10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

OR

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

For the transition period from ________ to ________

Commission File Number 000-52004

FEDERAL HOME LOAN BANK OF TOPEKA

(Exact name of registrant as specified in its charter)

Federally chartered corporation	48-0561319
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
One Security Benefit Pl. Suite 100 Topeka, KS	66606
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 785.233.0507

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  o  Yes  oNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  ¨  Large accelerated filer  ¨  Accelerated filer  x  Non-accelerated filer  ¨  Smaller reporting company

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

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

	Shares outstanding as of August 7, 2009
Class A Stock, par value $100	3,135,318
Class B Stock, par value $100	14,086,199

FEDERAL HOME LOAN BANK OF TOPEKA

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Statements of Condition	4
	Statements of Income	5
	Statements of Capital	6
	Statements of Cash Flows	8
	Notes to Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
	Selected Financial Data	39
	Quarterly Overview	39
	Financial Market Trends	41
	Results of Operations	42
	Financial Condition	51
	Liquidity and Capital Resources	68
	Risk Management	71
	Critical Accounting Policies and Estimates	74
	Recently Issued Accounting Standards	75
	Recent Developments	75
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77
Item 4T.	Controls and Procedures	84
PART II.	OTHER INFORMATION	84
Item 1.	Legal Proceedings	84
Item 1A.	Risk Factors	84
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 3.	Defaults Upon Senior Securities	84
Item 4.	Submission of Matters to a Vote of Security Holders	84
Item 5.	Other Information	84
Item 6.	Exhibits	84
Federal Home Loan Bank of Topeka Capital Plan

Certification of Principal Executive Officer Pursuant to Section 302

Certification of Principal Financial Officer Pursuant to Section 302

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906

2

Important Notice about Information in this Quarterly Report

In this quarterly report, unless the context suggests otherwise, references to the “FHLBank,” “FHLBank Topeka,” “we,” “us” and “our” mean the Federal Home Loan Bank of Topeka, and “FHLBanks” means the 12 Federal Home Loan Banks, including the FHLBank Topeka.

The information contained in this quarterly report is accurate only as of the date of this quarterly report and as of the dates specified herein.

The product and service names used in this quarterly report are the property of the FHLBank, and in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services and company names mentioned in this quarterly report are the property of their respective owners.

The FHLBank filed an annual report on Form 10-K (referred in this report as “annual report on Form 10-K”) under the Securities Exchange Act of 1934 (“Exchange Act”) on March 26, 2009. Portions of the annual report on Form 10-K are incorporated by reference in this report.

Special Cautionary Notice Regarding Forward-looking Statements

The information included or incorporated by reference in this quarterly report on Form 10-Q contains certain forward-looking statements with respect to our financial condition, results of operations, plans, objectives, projections, estimates, predictions, future financial performance and ongoing business, including without limitation: statements that are not historical in nature, or statements preceded by, followed by or that include words such as “believes,” “expects,” “may,” “will,” “should,” “could,” “anticipates,” “estimates,” “intends” or similar expressions. The FHLBank cautions that, by their nature, forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions and actual results may differ materially from those expressed, contemplated or implied by the forward-looking statements or could affect the extent to which a certain plan, 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 FHLBank advances resulting from changes in FHLBank members’ deposit flows and/or credit demands;

§ The volume of eligible mortgage loans originated and sold by participating members to the FHLBank through its various mortgage finance products (Mortgage Partnership Finance® (MPF®) Program1);

§ Pricing of various mortgage finance products under the MPF Program by the MPF Provider since the FHLBank has only limited input on pricing through our participation on the MPF Governance Committee;

§ Volatility of market prices, rates and indices that could affect the value of investments or collateral held by the FHLBank as security for the obligations of FHLBank members and counterparties to derivatives and similar instruments or the FHLBank’s ability to liquidate collateral expediently in the event of a default by an obligor;

§ Political events, including legislative, regulatory, judicial, or other developments that affect the FHLBank, its members, counterparties and/or investors in the consolidated obligations of the 12 FHLBanks;

§ Competitive forces including, without limitation, other sources of funding available to FHLBank members including existing and newly created debt programs explicitly guaranteed by the U.S. government, other entities borrowing funds in the capital markets and the ability of the FHLBank to attract and retain skilled individuals;

§ The pace of technological change and the ability to develop and support technology and information systems, including the Internet, sufficient to manage the risks and operations of the FHLBank’s business effectively;

§ Changes in domestic and foreign investor demand for consolidated obligations of the 12 FHLBanks and/or the terms of derivatives and similar instruments including, without limitation, changes in the relative attractiveness of consolidated obligations as compared to other investment opportunities including existing and newly created debt programs explicitly guaranteed by the U.S. government;

§ Timing and volume of market activity;

§ Ability to introduce new FHLBank products and services, and successfully manage the risks associated with those products and services, including new types of collateral used to secure advances;

§ Risks related to the operations of the other 11 FHLBanks that could trigger our joint and several liability for debt issued by the other 11 FHLBanks;

§ Risk of loss arising from litigation filed against the FHLBank; and

§ Inflation/deflation.

For additional information regarding these and other risks, see Item 1A – “Risk Factors” in the annual report on Form 10-K, incorporated by reference herein.

Any forward-looking statements made or incorporated by reference in this quarterly report on Form 10-Q or that we may make from time to time are representative only as of the date they are made, and we undertake no obligation to update any forward-looking statement.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

1   "Mortgage Partnership Finance," "MPF" and "eMPF" are registered trademarks of the Federal Home Loan Bank of Chicago.

3

FEDERAL HOME LOAN BANK OF TOPEKA

STATEMENTS OF CONDITION – Unaudited

(In thousands, except par value)

	June 30, 2009			December 31, 2008
ASSETS
Cash and due from banks	$	87		$	75
Interest-bearing deposits		487,283			3,348,212
Federal funds sold		1,685,000			384,000
Trading securities (Note 3)		7,742,110			4,652,700
Held-to-maturity securities1 (Note 4)		8,396,471			11,050,897
Advances (Note 5)		24,529,745			35,819,674
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $882 and $884 (Note 6)		3,213,794			3,023,805
Accrued interest receivable		109,161			138,770
Premises, software and equipment, net		15,900			16,733
Derivative assets (Note 7)		30,983			34,526
Other assets (Note 10)		63,343			86,839
TOTAL ASSETS	$	46,273,877		$	58,556,231
LIABILITIES AND CAPITAL
Liabilities:
Deposits:
Interest-bearing:
Demand	$	201,923		$	104,856
Overnight		1,026,000			1,013,800
Term		26,185			570,340
Non-interest-bearing:
Demand		0			36
Other		24,047			14,499
Total deposits		1,278,155			1,703,531
Consolidated obligations, net (Note 8):
Discount notes		15,617,443			26,261,411
Bonds		26,815,219			27,421,634
Total consolidated obligations, net		42,432,662			53,683,045
Mandatorily redeemable capital stock (Note 11)		25,775			34,806
Accrued interest payable		173,145			253,743
Affordable Housing Program (Note 9)		41,413			27,707
Payable to Resolution Funding Corp. (REFCORP) (Note 10)		25,508			0
Derivative liabilities (Note 7)		269,397			404,356
Other liabilities		30,081			53,798
TOTAL LIABILITIES		44,276,136			56,160,986
Commitments and contingencies (Note 14)
Capital (Note 11):
Capital stock outstanding – putable:
Class A ($100 par value; 2,928 and 6,339 shares issued and outstanding)		292,825			633,941
Class B ($100 par value; 14,045 and 16,064 shares issued and outstanding)		1,404,487			1,606,394
Total capital stock		1,697,312			2,240,335
Retained earnings		306,229			156,922
Accumulated other comprehensive income:
Net non-credit portion of other-than-temporary impairment losses on held-to-maturity securities		(3,882	)		0
Defined benefit pension plan – prior service cost		10			15
Defined benefit pension plan – net loss		(1,928	)		(2,027	)
TOTAL CAPITAL		1,997,741			2,395,245
TOTAL LIABILITIES AND CAPITAL	$	46,273,877		$	58,556,231

__________

1    Fair value: $8,081,464 and $10,454,592 at June 30, 2009 and December 31, 2008, respectively.

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

4

FEDERAL HOME LOAN BANK OF TOPEKA

STATEMENTS OF INCOME – Unaudited

(In thousands)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2009			2008			2009			2008
INTEREST INCOME:
Interest-bearing deposits	$	3,910		$	151		$	7,003		$	514
Federal funds sold		704			15,348			1,987			52,515
Trading securities		26,043			27,477			57,246			52,993
Held-to-maturity securities		53,572			123,577			115,598			277,089
Advances		88,980			235,738			212,144			558,301
Prepayment fees on terminated advances		9,133			640			9,886			761
Mortgage loans held for portfolio		39,439			30,000			79,147			61,108
Overnight loans to other Federal Home Loan Banks		0			16			3			32
Other		750			863			1,554			1,770
Total interest income		222,531			433,810			484,568			1,005,083
INTEREST EXPENSE:
Deposits		1,066			5,780			3,588			16,723
Consolidated obligations:
Discount notes		15,347			139,695			63,274			333,542
Bonds		131,008			216,096			280,217			520,512
Overnight loans from other Federal Home Loan Banks		0			49			0			95
Mandatorily redeemable capital stock (Note 11)		79			150			373			393
Other		239			362			531			718
Total interest expense		147,739			362,132			347,983			871,983
NET INTEREST INCOME		74,792			71,678			136,585			133,100
Provision for credit losses on mortgage loans		104			64			114			73
NET INTEREST INCOME AFTER MORTGAGE LOAN LOSS PROVISION		74,688			71,614			136,471			133,027
OTHER INCOME (LOSS):
Total other-than-temporary impairment losses on held-to-maturity securities (Note 4)		(18	)		0			(1,077	)		0
Portion of other-than-temporary impairment losses on held-to-maturity securities recognized in other comprehensive income		0			0			1,018			0
Net other-than-temporary impairment losses on held-to-maturity securities		(18	)		0			(59	)		0
Net gain (loss) on trading securities (Note 3)		(25,718	)		(62,043	)		(15,845	)		(48,761	)
Net realized gain (loss) on sale of held-to-maturity securities (Note 4)		0			(10	)		0			(10	)
Net gain (loss) on derivatives and hedging activities (Note 7)		102,443			63,157			122,213			28,506
Service fees		1,562			1,357			3,086			2,672
Other		837			408			1,472			787
Total other income (loss)		79,106			2,869			110,867			(16,806	)
OTHER EXPENSES:
Compensation and benefits		5,377			5,460			11,117			11,094
Other operating		2,916			2,605			6,527			5,467
Finance Agency/Finance Board		412			411			864			822
Office of Finance		515			435			992			867
Other		1,338			1,521			1,726			1,788
Total other expenses		10,558			10,432			21,226			20,038
INCOME BEFORE ASSESSMENTS		143,236			64,051			226,112			96,183
Affordable Housing Program (Note 9)		11,700			5,244			18,496			7,892
REFCORP (Note 10)		26,307			11,761			41,523			17,658
Total assessments		38,007			17,005			60,019			25,550
NET INCOME	$	105,229		$	47,046		$	166,093		$	70,633

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

5

FEDERAL HOME LOAN BANK OF TOPEKA

STATEMENTS OF CAPITAL FOR PERIODS ENDED JUNE 30, 2009 AND 2008 – Unaudited

(In thousands)

																Accumulated
																Other
	Capital Stock Class A1						Capital Stock Class B1						Retained			Comprehensive			Total
	Shares			Par Value			Shares			Par Value			Earnings			Income			Capital
BALANCE – DECEMBER 31, 2007		6,042		$	604,190			14,870		$	1,486,997		$	208,763		$	(2,096	)	$	2,297,854
Proceeds from issuance of capital stock		30			3,068			10,991			1,099,111									1,102,179
Repurchase/redemption of capital stock								(598	)		(59,785	)								(59,785	)
Comprehensive income:
Net income														70,633
Other comprehensive income:
Reclassification adjustment for (gain) loss on hedging activities included in net income																	14
Amortization of prior service cost on defined benefit pension plan																	(13	)
Amortization of net loss on defined benefit pension plan																	110
Total comprehensive income																				70,744
Reclassification of shares to mandatorily redeemable capital stock		(745	)		(74,535	)		(8,109	)		(810,936	)								(885,471	)
Net transfer of shares between Class A and Class B		239			23,910			(239	)		(23,910	)								0
Dividends on capital stock (Class A – 2.4%, Class B – 5.3%):
Cash payment														(175	)					(175	)
Stock issued								454			45,448			(45,448	)					0
BALANCE – JUNE 30, 2008		5,566		$	556,633			17,369		$	1,736,925		$	233,773		$	(1,985	)	$	2,525,346

__________

1    Putable

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

6

FEDERAL HOME LOAN BANK OF TOPEKA

STATEMENTS OF CAPITAL FOR PERIODS ENDED JUNE 30, 2009 AND 2008 (continued) – Unaudited

(In thousands)

																Accumulated
																Other
	Capital Stock Class A1						Capital Stock Class B1						Retained			Comprehensive			Total
	Shares			Par Value			Shares			Par Value			Earnings			Income			Capital
BALANCE – DECEMBER 31, 2008		6,339		$	633,941			16,064		$	1,606,394		$	156,922		$	(2,012	)	$	2,395,245
Cumulative effect of adjustments to opening balance relating to FSP FAS 115-2 and FAS 124-22														3,349			(3,349	)		0
Proceeds from issuance of capital stock		44			4,390			1,803			180,329									184,719
Repurchase/redemption of capital stock		(1,181	)		(118,135	)		(137	)		(13,722	)								(131,857	)
Comprehensive income:
Net income														166,093
Other comprehensive income:
Non-credit portion of other-than-temporary impairment losses on held-to-maturity securities																	(1,018	)
Reclassification adjustment of non-credit portion of other-than-temporary impairment losses included in net income relating to held-to-maturity securities																	4
Amortization of non-credit portion of other-than-temporary impairment losses on held-to-maturity securities																	481
Amortization of prior service cost on defined benefit pension plan																	(5	)
Amortization of net loss on defined benefit pension plan																	99
Total comprehensive income																				165,654
Reclassification of shares to mandatorily redeemable capital stock		(954	)		(95,367	)		(5,205	)		(520,481	)								(615,848	)
Net transfer of shares between Class A and Class B		(1,320	)		(132,004	)		1,320			132,004									0
Dividends on capital stock (Class A – 0.8%, Class B – 2.5%):
Cash payment														(172	)					(172	)
Stock issued								200			19,963			(19,963	)					0
BALANCE – JUNE 30, 2009		2,928		$	292,825			14,045		$	1,404,487		$	306,229		$	(5,800	)	$	1,997,741

__________

1    Putable

2    Financial Accounting Standards Board Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments

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

7

FEDERAL HOME LOAN BANK OF TOPEKA

STATEMENTS OF CASH FLOWS – Unaudited

(In thousands)

	For the Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	166,093		$	70,633
Adjustments to reconcile income to net cash provided by (used in) operating activities:
Depreciation and amortization:
Premiums and discounts on consolidated obligations, net		(65,517	)		(57,217	)
Concessions on consolidated obligation bonds		7,235			12,783
Premiums and discounts on investments, net		(635	)		(764	)
Premiums and discounts on advances, net		(10,981	)		(15,438	)
Discounts on Housing and Community Development advances		(2	)		(3	)
Premiums, discounts and deferred loan costs on mortgage loans, net		1,943			2,773
Fair value adjustments on hedged assets or liabilities		11,486			17,970
Other comprehensive income		94			111
Premises, software and equipment		1,994			1,814
Provision for credit losses on mortgage loans		114			73
Non-cash interest on mandatorily redeemable capital stock		364			392
Net realized (gain) loss on sale of held-to-maturity securities		0			10
Loss on other-than-temporarily impaired held-to-maturity securities		59			0
Net realized (gain) loss on disposals of premises, software and equipment		3			0
Other (gains) losses		(28	)		(13	)
Net (gain) loss on trading securities		15,845			48,761
(Gain) loss due to change in net fair value adjustment on derivative and hedging activities		(153,554	)		(86,123	)
(Increase) decrease in accrued interest receivable		29,622			34,952
Change in net accrued interest included in derivative assets		479			37,616
(Increase) decrease in other assets		886			1,510
Increase (decrease) in accrued interest payable		(80,591	)		(66,611	)
Change in net accrued interest included in derivative liabilities		52,867			10,216
Increase (decrease) in Affordable Housing Program liability		13,706			(355	)
Increase (decrease) in REFCORP liability		41,523			694
Increase (decrease) in other liabilities		(18,322	)		35,665
Total adjustments		(151,410	)		(21,184	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		14,683			49,449
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits		3,022,379			(2,440	)
Net (increase) decrease in Federal funds sold		(1,301,000	)		3,010,300
Net (increase) decrease in short-term trading securities		(3,200,282	)		0
Proceeds from maturities of and principal repayments on long-term trading securities		95,121			69,014
Purchases of long-term trading securities		0			(926,018	)
Net (increase) decrease in short-term held-to-maturity securities		1,495,836			(422,771	)
Proceeds from maturities of and principal repayments on long-term held-to-maturity securities		1,163,539			515,155
Purchases of long-term held-to-maturity securities		0			(2,293,649	)
Principal collected on advances		155,100,915			312,692,284
Advances made		(144,141,481	)		(318,194,354	)
Principal collected on mortgage loans held for portfolio		563,125			169,172
Purchase or origination of mortgage loans held for portfolio		(758,275	)		(361,295	)
Principal collected on other loans made		743			695
Proceeds from sale of premises, software and equipment		13			0
Purchases of premises, software and equipment		(1,177	)		(1,050	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		12,039,456			(5,744,957	)

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

8

FEDERAL HOME LOAN BANK OF TOPEKA

STATEMENTS OF CASH FLOWS (continued) – Unaudited

(In thousands)

	For the Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits	$	(408,571	)	$	(469,760	)
Net proceeds from sale of consolidated obligation:
Discount notes		185,433,333			578,727,161
Bonds		10,153,213			12,035,855
Payments for maturing and retired consolidated obligation:
Discount notes		(196,017,556	)		(568,859,798	)
Bonds		(10,598,235	)		(15,959,022	)
Net increase (decrease) in other borrowings		(5,000	)		(5,000	)
Proceeds from financing derivatives		62			69,699
Net interest payments received (paid) for financing derivatives		(38,820	)		836
Proceeds from issuance of capital stock		184,719			1,102,179
Payments for repurchase/redemption of capital stock		(131,857	)		(59,785	)
Payments for repurchase of mandatorily redeemable capital stock		(625,243	)		(887,554	)
Cash dividends paid		(172	)		(175	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(12,054,127	)		5,694,636
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		12			(872	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		75			1,724
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	87		$	852
Supplemental disclosures:
Interest paid	$	460,197		$	975,750
Affordable Housing Program payments	$	4,958		$	8,430
REFCORP payments	$	0		$	16,964

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

9

FEDERAL HOME LOAN BANK OF TOPEKA

Notes to Financial Statements (Unaudited)

June 30, 2009

NOTE 1 – FINANCIAL STATEMENT PRESENTATION

The accompanying interim financial statements of the Federal Home Loan Bank of Topeka (FHLBank) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions provided by Article 10, Rule 10-01 of Regulation S-X. The financial statements contain all adjustments which are, in the opinion of management, necessary for a fair statement of the FHLBank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.

The FHLBank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2008. The interim financial statements presented herein should be read in conjunction with the FHLBank’s audited financial statements and notes thereto, which are included in the FHLBank’s annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 26, 2009 (annual report on Form 10-K). The notes to the interim financial statements highlight significant changes to the notes included in the annual report on Form 10-K.

Use of Estimates: The preparation of financial statements under GAAP requires management to make estimates and assumptions as of the date of the financial statements in determining the reported amounts of assets, liabilities and estimated fair values and in determining the disclosure of any contingent assets or liabilities. Estimates and assumptions by management also affect the reported amounts of income and expense during the reporting period. Many of the estimates and assumptions, including those used in financial models, are based on financial market conditions as of the date of the financial statements. Because of the volatility of the financial markets, as well as other factors that affect management estimates, actual results may vary from these estimates.

Reclassifications: Certain amounts in the 2008 financial statements have been reclassified to conform to the 2009 presentations. Such reclassifications have no impact on net income or capital.

Subsequent Events: The FHLBank has evaluated events and transactions for potential recognition or disclosure through the time of filing our second quarter 2009 Form 10-Q with the SEC on August 12, 2009.

NOTE 2 – RECENTLY ISSUED ACCOUNTING STANDARD AND ADOPTION OF ACCOUNTING STANDARDS AND INTERPRETATIONS

Issuance of SFAS 166: In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 166, Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140 (herein referred to as “SFAS 166”). This statement is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This statement removes the concept of a qualifying special purpose entity which will cause securitizations that were exempt from FASB Interpretation No. (FIN) 46(R), Consolidation of Variable Interest Entities - an interpretation of ARB No. 51, to be subject to that guidance. In addition, this statement clarifies: (1) that transfers of a portion of a financial asset can only get sales accounting if the portion held by the transferor meets the criteria to be classified as a participating interest; (2) that an entity must consider all agreements made contemporaneously with, or in contemplation of a transfer of financial assets; (3) that a transferor must evaluate whether it or its agents effectively control the transferred financial asset directly or indirectly; (4) that a transferor must recognize and initially measure all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of an entire financial asset or a group of financial assets accounted for as a sale; (5) that if a securitization of mortgage loans does not meet the conditions for sales accounting, the loans shall continue to be classified as loans; and (6) the legal isolation requirements to ensure that an entity considers all of its involvement in determining whether a financial asset has been put beyond the reach of the transferor and its creditors. Finally, this statement expands the disclosure requirements so financial statement users have: (1) a better understanding of a transferor’s continuing involvement; (2) the nature of any restrictions on assets reported by an entity in its statement of condition that relate to a transferred financial asset, including the carrying amounts of those assets; (3) how servicing assets and servicing liabilities are reported under this statement; and (4) for transfers accounted for as sales when a transferor has continuing involvement with the transferred financial assets and for the transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects a transferor's financial position, financial performance, and cash flows. SFAS 166 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009 (January 1, 2010 for the FHLBank), for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The FHLBank does not believe that the adoption of SFAS 166 will have a material effect on its financial condition, results of operations or cash flows.

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Issuance of SFAS 168: In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (herein referred to as ”SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification is not intended to change current GAAP; rather, its intent is to organize all accounting literature by topic in one place in order to enable users to quickly identify appropriate GAAP. SFAS 168 modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative. For SEC registrants, SEC rules and interpretive releases will continue to be sources of authoritative GAAP. In addition, the FASB no longer will consider new standards as authoritative in their own right. Instead, the new standards will serve only to provide background information about the issue, update the Codification, and provide the basis for conclusions regarding changes in the Codification. SFAS 168 is effective for interim and annual periods ending after September 15, 2009 (September 30, 2009 for the FHLBank). SFAS 168 is not intended to change or alter existing GAAP and accordingly, the FHLBank does not expect adoption of this statement to have a material impact on the FHLBank’s financial condition, results of operations or cash flows although it will substantially change the way that GAAP is referenced in future financial statements and SEC filings.

Issuance of Accounting Standards Update (ASU) No 2009-01: In June 2009, the FASB issued ASU No. 2009-01, Topic 105 - Generally Accepted Accounting Principles - amendments based on Statement of Financial Accounting Standards No. 168 - The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, (herein referred to as “ASU 2009-01”). This update officially changes the GAAP structure brought about by SFAS 168 and creates Topic 105 in the Accounting Standards Codification (ASC). ASU 2009-01 is not intended to change or alter existing GAAP and accordingly, the FHLBank does not expect adoption of this guidance to have a material impact on the FHLBank’s financial condition, results of operations or cash flows.

Adoption of FSP FAS 107-1 and APB 28-1: In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (herein referred to as “FSP FAS 107-1”). FSP FAS 107-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments (herein referred to as “SFAS 107”) and Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to require entities to disclose the fair value of all financial instruments within the scope of SFAS 107 in all interim financial statements as well as in annual financial statements. FSP FAS 107-1 also requires disclosure of the method(s) and significant assumptions used to estimate the fair value of those financial instruments. Previously, these disclosures were required only in annual financial statements. FSP FAS 107-1 is effective and should be applied prospectively for interim reporting periods ending after June 15, 2009, with early adoption permissible for interim reporting periods ending after March 15, 2009 as long as both FSP FAS 115-2 and FAS 124-2 and FSP FAS 157-4 are early adopted. In periods after initial adoption, FSP FAS 107-1 requires comparative disclosures only for periods ending subsequent to initial adoption. The FHLBank elected to early adopt FSP FAS 107-1 effective January 1, 2009. The adoption resulted in increased financial disclosures but did not have any impact on the FHLBank’s financial condition, results of operations or cash flows.

Adoption of FSP FAS 115-2 and FAS 124-2: In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (herein referred to as “FSP FAS 115-2”). FSP FAS 115-2 amends the other-than-temporary impairment (OTTI) guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. This FSP clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired and changes the presentation and calculation of the OTTI on debt securities recognized in earnings in the financial statements. FSP FAS 115-2 does not amend existing recognition and measurement guidance related to OTTI of equity securities. This FSP expands and increases the frequency of existing disclosures about OTTI for debt and equity securities and requires new disclosures to help users of financial statements understand the significant inputs used in determining a credit loss, as well as a roll-forward of that amount each period.

If the fair value of a debt security is less than its amortized cost basis, FSP FAS 115-2 requires an entity to assess whether: (1) it has the intent to sell the debt security; or (2) it is more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI must be recognized.

Instances in which a determination is made that a credit loss (defined by FSP FAS 115-2 as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security, nor is it more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), FSP FAS 115-2 changes the presentation and amount of the OTTI recognized in the income statement. In these instances, the OTTI is separated into: (a) the amount of the total OTTI related to the credit loss; and (b) the amount of the total OTTI related to all other factors. The amount of the total OTTI related to all other factors is recognized in other comprehensive income. Subsequent non-OTTI-related increases and decreases in the fair value of available-for-sale securities will be included in other comprehensive income. The OTTI recognized in other comprehensive income for debt securities classified as held-to-maturity will be amortized over the remaining life of the debt security as an increase in the carrying value of the security (with no effect on earnings unless the security is subsequently sold or there is additional OTTI credit loss recognized). The total OTTI is presented in the income statement with an offset for the amount of the total OTTI that is recognized in other comprehensive income. Previously, in all cases, if an impairment was determined to be other-than-temporary, an impairment loss was recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value as of the balance sheet date of the reporting period for which the assessment was made. The new presentation provides additional information about the amounts that the entity does not expect to collect related to a debt security.

FSP FAS 115-2 is effective and should be applied prospectively for interim and annual periods ending after June 15, 2009, with early adoption permissible for interim reporting periods ending after March 15, 2009 as long as FSP FAS 157-4 is also early adopted. When adopting FSP FAS 115-2, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the non-credit component of a previously recognized OTTI from retained earnings to accumulated other comprehensive income if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis.

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The FHLBank elected to early adopt FSP FAS 115-2 effective January 1, 2009 and recognized the effects of applying FSP FAS 115-2 as a change in accounting principle. The FHLBank recognized a $3,349,000 cumulative-effect adjustment of initially applying FSP FAS 115-2 as an adjustment to retained earnings (increase or credit) at January 1, 2009 with a corresponding adjustment (decrease or debit) to accumulated other comprehensive income. Had the FHLBank not early adopted FSP FAS 115-2, the FHLBank would have had lower net income before assessments of $685,000 ($1,018,000 OTTI non-credit component recognized in OCI would have been a charge or decrease to net income before assessments and $333,000 of discount accretion for the non-credit component would have been accreted to interest income (increase) instead of to the carrying value of the securities) for the quarter ended March 31, 2009. The adoption of FSP FAS 115-2 also increased financial statement disclosures.

Adoption of FSP FAS 157-4: In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (herein referred to as “FSP FAS 157-4”). FSP FAS 157-4 amends SFAS 157 by providing additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and also provides guidance on identifying circumstances that indicate a transaction is not orderly. The FSP allows quoted prices to be adjusted if it is concluded that a significant decrease in the volume and level of activity for the asset or liability, in relation to normal market activity, has occurred. It also provides management a framework from which to determine whether a transaction is orderly (or not orderly). The FSP also expands disclosures for interim and annual periods to include additional categories for securities within the scope of SFAS 115(as amended by FSP FAS 115-2). FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permissible for interim reporting periods ending after March 15, 2009 as long as FSP FAS 115-2 is also early adopted. The FHLBank elected to early adopt FSP FAS 157-4 effective January 1, 2009. The adoption of this FSP resulted in increased financial disclosures but did not have a material impact on our financial condition, results of operations or cash flows.

Adoption of SFAS 165: In May 2009, the FASB issued SFAS No. 165, Subsequent Events (herein referred to as “SFAS 165”), which is intended to establish principles and requirements for subsequent events not addressed in other GAAP. SFAS 165 sets forth: (1) the period after the balance sheet date during which management shall evaluate events; (2) circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date; and (3) the disclosures that an entity shall make about events or transactions that occur after the balance sheet date, including a disclosure as to the date through which an entity has evaluated subsequent events and whether that represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim periods or annual financial periods ending after June 15, 2009 (June 30, 2009 for the FHLBank). The adoption of SFAS 165 resulted in increased financial statement disclosures but did not have an impact on the FHLBank’s financial condition, results of operations or cash flows.

NOTE 3 – TRADING SECURITIES

Major Security Types: Tradingsecurities as of June 30, 2009 and December 31, 2008 are summarized in the following table (in thousands):

	Estimated Fair Values
	June 30, 2009		December 31, 2008
Certificates of deposit	$	2,709,519	$	1,571,449
Commercial paper		2,734,565		673,435
FHLBank1 obligations		294,972		316,618
Fannie Mae2 obligations		390,863		403,027
Freddie Mac2 obligations		982,581		1,009,074
Subtotal		7,112,500		3,973,603
Residential mortgage-backed securities:
Fannie Mae2		374,397		399,863
Freddie Mac2		253,311		277,278
Ginnie Mae3		1,902		1,956
Residential mortgage-backed securities		629,610		679,097
TOTAL	$	7,742,110	$	4,652,700

__________

1	See Note 16 for transactions with other FHLBanks.
2	Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are government sponsored enterprises (GSEs). Both entities were placed into conservatorship by the Federal Housing Finance Agency (Finance Agency) on September 7, 2008 with the Finance Agency named as conservator.
3	Government National Mortgage Association (Ginnie Mae) securities are guaranteed by the U.S. government.

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Redemption Terms:The estimated fair values of trading securities by contractual maturity as of June 30, 2009 and December 31, 2008 are shown in the following table (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	June 30, 2009		December 31, 2008
Due in one year or less	$	5,444,084	$	2,244,884
Due after one year through five years		610,346		446,071
Due after five years through 10 years		1,058,070		1,282,648
Due after 10 years		0		0
Subtotal		7,112,500		3,973,603
Residential mortgage-backed securities		629,610		679,097
TOTAL	$	7,742,110	$	4,652,700

For securities held as of June 30, 2009, the unrealized net gain (loss) on trading securities during the three-month periods ended June 30, 2009 and 2008 included a net gain (loss) of $(24,674,000) and $(61,574,000), respectively. For securities held as of June 30, 2009, the unrealized net gain (loss) on trading securities during the six-month periods ended June 30, 2009 and 2008 included a net gain (loss) of $(14,321,000) and $(49,449,000), respectively

NOTE 4 – HELD-TO-MATURITY SECURITIES

Major Security Types:Held-to-maturity securities as of June 30, 2009 are summarized in the following table (in thousands):

	Carrying Value		OTTI Recognized in OCI		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Values
State or local housing agency obligations	$	140,490	$	0	$	140,490	$	530	$	436	$	140,584
Subtotal		140,490		0		140,490		530		436		140,584
Mortgage-backed securities:
Fannie Mae residential1		3,055,846		0		3,055,846		9,144		27,906		3,037,084
Freddie Mac residential1		2,964,026		0		2,964,026		14,014		26,414		2,951,626
Ginnie Mae residential2		34,237		0		34,237		1,402		111		35,528
Private-label mortgage-backed securities:
Residential loans		2,159,139		1,580		2,160,719		413		286,003		1,875,129
Commercial loans		40,151		0		40,151		0		1,394		38,757
Home equity loans		2,150		2,302		4,452		0		2,122		2,330
Manufactured housing loans		432		0		432		0		6		426
Mortgage-backed securities		8,255,981		3,882		8,259,863		24,973		343,956		7,940,880
TOTAL	$	8,396,471	$	3,882	$	8,400,353	$	25,503	$	344,392	$	8,081,464

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Ginnie Mae securities are guaranteed by the U.S. government.

Held-to-maturity securities as of December 31, 2008 are summarized in the following table (in thousands):

	Amortized Cost4		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Values
Certificates of deposit	$	760,000	$	985	$	0	$	760,985
Commercial paper		737,271		1,496		0		738,767
State or local housing agency obligations		155,247		701		561		155,387
Subtotal		1,652,518		3,182		561		1,655,139
Mortgage-backed securities:
Fannie Mae1		3,354,012		4,566		107,773		3,250,805
Freddie Mac1		3,388,254		7,831		109,019		3,287,066
Ginnie Mae2		37,663		1,496		278		38,881
Other3		2,618,450		813		396,562		2,222,701
Mortgage-backed securities		9,398,379		14,706		613,632		8,799,453
TOTAL	$	11,050,897	$	17,888	$	614,193	$	10,454,592

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Ginnie Mae securities are guaranteed by the U.S. government.
3	Primarily consists of private-label mortgage-backed securities.
4	As of December 31, 2008, carrying value is equivalent to amortized cost.

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The following table summarizes (in thousands) the held-to-maturity securities with unrecognized losses as of June 30, 2009. The unrecognized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrecognized loss position.

	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Values		Unrecognized Losses		Estimated Fair Values		Unrecognized Losses		Estimated Fair Values		Unrecognized Losses
State or local housing agency obligations	$	34,009	$	433	$	827	$	3	$	34,836	$	436
Subtotal		34,009		433		827		3		34,836		436
Mortgage-backed securities:
Fannie Mae residential1		523,028		3,804		1,812,188		24,102		2,335,216		27,906
Freddie Mac residential1		440,365		3,029		1,826,480		23,385		2,266,845		26,414
Ginnie Mae residential2		1,201		2		7,866		109		9,067		111
Private-label mortgage-backed securities:
Residential loans		64,422		2,753		1,698,518		283,250		1,762,940		286,003
Commercial loans		0		0		38,757		1,394		38,757		1,394
Home equity loans		0		0		2,330		2,122		2,330		2,122
Manufactured housing loans		0		0		426		6		426		6
Mortgage-backed securities		1,029,016		9,588		5,386,565		334,368		6,415,581		343,956
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	1,063,025	$	10,021	$	5,387,392	$	334,371	$	6,450,417	$	344,392

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Ginnie Mae securities are guaranteed by the U.S. government.

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

	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Values		Unrecognized Losses		Estimated Fair Values		Unrecognized Losses		Estimated Fair Values		Unrecognized Losses
State or local housing agency obligations	$	37,170	$	554	$	1,363	$	7	$	38,533	$	561
Subtotal		37,170		554		1,363		7		38,533		561
Mortgage-backed securities:
Fannie Mae1		2,005,650		65,252		875,306		42,521		2,880,956		107,773
Freddie Mac1		2,050,859		65,383		853,049		43,636		2,903,908		109,019
Ginnie Mae2		9,726		278		0		0		9,726		278
Other3		1,109,510		171,665		1,064,388		224,897		2,173,898		396,562
Mortgage-backed securities		5,175,745		302,578		2,792,743		311,054		7,968,488		613,632
TOTAL TEMPORARILY IMPAIRED SECURITIES	$	5,212,915	$	303,132	$	2,794,106	$	311,061	$	8,007,021	$	614,193

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Ginnie Mae securities are guaranteed by the U.S. government.
3	Primarily consists of private-label mortgage-backed securities.

Other-than-temporary Impairment: The FHLBank evaluates its individual held-to-maturity investment security holdings for OTTI at least quarterly, or more frequently if events or changes in circumstances indicate that these investments may be other-than-temporarily impaired. As part of this process, if the fair value of a security is less than its amortized cost basis, the FHLBank considers its intent to sell the debt security and whether it is more likely than not that the FHLBank will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, the FHLBank recognizes an OTTI charge in earnings equal to the entire difference between the debt security’s amortized cost and its fair value as of the balance sheet date. For securities that meet neither of these conditions and their fair value is less than the amortized cost basis, the FHLBank performs an analysis to determine if any of these securities are at risk for OTTI. To determine which individual securities are at risk for OTTI and should be quantitatively evaluated utilizing a detailed cash flow analysis, the FHLBank uses indicators, or “screens,” which consider various characteristics of each security including, but not limited to, the following: (1) Nationally-Recognized Statistical Rating Organization (NRSRO) credit rating and related outlook or status; (2) the creditworthiness of the issuers of the Agency debt securities; (3) the strength of the government-sponsored enterprises’ guarantees of the holdings of Agency MBS; (4) the underlying type of collateral; (5) the duration and level of the unrecognized loss; (6) any credit enhancements or insurance; and (7) certain other collateral-related characteristics such as FICO credit scores, delinquency rates and the security’s performance. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment.

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As a result of this security-level review, the FHLBank identifies individual securities which are subjected to a detailed cash flow analysis using models to determine the cash flows that are likely to be collected. Securities for which OTTI has been determined in a prior period and at-risk securities are evaluated by estimating projected cash flows that the FHLBank is likely to collect based upon a careful assessment of all available information about each individual security. This assessment is made considering the structure of the security including the level of credit support and the remaining payment terms of the security as well as making certain assumptions about the future performance of the security based upon such factors as prepayment speeds, default rates, loss severity, expected housing price changes and interest rate assumptions in order to determine whether the FHLBank will recover the entire amortized cost of the security. The loan level cash flows and losses were allocated to various security classes, including the security classes owned by the FHLBank, based on the cash flow and loss allocation rules of the individual security. In performing a detailed analysis of each at-risk security based upon these factors, the FHLBank identifies its best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit loss, any impairment is not other-than-temporary.

For private-label MBS, risk characteristics or screens used to select at risk securities for cash flow analysis include: (1) the duration and magnitude of the unrealized loss; (2) credit ratings below AAA by at least one NRSRO; and (3) criteria related to the credit performance of the underlying collateral, such as the ratio of (a) credit enhancement to expected collateral losses, and (b) seriously delinquent loans to credit enhancement. For these purposes, expected collateral losses are those that are implied by current delinquencies taking into account a default probability based on the state of delinquency and a loss severity assumption based on product and vintage; seriously delinquent loans are those that are 60 or more days past due, including loans in foreclosure, in bankruptcy and real estate owned. In generating the expected cash flows for each of these securities, the FHLBank of Dallas on behalf of the FHLBank used two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the FHLBank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (“CBSAs”), which are based upon an assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The FHLBank’s housing price forecast assumed current-to-trough home price declines ranging from 0 percent to 20 percent over the next 9 to 15 months (resulting in peak-to-trough home price declines of up to 51 percent). Thereafter, home prices are projected to increase one percent in the first year, three percent in the second year and four percent in each subsequent year. The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules.

As a result of these security-level evaluations, the FHLBank determined that six private-label MBS were other-than-temporarily impaired as of June 30, 2009 because the FHLBank determined that it was likely that it would not recover the entire amortized cost of these securities. These securities included the five private-label MBS that had been identified as other-than-temporarily impaired in 2008 and one private-label MBS that was first identified as other-than-temporarily impaired in the first quarter of 2009. No new private-label MBS were identified as other-than-temporarily impaired in the second quarter of 2009. The OTTI amount related to non-credit losses represents the difference between the current fair value of the security and the FHLBank’s best estimate of the cash flows expected to be collected, which is calculated as described in the previous paragraph. The OTTI amount recognized in other comprehensive income is accreted to the carrying value of the security on a prospective basis over the remaining life of the security. That accretion increases the carrying value of the security and continues until the security is sold or matures, or there is an additional OTTI that is recognized in earnings. The FHLBank does not intend to sell any of these securities, nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis of the six OTTI securities.

For the six private-label securities identified as other-than-temporarily impaired, the FHLBank’s reported balances as of June 30, 2009 are as follows (in thousands):

	Unpaid Principal Balance		Amortized Cost		Gross Unrecognized Losses		Fair Value
Private-label mortgage-backed securities:
Prime residential loans	$	3,013	$	3,013	$	1,677	$	1,336
Home equity loans		5,954		4,452		2,122		2,330
TOTAL	$	8,967	$	7,465	$	3,799	$	3,666

The FHLBank recognized OTTI on its held-to-maturity securities portfolio for the three- and six-month periods ended June 30, 2009, based on the FHLBank’s impairment analysis of its investment portfolio, as follows (in thousands):

	Three-month period ending June 30, 2009						Six-month period ending June 30, 2009
	OTTI Related to Credit Losses		OTTI Related to Non-credit Losses		Total OTTI Losses		OTTI Related to Credit Losses		OTTI Related to Non-credit Losses		Total OTTI Losses
Private-label mortgage-backed securities:
Home equity loans	$	18	$	0	$	18	$	59	$	1,018	$	1,077

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The following table presents a roll-forward of OTTI activity related to credit losses recognized in earnings and OTTI activity related to all other factors recognized in other comprehensive income (in thousands):

	Three-month period ending June 30, 2009								Six-month period ending June 30, 2009
	OTTI Related to Credit Loss		OTTI Related to Other Factors			Total OTTI			OTTI Related to Credit Loss		OTTI Related to Other Factors			Total OTTI
Balance, beginning of period1	$	1,439	$	4,034		$	5,473		$	1,424	$	3,349		$	4,773
Additional charge on a security for which OTTI was not previously recognized		0		0			0			41		1,018			1,059
Additional charge on a security for which OTTI was previously recognized		14		0			14			14		0			14
Reclassification adjustment of non-credit portion of OTTI included in net income		4		(4	)		0			4		(4	)		0
Amortization of credit component of OTTI2		45		0			45			19		0			19
Accretion of OTTI related to all other factors		0		(148	)		(148	)		0		(481	)		(481	)
Balance, end of period	$	1,502	$	3,882		$	5,384		$	1,502	$	3,882		$	5,384

__________

1

The FHLBank adopted FSP FAS 115-2 as of January 1, 2009 and recognized the cumulative effect of initially applying FSP FAS 115-2, totaling $3,349,000 as an adjustment to the retained earnings balance at January 1, 2009 with a corresponding adjustment to accumulated other comprehensive income.

2

The FHLBank amortizes the credit component based on estimated cash flows prospectively up to the amount of expected principal to be recovered. The discounted cash flows will move from the discounted loss value to the ultimate principal to be written off at the projected date of loss. If the expected cash flows improve, the amount of expected loss decreases which causes a corresponding decrease in the calculated amortization. Based on the level of improvement in the cash flows, the amortization could become a positive adjustment to income.

The following table presents a summary of the significant inputs used to generate the expected cash flows used to measure the amount of the OTTI credit loss recognized in earnings during the three-month period ended June 30, 2009 on private-label MBS by security type and vintage (amounts in thousands):

Year of Securitization	Number of Securities		Unpaid Principal Balance		Weighted Average Prepayment Rate			Weighted Average Default Rate			Weighted Average Loss Severity			Weighted Average Current Credit Enhancement
Private-label mortgaged-back securities:
Home equity loans:
2003 and earlier		1	$	1,606		10.0	%		11.0	%		60.0	%		0.0	%

Although there has been some improvement in the fair value of the FHLBank’s held-to-maturity securities portfolio during 2009, the fair value of a majority of its portfolio remains below the amortized cost of the securities due to interest rate volatility, illiquidity in the marketplace and credit deterioration in the U.S. mortgage markets since early 2008. However, the decline in fair value of these securities is considered temporary as the FHLBank expects to recover the entire amortized cost basis on the remaining held-to-maturity securities in unrecognized loss positions and neither intends to sell these securities nor it is more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis.

Redemption Terms:The amortized cost and estimated fair values of held-to-maturity securities by contractual maturity as of June 30, 2009 and December 31, 2008 are shown in the following table (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	June 30, 2009						December 31, 2008
	Amortized Cost		Carrying Value		Estimated Fair Values		Amortized Cost1		Estimated Fair Values
Due in one year or less	$	10,000	$	10,000	$	10,241	$	1,507,271	$	1,510,033
Due after one year through five years		75		75		76		120		123
Due after five years through 10 years		1,035		1,035		1,052		1,320		1,339
Due after 10 years		129,380		129,380		129,215		143,807		143,644
Subtotal		140,490		140,490		140,584		1,652,518		1,655,139
Mortgage-backed securities		8,259,863		8,255,981		7,940,880		9,398,379		8,799,453
TOTAL	$	8,400,353	$	8,396,471	$	8,081,464	$	11,050,897	$	10,454,592

__________

1 At December 31, 2008, carrying value is equivalent to amortized cost.

The carry value of the FHLBank’s mortgage-backed securities included net discounts of $15,120,000 as of June 30, 2009. The amortized cost of the FHLBank’s mortgage-backed securities included net discounts of $16,504,000 as of December 31, 2008. Other investments included net discounts of $0 and $2,728,000 as of June 30, 2009 and December 31, 2008, respectively.

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Interest Rate Payment Terms: The following table details interest rate payment terms for held-to-maturity securities as of June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009		December 31, 2008
Amortized cost of held-to-maturity securities other than mortgage-backed securities:
Fixed rate	$	59,585	$	1,416,333
Variable rate		80,905		236,185
Subtotal		140,490		1,652,518
Amortized cost of held-to-maturity mortgage-backed securities:
Pass-through securities:
Fixed rate		765		923
Variable rate		8,336		9,666
Collateralized mortgage obligations:
Fixed rate		2,314,853		2,793,227
Variable rate		5,935,909		6,594,563
Subtotal		8,259,863		9,398,379
TOTAL	$	8,400,353	$	11,050,897

NOTE 5 – ADVANCES

Redemption Terms: As of June 30, 2009 and December 31, 2008, the FHLBank had advances outstanding at interest rates ranging from zero percent to 8.64 percent at both period ends as summarized in the following table (in thousands):

	June 30, 2009						December 31, 2008
Year of Maturity	Amount			Weighted Average Interest Rate			Amount			Weighted Average Interest Rate
Due in one year or less	$	8,805,159			1.23	%	$	18,047,311			1.36	%
Due after one year through two years		2,638,312			3.78			3,443,180			4.24
Due after two years through three years		1,611,690			3.53			1,788,559			3.94
Due after three years through four years		1,805,105			3.40			1,066,763			4.03
Due after four years through five years		1,101,472			3.30			1,460,101			3.51
Thereafter		8,102,019			2.71			9,178,873			2.84
Total par value		24,063,757			2.42	%		34,984,787			2.34	%
Discounts on HCD advances		(36	)					(37	)
Premiums on other advances		0						52
Discounts on other advances		(41,579	)					(13,812	)
SFAS 133 fair value adjustments1		507,603						848,684
TOTAL	$	24,529,745					$	35,819,674

__________

1 See Note 7 for a discussion of: (1) the FHLBank’s objectives for using derivatives; (2) the types of assets and liabilities hedged; and (3) the accounting for derivatives and the related assets and liabilities hedged.

In general, a borrower is charged a prepayment fee when an advance is repaid before its stated maturity. Prepayment fees are calculated using methods that make the FHLBank financially indifferent to the advance prepayments. The FHLBank’s advances outstanding include advances that contain call options that may be exercised with or without prepayment fees at the borrower’s discretion on specific dates (call dates) before the stated advance maturities (callable advances). The borrowers normally exercise their call options on these advances when interest rates decline (fixed rate advances) or spreads change (adjustable rate advances). The FHLBank’s advances as of June 30, 2009 and December 31, 2008 include callable advances totaling $3,868,521,000 and $6,395,434,000, respectively. Of these callable advances, there were $3,832,455,000 and $6,324,845,000 of variable rate advances as of June 30, 2009 and December 31, 2008, respectively. The following table summarizes the FHLBank’s advances by year of maturity, or by the next call date for callable advances (in thousands):

Year of Maturity or Next Call Date	June 30, 2009		December 31, 2008
Due in one year or less	$	12,547,566	$	23,371,131
Due after one year through two years		2,313,499		2,903,380
Due after two years through three years		1,444,057		1,507,000
Due after three years through four years		1,639,282		956,320
Due after four years through five years		989,307		1,438,854
Thereafter		5,130,046		4,808,102
TOTAL PAR VALUE	$	24,063,757	$	34,984,787

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The FHLBank’s advances outstanding also include advances that contain conversion options that may be exercised at the FHLBank’s discretion on specific dates (conversion dates) before the stated advance maturities (convertible advances). With convertible advances, the FHLBank effectively purchases put options from the borrowers that allow the FHLBank to convert the fixed rate advances to variable rate advances. In exchange for the options, borrowers are charged interest rates that are below those for fixed rate advances with comparable maturities. The FHLBank normally exercises its conversion options on these advances when interest rates increase. The FHLBank’s advances as of June 30, 2009 and December 31, 2008, included convertible advances totaling $5,309,722,000 and $5,759,422,000, respectively. The following table summarizes the FHLBank’s advances by year of maturity or by the next conversion or put date for convertible advances (in thousands):

Year of Maturity or Next Conversion or Put Date	June 30, 2009		December 31, 2008
Due in one year or less	$	12,770,426	$	22,092,269
Due after one year through two years		2,255,162		3,179,739
Due after two years through three years		1,384,229		1,597,048
Due after three years through four years		1,524,179		684,963
Due after four years through five years		1,132,998		1,459,026
Thereafter		4,996,763		5,971,742
TOTAL PAR VALUE	$	24,063,757	$	34,984,787

Interest Rate Payment Terms: The following table details additional interest rate payment terms for advances as of June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009					December 31, 2008
	Amount		Percentage			Amount		Percentage
Par amount of advances:
Fixed rate	$	18,622,789		77.4	%	$	20,258,429		57.9	%
Variable rate		5,440,968		22.6			14,726,358		42.1
TOTAL	$	24,063,757		100.0	%	$	34,984,787		100.0	%

NOTE 6 – MORTGAGE LOANS HELD FOR PORTFOLIO

The Mortgage Partnership Finance® (MPF®) Program involves the FHLBank investing in mortgage loans, which are either funded by the FHLBank through or purchased from its participating members. The total loans represent held-for-portfolio loans under the MPF Program whereby participating FHLBank members originate and credit enhance home mortgage loans that are owned by the FHLBank. Depending upon a member’s product selection, however, the servicing rights can be retained or sold by the participating member. The FHLBank does not buy or own any mortgage servicing rights.

The following table presents information as of June 30, 2009 and December 31, 2008 on mortgage loans held for portfolio (in thousands):

	June 30, 2009			December 31, 2008
Real Estate
Fixed rate, medium-term1, single-family mortgages	$	845,890		$	808,298
Fixed rate, long-term, single-family mortgages		2,366,074			2,212,249
Total par value		3,211,964			3,020,547
Premiums		17,113			16,985
Discounts		(10,684	)		(11,666	)
Deferred loan costs, net		961			812
SFAS 133 fair value adjustments2		(4,678	)		(1,989	)
Total before Allowance for Credit Losses on Mortgage Loans		3,214,676			3,024,689
Allowance for Credit Losses on Mortgage Loans		(882	)		(884	)
MORTGAGE LOANS, NET	$	3,213,794		$	3,023,805

__________

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

2 See Note 7 for a discussion of: (1) the FHLBank’s objectives for using derivatives; (2) the types of assets and liabilities hedged; and (3) the accounting for derivatives and the related assets and liabilities hedged.

The par value of mortgage loans held for portfolio outstanding at June 30, 2009 and December 31, 2008 was comprised of government-insured or guaranteed (by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), the Rural Housing Service of the Department of Agriculture (RHS) and the Department of Housing and Urban Development (HUD)) loans totaling $233,591,000 and $195,619,000, respectively, and conventional, size-conforming mortgage loans totaling $2,978,373,000 and $2,824,928,000, respectively.

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The allowance for credit losses on mortgage loans for the three- and six-month periods ended June 30, 2009 and 2008, respectively, was as follows (in thousands):

	Three-month period ended						Six-month period ending
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Balance, beginning of period	$	889		$	842		$	884		$	844
Provision for credit losses on mortgage loans		104			64			114			73
Charge-offs		(111	)		(67	)		(116	)		(78	)
Balance, end of period	$	882		$	839		$	882		$	839

Mortgage loans are considered impaired when, based on current information and events, it is probable that the FHLBank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement. The FHLBank considers the mortgage loans to be collateral dependent, and thus measures impairment based on the fair value of the collateral. At June 30, 2009 and December 31, 2008, the FHLBank had no recorded investments in impaired mortgage loans.

The credit enhancement is an obligation on the part of the participating member that ensures the retention of credit risk on loans it originates on behalf of or sells to the FHLBank. The FHLBank pays the participating member a credit enhancement fee for managing this portion of the credit risk in the pool of loans. These fees are paid monthly based upon the remaining unpaid principal balance for the pool of loans. Credit enhancement fees paid by the FHLBank to participating members for assuming the credit enhancement obligation are netted against interest income when paid. During the three-month periods ended June 30, 2009 and 2008, credit enhancement fees paid by the FHLBank to participating members totaled $703,000 and $609,000, respectively. Credit enhancement fees paid by the FHLBank to participating members totaled $1,177,000 and $1,195,000 for the six-month periods ended June 30, 2009 and 2008, respectively.

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

Nature of Business Activity: The FHLBank enters into various types of derivatives to manage its exposure to changes in interest rates. The FHLBank may utilize derivatives to adjust the effective maturity, re-pricing frequency or option characteristics of financial instruments to achieve risk management objectives. The FHLBank uses derivatives in three ways: (1) by designating them as either a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction; (2) by acting as an intermediary; or (3) in asset/liability management (i.e., an economic hedge). For example, the FHLBank uses derivatives in its overall interest rate risk management to adjust the interest rate sensitivity of consolidated obligations to approximate more closely the interest rate sensitivity of assets (advances, investments and/or mortgage loans), and/or to adjust the interest rate sensitivity of advances, investments or mortgage loans to approximate more closely the interest rate sensitivity of liabilities.

Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, or benchmark rate (including changes that reflect losses or gains on firm commitments), are recorded in other income (loss) as “Net gain (loss) on derivatives and hedging activities.” Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, a component of capital, until earnings are affected by the variability of the cash flows of the hedged transaction (i.e., until the recognition of interest on a variable rate asset or liability is recorded in earnings). For both fair value and cash flow hedges, any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in fair value of the hedged item or the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings. The differentials between accruals of interest receivables and payables on derivatives designated as fair value or cash flow hedges are recognized as an adjustment to the interest income or expense of the designated underlying investment securities, advances, consolidated obligations or other financial instruments.

Consistent with Finance Agency regulation, the FHLBank enters into derivatives only to reduce the interest rate risk exposures inherent in otherwise unhedged assets and funding positions to achieve risk management objectives and to act as an intermediary between its members and counterparties. Derivatives are used when they represent the most cost-effective alternative to achieve the FHLBank’s financial and risk management objectives. Accordingly, the FHLBank may enter into derivatives that do not necessarily qualify for hedge accounting (economic hedges as discussed above).

An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities or firm commitments that does not qualify for hedge accounting but is an acceptable hedging strategy under the FHLBank’s Risk Management Policy (RMP). These economic hedging strategies also comply with Finance Agency regulatory requirements prohibiting speculative hedge transactions. An economic hedge by definition introduces the potential for earnings variability caused by changes in fair value on the derivative that are recorded in the FHLBank’s income but not offset by corresponding changes in the fair value of the economically hedged asset, liability or firm commitment being recorded simultaneously in income. As a result, the FHLBank recognizes only the change in fair value of these derivatives in other income (loss) as “Net gain (loss) on derivatives and hedging activities” with no offsetting fair value adjustments for the asset, liability or firm commitment. The differentials between accruals of interest receivables and payables on intermediated derivatives for members and other economic hedges are recognized as other income (loss). Therefore, both the net interest on the stand-alone derivative and the fair value changes are recorded in other income (loss) as “Net gain (loss) on derivatives and hedging activities.” Cash flows associated with stand-alone derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows.

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The most common ways in which the FHLBank uses derivatives are to:

§ Reduce the interest rate sensitivity and repricing gaps of assets and liabilities;

§ Reduce funding costs by combining an interest rate swap with a consolidated obligation, as the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation;

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

§ Mitigate the adverse earnings effects of the shortening or extension of certain assets (e.g., advances or mortgage assets) and liabilities; and

§ Manage embedded options in assets and liabilities.

Types of Derivatives: The FHLBank’s RMP establishes guidelines for its use of derivatives. The FHLBank commonly enters into interest rate swaps (including callable and putable swaps), swaptions, and interest rate cap and floor agreements (collectively, derivatives) to manage its exposure to changes in interest rates.

Interest Rate Swaps – An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable interest rate index for the same period of time. The variable interest rate received by the FHLBank in most derivative agreements is the London Interbank Offered Rate (LIBOR). Interest rate swaps are recorded at fair value and reported in derivative assets or derivative liabilities on the Statements of Condition.

Swaptions – A swaption is an option on a swap that gives the buyer the right to enter into a specified interest rate swap at a certain time in the future. When used as a hedge, a swaption can protect the FHLBank against future interest rate changes. The FHLBank purchases both payer swaptions and receiver swaptions to decrease its interest rate risk exposure related to the prepayment of certain assets. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date. Premiums paid to acquire swaptions are accounted for at the fair value of the derivative at inception of the hedge and are reported in derivative assets or derivative liabilities on the Statements of Condition. Premiums paid are considered the fair value of the swaption at inception of the hedge.

Interest Rate Caps and Floors – In an interest rate cap agreement, a cash flow is generated if the price or interest rate of an underlying variable rises above a certain threshold (or “cap”) price. In an interest rate floor agreement, a cash flow is generated if the price or interest rate of an underlying variable falls below a certain threshold (or “floor”) price. The FHLBank uses interest rate caps and floors to hedge option risk on the MBS held in the FHLBank’s held-to-maturity portfolio and to hedge embedded caps or floors in the FHLBank’s advances. Premiums paid to acquire caps or floors are accounted for at the fair value of the derivative at inception of the hedge and are reported in derivative assets or derivative liabilities on the Statements of Condition. Premiums paid are considered the fair value of the cap or floor at inception of the hedge.

Hedging Activities: The FHLBank documents all hedging relationships between derivatives designated as hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value or cash flow hedges to: (1) assets and/or liabilities on the Statements of Condition; (2) firm commitments; or (3) forecasted transactions. The FHLBank formally assesses (both at the hedge’s inception and at least quarterly on an ongoing basis) whether the derivatives that are used have been effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain effective in future periods. The FHLBank typically uses regression analyses or similar statistical analyses to assess the effectiveness of its hedging relationships.

The FHLBank discontinues hedge accounting prospectively when: (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative and/or the hedged item expires or is sold, terminated or exercised; (3) it is no longer probable that the forecasted transaction will occur in the originally expected period; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument in accordance with SFAS 133 is no longer appropriate.

Effectiveness Measurements: Highly effective hedges that use interest rate swaps as the hedging instrument and that meet certain stringent criteria can qualify for “shortcut” fair value hedge accounting. Shortcut hedge accounting allows for the assumption of no ineffectiveness, which means that the change in fair value of the hedged item can be assumed to be equal to the change in fair value of the derivative. This is in contrast to fair value hedges designated under the “long haul” hedge accounting method, where the change in fair value of the hedged item must be measured separately from the derivative, and for which effectiveness testing must be performed regularly with results falling within established tolerances.

Long haul hedge accounting method – For hedge transactions that are not designated under the shortcut hedge accounting method, the FHLBank completes effectiveness testing at inception and on a monthly basis thereafter. The rolling regression method and the dollar offset method are used by the FHLBank to assess hedge effectiveness.

§ Under the rolling regression method, the FHLBank models a series of 30 data points (market values) for the hedged item and the hedge instrument, using market data from the previous 30 calendar month-ends. A regression analysis is performed comparing the values of the hedged financial item and the hedge instrument. The hedge is deemed highly effective if: (1) the slope of the regression line is between or equal to -0.80 and -1.20, meaning that on average the change in value of the hedged financial instrument is offset by the change in value of the hedge instrument; (2) the correlation is 0.80 or higher; and (3) the calculated F statistic is 4 or higher. For new hedge transactions, the 30 data points (market values) are generated using historical market data.

20

§   The dollar-offset method measures the change in fair value between periods on the hedge instrument versus the change in the fair value between periods on the hedged item. Under this methodology, at inception, the FHLBank evaluates effectiveness of the hedging relationship using interest rate scenario stress testing (interest rate shock scenarios). Thereafter on a monthly basis, the FHLBank compares the change in cumulative fair value of the hedging instrument to the change in cumulative fair value of the hedged item. The amount of dollar-offset between the two items must fall into a range of between 80 percent and 120 percent in order for the hedge to be deemed effective.

Types of Assets and Liabilities Hedged:

Consolidated Obligations – While consolidated obligations are the joint and several obligations of the 12 FHLBanks, each FHLBank is individually a counterparty to derivatives associated with specific debt issues. For instance, in a typical transaction involving more than one FHLBank, fixed rate consolidated obligation bonds are issued for one or more FHLBanks, including FHLBank Topeka. In connection with its share of the bond issuance, FHLBank Topeka simultaneously enters into a matching derivative in which the counterparty pays fixed cash flows to FHLBank Topeka designed to mirror in timing and amount the cash outflows FHLBank Topeka pays on the consolidated obligation. Such transactions are designated as fair value hedges under SFAS 133. In this type of transaction, FHLBank Topeka typically pays the derivative counterparty a variable cash flow that closely matches the interest payments it receives on short-term or variable rate advances. Note, though, that most of the FHLBank’s swapped consolidated obligation bonds are fixed rate, callable bonds where the FHLBank is the sole issuer of the particular debt issue. The swap transaction with a counterparty for debt upon which the FHLBank is the sole issuer follows the same process reflected above (simultaneous, matching terms, etc.). This intermediation between the capital and derivatives markets permits the FHLBank to raise funds at costs lower than would otherwise be available through the issuance of simple fixed or variable rate consolidated obligations in the capital markets.

Advances – With the issuance of a convertible advance, the FHLBank purchases from the member an option that enables the FHLBank to convert an advance from fixed rate to variable rate if interest rates increase. Once the FHLBank exercises its option to convert an advance to an at-the-market variable rate, the member then owns the option to terminate the converted advance without fee or penalty on the conversion date and each interest rate reset date thereafter. The FHLBank hedges a convertible advance by entering into a cancelable derivative with a non-member counterparty where the FHLBank pays a fixed rate and receives a variable rate. The derivative counterparty may cancel the derivative on a put date. This type of hedge is designated as a fair value hedge under SFAS 133. The counterparty’s decision to cancel the derivative would normally occur in a rising rate environment. If the option is in-the-money, the derivative is cancelled by the derivative counterparty at par (i.e., without any premium or other payment to the FHLBank). When the derivative is cancelled, the FHLBank exercises its option to convert the advance to a variable rate. If a convertible advance is not prepaid by the member upon conversion to an at-the-market variable rate advance (i.e., callable variable rate advance), any hedge-related unamortized basis adjustment is amortized as a yield adjustment.

When fixed rate advances are issued to one or more borrowers, the FHLBank can either fund the advances with fixed rate consolidated obligations with the same tenor or simultaneously enter into a matching derivative in which the counterparty receives fixed cash flows from the FHLBank designed to mirror in timing and amount the cash inflows the FHLBank receives on the advance. Such transactions are designated as fair value hedges under SFAS 133. In this type of transaction, the FHLBank typically receives from the derivative counterparty a variable cash flow that closely matches the interest payments on short-term discount notes or swapped consolidated obligation bonds.

The optionality embedded in certain financial instruments held by the FHLBank can create interest rate risk. For example, when a member prepays an advance, the FHLBank could suffer lower future income if the principal portion of the prepaid advance were invested in lower-yielding assets that continue to be funded by higher-cost debt. To protect against this risk, the FHLBank generally charges a prepayment fee on an advance that makes it financially indifferent to a member’s decision to prepay the advance. When the FHLBank offers advances (other than short-term advances) that a member may prepay without a prepayment fee, it usually finances such advances with callable debt or otherwise hedges the option being sold to the member.

Mortgage Loans – The FHLBank invests in fixed rate mortgage loans through the MPF Program. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected lives of these investments, depending on changes in estimated future cash flows, which usually occur as a result of interest rate changes. The FHLBank may manage the interest rate and prepayment risk associated with mortgages through a combination of debt issuance and derivatives. The FHLBank issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The FHLBank may use derivatives in conjunction with debt issuance to better match the expected prepayment characteristics of its mortgage loan portfolio.

Interest rate caps and floors, swaptions and callable swaps may also be used to hedge prepayment risk on the mortgage loans. Although these derivatives are valid economic hedges against the prepayment risk of the portfolio of mortgage loans, they are not specifically linked to individual loans and, therefore, do not receive either fair value or cash flow hedge accounting. The derivatives are marked-to-market through earnings.

Firm Commitment Strategies – Commitments that obligate the FHLBank to purchase closed fixed rate mortgage loans from its members are considered derivatives under SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (herein referred to as “SFAS 149”). Accordingly, each mortgage purchase commitment is recorded as a derivative asset or derivative liability at fair value, with changes in fair value recognized in current period earnings. When a mortgage purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized accordingly.

The FHLBank may also hedge a firm commitment for a forward starting advance or consolidated obligation bond through the use of an interest rate swap. In this case, the swap functions as the hedging instrument for both the hedging relationship involving the firm commitment and the subsequent hedging relationship involving the advance or bond. The basis movement associated with the firm commitment is rolled into the basis of the advance or bond at the time the commitment is terminated and the advance or bond is issued. The basis adjustment is then amortized into interest income or expense over the life of the advance or bond.

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Investments – The FHLBank invests in U.S. Treasury securities, U.S. Agency securities, GSE securities, MBS and the taxable portion of state or local housing finance agency securities. The interest rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. The FHLBank may manage against prepayment and duration risks by funding investment securities with consolidated obligations that have call features. The FHLBank may also manage the risk arising from changing market prices and volatility of investment securities by entering into derivatives (economic hedges) that offset the changes in fair value or cash flows of the securities. The FHLBank’s derivatives currently associated with investment securities are designated as economic hedges with the changes in fair values of the derivatives being recorded as “Net gain (loss) on derivatives and hedging activities” in other income (loss) on the Statements of Income. The hedged investment securities are classified as “trading” with the changes in fair values recorded as “Net gain (loss) on trading securities” in other income (loss) on the Statements of Income.

Interest rate caps and floors, swaptions and callable swaps may also be used to hedge prepayment and option risk on the MBS held in the FHLBank’s trading and held-to-maturity portfolios. Most of these derivatives are purchased interest rate caps that hedge interest rate caps embedded in the FHLBank’s trading and held-to-maturity variable rate Agency MBS. Although these derivatives are valid economic hedges against the prepayment and option risk of the portfolio of MBS, they are not specifically linked to individual investment securities and, therefore, do not receive either fair value or cash flow hedge accounting. The derivatives are marked-to-market through earnings.

Anticipated Debt Issuance – The FHLBank enters into interest rate swaps for the anticipated issuance of fixed rate consolidated obligation bonds to hedge the variability in forecasted interest payments associated with fixed rate debt that has not yet been issued. The interest rate swap is terminated upon issuance of the fixed rate bond, with the realized gain or loss on the interest rate swap recorded in other comprehensive income. Realized gains and losses reported in accumulated other comprehensive income are recognized as earnings in the periods in which earnings are affected by the cash flows of the fixed rate bonds.

Managing Credit Risk on Derivatives: The FHLBank is subject to credit risk due to nonperformance by counterparties to the derivative agreements. The degree of counterparty risk on derivative agreements depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The FHLBank manages counterparty credit risk through credit analyses and collateral requirements and by following the requirements set forth in its Risk Management Policy. Based on credit analyses and collateral requirements, FHLBank management does not anticipate any credit losses on its derivative agreements and therefore, there is no adjustment to the derivatives for nonperformance risk at June 30, 2009.

The contractual or notional amount of derivatives reflects the involvement of the FHLBank in the various classes of financial instruments. The notional amount of derivatives does not measure the credit risk exposure of the FHLBank, and the maximum credit exposure of the FHLBank is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable derivatives if the counterparty defaults, and the related collateral, if any, is of less value to the FHLBank.

As of June 30, 2009 and December 31, 2008, the FHLBank’s maximum credit risk, as defined above, was approximately $125,958,000 and $112,688,000, respectively. These totals include $25,226,000 and $25,705,000, respectively, of net accrued interest receivable. In determining its maximum credit risk, the FHLBank considers accrued interest receivables and payables and the legal right to offset derivative assets and liabilities by counterparty. The FHLBank held cash with a fair value of $94,975,000 and $78,162,000 as collateral as of June 30, 2009 and December 31, 2008, respectively. Additionally, collateral with respect to derivatives with member institutions includes collateral assigned to the FHLBank, as evidenced by a written security agreement and held by the member institution for the benefit of the FHLBank.The maximum credit risk reflected above applicable to a single counterparty was $44,157,000 and $44,112,000 as of June 30, 2009 and December 31, 2008, respectively. The counterparty was different each period. Counterparty credit exposure by rating (lower of Moody’s Investors Service or Standard & Poor’s) as of June 30, 2009, is indicated in the following table (in thousands):

	AAA		AA			A	Member1		Total
Total net exposure at fair value	$	1,897	$	19,344	$	100,850	$	3,867	$	125,958
Cash collateral held		0		0		94,975		0		94,975
Net positive exposure after cash collateral		1,897		19,344		5,875		3,867		30,983
Other collateral		0		0		0		3,867		3,867
Net exposure after collateral	$	1,897	$	19,344	$	5,875	$	0	$	27,116
Notional amount	$	346,450	$	10,953,010	$	20,764,591	$	189,906	$	32,253,957

__________

1 Collateral held with respect to derivatives with members represents either collateral physically held by or on behalf of the FHLBank or collateral assigned to the FHLBank as evidenced by a written security agreement and held by the member for the benefit of the FHLBank.

Counterparty credit exposure by rating (lower of Moody’s Investors Service or Standard & Poor’s) as of December 31, 2008, is indicated in the following table (in thousands):

	AAA		AA			A	Member1		Total
Total net exposure at fair value	$	6,228	$	1,680	$	99,805	$	4,975	$	112,688
Cash collateral held		0		0		78,162		0		78,162
Net positive exposure after cash collateral		6,228		1,680		21,643		4,975		34,526
Other collateral		0		0		0		4,975		4,975
Net exposure after collateral	$	6,228	$	1,680	$	21,643	$	0	$	29,551
Notional amount	$	570,876	$	15,204,795	$	19,157,250	$	233,716	$	35,166,637

__________

1 Collateral held with respect to derivatives with members represents either collateral physically held by or on behalf of the FHLBank or collateral assigned to the FHLBank as evidenced by a written security agreement and held by the member for the benefit of the FHLBank.

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Certain of the FHLBank’s derivative instruments contain provisions that require the FHLBank to post additional collateral with its counterparties if there is deterioration in the FHLBank’s credit rating. If the FHLBank’s credit rating is lowered by a major credit rating agency, the FHLBank would be required to deliver additional collateral on derivative instruments in which the FHLBank has a net derivative liability recorded on it Statements of Condition. The aggregate fair value of all derivative instruments with derivative counterparties containing credit-risk-related contingent features that were classified as net derivative liabilities as of June 30, 2009 was $350,684,000 for which the FHLBank has posted collateral with a fair value of $84,162,000 in the normal course of business. If the FHLBank’s credit rating had been lowered one level (e.g., from AAA to AA), the FHLBank would have been required to deliver an additional $163,680,000 of collateral to its derivative counterparties at June 30, 2009. During July 2009, one counterparty novated all derivatives instruments that we held to another counterparty. For purposes of providing this disclosure, the FHLBank consolidated the counterparties. The FHLBank’s credit rating has not changed in the previous twelve months.

The FHLBank transacts a significant portion of its derivatives with major banks and primary broker/dealers. Some of these banks and broker/dealers or their affiliates buy, sell and distribute consolidated obligations. No single entity dominates the FHLBank’s derivatives business. Assets pledged as collateral by the FHLBank to these counterparties are discussed more fully in Note 14. The FHLBank is not a derivatives dealer and thus does not trade derivatives for short-term profit.

Intermediary Derivatives – To assist its members in meeting their hedging needs, the FHLBank acts as an intermediary between the members and other counterparties by entering into offsetting derivatives. This intermediation allows smaller members access to the derivatives market. The derivatives used in intermediary activities do not qualify for SFAS 133 hedge accounting treatment and are separately marked-to-market through earnings. The net result of the accounting for these derivatives does not significantly affect the operating results of the FHLBank. Gains and losses are recorded in other income (loss) and presented as “Net gain (loss) on derivatives and hedging activities.”

As of June 30, 2009 and December 31, 2008, the notional principal of derivative agreements in which the FHLBank is an intermediary was $288,000,000 and $218,587,000, respectively.

Financial Statement Impact and Additional Financial Information: The notional amount of derivatives reflects the volume of the FHLBank’s hedges, but it does not measure the credit exposure of the FHLBank because there is no principal at risk. The notional amount in derivative contracts serves as a factor in determining periodic interest payments or cash flows received and paid.

The following tables provide information regarding gains and losses on derivatives and hedging activities by type of hedge and type of derivative, gains and losses by hedged item for fair value hedges, and the notional and estimated fair values by type of hedge and type of derivative.

For the three- and six-month periods ended June 30, 2009 and 2008, the FHLBank recorded net gain (loss) on derivatives and hedging activities as follows (in thousands):

	Three-month period ended						Six-month period ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Derivatives and hedge items in SFAS 133 fair value hedging relationships:
Interest rate swaps	$	2,802		$	(621	)	$	5,805		$	(1,116	)
Interest rate caps/floors		3			(8	)		0			(8	)
Total net gain (loss) related to fair value hedge ineffectiveness		2,805			(629	)		5,805			(1,124	)
Derivatives not designated as hedging instruments under SFAS 133:
Economic hedges:
Interest rate swaps		69,937			65,413			100,761			28,819
Interest rate caps/floors		47,892			8,855			47,696			15,636
Net interest settlements		(16,202	)		(9,730	)		(30,577	)		(13,817	)
Mortgage delivery commitments		(1,988	)		(769	)		(1,471	)		(1,032	)
Intermediary transactions:
Interest rate swaps		(12	)		14			(19	)		21
Interest rate caps/floors		11			3			18			3
Total net gain (loss) related to derivatives not designated as hedging instruments under SFAS 133		99,638			63,786			116,408			29,630
Net gains (losses) on derivatives and hedging activities	$	102,443		$	63,157		$	122,213		$	28,506

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In accordance with SFAS 133, the FHLBank carries derivative instruments at fair value on its Statements of Condition. Any change in the fair value of derivatives designated under a fair value hedging relationship is recorded each period in current period earnings. Fair value hedge accounting allows for the offsetting fair value of the hedged risk in the hedged item to also be recorded in current period earnings. For the three-month periods ended June 30, 2009 and 2008, the FHLBank recorded net gain (loss) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank’s net interest income as follows (in thousands):

	Three-month period ended
	June 30, 2009												June 30, 2008
	Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income1			Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income1
Advances	$	220,535		$	(217,362	)	$	3,173		$	(72,087	)	$	266,188		$	(266,887	)	$	(699	)	$	(40,786	)
Consolidated obligation bonds		(89,299	)		89,572			273			65,479			(293,339	)		293,409			70			106,517
Consolidated obligation discount notes		3,643			(4,284	)		(641	)		2,388			0			0			0			0
TOTAL	$	134,879		$	(132,074	)	$	2,805		$	(4,220	)	$	(27,151	)	$	26,522		$	(629	)	$	65,731

__________

1 The differentials between accruals of interest receivables and payables on derivatives designated as fair value hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the designated underlying hedged item.

For the six-month periods ended June 30, 2009 and 2008, the FHLBank recorded net gain (loss) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank’s net interest income as follows (in thousands):

	Six-month period ended
	June 30, 2009												June 30, 2008
	Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income1			Gain (Loss) on Derivatives			Gain (Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income1
Advances	$	322,093		$	(325,031	)	$	(2,938	)	$	(134,433	)	$	12,550		$	(14,664	)	$	(2,114	)	$	(52,388	)
Consolidated obligation bonds		(157,535	)		165,776			8,241			149,610			(43,756	)		44,746			990			171,839
Consolidated obligation discount notes		3,529			(3,027	)		502			4,168			0			0			0			0
TOTAL	$	168,087		$	(162,282	)	$	5,805		$	19,345		$	(31,206	)	$	30,082		$	(1,124	)	$	119,451

__________

1 The differentials between accruals of interest receivables and payables on derivatives designated as fair value hedges as well as the amortization/accretion of hedging activities are recognized as adjustments to the interest income or expense of the designated underlying hedged item.

There were no amounts for the three- and six-month periods ended June 30, 2009 and 2008 that were reclassified into earnings as a result of the discontinuance of cash flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter. As of June 30, 2009, no amounts relating to hedging activities remain in accumulated other comprehensive income.

The FHLBank considers accrued interest receivables and payables and the legal right to offset derivative assets and liabilities by counterparty under FIN No. 39, Offsetting of Amounts Related to Certain Contracts an interpretation of APB Opinion No. 10 and FASB Statement No. 105 (herein referred to as FIN 39). Due to the application of FSP No. FIN 39-1, Amendment of FASB Interpretation No. 39 (herein referred to as “FSP FIN 39-1”), derivative assets and liabilities reported on the Statements of Condition include the net cash collateral and accrued interest from counterparties. Therefore, an individual derivative may be in an asset position [counterparty would owe the FHLBank the current fair value (fair value includes net accrued interest receivable or payable on the derivative) if the derivative was settled as of the Statement of Condition date] but when the derivative fair value and cash collateral fair value (includes accrued interest on the collateral) are netted under FIN 39 by counterparty, the derivative may be recorded on the Statements of Condition as a derivative liability. Conversely, a derivative may be in a liability position (FHLBank would owe the counterparty the fair value if settled as of the Statements of Condition date) but may be recorded on the Statements of Condition as a derivative asset after netting.

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The following table represents outstanding notional balances and estimated fair values (includes net accrued interest receivable or payable on the derivatives) of the derivatives outstanding by type of derivative and by hedge designation as of June 30, 2009 (in thousands):

	June 30, 2009
	Asset Positions				Liability Positions					Derivative Assets					Derivative Liabilities
	Notional		Estimated Fair Value		Notional		Estimated Fair Value			Notional		Estimated Fair Value			Notional		Estimated Fair Value
Fair value hedges:
Interest rate swaps	$	11,134,831	$	342,949	$	8,928,532	$	(526,775	)	$	9,417,228	$	113,712		$	10,646,135	$	(297,538	)
Interest rate caps/floors		43,000		326		17,000		(124	)		42,000		120			18,000		82
Total fair value hedges		11,177,831		343,275		8,945,532		(526,899	)		9,459,228		113,832			10,664,135		(297,456	)
Economic hedges:
Interest rate swaps		3,526,000		22,398		1,836,955		(178,173	)		2,940,000		(58,255	)		2,422,955		(97,520	)
Interest rate caps/floors		6,371,733		113,361		350,000		(1,379	)		4,217,000		70,285			2,504,733		41,697
Mortgage delivery commitments		16,061		96		29,845		(280	)		16,061		96			29,845		(280	)
Total economic hedges		9,913,794		135,855		2,216,800		(179,832	)		7,173,061		12,126			4,957,533		(56,103	)
TOTAL	$	21,091,625	$	479,130	$	11,162,332	$	(706,731	)	$	16,632,289	$	125,958		$	15,621,668	$	(353,559	)
Total derivative fair value												$	125,958				$	(353,559	)
Fair value of cash collateral delivered to counterparty													0					84,162
Fair value of cash collateral received from counterparty													(94,975	)				0
NET DERIVATIVE FAIR VALUE												$	30,983				$	(269,397	)

The following table represents outstanding notional balances and estimated fair values (includes net accrued interest receivable or payable on the derivatives) of the derivatives outstanding by type of derivative and by hedge designation as of December 31, 2008 (in thousands):

	December 31, 2008
	Asset Positions				Liability Positions					Derivative Assets					Derivative Liabilities
	Notional		Estimated Fair Value		Notional		Estimated Fair Value			Notional		Estimated Fair Value			Notional		Estimated Fair Value
Fair value hedges:
Interest rate swaps	$	14,306,274	$	492,504	$	11,251,586	$	(841,980	)	$	6,540,503	$	174,574		$	19,017,357	$	(524,050	)
Interest rate caps/floors		43,000		348		52,000		(233	)		35,000		(126	)		60,000		241
Total fair value hedges		14,349,274		492,852		11,303,586		(842,213	)		6,575,503		174,448			19,077,357		(523,809	)
Economic hedges:
Interest rate swaps		779,293		15,599		1,854,328		(265,804	)		1,280,000		(81,956	)		1,353,621		(168,249	)
Interest rate caps/floors		6,023,733		63,825		732,000		(12	)		1,770,000		20,163			4,985,733		43,650
Mortgage delivery commitments		7,622		33		116,801		(1,572	)		7,622		33			116,801		(1,572	)
Total economic hedges		6,810,648		79,457		2,703,129		(267,388	)		3,057,622		(61,760	)		6,456,155		(126,171	)
TOTAL	$	21,159,922	$	572,309	$	14,006,715	$	(1,109,601	)	$	9,633,125	$	112,688		$	25,533,512	$	(649,980	)
Total derivative fair value												$	112,688				$	(649,980	)
Fair value of cash collateral delivered to counterparty													0					245,624
Fair value of cash collateral received from counterparty													(78,162	)				0
NET DERIVATIVE FAIR VALUE												$	34,526				$	(404,356	)

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NOTE 8 – CONSOLIDATED OBLIGATIONS

Consolidated obligations consist of consolidated bonds and discount notes and as provided by the Federal Home Loan Bank Act of 1932 (Bank Act) or Finance Agency regulation, are backed only by the financial resources of the FHLBanks. The FHLBanks jointly issue consolidated obligations with the Office of Finance acting as their agent. The Office of Finance tracks the amounts of debt issued on behalf of each FHLBank. In addition, the FHLBank separately tracks and records as a liability its specific portion of consolidated obligations for which it is the primary obligor. Prior to 2009, each FHLBank specified the amount of debt it wanted the Office of Finance to issue on its behalf. During December 2008, a debt issuance process was implemented by the FHLBanks and the Office of Finance to provide a scheduled monthly issuance of global bullet consolidated obligation bonds during 2009. As part of this process, management from each of the FHLBanks determines and communicates a firm commitment to the Office of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks’ orders do not meet the minimum debt issue size, the proceeds are allocated to all FHLBanks based on the larger of the FHLBank’s commitment or allocated proceeds based on the individual FHLBank’s regulatory capital to total system regulatory capital (regulatory capital excludes OCI and includes mandatorily redeemable capital stock). If the FHLBanks’ commitments exceed the minimum debt issue size, the proceeds are allocated based on relative regulatory capital of the FHLBanks with the allocation limited to the lesser of the allocation amount or actual commitment amount. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance. The FHLBanks can, however, pass on any scheduled calendar slot and not issue any global bullet consolidated obligation bonds upon agreement of 8 of the 12 FHLBanks. Consolidated obligation bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits as to maturities. Consolidated obligation discount notes, which are issued to raise short-term funds, are issued at less than their face amounts and redeemed at par when they mature.

Redemption Terms: Following is a summary of the FHLBank’s participation in consolidated obligation bonds outstanding as of June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009						December 31, 2008
Year of Maturity	Amount			Weighted Average Interest Rate			Amount			Weighted Average Interest Rate
Due in one year or less	$	10,850,735			1.75	%	$	8,044,892			3.19	%
Due after one year through two years		5,630,900			2.46			6,109,694			2.73
Due after two years through three years		2,466,420			3.05			2,205,320			4.13
Due after three years through four years		1,360,300			3.92			1,452,300			4.51
Due after four years through five years		2,017,000			3.93			2,237,000			4.10
Thereafter		4,256,000			5.00			6,971,000			5.78
Total par value		26,581,355			2.82	%		27,020,206			3.98	%
Premiums		14,821						18,761
Discounts		(14,145	)					(15,108	)
SFAS 133 fair value adjustments1		233,188						397,775
TOTAL	$	26,815,219					$	27,421,634

__________

1 See Note 7 for a discussion of: (1) the FHLBank’s objectives for using derivatives; (2) the types of assets and liabilities hedged; and (3) the accounting for derivatives and the related assets and liabilities hedged.

The FHLBank’s participation in consolidated obligation bonds outstanding as of June 30, 2009 and December 31, 2008 includes callable bonds totaling $5,627,000,000 and $9,850,000,000, respectively. The FHLBank uses the unswapped callable bonds for financing its callable advances (Note 5), mortgage-backed securities (Notes 3 and 4) and MPF mortgage loans (Note 6). Contemporaneous with a majority of its fixed rate callable bond issues, the FHLBank will also enter into interest rate swap agreements (in which the FHLBank generally pays a variable rate and receives a fixed rate) with call features that mirror the options in the callable bonds (a sold callable swap). The combined sold callable swap and callable debt transaction allows the FHLBank to obtain attractively priced variable rate financing.

The following table summarizes the FHLBank’s participation in consolidated obligation bonds outstanding by year of maturity, or by the next call date for callable bonds as of June 30, 2009 and December 31, 2008 (in thousands):

Year of Maturity of Next Call Date	June 30, 2009		December 31, 2008
Due in one year or less	$	15,062,735	$	15,299,892
Due after one year through two years		5,480,900		5,984,694
Due after two years through three years		1,841,420		1,460,320
Due after three years through four years		1,110,300		757,300
Due after four years through five years		1,427,000		1,657,000
Thereafter		1,659,000		1,861,000
TOTAL PAR VALUE	$	26,581,355	$	27,020,206

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Interest Rate Payment Terms: The following table summarizes interest rate payment terms for consolidated obligation bonds as of June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009		December 31, 2008
Par value of consolidated obligation bonds:
Fixed rate	$	18,460,525	$	20,121,025
Variable rate		7,192,500		3,532,500
Step ups		655,000		990,000
Range bonds		272,000		2,375,000
Zero coupon		1,330		1,681
TOTAL PAR VALUE	$	26,581,355	$	27,020,206

Discount Notes: The following table summarizes the FHLBank’s participation in consolidated obligation discount notes, all of which are due within one year (in thousands):

	Book Value		Par Value		Weighted Average Interest Rates
June 30, 2009	$	15,617,443	$	15,622,266		0.26	%
December 31, 2008	$	26,261,411	$	26,317,524		1.23	%

NOTE 9 – AFFORDABLE HOUSING PROGRAM (AHP)

The Bank Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, requires each FHLBank to establish an AHP. As a part of its AHP, the FHLBank provides subsidies in the form of direct grants or below-market interest rate advances to members that use the funds to assist in the purchase, construction or rehabilitation of housing for very low-, low- and moderate-income households. To fund the AHP, the 12 district FHLBanks as a group must annually set aside the greater of $100,000,000 or 10 percent of the current year’s regulatory income. The AHP and REFCORP assessments are calculated simultaneously because of their interdependence on each other. The FHLBank accrues this expense monthly based on its income. Calculation of the REFCORP assessment is discussed in Note 10.

The following table details the change in the AHP liability for the three- and six-month periods ending June 30, 2009 and 2008 (in thousands):

	Three-month period ended						Six-month period ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Appropriated and reserved AHP funds as of the beginning of the period	$	32,731		$	40,092		$	27,707		$	41,357
AHP set aside based on current year income		11,700			5,244			18,496			7,892
Direct grants disbursed		(3,115	)		(4,450	)		(4,958	)		(8,430	)
Recaptured funds1		97			116			168			183
Appropriated and reserved AHP funds as of the end of the period	$	41,413		$	41,002		$	41,413		$	41,002

__________

1 Recaptured funds are direct grants returned to the FHLBank in those instances where the commitments associated with the approved use of funds are not met and repayment to the FHLBank is required by regulation. Recaptured funds are returned as a result of: (1) AHP-assisted homeowner’s transfer or sale of property within the five-year retention period that the assisted homeowner is required to occupy the property; (2) homeowner’s failure to acquire sufficient loan funding (funds previously approved and disbursed cannot be used); or (3) unused grants. Recaptured funds are reallocated to future periods.

NOTE 10 – RESOLUTION FUNDING CORPORATION (REFCORP)

Each FHLBank is required to pay 20 percent of income calculated in accordance with GAAP after the assessment for AHP, but before the assessment for REFCORP. The AHP and REFCORP assessments are calculated simultaneously because of their interdependence on each other. The FHLBank accrues its REFCORP assessment on a monthly basis. Calculation of the AHP assessment is discussed in Note 9. The Resolution Funding Corporation has been designated as the calculation agent for AHP and REFCORP assessments. Each FHLBank provides its interest expense related to mandatorily redeemable capital stock and net income before AHP and REFCORP to the Resolution Funding Corporation, which then performs the calculations for each quarter end and levies the assessments to the FHLBanks for the quarter.

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The FHLBanks will continue to expense these amounts until the aggregate amounts actually paid by all 12 FHLBanks are equivalent to a $300,000,000 annual annuity (or a scheduled payment of $75,000,000 per quarter) whose final maturity date is April 15, 2030, at which point the required payment of each FHLBank to REFCORP will be fully satisfied. The Finance Agency in consultation with the Secretary of the Treasury selects the appropriate discounting factors to be used in this annuity calculation. The FHLBanks use the actual payments made to determine the amount of the future obligation that has been defeased. The cumulative amount to be paid to REFCORP by FHLBank Topeka cannot be determined at this time because of the interrelationships of all future FHLBanks’ earnings and interest rates. If the FHLBank experienced a net loss during a quarter, but still had net income for the year, the FHLBank’s obligation to REFCORP would be calculated based on the FHLBank’s year-to-date net income. The FHLBank would be entitled to a credit against future REFCORP assessments, without any time constraints, if amounts paid for the full year were in excess of its calculated annual obligation that would be recorded in other assets on the FHLBank’s Statements of Condition. If the FHLBank had net income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBank experienced a net loss for a full year, the FHLBank would have no obligation to REFCORP for the year.

The following table details the change in the REFCORP liability for the three- and six-month periods ended June 30, 2009 and 2008 (in thousands):

	Three-month period ended						Six-month period ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
REFCORP (receivable) obligation as of the beginning of the period	$	(799	)	$	5,156		$	(16,015	)	$	11,067
REFCORP assessments		26,307			11,761			41,523			17,658
REFCORP payments		0			(5,156	)		0			(16,964	)
REFCORP (receivable) obligation as of the end of the period	$	25,508		$	11,761		$	25,508		$	11,761

NOTE 11 – CAPITAL

The FHLBank is subject to three capital requirements (i.e., risk-based capital, total capital-to-asset ratio and leverage capital ratio) under the provisions of the Gramm-Leach-Bliley Act (GLB Act) and the Finance Agency’s capital structure regulation. The following table illustrates that the FHLBank was in compliance with its regulatory capital requirements as of June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009						December 31, 2008
	Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	967,150		$	1,715,481		$	1,389,373		$	1,763,395
Total capital-to-asset ratio		4.0	%		4.4	%		4.0	%		4.2	%
Total capital	$	1,850,955		$	2,029,316		$	2,342,249		$	2,432,063
Leverage capital ratio		5.0	%		6.2	%		5.0	%		5.7	%
Leverage capital	$	2,313,694		$	2,887,056		$	2,927,812		$	3,313,760

Note that for the purposes of the regulatory capital calculations in the above table, actual capital includes all capital stock subject to mandatory redemption that has been reclassified to a liability.

Mandatorily Redeemable Capital Stock: The FHLBank’s activity for mandatorily redeemable capital stock was as follows for the three- and six-month periods ended June 30, 2009 and 2008 (in thousands).

	Three-month period ended						Six-month period ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Balance at beginning of period	$	29,703		$	35,348		$	34,806		$	36,147
Capital stock subject to mandatory redemption reclassified from equity during the period		168,961			381,923			615,848			885,471
Redemption or repurchase of mandatorily redeemable capital stock during the period		(172,962	)		(382,965	)		(625,243	)		(887,554	)
Stock dividend classified as mandatorily redeemable capital stock during the period		73			150			364			392
Balance at end of period	$	25,775		$	34,456		$	25,775		$	34,456

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NOTE 12 – EMPLOYEE RETIREMENT PLANS

The FHLBank maintains a benefit equalization plan (BEP) covering certain senior officers. This non-qualified plan contains provisions for a deferred compensation component and a defined benefit pension component. The BEP is, in substance, an unfunded supplemental retirement plan.

Components of the net periodic pension cost for the defined benefit portion of the FHLBank’s BEP for the three- and six-month periods ended June 30, 2009 and 2008, were (in thousands):

	Three-month period ended						Six-month period ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Service cost	$	60		$	66		$	120		$	132
Interest cost		99			91			197			182
Amortization of prior service cost		(3	)		(6	)		(5	)		(13	)
Amortization of net loss		49			55			99			110
NET PERIODIC POSTRETIREMENT BENEFIT COST	$	205		$	206		$	411		$	411

NOTE 13 – ESTIMATED FAIR VALUES

The FHLBank records trading securities, derivative assets and derivative liabilities at fair value. Fair value is a market-based measurement and is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. In general, the transaction price will equal the exit price and, therefore, represents the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom the entity would transact in that market.

Fair Value Hierarchy. SFAS 157, which was adopted by the FHLBank on January 1, 2008, established a fair value hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of the market observability of the fair value measurement. SFAS 157 clarifies fair value in terms of the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability at the measurement date (an exit price). In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market and market participants. These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.

Outlined below is the application of the fair value hierarchy established by SFAS 157 to the FHLBank’s financial assets and financial liabilities that are carried at fair value.

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

§ Level 2 – inputs to the value methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The types of assets and liabilities carried at Level 2 fair value generally include investment securities and derivative contracts.

§ Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. A significant portion of the unobservable inputs are supported by little or no market activity and reflect the entity’s own assumptions. The types of assets and liabilities carried at Level 3 fair value generally include private-label MBS that the FHLBank has determined to be OTTI.

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

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Fair Value on a Recurring Basis. The following table presents, for each SFAS 157 hierarchy level, the FHLBank’s assets and liabilities that are measured at fair value on a recurring basis on the Statement of Condition as of June 30, 2009 (in thousands):

	Total			Level 1		Level 2		Level 3		Net Accrued Interest on Derivatives and Cash Collateral
Certificates of deposit	$	2,709,519		$	0	$	2,709,519	$	0	$	0
Commercial paper		2,734,565			0		2,734,565		0		0
FHLBank1 obligations		294,972			0		294,972		0		0
Fannie Mae2 obligations		390,863			0		390,863		0		0
Freddie Mac2 obligations		982,581			0		982,581		0		0
Subtotal		7,112,500			0		7,112,500		0		0
Residential mortgage-backed securities:
Fannie Mae2		374,397			0		374,397		0		0
Freddie Mac2		253,311			0		253,311		0		0
Ginnie Mae3		1,902			0		1,902		0		0
Residential mortgage-backed securities		629,610			0		629,610		0		0
Trading securities		7,742,110			0		7,742,110		0		0
Derivative fair value		125,958			0		100,732		0		25,226
Net cash collateral (received) delivered		(94,975	)		0		0		0		(94,975	)
Derivative assets		30,983			0		100,732		0		(69,749	)
TOTAL ASSETS MEASURED AT FAIR VALUE	$	7,773,093		$	0	$	7,842,842	$	0	$	(69,749	)
Derivative fair value	$	353,559		$	0	$	345,381	$	0	$	8,178
Net cash collateral received (delivered)		(84,162	)		0		0		0		(84,162	)
Derivative liabilities		269,397			0		345,381		0		(75,984	)
TOTAL LIABILITIES MEASURED AT FAIR VALUE	$	269,397		$	0	$	345,381	$	0	$	(75,984	)

__________

1	See Note 16 for transactions with other FHLBanks.
2	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
3	Ginnie Mae securities are guaranteed by the U.S. government.

The following table presents, for each SFAS 157 hierarchy level, the FHLBank’s assets and liabilities that are measured at fair value on a recurring basis on the Statement of Condition as of December 31, 2008 (in thousands):

	Total			Level 1		Level 2		Level 3		Net Accrued Interest on Derivatives and Cash Collateral
Trading securities	$	4,652,700		$	0	$	4,652,700	$	0	$	0
Derivative fair value		112,688			0		86,983		0		25,705
Net cash collateral (received) delivered		(78,162	)		0		0		0		(78,162	)
Derivative assets		34,526			0		86,983		0		(52,457	)
TOTAL ASSETS MEASURED AT FAIR VALUE	$	4,687,226		$	0	$	4,739,683	$	0	$	(52,457	)
Derivative fair value	$	649,980		$	0	$	694,669	$	0	$	(44,689	)
Net cash collateral received (delivered)		(245,624	)		0		0		0		(245,624	)
Derivative liabilities		404,356			0		694,669		0		(290,313	)
TOTAL LIABILITIES MEASURED AT FAIR VALUE	$	404,356		$	0	$	694,669	$	0	$	(290,313	)

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For instruments carried at fair value, the FHLBank reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications, if any, are reported as transfers in/out of Level 3 at fair value in the quarter in which the changes occur. The FHLBank had no financial assets or liabilities measured on a recurring basis at Level 3 fair value as of June 30, 2009.

Fair Value on a Nonrecurring Basis. The FHLBank measures certain held-to-maturity securities at fair value on a nonrecurring basis. These held-to-maturity securities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (i.e., when there is evidence of other-than-temporary impairment).

In accordance with the provisions of SFAS 115, as amended by FSP FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and FSP FAS 115-2, the FHLBank recognized an OTTI charge of $18,000 and $59,000 related to estimated credit losses during the three- and six-month periods ended June 30, 2009, respectively, as further described in Note 4. The following table presents these investment securities by level within the SFAS 157 valuation hierarchy, for which a nonrecurring change in fair value has been recorded (in thousands):

	Fair Value Measurements as of June 30, 2009
	Total		Level 1		Level 2		Level 3
Held-to-maturity securities:
Home equity loans	$	597	$	0	$	0	$	597

The total changes in value of the other-than-temporarily impaired securities for which a fair value adjustment has been included in the Statements of Income for the three- and six-month periods ended June 30, 2009 are as follows (in thousands):

	Three-month period ending June 30, 2009						Six-month period ending June 30, 2009
	OTTI Related to Credit Losses		OTTI Related to Non-credit Losses		Total OTTI Losses		OTTI Related to Credit Losses		OTTI Related to Non-credit Losses		Total OTTI Losses
Private-label mortgage-backed securities:
Home equity loans	$	18	$	0	$	18	$	59	$	1,018	$	1,077

In accordance with the provisions of SFAS 115, as amended by FSP No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, the FHLBank recognized an other-than-temporary impairment charge as of December 31, 2008. The following table presents these investment securities by level within the SFAS 157 valuation hierarchy, for which a nonrecurring change in fair value was recorded (in thousands):

	Fair Value Measurements as of December 31, 2008
	Total		Level 1		Level 2		Level 3
Held-to-maturity securities	$	3,218	$	0	$	0	$	3,218

There were no investments measured at fair value on a nonrecurring basis as of June 30, 2008. Consequently, no fair value adjustments of a nonrecurring nature were included in the Statements of Income for the three- and six-month period ended June 30, 2008.

Estimated Fair Values. The following estimated fair value amounts have been determined by the FHLBank using available market information and the FHLBank’s best judgment of appropriate valuation methodologies. These estimates are based on pertinent information available to the FHLBank as of June 30, 2009 and December 31, 2008. Although the FHLBank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the FHLBank’s financial instruments, fair values in certain cases are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the FHLBank’s judgment of how a market participant would estimate the fair values. The Fair Value Summary Tables do not represent an estimate of the overall market value of the FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

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

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Cash and Due From Banks: The estimated fair values approximate the recorded book balances.

Interest-bearing Deposits: The balance is comprised of interest-bearing deposits in banks. Based on the nature of the accounts, the recorded book value approximates the fair value.

Federal Funds Sold: The book value of overnight Federal funds approximates fair value, and term Federal funds are valued using projected future cash flows discounted at the current replacement rate.

Investment Securities: The estimated fair values of investments are determined based on quoted prices, excluding accrued interest, as of the last business day of each period. Certain investments for which quoted prices are not readily available are valued by third parties or by using internal pricing models using the assumptions in the following table:

Investment Type	Method of Valuation
Certificates of deposit	Estimated cash flows discounted at the certificate of deposit market replacement rate based on tenor.
Commercial paper	Estimated cash flows discounted at the commercial paper market replacement rate based on tenor.
FHLBank obligations	Fair value is derived from market trades or quotes for similar securities or estimated cash flows incorporating estimates of future interest rate volatility, if applicable, and discounted using the estimated replacement rate based upon tenor for issuing debt for the FHLBank System.
Fannie Mae obligations and Freddie Mac obligations	Fair value is derived from market trades or quotes for similar securities or estimated cash flows incorporating estimates of future interest rate volatility, if applicable, and discounted using the estimated replacement rate based upon tenor for issuing debt for Fannie Mae and Freddie Mac.
State or local housing agencies	Fair value is derived from market trades or quotes for similar securities.
Mortgage-backed securities	Fair value is derived from market trades or quotes for similar securities or estimated cash flows incorporating actual specific collateral performance, estimates of future specific collateral performance, estimates of future interest rate volatility, and issuer credit indications, if applicable, and discounted using the adjusted benchmark tranche yield.

Advances: The estimated fair values of advances are determined by calculating the present values of the expected future cash flows from the advances. The calculated present values are reduced by the accrued interest receivable. The discount rate used in the variable rate advance calculations was current LIBOR. The discount rates used in the fixed rate advance calculations were the replacement advance rates with no distinction for volume discounts.

Advance Type	Method of Valuation
Fixed rate non-callable and fixed rate callable advances	Valued using discounted cash flows incorporating estimates of future interest rate volatility, if applicable, and discounted using advance replacement rates with no distinction for volume discounts.
Fixed rate convertible and step-up advances	Valued using discounted cash flows incorporating estimates of future interest rate volatility and discounted using LIBOR adjusted for spread to LIBOR on advance replacement rates with no distinction for volume discounts.
All other advances	Valued using discounted cash flows incorporating estimates of future interest rate volatility, if applicable, and discounted using LIBOR.

Mortgage Loans Held for Portfolio: Estimated fair values are determined based on quoted market prices of similar mortgage loans. These prices, however, can change rapidly based upon market conditions and are highly dependent upon the underlying prepayment assumptions.

Commitments to Extend Credit: The estimated fair values of the FHLBank’s commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate mortgage loan commitments, fair value also considers any difference between current levels of interest rates and the committed rates. In accordance with SFAS 149, certain mortgage loan purchase commitments are recorded as derivatives at their fair values. With one particular MPF product, the member originates mortgage loans as an agent for the FHLBank, and the FHLBank funds to close the mortgage loans. The commitments that unconditionally obligate the FHLBank to fund the mortgage loans related to this product are not considered derivatives under SFAS 149. Their estimated fair values were negligible as of June 30, 2009 and December 31, 2008.

Accrued Interest Receivable and Payable: The estimated fair values approximate the recorded book balances.

Derivative Assets/Liabilities: The FHLBank bases the estimated fair values of derivatives on instruments with similar terms or available market prices including accrued interest receivable and payable. The estimated fair value is based on the LIBOR swap curve and forward rates at period end and, for agreements containing options, the market’s expectations of future interest rate volatility implied from current market prices of similar options. The estimated fair value uses standard valuation techniques for derivatives, such as discounted cash flow analysis and comparisons to similar instruments. The FHLBank is subject to credit risk in derivative transactions because of the potential nonperformance by the derivative counterparties. To mitigate this risk, the FHLBank enters into master netting agreements for derivative agreements with highly-rated institutions. In addition, the FHLBank has entered into bilateral security agreements with all active derivative dealer counterparties. These agreements provide for delivery of collateral at specified levels tied to counterparty credit ratings to limit the FHLBank’s net unsecured credit exposure to these counterparties. The FHLBank has evaluated the potential for the fair value of the instruments to be impacted by counterparty credit risk and has determined that no adjustments were significant or necessary to the overall fair value measurements of derivatives. The derivative fair values are netted by counterparty where such legal right exists and offset against fair value amounts recognized for the obligation to return cash collateral held or the right to reclaim cash collateral pledged to the particular counterparty. If these netted amounts are positive, they are classified as an asset and, if negative, a liability.

Deposits: The estimated fair values of deposits are determined by calculating the present values of the expected future cash flows from the deposits, regardless of re-pricing or maturity. The calculated present values are reduced by the accrued interest payable. The discount rates used in these calculations were the cost of deposits with similar terms.

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Consolidated Obligations: The estimated fair values for consolidated obligation bonds and discount notes are determined based on projected future cash flows. Fixed rate consolidated obligations that do not contain options are discounted using a replacement rate. Variable rate consolidated obligations that do not contain options are discounted using LIBOR. Consolidated obligations that contain optionality are valued using estimates of future interest rate volatility and discounted using LIBOR.

Mandatorily Redeemable Capital Stock: The fair value of capital stock subject to mandatory redemption is generally at par value. Fair value also includes estimated dividends earned at the time of reclassification from equity to liabilities, until such amount is paid, and any subsequently declared stock dividend. FHLBank Topeka’s dividends are declared and paid at each quarter end; therefore, fair value equaled par value as of the end of the periods presented. Stock can only be acquired by members at par value and redeemed or repurchased at par value. Stock is not traded and no market mechanism exists for the exchange of stock outside the cooperative structure.

Standby Letters of Credit: The estimated fair values of standby letters of credit are based on the present value of fees currently charged for similar agreements. The value of these guarantees is recognized and recorded in other liabilities.

Standby Credit Facility: The estimated fair values of the FHLBank’s commitments to extend credit through the SCF product are based on the present value of future fees on existing agreements with fees determined using rates currently charged for similar agreements. The value of these commitments to extend credit through the SCF product is recognized and recorded in other liabilities.

Standby Bond Purchase Agreements: The estimated fair values of the standby bond purchase agreements are estimated using the present value of the future fees on existing agreements with fees determined using rates currently charged for similar agreements.

The carrying value, net unrealized gains (losses) and estimated fair values of the FHLBank’s financial instruments as of June 30, 2009 are summarized in the following table (in thousands):

	Carrying Value			Net Unrealized Gains (Losses)			Estimated Fair Value
Assets:
Cash and due from banks	$	87		$	0		$	87
Interest-bearing deposits		487,283			0			487,283
Federal funds sold		1,685,000			40			1,685,040
Trading securities		7,742,110			0			7,742,110
Held-to-maturity securities		8,396,471			(315,007	)		8,081,464
Advances		24,529,745			163,017			24,692,762
Mortgage loans held for portfolio, net of allowance		3,213,794			81,374			3,295,168
Accrued interest receivable		109,161			0			109,161
Derivative assets		30,983			0			30,983
Liabilities:
Deposits		1,278,155			0			1,278,155
Consolidated obligation discount notes		15,617,443			3,189			15,614,254
Consolidated obligation bonds		26,815,219			(243,817	)		27,059,036
Mandatorily redeemable capital stock		25,775			0			25,775
Accrued interest payable		173,145			0			173,145
Derivative liabilities		269,397			0			269,397
Other Asset (Liability):
Standby letters of credit		(1,236	)		0			(1,236	)
Standby credit facility		(383	)		0			(383	)
Standby bond purchase agreements		243			2,435			2,678

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The carrying value, net unrealized gains (losses) and estimated fair values of the FHLBank’s financial instruments as of December 31, 2008 are summarized in the following table (in thousands):

	Carrying Value			Net Unrealized Gains (Losses)			Estimated Fair Value
Assets:
Cash and due from banks	$	75		$	0		$	75
Interest-bearing deposits		3,348,212			0			3,348,212
Federal funds sold		384,000			167			384,167
Trading securities		4,652,700			0			4,652,700
Held-to-maturity securities		11,050,897			(596,305	)		10,454,592
Advances		35,819,674			160,123			35,979,797
Mortgage loans held for portfolio, net of allowance		3,023,805			68,908			3,092,713
Accrued interest receivable		138,770			0			138,770
Derivative assets		34,526			0			34,526
Liabilities:
Deposits		1,703,531			(1,952	)		1,705,483
Consolidated obligation discount notes		26,261,411			(34,178	)		26,295,589
Consolidated obligation bonds		27,421,634			(284,257	)		27,705,891
Mandatorily redeemable capital stock		34,806			0			34,806
Accrued interest payable		253,743			0			253,743
Derivative liabilities		404,356			0			404,356
Other Asset (Liability):
Standby letters of credit		(1,321	)		0			(1,321	)
Standby credit facility		(778	)		0			(778	)
Standby bond purchase agreements		135			1,390			1,525

NOTE 14 – COMMITMENTS AND CONTINGENCIES

As described in Note 8, as provided by the Bank Act or Finance Agency regulation, consolidated obligations are backed only by the financial resources of the 12 FHLBanks. FHLBank Topeka is jointly and severally liable with the 11 other FHLBanks for the payment of principal and interest on all of the consolidated obligations issued by the FHLBanks. The par amounts for which FHLBank Topeka is jointly and severally liable were approximately $1,013,659,541,000 and $1,198,203,815,000 as of June 30, 2009 and December 31, 2008, respectively. To the extent that an FHLBank makes any consolidated obligation payment on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the FHLBank with primary liability. However, if the Finance Agency determines that the primary obligor is unable to satisfy its obligations, then the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank has ever failed to make any payment on a consolidated obligation for which it was the primary obligor. As a result, the regulatory provisions for directing other FHLBanks to make payments on behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked.

The joint and several obligations are mandated by Finance Agency regulations and are not the result of arms-length transactions among the FHLBanks. As described above, the FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several liability. Because the FHLBanks are subject to the authority of the Finance Agency as it relates to decisions involving the allocation of the joint and several liability for the FHLBank’s consolidated obligations, FHLBank Topeka’s joint and several obligation is excluded from the initial recognition and measurement provisions of FIN 45.

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FHLBank Topeka regularly monitors the financial condition of the other 11 FHLBanks to determine whether it should expect a loss to arise from its joint and several obligations. If the FHLBank were to determine that a loss was probable and the amount of such loss could be reasonably estimated, the FHLBank would charge to income the amount of the expected loss under the provisions of SFAS No. 5, Accounting for Contingencies. Based upon the creditworthiness of the other FHLBanks as of June 30, 2009, FHLBank Topeka believes that a loss accrual is not necessary at this time.

During the third quarter of 2008, each FHLBank entered into a Lending Agreement with the U.S. Treasury in connection with the U.S. Treasury’s establishment of the Government Sponsored Enterprise Credit Facility (GSECF), as authorized by the Housing and Economic Recovery Act (Recovery Act). The GSECF is designed to serve as a contingent source of liquidity for the housing government-sponsored enterprises, including each of the 12 FHLBanks. Any borrowings by one or more of the FHLBanks under the GSECF are considered obligations with the same joint and several liability as all other consolidated obligations. The terms of the borrowings are agreed to at the time of issuance. Loans under the Lending Agreement are to be secured by collateral acceptable to the U.S. Treasury, which consists of FHLBank advances to members that have been collateralized in accordance with regulatory standards and MBS issued by Fannie Mae or Freddie Mac. Each FHLBank is required to submit to the Federal Reserve Bank of New York, acting as fiscal agent of the U.S. Treasury, a weekly list of eligible advance collateral based upon the Lending Agreement. As of June 30, 2009, the FHLBank had provided the U.S. Treasury with a listing of potential advance collateral amounting to $9,246,920,000. The amount of collateral can be expanded or contracted (subject to the approval of the U.S. Treasury) at any time through the delivery of an updated listing of advance collateral held by the FHLBank as borrower-in-custody or through the delivery of MBS issued by Fannie Mae or Freddie Mac to a custodial National Book Entry System account established through the Federal Reserve Bank of New York for the benefit of the Treasury. As of June 30, 2009, no FHLBank had drawn on this available source of liquidity.

Standby credit facility (SCF) commitments that legally bind and unconditionally obligate the FHLBank for additional advances to stockholders totaled $1,000,000,000 as of June 30, 2009 and December 31, 2008. SCF commitments are executed for members for a fee and are for terms of one year. Standby letters of credit are executed for members for a fee. A standby letter of credit is a short-term financing arrangement between the FHLBank and its member or non-member housing associate. If the FHLBank is required to make payment for a beneficiary’s draw, these amounts are converted into a collateralized advance to the member. As of June 30, 2009, outstanding standby letters of credit totaled $2,839,913,000 and had original terms of two days to seven years with a final expiration in 2013. As of December 31, 2008, outstanding standby letters of credit totaled $2,751,362,000 and had original terms of seven days to seven years with a final expiration in 2013. Unearned fees as well as the value of the guarantees related to standby letters of credit are recorded in other liabilities and amounted to $1,236,000 and $1,321,000 as of June 30, 2009 and December 31, 2008, respectively. The standby letters of credit are fully collateralized with assets allowed by the FHLBank’s Member Products Policy. Based upon management’s credit analysis and collateral requirements, the FHLBank does not expect to incur any credit losses on the letters of credit.

Commitments that unconditionally obligate the FHLBank to fund/purchase mortgage loans from participating FHLBank Topeka members in the MPF Program totaled $50,046,000 and $141,357,000 as of June 30, 2009 and December 31, 2008, respectively. Commitments are generally for periods not to exceed 60 calendar days. In accordance with SFAS 149, certain commitments are recorded as derivatives at their fair value on the Statements of Condition. The FHLBank recorded mortgage delivery commitment derivative asset (liability) balances of $(184,000) and $(1,539,000) as of June 30, 2009 and December 31, 2008, respectively.

The FHLBank has entered into standby bond purchase agreements with state housing authorities within its four-state district whereby the FHLBank, for a fee, agrees to purchase and hold the authorities’ bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the FHLBank to purchase the bond. The bond purchase commitments entered into by the FHLBank expire no later than 2014, though some are renewable at the option of the FHLBank. Total commitments for bond purchases with two state housing authorities were $1,672,896,000 and $1,311,906,000 as of June 30, 2009 and December 31, 2008, respectively. The FHLBank was not required to purchase any bonds under these agreements during the three- or six-month periods ended June 30, 2009 and 2008.

The FHLBank generally executes derivatives with counterparties having ratings of single-A or better by either Standard & Poor’s or Moody’s. These agreements are generally covered under bilateral collateral agreements between the FHLBank and the counterparties. As of June 30, 2009 and December 31, 2008, the FHLBank had delivered cash with a book value of $84,150,000 and $245,600,000, respectively, as collateral to broker/dealers that have market-risk exposure to the FHLBank.

NOTE 15 – TRANSACTIONS WITH STOCKHOLDERS AND HOUSING ASSOCIATES

The FHLBank is a cooperative whose members own the capital stock of the FHLBank and generally receive dividends on their investments. In addition, certain former members that still have outstanding transactions are also required to maintain their investments in FHLBank capital stock until the transactions mature or are paid off. Nearly all outstanding advances are with current members, and the majority of outstanding mortgage loans held for portfolio were purchased from current or former members. The FHLBank also maintains demand deposit accounts for members primarily to facilitate settlement activities that are directly related to advances and mortgage loan purchases.

Transactions with members are entered into in the ordinary course of business. In instances where members also have officers or directors who are directors of the FHLBank, transactions with those members are subject to the same eligibility and credit criteria, as well as the same terms and conditions, as other transactions with members. For financial reporting and disclosure purposes, the FHLBank defines related parties in accordance with SFAS No. 57, Related Party Disclosures (herein referred to as “SFAS 57”) as FHLBank directors’ financial institutions and members with investments in excess of 10 percent of the FHLBank’s total regulatory capital stock outstanding, which includes mandatorily redeemable capital stock.

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Activity with Members that Exceed a 10 Percent Ownership in FHLBank Capital Stock: The following tables present information as of June 30, 2009 and December 31, 2008 on members that own more than 10 percent of outstanding FHLBank regulatory capital stock as of either date (in thousands). None of the officers or directors of these members currently serve on the FHLBank’s board of directors.

June 30, 2009
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A			Total Class B Stock Par Value		Percent of Total Class B			Total Capital Stock Par Value		Percent of Total Capital Stock
MidFirst Bank	OK	$	1,000		0.3	%	$	247,344		17.6	%	$	248,344		14.4	%

December 31, 2008
Member Name	State	Total Class A Stock Par Value		Percent of Total Class A			Total Class B Stock Par Value		Percent of Total Class B			Total Capital Stock Par Value		Percent of Total Capital Stock
U.S. Central Federal Credit Union1	KS	$	1,000		0.2	%	$	269,760		16.8	%	$	270,760		11.9	%
MidFirst Bank	OK		2,600		0.4			259,695		16.2			262,295		11.5
Total		$	3,600		0.6	%	$	529,455		33.0	%	$	533,055		23.4	%

__________

1 U.S. Central Federal Credit Union was placed into conservatorship by the National Credit Union Administration on March 20, 2009.

Advance and deposit balances with members that own more than 10 percent of outstanding FHLBank regulatory capital stock as of June 30, 2009 and December 31, 2008 are summarized in the following table (in thousands). Information is only listed for the period end in which the member owned more than 10 percent of outstanding FHLBank regulatory capital stock. If the member did not own more than 10 percent for one of the periods presented, the applicable column is left blank.

	June 30, 2009					December 31, 2008					June 30, 2009					December 31, 2008
Member Name	Outstanding Advances		Percent of Total			Outstanding Advances		Percent of Total			Outstanding Deposits1		Percent of Total			Outstanding Deposits1		Percent of Total
MidFirst Bank	$	4,915,300		20.4	%	$	5,019,600		14.3	%	$	2,102		0.2	%	$	940		0.1	%
U.S. Central Federal Credit Union2							5,370,000		15.4								40		0.0
TOTAL	$	4,915,300		20.4	%	$	10,389,600		29.7	%	$	2,102		0.2	%	$	980		0.1	%

__________

1	Excludes cash pledged as collateral by derivative counterparties, netted against derivative liabilities, and Member Pass-through Deposit Reserves, classified as non-interest-bearing deposits.
2	U.S. Central Federal Credit Union was placed into conservatorship by the National Credit Union Administration on March 20, 2009.

Neither U.S. Central Federal Credit Union nor MidFirst Bank originated mortgage loans for or sold mortgages into the MPF program during the three- or six-month periods ended June 30, 2008. Additionally, MidFirst Bank did not originate any mortgage loans for the MPF program during the three- or six-month periods ended June 30, 2009.

Transactions with FHLBank Directors’ Financial Institutions: The following table presents summary information as of June 30, 2009 and December 31, 2008 for members that have an officer or director serving on the FHLBank’s board of directors (in thousands). Capital stock listed is regulatory capital stock, which includes mandatorily redeemable capital stock.

	June 30, 2009					December 31, 2008
	Outstanding Amount		Percent of Total			Outstanding Amount		Percent of Total
Advances	$	95,338		0.4	%	$	190,099		0.5	%
Deposits	$	5,556		0.4	%	$	18,918		1.1	%
Class A Common Stock	$	3,070		1.0	%	$	8,108		1.2	%
Class B Common Stock		8,210		0.6			8,571		0.5
Total Capital Stock	$	11,280		0.7	%	$	16,679		0.7	%

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The following table presents mortgage loans funded or acquired during the three- and six-month periods ended June 30, 2009 and 2008 for members that had an officer or director serving on the FHLBank’s board of directors as of June 30, 2009 or 2008 (in thousands).

Three-month period ended										Six-month period ended
June 30, 2009					June 30, 2008					June 30, 2009					June 30, 2008
Mortgage Loans Acquired		Percent of Total			Mortgage Loans Acquired		Percent of Total			Mortgage Loans Acquired		Percent of Total			Mortgage Loans Acquired		Percent of Total
$	9,439		2.3	%	$	3,661		1.7	%	$	18,873		2.4	%	$	10,621		2.9	%

NOTE 16 – TRANSACTIONS WITH OTHER FHLBANKS

FHLBank Topeka had the following business transactions with other FHLBanks during the three- and six-month periods ended June 30, 2009 and 2008 (in thousands). All transactions occurred at market prices.

	Three-month period ended				Six-month period ended
Business Activity	June 30, 2009		June 30, 2008		June 30, 2009		June 30, 2008
Average overnight interbank loan balances to other FHLBanks1	$	0	$	2,951	$	2,746	$	2,538
Average overnight interbank loan balances from other FHLBanks1		0		9,231		0		7,319
Average deposit balance with FHLBank of Chicago for shared expense transactions2		54		17		53		8
Average deposit balance with FHLBank of Chicago for MPF transactions2		25		25		28		25
Transaction charges paid to FHLBank of Chicago for transaction service fees3		354		267		698		517
Par amount of purchases of consolidated obligations issued on behalf of other FHLBanks4		0		0		0		106,320
Net premium (discount) on purchases of consolidated obligation issued on behalf of other FHLBanks4		0		0		0		6,900

__________

1	Occasionally, the FHLBank loans (or borrows) short-term funds to (from) other FHLBanks. Interest income on loans to other FHLBanks and interest expense on borrowings from other FHLBanks are separately identified on the Statements of Income.
2	Balance is interest bearing and is classified on the Statements of Condition as interest-bearing deposits.
3	Fees are calculated monthly based on 5 basis points of outstanding loans funded since January 1, 2004 and are recorded in other expense.
4	Purchases of consolidated obligations issued on behalf of one FHLBank and purchased by the FHLBank occur at market prices with third parties and are accounted for in the same manner as similarly classified investments. Outstanding balances are presented in Note 3. Interest income earned on these securities totaled $3,868,000 and $4,197,000 for the three-month periods ended June 30, 2009 and 2008, respectively. For the six-month periods ended June 30, 2009 and 2008, interest income earned on these securities totaled $7,873,000 and $8,267,000, respectively.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews the financial condition of the FHLBank as of June 30, 2009 and December 31, 2008 and results of operations for the three- and six-month periods ended June 30, 2009 and 2008. This discussion should be read in conjunction with the interim financial statements and notes presented under Part I Item 1 of this quarterly report on Form 10-Q and the annual report on Form 10-K, which includes audited financial statements and related notes for the year ended December 31, 2008.

Overview

The FHLBank Topeka is a regional wholesale bank that makes advances (loans) to, purchases mortgages from, and provides other financial services to our member institutions. We are one of 12 district FHLBanks which, together with the Office of Finance, a joint office of the FHLBanks, make up the “FHLBank System.” As independent, member-owned cooperatives, the FHLBanks seek to maintain a balance between their public purpose and their ability to provide adequate returns on the capital supplied by their members. The FHLBanks are supervised and regulated by the Federal Housing Finance Agency (Finance Agency), an independent agency in the executive branch of the U.S. government. The Finance Agency is responsible for ensuring that the FHLBank carries out its housing finance mission, remains adequately capitalized, is capable of raising funds in the capital markets and operates in a safe and sound manner.

The FHLBank serves eligible financial institutions in Colorado, Kansas, Nebraska and Oklahoma (collectively, the Tenth District of the FHLBank System). Initially, members are required to purchase shares of Class A Common Stock to give them access to advance borrowings or to enable them to sell mortgage loans to the FHLBank under the MPF Program. The FHLBank’s capital increases when its members are required to purchase additional capital stock in the form of Class B Common Stock to support an increase in advance borrowings from the FHLBank or the sale of additional mortgage loans to the FHLBank. At its discretion, the FHLBank may repurchase excess capital stock from time to time if a member’s advances or mortgage loan balances decline. Despite the intensifying financial market disruptions that began in the third quarter of 2007 and significant fluctuations in total assets, liabilities and capital during 2008 and into 2009, the FHLBank has been able to: (1) achieve its liquidity, housing finance and community development missions by meeting member credit needs through the offering of advances, MPF and other products; and (2) pay market-rate dividends.

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Table 1 summarizes selected financial data for the periods indicated.

Table 1

Selected Financial Data (dollar amounts in thousands):

	06/30/2009			03/31/2009			12/31/2008			09/30/2008			06/30/2008
Statement of Condition (at period end)
Total assets	$	46,273,877		$	51,922,782		$	58,556,231		$	64,192,515		$	60,915,712
Investments1		18,310,864			21,592,347			19,435,809			22,379,274			20,520,453
Advances		24,529,745			27,014,796			35,819,674			37,443,260			37,543,931
Mortgage loans held for portfolio, net		3,213,794			3,113,801			3,023,805			2,773,079			2,539,954
Deposits		1,278,155			1,644,993			1,703,531			1,540,986			886,632
Consolidated obligations, net2		42,432,662			47,443,443			53,683,045			59,385,070			56,955,483
Capital		1,997,741			2,140,301			2,395,245			2,596,847			2,525,346
Statement of Income (for the quarterly period ended)
Net interest income before provision for credit losses on mortgage loans		74,792			61,793			34,831			79,356			71,678
Provision for credit losses on mortgage loans		104			10			57			66			64
Other income (loss)		79,106			31,761			(109,486	)		(42,020	)		2,869
Other expenses		10,558			10,668			10,794			9,170			10,432
Income before assessments		143,236			82,876			(85,506	)		28,100			64,051
Assessments		38,007			22,012			(22,680	)		7,468			17,005
Net income		105,229			60,864			(62,826	)		20,632			47,046
Ratios and Other Financial Data (for the quarterly period ended)
Dividends paid in cash3		90			82			82			88			92
Dividends paid in stock3		9,554			10,409			12,013			22,474			20,383
Class A Stock dividend rate		0.75	%		0.75	%		0.75	%		1.75	%		1.75	%
Class B Stock dividend rate		2.50	%		2.50	%		2.50	%		4.75	%		4.75	%
Weighted average dividend rate4		2.33	%		2.31	%		2.33	%		4.40	%		4.37	%
Dividend payout ratio		9.16	%		17.24	%		(19.25	)%		109.35	%		43.52	%
Return on average equity		19.63	%		10.63	%		(9.78	)%		3.27	%		8.08	%
Return on average assets		0.85	%		0.44	%		(0.41	)%		0.14	%		0.34	%
Average equity to average assets		4.31	%		4.14	%		4.18	%		4.13	%		4.16	%
Net interest margin5		0.60	%		0.45	%		0.23	%		0.52	%		0.51	%
Total capital ratio at period end6		4.32	%		4.12	%		4.09	%		4.05	%		4.15	%
Ratio of earnings to fixed charges7		1.97			1.41			0.78			1.07			1.18

__________

1	Investments also include interest-bearing deposits and Federal funds sold.
2	Consolidated obligations are bonds and discount notes that the FHLBank is primarily liable to repay. See Note 8 to the quarterly financial statements for a description of the total consolidated obligations of all 12 FHLBanks for which the FHLBank is jointly and severally liable under the requirements of the Finance Agency, which govern the issuance of debt for the 12 FHLBanks.
3	Dividends reclassified as interest expense on mandatorily redeemable capital stock in accordance with SFAS 150 and not included as GAAP dividends were $79,000, $294,000, $65,000, $151,000 and $150,000 for the quarters ended June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008 and June 30, 2008, respectively.
4	Weighted average dividend rates are dividends paid in cash and stock on both classes of stock divided by the average capital stock eligible for dividends.
5	Net interest margin is net interest income before mortgage loan loss provision as a percentage of average earning assets.
6	Total capital ratio is GAAP capital stock, which excludes mandatorily redeemable capital stock in accordance with SFAS 150, plus retained earnings and accumulated other comprehensive income as a percentage of total assets at period end.
7	The ratio of earnings to fixed charges (interest expense including amortization of premiums, discounts and capitalized expenses related to indebtedness) is computed by dividing total earnings by fixed charges.

Quarterly Overview

Total assets decreased during the first six months of 2009 by 21.0 percent to $46.3 billion as of June 30, 2009 from $58.6 billion as of December 31, 2008. This decline is almost entirely due to an $11.3 billion decrease in advances during the six-month period ended June 30, 2009. The remaining $1.0 billion decrease was predominantly attributable to a net reduction in the various investment portfolios.

Nearly half of the decrease in advance balances is the result of U.S. Central Federal Credit Union paying down $5.4 billion during the first quarter of 2009, largely as a consequence of government assistance culminating in being placed into conservatorship by the National Credit Union Administration on March 20, 2009. The remaining decrease is the result of a broad-based advance decline as FHLBank members have generally experienced growth in deposits, decline in loan demand, and access to debt programs explicitly guaranteed by the U.S. government. All of these have contributed to an overall reduction in members’ demand for FHLBank advances. Although total advance balances have declined every month this year, the pace of the decline has slowed during the second quarter.

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Total investments (including interest-bearing deposits at the Federal Reserve) decreased $1.1 billion from December 31, 2008 as the FHLBank managed its balance sheet in order to maintain appropriate liquidity, capital, and leverage ratios subsequent to the large decrease in advances. This decrease in total investments was also accompanied by a significant change in the composition of the FHLBank’s investment portfolio. On May 20, 2009, the Federal Reserve Board issued the final rule amending Regulation D, which resulted in the elimination of interest paid on excess reserves held in the FHLBank’s Federal Reserve account effective July 2, 2009 (see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments” under this Item 2 for a more detailed discussion). As a result, the FHLBank began increasing its short-term investment portfolios and decreasing its excess reserves at the Federal Reserve in preparation for this change. After a thorough credit review of potential counterparties, the FHLBank increased its investment in short-term money market instruments, predominantly in the form of commercial paper, certificates of deposit, and overnight Federal funds transactions. Commercial paper and certificates of deposit purchased during this portfolio diversification were classified as trading securities under Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities (herein referred to as “SFAS 115”) in order to maintain the FHLBank’s high level of liquidity. Correspondingly, the amount of excess reserves (interest-bearing deposits) at the Federal Reserve was reduced to $0.5 billion as of June 30, 2009, which is down from $6.6 billion as of March 31, 2009 and $3.3 billion as of December 31, 2008.

On the liability side of the balance sheet, consolidated obligation discount notes, which are typically used to fund short-term advances and investments, decreased by $10.6 billion and longer term consolidated obligation bonds decreased by $0.6 billion. This decrease in consolidated obligations corresponds to the decrease in demand for advances and in the size of the FHLBank’s total investments and interest-bearing deposits.

The FHLBank’s net income for the three-month period ended June 30, 2009 was $105.2 million compared to $47.0 million for the three-month period ended June 30, 2008. The increase was primarily attributable to the following:

§	$3.1 million increase in net interest income (increase income);
§	$36.3 million increase related to net gain (loss) on trading securities (increase income);
§	$39.3 million increase related to net gain (loss) on derivatives and hedging activities (increase income); and
§	$21.0 million increase in assessments (decrease income).

Net income for the six-month period ended June 30, 2009 was $166.1 million compared to $70.6 million for the six-month period ended June 30, 2008. The increase was primarily attributable to the following:

§	$3.5 million increase in net interest income (increase income);
§	$32.9 million increase related to net gain (loss) on trading securities (increase income);
§	$93.7 million increase related to net gain (loss) on derivatives and hedging activities (increase income); and
§	$34.5 million increase in assessments (decrease income).

As indicated above, the increase in net income for both the second quarter of 2009 and the first six months of 2009 compared to the same periods in 2008 was mainly due to the positive impact of market value changes in trading securities as well as gains related to derivatives and hedging activities. These items include derivatives (interest rate swaps, interest rate caps and floors) and trading securities (Agency debentures and mortgage-backed securities). Most of the market value changes on trading securities and gains on derivatives are a result of different interest rate indices and credit spreads returning to more normal, historical relationships or levels. See “Net Gain (Loss) on Derivative and Hedging Activities” and “Net Gain (Loss) on Trading Securities” in this Item 2 for additional discussion.

The FHLBank’s net interest income was 21.0 percent higher in the second quarter of 2009 than in the first quarter. Even though balances declined significantly, as discussed above, spreads widened as high-cost debt transacted in late 2008 to ensure adequate liquidity for member advances over year end matured during the first and second quarters of 2009. During the fourth quarter 2008, the FHLBank experienced a significant contraction in net interest spreads as it extended the term of its short-term discount notes for liquidity purposes in the midst of the market liquidity crisis. As a result of this extension of funding, when short-term rates fell during the fourth quarter, the FHLBank’s assets re-priced faster than liabilities resulting in a significant decrease in net interest income. During the second quarter of 2009 as the need for longer term liquidity decreased, the FHLBank began issuing shorter-term discount notes that were a better match with assets on its balance sheet. This reduced the cost of debt and along with the older debt maturities widened spreads and increased net interest income.

The significant fluctuations that have occurred in non-interest income over the past five quarters are primarily the result of the recognition of net gains/losses on derivatives and hedging activities as required under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (herein referred to as “SFAS 133”) as well as the mark-to-market revaluations of trading securities required under SFAS 115. During the second quarter of 2009, net gain (loss) on derivatives and hedging activities was $102.4 million while net gain (loss) on trading securities was $(25.7) million. This resulted in an increase to net income of $76.7 million, which had a significant impact on the FHLBank’s results of operations and corresponding key ratios for the three-month period ended June 30, 2009. For the first six months of 2009, the net gain (loss) on derivatives and hedging activities was $122.2 million while the net gain (loss) on trading securities was $(15.8) million. This resulted in an increase to net income of $106.4 million, which also had a significant impact on the FHLBank’s results of operations and corresponding key ratios for the six-month period ended June 30, 2009.

Tables 8 through 11 and the discussion in both “Net Gain (Loss) on Derivative and Hedging Activities” and “Net Gain (Loss) on Trading Securities” in this Item 2 demonstrate and explain the fluctuations in Other Income (Loss) between the three- and six-month periods ended June 30, 2009 and 2008.

The FHLBank’s return on average equity (ROE) increased to 19.63 percent for the second quarter of 2009 compared to 8.08 percent for the same period of 2008. The FHLBank’s return on average equity (ROE) for the first six months of 2009 increased to 14.98 percent compared to 6.12 percent for the same period of 2008. The increase in ROE for both periods can be primarily attributed to the positive impact of market value changes on trading securities and net gains on derivative and hedging activities as discussed above.

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Dividends paid for the second quarter of 2009 were 0.75 percent and 2.50 percent per annum for Class A Common Stock and Class B Common Stock, respectively. This was a decrease over dividends paid for the second quarter of 2008 of 1.75 percent and 4.75 percent per annum for Class A Common Stock and Class B Common Stock, respectively. The decrease in dividend rates can be attributed to the decrease in short-term interest rates between the periods. The payout ratio decreased from 44 percent during the second quarter of 2008 to 9 percent during the second quarter of 2009. The current level of dividends paid in a period is normally determined based upon a spread to the average overnight Federal funds effective rate and may not correlate with the amount of net income earned during the period because of fluctuations in net gain (loss) on trading securities and net gain (loss) on derivatives and hedging activities for the period, which are typically not considered during the determination of dividend rates for a period. The average overnight Federal funds effective rate for the three-month periods ended June 30, 2009 and 2008 was 0.18 percent and 2.09 percent, respectively (see Table 2). Refer to this Item 2 – “Liquidity and Capital Resources – Capital Distributions” for further information regarding FHLBank dividend payments.

Financial Market Trends

The primary external factors that affect net interest income are market interest rates and the general state of the economy. Table 2 presents selected market interest rates as of the dates or for the periods shown.

Table 2

Market Instrument	June 30, 2009 Three-Month Average			June 30, 2008 Three-Month Average			June 30, 2009 Six-Month Average			June 30, 2008 Six-Month Average
Overnight Federal funds effective/target rate1		0.18	%		2.09	%		0.18	%		2.62	%
Federal Open Mark Committee (FOMC) target rate for overnight Federal funds1	0.00 to 0.25				2.08		0.00 to 0.25				2.63
3-month Treasury bill1		0.16			1.64			0.18			1.87
3-month LIBOR1		0.84			2.75			1.04			3.02
2-year U.S. Treasury note1		1.00			2.40			0.95			2.21
5-year U.S. Treasury note1		2.23			3.15			1.99			2.95
10-year U.S. Treasury note1		3.30			3.86			3.00			3.76
30-year residential mortgage note rate2		4.99			6.07			5.01			5.95

Market Instrument	June 30, 2009 Ending Rate		December 31, 2008 Ending Rate		June 30, 2008 Ending Rate
Overnight Federal funds effective/target rate1	0.00 to 0.25%		0.00 to 0.25%			2.00	%
FOMC target rate for overnight Federal funds1	0.00 to 0.25		0.00 to 0.25			2.00
3-month Treasury bill1		0.19		0.08		1.74
3-month LIBOR1		0.60		1.43		2.78
2-year U.S. Treasury note1		1.11		0.77		2.62
5-year U.S. Treasury note1		2.56		1.55		3.33
10-year U.S. Treasury note1		3.54		2.21		3.97
30-year residential mortgage note rate2		5.34		5.03		6.33

__________

1	Source is Bloomberg (Overnight Federal funds rate is the effective rate for the yearly averages and the target rate for the ending rates).
2	Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate obtained from Bloomberg.

The FOMC maintained the Federal funds target rate at a range of zero to 0.25 percent at its April 29, 2009 and June 24, 2009 meetings. On June 25, 2009, the Federal Reserve announced several changes to its liquidity programs. Specifically, the Federal Reserve Bank extended the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF) to February 1, 2010. Several of these programs support markets that directly or indirectly impact the market for FHLBank consolidated obligations. The extension of these facilities may adversely impact issuance of FHLBank consolidated obligations. Additionally, the Federal Reserve reduced the size of the Term Auction Facility (TAF) from $150 billion to $100 billion (effective August 2009) and did not extend the authorization for the Money Market Investor Funding Facility (MMIFF). TAF funds are an alternative to FHLBank advances for certain FHLBank members, and therefore, this action may alleviate competition related to the TAF program in the future. In making these changes, the Federal Reserve noted improvements in the condition of financial markets. However, it also cautioned that many segments of financial markets are currently impaired and will likely remain impaired for quite a while. The Federal Reserve Bank of New York also changed its System Open Market Account (SOMA) securities lending program to include the direct obligations of the housing-related government-sponsored enterprises held in its SOMA portfolio, including the FHLBank, as securities that will be offered for loan in the daily SOMA securities lending auctions. The change is effective July 9, 2009.

LIBOR rates have fallen significantly during the first half of 2009. The decrease in LIBOR rates is primarily the result of excess demand from market participants with larger amounts of cash to invest than the supply of eligible money market investments. To a lesser extent, the decrease in LIBOR might also indicate that financial markets see less risk in lending short-term funds to other financial institutions. In some instances, the decrease in LIBOR results in decreases in the FHLBank’s borrowing costs including debt that is directly swapped to LIBOR and debt that, while not directly tied to LIBOR, normally tracks the general direction of LIBOR rates. Conversely, decreases in LIBOR also result in decreases in yields on some FHLBank assets including investments and advances directly indexed to LIBOR and assets that, while not directly indexed to LIBOR, normally track the general direction of LIBOR rates.

41

During the second quarter of 2009, the yield curve for U.S. Treasuries steepened as longer-term interest rates increased significantly. This increase is likely due to market concerns about the potential inflationary impact from the current and anticipated volumes of U.S. Treasury issuance and concerns about the potential decrease in demand for U.S. Treasuries, Agency debentures and Agency mortgage-backed securities (MBS) after the Federal Reserve Bank’s quantitative easing program has ended. In some instances, higher long-term interest rates increase the cost of issuing FHLBank consolidated obligations and typically increase the cost of advances for its members. However, increases in Treasury rates did not fully extend to increases in rates for FHLBank debentures because spreads of the FHLBank debt relative to similar term U.S. Treasury instruments declined significantly since December 31, 2008. For example, the spread between the on-the-run FHLBank two-year bullet debt and the two-year U.S. Treasury note was 82 basis points on December 31, 2008. This spread decreased to 33 basis points as of June 30, 2009. The spread between the on-the-run FHLBank five-year bullet debt and the five-year Treasury note was 130 basis points on December 31, 2008. This spread decreased to 60 basis points as of June 30, 2009. As a result, interest rates paid on FHLBank debt did not increase as much as they did for U.S. Treasuries over the first half of 2009 and, in fact actually decreased for some maturities.

During the first quarter of 2009, the FOMC directed the Federal Reserve to initiate purchases of U.S. Treasuries and increase the targeted purchases of Agency mortgage-backed securities and Agency debentures. In the second quarter of 2009, the Federal Reserve purchased $10.3 billion in FHLBank consolidated obligations. The weighted average maturity date of the consolidated obligations purchased in the second quarter of 2009 was November 26, 2012. The total amount of FHLBank consolidated obligations purchased by the Federal Reserve in the first two quarters of 2009 was $19.5 billion. The weighted average maturity date of the consolidated obligations purchased in the first two quarters of 2009 was October 25, 2012. From the beginning of the purchase program on December 5, 2008, the total amount of FHLBank consolidated obligations purchased by the Federal Reserve through June 30th, 2009 was $22.6 billion with a weighted average maturity date of September 16, 2012. These purchases by the Federal Reserve helped stabilize the U.S. Treasury, Agency debenture and Agency MBS markets throughout the first six months of 2009. The program to purchase agency debentures is capped at $200 billion and is scheduled to expire on December 31, 2009. When the purchases reach the specified cap or when the program expires, the cost to issue FHLBank consolidated obligations will likely increase, particularly for those with terms of two-years or greater.

Primarily due to the implicit support from the U.S. government, investors continue to view short-term FHLBank consolidated obligations as carrying a strong credit profile. This has resulted in strong investor demand for FHLBank discount notes and short-term bonds, especially during late-2008 and the first half of 2009. Because of this strong demand, the cost to issue short-term consolidated obligations remained low throughout the first six months of 2009. We are unsure how long these low debt issuance costs will persist, however, as we anticipate that demand for short-term consolidated obligations will fall and yields rise as investors regain confidence in higher yielding financial instruments. As indicated above in our discussion of FHLBank debt relative to similar term U.S. Treasury instruments, the cost to issue consolidated obligations for terms of two years or greater improved in the second quarter of 2009 and is approaching levels experienced prior to the financial market disruptions in the second and third quarter of 2008. We believe this improvement is primarily the result of the FOMC’s direct purchases of FHLBank debentures and, secondarily, from improving financial market conditions. However, because of the short-term maturity of its advances (including long-term adjustable rate advances tied to the FHLBank’s short-term advance rates) and short-term investments, the FHLBank continues to fund a significant portion of its advances and investments with short-term consolidated obligation discount notes. This allows the FHLBank to adjust its balance sheet as advance demand expands and contracts, much like it did during the first half of 2009.

Results of Operations

The primary source of the FHLBank’s earnings is net interest income, which is the interest earned on advances, mortgage loans, investments and invested capital less interest paid on consolidated obligations, deposits, and other borrowings. The FHLBank’s net interest income for the second quarter of 2009 increased slightly over the second quarter of 2008. This increase can be primarily attributed to increased net interest spreads as opposed to changes in volumes or rates. The decrease in the cost of the FHLBank’s liabilities exceeded the decrease in yields on the FHLBank’s interest earning assets when comparing 2009 to 2008 for the three-month periods. The net interest income for the first six months of 2009 increased slightly over the first six months of 2008. This increase is primarily attributed to increased net interest spreads as opposed to changes in volumes or rates. See Tables 4 through 7 for further information regarding average balances and yields and changes in interest income.

Net income is subject to volatility not only from changes in the average balance of total assets and interest rates but also from gains (losses) on trading securities and derivatives. See “Net Gain (Loss) on Derivative and Hedging Activities” and “Net Gain (Loss) on Trading Securities” in this Item 2 for a discussion of the impact of these activities by period.

42

Earnings Analysis – Table 3 presents changes in the major components of the FHLBank’s earnings for the second quarter of 2009 compared to the second quarter of 2008 and the first six months of 2009 compared to the first six months of 2008 (in thousands):

Table 3

	Increase (Decrease) in Earnings Components
	For the Three Months Ended June 30, 2009 vs. 2008						For the Six Months Ended June 30, 2009 vs. 2008
	Dollar Change			Percent Change			Dollar Change			Percent Change
Total interest income	$	(211,279	)		(48.7	)%	$	(520,515	)		(51.8	)%
Total interest expense		(214,393	)		(59.2	)		(524,000	)		(60.1	)
Net interest income before provision for credit losses on mortgage loans		3,114			4.3			3,485			2.6
Provision for credit losses on mortgage loans		40			62.5			41			56.2
Net interest income after provision for credit losses on mortgage loans		3,074			4.3			3,444			2.6
Net gain (loss) on trading securities		36,325			58.5			32,916			67.5
Net gain (loss) on derivatives and hedging activities		39,286			62.2			93,707			328.7
Other non-interest income		626			35.7			1,050			30.4
Total non-interest income		76,237			2,657.3			127,673			759.7
Operating expenses		228			2.8			1,083			6.5
Other non-interest expenses		(102	)		(4.3	)		105			3.0
Total other expenses		126			1.2			1,188			5.9
AHP assessments		6,456			123.1			10,604			134.4
REFCORP assessments		14,546			123.7			23,865			135.2
Total assessments		21,002			123.5			34,469			134.9
Net income	$	58,183			123.7	%	$	95,460			135.1	%

Net Interest Income – Net interest income increased 4.3 percent from $71.7 million in the second quarter of 2008 to $74.8 million in the second quarter of 2009 even though total assets declined $14.6 billion (-24.0 percent) from June 30, 2008. The impact on net interest income from the decrease in assets was more than offset by a nine basis point increase in the FHLBank’s net interest margin from 0.51 percent for the quarter ended June 30, 2008 to 0.60 percent for the quarter ended June 30, 2009.

There are two primary causes for the increase in the FHLBank’s net interest margin; (1) generally wider spreads due to favorable short-term funding costs; and (2) an increase in the proportion of higher earning assets (primarily MBS investments and mortgage loans) to total assets. Over the last year, short-term discount note borrowing costs have remained very low as investor demand for short-term, high quality investment paper has been strong. As a result, the FHLBank’s funding mix was adjusted to take advantage of this market opportunity – providing an improvement to spreads. Additionally, as advance balances have declined, the MBS and mortgage loan portfolios have grown as a percentage of assets. The carrying value of the MBS and mortgage loan portfolios have increased from 14.5 and 4.2 percent, respectively, of total assets as of June 30, 2008 to 19.2 and 6.9 percent, respectively, of total assets as of June 30, 2009. The MBS and mortgage loan portfolios are among the highest spread portfolios on the FHLBank’s balance sheet. The MBS portfolio increased significantly during 2008 as the Federal Housing Finance Board (Finance Board), through Resolution 2008-08, “Temporary Authorization to Invest in Additional Agency Mortgage Securities,” granted Federal Home Loan Banks the authority to grow MBS investments beyond previously established limits. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Balance Sheet Analysis - Investments" in the annual report on Form 10-K for additional discussion on Finance Board Regulation 2008-08.

Net interest income increased 2.6 percent from $133.1 million in the first six months of 2008 to $136.6 million in the first six months of 2009, while the FHLBank’s net interest margin increased to 0.52 percent from 0.48 percent for the six months ended June 30, 2009 and 2008, respectively.

As explained in more detail in “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk Management” under Item 3, the FHLBank’s duration of equity (DOE) is relatively short. The short DOE is the result of short maturities (or short reset periods) on the majority of the FHLBank’s assets and liabilities. Accordingly, the FHLBank’s net interest income is quite sensitive to the level of short-term interest rates. However, as average short-term interest rates decreased between the second quarter of 2008 and the second quarter of 2009, the FHLBank’s net interest income actually increased because: (1) total interest expense declined at a faster rate than total interest income as a result of favorable short-term borrowing costs; and (2) higher spread assets (MBS investments and mortgage loans) became a greater percentage of the FHLBank’s balance sheet. The difference or spread between market interest rates such as LIBOR and FHLBank discount notes has tightened considerably since June 30, 2009, which will have a negative impact on net interest income as the ability to earn wider spreads will be diminished. We expect that net interest income will decline in the second half of 2009 as we anticipate that short-term interest rates will remain essentially unchanged at their current low levels and the FHLBank’s balance sheet is likely to remain smaller than in the first half of the year.

43

Table 4 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets for the quarters ended June 30, 2009 and 2008 (in thousands):

Table 4

	For the Three Months Ended
	June 30, 2009							June 30, 2008
	Average Balance		Interest Income/ Expense		Yield			Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	6,215,643	$	3,910		0.25	%	$	28,449	$	151		2.15	%
Federal funds sold		527,187		704		0.54			2,735,345		15,348		2.26
Investments1		14,163,762		79,615		2.25			17,009,873		151,054		3.57
Advances2,7		25,605,459		98,113		1.54			33,743,268		236,378		2.82
Mortgage loans held for portfolio2,5,6		3,193,282		39,439		4.95			2,491,327		30,000		4.84
Other interest-earning assets		46,470		750		6.47			55,875		879		6.33
Total earning assets		49,751,803		222,531		1.79			56,064,137		433,810		3.11
Other non-interest-earning assets		192,165							264,371
Total assets	$	49,943,968						$	56,328,508
Interest-bearing liabilities:
Deposits	$	1,667,023		1,066		0.26		$	1,133,354		5,780		2.05
Consolidated obligations:2
Discount notes		18,885,338		15,347		0.33			25,460,758		139,695		2.21
Bonds		26,460,921		131,008		1.99			26,777,351		216,096		3.25
Other borrowings		47,599		318		2.68			72,804		561		3.10
Total interest-bearing liabilities		47,060,881		147,739		1.26			53,444,267		362,132		2.73
Capital and other non-interest-bearing funds		2,883,087							2,884,241
Total funding	$	49,943,968						$	56,328,508
Net interest income and net interest spread3			$	74,792		0.53	%			$	71,678		0.38	%
Net interest margin4						0.60	%						0.51	%

__________

1	The non-credit portion of the other-than-temporary impairment discount on held-to-maturity securities is excluded from the average balance for calculations of yield since the change runs through equity.
2	Interest income/expense and average rates include the effect of associated derivatives qualifying for hedge accounting under SFAS 133.
3	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
4	Net interest margin is net interest income as a percentage of average interest-earning assets.
5	The FHLBank nets credit enhancement fee (CE fee) payments against interest earnings on the mortgage loans held for portfolio. The expense related to CE fee payments to PFIs was $703,000 and $609,000 for the quarters ended June 30, 2009 and 2008, respectively.
6	Mortgage loans held for portfolio average balance includes outstanding principal for non-performing loans. However, these loans no longer accrue interest.
7	Advance income includes prepayment fees on terminated advances.

44

Changes in the volume of interest-earning assets and the level of short-term interest rates influence changes in net interest income, net interest spread and net interest margin. Table 5 summarizes changes in interest income and interest expense between the second quarter of 2009 and 2008 (in thousands):

Table 5

	For the Three Months Ended June 30, 2009 vs. 2008
	Increase (Decrease) Due to
	Volume1,3			Rate2,3			Total
Interest Income:
Interest-bearing deposits	$	33,031		$	(29,272	)	$	3,759
Federal funds sold		(12,390	)		(2,254	)		(14,644	)
Investments		(25,275	)		(46,164	)		(71,439	)
Advances		(57,007	)		(81,258	)		(138,265	)
Mortgage loans held for portfolio		8,454			985			9,439
Other assets		(148	)		19			(129	)
Total earning assets		(53,335	)		(157,944	)		(211,279	)
Interest Expense:
Deposits		2,722			(7,436	)		(4,714	)
Consolidated obligations:
Discount notes		(36,077	)		(88,271	)		(124,348	)
Bonds		(2,554	)		(82,534	)		(85,088	)
Other borrowings		(194	)		(49	)		(243	)
Total interest-bearing liabilities		(36,103	)		(178,290	)		(214,393	)
Change in net interest income	$	(17,232	)	$	20,346		$	3,114

__________

1	Volume changes are calculated by taking (current period average balance minus prior period average balance) multiplied by prior period calculated yield.
2	Rate changes are calculated by taking (current period average rate minus prior period average rate) multiplied by current period average balance.
3	Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.

45

Table 6 presents average balances and annualized yields of major earning asset categories and the sources funding those earning assets for the six months ended June 30, 2009 and 2008 (in thousands):

Table 6

	For the Six Months Ended
	June 30, 2009							June 30, 2008
	Average Balance		Interest Income/ Expense		Yield			Average Balance		Interest Income/ Expense		Yield
Interest-earning assets:
Interest-bearing deposits	$	5,605,008	$	7,003		0.25	%	$	38,199	$	514		2.71	%
Federal funds sold		507,812		1,987		0.79			3,535,593		52,515		2.99
Investments1		14,688,206		172,844		2.37			16,498,742		330,082		4.02
Advances2,7		28,817,108		222,030		1.55			33,067,446		559,062		3.40
Mortgage loans held for portfolio2,5,6		3,153,576		79,147		5.06			2,435,676		61,108		5.05
Other interest-earning assets		51,060		1,557		6.15			57,341		1,802		6.32
Total earning assets		52,822,770		484,568		1.85			55,632,997		1,005,083		3.63
Other non-interest-earning assets		191,501							288,749
Total assets	$	53,014,271						$	55,921,746
Interest-bearing liabilities:
Deposits	$	1,708,403		3,588		0.42		$	1,274,073		16,723		2.64
Consolidated obligations:2
Discount notes		21,326,865		63,274		0.60			23,992,977		333,542		2.80
Bonds		26,900,461		280,217		2.10			27,693,320		520,512		3.78
Other borrowings		69,875		904		2.61			69,220		1,206		3.50
Total interest-bearing liabilities		50,005,604		347,983		1.40			53,029,590		871,983		3.31
Capital and other non-interest-bearing funds		3,008,667							2,892,156
Total funding	$	53,014,271						$	55,921,746
Net interest income and net interest spread3			$	136,585		0.45	%			$	133,100		0.32	%
Net interest margin4						0.52	%						0.48	%

__________

1	The non-credit portion of the other-than-temporary impairment discount on held-to-maturity securities is excluded from the average balance for calculations of yield since the change runs through equity.
2	Interest income/expense and average rates include the effect of associated derivatives qualifying for hedge accounting under SFAS 133.
3	Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
4	Net interest margin is net interest income as a percentage of average interest-earning assets.
5	The FHLBank nets credit enhancement fee (CE fee) payments against interest earnings on the mortgage loans held for portfolio. The expense related to CE fee payments to PFIs was $1,177,000 and $1,195,000 for the six months ended June 30, 2009 and 2008, respectively.
6	Mortgage loans held for portfolio average balance includes outstanding principal for non-performing loans. However, these loans no longer accrue interest.
7	Advance income includes prepayment fees on terminated advances.

46

Changes in the volume of interest-earning assets and the level of short-term interest rates influence changes in net interest income, net interest spread and net interest margin. Table 7 summarizes changes in interest income and interest expense between the first six months of 2009 and 2008 (in thousands):

Table 7

	For the Six Months Ended June 30, 2009 vs. 2008
	Increase (Decrease) Due to
	Volume1,3			Rate2,3			Total
Interest Income:
Interest-bearing deposits	$	74,957		$	(68,468	)	$	6,489
Federal funds sold		(44,972	)		(5,556	)		(50,528	)
Investments		(36,223	)		(121,015	)		(157,238	)
Advances		(71,859	)		(265,173	)		(337,032	)
Mortgage loans held for portfolio		18,012			27			18,039
Other assets		(197	)		(48	)		(245	)
Total earning assets		(60,282	)		(460,233	)		(520,515	)
Interest Expense:
Deposits		5,701			(18,836	)		(13,135	)
Consolidated obligations:
Discount notes		(37,063	)		(233,205	)		(270,268	)
Bonds		(14,903	)		(225,392	)		(240,295	)
Other borrowings		12			(314	)		(302	)
Total interest-bearing liabilities		(46,253	)		(477,747	)		(524,000	)
Change in net interest income	$	(14,029	)	$	17,514		$	3,485

__________

1	Volume changes are calculated by taking (current period average balance minus prior period average balance) multiplied by prior period calculated yield.
2	Rate changes are calculated by taking (current period average rate minus prior period average rate) multiplied by current period average balance.
3	Amounts used to calculate volume and rate changes are based on numbers in dollars. Accordingly, recalculations using the amounts in thousands as disclosed in this report may not produce the same results.

Other Income (Loss) – The volatility in other income (loss) is predominately driven by trading gains (losses) as well as derivative and hedging adjustments related to SFAS 133. Net gain (loss) on derivatives and hedging activities and net gains (losses) on trading securities are discussed in more detail below.

Net Gain (Loss) on Derivative and Hedging Activities – The application of SFAS 133 resulted in a net gain (loss) on derivatives and hedging activities of $102.4 million and $63.2 million for the quarters ended June 30, 2009 and 2008, respectively. For the six-month periods ended June 30, 2009 and 2008, the net gain (loss) on derivatives and hedging activities was $122.2 million and $28.5 million, respectively. The FHLBank’s net gains (losses) from derivatives and hedging are sensitive to the general level of interest rates, which includes the shape of the interest rate curve and interest rate volatility. Most of the derivative gains and losses are related to economic hedges such as swaps matched to trading securities, caps, floors, etc. Because of the mix of these economic hedges, the FHLBank historically recorded gains on its derivatives when the general level of interest rates rose during a period and recorded losses on its derivatives when the general level of interest rates fell during a period. This was the case for the three and six months ended June 30, 2009 and 2008 (note the increase in long term rates as well as the increased steepness of the interest rate curve from year end December 31, 2008 in Table 2).

The net gains on derivatives and hedging activities in the first half of 2009 can primarily be attributable to: (1) an increase in long-term rates on interest rate swaps since the end of 2008; and (2) gains on purchased interest rate caps that are economic hedges of caps embedded in variable rate Agency MBS/CMOs (collateralized mortgage obligations) (both of these economic hedges are included under the “Investment” heading in Tables 8 through 11). These gains are partially offset by net interest payments on the interest rate swaps matched to trading investments. Interest rates on government sponsored enterprise (GSE) debt securities and interest rate swaps typically moved together and were very well correlated historically until financial difficulties at Fannie Mae and Freddie Mac created a considerable divergence whereby the cost of GSE debt increased relative to swaps. This divergence during the last half of 2008 caused the losses on derivatives (interest rate swaps) to be much larger than gains on the hedged items (GSE debentures). This spread widening between interest rates swaps and GSE debt has, to a large extent, reversed itself during the first six months of 2009, and returned to more historical levels. This has resulted in the gains on the derivatives (interest rate swaps) to be larger than losses on the hedged items (GSE debentures).

47

Net Gain (Loss) on Trading Securities – All gains (losses) related to trading securities are recorded in other income as net gain (loss) on trading securities; however, only gains (losses) on trading securities that are related to economic hedges are included in Tables 8 through 11. Unrealized gains (losses) fluctuate as the fair value of our trading securities portfolio fluctuates. As noted above, the FHLBank’s trading securities related to economic hedges are sensitive to the general level of long-term interest rates. Gains (losses) in this category move in the opposite direction of and partially or fully offset the net gain (loss) on derivative and hedging activities. The FHLBank normally records gains on its trading securities when the general level of long-term interest rates falls over the period and records losses on its trading securities when the general level of long-term interest rates rises over the period. During the second quarter of 2009, the FHLBank recorded net gain (loss) on trading securities of $(25.1) million attributable to trading securities related to economic hedges and $(0.6) million attributable to unswapped variable rate Agency MBS/CMOs. However, during the second quarter of 2008, the FHLBank recorded net gain (loss) on trading securities of $(63.4) million attributable to trading securities related to economic hedges and $1.4 million attributable to unswapped variable rate Agency MBS/CMOs. For the six months ended June 30, 2009, the FHLBank recorded net gain (loss) on trading securities of $(41.1) million attributable to trading securities related to economic hedges and $25.3 million attributable to unswapped variable rate Agency MBS/CMOs. This compares to a net gain (loss) on trading securities of $(43.0) million attributable to trading securities related to economic hedges and $(5.8) million attributable to unswapped variable rate Agency MBS/CMOs for the six months ended June 30, 2008. The losses on swapped fixed rate trading securities were primarily attributable to an increase in long-term interest rates during 2009. The gain in the unswapped variable rate Agency MBS/CMO portfolio is a result of increased liquidity in the Agency mortgage markets and an increase in demand relative to supply for Agency MBS/CMO securities primarily because of the Federal Reserve’s purchase of Agency MBS, which has significantly contributed to a tightening of the discount margin for Agency MBS.

Table 8 categorizes the earnings impact by product for derivative hedging activities and trading securities for the second quarter of 2009 (in thousands):

Table 8

	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes			Consolidated Obligation Bonds			Intermediary Positions			Total
Amortization/accretion of hedging activities in net margin	$	(5,513	)	$	0		$	75		$	0		$	(564	)	$	0		$	(6,002	)
Net gain (loss) on derivative and hedging activities:
Fair value hedges		3,173			0			0			(641	)		273			0			2,805
Economic hedges – unrealized gain (loss) due to fair value changes		0			113,735			(1,988	)		0			4,094			(1	)		115,840
Economic hedges – net interest received (paid)		0			(16,057	)		0			0			(159	)		14			(16,202	)
Subtotal		3,173			97,678			(1,988	)		(641	)		4,208			13			102,443
Net gain (loss) on trading securities hedged on an economic basis with derivatives		0			(25,177	)		0			0			0			0			(25,177	)
TOTAL	$	(2,340	)	$	72,501		$	(1,913	)	$	(641	)	$	3,644		$	13		$	71,264

48

Table 9 categorizes the earnings impact by product for derivative hedging activities and trading securities for the second quarter of 2008 (in thousands):

Table 9

	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Intermediary Positions		Total
Amortization/accretion of hedging activities in net margin	$	(6,756	)	$	(1	)	$	31		$	(1,218	)	$	0	$	(7,944	)
Net gain (loss) on derivative and hedging activities:
Fair value hedges		(699	)		0			0			70			0		(629	)
Economic hedges – unrealized gain (loss) due to fair value changes		21			73,975			(769	)		272			17		73,516
Economic hedges – net interest received (paid)		(23	)		(9,521	)		0			(203	)		17		(9,730	)
Subtotal		(701	)		64,454			(769	)		139			34		63,157
Net gain (loss) on trading securities hedged on an economic basis with derivatives		0			(63,434	)		0			0			0		(63,434	)
TOTAL	$	(7,457	)	$	1,019		$	(738	)	$	(1,079	)	$	34	$	(8,221	)

Table 10 categorizes the earnings impact by product for derivative hedging activities and trading securities for the first six months of 2009 (in thousands):

Table 10

	Advances			Investments			Mortgage Loans			Consolidated Obligation Discount Notes		Consolidated Obligation Bonds			Intermediary Positions			Total
Amortization/accretion of hedging activities in net margin	$	(10,396	)	$	0		$	138		$	0	$	(1,190	)	$	0		$	(11,448	)
Net gain (loss) on derivative and hedging activities:
Fair value hedges		(2,938	)		0			0			502		8,241			0			5,805
Economic hedges – unrealized gain (loss) due to fair value changes		0			139,898			(1,471	)		0		8,559			(1	)		146,985
Economic hedges – net interest received (paid)		0			(29,953	)		0			0		(653	)		29			(30,577	)
Subtotal		(2,938	)		109,945			(1,471	)		502		16,147			28			122,213
Net gain (loss) on trading securities hedged on an economic basis with derivatives		0			(41,158	)		0			0		0			0			(41,158	)
TOTAL	$	(13,334	)	$	68,787		$	(1,333	)	$	502	$	14,957		$	28		$	69,607

49

Table 11 categorizes the earnings impact by product for derivative hedging activities and trading securities for the first six months of 2008 (in thousands):

Table 11

	Advances			Investments			Mortgage Loans			Consolidated Obligation Bonds			Intermediary Positions		Total
Amortization/accretion of hedging activities in net margin	$	(14,969	)	$	(2	)	$	(223	)	$	(2,791	)	$	0	$	(17,985	)
Net gain (loss) on derivative and hedging activities:
Fair value hedges		(2,114	)		0			0			990			0		(1,124	)
Economic hedges – unrealized gain (loss) due to fair value changes		21			44,560			(1,032	)		(126	)		24		43,447
Economic hedges – net interest received (paid)		(29	)		(13,563	)		0			(262	)		37		(13,817	)
Subtotal		(2,122	)		30,997			(1,032	)		602			61		28,506
Net gain (loss) on trading securities hedged on an economic basis with derivatives		0			(42,995	)		0			0			0		(42,995	)
TOTAL	$	(17,091	)	$	(12,000	)	$	(1,255	)	$	(2,189	)	$	61	$	(32,474	)

The significant increases in net interest received (paid) on economic hedges from 2008 to 2009 were attributable to the decrease in the variable rate of interest received by the FHLBank on the derivatives (interest rate swaps). As reflected in Table 2, average three-month LIBOR decreased significantly from the first half of 2008 to the first half of 2009.

Controllable Operating Expenses– Controllable operating expenses include compensation and benefits and other operating expenses. These expenses increased for the three- and six-month periods ended June 30, 2009 compared to the same periods of 2008 (see Table 3). The increases are primarily attributable to increased fees paid to the FHLBank’s Board of Directors with the removal of the statutory cap on fees and implementation of the FHLBank's Board of Directors Compensation Policy, which became effective January 1, 2009, increased professional fees paid to address technology/programming needs and amounts paid for models used to analyze and provide disclosures for the FHLBank’s private-label MBS. The FHLBank expects similar increases in controllable operating expenses during the next two quarters.

Return on Equity – Return on equity was 19.63 percent (annualized) in the second quarter of 2009, an increase from 8.08 percent for the second quarter of 2008. Return on equity was 14.98 percent (annualized) in the first six month of 2009, an increase from 6.12 percent for the first six months of 2008. The primary contributors to these increases were the positive impact of both the net gain (loss) on derivatives and hedging activities and the net gain (loss) on trading securities (see Table 3).

50

Financial Condition

Overall – Table 12 presents changes in the major components of the FHLBank’s Statements of Condition from December 31, 2008 to June 30, 2009 (in thousands):

Table 12

	Increase (Decrease) in Components
	December 31, 2008 vs. June 30, 2009
	Dollar Change			Percent Change
Assets:
Cash and due from banks	$	12			16.0	%
Investments1		(1,124,945	)		(5.8	)
Advances		(11,289,929	)		(31.5	)
Mortgage loans held for portfolio, net		189,989			6.3
Derivatives assets		(3,543	)		(10.3	)
Other assets		(53,938	)		(22.3	)
Total assets	$	(12,282,354	)		(21.0	)%
Liabilities:
Deposits	$	(425,376	)		(25.0	)%
Consolidated obligations, net		(11,250,383	)		(21.0	)
Derivative liabilities		(134,959	)		(33.4	)
Other liabilities		(74,132	)		(20.0	)
Total liabilities		(11,884,850	)		(21.2	)
Capital:
Capital stock outstanding		(543,023	)		(24.2	)
Retained earnings		149,307			95.1
Accumulated other comprehensive income		(3,788	)		(188.3	)
Total capital		(397,504	)		(16.6	)
Total liabilities and capital	$	(12,282,354	)		(21.0	)%

__________

1 Investments also include interest-bearing deposits and Federal funds sold.

Advances – Outstanding advances decreased by 31.5 percent from $35.8 billion on December 31, 2008 to $24.5 billion on June 30, 2009 (see Table 12). Over the six-month period, the mix of products changed significantly, with short-term fixed rate advances increasing to 21.2 percent, regular fixed rate advances increasing to 28.0 percent, fixed rate convertible advances increasing to 22.1 percent and line of credit advances decreasing to 4.3 percent of the total as of June 30, 2009, compared to 15.7 percent, 21.1 percent, 16.5 percent and 22.3 percent, respectively, as of December 31, 2008 (see Table 13). The par value of total fixed rate advances decreased by $1.6 billion and the par value of total adjustable rate advances, including lines of credit, decreased by $9.3 billion (see Table 13). Line of credit advances decreased significantly from $7.8 billion at December 31, 2008 to $1.0 billion at June 30, 2009. The sharp decline in the FHLBank’s overnight line of credit advances can largely be attributed to U.S. Central Federal Credit Union paying down $5.4 billion during the first quarter of 2009; see “Quarterly Overview” in this Item 2 for additional discussion.

The Federal government and the Federal Reserve have instituted various programs to infuse the markets with liquidity as a way to address the financial and liquidity crisis. These programs coupled with: (1) investors increasing bank deposits after retreating from the stock markets; and (2) sluggish loan demand at our members have reduced the demand for FHLBank advances. As a result, total advances to members continued to decline in the second quarter of 2009, but not as significantly as the decline during the first quarter of 2009. The Federal Deposit Insurance Corporation (FDIC) implemented a special assessment on FDIC-insured financial institution deposit balances as of June 30, 2009, but this FDIC action did not seem to have an impact on advance demand. At this time, there is nothing to indicate that the decline in FHLBank advances will cease until there is an increase in U.S. economic activity, which appears unlikely to occur before the end of 2009. While we cannot predict how much more, if any, FHLBank advances will decline before the end of 2009, we do not expect the rate of decline to be anywhere near the actual decline experienced for the first half of 2009. However, when member advance demand increases, a few larger members could have a significant impact on the amount of total outstanding advances.

51

Table 13 summarizes the par value of the FHLBank’s advances outstanding by product as of June 30, 2009 and December 31, 2008 (in thousands):

Table 13

	June 30, 2009					December 31, 2008
	Dollar		Percent			Dollar		Percent
Standard advance products:
Line of credit	$	1,039,184		4.3	%	$	7,810,283		22.3	%
Short-term fixed rate advances		5,096,630		21.2			5,508,972		15.7
Regular fixed rate advances		6,733,424		28.0			7,379,766		21.1
Fixed rate callable advances		17,100		0.1			67,000		0.2
Fixed rate amortizing advances		651,839		2.7			645,972		1.9
Fixed rate callable amortizing advances		7,031		0.0			2,954		0.0
Fixed rate convertible advances		5,309,722		22.1			5,759,422		16.5
Adjustable rate advances		509,329		2.1			496,230		1.4
Adjustable rate callable advances		3,810,450		15.8			6,296,340		18.0
Customized advances:
Advances with embedded caps or floors		60,000		0.3			95,000		0.3
Standard housing and community development advances:
Regular fixed rate advances		416,941		1.7			504,754		1.4
Fixed rate callable advances		11,300		0.0			0		0.0
Fixed rate amortizing advances		378,155		1.6			388,940		1.1
Fixed rate callable amortizing advances		635		0.0			635		0.0
Adjustable rate callable advances		22,005		0.1			28,505		0.1
Fixed rate amortizing advances funded through AHP		12		0.0			14		0.0
TOTAL PAR VALUE	$	24,063,757		100.0	%	$	34,984,787		100.0	%

Note that an individual advance may be reclassified to a different product type between periods due to the occurrence of a triggering event such as the passing of a call date (i.e., from fixed rate callable advance to regular fixed rate advance) or conversion of an advance (i.e., from fixed rate convertible advance to adjustable rate callable advance).

Total advances as a percentage of total assets decreased from 61.2 percent as of December 31, 2008 to 53.0 percent as of June 30, 2009. We anticipate the percentage of total advances to total assets to stay in the range of 50 to 55 percent for the remainder of 2009. As advances decline, we expect to: (1) repurchase excess capital stock, consistent with past practice, when and as requested, and (2) leverage capital in the range of 22:1 to 23:1 as conditions dictate. The average yield on advances was 1.54 percent for the three months ended June 30, 2009, compared to 2.82 percent for the three months ended June 30, 2008. Additionally, the average yield on advances was 1.55 percent for the six months ended June 30, 2009, compared to 3.40 percent for the six months ended June 30, 2008. The decrease in average yields on advances is attributable to the decline in short-term interest rates from 2008 to 2009.

As of June 30, 2009, line of credit advances (which re-price daily) and short-term, fixed rate advances (maturities of 93 days or less) represented 25.5 percent of outstanding advances. Adjustable rate advances (re-pricing daily to every three months) represented 18.3 percent, and convertible advances (swapped to three-month LIBOR, synthetically creating three-month advances) represented 22.1 percent. As of December 31, 2008, line of credit advances (which re-price daily) and short-term, fixed rate advances (maturities of 93 days or less) represented 38.0 percent of outstanding advances. Adjustable rate advances (re-pricing daily to every three months) represented 19.8 percent, and convertible advances (swapped to three-month LIBOR, synthetically creating three-month advances) represented 16.5 percent. In addition, fixed rate bullet advances and callable advances either swapped to one-month or three-month LIBOR (synthetically creating one-month or three-month advances) represented 16.3 percent and 12.2 percent as of June 30, 2009 and December 31, 2008, respectively. As a result, 82.2 percent of the FHLBank’s advance portfolio as of June 30, 2009 and 86.5 percent of the FHLBank’s advance portfolio as of December 31, 2008 effectively re-priced at least every three months. Because of the relatively short nature of the FHLBank’s advance portfolio, the average yield in this portfolio typically responds quickly to changes in the general level of short-term interest rates. The level of short-term interest rates is primarily driven by FOMC decisions on the level of its overnight Federal funds target, but is also influenced by the expectations of capital market participants related to the strength of the economy, future inflationary pressure and other factors. See Tables 4 through 7 under “Results of Operations – Net Interest Income” in this Item 2 for further information regarding average balances, average yields/rates and changes in interest income.

52

The FHLBank’s potential credit risk from advances is concentrated in commercial banks, thrift institutions, credit unions and insurance companies, but also includes credit risk exposure to a limited number of housing associates. Table 14 presents information on the FHLBank’s five largest borrowers as of June 30, 2009 and December 31, 2008 (in thousands). If the borrower was not one of the five largest borrowers for one of the periods presented, the applicable column is left blank. The FHLBank had rights to collateral with an estimated fair value in excess of the book value of these advances plus the members’ capital stock over and above the collateral. Therefore, we do not expect to incur any credit losses on these advances. See Item 1 – “Business – Advances” in the annual report on Form 10-K for additional discussion on collateral held as security for all advance borrowers.

Table 14

			June 30, 2009					December 31, 2008
Borrower Name	City	State	AdvancePar Value		Percent ofTotal Advances			AdvancePar Value		Percent ofTotal Advances
MidFirst Bank	Oklahoma City	OK	$	4,915,300		20.4	%	$	5,019,600		14.3	%
Capitol Federal Savings Bank	Topeka	KS		2,446,000		10.2			2,596,000		7.4
Pacific Life Insurance Co.	Omaha	NE		1,650,000		6.9			1,650,000		4.7
Security Life of Denver Ins. Co.	Denver	CO		1,400,000		5.8			2,825,000		8.1
Security Benefit Life Insurance Co.1	Topeka	KS		1,259,330		5.2
U.S. Central Federal Credit Union2	Lenexa	KS							5,370,000		15.4
TOTAL			$	11,670,630		48.5	%	$	17,460,600		49.9	%

__________

1

This member has received the following rating downgrades within the past year: CCC by Fitch Ratings (Fitch) as of June 1, 2009; B by A.M. Best Company as of February 27, 2009; and BB by Standard &Poor’s (S&P) as of February 24, 2009 (placed on CreditWatch Negative on June 9, 2009). Moody’s Investors Service (Moody’s) downgraded Security Benefit Life Insurance Co. to Baa3 on October 8, 2008 and subsequently withdrew its rating.

2

U.S. Central Federal Credit Union was placed into conservatorship by the National Credit Union Administration on March 20, 2009 and subsequently paid off all advances as of March 31, 2009. U.S. Central Federal Credit Union also requested to redeem its excess stock and the FHLBank repurchased all but its membership stock of $1 million as of March 31, 2009. U.S. Central Federal Credit Union continues to have occasional advance activity with the FHLBank but all activity has been short-term and was repaid as of June 30, 2009, at which time it had no outstanding advances.

Table 15 presents the interest income associated with the five borrowers with the highest interest income for the three-month periods ended June 30, 2009 and 2008 (in thousands). If the borrower was not one of the five borrowers representing the highest interest income for one of the periods presented, the applicable column is left blank.

Table 15

			Three Months Ended June 30, 2009					Three Months Ended June 30, 2008
Borrower Name	City	State	Advance Income		Percent of Total Advance Income1			Advance Income		Percent of Total Advance Income1
Capitol Federal Savings Bank	Topeka	KS	$	23,758		15.3	%	$	30,638		11.4	%
Pacific Life Insurance Co.	Omaha	NE		7,147		4.6			13,217		4.9
TierOne Bank	Lincoln	NE		6,465		4.1
Security Life of Denver Ins. Co.	Denver	CO		5,266		3.4			19,963		7.4
American Fidelity Assurance Co.	Oklahoma City	OK		4,834		3.1
MidFirst Bank	Oklahoma City	OK							38,504		14.3
U.S. Central Federal Credit Union	Lenexa	KS							12,189		4.5
TOTAL			$	47,470		30.5	%	$	114,511		42.5	%

__________

1 Total advance income excludes net interest settlements on derivatives hedging the advances under SFAS 133.

53

Table 16 presents the interest income associated with the five borrowers with the highest interest income for the six-month periods ended June 30, 2009 and 2008 (in thousands). If the borrower was not one of the five borrowers representing the highest interest income for one of the periods presented, the applicable column is left blank.

Table 16

			Six Months Ended June 30, 2009					Six Months Ended June 30, 2008
Borrower Name	City	State	Advance Income		Percent of Total Advance Income1			Advance Income		Percent of Total Advance Income1
Capitol Federal Savings Bank	Topeka	KS	$	49,729		14.8	%	$	62,485		10.5	%
Pacific Life Insurance Co.	Omaha	NE		14,862		4.4			30,444		5.1
TierOne Bank	Lincoln	NE		13,201		3.9
Security Life of Denver Ins. Co.	Denver	CO		13,147		3.9			52,938		8.9
Security Benefit Life Insurance Co.	Topeka	KS		10,665		3.2
MidFirst Bank	Oklahoma City	OK							89,375		15.0
U.S. Central Federal Credit Union	Lenexa	KS							45,266		7.6
TOTAL			$	101,604		30.2	%	$	280,508		47.1	%

__________

1 Total advance income excludes net interest settlements on derivatives hedging the advances under SFAS 133.

The FHLBank offers a standby credit facility (SCF) product, which is a commitment to issue an advance. SCF commitments are for terms of one year and any draws on the SCF must be fully collateralized prior to any disbursement of funds and at all times thereafter. Outstanding SCF commitments totaled $1.0 billion at June 30, 2009 and December 31, 2008.

MPF Program – The FHLBank participates in the MPF Program through the MPF Provider, a division of the Federal Home Loan Bank of Chicago. Under this program, participating members of an FHLBank either sell fixed rate, size-conforming, single-family mortgage loans to the FHLBank (closed loans) or originate these same loans on behalf of the FHLBank (table funded loans). There was an increase in the MPF portfolio during the first six months of 2009, as new loans acquired from in-district participating financial institutions (PFIs) were more than enough to offset the amount of loans paid down during the six-month period ended June 30, 2009. The FHLBank continued to devote resources during the first six months of 2009 to increase the volume of mortgage loans acquired from in-district PFIs and is committed to continue providing a viable secondary market alternative to our members through the MPF program. We expect the portfolio will likely continue to show modest growth for the remainder of 2009 as long as conventional mortgage rates do not increase dramatically from current levels and there is not a spike in prepayments on existing mortgage loans in the portfolio.

Table 17 presents the top five PFIs of the FHLBank, the outstanding balances (in thousands) of mortgage loans acquired from them as of June 30, 2009 and December 31, 2008, and the percentage of those loans to total MPF loans outstanding as of each date.

Table 17

PFI Name	MPF Loan Balance as of June 30, 2009		Percent of Total MPF Loans			MPF Loan Balance as of December 31, 2008		Percent of Total MPF Loans
TierOne Bank	$	506,158		15.8	%	$	539,652		17.9	%
LaSalle National Bank, N.A.1		422,645		13.2			465,906		15.4
Bank of the West2		340,747		10.6			378,628		12.5
Security Saving Bank, FSB		123,703		3.9			82,368		2.8
Central National Bank		89,586		2.8			115,646		3.8
Total	$	1,482,839		46.3	%	$	1,582,200		52.4	%

__________

1	Out-of-district loans acquired from Federal Home Loan Bank of Chicago.
2	Formerly Commercial Federal Bank headquartered in Omaha, NE. Bank of the West acquired Commercial Federal Bank on December 2, 2005. Bank of the West is a member of the Federal Home Loan Bank of San Francisco.

54

Although the average 30-year residential mortgage note rate was lower for the second quarter of 2009 than for the second quarter of 2008 (See Table 2), the FHLBank’s average yield on mortgage loans increased for the second quarter of 2009 to 4.95 percent compared to 4.84 percent for the second quarter of 2008 as a result of: (1) new loans being purchased at average rates higher than the average rate for the existing loan portfolio; and (2) a decrease in the net write-off of the amortization of net premiums. For the six month period ended June 30, 2009 and 2008, the average yield on mortgage loans was 5.06 percent and 5.05 percent, respectively. Although the FHLBank’s average yield on mortgage loans increased slightly in the first six months, we expect average yields to stay flat or decrease slightly during the third quarter of 2009 as: (1) higher rate mortgage loans prepay and are replaced with newly originated lower-rate loans; and (2) moderate growth in the total portfolio at mortgage rates above the average for existing loans will offset some but not all of the impact of prepayments. Although mortgage interest rates have risen from the April and May lows, they are expected to remain relatively low during the third quarter of 2009 as the Federal Reserve continues the process of quantitative easing by acquiring MBS through its open market operations. The future direction of mortgage interest rates is difficult to determine given market uncertainty and aggressive actions by the Federal Reserve. The current historically low rate environment makes a large portion of the FHLBank’s existing mortgage loans susceptible to prepayment through refinancing. Callable debt comprises a great deal of the funding for this portfolio, which has allowed management to call the higher cost debt and replace it with new lower-cost callable debt in order to mitigate the earnings risk of rising prepayments. See Tables 4 through 7 under “Results of Operations – Net Interest Income” in this Item 2 for further information regarding average balances and yields/rates and changes in interest income.

Asset Quality: The FHLBank classifies conventional real estate mortgage loans as “non-performing” when they are contractually past due 90 days or more and interest is no longer accrued. Interest continues to accrue on government-insured real estate mortgage loans (e.g., Federal Housing Administration, Veterans’ Affairs, USDA Guaranteed Rural Housing Section 502, and HUD Section 184 Indian Home Loan Guarantee Program loans) that are contractually past due 90 days or more. The weighted average FICO®2score and loan-to-value ratio3(LTV) recorded at origination for conventional mortgage loans held in portfolio as of June 30, 2009 was 746 FICO with a 72.9 percent LTV.

The FHLBank believes it has minimal exposure to subprime loans due to its unique business model, in which the seller of the mortgage retains a portion of the credit risk of the original mortgage loan. Due to this risk-sharing feature, the FHLBank should be buying only the highest quality mortgages from its members. Under the MPF Program, the FHLBank does not fund or purchase mortgage loans that are originated as subprime or nontraditional loans (e.g., adjustable loans with teaser rates, low FICO scores/high LTVs, interest-only loans, negative amortization loans, etc.). Even though the mortgage loans owned by the FHLBank are not classified subprime or nontraditional, management has monitoring reports to track FICO, LTV and documentation type for income and employment verification. Any concerns regarding portfolio performance are addressed during the FHLBank’s Credit Underwriting and Asset Liability committee meetings.

On July 15, 2009, the MPF Provider issued a PFI Notice announcing a Temporary Loan Payment Modification Plan (the “Modification Plan”) for certain borrowers who are in default or facing imminent default on FHLBank owned MPF conventional mortgage loans originated and sold into the MPF Program prior to January 1, 2009. The Modification Plan was effective on the date of the PFI Notice and is effective through December 31, 2011. Under certain circumstances, the Modification Plan, by temporarily reducing the monthly housing payments to a sustainable level, may be the appropriate loss mitigation option for certain borrowers. The FHLBank estimates that the number of potential loans eligible for the Modification Plan to be minimal, but notes that loans currently performing (i.e., not delinquent) but facing imminent default are difficult to estimate.

Table 18 presents the unpaid principal balance for conventional and government-insured mortgage loans as of June 30, 2009 and December 31, 2008 (in thousands):

Table 18

	June 30, 2009		December 31, 2008
Conventional mortgage loans	$	2,978,373	$	2,824,928
Government-insured mortgage loans		233,591		195,619
Total outstanding mortgage loans	$	3,211,964	$	3,020,547

Table 19 presents the unpaid principal balance for performing mortgage loans, non-performing mortgage loans and mortgage loans 90 days or more past due and accruing as of June 30, 2009 and December 31, 2008 (in thousands):

Table 19

	June 30, 2009		December 31, 2008
Performing mortgage loans	$	3,191,949	$	3,010,665
Non-performing mortgage loans		18,139		8,934
Mortgage loans 90 days or more past due and accruing		1,876		948
Total outstanding mortgage loans	$	3,211,964	$	3,020,547

2   FICO® is a widely used credit industry model developed by Fair Isaac Corporation to assess credit quality with scores typically ranging from 300 to 850 with the low end of the scale indicating a poor credit risk. A credit score of 620 is frequently cited as a cutoff point, with credit scores below that typically considered "sub-prime."

3   LTV is a primary variable in credit performance. Generally speaking, higher loan-to-value means greater risk of loss generating a default and also means higher loss severity.

55

MPF Allowance for Credit Losses on Mortgage Loans: The FHLBank bases its allowance on management’s estimate of probable credit losses inherent in the FHLBank’s mortgage loan portfolio as of the Statement of Condition date. The estimate is based on an analysis of industry statistics for similar mortgage loan portfolios. Management believes that policies and procedures are in place to manage the credit risk on MPF mortgage loans.

Table 20 details the change in the allowance for mortgage loan losses for the three- and six-month periods ended June 30, 2009 and 2008 (in thousands):

Table 20

	Three-month period ended						Six-month period ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
Balance, beginning of period	$	889		$	842		$	884		$	844
Provision for credit losses on mortgage loans		104			64			114			73
Charge-offs		(111	)		(67	)		(116	)		(78	)
Balance, end of period	$	882		$	839		$	882		$	839

The ratio of net charge-offs to average loans outstanding was less than one basis point for the three- and six-month periods ended June 30, 2009 and 2008.

Investments – As indicated in Table 12, total investments (including long-term investments, short-term investments, interest-bearing deposits and Federal funds sold) decreased 5.8 percent from December 31, 2008 to June 30, 2009. In addition, the composition of the investments changed significantly with total held-to-maturity securities decreasing from $11.1 billion at December 31, 2008 to $8.4 billion at June 30, 2009. Held-to-maturity non-MBS/CMOs investments decreased $1.5 billion while held-to-maturity MBS/CMO investments decreased $1.2 billion. The decrease in the held-to-maturity non-MBS/CMO investments is the result of a management decision to classify all new short-term security purchases as trading under SFAS 115 in order to enhance the FHLBank’s liquidity position. The decrease in the held-to-maturity MBS/CMO portfolio can be entirely attributed to prepayments in this portfolio as the FHLBank has not purchased or sold any MBS/CMOs during the first six months of 2009. The balance of interest-bearing deposits at the Federal Reserve also declined by $2.8 billion as the FHLBank began investing these funds into short-term money market investments in response to regulatory changes implemented by the Federal Reserve Board. The Federal Reserve Board announced on May 20, 2009 and implemented on July 2, 2009 a change in Regulation D, which resulted in the elimination of interest paid on excess reserves held in the FHLBank’s Federal Reserve account. In response to these changes the FHLBank began the process of reducing its balances at the Federal Reserve and investing these funds in short term money market investments. These investments include commercial paper, certificates of deposits and Federal funds sold with counterparties that meet FHFA regulations and FHLBank policy. As stated previously, newly acquired short-term investment securities (commercial paper and certificates of deposit) were classified as trading securities under SFAS 115 in order to enhance the FHLBank’s liquidity position. Consequently, the FHLBank’s trading securities increased from $4.7 billion on December 31, 2008 to $7.7 billion on June 30, 2009.

Short-term investments (interest-bearing deposits, Federal funds sold, certificates of deposit and commercial paper) are generally used by the FHLBank for liquidity purposes as well as to leverage capital during periods when advances decline and capital stock is not likewise reduced. At June 30, 2009 and December 31, 2008, these short-term investments represented 42 percent and 38 percent, respectively, of total investments. This concentration in short-term investments, along with a significant amount of variable rate long-term investments, results in the yields on the investments adjusting relatively quickly to changes in market rates.

The average yield on investments was 1.62 percent during the second quarter of 2009, compared to 3.39 percent during the second quarter of 2008. For the six months ended June 30, 2009 and 2008, the average yield on investments was 1.76 percent and 3.84 percent, respectively. The average rate on FHLBank investments rises and falls in conjunction with the level of short-term interest rates primarily because of the short-term nature of the FHLBank’s investment portfolio. Because the FOMC decreased its target rate between the second quarter of 2008 and the second quarter of 2009, the average rate earned on FHLBank investments declined. This decline in the average rate earned on FHLBank investments, however, would have been larger had the MBS/CMO portfolio as a percent of total investments not increased from 42.9 percent as of June 30, 2008 to 48.5 percent as of June 30, 2009. The percentage increase in the MBS/CMO portfolio is attributable to the decrease in total assets caused by a significant decline in advances over that period. See Tables 4 through 7 under “Results of Operations – Net Interest Income” in this Item 2 for further information regarding average balances and yields and changes in interest income.

56

The carrying value and contractual maturity of the FHLBank’s investments as of June 30, 2009 and December 31, 2008 are summarized by security type in Tables 21 and 22 (in thousands). Expected maturities of certain securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 21

June 30, 2009
SecurityType	Carrying Value3		Due in one year or less		Due after one year through five years		Due after five years through 10 years		Due after 10 years
Interest-bearing deposits:
Federal Reserve Bank interest-bearing deposits	$	487,220	$	487,220	$	0	$	0	$	0
MPF deposits		27		27		0		0		0
Shared expense deposits		36		36		0		0		0
Total interest-bearing deposits		487,283		487,283		0		0		0
Federal funds sold		1,685,000		1,685,000		0		0		0
Trading securities:
Non-mortgage-backed securities:
Certificates of deposit		2,709,519		2,709,519		0		0		0
Commercial paper		2,734,565		2,734,565		0		0		0
FHLBank obligations		294,972		0		62,006		232,966		0
Fannie Mae obligations1		390,863		0		113,964		276,899		0
Freddie Mac obligations1		982,581		0		434,376		548,205		0
Mortgage-backed securities:
Fannie Mae obligations1		374,397		0		0		0		374,397
Freddie Mac obligations1		253,311		0		0		0		253,311
Ginnie Mae obligations2		1,902		0		0		0		1,902
Total trading securities		7,742,110		5,444,084		610,346		1,058,070		629,610
Held-to-maturity securities:
Non-mortgage-backed securities:
State or local housing agencies		140,490		10,000		75		1,035		129,380
Mortgage-backed securities:
Fannie Mae obligations1		3,055,846		0		0		78,253		2,977,593
Freddie Mac obligations1		2,964,026		0		0		16,141		2,947,885
Ginnie Mae obligations2		34,237		0		0		765		33,472
Private-label mortgage-backed securities		2,201,872		0		0		257,829		1,944,043
Total held-to-maturity securities		8,396,471		10,000		75		354,023		8,032,373
Total	$	18,310,864	$	7,626,367	$	610,421	$	1,412,093	$	8,661,983

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Government National Mortgage Association (Ginnie Mae) securities are guaranteed by the U.S. government.
3	At June 30, 2009, carrying value has been adjusted by the credit and non-credit components of OTTI charges on private-label mortgage-backed securities.

57

Table 22

December 31, 2008
SecurityType	Carrying Value3		Due in one year or less		Due after one year through five years		Due after five years through 10 years		Due after 10 years
Interest-bearing deposits:
Federal Reserve Bank interest-bearing deposits	$	3,348,154	$	3,348,154	$	0	$	0	$	0
MPF deposits		24		24		0		0		0
Shared expense deposits		34		34		0		0		0
Total interest-bearing deposits		3,348,212		3,348,212		0		0		0
Federal funds sold		384,000		384,000		0		0		0
Trading securities:
Non-mortgage-backed securities:
Certificates of deposit		1,571,449		1,571,449		0		0		0
Commercial paper		673,435		673,435		0		0		0
FHLBank obligations		316,618		0		0		316,618		0
Fannie Mae obligations1		403,027		0		115,061		287,966		0
Freddie Mac obligations1		1,009,074		0		331,010		678,064		0
Mortgage-backed securities:
Fannie Mae obligations1		399,863		0		0		0		399,863
Freddie Mac obligations1		277,278		0		0		0		277,278
Ginnie Mae obligations2		1,956		0		0		0		1,956
Total trading securities		4,652,700		2,244,884		446,071		1,282,648		679,097
Held-to-maturity securities:
Non-mortgage-backed securities:
Certificates of deposit		760,000		760,000		0		0		0
Commercial paper		737,271		737,271		0		0		0
State or local housing agencies		155,247		10,000		120		1,320		143,807
Mortgage-backed securities:
Fannie Mae obligations1		3,354,012		0		0		78,305		3,275,707
Freddie Mac obligations1		3,388,254		0		0		18,932		3,369,322
Ginnie Mae obligations2		37,663		0		0		923		36,740
Private-label mortgage-backed securities		2,618,450		0		0		274,546		2,343,904
Total held-to-maturity securities		11,050,897		1,507,271		120		374,026		9,169,480
Total	$	19,435,809	$	7,484,367	$	446,191	$	1,656,674	$	9,848,577

__________

1	Fannie Mae and Freddie Mac are GSEs. Both entities were placed into conservatorship by the Finance Agency on September 7, 2008.
2	Ginnie Mae securities are guaranteed by the U.S. government.
3	At December 31, 2008, carrying value is equivalent to amortized cost.

Private-label mortgage-backed securities. The FHLBank acquires private-label MBS investments that carry the highest ratings from Moody’s, Fitch or S&P on acquisition date. The FHLBank purchases private-label MBS investments with weighted average FICO scores of 700 or above and weighted average LTVs of 80 percent or lower. The FHLBank classifies private-label MBS as prime, Alt-A and subprime based on the originator’s classification at the time of origination or based on classification by a Nationally-Recognized Statistical Rating Organization (NRSRO) upon issuance of the MBS.

58

Table 23 presents a summary of the par value of private-label MBS by interest rate type and by type of collateral as of June 30, 2009 and December 31, 2008 (in thousands):

Table 23

	June 30, 2009						December 31, 2008
	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
Private-label residential MBS:
Prime	$	1,440,164	$	381,794	$	1,821,958	$	1,762,925	$	436,024	$	2,198,949
Alt-A		209,071		133,676		342,747		231,452		149,991		381,443
Total private-label residential MBS		1,649,235		515,470		2,164,705		1,994,377		586,015		2,580,392
Manufactured housing loans:
Prime		0		432		432		0		620		620
Private-label commercial MBS:
Prime		39,940		0		39,940		39,940		0		39,940
Home equity loans:
Prime		0		5,954		5,954		0		6,559		6,559
TOTAL	$	1,689,175	$	521,856	$	2,211,031	$	2,034,317	$	593,194	$	2,627,511

During 2008, the FHLBank experienced a significant decline in the estimated fair values of its private-label MBS due to interest rate volatility, illiquidity in the marketplace and credit deterioration in the U.S. mortgage markets. This decline continued into the first quarter of 2009; however, during the second quarter, the pace of the decline slowed appreciably and the fair value of many of the FHLBank’s prime, early vintage private-label MBS actually improved from year-end 2008. Significant declines in fair values experienced during 2008 were particularly evident across the market for private-label MBS securitized in 2006 and 2007 primarily because of less stringent underwriting standards used by mortgage originators during those years. While some of the most significant declines in fair values have been in the 2006 and 2007 vintage MBS, the earlier vintages owned by the FHLBank have not been immune to the declines in fair value. Table 24 presents the fair value as a percentage of par value of the FHLBank’s private-label MBS by year of securitization as of June 30, 2009, March 31, 2009, December 31, 2008, September 30, 2008 and June 30, 2008:

Table 24

Year of Securitization	June 30, 2009			March 31, 2009			December 31, 20081			September 30, 2008			June 30, 2008
Private-label residential MBS:
Prime:
2006		77.7	%		77.6	%		79.3	%		93.9	%		96.2	%
2005		84.5			85.1			80.1			93.1			94.6
2004		85.3			84.6			84.6			93.9			94.8
2003 and earlier		92.7			92.0			89.6			93.7			94.6
Total prime		87.7			87.5			85.1			93.6			94.7
Alt-A:
2005		64.8			64.1			72.8			88.9			90.1
2004		71.0			73.4			77.9			89.1			91.8
2003 and earlier		89.1			86.4			85.3			88.7			90.6
Total Alt-A		81.1			79.8			81.5			88.8			90.7
Total private-label residential MBS		86.6			86.3			84.6			92.9			94.1
Manufactured housing loans:
Prime:
2003 and earlier		98.6			98.4			98.1			97.6			99.0
Private-label commercial MBS:
Prime:
2003 and earlier		97.0			93.6			90.2			94.4			97.4
Home equity loans:
Prime:
2003 and earlier		39.1			38.3			41.6			50.8			52.2
TOTAL		86.7	%		86.3	%		84.6	%		92.8	%		94.1	%

59

Table 25 presents the par value of the FHLBank’s private-label MBS by rating and by year of collateralization as of June 30, 2009 (in thousands):

Table 25

Year of Securitization	AAA		AA			A	BBB		BB			B	CC		Total Par Value
Private-label residential MBS:
Prime:
2006	$	0	$	0	$	0	$	81,229	$	21,784	$	0	$	0	$	103,013
2005		170,230		47,692		87,358		127,519		82,418		22,115		0		537,332
2004		379,109		15,681		29,776		10,646		0		0		0		435,212
2003 and earlier		743,579		2,822		0		0		0		0		0		746,401
Total prime		1,292,918		66,195		117,134		219,394		104,202		22,115		0		1,821,958
Alt-A:
2005		0		11,519		0		20,264		36,312		0		0		68,095
2004		33,196		12,232		4,999		9,847		0		0		0		60,274
2003 and earlier		142,909		71,469		0		0		0		0		0		214,378
Total Alt-A		176,105		95,220		4,999		30,111		36,312		0		0		342,747
Total private-label residential MBS:		1,469,023		161,415		122,133		249,505		140,514		22,115		0		2,164,705
Manufactured housing loans:
Prime:
2003 and earlier		432		0		0		0		0		0		0		432
Private-label commercial MBS:
Prime:
2003 and earlier		39,940		0		0		0		0		0		0		39,940
Home equity loans:
Prime:
2003 and earlier		0		0		0		103		887		3,881		1,083		5,954
TOTAL	$	1,509,395	$	161,415	$	122,133	$	249,608	$	141,401	$	25,996	$	1,083	$	2,211,031

60

Table 26 presents the underlying collateral performance and credit enhancement statistics of the FHLBank’s private-label MBS as of June 30, 2009 (in thousands):

Table 26

Year of Securitization	Weighted Average Original Credit Support			Weighted- Average Current Credit Support			Weighted Average Collateral Delinquency1
Private-label residential MBS:
Prime:
2006		3.0	%		3.9	%		3.4	%
2005		3.5			4.8			3.7
2004		3.6			7.7			3.9
2003 and earlier		2.7			6.2			1.5
Total prime		3.1			6.0			2.8
Alt-A:
2005		4.1			5.9			5.8
2004		4.9			10.7			7.5
2003 and earlier		4.2			11.5			3.8
Total Alt-A		4.3			10.3			4.8
Total private-label residential MBS:		3.3			6.7			3.2
Manufactured housing loans:
Prime:
2003 and earlier		22.0			93.1			2.2
Private-label commercial MBS:
Prime:
2003 and earlier		21.5			26.2			3.2
Home equity loans:
Prime:
2003 and earlier		36.9			33.4			34.1
TOTAL		3.7	%		7.1	%		3.2	%

__________

1 Determined based on underlying loans that are 60 days or more past due, including bankruptcies, foreclosures and REO. Collateral delinquency percentages are calculated based on information available from third-party financial data providers.

61

Under the FHLBank’s Risk Management Policy (RMP), acquisitions of private-label MBS are limited to securities where the geographic concentration of loans collateralizing the security are such that no single state represents more than 50 percent of the total by dollar amount. As the structure of the underlying collateral shifts because of prepayments, the concentration shifts. Thus, FHLBank management continues to monitor concentration of the underlying collateral for its private-label MBS portfolio for risk management purposes. With decreasing housing prices, especially in the states of California, Florida, Arizona and Nevada, delinquencies and foreclosures have continued to increase. Table 27 presents the FHLBank’s geographic concentration of collateral securing private-label MBS (excluding commercial MBS) as of June 30, 2009 for those states with concentrations of five percent or greater  of total private-label MBS (excluding commercial MBS):

Table 27

	Percentage of Total Par Value1
Security Type	California			New York			Florida
Private-label residential MBS:
Prime		36.7	%		8.9	%		4.8	%
Alt-A		34.4			5.7			6.1
Total private-label residential MBS		36.4			8.4			5.0
Manufactured housing loans:
Prime		0.0			7.0			9.1
Home equity loans:
Prime		0.1			0.3			7.9
TOTAL		36.2	%		8.4	%		5.0	%

__________

1 Calculated based upon weighted average geographic concentrations as available from third-party servicers.

As of June 30, 2009, the FHLBank held private-label MBS covered by monoline insurance companies, which provide credit support for these securities. Credit support is defined as the percentage of subordinate tranches and over-collateralization, if any, in a security structure that will absorb losses before the holders of the security will incur losses. Table 28 presents coverage amounts and unrecognized losses on the private-label MBS covered by monoline bond insurance as of June 30, 2009 (in thousands):

Table 28

	MBIA Insurance Corp.				Financial Guaranty Insurance Company				Total
Year of Securitization	Monoline Insurance Coverage		Total Unrecognized Losses1		Monoline Insurance Coverage		Total Unrecognized Losses2		Monoline Insurance Coverage		Total Unrecognized Losses
Home equity loans:
Prime:
2003 and earlier	$	1,606	$	980	$	4,348	$	1,142	$	5,954	$	2,122

__________

1	The one private-label MBS covered by MBIA Insurance Corp. was initially determined to be other-than-temporarily impaired as of March 31, 2009. Cash flow testing at June 30, 2009 revealed additional impairment which was recorded at June 30, 2009. The security was written down to a total fair value of $0.6 million as of June 30, 2009.
2	All private-label MBS covered by Financial Guaranty Insurance Company were determined to be other-than-temporarily impaired as of December 31, 2008. These securities were written down to a total fair value of $1.8 million as of that date.

62

As noted previously, the FHLBank only acquires private-label MBS investments that carry the highest ratings from Moody’s, Fitch or S&P. With the current disruption in the financial markets, downgrades have occurred since acquisition but less than 10 percent of the par value of the FHLBank’s private-label MBS has been downgraded below investment grade. Table 29 presents a summary of private-label MBS by credit rating as of June 30, 2009 (in thousands):

Table 29

Credit Rating	Par Value		Amortized Cost		Gross Unrecognized Losses		Weighted Average Collateral Delinquency1
Private-label residential MBS:
Prime:
AAA	$	1,292,918	$	1,291,828	$	118,709		2.1	%
AA		66,195		66,043		13,726		5.7
A		117,134		116,285		15,781		3.8
BBB		219,394		218,299		47,908		4.0
BB		104,202		103,409		17,312		3.8
B		22,115		22,080		7,745		18.2
Total prime		1,821,958		1,817,944		221,181		2.8
Alt-A:
AAA		176,105		176,278		25,043		4.1
AA		95,220		95,111		10,921		4.3
A		4,999		4,999		2,506		16.9
BBB		30,111		30,075		7,519		7.7
BB		36,312		36,312		18,833		5.9
Total Alt-A		342,747		342,775		64,822		4.8
Total private-label residential MBS		2,164,705		2,160,719		286,003		3.2
Manufactured housing loans:
Prime:
AAA		432		432		6		2.2
Private-label commercial MBS:
Prime:
AAA		39,940		40,151		1,394		3.2
Home equity loans:
Prime:
BBB		103		103		66		27.6
BB		887		810		418		27.6
B		3,881		2,909		1,326		35.7
CC		1,083		630		312		34.4
Total home equity loans		5,954		4,452		2,122		34.1
TOTAL	$	2,211,031	$	2,205,754	$	289,525		3.2	%

__________

1 Determined based on underlying loans that are 60 days or more past due, including bankruptcies, foreclosures and REO. Collateral delinquency percentages are calculated based on information available from third-party financial data providers.

63

As of June 30, 2009, the FHLBank had amortized cost of $2.1 billion of private-label securities with unrecognized losses. (See Note 4 of the Notes to the Financial Statements included under Item 1 – “Financial Statements” for a summary of held-to-maturity securities with unrecognized losses aggregated by major security type and length of time that the individual securities have been in a continuous unrecognized loss position.) Table 30 presents characteristics of the FHLBank’s private-label MBS in a gross unrecognized loss position (in thousands). The underlying collateral for all prime loans was first lien mortgages.

Table 30

Security Type	Par Value		Amortized Cost		Gross Unrecognized Losses		Weighted- Average Collateral Delinquency Rate			Percentage AAA at 06/30/2009			Percentage AAA at 08/07/2009			Percentage Investment Grade (other than AAA) at 08/07/2009			Percentage Below Investment Grade at 08/07/2009			Percentage on Negative Watch at 08/07/2009
Private-label residential MBS:
Prime	$	1,709,249	$	1,706,169	$	221,181		2.9	%		69.0	%		56.0	%		33.3	%		10.7	%		34.3	%
Alt-A		342,747		342,775		64,822		4.8			51.4			43.7			42.8			13.5			0.0
Total private-label residential MBS		2,051,996		2,048,944		286,003		3.3			66.1			53.9			34.9			11.2			28.6
Manufactured Housing Loans		432		432		6		2.2			100.0			100.0			0.0			0.0			0.0
Private-label commercial MBS		39,940		40,151		1,394		3.2			100.0			100.0			0.0			0.0			0.0
Home Equity Loans		5,954		4,452		2,122		34.1			0.0			0.0			1.7			98.3			54.8
TOTAL	$	2,098,322	$	2,093,979	$	289,525		3.4	%		66.6	%		54.7	%		34.1	%		11.2	%		28.1	%

64

Table 31 presents the amortized cost and fair values of the FHLBank’s private-label MBS by credit rating as of June 30, 2009 and August 7, 2009 for securities that have been downgraded during that period (in thousands). There were no downgrades on the FHLBank’s private-label MBS backed by manufactured housing loans, home equity loans or commercial loans.

Table 31

Credit Rating
June 30, 2009	August 7, 2009	Amortized Cost		Fair Value
Private-label residential MBS:
Prime:
AAA	AA	$	74,424	$	62,588
AAA	A		76,346		60,672
AAA	BBB		15,658		13,038
AAA	BB		37,784		34,399
AAA	B		18,738		14,509
AA	A		2,150		1,501
AA	BBB		15,582		14,446
Total prime			240,682		201,153
Alt-A:
AAA	AA		7,559		5,534
AAA	A		8,775		6,963
AAA	CCC		10,069		8,073
AA	A		11,538		10,039
BB	CCC		36,312		17,479
Total Alt-A			74,253		48,088
TOTAL		$	314,935	$	249,241

Table 32 presents the amortized cost and credit rating (as of August 7, 2009) of the FHLBank’s private-label MBS portfolio for securities on negative watch as of August 7, 2009 (in thousands):

Table 32

Security Type	Rated AAA		Rated AA		Rated A		Rated BBB		Rated BB		Rated B
Private-label residential MBS:
Prime	$	44,780	$	29,119	$	153,379	$	194,287	$	130,874	$	31,170
Home equity loans:
Prime		0		0		0		103		810		1,332
TOTAL	$	44,780	$	29,119	$	153,379	$	194,390	$	131,684	$	32,502

Other-than-temporary Impairment. As mentioned previously, the FHLBank experienced a significant decline in the estimated fair values of its private-label MBS due to interest rate volatility, illiquidity in the marketplace and credit deterioration in the U.S. mortgage markets during 2008, which continued to some extent into the first six months of 2009. With the current disrupted market environment, the fair values of the majority of the FHLBank’s private-label MBS in its held-to-maturity portfolio were below amortized cost at June 30, 2009. However, based upon the FHLBank’s other-than-temporary impairment evaluation process that results in a conclusion as to whether a credit loss exists (present value of the FHLBank’s best estimate of the cash flows expected to be collected is less than the amortized cost basis of each individual security), we have concluded that, except for six private-label MBS upon which we have recognized other-than-temporary impairment, there is no evidence of a likely credit loss; there is no intent to sell, nor is there any requirement to sell; and, thus no other-than-temporary impairment for the remaining private-label MBS that have declined in value.

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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” under this Item 2 and Note 4 of the Notes to Financial Statements under Item 1 – “Financial Statements” for additional information on the FHLBank’s other-than-temporary impairment evaluation process. As discussed more fully in “Recent Developments” under this Item 2, the FHLBank adopted FSP FAS 115-2 as of January 1, 2009 and implemented a process for the determination of OTTI under an approach that was consistent with the other 11 FHLBanks in accordance with guidance issued by the Finance Agency. As a result, for private-label MBS with fair values below amortized cost and considered “at-risk” (see definition in Note 4 of the Notes to Financial Statements under Item 1 – “Financial Statements”), the FHLBank contracted with the FHLBank of San Francisco in the first quarter of 2009 to provide expected cash flows utilizing key modeling assumptions provided by the FHLBank of San Francisco that were reviewed by the FHLBank. The FHLBank contracted with the FHLBank of Dallas in the second quarter of 2009 to provide the expected cash flows utilizing key modeling assumptions developed by an OTTI Governance Committee of the FHLBanks for private-label MBS with fair values below amortized cost and considered at-risk. However, the FHLBank of San Francisco continued to provide the expected cash flows for all private-label MBS that were commonly held among the FHLBanks (owned by two or more FHLBanks) with fair values below amortized cost and considered at-risk, which included private-label MBS held by us. The same risk models and loan information data sources were used each quarter.

The six securities upon which we recognized other-than-temporary impairment included five private-label MBS that had previously been identified as other-than-temporarily impaired in 2008 and one private-label MBS that was first identified as other-than-temporarily impaired in the first quarter 2009. No additional securities were identified as other-than-temporarily impaired in the second quarter of 2009, but there was a slight credit deterioration in one of the six OTTI securities that resulted in $18,000 of OTTI related to credit losses that was expensed through income during the second quarter. While the remainder of the FHLBank’s held-to-maturity securities portfolio has also seen a decline in fair value as of June 30, 2009, the decline is considered temporary because (1) the FHLBank does not have the intent to sell the securities; (2) it is not more likely than not that the FHLBank will be required to sell the securities before anticipated recovery; and (3) the expected cash flows are likely to be collected. Table 33 presents other-than-temporary impairments recorded as of June 30, 2009 by security type (in thousands).

Table 33

	Three-month period ending June 30, 2009						Six-month period ending June 30, 2009
	OTTI Related to Credit Losses		OTTI Related to Non-credit Losses		Total OTTI Losses		OTTI Related to Credit Losses		OTTI Related to Non-credit Losses		Total OTTI Losses
Private-label mortgage-backed securities:
Home equity loans	$	18	$	0	$	18	$	59	$	1,018	$	1,077

In addition to evaluating the risk-based selection of our private-label MBS under a base case (or best estimate) scenario for generating expected cash flows, a cash flow analysis was also performed for each of the at risk securities under a more stressful housing price scenario. The more stressful scenario was designed to provide an indication of the sensitivity of the FHLBank’s at risk securities to the deterioration in housing prices beyond our base case estimates. The more stressful housing price scenario assumes a housing price forecast that is 5 percentage points lower at the trough than the base case scenario followed by a flatter recovery path. Under the more stressful scenario, current-to-trough home price declines were projected to range from 5 percent to 25 percent over the next 9 to 15 months. Thereafter, home prices were projected to increase 0 percent in the first year, 1 percent in the second year, 2 percent in the third year and 3 percent in each subsequent year. (See Note 4 of the Notes to the Financial Statements included under Item 1 – “Financial Statements” for a description of the assumptions used to determine actual credit-related OTTI.) Table 34 represents the impact on credit-related OTTI in the more stressful housing price scenario compared to actual credit-related OTTI recorded using base-case housing price index (HPI) assumptions (dollar amounts in thousands):

Table 34

	Base-case HPI Scenario						Adverse HPI Scenario
	Number of Securities		Par Value as of June 30, 2009		Credit-related OTTI for the six-month period ending June 30, 2009		Number of Securities		Par Value as of June 30, 2009		Credit-related OTTI for the six-month period ending June 30, 2009
Private-label mortgage-backed securities:
Prime		1	$	3,013	$	0		6	$	48,148	$	307
Home Equity Loans		5		5,954		59		5		5,954		62
TOTAL		6	$	8,967	$	59		11	$	54,102	$	369

Deposits – The FHLBank offers deposit programs for the benefit of its members and certain other qualifying non-members. Deposit products offered include demand and overnight deposits, short-term CDs and a limited number of non-interest-bearing products. The annualized average rate paid on deposits was 0.26 percent for the second quarter of 2009 and 2.05 percent for the second quarter of 2008. For the six months ended June 30, 2009 and 2008, the annualized average rate paid on deposits was 0.42 percent and 2.64 percent, respectively. The average rate paid on deposits changed in tandem with changing short-term interest rates during and between those periods. Most deposits are demand or overnight deposits, and the FHLBank, as a matter of prudence, holds short-term assets with maturities similar to the deposits.

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Consolidated Obligations – Consolidated obligations are the joint and several debt obligations of the 12 FHLBanks and consist of bonds and discount notes. Consolidated obligations represent the primary source of liabilities used by the FHLBank to fund advances, mortgage loans and investments. As noted under “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk Management” under Item 3, the FHLBank uses debt with a variety of maturities and option characteristics to manage its duration of equity and interest rate risk profile. The FHLBank makes extensive use of derivative transactions, executed in conjunction with specific consolidated obligation debt issues, to synthetically reconfigure funding terms and costs.

During the first six months of 2009, the FHLBank’s total consolidated obligation balances decreased as: (1) funding needs for advances decreased, (2) MBS/CMO investments prepaid and were not replaced, and (3) the FHLBank reduced leverage in response to limited investment alternatives and in order to ensure member capital stock redemption requests could be repurchased on a same-day basis. Total consolidated obligation balances decreased 21.0 percent from December 31, 2008 to June 30, 2009 (see Table 12) with discount notes decreasing by $10.6 billion and bonds decreasing by only $0.6 billion during this period. The funding mix between discount notes and bonds changed significantly during this period because maturing obligations, mainly discount notes funding short-term assets (mostly short-term advances that were repaid and not replaced with new advances), were not replaced.

The average annualized effective rate paid on consolidated obligations was 1.29 percent for the three months ended June 30, 2009 and 2.74 percent for the three months ended June 30, 2008. For the six months ended June 30, 2009 and 2008, the average annualized effective rate paid on consolidated obligations was 1.44 percent and 3.32 percent, respectively. The average effective rate paid on consolidated obligations decreased primarily in response to decreasing short-term market interest rates and improving spreads relative to similar term swaps and U.S. Treasury instruments. As reflected in Table 2, short-term interest rates (overnight Federal funds and three-month LIBOR) declined significantly, on average, from the first six months of 2008 to the same period in 2009. At the same time, the spread between the on-the-run FHLBank two-year bullet and the two-year Treasury note was 72 basis points as of June 30, 2008, widening to 82 basis points as of December 31, 2008 and improving to 33 basis points as of June 30, 2009. The spread between the on-the-run FHLBank five-year bullet and the five-year Treasury note was 93 basis points as of June 30, 2008, widening to 130 basis points as of December 31, 2008 and improving to 60 basis points as of June 30, 2009.

The FHLBank has consciously increased the optionality in the liability portfolios used to fund fixed rate assets with prepayment characteristics (e.g., fixed rate MBS/CMOs and MPF mortgage loans). Total unswapped callable consolidated obligations increased from $2.9 billion as of December 31, 2008 to $3.7 billion as of June 30, 2009. This increased optionality will allow the FHLBank to reduce our liability balances in response to asset prepayments as well as call debt and replace it at lower interest rates should interest rates decline.

Primarily due to the implicit support from the U.S. government, investors continue to view short-term FHLBank consolidated obligations as carrying a strong credit profile. This has resulted in strong demand for FHLBank discount notes and short-term bonds. As a result of strong demand, the cost to issue short-term consolidated obligations remained low throughout the first six months of 2009. We are, however, unsure how long these low costs will persist. We anticipate that demand for short-term consolidated obligations will fall and yields paid to investors will rise as investors regain confidence in higher yielding financial instruments. Additionally, the cost of consolidated obligations for terms of two years or greater improved in the second quarter of 2009 and is approaching levels experienced prior to the financial market disruptions in the fall of 2008. We believe this improvement is primarily the result of the Federal Reserve Bank’s direct purchases of FHLBank consolidated obligations and, secondarily, from improving financial market conditions. The program to purchase Agency debentures is capped at $200 billion and is scheduled to expire on December 31, 2009 (see further discussion in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Market Trends”). Once the target amount has been purchased or when the program expires, the cost to issue FHLBank consolidated obligations, especially those with terms of two years or greater, is likely to increase. However, because of the short-term maturity of its advances (including long-term adjustable rate advances tied to the FHLBank’s short-term advance rates) and short-term investments, the FHLBank continues to fund a significant portion of its advances and investments with short-term consolidated obligation discount notes. This allows the FHLBank to adjust its balance sheet as advance demand expands and contracts.

Derivatives – All derivatives are marked to estimated fair values, netted by counterparty with any associated accrued interest, offset by the fair value of any cash collateral received or delivered and included on the Statements of Condition as an asset when there is a net fair value gain or as a liability when there is a net fair value loss. Fair values of the FHLBank’s derivatives fluctuate as both the interest rates and the type/term/notional amount of outstanding derivative transactions fluctuate. See Tables 47 through 50 for detailed information regarding the notional amounts and estimated fair values (includes net accrued interest receivable or payable on the derivatives) of derivative instruments.

The notional amount of total derivatives outstanding decreased by $2.9 billion from December 31, 2008 to June 30, 2009. Interest rate swaps executed to hedge consolidated obligation bonds designated as fair value hedges decreased significantly ($4.4 billion decline from December 31, 2008 to June 30, 2009), but the decrease was partially offset by a significant increase in interest rate swaps hedging the FHLBank’s cost of funds but not qualifying as fair value hedges ($2.7 billion increase from December 31, 2008 to June 30, 2009). Interest rate swaps hedging convertible advances also decreased ($0.9 billion decline) as member demand for convertible advances diminished. The overall decrease in interest rate swaps executed to hedge consolidated obligation bonds was primarily the result of the overall decrease in the balance of assets that are adjustable or swapped to LIBOR resulting from the decreases in balances of these assets. As reflected in Tables 47 and 50, fair value interest rate swaps hedging consolidated obligation bonds with the more complex structures (interest rate swaps hedging complex fixed rate bonds such as range notes) decreased by $2.1 billion from December 31, 2008 to June 30, 2009 while other less-complex fair value structures hedging fixed rate callable bonds decreased by $2.7 billion from December 31, 2008 to June 30, 2009.

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The notional amount serves as a factor in determining periodic interest payments or cash flows received and paid, but does not represent the actual amount exchanged or the FHLBank’s exposure to credit and market risk. The amount potentially subject to credit loss is much less. See “Risk Management – Credit Risk Management” in this Item 2 for further information. Table 35 categorizes the notional amount and the estimated fair value of derivatives (includes net accrued interest receivable or payable on the derivatives) by product and type of accounting treatment. The “Fair Value” category represents hedge strategies qualifying for hedge accounting treatment. The “Economic” category represents hedge strategies not qualifying for hedge accounting treatment. Amounts as of June 30, 2009 and December 31, 2008 are as follows (in thousands):

Table 35

	June 30, 2009					December 31, 2008
	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
Advances:
Fair value	$	9,308,632	$	(494,567	)	$	10,128,698	$	(838,010	)
Investments:
Economic		8,176,689		(53,345	)		8,295,768		(187,555	)
Mortgage loans:
Fixed rate mortgage purchase commitments		45,906		(184	)		124,423		(1,539	)
Discount Notes
Fair value		972,730		6,887			1,287,162		(559	)
Consolidated obligation bonds:
Fair value		9,842,000		304,056			14,237,000		489,208
Economic		3,620,000		9,433			875,000		1,024
Subtotal		13,462,000		313,489			15,112,000		490,232
Intermediary:
Economic		288,000		119			218,586		139
Total	$	32,253,957	$	(227,601	)	$	35,166,637	$	(537,292	)
Total derivative fair value			$	(227,601	)			$	(537,292	)
Fair value of cash collateral delivered to counterparty				84,162					245,624
Fair value of cash collateral received from counterparty				(94,975	)				(78,162	)
Net Derivative Fair Value			$	(238,414	)			$	(369,830	)
Net derivative assets balance			$	30,983				$	34,526
Net derivative liabilities balance				(269,397	)				(404,356	)
Net Derivative Fair Value			$	(238,414	)			$	(369,830	)

Liquidity and Capital Resources

Liquidity – To meet its mission of serving as an economical short-term and long-term funding source for its members and housing associates, the FHLBank must maintain high levels of liquidity. The FHLBank is required to maintain liquidity in accordance with certain Finance Agency regulations and with policies established by management and the FHLBank’s Board of Directors. The FHLBank also needs liquidity to repay maturing consolidated obligations, to meet other financial obligations and to repurchase excess capital stock at its discretion, whether upon the request of a member or at its own initiative.

A primary source of the FHLBank’s liquidity is the issuance of consolidated obligations. The capital markets traditionally have treated FHLBank obligations as U.S. government agency debt. As a result, even though the U.S. government does not guarantee FHLBank debt, the FHLBank has comparatively stable access to funding at relatively favorable spreads to U.S. Treasury rates, especially for consolidated obligations with terms to maturity of less than two years. Additionally, the cost on consolidated obligations for terms of two years or greater improved in the second quarter of 2009 and are approaching levels experienced prior to the financial market disruptions in the last half of 2008. We believe this improvement is primarily the result of the Federal Reserve’s direct purchases of FHLBank consolidated obligations and, secondarily, from improving financial market conditions. As noted previously, because the program to purchase Agency debentures is capped at $200 billion and is scheduled to expire on December 31, 2009, the cost to issue FHLBank consolidated obligations, especially those with terms of two-years or greater, is likely to increase. The FHLBank is primarily and directly liable for its portion of consolidated obligations (i.e., those obligations issued on its behalf). In addition, the FHLBank is jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on the consolidated obligations of all 12 FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligations for which the FHLBank is not the primary obligor. Although it has never occurred, to the extent that an FHLBank would be required to make a payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the non-complying FHLBank. However, if the Finance Agency determines that the non-complying FHLBank is unable to satisfy its obligations, then the Finance Agency may allocate the non-complying FHLBank’s outstanding consolidated obligation debt among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis the Finance Agency may determine.

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The FHLBank’s other primary sources of liquidity include deposit inflows, repayments of advances or mortgage loans, prepayments of mortgage loans and mortgage securities, maturing investments and interest income. Primary uses of liquidity include issuing advances, funding or purchasing mortgage loans, purchasing investments, deposit withdrawals, capital redemptions or repurchases, maturing consolidated obligations and interest expense. 

Despite the significant decrease in total assets, cash and short-term investments, including commercial paper, remained fairly stable at $7.6 billion as of June 30, 2009 and $7.5 billion as of December 31, 2008 as the FHLBank continues to leverage its capital and maintain its liquidity at levels it considers sufficient. The maturities of the FHLBank’s short-term investments are structured to provide periodic cash flows to support its ongoing liquidity needs. During the third and fourth quarter of 2008, the FHLBank allowed short-term investments to mature and primarily retained the funds from those maturities in its Federal Reserve Bank account, which provided the FHLBank with an additional source of liquidity and interest income while allowing the FHLBank to reduce its unsecured credit exposure to non-government guaranteed counterparties. The FHLBank began reinvesting in short-term government guaranteed money market investments in the latter part of the fourth quarter 2008, but decreased this activity during the first quarter of 2009 as the number of attractive investment opportunities for the FHLBank declined. In response to the changes to Regulation D, discussed earlier in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments,” which resulted in the elimination of interest paid on excess reserves held in its Federal Reserve account, and perceived improvements and stabilization in financial markets, the FHLBank began reinvesting in overnight Federal funds and short-term money market instruments.

The FHLBank maintains a portfolio of GSE debentures that can be pledged as collateral for financing in the securities repurchase agreement market. GSE investments totaled $1.5 billion and $1.6 billion in par value at June 30, 2009 and December 31, 2008, respectively. While the liquidity in the securities repurchase market appeared to have stabilized somewhat in the second quarter of 2009 and the first half of 2009 compared to the capital market and credit crisis of the third and fourth quarter of 2008, securing funding through the securities repurchase agreements at a reasonable rate for anything other than short-term maturities remains challenging and inconsistent.

In order to assure that the FHLBank can take advantage of those sources of liquidity that will affect its leverage capital requirements, the FHLBank manages its average capital ratio to stay sufficiently above its minimum regulatory and RMP requirements so that it can utilize the excess capital capacity should the need arise. While the minimum regulatory total capital requirement is 4.00 percent (25:1 asset to capital leverage), and its RMP minimum is 4.04 percent (24.75:1 asset to capital leverage), the FHLBank increased its target capital percentage to a range of between 4.26 percent and 4.35 percent (or decreased its target leverage ratio to a range of 23.5:1 and 23:1, respectively) beginning in the first quarter of 2009 to provide additional flexibility in managing its balance sheet. As a result, should the need arise, the FHLBank has the capacity to borrow an amount equal to at least its current capital position before it reaches any leverage limitations as a result of the minimum regulatory or RMP capital requirements.

The FHLBank is subject to five metrics for measuring liquidity, two of which were added by the Finance Agency in March 2009 in response to turmoil in the financial markets (such guidance from the Finance Agency was provided to all FHLBanks through e-mails and other means and not through the issuance of formal regulations or another rulemaking process). The FHLBank is in compliance with each of these liquidity requirements. The FHLBank took steps to increase its liquidity position beginning in the last two quarters of 2008 by shortening the weighted average original days to maturity of its money market investment portfolio and by lengthening the weighted average original days to maturity of its discount notes. The FHLBank has generally maintained this enhanced liquidity position throughout the first six months of 2009 to ensure that it could meet the borrowing needs of its members. Specifically, the FHLBank has shortened the weighted average original maturity of its money market investment portfolio (cash at the Federal Reserve, Federal funds sold, marketable certificates of deposit and commercial paper) from 49 days as of December 31, 2008 to 44 days as of June 30, 2009. On the liability side of the FHLBank’s balance sheet, the maturity of its discount notes outstanding stood at a weighted average original days to maturity of 99 days as of December 31, 2008 and 80 days as of June 30, 2009. The weighted average days to maturity remain significantly longer than weighted average investments being funded and discount note maturities prior to the financial disruptions in the third and fourth quarters of 2008.

In the third quarter of 2008, the FHLBank entered into a Lending Agreement (the “Agreement”) with the United States Department of the Treasury (Treasury) in connection with the Treasury’s establishment of a Government Sponsored Enterprise Credit Facility (GSECF) that is designed to serve as a contingent source of liquidity for the housing GSEs, including the FHLBanks. The terms of any borrowings are agreed to at the time of issuance. Loans under the Agreement are to be secured by collateral acceptable to the Treasury, which consists of FHLBank advances to members that have been collateralized in accordance with regulatory standards and mortgage-backed securities issued by Fannie Mae or Freddie Mac. For additional discussion, see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Balance Sheet Analysis – Liquidity” in the annual report on Form 10-K. As of June 30, 2009, the FHLBank has not drawn on this available source of liquidity and does not anticipate any need to utilize the GSECF. The GSECF is scheduled to expire on December 31, 2009. The expiration of this facility might reduce demand for FHLBank consolidated obligations if it results in uncertainty regarding the extent of U.S. government support of Agency debt.

In addition to the balance sheet sources of liquidity discussed previously, the FHLBank has established lines of credit with numerous counterparties in the Federal funds market as well as with the other 11 FHLBanks. The FHLBank expects to maintain a sufficient level of liquidity for the foreseeable future.

Capital – Total capital consists of Class A Common Stock, Class B Common Stock, accumulated other comprehensive income and retained earnings. Total capital decreased by 16.6 percent from December 31, 2008 to June 30, 2009 (see Table 12). The majority of the decrease in capital is attributable to the decrease in advances (decreased stock needed to support advances) in the first six months of fiscal year 2009 and the FHLBank’s repurchase of all excess Class A Common Stock in June 2009 to ensure that the FHLBank could continue paying dividends in the form of stock. The excess Class A Common Stock was repurchased in order to ensure that the FHLBank stayed within the 1.0 percent of total assets limit for excess stock (see discussion of this requirement under this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Distributions”).

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The FHLBank approved an amendment to its Capital Plan during 2008 to allow it to repurchase membership stock (Class A Common Stock) prior to the end of the six-month redemption period when a member has been closed by its primary regulator and all of its credit obligations to the FHLBank have been satisfied. The amendment was approved by the Finance Agency on March 6, 2009, and became effective on that date.The amended Capital Plan is attached to this quarterly report on Form 10-Q as Exhibit 4.1.

Table 36 presents information on member institutions holding five percent or more of the total outstanding capital stock, which includes mandatorily redeemable capital stock, of the FHLBank as of June 30, 2009.

Table 36

Borrower Name	Address	City	State	Number of Shares		Percent of Total
MidFirst Bank	501 NW Grand Blvd	Oklahoma City	OK		2,483,437		14.4	%
Capitol Federal Savings Bank	700 S Kansas Ave	Topeka	KS		1,320,710		7.7
Total					3,804,147		22.1	%

Table 37 presents information on member institutions holding five percent or more of the total outstanding capital stock, which includes mandatorily redeemable capital stock, of the FHLBank as of December 31, 2008.

Table 37

Borrower Name	Address	City	State	Number of Shares		Percent of Total
U.S. Central Federal Credit Union1	9701 Renner Blvd	Lenexa	KS		2,707,604		11.9	%
MidFirst Bank	501 NW Grand Blvd	Oklahoma City	OK		2,622,946		11.5
Security Life of Denver Ins. Co.	1290 Broadway	Denver	CO		1,421,477		6.2
Capitol Federal Savings Bank	700 S Kansas Ave	Topeka	KS		1,312,304		5.8
Total					8,064,331		35.4	%

__________

1 U.S. Central Federal Credit Union was placed into conservatorship by the National Credit Union Administration on March 20, 2009 and subsequently paid off all advances as of March 31, 2009. U.S. Central Federal Credit Union also requested to redeem its excess stock and the FHLBank repurchased all but its membership stock of $1 million as of March 31, 2009. U.S. Central Federal Credit Union continues to have occasional advance activity with the FHLBank but all activity has been short-term and was repaid as of June 30, 2009, at which time it had no outstanding advances.

The FHLBank is subject to three capital requirements under provisions of the Gramm-Leach-Bliley (GLB) Act, the Finance Agency’s capital structure regulation and the FHLBank’s capital plan: (1) a risk-based capital requirement; (2) a total capital requirement; and (3) a leverage capital requirement. The FHLBank was in compliance with all three capital requirements as of June 30, 2009 (see Note 11 in the Notes to Financial Statements under Item 1).

Capital Distributions – Dividends may be paid in cash or Class B Common Stock as authorized by the FHLBank’s Board of Directors. Quarterly dividends can be paid out of current and previously retained earnings, subject to Finance Agency regulation and the FHLBank’s capital plan. Dividends were paid at average annualized rates of 2.33 percent and 4.37 percent for the quarters ended June 30, 2009 and 2008, respectively. Dividend rates paid by the FHLBank generally fluctuate along with short-term interest rates. The decrease in the average annualized rates can be attributed to the decrease in average short-term interest rates for the second quarter of 2009 compared to the second quarter of 2008.

The FHLBank has the ability under its capital plan to pay different dividend rates to the holders of Class A Common Stock and Class B Common Stock. This differential is implemented through a mechanism referred to as the dividend parity threshold. The current dividend parity threshold is equal to the average effective overnight Federal funds rate minus 100 basis points. However, because of the low level of the effective overnight Federal funds rate, this calculation currently would result in a negative number if not floored at zero percent.

FHLBank management anticipates that dividend rates on Class A Common Stock will be at least 50 to 75 basis points above the floored dividend parity threshold for future dividend periods and that the differential between the two classes of stock will stay the same or increase slightly, subject to sufficient earnings to meet retained earnings targets and still pay such dividends. While there is no assurance that the FHLBank’s Board of Directors will not change the dividend parity threshold in the future, the capital plan requires that the FHLBank provide members with 90 days notice prior to the end of a dividend period in which a different dividend parity threshold is utilized in the payment of a dividend.

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Table 38 presents dividends paid by type for the three- and six-month periods ended June 30, 2009 and 2008 (in thousands):

Table 38

	For the Three-Month Periods Ended						For the Six-Month Periods Ended
Period End	Dividends Paid in Cash		Dividends Paid in Capital Stock		Total Dividends Paid		Dividends Paid in Cash		Dividends Paid in Capital Stock		Total Dividends Paid
June 30, 20091,2	$	90	$	9,554	$	9,644	$	172	$	19,963	$	20,135
June 30, 20081,2		92		20,383		20,475		175		45,448		45,623

__________

1	The cash dividends listed for 2009 and 2008 represent cash dividends paid for partial shares and dividends paid to former members. Stock dividends are paid in whole shares.
2	For purposes of this table, dividends paid for any shares that are mandatorily redeemable have been treated as interest expense and are not treated as dividends.

The FHLBank expects to continue paying dividends primarily in capital stock for the remainder of 2009, but this may change depending on the impact of the Finance Board rule on excess stock that was published in the Federal Register on December 9, 2006. Under the rule, any FHLBank with excess stock greater than one percent of its total assets will be prohibited from further increasing member excess stock by paying stock dividends or otherwise issuing new excess stock. The FHLBank’s excess stock was 0.8 percent of total assets at June 30, 2009. If the FHLBank were to change its prior practice and pay dividends in the form of cash, it would utilize liquidity resources. Payment of cash dividends would not have a significant impact on the FHLBank’s liquidity position.

Risk Management

Proper identification, assessment and management of risks, complemented by adequate internal controls, enable stakeholders to have confidence in the FHLBank’s ability to meet its housing finance mission, serve its members, earn a profit, compete in the industry and prosper over the long term. Active risk management continues to be an essential part of the FHLBank’s operations and a key determinant of its ability to maintain earnings to meet retained earnings targets and return a reasonable dividend to its members. The FHLBank maintains comprehensive risk management processes to facilitate, control and monitor risk taking. Periodic reviews by internal auditors, Finance Agency examiners and independent accountants subject the FHLBank’s practices to additional scrutiny, further strengthening the process.

Effective risk management programs include not only conformance to risk management best practices by management but also incorporate board of director oversight. The FHLBank’s Board of Directors plays an active role in the enterprise risk management process by regularly reviewing risk management policies and reports on controls. In addition to the annual and business unit risk assessment reports, the Board of Directors reviews the RMP on at least an annual basis. Various management committees, including the Market Risk Analysis Committee, the Credit Underwriting Committee,the Sarbanes-Oxley Steering Committee, the Disclosure Committee and the Asset/Liability Committee oversee the FHLBank’s risk management process. For more detailed information, see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the annual report on Form 10-K, incorporated by reference herein.

Credit Risk Management – Credit risk is defined as the risk that counterparties to the FHLBank’s transactions will not meet their contractual obligations. The FHLBank manages credit risk by following established policies, evaluating the creditworthiness of its counterparties and utilizing collateral agreements and settlement netting for derivative transactions. The most important step in the management of credit risk is the initial decision to extend credit. Continuous monitoring of counterparties is performed for all areas where the FHLBank is exposed to credit risk, whether that is through lending, investing or derivative activities.

The FHLBank manages credit risk in its investment portfolios by purchasing long-term securities (maturities greater than one year) which carry the highest credit rating from the three NRSROs. The only deviation from the requirement is on purchases of securities of state housing finance agencies (HFA), where the FHLBank requires that the HFA securities must receive at least the second highest credit rating from the NRSROs. Short-term securities (maturities less than one year) must have the highest short-term credit rating from all of the NRSROs and the issuer must have at least an investment grade (fourth highest or better) long-term credit rating.

Counterparty ratings are monitored daily while performance and capital adequacy are monitored on a monthly basis in an effort to mitigate unsecured credit risk on short-term investments. MBS represent the majority of the FHLBank’s long-term investments. The FHLBank holds MBS issued by Agencies, CMOs securitized by GSEs, AAA-rated private-label MBS at the time of purchase and CMOs securitized by whole loans. Some of the FHLBank’s private-label MBS have been downgraded below AAA subsequent to purchase (see Table 25 under Item 2), but all of the downgraded securities continue to pay as expected including those the FHLBank has determined to be other-than-temporarily impaired (projected cash flow credit losses occur in future periods). Approximately 75 percent of the FHLBank’s MBS/CMO portfolio is securitized by Fannie Mae or Freddie Mac. The FHLBank does not purchase or hold any securities classified as being backed by sub-prime mortgage loans as defined by the issuer at the time of issuance. The FHLBank does have potential credit risk exposure to MBS/CMO securities that are insured by two of the monoline mortgage insurance companies should one or more of the companies fail to meet their insurance obligation in the event of significant mortgage defaults in the supporting loan collateral. Under the FHLBank's RMP, the insurer should be rated no lower than AA at the time of acquisition; however, as noted in Table 39, rating downgrades have occurred since acquisition for both of the monoline insurers. The FHLBank monitors the credit ratings daily, performance at least annually and capital adequacy monthly for all primary mortgage insurers, secondary mortgage insurers and master servicers to which it has potential credit risk exposure. Other long-term investments include unsecured triple-A rated GSE and collateralized state and local housing finance agency securities.

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Table 39 presents the current ratings and outstanding par value as of June 30, 2009 of the FHLBank’s MBS/CMO securities covered by monoline bond insurance (in thousands):

Table 39

Insurer	Rating1	Par Value2
Financial Guaranty Insurance Company (FGIC)	NR3	$	4,348
MBIA Insurance Corp.	B		1,606
TOTAL		$	5,954

__________

1	Rating as of August 7, 2009.
2	Par value represents the FHLBank’s coverage amount. The securities insured by FGIC were considered other-than-temporarily impaired as of December 31, 2008 and have a carrying value and amortized cost of $1.6 million and $2.9 million, respectively, as of June 30, 2009. The security insured by MBIA was initially considered other-than-temporarily impaired as of March 31, 2009, and additional impairment was recorded as of June 30, 2009. This security has a carrying value and amortized cost of $0.6 million and $1.6 million, respectively, as of June 30, 2009.
3	Not rated. Ratings were withdrawn by S&P and Moody's on April 22, 2009 and March 24, 2009, respectively.

Table 40 presents the FHLBank’s exposure as of June 30, 2009 to monoline bond insurers of HFA securities (in thousands). All of the HFA securities with monoline insurance continue to perform and have estimated fair values at least equal to par as of June 30, 2009. While we are exposed to these monoline insurers, at this time we do not expect to have to rely on any of them to make any future payments on these HFA securities.

Table 40

Insurer	Rating1	Exposure2
MBIA Insurance Corp.	B	$	4,995
AMBAC Assurance Corp.	CC		222
Financial Security Assurance Inc.	AA		30
TOTAL		$	5,247

__________

1	Rating as of August 7, 2009.
2	Exposure = par value * delinquencies (90-day delinquencies, foreclosures and REO per Bloomberg)

The FHLBank has never experienced a loss on a derivative transaction because of a credit default by a counterparty. In derivative transactions, credit risk arises when counterparties to transactions, such as interest rate swaps, are obligated to pay the FHLBank the positive fair value or receivable resulting from the transaction terms. The FHLBank manages this risk by executing derivative transactions with experienced counterparties with high credit quality (rated A or better); by requiring netting of individual derivatives transactions with the same counterparty; by diversifying its derivatives across many counterparties; and by executing transactions under master agreements that require counterparties to post collateral if the FHLBank is exposed to a potential credit loss on the related derivatives exceeding an agreed-upon threshold. The FHLBank’s credit risk exposure from derivative transactions with member institutions is fully collateralized under the FHLBank’s Advance Pledge and Security Agreement. The FHLBank regularly monitors the exposures on its derivative transactions by determining the market value of positions using internal pricing models. The market values generated by the pricing model are compared to dealer model results on a monthly basis to ensure that the FHLBank’s pricing model is reasonably calibrated to actual market pricing methodologies utilized by the dealers.

The FHLBank manages counterparty credit risk through netting procedures, credit analysis, collateral management and other credit enhancements. The FHLBank requires that derivative counterparties enter into collateral agreements which specify maximum net unsecured credit exposure amounts that may exist before collateral requirements are triggered. The maximum amount of the FHLBank’s unsecured credit exposure to any counterparty is based upon the counterparty’s credit rating. That is, a counterparty must deliver collateral if the total market value of the FHLBank’s exposure to that counterparty rises above a specific level (see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity Risk Management” in the annual report on Form 10-K incorporated herein by this reference, for details). As a result of these risk mitigation initiatives, management does not anticipate any credit losses on its derivative transactions.

The contractual or notional amount of derivatives reflects the FHLBank’s involvement in various classes of financial instruments, but does not measure the FHLBank’s actual or potential credit risk. The maximum credit exposure is significantly less than the notional amount. The maximum credit exposure is the estimated cost of replacing the net receivable positions for individual counterparties on interest rate swaps and forward agreements, and purchased interest rate caps, interest rate floors and swaptions, net of the value of any related collateral, in the event of a counterparty default.

The FHLBank’s credit exposure to derivative counterparties, before considering collateral, was approximately $126.0 million and $112.7 million as of June 30, 2009 and December 31, 2008, respectively. In determining credit exposure, the FHLBank considers accrued interest receivables and payables as well as the legal right to net derivative transactions by counterparty. The FHLBank held cash with a fair value of $95.0 million and $78.2 million as collateral as of June 30, 2009 and December 31, 2008, respectively. Additionally, collateral with respect to derivatives with member institutions includes collateral assigned to the FHLBank, as evidenced by a written security agreement and held by the member institution for the benefit of the FHLBank.

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Derivative counterparty credit exposure by whole-letter rating (in the event of a split rating, the FHLBank uses the lowest rating published by Moody’s or S&P) as of June 30, 2009 is indicated in Table 41 (in thousands):

Table 41

	AAA		AA			A	Member1		Total
Total net exposure at fair value	$	1,897	$	19,344	$	100,850	$	3,867	$	125,958
Cash collateral held		0		0		94,975		0		94,975
Net positive exposure after cash collateral		1,897		19,344		5,875		3,867		30,983
Other collateral		0		0		0		3,867		3,867
Net exposure after collateral	$	1,897	$	19,344	$	5,875	$	0	$	27,116
Notional amount	$	346,450	$	10,953,010	$	20,764,591	$	189,906	$	32,253,957

__________

1 Collateral held with respect to derivatives with members represents either collateral physically held by or on behalf of the FHLBank or collateral assigned to the FHLBank as evidenced by a written security agreement and held by the member for the benefit of the FHLBank.

Derivative counterparty credit exposure by whole-letter rating (in the event of a split rating, the FHLBank uses the lowest rating published by Moody’s or S&P) as of December 31, 2008 is indicated in Table 42 (in thousands):

Table 42

	AAA		AA			A	Member1		Total
Total net exposure at fair value	$	6,228	$	1,680	$	99,805	$	4,975	$	112,688
Cash collateral held		0		0		78,162		0		78,162
Net positive exposure after cash collateral		6,228		1,680		21,643		4,975		34,526
Other collateral		0		0		0		4,975		4,975
Net exposure after collateral	$	6,228	$	1,680	$	21,643	$	0	$	29,551
Notional amount	$	570,876	$	15,204,795	$	19,157,250	$	233,716	$	35,166,637

__________

1 Collateral held with respect to derivatives with members represents either collateral physically held by or on behalf of the FHLBank or collateral assigned to the FHLBank as evidenced by a written security agreement and held by the member for the benefit of the FHLBank.

Table 43 presents the counterparties that represent five percent or more of net exposure after collateral and their ratings (in the event of a split rating, the FHLBank uses the lowest rating published by Moody’s or S&P) as of June 30, 2009:

Table 43

Counterparty Name	Counterparty Rating	Percent of Total Net Exposure at Fair Value1			Percent of Net Exposure After Collateral
JPMorgan Chase & Co.2	AA-		15.0	%		69.9	%
Merrill Lynch Capital Services, Inc.	A		20.7			12.0
Citi Swapco, Inc	AAA		1.5			7.0
UBS AG	A+		35.1			7.4
All other counterparties			27.7			3.7

__________

1	Fair value includes net accrued interest receivable or payable on the derivatives.
2	Collateral was delivered to the FHLBank subsequent to period end.

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Table 44 presents the counterparties that represent five percent or more of net exposure after collateral and their ratings (in the event of a split rating the FHLBank uses the lowest rating published by Moody’s or S&P) as of December 31, 2008:

Table 44

Counterparty Name	Counterparty Rating	Percent of Total Net Exposure at Fair Value1			Percent of Net Exposure After Collateral
Deutsche Bank AG2	A+		15.9	%		60.5	%
Citi Swapco, Inc	AAA		5.5			21.1
All other counterparties			78.6			18.4

__________

1	Fair value includes net accrued interest receivable or payable on the derivatives.
2	Collateral was delivered to the FHLBank subsequent to period end.

Liquidity Risk Management – Maintaining the ability to meet obligations as they come due and to meet the credit needs of the FHLBank’s members and housing associates in a timely and cost-efficient manner is the primary objective of managing liquidity risk. The FHLBank seeks to be in a position to meet its customers’ credit and liquidity needs without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. Operational liquidity, or the ability to meet operational requirements in the normal course of business, is defined as sources of cash from both the FHLBank’s ongoing access to the capital markets and its holding of liquid assets. The FHLBank manages its exposure to operational liquidity risk by maintaining appropriate daily average liquidity levels above the thresholds established by its RMP. The FHLBank is also required to manage its contingency liquidity needs by maintaining a daily liquidity level above certain thresholds also outlined in the RMP and by Finance Agency regulations.

In addition, to protect the FHLBanks against temporary disruptions in access to the debt markets, effective March 6, 2009, the Finance Agency issued additional liquidity guidance to address the stress and instability in domestic and international financial markets. The final guidance from the Finance Agency, which was provided through e-mails and other means and not through the issuance of formal regulations or another rulemaking process, requires the FHLBank to maintain liquidity in an amount at least equal to our anticipated cash outflows under two different scenarios. One scenario, referred to as a roll-off scenario, assumes that we cannot access the capital markets for a period of 15 days and that during that time, members do not renew any maturing, prepaid and called advances. The second scenario, referred to as a renew scenario, assumes that we cannot access the capital markets for 5 days and that during that period we will automatically renew maturing and called advances for all members except very large, highly rated members. The new liquidity guidance is designed to enhance our protection against temporary disruptions in access to the FHLBank debt markets in response to a rise in capital markets volatility. Subsequent to the adoption of the final guidance, the FHLBank held sufficient levels of liquidity under both scenarios for all remaining days in the first six months of 2009. The FHLBank achieved compliance with these liquidity requirements primarily through the extension of its liability maturities in comparison to its asset maturities.

The FHLBank maintained ready access to the capital markets during the first six months of 2009 at very favorable rates for the majority of the period despite the liquidity/credit crisis in the financial markets. We experienced no liquidity issues and, in fact, the FHLBank System’s short-term borrowing costs during the first six months of 2009 maintained a very favorable spread relative to LIBOR and U.S. Treasury obligations as compared to other AAA-rated debt issuers. As reflected in Tables 4 and 6, the FHLBank’s net interest spreads improved during 2009 as higher cost debt matured and was replaced in this low debt cost environment. The current favorable short-term borrowing costs are expected to return to more normal levels relative to other AAA-rated alternatives (closer to historical averages) as financial market conditions stabilize and the flight to quality subsides. Currently, short-term borrowing costs are remaining relatively constant while other market rates such as LIBOR are falling, which is beginning to reduce the relative spread advantage that increased net interest income over the first six months of 2009.

Critical Accounting Policies and Estimates

The preparation of the FHLBank’s financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect the FHLBank’s reported results and disclosures. Several of the FHLBank’s accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others in terms of their importance to the FHLBank’s results. These assumptions and assessments include the following:

§ Accounting related to derivatives;

§ Fair-value determinations;

§ Accounting for other-than-temporary impairment of investments;

§ Accounting for deferred premium/discount associated with MBS; and

§ Determining the adequacy of the allowance for credit losses.

Changes in any of the estimates and assumptions underlying the FHLBank’s critical accounting policies could have a material effect on the FHLBank’s financial statements.

The FHLBank’s accounting policies that management believes are the most critical to an understanding of the FHLBank’s financial results and condition and require complex management judgment are described under Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the annual report on Form 10-K, incorporated by reference herein. In conjunction with the early adoption of FSP FAS 115-2 in accordance with Finance Agency guidance received on April 28, 2009 (see “Recent Developments” under this Item 2), the FHLBank changed its policy relating to accounting for other-than-temporary impairment of investments in the first quarter of 2009. There were no substantial changes to the FHLBank’s critical accounting policies and estimates during the quarter ended June 30, 2009.

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Accounting for Other-than-temporary Impairment of Investments: The continued broad-based deterioration of credit performance related to residential mortgage loans and the accompanying decline in U.S. residential real estate values have increased the level of credit risk to which the FHLBank is exposed in its investments in mortgage-related securities, primarily private-label MBS. The FHLBank’s investments in mortgage-related securities are directly or indirectly supported by underlying mortgage loans. Due to the decline in values of residential U.S. real estate and difficult conditions in the credit markets, the FHLBank closely monitors the performance of its investment securities classified as held-to-maturity on at least a quarterly basis (or more frequently if a loss-triggering event occurs, such as a material downgrade by the rating agencies) to evaluate its exposure to the risk of loss on these investments in order to determine whether a loss is other-than-temporary, consistent with SFAS 115 (as amended by FSP FAS 115-1, The Meaning of Other-than-Temporary Impairment and its Application to Certain Investments and FSP FAS 115-2).

When the fair value of a debt security is less than its amortized cost as of the balance sheet date, FSP FAS 115-2 requires an entity to assess whether: (1) it has the intent to sell the debt security; or (2) it is more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI on the security must be recognized.

If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, the entire amortized cost basis of the security will not be recovered, and an OTTI is considered to have occurred. The FHLBank considers whether or not it will recover the entire amortized cost of the security by comparing the present value of its best estimate of the cash flows expected to be collected from the security with the amortized cost basis of the security. These evaluations are inherently subjective and consider a number of qualitative factors. In addition to monitoring the credit ratings of these securities for downgrades, as well as placement on negative outlook or credit watch, management evaluates other factors that may be indicative of OTTI. These include, but are not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of a security has been less than its cost, any credit enhancement or insurance, and certain other collateral-related characteristics such as FICO credit scores, LTV ratios, delinquency and foreclosure rates, geographic concentrations and the security’s past performance. If the FHLBank’s initial analysis identifies securities at risk of OTTI, the FHLBank performs additional testing of these investments, which are typically private-label MBS. Beginning in the first quarter of 2009, to ensure consistency in determination of the OTTI for investment securities among all FHLBanks, the FHLBanks used the same key modeling assumptions for purposes of their cash flow analysis. At-risk securities are evaluated by estimating projected cash flows using models that incorporate projections and assumptions typically based on the structure of the security and certain economic environment assumptions such as delinquency and default rates, loss severity, home price appreciation/depreciation, interest rates and securities prepayment speeds while factoring in the underlying collateral and credit enhancement. A significant input to such analysis is the forecast of housing price changes for the relevant states and metropolitan statistical areas, which are based on an assessment of the relevant housing markets. See additional discussion regarding the projections and assumptions in Note 4 of the Notes to the Financial Statements included under Item 1 – “Financial Statements.” The loan level cash flows and losses are allocated to various security classes, including the security classes owned by the FHLBank, based on the cash flow and loss allocation rules of the individual security.

In instances in which a determination is made that a credit loss (defined by FSP FAS 115-2 as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists, but the FHLBank does not intend to sell the debt security, nor is it more likely than not that the FHLBank will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), FSP FAS 115-2 changes the presentation and amount of the OTTI recognized in the Statements of Income. In these instances, the OTTI is separated into: (1) the amount of the OTTI related to the credit loss; and (2) the amount of the OTTI related to all other factors. If the FHLBank’s analysis of expected cash flows results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit loss, any impairment is not other-than-temporary. If the FHLBank determines that an OTTI exists, it accounts for the investment security as if it had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less OTTI recognized in non-interest income. The difference between the new amortized cost basis and the cash flows expected to be collected is accreted into interest income prospectively over the remaining life of the investment security based on the amount and timing of future estimated cash flows (with no effect on earnings unless the security is subsequently sold or there are additional decreases in cash flows expected to be collected). See additional discussion regarding the recognition and presentation of OTTI in Note 2 of the Notes to the Financial Statements included under Item 1 – “Financial Statements” and Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Investments.”

Recently Issued Accounting Standards

See Note 2 of the Notes to the Financial Statements included under Item 1 – “Financial Statements” for a discussion of recently issued accounting standards.

Recent Developments

Regulatory Agency Actions

Finance Agency Issues Guidance on OTTI: On April 28, 2009 and May 7, 2009, the Finance Agency provided the FHLBank with guidance on the process for determining OTTI with respect to private-label MBS and adoption of FSP FAS 115-2. The goal of the guidance was to promote consistency among all FHLBanks in making such determinations, based on the understanding that investors in the consolidated obligations of the FHLBanks can better understand and utilize the information in the combined financial reports if it is prepared on a consistent basis. In order to achieve this goal and move to a common analytical framework, the Finance Agency required all FHLBanks to early adopt FSP FAS 115-2 and follow certain guidelines for determining OTTI.

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The FHLBank continues to identify private-label MBS it holds that should be subject to a cash flow analysis consistent with GAAP and other regulatory guidance. To effect consistency in this cash flow analysis, the Federal Home Loan Bank of San Francisco (FHLBank of San Francisco) provided the key modeling assumptions to be used by the FHLBanks to produce expected cash flow analyses used in analyzing credit losses and determining OTTI for residential private-label MBS other than subprime, monoline insured and home equity private-label MBS for the first quarter of 2009. The FHLBank of San Francisco also determined these key modeling assumptions for all FHLBanks based upon the guidance in FSP FAS 115-2 for the first quarter 2009. During the second quarter of 2009, the FHLBanks formed an OTTI Governance Committee consisting of representatives from each FHLBank. For the second quarter of 2009, the OTTI Governance Committee developed the modeling assumptions to be used by the FHLBanks to produce expected cash flows for use in analyzing credit losses and determining OTTI for residential private-label MBS.

Guidance provided by the Finance Agency for the second quarter of 2009, some of which was based upon written guidance provided for the first quarter of 2009 and other of which was provided only through informal comments to the FHLBanks, indicated that an FHLBank may use an alternative risk model with alternative loan information data if certain conditions are met. The written guidance also indicated that an FHLBank that does not have access to the required risk model and loan information data sources or does not meet the conditions for using an alternative risk model as required under the Finance Agency guidance may engage another FHLBank to perform the cash flow analysis underlying its OTTI determination. For the second quarter of 2009, the FHLBanks of Dallas, Chicago and Indianapolis served as “mirror banks.” The FHLBank of San Francisco and the mirror banks prepared the cash flow analysis for the other eight FHLBanks, with the exception of private-label MBS that were commonly held among the FHLBanks (owned by two or more FHLBanks) for which FHLBank of San Francisco provided expected cash flows for the other 11 FHLBanks. The FHLBank of Chicago was a mirror bank but only as it related to their own private-label MBS and subprime private-label MBS for the other FHLBanks. FHLBank Topeka engaged the FHLBank of Dallas to perform the expected cash flow analysis underlying its OTTI determination for the second quarter of 2009.

Each FHLBank is responsible for making its own determination of OTTI and performing the required present value calculations using appropriate historical cost bases and yields. FHLBanks that hold common private-label MBS are required to consult with one another to make sure that any decision that a commonly-held private-label MBS is other-than-temporarily impaired, including the determination of fair value and the credit loss component of the unrealized loss, is consistent between or among those FHLBanks. FHLBank Topeka confirmed results with all other FHLBanks with which we held commonly-held private-label MBS and recorded any applicable credit loss component consistent with all other FHLBanks for the three-month period ended June 30, 2009.

For the three-month period ended June 30, 2009, we completed our OTTI analysis and made our determination utilizing the risk model and detailed loan information data source specified in the Finance Agency guidance, as well as the assumptions provided by the OTTI Governance Committee.

Finance Agency Proposes Rule on Executive Compensation Limits. On June 5, 2009, the Finance Agency published a notice of proposed rulemaking setting forth requirements and processes with respect to compensation provided to executive officers of the FHLBanks. The proposed rule was issued to effect sections 1113 and 1117 of the Housing and Economic Recovery Act (Recovery Act). Section 1113 addresses the authority of the Director to prohibit and withhold compensation of executive officers of the FHLBank and Section 1117 provides the Director with temporary authority to approve, disapprove or modify the executive compensation of the FHLBanks. The proposed rule also sets forth provisions on the Director’s authority to prior approve agreements or contracts of executive officers that provide compensation in connection with termination of employment. Additionally, the proposed rule sets forth provisions to ensure the FHLBanks comply with processes used by the Finance Agency in its oversight of executive compensation, including the processes that require the submission of relevant information by the FHLBanks to the Finance Agency. Comments on the proposed rule were due by August 4, 2009.

Finance Agency Proposes Rule on Golden Parachute and Indemnification Payments. On June 29, 2009, the Finance Agency published a proposed rule addressing prohibited and permissible golden parachute payments and indemnification payments. On September 16, 2008, the Finance Agency published an interim final regulation on golden parachute and indemnification payments. On September 19, 2008, the Finance Agency removed certain restrictions from the rule. On September 23, 2008, the Finance Agency rescinded the aspects of the rule pertaining to indemnification payments, but left intact the regulation as it pertains to golden parachute payments. On November 14, 2008, the Finance Agency published a proposed amendment to the interim final regulation which addressed indemnification payments. On January 29, 2009, the Finance Agency published the final regulation on golden parachute payments. The proposed rule issued June 29, 2009 addresses in more detail prohibited and permissible golden parachute payments and re-proposes substantially the same indemnification payments amendment that was first proposed on November 14, 2008. Comments on the proposed rule were due by July 29, 2009.

Finance Agency Publishes Final Rule Establishing Capital Classifications and Critical Capital Levels for the FHLBanks. On January 30, 2009, the Finance Agency published an interim final rule that established criteria based on the amount and type of capital held by a FHLBank for four capital classifications as follows:

§ Adequately Capitalized - FHLBank meets both risk-based and minimum capital requirements.

§ Undercapitalized - FHLBank does not meet one or both of its risk-based or minimum capital requirements.

§ Significantly Undercapitalized - FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements.

§ Critically Undercapitalized - FHLBank total capital is two percent or less of total assets.

The regulation also requested comment on whether to establish a fifth classification, “Well Capitalized,” and generally defined this as meeting 110 percent of the adequately capitalized classification.

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Under the regulation, the Finance Agency will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Finance Agency is permitted to make discretionary classifications. The regulation delineates the types of prompt corrective actions the Finance Agency may order in the event an FHLBank is not adequately capitalized, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Finance Agency determines will ensure safe and sound operations and capital compliance by the FHLBank.

On August 4, 2009, the Finance Agency published a final rule on Capital Classifications and Critical Capital Levels for the FHLBanks. The final rule is substantially similar to the interim final rule previously issued by the Finance Agency. The final rule maintains the four capital classifications identified in the interim final rule and provides that the Finance Agency has determined not to establish a fifth “Well Capitalized” classification. On July 29, 2009, FHLBank was notified by the Finance Agency that based upon March 31, 2009 information provided to the Finance Agency, the FHLBank meets the definition of “Adequately Capitalized.”

Changes in Financial Markets and Economic Conditions

The ongoing U.S. and global economic downturns evidenced by the disruption in the U.S. and international financial markets, legislative and regulatory actions related to the bailout of the U.S. financial system and guarantees of financial institutions by foreign governments, and the continuing deterioration of the housing market have impacted the FHLBank in various ways. The impacts of these developments on the FHLBank are discussed throughout this Form 10-Q. Additionally, please see our “Risk Factors” described in Item 1A of our annual report on Form 10-K for a description of the risks related to the disruption in the capital and credit markets and other economic factors and their associated implications.

There were no additional material changes to the previously disclosed recent developments during the quarter ended June 30, 2009.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk Management – The FHLBank measures interest rate risk exposure by various methods, including the calculation of duration of equity and market value of equity.

Duration of Equity (DOE): DOE aggregates the estimated sensitivity of market value for each of the FHLBank’s financial assets and liabilities to changes in interest rates. In essence, DOE indicates the sensitivity of theoretical market value of equity (MVE) to changes in interest rates. A positive DOE generally indicates that the FHLBank has a degree of interest rate risk exposure in a rising interest rate environment, and a negative DOE indicates a degree of interest rate risk exposure in a declining interest rate environment. Higher DOE numbers, whether positive or negative, indicate greater volatility of market value of equity in response to changing interest rates.

Under the RMP approved by its Board of Directors, the FHLBank’s DOE is limited to a range of +5.0 to -5.0 assuming current interest rates. The FHLBank’s DOE is limited to a range of +7.0 to -7.0 assuming an instantaneous parallel increase or decrease in interest rates of 200 basis points. During periods of extremely low interest rates, the Finance Agency requires that FHLBanks employ a constrained down shock analysis to limit the forward interest rate to positive non-zero values. Since the FHLBank’s model imposes a zero boundary on post-shock interest rates, no additional calculations are necessary in order to meet this Finance Agency requirement. Limiting the downward shock in this manner is referred to as a constrained shock scenario. Flooring interest rates has the effect of creating a yield curve which is flat at zero percent from the shortest maturity out to (in one previous time period) the five-year point on the yield curve. This creates a yield curve shape that is extremely unlikely to occur in reality and the application of this assumption has produced some distortion in the reported MVE and DOE in the down shocks. This restriction is reasonable because there is a limited potential for declines in interest rates when the rate environment is extremely low.

The FHLBank’s duration of equity for recent quarter end dates is indicated in Table 45.

Table 45

Duration of Equity
Date	Up 200 Bps		Up 100 Bps		Base		Down 100 Bps		Down 200 Bps		Constrained Down 200 Bps
06/30/2009		-1.2		-0.2		3.8		12.2		1.0		1.0
03/31/2009		-2.2		0.0		3.6		11.6		-1.6		-1.6
12/31/2008		3.2		5.9		7.8		11.3		-0.3		-0.3
09/30/2008		-0.4		-0.3		1.1		2.9		2.6		2.6
06/30/2008		1.5		2.4		3.3		3.3		1.1		2.4

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The DOE for June 30, 2009 of +3.8 in the base case scenario has declined from December 31, 2008, but remains outside management’s typical operating range of ±2.5. When comparing December 31, 2008 with June 30, 2009, the DOE in the base case and the up 200 basis point instantaneous shock scenarios decreased primarily because of asset/liability actions taken by management, a continued improvement in MBS prices and the increase in mortgage prepayment projections that effectively shortened the duration of the MBS portfolios. The primary, and most significant duration factor, was the action taken by management through the issuance of longer term callable fixed rate consolidated obligations to replace callable debt that was called. The interest rate on the called debt that was replaced at higher than current replacement rates, so the debt effectively had no duration at the time it was replaced. This course of asset-liability action to replace called debt with longer term callable fixed rate consolidated obligations increased the duration of liabilities, thus decreasing the duration of equity by positioning the FHLBank’s balance sheet to be less asset sensitive. Further, the interest rate cap portfolio that provides a hedge of the embedded caps in the variable MBS investment portfolio, lengthened significantly as long-term interest rates rose (e.g., resulting in a steeper yield curve) and cap related volatility increased during the period. This duration lengthening is the result of the caps gaining value as the effective caps become more likely to be in the money (a steeper yield curve generally indicates higher short-term rates being expected in the future). In addition, the projection of mortgage prepayments continued to be elevated as the Federal Reserve expanded its mortgage purchase initiative, originally announced in November 2008, from the $500 billion target to a total of $1.2 trillion in March 2009.This mortgage purchase initiative has been effective in keeping mortgage rates relatively low and continues to provide refinancing opportunities for qualifying homeowners. Potential prepayments are typically modeled on a lag basis of two to three months to represent the time-period required to process prepayments. This elevated rate of prepayment projections effectively shortened the duration of the FHLBank’s MBS portfolio, as did the continued improvement in MBS pricing. The improvement in MBS pricing reverses the trend of constant price declines during most of 2008 and shortens the duration of the MBS portfolio as an improved price causes the denominator of the duration calculation to become larger, thus causing the duration to decrease. In the down 200 basis point instantaneous shock scenario, the DOE increased primarily because of the lessening duration impact of the callable bonds. This lessening duration impact is a result of the convexity profile of the callable bond portfolio. This convexity profile and impact to duration is more thoroughly discussed below. While we monitor and manage to the DOE base and ±200 basis point instantaneous shock scenarios for asset/liability and risk management purposes, we also compute and report the ±100 basis point instantaneous shock scenarios as another indication of the FHLBank’s risk profile. The atypical long DOE results in the down 100 basis point instantaneous shock scenario as of December 31, 2008, March 31, 2009 and June 30, 2009 have been isolated to anomalies within the prepayment and mortgage valuation model utilized by the FHLBank. While we continue to monitor and report the DOE results generated in this scenario and are working to further explain and resolve the anomalies, we do not believe that the results are indicative of the FHLBank’s true risk position in such a scenario.

When comparing June 30, 2008 with June 30, 2009, the DOE in the base case scenario increased and the DOE in the up and down 200 basis point instantaneous shock scenarios decreased. This shifting in DOE movements from the respective durations of the investment and funding portfolios is magnified by the significant decline in capital during the period (see Table 1 under Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). This decline in capital caused the respective portfolio equity based weightings to shift quite dramatically, leading to an equity compositional reallocation. For instance, the base case callable bond portfolio’s absolute duration was quite similar on June 30, 2008 as it was on June 30, 2009. However, with the increase in callable bonds outstanding, which leads to an increase in total liability weighting, and with the loss of capital, which leads to a magnified increase in total liability weighting, the impact to duration of equity was a significant net increase in liability duration, even though the absolute duration of the portfolio did not change materially. This DOE magnification changes the context with how the respective portfolio durations impact the DOE result. However, as mentioned above, the increased MBS prepayment projections and the improved MBS pricing should have caused an across the board asset duration shortening, but with the weighting shift, the MBS became a greater percentage of overall assets, therefore the DOE impact of MBS actually increased.

During the past year, interest rates have declined significantly. However, the shape of the Treasury interest rate curve steepened as short-term rates (two years or less) fell by 150 basis points and longer-term Treasury rates declined by less than 100 basis points. Along with the decrease in interest rates, volatility of interest rates, which tends to increase the FHLBank’s risk exposure to the caps embedded in adjustable rate MBS/CMOs, continues to be at relatively high levels. During the first six months of 2009, FHLBank management issued long-term, short lock-out, fixed rate callable consolidated obligations. The long duration of these consolidated obligations helps offset the extension in the duration of the FHLBank’s assets and thus helps ensure that DOE remains within the approved limits, especially in the up shock scenario. The short lock-out period reduces the amount of time the FHLBank has to wait before being able to call the bonds and consequently helps protect against any significant shortening in the duration of assets caused by an increase in prepayment speeds on the FHLBank’s fixed rate MBS/CMO and mortgage loan portfolios. The FHLBank’s current and past purchases of interest rate caps and floors tends to partially offset the negative convexity of the FHLBank’s mortgage assets and the effects of the interest rate caps embedded in the adjustable rate MBS/CMOs. Convexity is the measure of the exponential change in prices for a given change in interest rates or more simply stated it measures the rate of change in duration as interest rates change. When an instrument is negatively convex, it means that its price increases as interest rates decline. When an instrument’s convexity profile decreases, it simply demonstrates that the duration profile is flattening, or that the duration is changing at an increasingly slower rate. When an instrument’s convexity profile increases, the duration profile is steepening and is decreasing in price at an increasingly faster rate. Duration is a measure of the relative risk of a financial instrument, and the more rapidly duration changes as interest rates change, the riskier the instrument. MBS/CMOs have negative convexity as a result of the embedded caps and prepayment options. All of the FHLBank’s mortgage loans are fixed rate, so they have negative convexity as a result of the prepayment options only. The FHLBank seeks to mitigate this negative convexity with purchased options that have positive convexity and callable liabilities that have negative convexity which offsets some or all of the negative convexity risk in its assets. While current capital market conditions make it much more challenging to manage the FHLBank’s market risk position, we continue to take measured asset/liability actions to stay within established policy.

However, as noted in Table 45, the base DOE for the December 31, 2008, exceeded management’s typical operating range, but also exceeded the approved 5.0 DOE threshold as established in the RMP. As referred to previously, the abnormally depressed private-label MBS prices are the primary cause for this distortion of this risk metric, since depressed prices naturally alter the duration calculation by introducing a smaller market value as the denominator. This abnormally small denominator results in a higher duration. Again, with the improved MBS prices and the issuance of callable consolidated obligations to replace called consolidated obligations during the first six months of 2009, the FHLBank’s DOE decreased. Management continues to actively monitor the FHLBank’s DOE position and the mortgage market environment for acceptable future asset/liability management actions.

78

Whenever an established DOE limit is exceeded and management determines not to take any asset/liability management action to bring the FHLBank’s DOE back within the RMP range, the Board of Directors is advised by management and the issue is discussed at the next regularly scheduled Board of Directors’ meeting. If after discussion, the Board of Directors determines that asset/liability management action is required, the Board-approved approach is implemented by management to address the situation. Management considers the current interest rate/market price relationship for MBS to be a market anomaly and is actively monitoring the FHLBank’s DOE position and the mortgage market environment for acceptable future asset/liability management actions. Management discusses the DOE with the Board of Directors on a regular basis and the Board of Directors concurs with management’s course of action citing the current dysfunctional MBS market.

In calculating DOE, the FHLBank also calculates its duration gap, which is the difference between the duration of its assets and the duration of its liabilities. The FHLBank’s base duration gap was 1.5 months and 2.9 months at June 30, 2009 and December 31, 2008, respectively. The decrease in duration gap during the first six months of the year was primarily the result of an increase in the duration of liabilities through the issuance of long-term callable fixed rate consolidated obligations and the decrease in duration of the MBS portfolio as discussed previously.

Market Value of Equity: MVE is the net value of the FHLBank’s assets and liabilities. Estimating sensitivity of the FHLBank’s MVE to changes in interest rates is another measure of interest rate risk. However, MVE should not be considered indicative of the market value of the FHLBank as a going concern or the value of the FHLBank in a liquidation scenario. The FHLBank generally maintains a MVE within limits specified by the Board of Directors in the RMP, which stipulates that the ratio of market value of equity to book value of equity (MVE/BVE ratio) be not less than 85 percent in the base scenario or 80 percent under a ±200 basis-point instantaneous shock in interest rates. Table 46 shows the MVE/BVE ratio for the base case and for ±100 basis-point and ±200 basis-point instantaneous interest rate shock scenarios. As of June 30, 2009, the base case and the up 200 basis point scenario result of 75 percent are both below the established limits. As with the distortions in the DOE metric, the depressed MBS prices are the primary cause of the FHLBank’s low MVE/BVE measurements. The impact of the distortions in the MVE/BVE ratio have been magnified during the first six months of 2009 as the FHLBank’s capital has declined through the repurchase of excess capital stock that was created because of the decline in advance balances (the activity requirement under the FHLBank’s Capital Plan is 5.0 percent for advances). FHLBank management continues to actively monitor the FHLBank’s risk profile, including the MVE/BVE measurement, and is not taking asset/liability management or other actions at this time in order to attempt to bring the percentage back within the RMP ranges. Management discusses the MVE/BVE ratio with the Board of Directors on a regular basis and the Board of Directors concurs with management’s course of action citing the current dysfunctional MBS market.

Although there were some improvements in the price of some of the FHLBank’s MBS/CMOs during the first six months of 2009, unrecognized losses on the FHLBank’s held-to-maturity MBS/CMO portfolios continued to exist as MBS prices remained depressed. The mortgage market disruptions have caused the FHLBank’s estimated fair values on its MBS/CMOs to fall below amortized cost on a large number of the FHLBank’s individual securities, particularly the private-label MBS/CMOs. The fair values of certain private issue MBS/CMOs continued to decline during the first six months of 2009, but not as dramatically as the declines during 2008. While fluctuations in interest rates and security fair values occur during the normal course of the FHLBank’s asset/liability management, the current financial market disruptions have had significant negative impacts on the estimated fair values of the FHLBank’s MBS/CMOs. For securities with fair values below amortized cost and considered “at-risk” (see definition and further discussion in Note 4 of the Notes to the Financial Statements included under Item 1 – “Financial Statements”), the FHLBank identifies its best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, a credit loss exists), an OTTI is considered to have occurred. If there is no credit loss, any impairment is not other-than-temporary. As a result of security-level evaluations, the FHLBank determined that six private-label MBS were other-than-temporarily impaired as of June 30, 2009 because the FHLBank determined that it was likely that it would not recover the entire amortized cost of these securities. For the remainder of the FHLBank’s private-label MBS/CMOs, (1) the FHLBank does not intend to sell the securities; (2) it is not more likely than not that the FHLBank will have to sell the securities before anticipated recovery; and (3) no credit loss has been considered to occur; and thus, the decline in fair value is considered temporary.

Table 46 presents market value of equity as a percent of the book value of equity for the quarter end dates indicated.

Table 46

Market Value of Equity as a Percent of Book Value of Equity
Date	Up 200 Bps		Up 100 Bps		Base		Down 100 Bps		Down 200 Bps		Constrained Down 200 Bps
06/30/2009		75		75		75		84		90		90
03/31/2009		74		73		74		83		84		84
12/31/2008		67		70		75		88		88		88
09/30/2008		91		91		91		93		98		98
06/30/2008		85		87		89		92		95		94

Detail of Derivative Instruments by Type of Instrument by Type of Risk: Various types of derivative instruments are utilized by the FHLBank to mitigate the interest rate risks described in the preceding section. The FHLBank currently employs derivative instruments by designating them as either a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction; by acting as an intermediary; or in asset/liability management (i.e., an economic hedge). An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities or firm commitments that does not qualify for hedge accounting but is an acceptable hedging strategy under the FHLBank’s RMP. Prior to July 1, 2008, interest rate swap relationships meeting stringent criteria and qualifying for shortcut fair value hedge accounting under SFAS 133, paragraph 68, were designated as such. Since July 1, 2008, all hedging relationships qualifying for fair value hedge accounting have been designated as long haul hedges. For all new hedging relationships, the FHLBank formally assesses (both at the hedge’s inception and monthly on an ongoing basis) whether the derivatives that are used are effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain effective in future periods. The FHLBank typically uses rolling regression analyses to assess the effectiveness of its long haul hedges. See Note 7 – Derivatives and Hedging Activities in the quarterly footnotes for information on effectiveness methods used by the FHLBank. The FHLBank determines the hedge accounting to be applied when the hedge is entered into by completing detailed documentation, which includes a checklist setting forth criteria that must be met to qualify for hedge accounting.

79

Table 47 presents the notional amount, accounting designation and effectiveness method for derivative instruments by risk and by type of derivative used to address the noted risk as of June 30, 2009 (in thousands):

Table 47

Notional Amount
Risk Hedged	Accounting Designation	Effectiveness Method	Interest Rate Swaps		Caps/Floors		Purchase Commitments		Total
Advances
Interest rate risk associated with embedded caps and floors clearly and closely related	Fair Value Hedge	Dollar Offset	$	0	$	60,000	$	0	$	60,000
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Shortcut		1,259,000		0		0		1,259,000
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Rolling Regression		2,372,460		0		0		2,372,460
Interest rate risk associated with callable fixed rate advances	Fair Value Hedge	Rolling Regression		17,100		0		0		17,100
Interest rate risk associated with fixed rate convertible advances	Fair Value Hedge	Rolling Regression		5,600,072		0		0		5,600,072
Investments
Fair value risk associated with fixed rate non-MBS trading investments	Economic Hedge	Not Applicable		1,530,956		0		0		1,530,956
Risk of changes in interest rates associated with adjustable rate MBS with embedded caps	Economic Hedge	Not Applicable		0		6,345,733		0		6,345,733
Floors hedging duration of equity risk in a declining interest rate environment	Economic Hedge	Not Applicable		0		300,000		0		300,000
Mortgage Loans Held for Portfolio
Fair value risk associated with fixed rate mortgage purchase commitments	Economic Hedge	Not Applicable		0		0		45,906		45,906
Discount Notes
Interest rate risk associated with fixed rate non-callable discount notes	Fair Value Hedge	Rolling Regression		972,730		0		0		972,730
Consolidated Obligation Bonds
Risk of changes in interest rates creating unacceptable duration changes or increasing costs of funds	Economic Hedge	Not Applicable		3,620,000		0		0		3,620,000
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Rolling Regression		1,155,000		0		0		1,155,000
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Shortcut		380,000		0		0		380,000
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Rolling Regression		5,445,000		0		0		5,445,000
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Shortcut		1,935,000		0		0		1,935,000
Interest rate risk associated with fixed rate callable step-up consolidated obligations	Fair Value Hedge	Rolling Regression		655,000		0		0		655,000
Interest rate risk associated with complex fixed rate consolidated obligations	Fair Value Hedge	Rolling Regression		272,000		0		0		272,000
Intermediary Derivatives
Interest rate risk associated with intermediary derivative instruments with members	Economic Hedge	Not Applicable		212,000		76,000		0		288,000
TOTAL			$	25,426,318	$	6,781,733	$	45,906	$	32,253,957

80

Table 48 presents the fair value (fair value includes net accrued interest receivable or payable on the derivative) of derivative instruments by risk and by type of instrument used to address the noted risk as of June 30, 2009 (in thousands):

Table 48

Fair Value
Risk Hedged	Accounting Designation	Effectiveness Method	Interest Rate Swaps			Caps/Floors		Purchase Commitments			Total
Advances
Interest rate risk associated with embedded caps and floors clearly and closely related	Fair Value Hedge	Dollar Offset	$	0		$	202	$	0		$	202
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Shortcut		(73,713	)		0		0			(73,713	)
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Rolling Regression		(43,923	)		0		0			(43,923	)
Interest rate risk associated with callable fixed rate advances	Fair Value Hedge	Rolling Regression		(143	)		0		0			(143	)
Interest rate risk associated with fixed rate convertible advances	Fair Value Hedge	Rolling Regression		(376,990	)		0		0			(376,990	)
Investments
Fair value risk associated with fixed rate non-MBS trading investments	Economic Hedge	Not Applicable		(165,327	)		0		0			(165,327	)
Risk of changes in interest rates associated with adjustable rate MBS with embedded caps	Economic Hedge	Not Applicable		0			91,685		0			91,685
Floors hedging duration of equity risk in a declining interest rate environment	Economic Hedge	Not Applicable		0			20,297		0			20,297
Mortgage Loans Held for Portfolio
Fair value risk associated with fixed rate mortgage purchase commitments	Economic Hedge	Not Applicable		0			0		(184	)		(184	)
Discount Notes
Interest rate risk associated with fixed rate non-callable discount notes	Fair Value Hedge	Rolling Regression		6,887			0		0			6,887
Consolidated Obligation Bonds
Risk of changes in interest rates creating unacceptable duration changes or increasing costs of funds	Economic Hedge	Not Applicable		9,433			0		0			9,433
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Rolling Regression		31,903			0		0			31,903
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Shortcut		20,618			0		0			20,618
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Rolling Regression		92,837			0		0			92,837
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Shortcut		156,311			0		0			156,311
Interest rate risk associated with fixed rate callable step-up consolidated obligations	Fair Value Hedge	Rolling Regression		7,588			0		0			7,588
Interest rate risk associated with complex fixed rate consolidated obligations	Fair Value Hedge	Rolling Regression		(5,201	)		0		0			(5,201	)
Intermediary Derivatives
Interest rate risk associated with intermediary derivative instruments with members	Economic Hedge	Not Applicable		119			0		0			119
TOTAL			$	(339,601	)	$	112,184	$	(184	)	$	(227,601	)

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Table 49 presents the notional amount of derivative instruments by risk and by type of instrument used to address the noted risk as of December 31, 2008 (in thousands):

Table 49

Notional Amount
Risk Hedged	Accounting Designation	Effectiveness Method	Interest Rate Swaps		Caps/Floors		Purchase Commitments		Total
Advances
Interest rate risk associated with embedded caps and floors clearly and closely related	Fair Value Hedge	Dollar Offset	$	0	$	95,000	$	0	$	95,000
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Shortcut		2,059,000		0		0		2,059,000
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Rolling Regression		1,378,732		0		0		1,378,732
Interest rate risk associated with callable fixed rate advances	Fair Value Hedge	Rolling Regression		67,000		0		0		67,000
Interest rate risk associated with fixed rate convertible advances	Fair Value Hedge	Rolling Regression		6,528,966		0		0		6,528,966
Investments
Fair value risk associated with fixed rate non-MBS trading investments	Economic Hedge	Not Applicable		1,550,035		0		0		1,550,035
Risk of changes in interest rates associated with adjustable rate MBS with embedded caps	Economic Hedge	Not Applicable		0		6,445,733		0		6,445,733
Floors hedging duration of equity risk in a declining interest rate environment	Economic Hedge	Not Applicable		0		300,000		0		300,000
Mortgage Loans Held for Portfolio
Fair value risk associated with fixed rate mortgage purchase commitments	Economic Hedge	Not Applicable		0		0		124,423		124,423
Discount Notes
Interest rate risk associated with fixed rate non-callable discount notes	Fair Value Hedge	Rolling Regression		1,287,162		0		0		1,287,162
Consolidated Obligation Bonds
Risk of changes in interest rates creating unacceptable duration changes or increasing costs of funds	Economic Hedge	Not Applicable		875,000		0		0		875,000
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Rolling Regression		3,620,000		0		0		3,620,000
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Shortcut		635,000		0		0		635,000
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Rolling Regression		4,207,000		0		0		4,207,000
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Shortcut		2,410,000		0		0		2,410,000
Interest rate risk associated with fixed rate callable step-up consolidated obligations	Fair Value Hedge	Rolling Regression		990,000		0		0		990,000
Interest rate risk associated with complex fixed rate consolidated obligations	Fair Value Hedge	Rolling Regression		2,375,000		0		0		2,375,000
Intermediary Derivatives
Interest rate risk associated with intermediary derivative instruments with members	Economic Hedge	Not Applicable		208,586		10,000		0		218,586
TOTAL			$	28,191,481	$	6,850,733	$	124,423	$	35,166,637

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Table 50 presents the fair value (fair value includes net accrued interest receivable or payable on the derivative) of derivative instruments by risk and by type of instrument used to address the noted risk as of December 31, 2008 (in thousands):

Table 50

Fair Value
Risk Hedged	Accounting Designation	Effectiveness Method	Interest Rate Swaps			Caps/Floors		Purchase Commitments			Total
Advances
Interest rate risk associated with embedded caps and floors clearly and closely related	Fair Value Hedge	Dollar Offset	$	0		$	115	$	0		$	115
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Shortcut		(106,451	)		0		0			(106,451	)
Interest rate risk associated with fixed rate non-callable advances	Fair Value Hedge	Rolling Regression		(94,477	)		0		0			(94,477	)
Interest rate risk associated with callable fixed rate advances	Fair Value Hedge	Rolling Regression		(316	)		0		0			(316	)
Interest rate risk associated with fixed rate convertible advances	Fair Value Hedge	Rolling Regression		(636,881	)		0		0			(636,881	)
Investments
Fair value risk associated with fixed rate non-MBS trading investments	Economic Hedge	Not Applicable		(251,368	)		0		0			(251,368	)
Risk of changes in interest rates associated with adjustable rate MBS with embedded caps	Economic Hedge	Not Applicable		0			37,287		0			37,287
Floors hedging duration of equity risk in a declining interest rate environment	Economic Hedge	Not Applicable		0			26,526		0			26,526
Mortgage Loans Held for Portfolio
Fair value risk associated with fixed rate mortgage purchase commitments	Economic Hedge	Not Applicable		0			0		(1,539	)		(1,539	)
Discount Notes
Interest rate risk associated with fixed rate non-callable discount notes	Fair Value Hedge	Rolling Regression		(559	)		0		0			(559	)
Consolidated Obligation Bonds
Risk of changes in interest rates creating unacceptable duration changes or increasing costs of funds	Economic Hedge	Not Applicable		1,024			0		0			1,024
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Rolling Regression		53,848			0		0			53,848
Interest rate risk associated with fixed rate callable consolidated obligations	Fair Value Hedge	Shortcut		28,160			0		0			28,160
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Rolling Regression		114,522			0		0			114,522
Interest rate risk associated with fixed rate non-callable consolidated obligations	Fair Value Hedge	Shortcut		243,391			0		0			243,391
Interest rate risk associated with fixed rate callable step-up consolidated obligations	Fair Value Hedge	Rolling Regression		16,949			0		0			16,949
Interest rate risk associated with complex fixed rate consolidated obligations	Fair Value Hedge	Rolling Regression		32,338			0		0			32,338
Intermediary Derivatives
Interest rate risk associated with intermediary derivative instruments with members	Economic Hedge	Not Applicable		139			0		0			139
TOTAL			$	(599,681	)	$	63,928	$	(1,539	)	$	(537,292	)

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Item 4T. Controls and Procedures

Disclosure Controls and Procedures. The FHLBank’s management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the FHLBank in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The FHLBank’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the FHLBank in the reports that it files or submits under the Exchange Act is accumulated and communicated to the FHLBank’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the FHLBank’s disclosure controls and procedures, the FHLBank’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management of the FHLBank evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the participation of the President and Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as of the end of the quarterly period covered by this report. Based upon that evaluation, the CEO and CFO have concluded that the FHLBank’s disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this report.

Changes in Internal Control over Financial Reporting. A significant change in our internal control over financial reporting occurred during the quarter ended March 31, 2009 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As described in Part I – Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments,” in accordance with guidance provided by the Finance Agency regarding consistency in the FHLBanks’ determination of OTTI of private-label MBS, each FHLBank was required to use the key modeling assumptions provided by the FHLBank of San Francisco for the cash flow analysis of each FHLBank’s private-label MBS in its determination of OTTI for such MBS in the first quarter of 2009. Such assumptions are material to the determination of OTTI and, in turn, material to the FHLBank’s internal control over financial reporting. Accordingly, management established procedures to review the documentation and assumptions provided by the FHLBank of San Francisco in order to determine whether such assumptions were reasonable. Based on this review, management concluded that this change did not diminish the FHLBank’s internal control over financial reporting as of the end of the first quarter of 2009. During the second quarter of 2009, the FHLBanks established an OTTI Governance Committee that developed the key modeling assumptions used in the FHLBank’s determination of OTTI of private-label MBS for the second quarter as completed by the FHLBanks of Dallas and San Francisco for the FHLBank. The FHLBank participated on the OTTI Governance Committee to approve the assumptions and also established procedures to review the final documentation and assumptions developed by the OTTI Governance Committee. There were no other changes in the FHLBank’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the FHLBank’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The FHLBank is subject to various pending 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 adverse effect on the FHLBank’s financial condition or results of operations.

Item 1A. Risk Factors

For a discussion of risks applicable to the FHLBank, see Item 1A – “Risk Factors” in the annual report on Form 10-K, incorporated by reference herein. There were no material changes during the quarter in the Risk Factors described in the annual report on Form 10-K.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description
3.1	Exhibit 3.1 to the FHLBank’s registration statement on Form 10, filed May 15, 2006, and made effective on July 14, 2006 (Registration No. 06838905) (the “Form 10 Registration Statement”), Federal Home Loan Bank of Topeka Articles and Organization Certificate, is incorporated herein by reference as Exhibit 3.1.
3.2	Exhibit 3.2 to the current report on Form 8-K, filed October 22, 2008, Federal Home Loan Bank of Topeka Amended and Restated Bylaws, is incorporated herein by reference as Exhibit 3.2.
4.1	Federal Home Loan Bank of Topeka Capital Plan, as amended effective March 6, 2009.
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

84

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Federal Home Loan Bank of Topeka
Date: August 12, 2009	By: /s/ Andrew J. Jetter
	Andrew J. Jetter
	President and Chief Executive Officer
Date: August 12, 2009	By: /s/ Mark E. Yardley
	Mark E. Yardley
	Executive Vice President and
	Chief Financial Officer

EX-4.1

Exhibit 4.1

CAPITAL PLAN

of the

FEDERAL HOME LOAN BANK of TOPEKA

TABLE OF CONTENTS

Topic	Section
Authority	1
Definitions	2
Objectives	3
Capitalization	4
Capital Requirements and Ratios	5
Statutory and Regulatory Requirments	5.a
Capital Ratios	5.b
Capital Structure	6
Class A Common Stock	6.a
Class B Common Stock	6.b
Minimum Stock Purchase Requirement	7
Asset-Based Stock Purchase Requirement	7.a
Specified Percentage	7.a.1
Minimum Dollar Amount	7.a.2
Maximum Dollar Amount	7.a.3
Asset-Based Stock Purchase Requirement Determination	7.a.4
New Members	7.a.5
Activity-Based Stock Purchase Requirement	7.b
Advances	7.b.1
Acquired Member Assets (AMA)	7.b.2
Letters of Credit	7.b.3
Exchange Agreements	7.b.4
Continuing Monitoring Requirement; Change in Stock Requirements	7.c
Dividends	8
No Dividend Preference	8.a
Dividend Parity Threshold; Notice to Stockholders	8.b
Calculation of Stock Dividend	8.c
Compliance with Regulatory Capital Requirements	8.d
Liquidation	9
Voting Rights	10
Ownership of Retained Earnings	11
Other Provision Governing Stock	12
Issuance	12.a
Transfer	12.b
Repurchase at Bank’s Initiative	12.c
Repurchase or Exchange of Class A Common Stock	12.d
Repurchase of Exchange of Class B Common Stock	12.e
Bank’s Election to Exchange Class B Common Stock for Class A Common Stock	12.f
Regular Exchange Program	12.g
Cash in Lieu of Class A Common Stock	12.h
Withdrawal from Membership; Stock Redemption Requests	13
Voluntary Withdrawal	13.a
Cancellation of Withdrawal Notice	13.b
Stock Redemption Request	13.c
Redemption, Repurchase and Exchange Limitations	13.d
Redemption Request Prior to Exchange	13.e
Cancellation of Stock Redemption Request of Request to Withdraw From Membership	13.f
Involuntary Withdrawal	13.g
Termination of Membership Resulting From Merger of Consolidation	13.h
Other Provisions Governing Involuntary Termination of Membership	13.i
Implementation of Plan	14
Conversion Date	14.a
Conversion of Shares	14.b
Cancellation of Shares	14.c
Opt Out	14.d
Members in the Process of Withdrawing from Membership	14.e
Orderly Liquidation	14.f
Failure to Opt Out	14.g
Amendment of Plan	15
Basis for Implementation	16
Independent Accountant	17
Rating Agency	18

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Adopted by Board of Directors: July 22, 2008

Approved by Federal Housing Finance Agency: March 6, 2009

Federal Home Loan Bank of Topeka

Capital Plan

1)   Authority.  This Capital Plan is established pursuant to the Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.) and Title 12 of the Code of Federal Regulations (C.F.R.) promulgated by the Federal Housing Finance Board and sets forth a plan for the establishment and implementation of a new capital structure for the Federal Home Loan Bank of Topeka.

2)   Definitions. For purposes of this Plan, all capitalized terms used but not defined elsewhere have the following meanings:

Activity-Based Stock Purchase Requirement means the Stock purchase requirement under which a Member must acquire and hold a specific amount of Class B Common Stock as a condition of transacting business with the Bank, the aggregate amount of which is a function of the volume of particular products or services provided to that Member by the Bank.

Acquired Member Assets (AMA) means those assets acquired from Members by the Bank in accordance with 12 C.F.R. Part 955.

Advance has the same meaning as set forth in 12 C.F.R. 900.2.

Asset-Based Stock Purchase Requirement means the Stock purchase requirement under which a Member must acquire and hold a specific amount of Class A Common Stock based on that Member’s total assets.

Bank means the Federal Home Loan Bank of Topeka.

Board means the board of directors of the Bank.

Business Day means any day on which the Bank is open to conduct business.

Class A Common Stock means Stock issued by the Bank that has a par value of one hundred dollars ($100) per share and is redeemable at par for cash on six (6) months’ written notice to the Bank, consistent with Finance Board regulations.

Class B Common Stock means Stock issued by the Bank that has a par value of one hundred dollars ($100) per share and is redeemable at par for cash on five (5) years’ written notice to the Bank, consistent with Finance Board regulations.

Conversion Date means the date upon which the Bank’s current stock is converted into Stock as provided under this Plan.

Dividend Parity Threshold means a dividend rate expressed as a percentage per annum up to which the dividends paid per share on Class A Common Stock and Class B Common Stock must be equal.

Excess Class B Common Stock means the amount of Class B Common Stock owned by each Member in excess of its Activity-Based Stock Purchase Requirement.

Excess Stock means the Stock held by a given Member that is in excess of that Member’s then current Minimum Stock Purchase Requirement.

Exchange means the simultaneous repurchase by the Bank of excess shares of one class of Stock and the purchase of an equivalent number of shares of another class of Stock on behalf of a Member.

FHLBank Act means the Federal Home Loan Bank Act, as amended from time to time, and codified at 12 U.S.C. 1421 et seq.

FHLBanks means the twelve Federal Home Loan Banks created by the FHLBank Act.

Finance Board means the Federal Housing Finance Board, the regulator of the Bank, and any successor regulator of the Bank.

GAAP means generally accepted accounting principles in the United States of America.

Leverage Capital Ratio means the percentage value obtained by dividing weighted Total Capital by the Bank’s total assets.  For purposes of this calculation, weighted Total Capital shall be computed by multiplying Permanent Capital by 1.5 and adding to this product all other components of Total Capital.

Member means an institution that has been approved for Membership and has satisfied its Minimum Stock Purchase Requirement and all other conditions of Membership, as set forth herein or as may otherwise be applicable.

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Membership means all of the rights, privileges and obligations associated with being a Member.

Minimum Stock Purchase Requirement means the total amount of Stock that must be purchased by a Member as set forth in Section 7 hereof, which requirement is based both on a Member’s asset size and activity with the Bank.

Permanent Capital means the amount of retained earnings of the Bank, determined in accordance with GAAP, plus the amounts paid in for Class B Common Stock.

Plan means this Capital Plan, as amended, supplemented or modified from time to time.

Redemption means the acquisition by the Bank of outstanding shares of Stock from a Member at par value in cash, based on a written request from that Member, following the expiration of the statutory Redemption notification period for the Stock.

Redemption Cancellation Fee means the fee imposed by the Bank upon a Member that has given the Bank notice of the Member’s intent to redeem Stock or its request to withdraw from Membership, and such Redemption request or request to withdraw from Membership is subsequently cancelled, revoked or withdrawn.

Regulatory Capital Requirements means the amount of Total Capital and Permanent Capital that the Bank is required to hold to comply with the Total Capital and Risk-Based Capital requirements, respectively, set forth in the FHLBank Act and 12 C.F.R. Part 932.

Repurchase means the acquisition by the Bank of shares of Excess Stock at par value in cash and at the Bank’s discretion prior to the expiration of the required Redemption notification period applicable to such Excess Stock.

Risk-Based Capital means the Permanent Capital carried to mitigate the impact of credit risk, market risk, and operations risk on the Bank.

Risk Management Policy means a policy approved by the Board in accordance with the provisions of 12 C.F.R. Part 917 that addresses the Bank’s management of its exposure to credit risk, market risk, liquidity risk, business risk, and operations risk.

Stock means Class A Common Stock and/or Class B Common Stock.

Total Capital of the Bank means the aggregate sum of the Bank’s Permanent Capital plus the amounts paid-in for Class A Common Stock, and any general allowance for losses and any other amounts from sources available to the Bank to absorb losses incurred by the Bank that the Finance Board determines to be appropriate.

Total Capital Ratio means the percentage value obtained by dividing unweighted Total Capital by the Bank’s total assets.

3)   Objectives.  The objectives of the Plan are to:

a)   Establish and maintain a capital structure that will provide for the safe and sound operation of the Bank while promoting the long-term financial viability of the Bank and the Bank’s ability to support the business activities of its Members within applicable statutory and regulatory authorities and at the same time preserving the cooperative nature of the FHLBanks.

b)   Set forth provisions governing Stock in compliance with 12 C.F.R. Part 931.

c)   Provide sufficient Total Capital and Permanent Capital to comply with the Bank’s Regulatory Capital Requirements.

d)   Implement a flexible capital structure that is expected to facilitate the long-term growth and profitability of the Bank and allow the Bank to provide greater value to its members.  The capital structure authorized in this Plan provides for the Bank as well to repurchase shares and for Members to request Redemption of their shares of Stock subject to compliance with the provisions of this Plan and applicable rules and regulations promulgated by the Finance Board.

4)   Capitalization. Adequate capitalization is required in order to: (a) provide for the safe and sound operation of the Bank; (b) permit prudent leveraging into products and services of benefit to Members; (c) provide appropriate risk-adjusted Member dividend returns; (d) protect the Bank’s creditors against potential loss; (e) generate earnings sufficient to meet the Bank’s various community support and public purpose obligations; and (f) comply with the Bank’s Regulatory Capital Requirements.  The need for capital is a function of the volumes of and risks inherent in the products and services provided by the Bank to its Members.

4

5)   Capital Requirements and Ratios.

a)   Statutory and Regulatory Requirements.  The Finance Board interprets and implements statutory requirements established for the FHLBanks by the U.S. Congress.  As required by the FHLBank Act, the Finance Board has adopted regulations prescribing various minimum levels of capital that must be held by FHLBanks.  The capital regulations require the Bank to maintain a Total Capital Ratio at least equal to four percent (4.0%), a Leverage Capital Ratio at least equal to five percent (5.0%) and Permanent Capital in an amount at least sufficient to cover its Risk-Based Capital requirement.

The Finance Board has adopted capital requirements that incorporate factors weighing the relative risk incurred by each FHLBank.  The Bank’s Risk-Based Capital requirement is equal to the sum of its capital requirements for credit risk, market risk and operations risk, each as defined by the Finance Board.  The Bank must calculate its Risk-Based Capital requirement and provide such calculations to the Finance Board monthly.

b)   Capital Ratios.  In order to ensure continuing capital adequacy, and compliance with minimum regulatory Total Capital requirements and minimum Risk-Based Capital requirements, management and the Board shall review the Bank’s capital position on an ongoing basis.  The Total Capital Ratio, Leverage Capital Ratio and Risk-Based Capital requirement shall be presented at each scheduled business meeting of the Board.

6)   Capital Structure.  Under this Plan, the Bank’s capital structure shall consist of two classes of Stock (Class A Common Stock and Class B Common Stock) which may be purchased and held only by Members.  Class A Common Stock and Class B Common Stock shall only be issued, redeemed and repurchased at a par value of one hundred dollars ($100) per share.  Establishment of two classes of Stock and the distinctions between them are made in the Plan to facilitate efficient monitoring and management of the Bank’s capital structure on an ongoing basis.

a)   Class A Common Stock.  Class A Common Stock must be held to satisfy a Member’s Asset-Based Stock Purchase Requirement.  Each Member will be required to purchase and maintain a defined minimum amount of Class A Common Stock for as long as it is a Member.  Dividends on shares of Class A Common Stock are non-cumulative and may be paid either in cash or as a Stock dividend in the form of shares of Class B Common Stock.

b)   Class B Common Stock.  Shares of Class B Common Stock must be held to satisfy the Activity-Based Stock Purchase Requirement.  Dividends on shares of Class B Common Stock are non-cumulative and may be paid either in cash or as a Stock dividend in the form of shares of Class B Common Stock.

7)   Minimum Stock Purchase Requirement.  A Member’s Minimum Stock Purchase Requirement shall consist of Stock ownership of Class A Common Stock based on the Member’s asset size (Asset-Based Stock Purchase Requirement).  In addition, there will be an Activity-Based Stock Purchase Requirement.  The Bank will not issue fractional shares of Stock.  Minimum purchase requirements for Class A Common Stock and Class B Common Stock will be rounded up to the nearest one hundred dollars ($100).

a)   Asset-Based Stock Purchase Requirement.  Each Member shall purchase and maintain, as a condition of Membership for as long as it is a Member, an amount of Class A Common Stock having a cumulative par value equal to a specified percentage of the Member’s total assets as of December 31 of the preceding calendar year.  The Asset-Based Stock Purchase Requirement shall be subject to minimum and maximum dollar amounts.  The Board will establish the specified percentage and the maximum Asset-Based Stock Purchase Requirement from time to time and changes thereto do not require Finance Board approval, provided they fall within the parameters set forth below.

1)   Specified Percentage.  The initial specified percentage of the Member’s total assets established in this Plan by the Board for the Asset-Based Stock Purchase Requirement shall be two-tenths of one percent (0.2%).  Under this Plan the Asset-Based Stock Purchase Requirement may permissibly fall within a range of not less than one-tenth of one percent (0.1%) and not greater than four-tenths of one percent (0.4%) of the Member’s total assets.

2) Minimum Dollar Amount.  The minimum Asset-Based Stock Purchase Requirement shall be one thousand dollars ($1,000).

3) Maximum Dollar Amount.  The initial maximum dollar amount established in this Plan by the Board for the Asset-Based Stock Purchase Requirement shall be one million dollars ($1,000,000).  The maximum Asset-Based Stock Purchase Requirement may permissibly fall within a range of not less than five hundred thousand dollars ($500,000) and not greater than two and one-half million dollars ($2,500,000).

4) Asset-Based Stock Purchase Requirement Determination.  The Bank shall determine the Asset-Based Stock Purchase Requirement based on the most recent end-of-year regulatory reports filed by a Member with its primary regulator and notify each Member no later than April 20 of every year of the required amount of Class A Common Stock the Member is required to purchase and hold.  If a Member needs to hold additional Class A Common Stock to meet its Asset-Based Stock Purchase Requirement, the Bank will purchase such Stock at par on behalf of the Member by debiting the Member’s demand deposit account on April 30 or the preceding Business Day if April 30 is not a Business Day in an amount equal to the par value of such Stock.

In addition, the Bank shall recalculate the Asset-Based Stock PurchaseRequirement for any Member that is involved in, or the subject of, any merger or acquisition as of the date of the completion of the merger or acquisition.

5

If a Member is merged into an institution that is not a Member, or if a Member sells all of its assets and liabilities to a non-Member and ceases to operate its business, the Bank may, in its discretion, upon completion of the merger or sale recalculate that Member’s Asset-Based Stock Purchase Requirement, which may be zero dollars ($0) since the former Member’s charter may have no remaining assets upon which to base any Asset-Based Stock Purchase Requirement.  If the former Member would not be in compliance with its Activity-Based Stock Purchase Requirement after recalculation of the former Member’s Asset-Based Stock Purchase Requirement, the Bank may, in its discretion, Exchange the former Member’s Excess Class A Common Stock for Class B Common Stock to the extent necessary for the former Member to comply with its Activity-Based Stock Purchase Requirement.  If, as a result of such recalculation and/or Exchange, Excess Class A Common Stock is found to exist, such Excess Stock may be repurchased immediately by the Bank, provided that the Bank will be in compliance after such Repurchase with its Regulatory Capital Requirements.  In such circumstances, Class B Common Stock owned by the former Member to meet its Activity-Based Stock Purchase Requirements will become Excess Stock when such Stock is not required to fulfill an Activity-Based Stock Purchase Requirement and may be repurchased at that time, provided the Bank will be in compliance after such Repurchase with its Regulatory Capital Requirements.

5) New Members. Upon approval of an application for Membership, the Bank shall notify the applicant of its Asset-Based Stock Purchase Requirement based on the applicant’s most recent annual regulatory report filed with its primary regulator.  For new de novo Members that have not yet filed an annual regulatory report with their primary regulators, the initial Asset-Based Stock Purchase Requirement shall be one thousand dollars ($1,000).  The applicant shall meet its Asset-Based Stock Purchase Requirement no later than sixty (60) calendar days following notification by the Bank of the approval of its Membership application and Membership shall commence at the time the applicant purchases sufficient Class A Common Stock to meet its Asset-Based Stock Purchase Requirement.  All initial Stock purchases by new Members must be initiated by authorized Member personnel in writing and will be transacted by debiting the new Member’s demand deposit account for the par value of the Class A Common Stock sufficient to meet its Asset-Based Stock Purchase Requirement.

b)   Activity-Based Stock Purchase Requirement.  Each Member shall purchase and maintain, as a condition of doing business with the Bank, an amount of Class B Common Stock having a cumulative par value equal to the sum of the amounts set forth below in Section 7(b)(1) through (4), less the Member’s Asset-Based Stock Requirement determined pursuant to Subsection 7(a).  A Member shall meet this Activity-Based Stock Purchase Requirement for as long as the activity with the Bank requiring imposition of such Activity-Based Stock Purchase Requirement remains outstanding.  The Board will establish the percentage for each Activity-Based Stock Purchase Requirement from time to time and changes thereto do not require Finance Board approval provided each is within the percentages set forth below in Subsections 7(b)(1) through 7(b)(4).  The Board may apply any such revised Activity-Based Stock Purchase Requirement to all activity then outstanding or only to activity which arises after the effective date of the change.  At the time a Member enters into a transaction that requires the purchase of Class B Common Stock under this provision of the Plan, the Bank will purchase such Stock on behalf of the Member in the following two ways:

·   exchanging Excess Class A Common Stock held by the Member into a like number of shares of Class B Common Stock sufficient to enable the Member to meet its Activity-Based Stock Purchase Requirement; if this is insufficient to enable the Member to meet its Activity-Based Stock PurchaseRequirement, then

·   by debiting the Member’s demand deposit account for the remaining amount of its Activity-Based Stock Purchase Requirement.

1) Advances.  The initial requirement established by the Board for Advances is an amount equal to five percent (5.0%) of the principal amount of Advances outstanding to the Member.  The amount of Stock required to support Advance activity shall be determined each time the Member is issued a new Advance and must be satisfied when the Advance is made.  Under this Plan, the amount of a Member’s Activity-Based Stock Purchase Requirement based on that Member’s Advance activity may permissibly fall within a range of not less than four percent (4.0%) and not greater than six percent (6.0%) of the principal amount of Advances outstanding to the Member.

2) Acquired Member Assets (AMA).  The initial requirement established by the Board for AMA, including loans from the Mortgage Partnership Finance® Program, is an amount equal to two percent (2.0%) of the current outstanding principal balance of AMA originated by or through the Member and acquired by the Bank subject to a maximum AMA requirement of one and one-half percent (1.5%) of the Member’s total assets as of December 31 of the preceding calendar year..  The amount of Stock required to support AMA activity shall be determined when the AMA activity is funded by the Bank or purchased from the Member.  Under this Plan the amount of a Member’s Activity-Based Stock Purchase Requirement based on that Member’s AMA activity may permissibly fall within a range from zero percent (0.0%) to not greater than six percent (6.0%) of the current outstanding principal balance of AMA originated by or through that Member and acquired by the Bank and the maximum AMA requirement may permissibly fall within a range from one percent (1.0%) to three percent (3.0%) of the Member’s total assets as of December 31 of the preceding year.

3) Letters of Credit.  The initial requirement established by the Board for letters of credit is an amount equal to zero percent (0.0%) of the principal amount of letters of credit outstanding at the request of the Member.  The amount of Stock required to support letter of credit activity shall be calculated each time a new letter of credit is issued on behalf of the Member and must be satisfied when the letter of credit is issued.  Under this Plan the amount of a Member’s Activity-Based Stock Purchase Requirement based on letters of credit issued on behalf of that Member may permissibly fall within a range from zero percent (0.0%) to not greater than one percent (1.0%) of the principal amount of letters of credit outstanding at the request of that Member.

6

4) Exchange Agreements.  The initial requirement established by the Board for exchange agreements (including but not limited to interest rate swaps, currency swaps, caps, collars, floors and equity options) is an amount equal to zero percent (0.0%) of the notional principal of the outstanding exchange agreements with the Member.  The amount of Stock required to support exchange agreement activity shall be calculated each time the Member enters into a new exchange agreement or transaction and must be satisfied when the new exchange agreement or transaction is effective.  Under this Plan the amount of a Member’s Activity-Based Stock Purchase Requirement based on exchange agreements (as defined above) may permissibly fall within a range from zero percent (0.0%) to not greater than two percent (2.0%) of the notional principal of the outstanding exchange agreements with that Member.

c)   Continuing Monitoring Requirement; Change in Stock Requirements.  To maintain prudent and ongoing compliance with Finance Board regulations, the Board shall review the Plan at least annually to determine whether adjustments are required with respect to one or more of the following: 1) specific Stock purchase requirements and/or the types of activities to which these shall apply; 2) the exercise by the Bank of its discretion to repurchase Excess Stock and the methodology employed to effect such Repurchases; 3) any increases or decreases in Redemption Cancellation Fees; and 4) the introduction of any new subclasses of Stock.

As part of this continuing obligation to monitor the Plan, the Board shall review and, as necessary, adjust the Asset-Based Stock Purchase Requirement and the Activity-Based Stock Purchase Requirement to ensure that the Stock required to be purchased and maintained by Members, along with other allowable sources of capital including Retained Earnings determined in accordance with GAAP, is sufficient to allow the Bank to comply with its Regulatory Capital Requirements.  Upon notification of a change in the Asset-Based Stock Purchase Requirement or the Activity-Based Stock Purchase Requirement, a Member shall have sixty (60) calendar days from the notification date to comply with the new Minimum Stock Purchase Requirement.  During said sixty (60)-day period, however, a Member will be ineligible to engage in any new activity with the Bank unless the Member is then in compliance with the new Minimum Stock Purchase Requirement.  A Member may elect to reduce its outstanding business with the Bank as a means of complying with the adjusted Activity-Based Stock Purchase Requirement.  For each Member that is not in compliance with the new Minimum Stock Purchase Requirement at the end of the sixty (60)-day period, the Bank will:

·   exchange Excess Class A Common Stock or Excess Class B Common Stock held by each Member into a like number of shares of Class B Common Stock or Class A Common Stock sufficient to enable the Member to meet its new Minimum Stock Purchase Requirement; if this is insufficient to enable the Member to meet its new Minimum Stock Purchase Requirement, then  

·   purchase such amount of Class A Common Stock and/or Class B Common Stock necessary to bring the Member into compliance with the new Minimum Stock Purchase Requirement on behalf of the Member by debiting the Member’s demand deposit account.

8) Dividends.  The Board, in conformance with the FHLBank Act and applicable Finance Board regulations, may declare dividends, expressed as a percentage rate per annum based upon the par value of Stock, from time to time on the shares of Class A Common Stock outstanding and the shares of Class B Common Stock outstanding as provided below, provided the Bank will continue to meet its Regulatory Capital Requirements after such dividend payment.

a)   Dividend Parity Threshold; Notice to Stockholders.  The Board shall establish and notify Members of the initial Dividend Parity Threshold on or before the Conversion Date. The Dividend Parity Threshold will be expressed as a negative or positive spread relative to a published interest rate index or an internally calculated reference interest rate based upon any of the Bank’s assets or liabilities.  The Dividend Parity Threshold may be changed from time to time at the discretion of the Board.  The Bank shall notify Members of any change to the Dividend Parity Threshold at least ninety (90) calendar days prior to a dividend payment.

b)   No Dividend Preference.  The dividend rate per annum for Class A Common Stock and Class B Common Stock will be equal up to the Dividend Parity Threshold.  Dividend rates in excess of the Dividend Parity Threshold may be paid on Class A Common Stock or Class B Common Stock at the discretion of the Board; provided, however, that the dividend rate per annum paid on the Class B Common Stock shall equal or exceed the dividend rate per annum paid on the Class A Common Stock.  For purposes of the establishment of dividend rates, the Bank may project for the dividend period the reference interest rate used in the Dividend Parity Threshold calculation, in the Bank’s absolute discretion, and may declare and pay dividends at rates per annum based on such projection without regard to the actual reference interest rate subsequently published or calculated for the dividend period.

c)   Calculation of Stock Dividend.  In determining the number of shares to be issued when Stock dividends are declared, the number of shares will be rounded down to the nearest one hundred dollars ($100) of par value and any fractional shares shall be distributed in the form of a cash dividend.

d)   Compliance with Regulatory Capital Requirements.  The Bank shall not declare or pay a dividend if it is not, or if after paying the dividend it would not be, in compliance with its Regulatory Capital Requirements.

9) Liquidation.  The claims of holders of Class A Common Stock and the claims of holders of Class B Common Stock shall be pari passu with respect to the assets of the Bank in any liquidation proceeding.  Any cash and property remaining after the satisfaction of all valid obligations of the Bank shall be divided between the Class A Common Stockholders and the Class B Common Stockholders in proportion to the number of shares of each class of Stock outstanding.  Any rights set forth in this section can be modified, restricted or eliminated by any rules, regulations or orders prescribed by the Finance Board.

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10) Voting Rights.  A Member shall have the right to vote its Class A Common Stock and Class B Common Stock in elections of members of the Board to represent Members in the particular Member’s state.  For each directorship that is to be filled in an election, each Member located in the state to be represented by the directorship is entitled to cast one vote for each share of Stock the Member was required to hold under this Plan as of December 31 of the calendar year immediately preceding the election year.  No Member, however, may cast for any one directorship a number of votes representing that Member’s shares of a class of Stock that exceeds the average number of shares of that class of Stock that all Members located in that state were required to hold as of December 31 of the calendar year immediately preceding the election year.  This limitation shall be calculated separately for holdings of Class A Common Stock and Class B Common Stock.

11) Ownership of Retained Earnings.  The owners of Class B Common Stock shall have an ownership interest in the retained earnings, surplus, undivided profits and equity reserves, if any, of the Bank, but shall have no right to receive any portion of those items, except through declaration of a dividend or capital distribution approved by the Board or through the liquidation of the Bank and provided such ownership interest shall not preclude the Bank from paying dividends to Class A Common Stockholders from retained earnings or adversely impact the right of Class A Common Stockholders to receive liquidating distributions as otherwise described in this Plan.

12) Other Provisions Governing Stock.

a)   Issuance.  Stock shall not be issued by the Bank other than in accordance with 12 C.F.R. 931.2 and may only be issued to Members.

b)   Transfer.  Stock may be traded only between the Bank and its Members.  A Member may not transfer any Stock to any other person or entity, including another Member; provided, however, that in the event of a merger or consolidation of two or more Members the Stock of the disappearing Member or Members shall be transferred by the Bank to the surviving or consolidated Member.  In the event of a merger or consolidation of one or more Members into a non-Member institution, the Bank will redeem the Stock owned by the merged or acquired Member in accordance with the provisions of Section 13(h) hereof.

c)   Repurchase at Bank’s Initiative.  The Bank, in its discretion, may develop a Repurchase program as to Excess Stock held by Members.  Any such Excess Stock Repurchase program adopted by the Bank will be implemented based on an objective formula and applied to all Members equally.  If, in applying such formula, the Bank would fail to meet its Regulatory Capital Requirements, then the Bank will repurchase Excess Stock only up to an amount that would permit the Bank to continue to meet its Regulatory Capital Requirements.  In such an event, the Bank shall repurchase such Excess Stock from affected Members on a pro rata basis established by the Bank in its formula.  Prior to repurchasing Excess Stock on its own initiative, the Bank shall provide a Member not less than five (5) Business Days’ written notice of such Repurchase.

d)   Repurchase or Exchange of Class A Common Stock.  At the request of a Member through a written Redemption request submitted to the Bank, the Bank may, in its discretion, repurchase from that Member shares of Class A Common Stock which exceed the Member’s Asset-Based Stock Purchase Requirement, provided that the Bank will continue to meet its Regulatory Capital Requirements after the Repurchase.  Refer to Section 13(c) hereof for a discussion of written Redemption requests made of the Bank not in connection with a notice of withdrawal.

Likewise, at the request of a Member through a written Exchange request submitted to the Bank, the Bank may, in its discretion, Exchange for shares of Class B Common Stock shares of Class A Common Stock which exceed the Member’s Asset-Based Stock Purchase Requirement, provided that the Bank will continue to meet its Regulatory Capital Requirements after the Exchange.  The Bank will notify the Member within five (5) Business Days of the receipt of the written Exchange request if the Bank intends to deny the request.  Any such Exchange request that is denied by the Bank becomes null and void, with the Bank under no obligation to warehouse such requests in the event that it should decide to accept and process Exchange requests at some time in the future. Absent Bank notification of its intent to deny the member’s written Exchange request within five (5) Business Days of the receipt of the written Exchange request, the Bank will exchange such stock subject to the written Exchange request.

e)   Repurchase or Exchange of Class B Common Stock.  At the request of a Member through a written Redemption request submitted to the Bank, the Bank may, in its discretion, repurchase from that Member shares of Class B Common Stock which exceed the Member’s Activity-Based Stock Purchase Requirement, provided that the Bank will continue to meet its Regulatory Capital Requirements after the Repurchase.  Refer to Section 13(c) hereof for a discussion of written Redemption requests made of the Bank not in connection with a notice of withdrawal.

Likewise, at the request of a Member through a written Exchange request submitted to the Bank, the Bank may, in its discretion, Exchange for shares of Class A Common Stock shares of Class B Common Stock which exceed the Member’s Activity-Based Stock Purchase Requirement, provided that the Bank will continue to meet its Regulatory Capital Requirements after the Exchange.  The Bank will notify the Member within five (5) Business Days of the receipt of the written Exchange request if the Bank intends to deny the request.  Any such Exchange request that is denied by the Bank becomes null and void, with the Bank under no obligation to warehouse such requests in the event that it should decide to accept and process Exchange requests at some time in the future. Absent Bank notification of its intent to deny the member’s written Exchange request within five (5) Business Days of the receipt of the written Exchange request, the Bank will exchange such stock subject to the written Exchange request.

f)   Bank’s Election to Exchange Class B Common Stock for Class A Common Stock.  If the Bank will continue to meet its Regulatory Capital Requirements after such Exchange, the Bank may, in its discretion, elect to exchange all or a portion of the Excess Class B Common Stock held by Members for Class A Common Stock at any time the Bank determines that Members hold Excess Class B Common Stock.  An Exchange of less than all Excess Class B Common Stock will be done on a pro rata basis.  The Bank shall give Members not less than five (5) Business Days’ notice of the Exchange.

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g)   Regular Exchange Program.  The Bank, in its discretion, may elect to establish a regular Exchange program under subsection (f).  If the Bank elects to implement a regular Exchange program, then not less than thirty (30) calendar days prior to the first Exchange, the Bank shall notify all Members: (1) that the Bank will exchange all or a portion of the Excess Class B Common Stock for Class A Common Stock at regular intervals; (2) the date on which the Bank will conduct the first Exchange; and (3) the regular interval at which subsequent Exchanges will occur.  If a regular exchange program is established, the Bank shall provide all Members not less than five (5) Business Days’ advance notice if the Bank is: (1) changing the regular interval for such Exchanges; or (2) terminating such regular Exchange program.

h)   Cash in Lieu of Class A Common Stock.  A Member may direct the Bank to pay cash to the Member in lieu of Class A Common Stock in any Exchange described in subsections 12(f) and 12(g) by notifying the Bank in writing.  This directive will be effective for all Exchanges occurring thirty (30) calendar days after such writing is received by the Bank.  Upon written request from the Member to terminate the directive to pay cash, the Bank may, in its discretion, allow such directive to be terminated.

13) Withdrawal from Membership; Stock Redemption Requests.

a)   Voluntary Withdrawal.  A Member may withdraw from Membership by providing the Bank with written notice of the Member’s intent to withdraw from Membership consistent with 12 C.F.R. 925.26.  The applicable Stock Redemption period for Class A Common Stock and Class B Common Stock shall be deemed to begin upon the Bank’s receipt of such written notice.  The effective date of the withdrawal will be the date on which the applicable Stock Redemption period ends relative to that Member’s Class A Common Stock, unless the Member has cancelled its notice of withdrawal prior to that date.  The Member shall continue to retain sufficient Class A Common Stock to meet its Asset-Based Stock Purchase Requirement until the six-month Redemption period has passed, at which time the Bank may, in its discretion, Exchange such Class A Common Stock for Class B Common Stock in an amount sufficient to meet the former Member’s Activity-Based Stock Purchase Requirement with Class B Common Stock and/or, to the extent such Class A Common stock is Excess Stock and not necessary to meet the former Member’s Activity-Based Stock Purchase Requirement, redeem such Class A Common Stock at par and for cash by crediting the former Member’s demand deposit account, in accordance with Finance Board regulations.  Such withdrawing Member shall continue to retain sufficient Class A Common Stock or Class B Common Stock to meet its Activity-Based Stock Purchase Requirement for as long as any activity creating an Activity-Based Stock Purchase Requirement remains outstanding.  The Activity-Based Stock Purchase Requirement for a former Member shall always be the Activity-Based Stock Purchase Requirement in effect on the effective date of a former Member’s withdrawal from Membership in accordance with the applicable provisions of this Plan.  When such activity has been completed, the Bank will, if the applicable Redemption period has expired, redeem such former Member’s Excess Stock at par and for cash by crediting the former Member’s demand deposit account, in accordance with this Plan and Finance Board regulations, provided that the Bank will continue to meet its Regulatory Capital Requirements after the Redemption.  If the applicable Redemption period has not expired, the Bank may allow the Redemption period to proceed or, in its discretion, Repurchase such former Member’s outstanding Excess Stock at par and for cash by crediting the former Member’s demand deposit account, in accordance with this Plan and Finance Board regulations, provided that the Bank will continue to meet its Regulatory Capital Requirements after the Repurchase.

b)   Cancellation of Withdrawal Notice.  A Member may cancel its notice of withdrawal at any time prior to the effective date of the withdrawal by providing the Bank written notice of such cancellation.

c)   Stock Redemption Request.  A Member that desires to redeem a part of its Class A Common Stock or all or part of its Class B Common Stock shall provide the Bank a written request for Redemption stating the number and class of shares to be redeemed; provided, however, that a Member may not have more than one Redemption request outstanding at one time with respect to the same share of Stock.

The Bank’s receipt of a written Redemption request shall commence the six-month and five-year Stock Redemption periods for the Class A Common Stock and Class B Common Stock, respectively, subject to the Redemption request.

On each written Redemption request, the Bank will notify the Member within five (5) Business Days of the Bank’s receipt of the written Redemption request if the Bank does not intend to Repurchase or cannot Repurchase the Class A Common Stock and/or Class B Common Stock that is the subject of the Redemption request.  The date of such notification by the Bank will not affect the commencement of the Redemption periods, which begin on the date the written Redemption request is received by the Bank.

As to a written Redemption request made of the Bank not in connection with a notice of withdrawal, and for which the Bank has provided the above notification, the Bank reserves the right to repurchase any or all of the Excess Class A Common and/or Excess Class B Common Stock that is the subject of a Member’s Redemption request at any time prior to the expiration of the applicable Redemption period, provided that the Bank furnishes one (1) Business Day’s notice prior to Repurchase and, both prior to and immediately following such a Repurchase, continues to meet its Regulatory Capital Requirements.

d)   Redemption, Repurchase and Exchange Limitations.

1)   The Bank will not redeem or repurchase any Stock if doing so would cause the Bank to fail to comply with its Regulatory Capital Requirements, or would cause the Member involved in such transaction to fail to meet its Minimum Stock Purchase Requirement.  As to additional provisions regarding Redemption of Stock, refer to Section 13(f) of this Plan.

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2)   On any day that the sum of all requested Redemptions maturing on that day equals or exceeds an amount that would cause the Bank to fall below the minimum Regulatory Capital Requirements, Redemptions will be suspended until either those requests can be honored in full or the Board establishes pro rata Redemption procedures.

3) If the Board reasonably believes that continued Redemptions would cause the Bank to fail to meet its Regulatory Capital Requirements, would prevent the Bank from maintaining adequate capital against a potential risk that may not be adequately reflected in its Regulatory Capital Requirements or would otherwise prevent the Bank from operating in a safe and sound manner, it may suspend any and all Redemptions.  During such period of suspended Redemptions, written permission of the Finance Board shall be obtained prior to any Repurchase or Exchange.  Within two (2) Business Days of such suspension, the Bank shall notify the Finance Board of the reasons for the suspension and the Bank’s strategies for addressing the situation.  The Finance Board has the right to order the Bank to re-institute Redemptions of Stock.

4) Written approval from the Finance Board shall be required prior to Redemption, Repurchase or Exchange if there has been a determination by the Board or the Finance Board that the Bank has incurred, or is likely to incur, losses that result in, or are likely to result in, charges against the capital of the Bank as defined in the applicable rules and regulations.  This requirement shall apply even if the Bank is in compliance with its Regulatory Capital Requirements, and shall remain in effect as long as the Bank continues to incur such charges, or until the Finance Board determines that such charges are no longer expected to continue.

e)   Redemption Request Prior to Exchange.

1)   If at any time a Member has pending a Redemption request for Class B Common Stock and that Class B Common Stock is exchanged for Class A Common Stock by the Bank under Subsections 7(a), 12(f) or 12(g), the Redemption request for the amount of Class B Common Stock exchanged is automatically cancelled.  In such event, the Bank shall not impose a Redemption Cancellation Fee.  A new written Redemption request must be submitted by the Member for the newly issued Class A Common Stock if the Member wants to redeem that Class A Common Stock.  If such an Exchange comprises only a portion of a Member’s existing Redemption request for Class B Common Stock, the Redemption period for that portion of the Member’s Class B Common Stock that is not exchanged is determined by and continues to run from the initial date the Redemption request was received by the Bank.

2)   If a Member has pending a Redemption request for Class A Common Stock and that Class A Common Stock is exchanged for Class B Common Stock by the Bank to meet the Member’s Activity-Based Stock Purchase Requirement under Subsection 7(b), the Redemption request is automatically cancelled for the amount of Class A Common Stock exchanged.  In such event, the Bank shall not impose a Redemption Cancellation Fee.  If such an Exchange comprises only a portion of a Member’s existing Redemption request for Class A Common Stock, the Redemption period for that portion of the Member’s Class A Common Stock that is not exchanged is determined by and continues to run from the initial date the Redemption request was received by the Bank.

f)   Cancellation of Stock Redemption Request or Request to Withdraw from Membership.  A Member may cancel all or a part of its request to redeem Class A Common Stock or Class B Common Stock.  A Member may also cancel its request to withdraw from Membership.  The cancellation of a Member’s request to withdraw from Membership shall automatically constitute a cancellation of the Stock Redemption request for all of the Member’s Class A Common Stock and Class B Common Stock.  In the event of the cancellation of all or a part of a Stock Redemption request, either through cancellation of a request to redeem or through the cancellation of a Member’s request to withdraw from Membership, unless otherwise waived under the provisions of this plan, the Member shall pay a Redemption Cancellation Fee to the Bank with respect to those shares of Stock subject to the Redemption cancellation in the following amount: one percent (1.0%) of the par value of Class A Common Stock plus an amount of the par value of Class B Common Stock equal to, depending on when the Redemption request is cancelled, one percent (1.0%) in the first year after the Redemption request is received by the Bank, two percent (2.0%) in the second year, three percent (3.0%) in the third year, four percent (4.0%) in the fourth year and five percent (5.0%) in the fifth year.  A Member’s Stock Redemption request shall automatically be cancelled if, within five (5) Business Days from the end of the applicable Redemption period, the Bank continues to be precluded from redeeming the Member’s Stock because if the Redemption were to proceed the Member would fail to meet its Minimum Stock Purchase Requirement after the Redemption.  Such automatic cancellation of a Redemption request shall have the same effect as a voluntary cancellation by the Member and the applicable Redemption Cancellation Fee shall be imposed on the Member.

g)   Involuntary Withdrawal.  The Board may terminate the Membership of any Member if, subject to regulations adopted by the Finance Board, it determines that the Member has:

1)   failed to comply with any provision of the FHLBank Act, any regulation promulgated under that Act, or this Plan; or

2)   been determined to be insolvent or otherwise subject to the appointment of a conservator, receiver or other legal custodian, by a Federal or State authority with regulatory and supervisory responsibility for the Member; or

3)   acted in a manner that jeopardizes the safety and soundness of the operation of the Bank.

Notwithstanding any other provision of this Plan, in the event that (i) the Board has made a determination under Subsection 13(g)(2) above with respect to a Member, (ii) the Board has terminated such Member’s Membership, and (iii) such terminated Member has no outstanding indebtedness or other obligation to the Bank, contingent or otherwise, then such terminated Member’s Asset-Based Stock Purchase Requirement shall be zero and the Bank may, in its discretion, repurchase any or all of the resulting excess Class A Common Stock of such terminated Member at any time, notwithstanding any redemption period that would apply to such Class A Common Stock, if the Bank will continue to meet its Regulatory Capital Requirements after such repurchase.

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h)   Termination of Membership Resulting from Merger or Consolidation.

1)   Upon merger or consolidation of two or more Members into one institution operating under the charter of one of the merging or consolidating institutions, the Membership of the surviving institution shall continue and the Membership of each disappearing institution shall terminate on the cancellation of its charter.

2)   Upon the merger or consolidation of two or more institutions, at least two of which are Members of different FHLBanks, into one institution operating under the charter of one of the merging or consolidating institutions, the Membership of the surviving institution shall continue and the Membership of the disappearing institution shall terminate on the cancellation of its charter, provided, however, that if more than eighty percent (80.0%) of the assets of the merged or consolidated institution are derived from the assets of the disappearing institution, then the merged or consolidated institution shall continue to be a Member of the FHLBank of which the disappearing institution was a Member prior to the merger or consolidation, and the Membership of the other institutions shall terminate upon the effective date of the merger or consolidation.

3)   In the case of an institution the Membership of which has been terminated as a result of a merger or other consolidation into a non-Member or into a Member of another FHLBank, the applicable redemption periods for Class A Common Stock and Class B Common Stock that is not subject to a pending Redemption request shall be deemed to commence on the date on which the charter of the former Member is cancelled.

i)   Other Provisions Governing Involuntary Termination of Membership.  Involuntary termination of Membership shall constitute a Redemption request for all of the former Member’s Stock not otherwise subject to a prior Redemption request, and the applicable redemption period for the former Member’s Stock shall begin to run from the date the Board terminates the institution’s Membership.  The former Member shall continue to receive any dividends declared during the applicable redemption period, but shall not be entitled to any other rights or privileges accorded to Members after the date of the termination of Membership.  The Bank will not redeem any of such former Member’s Class A Common Stock or Class B Common Stock, consistent with the provisions of Section 13(a), until such Stock is not required to fulfill the former Member’s Activity-Based Stock Purchase Requirement.

14) Implementation of Plan.

a)   Conversion Date.  After Finance Board approval of the Plan, the Board shall establish a Conversion Date for the Plan.  The Conversion Date shall be not later than December 31, 2004.  The Board shall establish such Conversion Date within ninety (90) calendar days after Finance Board approval of the Plan as amended, and the Bank shall notify all Members of the Conversion Date within ten (10) Business Days after it has been established by the Board.

b)   Conversion of Shares.  At the close of business on the Conversion Date, the Bank shall immediately convert all shares of existing stock into shares of Class A Common Stock or Class B Common Stock as provided in this paragraph.  Each Member shall receive one (1) share of Class A Common Stock or one (1) share of Class B Common Stock for each share of existing stock held on the Conversion Date.  The Bank first shall convert each share of existing stock held by each Member into Class A Common Stock up to an amount equal to the Member’s Asset-Based Stock Purchase Requirement.  All additional shares of existing stock, if any, held by the Member on the Conversion Date shall be converted into Class B Common Stock.  The Bank will reflect this conversion by appropriate book entries and will notify each Member of its Minimum Stock Purchase Requirement.  To the extent a Member needs to purchase additional shares of Stock to comply with the Asset-Based Stock Purchase Requirement and/or the Activity-Based Stock Purchase Requirement at the time of conversion, the Member shall have ninety (90) calendar days to purchase the additional Stock provided it had been a Member of the Bank on November 12, 1999 (Pre-1999 Member).  Any Member wishing to avail itself of this option must notify the Bank in writing at least thirty (30) calendar days prior to the Conversion Date.  All Members that became Members after November 12, 1999 (Post-1999 Member), and any Member failing to properly exercise the foregoing ninety (90) calendar day option if available to it, must purchase all required Stock on the Conversion Date, and the Bank will purchase all such required Stock on behalf of such Members by debiting each such Member’s demand deposit account on the Conversion Date in amount equal to the par value of the Stock necessary to bring the Member into compliance with the provisions of this Plan.  On the next Business Day after the Conversion Date, the Bank will notify each Member and former Member of its Minimum Stock Purchase Requirement, including the amount of any shortfall in its current Stock ownership that was purchased (in the case of Post-1999 Members), or is required to be purchased (in the case of Pre-1999 Members), and the amount of Excess Stock, if any.  Notwithstanding the above, in the event a Pre-1999 Member at any time has a shortfall in its Stock ownership below its Minimum Stock Purchase Requirement, the Member must, prior to engaging in any activity with the Bank that has an Activity-Based Stock Purchase Requirement under Subsection 7(b), purchase sufficient Stock to meet its Minimum Stock Purchase Requirement.

c)   Cancellation of Shares.  After such conversion, the Bank shall cancel all shares of existing stock outstanding prior to the Conversion Date.

d)   Opt Out.  Any Member of the Bank may, in lieu of maintaining its Membership pursuant to the terms of this Plan, notify the Finance Board, with a copy to the Bank, in writing at least thirty (30) calendar days prior to the Conversion Date of its desire to withdraw from Membership.  Provided such notice is given, the Bank shall, on the Conversion Date, or prior thereto if the requisite notice period has expired prior to the Conversion Date, terminate the Membership of any Member that provides such written notice of withdrawal.  In addition, any withdrawal from Membership shall be subject to applicable laws, Finance Board regulations, and other provisions of this Plan.

e)   Members in the Process of Withdrawing from Membership.  Any Member that files its written notice to withdraw with the Finance Board less than thirty  (30) calendar days prior to the Conversion Date, shall have its existing stock converted into Stock in accordance with the Plan, and the effective date of withdrawal shall be established pursuant to 12 C.F.R. 925.26; provided, however, that the applicable Stock Redemption periods calculated under such regulation shall commence on the date the Member first submitted its written notice to withdraw to the Finance Board.

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f)   Orderly Liquidation.  Any former Member that has withdrawn from Membership on or before the Conversion Date, but continues to hold stock to support Advances the Bank has agreed to liquidate after the termination of Membership, shall have its shares of existing stock converted into Class B Common Stock on the Conversion Date as described above in Section 14(b), but thereafter need only comply with the Activity-Based Stock Purchase Requirement for Advances.  Any such former Member shall hold Class B Common Stock sufficient to comply with the Activity-Based Stock Purchase Requirement during the period of liquidation.

g)   Failure to Opt Out.  Any Member that fails to opt out by adhering to the provisions of Section 14(d) above will automatically have its existing stock converted into Class A Common Stock and/or Class B Common Stock as described above in Section 14(b).

15) Amendment of Plan.  Any modifications to this Plan shall require an amendment to the Plan by the Board and approval from the Finance Board.

16) Basis for Implementation.  The Bank has made a good faith determination that it will be able to implement the Plan as submitted and that it will be in compliance with its Regulatory Capital Requirements when the Plan is implemented.  The Bank bases this determination on the fact that it presented the basic provisions of this Plan to its Members at ”Customer Appreciation Events” during the Summer and Fall of 2003 to which all Members were invited to attend.  In addition, the provisions of the Plan were presented in various private discussions with the Bank’s five largest Members (in terms of product usage) during the Summer and Fall of 2003.  At none of these discussions or meetings has any Member raised any serious objection to any provision of the Plan, nor has any Member indicated that adoption of the Plan would result in that Member withdrawing from Membership in the Bank after the Plan is formally adopted and put into effect.

17) Independent Accountant.  Based on the review of PricewaterhouseCoopers, an independent accounting firm, the Bank believes that the Plan ensures to the extent possible that implementation of the Plan will not result in any write-down of the redeemable stock owned by its Members.  A copy of the review conducted by PricewaterhouseCoopers is attached to this Plan and made a part hereof.

18) Rating Agency.  Based on the review of Standard & Poor’s, an independent nationally recognized statistical rating organization, the Bank believes that the Plan ensures to the extent possible that implementation of the Plan will not have a material effect on its credit rating.  A copy of the Standard & Poor’s determination is attached to this Plan and made a part hereof.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

     I, Andrew J. Jetter, President and Chief Executive Officer of Federal Home Loan Bank of Topeka (the “registrant”), certify that:

1.	I have reviewed this quarterly report on Form 10-Q of the registrant;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 12, 2009

/s/ Andrew J. Jetter  

Andrew J. Jetter 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

     I, Mark E. Yardley, Executive Vice President and Chief Financial Officer of Federal Home Loan Bank of Topeka (the “registrant”), certify that:

1.	I have reviewed this quarterly report on Form 10-Q of the registrant;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal contol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 12, 2009

/s/ Mark E. Yardley  

Mark E. Yardley 

Executive Vice President and Chief Financial Officer 

EX-32

Exhibit 32

CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of the Federal Home Loan Bank of Topeka (the “Bank”) for the period ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Andrew J. Jetter, as President and Chief Executive Officer of the Bank, and Mark E. Yardley, as Executive Vice President and Chief Financial Officer of the Bank, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to the best of his knowledge:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Bank.

  /s/ Andrew J. Jetter                                                       Andrew J. Jetter President and Chief Executive Officer August 12, 2009   /s/ Mark E. Yardley                                                       Mark E. Yardley Executive Vice President and Chief Financial Officer August 12, 2009

A signed original of this written statement required by Section 906 has been provided to the Bank and will be retained by the Bank and furnished to the Securities and Exchange Commission or its staff upon request.