UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

~~[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES~~

~~EXCHANGE ACT OF 1934~~

For the quarterly period ended ~~March 31,~~September 30, 2007

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

~~EXCHANGE ACT OF 1934~~

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

Commission File Number: 000-51404

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

(Exact name of registrant as specified in its charter)


Federally chartered corporation		35-6001443
(State or other jurisdiction of incorporation or organization)		~~35-6001443~~ (I.R.S. employer identification number)

8250 Woodfield Crossing Boulevard Indianapolis, IN		46240
(Address of principal executive offices)		~~46240~~ (Zip code)

(317) 465-0200

(Registrant’s telephone number, including area code):

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

~~[ X ]~~x Yes ~~[ ]~~¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x


~~Large accelerated filer [ ]~~		~~Accelerated filer [ ]~~		~~Non-accelerated filer [ X ]~~

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

~~[ ]~~¨ Yes ~~[X]~~x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares outstanding

as of ~~April 30,~~October 31, 2007

Class B Stock, par value $100

~~20,381,752~~21,237,055

Federal Home Loan Bank of Indianapolis

Form 10-Q

Table of Contents


		Page Number
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	~~Statement~~Statements of Condition as of ~~March 31,~~September 30, 2007, and December 31, 2006	1
	~~Statement~~Statements of Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2007, and 2006	2
	~~Statement~~Statements of Capital for the Three and Nine Months Ended ~~March 31,~~September 30, 2007, and 2006	3
	~~Statement~~Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2007, and 2006	45
	Notes to Financial Statements (unaudited)	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2023
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4653
Item 4.	Controls and Procedures	5257

PART II	OTHER INFORMATION

Item 5.4.	~~Other~~Submission of Matters to the Vote of Security Holders	5358
Item 6.	Exhibits	5459

As used in this Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “FHLBI,” and the “Bank” refer to the Federal Home Loan Bank of Indianapolis.

PART I. FINANCIAL INFORMATION

~~Item I. Financial Statements~~

Item 1.

Financial Statements

Federal Home Loan Bank of Indianapolis

Statements of Condition

~~(Unaudited)~~

~~(In thousands, except par value)~~


(In thousands, except par value)	September 30, 2007 (Unaudited)			December 31, 2006 (Audited)
Assets
Cash and due from banks	$	15,519		$	15,022
Interest-bearing deposits, members and non-members		2,477,000			394,081
Federal funds sold, members and non-members		10,420,000			7,324,000
Held-to-maturity securities (a), members and non-members		6,676,653			6,544,392
Advances to members (Note 3)		24,170,125			22,282,257
Mortgage loans held for portfolio, net (Note 4)		9,521,926			10,020,670
Accrued interest receivable		157,113			136,309
Premises, software, and equipment, net		9,715			10,584
Derivative assets (Note 10)		70,544			99,482
Other assets		31,714			42,107

Total assets	$	53,550,309		$	46,868,904

Liabilities and Capital
Deposits (Note 5)
Interest-bearing deposits	$	663,109		$	907,718
Non-interest-bearing deposits		6,241			12,225

Total deposits		669,350			919,943

Consolidated obligations, net (Note 6)
Discount notes		15,966,504			10,470,607
Bonds		33,912,297			32,843,983

Total consolidated obligations, net		49,878,801			43,314,590

Accrued interest payable		458,797			383,627
Affordable Housing Program		27,855			26,366
Payable to REFCORP		7,906			6,838
Derivative liabilities (Note 10)		63,401			63,370
Mandatorily redeemable capital stock		163,471			151,332
Other liabilities		159,585			48,124

Total liabilities		51,429,166			44,914,190

Commitments and contingencies (Note 7,8, 10, 11, and 12)
Capital (Note 7)
Capital stock-Class B-1 putable ($100 par value) issued and outstanding shares: 19,415, and 17,935, respectively		1,941,491			1,793,511
Capital stock-Class B-2 putable ($100 par value) issued and outstanding shares: .01 and .01, respectively		1			1

Total capital stock-Class B-1 and B-2 putable ($100 par value) issued and outstanding shares: 19,415.01 and 17,935.01, respectively		1,941,492			1,793,512
Retained earnings		185,985			166,622
Accumulated other comprehensive income (loss)		(6,334	)		(5,420	)

Total capital		2,121,143			1,954,714

Total liabilities and capital	$	53,550,309		$	46,868,904

          March 31,
2007        December 31,
2006
  Assets

  Cash and due from banks
   $       10,513    $       15,022
  Interest-bearing deposits, members and non-members
   1,301,118    394,081
  Federal funds sold, members and non-members
   8,720,000    7,324,000
  Held-to-maturity securities (a), members and non-members
   6,318,598    6,544,392
  Advances to members (Note 3)
   22,077,482    22,282,257
  Mortgage loans held for portfolio, net (Note 4)
   9,958,762    10,020,670
  Accrued interest receivable
   124,987    136,309
  Premises, software, and equipment, net
   10,236    10,584
  Derivative assets (Note 10)
   98,291    99,482
  Other assets
   30,996    42,107

  Total Assets
   $48,650,983    $46,868,904

  Liabilities and Capital

  Deposits (Note 5)

      Interest-bearing deposits
   $  1,148,545    $     907,718
      Non-interest-bearing deposits
   11,369    12,225

      Total deposits
   1,159,914    919,943

  Consolidated obligations, net (Note 6)

      Discount Notes
   12,520,976    10,470,607
      Bonds
   32,272,258    32,843,983

      Total Consolidated obligations, net
   44,793,234    43,314,590

  Accrued interest payable
   387,125    383,627
  Affordable Housing Program
   27,243    26,366
  Payable to REFCORP
   7,593    6,838
  Derivative liabilities (Note 10)
   37,850    63,370
  Mandatorily redeemable capital stock
   151,197    151,332
  Other liabilities
   42,398    48,124

  Total Liabilities
   46,606,554    44,914,190

  Commitments and contingencies (Note 7,8, 10, and 12)

  Capital (Note 7)

Capital Stock-Class B-1 putable ($100 par value) issued and outstanding shares: 18,811, and 17,935, respectively
   1,881,106    1,793,511
Capital Stock-Class B-2 putable ($100 par value) issued and outstanding shares: .01 and .01, respectively
   1    1

Total Capital Stock-Class B-1 and B-2 putable ($100 par value) issued and outstanding shares: 18,811.01 and 17,935.01, respectively
   1,881,107    1,793,512
  Retained earnings
   169,926    166,622
  Accumulated other comprehensive income (loss)
   (6,604)    (5,420)

  Total Capital
   2,044,429    1,954,714

  Total Liabilities and Capital
   $48,650,983    $46,868,904

~~(a) Fair values: $6,203,482 and $6,403,454 at March 31, 2007, and December 31, 2006.~~

(a)	Fair values: $6,576,549 and $6,403,454 at September 30, 2007, and December 31, 2006, respectively.

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

Federal Home Loan Bank of Indianapolis

Statements of Income

(Unaudited)

~~($ amounts in thousands)~~

   For the Three Months ended March 31,
            2007            2006
Interest Income

Advances to members
   $305,363    $272,729
Prepayment fees on advances, net
   1,802    330
Interest-bearing deposits, members and non-members
   5,030    8,896
Federal funds sold, members and non-members
   97,602    51,284
Trading security
   -    611
Held-to-maturity securities, members and non-members
   74,655    76,174
Mortgage loans held for portfolio
   130,995    125,953
Loans to other Federal Home Loan Banks
   15    -

Total Interest income
   615,462    535,977

Interest Expense

Discount Notes
   148,170    74,223
Consolidated obligation bonds
   405,290    393,792
Deposits
   12,685    12,413
Borrowings from other Federal Home Loan Banks
   -    7
Mandatorily redeemable capital stock
   1,951    347
Other borrowings
   -    3

Total Interest expense
   568,096    480,785

Net interest income
   47,366    55,192

Other Income (Loss)

Service fees
   335    343
Net loss on trading security
   -    (336)
Net gain (loss) on derivatives and hedging activities
   722    (648)
Other, net
   276    341

Total Other income (loss)
   1,333    (300)

Other Expense

Compensation and benefits
   8,914    7,015
Other operating expenses
   2,133    2,710
Finance Board
   408    450
Office of Finance
   411    303
Other
   543    546

Total Other expense
   12,409    11,024

Income Before Assessments
   36,290    43,868

Affordable Housing Program
   3,161    3,616
REFCORP
   6,626    8,050

Total assessments
   9,787    11,666

Net Income
   $  26,503    $  32,202


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands)	2007		2006				2007			2006
Interest Income
Advances to members	$	319,993	$	307,405			$	919,667		$	869,711
Prepayment fees on Advances, net		87		—				1,917			338
Interest-bearing deposits, members and non-members		25,769		14,494				48,972			39,708
Federal funds sold, members and non-members		126,817		100,120				339,458			238,401
Trading security		—		212				—			1,305
Held-to-maturity securities, members and non-members		77,257		80,854		��		224,827			233,137
Mortgage loans held for portfolio		125,612		126,093				387,980			381,929
Loans to other Federal Home Loan Banks		77		7				92			14

Total interest income		675,612		629,185				1,922,913			1,764,543

Interest Expense
Discount notes		165,098		129,303				458,338			318,424
Consolidated obligation bonds		447,283		435,212				1,277,064			1,246,066
Deposits		9,946		15,255				35,803			42,334
Borrowings from other Federal Home Loan Banks		1		31				1			38
Mandatorily redeemable capital stock		1,844		926				5,367			1,413
Other borrowings		2		43				2			95

Total interest expense		624,174		580,770				1,776,575			1,608,370

Net Interest Income		51,438		48,415				146,338			156,173

Other Income (Loss)
Service fees		344		356				1,021			1,048
Net gain (loss) on trading security		—		(134	)			—			(746	)
Net gain (loss) on derivatives and hedging activities		498		(324	)			(2,185	)		(3,208	)
Other, net		364		408				1,082			1,202

Total other income (loss)		1,206		306				(82	)		(1,704	)

Other Expense
Compensation and benefits		6,056		5,883				20,669			19,657
Other operating expenses		2,220		2,151				6,666			7,494
Finance Board		409		450				1,225			1,351
Office of Finance		329		309				1,119			993
Other		382		540				1,316			1,638

Total other expense		9,396		9,333				30,995			31,133

Income Before Assessments		43,248		39,388				115,261			123,336

Affordable Housing Program		3,719		3,309				9,957			10,212
REFCORP		7,906		7,216				21,061			22,625

Total assessments		11,625		10,525				31,018			32,837

Net Income	$	31,623	$	28,863			$	84,243		$	90,499

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

Federal Home Loan Bank of Indianapolis

Statements of Capital

(Unaudited)


	Capital Stock Class B-1 Putable					Capital Stock Class B-2 Putable			Retained Earnings			Accumulated Other Comprehensive Income			Total Capital
(In thousands)	Shares		Par Value			Shares	Par Value		Retained Earnings			Accumulated Other Comprehensive Income			Total Capital
Balance, December 31, 2005 (audited)	21,564		$	2,156,426		—	$	—	$	149,014		$	(2,207	)	$	2,303,233
Proceeds from sale of capital stock	378			37,807		—		—								37,807
Repurchase/redemption of capital stock	(1,736	)		(173,657	)	—		—								(173,657	)
Net shares reclassified to mandatorily redeemable capital stock	(1,111	)		(111,054	)	—		—								(111,054	)
Comprehensive income
Net Income										90,499			—			90,499

Total comprehensive income										90,499			—			90,499

Mandatorily redeemable capital stock distributions										(373	)					(373	)
Dividends on capital stock
Cash (4.75%)										(76,679	)					(76,679	)

Balance, September 30, 2006	19,095		$	1,909,522		—	$	—	$	162,461		$	(2,207	)	$	2,069,776


	Capital Stock Class B-1 Putable					Capital Stock Class B-2 Putable			Retained Earnings			Accumulated Other Comprehensive Income			Capital
(In thousands)	Shares		Par Value			Shares	Par Value		Retained Earnings			Accumulated Other Comprehensive Income			Capital
Balance, December 31, 2006 (audited)	17,935		$	1,793,511		—	$	1	$	166,622		$	(5,420	)	$	1,954,714
Proceeds from sale of capital stock	1,603			160,252		—		—								160,252
Net shares reclassified to mandatorily redeemable capital stock	(123	)		(12,272	)	—		—								(12,272	)
Comprehensive income
Net Income										84,243			—			84,243
Pension and postretirement plans										—			(914	)		(914	)

Total comprehensive income										84,243			(914	)		83,329

Mandatorily redeemable capital stock distributions										(74	)					(74	)
Dividends on capital stock
Cash (4.67%)										(64,806	)					(64,806	)

Balance, September 30, 2007	19,415		$	1,941,491		—	$	1	$	185,985		$	(6,334	)	$	2,121,143

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

~~($ amounts in thousands)~~Federal Home Loan Bank of Indianapolis

Statements of Capital

(Unaudited)


	Capital Stock		Capital Stock		Retained		Accumulated Other Comprehensive					Capital Stock Class B-1 Putable					Capital Stock Class B-2 Putable			Retained Earnings			Accumulated Other Comprehensive Income			Total Capital
	Class B-1 Putable		Class B-2 Putable		Retained				Total														Accumulated Other Comprehensive Income			Total Capital
	Shares	Par Value	Shares	Par Value	Earnings		Accumulated Other Comprehensive	Income			Capital
Balance, December 31, 2005	21,564	$2,156,426	-	$-	$149,014		$(2,207)			$2,303,233
(In thousands)												Shares		Par Value			Shares	Par Value		Retained Earnings	Retained Earnings			Accumulated Other Comprehensive Income			Total Capital
Balance, July 1, 2006												21,733		$	2,173,298		—	$	—					Accumulated Other Comprehensive Income			Total Capital
Proceeds from sale of capital stock	59	5,942								5,942		165			16,480		—		—								16,480

Repurchase/redemption of capital stock												(1,736	)		(173,657	)	—		—								(173,657	)
Net shares reclassified to mandatorily redeemable capital stock												(1,067	)		(106,599	)	—		—								(106,599	)
Comprehensive income
Net income					32,202		-			32,202
Net Income																					Retained Earnings	28,863			—			28,863

Total comprehensive income					32,202		-			32,202											28,863			—			28,863

Mandatorily redeemable capital stock distributions					(1	)				(1)											(345	)					(345	)
Dividends on capital stock
Cash (4.75%)					(25,742	)				(25,742)
Cash (4.50%)																					(24,323	)					(24,323	)

Balance, March 31, 2006	21,623	$2,162,368	-	$-	$155,473		$(2,207)			$2,315,634
Balance, September 30, 2006												19,095		$	1,909,522		—	$	—	$	162,461		$	(2,207	)	$	2,069,776


	Capital Stock		Capital Stock				Accumulated
	Class B-1 Putable		Class B-2 Putable
	Shares	Par Value	Shares	Par Value	Earnings		Accumulated	Income			Capital
Balance, December 31, 2006	17,935	$1,793,511	-	$1	$166,622		$(5,420	)		$1,954,714
Proceeds from sale of capital stock	876	87,595								87,595

Comprehensive income
Net income				-	26,503					26,503
Other							(1,184	)		(1,184)

Total comprehensive income				-	26,503		(1,184	)		25,319

Mandatorily redeemable capital stock distributions					(7	)				(7)
Dividends on capital stock
Cash (5.00%)					(23,192	)				(23,192)

Balance, March 31, 2007	18,811	$1,881,106	-	$1	$169,926		$(6,604)			$2,044,429


	Capital Stock Class B-1 Putable					Capital Stock Class B-2 Putable			Retained Earnings			Accumulated Other Comprehensive Income			Capital
(In thousands)	Shares		Par Value			Shares	Par Value		Retained Earnings			Accumulated Other Comprehensive Income			Capital
Balance, July 1, 2007	18,937		$	1,893,712		—	$	1	$	175,468		$	(6,501	)	$	2,062,680
Proceeds from sale of capital stock	481			48,064												48,064
Net shares reclassified to mandatorily redeemable capital stock	(3	)		(285	)											(285	)
Comprehensive income
Net Income										31,623			—			31,623
Pension and postretirement plans										—			167			167

Total comprehensive income										31,623			167			31,790

Mandatorily redeemable capital stock distributions										(2	)					(2	)
Dividends on capital stock
Cash (4.50%)										(21,104	)					(21,104	)

Balance, September 30, 2007	19,415		$	1,941,491		—	$	1	$	185,985		$	(6,334	)	$	2,121,143

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

Federal Home Loan Bank of Indianapolis

Statements of Cash Flows

(Unaudited)

~~($ amounts in thousands)~~


	For the Three Months ended March 31,		For the Nine Months Ended September 30,
(In thousands)			2007			2006
Operating Activities
Net Income			$	84,243		$	90,499
	2007	2006
Operating Activities
Net income	$26,503	$32,202

Adjustments to reconcile net income to net cash provided by operating activities
Adjustments to reconcile Net Income to net cash provided by operating activities
Depreciation and amortization
Net premiums and discounts on consolidated obligations	11,652	318		27,219			9,623
Net premiums and discounts on investments	(3,175)	(2,539)		(6,859	)		(9,720	)
Net premiums and discounts on mortgage loans	1,337	(95)		1,670			4,807
Concessions on consolidated obligation bonds	1,408	1,681		4,931			5,163
Fees on derivatives, included as a component of derivative value	(1,149)	(1,495)		(3,955	)		(4,537	)
Net deferred (gain) loss on derivatives	(42)	(35)		(129	)		(107	)
Premises, software, and equipment	363	342		1,082			1,021
Other fees and amortization	982	416		1,831			1,279
Gain (loss) due to change in net fair value adjustment on derivative and hedging activities	(1,467)	(3,833)
Net realized gain on disposal of premises and equipment				(1	)		—
(Gain) loss due to change in net fair value adjustment on derivative and hedging activities				779			3,674
Net change in:
Trading security	-	9,400		—			38,575
Accrued interest receivable	11,322	1,058		(20,804	)		(17,453	)
Net derivatives – net accrued interest	(34,489)	(34,041)		(58,184	)		(16,281	)
Other assets	10,133	1,272		8,498			(422	)
Affordable Housing Program liability and discount on Affordable Housing Program Advances	877	(629)		1,489			(798	)
Accrued interest payable	3,498	54,130		75,170			71,406
Payable to REFCORP	755	1,019		1,068			185
Other liabilities	(6,911)	1,122		(4,454	)		6,124


Total adjustments	(4,906)	28,091		29,351			92,539


Net cash provided by operating activities	21,597	60,293		113,594			183,038


Investing Activities
Net change in:
Interest-bearing deposits, members and non-members	(907,037)	(262,766)		(2,082,919	)		242,232
Federal funds sold, members and non-members	(1,396,000)	(2,921,000)		(2,981,000	)		(3,063,000	)
Premises, software, and equipment	(15)	(101)		(212	)		(473	)
Held-to-maturity securities:
Proceeds from maturities of held-to-maturity securities, members and non-members	228,968	281,201
Proceeds from maturities of long-term held-to-maturity securities, members and non-members				756,591			794,935
Purchases of long-term held-to-maturity securities, members and non-members	-	(240,688)		(881,993	)		(742,812	)
Advances to members:
Principal collected on Advances	21,405,016	17,218,525		68,812,121			64,084,990
Advances made	(21,146,746)	(14,254,528)		(70,530,624	)		(61,226,218	)
Mortgage loans held for portfolio:
Principal collected	273,575	260,090		861,846			855,032
Mortgage loans purchased	(211,605)	(590,881)		(363,832	)		(1,194,290	)
Other Federal Home Loan Banks:
Principal collected on loans to other Federal Home Loan Banks	100,000	-		628,000			100,000
Loans to other Federal Home Loan Banks	(100,000)	-		(628,000	)		(100,000	)


Net cash used in investing activities	(1,753,844)	(510,148)		(6,410,022	)		(249,604	)

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

Federal Home Loan Bank of Indianapolis

Statements of Cash Flows, continued

(Unaudited)

~~($ amounts in thousands)~~


	For the Three Months ended March 31,		For the Nine Months ended September 30,
	2007	2006

(In thousands)			2007			2006
Financing Activities
Net change in:
Deposits	239,971	705,271		(250,593	)		599,013
Net proceeds from issuance of Consolidated obligations
Discount Notes	222,584,766	194,732,650
Consolidated obligation bonds	3,792,773	841,151
Discount notes				706,955,933			631,278,564
Bonds				11,507,067			5,134,419
Payments for maturing and retiring Consolidated obligations
Discount Notes	(220,546,128)	(194,753,470)
Consolidated obligation bonds	(4,407,905)	(1,047,350)
Discount notes				(701,487,866	)		(631,266,652	)
Bonds				(10,522,855	)		(5,445,350	)
Other Federal Home Loan Banks:
Borrowings from other Federal Home Loan Banks	-	50,000		5,000			257,000
Maturities of borrowings from other Federal Home Loan Banks	-	(50,000)		(5,000	)		(257,000	)
Proceeds from issuance of capital stock	87,595	5,942		160,252			37,807
Payments for redemption of mandatorily redeemable capital stock	(142)	(34,749)		(207	)		(35,951	)
Payments for repurchase/redemption of capital stock				—			(173,657	)
Cash dividends paid	(23,192)	(25,742)		(64,806	)		(76,679	)


Net cash provided by financing activities	1,727,738	423,703		6,296,925			51,514


Net decrease in cash and cash equivalents	(4,509)	(26,152)

Net increase (decrease) in cash and cash equivalents				497			(15,052	)
Cash and cash equivalents at beginning of the period	15,022	37,523		15,022			37,523


Cash and cash equivalents at end of the period	$10,513	$11,371	$	15,519		$	22,471


Supplemental Disclosures
Interest paid	$452,269	$363,869	$	1,224,019		$	1,195,093
Affordable Housing Program payments, net	2,284	4,245		8,468			11,010
REFCORP payments	5,871	7,031		19,993			22,440

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

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~Notes to Financial Statements -~~Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 1 –— Summary of Significant Accounting Policies and Basis of Presentation

The significant accounting policies and the financial condition and results of ~~operation~~operations for the Federal Home Loan Bank of Indianapolis as of December 31, 2006, are contained in the Bank’s Form 10-K, as filed with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 on March 30, ~~2007.~~2007 (“Form 10-K”). The accompanying unaudited financial statements for the three and nine months ended ~~March 31,~~September 30, 2007, should be read in conjunction with the Form 10-K. In the opinion of our management, the accompanying financial statements contain all adjustments necessary (consisting of only normal recurring adjustments) for a fair statement of the results of operations and financial condition for the interim ~~period~~periods ended ~~March 31,~~September 30, 2007, and conform with accounting principles generally accepted in the United States of America (“GAAP”) as they apply to interim financial statements. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2007, are not necessarily indicative of the results to be expected for any subsequent period or entire year.

The preparation of financial statements requires management to make assumptions and estimates. These assumptions and estimates affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates.

We have included descriptions of significant accounting policies in Note 1 to our 2006 Financial Statements in our Form 10-K. There have been no significant changes to these policies as of ~~March 31,~~September 30, 2007.

Certain reclassifications have been made in the prior-year financial statements to conform to current presentation.

Note 2 –— Recently Issued Accounting Standards and Interpretations

SFAS 155.On February 16, 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140(“SFAS ~~155”~~155”),which resolves issues addressed in Derivatives Implementation Group (“DIG”) Issue No. D1,Application of Statement 133 to Beneficial Interests in Securitized Financial Assets(“DIG Issue D1”). SFAS 155 amends SFAS 133 Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137,Accounting for Derivatives Instruments and Hedging Activities – Deferral of Effective Date of FASB Statement No. 133,SFAS No. 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities, and SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities (collectively “SFAS 133”) to simplify the accounting for certain derivatives embedded in other financial instruments (a hybrid financial instrument) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise required bifurcation, provided that the entire hybrid financial instrument is accounted for on a fair value basis. SFAS 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, which replaces the interim guidance in DIG Issue D1. SFAS 155 amends SFAS 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a replacement of FASB Statement 125(“SFAS 140”) to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006 (January 1, 2007, for the Bank), with earlier adoption allowed. Our adoption of SFAS 155 at January 1, 2007, did not have a material impact on our results of operations or financial condition.

SFAS 157.On September 15, 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). In defining fair value, SFAS 157 retains the exchange price notion in earlier definitions of fair value. However, the definition focuses on the price that would be received to sell an asset or paid to transfer a liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). SFAS 157 applies whenever other accounting pronouncements require or permit

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

fair value measurements. Accordingly, SFAS 157 does not expand the use of fair value in any new circumstances. SFAS 157 also establishes a fair value hierarchy that prioritizes the information used to develop assumptions used to determine the exit price. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (January 1, 2008, for the Bank), and

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~

interim periods within those fiscal ~~years, with early~~years. We do not expect the adoption permitted provided the entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. We have not yet determined the impact, if any, that the implementation of SFAS 157 ~~will~~to have a material impact on our results of operations or financial condition.

DIG Issue B40.On December 20, 2006, the FASB issued DIG Issue No. B40,Application of Paragraph 13(b) to Securitized Interest in Prepayable Financial Assets(“DIG Issue B40”). DIG Issue B40 clarifies when a securitized interest in prepayable financial assets is subject to the conditions in paragraph 13(b) of SFAS 133. DIG Issue B40 became effective upon initial adoption of SFAS 155 (January 1, 2007, for the Bank). Our adoption of DIG Issue B40 at January 1, 2007, did not have a material impact on our results of operations or financial condition.

SFAS 159.On February 15, 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115(“SFAS 159”). SFAS 159 creates a fair value option allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 also requires an entity to report those financial assets and financial liabilities measured at fair value in a manner that separates those reported fair values from the carrying amounts of assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value on those instruments selected for the fair value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008, for the Bank). ~~Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects~~We do not expect to ~~apply the provisions of SFAS 157. Implementation of SFAS 159 is optional. Although we have not yet determined the effect that~~record a material adjustment to our Retained earnings upon the implementation of SFAS 159 ~~will have on our results of operations or financial condition,~~at January 1, 2008. However, the extent to which we ~~believe that, if implemented, it~~may elect the fair value option in the future could have a material impact on our results of operations and financial condition.

FSP FIN 39-1, Amendment of FASB Interpretation No. 39. This FASB staff position (“FSP”) was issued on April 30, 2007, and addresses modifications to FASB Interpretation No. 39,Offsetting of Amounts Related to Certain Contracts. Specifically, these modifications permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. This FSP is effective for fiscal years beginning after November 15, 2007, (January 1, 2008, for the Bank) with early application permitted. ~~We do not~~While we expect that the reclassification of amounts between captions on our Statements of Condition will be material, the adoption of this FSP towill not have a material impact on our financial condition or results of ~~operations or financial condition.~~operations.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~Notes to Financial Statements -~~Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 3 — Advances to Members (“Advances”)

Redemption Terms. At ~~March 31,~~September 30, 2007, and December 31, 2006, we had Advances outstanding to members, including Affordable Housing Program (“AHP”) Advances, at interest rates ranging from ~~2.28%~~2.37% to 8.34% and 2.21% to 8.34%, respectively, as summarized below ($ amounts in thousands):


	March 31, 2007		December 31, 2006
					September 30, 2007				December 31, 2006
Year of Maturity	Amount	*WAIR %	Amount	*WAIR%	Amount			WAIR %⁽¹⁾	Amount			WAIR%⁽¹⁾
Overdrawn demand deposit accounts	$ 277	7.31	$ 9,610	7.31
Overdrawn demand and overnight deposit accounts					$	8,686		7.28	$	9,610		7.31
Due in 1 year or less	6,114,255	4.46	7,426,375	4.48		7,329,821		4.41		7,426,375		4.48
Due after 1 year through 2 years	3,362,793	4.26	4,369,649	4.08		2,637,366		4.75		4,369,649		4.08
Due after 2 years through 3 years	2,521,646	4.72	2,057,004	4.56		3,683,605		4.74		2,057,004		4.56
Due after 3 years through 4 years	3,287,519	4.89	2,942,302	4.93		2,854,156		5.10		2,942,302		4.93
Due after 4 years through 5 years	2,944,035	4.85	1,872,108	4.85		3,399,682		4.56		1,872,108		4.85
Thereafter	3,877,514	5.10	3,689,257	5.05		4,171,503		5.19		3,689,257		5.05
Index amortizing Advances	421	7.26	425	7.26		414		7.26		425		7.26

Total par value	22,108,460	4.69	22,366,730	4.59		24,085,233		4.74		22,366,730		4.59
Discount on AHP Advances	(283)		(294)
Unamortized discount on AHP Advances						(262	)			(294	)
SFAS 133 hedging adjustments	(40,078)		(94,510)			76,554				(94,510	)
Other adjustments	9,383		10,331			8,600				10,331

Total	$22,077,482		$22,282,257		$	24,170,125			$	22,282,257

*Weighted Average Interest Rate

(1)	Weighted Average Interest Rate

At ~~March 31,~~September 30, 2007, and December 31, 2006, we had no callable Advances, and we had putable Advances outstanding totaling ~~$3,593,550,000~~$4,600,550,000 and $3,662,050,000, respectively.

Interest Rate Payment Terms.The following table details interest rate payment terms for Advances at ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
Par amount of Advances
Fixed rate	$20,348,652	$20,861,141	$	21,595,418	$	20,861,141
Variable rate	1,759,808	1,505,589		2,489,815		1,505,589

Total	$22,108,460	$22,366,730	$	24,085,233	$	22,366,730

Prepayment Fees.The net amount of prepayment fees is reflected as Interest income in the Statements of Income.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~Notes to Financial Statements -~~Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 4—4 — Mortgage Loans Held for Portfolio

The Mortgage Purchase Program (“MPP”) involves the investment in mortgage loans that are purchased directly from our participating members. The total loans represent held-for-portfolio loans under the MPP whereby our members originate or acquire certain home mortgage loans that are then sold to us.See Note 13 for information on transactions with related parties. The following table presents information on mortgage loans held for portfolio as of ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	March 31, 2007		December 31, 2006		September 30, 2007			December 31, 2006
Real Estate
Fixed-rate medium-term⁽¹⁾ single-family mortgages	$1,545,293		$1,567,102		$	1,441,084		$	1,567,102
Fixed-rate long-term⁽²⁾ single-family mortgages	8,380,413		8,418,418			8,048,111			8,418,418

Total mortgage loans held for portfolio, par value	9,925,706		9,985,520			9,489,195			9,985,520
Premiums.	61,543		63,756
Discounts	(51,772	)	(51,198	)
Unamortized premiums.						59,728			63,756
Unamortized discounts						(49,078	)		(51,198	)
SFAS 133 hedging adjustments	23,285		22,592			22,081			22,592

Total mortgage loans held for portfolio	$9,958,762		$10,020,670		$	9,521,926		$	10,020,670

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

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

~~(2) Long-term is defined as terms of 20-30 years.~~

(2)	Long-term is defined as an original term greater than 15 years.

The following table details the par value of mortgage loans held for portfolio outstanding at ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
FHA loans	$ 890,470	$ 922,261	$	826,942	$	922,261
Conventional loans	9,035,236	9,063,259		8,662,253		9,063,259

Total mortgage loans held for portfolio, par value	$9,925,706	$9,985,520	$	9,489,195	$	9,985,520

We had $1,000 of nonaccrual loans at ~~March 31,~~September 30, 2007, and December 31, 2006.

The allowance for credit losses was $0 at ~~March 31,~~September 30, 2007, and December 31, 2006. The provision for credit losses was $0 for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006, respectively.

At ~~March 31,~~September 30, 2007, and December 31, 2006, we had no recorded investments in impaired mortgage loans.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~Notes to Financial Statements -~~Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 5 — Deposits

The following table details the average interest rates paid on average interest-bearing deposits ~~were 5.11% and 4.37%~~ during the three and nine months ended ~~March 31,~~September 30, 2007, and ~~2006, respectively.~~2006.


	2007		2006
Three months	4.89	%	5.10	%
Nine months	5.04	%	4.76	%

The following table details Deposits as of ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
Interest-bearing:
Demand and overnight	$1,098,536	$ 847,362	$	580,526	$	847,362
Other deposits	50,009	60,356		82,583		60,356

Total interest-bearing deposits	1,148,545	907,718		663,109		907,718

Non-interest-bearing:
Pass-thru deposit reserves	11,369	12,225		6,241		12,225

Total non interest-bearing deposits	11,369	12,225
Total non-interest-bearing deposits				6,241		12,225

Total Deposits	$1,159,914	$ 919,943	$	669,350	$	919,943

Note 6—6 — Consolidated Obligations

~~Interest Rate Payment Terms.~~~~The following table details interest rate payment terms for Consolidated Obligation Bonds (“~~~~CO Bonds~~~~”) at March 31, 2007, and December 31, 2006 ($ amounts in thousands):~~

        March 31,
2007      December 31,
2006
  Par value of CO Bonds

  Fixed rate
   $28,335,140      $28,604,395
  Step-up
   3,498,080      3,823,080
  Simple variable rate
   110,000      110,000
  Fixed that converts to variable
   240,000      240,000
  Variable that converts to fixed
   175,000      175,000
  Range
   15,000      37,000

  Total par value
   $32,373,220      $32,989,475

Redemption Terms. The following is a summary of our participation in Consolidated Obligation Bonds (“CO Bonds”) outstanding at ~~March 31,~~September 30, 2007, and December 31, 2006, by year of maturity ($ amounts in thousands):

March 31, 2007    December 31, 2006
  Year of Maturity     Amount        WAIR%        Amount        WAIR%
  Due in 1 year or less
$8,975,550      4.26    $9,349,405      4.23
  Due after 1 year through 2 years
6,327,770      4.36    6,295,070      4.18
  Due after 2 years through 3 years
4,163,030      4.63    4,082,380      4.56
  Due after 3 years through 4 years
2,017,220      4.73    2,564,520      4.64
  Due after 4 years through 5 years
1,795,500      5.09    1,503,450      5.07
  Thereafter
9,094,150      5.28    9,194,650      5.26

  Total par value
32,373,220      4.69    32,989,475      4.62
  Bond premiums
23,883         24,358
  Bond discounts
(34,930)         (35,860)
  SFAS 133 hedging adjustments
(89,915)         (133,990)

  Total
$32,272,258         $32,843,983


	September 30, 2007				December 31, 2006
Year of Maturity	Amount			WAIR%	Amount			WAIR%
Due in 1 year or less	$	10,183,520		4.59	$	9,349,405		4.23
Due after 1 year through 2 years		6,730,180		4.77		6,295,070		4.18
Due after 2 years through 3 years		4,193,120		4.91		4,082,380		4.56
Due after 3 years through 4 years		1,880,700		4.93		2,564,520		4.64
Due after 4 years through 5 years		2,274,150		5.24		1,503,450		5.07
Thereafter		8,709,650		5.37		9,194,650		5.26

Total par value		33,971,320		4.93		32,989,475		4.62
Unamortized bond premiums		23,631				24,358
Unamortized bond discounts		(33,140	)			(35,860	)
SFAS 133 hedging adjustments		(49,514	)			(133,990	)

Total	$	33,912,297			$	32,843,983

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~Notes to Financial Statements -~~Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

The following table summarizes CO Bonds outstanding at September 30, 2007, and December 31, 2006, by year of original maturity or next call date ($ amounts in thousands):


Year of Maturity or Next Call Date	September 30, 2007		December 31, 2006
Due in 1 year or less	$	25,920,970	$	24,809,355
Due after 1 year through 2 years		2,949,100		3,065,070
Due after 2 years through 3 years		1,389,750		1,392,800
Due after 3 years through 4 years		597,700		746,150
Due after 4 years through 5 years		629,150		424,450
Thereafter		2,484,650		2,551,650

Total par value	$	33,971,320	$	32,989,475

Interest Rate Payment Terms.The following table details interest rate payment terms for CO Bonds at September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	September 30, 2007		December 31, 2006
Par value of CO Bonds
Fixed rate	$	31,223,240	$	28,604,395
Step-up		2,503,080		3,823,080
Simple variable rate		55,000		110,000
Fixed that converts to variable		150,000		240,000
Variable that converts to fixed		25,000		175,000
Range		15,000		37,000

Total par value	$	33,971,320	$	32,989,475

Consolidated Obligation Discount Notes. Our participation in Consolidated Obligation Discount Notes (“Discount Notes”), all of which are due within one year, was as follows ($ amounts in thousands):


	Book Value	Par Value	Weighted Average Interest Rate	Book Value		Par Value		WAIR%
March 31, 2007	$12,520,976	$12,566,890	5.16%
September 30, 2007				$	15,966,504	$	16,046,501	4.73	%
December 31, 2006	10,470,607	10,498,931	5.09%		10,470,607		10,498,931	5.09	%

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 7 — Capital

Capital Requirements.We are subject to three capital requirements under our Capital Plan and Federal Housing Finance Board ((““Finance ~~Board”~~Board”) regulations. First, we must maintain at all times permanent capital in an amount at least equal to the sum of our credit risk capital requirement, our market risk capital requirement, and our operations risk capital requirement, calculated in accordance with the rules and regulations of the Finance Board. Only “permanent capital,” defined as retained earnings and Class B Stock (including mandatorily redeemable capital stock), satisfies the risk-based capital requirement. The Finance Board may require us to maintain a greater amount of permanent capital than is required by the risk-based capital requirements as defined. In addition, the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) requires us to maintain at all times at least a 4% total capital-to-asset ratio and at least a 5% leverage ratio, defined as the sum of permanent capital weighted 1.5 times, and non-permanent capital weighted 1.0 times, divided by total assets. The following table shows our compliance with the aforementioned capital rules and requirements at ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	March 31, 2007		December 31, 2006		September 30, 2007						December 31, 2006
Regulatory capital requirements	Required	Actual	Required	Actual
Regulatory Capital Requirements					Required			Actual			Required			Actual
Risk-based capital	$ 513,796	$2,202,230	$ 522,073	$2,111,466	$	470,751		$	2,290,947		$	522,073		$	2,111,466
Total capital-to-asset ratio	4.00%	4.53%	4.00%	4.51%		4.00	%		4.28	%		4.00	%		4.51	%
Total capital	$1,946,039	$2,202,230	$1,874,756	$2,111,466	$	2,142,012		$	2,290,947		$	1,874,756		$	2,111,466
Leverage ratio	5.00%	6.79%	5.00%	6.76%		5.00	%		6.42	%		5.00	%		6.76	%
Leverage capital	$2,432,549	$3,303,345	$2,343,445	$3,167,199	$	2,677,515		$	3,436,421		$	2,343,445		$	3,167,199

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 8 — Employee and Director Retirement and Deferred Compensation Plans

We participate in or maintain the following plans:

Pentegra Defined Benefit Plan for Financial Institutions (“PDBP”), a multi-employer, tax-qualified, defined-benefit pension plan, formerly known as the Financial Institutions Retirement Fund. The plan covers substantially all officers and employees;

Pentegra Defined Contribution Plan for Financial Institutions (“PDCP”), a tax qualified, defined-contribution pension plan formerly known as the Financial Institutions Thrift Plan;

Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Thrift Plan and a similar grandfathered plan (collectively“SETP”), a non-qualified, unfunded deferred compensation plan covering certain officers;

Federal Home Loan Bank of Indianapolis 2005 Directors’ Deferred Compensation Plan and a similar grandfathered plan (collectively“DDCP”), a non-qualified, unfunded deferred compensation plan for our directors; and

Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Retirement Plan and a similar grandfathered plan (collectively“SERP”), a single-employer, non-qualified, unfunded supplemental executive retirement plan covering certain officers.

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~

PDBP – Funding and administrative costs of this plan are included in Compensation and benefits as follows ($ amounts in thousands):

For the Three Months ended
March 31,
   2007    2006
Other operating expenses
   $1,326    $1,232


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2007		2006		2007		2006
Other operating expenses	$	1,326	$	1,232	$	3,978	$	3,702

PDCP and SETP– Our contributions to the plans were as follows ($ amounts in thousands):


	For the Three Months ended March 31,
	2007	2006	For the Three Months Ended September��30,				For the Nine Months Ended September 30,
			2007		2006		2007		2006
PDCP	$148	$167	$	147	$	161	$	421	$	468
SETP	3	15		15		14		21		41

Total contributions	$151	$182	$	162	$	175	$	442	$	509

Our obligation under the SETP at ~~March 31,~~September 30, 2007, and December 31, 2006, was ~~$2,650,000~~$3,021,000 and $3,450,000, respectively.

DDCP – Our directors also have a deferred compensation plan available to them. The following table is a summary of compensation earned and deferred by our directors ($ amounts in thousands):


	For the Three Months ended March 31,
	2007	2006	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
			2007		2006		2007		2006
Compensation earned	$57	$57	$	76	$	57	$	208	$	175
Compensation deferred	13	22		18		18		49		61

Our obligation under the DDCP at ~~March 31,~~September 30, 2007, and December 31, 2006, was ~~$1,447,000~~$1,506,000 and $1,514,000, respectively.

A rabbi trust has been established to fund the ~~deferred compensation for these officers~~SETP and ~~directors.~~the DDCP. Assets in the rabbi trust relating to the deferred compensation plans included as a component of Other assets in the ~~Statement~~Statements of Condition, were ~~$4,097,000~~$4,527,000 and $4,964,000 at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

SERP ~~- The~~—The components of the Total net periodic benefit cost for our SERP for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006, were ($ amounts in thousands):

For the Three Months Ended
March 31,
       2007         2006

Service cost
   $      91 $160
Interest cost
   190 175
Amortization of unrecognized prior service cost
   (3 ) 12
Amortization of unrecognized net loss
   151 172

Net periodic benefit cost
   429 519
Loss on settlement of early retirement incentive
   3,154 -

Total net periodic benefit cost
   $3,583 $519

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2007			2006		2007			2006
Service cost	$	91		$	160	$	272		$	480
Interest cost		190			175		571			525
Amortization of unrecognized prior service cost		(3	)		12		(8	)		36
Amortization of unrecognized net loss		151			172		453			516

Net periodic benefit cost		429			519		1,288			1,557

Loss on settlement of early retirement incentive		—			—		3,154			—

Total net periodic benefit cost	$	429		$	519	$	4,442		$	1,557

Although there are no plan assets, a grantor trust has been established to fund the SERP. Assets in the grantor trust relating to the SERP are included as a component of Other assets in the Statements of Condition. The projected benefit obligation and assets in the grantor trust at ~~March 31,~~September 30, 2007, and December 31, 2006, were as follows ($ amounts in thousands):


	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
Projected benefit obligation	$12,932	$16,546	$	13,096	$	16,546
Assets in grantor trust	3,437	11,515		7,455		11,515

SERP obligations of ~~$8,381,000~~$8,806,000 were paid during the ~~three~~nine months ended ~~March 31,~~September 30, 2007. We expect that an additional ~~$23,000~~$8,000 will be paid during the remainder of 2007. These payments substantially all relate to benefits paid to certain participants in the SERP that elected to accept an early retirement incentive offered by us in 2006.

The Total net periodic benefit cost for the year ending December 31, 2007, is expected to be approximately $4,871,000.

We have increased our estimates of the funding and administrative costs associated with the PDBP and the Total net periodic benefit cost related to the SERP for 2007 based on updated actuarial estimates used to calculate those amounts.

Note 9 — Segment Information

We have identified two primary operating segments: Traditional Funding, Investments and Deposit Products (“TFIDP”), and MPP, based on our method of internal reporting. The products and services presented reflect the manner in which financial information is evaluated by management. MPP income is derived primarily from the difference, or spread, between the interest income earned on mortgage loans, including the direct effects of premium and discount amortization in accordance with Statement of Financial Accounting Standards No. 91,Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases (“SFAS 91”), and the borrowing cost related to those loans. TFIDP includes the effects of premium and discount amortization, ~~and~~ the impact of net interest settlements related to interest rate exchange agreements, ~~and~~ interest income on Advances, investments (including Mortgage-backed Securities (“MBS”)), and the borrowing costs related to those assets. TFIDP also includes the ~~borrowing~~ costs related to holding deposit products for members and other miscellaneous borrowings as well as all other miscellaneous income and expense not associated with the MPP.

We measure the performance of each segment based upon the net interest spread of the underlying portfolio(s). For this reason, we have presented each segment on a net interest income basis. Direct other income and expense items have been allocated to each segment based upon actual results. MPP includes the direct earnings effects of SFAS 133 as well as direct salary and other expenses (including an allocation for indirect overhead) associated with operating the MPP and volume-driven costs associated with master

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

servicing and quality control fees. Direct other income/expense related to TFIDP includes the direct earnings impact of SFAS 133 related to Advances and investment products as well as all other income and expense not associated with MPP. The assessments related to AHP and the Resolution Funding Corporation (“REFCORP”) have been allocated to each segment based upon each segment’s proportionate share of ~~total income before assessments.~~Income Before Assessments.

We have not symmetrically allocated assets to each segment based upon financial results as it is impracticable to measure the performance of our segments from a total assets perspective. As a result, there is asymmetrical information presented in the tables below including, among other items, the allocation of depreciation without an allocation of the depreciable assets, the SFAS 133 earnings adjustments with no corresponding allocation to derivative assets, if any, and the recording of interest income with no allocation to accrued interest receivable. Total assets reported for MPP include only the mortgage loans outstanding, net of premiums, discounts and SFAS 133 basis adjustments. Total assets reported for TFIDP include all other assets of the Bank.

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~

The following table sets forth our financial performance by operating segment for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006 ($ amounts in thousands):

       TFIDP          MPP      Total
March 31, 2007

Net interest income
   $36,765      $10,601      $47,366
Other income (loss)
   1,383      (50)      1,333
Other expenses
   11,537      872      12,409

Income before assessments
   26,611      9,679      36,290

AHP
   2,371      790      3,161
REFCORP
   4,848      1,778      6,626

Total assessments
   7,219      2,568      9,787

Net income
   $19,392      $7,111      $26,503


	For the Three Months Ended September 30, 2007							For the Nine Months Ended September 30, 2007
September 30, 2007	TFIDP		MPP			Total		TFIDP		MPP			Total
Net Interest Income	$	42,066	$	9,372		$	51,438	$	113,460	$	32,878		$	146,338
Other income (loss)		1,342		(136	)		1,206		168		(250	)		(82	)
Other expense		8,646		750			9,396		28,711		2,284			30,995

Income Before Assessments		34,762		8,486			43,248		84,917		30,344			115,261

AHP		3,026		693			3,719		7,480		2,477			9,957
REFCORP		6,348		1,558			7,906		15,488		5,573			21,061

Total assessments		9,374		2,251			11,625		22,968		8,050			31,018

Net Income	$	25,388	$	6,235		$	31,623	$	61,949	$	22,294		$	84,243

       TFIDP          MPP      Total
March 31, 2006

Net interest income
   $39,894      $15,298      $55,192
Other income (loss)
   212      (512)      (300)
Other expenses
   10,012      1,012      11,024

Income before assessments
   30,094      13,774      43,868

AHP
   2,492      1,124      3,616
REFCORP
   5,520      2,530      8,050

Total assessments
   8,012      3,654      11,666

Net income
   $22,082      $10,120      $32,202


	For the Three Months Ended September 30, 2006							For the Nine Months Ended September 30, 2006
September 30, 2006	TFIDP		MPP			Total		TFIDP			MPP			Total
Net Interest Income	$	41,124	$	7,291		$	48,415	$	120,708		$	35,465		$	156,173
Other income (loss)		609		(303	)		306		(676	)		(1,028	)		(1,704	)
Other expense		8,391		942			9,333		28,229			2,904			31,133

Income Before Assessments		33,342		6,046			39,388		91,803			31,533			123,336

AHP		2,815		494			3,309		7,638			2,574			10,212
REFCORP		6,106		1,110			7,216		16,833			5,792			22,625

Total assessments		8,921		1,604			10,525		24,471			8,366			32,837

Net Income	$	24,421	$	4,442		$	28,863	$	67,332		$	23,167		$	90,499

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

The following table presents assets by operating segment at ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


Total Assets	TFIDP	MPP	Total	TFIDP		MPP		Total
March 31, 2007	$38,692,221	$9,958,762	$48,650,983
September 30, 2007				$	44,028,383	$	9,521,926	$	53,550,309
December 31, 2006	36,848,234	10,020,670	46,868,904		36,848,234		10,020,670		46,868,904

Note ~~10—Derivative~~10 — Derivatives and Hedging Activities

For the three and nine months ended ~~March 31,~~September 30, 2007, and 2006, we recorded a Net gain (loss) on derivatives and hedging activities ~~of $722,000 and $(648,000), respectively,~~ in Other income (loss) as follows ($ amounts in thousands):

       Three months ended
March 31,
Net Gain (Loss) on Derivatives and Hedging Activities
   2007    2006
Gains (losses) related to fair value hedge ineffectiveness
   $(68)    $422
Gains (losses) on economic hedges
   790    (1,070)

Net gain (loss) on derivatives and hedging activities
   $722    $(648)

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Net Gain (Loss) on Derivatives and Hedging Activities	2007			2006			2007			2006
Gains (losses) related to fair value hedge ineffectiveness	$	(379	)	$	11		$	(2,195	)	$	(861	)
Gains (losses) on economic hedges		877			(335	)		10			(2,347	)

Net gain (loss) on derivatives and hedging activities	$	498		$	(324	)	$	(2,185	)	$	(3,208	)

The following table represents outstanding notional balances and estimated fair values of the derivatives outstanding at ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


	March 31, 2007		December 31, 2006		September 30, 2007					December 31, 2006
	Notional	Estimated Fair Value	Notional	Estimated Fair Value	Notional		Estimated Fair Value			Notional		Estimated Fair Value
Interest rate swaps
Fair value hedges	$30,856,965	$(50,979)	$31,483,491	$(42,018)	$	34,426,990	$	(128,196	)	$	31,483,491	$	(42,018	)
Economic hedges	210,993	(411)	205,110	(458)		102,758		(573	)		205,110		(458	)
Interest rate swaptions
Economic hedges	200,000	-	150,000	-		100,000		—			150,000		—
Interest rate futures/forwards
Fair value hedges	108,255	(477)	298,425	776		—		—			298,425		776
Economic hedges	17,700	41	11,100	36		27,300		(43	)		11,100		36
Mortgage delivery commitments
Economic hedges	21,084	(34)	10,907	(36)		30,726		(41	)		10,907		(36	)

Total	$31,414,997	$(51,860)	$32,159,033	$(41,700)	$	34,687,774	$	(128,853	)	$	32,159,033	$	(41,700	)

Total derivatives excluding accrued interest		$(51,860)		$(41,700)			$	(128,853	)			$	(41,700	)
Accrued interest		112,301		77,812				135,996					77,812

Net derivative balances		$60,441		$36,112			$	7,143				$	36,112


Net derivative asset balances		$98,291		$99,482			$	70,544				$	99,482
Net derivative liability balances		(37,850)		(63,370)				(63,401	)				(63,370	)

Net derivative balances		$60,441		$36,112			$	7,143				$	36,112

Note 11 – Estimated Fair Values

We determined estimated fair value amounts by using available market information and our assumptions of appropriate valuation ~~models, and a model validation process which follows the Finance Board’s guidelines.~~models. These estimates are based on pertinent information available to us as of ~~March 31,~~September 30, 2007, and December 31, 2006. Because of the assumptions used in the valuation process, there are inherent limitations in estimating the fair value of these instruments. For example, because an active secondary market does not exist for a portion of our financial instruments, in certain

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions. The Fair Value Summary Tables do not represent an estimate of the overall market value of us as a going concern, which would take into account future business opportunities. For additional information concerning the estimated fair values of our financial instruments, refer to Note 17 of our Audited Financial Statements included in our 2006 Annual Report on Form 10-K.

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~

The carrying value and estimated fair values of our financial instruments at ~~March 31,~~September 30, 2007, were as follows ($ amounts in thousands):

FAIR VALUE SUMMARY TABLE – ~~MARCH 31,~~SEPTEMBER 30, 2007


Financial Instruments	Carrying Value	Net Unrealized Gains/(Losses)	Estimated Fair Value	Carrying Value		Net Unrealized Gains/(Losses)			Estimated Fair Value
Assets
Cash and due from banks	$ 10,513	$ -	$ 10,513	$	15,519	$	—		$	15,519
Interest-bearing deposits	1,301,118	87	1,301,205		2,477,000		1,084			2,478,084
Federal funds sold	8,720,000	239	8,720,239		10,420,000		3,535			10,423,535
Held-to-maturity securities	6,318,598	(115,116)	6,203,482		6,676,653		(100,104	)		6,576,549
Advances	22,077,482	22,268	22,099,750		24,170,125		37,200			24,207,325
Mortgage loans held for portfolio, net	9,958,762	(192,412)	9,766,350		9,521,926		(263,994	)		9,257,932
Accrued interest receivable	124,987	-	124,987		157,113		—			157,113
Derivative assets	98,291	-	98,291		70,544		—			70,544

Liabilities
Deposits	1,159,914	-	1,159,914		669,350		—			669,350
COs:
Discount Notes	12,520,976	958	12,520,018		15,966,504		(731	)		15,967,235
CO Bonds	32,272,258	142,609	32,129,649
Bonds					33,912,297		94,864			33,817,433
Accrued interest payable	387,125	-	387,125		458,797		—			458,797
Derivative liabilities	37,850	-	37,850		63,401		—			63,401
Mandatorily redeemable capital stock	151,197	-	151,197		163,471		—			163,471

Other
Commitments to extend credit for Advances	-	18	18		—		2			2

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~Notes to Financial Statements -~~Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

The carrying value and estimated fair values of our financial instruments at December 31, 2006, were as follows ($ amounts in thousands):

FAIR VALUE SUMMARY TABLE – DECEMBER 31, 2006


Financial Instruments	Carrying Value	Net Unrealized Gains/(Losses)		Estimated Fair Value	Carrying Value		Net Unrealized Gains/(Losses)			Estimated Fair Value
Assets
Cash and due from banks	$ 15,022	$ -		$ 15,022	$	15,022	$	—		$	15,022
Interest-bearing deposits	394,081	11		394,092		394,081		11			394,092
Federal funds sold	7,324,000	121		7,324,121		7,324,000		121			7,324,121
Held-to-maturity securities	6,544,392	(140,938	)	6,403,454		6,544,392		(140,938	)		6,403,454
Advances	22,282,257	3,248		22,285,505		22,282,257		3,248			22,285,505
Mortgage loans held for portfolio, net	10,020,670	(211,354	)	9,809,316		10,020,670		(211,354	)		9,809,316
Accrued interest receivable	136,309	-		136,309		136,309		—			136,309
Derivative assets	99,482	-		99,482		99,482		—			99,482

Liabilities
Deposits	919,943	-		919,943		919,943		—			919,943
COs:
Discount Notes	10,470,607	2,223		10,468,384		10,470,607		2,223			10,468,384
CO Bonds	32,843,983	181,070		32,662,913
Bonds						32,843,983		181,070			32,662,913
Accrued interest payable	383,627	-		383,627		383,627		—			383,627
Derivative liabilities	63,370	-		63,370		63,370		—			63,370
Mandatorily redeemable capital stock	151,332	-		151,332		151,332		—			151,332
Other
Commitments to extend credit for Advances	-	-		-		—		—			—

Note 12 — Commitments and Contingencies

The Federal Home Loan Banks have joint and several liability for all the COs issued on behalf of any of them. Accordingly, should one or more of the Federal Home Loan Banks be unable to repay its participation in the COs, each of the Federal Home Loan Banks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Board. No Federal Home Loan Bank has had to assume or pay the CO of another Federal Home Loan Bank since COs began being issued.

We considered the guidance under FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others(“FIN 45”), and determined it was not necessary to recognize the fair value of our joint and several liability for all of the COs. The joint and several obligations are mandated by Finance Board regulations and are not the result of arms-length transactions among the Federal Home Loan Banks. The Federal Home Loan Banks have no control over the amount of the guaranty or the determination of how each Federal Home Loan Bank would perform under the joint and several liability because the Federal Home Loan Banks are subject to the authority of the Finance Board as it relates to decisions involving the allocation of the joint and several liability for each of the measurement provisions of FIN 45. Accordingly, we do not recognize a liability for our joint and several obligation related to COs issued for the benefit of other Federal Home Loan ~~Banks at March 31, 2007, and December 31, 2006.~~Banks. The par amounts of the Federal Home Loan Banks’ outstanding COs, including COs held by other Federal Home Loan Banks, were approximately ~~$951.5~~$1,148.6 billion and $951.7 billion at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively.

Commitments that legally bind and unconditionally obligate us for additional Advances totaled approximately ~~$93,252,000~~$50,416,000 and $18,366,000 at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively. Commitments generally are for periods up to 12 months. Based on management’s credit analyses and

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~

collateral requirements, we do not deem it necessary to record any additional liability on these commitments. Commitments are fully collateralized at the time of issuance.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

We execute standby letters of credit for members for a fee. A standby letter of credit is a financing arrangement between the Bank and one of our members. If we are required to make payment for a beneficiary’s draw, these amounts are converted into a collateralized advance to the member. Outstanding standby letters of credit were as follows ($ amounts in thousands):


	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
Outstanding notional	$306,290	$312,313	$	288,456	$	312,313
Original terms	11 months -15 years	11 months -15 years		11 months -15 years		11 months - 15 years
Final expiration year	2016	2016		2016		2016

The value of the guarantees related to standby letters of credit entered into after 2002 are recorded in Other liabilities and amount to ~~$2,127,000~~$1,941,000 and $2,302,000 at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively. Based on management’s credit analyses and collateral requirements, we do not deem it necessary to record any additional liability on these commitments. Commitments are fully collateralized at the time of issuance.

We had $140,400,000 of unused lines of credit available to members at September 30, 2007.

For managing the inherent credit risk in MPP, participating members pay us credit enhancement fees in order to fund the lender risk account (“LRA”) and pay supplemental mortgage insurance (“SMI”). If a credit loss occurs, the accumulated LRA is used to cover the credit loss in excess of equity and primary mortgage insurance. Funds not used are returned to the member over time. SMI provides additional coverage over and above losses covered by the LRA. The LRA is ~~an indicator of the potential expected losses for which we are liable.~~held to cover estimated losses. The LRA amounted to ~~$18,976,000~~$20,450,000 and $17,999,000 at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively. ~~Additional~~Reserves for additional probable losses are ~~provided~~provisioned through the allowance for credit losses. No allowance for credit losses iswas considered necessary at ~~March 31,~~September 30, 2007, or December 31, 2006.

Commitments that unconditionally obligate us to fund/purchase mortgage loans totaled ~~$21,084,000~~$30,726,000 and $10,907,000 at ~~March 31,~~September 30, 2007, and December 31, 2006, respectively. Commitments are generally for periods not to exceed 91 days. In accordance with SFAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities(“SFAS 149”), such commitments entered into after June 30, 2003, ~~were~~are recorded as derivatives at their fair value.

When executing derivative agreements with major ~~bank~~banks and broker-dealers, we generally enter into bilateral collateral agreements. However, we did not have any ~~cash~~assets pledged as collateral at ~~March 31,~~September 30, 2007, and December 31, 2006.

We entered into ~~$109,000,000~~$969,000,000 par value of CO Bonds and ~~$51,170,000~~$1,170,000 par value of Discount Notes that had traded but not settled as of ~~March 31,~~September 30, 2007.

We are subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on our financial condition or results of operations.

Notes 7, 8, 10, and 1011 discuss other commitments and contingencies.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

Note 13 – Transactions with Shareholders

Our activities with shareholders are summarized below, and have been identified in the Statements of Condition, Statements of Income, and Statements of Cash Flows.

~~FEDERAL HOME LOAN BANK OF INDIANAPOLIS~~

~~Notes to Financial Statements - Unaudited~~

In the normal course of business, we sell federal funds and make other short-term investments with shareholders or their affiliates.

In addition, included in our held-to-maturity investment portfolio are purchases of ~~Mortgage-Backed Securities (“~~MBS”) issued by shareholders or their affiliates.

Transactions with Directors’ Financial Institutions. ~~We provide, in~~In the ordinary course of business, we provide products and services to members whose officers or directors may serve on our Board of Directors (“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. As of ~~March 31,~~September 30, 2007, and December 31, 2006, we had Advances and capital stock outstanding (including mandatorily redeemable capital stock) to Directors’ Financial Institutions as follows ($ amounts in thousands):


	Advances ($ at par)	% of Advances outstanding	Capital Stock ($ at par)	% of capital stock outstanding	Advances ($ at par)		% of Advances outstanding		Capital Stock ($ at par)		% of Capital Stock outstanding
March 31, 2007	$1,263,491	5.7%	$97,152	4.8%
September 30, 2007					$	1,357,567	5.6	%	$	99,963	4.8	%
December 31, 2006	$1,094,314	4.9%	$97,152	5.0%	$	1,094,314	4.9	%	$	97,152	5.0	%

During 2007 and 2006, we acquired mortgage loans ~~that were originated by~~from Directors’ Financial Institutions as follows ($ amounts in thousands):

   For the Three Months ended
March 31,
   2007    2006
Mortgage Loans originated by Directors’ Financial Institutions
   $1,009    $236,200


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2007		2006		2007		2006
Mortgage Loans originated by Directors’ Financial Institutions	$	3,705	$	33,237	$	4,059	$	366,259

The decrease in Mortgage Loans originated by Directors’ Financial Institutions from the three months and nine months ended September 30, 2006, to the corresponding periods in 2007 are substantially due to one Director’s Financial Institution not selling any mortgage loans to us in 2007.

Acquisition of Members and Affiliates. During the first three months of 2007, our member, LaSalle Bank Midwest N.A. (“LaSalle”) sold its subsidiary, ABN AMRO Mortgage Group, its U.S. ~~–based~~–based wholesale residential mortgage broker origination platform and servicing business, to a third party. Although we can no longer purchase mortgage loans originated by ABN AMRO Mortgage Group, our mortgage loans from ABN AMRO Mortgage Group of ~~$4,321,565,000~~$4,074,324,000 and $4,285,688,000, representing ~~43.5%~~42.9% and 42.9% of our ~~Mortgage~~mortgage loans outstanding, at par, as of ~~March 31,~~September 30, 2007, and December 31, 2006, respectively, will remain outstanding until maturity or prepayment. ~~Further,~~During the first nine months of 2007, we ~~can~~could still make Advances to LaSalle ~~Bank Midwest N.A.~~ or purchase mortgage loans from them as LaSalle ~~Bank Midwest N.A. will remain~~remained in the retail residential mortgage business.

~~Note 14 – Subsequent Events~~

On ~~April 23,~~October 1, 2007, ABN AMRO ~~Holding N.V. (“~~~~ABN AMRO~~”)Holdings NV sold its North American bank holding company, the parent of LaSalle Bank Corporation and ~~Barclays P.L.C. (“~~~~Barclays~~~~”) announced that an agreement had been reached on the combination of ABN AMRO and Barclays (“~~~~the merger~~~~”). As part of the merger,~~its subsidiaries, including our member, LaSalle, to Bank of America ~~Corp agreed to acquire~~Corporation, which has no other bank charters in our district. As of November 13, 2007, LaSalle ~~Bank Corporation (“~~~~LaSalle~~~~”), the parent holding company~~remained a member of our ~~member, LaSalle~~ Bank ~~Midwest N.A. This acquisition is expected to be completed prior to the completion~~as its bank charter remains in Michigan. If Bank of the merger and is a condition of the merger. However, legal objections have been raised to this acquisition, and it is not clear if this transaction will occur or if the merger will proceed. If the acquisition of LaSalle is finalized and if the acquirer were to decideAmerica Corporation decides not to keep ~~LaSalle’s~~the LaSalle charter in our district, we would no longer be able to make Advances to or purchase mortgage loans from LaSalle. ~~In addition, we~~However, our current mortgage loans purchased from LaSalle and its affiliates will remain outstanding until maturity or prepayment. We would also be required to repurchase any outstanding capital stock owned by LaSalle no

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

Information as of and for the Three and Nine Months Ended September 30, 2007, and 2006 is Unaudited

by the later ~~than~~of five years after the date of termination of their charter in our district ~~and~~or the repayment of all outstanding obligations to ~~the Bank.~~us. As of ~~March 31,~~September 30, 2007, we held ~~$4,000,171,000~~$3,300,168,000 par value of Advances to LaSalle, which represented ~~18.1%~~13.7% of our total Advances, at par. LaSalle had a capital stock balance of $334,110,000 as of ~~March 31,~~September 30, 2007, which represented ~~16.4%~~15.9% of our regulatory capital ~~stock. See Note 13 for additional information regarding LaSalle’s sale of ABN AMRO Mortgage Group during the three months ended March 31, 2007.~~stock balance.

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

ITEM 2.

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

Special Note Regarding Forward-looking Statements

Statements in this Quarterly Report on Form 10-Q, including statements describing the objectives, projections, estimates or future predictions of the Bank may be “forward-looking statements.” These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “expects,” “will,” or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements involve risk or uncertainty and that actual results either could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following:

economic and market conditions;

demand for our Advances resulting from changes in our members’ deposit flows and credit demands;

demand for purchases of mortgage loans resulting from, among other things, changes in the general level of housing activity in the U.S., the level of refinancing activity and consumer product preferences;

changes in asset prepayment patterns;

changes in or differing interpretations of accounting rules;

negative adjustments in Federal Home Loan Bank System credit agency ratings that could adversely impact the marketability of our COs, products, or services;

changes in our ability to raise capital market funding;

volatility of market prices, rates, and indices that could affect the value of collateral we hold as security for the obligations of our members and counterparties;

political events, including legislative, regulatory, or other developments, and judicial rulings that affect us, our members, counterparties, and/or investors in the COs of the 12 Federal Home Loan Banks;

competitive forces, including without limitation other sources of funding available to our members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled individuals;

ability to develop and support technology and information systems, including the Internet, sufficient to effectively manage the risks of our business;

changes in investor demand for COs and the terms of interest rate exchange agreements and similar agreements;

membership changes, including, but not limited to, mergers, acquisitions and consolidation of charters;

timing and volume of market activity;

ability to introduce new products and services and successfully manage the risks associated with those products and services, including new types of collateral securing Advances and securitizations;

risk of loss arising from litigation filed against one or more of the Federal Home Loan Banks;

risk of loss arising from natural disasters or acts of terrorism;

risk of loss should one or more of the Federal Home Loan Banks be unable to repay its participation in the COs;

inflation or deflation; and

costs associated with compliance with the Sarbanes-Oxley Act of 2002 and other SEC reporting requirements, such as the Securities Exchange Act of 1934.

Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures

that we may make through reports filed with the SEC in the future, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and related footnotes contained in this Quarterly Report on Form 10-Q, our Quarterly Reports on Form 10-Q for the periods ended March 31, 2007, and June 30, 2007, and our ~~2006~~ Annual Report on Form 10-K ~~filed with~~for the ~~SEC on March 30, 2007.~~year ended December 31, 2006.

Overview

Our Business

We are a regional wholesale bank that makes Advances ~~(loans to members)~~(loans), purchases mortgages, and provides other financial services to our member financial institutions. These member financial institutions consist of commercial banks, thrifts, credit unions and insurance companies. All member financial institutions are required to purchase shares of our Class B Stock as a condition of membership. Our public policy mission is to facilitate and expand the availability of financing for housing and community ~~lending.~~development. We seek to achieve this by providing services to our members in a safe, sound, and profitable manner, and by generating a competitive return on their capital investment.

We manage our business by grouping our products and services within two business segments

Traditional Funding, Investments, and Deposit Products, which include credit services (such as Advances, letters of credit, and lines of credit), investments (including MBS), and deposits; and

MPP, which consists of mortgage loans purchased from our members.

Our primary source of revenues is interest earned on

Advances;

long- and short-term investments; and

mortgage loans acquired from our members.

Our principal source of funding is the proceeds from the sale to the public of Federal Home Loan Bank debt instruments, called COs, which are the joint and several obligation of all 12 Federal Home Loan Banks. We obtain additional funds from deposits, other borrowings, and capital stock.

Our profitability is primarily determined by the interest rate spread between the amount earned on our assets and the amount paid on our share of the COs. We use funding and hedging strategies to mitigate risk. Another important component of our profitability is the earnings on our capital balances. For this component, generally higher rates will tend to generate higher levels of earnings.

Our overall prospects are dependent on economic growth trends to the extent that they influence our members’ demand for wholesale funding and sales of mortgage loans. Our members typically use wholesale funding, in the form of Advances, after they have exhausted their other sources of funding, such as retail deposits and excess liquidity. Also, members may sell mortgage loans to us as part of an overall business strategy. Periods of economic growth tend to lead to significant use of wholesale funds by our members because businesses typically fund expansion by borrowing and/or reducing deposit balances. Conversely, slow economic growth tends to decrease our members’ wholesale borrowing activity. Member demand for Advances and the sale of mortgage loans is also influenced by the steepness of the yield curve, as well as the availability and cost of other sources of wholesale funding.

The Economy and the Financial Services Industry

The credit quality and valuation issues in the housing and mortgage markets began several years ago as low mortgage interest rates fueled an escalation of home values and production. Credit quality issues emerged as low introductory rates were reset to higher market interest rates on adjustable-rate mortgage loans, leaving many borrowers unable to make their mortgage payments. Higher mortgage rates combined with an increasing supply of residential real estate for sale began driving home prices downward. The Federal Reserve Board cut the federal funds rate by 50 basis points at the September Federal Open Market Committee meetings, and by 25 basis points at the October Federal Open Market Committee meetings, bringing the rate to 4.50%, in an attempt to prevent worsening of the credit crunch and jumpstart mortgage activity going into 2008. The Mortgage Bankers Association expects the 30-year fixed rate for mortgages to increase slightly to 6.7% for 2008, and mortgage originations are forecast to decline to $1.9 trillion for 2008, down from $2.7 trillion in 2006 and $2.3 trillion expected in 2007. We will continue to monitor the changing market conditions affecting our mortgage portfolios and the value of collateral pledged by our members.

Highlights of Our Operating Results for the Three and Nine Months Ended ~~March 31,~~September 30, 2007

The market conditions during the third quarter of 2007 influenced our financial results as we responded to our members’ increased need for liquidity. Total assets were ~~$48.7~~$53.6 billion as of ~~March 31,~~September 30, 2007, an increase of ~~$1.8~~$6.7 billion compared to $46.9 billion as of December 31, 2006. This increase was primarily due ~~to the~~to:

an increase in ~~our Short-term investment portfolio,~~short-term investments, consisting of Federal funds sold and Interest-bearing deposits, of ~~$2.3~~$5.2 billion in order to enhance our liquidity position, utilize capital capacity and take advantage of investment ~~opportunities.~~opportunities; and

~~This~~

an increase ~~was~~in Advances of $1.9 billion as a result of increased demand from our members.

These increases were partially offset by the ~~following decreases:~~

~~Held-to-maturity securities decreased by $0.2~~decrease in Mortgage loans held for portfolio of $0.5 billion, mainly due to paydowns on existing mortgages and

~~Advances decreased by $0.2 billion, primarily as~~ a ~~result~~lower volume of ~~a $1.2 billion decrease in Advances to one~~new mortgages.

The overall balance of our ~~members that was partially offset by~~COs, which fluctuates in relation to our Total assets, equaled $49.9 billion at September 30, 2007, an increase of $6.6 billion compared to $43.3 billion at December 31, 2006. This increase enabled us to enhance our liquidity position and support our members’ increased demand for Advances ~~to other members.~~in the current housing market.

A more detailed discussion of ~~these~~the above changes can be found in “Analysis of Financial Condition” herein.

Net ~~interest income~~Interest Income was ~~$47.4~~$51.4 million for the three months ended ~~March 31,~~September 30, 2007, compared to ~~$55.2~~$48.4 million for the same period in 2006. This ~~decrease~~increase is primarily due to ~~narrowing~~an increase in average earning assets, and recent trends in market interest rates that resulted in wider spreads on our short-term investments and MPP portfolio. These increases were partially offset by an increase in Total interest expense due to a larger amount of Mandatorily redeemable capital stock that is classified as a liability, and the maturity of lower coupon liabilities that were replaced with higher coupon liabilities. Going forward, we expect that the replacement of maturing lower coupon liabilities with higher coupon liabilities could continue to compress the spread between the yield on ~~earning~~interest-earning assets and ~~liabilities that resulted from a flatter yield curve and recent trends in market interest rates.~~ liabilities.

Overall, Net Income was ~~$26.5~~$31.6 million for the three months ended ~~March 31,~~September 30, 2007, ~~a decrease~~an increase of ~~$5.7~~$2.7 million or ~~17.7%~~9.6%, compared to ~~$32.2~~$28.9 million for the same period in 2006. ~~The decrease~~This increase was primarily due to the ~~decrease~~increase of ~~$7.8~~$3.0 million in Net ~~interest income,~~Interest Income, as described above, and an increase of ~~$1.4~~$0.9 million in ~~Total~~ Other ~~expense,~~income (loss), partially offset by an increase in Total assessments and transition expenses incurred during the third quarter of ~~$1.6 million in Other income.~~2007. A more detailed discussion of these changes in Net Income can be found in “Results of Operations for the Three Months Ended ~~March 31,~~September 30, 2007, and 2006” herein.

Net Interest Income was $146.3 million for the nine months ended September 30, 2007, compared to $156.2 million for the same period in 2006. This decrease is primarily due to trends in market interest rates, an increase in Total interest expense due to a larger amount of Mandatorily redeemable capital stock that is classified as a liability, and the maturity of lower coupon liabilities during the nine-month period that were replaced with higher coupon liabilities. These decreases were partially offset by the increase in interest-earning assets and the wider spreads realized on our short-term investments. Going forward, we expect that the replacement of maturing lower coupon liabilities with higher coupon liabilities could continue to compress the spread between the yield on interest-earning assets and liabilities.

Overall, Net Income was $84.2 million for the nine months ended September 30, 2007, a decrease of $6.3 million or 6.9%, compared to $90.5 million for the same period in 2006. The decrease was primarily due to the decrease of $9.9 million in Net Interest Income, as described above and a charge of approximately $3.2 million related to the early retirement incentive offered in the fourth quarter of 2006 that was recognized in the first quarter of 2007 and increased amortization of unrecognized prior service costs related to our defined benefit plans. The decrease was partially offset by a decrease of $1.8 million in Total assessments consistent with the lower Net Income and an increase in Other income (loss) of $1.6 million. A more detailed discussion of these changes in Net Income can be found in “Results of Operations for the Nine Months Ended September 30, 2007, and 2006” herein.

On ~~April 13,~~October 19, 2007, we ~~declared~~announced a cash dividend on our Class B-1 stock of 4.50% (annualized) and Class B-2 stock of 3.60% (annualized), based on our results for the ~~first~~third quarter of 2007. During the first ~~three~~nine months of 2007, Retained earnings increased by approximately ~~$3.3~~$19.4 million compared to December 31, 2006, bringing our level of Retained earnings to ~~$169.9~~$186.0 million.

On ~~March~~October 1, 2007, ABN AMRO Holdings NV sold its North American bank holding company, the parent of LaSalle Bank Corporation and its subsidiaries, including our member, LaSalle Bank Midwest, ~~N.A. sold its subsidiary, ABN AMRO Mortgage Group, its U.S.-based wholesale residential mortgage broker origination platform and servicing business~~NA (“LaSalle”) to CitiMortgage. Although we can no longer purchase mortgage loans originated by ABN AMRO Mortgage Group, our mortgage loans from ABN AMRO Mortgage Group of $4.3 billion, representing 43.5% of our mortgage loans outstanding, at par, as of March 31, 2007, will remain outstanding until maturity or prepayment. Further, we can still make Advances to LaSalle Bank Midwest N.A. Although we can still purchase mortgage loans from LaSalle Bank Midwest N.A. and it remains in the retail residential mortgage business, we anticipate that mortgage purchase volume from it will be much less in the future, if any. However, if the acquisition of LaSalle described below is finalized and if the acquirer were to decide to not keep LaSalle’s charter in our district, we would no longer be able to purchase mortgage loans from our member, LaSalle Bank Midwest N.A.

~~On April 23, 2007, ABN AMRO and Barclays announced that an agreement had been reached on the merger of ABN AMRO and Barclays. As part of the merger,~~ Bank of America ~~Corp agreed to acquire~~Corporation, which has no other bank charters in our district. As of November 13, 2007, LaSalle ~~the parent holding company~~remained a member of our ~~member, LaSalle~~ Bank ~~Midwest N.A. This acquisition is expected to be completed prior to the completion~~as its bank charter remains in Michigan. If Bank of the merger and is a condition of the merger. However, legal objections have been raised to this acquisition, and it is not clear if this transaction will occur or if the merger will proceed. If the acquisition of LaSalle is finalized and if the acquirer were to decideAmerica Corporation decides not to keep ~~LaSalle’s~~the LaSalle charter in our district, we would no longer be able to make Advances to or purchase mortgage loans from LaSalle. ~~In addition, we~~However, our current mortgage loans purchased from LaSalle and its affiliates of $4.1 billion, representing 42.9% of our mortgage loans outstanding, at par, as of September 30, 2007, will remain outstanding until maturity or prepayment. We would also be required to repurchase any outstanding capital stock owned by LaSalle noby the later ~~than~~of five years after the date of termination of their charter in our district ~~and~~or the repayment of all outstanding obligations to ~~the Bank.~~us. As of ~~March 31,~~September 30, 2007, we held ~~$4.0~~$3.3 billion par value of Advances to LaSalle, which represented ~~18.1%~~13.7% of our total Advances, at par. LaSalle had a capital stock balance of $0.3 billion as of ~~March 31,~~September 30, 2007, which represented ~~16.4%~~15.9% of our regulatory capital ~~stock.~~

stock balance. At this time, we are unable to predict the impact of ~~this proposed transaction~~the sale of LaSalle on our future operating results. See “Item 1A. Risk ~~Factors~~Factors” in our 2006 Annual Report on Form ~~10-K”~~10-K for more information.

Critical Accounting Policies and Estimates

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 period. We believe the application of our accounting policies on a consistent basis enables us to provide financial statement ~~users~~readers with useful, reliable and timely information about our earnings results, financial position and cash flows. Our management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors we believe to be reasonable under the circumstances. Changes in estimates and assumptions could potentially affect our financial position and results of operations significantly. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our financial statements.

We have identified four accounting policies that we believe are critical because they require management to make subjective judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies ~~are~~are:

accounting for derivatives and hedging activities (SFAS 133);

accounting for premiums and discounts and other costs associated with originating or acquiring mortgage loans and MBS (SFAS 91);

•

provision for credit losses (SFAS 114,Accounting by Creditors for Impairment of a Loan); and

fair value estimates.

A discussion of these critical accounting policies and estimates can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section under the caption “Critical Accounting Policies and Estimates” of our 2006 Annual Report on Form ~~10-K filed on March 30, 2007.~~10-K.

~~Results~~Summary of ~~Operations for the Three Months Ended March 31, 2007, and 2006~~Selected Financial Data

The following table presents a summary of certain financial information as of and for the periods indicated:

Financial Highlights

($ amounts in thousands)


	As of and for the Three Months ended,
	September 30, 2007			June 30, 2007			March 31, 2007			December 31, 2006			September 30, 2006
Selected Statement of Condition Items at Period End
Total assets	$	53,550,309		$	48,942,517		$	48,650,983		$	46,868,904		$	48,318,586
Advances		24,170,125			21,981,605			22,077,482			22,282,257			22,955,961
Mortgage loans held for portfolio, net		9,521,926			9,713,474			9,958,762			10,020,670			9,868,284
Held-to-maturity securities		6,676,653			6,548,528			6,318,598			6,544,392			6,777,476
Federal funds sold		10,420,000			9,057,000			8,720,000			7,324,000			7,718,000
COs
Discount Notes		15,966,504			10,388,267			12,520,976			10,470,607			9,391,109
Bonds		33,912,297			34,737,984			32,272,258			32,843,983			34,744,243
Mandatorily redeemable capital stock		163,471			163,249			151,197			151,332			119,050
Capital stock, Class B-1 putable		1,941,491			1,893,712			1,881,106			1,793,511			1,909,522
Retained earnings		185,985			175,468			169,926			166,622			162,461
Total capital		2,121,143			2,062,680			2,044,429			1,954,714			2,069,776
Quarterly Operating Results
Net Interest Income^.		51,438			47,534			47,366			48,828			48,415
Other income (loss)		1,206			(2,621	)		1,333			115			306
Other expense		9,396			9,190			12,409			11,510			9,333
Total assessments		11,625			9,606			9,787			10,083			10,525
Net Income		31,623			26,117			26,503			27,350			28,863
Other Data
Return on average equity		6.01	%		5.11	%		5.34	%		5.40	%		5.44	%
Return on average assets		0.24	%		0.22	%		0.23	%		0.23	%		0.24	%
Weighted average dividend rate, Class B-1 stock		4.50	%		4.50	%		5.00	%		4.75	%		4.50	%
Dividend payout ratio⁽¹⁾		66.74	%		78.53	%		87.51	%		81.81	%		84.27	%
Total capital ratio (at period end)⁽²⁾		3.96	%		4.21	%		4.20	%		4.17	%		4.28	%
Regulatory capital ratio (at period end)⁽³⁾		4.28	%		4.56	%		4.53	%		4.51	%		4.53	%
Duration gap (in months)		1.6			1.3			1.8			1.6			1.4
Par amount of outstanding COs for all 12 Federal Home Loan Banks	$	1,148,571,404		$	970,857,067		$	951,469,858		$	951,744,643		$	958,023,241

(1)	The dividend payout ratio is calculated by dividing dividends paid in cash and stock by Net Income.

(2)	Total capital ratio represents Total capital divided by Total assets.

(3)	Regulatory capital ratio represents the sum of Capital stock (Class B-1 and B-2 putable), Retained earnings, and Mandatorily redeemable capital stock divided by Total assets.

AsResults of ~~and~~Operations for the Three and Nine Months ~~ended,~~Ended September 30, 2007, and 2006

March 31,
2007

December 31,
2006

September 30,
2006

June 30,
2006

March 31,
2006
Selected Statement of Condition Items at Period End
Total assets    $  48,650,983      $  46,868,904      $  48,318,586      $  49,665,337      $  48,505,677
Advances    22,077,482      22,282,257      22,955,961      23,362,716      22,734,398
Mortgage loans held for portfolio, net    9,958,762      10,020,670      9,868,284      9,949,095      9,866,710
Held-to-maturity securities    6,318,598      6,544,392      6,777,476      6,848,536      6,781,905
Federal funds sold    8,720,000      7,324,000      7,718,000      7,726,000      7,576,000
COs
      Discount Notes    12,520,976      10,470,607      9,391,109      11,407,244      9,347,654
      CO Bonds    32,272,258      32,843,983      34,744,243      34,233,286      34,721,755
Mandatorily Redeemable Capital Stock    151,197      151,332      119,050      13,308      8,826
Capital Stock, Class B-1 putable    1,881,106      1,793,511      1,909,522      2,173,298      2,162,368
Retained earnings    169,926      166,622      162,461      158,266      155,473
Total capital    2,044,429      1,954,714      2,069,776      2,329,357      2,315,634
Quarterly Operating Results
Net interest income^.    47,366      48,828      48,415      52,566      55,192
Other income (loss)    1,333      115      306      (1,710)      (300)
Other expense    12,409      11,510      9,333      10,776      11,024
Total assessments    9,787      10,083      10,525      10,646      11,666
Net income    26,503      27,350      28,863      29,434      32,202
Other Data
Par amount of outstanding COs for all 12 Federal Home Loan Banks    $951,469,858      $951,744,643      $958,023,241      $958,569,973      $935,827,908
Return on average equity    5.34%      5.40%      5.44%      5.09%      5.66%
Return on average assets    0.23%      0.23%      0.24%      0.24%      0.28%
Weighted average dividend rate, Class B-1 stock    5.00%      4.75%      4.50%      5.00%      4.75%
Dividend payout ratio⁽¹⁾    87.51%      81.81%      84.27%      90.42%      79.94%
Total capital ratio (at period end)⁽²⁾    4.20%      4.17%      4.28%      4.69%      4.77%
Regulatory capital ratio (at period end)⁽³⁾    4.53%      4.51%      4.53%      4.72%      4.80%
Duration gap (in months)    1.8      1.6      1.4      1.8      2.2

~~(1) The dividend payout ratio is calculated by dividing dividends paid in cash and stock by Net Income.~~

~~(2) Total capital ratio represents Total capital divided by Total assets.~~

~~(3) Regulatory capital ratio represents the sum of Capital stock, Class B-1 and B-2 putable, Retained earnings, and Mandatorily redeemable capital stock divided by Total assets.~~

The following table presents average balances, interest, and average rates of major earning asset categories and the sources funding those earning assets for the three months ended ~~March 31,~~September 30, 2007, and 2006:

Average Balances, Interest and Average Rates

($ amounts in thousands)


	Three months ended March 31,						Three months ended September 30,
	2007			2006			2007							2006
	Average Balance	Interest	Avg. Rate	Average Balance	Interest	Avg. Rate	Average Balance			Interest		Avg. Rate⁽³⁾		Average Balance			Interest		Avg. Rate⁽³⁾
Assets

Interest-bearing deposits	$ 397,954	$ 5,030	5.13%	$ 815,369	$ 8,896	4.42%	$	1,923,577		$	25,769	5.31	%	$	1,061,962		$	14,494	5.41	%
Federal funds sold	7,451,867	97,602	5.31%	4,648,811	51,284	4.47%		9,583,717			126,817	5.25	%		7,448,913			100,120	5.33	%
Trading security⁽¹⁾	-	-	-	36,878	611	6.72%		—			—	—			15,242			212	5.52	%
Held-to-maturity securities	6,390,318	74,655	4.74%	6,821,467	76,174	4.53%		6,551,182			77,257	4.68	%		6,838,882			80,854	4.69	%
Advances⁽²⁾	22,936,530	307,165	5.43%	23,702,546	273,059	4.67%		23,417,275			320,080	5.42	%		22,544,025			307,405	5.41	%
Mortgage loans held for portfolio	10,010,074	130,995	5.31%	9,674,560	125,953	5.28%		9,614,511			125,612	5.18	%		9,941,417			126,093	5.03	%
Loans to other Federal Home Loan Banks	1,111	15	5.48%	-	-	-		5,739			77	5.32	%		543			7	5.11	%

Total Interest-earning assets	47,187,854	615,462	5.29%	45,699,631	535,977	4.76%
Total interest-earning assets								51,096,001			675,612	5.25	%		47,850,984			629,185	5.22	%
Other assets	373,136			392,618				408,186							428,462

Total assets	$47,560,990			$46,092,249			$	51,504,187						$	48,279,446


Liabilities and Capital
Interest-bearing deposits	$ 1,007,738	12,685	5.11%	$ 1,152,424	12,413	4.37%	$	806,654		$	9,946	4.89	%	$	1,185,951			15,255	5.10	%
Loans from other Federal Home Loan Banks								54			1	7.35	%		2,250			31	5.47	%
Other borrowings	-	-	-	833	10	4.87%		109			2	7.28	%		3,165			43	5.39	%
Discount Notes	11,482,674	148,170	5.23%	6,847,116	74,223	4.40%		12,937,530			165,098	5.06	%		9,846,212			129,303	5.21	%
CO Bonds⁽²⁾	32,350,223	405,290	5.08%	35,028,080	393,792	4.56%		34,788,292			447,283	5.10	%		34,371,073			435,212	5.02	%
Mandatorily redeemable capital stock	151,230	1,951	5.23%	28,513	347	4.94%		163,296			1,844	4.48	%		90,977			926	4.04	%

Total interest-bearing liabilities	44,991,865	568,096	5.12%	43,056,966	480,785	4.53%		48,695,935			624,174	5.09	%		45,499,628			580,770	5.06	%
Other liabilities	557,642			729,582				719,376							673,117
Total capital	2,011,483			2,305,701				2,088,876							2,106,701

Total liabilities and capital	$47,560,990			$46,092,249			$	51,504,187						$	48,279,446

Net interest income and net spread on interest-earning assets less interest-bearing liabilities		$ 47,366	0.17%		$55,192	0.23%
Net Interest Income and net spread on interest-earning assets less interest-bearing liabilities										$	51,438	0.16	%				$	48,415	0.16	%

Net interest margin	0.41%			0.49%				0.40	%						0.40	%

Average interest-earning assets to interest-bearing liabilities	1.05			1.06				1.05							1.05

~~(1)~~
(1) Interest income and average rates exclude the effect of associated interest rate exchange agreements as the net interest expense associated with such agreements is recorded in Other income (loss) in the Statements of Income. Including the effects of these interest rate exchange agreements, the average rate on the trading security was 5.50% for the three months ended September 30, 2006.

(2)	Interest income/expense and average rates include the effect of associated interest rate exchange agreements to the extent such agreements qualify as fair value hedges in accordance with SFAS 133.

(3) The average rates presented in this table have been calculated using the rounded numbers presented in this table. Using unrounded numbers, the average rates for Loans from other Federal Home Loan Banks for the three months ended September 30, 2007, and September 30, 2006, were 5.39% and 5.54%, respectively, and for Other borrowings were 5.51%, and 5.34%, respectively.

The following table presents average balances, interest, and average rates ~~exclude~~of major earning asset categories and the effect of associated interest rate exchange agreements as the net interest expense associated with such agreements is recorded in Other income (loss) in the Statement of Income. Including the effects of these interest rate exchange agreements, the average rate on the trading security was 4.72%sources funding those earning assets for the ~~three~~nine months ended ~~March 31, 2006.~~September 30, 2007, and 2006:

~~(2)~~Average Balances, Interest ~~income/expense~~ and ~~average rates include the effect of associated interest rate exchange agreements to the extent such agreements qualify for SFAS 133 fair value hedge accounting.~~

Average Rates

($ amounts in thousands)


	Nine months ended September 30,
	2007							2006
	Average Balance			Interest		Avg. Rate⁽³⁾		Average Balance			Interest		Avg. Rate⁽³⁾
Assets
Interest-bearing deposits	$	1,240,109		$	48,972	5.28	%	$	1,070,824		$	39,708	4.96	%
Federal funds sold		8,584,971			339,458	5.29	%		6,403,070			238,401	4.98	%
Trading security⁽¹⁾		—			—	—			27,036			1,305	6.45	%
Held-to-maturity securities		6,468,788			224,827	4.65	%		6,825,638			233,137	4.57	%
Advances⁽²⁾		22,741,480			921,584	5.42	%		23,036,292			870,049	5.05	%
Mortgage loans held for portfolio		9,821,037			387,980	5.28	%		9,853,635			381,929	5.18	%
Loans to other Federal Home Loan Banks		2,300			92	5.35	%		366			14	5.11	%

Total interest-earning assets		48,858,685			1,922,913	5.26	%		47,216,861			1,764,543	5.00	%
Other assets		386,616							421,014

Total assets	$	49,245,301						$	47,637,875

Liabilities and Capital
Interest-bearing deposits	$	949,823		$	35,803	5.04	%		1,189,241			42,334	4.76	%
Loans from other Federal Home Loan Banks		18			1	7.43	%		941			38	5.40	%
Other borrowings		37			2	7.23	%		2,483			95	5.12	%
Discount Notes		11,868,459			458,338	5.16	%		8,724,862			318,424	4.88	%
CO Bonds⁽²⁾		33,573,191			1,277,064	5.09	%		34,711,171			1,246,066	4.80	%
Mandatorily redeemable capital stock		157,404			5,367	4.56	%		43,772			1,413	4.32	%

Total interest-bearing liabilities		46,548,932			1,776,575	5.10	%		44,672,470			1,608,370	4.81	%
Other liabilities		645,709							721,789
Total capital		2,050,660							2,243,616

Total liabilities and capital	$	49,245,301						$	47,637,875

Net Interest Income and net spread on interest-earning assets less interest-bearing liabilities				$	146,338	0.16	%				$	156,173	0.19	%

Net interest margin		0.40	%						0.44	%

Average interest-earning assets to interest-bearing liabilities		1.05							1.06

(1)

Interest income and average rates exclude the effect of associated interest rate exchange agreements as the net interest expense associated with such agreements is recorded in Other income (loss) in the Statements of Income. Including the effects of these interest rate exchange agreements, the average rate on the trading security was 5.14% for the nine months ended September 30, 2006.

(2) Interest income/expense and average rates include the effect of associated interest rate exchange agreements to the extent such agreements qualify as fair value hedges in accordance with SFAS 133.

(3)

The average rates presented in this table have been calculated using the rounded numbers presented in this table. Using unrounded numbers, the average rates for the nine months ended September 30, 2007, and 2006, for Loans from other Federal Home Loan Banks were 5.39% and 5.40%, respectively, and for Other borrowings were 6.35% and 5.10%, respectively.

Results of Operations for the Three Months Ended ~~March 31,~~September 30, 2007, and 2006

Net Income

Net Income totaled ~~$26.5~~$31.6 million for the three months ended ~~March 31,~~September 30, 2007, ~~a decrease~~an increase of ~~17.7%,~~9.6% compared to ~~$32.2~~$28.9 million for the three months ended ~~March 31,~~September 30, 2006. The following factors contributed to this ~~decrease~~increase in Net ~~income:~~Income:

Net ~~interest income decreased~~Interest Income increased by ~~$7.8~~$3.0 million for the three months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006. The factors impacting Net ~~interest income~~Interest Income are addressed separately below under “Net Interest ~~Income.~~Income,” and

Other expenses increased by $1.4 million for the three months ended March 31, 2007, compared to the same period in 2006, mainly due to increased Compensation and benefits related to the early retirement incentive offered in the fourth quarter of 2006, partially offset by lower officer salaries, reduced incentive compensation accruals, and reduced Other operating expenses due to the cost-cutting measures undertaken in 2006.

~~These factors were partially offset by the following:~~

Other income (loss) increased by ~~$1.6~~$0.9 million for the three months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006, primarily due to fair value adjustments made in accordance with SFAS 133 that resulted in an increase in the Net gain (loss) on derivatives and hedging activities, and an increase from the Net ~~loss~~gain (loss) on trading security because the trading security ~~matured.~~was paid off in 2006.

These factors were partially offset by the following:

transition expenses incurred in the third quarter of 2007; and

the increase in Total assessments for AHP and REFCORP of $1.1 million for the three months ended September 30, 2007, compared to the same period in 2006 consistent with the higher level of Income Before Assessments.

Net Interest Income

Net Interest Income was $51.4 million for the three months ended September 30, 2007, an increase of $3.0 million compared to the same period in 2006. The following components comprised the change in Net Interest Income:

•

Effect of the change in the spread and average earning assets - The spread between the yield on earning assets and liabilities was unchanged, at 0.16% for both the three months ended September 30, 2007, and the three months ended September 30, 2006. Our average interest-earning assets increased by approximately $3.2 billion at September 30, 2007, compared to September 30, 2006. The imputed increase in Net Interest Income due to this increase was approximately $2.3 million.

•

Effect of the change in the cost of funds and average capital and net non-earning assets and non-costing liabilities - Our average cost of funds increased by 3 basis points for the three months ended September 30, 2007, compared to the three months ended September 30, 2006, from 5.06% to 5.09%. Since we earn interest on the investment of capital and any non-costing liabilities, Net Interest Income is positively impacted as interest rates rise, and we earn a higher return on our net capital investment. The imputed increase in Net Interest Income due to the increase in the cost of funds was approximately $0.1 million. Likewise, as average Net equity increases or decreases, this also leads to a corresponding change in Net Interest Income. Average Net equity increased by $49 million from September 30, 2006, to September 30, 2007. Earnings from our net capital investment can be computed as the average cost of interest-bearing liabilities multiplied by the difference between the amount of interest-earning assets and the amount of interest-bearing liabilities. The imputed increase in Net Interest Income due to the increase in our Net equity was approximately $0.6 million.

Results of Operations for the Nine Months Ended September 30, 2007, and 2006

Net Income

Net Income totaled $84.2 million for the nine months ended September 30, 2007, a decrease of 6.9%, compared to $90.5 million for the nine months ended September 30, 2006. This decrease in Net Income was primarily caused by the following:

a decrease in Net Interest Income of $9.9 million for the nine months ended September 30, 2007, compared to the same period in 2006, which is addressed separately below under “Net Interest Income,” and

a charge of approximately $3.2 million related to the early retirement incentive offered in the fourth quarter of 2006 that was recognized in the first quarter of 2007 and increased amortization of unrecognized prior service costs related to our defined benefit plans.

These factors were partially offset by the following:

Other income (loss) increased by $1.6 million for the nine months ended September 30, 2007, compared to the same period in 2006, primarily due to fair value adjustments related to MPP hedges made in accordance with SFAS 133 that resulted in an increase from the Net gain (loss) on derivatives and hedging activities, and an increase from the Net gain (loss) on trading security because the trading security was paid off in 2006; and

Total assessments for AHP and REFCORP decreased by ~~$1.9~~$1.8 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006 consistent with the lower level of Income Before Assessments.

Net Interest Income

Net ~~interest income~~Interest Income was ~~$47.4~~$146.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, a decrease of ~~$7.8~~$9.9 million compared to the same period in 2006. The following components ~~comprise~~comprised the change in Net ~~interest income:~~Interest Income:

•

Effect of the change in the spread onand average net earning assets - The spread between the yield on earning assets and liabilities decreased to ~~0.17%~~0.16% for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, compared to ~~0.23%~~0.19% for the ~~three~~nine months ended ~~March 31,~~September 30, 2006, primarily due to narrowing of the ~~flattening~~spread between the yield on earning assets and liabilities that resulted from a flatter yield curve, ~~and~~ recent trends in market interest ~~rates.~~rates and the maturity of lower coupon liabilities during the nine-month period that were replaced with higher coupon liabilities. The imputed decrease in Net ~~interest income~~Interest Income due to the decreased spread ~~partially offset~~was approximately $8.6 million. Our average interest-earning assets increased by ~~the~~approximately $1.6 billion at September 30, 2007, compared to September 30, 2006. The imputed increase in ~~average net earning assets,~~Net Interest Income due to this increase was approximately ~~$6.1~~$2.2 million.

•

Effect of the change in the cost of funds onand average capital and net non-earning assets and non-costing liabilities - Our average cost of funds increased by 5929 basis points for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2006, from ~~4.53%~~4.81% to ~~5.12%~~5.10%. Since we earn interest on the investment of capital and any non-costing liabilities, Net ~~interest income~~Interest Income is positively impacted as interest rates rise, and we earn a higher return on our net capital investment. The imputed increase in Net Interest Income due to the increase in the cost of funds was approximately $5.3 million. Likewise, as average Net equity increases or decreases, this also leads to a corresponding change in Net Interest Income. Average Net equity decreased by $235 million from September 30, 2006 to September 30, 2007. Earnings from our net capital investment can be computed as the average cost of interest-bearing liabilities ~~(our cost of funds plus spread)~~ multiplied by the difference between the amount of interest-earning assets and the amount of interest-bearing liabilities. The imputed decrease in Net ~~interest income~~Interest Income due to ~~the increase in the cost of funds and~~ the decrease in our ~~net~~Net equity was approximately ~~$1.8~~$8.8 million.

Changes in both volume and interest rates influence changes in Net ~~interest income~~Interest Income and ~~net~~Net interest margin. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the volume and rate changes. The following table summarizes changes in interest income and interest expense between the three and nine months ended ~~March 31,~~September 30, 2007, and 2006:

Rate and Volume Analysis

($ amounts in thousands)


	For the Three Months ended, March 31,
	2007 over 2006			For the Three Months ended September 30 2007 vs. 2006									For the Nine Months ended September 30 2007 vs. 2006
	Volume	Rate	Total	Volume			Rate			Total			Volume			Rate			Total
Increase (decrease) in interest income
Advances	$(9,063)	$43,169	$34,106	$	11,934		$	741		$	12,675		$	(11,256	)	$	62,791		$	51,535
Interest-bearing deposits	(5,105)	1,239	(3,866)		11,547			(272	)		11,275			6,566			2,698			9,264
Federal funds sold	35,341	10,977	46,318		28,272			(1,575	)		26,697			85,499			15,558			101,057
Trading security	(611)	-	(611)		(212	)		—			(212	)		(1,305	)		—			(1,305	)
Held-to-maturity securities	(4,943)	3,424	(1,519)		(3,393	)		(204	)		(3,597	)		(12,349	)		4,039			(8,310	)
Mortgage loans held for portfolio	4,388	654	5,042		(4,211	)		3,730			(481	)		(1,267	)		7,318			6,051
Loans to other Federal Home Loan Banks	15	-	15		70			—			70			78			—			78

Total	20,022	59,463	79,485		44,007			2,420			46,427			65,966			92,404			158,370

Increase (decrease) in interest expense
Discount Notes	57,716	16,231	73,947		39,544			(3,749	)		35,795			120,473			19,441			139,914
CO Bonds	(31,484)	42,982	11,498		5,319			6,752			12,071			(41,715	)		72,713			30,998
Deposits	(1,671)	1,943	272
Interest-bearing deposits					(4,700	)		(609	)		(5,309	)		(8,911	)		2,380			(6,531	)
Mandatorily redeemable capital stock	1,582	22	1,604		807			111			918			3,870			84			3,954
Loans from other Federal Home Loan Banks					(38	)		8			(30	)		(47	)		10			(37	)
Other borrowings	(10)	-	(10)		(52	)		11			(41	)		(121	)		28			(93	)

Total	26,133	61,178	87,311		40,880			2,524			43,404			73,549			94,656			168,205

Increase (decrease) in Net interest income	$(6,111)	$ (1,715)	$ (7,826)
Increase (decrease) in Net Interest Income				$	3,127		$	(104	)	$	3,023		$	(7,583	)	$	(2,252	)	$	(9,835	)

Earnings Analysis

The following table presents changes in the components of our ~~earnings~~net income for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006:

Change in Earnings Components

($ amounts in thousands)


	For the Three Months ended March 31,
	2007 vs. 2006		For the Three Months ended September 30, 2007 vs. 2006				For the Nine Months ended September 30, 2007 vs. 2006
	$ change	% change	$ change		% change		$ change			% change
Increase (decrease) in
Interest income	$79,485	14.8%	$	46,427	7.4	%	$	158,370		9.0	%
Interest expense	87,311	18.2%		43,404	7.5	%		168,205		10.5	%

Net interest income	(7,826)	(14.2)%
Net Interest Income				3,023	6.2	%		(9,835	)	(6.3	)%

Other income (loss)	1,633	544.3%		900	294.1	%		1,622		95.2	%
Other expense	1,385	12.6%		63	0.7	%		(138	)	(0.4	)%

Income before assessments	(7,578)	(17.3)%
Income Before Assessments				3,860	9.8	%		(8,075	)	(6.5	)%

AHP	(455)	(12.6)%		410	12.4	%		(255	)	(2.5	)%
REFCORP	(1,424)	(17.7)%		690	9.6	%		(1,564	)	(6.9	)%

Total assessments	(1,879)	(16.1)%		1,100	10.5	%		(1,819	)	(5.5	)%

Net income	$(5,699)	(17.7)%
Net Income			$	2,760	9.6	%	$	(6,256	)	(6.9	)%

Other Income

The following table presents the components of Other income (loss) for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006, and an analysis of the changes in the components of these income items:

Analysis of Other Income (Loss)

($ amounts in thousands)


	For the Three Months ended March 31,				For the Three Months ended September 30,										For the Nine Months ended September 30,
	2007	2006	2007 vs. 2006							2007 vs. 2006											2007 vs. 2006
	$ Amount	$ Amount	$ Change	% change	2007		2006			$ Amt			% change		2007			2006			$ Amt			% change
Service fees	$ 335	$ 343	$ (8)	(2.3)%	$	344	$	356		$	(12	)	(3.4	)%	$	1,021		$	1,048		$	(27	)	(2.6	)%
Net loss on trading security	-	(336)	336	100.0%
Net gain (loss) on trading security						—		(134	)		134		100.0	%		—			(746	)		746		100.0	%
Net gain (loss) on derivatives and hedging activities	722	(648)	1,370	211.4%		498		(324	)		822		253.7	%		(2,185	)		(3,208	)		1,023		31.9	%
Other, net	276	341	(65)	(19.1)%		364		408			(44	)	(10.8	)%		1,082			1,202			(120	)	(10.0	)%

Total Other income (loss)	$1,333	$(300)	$1,633	544.3%
Total other income (loss)					$	1,206	$	306		$	900		294.1	%	$	(82	)	$	(1,704	)	$	1,622		95.2	%

The increase in Other income (loss) for the three months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006 was primarily due to fair value adjustments made in accordance with SFAS 133 that resulted in an increase in the Net gain (loss) on derivatives and hedging activities, and, to a lesser extent, an increase in income from the Net ~~loss~~gain (loss) on trading security because the trading security ~~has been~~was paid ~~off.~~off in 2006.

The increase in Other income (loss) for the nine months ended September 30, 2007, compared to the same period in 2006 was primarily due to fair value adjustments made in accordance with SFAS 133 that resulted in an increase in the Net gain (loss) on derivatives and hedging activities for the first nine months of 2007 compared to the first nine months of 2006 and an increase from the Net gain (loss) on trading security because the trading security was paid off in 2006.

The following tables present the components of the change in the Net gain (loss) on derivatives and hedging activities by type of hedge and type of product:

Components of Net Gain (Loss) on Derivatives and Hedging Activities

By Hedge

($ amounts in thousands)


	For the Three Months ended March 31,
	2007	2006	For the Three Months ended September 30,						For the Nine Months ended September 30,
			2007			2006			2007			2006
Fair Value Hedges
Net gain (loss) due to ineffectiveness on
Advances	$(215)	$(532)	$	2,305		$	642		$	866		$	(293	)
MPP	122	308		—			5			118			684
CO Bonds	25	646		(2,684	)		(636	)		(3,179	)		(1,252	)

Net gain (loss) on fair value hedges	(68)	422		(379	)		11			(2,195	)		(861	)

Non SFAS 133/Economic Hedges
Net interest receipt (payment) settlements^*
Net interest receipt (payment) settlements⁽¹⁾
Advances	2	21		—			2			4			23
Investments	2	(178)		—			5			3			(274	)
CO Bonds	(547)	(741)		(214	)		(276	)		(1,085	)		(1,031	)

Net settlements	(543)	(898)		(214	)		(269	)		(1,078	)		(1,282	)

SFAS 133 derivative fair value gain (loss) adjustments
Advances	(3)	(12)		—			(7	)		(4	)		(11	)
Investments	1	173		(4	)		7			(6	)		184
CO Bonds	1,507	487		1,231			243			1,466			474
MPP	(172)	(820)		(136	)		(309	)		(368	)		(1,712	)

Fair value adjustments	1,333	(172)		1,091			(66	)		1,088			(1,065	)

Net gain (loss) on economic hedges	790	(1,070)		877			(335	)		10			(2,347	)

Net gain (loss) on derivatives and hedging activities	$722	$(648)	$	498		$	(324	)	$	(2,185	)	$	(3,208	)

*(1)	Net settlements represent the net interest payments or receipts on interest rate exchange agreements for hedges not receiving fair value hedge accounting.

Net Gain (Loss) on Derivatives and Hedging Activities

By Product

($ amounts in thousands)


	For the Three Months ended March 31,
	2007	2006	For the Three Months ended September 30,						For the Nine Months ended September 30,
			2007			2006			2007			2006
Advances	$(216)	$ (523)	$	2,305		$	637		$	866		$	(281	)
Investments	3	(5)		(4	)		12			(3	)		(90	)
MPP	(50)	(512)		(136	)		(304	)		(250	)		(1,028	)
CO Bonds	985	392		(1,667	)		(669	)		(2,798	)		(1,809	)

Net gain (loss) on derivatives and hedging activities	$ 722	$ (648)	$	498		$	(324	)	$	(2,185	)	$	(3,208	)

Other Expense

The following table presents a breakdown of Total ~~Other~~other expense for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006, and an analysis of the changes in the components of these expenses:

Analysis of Other Expense

($ amounts in thousands)


	For the Three Months ended March 31,					For the Three Months ended September 30,									For the Nine Months ended September 30,
	2007	2006	2007 vs. 2006							2007 vs. 2006									2007 vs. 2006
	$ Amount	$ Amount	$ Change	% change		2007		2006		$ Amt			% change		2007		2006		$ Amt			% change
Compensation and benefits	$ 8,914	$ 7,015	$1,899	27.1	%	$	6,056	$	5,883	$	173		2.9	%	$	20,669	$	19,657	$	1,012		5.1	%
Other operating expenses	2,133	2,710	(577)	(21.3)	%		2,220		2,151		69		3.2	%		6,666		7,494		(828	)	(11.0	)%
Finance Board and Office of Finance expenses	819	753	66	8.8	%
Finance Board and Office of Finance Expenses							738		759		(21	)	(2.8	)%		2,344		2,344		—		—	%
Other	543	546	(3)	(0.5)	%		382		540		(158	)	(29.3	)%		1,316		1,638		(322	)	(19.7	)%

Total Other expense	$12,409	$11,024	$1,385	12.6	%
Total other expense						$	9,396	$	9,333	$	63		0.7	%	$	30,995	$	31,133	$	(138	)	(0.4	)%

The increase in Total ~~Other~~other expense for the three months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006, was primarily due to ~~increased~~higher Compensation and benefits as a result of an increased accrual for incentive compensation payouts, increased amortization of unrecognized prior service costs related to our defined benefit plans, and other transition expenses incurred during the third quarter of 2007. These increases in expenses were partially offset by decreased salaries resulting from a smaller workforce after certain employees accepted the early retirement incentive offered in the fourth quarter of 2006 and a reduction in force that occurred in the first quarter of 2007.

This increase in Total other expense was partially offset by lower master servicing fees for MPP that were renegotiated during the second quarter of 2007.

The decrease in Total other expense for the nine months ended September 30, 2007, compared to the same period in 2006, was primarily due to:

lower Other operating expenses from the cost-cutting measures initiated in 2006 that resulted in a smaller workforce, and

lower master servicing fees for MPP that were renegotiated during the second quarter of 2007.

These decreases were partially offset by higher Compensation and benefits resulting from a $3.2 million charge incurred in the first quarter of 2007 related to the early retirement incentive offered in the fourth quarter of 2006 and increased amortization of unrecognized prior service costs related to our defined benefit plans. These increased Compensation and benefits expenses were partially offset by ~~lower officer salaries and~~a reduced incentive compensation ~~accruals,~~accrual for the first three quarters of 2007 and ~~reduced Other operating expenses due to~~decreased salaries resulting from a smaller workforce after certain employees accepted the ~~cost-cutting measures undertaken~~early retirement incentive offered in ~~2006.~~the fourth quarter of 2006 and a reduction in force that occurred in the first quarter of 2007.

AHP and REFCORP Payments

Although the Federal Home Loan Banks are not subject to federal or state income taxes, the financial obligations of AHP contributions and REFCORP payments are statutorily required.

AHP. The Federal Home Loan Banks are required to contribute, in the aggregate, the greater of $100 million or 10% of their ~~net earnings,~~Net Income, before interest expense for mandatorily redeemable capital stock that is classified as debt, and after the REFCORP assessments to fund the AHP. The AHP expense for the three and nine months ended ~~March 31,~~September 30, 2007, was ~~$3.16~~$3.7 million and $10.0 million, respectively, compared to ~~$3.62~~$3.3 million and $10.2 million, respectively, for the same ~~period~~periods in 2006.

REFCORP.With the Financial Services Modernization Act of 1999, Congress established a fixed payment of 20% of Net Income after the AHP obligation as the REFCORP payment beginning in 2000 for each Federal Home Loan Bank. The law also calls for an adjustment to be made to the total number of REFCORP payments due in future years so that, on a present value basis, the combined REFCORP payments of all 12 Federal Home Loan Banks are equal in amount to what had been required under the previous calculation method. The 20% fixed percentage REFCORP rate applied to earnings resulted in expenses of ~~$6.63~~$7.9 million and $21.1 million for the three and nine months ended ~~March 31,~~September 30, 2007, respectively, compared to ~~$8.05~~$7.2 million and $22.6 million, respectively, for the same ~~period~~periods in 2006.

Business Segments

We manage our business by grouping the income and expenses from our products and services within two business segments:

~~Traditional Funding, Investments~~ TFIDP and ~~Deposit Products~~ which includes the effects of premium and discount amortization and the impact of net interest settlements related to interest rate exchange agreements, and interest income on Advances, investments, and the borrowing costs related to those assets. It also includes the borrowing costs related to holding Deposit products for members and other miscellaneous borrowings as well as all other miscellaneous income and expense not associated with the MPP.

~~MPP~~which is derived primarily from the difference, or spread, between the net yield on mortgage loans, including the direct effects of premium and discount amortization in accordance with SFAS 91, and the borrowing costs related to those loans. Direct MPP expenses are also included.

The following tables set forth our financial performance by operating segment for the three and nine months ended ~~March 31,~~September 30, 2007, and 2006:

Traditional Funding, Investments and Deposit Products

($ amounts in thousands)


	For the Three Months ended March 31,		For the Three Months ended September 30,				For the Nine Months ended September 30,
	2007	2006	2007		2006		2007		2006

Net interest income	$36,765	$39,894
Net Interest Income			$	42,066	$	41,124	$	113,460	$	120,708
Other income (loss)	1,383	212		1,342		609		168		(676	)
Other expenses	11,537	10,012		8,646		8,391		28,711		28,229

Income Before Assessments	26,611	30,094		34,762		33,342		84,917		91,803

AHP	2,371	2,492		3,026		2,815		7,480		7,638
REFCORP	4,848	5,520		6,348		6,106		15,488		16,833

Total assessments	7,219	8,012		9,374		8,921		22,968		24,471

Net Income	$19,392	$22,082	$	25,388	$	24,421	$	61,949	$	67,332

The ~~decrease~~increase in Net Income for TFIDP of ~~$2.7~~$1.0 million for the three months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006, was primarily due to the following factors:

~~a decrease~~an increase of ~~$3.1~~$0.9 million in Net ~~interest income~~Interest Income resulting from ~~narrower spreads on MBS that were caused by the flatter yield curve~~higher interest-earning assets and higher net equity and recent trends in market interest rates ~~and,~~that have resulted in wider spreads on short-term investments, partially offset by an increase in Total interest expense due to a ~~lesser extent,~~larger amount of Mandatorily redeemable capital stock that is classified as a ~~decline in spreads on Advances,~~liability; and

an increase in Other ~~expenses~~income (loss) of ~~$1.5~~$0.7 million ~~that is described in greater detail in “Other expense” herein.~~

~~These decreases were partially offset by increased Other income~~ due to fair value adjustments made in accordance with SFAS 133 that resulted in an increase in the Net gain (loss) on derivatives and hedging ~~activities.~~activities, and an increase from the Net gain (loss) on trading security because the trading security was paid off in 2006.

These increases were partially offset by:

an increase in Other expenses of $0.3 million that is described in greater detail in “Other Expense” herein; and

an increase in Total assessments of $0.5 million that is consistent with the higher level of Income Before Assessments.

The decrease in Net Income for TFIDP of $5.4 million for the nine months ended September 30, 2007, compared to the same period in 2006, was primarily due to:

a decrease of $7.2 million in Net Interest Income resulting from narrower spreads on MBS, partially offset by increased spreads on short-term investments that were caused by recent trends in market interest rates, and an increase in Total interest expense due to a larger amount of Mandatorily redeemable capital stock that is classified as a liability; and

an increase in Other expenses of $0.5 million that is described in more detail in “Other Expense” herein.

This decrease was partially offset by:

an increase in Other income (loss) of $0.8 million due to fair value adjustments made in accordance with SFAS 133 that resulted in an increase in the Net gain (loss) on derivatives and hedging activities for the first nine months of 2007 compared to the first nine months of 2006 and an increase from the Net gain (loss) on trading security because the trading security has been paid off; and

a decrease in Total assessments of $1.5 million that is consistent with the lower Income Before Assessments.

MPP

($ amounts in thousands)


	For the Three Months ended March 31,		For the Three Months ended September 30,						For the Nine Months ended September 30,
	2007	2006	2007			2006			2007			2006

Net interest income	$10,601	$15,298
Net Interest Income			$	9,372		$	7,291		$	32,878		$	35,465
Other income (loss)	(50)	(512)		(136	)		(303	)		(250	)		(1,028	)
Other expenses	872	1,012		750			942			2,284			2,904

Income Before Assessments	9,679	13,774		8,486			6,046			30,344			31,533

AHP	790	1,124		693			494			2,477			2,574
REFCORP	1,778	2,530		1,558			1,110			5,573			5,792

Total assessments	2,568	3,654		2,251			1,604			8,050			8,366

Net Income	$ 7,111	$10,120	$	6,235		$	4,442		$	22,294		$	23,167

The increase in Net Income for MPP of $1.8 million for the three months ended September 30, 2007, compared to the same period in 2006, was primarily due to:

an increase in Net Interest Income of $2.1 million primarily due to recent trends in market interest rates that resulted in a decrease in amortization of SFAS 91 premium and SFAS 133 basis adjustments, partially offset by the maturity of lower coupon liabilities that were replaced with higher coupon liabilities;

a decrease of $0.2 million in Other expenses resulting from lower master servicing fees for MPP that were renegotiated during the second quarter of 2007 and reduced Other operating expenses due to the cost-cutting measures initiated in 2006; and

an increase of $0.2 million in Other income (loss) as a result of the loss of our largest MPP sellers resulting in a decrease in mortgage loans purchased and a corresponding reduction in the fair value loss adjustments made in accordance with SFAS 133 related to MPP hedges and commitments that resulted in an increase in the Net gain (loss) on derivatives and hedging activities.

These increases were partially offset by an increase in Total assessments of $0.6 million, consistent with the higher level of Income Before Assessments.

The decrease in Net Income for MPP of ~~$3.0~~$0.9 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, compared to the same period in 2006, was primarily due to a decrease of ~~$4.7~~$2.6 million in Net ~~interest income~~Interest Income that resulted from narrower spreads on MPP loans, ~~that were caused~~partially offset by ~~the flatter yield curve and recent trends~~a decrease in ~~market interest rates and accelerated~~SFAS 91 amortization of premium and SFAS 133 basis ~~adjustments.~~

adjustments, that were caused by recent trends in market interest rates.

The decrease in Net Interest Income was partially offset by the following factors:

an increase in Other income (loss) of $0.8 million due to the loss of our largest MPP sellers, which resulted in a decrease in mortgage loans purchased and a corresponding reduction in the fair value loss adjustments made in accordance with SFAS 133 related to MPP hedges and commitments that resulted in an increase in the Net gain (loss) on derivatives and hedging;

a decrease in Other expense of $0.6 million due to lower master servicing fees for MPP that were renegotiated during the second quarter of 2007 and reduced costs due to cost-cutting measures initiated in 2006; and

a decrease in Total assessments of $0.3 million that is consistent with the lower Income Before Assessments.

Analysis of Financial Condition

Advances

Advances at par ~~decreased~~increased by ~~$0.3~~$1.7 billion to ~~$22.1~~$24.1 billion at ~~March 31,~~September 30, 2007, compared to $22.4 billion at December 31, 2006. This increase was primarily caused ~~by reduced demand for wholesale funding from one of our large members that resulted in a $1.2 billion decrease. This decrease was largely offset~~ by increased demand for Advances from many of our members, including, in particular, our insurance company members. Advances to insurance company members have increased to $2.4 billion, or 10.0% of total Advances, at September 30, 2007, compared to $0.9 billion, or 3.9% of total Advances, as of December 31, 2006. The remaining increase of $0.2 billion was caused by increases in Advances to our other members, largely offset by a $1.9 billion decrease in outstanding Advances to one of our large members. Most of this year’s increase occurred during the third quarter as many of our members took advantage of lower fixed interest rates. In general, Advance balances fluctuate in accordance with our members’ funding needs related to their mortgage pipelines, investment opportunities and other balance sheet strategies.

We expect that Advances to bank and thrift members may continue to be challenging due to changes in the competitive landscape, the state of the economy and housing market in our district states of Indiana and Michigan, and the recent loss of some of our commercial bank members. However, Advances to insurance company members have increased steadily and were equal to $1.6 billion, or 7.2% of total Advances, at March 31, 2007, compared to $0.9 billion, or 3.9% of total Advances, as of December 31, 2006.

A breakdown of Advances, at par value, by primary product line, as of ~~March 31,~~September 30, 2007, and December 31, 2006, is provided below:

Advances by Product Line

($ amounts in thousands, at par)


	March 31, 2007		December 31, 2006		September 30, 2007				December 31, 2006
	$ amount	% of Total	$ amount	% of Total	$ amount		% of Total		$ amount		% of Total
Fixed-rate bullet	$14,779,982	66.9%	$15,740,064	70.4%	$	14,865,983	61.7	%	$	15,740,064	70.4	%
Putable	3,593,550	16.3%	3,662,050	16.4%		4,600,550	19.1	%		3,662,050	16.4	%
Fixed-rate amortizing	1,975,120	8.9%	1,459,027	6.5%		2,154,885	9.0	%		1,459,027	6.5	%
Adjustable *	1,511,584	6.8%	1,025,984	4.6%
Adjustable⁽¹⁾						1,671,434	6.9	%		1,025,984	4.6	%
Variable	248,224	1.1%	479,605	2.1%		792,381	3.3	%		479,605	2.1	%

Total Advances, at par value	$22,108,460	100.0%	$22,366,730	100.0%	$	24,085,233	100.0	%	$	22,366,730	100.0	%

* Includes two outstanding Advances with a total par of $15 million modified (in accordance with Emerging Issues Task Force 01-07~~, Creditor’s Accounting for a Modification or Exchange of Debt Instruments) from Putable Advances to Adjustable Advances with $0.72 million, and $0.77 million in remaining deferred fees outstanding as of March 31, 2007, and December 31, 2006, respectively.~~

⁽¹⁾

Includes two outstanding Advances with a total par of $15 million modified (in accordance with Emerging Issues Task Force 01-07, Creditor’s Accounting for a Modification or Exchange of Debt Instruments) from Putable Advances to Adjustable Advances with $0.6 million, and $0.8 million in remaining deferred fees outstanding as of September 30, 2007, and December 31, 2006, respectively.

Short-term Investments

Our ~~Short-term~~short-term investments provide efficient utilization of capital and enhanced liquidity. As of ~~March 31,~~September 30, 2007, ~~Short-term~~short-term investments ~~comprised of Federal funds sold and Interest-bearing deposits ,~~ totaled ~~$10.0~~$12.9 billion, an increase of ~~$2.3~~$5.2 billion from December 31, 2006, ~~primarily~~ due to increases of ~~$1.4~~$3.1 billion in Federal funds sold and ~~$0.9~~$2.1 billion in Interest-bearing deposits ~~in order to utilize balance sheet capacity and take advantage of investment opportunities.~~.

Mortgage Loans Held for Portfolio, Net

We purchase mortgage loans from our members through our MPP. At ~~March 31,~~September 30, 2007, after considering the effects of premiums, discounts, SFAS 133 basis adjustments, and allowances for credit losses on mortgage loans, we held ~~$9.96~~$9.5 billion in mortgage loans purchased from our members, compared to ~~$10.02~~$10.0 billion at December 31, 2006. We expect that our mortgage portfolio will continue to decrease due to the loss of several sources of new mortgage loans, the reduction of outstanding balances due to maturity or prepayment and our decision to concentrate on ~~acquisitions~~purchasing loans from small- to mid-size members.

Some of the other factors that impact the volume of mortgage loans purchased through the MPP include the general level of housing activity in the U.S., the level of refinancing activity, and consumer product preferences. In accordance with our MPP policy for conventional loans, we purchase prime, fixed-rate, fixed-term mortgage loans.

The following table presents the composition of our outstanding purchased mortgage loans at ~~March 31,~~September 30, 2007, and December 31, 2006:

Mortgage Loans ~~held~~Held for Portfolio

($ amounts in thousands)


	March 31, 2007			September 30, 2007
	Medium- term⁽¹⁾	Long- term⁽²⁾	Total	Medium- term⁽¹⁾			Long-term⁽²⁾		Total
Unpaid principal balance	$1,545,293	$8,380,413	$9,925,706	$	1,441,084		$	8,048,111	$	9,489,195
Deferred net premium	7,400	2,371	9,771		6,624			4,026		10,650
Basis adjustments from terminated fair value hedges, and loan commitments.	(120)	23,405	23,285
Basis adjustments from terminated fair value hedges and loan commitments.					(148	)		22,229		22,081

Total mortgage loans held for portfolio	$1,552,573	$8,406,189	$9,958,762
Total mortgage loans held for portfolio, net				$	1,447,560		$	8,074,366	$	9,521,926


	December 31, 2006			December 31, 2006
	Medium- term⁽¹⁾	Long- term⁽²⁾	Total	Medium- term⁽¹⁾			Long-term⁽²⁾		Total
Unpaid principal balance	$1,567,102	$8,418,418	$9,985,520	$	1,567,102		$	8,418,418	$	9,985,520
Deferred net premium	8,168	4,390	12,558		8,168			4,390		12,558
Basis adjustments from terminated fair value hedges, and loan commitments.	(216)	22,808	22,592
Basis adjustments from terminated fair value hedges and loan commitments.					(216	)		22,808		22,592

Total mortgage loans held for portfolio	$1,575,054	$8,445,616	$10,020,670
Total mortgage loans held for portfolio, net				$	1,575,054		$	8,445,616	$	10,020,670

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

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

~~(2) Long-term is defined as terms of 20-30 years.~~

(2)	Long-term is defined as an original term greater than 15 years.

Earnings are impacted by the amount of unpaid principal balance, the amount of net premiums and basis adjustments, and the term over which these amounts are amortized. Amortization speeds are dependent on both actual principal payments (including prepayments) and projections of future principal payments. As mortgage rates decrease, borrowers have more incentive to prepay their mortgages, which results in higher estimated prepayment speeds. Such higher prepayment speeds result in acceleration of the premium and basis adjustment because the amortization term is shortened. The inverse occurs in an increasing interest rate environment.

Recently, the three rating agencies reaffirmed their insurer financial strength ratings of AA for the Mortgage Guaranty Insurance Corporation (“MGIC”), our primary SMI provider. However, they also revised their rating outlook or watch for MGIC to Negative. Finance Board regulations require that all providers of SMI be rated not lower than AA, and our Sellers are legally obligated to maintain such insurance with an insurer rated not lower than AA. If at any time one of our SMI providers is downgraded below AA, we may be required by the Finance Board to seek replacement insurance from another company that meets the rating requirement. Alternatively, we may be required to seek regulatory forbearance if such alternative insurance is unavailable. Depending upon market conditions at that time, the cost of replacement insurance could be higher than the current cost, which would have a material adverse impact on the profitability of our MPP portfolio. However, it is not currently anticipated that MGIC or any other SMI provider would be downgraded below AA.

Held-to-maturity Securities

Held-to-maturity securities ~~were $6.319~~increased to $6.7 billion at ~~March 31,~~September 30, 2007, ~~a decrease of $0.225 billion~~ compared to ~~$6.544~~$6.5 billion at December 31, ~~2006. This decrease was primarily~~2006, due to purchases made within the ~~result~~regulatory limit of ~~paydowns.~~three times our Total regulatory capital.

Held-to-maturity securities are evaluated for impairment on a quarterly basis, or more frequently if events or changes in circumstances indicate that these investments may be impaired. We would record an impairment charge when a held-to-maturity security has experienced an other-than-temporary decline in fair value, which would occur if we anticipate that its cost may not be fully recoverable. At ~~March 31,~~September 30, 2007, the estimated fair value of our Held-to-maturity securities was ~~$6.203~~$6.6 billion, resulting in a net unrealized loss of ~~$0.116~~$0.1 billion compared to an estimated fair value of ~~$6.403~~$6.4 billion and a net unrealized loss of ~~$0.141~~$0.1 billion at December 31, 2006. The net unrealized loss at both points in time was caused by increased interest rates. ~~The change in the net~~We reviewed our Held-to-maturity securities as of September 30, 2007, and have determined that all unrealized ~~loss of $0.025 billion was caused by the paydowns described above as well as changes in interest rates. Since~~losses were temporary. Additionally, we have the ability and the intent to hold ~~these~~such investments ~~until a full recovery of~~to maturity, at which time the unrealized losses ~~which may~~will be ~~at maturity, and in part, based on the creditworthiness of the issuers and the underlying collateral, we do not consider these investments to be other-than-temporarily impaired at March 31, 2007.~~

During 2006, as part of our capital management process, we voluntarily repurchased $309.2 million of excess stock, including Mandatorily redeemable capital stock, held by our shareholders, in accordance with

the provisions of the Bank’s Capital Plan. Due to this reduction in capital stock, our MBS portfolio temporarily exceeded the regulatory limit of three times our Total regulatory capital, consisting of Total Capital plus mandatorily redeemable capital stock. We were in compliance with the regulatory limit at the time we purchased our MBS, so we were not required to sell any of our MBS and were not considered to be out of compliance with the regulatory limit. However, we were precluded from purchasing additional MBS until the outstanding principal amount of our current holdings fell below three times our total regulatory capital. The balance of our MBS portfolio is now below the regulatory limit, and we have begun to purchase additional MBS.recovered.

Interest-Bearing Deposits (Liabilities)

Interest-bearing deposits were ~~$1.1~~$0.7 billion at ~~March 31,~~September 30, 2007, ~~an increase~~a decrease of $0.2 billion compared to $0.9 billion at December 31, 2006. These deposits represent a relatively small portion of our funding, and they vary depending upon market factors such as the attractiveness of our deposit pricing relative to the rates available on alternative money market instruments, members’ investment preferences with respect to the maturity of their investments, collateral flows, and member liquidity.

Consolidated Obligations

At ~~March 31,~~September 30, 2007, the carrying values of Discount Notes and CO Bonds issued on our behalf totaled ~~$12.5~~$16.0 billion and ~~$32.3~~$33.9 billion, respectively, compared to $10.5 billion and $32.8 billion, respectively, at December 31, 2006. The overall balance of our ~~Consolidated Obligations~~COs fluctuates in relation to our Total ~~Assets.~~assets. For the ~~three~~nine months ended ~~March 31,~~September 30, 2007, the increase was primarily attributable to the ~~increase~~increases in our ~~Short-term~~short-term investments, consisting of Interest-bearing deposits and Federal funds ~~sold.~~sold, and Advances.

Derivatives

As of ~~March 31,~~September 30, 2007, and December 31, 2006, we had derivative assets including accrued interest with market values of ~~$98.3~~$70.5 million and $99.5 million, respectively, and derivative liabilities including accrued interest with market values of ~~$37.9 million and~~ $63.4 million ~~respectively.~~at September 30. 2007, and December 31, 2006. These ~~differences~~amounts reflect the impact of interest rate changes that affected the market value of our derivatives. We record all derivative financial instruments on the ~~Statement~~Statements of Condition at their fair value with changes in the fair value of all derivatives recorded through earnings.

The principal derivative instruments we use are interest-rate swaps and to-be-announced mortgage-backed securities (“TBAs”). We classify interest-rate swaps as derivative assets or liabilities according to the net fair value of the interest-rate swaps with each counterparty. Because these swaps are covered by a master netting agreement, they are classified as an asset if the net fair value of the interest rate swaps with a counterparty is positive or as a liability if the net fair value of the interest rate swaps with a counterparty is negative. TBAs are not covered by a master netting agreement and are recorded as a derivative asset or liability as required by SFAS 133 based upon fair value. Increases and decreases in the fair value of each of these instruments are primarily caused by market changes in the derivative’s underlying interest rate index.

Capital

Total capital increased to ~~$2.044~~$2.1 billion at ~~March 31,~~September 30, 2007, compared to ~~$1.955~~$2.0 billion at December 31, 2006. The following table presents the components of this ~~$89.7 million~~$0.1 billion increase:


	Capital Stock	Retained Earnings	Other Comprehensive Income	Total
					Capital Stock			Retained Earnings			Other Comprehensive Income			Total
Balance at December 31, 2006	$1,793,512	$166,622	$(5,420)	$1,954,714	$	1,793,512		$	166,622		$	(5,420	)	$	1,954,714
Reclassification to Mandatorily redeemable capital stock related to membership withdrawal						(12,272	)								(12,272	)
Proceeds from the sale of capital stock	87,595	-	-	87,595		160,252									160,252
Net income	-	26,503	-	26,503
Net Income									84,243						84,243
Mandatorily redeemable capital stock distributions	-	(7)	-	(7)					(74	)					(74	)
Dividends paid	-	(23,192)	-	(23,192)					(64,806	)					(64,806	)
Other	-	-	(1,184)	(1,184)
Pension and post-retirement plans												(914	)		(914	)

Balance at March 31, 2007	$1,881,107	$169,926	$(6,604)	$2,044,429
Balance at September 30, 2007					$	1,941,492		$	185,985		$	(6,334	)	$	2,121,143

Total Regulatory Capital

Our total regulatory capital consists of Retained earnings, Class B stock, and Mandatorily redeemable capital stock. Mandatorily redeemable capital stock is classified as a liability according to GAAP on our ~~Statement~~Statements of Condition. As of ~~March 31,~~September 30, 2007, ~~$707.7~~$694.2 million or ~~35%~~33% of our total regulatory capital stock balance was comprised of stock not required as a condition of membership or to support services to members, compared to $618.6 million or 32% at December 31, 2006. The increase of $75.6 million in excess stock was primarily due to the decrease in Advances to one large member as described in “Advances” herein, partially offset by the decrease in the excess stock of other members. In general, the level of excess stock fluctuates with our members’ demand for Advances.

We generally will not redeem or repurchase member capital stock until five years after either the membership is terminated or we receive a notice of withdrawal from membership. If we receive a request to redeem excess stock, we are not required to redeem or repurchase such excess stock until the expiration of the five-year redemption period. However, we reserve the right to repurchase, and have repurchased, excess stock from ~~any~~a member, without a member request and at our discretion, upon 15 days’ notice to the member.

Retained Earnings

Retained earnings equaled ~~$169.9~~$186.0 million at ~~March 31,~~September 30, 2007, an increase of ~~$3.3~~$19.4 million compared to December 31, 2006. The following table quantifies the net change in Retained earnings:

Net Income versus Dividends Paid

($ amounts in thousands)


	For the Three Months ended March 31,
	2007	2006	For the Nine Months ended September 30,
			2007			2006
Net Income	$26,503	$32,202	$	84,243		$	90,499
Dividends paid	(23,192)	(25,742)		(64,806	)		(76,679	)
Mandatorily redeemable capital stock distributions	(7)	(1)		(74	)		(373	)

Change in Retained earnings	$ 3,304	$ 6,459	$	19,363		$	13,447

Our Retained Earnings Policy ~~established~~establishes guidelines for our board to use in determining the amount of earnings to retain. These guidelines include, but are not limited to: (i) a ~~Retained~~retained earnings target that is comprised of market, credit, operations and accounting risk components; (ii) the impact on our members; and (iii) the stability of stock and membership levels. The ~~Retained~~retained earnings target reflects a minimum Retained earnings balance after the quarterly dividend is paid. At ~~March 31,~~September 30, 2007, the ~~Retained~~retained earnings target was ~~$125.5~~$113.9 million. In addition, our board may establish an additional supplemental allowance to provide further protection from unusual adverse events. Our board has determined this amount to be 10% of the

retained earnings target. Our board also considers other market-value based measures to determine the appropriate level of Retained earnings which are reviewed on a quarterly basis. The Retained earnings balance at ~~March 31,~~September 30, 2007, adjusted for the ~~first~~third quarter dividend of ~~$20.5~~$21.7 million that was declared in ~~April~~October 2007, was ~~$149.4~~$164.3 million.

Our Retained earnings target can be superseded by Finance Board mandates, either ~~in the form of~~by an order specific to the Bank, by institution of new advisory guidelines, or by promulgation of new regulations requiring a level of Retained earnings that is different from our currently targeted level. Over time, and as our risk profile changes, we will continue to evaluate our Retained earnings position.

Liquidity and Capital Resources

Liquidity

Our primary sources of liquidity are short-term investments and the issuance of new COs in the form of CO Bonds and Discount Notes. See “Business – Funding Sources” in our 2006 Annual Report on Form 10-K, ~~filed on March 30, 2007,~~ for a detailed discussion of our COs and the joint and several liability of all of the Federal Home Loan Banks for these COs. COs enjoy favorable status as GSE-issued debt; however, they are not obligations of the United States government, and the United States government does not guarantee them. As of ~~April 30,~~October 31, 2007, the COs were rated Aaa/P-1 by Moody’s and AAA/A-1+ by S&P, reflecting the likelihood of timely payment of principal and interest on the COs. Their GSE-issuer status and these ratings have historically provided excellent access to the capital markets for the Federal Home Loan Banks. In addition, under certain circumstances, the U.S. Treasury may acquire up to $4 billion of the Federal Home Loan Banks’ COs, which would offer additional liquidity to the Federal Home Loan Banks, if needed. See “Risk Factors – Our Credit Rating Could be Lowered” in our 2006 Annual Report on Form 10-K, ~~filed on March 30, 2007,~~ for a discussion of events that could have a negative impact on the rating of these COs.

We maintain a contingency liquidity plan designed to enable us to meet our obligations and the liquidity needs of our members in the event of operational disruptions at the Federal Home Loan Banks or the Office of Finance, or short-term capital market disruptions. Our regulatory liquidity requirement is to maintain at least five business days of liquidity without access to the capital markets. In accordance with our contingency liquidity plan, we might be required to rely upon asset-based liquid reserves to meet our cash flow obligations. Member deposits and other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and loans from other Federal Home Loan Banks provide additional sources of liquidity. On a daily basis, we model our cash commitments and expected cash flows to determine our liquidity position.

Our ~~Cash~~cash and ~~Short-term~~short-term investment portfolio, which includes Federal funds sold and Interest-bearing deposits, totaled ~~$10.0~~$12.9 billion at ~~March 31,~~September 30, 2007, compared to $7.7 billion at December 31, 2006. ~~This portfolio was increased in order to utilize balance sheet capacity and take advantage of investment opportunities.~~ The maturities of these short-term investments provide cash flows to support our ongoing liquidity needs.

Capital Resources

The following table presents minimum capital ratios, permanent and risk-based capital requirement amounts, and various leverage ratios as of ~~March 31,~~September 30, 2007, and December 31, 2006:

Regulatory Capital Requirements

($ amounts in thousands)


	As of March 31, 2007	As of December 31, 2006	As of September 30, 2007			As of December 31, 2006
Minimum regulatory capital ratio requirement	4.00%	4.00%		4.00	%		4.00	%
Actual regulatory capital ratio⁽¹⁾				4.28	%		4.51	%
Minimum regulatory capital requirement	$1,946,039	$1,874,756	$	2,142,012		$	1,874,756
Actual regulatory capital ratio⁽¹⁾	4.53%	4.51%
Permanent capital⁽²⁾	$2,202,230	$2,111,466	$	2,290,947		$	2,111,466
Risk-based capital requirement	$ 513,796	$ 522,073	$	470,751		$	522,073
Minimum regulatory leverage ratio	5.00%	5.00%		5.00	%		5.00	%
Actual regulatory leverage ratio				6.42	%		6.76	%
Minimum regulatory leverage capital requirement	$2,432,549	$2,343,445	$	2,677,515		$	2,343,445
Actual regulatory leverage ratio	6.79%	6.76%
Actual regulatory leverage capital	$3,303,345	$3,167,199	$	3,436,421		$	3,167,199

(1)	The regulatory capital ratio is calculated by dividing permanent capital by ~~total~~Total assets.

(2)	Permanent capital is defined as Retained earnings, Class B Stock, and ~~mandatorily~~Mandatorily redeemable capital stock.

Mandatorily Redeemable Capital Stock

At ~~March 31,~~September 30, 2007, we had ~~$151.2~~$163.5 million in capital stock subject to mandatory redemption from 1416 former members, compared to $151.3 million in capital stock subject to mandatory redemption from 14 former members at December 31, 2006.

In addition to the ~~mandatorily~~Mandatorily redeemable capital stock, we had ~~$45.1~~$50.1 million of excess stock subject to redemption requests outstanding from six members at ~~March 31,~~September 30, 2007, and December 31, 2006. Excess stock redemption requests are not subject to reclassification from equity to liability, as the requesting member may revoke its request at any time, without penalty, throughout the five-year waiting period, and the amount ultimately redeemed, if any, is contingent on the member meeting various stock requirements on the redemption date. These requests are not considered substantive in nature, and, therefore, these amounts are not classified as a liability.

The following table shows the amount of all pending capital redemption requests received from members by year of redemption at ~~March 31,~~September 30, 2007, and December 31, 2006 ($ amounts in thousands):


Contractual Year of Redemption	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
Due in 1 year or less	$ -	$ -	$	—	$	—
Due after 1 years through 2 years	4,643	4,643
Due after 1 year through 2 years				13,384		4,643
Due after 2 years through 3 years	11,549	8,748		3,329		8,748
Due after 3 years through 4 years	11,082	3,883		124,571		3,883
Due after 4 years through 5 years	169,011	179,011		72,273		179,011

Total	$196,285	$196,285	$	213,557	$	196,285

Capital Distributions

We may, but are not required to, pay dividends on our stock. Dividends may be paid in cash or Class B Stock out of current and previously Retained earnings, as authorized by our board, and subject to Finance Board regulations. In December 2006, the Finance Board issued a rule that prohibits a Federal Home Loan

Bank from issuing new excess stock if the amount of excess stock outstanding exceeds one percent of the Bank’s Total ~~Assets.~~assets. Therefore, we are not currently permitted to pay stock dividends because our excess stock balance at ~~March 31,~~September 30, 2007, of ~~$707.7~~$694.2 million ~~exceeded~~exceeds one percent of our Total ~~Assets~~assets by ~~$221.2~~$158.7 million and was equal to ~~1.45%~~1.30% of our Total ~~Assets.~~assets.

Cash dividends on Class B-1 Stock were paid at an annualized rate of ~~5.00% and 4.75%~~4.50% during both the ~~first~~third quarters of 2007 and 2006 ~~respectively.~~ based on our earnings for the second quarters of 2007 and 2006.

On ~~April 13,~~October 19, 2007, we ~~declared~~announced a cash dividend on our Class B-1 stock of 4.50% (annualized) based on our results for the ~~first quarters~~third quarter of ~~2007; and, on April 14,~~2007. On October 20, 2006, we ~~declared~~announced a cash dividend on our Class B-1 stock of ~~5.00%~~4.75% (annualized), based on our results for the ~~first~~third quarter of 2006. Future dividends will be determined based on income earned each quarter, our Retained ~~earnings policy,~~Earnings Policy, and capital management considerations. The decrease in our dividend payout ratio over the first three quarters of 2007 reflects our board’s decision to increase our Retained earnings.

Off-balance Sheet Arrangements

Commitments that legally bind and unconditionally obligate us for additional Advances and letters of credit totaled approximately $50.4 million and $18.4 million at September 30, 2007, and December 31, 2006, respectively. The increase of $32.0 million is primarily due to an increase in Advances and letters of credit that had traded but not settled as of September 30, 2007, as compared to December 31, 2006. Commitments generally are for periods up to 12 months. Based on management’s credit analyses and collateral requirements, we do not deem it necessary to record any additional liability on these commitments. Commitments are fully collateralized at the time of issuance.

Commitments that unconditionally obligate us to fund/purchase mortgage loans totaled $30.7 million and $10.9 million at September 30, 2007, and December 31, 2006, respectively. While the balance has increased by $19.8 million during the period, the year-to-date average for these commitments has decreased by $27.0 million from $53.3 million at December 31, 2006, to $26.3 million at September 30, 2007, due to the loss of our largest MPP sellers and a corresponding decrease in mortgage loans purchased. Commitments are generally for periods not to exceed 91 days. In accordance with SFAS 149, such commitments entered into after June 30, 2003, were recorded as derivatives at their fair value.

Unused lines of credit totaled $140.4 million at September 30, 2007, and $166.6 million at December 31, 2006. The decrease of $26.2 million is a result of increased usage and a decrease in the amount of lines of credit outstanding to our members.

Recent Accounting and Regulatory Developments

Accounting Developments

SFAS ~~155.~~155.On February 16, 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140(“SFAS 155”),which resolves issues addressed in Statement 133 ~~DIG~~Implementation Issue No. D1,Application of Statement 133 to Beneficial Interests in Securitized Financial Assets(“DIG Issue D1”). SFAS 155 amends SFAS 133 to simplify the accounting for certain derivatives embedded in other financial instruments (a hybrid financial instrument) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise required bifurcation, provided that the entire hybrid financial instrument is accounted for on a fair value basis. SFAS 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, which replaces the interim guidance in DIG Issue D1. SFAS 155 amends SFAS 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a replacement of FASB Statement 125(“SFAS 140”) to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006 (January 1, 2007, for the Bank), with earlier adoption allowed. Our adoption of SFAS 155 at January 1, 2007, did not have a material impact on our results of operations or financial condition.

SFAS ~~157.~~157.On September 15, 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). In defining fair value, SFAS 157 retains the exchange price notion in earlier definitions of fair value. However, the definition focuses on the price that would be received to sell an asset or paid to transfer a liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). SFAS 157 applies whenever other accounting pronouncements require or permit fair value measurements. Accordingly, SFAS 157 does not expand the use of fair value in any new circumstances. SFAS 157 also establishes a fair value hierarchy that prioritizes the information used to develop assumptions used to determine the exit price. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 (January 1, 2008, for the Bank), and interim periods within those fiscal ~~years, with early adoption permitted provided the entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year.~~years. We ~~have not yet determined the impact, if any,~~expect that the implementation of SFAS 157 will not have a material effect on our results of operations or financial condition.

DIG Issue ~~B40~~.B40.On December 20, 2006, the FASB issued ~~DIG~~Derivatives Implementation Group (“DIG”) No. B40,Application of Paragraph 13(b) to Securitized Interest in Prepayable Financial Assets(“DIG Issue B40”). DIG Issue B40 clarifies when a securitized interest in prepayable financial assets is subject to the conditions in paragraph 13(b) of SFAS 133. DIG Issue B40 ~~became~~becomes effective upon initial adoption of SFAS 155 (January 1, 2007, for the Bank). Our adoption of DIG Issue B40 at January 1, 2007, did not have a material impact on our results of operations or financial condition.

SFAS 159.On February 15, 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. ~~115.~~115(“SFAS 159”). SFAS 159 creates a fair value option allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities, with changes in fair value recognized in earnings as they occur. SFAS 159 also requires an entity to report those financial assets and financial liabilities measured at fair value in a manner that separates those reported fair values from the carrying amounts of assets and liabilities measured using another measurement attribute on the face of the statement of financial position. Lastly, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value on those instruments selected for the fair value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (January 1, 2008, for the Bank). ~~Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects~~We do not expect to ~~apply the provisions of SFAS 157. Implementation of SFAS 159 is optional. Although we have not yet determined the effect that~~record a material adjustment to our Retained earnings upon the implementation of SFAS 159 ~~will have on our results of operations or financial condition,~~at January 1, 2008. However, the extent to which we ~~believe that, if implemented, it~~may elect the fair value option in the future could have a material impact on our results of operations and financial condition.

FSP FIN 39-1, Amendment of FASB Interpretation No. 39.This FASB staff position (“FSP”) was issued on April 30, 2007, and addresses modifications to FASB Interpretation No. 39,Offsetting of Amounts Related to Certain ~~Contracts~~Contracts.. Specifically, these modifications permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. This FSP is effective for fiscal years beginning after November 15, 2007, (January 1, 2008, for the Bank) with early application permitted. ~~We do not~~While we expect that the reclassification of amounts between captions on our Statements of Condition will be material, the adoption of this FSP towill not have a material impact on our financial condition or our results of ~~operations or financial condition.~~operations.

Regulatory Developments

~~New Regulations on Appointive Directors~~Regulatory Enforcement Actions

The Finance Board adopted a final regulation on March 27, 2007, detailing the process for the selection of appointive directors and our board therefore submitted four nominees to fill the four appointive director vacancies on our board. On ~~April 24,~~October 10, 2007, the Finance Board ~~appointed Robert D. Long, Jonathan Paul Bradford, Michael J. Hannigan, Jr., and James L. Logue III to fill the four positions with two of them having terms~~released a written agreement that ~~expire on December 31, 2008, and~~had been in place with the ~~other two having~~Federal Home Loan Bank of Chicago since June 30, 2004, and replaced it with a consensual cease and desist order (“Order”). Under the terms ~~that will expire~~of the Order, capital stock repurchases and redemptions are prohibited unless the Federal Home Loan Bank of Chicago receives the prior approval of the Finance Board’s Office of Supervision. The Order also requires prior approval for the declaration and payment of any dividends on ~~December 31, 2009. See our~~the Federal Home Loan Bank of Chicago’s capital stock. Further details of the Order are set forth in the Federal Home Loan Bank of Chicago’s Current Report on Form 8-K ~~filed~~which was furnished to the SEC on April 25, 2007, for more details. On April 2, 2007, the Finance Board published a proposed rule to clarify the types of financial interests that an appointive director may own in a Bank member. The comment period for this rule ends on May 17, 2007, and it is not clear when the rule will become final. The rule is not anticipated to have a significant impact on the Bank or our ability to obtain qualified individuals to serve as appointive directors to our board.

~~New Guidance on Mortgage Loan Products~~

~~The Finance Board has advised~~October 10, 2007. As the Federal Home Loan Banks issue COs jointly, this Order may adversely affect our cost of funds. However, as the Federal Home Loan Bank of Chicago has been under a written agreement with the Finance Board since 2004, which contained similar terms to the Order, it is not currently anticipated that ~~they must adopt policies and procedures~~the issuance of the Order will have a material or long-term effect on our cost of funds or our access to ~~analyze and limit certain types~~the capital markets.

Advisory Bulletin 2007-AB-02

On October 23, 2007, the Finance Board issued Advisory Bulletin 2007-AB-02,Implementation of ~~nontraditional or subprime loans that serve as collateral for Advances or that underlie~~ Fair Value Accounting Standards(the ~~MBS purchased by~~“Advisory Bulletin”). The Advisory Bulletin provides the Federal Home Loan Banks ~~as investments. Further, such loans may not be purchased as part~~with the Finance Board’s expectations regarding the implementation of ~~the MPP. Compliance with this guidance is required by June 30, 2007. It is anticipated that the initial verification~~SFAS 157 and ~~ongoing compliance with this guidance will result in increased operating expenses, but it is not yet possible to determine if those increases will be significant.~~

~~New Director Position for Michigan~~

~~On May 9, 2007,~~SFAS 159. Among other things, the Finance Board ~~issued a determination~~expects each of the Federal Home Loan Banks to inform the Finance Board, by November 30, 2007, of:

its schedule for implementing SFAS 157 and SFAS 159, including, but not limited to, outstanding implementation issues, target dates for key remaining implementation activities, and assurance that ~~a new elective director seat should be added~~its board has adequate time and information to make or ratify implementation decisions; and

an estimate of its expected SFAS 157 and SFAS 159 transition adjustments.

We anticipate complying with the Finance Board’s request for the state of Michigan due to increased membership and stock ownership by Michigan members. This will increase the size of our board to 17 members, effective January 1, 2008, and will be filled by election from nominees submitted by the Michigan members.this information.

Risk Management

We have the potential for exposure to a number of risks in pursuing our business objectives. One primary risk, market risk, is discussed in detail below under “Quantitative and Qualitative Disclosures about Market Risk.” Other critical risks may be broadly classified as credit, liquidity, operational, and business. A detailed discussion of the policies and practices that have been established to manage these risk positions can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in our 2006 Annual Report on Form ~~10-K filed on March 30, 2007.~~10-K.

Credit Risk Management

Credit risk is the risk that members or other counterparties may be unable to meet their contractual obligations, or that the value of an obligation will decline as a result of deterioration in creditworthiness. We face credit risk on Advances and other credit products, investments, mortgage loans, derivative financial instruments, and AHP grants. The most important step in the management of credit risk is the initial decision to extend credit. We also manage credit risk by following established policies, evaluating the creditworthiness of our members and counterparties, and utilizing collateral agreements and settlement netting. Periodic monitoring of members and other counterparties is performed for all areas where we are exposed to credit risk.

Based on the current exposure, management does not anticipate any material credit loss on Advances, investments, mortgage loans, derivatives or ~~derivatives~~AHP grants due to our careful application of underwriting, collateralization standards, and counterparty limits, as described below.

Our board adopted a Subprime and Nontraditional Mortgage Loan Policy on June 14, 2007, that establishes guidelines for managing the potential credit risks associated with any subprime or nontraditional loans in our collateral and investment portfolio or the MPP. At this time, we are within the thresholds established by the new policy and do not anticipate that any potential exposure will be material to our financial condition.

~~Advances.~~Advances.We have never experienced a credit loss on an Advance to a member in our ~~more than 70~~75 years of existence. We manage our exposure to credit risk on Advances through a combined approach that provides ongoing review of the financial condition of our borrowers coupled with a conservative collateral policy. Protection is provided via thorough underwriting and collateralization before Advances are issued. Quarterly or annual credit analyses are performed on existing borrowers, with the frequency depending primarily on the financial condition of the borrower and/or the amount of our credit products outstanding.

Credit risk can be magnified if the lender concentrates its portfolio in a few borrowers. Because of our limited territory, Indiana and Michigan, and because of continuing consolidation among the financial institutions that comprise the members of the 12 Federal Home Loan Banks, we have only a limited pool of large borrowers. As of ~~March 31,~~September 30, 2007, our top two borrowers held ~~43.4%~~40.2% of total Advances outstanding, at par. See “Highlights of our Operating Results for the Three and Nine Months Ended September 30, 2007” herein for information regarding the potential loss of one of these members. Because of this concentration in Advances, we perform frequent credit and collateral reviews on our largest borrowers. In addition, we analyze the implications to our financial management and profitability if we were to lose the business of one or more of these customers.~~See “Overview” herein for information on the potential loss of one of these members.~~

~~AHP.~~AHP.Our AHP requires members and project sponsors to make commitments with respect to the usage of the AHP grants to assist very low-, low-, and moderate-income families, as defined by regulation. If these commitments are not met, we may have the obligation to recapture these funds from the member or project sponsor or to replenish the AHP fund. This credit exposure is not explicitly collateralized but is addressed in part by evaluating project feasibility at the time of an award and the ongoing monitoring of AHP projects.

Investments.We are also exposed to credit risk through our investment portfolios. The Risk Management Policy (“RMP”) approved by our board restricts the acquisition of investments to high-quality, short-term money market instruments and ~~highly rated~~highly-rated long-term securities. The short-term investment portfolio represents unsecured credit. Therefore, counterparty ratings, performance, and capital adequacy are monitored on a daily basis in an effort to mitigate unsecured credit risk on the short-term investments. Our long-term investments consist of residential MBS, commercial MBS and asset-backed securities (“ABS”). We primarily hold AAA-rated ~~(private-issue~~(privately-issued and GSE-issued) collateralized mortgage obligations and pass-throughs. All of our MBS and ABS are rated AAA by S&P or Moody’s, except for an ABS bond with a book value of ~~$29.7~~$28.2 million that was downgraded to AA on April 3, 2006.

MPP.We are exposed to credit risk on loans purchased from members through the MPP. In the MPP, we establish an LRA for each pool of conventional loans purchased that is funded over time from the monthly interest payment on the mortgages in that pool and is recorded as an increase to Other liabilities in the Statement of Condition. These funds are available to cover losses in excess of the borrower’s equity and primary mortgage insurance, if any, on the conventional loans we have purchased.

Our outstanding loans, non-accrual loans, and loans 90 days or more past due and accruing interest as of ~~March 31,~~September 30, 2007, and December 31, 2006, ~~are~~ as ~~follows:~~well as the total amount of interest income recognized and the total amount of interest received on real estate mortgages during the three and nine months ended September 30, 2007, and 2006, is presented in the tables below:

Loan Portfolio Analysis

($ amounts in thousands)


	March 31, 2007	December 31, 2006	September 30, 2007		December 31, 2006
Real estate mortgages	$9,958,762	$10,020,670	$	9,521,926	$	10,020,670

Non-accrual loan participations⁽¹⁾	1	1	$	1	$	1
Real estate mortgages past due 90 days or more and still accruing interest⁽²⁾	58,005	48,842	$	67,617	$	48,842

   Three Months ended
September 30,    Nine Months ended
September 30,
   2007    2006    2007    2006
Interest contractually due during the period
   $ 127,199    $ 130,748    $ 389,635    $ 386,682
Interest actually received during the period
   127,199    130,748    389,635    386,682

Shortfall⁽²⁾
   $ —      $ —      $ —      $ —


(1) Non-accrual loans include our residual participation in conventional loans not part of the MPP.
(2) Interest on MPP is advanced by the servicer based upon scheduled principal and interest payments and therefore will not reflect the actual shortfall associated with non-accruing loans because, under this arrangement, our servicers remit payments to us as scheduled whether or not payment is received from the borrower. Although we began offering an actual/actual remittance option on June 1, 2006, it has not yet had an effect on the shortfall. Under actual/actual servicing agreements, the servicers remit payments only as they are received from the borrowers. The monthly delinquency information reported as of quarter end is provided by the servicer through the master servicer one month after the actual mortgage loan balance activity.
The total amount of interest income recognized and the total amount of interest received on real estate mortgages during the three months ended March 31, 2007, and 2006 is presented in the table below ($ amounts in thousands):

   Three Months ended March 31,
   2007    2006
Interest contractually due during the period
   $132,325    $125,857
Interest actually received during the period
   132,325    125,857

Shortfall⁽¹⁾
   $            -    $            -

(1) Interest on MPP is advanced by the servicer based upon scheduled principal and interest payments and therefore will not reflect the actual shortfall associated with non-accruing loans because, under this arrangement, our servicers remit payments to us as scheduled whether or not payment is received from the borrower. Although we began offering an actual/actual remittance option on June 1, 2006, it has not yet had an effect on the shortfall. Under actual/actual servicing agreements, the servicers remit payments only as they are received from the borrowers. The monthly delinquency information reported as of quarter end is provided by the servicer through the master servicer one month after the actual mortgage loan balance activity.
An analysis of real estate mortgages past due 90 days or more and still accruing interest and the percentage of those loans to the total real estate mortgages outstanding as of ~~March 31,~~September 30, 2007, and December 31, 2006, follows:
Real Estate Mortgages Past Due 90 Days or More
($ amounts in thousands)

   As of March 31, 2007    As of December 31, 2006    As of September 30, 2007 As of December 31, 2006
Total Conventional mortgage loan delinquencies
   $     22,609    $     19,386      $ 25,040 $ 19,386
Total Conventional mortgage loans outstanding, at par
   $9,035,236    $9,063,259      $ 8,662,253 $ 9,063,259
Percentage of delinquent conventional loans
   0.25%    0.21%      0.29 % 0.21 %
Total FHA mortgage loan delinquencies
   $     35,396    $     29,456      $ 42,577 $ 29,456
Total FHA mortgage loans outstanding, at par
   $   890,470    $   922,261      $ 826,942 $ 922,261
Percentage of delinquent mortgage loans
   3.97%    3.19%
Percentage of delinquent FHA mortgage loans
   5.15 % 3.19 %
Total mortgage loan delinquencies
   $     58,005    $     48,842      $ 67,617 $ 48,842
Total mortgage loans outstanding, at par
   $9,925,706    $9,985,520      $ 9,489,195 $ 9,985,520
Percentage of delinquent mortgage loans
   0.58%    0.49%      0.71 % 0.49 %
The 90 day delinquency ratio for conventional mortgages has increased from 0.21% to ~~0.25%~~0.29% during the first ~~three~~nine months of 2007. It is typical for mortgage delinquencies to increase during the first few years of a ~~loan’s~~loan portfolio’s life. Since our portfolio contains relatively new loans, the delinquency ratio is increasing as the loans ~~age.~~age and our percentage of new loans decreases.
For government-insured (FHA) mortgages, the delinquency rate is generally higher than for the conventional mortgages held in our portfolio. We rely on government insurance, which generally provides a 100% guarantee, as well as quality control processes, to maintain the credit quality of this portfolio. The 90 day delinquency ratio for FHA mortgages has increased from 3.19% to 5.15% during the first nine months of 2007. This is due to the aging of the portfolio described above. Also, we have not purchased any FHA loans this year.
Although we have had no loan charge-offs in the first ~~three~~nine months of 2007, our policy is to charge-off a loan against our loan loss reserve, if any, when, after foreclosure, the liquidation value of the real estate collateral plus credit enhancements does not cover our mortgage loan balance outstanding, or when an estimated or known loss exists. A loss contingency will be recorded when, in management’s judgment, it is probable that impairment has occurred, and the amount of loss can be reasonably estimated. Probable impairment is defined as the point at which, ~~we estimate,~~ using current information and events, we estimate that we will be unable to collect all principal and interest contractually due.
~~There~~Based on our analysis, and after consideration of LRA, SMI, and credit enhancements, there was no allowance for credit losses on real estate mortgage loans as of and for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, and 2006, or as of December 31, 2006.
In addition to the LRAs, we have credit protection from loss on each loan, where eligible, through SMI, which provides sufficient insurance to cover credit losses to approximately 50% of the property’s original value (subject, in certain cases, to an aggregate stop-loss provision in the SMI policy). In the first quarter of 2005, we negotiated to obtain an aggregate loss/benefit limit or “stop-loss” on any master commitment contracts that equal or exceed $35,000,000. The stop-loss is equal to the total initial principal balance of loans under the master commitment contract multiplied by the stop-loss percentage, as is then in effect, and represents the maximum aggregate amount payable by the SMI provider under the SMI policy for that pool. Even with the stop-loss provision, the aggregate of the LRA and the amount payable by the SMI provider under an SMI stop-loss contract will be equal to or greater than the amount of credit enhancement required for the pool to have an implied S&P credit rating of at least AA. Non-credit losses, such as
uninsured property damage losses which are not covered by the SMI, can be recovered from the LRA to the extent that there has been no credit loss claim on those LRA funds. We will absorb losses beyond that level. Taken together, the LRA and the SMI provide credit enhancement on the pools of loans we purchased.
Credit enhancement fees as of and for the ~~three~~nine months ended ~~March 31,~~September 30, 2007, and 2006, are presented below:
Credit Enhancement Fees
($ amounts in thousands)

   For the Three Months ended March 31,    For the Nine Months ended
September 30,
   2007    2006    2007 2006
Average conventional MPP loans outstanding
   $9,049,248    $8,663,806      $ 8,895,914 $ 8,776,593


LRA fees
   1,654    1,588      $ 4,873 $ 4,844
SMI fees
   1,913    1,882      5,621 �� 5,705

Total Credit Enhancement fees
   $       3,567    $       3,470      $ 10,494 $ 10,549

Enhancement fees as a % of average conventional MPP loans outstanding
   0.16%    0.16%      0.16 % 0.16 %
Loans in the MPP are dispersed geographically, as shown in the following table:
Geographic Concentration of MPP Loans⁽¹⁾⁽²⁾

   March 31, 2007    December 31, 2006    September 30, 2007 December 31, 2006
Midwest
   31.8%          31.4%              33.1 % 31.4 %
Northeast
   11.7%          11.7%              11.5 % 11.7 %
Southeast
   21.1%          21.3%              20.8 % 21.3 %
Southwest
   22.1%          22.3%              21.6 % 22.3 %
West
   13.3%          13.3%              13.0 % 13.3 %

Total
   100.0%          100.0%              100.0 % 100.0 %


(1) Percentages calculated based on the unpaid principal balance at the end of each period.
(2) Midwest includes IA, IL, IN, MI, MN, ND, NE, OH, SD, and WI.
~~Northeast includes CT, DE, MA, ME, NH, NJ, NY, PA, RI, and VT.~~
~~Southeast includes AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, and WV.~~
~~Southwest includes AR, AZ, CO, KS, LA, MO, NM, OK, TX, and UT.~~
~~West includes AK, CA, HI, ID, MT, NV, OR, WA, and WY.~~
Northeast includes CT, DE, MA, ME, NH, NJ, NY, PA, RI, VI and VT.
Southeast includes AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, and WV.
Southwest includes AR, AZ, CO, KS, LA, MO, NM, OK, TX, and UT.
West includes AK, CA, HI, ID, MT, NV, OR, WA, and WY.
The MPP mortgage loans held for portfolio are dispersed across all fifty states, ~~and~~ the District of ~~Columbia.~~Columbia and the U.S. Virgin Islands. No single zip code represented more than 1% of MPP loans outstanding at ~~March 31,~~September 30, 2007, or December 31, 2006. It is likely that the concentration of MPP loans in our district states of Indiana and Michigan will increase in the future due to the loss of our three largest ~~sellers. Those~~sellers because those three sellers were our greatest sources of nationwide mortgages. The median size of an outstanding MPP loan was approximately $139,000 at ~~March 31,~~September 30, 2007, and December 31, 2006.
As described above, we perform periodic reviews of our portfolio to identify the losses expected in the portfolio and to determine the likelihood of collection of loans in the portfolio. As a result of this review, we have projected that each member’s LRA balance and the mortgage insurance coverage exceeds the expected losses in the portfolio. Should we have losses in excess of the collateral held, LRA and SMI, these losses would be recognized as credit losses for financial reporting purposes. Since the inception of MPP, we
have not experienced any losses in the MPP portfolio, and no material losses are considered probable at this time.
~~Derivatives.~~Derivatives.The primary risk posed by derivative transactions is credit risk, i.e., the risk that a counterparty will fail to meet its contractual obligations on a transaction, forcing us to replace the derivative at market prices. The notional amount of interest rate exchange agreements does not measure our true credit risk exposure. Rather, when the net fair value of our interest rate exchange agreements with a counterparty is positive, this generally indicates that the counterparty owes us. When the net fair value of the interest rate exchange agreements is negative, we owe the counterparty and, therefore, we have no credit risk. If a counterparty fails to perform, credit risk is approximately equal to the fair value gain, if any, on the interest rate exchange agreement.
~~We maintain a policy of requiring that interest rate exchange agreements be governed by an International Swaps and Derivatives Association (“~~~~ISDA~~”) Master Agreement. Our current counterparties governed by these agreements include large banks and other financial institutions with a significant presence in the derivatives market that are rated A- or better by S&P and A3 or better by Moody’s. These agreements provide for netting of amounts due to us and amounts due to counterparties, thereby reducing credit exposure. Other counterparties include broker dealers used to transact forward contracts relating to TBA mortgage hedges. All counterparties are subject to credit review procedures in accordance with our RMP.
We manage this risk by executing derivative transactions with experienced counterparties of high credit quality, diversifying our derivatives across many counterparties, and executing transactions under master agreements that require counterparties to post collateral if we are exposed to a potential credit loss on the related derivatives exceeding an agreed-upon threshold. Collateral is collected on derivative exposures that exceed the thresholds negotiated in the individual ISDA agreements with the counterparties. Collateral thresholds are on sliding scales tied to credit ratings. We have never experienced a loss on a derivative transaction due to credit default by a counterparty.
Our board, through the RMP, establishes maximum net unsecured credit exposure amounts per ISDA counterparty. Once the counterparty exceeds the maximum amount, the counterparty must provide collateral for additional exposures over the threshold. These thresholds are based upon the counterparty’s current credit rating, with more stringent requirements applied to lower-rated entities.
The following tables summarize key information on derivative counterparties and provide information on a trade date basis as of ~~March 31,~~September 30, 2007, and December 31, 2006, respectively:
Derivative Agreements
Counterparty Ratings
~~March 31,~~September 30, 2007
($ amounts in thousands)

   Number of    Notional    Percentage of Credit Exposure    Credit Exposure
  S&P Rating    Counterparties    Principal    Notional Principal Before Collateral    Net of Collateral
  AAA
   2    $ 1,691,200    5.4 % $ 2,963    $ 2,963
  AA+, AA, AA-
   18    23,747,623    75.6 % 87,371    42,151
  A+, A, A-
   5    5,856,850    18.6 % 7,913    3,143

  Total
   25    31,295,673    99.6 % 98,247    48,257
  Others*
   3    119,324    0.4 % 44    41

  Total derivative notional and credit exposure
   28    $ 31,414,997    100.0 % $ 98,291    $ 48,298

S&P Rating
   Number of
Counterparties    Notional
Principal    Percentage of
Notional Principal Credit Exposure
Before Collateral    Credit Exposure
Net of Collateral
AAA
   2    $ 1,335,200    3.8 % $ 933    $ 933
AA+, AA, AA-
   17    26,735,198    77.1 % 64,812    53,612
A+, A, A-
   5    6,559,350    18.9 % 4,772    408

Total
   24    34,629,748    99.8 % 70,517    54,953
Others
   1    58,026    0.2 % 27    27

Total derivative notional and credit exposure
   25    $ 34,687,774    100.0 % $ 70,544    $ 54,980

Derivative Agreements
Counterparty Ratings
December 31, 2006
($ amounts in thousands)

   Number of    Notional    Percentage of    Credit Exposure    Credit Exposure
  S&P Rating    Counterparties    Principal    Notional Principal    Before Collateral    Net of Collateral
  AAA
   3    $  2,307,050    7.2%    $  2,421    $  2,421
  AA+, AA, AA-
   17    23,348,711    72.6%    89,436    35,073
  A+, A, A-
   5    6,195,350    19.2%    6,775    1,041

  Total
   25    31,851,111    99.0%    98,632    38,535
  Others^*
   7    307,922    1.0%    850    850

  Total derivative notional and credit exposure
   32    $32,159,033    100.0%    $99,482    $39,385

* Includes the total notional and fair value exposure related to delivery commitments. The fair value exposure related to these commitments is offset by pair-off fees from our members.
S&P Rating
   Number of
Counterparties    Notional
Principal    Percentage of
Notional Principal Credit Exposure
Before Collateral    Credit Exposure
Net of Collateral
AAA
   3    $ 2,307,050    7.2 % $ 2,421    $ 2,421
AA+, AA, AA-
   17    23,348,711    72.6 % 89,436    35,073
A+, A, A-
   5    6,195,350    19.2 % 6,775    1,041

Total
   25    31,851,111    99.0 % 98,632    38,535
Others
   7    307,922    1.0 % 850    850

Total derivative notional and credit exposure
   32    $ 32,159,033    100.0 % $ 99,482    $ 39,385

~~Liquidity Risk Management~~
The primary objectives of liquidity risk management are to maintain the ability to meet obligations as they come due and to meet the credit needs of our member borrowers in a timely and cost-efficient manner. We routinely monitor the sources of cash available to meet liquidity needs and use various tests and guidelines to control risk.
Daily projections of liquidity requirements are calculated to allow us to maintain adequate funding for our operations. Operational liquidity levels are determined assuming sources of cash from both the Federal Home Loan Bank System’s ongoing access to the capital markets and our holding of liquid assets to meet operational requirements in the normal course of business. Contingent liquidity levels are determined based upon the assumption of an inability to readily access the consolidated debt market for a period of five business days. These analyses include projections of cash flows and funding needs, targeted funding terms, and various funding alternatives for achieving those terms. A contingency plan allows us to maintain sufficient liquidity in the event of operational disruptions at our Bank, at the Office of Finance, or in the capital markets.
~~Operations Risk Management~~
Operations risk is the risk of unexpected losses attributable to human error, system failures, fraud, unenforceability of contracts, or inadequate internal controls and procedures. We have established an Operations Risk Committee to facilitate operations risk management. Some operational risks are beyond our control, and the failure of other parties to adequately address their operational risks could adversely affect us.
~~Business Risk Management~~
Business risk is the risk of an adverse impact on profitability resulting from external factors that may occur in both the short and long term. Business risk includes political, strategic, reputation and/or regulatory events that are beyond our control. Our board and management seek to mitigate these risks through long-term strategic planning, and by continually monitoring general economic conditions and the external environment.
~~ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk that the market value or estimated fair value of our overall portfolio of assets, liabilities, and derivatives will decline as a result of changes in interest rates or financial market volatility, or that net earnings will be significantly reduced by interest rate changes. The goal of market risk management is to preserve our financial strength at all times, including during periods of significant market volatility and across a wide range of possible interest rate changes. We regularly assess our exposure to changes in interest rates using a diverse set of analyses and measures. As appropriate, we may rebalance our portfolio to help attain risk management objectives.
Our general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets and liabilities that, together with their associated hedges, limit our expected interest rate sensitivity consistent with board approved policies. Derivative financial instruments, primarily interest rate exchange agreements, are frequently employed to hedge the interest rate risk and embedded option risk on member Advances, structured debt, and other applicable instruments.
We have significant investments in MPP loans, MBS, and ABS. The prepayment options embedded in mortgages can result in extensions or contractions in the expected weighted average life of these investments, depending on changes in interest rates. We primarily manage the interest rate and prepayment risk associated with mortgages through debt issuance, which includes both callable and non-callable debt, and, occasionally, derivatives, to achieve cash-flow patterns and liability durations similar to those expected on the mortgage investments.
Members may have the ability to prepay Advances. If a member prepays an Advance, we could suffer lower future income if the principal portion of the prepaid Advance were reinvested in lower yielding assets that continue to be funded by higher cost debt. To protect against this risk, a prepayment fee is charged that makes us financially indifferent to a borrower’s decision to prepay an Advance, thereby minimizing market risk.
Significant resources, both in analytical computer models and highly experienced professional staff, are devoted to assuring that the level of interest rate risk in the balance sheet is appropriately measured, thus allowing us to monitor the risk against policy and regulatory limits. We use quantitative models to calculate market values under alternative interest rate scenarios. The system analyzes our financial instruments using broadly accepted algorithms with consistent and appropriate assumptions, market prices, and current position data. We review all of the major assumptions and methodologies used in the model annually.
Measuring Market Risks
We utilize multiple risk measurement methodologies to calculate potential market exposure that include measuring duration, duration gaps, convexity, value at risk, market risk metric (one-month VAR), earnings at risk and changes in market value of equity. Periodically, stress tests are conducted to measure and analyze the effects that extreme movements in the level of interest rates and the slope of the yield curve would have on our risk position.
~~Types of Key Market Risks~~
~~Market risk can occur due to various factors, such as:~~
~~LIBOR Curve~~ ~~– represents changes (parallel and non-parallel) to the LIBOR curve.~~
~~Basis between LIBOR and CO Curves~~ – represents the relative change in interest rate movement between these two curves. Our mortgage assets are sensitive to the LIBOR curve, among other things, and mortgage liabilities are sensitive to the CO curve. Thus, a relative change in interest rate movement of the LIBOR and CO curves will cause a change in market value and a change in the duration of equity. For the non-mortgage portfolio, this is manifested by change in the funding spread (e.g., swapped debt spread).
~~Volatility~~ ~~– represents a market value change due to changes in the volatility of mortgage assets (short volatility) and callable debt (long volatility).~~
~~Option-adjusted spread~~ – represents market value changes due to changes in mortgage option –adjusted spread. Option-adjusted spread changes due to supply and demand of mortgages in the market. Widening of option-adjusted spread reduces the market value of existing mortgages, while tightening of option-adjusted spread tends to increase this market value.
~~Prepayment risk~~ ~~– primarily arises due to interest rate changes and the characteristics of mortgages and is captured via the prepayment model.~~
Duration of Equity
Duration of equity is a measure of interest rate ~~risk.~~risk and a primary metric used to manage our market risk exposure. It represents the percentage change in market value of our equity for a ~~100 basis point~~one percent parallel shift in the interest rate curves. We value our portfolios using two main interest rate curves, the LIBOR curve and the CO curve. The effective duration of each asset, liability, and off balance sheet position is computed independently to determine our duration of equity.
~~Duration of equity is a primary metric used to manage our market risk exposure.~~ Our ~~RMP specifies~~board determines acceptable ranges for duration of ~~equity, and our exposures are measured and managed against these limits.~~equity.
The following table summarizes the duration of equity levels for our total position:
Effective Duration of Equity Scenarios

~~Effective Duration of Equity Scenarios~~
   -200 bps    0 bps            ~~+200~~+200 bps
  ~~March 31,~~September 30, 2007
   ~~-5.41~~-5.21 years    ~~4.85~~4.64 years    ~~3.65~~1.91 years
December 31, 2006
   -5.50 years    4.48 years    4.36 years
We were in compliance with the duration of equity limits established in the RMP that was effective at both of the above points in time.
Duration Gap
The duration gap is the difference between the effective duration of total assets and the effective duration of total liabilities, adjusted for the effect of derivatives. Duration gap is a measure of the extent to which estimated cash flows for assets and liabilities are matched. A positive duration gap signals an exposure to rising interest rates because it indicates that the duration of assets exceeds the duration of liabilities. A negative duration gap signals an exposure to declining interest rates because the duration of assets is less than the duration of liabilities. The table below provides recent period-end duration gaps:
Duration Gap

~~Duration Gap~~
  ~~March 31,~~September 30, 2007
   +~~1.8~~1.6 months
December 31, 2006
   +1.6 months
Convexity
Convexity measures how fast duration changes as a function of interest rate changes. Measurement of convexity is important because of the optionality embedded in the mortgage and callable debt portfolios. The mortgage portfolios exhibit negative convexity due to the embedded prepayment options. The negative convexity on the mortgage asset is mitigated by the negative convexity of underlying callable debt. Convexity is routinely reviewed by management and used in developing funding and hedging strategies for acquisition of mortgage-based assets. A primary strategy for managing convexity risk arising from our mortgage portfolio is the issuance of callable debt. At ~~March 31,~~September 30, 2007, callable debt funding mortgage assets as a percentage of the net mortgage portfolio equaled ~~59.3%~~61.9%, compared to 59.0% at the end of 2006.
Market Risk-based Capital Requirement
We are subject to the Finance Board’s risk-based capital regulations. This regulatory framework requires the maintenance of sufficient permanent capital to meet the combined credit risk, market risk, and operations risk requirements. Our permanent capital consists of Class B Stock (including Mandatorily redeemable capital stock) and Retained earnings. The market risk-based capital requirement (“MRBC”) is the sum of two components. The first component is the market value of the portfolio at risk from movements in interest rates that could occur during times of market stress. This estimation is accomplished through an internal value-at-risk based modeling approach which was approved by the Finance Board before the implementation of our Capital Plan. The second component is the amount, if any, by which the current market value of total capital is less than 85% of the book value of total ~~capital, if any.~~capital.
MRBC is primarily based upon historical simulation methodology. The estimation incorporates scenarios that reflect interest rate shifts, interest rate volatility, and changes in the shape of the yield curve. These observations are based on historical information from 1978 to the present. In our application, MRBC is defined as the potential dollar loss from adverse market movements, measured over 120-business day time periods, with a 99.0% confidence interval, based on these historical prices and market rates. MRBC estimates as of ~~March 31,~~September 30, 2007, and December 31, 2006, are presented below:
Value at Risk

~~Value at Risk~~Actual
        ~~Actual~~
  ~~March 31,~~September 30, 2007
   $~~244~~ 188 million
December 31, 2006
   $ 245 million
Changes in Market Value of Equity between the Base Case and Shift Scenarios
We measure potential changes in the market value of equity based on the current month-end level of rates versus the market value of equity under large parallel rate shifts. This measurement provides information related to the sensitivity of our interest rate position:
Change in Market Value of Equity from Base Rates

~~Change in Market Value of Equity from Base Rates~~
   -200 bps     ~~+200~~+200 bps
~~March 31,~~September 30, 2007
   +~~0.3%~~4.1 % ~~-8.7%~~  -6.0 %
December 31, 2006
   +~~0.6%~~0.6 % ~~-9.2%~~  -9.2 %
Use of Derivative Hedges
We make use of derivatives in hedging our market risk exposures. The primary type of derivative used is interest rate exchange agreements or swaps. Interest rate swaps increase the flexibility of our funding alternatives by providing specific cash flows or characteristics that might not be as readily available or cost-effective if obtained in the cash debt market. We also use TBAs to temporarily hedge mortgage positions. We do not speculate using derivatives and do not engage in derivatives trading. ~~Our~~Additional information about our primary hedging activities using interest rate swaps ~~are detailed below.~~
~~Hedging Debt Issuance~~
When CO Bonds are issued, we often use the derivatives market to create funding that is more attractively priced than the funding available in the CO market. To reduce funding costs, we may enter into interest rate exchange agreements concurrently with the issuance of COs. A typical hedge of this type occurs when a CO Bond is issued, and we simultaneously execute a matching interest-rate exchange agreement. In this transaction we typically pay a variable interest rate, generally LIBOR, which closely matches the interest payments we receive on short-term or variable-rate Advances or investments. This intermediation between the capital and swap markets permits the acquisition of funds by us at lower all-in costs than would otherwisecan be ~~available through the issuance of simple fixed- or floating-rate COs in the capital markets.~~
~~Hedging Advances~~
Interest rate swaps are also used to increase the flexibility of Advance offerings by effectively converting the specific cash flows or characteristics that the borrower prefers into cash flows or characteristics that may be more readily or cost effectively funded in the debt markets.
~~Hedging Investments~~
~~Some interest rate exchange agreements are executed to hedge investments such as MBS and agency debentures.~~
~~Other Hedges~~
~~On an infrequent basis, we act as an intermediary between certain smaller member institutions and the capital markets by executing interest rate exchange agreements with members.~~
~~We occasionally use derivatives, such as swaptions, to maintain our risk profile within the approved risk limits set forth~~found in our ~~RMP.~~2006 Annual Report on Form 10-K.
The volume of derivative hedges is often expressed in terms of notional principal, which is the amount upon which interest payments are calculated. The following table highlights the notional amounts by type of derivative agreement as of ~~March 31,~~September 30, 2007, and December 31, 2006:
~~Types~~Notional Principal by Type of Derivative Agreements
~~By Notional Principal~~
($ amounts in thousands)

   March 31,
2007    December 31,
2006    September 30,
2007    December 31,
2006
Debt swaps

Bullet
   $  5,986,620    $  5,869,975      $ 5,604,620    $ 5,869,975
Callable
   5,909,870    6,497,870      9,581,370    6,497,870
Complex
   4,038,080    4,385,080      2,748,080    4,385,080
Advances swaps

Bullet
   11,536,345    11,270,016      11,994,870    11,270,016
Putable
   3,591,050    3,659,550      4,598,050    3,659,550
Complex
   4,000    4,000      1,000    4,000
MBS swaps
   1,993    2,110      1,758    2,110
TBA hedges
   125,955    309,525      27,300    309,525
Mandatory delivery commitments
   21,084    10,907      30,726    10,907
Swaptions
   200,000    150,000      100,000    150,000

Total
   $31,414,997    $32,159,033      $ 34,687,774    $ 32,159,033

The above table includes interest rate swaps, TBA MBS hedges, mandatory delivery commitments and swaptions. Complex swaps include, but are not limited to, step-up and range bonds. The level of different types of derivatives is contingent upon and tends to vary with, balance sheet size, Advances demand, MPP purchase activity, and CO issuance levels.
The table below presents derivative instruments by hedged instrument as of ~~March 31,~~September 30, 2007, and December 31, 2006:
Derivative Instruments by Hedged Instrument
Accrued Interest Excluded from the Fair Value
($ amounts in thousands)

   As of March 31, 2007 As of December 31, 2006      September 30, 2007 December 31, 2006
   Total
Notional    Estimated
Fair Value Total
Notional    Estimated
Fair Value      Total Notional    Estimated
Fair Value Total Notional    Estimated
Fair Value
Advances

Fair value hedges
   $ 15,127,395    $ 42,916   $ 14,930,566    $ 97,607      $ 16,592,920    $ (72,722 ) $ 14,930,566    $ 97,607
Economic hedges
   4,000    1   3,000    4      1,000    (1 ) 3,000    4

Total
   15,131,395    42,917   14,933,566    97,611      16,593,920    (72,723 ) 14,933,566    97,611

Investments

Economic hedges
   1,993    (36 )   2,110    (37 )      1,758    (43 ) 2,110    (37 )

Total
   1,993    (36 )   2,110    (37 )      1,758    (43 ) 2,110    (37 )


MPP loans

Fair value hedges
   108,255    (477 )   298,425    776      —      —   298,425    776
Economic hedges
   217,700    41   161,100    36      127,300    (43 ) 161,100    36
Economic (stand-alone delivery commitments)
   21,084    (34 )   10,907    (36 )      30,726    (41 ) 10,907    (36 )

Total
   347,039    (470 )   470,432    776      158,026    (84 ) 470,432    776

COs-Bonds

Fair value hedges
   15,729,570    (93,895 )   16,552,925    (139,625 )      17,834,070    (55,474 ) 16,552,925    (139,625 )
Economic hedges
   205,000    (376 )   200,000    (425 )      100,000    (529 ) 200,000    (425 )

Total
   15,934,570    (94,271 )   16,752,925    (140,050 )      17,934,070    (56,003 ) 16,752,925    (140,050 )



Total notional and fair value
   $ 31,414,997    $ (51,860 )   $ 32,159,033    $ (41,700 )      $ 34,687,774    $ (128,853 ) $ 32,159,033    $ (41,700 )


Total derivatives excluding accrued interest
      $ (51,860 )      $ (41,700 )         $ (128,853 )    $ (41,700 )
Accrued interest, net
      112,301      77,812         135,996    77,812

Net derivative balance
      $ 60,441      $ 36,112         $ 7,143    $ 36,112

Net derivative asset balance
      $ 98,291      $ 99,482         $ 70,544    $ 99,482
Net derivative liability balance
      (37,850 )      (63,370 )         (63,401 )    (63,370 )

Net derivative balance
      $ 60,441      $ 36,112         $ 7,143    $ 36,112

~~ITEM 4. CONTROLS AND PROCEDURES~~
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our ~~Interim~~ President – Chief Executive Officer and our Senior Vice President, ~~Acting~~ Chief Accounting Officer, has evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of ~~March 31,~~September 30, 2007. Based upon their evaluation, they concluded that, as of ~~March 31,~~September 30, 2007, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
Internal Controls over Financial Reporting
During the quarter ended ~~March 31,~~September 30, 2007, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
~~ITEM 5. OTHER~~
ITEM 4. SUBMISSION OF MATTERS TO THE VOTE OF SECURITY HOLDERS
On ~~May 11,~~November 1, 2007, ~~our board appointed Michael F. Petrie~~we filed a Current Report on Form 8-K to ~~complete~~announce the ~~unexpired term~~certified results of ~~Ronald Seals, who passed away~~the election of directors for terms beginning January 1, 2008 and ending December 31, 2010, which is incorporated herein by reference. Incumbents Charles Crow of Indiana and Timothy B. Gaylord of Michigan were re-elected. In addition, John L. Skibski, James D. MacPhee, and Mark A. Hoppe, all of Michigan, were elected to the open seats in Michigan.
We do not hold shareholder meetings or allow proxy voting in the election of directors. Industry candidates are nominated by the members, not by management, and after the nominations are received, ballots are mailed directly to each member. Members have one vote for each share of stock they hold to meet their stock requirement but are subject to a cap on ~~March 31, 2007. Mr. Petrie has served as~~ the ~~Chairman and Chief Executive Officer~~number of ~~Greensfork Township State Bank~~shares they can vote, based upon the average number of shares of stock that are required to be held by all of the members in ~~Spartanburg, Indiana since March 2002. His term on our board will expire~~the applicable state. Members are not entitled to vote any shares of excess stock in the election of directors. The stock calculations required to determine the amount of shares eligible to be voted in each election are based upon each member’s stock holdings on December 31 ~~2008.~~of the prior year. Elections are determined by a majority of the votes cast, and cumulative voting is not permitted.
~~ITEM 6. EXHIBITS~~
ITEM 6. EXHIBITS

3.1*    Organization Certificate of the Federal Home Loan Bank of Indianapolis, incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 14, 2006 (Commission File No. 000-51404)
3.2*    Bylaws of the Federal Home Loan Bank of Indianapolis, incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 14, 2006 (Commission File No. 000-51404)
4*    Capital Plan of the Federal Home Loan Bank of Indianapolis, incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 14, 2006 (Commission File No. 000-51404)
10.1*    Federal Home Loan Bank of Indianapolis 2007 Executive Incentive Compensation Plan incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2007
10.2*
10.2    Federal Home Loan Bank of Indianapolis Supplemental Executive Thrift Plan, ~~(with trust),~~ as amended ~~incorporated~~ by ~~reference to~~ our ~~Quarterly Report~~Board of Directors on ~~Form 10-Q filed on September 29, 2006 incorporated by reference to our Annual Report on Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
10.3*
10.3    Federal Home Loan Bank of Indianapolis Supplemental Executive Retirement Plan, ~~(with trust),~~ as amended ~~incorporated~~ by ~~reference to~~ our ~~Quarterly Report~~Board of Directors on ~~Form 10-Q filed on September 29, 2006 incorporated by reference to our Annual Report on Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
10.4*
10.4    Directors’ Deferred Compensation Plan, ~~(with trust),~~ as amended ~~incorporated~~ by ~~reference to~~ our ~~Quarterly Report~~Board of Directors on ~~Form 10-Q filed on September 29, 2006 incorporated by reference to our Annual Report on Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
10.5*    Directors’ Fee Policy effective January 2007 ~~incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2007~~
10.6*
10.6    Form of Key Employee Severance Agreement for Executive Officers, ~~incorporated~~as amended by ~~reference to~~ our ~~Annual Report~~Board of Directors on ~~Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
14.1*
14.1    Code of Conduct for Directors, Officers, Employees and Advisory Council Members, adopted September 17, 2007 and effective ~~March 16,~~October 1, 2007 ~~incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2007~~
31.1    Certification of the President – Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of the Senior Vice President – Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certification of the President – Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certification of the Senior Vice President – Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* These documents are incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on ~~May 14,~~November 13, 2007.

FEDERAL HOME LOAN BANK OF INDIANAPOLIS
~~By:~~  ~~/s/BRIAN K. FIKE~~
~~Name:  Brian K. Fike~~By: /s/ MILTON J. MILLER II
Name: Milton J. Miller II
Title:  ~~Interim~~ President – Chief Executive Officer
By: /s/PAUL J. WEAVER
Name: Paul J. Weaver
Title:
~~Title:~~ Senior Vice President – ~~Acting~~ Chief Accounting Officer

5560


	TFIDP	MPP	Total
March 31, 2006
Net interest income	$39,894	$15,298	$55,192
Other income (loss)	212	(512)	(300)
Other expenses	10,012	1,012	11,024

Income before assessments	30,094	13,774	43,868

AHP	2,492	1,124	3,616
REFCORP	5,520	2,530	8,050

Total assessments	8,012	3,654	11,666

Net income	$22,082	$10,120	$32,202


	Three months ended March 31,
Net Gain (Loss) on Derivatives and Hedging Activities	2007	2006
Gains (losses) related to fair value hedge ineffectiveness	$(68)	$422
Gains (losses) on economic hedges	790	(1,070)

Net gain (loss) on derivatives and hedging activities	$722	$(648)


	Three Months ended September 30,				Nine Months ended September 30,
	2007		2006		2007		2006
Interest contractually due during the period	$	127,199	$	130,748	$	389,635	$	386,682
Interest actually received during the period		127,199		130,748		389,635		386,682

Shortfall⁽²⁾	$	—	$	—	$	—	$	—


	As of March 31, 2007	As of December 31, 2006	As of September 30, 2007			As of December 31, 2006
Total Conventional mortgage loan delinquencies	$ 22,609	$ 19,386	$	25,040		$	19,386
Total Conventional mortgage loans outstanding, at par	$9,035,236	$9,063,259	$	8,662,253		$	9,063,259
Percentage of delinquent conventional loans	0.25%	0.21%		0.29	%		0.21	%

Total FHA mortgage loan delinquencies	$ 35,396	$ 29,456	$	42,577		$	29,456
Total FHA mortgage loans outstanding, at par	$ 890,470	$ 922,261	$	826,942		$	922,261
Percentage of delinquent mortgage loans	3.97%	3.19%

Percentage of delinquent FHA mortgage loans				5.15	%		3.19	%
Total mortgage loan delinquencies	$ 58,005	$ 48,842	$	67,617		$	48,842
Total mortgage loans outstanding, at par	$9,925,706	$9,985,520	$	9,489,195		$	9,985,520
Percentage of delinquent mortgage loans	0.58%	0.49%		0.71	%		0.49	%


	Number of	Notional		Percentage of		Credit Exposure		Credit Exposure

S&P Rating	Counterparties	Principal		Notional Principal		Before Collateral		Net of Collateral
AAA	2	$	1,691,200	5.4	%	$	2,963	$	2,963
AA+, AA, AA-	18		23,747,623	75.6	%		87,371		42,151
A+, A, A-	5		5,856,850	18.6	%		7,913		3,143

Total	25		31,295,673	99.6	%		98,247		48,257
Others*	3		119,324	0.4	%		44		41

Total derivative notional and credit exposure	28	$	31,414,997	100.0	%	$	98,291	$	48,298


S&P Rating	Number of Counterparties	Notional Principal		Percentage of Notional Principal		Credit Exposure Before Collateral		Credit Exposure Net of Collateral
AAA	2	$	1,335,200	3.8	%	$	933	$	933
AA+, AA, AA-	17		26,735,198	77.1	%		64,812		53,612
A+, A, A-	5		6,559,350	18.9	%		4,772		408

Total	24		34,629,748	99.8	%		70,517		54,953
Others	1		58,026	0.2	%		27		27

Total derivative notional and credit exposure	25	$	34,687,774	100.0	%	$	70,544	$	54,980


~~Duration Gap~~
~~March 31,~~September 30, 2007		+~~1.8~~1.6 months
December 31, 2006		+1.6 months


	~~Value at Risk~~Actual
	~~Actual~~
~~March 31,~~September 30, 2007	$~~244~~	188 million
December 31, 2006	$	245 million


~~Change in Market Value of Equity from Base Rates~~
	-200 bps		~~+200~~+200 bps
~~March 31,~~September 30, 2007	+~~0.3%~~4.1	%	~~-8.7%~~ -6.0	%
December 31, 2006	+~~0.6%~~0.6	%	~~-9.2%~~ -9.2	%


3.1*		Organization Certificate of the Federal Home Loan Bank of Indianapolis, incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 14, 2006 (Commission File No. 000-51404)

3.2*		Bylaws of the Federal Home Loan Bank of Indianapolis, incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 14, 2006 (Commission File No. 000-51404)

4*		Capital Plan of the Federal Home Loan Bank of Indianapolis, incorporated by reference to our Registration Statement on Form 10 filed with the SEC on February 14, 2006 (Commission File No. 000-51404)

10.1*		Federal Home Loan Bank of Indianapolis 2007 Executive Incentive Compensation Plan incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2007
10.2*
10.2		Federal Home Loan Bank of Indianapolis Supplemental Executive Thrift Plan, ~~(with trust),~~ as amended ~~incorporated~~ by ~~reference to~~ our ~~Quarterly Report~~Board of Directors on ~~Form 10-Q filed on September 29, 2006 incorporated by reference to our Annual Report on Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
10.3*
10.3		Federal Home Loan Bank of Indianapolis Supplemental Executive Retirement Plan, ~~(with trust),~~ as amended ~~incorporated~~ by ~~reference to~~ our ~~Quarterly Report~~Board of Directors on ~~Form 10-Q filed on September 29, 2006 incorporated by reference to our Annual Report on Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
10.4*
10.4		Directors’ Deferred Compensation Plan, ~~(with trust),~~ as amended ~~incorporated~~ by ~~reference to~~ our ~~Quarterly Report~~Board of Directors on ~~Form 10-Q filed on September 29, 2006 incorporated by reference to our Annual Report on Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008

10.5*		Directors’ Fee Policy effective January 2007 ~~incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2007~~
10.6*
10.6		Form of Key Employee Severance Agreement for Executive Officers, ~~incorporated~~as amended by ~~reference to~~ our ~~Annual Report~~Board of Directors on ~~Form 10-K filed on March 30,~~October 19, 2007, effective January 1, 2008
14.1*
14.1		Code of Conduct for Directors, Officers, Employees and Advisory Council Members, adopted September 17, 2007 and effective ~~March 16,~~October 1, 2007 ~~incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2007~~

31.1		Certification of the President – Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Senior Vice President – Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the President – Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Senior Vice President – Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


FEDERAL HOME LOAN BANK OF INDIANAPOLIS

~~By:~~ ~~/s/BRIAN K. FIKE~~

~~Name: Brian K. Fike~~By:		/s/ MILTON J. MILLER II
Name:		Milton J. Miller II
Title: ~~Interim~~		President – Chief Executive Officer



By:		/s/PAUL J. WEAVER

Name:		Paul J. Weaver
Title:
~~Title:~~	Senior Vice President – ~~Acting~~ Chief Accounting Officer

~~Effective Duration of Equity Scenarios~~

~~+200~~+200 bps

~~March 31,~~September 30, 2007

~~-5.41~~-5.21 years

~~4.85~~4.64 years

~~3.65~~1.91 years

December 31, 2006

-5.50 years