The Federal Home Loan Bank (FHLB) of Des Moines last Friday reported a net loss of $5.9 million for the first quarter, compared with net income of $31.4 million reported for the same period in 2008. According to the unaudited quarterly report filed with the U.S. Securities and Exchange Commission, the net loss was the result of several large, non-routine items, including those related to early debt extinguishments and increased callable bond activity.

The bank recognized a loss of approximately $8.3 million from extinguishing approximately $231.8 million of par value bonds during the first quarter of 2009 due to anticipated increases in prepayments of its mortgage-backed loan portfolios. The bank said it expects those losses to be offset in future periods by improved earnings as a result of lower debt costs.

Additionally, the bank exercised its call option on $1.8 billion of higher-cost debt outstanding during the first quarter of 2009 due to market conditions. As a result of this action, the bank amortized $17.4 million of premium expense related to the outstanding bonds. Finally, the bank’s net loss continued to be affected by the negative cost of carry created during the fourth quarter of 2008 on its liquidity portfolio.

The bank’s advances portfolio to its member institutions decreased 10 percent to $37.8 billion, from $41.9 billion at the end of the fourth quarter. FHLB Des Moines expects this downward trend in advance balances to continue throughout 2009 as a result of the current market environment and the availability of alternative funding options for members.

One of 12 banks in the Federal Home Loan Bank System, FHLB Des Moines is a wholesale bank cooperatively owned by more than 1,200 member financial institutions in Iowa, Minnesota, Missouri, North Dakota and South Dakota.