##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended September 30, 2006

OR



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

For the transition period from  to

Commission File No. 000-51406



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FEDERAL HOME LOAN BANK OF SEATTLE

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Federally chartered corporation                                |  | 91-0852005                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|1501 Fourth Avenue, Suite 1800, Seattle, WA                    |  | 98101-1693                          
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (206) 340-2300



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

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

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

The registrants stock is not publicly traded and is generally only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, and subject to certain regulatory and
statutory limits. As of October 31, 2006, the registrant had 19,452,109 shares of Class B(1) stock and 2,608,280 shares of Class B(2) stock outstanding.



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##### Table of Contents

FEDERAL HOME LOAN BANK OF SEATTLE

Form 10-Q for the quarterly period ended September 30, 2006

TABLE OF CONTENTS



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |     
|         |  |                                                                                      
|Item 1.  |  | Financial Statements (Unaudited):                                                     |  |     
|         |  |                                                                                      
|         |  | Statements of Condition  As of September 30, 2006 and December 31, 2005              |  | 1   
|         |  |                                                                                      
|         |  | Statements of Income  Three and nine months ended September 30, 2006 and 2005        |  | 2   
|         |  |                                                                                      
|         |  | Statements of Capital  Nine months ended September 30, 2006 and 2005                 |  | 3   
|         |  |                                                                                      
|         |  | Statements of Cash Flows  Nine months ended September 30, 2006 and 2005              |  | 4   
|         |  |                                                                                      
|         |  | Condensed Notes to Financial Statements                                               |  | 6   
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 24  
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 50  
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 55  
|         |  |                                                                                      
|PART II. |  | OTHER INFORMATION                                                                     |  |     
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 56  
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 56  
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 56  
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 57  
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 57  
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 57  
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 57  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

Federal Home Loan Bank of Seattle

Statements of Condition



|                                                                                                            |  |                          |            |                        |   |           
|----------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | ---------------------- | - | ----------
|                                                                                                            |  | As of September 30, 2006 |            | As ofDecember 31, 2005
|(in thousands, except par value)                                                                            |  | (unaudited)              |            | (audited)             
|Assets                                                                                                      |  |                          |            |                        |   |           
|Cash and due from banks                                                                                     |  | $                        | 1,526      |                        | $ | 4,124     
|Restricted cash                                                                                             |  |                          |            |                        |   | 15,360    
|Interest-bearing deposits                                                                                   |  |                          | 780,000    |                        |   | 1,415,007 
|Securities purchased under agreements to resell                                                             |  |                          |            |                        |   | 850,000   
|Federal funds sold                                                                                          |  |                          | 4,894,000  |                        |   | 6,428,000 
|Held-to-maturity securities* (Other FHLBanks consolidated obligations: $4,274,955 and $5,274,944) (Note 2) |  |                          | 13,747,708 |                        |   | 14,877,594
|Advances (Note 3)                                                                                           |  |                          | 27,156,435 |                        |   | 21,435,492
|Mortgage loans held for portfolio (Note 4)                                                                  |  |                          | 6,556,787  |                        |   | 7,215,607 
|Accrued interest receivable (Other FHLBanks: $13,411 and $59,219)                                           |  |                          | 232,812    |                        |   | 250,943   
|Premises and equipment, net                                                                                 |  |                          | 13,266     |                        |   | 13,963    
|Derivative assets (Note 7)                                                                                  |  |                          | 89,879     |                        |   | 13,205    
|Receivable from Resolution Funding Corporation (REFCORP)                                                    |  |                          |            |                        |   | 2,528     
|Other assets                                                                                                |  |                          | 18,554     |                        |   | 19,747    
|                                                                                                            |  |                          |            |                        |   |           
|Total Assets                                                                                                |  | $                        | 53,490,967 |                        | $ | 52,541,570
|                                                                                                            |  |                          |            |                        |   |           
|Liabilities and Capital                                                                                     |  |                          |            |                        |   |           
|Liabilities                                                                                                 |  |                          |            |                        |   |           
|Deposits                                                                                                    |  | $                        | 875,840    |                        | $ | 800,820   
|Securities sold under agreement to repurchase                                                               |  |                          |            |                        |   | 393,500   
|Consolidated obligations, net (Note 5):                                                                     |  |                          |            |                        |   |           
|Discount notes                                                                                              |  |                          | 2,923,265  |                        |   | 10,620,951
|Bonds                                                                                                       |  |                          | 46,733,866 |                        |   | 37,881,557
|                                                                                                            |  |                          |            |                        |   |           
|Total consolidated obligations, net                                                                         |  |                          | 49,657,131 |                        |   | 48,502,508
|                                                                                                            |  |                          |            |                        |   |           
|Accrued interest payable                                                                                    |  |                          | 551,219    |                        |   | 377,236   
|Affordable Housing Program (AHP)                                                                            |  |                          | 24,285     |                        |   | 31,235    
|Payable to REFCORP                                                                                          |  |                          | 2,283      |                        |   |           
|Derivative liabilities (Note 7)                                                                             |  |                          | 54,478     |                        |   | 133,765   
|Other liabilities                                                                                           |  |                          | 31,677     |                        |   | 34,954    
|Mandatorily redeemable Class B stock and other borrowings (Note 6)                                          |  |                          | 69,222     |                        |   | 66,259    
|                                                                                                            |  |                          |            |                        |   |           
|Total Liabilities                                                                                           |  |                          | 51,266,135 |                        |   | 50,340,277
|                                                                                                            |  |                          |            |                        |   |           
|Commitments and Contingencies (Note 10)                                                                     |  |                          |            |                        |   |           
|Capital                                                                                                     |  |                          |            |                        |   |           
|Class B stockputable($100 par value) issued and outstanding shares (Note 6):                              |  |                          |            |                        |   |           
|Class B(1) stock: (19,006 and 20,197)                                                                       |  |                          | 1,900,624  |                        |   | 2,019,731 
|Class B(2) stock: (2,358 and 1,128)                                                                         |  |                          | 235,841    |                        |   | 112,803   
|Retained earnings                                                                                           |  |                          | 88,367     |                        |   | 68,759    
|                                                                                                            |  |                          |            |                        |   |           
|Total Capital                                                                                               |  |                          | 2,224,832  |                        |   | 2,201,293 
|                                                                                                            |  |                          |            |                        |   |           
|Total Liabilities and Capital                                                                               |  | $                        | 53,490,967 |                        | $ | 52,541,570
|                                                                                                            |  |                          |            |                        |   |           

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|* | Fair values of held-to-maturity securities were $13,511,234 and $14,584,699 as of September 30, 2006 and December 31, 2005.
|- | ---------------------------------------------------------------------------------------------------------------------------

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



1



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##### Table of Contents

Federal Home Loan Bank of Seattle

Statements of Income

(Unaudited)



|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                                                                                                                                                                |  | For the Three Months EndedSeptember 30, |         |   | For the Nine Months EndedSeptember 30, |  
|                                                                                                                                                                                                                                |  | 2006                                    |         |   | 2005                                   |   |         | 2006 |  |   | 2005      |  
|(in thousands)                                                                                                                                                                                                                  |  |                                         |         |   |                                        |   |         |      |  |   |           |  
|Interest Income                                                                                                                                                                                                                 |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Advances                                                                                                                                                                                                                        |  | $                                       | 369,587 |   |                                        | $ | 175,152 |      |  | $ | 926,661   |   |  | $ | 464,825   |  
|Prepayment fees on advances                                                                                                                                                                                                     |  |                                         | 89      |   |                                        |   | 4       |      |  |   | 511       |   |  |   | 2,132     |  
|Interest-bearing deposits                                                                                                                                                                                                       |  |                                         | 6,024   |   |                                        |   | 9,350   |      |  |   | 31,182    |   |  |   | 10,806    |  
|Securities purchased under agreements to resell                                                                                                                                                                                 |  |                                         | 1,315   |   |                                        |   |         |      |  |   | 7,686     |   |  |   | 96        |  
|Federal funds sold                                                                                                                                                                                                              |  |                                         | 58,286  |   |                                        |   | 47,654  |      |  |   | 200,806   |   |  |   | 66,062    |  
|Trading securities                                                                                                                                                                                                              |  |                                         |         |   |                                        |   | 3,625   |      |  |   |           |   |  |   | 10,875    |  
|Held-to-maturity securities (Other FHLBanks consolidated obligations: $38,899 and $54,546 for the three months ended September 30,
2006 and 2005, $128,182 and $175,756 for the nine months ended September 30, 2006 and 2005) |  |                                         | 145,858 |   |                                        |   | 158,279 |      |  |   | 432,787   |   |  |   | 507,183   |  
|Mortgage loans held for portfolio                                                                                                                                                                                               |  |                                         | 82,878  |   |                                        |   | 111,651 |      |  |   | 263,247   |   |  |   | 354,620   |  
|Loans to other FHLBanks                                                                                                                                                                                                         |  |                                         | 1       |   |                                        |   | 16      |      |  |   | 19        |   |  |   | 26        |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Total interest income                                                                                                                                                                                                           |  |                                         | 664,038 |   |                                        |   | 505,731 |      |  |   | 1,862,899 |   |  |   | 1,416,625 |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Interest Expense                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Consolidated obligations                                                                                                                                                                                                        |  |                                         | 631,459 |   |                                        |   | 471,577 |      |  |   | 1,774,983 |   |  |   | 1,304,245 |  
|Deposits                                                                                                                                                                                                                        |  |                                         | 8,694   |   |                                        |   | 7,089   |      |  |   | 24,020    |   |  |   | 16,890    |  
|Securities sold under agreements to repurchase                                                                                                                                                                                  |  |                                         | 1,646   |   |                                        |   | 2,961   |      |  |   | 7,705     |   |  |   | 13,890    |  
|Mandatorily redeemable Class B stock and other borrowings                                                                                                                                                                       |  |                                         |         |   |                                        |   |         |      |  |   | 43        |   |  |   | 12        |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Total interest expense                                                                                                                                                                                                          |  |                                         | 641,799 |   |                                        |   | 481,627 |      |  |   | 1,806,751 |   |  |   | 1,335,037 |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Net Interest Income                                                                                                                                                                                                             |  |                                         | 22,239  |   |                                        |   | 24,104  |      |  |   | 56,148    |   |  |   | 81,588    |  
|Other Income (Loss)                                                                                                                                                                                                             |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Service fees                                                                                                                                                                                                                    |  |                                         | 407     |   |                                        |   | 567     |      |  |   | 1,290     |   |  |   | 1,617     |  
|Net loss from sale of held-to-maturity securities                                                                                                                                                                               |  |                                         | (4,754  | ) |                                        |   |         |      |  |   | (6,376    | ) |  |   |           |  
|Net (loss) gain from trading securities                                                                                                                                                                                         |  |                                         |         |   |                                        |   | (13,750 | )    |  |   |           |   |  |   | 8,195     |  
|Net (loss) gain on derivatives and hedging activities                                                                                                                                                                           |  |                                         | (119    | ) |                                        |   | 17,436  |      |  |   | 2,408     |   |  |   | (32,845   | )
|Net gain (loss) on early extinguishment of consolidated obligations                                                                                                                                                             |  |                                         | 4,777   |   |                                        |   |         |      |  |   | 6,522     |   |  |   | (3,041    | )
|Net gain on sale of mortgage loans held for sale                                                                                                                                                                                |  |                                         |         |   |                                        |   | 7,019   |      |  |   |           |   |  |   | 7,019     |  
|Other gain (loss), net                                                                                                                                                                                                          |  |                                         | 3       |   |                                        |   | (1,263  | )    |  |   | (75       | ) |  |   | (1,479    | )
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Total other income (loss)                                                                                                                                                                                                       |  |                                         | 314     |   |                                        |   | 10,009  |      |  |   | 3,769     |   |  |   | (20,534   | )
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Other Expense                                                                                                                                                                                                                   |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Operating expenses:                                                                                                                                                                                                             |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Compensation and benefits                                                                                                                                                                                                       |  |                                         | 5,175   |   |                                        |   | 5,567   |      |  |   | 16,376    |   |  |   | 20,097    |  
|Other operating                                                                                                                                                                                                                 |  |                                         | 3,865   |   |                                        |   | 7,760   |      |  |   | 13,450    |   |  |   | 22,052    |  
|Federal Housing Finance Board                                                                                                                                                                                                   |  |                                         | 460     |   |                                        |   | 532     |      |  |   | 1,377     |   |  |   | 1,598     |  
|Office of Finance                                                                                                                                                                                                               |  |                                         | 288     |   |                                        |   | 258     |      |  |   | 981       |   |  |   | 842       |  
|Other                                                                                                                                                                                                                           |  |                                         | 340     |   |                                        |   | 437     |      |  |   | 1,052     |   |  |   | 1,518     |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Total other expense                                                                                                                                                                                                             |  |                                         | 10,128  |   |                                        |   | 14,554  |      |  |   | 33,236    |   |  |   | 46,107    |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Income Before Assessments                                                                                                                                                                                                       |  |                                         | 12,425  |   |                                        |   | 19,559  |      |  |   | 26,681    |   |  |   | 14,947    |  
|Assessments                                                                                                                                                                                                                     |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|AHP                                                                                                                                                                                                                             |  |                                         | 1,014   |   |                                        |   | 1,696   |      |  |   | 2,171     |   |  |   | 1,375     |  
|REFCORP                                                                                                                                                                                                                         |  |                                         | 2,282   |   |                                        |   | 3,572   |      |  |   | 4,902     |   |  |   | 2,714     |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Total assessments                                                                                                                                                                                                               |  |                                         | 3,296   |   |                                        |   | 5,268   |      |  |   | 7,073     |   |  |   | 4,089     |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  
|Net Income                                                                                                                                                                                                                      |  | $                                       | 9,129   |   |                                        | $ | 14,291  |      |  | $ | 19,608    |   |  | $ | 10,858    |  
|                                                                                                                                                                                                                                |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |           |  

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



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##### Table of Contents

Federal Home Loan Bank of Seattle

Statements of Capital

(Unaudited)



|                                                              |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  
|------------------------------------------------------------- |  | -------------------------- | - |  | -------------------------- | --------- | - | ---------------- | ----- | - | ------------ | - | ------- | - |  | - | ------ | - |  | - | --------- | -
|                                                              |  | Class B(1) Stock - Putable |   |  | Class B(2) Stock - Putable |           |   | RetainedEarnings |       |   | TotalCapital |  
|For the Nine Months Ended September 30, 2006 and 2005         |  | Shares                     |   |  | Par Value                  |           |   | Shares           |       |   | Par Value    |   |         |  
|(in thousands, except annualized dividend rate data)          |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |  
|Balance as of December 31, 2004                               |  | 19,726                     |   |  | $                          | 1,972,594 |   |                  | 542   |   |              | $ | 54,233  |   |  | $ | 75,296 |   |  | $ | 2,102,123 |  
|Issuance of stock                                             |  | 1,098                      |   |  |                            | 109,753   |   |                  |       |   |              |   |         |   |  |   |        |   |  |   | 109,753   |  
|Transfers                                                     |  | (904                       | ) |  |                            | (90,402   | ) |                  | 904   |   |              |   | 90,402  |   |  |   |        |   |  |   |           |  
|Net shares classified as mandatorily redeemable Class B stock |  | 11                         |   |  |                            | 1,163     |   |                  | (136  | ) |              |   | (13,668 | ) |  |   | 227    |   |  |   | (12,278   | )
|Net income                                                    |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   | 10,858 |   |  |   | 10,858    |  
|Dividends on stock:                                           |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  
|Class B(1) stock (1.63%) and Class B(2) stock (1.50%)         |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  
|Cash                                                          |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   | (22    | ) |  |   | (22       | )
|Stock                                                         |  | 82                         |   |  |                            | 8,221     |   |                  | 2     |   |              |   | 234     |   |  |   | (8,455 | ) |  |   |           |  
|                                                              |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  
|Balance as of September 30, 2005                              |  | 20,013                     |   |  | $                          | 2,001,329 |   |                  | 1,312 |   |              | $ | 131,201 |   |  | $ | 77,904 |   |  | $ | 2,210,434 |  
|                                                              |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  
|Balance as of December 31, 2005                               |  | 20,197                     |   |  | $                          | 2,019,731 |   |                  | 1,128 |   |              | $ | 112,803 |   |  | $ | 68,759 |   |  | $ | 2,201,293 |  
|Issuance of stock                                             |  | 69                         |   |  |                            | 6,894     |   |                  |       |   |              |   |         |   |  |   |        |   |  |   | 6,894     |  
|Transfers                                                     |  | (1,243                     | ) |  |                            | (124,343  | ) |                  | 1,243 |   |              |   | 124,343 |   |  |   |        |   |  |   |           |  
|Net shares classified as mandatorily redeemable Class B stock |  | (17                        | ) |  |                            | (1,658    | ) |                  | (13   | ) |              |   | (1,305  | ) |  |   |        |   |  |   | (2,963    | )
|Net income                                                    |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   | 19,608 |   |  |   | 19,608    |  
|                                                              |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  
|Balance as of September 30, 2006                              |  | 19,006                     |   |  | $                          | 1,900,624 |   |                  | 2,358 |   |              | $ | 235,841 |   |  | $ | 88,367 |   |  | $ | 2,224,832 |  
|                                                              |  |                            |   |  |                            |           |   |                  |       |   |              |   |         |   |  |   |        |   |  |   |           |  

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



3



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##### Table of Contents

Federal Home Loan Bank of Seattle

Statements of Cash Flows

(Unaudited)



|                                                                                                           |  |                                        |             |   |      |   |             |  
|---------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                                           |  | For the Nine Months EndedSeptember 30, |            
|                                                                                                           |  | 2006                                   |             |   | 2005 |  
|(in thousands)                                                                                             |  |                                        |             |   |      |  
|Operating Activities                                                                                       |  |                                        |             |   |      |   |             |  
|Net income                                                                                                 |  | $                                      | 19,608      |   |      | $ | 10,858      |  
|Adjustments to reconcile net income to net cash provided by operating activities:                          |  |                                        |             |   |      |   |             |  
|Depreciation and amortization:                                                                             |  |                                        |             |   |      |   |             |  
|Net premiums and discounts on consolidated obligations, investments, and mortgage loans held for portfolio |  |                                        | 72,853      |   |      |   | 29,107      |  
|Concessions on consolidated obligation bonds                                                               |  |                                        | 3,709       |   |      |   | 4,936       |  
|Premises and equipment                                                                                     |  |                                        | 2,314       |   |      |   | 1,615       |  
|Net (increase) decrease in fair value adjustment on derivatives and hedging activities                     |  |                                        | (30,112     | ) |      |   | 6,568       |  
|(Gain) loss on early extinguishment of debt                                                                |  |                                        | (6,522      | ) |      |   | 3,041       |  
|Net loss on disposal of premises and equipment                                                             |  |                                        | 98          |   |      |   | 305         |  
|Loss on sale of held-to-maturity securities                                                                |  |                                        | 6,376       |   |      |   |             |  
|Increase from trading securities                                                                           |  |                                        |             |   |      |   | (8,195      | )
|Gain on sale of mortgage loans held for sale                                                               |  |                                        |             |   |      |   | (7,019      | )
|Decrease in accrued interest receivable                                                                    |  |                                        | 18,132      |   |      |   | 77,053      |  
|(Increase) decrease in net accrued interest on derivatives                                                 |  |                                        | (105,721    | ) |      |   | 4,297       |  
|Decrease (increase) in other assets                                                                        |  |                                        | 87          |   |      |   | (6,677      | )
|Decrease in AHP liability and discount on AHP advances                                                     |  |                                        | (6,951      | ) |      |   | (6,105      | )
|Increase (decrease) in payable to REFCORP                                                                  |  |                                        | 4,811       |   |      |   | (4,484      | )
|Increase in accrued interest payable                                                                       |  |                                        | 173,983     |   |      |   | 10,139      |  
|(Decrease) increase in other liabilities                                                                   |  |                                        | (3,277      | ) |      |   | 5,221       |  
|                                                                                                           |  |                                        |             |   |      |   |             |  
|Total adjustments                                                                                          |  |                                        | 129,780     |   |      |   | 109,802     |  
|                                                                                                           |  |                                        |             |   |      |   |             |  
|Net cash provided by operating activities                                                                  |  |                                        | 149,388     |   |      |   | 120,660     |  
|                                                                                                           |  |                                        |             |   |      |   |             |  
|Investing Activities                                                                                       |  |                                        |             |   |      |   |             |  
|Net decrease (increase) in interest-bearing deposits                                                       |  |                                        | 650,360     |   |      |   | (1,657,200  | )
|Net decrease in securities purchased under agreements to resell                                            |  |                                        | 850,000     |   |      |   |             |  
|Net decrease (increase) in federal funds sold                                                              |  |                                        | 1,534,000   |   |      |   | (6,205,500  | )
|Purchase of held-to-maturity securities                                                                    |  |                                        | (1,382,316  | ) |      |   | (1,063,305  | )
|Proceeds from maturities and sales of held-to-maturity securities                                          |  |                                        | 2,504,255   |   |      |   | 3,924,977   |  
|Proceeds from sale of mortgage loans held for sale                                                         |  |                                        |             |   |      |   | 1,448,625   |  
|Principal collected on advances                                                                            |  |                                        | 77,806,648  |   |      |   | 55,220,197  |  
|Advances made                                                                                              |  |                                        | (83,536,976 | ) |      |   | (58,118,764 | )
|Principal collections and recoveries on mortgage loans held for portfolio                                  |  |                                        | 657,333     |   |      |   | 1,508,813   |  
|Purchases of mortgage loans held for portfolio                                                             |  |                                        |             |   |      |   | (85,941     | )
|Net increase in premises and equipment                                                                     |  |                                        | (1,715      | ) |      |   | (3,499      | )
|                                                                                                           |  |                                        |             |   |      |   |             |  
|Net cash used in investment activities                                                                     |  |                                        | (918,411    | ) |      |   | (5,031,597  | )
|                                                                                                           |  |                                        |             |   |      |   |             |  

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



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Federal Home Loan Bank of Seattle

Statements of Cash Flows  (Continued)

(Unaudited)



|                                                                          |  |                                         |              |   |      |   |              |  
|------------------------------------------------------------------------- |  | --------------------------------------- | ------------ | - | ---- | - | ------------ | -
|                                                                          |  | For the Nine Months Ended September 30, |             
|                                                                          |  | 2006                                    |              |   | 2005 |  
|(in thousands)                                                            |  |                                         |              |   |      |  
|Financing Activities                                                      |  |                                         |              |   |      |   |              |  
|Net increase in deposits                                                  |  |                                         | 75,020       |   |      |   | 65,649       |  
|Net (decrease) increase in securities sold under agreements to repurchase |  |                                         | (393,500     | ) |      |   | 88,150       |  
|Net proceeds from issuance of consolidated obligations:                   |  |                                         |              |   |      |   |              |  
|Discount notes                                                            |  |                                         | 277,274,514  |   |      |   | 303,866,457  |  
|Bonds                                                                     |  |                                         | 16,792,070   |   |      |   | 4,947,496    |  
|Payments for maturing and retiring consolidated obligations:              |  |                                         |              |   |      |   |              |  
|Discount notes                                                            |  |                                         | (285,045,482 | ) |      |   | (293,812,805 | )
|Bonds                                                                     |  |                                         | (7,943,091   | ) |      |   | (10,341,336  | )
|Proceeds from sale of Class B(1) stock                                    |  |                                         | 6,894        |   |      |   | 109,753      |  
|Repurchases of Class B(2) stock                                           |  |                                         |              |   |      |   | (10,388      | )
|Retirement of mandatorily redeemable Class B(2) stock                     |  |                                         |              |   |      |   | (415         | )
|Dividends paid                                                            |  |                                         |              |   |      |   | (22          | )
|                                                                          |  |                                         |              |   |      |   |              |  
|Net cash provided by financing activities                                 |  |                                         | 766,425      |   |      |   | 4,912,539    |  
|                                                                          |  |                                         |              |   |      |   |              |  
|Net (decrease) increase in cash and cash equivalents                      |  |                                         | (2,598       | ) |      |   | 1,602        |  
|Cash and cash equivalents at beginning of the year                        |  |                                         | 4,124        |   |      |   | 4,562        |  
|                                                                          |  |                                         |              |   |      |   |              |  
|Cash and cash equivalents at end of period                                |  | $                                       | 1,526        |   |      | $ | 6,164        |  
|                                                                          |  |                                         |              |   |      |   |              |  
|Supplemental Disclosures                                                  |  |                                         |              |   |      |   |              |  
|Interest paid                                                             |  | $                                       | 1,632,768    |   |      | $ | 1,325,008    |  
|AHP payments                                                              |  |                                         | 9,121        |   |      |   | 7,479        |  
|REFCORP payments                                                          |  |                                         | 119          |   |      |   | 7,199        |  

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



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Federal Home Loan Bank of Seattle

Condensed Notes to Financial Statements  (Unaudited)

Note 1. Summary of Significant Accounting Policies and Recently Issued Accounting Standards and Interpretations

General

 Basis of Reporting These unaudited financial statements and condensed notes should be read in conjunction with the 2005 audited financial statements and related notes (2005 Audited Financials) included in the registration statement on Form 10, as amended, of the
Federal Home Loan Bank of Seattle (Seattle Bank). These unaudited financial statements and condensed notes have been prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial
information. Certain financial information that is required in the annual financial statements may not be required for interim financial reporting purposes and has been condensed or omitted. Operating results for the nine months ended
September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. Certain amounts from the prior period have been modified to conform to the current presentation.

 Use of Estimates The preparation of financial statements, in accordance with U.S. GAAP, requires us to make assumptions and
estimates. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these
estimates.

 Segment Disclosure Our core business is traditional member finance, which includes making advances,
providing letters of credit, accepting deposits, and providing securities safekeeping and other services. Historically, we offered products and services through two operating segments, traditional member finance and the Mortgage Purchase Program
(MPP). The MPP segment consisted of mortgage loans held for portfolio as a result of purchases from participating members. During the first quarter of 2005, we decided to exit the MPP. As a result of this decision, Seattle Bank management no longer
manages the business using separate operating segments. The Seattle Bank now aggregates the operating results of the former MPP segment with the traditional member finance segment for decision-making purposes. Accordingly, the note containing
segment information previously contained in the notes to our financial statements has been removed from these Condensed Notes to Financial Statements. As of September 30, 2006, our MPP balance has declined 34.7% to $6.6 billion from $10.1
billion as of March 31, 2005.

Recently Issued Accounting Standards and Interpretations

 SFAS 155. Accounting for Certain Hybrid Financial Instruments  On February 16, 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Accounting Standard (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (SFAS 155), which resolves issues addressed in FASB Statement
No. 133 (SFAS 133) Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets (DIG Issue D1). SFAS 155 amends SFAS 133 to simplify the accounting for certain derivatives embedded in other
financial instruments (a hybrid financial instrument) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, provided that the entire hybrid financial
instrument is accounted for on a fair value basis. SFAS 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, which replaces the interim guidance in DIG Issue D1. SFAS 155 amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a replacement of
FASB Statement 125 (SFAS 140), to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. SFAS 155 is effective for all
financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006 (January 1, 2007 for the Seattle Bank), with earlier adoption allowed. We continue to evaluate the impact of adopting
SFAS 155 and have not yet determined the effect, if any, that the implementation of SFAS 155 will have on our operating results or financial position. The Seattle Bank does not expect the adoption of SFAS 155, and the related standards, to have a
significant effect on our Statements of Condition or Statements of Income.

 SFAS 157. Fair Value Measurements  On
September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS 157), which consolidates various definitions of fair value discussed in many accounting pronouncements. SFAS 157 establishes a framework for
measuring fair value in U.S. GAAP and requires additional disclosures about fair value measurements in the notes to our financial statements. The application of SFAS 157 is expected to increase consistency and comparability in fair value
measurements and thus reduce the complexity of applying U.S. GAAP to such measurements. Under SFAS 157, fair value is based on the price from a market participants perspective that takes into consideration certain risks and restrictions if
market participants would include those same risks and restrictions in pricing related assets and liabilities. SFAS 157 applies to derivatives and other financial instruments measured at fair value under SFAS 133 at initial recognition and in all
subsequent periods. SFAS 157 requires expanded financial reporting



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disclosures about fair value measurements if the reporting entity significantly relies on its own assumptions about market participant assumptions. SFAS 157
is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The Seattle Bank is currently evaluating the impact, if any, that SFAS 157 will have on our Statements of Condition, Statements of
Income and Statements of Cash Flows.

 SFAS 158. Employers Accounting for Defined Benefit Pension and Other Post-retirement
Plans On September 29, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, amendments of SFAS No. 87, Employers Accounting for
Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than
Pensions, and SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefit(SFAS 158). SFAS 158 applies to all single-employer defined benefit plans that fall within SFAS 87 or SFAS 106,
but it does not apply to defined contribution plans or multi-employer plans. The new standard requires that a reporting entity recognize the funded status of its benefit plans as a net liability or asset, with an offsetting adjustment to accumulated
other comprehensive income within shareholders equity, and that plan assets and liabilities be measured as of the date of the applicable financial statement period. SFAS 158 does not change how pensions and other post-retirement benefits are
accounted for and reported in the statement of income. SFAS 158 applies to plan sponsors that are public and private entities and non-governmental not-for-profit organizations. The requirement to recognize the funded status of a benefit plan and the
related disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other
entities. The requirement to measure plan assets and benefit obligations as of the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. We have chosen to early
adopt SFAS 158 for the fiscal year ending December 31, 2006. We do not expect the adoption of SFAS 158 to have a material impact on our Statements of Condition.

 Staff Accounting Bulletin No. 108  On September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB 108). Historically, the two most widely recognized methods for quantifying the effects of financial statement restatements have been the
roll-over and the iron curtain methods. The roll-over method focuses primarily on the impact of a misstatement on the income statement, which includes the reversing effect of prior-year misstatements. The exclusive use of the
roll-over method can lead to the accumulation of misstatements in the balance sheet. The iron curtain method focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on reversing effects of prior year errors on
the income statement. In SAB 108, the SEC established an approach that requires quantification of financial statement misstatements based on the misstatements of each of the reporting entitys financial statements and related financial
statement disclosures. This model is commonly referred to as a dual approach method because it requires quantification of errors under both the traditional roll-over and the iron curtain methods. SAB 108 permits the reporting entity to
initially apply these methods by: (i) restating prior financial statements as if the dual approach had always been used or (ii) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values
of assets and liabilities as of the beginning of the fiscal year with an offsetting adjustment recorded to the opening balance of retained earnings. However, misstatements solely related to the current calendar year would not be included in the
transition cumulative adjustment. Use of the cumulative effect transition method requires a detailed disclosure of the nature and amount of each individual error (regardless of materiality) being corrected through the cumulative adjustment and how
and when the error arose. The Seattle Bank has consistently applied both the roll-over and iron curtain methods when determining the materiality of errors. As of the filing date, the Seattle Bank does not expect the application of SAB 108 to have a
significant effect on our Statements of Condition, Statements of Income, Statements of Capital, or Statements of Cash Flows.



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##### Table of Contents

Note 2. Held-To-Maturity Securities

 Major Security Types  The following table summarizes our held-to-maturity securities as of September 30, 2006 and December 31, 2005.



|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|--------------------------------------------- |  | --------------- | ---------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|As of September 30, 2006                      |  | Amortized Cost* |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Estimated FairValue
|(in thousands)                                |  |                 |            |                      |   |                       |  |   |                    
|Non-Mortgage-Backed Securities                |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Other U.S. agency obligations                 |  | $               | 151,509    |                      | $ | 3,271                 |  | $ |                     |   |  | $ | 154,780   
|Government-sponsored enterprises              |  |                 | 2,692,240  |                      |   | 23,096                |  |   | (42,829             | ) |  |   | 2,672,507 
|Other FHLBanks consolidated obligation bonds |  |                 | 4,274,955  |                      |   |                       |  |   | (84,432             | ) |  |   | 4,190,523 
|State or local housing agency obligations     |  |                 | 12,717     |                      |   | 89                    |  |   | (4                  | ) |  |   | 12,802    
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Subtotal                                      |  |                 | 7,131,421  |                      |   | 26,456                |  |   | (127,265            | ) |  |   | 7,030,612 
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Mortgage-Backed Securities                    |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Government-sponsored enterprises              |  |                 | 1,863,996  |                      |   | 794                   |  |   | (76,446             | ) |  |   | 1,788,344 
|Other                                         |  |                 | 4,752,291  |                      |   | 3,472                 |  |   | (63,485             | ) |  |   | 4,692,278 
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Subtotal                                      |  |                 | 6,616,287  |                      |   | 4,266                 |  |   | (139,931            | ) |  |   | 6,480,622 
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Total                                         |  | $               | 13,747,708 |                      | $ | 30,722                |  | $ | (267,196            | ) |  | $ | 13,511,234
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|                                              |  |                 |            |                     
|As of December 31, 2005                       |  | Amortized Cost* |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Estimated FairValue
|(in thousands)                                |  |                 |            |                      |   |                       |  |   |                    
|Non-Mortgage-Backed Securities                |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Commercial paper                              |  | $               | 194,106    |                      | $ | 324                   |  | $ | (324                | ) |  | $ | 194,106   
|Other U.S. agency obligations                 |  |                 | 221,671    |                      |   | 4,932                 |  |   | (1                  | ) |  |   | 226,602   
|Government-sponsored enterprises              |  |                 | 2,698,649  |                      |   | 28,764                |  |   | (63,685             | ) |  |   | 2,663,728 
|Other FHLBanks consolidated obligation bonds |  |                 | 5,274,944  |                      |   |                       |  |   | (114,617            | ) |  |   | 5,160,327 
|State or local housing agency obligations     |  |                 | 16,900     |                      |   | 218                   |  |   |                     |   |  |   | 17,118    
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Subtotal                                      |  |                 | 8,406,270  |                      |   | 34,238                |  |   | (178,627            | ) |  |   | 8,261,881 
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Mortgage-Backed Securities                    |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Government-sponsored enterprises              |  |                 | 2,141,284  |                      |   | 1,584                 |  |   | (79,759             | ) |  |   | 2,063,109 
|Other                                         |  |                 | 4,330,040  |                      |   | 646                   |  |   | (70,977             | ) |  |   | 4,259,709 
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Subtotal                                      |  |                 | 6,471,324  |                      |   | 2,230                 |  |   | (150,736            | ) |  |   | 6,322,818 
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           
|Total                                         |  | $               | 14,877,594 |                      | $ | 36,468                |  | $ | (329,363            | ) |  | $ | 14,584,699
|                                              |  |                 |            |                      |   |                       |  |   |                     |   |  |   |           

---

| | * | The amortized cost of our mortgage-backed securities classified as held-to-maturity includes net discounts of $37.8 million and $40.9 million as of September 30, 2006 and
December 31, 2005.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We generally execute interest-rate exchange agreements with major broker-dealers under bilateral
collateral agreements. As of September 30, 2006, we did not have any securities pledged as collateral to broker-dealers which they cannot sell or repledge.

As of September 30, 2006 and December 31, 2005, we held $345.1 million and $514.0 million of held-to-maturity securities purchased from members or affiliates of members who own more than 10% of our total
outstanding Class B stock and mandatorily redeemable Class B stock, or members with a representative serving on our Board of Directors. For additional information see Note 9.

 Other U.S. Agency Obligations and Government-Sponsored Enterprises (GSEs) Our investments in other U.S. obligations consist primarily
of debt securities and mortgage-backed securities of the Government National Mortgage Agency, or Ginnie Mae, or other government agencies whose debt is guaranteed, either directly or indirectly, by the U.S. government. The U.S. government does not
guarantee debt securities and mortgage-backed securities issued by certain GSEs, such as Fannie Mae and Freddie Mac, either directly or indirectly.



8



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##### Table of Contents

 Other Federal Home Loan Bank Consolidated Obligation Bonds  The following table
details our consolidated obligation bonds of other Federal Home Loan Banks (FHLBanks) by primary obligor as of September 30, 2006 and December 31, 2005.



|                                              |  |                          |           |                         |   |                |  |                     |           |  |   |          
|--------------------------------------------- |  | ------------------------ | --------- | ----------------------- | - | -------------- |  | ------------------- | --------- |  | - | ---------
|                                              |  | As of September 30, 2006 |           | As of December 31, 2005
|Other FHLBanks Consolidated Obligation Bonds |  | Amortized Cost           |           | EstimatedFair Value     |   | Amortized Cost |  | EstimatedFair Value
|(in thousands)                                |  |                          |           |                         |   |                |  |                    
|FHLBank of Atlanta                            |  | $                        |           |                         | $ |                |  | $                   | 500,000   |  | $ | 492,969  
|FHLBank of Boston                             |  |                          | 500,000   |                         |   | 496,992        |  |                     | 500,000   |  |   | 492,500  
|FHLBank of Des Moines                         |  |                          | 1,879,955 |                         |   | 1,828,075      |  |                     | 2,129,944 |  |   | 2,075,206
|FHLBank of San Francisco                      |  |                          | 1,895,000 |                         |   | 1,865,456      |  |                     | 2,145,000 |  |   | 2,099,652
|                                              |  |                          |           |                         |   |                |  |                     |           |  |   |          
|Total                                         |  | $                        | 4,274,955 |                         | $ | 4,190,523      |  | $                   | 5,274,944 |  | $ | 5,160,327
|                                              |  |                          |           |                         |   |                |  |                     |           |  |   |          

 Temporary Impairment The following tables summarize our held-to-maturity
securities with gross unrealized losses, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2006 and December 31, 2005.



|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|--------------------------------------------- |  | ------------------- | --------- | --------------------- | ----------------- | ------- | ------------------- | ----- | --------------------- | ---------- |  | ------------------- | -------- | --------------------- |  | - | ---------- |  | - | -------- | -
|                                              |  | Less than 12 months |           |                       | 12 months or more |         |                     | Total |                      
|As of September 30, 2006                      |  | EstimatedFair Value |           | GrossUnrealizedLosses |                   |         | EstimatedFair Value |       | GrossUnrealizedLosses |            |  | EstimatedFair Value |          | GrossUnrealizedLosses | 
|(in thousands)                                |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       | 
|Non-Mortgage-Backed Securities                |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Government-sponsored enterprises              |  | $                   |           |                       | $                 |         |                     |       | $                     | 2,261,579  |  | $                   | (42,829  | )                     |  | $ | 2,261,579  |  | $ | (42,829  | )
|Other FHLBanks consolidated obligation bonds |  |                     |           |                       |                   |         |                     |       |                       | 4,190,523  |  |                     | (84,432  | )                     |  |   | 4,190,523  |  |   | (84,432  | )
|State or local housing agency obligations     |  |                     | 111       |                       |                   | (4      | )                   |       |                       |            |  |                     |          |                       |  |   | 111        |  |   | (4       | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Subtotal                                      |  | $                   | 111       |                       | $                 | (4      | )                   |       | $                     | 6,452,102  |  | $                   | (127,261 | )                     |  | $ | 6,452,213  |  | $ | (127,265 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Mortgage-Backed Securities                    |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Government-sponsored enterprises              |  |                     | 25,752    |                       |                   | (329    | )                   |       |                       | 1,639,141  |  |                     | (76,117  | )                     |  |   | 1,664,893  |  |   | (76,446  | )
|Other                                         |  |                     | 609,431   |                       |                   | (4,220  | )                   |       |                       | 2,328,030  |  |                     | (59,265  | )                     |  |   | 2,937,461  |  |   | (63,485  | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Subtotal                                      |  |                     | 635,183   |                       |                   | (4,549  | )                   |       |                       | 3,967,171  |  |                     | (135,382 | )                     |  |   | 4,602,354  |  |   | (139,931 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Total                                         |  | $                   | 635,294   |                       | $                 | (4,553  | )                   |       | $                     | 10,419,273 |  | $                   | (262,643 | )                     |  | $ | 11,054,567 |  | $ | (267,196 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|                                              |  |                     |          
|                                              |  | Less than 12 months |           |                       | 12 months or more |         |                     | Total |                      
|As of December 31, 2005                       |  | EstimatedFair Value |           | GrossUnrealizedLosses |                   |         | EstimatedFair Value |       | GrossUnrealizedLosses |            |  | EstimatedFair Value |          | GrossUnrealizedLosses | 
|(in thousands)                                |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       | 
|Non-Mortgage-Backed Securities                |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Commercial paper                              |  | $                   | 99,542    |                       | $                 | (324    | )                   |       | $                     |            |  | $                   |          |                       |  | $ | 99,542     |  | $ | (324     | )
|Other U.S. agency obligations                 |  |                     | 10,734    |                       |                   | (1      | )                   |       |                       |            |  |                     |          |                       |  |   | 10,734     |  |   | (1       | )
|Government-sponsored enterprises              |  |                     | 493,055   |                       |                   | (6,945  | )                   |       |                       | 1,754,354  |  |                     | (56,740  | )                     |  |   | 2,247,409  |  |   | (63,685  | )
|Other FHLBanks consolidated obligation bonds |  |                     | 1,961,827 |                       |                   | (38,173 | )                   |       |                       | 3,198,500  |  |                     | (76,444  | )                     |  |   | 5,160,327  |  |   | (114,617 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Subtotal                                      |  |                     | 2,565,158 |                       |                   | (45,443 | )                   |       |                       | 4,952,854  |  |                     | (133,184 | )                     |  |   | 7,518,012  |  |   | (178,627 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Mortgage-Backed Securities                    |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Government-sponsored enterprises              |  |                     | 648,813   |                       |                   | (15,105 | )                   |       |                       | 1,315,936  |  |                     | (64,654  | )                     |  |   | 1,964,749  |  |   | (79,759  | )
|Other                                         |  |                     | 1,734,418 |                       |                   | (18,739 | )                   |       |                       | 1,677,707  |  |                     | (52,238  | )                     |  |   | 3,412,125  |  |   | (70,977  | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Subtotal                                      |  |                     | 2,383,231 |                       |                   | (33,844 | )                   |       |                       | 2,993,643  |  |                     | (116,892 | )                     |  |   | 5,376,874  |  |   | (150,736 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  
|Total                                         |  | $                   | 4,948,389 |                       | $                 | (79,287 | )                   |       | $                     | 7,946,497  |  | $                   | (250,076 | )                     |  | $ | 12,894,886 |  | $ | (329,363 | )
|                                              |  |                     |           |                       |                   |         |                     |       |                       |            |  |                     |          |                       |  |   |            |  |   |          |  

The gross unrealized losses on the held-to-maturity portfolio as of September 30, 2006 were
related to declining market values related to increases in market interest rates. As of September 30, 2006, 148 of our investment positions had gross unrealized losses totaling $267.2 million, with the total estimated fair value of these
positions being approximately 97.6% of their carrying value. Of these 148 positions, 131 positions had gross unrealized losses for at least 12 months or more.



9



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##### Table of Contents

The gross unrealized losses on the held-to-maturity portfolio as of December 31, 2005 were related
to declining market values related to increases in market interest rates. As of December 31, 2005, 159 of our investment positions had gross unrealized losses totaling $329.4 million, with the total estimated fair value of these positions
being approximately 97.5% of their carrying value. Of these 159 positions, 93 positions had gross unrealized losses for at least 12 months or more.

We reviewed our investment security holdings as of September 30, 2006 and December 31, 2005, and have determined that all unrealized losses reflected above were temporary, based in part on the
creditworthiness of the issuers and the underlying collateral. Furthermore, we have both the ability and the intent to hold such securities until we recover the unrealized losses in fair value.

 Interest-Rate Payment Terms  The following table summarizes the interest-rate payment terms for our investment in held-to-maturity
securities as of September 30, 2006 and December 31, 2005.



|                                                                                                     |  |                          |            |                       |   |           
|---------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | --------------------- | - | ----------
|Interest-Rate Payment Terms                                                                          |  | As of September 30, 2006 |            | As ofDecember 31,2005
|(in thousands)                                                                                       |  |                          |            |                      
|Amortized Cost of Held-to-Maturity Securities:                                                       |  |                          |            |                       |   |           
|Investments (excluding Other FHLBanks Consolidated Obligation Bonds and Mortgage-Backed Securities) |  |                          |            |                       |   |           
|Fixed-rate                                                                                           |  | $                        | 2,776,297  |                       | $ | 2,821,150 
|Variable-rate                                                                                        |  |                          | 80,169     |                       |   | 310,176   
|                                                                                                     |  |                          |            |                       |   |           
|Subtotal                                                                                             |  |                          | 2,856,466  |                       |   | 3,131,326 
|                                                                                                     |  |                          |            |                       |   |           
|Other FHLBanks Consolidated Obligation Bonds                                                        |  |                          |            |                       |   |           
|Fixed-rate                                                                                           |  |                          | 4,274,955  |                       |   | 5,274,944 
|Mortgage-Backed Securities                                                                           |  |                          |            |                       |   |           
|Pass-through securities:                                                                             |  |                          |            |                       |   |           
|Fixed-rate                                                                                           |  |                          | 114,432    |                       |   | 133,154   
|Variable-rate                                                                                        |  |                          | 7,181      |                       |   | 8,674     
|                                                                                                     |  |                          |            |                       |   |           
|Subtotal                                                                                             |  |                          | 121,613    |                       |   | 141,828   
|Collateralized mortgage obligations:                                                                 |  |                          |            |                       |   |           
|Fixed-rate                                                                                           |  |                          | 3,545,360  |                       |   | 4,041,759 
|Variable-rate                                                                                        |  |                          | 2,949,314  |                       |   | 2,287,737 
|                                                                                                     |  |                          |            |                       |   |           
|Subtotal                                                                                             |  |                          | 6,494,674  |                       |   | 6,329,496 
|                                                                                                     |  |                          |            |                       |   |           
|Total                                                                                                |  | $                        | 13,747,708 |                       | $ | 14,877,594
|                                                                                                     |  |                          |            |                       |   |           

 Losses on the Sale of Held-to-Maturity Securities  We recorded net realized
losses of $6.4 million and $1.2 million on sales of held-to-maturity securities during the nine months ended September 30, 2006 and the year ended December 31, 2005. The proceeds received of $993.6 million and $248.8 million on the sales
of held-to-maturity securities in the first nine months of 2006 and in 2005 were for securities that were within three months of maturity or had returned at least 85% of the principal outstanding from the date of acquisition.



10



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##### Table of Contents

Note 3. Advances

 Redemption Terms We had advances outstanding, including Affordable Housing Program (AHP) advances, at interest rates ranging from 1.78% to 8.62% as of September 30, 2006 and 1.60% to
8.62% as of December 31, 2005. As of September 30, 2006 and December 31, 2005, AHP-advance interest rates ranged from 2.80% to 5.99%.

The following table summarizes the amount and weighted average interest rate of our advances by term to maturity.



|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     
|---------------------------------------- |  | ------------------------ | ---------- | ----------------------- | ----------------------------- | ---- | ------ | - | ---------- | ----------------------------- |  | ----
|                                         |  | As of September 30, 2006 |            | As of December 31, 2005
|Term to Maturity                         |  | Amount                   |            |                         | WeightedAverageInterestRate % |      | Amount |   |            | WeightedAverageInterestRate %
|(dollars in thousands)                   |  |                          |            |                         |                               |      |        |   |            |                              
|Due in one year or less                  |  | $                        | 15,702,565 |                         |                               | 5.21 |        | $ | 11,259,608 |                               |  | 4.21
|Due after one year through two years     |  |                          | 5,437,771  |                         |                               | 5.21 |        |   | 1,508,481  |                               |  | 3.93
|Due after two years through three years  |  |                          | 1,778,970  |                         |                               | 4.92 |        |   | 3,868,399  |                               |  | 4.40
|Due after three years through four years |  |                          | 890,051    |                         |                               | 4.84 |        |   | 1,069,882  |                               |  | 4.12
|Due after four years through five years  |  |                          | 976,101    |                         |                               | 4.97 |        |   | 889,719    |                               |  | 4.93
|Thereafter                               |  |                          | 2,398,160  |                         |                               | 4.64 |        |   | 2,858,708  |                               |  | 4.59
|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     
|Total par value                          |  |                          | 27,183,618 |                         |                               | 5.12 |        |   | 21,454,797 |                               |  | 4.30
|Overdrawn demand deposit accounts        |  |                          | 454        |                         |                               |      |        |   | 275        |                               |  |     
|Discounts on advances                    |  |                          | (7,248     | )                       |                               |      |        |   | (8,526     | )                             |  |     
|Commitment fees                          |  |                          | (1,027     | )                       |                               |      |        |   | (1,027     | )                             |  |     
|Discount on AHP advances                 |  |                          | (302       | )                       |                               |      |        |   | (352       | )                             |  |     
|Derivative hedging adjustments           |  |                          | (19,060    | )                       |                               |      |        |   | (9,675     | )                             |  |     
|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     
|Total                                    |  | $                        | 27,156,435 |                         |                               |      |        | $ | 21,435,492 |                               |  |     
|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     

Generally, advances may only be prepaid by the member paying us a prepayment fee that makes us
financially indifferent to the prepayment. Prepayment fees received in connection with the restructure of an existing advance are included in Discounts on advances. We offer callable advances to members, which the member may prepay on
certain call dates without incurring prepayment or termination fees. As of September 30, 2006 and December 31, 2005, we had no callable advances outstanding. We also make putable advances in which we have a right to terminate the advance
at our discretion. We had putable advances outstanding of $3.2 billion and $3.3 billion as of September 30, 2006 and December 31, 2005.

 Security Terms We lend to financial institutions involved in housing finance within our district according to federal statutes, including the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act). The FHLBank Act
requires us to obtain sufficient collateral on advances to protect against losses and to accept only certain U.S. government or government agency securities, residential mortgage loans, cash or deposits in the Seattle Bank, and other eligible real
estate-related assets as collateral on such advances. However, community financial institutions, or CFIs, are subject to expanded statutory collateral provisions dealing with small business or agricultural loans. As of September 30, 2006 and
December 31, 2005, we had rights to collateral with an estimated fair value greater than outstanding advances. Based on a risk analysis of each member, we may: (1) allow a member to retain possession of collateral, other than securities
collateral, assigned to us if the member executes a written security agreement and agrees to hold such collateral for our benefit; or (2) require the member specifically to assign or place physical possession of such collateral with us or our
safekeeping agent.

Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member to the
Seattle Bank priority over the claims or rights of any other party. The exceptions are claims that would be entitled to priority under otherwise applicable law and claims by bona fide purchasers for value or by parties that have perfected security
interests.

 Credit Risk  We have policies and procedures in place to appropriately manage credit risk, including
requirements for physical possession or control of pledged collateral, restrictions on borrowing, specific review of each advance request, verifications of collateral, and continuous monitoring of borrowers. Accordingly, we have not provided any
allowances for losses on advances.



11



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##### Table of Contents

In addition to collateral held under blanket pledge agreements, we physically held collateral with a fair
value of $16.7 billion and $12.3 billion as of September 30, 2006 and December 31, 2005. We had additional collateral with a fair value of $7.9 billion and $6.0 billion specifically segregated and pledged to us by members as of
September 30, 2006 and December 31, 2005.

As of September 30, 2006, we had $21.8 million of outstanding advances to two
borrowers that we classified as substandard. These advances are fully collateralized with high-grade, marketable securities and rights to proceeds from mortgage loan collections. Because the borrowers continue to pay according to contractual
requirements and because of our collateral position, we continue to accrue interest on the advances.

 Concentration Risk
 Our credit risk from advances is concentrated among commercial banks and savings institutions. As of September 30, 2006 and December 31, 2005, we had advances of $15.1 billion and $10.3 billion outstanding to two member
institutions, Washington Mutual Bank, F.S.B. and Bank of America Oregon, N.A., representing 55.6% and 48.0% of total advances outstanding as of those dates. The income from advances to these member institutions totaled $479.7 million and $333.5
million for the nine months ended September 30, 2006 and for the year ended December 31, 2005. We held sufficient collateral to cover the advances to these institutions, and, as a result, we do not expect to incur any credit losses on
these advances. These same two members, Washington Mutual Bank, F.S.B. and Bank of America Oregon, N.A., held more than 10% of our total outstanding Class B stock and mandatorily redeemable Class B stock as of September 30, 2006 and
December 31, 2005. See Note 9 for additional information. No other member institutions held advances in excess of 10% of our total advances outstanding as of September 30, 2006 and December 31, 2005.

 Interest-Rate Payment Terms  The following table summarizes advances by interest-rate payment terms.



|                            |  |                          |            |                       |   |           
|--------------------------- |  | ------------------------ | ---------- | --------------------- | - | ----------
|Interest-Rate Payment Terms |  | As of September 30, 2006 |            | As ofDecember 31,2005
|(in thousands)              |  |                          |            |                      
|Par Value of Advances       |  |                          |            |                       |   |           
|Fixed-rate                  |  | $                        | 17,081,224 |                       | $ | 16,751,372
|Variable-rate               |  |                          | 10,102,394 |                       |   | 4,703,425 
|                            |  |                          |            |                       |   |           
|Total par value             |  | $                        | 27,183,618 |                       | $ | 21,454,797
|                            |  |                          |            |                       |   |           

Note 4. Mortgage Loans Held for Portfolio

In accordance with our business plan, we are exiting from the MPP, which has lowered, and will continue to lower, our overall interest-rate risk profile
and reduced our operating costs, including costs associated with managing risks related to our mortgage loans held for portfolio. We historically purchased our mortgage loans held for portfolio directly from participating members through the MPP.
The mortgage loans held for portfolio represent held-for-investment mortgage loans that our members originated, service, and support with credit enhancements. As of September 30, 2006 and December 31, 2005, 88.8% and 88.5% of our
outstanding mortgage loans held for portfolio had been purchased from one participating member, Washington Mutual Bank, F.S.B. This member owned more than 10% of our total outstanding Class B stock and mandatorily redeemable Class B stock as of
September 30, 2006 and December 31, 2005. For more information, see Note 9.

The following table summarizes information on
mortgage loans held for portfolio.



|                                                  |  |                        |           |   |                       |   |           |  
|------------------------------------------------- |  | ---------------------- | --------- | - | --------------------- | - | --------- | -
|Mortgage Loans Held for Portfolio                 |  | As ofSeptember 30,2006 |           |   | As ofDecember 31,2005 |  
|(in thousands)                                    |  |                        |           |   |                       |  
|Fixed, medium-term*, single-family mortgage loans |  | $                      | 1,081,888 |   |                       | $ | 1,222,163 |  
|Fixed, long-term, single-family mortgage loans    |  |                        | 5,443,174 |   |                       |   | 5,960,379 |  
|                                                  |  |                        |           |   |                       |   |           |  
|Total loan principal                              |  |                        | 6,525,062 |   |                       |   | 7,182,542 |  
|Unamortized premiums                              |  |                        | 75,964    |   |                       |   | 79,147    |  
|Unamortized discounts                             |  |                        | (44,239   | ) |                       |   | (46,082   | )
|                                                  |  |                        |           |   |                       |   |           |  
|Total                                             |  | $                      | 6,556,787 |   |                       | $ | 7,215,607 |  
|                                                  |  |                        |           |   |                       |   |           |  

| | 
| | 

| | * | Medium-term is defined as a term of 15 years or less.
| | - | -----------------------------------------------------



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##### Table of Contents

The principal balance of mortgage loans held for portfolio as of September 30, 2006 and
December 31, 2005 was comprised of government-insured mortgage loans totaling $309.2 million and $383.4 million and conventional mortgage loans totaling $6.2 billion and $6.8 billion. See Note 8 for the estimated fair value of the mortgage
loans held for portfolio as of September 30, 2006 and December 31, 2005.

In connection with the MPP, we required a member to
fund a lender risk account (LRA), either up front as a portion of the purchase proceeds or over time through setting aside a portion of the monthly payment collected. The LRA amount funded by the member is the greater of the expected losses, based
on an evaluation of the portfolio or a representative sample of the portfolio, or the minimum amount required by the supplemental mortgage insurance (SMI) provider in order to provide SMI. The LRA funds are used to offset any losses that may occur,
with excess funds distributed to the member in accordance with a step-down schedule that is stipulated in each master commitment contract. As of September 30, 2006 and December 31, 2005, we held amounts of $19.7 million and $16.5 million
in our LRA. See Note 1 of the 2005 Audited Financials for additional information.

As of September 30, 2006, we had $43.7 million of
mortgage loans delinquent 90 days or more, compared to $67.5 million as of December 31, 2005, and we had no mortgage loans on nonaccrual status as of either of such dates because of the credit enhancements available to us. Mortgage loans are
considered impaired when, based on current information and events, it is probable that we will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement. As of September 30,
2006 and December 31, 2005, we held no impaired mortgage loans. Based on our analysis of the mortgage loan portfolio, we have determined that the credit enhancement provided by the members, including the LRA and SMI, is sufficient to absorb
inherent credit losses and that an allowance for credit loss is unnecessary.

As of September 30, 2006, the Seattle Bank had mortgage
loans totaling $2.0 million in foreclosure. As of September 30, 2006, the Seattle Banks other assets included $225,000 of real estate owned resulting from foreclosure of one mortgage loan held by the Seattle Bank. The real estate, which
is carried at the lower of market, less estimated selling costs, or carrying value, is currently being evaluated for disposal. As of December 31, 2005, the Seattle Bank did not own any real estate properties.

Note 5. Consolidated Obligations

Consolidated
obligations are the joint and several obligations of the FHLBanks and consist of consolidated obligation bonds and discount notes. Consolidated obligation bonds are issued primarily to raise intermediate and long-term funds for the FHLBanks and are
not subject to any statutory or regulatory limits on maturity. Consolidated obligation discount notes are issued primarily to raise short-term funds. These notes sell at less than their face amount and are redeemed at par value when they mature.

 Interest-Rate Payment Terms  The following table summarizes the par value of consolidated obligation bonds and
discount notes outstanding by interest-rate payment terms.



|                                         |  |                          |            |                       |   |           
|---------------------------------------- |  | ------------------------ | ---------- | --------------------- | - | ----------
|Interest-Rate Payment Terms              |  | As of September 30, 2006 |            | As ofDecember 31,2005
|(in thousands)                           |  |                          |            |                      
|Fixed-rate bonds                         |  | $                        | 45,797,835 |                       | $ | 37,786,010
|Simple variable-rate bonds               |  |                          | 1,135,000  |                       |   | 300,000   
|Discount notes                           |  |                          | 2,928,748  |                       |   | 10,646,479
|                                         |  |                          |            |                       |   |           
|Total consolidated obligations par value |  | $                        | 49,861,583 |                       | $ | 48,732,489
|                                         |  |                          |            |                       |   |           



13



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##### Table of Contents

 Redemption Terms  The following table summarizes our participation in consolidated
obligation bonds outstanding by term to maturity.



|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     
|---------------------------------------- |  | ------------------------ | ---------- | ----------------------- | ----------------------------- | ---- | ------ | - | ---------- | ----------------------------- |  | ----
|                                         |  | As of September 30, 2006 |            | As of December 31, 2005
|Term to Maturity                         |  | Amount                   |            |                         | WeightedAverageInterestRate % |      | Amount |   |            | WeightedAverageInterestRate %
|(dollars in thousands)                   |  |                          |            |                         |                               |      |        |   |            |                              
|Due in one year or less                  |  | $                        | 18,410,435 |                         |                               | 4.80 |        | $ | 8,635,775  |                               |  | 3.44
|Due after one year through two years     |  |                          | 9,025,150  |                         |                               | 4.33 |        |   | 7,957,230  |                               |  | 4.21
|Due after two years through three years  |  |                          | 6,149,875  |                         |                               | 4.56 |        |   | 6,527,550  |                               |  | 3.94
|Due after three years through four years |  |                          | 2,578,445  |                         |                               | 4.69 |        |   | 3,260,500  |                               |  | 4.64
|Due after four years through five years  |  |                          | 1,483,575  |                         |                               | 5.05 |        |   | 1,963,300  |                               |  | 4.55
|Thereafter                               |  |                          | 9,285,355  |                         |                               | 5.36 |        |   | 9,741,655  |                               |  | 5.33
|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     
|Total par value                          |  | $                        | 46,932,835 |                         |                               | 4.79 |        | $ | 38,086,010 |                               |  | 4.33
|Premiums                                 |  |                          | 31,141     |                         |                               |      |        |   | 45,890     |                               |  |     
|Discounts                                |  |                          | (91,250    | )                       |                               |      |        |   | (70,100    | )                             |  |     
|Derivative hedging adjustments           |  |                          | (138,860   | )                       |                               |      |        |   | (180,243   | )                             |  |     
|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     
|Total                                    |  | $                        | 46,733,866 |                         |                               |      |        | $ | 37,881,557 |                               |  |     
|                                         |  |                          |            |                         |                               |      |        |   |            |                               |  |     

The amounts in the table above include consolidated obligation bonds obtained through transfers of
$1.3 billion par value from the FHLBank of Chicago and $50.0 million par value from the FHLBank of Pittsburgh, which transfers included $32.1 million of associated bond discount as of September 30, 2006 and December 31, 2005.

Consolidated obligation bonds outstanding as of September 30, 2006 and December 31, 2005, include callable bonds, which we may prepay on
certain call dates without incurring prepayment or termination fees, totaling $24.3 billion and $19.2 billion. We continue to classify our debt as callable after the last call date has passed.

The following table summarizes the par value of consolidated obligation bonds outstanding by callable and putable terms.



|                              |  |                         |            |                       |   |           
|----------------------------- |  | ----------------------- | ---------- | --------------------- | - | ----------
|Consolidated Obligation Bonds |  | As of September 30,2006 |            | As ofDecember 31,2005
|(in thousands)                |  |                         |            |                      
|Non-callable or non-putable   |  | $                       | 22,240,945 |                       | $ | 18,473,880
|Callable                      |  |                         | 24,287,790 |                       |   | 19,208,030
|Putable                       |  |                         | 404,100    |                       |   | 404,100   
|                              |  |                         |            |                       |   |           
|Total                         |  | $                       | 46,932,835 |                       | $ | 38,086,010
|                              |  |                         |            |                       |   |           

The following table summarizes the par value of consolidated obligation bonds outstanding by term
to maturity or next call date.



|                                         |  |                         |            |                       |   |           
|---------------------------------------- |  | ----------------------- | ---------- | --------------------- | - | ----------
|Term to Maturity or Next Call Date       |  | As of September 30,2006 |            | As ofDecember 31,2005
|(in thousands)                           |  |                         |            |                      
|Due in one year or less                  |  | $                       | 33,583,600 |                       | $ | 22,854,080
|Due after one year through two years     |  |                         | 3,913,500  |                       |   | 4,721,130 
|Due after two years through three years  |  |                         | 3,298,875  |                       |   | 3,650,000 
|Due after three years through four years |  |                         | 1,322,445  |                       |   | 1,728,500 
|Due after four years through five years  |  |                         | 498,575,   |                       |   | 648,300   
|Thereafter                               |  |                         | 4,315,840  |                       |   | 4,484,000 
|                                         |  |                         |            |                       |   |           
|Total par value                          |  | $                       | 46,932,835 |                       | $ | 38,086,010
|                                         |  |                         |            |                       |   |           



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##### Table of Contents

Note 6. Capital

 Capital Requirements  We are subject to three regulatory capital requirements.

First,
we must maintain at all times permanent capital in an amount at least equal to the sum of our credit-risk capital requirement, market-risk capital requirement, and operations-risk capital requirement, calculated in accordance with federal law and
regulations. Only permanent capital, which is Class B stock and retained earnings, satisfies this risk-based capital requirement. The Finance Board has the authority to require us to maintain a greater amount of permanent capital than is required by
our risk-based capital requirement, but has not done so.

Second, we are required to maintain at least a four percent capital-to-assets
ratio at all times. However, as described below, we are subject to a higher requirement. For purposes of the capital-to-assets ratio, capital is defined as permanent capital plus nonpermanent capital, divided by total assets.

Third, we are required to maintain at least a five percent leverage ratio at all times. The leverage ratio is defined as the sum of permanent capital
weighted by a 1.5 multiplier plus nonpermanent capital, divided by total assets.

For regulatory purposes, mandatorily redeemable Class B
stock, discussed further below, is considered permanent capital. The following table shows our regulatory capital requirements compared to our actual capital position.



|                                |  |                          |           |   |                         |   |           |          |  |   |           |   |  |   |           |  
|------------------------------- |  | ------------------------ | --------- | - | ----------------------- | - | --------- | -------- |  | - | --------- | - |  | - | --------- | -
|                                |  | As of September 30, 2006 |           |   | As of December 31, 2005 |  
|Regulatory Capital Requirements |  | Required                 |           |   | Actual                  |   |           | Required |  |   | Actual    |  
|(dollars in thousands)          |  |                          |           |   |                         |   |           |          |  |   |           |  
|Risk-based capital              |  | $                        | 361,582   |   |                         | $ | 2,294,054 |          |  | $ | 461,462   |   |  | $ | 2,267,552 |  
|Total capital-to-assets ratio   |  |                          | 4.00      | % |                         |   | 4.29      | %        |  |   | 4.00      | % |  |   | 4.32      | %
|Total regulatory capital        |  | $                        | 2,273,269 |   |                         | $ | 2,294,054 |          |  | $ | 2,101,663 |   |  | $ | 2,267,552 |  
|Leverage ratio                  |  |                          | 5.00      | % |                         |   | 6.43      | %        |  |   | 5.00      | % |  |   | 6.47      | %
|Leverage capital                |  | $                        | 2,674,434 |   |                         | $ | 3,441,081 |          |  | $ | 2,627,079 |   |  | $ | 3,401,328 |  

 Supervisory Capital Requirements  Under our business plan, which was submitted
to the Federal Housing Finance Board (Finance Board) in April 2005, and accepted in May 2005 in accordance with the written agreement dated December 10, 2004 between the Seattle Bank and the Finance Board, we must maintain a minimum regulatory
capital-to-assets ratio of 4.25%. We were in compliance with the applicable regulatory and supervisory capital requirements at all times during the first nine months of 2006 and during 2005. From time to time, adherence to our minimum
capital-to-assets ratio may constrain our capacity to make advances to members because advances may increase our total assets without increasing our permanent capital. In June 2005, the Board of Directors authorized the use of membership stock to
satisfy the members advance stock purchase requirement after all excess Class B(1) and Class B(2) stock has been used to allow our members to access more advances funding. This authorization allows for the increase of our total assets through
the funding of additional advances without increasing our permanent capital, as members can support advances using their already outstanding membership stock instead of purchasing additional capital stock to support the advances. See Note 11 with
regard to amendments to our capital plan that will affect classification of our Class B stock and excess stock.

 Dividends
 Generally, under our capital plan, our Board of Directors can declare and pay dividends, in either cash or capital stock, only from retained earnings or current net earnings. Dividends on Class B(1) stock will be in the amount and form as
may be declared by the Board of Directors, except that dividends may not exceed the sum of: (1) our net earnings for that quarter; plus (2) net earnings previously retained by us; less (3) the amount of any dividends that the Board of
Directors declares on Class B(2) stock that quarter.

To meet Finance Board conditions for the acceptance of our business plan, our Board
of Directors adopted a policy on May 18, 2005, suspending indefinitely the declaration or payment of any dividends and providing that any future dividends declaration or payment generally may be made only after prior approval of the Director of
the Office of Supervision (OS Director) of the Finance Board. This policy will be in effect until formally revoked by our Board of Directors, following approval by the OS Director.

See Note 11 regarding amendments to our capital plan that could affect payment of dividends on our stock. In addition, in connection with the approval of
the amendments to our capital plan, our Board of Directors resolved that any dividends on Class A stock would be payable only in cash.

 Mandatorily Redeemable Class B Stock  As of September 30, 2006 and December 31, 2005, we had $69.2 million and $66.3 million in Class B stock subject to mandatory redemption with 16 and 11 members and former
members. These amounts have been classified as mandatorily redeemable Class B stock in the Statements of Condition.



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##### Table of Contents

The following table summarizes our activity relating to mandatorily redeemable Class B stock.



|                                                                        |  |                                            |        |                                   |   |         |  
|----------------------------------------------------------------------- |  | ------------------------------------------ | ------ | --------------------------------- | - | ------- | -
|Mandatorily Redeemable Class B Stock                                    |  | For the Nine MonthsEnded September 30,2006 |        | For the YearEndedDecember 31,2005 |  
|(in thousands)                                                          |  |                                            |        |                                   |  
|Balance, beginning of period                                            |  | $                                          | 66,259 |                                   | $ | 64,139  |  
|Capital stock subject to mandatory redemption reclassified to liability |  |                                            |        |                                   |   |         |  
|Membership withdrawals                                                  |  |                                            | 2,963  |                                   |   | 2,387   |  
|Other redemptions                                                       |  |                                            |        |                                   |   | 65,100  |  
|Capital stock subject to mandatory redemption reclassified to equity    |  |                                            |        |                                   |   | (65,515 | )
|Imputed interest and dividends                                          |  |                                            |        |                                   |   | 148     |  
|                                                                        |  |                                            |        |                                   |   |         |  
|Balance, end of period                                                  |  | $                                          | 69,222 |                                   | $ | 66,259  |  
|                                                                        |  |                                            |        |                                   |   |         |  

 Capital Concentration  Two members, Washington Mutual Bank, F.S.B. and Bank of
America Oregon, N.A., held 38.1% and 38.2% of our total outstanding Class B stock, including mandatorily redeemable Class B stock, as of September 30, 2006 and December 31, 2005. See Note 9 for additional information. No other member held
more than 10% of our outstanding Class B stock and mandatorily redeemable Class B stock as of these dates.

 Amendments to Capital
Plan On October 11, 2006, the Finance Board approved amendments to our capital plan that are intended to encourage new advance activity and simplify the terms and provisions of our capital plan. The Seattle Bank currently expects
these amendments to take effect on or around December 1, 2006. Under the amended capital plan, we will create a new Class A stock with a six-month redemption period, instead of the five-year redemption period for the Class B stock, and we
will permit members to satisfy their advance stock purchase requirement by relying on Seattle Bank capital that is associated with total outstanding excess stock, which we refer to as the excess stock pool. Use of the excess stock pool will be
subject to certain restrictions and limitations. See Note 11, Subsequent Events, for additional information.

 Excess
Stock As of September 30, 2006 and December 31, 2005, our members held $778.1 million and $563.2 million in capital stock in excess of the minimum amount required to be held in accordance with our capital plan.



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Note 7. Derivatives and Hedging Activities

In accordance with Finance Board regulation, we enter into derivatives to reduce the interest-rate risk exposures inherent in otherwise unhedged assets
and funding positions and achieve our risk management objectives. In addition, we formerly entered into derivatives as an intermediary between our members and counterparties. We use derivatives when they are considered the most cost-effective
alternative to achieve our financial and risk management objectives. Accordingly, we may enter into derivatives that do not necessarily qualify for hedge accounting (i.e., economic hedges). As a result, we recognize the realized and unrealized
change in fair value of these derivatives in net gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the asset, liability, or firm commitment.

For the nine months ended September 30, 2006 and 2005, we recorded a $2.4 million net gain and a $32.8 million net loss on derivatives and hedging
activities in other income. We had no cash flow hedges, which are designated when hedging the exposure to variable cash flows of a forecasted transaction, during the nine months ended September 30, 2006 and 2005.

The following table summarizes the outstanding notional amounts and estimated fair values of the derivatives outstanding as of September 30, 2006
and December 31, 2005.



|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|----------------------- |  | ------------------------ | ---------- | ------------------- | ----------------------- | -------- | -------- |  | ------------------- | ---------- |  | - | -------- | -
|                        |  | As of September 30, 2006 |            |                     | As of December 31, 2005 |         
|Estimated Fair Value    |  | Notional                 |            | Estimated FairValue |                         |          | Notional |  | Estimated FairValue |           
|(in thousands)          |  |                          |            |                     |                         |          |          |  |                     |           
|Interest-rate swaps     |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Fair value              |  | $                        | 29,240,816 |                     | $                       | (125,335 | )        |  | $                   | 17,359,659 |  | $ | (175,885 | )
|Economic                |  |                          | 1,234,950  |                     |                         | (71      | )        |  |                     | 773,300    |  |   | 53       |  
|Interest-rate cap/floor |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Fair value              |  |                          | 140,000    |                     |                         | 1,078    |          |  |                     | 30,000     |  |   | 859      |  
|Economic                |  |                          | 300,000    |                     |                         | 377      |          |  |                     | 300,000    |  |   | 782      |  
|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Total                   |  | $                        | 31,915,766 |                     | $                       | (123,951 | )        |  | $                   | 18,462,959 |  | $ | (174,191 | )
|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Accrued interest        |  |                          |            |                     |                         | 159,352  |          |  |                     |            |  |   | 53,631   |  
|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Net derivative balances |  |                          |            |                     | $                       | 35,401   |          |  |                     |            |  | $ | (120,560 | )
|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Derivative balances     |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Assets                  |  |                          |            |                     | $                       | 89,879   |          |  |                     |            |  | $ | 13,205   |  
|Liabilities             |  |                          |            |                     |                         | (54,478  | )        |  |                     |            |  |   | (133,765 | )
|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  
|Net derivative balances |  |                          |            |                     | $                       | 35,401   |          |  |                     |            |  | $ | (120,560 | )
|                        |  |                          |            |                     |                         |          |          |  |                     |            |  |   |          |  

The fair values of embedded derivatives presented on a combined basis with the related
consolidated obligation bonds consisted of $123,991 in unrealized net gain related to $585.0 million in consolidated obligation bonds outstanding as of September 30, 2006. There were no embedded derivatives as of December 31, 2005.

Note 8. Estimated Fair Value

We have
determined the fair value estimates using available market information and our best judgment of appropriate valuation methods. These estimates are based on information available to us as of September 30, 2006 and December 31, 2005.
Although we use our best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a
portion of our 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 below do not represent an estimate of the overall market value of the Seattle Bank as a going concern, which would
take into account other factors including future business opportunities.



17



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##### Table of Contents

 Fair Value Summary Table  The following tables summarize the carrying value and
estimated fair values of our financial instruments as of September 30, 2006 and December 31, 2005.



|                                                   |  |               |             |   |                              |   |          |                     |  |   |             |  
|-------------------------------------------------- |  | ------------- | ----------- | - | ---------------------------- | - | -------- | ------------------- |  | - | ----------- | -
|As of September 30, 2006                           |  | CarryingValue |             |   | Net UnrealizedGains (Losses) |   |          | Estimated FairValue | 
|(in thousands)                                     |  |               |             |   |                              |   |          |                     | 
|Assets                                             |  |               |             |   |                              |   |          |                     |  |   |             |  
|Cash and due from banks                            |  | $             | 1,526       |   |                              | $ |          |                     |  | $ | 1,526       |  
|Interest-bearing deposits                          |  |               | 780,000     |   |                              |   | (106     | )                   |  |   | 779,894     |  
|Federal funds sold                                 |  |               | 4,894,000   |   |                              |   | (231     | )                   |  |   | 4,893,769   |  
|Held-to-maturity securities                        |  |               | 13,747,708  |   |                              |   | (236,474 | )                   |  |   | 13,511,234  |  
|Advances                                           |  |               | 27,156,435  |   |                              |   | 46,206   |                     |  |   | 27,202,641  |  
|Mortgage loans held for portfolio                  |  |               | 6,556,787   |   |                              |   | (223,457 | )                   |  |   | 6,333,330   |  
|Accrued interest receivable                        |  |               | 232,812     |   |                              |   |          |                     |  |   | 232,812     |  
|Derivative assets                                  |  |               | 89,879      |   |                              |   |          |                     |  |   | 89,879      |  
|Other assets                                       |  |               | 18,554      |   |                              |   |          |                     |  |   | 18,554      |  
|Liabilities                                        |  |               |             |   |                              |   |          |                     |  |   |             |  
|Deposits                                           |  |               | (875,840    | ) |                              |   | 12       |                     |  |   | (875,828    | )
|Securities sold under agreements to repurchase     |  |               |             |   |                              |   |          |                     |  |   |             |  
|Consolidated obligations:                          |  |               |             |   |                              |   |          |                     |  |   |             |  
|Discount notes                                     |  |               | (2,923,265  | ) |                              |   | 844      |                     |  |   | (2,922,421  | )
|Bonds                                              |  |               | (46,733,866 | ) |                              |   | 93,115   |                     |  |   | (46,640,751 | )
|Mandatorily redeemable Class B stock               |  |               | (69,222     | ) |                              |   |          |                     |  |   | (69,222     | )
|Accrued interest payable                           |  |               | (551,219    | ) |                              |   |          |                     |  |   | (551,219    | )
|Derivative liabilities                             |  |               | (54,478     | ) |                              |   |          |                     |  |   | (54,478     | )
|Other liabilities                                  |  |               | (31,677     | ) |                              |   |          |                     |  |   | (31,677     | )
|Other                                              |  |               |             |   |                              |   |          |                     |  |   |             |  
|Commitments to extend credit for advances          |  |               | (1,027      | ) |                              |   |          |                     |  |   | (1,027      | )
|Commitments to issue consolidated obligation bonds |  |               |             |   |                              |   | 713      |                     |  |   | 713         |  
|                                                   |  |               |            
|As of December 31, 2005                            |  | CarryingValue |             |   | Net UnrealizedGains (Losses) |   |          | Estimated FairValue | 
|(in thousands)                                     |  |               |             |   |                              |   |          |                     | 
|Assets                                             |  |               |             |   |                              |   |          |                     |  |   |             |  
|Cash and due from banks                            |  | $             | 4,124       |   |                              | $ |          |                     |  | $ | 4,124       |  
|Interest-bearing deposits                          |  |               | 1,430,367   |   |                              |   | 15       |                     |  |   | 1,430,382   |  
|Securities purchased under agreement to resell     |  |               | 850,000     |   |                              |   |          |                     |  |   | 850,000     |  
|Federal funds sold                                 |  |               | 6,428,000   |   |                              |   | (45      | )                   |  |   | 6,427,955   |  
|Held-to-maturity securities                        |  |               | 14,877,594  |   |                              |   | (292,895 | )                   |  |   | 14,584,699  |  
|Advances                                           |  |               | 21,435,492  |   |                              |   | 28,051   |                     |  |   | 21,463,543  |  
|Mortgage loans held for portfolio                  |  |               | 7,215,607   |   |                              |   | (190,257 | )                   |  |   | 7,025,350   |  
|Accrued interest receivable                        |  |               | 250,943     |   |                              |   |          |                     |  |   | 250,943     |  
|Derivative assets                                  |  |               | 13,205      |   |                              |   |          |                     |  |   | 13,205      |  
|Liabilities                                        |  |               |             |   |                              |   |          |                     |  |   |             |  
|Deposits                                           |  |               | (800,820    | ) |                              |   | 21       |                     |  |   | (800,799    | )
|Securities sold under agreements to repurchase     |  |               | (393,500    | ) |                              |   |          |                     |  |   | (393,500    | )
|Consolidated obligations:                          |  |               |             |   |                              |   |          |                     |  |   |             |  
|Discount notes                                     |  |               | (10,620,951 | ) |                              |   | 2,843    |                     |  |   | (10,618,108 | )
|Bonds                                              |  |               | (37,881,557 | ) |                              |   | 89,187   |                     |  |   | (37,792,370 | )
|Mandatorily redeemable Class B stock               |  |               | (66,259     | ) |                              |   |          |                     |  |   | (66,259     | )
|Accrued interest payable                           |  |               | (377,236    | ) |                              |   |          |                     |  |   | (377,236    | )
|Derivative liabilities                             |  |               | (133,765    | ) |                              |   |          |                     |  |   | (133,765    | )
|Other                                              |  |               |             |   |                              |   |          |                     |  |   |             |  
|Commitments to extend credit for advances          |  |               | (1,027      | ) |                              |   |          |                     |  |   | (1,027      | )
|Commitments to issue consolidated obligation bonds |  |               |             |   |                              |   | 77       |                     |  |   | 77          |  



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##### Table of Contents

Note 9. Transactions with Related Parties and other FHLBanks

 Transactions with Members  We are a cooperative whose members own our capital stock and may receive dividends on their investments in
our stock. In addition, certain former members that have outstanding transactions with us, such as advances, are also required to maintain their investment in our capital stock until the transactions mature or are paid off and the capital stock is
redeemed. Virtually all our advances are issued to members, and all mortgage loans held for portfolio were purchased from members. We also maintain demand deposit accounts for members, primarily to facilitate settlement activities that are directly
related to advances and mortgage loan purchases. Such transactions with members are entered into in the normal course of business. In instances where a member also has an officer or director who is a director of the Seattle Bank, transactions with
such a member are subject to the same eligibility and credit criteria, as well as the same terms and conditions, as other similar transactions, although the Board of Directors has imposed certain restrictions on the repurchase of stock held by
members who have officers or directors on our board. For purposes of these financial statements, we define related parties as those members with Class B stock outstanding in excess of 10% of our total outstanding Class B stock and mandatorily
redeemable Class B stock.

In addition, we have investments in federal funds sold, interest-bearing deposits, and mortgage-backed
securities with members or their affiliates. All investments are transacted at market prices and mortgage-backed securities are purchased through securities brokers or dealers. In addition, in the past we entered into offsetting interest-rate
exchange agreements, acting as an intermediary between offsetting derivative transactions with members and other counterparties, although we discontinued offering this service as a standard product in mid-2004. These transactions were also executed
at market rates.

For member transactions related to:



| |  |  | concentration associated with advances, see Note 3;
| | - |  | ---------------------------------------------------



| |  |  | concentration associated with mortgage loans held for portfolio, see Note 4;
| | - |  | ----------------------------------------------------------------------------



| |  |  | concentration associated with capital stock, see Note 6; and
| | - |  | ------------------------------------------------------------



| |  |  | concentration of investments in held-to-maturity securities purchased from members or affiliates of certain members, see Note 2.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

The following tables set forth information with respect to the Seattle Banks outstanding transactions with members and their affiliates and former
members and their affiliates as of September 30, 2006 and December 31, 2005.



|                                     |  |                         |            |                        |   |           
|------------------------------------ |  | ----------------------- | ---------- | ---------------------- | - | ----------
|                                     |  | As of September 30,2006 |            | As of December 31,2005
|(in thousands)                       |  |                         |            |                       
|Assets                               |  |                         |            |                        |   |           
|Cash                                 |  | $                       | 282        |                        | $ | 511       
|Interest-bearing deposits            |  |                         | 280,000    |                        |   | 300,000   
|Federal funds sold                   |  |                         | 2,000      |                        |   | 580,000   
|Held-to-maturity securities          |  |                         | 1,775,728  |                        |   | 1,665,719 
|Advances*                            |  |                         | 27,099,813 |                        |   | 21,377,438
|Mortgage loans held for portfolio    |  |                         | 6,551,025  |                        |   | 7,215,404 
|Accrued interest receivable          |  |                         | 181,003    |                        |   | 131,614   
|Derivative assets                    |  |                         | 26,556     |                        |   | 3,709     
|                                     |  |                         |            |                        |   |           
|Total assets                         |  | $                       | 35,916,407 |                        | $ | 31,274,395
|                                     |  |                         |            |                        |   |           
|Liabilities                          |  |                         |            |                        |   |           
|Deposits                             |  | $                       | 854,359    |                        | $ | 624,924   
|Mandatorily redeemable Class B stock |  |                         | 59,804     |                        |   | 58,779    
|Derivative liabilities               |  |                         | 5,473      |                        |   | 9,260     
|                                     |  |                         |            |                        |   |           
|Total liabilities                    |  | $                       | 919,636    |                        | $ | 692,963   
|                                     |  |                         |            |                        |   |           
|Other                                |  |                         |            |                        |   |           
|Notional amount of derivatives       |  | $                       | 6,737,494  |                        | $ | 2,998,857 
|Letters of credit                    |  | $                       | 138,362    |                        | $ | 109,934   

| | 
| | 

| | * | Includes the effect of associated derivatives with members or their affiliates.
| | - | -------------------------------------------------------------------------------



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|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|----------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | ------- | -
|                                                      |  | For the Three Months EndedSeptember 30, |         |   | For the Nine Months EndedSeptember 30, |  
|                                                      |  | 2006                                    |         |   | 2005                                   |   |         | 2006 |  |   | 2005      |  
|(in thousands)                                        |  |                                         |         |   |                                        |   |         |      |  |   |           |  
|Interest Income                                       |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Advances*                                             |  | $                                       | 387,397 |   |                                        | $ | 180,845 |      |  | $ | 932,990   |   |  | $ | 495,364 |  
|Prepayment fees on advances                           |  |                                         | 89      |   |                                        |   | 4       |      |  |   | 511       |   |  |   | 2,132   |  
|Interest-bearing deposits                             |  |                                         | 2,985   |   |                                        |   | 860     |      |  |   | 7,134     |   |  |   | 860     |  
|Federal funds sold                                    |  |                                         | 1,200   |   |                                        |   | 781     |      |  |   | 11,373    |   |  |   | 1,092   |  
|Held-to-maturity securities                           |  |                                         | 22,821  |   |                                        |   | 18,527  |      |  |   | 68,029    |   |  |   | 55,724  |  
|Mortgage loans held for portfolio                     |  |                                         | 85,180  |   |                                        |   | 102,173 |      |  |   | 270,349   |   |  |   | 350,997 |  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Total interest income                                 |  |                                         | 499,672 |   |                                        |   | 303,190 |      |  |   | 1,290,386 |   |  |   | 906,169 |  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Interest Expense                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Deposits                                              |  |                                         | 8,433   |   |                                        |   | 6,982   |      |  |   | 23,353    |   |  |   | 16,596  |  
|Consolidated obligations*                             |  |                                         | 5,112   |   |                                        |   | 1,375   |      |  |   | 8,522     |   |  |   | 987     |  
|Mandatorily redeemable Class B stock                  |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   | (3      | )
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Total interest expense                                |  |                                         | 13,545  |   |                                        |   | 8,357   |      |  |   | 31,875    |   |  |   | 17,580  |  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Net Interest Income                                   |  | $                                       | 486,127 |   |                                        | $ | 294,833 |      |  | $ | 1,258,511 |   |  | $ | 888,589 |  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Other Income (Loss)                                   |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Service Fees                                          |  | $                                       | 407     |   |                                        | $ | 567     |      |  | $ | 1,290     |   |  | $ | 1,617   |  
|Net gain (loss) on derivatives and hedging activities |  |                                         | 64      |   |                                        |   | (227    | )    |  |   | (573      | ) |  |   | 15,000  |  
|Other (loss) income                                   |  |                                         | (41     | ) |                                        |   | 7,093   |      |  |   | 40        |   |  |   | 7,322   |  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  
|Total other income                                    |  | $                                       | 430     |   |                                        | $ | 7,433   |      |  | $ | 757       |   |  | $ | 23,939  |  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |           |   |  |   |         |  

| | 
| | 

| | * | Includes the effect of associated derivatives with members or their affiliates.
| | - | -------------------------------------------------------------------------------

 Transactions with Certain Members The following tables set forth information at the dates and for the periods indicated with respect to the Seattle Banks transactions with:



| |  |  | members and former members holding more than 10% of the outstanding shares of our capital stock at each respective period end;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | members or former members with a representative serving on our Board of Directors at any time during the respective dates or during the respective periods; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | affiliates of the foregoing members or former members.
| | - |  | ------------------------------------------------------



|                                  |  |                         |            |                       |   |           
|--------------------------------- |  | ----------------------- | ---------- | --------------------- | - | ----------
|                                  |  | As of September 30,2006 |            | As ofDecember 31,2005
|(in thousands)                    |  |                         |            |                      
|Assets                            |  |                         |            |                       |   |           
|Cash                              |  | $                       | 282        |                       | $ | 511       
|Federal funds sold                |  |                         |            |                       |   | 280,000   
|Held-to-maturity securities       |  |                         | 345,066    |                       |   | 514,015   
|Advances*                         |  |                         | 17,347,804 |                       |   | 13,453,796
|Mortgage loans held for portfolio |  |                         | 5,942,028  |                       |   | 6,588,757 
|Accrued interest receivable       |  |                         | 134,358    |                       |   | 93,930    
|Derivative assets                 |  |                         | 10,123     |                       |   | 3,709     
|                                  |  |                         |            |                       |   |           
|Total assets                      |  | $                       | 23,779,661 |                       | $ | 20,934,718
|                                  |  |                         |            |                       |   |           
|Liabilities                       |  |                         |            |                       |   |           
|Deposits                          |  | $                       | 73,437     |                       | $ | 22,700    
|                                  |  |                         |            |                       |   |           
|Total liabilities                 |  | $                       | 73,437     |                       | $ | 22,700    
|                                  |  |                         |            |                       |   |           
|Other                             |  |                         |            |                       |   |           
|Notional amount of derivatives    |  | $                       | 532,900    |                       | $ | 565,900   
|Letters of credit                 |  | $                       | 11,378     |                       | $ | 12,056    

---

|* | Includes the effect of associated derivatives with members or their affiliates.
|- | -------------------------------------------------------------------------------



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##### Table of Contents

|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|----------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------
|                                                      |  | For the Three Months EndedSeptember 30, |         |   | For the Nine Months EndedSeptember 30,
|                                                      |  | 2006                                    |         |   | 2005                                   |   |         | 2006 |  |   | 2005   
|(in thousands)                                        |  |                                         |         |   |                                        |   |         |      |  |   |        
|Interest Income                                       |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Advances*                                             |  | $                                       | 239,564 |   |                                        | $ | 110,136 |      |  | $ | 587,278 |   |  | $ | 301,895
|Prepayment fees on advances                           |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   | 1,365  
|Federal funds sold                                    |  |                                         | 492     |   |                                        |   | 108     |      |  |   | 7,504   |   |  |   | 323    
|Held-to-maturity securities                           |  |                                         | 4,509   |   |                                        |   | 5,325   |      |  |   | 14,064  |   |  |   | 12,181 
|Mortgage loans held for portfolio                     |  |                                         | 77,428  |   |                                        |   | 91,829  |      |  |   | 245,389 |   |  |   | 309,696
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Total interest income                                 |  |                                         | 321,993 |   |                                        |   | 207,398 |      |  |   | 854,235 |   |  |   | 625,460
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Interest Expense                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Deposits                                              |  |                                         | 516     |   |                                        |   | 318     |      |  |   | 1,285   |   |  |   | 578    
|Consolidated obligations*                             |  |                                         | 71      |   |                                        |   | 280     |      |  |   | 471     |   |  |   | 420    
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Total interest expense                                |  |                                         | 587     |   |                                        |   | 598     |      |  |   | 1,756   |   |  |   | 998    
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Net Interest Income                                   |  | $                                       | 321,406 |   |                                        | $ | 206,800 |      |  | $ | 852,479 |   |  | $ | 624,462
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Other Loss                                            |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Net (loss) gain on derivatives and hedging activities |  | $                                       | (29     | ) |                                        | $ | (23     | )    |  | $ | (71     | ) |  | $ | 1,428  
|Other income (loss)                                   |  |                                         | 35      |   |                                        |   | 7,041   |      |  |   | 19      |   |  |   | 7,107  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        
|Total other income (loss)                             |  | $                                       | 6       |   |                                        | $ | 7,018   |      |  | $ | (52     | ) |  | $ | 8,535  
|                                                      |  |                                         |         |   |                                        |   |         |      |  |   |         |   |  |   |        

| | 
| | 

| | * | Includes the effect of associated derivatives with members or their affiliates.
| | - | -------------------------------------------------------------------------------

 Transactions with Other FHLBanks Our transactions with other FHLBanks are identified on the face of our financial statements. For additional information on our investments in other FHLBanks
consolidated obligation bonds, see Note 2, and for debt transfers from other FHLBanks, see Note 5.

Note 10. Commitments and Contingencies

All FHLBanks have joint and several liability for the consolidated obligations issued on behalf of the FHLBanks, the Finance Board, and
the Office of Finance (collectively, the FHLBank System). Accordingly, one or more of the FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Board. The Finance Board, at its discretion,
may require any FHLBank to make principal or interest payments due on any FHLBanks consolidated obligations, even in the absence of a default of an FHLBank. Although it has never occurred, to the extent that an FHLBank would make a payment on
a consolidated obligation on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the other FHLBank. However, if the Finance Board determines that an FHLBank is unable to satisfy its obligations, then the Finance
Board may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBanks participation in all consolidated obligations outstanding or on any other basis the Finance Board may determine. No
FHLBank has ever defaulted on a consolidated obligation, and the joint and several requirements have never been invoked.

The par amounts
of the FHLBanks outstanding consolidated obligations, including consolidated obligations held by other FHLBanks, were $958.0 billion and $937.5 billion as of September 30, 2006 and December 31, 2005.

The FHLBank Act authorizes the U.S. Treasury, at its discretion, to purchase consolidated obligations of the FHLBanks aggregating not more than $4.0
billion. The Secretary of the U.S. Treasury determines the terms, conditions, and interest rates. There were no such purchases by the U.S. Treasury during the nine months ended September 30, 2006 or in the year ended December 31, 2005.

Commitments that legally bind and unconditionally obligate us for additional advances totaled $57.0 million and $37.8 million, as of
September 30, 2006 and December 31, 2005. Commitments generally are for periods of up to 12 months. Standby letters of credit were approximately $138.4 million and $109.9 million as of September 30, 2006 and December 31, 2005 and
had original terms of one month to 15 years, with a final expiration in 2015. Based on our credit analyses and collateral requirements, we do not consider it necessary to have any provision for credit losses on these commitments.

We have entered into a standby bond purchase agreement with a state housing authority, whereby we agree to purchase and hold the authoritys bonds
until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. The bond purchase agreement expires in May 2008. Total commitments for bond
purchases were $71.7 million as of September 30, 2006, and $75.6 million as of December 31, 2005.



21



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##### Table of Contents

We entered into agreements to issue $2.0 billion and $80 million par value of consolidated obligation
bonds as of September 30, 2006 and December 31, 2005.

As of June 23, 2006, the FHLBanks entered into the Federal Home Loan
Banks P&I Funding and Contingency Plan Agreement, or the Contingency Agreement, effective as of July 20, 2006. The FHLBanks and the Office of Finance entered into the Contingency Agreement in response to the Board of Governors of the
Federal Reserve System revising its Policy Statement on Payments System Risk concerning the disbursement by the Federal Reserve Banks of interest and principal payments on securities issued by government-sponsored enterprises, such as the FHLBanks.
Under the Contingency Agreement, in the event that one or more FHLBanks does not fund its principal and interest payments under a consolidated obligation by deadlines agreed upon by the FHLBanks, the other FHLBanks will be responsible for those
payments as described in the Contingency Agreement.



22



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##### Table of Contents

Note 11. Subsequent Events

On October 11, 2006, the Finance Board approved amendments to our capital plan as proposed by our Board of Directors. The Board of Directors approved the amendments with the expectation that they would
(1) encourage new borrowing by members of the Seattle Bank and (2) simplify the terms and provisions of the capital plan. These amendments will take effect on the conversion date, with the Seattle Bank providing stockholders with at least
five days notice prior to the conversion date. The Seattle Bank currently expects that the conversion date will be on or around December 1, 2006.

The key amendments made to the capital plan to encourage additional advances include:



| |  |  | Excess Stock Pool. The creation of an excess stock pool that allows a member, when receiving advances from the Seattle Bank, to satisfy its advance stock purchase requirement
by relying on Seattle Bank capital that is associated with total outstanding excess stock. Excess stock is the amount of stock held by a member in excess of its total stock purchase requirement, which is the greater of the members membership
stock purchase requirement or the sum of (i) the members advance stock purchase requirement and (ii) the members mortgage purchase plan stock purchase requirement. There are certain limitations relating to the use of the excess
stock pool, including among others, restricting the aggregate use of the excess stock pool to 50.0% of the total amount of all excess stock and the ability of the Board of Directors to suspend the use of the excess stock pool at any time. Other
limitations include: a maturity limit of one year on advances supported by the excess stock pool; a per-member usage limit of 25.0% of the total amount of the excess stock pool; and a maximum dollar threshold whereby a member cannot use the excess
stock pool to support additional advances if, on the date the advance would be received by the member, the members total outstanding advances equal or exceed $11.0 billion. The authority to use the excess stock pool to support additional
advances will terminate on October 1, 2008, unless extended by the Board of Directors following approval by the Finance Board.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Class A Stock. The creation of Class A stock, which would be issued, redeemed, and repurchased only at a par value of $100 per share. If authorized for issuance by
the Board of Directors, Class A stock would only be issued to members to satisfy a members advance stock purchase requirement for (i) a new advance or (ii) renewal of an existing advance initially supported by the excess stock
pool, and only in the case where a member had no excess stock available to support a new advance or to renew an existing advance. Class A stock would be redeemable in cash on six months written notice to the Seattle Bank and could be
repurchased by the Seattle Bank pursuant to the terms of the capital plan. Any dividends on Class A stock (which pursuant to Board resolution could only be paid in cash) would be determined at the discretion of the Board of Directors, subject
to any applicable restrictions, and would not necessarily be paid at the same rate as dividends, if any, on Class B stock. A member could only use Class A stock to meet its member advance stock purchase requirement and could not use it to meet
its other requirements relating to stockholdings.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional significant amendments include:



| |  |  | Increasing the member advance stock purchase requirement for new and renewing advances from 2.50% to 4.00%;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Converting existing Class B(1) and Class B(2) stock to a single Class B stock;
| | - |  | ------------------------------------------------------------------------------



| |  |  | Providing that dividends on Class A and Class B stock shall be set and paid as determined by the Board of Directors, on a pro rata basis as to amount and character with respect
to each class (subject to the Seattle Banks current restrictions on payment of dividends); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Streamlining the formulas for calculating various membership requirements, including a members total stock purchase requirement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

In actions relating to approval of the amendments, the Board of Directors resolved that the Seattle Bank would maintain a 4.00% member advance stock
purchase requirement and not repurchase Class B stock during the period the excess stock pool is in effect and would seek prior written authorization of the Director of the Finance Boards Office of Supervision if the Seattle Bank wishes to
lower that requirement or repurchase Class B stock thereafter.



23



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

This report contains forward-looking statements that are subject to risk
and uncertainty. These statements describe the expectations of the Federal Home Loan Bank of Seattle, or the Seattle Bank, regarding future events and developments, including future operating results, growth in assets, and continued success of our
products. These statements include, without limitation, statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions, and financial performance. The words will, believe, expect,
intend, may, could, should, anticipate, and words of similar nature are intended in part to help identify forward-looking statements.

Future results, events and developments are difficult to predict, and the expectations described in this report, including any forward-looking
statements, are subject to risk and uncertainty that may cause actual results to differ materially from those we currently anticipate. Consequently, there is no assurance that the expected events and developments will occur. See Part II.
Item 1A. Risk Factors for additional information on risks and uncertainties.

Factors that may cause actual results, events and
developments to differ materially from those discussed in this report include, among others, the following:



| |  |  | a significant change in interest rates;
| | - |  | ---------------------------------------



| |  |  | withdrawal of one or more large members or consolidation among our members;
| | - |  | ---------------------------------------------------------------------------



| |  |  | competition from other alternative sources of funding available to our members, including other Federal Home Loan Banks, or FHLBanks;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes in the market prices of our financial instruments, or our failure to effectively hedge these instruments;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in investor demand for consolidated obligations or changes in our ability to participate in the issuance of consolidated obligations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | response from members to, and results of, the implementation of amendments to our capital plan, including amendments regarding the creation of an excess stock pool and authorization
of Class A stock to support new advances;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our members willingness to do business with us as a result of continuing restrictions on the payment of dividends and repurchases of excess stock;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes to or waivers relating to the written agreement we have entered into with the Federal Housing Finance Board, or the Finance Board;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | actions by Finance Board staff, if and when our Board of Directors submits a waiver request for the payment of dividends;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | failure to satisfy hedge accounting criteria under accounting principles generally accepted in the United States, or U.S. GAAP, in hedging our interest-rate risk;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory or legislative changes or actions initiated by the Finance Board or other body, that could cause us to modify our current structure, policies, or business operations (for
example, issuance of a final regulation in the form of the Finance Boards recently proposed regulation relating to excess stock restrictions and retained earnings requirements);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in accounting rules or in the interpretation of existing accounting rules;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | negative changes in our credit agency ratings or ratings applicable to the FHLBanks, the Finance Board, and the Office of Finance, or, collectively, the FHLBank System;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the need to make principal or interest payments on behalf of another FHLBank as a result of the joint and several liability of all FHLBanks for consolidated obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes in local and national economic conditions; and
| | - |  | --------------------------------------------------------------



| |  |  | events such as terrorism, natural disasters, or other catastrophic events could disrupt the financial markets where we obtain funding, our borrowers ability to repay advances,
or the value of the collateral that we hold.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These cautionary statements apply to all related forward-looking statements,
wherever they appear in the report. We do not undertake to update any forward-looking statements that we make in this report or that we may make from time to time.



24



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##### Table of Contents

Overview

The Seattle Bank, a federally chartered corporation and one of 12 FHLBanks, is a cooperative that is owned by member financial institutions located within our district, which includes Alaska, Hawaii, Idaho, Montana, Oregon, Utah,
Washington, and Wyoming, as well as the U.S. territories of American Samoa, Guam, and the Northern Mariana Islands. All federally insured depository institutions and insurance companies engaged in residential housing finance and community financial
institutions located in the Seattle Banks district are eligible to apply for membership. Eligible institutions must purchase specified amounts of capital stock in the Seattle Bank as a condition of membership. Members generally are assigned a
credit line at the time they join, based on our evaluation of their financial condition, and are eligible to receive dividends, if and when payable, on their capital stock holdings. Members are subject to activity-based capital stock purchase
requirements, which may require them to purchase additional stock if the amount of business they do with us increases. All of our outstanding capital stock is owned by our members, except in limited circumstances, for example, for a period following
the acquisition of a member by a nonmember.

Our mission is to provide liquidity, funding, and services to enhance our members
success and the availability of affordable homes and economic development in their communities. We also work with our members and a variety of other entities, including non-profit organizations, to provide affordable housing and community economic
development funds through direct subsidy grants and low- or no-interest loans, to individuals and communities in need. We fund these grants and loans through the Affordable Housing Program, or AHP, and a number of other community investment
programs.

In December 2004, we entered into an agreement with the Finance Board, or the Finance Board agreement, in connection with our
2004 Finance Board examination. The Finance Board agreement required us to develop a three-year business and capital management plan and submit it to the Finance Boards Office of Supervision, and imposes certain other requirements and
limitations. In April 2005, we submitted our three-year business and capital management plan to the Finance Board. In May 2005, the Finance Board accepted our three-year business and capital management plan, subject to our adoption of certain
dividend and stock repurchase restrictions. See  Capital Resources and Liquidity  Capital Resources  Class B Stock for more information. We refer to the three-year business and capital management plan, as updated from
time to time, as the business plan. In accordance with the business plan, our Board of Directors has directed and overseen a number of actions to change the Seattle Banks business focus. These actions include changing our senior management,
refocusing our strategic direction on advances, and exiting the Mortgage Purchase Program, or the MPP. See our registration statement on Form 10, as amended (the Form 10), filed with the Securities and Exchange Commission (the
SEC) under the Securities Exchange Act of 1934, as amended (the Exchange Act), for additional information on the Finance Board agreement and the business plan.

Quarterly Summary

This discussion and analysis reviews our financial condition as of
September 30, 2006 and December 31, 2005 and our results of operations for the three and nine months ended September 30, 2006 and 2005. This discussion should be read in conjunction with our Form 10, including our audited financial
statements and related notes for the year ended December 31, 2005, and our unaudited financial statements and condensed notes for the quarter ended September 30, 2006 included elsewhere in this report.

As of September 30, 2006, we had total assets of $53.5 billion, total deposits of $875.8 million, and retained earnings of $88.4 million, compared
to total assets of $52.5 billion, total deposits of $800.8 million, and retained earnings of $68.8 million as of December 31, 2005. The increase in assets primarily resulted from refocusing our business on advances, with advances increasing
$5.7 billion as of September 30, 2006, compared to December 31, 2005.

The Seattle Banks net income decreased by $5.2
million, to $9.1 million, and increased by $8.8 million, to $19.6 million, for the three and nine months ended September 30, 2006, compared to the same periods in 2005. The decrease in net income for the three-month period was primarily due to
net income from the sale of mortgage loans held for sale during the third quarter of 2005, without similar income from such an event in the third quarter of 2006. The increase in net income for the nine-month period was primarily a result of
decreased operating expenses and greater losses on derivatives and hedging activities in 2005, partially offset by a decrease in net interest income in 2006.

Our financial condition as of September 30, 2006 and operating results for the three and nine months ended September 30, 2006, are not necessarily indicative of the financial condition and the operating
results that may be expected as of and for the year ending December 31, 2006 or any future dates or periods.



25



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##### Table of Contents

Financial Highlights

The following table presents a summary of certain financial information for the Seattle Bank for the periods indicated:



|                                                                      |  |                   |        |   |              |   |        |               |  |   |                  |   |  |                   |        |    |  |   |        |  
|--------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | ------------- |  | - | ---------------- | - |  | ----------------- | ------ | -- |  | - | ------ | -
|                                                                      |  | September 30,2006 |        |   | June 30,2006 |   |        | March 31,2006 |  |   | December 31,2005 |   |  | September 30,2005 |       
|(dollars in millions)                                                 |  |                   |        |   |              |   |        |               |  |   |                  |   |  |                   |       
|Statements of Condition (at period end)                               |  |                   |        |   |              |   |        |               |  |   |                  |   |  |                   |        |    |  |   |        |  
|Total assets                                                          |  | $                 | 53,491 |   |              | $ | 53,189 |               |  | $ | 53,376           |   |  | $                 | 52,542 |    |  | $ | 53,008 |  
|Cash and investments (1)                                              |  |                   | 19,423 |   |              |   | 19,143 |               |  |   | 24,199           |   |  |                   | 23,590 |    |  |   | 27,543 |  
|Advances                                                              |  |                   | 27,156 |   |              |   | 26,936 |               |  |   | 21,924           |   |  |                   | 21,435 |    |  |   | 17,677 |  
|Mortgage loans held for portfolio                                     |  |                   | 6,557  |   |              |   | 6,774  |               |  |   | 7,003            |   |  |                   | 7,216  |    |  |   | 7,561  |  
|Deposits and other borrowings                                         |  |                   | 876    |   |              |   | 890    |               |  |   | 1,101            |   |  |                   | 1,194  |    |  |   | 1,246  |  
|Primary obligations on consolidated obligations                       |  |                   | 49,657 |   |              |   | 49,388 |               |  |   | 49,143           |   |  |                   | 48,503 |    |  |   | 48,705 |  
|Affordable Housing Program (AHP)                                      |  |                   | 24     |   |              |   | 26     |               |  |   | 28               |   |  |                   | 31     |    |  |   | 37     |  
|Payable to (Receivable from) Resolution Funding Corporation (REFCORP) |  |                   | 2      |   |              |   | 1      |               |  |   | 2                |   |  |                   | (3     | )  |  |   |        |  
|Class B(1)/B(2)putable or capital stockputable                      |  |                   | 2,136  |   |              |   | 2,135  |               |  |   | 2,131            |   |  |                   | 2,133  |    |  |   | 2,133  |  
|Total capital                                                         |  |                   | 2,225  |   |              |   | 2,214  |               |  |   | 2,208            |   |  |                   | 2,201  |    |  |   | 2,210  |  
|Statements of Income (for the three-month period ended)               |  |                   |        |   |              |   |        |               |  |   |                  |   |  |                   |        |    |  |   |        |  
|Interest income                                                       |  | $                 | 664    |   |              | $ | 619    |               |  | $ | 580              |   |  | $                 | 544    |    |  | $ | 506    |  
|Net interest income                                                   |  |                   | 22     |   |              |   | 14     |               |  |   | 20               |   |  |                   | 15     |    |  |   | 24     |  
|Other income (loss)                                                   |  |                   |        |   |              |   | 1      |               |  |   | 2                |   |  |                   | (7     | )  |  |   | 10     |  
|Other expense                                                         |  |                   | 10     |   |              |   | 11     |               |  |   | 12               |   |  |                   | 20     |    |  |   | 15     |  
|Income (loss) before AHP and REFCORP assessments                      |  |                   | 12     |   |              |   | 3      |               |  |   | 11               |   |  |                   | (12    | )  |  |   | 20     |  
|AHP and REFCORP assessments (refunds)                                 |  |                   | 3      |   |              |   | 1      |               |  |   | 3                |   |  |                   | (3     | )  |  |   | 5      |  
|Net income (loss)                                                     |  |                   | 9      |   |              |   | 2      |               |  |   | 8                |   |  |                   | (9     | )  |  |   | 14     |  
|Financial Statistics (for the three-month period ended)               |  |                   |        |   |              |   |        |               |  |   |                  |   |  |                   |        |    |  |   |        |  
|Return on average equity                                              |  |                   | 1.63   | % |              |   | 0.45   | %             |  |   | 1.47             | % |  |                   | (1.65  | )% |  |   | 2.57   | %
|Return on average assets                                              |  |                   | 0.07   |   |              |   | 0.02   |               |  |   | 0.06             |   |  |                   | (0.07  | )  |  |   | 0.11   |  
|Equity-to-assets ratio (2)                                            |  |                   | 4.30   |   |              |   | 4.30   |               |  |   | 4.30             |   |  |                   | 4.32   |    |  |   | 4.37   |  
|Total capital-to-assets ratio (3)                                     |  |                   | 4.29   |   |              |   | 4.29   |               |  |   | 4.26             |   |  |                   | 4.32   |    |  |   | 4.29   |  
|Net interest margin (4)                                               |  |                   | 0.17   |   |              |   | 0.10   |               |  |   | 0.16             |   |  |                   | 0.12   |    |  |   | 0.18   |  

---

|(1) | Investments include, among other things, interest-bearing deposits in banks, securities purchased under agreements to resell, federal funds sold, and held-to-maturity securities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Equity-to-assets ratio is average capital stock, including mandatorily redeemable stock, plus retained earnings and accumulated other comprehensive income, divided by the total
average assets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Total capital-to-assets ratio is capital stock, including mandatorily redeemable stock, plus retained earnings and accumulated other comprehensive income, divided by the total
assets at the end of the period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Net interest margin is net interest income divided by the average earning assets.
|--- | ---------------------------------------------------------------------------------

Financial Condition

Our assets principally consist of advances, investments, and mortgage loans held for portfolio. The
composition of our assets changed during the first nine months of 2006 from year-end 2005, primarily reflecting our decision to emphasize our advances, including exiting the MPP. During the first nine months of 2006, we increased advances by $5.7
billion, with advances increasing to 50.8% of our total assets as of September 30, 2006. During 2005, we increased our advances by $6.5 billion, or 44.2%. We seek to continue to increase our advances by offering additional advance
products, using differential pricing, and enhancing our marketing efforts. In addition, we anticipate that our mortgage loan portfolio will continue to decrease as mortgage loans are paid off, our advances will continue to increase, and our
investments will decrease as a percentage of our total assets.



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##### Table of Contents

The following table summarizes our total assets by major asset classes, as of the dates indicated.



|                                  |  |                         |   |  |                       |  
|--------------------------------- |  | ----------------------- | - |  | --------------------- | -
|                                  |  | As ofSeptember 30, 2006 |   |  | As ofDecember 31,2005 |  
|Advances                          |  | 50.8                    | % |  | 40.8                  | %
|Investments                       |  | 36.3                    |   |  | 44.9                  |  
|Mortgage loans held for portfolio |  | 12.2                    |   |  | 13.7                  |  
|Other assets                      |  | 0.7                     |   |  | 0.6                   |  
|                                  |  |                         |   |  |                       |  
|Total                             |  | 100.0                   | % |  | 100.0                 | %
|                                  |  |                         |   |  |                       |  

We obtain funding to support our business primarily through the issuance, by the Office of Finance
on our behalf, of debt securities in the form of consolidated obligations. We also rely on member deposits and on the issuance of our equity securities to our members in connection with their membership and their utilization of our products, such as
advances. Restrictions on our ability to repurchase our capital stock prior to the end of the five-year redemption period and pay dividends on our capital stock have reduced our members willingness to purchase our stock and, therefore, have
limited the amount of capital we receive from the issuance of stock.

We report our assets, liabilities, and commitments in accordance with
U.S. GAAP, including the market value of our assets, liabilities, and commitments, which we also review for purposes of risk management. The differences between the carrying value and market value of our assets, liabilities, and commitments are
unrealized market value gains or losses. As of September 30, 2006, we had net unrealized market value losses of $319.4 million. Because of these net unrealized market value losses, the ratio of the market value of our equity to the book
value of our equity was 85.7% as of September 30, 2006. Our net unrealized market value losses have decreased from $405.3 million reported as of September 30, 2005, largely due to the maturity of a portion of our low-yield
investments with maturities of three years or less, partially offset by rising short-term interest rates. We measure the market value of our equity as the present value of the expected net cash flows from all our existing assets, liabilities, and
commitments. Our calculation of market values involves estimates of the market value of our assets, liabilities, and commitments, which may interject imprecision into any unrealized market-value gains or losses that we report.

We discuss the material changes in each of our principal categories of assets and liabilities and our capital stock in more detail below.

Advances

Advances increased by $5.7 billion, to
$27.2 billion, as of September 30, 2006, compared to December 31, 2005. This increase was primarily the result of our continued emphasis on our advance business. For the nine months ended September 30, 2006, new advances totaled
$83.5 billion, while maturing advances totaled $77.8 billion. This level of activity was significantly higher than that of the same period of 2005, when new advances totaled $58.1 billion and maturing advances totaled
$55.2 billion. The increase in advance activity during the first nine months of 2006 was primarily attributable to advances made to our larger members.

As of September 30, 2006, five members held 69.1% of our outstanding advances, compared to 57.2% as of December 31, 2005. Two of these members, Bank of America Oregon, N.A. and Washington Mutual Bank,
F.S.B., had advances totaling 55.6% of our outstanding advances as of September 30, 2006 (the former with 36.1% and the latter with 19.5%), compared to those members holding 48.0% of our outstanding advances as of December 31, 2005 (the
former with 28.0% and the latter with 20.0%). No other borrower held over 10.0% of our outstanding advances as of September 30, 2006 or December 31, 2005. Because a large concentration of our advances is held by only a few members, changes
in their borrowing decisions can significantly affect the amount of our advances outstanding. As we refocus our business on our advances, we expect that the concentration of advances with our largest borrowers will remain significant.

As of September 30, 2006, 57.8% of our advance portfolio had a remaining term to maturity of one year or less, compared to 52.5% as of
December 31, 2005. The increase for the nine months ended September 30, 2006 was primarily due to additional advances made to our largest borrowers. The total weighted-average interest rate on our advance portfolio as of September 30,
2006 was 5.12%, compared to 4.30% as of December 31, 2005. From December 31, 2005 to September 30, 2006, short-term interest rates increased substantially, while, in general, long-term interest rates modestly increased. As a result,
the weighted-average interest rates on our advances with maturities of less than two years increased faster than the weighted-average interest rates on advances with maturities of two years or more, and the total weighted-average interest rate
increased on our advance portfolio. For additional information on advances, see Note 8 of the related notes to our audited financial statements for the year ended December 31, 2005 and Note 3 of the condensed notes to our unaudited
financial statements for the quarter ended September 30, 2006.



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##### Table of Contents

The following table summarizes our advance portfolio by remaining term-to-maturity and weighted-average
interest rate, as of the dates indicated.



|                                                |  |                          |            |                         |                                |      |        |   |            |                                |  |     
|----------------------------------------------- |  | ------------------------ | ---------- | ----------------------- | ------------------------------ | ---- | ------ | - | ---------- | ------------------------------ |  | ----
|                                                |  | As of September 30, 2006 |            | As of December 31, 2005
|Term of Maturity                                |  | Amount                   |            |                         | Weighted-AverageInterestRate % |      | Amount |   |            | Weighted-AverageInterestRate %
|(dollars in thousands)                          |  |                          |            |                         |                                |      |        |   |            |                               
|Due in one year or less                         |  | $                        | 15,702,565 |                         |                                | 5.21 |        | $ | 11,259,608 |                                |  | 4.21
|Due after one year through two years            |  |                          | 5,437,771  |                         |                                | 5.21 |        |   | 1,508,481  |                                |  | 3.93
|Due after two years through three years         |  |                          | 1,778,970  |                         |                                | 4.92 |        |   | 3,868,399  |                                |  | 4.40
|Due after three years through four years        |  |                          | 890,051    |                         |                                | 4.84 |        |   | 1,069,882  |                                |  | 4.12
|Due after four years through five years         |  |                          | 976,101    |                         |                                | 4.97 |        |   | 889,719    |                                |  | 4.93
|Thereafter                                      |  |                          | 2,398,160  |                         |                                | 4.64 |        |   | 2,858,708  |                                |  | 4.59
|                                                |  |                          |            |                         |                                |      |        |   |            |                                |  |     
|Total par value                                 |  |                          | 27,183,618 |                         |                                | 5.12 |        |   | 21,454,797 |                                |  | 4.30
|Overdrawn demand deposit accounts               |  |                          | 454        |                         |                                |      |        |   | 275        |                                |  |     
|Discounts on advances                           |  |                          | (7,248     | )                       |                                |      |        |   | (8,526     | )                              |  |     
|Unamortized commitment fees                     |  |                          | (1,027     | )                       |                                |      |        |   | (1,027     | )                              |  |     
|Discount on Affordable Housing Program advances |  |                          | (302       | )                       |                                |      |        |   | (352       | )                              |  |     
|Derivative hedging adjustments                  |  |                          | (19,060    | )                       |                                |      |        |   | (9,675     | )                              |  |     
|                                                |  |                          |            |                         |                                |      |        |   |            |                                |  |     
|Total                                           |  | $                        | 27,156,435 |                         |                                |      |        | $ | 21,435,492 |                                |  |     
|                                                |  |                          |            |                         |                                |      |        |   |            |                                |  |     

The following table summarizes our advance portfolio by interest-rate payment terms, as of the
dates indicated.



|              |  |                          |   |  |                        |  
|------------- |  | ------------------------ | - |  | ---------------------- | -
|              |  | As of September 30, 2006 |   |  | As ofDecember 31, 2005 |  
|Fixed-rate    |  | 62.8                     | % |  | 78.1                   | %
|Variable-rate |  | 37.2                     |   |  | 21.9                   |  
|              |  |                          |   |  |                        |  
|Total         |  | 100.0                    | % |  | 100.0                  | %
|              |  |                          |   |  |                        |  

The percentage of variable-rate advances as a portion of our total advances as of
September 30, 2006 was 37.2%, compared to 21.9% as of December 31, 2005. Of advances originated during the first nine months of 2006 and outstanding as of September 30, 2006, 38.8% of those advances were variable-rate advances. We
believe the increase in variable-rate advances primarily resulted from expectations that short-term interest rates are unlikely to increase in the near future.

Member Demand for Advances. Many factors affect the demand for advances, including changes in interest rates and changes in member funding needs. Members regularly evaluate financing options relative to our
advance products and pricing. The Seattle Banks pricing alternatives include: (1) differential pricing, through which a member can obtain lower advance rates on large transactions, as set within parameters established by our Asset and
Liability Management Committee under authority delegated by our Chief Executive Officer and overseen by the Board of Directors; (2) advance window daily market pricing; and (3) auction funding, through which borrowers can generally save
five basis points or more, but which is offered only two times per week. Our additional advance products, increased use of differential pricing, and enhanced marketing efforts, have increased advance balances. For the nine months ended
September 30, 2006, differentially priced advances accounted for 79% of new advances, compared to 46% for the year ended December 31, 2005. Window advances and auction-priced advances accounted for 12% and 9% of the advances made for the
nine months ended September 30, 2006, compared to 45% and 9% of advances made for 2005.

We believe that the use of differential
pricing gives us greater flexibility to compete with regard to rates for more advances business. This means that rates on advances may be lower for some members than for others in order to be competitive with lower rates available to those members
that have alternative funding sources. In general, our larger members have more alternative funding sources and are able to access funding at lower rates than our smaller members. We believe that the use of differential pricing has increased our
advance balance and will continue to do so in the future, and that the increased volume compensates us for any reduction in overall yield due to differential pricing.



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Finally, demand for advances may be affected by whether we pay dividends on the stock our members are
required to purchase in connection with such advances and any applicable restrictions on their ability to have that stock redeemed or repurchased by us. Consequently, demand for advances, particularly those that require new stock purchases, has been
limited as a result of our action to suspend the declaration or payment of dividends and to suspend the repurchase of Class B stock prior to the end of the statutory five-year redemption period for FHLBank stock, without in each case prior approval
of the Director of the Finance Boards Office of Supervision, or the OS Director. Our Board of Directors expects to seek a waiver in 2006 to declare dividends.

In June 2005, the Board of Directors implemented a change to our capital plan that allows our members to support new advances with their outstanding membership stock, which is stock that a member is required to hold
in order to maintain its membership. This change effectively allows members access to additional advances, making borrowing more attractive to our members, especially those with large membership stock balances that would otherwise have been required
to purchase additional capital stock in order to increase the amount of their advances. As of September 30, 2006, 7% of our members were using membership stock to support $907.3 million in additional advances. One consequence of this change,
however, is that our capital will not increase as a result of the increase in advances supported by membership stock. Because we must maintain a minimum capital-to-assets ratio of 4.25%, this lack of growth in capital could constrain the growth of
our advances from time to time.

Our advances-activity-based stock purchase requirement is currently 2.50% as set by our Board of Directors
in March 2006. In connection with the amendments to our capital plan described below, our stock purchase requirement for new or renewing advances will increase to 4.00%. The Board of Directors reviews this requirement periodically, and may raise it
in light of factors such as our capital-to-assets ratio, our leverage ratio, and any then-applicable limits on the amount of excess stock we are permitted to have outstanding.

On October 11, 2006, the Finance Board approved amendments to our capital plan as proposed by our Board of Directors. The Board of Directors
approved the amendments with the expectation that they would (1) encourage new borrowing by members of the Seattle Bank and (2) simplify the terms and provisions of the capital plan. These amendments will take effect on the conversion
date, with the Seattle Bank providing stockholders with at least five days notice prior to the conversion date. The Seattle Bank currently expects that the conversion date will be on or around December 1, 2006. See  Capital
Resources and Liquidity  Capital Resources, for additional information regarding the amendments to the capital plan.

Credit
Risk. Our credit risk from advances is concentrated in commercial banks and savings institutions. As of September 30, 2006 and December 31, 2005, we had advances of $15.1 billion and $10.3 billion outstanding to two members, which
represented 55.6% and 48.0% of our total advances outstanding. We held sufficient collateral to cover the advances to these members, and, as a result, we do not expect to incur any credit losses on these advances.

As of September 30, 2006, we had $21.8 million of outstanding advances to two borrowers that we classified as substandard. These advances are
fully collateralized with high-grade, marketable securities, and rights to proceeds from mortgage loans in our possession. Because the borrowers continue to pay according to contractual requirements, and because of our collateral position, we
continue to accrue interest and do not expect to incur any credit losses on these advances.

Investments

We maintain a portfolio of short-term investments and a portfolio of long-term investments, primarily mortgage-backed securities and agency investments,
for liquidity purposes and to generate returns on our capital. Short-term investments are generally comprised of federal funds sold and other money market instruments, and long-term investments are generally comprised of mortgage-backed securities
and agency obligations. During the latter part of 2005, we increased our short-term investments in order to more fully use our capital and provide liquidity for funding advances growth. As advance balances continue to increase, we expect investments
to continue to decline as a proportion of our total assets.



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The following table summarizes our investments, both short- and long-term, as of the dates indicated.



|                                                |  |                          |            |                        |   |           
|----------------------------------------------- |  | ------------------------ | ---------- | ---------------------- | - | ----------
|                                                |  | As of September 30, 2006 |            | As ofDecember 31, 2005
|(in thousands)                                  |  |                          |            |                       
|Short-Term Investments:                         |  |                          |            |                        |   |           
|Federal funds sold                              |  | $                        | 4,894,000  |                        | $ | 6,428,000 
|Interest-bearing deposits                       |  |                          | 780,000    |                        |   | 1,415,007 
|Securities purchased under agreements to resell |  |                          |            |                        |   | 850,000   
|Commercial paper                                |  |                          |            |                        |   | 194,106   
|                                                |  |                          |            |                        |   |           
|Total short-term investments                    |  | $                        | 5,674,000  |                        | $ | 8,887,113 
|                                                |  |                          |            |                        |   |           
|Long-Term Investments:                          |  |                          |            |                        |   |           
|Consolidated obligations of other FHLBanks      |  | $                        | 4,274,955  |                        | $ | 5,274,944 
|Mortgage-backed securities                      |  |                          | 6,616,287  |                        |   | 6,471,324 
|Other U.S. agency obligations                   |  |                          | 151,509    |                        |   | 221,671   
|Government-sponsored enterprise obligations     |  |                          | 2,692,240  |                        |   | 2,698,649 
|State or local housing agency obligations       |  |                          | 12,717     |                        |   | 16,900    
|                                                |  |                          |            |                        |   |           
|Total long-term investments                     |  | $                        | 13,747,708 |                        | $ | 14,683,488
|                                                |  |                          |            |                        |   |           

During the nine months ended September 30, 2006, we decreased our balance of short-term
investments by $3.2 billion, primarily because we used available funds to support our increased advance balances. During 2005 (primarily the second half), we increased our balance of short-term investments by $6.8 billion, to implement a
strategy of managing our business to a capital-to-assets ratio of 4.30% to more fully use our capital, while staying within our minimum capital-to-assets ratio of 4.25%. Our actual capital-to-assets ratio may vary from our target. We expect that as
our advance balances continue to increase, our investments will continue to decline as a percentage of our total assets.

As of
September 30, 2006 and December 31, 2005, we held $10.4 billion and $7.9 billion in held-to-maturity investments with unrealized losses of $262.6 million and $250.1 million that had been in an unrealized loss position
for over 12 months. Based on the creditworthiness of the issuers and underlying collateral, we believe that these unrealized losses represent temporary impairments. See Note 2 of the condensed notes to our unaudited financial statements
for the quarter ended September 30, 2006 for tables summarizing the held-to-maturity securities with unrealized losses as of September 30, 2006 and December 31, 2005.

Consolidated Obligation Bonds of Other FHLBanks. Our investment in other FHLBanks consolidated obligation bonds decreased to $4.3 billion as
of September 30, 2006 from $5.3 billion as of December 31, 2005, as a result of sales in July 2006 of $750.0 million and in June 2006 of $250.0 million of low-yielding consolidated obligation bonds that were within three months of
maturity. We realized a total of $6.4 million in losses on those sales.

In 2004 and 2003, we purchased consolidated obligations of other
FHLBanks with funds received primarily from the issuance of consolidated obligations on which we are the primary obligor and from accumulated cash from the maturity and nonrenewal of advances and the prepayment of mortgage-based assets. By issuing
debt with differing maturities and payment terms from the investments we were contemporaneously purchasing, we attempted to earn a favorable spread over our cost of funding on these investments. Nearly 90% of the aggregate amount of the consolidated
obligations of other FHLBanks that we purchased was callable, but the debt issued contemporaneously was largely noncallable.

Of the
$9.0 billion in callable debt of other FHLBanks that we purchased in 2004 and 2003, $4.7 billion had matured, had been called, or had been sold as of September 30, 2006. In contrast, we were unable to call the long-term bullet debt
that had been issued contemporaneously with the bond investment that was called, and we continue to carry that debt at rates that, in some cases, are above our current cost for issuing such debt. Due to the market factors that significantly
increased our borrowing cost to replace the short-term debt that funded those investments, and the loss of the favorable interest rate on the portion of the investments in callable debt that was actually called, we believe that any favorable spreads
we may have generated at the inception of this strategy are now mostly negative. Accordingly, this investment strategy contributed to the $319.4 million in unrealized market value losses that we reported as of September 30, 2006. The amount of
these unrealized losses involves estimates of the market values of our assets, liabilities, and commitments.

Pursuant to a regulatory
interpretation issued by the Finance Board in March 2005, the Finance Board clarified that it generally prohibits a FHLBank from purchasing any consolidated obligation as part of the consolidated obligations initial issuance, either directly
from the Office of Finance or indirectly through an underwriter. However, the Finance Board did not require us to divest the investments in the consolidated obligations of other FHLBanks that we currently hold.



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Mortgage-Backed Securities. Our investment in mortgage-backed securities increased
$145.0 million to $6.6 billion as of September 30, 2006 from December 31, 2005, due to our strategy to increase investment income while staying within the Finance Boards maximum limit regarding investment in these higher-yield
securities. Finance Board regulations limit each FHLBanks investment in mortgage-backed securities, at the time a security is purchased, to 300% of a banks regulatory capital, which in our case is comprised of capital stock, retained
earnings, and mandatorily redeemable capital stock. Our investment in mortgage-backed securities represented 288% of our regulatory capital and included $1.1 billion and $1.1 billion in Federal Home Loan Mortgage Corporation, or Freddie
Mac, mortgage-backed securities, and $788.3 million and $1.1 billion of investments in Federal National Mortgage Association, or Fannie Mae, mortgage-backed securities, as of September 30, 2006 and December 31, 2005. The
remaining investment in mortgage-backed securities is rated AAA (or its equivalent) by a Nationally Recognized Statistical Rating Organization, or NRSRO, such as Moodys and Standard & Poors.

Other U.S. Agency Obligations. Our investments in other U.S. agency obligations consist primarily of debt securities of government
agencies whose debt is guaranteed, directly or indirectly, by the U.S. government. Our investment in other U.S. agency obligations declined by $70.2 million to $151.5 million during the nine months ended September 30, 2006, primarily due
to principal repayments from maturing securities.

Government-Sponsored Enterprises (GSEs). Our held-to-maturity
investments in GSEs, excluding our investments in other FHLBanks, consist primarily of unsecured debt securities of Fannie Mae and Freddie Mac. These securities are not guaranteed, directly or indirectly, by the U.S. government. Fannie Mae
securities totaled $908.5 million and $910.7 million and Freddie Mac securities totaled $1.5 billion as of September 30, 2006 and December 31, 2005. These securities represented 12.3% and 10.2% of total investments as of
such dates. Finance Board regulations limit any investments in the debt of any one GSE to the lower of 100% of our capital or the capital of the GSE, with the exception of the investment in other FHLBank consolidated obligations, in which we can no
longer invest without Finance Board approval.

Mortgage Loans Held for Portfolio

The balance of our mortgage loans held for portfolio consisted of $6.2 billion and $6.8 billion in conventional mortgage loans and
$309.2 million and $383.4 million in government-insured mortgage loans as of September 30, 2006 and December 31, 2005. The decrease during the nine months ended September 30, 2006 was due to our receipt of
$657.3 million in principal payments and the fact that we made no additional purchases. We are exiting the MPP in order to continue to lower the Seattle Banks overall interest-rate risk profile. We are no longer entering into new master
commitment contracts and have closed out open contracts.

As of September 30, 2006, we had purchased 88.8% of our outstanding mortgage
loan portfolio from our largest participating member, Washington Mutual Bank, F.S.B., and over 6.8% from two other participating members.

The following table summarizes the activity and other information related to our mortgage loan portfolio as of the dates indicated.



|                                                                |  |                        |           |   |                       |   |            |  
|--------------------------------------------------------------- |  | ---------------------- | --------- | - | --------------------- | - | ---------- | -
|                                                                |  | As ofSeptember 30,2006 |           |   | As ofDecember 31,2005 |  
|(dollars in thousands)                                          |  |                        |           |   |                       |  
|Mortgage loan principal balance at beginning of the year        |  | $                      | 7,182,542 |   |                       | $ | 10,375,000 |  
|Purchases                                                       |  |                        |           |   |                       |   | 89,194     |  
|Mortgage loan transferred to real estate owned                  |  |                        | (225      | ) |                       |   |            |  
|Maturities and principal payments received/sold                 |  |                        | (657,255  | ) |                       |   | (3,281,652 | )
|                                                                |  |                        |           |   |                       |   |            |  
|Mortgage loan principal balance at period end                   |  | $                      | 6,525,062 |   |                       | $ | 7,182,542  |  
|                                                                |  |                        |           |   |                       |   |            |  
|Mortgage loan net premium balance at beginning of the year      |  | $                      | 33,065    |   |                       | $ | 70,876     |  
|Net premium on purchases                                        |  |                        |           |   |                       |   | 812        |  
|Net premium recovery from repurchases                           |  |                        | (78       | ) |                       |   |            |  
|Net premium amortization*                                       |  |                        | (1,262    | ) |                       |   | (38,623    | )
|                                                                |  |                        |           |   |                       |   |            |  
|Mortgage loan net premium balance at period end                 |  | $                      | 31,725    |   |                       | $ | 33,065     |  
|                                                                |  |                        |           |   |                       |   |            |  
|Premium balance as a percent of mortgage loan principal amounts |  |                        | 0.49      | % |                       |   | 0.46       | %
|Average FICO score** at origination                             |  |                        | 745       |   |                       |   | 744        |  
|Average loan-to-value ratio at origination                      |  |                        | 64.85     | % |                       |   | 64.99      | %

| | 
| | 

| | * | Included in net premium amortization for 2005 are $15.4 million in net premium allocated to sold government-insured mortgage loans and an unrealized loss in fair value of
$1.1 million, which was recognized on the transfer of $400 million of government-insured loans from held for sale to held for portfolio.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | ** | The Fair Isaac Credit Organization, or FICO, score is a standardized credit score used as an indicator of consumer financial responsibility, based on credit history.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Derivative Assets and Liabilities

As of September 30, 2006 and December 31, 2005, we held derivative assets of $89.9 million and $13.2 million and derivative liabilities of $54.5 million and $133.8 million. The changes in
these balances reflect the effect of interest-rate changes on the fair value of our derivatives, as well as expirations and terminations of outstanding interest-rate exchange agreements and entry into new interest-rate exchange agreements during the
nine months ended September 30, 2006. We record all derivative financial instruments in the Statements of Condition at fair value, with changes in the fair value reported in earnings.

The notional amount of interest-rate exchange agreements increased by $13.4 billion, to $31.9 billion, as of September 30, 2006, compared to
December 31, 2005. This increase was primarily related to our increased use of interest-rate exchange agreements to lower our cost of funds and reduce our interest-rate risk. Notional amounts are used to calculate the periodic amounts to be
received and paid under interest-rate exchange agreements and generally do not represent actual amounts to be exchanged or directly reflect our exposure to credit risk. Notional amounts are not recorded as assets or liabilities in our Statements of
Condition. For additional information, see Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Consolidated
Obligations and Other Funding Sources

Our principal liabilities are the consolidated obligation discount notes and bonds issued on our
behalf by the Office of Finance, and to a significantly lesser degree, a variety of other funding sources such as our member deposits. Although we are jointly and severally liable for all consolidated obligations issued by the Office of Finance on
behalf of all of the FHLBanks, we report only the portion of consolidated obligations issued on our behalf for which we are the primary obligor.

Consolidated Obligation Discount Notes.Our allocated portion of the FHLBank Systems combined consolidated obligation discount notes outstanding was a par amount of $2.9 billion and $10.6 billion as of September 30,
2006 and December 31, 2005. Consolidated obligation discount notes represented 5.9% and 21.8% of our outstanding consolidated obligations as of September 30, 2006 and December 31, 2005. Discount notes are primarily used to
finance short-term advances and short-term investments. The balance of discount notes decreased $7.7 billion as of September 30, 2006, compared to December 31, 2005, in part because we increased our use of interest-rate swapped
consolidated obligation bonds with option features, or structured funding, to reduce our funding cost and manage our liquidity.

Consolidated Obligation Bonds.Our allocated portion of the FHLBank Systems combined consolidated obligation bonds outstanding was a par amount of $46.9 billion and $38.1 billion as of September 30, 2006 and
December 31, 2005. Consolidated obligation bonds are primarily used to finance advances and investments, both short-term and long-term. Consolidated obligation bonds represented 94.1% and 78.2% of our total outstanding consolidated
obligations as of September 30, 2006 and December 31, 2005. The percent increase in our consolidated obligation bonds as of September 30, 2006, compared to December 31, 2005, was primarily the result of an increase in our
use of structured funding. In the nine months ended September 30, 2006, we extinguished $279.3 million in fixed-rate debt with a weighted-average interest rate of 5.97%. This extinguishment resulted in a net gain of $6.5 million on the
consolidated obligation bonds. During 2005, we extinguished $335.4 million of long-term, fixed-rate bullet debt with a weighted-average interest rate of 6.10%. This extinguishment resulted in a loss of $9.4 million on the consolidated
obligation bonds. We continue to review our consolidated obligation portfolio for opportunities to extinguish debt, lower our interest expense, and better match the duration of our liabilities to that of our assets.

Our callable debt increased by $5.1 billion, to $24.3 billion, as of September 30, 2006, compared to December 31, 2005, primarily due to
growth in our structured funding portfolio. We continue to classify our debt as callable after the last call date has passed. This relative increase in use of our callable debt reflects more favorable pricing of callable consolidated obligation
bonds with associated interest-rate exchange agreements relative to consolidated discount notes.

Other Funding Sources. Deposits
are a source of funds that gives members a liquid, low-risk investment. We offer demand and term deposit programs to our members and to other eligible depositors. There is no requirement for members or other eligible depositors to maintain balances
with us, and, as a result, these balances fluctuate. Deposits increased by $75.0 million to $875.8 million as of September 30, 2006 from December 31, 2005, primarily due to a $101.8 million increase in demand and overnight
deposits, partially offset by a $26.8 million decrease in term deposits. Demand deposits



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##### Table of Contents

comprised the largest percentage of deposits, representing 93.6% and 89.6% of deposits as of September 30, 2006 and December 31, 2005. In addition,
to provide short-term, low-cost liquidity, we sell securities under agreements to repurchase the securities. There were no transactions outstanding under repurchase agreements as of September 30, 2006, and transactions outstanding under
repurchase agreements were $393.5 million as of December 31, 2005.

Other Liabilities

Other liabilities decreased by $3.3 million, to $31.7 million, as of September 30, 2006, compared to December 31, 2005, primarily due
to a $1.5 million decrease in accrued expenses and a $1.0 million decrease in our leasehold impairment account resulting from the receipt of updated projected lease rates.

Capital Resources and Liquidity

Our capital resources consist of capital stock held by our members
and nonmember stockholders and retained earnings. The amount of our capital resources does not take into account our joint and several liability for the consolidated obligations of other FHLBanks. See Note 6 of our condensed notes to our unaudited
financial statements for the quarter ended September 30, 2006, for additional information. Our principal sources of liquidity are the proceeds from the issuance of consolidated obligations and our short-term investments.

Capital Resources

Our capital resources increased
$23.5 million, or 1.1%, for the nine months ended September 30, 2006, from December 31, 2005. The changes between September 30, 2006 and December 31, 2005 were driven by changes in both the amount of our capital stock and
the amount of our retained earnings.

Seattle Bank Stock. As of the date of this report, the Seattle Banks capital plan
authorizes two classes of Class B stock, B(1) and B(2), each of which has a par value of $100. Each class of stock can be issued, redeemed, and repurchased only at par value. Class B(1) stock represents the stock that members are required
to hold based on minimum membership requirements, the volume of their business activity with us, and, in some instances, a certain amount of excess stock that a member is allowed to hold that exceeds the stock required for membership or business
activity. Class B(2) stock represents stock that a member is no longer required to hold, generally as a result of a decline in its activity with us, that exceeds the amount of allowable excess Class B(1) stock. Both classes of B stock are
redeemable five years after: (1) written notice from the member; (2) consolidation or merger of a member with a nonmember; or (3) withdrawal or termination of membership. All stock redemptions are subject to restrictions set forth in
the FHLBank Act, Finance Board regulations, and our capital plan. Historically we have elected to repurchase stock that was subject to redemption prior to the expiration of the five-year redemption period that applies to each redemption request.
However, as further described below, our Board of Directors has adopted limitations on our ability to repurchase capital stock from members. See Note 6 of our condensed notes to our unaudited financial statements for the quarter ended
September 30, 2006 for additional information on capital requirements.

As of September 30, 2006, Class B(1) stock decreased
by $119.1 million, compared to December 31, 2005, primarily because of conversions to Class B(2) stock. Class B(2) stock increased by $123.0 million as of September 30, 2006, compared to December 31, 2005, primarily
because of conversions from Class B(1) stock.

As of September 30, 2006, we had $180.4 million and $25.4 million in
Class B(1) and Class B(2) stock redemption requests outstanding from members. Of the redemption requests as of September 30, 2006, $69.2 million relates to the requests of 16 members to withdraw from membership, all of which is
classified as mandatorily redeemable Class B stock in our Statement of Condition as of September 30, 2006.

On May 18, 2005,
the Finance Board accepted the business plan, subject to our adoption of certain dividend and stock repurchase restrictions. To meet the Finance Board conditions, our Board of Directors adopted the following policies on May 18, 2005:



| |  |  | suspending indefinitely the declaration or payment of any dividend and providing that any future dividend declaration or payment may be made only after prior approval of the OS
Director, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | suspending indefinitely the repurchase of any Class B(1) or Class B(2) stock, except that a limited amount of Class B(2) stock repurchases may be made after prior approval of the OS
Director.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These policies will be in effect until formally revoked by our Board of Directors following approval of the OS
Director. Our Board of Directors expects to seek a waiver in 2006 to declare dividends. We do not expect to obtain waivers from the Finance Board for the repurchase of Class B stock prior to the end of the statutory five-year redemption period for
the foreseeable future.



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On October 11, 2006, the Finance Board approved amendments to our capital plan as proposed by our
Board of Directors. The Board of Directors approved the amendments with the expectation that they would (1) encourage new borrowing by members of the Seattle Bank and (2) simplify the terms and provisions of the capital plan. These
amendments will take effect on the conversion date, with the Seattle Bank providing stockholders with at least five days notice prior to the conversion date. The Seattle Bank currently expects that the conversion date will be on or around
December 1, 2006.

The key amendments made to the capital plan to encourage additional advances include:



| |  |  | Excess Stock Pool. The creation of an excess stock pool that allows a member, when receiving advances from the Seattle Bank, to satisfy its advance stock purchase requirement
by relying on Seattle Bank capital that is associated with total outstanding excess stock. Excess stock is the amount of stock held by a member in excess of its total stock purchase requirement, which is the greater of the members membership
stock purchase requirement or the sum of (i) the members advance stock purchase requirement and (ii) the members mortgage purchase plan stock purchase requirement. There are certain limitations relating to the use of the excess
stock pool, including among others, restricting the aggregate use of the excess stock pool to 50.0% of the total amount of all excess stock and the ability of the Board of Directors to suspend the use of the excess stock pool at any time. Other
limitations include: a maturity limit of one year on advances supported by the excess stock pool; a per-member usage limit of 25.0% of the total amount of the excess stock pool; and a maximum dollar threshold whereby a member cannot use the excess
stock pool to support additional advances if, on the date the advance would be received by the member, the members total outstanding advances equal or exceed $11.0 billion. The authority to use the excess stock pool to support additional
advances will terminate on October 1, 2008, unless extended by the Board of Directors following approval by the Finance Board.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Class A Stock. The creation of Class A stock, which would be issued, redeemed, and repurchased only at a par value of $100 per share. If authorized for issuance by
the Board of Directors, Class A stock would only be issued to members to satisfy a members advance stock purchase requirement for (i) a new advance or (ii) renewal of an existing advance initially supported by the excess stock
pool, and only in the case where a member had no excess stock available to support a new advance or to renew an existing advance. Class A stock would be redeemable in cash on six months written notice to the Seattle Bank and could be
repurchased by the Seattle Bank pursuant to the terms of the capital plan. Any dividends on Class A stock (which pursuant to Board resolution could only be paid in cash) would be determined at the discretion of the Board of Directors, subject
to any applicable restrictions, and would not necessarily be paid at the same rate as dividends, if any, on Class B stock. A member could only use Class A stock to meet its member advance stock purchase requirement and could not use it to meet
its other requirements relating to stockholdings.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional significant amendments include:



| |  |  | Increasing the member advance stock purchase requirement for new and renewing advances from 2.50% to 4.00%;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | Converting existing Class B(1) and Class B(2) stock to a single Class B stock;
| | - |  | ------------------------------------------------------------------------------



| |  |  | Providing that dividends on Class A and Class B stock shall be set and paid as determined by the Board of Directors, on a pro rata basis as to amount and character with respect
to each class (subject to the Seattle Banks current restrictions on payment of dividends); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Streamlining the formulas for calculating various requirements, including a members total stock purchase requirement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

In actions relating to approval of the amendments, the Board of Directors resolved that the Seattle Bank would maintain a 4.00% member advance stock
purchase requirement and not repurchase Class B stock during the period the excess stock pool is in effect and would seek prior written authorization of the OS Director if the Seattle Bank wishes to lower that requirement or repurchase Class B stock
thereafter.

In addition, in March 2006, to address members concerns about purchasing additional shares of our capital stock in order
to meet their membership stock requirements, our Board of Directors reduced the membership stock requirement for 2006 from the greater of $500 or 0.75% of a members mortgage loans and mortgage-loan pass-through securities to the greater of
$500 or 0.50% of such loans and securities.

Retained Earnings and Dividends. In general, our retained earnings represent our net
income after the payment of any dividends to our members. During the nine months ended September 30, 2006, our net income increased compared to the same period in 2005. Since 1986, we have only declared dividends in the form of capital stock,
except for immaterial cash payments relating to dividends on fractional lots, or shares of stock of a member that cannot be grouped into lots of 100 shares. However, dividends if any, on Class A stock will be payable in cash. In addition, our
Board of Directors may determine from time to time that dividends, if any, on Class B stock should also be payable in cash.



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##### Table of Contents

In September 2004, the Seattle Banks Board of Directors adopted a revised retained earnings policy
in accordance with Finance Board guidance. Under this policy, we establish retained earnings targets each quarter, and we plan to adjust the target level of retained earnings over time as determined by the Board of Directors or to any higher level
that may be required in the future by regulation. As of September 30, 2006, the target was set at $100 million. We reported retained earnings of $88.4 million and $68.8 million as of September 30, 2006 and December 31,
2005.

In November 2004, our Board of Directors adopted a policy regarding the declaration and payment of dividends, which became effective
for the fourth quarter of 2004. Under the policy, dividend declarations, if any, during a quarter are based on the earnings of the previous quarter. In the first quarter of 2005, we declared and paid a member dividend of $8.5 million based on
average capital stock outstanding and earnings for the fourth quarter of 2004, subject to our then-current capital requirements, retained earnings policy, and dividend limits.

On May 18, 2005, as a condition to the Finance Boards acceptance of the business plan, our Board of Directors adopted a resolution suspending
indefinitely dividends on all classes of our capital stock, without prior approval of the OS Director. If we were permitted to declare and pay dividends, we would still be limited under the business plan to paying dividends no greater than 50%
of current period earnings until our retained earnings target has been met.

Our Board of Directors expects to seek a waiver from the
Finance Board in 2006 to declare cash dividends. Our longer-term goal is to pay members a dividend based on a variable short-term rate such as the federal funds rate or three-month LIBOR, subject to applicable dividend restrictions and capital
requirements.

In March 2006, the Finance Board proposed a rule that would limit the amount of excess stock that a FHLBank can have
outstanding to one percent of the FHLBanks total assets and that would prescribe a minimum amount of retained earnings for each FHLBank equal to $50 million plus one percent of the FHLBanks non-advance assets. The proposed rule
would also prohibit a FHLBank from selling excess stock to its members and from paying stock dividends, and would restrict each FHLBanks ability to pay any dividends when its retained earnings were below the prescribed minimum. The public had
until July 13, 2006 to comment on the proposed rule. The Finance Board is currently reviewing the comments received.

If the proposed
rule had been in effect as of September 30, 2006, our excess stock would have been limited to $534.9 million as of that date, compared to the $778.1 million in excess stock that was actually outstanding, and we would have been required to
submit a compliance plan to the Finance Board demonstrating how we would bring the Seattle Bank into compliance with the excess stock limitations. In addition, if the proposed rule had been in effect as of September 30, 2006, our retained
earnings minimum for the three quarters of 2006 would have been $332.1 million, based on a calculation of $50 million plus one percent of the daily average of our total assets from the previous quarter, less the daily average of our
advances from the previous quarter, compared to our actual retained earnings of $88.4 million as of September 30, 2006. If the proposed rule were to be approved in the form proposed, we expect that as our average advance balances increase
and our non-advance assets decrease, our retained earnings minimum under the proposed rule would decrease. Under the proposed rule, failure to meet the applicable retained earnings minimum would result in restrictions on the amount of dividends that
an FHLBank could pay. Although we are currently unable to pay any dividends without first obtaining a waiver from the OS Director, we believe that the proposed rule, if adopted, would restrict the amount of any dividends that we might be
permitted to pay until we have achieved and maintain our retained earnings minimum.

Statutory Capital Requirements. We are subject
to three statutory capital requirements. As of September 30, 2006 and December 31, 2005 we were in compliance with these statutory capital requirements. These requirements are as follows:

First, we are required to hold at all times risk-based capital at least equal to the sum of our credit-risk capital requirement, market-risk capital
requirement, and operations-risk capital requirement, calculated in accordance with federal laws and regulations. Only permanent capital, defined as retained earnings and Class B stock, can satisfy the risk-based capital requirement.
Mandatorily redeemable Class B stock is included in our permanent capital based on a directive from the Finance Board. Class A stock, when issued, would be considered nonpermanent capital. The Finance Board has the authority to require us
to maintain a greater amount of permanent capital than is required by the risk-based capital requirement, but has not exercised such authority.



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##### Table of Contents

The following table presents our permanent capital and risk-based capital requirements as of
September 30, 2006 and December 31, 2005.



|                                     |  |                         |           |                         |   |          
|------------------------------------ |  | ----------------------- | --------- | ----------------------- | - | ---------
|                                     |  | As of September 30,2006 |           | As of December 31, 2005
|(in thousands)                       |  |                         |           |                        
|Permanent Capital                    |  |                         |           |                         |   |          
|Class B(1) stock                     |  | $                       | 1,900,624 |                         | $ | 2,019,731
|Class B(2) stock                     |  |                         | 235,841   |                         |   | 112,803  
|Mandatorily redeemable Class B stock |  |                         | 69,222    |                         |   | 66,259   
|Retained earnings                    |  |                         | 88,367    |                         |   | 68,759   
|                                     |  |                         |           |                         |   |          
|Permanent capital                    |  | $                       | 2,294,054 |                         | $ | 2,267,552
|                                     |  |                         |           |                         |   |          
|Risk-Based Capital Requirement       |  |                         |           |                         |   |          
|Credit risk                          |  | $                       | 146,397   |                         | $ | 180,588  
|Market risk                          |  |                         | 131,743   |                         |   | 174,383  
|Operations risk                      |  |                         | 83,442    |                         |   | 106,492  
|                                     |  |                         |           |                         |   |          
|Risk-based capital requirement       |  | $                       | 361,582   |                         | $ | 461,463  
|                                     |  |                         |           |                         |   |          

Second, the Gramm Leach Bliley Act , or GLB Act, imposes a 4.00% minimum capital-to-assets ratio,
defined as total capital, which is permanent capital that does not include a 1.5 weighing factor plus nonpermanent capital, divided by total assets. We use the capital-to-assets ratio to monitor our use of financial leverage. Capital-to-assets
ratios at or near the required minimums would indicate that we have fully used our capital resources, and capital-to-assets ratios that exceed these minimums would indicate that we had additional capacity to increase our asset base to increase
earnings capacity.

Under the business plan, we must maintain a higher minimum regulatory capital-to-assets ratio of 4.25%. From time to
time, adherence to our minimum capital-to-assets ratio may constrain our capacity to make advances to members because advances may increase our total assets without increasing our permanent capital.

The following table presents our capital-to-assets ratios as of September 30, 2006 and December 31, 2005.



|                                                                                                 |  |                        |           |   |                       |   |           |  
|------------------------------------------------------------------------------------------------ |  | ---------------------- | --------- | - | --------------------- | - | --------- | -
|                                                                                                 |  | As ofSeptember 30,2006 |           |   | As ofDecember 31,2005 |  
|(dollars in thousands)                                                                           |  |                        |           |   |                       |  
|Capital-to-Assets Ratio                                                                          |  |                        |           |   |                       |   |           |  
|Minimum permanent capital (4.25% of total assets as of September 30, 2006 and December 31, 2005) |  | $                      | 2,273,366 |   |                       | $ | 2,233,017 |  
|Total capital                                                                                    |  |                        | 2,294,054 |   |                       |   | 2,267,552 |  
|Capital-to-assets ratio (total capital as a percentage of total assets)                          |  |                        | 4.29      | % |                       |   | 4.32      | %

Third, the GLB Act imposes a 5.00% minimum leverage ratio based on leverage capital, which is the
sum of permanent capital weighted by a 1.5 multiplier plus nonpermanent capital. A minimum leverage ratio, which is defined as leverage capital divided by total assets, is intended to ensure that we maintain sufficient amount of capital.

The following table presents our leverage ratios as of September 30, 2006 and December 31, 2005.



|                                                                                 |  |                         |           |   |                        |   |           |  
|-------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---------------------- | - | --------- | -
|                                                                                 |  | As of September 30,2006 |           |   | As of December 31,2005 |  
|(dollars in thousands)                                                           |  |                         |           |   |                        |  
|Leverage Ratio                                                                   |  |                         |           |   |                        |   |           |  
|Minimum leverage capital (5.00% of total assets)                                 |  | $                       | 2,674,548 |   |                        | $ | 2,627,079 |  
|Leverage capital (includes 1.5 weighting factor applicable to permanent capital) |  |                         | 3,441,081 |   |                        |   | 3,401,328 |  
|Leverage ratio (leverage capital as a percentage of total assets)                |  |                         | 6.43      | % |                        |   | 6.47      | %

Our advances-activity-based stock purchase requirement is currently 2.50% as set by our Board of
Directors in March 2006. In connection with the amendments to our capital plan described above, our stock purchase requirement for new or renewing advances will increase to 4.00%. The Board of Directors reviews this requirement periodically, and may
raise it in light of factors such as our capital-to-assets ratio, our leverage ratio, and any then-applicable limits on the amount of excess stock we are permitted to have outstanding.

Liquidity

We are required to maintain liquidity in accordance with federal laws and regulations, and
policies established by our Board of Directors. In addition, in their asset and liability management planning, members may look to the Seattle Bank as a source of standby liquidity. We seek to meet our members credit and liquidity needs, while
complying with regulatory requirements and board-established policies, without maintaining excessive holdings of low-yield liquid investments or incurring unnecessarily high borrowing costs. We actively manage our liquidity to preserve stable,
reliable, and cost-effective sources of funds to meet all current and future normal operating financial commitments.

Our primary sources
of liquidity are short-term investments and the proceeds of new consolidated obligation issuances. Secondary sources of liquidity are other short-term borrowings, including federal funds purchased, and securities sold under agreements to repurchase.
Member deposits and capital are also liquidity sources. To ensure that adequate liquidity is available to meet our requirements, we monitor and forecast our future cash flows and anticipated member liquidity needs, and we adjust our funding and
investment strategies as needed. Our access to liquidity may be negatively affected by, among other things, rating agency actions and changes in demand for FHLBank System debt or regulatory action that would limit debt issuances.

Federal regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying assets equal to the consolidated obligations outstanding.
Qualifying assets are cash, secured advances, assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations, mortgage loans or other securities of or issued by the U.S. government or its
agencies, and securities that fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. The following table presents our compliance with this requirement as of September 30, 2006 and December 31,
2005.



|                            |  |                          |            |                       |   |           
|--------------------------- |  | ------------------------ | ---------- | --------------------- | - | ----------
|                            |  | As of September 30, 2006 |            | As ofDecember 31,2005
|(in thousands)              |  |                          |            |                      
|Outstanding debt            |  | $                        | 49,657,131 |                       | $ | 48,502,508
|Aggregate qualifying assets |  | $                        | 53,136,456 |                       | $ | 52,083,267

As of September 30, 2006, we also were in compliance with other federal laws and regulations
and policies established by our Board of Directors relating to liquidity. For additional information on our statutory liquidity requirements, see Item 1. Business  Regulation  Liquidity Requirements of our Form 10.



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##### Table of Contents

Contractual Obligations and Other Commitments

The following table presents our contractual obligations and commitments as of September 30, 2006.



|                                                 |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|------------------------------------------------ |  | ------------------------ | ---------- | ------------ | - | ------------ |  | ---------- | --------- | ----- | - | --------- |  | - | ----------
|                                                 |  | As of September 30, 2006
|                                                 |  | Payment Due by Period   
|                                                 |  | Less than 1Year          |            | 1 to 3 Years |   | 3 to 5 Years |  | Thereafter |           | Total
|(in thousands)                                   |  |                          |            |              |   |              |  |            |           |      
|Contractual Obligations                          |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|Member term deposits                             |  | $                        | 56,475     |              | $ |              |  | $          |           |       | $ |           |  | $ | 56,475    
|Securities sold under agreement to repurchase    |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|Consolidated obligations                         |  |                          | 21,339,183 |              |   | 15,175,025   |  |            | 4,062,020 |       |   | 9,285,355 |  |   | 49,861,583
|Consolidated obligation bonds traded not settled |  |                          | 865,000    |              |   | 1,054,230    |  |            | 25,000    |       |   | 50,000    |  |   | 1,994,230 
|Derivative liabilities                           |  |                          | 54,478     |              |   |              |  |            |           |       |   |           |  |   | 54,478    
|Mandatorily redeemable capital stock             |  |                          |            |              |   |              |  |            | 69,222    |       |   |           |  |   | 69,222    
|Operating leases                                 |  |                          | 2,335      |              |   | 5,670        |  |            | 6,063     |       |   | 5,004     |  |   | 19,072    
|                                                 |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|Total contractual obligations                    |  | $                        | 22,317,471 |              | $ | 16,234,925   |  | $          | 4,162,305 |       | $ | 9,340,359 |  | $ | 52,055,060
|                                                 |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|Other Commitments                                |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|Commitments for additional advances              |  | $                        | 38,683     |              | $ | 18,309       |  | $          |           |       | $ |           |  | $ | 56,992    
|Standby letters of credit                        |  |                          | 124,624    |              |   | 13,738       |  |            |           |       |   |           |  |   | 138,362   
|Standby bond purchase agreements                 |  |                          |            |              |   | 71,740       |  |            |           |       |   |           |  |   | 71,740    
|Unused lines of credit and other commitments     |  |                          |            |              |   | 50,000       |  |            |           |       |   |           |  |   | 50,000    
|                                                 |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           
|Total other commitments                          |  | $                        | 163,307    |              | $ | 153,787      |  | $          |           |       | $ |           |  | $ | 317,094   
|                                                 |  |                          |            |              |   |              |  |            |           |       |   |           |  |   |           

As of June 23, 2006, the FHLBanks entered into the Federal Home Loan Banks P&I Funding
and Contingency Plan Agreement, or the Contingency Agreement, effective as of July 20, 2006. The FHLBanks and the Office of Finance entered into the Contingency Agreement in response to the Board of Governors of the Federal Reserve System
revising its Policy Statement on Payments System Risk concerning the disbursement by the Federal Reserve Banks of interest and principal payments on securities issued by GSEs, such as the FHLBanks. Under the Contingency Agreement, in the event that
one or more FHLBanks does not fund its principal and interest payments under a consolidated obligation by deadlines agreed upon by the FHLBanks, the other FHLBanks will be responsible for those payments in a manner as described in the Contingency
Agreement. We have not funded any consolidated obligation principal and interest payments under the Contingency Agreement.

Results of Operations

For the Three and Nine Months Ended September 30, 2006 and 2005

The Seattle Banks net income decreased by $5.2 million, to $9.1 million, and increased by $8.8 million, to $19.6 million, for the three and nine
months ended September 30, 2006, compared to the same periods in 2005. The decrease in net income was primarily due to net income from the sale of mortgage loans held for sale during the third quarter of 2005, without similar income from such
an event in the third quarter of 2006. The increase in net income was primarily a result of decreased operating expenses and greater losses on derivatives and hedging activities in 2005, partially offset by a decrease in net interest income in 2006.

As of September 30, 2006, we had net unrealized market value losses of $319.4 million, which in accordance with U.S. GAAP are not
reflected in our Statement of Condition. See Note 8 of our condensed notes to our unaudited financial statements for the quarter ended September 30, 2006. These unrealized market value losses will continue to depress our net income in
future periods, particularly during the remainder of 2006, with diminishing effects in 2007 and beyond.



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Net Interest Income

Net interest income is the primary performance measure for our ongoing operations. Our net interest income consists of interest earned on advances, mortgage loans held for portfolio, and investments, less interest
accrued or paid on consolidated obligations, deposits, and other borrowings. Our net interest income is affected by changes in the average balance (volume) of our interest-earning assets and interest-bearing liabilities and changes in the average
yield (rate) for both the interest-earning assets and interest-bearing liabilities. These changes are influenced by economic factors and by changes in our products or services. Interest rates are the primary economic factor affecting net interest
income. Beginning in 2001 and through 2003, the Federal Reserve Open Market Committee reduced its target for the federal funds rate by 550 basis points. Although the federal funds rate increased by 100 basis points during the nine months
ended September 30, 2006, 200 basis points during 2005, and 125 basis points during 2004, the historically low interest rates and the sustained period of such low interest rates significantly impacted in 2005 and during the nine
months ended September 30, 2006, and continue to impact, our net interest income through both our interest income and interest expense.

The following table presents the components of our net interest income for the three and nine months ended September 30, 2006 and 2005.



|                       |  |                                          |         |      |                                         |                      |  |      |      |  |      |           |                      |   |           |  |       |  
|---------------------- |  | ---------------------------------------- | ------- | ---- | --------------------------------------- | -------------------- |  | ---- | ---- |  | ---- | --------- | -------------------- | - | --------- |  | ----- | -
|                       |  | For the Three Months Ended September 30, |         |      | For the Nine Months Ended September 30, |                     
|                       |  | 2006                                     |         | 2005 |                                         | % Increase(Decrease) |  |      | 2006 |  | 2005 |           | % Increase(Decrease) |  
|(dollars in thousands) |  |                                          |         |      |                                         |                      |  |      |      |  |      |           |                      |  
|Interest income        |  | $                                        | 664,038 |      | $                                       | 505,731              |  | 31.3 |      |  | $    | 1,862,899 |                      | $ | 1,416,625 |  | 31.5  |  
|Interest expense       |  |                                          | 641,799 |      |                                         | 481,627              |  | 33.3 |      |  |      | 1,806,751 |                      |   | 1,335,037 |  | 35.3  |  
|                       |  |                                          |         |      |                                         |                      |  |      |      |  |      |           |                      |   |           |  |       |  
|Net interest income    |  | $                                        | 22,239  |      | $                                       | 24,104               |  | (7.7 | )    |  | $    | 56,148    |                      | $ | 81,588    |  | (31.2 | )
|                       |  |                                          |         |      |                                         |                      |  |      |      |  |      |           |                      |   |           |  |       |  

Both total interest income and total interest expense increased for the three and nine months
ended September 30, 2006, compared to the same periods in 2005, because of the higher prevailing interest rates and increases in advances and the debt required to fund those advances. As discussed in more detail below, our net interest income
declined, primarily due to the continuing effects of both the flattened yield curve and our investment in the consolidated obligations of other FHLBanks.

In addition, the requirements of the Finance Board agreement, implementation of the business plan, and changes to our policies relating to retained earnings, dividends, and stock repurchases have had and could in the
future have a negative impact on our net interest income.



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##### Table of Contents

Average Balances, Interest Income and Expense, and Average Yields. The following tables present
average balances and yields, and interest income and expense of major categories of interest-earning assets and interest-bearing liabilities, for the three and nine months ended September 30, 2006 and 2005. The tables also present spreads
between the average yield on total earning assets and the average cost of interest-bearing liabilities for the three and nine months ended September 30, 2006 and 2005.



|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|------------------------------------ |  | ---------------------------------------- | ---------- | ----------------------- | - | ------- | ---------- |  | -------------- |  | ----------------------- | ---------- | ---------- | - | ------- |  | ----- | -
|                                     |  | For the Three Months Ended September 30, |           
|                                     |  | 2006                                     |            | 2005                    |  
|                                     |  | AverageBalance                           |            | InterestIncome /Expense |   |         | Avg.Yield% |  | AverageBalance |  | InterestIncome /Expense |            | Avg.Yield% |  
|(dollars in thousands)               |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |  
|Interest-Earning Assets              |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Advances                             |  | $                                        | 27,568,034 |                         | $ | 369,676 |            |  | 5.32           |  | $                       | 18,385,606 |            | $ | 175,156 |  | 3.78  |  
|Investments                          |  |                                          | 18,688,311 |                         |   | 211,483 |            |  | 4.49           |  |                         | 24,681,117 |            |   | 218,908 |  | 3.52  |  
|Mortgage loans held for portfolio    |  |                                          | 6,669,850  |                         |   | 82,878  |            |  | 4.93           |  |                         | 8,708,471  |            |   | 111,651 |  | 5.09  |  
|Other interest-earning assets        |  |                                          | 35         |                         |   | 1       |            |  | 5.34           |  |                         | 1,630      |            |   | 16      |  | 3.78  |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Total interest-earning assets        |  |                                          | 52,926,230 |                         |   | 664,038 |            |  | 4.98           |  |                         | 51,776,824 |            |   | 505,731 |  | 3.88  |  
|Other assets                         |  |                                          | 360,901    |                         |   |         |            |  |                |  |                         | 278,529    |            |   |         |  |       |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Total assets                         |  | $                                        | 53,287,131 |                         |   |         |            |  |                |  | $                       | 52,055,353 |            |   |         |  |       |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Interest-Bearing Liabilities         |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Consolidated obligations             |  | $                                        | 49,550,873 |                         |   | 631,459 |            |  | 5.06           |  | $                       | 47,884,548 |            |   | 471,577 |  | 3.91  |  
|Deposits                             |  |                                          | 667,080    |                         |   | 8,694   |            |  | 5.17           |  |                         | 835,249    |            |   | 7,089   |  | 3.37  |  
|Mandatorily redeemable Class B stock |  |                                          | 69,013     |                         |   |         |            |  |                |  |                         | 67,467     |            |   |         |  |       |  
|Other borrowings                     |  |                                          | 126,782    |                         |   | 1,646   |            |  | 5.15           |  |                         | 357,170    |            |   | 2,961   |  | 3.29  |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Total interest-bearing liabilities   |  |                                          | 50,413,748 |                         |   | 641,799 |            |  | 5.05           |  |                         | 49,144,434 |            |   | 481,627 |  | 3.89  |  
|Other liabilities                    |  |                                          | 652,359    |                         |   |         |            |  |                |  |                         | 704,113    |            |   |         |  |       |  
|Capital                              |  |                                          | 2,221,024  |                         |   |         |            |  |                |  |                         | 2,206,806  |            |   |         |  |       |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Total liabilities and capital        |  | $                                        | 53,287,131 |                         |   |         |            |  |                |  | $                       | 52,055,353 |            |   |         |  |       |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Net interest income                  |  |                                          |            |                         | $ | 22,239  |            |  |                |  |                         |            |            | $ | 24,104  |  |       |  
|                                     |  |                                          |            |                         |   |         |            |  |                |  |                         |            |            |   |         |  |       |  
|Interest-rate spread                 |  |                                          |            |                         |   | (0.07   | )          |  |                |  |                         |            |            |   |         |  | (0.01 | )
|Interest-rate margin                 |  |                                          |            |                         |   | 0.17    |            |  |                |  |                         |            |            |   |         |  | 0.18  |  



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##### Table of Contents

|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|------------------------------------ |  | --------------------------------------- | ---------- | ----------------------- | - | --------- | ---------- |  | -------------- |  | ----------------------- | ---------- |  | ----------- | --------- | - |  | ----
|                                     |  | For the Nine Months Ended September 30,
|                                     |  | 2006                                    |            | 2005                   
|                                     |  | AverageBalance                          |            | InterestIncome /Expense |   |           | Avg.Yield% |  | AverageBalance |  | InterestIncome /Expense |            |  | Avg. Yield%
|(dollars in thousands)               |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |            
|Interest-Earning Assets              |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Advances                             |  | $                                       | 24,908,589 |                         | $ | 927,172   |            |  | 4.98           |  | $                       | 17,796,354 |  | $           | 466,957   |   |  | 3.51
|Investments                          |  |                                         | 20,950,559 |                         |   | 672,461   |            |  | 4.29           |  |                         | 22,277,674 |  |             | 595,022   |   |  | 3.57
|Mortgage loans held for portfolio    |  |                                         | 6,885,757  |                         |   | 263,247   |            |  | 5.11           |  |                         | 9,585,465  |  |             | 354,620   |   |  | 4.95
|Other interest-earning assets        |  |                                         | 478        |                         |   | 19        |            |  | 5.12           |  |                         | 1,094      |  |             | 26        |   |  | 3.21
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Total interest-earning assets        |  |                                         | 52,745,383 |                         |   | 1,862,899 |            |  | 4.72           |  |                         | 49,660,587 |  |             | 1,416,625 |   |  | 3.81
|Other assets                         |  |                                         | 320,659    |                         |   |           |            |  |                |  |                         | 286,154    |  |             |           |   |  |     
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Total assets                         |  | $                                       | 53,066,042 |                         |   |           |            |  |                |  | $                       | 49,946,741 |  |             |           |   |  |     
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Interest-Bearing Liabilities         |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Consolidated obligations             |  | $                                       | 49,257,207 |                         |   | 1,774,983 |            |  | 4.82           |  | $                       | 45,527,061 |  |             | 1,304,245 |   |  | 3.83
|Deposits                             |  |                                         | 672,947    |                         |   | 24,020    |            |  | 4.77           |  |                         | 788,591    |  |             | 16,890    |   |  | 2.86
|Mandatorily redeemable Class B stock |  |                                         | 67,971     |                         |   |           |            |  |                |  |                         | 223,163    |  |             | (3        | ) |  |     
|Other borrowings                     |  |                                         | 220,670    |                         |   | 7,748     |            |  | 4.69           |  |                         | 687,841    |  |             | 13,905    |   |  | 2.70
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Total interest-bearing liabilities   |  |                                         | 50,218,795 |                         |   | 1,806,751 |            |  | 4.81           |  |                         | 47,226,656 |  |             | 1,335,037 |   |  | 3.78
|Other liabilities                    |  |                                         | 633,218    |                         |   |           |            |  |                |  |                         | 716,815    |  |             |           |   |  |     
|Capital                              |  |                                         | 2,214,029  |                         |   |           |            |  |                |  |                         | 2,003,270  |  |             |           |   |  |     
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Total liabilities and capital        |  | $                                       | 53,066,042 |                         |   |           |            |  |                |  | $                       | 49,946,741 |  |             |           |   |  |     
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Net interest income                  |  |                                         |            |                         | $ | 56,148    |            |  |                |  |                         |            |  | $           | 81,588    |   |  |     
|                                     |  |                                         |            |                         |   |           |            |  |                |  |                         |            |  |             |           |   |  |     
|Interest-rate spread                 |  |                                         |            |                         |   | (0.09     | )          |  |                |  |                         |            |  |             | 0.03      |   |  |     
|Interest-rate margin                 |  |                                         |            |                         |   | 0.14      |            |  |                |  |                         |            |  |             | 0.22      |   |  |     

For the three and nine months ended September 30, 2006, the composition of our
interest-earning assets changed significantly from that of the same periods in 2005 as we continued to refocus our business on advances, with the average balance of our advances increasing and the average balance of our mortgage loans held for
portfolio and investments decreasing. The significant increases in advances largely reflected the results of our efforts to become an advance-focused bank, our continued use of differential pricing, and, to a lesser degree, our lowering of our
members activity-based stock requirement from 3.50% to 2.50% in March 2006. The reduction in mortgage loans held for portfolio reflected our decision in early 2005 to exit the MPP, which led to our discontinuing the purchase of new mortgage
loans and, and in August 2005, our sale of $1.4 billion of government-insured mortgage loans to an affiliate of one of our members. The decrease in investments resulted from our use of funds to make advances. We expect our investments and the
related interest income to eventually decrease as a percentage of total assets and total interest income as we increase our advance balance.

The 300 basis point increase in the federal funds rate between January 1, 2005 and September 30, 2006, caused a similar increase in short-term interest rates, which resulted in higher average yields on our interest-earning
assets and higher average costs on our interest-bearing liabilities during the three and nine months ended September 30, 2006. However, during those periods, we experienced a larger increase in the average cost on our interest-bearing
liabilities than in the average yield on our interest-earning assets, compressing our interest-rate spread by 6 basis points and 12 basis points, to negative 7 basis points and negative 9 basis points, and decreasing our net interest
income for the three and nine months ended September 30, 2006. This compression of our interest-rate spread primarily resulted from a mismatch between the timing of interest-rate changes on our interest-earning assets and interest-rate changes
on our interest bearing liabilities, due to the differences in the length of the repricing periods of these assets and liabilities. The mismatches arose primarily from two sources: (i) our investment in the consolidated obligations of other
FHLBanks; and (ii) the funding for our mortgage loans held for portfolio. The terms of the consolidated obligations we issued contemporaneously with our investments in the consolidated obligations of other FHLBanks did not match the maturities
and call options of the investments. As a result, in a rising short-term interest rate environment, we have experienced negative spread on these investments which will continue to depress our net income during the remainder of 2006, with diminishing
effects in 2007 and beyond. In addition, we issued short-term consolidated obligations to fund some of our long-term mortgage loans. As the short-term obligations have matured, we have had to replace them with higher-cost short-term debt, which has
compressed the spread on the mortgage loan portfolio.



40



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##### Table of Contents

Investing and funding decisions the Seattle Bank made prior to 2005 are described more fully in
 Financial Condition  Investments.

Changes in Volume and Rate. The following table separates the two
principal components of the changes in our net interest income  interest income and interest expense  identifying the amounts due to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in the
average interest rate, for the three and nine months ended September 30, 2006 and 2005.



|                                  |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  
|--------------------------------- |  | --------------------------------------- | ------ | - | --------------------------------------- | - | ------ | ----- |  | - | ------- | - |  | ----- | ------ | ----- |  | - | ------ |  | - | ------ | -
|                                  |  | For the Three Months EndedSeptember 30, |        |   | For the Nine Months Ended September 30, |  
|                                  |  | 2006 vs. 2005 Increase (Decrease)       |        |   | 2006 vs. 2005 Increase (Decrease)       |  
|                                  |  | Volume*                                 |        |   | Rate*                                   |   |        | Total |  |   | Volume* |   |  | Rate* |        | Total | 
|(in millions)                     |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       | 
|Interest Income                   |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  
|Advances                          |  | $                                       | 87.48  |   |                                         | $ | 107.04 |       |  | $ | 194.52  |   |  | $     | 186.62 |       |  | $ | 273.59 |  | $ | 460.21 |  
|Investments                       |  |                                         | (53.16 | ) |                                         |   | 45.72  |       |  |   | (7.44   | ) |  |       | (35.46 | )     |  |   | 112.89 |  |   | 77.43  |  
|Mortgage loans held for portfolio |  |                                         | (26.14 | ) |                                         |   | (2.63  | )     |  |   | (28.77  | ) |  |       | (99.88 | )     |  |   | 8.51   |  |   | (91.37 | )
|                                  |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  
|Total interest income             |  |                                         |        |   |                                         |   |        |       |  |   | 158.31  |   |  |       |        |       |  |   |        |  |   | 446.27 |  
|                                  |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  
|Interest Expense                  |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  
|Consolidated obligations          |  |                                         | 16.41  |   |                                         |   | 143.47 |       |  |   | 159.88  |   |  |       | 106.86 |       |  |   | 363.87 |  |   | 470.73 |  
|Deposits and other borrowings     |  |                                         | (3.36  | ) |                                         |   | 3.65   |       |  |   | 0.29    |   |  |       | (12.15 | )     |  |   | 13.13  |  |   | 0.98   |  
|                                  |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  
|Total interest expense            |  |                                         |        |   |                                         |   |        |       |  |   | 160.17  |   |  |       |        |       |  |   |        |  |   | 471.71 |  
|                                  |  |                                         |        |   |                                         |   |        |       |  |   |         |  
|Change in net interest income     |  |                                         |        |   |                                         |   |        |       |  | $ | (1.86   | ) |  |       |        |       |  |   |        |  | $ | (25.44 | )
|                                  |  |                                         |        |   |                                         |   |        |       |  |   |         |   |  |       |        |       |  |   |        |  |   |        |  

| | 
| | 

| | * | Changes in interest income and interest expense not identifiable as either volume-related or rate-related, but rather equally attributable to both volume and rate changes, are
allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the three and nine months ended September 30, 2006, compared to the same periods in 2005, net interest income declined because interest expense on interest-bearing liabilities increased faster than interest income on
interest-earning assets for the reasons described above and below.

Interest Income

The following table presents the components of our interest income by category of interest-earning assets and the percentage change in each category for
the three and nine months ended September 30, 2006 and 2005.



|                                  |  |                                          |         |      |                                         |                      |  |         |      |  |      |           |                      |   |           |  |       |  
|--------------------------------- |  | ---------------------------------------- | ------- | ---- | --------------------------------------- | -------------------- |  | ------- | ---- |  | ---- | --------- | -------------------- | - | --------- |  | ----- | -
|                                  |  | For the Three Months Ended September 30, |         |      | For the Nine Months Ended September 30, |                     
|                                  |  | 2006                                     |         | 2005 |                                         | % Increase(Decrease) |  |         | 2006 |  | 2005 |           | % Increase(Decrease) |  
|(dollars in thousands)            |  |                                          |         |      |                                         |                      |  |         |      |  |      |           |                      |  
|Advances                          |  | $                                        | 369,587 |      | $                                       | 175,152              |  | 111.0   |      |  | $    | 926,661   |                      | $ | 464,825   |  | 99.4  |  
|Prepayment fees on advances       |  |                                          | 89      |      |                                         | 4                    |  | 2,125.0 |      |  |      | 511       |                      |   | 2,132     |  | (76.0 | )
|                                  |  |                                          |         |      |                                         |                      |  |         |      |  |      |           |                      |   |           |  |       |  
|Subtotal                          |  |                                          | 369,676 |      |                                         | 175,156              |  | 111.1   |      |  |      | 927,172   |                      |   | 466,957   |  | 98.6  |  
|Investments                       |  |                                          | 211,483 |      |                                         | 218,908              |  | (3.4    | )    |  |      | 672,461   |                      |   | 595,022   |  | 13.0  |  
|Mortgage loans held for portfolio |  |                                          | 82,878  |      |                                         | 111,651              |  | (25.8   | )    |  |      | 263,247   |                      |   | 354,620   |  | (25.8 | )
|Other                             |  |                                          | 1       |      |                                         | 16                   |  | (93.8   | )    |  |      | 19        |                      |   | 26        |  | (26.9 | )
|                                  |  |                                          |         |      |                                         |                      |  |         |      |  |      |           |                      |   |           |  |       |  
|Total interest income             |  | $                                        | 664,038 |      | $                                       | 505,731              |  | 31.3    |      |  | $    | 1,862,899 |                      | $ | 1,416,625 |  | 31.5  |  
|                                  |  |                                          |         |      |                                         |                      |  |         |      |  |      |           |                      |   |           |  |       |  

The increases in total interest income for the three and nine months ended September 30,
2006, compared to the same periods in 2005, were primarily due to the significant increases in the volume and yield on our advances, and for the nine months ended September 30, 2006, the increased yield on our investments. These increases in
total interest income were partially offset by a significant decrease in the interest income on our mortgage loans held for portfolio and on our investments, primarily resulting from decreases in the volume of these categories as we continued to
refocus our business on advances.

Advances. Interest income from advances increased 111.1% and 98.6% for the three and nine months
ended September 30, 2006, compared to the same periods in 2005, due to significant increases in the average advance balance and increases in average yield on advances. We increased our average advance balance by $9.2 billion and $7.1 billion
for the



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three and nine months ended September 30, 2006, representing a 50.0% and 40.0% growth in the average advance balance. The yield on advances increased by
154 basis points to 5.32% and 147 basis points to 4.98% for the three and nine months ended September 30, 2006, primarily due to significantly higher prevailing short-term interest rates during these periods, compared to the same periods
in 2005.

We expect to continue to increase our average advance balance in the future. In refocusing our business on advances, we have
offered additional advance products, significantly increased our use of differential pricing, and enhanced our marketing efforts. However, as a result of the use of differential pricing, we expect our overall advance balance to continue to be
dependent upon the borrowing decisions of a few large members. We expect that our use of differential pricing will generate spreads similar to those earned on investments in federal funds, while we increase our advance balance. Consequently, we
would not expect repayments of advances by these members to unfavorably affect our net interest income because we would likely invest the proceeds of any such advance repayments in federal funds.

Prepayment Fees on Advances.During the three and nine months ended September 30, 2006, we recorded prepayment fee income of $89,000 and
$511,000, compared to $4,000 and $2.1 million for the same periods in 2005. Of the $2.1 million of prepayment fee income recorded for the nine months ended September 30, 2005, $1.4 million was due to one borrower prepaying $258.0 million
of advances in the first quarter of 2005.

Investments. Interest income from investments, which includes short-term investments
(e.g., interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold) and long-term investments (e.g., held-to-maturity securities and trading securities), decreased by 3.4% for the three months ended
September 30, 2006, and increased by 13.0% for the nine months ended September 30, 2006, compared to the same periods in 2005. The decrease for the three months ended September 30, 2006, compared to the same period in 2005, primarily
resulted from a 24.3% decrease in our average investment portfolio balance, partially offset by increases in short-term interest rates that increased the yields earned on our investment portfolio by 97 basis points. The increase for the nine months
ended September 30, 2006, compared to the same period in 2005, was primarily due to a 72 basis point increase in our investment yields, partially offset by a 6.0% reduction in our average investment portfolio balance.

Mortgage Loans Held for Portfolio. Interest income from mortgage loans held for portfolio decreased by 25.8% for both the three and nine months
ended September 30, 2006, compared to the same periods in 2005. The decreases were due to significant declines in the average balance of mortgage loans held for portfolio resulting from our decision to exit the MPP, as well as our sale of
$1.4 billion of our government-insured mortgage loans in August 2005. The average balance of our mortgage loans held for portfolio during the three and nine months ended September 30, 2006 was $6.7 billion and $6.9 billion, a $2.0
billion and $2.7 billion decrease from the same periods in 2005.

In addition, for the three months ended September 30, 2006, there
was a 16 basis point decrease in the average yield on mortgage loans held for portfolio compared to the same period in 2005. In contrast, partially offsetting the decline in interest income caused by the reduction in the average balance for the nine
month period ended September 30, 2006, was a 16 basis point increase in the average yield on mortgage loans held for portfolio, compared to the same period in 2005. The balance of our remaining mortgage loans will continue to decrease as these
loans are paid off.

Interest Expense

The following table presents the components of our interest expense by category of interest-bearing liability and the percentage change in each category for the three and nine months ended September 30, 2006, compared to the same
periods in 2005.



|                                                          |  |                                          |         |      |                                         |                      |  |       |      |  |      |           |                      |   |           |  |       |  
|--------------------------------------------------------- |  | ---------------------------------------- | ------- | ---- | --------------------------------------- | -------------------- |  | ----- | ---- |  | ---- | --------- | -------------------- | - | --------- |  | ----- | -
|                                                          |  | For the Three Months Ended September 30, |         |      | For the Nine Months Ended September 30, |                     
|                                                          |  | 2006                                     |         | 2005 |                                         | % Increase(Decrease) |  |       | 2006 |  | 2005 |           | % Increase(Decrease) |  
|(dollars in thousands)                                    |  |                                          |         |      |                                         |                      |  |       |      |  |      |           |                      |  
|Consolidated obligations                                  |  | $                                        | 631,459 |      | $                                       | 471,577              |  | 33.9  |      |  | $    | 1,774,983 |                      | $ | 1,304,245 |  | 36.1  |  
|Deposits                                                  |  |                                          | 8,694   |      |                                         | 7,089                |  | 22.6  |      |  |      | 24,020    |                      |   | 16,890    |  | 42.2  |  
|Mandatorily redeemable Class B stock and other borrowings |  |                                          | 1,646   |      |                                         | 2,961                |  | (44.4 | )    |  |      | 7,748     |                      |   | 13,902    |  | (44.3 | )
|                                                          |  |                                          |         |      |                                         |                      |  |       |      |  |      |           |                      |   |           |  |       |  
|Total interest expense                                    |  | $                                        | 641,799 |      | $                                       | 481,627              |  | 33.3  |      |  | $    | 1,806,751 |                      | $ | 1,335,037 |  | 35.3  |  
|                                                          |  |                                          |         |      |                                         |                      |  |       |      |  |      |           |                      |   |           |  |       |  



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##### Table of Contents

Consolidated Obligations. Interest expense on consolidated obligations increased by $159.9 million
and $470.7 million for the three and nine months ended September 30, 2006, compared to the same periods in 2005. These increases were the result of significant increases in the volume of borrowings and increases in the average yield on our
borrowings during the first nine months of 2006 and the last nine months of 2005. The average balance of consolidated obligations increased by $1.7 billion and $3.7 billion, representing increases of 3.5% and 8.2% for the three and nine months
ended September 30, 2006, compared to the same periods in 2005. We increased the average balance of our consolidated obligations in order to fund growth in our advances and to purchase short-term investments as part of our strategy of managing
our business to a capital-to assets ratio of 4.30% to more fully use our capital. The average yield on consolidated obligations increased by 115 basis points and 99 basis points for the three and nine months ended September 30, 2006,
compared to the same periods in 2005, due to the addition of new consolidated obligations at generally higher costs than the existing obligations held or the obligations replaced.

Deposits. Interest expense on deposits increased by 22.6% and 42.2% for the three and nine months ended September 30, 2006, compared to the
same periods in 2005, due to 180 basis point and 191 basis point increases in the average yield paid to members for the three and nine months ended September 30, 2006. These increases were partially offset by $168.2 million and $115.6
million decreases in the average balances of deposits during these periods, compared to the same periods in 2005.

Mandatorily
Redeemable Class B Stock and Other Borrowings.Interest expense on mandatorily redeemable Class B stock and other borrowings decreased $1.3 million and $6.2 million for the three and nine months ended September 30, 2006, compared to the
same periods in 2005. These decreases were primarily due to a large decrease in securities sold with the intent to repurchase.

Effect of Derivatives
and Hedging on Net Interest Income

The following table presents the effect of derivatives and hedging on the components of our interest
income and interest expense for the three and nine months ended September 30, 2006 and 2005.



|                                       |  |                                                    |         |   |                                                   |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------- |  | -------------------------------------------------- | ------- | - | ------------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                       |  | Net Change for the Three MonthsEnded September 30, |         |   | Net Change for the Nine MonthsEnded September 30, |  
|                                       |  | 2006                                               |         |   | 2005                                              |   |         | 2006 |  |   | 2005    |  
|(in thousands)                         |  |                                                    |         |   |                                                   |   |         |      |  |   |         |  
|Increase (Decrease) in Interest Income |  |                                                    |         |   |                                                   |   |         |      |  |   |         |   |  |   |         |  
|Advances                               |  | $                                                  | 10,851  |   |                                                   | $ | (7,966  | )    |  | $ | 21,450  |   |  | $ | (39,409 | )
|Increase in Interest Expense           |  |                                                    |         |   |                                                   |   |         |      |  |   |         |   |  |   |         |  
|Consolidated obligations               |  |                                                    | (35,508 | ) |                                                   |   | (8,119  | )    |  |   | (75,672 | ) |  |   | (3,103  | )
|                                       |  |                                                    |         |   |                                                   |   |         |      |  |   |         |   |  |   |         |  
|Decrease in net interest income        |  | $                                                  | (24,657 | ) |                                                   | $ | (16,085 | )    |  | $ | (54,222 | ) |  | $ | (42,512 | )
|                                       |  |                                                    |         |   |                                                   |   |         |      |  |   |         |   |  |   |         |  

We use derivative instruments to manage our exposure to changes in interest rates and to adjust
the effective maturity, repricing frequency, or option characteristics of our assets and liabilities in response to changing market conditions. We often use interest-rate exchange agreements to hedge fixed-rate advances and consolidated obligations
by effectively converting their fixed rates to short-term floating rates. Our use of interest-rate exchange agreements had a net unfavorable impact on our net interest income for the three months and nine months ended September 30, 2006 and
2005, primarily because we held higher notional balances in interest-rate exchange agreements hedging consolidated obligations than hedging advances. As a result, the effective conversion of our consolidated obligations to short-term floating rates,
combined with significant increases in short-term interest rates, contributed to the declines in net interest income for the three and nine months ended September 30, 2006 and 2005.

Other Income (Loss)

Other income (loss) includes member service fees, loss on held-to-maturity
securities, (loss) gain on trading securities, (loss) gain on derivatives and hedging activities, gain (loss) from early extinguishment of consolidated obligations, and other miscellaneous income or loss not included in net interest income. Because
of the type of financial activity reported in this category, other income (loss) can be volatile from one period to another. For instance, gain and loss on derivatives and hedging activities is highly dependent on changes in interest rates and
spreads between various interest-rate yield curves.



43



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##### Table of Contents

The following table presents the components of our other income (loss) for the three and nine months
ended September 30, 2006 and 2005.



|                                                                      |  |                                         |        |   |                                         |   |         |                      |  |        |      |  |   |        |   |  |                      |         |   |  |       |  
|--------------------------------------------------------------------- |  | --------------------------------------- | ------ | - | --------------------------------------- | - | ------- | -------------------- |  | ------ | ---- |  | - | ------ | - |  | -------------------- | ------- | - |  | ----- | -
|                                                                      |  | For the Three Months EndedSeptember 30, |        |   | For the Nine Months Ended September 30, |  
|                                                                      |  | 2006                                    |        |   | 2005                                    |   |         | % Increase(Decrease) |  |        | 2006 |  |   | 2005   |   |  | % Increase(Decrease) |        
|(dollars in thousands)                                                |  |                                         |        |   |                                         |   |         |                      |  |        |      |  |   |        |   |  |                      |        
|Service fees                                                          |  | $                                       | 407    |   |                                         | $ | 567     |                      |  | (28.2  | )    |  | $ | 1,290  |   |  | $                    | 1,617   |   |  | (20.2 | )
|Net loss on sale of held-to-maturity securities                       |  |                                         | (4,754 | ) |                                         |   |         |                      |  | *      |      |  |   | (6,376 | ) |  |                      |         |   |  | *     |  
|Net (loss) gain on trading securities                                 |  |                                         |        |   |                                         |   | (13,750 | )                    |  | *      |      |  |   |        |   |  |                      | 8,195   |   |  | *     |  
|Net (loss) gain on derivatives and hedging activities                 |  |                                         | (119   | ) |                                         |   | 17,436  |                      |  | (100.7 | )    |  |   | 2,408  |   |  |                      | (32,845 | ) |  | 107.3 |  
|Net gain (loss) from early extinguishment of consolidated obligations |  |                                         | 4,777  |   |                                         |   |         |                      |  | *      |      |  |   | 6,522  |   |  |                      | (3,041  | ) |  | 314.5 |  
|Net gain on the sale of mortgage loans held for sale                  |  |                                         |        |   |                                         |   | 7,019   |                      |  | *      |      |  |   |        |   |  |                      | 7,019   |   |  | *     |  
|Other income (loss), net                                              |  |                                         | 3      |   |                                         |   | (1,263  | )                    |  | 100.2  |      |  |   | (75    | ) |  |                      | (1,479  | ) |  | 94.9  |  
|                                                                      |  |                                         |        |   |                                         |   |         |                      |  |        |      |  |   |        |   |  |                      |         |   |  |       |  
|Total other income (loss)                                             |  | $                                       | 314    |   |                                         | $ | 10,009  |                      |  | (96.9  | )    |  | $ | 3,769  |   |  | $                    | (20,534 | ) |  | 118.4 |  
|                                                                      |  |                                         |        |   |                                         |   |         |                      |  |        |      |  |   |        |   |  |                      |         |   |  |       |  

| | 
| | 

| | * | not meaningful
| | - | --------------

Total other income (loss) decreased by
$9.7 million for the three months ended September 30, 2006, and increased by $24.3 million for the nine months ended September 30, 2006, compared to the same periods in 2005. The decrease for the three months ended September 30,
2006, compared to the same period in 2005, was primarily due to a one-time sale of mortgage loans held for sale that resulted in a gain of $7.0 million in the third quarter of 2005, with no comparable activity in the same period of 2006. The
increase for the nine months ended September 30, 2006, compared to the same period in 2005, was primarily due to a $35.3 million increase from derivatives and hedging activities and a $9.6 million increase from early extinguishment of
consolidated obligations, partially offset by an $8.2 million decrease in net gain on trading securities. These changes are discussed in more detail below.

Net Loss on Sale of Held-to-Maturity Securities. In June and July 2006, we sold $250 million and $750 million of consolidated obligation bonds of other FHLBanks that were within three months of maturity,
resulting in losses of $4.8 million and $6.4 million for the three and nine months ended September 30, 2006. There were no comparable sales during the same periods in 2005.

Net (Loss) Gain on Trading Securities.As of September 30, 2006, we did not hold any trading securities. As of September 30, 2005, our
trading securities consisted of one GSE debt obligation, which we sold in December 2005. This trading security was economically hedged by an interest-rate exchange agreement that was terminated when we sold the trading security. We recorded the
changes in fair value of the trading security and the associated interest-rate exchange agreement as net gain from trading securities and net (loss) gain on derivatives and hedging activities in our Statements of Income. We reported interest income
earned on the trading security in interest income and the interest expense on the interest-rate exchange agreements in net (loss) gain on derivatives and hedging activities in our Statements of Income. We had a net loss on the trading security of
$13.8 million and a net gain on the trading security of $8.2 million for the three and nine months ending September 30, 2005. We had a net gain on the interest-rate exchange agreement that economically hedged the trading security of $12.7
million and a net loss of $10.5 million for the three and nine months ending September 30, 2005.

Net (Loss) Gain on Derivatives
and Hedging Activities. For the three and nine months ended September 30, 2006, compared to the same periods in 2005, much of the change in our total net (loss) gain on derivatives and hedging activities was due to the termination of an
interest-rate exchange agreement used to economically hedge a trading security as discussed above. The interest-rate exchange agreement was terminated in the fourth quarter of 2005 at the same time the trading security was sold. In addition, we
hedged our mortgage purchases and sales in 2005, with no comparable activity in 2006.

Mortgage Loans/Commitments. Commitments to
purchase mortgage loans are classified as derivatives, and the changes in the fair value of the commitments are included in other income (loss). We are exiting the MPP and have ceased entering into new master commitments. For the three and nine
months ended September 30, 2006, the change in the fair value on our mortgage commitments was zero, compared to a loss of $9,600 and a gain of $365,000 for the same periods in 2005.

As of September 30, 2006, we had no forward settling to-be-announced mortgage-backed securities, or TBAs. In 2005, we purchased TBAs in order to
economically hedge the fair value of our mortgage loans. The fair value adjustment on the TBAs was a gain of $5.6 million and a loss of $3.5 million for the three and nine months ended September 30, 2005. We had no comparable activity in
the first nine months of 2006.



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##### Table of Contents

Consolidated Obligations. For the three and nine months ended September 30, 2006, we
recognized gains of $310,000 and $2.6 million on interest-rate exchange agreements used to hedge consolidated obligations, compared to a gain of $281,000 and a loss of $3.8 million for the same periods in 2005.

Economic Hedges. As of September 30, 2006, we held $300.0 million notional amount of interest-rate caps that are used to economically
hedge changes in the fair value of our assets and liabilities caused by changes in interest rates. Because the interest-rate caps do not qualify for hedge accounting treatment, the changes in the fair value of the interest-rate caps are recorded as
net gain (loss) on derivatives and hedging activities in the Statement of Income.

As of September 30, 2006, and September 30,
2005, we had zero outstanding notional amount of swaptions to economically hedge our interest-rate risk. For the three and nine months ended September 30, 2006, we had no loss related to swaptions, compared to loss allocations of $3.7 million
and $16.0 million for the same periods in 2005.

Net Gain on Trading Securities and Net Gain (Loss) on Derivatives and Hedging
Activities. Our net (loss) gain on trading securities and net (loss) gain on derivatives and hedging activities as described above generally comprise the majority of our other income (loss).

The following tables summarize the components of net gain (loss) on trading securities as well as net gain (loss) on derivatives and hedging activities,
for the three and nine months ended September 30, 2006 and 2005.



|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|----------------------------------------------------- |  | ------------------ | ------- | - | -------------------------- | - | ------- | ----------------------- |  | - | -------------------- | - |  | --------------------- | ------ | - | ----- | - | ---- | - |  | - | ------- | -
|(in thousands)                                        |  | Trading Securities |         |   | Mortgage Loans/Commitments |   |         | ConsolidatedObligations |  |   | StatementofCondition |   |  | IntermediaryPositions |        |   | Total |  
|For the Three Months Ended September 30, 2006         |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Net gain (loss) on derivatives and hedging activities |  | $                  |         |   |                            | $ |         |                         |  | $ | 310                  |   |  | $                     | (358   | ) |       | $ | (71  | ) |  | $ | (119    | )
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Total                                                 |  | $                  |         |   |                            | $ |         |                         |  | $ | 310                  |   |  | $                     | (358   | ) |       | $ | (71  | ) |  | $ | (119    | )
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|For the Three Months Ended September 30, 2005         |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Net loss on trading securities                        |  | $                  | (13,750 | ) |                            | $ |         |                         |  | $ |                      |   |  | $                     |        |   |       | $ |      |   |  | $ | (13,750 | )
|Net gain (loss) on derivatives and hedging activities |  |                    | 12,671  |   |                            |   | 3,233   |                         |  |   | 281                  |   |  |                       | 1,306  |   |       |   | (55  | ) |  |   | 17,436  |  
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Total                                                 |  | $                  | (1,079  | ) |                            | $ | 3,233   |                         |  | $ | 281                  |   |  | $                     | 1,306  |   |       | $ | (55  | ) |  | $ | 3,686   |  
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|                                                      |  |                    |         |   |                            |  
|(in thousands)                                        |  | TradingSecurities  |         |   | MortgageLoans/Commitments  |   |         | ConsolidatedObligations |  |   | StatementofCondition |   |  | IntermediaryPositions |        |   | Total |  
|For the Nine Months Ended September 30, 2006          |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Net gain (loss) on derivatives and hedging activities |  | $                  |         |   |                            | $ |         |                         |  | $ | 2,595                |   |  | $                     | 29     |   |       | $ | (216 | ) |  |   | 2,408   |  
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Total                                                 |  | $                  |         |   |                            | $ |         |                         |  | $ | 2,595                |   |  | $                     | 29     |   |       | $ | (216 | ) |  | $ | 2,408   |  
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|For the Nine Months Ended September 30, 2005          |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Net gain on trading securities                        |  | $                  | 8,195   |   |                            | $ |         |                         |  | $ |                      |   |  | $                     |        |   |       | $ |      |   |  | $ | 8,195   |  
|Net loss on derivatives and hedging activities        |  |                    | (10,526 | ) |                            |   | (13,812 | )                       |  |   | (3,752               | ) |  |                       | (4,674 | ) |       |   | (81  | ) |  |   | (32,845 | )
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  
|Total                                                 |  | $                  | (2,331  | ) |                            | $ | (13,812 | )                       |  | $ | (3,752               | ) |  | $                     | (4,674 | ) |       | $ | (81  | ) |  | $ | (24,650 | )
|                                                      |  |                    |         |   |                            |   |         |                         |  |   |                      |   |  |                       |        |   |       |   |      |   |  |   |         |  

Net Gain (Loss) on Early Extinguishment of Consolidated Obligation Bonds. During the second
and third quarters of 2006, as part of our efforts to enhance economic value and income, we extinguished $111.2 million and $102.9 million of our callable, long-term fixed-rate consolidated obligation bonds having weighted-average interest
rates of 5.83% and 5.64%, and $64.0 million and $2.0 million of short-term consolidated obligation bonds having weighted-average interest rates of 6.72% and 6.50%. These extinguishments resulted in net gains of $4.8 million and $6.5 million for
the three and nine months ended September 30, 2006 on the early extinguishment of consolidated obligation bonds, compared to no gain and a loss of $3.0 million for the same periods in 2005. We continue to review our consolidated
obligations portfolio for opportunities to extinguish debt in order to lower our interest expense and better match the duration of our liabilities to that of our assets.



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##### Table of Contents

Net Gain on the Sale of Mortgage Loans Held for Sale. During the third quarter of 2005, as part of
our exit from the MPP, we sold $1.4 billion of government-insured mortgage loans held for sale at a gain of $7.0 million. There was no comparable activity in 2006.

Other Income (Loss),Other income (loss) increased for the three and nine months ended September 30, 2006, compared to the same periods for 2005. For the three months ended September 30, 2006, other
income increased to $3,000 from a loss of $1.3 million for the same period in 2005. The loss for the third quarter of 2005 primarily resulted from a loss of $1.1 million due to the reclassification of our government-insured mortgage loans from held
for sale to held for portfolio. For the nine months ended September 30, 2006, other income (loss) was a loss of $75,000, compared to a loss of $1.5 million for the same period in 2005. The loss for the nine-month period in 2005 also resulted
primarily from the reclassification described above.

Other Expense

Other expense includes operating expenses, Finance Board and Office of Finance assessments, and other items, which consist primarily of mortgage loan administrative fees paid to vendors related to our mortgage loans
held for portfolio. The following table presents the components of our other expense for the three and nine months ended September 30, 2006, compared to the same periods in 2005.



|                          |  |                                         |        |      |                                         |                     |  |       |      |  |      |        |                     |   |        |  |       |  
|------------------------- |  | --------------------------------------- | ------ | ---- | --------------------------------------- | ------------------- |  | ----- | ---- |  | ---- | ------ | ------------------- | - | ------ |  | ----- | -
|                          |  | For the Three Months EndedSeptember 30, |        |      | For the Nine Months Ended September 30, |                    
|                          |  | 2006                                    |        | 2005 |                                         | %Increase(Decrease) |  |       | 2006 |  | 2005 |        | %Increase(Decrease) |  
|(dollars in thousands)    |  |                                         |        |      |                                         |                     |  |       |      |  |      |        |                     |  
|Operating expenses:       |  |                                         |        |      |                                         |                     |  |       |      |  |      |        |                     |   |        |  |       |  
|Compensation and benefits |  | $                                       | 5,175  |      | $                                       | 5,567               |  | (7.0  | )    |  | $    | 16,376 |                     | $ | 20,097 |  | (18.5 | )
|Occupancy cost            |  |                                         | 204    |      |                                         | 2,476               |  | (91.8 | )    |  |      | 2,382  |                     |   | 6,531  |  | (63.5 | )
|Other operating           |  |                                         | 3,661  |      |                                         | 5,284               |  | (30.7 | )    |  |      | 11,068 |                     |   | 15,521 |  | (28.7 | )
|Finance Board             |  |                                         | 460    |      |                                         | 532                 |  | (13.5 | )    |  |      | 1,377  |                     |   | 1,598  |  | (13.8 | )
|Office of Finance         |  |                                         | 288    |      |                                         | 258                 |  | 11.6  |      |  |      | 981    |                     |   | 842    |  | 16.5  |  
|Other                     |  |                                         | 340    |      |                                         | 437                 |  | (22.2 | )    |  |      | 1,052  |                     |   | 1,518  |  | (30.7 | )
|                          |  |                                         |        |      |                                         |                     |  |       |      |  |      |        |                     |   |        |  |       |  
|Total other expense       |  | $                                       | 10,128 |      | $                                       | 14,554              |  | (30.4 | )    |  | $    | 33,236 |                     | $ | 46,107 |  | (27.9 | )
|                          |  |                                         |        |      |                                         |                     |  |       |      |  |      |        |                     |   |        |  |       |  

Operating Expenses. Operating expenses decreased 32.2% and 29.2% for the three and nine
months ended September 30, 2006, compared to the same periods in 2005, primarily reflecting a 9.4% reduction in staff and a decrease in professional and other contractual services costs related to implementation of the Finance Board agreement
and development of the business plan.

Compensation and benefits expense decreased 7.0% and 18.5% for the three and nine months ended
September 30, 2006, compared to the same periods in 2005, primarily because of the reduction in staff and termination-related expenses. As of September 30, 2006, we had 116 employees, compared to 131 as of September 30, 2005.

Occupancy cost primarily includes the expenses related to our leases on two offices in downtown Seattle and an emergency back-up facility
outside of downtown Seattle. Occupancy cost decreased by 91.8% and 63.5% for the three and nine months ended September 30, 2006, compared to the same periods in 2005, primarily due to leasehold impairment recovery in 2006 resulting from the
receipt of updated lease rates, as well as higher expenses in 2005 associated with our office space consolidation to align leased office space with our reduced staff.

Other operating expenses decreased by 30.7% and 28.7% for the three and nine months ended September 30, 2006, compared to the same periods in 2005, primarily due to decreases in professional and other contractual
services and decreases in AHP related costs. In addition, during the nine months ended September 30, 2005, there was a $1.6 million expense related to replenishing the AHP fund, with no comparable expense in 2006. During the first nine months
of 2006, consulting fees incurred in connection with the implementation of the Finance Board agreement, the business plan, and ongoing risk measurement consulting were $2.1 million, compared with $4.0 million during the same period in 2005.

Finance Board and Office of Finance expenses represent costs allocated to us by the Finance Board and the Office of Finance, calculated
through a formula based on our percentage of capital stock, consolidated obligations issued, and consolidated obligations outstanding for the previous month for the FHLBank System as a whole.



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Assessments

Although we are exempt from all federal, state, and local taxation other than real property tax, the Financial Institutions Reform, Recovery and Enforcement Act and the GLB Act require that we, along with the other 11 FHLBanks, support
the payment of part of the interest on bonds previously issued by REFCORP. The REFCORP assessment amount is determined by calculating U.S. GAAP net income before the AHP and REFCORP assessments minus the AHP assessment, then multiplying that
amount by 20%. The FHLBanks must make REFCORP payments until the total amount of REFCORP assessment payments made is equivalent to a $300 million annual (or $75 million per quarter) annuity that has a final maturity date of April 15,
2030. The Finance Board will shorten or lengthen the period during which the FHLBanks must make these payments to REFCORP, depending on actual payments made relative to the referenced annuity. In addition, the Finance Board, with the Secretary of
the Treasury, selects the appropriate discounting factors used in the payment calculations relating to the REFCORP assessments.

Annually,
the FHLBanks must also set aside for the AHP the greater of $100 million or 10% of their current years aggregate regulatory net income. Regulatory net income for AHP assessment purposes is determined by the Finance Board and is equal to
net income reported in accordance with U.S. GAAP before mandatorily redeemable capital stock related interest expense and AHP assessment, but after REFCORP assessment.

Our assessments for AHP and REFCORP decreased for the three months ended September 30, 2006, compared to the same period in 2005, due to decreased net income. The increase in assessments for the nine months ended
September 30, 2006, reflected our higher net income compared to the same period in 2005. The table below presents our AHP and REFCORP assessments for the three and nine months ended September 30, 2006 and 2005.



|                       |  |                                         |       |      |                                        |                      |  |       |      |  |      |       |                      |   |       |  |     
|---------------------- |  | --------------------------------------- | ----- | ---- | -------------------------------------- | -------------------- |  | ----- | ---- |  | ---- | ----- | -------------------- | - | ----- |  | ----
|                       |  | For the Three Months EndedSeptember 30, |       |      | For the Nine Months EndedSeptember 30,
|                       |  | 2006                                    |       | 2005 |                                        | % Increase(Decrease) |  |       | 2006 |  | 2005 |       | % Increase(Decrease)
|(dollars in thousands) |  |                                         |       |      |                                        |                      |  |       |      |  |      |       |                     
|AHP                    |  | $                                       | 1,014 |      | $                                      | 1,696                |  | (40.2 | )    |  | $    | 2,171 |                      | $ | 1,375 |  | 57.9
|REFCORP                |  |                                         | 2,282 |      |                                        | 3,572                |  | (36.1 | )    |  |      | 4,902 |                      |   | 2,714 |  | 80.6
|                       |  |                                         |       |      |                                        |                      |  |       |      |  |      |       |                      |   |       |  |     
|Total assessments      |  | $                                       | 3,296 |      | $                                      | 5,268                |  | (37.4 | )    |  | $    | 7,073 |                      | $ | 4,089 |  | 73.0
|                       |  |                                         |       |      |                                        |                      |  |       |      |  |      |       |                      |   |       |  |     

Segment Information

Our core business is traditional member finance, which includes making advances, providing letters of credit, accepting deposits, and providing securities safekeeping and other services. Historically, we
offered products and services through two operating segments, traditional member finance and the MPP. The MPP segment consisted of mortgage loans held for portfolio as a result of purchases from participating members. During the first quarter of
2005, we decided to exit the MPP. As a result of this decision, Seattle Bank management no longer manages the business using separate operating segments. The Seattle Bank now aggregates the operating results of the former MPP segment with the
traditional member finance segment for decision-making purposes. Accordingly, we no longer discuss our operations in separate segments. As of September 30, 2006, our MPP balance has declined 34.7% to $6.6 billion from $10.1 billion as of
March 31, 2005.

Summary of Critical Accounting Policies and Estimates

Our financial statements and reported results are prepared in accordance with U.S. GAAP, which requires the use of estimates and assumptions that may
affect our reported results and disclosures. Several of these accounting policies involve the use of accounting estimates that we consider to be critical as: (1) they are likely to change from period to period because they require significant
management judgment and assumptions about highly complex and uncertain matters, and (2) the use of a different estimate or a change in estimate could have a material impact on our reported results of operations or financial condition. We review
our estimates and assumptions frequently. Estimates and assumptions that are significant to our results of operations and financial condition are called critical accounting policies and estimates. Although management believes these estimates,
assumptions, and judgments to be reasonably accurate, actual results could differ significantly.

The Seattle Bank has identified three
accounting policies that management believes are critical to the Seattle Bank as they require subjective or complex judgments about matters inherently uncertain and because the likelihood that material amounts would be reported under different
conditions or assumptions. These policies include:



| |  |  | accounting for derivatives;
| | - |  | ---------------------------



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| |  |  | estimating fair values of all derivatives and hedged items carried at fair value in accordance with SFAS 133; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | estimating the fair value of the collateral pledged to the Seattle Bank.
| | - |  | ------------------------------------------------------------------------

These and other accounting policies and the related judgments, estimates and assumptions are described in greater detail in the Seattle Banks Form 10, including in Note 1 to the audited financial statements for
the year ended December 31, 2005.

Recently Issued Accounting Standards and Interpretations

 SFAS 155. Accounting for Certain Hybrid Financial Instruments  On February 16, 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Accounting Standard (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (SFAS 155), which resolves issues addressed in FASB Statement 133
(SFAS 133) Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets (DIG Issue D1). SFAS 155 amends SFAS 133 to simplify the accounting for certain derivatives embedded in other financial
instruments (a hybrid financial instrument) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, provided that the entire hybrid financial
instrument is accounted for on a fair value basis. SFAS 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation, which replaces the interim guidance in DIG Issue D1. SFAS 155 amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a replacement of
FASB Statement 125 (SFAS 140), to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. SFAS 155 is effective for all
financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006 (January 1, 2007 for the Seattle Bank), with earlier adoption allowed. We continue to evaluate the impact of adopting
SFAS 155 and have not yet determined the effect, if any, that the implementation of SFAS 155 will have on our operating results or financial position. The Seattle Bank does not expect the adoption of SFAS 155, and the related standards, to have a
significant effect on our Statements of Condition or Statements of Income.

 SFAS 157. Fair Value Measurements  On
September 15, 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS 157), which consolidates various definitions of fair value discussed in many accounting pronouncements. SFAS 157 establishes a framework for
measuring fair value in U.S. GAAP and requires additional disclosures about fair value measurements in the notes to our financial statements. The application of SFAS 157 is expected to increase consistency and comparability in fair value
measurements and thus reduce the complexity of applying U.S. GAAP to such measurements. Under SFAS 157, fair value is based on the price from a market participants perspective that takes into consideration certain risks and restrictions if
market participants would include those same risks and restrictions in pricing related assets and liabilities. SFAS 157 applies to derivatives and other financial instruments measured at fair value under SFAS 133 at initial recognition and in all
subsequent periods. SFAS 157 requires expanded financial reporting disclosures about fair value measurements if the reporting entity significantly relies on its own assumptions about market participant assumptions. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for
that fiscal year, including any financial statements for an interim period within that fiscal year. The Seattle Bank is currently evaluating the impact, if any, that SFAS 157 will have on our Statements of Condition, Statements of Income and
Statements of Cash Flows.

 SFAS 158. Employers Accounting for Defined Benefit Pension and Other Post-retirement Plans
On September 29, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, amendments of SFAS No. 87, Employers Accounting for Pensions,
SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, and
SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefit(SFAS 158). SFAS 158 applies to all single-employer defined benefit plans that fall within SFAS 87 or SFAS 106, but it does not
apply to defined contribution plans or multi-employer plans. The new standard requires that a reporting entity recognize the funded status of its benefit plans as a net liability or asset, with an offsetting adjustment to accumulated other
comprehensive income within shareholders equity, and that plan assets and liabilities be measured as of the date of the applicable financial statement period. SFAS 158 does not change how pensions and other post-retirement benefits are
accounted for and reported in the statement of income. SFAS 158 applies to plan sponsors that are public and private entities and non-governmental not-for-profit organizations. The requirement to recognize the funded status of a benefit plan and the
related disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006, for entities with publicly traded equity securities, and at the end of the fiscal year ending after June 15, 2007, for all other
entities. The requirement to measure plan assets and benefit obligations as of the date



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of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. We have chosen to
early adopt SFAS 158 for the fiscal year ending December 31, 2006. We do not expect the adoption of SFAS 158 to have a material impact on our Statements of Condition.

 Staff Accounting Bulletin No. 108  On September 13, 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(SAB 108). Historically, the two most widely recognized methods for quantifying
the effects of financial statement restatements have been the roll-over and the iron curtain methods. The roll-over method focuses primarily on the impact of a misstatement on the income statement, which includes the
reversing effect of prior-year misstatements. The exclusive use of the roll-over method can lead to the accumulation of misstatements in the balance sheet. The iron curtain method focuses primarily on the effect of correcting the period-end balance
sheet with less emphasis on reversing effects of prior year errors on the income statement. In SAB 108, the SEC established an approach that requires quantification of financial statement misstatements based on the misstatements of each of the
reporting entitys financial statements and related financial statement disclosures. This model is commonly referred to as a dual approach method because it requires quantification of errors under both the traditional roll-over and
the iron curtain methods. SAB 108 permits the reporting entity to initially apply these methods by: (i) restating prior financial statements as if the dual approach had always been used or (ii) recording the cumulative effect of initially
applying the dual approach as adjustments to the carrying values of assets and liabilities as of the beginning of the fiscal year with an offsetting adjustment recorded to the opening balance of retained earnings. However, misstatements solely
related to the current calendar year would not be included in the transition cumulative adjustment. Use of the cumulative effect transition method requires a detailed disclosure of the nature and amount of each individual error (regardless of
materiality) being corrected through the cumulative adjustment and how and when the error arose. The Seattle Bank has consistently applied both the roll-over and iron curtain methods when determining the materiality of errors. As of the filing date,
the Seattle Bank does not expect the application of SAB 108 to have a significant effect on our Statements of Condition, Statements of Income, Statements of Capital, or Statements of Cash Flows.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Market risk is the risk of loss to the market value of financial instruments  and potential loss of future net interest income  that may result from changes in interest rates and other market factors. Our business model requires
us to take on market risks. We measure our sensitivity to changes in interest rates by measuring the effective duration and effective convexity of our financial positions. Effective duration is an approximation of the estimated proportional change
in the price of a financial instrument relative to the absolute change in interest rates. Effective convexity is an approximation of the non-proportional change in the price of a financial instrument relative to the absolute change in interest
rates. All else equal, the greater the absolute value of an instruments effective duration measure, the greater its sensitivity to changes in interest rates. A positive effective convexity measure for an instrument predicts, all else equal,
that price increases will exceed the effect predicted by effective duration alone and that price decreases will be less than the effect predicted by effective duration alone. The converse is true for negative convexity. Yield-curve risk refers to
changes in the relative relationship among various points of the term structure of interest rates and an instruments relative price sensitivity to the various term points. We measure our sensitivity to yield curve risk by calculating effective
key-rate durations. Key rate durations measure an instruments relative sensitivity to various specified points in the term structure of interest rates. These measures can be calculated for individual financial instruments, such as one of our
mortgage-backed securities, or for an entire portfolio such as our MPP. We seek to control market risk through our funding and investment decisions, and with interest-rate exchange agreements. Through our market-risk management, we attempt to ensure
that we are profitable and to protect net interest income and market value of equity over a wide range of interest-rate environments.

Our
general approach to managing market risk is to acquire and maintain a portfolio of assets and liabilities that, together with our associated interest-rate exchange agreements, limits our expected market value and income statement volatility. Our
approach complies with Finance Board regulations regarding interest-rate exchange agreements, which enable the FHLBanks to enter into these agreements only to reduce the market-risk exposures inherent in otherwise unhedged assets and funding
positions.

Measurement of Market Risk

We monitor our market risk through a variety of measures. Our Board of Directors oversees policy limits for four primary risk measures  effective duration of equity, effective key-rate duration mismatch, effective convexity of equity,
and market value of equity sensitivity. These policy measures are described below. Historically, our risk management policy included two primary measures of market risk  effective duration of equity and market value of equity sensitivity.
Based on the decline in our market value of equity since 2002, we revised our policy limits at the direction of our Board of Directors to more specifically deal with the relevant market risks.

In May 2005, our Board of Directors adopted our current risk management policy that added new risk management measures, effective convexity of equity and effective
key-rate duration of equity mismatch, to the existing measures of effective duration of equity and market value of equity sensitivity. The new policy established limits for these measures for managing and monitoring our market risk. We quantify and
monitor our market risk daily and manage market risk within the policy limits. These measures and other key terms are defined below.



| |  |  | Market Value of Equity. Market value of equity is the present value of the expected net cash flows from all our assets, liabilities, and commitments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Effective Duration. Effective duration represents the estimated change in the value of a financial instrument for a given instantaneous parallel shift in the yield curve. Stated
simply, effective duration is a measure of the price sensitivity of a financial instrument to changes in interest rates. Higher duration numbers, whether positive or negative, indicate greater price-sensitivity to changes in interest rates.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Effective Duration of Equity. Effective duration of equity is the market value of assets multiplied by the effective duration of assets minus the market value of liabilities
multiplied by the effective duration of liabilities, plus or minus the market value of commitments multiplied by the effective duration of commitments, with the net result divided by the market value of equity. Effective duration of equity measures
the sensitivity of the market value of equity to instantaneous changes in interest rates. All else equal higher effective duration numbers, whether positive or negative, indicate greater market value sensitivity to changes in interest rates.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market Value of Equity Sensitivity. Market value of equity sensitivity is the change observed in our estimated market value of equity, given an instantaneous parallel increase or
decrease in the yield curve.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Effective Convexity. Effective convexity measures the estimated effect of the non-proportional changes in instrument prices that is not incorporated in the proportional effects
measured by effective duration. Financial instruments can have positive or negative effective convexity.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Effective Convexity of Equity. Effective convexity of equity is the market value of assets multiplied by the effective convexity of assets minus the market value of liabilities
multiplied by the effective convexity of liabilities, plus or minus the market value of commitments multiplied by the effective convexity of commitments, with the net result divided by the market value of equity.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Effective Key-Rate Duration of Equity. Effective key-rate duration of equity disaggregates effective duration of equity into various points on the yield curve to allow us to measure
and manage our exposure to changes in the shape of the yield curve.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Effective Key-Rate-Duration-of-Equity Mismatch. This measurement is the difference between the maximum and minimum effective key-rate-duration-of-equity measures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

Market-Risk Management

Our market-risk measures reflect the sensitivity of our business to changes in interest rates, primarily because of mismatches in the maturities and embedded options associated with our mortgage-based assets and the consolidated obligation
bonds we use to fund these assets. The prepayment options embedded in mortgage-based instruments may be exercised at any time, while the call options embedded in our callable debt are exercisable on a set date or series of dates following a lock-out
period. These differences in the structure and characteristics of the mortgage prepayment options embedded in our mortgage-based assets and the debt call options in the consolidated obligations sold on our behalf cause the market values of our
mortgage-based assets and callable debt to respond differently to changes in interest rates and the shape of the yield curve. For example, a significant drop in interest rates will likely trigger rapid prepayments of our mortgage-based assets, while
the debt issued to fund the purchase of those assets may or may not be callable depending on the remaining length of the lock-out periods, the exercise prices of the call options, and whether the options are exercisable continuously, periodically,
or on a specific date.

We evaluate our market-risk measures on an ongoing basis, under a variety of parallel and non-parallel shock
scenarios. As of September 30, 2006, our market-risk measures were within our policy limits.

The following table summarizes our four
primary risk measures and their respective limits and our compliance as of September 30, 2006 and December 31, 2005.



|                                                                     |  |                          |  |                         |  |                 
|-------------------------------------------------------------------- |  | ------------------------ |  | ----------------------- |  | ----------------
|Primary Risk Measures                                                |  | As of September 30, 2006 |  | As of December 31, 2005 |  | RiskMeasureLimit
|Effective duration of equity                                         |  | 0.68                     |  | (0.36)                  |  | +/-5.00         
|Effective convexity of equity                                        |  | (2.10)                   |  | (2.46)                  |  | +/-5.00         
|Effective key-rate-duration-of-equity mismatch                       |  | 1.70                     |  | 2.60                    |  | +/-5.50         
|Market value of equity sensitivity (+100 basis point shock scenario) |  | (1.57)%                  |  | (0.67)%                 |  | +/-4.50         
|Market value of equity sensitivity (100 basis point shock scenario) |  | (0.28)%                  |  | (1.45)%                 |  | +/-4.50         

From December 31, 2005 to September 30, 2006, the increase in effective duration of
equity extended 1.04 and the effective convexity of equity decreased 0.36. These changes resulted from a significant change in the composition of the Seattle Banks liability structure, which acted to shorten the duration of liabilities causing
a lengthening in the effective duration of equity. In addition, the rise in interest rates and the flattening of the yield curve acted to reduce the negative effective convexity of our mortgage-related portfolios relative to the funding used to
hedge those mortgage assets. Furthermore, we engaged in some debt restructuring to incrementally decrease our negative effective convexity and key-rate-duration mismatches during the nine months ended September 30, 2006.



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Instruments That Address Market Risk

We use interest-rate exchange agreements, such as interest-rate swaps, interest-rate caps and floors, forward purchase and sale agreements, and swaptions,
to manage our exposure to changes in interest rates. This enables us to adjust the effective maturity, repricing frequency, or option characteristics of our assets and liabilities in response to changing market conditions.

Some of the specific types of instruments we use to manage our interest-rate risk are described in the table below.



|                                                                                                              |  |                                                                                                                    |  |                                                                                                      
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------
|Hedge Instrument                                                                                              |  | Hedged Item                                                                                                        |  | Purpose of Hedge Transaction                                                                         
|                                                                                                              |  |                                                                                                                   
|Pay fixed, receive LIBOR swap; we own option to cancel swap if applicable                                     |  | Putable or callable advance; fixed-rate advance with option to cancel advance prior to maturity date               |  | To provide customized advance products to our customers at minimal risk to us                        
|                                                                                                              |  |                                                                                                                   
|Purchased interest-rate cap                                                                                   |  | Capped advance                                                                                                     |  | To provide customized advance products to our customers at minimal risk to us                        
|                                                                                                              |  |                                                                                                                   
|Pay fixed, receive LIBOR swap                                                                                 |  | Fixed-rate advance                                                                                                 |  | To provide customized advance products to our customers at minimal risk to us                        
|                                                                                                              |  |                                                                                                                   
|Pay LIBOR, receive fixed swap; pay LIBOR, receive fixed swap in which counterparty owns option to cancel swap |  | Bullet fixed-rate debt; callable fixed-rate debt in which we own option to call debt prior to stated maturity date |  | To achieve lower cost funds with minimal risk to us                                                  
|                                                                                                              |  |                                                                                                                   
|Payer or receiver swaptions                                                                                   |  | Mortgage-based assets, including MPP mortgage loans and mortgage-backed securities                                 |  | To hedge our prepayment risk on our mortgage-based assets and manage our effective duration of equity
|                                                                                                              |  |                                                                                                                   
|Pay variable until conversion date, then pay fixed, with option to cancel swap prior to maturity date         |  | Variable-to-fixed advance with option to cancel advance prior to maturity date                                     |  | To provide customized advance products to our customers at minimal risk to us                        
|                                                                                                              |  |                                                                                                                   
|Pay LIBOR, receive floating index swap                                                                        |  | Floating rate consolidated obligation                                                                              |  | To achieve lower cost of funds with minimal risk to us                                               

The total notional amount of interest-rate exchange agreements outstanding was $30.9 billion and
$18.5 billion as of September 30, 2006 and December 31, 2005. The notional amount of interest-exchange agreements increased between September 30, 2006 and December 31, 2005, due to increases in fair value hedges of
consolidated obligations.

Credit-Risk Management

Credit risk is the risk of loss due to default. We face credit risk on advances, certain investments, mortgage loans, interest-rate exchange agreements, and counterparty exposures.

Advances. We have never experienced a credit loss on advances. We protect against credit risk on advances by requiring collateral on all advances
we fund. We can also call for additional or substitute collateral during the life of an advance to protect our security interest. The FHLBank Act limits eligible collateral to certain investment securities, residential mortgage loans, deposits with
the Seattle Bank, and other real estate-related assets. The GLB Act and other federal regulations allow the FHLBanks to expand eligible collateral for many of their members. Members that qualify as community financial institutions, defined in the
GLB Act as FDIC-insured depository institutions with average assets for the past three calendar years totaling no more than $587 million, may pledge small-business, small-farm, and small-agribusiness loans as collateral for advances. Advances
to community financial institutions secured with expanded collateral represented



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$121.1 million of the $27.2 billion of advances as of September 30, 2006 and $135.0 million of the $21.4 billion of advances outstanding
as of December 31, 2005. We believe that we have the policies and procedures in place to effectively manage this credit risk. Accordingly, we have not provided any allowance for losses on advances, including those referenced above.

Investments. We are subject to credit risk on some investments. We limit our unsecured credit exposure to any counterparty, other than the U.S.
government or its agencies or GSEs, based on the credit quality and capital level of the counterparty and the capital level of the Seattle Bank. As of September 30, 2006 and December 31, 2005, our unsecured credit exposure was
$9.8 billion and $13.2 billion, primarily consisting of $4.3 billion and $5.3 billion of other FHLBank consolidated obligations and $4.9 billion and $6.4 billion of federal funds sold. This decrease in unsecured credit
exposure primarily resulted from a decrease in our short-term investments, including federal funds sold, as advance balances increased. Pursuant to the Finance Board agreement, we may not purchase additional investments in the consolidated
obligations of other FHLBanks without Finance Board approval.

Mortgage Loans Held for Portfolio. The Seattle Bank has never
experienced a credit loss nor has our SMI provider experienced a loss claim on an MPP mortgage loan. Under the MPP, we have purchased mortgage loans from members, and the participating members continue to bear a portion of the credit risk on the
outstanding loans. Our total principal of mortgage loans outstanding through the MPP was $6.6 billion and $7.2 billion as of September 30, 2006 and December 31, 2005, which comprised $309.2 million and $383.4 million in
government-insured mortgage loans and $6.2 billion and $6.8 billion in conventional mortgage loans. The conventional mortgage loans are credit-enhanced by our participating members to a level equivalent to at least an investment-grade rating
through the lender risk account and supplemental mortgage insurance. As part of the business plan, we are exiting from the MPP. However, we do not expect that this decision will impact the credit risk of the mortgage loans held for portfolio. We
conduct a loss reserve analysis on a quarterly basis and have determined that no loan loss allowance is necessary, and believe that we have the policies and procedures in place to appropriately manage this credit risk.

Derivative Credit-Risk Exposure and Counterparty Ratings. The Seattle Bank is subject to credit risk because of the potential nonperformance by a
counterparty to an agreement. The degree of counterparty risk on interest-rate exchange agreements and other derivatives depends on our selection of counterparties and the extent to which we use netting procedures and other credit enhancements to
mitigate the risk. We manage counterparty credit risk through credit analysis, collateral management, and other credit enhancements. We require agreements to be in place for all counterparties. These agreements must include provisions for netting
exposures across all transactions with that counterparty. The agreements also require the counterparties to collateralize exposures with the thresholds for priority collateral tied to the credit risk of the counterparty. For example, a counterparty
must deliver collateral to the Seattle Bank if the total market value of our exposure to that counterparty rises above a specific threshold. As a result of these risk mitigation initiatives, we do not currently anticipate any credit losses on our
interest-rate exchange agreements.

Our credit risk equals the estimated cost of replacing favorable interest-rate swaps, forward
agreements, and purchased caps and floors, if the counterparty defaults, net of the value of related collateral. Our maximum credit risk, taking into consideration master netting agreements but before considering collateral, was $90.8 million
and $4.5 million as of September 30, 2006 and December 31, 2005. In determining maximum credit risk, we consider accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. Our net
exposure after considering collateral was $90.8 million and $4.5 million as of September 30, 2006 and December 31, 2005. These increases in credit risk and net exposure after considering collateral were primarily due to changes
in market conditions, including the level and slope of the yield curve during the nine months ended September 30, 2006.



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Our counterparty credit exposure, by credit rating, was as follows.



|                        |  |                          |            |                               |   |                |  |                            |  |  |   |       
|----------------------- |  | ------------------------ | ---------- | ----------------------------- | - | -------------- |  | -------------------------- |  |  | - | ------
|                        |  | As of September 30, 2006
|                        |  | NotionalAmount           |            | Total NetExposureat FairValue |   | CollateralHeld |  | NetExposureAfterCollateral
|(in thousands)          |  |                          |            |                               |   |                |  |                           
|AA+                     |  | $                        | 1,162,780  |                               | $ | 4,809          |  | $                          |  |  | $ | 4,809 
|AA                      |  |                          | 8,635,175  |                               |   | 32,394         |  |                            |  |  |   | 32,394
|AA                     |  |                          | 13,450,636 |                               |   | 26,836         |  |                            |  |  |   | 26,836
|A+                      |  |                          | 7,491,675  |                               |   | 26,628         |  |                            |  |  |   | 26,628
|A                       |  |                          | 115,000    |                               |   |                |  |                            |  |  |   |       
|Member institutions (1) |  |                          | 60,500     |                               |   | 107            |  |                            |  |  |   | 107   
|                        |  |                          |            |                               |   |                |  |                            |  |  |   |       
|Total                   |  | $                        | 30,915,766 |                               | $ | 90,774         |  | $                          |  |  | $ | 90,774
|                        |  |                          |            |                               |   |                |  |                            |  |  |   |       
|                        | 
|                        |  | As of December 31, 2005 
|                        |  | Notional Amount          |            | Total NetExposureat FairValue |   | CollateralHeld |  | NetExposureAfterCollateral
|(in thousands)          |  |                          |            |                               |   |                |  |                           
|AA+                     |  | $                        | 834,130    |                               | $ |                |  | $                          |  |  | $ |       
|AA                      |  |                          | 2,626,562  |                               |   |                |  |                            |  |  |   |       
|AA                     |  |                          | 9,887,592  |                               |   |                |  |                            |  |  |   |       
|A+                      |  |                          | 4,914,175  |                               |   | 4,556          |  |                            |  |  |   | 4,556 
|A                       |  |                          | 140,000    |                               |   |                |  |                            |  |  |   |       
|Member institutions (1) |  |                          | 60,500     |                               |   |                |  |                            |  |  |   |       
|                        |  |                          |            |                               |   |                |  |                            |  |  |   |       
|Total                   |  | $                        | 18,462,959 |                               | $ | 4,556          |  | $                          |  |  | $ | 4,556 
|                        |  |                          |            |                               |   |                |  |                            |  |  |   |       

| | 
| | 

| | (1) | Collateral held with respect to interest-rate exchange agreements with member institutions represents either collateral physically held by or on behalf of the Seattle Bank or
collateral assigned to the Seattle Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Seattle Bank. This notional amount excludes stand-alone delivery commitments.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have never experienced a loss on a derivative transaction due to default by a counterparty. We believe that the credit risk on our interest-rate
exchange agreements is low because we contract with counterparties that are of very high credit quality. As of September 30, 2006, 20 counterparties represented the total notional amount of our outstanding interest-rate exchange agreements
excluding agreements in which we served as intermediaries. As of September 30, 2006, 75% of the total notional amount of our outstanding interest-rate exchange agreements was with 12 counterparties rated AA or higher. Excluding
interest-rate exchange agreements in which we are an intermediary for members and which are fully collateralized, 100% as of September 30, 2006 and December 31, 2005 of the notional amount of our outstanding interest-rate exchange
agreements were with counterparties with credit ratings of A or equivalent from an NRSRO, such as Standard & Poors or Moodys.



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|Item 4. | Controls and Procedures
|------- | -----------------------

Disclosure Controls and Procedures

Under the supervision and with the participation of the Seattle Banks management, including the President and Chief Executive
Officer and the Chief Financial Officer, the Seattle Bank evaluated the effectiveness of the Seattle Banks disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2006, the end of the
period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

The
President and Chief Executive Officer and the Chief Financial Officer conducted an evaluation of our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) to determine whether any changes in internal control over
financial reporting occurred during the quarter ended September 30, 2006, that have materially affected or which are reasonably likely to materially affect internal control over financial reporting. Based on that evaluation, other than as
described below, no such change occurred during such period.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2005, our management concluded that we did not maintain
effective control over the presentation and classification of certain cash flows in our Statement of Cash Flows. Specifically, in an initial draft of our Statement of Cash Flows for the year ended December 31, 2005, we did not properly classify
(1) the net proceeds from the December 2005 sale of our trading security as an operating activity, (2) the unrealized market value loss related to our September 2005 reclassification of mortgage loans from loans held for sale to loans held
for portfolio on the correct caption within operating activities, and (3) payments for concession fees relating to the issuance of consolidated obligations as a financing activity. This control deficiency could have allowed a material
misstatement to occur among the cash flow activities that comprise the Statements of Cash Flows in our annual or interim financial statements. Accordingly, our management determined this control deficiency constituted a material weakness in our
internal control over financial reporting.

To address this material weakness in our internal control over financial reporting as of
December 31, 2005, we made certain changes to improve the accuracy and completeness for reporting our cash flow activities in our Statement of Cash Flows. We implemented changes during the second and third quarters of 2006 and are continuing to
identify methods for improving the accuracy and completeness for reporting our cash flow activities. The remedial changes taken include:



| |  |  | We implemented a supplemental procedure involving the review of all new authoritative guidance released during the current month, as documented in the form of a memorandum required
in order to close the general ledger. This procedure identifies when changes to financial statement classification must be made as a result of new authoritative guidance.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We document all new and unusual transactions, such as selling a trading security or reclassifying mortgage loans, and we evaluate such transactions impact on and proper
classification in the Statement of Condition, the Statement of Income, and the Statement of Cash Flows.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We implemented a checklist procedure, which is completed by both the preparer and reviewer prior to completing our financial statements. The completed checklist, which becomes
part of the internal controls documentation, includes balancing steps, analytical reviews, and reviews for proper account classification resulting from new accounting guidance or changes to data on the general ledger system.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Part II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

From time to time, the Seattle
Bank is subject to legal proceedings arising in the normal course of business. After consultations with legal counsel, we do not anticipate that the ultimate liability, if any, arising out of any current matters will have a material impact on our
financial condition, results of operations, or cash flows.



|Item 1A. | Risk Factors
|-------- | ------------

Our Form 10 includes a detailed
discussion of our risk factors. The information below includes material updates to, and should be read in conjunction with, the risk factors included in our Form 10.

Our restrictions on dividend payments and certain stock repurchases, together with other capital management requirements and strategies we have implemented, have limited, and will continue to limit, member
demand for advances and other products and may limit our ability to attract new members.

To meet Finance Board conditions to the
acceptance of our business plan, our Board of Directors adopted policies in 2005 suspending indefinitely the declaration or payment of any dividend and the repurchase of any Class B stock, subject to certain exceptions. In addition, we
plan to increase our retained earnings of $88.4 million as of September 30, 2006 over time to reach our internal retained earnings target, which was $100.0 million as of September 29, 2006. Our Board of Directors may seek a
Finance Board waiver in 2006 to declare dividends. However, future dividends may not be consistent with the dividends that we have historically paid, in part because of a policy adopted by our Board of Directors that limits the amount of dividends
we may pay to 50% of then-current period earnings. For the foreseeable future, we do not expect to obtain waivers from the Finance Board for the repurchase of Class B stock prior to the end of the statutory five-year redemption period. See also
Item 2. Managements Discussion and Analysis of Financial Condition  Capital Resources and Liquidity  Capital Resources  Seattle Bank Stock, for a discussion of a proposed regulation that could further increase our
retained earnings target and adversely affect our ability to increase dividends for an extended period.

Our members must comply with our
activity-based stock purchase requirements. Consequently, new members are required to purchase our capital stock to obtain advances, and existing members may be required to purchase additional stock to increase their advance borrowings. Although
most of our members currently hold sufficient Class B stock to allow them to increase their advances without purchasing additional stock, some members have fully leveraged their Class B stock, and our strategy to increase advances could
result in more members fully leveraging their Class B stock. Some members have indicated reluctance to purchase additional Class B stock because of our dividend and stock repurchase restrictions. In order to encourage advances growth from
both new and existing members, our Board of Directors requested authority and received approval from the Finance Board to amend the capital plan to allow for the creation of an excess stock pool and issue Class A stock, which could be used to
satisfy the activity-based stock purchase requirement, and with regard to the Class A stock could be redeemed upon six months notice. The amendments to the capital plan are expected to go into effect in December 2006; however, we cannot
predict with certainty whether the excess stock pool or Class A stock will encourage stock purchases by either new or existing members or additional growth in advances. See Item 2. Managements Discussion and Analysis of Financial
Condition  Capital Resources and Liquidity  Capital Resources  Seattle Bank Stock, for additional information on the capital plan amendments.

Our capital-to-assets ratio requirement currently exceeds our advances-activity-based stock purchase requirement, which may constrain our ability to make new advances until such requirement is increased as
expected in December 2006.

As set by our Board of Directors in March 2006, our advances-activity-based stock purchase requirement
is currently 2.50%. As a result of this advances-activity-based stock purchase requirement, any additional purchases of capital stock for advances activity would likely not be in proportion to our minimum capital-to-assets ratio of 4.25%, which may
constrain growth of our advances from time to time. However, in connection with our amendments to our capital plan that were passed by the Finance Board in October 2006, and which we expect to become effective in December 2006, our
advances-activity-based stock purchase requirement will be increased to 4.00% for new or renewing advances. Accordingly, after the effectiveness of the capital amendments, we do not believe our advances-activity-based stock purchase requirement will
constrain our ability to grow advances. See Item 2. Managements Discussion and Analysis of Financial Condition  Capital Resources and Liquidity  Capital Resources  Seattle Bank Stock, for additional information on
the capital plan amendments.



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

Not applicable.



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##### Table of Contents

|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



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

On October 19, 2006, the Seattle Bank announced that the following three individuals ran unopposed and were elected to the Seattle Banks Board of Directors for three-year terms commencing January 1, 2007:



| |  |  | Craig A. Dahl, President, Chief Executive Officer and Director, Alaska Pacific Bank, Juneau, Alaska. Mr. Dahl currently serves on the Board of Directors, and his current term
expires on December 31, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Michael A. DeVico, Executive Vice President and Chief Information Officer, Zions First National Bank, West Valley City, Utah. Mr. DeVico was newly elected.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Russell J. Lau, Vice Chairman and Chief Executive Officer, Finance Factors, Ltd., Honolulu, Hawaii. Mr. Lau currently serves on the Board of Directors, and his current term
expires on December 31, 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This directors election took place in accordance with the rules governing the
election of FHLBank directors specified in the Federal Home Loan Bank Act of 1932, as amended (Bank Act) and the related regulations of the Finance Board, and because each of the candidates ran unopposed for his respective board position, no vote
was required. Pursuant to the Bank Act and Finance Board regulations, the majority of the Seattle Banks directors are elected by and from the Seattle Banks membership. The remaining directors are required to be appointed by the Finance
Board.

The terms of the Seattle Banks other directors, Mike C. Daly, Daniel R. Fauske, Harold B. Gilkey, W. David Hemingway, William
V. Humphreys, William A. Longbrake, Park Price, Donald V. Rhodes, Jack T. Riggs, MD, and James H. Strosahl, remain unaffected by this directors election.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------

EXHIBITS



|              |  |                                                                                                                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                
|4.1           |  | Capital Plan of the Federal Home Loan Bank of Seattle, adopted March 5, 2002, as amended on November 22, 2002, December 8, 2004, March 9, 2005, June 8, 2005, and October 11, 2006
(incorporated by reference to the Form 8-K filed with the SEC on October 16, 2006).
|              | 
|31.1          |  | Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                               
|              | 
|32.1          |  | Certification of the President and Chief Executive Officer pursuant to 18. U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                  
|              | 
|32.2          |  | Certification of the Chief Financial Officer pursuant to 18. U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                



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##### Table of Contents

SIGNATURES

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 Seattle |  |                                                |  | 
|                                  |  |                                                |  | 
|By:                               |  | /s/ James E. Gilleran                          |  |  |  |  |  | Dated: November 14, 2006
|                                  |  | James E. Gilleran                              |  |  |  |  |  |                         
|                                  |  | President and Chief Executive Officer          |  |  |  |  |  |                         
|                                  |  |                                                |  | 
|By:                               |  | /s/ Mark R. Szczepaniak                        |  |  |  |  |  | Dated: November 14, 2006
|                                  |  | Mark R. Szczepaniak                            |  |  |  |  |  |                         
|                                  |  | Senior Vice President, Chief Financial Officer |  |  |  |  |  |                         



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##### Table of Contents

INDEX OF EXHIBITS

DESCRIPTION



|              |  |                                                                                                                                                                                                                                                                       
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                
|4.1           |  | Capital Plan of the Federal Home Loan Bank of Seattle, adopted March 5, 2002, as amended on November 22, 2002, December 8, 2004, March 9, 2005, June 8, 2005, and October 11, 2006
(incorporated by reference to the Form 8-K filed with the SEC on October 16, 2006).
|              | 
|31.1          |  | Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                               
|              | 
|32.1          |  | Certification of the President and Chief Executive Officer pursuant to 18. U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                  
|              | 
|32.2          |  | Certification of the Chief Financial Officer pursuant to 18. U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                



59