Federal Home Loan Bank of Cincinnati - FORM 10-Q

Attached files

file	filename
EX-32 - EX-32 - Federal Home Loan Bank of Cincinnati	ex32201110-q.htm
EX-31.1 - EX-31.1 - Federal Home Loan Bank of Cincinnati	ex311201110-q.htm
EX-31.2 - EX-31.2 - Federal Home Loan Bank of Cincinnati	ex312201110-q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended March 31, 2011



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 No. 000-51399

FEDERAL HOME LOAN BANK OF CINCINNATI

(Exact name of registrant as specified in its charter)



Federally chartered corporation		31-6000228
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 Atrium Two, P.O. Box 598,
Cincinnati, Ohio		45201-0598
(Address of principal executive offices)		(Zip Code)

(513) 852-7500

(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.

x Yes o No

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

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

o Yes x No

As of April 30, 2011, the registrant had 31,124,935 shares of capital stock outstanding. The capital stock of the Federal Home Loan Bank of Cincinnati is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share.

Page 1

Table of Contents



	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Statements of Condition - March 31, 2011 and December 31, 2010	3

	Statements of Income - Three months ended March 31, 2011 and 2010	4

	Statements of Capital - Three months ended March 31, 2011 and 2010	5

	Statements of Cash Flows - Three months ended March 31, 2011 and 2010	6

	Notes to Unaudited Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	76

Item 4.	Controls and Procedures	76

	PART II - OTHER INFORMATION

Item 1A.	Risk Factors	77

Item 6.	Exhibits	77

Signatures		78

EX-31.1

EX-31.2

EX-32

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CONDITION

(In thousands, except par value)

(Unaudited)



	March 31, 2011			December 31, 2010
ASSETS
Cash and due from banks	$	3,323,399		$	197,623
Interest-bearing deposits	151			108
Securities purchased under agreements to resell	1,875,000			2,950,000
Federal funds sold	3,730,000			5,480,000
Investment securities:
Trading securities	7,961,162			6,402,781
Available-for-sale securities	5,299,698			5,789,736
Held-to-maturity securities (includes $0 and $0 pledged as collateral at March 31, 2011 and December 31, 2010, respectively, that may be repledged) ^(a)	13,213,659			12,691,545
Total investment securities	26,474,519			24,884,062
Advances	28,292,478			30,181,017
Mortgage loans held for portfolio:
Mortgage loans held for portfolio	7,473,225			7,782,140
Less: allowance for credit losses on mortgage loans	14,200			12,100
Mortgage loans held for portfolio, net	7,459,025			7,770,040
Accrued interest receivable	138,109			132,355
Premises, software, and equipment, net	9,984			10,441
Derivative assets	4,261			2,499
Other assets	18,582			23,117
TOTAL ASSETS	$	71,325,508		$	71,631,262
LIABILITIES
Deposits:
Interest bearing	$	1,323,459		$	1,437,671
Non-interest bearing	11,227			14,756
Total deposits	1,334,686			1,452,427
Consolidated Obligations, net:
Discount Notes	35,160,355			35,003,280
Bonds (includes $1,131,591 and $0 at fair value under fair value option at March 31, 2011 and December 31, 2010)	30,154,603			30,696,791
Total Consolidated Obligations, net	65,314,958			65,700,071
Mandatorily redeemable capital stock	330,818			356,702
Accrued interest payable	189,839			190,728
Affordable Housing Program payable	87,638			88,037
Payable to REFCORP	10,478			11,002
Derivative liabilities	199,101			227,982
Other liabilities	324,738			81,785
Total liabilities	67,792,256			68,108,734
Commitments and contingencies
CAPITAL
Capital stock Class B putable ($100 par value); 30,962 and 30,924 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively	3,096,181			3,092,377
Retained earnings	444,616			437,874
Accumulated other comprehensive loss:
Net unrealized loss on available-for-sale securities	(302		)	(264		)
Pension and postretirement plans benefits	(7,243		)	(7,459		)
Total accumulated other comprehensive loss	(7,545		)	(7,723		)
Total capital	3,533,252			3,522,528
TOTAL LIABILITIES AND CAPITAL	$	71,325,508		$	71,631,262


(a)	Fair values: $13,489,293 and $13,019,799 at March 31, 2011 and December 31, 2010, respectively.

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF INCOME

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2011			2010
INTEREST INCOME:
Advances	$	60,665		$	71,062
Prepayment fees on Advances, net	501			2,119
Interest-bearing deposits	159			159
Securities purchased under agreements to resell	1,179			350
Federal funds sold	1,943			2,438
Trading securities	8,383			909
Available-for-sale securities	3,381			2,565
Held-to-maturity securities	109,665			134,058
Mortgage loans held for portfolio	91,175			112,041
Loans to other FHLBanks	1			1
Total interest income	277,052			325,702
INTEREST EXPENSE:
Consolidated Obligations - Discount Notes	11,665			6,452
Consolidated Obligations - Bonds	190,544			245,180
Deposits	276			289
Loans from other FHLBanks	—			1
Mandatorily redeemable capital stock	4,214			5,519
Total interest expense	206,699			257,441
NET INTEREST INCOME	70,353			68,261
Provision for credit losses	2,559			—
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	67,794			68,261

OTHER INCOME:
Service fees	406			422
Net losses on trading securities	(3,316		)	(225		)
Net losses on Consolidated Obligation Bonds held under fair value option	(111		)	—
Net gains on derivatives and hedging activities	5,066			1,956
Other, net	1,810			1,435
Total other income	3,855			3,588

OTHER EXPENSE:
Compensation and benefits	8,053			7,563
Other operating	3,797			3,434
Finance Agency	898			1,005
Office of Finance	1,001			822
Other	382			245
Total other expense	14,131			13,069

INCOME BEFORE ASSESSMENTS	57,518			58,780

Affordable Housing Program	5,125			5,361
REFCORP	10,479			10,684
Total assessments	15,604			16,045

NET INCOME	$	41,914		$	42,735

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CAPITAL

Three Months Ended March 31, 2011 and 2010

(In thousands)

(Unaudited)



	Capital Stock Class B - Putable
	Shares		Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Total Capital

BALANCE, DECEMBER 31, 2009	30,635		$	3,063,473		$	411,782		$	(8,108	)	$	3,467,147
Proceeds from sale of capital stock	202		20,240									20,240
Net reclassified to mandatorily redeemable capital stock	(50	)	(5,012		)							(5,012		)
Comprehensive income:
Net income						42,735						42,735
Other comprehensive income:
Net unrealized gains on available-for-sale securities									181			181
Pension and postretirement benefits									225			225
Total comprehensive income												43,141
Dividends on capital stock:
Cash						(38,217		)				(38,217		)
BALANCE, MARCH 31, 2010	30,787		$	3,078,701		$	416,300		$	(7,702	)	$	3,487,299


BALANCE, DECEMBER 31, 2010	30,924		$	3,092,377		$	437,874		$	(7,723	)	$	3,522,528
Proceeds from sale of capital stock	38		3,804									3,804
Comprehensive income:
Net income						41,914						41,914
Other comprehensive income:
Net unrealized losses on available-for-sale securities									(38		)	(38		)
Pension and postretirement benefits									216			216
Total comprehensive income												42,092
Dividends on capital stock:
Cash						(35,172		)				(35,172		)
BALANCE, MARCH 31, 2011	30,962		$	3,096,181		$	444,616		$	(7,545	)	$	3,533,252

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2011			2010
OPERATING ACTIVITIES:
Net income	$	41,914		$	42,735
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,642			3,507
Change in net fair value adjustment on derivative and hedging activities	34,141			66,342
Net change in fair value adjustments on trading securities	3,316			225
Net change in fair value adjustments on Consolidated Obligation Bonds held at fair value	111			—
Other adjustments	2,556			—
Net change in:
Accrued interest receivable	(5,730		)	7,190
Other assets	3,082			2,368
Accrued interest payable	(409		)	(52,412		)
Other liabilities	(5,488		)	(12,019		)
Total adjustments	33,221			15,201
Net cash provided by operating activities	75,135			57,936

INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits	59,622			13,893
Securities purchased under agreements to resell	1,075,000			—
Federal funds sold	1,750,000			(3,815,000		)
Premises, software, and equipment	(212		)	(644		)
Trading securities:
Net (increase) decrease in short-term	(1,559,337		)	2,250,000
Proceeds from maturities of long-term	88			69
Available-for-sale securities:
Net decrease in short-term	490,008			2,745,000
Held-to-maturity securities:
Net increase in short-term	(779,790		)	(370		)
Proceeds from maturities of long-term	1,055,249			885,450
Purchases of long-term	(555,000		)	(1,241,157		)
Advances:
Proceeds	61,439,363			67,653,517
Made	(59,647,339		)	(64,800,103		)
Mortgage loans held for portfolio:
Principal collected	554,592			463,476
Purchases	(249,883		)	(133,105		)
Net cash provided by investing activities	3,632,361			4,021,026

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

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(continued from previous page)

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2011			2010

FINANCING ACTIVITIES:
Net decrease in deposits and pass-through reserves	$	(115,841	)	$	(511,308	)
Net payments on derivative contracts with financing elements	(42,069		)	(42,284		)
Net proceeds from issuance of Consolidated Obligations:
Discount Notes	230,097,537			150,336,033
Bonds	2,701,658			4,623,050
Payments for maturing and retiring Consolidated Obligations:
Discount Notes	(229,941,308		)	(148,485,904		)
Bonds	(3,224,444		)	(9,786,512		)
Proceeds from issuance of capital stock	3,804			20,240
Payments for redemption of mandatorily redeemable capital stock	(25,885		)	(268,658		)
Cash dividends paid	(35,172		)	(38,217		)
Net cash used in financing activities	(581,720		)	(4,153,560		)
Net increase (decrease) in cash and cash equivalents	3,125,776			(74,598		)
Cash and cash equivalents at beginning of the period	197,623			1,807,343
Cash and cash equivalents at end of the period	$	3,323,399		$	1,732,745
Supplemental Disclosures:
Interest paid	$	213,250		$	276,167
AHP payments, net	$	5,524		$	5,338
REFCORP assessments paid	$	11,003		$	12,190

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Cincinnati (the FHLBank), a federally chartered corporation, is one of 12 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 FHLBank is regulated by the Federal Housing Finance Agency (Finance Agency).

Note 1 - Basis of Presentation

The accompanying interim financial statements of the FHLBank have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates. These assumptions and estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates. The interim financial statements presented are unaudited, but they include all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, and cash flows for such periods. These financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the audited financial statements and notes included in the FHLBank's annual report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC). Results for the three months ended March 31, 2011 are not necessarily indicative of operating results for the full year.

The FHLBank has evaluated subsequent events for potential recognition or disclosure through the issuance of these financial statements and believes there have been no material subsequent events requiring additional disclosure or recognition in these financial statements.

Note 2 - Recently Issued Accounting Standards and Interpretations

Reconsideration of Effective Control for Repurchase Agreements. On April 29, 2011, the Financial Accounting Standards Board (FASB) issued guidance to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The new guidance removes from the assessment of effective control: (1) the criterion requiring the transferor to have the ability to repurchase or redeem financial assets before their maturity on substantially the agreed terms, even in the event of the transferee's default, and (2) the collateral maintenance implementation guidance related to that criterion. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011 (January 1, 2012 for the FHLBank). This guidance will be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The FHLBank is currently evaluating the effect of the adoption of this guidance on its financial condition, results of operations, and cash flows.

A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. On April 5, 2011, the FASB issued guidance to clarify which debt modifications constitute troubled debt restructurings. It is intended to help creditors determine whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for presenting previously deferred disclosures related to troubled debt restructurings. The required disclosures are effective for interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for the FHLBank) and apply retrospectively to troubled debt restructurings occurring on or after the beginning of the annual period of adoption. The adoption of this amended guidance is likely to result in increased financial statement disclosures, but will not affect the FHLBank's financial condition, results of operations, or cash flows.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the FASB issued amended guidance to enhance disclosures about an entity's allowance for credit losses and the credit quality of its financing receivables. The required disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010 for the FHLBank). The required disclosures about activity that occurs during a reporting period were effective for interim and annual reporting periods beginning on or after December 15, 2010 (January 1, 2011 for the FHLBank). The adoption of this amended guidance resulted in increased financial statement disclosures, but did not affect the FHLBank's financial condition, results of operations, or cash flows.

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On January 19, 2011, the FASB issued guidance to defer temporarily the effective date of disclosures about troubled debt restructurings required by the amended guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses. The effective date for these new disclosures is effective for interim and annual periods ending after June 15, 2011 as noted above.

Improving Disclosures about Fair Value Measurements. On January 21, 2010, the FASB issued amended guidance for fair value measurements and disclosures. The new guidance became effective for interim and annual reporting periods beginning after December 15, 2009 (January 1, 2010 for the FHLBank), except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which were effective for fiscal years beginning after December 15, 2010 (January 1, 2011 for the FHLBank) and for interim periods within those fiscal years. In the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. Adoption of this guidance resulted in increased financial statement disclosures but did not affect the FHLBank's financial condition, results of operations, or cash flows.

Note 3 - Trading Securities

Major Security Types.

Table 3.1 - Trading Securities by Major Security Types (in thousands)



	March 31, 2011		December 31, 2010
	Fair Value		Fair Value
U.S. Treasury obligations	$	2,101,609	$	1,904,834
Government-sponsored enterprises*	5,857,218		4,495,516
Mortgage-backed securities:
Other U.S. obligation residential mortgage-backed securities **	2,335		2,431
Total	$	7,961,162	$	6,402,781



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

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

Table 3.2 - Net Losses on Trading Securities (in thousands)



	Three Months Ended March 31,
	2011			2010
Net unrealized losses on trading securities held at period end	$	(2,380	)	$	(51	)
Net unrealized losses on securities matured during the period	(936		)	(174		)
Net losses on trading securities	$	(3,316	)	$	(225	)

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Note 4 - Available-for-Sale Securities

Major Security Types.

Table 4.1 - Available-for-Sale Securities by Major Security Types (in thousands)



	March 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Certificates of deposit	$	5,300,000	$	7	$	(309	)	$	5,299,698

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Certificates of deposit	$	5,790,000	$	28	$	(292	)	$	5,789,736

All securities outstanding with gross unrealized losses at March 31, 2011 have been in a continuous unrealized loss position for less than 12 months.

Redemption Terms.

Table 4.2 - Available-for-Sale Securities by Contractual Maturity (in thousands)



	March 31, 2011				December 31, 2010
Year of Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	5,300,000	$	5,299,698	$	5,790,000	$	5,789,736

Interest Rate Payment Terms.

Table 4.3 - Available-for-Sale Securities with Additional Interest Rate Payment Terms (in thousands)



	March 31, 2011		December 31, 2010
Amortized cost of available-for-sale securities:
Fixed-rate	$	5,300,000	$	5,790,000

Realized Gains and Losses. The FHLBank did not sell any securities out of its available-for-sale portfolio during the three months ended March 31, 2011 or 2010.

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Note 5 - Held-to-Maturity Securities

Table 5.1 - Held-to-Maturity Securities by Major Security Types (in thousands)



	March 31, 2011
	Amortized Cost ⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding (Losses)			Fair Value
Government-sponsored enterprises *	$	22,120	$	6	$	—		$	22,126
State or local housing agency obligations	2,750		—		(138		)	2,612
TLGP **	1,788,980		170		(173		)	1,788,977
Mortgage-backed securities:
Other U.S. obligation residential mortgage-backed securities ***	1,434,294		2,649		(324		)	1,436,619
Government-sponsored enterprise residential mortgage-backed securities ****	9,895,292		318,325		(45,979		)	10,167,638
Private-label residential mortgage-backed securities	70,223		1,106		(8		)	71,321
Total mortgage-backed securities	11,399,809		322,080		(46,311		)	11,675,578
Total	$	13,213,659	$	322,256	$	(46,622	)	$	13,489,293

	December 31, 2010
	Amortized Cost ⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding (Losses)			Fair Value
Government-sponsored enterprises *	$	22,108	$	—	$	(1	)	$	22,107
State or local housing agency obligations	2,955		—		(148		)	2,807
TLGP **	1,011,260		33		(142		)	1,011,151
Mortgage-backed securities:
Other U.S. obligation residential mortgage-backed securities ***	910,284		—		(1,502		)	908,782
Government-sponsored enterprise residential mortgage-backed securities ****	10,656,957		367,285		(39,050		)	10,985,192
Private-label residential mortgage-backed securities	87,981		1,779		—			89,760
Total mortgage-backed securities	11,655,222		369,064		(40,552		)	11,983,734
Total	$	12,691,545	$	369,097	$	(40,843	)	$	13,019,799



	(1)	Carrying value equals amortized cost.
	*	Consists of debt securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the backing of the U.S. government, although they are not obligations of the U.S. government.
	**	Represents corporate debentures issued or guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP).
	***	Consists of mortgage-backed securities issued or guaranteed by the National Credit Union Administration (NCUA) and the U.S. government.
	****	Consists of mortgage-backed securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the backing of the U.S. government, although they are not obligations of the U.S. government.

The FHLBank's investments in mortgage-backed securities must be triple-A rated at the time of purchase.

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Table 5.2 summarizes the held-to-maturity securities with unrealized losses, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 5.2 - Held-to-Maturity Securities in a Continuous Unrealized Loss Position (in thousands)



	March 31, 2011
	Less than 12 Months					12 Months or more					Total
	Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)
State or local housing agency obligations	$	—	$	—		$	2,612	$	(138	)	$	2,612	$	(138	)
TLGP *	1,069,765		(173		)	—		—			1,069,765		(173		)
Mortgage-backed securities:
Other U.S. obligation residential mortgage-backed securities **	296,720		(324		)	—		—			296,720		(324		)
Government-sponsored enterprise residential mortgage-backed securities ***	1,753,253		(45,979		)	—		—			1,753,253		(45,979		)
Private-label residential mortgage- backed securities	7,278		(8		)	—		—			7,278		(8		)
Total temporarily impaired	$	3,127,016	$	(46,484	)	$	2,612	$	(138	)	$	3,129,628	$	(46,622	)

	December 31, 2010
	Less than 12 Months					12 Months or more					Total
	Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)
Government-sponsored enterprises ****	$	22,107	$	(1	)	$	—	$	—		$	22,107	$	(1	)
State or local housing agency obligations	—		—			2,807		(148		)	2,807		(148		)
TLGP *	634,041		(142		)	—		—			634,041		(142		)
Mortgage-backed securities:
Other U.S. obligation residential mortgage-backed securities **	908,782		(1,502		)	—		—			908,782		(1,502		)
Government-sponsored enterprise residential mortgage-backed securities ***	1,493,725		(39,050		)	—		—			1,493,725		(39,050		)
Total temporarily impaired	$	3,058,655	$	(40,695	)	$	2,807	$	(148	)	$	3,061,462	$	(40,843	)



	*	Represents corporate debentures issued or guaranteed by the FDIC under the TLGP.
	**	Consists of mortgage-backed securities issued or guaranteed by the NCUA and the U.S. government.
	***	Consists of mortgage-backed securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the backing of the U.S. government, although they are not obligations of the U.S. government.
	****	Consists of debt securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the backing of the U.S. government, although they are not obligations of the U.S. government.

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Table 5.3 - Held-to-Maturity Securities by Contractual Maturity (in thousands)



	March 31, 2011				December 31, 2010
Year of Maturity	Amortized Cost⁽¹⁾		Fair Value		Amortized Cost⁽¹⁾		Fair Value
Other than mortgage-backed securities:
Due in 1 year or less	$	1,811,100	$	1,811,103	$	1,033,368	$	1,033,258
Due after 1 year through 5 years	—		—		—		—
Due after 5 years through 10 years	2,750		2,612		2,955		2,807
Due after 10 years	—		—		—		—
Total other	1,813,850		1,813,715		1,036,323		1,036,065
Mortgage-backed securities	11,399,809		11,675,578		11,655,222		11,983,734
Total	$	13,213,659	$	13,489,293	$	12,691,545	$	13,019,799

(1) Carrying value equals amortized cost.

Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

Table 5.4 - Held-to-Maturity Securities with Additional Interest Rate Payment Terms (in thousands)



	March 31, 2011		December 31, 2010
Amortized cost of held-to-maturity securities other than mortgage-backed securities:
Fixed-rate	$	1,811,100	$	1,033,368
Variable-rate	2,750		2,955
Total other	1,813,850		1,036,323
Amortized cost of held-to-maturity mortgage-backed securities:
Fixed-rate	9,965,515		10,744,938
Variable-rate	1,434,294		910,284
Total mortgage-backed securities	11,399,809		11,655,222
Total	$	13,213,659	$	12,691,545

The amortized cost of the FHLBank's mortgage-backed securities classified as held-to-maturity includes net purchased premiums (in thousands) of $64,731 and $66,518 at March 31, 2011 and December 31, 2010.

Realized Gains and Losses. The FHLBank did not sell any securities out of its held-to-maturity portfolio during the three months ended March 31, 2011 or 2010.

Note 6 - Other-Than-Temporary Impairment Analysis

The FHLBank evaluates its individual available-for-sale and held-to-maturity investment securities holdings in an unrealized loss position for other-than-temporary impairment on a quarterly basis. As part of its securities' evaluation for other-than-temporary impairment, the FHLBank considers its intent to sell each debt security and whether it is more likely than not that the FHLBank will be required to sell the security before its anticipated recovery. If either of these conditions is met, the FHLBank recognizes an other-than-temporary impairment in earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance sheet date. For securities in unrealized loss positions that meet neither of these conditions, the FHLBank performs analyses to determine if any of these securities are other-than-temporarily impaired.

The FHLBank assesses whether the entire amortized cost basis of the private-label residential mortgage-backed securities will be recovered by initially selecting all private-label mortgage-backed securities in an unrealized loss position for cash flow analysis.

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The FHLBank's evaluation includes estimating projected principal cash flows that the FHLBank is likely to collect based on an assessment of available information about the applicable security on an individual basis, including the structure of the security, and certain assumptions, such as the remaining payment terms for the security, prepayment speeds, default rates, loss severity on the collateral supporting the FHLBank's security based on underlying loan-level borrower and loan characteristics, expected housing price changes, and interest-rate assumptions, to determine whether the FHLBank will recover the entire amortized cost basis of the security. If this estimate results in a present value of expected principal cash flows (discounted at the security's effective yield) that is less than the amortized cost basis of a security, a credit loss exists and an other-than-temporary impairment is considered to have occurred.

The FHLBank performs cash flow analyses for securities in which underlying loan collateral data is available by using two third-party models. The first third-party model considers borrower characteristics and the particular attributes of the loans underlying the FHLBank's securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which is based upon an assessment of the individual housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget. As currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The FHLBank's housing price forecast as of March 31, 2011 assumed CBSA level current-to-trough home price declines ranging from 0 percent to 10 percent over the 3 to 9 month period beginning January 1, 2011. Thereafter, home prices were projected to recover using one of five different recovery paths that vary by housing market. Under those recovery paths, home prices were projected to increase within a range of 0 percent to 2.8 percent in their first year, 0 percent to 3.0 percent in the second year, 1.5 percent to 4.0 percent the third year, 2.0 percent to 5.0 percent in the fourth year, 2.0 percent to 6.0 percent in each of the fifth and sixth years, and 2.3 percent to 5.6 percent in each subsequent year.

The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities is derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach described above reflects a best estimate of the present value of cash flows expected to be collected.

As a result of the evaluation, the FHLBank believes that it will recover the entire amortized cost basis in its private-label residential mortgage-backed securities. Additionally, because the FHLBank does not intend to sell such securities nor is it more likely than not that the FHLBank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, it did not consider the private-label residential mortgage-backed securities to be other-than-temporarily impaired at March 31, 2011.

For its other U.S. obligations, government-sponsored enterprise investments (mortgage-backed securities and non-mortgage-backed securities), and TLGP investments, the FHLBank determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the FHLBank from losses based on current expectations. As a result, the FHLBank determined that, as of March 31, 2011, all of the gross unrealized losses on these investments were temporary as the declines in market value of these securities were not attributable to credit quality. Furthermore, the FHLBank does not intend to sell the investments, and it is not more likely than not that the FHLBank will be required to sell the investments before recovery of their amortized cost bases. As a result, the FHLBank did not consider any of these investments to be other-than-temporarily impaired at March 31, 2011.

The FHLBank also reviewed its available-for-sale securities and the remainder of its held-to-maturity securities that have experienced unrealized losses at March 31, 2011 and determined that the unrealized losses were temporary, based on the creditworthiness of the issuers and the related collateral characteristics, and that the FHLBank will recover its entire amortized cost basis. Additionally, because the FHLBank does not intend to sell these securities, nor is it more likely than not that the FHLBank will be required to sell the securities before recovery, it did not consider the investments to be other-than-temporarily impaired at March 31, 2011.

The FHLBank did not consider any of its investments to be other-than-temporarily impaired at December 31, 2010.

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Note 7 - Advances

General Terms. The FHLBank offers a wide range of fixed- and variable-rate Advance products with different maturities, interest rates, payment characteristics and optionality. At March 31, 2011 and December 31, 2010, the FHLBank had Advances outstanding, including Affordable Housing Program (AHP) Advances (see Note 13), at interest rates ranging from 0.00 percent to 9.20 percent. Advances with interest rates of 0.00 percent are AHP-subsidized Advances.

Table 7.1 - Advance Redemption Terms (dollars in thousands)



	March 31, 2011					December 31, 2010
Year of Contractual Maturity	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate

Overdrawn demand deposit accounts	$	183		0.21	%	$	—		—	%

Due in 1 year or less	4,914,066			1.81		6,418,438			1.39
Due after 1 year through 2 years	8,784,189			2.51		6,603,018			3.43
Due after 2 years through 3 years	1,573,077			3.00		3,908,985			1.35
Due after 3 years through 4 years	3,159,735			1.67		2,778,172			1.65
Due after 4 years through 5 years	3,302,629			2.08		1,943,751			1.57
Thereafter	5,987,274			2.19		7,859,330			2.30
Total par value	27,721,153			2.20		29,511,694			2.12

Commitment fees	(1,074		)			(1,095		)
Discount on AHP Advances	(26,291		)			(26,738		)
Premiums	4,384					4,469
Discount	(13,826		)			(13,318		)
Hedging adjustments	608,132					706,005

Total	$	28,292,478				$	30,181,017

The FHLBank offers Advances to members that may be prepaid on specified dates (call dates) without incurring prepayment or termination fees (callable Advances). Other Advances may only be prepaid subject to a fee to the FHLBank (prepayment fee) that makes the FHLBank financially indifferent to the prepayment of the Advance. At March 31, 2011 and December 31, 2010, the FHLBank had callable Advances (in thousands) of $10,358,215 and $10,525,489.

Table 7.2 - Advances Redemption Terms: Year of Contractual Maturity or Next Call Date for Callable Advances (in thousands)



Year of Contractual Maturity or Next Call Date	March 31, 2011		December 31, 2010
Overdrawn demand deposit accounts	$	183	$	—

Due in 1 year or less	13,580,654		14,935,025
Due after 1 year through 2 years	6,019,189		5,968,018
Due after 2 years through 3 years	1,570,771		1,951,934
Due after 3 years through 4 years	1,633,319		1,351,351
Due after 4 years through 5 years	1,564,179		923,101
Thereafter	3,352,858		4,382,265
Total par value	$	27,721,153	$	29,511,694

The FHLBank also offers putable Advances. With a putable Advance, the FHLBank effectively purchases a put option from the member that allows the FHLBank to terminate the Advance at predetermined dates. The FHLBank normally would exercise its option when interest rates increase relative to contractual rates. At March 31, 2011 and December 31, 2010, the FHLBank had putable Advances, excluding those where the related put options have expired, totaling (in thousands) $6,591,650 and $6,658,150.

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Through December 2005, the FHLBank offered convertible Advances. At March 31, 2011 and December 31, 2010, the FHLBank had convertible Advances, excluding those where the related conversion options have expired, totaling (in thousands) $1,282,000 and $1,356,000.

Table 7.3 - Advances Redemption Terms: Year of Contractual Maturity or Next Put/Convert Date for Putable/Convertible Advances (in thousands)



Year of Contractual Maturity or Next Put/Convert Date	March 31, 2011		December 31, 2010
Overdrawn demand deposit accounts	$	183	$	—

Due in 1 year or less	12,479,716		14,071,588
Due after 1 year through 2 years	5,210,189		3,025,518
Due after 2 years through 3 years	1,358,577		3,763,585
Due after 3 years through 4 years	2,475,235		2,334,772
Due after 4 years through 5 years	2,255,629		1,523,551
Thereafter	3,941,624		4,792,680
Total par value	$	27,721,153	$	29,511,694

Table 7.4 - Advances by Interest Rate Payment Terms (in thousands)



	March 31, 2011		December 31, 2010
Par value of Advances
Fixed-rate ⁽¹⁾
Due in one year or less	$	3,062,564	$	4,812,906
Due after one year	13,621,190		13,494,298
Total fixed-rate	16,683,754		18,307,204
Variable-rate ⁽¹⁾
Due in one year or less	1,463,441		1,605,532
Due after one year	9,573,958		9,598,958
Total variable-rate	11,037,399		11,204,490
Total par value	$	27,721,153	$	29,511,694

(1) Payment terms based on current interest rate terms, which would reflect any option exercises or rate conversions subsequent to the related Advance issuance.

At March 31, 2011 and December 31, 2010, 63 percent and 58 percent, respectively, of the FHLBank's fixed-rate Advances were swapped to a floating rate.

Table 7.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLBank (dollars in millions)



March 31, 2011					December 31, 2010
	Principal		% of Total			Principal		% of Total
U.S. Bank, N.A.	$	7,315	26	%	U.S. Bank, N.A.	$	7,315	25	%
PNC Bank, N.A.⁽¹⁾	3,999		14		PNC Bank, N.A.⁽¹⁾	4,000		14
Fifth Third Bank	1,536		6		Fifth Third Bank	1,536		5
Total	$	12,850	46	%	Total	$	12,851	44	%


(1)	Former member.

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Note 8 - Mortgage Loans Held for Portfolio

Table 8.1 - Mortgage Loans Held for Portfolio (in thousands)



	March 31, 2011			December 31, 2010
Real Estate:
Fixed rate medium-term single-family mortgages ⁽¹⁾	$	1,098,402		$	1,062,384
Fixed rate long-term single-family mortgages	6,295,123			6,638,284
Subtotal fixed rate single-family mortgages	7,393,525			7,700,668
Premiums	88,917			88,811
Discounts	(7,599		)	(7,516		)
Hedging basis adjustments	(1,618		)	177
Total mortgage loans held for portfolio	$	7,473,225		$	7,782,140


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

Table 8.2 - Outstanding Unpaid Principal Balance of Mortgage Loans Held for Portfolio (in thousands)



	March 31, 2011		December 31, 2010
Conventional loans	$	6,020,889	$	6,284,952
Government-guaranteed/insured loans	1,372,636		1,415,716
Total unpaid principal balance	$	7,393,525	$	7,700,668

For information related to the FHLBank's credit risk on mortgage loans and allowance for credit losses, see Note 9-Allowance for Credit Losses.

Table 8.3 - Members, Including Any Known Affiliates that are Members of the FHLBank, and Former Members Supplying Five Percent or more of Total Unpaid Principal (dollars in millions)



	March 31, 2011				December 31, 2010
	Principal		% of Total		Principal		% of Total
PNC Bank, N.A.⁽¹⁾	$	2,712	37	%	$	2,896	38	%
Union Savings Bank	1,676		23		1,772		23
Guardian Savings Bank FSB	480		6		500		6
Liberty Savings Bank	458		6		475		6
Total	$	5,326	72	%	$	5,643	73	%


(1)	Former member.

Note 9 - Allowance for Credit Losses

The FHLBank has established an allowance methodology for each of the FHLBank's portfolio segments: credit products; government-guaranteed or insured mortgage loans held for portfolio; and conventional mortgage loans held for portfolio.

Credit products

The FHLBank manages its credit exposure to credit products through an integrated approach that generally provides for a credit limit to be established for each borrower, includes an ongoing review of each borrower's financial condition and is coupled with conservative collateral/lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, the FHLBank lends to its members in accordance with federal statutes, including the Federal Home Loan Bank Act (FHLBank Act), and Finance Agency Regulations, which require the FHLBank to obtain sufficient collateral to fully secure credit products. The estimated value of the collateral required to secure each member's credit products is calculated by applying collateral discounts, or haircuts, to the value of the collateral. The FHLBank accepts certain investment securities, residential mortgage loans, deposits, and other real estate related assets as collateral. In addition, community financial institutions (CFIs)

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are eligible to utilize expanded statutory collateral provisions for small business and agriculture loans. The FHLBank's capital stock owned by the member is also pledged as collateral. Collateral arrangements and a member’s borrowing capacity vary based on the financial condition and performance of the institution, the types of collateral pledged and the overall quality of those assets. The FHLBank can call for additional or substitute collateral to protect its security interest. Management of the FHLBank believes that these policies effectively manage the FHLBank's credit risk from credit products.

Members experiencing financial difficulties are subject to FHLBank-performed “stress tests” of the impact of poorly performing assets on the member’s capital and loss reserve positions. Depending on the results of these tests and the level of overcollateralization, a member may be allowed to maintain pledged loan assets in its custody, or may be required to deliver those loans into the custody of the FHLBank or its agent, and/or may be required to provide details on these loans to facilitate an estimate of their fair value. The FHLBank perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the FHLBank by a member priority over the claims or rights of any other party except for claims or rights of a third party that would be entitled to priority under otherwise applicable law and are held by a bona fide purchaser for value or by a secured party holding a prior perfected security interest.

Using a risk-based approach, the FHLBank considers the payment status, collateral types and concentration levels, and borrower's financial condition to be indicators of credit quality on its credit products. At March 31, 2011 and December 31, 2010, the FHLBank had rights to collateral on a member-by-member basis with an estimated value in excess of its outstanding extensions of credit.

At March 31, 2011 and December 31, 2010, the FHLBank did not have any Advances that were past due, in non-accrual status, or impaired. In addition, there have been no troubled debt restructurings related to credit products of the FHLBank during the three months ended March 31, 2011 or 2010.

The FHLBank has not experienced any credit losses on Advances since it was founded in 1932. Based upon the collateral held as security, its credit extension and collateral policies, management's credit analysis and the repayment history on credit products, the FHLBank did not believe it had incurred any credit losses on credit products as of March 31, 2011 or December 31, 2010. Accordingly, the FHLBank has not recorded any allowance for credit losses on Advances.

At March 31, 2011 and December 31, 2010, no liability to reflect an allowance for credit losses for off-balance sheet credit exposures was recorded. See Note 19 for additional information on the FHLBank's off-balance sheet credit exposure.

Mortgage Loans - Government-guaranteed or Insured

The FHLBank invests in government-guaranteed or insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed mortgage loans are mortgage loans guaranteed or insured by the Federal Housing Administration (FHA). Any losses from such loans are expected to be recovered from the FHA. Any losses from such loans that are not recovered from the FHA would be due to a claim rejection by the FHA, and as such, would be recoverable from the selling PFIs. Therefore, there is no allowance for credit losses on government-guaranteed or insured mortgage loans.

Mortgage Loans - Conventional Mortgage Purchase Program

The allowance for conventional loans is determined by analyses that include consideration of various data observations such as past performance, current performance, loan portfolio characteristics, collateral-related characteristics, industry data, and prevailing economic conditions. The measurement of the allowance for credit losses may consist of: (1) reviewing specifically identified loans for impairment; (2) collectively evaluating homogeneous pools of residential mortgage loans; and/or (3) estimating credit losses in the remaining portfolio.

The FHLBank's allowance for credit losses factors in the credit enhancements associated with conventional mortgage loans under the Mortgage Purchase Program. Specifically, the determination of the allowance generally factors in primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) and the Lender Risk Account (LRA). Any incurred losses that would be recovered from the credit enhancements are not reserved as part of the FHLBank's allowance for credit losses.

Collectively Evaluated Mortgage Loans. The credit risk analysis of conventional loans evaluated collectively for impairment considers loan pool specific attribute data, applies estimated loss severities, and incorporates the credit enhancements of the Mortgage Purchase Program. The credit risk analysis of all conventional mortgage loans is performed at the individual Master Commitment Contract level to properly determine the credit enhancements available to recover losses on loans under each individual Master Commitment Contract. The Master Commitment Contract is an agreement with a member in which the member agrees to make every attempt to sell a specific dollar amount of loans to the FHLBank over a nine-month period.

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Migration analysis is a methodology for determining, through the FHLBank's experience over a historical period, the rate of default on pools of similar loans. The FHLBank applies migration analysis to loans based on categories such as current, 30, 60, and 90 days past due. The FHLBank then estimates how many loans in these categories may migrate to a realized loss position and applies a loss severity to estimate losses incurred at the Statement of Condition date.

Individually Evaluated Mortgage Loans. Although the FHLBank did not evaluate any loans individually at March 31, 2011 or December 31, 2010, certain conventional mortgage loans may be specifically identified for purposes of calculating the allowance for credit losses.

Estimating Credit Loss in the Remaining Portfolio. The FHLBank also assesses a factor for the margin of imprecision to the estimation of loan losses for the homogeneous population. The margin for imprecision is a factor in the allowance for credit losses that recognizes the imprecise nature of the measurement process and is included as part of the mortgage loan allowance for credit loss. This amount represents a subjective management judgment, based on facts and circumstances that exist as of the reporting date, that is unallocated to any specific measurable economic or credit event and is intended to cover other inherent losses that may not otherwise be captured in the methodology described within.

Non-accrual Loans. The FHLBank places a conventional mortgage loan on non-accrual status if it is determined that either (1) the collection of interest or principal is doubtful, or (2) interest or principal is past due for 90 days or more, except when the loan is well-secured and in the process of collection (e.g., through credit enhancements and with monthly settlements on a schedule/scheduled basis). For those mortgage loans placed on non-accrual status, accrued but uncollected interest is reversed against interest income. The FHLBank records cash payments received on non-accrual loans first as interest income and then as a reduction of principal as specified in the contractual agreement, unless the collection of the remaining principal amount due is considered doubtful. If the collection of the remaining principal amount due is considered doubtful, cash payments received are applied first solely to principal until the remaining principal amount due is expected to be collected and then as a recovery of any charge-off, if applicable, followed by recording interest income. A loan on non-accrual status may be restored to accrual when (1) none of its contractual principal and interest is due and unpaid, and the FHLBank expects repayment of the remaining contractual interest and principal, or (2) it otherwise becomes well secured and in the process of collection.

Rollforward of Allowance for Credit Losses on Mortgage Loans. The following table presents a rollforward of the allowance for credit losses on conventional mortgage loans for the three months ended March 31, 2011 as well as the recorded investment in mortgage loans by impairment methodology at March 31, 2011. The recorded investment in a loan is the unpaid principal balance of the loan adjusted for accrued interest, unamortized premiums or discounts and direct write-downs. The recorded investment is not net of any allowance.

Table 9.1 - Allowance Rollforward for Credit Losses on Conventional Mortgage Loans (in thousands)



Allowance for credit losses:	March 31, 2011
Balance, beginning of year	$	12,100
Charge-offs	(459		)
Provision for credit losses	2,559
Balance, end of period	$	14,200
Ending balance, collectively evaluated for impairment	$	14,200
Recorded investment, end of period:
Collectively evaluated for impairment	$	6,109,313

The FHLBank did not have any impaired loans individually assessed for impairment at March 31, 2011. In addition, there were no troubled debt restructurings related to mortgage loans during 2011.

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Credit Quality Indicators. Key credit quality indicators for mortgage loans include the migration of past due loans, non-accrual loans, loans in process of foreclosure, and impaired loans. The table below summarizes the FHLBank's key credit quality indicators for mortgage loans.

Table 9.2 - Recorded Investment in Delinquent Mortgage Loans (dollars in thousands)



	March 31, 2011
Mortgage loans:	Conventional Mortgage Purchase Program Loans			Government-Guaranteed or Insured Loans			Total
Past due 30-59 days delinquent	$	76,997		$	76,283		$	153,280
Past due 60-89 days delinquent	22,561			30,800			53,361
Past due 90 days or more delinquent	88,822			55,588			144,410
Total past due	188,380			162,671			351,051
Total current loans	5,920,933			1,232,548			7,153,481
Total mortgage loans	$	6,109,313		$	1,395,219		$	7,504,532
Other delinquency statistics:
In process of foreclosure, included above ⁽¹⁾	$	66,425		$	26,235		$	92,660
Serious delinquency rate ⁽²⁾	1.46		%	4.01		%	1.93		%
Past due 90 days or more still accruing interest	$	88,822		$	55,588		$	144,410

	December 31, 2010
Mortgage loans:	Conventional Mortgage Purchase Program Loans			Government-Guaranteed or Insured Loans			Total
Past due 30-59 days delinquent	$	72,914		$	85,791		$	158,705
Past due 60-89 days delinquent	23,291			32,555			55,846
Past due 90 days or more delinquent	78,468			56,062			134,530
Total past due	174,673			174,408			349,081
Total current loans	6,201,762			1,264,033			7,465,795
Total mortgage loans	$	6,376,435		$	1,438,441		$	7,814,876
Other delinquency statistics:
In process of foreclosure, included above ⁽¹⁾	$	55,075		$	25,418		$	80,493
Serious delinquency rate ⁽²⁾	1.23		%	3.90		%	1.72		%
Past due 90 days or more still accruing interest	$	78,468		$	56,062		$	134,530


(1)	Includes loans where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans dependent on their delinquency status.


(2)	Loans that are 90 days or more past due or in the process of foreclosure (including past due or current loans in the process of foreclosure) expressed as a percentage of the total loan portfolio class recorded investment amount.

The FHLBank did not have any loans classified as real estate owned at March 31, 2011 or December 31, 2010 because the servicers pay off loans during foreclosure and subsequently submit any claims to the FHLBank. Additionally, the FHLBank did not have any non-accrual loans at March 31, 2011 or December 31, 2010 based on its analysis of loans being well secured and in the process of collection as a result of the credit enhancements and schedule/scheduled settlement.

Credit Enhancements. The FHLBank's allowance for credit losses considers the credit enhancements associated with conventional mortgage loans. Any incurred losses that would be recovered from the credit enhancements are not reserved as part of the FHLBank's allowance for credit losses.

The conventional mortgage loans under the Mortgage Purchase Program are supported by some combination of primary mortgage insurance, supplemental mortgage insurance and the LRA in addition to the associated property as collateral. The LRA is funded by the FHLBank as a portion of the purchase proceeds to cover expected losses. Excess funds over required balances are distributed to the member in accordance with a step-down schedule that is established at the time of a Master Commitment Contract, subject to performance of the related loan pool.

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Table 9.3 - Changes in the LRA (in thousands)



	Three Months Ended
	March 31, 2011
Lender Risk Account at beginning of year	$	44,104
Additions	1,418
Claims	(1,150		)
Scheduled distributions	(530		)
Lender Risk Account at end of period	$	43,842

Note 10 - Derivatives and Hedging Activities

Nature of Business Activity

The FHLBank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and on the funding sources that finance these assets. The goal of the FHLBank's interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the FHLBank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the FHLBank monitors the risk to its interest income, net interest margin and average maturity of interest-earning assets and funding sources.

Consistent with Finance Agency Regulations, the FHLBank enters into derivatives to manage the interest rate risk exposures inherent in otherwise unhedged assets and funding positions, to achieve the FHLBank's risk management objectives and to act as an intermediary between its members and counterparties. The use of derivatives is an integral part of the FHLBank's financial management strategy. However, Finance Agency Regulations and the FHLBank's financial management policy prohibit trading in or the speculative use of derivative instruments and limit credit risk arising from them.

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


▪	reduce the interest rate sensitivity and repricing gaps of assets and liabilities;


▪	manage embedded options in assets and liabilities;


▪	reduce funding costs by combining a derivative with a Consolidated Obligation, as the cost of a combined funding structure can be lower than the cost of a comparable Consolidated Obligation Bond;


▪	preserve a favorable interest rate spread between the yield of an asset (e.g., an Advance) and the cost of the related liability (e.g., the Consolidated Obligation Bond used to fund the Advance); without the use of derivatives, this interest rate spread could be reduced or eliminated when a change in the interest rate on the Advance does not match a change in the interest rate on the Bond; and


▪	protect the value of existing asset or liability positions.

Types of Derivatives

The FHLBank may enter into interest rate swaps (including callable and putable swaps), swaptions, interest rate cap and floor agreements, calls, puts, futures, and forward contracts to manage its exposure to changes in interest rates.

An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable-rate index for the same period of time. The variable-rate received by the FHLBank in its derivatives is the London Interbank Offered Rate (LIBOR).

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Application of Interest Rate Swaps

The FHLBank generally uses derivatives as fair value hedges of underlying financial instruments. However, because the FHLBank uses interest rate swaps when they are considered to be the most cost-effective alternative to achieve the FHLBank's financial and risk management objectives, it may enter into interest rate swaps that do not necessarily qualify for hedge accounting (economic hedges). The FHLBank re-evaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.

Types of Hedged Items

The FHLBank documents at inception all relationships between derivatives designated as hedging instruments and the hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value hedges to assets and liabilities on the Statements of Condition. The FHLBank also formally assesses (both at the hedge's inception and at least quarterly) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value of the hedged items and whether those derivatives may be expected to remain effective in future periods. The FHLBank currently uses regression analyses to assess the effectiveness of its hedges. The types of assets and liabilities currently hedged with derivatives are:


▪	Consolidated Obligations


▪	Advances


▪	Firm Commitments

Managing Credit Risk on Derivatives

The FHLBank is subject to credit risk due to nonperformance by counterparties to its derivative agreements. The degree of counterparty risk depends on the extent to which master netting arrangements are included in the contracts to mitigate the risk. The FHLBank manages counterparty credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in FHLBank policies and Finance Agency Regulations. The FHLBank requires collateral agreements on all derivatives that establish collateral delivery thresholds. Based on credit analyses and collateral requirements at March 31, 2011, the management of the FHLBank does not anticipate any credit losses on its derivative agreements. See Note 18 for discussion regarding the FHLBank's fair value methodology for derivative assets/liabilities, including the evaluation of the potential for the fair value of these instruments to be affected by counterparty credit risk.

Table 10.1 presents credit risk exposure on derivative instruments, excluding circumstances where a counterparty's pledged collateral to the FHLBank exceeds the FHLBank's net position.

Table 10.1 - Credit Risk Exposure (in thousands)



	March 31, 2011		December 31, 2010
Total net exposure at fair value ⁽¹⁾	$	10,162	$	6,499
Cash collateral	5,901		4,000
Net positive exposure after cash collateral	$	4,261	$	2,499


(1)	Includes net accrued interest receivables of $5,025,000 and $1,722,000 at March 31, 2011 and December 31, 2010.

Certain of the FHLBank's interest rate swap contracts contain provisions that require the FHLBank to post additional collateral with its counterparties if there is deterioration in the FHLBank's credit ratings. The aggregate fair value of all interest rate swaps with credit-risk-related contingent features that were in a liability position at March 31, 2011 was $580,714,000, for which the FHLBank had posted collateral of $384,386,000 in the normal course of business, resulting in a net balance of $196,328,000. If one of the FHLBank's credit ratings had been lowered from its current rating to the next lower rating, the FHLBank would have been required to deliver up to an additional $117,762,000 of collateral (at fair value) to its derivatives counterparties at March 31, 2011. None of the FHLBank's credit ratings were lowered during the previous 12 months. However, on April 20, 2011, Standard & Poor's Rating Services revised its outlooks on the debt issues of the FHLBank System from stable to negative while affirming its respective debt issue ratings. Standard & Poor's also revised its outlook from stable to negative for the FHLBank while affirming the FHLBank's triple-A long-term counterparty credit rating. These ratings actions reflect Standard & Poor's revision of the outlook on the long-term sovereign credit rating on the United States of America to negative from stable. In the application of Standard & Poor's Government Related Entities criteria, the ratings of the FHLBank System and the FHLBank are constrained by the long-term sovereign rating of the United States of America.

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The FHLBank 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. The FHLBank is not a derivatives dealer and thus does not trade derivatives for short-term profit.

Financial Statement Effect and Additional Financial Information

The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. The notional amount represents neither the actual amounts exchanged nor the overall exposure of the FHLBank to credit and market risk. The risks of derivatives only can be measured meaningfully on a portfolio basis that takes into account the derivatives, the items being hedged and any offsets between the two.

Table 10.2 summarizes the fair value of derivative instruments. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.

Table 10.2 - Derivative Instruments Fair Value (in thousands)



	March 31, 2011
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Derivatives designated as fair value hedging instruments:
Interest rate swaps	$	18,189,660	$	97,764		$	(665,454	)
Derivatives not designated as hedging instruments:
Interest rate swaps	2,765,000		5,425			(9,309		)
Forward rate agreements	221,000		968			(317		)
Mortgage delivery commitments	253,482		54			(2,456		)
Total derivatives not designated as hedging instruments	3,239,482		6,447			(12,082		)
Total derivatives before netting and collateral adjustments	$	21,429,142	104,211			(677,536		)
Netting adjustments			(94,049		)	94,049
Cash collateral and related accrued interest			(5,901		)	384,386
Total collateral and netting adjustments ⁽¹⁾			(99,950		)	478,435
Derivative assets and derivative liabilities as reported on the Statement of Condition			$	4,261		$	(199,101	)

	December 31, 2010
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Derivatives designated as fair value hedging instruments:
Interest rate swaps	$	18,694,035	$	112,905		$	(771,864	)
Derivatives not designated as hedging instruments:
Interest rate swaps	1,234,000		4,212			(10,601		)
Forward rate agreements	40,000		—			(124		)
Mortgage delivery commitments	92,274		295			(381		)
Total derivatives not designated as hedging instruments	1,366,274		4,507			(11,106		)
Total derivatives before netting and collateral adjustments	$	20,060,309	117,412			(782,970		)
Netting adjustments			(110,913		)	110,913
Cash collateral and related accrued interest			(4,000		)	444,075
Total collateral and netting adjustments ⁽¹⁾			(114,913		)	554,988
Derivative assets and derivative liabilities as reported on the Statement of Condition			$	2,499		$	(227,982	)


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

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Table 10.3 presents the components of net gains (losses) on derivatives and hedging activities as presented in the Statements of Income.

Table 10.3 - Net Gains (Losses) on Derivatives and Hedging Instruments (in thousands)



	Three Months Ended March 31,
	2011			2010
Derivatives and hedged items in fair value hedging relationships:
Interest rate swaps	$	5,846		$	1,743
Derivatives not designated as hedging instruments:
Economic Hedges:
Interest rate swaps	939			(1,526		)
Forward rate agreements	1,029			—
Net interest settlements	1,581			568
Mortgage delivery commitments	(4,329		)	1,171
Total net (loss) gain related to derivatives not designated as hedging instruments	(780		)	213
Net gains on derivatives and hedging activities	$	5,066		$	1,956

Table 10.4 presents by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank's net interest income.

Table 10.4 - Effect of Fair Value Hedge Related Derivative Instruments (in thousands)



	Three Months Ended March 31,
2011	Gain/(Loss) on Derivative			Gain/(Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income⁽¹⁾
Hedged Item Type:
Advances	$	103,031		$	(97,440	)	$	5,591	$	(94,248	)
Consolidated Bonds	(14,906		)	15,161			255		21,378
	$	88,125		$	(82,279	)	$	5,846	$	(72,870	)

2010
Hedged Item Type:

Federal Home Loan Bank of Cincinnati - FORM 10-Q - May 12, 2011

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