10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2007

or

o 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: 000-51395

FEDERAL HOME LOAN BANK OF PITTSBURGH

(Exact name of registrant as specified in its charter)

Federally Chartered Corporation	25-6001324
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

601 Grant Street
Pittsburgh, PA 15219
(Address of principal executive offices) 15219

(Zip Code)

(412) 288-3400

(Registrant’s telephone number, including area code)

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

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

o Large accelerated filer     o Accelerated filer     þ Non-accelerated filer

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

There were 39,647,714 shares of common stock with a par value of $100 per share outstanding at October 31, 2007.

FEDERAL HOME LOAN BANK OF PITTSBURGH

TABLE OF CONTENTS

PART I – Financial Information	1
Item 1: Financial Statements	28
Financial Statements for the Three Months and Nine Months Ended September 30, 2007 and 2006	28
Notes to Unaudited Financial Statements	33
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3: Quantitative and Qualitative Disclosures about Market Risk	53
Item 4T: Controls and Procedures	53
PART II – Other Information	54
Item 1: Legal Proceedings	54
Item 1A: Risk Factors	54
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3: Defaults upon Senior Securities	54
Item 4: Submission of Matters to a Vote of Security Holders	54
Item 5: Other Information	54
Item 6: Exhibits	55
SIGNATURE	56
EX-10.16
EX-10.17
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I — Financial Information

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

Overview

The Federal Home Loan Bank of Pittsburgh (Bank) is one of twelve Federal Home Loan Banks (FHLBanks). The FHLBanks operate as separate entities with their own managements, employees and boards of directors. The twelve FHLBanks, along with the Office of Finance (OF) (the FHLBanks’ fiscal agent) and the Federal Housing Finance Board (Finance Board) (the FHLBanks’ regulator) make up the Federal Home Loan Bank System (FHLBank System). The FHLBanks were organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (the Act). The FHLBanks are commonly referred to as government-sponsored enterprises (GSEs), which generally means they are a combination of private capital and public sponsorship. The public sponsorship attributes include: (1) being exempt from federal, state and local taxation, except real estate taxes; (2) being exempt from registration under the Securities Act of 1933 (1933 Act) (the FHLBanks are required by Finance Board regulation to register a class of their equity securities under the Securities Exchange Act of 1934 (1934 Act)); (3) having public interest directors appointed by its regulator; and (4) having a line of credit with the United States Treasury.

Business Segments.  The Bank reviews its operations by grouping its products and services within two business segments. The products and services provided through these segments reflect the manner in which financial information is evaluated by management of the Bank. These business segments are:

•     Traditional Member Finance

•     Mortgage Partnership Finance^® (MPF^®) Program

Financial Highlights

The Statement of Operations data for the three and nine months ended September 30, 2007 and 2006, and the Statement of Condition data as of September 30, 2007 are unaudited and are derived from the financial statements and footnotes included in this report. The Statement of Condition data as of December 31, 2006 is derived from the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

1

Statement of Operations

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2007			2006			2007			2006
Net interest income before provision for credit losses	$	96,025		$	89,784		$	265,576		$	255,008
Provision (benefit) for credit losses		(707	)		509			1,139			1,125
Other income, excluding net gain on derivatives and hedging activities		1,204			1,728			4,321			5,025
Net gain (loss) on derivatives and hedging activities		3,758			(1,510	)		7,035			3,519
Other expense		14,298			14,981			44,176			46,812
Income before assessments		87,396			74,512			231,617			215,615
Assessments		23,194			19,818			61,477			57,281
Net income	$	64,202		$	54,694		$	170,140		$	158,334
Earnings per share(1)	$	1.79		$	1.68		$	5.23		$	5.03
Dividends	$	45,843		$	42,500		$	141,136		$	108,836
Weighted average dividend rate(2)		6.00	%		5.22	%		5.94	%		4.66	%
Return on average capital		6.60	%		6.18	%		6.46	%		6.26	%
Return on average assets		0.29	%		0.29	%		0.29	%		0.29	%
Net interest margin(3)		0.45	%		0.48	%		0.46	%		0.47	%
Total capital ratio (at period-end)(4)		4.29	%		4.69	%		4.29	%		4.69	%
Total average capital to average assets		4.46	%		4.64	%		4.49	%		4.58	%

Notes:

(1)	Earnings per share calculated based on net income.
(2)	Weighted average dividend rates are calculated as annualized dividends paid in the period divided by the average capital stock balance outstanding during the period on which the dividend is based (i.e., in 2007 quarterly dividends are based on the prior quarter average capital stock balance outstanding).
(3)	Net interest margin is net interest income before provision for credit losses as a percentage of average interest-earning assets.
(4)	Total capital ratio is capital stock plus retained earnings and accumulated other comprehensive income (loss) as a percentage of total assets at period end.

2

Statement of Condition

	September 30,		December 31,
(in millions)	2007		2006
Loans to members	$	64,266	$	49,335
Investments – Federal funds sold, interest-bearing deposits and investment securities(1)		23,534		19,995
Mortgage loans held for portfolio, net		6,351		6,966
Total assets		95,205		77,376
Deposits and other borrowings(2)		5,564		1,434
Consolidated obligations, net(3)		84,744		71,473
AHP payable		56		49
REFCORP payable		16		15
Capital stock – putable(4)		3,801		3,384
Retained earnings		284		255
Total capital		4,081		3,634

Notes:

(1)	None of these securities were purchased under agreements to resell.
(2)	Includes mandatorily redeemable capital stock.
(3)	Aggregate FHLBank System-wide consolidated obligations (at par) were $1,148.6 billion and $952.0 billion at September 30, 2007 and December 31, 2006, respectively.
(4)	Bank capital stock is redeemable at the request of a member subject to the statutory redemption periods and other conditions and limitations. Details of the restrictions and redemption process are available in Note 15 in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Forward-Looking Information

Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Bank, may be “forward-looking statements.” These statements may use forward-looking terms, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. The Bank cautions that by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: economic and market conditions; volatility of market prices, rates, and indices; political, legislative, regulatory, or judicial events; changes in the Bank’s capital structure; membership changes; changes in the demand by Bank members for Bank loans to members; an increase in loans to members prepayments; competitive forces, including the availability of other sources of funding for Bank members; changes in investor demand for consolidated obligations and/or the terms of interest rate exchange agreements and similar agreements; the ability of the Bank to introduce new products and services to meet market demand and to manage successfully the risks associated with new products and services; the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability; and timing and volume of market activity. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Bank’s interim financial statements and notes and Risk Factors included in Part II, Item 1A of this report on Form 10-Q, and the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

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Earnings Performance

The following is Management’s Discussion and Analysis of the Bank’s earnings performance for the three and nine months ended September 30, 2007. This discussion should be read in conjunction with the unaudited interim financial statements and notes included in this report as well as the audited financial statements and analysis for the year ended December 31, 2006, included in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Summary of Financial Results

The Bank’s net income for the third quarter of 2007 was $64.2 million, an increase of $9.5 million, or 17%, over the prior year third quarter. This increase was primarily due to increases of $6.2 million and $4.8 million in net interest income and other income (including net gain (loss) on derivatives and hedging activities), respectively, as well as a benefit for credit losses of $0.7 million in the current period, compared to a provision for credit losses of $0.5 million in the prior year period. Higher average balances in the loans to members and investment portfolios, as well as higher yields on investments, drove an increase in interest income; this increase was partially offset by higher interest expense on discount notes, due to higher volume. The current quarter also reflected net gains on derivatives and hedging activities of $3.7 million, compared with a loss of $1.5 million in the third quarter of 2006. The Bank’s return on average capital increased to 6.60% in third quarter 2007, compared to 6.18% in third quarter 2006. This increase was due to the impact of higher net income, which more than offset the impact of increased average capital.

Net income for the nine months ended September 30, 2007 was $170.1 million compared to $158.3 million for the nine months ended September 30, 2006, an increase of $11.8 million, or 7%. Increases of $10.5 million and $2.9 million in net interest income and other income, respectively, as well as a $2.6 million decrease in other expenses contributed to this improvement. Higher average balances and yields in the loans to members and investment portfolios drove the increase in interest income, offset by higher interest expense on discount notes, the result of higher rates paid and average balances. Higher net gains on derivatives and hedging activities drove the increase in other income. The Bank’s return on average capital was 6.46% for the nine months ended September 30, 2007, compared to 6.26% for the same prior year period. This increase was due to the impact of higher net income, which more than offset the impact of increased average capital.

Details of the Statement of Operations are discussed more fully below.

Dividend Rate.  Because members may purchase and redeem their Bank capital stock shares only at par value, management has regarded quarterly dividend payments as an important vehicle through which a direct investment return is provided. The Bank’s weighted average dividend rate was 6.00% for the third quarter of 2007 compared to 5.22% in the third quarter of 2006. Retained earnings were $283.8 million as of September 30, 2007, compared to $254.8 million at December 31, 2006, an increase of $29.0 million, or 11%.

4

Net Interest Income

The following table summarizes the rate of interest income or interest expense, the average balance for each of the primary balance sheet classifications and the net interest margin for the three and nine months ended September 30, 2007 and 2006.

Average Balances and Interest Yields/Rates Paid

	Three months ended September 30,
	2007							2006
				Interest		Avg. Yield/					Interest		Avg. Yield/
	Average			Income/		Rate		Average			Income/		Rate
(dollars in millions)	Balance			Expense		(%)		Balance			Expense		(%)
Assets
Federal funds sold(1)	$	3,926		$	51		5.12	$	5,069		$	67		5.28
Interest-bearing deposits		4,348			59		5.43		3,576			49		5.38
Investment securities(2)		12,492			156		4.96		12,100			144		4.74
Loans to members		57,875			796		5.46		46,438			645		5.51
Mortgage loans held for portfolio(3)		6,447			83		5.12		7,301			93		5.03
Total interest-earning assets	$	85,088		$	1,145		5.34	$	74,484		$	998		5.32
Allowance for credit losses		(8	)						(6	)
Other assets		1,372							1,168
Total assets	$	86,452						$	75,646
Liabilities and capital
Deposits	$	1,561		$	20		5.07	$	1,137		$	15		5.06
Consolidated obligation discount notes		26,060			337		5.13		13,525			179		5.25
Consolidated obligation bonds		53,908			692		5.10		56,414			713		5.02
Other borrowings		4			—		10.25		60			1		7.04
Total interest-bearing liabilities	$	81,533		$	1,049		5.11	$	71,136		$	908		5.07
Other liabilities		1,061							997
Total capital		3,858							3,513
Total liabilities and capital	$	86,452						$	75,646
Net interest spread							0.23							0.25
Impact of noninterest-bearing funds							0.22							0.23
Net interest income/net interest margin				$	96		0.45				$	90		0.48

Notes:

(1)	The average balance of Federal funds sold, related interest income and average yield calculations may include loans to other FHLBanks.
(2)	The average balance of investment securities available-for-sale represents fair values. The related yield, however, is calculated based on cost.
(3)	Nonaccrual loans are included in average balances in determining the average rate.

As noted above, the Bank experienced significant growth in interest-earning assets and interest-bearing liabilities in the quarterly comparison while overall yields and rates paid reflected only a minimal increase. The overall impact of these changes was an increase in net interest income, as the increase in interest income more than offset the rise in interest expense. Additional analysis regarding the shift in the mix of these components is included in the Rate/Volume Analysis section below.

The net interest margin decreased 3 basis points to 0.45% for the third quarter of 2007, while the net interest spread declined 2 basis points to 0.23% for the current period. This spread compression was due to an increase in rates paid on interest-bearing liabilities, which exceeded the growth in yields on interest-earning assets in the quarter-over-quarter comparison. Absent changes in the average balance of capital stock, the impact of net noninterest-bearing funds is driven

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primarily by short-term interest rates; as the short-term rates increase (decrease), the impact of net noninterest-bearing funds increases (decreases) as well.

Average Balances and Interest Yields/Rates Paid

	Nine months ended September 30,
	2007							2006
				Interest		Avg.					Interest		Avg.
	Average			Income/		Rate		Average			Income/		Rate
(dollars in millions)	Balance			Expense		(%)		Balance			Expense		(%)
Assets
Federal funds sold(1)	$	3,799		$	149		5.23	$	4,066		$	151		4.95
Interest-bearing deposits		4,054			163		5.39		3,481			130		4.98
Investment securities(2)		12,565			466		4.96		11,602			403		4.64
Loans to members		50,010			2,045		5.47		46,158			1,761		5.10
Mortgage loans held for portfolio(3)		6,650			257		5.16		7,413			281		5.08
Total interest-earning assets	$	77,078		$	3,080		5.34	$	72,720		$	2,726		5.01
Allowance for credit losses		(8	)						(6	)
Other assets		1,281							1,119
Total assets	$	78,351						$	73,833
Liabilities and capital
Deposits	$	1,548		$	59		5.10	$	1,202		$	42		4.68
Consolidated obligation discount notes		19,760			766		5.19		12,004			437		4.87
Consolidated obligation bonds		52,516			1,987		5.06		56,183			1,990		4.74
Other borrowings		40			2		5.97		33			2		6.04
Total interest-bearing liabilities	$	73,864		$	2,814		5.09	$	69,422		$	2,471		4.76
Other liabilities		968							1,030
Total capital		3,519							3,381
Total liabilities and capital	$	78,351						$	73,833
Net interest spread							0.25							0.25
Impact of noninterest-bearing funds							0.21							0.22
Net interest income/net interest margin				$	266		0.46				$	255		0.47

Notes:

(1)	The average balance of Federal funds sold, related interest income and average yield calculations include loans to other FHLBanks.
(2)	The average balance of investment securities available-for-sale represents fair values. Related yield, however, is calculated based on cost.
(3)	Nonaccrual loans are included in average balances in determining the average rate.

As noted above, the Bank experienced increases in interest-earning assets, interest-bearing liabilities and overall yields and rates paid in the year-over-year comparison. Overall, net interest income increased $11 million, as the increase in interest income more than offset the increase in interest expense. Additional analysis regarding the shift in the mix of these categories is included in the Rate/Volume Analysis section below.

The net interest margin decreased one basis point to 0.46%; this was reflected in the impact on noninterest-bearing funds.

6

Rate/Volume Analysis.  Changes in both volume and yields and rates paid influence changes in net interest income and net interest margin. The following table summarizes changes in interest income and interest expense between 2007 and 2006.

	Three months ended									Nine months ended
	September 30									September 30
(in millions)	Volume			Rate			Total			Volume			Rate		Total
Increase (decrease) in interest income due to:
Federal funds sold	$	(15	)	$	(1	)	$	(16	)	$	(10	)	$	8	$	(2	)
Interest-bearing deposits		10			-			10			21			12		33
Investment securities		5			7			12			33			30		63
Loans to members		159			(8	)		151			147			137		284
Mortgage loans held for portfolio		(11	)		1			(10	)		(28	)		4		(24	)
Total		148			(1	)		147			163			191		354
Increase (decrease) in interest expense due to:
Deposits		5			-			5			12			5		17
Consolidated obligation discount notes		166			(8	)		158			283			46		329
Consolidated obligation bonds		(31	)		10			(21	)		(130	)		127		(3	)
Other borrowings		(1	)		-			(1	)		-			-		-
Total		139			2			141			165			178		343
Increase (decrease) in net interest income	$	9		$	(3	)	$	6		$	(2	)	$	13	$	11

Average interest-earning assets for the third quarter of 2007 increased $10.6 billion, or 14.2%, from the third quarter of 2006. In third quarter 2007, the Bank experienced unprecedented growth in the loans to members portfolio, with averages increasing $11.4 billion, or 24.6%, which drove the overall increase in average interest-earning assets. This was due primarily to instability in the current credit market as well as an increased demand from members for additional sources of liquidity. To a lesser extent, slight increases in average interest-bearing deposits and investment securities were more than offset by a decrease in Federal funds sold and the continuing decline of the mortgage loan portfolio. For the nine months ended September 30, 2007, average interest-earning assets also increased compared to the prior year period, although the overall increase of $4.4 billion, or 6.0%, was not as dramatic as the quarter-over-quarter increase. Loans to members increased $3.9 billion, or 8.3%, over the prior year, again due to the current credit environment. Average investment securities increased $963 million, or 8.3%, year-over-year, as the Bank continued to increase its holdings in mortgage-backed securities. The mortgage loans held for portfolio balance decreased $763 million from 2006 to 2007, due to the ongoing run-off of the existing portfolio, coupled with the lack of availability of mortgages to purchase. Average interest-bearing deposits increased slightly year-over-year, offset by a decrease in average Federal funds sold.

The decreases in average Federal funds sold in the quarter-over-quarter and year-over-year comparisons totaled $1.1 billion, or 22.5%, and $267 million, or 6.6%, respectively; the related impact to interest income for this category was a decrease of $16 million and $2 million, respectively. The decrease from third quarter 2006 to third quarter 2007 was almost entirely volume-driven; the decline in the nine months comparison reflected a decrease in volume, which was virtually offset by an increase in yields. The increases in average interest-bearing deposits in the quarter-over-quarter and year-over-year comparisons totaled $772 million, or 21.6%, and $573 million, or 16.5%, respectively; the related impact to interest income for this category was an increase of $10 million and $33 million, respectively, driven primarily by volume, though yields also increased in both comparisons. The combination of the balances in these two categories reflect the Bank’s continued strategy to maintain a strong liquidity position in short-term investments, in order to meet members’ loan demand, and, to a lesser extent, to support the implementation of the Federal Reserve Daylight Overdraft Policy (“Overdraft Policy”), which became effective in third quarter 2006.

Increases in the average investment securities portfolio were $392 million, or 3.2%, in the quarter-over-quarter comparison and $963 million, or 8.3%, in the year-over-year comparison. Correspondingly, the interest income on this portfolio increased $12 million and $63 million, respectively, driven both by volume and rates. The investment securities portfolio includes both available-for-sale and held-to-maturity securities, the majority of which is held-to-maturity. The investments within that portfolio are primarily mortgage-backed securities (MBS), all but one of which are rated AAA. A portion of these securities are guaranteed as to principal and interest payments by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

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The average loans to members portfolio reflected significant unusual increases, both in the quarter-over-quarter and year-over-year comparisons, as noted above. The corresponding increase in interest income on this portfolio was $151 million and $284 million, respectively. The quarterly increase from 2006 to 2007 was entirely volume-driven; yields on this portfolio for the quarter actually declined 5 basis points, as short-term funding balances displayed the largest increase, driving the overall yield down. The year-to-date comparison reflected the impact of both volume and rate. Specific fluctuations within the portfolio are discussed more fully below.

The mortgage loans held for portfolio balances continued to decline in both the quarter-over-quarter and year-over-year comparisons, decreasing $854 million, or 11.7%, and $763 million, or 10.3%, respectively. Correspondingly, the interest income on this portfolio declined $10 million and $24 million, respectively. The volume of mortgages available to be purchased from members has declined due in part to the charter consolidation of National City Bank, as successor by merger to National City Bank of Pennsylvania, which was formerly the Bank’s largest provider of mortgages. This lack of purchase activity, coupled with the run-off of the existing portfolio, has resulted in a continued decline in the overall portfolio.

The consolidated obligations portfolio has seen a shift in both the quarter-over-quarter and year-over-year comparisons in terms of composition between discount notes and bonds. The third quarter 2007 discount notes balance increased $12.5 billion, or 92.7%, compared to third quarter 2006, while the current quarter bonds balance decreased $2.5 billion, or 4.4%, compared to the prior year period. For the nine months ended September 30, 2007, discount notes increased $7.8 billion, or 64.6%, while bonds decreased $3.7 billion, or 6.5%, compared to year-to-date September 2006 averages. This shift in the portfolio is consistent with the shift experienced in the loans to members portfolio towards shorter-term borrowing by members.

Interest expense on discount notes increased $158 million and $329 million in the quarter-over-quarter and year-over-year comparisons. For the quarter, the increase was entirely volume-driven, corresponding to the increase in short-term funding demands of members. Rates paid on discount notes in this comparison actually declined 12 basis points, the impact of which is reflected in the rate/volume table above. In the nine months comparison, the increase was primarily volume-driven as well, although there was a modest impact due to rates, which increased 32 basis points year-over-year. Interest expense on bonds decreased $21 million and $3 million in the quarter-over-quarter and year-over-year comparisons. For the quarter, the decrease was primarily volume-driven, offset to some extent by an 8 basis point increase in rates paid. In the nine months comparison, the decrease in volume was offset by a 32 basis point increase in rates paid. The increase in the discount notes portfolio was primarily due to member demand for shorter term loans, as well as the Bank’s own funding requirements for increases in interest-bearing deposits and Federal funds sold.

Loans to Members Portfolio Detail:

	Average Balances
	Three months ended						Nine months ended
	September 30,						September 30,
(in millions)
Product	2007			2006			2007			2006
RepoPlus	$	11,157.5		$	4,157.2		$	7,221.3		$	4,789.2
Mid-Term RepoPlus		24,596.0			21,165.3			20,890.3			19,785.5
Term Loans		10,151.3			10,661.6			10,232.3			10,439.2
Convertible Select		8,700.3			8,990.2			8,761.0			9,934.9
Hedge Select		60.0			50.0			53.4			84.4
Returnable		3,277.3			1,733.4			2,915.2			1,390.4
Total par value		57,942.4			46,757.7			50,073.5			46,423.6
Discount on AHP loans to members		(1.4	)		(1.6	)		(1.4	)		(1.6	)
Deferred prepayment fees		(0.2	)		(0.2	)		(0.2	)		(0.3	)
SFAS 133 hedging adjustment		(65.6	)		(317.7	)		(62.2	)		(264.0	)
Total book value	$	57,875.2		$	46,438.2		$	50,009.7		$	46,157.7

As noted above, the Bank has experienced unprecedented growth in the loans to members in the third quarter of 2007. In both the quarter-over-quarter and year-over-year comparisons, the largest impacts on the increase in the average loans to members portfolio were in the RepoPlus and Mid-Term RepoPlus products. Current credit market conditions have resulted in uncertainty in the mortgage-backed securities and commercial paper markets, as well as a need for additional

8

sources of diversified liquidity. The Bank has seen an overall increase in borrowing activity from its members, in part to diversify their sources of liquidity, and in part as a reaction to the lack of depth in the mortgage-backed securities and commercial paper markets.

In the comparison of third quarter 2007 to third quarter 2006, the Bank experienced an increase in both the RepoPlus and Mid-Term RepoPlus products. Current quarter average balances reflect a shift in members’ borrowings, including significant overnight funding by several of the Bank’s larger customers. The quarterly and year-over-year comparisons reflected an increase in the Returnable product, due primarily to the activity of one member. In addition, the relatively lower level of longer-term fixed rates and the cost of purchasing prepayment options in this market environment are of greater value to the member than the selling of the optionality feature within the Convertible Select product. This also explains the shift from the Convertible Select product to the Returnable product in the September year-to-date 2007 comparison to 2006.

As of September 30, 2007, 46.8% of the par value of loans in the portfolio had an original maturity of one year or less. The par value of loans with either a next call date (for returnable loans) or original maturity (for the remainder of the portfolio) of one year or less comprised 52.1% of the portfolio at September 30, 2007. The par value of loans with either a next convert date (for convertible loans) or original maturity (for the remainder of the portfolio) of one year or less comprised 58.2% at September 30, 2007.

The ability to grow the loans to members portfolio may be impacted by, among other things, the following: (1) the Bank’s liquidity position and how management chooses to fund the Bank; (2) the slowing housing market; (3) current, as well as future, credit market conditions; (4) the shape of the yield curve; and (5) the Bank’s need to meet the liquidity demands of several large borrowers. These factors continue to impact the Bank’s ability to grow the loans to members portfolio in the current pricing environment. In addition, it is important to note that the Bank’s loans to members portfolio is fully secured. The Bank accepts various forms of collateral including, but not limited to, investment securities and residential mortgage loans. In light of recent market conditions and the increased negative impact of the subprime and Alt-A mortgage markets, the Bank recognizes that there is an increase in the potential credit risk of the portfolio; this is a result of the market illiquidity of this collateral during the third quarter of 2007. The Bank continues to monitor its collateral position and the related policies and procedures, to ensure adequate security interest.

Net Interest Income Derivative Effects.  The following tables separately quantify the effects of the Bank’s derivative activities on its interest income and interest expense for the three and nine months ended September 30, 2007 and 2006. Derivative and hedging activities are discussed below in the other income (loss) section.

Three months ended September 30, 2007

					Avg.				Avg.
			Interest Inc./		Yield/		Interest Inc./		Yield/					Incr./
	Average		Exp. with		Rate		Exp. without		Rate		Impact of			(Decr.)
(dollars in millions)	Balance		Derivatives		(%)		Derivatives		(%)		Derivatives			(%)
Loans to members	$	57,875	$	796		5.46	$	740		5.08	$	56			0.38
Mortgage loans held for portfolio		6,447		83		5.12		84		5.17		(1	)		(0.05	)
All other interest-earning assets		20,766		266		5.09		266		5.09		-			-
Total interest-earning assets	$	85,088	$	1,145		5.34	$	1,090		5.09	$	55			0.25
Consolidated obligation bonds	$	53,908	$	692		5.10	$	650		4.79	$	42			0.31
All other interest-bearing liabilities		27,625		357		5.13		357		5.13		-			-
Total interest-bearing liabilities	$	81,533	$	1,049		5.11	$	1,007		4.91	$	42			0.20
Net interest income/ interest rate spread			$	96		0.23	$	83		0.18	$	13			0.05

9

Three months ended September 30, 2006

					Avg.				Avg.
			Interest Inc./		Yield/		Interest Inc./		Yield/					Incr./
	Average		Exp. with		Rate		Exp. without		Rate		Impact of			(Decr.)
(dollars in millions)	Balance		Derivatives		(%)		Derivatives		(%)		Derivatives			(%)
Loans to members	$	46,438	$	645		5.51	$	571		4.88	$	74			0.63
Mortgage loans held for portfolio		7,301		93		5.03		94		5.09		(1	)		(0.06	)
All other interest-earning assets		20,745		260		4.97		260		4.97		-			-
Total interest-earning assets	$	74,484	$	998		5.32	$	925		4.93	$	73			0.39
Consolidated obligation bonds	$	56,414	$	713		5.02	$	634		4.46	$	79			0.56
All other interest-bearing liabilities		14,722		195		5.25		195		5.25		-			-
Total interest-bearing liabilities	$	71,136	$	908		5.07	$	829		4.63	$	79			0.44
Net interest income/ interest rate spread			$	90		0.25	$	96		0.30	$	(6	)		(0.05	)

Nine months ended September 30, 2007

					Avg.				Avg.
			Interest Inc./		Yield/		Interest Inc./		Yield/					Incr./
	Average		Exp. with		Rate		Exp. without		Rate		Impact of			(Decr.)
(dollars in millions)	Balance		Derivatives		(%)		Derivatives		(%)		Derivatives			(%)
Loans to members	$	50,010	$	2,045		5.47	$	1,880		5.03	$	165			0.44
Mortgage loans held for portfolio		6,650		257		5.16		260		5.21		(3	)		(0.05	)
All other interest-earning assets		20,418		778		5.09		778		5.09		-			-
Total interest-earning assets	$	77,078	$	3,080		5.34	$	2,918		5.06	$	162			0.28
Consolidated obligation bonds	$	52,516	$	1,987		5.06	$	1,878		4.78	$	109			0.28
All other interest-bearing liabilities		21,348		827		5.18		827		5.18		-			-
Total interest-bearing liabilities	$	73,864	$	2,814		5.09	$	2,705		4.89	$	109			0.20
Net interest income/ interest rate spread			$	266		0.25	$	213		0.17	$	53			0.08

10

Nine months ended September 30, 2006

					Avg.				Avg.
			Interest Inc./		Yield/		Interest Inc./		Yield/					Incr./
	Average		Exp. with		Rate		Exp. without		Rate		Impact of			(Decr.)
(dollars in millions)	Balance		Derivatives		(%)		Derivatives		(%)		Derivatives			(%)
Loans to members	$	46,158	$	1,761		5.10	$	1,598		4.63	$	163			0.47
Mortgage loans held for portfolio		7,413		281		5.08		284		5.13		(3	)		(0.05	)
All other interest-earning assets		19,149		684		4.78		684		4.78		-			-
Total interest-earning assets	$	72,720	$	2,726		5.01	$	2,566		4.72	$	160			0.29
Consolidated obligation bonds	$	56,183		1,990		4.74		1,825		4.34	$	165			0.40
All other interest-bearing liabilities		13,239		481		4.86		481		4.86		-			-
Total interest-bearing liabilities	$	69,422	$	2,471		4.76	$	2,306		4.44	$	165			0.32
Net interest income/ interest rate spread			$	255		0.25	$	260		0.28	$	(5	)		(0.03	)

The Bank uses derivatives to hedge the fair market value changes attributable to the change in the London Interbank Offer Rate (LIBOR) benchmark interest rate. The hedge strategy generally uses interest rate swaps to hedge a portion of loans to members and consolidated obligations which convert the interest rates on those instruments from a fixed rate to a variable rate based on 3-month LIBOR. The purpose of this strategy is to protect the interest rate spread. As a result of the interest rates being converted from fixed to variable, the impact of these relationships can increase or decrease net interest income.

The loans to members and consolidated obligation derivative impact variances from period to period are driven by the change in average 3-month LIBOR in a given period and the level and mix of the portfolio being hedged. For the three months ended September 30, 2007, the impact of derivatives increased net interest income $13 million and improved the interest rate spread 5 basis points. For the same year-ago period, the impact of derivatives decreased net interest income $6 million and reduced the interest rate spread 5 basis points. For the nine months ended September 30, 2007, the impact of derivatives increased net interest income $53 million and improved the interest rate spread 8 basis points. For the same year-ago period, the impact of derivatives decreased net interest income $5 million and reduced the interest rate spread 3 basis points.

Mortgage Loan Premium/Discount.  The table below provides key information related to the Bank’s premium/discount on mortgage loans.

	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2007			2006			2007			2006
Net premium/(discount) expense for the period	$	2,206		$	3,552		$	7,436		$	10,881
Mortgage loan related net premium balance at period-end	$	45,276		$	55,033		$	45,276		$	55,033
Mortgage loan par balance at period-end	$	6,289,426		$	7,111,501		$	6,289,426		$	7,111,501
Premium balance as a percent of mortgage loans		0.72	%		0.77	%		0.72	%		0.77	%

11

Other Income (Loss)

	Three months ended September 30,					% Change			Nine months ended September 30,				% Change
(in thousands)	2007		2006			2007/2006			2007		2006		2007/2006
Service fees	$	1,113	$	1,077			3.3		$	3,068	$	3,390		(9.5	)
Net gain (loss) on derivatives and hedging activities		3,758		(1,510	)		n/m			7,035		3,519		99.9
Other, net		91		651			(86.0	)		1,253		1,635		(23.4	)
Total other income	$	4,962	$	218			n/m		$	11,356	$	8,544		32.9

Third quarter 2007 results included other income of $5.0 million, compared to $218 thousand in the third quarter of 2006. This increase was primarily due to $3.8 million of net gains in derivatives and hedging activities in the current year, while 2006 included $1.5 million of losses. In addition, service fees increased $36 thousand, or 3.3%, in the third quarter 2007 comparison to prior year. All other income decreased $560 thousand from third quarter 2006 to third quarter 2007.

Other income for the nine months ended September 30, 2007 was $11.4 million, compared with $8.5 million for the nine months ended September 30, 2006. Results for 2007 included $7.0 million of net gains on derivatives and hedging activities, compared with $3.5 million in the prior year, an increase of $3.5 million. Service fees decreased $322 thousand in 2007 compared to the prior year primarily due to a decision by management to exit the official checks business in third quarter 2006. In addition, pricing for wire services was reduced at the beginning of 2007.

The activity related to net gains (losses) on derivatives and hedging is discussed in more detail below.

Derivatives and Hedging Activities.  The following table details the net gains and losses on derivatives and hedging activities, including hedge ineffectiveness, for the three and nine months ended September 30, 2007 and 2006, respectively.

		Three months ended
(in thousands)		September 30,
Type of Hedge	Asset/Liability Hedged	2007			2006
Fair value hedge ineffectiveness	Loans to members	$	7,324		$	4,037
	Consolidated obligations		(1,523	)		1,084
Economic hedges	Total fair value hedge ineffectiveness		5,801			5,121
Intermediary transactions			(2,347	)		(7,296	)
Other			-			(3	)
			304			668
Net gain (loss) on derivatives and hedging activities		$	3,758		$	(1,510	)

		Nine months ended
(in thousands)		September 30,
Type of Hedge	Asset/Liability Hedged	2007			2006
Fair value hedge ineffectiveness	Loans to members	$	9,819		$	5,219
	Consolidated obligations		(2,902	)		1,382
	Total fair value hedge ineffectiveness		6,917			6,601
Economic hedges			(462	)		(3,639	)
Intermediary transactions			53			(102	)
Other			527			659
Net gain on derivatives and hedging activities		$	7,035		$	3,519

12

Fair Value Hedges.  The Bank uses fair value hedge accounting treatment for most of its fixed-rate loans to members and consolidated obligations using interest rate swaps. The interest rate swaps convert these fixed-rate instruments to a variable-rate (i.e., LIBOR). For the third quarter of 2007, total ineffectiveness related to these fair value hedges resulted in a gain of $5.8 million compared to a gain of $5.1 million in the third quarter of 2006. For the nine months ended September 30, 2007 and 2006, total ineffectiveness related to fair value hedges resulted in a gain of $6.9 million and $6.6 million, respectively. The overall notional amount increased from $67.5 billion at September 30, 2006 to $70.2 billion at September 30, 2007. Fair value hedge ineffectiveness represents the difference between the change in the fair value of the derivative compared to the change in the fair value of the underlying asset/liability hedged. Fair value hedge ineffectiveness is generated by movement in the benchmark interest rate being hedged and by other structural characteristics of the transaction involved. For example, the presence of an upfront fee associated with a structured debt hedge will introduce valuation differences between the hedge and hedged item that will fluctuate through time.

Economic Hedges.  For economic hedges, the Bank includes the net interest income and the changes in the fair value of the hedges in net gain (loss) on derivatives and hedging activities. Total amounts recorded for economic hedges were a loss of $2.3 million in the third quarter of 2007 compared to a loss of $7.3 million in the third quarter of 2006. For the nine months ended September 30, 2007 and 2006, losses recorded for economic hedges were $0.5 million and $3.6 million, respectively. The overall notional amount of economic hedges decreased from $2.7 billion at September 30, 2006 to $1.2 billion at September 30, 2007.

Intermediary Transactions.  The following table details the net gains and losses on intermediary transactions.

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands)	2007			2006			2007			2006
Contracts with members - fair value change	$	(88	)	$	(128	)	$	(70	)	$	(1,731	)
Contracts with counterparties - fair value change		83			117			52			1,626
Net fair value change		(5	)		(11	)		(18	)		(105	)
Interest income due to spread		5			8			71			3
Net gain (loss) on intermediary derivative activities	$	-		$	(3	)	$	53		$	(102	)

Other Expenses

	Three months ended							Nine months ended
	September 30,				% Change			September 30,				% Change
(in thousands)	2007		2006		2007/2006			2007		2006		2007/2006
Operating - salaries and benefits	$	8,575	$	8,158		5.1		$	26,470	$	26,412		0.2
Operating - occupancy		844		871		(3.1	)		2,582		2,449		5.4
Operating - other		3,653		4,973		(26.5	)		11,475		14,849		(22.7	)
Finance Board		659		581		13.4			1,978		1,746		13.3
Office of Finance		567		398		42.5			1,671		1,356		23.2
Total other expenses	$	14,298	$	14,981		(4.6	)	$	44,176	$	46,812		(5.6	)

Other expenses totaled $14.3 million for the third quarter of 2007, compared to $15.0 million in the third quarter of 2006, a decrease of $683 thousand, or 4.6%. Excluding the expenses of the Finance Board and OF described below, all other operating expenses decreased $930 thousand, or 6.6%. This decline was primarily due to declines in professional fees and contractual services expenses partially offset by increases in salaries and benefits expense.

For the nine months ended September 30, 2007, total operating expenses were $44.2 million, a $2.6 million, or 5.6%, decrease from $46.8 million for the same year-ago period. Excluding the Finance Board and OF expenses, all other expense decreased $3.2 million, or 7.3%. This decline was due to lower other operating expenses. Salaries and benefits expense in 2006 included a one-time $1.1 million expense related to a retirement lump sum payment for the former CEO, which was offset by increases due to higher incentive compensation and overall merit and promotion increases in 2007. Other operating expenses in 2006 included $460 thousand of grossed-up relocation expense for the newly-hired CEO, as well as higher professional fees and contractual services expense.

13

At September 30, 2007, full-time equivalent staff totaled 239 positions, a decrease of 7 positions from September 30, 2006.

Collectively, the twelve FHLBanks are responsible for the operating expenses of the Finance Board and the OF. These payments, allocated among the FHLBanks according to a cost-sharing formula, are reported as other expense on the Bank’s Statement of Operations and totaled $1.2 million and $1.0 million for the three months ended September 30, 2007 and 2006, respectively. For the nine months ended September 30, 2007 and 2006, these expenses were $3.6 million and $3.1 million, respectively. The Bank has no control over the operating expenses of the Finance Board. The FHLBanks are able to exert a limited degree of control over the operating expenses of the OF due to the fact that two directors of the OF are also FHLBank presidents.

Affordable Housing Program (AHP) and Resolution Funding Corp. (REFCORP) Assessments

	Three months ended						Nine months ended
	September 30,				% Change		September 30,				% Change
(in thousands)	2007		2006		2007/2006		2007		2006		2007/2006
Affordable Housing Program (AHP)	$	7,143	$	6,142		16.3	$	18,942	$	17,695		7.0
REFCORP		16,051		13,676		17.4		42,535		39,586		7.4
Total assessments	$	23,194	$	19,818		17.0	$	61,477	$	57,281		7.3

Assessment Calculations.  Although the FHLBanks are not subject to federal or state income taxes, the combined financial obligations of making payments to REFCORP (20%) and AHP contributions (10%) equate to a proportion of the Bank’s net income comparable to that paid in income tax by fully taxable entities. Inasmuch as both the REFCORP and AHP payments are each separately subtracted from earnings prior to the assessment of each, the combined effective rate is less than the simple sum of both (i.e., less than 30%). In passing the Financial Services Modernization Act of 1999, Congress established a fixed 20% annual REFCORP payment rate beginning in 2000 for each FHLBank. The fixed percentage replaced a fixed-dollar annual payment of $300 million which had previously been divided among the twelve FHLBanks through a complex allocation formula. The law also calls for an adjustment to be made to the total number of REFCORP payments due in future years so that, on a present value basis, the combined REFCORP payments of all twelve FHLBanks are equal in amount to what had been required under the previous calculation method. The FHLBanks’ aggregate payments through the third quarter of 2007 exceeded the scheduled payments, effectively accelerating payment of the REFCORP obligation and shortening its remaining term to a final estimated payment during the second quarter of 2014. This date assumes that the FHLBanks pay exactly $300 million annually until 2014. The cumulative amount to be paid to REFCORP by the FHLBank is not determinable at this time due to the interrelationships of the future earnings of all FHLBanks and interest rates.

Application of the REFCORP percentage rate as applied to earnings during the three months ended September 30, 2007 and 2006 resulted in expenses for the Bank of $16.1 million and $13.7 million, respectively. For the nine months ended September 30, 2007 and 2006, it resulted in expenses for the Bank of $42.5 million and $39.6 million, respectively. The year-to-year changes in AHP and REFCORP assessments for the Bank reflect the changes in pre-assessment earnings.

Financial Condition

The following is Management’s Discussion and Analysis of the Bank’s financial condition at September 30, 2007 compared to December 31, 2006. This should be read in conjunction with the Bank’s unaudited interim financial statements and notes in this report and the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Asset Growth and Composition.  As a result of an increase in the loans to members and investment portfolios, the Bank’s total assets increased $17.8 billion, or 23.0%, to $95.2 billion at September 30, 2007, up from $77.4 billion at December 31, 2006. The loans to members increase was due to increases in short-term portfolio balances, including RepoPlus. The short-term portion of the loans to members portfolio is volatile and can have a significant impact on outstanding balances. This is clearly demonstrated by comparing the average balance of the loans to members portfolio for the quarter, which was $57.9 billion, to the balance as of September 30, 2007, which was $64.3 billion. The increase in the investment portfolio was reflected primarily in Federal funds sold and interest-bearing deposits, as well as an increase in held-to-maturity securities.

14

Total housing finance-related assets, which include MPF Program loans, loans to members, mortgage-backed securities and other mission-related investments, increased $14.7 billion, or 21.6%, to $82.6 billion at September 30, 2007, up from $68.0 billion at December 31, 2006. Total housing finance-related assets remained consistent, at 86.8% of assets as of September 30, 2007, compared to 87.9% of assets as of December 31, 2006.

Loans to Members.  At September 30, 2007, total loans to members reflected balances of $64.3 billion to 224 borrowing members, compared to $49.3 billion at December 31, 2006 to 221 borrowing members. This represented a 30.4% increase in the portfolio balance. Loan activity continued to be primarily attributable to the Bank’s five largest borrowers, generally reflecting the asset concentration mix of the Bank’s membership base.

The following table provides a distribution of the number of members, categorized by individual member asset size, that had an outstanding average balance at any point during the nine months ended September 30, 2007 and the year ended December 31, 2006.

Member Asset Size	2007			2006
Less than $100 million		50			54
Between $100 million and $500 million		132			137
Between $500 million and $1 billion		37			45
Between $1 billion and $5 billion		31			26
Greater than $5 billion		13			13
Total borrowing members		263			275
Total membership		332			334
Percent of members borrowing		79.2	%		82.3	%

Loans to members in the third quarter and first nine months of 2007 reflected the residential real estate market and, to a lesser degree, small business and commercial real estate demand of members’ customers. Average loan demand of members increased during the third quarter of 2007 primarily in reaction to the current credit market conditions. Members have required additional liquidity during this time, as other sources of funding may have been disrupted. Much of this demand included short-term and overnight funding, which tends to be unpredictable.

A number of the Bank’s members have a high percentage of long-term mortgage assets on their balance sheets; these members generally fund these assets through longer-term borrowings with the Bank to mitigate interest rate risk. Meeting the needs of such members will continue to be an important part of the Bank’s loans to members business. At September 30, 2007, the Bank’s loans to members portfolio was still weighted heavily in the combined mid-term and long-term products offered to members. However, there has been a shift in the Bank’s portfolio. The mid-term and long-term products have declined from 65.5% of the portfolio at December 31, 2006 to 58.0% at September 30, 2007; in contrast, the short-term RepoPlus product has increased from 11.5% of the portfolio at December 31, 2006 to 22.4% at September 30, 2007.

The primary driver of the percentage decrease in mid-term and long-term products is the increase in the RepoPlus product as discussed above. Although the RepoPlus outstandings are short-term in nature, the Bank has experienced rollovers of this short-term borrowing by some of its large customers during the third quarter of 2007. As market conditions change rapidly, the short-term nature of this lending could materially impact the Bank’s outstanding loan balance.

Mortgage Loans Held for Portfolio.  The net mortgage loans held for portfolio balance decreased 8.8% to $6.4 billion at September 30, 2007, compared to $7.0 billion at December 31, 2006. The decline was a result of the continued run-off of the portfolio in addition to a decline in the availability of mortgages to be purchased.

15

Loan Portfolio Analysis.  The Bank’s outstanding loans, nonaccrual loans and loans 90 days or more past due and accruing interest are as presented in the following table.

	September 30,		December 31,
(in thousands)	2007		2006
Loans to members	$	64,265,999	$	49,335,377
Mortgage loans held for portfolio, net(1)		6,351,482		6,966,345
Nonaccrual mortgage loans, net(2)		18,174		18,771
Mortgage loans past due 90 days or more and still accruing interest(3)		11,540		15,658
Banking on Business (BOB) loans, net(1)(4)		11,099		11,469

Notes:

(1)	All of the real estate mortgages held in portfolio by the Bank are fixed-rate. Balances are reflected net of allowance for credit losses.
(2)	All nonaccrual mortgage loans are reported net of interest applied to principal.
(3)	Government-insured or -guaranteed loans (e.g., FHA, VA, HUD or RHS) continue to accrue interest after becoming 90 days or more delinquent.
(4)	Due to the nature of the program, all BOB loans are considered nonaccrual loans. Balances are reflected net of allowance for credit losses.

Allowance for Credit Losses.  At September 30, 2007 and December 31, 2006, the allowance for credit losses on the mortgage loans held for portfolio was $771 thousand and $853 thousand, respectively. At both September 30, 2007 and December 31, 2006, the allowance for credit losses on the BOB loans was $6.7 million. The decline in the mortgage loans held for portfolio allowance reflected the continued decline in the total loan balance, which in turn required lower reserves.

Details regarding the Bank’s specific methodologies for calculation of allowance for credit losses is included in the Financial Condition section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Interest-bearing Deposits and Federal Funds Sold.  At September 30, 2007, the balances in the short-term investment categories of interest-bearing deposits and Federal funds sold totaled $9.9 billion, an increase of $2.9 billion, or 41.5% from the December 31, 2006 balance. This growth reflects the Bank’s strategy to continue to manage its short-term liquidity position.

Investment Securities.  At September 30, 2007, the Bank’s investment securities portfolio totaled $13.6 billion, compared to $13.0 billion at December 31, 2006. This balance includes both held-to-maturity and available-for-sale securities. The 4.9% increase was due to an increase in held-to-maturity securities. These investments include mortgage-backed securities (MBS) that are collateralized and provide a return that can significantly exceed the return on other types of investments. The amount that the Bank can invest in MBS is limited by regulation to 300% of regulatory capital; due to continued increases in the capital stock position during third quarter 2007, driven by higher loans to members activity, the Bank was able to increase its MBS holdings. The opportunity to purchase MBS is primarily driven by fluctuations in the loans to members portfolio; at a given point in time, an increase in the loan balance translates to an increase in related capital stock, which provides for additional room under the regulatory limit to invest in additional securities. In addition, the Bank invested in $495 million of asset-backed commercial paper during the third quarter of 2007.

16

The following tables summarize key investment securities portfolio statistics.

	September 30,		December 31,
(in thousands)	2007		2006
Available-for-sale securities:
Equity mutual funds	$	5,812	$	5,362
Mortgage-backed securities		45,912		60,486
Total available-for-sale securities	$	51,724	$	65,848
Held-to-maturity securities:
Commercial paper	$	495,407	$	332,955
State or local agency obligations		725,959		779,780
U.S. government-sponsored enterprises		1,121,079		984,941
Mortgage-backed securities		11,249,678		10,841,424
Total held-to-maturity securities	$	13,592,123	$	12,939,100
Total investment securities	$	13,643,847	$	13,004,948

As of September 30, 2007, investment securities had the following maturity and yield characteristics.

(dollars in thousands)	Book Value		Yield
Available-for-sale securities:
Equity mutual funds	$	5,812		n/a
Mortgage-backed securities		45,912		5.70
Total available-for-sale securities	$	51,724		5.70
Held-to-maturity securities:
Commercial paper due within one year	$	495,407		5.34
State or local agency obligations:
Within one year		222,000		5.66
After one but within five years		156,491		5.87
After five but within ten years		10,575		4.20
After ten years		336,893		5.83
Total state or local agency obligations	$	725,959		5.76
U.S. government-sponsored enterprises:
Within one year	$	500,000		5.04
After one but within five years		500,000		5.38
After five years		121,079		4.05
Total U.S. government-sponsored enterprises	$	1,121,079		5.08
Mortgage-backed securities		11,249,678		4.84
Total held-to-maturity securities	$	13,592,123		4.93
Total investment securities	$	13,643,847		4.93

As of September 30, 2007, the held-to-maturity securities portfolio included gross unrealized losses of $214.6 million which are considered temporary. The basis for determination that these declines in fair value are temporary is explained in detail in Note 4 of the unaudited interim financial statements.

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As of September 30, 2007, the Bank held investment securities from the following issuers with a book value greater than 10% of the Bank’s total capital.

	Total		Total
(in thousands)	Book Value		Fair Value
J.P. Morgan Mortgage Trust	$	1,752,316	$	1,739,688
Federal Home Loan Mortgage Corporation		1,663,810		1,643,339
Wells Fargo Mortgage Backed Securities Trust		1,291,071		1,274,104
Federal National Mortgage Association		1,198,324		1,176,186
Countrywide Alternative Loan Trust		581,807		576,199
Countrywide Home Loans		566,818		553,729
Structured Adjustable Rate Mortgage Loan Trust		499,265		494,372
Structured Asset Securities Corporation		408,129		390,229
Total	$	7,961,540	$	7,847,846

Deposits.  Total deposits at September 30, 2007 were $5.6 billion, up from $1.4 billion at year-end 2006. This increase was due to excess cash deposited with the Bank by two large members. These balances were subsequently withdrawn and deposits are expected to return to historical levels as market conditions normalize.

At September 30, 2007, time deposits in denominations of $100,000 or more totaled $2.5 billion. The table below presents the maturities for time deposits in denominations of $100,000 or more:

(in millions)
			Over 3 months		Over 6 months
	3 months		but within		but within
By Remaining Maturity at September 30, 2007	or less		6 months		12 months		Total
Time certificates of deposit $(100,000 or more)	$	2,501.0	$	0.2		-	$	2,501.2

Commitment and Off-Balance Sheet Items.  At September 30, 2007, the Bank was obligated to fund approximately $731.5 million in additional loans to members, $9.4 million of mortgage loans and to issue $480.0 million in consolidated obligations. In addition, the Bank has outstanding obligations of $1.1 billion in standby letters of credit. The Bank does not have any special purpose entities or any other type of off-balance sheet conduits.

Retained Earnings.  At September 30, 2007, the Bank’s retained earnings stood at $283.8 million, representing an increase of $29.0 million, or 11.4%, from December 31, 2006. The Bank exceeded its longer-term retained earnings target of $200 million by first quarter 2006. Prior to reaching the retained earnings target, the Bank paid out less than 100% of net income in dividends. Any future dividend payments are subject to the approval of the Board of Directors (Board). In September 2007, the Board approved a revised retained earnings policy. This revised policy recommends a level of retained earnings which will be calculated including components for market, credit, operating and accounting risk. The Bank was in compliance with this policy as of September 30, 2007.

The following table summarizes the change in retained earnings:

	Nine months ended September 30,
(in thousands)	2007			2006
Balance, beginning of the period	$	254,777		$	188,479
Net income		170,140			158,334
Dividends		(141,136	)		(108,836	)
Balance, end of the period	$	283,781		$	237,977
Payout ratio (dividends/net income)		83.0	%		68.7	%

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Operating Segment Results

The following is Management’s Discussion and Analysis of the Bank’s operating segment results for the three and nine months ended September 30, 2007 and 2006, which should be read in conjunction with the unaudited interim financial statements and notes included in this report.

The Bank operates two segments differentiated by products. The first segment entitled Traditional Member Finance encompasses a majority of the Bank’s activities, including but not limited to, providing loans to members; investments; and deposit products. The MPF, or Mortgage Finance, segment purchases residential mortgage loans from members and funds and hedges the resulting portfolio.

Results of segments are presented based on management accounting practices and the Bank’s management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to Generally Accepted Accounting Principles (GAAP). Therefore, the financial results of the segments are not necessarily comparable with similar information at other FHLBanks or any other company.

The management accounting process uses various balance sheet and income statement assignments and transfers to measure performance of the segment. Methodologies are refined from time to time as management accounting practices change. Borrowings are allocated to the Mortgage Finance segment based on mortgage loans outstanding. All remaining borrowings and all capital remain in the Traditional Member Finance business. The allowance for credit losses pertaining to mortgage loans held for portfolio is allocated to the Mortgage Finance segment and the allowance for credit losses pertaining to BOB loans is allocated to Traditional Member Finance. Derivatives are allocated to segments consistent with hedging strategies. Cost incurred by support areas not directly aligned with the segment are allocated based on estimated usage of services.

The following tables set forth the Bank’s financial performance by operating segment for the three and nine months ended September 30, 2007 and 2006.

Three months ended September 30,

	Traditional					MPF® or
	Member					Mortgage
	Finance					Finance						Total
(in thousands)	2007			2006		2007			2006			2007			2006
Net interest income	$	90,571		$	83,255	$	5,454		$	6,529		$	96,025		$	89,784
Provision (benefit) for credit losses		(762	)		605		55			(96	)		(707	)		509
Other income (losses)		6,020			4,923		(1,058	)		(4,705	)		4,962			218
Other expenses		13,526			13,757		772			1,224			14,298			14,981
Income before assessments		83,827			73,816		3,569			696			87,396			74,512
Affordable Housing Program		6,851			6,085		292			57			7,143			6,142
REFCORP		15,396			13,548		655			128			16,051			13,676
Total assessments		22,247			19,633		947			185			23,194			19,818
Net income	$	61,580		$	54,183	$	2,622		$	511		$	64,202		$	54,694
Total assets	$	88,853,510		$	71,153,429	$	6,351,482		$	7,186,803		$	95,204,992		$	78,340,232

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Nine months ended September 30,

	Traditional				MPF® or
	Member				Mortgage
	Finance				Finance						Total
(in thousands)	2007		2006		2007			2006			2007		2006
Net interest income	$	247,651	$	232,492	$	17,925		$	22,516		$	265,576	$	255,008
Provision (benefit) for credit losses		1,221		1,359		(82	)		(234	)		1,139		1,125
Other income (losses)		11,214		13,201		142			(4,657	)		11,356		8,544
Other expenses		41,856		43,249		2,320			3,563			44,176		46,812
Income before assessments		215,788		201,085		15,829			14,530			231,617		215,615
Affordable Housing Program		17,650		16,509		1,292			1,186			18,942		17,695
REFCORP		39,628		36,917		2,907			2,669			42,535		39,586
Total assessments		57,278		53,426		4,199			3,855			61,477		57,281
Net income	$	158,510	$	147,659	$	11,630		$	10,675		$	170,140	$	158,334
Total assets	$	88,853,510	$	71,153,429	$	6,351,482		$	7,186,803		$	95,204,992	$	78,340,232

Traditional Member Finance Segment.  Net income in the Traditional Member Finance segment was $61.6 million for third quarter 2007, compared to $54.2 million in third quarter 2006. This $7.4 million increase was primarily due to higher net interest income, higher other income and the impact of a provision benefit in the current period. The $7.3 million increase in net interest income was driven by an increase in the loans to members portfolio, as the demand for liquidity increased, and an increase in the investment portfolio. The increase in other income reflected fluctuations in the fair value hedge ineffectiveness on both the loans to members and consolidated obligations portfolios. The benefit for credit losses reflected a decline in the reserves required for the BOB portfolio due to a decline in the probability of default assumptions.

Details regarding the Bank’s specific methodologies for calculation of allowance for credit losses is included in the Financial Condition section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

For the nine months ended September 30, 2007, net income increased $10.9 million to $158.5 million. The primary driver was a $15.2 million increase in net interest income, partially offset by a $2.0 million reduction in other income. In addition, other expenses decreased $1.4 million in the year-over-year comparison. The increase in net interest income was due to higher levels of loans to members and investment securities, as well as an overall increase in yields on those portfolios. The decline in other income reflected fluctuations in the fair value hedge ineffectiveness on both the loans to members and consolidated obligations portfolios. The year-over-year decrease in other expenses reflected the Bank’s ongoing efforts to manage operating expense growth.

Mortgage Finance Segment.  Net income in the Mortgage Finance segment was $2.6 million for third quarter 2007, compared to $511 thousand in third quarter 2006. This $2.1 million increase was primarily due to lower other losses and lower expenses in the current period, partially offset by lower net interest income. The $3.6 million decrease in other losses was due to fluctuations in the fair value of the economic interest rate swaptions used to minimize the prepayment risk embedded in the mortgage loans. The decrease in net interest income was due to lower interest-earning asset levels and a lower net interest spread.

For the nine months ended September 30, 2007, net income was $11.6 million, compared to $10.7 million in the prior year period. This $955 thousand increase was due to other income in the current period, compared to other losses in the prior year, as well as lower other expenses. These benefits were offset by lower net interest income. The increase in other income was due to fluctuations in the fair value of the economic interest rate swaptions used to minimize the prepayment risk embedded in the mortgage loans. The offsetting decrease in net interest income was due to lower interest-earning asset levels as well as a reduced net interest spread.

Total assets declined in this segment in both the quarter-over-quarter and year-over-year comparisons, reflecting the continued run-off of the existing portfolio as well as a decrease in the volume of available mortgages to be purchased. The

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lower levels of asset acquisition in this segment have permitted redeployment of resources thus reducing allocated other expenses in both the three and nine months ended September 30, 2007 compared to the same year-ago periods.

Capital Resources

The following is Management’s Discussion and Analysis of the Bank’s capital resources at September 30, 2007. This discussion should be read in conjunction with the unaudited interim financial statements and notes included in this report and the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Risk-Based Capital (RBC)

The Bank became subject to the Finance Board’s Risk-Based Capital (RBC) regulations upon implementation of its capital plan on December 16, 2002. This regulatory framework requires the Bank to maintain sufficient permanent capital, defined as retained earnings plus capital stock, to meet its combined credit risk, market risk and operational risk. Each of these components is computed in accordance with Finance Board regulations.

	September 30,		December 31,
(in thousands)	2007		2006
Permanent capital:
Capital stock(1)	$	3,805,079	$	3,392,250
Retained earnings		283,781		254,777
Total permanent capital	$	4,088,860	$	3,647,027
Risk-based capital requirement:
Credit risk capital	$	195,317	$	191,810
Market risk capital		265,818		199,848
Operations risk capital		138,341		117,497
Total risk-based capital	$	599,476	$	509,155

Note:

⁽¹⁾ Capital stock includes mandatorily redeemable capital stock.

The Bank held excess permanent capital over RBC requirements of $3.5 billion and $3.1 billion at September 30, 2007 and December 31, 2006, respectively.

Capital and Leverage Ratios

In addition to the requirements for RBC, the Bank must maintain total regulatory capital and leverage ratios of at least 4.0% and 5.0% of total assets, respectively. Management has an ongoing program to measure and monitor compliance with the ratio requirements. As a matter of policy, the Board of Directors has established an operating range for capitalization that calls for the capital ratio to be maintained between 4.08% and 5.0%. To enhance overall returns, it has been the Bank’s practice to utilize as much leverage as permitted within the upper end of this operating range when market conditions permit, while maintaining compliance with statutory, regulatory and Bank policy limits.

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	September 30,			December 31,
(dollars in thousands)	2007			2006
Capital Ratio
Minimum capital (4.0% of total assets)	$	3,808,200		$	3,095,058
Actual capital (permanent capital plus loan loss reserves)		4,096,314			3,654,615
Total assets		95,204,992			77,376,458
Capital ratio (actual capital as a percent of total assets)		4.3	%		4.7	%
Leverage Ratio
Minimum leverage capital (5.0% of total assets)	$	4,760,250		$	3,868,823
Leverage capital (permanent capital multiplied by a 1.5 weighting factor plus loan loss reserves)		6,140,744			5,478,130
Leverage ratio (leverage capital as a percent of total assets)		6.5	%		7.1	%

The Bank’s capital ratio decreased slightly to 4.3% at September 30, 2007, down from 4.7% at December 31, 2006. Under the Bank’s capital plan, overall capital stock levels are tied to both the level of member borrowings and unused borrowing capacity which is defined generally as the remaining collateral value against which a member may borrow. The Bank’s capital ratios often fluctuate in response to changes in member borrowing activity and unused capacity.

The Bank has initiated the process to amend its capital plan. This amendment proposes to separate the capital stock supporting member borrowings and the unused borrowing capacity into two subclasses of Class B stock and widens the range of the capital stock requirement. As required by Finance Board regulations and the terms of the capital plan, no amendment of the capital plan may become effective until approved by the Finance Board.

Management reviews, on a routine basis, projections of capital leverage that incorporate anticipated changes in assets, liabilities, and capital stock levels as a tool to manage overall balance sheet leverage within the Board’s operating range. In connection with this review, when management believes that adjustments to the current member stock purchase requirements within the ranges established in the capital plan are warranted, a recommendation is presented for Board consideration. The member stock purchase requirements have been adjusted several times since the implementation of the capital plan in December 2002, and management expects that future adjustments are likely in response to future changes in borrowing activity.

As of September 30, 2007 and December 31, 2006, excess capital stock available for repurchase at a member’s request and at the Bank’s discretion totaled $45.5 million and $33.4 million, respectively. It is the Bank’s current practice to promptly repurchase the excess capital stock of its members upon their request, except with respect to directors’ institutions during standard blackout periods. The Bank does not permit other repurchase requests where the capital stock is required to meet a member’s minimum capital stock purchase requirement. Assuming the above amounts of excess stock had been repurchased as of the respective period ends, the resulting decrease in the capital and leverage ratios would have been immaterial.

The Bank’s capital ratio and leverage ratio both declined from December 31, 2006 to September 30, 2007. The increase in the Bank’s total assets exceeded the increase in capital, which caused the decrease in both ratio calculations.

Management believes that based on the Bank’s business profile, balance sheet composition and various potential economic scenarios, the current capital and leverage ratios are adequate to ensure the safe and sound operation of the Bank.

Critical Accounting Policies

The Bank’s financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Application of these principles requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes. The use of estimates, assumptions and judgments is necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets and liabilities carried at fair value inherently result in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When such information is not available, valuation adjustments are estimated in good faith by management, primarily through the use of internal cash flow and other financial modeling techniques.

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The most significant accounting policies followed by the Bank are presented in Note 3 to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates or assumptions, and those for which changes in those estimates or assumptions could have a significant impact on the financial statements.

We discuss the following critical accounting policies in more detail under this same heading in the Bank’s 2006 Annual Report filed on Form 10-K, as amended:

•     Loans to Members and Related Allowance for Credit Losses

•     Allowance for Credit Losses on Mortgage Loans Held for Portfolio

•     Allowance for Credit Losses on Banking on Business Loans

•     Accounting for Premiums and Discounts on Mortgage Loans and Mortgage-Backed Securities

•     Guarantees and Consolidated Obligations

•     Accounting for Derivatives

•     Future REFCORP Payments

•     Fair Value Calculations and Methodologies

The Bank did not implement any material changes to its accounting policies or estimates, nor did the Bank implement any new accounting policies that had a material impact on the Bank’s results of operations or financial condition, during the three months ended September 30, 2007.

Recently Issued Accounting Standards and Interpretations. See Note 2 to the unaudited interim financial statements included in this report for a discussion of recent accounting pronouncements that are relevant to the Bank’s businesses.

Risk Management

Risk Governance

The Bank’s lending, investment and funding activities and its use of derivative hedging instruments expose the Bank to a number of risks, including the following: market risk, credit risk, liquidity and funding risk and other risks, such as operating risk and business risk. These risks are discussed in further detail in this section. The Bank’s 2006 Annual Report filed on Form 10-K, as amended, provides additional information regarding risk governance and the types of policies, processes, instruments and measures used by the Bank to manage risk. For information regarding the Bank’s use of, and accounting policies for, derivative hedging instruments, see Note 16 to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended. Additionally, see the Capital Resources section above for further information regarding the Bank’s risk-based capital and regulatory capital ratios. Market risk exposure at September 30, 2007 reached an all-time high, driven by the disruption in the credit markets and the extension of the Bank’s mortgage portfolio. There were no material changes in the Bank’s credit and operations risk exposure at September 30, 2007 compared to December 31, 2006, except as set forth in Item 1A. Risk Factors.

Qualitative Disclosures Regarding Market Risk

Market risk is defined as the risk of loss arising from adverse changes in market rates and prices, such as interest rates, and other relevant market information, such as basis changes. Risk of loss is defined as the risk that the net market value or estimated fair value of the Bank’s overall portfolio of assets, liabilities and derivatives will decline as a result of changes in interest rates or financial market volatility, or that net earnings will be significantly reduced by interest rate changes. Interest rate risk is the risk that relative and absolute changes in prevailing market interest rates may adversely affect an institution’s financial performance or condition. Interest rate risk arises from a variety of sources, including repricing risk, yield curve risk, basis risk and options risk.

The goal of an interest rate risk management strategy is not necessarily to eliminate interest rate risk, but to manage it by setting and operating within appropriate limits. The Bank’s general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets, liabilities and hedges, which, taken together, limit the Bank’s expected exposure to interest rate risk. Management regularly monitors the Bank’s sensitivity to interest rate changes. Multiple methodologies are used to calculate the Bank’s potential exposure to these changes. These methodologies include measuring repricing gaps, duration and convexity under assumed changes in interest rates, the shape of the yield curve, and market volatility as implied in currently observable market prices. Interest rate risk exposure is managed by the use of

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appropriate funding instruments and by employing hedging strategies. Hedging may occur for a single transaction or group of transactions as well as for the overall portfolio. The Bank’s hedge positions are evaluated regularly and are adjusted as deemed necessary by management. The Bank’s market risk limits and measurement are described more fully below.

Quantitative Disclosures Regarding Market Risk

The Bank’s Market Risk Model.  The Bank uses an externally developed model to perform its interest rate risk and market valuation modeling. This model and significant underlying assumptions were subject to Finance Board review and approval prior to its implementation and are subsequently subject to annual independent model validation. Several methodologies are incorporated into the modeling process, which identifies the fair value of an instrument as the expected present value of its future cash flows. The present value is based upon the discrete forward portion of the yield curve that relates to the timing of each cash flow. For option instruments, as well as instruments with embedded options, the value is determined by building a large number of potential interest rate scenarios, projecting cash flows for each scenario and then computing the present value averaged over all scenarios. It is important to note that the valuation process is an estimation of fair value, and there may be several approaches to valuation, each of which may produce a different result. Beginning in January 2007, the Bank implemented a more robust market risk model which provides enhanced market risk metrics and measurement.

Duration measurements and market value of equity volatility are currently the primary tools used by the Bank to manage its interest rate risk exposure. Although the Bank is no longer required by Finance Board regulation to operate within specified duration limits, the Bank’s asset/liability management policies specify acceptable ranges for duration of equity, and the Bank’s exposures are measured and managed against these limits. These tools are described in more detail below.

Duration of Equity.  Duration is a key risk metric used by the Bank and is also commonly used throughout the financial services industry. Duration is a measure of the sensitivity of a financial instrument’s market value, or the value of a portfolio of instruments, to a parallel shift in interest rates. Duration, typically measured in months or years, is commonly used by investors throughout the fixed income securities market as a measure of financial instrument price sensitivity. Longer duration instruments generally exhibit greater price sensitivity to changes in market interest rates than shorter duration instruments. Duration of equity, an extension of this conceptual framework, is a measure designed to capture the potential for the market value of the Bank’s equity base to change with movements in market interest rates. Higher duration numbers, whether positive or negative, indicate a greater potential exposure of market value of equity in response to changing interest rates.

The Bank’s asset/liability management policy approved by the Board of Directors calls for duration of equity to be maintained within a ± 4.5 year range in the base case. In addition, the duration of equity exposure limit in an instantaneous parallel interest rate shock of ± 200 basis points is ± 7 years. The following table presents the Bank’s duration of equity exposure in accordance with its current asset / liability management policies. Along with the base case duration calculation, the Bank performs instantaneous parallel interest rate shocks in increments of 50 basis points up to the 200 basis point scenarios identified below.

	Down 200			Down 100			Base		Up 100		Up 200
(in years)	basis points			basis points			Case		basis points		basis points
September 30, 2007		(3.3	)		0.8			4.0		4.3		4.1
June 30, 2007		(3.7	)		0.4			3.1		3.5		3.7
March 31, 2007		(4.2	)		(2.5	)		2.2		1.9		2.2
December 31, 2006		(5.3	)		(1.6	)		2.0		3.4		3.9
September 30, 2006		(4.4	)		(0.5	)		2.5		3.3		2.3
June 30, 2006		(2.5	)		2.3			4.3		3.1		2.8
March 31, 2006		(3.6	)		0.9			3.7		4.0		4.5
December 31, 2005		(4.7	)		(1.2	)		2.7		4.6		5.3

The duration of equity profile may be impacted by various actions the Bank takes to manage overall and specific risk exposures, as well as by changes in market interest rates. Throughout the third quarter of 2007, there was a marked increase in volatility in mortgage and related fixed income markets, resulting in widening of mortgage and related credit spreads relative to U.S. Treasury debt. In addition, refinements and adjustments to the Bank’s prepayment model

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contributed to the increases in duration of equity. In response to these market changes, the Bank took various funding and hedging actions, including the issuance of long-term debt, to maintain duration of equity within Board-approved limits. Although the Bank took these actions, duration of equity increased from December 31, 2006 to September 30, 2007 in the base case scenario and in the shock scenarios.

Market Value of Equity Volatility.  Market value of equity represents the difference between the current theoretical market value of all assets less the current theoretical market value of all liabilities. Market values of assets and liabilities vary as interest rates change. As such, theoretical market values can be calculated under various interest rate scenarios, and the resulting changes in net equity can provide an indicator of the exposure of the Bank’s market value of equity to market volatility. Although volatility and fluctuation in market values vary with changes in interest rates, the Bank seeks to manage this risk exposure by maintaining a relatively stable and non-volatile market value of equity. The Bank’s Board of Directors has established a policy limit that the market value of equity should decline by no more than five percent given a hypothetical ± 100 basis point instantaneous parallel change in interest rates. Management analyzes the market value of equity exposure against this policy limit on a regular basis. In addition to measuring compliance against this policy limit, the Bank also analyzes the potential effects of a wide range of instant parallel yield curve shifts of as much as 300 basis points.

The following table presents market value of equity volatility, including the percentage change from the base case.

	Down 100 basis points						Up 100 basis points
	Market Value		Pct. Change		Base		Market Value		Pct. Change
(dollars in millions)	of Equity		From Base		Case		of Equity		From Base
September 30, 2007	$	3,770		2.9	$	3,664	$	3,505		(4.3	)
June 30, 2007		3,560		2.1		3,486		3,371		(3.3	)
March 31, 2007		3,200		0.1		3,197		3,118		(2.5	)
December 31, 2006		3,454		0.4		3,442		3,342		(2.9	)
September 30, 2006		3,503		1.1		3,467		3,349		(3.4	)
June 30, 2006		3,241		3.8		3,123		3,005		(3.8	)
March 31, 2006		3,045		2.7		2,966		2,850		(3.9	)
December 31, 2005		3,134		0.9		3,105		2,986		(3.8	)

For the period December 31, 2006 to September 30, 2007, the market value of equity increased in the base case as well as in both of the above shock scenarios. Increases in the base case were due to higher capital levels. The increases in the shock scenarios over the same period were driven primarily by the turbulence in the mortgage and related fixed income markets in the third quarter 2007. The hypothetical changes in the Bank’s market value of equity in the various scenarios shown above assume the absence of any management reaction to changes in market interest rates. Management monitors market conditions on an ongoing basis and takes appropriate action to preserve the value of equity and earnings by changing the composition of the balance sheet or entering into, terminating or restructuring hedges to mitigate the impact of adverse interest rate movements.

Credit Risk

Credit risk is the risk that the market value of an obligation will decline as a result of deterioration in the obligor’s creditworthiness. Credit risk arises when Bank funds are extended, committed, invested or otherwise exposed through actual or implied contractual agreements. The financial condition of Bank members and all investment, mortgage loan and derivative counterparties is monitored to ensure that the Bank’s financial exposure to each member and counterparty is in compliance with the Bank’s credit policies and Finance Board regulations.

Loans to Members.  The Bank protects against credit risk on loans to members by monitoring the financial condition of borrowers and by requiring borrowers or their affiliates to pledge sufficient eligible collateral, primarily residential mortgages, for all loans. In light of recent market conditions related to the subprime and Alt-A mortgage market, the Bank recognizes the additional risk that may be inherent in the mortgage markets in general at this time. The Bank maintains policies and practices to monitor such exposure and takes action where appropriate. In addition, the Bank has the ability to call for additional or substitute collateral during the life of a loan to protect its security interest. As of September 30, 2007, the Bank had rights to collateral which exceeded the portfolio balance by more than 300%. The Bank has not established any allowance for credit losses on loans to members.

Member Loan Concentrations.  At September 30, 2007, the Bank had a concentration of loans to its five largest borrowers totaling $46.2 billion, or 72.2%, of total loans outstanding. Average par balances to these borrowers for the nine

25

months ended September 30, 2007 were $32.9 billion, or 65.8%, of total average loans outstanding. Because of these concentrations, the Bank has implemented specific credit and collateral review procedures for these members. Management believes that it has access to sufficient eligible collateral under written security agreements in which the member agrees to hold such collateral for the benefit of the Bank significantly in excess of outstanding loan balances. In addition, the Bank analyzes the implication for its financial management and profitability if it were to lose one or more of these members or if one or more of these members were to significantly reduce its borrowings from the Bank.

In addition to loans to members, the Bank is also subject to credit risk on investments, mortgage loans, BOB loans, derivatives and off-balance sheet arrangements and guarantees as described below. None of the Bank’s credit risk policy parameters have materially changed since December 31, 2006. Further information regarding nonaccrual loan balances and related allowances, including delinquency ratios and a rollforward of the Bank’s allowance for credit losses, is provided in the Bank’s Annual Report on Form 10-K, as amended.

Investments.  The Bank is subject to credit risk on investments consisting primarily of money market investments and investment securities. The Bank places money market investments, such as Federal funds, term deposits and corporate commercial paper on an unsecured basis with large, high-quality financial institutions with long-term credit ratings of AAA and AA for terms up to nine months, with credit ratings of A for terms up to 90 days and with credit ratings of BBB for terms up to 30 days. Most money market investments mature within 90 days. Management actively monitors the credit quality of these investment counterparties.

Mortgage-Backed Security Collateral.  The Bank also invests in and is subject to credit risk related to MBS that are directly supported by underlying mortgage loans. Investments in private label MBS are permitted as long as they are rated AAA at the time of purchase. The Bank regularly monitors the mortgage collateral underlying each MBS. The collateral can be grouped into various categories, including subprime and reperforming, which are generally considered to represent lower credit quality loans. The Bank generally follows the definitions of these categories established by the credit rating agencies. Under these definitions, the Bank has infrequently purchased subprime or reperforming MBS and the Bank’s existing subprime and reperforming securities represent less than one percent of the total MBS portfolio. These securities also contain additional credit protection from subordination or Federal agency insurance or guarantees. Accordingly, the Bank does not believe it has material credit risk resulting from these securities at this time. The Bank recognizes that there have been dislocations in the mortgage market recently and that securities ratings can change rapidly. However, the Bank has not experienced any downgrades or noted any significant deterioration through its credit monitoring of the portfolio. All MBS investments are currently rated AAA, with the exception of the investment related to the MPF Shared Funding Program, which has an AA rating; this AA investment represents less than 0.5% of the total amortized cost of the MBS portfolio.

Mortgage Loans.  The Bank has established as a service to members a mortgage loan purchase program under which the Bank acquires mortgage loans from members under a shared credit risk structure, including the necessary external credit enhancement, which gives the pools of mortgage loans purchased the equivalent of a AA credit rating. The mortgage loan program uses insurance companies to provide both primary and supplemental mortgage insurance. All insurance providers must have a credit rating of AA or better.

BOB Loans.  Members may also participate in the BOB loan program, which is targeted to small businesses in the Bank’s district. The program’s objective is to assist in the growth and development of small businesses, including both the start-up and expansion of these businesses. The BOB program is accounted for as an unsecured loan program and the outstanding loan balance is classified as nonaccrual due to doubt regarding the ultimate collection of the contractual principal and interest of the loan. Substantially all of the Bank’s credit losses occur in the BOB program.

Derivatives.  Finally, the Bank is subject to credit risk arising from the potential nonperformance by derivative counterparties with respect to the agreements entered into with the Bank, as well as certain operational risks related to the management of the derivative portfolio. Unsecured credit exposure to any counterparty is limited by the credit quality and capital level of the counterparty and by the capital level of the Bank. Derivative counterparty credit risk is managed through the combined use of credit analysis, collateral management and other risk mitigation techniques. The Bank requires collateral agreements on derivative financial instrument contracts. The extent to which the Bank is exposed to counterparty risk on derivatives is partially mitigated through the use of netting procedures contained in the Bank’s master agreement contracts with counterparties. All derivative counterparties and/or guarantors are rated at least A.

Liquidity and Funding Risk

The Bank manages its liquidity position to satisfy member demand for short- and long-term funds, repay maturing consolidated obligations and meet other obligations. The Bank also maintains liquidity to repurchase excess capital stock at its discretion and upon the request of a member. Further, Finance Board regulations and the Bank’s liquidity policies established by management and the Board of Directors require the Bank to hold contingency liquidity sufficient to meet

26

the Bank’s needs for a minimum of five business days without access to the consolidated obligation debt markets. The Bank’s sources of contingency liquidity include maturing overnight and short-term investments, maturing loans to members, securities available for repurchase agreements, available-for-sale securities maturing in one year or less and MBS repayments. Uses of contingency liquidity include net settlements of consolidated obligations, member loan commitments, mortgage loan purchase commitments, deposit outflows and maturing other borrowed funds. In response to the Overdraft Policy, the Bank implemented various changes to its cash and liquidity management practices, which include maintaining relatively high levels of short-term money market investments. As of September 30, 2007, the Bank was in compliance with all Board of Directors and regulatory liquidity requirements.

As previously noted, the Bank experienced a significant increase in loans to members during third quarter 2007. Despite turbulence in the capital markets during this period, the Bank continued to issue funding at an attractive cost while reinforcing its role as a liquidity provider to members. Increased funding through short-term discount notes has been utilized to satisfy commensurate increases in member demand for short-term credit. To the extent that market developments may suggest greater demand for intermediate-term credit from members, the Bank will respond by altering its funding mix between discount notes and longer-term bonds.

Overall, the FHLBank System injected $163 billion of liquidity into the market during the third quarter of 2007. This was in addition to $70 billion of additional liquidity provided by the Federal Reserve, as well as a 50 basis point reduction in the overnight Federal funds rate. These actions provided much-needed liquidity during the third quarter and helped to ease the crisis in the markets.

See Item 1A. Risk Factors regarding updated information concerning the Finance Board Cease and Desist Order issued to the FHLBank of Chicago.

Credit Ratings.  Access to the capital markets is partially dependent on the Bank’s and the FHLB System’s credit ratings which are shown in the following table:

	Moody’s	Standard & Poor’s
	Rating/Outlook	Rating/Outlook
Bank Senior Unsecured Long-term Debt	Aaa/Stable	AAA/Stable
Bank Short-term Deposits	P-1	A-1+
FHLB System Consolidated Obligation Bonds	Aaa	AAA
FHLB System Consolidated Obligation Discount Notes	P-1	A-1+

Operating and Business Risks

The Bank is subject to other risks such as operating risk and business risk. Operating risks are defined as the risk of unexpected loss resulting from human error, systems malfunctions, man-made or natural disasters, fraud, or circumvention or failure of internal controls. The Bank has established financial and operating policies and procedures and insurance coverage is in force, to mitigate the potential for material losses from such occurrences. In addition, the Bank has a business continuity plan that is designed to maintain critical business processes and systems in the event of a disaster or business disruption.

Business risk is defined as the risk of an adverse impact on the Bank’s profitability or financial or business strategies resulting from external factors that may occur in the short term and/or long term. The Bank continually monitors economic indicators and the external environment in which the Bank operates and attempts to mitigate this risk through long-term strategic planning.

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Item 1:  Financial Statements

Financial Statements for the Three Months and Nine Months Ended
September 30, 2007 and 2006
Federal Home Loan Bank of Pittsburgh
Statement of Operations (unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
(in thousands, except per share amounts)	2007			2006			2007		2006
Interest income:
Loans to members	$	795,948		$	644,996		$	2,043,718	$	1,761,317
Prepayment fees on loans to members, net		56			66			1,280		258
Interest-bearing deposits		59,483			48,492			163,409		129,696
Federal funds sold		50,625			67,400			148,597		150,604
Available-for-sale securities		701			1,362			2,246		5,947
Held-to-maturity securities		155,530			143,100			463,787		396,958
Mortgage loans held for portfolio		83,260			92,485			256,715		281,431
Loans to other FHLBanks		-			7			-		53
Total interest income		1,145,603			997,908			3,079,752		2,726,264
Interest expense:
Consolidated obligation discount notes		337,207			179,070			766,593		437,415
Consolidated obligation bonds		692,317			713,477			1,986,743		1,990,277
Deposits		19,947			14,508			59,043		42,065
Mandatorily redeemable capital stock		83			483			333		824
Other borrowings		24			586			1,464		675
Total interest expense		1,049,578			908,124			2,814,176		2,471,256
Net interest income before provision (benefit) for credit losses		96,025			89,784			265,576		255,008
Provision (benefit) for credit losses		(707	)		509			1,139		1,125
Net interest income after provision (benefit) for credit losses		96,732			89,275			264,437		253,883
Other income:
Service fees		1,113			1,077			3,068		3,390
Net gain (loss) on derivatives and hedging activities (Note 10)		3,758			(1,510	)		7,035		3,519
Other, net		91			651			1,253		1,635
Total other income		4,962			218			11,356		8,544
Other expense:
Operating		13,072			14,002			40,527		43,710
Finance Board		659			581			1,978		1,746
Office of Finance		567			398			1,671		1,356
Total other expense		14,298			14,981			44,176		46,812
Income before assessments		87,396			74,512			231,617		215,615
Affordable Housing Program		7,143			6,142			18,942		17,695
REFCORP		16,051			13,676			42,535		39,586
Total assessments		23,194			19,818			61,477		57,281
Net income	$	64,202		$	54,694		$	170,140	$	158,334
Earnings per share:
Weighted average shares outstanding (excludes mandatorily redeemable stock)		35,860			32,651			32,561		31,508
Basic and diluted earnings per share	$	1.79		$	1.68		$	5.23	$	5.03
Dividends per share	$	1.28		$	1.30		$	4.33	$	3.45

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

28

Federal Home Loan Bank of Pittsburgh
Statement of Condition (unaudited)

	September 30,			December 31,
(in thousands, except par value)	2007			2006
ASSETS
Cash and due from banks	$	105,231		$	78,098
Interest-bearing deposits		4,805,042			3,619,984
Federal funds sold		5,085,000			3,370,000
Investment securities:
Available-for-sale securities, at fair value; amortized cost of $50,357 and $64,378, respectively (Note 3)		51,724			65,848
Held-to-maturity securities, at amortized cost; fair value of $13,398,726 and $12,758,889, respectively (Note 4)		13,592,123			12,939,100
Loans to members (Note 5)		64,265,999			49,335,377
Mortgage loans held for portfolio (Note 6), net of allowance for credit losses of $771 and $853, respectively		6,351,482			6,966,345
Banking on Business loans, net of allowance for credit losses of $6,682 and $6,735, respectively		11,099			11,469
Accrued interest receivable		473,865			416,407
Premises, software and equipment, net		23,975			22,142
Derivative assets (Note 10)		387,639			498,976
Other assets		51,813			52,712
Total assets	$	95,204,992		$	77,376,458
LIABILITIES AND CAPITAL
Liabilities
Deposits:
Interest-bearing	$	5,529,742		$	1,409,305
Noninterest-bearing		30,064			16,692
Total deposits (Note 7)		5,559,806			1,425,997
Consolidated obligations, net: (Note 8)
Discount notes		28,182,892			17,845,226
Bonds		56,560,874			53,627,392
Total consolidated obligations, net		84,743,766			71,472,618
Mandatorily redeemable capital stock (Note 9)		3,930			7,892
Accrued interest payable		567,856			566,350
Affordable Housing Program		55,599			49,386
Payable to REFCORP		16,050			14,531
Derivative liabilities (Note 10)		148,629			144,093
Other liabilities		28,067			61,617
Total liabilities		91,123,703			73,742,484
Commitments and contingencies (Note 14)		-			-
Capital (Note 9)
Capital stock – putable ($100 par value) issued and outstanding shares:
38,012 and 33,844 shares in 2007 and 2006, respectively		3,801,149			3,384,358
Retained earnings		283,781			254,777
Accumulated other comprehensive income (loss):
Net unrealized gain on available-for-sale-securities (Note 3)		1,367			1,470
Net unrealized (loss) relating to hedging activities (Note 10)		(3,484	)		(4,973	)
Other		(1,524	)		(1,658	)
Total capital		4,081,289			3,633,974
Total liabilities and capital	$	95,204,992		$	77,376,458

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

29

Federal Home Loan Bank of Pittsburgh
Statement of Cash Flows (unaudited)

	For the nine months ended September 30,
(in thousands)	2007			2006
OPERATING ACTIVITIES
Net income	$	170,140		$	158,334
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		87,455			107,900
Change in net fair value adjustment on derivative and hedging activities		(21,734	)		(112,886	)
Other adjustments		1,148			1,129
Net change in:
Accrued interest receivable		(57,458	)		(106,310	)
Other assets		(856	)		(3,305	)
Accrued interest payable		1,506			135,010
Other liabilities		8,795			5,067
Total adjustments		18,856			26,605
Net cash provided by operating activities	$	188,996		$	184,939
INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits (including $(58) to and $703 from other FHLBanks for mortgage loan programs)	$	(1,185,058	)	$	(599,888	)
Federal funds sold		(1,715,000	)		(1,800,000	)
Premises, software and equipment		(5,113	)		(6,270	)
Available-for-sale securities:
Proceeds		14,025			244,748
Held-to-maturity securities:
Net (decrease) in short-term		(160,152	)		(196,310	)
Proceeds from maturities long-term		1,678,592			1,182,161
Purchases of long-term		(2,157,092	)		(2,288,338	)
Loans to members:
Proceeds		512,158,717			532,978,563
Made		(526,790,085	)		(535,249,666	)
Mortgage loans held for portfolio:
Proceeds		694,179			814,097
Purchases		(89,325	)		(364,566	)
Net cash (used in) investing activities	$	(17,556,312	)	$	(5,285,469	)

30

Federal Home Loan Bank of Pittsburgh
Statement of Cash Flows (continued) (unaudited)

	For the nine months ended September 30,
(in thousands)	2007			2006
FINANCING ACTIVITIES
Net change in:
Deposits	$	4,133,809		$	(89,967	)
Net proceeds from issuance of consolidated obligations:
Discount notes		386,868,015			132,222,724
Bonds (including $0 from other FHLBanks)		18,378,215			14,986,402
Payments for maturing and retiring consolidated obligations:
Discount notes		(376,555,833	)		(130,786,434	)
Bonds (including $0 from other FHLBanks)		(15,701,450	)		(11,499,866	)
Proceeds from issuance of capital stock		4,136,818			3,798,541
Payments for redemption of mandatorily redeemable capital stock		(3,962	)		(35,071	)
Payments for redemption/repurchase of capital stock		(3,720,027	)		(3,406,046	)
Cash dividends paid		(141,136	)		(132,943	)
Net cash provided by financing activities	$	17,394,449		$	5,057,340
Net increase (decrease) in cash and cash equivalents		27,133			(43,190	)
Cash and cash equivalents at beginning of the period		78,098			115,370
Cash and cash equivalents at end of the period	$	105,231		$	72,180
Supplemental disclosures:
Interest paid during the period	$	1,992,583		$	1,677,043
AHP payments, net		12,729			8,429
REFCORP assessments paid		41,016			40,544

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

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Federal Home Loan Bank of Pittsburgh
Statement of Changes in Capital (unaudited)

										Accumulated
										Other
	Capital Stock - Putable						Retained			Comprehensive
(in thousands, except shares)	Shares			Par Value			Earnings			Income (Loss)			Total Capital
Balance December 31, 2005		30,786		$	3,078,583		$	188,479		$	(7,516	)	$	3,259,546
Proceeds from sale of capital stock		37,985			3,798,541									3,798,541
Redemption/repurchase of capital stock		(34,060	)		(3,406,046	)								(3,406,046	)
Shares reclassified to mandatorily redeemable capital stock		(318	)		(31,812	)								(31,812	)
Comprehensive income:
Net income								158,334						158,334
Net unrealized gain on available-for-sale securities											355			355
Net unrealized gain relating to hedging activities											2,487			2,487
Total comprehensive income								158,334			2,842			161,176
Cash dividends on capital stock								(108,836	)					(108,836	)
Balance September 30, 2006		34,393		$	3,439,266		$	237,977		$	(4,674	)	$	3,672,569
Balance December 31, 2006		33,844		$	3,384,358		$	254,777		$	(5,161	)	$	3,633,974
Proceeds from sale of capital stock		41,368			4,136,818									4,136,818
Redemption/repurchase of capital stock		(37,200	)		(3,720,027	)								(3,720,027	)
Comprehensive income:
Net income								170,140						170,140
Net unrealized loss on available-for-sale securities											(103	)		(103	)
Net unrealized gain relating to hedging activities											1,489			1,489
Benefit plans – amortization of net loss and net prior service cost											134			134
Total comprehensive income								170,140			1,520			171,660
Cash dividends on capital stock								(141,136	)					(141,136	)
Balance September 30, 2007		38,012		$	3,801,149		$	283,781		$	(3,641	)	$	4,081,289

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

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Federal Home Loan Bank of Pittsburgh
Notes to Unaudited Financial Statements

Note 1 – Background Information and Basis of Presentation

The Federal Home Loan Bank of Pittsburgh (Bank), a federally chartered corporation, is one of twelve district Federal Home Loan Banks (FHLBanks). The FHLBanks serve the public by enhancing the availability of credit for residential mortgages and targeted community development. The Bank provides a readily available, low-cost source of funds to its member institutions. The Bank is a cooperative, which means that current members own nearly all of the outstanding capital stock of the Bank and may receive dividends on their investment. Regulated financial depositories and insurance companies engaged in residential housing finance that maintain their principal place of business in Delaware, Pennsylvania or West Virginia may apply for membership. State and local housing authorities that meet certain statutes or criteria may also borrow from the Bank. While eligible to borrow, state and local housing authorities are not members of the Bank and, as such, are not eligible to hold capital stock.

All members must purchase stock in the Bank. The amount of capital stock members own is based on their outstanding loans, their unused borrowing capacity and the principal balance of residential mortgage loans previously sold to the Bank. See Note 9 for additional information. As a result of these requirements, the Bank conducts business with members in the normal course of business. The Bank considers those members with capital stock outstanding in excess of ten percent of total capital stock outstanding to be related parties. See Note 11 for additional information.

The Federal Housing Finance Board (Finance Board), an independent agency in the executive branch of the United States government, supervises and regulates the FHLBanks and the Office of Finance (OF). The OF is a joint office of the FHLBanks established by the Finance Board to facilitate the issuance and servicing of the consolidated obligations of the FHLBanks and to prepare the FHLBank System combined financial reports. The Finance Board’s principal purpose is to ensure that the FHLBanks operate in a safe and sound manner, carry out their housing finance mission, remain adequately capitalized, and can raise funds in the capital markets. Also, the Finance Board establishes policies and regulations covering the operations of the FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The Bank does not have any special-purpose entities or any other types of off-balance sheet conduits.

As provided by the Federal Home Loan Bank Act of 1932 (the Act), as amended, or Finance Board regulation, the Bank’s debt instruments, referred to as consolidated obligations, are the joint and several obligations of all the FHLBanks and are the primary source of funds for the FHLBanks. Deposits, other borrowings, and capital stock issued to members provide other funds. The Bank primarily uses these funds to provide loans to members and to purchase mortgages from members through the MPF^® Program. The Bank also provides member institutions with correspondent services, such as wire transfer, safekeeping and settlement.

The accounting and financial reporting policies of the Bank conform to Generally Accepted Accounting Principles (GAAP). Preparation of the unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses. Actual results could differ from those estimates. In addition, from time to time certain amounts in the prior period may be reclassified to conform to the current presentation. In the opinion of management, all normal recurring adjustments have been included for a fair statement of this interim financial information. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2006 included in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Note 2 – Accounting Adjustments, Changes in Accounting Principle and Recently Issued Accounting Standards and Interpretations

Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157).  In September 2006, the FASB issued SFAS 157 which addresses how to measure fair value. SFAS 157 provides a single definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for the Bank’s fiscal year beginning on January 1, 2008. When adopted, SFAS 157 will require additional financial statement disclosures for certain instruments. The Bank is currently evaluating what other impacts the adoption of this standard will have on its Statement of Operations and Statement of Condition.

33

Notes to Unaudited Financial Statements (continued)

Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (SFAS 159).  On February 15, 2007, the FASB issued SFAS No. 159 which creates a fair value option allowing, but not requiring, an entity to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities, with changes in fair value recognized in earnings as they occur. It requires entities to separately display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. Additionally, SFAS 159 requires an entity to provide information that would allow users to understand the effect on earnings of changes in the fair value of those instruments selected for the fair value election. SFAS 159 is effective at the beginning of an entity’s first fiscal year beginning after November 15, 2007 (January 1, 2008 for the Bank). Early adoption is permitted at the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157. Although the Bank has not yet determined the effect that the implementation of SFAS 159 will have on its financial condition, results of operations or cash flows, the Bank believes that, if the fair value option is elected in any significant manner, SFAS 159 could have a material impact on its Statement of Operations and Statement of Condition.

Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments – an Amendment of FASB Statements No. 133 and 140 (SFAS 155).  In February 2006, the FASB issued SFAS 155 which resolves issues addressed in SFAS 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS 155 amends SFAS 133 to simplify the accounting for embedded derivatives by permitting fair value remeasurement, on an instrument by instrument basis, for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 also establishes a requirement to evaluate interests in securitized financial assets in accordance with SFAS 133 to identify interests that are freestanding derivatives or embedded derivatives requiring bifurcation. SFAS 155 became effective on January 1, 2007 for all financial instruments acquired or issued after that date. The Bank’s adoption of SFAS 155 did not have a material impact on the Bank’s Statement of Operations or Statement of Condition.

SFAS 133 Implementation Issue No. B40, Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets (DIG B40).  In December 2006, the FASB issued DIG B40, which clarifies when a securitized interest in prepayable financial assets is subject to the conditions in paragraph 13(b) of SFAS 133. The Bank’s adoption of DIG B40 did not have a material impact on its Statement of Operations or Statement of Condition.

SFAS 133 Implementation Issue No. G26, Hedging Interest Cash Flows on Variable-Rate Assets and Liabilities That Are Not Based on a Benchmark Interest Rate (DIG G26).  In December 2006, the FASB issued DIG G26, which clarifies when the hedge of a designated risk related to variable – rate financial assets or liabilities qualifies as a cash flow hedge. DIG G26 became effective April 1, 2007 for the Bank. The Bank’s adoption of DIG G26 did not have a material impact on its Statement of Operations or Statement of Condition.

FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39 (FIN 39-1).  In April 2007, the FASB issued FIN 39-1 which permits the fair value of receivables or payables related to cash collateral to be offset against the net fair value amount recognized for derivative instruments under the same master netting arrangement (such offset is generally required if derivative fair values by counterparty are offset). FIN 39-1 becomes effective for the Bank’s fiscal year beginning on January 1, 2008. Retrospective application is required, with early adoption permitted. The Bank does not expect the adoption of FIN 39-1will have a material impact on its Statement of Operations or Statement of Condition.

Note 3 – Available-for-Sale Securities

Available-for-sale securities as of September 30, 2007 and December 31, 2006 were as follows:

	September 30, 2007
	Amortized		Gross Unrealized		Gross Unrealized			Estimated
(in thousands)	Cost		Gains		Losses			Fair Value
Equity mutual funds offsetting deferred compensation	$	4,014	$	1,798	$	-		$	5,812
Private label mortgage-backed securities		46,343		1		(432	)		45,912
Total available-for-sale securities	$	50,357	$	1,799	$	(432	)	$	51,724

34

Notes to Unaudited Financial Statements (continued)

	December 31, 2006
	Amortized		Gross Unrealized		Gross Unrealized		Estimated
(in thousands)	Cost		Gains		Losses		Fair Value
Equity mutual funds offsetting deferred compensation	$	4,014	$	1,348		-	$	5,362
Private label mortgage-backed securities		60,364		122		-		60,486
Total available-for-sale securities	$	64,378	$	1,470		-	$	65,848

Certain equity mutual funds within the available-for-sale portfolio are maintained to generate returns that seek to partially offset changes in liabilities related to the equity market risk of certain deferred compensation arrangements. These deferred compensation liabilities were $7.3 million and $6.2 million at September 30, 2007 and December 31, 2006, respectively, and are included in other liabilities on the Statement of Condition.

Available-for-sale securities with unrealized losses had fair values of $41.6 million as of September 30, 2007. These securities, as of September 30, 2007 have been in a loss position for less than twelve months. There were no available-for-sale securities with unrealized loss positions as of December 31, 2006. The Bank reviewed its available-for-sale investment securities and determined that all unrealized losses reflected above are temporary as of September 30, 2007. The determination that the declines in fair value are temporary is based on several factors, including the fact that the Bank has the ability and the intent to hold such securities through to recovery of the unrealized losses. All private label mortgage-backed securities in the available-for-sale portfolio were rated AAA. The Bank reviewed the credit ratings of the entire portfolio and noted that there have been no downgrades. The unrealized loss position that has occurred in the portfolio is primarily due to cyclical interest rate patterns; therefore, the Bank has determined that all declines in fair value are temporary.

Redemption Terms.  The amortized cost of the Bank’s mortgage-backed securities classified as available-for-sale includes net discounts of $10 thousand and $15 thousand at September 30, 2007 and December 31, 2006, respectively. Contractual maturity will occur over a period exceeding ten years. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment fees.

Interest Rate Payment Terms.  The following table details interest rate payment terms for available-for-sale mortgage-backed securities at September 30, 2007 and December 31, 2006.

	September 30,		December 31,
(in thousands)	2007		2006
Variable-rate pass-through securities	$	1,436	$	2,668
Variable-rate collateralized mortgage obligations		44,907		57,696
Total amortized cost	$	46,343	$	60,364

Realized Gains and Losses.  No realized gains or losses were reported for the three and nine months ended September 30, 2007 and 2006.

35

Notes to Unaudited Financial Statements (continued)

Note 4 – Held-to-Maturity Securities

Held-to-maturity securities as of September 30, 2007 and December 31, 2006 were as follows:

	September 30, 2007
	Amortized		Gross Unrealized		Gross Unrealized			Estimated
(in thousands)	Cost		Gains		Losses			Fair Value
Commercial paper	$	495,407	$	-	$	-		$	495,407
Government-sponsored enterprises		1,121,079		2,075		(6,169	)		1,116,985
State or local agency obligations		725,959		7,739		(3,998	)		729,700
		2,342,445		9,814		(10,167	)		2,342,092
Mortgage-backed securities:
U.S. agency		58,153		70		(1,995	)		56,228
Government-sponsored enterprises		1,841,054		4,504		(43,018	)		1,802,540
Private label		9,350,471		6,850		(159,455	)		9,197,866
Total mortgage-backed securities		11,249,678		11,424		(204,468	)		11,056,634
Total held-to-maturity securities	$	13,592,123	$	21,238	$	(214,635	)	$	13,398,726

	December 31, 2006
	Amortized		Gross Unrealized		Gross Unrealized			Estimated
(in thousands)	Cost		Gains		Losses			Fair Value
Commercial paper	$	332,955	$	-	$	-		$	332,955
Government-sponsored enterprises		984,941		509		(7,729	)		977,721
State or local agency obligations		779,780		7,394		(4,178	)		782,996
		2,097,676		7,903		(11,907	)		2,093,672
Mortgage-backed securities:
U.S. agency		70,987		192		(2,649	)		68,530
Government-sponsored enterprises		1,766,871		3,647		(51,281	)		1,719,237
Private label		9,003,566		15,585		(141,701	)		8,877,450
Total mortgage-backed securities		10,841,424		19,424		(195,631	)		10,665,217
Total held-to-maturity securities	$	12,939,100	$	27,327	$	(207,538	)	$	12,758,889

The Bank participates in the MPF Shared Funding Program, which provides for mortgage loans originated through the MPF program to be sold to a third party-sponsored trust and “pooled” into securities. FHLBank Chicago purchased these securities and sold a portion to other FHLBanks. The Bank’s restricted securities relating to the MPF Shared Funding Program are classified as held-to-maturity and are included in private label mortgage-backed securities above. They are reported at amortized cost of $54.5 million and $60.4 million as of September 30, 2007 and December 31, 2006, respectively. These securities are not publicly traded and are not guaranteed by any of the FHLBanks. No held-to-maturity securities were pledged as collateral as of September 30, 2007 and December 31, 2006.

36

Notes to Unaudited Financial Statements (continued)

The following tables summarize the held-to-maturity securities with unrealized losses as of September 30, 2007 and December 31, 2006. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	September 30, 2007
	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands)	Value		Losses			Value		Losses			Value		Losses
Government-sponsored enterprises	$	-	$	-		$	114,910	$	(6,169	)	$	114,910	$	(6,169	)
State or local agency obligations		45,328		(1,744	)		68,756		(2,254	)		114,084		(3,998	)
		45,328		(1,744	)		183,666		(8,423	)		228,994		(10,167	)
Mortgage-backed securities:
U.S. agency		2,339		(9	)		41,945		(1,986	)		44,284		(1,995	)
Government-sponsored enterprises		172,909		(544	)		974,261		(42,474	)		1,147,170		(43,018	)
Private label		2,887,791		(23,056	)		4,890,010		(136,399	)		7,777,801		(159,455	)
Total mortgage-backed securities		3,063,039		(23,609	)		5,906,216		(180,859	)		8,969,255		(204,468	)
Total temporarily impaired	$	3,108,367	$	(25,353	)	$	6,089,882	$	(189,282	)	$	9,198,249	$	(214,635	)

	December 31, 2006
	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(in thousands)	Value		Losses			Value		Losses			Value		Losses
Government-sponsored enterprises	$	677,212	$	(7,729	)	$	-	$	-		$	677,212	$	(7,729	)
State or local agency obligations		222,099		(4,178	)		-		-			222,099		(4,178	)
		899,311		(11,907	)		-		-			899,311		(11,907	)
Mortgage-backed securities:
U.S. agency		-		-			50,468		(2,649	)		50,468		(2,649	)
Government-sponsored enterprises		252,226		(1,058	)		1,116,169		(50,223	)		1,368,395		(51,281	)
Private label		1,046,250		(6,372	)		5,441,814		(135,329	)		6,488,064		(141,701	)
Total mortgage-backed securities		1,298,476		(7,430	)		6,608,451		(188,201	)		7,906,927		(195,631	)
Total temporarily impaired	$	2,197,787	$	(19,337	)	$	6,608,451	$	(188,201	)	$	8,806,238	$	(207,538	)

The Bank reviewed its held-to-maturity investment securities and determined that all unrealized losses reflected above are temporary as of September 30, 2007 and December 31, 2006. The determination that the declines in fair value are temporary is based on several factors, including the fact that the Bank has the ability and the intent to hold such securities through to recovery of the unrealized losses. The unrealized loss position that has occurred in the portfolio is primarily due to cyclical interest rate patterns; therefore, the Bank has determined that all declines in fair value are temporary. Specific to the MBS portfolio, all investments are rated AAA, except for the investment related to the MPF Shared Funding Program, which has an AA rating. A portion of these securities are guaranteed payment of principal and interest by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Additionally, the Bank reviewed the credit ratings of the entire portfolio and noted that there have been no downgrades.

Redemption Terms.  The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity are shown below. Expected maturities of some securities and mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

37

Notes to Unaudited Financial Statements (continued)

(in thousands)	September 30, 2007				December 31, 2006
	Amortized		Estimated		Amortized		Estimated
Year of Maturity	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	1,217,407	$	1,218,832	$	432,955	$	432,587
Due after one year through five years		656,491		663,783		1,129,158		1,134,964
Due after five years through ten years		131,654		125,158		149,760		142,945
Due after ten years		336,893		334,319		385,803		383,176
Subtotal		2,342,445		2,342,092		2,097,676		2,093,672
Mortgage-backed securities		11,249,678		11,056,634		10,841,424		10,665,217
Total held-to-maturity securities	$	13,592,123	$	13,398,726	$	12,939,100	$	12,758,889

The amortized cost of the Bank’s mortgage-backed securities classified as held-to-maturity includes net discounts of $90.6 million and $88.4 million at September 30, 2007 and December 31, 2006, respectively.

Interest Rate Payment Terms.  The following table details interest rate payment terms for held-to-maturity securities at September 30, 2007 and December 31, 2006.

	September 30,		December 31,
(in thousands)	2007		2006
Amortized cost of held-to-maturity securities other than mortgage-backed securities:
Fixed-rate	$	1,809,210	$	1,494,011
Variable-rate		533,235		603,665
		2,342,445		2,097,676
Amortized cost of held-to-maturity mortgage-backed securities:
Pass through securities:
Fixed-rate		4,789,959		4,630,851
Variable-rate		175,792		209,938
Collateralized mortgage obligations:
Fixed-rate		5,972,335		5,617,859
Variable-rate		311,592		382,776
		11,249,678		10,841,424
Total amortized cost of held-to-maturity securities	$	13,592,123	$	12,939,100

Realized Gains and Losses.  There were no realized gains or realized losses on sale of held-to-maturity securities for the three and nine months ended September 30, 2007 and 2006.

38

Notes to Unaudited Financial Statements (continued)

Note 5 – Loans to Members

Redemption Terms.  At September 30, 2007, the Bank had loans to members outstanding including Affordable Housing Program (AHP) loans at interest rates ranging from 0% to 8.56% as summarized below. AHP subsidized loans have interest rates ranging between 0% and 6.50%.

	September 30, 2007					December 31, 2006
(dollars in thousands)
				Weighted Average					Weighted Average
Year of Original Maturity	Amount			Interest Rate		Amount			Interest Rate
Due in 1 year or less	$	29,993,548			5.00	$	18,942,187			5.02
Due after 1 year through 2 years		8,398,469			4.77		7,193,427			4.70
Due after 2 years through 3 years		8,903,549			4.98		6,707,084			4.89
Due after 3 years through 4 years		2,988,051			5.15		3,831,103			5.22
Due after 4 years through 5 years		4,248,892			4.87		3,266,398			5.20
Thereafter		9,496,729			4.99		9,417,517			4.66
Index amortizing loans		-			-		40,584			5.80
Total par value		64,029,238			4.97		49,398,300			4.91
Discount on AHP loans to members		(1,338	)				(1,493	)
Deferred prepayment fees		(222	)				(178	)
SFAS 133 hedging adjustments		238,321					(61,252	)
Total book value	$	64,265,999				$	49,335,377

Index amortizing loans require repayment according to predetermined amortization schedules linked to the level of various indices. Usually, as market interest rates rise (fall), the maturity of an index amortizing loan to member extends (contracts).

The Bank offers certain loans to members that may be prepaid on specified dates without incurring prepayment fees (returnable loans). Other loans to members may only be prepaid by paying a fee (prepayment fee) to the Bank that makes the Bank financially indifferent to the prepayment of the loan. At September 30, 2007 and December 31, 2006, the Bank had returnable loans of $3.4 billion and $2.4 billion, respectively.

The following table summarizes loans to members either by next call date for returnable loans to members or by year of original maturity for the remainder of the portfolio.

(in thousands)	September 30,		December 31,
Year of Original Maturity or Next Call Date	2007		2006
Due or callable in 1 year or less	$	33,352,548	$	21,175,687
Due or callable after 1 year through 2 years		8,365,469		7,329,927
Due or callable after 2 years through 3 years		8,392,549		6,359,084
Due or callable after 3 years through 4 years		2,527,051		3,496,103
Due or callable after 4 years through 5 years		3,664,892		2,490,398
Thereafter		7,726,729		8,506,517
Index amortizing loans to members		-		40,584
Total par value	$	64,029,238	$	49,398,300

The Bank also offers convertible loans. With a convertible loan, the Bank purchases an option from the member that allows the Bank to convert the interest rate from fixed to floating by terminating the fixed loan, which the Bank normally would exercise when interest rates increase, and offering a floating-rate loan. At September 30, 2007 and December 31, 2006, the Bank had convertible loans outstanding of $9.1 billion and $8.9 billion, respectively. The following table summarizes loans to members either by next convert date for convertible loans to members or by year of maturity for the

39

Notes to Unaudited Financial Statements (continued)

remainder of the portfolio. The majority of all convertible loans to members had a next convert date within one year or less.

(in thousands)	September 30,		December 31,
Year of Original Maturity or Next Convert Date	2007		2006
Due or convertible in 1 year or less	$	37,262,918	$	27,050,857
Due or convertible after 1 year through 2 years		8,907,969		6,811,927
Due or convertible after 2 years through 3 years		7,852,229		6,132,834
Due or convertible after 3 years through 4 years		2,148,451		2,386,383
Due or convertible after 4 years through 5 years		2,883,692		2,227,948
Thereafter		4,973,979		4,747,767
Index amortizing loans to members		-		40,584
Total par value	$	64,029,238	$	49,398,300

At September 30, 2007 and December 31, 2006, the Bank had rights to collateral with an estimated value greater than its outstanding loans to members.

Details regarding security terms of the loans to members portfolio can be found in Note 9 of the footnotes to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Credit Risk.  While the Bank has never experienced a loan loss on a loan to a member, the expansion of collateral for Community Financial Institutions (CFIs) and lending to nonmember housing associates provides the potential for additional credit risk for the Bank. It is important to note that the Bank’s loans to members portfolio is based on the pledged security of collateral, including residential mortgage loans. In light of recent market conditions related to subprime and Alt-A residential mortgage loans, the Bank recognizes the additional risk that may be inherent in the mortgage markets in general at this time. The management of the Bank has policies and procedures in place to appropriately manage this credit risk. The Bank actively monitors this risk and, when necessary, adjusts its policies, practices and procedures. Accordingly, the Bank has not provided any allowances for credit losses on loans to members.

The Bank’s potential credit risk from loans to members is concentrated in commercial banks and savings institutions. As of September 30, 2007, the Bank had loans to members of $46.2 billion outstanding to five members which represented 72.2% of total loans outstanding. As of December 31, 2006, the Bank had loans to members of $31.9 billion outstanding to three members which represented 64.6% of total loans outstanding. The Bank held sufficient collateral to secure loans to members and the Bank has never incurred, nor expects to incur, any losses on these loans. See Note 11 for further information on transactions with related parties.

Interest Rate Payment Terms.  The following table details interest rate payment terms for loans to members.

	September 30,		December 31,
(in thousands)	2007		2006
Fixed rate – overnight	$	8,173,650	$	1,651,474
Fixed rate – term		50,326,480		40,526,779
Variable-rate		5,529,108		7,220,047
Total par value	$	64,029,238	$	49,398,300

For loans to members with contractual maturity beyond one year, at September 30, 2007, the Bank had $29.1 billion of fixed rate loans and $4.9 billion of variable rate loans.

Note 6 – Mortgage Loans Held for Portfolio

The MPF^® Program involves investment by the Bank in mortgage loans which are purchased from its participating members. The total loans represent held-for-portfolio loans under the MPF^® Program whereby the Bank’s members originate, service, and credit enhance home mortgage loans that are then sold to the Bank. The Bank has historically sold participation interests in some of its MPF^® Program loans to other FHLBanks and holds the rest in portfolio. See Note 11 for further information on transactions with related parties.

40

Notes to Unaudited Financial Statements (continued)

The following table presents information on mortgage loans held for portfolio:

	September 30,			December 31,
(in thousands)	2007			2006
Fixed medium-term single-family mortgages(1)	$	1,170,487		$	1,314,990
Fixed long-term single-family mortgages(1)		5,118,939			5,579,605
Total par value	$	6,289,426		$	6,894,595
Premiums		69,603			79,579
Discounts		(24,327	)		(27,088	)
SFAS 133 hedging adjustments		17,551			20,112
Total mortgage loans held for portfolio	$	6,352,253		$	6,967,198

Note:

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

The following tables detail the par value of mortgage loans held for portfolio outstanding categorized by type and by maturity.

	September 30,		December 31,
(in thousands)	2007		2006
Government-insured or -guaranteed loans	$	542,676	$	622,813
Conventional loans		5,746,750		6,271,782
Total par value	$	6,289,426	$	6,894,595
Year of maturity
Due within one year	$	14	$	13
Due after one year through five years		1,159		819
Due after five years		6,288,253		6,893,763
Total par value	$	6,289,426	$	6,894,595

Note 7 – Deposits

The Bank offers demand and overnight deposits for both members and qualifying non-members. In addition, the Bank offers short-term deposit programs to members. These programs are reported as interest-bearing demand, overnight, and term deposits. Other interest-bearing deposits are comprised primarily of counterparty cash collateral for swaps. Noninterest-bearing demand and overnight deposits are comprised primarily of funds collected by members pending disbursement to the mortgage loan holders, as well as member funds deposited at the Federal Reserve Bank.

The following table details interest-bearing and noninterest-bearing deposits as of September 30, 2007 and December 31, 2006.

	September 30,		December 31,
(in thousands)	2007		2006
Interest-bearing:
Demand and overnight	$	2,742,079	$	1,056,341
Term		2,501,200		1,027
Other		286,463		351,937
Total interest-bearing deposits		5,529,742		1,409,305
Noninterest-bearing:
Demand and overnight		30,064		16,692
Total deposits	$	5,559,806	$	1,425,997

41

Notes to Unaudited Financial Statements (continued)

The aggregate amount of time deposits with a denomination of $100 thousand or more was $2.5 billion and $1.0 million as of September 30, 2007 and December 31, 2006, respectively.

Note 8 – Consolidated Obligations

Detailed information regarding consolidated obligations, including general terms and interest rate payment terms, can be found in Note 14 of the footnotes to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

The following table details interest rate payment terms for consolidated obligation bonds.

	September 30,		December 31,
(in thousands)	2007		2006
Fixed-rate	$	46,513,703	$	45,597,053
Floating-rate		5,115,000		2,325,000
Step-up		3,215,150		4,135,150
Conversion bonds:
Fixed to floating		65,000		170,000
Floating to fixed		165,000		100,000
Range bonds		632,380		657,380
Zero coupon		4,028,000		4,028,000
Total par value	$	59,734,233	$	57,012,583

Maturity Terms.  The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding by year of original maturity.

	September 30, 2007					December 31, 2006
(dollars in thousands)
				Weighted Average					Weighted Average
Year of Original Maturity	Amount			Interest Rate		Amount			Interest Rate
Due in 1 year or less	$	18,737,410			4.66	$	14,799,570			4.18
Due after 1 year through 2 years		8,485,480			4.74		12,634,000			4.53
Due after 2 years through 3 years		6,657,150			4.95		5,006,530			4.45
Due after 3 years through 4 years		3,412,000			5.05		5,313,000			4.85
Due after 4 years through 5 years		3,663,000			5.37		2,468,000			5.02
Thereafter		14,505,500			3.69		13,185,000			3.40
Index amortizing notes		4,273,693			4.91		3,606,483			4.79
Total par value		59,734,233			4.55		57,012,583			4.24
Bond premiums		18,045					20,474
Bond discounts		(3,083,269	)				(3,135,236	)
SFAS 133 hedging adjustments		(108,135	)				(270,429	)
Total book value	$	56,560,874				$	53,627,392

Consolidated obligation bonds outstanding at September 30, 2007 and December 31, 2006, include callable bonds totaling $28.3 billion and $28.1 billion, respectively. The Bank primarily uses fixed-rate callable debt to finance loans to members (see Note 5) and mortgage-backed securities. Simultaneously with such a debt issue, the Bank may also enter an interest-rate swap (in which the Bank pays variable and receives fixed) with a call feature that mirrors the option embedded in the debt (a sold callable interest rate swap). The combined sold callable interest rate swap and callable debt allows the Bank to provide members attractively priced loans. The par value of the Bank’s non-callable consolidated obligation bonds at September 30, 2007 and December 31, 2006, was $31.4 billion and $28.9 billion, respectively.

42

Notes to Unaudited Financial Statements (continued)

The following table summarizes consolidated obligation bonds outstanding by year of original maturity or next call date.

(in thousands)
	September 30,		December 31,
Year of Original Maturity or Next Call Date	2007		2006
Due or callable in 1 year or less	$	37,642,440	$	33,385,100
Due or callable after 1 year through 2 years		8,392,100		10,554,000
Due or callable after 2 years through 3 years		3,746,000		3,672,000
Due or callable after 3 years through 4 years		1,385,000		1,740,000
Due or callable after 4 years through 5 years		930,000		1,069,000
Thereafter		3,365,000		2,986,000
Index amortizing notes		4,273,693		3,606,483
Total par value	$	59,734,233	$	57,012,583

Consolidated Discount Notes.  Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities up to 365 days. These notes are issued at less than their face amount and redeemed at par value when they mature. The Bank’s participation in consolidated discount notes was as follows:

	September 30,			December 31,
(dollars in thousands)	2007			2006
Book value	$	28,182,892		$	17,845,226
Par value		28,300,000			17,933,218
Weighted average interest rate		4.86	%		5.26	%

The Act authorizes the Secretary of the Treasury, at his or her discretion, to purchase consolidated obligations of the FHLBanks aggregating not more than $4.0 billion under certain conditions. The terms, conditions, and interest rates are determined by the Secretary of the Treasury. There were no such purchases by the U.S. Treasury during the nine months ended September 30, 2007 or the year ended December 31, 2006.

Note 9 – Capital

The following table demonstrates the Bank’s compliance with capital requirements at September 30, 2007 and December 31, 2006:

	September 30, 2007						December 31, 2006
(dollars in thousands)	Required			Actual			Required			Actual
Regulatory capital requirements:
Risk-based capital	$	599,476		$	4,088,860		$	509,155		$	3,647,027
Total capital-to-asset ratio		4.0	%		4.3	%		4.0	%		4.7	%
Total regulatory capital	$	3,808,200			4,096,314		$	3,095,058		$	3,654,615
Leverage ratio		5.0	%		6.5	%		5.0	%		7.1	%
Leverage capital	$	4,760,250		$	6,140,744		$	3,868,823		$	5,478,130

43

Notes to Unaudited Financial Statements (continued)

Capital Concentrations.  The following table presents member holdings of ten percent or more of the Bank’s total capital stock including mandatorily redeemable capital stock outstanding as of September 30, 2007 and December 31, 2006.

	September 30, 2007				December 31, 2006
(dollars in thousands)
			Percent				Percent
Member	Capital stock		of total		Capital stock		of total
Sovereign Bank, Reading PA	$	929,226		24.4	$	905,541		26.7
ING Bank, FSB, Wilmington, DE		537,699		14.1		286,075		8.4
GMAC Bank, Midvale UT(a)		476,415		12.5		354,900		10.5
Citicorp Trust Bank, FSB, Newark DE		301,305		7.9		438,641		12.9

^(a) Formerly known as GMAC Automotive Bank. For Bank membership purposes, principal place of business is Horsham, PA.

Mandatorily Redeemable Capital Stock.  At September 30, 2007 and December 31, 2006, the Bank had $3.9 million and $7.9 million in capital stock subject to mandatory redemption with payment subject to a five-year waiting period and the Bank meeting its minimum regulatory capital requirements. For the third quarter of 2007 and 2006, dividends on mandatorily redeemable capital stock in the amount of $83 thousand and $483 thousand, respectively, were recorded as interest expense. For the nine months ended September 30, 2007 and 2006, dividends on mandatorily redeemable capital stock were $333 thousand and $824 thousand, respectively. There have been no reclassifications of mandatorily redeemable capital stock back into capital.

As of September 30, 2007, the mandatorily redeemable capital stock was held by two members (one of which is in receivership) who had notified the Bank of their intent to redeem their capital stock and withdraw from membership and one former member. The following table shows the amount of mandatorily redeemable capital stock by contractual year of redemption.

	September 30,		December 31,
(in thousands)	2007		2006
Due in 1 year or less	$	1	$	708
Due after 1 year through 2 years		5		-
Due after 2 years through 3 years		3,899		5
Due after 3 years through 4 years		11		7,155
Due after 4 years through 5 years		6		11
Thereafter		8		13
Total	$	3,930	$	7,892

The year of redemption in the table above reflects: (1) the end of the five-year redemption period for the two withdrawing members and (2) the maturity date of the activity the stock is related to for the one former member.

The Bank repurchased capital stock related to out-of-district mergers totaling $4.0 million and $35.1 million for the nine months ended September 30, 2007 and 2006, respectively.

A rollforward of the Bank’s mandatorily redeemable capital stock activity is presented in the following table.

	For the nine months ended September 30,
(in thousands)	2007			2006
Balance, beginning of the period	$	7,892		$	16,731
Capital stock subject to mandatory redemption reclassified from equity due to withdrawals		-			31,812
Redemption of mandatorily redeemable capital stock due to withdrawals		(3,962	)		(35,071	)
Balance, end of the period	$	3,930		$	13,472

Dividends.  Prior to reaching the $200 million retained earnings target, the Bank paid out less than 100% of net income in dividends. This target was achieved by March 31, 2006. All future dividend payments are subject to the

44

Notes to Unaudited Financial Statements (continued)

approval of the Board of Directors. Dividends may be paid in either capital stock or cash, although the Bank has historically paid cash dividends only.

Additional discussion regarding mandatorily redeemable capital stock, members’ capital requirements and the restrictions on capital stock redemption can be found in Note 15 of the footnotes to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Note 10 – Derivatives and Hedging Activities

The components of net gain (loss) on derivatives and hedging activities for the three and nine months ended September 30, 2007 and 2006 are presented in the following table.

Net Gain (Loss) on Derivatives and Hedging Activities

	For the three months ended September 30,						For the nine months ended September 30,
(in thousands)	2007			2006			2007			2006
Gains related to fair value hedge ineffectiveness	$	5,801		$	5,121		$	6,917		$	6,601
Losses on economic hedges		(2,347	)		(7,296	)		(462	)		(3,639	)
Other		304			668			527			659
Gains (losses) on intermediary hedges		—			(3	)		53			(102	)
Net gain (loss) on derivatives and hedging activities	$	3,758		$	(1,510	)	$	7,035		$	3,519

There were no material amounts for the three and nine months ended September 30, 2007 and 2006 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 September 30, 2007, the deferred net gains on derivative instruments accumulated in other comprehensive income expected to be reclassified to earnings during the next twelve months was $1.2 million. Normally, the maximum length of time over which the Bank hedges its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is 45 days or less. The Bank did not have any hedges related to the exposure to the variability in future cash flows for forecasted transactions at September 30, 2007.

45

Notes to Unaudited Financial Statements (continued)

The following table represents outstanding notional balances and estimated fair values of the derivatives outstanding at September 30, 2007 and December 31, 2006.

	September 30, 2007					December 31, 2006
			Estimated					Estimated
(in thousands)	Notional		Fair Value			Notional		Fair Value
Interest rate swaps
Fair value	$	69,520,254	$	75,809		$	62,895,887	$	162,107
Economic		151,000		(2,420	)		1,713,205		(1,115	)
Intermediation		8,672		16			27,388		34
Interest rate swaptions
Economic		1,050,000		873			750,000		506
Interest rate forward settlement agreements
Fair value		680,000		(707	)		53,000		321
Mortgage delivery commitments
Economic		9,376		5			4,267		(8	)
Total	$	71,419,302	$	73,576		$	65,443,747	$	161,845
Total derivatives excluding accrued interest				73,576					161,845
Accrued interest				165,434					193,038
Net derivative balances				239,010					354,883
Net derivative asset balances				387,639					498,976
Net derivative liability balances				(148,629	)				(144,093	)
Net derivative balances			$	239,010				$	354,883

Credit Risk.  At September 30, 2007 and December 31, 2006, the Bank’s maximum credit risk, was approximately $387.6 million and $499.0 million, respectively. These totals include $116.1 million and $153.5 million, respectively, of net accrued interest receivable. In determining maximum credit risk, the Bank considers accrued interest receivables and payables, and the legal right to offset derivative assets and liabilities by counterparty. The Bank held cash collateral of $286.4 million and $351.9 million as collateral as of September 30, 2007 and December 31, 2006, respectively. As of September 30, 2007, four counterparties comprised 19.6%, 16.6%, 15.7% and 15.6% of the Bank’s total credit risk when measured after consideration of related collateral. Additionally, collateral with respect to derivatives with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement and held by the member institution for the benefit of the Bank.

The Bank transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. See Note 14 for further discussion regarding assets pledged by the Bank to these counterparties.

Details regarding the Bank’s derivatives and hedging policies and practices can be found in Note 16 of the footnotes to the audited financial statements in the Bank’s 2006 Annual Report on Form 10-K, as amended.

46

Notes to Unaudited Financial Statements (continued)

Note 11 – Transactions with Related Parties

The following table summarizes significant outstanding related party member balances.

	September 30,		December 31,
(in thousands)	2007		2006
Investments(1)	$	262,865		-
Loans to members		37,473,374	$	33,845,223
Deposits		4,514,719		191,790
Capital stock		2,047,163		1,811,872

The following table summarizes the Statement of Operations effects corresponding to the above related party member balances.

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2007		2006		2007		2006
Interest income on investments(1)	$	4,005		-	$	5,968		-
Interest income on loans to members		381,209	$	257,409		1,116,215	$	706,386
Interest expense on deposits		3,549		373		4,562		817

⁽¹⁾ Reflects balances related to the Bank’s investment in Pennsylvania Housing Finance Agency (PHFA), of which one of the Bank’s appointed Public Interest Directors is the CEO. The Bank owned this investment in 2006; however, it was not considered a related party transaction until PHFA’s CEO joined the Board.

Total mortgage loan volume purchased from related party members during the three months ended September 30, 2007 and 2006 was $1.2 million and $104 thousand, respectively. Total mortgage loan volume purchased from related party members for the nine months ended September 30, 2007 and 2006 was $2.6 million and $0.8 million, respectively.

Interest income associated with outstanding mortgage loans purchased from related party members approximated $1.7 million and $2.0 million for the three months ended September 30, 2007 and 2006, respectively. Interest income on outstanding mortgage loans purchased was $5.4 million and $6.3 million for the nine months ended September 30, 2007 and 2006.

From time to time, the Bank may borrow from or lend to other FHLBanks on a short term uncollateralized basis. The following table includes gross amounts transacted under these arrangements.

					Nine months ended
	Three months ended September 30,				September 30,
(in millions)	2007		2006		2007		2006
Borrowed from other FHLBanks	$	4	$	1	$	8	$	121
Repaid to other FHLBanks		4		1		8		121
Loaned to other FHLBanks		-		50		-		400
Repaid by other FHLBanks		-		50		-		400

On occasion, an FHLBank may transfer its primary debt obligations to another FHLBank, which becomes the primary obligor on the transferred debt upon completion of the transfer. During the nine months ended September 30, 2007 and 2006, there was no such transfer.

Prior to May 1, 2006, the Bank regularly sold participation interests in the mortgage loans purchased from members to the FHLBank of Chicago. Upon execution of the services agreement which became effective May 1, 2006, both parties agreed to discontinue the practice and a transaction services fee is now being paid to the FHLBank of Chicago in lieu of the participation. The Bank entered into a new services agreement effective September 1, 2007, under which the Bank continues to pay a transaction services fee to the FHLBank of Chicago. See the Bank’s current report on Form 8-K filed with the SEC on September 7, 2007 and Exhibit 10.17 to this Quarterly Report on Form 10-Q for additional information. The par values of the mortgage loans participated to the FHLBank of Chicago were none and $13.3 million during the three months ended September 30, 2007 and 2006, respectively. For the nine months ended September 30, 2007 and 2006, the par values of the mortgage loans participated to the FHLBank of Chicago were $25 thousand and $88.0 million,

47

Notes to Unaudited Financial Statements (continued)

respectively. The services fee paid to the FHLBank of Chicago was $41 thousand for the three months ended September 30, 2007 and $115 thousand for the nine months ended September 30, 2007. The services fee paid to the FHLBank of Chicago was $29 thousand and $34 thousand for the three and nine months ended September 30, 2006, respectively.

Additional discussion regarding related party transactions including the definition of related parties, can be found in Note 20 of the footnotes to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

Note 12 – Estimated Fair Values

The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of September 30, 2007 and December 31, 2006. Although the Bank 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 majority of the Bank’s financial instruments, in certain cases fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions. The fair value summary tables do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities.

48

Notes to Unaudited Financial Statements (continued)

Details regarding the estimation of fair value amounts for each category in the Statement of Condition can be found in Note 21 of the footnotes to the audited financial statements in the Bank’s 2006 Annual Report filed on Form 10-K, as amended.

The carrying value and estimated fair value of the Bank’s financial instruments at September 30, 2007 and December 31, 2006 are presented in the tables below.

September 30, 2007 Fair Value Summary Table

			Net
	Carrying		Unrealized			Estimated
(in thousands)	Value		Gains (Losses)			Fair Value
Assets
Cash and due from banks	$	105,231	$	-		$	105,231
Interest-bearing deposits		4,805,042		83			4,805,125
Federal funds sold		5,085,000		(36	)		5,084,964
Available-for-sale securities		51,724		-			51,724
Held-to-maturity securities		13,592,123		(193,397	)		13,398,726
Loans to members		64,265,999		26,553			64,292,552
Mortgage loans held for portfolio, net		6,351,482		(175,669	)		6,175,813
Accrued interest receivable		473,865		-			473,865
Derivative assets		387,639		-			387,639
Other assets, including BOB loans		86,887		(34,079	)		52,808
Liabilities
Deposits	$	5,559,806	$	(55	)	$	5,559,861
Consolidated obligations:
Discount notes		28,182,892		(3,648	)		28,186,540
Bonds		56,560,874		(29,100	)		56,589,974
Mandatorily redeemable capital stock		3,930		-			3,930
Accrued interest payable		567,856		-			567,856
Derivative liabilities		148,629		-			148,629
Other liabilities		99,716		-			99,716

49

Notes to Unaudited Financial Statements (continued)

December 31, 2006 Fair Value Summary Table

			Net
	Carrying		Unrealized			Estimated
(in thousands)	Value		Gains (Losses)			Fair Value
Assets
Cash and due from banks	$	78,098	$	-		$	78,098
Interest-bearing deposits		3,619,984		(1,341	)		3,618,643
Federal funds sold		3,370,000		(517	)		3,369,483
Available-for-sale securities		65,848		-			65,848
Held-to-maturity securities		12,939,100		(180,211	)		12,758,889
Loans to members		49,335,377		(25,409	)		49,309,968
Mortgage loans held for portfolio, net		6,966,345		(157,135	)		6,809,210
Accrued interest receivable		416,407		-			416,407
Derivative assets		498,976		-			498,976
Other assets, including BOB loans		86,323		(36,046	)		50,277
Liabilities
Deposits	$	1,425,997	$	-		$	1,425,997
Consolidated obligations:
Discount notes		17,845,226		3,682			17,841,544
Bonds		53,627,392		295,474			53,331,918
Mandatorily redeemable capital stock		7,892		-			7,892
Accrued interest payable		566,350		-			566,350
Derivative liabilities		144,093		-			144,093
Other liabilities		125,534		-			125,534

Note 13 – Segments

The Bank operates two segments differentiated by products. The first segment, entitled Traditional Member Finance, houses a majority of the Bank’s activities, including, but not limited to, providing loans to members, investments and deposit products. The MPF, or Mortgage Finance, segment purchases residential mortgage loans from members and funds and hedges the resulting portfolio.

Results of segments are presented based on management accounting practices and the Bank’s management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP. Therefore, the financial results of the segments are not necessarily comparable with similar information at other FHLBanks or any other company.

The management accounting process uses various balance sheet and income statement assignments and transfers to measure performance of the segment. Methodologies are refined from time to time as management accounting practices change. Net mortgage loans held for portfolio are the only significant assets related to the operations of the Mortgage Finance segment. Borrowings are allocated to the Mortgage Finance segment based on loans outstanding. All remaining borrowings and all capital remain in the Traditional Member Finance segment. The allowance for credit losses pertaining to the mortgage loans held for portfolio is allocated to the Mortgage Finance segment and the allowance for credit losses pertaining to BOB loans is allocated to the Traditional Member Finance segment. Derivatives are allocated to segments consistent with hedging strategies. Costs incurred by support areas not directly aligned with the segment are allocated based on estimated usage of services.

50

Notes to Unaudited Financial Statements (continued)

The following tables set forth the Bank’s financial performance by operating segment for the three and nine months ended September 30, 2007 and 2006.

Three months ended September 30,

	Traditional					MPF® or
	Member					Mortgage
	Finance					Finance						Total
(in thousands)	2007			2006		2007			2006			2007			2006
Net interest income	$	90,571		$	83,255	$	5,454		$	6,529		$	96,025		$	89,784
Provision (benefit) for credit losses		(762	)		605		55			(96	)		(707	)		509
Other income (losses)		6,020			4,923		(1,058	)		(4,705	)		4,962			218
Other expenses		13,526			13,757		772			1,224			14,298			14,981
Income before assessments		83,827			73,816		3,569			696			87,396			74,512
Affordable Housing Program		6,851			6,085		292			57			7,143			6,142
REFCORP		15,396			13,548		655			128			16,051			13,676
Total assessments		22,247			19,633		947			185			23,194			19,818
Net income	$	61,580		$	54,183	$	2,622		$	511		$	64,202		$	54,694
Total assets	$	88,853,510		$	71,153,429	$	6,351,482		$	7,186,803		$	95,204,992		$	78,340,232

Nine months ended September 30,

	Traditional				MPF® or
	Member				Mortgage
	Finance				Finance						Total
(in thousands)	2007		2006		2007			2006			2007		2006
Net interest income	$	247,651	$	232,492	$	17,925		$	22,516		$	265,576	$	255,008
Provision (benefit) for credit losses		1,221		1,359		(82	)		(234	)		1,139		1,125
Other income (losses)		11,214		13,201		142			(4,657	)		11,356		8,544
Other expenses		41,856		43,249		2,320			3,563			44,176		46,812
Income before assessments		215,788		201,085		15,829			14,530			231,617		215,615
Affordable Housing Program		17,650		16,509		1,292			1,186			18,942		17,695
REFCORP		39,628		36,917		2,907			2,669			42,535		39,586
Total assessments		57,278		53,426		4,199			3,855			61,477		57,281
Net income	$	158,510	$	147,659	$	11,630		$	10,675		$	170,140	$	158,334
Total assets	$	88,853,510	$	71,153,429	$	6,351,482		$	7,186,803		$	95,204,992	$	78,340,232

51

Notes to Unaudited Financial Statements (continued)

Note 14 – Commitments and Contingencies

The twelve FHLBanks have joint and several liability for all the consolidated obligations issued on their behalf. Accordingly, although it has never occurred, should one or more of the FHLBanks be unable to repay its participation in the consolidated obligations, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Board. Additionally, although it has never occurred, the Finance Board, in its discretion and notwithstanding any other provision, may at any time order any FHLBank to make principal or interest payments due on any consolidated obligation, even in the absence of default by the primary obligor.

The FHLBanks considered the guidance under FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34 (FIN 45), and determined it was not necessary to recognize the fair value of the FHLBanks’ joint and several liability for all of the consolidated obligations. The Bank considers the joint and several liability as a related party guarantee. The joint and several obligations are mandated by Finance Board regulations and are not the result of arms-length transactions among the FHLBanks. 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 obligation. Because the FHLBanks are subject to the authority of the Finance Board as it relates to the decisions involving the allocation of the joint and several liability for the FHLBanks’ consolidated obligations, it meets the recognition scope exceptions in FIN 45. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to other FHLBanks’ consolidated obligations at September 30, 2007 and December 31, 2006.

Commitments that legally bind and unconditionally obligate the Bank for additional loans to members, including BOB loans, totaled approximately $731.5 million and $66.5 million at September 30, 2007 and December 31, 2006, respectively. Commitments generally are for periods up to twelve months. Standby letters of credit are executed for members for a fee. A standby letter of credit is a short-term financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary’s draw, these amounts are converted into a collateralized loan to the member. Outstanding standby letters of credit were approximately $1,093.7 million and $969.6 million at September 30, 2007 and December 31, 2006, respectively. Based on management’s credit analyses, collateral requirements, and adherence to the requirements set forth in Bank policy and Finance Board regulations, the Bank has not recorded any additional liability on these commitments and standby letters of credit. Excluding BOB, commitments and standby letters of credit are fully collateralized at the time of issuance.

Commitments that unconditionally obligate the Bank to purchase mortgage loans totaled $9.4 million and $4.3 million at September 30, 2007 and December 31, 2006, respectively. Commitments are generally for periods not to exceed 365 days. In accordance with Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149), such commitments entered into after June 30, 2003, are recorded as derivatives at their fair value.

The Bank generally executes derivatives with major banks and broker-dealers and generally enters into bilateral collateral agreements. In the past, the Bank has pledged, as collateral, cash and securities to counterparties that have market risk exposure from the Bank related to derivative agreements. However, the Bank had no cash or securities pledged as collateral at September 30, 2007 and December 31, 2006.

The Bank charged to operating expense net rental costs of approximately $0.6 million for both the three months ended September 30, 2007 and 2006. The charge of net rental costs to operating expenses were $1.9 million and $1.8 million for the nine months ended September 30, 2007 and 2006, respectively. Lease agreements for Bank premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the Bank.

The Bank has committed to issue consolidated obligations totaling $480 million and $98 million as of September 30, 2007 and December 31, 2006, respectively.

Note 15 – Other Developments

The Bank is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operation.

52

Item 3: Quantitative and Qualitative Disclosures about Market Risk

See the Risk Management section of “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in Part I. Item 2 of this Form 10-Q.

Item 4T: Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of the Bank’s management, including its principal executive officer and principal financial officer, the Bank conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of September 30, 2007. Based on this evaluation, the Bank’s principal executive officer and principal financial officer concluded that the Bank’s disclosure controls and procedures were effective to ensure that such information relating to the Bank that is required to be disclosed in reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Bank’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

For the third quarter of 2007, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

53

PART II – Other Information

Item 1: Legal Proceedings

The Bank may be subject to various legal proceedings arising in the normal course of business. After consultation with legal counsel, management is not aware of any such proceedings that might result in the Bank’s ultimate liability in an amount that will have a material effect on the Bank’s financial condition or results of operations.

Item 1A: Risk Factors

For a complete discussion of Risk Factors, see Item 1A. Risk Factors in the Bank’s 2006 Annual Report filed on Form 10-K, as amended. Other than as noted below, management believes that there have been no material changes from the risk factors disclosed in the 2006 Form 10-K, as amended. The following represents an update on the joint and several liability for the consolidated obligations of other FHLBanks risk factor.

The Bank is jointly and severally liable for the consolidated obligations of other FHLBanks.

On October 10, 2007, FHLBank Chicago entered into a consensual cease and desist order (Order) with the Finance Board. Under the terms of the Order, capital stock repurchases and redemptions, including redemptions upon membership withdrawal or termination, are prohibited unless FHLBank Chicago receives prior written approval of the Director of the Office of Supervision of the Finance Board (OS Director). The Order provides that the OS Director may approve proposed redemptions, provided that allowing the redemption would be consistent with maintaining the capital adequacy of FHLBank Chicago. Further information and the full text of the Order are available on the Finance Board’s website at www.fhfb.gov. As of September 30, 2007, FHLBank Chicago was the primary obligor on $81.2 billion in par value of consolidated obligations.

On September 26, 2007, in anticipation of the Order, Standard & Poor’s issued an opinion stating that their AA+/Negative rating on FHLBank Chicago would remain unaffected by the Order. Further, on October 1, 2007, Moody’s reaffirmed their AAA/Stable rating. Additionally, the Bank has not noted any discernable deterioration in consolidated obligation spreads attributable to the announcement of the Order. Management continues to perform appropriate due diligence as well as closely monitor any developments in the financial condition and regulatory status of FHLBank Chicago.

The Finance Board has extensive and broad authority in regard to the FHLBanks, which includes, without limitation, the authority to merge, consolidate, redistrict and/or adjust equities among the FHLBanks. The Finance Board, in its discretion, may also require any FHLBank to make principal or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. Accordingly, the Bank could incur significant liability beyond its primary obligation under consolidated obligations which could negatively affect the Bank’s financial condition and results of operations. The Bank records a liability for consolidated obligations on its Statement of Condition equal to the proceeds it receives from the issuance of those consolidated obligations. Due to the high credit quality of every other FHLBank, no liability has ever been recorded for the joint and several obligations related to the other FHLBanks’ share of the consolidated obligations.

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.

54

Item 6: Exhibits

Exhibit 10	.16	Supplemental Thrift Plan Amended and Restated Effective June 26, 2007, as further amended Effective November 1, 2007#
Exhibit 10	.17	Mortgage Partnership Finance Services Agreement
Exhibit 31	.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer
Exhibit 31	.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Financial Officer
Exhibit 32	.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer
Exhibit 32	.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Chief Financial Officer

# Denotes a management contract or compensatory plan or arrangement.

55

SIGNATURE

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

Federal Home Loan Bank of Pittsburgh

(Registrant)

Date: November 7, 2007

By:  /s/ Kristina K. Williams

Kristina K. Williams

Chief Financial Officer

56

EX-10.16

Exhibit 10.16

Federal Home Loan Bank of Pittsburgh

Supplemental Thrift Plan
Amended and Restated Effective June 26, 2007

Table of Contents

Article		Page
	Preamble		1
I.	Definitions		2
II.	Participation and Vesting		5
III.	Deferral Elections; Employee Deferrals; Bank Deferrals		6
IV.	Accounts and Investment Vehicles		8
V.	Distribution of Benefits		9
VI.	Administration of the Plan		12
VII.	General Provisions		14

Preamble

The Federal Home Loan Bank of Pittsburgh (the “Bank”) participates in the Financial Institutions Thrift Plan (the “Thrift Plan”), a retirement savings plan qualified under the Internal Revenue Code (the “Code”) for employees of the Federal Home Loan Bank of Pittsburgh. The Thrift Plan permits eligible employees to elect to reduce and defer a percentage of their compensation, contributing the same to the Thrift Plan. The Bank matches employee contributions based on length of service and the amount of employee contributions.

However, as a result of the limitations imposed upon the aggregate amount of contributions which can be made to the Thrift Plan under Section 415 and other sections of the Code, such limitations causing a reduction in the benefits otherwise provided to certain of the Bank’s executives, the Bank has adopted this nonqualified, unfunded Supplemental Thrift Plan (the “Plan”). The purpose of this Plan is to allow those employees whose benefits under the Thrift Plan would otherwise be significantly restricted by the terms of the Thrift Plan itself or the Code to make elective pretax deferrals and to receive the Bank match relating to such deferrals. Additionally, under the Plan, the Bank will match 200 percent of such employee’s contributions; provided, however, that the Bank’s matching contribution will not exceed the excess of 3 percent of the employee’s compensation (as defined in the Plan) over the Bank’s contribution to the Thrift Plan.

1

Article I
Definitions

1.1	“Account” means the book reserve account established and maintained hereunder to record the contributions deemed to be made by the Participant and the Bank, as well as the increase in value attributable to the earnings thereon, all as described hereafter.
1.2	“Bank” means the Federal Home Loan Bank of Pittsburgh.
1.3	“Bank Deferral” means an amount allocated by the Bank to a Participant’s Account pursuant to Section 3.3.
1.4	“Beneficiary” means the person or persons designated by a Participant under the provisions of this Supplemental Thrift Plan to receive his/her benefits in the event of his/her death prior to receipt of all benefits hereunder. If no person is designated by a Participant or the designated person or persons do not survive the Participant, the Participant’s Beneficiary shall be his/her estate. If a Beneficiary who is receiving payments from a Participant’s Account dies before the entire Account has been distributed, the remaining payments shall be made to the Beneficiary’s estate.
1.5	“Board” or “Board of Directors” means the Board of Directors of the Federal Home Loan Bank of Pittsburgh.
1.6	“Code” means the Internal Revenue Code of 1986, as amended from time to time.
1.7	“Compensation” means the annual base salary plus incentive compensation. The portion of any incentive compensation award under a VIP (as defined below) that is included in “Compensation” shall not exceed the maximum amount of incentive compensation that would have been included for such Participant in that year if the Bank’s short-term incentive compensation plan in effect as of June 25, 2007 continued in effect after 1/01/2008. Incentive compensation under an LTI (as defined below) shall be excluded from the definition of “Compensation.”
1.8	“Deferral Election” means a Participant’s irrevocable election to defer a portion of his/her Compensation.
1.9	“Deferral Period” means the period commencing with the date a Deferred Amount is first credited to a Participant’s Account and continuing until payment of the final installment of a Participant’s Deferred Amount.
1.10	“Deferred Amount” means the sum of all amounts deferred pursuant to a Participant’s Deferral Election, plus the Bank match, plus investment earnings thereon, plus any increments thereof credited to the Participant’s Account, less any benefit payments made from the Participant’s Account.
1.11	“Disability” means with respect to eligibility for payment of a Participant’s vested benefit under the Plan through December 31, 2004, a Participant’s total or partial disability as

2

	determined by the Thrift Plan in accordance with the Thrift Plan in effect at October 3, 2004. With respect to eligibility for payment of a Participant’s vested benefit amounts under the Plan after December 31, 2004, “Disability” means that the Participant is: a) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; b) by reason of any medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Bank; or c) determined to be totally disabled by the Social Security Administration.
1.12	“Effective Date” means January 1, 1991.
1.13	“Employee Deferral” means an amount deferred by a Participant under the Plan.
1.14	“Human Resources Committee” means the Human Resources Committee of the Board.
1.15	“LTI” means any Long-Term Incentive Compensation Plan maintained by the Bank from time to time.
1.16	“Participant” means an executive or other key employee who has been recommended by the President, and confirmed by the Board, as eligible to participate in the Plan.
1.17	“Plan Administrator” means such officer(s) or manager of the Bank who has been appointed by the Human Resources Committee to administer the Plan as set forth in Section 6.1 of the Plan. The Human Resources Managing Director shall serve as the Plan Administrator unless the Board shall appoint another Bank officer(s) or manager.
1.18	“Retention Incentive” means that portion of a Participant’s award under the Bank’s short-term Variable Incentive Compensation Plan (“VIP”), if any, that is subject to forfeiture under the terms of the VIP.
1.19	“Separation from Service” means the Participant’s death, retirement, the time at which the Participant’s services performed for the Bank are permanently reduced to no more than 20 percent of the average level of services performed by the Participant over the preceding 36-month period, or other termination of employment all as set forth in applicable definitions under 26 C.F.R. 1. 409A-1(h) and related and successor regulations as may be in effect from time to time.
1.20	“Unforeseeable Emergency” means: a) a severe financial hardship to a Participant resulting from an illness or accident of: (i) the Participant; (ii) the Participant’s spouse; (iii) the Participant’s dependent as defined in Code Section 152(a)); or (iv) if the Participant is already receiving payments under the Supplemental Thrift Plan, a severe financial hardship resulting from illness or accident of the Beneficiary; b) loss of the Participant’s property due to casualty; or c) other similar extraordinary and

3

	unforeseeable circumstances arising as a result of events beyond the control of the Participant.
1.21	“VIP” means the Bank’s short-term Variable Incentive Compensation Plan adopted by the Bank’s Board of Directors effective January 1, 2008 under which annual incentive compensation awards may be made.

4

Article II
Participation and Vesting

2.1	Eligibility to Participate. A Participant shall become eligible for Plan participation on the later of the first day of the calendar month coincident with or next following the date his/her participation is approved by the Board or the Effective Date. Once selected as a Participant, the Participant shall continue as a Participant until the Board determines otherwise. No Participant shall have the right to continue as a Participant in the Plan.
	Upon designation as a Participant, each Participant will be given a copy of the Plan. Upon becoming eligible to participate in the Plan, a Participant shall have the option to make a Deferral Election to defer a portion of his/her annual Compensation.
2.2	Termination of Participation. No further Employee Deferrals or Bank Deferrals shall occur with respect to a Participant after the Participant’s employment with the Bank terminates. However, until the amounts in a Participant’s Account are fully paid out to the Participant and/or his/her Beneficiary, the Participant’s Account shall continue to be notionally invested as provided in Section 4.2, and the Participant (or his/her Beneficiary) shall continue to have the right to change such investments by written notice to the Plan Administrator. Once a Participant’s Account has been fully paid out, such Participant shall cease to be a Participant in the Plan and neither the Participant nor his/her Beneficiary shall have any further rights hereunder.
2.3	Vesting. All benefits under the Plan are fully vested at all times subject only to Forfeiture for Cause as defined in Section 7.6. For all purposes of the Plan, earnings with respect to amounts in a Participant’s Account which were vested as of December 31, 2004 (and earnings on such earnings) shall be deemed to have been vested as of December 31, 2004 and all other earnings with respect to amounts in a Participant’s Account shall be deemed not to have been vested as of December 31, 2004.

5

Article III
Deferral Elections; Employee Deferrals; Bank Deferrals

3.1	Deferral Elections. The Plan Administrator shall provide each Participant with a form on which to make a Deferral Election within 10 days after such Participant becomes eligible to participate in the Plan and at least 30 days prior to the end of each calendar year. Each Participant shall execute and deliver the Deferral Election to the Plan Administrator no later than the last business day of each calendar year with respect to Compensation to be earned and amounts eligible pursuant to an LTI or VIP, excluding the Retention Incentive portion, to be earned in the following calendar year.
	An executive who becomes eligible to participate during a calendar year shall have the option to execute a Deferral Election and deliver it to the Administrator within 30 days of the date he/she becomes eligible to participate in the Plan. Such election shall apply only to Compensation and amounts pursuant to an LTI or VIP, (if applicable) to be earned after the date of the delivery of the Deferral Election to the Administrator and the Bank shall defer such amounts on a prorated basis when applicable.
	The Deferral Election will state the percentage of Compensation and amounts eligible to be earned pursuant to an LTI or VIP (as applicable) which the Participant elects to defer for the remainder of the first year of his/her eligibility or for the forthcoming calendar year, as the case may be. In the case of the deferral of a VIP amount, it is expressly agreed that the Retention Incentive portion of VIP incentive compensation is not subject to deferral. A Deferral Election shall be irrevocable for the calendar year (or portion thereof in the case of the first year of eligibility) for which the deferral is elected unless an amendment of the Thrift Plan requires a new election by a Participant, and such a new election is permissible under I.R.C. Section 409A and implementing regulations. If such an event occurs, the Plan Administrator will communicate in writing with the Participant to request a new Deferral Election. Notwithstanding an amendment of the Thrift Plan:

(a)

(i) As to amounts earned in the first calendar year of participation, no modification of a Deferral Election may be made more than thirty (30) days after a Participant becomes eligible to participate in the Plan; and (ii) as to amounts earned in the second and subsequent calendar years of participation, no modification of a Deferral Election may be made after December 31 of the calendar year preceding the calendar year in which the amounts are earned; and

(b)

as to amounts in a Participant’s Account which are not vested as of December 31, 2004, the last four sentences of Section 5.5 shall apply.

3.2 Employee Deferrals. Once the Participant has made the maximum amount of employee contributions allowable under the Thrift Plan in a calendar year, additional amounts shall be deferred under this Plan in accordance with the Participant’s Deferral Election. Amounts deferred under this Plan with respect to any calendar year may not exceed 80 percent of the sum of the Participant’s Compensation and amounts earned pursuant to an LTI and VIP, if applicable, during such calendar year less the

6

	Participant’s contributions to the Thrift Plan. For this purpose, a Participant’s contributions to the Thrift Plan shall include any after-tax contributions to the Thrift Plan by such Participant.
3.3	Bank Deferrals. For each Employee Deferral, the Bank shall allocate a matching Bank Deferral equal to 200 percent of the Employee Deferral; provided that, Bank Deferrals for each Participant with respect to each calendar year shall not exceed the excess of (a) three percent of the Participant’s Compensation over (b) the Bank’s matching contribution to the Thrift Plan.

7

Article IV
Accounts and Investment Vehicles

4.1	Accounts. The total of the Employee and Bank Deferrals shall be credited monthly to the applicable Participant Account as the deferred amounts are earned and shall be recorded on the financial books and records of the Bank as a liability owed to the Participant.
4.2	Notional Investments. Effective November 1, 2007, all Employee and Bank Deferrals credited to a Participant’s Account will be assumed to be notionally invested in the investment funds selected by Participant from time to time from a list provided to the Participant by the Bank (such list is referred to as the “Eligible Investments”). Such Eligible Investments shall be substantially similar to the investment choices available under the Thrift Plan from time to time. Each Participant’s notional share in the investment funds shall be represented by notional units in such funds. Each valuation day the number of new notional units credited to a Participant in the investment funds will be determined by dividing the total amount of such Participant’s Employee and Bank Deferrals notionally invested in the investment funds during the month by the unit value of the investment funds as of the most recent valuation date. The notional allocations of Employee and Bank Deferrals to the investment funds shall be as set forth in the investment election forms completed by each Participant and submitted to the Plan Administrator from time to time. Such election forms may be submitted in electronic form or, at the option of the Participant in written form.
4.3	Records. The Plan Administrator shall maintain such records as it deems necessary to administer this Plan and shall direct the calculation of amounts in the Participants’ Accounts. To this end, the Plan Administrator is authorized to use Bank employees, agents or contractors to calculate the benefits due hereunder.

8

Article V
Distribution of Benefits

5.1	Amount of Benefits. A Participant’s Account shall be valued as of the last day of the month preceding each month with respect to which the Participant is entitled to receive a distribution hereunder, assuming no contributions were made since the last day of the preceding month. If a contribution was made since the last day of the preceding month, the amount of such contribution shall be added to the value determined under the preceding sentence.
5.2	Events Which Trigger Payment of Amounts Vested as of 12/31/04. The amounts in a Participant’s Account which are vested as of December 31, 2004, including all earnings thereon, shall become payable to him/her pursuant to Section 5.3 as of the earliest of the date of his/her termination of employment with the Bank, including termination due to death, his/her Disability, or his/her retirement or other Separation from Service as defined above. With respect to amounts in a Participant’s Account which are vested as of December 31, 2004, notwithstanding any deferral election previously made, a Participant may at any time submit a request, through the Plan Administrator, to the Human Resources Committee seeking a distribution of part or all of such amounts for reasons of severe financial hardship or other reasons as permitted under the provisions of the Thrift Plan in its form as of October 3, 2004. The Human Resources Committee may, in its absolute discretion, grant or refuse any such request. It is the intention of the Board that hardship and other withdrawals of amounts in a Participant’s Account which are vested as of December 31, 2004 shall be available for the same reasons as such withdrawals are available from the Thrift Plan (in its form as of October 3, 2004) and that the Participant shall provide such proof and documentation as is required for hardship and other withdrawals from the Thrift Plan.
5.3	Amounts Vested as of 12/31/04 – Form and Timing of Payment. When a Participant’s Account is payable pursuant to Section 5.2, it shall be paid in a lump sum within 90 days following the applicable payment event set forth in Section 5.2. Alternatively, if the Participant has so elected, the Participant’s Account shall be paid in from two to ten annual installments. In the case of installment payments, the first installment payment shall be made within 90 days of the applicable payment event set forth in Section 5.2 and each remaining annual installment shall be paid no later than March 31 of each succeeding year. The amount of the installment payment to be distributed in each calendar year shall be the amount calculated by dividing the value of the Participant’s Account as of the immediately preceding month-end by the number of remaining installment payments, including the one whose value is being calculated. The elections and any changes to an election which are permitted hereunder will become effective on the first January 1 which is at least twelve months after the date of the election. Failure to make an election shall result in a lump sum payment within 90 days of the triggering payment event.
5.4	Events Which Trigger Payment of Amounts Not Vested as of 12/31/04. The amount in a Participant’s Account which is not vested as of December 31, 2004, including all

9

	earnings thereon, shall become payable to him/her pursuant to Section 5.5 as of the earliest of the date of his/her termination of employment with the Bank (including retirement or other Separation from Service as defined above), his/her Disability or his/her death. With respect to amounts in a Participant’s Account which are not vested as of December 31, 2004, notwithstanding any deferral election previously made, in the event that a Participant suffers an Unforeseeable Emergency, the Participant may submit a request, through the Plan Administrator, to the Human Resources Committee seeking a distribution of part or all of the amount credited to such Participant’s Account. The Human Resources Committee may, in its absolute discretion, grant or refuse any such request. The amount of a distribution that the Bank may make hereunder in response to such a Participant request shall be limited to the amount needed to satisfy the Unforeseeable Emergency plus taxes reasonably anticipated as a result of the distribution. Distributions shall not be allowed to the extent that the Unforeseeable Emergency may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of a Participant’s assets (to the extent such liquidation would not itself cause a severe financial hardship).
5.5	Amounts Not Vested as of 12/31/04 – Form of Payment. When a Participant’s Account is payable pursuant to Section 5.4, it shall be paid in a lump sum within 90 days following the applicable payment event set forth in Section 5.4. Alternatively, if the Participant has so elected, the Participant’s Account shall be paid in from two to ten annual installments. Failure to make an election at any time shall result in a lump sum payment. Any change in an installment payment election, from an installment payment election to a lump sum election or from a lump sum election to an installment payment election (“Revised Election”) will become effective on the first January 1 which is at least twelve months after the date of the election. In addition, with respect to any such Revised Election which changes the timing of any payment, each payment to be made to the Participant shall be deferred by a date which is at least 5 years after the date on which such payment would have been made; provided that, for this purpose, a series of installment payments shall be treated as the entitlement to a single payment on the date of the first payment. A Revised Election which changes an Existing Election from installment payments to a lump sum payment shall require that the date of such lump sum payment shall be a date that is at least 5 years from the date the initial installment payment would have been made. Notwithstanding the foregoing or any provision in this Plan, a Revised Election may not cause the impermissible acceleration of any payment, within the meaning of Internal Revenue Code Section 409A or its implementing regulations.
5.6	Amounts Not Vested as of 12/31/04 – Timing and Calculation of Installment Payments. Installment payments under this Plan shall be made as follows: the first payment shall be made within 90 days of the payment event with each remaining annual installment paid no later than March 31 of each succeeding year. The amount of the installment payment to be distributed in each calendar year shall be the amount calculated by dividing the value of the Participant’s Account as of the immediately preceding month end by the number of remaining installment payments, including the one whose value is being calculated.

10

5.7	Amounts Not Vested as of 12/31/04 – Revision of Existing Payment Election Prior to 12/31/07. The Plan is hereby amended to permit each Participant, on or before December 31, 2007, to amend his/her current payment election as in effect on June 25, 2007, covering amounts not vested as of December 31, 2004. Such a revised payment election shall be referred to as a “Transition Election.” Provided that such Transition Election does not result in a payment in 2007, such Transition Election shall become effective upon receipt by the Plan Administrator and shall not be subject to the terms of Section 5.5. Any Transition Election shall be subject to the requirements of I.R.S. Notice 2006-79.
5.8	Death Benefits. In the event of a Participant’s death prior to the payment of all amounts in the Participant’s Account, the amount then held in the Participant’s Account shall become payable to his/her Beneficiary in the same manner as such amount would have been paid to the Participant had he/she not died.
5.9	Loans. No loans are available from the Plan.

11

Article VI
Administration of the Plan

6.1

Human Resources Committee. The Board has delegated to the Human Resources Committee authority over, and responsibility for, the interpretation and administration of the Plan; except that the power to determine eligibility for participation in the Plan pursuant to Section 2.1 is reserved to the Board. The Human Resources Committee shall interpret and construe the Plan and have the responsibility to ensure that its provisions are carried out. The Human Resources Committee shall exercise such power and responsibilities in its sole and absolute discretion. The Human Resources Committee shall designate the Plan Administrator.

6.2

Plan Administration. The Plan Administrator shall:

(a)	act as the point of contact for submission of claims for benefits due under the Plan;
(b)	calculate the benefits due under the Plan or arrange for the calculation of benefits;
(c)	inform Participants of the terms of the Plan and respond to their questions regarding the Plan;
(d)	review and process claims for the payment of benefits under the Plan;
(e)	provide necessary reporting to Bank management, Participants, the Human Resources Committee, the Board, and others as necessary; and
(f)	take such other action as is required to perform the tasks listed hereunder or otherwise administer the terms of the Plan. In fulfilling the responsibilities in this section, the Plan Administrator may use other Bank staff, other agents or engage contractors.

6.3 Claims Procedure. All claims for benefits shall be in writing and shall be filed with the Plan Administrator. If the Plan Administrator wholly or partially denies a Participant’s or Beneficiary’s claim for benefits, the Plan Administrator shall, within 90 days after the Plan’s receipt of the claim, give the claimant written notice setting forth in understandable language:

(a)	the specific reason(s) for the denial;
(b)	specific reference to pertinent Plan provisions on which the denial is based;
(c)	a description of any additional material or information which must be submitted to perfect the claim, and an explanation of why such material or information is necessary; and

12

(d) an explanation of the Plan’s review procedure.

The claimant shall have 60 days after the day on which such written notice of denial is handed or mailed to him/her in which to apply (in person or by authorized representative) to the Human Resources Committee, in writing, for a full and fair review of the denial of this claim. In connection with such review, the claimant (or this representative) shall be afforded a reasonable opportunity to review pertinent documents and may submit issues and comments in writing.

The Human Resources Committee shall issue its decision on review promptly and within 60 days after the Plan’s receipt of the request for review, unless special circumstances require an extension to not later than 120 days after receipt of the request for review. (Written notice of any such extension shall be furnished to the claimant before the commencement of such extension.) The decision shall be in writing and shall set forth in understandable language specific reasons for the decision and specific references to pertinent Plan provisions on which the decision is based.

13

Article VII
General Provisions

7.1	Rights to Employment. The establishment of the Plan, and selection of an executive for inclusion as a Participant in the Plan, shall not be construed as conferring any legal rights upon any Participant or other person for the continuation of employment; nor shall it interfere with the rights of the Bank to discharge any Participant and to treat him/her without regard to the effect such treatment might have upon him/her as a Participant in the Plan.
7.2	Source of Funding–Participant as General Creditor. The Bank has not established any form of trust or funded account for the purpose of providing benefits under this Plan. In the event that the Bank establishes a rabbi trust or other similar arrangement, such arrangement shall preserve this Plan’s status under the Internal Revenue Code as an unfunded nonqualified deferred compensation plan and the assets of the Bank held pursuant to any such arrangement shall remain subject to the claims of the Bank’s general creditors. Any Participant who may have or claim any interest in or right to any amount payable hereunder shall rely solely upon the unsecured promise of the Bank, as set forth herein, for the payment of the claim. Nothing herein contained should be construed to give to or vest in any Participant, now or at any time in the future, any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatever owned by the Bank, or in which the Bank may have any right, title or interest, now or at any time in the future. The Plan is not intended to be a qualified plan within the meaning of Section 401(a) of the Code and the Bank shall not be required to qualify the Plan under the Code.
7.3	Incapacity. In the event that the Human Resources Committee shall find that a Participant is unable to care for his/her affairs because of illness or accident, the Human Resources Committee may direct that any payment due him/her, unless claim shall have been made therefor by a duly appointed legal representative, be paid to his/her spouse, a child, a parent or other blood relative, or to a person with whom he/she resides, and any such payment so made shall be a complete discharge of the liabilities of the Plan therefor.
7.4	Reporting and Withholding of Taxes. The Bank shall file Form W-2 and other applicable tax documents as required under applicable federal and state law, including, without limitation, required annual federal tax filings of a Participant’s accrued benefits under the Plan. The Bank shall have the right to deduct from each payment to be made under the Plan any required withholding taxes and shall withhold or cause to be withheld from all payments or accruals of benefits under the Plan (if applicable), all federal, state or local taxes required to be withheld by law. The Participant shall be liable for the payment of all taxes on the benefits under the Plan that are the Participant’s responsibility under the laws establishing such taxes.
7.5	Alienation of Benefits under the Plan. Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or

14

for any other relative of the Participant, prior to actually being received by the person entitled to the benefits under the terms of the Plan, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; nor shall any such distribution or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements or torts of any person entitled to such distribution or payment. If any Participant or Beneficiary is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any such distribution or payment voluntarily or involuntarily, the Bank, in its discretion, may hold or cause to be held or applied such distribution or payment or any part thereof to or for the benefit of such Participant or Beneficiary in such manner as the Bank shall direct.

7.6

Forfeiture for Cause. The Bank Deferrals and the earnings on the Bank Deferrals otherwise payable by the Plan may be subject to forfeiture for cause at any time. “Cause” shall mean:

(a)	the perpetration by a Participant of a defalcation involving the Bank or any affiliate;
(b)	willful, reckless or grossly negligent conduct of a Participant entailing a substantial violation of any material provision of the laws, rules, regulations or orders of any governmental agency applicable to the Bank or an affiliate;
(c)	the repeated and deliberate failure by a Participant to comply with reasonable policies or directives of the Board of Directors; or
(d)	the breach by a Participant of a noncompetitive covenant or agreement with the Bank or affiliate.

Whether the facts in any given case amount to “Cause” shall be determined by the Board of Directors.

7.7

Compliance with Laws. The provisions of the Plan shall be construed, administered and governed under the laws of the United States including, without limitation, Internal Revenue Code Section 409A and implementing regulations and, to the extent they defer to state law, the laws of the Commonwealth of Pennsylvania.

7.8

Construction. Whenever any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and whenever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. Titles of Articles and Sections hereof are for convenience of reference only and are not to be taken into account in construing the provisions of this Plan. In case any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if said illegal and invalid provision had never been inserted herein.

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7.9	Amendment and Termination. The Bank specifically reserves the right, in the sole and unfettered discretion of its Board, at any time, to amend, in whole or in part, any or all of the provisions of the Plan and to terminate the Plan in whole or in part; provided, however, that no such amendment or termination shall reduce or eliminate the rights of a Participant accrued hereunder to the date of such amendment or termination. Provided further, that no such termination shall result in an impermissible acceleration of any amount deferred under this Plan that would violate the provisions of Internal Revenue Code Section 409A(a)(3) or Treasury Regulation Section 1.409A-3(j) or any successor regulations.
7.10	Binding on Successors. The Plan shall be binding upon and inure to the benefit of the Bank and its successors and assigns. The Plan shall also be binding upon and inure to the benefit of any successor organization succeeding to substantially all of the assets and business of the Bank. Nothing in the Plan shall preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another organization which assumes the Plan and all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for the preservation of Participants’ rights under the Plan in any agreement or plan which it may enter into to effect any merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets and assumption of Plan obligations of the Bank, the term “Bank” shall refer to such other organization and the Plan shall continue in full force and effect.
7.11	Permissible Payment Acceleration. In the event of an Internal Revenue Code Section 409A Plan failure that results in income inclusion to a Participant, payment of Participant’s benefits under this Plan shall be accelerated; provided that, the amount of the accelerated payment shall not exceed the amount required to be included in Participant’s income due to the Plan failure.

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EX-10.17

Exhibit 10.17

MORTGAGE PARTNERSHIP FINANCE^®

SERVICES AGREEMENT

     This MORTGAGE PARTNERSHIP FINANCE (“MPF^®”) Services Agreement (the “Agreement”) is entered into as of the 31^st day of August, 2007, and is executed by the FEDERAL HOME LOAN BANK OF PITTSBURGH (the “Pittsburgh Bank”), a corporation organized and existing under the laws of the United States of America, having its principal office at 601 Grant Street, Pittsburgh, PA 15219, and the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF Provider”), a corporation organized and existing under the laws of the United States of America, having its principal office at 111 East Wacker Drive, Suite 800, Chicago, Illinois 60601.

RECITALS:

     WHEREAS, the MPF Provider and Pittsburgh Bank are Federal Home Loan Banks (“FHLBs”) established under the authority of the Federal Home Loan Bank Act, 12 U.S.C. § 1421 et seq., to carry out a housing finance mission which includes supporting mortgage finance in a safe and sound manner;

     WHEREAS, in support of its housing finance mission, the MPF Provider has developed the MPF Program, a financial services product whereby the MPF Provider funds Program Loans through its PFIs acting as agents of the MPF Provider, or whereby the MPF Provider purchases Program Loans from its PFIs, pursuant to a separate MPF Program Participating Financial Institution Agreement (“PFI Agreement”) with each PFI;

     WHEREAS, the Pittsburgh Bank wishes (i) to provide its members and housing associates access to the MPF Program, (ii) to acquire Program Loans from or through its PFIs pursuant to the MPF Program, and (iii) to have the MPF Provider operate and maintain the MPF Program for the benefit of the Pittsburgh Bank and its PFIs, in addition to the MPF Provider and any other MPF Banks that participate in the MPF Program;

     WHEREAS, the MPF Provider is willing (i) to make the MPF Program available to those Pittsburgh Bank PFIs designated by the Pittsburgh Bank, and (ii) to operate and maintain the MPF Program for the benefit of the Pittsburgh Bank as well as itself and other MPF Banks, subject to the terms and conditions set forth in this Agreement; and

     WHEREAS, the parties wish to replace the Mortgage Partnership Finance Services Agreement dated April 30, 2006 (the “Prior Services Agreement”) between the parties with this Agreement.

     NOW THEREFORE, in consideration of the foregoing recitals, for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and the mutual covenants and conditions herein contained, the parties hereto hereby agree as follows:

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I. CERTAIN DEFINITIONS

     As used herein, the following terms shall have the following respective meanings:

     “Active MPF Bank” shall mean an MPF Bank that has entered into an MPF Services Agreement substantially in the form of this Agreement and such MPF Services Agreement has not been terminated.

     “Annual Percentage Fee” shall have the meaning set forth in Exhibit A attached hereto.

     “Annual Percentage Rate” shall have the meaning set forth in Exhibit A attached hereto.

     “Borrower” shall mean the obligor or obligors under any Program Loan.

     “Business Day” shall mean any day that the MPF Provider is open for business.

     “Clearing Account” shall mean the Pittsburgh Bank’s deposit account or accounts at the MPF Provider, pursuant to the MPF Provider standard agreement for such account(s) from time to time, for the clearing of debits and credits between the MPF Provider and the Pittsburgh Bank.

     “Consult” and “Consultation” shall mean, with respect to any references to “consult with” or “consultation with” the MPF Banks or Active MPF Banks, that the MPF Provider shall provide the MPF Banks or Active MPF Banks, as applicable, reasonable opportunity to review and comment on any proposed action or documents, and shall reasonably consider such comments in determining the appropriate action or preparing or revising such documents.

     “Custodian” shall mean, at any time, a custodian to which the MPF Provider delegates its duties and obligations under the MPF Program to hold the Loan Documents pertaining to Program Loans, including but not limited to the MPF Custodian.

     “Custody Agreement” shall have the meaning set forth in Section 5.1.

     “Custody Addendum” shall have the meaning set forth in Section 5.1. and shall be substantially in the form of Exhibit B.

     “Customized Enhancement” shall mean a technical enhancement to the MPF Program system made at the request of one or more MPF Banks that primarily benefits such MPF Bank(s).

     “DDA” shall mean a transactional account with an MPF Bank or the MPF Provider.

     “FHFB” shall mean the Federal Housing Finance Board or any successor regulatory agency.

     “FHLB Guide” shall mean the Guide for the MPF Banks published by the MPF Provider detailing policy and procedures among the MPF Banks for their participation in the MPF Program, and detailing the Services that will be provided by the MPF Provider, as the same may be amended as provided in Section 8.9, which FHLB Guide is hereby incorporated by reference into this Agreement.

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     “Guides” shall mean, collectively, the MPF Origination Guide and the MPF Servicing Guide, and all constituent guides, manuals, forms and exhibits, promulgated by the MPF Provider for the MPF Program as the MPF Provider may revise them from time to time after consultation with the Active MPF Banks as provided for in the FHLB Guide.

     “Large Master Commitment” shall mean a Master Commitment of Five Hundred Million Dollars ($500,000,000) or greater.

     “Liquidity Option Notice” shall mean a notice to MPF Provider that the Pittsburgh Bank elects to not issue Delivery Commitments for the balance of the Business Day.

     “Loan Documents” shall mean, for any Program Loan, the note, the mortgage or other security documents executed and delivered by the applicable Borrower and all other documents evidencing or securing such Program Loan, as the same may be amended, supplemented, modified or restated from time to time.

     “Loan Recoveries” shall mean all payments and any other sums received with respect to a Program Loan, including, but not limited to, from the disposition of any collateral for such Program Loan.

     “LOMPA” shall mean that certain MPF Program Liquidity Option and Master Participation Agreement dated as of September 15, 2000, as amended from time to time, or such successor participation agreement as may be substituted by the parties.

     “MPF Banks” shall mean the Pittsburgh Bank, any other FHLB that has entered into an agreement with the MPF Provider to offer the MPF Program to its members and housing associates, and the MPF Provider in its capacity as an investor in Program Loans.

     “MPF Custodian” shall mean the institution to which the MPF Provider delegates certain of its Master Custodian duties and obligations from time to time, the name of which shall be published in the Guides as the MPF Custodian for the MPF Program.

     “MPF Master Servicer” shall mean the institution to which the MPF Provider delegates certain of its Master Servicer duties and obligations from time to time, the name of which shall be published in the Guides as the MPF Master Servicer for the MPF Program.

     “Master Commitment” shall mean an agreement between an MPFBank and its PFI pursuant to which the PFI agrees to originate Program Loans for, or sell Program Loans to such MPF Bank, credit enhance and service such Program Loans thereafter, in accordance with the Guides.

     “Master Servicer” shall mean the MPF Provider as the master servicer of the Program Loans under the MPF Program.

     “Master Servicing Agreement” shall have the meaning set forth in Section 5.2.

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     “MPF Program” shall mean the Mortgage Partnership Finance^® Program of the MPF Provider, which is based upon the Guides, the PFI Agreements and the Master Commitments.

     “MPF Program Center” shall have the meaning set forth in Section 5.7.

     “Note” shall mean, for any Program Loan, the promissory note from the Borrower evidencing such Program Loan.

     “Operational Matters” shall mean the following activities and functions involving contact with PFIs that are performed by the MPF Provider and are necessary for the normal operation of the MPF Program:

a) providing pricing for Delivery Commitments;

b) transacting Delivery Commitments for PFIs;

c) providing for PFI funding and credit enhancing of Program Loans;

d) coordinating and correcting electronic communications, including providing for data delivery, integrity and security;

e) monitoring and coordinating PFI custodial compliance, fees and custodial waivers;

f) monitoring and supporting servicing of Program Loans, such as remittance processing, investor reporting including delinquency reporting, reconciliation of custodial accounts, repurchase of ineligible loans, current loan and defaulted loan management, such as workouts, forbearance plans, presales, deeds-in-lieu and foreclosure bidding instructions;

g) monitoring loss mitigation, insurance claim settlement and REO disposition;

h) reviewing and coordinating servicing sales or transfers;

i) operating the MPF Program Center, including providing the Service Center and a customer support desk;

j) performing quality control reviews and providing follow-up on quality control findings and remedies;

k) providing general information about the MPF Program at trade shows;

l) monitoring and supporting MPF Shared Funding^® acquisitions and servicing; and

m) any other service as shall be added to the FHLB Guide from time to time with the consent of the majority of Active MPF Banks.

     “Participation Share” shall mean a Participant’s pro rata participation interest in the Program Loans the Pittsburgh Bank funds or purchases under the MPF Program.

     “Participant” shall mean an entity who acquires an ownership or a participation interest in some or all of the Program Loans delivered or serviced by a PFI to or for the Pittsburgh Bank.

     “PFI” shall mean a member or housing associate of the MPF Bank that is a “participating financial institution” which elects to participate in the MPF Program by executing a PFI Agreement with the MPF Bank.

     “Prior Services Agreement” shall have the meaning set forth in the Recitals to this Agreement.

     “Program Loan” shall mean a residential loan to a Borrower that is evidenced by a promissory note and secured by a mortgage lien, deed of trust, security deed or other security instrument either made or acquired by a PFI or originated by a PFI for an MPF Bank.

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     “Service Center” shall have the meaning set forth in Section 5.7.

     “Servicer” shall have the meaning set forth in the PFI Agreement.

     “Services” shall mean the operational systems as outlined in Article IV and the services outlined in Article V, including but not limited to the Operational Matters, and more particularly described in the FHLB Guide, provided by the MPF Provider.

     “Servicing Transfer Agreements” shall mean those certain Mortgage Partnership Finance Servicing Transfer Agreements dated September 19, 2000 and May 30, 2001.

     “Termination Core Services Fee” shall have the meaning set forth in Section 2 of Exhibit A attached hereto.

     “Trigger Event” shall mean any of the following: (a) a court of competent jurisdiction determines that the FHLBs do not have the authority to offer the MPF Program; (b) the FHFB orders or otherwise causes the MPF Banks to stop offering the MPF Program; (c) legislation is enacted which withdraws the FHLBs’ authority to offer the MPF Program; (d) the MPF Program is conclusively determined to violate consumer or other federal or relevant state laws or otherwise does not comply with applicable law in a manner that materially affects the structure or processes of the MPF Program; or (e) if the Pittsburgh Bank’s PFIs fail to deliver any Program Loans under the MPF Program for a period of twenty-four (24) continuous months occurring after the date of this Agreement, the MPF Provider shall have the right to treat this occurrence as a Trigger Event.

     “Transaction Services Fee” shall mean, at any time, the fee charged by the MPF Provider to the MPF Banks for Services provided by the MPF Provider in connection with Program Loans owned by such MPF Banks.

     “TSF Floor” shall mean the minimum amount, in the aggregate, of Transaction Services Fee payable by the Pittsburgh Bank in a calendar year.

     “TSF Loans” shall mean the Pittsburgh Bank’s retained interest in the Program Loans it funds or purchases on or after May 1, 2006, excluding, however, any Program Loans that the parties agree in writing to not treat as TSF Loans.

     “TSF Notice” shall mean a written notice delivered by the MPF Provider to all MPF Banks setting forth the Annual Percentage Rate for the TSF Loans acquired in a calendar year and the TSF Floor or formula for determining the TSF Floor for that calendar year.

     Other terms used herein shall be defined as set forth in this Agreement. Any capitalized term used herein, which is not so defined, shall have the meaning ascribed to such term in the Guides, the LOMPA or Servicing Transfer Agreements. The singular shall include the plural as the context may require.

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     II. TERM AND FEES

2.1. Term of Agreement. (a) Unless terminated earlier as provided in Article VII, this Agreement shall continue in force until terminated by either party giving the other one hundred eighty (180) days’ written notice.

(b) Notwithstanding the termination of this Agreement for any reason, the obligations of the parties shall continue with respect to all Program Loans funded or purchased under this Agreement pursuant to Delivery Commitments issued prior to such termination, including, without limitation, the MPF Provider shall provide the Services for each Program Loan acquired by the Pittsburgh Bank, and the Pittsburgh Bank shall pay the applicable Transaction Services Fees, continuously from the date of such termination until the earliest of:

     (1) the Program Loan’s principal and interest have been paid in full in accordance with the requirements of the PFI Agreement; or

     (2) the Program Loan has been foreclosed or liquidated, the security property therefor properly disposed of, and the claim settled with the PFI; or

     (3) in accordance with the procedures set forth in the FHLB Guide, the MPF Provider’s obligations are (i) transferred to a third party by agreement of the Pittsburgh Bank and the MPF Provider, (ii) transferred to a third party on written direction of the FHFB or (iii) with the consent of the MPF Provider, assumed by the Pittsburgh Bank.

(c) Upon the termination of this Agreement for any reason, the Pittsburgh Bank agrees to use commercially reasonable efforts to promptly return to the MPF Provider all marketing and operational materials previously provided by the MPF Provider, and no longer needed by the Pittsburgh Bank to fulfill its remaining obligations hereunder, unless other mutually acceptable arrangements have been made.

     2.2. Transaction Services Fee. Commencing September 1, 2007, the Pittsburgh Bank shall pay a monthly Transaction Services Fee to the MPF Provider as compensation for the Services to be provided to the Pittsburgh Bank. The rate and amount of the Transaction Services Fee shall be determined as set forth in Exhibit A attached hereto and made a part hereof.

     2.3. Additional Services Fees. In the event the Pittsburgh Bank requests the MPF Provider to provide any additional services other than the Services specified in the FHLB Guide as regular or standard Services, the Pittsburgh Bank shall pay the fees for such additional Services as provided in the FHLB Guide or as may be agreed to between the parties. The fees for additional services listed in the FHLB Guide may only be increased on not less than ninety (90) days’ prior written notice.

III. MARKETING TO PITTSBURGH BANK PFIs AND TRAINING

     3.1. Designation of Pittsburgh Bank PFIs. Any marketing of the MPF Program to the members and housing associates of the Pittsburgh Bank shall be done by the Pittsburgh Bank. The Pittsburgh Bank may authorize the MPF Provider’s marketing staff to participate in marketing activities in accordance with the FHLB Guide. The Pittsburgh Bank agrees that the

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MPF Provider’s officers and employees may contact officers and employees of Pittsburgh Bank PFIs for Operational Matters contemplated by this Agreement or any PFI Agreement.

     3.2. Operational Training. From time to time, the MPF Provider will provide training for Pittsburgh Bank employees who will have responsibility for completing and administering PFI Agreements and Master Commitments in conjunction with the MPF Provider, and as needed when new products or product or system enhancements are introduced or other significant changes are made to the MPF Program. The training shall take place as provided for in the FHLB Guide.

IV. OPERATIONAL SYSTEMS

     4.1. Loan Funding and Reporting Systems. The MPF Provider shall work with the Pittsburgh Bank to maintain an appropriate interface or method for receiving or sending data transmissions and reports to or from the MPF Provider, and the Pittsburgh Bank’s PFIs shall have use of the same systems for accessing the MPF Program, including Internet access, as the MPF Provider makes available to its own PFIs. Data regarding the Pittsburgh Bank PFIs and the Program Loans serviced by its PFIs will be processed on the same system the MPF Provider uses to process its own MPF Program data.

     4.2. Deliverables. The MPF Provider shall provide the following reports, inquiry capabilities, and electronic data transmission to the Pittsburgh Bank or its PFIs, as applicable:

     4.2.1. PFI Reports. Subject to the timely receipt of accurate data from the Pittsburgh Bank’s PFIs, the MPF Provider shall provide the same reports to the Pittsburgh Bank’s PFIs as the MPF Provider supplies to the MPF Provider’s PFIs. These reports are generally described in the Guides. Any supplemental reports will be made available to the Pittsburgh Bank’s PFIs in the same way that they are made available to the MPF Provider’s PFIs.

     4.2.2. Management Reports. The MPF Provider shall provide such reports to the Pittsburgh Bank as are described and with the frequency set forth in the FHLB Guide.

     4.2.3. On-Line Inquiry. Access to certain information in the MPF Program system will be made available through on-line inquiry by the Pittsburgh Bank. The method for making inquiry and the nature of the available data is set forth in the FHLB Guide.

     4.2.4. Electronic Data Transmission. Certain accounting and PFI transaction account data shall be transmitted by the MPF Provider to the Pittsburgh Bank the evening of each Business Day to enable the Pittsburgh Bank to post such data to its general ledger and to the Pittsburgh Bank’s PFIs’ DDA’s with the Pittsburgh Bank. The method for transmission has been developed with the cooperation of the Pittsburgh Bank and the specific types of data to be transmitted are set forth in the FHLB Guide.

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     4.3. Program Enhancements.

     4.3.1. System Review. The MPF Provider shall hold periodic meetings to discuss possible changes and enhancements to the MPF Program system and to prioritize the scheduling of any such enhancements. Such meetings will be open to all Active MPF Banks, who can attend in person or telephonically. The MPF Provider will give the Active MPF Banks at least thirty (30) day’s notice prior to implementing any material MPF Program system enhancements, modifications or other changes unless a shorter period is mandated by the FHFB or applicable law or regulation.

     4.3.2. Customized Enhancements. The Pittsburgh Bank may request Customized Enhancements which shall be handled in accordance with the provisions of the FHLB Guide.

     4.3.3. Reimbursement by Other FHLBs. If, during the term of this Agreement, other MPF Banks adopt any Customized Enhancements paid for by the Pittsburgh Bank, the FHLB Guide shall provide a method for sharing such costs. The MPF Provider will use commercially reasonable efforts to facilitate such cost sharing.

V. PARTICIPATION IN MPF PROGRAM

5.1. Services of the Custodian. (a) The MPF Provider shall act as the custodian for the Pittsburgh Bank with respect to all Program Loans funded or purchased by the Pittsburgh Bank pursuant to the MPF Program. The MPF Provider may discharge this duty by entering into a custody agreement (a “Custody Agreement”) with the MPF Custodian or any other entity which the MPF Provider deems qualified to act as a Custodian. The MPF Provider shall have direct and primary responsibility to the Pittsburgh Bank for the performance of the duties of the MPF Custodian under the Custody Agreement, subject, however, in connection with the use of a Custodian other than the MPF Custodian, to the terms of each addendum to be executed by the parties substantially in the form attached hereto as Exhibit B (each, a “Custody Addendum”).

(b) The MPF Provider shall perform or cause to be performed the following custodial duties for the Pittsburgh Bank’s Program Loans, which shall be done in compliance with the provisions of the PFI Agreements, the Guides and the FHLB Guide:

(i) To hold the Loan Documents and any other documents or papers relating to a Program Loan deposited with the Custodian as an agent for and bailee of the Pittsburgh Bank in the same manner as the MPF Provider holds Loan Documents pertaining to its own Program Loans;

(ii) To review the documents received with respect to a Program Loan to confirm whether they comply with the MPF Program requirements;

(iii) To provide exception reports and status reports regarding Loan Documents as provided for in the FHLB Guide;

(iv) Upon the payment in full or the purchase by a PFI of a Program Loan, or as needed for servicing or foreclosure purposes, to release the Loan Documents to the Servicer or notify the Servicer that the Loan Documents are no longer held by the Custodian; and

(v) To maintain or cause each Custodian to maintain customary fidelity and other insurance in connection with the performance of its obligations under the

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Custody Agreement, and, upon request of the Pittsburgh Bank, to provide a copy of a Custodian’s annual officer’s certificate or, if the MPF Provider has copies of the Custodian’s insurance certificates, a copy of such certificates.

As part of its custodial duties hereunder, the MPF Provider, for the benefit of the Pittsburgh Bank, shall use commercially reasonable efforts to enforce the obligations of each Custodian under its Custody Agreement. Such enforcement shall be in such form and carried out to such an extent and at such time as the MPF Provider, in its good faith business judgment, would require if it were the owner of the related Program Loans. Subject to the terms of each Custody Addendum and notwithstanding the terms of any Custody Agreement, no delegation of custodial obligations to a Custodian pursuant to such Custody Agreement shall relieve the MPF Provider from its custodial obligations hereunder, and the MPF Provider shall remain obligated and primarily liable to the Pittsburgh Bank for the custody of the Program Loans in accordance with the provisions of this Agreement.

(c) In the event that a Custodian fails to produce a Loan Document when requested by the Servicer or the MPF Provider (on behalf of the Pittsburgh Bank), and provided that (i) each Custodian previously acknowledged in writing that it had possession of such Loan Document, (ii) such Loan Document is not outstanding pursuant to a prior request for release from the Servicer, and (iii) such Loan Document was held by the Custodian on behalf of the Pittsburgh Bank (a “Custodial Delivery Failure”), then the MPF Provider shall, with respect to any missing Loan Document, furnish or cause the Custodian to furnish a lost Loan Document affidavit in a form reasonably satisfactory to the Pittsburgh Bank and to indemnify (such indemnification to survive any termination of the Custody Agreement) the Pittsburgh Bank and the Servicer, and their respective designees, harmless against any and all direct liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements, including reasonable attorneys’ fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of such Custodial Delivery Failure, provided that neither the MPF Provider nor the Custodian shall be liable for consequential damages.

(d) Each Custodian shall acknowledge that it holds the Loan Documents pertaining to Program Loans owned or held by the Pittsburgh Bank which come into its possession for the benefit of the Pittsburgh Bank, and shall dispose of the same only in accordance with instructions furnished by the MPF Provider on behalf of the Pittsburgh Bank. The Custodian shall not, however, be required to verify the validity, sufficiency or genuineness of any Loan Document. With respect to any Custodian other than the MPF Custodian that is a custodian for Program Loans owned by the Pittsburgh Bank, the MPF Provider, upon the request of the Pittsburgh Bank, will provide to the Pittsburgh Bank a summary report of any audits of such Custodian performed directly or through a vendor, by the MPF Provider. Further, upon the request and at the expense of the Pittsburgh Bank, the MPF Provider shall request the Custodian to provide the Pittsburgh Bank a certification that lists of all Program Loans owned by the Pittsburgh Bank for which the Custodian holds Loan Documents.

5.2. Services of the MPF Master Servicer. (a) The MPF Provider shall act as the Master Servicer for the Pittsburgh Bank with respect to all Program Loans funded or

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purchased by the Pittsburgh Bank pursuant to the MPF Program. The MPF Provider may discharge this duty by entering into a master servicing agreement (a “Master Servicing Agreement”) with any entity which the MPF Provider deems qualified to act as the MPF Master Servicer. The MPF Provider shall have direct and primary responsibility to the Pittsburgh Bank for the performance of the duties of the MPF Master Servicer under the Master Servicing Agreement.

     (b) The MPF Provider shall perform or cause to be performed the following master servicing duties, which shall be done in compliance with the provisions of the PFI Agreements, the Guides, and the Servicing Agreements:

(i) To supervise, monitor and oversee the servicing of the Program Loans and the performance of each Servicer of its services, duties and obligations under the Servicing Guide;

(ii) To receive and review all reports and data that are provided and are deliverable under the Servicing Guide by each Servicer;

(iii) To collect information, reconcile such information with each Servicer, and submit reports pertaining to the Program Loans and any funds due with respect thereto, to the Pittsburgh Bank as provided for in the FHLB Guide;

(iv) To recommend to the Pittsburgh Bank corrective action to be taken relative to any Servicer that fails to comply with the terms and conditions of the Servicing Guide with respect to defaulted Program Loans or the property encumbered as security for Program Loans;

(v) To notify the Pittsburgh Bank in the event a Servicer has materially or consistently defaulted under the PFI Agreement or Servicing Guide and to advise the Pittsburgh Bank of its recommended response to the default;

(vi) To maintain or cause the MPF Master Servicer to maintain customary fidelity and other insurance in connection with the performance of the obligations under the Master Servicing Agreement, and, upon request of the Pittsburgh Bank, to provide a copy of insurance certificates indicating such insurance is in effect or a copy of an officer’s certificate of the MPF Master Servicer certifying that such insurance coverage is in full force and effect;

(vii) To make its books and records relating to the services performed under the Master Servicing Agreement or those of the MPF Master Servicer accessible for inspection and copying by the supervisory agents and examiners of the FHFB at any time during normal business hours, and by the Pittsburgh Bank as arranged and coordinated by the MPF Provider.

     As part of its master servicing duties hereunder, the MPF Provider, for the benefit of the Pittsburgh Bank, shall use commercially reasonable efforts to enforce the obligations of the MPF Master Servicer under the Master Servicing Agreement in the same manner as the MPF Provider would act if the MPF Provider were the owner of the related Program Loans. Notwithstanding the MPF Provider’s delegation of master servicing obligations to the MPF Master Servicer pursuant to the Master Servicing Agreement, the MPF Provider shall not be relieved from its master servicing obligations hereunder, and the MPF Provider shall remain obligated and primarily liable to the Pittsburgh Bank for the master servicing of the Program Loans in accordance with the provisions of this Agreement, provided, however, that the MPF Provider’s liability

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arising from or related to its master servicing obligations under this Section 5.2 shall be limited solely to liability resulting from the MPF Provider’s or MPF Master Servicer’s negligence or willful misconduct.

     5.3. Approval of Pittsburgh Bank PFIs. The Pittsburgh Bank shall provide the MPF Provider with a copy of each member’s or housing associate’s PFI application, or portion thereof as specified in the FHLB Guide, upon the approval of a PFI. After obtaining the consent of the majority of the Active MPF Banks as provided in the FHLB Guide, the MPF Provider may pass through to the Active MPF Banks outside counsel fees incurred in connection with the development or drafting of PFI documents or matters generally affecting the MPF Program prospectively, provided, however, that the MPF Provider may pass through to the Active MPF Banks such outside counsel fees which do not exceed $5,000 without prior consultation. After consultation with the MPF Banks as provided in the FHLB Guide, the MPF Provider may pass through to the MPF Banks outside counsel fees incurred in connection with matters generally affecting the MPF Program on a programmatic basis, provided, however, that the MPF Provider may pass through to the MPF Banks such outside counsel fees which do not exceed $5,000 without prior consultation. The Pittsburgh Bank agrees to administer its PFI Agreements in accordance with their terms, including the Guides and all incorporated documents. The Pittsburgh Bank hereby acknowledges that the MPF Provider and other MPF Banks have an interest in consistent implementation of the MPF Program, and as the drafter of the MPF Program documents, the MPF Provider can provide an authoritative interpretation of such documents in the event of conflict with a PFI over their meaning. The obligations of the Pittsburgh Bank under this Section 5.3 shall survive termination of this Agreement.

     5.4. Creditworthiness of PFIs. The Pittsburgh Bank shall be responsible for evaluating the creditworthiness of each of its PFIs to provide the credit enhancement required of a PFI under the MPF Program. However, any MPF Bank that has acquired or acquires a participation in Pittsburgh Bank Program Loans or acquires Program Loans from Pittsburgh Bank PFIs shall be responsible for its own credit decision with respect to its investment in such assets. Consistent with applicable law and regulation and as provided in the FHLB Guide, the Pittsburgh Bank shall promptly provide notice to the MPF Provider of any material adverse changes in the financial condition of any Pittsburgh Bank PFIs of which it becomes aware and that the Pittsburgh Bank reasonably believes could result in the PFI’s breach of the PFI Agreement.

     5.5. Training of Pittsburgh Bank PFIs. The Pittsburgh Bank shall have primary responsibility for the training of its PFIs. The MPF Provider may provide training to personnel of the Pittsburgh Bank’s PFIs and the costs and expenses for providing such training shall be paid as provided in the FHLB Guide. All PFI training materials shall be supplied by or reviewed by the MPF Provider.

     5.6. MPF Program Materials. Any MPF Bank may submit requests for revisions to the PFI Agreements, the Guides and other MPF Program documents at any time. The MPF Provider may revise the form of the PFI Agreements, the Guides or any other MPF Program document at any time, provided that the MPF Provider consult with the Active MPF Banks with respect to any material revisions to the PFI Agreements and the Guides as provided in the FHLB Guide.

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     5.7. Support of Pittsburgh Bank PFIs. The MPF Provider shall be responsible for providing the Operational Matters support to all MPF Banks’ PFIs by establishing an MPF Program Center (“MPF Program Center”) which shall include the MPF Service Center (“Service Center”) and a customer support desk. The MPF Program Center and Service Center operations are described in the FHLB Guide. The MPF Provider shall ensure that the MPF Program Center is adequately staffed to service the Pittsburgh Bank PFIs in a commercially reasonable manner and with no less service than the MPF Provider is providing to its own PFIs. The MPF Provider shall provide the data transmissions and reports as required by the FHLB Guide.

     5.8. Execution of Master Commitments. The Pittsburgh Bank will enter into each Master Commitment in accordance with the FHLB Guide. The MPF Program Center’s personnel will be responsible for entering each Master Commitment into the MPF Program system. Excluding Master Commitments or Program Loans that are subject to waivers approved by the Pittsburgh Bank, the MPF Provider shall determine the Actual Credit Enhancement for each Master Commitment using a methodology that complies with the requirements of 12 C.F.R. § 955.3, as amended or superseded.

     5.9. Delivery Commitments; Pricing.

     5.9.1. Pricing of Loans. (a) Pursuant to the delegation of pricing authority as permitted by the FHFB at 12 CFR Part 955.5(c), the Pittsburgh Bank, except as set forth in subsection (b) hereof, has elected to utilize the pricing methodology developed by the MPF Provider, provided that such methodology shall not be modified without prior notice to the Pittsburgh Bank. Thus, the MPF Provider shall be responsible for the calculation and publication of the prices for the Pittsburgh Bank applicable to all Program Loans.

(b) The Pittsburgh Bank may, with respect to any or all of its Large Master Commitments, request that the MPF Provider permit the Pittsburgh Bank to set prices for all the Delivery Commitments issued under such Large Master Commitment in accordance with and subject to the procedures and limitations the MPF Provider may publish in the FHLB Guide. Upon the Pittsburgh Bank utilizing such procedures, then the MPF Provider shall employ the prices communicated by the Pittsburgh Bank in the issuance of Delivery Commitments under the Large Master Commitment. The MPF Provider’s facilitation of any special prices for Large Master Commitments is excluded from the MPF Provider’s representations and warranties provided in Section 6.6 of this Agreement.

     5.9.2. Delivery Commitments. (a) As provided in the Guides, the MPF Program Center will publish Rate and Fee Schedules for all Program Loans. Rate and Fee Schedules are subject to change as provided for in the Guides. Delivery Commitments will be managed as specified in the Guides and the FHLB Guide. The MPF Program Center will provide reports and loan data transmissions concerning all Delivery Commitment activities of the Pittsburgh Bank PFIs to the Pittsburgh Bank at the times and in the manner provided in the FHLB Guide. The funding and purchasing of Program Loans will be processed through a PFI’s DDA with the Pittsburgh Bank. The MPF Program Center shall compute any Pairoff Fees (or any similar fees) that are owed to the Pittsburgh Bank by any PFI and will report these amounts to the Pittsburgh Bank. The

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Pittsburgh Bank shall be responsible for collecting Pairoff Fees (or any similar fees) from its PFIs and disbursing the same to itself and via deposit to its Clearing Account, to its Participants (including the MPF Provider), as applicable.

(b) On any Business Day, the Pittsburgh Bank may give a Liquidity Option Notice to the MPF Provider as provided for in the FHLB Guide. Upon receipt, the MPF Provider shall set the MPF Program system so that no Delivery Commitments will be issued to the Pittsburgh Bank’s PFIs until the next Business Day.

(c) Pittsburgh Bank not open on a Business Day. In the event that the Pittsburgh Bank is not opened for business on or closes prior to the scheduled close of business during any Business Day, Delivery Commitments may be issued in accordance with the FHLB Guide if any Participant(s) is willing to acquire, in the aggregate, a 100% Participation Share therein. Such Delivery Commitments shall be deemed Designated Delivery Commitments as defined in, and governed by, the LOMPA, except that the Pittsburgh Bank hereby agrees that its signature is not needed on any notice or direction to the MPF Provider for the Participation Shares to be effective with respect to such Designated Delivery Commitments.

     5.10. Quality Control and Loss Mitigation. The MPF Provider will perform the same level of quality control review and loss mitigation oversight for the Pittsburgh Bank’s Program Loans as it performs for its own Program Loans which will be performed as provided in the FHLB Guide. If requested and paid for by the Pittsburgh Bank, the MPF Provider will use commercially reasonable efforts to provide additional quality control reviews. MPF Provider agrees to re-evaluate its quality control practices, including sampling adequacy, when business conditions warrant such re-evaluation, to ensure that MPF practices comply with industry and regulatory standards. Nothing in this Section 5.10 shall limit the Pittsburgh Bank from conducting its own quality control reviews or exercising oversight of its PFI’s origination and servicing functions to the extent the Pittsburgh Bank is required to do so under applicable law or regulation or otherwise directed to do so by the FHFB.

     5.11. Transactional Relationships.

     5.11.1. Maintenance of Accounts at the MPF Provider. The Pittsburgh Bank will establish and maintain the Clearing Account with the MPF Provider.

     5.11.2. Funding of Payment Obligations. The MPF Provider hereby consents to the Pittsburgh Bank withdrawing funds from the Clearing Account from time to time to satisfy the MPF Provider’s payment obligations under this Agreement. The Pittsburgh Bank hereby consents to the MPF Provider withdrawing funds from the Clearing Account from time to time to satisfy the Pittsburgh Bank’s obligations to pay any fees and any other payment obligation under this Agreement.

     5.11.3. Interest on Clearing Account. In accordance with the Master Transactions Agreement between the MPF Provider and the Pittsburgh Bank, the MPF Provider will credit to the Pittsburgh Bank’s Clearing Account interest on the outstanding balance thereof from time to time in accordance with the Master Transactions Agreement, at the rate of interest paid by the MPF Provider to all MPF Banks under the MPF Program, as

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the same is published in the FHLB Guide from time to time (the “MPF Bank Rate”). In the event that any withdrawal from the Pittsburgh Bank’s Clearing Account shall cause the balance in such account to become negative, such deficit shall be deemed a loan from the MPF Provider to the Pittsburgh Bank, payable upon demand and bearing interest at the rate charged by the MPF Provider to all MPF Banks under the MPF Program, as the same is published in the FHLB Guide from time to time (the “MPF Bank Default Rate”). If at any time the MPF Bank Default Rate is not published in the FHLB Guide, the MPF Bank Default Rate, for any day, shall be equal to the MPF Bank Rate for that day plus 200 basis points (2.0%).

5.12. Relationship of the Parties; Restrictions on Transfers. (a) The Pittsburgh Bank will receive and hold all receipts and collections with respect to the Program Loans funded through or purchased from the Pittsburgh Bank PFIs, for the benefit of itself and any other Participants who may invest therein, in accordance with their respective interests in the Program Loans. Except to the extent of its obligations under Section 5.1(a), the MPF Provider shall have no fiduciary duty to the Pittsburgh Bank. Except to the extent of its obligations under Sections 6.4.1. and 7.3., the Pittsburgh Bank shall have no fiduciary duty to the MPF Provider.

(b) Notwithstanding the foregoing, the Pittsburgh Bank agrees that it will not sell or transfer any of its interests in Program Loans or its rights under this Agreement, or any portion of any thereof, except (i) to another FHLB or member or housing associate of an FHLB, (ii) to an institutional third party investor approved of in writing by the MPF Provider, which approval shall not be unreasonably withheld, or (iii) to the PFIs providing the credit enhancement for such Program Loans, provided, however, servicing must be provided by a PFI or an MPF Program approved Servicer, and unless such covenants and obligations have been assigned to another MPF Bank or other approved investor in such Program Loans, the Pittsburgh Bank shall continue to monitor the creditworthiness of its PFIs and, when appropriate to protect the interests of the holders of the Program Loans, obtain a perfected security interest in collateral to secure any of its PFIs’ obligations under their respective PFI Agreements. The MPF Provider will continue to provide reports defined by Master Commitment.

(c) Participation Shares in the Program Loans, whether previously acquired by the MPF Provider pursuant to the Prior Services Agreement or acquired by any MPF Bank during the term of this Agreement, shall be deemed to be pursuant to and governed by the terms of the LOMPA.

     5.13. Memo Spread Account/First Loss Account Allocations. The MPF Provider and the Pittsburgh Bank shall each maintain its own respective loan loss reserves with respect to the Program Loans. The Spread Account/First Loss Account (which is a memorandum account used for tracking purposes) for any Master Commitment in which there are Participants will be allocated between or among the parties as provided for in the LOMPA.

     5.14. Rescission of Payments. For all Program Loans in which a Participant owns an interest, the LOMPA shall govern the situation in which all or part of any payment of Loan Recoveries or other amounts paid to the Pittsburgh Bank is rescinded or must otherwise be returned for any reason.

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     5.15. Product Development. The MPF Provider shall receive submissions from the Pittsburgh Bank which may be made in conjunction with other MPF Banks, for new products to be offered under the MPF Program, as provided for in the FHLB Guide.

     5.16. Financial Reporting and Controls. The MPF Provider shall provide an annual Type II SAS 70 audit report of its internal controls pertaining to the Services and shall consult with the Active MPF Banks prior to the engagement of the auditor concerning the terms of the audit, including the time period covered, the form, scope and content of the audit report, and when the audit reports are to be provided to the MPF Banks, in accordance with the procedures set forth in the FHLB Guide. For the period between the end of the audit period and December 31^st of each year, the MPF Provider shall provide the Pittsburgh Bank with a letter, on or before the date specified in the FHLB Guide, stating whether the MPF Provider implemented, during that period that is not covered by the audit reports, any material changes to the MPF Program systems which impact the operating effectiveness of controls covered by the SAS 70 audit report and, if so, containing such certifications as specified in the FHLB Guide.

     5.17. Service Level Commitments. The MPF Provider agrees that it shall perform the Services in accordance with the service levels set forth in the FHLB Guide.

VI.      REPRESENTATIONS AND COVENANTS

     6.1. Participation Share and Management of Assets. —

        6.1.1. Participation Share. The MPF Provider shall be able to rely on the written direction of the Pittsburgh Bank delivered in accordance with the FHLB Guide to confirm to any Participant participating in Program Loans acquired by the Pittsburgh Bank that such Participant is vested in its Participation Share in each such Program Loan upon its acquisition by the Pittsburgh Bank, without the need for further documentation, upon the deposit of funds equal to the Participant’s Participation Share to the Pittsburgh Bank’s Clearing Account.

        6.1.2. Management of Assets. The PFIs are obligated under the terms of the PFI Agreements to perform all customary servicing functions, including loss mitigation and property disposition, with respect to the Program Loans. The Pittsburgh Bank shall have the responsibility for exercising commercially reasonable efforts to enforce the terms of the PFI Agreement and PFIs’ compliance with the Guides, on behalf of itself and such other parties identified in the FHLB Guide.

     6.2. Risk of Loss. The Pittsburgh Bank assumes all risk of loss in connection with its investment in Program Loans, and its execution of each PFI Agreement and each Master Commitment except for any losses arising directly from the negligence or willful misconduct of the MPF Provider in its provision of the Services pursuant to this Agreement or breach of its fiduciary duties specified in Section 5.1(a); provided, however, that such assumption of risk is not intended to waive or release the liability of any person or entity that is not a party to this Agreement. The Pittsburgh Bank acknowledges that it is familiar with the Guides and the FHLB Guide and the operation of the MPF Program as described therein.

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     6.3. Default by PFIs; Enforcement. Each of the parties is entitled to assume that no PFI default or event which, with the giving of notice or lapse of time, or both, would constitute such a default, has occurred and is continuing unless such party (i) has actual knowledge of such default or event, or (ii) has been notified in writing that such a default or event has occurred.

     6.4. Pittsburgh Bank’s Covenants. The Pittsburgh Bank covenants and agrees as follows:

     6.4.1. Collateral for Credit Enhancement. In accordance with the FHLB Guide the Pittsburgh Bank shall obtain a perfected security interest in collateral and the proceeds of all collateral provided from time to time by each Pittsburgh Bank PFI under its PFI Agreement or any other credit agreement, securing the PFI’s obligations under its PFI Agreement.

     6.4.2. Use of Intellectual Property. The MPF Provider hereby licenses to the Pittsburgh Bank the limited right to use the trademarks “Mortgage Partnership Finance,” “MPF,” “eMPF,” “MPF Shared Funding,” the “Mortgage Partnership Finance” logo and “MPF” logo (individually, a “Mark” and together, the “Marks”) in connection with the exercise of the Pittsburgh Bank’s rights and responsibilities under this Agreement including, without limitation, the acquisition of Program Loans from its PFIs, the promotion and marketing of the MPF Program to its members and housing associates, and instruction and training of its members and housing associates concerning the MPF Program, subject to the following terms and conditions:

     (i) The term of this license shall be the same as this Agreement. Upon termination of this license, all rights in and to the Marks shall automatically revert to the MPF Provider.

     (ii) When using any of the Marks in any external communications, including letters, agreements, program descriptions and marketing materials, the Pittsburgh Bank agrees to adhere to the standards governing the use of the Marks set forth in the FHLB Guide.

     (iii) The MPF Provider reserves the right to inspect or monitor the use of the Marks and the services provided in connection with the Marks to assure compliance with this Agreement and the FHLB Guide.

     (iv) The Pittsburgh Bank hereby recognizes the value of the goodwill associated with the Marks and acknowledges that all rights in and to the Marks belong exclusively to the MPF Provider and that the Marks may have acquired secondary meaning in the mind of the public. The Pittsburgh Bank agrees, during the term of this Agreement and thereafter, never to attack or assist anyone else in attacking the rights of the MPF Provider in the Marks or the validity of the license of the Marks being granted herein.

     6.5. Authorization and Enforceability Representations. Each of the partieshereby represents to the other party hereto that (i) all necessary corporate and other action has been taken to authorize it to execute, and to perform its obligations under, this Agreement, and (ii) all

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necessary regulatory approvals to engage in the MPF Program have been obtained and (iii) this Agreement is the legal, valid and binding obligation of such party, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization pursuant to the Federal Home Loan Bank Act, as amended, moratorium and other similar laws affecting the rights of creditors generally and general equitable principles.

     6.6. MPF Provider Representations and Warranties. In addition to the above representations, the MPF Provider represents and warrants that it shall timely perform the Services in a commercially reasonable manner and with the same care, skill, prudence and diligence with which it services and administers in its own portfolio of Mortgages. Further, the MPF Provider represents to the Pittsburgh Bank and warrants that the MPF Program is compliant with all applicable state and federal laws, including consumer laws, and rules and regulations, provided, however, that the MPF Provider makes no representations or warranties with respect to actions taken at the direction of, or matters within the control of, the Pittsburgh Bank including, but not limited to, transactions customized at the request or direction of the Pittsburgh Bank. Further, the MPF Provider represents to the Pittsburgh Bank and warrants that all copyrights, trademarks, service marks, patents and other intellectual property rights used in the MPF Program do not infringe upon the rights of any third parties.

     6.7. Pittsburgh Bank’s Indemnification Obligation. The Pittsburgh Bank acknowledges that the ability to participate in the MPF Program will be based upon its representations and warranties set forth above, and the Pittsburgh Bank agrees to indemnify, defend and hold harmless the MPF Provider, its affiliates and each stockholder, director, officer, employee and agent, if any, thereof from and against any and all loss, damage, liability or expense, including (without limitation) costs and reasonable attorneys’ fees and expenses, to which it may be put or which it may incur by reason of, or in connection with, any misrepresentation made by the Pittsburgh Bank in this Agreement, or any breach by Pittsburgh Bank of its warranties set forth in this Agreement. The Pittsburgh Bank’s indemnification under this section does not include any loss, damage, liability or expense arising out of any litigation challenging the authority of the MPF Provider to engage in the MPF Program.

     6.8. MPF Provider’s Indemnification Obligation. The MPF Provider agrees to indemnify, defend and hold harmless the Pittsburgh Bank, its affiliates and each stockholder, director, officer, employee and agent, if any, thereof from and against any and all loss, damage, liability or expense, including (without limitation) costs and reasonable attorney’s fees and expenses, to which it may be put or which it may incur by reason of, or in connection with, any misrepresentation made by the MPF Provider in this Agreement, or any breach by MPF Provider of its warranties set forth in this Agreement. The indemnification under this section does not include any loss, damage, liability or expense arising out of any litigation challenging the authority of the MPF Provider to engage in the MPF Program.

     6.9. Review of Accounting Books and Records. From time to time upon reasonable advance request, either party shall be entitled to review, at its cost, the accounting books and records of the other party with respect to the Pittsburgh Bank’s participation in the MPF Program. Both parties agree and acknowledge that the other party need not provide copies of or information pertaining to confidential bank examiner’s reports.

     6.10. Press Releases and Media Relations. (a) The MPF Provider agrees that during the

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term of this Agreement, it will provide the Pittsburgh Bank advance notice and opportunity for review and comment in accordance with the terms of the FHLB Guide, of all press releases and written communications with the media, concerning the Pittsburgh Bank’s or Pittsburgh Bank PFIs’ involvement with the MPF Program

(b)      The Pittsburgh Bank agrees that during the term of this Agreement, it will provide the MPF Provider advance notice and opportunity for review and comment in accordance with the terms of the FHLB Guide, of all press releases and written communications with the media, concerning the MPF Program.

     6.11.      Use of Proprietary Information and Confidentiality. Each of the parties has been and may hereafter be furnished with certain materials and information relating to the MPF Program (including, without limitation, information about Pittsburgh Bank members and housing associates that apply or are approved as PFIs) that are confidential and proprietary information of the other party (collectively, the “Confidential Information”). Each of the parties agrees (i) to keep the Confidential Information confidential using reasonable means, not less than those used to protect its own proprietary material, (ii) to not disclose the Confidential Information, without the prior written approval of the other party, to anyone other than to its officers or employees who have a need to know its contents to perform their duties in connection with the MPF Program, to any member of its Board of Directors, to its regulators, to any Participant or approved investor in Program Loans acquired from the Pittsburgh Bank or its PFIs, or to those third party agents who agree to be bound by the terms of this Section 6.11, as evidenced by a written statement or agreement in form and substance reasonably satisfactory to the other party, and (iii) upon completion of its use of the Confidential Information or at any time upon the other party’s request, to promptly return the Confidential Information, including all copies made thereof in any format and all notes pertaining to the same. For purposes of this Section 6.11, when transmitting or providing access to “nonpublic personal information” (as that term is defined in Title V of the Gramm-Leach-Bliley Act (15 U.S.C. § 6809)), each of the parties shall use a secure method that is generally accepted as preventing unauthorized access such as encrypted transmission or providing secure, password protected web-access. Each of the parties further agrees that if it is served with process or any other governmental or regulatory request for the Confidential Information (excluding an examination request by the FHFB), it will immediately notify the General Counsel of the other party, prior to complying with such process, order or request, unless prohibited by applicable law, regulation or court order.

     6.12. Equal Treatment of MPF Banks. The MPF Program is a cooperative program among the MPF Banks and the MPF Provider. Consequently, the MPF Provider agrees that any amendment or modification to MPF Services Agreement offered to any Active MPF Bank shall be promptly offered to all other Active MPF Banks.

     6.13.      Role of the MPF Banks. It is the intent of the MPF Provider and the MPF Banks that the Active MPF Banks shall have more responsibility for the advancement of the MPF Program and a defined role in the material decisions impacting the direction of the MPF Program. Therefore, the parties to this Agreement agree to meet (in person or telephonically) with the other Active MPF Banks regularly, but not less than once a month, beginning in September, 2007 and continuously thereafter until an agreement regarding governance of the MPF Program (“MPF Governance Agreement”) is executed or as may otherwise be agreed to by the parties. The Pittsburgh Bank and the MPF Provider agree to negotiate the terms of an MPF

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Governance Agreement in good faith. It is understood that if an MPF Governance Agreement is not executed by the parties on or before August 31, 2008, notwithstanding the provisions of Section 2 of Exhibit A, and if not later than October 1, 2008, the Pittsburgh Bank exercises its right to terminate this Agreement pursuant to Section 2.1(a), then the Pittsburgh Bank shall continue to pay the Transaction Services Fee but the minimum amount of the annual Transaction Services Fee shall be the Termination Core Services Fee or the TSF Floor, whichever is less, and therefore such TSF Floor will never be increased to more than the amount of the TSF Floor for the calendar year 2010 specified in Exhibit A.

VII. TERMINATION

     7.1.      Events of Default. It shall be an Event of Default under this Agreement if either party fails to perform its obligations or breaches any of its covenants under this Agreement and such failure to perform or breach is not cured (i) within sixty (60) days from the date the non-breaching party gives written notice of such default, if the default is capable of being cured within such time limit, or (ii) within a reasonable time after notice if the cure is commenced within the sixty (60) day period and diligently pursued thereafter.

     7.2.      Termination and Other Remedies.

     7.2.1.      Remedies for the Pittsburgh Bank’s Default. Without limiting the effect of Section 6.7, upon the occurrence of an Event of Default caused by the Pittsburgh Bank, (i) the MPF Provider shall have the right, subject to the requirements of Section 2.1(b), to terminate this Agreement, and (ii) the Pittsburgh Bank shall pay to the MPF Provider an amount equal to the MPF Provider’s actual and direct damages arising from and accruing during the continuance of the Event of Default, but the Pittsburgh Bank shall have no responsibility for any consequential or punitive damages.

     7.2.2.      Remedies for the MPF Provider’s Default. Without limiting the effect of Section 6.8, upon the occurrence of an Event of Default caused by the MPF Provider, the Pittsburgh Bank shall have the right, subject to the requirements of Section 2.1(b), to terminate this Agreement. Until the MPF Provider’s obligations to provide the Services terminates as provided in Section 2.1(b), the Pittsburgh Bank shall continue to pay the Transaction Services Fee for the Services, provided, however, that the Transaction Services Fee payable by the Pittsburgh Bank shall not exceed the Pittsburgh Bank’s pro rata portion of the MPF Provider’s costs of providing the Services to all the MPF Banks, based on the aggregate unpaid principal balance of the Pittsburgh Bank’s retained interest in Program Loans as compared to the aggregate unpaid principal balance of all the Program Loans in the MPF Program. Further, the MPF Provider shall pay to the Pittsburgh Bank an amount equal to the Pittsburgh Bank’s actual and direct damages arising from the Event of Default, but the MPF Provider shall have no responsibility for any consequential or punitive damages.

     7.2.3.      Trigger Event. Upon the occurrence of a Trigger Event, this Agreement shall terminate as directed, and the provisions of Section 2.1(b) shall apply.

     7.3.      Obligations Regarding PFIs; Support for Program Loans. (a) The Pittsburgh Bank’s covenant to monitor the credit and maintain collateral to secure its

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PFIs’ obligations set forth in Section 6.4.1. and the Pittsburgh Bank’s obligations set forth in this Section 7.3. shall apply and shall survive the expiration or termination of this Agreement as well as the sale of the Program Loans by the Pittsburgh Bank unless such covenants and obligations have been assigned to another MPF Bank or other approved investor in such Program Loans in accordance with Section 5.12 of this Agreement.

(b) The Pittsburgh Bank agrees (i) to notify the MPF Provider of any material adverse changes, of which it becomes aware, in the financial condition of those PFIs who service or provide credit enhancements for any Program Loans in which any other MPF Bank has an interest and authorizes the MPF Provider to share such information with the relevant MPF Banks or other Participants, and (ii) to share relevant credit assessments and information on those PFIs with the MPF Provider.

(c) The Pittsburgh Bank agrees to obtain a perfected security interest in collateral for the benefit of itself and any Participants and/or Owner Banks, except when prohibited by law, as the Pittsburgh Bank reasonably determines may be necessary to secure the obligations of the Pittsburgh Bank PFIs under their respective PFI Agreements.

(d) Without limiting the rights of the MPF Provider and any other MPF Bank under the LOMPA, the Servicing Transfer Agreements, and the Custody Addendum, the MPF Provider shall not have an interest in any (i) other property taken as security for any other credit, loan or financial accommodation made or furnished to any PFI by the Pittsburgh Bank in which the Participant has no participation interest; (ii) property now or hereafter in the Pittsburgh Bank’s possession or under the Pittsburgh Bank’s control other than by reason of any PFI Agreement; or (iii) deposits or other indebtedness which may be or might become security for performance or payment of any obligations and liabilities of any PFI under the PFI Agreement by reason of the general description contained in any instrument other than the PFI Agreement held by the Pittsburgh Bank or by reason of any right of setoff, counterclaim, banker’s lien or otherwise.

     7.4. Costs of Enforcement. Each party agrees to bear its own share of any and all liabilities, costs, expenses and disbursements (including, without limitation, reasonable attorneys’ fees and other legal expenses) incurred by it in any effort to collect any amounts payable hereunder to it by the other party.

     7.5. Exculpation of Parties. Neither party nor any of its shareholders, directors, officers, employees or agents shall be liable to the other for any obligation, undertaking, act, omission or judgment of any Borrower, any PFI, any guarantor or any other person, or be bound to ascertain or inquire as to the performance or observance by any PFI of any provision of any PFI Agreement, Master Commitment, the Guides, any Program Loan or any of the Loan Documents.

     7.6. Survival. Without limiting any other express survival provisions contained in this Agreement, all representations and warranties and the indemnifications contained in this Agreement shall survive the termination of this Agreement.

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VIII. MISCELLANEOUS

     8.1. Notices. Whenever notice is required under this Agreement or by applicable law, it must be given as provided in the FHLB Guide, unless otherwise expressly provided in this Agreement.

     8.2. The Guides and Other Documents. Copies of the Guides, including (without limitation) any amendments or supplements, or of any changes or pronouncements with respect thereto, shall be provided by the MPF Provider as provided in the FHLB Guide.

     8.3. Addresses. For purposes of this Agreement, the address, telephone and facsimile numbers for the Pittsburgh Bank and the electronic transmission information for the Pittsburgh Bank are as set forth below its signature to this Agreement. For purposes of this Agreement, the address, telephone and facsimile numbers for the MPF Provider and the electronic transmission information for the MPF Provider are as set forth in the FHLB Guide. Any change in notice addresses must be given in writing and given as provided in the FHLB Guide, but such change shall be effective only upon actual receipt.

     8.4. Effect of Agreement. The MPF Provider will have no obligation or responsibility to the Pittsburgh Bank except as specifically stated herein. This Agreement constitutes the entire agreement among the parties, and no representation, promise, inducement or statement of intent has been made by the MPF Provider to the Pittsburgh Bank which is not embodied in this Agreement or the incorporated FHLB Guide. This Agreement replaces and supersedes the Prior Services Agreement. In addition, the parties agree that this Agreement is supplemented by the LOMPA. Without limiting the foregoing, this Agreement is also supplemented by the Custody Addendum, the Servicing Transfer Agreements and that certain Confidentiality Agreement with respect to LEVELS information.

     8.5. Execution in Counterparts; Facsimile Execution Permitted. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts, each of which, when so executed and delivered, shall be deemed an original and all of which, taken together, shall constitute but one and the same agreement. The parties further agree that this Agreement and signature pages thereof may be transmitted between them by facsimile machine and that counterpart facsimile copies are included in this Agreement. The parties intend that faxed signatures may constitute original signatures and that a faxed signature page containing the signature (original or faxed) of all parties is binding on the parties.

     8.6. Governing Law. This Agreement shall be construed and enforced in accordance with the statutory and common law of the United States of America. To the extent federal law incorporates or defers to state law, the relevant state law shall be the law of the state of Illinois (without regard to conflicts of law principles) applicable to agreements to be performed in the state of Illinois.

     8.7. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

     8.8. Successors and Assigns. Subject to the terms of Section 5.12, this Agreement shall be binding upon and inure to the benefit of the MPF Provider and the Pittsburgh Bank and

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their respective successors and permitted assigns. Nothing contained in this Agreement shall limit the right of the MPF Provider to transfer participation interests in its Participation Share in Program Loans that were funded or purchased under PFI Agreements with the Pittsburgh Bank.

     8.9. Waivers and Amendments. No delay on the part of either party in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by one party of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment to, modification or waiver of, or consent with respect to, any provision of this Agreement shall be effective unless in writing and executed and delivered by the MPF Provider and the Pittsburgh Bank, provided, however, that the FHLB Guide may be amended or supplemented generally from time to time after consultation with the Active MPF Banks, by the issuance of revised or additional pages by the MPF Provider or by other written or electronic communications from the MPF Provider to the MPF Banks. Unless otherwise agreed to, any amendment to the FHLB Guide shall be issued in accordance with the FHLB Guide and shall apply to Master Commitments and Delivery Commitments entered into on or after the effective date of such amendment.

     8.10. References to Sections, Exhibits and Agreement; Captions. Unless otherwise indicated either expressly or by context, any reference in this Agreement to a “Section” or “Exhibit” shall be deemed to refer to a Section of or Exhibit to this Agreement. All references herein to this “Agreement” shall, as of any time after the date hereof, be deemed to include all amendments hereto, which have been made prior to such time in accordance with Section 8.9. Article and Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement.

     8.11. Specific Performance. The parties hereto recognize and agree that it may be impossible to measure in money the damages which will accrue to any party hereto or its successors or assigns by reason of a failure to perform any of the obligations arising under this Agreement. Therefore, if a party or its successors or assigns shall institute any action or proceeding to enforce any provision hereof, any party against whom such action or proceeding is brought hereby agrees that specific performance may be sought and obtained for any breach of this Agreement, without the necessity of providing actual damages.

8.12. Mediation of Disputes; Jurisdiction and Venue. (a) Neither the Pittsburgh Bank nor the MPF Provider shall institute a proceeding before any tribunal to resolve any controversy or claim arising out of or relating to the Agreement, or the breach, termination or invalidity thereof (a “Dispute”), before such party has sought to resolve the dispute through mediation. If the parties do not promptly agree on a mediator, either party may request the then Chairman of the Board of the FHFB to appoint a mediator. All mediation proceedings under this Agreement shall be held in Washington, D.C. or such other location as the parties may agree upon. If the mediator is unable to facilitate a settlement of the Dispute within a reasonable time, as determined by the mediator, the mediator shall issue a written statement to the parties to that effect and the complaining party may then pursue any other remedy available to it at law or in equity. The fees and expenses of the mediator shall be paid by the party initiating mediation, unless the parties agree otherwise, but the paying party shall be entitled to a judgment for reimbursement of such fees and expenses if it prevails against the other party on all material issues in a judicial proceeding.

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(b) The Pittsburgh Bank hereby consents to the exercise of jurisdiction over its person and its property by any court of competent jurisdiction situated in the City of Chicago, State of Illinois (whether it be a court of the State of Illinois or a court of the United States of America situated in Illinois) for the enforcement of this Agreement or in any other controversy, dispute or question arising hereunder, and the Pittsburgh Bank hereby waives any and all personal or other rights to object to such jurisdiction for such purposes. The Pittsburgh Bank, for itself and its successors and assigns, hereby waives any objection which it may have to the laying of venue of any such action, suit or proceeding in any such court; provided, that the provisions of this paragraph shall not be deemed to preclude any other appropriate forum. If such litigation is commenced at any time, the parties agree that service of process may be made, and personal jurisdiction over either party obtained, by service of a copy of the summons, complaint and other pleadings required to commence such litigation by United States certified or registered mail, return receipt requested, addressed to such party at its address for notices as provided in this Agreement. The Pittsburgh Bank and MPF Provider waive all claims of lack of effectiveness or error by reason of any such service.

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     IN WITNESS WHEREOF, each of the MPF Provider and the Pittsburgh Bank has caused this Agreement to be executed by its duly authorized officers, as of the date first above written.

MPF PROVIDER:

FEDERAL HOME LOAN BANK OF CHICAGO

By:	/s/ Eric S. Schambow
	Eric S. Schambow, Senior Vice President
Pittsburgh BANK:
FEDERAL HOME LOAN BANK OF PITTSBURGH

By:	/s/ John R. Price	By:	/s/ Craig C. Howie
	John R. Price, President and CEO		Craig C. Howie, Group Director

Address:	601 Grant Street Pittsburgh, Pennsylvania 15219-4455 Attention: Margaret Stemmler
	Facsimile No.: (412) 288-7318
	Electronic Transmission: mstemmler@fhlb-pgh.com

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

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EXHIBIT A
TRANSACTION SERVICES FEES

1.      TRANSACTION SERVICES FEES.

(a) The Transaction Services Fee shall initially be a percentage fee payable and calculated each month by multiplying, for each Annual Percentage Rate, (x) one-twelfth of such Annual Percentage Rate by (y) the aggregate outstanding balance of the Pittsburgh Bank’s applicable TSF Loans at the end of the previous month as reported by the Master Servicer, and then, if there are more than one Annual Percentage Rate, totaling the results for all the TSF Loans (aggregated for the calendar year, the “Annual Percentage Fee”), provided, however, that commencing with calendar year 2008, and for each subsequent calendar year, the Transaction Services Fee for such year shall be equal to (i) the Annual Percentage Fee or (ii) the Pittsburgh Bank’s TSF Floor, whichever is greater. If the Annual Percentage Fee for the Pittsburgh Bank is less than its TSF Floor in any year, the difference between the two amounts shall be paid as part of the December payment of Transaction Services Fees.

(b) The Annual Percentage Rate applicable to TSF Loans acquired by the Pittsburgh Bank prior to January 1, 2009 is five basis points (0.05%), which rate will not be changed during the life of such TSF Loans, and (notwithstanding the TSF Notice dated June 30, 2007) the TSF Floor for 2008 for the Pittsburgh Bank is $250,000, for 2009 is $375,000 and for 2010 is $500,000.

(c) “Annual Percentage Rate” shall mean the annual rate used to determine the Annual Percentage Fee payable with respect to the TSF Loans acquired by the Pittsburgh Bank in any calendar year, for the life of such TSF Loans, which rate is specified in Section 1 (b) of Exhibit A for calendar years prior to 2009 and shall be as set forth in the TSF Notice for each subsequent calendar year.

(d) Commencing with calendar year 2009, and for each subsequent calendar year, the MPF Provider may change the Annual Percentage Rate by delivering the same TSF Notice to all Active MPF Banks on or before the preceding June 30^th. In addition, commencing with calendar year 2011, and for each subsequent calendar year, the MPF Provider may change the TSF Floor as specified in the TSF Notice to the MPF Banks. Failure by the MPF Provider to issue a TSF Notice for any calendar year shall result in the continued use of the Annual Percentage Rate and TSF Floor from the previous calendar year. The MPF Provider agrees not to increase the Annual Percentage Rate for any year to a rate greater than a half of one basis point (0.005%) more than the prior year’s Annual Percentage Rate. (For example, the Annual Percentage Rate for 2009 TSF Loans cannot exceed 0.055% (5.5 basis points)). Subject to the limit specified in Section 1 (e) of Exhibit A, the aggregate TSF Floor for all the MPF Banks shall be set by the MPF Provider in accordance with the procedures specified in Section 1(g) of Exhibit A, and shall not exceed the MPF Provider’s projected aggregate costs of providing the Services to the Pittsburgh Bank and to the other MPF Banks for such year.

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(e) The TSF Floor specified in the TSF Notice for any calendar year may be increased for such year by an amount determined by multiplying the CPI Increase (as defined below) effective for such TSF Notice by the current year’s TSF Floor.

The CPI Increase shall be calculated by comparing the Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items, 1982-84=100 (the “CPI”) for the month of April of the prior year to the CPI for the month of April of the current year (or the closest calendar month prior to April for which the CPI is published if the April CPI is not published by May 31st). The increase in the CPI indicated by such comparison, stated as a percentage, shall be defined herein with respect to each year’s TSF Floor published in the TSF Notice as the “CPI Increase.”

If, during the term of this Agreement, the CPI is no longer published, the MPF Provider shall, for the purposes of computation of the maximum increase to the TSF Floor, substitute such other Index as is then generally recognized as most comparable to the CPI and accepted for similar determinations. If sufficient data is unavailable for the MPF Provider to make the determination specified in this Section 1 (e) for any TSF Notice, the TSF Floor for the prior calendar year shall remain in effect. As soon as the necessary data becomes available, the MPF Provider shall determine the new limit on the TSF Floor and the MPF Provider may increase the TSF Floor for the applicable year’s TSF Loans up to that limit if it so desires.

The following example illustrates the computation of percent change:

CPI for current period	136.0
Less CPI for previous period	129.9
Equals index point change	6.1
Divided by previous period CPI	129.9
Equals	0.047
Result multiplied by 100	0.047 x 100
Equals percent change	4.7

(f) Excluding the TSF Floor and the Termination Core Services Fee, it is understood that Program Loans acquired by the Pittsburgh Bank before May 1, 2006 will not be subject to a Transaction Services Fee for the life of such Program Loans.

(g) The MPF Provider agrees to provide all Active MPF Banks with a report not later than May 31^st of each year commencing 2008, containing a break down of the MPF Provider’s costs for the Services for all MPF Banks for the prior calendar year, the budget for such costs for the current year and pro forma projection of such costs for the following three years. If requested by the Active MPF Banks in writing, the MPF Provider agrees to provide reasonable types of documentation to support its budget and pro forma projections excluding, however, any privileged or confidential information. The MPF Provider agrees to consult with the Active MPF Banks regarding the projected costs of the Services for the following calendar year prior to issuing the TSF Notice for such calendar year.

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2. TRANSACTION SERVICES FEES FOLLOWING TERMINATION.

(a) If this Agreement is terminated by the Pittsburgh Bank pursuant to Section 2.1(a), or if this Agreement is terminated pursuant to Section 7.2.1 or Section 7.2.3, the Pittsburgh Bank shall continue to pay the Transaction Services Fees as provided in Section 1 of Exhibit A, provided, however, that commencing the first calendar year after termination, in lieu of the TSF Floor, the minimum amount of the Transaction Services Fees for the year shall not be less than the Termination Core Services Fee (as defined below).

(b) If this Agreement is terminated by the MPF Provider pursuant to Section 2.1(a), the Pittsburgh Bank shall continue to pay the Transaction Services Fees as provided in Section 1 of Exhibit A, provided, however, that commencing the first calendar year after termination, the minimum amount of the Transaction Services Fees for the year shall be the TSF Floor or the Termination Core Services Fee, whichever is less.

(c) The Pittsburgh Bank’s “Termination Core Services Fee” for the calendar year following termination, and each year thereafter, shall be the sum of the following items based on the actual expenses incurred for that calendar year by the MPF Provider:

1. The Pittsburgh Bank’s pro rata portion of the MPF Master Servicer’s fees for all Program Loans based on the aggregate unpaid principal balance of the Pittsburgh Bank’s retained interest in the Program Loans as compared to the aggregate unpaid principal balance of all the Program Loans in the MPF Program;

2. The Pittsburgh Bank’s pro rata portion of the MPF Master Custodian’s fees for all Program Loans based on the aggregate unpaid principal balance of the Pittsburgh Bank’s retained interest in the Program Loans as compared to the aggregate unpaid principal balance of all the Program Loans in the MPF Program; and

3. The MPF Provider’s annual licensing fees for S&P’s LEVELS^® for the Pittsburgh Bank’s license.

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EXHIBIT B
CUSTODY ADDENDUM TO
Mortgage Partnership Finance^®
SERVICES AGREEMENT

THIS CUSTODY ADDENDUM TO SERVICES AGREEMENT (the “Custody Addendum”) is made as of the 31^st day of August, 2007 between the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF^® Provider”) and the FEDERAL HOME LOAN BANK OF PITTSBURGH (the “MPF Bank”).

RECITALS:

WHEREAS, the MPF Bank and the MPF Provider are concurrently entering into the Mortgage Partnership Finance Services Agreement of even date herewith (the “Services Agreement”) pursuant to which the parties agreed, among other things, to make the Mortgage Partnership Finance Program available to members and housing associates of the MPF Bank; and

WHEREAS, the MPF Provider is the custodian for the MPF Bank under the terms of the Services Agreement and has engaged a vendor to perform its custodial duties thereunder, which vendor is named as the MPF Program Custodian (the “MPF Custodian”) in the Guides; and

WHEREAS, the parties desire to accommodate members and housing associates of the MPF Bank that are participating financial institutions in the MPF Program (individually, “Subject PFI” and collectively, the “Subject PFIs”), that may from time to time request the MPF Bank to permit an entity other than the MPF Custodian (as applicable to each Subject PFI, the “Custodian”) to serve as custodian for required loan document files (the “Collateral Files”) for those Program Loans which the Subject PFI will deliver to or service for the MPF Bank (the “Subject Mortgages”) under the PFI Agreement between the Subject PFI and the MPF Bank (the “Subject PFI Agreement”); and

WHEREAS, pursuant to the FHLB Guide, the MPF Bank will submit a request or notice (the “Custodian Request”) advising the MPF Provider that (i) the Subject PFI has requested permission to use the Custodian for the Collateral Files for the Subject Mortgages, and (ii) the MPF Bank is granting permission to the Subject PFI, if the Custodian is approved by the MPF Provider, to use the Custodian for the Collateral Files for the Subject Mortgages; and

WHEREAS, upon the MPF Provider’s approval of such Custodian’s MPF Custodian Application, the MPF Provider (i) will notify the Subject PFI of the approval of its request and ask the Subject PFI to sign an acknowledgment (“Custodian Acknowledgement”) that after the date specified in such notice, the Guides require the Subject PFI to be responsible for the payment of the Custodian’s fees as well as for the performance by the Custodian of its custodial obligations, and (ii) subject to the Subject PFI’s signing the Custodian Acknowledgement, will engage the Custodian as a vendor pursuant to a Custody Agreement (the “Custody Agreement”) to perform the MPF Provider’s obligations as Custodian for the Collateral Files. Any capitalized terms used but not defined in this Custody Addendum shall have the meaning assigned to them in the Services Agreement or the Subject PFI Agreement, as applicable.

NOW THEREFORE, in consideration of the foregoing recitals and the covenants contained herein, the parties agree as follows:

1. The MPF Bank must provide the MPF Provider with a Custodian Request with respect to a Subject PFI and its requested Custodian before the MPF Provider will execute a Custody Agreement with the Custodian.

2. Following its review and approval of the Custodian’s MPF Custodian Application, which shall not be unreasonably denied or delayed, the MPF Provider shall notify the Subject PFI of the approval of its request for the Custodian to serve as custodian for the Collateral Files subject to the Subject PFI signing the Custodian Acknowledgement which, among other provisions, shall require the Subject PFI to acknowledge: (a) that a breach by the Custodian of the Custody Agreement shall constitute a breach by the Subject PFI of the Subject PFI Agreement, and (b) that the obligations of the Custodian under the Custody Agreement shall be secured in the same manner as all PFI obligations arising under the Subject PFI Agreement. The MPF Provider shall provide the MPF Bank with a copy of its notice to the Subject PFI and, upon receipt by the MPF Provider, a copy of the Custodian Acknowledgement when signed by the Subject PFI.

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3. The MPF Provider and MPF Bank agree and acknowledge that the terms and conditions of this Custody Addendum will be extended to each and every Subject PFI for which a separate Custodian Request is submitted to the MPF Provider by the MPF Bank, upon the PFI’s signing and causing the Custodian Acknowledgement to be returned to the MPF Provider with respect to the Custodian selected by the Subject PFI.

4. If the MPF Bank determines for any reason that the Custodian selected by a Subject PFI should not continue to serve as an approved MPF custodian, the MPF Bank may request that the Custodian’s custodial duties be terminated, but in any event will provide the MPF Provider with relevant information. The MPF Provider will terminate the Custody Agreement with respect to any Subject Mortgages upon receipt of such request. In the event the Custody Agreement is terminated by the MPF Provider solely because of the request of the MPF Bank, the MPF Bank will reimburse the MPF Provider for any actual out-of-pocket costs which the MPF Provider may incur as a result of such termination for which the MPF Provider is not made whole by the Custodian.

5. The MPF Bank agrees that with respect to each Subject PFI, should a custody default as determined by the MPF Provider occur with respect to the Subject Mortgages due to a breach of the Custodian’s obligations under the Custody Agreement, the MPF Bank shall first enforce the terms of the Subject PFI Agreement with respect to such breach of the Custody Agreement. The MPF Bank shall pursue such enforcement efforts in the same manner and with the same diligence as it would exercise for any obligation of the Subject PFI to the MPF Bank. Although the MPF Bank is not required to exhaust all available remedies, its enforcement effort should include the most appropriate of the full range of remedies available under the Subject PFI Agreement which include, without limitation, realizing upon collateral pledged by the Subject PFI. In the event that such enforcement efforts do not result in full recovery, the MPF Bank shall look to the MPF Provider for indemnification with respect to a default by the Custodian, and the MPF Provider shall remain liable to the MPF Bank for such indemnification under the Services Agreement (as amended by this Custody Addendum)

6. If the Custody Agreement with any Custodian is terminated or such Custodian is removed for any reason, upon the transfer of all Collateral Files to a successor custodian to the MPF Provider’s reasonable satisfaction, (i) the terms and conditions set forth in this Custody Addendum, including the enforcement of the Subject PFI Agreement upon a custody default as provided in Paragraph 5 hereof, shall automatically terminate with respect to such Custodian, and shall thereafter apply to the successor custodian to such Custodian; and (ii) the indemnification provisions of the Services Agreement shall continue to be in full force and effect and unamended with respect to the Subject PFI and its Custodian as if this Custody Addendum had never been executed by the parties.

7. The MPF Provider shall provide the MPF Bank with an MPF Provider Officer Attestation that based upon the MPF Provider’s review, the Custodian has met the requirements to be approved as an alternate custodian as set forth in the Custody Manual. Further, the MPF Provider agrees that, if requested by the MPF Bank, staff of the MPF Bank may participate in the MPF Provider’s periodic on-site reviews of the Collateral Files or the Custodian’s custodial operations with respect to the Subject Mortgages and any other access by the MPF Bank must be arranged and coordinated by the MPF Provider.

8. Except for the terms of this Custody Addendum, the Services Agreement remains unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Custody Addendum to be executed by their duly authorized officers as of the date first above written.

FEDERAL HOME LOAN BANK		FEDERAL HOME LOAN BANK
OF CHICAGO		OF PITTSBURGH
By:	/s/ Eric S. Schambow	By:	/s/ John R. Price
	Eric S. Schambow, Senior Vice President		John R. Price, President and CEO
		By:	/s/ Craig C. Howie
			Craig C. Howie, Group Director

“Mortgage Partnership Finance” and “MPF” are registered trademarks of the Federal Home Loan Bank of
Chicago.

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EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302

of the Sarbanes-Oxley Act of 2002

for the Chief Executive Officer

I, John R. Price, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Pittsburgh (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(s) 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)) for the registrant and we 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)	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
c)	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 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(s) 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.

Date: November 7, 2007 /s/  John R. Price
Name: John R. Price
Title: President & Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302

of the Sarbanes-Oxley Act of 2002

for the Chief Financial Officer

I, Kristina K. Williams, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of the Federal Home Loan Bank of Pittsburgh (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(s) 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)) for the registrant and we 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)	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
c)	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 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(s) 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.

Date: November 7, 2007 /s/  Kristina K. Williams
Name: Kristina K. Williams
Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer

I, John R. Price, state and attest that:

1.	I am the Chief Executive Officer of the Federal Home Loan Bank of Pittsburgh (the registrant).
2.	I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

•     the Quarterly Report on Form 10-Q of the registrant for the quarter ended September 30, 2007 (the periodic report) containing financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

•     the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented.

Date: November 7, 2007 /s/  John R. Price
Name: John R. Price
Title: President & Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002 for the Chief Financial Officer

I, Kristina K. Williams, state and attest that:

1.	I am the Chief Financial Officer of the Federal Home Loan Bank of Pittsburgh (the registrant).
2.	I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

•  the Quarterly Report on Form 10-Q of the registrant for the quarter ended September 30, 2007 (the periodic report) containing financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

•  the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented.

Date: November 7, 2007 /s/  Kristina K. Williams
Name: Kristina K. Williams
Title: Chief Financial Officer