mortgage Loans	Conventional			Government-Guaranteed			Total			Conventional			Government-Guaranteed			Total
(in thousands, except percentages)
Mortgage loans:
Past due 30-59 days delinquent and not in foreclosure	$	20,272		$	8,174		$	28,446		$	26,442		$	10,304		$	36,746
Past due 60-89 days delinquent and not in foreclosure	7,538			3,097			10,635			7,507			5,359			12,866
Past due 90 days or more delinquent (2)	36,754			10,798			47,552			43,280			13,154			56,434
Total past due	64,564			22,069			86,633			77,229			28,817			106,046
Total current loans	770,905			63,164			834,069			892,755			67,557			960,312
Total mortgage loans	$	835,469		$	85,233		$	920,702		$	969,984		$	96,374		$	1,066,358
Accrued interest - mortgage loans	$	3,693		$	394		$	4,087		$	4,279		$	445		$	4,724
Other delinquency statistics:
In process of foreclosureincluded above (2) (3)	$	29,704		None			$	29,704		$	34,279		None			$	34,279
Serious delinquency rate (4)	4.4		%	12.7		%	5.2		%	4.5		%	13.7		%	5.3		%
Past due 90 days or more still accruing interest (5)	$	—		$	10,798		$	10,798		$	—		$	13,154		$	13,154
Loans on non-accrual status (6)	$	41,061		None			$	41,061		$	45,625		None			$	45,625
REO(7)	$	2,294		None			$	2,294		$	2,703		None			$	2,703

(1) Includes the principal balance of the mortgage loans, adjusted for accrued interest, unamortized premiums or discounts, and direct write-downs. The recorded investment excludes any valuation allowance.

(2) Includes conventional mortgage loans classified as troubled debt restructurings (TDRs). As of June 30, 2013, $9.3 million of our $13.7 million recorded investment in TDRs was 90 days or more past due and in the process of foreclosure, with the remaining $4.4 million recorded investment in TDRs between zero and 89 days delinquent. As of December 31, 2012, $9.7 million of our $13.0 million recorded investment in TDRs was 90 days or more past due and in the process of foreclosure, with the remaining $3.3 million recorded investment in TDRs between zero and 89 days delinquent.

(3) Includes mortgage loans where the decision of foreclosure has been reported.

(4) Mortgage loans that are 90 days or more past due or in the process of foreclosure, expressed as a percentage of the unpaid principal balance of the total mortgage loan portfolio class.

(5) Generally represents government-guaranteed mortgage loans.

(6) Generally represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.

(7) Real estate owned, or REO, is reflected at carrying value.

Troubled Debt Restructurings

We individually evaluate our TDRs for impairment when determining our allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls incurred as of the reporting date and the economic loss attributable to delaying the original contractual principal and interest due dates. We generally remove the credit loss amount from the general allowance for credit losses and record it as a reduction to the carrying value of the impaired mortgage loan.

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The following table presents our post-modification recorded investment in TDRs at modification date for the three and six months endedJune 30, 2013 and 2012. Our pre-modification recorded investment in TDRs was not materially different from the post-modification recorded investment amount due to the minimal change in terms of modified loans.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
TDRs - Recorded Investment Balance at Modification Date	2013		2012		2013		2012
(in thousands)
Conventional mortgage loans	$	465	$	—	$	2,421	$	—

The following table presents the recorded investment balances of performing and non-performing conventional mortgage loans classified as TDRs as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013						As of December 31, 2012
TDRs - Performing and Non-Performing	Performing		Non-performing		Total		Performing		Non-performing		Total
(in thousands)
Conventional mortgage loans	$	4,348	$	9,319	$	13,667	$	273	$	12,715	$	12,988

As of June 30, 2013, our TDRs comprised72 mortgage loans discharged in bankruptcy proceedings and14 mortgage loans with modified terms (i.e., recapitalization of past due principal and interest payments) agreed to by both the Seattle Bank and the mortgage loan holder. As of June 30, 2013, modified loans with aggregate unpaid principal balances of $598,000 experienced a payment default within the previous twelve-month period. There were no modified loans that experienced payment default during the previous twelve-month period as of December 31, 2012.

REO

We had $2.3 million and $2.7 million of REO recorded in other assets on our statements of condition as of June 30, 2013 and December 31, 2012.

Federal Funds Sold and Securities Purchased Under Agreements to Resell

These investments are generally short-term (primarily overnight), and the recorded balance approximates fair value. We invest in federal funds with investment-grade counterparties, and these investments are only evaluated for purposes of an allowance for credit losses if the investment is not paid when due. All investments in federal funds as of June 30, 2013and December 31, 2012were repaid according to the contractual terms or are expected to be repaid according to the contractual terms. Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans with investment-grade counterparties. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is charged to earnings. Based upon the collateral held as security, we determined thatno allowance for credit losses was required for the securities under agreements to resell as of June 30, 2013and December 31, 2012.

Note 8—Derivatives and Hedging Activities

Nature of Business Activity

We are exposed to interest-rate risk primarily from the effect of interest-rate changes on our interest-earning assets and the funding sources that finance these assets. Consistent with Finance Agency regulation, we enter into interest-rate exchange agreements (derivatives) to manage the interest-rate exposures inherent in otherwise unhedged asset and funding positions, to achieve our risk-management objectives, and to reduce our cost of funds. To mitigate the risk of loss, we monitor the risk to our interest income, net interest margin, and average maturity of interest-earning assets and interest-bearing liabilities. Finance Agency regulations and our risk management policy prohibit trading in or the speculative use of derivatives and limit credit risk arising from these instruments. The use of derivatives is an integral part of our financial and risk management strategy.

We generally use derivatives to:

• reduce funding costs by combining a derivative with a consolidated obligation, as the cost of a combined funding structure (structured funding) can be lower than the cost of a comparable consolidated obligation;

• reduce the interest-rate sensitivity and repricing gaps of assets and liabilities; 

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• preserve an interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance). Without the use of derivatives, this interest-rate spread could be reduced or eliminated when a change in the interest rate on the advance does not match a change in the interest rate on the consolidated obligation bond; 

• mitigate the adverse earnings effects of the shortening or extension of expected lives of certain assets (e.g., mortgage-related assets) and liabilities; 

• protect the value of existing asset or liability positions;

• manage embedded options in assets and liabilities; and

• enhance our overall asset/liability management.

Types of Interest-Rate Exchange Agreements

Our risk management policy establishes guidelines for the use of derivatives, including the amount of exposure to interest-rate changes we are willing to accept on our statements of condition. The goal of our interest-rate risk management strategy is not to eliminate interest-rate risk, but to manage it within specified limits. We use derivatives when they are considered the most cost-effective alternative to achieve our financial- and risk-management objectives. We generally use interest-rate swaps, swaptions, and interest-rate caps and floors in our interest-rate risk management. Interest-rate swaps are generally used to manage interest-rate exposures while swaptions, caps, and floors are generally used to manage interest-rate and volatility exposures.

We transact most of our derivative transactions with large banks and major broker-dealers. Derivative transactions may be executed either over-the-counter with a counterparty (bilateral derivatives) or over-the-counter cleared through a futures commission merchant (i.e., clearing member) with a central counterparty clearinghouse (CCC or clearinghouse) (i.e., cleared derivatives).

Application of Interest-Rate Exchange Agreements

We use interest-rate exchange agreements in the following ways: (1) by designating them as a fair value hedge of an associated financial instrument or firm commitment and (2) in asset/liability management as an economic or intermediary hedge.

Economic hedges are primarily used to manage mismatches between the coupon features of our assets and liabilities. For example, we may use derivatives to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of our assets or to adjust the interest-rate sensitivity of advances or investments to approximate more closely the interest-rate sensitivity of our liabilities. We review our hedging strategies periodically and change our hedging techniques or adopt new hedging strategies as appropriate.

We document at inception all relationships between derivatives designated as hedging instruments and hedged items, our risk management objectives and strategies for undertaking the various hedging transactions, and our method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value hedges to: (1) assets and liabilities on the statements of condition or (2) firm commitments. We also formally assess (both at the hedge's inception and at least quarterly thereafter) whether the derivatives in hedging relationships have been effective in offsetting changes in the fair value of hedged items attributable to the hedged risk and whether those derivatives may be expected to remain effective in future periods. We use regression analysis to assess the effectiveness of our hedges.

We have also established processes to evaluate financial instruments, such as debt instruments, certain advances, and investment securities, for the presence of embedded derivatives and to determine the need, if any, for bifurcation and separate accounting under GAAP. We had no advances, investments, or consolidated obligation bonds or discount notes with bifurcated derivatives outstanding as of June 30, 2013.

Types of Hedged Items

We are exposed to interest-rate risk on virtually all of our assets and liabilities, and our hedged items may include advances, mortgage loans, investments, and consolidated obligations.

Financial Statement Effect and Additional Financial Information

The contractual notional amount of derivatives reflects our involvement in the various classes of financial instruments and serves as a factor in determining periodic interest payments or cash flows received and paid. The notional amount of derivatives represents neither the actual amounts exchanged nor our overall exposure to credit and market risk. The overall

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amount that could potentially be subject to credit loss is much smaller. The risks of derivatives are more appropriately measured on a hedging relationship or portfolio basis, taking into account the counterparties, the types of derivatives, the item(s) being hedged, and any offsets between the derivatives and the items being hedged.

The following tables summarize the notional amounts and the fair values of our derivatives, including the effect of netting arrangements and collateral as of June 30, 2013 and December 31, 2012. For purposes of this disclosure, the derivative values include both the fair value of derivatives and related accrued interest.

	As of June 30, 2013
Fair Value of Derivative Instruments	Notional Amount		Derivative Assets			Derivative Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Interest-rate swaps	$	21,309,154	$	317,121		$	341,945
Interest-rate caps or floors	10,000		5			—
Total derivatives designated as hedging instruments	21,319,154		317,126			341,945
Derivatives not designated as hedging instruments:
Interest-rate swaps	1,349,793		6,464			6,447
Interest-rate swaptions	200,000		3,433			—
Total derivatives not designated as hedging instruments	1,549,793		9,897			6,447
Total derivatives before netting and collateral adjustments:	$	22,868,947	327,023			348,392
Netting adjustments (1)			(218,258		)	(218,258		)
Cash collateral and related accrued interest			(7,506		)	(74,560		)
Total netting and collateral adjustments			(225,764		)	(292,818		)
Derivative assets and derivative liabilities as reported on the statement of condition			$	101,259		$	55,574

	As of December 31, 2012
Fair Value of Derivative Instruments	Notional Amount		Derivative Assets			Derivative Liabilities
(in thousands)
Derivatives designated as hedging instruments:
Interest-rate swaps	$	13,632,066	$	320,368		$	339,709
Interest-rate caps or floors	10,000		3			—
Total derivatives designated as hedging instruments	13,642,066		320,371			339,709
Derivatives not designated as hedging instruments:
Interest-rate swaps	1,971,969		12,338			12,589
Total derivatives not designated as hedging instruments	1,971,969		12,338			12,589
Total derivatives before netting and collateral adjustments:	$	15,614,035	332,709			352,298
Netting adjustments (1)			(227,127		)	(227,127		)
Cash collateral and related accrued interest			—			(39,278		)
Total netting and collateral adjustments			(227,127		)	(266,405		)
Derivative assets and derivative liabilities as reported on the statement of condition			$	105,582		$	85,893

(1) Amounts that are subject to master netting arrangements, other agreements, or operation of law that provides a legal right of offset.

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The following table presents the components of net (loss) gain on derivatives and hedging activities as presented in the statements of income for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Net (Loss) Gain on Derivatives and Hedging Activities	2013			2012			2013			2012
(in thousands)
Derivatives and hedged items in fair value hedging relationships:
Interest-rate swaps	$	(1,671	)	$	18,133		$	(1,398	)	$	30,132
Total net (loss) gain related to fair value hedge ineffectiveness	(1,671		)	18,133			(1,398		)	30,132
Derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	136			121			507			15
Interest-rate swaptions	918			—			918			—
Net interest settlements	16			(9		)	(17		)	104
Total net gain related to derivatives not designated as hedging instruments	1,070			112			1,408			119
Net (loss) gain on derivatives and hedging activities	$	(601	)	$	18,245		$	10		$	30,251

The following tables present, by type of hedged item, the gain (loss) on derivatives and the related hedged items in fair value hedging relationships, and the impact of those derivatives on our net interest income for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30, 2013
Gain (Loss) on Derivatives and on the Related Hedged Items in Fair Value Hedging Relationships	Gain (Loss) on Derivatives			(Loss) Gain on Hedged Items			Net Hedge  Ineffectiveness (1)			Effect of Derivatives on Net Interest Income (2)
(in thousands)
Advances	$	91,650		$	(89,418	)	$	2,232		$	(21,193	)
AFS securities (3)	88,410			(83,947		)	4,463			(7,947		)
Consolidated obligation bonds	(165,541		)	157,181			(8,360		)	37,543
Consolidated obligation discount notes	10			(16		)	(6		)	1
Total	$	14,529		$	(16,200	)	$	(1,671	)	$	8,404

	For the Three Months Ended June 30, 2012
Gain (Loss) on Derivatives and on the Related Hedged Items in Fair Value Hedging Relationships	Gain (Loss) on Derivatives			(Loss) Gain on Hedged Items			Net Hedge  Ineffectiveness (1)		Effect of Derivatives on Net Interest Income (2)
(in thousands)
Advances	$	(7,195	)	$	7,657		$	462	$	(29,474	)
AFS securities (3)	4,131			3,505			7,636		(11,838		)
Consolidated obligation bonds	40,454			(30,419		)	10,035		40,196
Consolidated obligation discount notes	—			—			—		—
Total	$	37,390		$	(19,257	)	$	18,133	$	(1,116	)

	For the Six Months Ended June 30, 2013
Gain (Loss) on Derivatives and on the Related Hedged Items in Fair Value Hedging Relationships	Gain (Loss) on Derivatives			(Loss) Gain on Hedged Items			Net Hedge  Ineffectiveness (1)			Effect of Derivatives on Net Interest Income (2)
(in thousands)
Advances	$	115,977		$	(113,351	)	$	2,626		$	(42,898	)
AFS securities (3)	103,161			(95,577		)	7,584			(15,220		)
Consolidated obligation bonds	(200,432		)	188,832			(11,600		)	74,021
Consolidated obligation discount notes	2			(10		)	(8		)	1
Total	$	18,708		$	(20,106	)	$	(1,398	)	$	15,904

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	For the Six Months Ended June 30, 2012
Gain (Loss) on Derivatives and on the Related Hedged Items in Fair Value Hedging Relationships	Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items		Net Hedge  Ineffectiveness (1)			Effect of Derivatives on Net Interest Income (2)
(in thousands)
Advances	$	(2,999	)	$	742	$	(2,257	)	$	(59,878	)
AFS securities (3)	19,601			1,284		20,885			(26,879		)
Consolidated obligation bonds	8,866			2,552		11,418			78,044
Consolidated obligation discount notes	55			31		86			(52		)
Total	$	25,523		$	4,609	$	30,132		$	(8,765	)

(1) These amounts are reported in other (loss) income.

(2) The net interest on derivatives in fair value hedge relationships is presented in the interest income/expense line item of the respective hedged item.

(3) Several of our AFS securities in benchmark fair value hedge relationships were purchased at significant premiums with corresponding up-front fees on the associated swaps. The fair values of the swaps are recognized through adjustments to fair value each period in "net (loss) gain on derivatives and hedging activities" on the statements of income and reflected in the operating and financing activities sections of our statements of cash flow. Amortization of the corresponding premiums on the hedged AFS securities is recorded in AFS investment interest income. For the three and six months ended June 30, 2013, we recorded gains of $4.5 million and $7.6 million in "net (loss) gain on derivatives and hedging activities," which were partially offset by premium amortization of $1.6 million and $3.8 million recorded in "interest income." For the three and six months ended June 30, 2012, we recorded gains of $7.6 million and $20.9 million in "net (loss) gain on derivatives and hedging activities," which were substantially offset by premium amortization of $8.6 million and $20.6 million recorded in "interest income."

Managing Credit Risk on Derivatives

The Seattle Bank is subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements, and manages credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in our credit policies and Finance Agency regulations. For bilateral derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in our contracts to mitigate the risk. We require collateral agreements with collateral delivery thresholds to be in place for all bilateral counterparties. These agreements include provisions for netting exposures across all transactions with that counterparty. The agreements also require a counterparty to deliver collateral to the Seattle Bank if the total exposure to that counterparty exceeds a specific threshold limit as denoted in the agreement. Additionally, collateral related to derivatives with member institutions includes collateral assigned to the Seattle Bank, as evidenced by a written security agreement and held by the member institution for our benefit.

For cleared derivatives, the clearinghouse is our counterparty. The requirement that the Seattle Bank post initial and variation margin through the clearing member, on behalf of the clearinghouse, exposes us to institutional credit risk in the event that the clearing member or clearinghouse fails to meet its obligations. The use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily for changes in the value of cleared derivatives through a clearing member. Based on our credit analyses and collateral requirements, we do not anticipate any credit losses on our derivative agreements.

    Certain of our bilateral derivative agreements contain provisions that require us to post additional collateral with our counterparties if there is a deterioration in our credit rating. If our credit rating were lowered by a major credit rating agency, we might be required to deliver additional collateral on certain bilateral derivative agreements in net liability positions. The aggregate fair value of all bilateral derivative instruments with credit-risk contingent features that were in a liability position as of June 30, 2013 and December 31, 2012 was $130.1 million and $125.2 million, for which we posted collateral of $74.6 million and $39.3 million in the normal course of business. If the Seattle Bank's individual credit rating had been lowered by one rating level (i.e., from "AA" to "A") as of June 30, 2013 and December 31, 2012, we would have been required to deliver up to an additional $32.9 million and $41.1 million of collateral to our derivative counterparties.

As of June 30, 2013 and December 31, 2012, S&P's long-term issuer credit rating for the Federal Home Loan Bank System (FHLBank System) debt was "AA+" with a stable outlook, and Moody's long-term credit rating was "Aaa," with a negative outlook. On July 18, 2013, Moody's revised its outlook for the FHLBank System to stable from negative and affirmed the FHLBank System's long-term credit rating. In addition, on July 18, 2013, S&P changed the Seattle Bank's outlook from negative

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to stable, while maintaining the bank's "AA/A-1+" long- and short-term issuer credit ratings and on July 23, 2013, Moody's, Moody's affirmed the bank's "Aaa" rating long-term credit rating and revised its outlook to stable from negative.

Offsetting of Derivative Assets and Derivative Liabilities

We enter into derivative instruments that are subject to master netting arrangements, other agreements, or operation of law that provides a legal right of offset. Where the Seattle Bank has an enforceable legal right of offset under such arrangements we have elected to offset, by clearing member and/or counterparty, the gross derivative assets and gross derivative liabilities and the related cash collateral received or pledged and associated accrued interest.

The following table presents, as of June 30, 2013 and December 31, 2012, the fair value of gross and net derivative assets and liabilities including the related collateral received from or pledged to counterparties. Derivatives with a legal right of offset represent those instruments subject to a netting arrangement where we have determined that an enforceable legal right of offset exists. As of June 30, 2013 and December 31, 2012, we had no derivative instruments not subject to master netting arrangements, other agreements, or operation of law that provides a legal right of offset.

	As of June 30, 2013						As of December 31, 2012
Offsetting of Derivative Assets and Derivative Liabilities	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
(in thousands)
Derivative instruments with legal right of offset:
Gross recognized amount	$	327,023		$	348,392		$	332,709		$	352,298
Gross amounts of netting adjustments and cash collateral	(225,764		)	(292,818		)	(227,127		)	(266,405		)
Net amounts after offsetting adjustments	101,259			55,574			105,582			85,893
Non-cash collateral received or pledged not offset (1)
Cannot be sold or repledged	75,702			—			86,470			—
Net unsecured amount	$	25,557		$	55,574		$	19,112		$	85,893

(1) Non-cash collateral consists of U.S. Treasury and GSE securities. Any over-collateralization at an individual clearing member and/or counterparty arrangement level is not included in the determination of the net unsecured amount.

Note 9—Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and consolidated obligation discount notes, are backed only by the financial resources of the FHLBanks. The joint and several liability regulation of the Finance Agency authorizes it to require any FHLBank to repay all or a portion of the principal and interest on consolidated obligations for which another FHLBank is the primary obligor. For a discussion of the the joint and several liability regulation, see Note 12 in our 2012 Financial Statements included in our 2012 10-K. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. In connection with each debt issuance, each FHLBank specifies the amount of debt it wants issued on its behalf and becomes the primary obligor for the proceeds it receives.

Consolidated Obligation Discount Notes

Consolidated obligation discount notes are issued to raise short-term funds and have original maturities of one year or less. These notes are generally issued at less than their face amount and are redeemed at par value when they mature. The

following table summarizes our outstanding consolidated obligation discount notes as of June 30, 2013 and December 31, 2012.

Consolidated Obligation Discount Notes	Book Value		Par Value		Weighted-Average Interest Rate(1)
(in thousands, except interest rates)
As of June 30, 2013	$	15,799,353	$	15,800,254	0.05
As of December 31, 2012	$	21,417,653	$	21,421,443	0.12

(1) Represents an implied rate.

As of June 30, 2013 and December 31, 2012, we had $350.0 million and $1.3 billion par value of outstanding consolidated obligation discount notes on which we elected the fair value option.

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Consolidated Obligation Bonds    

Redemption Terms

The following table summarizes our outstanding consolidated obligation bonds by contractual maturity as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013				As of December 31, 2012
Term-to-Maturity and Weighted-Average Interest Rates	Amount			Weighted-Average Interest Rate	Amount			Weighted-Average Interest Rate
(in thousands, except interest rates)
Due in one year or less	$	6,269,895		1.12	$	2,428,615		2.36
Due after one year through two years	1,970,500			2.03	1,161,500			4.77
Due after two years through three years	2,632,660			1.02	696,160			1.67
Due after three years through four years	295,000			0.63	386,500			3.89
Due after four years through five years	3,010,000			1.37	1,365,000			1.70
Thereafter	4,142,610			2.94	4,154,610			2.93
Total par value	18,320,665			1.65	10,192,385			2.79
Premiums	3,383				3,912
Discounts	(9,529		)		(11,310		)
Hedging adjustments	114,506				311,789
Fair value option valuation adjustments	(79		)		(14		)
Total	$	18,428,946			$	10,496,762

The amounts in the above table reflect certain consolidated obligation bond transfers from other FHLBanks. We become the primary obligor on consolidated obligation bonds we accept as transfers from other FHLBanks. As of June 30, 2013 and December 31, 2012, we had consolidated obligation bonds outstanding that were transferred from the FHLBank of Chicago with a par value of $617.0 million and $798.0 million and original net discount of $5.5 million and $17.4 million. We transferred no consolidated obligation bonds to other FHLBanks during the six months ended June 30, 2013 and 2012.

Consolidated obligation bonds outstanding were issued with either fixed interest-rate coupon payment terms or variable interest-rate coupon payment terms that use a variety of indices for interest-rate resets, including LIBOR. To meet the expected specific needs of certain investors in consolidated obligation bonds, both fixed interest-rate consolidated obligation bonds and variable interest-rate consolidated obligation bonds may contain features that result in complex coupon payment terms and call or put options. When such consolidated obligation bonds are issued, we typically enter into interest-rate exchange agreements containing features that effectively offset the terms and embedded options, if any, of the consolidated obligation bond.

Our consolidated obligation bonds outstanding consisted of the following as of June 30, 2013 and December 31, 2012.

	As of		As of
Par Value of Consolidated Obligation Bonds	June 30, 2013		December 31, 2012
(in thousands)
Non-callable	$	11,260,665	$	6,450,385
Callable	7,060,000		3,742,000
Total par value	$	18,320,665	$	10,192,385

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The following table summarizes our outstanding consolidated obligation bonds by the earlier of contractual maturity or next call date as of June 30, 2013 and December 31, 2012.

	As of		As of
Term-to-Maturity or Next Call Date	June 30, 2013		December 31, 2012
(in thousands)
Due in one year or less	$	12,964,895	$	6,145,615
Due after one year through two years	1,810,500		1,186,500
Due after two years through three years	1,637,660		696,160
Due after three years through four years	—		256,500
Due after four years through five years	250,000		250,000
Thereafter	1,657,610		1,657,610
Total par value	$	18,320,665	$	10,192,385

The following table summarizes our outstanding consolidated obligation bonds by interest-rate payment term as of June 30, 2013 and December 31, 2012.

	As of		As of
Interest-Rate Payment Terms	June 30, 2013		December 31, 2012
(in thousands)
Fixed	$	16,100,665	$	8,830,385
Step-up	1,845,000		1,162,000
Variable	175,000		—
Capped variable	200,000		200,000
Total par value	$	18,320,665	$	10,192,385

We elect, on an instrument-by-instrument basis, the fair value option of accounting for certain of our consolidated obligation discount notes and consolidated obligation bonds with original maturities of one year or less for operational ease or to assist in mitigating potential income statement volatility that can arise from economic hedging relationships. For the latter, prior to entering into a short-term consolidated obligation bond or discount note trade, we perform a preliminary evaluation of the effectiveness of the bond or discount note and the associated interest-rate swap. If the analysis indicates that the potential hedging relationship will exhibit excessive ineffectiveness, we elect the fair value option on the consolidated obligation bond or discount note. As of June 30, 2013 and December 31, 2012, we had $750.0 million and $500.0 million par value of outstanding consolidated obligation bonds on which we elected the fair value option.

Concessions on Consolidated Obligations

Unamortized concessions included in "other assets" on our statements of condition were$3.3 million and $2.5 million as of June 30, 2013 and December 31, 2012. The amortization of these types of concessions included in consolidated obligation interest expense totaled$617,000 and $1.1 millionfor the three and six months endedJune 30, 2013, compared to $557,000 and $920,000 for the same periods in 2012.

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Note 10—Capital

Seattle Bank Stock

The Seattle Bank has two classes of capital stock, Class A and Class B, as summarized below.

Seattle Bank Capital Stock	Class A Capital Stock		Class B Capital Stock
(in thousands, except per share)
Par value per share	$100		$100
Issue, redemption, repurchase, transfer price between members per share	$100		$100
Satisfies membership purchase requirement (pursuant to Capital Plan)	No		Yes
Currently satisfies activity purchase requirement (pursuant to Capital Plan)	Yes(1)		Yes
Statutory redemption period (2)	6 months		5 years
Total outstanding balance (including mandatorily redeemable capital stock):
June 30, 2013	$	119,778	$	2,593,730
December 31, 2012	$	137,245	$	2,621,226

(1) Effective June 1, 2009, as part of the Seattle Bank's efforts to correct its risk-based capital deficiency, the Board suspended the issuance of Class A capital stock (which is not included in permanent capital, against which our risk-based capital is measured).

(2) Generally redeemable six months (Class A capital stock) or five years (Class B capital stock) after: (1) written notice from the member; (2) consolidation or merger of a member with a non-member; or (3) withdrawal or termination of membership.

Members are required to hold capital stock equal to the greater of: (1) $500 or 0.5% of the member's home mortgage loans and mortgage loan pass-through securities (membership stock purchase requirement), or (2) the sum of the requirement for advances currently outstanding to that member and the requirement for the remaining principal balance of mortgages sold to us under the MPP (activity-based stock purchase requirement). In November 2012, in accordance with our Capital Plan, our Board approved a membership stock purchase requirement cap of $15.0 million. See Note 15 in our 2012 Financial Statements included in our 2012 10-K for additional information on our capital stock, including membership and activity stock purchase requirements.

Our Capital Plan also provides for an excess stock pool, which comprises the aggregate amount of excess capital stock (i.e., stock not being used for membership or activity requirements) held by all of our shareholders. The excess stock pool enables a member, when receiving advances from us, to satisfy its advance stock purchase requirement by relying on capital that is associated with total outstanding excess stock rather than purchasing additional stock in the Seattle Bank. A member may utilize the excess stock pool under the following circumstances: (1) the member owns no additional stock that can be used to capitalize new advances or renew existing advances, (2) the new advance or renewal of an existing advance has a term to maturity of one year or less, (3) the member is utilizing no more than 25.0% of the total amount of the excess stock pool, and (4), the aggregate amount of all stock from the excess stock pool being used to capitalize advances by our members does not exceed 50.0% of the excess stock pool. As of June 30, 2013, members were using the excess stock pool to support $139.9 million in outstanding advances.

In September 2012, the Finance Agency approved our proposal for a modest excess capital stock repurchase program and granted us the authority to repurchase up to $25.0 million of excess capital stock per quarter at par ($100 per share), provided: (1) our financial condition—measured primarily by our market value of equity to par value of capital stock (MVE to PVCS) ratio—does not deteriorate; (2) the excess stock repurchases from the bank's shareholders are handled on a pro-rata basis; and (3) we receive a non-objection for each quarter's repurchase from the Finance Agency. The approval for the excess stock repurchase program does not impact the terms of the Consent Arrangement, which generally restrict us from redeeming or repurchasing capital stock without Finance Agency approval. As a result, all excess stock, regardless of whether it is subject to redemption, is treated equally under the excess stock repurchase program initiated in 2012. However, for those shareholders with outstanding redemption requests, the stock repurchases first apply to stock subject to those redemption requests.

In second quarter 2013, we repurchased $24.0 million of excess stock under the excess capital stock repurchase program described above, $12.1 million of which was classified as equity and $11.9 million of which was classified as mandatorily redeemable capital stock. The total amount of excess capital stock repurchased also included $353,000 of excess Class B stock meeting the following criteria: (1) originally purchased for activity purposes; and (2) purchased on or after October 27, 2010. Our ability to repurchase excess capital stock meeting these criteria could increase the likelihood that members will purchase incremental capital stock to support new advances.

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Generally under our Capital Plan, our Board can declare and pay dividends, in either cash or capital stock, from retained earnings or current earnings, unless otherwise prohibited. On July 22, 2013, and with Finance Agency approval, our Board declared a $0.025 per share cash dividend based on second quarter 2013 net income. The dividend, which was paid on July 30, 2013, totaled $683,000, and was paid based on average Class A and Class B stock outstanding during second quarter 2013. In its July 2013 waiver of the Consent Arrangement restriction on paying dividends, the Finance Agency noted the positive development in the Seattle Bank's MVE to PVCS ratio and other improvements in financial condition. Separate Finance Agency waivers will be required for future dividend payments. There can be no assurance as to when or if our Board will declare dividends in the future.

In December 2006, the Finance Board adopted a regulation limiting an FHLBank from issuing stock dividends, if, after the issuance, the outstanding excess stock at the FHLBank would be greater than 1.0% of its total assets. As of June 30, 2013, we had excess capital stock of $2.0 billion, or 5.2%, of our total assets.

Capital Requirements

We are subject to three capital requirements under our Capital Plan and Finance Agency rules and regulations: risk-based capital, total regulatory capital, and leverage capital.

• Risk-based capital. We must maintain at all times permanent capital, defined as Class B capital stock (including mandatorily redeemable Class B capital stock) and retained earnings, in an amount at least equal to the sum of our credit risk, market risk, and operational risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency.

• Total regulatory capital. We are required to maintain at all times a total regulatory capital-to-assets ratio of at least 4.0%. In addition, since 2007, our Board has required us to maintain a minimum regulatory capital-to-assets ratio of 4.05%. Total regulatory capital is the sum of permanent capital, Class A capital stock (including mandatorily redeemable Class A capital stock), any general loss allowance, if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the Finance Agency as available to absorb losses.

• Leverage capital. We are required to maintain at all times a leverage capital-to-assets ratio of at least 5.0%. Leverage capital is defined as the sum of: (1) permanent capital weighted by a 1.5 multiplier plus (2) all other capital without a weighting factor.

Total regulatory capital does not include AOCL, but does include mandatorily redeemable capital stock. The Finance Agency may require us to maintain capital levels in excess of the regulatory minimums described above.

The following table shows our regulatory capital requirements compared to our actual capital position as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013						As of December 31, 2012
Regulatory Capital Requirements	Required			Actual			Required			Actual
(in thousands, except for ratios)
Risk-based capital	$	1,351,064		$	2,848,223		$	1,302,350		$	2,849,462
Total capital-to-assets ratio	4.00		%	7.81		%	4.00		%	8.43		%
Total regulatory capital	$	1,520,729		$	2,968,001		$	1,416,825		$	2,986,707
Leverage capital-to-assets ratio	5.00		%	11.55		%	5.00		%	12.45		%
Leverage capital	$	1,900,912		$	4,392,113		$	1,771,031		$	4,411,438

Capital Classification

The Finance Agency's implementation of the prompt corrective action (PCA) provisions required under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and as described in the Housing and Economic Recovery Act of 2008 (Housing Act) defined four capital classifications (adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) for FHLBanks and implemented the PCA provisions that apply to FHLBanks that are not deemed to be adequately capitalized. Once an FHLBank is determined (on not less than a quarterly basis) by the Finance Agency to be other than adequately capitalized, the FHLBank becomes subject to additional supervisory authority of the Finance Agency and a range of mandatory or discretionary restrictions may be imposed.

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In August 2009, under the Finance Agency's PCA regulations, the Seattle Bank received a capital classification of "undercapitalized" from the Finance Agency, due to, among other things, our risk-based capital deficiencies as of December 31, 2008, March 31, 2009, and June 30, 2009, the deterioration in the value of our PLMBS and the amount of AOCL stemming from that deterioration, the level of our retained earnings in comparison to AOCL, and our MVE compared to our PVCS. In September 2012, the Finance Agency reclassified the Seattle Bank to "adequately capitalized." Although this capital classification change means that we are no longer be subject to the mandatory and discretionary restrictions imposed by the PCA regulations, including limitations on asset growth, we remain subject to the requirements stipulated in the Consent Arrangement, as detailed below.

Consent Arrangement

On October 25, 2010, the Seattle Bank entered a Stipulation and Consent to the Issuance of a Consent Order (Stipulation and Consent) with the Finance Agency relating to the Consent Order, effective as of the same date, issued by the Finance Agency to the Seattle Bank. The Stipulation and Consent, the Consent Order, and related understandings with the Finance Agency are collectively referred to as the Consent Arrangement. The Consent Arrangement provides that, once we reach and maintain certain thresholds and with Finance Agency approval, we may begin repurchasing member capital stock at par value. Further, with Finance Agency approval, we may again be in position to redeem certain capital stock from members and begin paying dividends once we:

• Achieve and maintain certain financial and operational metrics;

• Remediate certain concerns regarding our oversight and management, asset quality, capital adequacy and retained earnings, risk management, compensation practices, examination findings, and information technology; and

• Return to a safe and sound condition as determined by the Finance Agency.

The Consent Arrangement also requires us to meet and maintain certain minimum financial metrics at each quarter-end. These financial metrics relate to our retained earnings, AOCL, and our MVE to PVCS ratio. With the exception of the retained earnings requirement under the Consent Arrangement as of June 30, 2011, we have met all minimum financial metrics since December 31, 2010.

The following table presents our retained earnings, AOCL, and MVE to PVCS ratio as of June 30, 2013, December 31, 2012, and September 30, 2010 (the quarter end prior to entering into the Consent Arrangement).

	As of June 30, 2013			As of December 31, 2012			As of September 30, 2010
(in thousands, except for percentages)
Retained earnings	$	254,493		$	228,236		$	76,835
AOCL	$	(112,052	)	$	(226,468	)	$	(770,317	)
MVE to PVCS ratio	104.0		%	95.1		%	67.8		%

Although remediation of the requirements of the Consent Arrangement is ongoing, we have made substantial progress in a number of areas, and we continue to develop and refine plans, policies, and procedures to address the remaining Consent Arrangement requirements. As required by the Consent Arrangement, we have been striving to increase our ratio of advances to total assets. We continue to focus on this goal, but due to the relatively low demand for advances, we have determined that it is prudent to accept some variation in our advances-to-assets ratio over time, rather than to require quarter-over-quarter improvements, and to identify additional opportunities to increase our core mission activity (CMA) assets. In adopting this approach, in late March 2012, we implemented, and have maintained, a dollar cap on our investments and have increased our investments in CMA assets, such as state housing agency bonds. We implemented the dollar cap on investments, an operating target that may change from time to time, to ensure that we continue to maintain our focus on the Consent Arrangement requirements relating to advances as a percentage of assets, while balancing other considerations, such as maintaining strong liquidity levels, improving our income and retained earnings, and minimizing investment credit risk exposure.

The Consent Arrangement clarifies, among other things, the steps we must take to return to normal operations, including the unrestricted repurchase and redemption of and payment of dividends on capital stock. We have coordinated and will continue coordinating with the Finance Agency so that our plans and actions are aligned with the Finance Agency's expectations. However, there is a risk that we may be unable to successfully develop and execute plans, policies, and procedures designed to enhance the bank's safety and soundness, meet and maintain the minimum financial metrics, or meet the requirements for asset composition, capital management, and other operational and risk management objectives pursuant to the Consent Arrangement or otherwise acceptable to the Finance Agency. Such failures could result in, among other things,

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deterioration in financial performance or imposition of additional requirements or conditions by the Finance Agency, any of which could have an adverse effect on our business, including our financial condition and results of operations.

The Consent Arrangement will remain in effect until modified or terminated by the Finance Agency and does not prevent the Finance Agency from taking any other action affecting the Seattle Bank that, at the sole discretion of the Finance Agency, it deems appropriate in fulfilling its supervisory responsibilities. Until the Finance Agency determines that we have met the requirements of the Consent Arrangement, we expect that Finance Agency approval will continue to be required for all repurchases, redemptions, and dividend payments on capital stock.

Capital Concentration

As of June 30, 2013, two former members, and as of December 31, 2012, one member and one former member, Bank of America Oregon, N.A. and JPMorgan Chase Bank, N.A. (formerly Washington Mutual Bank, F.S.B.), held a combined total of 48.9% of our total outstanding capital stock, including mandatorily redeemable capital stock. On April 1, 2013, as a result of a corporate restructuring, Bank of America Oregon, N.A., our then largest borrower, merged into its parent, BANA. On that date, Bank of America Oregon, N.A.'s membership in the Seattle Bank was terminated, and all outstanding advances and capital stock were assumed by BANA, a nonmember. Class B capital stock totaling $584.1 million was transferred from equity to mandatorily redeemable capital stock liability.

Mandatorily Redeemable Capital Stock

We reclassify capital stock subject to redemption from equity to liability when a member submits a written request for redemption of excess capital stock, gives notice of intent to withdraw from membership, or otherwise attains nonmember status by way of a merger or acquisition, charter termination, or involuntary termination from membership. On a quarterly basis, we evaluate the excess capital stock balances (i.e., stock not being used to fulfill either membership or activity stock requirements) of members with outstanding redemption requests and adjust the amount of mandatorily redeemable capital stock accordingly. Shares of capital stock are reclassified as mandatorily redeemable capital stock at fair value.

The following table shows the amount of mandatorily redeemable capital stock by year of scheduled redemption as of June 30, 2013. The year of redemption in the table reflects (1) the end of the six-month or five-year redemption periods or (2) the maturity dates of the advances or mortgage loans supported by activity-based capital stock, whichever is later.

	As of June 30, 2013
Mandatorily Redeemable Capital Stock - Redemptions by Date	Class A Capital Stock		Class B Capital Stock
(in thousands)
Less than one year	$	49,687	$	735,638
One year through two years	—		19,530
Two years through three years	—		31,222
Three years through four years	—		19,643
Four years through five years	—		631,355
Past contractual redemption date due to remaining activity (1)	612		7,095
Past contractual redemption date due to regulatory action (2)	18,407		277,418
Total	$	68,706	$	1,721,901

(1) Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates. Year of redemption assumes payments of advances and mortgage loans at final maturity.

(2) See "Capital Classification" and "Consent Arrangement" above for discussion of restrictions on the Seattle Bank's redemptions and repurchases of capital stock.

The balance in mandatorily redeemable capital stock is primarily due to the transfer of Washington Mutual Bank, F.S.B.'s capital stock due to its acquisition by JPMorgan Chase Bank, N.A., a nonmember, and the transfer of Bank of America, Oregon, N.A.'s capital stock due to its merger with BANA, a nonmember. Of the Class A and Class B mandatorily redeemable capital stock shown in the table above, these former members' stock comprises $1.3 billion of the Class B balance.

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Retained Earnings

Joint Capital Enhancement Agreement (Capital Agreement)

In 2011, each of the 12 FHLBanks entered into the Capital Agreement, which is intended to enhance the capital position of each FHLBank. Under the Capital Agreement, each FHLBank will contribute 20% of its net income each quarter to a restricted retained earnings account until the balance of that account equals at least 1% of that FHLBank's average balance of outstanding consolidated obligations for the previous quarter. These restricted retained earnings are not available to pay dividends. For the six months ended June 30, 2013, we allocated $5.3 million of our net income to restricted retained earnings and $21.0 million to unrestricted retained earnings. As of June 30, 2013 and December 31, 2012, the balance of our restricted retained earnings totaled $44.3 million and $39.0 million and the balance of our unrestricted retained earnings totaled $210.2 million and $189.2 million.

Accumulated Other Comprehensive Loss

The following tables provide information regarding the net change in AOCL for the three and six months ended June 30, 2013 and2012.

Net Change in AOCL for the Three Months Ended June 30, 2013 and 2012	Unrealized Gain (Loss) on AFS Securities (Note 2)			Non-credit Portion of OTTI Losses on AFS Securities (Notes 2 and 4)			Non-credit Portion of OTTI Losses on HTM Securities (Notes 3and 4)			Pension Benefits *			Total AOCL
(in thousands)
Balance, March 31, 2012	$	4,101		$	(510,453	)	$	(9,063	)	$	(714	)	$	(516,129	)
Other comprehensive income (loss) before reclassifications:
Net unrealized gain on securities	1,005			—			—			—			1,005
Non-credit OTTI loss	—			—			(161		)	—			(161		)
Net change in fair value	—			883			—			—			883
Accretion of non-credit loss	—			—			441			—			441
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI	—			4,269			—			—			4,269
Amortization - pension and postretirement	—			—			—			11			11
Net current period other comprehensive income (loss)	1,005			5,152			280			11			6,448
Balance, June 30, 2012	$	5,106		$	(505,301	)	$	(8,783	)	$	(703	)	$	(509,681	)
Balance, March 31, 2013	$	24,765		$	(130,335	)	$	(16,798	)	$	(869	)	$	(123,237	)
Other comprehensive income (loss) before reclassifications:
Net unrealized (loss) gain on securities	(29,103		)	793			—			—			(28,310		)
Net change in fair value	—			38,676			—			—			38,676
Accretion of non-credit loss	—			—			804			—			804
Reclassifications from other comprehensive income (loss) to net income:
Amortization - pension and postretirement	—			—			—			15			15
Net current period other comprehensive income	(29,103		)	39,469			804			15			11,185
Balance, June 30, 2013	$	(4,338	)	$	(90,866	)	$	(15,994	)	$	(854	)	$	(112,052	)

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Net Change in AOCL for the Six Months Ended June 30, 2013 and 2012	Unrealized Gain (Loss) on AFS Securities (Note 2)			Non-credit Portion of OTTI Losses on AFS Securities (Notes 2 and 4)			Non-credit Portion of OTTI Losses on HTM Securities (Notes 3and 4)			Pension Benefits *			Total AOCL
(in thousands)
Balance, December 31, 2011	$	10,998		$	(611,152	)	$	(9,572	)	$	(886	)	$	(610,612	)
Other comprehensive income (loss) before reclassifications:
Net unrealized loss	(5,892		)	—			—			—			(5,892		)
Non-credit OTTI losses	—			—			(161		)	—			(161		)
Net change in fair value	—			100,258			—			—			100,258
Accretion of non-credit loss	—			—			950			—			950
Reclassifications from other comprehensive income (loss) to net income:
Non-credit OTTI to credit OTTI	—			5,593			—			—			5,593
Amortization - pension and postretirement	—			—			—			183			183
Net current period other comprehensive income (loss)	(5,892		)	105,851			789			183			100,931
Balance, June 30, 2012	$	5,106		$	(505,301	)	$	(8,783	)	$	(703	)	$	(509,681	)
Balance, December 31, 2012	$	16,093		$	(224,061	)	$	(17,616	)	$	(884	)	$	(226,468	)
Other comprehensive income (loss) before reclassifications:
Net unrealized (loss) gain on securities	(20,431		)	6,161			—			—			(14,270		)
Net change in fair value	—			127,595			—			—			127,595
Accretion of non-credit loss	—			—			1,622			—			1,622
Reclassifications from other comprehensive income (loss) to net income:
Net realized gain on securities	—			(903		)	—			—			(903		)
Non-credit OTTI to credit OTTI	—			342			—			—			342
Amortization - pension and postretirement	—			—			—			30			30
Net current period other comprehensive (loss) income	(20,431		)	133,195			1,622			30			114,416
Balance, June 30, 2013	$	(4,338	)	$	(90,866	)	$	(15,994	)	$	(854	)	$	(112,052	)

* Amortization of pension and post-retirement benefits is recorded in compensation and benefits expense on the statements of income.

Note 11—Fair Value Measurement

The fair value amounts recorded on our statements of condition and in our note disclosures for the periods presented have been determined using available market information and management's best judgment of appropriate valuation methods. Although we use our 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 certain of our financial instruments, 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 fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect our best judgment as to how a market participant would estimate fair values.

Fair Value Hierarchy

We record AFS securities, derivative assets and liabilities, certain consolidated obligation bonds and discount notes, and rabbi trust assets (included in "other assets") at fair value on a recurring basis on the statements of condition. The fair value hierarchy is used to prioritize the valuation techniques and the inputs to the valuation techniques used to measure fair value, both on a recurring and non-recurring basis, for presentation on the statements of condition. The inputs are evaluated and an overall level for the measurement is determined. This overall level is an indication of the market observability of the inputs to the fair value measurement for the asset or liability.   

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The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels.

• Level 1. Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access on the measurement date.

• Level 2.Inputs, other than quoted prices within Level 1, that are observable inputs for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 2 prices include the following: (1)quoted prices for similar assets or liabilities in active markets; (2)quoted prices for identical or similar assets or liabilities in markets that are not active; (3)inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and implied volatilities); and (4)inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3.Unobservable inputs for the asset or liability.

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value is first based on quoted market prices or market-based prices, where available. If quoted market prices or market-based prices are not available, fair value is determined based on valuation models that use market-based information available to us as inputs to our models.

For instruments carried at fair value, we review the fair value hierarchy classification on a quarterly basis. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers at fair value in the quarter in which the changes occur. Transfers are reported as of the beginning of the period. We had no transfers between fair value hierarchies for the six months ended June 30, 2013 and 2012.

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Fair Value Summary Tables

The Fair Value Summary Tables below do not represent an estimate of the overall market value of the Seattle Bank as a going concern, which estimate would take into account future business opportunities and the net profitability of assets and liabilities. The following tables summarize the carrying value, fair values, and fair values hierarchy of our financial instruments as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013
				Fair Value
Financial Instruments	Carrying Value			Total			Level 1			Level 2			Level 3		Netting Adjustment/ Cash Collateral
(in thousands)
Financial assets:
Cash and due from banks	$	189		$	189		$	189		$	—		$	—	$	—
Deposits with other FHLBanks	37			37			37			—			—		—
Securities purchased under agreements to resell	6,000,000			6,000,007			—			6,000,007			—		—
Federal funds sold	6,194,800			6,194,930			—			6,194,930			—		—
AFS securities	4,395,092			4,395,092			—			3,098,888			1,296,204		—
HTM securities	8,897,553			8,918,178			—			8,453,386			464,792		—
Advances	11,447,001			11,482,623			—			11,482,623			—		—
Mortgage loans held for portfolio, net	914,450			931,195			—			931,195			—		—
Accrued interest receivable	38,002			38,002			—			38,002			—		—
Derivative assets	101,259			101,259			—			327,023			—		(225,764		)
Other assets (rabbi trust)	2,946			2,946			2,946			—			—		—
Financial liabilities:
Deposits	(478,590		)	(478,550		)	—			(478,550		)	—		—
Consolidated obligations:
Discount notes (1)	(15,799,353		)	(15,799,058		)	—			(15,799,058		)	—		—
Bonds (2)	(18,428,946		)	(18,537,581		)	—			(18,537,581		)	—		—
Mandatorily redeemable capital stock	(1,790,607		)	(1,790,607		)	(1,790,607		)	—			—		—
Accrued interest payable	(72,168		)	(72,168		)	—			(72,168		)	—		—
Derivative liabilities	(55,574		)	(55,574		)	—			(348,392		)	—		292,818
AHP payable	(19,650		)	(19,650		)	—			(19,650		)	—		—
Commitments:
Commitments to extend credit for advances	(394		)	(394		)	—			(394		)	—		—
Commitments to issue consolidated obligations	—			5,358			—			5,358			—		—

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	As of December 31, 2012
				Fair Value
Financial Instruments	Carrying Value			Total			Level 1			Level 2			Level 3		Netting Adjustment/ Cash Collateral
(in thousands)
Financial assets:
Cash and due from banks	$	454		$	454		$	454		$	—		$	—	$	—
Deposit with other FHLBanks	70			70			70			—			—		—
Securities purchased under agreements to resell	5,600,000			5,599,999			—			5,599,999			—		—
Federal funds sold	7,143,200			7,143,348			—			7,143,348			—		—
AFS securities	3,877,964			3,877,964			—			2,584,200			1,293,764		—
HTM securities	8,418,411			8,475,278			—			7,931,056			544,222		—
Advances	9,135,243			9,257,384			—			9,257,384			—		—
Mortgage loans held for portfolio, net	1,059,308			1,077,321			—			1,077,321			—		—
Accrued interest receivable	44,350			44,350			—			44,350			—		—
Derivative assets	105,582			105,582			—			332,709			—		(227,127		)
Other assets (rabbi trust)	2,975			2,975			2,975			—			—		—
Financial liabilities:
Deposits	(541,408		)	(541,407		)	—			(541,407		)	—		—
Consolidated obligations:
Discount notes (1)	(21,417,653		)	(21,418,320		)	—			(21,418,320		)	—		—
Bonds (2)	(10,496,762		)	(10,830,928		)	—			(10,830,928		)	—		—
Mandatorily redeemable capital stock	(1,186,204		)	(1,186,204		)	(1,186,204		)	—			—		—
Accrued interest payable	(69,172		)	(69,172		)	—			(69,172		)	—		—
Derivative liabilities	(85,893		)	(85,893		)	—			(352,298		)	—		266,405
AHP payable	(18,330		)	(18,330		)	—			(18,330		)	—		—
Commitments:
Commitments to extend credit for advances	(421		)	(421		)	—			(421		)	—		—
Commitments to issue consolidated obligations	—			249,907			—			249,907			—		—

(1) Includes $350.0 million and $1.3 billion of consolidated obligation discount notes recorded under the fair value option as of June 30, 2013 and December 31, 2012.

(2) Includes $750.0 million and $500.0 million of consolidated obligation bonds recorded under the fair value option as of June 30, 2013 and December 31, 2012 and $15.3 billion and $8.0 billion of hedged consolidated obligation bonds recorded at fair value as of June 30, 2013 and December 31, 2012.

Valuation Techniques and Significant Inputs

Outlined below are our valuation methodologies that involve Level 3 measurements or that have been enhanced during the first half year of 2013. See Note 17 in our 2012 Financial Statements in our 2012 10-K for information concerning valuation techniques and significant inputs for our other financial assets and financial liabilities.

Investment Securities—MBS

For our MBS investments, our valuation technique incorporates prices from up to four designated third-party pricing vendors. These pricing vendors use proprietary models that generally employ, but are not limited to, benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many MBS do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established challenge process in place for all MBS valuations, which facilitates resolution of potentially erroneous prices identified by the Seattle Bank.

Recently, in conjunction with the other FHLBanks, we conducted reviews of the four pricing vendors to confirm and further augment our understanding of the vendors' pricing processes, methodologies, and control procedures for agency MBS and PLMBS.

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Our valuation technique requires the establishment of a median price for each security. If four prices are received, the average of the middle two prices is the median price; if three prices are received, the middle price is the median price; if two prices are received, the average of the two prices is the median price; and if one price is received, it is the median price (and also the final price) subject to some type of validation, consistent with the evaluation of outliers as discussed below.

All prices that are within a specified tolerance threshold of the median price are also included in the cluster of prices that are averaged to compute a default price. All prices that are outside the threshold (outliers) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price, as appropriate) is used as the final price rather than the default price. If, on the other hand, the analysis confirms that an outlier (or outliers) is in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security.

As of June 30, 2013, four prices were received for a majority of our MBS and the final prices for those securities were computed by averaging the prices received as discussed above. Based on our review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or in those instances where there were outliers or significant yield variances, our additional analyses), we believe our final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and, given the lack of significant market activity for PLMBS, that the fair value measurements of these securities are classified appropriately as Level 3 within the fair value hierarchy.

As an additional step, we reviewed the final fair value estimates of our PLMBS holdings as of June 30, 2013 for reasonableness using an implied yield test. We calculated an implied yield for each of our PLMBS using the estimated fair value derived from the process described above and the security's projected cash flows from the FHLBanks' OTTI process and compared such yield to the market yield for comparable securities according to dealers and other third-party sources to the extent comparable market yield data was available. This analysis did not indicate that any material adjustments to the fair value estimates were necessary.

Mortgage Loans Classified as TDRs Due to Bankruptcy

To enhance the valuation of certain of our mortgage loans classified as TDRs due to discharge in bankruptcy, we implemented an automated valuation model (AVM) methodology in second quarter 2013. The AVM methodology is used to value the collateral underlying these TDR mortgage loans. Prior to second quarter 2013, we determined fair value of such TDRs by applying a loss factor ratio to the current property value estimate available from the loan data. The loss factor ratios were derived from market indications of price adjustments for REO sales. For cases where an AVM value is unavailable, we use the prior loss factor ratio approach in valuing bankruptcy TDRs.

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Fair Value Measurements

The following tables present, for each hierarchy level, our assets and liabilities that are measured at fair value on a recurring or non-recurring basis on our statements of condition as of June 30, 2013 and December 31, 2012. We measure TDRs, REO, and certain HTM securities at fair value on a non-recurring basis. These assets are subject to fair value adjustments only in certain circumstances (e.g., when there is an OTTI recognized).

	As of June 30, 2013
Fair Value Measurements	Total			Level 1		Level 2			Level 3		Netting Adjustment and Collateral (1)
(in thousands)
Recurring fair value measurements:
AFS securities:
PLMBS	$	1,296,204		$	—	$	—		$	1,296,204	$	—
Other U.S. agency obligations	1,931,898			—		1,931,898			—		—
GSE obligations	1,166,990			—		1,166,990			—		—
Derivative assets (interest-rate related)	101,259			—		327,023			—		(225,764		)
Other assets (rabbi trust)	2,946			2,946		—			—		—
Total recurring assets at fair value	$	4,499,297		$	2,946	$	3,425,911		$	1,296,204	$	(225,764	)
Consolidated obligations:
Discount notes	$	(349,881	)	$	—	$	(349,881	)	$	—	$	—
Bonds	(749,921		)	—		(749,921		)	—		—
Derivative liabilities (interest-rate related)	(55,574		)	—		(348,392		)	—		292,818
Total recurring liabilities at fair value	$	(1,155,376	)	$	—	$	(1,448,194	)	$	—	$	292,818
Non-recurring fair value measurements:
Mortgage loans (TDRs)	$	1,495		$	—	$	1,495		$	—	$	—
REO	782			—		782			—		—
Total non-recurring assets at fair value	$	2,277		$	—	$	2,277		$	—	$	—

	As of December 31, 2012
Fair Value Measurements	Total			Level 1		Level 2			Level 3		Netting Adjustment and Collateral (1)
(in thousands)
Recurring fair value measurements:
AFS securities:
PLMBS	$	1,293,764		$	—	$	—		$	1,293,764	$	—
Other U.S. agency obligations	1,166,918			—		1,166,918			—		—
GSE obligations	1,417,282			—		1,417,282			—		—
Derivative assets (interest-rate related)	105,582			—		332,709			—		(227,127		)
Other assets (rabbi trust)	2,975			2,975		—			—		—
Total recurring assets at fair value	$	3,986,521		$	2,975	$	2,916,909		$	1,293,764	$	(227,127	)
Consolidated obligations:
Discount notes	$	(1,249,442	)	$	—	$	(1,249,442	)	$	—	$	—
Bonds	(499,986		)	—		(499,986		)	—		—
Derivative liabilities (interest-rate related)	(85,893		)	—		(352,298		)	—		266,405
Total recurring liabilities at fair value	$	(1,835,321	)	$	—	$	(2,101,726	)	$	—	$	266,405
Non-recurring fair value measurements:
HTM securities	$	57,705		$	—	$	—		$	57,705	$	—
REO	2,703			—		2,703			—		—
Total non-recurring assets at fair value	$	60,408		$	—	$	2,703		$	57,705	$	—

(1) Amounts that are subject to master netting arrangements, other agreements, or operation of law that provides a legal right of offset.

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The following table presents a reconciliation of our AFS PLMBS that are measured at fair value on our statements of condition on a recurring basis using significant unobservable inputs (Level 3) for the three and six months endedJune 30, 2013 and 2012.

	AFS PLMBS
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Fair Value Measurements Using Significant Unobservable Inputs	2013			2012			2013			2012
(in thousands)
Balance, beginning of period	$	1,300,501		$	1,312,043		$	1,293,764		$	1,269,399
Gain on sale of AFS securities	—			—			903			—
OTTI credit loss recognized in earnings	—			(4,269		)	(342		)	(5,593		)
Credit loss accretion and related interest income	4,177			—			8,121			—
Unrealized gains in AOCL	39,469			5,152			133,195			105,851
Sales	—			—			(41,799		)	—
Settlements	(47,943		)	(63,874		)	(97,638		)	(120,605		)
Balance, end of period	$	1,296,204		$	1,249,052		$	1,296,204		$	1,249,052

Fair Value Option

The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, and unrecognized firm commitments not previously carried at fair value. It requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the statements of condition. 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 net income. Interest income and interest expense carried on advances and consolidated obligations at fair value are recognized solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized into other income or other expense.

We have elected, on an instrument-by-instrument basis, the fair value option of accounting for certain of our consolidated obligation bonds and discount notes with original maturities of one year or less for operational ease or to assist in mitigating potential statement of income volatility that can arise from economic hedges. For the latter, prior to entering into a short-term consolidated obligation trade, we perform a preliminary evaluation of the effectiveness of the bond or discount note and the associated interest-rate swap. If the analysis indicates that the potential hedging relationship will exhibit excessive ineffectiveness, we elect the fair value option on the consolidated obligation bond or discount note. The interest-rate risk associated with using fair value only for the derivative is the primary reason that we have elected the fair value option for these instruments.

The following table presents the activity on our consolidated obligation bonds and discount notes on which we elected the fair value option for the three and six months endedJune 30, 2013 and 2012.

	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2013						2012			2013						2012
Financial Instruments on Which Fair Value Option Has Been Elected	Bonds			Discount Notes			Bonds			Bonds			Discount Notes			Bonds
(in thousands)
Balance, beginning of the period	$	749,979		$	1,349,802		$	499,956		$	499,986		$	1,249,442		$	499,973
New transactions elected for fair value option	500,000			250,000			500,000			750,000			350,000			500,000
Maturities and terminations	(500,000		)	(1,250,000		)	(500,000		)	(500,000		)	(1,250,000		)	(500,000		)
Net change in fair value adjustments on financial instruments held under fair value option	(58		)	216			(38		)	(65		)	645			(55		)
Unaccreted interest	—			(137		)	—			—			(206		)	—
Balance, end of the period	$	749,921		$	349,881		$	499,918		$	749,921		$	349,881		$	499,918

For items recorded under the fair value option, only the related contractual interest income or contractual interest expense, is recorded as part of net interest income on the statements of income. The changes in fair value for instruments on

44

which the fair value option has been elected are recorded as “net (loss) gain on financial instruments held under fair value option” in the statements of income. The change in fair value does not include changes in instrument-specific credit risk. We determined that no adjustments to the fair values of our consolidated obligation bonds and discount notes recorded under the fair value option for credit risk were necessary as of June 30, 2013.

The following table presents the difference between the aggregate unpaid balance outstanding and the aggregate fair value for consolidated obligation bonds and discount notes, as applicable, for which the fair value option has been elected as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013
Instruments Measured at Fair Value	Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Under Aggregate Unpaid Principal Balance
(in thousands)
Consolidated obligation discount notes	$	350,000	$	349,881	$	(119	)
Consolidated obligation bonds	750,000		749,921		(79		)
Total	$	1,100,000	$	1,099,802	$	(198	)

	As of December 31, 2012
Instruments Measured at Fair Value	Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Under Aggregate Unpaid Principal Balance
(in thousands)
Consolidated obligation discount notes	$	1,250,000	$	1,249,442	$	(558	)
Consolidated obligation bonds	500,000		499,986		(14		)
Total	$	1,750,000	$	1,749,428	$	(572	)

Note 12—Transactions with Related Parties and Other FHLBanks

Transactions with Members

The Seattle Bank is a cooperative and our members own the majority of our outstanding capital stock. Former members and certain nonmembers own the remaining capital stock and are required to maintain their investment in our capital stock until their outstanding transactions have matured or are paid off and their capital stock is redeemed in accordance with our Capital Plan or regulatory requirements (see Note 10 for additional information).

All of our advances are initially issued to members and approved housing associates, and all mortgage loans held for portfolio were initially purchased from members. We also maintain demand deposit accounts, primarily to facilitate settlement activities that are directly related to advances. We enter into such transactions with members during the normal course of business. In addition, we may enter into investments in federal funds sold, securities purchased under agreements to resell, certificates of deposit, and MBS with members or their affiliates. Our MBS investments are purchased through securities brokers or dealers, and all investments are transacted at market prices without preference to the status of the counterparty or the issuer of the investment as a member, nonmember, or affiliate thereof.

For member transactions related to concentration of investments in AFS securities purchased from members or affiliates of certain members, see Note 2; HTM securities purchased from members or affiliates of members, see Note 3; concentration associated with advances, see Note 5; concentration associated with mortgage loans held for portfolio, see Note 6; and concentration associated with capital stock, see Note 10.

Transactions with Related Parties

For purposes of these financial statements, we define related parties as those members and former members and their affiliates with capital stock outstanding in excess of 10% of our total outstanding capital stock and mandatorily redeemable capital stock. We also consider entities where a member or an affiliate of a member has an officer or director who is a director of the Seattle Bank to meet the definition of a related party. Transactions with such members are entered into in the normal course of business and are subject to the same eligibility and credit criteria and the same terms and conditions as other similar

45

transactions, and we do not believe that they involve more than the normal risk of collectability. The Board has imposed certain restrictions on the repurchase of capital stock held by members who have officers or directors on our Board.

The following tables set forth significant outstanding balances as of June 30, 2013 and December 31, 2012, and the income effect for the three and six months ended June 30, 2013 and 2012, on related party transactions.

Balances with Related Parties	As of June 30, 2013			As of December 31, 2012
(in thousands)
Assets:
Securities purchased under agreements to resell	$	2,500,000		$	1,250,000
Federal funds sold	200,000			476,000
AFS securities	481,807			503,121
HTM securities	167,497			190,486
Advances (par value)	4,016,261			2,781,750
Mortgage loans held for portfolio	707,183			821,652
Liabilities and capital:
Deposits	10,355			7,656
Mandatorily redeemable capital stock	1,400,947			843,089
Class B capital stock	89,807			657,039
Class A capital stock	1,252			1,658
AOCL	(33,062		)	(85,088		)
Other:
Notional amount of derivatives	7,928,224			5,738,243

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Income and Expense with Related Parties	2013			2012			2013			2012
(in thousands)
Income (loss):
Advances, net *	$	(4,234	)	$	(3,673	)	$	(9,350	)	$	(6,794	)
Securities purchased under agreements to resell	932			363			1,583			600
Federal funds sold	111			—			290			—
AFS securities	2,522			5,204			5,000			10,828
HTM securities	714			1,023			1,473			2,142
Mortgage loans held for portfolio	9,351			14,268			19,230			26,219
Net OTTI loss, credit portion	—			(2,858		)	(158		)	(4,182		)
Total	$	9,396		$	14,327		$	18,068		$	28,813

* Includes prepayment fee income and the effect of associated derivatives with related parties or their affiliates hedging advances with both related parties and non-related parties.

Transactions with Other FHLBanks

From time to time, the Seattle Bank may lend to or borrow from other FHLBanks on a short-term uncollateralized basis. We made no loans to other FHLBanks and borrowed $13.0 million from other FHLBanks with maturities ofone day during the three and six months ended June 30, 2013. During the three and six months ended June 30, 2012, we made $5.0 million in loans to other FHLBanks with maturities of one day. Interest earned on these short-term loans was not material.

As of June 30, 2013 and December 31, 2012, we had $37,000 and $70,000 on deposit with the FHLBank of Chicago for shared FHLBank System expenses.

We may, from time to time, transfer to or assume from another FHLBank the outstanding primary liability of another FHLBank rather than have new debt issued on our behalf by the Office of Finance. For information on debt transfers to or from other FHLBanks, see Note 9.

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Note 13—Commitments and Contingencies

Consolidated obligations, consisting of consolidated obligation bonds and consolidated obligation discount notes, are backed only by the financial resources of the FHLBanks. The joint and several liability regulation of the Finance Agency authorizes it to require any FHLBank to repay all or a portion of the principal and interest on consolidated obligations for which another FHLBank is the primary obligor. For a discussion of the joint and several liability regulation, see Note 12 in our 2012 Financial Statements included in our 2012 10-K. No FHLBank has ever been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of June 30, 2013 and through the filing date of this report, we do not believe that it is probable that we will be asked to do so. The par amounts of the 12 FHLBanks' outstanding consolidated obligations, including consolidated obligations held by other FHLBanks, were $704.5 billion and $687.9 billion as of June 30, 2013 and December 31, 2012.

The following table summarizes our commitments outstanding that are not recorded on our statements of condition as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013						As of December 31, 2012
Notional Amount of Unrecorded Commitments	Expire Within One Year		Expire After One Year		Total		Total
(in thousands)
Standby letters of credit outstanding (1)	$	438,185	$	12,469	$	450,654	$	516,871
Unsettled consolidated obligation bonds, at par (2)	125,000		—		125,000		250,000
Unsettled consolidated discount notes, at par	2,150,000		—		2,150,000		—
Other commitments (3)	315,000		—		315,000		—
Total	$	3,028,185	$	12,469	$	3,040,654	$	766,871

(1) Excludes unconditional commitments to issue standby letters of credit of $20.0 million and $16.0 million as of June 30, 2013 and December 31, 2012.

(2) As of June 30, 2013 and December 31, 2012, $45.0 million and $250.0 million of our unsettled consolidated obligation bonds were hedged with associated interest rate swaps.

(3) Includes commitments to purchase investment securities as of June 30, 2013.

Commitments to Extend Credit

Standby letters of credit are executed for members for a fee. A standby letter of credit is a short-term financing arrangement between the Seattle Bank and a member. If we are required to make payment for a beneficiary's draw, the payment amount is converted into a collateralized advance to the member. As of June 30, 2013, the original terms of our outstanding standby letters of credit, including related commitments, ranged from 50 days to 7 years, including a final expiration of 2017. Unearned fees for standby letter of credit-related transactions are recorded in "other liabilities" and totaled $144,000 and $246,000 as of June 30, 2013 and December 31, 2012. We monitor the creditworthiness of our standby letters of credit based on an evaluation of our members and have established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit. Based on our analyses and collateral requirements, we do not consider it necessary to record an allowance for credit losses on these commitments.

Legal Proceedings

The Seattle Bank is currently involved in a number of legal proceedings against various entities relating to our purchases and subsequent impairment of certain PLMBS. After consultations with legal counsel, other than as may result from the legal proceedings referenced in the preceding sentence, we do not believe that the ultimate resolutions of any current matters will have a material impact on our financial condition, results of operations, or cash flows.

Further discussion of other commitments and contingencies is provided in Notes 5, 8, 9, 10, and 11.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements that are subject to risk and uncertainty. These statements describe the expectations of the Federal Home Loan Bank of Seattle (Seattle Bank) regarding future events and developments, including future operational results, changes in asset levels, and use of our products. These statements address, without limitation, future expectations, beliefs, plans, strategies, objectives, events, conditions, and financial performance. The words "will," "expect," "intend," "may," "could," "should," "anticipate," and words of similar nature are intended in part to help identify forward-looking statements.

Future results, events, and developments are difficult to predict, and the expectations described in this report, including any forward-looking statements, are subject to risk and uncertainty that may cause actual results, events, and developments to differ materially from those we currently anticipate. Consequently, there is no assurance that the expected results, events, and developments will occur. See “Part II. Item 1A. Risk Factors” of this report for additional information on risks and uncertainties.

Factors that may cause actual results, events, and developments to differ materially from those discussed in this report include, among others:

• significant and sustained reductions in members' advance demand as a result of loss of members and advances made to those members due to institutional failures, mergers, consolidations, or withdrawals from membership and to our members experiencing decreased funding needs and using alternative sources of wholesale funding;

• adverse changes in credit quality or market prices, home price declines or increases that exceed or fall short of our expectations, changes in assumptions or timing of cash flows, or other factors that could affect our financial instruments, particularly our private-label mortgage-backed securities (PLMBS), and that could result in, among other things, additional other-than-temporary impairment (OTTI) losses;

• regulatory requirements and restrictions resulting from our Stipulation and Consent to the Issuance of a Consent Order (Stipulation and Consent) with the Federal Housing Finance Agency (Finance Agency), dated October 25, 2010, relating to the Consent Order, effective as of the same date, issued by the Finance Agency to the Seattle Bank (collectively, with related understandings with the Finance Agency, the Consent Arrangement); an adverse change made by the Finance Agency in our capital classification; or other actions by the Finance Agency, particularly actions that may result from our failure to satisfy the requirements of the Consent Arrangement to the Finance Agency's satisfaction;

• our ability to attract new members and our existing members' willingness to purchase new or additional capital stock or to transact business with us, which may be adversely affected by, among other things, concerns about our ability to successfully meet the requirements of the Consent Arrangement, our inability to repurchase or redeem capital stock or pay dividends without Finance Agency approval, concerns about additional OTTI losses on our PLMBS and the negative impact this may have on our future earnings and financial condition, or willingness of our members' regulators to view Federal Home Loan Bank (FHLBank) advances as a reliable source of liquidity;

• actions taken or inaction by governmental entities, including the U.S. Congress, the U.S. Department of the Treasury (U.S. Treasury), the Federal Reserve System (Federal Reserve), the Finance Agency, or the Federal Deposit Insurance Corporation (FDIC), including government-sponsored enterprise (GSE) reform affecting the Federal Home Loan Bank System (FHLBank System), centralized derivatives clearing, core mission asset benchmarks, or other legislation or regulation that could affect the capital and credit markets, demand for our advances, or our business in general;

• negative information about the Seattle Bank, the FHLBank System, housing GSEs, or housing finance in general that could adversely impact demand for our debt, current and potential member perceptions, and our business in general;

• our failure to identify, manage, mitigate, or remedy risks that could adversely affect our operations, including, among others, our market, liquidity, operational, and regulatory compliance, credit and collateral management, information technology, and internal controls;

• changes in global, national, and local economic conditions that could impact financial and credit markets, including possible European debt restructurings or defaults, unemployment levels, inflation, or deflation;

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• significant or rapid changes in market conditions, including fluctuations in interest rates, shifts in yield curves, and widening of spreads on mortgage-related assets relative to other financial instruments, and our failure to effectively hedge these assets;

• adverse changes in investor demand for consolidated obligations or increased competition from other GSEs, including other FHLBanks, and corporate, sovereign, and supranational entities;

• rating agency actions affecting the Seattle Bank, the FHLBank System, or U.S. debt issuances;

• adverse changes in the market prices or credit quality of our members' assets used as collateral for our advances that could reduce our members' borrowing capacity or result in an under-secured position on outstanding advances;

• changing accounting guidance, including changes relating to valuation of financial instruments, that could adversely affect our financial statements;

• our inability to retain or timely hire key personnel;

• the need to make principal or interest payments on behalf of another FHLBank as a result of the joint and several liability of all FHLBanks for consolidated obligations; and

• events such as terrorism, natural disasters, or other catastrophic events that could disrupt the financial markets where we obtain funding, our borrowers' ability to repay advances, the value of the collateral that we hold, or our ability to conduct business in general.

These cautionary statements apply to all related forward-looking statements, wherever they appear in this report. We do not undertake to update any forward-looking statements that we make in this report or that we may make from time to time.

Overview

This discussion and analysis reviews our financial condition as of June 30, 2013 and December 31, 2012 and our results of operations for the three and six months endedJune 30, 2013 and 2012. It should be read in conjunction with our financial statements and condensed notes for the three and six months endedJune 30, 2013 and 2012 included in "Part I. Item 1. Financial Statements" in this report and our annual report on Form 10-K, as amended, for the year ended December 31, 2012 (2012 10-K). Our financial condition as of June 30, 2013 and our results of operations for the three and six months endedJune 30, 2013 are not necessarily indicative of the financial condition and results of operations that may be expected as of or for the year ending December 31, 2013 or for any other future dates or periods.

The Seattle Bank, one of 12 federally chartered FHLBanks, is a member-owned financial cooperative that serves regulated depositories, insurance companies, and community development financial institutions located within our district. Like other FHLBanks, our mission is to provide liquidity and funding to members and eligible non-shareholder housing associates, so they can meet the housing and other credit needs of their communities. We further fulfill our mission of supporting housing finance and economic development by investing in mortgage-backed securities (MBS) and debt obligations that increase our core mission activity (CMA) assets (which include advances, housing finance agency obligations, acquired member assets, such as mortgage loans, and the principal balance of letters of credit, which are not reflected on our statements of condition) and provide for a profitable and stable cooperative. We also provide, through our members and other entities, direct subsidy grants and low- or no-interest loans to benefit individuals and communities at or below 80% of their area's median income.

Our primary business is providing wholesale funding, or advances, to our members. We earn net interest income from the following sources: (1) net interest-rate spread, which is the difference between the interest earned on advances, investments, and mortgage loans, less interest accrued or paid on consolidated obligations, deposits, and other borrowings funding those assets; and (2) earnings from capital, which is the return from investing our members' capital. Our principal funding derives from consolidated obligations issued by the Office of Finance as our agent. We are primarily liable for repayment of consolidated obligations issued on our behalf, and we are jointly and severally liable for consolidated obligations issued on behalf of the other FHLBanks. We believe many variables influence our financial performance, including interest-rate changes in the financial markets, yield-curve shifts, availability of wholesale funding, and general economic conditions.

Financial Condition and Results - Second Quarter2013 Highlights

2013 Market Conditions

During second quarter 2013, U.S. economic indicators, although mixed, generally indicated an improving U.S. economy. Among other things, favorable trends included improvements in the housing sector and in certain U.S. employment

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statistics. As in 2012 and early 2013, short-term interest rates remained very low during second quarter2013, with the Federal Reserve maintaining its position that the current very low federal funds rate will be appropriate for, among other things, at least as long as the U.S. unemployment rate remains above 6.5% and inflation remains below 2.5%.

After remaining relatively stable in the first four months of 2013, long-term interest rates began to experience significant volatility in late May. Guidance released in June by the Federal Reserve increased uncertainty as to the timing of the tapering of the Federal Reserve's current quantitative easing program. Market participants sold a significant amount of bond holdings during May and June, and long-term interest rates increased significantly. Along with other fixed income securities, yields on FHLBank consolidated obligation bonds increased noticeably beginning in May 2013, resulting in a higher cost of funds during this period, especially for longer maturity debt. In July 2013, the Federal Reserve attempted to clarify its position by noting that it would continue to purchase medium- and longer-term MBS and have an accommodative policy regarding the tapering of quantitative easing for the foreseeable future. While long-term interest rates declined as a result of this clarification and are expected to remain at historically low levels until such time as the Federal Reserve begins scaling back its MBS purchases, uncertainty surrounding the timing of the withdrawal of quantitative easing programs has resulted in, and is expected to continue to result in, volatility and a trend of increasing interest rates, especially long-term interest rates.

Financial Condition and Operating Results

As ofJune 30, 2013, we had total assets of $38.0 billion, total outstanding regulatory capital stock of $2.7 billion, and retained earnings of $254.5 million, compared to total assets of $35.4 billion, total outstanding regulatory capital stock of $2.8 billion, and retained earnings of $228.2 million as of December 31, 2012.    

Our outstanding advances increased to $11.4 billion as of June 30, 2013, from $9.1 billion as of December 31, 2012. During second quarter 2013, advance demand was primarily from our larger regional institutions, while in first quarter 2013, advances increased primarily due to advance activity with our then largest member (due to a corporate restructuring, Bank of America Oregon, N.A. withdrew from Seattle Bank membership effective April 1, 2013). In second quarter 2013, a number of our members began to experience an increase in demand for consumer and small business loans, which, in turn, has resulted in increased advances. However, it is unclear how the increases in long-term interest-rates occurring in May and June 2013, and which may continue to occur, will impact advance demand from our members, as such demand is dependent upon many factors, including among others, retail loan demand retail core deposit activity, and our members' needs to manage the associated interest-rate risk on their balance sheets. As of June 30, 2013, our investments increased slightly, to $25.5 billion, from $25.0 billion, as of December 31, 2012.

Net income for the three and six months endedJune 30, 2013 was $10.5 million and $26.3 million, compared to $22.9 million and $35.8 million for the same periods in 2012. The decreases in net income were primarily due to the effects of interest-rate changes on the fair values of derivatives and hedged items in hedging relationships, particularly hedges of long-term consolidated obligations, partially offset by higher net interest income and significantly lower credit losses on PLMBS determined to be other-than-temporarily impaired during the three and six months ended June 30, 2013, compared to the same periods in 2012.

Net interest income for the three and six months endedJune 30, 2013 increased to $34.2 million and $68.5 million, from $29.7 million and $52.9 million for the same periods in 2012, primarily due to significantly lower interest expense, partially offset by lower interest income on our advances and mortgage loans and, for the three months ended June 30, 2013, our investment portfolio. Lower premium amortization on certain of the bank's available-for-sale (AFS) securities, which were purchased with large premiums and which matured in late 2012, accounted for $6.3 million and $16.4 million of the increase in net interest income for the three and six months ended June 30, 2013, compared to the same periods in 2012.

We recorded no additional credit losses on our PLMBS for the three months ended June 30, 2013, and $342,000 for the six months ended June 30, 2013, compared to $4.3 million and $5.6 million of such credit losses for the same periods in 2012. We recorded a net loss of $601,000 and a net gain of $10,000 on derivatives and hedging activities for the three and six months endedJune 30, 2013, compared to gains of $18.2 million and $30.3 million for the same periods in 2012. The decreases in derivatives and hedging activity were primarily due to the effect of interest-rate changes on the fair values of derivatives and hedged items in our hedging relationships, particularly hedges of long-term consolidated obligations and certain AFS securities.

In July 2013, with Finance Agency approval, our Board of Directors (Board) declared a $0.025 per share cash dividend, which was paid on July 30, 2013. The dividend, totaling $683,000, was based on our second quarter financial results and calculated based on average Class A and Class B stock outstanding during the second quarter 2013.

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Consent Arrangement

In October 2010, we entered into the Consent Arrangement, which sets forth requirements for capital management, asset composition, and other operational and risk management improvements. The Consent Arrangement provides that, once we reach and maintain certain financial and operational thresholds, we may, with Finance Agency approval, begin repurchasing capital stock at par value. In September 2012, with Finance Agency approval, we implemented a modest quarterly excess capital stock repurchase program and repurchased $24.0 million of excess stock under that program in second quarter 2013. In addition, we repurchased $353,000 of excess capital stock originally purchased after October 27, 2010 to support advance activity stock requirements. Since the implementation of the stock repurchase program, we have repurchased $96.4 million of excess capital stock.

In addition, the Consent Arrangement provides that we may again be in a position to redeem certain capital stock and begin paying dividends once we: (i) achieve and maintain certain financial and operational metrics; (ii) remediate certain concerns regarding our oversight and management, asset quality, capital adequacy and retained earnings, risk management, compensation practices, examination findings, and information technology; and (iii) return to a safe and sound condition as determined by the Finance Agency. As noted above, we paid a dividend on average second quarter 2013 Class A and Class B stock on July 30, 2013. In its July 2013 waiver of the Consent Arrangement restriction on paying dividends, the Finance Agency noted the positive development in the Seattle Bank's market value of equity to par value of capital stock (MVE to PVCS) ratio and other improvements in financial condition. Separate Finance Agency waivers will be required for future dividend payments.

The Consent Arrangement also requires us to meet and maintain certain minimum financial metrics at each quarter-end. These financial metrics relate to our retained earnings, accumulated other comprehensive loss (AOCL), and the MVE to PVCS ratio. With the exception of the retained earnings requirement under the Consent Arrangement as of June 30, 2011, we have met all minimum financial metrics since December 31, 2010.

The following table presents our retained earnings, AOCL, and MVE to PVCS ratio as of June 30, 2013, December 31, 2012, and September 30, 2010 (the quarter-end prior to entering into the Consent Arrangement).

	As of			As of			As of
	June 30, 2013			December 31, 2012			September 30, 2010
(in thousands, except for percentages)
Retained earnings	$	254,493		$	228,236		$	76,835
AOCL	$	(112,052	)	$	(226,468	)	$	(770,317	)
MVE to PVCS ratio	104.0		%	95.1		%	67.8		%

As required by the Consent Arrangement, we have been striving to increase our ratio of advances to total assets. We continue to focus on this goal, but due to the relatively low demand for advances, we have determined that it is prudent to accept some variation in our advances-to-assets ratio over time, rather than to require quarter-over-quarter improvements, and to identify additional opportunities to increase our CMA assets. In adopting this approach, in late March 2012, we implemented, and have maintained, a dollar cap on our investments and have increased our investments in CMA assets, such as state housing agency bonds. We implemented the dollar cap on investments, an operating target that may change from time to time, to ensure that we continue to maintain our focus on the Consent Arrangement requirements relating to advances as a percentage of assets, while balancing other considerations, such as maintaining strong liquidity levels, improving our income and retained earnings, and minimizing investment credit risk exposure.

We continue to develop and refine plans, policies, and procedures to address the remaining Consent Arrangement requirements. The Consent Arrangement will remain in effect until modified or terminated by the Finance Agency and does not prevent the Finance Agency from taking any other action affecting the Seattle Bank that, at the sole discretion of the Finance Agency, it deems appropriate in fulfilling its supervisory responsibilities. Until the Finance Agency determines that we have met the requirements of the Consent Arrangement, we expect that Finance Agency approval will continue to be required for all repurchases, redemptions, and dividend payments on capital stock.

Seattle Bank Goals

We are committed to fulfilling the goals that support our return to normal operations (defined as being able to repurchase excess stock, redeem stock on its statutory schedule, and pay dividends). These goals include:

• Fulfilling our mission by addressing the needs of our members.

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• Maintaining our financial viability and improving our risk profile, while gradually transitioning to a business model with increased focus on advances and other CMA assets.

• Improving our infrastructure to increase operational efficiency and effectiveness.

• Developing and implementing a plan to attract, retain, and develop a high-performance workforce.

• Developing and strengthening relationships with banking and housing industry stakeholders and encouraging their advocacy on behalf of the cooperative and the FHLBank System.

We track our progress toward our goals using a number of key metrics, including our retained earnings, AOCL, MVE to PVCS ratio, return on PVCS vs. one-month London Interbank Offered Rate (LIBOR), and our CMA assets-to-total assets ratio. As noted above, we continued to make progress on our key metrics, with our retained earnings, AOCL, and MVE to PVCS ratio improving significantly, primarily due to increases in the fair values of AFS securities determined to be other-than-temporarily impaired and our first half 2013 net income. In addition, for the six months ended June 30, 2013, our annualized return on PVCS was 1.93% compared to average annual one-month LIBOR of 0.20%. The annualized return on PVCS for the six months ended June 30, 2012 was 2.57%, compared to average annual one-month LIBOR of 0.25%. Our CMA assets-to-total assets ratio was 37.0% and 32.2% as of June 30, 2013 and December 31, 2012.

On July 18, 2013, Standard and Poor's Ratings Services (S&P) changed the Seattle Bank's outlook from negative to stable, while maintaining the bank's "AA/A-1+" long- and short-term issuer credit ratings, and on July 23, 2013, Moody's Ratings Services (Moody's) revised its outlook to stable from negative and affirmed its "Aaa/P-1" rating of the Seattle Bank's long- and short term issuer credit ratings.

As evidenced by our continued ability to repurchase excess capital stock, our payment of a third-quarter dividend, and our improved outlooks from the nationally recognized statistical rating agencies (NRSROs, or rating agencies), we have made steady progress in achieving our goals. We expect that we will continue to face a number of ongoing challenges in the second half of 2013, including those associated with further increasing our advance volumes in a rising interest-rate environment, the possibility of deterioration in our PLMBS portfolio, and the need to address certain regulatory requirements resulting from, among other things, the Consent Arrangement. As we address these challenges, we will continue to maintain our focus on our mission and business goals, execute on new opportunities to strengthen our balance sheet, and minimize our financial and other risks.

Recent Legislative and Regulatory Developments

The legislative and regulatory environments in which the FHLBanks operate continue to undergo rapid change, driven primarily by new regulations implementing reforms specified in the Housing and Economic Recovery Act of 2008 (Housing Act) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), enacted in July 2010. We expect the Housing Act and the Dodd-Frank Act, as well as future changes in housing finance and GSE reform, to result in further changes to this environment. Our business operations, funding costs, rights and obligations, and the environment in which we carry out our housing finance mission are likely to continue to be significantly impacted by these changes. Significant regulatory actions and developments for the three months ended June 30, 2013 are summarized below.

Finance Agency Developments

Interim Final Rule Regarding Executive Compensation

On May 14, 2013, the Finance Agency published an interim final rule setting forth requirements and processes with respect to compensation provided to executive officers by FHLBanks and the Office of Finance. The interim final rule addresses the authority of the Finance Agency Director to approve, disapprove, modify, prohibit, or withhold compensation of executive officers of the FHLBanks and the Office of Finance. The interim final rule also addresses the Finance Agency Director's authority to approve, in advance, agreements or contracts of executive officers that provide compensation in connection with termination of employment. The interim final rule prohibits an FHLBank or the Office of Finance from paying compensation to an executive officer that is not reasonable and comparable with compensation paid by similar businesses for similar duties and responsibilities. Failure by an FHLBank or the Office of Finance to comply with the rule may result in supervisory action by the Finance Agency. The interim final rule became effective on June 13, 2013. Comments were due by July 15, 2013.

Proposed Rule Regarding Golden Parachute and Indemnification Payments

On May 14, 2013, the Finance Agency re-proposed a rule setting forth the standards that the Finance Agency would take into consideration when limiting or prohibiting golden parachute and indemnification payments by an FHLBank or the Office of Finance to an entity-affiliated party, if adopted as proposed. The primary impact of this proposed rule would be to better

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conform existing Finance Agency regulations on golden parachutes with FDIC golden parachute regulations and to refine limitations on golden parachute payments to further limit any such payments made to an entity-affiliated party by an FHLBank or the Office of Finance that is assigned a less-than-satisfactory composite Finance Agency examination rating. Comments on the proposed rule were due by July 15, 2013.

Notification of Required Strategic Plan Addendum Relating to Percentage of Assets in Advances and Core Mission Assets

On March 1, 2013, the Finance Agency notified the FHLBanks that they will be required to submit to the Finance Agency an addendum to each of the banks' strategic plans identifying the steps the bank will take to achieve core mission asset benchmarks, including outstanding advance levels as a percentage of assets. These addenda will include time frames for achieving these goals. Implementation of actions necessary to achieve such percentage of asset targets may have a material effect on our product offerings, financial condition, and results of operations.

Other Significant Developments

Housing Finance and Housing GSE Reform

We expect the U.S. Congress to continue to consider reforms for U.S. housing finance and the regulated entities, including actions regarding the resolution of the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the enterprises). Several proposals have been offered that would wind down the enterprises and replace them with a new finance system to support the secondary mortgage market. On June 25, 2013, a bill entitled the Housing Finance Reform and Taxpayer Protection Actof 2013 (the Housing Finance Reform Act) was introduced in the Senate, with bipartisan support. On July 23, 2013, the House Financial Services Committee approved the Protecting American Taxpayers and Homeowners Act of 2013 (the PATH Act) and the bill was introduced to the U.S. House of Representatives on July 24, 2013. Both proposals would have direct implications for the FHLBanks if enacted.

While both proposals leverage the efforts over the past year to lay the groundwork for a new U.S. housing finance structure by creating a single securitization platform and establishing national standards for mortgage securitization, they differ on the role of the Federal government in the revamped housing finance structure. The Housing Finance Reform Act would establish the Federal Mortgage Insurance Corporation (the FMIC) as an independent agency in the Federal government, replacing the Finance Agency as the primary Federal regulator of the FHLBanks. The FMIC would facilitate the securitization of eligible mortgages by insuring covered securities against catastrophic risk. The FHLBanks, or a subsidiary, would be allowed to apply to become an approved issuer of covered securities to facilitate access to the secondary market for smaller community mortgage lenders. Any covered MBS issued by the FHLBanks or subsidiary would not be issued as a consolidated debt instrument and would not be treated as a joint and several obligation of any FHLBank that has not elected to participate in such issuance.By contrast, the PATH Act would effectively eliminate any government guarantee of conventional, conforming mortgages except Federal Housing Association (FHA), Veteran's Administration, and similar loans designed to serve first-time homebuyers and low-and-moderate income borrowers. The FHLBanks would be authorized to act as aggregators of mortgages for securitization through a newly established common market utility.

The PATH Act would also revamp the statutory rules governing the board composition of FHLBanks. Among other things, the number of directors would be capped at 15, which could be an important constraint in the context of two merging FHLBanks. Special rules would govern mergers of FHLBanks, capping the number of member directors allocated to a state at two until each state has at least one member director. Additionally, the Finance Agency would be given the authority, consistent with the authority of other banking regulators, to regulate and examine vendors of an FHLBank or an enterprise. Also, the PATH Act would remove the requirement that the Finance Agency adopt regulations establishing standards of community investment or service for FHLBanks' members.

Any fundamental changes to the U.S. housing finance system could have consequences for the FHLBanks and our ability to provide readily accessible liquidity to our members. However, it is impossible to determine at this time whether or when legislation would be enacted for housing GSE or housing finance reform. The ultimate effects of these efforts on the FHLBanks are unknown and will depend on the legislation or other changes, if any, that ultimately are implemented.

Final Rule and Guidance on the Supervision and Regulation of Certain Nonbank Financial Companies

The Financial Stability Oversight Council (Oversight Council) issued a final rule and interpretive guidance effective May 11, 2012, on the standards and procedures the Oversight Council will employ in determining whether to designate a nonbank financial company for supervision by the Federal Reserve and to make such a company subject to certain enhanced prudential

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standards and additional requirements. The guidance issued with this final rule provides that the Oversight Council expects to use the following process in making its determinations:

• A first stage identifying nonbank financial companies with $50 billion or more of total consolidated assets (as of June 30, 2013, we had $38.0 billion in total assets) and that exceed any one of five threshold indicators of interconnectedness or susceptibility to material financial distress, including whether a company has $20 billion or more in total debt outstanding (as of June 30, 2013, we had $34.2 billion in total outstanding consolidated obligations, our principal form of debt);

• A second stage involving a robust analysis by the Oversight Council of the potential threat that the nonbank financial companies identified in the first stage could pose to U.S. financial stability, based on additional quantitative and industry and company-specific qualitative factors; and

• A third stage during which the Oversight Council will consider qualitative factors about the nonbank financial companies identified in the second stage as meriting further review, including using information collected directly from such company.

The final rule provides that, in making its determinations, the Oversight Council will consider as one factor whether the nonbank financial company is subject to oversight by a primary financial regulatory agency (for the Seattle Bank, the Finance Agency). A nonbank financial company that the Oversight Council proposes to designate for additional supervision (for example, periodic stress testing) and prudential standards (such as heightened liquidity or capital requirements) under this rule has the opportunity to contest the designation. If the Seattle Bank is designated by the Oversight Council for supervision by the Federal Reserve and subject to additional Federal Reserve prudential standards, our operations and business could be adversely impacted by any additional compliance costs, liquidity or capital requirements, and restrictions on business activities.

On April 5, 2013, the Federal Reserve published a final rule that establishes the requirements for determining when a company is “predominately engaged in financial activities." The final rule provides that a company is “predominantly engaged in financial activities” and thus a “nonbank financial company” if:

• as determined in accordance with applicable accounting standards, (1) the consolidated annual gross financial revenues of the company in either of its two most recently completed fiscal years represent 85% or more of the company's consolidated annual gross revenues in the applicable fiscal year, or (2) the company's consolidated total financial assets as of the end of either of its two most recently completed fiscal years represent 85% or more of the company's consolidated total assets as of the end of the applicable fiscal year; or

• based on all the facts and circumstances, it is determined by the Oversight Council, with respect to the definition of a “nonbank financial company,” or the Federal Reserve, with respect to the definition of a “significant nonbank financial company,” that (1) the consolidated annual gross financial revenues of the company represent 85% or more of the company's consolidated annual gross revenues, or (2) the consolidated total financial assets of the company represent 85% or more of the company's consolidated total assets.

Under the final rule, each of the FHLBanks would likely be a nonbank financial company.

The final rule also defines the terms "significant nonbank financial company" to mean (1) any nonbank financial company supervised by the Federal Reserve; and (2) any other nonbank financial company that had $50 billion or more in total consolidated assets as of the end of its most recently completed fiscal year; and "significant bank holding company" as ''any bank holding company or company that is, or is treated in the United States as, a bank holding company, that had $50 billion or more in total consolidated assets as of the end of the most recently completed calendar year.''

If an FHLBank is designated by the Oversight Council for supervision by the Federal Reserve (and therefore becomes a significant nonbank financial company), the designated FHLBank would be subject to increased supervision and oversight as described above.

Commodity Futures Trading Commission (CFTC) Final Rule on Swap Execution Facilities

On May 16, 2013, the CFTC approved final rules that establish a regulatory framework for “swap execution facilities” (SEFs). SEFs are trading platforms in which more than one market participant has the ability to execute swaps with more than one other market participant (i.e., a “many-to-many” trading platform) that are not designated contract markets.The final rule was published on June 4, 2013 and became effective on August 5, 2013. The Seattle Bank will be required to execute certain derivatives in compliance with SEF rules.

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Oversight Council Recommendations Regarding Money Market Mutual Fund (MMF) Reform

The Oversight Council has issued certain proposed recommendations for structural reforms of MMFs, stating that such reforms are intended to address the structural vulnerabilities of MMFs. In addition, on June 19, 2013, the Securities and Exchange Commission (SEC) proposed two alternatives for amending rules that govern MMFs under the Investment Company Act of 1940, as amended. The first alternative proposal would require non-government institutional MMFs to sell and redeem shares based on the current market-based value of the securities in their underlying portfolios. The second alternative proposal would require non-government institutional MMFs to generally impose a liquidity fee if a fund's liquidity levels were to fall below a specified threshold and would permit the funds to temporarily suspend redemptions.

Consumer Financial Protection Bureau (CFPB) Final Rule on Qualified Mortgages (QMs)

In January 2013, the CFPB issued a final rule, effective January 14, 2014, establishing new standards for mortgage lenders to follow during the loan approval process to determine whether a borrower can afford to repay certain types of loans, including mortgages and other loans secured by a dwelling. The final rule provides for a rebuttable "safe harbor" from consumer claims that a lender did not adequately consider whether a consumer can afford to repay the lender's mortgage, provided that the mortgage meets the requirements to be considered a QM. QMs are home loans that are either eligible for purchase by Fannie Mae and Freddie Mac or otherwise satisfy certain underwriting standards. On May 6, 2013, the Finance Agency announced that Fannie Mae and Freddie Mac will no longer purchase a loan that is not a QM under those underwriting standards starting January 10, 2014. The underwriting standards require lenders to consider, among other factors, the borrower's current income, current employment status, credit history, monthly mortgage payment and monthly payment for other loan obligations, and the borrower's total debt-to-income ratio. Further, the QM underwriting standards generally prohibit loans with excessive points and fees, interest-only or negative-amortization features (subject to limited exceptions), or terms greater than 30 years. On the same date as it issued these standards, the CFPB also issued a proposal that would allow small creditors (generally those with assets under $2 billion) in rural or underserved areas to treat first-lien balloon mortgage loans that they offer as QM mortgages. The QM liability safe harbor could provide incentives to lenders, including the FHLBanks' members, to limit their mortgage lending to QMs or otherwise reduce their origination of mortgage loans that are not QMs. This approach could reduce the overall level of members' mortgage loan lending and, in turn, reduce demand for FHLBank advances. Additionally, the value and marketability of mortgage loans that are not QMs, including those pledged as collateral to secure member advances, may be adversely affected. Comments were due February 25, 2013.

Basel Committee on Banking Supervision (Basel Committee) - Capital Framework

On July 2, 2013, the Federal Reserve and the Office of the Comptroller of the Currency adopted a final rule and the FDIC adopted an interim final rule establishing new minimum capital standards for financial institutions to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision. The new capital framework includes, among other things:

• a new minimum ratio of common-equity tier-1 minimum capital to risk-weighted assets, a higher minimum ratio of tier-1 capital to risk-weighted assets, and a common tier-1 capital conservation buffer;

• revised methodologies for calculation of risk-weighted assets to enhance risk sensitivity; and

• a minimum supplementary leverage ratio for financial institutions subject to the "advanced approaches" risk-based capital rules.

The new framework could require some FHLBank members to divest assets in order to comply with the more stringent capital and liquidity requirements, thereby tending to decrease their need for advances. The requirements may also adversely impact investor demand for consolidated obligations to the extent that impacted institutions divest or limit their investments in consolidated obligations. Conversely, the new requirements could incent FHLBank members to use term advances to create and maintain minimum balance sheet liquidity. Most FHLBank members must begin compliance with the final rule by January 1, 2015, although some larger members must begin to comply by January 1, 2014.

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Selected Financial Data

The following selected financial data for the Seattle Bank should be read in conjunction with “Part I. Item 1. Financial Statements,” included in this report, as well as the bank's 2012 10-K, including the financial statements and related notes for the years ended December 31, 2012, 2011, and 2010 (2012 Financial Statements).

Selected Financial Data	June 30, 2013			March 31, 2013			December 31, 2012			September 30, 2012			June 30, 2012
(in millions, except percentages)
Statements of Condition (at period end)
Total assets	$	38,018		$	36,564		$	35,420		$	35,641		$	36,370
Investments (1)	25,488			25,442			25,039			25,322			25,441
Advances	11,447			9,966			9,135			8,963			9,562
Mortgage loans held for portfolio, net (2)	915			985			1,060			1,131			1,203
Deposits and other borrowings	479			470			541			461			419
Consolidated obligations:
Discount notes	15,799			17,877			21,417			20,390			16,418
Bonds	18,429			15,152			10,497			11,898			16,631
Total consolidated obligations	34,228			33,029			31,914			32,288			33,049
Mandatorily redeemable capital stock	1,791			1,225			1,187			1,202			1,124
Affordable Housing Program (AHP) payable	20			19			19			17			16
Capital stock:
Class A capital stock - putable	51			55			109			114			119
Class B capital stock - putable	872			1,454			1,463			1,465			1,562
Total capital stock	923			1,509			1,572			1,579			1,681
Retained earnings:
Unrestricted	210			202			189			172			161
Restricted	44			42			39			35			32
Total retained earnings	254			244			228			207			193
AOCL	(112		)	(124		)	(227		)	(324		)	(510		)
Total capital	1,065			1,629			1,573			1,462			1,364
Statements of Income (for the quarter ended)
Interest income	$	70		$	71		$	79		$	75		$	81
Net interest income after provision (benefit) for credit losses	34			34			39			34			30
Other (loss) income	(2		)	2			1			—			13
Other expense	21			18			17			18			17
Income before assessments	11			18			23			16			26
Assessments	1			2			2			2			3
Net income	10			16			21			14			23
Financial Statistics (for the quarter ended)
Return on average equity	3.83		%	3.90		%	5.57		%	3.75		%	6.68		%
Return on average assets	0.11		%	0.18		%	0.23		%	0.15		%	0.25		%
Average equity to average assets	2.96		%	4.55		%	4.20		%	4.02		%	3.77		%
Regulatory capital ratio (3)	7.81		%	8.14		%	8.43		%	8.38		%	8.24		%
Net interest margin (4)	0.37		%	0.39		%	0.43		%	0.34		%	0.33		%

(1)	Investments include federal funds sold, securities purchased under agreements to resell, AFS and held-to-maturity (HTM) securities, and loans to other FHLBanks.
(2)	Mortgage loans held for portfolio, net includes allowance for credit losses of $2.2 million as of June 30, 2013 and March 31, 2013, and $2.3 million, $3.1 million, and $5.7 million as of December 31, 2012, September 30, 2012, and June 30, 2012.
(3)	Regulatory capital ratio is defined as period-end regulatory capital (i.e., permanent capital, Class A capital stock, and general allowance for losses) expressed as a percentage of period-end total assets.
(4)	Net interest margin is defined as net interest income for the period, expressed as a percentage of average earning assets for the period.

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Financial Condition as of June 30, 2013 and December 31, 2012

Our assets principally consist of advances, investments, and mortgage loans. Our advance balance and our advances as a percentage of total assets as of June 30, 2013 increased to $11.4 billion, from $9.1 billion, as of December 31, 2012, and to 30.1% from 25.8%. As of June 30, 2013, our investments increased slightly to $25.5 billion, from $25.0 billion as of December 31, 2012. The balance of our mortgage loans outstanding continued to decline due to receipt of principal payments.

The following table summarizes our major categories of assets as a percentage of total assets as of June 30, 2013 and December 31, 2012.

	As of	As of
Major Categories of Assets as a Percentage of Total Assets	June 30, 2013	December 31, 2012
(in percentages)
Advances *	30.1	25.8
Investments:
Short-term	32.1	36.7
CMA investments*	3.3	2.0
Other medium-/long-term	31.6	32.0
Subtotal	67.0	70.7
Mortgage loans *	2.4	3.0
Other assets	0.5	0.5
Total	100.0	100.0

* Core mission activity (CMA). CMA also includes the principal balance of letters of credit, which are not reflected on our statements of condition), which represented 1.2% and 1.4% of total assets as of June 30, 2013 and December 31, 2012. CMA investments include housing finance agency obligations. Our ratio of CMA assets to total assets as of June 30, 2013 and December 31, 2012 was 37.0% and 32.2%.

We obtain funding to support our business primarily through the issuance, by the Office of Finance as our agent, of debt securities in the form of consolidated obligations. To a significantly lesser extent, we also rely on member deposits and on the issuance of our capital stock to our members in connection with their membership and their utilization of our products.

The following table summarizes our major categories of liabilities and total capital as a percentage of total liabilities and capital as of June 30, 2013 and December 31, 2012.

Major Categories of Liabilities and Capital	As of	As of
as a Percentage of Total Liabilities and Capital	June 30, 2013	December 31, 2012
(in percentages)
Consolidated obligations	90.0	90.1
Deposits	1.3	1.6
Mandatorily redeemable capital stock	4.7	3.3
Other liabilities	1.2	0.6
Total capital	2.8	4.4
Total	100.0	100.0

We discuss the material changes in each of our principal categories of assets and liabilities and our capital stock in more detail below.

Advances

Advance demand increased in first half 2013, by 25.3%, to $11.4 billion as of June 30, 2013, from $9.1 billion, as of December 31, 2012. Second quarter 2013 advance growth was primarily from our larger regional institutions as they began to experience increased retail loan demand. First quarter 2013 advance growth was primarily attributable to our then-largest member, Bank of America, Oregon, N.A. It is unclear how the increases in long-term interest-rates occurring in May and June 2013, and which may continue to occur, will impact advance demand from our members, as such demand is dependent upon many factors, including among others, retail loan demand, retail core deposit activity, and our members' needs in managing the associated interest-rate risk on their balance sheets.

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The following table summarizes the par value of our advances outstanding by member type as of June 30, 2013 and December 31, 2012.

	As of		As of
Par Value of Advances by Member Type	June 30, 2013		December 31, 2012
(in thousands)
Commercial banks	$	3,930,915	$	5,525,451
Thrifts	2,903,052		2,693,411
Credit unions	398,026		405,012
Total member advances	7,231,993		8,623,874
Housing associates	1,413		1,987
Nonmember borrowers	4,078,352		255,278
Total par value of advances	$	11,311,758	$	8,881,139

A large percentage of our advances is held by a limited number of borrowers. Changes in this group's borrowing decisions and ability to continue borrowing have affected and can still significantly affect the amount of our advances outstanding. We expect that our advances will be concentrated with our largest borrowers for the foreseeable future.

In March 2013, we received notice from Bank of America Oregon, N.A., our then-largest borrower, of its plans to merge into its parent, Bank of America, N.A. (BANA), and on April 1, 2013, the merger was completed. On that date, Bank of America Oregon, N.A.'s membership in the Seattle Bank was terminated and all outstanding advances and capital stock were assumed by BANA, a nonmember financial institution. As a result, BANA's business activity will eventually decline to zero as the outstanding advances mature. As currently structured, approximately 20% of the entity's $3.8 billion in outstanding advances will mature in 2013 and substantially all of its remaining advances will mature in 2015 and 2016.

The following table provides the par value of advances and percent of total par value of outstanding advances of our top five borrowers (at the holding company level) as of June 30, 2013 and December 31, 2012. Due to the number of member institutions that are part of larger holding companies, we believe this aggregation provides greater visibility into borrowing activity at the Seattle Bank than would a listing of advances by individual member institutions.

	As of June 30, 2013			As of December 31, 2012
Top Five Borrowers by Holding Company Advances Outstanding	Par Value of Advances Outstanding		Percent of Par Value of Advances Outstanding	Par Value of Advances Outstanding		Percent of Par Value of Advances Outstanding
(in thousands, except percentages)
Bank of America Corporation *	$	3,831,019	33.9	$	2,590,631	29.1
Washington Federal, Inc.	1,930,000		17.0	1,880,000		21.2
Glacier Bancorp, Inc.	1,212,153		10.7	992,013		11.2
Sterling Financial Corporation	1,196,589		10.6	604,027		6.8
HomeStreet, Inc.	409,490		3.6	259,090		2.9
Total	$	8,579,251	75.8	$	6,325,761	71.2

* Nonmember borrower as of April 1, 2013.

As of June 30, 2013 and December 31, 2012, the weighted-average remaining term-to-maturity of the advances outstanding to our top five borrowers as listed above was approximately 31 and 29 months.

Fixed interest-rate and structured advances (i.e., advances that include optionality) as a percentage of total par value of advances decreased to 65.3% as of June 30, 2013, compared to 98.8% as of December 31, 2012. The percentage of our outstanding advances maturing in one year or less decreased to 31.4%, or $3.6 billion, as of June 30, 2013, from 50.1%, or $4.5 billion, as of December 31, 2012, while advances with one-to-three year terms-to-maturity increased. The changes in our advance portfolio's interest-rate payment terms and term-to-maturity are primarily due to the Bank of America, Oregon N.A.'s borrowing of medium-term variable interest-rate advances in first quarter 2013.

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The following table summarizes our advance portfolio by product type as of June 30, 2013 andDecember 31, 2012.

	As of June 30, 2013			As of December 31, 2012
Advances Outstanding by Product Type	Par Value of Advances Outstanding		Percent of Par Value of Advances Outstanding	Par Value of Advances Outstanding		Percent of Par Value of Advances Outstanding
(in thousands, except percentages)
Variable interest-rate advances:
Cash management	$	170,923	1.5	$	76,265	0.9
Adjustable interest-rate	3,750,000		33.2	22,500		0.2
Fixed interest-rate advances:
Non-amortizing	5,485,906		48.5	6,248,296		70.4
Amortizing	337,413		3.0	337,262		3.8
Structured advances:
Putable:
Non-knockout	810,516		7.2	1,365,516		15.4
Knockout	300,000		2.6	310,000		3.5
Capped floater	10,000		0.1	10,000		0.1
Floating-to-fixed convertible *	60,000		0.5	75,000		0.8
Symmetrical prepayment	387,000		3.4	436,300		4.9
Total par value	$	11,311,758	100.0	$	8,881,139	100.0

* These advances have passed their conversion date and have converted to fixed interest rates.

The following table summarizes our advance portfolio by interest payment terms to maturity as of June 30, 2013.

	As of June 30, 2013
Interest Payment Terms to Maturity	Fixed		Variable		Total
(in thousands)
Due in one year or less	$	2,632,755	$	920,923	$	3,553,678
Due after one year	4,748,080		3,010,000		7,758,080
Total par value	$	7,380,835	$	3,930,923	$	11,311,758

The total weighted-average interest rate on our advance portfolio decreased to 1.37% as of June 30, 2013, from 1.78% as of December 31, 2012. The weighted-average interest rate on our portfolio depends upon the term-to-maturity and type of advances within the portfolio, as well as on our cost of funds (which is the basis for our advance pricing).     

Member Demand for Advances

Many factors affect the demand for advances, including changes in credit markets, interest rates, collateral availability, regulation, and our members' liquidity and wholesale funding needs. Our members regularly evaluate their other funding options relative to our advance products and pricing. During the six months ended June 30, 2013, many of our members experienced increased retail loan demand. However, it is unclear how the increases in long-term interest-rates occurring in May and June 2013, and which may continue to occur, will impact advance demand from our members, as such demand is dependent upon many factors, including among others, retail loan demand, retail core deposit activity, and our members' needs to manage the associated interest-rate risk on their balance sheets. In addition, we expect total demand for advances will decline as a result of the withdrawal on April 1, 2013, of our then-largest borrower, Bank of America Oregon, N.A, and its subsequent inability to enter into new advances with the Seattle Bank.

We periodically review our advance pricing structure to determine whether it remains competitive and complies with regulatory requirements. Our current advance pricing structure includes differential pricing and posted-rate pricing, including window and auction pricing. The differential pricing option, under which borrowers can request an advance rate lower than our posted rates, is administered by specified bank employees within parameters established by our asset and liability management committee (consisting of Seattle Bank employees) under authority delegated by our president and chief executive officer and overseen by the Board. Under the auction funding option, borrowers can generally borrow at a lower interest rate than the posted rates. Auction funding is typically available two times per week when the Seattle Bank participates in issuances of consolidated obligation discount notes from the Office of Finance. Borrowers do not know the interest rate of the advance until the auction is

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complete. We may also offer advance promotions from time to time, where we temporarily lower our posted rates on advances with specific structures.

Our members' use of posted-rate window pricing increased during first half 2013 compared to the same period in 2012, with aggregate offsetting decreases in differential and auction pricing, due primarily to more favorable pricing execution on the window posted-rate pricing option and to Bank of America Oregon, N.A.'s inability to take out differentially priced (or any new) advances after April 1, 2013. The use of differential pricing means that interest rates on our advances may be lower for some members requesting advances within specified criteria than for others, so that we can compete with lower interest rates available to those members that have alternative wholesale or other funding sources. In general, our larger members have more alternative funding sources and are able to access funding at lower interest rates than our smaller members. Overall, we believe that the use of differential pricing has helped to support our advance business and improve our ability to generate net income for the benefit of all of our members.

The following table summarizes our advance pricing as a percentage of new advance activity, excluding cash management advances, for the six months ended June 30, 2013 and 2012.

	For the Six Months Ended June 30,
Advance Pricing	2013	2012
(in percentages)
Differential pricing	61.4	84.8
Posted-rate pricing:
Window	31.4	1.8
Auction	7.2	13.4
Total	100.0	100.0

The demand for advances also may be affected by the manner in which members support their advances with capital stock, their ability to have capital stock repurchased or redeemed by us, and the dividends we may pay on our capital stock. In September 2012, we implemented a modest excess capital stock repurchase program with Finance Agency approval. Since then, we have repurchased a total of $96.4 million of excess capital stock, including $24.0 million in second quarter 2013. In addition, during second quarter 2013, we repurchased $353,000 of excess Class B stock which met the following criteria: (1) originally purchased for activity purposes; and (2) purchased on or after October 27, 2010. Our ability to repurchase excess capital stock before the end of the stated five-year redemption period could increase the likelihood that members will purchase incremental capital stock to support new advances.

In July 2013, with Finance Agency approval, our Board declared a $0.025 per share cash dividend,which was paid on July 30, 2013. The dividend, totaling $683,000, was based on our second quarter financial results and calculated based on average Class A and Class B stock outstanding during the second quarter 2013.

In addition, members continued to utilize the excess stock pool to support their new advances. As of June 30, 2013, $139.9 million of outstanding advances were obtained by members using our excess stock pool. See Note 10 in our 2012 Financial Statements in our 2012 Form 10-K for additional information on the excess stock pool.

Credit Risk

Our credit risk from advances is concentrated in commercial banks and savings institutions. We assign each member institution an internal risk rating based on a number of factors, including levels of non-performing assets, profitability, and capital. Should the financial condition of a borrower decline or become otherwise impaired, we may limit the term to maturity and type of advances available to the borrower or require the borrower to physically deliver collateral or provide additional collateral to us. As of June 30, 2013 and December 31, 2012, 23% and 24% of our borrowers were on the physical possession collateral arrangement, representing 7% and 9% of the par value of our outstanding advances. This arrangement generally reduces our credit risk and allows us to continue lending to borrowers whose financial condition has weakened. We have never incurred a credit loss on an advance.

Our members' borrowing capacity with the Seattle Bank depends on the collateral they pledge and is calculated as a percentage of the collateral's value. We periodically evaluate this percentage in the context of the value of the collateral in current market conditions. As of June 30, 2013 and December 31, 2012, we had unencumbered rights to collateral (i.e., loans and securities), on a borrower-by-borrower basis, with an estimated value in excess of all outstanding extensions of credit.

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For additional information on advances, see Note 5 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" in this report.

Investments

We maintain portfolios of short- and medium/long-term investments to help manage liquidity, to maintain leverage and capital ratios, and to generate returns on our capital. Short-term investments generally include overnight and term federal funds sold, securities purchased under agreements to resell, interest-bearing certificates of deposit, and commercial paper. Medium/long-term investments generally include debentures and MBS issued by other GSEs, such as Fannie Mae or Freddie Mac, PLMBS (which we no longer acquire), securities issued or guaranteed by other U.S. government agencies, including the Export-Import Bank of the U.S. (Ex-Im Bank), securities issued by state or local housing authorities, and, historically, Temporary Liquidity Guarantee Program (TLGP) securities. Our investment securities are classified either as AFS or HTM.

The tables below present the carrying values and yields of our AFS and HTM securities by major security type and contractual maturity, as well as our other short-term investments, as of June 30, 2013 and December 31, 2012. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	As of June 30, 2013															As of December 31, 2012
Investments by Security Type and Maturity Date	One Year or Less			After One Year Through Five Years			After Five Years Through 10 Years			After 10 Years			Total Carrying Value			Total Carrying Value
(in thousands, except percentages)
AFS securities:
Non-MBS:
Other U.S. agency obligations (1)	$	—		$	22,007		$	29,124		$	1,880,767		$	1,931,898		$	1,166,918
GSE (2)	199,061			173,889			381,690			412,350			1,166,990			1,417,282
Total non-MBS	199,061			195,896			410,814			2,293,117			3,098,888			2,584,200
MBS:
PLMBS	—			—			—			1,296,204			1,296,204			1,293,764
Total AFS securities	$	199,061		$	195,896		$	410,814		$	3,589,321		$	4,395,092		$	3,877,964
Yield on AFS securities	0.83		%	0.52		%	2.67		%	1.47		%	1.51		%	1.05		%
HTM securities:
Non-MBS:
Certificates of deposit	$	268,000		$	—		$	—		$	—		$	268,000		269,000
Other U.S. agency obligations (1)	—			1,939			6,053			12,881			20,873			22,599
GSE (2)	—			—			—			—			—			299,954
State and local housing agency obligations	11,460			143,375			295,255			822,460			1,272,550			708,776
Total non-MBS	279,460			145,314			301,308			835,341			1,561,423			1,300,329
MBS:
Residential:
Other U.S agency obligations (3)	—			9			—			127,168			127,177			141,034
GSE (2)	—			1,179			405,535			5,090,346			5,497,060			6,213,529
PLMBS	—			17,552			39,564			422,250			479,366			577,354
Commercial/multi-family:
GSE (2)	—			—			1,009,404			223,123			1,232,527			186,165
Total MBS	—			18,740			1,454,503			5,862,887			7,336,130			7,118,082
Total HTM securities	$	279,460		$	164,054		$	1,755,811		$	6,698,228		$	8,897,553		$	8,418,411
Yield on HTM securities	0.17		%	1.14		%	0.59		%	1.09		%	0.96		%	1.31		%
Securities purchased under agreements to resell	$	6,000,000		$	—		$	—		$	—		$	6,000,000		$	5,600,000
Federal funds sold	6,194,800			—			—			—			6,194,800			7,143,200
Total investments	$	12,673,321		$	359,950		$	2,166,625		$	10,287,549		$	25,487,445		$	25,039,575

(1) Consists of obligations issued or guaranteed by one or more of the following: Small Business Administration (SBA), U.S. Agency for International Development (U.S. AID), Private Export Funding Corporation, and Ex-Im Bank.

(2) Consists of obligations issued by Federal Farm Credit Bank (FFCB), Freddie Mac, Fannie Mae, and Tennessee Valley Authority (TVA).

(3) Consists of securities issued by Government National Mortgage Association (Ginnie Mae).

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As of June 30, 2013, our investments increased slightly to $25.5 billion, from $25.0 billion as of December 31, 2012. During first half 2013, we continued to increase our investments in state housing finance agency obligations, which increased our holdings of CMA assets. As of June 30, 2013, our medium- and longer-term investments comprised 31.6% of total assets, essentially unchanged from 32.0% as of December 31, 2012.

GSE Debt Obligations

The following table summarizes the carrying value of our investments in GSE debt obligations as of June 30, 2013 and December 31, 2012.

	As of		As of
Carrying Value of Investments in GSE Debt Securities	June 30, 2013		December 31, 2012
(in thousands)
Freddie Mac	$	391,521	$	418,506
Fannie Mae	202,319		313,006
FFCB	201,755		557,914
TVA	371,395		427,810
Total	$	1,166,990	$	1,717,236

MBS Investments

Our MBS investments represented 294.8% and 290.1% of our regulatory capital as of June 30, 2013 and December 31, 2012. Finance Agency regulation limits our investments in MBS (including PLMBS) and mortgage-related asset-backed securities (such as those backed by home equity loans or SBA loans) by requiring that the total book value of such securities owned by us on the day we purchase the securities does not exceed 300% of our previous month-end regulatory capital. As of June 30, 2013 and December 31, 2012, our MBS investments included $2.4 billion and $2.9 billion in Freddie Mac MBS and $4.3 billion and $3.5 billion in Fannie Mae MBS. See “—Credit Risk” below for credit ratings relating to our MBS investments as of June 30, 2013 and December 31, 2012.

During the six months ended June 30, 2013, we sold one AFS PLMBS security that had been determined to be other-than-temporarily impaired in previous periods. The proceeds of this sale totaled $41.8 million and resulted in a gain of $903,000. We have both the ability and intent to hold our remaining other-than-temporarily impaired securities until their fair values exceed their amortized cost bases. During the six months ended June 30, 2012, we sold one AFS security. The proceeds of the sale was $55.9 million and resulted in a loss of $51,000.

Credit Risk

We are subject to credit risk on our investments. We actively monitor our credit exposures and the credit quality of our counterparties, including an assessment of each counterparty's financial performance, capital adequacy, and sovereign support, as well as related market signals. As a result of these monitoring activities, we may limit additional or suspend existing exposures, as appropriate. In addition, we are subject to regulatory limits on our unsecured portfolio.

We limit our unsecured credit exposure to any counterparty based on the credit quality and capital level of the counterparty and the capital level of the Seattle Bank. We determine our limits on our unsecured credit exposure to GSE debt obligations by applying the same criteria utilized for other unsecured counterparties, with the exception that the limits are based on our total capital rather than the lower of our capital and the GSE's capital.

We are prohibited by regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. Our unsecured credit exposure to domestic counterparties and U.S. subsidiaries of foreign commercial banks includes the risk that these counterparties have extended credit to non-U.S. counterparties and foreign sovereign governments. Our unsecured credit exposure to U.S. branches and agency offices of foreign commercial banks includes the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet its contractual repayment obligations. We did not own any financial instruments issued by foreign sovereign governments, including those that are members of the European Union, as of June 30, 2013.

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The following table presents our unsecured credit exposure on securities purchased from private counterparties as of June 30, 2013 and December 31, 2012. This table excludes those investments with implicit or explicit government guarantees and includes associated accrued interest receivable.

	As of		As of
Unsecured Credit Exposure Including Accrued Interest Receivable	June 30, 2013		December 31, 2012
(in thousands)
Federal funds sold	$	6,195,368	$	7,144,092
Certificates of deposit	268,069		269,052
Total	$	6,463,437	$	7,413,144

The following table presents our unsecured investments by contractual terms to maturity and the domicile of the counterparty or, for U.S. branches and agency offices of foreign commercial banks, the domicile of the counterparty's parent as of June 30, 2013. We had no unsecured investments greater than 90 days as of June 30, 2013.

	Carrying Value as of June 30, 2013
Contractual Maturity of Unsecured Investment Credit Exposure by Domicile of Counterparty	Overnight		Two Days through 30 Days		31 Days through 90 Days		Total
(in thousands)
Domestic	$	385,000	$	200,000	$	—	$	585,000
U.S. subsidiaries of foreign commercial banks	264,800		268,000		—		532,800
Total	649,800		468,000		—		1,117,800
U.S. branches and agency offices of foreign commercial banks:
Canada	535,000		417,000		269,000		1,221,000
Netherlands	832,000		—		—		832,000
Sweden	300,000		—		665,000		965,000
Australia	—		542,000		418,000		960,000
Norway	266,000		—		269,000		535,000
Finland	832,000		—		—		832,000
Total	2,765,000		959,000		1,621,000		5,345,000
Total	$	3,414,800	$	1,427,000	$	1,621,000	$	6,462,800

The following table presents our unsecured investments by the counterparty credit ratings and the domicile of the counterparty or, for U.S. branches and agency offices of foreign commercial banks, the domicile of the counterparty's parent as of June 30, 2013.

	Carrying Value as of June 30, 2013
Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty		AA		A		Total
(in thousands)
Domestic		$	—	$	585,000	$	585,000
U.S. subsidiaries of foreign commercial banks		—		532,800		532,800
Total		—		1,117,800		1,117,800
U.S. branches and agency offices of foreign commercial banks:
Canada		417,000		804,000		1,221,000
Netherlands		832,000		—		832,000
Sweden		719,000		246,000		965,000
Australia		960,000		—		960,000
Norway		—		535,000		535,000
Finland		832,000		—		832,000
Total		3,760,000		1,585,000		5,345,000
Total		$	3,760,000	$	2,702,800	$	6,462,800

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Our residential MBS investments consist of agency-guaranteed securities and senior tranches of privately issued prime and Alt-A MBS collateralized by residential mortgage loans, including hybrid adjustable-rate mortgages (ARMs) and option ARMs. Our exposure to the risk of loss on our investments in MBS increases when the loans underlying the MBS exhibit high rates of delinquency, foreclosure, and losses on the sale of foreclosed properties. In order to reduce our risk of loss on these investments, all of the MBS owned by the Seattle Bank contain one or more of the following forms of credit protection:

• Subordination. Where the MBS is structured such that payments to junior classes are subordinated to senior classes to prioritize cash flows to the senior classes.

• Excess spread. Where the weighted-average coupon rate of the underlying mortgage loans in the pool is higher than the weighted-average coupon rate on the MBS. The spread differential may be used to cover any losses that may occur.

• Over-collateralization. Where the total outstanding balance on the underlying mortgage loans in the pool is greater than the outstanding MBS balance. The excess collateral is available to cover any losses that may occur.

Although we purchased, at acquisition, additional credit enhancement on our PLMBS, due to the deteriorating credit quality of the collateral underlying these securities, we have recorded significant OTTI credit losses since third-quarter 2008. As required by the Consent Arrangement, we are working to mitigate our risks with respect to potential further declines in the credit quality of our PLMBS portfolio. For example, we monitor the market prices of our AFS PLMBS determined to be other-than-temporarily impaired for opportunities to limit our credit exposure.

The following tables summarize the carrying value of our investments and their credit ratings as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013
Investments by Credit Rating	AAA		AA		A		BBB		Below Investment Grade		Unrated		Total
(in thousands)
Securities purchased under agreements to resell	$	—	$	—	$	3,000,000	$	3,000,000	$	—	$	—	$	6,000,000
Federal funds sold	—		3,760,000		2,434,800		—		—		—		6,194,800
Investment securities:
Certificates of deposit	—		—		268,000		—		—		—		268,000
U.S. agency and GSE obligations	—		3,119,761		—		—		—		—		3,119,761
State or local housing obligations	1,052,213		220,337		—		—		—		—		1,272,550
Total non-MBS	1,052,213		7,100,098		5,702,800		3,000,000		—		—		16,855,111
MBS:
Residential:
Other U.S. agency	—		127,177		—		—		—		—		127,177
GSE	—		5,497,060		—		—		—		—		5,497,060
PLMBS	—		94,385		23,310		102,428		1,553,289		2,158		1,775,570
Commercial:
GSE	—		1,232,527		—		—		—		—		1,232,527
Total MBS	—		6,951,149		23,310		102,428		1,553,289		2,158		8,632,334
Total	$	1,052,213	$	14,051,247	$	5,726,110	$	3,102,428	$	1,553,289	$	2,158	$	25,487,445

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	As of December 31, 2012
Investments by Credit Rating	AAA		AA		A		BBB		Below Investment Grade		Unrated		Total
(in thousands)
Securities purchased under agreements to resell	$	—	$	—	$	2,600,000	$	3,000,000	$	—	$	—	$	5,600,000
Federal funds sold	—		4,656,000		2,487,200		—		—		—		7,143,200
Investment securities:
Certificates of deposit	—		—		269,000		—		—		—		269,000
U.S. agency and GSE obligations	—		2,906,753		—		—		—		—		2,906,753
State or local housing obligations	499,971		208,805		—		—		—		—		708,776
Total non-MBS	499,971		7,771,558		5,356,200		3,000,000		—		—		16,627,729
MBS:
Residential:
Other U.S. agency	—		141,034		—		—		—		—		141,034
GSE	—		6,213,529		—		—		—		—		6,213,529
PLMBS	410		58,320		39,763		195,464		1,574,853		2,308		1,871,118
Commercial:
GSE	—		186,165		—		—		—		—		186,165
Total MBS	410		6,599,048		39,763		195,464		1,574,853		2,308		8,411,846
Total	$	500,381	$	14,370,606	$	5,395,963	$	3,195,464	$	1,574,853	$	2,308	$	25,039,575

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The following table summarizes, among other things, the unpaid principal balance, amortized cost basis, gross unrealized loss, fair value, and OTTI losses, if applicable, of our PLMBS by collateral type, credit rating, and year of issuance, as of June 30, 2013. In the table below, the original weighted-average credit enhancement is the weighted-average percentage of par value of subordinated tranches and over-collateralization in place at the time of purchase to absorb losses before our investments incur a loss. The weighted-average credit enhancement is the weighted-average percentage of par value of subordinated tranches and over-collateralization currently in place to absorb losses before our investments incur a loss. The weighted-average collateral delinquency is the weighted average of the unpaid principal balance of the individual securities in the category that are 60 days or more past due.

	As of and for the Six Months Ended June 30, 2013
	Prime			Alt-A
PLMBS by Year of Securitization	2004 and prior			Total			2008			2007			2006			2005			2004 and prior
(in thousands, except percentages)
AA	$	14,430		$	80,086		$	75,528		$	—		$	—		$	—		$	4,558
A	17,734			5,821			—			—			—			—			5,821
BBB	36,795			65,974			—			—			—			2,585			63,389
Below investment grade:
BB	—			24,291			—			—			—			6,257			18,034
B	—			86,322			13,580			—			15,971			41,851			14,920
CCC	—			1,064,786			126,240			504,104			327,547			106,895			—
CC	—			684,209			152,035			382,736			149,438			—			—
C	—			109,330			—			109,330			—			—			—
D	—			81,252			—			64,898			—			16,354			—
Unrated	81			2,072			—			—			—			—			2,072
Total unpaid principal balance	$	69,040		$	2,204,143		$	367,383		$	1,061,068		$	492,956		$	173,942		$	108,794
Amortized cost basis	$	68,804		$	1,813,626		$	357,023		$	819,812		$	369,026		$	159,207		$	108,558
Gross unrealized losses	$	(1,891	)	$	(133,860	)	$	(33,361	)	$	(59,033	)	$	(19,791	)	$	(17,785	)	$	(3,890	)
Fair value	$	67,373		$	1,693,623		$	327,415		$	764,660		$	350,948		$	145,344		$	105,256
OTTI:
Credit-related OTTI losses	$	—		$	(342	)	$	—		$	(184	)	$	(158	)	$	—		$	—
Non-credit-related OTTI losses	—			342			—			184			158			—			—
Total OTTI losses	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Weighted-average percentage of fair value to unpaid principal balance	97.6		%	76.8		%	89.1		%	72.1		%	71.2		%	83.6		%	96.7		%
Original weighted-average credit enhancement	2.9		%	37.4		%	35.1		%	38.9		%	45.8		%	29.7		%	5.0		%
Weighted-average credit enhancement	14.4		%	21.8		%	29.0		%	20.2		%	21.1		%	25.2		%	11.1		%
Weighted-average collateral delinquency	4.8		%	36.3		%	21.6		%	40.8		%	47.0		%	27.4		%	8.6		%

The following table provides information on our PLMBS in unrealized loss positions as of June 30, 2013.

	As of June 30, 2013
PLMBS	Unpaid Principal Balance		Amortized Cost Basis		Gross Unrealized Losses			Weighted-Average Collateral Delinquency
(in thousands, except percentages)
Prime:
First lien	$	38,555	$	38,441	$	(1,891	)	6.0
Alt-A:
Option ARMs	1,290,648		1,074,566		(103,448		)	40.6
Alt-A and other	503,801		462,259		(30,412		)	22.5
Total PLMBS backed by Alt-A loans	1,794,449		1,536,825		(133,860		)	35.5
Total	$	1,833,004	$	1,575,266	$	(135,751	)	34.9

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The majority of our PLMBS are variable interest-rate securities collateralized by Alt-A residential mortgage loans. The following table summarizes the unpaid principal balance of our PLMBS by interest-rate type and underlying collateral as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013						As of December 31, 2012
PLMBS by Interest-Rate Type	Fixed		Variable		Total		Fixed		Variable		Total
(in thousands)
Prime	$	39,893	$	29,147	$	69,040	$	57,071	$	35,802	$	92,873
Alt-A	4,559		2,199,584		2,204,143		23,059		2,418,970		2,442,029
Total	$	44,452	$	2,228,731	$	2,273,183	$	80,130	$	2,454,772	$	2,534,902

OTTI Assessment

We evaluate each of our investments in an unrealized loss position for OTTI on a quarterly basis. As part of this process, we consider our intent to sell each such security and whether it is more likely than not that we would be required to sell such security before its anticipated recovery. If either of these conditions is met, we recognize an OTTI loss in earnings equal to the difference between the security's amortized cost basis and its fair value as of the statement of condition date. If neither condition is met, we perform analyses to determine if any of these securities are other-than-temporarily impaired. Based on current information, we determined that, for residential MBS issued by GSEs, the strength of the issuers' guarantees through direct obligations or U.S. government support is currently sufficient to protect us from losses. Further, we determined that it is not more likely than not that we will be required to sell impaired securities prior to their anticipated recovery. We expect to recover the entire amortized cost basis of these securities and have thus concluded that our gross unrealized losses on agency residential MBS are temporary as of June 30, 2013.

We recorded no additional OTTI credit losses on any new or previously impaired PLMBS for the three months endedJune 30, 2013. For the six months ended June 30, 2013, we recorded credit losses of $342,000 on two securities that were determined to be other-than-temporarily impaired prior to 2012. See Note 4 in "Part I. Item 1. Financial Statements and Condensed Notes" for additional information on our OTTI evaluation process.

Credit-related OTTI charges are recorded in current-period earnings on the statements of income, and non-credit losses are recorded on the statements of condition in AOCL. Our AOCL decreased to $112.1 millionas of June 30, 2013, compared to $226.5 millionas of December 31, 2012, primarily due to improvements in market prices of our AFS investments determined to be other-than-temporarily impaired. See "Part I. Item 1. Statements of Comprehensive Income" and Note 10 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" in this report for a tabular presentation of AOCL for the three and six months endedJune 30, 2013 and 2012.

The significant inputs used to evaluate our PLMBS for OTTI for the three months ended June 30, 2013, are detailed in Note 4 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" and "—Critical Accounting Policies and Estimates" in this report.

The following table summarizes key information as of June 30, 2013 for the PLMBS on which we recorded OTTI charges during the life of the security (i.e., impaired as of or prior to June 30, 2013).

	As of June 30, 2013
	HTM Securities								AFS Securities
Other-than-Temporarily Impaired Securities - Life to Date	Unpaid Principal Balance		Amortized Cost Basis		Carrying Value (1)		Fair Value		Unpaid Principal Balance		Amortized Cost Basis		Fair Value
(in thousands)
Alt-A PLMBS (2)	$	97,095	$	96,346	$	80,352	$	87,941	$	1,776,534	$	1,387,070	$	1,296,204

(1)	Carrying value of HTM securities does not include gross unrealized gains or losses; therefore, amortized cost net of gross unrealized losses will not necessarily equal the fair value.
(2)	Classification based on originator's classification at the time of origination or by an NRSRO upon issuance of the PLMBS.

The credit losses on our other-than-temporarily impaired PLMBS are based on such securities’ expected performance over their contractual maturities, which averaged approximately 27 years as of June 30, 2013. Since acquisition, through June 30, 2013, five of our other-than-temporarily impaired securities have suffered actual cash losses totaling $14.6 million.

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In addition to evaluating our PLMBS under a base-case scenario (as detailed in Note 4 of "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" in this report), we also perform a cash-flow analysis for these securities under a more stressful scenario than we utilize in our OTTI assessment. The stress-test scenario and associated results do not represent our current expectations and, accordingly, should not be construed as a prediction of our future results, market conditions, or the actual performance of these securities. Rather, the results from this hypothetical stress-test scenario provide a measure of the credit losses that we might incur if home price declines and subsequent recoveries are more adverse than those projected in our OTTI assessment. The results of this scenario are included in "—Critical Accounting Policies and Estimates" in this report.

Mortgage Loans

Mortgage Loans Held for Portfolio

The par value of our mortgage loans held for portfolio consisted of $831.4 million and $965.4 million in conventional mortgage loans and $83.9 million and $95.0 million in government-guaranteed mortgage loans as of June 30, 2013 andDecember 31, 2012. The portfolio balance decreased for the six months ended June 30, 2013due to our receipt of$143.4 million in principal payments.

We have not purchased mortgage loans under the Mortgage Purchase Program (MPP) since 2006, and as part of the Consent Arrangement, we have agreed not to purchase mortgage loans under the MPP. Because we have purchased no new mortgage loans since 2006 and sold no mortgage loans since 2011, the weighted-average FICO scores and loan-to-value ratios (i.e., values of outstanding mortgage loans as a percentage of appraised values), at origination, of our conventional mortgage loan portfolio are generally stable. As of June 30, 2013 and December 31, 2012, 96.5% and 96.7% of our conventional mortgage loans had FICO scores at origination over 660 and 93.4% and 93.6% of our conventional mortgage loan portfolio had loan-to-value ratios of less than 80%. As of June 30, 2013 and December 31, 2012, we had no high current loan-to-value loans. High current loan-to-value loans are those with an estimated current loan-to-value ratio greater than 100% based on movement in property values where the property securing the mortgage loan is located.

As of June 30, 2013 and December 31, 2012, approximately 77% of our outstanding mortgage loans held for portfolio had been purchased from our former member, Washington Mutual Bank, F.S.B., which was subsequently acquired by JPMorgan Chase Bank, N.A., a nonmember institution.

Credit Risk

We conduct a loss reserve analysis of our mortgage loan portfolio on a quarterly basis. As a result of our June 30, 2013 analysis, we determined that the credit enhancement provided by our members in the form of the LRA and our previously recorded allowance for credit losses was not sufficient to absorb the expected credit losses on our mortgage loan portfolio, primarily due to reduced LRA balances and higher than forecast delinquent mortgage payments in second quarter 2013. Accordingly, we recorded a provision for credit losses of $12,000 for the three months ended June 30, 2013. This provision partially offset the benefit we recorded in first quarter 2013, which was due to more favorable estimates of future credit losses, primarily related to modest improvements in housing price assumptions. For the six months ended June 30, 2013, we recorded a benefit for credit losses of $29,000. There was no benefit or provision for credit losses required for the same periods in 2012. Our allowance for credit losses totaled $2.2 million and $2.3 million as of June 30, 2013 and December 31, 2012.

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The following table provides a summary of the activity in our allowance for credit losses on mortgage loans held for portfolio, the recorded investment in mortgage loans 90 days or more past due, and information on nonaccrual loans as of and for the six months ended June 30, 2013 and 2012.

	As of and for the Six Months Ended June 30,
Past Due and Nonaccrual Mortgage Loan Data	2013			2012
(in thousands)
Total recorded investment in mortgage loans past due 90 days or more and still accruing interest	$	10,798		$	18,313
Nonaccrual loans	$	41,061		$	52,696
Allowance for credit losses on mortgage loans:
Balance, beginning of year	$	2,326		$	5,704
Charge-offs	(132		)	—
(Benefit) provision for credit losses	(29		)	—
Balance, end of period	$	2,165		$	5,704
Nonaccrual loans: *
Gross amount of interest that would have been recorded based on original terms	$	1,062		$	1,595
Shortfall	$	1,062		$	1,595

* A mortgage loan is placed on nonaccrual status when the contractual principal or interest is 90 days or more past due.

In addition to private mortgage insurance (PMI) and the LRA, we formerly maintained supplemental mortgage insurance (SMI) to cover losses on our conventional mortgage loans over and above losses covered by the LRA in order to achieve the minimum level of portfolio credit protection required by regulation. Under Finance Agency regulation, SMI from an insurance provider rated "AA" or the equivalent by an NRSRO must be obtained, unless this requirement is waived by the regulator. In 2008, the credit rating on our SMI provider was lowered from “AA-” to “A” and we cancelled our SMI policies. We remain in technical violation of the regulatory requirement to provide SMI on our MPP conventional mortgage loans.

Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. See Note 7 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" for additional information on our mortgage loans that are delinquent or in foreclosure and our real estate owned (REO) as of June 30, 2013 and December 31, 2012.

A mortgage loan is reported as a troubled debt restructuring (TDR) when: (1) we grant a concession that we would not otherwise consider, for legal or economic reasons, and the concession is accepted by the borrower, or (2) when a mortgage loan is discharged in a bankruptcy proceeding and not reaffirmed by the borrower. See Note 7 in “Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" for additional information on mortgage loans classified as TDRs.

With a delinquency rate of 12.7%, our government-insured mortgage loans are exhibiting delinquency rates that are significantly higher than those of the conventional mortgages within our mortgage loans held for portfolio. This is primarily due to the relative impact of individual mortgage delinquencies on the balance of our 945 outstanding government-insured mortgage loans as of June 30, 2013. We rely on FHA insurance, which generally provides a 100% guarantee, to protect against credit losses on this portfolio. See Note 7 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" for additional information on the government-insured mortgage loan portfolio.

MPF Xtra^® Product

On July 1, 2013, we began offering the MPF Xtra product to our members. The MPF Xtra product is offered under the Mortgage Partnership Finance® (“MPF”®) program offered by the FHLBank of Chicago. (“Mortgage Partnership Finance,” “MPF,” and "MPF Xtra" are registered trademarks of the FHLBank of Chicago). The MPF Xtra product provides participating Seattle Bank members an alternative for selling mortgage loans into the secondary market. When using the MPF Xtra product, mortgage loans from participating members (i.e., participating financial institutions, or PFIs) are first sold to the FHLBank of Chicago, which, acting as a loan aggregator, concurrently sells the loans to Fannie Mae, enabling smaller lenders to benefit from the same competitive pricing that larger national lenders receive when selling into the secondary market. The mortgage loans are never under the control of the Seattle Bank and are not recorded on our statements of condition.

Through a purchase price adjustment, the FHLBank of Chicago receives a transaction fee for its administrative activities for the loans sold to Fannie Mae, and we receive a nominal fee from the FHLBank of Chicago for facilitating the sale of loans by

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Seattle Bank PFIs through the MPF Xtra product. We believe that the introduction of the MFP Xtra product is a valuable addition to our product and service offerings and represents another milestone in our goal of resuming normal operations.

The credit risk on the mortgage loans sold through the MPF Xtra product is transferred to Fannie Mae. We are exposed to repurchase risk only if all of the following occur: 1) a loan sold through the MPF Xtra product defaults; 2) the loan fails to meet underwriting guidelines; and 3) our PFI fails. We have a quality control process in place to ensure loans comply with underwriting guidelines and we monitor our PFIs' financial condition on an ongoing basis. As a result, we believe the likelihood of a loss from loans sold using the MPFXtra product is remote. Further, we expect the fair value of any potential loss to be substantially zero.

Derivative Assets and Liabilities

Traditionally, we have used derivatives to hedge advances, consolidated obligations, certain AFS investments, and mortgage loans held for portfolio. The principal derivative instruments we use are interest-rate exchange agreements, such as interest-rate swaps, caps, floors, and swaptions. We transact our interest-rate exchange agreements with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute FHLBank consolidated obligations. Derivative transactions may be either over-the-counter with a counterparty (for bilateral derivatives) or over-the-counter cleared through a futures commission merchant (FCM or clearing member) with a central counterparty clearinghouse (CCC) or derivatives clearing organization (DCO) (for cleared derivatives). We are not a derivatives dealer and do not trade derivatives for profit.

We classify our interest-rate exchange agreements as derivative assets or liabilities according to the net fair value of the derivatives and associated accrued interest receivable, interest payable, and collateral by counterparty under individual netting arrangements. Subject to a netting arrangement, if the net fair value of our interest-rate exchange agreements by counterparty is positive, the net fair value is reported as an asset, and if negative, the net fair value is reported as a liability. Changes in the fair value of interest-rate exchange agreements are recorded directly through earnings. As of June 30, 2013 and December 31, 2012, we held derivative assets, including associated accrued interest receivable and payable and cash collateral from counterparties, of $101.3 million and $105.6 million and derivative liabilities of $55.6 million and $85.9 million. The changes in these balances reflect the effect of interest-rate changes on the fair value of our derivatives, expirations and terminations of certain outstanding interest-rate exchange agreements, and our entry into new agreements during the first half of 2013.

We use interest-rate exchange agreements to manage our risk in the following ways:

• As fair value hedges of underlying financial instruments, including fixed interest-rate advances, certain AFS securities, and consolidated obligations. A fair value hedge is a transaction where, assuming specific criteria identified in accounting principles generally accepted in the U.S. (GAAP) are met, the changes in fair value of a derivative instrument and a corresponding hedged item are recorded to income. For example, we use interest-rate exchange agreements to adjust the interest-rate sensitivity of consolidated obligations to approximate more closely the interest-rate sensitivity of assets, including advances.

• As economic hedges to manage risks in a group of assets or liabilities. For example, we purchase interest-rate caps as insurance for our consolidated obligations to protect against rising interest rates. As interest rates rise, the cost of issuing consolidated obligations increases and we will begin to receive payments from our counterparty when interest rates rise above a pre-defined rate, thereby capping the effective cost of issuing the consolidated obligations.

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The following table summarizes the notional amounts and fair values of our derivative instruments, including the effect of netting arrangements and collateral, as of June 30, 2013 and December 31, 2012. Changes in the notional amounts of interest-rate exchange agreements generally reflect changes in our use of such agreements to reduce our interest-rate risk and lower our cost of funds.

	As of June 30, 2013					As of December 31, 2012
Derivative Instruments by Product	Notional Amount		Fair Value (Loss) Gain Excluding Accrued Interest			Notional Amount		Fair Value (Loss) Gain Excluding Accrued Interest
(in thousands)
Advances:
Fair value - existing cash item	$	3,920,562	$	(135,790	)	$	3,915,530	$	(263,119	)
Investments:
Fair value - existing cash item	2,030,922		11,000			1,512,866		(56,729		)
Consolidated obligation bonds:
Fair value - existing cash item	15,367,670		69,142			8,213,670		270,177
Non-qualifying economic hedges	750,000		(61		)	500,000		(51		)
Total	16,117,670		69,081			8,713,670		270,126
Consolidated obligation discount notes:
Non-qualifying economic hedges	349,793		3			1,248,969		(14		)
Balance sheet:
Non-qualifying economic hedges	200,000		3,433			—		—
Intermediary positions:
Intermediaries	250,000		(68		)	223,000		(493		)
Total notional and fair value	$	22,868,947	(52,341		)	$	15,614,035	(50,229		)
Accrued interest at period end			30,972					30,640
Cash collateral held by counterparty - assets			74,560					39,278
Cash collateral held from counterparty - liabilities			(7,506		)			—
Net derivative balance			$	45,685				$	19,689
Net derivative asset balance			$	101,259				$	105,582
Net derivative liability balance			(55,574		)			(85,893		)
Net derivative balance			$	45,685				$	19,689

The total notional amount of interest-rate exchange agreements hedging advances of $3.9 billion was essentially unchanged as of June 30, 2013 and December 31, 2012. The total notional amount of interest-rate exchange agreements hedging consolidated obligation bonds increased by $7.2 billion, to $15.4 billion, as of June 30, 2013, from $8.2 billion as of December 31, 2012, primarily due to the overall increase in our total assets and our increased use of consolidated obligation bonds, rather than discount notes, due to the relatively more favorable funding costs.

Credit Risk

We are exposed to credit risk on our interest-rate exchange agreements because of potential counterparty nonperformance. The degree of counterparty credit risk on interest-rate exchange agreements and other derivatives depends on our selection of counterparties and the extent to which we use netting arrangements and other credit enhancements to mitigate the risk. We manage counterparty credit risk through credit analysis, collateral management, and other credit enhancements. The following is a description of the specific measures we employ by derivative type.

Cleared Derivatives

We are subject to nonperformance by the CCCs and DCOs (clearinghouse). The requirement that we post initial and variation margin through the clearing member, on behalf of the Clearinghouse, exposes us to institutional credit risk in the event that the clearing member or the clearinghouse fails to meet its obligations. The use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily for changes in the value of cleared derivatives through a clearing member. The Seattle Bank does not anticipate any credit losses on its cleared derivatives.

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Bilateral Derivatives

We are exposed to nonperformance by the counterparties to derivative agreements. We require netting agreements to be in place for all bilateral counterparties. These agreements include provisions for netting exposures across all transactions with that counterparty. The agreements also contain collateral delivery thresholds requiring the counterparty to deliver collateral to the Seattle Bank if the total exposure to that counterparty exceeds a specific threshold limit. The amount of net unsecured credit exposure that is permissible with respect to each bilateral counterparty depends on the credit rating of that counterparty. A counterparty must deliver collateral to us if the total market value of our exposure to that counterparty rises above a specific threshold. As a result of these risk mitigation initiatives, the Seattle Bank does not anticipate any credit losses on its bilateral derivative agreements.

We define "maximum counterparty credit risk" on our derivatives to be the estimated cost of replacing derivatives in a net asset position if the counterparty defaults. For this calculation, we assume the related non-cash collateral, if any, has no value. In determining the maximum counterparty credit risk on our derivatives, we consider accrued interest receivables and payables and the legal right to offset derivative assets and liabilities by counterparty. As of June 30, 2013 and December 31, 2012, our maximum counterparty credit risk, taking into consideration netting arrangements, was $108.8 million and $105.6 million, including $43.3 million and $38.7 million of net accrued interest receivable. We held $7.5 million cash collateral and no cash collateral from our counterparties for net credit risk exposures of $101.3 million and $105.6 millionas of June 30, 2013 and December 31, 2012. We also held $75.7 million and $86.5 million of securities collateral, consisting of GSE and U.S. Treasury securities, from our counterparties as of June 30, 2013 and December 31, 2012. We do not include the fair value of securities collateral, if held, from our counterparties in our derivative asset or liability balances. Changes in credit risk and net exposure after considering collateral on our derivatives are primarily due to changes in market conditions.

Certain of our bilateral derivative agreements include provisions that require us to maintain an investment-grade rating from each of the major credit-rating agencies. If our rating were to fall below investment grade, we would be in violation of these provisions, and the counterparties to our bilateral derivative agreements could request immediate and ongoing collateralization on derivatives in net liability positions. The aggregate fair value of our bilateral derivative instruments with credit-risk contingent features that were in a liability position as of June 30, 2013 was $130.1 million, for which we posted collateral of $74.6 million in the normal course of business. If the Seattle Bank's stand-alone credit rating had been lowered by one rating level (i.e., from "AA" to "A"), as of June 30, 2013, we would have been required to deliver up to $32.9 million of additional collateral to our derivative counterparties.

Our counterparty credit exposure, by credit rating, as of June 30, 2013 and December 31, 2012 is presented in the table below.

	As of June 30, 2013
Derivative Counterparty Credit Exposure by Credit Rating	Total Notional		Credit Exposure Net of Cash Collateral			Other Collateral Held		Net Credit Exposure
(in thousands)
A	$	5,182,646	$	94,275	(1)	$	75,702	$	18,573
Cleared derivatives	251,956		6,984		(2)	—		6,984
Total	$	5,434,602	$	101,259		$	75,702	$	25,557

	As of December 31, 2012
Derivative Counterparty Credit Exposure by Credit Rating	Total Notional		Credit Exposure Net of Cash Collateral			Other Collateral Held		Net Credit Exposure
(in thousands)
A	$	3,400,504	$	105,582	(1)	$	86,470	$	19,112

(1)	As reflected in our derivative asset balances, we held $7.5 million of cash collateral as of June 30, 2013 and held no cash collateral as of December 31, 2012.
(2)	Represents derivative transactions cleared with a clearinghouse.

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The following table presents our derivative asset and liability positions by counterparty credit rating based on the domicile of the counterparty or, for U.S. branches and agency offices of foreign commercial banks, the domicile of the counterparty's parent as of June 30, 2013.

	As of June 30, 2013
Derivative Assets and Liabilities by Counterparty Credit Rating	Notional Amount		AA		A		Cleared Derivatives		Total
(in thousands)
Counterparties in net derivative asset positions:
Domestic	$	3,804,602	$	—	$	94,087	$	6,984	$	101,071
U.S. branches and agency offices of foreign commercial banks
United Kingdom	1,630,000		—		188		—		188
Total counterparties in net derivative asset positions	$	5,434,602	$	—	$	94,275	$	6,984	$	101,259
Counterparties in net derivatives liability positions:
Domestic	$	6,971,464	$	658	$	11,100	$	—	$	11,758
U.S. subsidiaries of foreign commercial banks	2,088,084		—		15,208		—		15,208
Total	9,059,548		658		26,308		—		26,966
U.S. branches and agency offices of foreign commercial banks
United Kingdom	383,500		—		295		—		295
Germany	2,712,540		—		11,640		—		11,640
France	4,716,827		—		6,720		—		6,720
Switzerland	561,930		—		9,953		—		9,953
Total	8,374,797		—		28,608		—		28,608
Total counterparties in net liability positions	$	17,434,345	$	658	$	54,916	$	—	$	55,574
Total notional	$	22,868,947

We believe that the credit risk on our bilateral and cleared derivative agreements is relatively modest because we contract with counterparties that are of high credit quality and we have collateral and netting agreements in place with each counterparty.

Consolidated Obligations and Other Funding Sources

Our principal sources of funding are consolidated obligation discount notes and bonds issued on our behalf by the Office of Finance as our agent and, to a significantly lesser extent, additional funding sources obtained from the issuance of capital stock, deposits, and other borrowings. Although we are jointly and severally liable for all consolidated obligations issued by the Office of Finance on behalf of all of the FHLBanks, we report only the portion of consolidated obligations on which we are the primary obligor. In July 2013, Moody's affirmed its "Aaa" bond rating and revised the rating outlook to stable for the senior unsecured debt issues of the FHLBank System.

We seek to match, to the extent possible, the anticipated cash flows of our debt to the anticipated cash flows of our assets. For example, the cash flows of mortgage-related instruments are largely dependent on the prepayment behavior of borrowers. When interest rates rise and all other factors remain unchanged, borrowers (and issuers of callable investments) tend to refinance their debt more slowly than originally anticipated; when interest rates fall, borrowers tend to refinance their debt more rapidly than originally anticipated. We use a combination of bullet and callable debt in seeking to manage the risks from the variability of anticipated cash flows of our fixed interest-rate mortgage-related assets and callable investments, using a variety of prepayment scenarios.

With callable debt, we have the option to repay the obligation without penalty prior to the contractual maturity date of the debt obligation, while with bullet debt, we generally repay the obligation at maturity. Our callable debt is predominantly fixed interest-rate debt that may be used to fund our fixed interest-rate mortgage-related assets or that may be swapped to the LIBOR and used to fund variable interest-rate advances and investments. The call feature embedded in our debt is generally matched with a call feature in the interest-rate swap, giving the swap counterparty the right to cancel the swap under certain circumstances. In a falling interest-rate environment, the swap counterparty typically exercises its call option on the swap, and

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we, in turn, generally call the debt. To the extent we continue to have variable interest-rate advances or investments, or other short-term assets, we attempt to replace the called debt with new callable debt that is generally swapped to LIBOR. When appropriate, we use this type of structured funding to reduce our funding costs and manage liquidity and interest-rate risk.

The following table summarizes the carrying value of our consolidated obligations by type as of June 30, 2013 and December 31, 2012.

	As of		As of
Carrying Value of Consolidated Obligations	June 30, 2013		December 31, 2012
(in thousands)
Discount notes	$	15,799,353	$	21,417,653
Bonds	18,428,946		10,496,762
Total	$	34,228,299	$	31,914,415

The following table summarizes the outstanding balances, weighted-average interest rates, and highest outstanding monthly ending balance on our short-term debt (i.e., consolidated obligations with original maturities of one year or less from issuance date) as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013						As of December 31, 2012
	Consolidated Obligations						Consolidated Obligations
Short-Term Debt	Discount Notes			Bonds with Original Maturities of One Year or Less			Discount Notes			Bonds with Original Maturities of One Year or Less
(in thousands, except percentages)
Outstanding balance as of period end (par)	$	15,800,254		$	4,175,000		$	21,421,443		$	500,000
Weighted-average interest rate as of period end	0.05		%	0.14		%	0.12		%	0.14		%
Daily average outstanding for the period (par)	$	18,133,389		$	2,475,414		$	17,009,358		$	2,451,420
Weighted-average interest rate for the period	0.09		%	0.15		%	0.09		%	0.14		%
Highest outstanding balance at any month-end for the period	$	21,095,990		$	4,425,000		$	21,697,383		$	5,606,000

Consolidated Obligation Discount Notes

Outstanding consolidated obligation discount notes on which the Seattle Bank is the primary obligor decreased by 26.2%, to a par amount of $15.8 billion as of June 30, 2013, from $21.4 billion as of December 31, 2012. The decrease in consolidated obligation discount notes reflected the increase in medium- to longer-term advances and investments for the six months ended June 30, 2013, that were funded with similar term-to-maturity consolidated obligation bonds.

Consolidated Obligation Bonds

Outstanding consolidated obligation bonds on which the Seattle Bank is the primary obligor increased by79.7% to a par amount of$18.3 billion as of June 30, 2013, from$10.2 billion as of December 31, 2012. The increase in consolidated obligation bonds reflected the overall increase in the bank's total assets and the increase in medium- to longer-term advances and investments that were funded with bonds.

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The following table summarizes our consolidated obligation bonds by interest-rate type as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013			As of December 31, 2012
Interest-Rate Payment Terms	Par Value		Percent of Total Par Value	Par Value		Percent of Total Par Value
(in thousands, except percentages)
Fixed	$	16,100,665	87.9	$	8,830,385	86.6
Step-up*	1,845,000		10.1	1,162,000		11.4
Variable	175,000		0.9	—		—
Capped variable	200,000		1.1	200,000		2.0
Total par value	$	18,320,665	100.0	$	10,192,385	100.0

* The interest rates on step-up consolidated obligation bonds are fixed rates that increase at contractually specified dates.

Fixed interest-rate consolidated obligation bonds increased by $7.3 billion, to $16.1 billion, as of June 30, 2013, from December 31, 2012, due to higher overall asset balances and our increased use of structured funding during first half 2013. Variable interest-rate consolidated obligation bonds increased by $175.0 million, as of June 30, 2013 from December 31, 2012 due to increases in longer-term variable interest-rate advances. Step-up consolidated obligations bonds increased by $683.0 million, to $1.8 billion, as of June 30, 2013, from December 31, 2012 due to an increase in investor demand for this type of structure during first half 2013 and the resulting favorable cost to issue.

The following table summarizes our outstanding consolidated obligation bonds by year of contractual maturity as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013				As of December 31, 2012
Term-to-Maturity and Weighted-Average Interest Rates	Amount			Weighted- Average Interest Rate	Amount			Weighted- Average Interest Rate
(in thousands, except interest rates)
Due in one year or less	$	6,269,895		1.12	$	2,428,615		2.36
Due after one year through two years	1,970,500			2.03	1,161,500			4.77
Due after two years through three years	2,632,660			1.02	696,160			1.67
Due after three years through four years	295,000			0.63	386,500			3.89
Due after four years through five years	3,010,000			1.37	1,365,000			1.70
Thereafter	4,142,610			2.94	4,154,610			2.93
Total par value	18,320,665			1.65	10,192,385			2.79
Premiums	3,383				3,912
Discounts	(9,529		)		(11,310		)
Hedging adjustments	114,506				311,789
Fair value option valuation adjustments	(79		)		(14		)
Total	$	18,428,946			$	10,496,762

The weighted-average interest rate on our consolidated obligation bonds decreased to 1.65% as of June 30, 2013, from 2.79% as of December 31, 2012, primarily due to the increase in consolidated obligation bonds in the less-than-one-year through three-year terms to maturity.

Callable consolidated obligation bonds outstanding increased by$3.3 billion, to $7.1 billion,and, as a percentage of total consolidated obligation bonds, to 38.5%, compared to 36.7%, as of June 30, 2013, compared to December 31, 2012.

Other Funding Sources

Deposits are a source of funds for the Seattle Bank that offer our members a liquid, low-risk investment. We offer demand and term deposit programs to our members and to other eligible depositors. There is no requirement for members or other eligible depositors to maintain balances with us and, as a result, these balances fluctuate. Deposits decreased by $62.8 million, to $478.6 million, as of June 30, 2013, compared to $541.4 million as of December 31, 2012. Demand deposits comprised the largest percentage of deposits, representing 72.0% and 72.1% of deposits as of June 30, 2013 and December 31,

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2012. Deposit levels and types of deposits generally vary based on the interest rates paid to our members, as well as on our members' liquidity levels and market conditions.

Capital Resources and Liquidity

Our capital resources consist of capital received in consideration for Seattle Bank stock held by our members and nonmember shareholders (i.e., former members that own capital stock as a result of a merger with or acquisition by an institution that is not a member of the Seattle Bank) and retained earnings. The amount of our capital resources does not take into account our joint and several liability for the consolidated obligations of other FHLBanks. Our principal sources of liquidity are the proceeds from the issuance of consolidated obligations and our short-term investments.

Capital Resources

Our total capital decreased by $508.7 million, to $1.1 billion, as of June 30, 2013, from December 31, 2012. This decrease primarily resulted from the transfer of $584.1 million of Bank of America Oregon, N.A.,'s capital stock from equity to mandatorily redeemable capital stock liability due to its withdrawal from Seattle Bank membership and from our first half 2013 repurchases of Class A and Class B stock classified as equity, partially offset by improvements in the fair values of our AFS PLMBS determined to be other-than-temporarily impaired and our first half 2013 net income.

Seattle Bank Stock

The Seattle Bank has two classes of capital stock, Class A (which we cannot currently issue) and Class B. All of our capital stock is issued, redeemed, repurchased, and transferred between members at $100 per share. Pursuant to our Capital Plan, Class B capital stock satisfies both the membership stock purchase and activity stock purchase requirements, while Class A capital stock satisfies only the activity purchase requirement. Class A capital stock has a six-month statutory redemption period, and Class B capital stock has a five-year statutory redemption period. See Note 10 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" for additional information on our capital stock. The following table details our outstanding capital stock as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013				As of December 31, 2012
Seattle Bank Capital Stock	Class A Capital Stock		Class B Capital Stock		Class A Capital Stock		Class B Capital Stock
(in thousands)
Capital stock classified within equity on the statement of condition	$	51,072	$	871,829	$	109,222	$	1,463,045
Capital stock classified as mandatorily redeemable capital stock within liabilities on the statement of condition	68,706		1,721,901		28,023		1,158,181
Total capital stock	$	119,778	$	2,593,730	$	137,245	$	2,621,226

In November 2012, the Finance Agency approved our request to amend our Capital Plan to, among other things: (1) allow our Board to establish, within a range, a cap on the membership stock purchase requirement and (2) re-establish, until December 31, 2016, an excess stock pool generally in the form that was previously a component of the Capital Plan. These Capital Plan amendments specify that the membership stock purchase requirement cap may be no less than $10.0 million and no more than $50.0 million. After receiving the Finance Agency's approval, in late November 2012, the Board approved a membership stock purchase requirement cap of $15.0 million.

The amended Capital Plan also provides for an excess stock pool, which comprises the aggregate amount of excess stock (i.e., stock not being used for membership or activity requirements) held by all of our shareholders. The excess stock pool enables a member, when receiving advances from us, to satisfy its advance stock purchase requirement by relying on capital that is associated with total outstanding excess stock rather than purchasing additional stock in the Seattle Bank. As of June 30, 2013, $139.9 million of outstanding advances were obtained by members using our excess stock pool.

See Note 10 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" for additional information on membership stock purchase and activity stock purchase requirements and the requirements for utilization of the excess stock pool.    

In September 2012, the Finance Agency approved our proposal for a modest excess capital stock repurchase program and granted us the authority to repurchase up to $25 million of excess capital stock per quarter at par ($100 per share), provided: (1) our financial condition—measured primarily by our MVE to PVCS ratio—does not deteriorate; (2) the excess stock repurchases from the bank's shareholders are handled on a pro-rata basis; and (3) we receive Finance Agency non-objection for

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each quarter's repurchase. The approval for the excess stock repurchase program does not impact the terms of the Consent Arrangement, which generally restrict us from redeeming or repurchasing capital stock without Finance Agency approval. In second quarter 2013, we repurchased $24.0 million of excess capital stock through our quarterly program, $12.1 million of which was classified as equity and $11.9 million of which was classified as mandatorily redeemable capital stock, and have repurchased a total of $96.4 million of excess capital stock since implementing the program. In second quarter 2013, we also repurchased $353,000 of excess Class B stock meeting the following two criteria: (1) originally purchased for activity purposes; and (2) purchased on or after October 27, 2010. Our ability to repurchase excess capital stock meeting these criteria could increase the likelihood that members will purchase incremental capital stock to support new advances.

Mandatorily Redeemable Capital Stock    

We reclassify capital stock subject to redemption from equity to liability when a member submits a written request for redemption of excess capital stock or gives notice of intent to withdraw from membership or otherwise attains nonmember status by way of a merger or acquisition, charter termination, or involuntary termination from membership. On a quarterly basis, we evaluate excess stock balances (i.e., stock not being used to fulfill either membership or activity stock requirements) of members with outstanding redemption requests and adjust the amount of mandatorily redeemable capital stock accordingly. Shares of capital stock are reclassified as mandatorily redeemable capital stock at fair value.

The following table shows the amount of mandatorily redeemable capital stock by year of scheduled redemption as of June 30, 2013. The year of redemption in the table reflects (1) the end of the six-month or five-year redemption periods or (2) the maturity dates of the advances or mortgage loans supported by activity-based capital stock, whichever is later.

	As of June 30, 2013
Mandatorily Redeemable Capital Stock - Redemptions by Date	Class A Capital Stock		Class B Capital Stock
(in thousands)
Less than one year	$	49,687	$	735,638
One year through two years	—		19,530
Two years through three years	—		31,222
Three years through four years	—		19,643
Four years through five years	—		631,355
Past contractual redemption date due to remaining activity (1)	612		7,095
Past contractual redemption date due to regulatory action (2)	18,407		277,418
Total	$	68,706	$	1,721,901

(1)	Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates. Dates assume payments of advances and mortgage loans at final maturity.
(2)	Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because of Finance Agency restrictions limiting our ability to redeem capital stock.

The number of shareholders with mandatorily redeemable capital stock decreased to 81 as of June 30, 2013, from 86 as of December 31, 2012. The amounts in the "Mandatorily Redeemable Capital Stock—Redemptions by Date" table above include $744.7 million in Class B capital stock related to reclassification of Washington Mutual Bank, F.S.B.'s membership to that of a nonmember shareholder as a result of its acquisition by JPMorgan Chase Bank, N.A., a nonmember institution, and to the $581.1 million of Bank of America Oregon, N.A.'s capital stock due to its withdrawal from membership effective April 1, 2013.

Dividends and Retained Earnings

In general, our retained earnings represent our accumulated net income after the payment of dividends to our members. We reported retained earnings of $254.5 million as of June 30, 2013, compared to $228.2 million as of December 31, 2012. The increase in retained earnings was due to our first half 2013 net income. We paid no dividends in first half 2013 or in 2012.

Dividends

Generally under our Capital Plan, our Board can declare and pay dividends, in either cash or capital stock, from retained earnings or current earnings, unless otherwise prohibited. On July 22, 2013, with Finance Agency approval, our Board declared a $0.025 per share cash dividend based on second quarter 2013 net income. The dividend, which was paid on July 30,

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2013, totaled $683,000, and was based on average Class A and Class B stock outstanding during second quarter 2013. In its July 2013 waiver of the Consent Arrangement restriction on paying dividends, the Finance Agency noted the positive development in the Seattle Bank's MVE to PVCS ratio and other improvements in financial condition. Separate Finance Agency waivers will be required for future dividend payments. There can be no assurance as to when or if our Board will declare dividends in the future.

See "—Capital Classification and Consent Arrangement" below and Note 15 in our 2012 Financial Statements in our 2012 10-K for additional information on dividends.

Retained Earnings

We reported retained earnings of $254.5 million as of June 30, 2013, an increase of $26.3 million from $228.2 million as of December 31, 2012, due to our net income for the first half 2013.

In 2011, the 12 FHLBanks, including the Seattle Bank, entered into the Joint Capital Enhancement Agreement, as amended (Capital Agreement), which is intended to enhance the capital position of each FHLBank by allocating that portion of each FHLBank's earnings previously paid to satisfy its Resolution Funding Corporation (REFCORP) obligation to a separate retained earnings account at that FHLBank. Under the Capital Agreement, each FHLBank is required to build its restricted retained earnings balance to 1% of its most recent quarter's average total outstanding consolidated obligations, excluding fair value option and hedging adjustments. In accordance with the Capital Agreement, starting in the third quarter of 2011, each FHLBank began allocating 20% of its net income to a separate restricted retained earnings account. During first half 2013, we allocated $5.3 million of our net income to restricted retained earnings and $21.0 million to unrestricted retained earnings. As of June 30, 2013, our restricted retained earnings balance totaled $44.3 million.

AOCL

Our AOCL decreased to $112.1 million as of June 30, 2013, compared to $226.5 million and $509.7 million as of December 31, 2012 and June 30, 2012, primarily due to improvements in market prices of our AFS investments determined to be other-than-temporarily impaired. AOCL was also impacted by changes in the fair value of our other AFS securities, non-credit OTTI accretion on HTM securities, and to a significantly lesser extent, pension benefits. See "Part I. Item 1. Statements of Comprehensive Income" and Note 10 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" in this report for additional detail relating to AOCL for the three and six months ended June 30, 2013 and 2012.

Statutory Capital Requirements

We are subject to three capital requirements under our Capital Plan and Finance Agency rules and regulations: risk-based capital, total regulatory capital, and leverage capital.

• Risk-based capital. We must maintain at all times permanent capital, defined as Class B capital stock (including mandatorily redeemable Class B capital stock) and retained earnings, in an amount at least equal to the sum of our credit risk, market risk, and operational risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency.

• Total regulatory capital-to-assets ratio. We are required to maintain at all times a total regulatory capital-to-assets ratio of at least 4.0%. In addition, since 2007, our Board has required us to maintain a minimum regulatory capital-to-assets ratio of 4.05%. Total regulatory capital is the sum of permanent capital, Class A capital stock (including mandatorily redeemable Class A capital stock), any general loss allowance, if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the Finance Agency as available to absorb losses.

• Leverage capital-to-assets ratio. We are required to maintain at all times a leverage capital-to-assets ratio of at least 5.0%. Leverage capital is defined as the sum of: (1) permanent capital weighted by a 150.0 multiplier plus (2) all other capital without a weighting factor.

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The following table shows our regulatory capital requirements compared to our actual capital position as of June 30, 2013 and December 31, 2012.

	As of June 30, 2013						As of December 31, 2012
Regulatory Capital Requirements	Required			Actual			Required			Actual
(in thousands, except for ratios)
Risk-based capital	$	1,351,064		$	2,848,223		$	1,302,350		$	2,849,462
Total capital-to-assets ratio	4.00		%	7.81		%	4.00		%	8.43		%
Total regulatory capital	$	1,520,729		$	2,968,001		$	1,416,825		$	2,986,707
Leverage capital-to-assets ratio	5.00		%	11.55		%	5.00		%	12.45		%
Leverage capital	$	1,900,912		$	4,392,113		$	1,771,031		$	4,411,438

Total regulatory capital does not include AOCL, but does include mandatorily redeemable capital stock. The Finance Agency may require us to maintain capital levels in excess of the regulatory minimum.

Capital Classification

In August 2009, under the Finance Agency's prompt corrective action (PCA) regulations, we received a capital classification of undercapitalized from the Finance Agency, due to, among other things, our risk-based capital deficiencies as of December 31, 2008, March 31, 2009 and June 30, 2009, the deterioration in the value of our PLMBS and the amount of AOCL stemming from that deterioration, the level of our retained earnings in comparison to AOCL, and our MVE compared to PVCS. This capital classification subjected the bank to a number of restrictions, including limitations on asset growth and repurchasing, redeeming, and paying dividends on capital stock. In October 2010, the Seattle Bank entered into a Consent Arrangement with the Finance Agency, which included additional restrictions on the bank's business.

In September 2012, the Finance Agency reclassified the Seattle Bank to adequately capitalized. Although this capital classification change means that we are no longer subject to the mandatory and discretionary restrictions imposed by the PCA regulations, including limitations on asset growth, we remain subject to the requirements stipulated in the Consent Arrangement. Until the Finance Agency determines that we have met the requirements of the Consent Arrangement, we expect to continue to be required to obtain Finance Agency approval prior to redeeming, repurchasing, or paying dividends on capital stock.

Consent Arrangement

In October 2010, we entered into the Consent Arrangement, which sets forth requirements for capital management, asset composition, and other operational and risk management improvements. The Consent Arrangement provides that, once we reach and maintain certain financial and operational thresholds, we may, with Finance Agency approval, begin repurchasing capital stock at par value, which we have been doing since fall 2012 under our excess capital stock repurchase program discussed above. Further, the Consent Arrangement provides that we may again be in a position to redeem certain capital stock and begin paying dividends once we:

• Achieve and maintain certain financial and operational metrics;

• Remediate certain concerns regarding our oversight and management, asset quality, capital adequacy and retained earnings, risk management, compensation practices, examination findings, and information technology; and

• Return to a safe and sound condition as determined by the Finance Agency.

As discussed above, on July 30, 2013,with Finance Agency approval, we paid a $0.025 per share dividend on average Class A and Class B stock outstanding during the second quarter 2013.

The Consent Arrangement also requires us to meet and maintain certain minimum financial metrics at each quarter-end. These financial metrics relate to our retained earnings, AOCL, and MVE to PVCS ratio. With the exception of the retained earnings requirement under the Consent Arrangement as of June 30, 2011, we have met all minimum financial metrics since December 31, 2010.

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The following table presents our retained earnings, AOCL, and MVE to PVCS ratio as of June 30, 2013, December 31, 2012, and September 30, 2010 (the quarter-end prior to entering into the Consent Arrangement).

	As of			As of			As of
	June 30, 2013			December 31, 2012			September 30, 2010
(in thousands, except for percentages)
Retained earnings	$	254,493		$	228,236		$	76,835
AOCL	$	(112,052	)	$	(226,468	)	$	(770,317	)
MVE to PVCS ratio	104.0		%	95.1		%	67.8		%

Although remediation of the Consent Arrangement requirements is ongoing, we have made substantial progress in a number of areas, and we continue to develop and refine plans, policies, and procedures to address the remaining Consent Arrangement requirements. As required by the Consent Arrangement, we have been striving to increase our ratio of advances to total assets. We continue to focus on this goal, but due to the currently low demand for advances, we have determined that it is prudent to accept some variation in our advances-to-assets ratio over time, rather than require quarter-over-quarter improvements, and to identify additional opportunities to increase our CMA assets. In adopting this approach, in late March 2012, we implemented and have maintained a dollar cap on our investments and have increased our investment in CMA assets, such as state housing agency bonds. The dollar cap on investments, an operating target that may change from time to time, was implemented to ensure that we continue to maintain our focus on the Consent Arrangement requirements relating to advances as a percentage of assets, while balancing other considerations, such as maintaining strong liquidity levels, improving our income and retained earnings, and minimizing investment credit risk exposure.

The Consent Arrangement clarifies, among other things, the steps we must take to return to normal operations, including the unrestricted repurchase and redemption of and dividend payments on capital stock. We have coordinated and will continue coordinating with the Finance Agency so that our plans and actions are aligned with the Finance Agency's expectations. However, there is a risk that we may be unable to successfully develop and execute plans, policies, and procedures designed to enhance the bank's safety and soundness, meet and maintain the minimum financial metrics, or meet the requirements for asset composition, capital management, and other operational and risk management objectives pursuant to the Consent Arrangement or otherwise acceptable to the Finance Agency. Such failures could result in, among other things, deterioration in financial performance or imposition of additional requirements or conditions by the Finance Agency, any of which could adversely affect our business, including our financial condition and results of operations.

The Consent Arrangement will remain in effect until modified or terminated by the Finance Agency and does not prevent the Finance Agency from taking any other action affecting the Seattle Bank that, at the sole discretion of the Finance Agency, it deems appropriate in fulfilling its supervisory responsibilities. Until the Finance Agency determines that we have met the requirements of the Consent Arrangement, we expect that Finance Agency approval will continue to be required for all repurchases, redemptions, and dividend payments on capital stock.

See "—Overview," "Part II. Item 1A. Risk Factors," and Note 10 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" in this report for further discussion of the Consent Arrangement.

Liquidity

We are required to maintain the following liquidity measures in accordance with federal laws and regulations and policies established by our Board: a deposit reserve requirement, a contingency liquidity requirement, and an operational liquidity requirement. In addition, in their asset and liability management planning, many members look to the Seattle Bank as a source of standby liquidity. We seek to meet our members' credit and liquidity needs, while complying with regulatory requirements and Board-established policies. We actively manage our liquidity to preserve our access to stable, reliable, and cost-effective sources of funds to meet all current and future financial obligations and commitments.

Our primary sources of liquidity are the proceeds of new consolidated obligation issuances and short-term investments. Our secondary sources of liquidity consist of other short-term borrowings, including federal funds purchased and securities sold under agreements to repurchase. Member deposits, capital, and non-PLMBS securities classified as AFS are also liquidity sources. To ensure that adequate liquidity is available to meet our requirements, we monitor and forecast our future cash flows and anticipated member liquidity needs, and we adjust our funding and investment strategies accordingly. Our access to liquidity may be negatively affected by, among other things, rating agency actions and changes in demand for FHLBank System debt or regulatory action that would limit debt issuances.

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Federal regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding. Qualifying assets are cash, secured advances, assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations, mortgage loans, or other securities that are issued by the U.S. government or its agencies, and securities in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is located. We were in compliance with this requirement as of June 30, 2013 and December 31, 2012.

Deposit Reserve Requirement

The following table presents the components of this deposit reserve requirement as of June 30, 2013 and December 31, 2012.

	As of			As of
Deposit Reserve Requirement	June 30, 2013			December 31, 2012
(in thousands)
Total eligible deposit reserves	$	9,697,347		$	7,167,710
Less: Total member deposits	(477,590		)	(541,408		)
Excess deposit reserves	$	9,219,757		$	6,626,302

Contingency Liquidity Requirements

Contingency liquidity requirements are intended to ensure that we have sufficient sources of funding to meet our operational requirements when our access to the capital markets, including our ability to issue consolidated obligations, is impeded for a maximum of five business days due to, among other things, a market disruption, operations failure, or problem with our credit quality. We have satisfied our contingency liquidity requirements if our contingent liquidity sources exceed or are equal to our contingent liquidity needs for at least five consecutive business days. We met our contingency liquidity requirements at all times during first half 2013 and during 2012.

The following table summarizes our liquidity reserves to protect against contingency liquidity risk as of June 30, 2013.

	As of
Contingency Liquidity Reserves	June 30, 2013
(in thousands)
Total contingency liquidity reserves (1)	$	16,804,000
Less: Total requirement (2)	(7,229,000		)
Excess contingency liquidity reserves	$	9,575,000

(1)	Includes cash, overnight federal funds sold, securities purchased under agreements to resell, advances maturing within five days, and certain AFS and HTM securities (subject to haircuts ranging from 80% to 95% of value), and expected mortgage loan principal payments.
(2)	Includes net liabilities maturing within five days, including consolidated obligation bonds and discount notes and deposits.

Operational Liquidity Requirement

Finance Agency regulation also requires us to establish a day-to-day operational liquidity policy, including a methodology for determining our operational liquidity needs and an enumeration of specific types of investments to be held for such liquidity purposes. Unlike contingency liquidity, operational liquidity includes ongoing access to the capital markets. We maintained liquidity in accordance with federal laws and regulations and policies established by our Board at all times so far in 2013 and during 2012.

In addition, we maintain contingency liquidity plans designed to enable us to meet our obligations and the liquidity needs of our members in the event of operational disruptions at the Seattle Bank or the Office of Finance or disruptions in financial markets. Furthermore, we comply with Finance Agency guidance requiring each FHLBank to maintain sufficient liquidity, through short-term or other investments, in an amount at least equal to its anticipated cash outflows under two different scenarios. One scenario assumes that an FHLBank cannot access the capital markets for 15 days and that, during that time, members do not renew any maturing, prepaid, or called advances. The second scenario assumes that an FHLBank cannot access the capital markets for five days and that during that period an FHLBank will automatically renew maturing or called advances for all members except very large, highly rated members. To comply with this liquidity guidance and to ensure adequate liquidity availability for member advances, since fourth quarter 2008, we have held larger-than-normal balances of

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overnight federal funds and securities purchased under agreements to resell and have lengthened the maturity of consolidated obligation discount notes used to fund many of these investments.

In February 2013, our Board approved a change to our voluntary liquidity management operating target, reducing the number of days of voluntary contingency liquidity from 90 consecutive calendar days to 30 consecutive calendar days. We complied with all liquidity requirements and operating targets at all times during 2013. The voluntary contingency liquidity requirement is forward-looking, and at all times, we have had ample liquidity to meet our obligations and member funding needs.

See "Part I. Item 1. Business—Liquidity Requirements" and Note 15 in our 2012 Financial Statements in our 2012 10-K for additional information on liquidity requirements.

Contractual Obligations and Other Commitments

The following table presents our contractual obligations and commitments as of June 30, 2013.

	As of June 30, 2013
	Payments Due by Period
Contractual Obligations and Commitments	Less than 1 Year		1 to 3 Years		3 to 5 Years		Thereafter		Total
(in thousands)
Contractual obligations:
Consolidated obligation bonds (at par) (1)	$	6,269,895	$	4,603,160	$	3,305,000	$	4,142,610	$	18,320,665
Mandatorily redeemable capital stock	1,088,857		50,752		650,998		—		1,790,607
Operating leases	860		3,572		3,540		10,048		18,020
Pension and post-retirement contributions	1,567		—		—		—		1,567
Total contractual obligations	$	7,361,179	$	4,657,484	$	3,959,538	$	4,152,658	$	20,130,859
Other commitments:
Standby letters of credit	$	438,185	$	10,398	$	2,071	$	—	$	450,654
Unused lines of credit and other commitments	20,000		—		—		—		20,000
Other commitments (2)	315,000		—		—		—		315,000
Total other commitments	$	773,185	$	10,398	$	2,071	$	—	$	785,654

(1)	Does not include interest payments on consolidated obligation bonds and is based on contractual maturities; the actual timing of payments could be affected by redemptions.
(2)	Includes commitments to purchase investment securities as of June 30, 2013.

In addition, as of June 30, 2013, we had $125.0 million in unsettled agreements to issue consolidated obligation bonds, of which $45.0 million were hedged with interest-rate agreements.

Results of Operations for the Three and Six Months Ended June 30, 2013 and 2012

Net income for the three and six months endedJune 30, 2013 was $10.5 million and $26.3 million, compared to $22.9 million and $35.8 million for the same periods in 2012. The decreases in net income were primarily due to the effects of interest-rate changes on the fair values of derivatives and hedged items in hedging relationships, particularly hedges of long-term consolidated obligations, partially offset by higher net interest income and significantly lower credit losses on PLMBS determined to be other-than-temporarily impaired during the three and six months ended June 30, 2013, compared to the same periods in 2012. Net interest income for the three and six months endedJune 30, 2013 increased to $34.2 million and $68.5 million, from $29.7 million and $52.9 million for the same periods in 2012, primarily due to significantly lower interest expense, partially offset by lower interest income on our advances and mortgage loans and, for the three months ended June 30, 2013, our investment portfolio. Lower premium amortization on certain of the bank's AFS securities, which were purchased with large premiums and which matured in late 2012, accounted for $6.3 million and $16.4 million of the increase in net interest income for the three and six months ended June 30, 2013, compared to the same periods in 2012.

We recorded no additional credit losses on our PLMBS for the three months ended June 30, 2013, and $342,000 for the six months ended June 30, 2013, compared to $4.3 million and $5.6 million of such credit losses for the same periods in 2012. We recorded a net loss of $601,000 and a net gain of $10,000 on derivatives and hedging activities for the three and six months endedJune 30, 2013, compared to net gains of $18.2 million and $30.3 million for the same periods in 2012. The decreases were primarily due to the effect of interest-rate changes on the fair values of derivatives and hedged items in our hedging relationships, particularly hedges of long-term consolidated obligations and certain AFS securities.

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Net Interest Income

Net interest income is the primary performance measure for our ongoing operations. Net interest income is affected by changes in the average balance (volume) and in the average yield (rate) of our interest-earning assets and interest-bearing liabilities. These changes are influenced by economic factors, our investment and funding strategies, and changes in our products or services. Interest rates, yield-curve shifts, and changes in market conditions are the primary economic factors affecting net interest income.

Our net interest income derives from the following sources:

• net interest-rate spread, which is the difference between the interest earned on advances, investments, and mortgage loans, less interest accrued or paid on the consolidated obligations, deposits, and other borrowings funding those assets; and

• earnings from capital, which is the interest earned from investing our members' capital.

The sum of our net interest-rate spread and our earnings from capital, when expressed as a percentage of the average balance of interest-earning assets, equals our net interest margin. When we evaluate our net interest income and net interest margin, we exclude the provision/(benefit) for credit losses, as this amount is not a component of net interest spread or earnings on capital.

The following table summarizes the average rates of various interest-rate indices for the three and six months ended June 30, 2013 and 2012 that impacted our interest-earning assets and interest-bearing liabilities and such indices' ending rates as of June 30, 2013 and 2012 and December 31, 2012.

	Average Rate for the Three Months Ended		Average Rate for the Six Months Ended		Ending Rate as of
Market Instrument	June 30, 2013	June 30, 2012	June 30, 2013	June 30, 2012	June 30, 2013	December 31, 2012	June 30, 2012
(in percentages)
Federal funds effective/target rate	0.12	0.15	0.13	0.13	0.07	0.09	0.09
3-month Treasury bill	0.04	0.08	0.06	0.07	0.03	0.04	0.08
3-month LIBOR	0.28	0.47	0.28	0.49	0.27	0.31	0.46
2-year U.S. Treasury note	0.26	0.28	0.26	0.28	0.36	0.25	0.30
5-year U.S. Treasury note	0.90	0.78	0.86	0.83	1.39	0.72	0.72
10-year U.S. Treasury note	1.97	1.81	1.95	1.91	2.49	1.76	1.64

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The following table presents average balances, interest income and expense, and average yields of our major categories of interest-earning assets and interest-bearing liabilities for the three and six months ended June 30, 2013 and 2012. The table also presents interest-rate spreads between the average yield on total interest-earning assets and the average cost of total interest-bearing liabilities, earnings on capital, and net interest margin.

	For the Three Months Ended June 30,
	2013					2012
	Average Balance		Interest Income/ Expense		Average Yield	Average Balance			Interest Income/ Expense		Average Yield
(in thousands, except percentages)
Interest-earning assets:
Advances	$	10,605,027	$	19,387	0.73	$	9,594,950		$	23,730	0.99
Mortgage loans	951,619		12,868		5.42	1,241,072			16,855		5.46
Investments *	25,545,525		38,184		0.60	25,995,453			39,556		0.61
Other interest-earning assets	59,060		18		0.12	53,072			21		0.16
Total interest-earning assets	37,161,231		70,457		0.76	36,884,547			80,162		0.87
Other assets *	137,564					(310,446		)
Total assets	$	37,298,795				$	36,574,101
Interest-bearing liabilities:
Consolidated obligations	$	33,491,614	36,199		0.43	$	33,204,380		50,426		0.61
Deposits	439,642		33		0.03	376,331			41		0.04
Mandatorily redeemable capital stock	1,807,730		—		—	1,088,676			—		—
Other borrowings	260		—		0.10	121			—		0.26
Total interest-bearing liabilities	35,739,246		36,232		0.41	34,669,508			50,467		0.59
Other liabilities	456,337					524,906
Capital	1,103,212					1,379,687
Total liabilities and capital	$	37,298,795				$	36,574,101
Net interest income			$	34,225					$	29,695
Interest-rate spread			$	31,529	0.35				$	24,881	0.28
Earnings from capital			2,696		0.02				4,814		0.05
Net interest margin			$	34,225	0.37				$	29,695	0.33

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	For the Six Months Ended June 30,
	2013					2012
	Average Balance		Interest Income/ Expense		Average Yield	Average Balance			Interest Income/ Expense		Average Yield
(in thousands, except percentages)
Interest-earning assets:
Advances	$	9,917,132	$	36,542	0.74	$	9,766,692		$	52,286	1.08
Mortgage loans	986,474		25,861		5.29	1,279,203			32,864		5.17
Investments *	25,554,122		78,674		0.62	25,969,977			76,455		0.59
Other interest-earning assets	47,258		31		0.13	52,817			35		0.13
Total interest-earning assets	36,504,986		141,108		0.78	37,068,689			161,640		0.88
Other assets *	88,334					(323,791		)
Total assets	$	36,593,320				$	36,744,898
Interest-bearing liabilities:
Consolidated obligations	$	32,814,224	72,534		0.45	$	33,464,837		108,639		0.65
Deposits	467,001		77		0.03	355,384			58		0.03
Mandatorily redeemable capital stock	1,498,777		—		—	1,074,721			—		—
Other borrowings	191		—		0.12	178			—		0.17
Total interest-bearing liabilities	34,780,193		72,611		0.42	34,895,120			108,697		0.63
Other liabilities	445,906					492,384
Capital	1,367,221					1,357,394
Total liabilities and capital	$	36,593,320				$	36,744,898
Net interest income			$	68,497					$	52,943
Interest-rate spread			$	61,830	0.36				$	43,465	0.25
Earnings from capital			6,667		0.02				9,478		0.04
Net interest margin			$	68,497	0.38				$	52,943	0.29

* Investments include securities purchased under agreements to resell, federal funds sold, and HTM and AFS securities. The average balances of HTM and AFS securities are reflected at amortized cost; therefore, the resulting yields do not include changes in fair value or the non-credit component of a previously recognized OTTI charge reflected in AOCL. The changes in fair value and the non-credit component of a previously recognized OTTI charge reflected in AOCL are included in other assets in the table above.

For the three and six months ended June 30, 2013, our average assets increased by $724.7 million and decreased by $151.6 million, compared to the same periods in 2012. Increases in non-earning assets, particularly changes in the fair value on our AFS securities and the non-credit component of previously recognized OTTI charges reflected in AOCL comprised an aggregate of over $400 million in improvements in average total assets for the three and six months ended June 30, 2013 compared to the same periods in 2012. Average earning assets increased by $276.7 million and decreased by $563.7 million for the three and six month ended June 30, 2013. Average advances increased in the three and six months ended June 30, 2013, compared to the same periods in 2012; however, for the six-month period, the decreases in average mortgage loans and investments more than offset the increase in average advances.

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The following table separates the two principal components of the changes in our net interest income—interest income and interest expense—identifying the amounts due to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in the average interest rate for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2013 vs. 2012 Increase (Decrease)									2013 vs. 2012 Increase (Decrease)
Changes in Volume and Rate	Volume *			Rate *			Total			Volume *			Rate *			Total
(in thousands)
Interest income:
Advances	$	5,915		$	(10,258	)	$	(4,343	)	$	793		$	(16,537	)	$	(15,744	)
Investments	(588		)	(784		)	(1,372		)	(1,239		)	3,458			2,219
Mortgage loans	(3,826		)	(161		)	(3,987		)	(7,661		)	658			(7,003		)
Other loans	6			(9		)	(3		)	(4		)	—			(4		)
Total interest income	1,507			(11,212		)	(9,705		)	(8,111		)	(12,421		)	(20,532		)
Interest expense:
Consolidated obligations	1,285			(15,512		)	(14,227		)	(2,073		)	(34,032		)	(36,105		)
Deposits	15			(23		)	(8		)	18			1			19
Total interest expense	1,300			(15,535		)	(14,235		)	(2,055		)	(34,031		)	(36,086		)
Change in net interest income excluding provision/(benefit) for credit losses	$	207		$	4,323		$	4,530		$	(6,056	)	$	21,610		$	15,554

* Changes in interest income and interest expense not identifiable as either volume-related or rate-related, but rather equally attributable to both volume and rate changes, are allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes.

Both total interest income and total interest expense decreased for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to lower interest income on advances, mortgage loans, and for the three months ended June 30, 2013, investments, and significantly lower interest expense on consolidated obligations. These changes are discussed in more detail below.

Interest Income

The following table presents the components of our interest income by category of interest-earning asset and the percentage change in each category for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Interest Income	2013		2012		Percent Increase/ (Decrease)		2013		2012		Percent Increase/ (Decrease)
(in thousands, except percentages)
Advances	$	17,871	$	20,934	(14.6	)	$	34,862	$	43,851	(20.5	)
Prepayment fees on advances, net	1,516		2,796		(45.8	)	1,680		8,435		(80.1	)
Subtotal	19,387		23,730		(18.3	)	36,542		52,286		(30.1	)
Investments	38,184		39,556		(3.5	)	78,674		76,455		2.9
Mortgage loans	12,868		16,855		(23.7	)	25,861		32,864		(21.3	)
Interest-bearing deposits and other	18		21		(14.3	)	31		35		(11.4	)
Total interest income	$	70,457	$	80,162	(12.1	)	$	141,108	$	161,640	(12.7	)

Interest income decreased significantly for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to significant decreases in average yields on advances and lower average balances of mortgage loans and investments, partially offset by increases in the average balance of advances, and for the six months ended June 30, 2012, the increased yields on investments and mortgage loans.

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Advances

Interest income from advances, excluding prepayment fees on advances, decreased 14.6% and 20.5% for the three and six months ended June 30, 2013, compared to the same periods in 2012, due to significant declines in yields. The average yield on advances, including prepayment fees on advances, decreased by 26 and 34 basis points to 0.73% and 0.74% for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to the impact of prepayment fees. Excluding prepayment fees, the average yield on advances for the three and six months ended June 30, 2013 was 0.68% and 0.71%, compared to 0.88% and 0.90% for the same periods in 2012. Average advance balances increased by 10.5% and 1.5%, to $10.6 billion and $9.9 billion, for the three and six months ended June 30, 2013, compared to the same periods in 2012.

Prepayment Fees on Advances

For the three and six months ended June 30, 2013 , we recorded net prepayment fee income of $1.5 million and $1.7 million, compared to $2.8 million and $8.4 million for the same periods in 2012. Borrowers prepaid advances totaling $117.7 million and $139.2 million for the three and six months ended June 30, 2013, compared to $142.1 million and $506.7 million for the same periods in 2012. Prepayment fees on hedged advances were partially offset by the cost of terminating interest-rate exchange agreements hedging those advances. See Note 5 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" for additional detail on gross and net prepayment fees.

Investments

Interest income from investments, which includes short-term investments and AFS and HTM investments, decreased by 3.5% and increased by 2.9% for the three and six months ended June 30, 2013, compared to the same periods in 2012. Average investments decreased by $449.9 million and $415.9 million, to $25.5 billion and $25.6 billion, for the three and six months ended June 30, 2013, compared to the same periods in 2012. The average yields on investments decreased by one basis point and increased by three basis points, to 0.60% and 0.62%, for the three and six months ended June 30, 2013, compared to the same periods in 2012. For the three months ended June 30, 2013 the decrease in interest income from investments was due to the lower average balance and to lower yields on short-term and overnight investments. For the six months ended June 30, 2013, the increase in interest income from investments primarily resulted from higher average yields earned due to our shift in investment mix from lower yielding short-term unsecured investments to higher-yielding secured medium- and longer-term agency MBS and state housing agency investments and to the favorable impact of lower premium amortization on our AFS securities, a number of which matured in late 2012.

In addition, as part of our quarterly OTTI assessment, we identify previously impaired PLMBS securities with no additional OTTI credit losses in the quarter. If there is a significant increase in a PLMBS' expected cash flows, we adjust the yield on the security on a prospective basis. This adjusted yield is used to calculate the amount to be recognized into interest income over the remaining life of the PLMBS in order to match the amount and timing of future cash flows expected to be collected. Over the last several quarters, we have adjusted a number of securities' yields in order to recognize the effect of expected future cash flows and this recovery has become a material component in our investment income. For the three and six months ended June 30, 2013, the recovery of credit losses comprised 11.0% and 10.3% of investment interest income, compared to 9.1% and 6.0% for the same periods in 2012.

Mortgage Loans

Interest income from mortgage loans held for portfolio decreased by 23.7% and 21.3% for the three and six months ended June 30, 2013, compared to the same periods in 2012. The decrease was primarily due to the continued decline in the average balance of mortgage loans held for portfolio since exiting the MPP in 2006, and the continuing repayments of principal. The average balance of our mortgage loans held for portfolio decreased by $289.5 million and $292.7 million, to $951.6 million and $986.5 million, for the three and six months ended June 30, 2013, compared to the same periods in 2012. The yield on our mortgage loans held for portfolio decreased by four basis points and increased by 12 basis points, to 5.42% and 5.29%, for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to the impact of changes in prepayment assumptions that affected our amortization of premiums and accretion of discounts on mortgage loans during those periods. The balance of our remaining mortgage loans held for portfolio will continue to decrease as the remaining mortgage loans are paid off.

We conduct a loss reserve analysis of our mortgage loan portfolio on a quarterly basis. As a result of our June 30, 2013 analysis, we determined that the credit enhancement provided by our members in the form of the LRA and our previously recorded allowance for credit losses was not sufficient to absorb the expected credit losses on our mortgage loan portfolio, primarily due to reduced LRA balances and higher than forecast delinquent mortgage payments in second quarter 2013. Accordingly, we recorded a provision for credit losses of $12,000 for the three months ended June 30, 2013. This provision

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partially offset the benefit we recorded in first quarter 2013, which was primarily due to more favorable estimates of future credit losses, primarily modest improvements in housing price assumptions. For the six months ended June 30, 2013,we recorded a benefit for credit losses of $29,000. There was no benefit or provision for credit losses required for the same periods in 2012.

Interest Expense

The following table presents the components of our interest expense by category of interest-bearing liability and the percentage change in each category for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Interest Expense	2013		2012		Percent Increase/ (Decrease)		2013		2012		Percent Increase/ (Decrease)
(in thousands, except percentages)
Consolidated obligation discount notes	$	3,211	$	3,697	(13.1	)	$	7,713	$	5,184	48.8
Consolidated obligation bonds	32,988		46,729		(29.4	)	64,821		103,455		(37.3	)
Deposits	33		41		(19.5	)	77		58		32.8
Total interest expense	$	36,232	$	50,467	(28.2	)	$	72,611	$	108,697	(33.2	)

Consolidated Obligations

When we require funding with maturity terms of one year or less, we generally select the type of consolidated obligation based on whichever instrument—discount note or bond, sometimes paired with an accompanying derivative—is the most beneficial to the bank. Costs by type of instrument vary, depending on market conditions, including investor demand and availability of competing products. Our strategy can result in significant changes in the average balances of our consolidated obligation bonds and discount notes over relatively short periods, particularly when large percentages of our assets and liabilities have terms to maturity of one year or less.

Consolidated Obligation Discount Notes

Interest expense on consolidated obligation discount notes decreased by 13.1% and increased by 48.8% for the three and six months ended June 30, 2013, compared to the same periods in 2012. For the three months ended June 30, 2013, the decrease in interest expense on consolidated obligation discount notes was primarily due to lower yields, while for the six months ended June 30, 2013, the significantly higher average balance was the primary driver for the increased interest expense on consolidated obligation discount notes. The average balance of our consolidated obligation discount notes increased by $938.8 million and $4.4 billion during the three and six months ended June 30, 2013, compared to the same periods in 2012. The average cost of funds on such notes decreased by two basis points and increased by one basis point, to 0.08% and 0.09%, for the three and six months ended June 30, 2013, compared to the same periods in 2012.

Consolidated Obligation Bonds

Interest expense on consolidated obligation bonds decreased by 29.4% and 37.3% for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to significant decreases in yield. Although interest rates on longer-term bonds increased significantly in May and June 2013, overall average yields declined by 29 and 17 basis points, to 0.77% and 0.89%, for the three and six months ended June 30, 2013, compared to the same periods in 2012. In addition, interest expense on consolidated obligation bonds was impacted by lower average balances, particularly for the six months ended June 30, 2013, compared to the same periods in 2012. The average balance of bonds decreased by $651.6 million and $5.0 billion, to $17.1 billion and $14.7 billion, for the three and six months ended June 30, 2013, compared to the same periods in 2012.

Deposits

Interest expense on deposits decreased by 19.5% and increased by 32.8%, to $33,000 and $77,000, for the three and six months ended June 30, 2013, compared to the same periods in 2012. The average balance of deposits increased by $63.3 million and $111.6 million to $439.6 million and $467.0 million. Average interest rates paid on deposits decreased by one basis point, to 0.03%, for the three months ended June 30, 2013, and was unchanged at 0.03%, for the six months ended June 30, 2013, compared to the same periods in 2012. Deposit levels generally vary based on our members' liquidity levels and market conditions, as well as the interest rates we pay on our deposits.

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Effect of Derivatives and Hedging on Income

We use derivative instruments to manage our exposure to changes in interest rates and to adjust the effective maturity, repricing frequency, or option characteristics of our assets and liabilities in response to changing market conditions and financial management strategies. We often use interest-rate exchange agreements to hedge fixed interest-rate advances and consolidated obligations by effectively converting the fixed interest rates to short-term variable interest rates (generally one- or three-month LIBOR). For example, when we fund a variable interest-rate advance with a fixed interest-rate consolidated obligation, we may enter into an interest-rate exchange agreement that effectively converts the fixed interest-rate consolidated obligation to a variable interest rate and locks in the spread between the consolidated obligation and the advance. In this example, net (loss) gain on derivatives and hedging activities would reflect only the impact on interest expense as a result of the hedging of the consolidated obligation and would exclude the impact of the changes on interest income as a result of interest-rate changes on the variable interest-rate advance because the advance is not hedged. To the extent that we hedge our interest-rate risk on such transactions, only the hedged side of the transaction is reflected in net (loss) gain on derivatives and hedging activities.

Our use of interest-rate exchange agreements increased our income by $11.9 million and $24.2 million for the three and six months ended June 30, 2013, compared to $23.5 million and $34.5 million for the same periods in 2012. The effect on income from derivatives activity primarily reflects the net effects of: (1) converting fixed-interest rate advances to variable interest-rate advances, (2) converting fixed interest rates on our consolidated obligation bonds and discount notes to variable interest rates, and (3) converting fixed interest-rate AFS investments to variable interest rates. In addition, the net (loss) gain on derivatives and hedging activities includes the effect of the interest-rate swaps hedging our AFS securities (as discussed further below). See Note 8 in "Item 1. Financial Statements—Condensed Notes to Financial Statements" for detailed income and expense impacts by hedged item type for the three and six months ended June 30, 2013 and 2012, "—Financial Condition as of June 30, 2013 and December 31, 2012—Derivative Assets and Liabilities," and "—Other (Loss) Income" below for additional information on our outstanding interest-rate exchange agreements.

Other (Loss) Income

Other (loss) income includes the credit portion of OTTI loss, net (loss) gain on financial instruments held under fair value option, net realized gain (loss) on sale of AFS securities, net (loss) gain on derivatives and hedging activities, net realized loss on early extinguishment of consolidated obligations, and other miscellaneous income (including service fees) not included in net interest income. Because of the type of financial activity reported in this category, other (loss) income can be volatile from period to period. For instance, net (loss) gain on derivatives and hedging activities is highly dependent on changes in interest rates and spreads between various interest-rate yield curves, and the credit portion of OTTI loss is highly dependent upon the performance of collateral underlying our PLMBS as well as our OTTI modeling assumptions.

The following table presents the components of our other (loss) income and the percentage change for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
Other (Loss) Income	2013			2012			Percent Increase/(Decrease)		2013			2012			Percent Increase/(Decrease)
(in thousands, except percentages)
Credit portion of OTTI loss	$	—		$	(4,269	)	100.0		$	(342	)	$	(5,593	)	93.9
Net (loss) gain on financial instruments held under fair value option	(158		)	38			(515.8	)	(580		)	55			(1,154.5	)
Net realized gain (loss) on sale of AFS securities	—			(51		)	N/A		903			(51		)	1,870.6
Net (loss) gain on derivatives and hedging activities	(601		)	18,245			(103.3	)	10			30,251			(100.0	)
Net realized loss on early extinguishment of consolidated obligations	(276		)	(587		)	53.0		(575		)	(2,547		)	77.4
Other, net	339			479			(29.2	)	590			913			(35.4	)
Total other (loss) income	$	(696	)	$	13,855		(105.0	)	$	6		$	23,028		(100.0	)

Total other (loss) income decreased by $14.6 million and $23.0 million for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to decreases of $18.8 million and $30.2 million in net (loss) gain on derivatives and hedging activities, partially offset by decreases of $4.3 million and $5.3 million in credit-related OTTI loss and of

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$311,000 and $2.0 million in net realized loss on early extinguishment of consolidated obligations. These changes in other (loss) income are discussed in more detail below.

Credit Portion of OTTI Loss

We recorded no additional credit losses on our PLMBS for the three months ended June 30, 2013 and $342,000 for the six months ended June 30, 2013, compared to $4.3 million and $5.6 million of such credit losses for the same periods in 2012.

See “—Financial Condition as of June 30, 2013 and December 31, 2012—Investments," "—Critical Accounting Policies and Estimates—OTTI of Securities," and Note 4 in “Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements” in this report for additional information regarding our other-than-temporarily impaired securities.

Net (Loss) Gain on Financial Instruments Held Under Fair Value Option

For the three and six months ended June 30, 2013, we recorded net losses of $158,000 and $580,000 on our consolidated obligation bonds and discount notes on which we elected the fair value option, compared to gains of $38,000 and $55,000 for the same periods in 2012.

Net Realized (Loss) Gain on Sale of AFS Securities

During the six months ended June 30, 2013, we sold one AFS security with an unpaid principal balance of $60.1 million and carrying value of $40.9 million, resulting in a net gain of $903,000. During the six months ended June 30, 2012, we sold one AFS security with an unpaid principal balance of $40.0 million and carrying value of $55.9 million, resulting in a net loss of $51,000.

Net (Loss) Gain on Derivatives and Hedging Activities

For the three and six months ended June 30, 2013, we recorded decreases of $18.8 million and $30.2 million in our net (loss) gain on derivatives and hedging activities, compared to the same periods in 2012. The following table presents the components of net (loss) gain on derivatives and hedging activities for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Net (Loss) Gain on Derivatives and Hedging Activities	2013			2012			2013			2012
(in thousands)
Derivatives and hedged items in fair value hedging relationships:
Interest-rate swaps	$	(1,671	)	$	18,133		$	(1,398	)	$	30,132
Total net (loss) gain related to fair value hedge ineffectiveness	(1,671		)	18,133			(1,398		)	30,132
Derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	136			121			507			15
Interest-rate swaptions	918			—			918			—
Net interest settlements	16			(9		)	(17		)	104
Total net gain related to derivatives not designated as hedging instruments	1,070			112			1,408			119
Net (loss) gain on derivatives and hedging activities	$	(601	)	$	18,245		$	10		$	30,251

The decreases in the net (loss) gain on derivatives and hedging activities for the three and six months ended June 30, 2013, compared to the same periods in 2012, were primarily due to the effect of the maturing, in 2012, of interest-rate swaps hedging certain of our AFS securities and ineffectiveness in our other hedging relationships, primarily those hedging long-term consolidated obligation bonds, which have experienced significant fluctuations in fair value as a result of the recent volatility in long-term interest rates. Several of our AFS securities in benchmark fair value hedges were purchased at significant premiums with corresponding up-front swap fees. A significant portion of these hedged AFS securities (e.g., TLGP investments) and the derivatives hedging these securities matured during 2012. As a result, in first half 2013 and in future periods, the favorable impact of the changes in fair value on the derivatives hedging these securities will not be reflected in net (loss) gain on

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derivatives and hedging activities, nor will the unfavorable impact of the corresponding amortization of large up-front premiums paid on the AFS securities be reflected in interest income.

See “—Effect of Derivatives and Hedging on Income," "Financial Condition—Derivative Assets and Liabilities,” and Note 8 in “Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements” in this report for additional information.

Net Realized Loss on Early Extinguishment of Consolidated Obligations

From time to time, we early extinguish consolidated obligations by exercising our rights to call consolidated obligations or by reacquiring such consolidated obligations on the open market. We early extinguish debt primarily to economically reduce the relative cost of our consolidated obligation bonds in future periods, particularly when the future yield of the replacement debt is expected to be lower than the yield for the extinguished bonds. Net realized loss on early extinguishment of consolidated obligations, comprised primarily of write-offs of unamortized concessions on called bonds, decreased by $311,000 and $2.0 million, to $276,000 and $575,000, for the three and six months ended June 30, 2013, compared to the same periods in 2012.

We continue to review our consolidated obligation portfolio for opportunities to call or otherwise extinguish debt, lower our interest expense, and better match the duration of our liabilities to that of our assets.

Other Expense

Other expense includes operating expenses, Finance Agency and Office of Finance assessments, and other items, consisting primarily of fees related to our mortgage loans held for portfolio that are paid to vendors and a one-time write-off of software. The following table presents the components of our other expense and the percentage changes for the three and six months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Other Expense	2013		2012		Percent Increase/(Decrease)		2013		2012		Percent Increase/(Decrease)
(in thousands, except percentages)
Operating expenses:
Compensation and benefits	$	7,521	$	7,236	3.9		$	15,069	$	14,896	1.2
Occupancy cost	1,725		1,514		13.9		3,656		3,080		18.7
Other operating	7,320		7,768		(5.8	)	13,795		14,753		(6.5	)
Finance Agency	527		1,002		(47.4	)	1,394		2,203		(36.7	)
Office of Finance	597		545		9.5		1,276		1,163		9.7
Loss on software write-off	4,027		—		N/A		4,027		—		N/A
Other	80		36		122.2		141		65		116.9
Total other expense	$	21,797	$	18,101	20.4		$	39,358	$	36,160	8.8

Total other expense increased by $3.7 million and $3.2 million, to $21.8 million and $39.4 million, for the three and six months ended June 30, 2013, compared to the same periods in 2012, primarily due to a one-time $4.0 million write-off of software, partially offset by a decrease in Finance Agency expenses. Occupancy expenses increased for the three and six months ended June 30, 2013, compared to the same period in 2012, primarily due to overlapping rental expense and other expenses related to the relocation of the bank's headquarters in April 2013. Beginning in third quarter 2013, occupancy cost is expected to decline due to reductions in lease expenses.

Finance Agency and Office of Finance expenses represent costs allocated to us by those entities calculated through formulas based on our percentage of capital stock, consolidated obligations issued, and consolidated obligations outstanding compared to the FHLBank System as a whole.

Assessments

Our assessment for AHP is calculated as 10% of our net earnings before assessments. We recorded $1.2 million and $2.9 million of AHP assessments for the three and six months ended June 30, 2013, compared to $2.5 million and $4.0 million for the same periods in 2012.

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Critical Accounting Policies and Estimates

Our financial statements and related disclosures are prepared in accordance with GAAP, which requires management to make judgments, assumptions, and estimates that affect the amounts reported and disclosures made. We base our estimates on historical experience and on other factors believed to be reasonable given the circumstances, but actual results may vary from these estimates under different assumptions or conditions, sometimes materially. Our significant accounting policies are summarized in “Part II. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition—Critical Accounting Policies and Estimates” included in our 2012 10-K. Critical accounting policies and estimates are those that may materially affect our financial statements and related disclosures and that involve difficult, subjective, or complex judgments by management about matters that are inherently uncertain. Our critical accounting policies and estimates include determination of OTTI of securities, fair valuation of financial instruments, application of accounting for derivatives and hedging activities, amortization of premiums and accretion of discounts, and determination of allowances for credit losses. With the exception of changes in the significant inputs used to measure credit losses on our PLMBS determined to be other-than-temporarily impaired for the three months ended June 30, 2013, as discussed below, there were no significant changes to our critical accounting policies or to the judgments, assumptions, and estimates, as described in our 2012 10-K, during the six months ended June 30, 2013.

Determination of OTTI of Securities

The following table presents a summary of the significant inputs used to evaluate our PLMBS for OTTI for the three months ended June 30, 2013, as well as the related current credit enhancement. The calculated averages represent the dollar-weighted averages of all PLMBS in each category shown. We had no securities determined to be other-than-temporarily impaired or further impaired during the three months ended June 30, 2013, and therefore did not record any credit losses for such period.

	Significant Inputs Used to Measure Credit Losses on PLMBS For the Three Months Ended June 30, 2013			As of June 30, 2013
	Cumulative Voluntary Prepayment Rates (1)	Cumulative Default Rates (1)	Loss Severities	Current Credit Enhancement
Year of Securitization	Weighted Average	Weighted Average	Weighted Average	Weighted Average
(in percentages)
Prime:
2008	11.9	21.0	40.6	22.3
2005	8.1	18.2	34.3	23.2
2004 and prior	14.8	5.1	29.2	11.9
Total prime	13.3	10.9	32.9	16.0
Alt-A:
2008	8.6	38.6	41.2	30.7
2007	4.8	60.7	47.0	21.2
2006	4.0	62.9	46.4	21.1
2005	5.7	42.9	40.5	25.5
2004 and prior	9.7	12.6	31.0	18.3
Total Alt-A	5.2	56.4	45.5	22.3
Total PLMBS	6.2	51.0	44.0	21.6

(1) The cumulative voluntary prepayment rates and cumulative default rates are based on unpaid principal balances.

In addition to evaluating our PLMBS under a base-case (or best estimate) scenario as discussed in Note 4 in “Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements,” we also performed a cash flow analysis for each of these securities under a more stressful housing price scenario. This more stressful scenario was based on a housing price forecast that decreased five percentage points from the trough followed by a recovery path that is 33.0% lower than the base-case scenario.

This stress-test scenario and the associated results do not represent our current expectations and, therefore, should not be construed as a prediction of our future results, market conditions, or the actual performance of these securities. Rather, the results from this hypothetical stress-test scenario provide a measure of the credit losses that we might incur if home price declines and subsequent recoveries are more adverse than those projected in our OTTI assessment.

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The following table represents the impact to credit-related OTTI for the three months ended June 30, 2013 for the more stressful housing price scenario described above, which assumes delayed recovery of the housing price index (HPI), compared to credit-related OTTI recorded using our base-case housing price assumptions. The results of this scenario are not recorded in our financial statements.

	For the Three Months Ended June 30, 2013
	Actual Results - Base-Case HPI Scenario					Adverse HPI Scenario Results
PLMBS	Other-Than-Temporarily Impaired Securities	Unpaid Principal Balance		Q2 2013 OTTI Credit Loss		Other-Than-Temporarily Impaired Securities	Unpaid Principal Balance		Q2 2013 OTTI Credit Loss
(in thousands, except number of securities)
Alt-A*	—	$	—	$	—	6	$	431,178	$	(3,878	)

* Represents classification at time of purchase, which may differ from the current performance characteristics of the instrument.

As described in Note 4 in “Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements” in this report, in our quarterly OTTI assessment, we evaluate each of our securities with a fair value less than amortized cost to determine whether there is any OTTI credit loss (i.e., the present value of the cash flows expected to be collected is less than the amortized cost basis). Any subsequent unfavorable changes in the amount and timing of cash flows expected to be collected could result in additional OTTI losses if, at subsequent evaluation dates, the fair value of our affected securities is less than their amortized cost.

As part of our quarterly OTTI assessment, we also identify previously impaired securities with no additional OTTI credit losses in the quarter. If there is a significant increase in a security's expected cash flows, we adjust the yield on the security on a prospective basis. This adjusted yield is used to calculate the amount to be recognized into interest income over the remaining life of the security in order to match the amount and timing of future cash flows expected to be collected.

Recently Issued and Adopted Accounting Guidance

See Note 1 in “Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements” for a discussion of recently issued and adopted accounting guidance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The Seattle Bank is exposed to market risk, typically interest-rate risk, because our business model results in our holding large amounts of interest-earning assets and interest-bearing liabilities, at various interest rates and for varying periods.    

Interest-rate risk is the risk that the total market value of our assets, liabilities, and derivatives will decline as a result of changes in interest rates or that net interest margin will be significantly affected by interest-rate changes. Interest-rate risk can result from a variety of factors, including repricing risk, yield-curve risk, basis risk, and option risk.

• Repricing risk occurs when assets and liabilities reprice at different times, which can produce changes in our net interest margin and market values.

• Yield-curve risk is the risk that changes in the shape or level of the yield curve will affect our net interest margin and the market value of our assets and liabilities differently because a liability used to fund an asset may be short-term while the asset is long-term, or vice versa.

• Basis risk results from assets we purchase and liabilities we incur having different interest-rate markets. For example, the LIBOR interbank swap market influences many asset and derivative interest rates, while the agency debt market influences the interest rates on our consolidated obligations.

• Option risk results from the fact that we have purchased and sold options either directly through derivative contracts or indirectly by having options embedded within financial assets and liabilities. Option risk arises from the differences between the option to be exercised and incentives to exercise those options. The mismatch in the

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option terms, exercise incentives, and market conditions that influence the value of the options can affect our net interest margin and our market value.

Through our market-risk management practices, we attempt to manage our net interest margin and market value over a wide variety of interest-rate environments. Our general approach to managing market risk is to maintain a portfolio of assets, liabilities, and derivatives that limits our exposure to adverse changes in our market value and in our net interest margin. We use derivatives to hedge market risk exposures and to lower our cost of funds. The derivatives that we employ comply with Finance Agency regulations and are not used for purposes of speculating on interest rates.

Measurement of Market Risk

We monitor and manage our market risk on a daily basis through a variety of measures. Our Board oversees our risk management policy through four primary risk measures that assist us in monitoring and managing our market risk exposures: effective duration of equity, effective key-rate-duration-of-equity mismatch, effective convexity of equity, and market value-of-equity sensitivity. These policy measures are described below. We manage our market risk using the policy limits set for each of these measures.

Effective Duration/Effective Duration of Equity

Effective duration is a measure of the market value sensitivity of a financial instrument to changes in interest rates. Larger duration numbers, whether positive or negative, indicate greater market value sensitivity to parallel changes in interest rates. For example, if a financial instrument has an effective duration of two, then the financial instrument's value would be expected to decline about 2% for a 1% instantaneous increase in interest rates across the entire yield curve or rise about 2% for a 1% instantaneous decrease in interest rates across the entire yield curve, absent any other effects.

Effective duration of equity is the market value weighted average of the effective durations of each asset, liability, and derivative position we hold that has market value. It is calculated by multiplying the market value of our assets by their respective effective durations minus the market value of our liabilities multiplied by their respective durations plus or minus (depending upon whether the market value of a derivative position is positive or negative) the market value of our derivatives multiplied by their respective effective durations. The net result of the calculation is divided by the market value of equity to obtain the effective duration of equity. All else being equal, higher effective duration numbers, whether positive or negative, indicate greater market value sensitivity to changes in interest rates.

Effective Key-Rate-Duration-of-Equity Mismatch

Effective key-rate duration of equity disaggregates effective duration of equity into various points on the yield curve to allow us to measure and manage our exposure to changes in the shape of the yield curve. Effective key-rate-duration-of-equity mismatch is the difference between the maximum and minimum effective key-rate-duration-of-equity measures.

Effective Convexity/Effective Convexity of Equity

Effective convexity measures the estimated effect of non-proportional changes in instrument prices that is not incorporated in the proportional effects measured by effective duration. Financial instruments can have positive or negative effective convexity.

Effective convexity of equity is the market value of assets multiplied by the effective convexity of assets minus the market value of liabilities multiplied by the effective convexity of liabilities, plus or minus the market value of derivatives (depending upon whether the market value of a derivative position is positive or negative) multiplied by the effective convexity of derivatives, with the net result divided by the market value of equity.    

Market Value of Equity/Market Value-of-Equity Sensitivity

Market value of equity is the sum of the present values of the expected future cash flows, whether positive or negative, of each of our assets, liabilities, and derivatives. Market value-of-equity sensitivity is the change in the estimated market value of equity that would result from an instantaneous parallel increase or decrease in the yield curve.

Market-Risk Management

Our market-risk measures reflect the sensitivity of our assets, liabilities, and derivatives to changes in interest rates, which is primarily due to mismatches in the maturities, basis, and embedded options associated with our mortgage-related assets and the consolidated obligations we use to fund these assets. The opportunities and incentives for exercising the

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prepayment options embedded in mortgage-related instruments (which generally may be exercised at any time) generally do not match those of the consolidated obligations that fund such assets, which causes the market value of the mortgage-related assets and the consolidated obligations to behave differently to changes in interest rates and market conditions.

Our method of managing advances results in lower interest-rate risk because we price, value, and risk manage our advances based upon our consolidated obligation funding curve, which is used to value the debt that funds our advances. In addition, when we make an advance or have consolidated obligations issued on our behalf by the Office of Finance, we generally enter contemporaneously into interest-rate exchange agreements that hedge any optionality that may be embedded in each advance or consolidated obligation. Our short-term investments have short terms to maturity and low durations, which cause their market values to have lower sensitivity to changes in market conditions.

We evaluate our market-risk measures daily, under a variety of parallel and non-parallel shock scenarios. These primary risk measures are used for regulatory reporting purposes; however, as discussed further below, for interest-rate risk management and policy compliance purposes, we enhanced our market-risk measurement process to better isolate the effects of credit/liquidity associated with our PLMBS.

After remaining relatively stable in the first four months of 2013, long-term interest rates began to experience significant volatility in late May and in turn, this interest-rate volatility significantly impacted our market-risk measures. During June 2013, we purchased $200 million of out-of-the money swaptions to reduce the negative convexity in our statement of condition and manage embedded caps in our investments. We also issued or terminated certain interest-rate swaps hedging bullet consolidated obligations, totaling over $700 million, to reduce our exposure to future increases in interest rates. We continue to monitor our risk measures carefully and are prepared to take further actions to manage our market risk exposure.

The following table summarizes our total statement of condition risk measures as of June 30, 2013 and December 31, 2012.

	As of		As of
Primary Risk Measures	June 30, 2013		December 31, 2012
Effective duration of equity	0.40		1.46
Effective convexity of equity	(2.51	)	0.87
Effective key-rate-duration-of-equity mismatch	0.66		1.47
Market value-of-equity sensitivity
+ 100 basis point shock scenario	(1.51	)%	(1.76	)%
- 100 basis point shock scenario	(1.53	)%	0.18	%
+ 200 basis point shock scenario	(4.18	)%	(5.06	)%
- 200 basis point shock scenario	(2.88	)%	0.30	%
+ 250 basis point shock scenario	(5.88	)%	(7.12	)%
- 250 basis point shock scenario	(3.11	)%	0.30	%

The duration and the market value of each of our asset and liability portfolios have contributing effects on our overall effective duration of equity. As noted above, as of June 30, 2013, the effective duration of equity reflected the volatile change in interest rates and the increase in hedging activity compared to that of December 31, 2012. The decrease in the effective convexity of equity as of June 30, 2013 from December 31, 2012 was primarily caused by the change in the convexity profile of our consolidated obligations, partially offset by the change in convexity of the derivatives hedging the consolidated obligations. Both the LIBOR and overnight index swap (OIS) rates and yields on consolidated obligations increased in second quarter 2013, but by different magnitudes for the various terms-to-maturity on the respective curves (effective December 31, 2012, we began valuing certain of our collateralized derivatives utilizing the OIS curve rather than the LIBOR curve). Effective key-rate-duration-of-equity mismatch decreased slightly as of June 30, 2013 from December 31, 2012, primarily due to the changes in the composition of our statements of condition.        

The estimated change in our market value-of-equity sensitivity resulting from the plus and minus 100-, 200-, and 250-basis point changes in interest rates between June 30, 2013 and December 31, 2012 was the result of our negative effective convexity of equity profile, which is discussed above.

For market-risk management purposes, we disaggregate our operations into the following portfolios to better isolate the effects of credit/liquidity associated with MBS collateralized by Alt-A mortgage loans: (1) a credit/liquidity portfolio and (2) a basis and mortgage portfolio. The sum of the market values of these two portfolios equals the market value of the Seattle Bank. The credit/liquidity portfolio contains our mortgage-backed investments that are collateralized by Alt-A mortgage loans along with the liabilities that fund these assets and any associated hedging instruments. The basis and mortgage portfolio contains the Seattle

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Bank's remaining operations, primarily consisting of our advances, short-term investments, mortgage loans held for portfolio, and mortgage-backed investments that are not collateralized by Alt-A mortgage loans, along with the funding and hedges associated with these assets. This disaggregation allows us to more accurately measure and manage interest-rate risk in the basis and mortgage portfolio. Similarly, the credit/liquidity portfolio allows more accurate identification of the credit/liquidity effects of this portfolio on our market-risk measures and our market value leverage ratio. We believe that this improvement in our risk management process provides greater transparency, a more granular assessment of market risk, and a means to more effectively manage our risks.

Our risk management policy limits apply only to the basis and mortgage portfolio risk measures. We were in compliance with these risk management policy limits as of June 30, 2013 and December 31, 2012. The following table summarizes our basis and mortgage portfolio risk measures and their respective limits as of June 30, 2013 and December 31, 2012.

	As of		As of		Risk Measure
Basis and Mortgage Portfolio Risk Measures and Limits	June 30, 2013		December 31, 2012		Limit
Effective duration of equity	0.47		1.46		+/-4.00
Effective convexity of equity	(2.27	)	0.25		-5.00
Effective key-rate-duration-of-equity mismatch	0.52		1.14		+3.00
Market value-of-equity sensitivity
+ 100 basis point shock scenario	(1.44	)%	(1.79	)%	-4.00%
- 100 basis point shock scenario	(1.06	)%	0.31	%	-4.00%
+ 200 basis point shock scenario	(3.81	)%	(4.73	)%	-8.00%
- 200 basis point shock scenario	(2.08	)%	0.34	%	-8.00%
+ 250 basis point shock scenario	(5.24	)%	(6.49	)%	-10.00%
- 250 basis point shock scenario	(2.29	)%	0.29	%	-10.00%

The changes in the effective duration of equity, effective convexity, effective key-rate-duration-of-equity mismatch, and estimated changes in our market value-of-equity sensitivity resulting from the plus and minus 100-, 200-, and 250-basis point changes in interest rates of our basis and mortgage portfolio as of June 30, 2013 from that as of December 31, 2012 are due to the same factors as those of our total bank asset and liability portfolio analysis discussed above.

Instruments that Address Market Risk

Consistent with Finance Agency regulation, we enter into interest-rate exchange agreements, such as interest-rate swaps, interest-rate caps and floors, and swaptions, only to reduce the interest-rate exposure inherent in otherwise unhedged asset and funding positions, to achieve our risk management objectives, and to reduce our cost of funds. This enables us to adjust the effective maturity, repricing frequency, or option characteristics of our assets and liabilities in response to changing market conditions. See "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations—Financial Condition as of June 30, 2013 and December 31, 2012—Derivative Assets and Liabilities" for additional information.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Seattle Bank's 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 Seattle Bank in the reports it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC). The Seattle Bank's disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Seattle Bank in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, as well as internal control over financial reporting, may not prevent or detect all inaccurate statements or omissions.

Under the supervision and with the participation of the Seattle Bank's management, including the president and chief executive officer and the chief accounting and administrative officer (who for purposes of the Seattle Bank's disclosure controls and procedures performs similar functions as a principal financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2013, the end of the period covered

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by this report. The evaluation of our disclosure controls and procedures included consideration of the control processes and errors that led to the restatement of our Statements of Cash Flows for the years ended December 31, 2012, 2011, and 2010, the three months ended March 31, 2012 and 2011, the six months ended June 30, 2012 and 2011, and the nine months ended September 30, 2012 and 2011 (collectively the referenced periods). We had previously concluded that disclosure controls and procedures were effective in the previously reported referenced periods; however as a result of the material weakness described below, we have concluded that, as of June 30, 2013, and for the referenced periods, our disclosure controls and procedures were not effective.

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

As of June 30, 2013, the end of the period covered by this report, we did not maintain effective controls over the preparation and review of our statements of cash flows. These control deficiencies resulted in errors in certain of our statements of cash flows as originally reported in the referenced periods, and which in turn, required restatements of our statements of cash flows for the referenced periods. Specifically, the controls over the review of the classification and presentation of cash flows from certain financing and investing activities were not operating effectively, which led to the misclassification of cash flows between operating activities, investing activities, and financing activities in the statements of cash flows for the referenced periods. Accordingly, our management determined that, when evaluated in the aggregate, the control deficiencies constituted a material weakness in internal control over financial reporting as of June 30, 2013, the end of the period covered by this report.

Remediation of Material Weakness

Since the May 24, 2013 filing of our 2012 10-K, as amended, we have implemented and enhanced certain controls and procedures affecting our internal control over financial reporting as they relate to the material weakness identified above. Specifically, we instituted the following changes in our internal control over financial reporting:

• We have implemented enhanced account activity reconciliation processes and controls, including a detailed rationale for the classification of activity for each cash flow statement line item.

• We have enhanced our review processes to include additional validations of statement of cash flow activity to statements of condition and statements of income accounts.

We believe these enhancements, together with a collective focus on the execution of existing controls, improve the quality of the statements of cash flows preparation and review processes and controls by increasing the importance of reconciling activity that affects multiple line items, providing clear communication and guidance as to how cash activity is reflected and reconciled to net income, and ensuring that the cash flow statement impact from new or infrequent transactions is analyzed thoroughly to ensure proper presentation. We believe the actions detailed above, which were implemented prior to and as of the filing date of this report, should remediate the material weakness in internal control over financial reporting; however, based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) criteria, as of June 30, 2013, the filing date of this report, subsequent testing of multiple periods will be required to ascertain that the material weakness has been fully remediated.

Notwithstanding this material weakness, we have concluded, based on supplemental procedures and additional analysis performed to prepare the statement of cash flows, the enhanced review process and controls to remediate the material weakness related to our statements of cash flows for the six months ended June 30, 2013 and 2012, as described above, and the existing controls not impacted by this material weakness, that the financial statements included in this report fairly present in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with generally accepted accounting principles.

Changes in Internal Control Over Financial Reporting

The president and chief executive officer and the chief accounting and administrative officer (who for purposes of the Seattle Bank's internal control over financial reporting performs similar functions as a principal financial officer), conducted an evaluation of our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) to determine whether any changes in our internal control over financial reporting occurred during the fiscal quarter ended June 30, 2013, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. The ongoing enhancements to the statement of cash flows preparation process and controls discussed above were the only changes in our

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internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting for second quarter 2013.

PART II.

ITEM 1. LEGAL PROCEEDINGS

The Seattle Bank is currently involved in a number of legal proceedings against various entities relating to our purchases and subsequent impairment of certain PLMBS as described below. Other than as may possibly result from the legal proceedings discussed below, after consultations with legal counsel, we do not believe that the ultimate resolutions of any current matters would have a material impact on our financial condition, results of operations, or cash flows.

PLMBS Legal Proceedings

The Seattle Bank is currently involved in a number of legal proceedings against various entities relating to our purchases and subsequent impairment of certain PLMBS. These proceedings are described in “Part I. Item 3. Legal Proceedings” in our 2012 10-K and below. As was previously reported, in December of 2009, the Seattle Bank filed 11 complaints in the Superior Court of Washington for King County relating to PLMBS that the Seattle Bank purchased from various dealers and financial institutions in an aggregate original principal amount of approximately $4 billion. The Seattle Bank's complaints under Washington State law request rescission of its purchases of the securities and repurchases of the securities by the defendants for the original purchase prices plus 8% per annum (plus related costs), minus distributions on the securities received by the Seattle Bank. The Seattle Bank asserts that the defendants made untrue statements and omitted important information in connection with their sales of the securities to the Seattle Bank.

In October 2010, each of the defendant groups filed a motion to dismiss the proceedings against it. The issues raised by those motions were fully briefed and were the subject of oral arguments that occurred in March and April 2011. In a series of decisions handed down in June, July, and August 2011, the judge handling the pre-trial motions ruled in favor of the Seattle Bank on all issues, except that the judge granted the defendants' motions to dismiss the Seattle Bank's allegations of misrepresentation as to owner occupancy of properties securing loans in the securitized loan pools while noting that the dismissal does not preclude the Seattle Bank from arguing that occupancy is relevant to other allegations. In addition, the judge granted motions to dismiss a group of related entities as defendants in one of the 11 cases for lack of personal jurisdiction. The resolution of the pre-trial motions allowed the cases to proceed to the discovery phase, which is currently ongoing. In March 2012, the judge entered a scheduling order under which trials for these cases will be held in early 2015 at the earliest.

Consent Arrangement

For additional information relating to the Seattle Bank's Consent Arrangement with the Finance Agency, see "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Capital Resources—Capital Classification and Consent Arrangement" and Note 10 in "Part I. Item 1. Financial Statements—Condensed Notes to Financial Statements" in this report.

ITEM 1A. RISK FACTORS

Our 2012 10-K includes a detailed discussion of our risk factors. The information below includes material updates to, and should be read in conjunction with, the risk factors included in our 2012 10-K and in our report on Form 10-Q for the quarterly period ended March 31, 2013.

Member failures, mergers, and consolidations may adversely affect our business. In particular, the loss of large members with significant amounts of advance business or the loss of substantial advance business from those members or potential large members could have a negative effect on our financial condition and results of operations.    

Over the last several years, many financial institutions have failed, merged, or consolidated. As a result of such activity, since mid-2008, the Seattle Bank has lost 35 members, including our three largest borrowers and shareholders, Washington Mutual Bank, F.S.B., Merrill Lynch Bank USA, and Bank of America, Oregon, N.A. Further, the challenges facing financial services institutions through increased regulatory uncertainty, higher required levels of capital, and sluggish economic growth have diminished the formation of new financial institutions following the financial crisis and have contributed to the rate of mergers and consolidations. If there is a continuation of failures, mergers, and consolidations, particularly mergers or consolidations of institutions within our district by out-of-district acquirers, there may be a reduced number of current and potential members in our district. The resulting loss of business could negatively impact our financial condition and results of operations.

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In addition, our advance and capital stock balances are concentrated with commercial banks and thrift institutions, and we are subject to customer concentration risk due to our reliance on a relatively small number of members for a large portion of our total advance business and resulting advance interest income.

To illustrate these risks, in March 2013, we received notice from Bank of America Oregon, N.A., our largest borrower, of its plans to merge into its parent, BANA, and on April 1, 2013, the merger was completed. On that date, Bank of America Oregon, N.A.'s membership in the Seattle Bank was terminated and all outstanding advances and capital stock were assumed by BANA, a nonmember financial institution. As a result, BANA's business activity will eventually decline to zero as the outstanding advances mature. Approximately 20% of the entity's $3.8 billion in outstanding advances will mature in 2013 and substantially all of its remaining advances mature between 2015 and 2016. We expect that, all other things being equal, the loss of Bank of America Oregon, N.A. as a member will begin to negatively impact our net income and CMA assets-to-total assets ratio in 2015 as a large percentage of BANA's advances will mature in 2015. Further, in 2018, when we begin to be required to repurchase BANA's outstanding capital stock (assuming no regulatory or other limitations prevent us from doing so), we expect further negative impact on our net income primarily driven by a reduction in our earnings from assets funded with capital paid in with respect to BANA's stock. It is difficult to predict the impact on our return on equity as that will vary based on investment opportunities and interest rates, among other things.

These changes have led to and may continue to lead to adverse effects on our business, including lower advance balances and related interest income, and possibly, lower net income. Although we consider the impact of loss of large members on our business in our strategic planning, the loss of an additional large member could result in additional significant adverse impact on our financial condition and results of operations and could impact our ability to maintain our current level of business operations.

We recently identified a material weakness in our internal control over financial reporting that resulted in the need to restate our previously issued financial statements for the periods referenced below. If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.

Subsequent to filing our 2012 10-K, and as a result of ongoing enhancements to our statement of cash

flows preparation process, we became aware of presentation errors in cash flows from certain financing and investing activities in the statements of cash flows for the years ended December 31, 2012, 2011, and 2010, the three months ended March 31, 2012 and 2011, the six months ended June 30, 2012 and 2011, and the nine months ended September 30, 2012 and 2011 (collectively, the referenced periods), which led to the misclassification of cash flows between operating activities, investing activities, and financing activities. On April 25, 2013, after informing and receiving authorization from our Board, we concluded that the financial statements for the referenced periods should not be relied upon and that restatements were required for the referenced periods, which were filed with the SEC in May 2013. Although the errors did not have any impact on the "net change in cash and due from banks" previously reported on the statements of cash flows, or on the statements of condition, statements of income, statements of comprehensive income, or statements of capital for the referenced periods, and we believe we have implemented enhanced review processes and controls to remediate the material weakness, if we are unable to successfully remediate the material weakness or maintain adequate internal control over financial reporting in the future, we could become subject to a number of additional risks and uncertainties, including loss of member confidence, adverse action by the Finance Agency, and increased costs for accounting and legal fees.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

None.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.  OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Exhibits
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 Accounting and Administrative Officer 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 Accounting and Administrative Officer pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Federal Home Loan Bank of Seattle

By:	/s/ Michael L. Wilson	Dated:	August 8, 2013
	Michael L. Wilson
	President and Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Christina J. Gehrke	Dated:	August 8, 2013
	Christina J. Gehrke
	Senior Vice President, Chief Accounting and Administrative Officer
	(Principal Accounting Officer *)

* The Chief Accounting and Administrative Officer for purposes of the Seattle Bank's disclosure controls and procedures and internal control over financial reporting performs similar functions as a principal financial officer.

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LIST OF EXHIBITS

Exhibit No.	Exhibits
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 Accounting and Administrative Officer 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 Accounting and Administrative Officer pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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