Federal Home Loan Bank of Cincinnati 10-Q

Federally chartered corporation

(State or other jurisdiction of
incorporation or organization)

31-6000228

(I.R.S. Employer
Identification No.)

1000 Atrium Two, P.O. Box 598, Cincinnati, Ohio

(Address of principal executive offices)

45201-0598

(Zip Code)

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 March 31, 2008


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

For the transition period from to .

Commission File No. 000-51399

FEDERAL HOME LOAN BANK OF CINCINNATI

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (513) 852-7500

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 [ ]

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 filer [ ]		Accelerated filer [ ]
Non-accelerated filer [X] (Do not check if a smaller reporting company)		Smaller reporting company [ ]

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

Yes [ ] No[X]

As of April 30, 2008, the registrant had 37,367,160 shares of capital stock outstanding. The capital stock of the Federal Home Loan Bank of Cincinnati is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share.

Page 1 of 66

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CONDITION

(In thousands, except par value)

(Unaudited)


	March 31,			December 31,
	2008			2007
ASSETS
Cash and due from banks	$	2,405		$	52,606
Interest-bearing deposits		98			2,065,098
Securities purchased under agreements to resell		150,000			300,000
Federal funds sold		11,754,500			10,136,000
Trading securities		3,438			3,587
Held-to-maturity securities includes $0 and $0 pledged as collateral at March 31, 2008 and December 31, 2007, respectively, that may be repledged (a)		11,639,088			12,173,492
Advances		61,719,390			53,309,664
Mortgage loans held for portfolio, net		8,818,655			8,927,950
Accrued interest receivable		249,316			305,192
Premises, software, and equipment		9,164			8,763
Derivative assets		44,295			28,182
Other assets		24,942			24,928


TOTAL ASSETS	$	94,415,291		$	87,335,462


LIABILITIES
Deposits:
Interest bearing	$	1,682,354		$	1,045,860
Non-interest bearing		2,346			365

Total deposits		1,684,700			1,046,225


Consolidated Obligations, net:
Discount Notes		39,798,593			35,437,545
Bonds		47,946,528			46,178,651

Total Consolidated Obligations, net		87,745,121			81,616,196


Mandatorily redeemable capital stock		119,196			117,624
Accrued interest payable		418,889			430,827
Affordable Housing Program		102,699			103,374
Payable to REFCORP		12,319			16,539
Derivative liabilities		237,444			161,806
Other liabilities		84,955			88,285


Total liabilities		90,405,323			83,580,876


Commitments and contingencies

CAPITAL
Capital stock Class B putable ($100 par value); 37,264 and 34,734 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively		3,726,351			3,473,361
Retained earnings		288,645			286,428
Accumulated other comprehensive income:
Pension and postretirement plans		(5,028	)		(5,203	)

Total capital		4,009,968			3,754,586


TOTAL LIABILITIES AND CAPITAL	$	94,415,291		$	87,335,462

(a)

Fair values: $11,741,037 and $12,136,302 at March 31, 2008 and December 31, 2007, respectively.

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

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF INCOME

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2008			2007

INTEREST INCOME:
Advances	$	575,036		$	595,411
Prepayment fees on Advances, net		230			215
Interest-bearing deposits		26,377			83,394
Securities purchased under agreements to resell		7,678			11,181
Federal funds sold		53,205			98,768
Trading securities		51			61
Available-for-sale securities		-			11,299
Held-to-maturity securities		145,664			142,952
Mortgage loans held for portfolio		116,547			111,581
Loans to other FHLBanks		161			-

Total interest income		924,949			1,054,862


INTEREST EXPENSE:
Consolidated Obligations – Discount Notes		316,401			308,773
Consolidated Obligations – Bonds		517,596			632,665
Deposits		9,931			12,783
Borrowings from other FHLBanks		-			-
Mandatorily redeemable capital stock		1,535			1,568
Other borrowings		21			-

Total interest expense		845,484			955,789


NET INTEREST INCOME		79,465			99,073


OTHER (LOSS) INCOME:
Service fees		331			315
Net gains on trading securities		32			9
Net losses on derivatives and hedging activities		(2,505	)		(1,251	)
Other, net		1,460			871

Total other loss		(682	)		(56	)


OTHER EXPENSE:
Compensation and benefits		6,599			6,458
Other operating		3,206			3,154
Finance Board		779			740
Office of Finance		680			897
Other		281			431

Total other expense		11,545			11,680


INCOME BEFORE ASSESSMENTS		67,238			87,337


Affordable Housing Program		5,645			7,290
REFCORP		12,319			16,009

Total assessments		17,964			23,299


NET INCOME	$	49,274		$	64,038

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

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CAPITAL

Three Months Ended March 31, 2008 and 2007

(In thousands)

(Unaudited)


										Accumulated
	Capital Stock									Other
	Class B*						Retained			Comprehensive			Total
	Shares			Par Value			Earnings			Income			Capital

BALANCE, DECEMBER 31, 2006		36,576		$	3,657,645		$	255,529			$ (6,325	)	$	3,906,849
Proceeds from sale of capital stock		18			1,754									1,754
Net reclassified to mandatorily redeemable capital stock		(100	)		(10,000	)								(10,000	)

Comprehensive income:
Net income								64,038						64,038
Other comprehensive income:
Net unrealized loss on available-for-sale securities											313			313

Total other comprehensive income											313			313

Total comprehensive income														64,351


Dividends on capital stock:
Cash								(57,360	)					(57,360	)


BALANCE, MARCH 31, 2007		36,494		$	3,649,399		$	262,207			$ (6,012	)	$	3,905,594




BALANCE, DECEMBER 31, 2007		34,734		$	3,473,361		$	286,428			$ (5,203	)	$	3,754,586
Proceeds from sale of capital stock		2,060			206,005									206,005
Net reclassified to mandatorily redeemable capital stock		-			(37	)								(37	)

Comprehensive income:
Net income								49,274						49,274
Other comprehensive income:
Pension and postretirement benefits											175			175

Total other comprehensive income											175			175

Total comprehensive income														49,449


Dividends on capital stock:
Cash								(35	)					(35	)
Stock		470			47,022			(47,022	)					-


BALANCE, MARCH 31, 2008		37,264		$	3,726,351		$	288,645			$ (5,028	)	$	4,009,968

*Putable

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

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2008			2007
OPERATING ACTIVITIES:

Net income	$	49,274		$	64,038


Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization		6,194			33,074
Change in net fair value adjustment on derivative and hedging activities		3,225			(43,432	)
Net fair value adjustment on trading securities		(32	)		(9	)
Other adjustments		1,549			-

Net change in:
Accrued interest receivable		55,525			(913	)
Other assets		(371	)		(172	)
Accrued interest payable		(11,947	)		33,169
Other liabilities		(7,008	)		2,481


Total adjustments		47,135			24,198


Net cash provided by operating activities		96,409			88,236


INVESTING ACTIVITIES:

Net change in:
Interest-bearing deposits		1,813,646			(951,484	)
Securities purchased under agreements to resell		150,000			950,000
Federal funds sold		(1,618,500	)		3,079,100
Premises, software and equipment		(1,005	)		(508	)

Trading securities:
Proceeds		181			218

Available-for-sale securities:
Proceeds		-			21,456,000
Purchases		-			(20,997,195	)

Held-to-maturity securities:
Net decrease in short-term		655			828
Proceeds from long-term		535,059			517,619
Purchases of long-term		-			(1,027,143	)

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

(continued from previous page)

FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


	Three Months Ended March 31,
	2008			2007

Advances:
Proceeds	$	511,790,721		$	449,600,777
Made		(519,810,522	)		(453,194,280	)

Mortgage loans held for portfolio:
Proceeds		448,154			258,488
Purchases		(345,362	)		(362,962	)


Net cash used in investing activities		(7,036,973	)		(670,542	)


FINANCING ACTIVITIES:

Net increase in deposits and pass-through reserves		650,026			286,275

Net proceeds from issuance of Consolidated Obligations:
Discount Notes		199,047,064			157,487,287
Bonds		16,160,844			10,011,477
Bonds transferred from other FHLBanks		157,452			-

Payments for maturing and retiring Consolidated Obligations:
Discount Notes		(194,679,031	)		(158,170,488	)
Bonds		(14,651,962	)		(8,860,261	)

Proceeds from issuance of capital stock		206,005			1,754
Payments for redemption of mandatorily redeemable capital stock		-			(115,851	)
Cash dividends paid		(35	)		(57,360	)


Net cash provided by financing activities		6,890,363			582,833


Net (decrease) increase in cash and cash equivalents		(50,201	)		527
Cash and cash equivalents at beginning of the period		52,606			4,022


Cash and cash equivalents at end of the period	$	2,405		$	4,549


Supplemental Disclosures:

Interest paid	$	875,086		$	916,736


AHP payments, net	$	6,320		$	4,787


REFCORP assessments paid	$	16,539		$	17,205

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

FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 1— Basis of Presentation

The accompanying interim financial statements of the Federal Home Loan Bank of Cincinnati (FHLBank) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The interim financial statements presented are unaudited, but they include all adjustments (consisting of only normal recurring adjustments), which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, and cash flows for such periods. These financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with our audited financial statements and notes included in the FHLBank’s annual report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission (SEC). Results for the three months ended March 31, 2008 are not necessarily indicative of operating results for the remainder of the year.

The FHLBank adopted FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39 (FSP FIN 39-1) on January 1, 2008. In accordance with FSP FIN 39-1, the FHLBank elected to offset fair value amounts recognized for derivative instruments against fair value amounts recognized for the right or obligation to cash collateral arising from derivative instruments recognized at fair value that are executed with the same counterparty under a master netting arrangement. The FHLBank recognized the effects of applying FSP FIN 39-1 as a change in accounting principle through retrospective application. As a result of the retrospective application, the FHLBank has adjusted certain previously reported Statement of Condition accounts as of the related prior period ends.

Note 2—Recently Issued Accounting Standards and Interpretations

SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). In March 2008, the FASB issued SFAS 161, which requires enhanced disclosures about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008 (January 1, 2009 for the FHLBank), with earlier adoption permitted. The FHLBank has not yet determined the effect that the adoption of SFAS 161 will have on its financial statement disclosures.

Note 3—Held-to-Maturity Securities

Major Security Types. Held-to-maturity securities as of March 31, 2008 and December 31, 2007 were as follows (in thousands):


	March 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value

Government-sponsored enterprises *	$	25,069		$ 57		$ -		$	25,126
State or local housing agency obligations		15,395		-		(478	)		14,917

Mortgage-backed securities:
Other U.S. obligations **		14,531		11		-			14,542
Government-sponsored enterprises *		11,240,271		132,306		(18,053	)		11,354,524
Other ***		343,822		-		(11,894	)		331,928


Total mortgage-backed securities		11,598,624		132,317		(29,947	)		11,700,994


Total	$	11,639,088		$ 132,374		$ (30,425	)	$	11,741,037


	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		(Losses)			Fair Value

Government-sponsored enterprises *	$	25,724	$	13	$	-		$	25,737
State or local housing agency obligations		17,570		193		-			17,763

Mortgage-backed securities:
Other U.S. obligations **		16,398		-		(146	)		16,252
Government-sponsored enterprises *		11,758,561		63,268		(88,266	)		11,733,563
Other ***		355,239		-		(12,252	)		342,987


Total mortgage-backed securities		12,130,198		63,268		(100,664	)		12,092,802


Total	$	12,173,492	$	63,474	$	(100,664	)	$	12,136,302


*		Consists of securities issued or guaranteed by Federal Home Loan Mortgage Corporation (Freddie Mac) and/or Federal National Mortgage Association (Fannie Mae), which are not obligations of the U.S. Government.

**		Consists of Government National Mortgage Association (Ginnie Mae) securities.

***		Consists of private-label mortgage-backed securities.

The FHLBank reviewed its held-to-maturity investments at March 31, 2008 and has determined that all unrealized losses reflected below are temporary, based on the creditworthiness of the issuers as well as the underlying collateral, if applicable. The FHLBank believes it is probable that it will be able to collect all amounts due according to the contractual terms of the individual securities. Additionally, because the FHLBank has the ability and intent to hold such securities through to recovery of the unrealized losses, it does not consider the investments to be other-than-temporarily impaired at March 31, 2008.

The following tables summarize the held-to-maturity securities with unrealized losses as of March 31, 2008 and December 31, 2007. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (in thousands).


	March 31, 2008
	Less than 12 Months					12 Months or more					Total
	Estimated		Gross			Estimated		Gross			Estimated		Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		(Losses)			Value		(Losses)			Value		(Losses)

State or local housing agency Obligations	$	14,917	$	(478	)	$	-	$	-		$	14,917	$	(478	)
Mortgage-backed securities:
Government-sponsored enterprises *		910,156		(1,471	)		1,231,677		(16,582	)		2,141,833		(18,053	)
Other ***		-		-			331,928		(11,894	)		331,928		(11,894	)


Total temporarily impaired	$	925,073	$	(1,949	)	$	1,563,605	$	(28,476	)	$	2,488,678	$	(30,425	)


	December 31, 2007
	Less than 12 Months					12 Months or more					Total
	Estimated		Gross			Estimated		Gross			Estimated		Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		(Losses)			Value		(Losses)			Value		(Losses)


Mortgage-backed securities:
Other U.S. obligations **	$	-		-		$	16,252	$	(146	)	$	16,252	$	(146	)
Government-sponsored enterprises *		9,596		(35	)		6,233,729		(88,231	)		6,243,325		(88,266	)
Other ***		-		-			342,987		(12,252	)		342,987		(12,252	)


Total temporarily impaired	$	9,596	$	(35	)	$	6,592,968	$	(100,629	)	$	6,602,564	$	(100,664	)


*		Consists of securities issued or guaranteed by Freddie Mac and/or Fannie Mae, which are not obligations of the U.S. Government.

**		Consists of Ginnie Mae securities.

***		Consists of private-label mortgage-backed securities.

The amortized cost of the FHLBank’s mortgage-backed securities classified as held-to-maturity includes net discounts (in thousands) of $21,535 and $22,845 at March 31, 2008 and December 31, 2007.

Note 4—Advances

Redemption Terms. At March 31, 2008 and December 31, 2007, the FHLBank had Advances outstanding at interest rates ranging from 0.00 percent to 9.75 percent, as summarized below (dollars in thousands). Advances with interest rates of 0.00 percent are AHP subsidized Advances (see Note 9).


	March 31, 2008						December 31, 2007
				Weighted						Weighted
				Average						Average
				Interest						Interest
Year of Contractual Maturity	Amount			Rate			Amount			Rate

Overdrawn demand deposit accounts	$	1,360			2.45	%	$	158			4.49	%

Due in 1 year or less		20,470,668			2.77			14,868,467			4.32
Due after 1 year through 2 years		11,368,424			3.79			11,972,324			5.07
Due after 2 year through 3 years		5,475,677			3.89			5,012,499			5.09
Due after 3 year through 4 years		5,017,445			3.32			4,929,897			5.06
Due after 4 year through 5 years		9,185,097			3.77			7,398,716			4.76
Thereafter		9,455,343			3.73			8,770,738			4.79


Total par value		60,974,014			3.41			52,952,799			4.77

Commitment fees		(1,353	)					(1,417	)
Discount on AHP Advances		(33,936	)					(33,743	)
Discount		(2,452	)					(1,156	)
SFAS 133 hedging adjustments		783,117						393,181


Total	$	61,719,390					$	53,309,664

The FHLBank offers Advances to members that may be prepaid on specified dates (call dates) without incurring prepayment or termination fees (callable Advances). Other Advances may only be prepaid by paying a fee to the FHLBank (prepayment fee) that makes the FHLBank financially indifferent to the prepayment of the Advance. At March 31, 2008 and December 31, 2007, the FHLBank had callable Advances (in thousands) of $24,432,960 and $20,879,684.

The following table summarizes Advances at the dates indicated by year of contractual maturity or next call date for callable Advances (in thousands):


Year of Contractual Maturity or Next Call Date	March 31, 2008		December 31, 2007
Overdrawn demand deposit accounts	$	1,360		$	158

Due in 1 year or less		38,496,840			31,859,139
Due after 1 year through 2 years		8,463,050			7,903,845
Due after 2 year through 3 years		2,355,677			2,262,603
Due after 3 year through 4 years		1,193,445			1,392,397
Due after 4 year through 5 years		5,535,097			5,503,716
Thereafter		4,928,545			4,030,941


Total par value	$	60,974,014		$	52,952,799

The FHLBank also offers Putable Advances. With a Putable Advance, the FHLBank effectively purchases a put option from the member that allows the FHLBank to terminate the Advance at predetermined dates. The FHLBank normally would exercise its option when interest rates increase. At March 31, 2008 and December 31, 2007, the FHLBank had Putable Advances outstanding totaling (in thousands) $6,802,850 and $5,779,450.

Through December 2005, the FHLBank offered Convertible Advances. At March 31, 2008 and December 31, 2007, the FHLBank had Convertible Advances outstanding totaling (in thousands) $3,712,200 and $3,891,700.

The following table summarizes Advances at the dates indicated by year of contractual maturity or next put/convert date for Putable/Convertible Advances (in thousands):


Year of Contractual Maturity or Next Put/Convert Date	March 31, 2008		December 31, 2007
Overdrawn demand deposit accounts	$	1,360		$	158

Due in 1 year or less		29,254,718			23,364,817
Due after 1 year through 2 years		11,470,924			11,849,924
Due after 2 year through 3 years		4,551,777			4,027,499
Due after 3 year through 4 years		4,658,945			4,208,897
Due after 4 year through 5 years		5,394,097			3,693,216
Thereafter		5,642,193			5,808,288


Total par value	$	60,974,014		$	52,952,799

The FHLBank has never experienced a credit loss on an Advance to a member. Based upon the collateral held as security for its Advances and the repayment history of the FHLBank’s Advances, management believes that an allowance for credit losses on Advances is unnecessary.

The following table shows Advance balances at the dates indicated to members holding 5 percent or more of total Advances and includes any known affiliates of these members that are members of the FHLBank (dollars in millions):


March 31, 2008						December 31, 2007
	Principal		% of Total				Principal		% of Total

U.S. Bank, N.A.	$	19,356		32	%	U.S. Bank, N.A.	$	16,856		32	%
National City Bank		6,445		10		Fifth Third Bank		5,539		10
Fifth Third Bank		5,540		9		National City Bank		4,696		9
KeyBank, N.A.		4,060		7		The Huntington National Bank		3,085		6

The Huntington National Bank		3,686		6

						Total	$	30,176		57	%

Total	$	39,087		64	%

Interest Rate Payment Terms. The following table details additional interest-rate payment terms for Advances at the dates indicated (in thousands):


	March 31, 2008					December 31, 2007
	Amount		% of Total			Amount		% of Total
Par amount of Advances:
Fixed-rate	$	29,481,694		48	%	$	24,912,958		47	%
Variable-rate		31,492,320		52			28,039,841		53


Total	$	60,974,014		100	%	$	52,952,799		100	%

Prepayment Fees. The FHLBank records prepayment fees received from members on prepaid Advances net of any associated SFAS 133 hedging fair-value adjustments on those Advances. The net amount of prepayment fees is reflected as interest income in the Statements of Income. Gross Advance prepayment fees received from members (in thousands) were $1,648 and $666 for the three months ended March 31, 2008 and 2007, respectively.

Note 5—Mortgage Loans Held for Portfolio

The following table presents information at the dates indicated on mortgage loans held for portfolio (in thousands):


	March 31, 2008			December 31, 2007
Real Estate:
Fixed rate medium-term single-family mortgages ⁽¹⁾	$	1,273,639			$	1,238,775
Fixed rate long-term single-family mortgages		7,481,125				7,622,777


Subtotal fixed rate single-family mortgages		8,754,764				8,861,552

Premiums		88,223				88,867
Discounts		(13,465	)			(13,905	)
SFAS 133 basis adjustments		(10,867	)			(8,564	)


Total	$	8,818,655			$	8,927,950

(1) Medium-term is defined as a term of 15 years or less.

The following table details the par value of mortgage loans held for portfolio outstanding at the dates indicated (in thousands):


	March 31, 2008		December 31, 2007

Government-guaranteed/insured loans	$	1,302,869		$	1,336,598
Conventional loans		7,451,895			7,524,954


Total par value	$	8,754,764		$	8,861,552

The conventional mortgage loans are supported by primary and supplemental mortgage insurance and the Lender Risk Account in addition to the associated property as collateral. The FHLBank has experienced no credit losses on mortgage loans to date and no event has occurred that would cause the FHLBank to believe it will have to absorb any credit losses on these mortgage loans. Accordingly, the FHLBank has not provided any allowances for losses on these mortgage loans.

The following table presents changes in the Lender Risk Account for the three months ended March 31, 2008 (in thousands):


Lender Risk Account at December 31, 2007	$	49,853
Additions		1,337
Claims		(210	)
Scheduled distributions		(816	)


Lender Risk Account at March 31, 2008	$	50,164

The FHLBank had no nonaccrual loans at March 31, 2008 and December 31, 2007.

Mortgage loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the FHLBank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement. At March 31, 2008 and December 31, 2007, the FHLBank had no recorded investments in impaired mortgage loans.

The following table shows unpaid principal balances at the dates indicated to members supplying 5 percent or more of total unpaid principal and includes any known affiliates that are members of the FHLBank (dollars in millions):


	March 31, 2008					December 31, 2007
	Principal		% of Total			Principal		% of Total

National City Bank	$	5,163		59	%	$	5,378		61	%
Union Savings Bank		2,050		23			1,992		22
Guardian Savings Bank FSB		553		6			518		6


Total	$	7,766		88	%	$	7,888		89	%

Note 6—Derivatives and Hedging Activities

The following table provides outstanding notional balances and estimated fair values, excluding accrued interest, by category of derivatives outstanding at the dates indicated (in thousands):


	March 31, 2008					December 31, 2007
			Estimated					Estimated
	Notional		Fair Value			Notional		Fair Value

Interest-rate Swaps:
Fair value	$	28,979,730	$	(681,752	)	$	27,909,830	$	(382,694	)
Economic⁽¹⁾		173,050		(1,731	)		98,050		98
Forward rate Agreements:
Economic		100,200		(200	)		24,000		(66	)
Mortgage Delivery Commitments:
Economic		157,337		128			48,432		171


Total	$	29,410,317	$	(683,555	)	$	28,080,312	$	(382,491	)


Total derivatives excluding accrued interest			$	(683,555	)			$	(382,491	)
Accrued interest				69,640					68,264
Net cash collateral ⁽²⁾				420,766					180,603


Net derivative balances			$	(193,149	)			$	(133,624	)


Net derivative asset balances			$	44,295				$	28,182
Net derivative liability balances				(237,444	)				(161,806	)


Net derivative balances			$	(193,149	)			$	(133,624	)

	(1)		At March 31, 2008 and December 31, 2007, the FHLBank had ten and eight interest rate swaps, respectively, that economically hedged Advances or Consolidated Obligations and were not accounted for under hedge accounting.

	(2)		December 31, 2007 amount reflects the FHLBank’s retrospective application of FSP FIN 39-1. See Note 1 for further information on the adoption of FSP FIN 39-1.

Note 7—Deposits

The following table details interest bearing and non-interest bearing deposits with the FHLBank at the dates indicated (in thousands):


	March 31, 2008			December 31, 2007

Interest bearing:
Demand and overnight		$	1,586,102		$	910,493
Term			75,600			117,325
Other ⁽¹⁾			20,652			18,042


Total interest bearing			1,682,354			1,045,860


Non-interest bearing:
Other			2,346			365


Total non-interest bearing			2,346			365


Total deposits		$	1,684,700		$	1,046,225

(1)

December 31, 2007 amounts have been adjusted in accordance with the retrospective application of FSP FIN 39-1. See Note 1 for further information on the adoption of FSP FIN 39-1.

Note 8—Consolidated Obligations

Redemption Terms. The following is a summary of the FHLBank’s participation in Consolidated Bonds outstanding at the dates indicated by year of contractual maturity (dollars in thousands):


	March 31, 2008						December 31, 2007
				Weighted						Weighted
				Average						Average
				Interest						Interest
Year of Contractual Maturity	Amount			Rate			Amount			Rate


Due in 1 year or less	$	19,522,730			3.53	%	$	19,723,019			4.55	%
Due after 1 year through 2 years		9,511,000			3.86			7,418,000			4.55
Due after 2 years through 3 years		4,234,750			4.19			4,511,000			4.51
Due after 3 years through 4 years		3,528,000			4.63			3,149,750			4.84
Due after 4 years through 5 years		3,000,030			4.75			3,642,399			4.94
Thereafter		8,035,483			4.95			7,719,725			5.04


Total par value		47,831,993			4.05			46,163,893			4.68

Premiums		40,077						33,175
Discounts		(39,528	)					(41,474	)
Deferred net loss on terminated hedges		–						3
SFAS 133 hedging adjustments		113,986						23,054


Total	$	47,946,528					$	46,178,651

The FHLBank’s Consolidated Bonds outstanding at the dates indicated included (in thousands):


	March 31, 2008			December 31, 2007
Par amount of Consolidated Bonds:
Non-callable		$	35,803,993		$	30,492,604
Callable			12,028,000			15,671,289


Total par value		$	47,831,993		$	46,163,893

The following table summarizes Consolidated Bonds outstanding at the dates indicated by year of contractual maturity or next call date (in thousands):


Year of Contractual Maturity or Next Call Date		March 31, 2008		December 31, 2007

Due in 1 year or less		$	29,170,730	$	30,741,019
Due after 1 year through 2 years			8,976,000		5,218,000
Due after 2 years through 3 years			2,654,750		3,181,000
Due after 3 years through 4 years			1,680,000		1,526,750
Due after 4 years through 5 years			2,065,030		2,117,399
Thereafter			3,285,483		3,379,725


Total par value	$		47,831,993	$	46,163,893

Consolidated Discount Notes. Consolidated Discount Notes are issued to raise short-term funds. Discount Notes are Consolidated Obligations with original maturities up to 366 days. These notes are issued at less than their face amount and redeemed at par value when they mature. The FHLBank’s participation in Consolidated Discount Notes, all of which are due within one year, was as follows (dollars in thousands):


					Weighted Average
	Book Value		Par Value		Interest Rate ⁽¹⁾

March 31, 2008	$	39,798,593	$	39,873,288		2.44	%

December 31, 2007	$	35,437,545	$	35,576,770		4.20	%

(1)

Represents an implied rate.

Note 9—Affordable Housing Program (AHP)

The following table presents changes in the AHP liability for the three months ended March 31, 2008 (in thousands):


Balance at December 31, 2007	$	103,374
Expense		5,645
Subsidy uses, net		(6,320	)


Balance at March 31, 2008	$	102,699

Note 10—Capital

The following table demonstrates the FHLBank’s compliance with the Federal Housing Finance Board’s (Finance Board) capital requirements at the dates indicated (dollars in thousands):


	March 31, 2008				December 31, 2007
	Required		Actual		Required		Actual
Regulatory capital requirements:
Risk-based capital	$	665,358	$	4,134,192	$	610,800	$	3,877,413
Capital-to-assets ratio		4.00%		4.38%		4.00%		4.44%
Regulatory capital	$	3,776,612	$	4,134,192	$	3,493,418	$	3,877,413
Leverage capital-to-assets ratio		5.00%		6.57%		5.00%		6.66%
Leverage capital	$	4,720,765	$	6,201,288	$	4,366,773	$	5,816,120

As of March 31, 2008 and December 31, 2007, the FHLBank had (in thousands) $119,196 and $117,624 in capital stock classified as mandatorily redeemable capital stock on its Statements of Condition. At the dates indicated, these balances were comprised as follows:

March 31, 2008

December 31, 2007

Number of

Stockholders

Amount

Stockholders

Amount

Capital stock subject to mandatory
redemption due to:

Withdrawals

119,196

117,624

The following table provides the dollar amounts for activities recorded in mandatorily redeemable capital stock for the noted period as follows (in thousands):


Balance, December 31, 2007	$	117,624
Capital stock subject to mandatory redemption reclassified from equity:
Withdrawals		37
Stock dividend classified as mandatorily redeemable		1,535


Balance, March 31, 2008	$	119,196

The following table shows the amount of mandatorily redeemable capital stock by year of redemption at the dates indicated (in thousands):


Contractual Year of Redemption	March 31, 2008			December 31, 2007
Due in 1 year or less		$	321		$	311
Due after 1 year through 2 years			1,080			44
Due after 2 years through 3 years			21,334			18,296
Due after 3 years through 4 years			4,573			8,658
Due after 4 years through 5 years			91,888			90,315
Thereafter			-			-


Total par value		$	119,196		$	117,624

Capital Concentration. The following table presents holdings of 5 percent or more of the FHLBank’s total Class B stock, including mandatorily redeemable capital stock, outstanding at the dates indicated and includes any known affiliates that are members of the FHLBank (dollars in millions):


March 31, 2008
			Percent
Name	Balance		of Total


U.S. Bank, N.A.	$	819		21	%
Fifth Third Bank		377		10
National City Bank		354		9
The Huntington National Bank		234		6
AmTrust Bank		217		6


Total	$	2,001		52	%


December 31, 2007
			Percent
Name	Balance		of Total


U.S. Bank, N.A.	$	675		19	%
Fifth Third Bank		372		10
National City Bank		327		9
The Huntington National Bank		231		7
AmTrust Bank		214		6


Total	$	1,819		51	%

Note 11—Employee Retirement Plans

The FHLBank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Defined Benefit Plan), a tax-qualified defined benefit pension plan. The plan covers substantially all officers and employees of the FHLBank. Funding and administrative costs of the Pentegra Defined Benefit Plan charged to other operating expenses were $806,000 and $769,000 in the three months ended March 31, 2008 and 2007, respectively.

The FHLBank also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified defined contribution pension plan. The FHLBank contributes a percentage of the participants’ compensation by making a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations. The FHLBank contributed $248,000 and $221,000 to this Plan in the three months ended March 31, 2008 and 2007, respectively.

The FHLBank has a Benefit Equalization Plan (BEP). The BEP is a non-qualified supplemental retirement plan which restores those pension benefits that would be available under the qualified plans (both defined benefit and defined contribution features) were it not for legal limitations on such benefits. The FHLBank also sponsors a fully insured postretirement benefits program that includes health care and life insurance benefits for eligible retirees.

The FHLBank’s contributions to the defined contribution feature of the BEP use the same matching rules as the qualified defined contribution plan discussed above as well as the related earnings. In the three months ended March 31, 2008, the FHLBank’s net contributions were $(186,000), which resulted from a decline in the related earnings for the period. In the three months ended March 31, 2007, the FHLBank’s net contributions were $84,000.

Components of the net periodic benefit cost for the defined benefit feature of the BEP and postretirement benefits plan for the three months ended March 31 were (in thousands):


	Three Months Ended March 31,
					Postretirement
	BEP				Benefits Plan
Net Periodic Benefit Cost	2008		2007		2008		2007
Service cost	$	83	$	79	$	12	$	13
Interest cost		245		218		46		47
Amortization of unrecognized net loss		175		187		-		-

Net periodic benefit cost	$	503	$	484	$	58	$	60

Note 12—Segment Information

The FHLBank has identified two primary operating segments based on its method of internal reporting: Traditional Member Finance and the Mortgage Purchase Program. These segments reflect the FHLBank’s two primary Mission Asset Activities and the manner in which they are managed from the perspective of development, resource allocation, product delivery, pricing, credit risk management, and operational administration. The segments identify the primary ways the FHLBank provides services to member stockholders.

The following table sets forth the FHLBank’s financial performance by operating segment for the three months ended March 31, 2008 and 2007 (in thousands):


	Three Months Ended March 31,
	Traditional Member				Mortgage Purchase
		Finance				Program			Total
2008
Net interest income		$	56,182			$	23,283		$	79,465
Other loss			(28	)			(654	)		(682	)
Other expenses			9,717				1,828			11,545


Income before assessments			46,437				20,801			67,238


Affordable Housing Program			3,947				1,698			5,645
REFCORP			8,498				3,821			12,319


Total assessments			12,445				5,519			17,964


Net income		$	33,992			$	15,282		$	49,274


Average assets		$	81,457,888			$	8,925,146		$	90,383,034


Total assets		$	85,555,852			$	8,859,439		$	94,415,291


2007
Net interest income		$	76,216			$	22,857		$	99,073
Other (loss) income			(608	)			552			(56	)
Other expenses			9,441				2,239			11,680


Income before assessments			66,167				21,170			87,337


Affordable Housing Program			5,562				1,728			7,290
REFCORP			12,121				3,888			16,009


Total assessments			17,683				5,616			23,299


Net income		$	48,484			$	15,554		$	64,038


Average assets		$	72,223,853			$	9,993,412		$	82,217,265


Total assets⁽¹⁾		$	71,705,805			$	10,035,734		$	81,741,539

(1)

March 31, 2007 amounts have been adjusted in accordance with the retrospective application of FSP FIN 39-1. See Note 1 for further information on the adoption of FSP FIN 39-1.

Note 13—Fair Value Disclosures

The FHLBank adopted SFAS No. 157 Fair Value Measurements (SFAS 157) and SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (SFAS 159) on January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. SFAS 157 applies whenever other accounting pronouncements require or permit assets or liabilities to be measured at fair value. Accordingly, SFAS 157 does not expand the use of fair value to any new circumstances. SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value.

The FHLBank records derivatives, trading securities and available-for-sale securities at fair value on the Statements of Condition. Fair value is a market-based measurement and is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date (an exit price), considered from the perspective of a market participant that holds the asset or owes the liability. In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market, and market participants. These determinations allow the reporting entity to define the inputs for fair value. In general, the transaction price will equal the exit price and, therefore, represent the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the asset or liability, the principal or most advantageous market for the assets or liability, and market participants with whom the entity would transact in that market. The adoption of SFAS 157 did not have an impact on the FHLBank’s retained earnings balance at January 1, 2008.

SFAS 159 provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. In addition, unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. Under SFAS 159, 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. The FHLBank did not elect to record any financial assets or financial liabilities at fair value as a result of adopting SFAS 159 and has not elected the fair value option during the three months ended March 31, 2008.

SFAS 157 established a fair value hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The inputs are evaluated and an overall level for the measurement is determined. This overall level is an indication of how market observable the fair value measurement is and defines the level of disclosure. Outlined below is the application of the fair value hierarchy established by SFAS 157 to the FHLBank’s financial assets and financial liabilities that are carried at fair value at March 31, 2008.

Level 1 – defined as those instruments for which inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – defined as those instruments for which inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The FHLBank’s derivative instruments and trading securities are considered Level 2 instruments based on the inputs utilized to derive fair value.

Level 3 – defined as those instruments for which inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those supported by little or no market activity or by the entity’s own assumptions.

The FHLBank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The valuation techniques, inputs, and validation processes (as applicable) utilized by the FHLBank for the assets and liabilities carried at fair value at March 31, 2008 and December 31, 2007 on the Statements of Condition were as follows:

Trading Securities: The FHLBank’s trading portfolio consists of mortgage-backed securities issued by Ginnie Mae. Quoted market prices in active markets are not available for these securities. Therefore, the fair value of each mortgage-backed security is typically determined via a third-party provider using indicative, quoted, and/or trading prices of similar instruments, matrix pricing, or a discounted cash flow methodology using observable market inputs, as appropriate.

The FHLBank performs several validation steps in order to verify the accuracy and reasonableness of both third-party and internally-derived fair values. These steps may include, but are not limited to, a detailed review of instruments with significant periodic price changes and a comparison of fair values to those derived by alternative third-party sources.

Derivatives: The FHLBank’s derivative assets/liabilities consist of interest-rate exchange agreements, to-be-announced mortgage-backed securities and mortgage delivery commitments. The FHLBank’s interest-rate exchange agreements are not listed on an exchange. Therefore, the FHLBank determines the fair value of each individual interest-rate exchange agreement using third-party market value models that use readily observable market inputs as their basis (inputs that are actively quoted and can be validated to external sources). These models reflect the contractual terms of the interest-rate exchange agreements, including the period to maturity, and estimate fair value based on the LIBOR swap curve and forward rates at period end and, for agreements containing options, on market-based expectations of future interest rate volatility implied from current market prices for similar options. The estimated fair value uses the standard valuation technique of discounted cash flow analysis. The FHLBank performs several validation steps to verify the reasonableness of the fair value output generated by the primary market value model. In addition to an annual model validation, the FHLBank prepares a monthly reconciliation of the model’s fair values to estimates of fair values provided by the derivative counterparties and to another third party model. The FHLBank believes these processes provide a reasonable basis for it to place continued reliance on the derivative fair values generated by the primary model.

Counterparty credit quality is considered in the valuation based on the collateral processes in place for interest-rate exchange agreements, which minimize any unsecured credit risk exposure for these instruments. The fair value of to-be-announced mortgage-backed securities is obtained from a widely accepted third-party provider, which bases fair value on indicative and/or quoted prices generated by market transactions involving comparable instruments. The FHLBank determined the fair value of mortgage delivery commitments using market prices from the TBA/MBS market or TBA/Ginnie Mae market and adjusts them to reflect the contractual terms of the mortgage delivery commitments, such as seasoning and excess servicing. The adjustments to the market prices are market observable, or can be corroborated with observable market data.

The following table presents for each SFAS 157 hierarchy level, the FHLBank’s assets and liabilities that are measured at fair value on its Statements of Condition at March 31, 2008 (in thousands):

Fair Value Measurements at March 31, 2008 Using:


								Netting
		Level 1		Level 2			Level 3	Adjustment		⁽¹⁾		Total
Assets
Trading securities	$	-	$	3,438		$	-	$	-		$	3,438
Derivative assets		-		196,545			-		(152,250	)		44,295


Total assets at fair value	$	-	$	199,983		$	-	$	(152,250	)	$	47,733


Liabilities
Derivative liabilities	$	-	$	(810,461	)	$	-	$	573,017		$	(237,444	)


Total liabilities at fair value	$	-	$	(810,461	)	$	-	$	573,017		$	(237,444	)

(1)

Amounts represent the effect of legally enforceable master netting agreements that allow the FHLBank to settle positive and negative positions and also cash collateral held or placed with the same counterparties.

For instruments carried at fair value, the FHLBank reviews the fair value hierarchy classifications 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 in/out of a level at fair value in the quarter in which the changes occur.

The FHLBank did not have any assets or liabilities measured at fair value on the Statements of Condition using significant unobservable inputs (Level 3) during the three months ended March 31, 2008.

SFAS No. 107, Disclosures of Fair Value of Financial Instruments, requires disclosures of the estimated fair value of certain financial instruments. The following estimated fair value amounts have been determined by the FHLBank using available market information and the FHLBank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the FHLBank as of March 31, 2008 and December 31, 2007. The estimated fair values, as determined using the definition of fair value described in SFAS 157, utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs and reflect the FHLBank’s judgment of how a market participant would estimate the fair values. The Fair Value Summary Tables do not represent an estimate of the overall market value of the FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities. Further details regarding the estimation of fair value amounts for each category below can be found in Note 18 to the audited financial statements in the FHLBank’s 2007 annual report on Form 10-K.

The carrying values and estimated fair values of the FHLBank’s financial instruments at March 31, 2008 were as follows (in thousands):

2008 FAIR VALUE SUMMARY TABLE


				Net
	Carrying			Unrealized			Estimated
Financial Instruments	Value			Gains (Losses)			Fair Value


Assets:
Cash and due from banks	$	2,405		$	-		$	2,405
Interest-bearing deposits		98			-			98
Securities purchased under agreements to resell		150,000			-			150,000
Federal funds sold		11,754,500			-			11,754,500
Trading securities		3,438			-			3,438
Held-to-maturity securities		11,639,088			101,949			11,741,037
Advances		61,719,390			90,101			61,809,491
Mortgage loans held for portfolio, net		8,818,655			68,908			8,887,563
Accrued interest receivable		249,316			-			249,316
Derivative assets		44,295			-			44,295

Liabilities:
Deposits		(1,684,700	)		(130	)		(1,684,830	)
Consolidated Obligations:
Discount Notes		(39,798,593	)		(14,617	)		(39,813,210	)
Bonds		(47,946,528	)		(633,484	)		(48,580,012	)
Mandatorily redeemable capital stock		(119,196	)		-			(119,196	)
Accrued interest payable		(418,889	)		-			(418,889	)
Derivative liabilities		(237,444	)		-			(237,444	)

Other:
Commitments to extend credit for Advances		-			56			56
Standby bond purchase agreements		-			608			608

The carrying values and estimated fair values of the FHLBank’s financial instruments at December 31, 2007 were as follows (in thousands):

2007 FAIR VALUE SUMMARY TABLE


				Net
	Carrying			Unrealized			Estimated
Financial Instruments	Value			Gains (Losses)			Fair Value

Assets:
Cash and due from banks	$	52,606		$	-		$	52,606
Interest-bearing deposits ⁽¹⁾		2,065,098			435			2,065,533
Securities purchased under agreements to resell		300,000			-			300,000
Federal funds sold		10,136,000			-			10,136,000
Trading securities		3,587			-			3,587
Held-to-maturity securities		12,173,492			(37,190	)		12,136,302
Advances		53,309,664			92,950			53,402,614
Mortgage loans held for portfolio, net		8,927,950			(12,024	)		8,915,926
Accrued interest receivable ⁽¹⁾		305,192			-			305,192
Derivative assets ⁽¹⁾		28,182			-			28,182

Liabilities:
Deposits ⁽¹⁾		(1,046,225	)		18			(1,046,207	)
Consolidated Obligations:
Discount Notes		(35,437,545	)		8,503			(35,429,042	)
Bonds		(46,178,651	)		(259,416	)		(46,438,067	)
Mandatorily redeemable capital stock		(117,624	)		-			(117,624	)
Accrued interest payable ⁽¹⁾		(430,827	)		-			(430,827	)
Derivative liabilities ⁽¹⁾		(161,806	)		-			(161,806	)

Other:
Commitments to extend credit for Advances		-			29			29
Standby bond purchase agreements		-			670			670

(1)

December 31, 2007 amounts have been adjusted in accordance with the retrospective application of FSP FIN 39-1. See Note 1 for further information on the adoption of FSP FIN 39-1.

Note 14—Commitments and Contingencies

The following table sets forth the FHLBank’s commitments at the dates indicated (in thousands):


	March 31, 2008		December 31, 2007
Commitments to fund additional Advances	$	14,797	$	5,627
Mandatory Delivery Contracts for mortgage loans		157,337		48,432
Forward rate agreements		100,200		24,000
Outstanding Standby Letters of Credit		7,611,365		6,923,230
Consolidated Obligations — committed to, not settled (par value)		1,111,305		230,000
Standby bond purchase agreements (principal)		211,920		211,920

In addition, the 12 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amounts of the outstanding Consolidated Obligations of all 12 FHLBanks were $1,220.4 billion and $1,189.7 billion at March 31, 2008 and December 31, 2007, respectively.

Note 15—Transactions with Other FHLBanks

Occasionally, the FHLBank loans short-term funds to and borrows short-term funds from other FHLBanks. These loans and borrowings are transacted at then current market rates when traded. The FHLBank notes such activity on the face of its financial statements. There were no such loans or borrowings outstanding at March 31, 2008 and December 31, 2007. The following table details the average daily balance of lending and borrowing between the FHLBank and other FHLBanks for the three months ended March 31 (in thousands):


	Average Daily Balances
		2008		2007
Loans to Other FHLBanks	$	18,835	$	-

Borrowings from Other FHLBanks		-		-

The FHLBank may, from time to time, assume the outstanding primary liability for Consolidated Obligations of another FHLBank rather than issue new debt for which the FHLBank is the primary obligor. The FHLBank then becomes the primary obligor on the transferred debt. There are no formal arrangements governing the transfer of Consolidated Obligations between the FHLBanks. These transfers are not investments of one FHLBank in another FHLBank. They reflect, rather, the act of one FHLBank assuming the debt obligation (at then current market rates on the day when the transfer is traded) that was originally issued by another FHLBank. Transferring debt at current market rates enables the FHLBank System to satisfy the debt issuance needs of individual FHLBanks without incurring the additional selling expenses (concession fees) associated with new debt and provides the transferring FHLBanks with outlets for extinguishing debt structures no longer required for their balance sheet management strategies.

During the three months ended March 31, 2008, the par amounts of the liability on Consolidated Obligations transferred to the FHLBank totaled (in thousands) $150,000. All such transfers were from the FHLBank of Dallas. The net premiums associated with these transactions (in thousands) were $7,452 during the three months ended March 31, 2008. There were no Consolidated Obligations transferred to the FHLBank during the three months ended March 31, 2007. The FHLBank did not transfer any Consolidated Obligations to other FHLBanks during these periods.

Note 16—Transactions with Stockholders

Transactions with Directors’ Financial Institutions. In the ordinary course of its business, the FHLBank may provide products and services to members whose officers or directors serve as directors of the FHLBank (Directors’ Financial Institutions). Finance Board Regulations require that transactions with Directors’ Financial Institutions be made on the same terms as those with any other member. The following table reflects balances with Directors’ Financial Institutions for the items indicated below at the dates indicated (dollars in millions):


	March 31, 2008					December 31, 2007
	Balance		% of Total ⁽¹⁾			Balance		% of Total ⁽¹⁾
Advances	$	894		1.5	%	$	1,289		2.4	%
Mortgage Purchase Program		19		0.2			19		0.2
Mortgage-backed securities		-		-			-		-
Regulatory capital stock		88		2.3			118		3.3
Derivatives		-		-			-		-

(1)

Percentage of total principal (Advances), unpaid principal balance (Mortgage Purchase Program), principal balance (mortgage-backed securities), regulatory capital stock, and notional balances (derivatives).

Concentrations. The following tables show regulatory capital stock balances, outstanding Advance principal balances, and unpaid principal balances of Mortgage Loans Held for Portfolio at the dates indicated to members and former members holding 5 percent or more of regulatory capital stock and include any known affiliates that are members of the FHLBank (dollars in millions):


	Regulatory							Mortgage Purchase
	Capital Stock					Advance		Program Unpaid
March 31, 2008	Balance		% of Total			Principal		Principal Balance

U. S. Bank, N.A.	$	819		21	%	$	19,356		$ 129
Fifth Third Bank		377		10			5,540		16
National City Bank		354		9			6,445		5,163
The Huntington National Bank		234		6			3,686		168
AmTrust Bank		217		6			2,806		-


Total	$	2,001		52	%	$	37,833		$ 5,476


	Regulatory							Mortgage Purchase
	Capital Stock					Advance		Program Unpaid
December 31, 2007	Balance		% of Total			Principal		Principal Balance

U. S. Bank, N.A.	$	675		19	%	$	16,856		$ 134
Fifth Third Bank		372		10			5,539		17
National City Bank		327		9			4,696		5,378
The Huntington National Bank		231		7			3,085		171
AmTrust Bank		214		6			2,093		-


Total	$	1,819		51	%	$	32,269		$ 5,700

Non-member Affiliates. The FHLBank has a relationship with a non-member affiliate, the Kentucky Housing Corporation. The nature of this relationship is twofold: one as an approved borrower from the FHLBank and one in which the FHLBank invests in the purchase of the Kentucky Housing Corporation bonds. The Kentucky Housing Corporation had no borrowings during the three months ended March 31, 2008 or 2007. The FHLBank had investments in the bonds of the Kentucky Housing Corporation of $12,790,000 and $13,140,000 as of March 31, 2008 and December 31, 2007, respectively. The FHLBank did not have any investments in or borrowings to any other non-member affiliates during the three months ended March 31, 2008 or 2007.

FORWARD-LOOKING INFORMATION

This document contains forward-looking statements that describe the objectives, expectations, estimates, and assessments of the Federal Home Loan Bank of Cincinnati (FHLBank). These statements use words such as “anticipates,” “expects,” “believes,” “could,” “estimates,” “may,” and “should.” By their nature, forward-looking statements relate to matters involving risks or uncertainties, some of which we may not be able to know, control, or completely manage. Actual future results could differ materially from those expressed or implied in forward-looking statements or could affect the extent to which we are able to realize an objective, expectation, estimate, or assessment. Some of the risks and uncertainties that could affect our forward-looking statements include the following:

	§		the effects of economic, financial, market, and member conditions on our financial condition, results of operations, and demand for Mission Asset Activity, including changes in economic growth, general credit and liquidity conditions, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, and members’ activity with mergers and consolidations, deposit flows, liquidity needs, and loan demand;

	§		political events, including legislative, regulatory, judicial or other developments that could affect the FHLBank, our members, counterparties, and/or investors in the FHLBank System’s Consolidated Obligations;

	§		competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;

	§		changes in investor demand for Consolidated Obligations and/or in the terms of derivatives;

	§		the volatility of market prices, interest rates, and indices that could affect the value of collateral we hold as security for member obligations and/or for counterparty obligations;

	§		the ability to attract and retain skilled individuals;

	§		the ability to sufficiently develop and support technology and information systems to effectively manage the risks we face;

	§		the ability to successfully manage new products and services;

	§		the risk of loss arising from litigation filed against us or one or more of the other FHLBanks;

	§		factors, including natural disasters, that could affect the value of investments or collateral we hold as security; and

	§		inflation and deflation.

The FHLBank does not undertake any obligation to update any forward-looking statements made in this document.

ORGANIZATIONAL STRUCTURE AND BUSINESS ACTIVITIES

The Federal Home Loan Bank of Cincinnati (FHLBank) is a regional wholesale bank that provides financial products and services to our member financial institutions. We are one of 12 District Banks in the Federal Home Loan Bank System (FHLBank System); our region, known as the Fifth District, comprises Kentucky, Ohio and Tennessee. Each District Bank is a government-sponsored enterprise (GSE) of the United States of America and operates as a separate entity with its own stockholders, employees, and Board of Directors. A GSE combines private sector ownership with public sector sponsorship. The FHLBanks are not government agencies, do not receive financial support from taxpayers, and are exempt from federal, state, and local taxation (except real property taxes). The U.S. government does not guarantee, directly or indirectly, the debt securities or other obligations of the FHLBank System.

The FHLBank System also includes the Federal Housing Finance Board (Finance Board) and the Office of Finance. The Finance Board is an independent agency in the executive branch of the U.S. government that has oversight and regulatory authority over the FHLBanks. The Office of Finance is a joint office of the District Banks established by the Finance Board to facilitate the issuing and servicing of the System’s debt securities (called Consolidated Obligations or Obligations).

In addition to being GSEs, the FHLBanks are cooperative institutions. Private-sector financial institutions voluntarily become members of our FHLBank and purchase our capital stock in order to gain access to our products and services. Only our members can purchase capital stock. All Fifth District federally insured depository institutions and insurance companies that

engage in residential housing finance and that meet standard eligibility requirements are permitted to apply for membership. We require each member to purchase our capital stock as a condition of membership and we may require a member to purchase stock above the membership stock amount when utilizing our products or services. Our Capital Plan is posted on our Web site at www.fhlbcin.com.

Our FHLBank’s mission is to provide financial intermediation between our member stockholders and the capital markets in order to facilitate and expand the availability of financing for housing and community lending throughout the Fifth District. We achieve our mission through a unique cooperative business model. We raise private-sector capital from our member-stockholders and issue high-quality debt in the capital markets with other FHLBanks to provide members with competitive services—primarily a reliable, readily available, low-cost source of funds called Advances—and a competitive return on their FHLBank capital investment through quarterly dividend payments. An important component of our mission is supporting members in their efforts to assist lower-income housing markets.

Our principal activity is making readily available, competitively priced and fully collateralized Advances to our members. Together with the issuance of collateralized Letters of Credit, Advances constitute our “Credit Services” business. As a secondary business line, we purchase qualifying residential mortgages through the Mortgage Purchase Program and hold them as portfolio investments. This program offers members a competitive alternative to the traditional secondary mortgage market. Together, these product offerings constitute our “Mission Asset Activity.”

In addition, through various Housing and Community Investment programs, we assist members in serving very- low-, low-, and moderate-income housing markets and community economic development. These programs provide Advances at below-market rates of interest, direct grants and subsidies, and can help members satisfy their regulatory requirements under the Community Reinvestment Act. In contrast to our Mission Asset Activity, these programs normally generate no profits.

We invest in various highly rated debt securities of financial institutions and in mortgage-related securities. These investments furnish additional liquidity, help us manage market risk exposure, enhance earnings, and (through the purchase of mortgage-related securities) support the housing market.

Our primary source of funding and liquidity is through participating in the issuance of the System’s debt securities—Obligations—in the world-wide capital markets. Obligations are the joint and several obligations of all 12 District Banks. We also execute cost-effective derivative transactions to help hedge market risk exposure. These activities enable us to offer members a wide range of Mission Asset Activity and enable our members to access effectively the capital markets, through their activities with the FHLBank, in ways that they may be unable to do without our services.

The System’s comparative advantage in funding is due largely to its excellent credit ratings. Moody’s Investors Service (Moody’s) and Standard & Poor’s currently assign the System’s Obligations the highest ratings available: long-term debt is rated Aaa by Moody’s and AAA by Standard & Poor’s; and short-term debt is rated P-1 by Moody’s and A-1+ by Standard & Poor’s. These two rating agencies also assign the highest counterparty and deposit ratings available (triple-A) to our FHLBank. No FHLBank has ever defaulted on repayment of, or delayed return of principal or interest on, any Obligation.

EXECUTIVE OVERVIEW

Financial Condition

We believe our financial condition continued to be strong in the first quarter of 2008. As shown in the first section of “Analysis of Financial Condition,” our Mission Asset Activity had an average principal balance in the first three months of 2008 of $74,442 million, an increase of $15,413 million (26 percent) over the first three months of 2007. On March 31, 2008, Mission Asset Activity totaled $77,497 million, an increase of $19,795 million (34 percent) over March 31, 2007 and an increase of $8,711 million (13 percent) over year-end 2007.

Most of the growth in the average and ending balances of Mission Asset Activity occurred from an expansion of Advances to members and of the notional principal amount of available lines outstanding for Letters of Credit. For example, on an average-balance basis, Advances’ principal balance increased $12,426 million (27 percent) in the first quarter of 2008 compared to the first quarter of 2007. This strong Advance growth occurred even after our former member RBS Citizens,

N.A. (RBS Citizens) decreased its Advances outstanding from year-end 2006 to year-end 2007 by $8,528 million. From year-end 2007 to March 31, 2008, Advances grew $8,021 million (15 percent).

The substantial growth in Advances that began in the second half of 2007 continued in the first three months this year because of the increased demand from some of our members for additional liquidity and risk management activities in response to the continuing disruptions and liquidity pressures in the credit and mortgage markets. Although the overall growth in Advances balances was driven by a handful of members, there was a broad based increased use of Advances across our membership.

The increase in the available lines in our Letters of Credit program, which began in late 2006 to support members’ public unit deposits, was maintained in the first quarter of 2008. From year-end 2007 to March 31, 2008, available lines in the Letters of Credit program grew $688 million (10 percent).

In the first three months of 2008, balances in the Mortgage Purchase Program, our third Mission Asset program, were relatively stable, fluctuating within an approximate daily range of $8,700 million to $9,000 million. This Program continued to compose over nine percent of our total assets.

Our liquidity position and ability to access liquidity through debt issuance remained strong in the first quarter. During the continuing disruptions in the financial markets, the FHLBank System, by virtue of its triple-A debt ratings, continued to have sufficient access to the capital markets on favorable terms for debt issuance and derivatives transactions to accommodate the significant increase in Advances that occurred throughout the whole System. We do not know whether, for how long, or the extent to which the disruptions in the financial markets will continue to benefit our Mission Asset Activity. If the disruptions linger, or become more severe, our Mission Asset Activity could decrease. In particular, if the economy enters a recession, the demand for our Mission Asset Activity could fall significantly. However, our business model, including our triple-A ratings, the flexibility in our Capital Plan to manage capital levels and our ability to quickly change liability balances, is structured to enable us to maintain our profitability relative to short-term interest rates, liquidity, and modest risk profile in volatile market and business conditions.

Our regulatory capital averaged $4,039 million in the first three months this year and was $4,134 million on March 31, 2008, an increase from year-end 2007 of $257 million (7 percent). The increase reflected: 1) members’ stock purchases to fund Advance growth, especially related to a change we made in a discretionary feature of our Capital Plan—see the “Business Related Developments” section below; and 2) payment of our first quarter $48 million dividend in the form of additional shares of stock. For details, see the “Capital Resources” section in the “Analysis of Financial Condition.”

Our financial leverage was more elevated in the first quarter of 2008, evidenced by a regulatory capital-to-assets ratio that averaged 4.47 percent, compared to 4.89 percent in the same quarter of 2007 (leverage is the inverse of this ratio). However, this ratio continued to be sufficiently above the 4.00 percent regulatory minimum for us to effectively manage our financial performance, market risk exposure, and capitalization. If our financial leverage increases too much, or becomes too close to the regulatory limit, we would anticipate enacting additional changes in discretionary features of our Capital Plan to ensure our capitalization remains strong and in compliance with the limit.

In the first three months of 2008, $6 million was accrued for future use in the Affordable Housing Program, which was a 23 percent decrease from the same period of 2007. The reduction reflected the lower earnings in the first quarter of 2008.

Results of Operations

The following table summarizes our results of operations and dividend rates paid for the periods indicated.


	Three Months						Year Ended
	Ended March 31,						December 31,
(Dollars in millions)	2008			2007			2007

Net income	$	49		$	64		$	269

Retained earnings (period end)		289			262			286

Affordable Housing Program assessments		6			7			31

Return on average equity (ROE)		5.06	%		6.63	%		6.87	%

Return on average assets		0.22			0.32			0.32

Weighted average dividend rate		5.25			6.38			6.59

Average 3-month LIBOR		3.28			5.36			5.29

ROE versus 3-month LIBOR		1.78			1.27			1.58

Dividend rate versus 3-month LIBOR		1.97			1.02			1.30

Average capital-to-assets ratio		4.33			4.77			4.63

Average regulatory capital-to-assets ratio⁽¹⁾		4.47			4.89			4.80

(1)

See the “Capital Resources” section for further description of regulatory capital.

Although our net income decreased $15 million (23 percent) in the first three months of 2008, we believe our operations continued to generate a competitive level of profitability compared to short-term interest rates. The lower earnings and the 157 basis points decrease in the return on average equity (ROE) in the first three months of 2008 compared to the same period in 2007 occurred primarily from the significant reductions in short-term rates that began in the third quarter of 2007 and accelerated this year. Lower short-term interest rates decrease the amount of earnings we generate from funding short-term and adjustable-rate assets with our interest-free capital. They also lower earnings because we have a substantial short-term asset gap, in which short-term assets reprice sooner than short-term liabilities.

Earnings also decreased in the first quarter because we called a large amount of Consolidated Obligation Bonds as intermediate- and long-term interest rates also fell. This resulted in an additional $7 million of amortization of concession (i.e., selling) expenses associated with issuing debt. The final reason for lower earnings was the continued maturity of a large amount of low-cost noncallable Consolidated Obligations.

These unfavorable factors were partially offset by three favorable factors:

	§		Spreads versus funding costs on short-term assets continued to be wider than normal, due mostly to more favorable short-term funding costs resulting from the disruptions in the financial markets.

	§		Average asset balances expanded, resulting in the continued elevation of financial leverage that substantially began in the fourth quarter of 2007. This is indicated by the reduction in the capital-to-assets ratio from an average of 4.89 percent in the first quarter of 2007 to 4.47 percent in the first quarter of 2008.

	§		Our called Bonds were replaced with new Bonds at lower rates of interest. This will continue to benefit earnings over time.

Although the level of the ROE tends to correlate positively with movements in short-term interest rates, the spread between the ROE and 3-month LIBOR improved 51 basis points in the first three months of 2008 compared to the same period in 2007. The ROE spread tends to correlate inversely with short-term interest rates because we normally engage in an amount of short funding to help achieve a competitive profitability and because of the effect of assessments on earnings when rates change.

Similar to Mission Asset Activity, we do not know whether, for how long, or the extent to which the disruptions in the financial markets will continue to benefit our earnings as described above. However, even if these benefits end immediately, we expect our operations to continue to generate competitive profitability across a wide range of business and market economic environments. However, in some severe interest rate movements and scenarios, our profitability could be uncompetitive for an extended period of time.

Consistent with the decrease in earnings, we paid a 5.25 percent annualized dividend rate in the first quarter of 2008, which was a reduction of 113 basis points compared to the first quarter of 2007. We believe the 197 basis point spread in the dividend rate over the quarter’s average 3-month LIBOR continued to represent a competitive return on capital for our stockholders. After paying cash dividends in each quarter of 2007, we paid the first quarter dividend in stock instead of cash. Our strong asset growth enabled us to pay a stock dividend while complying with a Finance Board Capital Rule that prohibits an FHLBank from issuing new excess capital stock to its stockholders, either by paying stock dividends or otherwise, if the amount of member excess capital stock (as defined by the Finance Board) would exceed one percent of the FHLBank’s assets.

Our Board continues to have a preference for paying stock dividends, and we expect to do so when we are in compliance with the Capital Rule. We believe many members view stock dividends as providing greater value to the return on their capital investment than cash dividends. Stock dividends give members more flexibility in their financial management. We also believe stock dividends, rather than cash dividends, enhance our operations because they provide us with a continual source of new capital, which can support additional Mission Asset Activity, preserve our Capital Plan, and help us manage financial leverage, market risk exposure and liquidity risk. The first quarter stock dividend will enable us to further grow assets by approximately $1,000 million without further increasing financial leverage.

Business Related Developments and Update on Risk Factors

We Changed a Discretionary Feature of Our Capital Plan

During 2007, due to the inability to pay stock dividends and to the substantial growth in Advances, our financial leverage increased and the amount of our excess stock decreased. In response, effective March 10, 2008, our Board of Directors approved a change, applicable prospectively, from $200 million to $100 million in the maximum amount of our cooperative capital a member may use to capitalize its Mission Asset Activity. At the date of this change, two members were utilizing more than $100 million of cooperative capital. This change will tend to reduce our financial leverage and help maintain the cooperative excess stock component of the Plan, which we believe benefits all members.

We may have to make other changes in our Capital Plan, including potentially ending the cooperative capital feature, to reduce the chance of our financial leverage becoming too great or our excess stock becoming exhausted. At this time, we cannot predict what other changes, if any, we may make to our Capital Plan, nor the effects on our financial condition or results of operations if we make any other changes.

The Board Established New Programs to Help Deal with Mortgage Foreclosures

In February 2008, our Board approved three new initiatives to help members deal with mortgage foreclosures. The first, HomeProtect Support, would be a new homeownership set-aside as part of the Affordable Housing Program. The program would provide up to $3.5 million in subsidies through members to assist homeowners in refinancing unaffordable mortgages. It requires the Finance Board to waive certain Affordable Housing regulations, which we requested in March.

The Board also approved a new voluntary program, Preserving the American Dream, funded entirely outside of the Affordable Housing Program. This $2.5 million program will provide grant funds through members to selected housing agencies in order to provide default and foreclosure counseling, loss mitigation, and “rescue funds.” The Board also approved targeting the second 2008 offering of the competitive Affordable Housing Program to properties vacant because of foreclosure and to properties in areas of high foreclosures. Finally, the Board approved $2.5 million to continue the American Dream Homeownership Challenge Program in 2008. This program helps provide homeownership opportunities for minorities and persons with special needs.

Established in 2007, the HomeProtect Program remains available to members. A $250 million set-aside of the Community Investment Program, the purpose of this program is to encourage our member financial institutions to provide first mortgage refinancing to homeowners with incomes at or below 115 percent of area median incomes who are at risk of delinquency or default. The HomeProtect Program provides a discount off regular Advances programs, providing funds at our cost of funds.

The Finance Board Authorized the FHLBanks to Increase Leverage With Mortgage-Backed Securities

In March 2008, the Finance Board authorized the FHLBanks to temporarily increase their leverage of regulatory capital with mortgage-backed securities, from the current limit of three times capital to a limit of six times capital, in order to help relieve the liquidity pressures in the housing finance markets. The expanded leverage is permitted for two years, until March 31, 2010. Managed prudently, this authorization could moderately increase earnings and the dividend rate payable for several years without significantly increasing market risk exposure or significantly eroding investment liquidity. We are currently evaluating the market risk/return tradeoffs presented by the additional leverage authority and the potential consequences on our financial leverage and Capital Plan. We have presented an initial analysis to our Board. If the Board approves a recommended strategy to increase this leverage, we must provide the required analysis and documentation to the Finance Board, and it is subject to their approval. At this time, we cannot predict how much we may increase our mortgage-backed securities as a multiple of capital.

We Reduced Our Market Risk Exposure to Higher Long-Term Interest Rates

We substantially lowered our long-term market risk exposure to higher long-term interest rates in the first quarter of 2008. At the end of the quarter, this exposure was at its lowest level in the last several years. We extended the average maturity of the Consolidated Obligations portfolio by replacing the large amount of debt that we called in the first quarter of 2008 as interest rates fell with new lower rate Obligations at longer average maturities than the called Obligations. The sharply lower short-term and intermediate-term rates provided an opportunity to both reduce interest costs and enhance protection to future interest rate increases.

We Changed Our Policy on Declaring and Paying Dividends

In April 2008, our Board approved modifying the Dividend Policy such that dividends will be declared and paid from retained earnings after the close of a calendar quarter and be based on average regulatory stock balances for the then closed quarter. A related operational change is that dividends will be declared in the second month of each quarter. The prior Policy had based payments on the current quarter’s stock balances and had declared dividends in the third month of each calendar quarter. This Policy change enables us to know the exact earnings available before establishing the dividend rate and enables stockholders to know the exact dividend amount well before the end of each quarter. The form of dividend (stock or cash) will continue to be determined on the payment date, which will remain the last day of each quarter.

We Believe Our Credit Risk Exposure Continued To Be Minimal

We believe we have limited credit risk exposure from offering Advances, purchasing mortgage loans, making investments, and executing derivatives transactions. Since our founding in 1932, we have never experienced a credit loss or delinquency on any instrument and we have not established a loss reserve for any asset. All of our Advances are overcollateralized and we have robust processes to identify and mitigate Advances’ credit risk. Various credit enhancements on loans in the Mortgage Purchase Program protect us down to approximately a 50 percent loan-to-value level. Although most of our money market investments are unsecured, we invest in the debt securities of highly rated, investment-grade institutions, we have conservative limits on exposure to any one institution, and we believe we have strong credit underwriting practices. We have limited holdings of mortgage-backed securities issued by non-GSE institutions. We collateralize most of the credit risk exposure resulting from interest rate swap transactions; only the uncollateralized portion represents unsecured exposure. As discussed in several places in “Quantitative and Qualitative Disclosures About Risk Management,” we believe that the residual credit risk exposure to Advance collateral, loans in the Mortgage Purchase Program, and investments that may have characteristics of “subprime” and “alternative” loans continued to be minimal in the first three months of 2008.

During the first quarter, as in the second half of 2007, in light of the continuing financial market disruptions, we implemented several additional measures aimed at strengthening our credit risk management. In April 2008, our Board approved a number of changes in our Credit Policy to further mitigate the exposure of Advance collateral to mortgages that could be more likely to experience credit quality issues. The normal application of our credit underwriting processes resulted in lower internal credit ratings for numerous members, which increased the members’ collateral requirements and decreased their borrowing capacity for Advances and Letters of Credit. Finally, we have been more aggressive in reducing the maturities and amounts of unsecured money market investments particularly with some financial institutions that are

being, or we believe are at risk of being, negatively affected by credit events. These actions also include suspending new money market investments with several institutions.

Federal Legislative Action

On April 9, 2008, the House Ways and Means Committee passed H.R. 5720, the Housing Assistance Tax Act of 2008. This bill includes a provision that would permit the FHLBanks to guarantee tax-exempt municipal, industrial development and other private activity bonds. The Senate passed H.R. 3221, Foreclosure Prevention Act of 2008, on April 10, 2008. This bill includes an amendment requiring the Finance Board to allow the FHLBanks to use the Affordable Housing Program subsidy to refinance eligible first mortgage loans. We cannot predict whether the Congress will ultimately pass legislation regarding these two issues.

CONDITIONS IN THE ECONOMY AND FINANCIAL MARKETS

Economy

The primary external factors that affect our Mission Asset Activity and earnings are the general state and trends of the economy and financial institutions, especially in the states of our District; conditions in the credit and mortgage markets; and market interest rates. As measured by Gross Domestic Product (GDP), the national economy expanded moderately in the last three years, slightly below its long-term average. GDP grew 2.9 percent in 2006, 2.2 percent in 2007 including 0.6 percent in the fourth quarter, and by an advance estimate of 0.6 percent in the first quarter of 2008. Although it is unknown at this point whether the national economy has entered or will enter a recession in 2008, some believe we have or will. Our normal close communications with members and our analysis of their published data suggest that some of them are experiencing difficult lending environments.

The severe disruptions in the world-wide credit and mortgage markets, and more broadly in the financial markets, that began in the third quarter of 2007 have continued in the first and second quarters of 2008. These disruptions have resulted from, among other things, deterioration in the residential housing finance market, especially because of higher delinquency and foreclosure rates on subprime and alternative mortgages, poor risk management practices at some financial institutions, and realized and/or unrealized losses at some financial institutions, which have pressured their capital adequacy and ability to raise funds. Because of those disruptions, some of our members have experienced liquidity pressures in their capital market and funding activities. We believe this was an important reason for the increase in demand for our Advances in the last two quarters of 2007 and the first quarter of 2008. Most other FHLBanks also have experienced increased demand.

Interest Rates

Trends in market interest rates strongly affect our earnings and strategic decisions on managing the tradeoffs in our market risk/return profile. Interest rates particularly affect us because a large portion of our assets have short-term maturities or short-term adjustable-rate repricing terms, or are swapped to create synthetic short-term adjustable-rate repricing terms, and because earnings generated from funding interest-earning assets with interest-free capital are a significant portion of our net interest income. Interest rate trends can also affect demand for our Mission Asset Activity, spreads on assets and our funding costs. The following table presents key market interest rates for the periods indicated (obtained from Bloomberg L.P.).


	Quarter 1 2008						Year 2007						Quarter 1 2007
	Average			Ending			Average			Ending			Average			Ending

Federal Funds Target		3.22	%		2.25	%		5.05	%		4.25	%		5.25	%		5.25	%

3-month LIBOR		3.28			2.69			5.29			4.70			5.36			5.35
2-year LIBOR		2.82			2.42			4.91			3.81			5.14			5.00
5-year LIBOR		3.56			3.30			5.01			4.18			5.08			4.99
10-year LIBOR		4.31			4.07			5.24			4.67			5.19			5.18

2-year U.S. Treasury		2.01			1.59			4.35			3.05			4.77			4.58
5-year U.S. Treasury		2.73			2.44			4.42			3.44			4.65			4.54
10-year U.S. Treasury		3.64			3.41			4.63			4.03			4.68			4.65

15-year mortgage current coupon ⁽¹⁾		4.69			4.67			5.54			4.95			5.47			5.40
30-year mortgage current coupon ⁽¹⁾		5.36			5.27			5.92			5.54			5.78			5.78

(1)

Simple average of current coupon rates of Fannie Mae and Freddie Mac mortgage-backed securities.

Short-term interest rates began to decrease in the second half of 2007, and the reductions accelerated in the first quarter this year as the Federal Reserve lowered the overnight Federal funds target rate by 200 basis points. The continuing financial market disruptions caused our short-term funding costs relative to short-term LIBOR to improve substantially. This trend materially increased our earnings.

After decreasing in the last two quarters of 2007, especially in the fourth quarter, average intermediate- and long-term rates decreased even more in the early part of the first quarter of 2008. The rate reductions significantly increased the amount of debt that was economic for us to call and replace at lower rates, which will benefit future earnings. Average rates on fixed-rate mortgages fell in the fourth quarter of 2007 and in the first quarter this year. This increased the amount of our mortgage assets with economic incentives to prepay principal and refinance to lower rates. If there are more mortgage prepayments than calls of unswapped Consolidated Obligation Bonds, our earnings could decline. After decreasing substantially in January 2008, mortgage rates rose modestly in February and March of 2008, which reduced the refinancing incentives.

The effects on our earnings and market risk exposure of these trends in the level of interest rates and the shape of market yield curves are discussed above in the “Executive Overview” and below in the “Results of Operations” and in the “Market Risk” section of “Quantitative and Qualitative Disclosures About Risk Management.”

ANALYSIS OF FINANCIAL CONDITION

Asset Composition Data

Mission Asset Activity includes the following components:

	§		the principal balance of Advances;

	§		the notional principal amount of available lines in the Letters of Credit program;

	§		the principal balance in the Mortgage Purchase Program; and

	§		the notional principal amount of Mandatory Delivery Contracts.

The next two tables show the composition of our total assets on selected dates and periods, which support the discussions in the “Executive Overview,” “Credit Services” and “Mortgage Purchase Program” sections.

Asset Composition – Ending Balances (Dollars in millions)


	March 31, 2008						December 31, 2007						March 31, 2007						March 31, 2008
				% of						% of						% of			Change From						Change From
				Total						Total						Total			December 31, 2007						March 31, 2007
	Balance			Assets			Balance			Assets			Balance			Assets			Amount			Pct			Amount			Pct
Advances
Principal	$	60,974			65	%	$	52,953			61	%	$	45,536			56	%	$	8,021			15	%	$	15,438			34	%
Other items ⁽¹⁾		745			1			357			-			38			-			388			109			707			1,861


Total book value		61,719			66			53,310			61			45,574			56			8,409			16			16,145			35

Mortgage loans held for portfolio
Principal		8,755			9			8,862			10			8,483			11			(107	)		(1	)		272			3
Other items		64			-			66			-			80			-			(2	)		(3	)		(16	)		(20	)


Total book value		8,819			9			8,928			10			8,563			11			(109	)		(1	)		256			3

Investments

Mortgage-backed securities
Principal		11,623			12			12,157			14			12,211			15			(534	)		(4	)		(588	)		(5	)
Other items		(21	)		-			(23	)		-			(12	)		-			2			9			(9	)		(75	)


Total book value		11,602			12			12,134			14			12,199			15			(532	)		(4	)		(597	)		(5	)

Short-term money market
Principal		11,905			13			12,501			15			14,998			18			(596	)		(5	)		(3,093	)		(21	)
Other items		-			-			-			-			(9	)		-			-			-			9			100


Total book value		11,905			13			12,501			15			14,989			18			(596	)		(5	)		(3,084	)		(21	)

Other short-term investments		25			-			26			-			24			-			(1	)		(4	)		1			4

Other long-term investments		15			-			17			-			20			-			(2	)		(12	)		(5	)		(25	)


Total investments		23,547			25			24,678			29			27,232			33			(1,131	)		(5	)		(3,685	)		(14	)

Loans to other FHLBanks		-			-			-			-			-			-			-			-			-			-


Total earning assets		94,085			100			86,916			100			81,369			100			7,169			8			12,716			16

Other assets		330			-			419			-			373			-			(89	)		(21	)		(43	)		(12	)


Total assets	$	94,415			100	%	$	87,335			100	%	$	81,742			100	%	$	7,080			8		$	12,673			16


Other Business Activity (Notional)

Letters of Credit	$	7,611					$	6,923					$	3,524					$	688			10		$	4,087			116

Mandatory Delivery Contracts	$	157					$	48					$	159					$	109			227		$	(2	)		(1	)


Total Mission Asset Activity (Principal and Notional)	$	77,497			82	%	$	68,786			79	%	$	57,702			71	%	$	8,711			13		$	19,795			34

(1)

The majority of these balances are SFAS 133-related basis adjustments.

Asset Composition - Average Balances (Dollars in millions)


	March 31, 2008						December 31, 2007						March 31, 2007						March 31, 2008
				% of						% of						% of			Change From						Change From
				Total						Total						Total			December 31, 2007						March 31, 2007
	Balance			Assets			Balance			Assets			Balance			Assets			Amount			Pct			Amount			Pct
Advances
Principal	$	58,144			64	%	$	49,302			59	%	$	45,718			56	%	$	8,842			18	%	$	12,426			27	%
Other items ⁽¹⁾		581			1			60			-			14			-			521			868			567			4,050


Total book value		58,725			65			49,362			59			45,732			56			9,363			19			12,993			28

Mortgage loans held for portfolio
Principal		8,819			10			8,742			10			8,445			10			77			1			374			4
Other items		63			-			75			-			81			-			(12	)		(16	)		(18	)		(22	)


Total book value		8,882			10			8,817			10			8,526			10			65			1			356			4

Investments

Mortgage-backed securities
Principal		11,935			13			12,116			15			12,072			15			(181	)		(1	)		(137	)		(1	)
Other items		(22	)		-			(16	)		-			(10	)		-			(6	)		(38	)		(12	)		(120	)


Total book value		11,913			13			12,100			15			12,062			15			(187	)		(2	)		(149	)		(1	)

Short-term money market
Principal		10,447			12			13,565			16			15,514			19			(3,118	)		(23	)		(5,067	)		(33	)
Other items		-			-			(3	)		-			(2	)		-			3			100			2			100


Total book value		10,447			12			13,562			16			15,512			19			(3,115	)		(23	)		(5,065	)		(33	)

Other short-term investments		25			-			25			-			24			-			-			-			1			4

Other long-term investments		16			-			19			-			21			-			(3	)		(16	)		(5	)		(24	)


Total investments		22,401			25			25,706			31			27,619			34			(3,305	)		(13	)		(5,218	)		(19	)

Loans to other FHLBanks		18			-			7			-			-			-			11			157			18			100


Total earning assets		90,026			100			83,892			100			81,877			100			6,134			7			8,149			10

Other assets		357			-			401			-			340			-			(44	)		(11	)		17			5


Total assets	$	90,383			100	%	$	84,293			100	%	$	82,217			100	%	$	6,090			7		$	8,166			10


Other Business Activity (Notional)

Letters of Credit	$	7,251					$	5,551					$	4,773					$	1,700			31		$	2,478			52

Mandatory Delivery Contracts	$	228					$	88					$	93					$	140			159		$	135			145


Total Mission Asset Activity (Principal and Notional)	$	74,442			82	%	$	63,683			76	%	$	59,029			72	%	$	10,759			17		$	15,413			26

(1)

The majority of these balances are SFAS 133-related basis adjustments.

To measure the extent of our success in achieving growth in Mission Asset Activity, we consider changes in both period-end balances and period-average balances. There can be large differences in the results of these two computations. Average data can provide more meaningful information on trends in Mission Asset Activity and earnings than period-end data because the latter can include day-to-day volatility unrelated to trends.

Credit Services

The strong growth of Advances that began in the second half of 2007 continued in the first three months of 2008. As shown in the asset composition tables above, the principal balance of Advances averaged $58,144 million, an increase of $12,426 million (27 percent) from the first quarter of 2007. The strong Advance growth occurred even after former member RBS Citizens decreased its Advances from the end of 2006 to the end of 2007 by $8,528 million. On March 31, 2008, the principal balance of Advances was $60,974 million, an increase of $8,021 million (15 percent) from year-end 2007. The daily high balance was $61,400 million.

The substantial increase in the available lines in our Letters of Credit program, which began in late 2006 to support members’ public unit deposits, continued to be maintained in the first quarter of 2008. From year-end 2007 to March 31, 2008, available lines in the Letters of Credit program grew $688 million (10 percent). We earn fees only on the actual amount of the available lines used.

The following tables present Advance balances by major program on the dates indicated.


(Dollars in millions)	March 31, 2008					December 31, 2007					March 31, 2007
	Balance		Percent⁽¹⁾			Balance		Percent⁽¹⁾			Balance		Percent⁽¹⁾

Short-Term and Adjustable-Rate
REPO/Cash Management	$	13,502		22	%	$	10,483		19	%	$	8,563		19	%
LIBOR		28,079		46			24,253		46			21,286		47

Total		41,581		68			34,736		65			29,849		66

Long-Term
Regular Fixed Rate		7,039		12			6,605		13			4,334		9
Convertible ⁽²⁾		3,712		6			3,892		7			4,449		10
Putable ⁽²⁾		6,803		11			5,779		11			4,906		11
Mortgage Related		1,697		3			1,602		3			1,775		4

Total		19,251		32			17,878		34			15,464		34

Other Advances		142		-			339		1			223		-


Total Advances Principal		60,974		100	%		52,953		100	%		45,536		100	%


Other Items		745					357					38


Total Advances Book Value	$	61,719				$	53,310				$	45,574

	(1)		As a percentage of total Advances principal.

	(2)		Related interest rate swaps executed to hedge these Advances convert these to an adjustable-rate tied to LIBOR.

In the first three months of 2008, as in the last several prior years, the sources of most Advance growth were short-term (especially REPO), adjustable-rate LIBOR, and Putable Advances. In addition in 2007 and the first three months of 2008, Regular Fixed Rate Advances increased substantially. Other Advance types continue to experience small changes in balances.

The following tables present the principal balances and related weighted average interest rates for the top five Advance borrowers on the dates indicated. They include affiliates that are members of our FHLBank. The decrease from the end of 2007 to March 31, 2008 in the Advance interest rates was due to the reductions in short-term interest rates.

(Dollars in millions)


March 31, 2008
	Ending			Weighted Average
Name	Balance			Interest Rate

U.S. Bank, N.A.	$	19,356			3.39	%
National City Bank		6,445			3.44
Fifth Third Bank		5,540			3.17
KeyBank, N.A.		4,060			2.65
The Huntington National Bank		3,686			2.88


Total of Top 5	$	39,087			3.24


Total Advances (Principal)	$	60,974			3.41


Top 5 Percent of Total		64	%


December 31, 2007
	Ending			Weighted Average
Name	Balance			Interest Rate

U.S. Bank, N.A.	$	16,856			4.99	%
Fifth Third Bank		5,539			4.73
National City Bank		4,696			5.01
The Huntington National Bank		3,085			5.10
KeyBank, N.A.		2,609			4.05


Total of Top 5	$	32,785			4.89


Total Advances (Principal)	$	52,953			4.77


Top 5 Percent of Total		62	%

Advance balances of the top five borrowers constituted 64 percent of Advances on March 31, 2008, similar to the concentration at the end of 2007. We believe that having some large members who heavily use our Mission Asset Activity augments the value of membership to all members because it enables us to improve operating efficiency, increase capital leverage, enhance dividend returns, and provide more competitively priced Mission Asset Activity.

Various market penetration rates continued to indicate consistent Advance usage during the first quarter, and the daily fluctuation of Advances continued to be high. We believe the ability of members to quickly and cost effectively change how they use Advances is a significant source of membership value, even for those members who do not borrow from us heavily or at all. However, the high volatility presents challenges in efficiently funding Advances, managing our capital leverage, and balancing Advance pricing while also generating a competitive return on capital. Advance volatility requires us to maintain a sizable liquidity portfolio in money market investments.

Mortgage Purchase Program (Mortgage Loans Held for Portfolio)

As shown in the asset composition tables, on both an ending-balance and average-balance basis, the total principal balances in the Mortgage Purchase Program for the first quarter of 2008 were relatively stable compared with year-end 2007 and the first quarter of 2007. This continued a trend from the years 2005-2007. We continued to focus on the potential for our largest mortgage seller, National City Bank, to significantly reduce its mortgage activity with us. In the third quarter of 2007, this member stopped selling us mortgage loans. We believe a significant decrease in the amount of mortgage loans outstanding to us from this seller would not hinder our ability to continue offering the Program to other members.

Also continuing a trend from the last several years, the relative stability in the Program reflected a lackluster economy in our District and stabilization of (or outright reduction in) home prices. These factors reduced the growth rate of mortgage originations and refinancings. Our focus continues to be on recruiting more members to participate in the Program and on increasing the number of regular sellers.

The following table reconciles changes in the Program’s principal balances (excluding Mandatory Delivery Contracts) in the first three months this year.


	Mortgage Purchase
(In millions)	Program Principal

Balance at December 31, 2007	$	8,862
Principal purchases		341
Principal paydowns		(448	)


Balance at March 31, 2008	$	8,755

The principal paydowns equated to an annual constant prepayment rate of 16 percent, compared to nine percent in all of 2007. Prepayment speeds accelerated moderately in the first quarter because of the substantial decrease in mortgage rates in the fourth quarter of 2007 and the first quarter of 2008. We closely track the refinancing incentives of all of our mortgage assets because the mortgage prepayment option is one of our largest sources of market risk exposure. Because there were not significant amounts of paydowns or new purchases in the first quarter, the Program’s composition of principal balances by loan type, original final maturity, and mortgage note rate did not change materially from year-end 2007.

As shown in the following table, the percentage of principal balances from members supplying 10 percent or more of total balances was similar for March 31, 2008 as for year-end 2007, a trend also seen in prior years.


	March 31, 2008					December 31, 2007
(Dollars in millions)	Unpaid Principal		% of Total			Unpaid Principal		% of Total

National City Bank	$	5,163		59	%	$	5,378		61	%
Union Savings Bank		2,050		23			1,992		22


Total	$	7,213		82	%	$	7,370		83	%

After being relatively narrow during most of 2007 and in 2006, spreads to funding costs on new mortgage assets widened substantially in the fourth quarter of 2007. This continued in the first quarter of 2008. To the extent the wider spreads continue and we continue to purchase mortgage assets, earnings will improve.

Investments

Money Market Investments

Short-term money market instruments consist of the following accounts on the Statements of Condition: interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, and available-for-sale securities. The composition of money market investments varies over time based on relative value considerations. Daily balances can fluctuate significantly, usually within a range of $8,000 million to $20,000 million, due to changes in the actual and anticipated amount of Mission Asset Activity, liquidity requirements, net spreads, opportunities to warehouse debt at attractive rates for future use, and management of capital leverage. Our investment portfolio continued to perform its functions of providing liquidity, enhancing earnings and management of market risk and capitalization, and supporting the housing markets. In the first quarter of 2008, compared to the first quarter of 2007, the average principal balance of short-term money market investments decreased $5,067 million. As throughout 2007, the decrease was directly related to the significant growth in Advances and our desire to control financial leverage at prudent levels.

Money market investments normally have one of the lowest net spreads of any of our assets, typically ranging from 5 to 15 basis points. During the first quarter of 2008, money market spreads continued to be substantially wider than historical averages, as in the third and fourth quarters of 2007, due mostly to the favorable impact on our funding costs relative to LIBOR from the disruptions in the financial markets.

Mortgage-Backed Securities

We invest in mortgage-backed securities, as permitted under Finance Board Regulations, in order to enhance profitability and, therefore, membership value, and to help support the housing market. Mortgage-backed securities currently comprise most of the held-to-maturity securities and all of the trading securities on the Statements of Condition. Our objective is to maintain the mortgage-backed securities portfolio at close to three times the multiple of regulatory capital currently permitted by Finance Board Regulation, consistent with a favorable market risk/return tradeoff. This multiple averaged 2.95 in the first three months of 2008 and 2.85 on March 31, 2008.

The following table reconciles changes in the principal balances of mortgage-backed securities (including outstanding traded-not-settled transactions) in the first three months of 2008.


	Mortgage-backed
(In millions)	Securities Principal


Balance at December 31, 2007	$	12,157
Principal purchases		-
Principal paydowns		(534	)


Balance at March 31, 2008	$	11,623

We made no purchases during the first quarter of 2008 and the fourth quarter of 2007, because the stock repurchases we made in the second half of 2007 resulted in a mortgage-backed security multiple of more than three at the end of 2007. In the first quarter of 2008, the multiple fell below three as principal paydowns occurred, and we were permitted under the Regulation to begin again purchasing new securities. The principal paydowns equated to an annual constant prepayment rate of 16 percent. As with the Mortgage Purchase Program, discussed above, refinancing incentives accelerated in the fourth quarter of 2007 and the first quarter of 2008. As discussed in the “Business Related Developments and Update on Risk Factors,” we are evaluating whether to seek Finance Board approval to temporarily expand our mortgage-backed security multiple beyond three times capital.

The following table presents the composition of the principal balances of the mortgage-backed securities portfolio by security type, collateral type, and issuer on the dates indicated.


(In millions)	March 31, 2008			December 31, 2007

Security Type
Collateralized mortgage obligations		$	4,931		$	5,170
Pass-throughs			6,692			6,987


Total		$	11,623		$	12,157


Collateral Type
15-year collateral		$	6,003		$	6,292
20-year collateral			2,002			2,088
30-year collateral			3,618			3,777


Total		$	11,623		$	12,157


Issuer
GSE residential mortgage-backed securities		$	11,262		$	11,782
Agency residential mortgage-backed securities			18			20
Private-label residential mortgage-backed securities			343			355


Total		$	11,623		$	12,157

The relative allocations of mortgage-backed securities were stable. As noted above, we purchased no new mortgage-backed securities in the first three months of 2008. We have historically held a small amount of private-label securities.

Consolidated Obligations

The table below presents, for the periods indicated, the ending and average balances of our participations in Consolidated Obligations.


	Three Months Ended						Year Ended						Three Months Ended
(In millions)	March 31, 2008						December 31, 2007						March 31, 2007
	Ending			Average			Ending			Average			Ending			Average
	Balance			Balance			Balance			Balance			Balance			Balance


Consolidated Discount Notes:
Par	$	39,873		$	36,884		$	35,576		$	24,852		$	21,375		$	23,994
Discount		(74	)		(113	)		(139	)		(89	)		(74	)		(86	)


Total Consolidated Discount Notes		39,799			36,771			35,437			24,763			21,301			23,908


Consolidated Bonds:
Unswapped fixed-rate		22,839			23,298			25,514			25,890			26,281			26,110
Unswapped adjustable-rate		12,275			11,451			8,143			4,670			3,971			2,303
Swapped fixed-rate		12,718			12,207			12,507			23,051			24,320			24,129


Total Par Consolidated Bonds		47,832			46,956			46,164			53,611			54,572			52,542


Other items ⁽¹⁾		114			71			15			(118	)		(134	)		(168	)

Total Consolidated Bonds		47,946			47,027			46,179			53,493			54,438			52,374


Total Consolidated Obligations⁽²⁾	$	87,745		$	83,798		$	81,616		$	78,256		$	75,739		$	76,282


(1)		Includes unamortized premiums/discounts, SFAS 133 and other basis adjustments.

(2)		The 12 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. See Note 8 of the Notes to Unaudited Financial Statements for additional detail and discussion related to Consolidated Obligations. The par amount of the outstanding Consolidated Obligations of all 12 FHLBanks was (in millions) $1,220,431 and $1,189,706 at March 31, 2008 and December 31, 2007, respectively.

The decrease in the average and ending balances of unswapped fixed-rate Bonds resulted principally from not re-issuing new Bonds to replace all of the significant amount ($7.0 billion) of such Bonds that we called in the quarter and from not replacing all the Bonds that matured during the quarter. As part of our ongoing management of market risk exposure, we

tended to replace called Bonds that had short remaining maturities with short-term Discount Notes instead of new callable Bonds. This strategy improved earnings because the Discount Notes had lower book rates than the new callable Bonds; it also enabled us to better position the balance sheet to mitigate against the possibility of accelerated mortgage prepayment speeds. We also decreased the balance of unswapped fixed-rate Bonds to reflect the lower balance in the mortgage-backed security portfolio. See the “Market Risk” section in “Quantitative and Qualitative Disclosures About Risk Management” for related discussion.

Balances of Discount Notes, swapped fixed-rate Bonds, and unswapped adjustable-rate Bonds can fluctuate significantly based on comparative changes in their cost levels, supply and demand conditions, Advance demand, money market investment balances, and our balance sheet management strategies. In the first three months of 2008, the balances of Discount Notes and unswapped adjustable-rate Bonds increased substantially on both an average and ending balance basis. We increased the balance of Discount Notes because their relative cost improved significantly more than the net cost of swapped Bonds, principally as a result of the financial market disruptions. We increased the balance of unswapped adjustable-rate Bonds to provide more diversity in funding sources and to help manage liquidity. The ability to have three different sources of short-term and adjustable-rate funding is an important component in managing our financial performance.

The following table shows the allocation on March 31, 2008 of unswapped fixed-rate Bonds according to their final remaining maturity and next call date (for callable Bonds).


(In millions)	Year of Maturity								Year of Next Call
	Callable		Non-Callable		Amortizing		Total			Callable


Due in 1 year or less	$	185	$	2,434	$	5	$	2,624		$	7,353
Due after 1 year through 2 years		250		3,686		5		3,941			260
Due after 2 years through 3 years		1,245		2,535		5		3,785			105
Due after 3 years through 4 years		1,368		1,580		5		2,953			-
Due after 4 years through 5 years		745		1,935		78		2,758			-
Thereafter		3,925		2,681		172		6,778			-


Total	$	7,718	$	14,851	$	270	$	22,839		$	7,718

These allocations of non-callable and amortizing Bonds were consistent with those in the last several years. The allocation of callable Bonds decreased for maturities less than two years, because of the strategy described above regarding replacement of called Bonds.

Finance Board Regulations require us to maintain certain eligible assets free from any lien or pledge in an amount at least equal to the outstanding amount of our participation in Consolidated Obligations. Eligible assets principally include Advances, loans under the Mortgage Purchase Program, mortgage-backed securities, and money market investments. The following table shows our compliance with this requirement on the dates indicated.


(In millions)	March 31, 2008				December 31, 2007

Total Par Value Eligible Assets		$	93,739			$	86,755
Total Par Value Consolidated Obligations			(87,705	)			(81,740	)


Excess Eligible Assets		$	6,034			$	5,015

Deposits

As shown on the Statements of Condition and the Average Balance Sheet and Yield/Rate tables, in the first quarter of 2008, deposit balances had a substantial percentage increase on both an average and ending basis. However, as in recent years, they continued to be a small amount of our funding.

Derivatives Hedging Activity and Liquidity

We discuss our use of and accounting for derivatives in the “Use of Derivatives in Risk Management” section and our liquidity in the “Liquidity Risk and Contractual Obligations” section, each of which are in “Quantitative and Qualitative Disclosures About Risk Management.”

Capital Resources

Regulatory Limits on Capital Stock
Our Capital Plan enables us to efficiently obtain new capital stock to capitalize asset growth, thus allowing us to maintain an adequate capital-to-assets ratio. It also permits us, at our option, to repurchase capital stock in a timely and prudent manner when Mission Asset Activity contracts, thus helping us to maintain competitive profitability. The Gramm-Leach-Bliley Act of 1999 (GLB Act) and Finance Board Regulations specify limits on how much we can leverage capital by requiring us to maintain at all times at least a 4.00 percent regulatory capital-to-assets ratio. A lower ratio indicates more leverage. We have adopted a more restrictive additional limit in our Financial Management Policy, in which we target a floor on the regulatory quarterly average capital-to-assets ratio of 4.20 percent. The following tables present our capital and capital-to-assets ratios, on both a GAAP and regulatory basis, for the periods indicated.


GAAP and Regulatory Capital

	Three Months Ended				Year Ended				Three Months Ended
	March 31, 2008				December 31, 2007				March 31, 2007
(In millions)	Period End		Average		Period End		Average		Period End		Average
GAAP Capital Stock	$	3,726	$	3,608	$	3,473	$	3,610	$	3,650	$	3,649
SFAS 150-Related Stock		119		118		118		132		31		99

Regulatory Capital Stock		3,845		3,726		3,591		3,742		3,681		3,748
Retained Earnings		289		313		286		302		262		275


Regulatory Capital	$	4,134	$	4,039	$	3,877	$	4,044	$	3,943	$	4,023


GAAP and Regulatory Capital-to-Assets Ratios
	Three Months Ended						Year Ended						Three Months Ended
	March 31, 2008						December 31, 2007						March 31, 2007
	Period End			Average			Period End			Average			Period End			Average
GAAP		4.25	%		4.33	%		4.30	%		4.63	%		4.78	%		4.77	%
Regulatory		4.38			4.47			4.44			4.80			4.82			4.89

In the first three months of 2008, we continued to operate within our regulatory and policy limits for financial leverage. As measured by a lower regulatory capital-to-assets ratio, our regulatory financial leverage increased in the first quarter of this year, compared to all of 2007 and to the first quarter of 2007. We believe we can effectively manage the moderate additional amount of market risk exposure that resulted from the greater leverage, which resulted from several factors:

	§		strong Advance growth;

	§		the inability to pay stock dividends in 2007 given our excess stock position in the context of the Finance Board’s Capital Rule;

	§		our repurchases in 2007 of mandatorily redeemable capital stock; and

	§		our desire to maintain sufficient investment liquidity, especially during the disruptions in the financial markets.

Changes in Capital Stock Balance
The following table presents changes in our regulatory capital stock balances in the first three months of 2008.


(In millions)

Regulatory stock balance at December 31, 2007	$	3,591

Stock purchases:
Membership stock		23
Activity stock		183
Stock dividends		48


Regulatory stock balance at March 31, 2008	$	3,845

The $254 million increase in regulatory stock resulted principally from the continued strong growth in Advances, which required some members to purchase additional stock, including one member affected by our change to the Capital Plan (see the “Executive Summary”).

Excess Stock
The following table shows for the dates indicated the amount of available cooperative capital (i.e., cooperative excess stock as defined in our Capital Plan), the amount of capital stock utilized cooperatively to capitalize Mission Asset Activity, and the amount of Mission Asset Activity capitalized with cooperative capital.


(In millions)	March 31, 2008			December 31, 2007

Available cooperative excess capital stock		$	139		$	282


Cooperative utilization of capital stock		$	572		$	525


Mission Asset Activity capitalized with cooperative capital stock		$	14,296		$	13,129

On March 31, 2008, cooperative utilization of stock provided capital for a material portion (18 percent) of Mission Asset Activity. If our Capital Plan did not have a cooperative capital feature, members would have had to purchase an additional $572 million of stock to have the same total amount of Mission Asset Activity outstanding. The $143 million decrease in available cooperative capital resulted from the continued growth in Mission Assets.

The Finance Board’s Capital Rule does not permit us to pay stock dividends if the amount of our excess stock (defined by the Finance Board to include stock cooperatively utilized in accordance with our Capital Plan) would exceed one percent of our total assets after the dividend. The following table shows for the dates indicated the amount of our excess stock (per the Finance Board’s definition). At the end of 2007, we were $66 million below the excess stock threshold and could have paid a stock dividend. However, given the volatility in the financial markets at year end, we chose to be conservative regarding the Capital Rule and paid a cash dividend. On March 31, 2008 we were substantially below the regulatory threshold and paid a stock dividend. We cannot predict if our excess stock will be above or below the regulatory limit in the future.


(In millions)	March 31, 2008				December 31, 2007

Excess capital stock (Finance Board definition)		$	745			$	807


Total assets		$	94,415			$	87,335


Regulatory limit on excess capital stock (one percent of total assets)		$	944			$	873


Excess capital stock (below) above regulatory limit		$	(199	)		$	(66	)

Retained Earnings
On March 31, 2008, stockholders’ investment in our company was supported by $289 million of retained earnings. This represented eight percent of total regulatory capital stock (including mandatorily redeemable (SFAS 150) stock) and 0.31 percent of total assets.

Membership and Stockholders

On March 31, 2008, we had 726 member stockholders. During the first quarter, five new members became stockholders and four members were lost due to mergers producing a net gain of one member stockholder. All four of the membership losses were merged with other Fifth District members. The impact on Mission Asset Activity and earnings resulting from these membership changes was negligible.

The following table shows the number of member stockholders according to charter type on the dates indicated.


	March 31, 2008		December 31, 2007

Commercial Banks		481		480
Thrifts and Savings Banks		134		134
Credit Unions		98		98
Insurance Companies		13		13


Total Member Stockholders		726		725

From year-end 2007 to March 31, 2008, there were no material changes in the percentage of members we have from the total eligible companies by charter and no material changes in the composition of membership by state.

The table below provides a summary of member stockholders by asset size on the dates indicated.


	March 31, 2008		December 31, 2007
Member Asset Size ⁽¹⁾

Up to $100 million		246		242
> $100 up to $500 million		375		376
> $500 million up to $1 billion		55		57
> $1 billion		50		50


Total Member Stockholders		726		725


	(1)		The membership numbers for March 31, 2008, reflect members’ assets as of December 31, 2007.

The following tables list institutions holding five percent or more of outstanding Class B capital stock on the dates indicated. The amounts include stock held by any known affiliates that are members of our FHLBank.


(Dollars in millions)
March 31, 2008						December 31, 2007
			Percent						Percent
Name	Balance		of Total			Name	Balance		of Total

U.S. Bank, N.A.	$	819		21	%	U.S. Bank, N.A.	$	675		19	%
Fifth Third Bank		377		10		Fifth Third Bank		372		10
National City Bank		354		9		National City Bank		327		9
The Huntington National Bank		234		6		The Huntington National Bank		231		7
AmTrust Bank		217		6		AmTrust Bank		214		6


Total	$	2,001		52	%	Total	$	1,819		51	%

There were no material changes between the two dates, except that U.S. Bank held $144 million more stock on March 31, 2008, due to its increase in Advance borrowings. All except AmTrust Bank also had the highest Advance balances outstanding with us on both dates. Continuing a trend from prior years, on March 31, 2008, the 52 percent concentration of capital stock from our five largest stockholders was substantially less than the 64 percent concentration of the top five Advance borrowers.

RESULTS OF OPERATIONS

Components of Earnings and Return on Equity

The following table is a summary income statement for the first quarter of 2008 and 2007. Each ROE percentage is computed as the annualized income or expense for the category divided by the average amount of stockholders’ equity for the respective period.


	Three Months Ended March 31,
(Dollars in millions)	2008						2007
	Amount			ROE			Amount			ROE

Net interest income	$	80			5.98	%	$	99			7.52	%

Net losses on derivatives and hedging activities		(3	)		(0.19	)		(1	)		(0.09	)
Other non-interest income		2			0.14			1			0.09


Total non-interest loss		(1	)		(0.05	)		-			-


Total revenue		79			5.93			99			7.52

Total other expense		(12	)		(0.87	)		(12	)		(0.89	)
Assessments		(18	)		(a	)		(23	)		(a	)


Net income	$	49			5.06	%	$	64			6.63	%


(a)		The effect on ROE of the REFCORP and Affordable Housing Program assessments is pro-rated within the other categories.

Most of the $15 million decrease in net income and the 157 basis points decrease in the ROE resulted from a $19 million reduction in net interest income. The unrealized market value gains and losses related to accounting for derivatives under SFAS 133 were well within the range of normal for our business in both quarters.

Net Interest Income

We manage net interest income within the context of managing the tradeoff between market risk and return. Effective risk/return management requires us to focus principally on the relationships among assets and liabilities that affect net interest income, rather than individual balance sheet and income statement accounts in isolation. Our profitability tends to be low compared to many other financial institutions because of our cooperative wholesale business model, our members’ desire to have dividends correlate with short-term interest rates, and our modest overall risk profile.

We generate net interest income from the net interest rate spread and from funding interest-earning assets with interest-free capital. The sum of these, when expressed as a percentage of the average book balance of interest-earning assets, equals the net interest margin. Because of our low net interest rate spread compared to other financial institutions, a large proportion of net interest income normally is derived from funding assets with our capital.

Components of Net Interest Income
The following table shows, for the first three months of 2008 and 2007, the two major components of net interest income, as well as the three major subcomponents of the net interest spread.


	Three Months Ended March 31,
(Dollars in millions)	2008						2007
				Pct of						Pct of
				Earning						Earning
	Amount			Assets			Amount			Assets
Components of net interest rate spread:
Other components of net interest rate spread	$	48			0.21	%	$	51			0.25	%
Net (amortization)/accretion ^{(1) (2)}		(15	)		(0.06	)		(7	)		(0.03	)
Prepayment fees on Advances, net ⁽²⁾		-			-			-			-


Total net interest rate spread ⁽³⁾		33			0.15			44			0.22

Earnings from funding assets with interest-free capital		47			0.21			55			0.27


Total net interest income/net interest margin	$	80			0.36	%	$	99			0.49	%


(1)		Per SFAS 91, net (amortization)/accretion of premiums/discounts on mortgage assets and Consolidated Obligations and deferred transaction costs (concession fees) for Consolidated Obligations.

(2)		These components of net interest rate spread have been segregated here to display their relative impact.

(3)		Total earning assets multiplied by book yield on interest-earning assets minus book cost of interest-bearing liabilities.

Of the $19 million decrease in net interest income, $11 million occurred from a reduction in the net interest rate spread and $8 million occurred from lower earnings generated by funding short-term and adjustable-rate assets with capital.

An increase in net amortization in accordance with SFAS 91 accounted for $8 million of the total $11 million decrease in the net interest rate spread. Almost all was due to recognition of an additional $7 million in concession (i.e., selling) expenses associated with calling a large amount of Consolidated Obligation Bonds in the first quarter of 2008, as intermediate- and long-term interest rates fell substantially. If the net amortization had not increased, the first quarter’s ROE would have been higher by approximately 60 basis points. The net amortization of purchase premiums and discounts related to mortgage assets changed insignificantly—less than $0.1 million. Net amortization of noncash items depends mostly on changes in market interest rates, which affect mortgage prepayment speeds and recognition of purchase premiums and discounts and the amount of Bonds we may call.

Advance prepayment fees, which we record as net interest income, were less than $0.3 million in both periods. Advance prepayment fees can be, and in the past have been, significant. Prepayment fees depend mostly on the actions and preferences of members to continue holding our Advances.

The $3 million decrease in the other components of the net interest spread (excluding net amortization and prepayment fees) was the net result of several material factors discussed below in estimated descending order of their impact.

	§		*Wider spreads on short-term assets compared to funding costs—Favorable:*** In the second half of 2007 and the first quarter of 2008 average spreads on many assets, especially short-term and adjustable-rate assets, widened substantially relative to their funding costs. The interest costs of our short-term funding sources improved significantly due to the disruptions in the financial markets, as discussed in “Conditions in the Economy and Financial Markets.” This significantly increased our earnings and ROE in the first quarter. Although it is difficult to determine a precise impact, we estimated that this factor raised net interest income by $7 million to $10 million and ROE by 50 to 75 basis points. We do not know whether, for how long, or the extent to which the disruptions in the financial markets will continue to benefit our earnings.

	§		*Maturity of low cost debt—Unfavorable:*** One of our key strategies in managing market risk exposure is to fund mortgage assets with a mix of long-term noncallable and callable unswapped Consolidated Bonds having a wide range of final maturities. In the last three quarters of 2007 and the first quarter of 2008, a total of $3.6 billion of such Bonds, with a weighted average coupon of 3.54 percent, matured. We had issued many of these Bonds to fund mortgage assets that we purchased in 2001-2004 during those years’ low interest rates and steep positively sloped market yield curves. These low cost Bonds tend to have average book costs materially below the book yields of the mortgage assets they funded. As a result, when the Bonds matured and the related mortgage assets paid down,

			earnings decreased because we replaced the mortgages with new mortgages at lower net spreads. This factor may continue to decrease earnings in the remainder of 2008 and in 2009. However, if spreads on new mortgage assets continue to be relatively wide, as they have been since the fourth quarter of 2007, the lower earnings from the maturity of low cost debt could be partially offset or even reversed. Although it is difficult to determine a precise impact, we estimated that this factor lowered net interest income by $5 million to $10 million and ROE by 40 to 75 basis points.

	§		*Large overnight asset gap—Unfavorable***: In the first three months of 2008, as in the last several years, we carried a large overnight asset gap of approximately $10 billion to $15 billion. This resulted from the preferences of some members for overnight funding and, during the current financial market disruptions, from restricting the maturities of many of our money market investments to overnight maturities to ensure adequate liquidity and to provide additional flexibility in mitigating our unsecured credit risk exposure. Because we have limited sources of overnight funding, we tend to fund these overnight assets with longer-term liabilities having maturities of up to several months. Because short-term interest rates decreased significantly, the overnight asset gap lowered earnings because the assets repriced sooner than the related funding. Although it is difficult to determine a precise impact, we estimated that this factor lowered net interest income by approximately $10 million and ROE by approximately 75 basis points.

	§		*Growth in average asset balances—Favorable:*** Average total assets expanded by $8,166 million in the first three months of 2008 compared to the same period of 2007. Most of the growth was in Advances principal balances, which increased $12,426 million. We estimate that this factor raised net interest income by $3 million to $6 million and ROE by 20 to 50 basis points, based on a range of estimates of the average spreads we earned on the new assets (excluding the effect of the favorable market conditions).

	§		*Re-issuing called Consolidated Bonds at lower rates—Favorable:*** As discussed elsewhere, during the first quarter of 2008, we called $7.0 billion of unswapped Bonds and replaced them with new debt at lower interest rates. Although it is difficult to determine a precise impact, we estimated that this factor raised net interest income by $3 million to $6 million and ROE by 20 to 50 basis points.

Average Balance Sheet and Yield/Rates
The following table provides yields/rates and average balances for major balance sheet accounts in the first quarters of 2008 and 2007. All data include the impact of interest rate swaps, which we allocate to each asset and liability category according to their designated hedging relationship. The average rate of each asset and liability category decreased between the first three months of 2007 and the first three months of 2008, except for two accounts. Most of the accounts that had lower average rates have short-term maturities or adjustable-rate features, which were repriced to lower rates corresponding to the large reductions in short-term market rates. See the “Conditions in the Economy and Financial Markets.” The mortgage-backed securities and unswapped fixed-rate Consolidated Bond accounts had higher average rates for the following reasons.

	§		For mortgage-backed securities, rates on new mortgages increased in the second and third quarters of 2007. The securities we purchased in these quarters affected the account’s average rate in the first quarter of 2008. By comparison, as explained in the “Analysis of Financial Condition,” we made no purchases of mortgage-backed securities in the fourth quarter of 2007 and the first quarter of 2008 when average mortgage rates were lower.

	§		As discussed above, in the fourth quarter of 2007 and especially in the first quarter of 2008, we retired a large amount of callable Consolidated Bonds and replaced them with Bonds having lower rates. These actions lowered the average rate on this account. However, the continued maturity throughout 2007 and the first quarter of 2008 of a large amount of Bonds with relatively low book costs and the additional concession expenses related to calling many of the Bonds in this account more than offset, on a combined basis, the effect on the book cost from calling the Bonds.


(Dollars in millions)	Three Months Ended							Three Months Ended
	March 31, 2008							March 31, 2007
	Average				Average			Average				Average
	Balance		Interest		Rate ⁽¹⁾			Balance		Interest		Rate ⁽¹⁾
Assets
Advances	$	58,725	$	575		3.94	%	$	45,732	$	596		5.28	%
Mortgage loans held for portfolio ⁽²⁾		8,882		117		5.28			8,526		111		5.31
Federal funds sold and securities purchased under resale agreements		8,022		61		3.05			8,350		110		5.34
Other short-term investments⁽³⁾		25		-		3.29			882		12		5.34
Interest-bearing deposits in banks ⁽⁴⁾		2,425		26		4.38			6,304		83		5.37
Mortgage-backed securities		11,913		146		4.91			12,062		143		4.79
Other long-term investments		16		-		5.37			21		-		5.81
Loans to other FHLBanks		18		-		3.44			-		-		-


Total earning assets		90,026		925		4.13			81,877		1,055		5.23

Allowance for credit losses on mortgage loans		-							-
Other assets		357							340


Total assets	$	90,383						$	82,217


Liabilities and Capital
Term deposits	$	88		1		4.23		$	127		2		5.26
Other interest bearing deposits ⁽⁴⁾		1,287		9		2.81			905		11		4.99
Short-term borrowings		36,771		316		3.46			23,908		309		5.24
Unswapped fixed-rate Consolidated Bonds		23,295		279		4.82			26,092		290		4.51
Unswapped adjustable-rate Consolidated Bonds		11,451		115		4.03			2,303		30		5.28
Swapped Consolidated Bonds		12,281		124		4.04			23,979		313		5.29
Mandatorily redeemable capital stock		118		1		5.25			99		1		6.45
Other borrowings		4		-		2.02			-		-		-


Total interest-bearing liabilities		85,295		845		3.98			77,413		956		5.01


Non-interest bearing deposits		6							1
Other liabilities		1,166							885
Total capital		3,916							3,918


Total liabilities and capital	$	90,383						$	82,217


Net interest rate spread						0.15	%						0.22	%


Net interest income and net interest margin			$	80		0.36	%			$	99		0.49	%


Average interest-earning assets to interest-bearing liabilities						105.55	%						105.77	%

	(1)		Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.

	(2)		Nonperforming loans are included in average balances used to determine average rate. There were none for the periods displayed.

	(3)		For the three months ended March 31, 2007, other short-term investments are primarily composed of securities classified as available-for-sale, based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders’ equity for available-for-sale securities.

	(4)		Average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end, in accordance with FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39. See Note 1 of the Notes to Unaudited Financial Statements for further information.

Volume/Rate Analysis
Another way to consider the change in net interest income is through a standard volume/rate analysis, as presented in the following table for the periods indicated. For purposes of this table, changes in the composition of the balance sheet that are not due solely to volume or rate changes are allocated proportionately to the volume and rate factors.


	Three Months Ended
(In millions)	March 31, 2008 over 2007
	Volume			Rate			Total
Increase (decrease) in interest income
Advances	$	169		$	(190	)	$	(21	)
Mortgage loans held for portfolio		5			1			6
Federal funds sold and securities purchased under resale agreements		(4	)		(45	)		(49	)
Other short-term investments		(12	)		-			(12	)
Interest-bearing deposits in banks		(51	)		(6	)		(57	)
Mortgage-backed securities		(2	)		5			3
Other long-term investments		-			-			-
Loans to other FHLBanks		-			-			-


Total		105			(235	)		(130	)

Increase (decrease) in interest expense
Term deposits		(1	)		-			(1	)
Other interest-bearing deposits		5			(7	)		(2	)
Short-term borrowings		166			(159	)		7
Unswapped fixed-rate Consolidated Bonds		(31	)		20			(11	)
Unswapped adjustable-rate Consolidated Bonds		119			(34	)		85
Swapped Consolidated Bonds		(152	)		(37	)		(189	)
Mandatorily redeemable capital stock		-			-			-
Other borrowings		-			-			-


Total		106			(217	)		(111	)


Increase (decrease) in net interest income	$	(1	)	$	(18	)	$	(19	)

The rate contribution category was responsible for nearly all of the decrease in total net interest income. This represented the effects of the unfavorable factors net of the favorable factors, as discussed above, especially the impact of lower short-term interest rates on the earnings generated from funding assets with capital.

Effect of the Use of Derivatives on Net Interest Income
Among other things, we use derivatives to hedge the fixed-rate interest rate terms of Advances and Consolidated Obligations, which effectively creates net adjustable-rate LIBOR-based coupon rates. The following table shows the effect of derivatives on our net interest income for the periods indicated.


(In millions)	Three Months Ended March 31,
	2008				2007

Advances ⁽¹⁾		$	(15	)		$	14
Consolidated Obligations ⁽¹⁾			9				(36	)


Decrease to net interest income		$	(6	)		$	(22	)


(1)		Relates to interest rate swap interest.

For each period, the total decrease in net interest income resulting from derivatives activity represented the net effect of three factors, which depend on changes in both short-term LIBOR and in the notional principal amounts of swapped Advances and swapped Obligations:

	§		the economic cost of hedging purchased options embedded in Advances;

	§		converting below-market coupons to at-market coupons on swapped Advances with purchased options; and

	§		converting fixed-rate coupons to an adjustable-rate LIBOR coupon on swapped Consolidated Obligations.

The $16 million smaller decrease in the net interest income from derivatives activity in the first quarter of 2008 versus the same period in 2007 resulted from the large reductions in short-term interest rates. This lowered the earnings from Advance

swaps on which we receive interest on a net short-term LIBOR basis, while it raised earnings from Consolidated Obligation swaps on which we pay interest on a net short-term LIBOR basis. Although our overall use of derivatives lowered net interest income for the periods presented, they made our earnings and market risk profile significantly more stable.

Non-Interest Income and Non-Interest Expense

The following table presents non-interest income and non-interest expense for the first three months of 2008 and 2007.


	Three Months Ended March 31,
(Dollars in millions)	2008			2007

Other (Loss) Income
Net losses on derivatives and hedging activities	$	(3	)	$	(1	)
Other non-interest income, net		2			1


Total other loss	$	(1	)	$	-


Other Expense
Compensation and benefits	$	7		$	7
Other operating expense		3			3
Finance Board		1			1
Office of Finance		1			1
Other expenses		-			-


Total other expense	$	12		$	12


Average total assets	$	90,383		$	82,217
Average regulatory capital		4,039			4,023

Total other expense to average total assets ⁽¹⁾		0.05	%		0.06	%
Total other expense to average regulatory capital ⁽¹⁾		1.15	%		1.18	%


(1)		Amounts used to calculate percentages are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.

Total other expense was constant at $12 million. Total other expense as a percentage of average total assets and average regulatory capital continued to be one of the lowest of the FHLBanks. We continue to maintain a sharp focus on our operating costs.

REFCORP and Affordable Housing Program Assessments

Currently, the combined assessments for REFCORP and the Affordable Housing Program equate to a 26.7 percent effective annualized net assessment rate. The REFCORP assessment is currently expected to be statutorily retired at some point between 2010 and 2015, depending on the level of the FHLBank System’s earnings. It is likely to be retired closer to 2010 than to 2015.

In the first three months of 2008, assessments totaled $18 million, which reduced the ROE by 185 basis points, compared to $23 million in the first three months of 2007, which reduced the ROE by 241 basis points. The burden of assessments fell because net income before assessments decreased 23 percent while average capital decreased only $2 million, or 0.1 percent.

Segment Information

Note 12 of the Notes to Unaudited Financial Statements presents information on the two operating business segments we have identified. It is important to note that we manage our financial operations and market risk exposure primarily at the level, and within the context, of the entire balance sheet, rather than at the level of individual operating business segments. Under this approach, the market risk/return profile of each operating business segment does not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The table below summarizes each segment’s operating results for the first three months of 2008 and 2007.


	Traditional		Mortgage
(Dollars in millions)	Member		Purchase
	Finance		Program		Total
Three Months Ended March 31, 2008

Net interest income	$	56	$	24	$	80

Net income	$	34	$	15	$	49


Average assets	$	81,458	$	8,925	$	90,383

Assumed average capital allocation	$	3,529	$	387	$	3,916


Return on Average Assets⁽¹⁾		0.17%		0.69%		0.22%

Return on Average Equity⁽¹⁾		3.87%		15.90%		5.06%


Three Months Ended March 31, 2007

Net interest income	$	76	$	23	$	99

Net income	$	48	$	16	$	64


Average assets	$	72,224	$	9,993	$	82,217

Assumed average capital allocation	$	3,442	$	476	$	3,918


Return on Average Assets⁽¹⁾		0.27%		0.63%		0.32%

Return on Average Equity⁽¹⁾		5.71%		13.23%		6.63%


(1)		Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.

Traditional Member Finance Segment
The $14 million decrease in net income and the 184 basis points decrease in the ROE resulted from the unfavorable factors identified above for the entire balance sheet, net of the favorable factors of wider spreads, more favorable funding costs and greater financial leverage. For this segment the unfavorable factors were 1) the effect of lower short-term interest rates on earnings generated from funding assets with capital and from the large overnight asset gap; and 2) a portion of the additional concession expenses from calling Consolidated Obligation Bonds associated with mortgage-backed securities.

Mortgage Purchase Program Segment
The 267 basis points increase in the ROE resulted primarily from an increase in financial leverage, which corresponded to an increase in leverage for the whole balance sheet. However, net income decreased $1 million, which reflected the unfavorable effects of lower short-term interest rates, the maturity of low cost Consolidated Bonds, and the additional concession expense discussed in the “Net Interest Income” section above. Greater financial leverage does not necessarily increase net income. These unfavorable factors were almost fully offset by the elimination of $1.4 billion of low-yielding overnight Federal funds assets.

Prior to the first quarter of 2008, the portfolio had a substantial amount of Federal funds assets because we had assigned more debt to the portfolio than mortgage assets. Many of the Consolidated Bonds that we called in the first quarter had been assigned to this portfolio. We replaced some of the Bonds with short-term Discount Notes, which are not allocated to this portfolio. This action decreased the amount of Bonds assigned to the portfolio, which caused the asset balance of the Federal funds to decrease also. These changes improved earnings because the yield on the Federal funds was substantially lower than the book cost of the Bonds that we called.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Business Risk

We believe that business risk and market risk are the most significant risks we face. Business risk is the potential adverse impact on achievement of our mission or corporate objectives, including the level and stability of profitability of earnings and balances of Mission Asset Activity, resulting from external factors and/or events over which we may have limited control or influence. In the first three months of 2008, we believe that we realized a business risk in that our excess capital stock decreased and our financial leverage increased. See the “Executive Overview” for discussion. To date, our Mission Asset Activity and earnings have benefited from the disruptions in the credit and mortgage markets, although we cannot predict that this will continue to be the case.

Market Risk

Measurement and Management of Market Risk Exposure
Our primary challenges in managing long-term market risk exposure, including the level and volatility of earnings, arise from the tradeoff between earning a competitive return and correlating profitability with short-term interest rates, and from the market risk exposure of owning mortgage assets on which we have sold prepayment options. We hedge the market risk of mortgage assets mostly with long-term fixed-rate callable and noncallable Consolidated Obligation Bonds. We have not used derivatives to manage the market risk of mortgage assets, except for hedging a portion of commitments in the Mortgage Purchase Program. Because it is normally cost-prohibitive to completely hedge mortgage prepayment risk, a residual amount of market risk typically remains after funding and hedging activities.

We closely monitor and analyze our market risk exposure using numerous measures, and we actively manage it. Our Financial Management Policy specifies five sets of limits regarding market risk exposure that address capital leverage and long-term market risks. Except for the capital leverage requirement, with which we comply daily, we determine compliance with our policy limits at every month-end or more frequently if market or business conditions change significantly.

In addition, Finance Board Regulations and some internal guidelines specify additional management controls on market risk exposure by restricting the types of mortgage loans, mortgage-backed securities and other investments we can hold. Historically, we have decided to not purchase a large amount of securities of private-label issuers, which we believe can have more volatility in prepayment speeds than GSE mortgage-backed securities, and have tended to purchase the front-end prepayment tranches of collateralized mortgage obligations, which can have less prepayment volatility than other tranches. We also manage market risk exposure by charging members prepayment fees on many Advance programs where an early termination of an Advance would result in an economic loss to us.

We complied with each of our policy limits for market risk exposure in each of the first three months of 2008, as we did in each month of 2007.

Capital Leverage
See the “Capital Resources” section of the “Analysis of Financial Condition” for information on our capital leverage.

Market Value and Duration of Equity – Entire Balance Sheet

Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables. The following table presents the market value of equity and duration of equity sensitivity profiles for the entire balance sheet for selected periods and interest rate shocks (in basis points).

Market Value of Equity


(Dollars in millions)	Down 200			Down 100			Down 50			Flat Rates		Up 50			Up 100			Up 200

Month-End Average

*2008 Year-to-Date*
Market Value of Equity	$	3,526		$	3,791		$	3,905		$	3,956	$	3,932		$	3,866		$	3,689

% Change from Flat Case		(10.9)	%		(4.2)	%		(1.3)	%		-		(0.6)	%		(2.3)	%		(6.7)	%

*2007*
Market Value of Equity	$	3,781		$	3,967		$	3,978		$	3,935	$	3,860		$	3,767		$	3,571

% Change from Flat Case		(3.9)	%		0.8	%		1.1	%		-		(1.9)	%		(4.3)	%		(9.3)	%



Month-End

*March 31, 2008*
Market Value of Equity	$	3,519		$	3,780		$	3,887		$	3,931	$	3,911		$	3,857		$	3,717

% Change from Flat Case		(10.5)	%		(3.8)	%		(1.1)	%		-		(0.5)	%		(1.9)	%		(5.4)	%

*December 31, 2007*
Market Value of Equity	$	3,477		$	3,729		$	3,809		$	3,814	$	3,765		$	3,685		$	3,497

% Change from Flat Case		(8.8)	%		(2.2)	%		(0.1)	%		-		(1.3)	%		(3.4)	%		(8.3)	%

Duration of Equity


(In years)	Down 200			Down 100			Down 50			Flat Rates			Up 50		Up 100		Up 200

Month-End Average

2008 Year-to-Date		(7.0	)		(6.7	)		(4.3	)		(0.4	)		2.6		4.2		4.8

2007		(6.3	)		(2.0	)		1.1			3.3			4.7		5.3		5.5



Month-End

March 31, 2008		(6.8	)		(6.5	)		(3.9	)		(0.3	)		2.2		3.5		3.7

December 31, 2007		(7.2	)		(5.6	)		(2.3	)		1.5			3.7		5.0		5.2

In the first three months of 2008, we believe our market risk exposure continued to be moderate and well managed, and we substantially lowered our long-term market risk exposure to higher long-term interest rates. This is indicated by smaller losses in the market value of equity and lower durations of equity in upward interest rate shocks. By the end of the quarter, this exposure was at its lowest level in the last several years. We lowered market risk exposure by extending the average maturity of the Consolidated Obligations portfolio which was a result of replacing the large amount of debt that we called in the first quarter of 2008 as interest rates fell with new lower rate Obligations at longer average maturities than the called Obligations. The sharply lower short-term and intermediate-term rates provided an opportunity to both reduce interest costs and enhance protection against future interest rate increases.

In the fourth quarter of 2007, and continuing into 2008, there was elevated market risk exposure to lower intermediate- and long-term interest rates, compared with previous years. This is indicated by larger losses in the market value of equity and lower (or more negative) durations of equity in downward interest rate shocks. The primary reasons for the increased exposure were the actual reductions in interest rates; a steeper LIBOR market yield curve; and an increase in the ratio of the mortgage assets to regulatory capital in 2007 due to our repurchases of SFAS 150 stock and inability to raise new capital through paying stock dividends. We believe that, generally and especially in the current market conditions, there is a greater likelihood of realizing long-term market risk exposure to higher long-term rates than to lower long-term rates.

Market-to-Book Value Ratio of Regulatory Capital

The ratio of the market value to book value of total regulatory capital indicates the theoretical net market value of portfolio assets after subtracting the theoretical net market cost of liabilities. A ratio greater than 100 percent indicates that if we were

to liquidate our balance sheet, we would be able to do so at a net gain of cash. A ratio below 100 percent indicates that liquidation would involve a loss of cash. Changes in the market-to-book value ratio of regulatory capital provide a rough indication of the value of future net interest income from the current balance sheet. The value can represent potential real economic losses or unrealized opportunity losses.

The following table presents ratios of the market value to book value of total regulatory capital for the current (flat-rate) interest rate environment for the periods indicated. These ratios were relatively stable in 2007 and the first three months of 2008, which we believe supports our belief that we have moderate market risk exposure. The reduction of four percentage points in the ratio from year-end 2007 to March 31, 2008 resulted primarily from a widening of spreads on new mortgage assets, which represents an opportunity cost.


	Month-End Average			Period-End

2008 Year-to-Date		97	%		95	%

2007 Full-Year		98	%		99	%

Market Risk Exposure of the Mortgage Assets Portfolio

The mortgage assets portfolio accounts for almost all of our market risk exposure because of the prepayment volatility associated with mortgage assets that we cannot completely hedge at an acceptable cost. We closely analyze the mortgage assets portfolio both together with and separately from the entire balance sheet. The portfolio includes mortgage-backed securities; loans under the Mortgage Purchase Program; Consolidated Obligations we have issued to finance and hedge these assets; to-be-announced mortgage-backed securities we have sold short to hedge the market risk of Mandatory Delivery Contracts; overnight assets or funding for balancing the portfolio; and allocated capital.

The following table presents the sensitivities of the market value of equity and duration of equity (in years) of the portfolio for selected periods and interest rate shocks (in basis points). We allocated equity using the entire balance sheet’s regulatory capital-to-assets ratio. This allocation is not necessarily what would result from an economic allocation of equity to the mortgage assets portfolio but, because it uses the same regulatory capital-to-assets ratio as the entire balance sheet, the results are comparable to the sensitivity results for the entire balance sheet.

Market Value and Duration of Equity – Mortgage Assets Portfolio


	Down 200			Down 100			Down 50			Flat Rates			Up 50			Up 100			Up 200
Month-End Average

*2008 Year-to-Date*
% Change Market
Value of Equity		(77.7	)%		(30.6	)%		(10.1	)%		-			(2.1	)%		(11.3	)%		(37.3	)%

Duration of Equity		(208.1	)		(66.2	)		(34.8	)		(6.6	)		13.2			25.8			42.0

*2007*
% Change Market
Value of Equity		(23.9	)%		2.6	%		4.8	%		-			(9.3	)%		(20.9	)%		(45.4	)%

Duration of Equity		(46.3	)		(13.3	)		3.1			15.1			24.1			31.5			46.3


Month-End

*March 31, 2008*
% Change Market
Value of Equity		(81.5	)%		(30.6	)%		(9.8	)%		-			(2.0	)%		(10.1	)%		(32.0	)%

Duration of Equity		(259.0	)		(69.4	)		(34.7	)		(5.9	)		11.8			22.5			31.3

*December 31, 2007*
% Change Market
Value of Equity		(49.3	)%		(12.0	)%		(0.7	)%		-			(7.6	)%		(20.0	)%		(49.9	)%

Duration of Equity		(73.0	)		(34.6	)		(12.5	)		8.5			22.6			35.1			59.8

The table shows that, in the first three months of 2008, the market risk exposure of the mortgage asset portfolio had similar trends across interest rate shocks as those of the entire balance sheet, although the mortgage assets portfolio had substantially greater market risk exposure and volatility than the entire balance sheet.

Risk-Based Capital Regulatory Requirements

The GLB Act and Finance Board Regulations require us to hold sufficient capital to protect against exposure to market risk, credit risk, and operational risk. The amount of our total permanent capital, defined as retained earnings plus the regulatory amount of Class B stock, must be at least equal to the amount of risk-based capital, measured as the sum of market risk, credit risk, and operational risk. The following table shows for the dates and period indicated the amount of risk-based capital required, the amount of permanent capital, and the amount of excess permanent capital.


(Dollars in millions)			Monthly Average
	Quarter End		Three Months Ended		Year End
	March 31, 2008		March 31, 2008		2007

Total risk-based capital requirement		$ 665		$ 678		$ 611
Total permanent capital		4,134		4,039		3,877


Excess permanent capital		$ 3,469		$ 3,361		$ 3,266


Risk-based capital as a percent of permanent capital		16%		17%		16%

The risk-based capital requirement has been relatively stable since we implemented it and has never been a binding constraint on our operations. We do not use it to actively manage our market risk exposure.

Use of Derivatives in Risk Management

As with our participation in debt issuances, derivatives transactions help us hedge market risk associated with Advances and mortgage commitments. Derivatives also help us intermediate between the preferences of capital market investors for long-term, fixed-rate debt securities and the preferences of our members for shorter-term or adjustable-rate Advances. We can satisfy the preferences of both groups by issuing long-term fixed-rate Consolidated Obligation Bonds and transacting an interest rate swap that synthetically converts the Bonds to an adjustable-rate LIBOR funding basis that matches up with the short-term and adjustable-rate Advances.

The most common ways we use derivatives are to:

	§		preserve a favorable interest rate spread between the yield of an asset and the cost of the supporting Obligation(s), when the characteristics of the asset and liability are not similar;

	§		reduce funding costs by executing a derivative concurrently with the issuance of Bonds;

	§		hedge below-market rates and/or the market risk exposure on Advances (e.g., Putable and Convertible Advances) for which our members have sold to, or purchased from, us options embedded within the Advances;

	§		hedge Regular Fixed-Rate Advances when it may not be as advantageous to issue Obligations or when it may improve our market risk management; and

	§		hedge market risk associated with commitment periods of Mandatory Delivery Contracts in the Mortgage Purchase Program.

Because we have a cooperative business model, our Board of Directors has emphasized the importance of minimizing earnings volatility, including volatility from the use of derivatives. Accordingly, our strategy is to execute derivatives that we expect both to be highly effective hedges of market risk exposure and to receive fair value hedge accounting treatment under SFAS 133. Therefore, the volatility in the market value of equity and earnings from our use of derivatives and application of SFAS 133 has historically been moderate.

The following table presents for the dates indicated the notional principal amounts of the derivatives used to hedge other financial instruments.


		March 31,		December 31,		March 31,
(In millions)		2008		2007		2007

Hedged Item	Hedging Instrument

Consolidated Obligations	Interest rate swap	$	12,718	$	12,507	$	25,805
Convertible Advances	Interest rate swap		3,712		3,892		4,449
Putable Advances	Interest rate swap		6,808		5,779		4,905
Advances with purchased caps and/or floors	Interest rate swap		2,400		2,400		10
Regular Fixed-Rate Advances	Interest rate swap		3,515		3,430		365
Mandatory Delivery Contracts	Commitments to sell to-be-announced mortgage-backed securities		100		24		139


Total based on Hedged Item ⁽¹⁾		$	29,253	$	28,032	$	35,673

(1)

The FHLBank enters into Mandatory Delivery Contracts (commitments to purchase loans) in the normal course of business and economically hedges them with interest rate forward agreements (commitments to sell to-be-announced mortgage-backed securities). Therefore, the Mandatory Delivery Contracts (which are derivatives) are the objects of the hedge (the Hedged Item) and are not listed as a Hedging Instrument in this table.

We transact interest rate swaps to hedge the first five items in the table. There were no material changes in the notional amount of swaps from year-end 2007 to March 31, 2008. The large decrease in swaps hedging fixed-rate Obligations from March 31, 2007 to March 31, 2008 reflected our strategy to decrease our use of these types of swaps and to increase the use of Discount Notes and adjustable-rate Obligations in response to the relative improvements in Discount Note funding costs and our strategy to enhance the diversity in funding sources during the current financial market disruptions. To hedge Mandatory Delivery Contracts, we use a common strategy in which we short sell, for forward settlement, to-be-announced mortgage-backed securities.

The following table presents the notional principal amounts of derivatives according to their accounting treatment and hedge relationship. This table differs from the one above in that it displays all derivatives, including the hedged item and the hedging instrument because both are considered derivatives (i.e., for the economically hedged Mandatory Delivery Contracts).


	March 31,		December 31,		March 31,
(In millions)	2008		2007		2007

Shortcut (Fair Value) Treatment
Advances	$	7,215	$	6,101	$	5,270
Consolidated Obligations		4,433		7,942		23,485


Total		11,648		14,043		28,755

Long-haul (Fair Value) Treatment
Advances		9,097		9,302		4,424
Consolidated Obligations		8,235		4,565		2,270


Total		17,332		13,867		6,694

Economic Hedges
Advances		123		98		35
Mandatory Delivery Contracts		157		48		159
To-be-announced mortgage-backed securities hedges		100		24		139
Consolidated Obligations		50		-		50


Total		430		170		383


Total Derivatives	$	29,410	$	28,080	$	35,832

The increase from year-end 2007 to March 31, 2008 in Advance hedges applying shortcut accounting treatment mostly reflected an increase in swapped Putable Advances with non-complex options. The decrease in the amount of Obligation hedges applying shortcut accounting treatment and the increase in those hedges applying long-haul treatment resulted from our decision made in 2007 to account for new Obligation hedges using long-haul treatment.

Credit Risk

Credit risk is the risk of loss due to default on assets lent to or purchased from members or investment counterparties, to delayed receipt of interest and principal, or to counterparties’ nonpayment of interest due on derivative transactions. As explained below, we believe we have limited exposure to credit risk. Therefore, we have not established a loss reserve for any assets.

Credit Services

We manage credit risk exposure from our lending activity through various forms and degrees of collateralization, credit underwriting, valuation of collateral, physical collateral review, and collateral perfection. The terms and conditions of members’ borrowing relationships are determined by criteria specified in our Credit Policy. We have aggressive processes to identify and manage credit risk, including overcollateralization requirements on member borrowings. We believe we have an immaterial residual amount of exposure to poorly performing subprime and nontraditional mortgages, and we have policies and procedures in place to monitor and mitigate any such known exposure we do have. Because of these factors and the fact that we have never experienced a credit-related loss or delinquency on an Advance, we have not established a loan loss reserve for Credit Services.

Most of our collateral is 1-4 family whole first mortgages on residential property or securities representing a whole interest in such mortgages. Our overcollateralization rates, referred to as Collateral Maintenance Requirements (CMR), and valuation processes vary by the loan type or security pledged and by our internal risk ratings assigned to each member and to each loan type pledged.

Under normal circumstances, CMRs for pledged 1-4 family loans range from 125 to 175 percent and for multi-family loans range from 125 to 250 percent. These requirements are adjusted upward for higher risk portfolios, as indicated by poor loan performance, and may be further aggressively adjusted for poor credit administration and/or significant subprime or nontraditional mortgage loan exposure as identified during on-site review processes. CMRs for non-residential loan collateral

are higher, ranging from 150 percent to 500 percent based on a variety of factors. Along with stringent program eligibility requirements, we believe the higher CMRs for these collateral types effectively mitigate their potential credit risk.

We assign each borrower an internal credit rating, based on a combination of internal credit underwriting analysis and consideration of available credit ratings from independent credit rating organizations. The following table shows the distribution of internal credit ratings we assigned to member and non-member borrowers as of March 31, 2008.

(Dollars in millions)


	All Members and Borrowing
	Nonmembers						All Borrowers
			Collateral-Based				Credit		Collateral-Based
Credit			Borrowing				Services		Borrowing
Rating	Number		Capacity		Number		Outstanding		Capacity
1		130	$	32,939		80	$	26,037	$	31,637
2		171		7,943		124		4,345		7,352
3		237		23,115		201		10,553		18,827
4		137		21,845		111		14,703		21,436
5		25		11,104		19		8,750		11,062
6		27		6,526		23		4,096		6,515
7		10		146		8		101		140


Total		737	$	103,618		566	$	68,585	$	96,969

The left side shows the borrowing capacity of both members and non-member borrowers (former members with remaining outstanding Advances or Letters of Credit). The right side includes only institutions with outstanding credit activity, which includes Advances and Letter of Credit obligations. The lower the numerical rating, the higher is our assessment of the member’s credit quality. A “4” rating is the lowest level of satisfactory performance. A modest number of members and borrowing nonmembers (62, or eight percent of the total) and moderate amount of borrowing capacity ($17,773 million, or 17 percent) were related to institutions with credit ratings of 5 or below. For total members and borrowing nonmembers, 73 percent had one of the top three credit ratings and 92 percent had one of the top four credit ratings. These percentages were similar for all borrowers.

There was a noticeable downward trend in overall member credit ratings during the fourth quarter of 2007, which continued in the first quarter of 2008. For example, in the first quarter, a net of 19 institutions, and $10,947 million of borrowing capacity, were moved into one of the three lowest credit rating categories. The average credit rating rose from 2.67 at year-end to 2.83 on March 31, 2008. We have increased our collateral haircuts and taken other actions to mitigate the incremental credit risk.

Mortgage Purchase Program

Although we use similar credit underwriting standards and processes for approving members to participate in the Mortgage Purchase Program as for members who borrow Advances, our primary management of credit risk in the Mortgage Purchase Program involves the mortgage loan assets themselves (i.e., homeowners’ equity) and several layers of credit enhancements. Credit enhancements include (in order of priority) primary mortgage insurance and, for conventional loans, the Lender Risk Account (described below) and Supplemental Mortgage Insurance purchased by the PFI from a third party provider naming the FHLBank as the beneficiary. The combination of homeowners’ equity, primary mortgage insurance, the Lender Risk Account and Supplemental Mortgage Insurance protect us down to approximately a 50 percent loan-to-value level.

Finance Board Regulations require that the combination of mortgage loan collateral, credit enhancements, retained earnings, and general loan loss allowances be sufficient to raise the implied credit ratings on pools of conventional mortgage loans to at least an investment-grade rating of AA. The rating is determined from a credit assessment model licensed from Standard & Poor’s. In practice, the loan collateral and the credit enhancements raise the implied credit rating on each Master Commitment Contract to the AA minimum without relying on retained earnings or loss allowances.

Since the inception of the Mortgage Purchase Program, we have experienced no credit losses on any purchased loan, nor has any member or Supplemental Insurance provider experienced a loss on loans sold to us. Delinquencies have been minimal. Because of the strong credit enhancements and the history of strong credit quality, we believe our exposure to credit risk on conventional loans is de minimis and we have not established a loan loss reserve for the Program. Also, the 15 percent of our

acquired mortgage loans backed by the FHA have a 100 percent U.S. government guarantee; therefore, we do not require either a Lender Risk Account or Supplemental Mortgage Insurance for these loans.

The Lender Risk Account is a key feature that helps protect us against credit losses on conventional mortgage loans. It is a performance-based purchase price holdback for the PFI on each conventional loan it sells to the FHLBank; therefore, it provides members an incentive to sell us high quality loans. These funds are available to cover credit losses in excess of the borrower’s equity and primary mortgage insurance on any loans in the pool we have purchased. We use a Standard & Poor’s credit assessment model, which the Finance Board has approved, to assign the Lender Risk Account percentage to each PFI and to manage the credit risk of committed and purchased conventional loans. This model evaluates the characteristics of the loans the PFIs commit to deliver and the loans actually delivered to us for the likelihood of timely payment of principal and interest. It assigns a credit score based on numerous standard borrower attributes such as the loan-to-value ratio, loan purpose (purchase of home, refinance, or cash-out refinance), quality and quantity of documentation, income and debt expense ratios, credit scores, etc.

On April 8, 2008, S&P lowered the rating of one of our Supplemental Mortgage Insurance providers by one level, from AA- to A. The ratings by Fitch and Moody’s remain unchanged at AA-, with negative watches. Before the downgrade, we had discontinued committing new business with the provider that was downgraded. We believe we have a very small amount of credit exposure to this provider, and we believe that the downgrade will have no effect on the credit worthiness of the Mortgage Purchase Program. We subject every provider to standard credit underwriting analysis and additionally calculate our potential exposure based on historically high industry loss rate factors that we further stress. This process results in an estimated credit exposure from all providers of less than $20 million, which we believe constitutes an acceptable amount of exposure if our entire conventional portfolio went into default and the Supplemental Mortgage Insurance providers were financially unable to pay the resulting claims. Because we have had less than 50 claims in the Mortgage Purchase Program since its inception in 2000, all of which were funded from the Lender Risk Account, we believe that it is unlikely that claims would rise to a significant level.

The following table presents changes in the Lender Risk Account in the first three months of 2008. The amount of loss claims was approximately zero.


	Three Months Ended
(In millions)	March 31, 2008
Lender Risk Account at December 31, 2007		$	50
Additions			1
Claims			-
Scheduled distributions			(1)


Lender Risk Account at March 31, 2008		$	50

Two other indications of credit quality are loan-to-value ratios and credit scores provided by Fair Isaac and Company (FICO). Our policy stipulates that we will not purchase conventional loans with a FICO score of less than 620. In addition, for a loan with a cash-out refinancing (in which the mortgagee receives a portion of the property’s equity as cash at the closing of the loan), we require higher FICO scores if the loan-to-value ratio is above certain thresholds. The mortgage industry generally considers a FICO score of over 660, and a loan-to-value ratio of 80 percent or lower, as benchmarks indicating a good credit risk. Conventional loans with FICO scores under 660 totaled $318 million, or four percent of the total conventional portfolio.

On March 31, 2008, the weighted average loan-to-value ratio was 70 percent and the weighted-average FICO score was 751, which have been relatively steady in the last three years. The data on loan-to-value ratios are calculated at loan origination dates. We believe they are another indication that the Mortgage Purchase Program has a strong credit quality. Based on the available data, we believe we have very little exposure to loans in our Mortgage Purchase Program that are considered to have characteristics of “subprime” or “alternative” loans.

Another indication of credit quality is data on actual delinquencies. On March 31, 2008, the Program had $16 million (0.2 percent) of conventional principal and $43 million (3.3 percent) of FHA principal that were 90 days or more delinquent and not in foreclosure. These rates were below the national average delinquency rates of 1.0 percent for conventional fixed-rate principal and 5.2 percent for FHA fixed-rate principal, measured by the most recent Mortgage Bankers Association National

Delinquency Survey. We had no loans on nonaccrual status. Because of the credit enhancements on conventional loans and the government guarantee on FHA loans, we believe we have little, if any, credit loss exposure to loans on delinquent status.

Investments

Most money market investments are unsecured and therefore present credit risk exposure. Our Financial Management Policy permits us to invest in only highly rated counterparties. It also specifies constrained limits on the amount of unsecured credit exposure we are permitted to extend to individual and affiliated counterparties. Each counterparty’s limit is based on its long-term counterparty credit ratings from nationally recognized statistical rating organizations (NRSRO) and on percentages, which vary by credit rating category, of the lesser of our total capital or the counterparty’s Tier 1 capital.

We supplement the formulaic limits on credit exposure with internal credit underwriting analysis performed in a department separate from the investment function. We also monitor the creditworthiness of counterparties by reviewing market news and movements in stock prices and debt spreads. If we perceive credit risk has deteriorated or may deteriorate, we are able to immediately suspend new activity with individual counterparties and holding companies, put them on a Trading Room “watch list,” apply tighter maturity or dollar limits than permitted in the Financial Management Policy, liquidate securities holdings, and/or steer investment priorities away from the particular counterparties or market segments. The short-term nature of these investments and the negotiability of investment types generally enable us to quickly mitigate actual or perceived credit exposure problems.

A credit event for an investment security could be triggered by default or delayed payments of principal or interest on the security, or from a security’s rating downgrade that results in a realized market value loss. We believe our investment policies and practices are such that the credit risk exposure of our investment portfolio is nominal. The following table presents for the dates indicated the par amount of unsecured money market investments outstanding in relation to the counterparties’ long-term credit ratings provided by Moody’s, Standard & Poor’s, and/or Fitch Advisory Services. The table excludes securities repurchased under resale agreements, which are secured. The allocation differences between the two periods were consistent with normal fluctuations in our investment activity.


(In millions)	March 31, 2008			December 31, 2007

Aaa/AAA		$	-		$	-
Aa/AA			7,345			9,316
A			4,360			2,885
Baa/BBB			50			-


Total		$	11,755		$	12,201

Our Financial Management Policy also establishes guidelines for our investment in mortgage-backed securities. Substantially all of these are GSE securities issued by Fannie Mae and Freddie Mac and agency securities issued by Ginnie Mae. We have never held any asset-backed securities. On March 31, 2008, we held six private-label mortgage-backed securities totaling a principal balance of $343 million. Although these securities can have more credit risk than GSE and agency mortgage-backed securities, each of ours has a triple-A rating, carries increased credit subordination involving additional tranches that absorb the first credit losses beyond that required to receive the triple-A rating, and consist of residential fixed-rate mortgage loans originated prior to 2004.

Based on our analysis of available data, including, among other things, the collateral characteristics and current information on collateral performance, we believe we have a de minimis amount of exposure to loans that could be considered “subprime” and/or to loans that could be considered “alternative.” We have policies in place to monitor and mitigate any such exposure and to limit the percentage of private-label mortgage-backed securities we can own that may have characteristics of these types of loans.

As indicated in Note 3 of the Notes to Unaudited Financial Statements, as of March 31, 2008, our held-to-maturity securities portfolio had a net unrealized gain totaling $102 million, which included securities having gross unrealized losses totaling $30 million. On December 31, 2007, the portfolio had a net unrealized loss totaling $37 million, which included securities having gross unrealized losses totaling $101 million. The movement from a net unrealized loss to a net unrealized gain was due to the lower intermediate- and long-term interest rates on March 31 compared to December 31, which normally increase the market value of securities.

We believe the continuing financial market disruptions had an immaterial impact on the estimated fair values of our investment securities, because almost all of these securities were comprised of prime-rated loans. We have determined that all of the gross unrealized losses were temporary, a consequence of movements in interest rates, and not an indication of deterioration of the creditworthiness of the issuers or of the underlying collateral. We believe it is probable we will be able to collect all amounts due according to the contractual terms of the individual securities. Additionally, we have the intent, as well as sufficient liquidity, to hold the securities to their final payments, which should result in full recovery of any unrealized losses.

Derivatives

The credit exposure on an interest rate swap derivative transaction is the risk that the counterparty does not make timely interest payments or defaults. This could result in us having to replace the derivative transaction with that from another counterparty on less favorable terms. Our amount of credit risk exposure to a counterparty equals the positive net market value of all derivatives outstanding with the counterparty. Each counterparty’s unsecured limit is based on similar criteria as for money market investments. Each counterparty is required to deliver to us high quality collateral in an amount equal to our net market value exposure to the counterparty that exceeds contractual threshold limits. The residual amount of credit risk exposure is the cost of replacing the derivatives if the counterparty defaults on payments due, net of the value of collateral we hold.

The table below presents as of March 31, 2008 our gross credit risk exposure (i.e., the market value) of interest rate swap derivatives outstanding, as well as the net unsecured exposure.

(Dollars in millions)


					Gross		Fair Value			Net
Credit Rating	Number of		Notional		Credit		of Collateral			Unsecured
Category ⁽¹⁾	Counterparties		Principal		Exposure		Held			Exposure
Aaa/AAA		-	$	-	$	-	$	-		$	-
Aa/AA		13		21,282		63		(19	)		44
A		2		7,295		-		-			-
Baa/BBB		1		576		-		-			-

Total		16	$	29,153	$	63	$	(19	)	$	44

(1)

Each category includes the related plus (+) and minus (-) ratings (i.e., “A” includes “A+” and “A-” ratings).

We had $63 million of gross credit exposure, all to double-A rated counterparties. After collateral, we had net unsecured credit exposure of $44 million. The only counterparty with a long-term credit rating lower than A- was Bear Stearns, whose rating is still investment grade. Because of the terms of our swap contracts, the collateralization process and the overall strong credit quality of our derivative counterparties, we continue to not expect any credit losses from our derivative transactions.

Liquidity Risk and Contractual Obligations

Liquidity Information

Our operations require a continual and substantial amount of liquidity to provide members access to Advance funding and mortgage loan sales in all financial environments and to meet financial obligations as they come due in a timely and cost efficient manner. Liquidity risk is defined as the risk that we will be unable to satisfy these obligations or meet the Advance and Mortgage Purchase Program funding needs of members in a timely and cost-efficient manner. Our primary source of ongoing liquidity is through our ability to participate in the issuance of FHLBank System Consolidated Obligations. As shown on the Statements of Cash Flows, in the first three months of 2008, our share of participations in debt issuance was $199.0 billion of Discount Notes and $16.3 billion of Consolidated Bonds.

We are exposed to two types of liquidity risk, for which Finance Board Regulations and our Financial Management Policy require us to hold sufficient amounts of liquidity:

	§		Operational liquidity risk is the potential inability to meet anticipated or unanticipated day-to-day liquidity needs through our normal sources of funding.

	§		Contingency liquidity risk is the potential inability to meet liquidity needs because our access to the capital markets to issue Consolidated Obligations is restricted or suspended for a period of time due to a market disruption, operational failure, or real or perceived credit quality problems.

Our operational liquidity must equal or exceed our contingency liquidity. To meet the operational liquidity requirement, we are permitted to include the sources of liquidity under the contingency liquidity requirement as well as our access to the capital markets to issue Consolidated Obligations, purchase Federal funds, and borrow deposits. In the first three months of 2008, as in 2007, we satisfied the operational liquidity requirement both as a function of meeting the contingency liquidity requirement and because we were able to access capital markets to issue Consolidated Obligations.

Based on the measure of contingency liquidity, as well as other standard liquidity measures, and based on our demonstrated ability to access the capital markets for debt issuance, we believe we had ample liquidity reserves on each day in the first three months of 2008. We actively monitor all of our liquidity measures. In the credit and mortgage markets’ continuing liquidity crisis, the FHLBank System continued to have uninterrupted access to liquidity via debt issuances. The System’s triple-A debt ratings were, and continue to be, instrumental in ensuring the availability of this liquidity source.

Contingency Liquidity Requirement

To meet the contingency liquidity requirement, we must hold sources of liquidity to meet obligations in the event our access to the capital markets is impeded for seven business days. Sources of liquidity for the contingency liquidity requirement include, among others, cash, overnight Federal funds, overnight deposits, self-liquidating term Federal funds, 95 percent of the market value of available-for-sale negotiable securities, and 75 percent of the market value of held-to-maturity obligations of the United States, U.S. government agencies and mortgage-backed securities. The requirement has increased because of our greater use of short-term Discount Notes funding and smaller use of swapped Consolidated Bond funding (see the “Consolidated Obligations” section of “Analysis of Financial Condition”).

The following table presents the components of the contingency liquidity requirement on the dates indicated.


(In millions)	March 31,			December 31,
	2008				2007

Total Contingency Liquidity Reserves	$	31,562			$ 29,274
Total Requirement		(25,293	)		(19,661	)


Excess Contingency Liquidity Available	$	6,269			$ 9,613

Deposit Reserve Requirement

To support our member deposits, we are required to meet a statutory deposit reserve requirement. The sum of our investments in obligations of the United States, deposits in eligible banks or trust companies, and Advances with a final maturity not exceeding five years must equal or exceed the current amount of member deposits. The following table presents the components of this liquidity requirement on the dates indicated.


(In millions)	March 31,			December 31,
	2008			2007

Total Eligible Deposit Reserves	$	67,010			$ 58,217
Total Member Deposits		(1,682	)		(1,046	)


Excess Deposit Reserves	$	65,328			$ 57,171

Investment Liquidity Requirement

We are also required to maintain a daily liquidity level in an amount not less than the sum of:

	§		20 percent of the sum of our daily average demand and overnight deposits and other overnight borrowings, plus

	§		10 percent of the sum of our daily average term deposits, Consolidated Obligations, and other borrowings that mature within one year.

Assets eligible for meeting these liquidity requirements include cash and certain overnight and term investments. The following table shows the components of this requirement on the dates indicated.


(In millions)	March 31,			December 31,
	2008				2007

Total Eligible Investments	$	20,381			$ 12,545
Total Reserve Requirement		(6,665	)		(6,630	)


Excess Daily Liquidity Reserves	$	13,716			$ 5,915

The amount of excess liquidity reserves was substantially higher on March 31, 2008 than at year-end 2007 because in March 2008 our Board approved a change in the eligible investments to satisfy this liquidity requirement. We are now permitted to consider certain held-to-maturity securities that are generally accepted as collateral in the repurchase agreement market to be available to satisfy the reserve requirement.

Contractual Obligations

The following table summarizes our contractual obligations and off-balance sheet commitments as of March 31, 2008. The allocation according to their expiration terms or payment due dates was not materially different from that of year-end 2007. We believe that we will continue to have sufficient liquidity, including most importantly access to the debt markets to issue Consolidated Obligations, to satisfy these obligations on a timely basis, as we have had in the past. However, we cannot provide any assurance as to the effect of the financial market disruptions, or other potential risk events including issues with other GSEs, on the debt market for Consolidated Obligations or the prices that may have to be paid to replace maturing Obligations.


(In millions)	< 1 year		1<3 years		3<5 years		> 5 years		Total


Contractual Obligations
Long-term debt (Consolidated Bonds) – par	$	19,523	$	13,746	$	6,528	$	8,035	$	47,832
Mandatorily redeemable capital stock		-		22		97		-		119
Other long-term obligations (term deposits) – par		76		-		-		-		76
Pension and other postretirement benefit obligations		1		3		3		12		19
Capital lease obligations		-		-		-		-		-
Operating leases (include premises and equipment)		1		2		2		1		6


Total Contractual Obligations before off-balance sheet items		19,601		13,773		6,630		8,048		48,052


Off-balance sheet items ⁽¹⁾
Commitments to fund additional Advances		15		-		-		-		15
Standby Letters of Credit		7,434		66		31		80		7,611
Standby bond purchase agreements		33		179		-		-		212
Commitments to fund mortgage loans		157		-		-		-		157
Consolidated Obligations traded, not yet settled		1		50		385		675		1,111
Other purchase obligations		-		-		-		-		-
Unused line of credits and other commitments		-		-		-		-		-


Total off-balance sheet items		7,640		295		416		755		9,106


Total Contractual Obligations and off-balance sheet items	$	27,241	$	14,068	$	7,046	$	8,803	$	57,158

(1)

Represents notional amount of related off-balance sheet obligations.

Operational Risk

Operational risk is defined as the risk of an unexpected loss resulting from human error, fraud, unenforceability of legal contracts, or deficiencies in internal controls or information systems. We believe there were no material developments regarding our exposure to operational risk in the first three months of 2008.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Introduction

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expenses during the reported periods. Although management believes its judgments, estimates, and assumptions are reasonably accurate, actual results may differ.

Our critical accounting policies and estimates are described in detail in the 2007 annual report on Form 10-K. Below is an update of our fair value estimates as a result of the adoption of SFAS No. 157, Fair Value Measurements (SFAS 157), on January 1, 2008. There have been no material changes during the period reported to our other policies and estimates described in the 2007 annual report on Form 10-K.

Fair Values

Fair values play an important role in the valuation of certain assets, liabilities and derivative transactions, which may be reflected in the Statements of Condition or related Notes to the Unaudited Financial Statements at fair value. We carry investments classified as available-for-sale and trading, and all derivatives, on the Statements of Condition at fair value.

SFAS 157 defines fair value, establishes a framework for measuring fair value, establishes fair value hierarchy based on the inputs used to measure fair value and requires additional disclosures for instruments carried at fair value on the Statements of Condition. SFAS 157 defines “fair value” as the price – the “exit price” – that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

FHLBank management bases fair values on quoted market prices or market-based prices, if such prices are available. If quoted market prices or market-based prices are not available, fair values are determined based on valuation models that use either discounted cash flows, using market estimates of interest rates and volatility, or indicative prices from dealers on the instruments or similar instruments.

Pricing models and their underlying assumptions are based on management’s best estimates and judgments with respect to modeling processes, discount rates, mortgage prepayment speeds and patterns, market volatility and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the income and expense related thereto. The use of different assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings.

We categorize our financial instruments carried at fair value into a three-level classification in accordance with SFAS 157. The valuation hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Management utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. As of March 31, 2008, we did not carry any financial instruments at fair value on the Statements of Condition which were valued using significant unobservable inputs.

For further discussion regarding how we measure financial assets and financial liabilities at fair value, see Note 13 of the Notes to Unaudited Financial Statements.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

Information required by this Item is set forth under the caption “Quantitative and Qualitative Disclosures About Risk Management” in Part I, Item 2, of this filing.


Item 4(T).		Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

As of March 31, 2008, the FHLBank’s management, including its principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, these two officers each concluded that as of March 31, 2008, the FHLBank maintained effective disclosure controls and procedures to ensure that information required to be disclosed in the reports that it files under the Exchange Act is (1) accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of March 31, 2008, the FHLBank’s management, including its principal executive officer and principal financial officer, evaluated the FHLBank’s internal control over financial reporting. Based upon that evaluation, these two officers each concluded that there were no changes in the FHLBank’s internal control over financial reporting that occurred during the first quarter ended March 31, 2008 that materially affected, or are reasonably likely to materially affect, the FHLBank’s internal control over financial reporting.

PART II – OTHER INFORMATION


Item 1A.		Risk Factors.

Information relating to this Item is set forth under the caption “Business Related Developments and Update on Risk Factors” in Part I, Item 2, of this filing.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

From time-to-time the FHLBank provides Letters of Credit in the ordinary course of business to support members’ obligations issued in support of unaffiliated, third-party offerings of notes, bonds or other securities. The FHLBank provided $29.7 million of such credit support during the three months ended March 31, 2008. To the extent that these Letters of Credit are securities for purposes of the Securities Act of 1933, their issuance is exempt from registration pursuant to section 3(a)(2) thereof.


Item 6.		Exhibits.

(a)		Exhibits.

		See Index of Exhibits


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

Statements of Condition – March 31, 2008 and December 31, 2007			3

Statements of Income - Three months ended March 31, 2008 and 2007			4

Statements of Capital - Three months ended March 31, 2008 and 2007			5

Statements of Cash Flows - Three months ended March 31, 2008 and 2007			6

Notes to Unaudited Financial Statements			8

Item 2. Management’s Discussion and Analysis of Financial Condition and			25

Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk			64

Item 4(T). Controls and Procedures			64


PART II – OTHER INFORMATION

Item 1A. Risk Factors			64

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			64

Item 6. Exhibits			64

Signatures			65
EX-31.1
EX-31.2
EX-32


Forward-Looking Information			26

Organizational Structure and Business Activities			26

Executive Overview			27

Conditions in the Economy and Financial Markets			32

Analysis of Financial Condition			34

Results of Operations			44

Quantitative and Qualitative Disclosures about Risk Management			51

Critical Accounting Policies and Estimates			63


By:		/s/ David H. Hehman

		David H. Hehman
		President and Chief Executive Officer (principal executive officer)

By:		/s/ Donald R. Able

		Donald R. Able
		Senior Vice President, Controller (principal financial officer)


		Document incorporated by
Exhibit		reference from a previous filing or
Number ⁽¹⁾	Description of exhibit	filed herewith, as indicated below

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer	Filed Herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer	Filed Herewith

32	Section 1350 Certifications	Furnished Herewith