Federal Home Loan Bank of Des Moines 10-K 2014 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2014

OR

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

Commission File Number: 000-51999

FEDERAL HOME LOAN BANK OF DES MOINES

(Exact name of registrant as specified in its charter)

Federally chartered corporation (State or other jurisdiction of incorporation or organization)	42-6000149 (I.R.S. employer identification number)
Skywalk Level 801 Walnut Street, Suite 200 Des Moines, IA (Address of principal executive offices)	50309 (Zip code)

Registrant's telephone number, including area code: (515) 281-1000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Class B Stock, par value $100

Name of Each Exchange on Which Registered: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. x

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

Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o

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

Registrant's stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2014, the aggregate par value of the stock held by current and former members of the registrant was $2,962,148,500. At February 28, 2015, 34,168,769 shares of stock were outstanding.

Table of Contents
Special Note Regarding Forward-Looking Statements	3
Part I
Item 1. Business	4
Item 1A. Risk Factors	15
Item 1B. Unresolved Staff Comments	22
Item 2. Properties	22
Item 3. Legal Proceedings	22
Item 4. Mine Safety Disclosures	22
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6. Selected Financial Data	24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	73
Item 8. Financial Statements and Supplementary Data	74
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	138
Item 9A. Controls and Procedures	138
Item 9B. Other Information	138
Part III
Item 10. Directors, Executive Officers and Corporate Governance	139
Item 11. Executive Compensation	146
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	167
Item 13. Certain Relationships and Related Transactions, and Director Independence	168
Item 14. Principal Accounting Fees and Services	169
Part IV
Item 15. Exhibits and Financial Statement Schedules	170
Signatures	171

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this report, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should,may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These risks and uncertainties include, but are not limited to, the following:

• political or economic events, including legislative, regulatory, monetary, judicial, or other developments that affect us, our members, our counterparties, and/or our investors in the consolidated obligations of the 12 Federal Home Loan Banks (FHLBanks);

• changes in regulatory requirements regarding the eligibility criteria of our membership;

• competitive forces, including without limitation, other sources of funding available to our borrowers that could impact the demand for our advances, other entities purchasing mortgage loans in the secondary mortgage market, and other entities borrowing funds in the capital markets;

• risks related to the other 11 FHLBanks that could trigger our joint and several liability for debt issued by the other 11 FHLBanks;

• changes in the relative attractiveness of consolidated obligations due to actual or perceived changes in the FHLBanks' credit ratings as well as the U.S. Government's long-term credit rating;

• the proposed merger with the Federal Home Loan Bank of Seattle is subject to certain closing conditions, may take longer than expected, may involve more expenses than anticipated, and may have an adverse effect on the continuing bank;

• changes in our capital structure and capital requirements;

• reliance on a relatively small number of member institutions for a large portion of our advance business;

• the volatility of credit quality, market prices, interest rates, and other indices that could affect the value of collateral held by us as security for borrower and counterparty obligations;

• general economic and market conditions that could impact the volume of business we do with our members, including, but not limited to, the timing and volatility of market activity, inflation/deflation, employment rates, housing prices, the condition of the mortgage and housing markets on our mortgage-related assets, including the level of mortgage prepayments, and the condition of the capital markets on our consolidated obligations;

• the availability of derivative instruments in the types and quantities needed for risk management purposes from acceptable counterparties;

• increases in delinquency or loss estimates on mortgage loans;

• the volatility of reported results due to changes in the fair value of certain assets, liabilities, and derivative instruments;

• the ability to develop and support internal controls, information systems, and other operating technologies that effectively manage the risks we face;

• the ability to attract and retain key personnel; and

• member consolidations and failures.

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. A detailed discussion of the more important risks and uncertainties that could cause actual results and events to differ from such forward-looking statements is included under “Item 1A. Risk Factors."

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PART I

ITEM 1. BUSINESS

OVERVIEW

The Federal Home Loan Bank of Des Moines (the Bank, we, us, or our) is a federally chartered corporation organized on October 31, 1932, that is exempt from all federal, state, and local taxation (except real property taxes) and is one of 12 district FHLBanks. The FHLBanks were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act). With the passage of the Housing and Economic Recovery Act of 2008 (Housing Act), the Federal Housing Finance Agency (Finance Agency) was established and became the new independent federal regulator of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), as well as the FHLBanks and FHLBanks' Office of Finance (Office of Finance), effective July 30, 2008. The Finance Agency's mission is to ensure that the Enterprises and FHLBanks operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. The Finance Agency establishes policies and regulations governing the operations of the Enterprises and FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.

We are a cooperative. This means we are owned by our customers, whom we call members. Our members include commercial banks, thrifts, credit unions, insurance companies, and community development financial institutions (CDFIs) in Iowa, Minnesota, Missouri, North Dakota, and South Dakota. While not considered members, we also conduct our primary business activities with state and local housing associates meeting certain statutory criteria.

BUSINESS MODEL

Our mission is to provide funding and liquidity to our members and eligible housing associates so that they can meet the housing, economic development, and business needs of the communities they serve. We strive to achieve our mission within an operating principle that balances the trade-off between attractively priced products, reasonable returns on capital investments, and maintaining adequate capital and retained earnings to support safe and sound business operations.

We are capitalized primarily through the purchase of capital stock by our members. As a condition of membership, all of our members must purchase and maintain membership capital stock based on a percentage of their total assets as of the preceding December 31^st subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with us. Member demand for our products expands and contracts with economic and market conditions. Our self-capitalizing capital structure, which allows us to repurchase or require additional capital stock based on member activity, provides us with the flexibility to effectively and efficiently meet the changing needs of our membership. While eligible to borrow, housing associates are not members and, as such, are not permitted to purchase capital stock.

Our capital stock is not publicly traded. It is purchased and redeemed by members or repurchased by us at a par value of $100 per share. Our current members own nearly all of our outstanding capital stock. Former members own the remaining capital stock, included in mandatorily redeemable capital stock, to support business transactions still carried in our Statements of Condition. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by our Board of Directors.

Our primary business activities are providing collateralized loans, known as advances, to members and housing associates and acquiring residential mortgage loans from or through our members. Our primary source of funding and liquidity is the issuance of debt securities, referred to as consolidated obligations, in the capital markets. Consolidated obligations are the joint and several obligations of all FHLBanks and are backed only by the financial resources of the FHLBanks. A critical component to the success of our operations is the ability to issue consolidated obligations regularly in the capital markets under a wide range of maturities, structures, and amounts, and at relatively favorable spreads to market interest rates.

Our net income is primarily attributable to the difference between the interest income we earn on our advances, mortgage loans, and investments, and the interest expense we pay on our consolidated obligations and member deposits, as well as components of other (loss) income (e.g., gains and losses on derivatives and hedging activities). Because we are a cooperative, we operate with narrow margins and expect to be profitable over the long-term based on our prudent lending standards, conservative investment strategies, and diligent risk management practices. Because we operate with narrow margins, our net income is sensitive to changes in market conditions that can impact the interest we earn and pay and introduce volatility in other (loss) income.

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A portion of our annual net income is used to fund our Affordable Housing Program (AHP), which provides grants and subsidized advances to members to support housing for very low to moderate income households. By regulation, we are required to contribute ten percent of our net earnings each year to the AHP. For purposes of the AHP assessment, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. For additional details on our AHP, refer to the "Affordable Housing Program Assessments" section of Item 1.

We have risk management policies that monitor and control our exposure to market, liquidity, credit, operational, and business risk, as well as capital adequacy. Our primary objective is to manage assets, liabilities, and derivative exposures in ways that protect the par redemption value of our capital stock. For additional information on our risk management practices, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”

MEMBERSHIP

Our membership is diverse and includes both small and large commercial banks, thrifts, credit unions, insurance companies, and CDFIs. The majority of institutions in our five-state district that are eligible for membership are currently members.

The following table summarizes our membership by type of institution:

	December 31,
Institutional Entity	2014	2013	2012
Commercial banks	942	968	992
Thrifts	48	52	61
Credit unions	110	109	102
Insurance companies	55	53	51
Community development financial institutions	1	1	1
Total	1,156	1,183	1,207

The following table summarizes our membership by asset size:

	December 31,
Membership Asset Size	2014		2013		2012
Depository institutions1
Less than $100 million	35.1	%	37.7	%	40.2	%
$100 million to $500 million	47.2		45.9		44.4
Greater than $500 million	12.8		11.8		11.1
Insurance companies
Less than $100 million	0.7		0.5		0.4
$100 million to $500 million	0.8		0.9		0.9
Greater than $500 million	3.3		3.1		2.9
Community development financial institutions
Less than $100 million	0.1		0.1		0.1
Total	100.0	%	100.0	%	100.0	%

1 Depository institutions consist of commercial banks, thrifts, and credit unions.

Our membership level declined during 2014 due to 31 member consolidations, seven out-of-district or non-member consolidations, two dissolved charters, two bank failures, and one member withdrawal, partially offset by 16 new members. We did not experience any credit losses on advances outstanding with failed or dissolved member institutions during the year. At December 31, 2014, approximately 81 percent of our members were Community Financial Institutions (CFIs). For 2014, CFIs are defined under the Housing Act to include all Federal Deposit Insurance Corporation (FDIC) insured institutions with average total assets over the previous three-year period of less than $1.108 billion. CFIs are eligible to pledge certain collateral types that non-CFIs cannot pledge, including small business, small agri-business, and small farm loans.

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PROPOSED MERGER

On September 25, 2014, the boards of directors of the Bank and the Federal Home Loan Bank of Seattle (Seattle Bank) executed a definitive merger agreement after receiving unanimous approval from their boards of directors. Material details of the merger agreement are included in the Bank’s Form 8-K filed with the Securities and Exchange Commission (SEC) on September 25, 2014.

On October 31, 2014, the banks submitted a joint merger application to the Finance Agency. The Finance Agency approved the merger application on December 19, 2014, subject to the satisfaction of specific closing conditions set forth in the Finance Agency's approval letter, including the ratification of the merger by members of both banks.

On January 12, 2015, the banks mailed a joint merger disclosure statement, voting ballots, and related materials to their respective members and requested that ballots be returned by the close of business on February 23, 2015. Additional details regarding the disclosure statement can be found in the Bank's Form 8-K filed with the SEC on January 12, 2015.

On February 27, 2015, the banks issued a joint press release announcing the ratification of the merger by members of both banks. The consummation of the merger will be effective only after the Finance Agency determines that the closing conditions identified in the approval letter have been satisfied and the Finance Agency determines that the continuing bank's organizational certificate complies with the requirements of the Finance Agency's merger rules. Assuming the Finance Agency makes these determinations, the merger is expected to be effective on May 31, 2015.

We believe that the merger would combine two complementary organizations with similar cultures, membership characteristics, and solid financial positions. The continuing bank would remain a member-owned and member-centric cooperative, deeply focused on helping its members strengthen their institutions to better serve their customers and communities. It would provide funding solutions for more than 1,500 member financial institutions in 13 states and the U.S. Pacific territories. The continuing bank would be headquartered in Des Moines. 

BUSINESS SEGMENTS

We manage our operations as one business segment. Management and our Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.

PRODUCTS AND SERVICES

Advances

We carry out our mission primarily through lending funds, which we call advances, to our members and eligible housing associates (collectively, borrowers). Our advance products are designed to help borrowers compete effectively in their markets and meet the credit needs of their communities. Borrowers generally use our advance products as sources of wholesale funding for mortgage lending, affordable housing and other community lending (including economic development), and general asset-liability management.

Our advance products include the following:

• Overnight Advance. This product is used primarily to fund the short-term liquidity needs of our borrowers and is renewed automatically until the borrower pays off the advance. Interest rates are set daily.

• Fixed Rate Advances. These advances are available over a variety of terms in amortizing and non-amortizing structures and are used to fund both the short- and long-term liquidity needs of our borrowers. Using an amortizing advance, a borrower makes predetermined principal payments at scheduled intervals throughout the term of the advance to manage the interest rate risk associated with long-term fixed rate amortizing assets. Forward starting advances are a type of fixed rate non-amortizing advance with settlement dates up to two years, allowing members to lock in an interest rate at the outset, while delaying the receipt of funding. Delayed amortizing advances are a type of fixed rate advance with a feature that delays commencement of the repayment of the principal up to five years, allowing members control over the principal cash flows and the repayment of the advance.

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• Variable Rate Advances. These advances have interest rates that reset periodically to a specified interest rate index such as London Interbank Offered Rate (LIBOR) and are used to fund both the short- and long-term liquidity needs of our borrowers. Capped LIBOR advances are a type of variable rate advance in which the interest rate cannot exceed a specified maximum interest rate.

• Callable Advances. These advances may be prepaid by borrowers on pertinent dates (call dates) and therefore provide borrowers a source of long-term financing with prepayment flexibility. Included in callable advances are fixed and variable rate member-owned option advances that are non-amortizing and certain amortizing advance structures that contain specific call features.

• Putable Advances. These advances may, at our discretion, be terminated on predetermined dates prior to the stated maturity of the advances, requiring the borrower to repay the advance. Should an advance be terminated, replacement funding at the prevailing market rates and terms will be offered, based on our available advance products and subject to our normal credit and collateral requirements.

• Community Investment Advances. These advancesare below-market rate funds used by borrowers in both affordable housing projects and community development. Interest rates on these advances represent our cost of funds plus a mark-up to cover our administrative expenses. This mark-up is determined by our Asset-Liability Committee. On an annual basis, our Board of Directors establishes limits on the total amount of funds available for community investment advances.

For the years ended December 31, 2014, 2013, and 2012, advances represented 63, 58, and 53 percent of our total average assets and generated 36, 32, and 35 percent of our total interest income. For additional information on our advances, including our top five borrowers, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Advances.” In addition, refer to “Item 1A. Risk Factors” for a discussion on our exposure to customer concentration risk.

COLLATERAL

We are required by regulation to obtain and maintain a security interest in eligible collateral at the time we originate or renew an advance and throughout the life of the advance to ensure a fully collateralized position. Eligible collateral includes (i) whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages, (ii) loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including mortgage-backed securities (MBS) issued or guaranteed by Fannie Mae, Freddie Mac, or Government National Mortgage Association (Ginnie Mae) and Federal Family Education Loan Program (FFELP) guaranteed student loans, (iii) cash deposited with us, and (iv) other real estate-related collateral acceptable to us provided such collateral has a readily ascertainable value and we can perfect a security interest in such property. CFIs may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that we have a lien on each member's capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.

Borrowers may pledge collateral to us by executing a blanket lien, specifically assigning collateral, or placing physical possession of collateral with us or our custodians. We perfect our security interest in all pledged collateral by filing Uniform Commercial Code financing statements or taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to us by our members, or any affiliates of our members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket lien, we are granted a security interest in all financial assets of the borrower to fully secure the borrower's obligation. Other than securities and cash deposits, we do not initially take delivery of collateral pledged by blanket lien borrowers. In the event of deterioration in the financial condition of a blanket lien borrower, we have the ability to require delivery of pledged collateral sufficient to secure the borrower's obligation. With respect to non-blanket lien borrowers that are federally insured, we generally require collateral to be specifically assigned. With respect to non-blanket lien borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), we generally take control of collateral through the delivery of cash, securities, or loans to us or our custodians.

For additional information on our collateral requirements, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”

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HOUSING ASSOCIATES

The FHLBank Act permits us to provide advances to eligible housing associates. Housing associates are approved mortgagees under Title II of the National Housing Act that meet certain criteria, including: (i) chartered under law and have succession, (ii) subject to inspection and supervision by some governmental agency, and (iii) lend their own funds as their principal activity in the mortgage field. The same regulatory lending requirements that apply to our members generally apply to housing associates. Because housing associates are not members, they are not subject to certain provisions of the FHLBank Act applicable to members and cannot own our capital stock. In addition, they may only pledge certain types of collateral including: (i) Federal Housing Administration (FHA) mortgages, (ii) Ginnie Mae securities backed by FHA mortgages, (iii) certain residential mortgage loans, and (iv) cash deposited with us. As of December 31, 2014, we had two housing associates with outstanding advances of $56.7 million, which represented less than one percent of our total advances outstanding.

PREPAYMENT FEES

We charge a prepayment fee for advances that a borrower elects to terminate prior to the stated maturity or outside of a predetermined call or put date. The fees charged are priced to make us financially indifferent to the prepayment of the advance.

Standby Letters of Credit

We may issue standby letters of credit on behalf of our members, certain other FHLBank members (through a master participation agreement), and housing associates to facilitate business transactions with third parties. These letters of credit are generally used to facilitate residential housing finance and community lending, assist with asset-liability management, or provide liquidity or other funding. Standby letters of credit must be fully collateralized with eligible collateral at the time of issuance.

Mortgage Loans

We invest in mortgage loans through the Mortgage Partnership Finance (MPF) program (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago), a secondary mortgage market structure developed by the FHLBank of Chicago to help fulfill the housing mission of the FHLBanks. Under the MPF program, we purchase or fund eligible mortgage loans (MPF loans) from or through, members or housing associates called participating financial institutions (PFIs). We may also acquire MPF loans through participations with other FHLBanks. MPF loans are conforming conventional or government-insured fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from five to 30 years. For the years ended December 31, 2014, 2013, and 2012, mortgage loans represented 8, 12, and 15 percent of our total average assets and generated 36, 40, and 37 percent of our total interest income.

MPF PROVIDER

The FHLBank of Chicago serves as the MPF Provider for the MPF program. In its role as MPF Provider, the FHLBank of Chicago provides the infrastructure and operational support for the MPF program and is responsible for publishing and maintaining the MPF Guides, which detail the requirements PFIs must follow in originating, selling, and servicing MPF loans. The MPF Provider provides a service for FHLBanks, if needed, that establishes the base price of MPF loan products utilizing the agreed upon methodologies determined by the participating MPF FHLBanks. In exchange for providing these services, the MPF Provider receives a fee from each of the FHLBanks participating in the MPF program. The MPF Provider has engaged Wells Fargo Bank N.A. (Wells Fargo) as the master servicer for the MPF program.

MPF GOVERNANCE COMMITTEE

The MPF Governance Committee, which consists of representatives from each of the FHLBanks participating in the MPF program, is responsible for recommending and implementing strategic MPF program decisions, including, but not limited to, pricing methodology changes. Participating MPF FHLBanks are allowed to determine their own price or adjust the base price of MPF loan products established by the FHLBank of Chicago. Accordingly, we monitor daily market conditions and make price adjustments to our MPF loan products when deemed necessary. This allows us to impact the level of member demand in our MPF program as well as profitability, risk management, and regulatory requirements.

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PARTICIPATING FINANCIAL INSTITUTIONS

Our members and eligible housing associates must apply to become a PFI. In order to do MPF business with us, each member or eligible housing associate must meet certain eligibility standards and sign a PFI Agreement. The PFI Agreement provides the terms and conditions for the sale or funding of MPF loans, including the servicing of MPF loans.

PFIs may either retain the servicing of MPF loans or sell the servicing to an approved third-party provider. If a PFI chooses to retain the servicing, it receives a servicing fee to manage the servicing activities. If a PFI chooses to sell the servicing rights to an approved third-party provider, the servicing is transferred concurrently with the sale of the MPF loans and a servicing fee is paid to the third-party provider. Throughout the servicing process, the master servicer monitors the PFI's compliance with MPF program requirements and makes periodic reports to the MPF Provider.

MPF LOAN TYPES

There are six MPF loan products under the MPF program: Original MPF, MPF 100, MPF 125, MPF Plus, MPF Government, and MPF Xtra (MPF Xtra is a trademark of the FHLBank of Chicago). While still held in our Statements of Condition, we currently do not offer the MPF 100 or MPF Plus loan products. The discussion below outlines characteristics of our active MPF loans products.

Original MPF, MPF 125, and MPF Government are closed loan products in which we purchase loans acquired or closed by the PFI. MPF Xtra is an off-balance sheet loan product in which we assign 100 percent of our interest in PFI master commitments to the FHLBank of Chicago. The FHLBank of Chicago then purchases mortgage loans from our PFIs and sells those loans to Fannie Mae. We receive a small fee for our continued management of the PFI relationship under MPF Xtra.

The PFI performs all traditional retail loan origination functions on our MPF loan products. We are responsible for managing the interest rate risk, including mortgage prepayment risk, and liquidity risk associated with the MPF loans we purchase and carry on our Statements of Condition. In order to limit our credit risk exposure to that of an investor in an MBS that is rated the equivalent of AA by a nationally recognized statistical rating organization (NRSRO), we require a credit risk sharing arrangement with the PFI on all MPF loans at the time of purchase.

For additional discussion on our mortgage loans and their related credit risk, refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Mortgage Loans.”

MPF LOAN VOLUME

Over the years, our member base for MPF loans has evolved from large-volume loan purchases from a small number of large PFIs to purchasing the majority of our MPF loans from a diverse base of community financial institutions. Our ability to price MPF loans, coupled with the low interest rate environment, has allowed us to serve the liquidity needs of a broad range of members and maintain relatively stable mortgage loan volumes. During the years ended December 31, 2014, 2013, and 2012, we purchased $0.9 billion, $1.2 billion, and $2.1 billion of MPF loan products (excluding MPF Xtra). In addition, our members delivered $0.7 billion, $1.6 billion, and $2.0 billion of MPF Xtra loans during the years ended December 31, 2014, 2013, and 2012.

The growth of our MPF loan portfolio could be affected by Finance Agency regulation. If we exceed $2.5 billion in MPF loan purchases in a calendar year (excluding MPF Xtra), we will become subject to housing goals as specified by the Finance Agency and may be required to implement an affordable housing plan for the MPF program in addition to our current AHP. We believe that these goals may be difficult to implement and could potentially change the credit profile of the MPF program.

For additional information on our mortgage loans, including concentrations held with PFIs, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Mortgage Loans.”

TEMPORARY LOAN MODIFICATION PLAN

Effective August 1, 2009, we introduced a temporary loan payment modification plan for participating PFIs, with a scheduled expiration date of December 31, 2011. Homeowners in default or imminent danger of default with conventional loans secured by their primary residence and originated prior to January 1, 2009 were eligible for the plan. This modification plan has been extended until December 31, 2015. Under the extension, homeowners in default or imminent danger of default with conventional loans secured by their primary residence, regardless of loan origination date, are eligible for the plan. At December 31, 2014, 31 modified loans totaling $4.7 million were outstanding in our Statements of Condition under this plan.

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Investments

We maintain an investment portfolio primarily to provide investment income and liquidity. Our investment portfolio is comprised of both short- and long-term investments. Our short-term investments may include, but are not limited to, interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, certificates of deposit, and commercial paper. Our long-term investments may include, but are not limited to, other U.S. obligations, government-sponsored enterprise (GSE) obligations, state or local housing agency obligations, taxable municipal bonds, and MBS. Our long-term investments generally provide higher returns than our short-term investments. For the years ended December 31, 2014, 2013, and 2012, investments represented 28, 29, and 31 percent of our total average assets and generated 28, 28, and 29 percent of our total interest income.

We do not have any subsidiaries. With the exception of a limited partnership interest in a Small Business Investment Company (SBIC) that dissolved in 2014, we have no equity positions in any partnerships, corporations, or off-balance sheet special purpose entities. We limit new investments in MBS to those guaranteed by the U.S. Government, issued by a GSE, or that we deem to be investment quality at the time of purchase. Our Enterprise Risk Management Policy (ERMP) prohibits new purchases of private-label MBS.

REGULATORY RESTRICTIONS

To minimize credit risk, the Finance Agency prohibits us from investing in certain types of securities, including:

• instruments that provide an ownership interest in an entity, other than stock in an SBIC and certain investments targeted at low-income persons or communities;

• instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks;

• debt instruments that are not investment quality, other than certain investments targeted at low-income persons or communities and instruments that became less than investment quality after acquisition;

• whole mortgages or other whole loans, or interests in mortgages or loans, other than: (i) those acquired under the FHLBank mortgage purchase programs; (ii) certain investments targeted at low-income persons or communities; (iii) certain marketable direct obligations of state, local, or tribal government units or agencies that are investment quality; (iv) MBS or asset-backed securities collateralized by manufactured housing loans or home equity loans; and (v) certain foreign housing loans authorized under the FHLBank Act;

• non-U.S. dollar denominated securities;

• interest-only or principal-only stripped securities;

• residual-interest or interest-accrual classes of securities; and

• fixed or variable rate MBS that, on trade date, are at rates equal to their contractual cap and that have average lives that vary by more than six years under an assumed instantaneous interest rate change of 300 basis points.

The Finance Agency further limits our investments in MBS by requiring that the total book value of our MBS not exceed three times regulatory capital at the time of purchase. For details on our compliance with this regulatory requirement, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Investments.” For additional discussion on our investments and their related credit risk, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Investments."

On May 7, 2014, a new Finance Agency rule implementing Section 939A of the Dodd-Frank Act became effective, which requires Federal agencies to remove provisions from their regulations that require the use of ratings issued by NRSROs. The rule requires us to make our own determination of credit quality with respect to our investments, but does not prevent us from using NRSRO ratings or other third party analysis in our credit determinations.

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Standby Bond Purchase Agreements

We currently hold standby bond purchase agreements with housing associates within our district whereby, for a fee, we agree to serve as a standby liquidity provider if required, to purchase and hold the housing associate's bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which we would be required to purchase the bonds. If purchased, the bonds would be classified as available-for-sale (AFS) securities in our Statements of Condition. For additional details on our standby bond purchase agreements, refer to “Item 8. Financial Statements and Supplementary Data — Note 18 — Commitments and Contingencies.”

Deposits

We accept deposits from our members and eligible housing associates. We offer several types of deposit programs, including demand, overnight, and term deposits. Deposit programs provide us funding while providing members a low-risk interest-earning asset.

Consolidated Obligations

Our primary source of funding and liquidity is the issuance of debt securities, referred to as consolidated obligations, in the capital markets. Consolidated obligations (bonds and discount notes) are the joint and several obligations of all 12 FHLBanks and are backed only by the financial resources of the 12 FHLBanks. They are not obligations of the U.S. Government, and the U.S. Government does not guarantee them. At February 28, 2015, Standard & Poor's Ratings Services (S&P) and Moody's Investors Service, Inc. (Moody's) rated the consolidated obligations AA+/A-1+ and Aaa/P-1, both with a stable outlook.

The Office of Finance issues all consolidated obligations on behalf of the 12 FHLBanks. It is also responsible for servicing all outstanding debt, coordinating transfers of debt between the FHLBanks, serving as a source of information for the FHLBanks on capital market developments, managing the FHLBank System's relationship with the rating agencies with respect to consolidated obligations, and preparing and making available the FHLBank System's Combined Financial Reports.

Although we are primarily responsible for the portion of consolidated obligations issued on our behalf, we are also jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority.

To the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the FHLBank otherwise responsible for the payment. However, if the Finance Agency determines that an FHLBank is unable to satisfy its obligations, then it may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that it may determine.

The Finance Agency also requires each FHLBank to maintain unpledged qualifying assets, as defined by regulation, in an amount at least equal to the amount of that FHLBank’s participation in the total consolidated obligations outstanding. For details on our compliance with this regulatory requirement, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Liquidity Requirements.”

BONDS

Bonds are generally issued to satisfy our intermediate- and long-term funding needs. Typically, they have maturities ranging up to 30 years, although there is no statutory or regulatory limitation as to their maturity. Periodically, index amortizing notes may be issued that pay down consistent with a specified reference pool of mortgages determined at issuance and have a final stated maturity of up to 15 years. Bonds are issued with either fixed or variable rate payment terms that use a variety of indices for interest rate resets including, but not limited to, LIBOR and the Federal funds rate. To meet the specific needs of certain investors, both fixed and variable rate bonds may also contain certain embedded features, which result in complex coupon payment terms and call features. When bonds are issued on our behalf, we may concurrently enter into a derivative agreement to effectively convert the fixed rate payment stream to variable or to offset the embedded features in the bond.

Depending on the amount and type of funding needed, bonds may be issued through negotiated or competitively bid transactions with approved underwriters or selling group members (i.e., TAP Issue Program, auction, and Global Debt Program), or through debt transfers between FHLBanks.

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The TAP Issue Program is used to issue fixed rate, noncallable bonds with standard maturities of two, three, five, seven, or ten years. The goal of the TAP Issue Program is to aggregate frequent smaller bond issues into a larger bond issue that may have greater market liquidity.

An auction process is used to issue fixed rate, callable bonds. Auction structures are determined by the FHLBanks in consultation with the Office of Finance and the securities dealer community. We may receive zero to 100 percent of the proceeds of the bonds issued via the callable auction depending on (i) the amounts and costs for the bonds bid by underwriters, (ii) the maximum costs we or other FHLBanks participating in the same issue, if any, are willing to pay for the obligations, and (iii) the guidelines for allocation of bond proceeds among multiple participating FHLBanks administered by the Office of Finance.

The Global Debt Program allows the FHLBanks to diversify their funding sources to include overseas investors. Global Debt Program bonds may be issued in maturities ranging up to 30 years and can be customized with different terms and currencies. The FHLBanks approve the terms of the individual issues under the Global Debt Program.

For additional information on our bonds, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Consolidated Obligations” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

DISCOUNT NOTES

Discount notes are generally issued to satisfy our short-term funding needs. They have maturities of up to 365/366 days and are offered daily through a discount note selling group and other authorized underwriters. Discount notes are generally sold at a discount and mature at par.

On a daily basis, we may request that specific amounts of discount notes with specific maturity dates be offered by the Office of Finance for sale through certain securities dealers. We may receive zero to 100 percent of the proceeds of the discount notes issued via this sales process depending on (i) the time of the request, (ii) the maximum costs we or other FHLBanks participating in the same issue, if any, are willing to pay for the discount notes, and (iii) the amount of orders for the discount notes submitted by dealers.

Twice weekly, we may request that specific amounts of discount notes with fixed maturities of four to 26 weeks be offered by the Office of Finance through competitive auctions conducted with securities dealers in the discount note selling group. One or more of the FHLBanks may also request that amounts of those same discount notes be offered for sale for their benefit through the same auction. The discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. We may receive zero to 100 percent of the proceeds of the discount notes issued through a competitive auction depending on the amounts of the discount notes bid by underwriters and the guidelines for allocation of discount note proceeds among multiple participating FHLBanks administered by the Office of Finance.

For additional information on our discount notes, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Consolidated Obligations” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

Derivatives

We use derivatives to manage interest rate risk, including mortgage prepayment risk, in our Statements of Condition. Finance Agency regulations and our ERMP establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.

The goal of our interest rate risk management strategy is not to eliminate interest rate risk, but to manage it within appropriate limits. One key way we manage interest rate risk is to acquire and maintain a portfolio of assets and liabilities which, together with their associated derivatives, are conservatively matched with respect to the expected repricings.

We can use interest rate swaps, swaptions, interest rate caps and floors, options, and future/forward contracts as part of our interest rate risk management strategies. These derivatives can be used as either a fair value hedge of a financial instrument or firm commitment or an economic hedge to manage certain defined risks in our Statements of Condition.

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Additional information on our derivatives can be found in "Item 8. Financial Statements and Supplementary Data — Note 11 — Derivatives and Hedging Activities” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Derivatives.”

CAPITAL AND DIVIDENDS

Capital

We issue a single class of capital stock (Class B capital stock). Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, or repurchased by us at the stated par value. We have two subclasses of capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31^st subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding in our Statements of Condition. All capital stock issued is subject to a five year notice of redemption period.

The capital stock requirements established in our Capital Plan are designed so that we remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan.

Capital stock owned by members in excess of their capital stock requirement is deemed excess capital stock. Under our Capital Plan, we, at our discretion and upon 15 days' written notice, may repurchase excess membership capital stock. We, at our discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock.

For additional information on our capital, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital.”

Retained Earnings

Our ERMP requires a minimum retained earnings level based on the level of market risk, credit risk, and operational risk within the Bank. If realized financial performance results in actual retained earnings below the minimum level, we, as determined by our Board of Directors, will establish an action plan to enable us to return to our targeted level of retained earnings within twelve months. At December 31, 2014, our actual retained earnings were above the minimum level, and therefore no action plan was necessary.

In 2011, we entered into a Joint Capital Enhancement Agreement (JCE Agreement), as amended, with the other 11 FHLBanks. The JCE Agreement is intended to enhance the capital position of each FHLBank by allocating the earnings historically paid to satisfy the Resolution Funding Corporation obligation to a separate restricted retained earnings account. Under the JCE Agreement, each FHLBank allocates 20 percent of its quarterly net income to a restricted retained earnings account until the balance of that account equals at least one percent of its average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends and are presented separately in our Statements of Condition. At December 31, 2014 and 2013, our restricted retained earnings account totaled $75.0 million and $50.8 million. One percent of our average balance of outstanding consolidated obligations for the three months ended September 30, 2014 was $834.2 million. To review the JCE Agreement, as amended, see Exhibit 99.1 of our Form 8-K filed with the SEC on August 5, 2011.

Dividends

Our Board of Directors may declare and pay different dividends for each subclass of capital stock. Dividend payments may be made in the form of cash and/or additional shares of capital stock. Historically, we have only paid cash dividends. By regulation, we may pay dividends from current earnings or unrestricted retained earnings, but we may not declare a dividend based on projected or anticipated earnings. We are prohibited from paying a dividend in the form of additional shares of capital stock if, after the issuance, the outstanding excess capital stock would be greater than one percent of our total assets. In addition, we may not declare or pay a dividend if the par value of our capital stock is impaired or is projected to become impaired after paying such dividend. Our Board of Directors may not declare or pay dividends if it would result in our non-compliance with regulatory capital requirements.

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Our Board of Directors believes any excess returns on capital stock above an appropriate benchmark rate that are not retained for capital growth should be returned to members that utilize our product and service offerings. Our philosophy is to pay a membership capital stock dividend similar to a benchmark rate of interest, such as average-three month LIBOR, and an activity-based capital stock dividend, when possible, at least 50 basis points in excess of the membership capital stock dividend. Our actual dividend payout is determined quarterly by our Board of Directors, based on policies, regulatory requirements, financial projections, and actual performance.

For additional information on our dividends, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Dividends.”

COMPETITION

Advances

One of our primary businesses is to make advances to our members and eligible housing associates. Demand for our advances is affected by, among other things, the cost of other available sources of funding for our borrowers. We compete with other suppliers of secured and unsecured wholesale funding including, but not limited to, investment banks, commercial banks, other GSEs, and U.S. Government agencies. We may also compete with other FHLBanks to the extent that member institutions have affiliated institutions located outside of our district. Furthermore, our members typically have access to brokered deposits and resale agreements, each of which represent competitive alternatives to our advances. Many of our competitors are not subject to the same body of regulation that we are, which enables those competitors to offer products and terms that we may not be able to offer. Efforts to effectively compete with other suppliers of wholesale funding by changing the pricing of our advances may result in a decrease in the profitability of our advance business.

Mortgage Loans

The purchase of mortgage loans through the MPF program is subject to competition on the basis of prices paid for mortgage loans, customer service, and ancillary services, such as automated underwriting and loan servicing options. We compete primarily with other GSEs, such as Fannie Mae, Freddie Mac, and other financial institutions and private investors for acquisition of conventional fixed rate mortgage loans.

Consolidated Obligations

Our primary source of funding is through the issuance of consolidated obligations. We compete with the U.S. Government, Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of debt in the national and global debt markets. In the absence of increased demand, increased supply of competing debt products may result in higher debt costs or lesser amounts of debt issued at the same cost. Although our debt issuances have kept pace with the funding needs of our members, there can be no assurance that this will continue.

TAXATION

We are exempt from all federal, state, and local taxation except real property taxes.

AFFORDABLE HOUSING PROGRAM ASSESSMENTS

The FHLBank Act requires each FHLBank to establish and fund an AHP, which provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low to moderate income households. Annually, the FHLBanks must set aside for the AHP the greater of ten percent of their current year net earnings or their pro-rata share of an aggregate $100 million to be contributed in total by the FHLBanks. For purposes of the AHP assessment, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. We accrue the AHP assessment on a monthly basis and reduce our AHP liability as program funds are distributed. For additional information on our AHP, refer to “Item 8. Financial Statements and Supplementary Data — Note 14 — Affordable Housing Program.”

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AVAILABLE INFORMATION

We are required to file with the SEC an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains a website containing these reports and other information regarding our electronic filings located at www.sec.gov. These reports may also be read and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Further information about the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330.

We also make our annual reports, quarterly reports, current reports, and amendments to all such reports filed with or furnished to the SEC available, free of charge, on our internet website at www.fhlbdm.com as soon as reasonably practicable after such reports are available. Annual and quarterly reports for the FHLBanks on a combined basis are also available, free of charge, at the website of the Office of Finance as soon as reasonably practicable after such reports are available. The internet website address to obtain these reports is www.fhlb-of.com.

Information contained in the previously mentioned websites, or that can be accessed through those websites, is not incorporated by reference into this annual report on Form 10-K and does not constitute a part of this or any report filed with the SEC.

PERSONNEL

As of February 28, 2015, we employed 219 full-time and nine part-time employees. Our employees are not covered by a collective bargaining agreement.

ITEM 1A. RISK FACTORS

The following discussion summarizes some of the more important risks we face. This discussion is not exhaustive, and there may be other risks we face, which are not described below. The risks described below, if realized, could negatively affect our business operations, financial condition, and future results of operations and, among other things, could result in our inability to pay dividends on our capital stock or repurchase capital stock.

WE ARE SUBJECT TO A COMPLEX BODY OF LAWS AND REGULATIONS THAT COULD CHANGE IN A MANNER DETRIMENTAL TO OUR BUSINESS OPERATIONS

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and as such, are governed by federal laws and regulations adopted and applied by the Finance Agency. From time to time, Congress may amend the FHLBank Act or other statutes in ways that affect the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency or other financial services regulators could adversely impact our ability to conduct business or the cost of doing business.

We cannot predict when new regulations will be promulgated by the Finance Agency or whether Congress will enact new legislation, and we cannot predict the effect of any new regulations or legislation on our business operations. Changes in regulatory or statutory requirements could result in, among other things, changes to the eligibility criteria of our membership, changes to the types of business activities that we are permitted to engage in, an increase in our cost of funding or cost of operation, or a decrease in the size, scope, or nature of our lending, investment, or MPF program activities, which could negatively affect our financial condition and results of operations.

For a discussion of recent legislative and regulatory activity that could affect us, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments.”

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FINANCE AGENCY PROPOSED RULE COULD MATERIALLY IMPACT THE BANK'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On September 12, 2014, the Finance Agency issued a proposed rule that would change the eligibility requirements for FHLBank members by, among other things, imposing new ongoing membership requirements and eliminating currently eligible captive insurance companies from FHLBank membership.

If the proposed rule is adopted in its current form, the Bank's financial condition and results of operations could be materially impacted. Most significantly, our current captive insurance company members would have their membership terminated five years after the rule is finalized. As of December 31, 2014, we had seven captive insurance company members with advances outstanding of $4.6 billion, which represented seven percent of our total advances outstanding. If adopted as proposed, the regulation may also reduce the value of our membership to the extent that the ongoing membership requirements restrict members' access to liquidity and the Bank's MPF program or cause them to modify their business and balance sheet in order to comply with these ongoing requirements. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments" for additional discussion of the proposed rule and its potential impact.

WE FACE COMPETITION FOR ADVANCES, MORTGAGE LOANS, AND FUNDING

Our primary business activities are providing advances to members and housing associates and acquiring residential mortgage loans from or through our members. Demand for our advances is affected by, among other things, the cost of other available sources of funding for our borrowers. We compete with other suppliers of secured and unsecured wholesale funding including, but not limited to, investment banks, commercial banks, other GSEs, and U.S. Government agencies. We may also compete with other FHLBanks to the extent that member institutions have affiliated institutions located outside of our district. Furthermore, our members typically have access to brokered deposits and resale agreements, each of which represent competitive alternatives to our advances. Many of our competitors are not subject to the same body of regulation that we are, which enables those competitors to offer products and terms that we may not be able to offer. Efforts to effectively compete with other suppliers of wholesale funding by changing the pricing of our advances may result in a decrease in the profitability of our advance business. A decrease in the demand for advances or a decrease in the profitability on advances would negatively affect our financial condition and results of operations.

The purchase of mortgage loans through the MPF program is subject to competition on the basis of prices paid for mortgage loans, customer service, and ancillary services, such as automated underwriting and loan servicing options. We compete primarily with other GSEs, such as Fannie Mae, Freddie Mac, and other financial institutions and private investors for acquisition of conventional fixed rate mortgage loans. Increased competition could result in a reduction in the amount of mortgage loans we are able to purchase, which could negatively affect our financial condition and results of operations.

We also compete with the U.S. Government, Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of debt in the national and global markets. In the absence of increased demand, increased supply of competing debt products may result in higher debt costs or lesser amounts of debt issued at the same cost. An increase in funding costs would negatively affect our financial condition and results of operations.

WE ARE JOINTLY AND SEVERALLY LIABLE FOR THE CONSOLIDATED OBLIGATIONS OF OTHER FHLBANKS AND MAY BE REQUIRED TO PROVIDE FINANCIAL ASSISTANCE TO OTHER FHLBANKS

Each of the FHLBanks relies upon the issuance of consolidated obligations as a primary source of funds. Consolidated obligations are the joint and several obligations of the 12 FHLBanks and are backed only by the financial resources of the FHLBanks. They are not obligations of the U.S. Government, and the U.S. Government does not guarantee them. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. Furthermore, if the Finance Agency determines that an FHLBank is unable to satisfy its obligations, it may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that it may determine. Accordingly, we could incur liability beyond our primary obligation under consolidated obligations, which could negatively affect our financial condition and results of operations. Moreover, we may not pay dividends to, or redeem or repurchase capital stock from, any of our members if timely payment of principal and interest on all FHLBank consolidated obligations has not been made. Accordingly, our ability to pay dividends or to redeem or repurchase capital stock may be affected not only by our financial condition, but by the financial condition of the other FHLBanks.

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Due to our relationship with other FHLBanks, we could also be impacted by events other than the default on a consolidated obligation. Events that impact other FHLBanks include, but are not limited to, member failures, capital deficiencies, and other-than-temporary impairment (OTTI) charges. These events may cause the Finance Agency, at its discretion, to require any FHLBank to either provide capital to or buy assets of any other FHLBank. If we were called upon by the Finance Agency to do either of these items, it may impact our financial condition.

Additionally, the FHLBank Act requires each FHLBank to establish and fund an AHP. Annually, the FHLBanks are required to set aside, in the aggregate, the greater of $100 million or ten percent of their current year net earnings. AHP contributions made by the FHLBanks were $269 million, $293 million, and $296 million for 2014, 2013, and 2012. If the FHLBanks do not make the minimum $100 million AHP contribution in a given year, we could be required to contribute more than ten percent of our current year net earnings. An increase in our AHP contributions could adversely impact our financial condition and results of operations.

ACTUAL OR PERCEIVED CHANGES IN THE FHLBANK'S CREDIT RATINGS AS WELL AS THE U.S. GOVERNMENT'S CREDIT RATING COULD ADVERSELY AFFECT OUR BUSINESS

Our consolidated obligations are currently rated AA+/A-1+ by S&P and Aaa/P-1 by Moody's, both with a stable outlook. These ratings are subject to reduction or withdrawal at any time by an NRSRO, and the FHLBank System may not be able to maintain these credit ratings. Adverse rating agency actions on the FHLBank System or U.S. Government may reduce investor confidence and negatively affect our cost of funds and ability to issue consolidated obligations on acceptable terms, which could adversely impact our financial condition and results of operations.

A reduction in our credit rating could also trigger additional collateral posting requirements under our derivative agreements. For cleared derivatives, the Derivative Clearing Organization (Clearinghouse) determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to, credit rating downgrades. We were not required to post additional initial margin by our clearing agents, based on credit considerations at December 31, 2014. For the majority of bilateral derivative contracts, we are required to deliver additional collateral on derivatives in net liability positions to counterparties if there is deterioration in our credit rating. At December 31, 2014, if our credit rating had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, we would have been required to deliver an additional $51.1 million of collateral to our bilateral derivative counterparties. Further, demand for certain Bank products, including, but not limited to, standby letters of credit and standby bond purchase agreements, is influenced by our credit rating. A reduction in our credit rating could weaken or eliminate demand for such products.

We cannot predict future impacts on our financial condition, results of operations, and business model resulting from actions taken by the rating agencies and/or the U.S. Government's fiscal health. To the extent we cannot access funding and derivatives when needed on acceptable terms or demand for our products declines, our financial condition and results of operations could be adversely affected.

WE COULD BE ADVERSELY AFFECTED BY OUR INABILITY TO ACCESS THE CAPITAL MARKETS

Our primary source of funds is through the issuance of consolidated obligations in the capital markets. Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing market conditions in the capital markets and rating agency actions, both of which are beyond our control. In addition, changes to the regulatory environment that affect bank counterparties and debt underwriters could adversely affect our ability to access the capital markets or the cost of that funding. We cannot make any assurance that we will be able to obtain funding on terms acceptable to us, if at all. If we cannot access funding when needed, our ability to support and continue business operations, including our compliance with regulatory liquidity requirements, could be adversely impacted, which would thereby adversely impact our financial condition and results of operations. Although our debt issuances have historically kept pace with the funding needs of our members and eligible housing associates, there can be no assurance that this will continue.

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THE PROPOSED MERGER IS SUBJECT TO CERTAIN CLOSING CONDITIONS AND CONTINUED FINANCE AGENCY REGULATORY REVIEW WHICH MAY IMPOSE CONDITIONS THAT ARE NOT PRESENTLY ANTICIPATED OR THAT COULD HAVE AN ADVERSE EFFECT ON THE CONTINUING BANK FOLLOWING THE MERGER.

There are significant risks and uncertainties associated with our proposed merger with the Seattle Bank that could delay or prevent the completion of the merger. General economic and financial market conditions, and other internal and external factors may also affect the ability to complete the merger. The Finance Agency may also impose conditions on the completion of the merger or require changes to the terms of the merger agreement. Although the banks have obtained Finance Agency approval of the regulatory merger application as filed pursuant to the Finance Agency's merger rules, final approval of the merger is subject to the satisfaction of certain conditions, which include, among other things, acceptance by the Finance Agency of the continuing bank's organization certificate. Such conditions or changes could have the effect of delaying or preventing completion of the merger or imposing additional costs on or limiting the revenues of the continuing bank, any of which might have an adverse effect on the continuing bank following the merger.

IF THE MERGER IS NOT COMPLETED, WE WILL HAVE INCURRED SUBSTANTIAL EXPENSES WITHOUT REALIZING THE EXPECTED BENEFITS OF THE MERGER.

We have devoted significant internal resources, including advisors' fees, travel costs, and management and employee focus, to the pursuit of this merger and the expected benefit of those resource allocations would be lost if the merger is not completed. Additionally, the merger agreement provides that we must pay a termination fee in the amount of $57 million in the event that the merger agreement is terminated under certain circumstances. Payment of the termination fee would require us to use available resources that would have otherwise been available for other operating purposes.

COMBINING THE TWO BANKS MAY BE MORE DIFFICULT, COSTLY OR TIME CONSUMING THAN EXPECTED AND THE ANTICIPATED BENEFITS AND COST SAVINGS OF THE MERGER MAY NOT BE REALIZED.

Our Bank and the Seattle Bank have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings (including the time to realize such benefits and savings), will depend, in part, on the continuing bank's ability to successfully combine and integrate the businesses of the two banks in a manner that permits growth opportunities and does not materially disrupt the existing member relations nor result in decreased revenues due to loss of members. It is possible that the integration process could result in the loss of key employees, the disruption of either bank's ongoing businesses, or inconsistencies in standards, controls, technologies, procedures and policies that may adversely affect the continuing bank's ability to maintain relationships with its members, vendors, and employees or to achieve the anticipated benefits and cost savings of the merger.

Certain operational risks accompany the integration of the banks. As the banks' systems and processes are integrated, it is possible that the continuing bank's members may experience a full or partial disruption in service, unexpected changes in the way that service is provided, or service limitations on a temporary basis. Further, while the banks seek to minimize disruption in service provided to members during the transition period, there remains a risk that unforeseen events or circumstances may arise that may impact, among other things, the continuing bank's members' capital stock requirements, credit line, and collateral availability. Other types of unexpected changes (e.g., to member legal agreements, to member data requests, etc.) are also possible during this period and could result in unexpected delays or disruption of service to members.

If difficulties with the integration process are encountered, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. There also may be business disruptions that cause us to lose members or cause members to withdraw their membership. Integration efforts will also divert management attention and resources. These integration matters could have an adverse effect on us during this transition period and for an undetermined period after completion of the merger.

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FAILURE TO MEET MINIMUM REGULATORY CAPITAL REQUIREMENTS COULD ADVERSELY AFFECT OUR ABILITY TO REDEEM OR REPURCHASE CAPITAL STOCK, PAY DIVIDENDS, AND ATTRACT NEW MEMBERS

We are required to maintain capital to meet specific minimum requirements, as defined by the Finance Agency. Historically, our capital has exceeded all capital requirements and we have maintained adequate capital and leverage ratios. If we fail to meet any of these requirements or if our Board of Directors or the Finance Agency determines that we have incurred, or are likely to incur, losses resulting in, or losses that are expected to result in, a charge against capital, we would not be able to redeem or repurchase any capital stock while such charges are continuing or expected to continue. In addition, failure to meet our capital requirements could result in the Finance Agency's imposition of restrictions pertaining to dividend payments, lending, investing, or other business activities. Additionally, the Finance Agency could require that we call upon our members to purchase additional capital stock to meet our minimum regulatory capital requirements. Members may be unable or unwilling to satisfy such calls for additional capital, thereby affecting their desire to continue business with us.

WE COULD BE ADVERSELY AFFECTED BY OUR EXPOSURE TO CUSTOMER CONCENTRATION RISK

We are subject to customer concentration risk as a result of our reliance on a relatively small number of member institutions for a large portion of our total advances and resulting interest income. At December 31, 2014 and 2013, advances outstanding to our top five borrowers totaled $42.6 billion and $26.7 billion, representing 66 and 59 percent of our total advances outstanding. Advance balances with these members could change due to factors such as a change in member demand, relocation of members out of our district, or members with affiliated institutions located outside of our district choosing to do business with another FHLBank. If, for any reason, we were to lose, or experience a decrease in the amount of business with our top five borrowers, our financial condition and results of operations could be negatively affected. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Advances” for additional information on our top five borrowers.

WE COULD BE ADVERSELY AFFECTED BY OUR EXPOSURE TO CREDIT RISK

We are exposed to credit risk if the market value of an obligation declines as a result of deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. We assume unsecured and secured credit risk exposure in that a borrower or counterparty could default and we may suffer a loss if we are not able to fully recover amounts owed to us in a timely manner.

We attempt to mitigate unsecured credit risk by limiting the terms of unsecured investments and the borrowing capacity of our counterparties. We attempt to mitigate secured credit risk through collateral requirements and credit analysis of our borrowers and counterparties. We require collateral on advances, standby letters of credit, certain mortgage loan credit enhancements provided by PFIs, certain investments, and derivatives. All advances, standby letters of credit, and applicable mortgage loan credit enhancements are required to be fully collateralized. We evaluate the types of collateral pledged by our borrowers and counterparties and assign a borrowing capacity to the collateral, generally based on a percentage of its unpaid principal balance or estimated market value, if available. We generally have the ability to call for additional or substitute collateral during the life of an obligation to ensure we are fully collateralized.

If a borrower or counterparty fails, we have the right to take ownership of the collateral covering the obligation. However, if the liquidation value of the collateral is less than the value of the outstanding obligation, we may incur losses that could adversely affect our financial condition and results of operations. If we are unable to secure the obligations of borrowers and counterparties, our lending, investing, and hedging activities could decrease, which would negatively impact our financial condition and results of operations.

CHANGES IN ECONOMIC CONDITIONS OR FEDERAL FISCAL AND MONETARY POLICY COULD ADVERSELY IMPACT OUR BUSINESS

As a cooperative, we operate with narrow margins and expect to be profitable over the long-term based on our prudent lending standards, conservative investment strategies, and diligent risk management practices. Because we operate with narrow margins, our net income is sensitive to changes in market conditions that can impact the interest we earn and pay and introduce volatility in other (loss) income. These conditions include, but are not limited to, changes in interest rates and the money supply, inflation, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy and the local economies in which we conduct business. Our financial condition, results of operations, and ability to pay dividends could be negatively affected by changes in economic conditions.

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Additionally, our business and results of operations may be affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve, which regulates the supply of money and credit in the U.S. The Federal Reserve's policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities, which could adversely affect our financial condition, results of operations, and ability to pay dividends.

WE COULD BE ADVERSELY AFFECTED BY OUR INABILITY TO ENTER INTO DERIVATIVE INSTRUMENTS ON ACCEPTABLE TERMS

We use derivatives to manage interest rate risk, including mortgage prepayment risk, in our Statements of Condition. Our effective use of derivative instruments depends upon management's ability to determine the appropriate hedging positions in light of our assets and liabilities as well as prevailing and anticipated market conditions. In addition, the effectiveness of our hedging strategies depends upon our ability to enter into derivatives with acceptable counterparties, on terms desirable to us, and in quantities necessary to hedge our corresponding assets and liabilities. If we are unable to manage our hedging positions properly, or are unable to enter into derivative instruments on desirable terms, we may incur higher funding costs and be unable to effectively manage our interest rate risk and other risks, which could negatively affect our financial condition and results of operations.

The Dodd-Frank Act could adversely impact our ability to execute derivatives to hedge interest rate risk. Derivatives regulations under the Dodd-Frank Act have impacted and will continue to substantially impact the derivatives markets by, among other things: (i) requiring extensive regulatory and public reporting of derivatives transactions, (ii) requiring a wide range of over-the-counter derivatives to be cleared through recognized clearing facilities and traded on exchanges or exchange-like facilities, (iii) requiring the collection and segregation of collateral for most uncleared derivatives, and (iv) significantly broadening limits on the size of positions that may be maintained in specified derivatives. These market structure reforms may make many derivatives products more costly to execute, may significantly reduce the liquidity of certain derivatives markets, and could diminish customer demand for covered derivatives. These changes could negatively impact our ability to execute derivatives in a cost efficient manner, which could have an adverse impact on our results of operations and our ability to achieve our risk management objectives.

EXPOSURE TO OPTION RISK IN OUR FINANCIAL ASSETS AND LIABILITIES COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS

Our mortgage assets provide homeowners the option to prepay their mortgages prior to maturity. The effect of changes in interest rates can exacerbate prepayment or extension risk, which is the risk that mortgage assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer than expected at below-market yields when interest rates increase. Our advances, consolidated obligations, and derivatives may provide us, the borrower, the issuer, or the counterparty with the option to call or put the asset or liability. These options leave us susceptible to unpredictable cash flows associated with our financial assets and liabilities. The exercise of the option and the prepayment or extension risk is dependent upon general market conditions and if not managed appropriately, could have a material adverse effect on our financial condition and results of operations.

INCREASES IN DELINQUENCY OR LOSS ESTIMATES ON OUR MPF LOANS MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During 2014, we observed continuing signs of improvement in the U.S. housing market and therefore, we decreased our allowance for credit losses on mortgage loans. To the extent that economic conditions weaken and result in increased unemployment and a decline in home prices, we could see an increase in loan delinquencies or loss estimates and decide to increase our allowance for credit losses on mortgage loans. In addition, to the extent that mortgage insurance providers fail to fulfill their obligations to pay us for claims, we could bear additional losses on certain mortgage loans with outstanding mortgage insurance coverage. As a result, our financial condition and results of operations could be adversely impacted.

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THE IMPACT OF FINANCIAL MODELS AND THE UNDERLYING ASSUMPTIONS USED TO VALUE FINANCIAL INSTRUMENTS AND COLLATERAL MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The degree of management judgment involved in determining the fair value of financial instruments or collateral is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments and collateral that are actively traded and have quoted market prices or parameters readily available, there is little to no subjectivity in determining fair value. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. We utilize external and internal pricing models to determine the fair value of certain financial instruments and collateral. For external pricing models, we review the vendors' pricing processes, methodologies, and control procedures for reasonableness. For internal pricing models, the underlying assumptions are based on management's best estimates for discount rates, prepayments, market volatility, and other factors. The assumptions used in both external and internal pricing models could have a significant effect on the reported fair values of assets and liabilities or collateral, the related income and expense, and the expected future behavior of assets and liabilities or collateral. While models we use to value financial instruments and collateral are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of our financial instruments and collateral. The use of different models and assumptions, as well as changes in market conditions, could impact our financial condition and results of operations as well as the amount of collateral we require from borrowers and counterparties.

The information provided by our internal financial models is also used in making business decisions relating to strategies, initiatives, transactions, and products. We have adopted controls, procedures, and policies to monitor and manage assumptions used in our internal models. However, models are inherently imperfect predictors of actual results because they are based on assumptions about future performance or activities. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different. If the results are not reliable due to inaccurate assumptions, we could make poor business decisions, including asset and liability management, or other decisions, which could result in an adverse financial impact.

FAILURES OR INTERRUPTIONS IN INTERNAL CONTROLS, INFORMATION SYSTEMS, AND OTHER OPERATING TECHNOLOGIES COULD HARM OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, REPUTATION, AND RELATIONS WITH MEMBERS

Control failures, including failures in our controls over financial reporting, or business interruptions with members, vendors, or counterparties, could occur from human error, fraud, breakdowns in information and computer systems, lapses in operating processes, or natural or man-made disasters. If a significant control failure or business interruption were to occur, it could materially damage our financial condition and results of operations. We may not be able to foresee, prevent, mitigate, reverse, or repair the negative effects of such failures or interruptions.

Moreover, we rely heavily upon information systems and other operating technologies to conduct and manage our business. To the extent that we, our members, vendors, or counterparties experience a technical failure or interruption in any of these systems or other operating technologies, including any "cyberattacks" or other breaches of technical security, we may be unable to conduct and manage our business effectively. During 2011, we began the process of replacing our core banking system. This project could also subject us to a higher level of operational risk or risk of technical failure or interruption. Although we have implemented a disaster recovery and business continuity plan, we can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of any technical failure or interruption. Any technical failure or interruption could harm our customer relations, risk management, and profitability, and could adversely impact our financial condition and results of operations.

THE INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD ADVERSELY IMPACT OUR BUSINESS

We rely heavily upon our employees in order to successfully execute our business and strategies. The success of our business mission depends, in large part, on our ability to attract and retain certain key personnel with required talents and skills. Should we be unable to hire or retain key personnel with the needed talents or skills, our business operations could be adversely impacted.

MEMBER CONSOLIDATIONS AND FAILURES COULD ADVERSELY AFFECT OUR BUSINESS

Member consolidations and failures could reduce the number of current and potential members in our district. During 2014, our membership level declined due primarily to 31 member consolidations and two bank failures. If the number of member consolidations and failures were to accelerate, we could experience a reduction in the level of our members' advance and other business activities. This loss of business could negatively impact our business operations, financial condition, and results of operations.

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RELIANCE ON THE FHLBANK OF CHICAGO, AS MPF PROVIDER, AND FANNIE MAE, AS THE ULTIMATE INVESTOR IN THE MPF XTRA PRODUCT, COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS

As part of our business, we participate in the MPF program with the FHLBank of Chicago. In its role as MPF Provider, the FHLBank of Chicago provides the infrastructure and operational support for the MPF program and is responsible for publishing and maintaining the MPF Guides, which detail the requirements PFIs must follow in originating, selling, and servicing MPF loans. If the FHLBank of Chicago changes its MPF Provider role, ceases to operate the MPF program, or experiences a failure or interruption in its information systems and other technology, our mortgage purchase business could be adversely affected, and we could experience a related decrease in our net interest margin and profitability. In the same way, we could be adversely affected if any of the FHLBank of Chicago's third-party vendors supporting the operation of the MPF program were to experience operational or technical difficulties.

Additionally, under the MPF Xtra loan product, we assign 100 percent of our interest in PFI master commitments to the FHLBank of Chicago, who then purchases mortgage loans from our PFIs and sells those loans to Fannie Mae. Should the FHLBank of Chicago or Fannie Mae experience any operational difficulties or inability to continue to do business, those difficulties could have a negative impact on the value of the Bank to our membership.

U.S. GOVERNMENT MANDATED LOAN MODIFICATION PROGRAMS COULD ADVERSELY IMPACT THE VALUE OF OUR INVESTMENTS IN MBS AND MORTGAGE LOANS

Loan modification programs, as well as future legislative, regulatory, or other actions, including amendments to bankruptcy laws, could result in the modification of outstanding mortgage loans. Such modifications could adversely impact the value of and the returns from our investments in MBS and mortgage loans.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

On January 2, 2007, we executed a 20 year lease with an affiliate of our member, Wells Fargo, for approximately 43,000 square feet of office space. The office space is located at 801 Walnut Street, Suite 200, Des Moines, Iowa and is used for substantially all primary business functions. To review the lease agreement, as amended, see Exhibits 10.3 and 10.3.1 of our Form 10-K filed with the SEC on March 30, 2007.

On June 10, 2011, we executed a three year lease with Tomorrow 30 Des Moines, Limited Partnership, for approximately 6,000 square feet of office space. On April 29, 2014, we extended this lease agreement for an additional three years. The office space is located at 666 Walnut Street, Suite 1910, Des Moines, Iowa and is used for general business functions.

We also maintain a leased, off-site back-up facility with approximately 4,100 square feet in Urbandale, Iowa.

ITEM 3. LEGAL PROCEEDINGS

We are not currently aware of any pending or threatened legal proceedings against us, other than ordinary routine litigation incidental to our business, that could have a material adverse effect on our financial condition, results of operations, or cash flows.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We are a cooperative. This means we are owned by our customers, whom we call members. Our current and former members own all of our outstanding capital stock. Our capital stock is not publicly traded and has a par value of $100 per share. All shares are issued, redeemed, or repurchased by us at the stated par value. Our capital stock may be redeemed with a five year notice from the member or voluntarily repurchased by us at par value, subject to certain limitations set forth in our Capital Plan. At February 28, 2015, we had 1,157 current members that held 34.0 million shares of capital stock and 15 former members that held 0.2 million shares of mandatorily redeemable capital stock.

We paid the following quarterly cash dividends (dollars in millions):

	2014				2013
Quarter Declared and Paid	Amount1		Annualized Rate3		Amount2		Annualized Rate3
First Quarter	$	18.9	2.80	%	$	13.1	2.60	%
Second Quarter	18.3		2.79		12.9		2.59
Third Quarter	19.5		2.81		13.1		2.59
Fourth Quarter	22.2		2.87		14.4		2.64

1 Amounts exclude $82,000, $45,000, $46,000, and $44,000 of cash dividends paid on mandatorily redeemable capital stock for the first, second, third, and fourth quarters of 2014. For financial reporting purposes, these dividends were classified as interest expense.

2 Amounts exclude $59,000, $57,000, $85,000, and $93,000 of cash dividends paid on mandatorily redeemable capital stock for the first, second, third, and fourth quarters of 2013. For financial reporting purposes, these dividends were classified as interest expense.

3 Reflects the annualized rate paid on our average capital stock outstanding during the prior quarter regardless of its classification for financial reporting purposes as either capital stock or mandatorily redeemable capital stock.

For additional information on our dividends, including the annualized rates paid on membership and activity-based capital stock, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Dividends.”

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ITEM 6. SELECTED FINANCIAL DATA

The following tables present selected financial data for the periods indicated (dollars in millions):

	December 31,
Statements of Condition	2014			2013			2012			2011			2010
Investments1	$	23,079		$	20,131		$	13,433		$	14,637		$	18,639
Advances	65,168			45,650			26,614			26,591			29,253
Mortgage loans held for portfolio, gross	6,567			6,565			6,968			7,157			7,434
Allowance for credit losses	(5		)	(8		)	(16		)	(19		)	(13		)
Total assets	95,524			73,004			47,367			48,733			55,569
Consolidated obligations
Discount notes	57,773			38,137			8,675			6,810			7,208
Bonds	32,362			30,195			34,345			38,012			43,791
Total consolidated obligations2	90,135			68,332			43,020			44,822			50,999
Mandatorily redeemable capital stock	24			9			9			6			7
Total liabilities	91,212			69,547			44,533			45,921			52,739
Capital stock — Class B putable	3,469			2,692			2,063			2,109			2,183
Retained earnings	720			678			622			569			556
Accumulated other comprehensive income	123			87			149			134			91
Total capital	4,312			3,457			2,834			2,812			2,830

	December 31,
Statements of Income	2014			2013			2012			2011			2010
Net interest income	$	250.7		$	213.1		$	240.6		$	235.6		$	414.9
Reversal (provision) for credit losses on mortgage loans	(2.4		)	(5.9		)	—			9.2			12.1
Other (loss) income3	(51.3		)	(34.5		)	(49.3		)	(67.1		)	(164.4		)
Other expense4	67.3			62.5			67.5			61.7			57.3
Assessments	13.5			12.2			12.4			19.8			48.1
Net income	121.0			109.8			111.4			77.8			133.0

	December 31,
Selected Financial Ratios5	2014		2013		2012		2011		2010
Net interest spread6	0.28	%	0.34	%	0.42	%	0.36	%	0.59	%
Net interest margin7	0.30		0.39		0.49		0.44		0.67
Return on average equity	3.17		3.68		3.98		2.78		4.57
Return on average capital stock	4.04		4.94		5.44		3.66		5.76
Return on average assets	0.14		0.20		0.23		0.15		0.22
Average equity to average assets	4.56		5.40		5.69		5.27		4.70
Regulatory capital ratio8	4.41		4.63		5.69		5.51		4.94
Dividend payout ratio9	65.16		48.72		52.46		83.34		45.92

1 Investments include interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, trading securities, AFS securities, and held-to-maturity (HTM) securities.

2 The total par value of outstanding consolidated obligations of the 12 FHLBanks was $847.2 billion, $766.8 billion, $687.9 billion, $691.8 billion, and $796.3 billion at December 31, 2014, 2013, 2012, 2011, and 2010.

3 Other (loss) income includes, among other things, net gains (losses) on investment securities, net gains (losses) on derivatives and hedging activities, and net losses on the extinguishment of debt.

4 Other expense includes, among other things, compensation and benefits, professional fees, contractual services, and gains and losses on real estate owned (REO).

5 Amounts used to calculate selected financial ratios are based on numbers in thousands. Accordingly, recalculations using numbers in millions may not produce the same results.

6 Represents yield on total interest-earning assets minus yield on total interest-bearing liabilities.

7 Represents net interest income expressed as a percentage of average interest-earning assets.

8 Represents period-end regulatory capital expressed as a percentage of period-end total assets. Regulatory capital includes all capital stock, mandatorily redeemable capital stock, and retained earnings.

9 Represents dividends declared and paid in the stated period expressed as a percentage of net income in the stated period.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management's Discussion and Analysis (MD&A) is designed to provide information that will help the reader develop a better understanding of our financial statements, changes in our financial statements from year to year, and the primary factors driving those changes. Our MD&A is organized as follows:

CONTENTS
Forward-Looking Information	26
Executive Overview	26
Conditions in the Financial Markets	28
Results of Operations	30
Net Income	30
Net Interest Income	31
Reversal for Credit Losses on Mortgage Loans	33
Other (Loss) Income	33
Hedging Activities	34
Other Expense	38
Statements of Condition	38
Financial Highlights	38
Advances	39
Mortgage Loans	40
Investments	41
Consolidated Obligations	42
Deposits	43
Capital	43
Derivatives	43
Liquidity and Capital Resources	44
Critical Accounting Policies and Estimates	48
Bank Developments	53
Legislative and Regulatory Developments	54
Off-Balance Sheet Arrangements	58
Contractual Obligations	58
Risk Management	58

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FORWARD-LOOKING INFORMATION

Statements contained in this annual report on Form 10-K, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should, may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. A detailed discussion of risks and uncertainties is included under “Item 1A. Risk Factors.”

EXECUTIVE OVERVIEW

Our Bank is a member-owned cooperative serving shareholder members in a five-state region (Iowa, Minnesota, Missouri, North Dakota, and South Dakota). Our mission is to provide funding and liquidity to our members and eligible housing associates so that they can meet the housing, economic development, and business needs of the communities they serve. We fulfill our mission by providing liquidity to our members and housing associates through advances, supporting residential mortgage lending through the MPF program, and by providing affordable housing programs that create housing opportunities for low and moderate income families. Our members include commercial banks, thrifts, credit unions, insurance companies, and CDFIs.

In 2014, we reported net income of $121.0 million compared to $109.8 million in 2013. Our net income, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was primarily driven by net interest income, a reversal for credit losses on mortgage loans, and other (loss) income.

Net interest income totaled $250.7 million in 2014 compared to $213.1 million in 2013. The increase was primarily due to an increase in interest income resulting from higher advance and MBS volumes. Our net interest margin was 0.30 percent during 2014 compared with 0.39 percent during 2013. The decline was primarily due to reduced yields on our interest-earning assets driven by the low interest rate environment and higher average volumes of advances and money market investments that generate lower margins when compared to our other interest-earning assets. The decline was partially offset by lower yields paid on our interest-bearing liabilities as a result of our increased utilization of discount notes to fund the increase in advances and the low interest rate environment. 

We utilize an allowance for credit losses to reserve for estimated losses in our conventional mortgage loan portfolio. In 2014 and 2013, we recorded reversals for credit losses on our mortgage loans of $2.4 million and $5.9 million due primarily to reductions in loan delinquencies and improvements in housing markets. In addition, during 2013, we began utilizing external property valuations rather than average loss severity rates on our individually evaluated mortgage loans, which resulted in losses that were lower than previously estimated.

Our other (loss) income totaled $(51.3) million in 2014 compared to $(34.5) million in 2013. The primary drivers of other (loss) income in 2014 were losses on derivatives and hedging activities, gains on investment securities, and losses from the extinguishment of debt as described below.

We utilize derivative instruments to manage interest rate risk, including mortgage prepayment risk. Accounting rules require all derivatives to be recorded at fair value and therefore we may be subject to income statement volatility. In 2014, we recorded losses of $123.4 million on our derivatives and hedging activities through other (loss) income compared to gains of $85.3 million in 2013. Approximately $40.1 million of these losses were driven by hedge ineffectiveness on our fair value hedge relationships resulting from an increase in the volume of AFS investment hedge relationships with longer terms to maturity and a divergence between the valuation curves used to value our assets, liabilities, and derivatives. In addition, we incurred losses on our economic derivatives of $83.3 million due primarily to changes in interest rates on interest rate swaps that we utilize to economically hedge our trading securities portfolio. These losses were offset by gains on the trading securities being hedged, as discussed in the following paragraph. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities" for additional discussion on our derivatives and hedging activities, including the net impact of economic hedge relationships.

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Trading securities are recorded at fair value with changes in fair value reflected through other (loss) income. In 2014, we recorded gains on trading securities of $68.0 million compared to losses of $106.6 million in 2013. These changes in fair value were primarily due to the impact of interest rates and credit spreads on our fixed rate trading securities and were offset by changes in fair value on derivatives that we utilize to economically hedge these securities, as noted previously. In addition, during 2014, we sold HTM and AFS securities and realized gains of $8.9 million and $0.8 million. During 2013, we sold only AFS securities and realized gains of $3.0 million.

We extinguish higher-costing debt from time to time in an effort to better match our projected asset cash flows and to reduce our future interest costs. In 2014 and 2013, we extinguished consolidated obligation bonds with a total par value of $115.0 million and $162.1 million and recognized losses of $12.7 million and $25.7 million through other (loss) income.

Our total assets increased to $95.5 billion at December 31, 2014 from $73.0 billion at December 31, 2013 due primarily to an increase in advances and long-term investments. Advances increased $19.5 billion due to borrowings from a wide range of members with the most significant increase from a large depository institution member. Long-term investments increased $5.4 billion due to the purchase of GSE and other U.S. obligation MBS during the year. Our total liabilities increased to $91.2 billion at December 31, 2014 from $69.5 billion at December 31, 2013 due primarily to an increase in consolidated obligations issued to fund the growth in advances and investments. Total capital increased to $4.3 billion at December 31, 2014 from $3.5 billion at December 31, 2013. The increase was primarily due to additional activity-based capital stock outstanding driven by the growth in advances. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition” for additional discussion on our financial condition.

Adjusted Earnings

As part of evaluating financial performance, we adjust GAAP net income before assessments and GAAP net interest income for the impact of (i) market adjustments relating to derivative and hedging activities and instruments held at fair value, (ii) realized gains (losses) on investment securities, and (iii) other unpredictable items, including asset prepayment fee income and debt extinguishment losses. The resulting non-GAAP measure, referred to as our adjusted earnings, reflects both adjusted net interest income and adjusted net income.

Because our business model is primarily one of holding assets and liabilities to maturity, management believes that the adjusted earnings measure is helpful in understanding our operating results and provides a meaningful period-to-period comparison of our long-term economic value in contrast to GAAP results, which can be impacted by fair value changes driven by market volatility on financial instruments recorded at fair value or transactions that are considered to be unpredictable. As a result, management uses the adjusted earnings measure to assess performance under our incentive compensation plans and to ensure management remains focused on our long-term value and performance. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. While this non-GAAP measure can be used to assist in understanding the components of our earnings, it should not be considered a substitute for results reported under GAAP.

As a member-owned cooperative, we endeavor to operate with a low but stable adjusted net interest margin. As indicated in the tables that follow, our adjusted net interest income and adjusted net income increased while our adjusted net interest margin declined during 2014 when compared to 2013. The improvement in our adjusted net interest income and adjusted net income was primarily due to an increase in interest income due to higher advance and MBS volumes. Our adjusted net interest margin declined over prior year due to reduced yields on our interest-earning assets driven by the low interest rate environment and higher average volumes of advances and money-market investments that generate lower margins when compared to the majority of our other interest-earning assets. The decline was partially offset by lower yields paid on our interest-bearing liabilities as a result of our increased utilization of discount notes used to fund the increase in advances and the low interest rate environment.

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The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):

	For the Years Ended December 31,
	2014			2013			2012
GAAP net interest income	$	250.7		$	213.1		$	240.6
Exclude:
Prepayment fees on advances, net	6.4			5.8			28.1
Prepayment fees on investments	—			1.2			—
Fair value hedging adjustments	—			—			0.1
Total adjustments	6.4			7.0			28.2
Include items reclassified from other (loss) income:
Net interest expense on economic hedges	(20.4		)	(16.0		)	(11.9		)
Adjusted net interest income	$	223.9		$	190.1		$	200.5
Adjusted net interest margin	0.27		%	0.35		%	0.41		%

The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income (dollars in millions):

	For the Years Ended December 31,
	2014			2013			2012
GAAP net incomebefore assessments	$	134.5		$	122.0		$	123.8
Exclude:
Adjustments to net interest income	6.4			7.0			28.2
Other-than-temporary impairment losses	—			(1.4		)	—
Net gains (losses) on trading securities	68.0			(106.6		)	23.1
Net gains from sale of available-for-sale securities	0.8			3.0			12.6
Net gains from sale of held-to-maturity securities	8.9			—			1.0
Net gains on consolidated obligations held at fair value	—			1.0			4.2
Net (losses) gains on derivatives and hedging activities	(123.4		)	85.3			(24.8		)
Net losses on extinguishment of debt	(12.7		)	(25.7		)	(76.8		)
Include:
Net interest expense on economic hedges	(20.4		)	(16.0		)	(11.9		)
Amortization of hedging costs1	—			(6.6		)	(7.2		)
Adjusted net income2	$	166.1		$	136.8		$	137.2

1 Primarily represents the straight line amortization of upfront fee payments on interest rate caps. The interest rate caps were sold during 2013.

2 Amount is calculated before assessments.

For additional discussion on items impacting our GAAP earnings, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

CONDITIONS IN THE FINANCIAL MARKETS

Economy and Financial Markets

Economic and market data received prior to the Federal Open Market Committee (FOMC or Committee) meeting in January of 2015 indicates that economic activity is increasing at a solid pace. Conditions in the labor market showed continued signs of improvement. The unemployment rate has reflected strong gains and labor market indicators are showing diminished underutilization of labor resources. Household spending and business fixed investments have continued to advance while the housing sector, though improved from prior years, has remained slow. Inflation has declined further below the Committee's longer-run objective reflecting declines in energy prices and long-term inflation expectations have remained stable.

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In its January 28, 2015 statement, the FOMC stated it expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will improve toward levels the FOMC judges consistent with its dual mandate to foster maximum employment and price stability. The FOMC sees the risks to the outlook for the economy and the labor market as nearly balanced and expects inflation to decline in the near term and to rise gradually towards a two percent objective as the labor market improves further and the effects of lower energy prices and other factors dissipate.

Mortgage Markets

The housing market has continued to improve at a slow pace over the past year, as indicated by rising home prices, lower inventories of properties for sale, and increased housing construction activity. The improvement during 2014 has been partly attributable to an improvement in employment labor markets and a decline in interest rates, but has been partially offset by tight credit conditions that have limited the amount of first time home buyers. The outlook for a sustainable recovery in residential sales and home prices remains promising, as consumer sentiment continues to improve, and recent government efforts to provide access to first time and lower income home buyers could accelerate the pace of recovery.

Interest Rates

The following table shows information on key market interest rates¹:

	Fourth Quarter 2014 3-Month Average		Fourth Quarter 2013 3-Month Average		2014 12-Month Average		2013 12-Month Average		2014 Ending Rate		2013 Ending Rate
Federal funds	0.10	%	0.09	%	0.09	%	0.11	%	0.06	%	0.07	%
Three-month LIBOR	0.24		0.24		0.23		0.27		0.26		0.25
2-year U.S. Treasury	0.52		0.32		0.45		0.30		0.67		0.38
10-year U.S. Treasury	2.27		2.73		2.53		2.34		2.17		3.03
30-year residential mortgage note	3.97		4.29		4.18		3.97		3.83		4.48

1 Source is Bloomberg.

The Federal Reserve's key target interest rate, the Federal funds rate, maintained a range of 0.00 to 0.25 percent during 2014. In its January 28, 2015 statement, the FOMC reaffirmed that the current exceptionally low target range for the Federal funds rate remains appropriate. The FOMC noted it will be patient in beginning to normalize the stance of the monetary policy. The FOMC stated that it will assess progress towards its longer-run goals of maximum employment and a two percent inflation rate. The assessment will take into account measures of labor market conditions, indicators of inflation pressures, inflation expectations, and financial and international developments. If information indicates faster progress toward the Committee's employment and inflation objectives, then increases in the target range for the Federal funds are likely to occur sooner than currently anticipated. Conversely, if information indicates slower progress toward the Committee's objectives, increases in the target range are likely to occur at a later time.

The 10-year U.S. Treasury yields and mortgage rates were lower at December 31, 2014 when compared to December 31, 2013. Interest rates declined during 2014 due to concerns about global growth and inflation. These concerns have led global interest rates lower and foreign central banks have eased monetary policy further.

At the beginning of the fourth quarter of 2014, the FOMC announced the end of the asset purchase program, known as Quantitative Easing III. In its October 29, 2014 statement, the FOMC noted the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress towards maximum employment in a context of price stability.

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The FOMC is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS into agency MBS and of rolling over maturing U.S. Treasury securities at auction. The FOMC noted this policy, keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. When the Committee decides to begin removing policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of two percent. The Committee has stated that it currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target Federal funds rate below the rate that the Committee views as normal in the long run.

Funding Spreads

The following table reflects our funding spreads to LIBOR (basis points)¹:

	Fourth Quarter 2014 3-Month Average		Fourth Quarter 2013 3-Month Average		2014 12-Month Average		2013 12-Month Average		2014 Ending Spread		2013 Ending Spread
3-month	(15.6	)	(13.0	)	(15.6	)	(16.1	)	(14.8	)	(15.6	)
2-year	(10.0	)	(3.7	)	(8.3	)	(7.9	)	(11.1	)	(6.7	)
5-year	5.8		14.9		4.3		6.3		1.5		10.5
10-year	37.1		57.1		36.1		36.6		39.9		55.8

1 Source is the Office of Finance.

As a result of our credit quality, we generally have ready access to funding at relatively competitive interest rates. During 2014, most of our funding spreads relative to LIBOR improved when compared to spreads at December 31, 2013. These improvements followed the quick resolution of the debt ceiling debate in February and continued limited competing supply of U.S. Treasury and agency debt issuance. More recently, short-term debt spreads have returned to levels slightly better than those experienced at December 31, 2013. Longer-term spreads widened in the second half of 2014, but ended the year at better levels than at December 31, 2013. Throughout 2014, we utilized consolidated obligation discount notes in addition to step-up, callable, and term fixed rate consolidated obligation bonds to capture attractive funding, match the repricing structures on advances and investments, and provide additional liquidity.

RESULTS OF OPERATIONS

Net Income

The following table presents comparative highlights of our net income for the years ended December 31, 2014, 2013, and 2012 (dollars in millions). See further discussion of these items in the sections that follow.

							2014 vs. 2013								2013 vs. 2012
	2014			2013			$ Change			% Change		2012			$ Change			% Change
Net interest income	$	250.7		$	213.1		$	37.6		17.6	%	$	240.6		$	(27.5	)	(11.4	)%
Reversal for credit losses on mortgage loans	(2.4		)	(5.9		)	3.5			(59.3	)	—			(5.9		)	(100.0	)
Other (loss) income	(51.3		)	(34.5		)	(16.8		)	(48.7	)	(49.3		)	14.8			30.0
Other expense	67.3			62.5			4.8			7.7		67.5			(5.0		)	(7.4	)
Assessments	13.5			12.2			1.3			10.7		12.4			(0.2		)	(1.6	)
Net income	$	121.0		$	109.8		$	11.2		10.2	%	$	111.4		$	(1.6	)	(1.4	)%

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Net Interest Income

Our net interest income is impacted by changes in average interest-earning asset and interest-bearing liability balances, and the related yields. The following table presents average balances and rates of major asset and liability categories (dollars in millions):    

	For the Years Ended December 31,
	2014						2013						2012
	Average Balance1		Yield		Interest Income/ Expense		Average Balance1		Yield		Interest Income/ Expense		Average Balance1		Yield		Interest Income/ Expense
Interest-earning assets
Interest-bearing deposits	$	358	0.07	%	$	0.3	$	336	0.11	%	$	0.4	$	461	0.15	%	$	0.7
Securities purchased under agreements to resell	7,640		0.05		4.0		4,776		0.08		3.8		2,810		0.16		4.6
Federal funds sold	3,160		0.08		2.4		1,447		0.09		1.3		1,971		0.12		2.3
Short-term investments	1		0.12		—		6		0.08		—		165		0.15		0.3
Mortgage-backed securities2,3	9,919		1.19		117.7		7,056		1.53		107.8		7,235		1.98		142.9
Other investments2,3,4	2,575		2.43		62.6		2,193		3.05		66.8		2,568		2.74		70.4
Advances3,5	52,983		0.45		239.5		32,104		0.63		200.8		26,266		1.03		270.6
Mortgage loans6	6,514		3.75		244.5		6,714		3.78		253.5		7,152		3.97		284.1
Total interest-earning assets	83,150		0.81		671.0		54,632		1.16		634.4		48,628		1.60		775.9
Non-interest-earning assets	657		—		—		540		—		—		564		—		—
Total assets	$	83,807	0.80	%	$	671.0	$	55,172	1.15	%	$	634.4	$	49,192	1.58	%	$	775.9
Interest-bearing liabilities
Deposits	$	533	0.01	%	$	0.1	$	746	0.02	%	$	0.1	$	992	0.04	%	$	0.4
Consolidated obligations
Discount notes	53,136		0.08		43.0		15,442		0.09		13.7		8,839		0.13		11.4
Bonds3	25,401		1.48		377.0		34,933		1.17		407.2		35,510		1.47		523.3
Other interest-bearing liabilities7	12		2.11		0.2		14		2.33		0.3		10		2.45		0.2
Total interest-bearing liabilities	79,082		0.53		420.3		51,135		0.82		421.3		45,351		1.18		535.3
Non-interest-bearing liabilities	906		—		—		1,057		—		—		1,041		—		—
Total liabilities	79,988		0.53		420.3		52,192		0.81		421.3		46,392		1.15		535.3
Capital	3,819		—		—		2,980		—		—		2,800		—		—
Total liabilities and capital	$	83,807	0.50	%	$	420.3	$	55,172	0.76	%	$	421.3	$	49,192	1.09	%	$	535.3
Net interest income and spread8			0.28	%	$	250.7			0.34	%	$	213.1			0.42	%	$	240.6
Net interest margin9			0.30	%					0.39	%					0.49	%
Average interest-earning assets to interest-bearing liabilities			105.14	%					106.84	%					107.23	%

1 Average balances are calculated on a daily weighted average basis and do not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.

2 The average balance of AFS securities is reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.

3 Average balances reflect the impact of fair value hedging adjustments and/or fair value option adjustments.

4 Other investments primarily include other U.S. obligations, GSE obligations, state or local housing agency obligations, and taxable municipal bonds. Interest income from other investments include prepayment fee income of $1.2 million during the year ended December 31, 2013.

5 Advance interest income includes prepayment fee income of $6.4 million, $5.8 million, and $28.1 million for the years ended December 31, 2014, 2013, and 2012.

6 Non-accrual loans are included in the average balance used to determine the average yield.

7 Other interest-bearing liabilities consists of mandatorily redeemable capital stock and borrowings from other FHLBanks.

8 Represents yield on total interest-earning assets minus yield on total interest-bearing liabilities.

9 Represents net interest income expressed as a percentage of average interest-earning assets.

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The following table presents changes in interest income and interest expense. Changes in interest income and interest expense that are 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 (dollars in millions).

	2014 vs. 2013									2013 vs. 2012
	Total Increase (Decrease) Due to						Total Increase (Decrease)			Total Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate						Volume			Rate
Interest income
Interest-bearing deposits	$	—		$	(0.1	)	$	(0.1	)	$	(0.2	)	$	(0.1	)	$	(0.3	)
Securities purchased under agreements to resell	1.9			(1.7		)	0.2			2.2			(3.0		)	(0.8		)
Federal funds sold	1.3			(0.2		)	1.1			(0.5		)	(0.5		)	(1.0		)
Short-term investments	—			—			—			(0.2		)	(0.1		)	(0.3		)
Mortgage-backed securities	37.4			(27.5		)	9.9			(3.4		)	(31.7		)	(35.1		)
Other investments	10.6			(14.8		)	(4.2		)	(11.0		)	7.4			(3.6		)
Advances	107.2			(68.5		)	38.7			51.1			(120.9		)	(69.8		)
Mortgage loans	(7.1		)	(1.9		)	(9.0		)	(17.2		)	(13.4		)	(30.6		)
Total interest income	151.3			(114.7		)	36.6			20.8			(162.3		)	(141.5		)
Interest expense
Deposits	—			—			—			—			(0.3		)	(0.3		)
Consolidated obligations
Discount notes	31.0			(1.7		)	29.3			6.6			(4.3		)	2.3
Bonds	(125.2		)	95.0			(30.2		)	(8.6		)	(107.5		)	(116.1		)
Other interest-bearing liabilities	(0.1		)	—			(0.1		)	0.1			—			0.1
Total interest expense	(94.3		)	93.3			(1.0		)	(1.9		)	(112.1		)	(114.0		)
Net interest income	$	245.6		$	(208.0	)	$	37.6		$	22.7		$	(50.2	)	$	(27.5	)

NET INTEREST SPREAD

Net interest spread equals the yield on total interest-earning assets minus the yield on total interest-bearing liabilities. During 2014, our net interest spread was 0.28 percent compared to 0.34 percent and 0.42 percent for the same periods in 2013 and 2012. Our net interest spread during 2014 was primarily impacted by a lower yield on total interest-earning assets, partially offset by an improved yield on total interest-bearing liabilities. The primary components of our interest income and interest expense are discussed below.

Advances

Interest income on advances (including prepayment fees on advances, net) increased 19 percent during 2014 when compared to 2013 and decreased 26 percent during 2013 when compared to 2012. The increase in 2014 was primarily due to higher average volumes, offset in part by the low interest rate environment. Average advance volumes increased due to borrowings from a wide range of members with the most significant increase from a large depository institution member. The decrease in 2013 when compared to 2012 was primarily due to the low interest rate environment combined with lower advance prepayment fee income, offset in part by higher average volumes.

Investments

Interest income on investments increased four percent during 2014 when compared to 2013 and decreased 19 percent during 2013 when compared to 2012. The increase in 2014 was due mainly to the higher average volumes of MBS and money-market investments, partially offset by the low interest rate environment. Average MBS volumes increased due to the purchase of GSE and other U.S. obligation MBS during 2014. The decrease during 2013 when compared to 2012 was due mainly to the low interest rate environment and lower average volumes of other investments.

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Mortgage Loans

Interest income on mortgage loans decreased four percent during 2014 when compared to 2013 and 11 percent during 2013 when compared to 2012. The decrease in both periods was due to lower average mortgage loan volumes and the low interest rate environment.

Bonds

Interest expense on bonds decreased seven percent during 2014 when compared to 2013 and 22 percent during 2013 when compared to 2012. The decrease in 2014 was primarily due to lower average bond volumes. Average bond volumes declined due to our increased utilization of discount notes to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity. The decrease in 2013 was primarily due to the low interest rate environment.

Discount Notes

Interest expense on discount notes increased 214 percent during 2014 when compared to 2013 and 20 percent during 2013 when compared to 2012. The increase in both periods was primarily due to higher average volumes. Discount notes were utilized to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity.

Reversal for Credit Losses on Mortgage Loans

During 2014 and 2013, we recorded reversals for credit losses on our mortgage loans of $2.4 million and $5.9 million due to reductions in loan delinquencies and improvements in housing markets. In addition, during 2013, we began utilizing external property valuations rather than average loss severity rates on our individually evaluated mortgage loans, which resulted in losses that were lower than previously estimated. During 2012, we did not record a provision or reversal for credit losses on our mortgage loans.

Other (Loss) Income

The following table summarizes the components of other (loss) income (dollars in millions):

	For the Years Ended December 31,
	2014			2013			2012
Other-than-temporary impairment losses	$	—		$	(1.4	)	$	—
Net gains (losses) on trading securities	68.0			(106.6		)	23.1
Net gains from sale of available-for-sale securities	0.8			3.0			12.6
Net gains from sale of held-to-maturity securities	8.9			—			1.0
Net gains on consolidated obligations held at fair value	—			1.0			4.2
Net (losses) gains on derivatives and hedging activities	(123.4		)	85.3			(24.8		)
Net losses on extinguishment of debt	(12.7		)	(25.7		)	(76.8		)
Other, net	7.1			9.9			11.4
Total other loss	$	(51.3	)	$	(34.5	)	$	(49.3	)

Other (loss) income can be volatile from period to period depending on the type of financial activity recorded. During 2014, other (loss) income was primarily impacted by losses on derivatives and hedging activities, gains on investment securities, and losses on the extinguishment of debt.

We use derivatives to manage interest rate risk, including mortgage prepayment risk. During 2014, 2013, and 2012, gains and losses on our derivatives and hedging activities were primarily attributable to the impact of changes in interest rates on fair value hedge relationships and on interest rate swaps that we utilize to economically hedge our trading securities portfolio.

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We recorded losses on fair value hedge relationships of $40.1 million during 2014 through other (loss) income compared to gains of $12.0 million and $1.7 million during 2013 and 2012. The losses in 2014 were due to a divergence between the curves used to value our assets, liabilities, and derivatives. We use the LIBOR swap curve to discount cash flows on all hedged assets or liabilities in fair value hedging relationships where the hedged risk is changes in fair value attributable to changes in the designated benchmark interest rate, LIBOR. We utilize the LIBOR and Overnight-Index Swap (OIS) curves to discount cash flows on derivatives in fair value hedging relationships. During 2014, a divergence between the curves used to value our hedged items and related derivatives occurred. Due to this divergence and an increase in the volume of AFS investment hedge relationships that had longer terms to maturity, we experienced additional hedge ineffectiveness. 

We recorded losses of $95.3 million on interest rate swaps that we utilize to economically hedge our trading securities portfolio during 2014 through other (loss) income compared to gains of $79.1 million in 2013 and losses of $20.9 million in 2012. These amounts were generally offset by gains and losses on the trading securities being hedged as noted below. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities” for additional discussion on our derivatives and hedging activities, including the net impact of our fair value and economic hedge relationships.

Trading securities are recorded at fair value with changes in fair value reflected through other (loss) income. During 2014, we recorded gains on trading securities of $68.0 million compared to losses of $106.6 million in 2013 and gains of $23.1 million in 2012. These changes in fair value were primarily due to the impact of changes in interest rates and credit spreads on our fixed rate trading securities which are generally offset by changes in fair value on derivatives that we utilize to economically hedge the majority of these securities, as previously noted. In addition, we sold HTM and AFS securities during 2014 and realized gains of $8.9 million and $0.8 million. During 2013, we sold only AFS securities and realized gains of $3.0 million. During 2012, we sold HTM and AFS securities and realized gains of $1.0 million and $12.6 million.

We extinguish higher-costing debt from time to time in an effort to better match our projected asset cash flows and to reduce our future interest costs. During 2014, 2013 and 2012, we extinguished bonds with a total par value of $115.0 million, $162.1 million, and $556.1 million and recognized losses of $12.7 million, $25.7 million, and $76.8 million through other (loss) income.

Hedging Activities

We use derivatives to manage interest rate risk, including mortgage prepayment risk, in our Statements of Condition. Accounting rules affect the timing and recognition of income and expense on derivatives and therefore we may be subject to income statement volatility.

If a hedging activity qualifies for hedge accounting treatment (fair value hedge), we include the periodic cash flow components of the derivative related to interest income or expense in the relevant income statement caption consistent with the hedged asset or liability. We also record the amortization of fair value hedging adjustments from terminated hedges in interest income or expense or other (loss) income. Changes in the fair value of both the derivative and the hedged item are recorded as a component of other (loss) income in “Net (losses) gains on derivatives and hedging activities."

If a hedging activity does not qualify for hedge accounting treatment (economic hedge), we record the derivative's components of interest income and expense, together with the effect of changes in fair value as a component of other (loss)income in “Net (losses) gains on derivatives and hedging activities”; however, there is no fair value adjustment for the corresponding asset or liability being hedged unless changes in the fair value of the asset or liability are normally marked to fair value through earnings (i.e., trading securities and fair value option instruments).

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The following tables categorize the net effect of hedging activities on net income by product (dollars in millions):

	For the Year Ended December 31, 2014
Net Effect of Hedging Activities	Advances			Investments			Mortgage Loans			Bonds			Balance Sheet		Total
Net interest income:
Net amortization/accretion1	$	(31.7	)	$	—		$	(1.9	)	$	23.5		$	—	$	(10.1	)
Net interest settlements	(163.4		)	(115.2		)	—			70.3			—		(208.3		)
Total impact to net interest income	(195.1		)	(115.2		)	(1.9		)	93.8			—		(218.4		)
Other (loss) income:
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair value hedges	1.8			(44.1		)	—			2.2			—		(40.1		)
(Losses) gains on economic hedges	(0.1		)	(95.3		)	(0.4		)	12.5			—		(83.3		)
Total net gains (losses) on derivatives and hedging activities	1.7			(139.4		)	(0.4		)	14.7			—		(123.4		)
Net gains on trading securities2	—			68.1			—			—			—		68.1
Net amortization/accretion3	—			—			—			(0.4		)	—		(0.4		)
Total impact to other (loss) income	1.7			(71.3		)	(0.4		)	14.3			—		(55.7		)
Total net effect of hedging activities4	$	(193.4	)	$	(186.5	)	$	(2.3	)	$	108.1		$	—	$	(274.1	)

	For the Year Ended December 31, 2013
Net Effect of Hedging Activities	Advances			Investments			Mortgage Loans			Bonds			Balance Sheet5		Total
Net interest income:
Net amortization/accretion1	$	(34.9	)	$	—		$	(3.8	)	$	46.1		$	—	$	7.4
Net interest settlements	(163.1		)	(42.5		)	—			59.7			—		(145.9		)
Total impact to net interest income	(198.0		)	(42.5		)	(3.8		)	105.8			—		(138.5		)
Other (loss) income:
Net gains (losses) on derivatives and hedging activities:
Gains on fair value hedges	2.8			8.6			—			0.6			—		12.0
Gains (losses) on economic hedges	0.1			79.1			0.3			(10.2		)	4.0		73.3
Total net gains (losses) on derivatives and hedging activities	2.9			87.7			0.3			(9.6		)	4.0		85.3
Net losses on trading securities2	—			(106.6		)	—			—			—		(106.6		)
Net gains on consolidated obligations held at fair value	—			—			—			1.0			—		1.0
Net amortization/accretion3	—			2.9			—			(1.2		)	—		1.7
Total impact to other (loss) income	2.9			(16.0		)	0.3			(9.8		)	4.0		(18.6		)
Total net effect of hedging activities4	$	(195.1	)	$	(58.5	)	$	(3.5	)	$	96.0		$	4.0	$	(157.1	)

1 Represents the amortization/accretion of fair value hedging adjustments on closed hedge relationships included in net interest income.

2 Represents the net gains (losses) on those trading securities in which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value. As a result, this line item may not agree to the Statements of Income.

3 Represents the amortization/accretion of fair value hedging adjustments on closed bond hedge relationships included in other (loss) income as a result of debt extinguishments and/or closed investment hedge relationships included in other (loss) income as a result of investment sales.

4 The hedging activity tables do not include the interest component on the related hedged items or the gross advance prepayment fee income on terminated advance hedge relationships.

5 Represents net gains on interest rate caps. We did not hold any interest rate caps during 2014.

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The following table categorizes the net effect of hedging activities on net income by product (dollars in millions):

	For the Year Ended December 31, 2012
Net Effect of Hedging Activities	Advances			Investments			Mortgage Loans			Bonds			Balance Sheet5			Total
Net interest income:
Net amortization/accretion1	$	(373.2	)	$	—		$	(5.1	)	$	50.6		$	—		$	(327.7	)
Net interest settlements	(195.7		)	(12.7		)	—			123.9			—			(84.5		)
Total impact to net interest income	(568.9		)	(12.7		)	(5.1		)	174.5			—			(412.2		)
Other (loss) income:
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair value hedges	3.4			1.1			—			(2.8		)	—			1.7
Losses (gains) on economic hedges	(0.3		)	(23.4		)	(1.5		)	8.9			(13.1		)	(26.5		)
Total net gains (losses) on derivatives and hedging activities	3.1			(22.3		)	(1.5		)	6.1			(13.1		)	(24.8		)
Net gains on trading securities2	—			23.6			—			—			—			23.6
Net gains on consolidated obligations held at fair value	—			—			—			2.8			—			4.2
Net amortization/accretion3	—			—			—			4.1			—			4.1
Total impact to other (loss) income	3.1			1.3			(1.5		)	13.0			(13.1		)	7.1
Total net effect of hedging activities4	$	(565.8	)	$	(11.4	)	$	(6.6	)	$	187.5		$	(13.1	)	$	(405.1	)

1 Represents the amortization/accretion of fair value hedging adjustments on closed hedge relationships included in net interest income.

2 Represents the net gains on those trading securities in which we have entered into a corresponding economic derivative to hedge the risk of changes in fair value. As a result, this line item may not agree to the Statements of Income.

3 Represents the amortization/accretion of fair value hedging adjustments on closed bond hedge relationships included in other (loss) income as a result of debt extinguishments.

4 The hedging activities table does not include the interest component on the related hedged items or the gross advance prepayment fee income on terminated advance hedge relationships.

5 Represents net losses on interest rate caps.

NET AMORTIZATION/ACCRETION

Amortization/accretion varies from period to period depending on our hedge relationship termination activities and the maturity, call, or prepayment of assets or liabilities previously in hedge relationships. Amortization/accretion on mortgage loans and consolidated obligation bonds during 2014, 2013, and 2012 resulted primarily from the normal amortization of existing fair value hedging adjustments. The significant change in advance amortization over the past three years was due primarily to advance prepayments. When an advance prepays, we terminate the fair value hedge relationship and fully amortize the remaining fair value hedging adjustments through earnings. During 2014, 2013, and 2012, we fully amortized $24.1 million, $15.6 million and $347.5 million of fair value hedging adjustments on prepaid advances. This amortization was offset by gross advance prepayment fee income of $30.5 million, $21.5 million, and $375.6 million during 2014, 2013, and 2012. The hedging activity tables do not include the impact of the gross advance prepayment fee income.

NET INTEREST SETTLEMENTS

Net interest settlements represent the interest component on derivatives that qualify for fair value hedge accounting. These amounts vary from period to period depending on our hedging activities and interest rates and are partially offset by the interest component on the related hedged item within net interest income. The hedging activity tables do not include the impact of the interest component on the related hedged item.

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GAINS (LOSSES) ON FAIR VALUE HEDGES

Gains (losses) on fair value hedges are driven by hedge ineffectiveness. Hedge ineffectiveness occurs when changes in the fair value of the derivative and the related hedged item do not perfectly offset each other. The factors that affect hedge ineffectiveness include changes in the benchmark interest rate, volatility, and the divergence in valuation curves used to value our assets, liabilities and derivatives. We use the LIBOR swap curve to discount cash flows on all hedged assets or liabilities in fair value hedging relationships where the hedged risk is changes in fair value attributable to changes in the designated benchmark interest rate, LIBOR. We utilize the LIBOR and OIS curves to discount cash flows on derivatives in fair value hedging relationships. During 2014, a divergence between the curves used to value our hedged items and related derivatives occurred. Due to this divergence and an increase in the volume of AFS investment hedge relationships that had longer terms to maturity, we experienced additional hedge ineffectiveness. As we expect to hold these instruments to maturity, we anticipate that these losses will reverse over the remaining life of the hedge relationship.

GAINS (LOSSES) ON ECONOMIC HEDGES

We utilize economic derivatives to manage certain risks in our Statements of Condition. Gains and losses on economic derivatives are driven primarily by changes in interest rates and volatility and include interest settlements. Interest settlements represent the interest component on economic derivatives. These amounts vary from period to period depending on our hedging activities and interest rates. The following discussion highlights key items impacting gains and losses on economic derivatives.

Investments

We utilize interest rate swaps and, in certain instances, forward settlement agreements (TBAs), to economically hedge a portion of our trading securities against changes in fair value. Gains and losses on these economic derivatives are due primarily to changes in interest rates. Gains and losses on our trading securities are due primarily to changes in interest rates and credit spreads. The following table summarizes gains and losses on these economic derivatives as well as the related trading securities (dollars in millions):

	For the Years Ended December 31,
	2014			2013			2012
(Losses) gains on interest rate swaps economically hedging our investments	$	(72.9	)	$	101.4		$	(6.4	)
Losses on forward settlement agreements (TBAs)	—			—			(2.5		)
Interest settlements	(22.4		)	(22.3		)	(14.5		)
Net (losses) gains on investment derivatives	(95.3		)	79.1			(23.4		)
Net gains (losses) on related trading securities	68.1			(106.6		)	23.6
Net (losses) gains on economic investment hedge relationships	$	(27.2	)	$	(27.5	)	$	0.2

Consolidated Obligations

Derivatives used to hedge consolidated obligations in a fair value hedge relationship that fail retrospective hedge effectiveness testing are considered to be ineffective and are required to be accounted for as economic derivatives. We may also utilize interest rate swaps to economically hedge against changes in fair value on consolidated obligations elected under the fair value option. Gains and losses on these economic derivatives are primarily due to changes in interest rates. At December 31, 2014, we did not hold any interest rate swaps in ineffective fair value hedge relationships. In addition, all bonds previously elected under the fair value option and the related interest rate swaps had matured.

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The following table summarizes gains and losses on these economic derivatives as well as the related consolidated obligations elected under the fair value option (dollars in millions):

	For the Years Ended December 31,
	2014		2013			2012
(Losses) gains on interest rate swaps economically hedging our consolidated obligations	$	—	$	(1.5	)	$	8.7
Gains (losses) on interest rate swaps in ineffective fair value hedge relationships	10.3		(15.4		)	(0.7		)
Interest settlements	2.2		6.7			3.8
Net gains (losses) on consolidated obligation derivatives	12.5		(10.2		)	11.8
Net gains on related consolidated obligations elected under the fair value option	—		1.0			4.2
Net gains (losses) on economic consolidated obligation hedge relationships	$	12.5	$	(9.2	)	$	16.0

Balance Sheet

We may utilize interest rate caps or floors from time to time to economically hedge our mortgage assets against increases or decreases in interest rates. Gains and losses on these economic derivatives are due to changes in interest rates and volatility. During 2014, we did not hold any interest rate caps or floors outstanding related to our mortgage assets. During 2013, we recorded net gains on interest rate caps of $4.0 million compared to net losses of $13.1 million in 2012.

Other Expense

The following table shows the components of other expense (dollars in millions):

	For the Years Ended December 31,
	2014		2013		2012
Compensation and benefits	$	32.2	$	33.1	$	32.0
Contractual services	7.0		6.6		6.0
Professional fees	5.5		3.7		5.1
Other operating expenses	9.9		9.8		9.1
Total operating expenses	54.6		53.2		52.2
Federal Housing Finance Agency	3.9		3.1		4.5
Office of Finance	3.8		3.1		2.8
Other, net	5.0		3.1		8.0
Total other expense	$	67.3	$	62.5	$	67.5

Other expense increased $4.8 million during 2014 when compared to 2013 and decreased $5.0 million during 2013 when compared to 2012. The increase in 2014 was due to higher professional fees incurred as a result of the proposed merger and the Bank's initiative to replace its core banking system, and increased net losses on REO recorded through "other, net". The decrease in 2013 when compared to 2012 was primarily due to a reduction in losses on REO.

STATEMENTS OF CONDITION

Financial Highlights

Our total assets increased to $95.5 billion at December 31, 2014 from $73.0 billion at December 31, 2013. Our total liabilities increased to $91.2 billion at December 31, 2014 from $69.5 billion at December 31, 2013. Total capital increased to $4.3 billion at December 31, 2014 from $3.5 billion at December 31, 2013. See further discussion of changes in our financial condition in the appropriate sections that follow.

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Advances

The following table summarizes our advances by type of institution (dollars in millions):

	December 31,
	2014		2013
Commercial banks	$	45,037	$	28,237
Thrifts	1,476		1,249
Credit unions	927		686
Insurance companies	17,012		15,136
Total member advances	64,452		45,308
Housing associates	57		8
Non-member borrowers	443		44
Total par value	$	64,952	$	45,360

Our total advance par value increased $19.6 billion or 43 percent at December 31, 2014 when compared to December 31, 2013. The increase was due to borrowings from a wide range of members with the most significant increase from a large depository institution member.

The following table summarizes our advances by product type (dollars in millions):

	December 31, 2014				December 31, 2013
	Amount			% of Total	Amount			% of Total
Variable rate	$	46,717		71.9	$	27,906		61.5
Fixed rate	17,739			27.3	17,054			37.6
Amortizing	496			0.8	400			0.9
Total par value	64,952			100.0	45,360			100.0
Discounts	(6		)		(8		)
Fair value hedging adjustments	222				298
Total advances	$	65,168			$	45,650

Fair value hedging adjustments decreased $75.4 million or 25 percent at December 31, 2014 when compared to December 31, 2013. The decrease was primarily due to a decrease in cumulative fair value adjustments on advances in fair value hedge relationships resulting from changes in interest rates.

At December 31, 2014 and 2013, advances outstanding to our five largest member borrowers totaled $42.6 billion and $26.7 billion, representing 66 and 59 percent of our total advances outstanding. The following table summarizes advances outstanding to our five largest member borrowers at December 31, 2014 (dollars in millions):

	Amount		% of Total
Wells Fargo Bank, National Association	$	34,000	52.3
TH Insurance Holdings Company LLC	2,500		3.9
Transamerica Life Insurance Company1	2,350		3.6
HICA Education Loan Corporation	2,000		3.1
Principal Life Insurance Company	1,750		2.7
Total par value	$	42,600	65.6

1 Excludes $400.0 million of outstanding advances with Transamerica Premier Life Insurance Company, an affiliate of Transamerica Life Insurance Company.

We manage our credit exposure to advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower's financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws and regulations.

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The FHLBank Act requires that we obtain sufficient collateral on advances to protect against losses. We have never experienced a credit loss on an advance to a member or eligible housing associate. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on advances, management has determined that there were no probable credit losses on our advances as of December 31, 2014 and December 31, 2013. Accordingly, we have not recorded any allowance for credit losses on our advances. See additional discussion regarding our collateral requirements in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”

Mortgage Loans

The following table summarizes information on our mortgage loans held for portfolio (dollars in millions):

	December 31,
	2014			2013
Fixed rate conventional loans	$	5,916		$	5,945
Fixed rate government-insured loans	570			547
Total unpaid principal balance	6,486			6,492
Premiums	82			81
Discounts	(12		)	(16		)
Basis adjustments from mortgage loan commitments	11			8
Total mortgage loans held for portfolio	6,567			6,565
Allowance for credit losses	(5		)	(8		)
Total mortgage loans held for portfolio, net	$	6,562		$	6,557

Our mortgage loans remained relatively stable at December 31, 2014 when compared to December 31, 2013. Over the years, our member base of MPF loans has evolved from large-volume loan purchases from a small number of large PFIs, including Superior Guaranty Insurance Company (Superior), to purchasing the majority of our MPF loans from a diverse base of community financial institutions. At December 31, 2014 and 2013, mortgage loans outstanding from Superior amounted to $1.2 billion and $1.5 billion. We have not purchased any mortgage loans from Superior since 2004.

We manage our credit risk exposure on mortgage loans by (i) using agreements to establish credit risk sharing responsibilities with our PFIs, (ii) monitoring the performance of the mortgage loan portfolio and creditworthiness of PFIs, and (iii) establishing credit loss reserves to reflect management's estimate of probable credit losses inherent in the portfolio.

Our allowance for credit losses declined $3.1 million or 39 percent at December 31, 2014 when compared to December 31, 2013 due to a reversal for credit losses on our mortgage loans of $2.4 million and charge-offs of $0.7 million during the year. The reversal was due to a reduction in loan delinquencies and improvements in housing markets. During 2013, we began utilizing external property valuations rather than average loss severity rates on our individually evaluated mortgage loans, which resulted in losses that were lower than previously estimated. For additional discussion on our mortgage loan credit risk, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Mortgage Loans.”

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Investments

The following table summarizes the carrying value of our investments (dollars in millions):

	December 31, 2014			December 31, 2013
	Amount		% of Total	Amount		% of Total
Short-term investments1
Interest-bearing deposits	$	1	—	$	1	—
Securities purchased under agreements to resell	5,091		22.1	8,200		40.7
Federal funds sold	1,860		8.1	1,200		6.0
Total short-term investments	6,952		30.2	9,401		46.7
Long-term investments2
Interest-bearing deposits	1		—	1		—
Mortgage-backed securities
GSE single-family	2,826		12.2	3,449		17.1
GSE multifamily	7,465		32.4	4,683		23.3
Other U.S. obligations single-family	1,979		8.6	5		—
Other U.S. obligations commercial	2		—	2		—
Private-label residential	25		0.1	30		0.2
Total mortgage-backed securities	12,297		53.3	8,169		40.6
Non-mortgage-backed securities
Other U.S. obligations	420		1.8	448		2.2
GSE obligations	2,849		12.3	1,489		7.4
State or local housing agency obligations	96		0.4	95		0.5
Other	464		2.0	528		2.6
Total non-mortgage-backed securities	3,829		16.5	2,560		12.7
Total long-term investments	16,126		69.8	10,730		53.3
Total investments	$	23,079	100.0	$	20,131	100.0

1 Short-term investments have original maturities of less than one year.

2 Long-term investments have original maturities of greater than one year.

Our investments increased $2.9 billion or 15 percent at December 31, 2014 when compared to December 31, 2013. The increase was primarily due to the purchase of GSE and other U.S. obligation MBS during the year. This was partially offset by a reduction in short-term investments. At December 31, 2014, we had GSE MBS purchases with a total par value of $298.2 million that had traded but not yet settled. These investments have been recorded as "available-for-sale securities" in our Statements of Condition with a corresponding payable recorded in "other liabilities". The Finance Agency limits our investments in MBS by requiring that the total book value of our MBS not exceed three times regulatory capital at the time of purchase. At December 31, 2014 and 2013, our ratio of MBS to regulatory capital was 2.89 and 2.45.

We evaluate AFS and HTM securities in an unrealized loss position for OTTI on at least a quarterly basis. As part of our OTTI evaluation, we consider our intent to sell each debt security and whether it is more likely than not that we will be required to sell the security before its anticipated recovery. If either of these conditions is met, we will recognize an OTTI charge to earnings equal to the entire difference between the security's amortized cost basis and its fair value at the reporting date. For securities in an unrealized loss position that meet neither of these conditions, we perform analyses to determine if any of these securities are other-than-temporarily impaired.

At December 31, 2014, we did not consider any of our securities to be other-than-temporarily impaired. At December 31, 2013, we had one non-MBS classified as AFS for which we previously changed our intent and decided to sell. As a result, this security was deemed other-than-temporarily impaired. As such, during 2013, we recorded OTTI charges of $1.4 million on this security through "Other-than-temporary impairment losses" in the Statements of Income. This security was subsequently sold in January of 2014. We did not consider any of our other securities to be other-than-temporarily impaired at December 31, 2013. Refer to “Item 8. Financial Statements and Supplementary Data — Note 7 — Other-Than-Temporary Impairment” for additional information on our OTTI analysis performed at December 31, 2014.

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Consolidated Obligations

Consolidated obligations, which include bonds and discount notes, are the primary source of funds to support our advances, mortgage loans, and investments. At December 31, 2014 and 2013, the carrying value of consolidated obligations for which we are primarily liable totaled $90.1 billion and $68.3 billion.

DISCOUNT NOTES

The following table summarizes our discount notes, all of which are due within one year (dollars in millions):

	December 31,
	2014			2013
Par value	$	57,781		$	38,144
Discounts	(8		)	(7		)
Total	$	57,773		$	38,137

Our discount notes increased $19.6 billion or 51 percent at December 31, 2014 when compared to December 31, 2013. The increase was primarily due to our increased utilization of shorter-term discount notes to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity.

For additional information on our discount notes, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

BONDS

The following table summarizes information on our bonds (dollars in millions):

	December 31,
	2014			2013
Total par value	$	32,333		$	30,205
Premiums	21			22
Discounts	(18		)	(18		)
Fair value hedging adjustments	26			(14		)
Total bonds	$	32,362		$	30,195

Our bonds increased $2.2 billion or seven percent at December 31, 2014 when compared to December 31, 2013. During 2014, we utilized consolidated obligation bonds as well as shorter-term discount notes to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity.

Fair value hedging adjustments changed $40.6 million or 286 percent at December 31, 2014 when compared to December 31, 2013. The change was primarily due to an increase in cumulative fair value adjustments on bonds in fair value hedge relationships resulting from changes in interest rates.

Fair Value Option Bonds

We elected the fair value option for certain bonds that did not qualify for hedge accounting, primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. At December 31, 2014, we did not have any bonds recorded under the fair value option. At December 31, 2013, approximately $0.1 billion of our bonds were recorded under the fair value option. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Hedging Activities" for additional details on the income statement impact of these bonds and the related economic derivatives.

For additional information on our bonds, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”

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Deposits

Deposit levels will vary based on member alternatives for short-term investments. Our deposits decreased $0.2 billion or 27 percent at December 31, 2014 when compared to December 31, 2013 due primarily to a decrease in non-interest-bearing deposits. The following table summarizes our term deposits with a denomination of $100,000 or more by remaining maturity (dollars in millions):

	December 31,
	2014		2013
Three months or less	$	10	$	9
Over three months but within six months	2		—
Over six months but within 12 months	3		—
Total	$	15	$	9

Capital

The following table summarizes information on our capital (dollars in millions):

	December 31,
	2014		2013
Capital stock	$	3,469	$	2,692
Retained earnings	720		678
Accumulated other comprehensive income	123		87
Total capital	$	4,312	$	3,457

Our capital increased $0.9 billion or 25 percent at December 31, 2014 when compared to December 31, 2013. The increase was primarily due to an increase in capital stock, accumulated other comprehensive income (AOCI), and retained earnings. Capital stock increased primarily due to additional activity-based capital stock held driven by the growth in advances. AOCI increased due to an increase in unrealized gains on AFS securities resulting primarily from changes in interest rates and increased volumes of MBS securities. Retained earnings increased due to net income earned in excess of dividends paid. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Capital Stock” for additional information on our capital stock activity.

Derivatives

We use derivatives to manage interest rate risk, including mortgage prepayment risk, in our Statements of Condition. The notional amount of derivatives serves as a factor in determining periodic interest payments and cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor our overall exposure to credit and market risk. The following table categorizes the notional amount of our derivatives by type (dollars in millions):

	December 31,
	2014		2013
Interest rate swaps
Noncallable	$	26,432	$	28,533
Callable by counterparty	13,247		5,680
Callable by the Bank	37		82
Total interest rate swaps	39,716		34,295
Forward settlement agreements (TBAs)	65		28
Mortgage delivery commitments	70		30
Total notional amount	$	39,851	$	34,353

The notional amount of our derivative contracts increased $5.5 billion or 16 percent at December 31, 2014 when compared to December 31, 2013. During 2014, we increased our utilization of swapped consolidated obligation bonds in addition to short-term discount notes, to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity.

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LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital positions are actively managed in an effort to preserve stable, reliable, and cost-effective sources of funds to meet current and projected future operating financial commitments, as well as regulatory, liquidity, and capital requirements.

Liquidity

SOURCES OF LIQUIDITY

We utilize several sources of liquidity to carry out our business activities. These include, but are not limited to, proceeds from the issuance of consolidated obligations, payments collected on advances and mortgage loans, proceeds from the maturity or sale of investment securities, member deposits, proceeds from the issuance of capital stock, and current period earnings.

Our primary source of liquidity is proceeds from the issuance of consolidated obligations (bonds and discount notes) in the capital markets. Although we are primarily liable for the portion of consolidated obligations that are issued on our behalf, we are also jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all consolidated obligations issued by the FHLBank System. At December 31, 2014 and 2013, the total par value of outstanding consolidated obligations for which we are primarily liable was $90.1 billion and $68.3 billion. At December 31, 2014 and 2013, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which we are jointly and severally liable was approximately $757.1 billion and $698.5 billion.

During 2014, proceeds from the issuance of bonds and discount notes were $24.6 billion and $215.0 billion compared to $38.2 billion and $129.6 billion for the same period in 2013. We continued to issue shorter-term discount notes as well as step-up, callable, and term fixed rate consolidated obligation bonds to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity.

Our ability to raise funds in the capital markets as well as our cost of borrowing may be affected by our credit ratings. As of February 28, 2015, our consolidated obligations were rated AA+/A-1+ by Standard and Poor's and Aaa/P-1 by Moody's and both ratings had a stable outlook. For further discussion of how credit rating changes may impact us in the future, refer to “Item 1A. Risk Factors.”

The Office of Finance and FHLBanks have contingency plans in place that prioritize the allocation of proceeds from the issuance of consolidated obligations during periods of financial distress if consolidated obligations cannot be issued in sufficient amounts to satisfy all FHLBank demand. In the event of significant market disruptions or local disasters, our President or his designee is authorized to establish interim borrowing relationships with other FHLBanks. To provide further access to funding, the FHLBank Act also authorizes the U.S. Treasury to directly purchase new issue consolidated obligations of the GSEs, including FHLBanks, up to an aggregate principal amount of $4.0 billion. As of February 28, 2015, no purchases had been made by the U.S. Treasury under this authorization.

USES OF LIQUIDITY

We use our available liquidity, including proceeds from the issuance of consolidated obligations, primarily to repay consolidated obligations, fund advances, and purchase investments. During 2014, payments on consolidated obligations totaled $217.9 billion compared to $142.3 billion for the same period in 2013. A portion of these payments were due to the call and extinguishment of certain higher-costing par value bonds in an effort to better match our projected asset cash flows and reduce our future interest costs. During 2014 and 2013, we called bonds with a total par value of $3.7 billion and $1.5 billion and extinguished bonds with a total par value of $115.0 million and $162.1 billion.

During 2014, advance disbursements totaled $119.8 billion compared to $88.7 billion for the same period in 2013. The increase was due to borrowings from a wide range of members with the most significant increase from a large depository institution member.

Investment purchases (excluding overnight investments) totaled $170.1 billion during 2014 compared to $119.0 billion for the same period in 2013. The increase was primarily due to the purchase of money market investments, including secured resale agreements, in an effort to manage our liquidity position and counterparty credit risk.

We also use liquidity to purchase mortgage loans, repay member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, pay expenses, and pay dividends.

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LIQUIDITY REQUIREMENTS

Finance Agency regulations mandate three liquidity requirements. First, we are required to maintain contingent liquidity sufficient to meet our liquidity needs, which shall, at a minimum, cover five calendar days of inability to access the consolidated obligation debt markets. The following table shows our compliance with this requirement (dollars in billions):

	December 31,
	2014		2013
Unencumbered marketable assets maturing within one year	$	7.5	$	10.2
Advances maturing in seven days or less	1.4		0.6
Unencumbered assets available for repurchase agreement borrowings	14.1		9.7
Total contingent liquidity	23.0		20.5
Liquidity needs for five calendar days	2.0		4.8
Excess contingent liquidity1	$	21.0	$	15.7

1 Increase in excess contingent liquidity due primarily to secured resale agreements maturing within one year.

Second, we are required to have available at all times an amount greater than or equal to members' current deposits invested in advances with maturities not to exceed five years, deposits in banks or trust companies, and obligations of the U.S. Treasury. The following table shows our compliance with this requirement (dollars in billions):

	December 31,
	2014		2013
Advances with maturities not exceeding five years	$	58.6	$	38.2
Deposits in banks or trust companies	—		—
U.S. Treasury obligations	—		—
Total	58.6		38.2
Deposits1	0.5		0.8
Excess liquidity2	$	58.1	$	37.4

1    Amount does not reflect the effect of derivative master netting arrangements with counterparties and/or clearing agents.

2    Increase in excess liquidity due primarily to advance borrowings from a depository institution member during 2014.

Third, we are required to maintain, in the aggregate, unpledged qualifying assets in an amount at least equal to the amount of our participation in total consolidated obligations outstanding. The following table shows our compliance with this requirement (dollars in billions):

	December 31,
	2014		2013
Qualifying assets free of lien or pledge	$	95.3	$	72.8
Consolidated obligations outstanding	90.1		68.3
Excess liquidity	$	5.2	$	4.5

At December 31, 2014 and 2013 and throughout 2014 and 2013, we were in compliance with all three of the Finance Agency liquidity requirements.

In addition to the liquidity measures previously discussed, the Finance Agency has provided us with guidance to maintain sufficient liquidity in an amount at least equal to our anticipated cash outflows under two different scenarios. One scenario (roll-off scenario) assumes that we cannot access the capital markets to issue debt for a period of 10 to 20 days with initial guidance set at 15 days and that during that time members do not renew any maturing, prepaid, and called advances. The second scenario (renew scenario) assumes that we cannot access the capital markets to issue debt for a period of three to seven days with initial guidance set at five days and that during that time we will automatically renew maturing and called advances for all members except very large, highly-rated members. This guidance is designed to protect against temporary disruptions in the debt markets that could lead to a reduction in market liquidity and thus the inability for us to provide advances to our members. At December 31, 2014 and 2013 and throughout 2014 and 2013, we were in compliance with this liquidity guidance.

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Capital

CAPITAL REQUIREMENTS

We are subject to three regulatory capital requirements. First, the FHLBank Act requires that we maintain at all times permanent capital greater than or equal to the sum of our credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations. Only permanent capital, defined as Class B capital stock, which includes mandatorily redeemable capital stock, and retained earnings, can satisfy this risk-based capital requirement. Second, the FHLBank Act requires a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes all capital stock, including mandatorily redeemable capital stock, and retained earnings. It does not include AOCI. Third, the FHLBank Act imposes a five percent minimum leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. At December 31, 2014 and 2013 and throughout 2014 and 2013, we were in compliance with all three of the Finance Agency's regulatory capital requirements. Refer to "Item 8. Financial Statements and Supplementary Data — Note 15 — Capital" for additional information.

CAPITAL STOCK

Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, and repurchased only at the stated par value. We have two subclasses of capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31^st, subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding. All capital stock issued is subject to a five year notice of redemption period.

The capital stock requirements established in our Capital Plan are designed so that we remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan. Capital stock owned by members in excess of their capital stock requirement is deemed excess capital stock. Under our Capital Plan, we, at our discretion and upon 15 days' written notice, may repurchase excess membership capital stock. We, at our discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At December 31, 2014 and 2013, we had no excess capital stock outstanding.

Because membership is voluntary, a member can provide a notice of withdrawal from membership at any time. If a member provides a notice of withdrawal from membership, we will not repurchase or redeem any membership stock until five years from the date of receipt of a notice of withdrawal. If a member that withdraws from membership owns any activity-based capital stock, we will redeem the required activity-based capital stock consistent with the level of activity outstanding.

A member may cancel any pending notice of redemption before the completion of the five-year redemption period by providing a written notice of cancellation. We charge a cancellation fee equal to a percentage of the par value of the shares of capital stock subject to redemption. This fee is currently set at a range of one to five percent depending on when we receive notice of cancellation from the member. Our Board of Directors retains the right to change the cancellation fee at any time. We will provide at least 15 days' written notice to each member of any adjustment or amendment to our cancellation fee.

We cannot repurchase or redeem any membership or activity-based capital stock if the repurchase or redemption would cause a member to be out of compliance with its required investment. In addition, there are statutory and regulatory restrictions on our obligation or right to redeem outstanding capital stock.

First, in no case may we redeem any capital stock if, following such redemption, we would fail to satisfy our minimum regulatory capital requirements. By law, all member holdings of our capital stock immediately become nonredeemable if we become undercapitalized.

Second, in no case may we redeem any capital stock without the prior approval of the Finance Agency if either our Board of Directors or the Finance Agency determines that we incurred or are likely to incur losses resulting in or likely to result in a charge against capital.

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Third, we cannot redeem shares of capital stock from any member if the principal or interest on any consolidated obligation of the FHLBank System is not paid in full when due, or under certain circumstances if (i) we project, at any time, that we will fail to comply with statutory or regulatory liquidity requirements, or will be unable to timely and fully meet all of our current obligations, (ii) we actually fail to comply with statutory or regulatory liquidity requirements or to timely and fully meet all of our current obligations, or enter or negotiate to enter into an agreement with one or more other FHLBanks to obtain financial assistance to meet our current obligations, or (iii) the Finance Agency determines that we will cease to be in compliance with statutory or regulatory liquidity requirements, or will lack the capacity to timely or fully meet all of our current obligations.

If we are liquidated, after payment in full to our creditors, our stockholders will be entitled to receive the par value of their capital stock as well as any retained earnings, in an amount proportional to the stockholder's share of the total shares of capital stock. In the event of a merger or consolidation, our Board of Directors shall determine the rights and preferences of our stockholders, subject to applicable Finance Agency regulations, as well as any terms and conditions imposed by the Finance Agency.

The following table summarizes our regulatory capital stock by type of member (dollars in millions):

	December 31,
	2014		2013
Commercial banks	$	2,313	$	1,619
Thrifts	105		96
Credit unions	122		106
Insurance companies	929		871
Total GAAP capital stock	3,469		2,692
Mandatorily redeemable capital stock	24		9
Total regulatory capital stock	$	3,493	$	2,701

Approximately 82 and 77 percent of our total regulatory capital stock outstanding at December 31, 2014 and 2013 was activity-based capital stock that fluctuates with the outstanding balances of advances made to members and mortgage loans purchased from members. The increase in capital stock held by commercial banks in 2014 was due primarily to increased advance activity with a depository institution member.

Mandatorily Redeemable Capital Stock

We reclassify capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of redemption, gives notice of intention to withdraw from membership, or terminates its membership voluntarily as a result of a consolidation into a non-member or into a member of another FHLBank.

Shares meeting this definition are reclassified to a liability at fair value. The fair value of mandatorily redeemable capital stock is generally par value as all shares are issued, redeemed, or repurchased by us at the stated par value. Fair value also includes an estimated dividend earned at the time of reclassification from equity to a liability (if applicable), until such amount is paid. Dividends on mandatorily redeemable capital stock are classified as interest expense in the Statements of Income.

If a member cancels its written notice of redemption or notice of withdrawal, we will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

For GAAP purposes, mandatorily redeemable capital stock is not included as a component of capital. For determining compliance with our regulatory capital requirements, the Finance Agency requires that such outstanding capital stock be considered capital. At December 31, 2014 and 2013, we had $24.4 million and $8.7 million of mandatorily redeemable capital stock. The increase was primarily due to a member merging out of district during the fourth quarter of 2014. For additional information on our mandatorily redeemable capital stock, refer to "Item 8. Financial Statements and Supplementary Data — Note 15 — Capital."

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RETAINED EARNINGS

Our ERMP requires a minimum retained earnings level based on the level of market risk, credit risk, and operational risk within the Bank. If realized financial performance results in actual retained earnings below the minimum level, we will establish an action plan as determined by our Board of Directors to enable us to return to our targeted level of retained earnings within twelve months. At December 31, 2014, our actual retained earnings were above the minimum level, and therefore no action plan was necessary.

We entered into a JCE Agreement with all of the other FHLBanks in February 2011. The JCE Agreement, as amended, is intended to enhance our capital position over time. It requires us to allocate 20 percent of our quarterly net income to a separate restricted retained earnings account until the balance of that account equals at least one percent of our average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends. At December 31, 2014 and 2013, our restricted retained earnings balance totaled $75.0 million and $50.8 million. One percent of our average balance of outstanding consolidated obligations for the three months ended September 30, 2014 was $834.2 million. For more information on our JCE Agreement, refer to "Item 1. Business — Capital and Dividends — Retained Earnings."

DIVIDENDS

Our Board of Directors may declare and pay different dividends for each subclass of capital stock. Dividend payments may be made in the form of cash and/or additional shares of capital stock. Historically, we have only paid cash dividends. By regulation, we may pay dividends from current earnings or unrestricted retained earnings, but we may not declare a dividend based on projected or anticipated earnings. We are prohibited from paying a dividend in the form of additional shares of capital stock, if after the issuance, the outstanding excess capital stock would be greater than one percent of our total assets. In addition, we may not declare or pay a dividend if the par value of our capital stock is impaired or is projected to become impaired after paying such dividend. Our Board of Directors may not declare or pay dividends if it would result in our non-compliance with regulatory capital requirements.

Our Board of Directors believes any excess returns on capital stock above an appropriate benchmark rate that are not retained for capital growth should be returned to members that utilize our product and service offerings. Our current dividend philosophy is to pay a membership capital stock dividend similar to a benchmark rate of interest, such as average three-month LIBOR, and an activity-based capital stock dividend, when possible, at least 50 basis points in excess of the membership capital stock dividend. Our actual dividend payout is determined quarterly by our Board of Directors, based on policies, regulatory requirements, financial projections, and actual performance.

The following table summarizes dividend-related information (dollars in millions):

	For the Years Ended December 31,
	2014			2013			2012
Aggregate cash dividends paid	$	78.9		$	53.5		$	58.5
Effective combined annualized dividend rate paid on capital stock	2.82		%	2.61		%	2.82		%
Annualized dividend rate paid on membership capital stock	0.50		%	0.50		%	1.12		%
Annualized dividend rate paid on activity-based capital stock	3.50		%	3.50		%	3.50		%
Average three-month LIBOR	0.23		%	0.27		%	0.43		%

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect our reported results and disclosures. Several of our accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others to our financial results. Given the assumptions and judgment used, we have identified the following accounting policies as critical to understanding our financial condition and results of operations:

• fair value measurements;

• derivatives and hedging activities;

• allowance for credit losses; and

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• other-than-temporary impairment.

We evaluate our critical accounting policies and estimates on an ongoing basis. While management believes our estimates and assumptions are reasonable based on historical experience and other factors, actual results could differ from those estimates and differences could be material to the financial statements.

Fair Value Measurements

We record trading securities, AFS securities, derivative assets and liabilities, certain other assets, and certain consolidated obligations for which the fair value option has been elected at fair value in the Statements of Condition on a recurring basis and on occasion, certain impaired MPF loans and REO on a non-recurring basis. Fair value is a market-based measurement and is defined as the price received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under current market conditions. In general, the transaction price will equal the exit price and, therefore, represent the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, we are required to consider factors specific to the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom we would transact in that market.

Fair values play an important role in our valuation of certain assets, liabilities, and hedging transactions. Fair value is first determined based on quoted market prices or market-based prices, where available. If quoted market prices or market-based prices are not available, fair values are determined based on external or internal pricing models that use discounted cash flows using market estimates of interest rates and volatility, dealer prices, or prices of similar instruments.

For external pricing models, we annually review the vendors' pricing processes, methodologies, and control procedures for reasonableness. For internal pricing models, the underlying assumptions are based on management's best estimates for discount rates, prepayments, market volatility, and other factors. The assumptions used in both external and internal pricing models could have a significant effect on the reported fair values of assets and liabilities, including the related income and expense. The use of different assumptions, as well as changes in market conditions, could result in materially different values.

We categorize our financial instruments carried at fair value into a three-level hierarchy. The hierarchy is based upon the transparency (observable or unobservable) of inputs used to value the asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. At December 31, 2014 and 2013, we did not carry any financial assets or liabilities, measured on a recurring basis, at fair value in our Statements of Condition based on unobservable inputs.

Refer to “Item 8. Financial Statements and Supplementary Data — Note 17 — Fair Value” for additional discussion on our fair value measurements.

Derivatives and Hedging Activities

All derivatives are recognized in the Statements of Condition at their fair values and reported as either derivative assets or derivative liabilities, net of cash collateral and accrued interest from counterparties and/or clearing agents.

Each derivative is designated as one of the following:

• a fair value hedge of an associated financial instrument or firm commitment; or

• an economic hedge to manage certain defined risks in our Statements of Condition.

FAIR VALUE HEDGES

If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the fair value hedging relationship and an expectation to be highly effective, they qualify for fair value hedge accounting and the offsetting changes in fair value of the hedged items are recorded in earnings. Two approaches to fair value hedge accounting include:

• Long-haul hedge accounting. The application of long-haul hedge accounting requires us to formally assess (both at the hedge's inception and at least quarterly) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value of hedged items due to benchmark interest rate changes and whether those derivatives are expected to remain effective in future periods.

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• Short-cut hedge accounting. Transactions that meet certain criteria qualify for short-cut hedge accounting in which an assumption can be made that the change in fair value of a hedged item due to changes in the benchmark interest rate exactly offsets the change in fair value of the related derivative. Under the short-cut method, the entire change in fair value of the interest rate swap is considered to be effective at achieving offsetting changes in fair value of the hedged asset or liability.

Derivatives are typically executed at the same time as the hedged item, and we designate the hedged item in a fair value hedge relationship at the trade date. In many hedging relationships, we may designate the hedging relationship upon our commitment to disburse an advance or trade a consolidated obligation in which settlement occurs within the shortest period of time possible for the type of instrument based on market settlement conventions. We then record the changes in fair value of the derivative and the hedged item beginning on the trade date.

Changes in the fair value of a derivative that is designated as a fair value hedge, along with changes in the fair value of the hedged item, are recorded in other (loss) income as “Net (losses) gains on derivatives and hedging activities.” The amount by which the change in fair value of the derivative differs from the change in fair value of the hedged item is known as hedge ineffectiveness.

ECONOMIC HEDGES

An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that does not qualify or was not designated for fair value hedge accounting, but is an acceptable hedging strategy under our risk management program. Changes in the fair value of a derivative that is designated as an economic hedge are recorded in other (loss) income as “Net (losses) gains on derivatives and hedging activities” with no offsetting fair value adjustments for the underlying assets, liabilities, or firm commitments, unless changes in the fair value of the asset or liability are normally marked to fair value through earnings (e.g., trading securities and fair value option instruments).

ACCRUED INTEREST RECEIVABLES AND PAYABLES

The net settlements of interest receivables and payables related to derivatives designated as fair value hedges are recognized as adjustments to the interest income or interest expense of the designated hedged item. The net settlements of interest receivables and payables related to derivatives designated as economic hedges are recognized in other (loss) income as “Net (losses) gains on derivatives and hedging activities.”

DISCONTINUANCE OF HEDGE ACCOUNTING

We discontinue fair value hedge accounting prospectively when either (i) we determine that the derivative is no longer effective in offsetting changes in the fair value of a hedged item due to changes in the benchmark interest rate, (ii) the derivative and/or the hedged item expires or is sold, terminated, or exercised, (iii) a hedged firm commitment no longer meets the definition of a firm commitment, or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued, we either terminate the derivative or continue to carry the derivative in the Statements of Condition at its fair value. For any remaining hedged item, we cease to adjust the hedged item for changes in fair value and amortize the cumulative basis adjustment on the hedged item into earnings over the remaining contractual life of the hedged item using a level-yield methodology.

When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, we continue to carry the derivative in the Statements of Condition at its fair value, removing from the Statements of Condition any hedged item that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.

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EMBEDDED DERIVATIVES

We may issue debt, make advances, or purchase financial instruments in which a derivative instrument is “embedded.” Upon execution of these transactions, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the debt, advance, or purchased financial instrument (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If we determine that the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as an economic derivative instrument. However, if we elect to carry the entire contract (the host contract and the embedded derivative) at fair value in the Statements of Condition, changes in fair value of the entire contract will be reported in current period earnings.

Refer to “Item 8. Financial Statements and Supplementary Data — Note 11 — Derivatives and Hedging Activities” for additional discussion on our derivatives.

Allowance for Credit Losses

We have an allowance for credit losses methodology for each of our financing receivable portfolio segments: advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products), government-insured mortgage loans held for portfolio, conventional mortgage loans held for portfolio, and term securities purchased under agreements to resell. The following discussion highlights those methodologies that we consider critical to our financial results. For a complete discussion of our allowance methodologies, refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses.”

CREDIT PRODUCTS

We manage our credit exposure to credit products through an approach that includes establishing a credit limit for each borrower, ongoing reviews of each borrower's financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

We are required by regulation to obtain sufficient collateral to fully secure credit products. The estimated value of the collateral required to secure each borrower's credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal balance or market value, if available, of the collateral. Eligible collateral includes (i) whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages, (ii) loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae and FFELP guaranteed student loans, (iii) cash deposited with us, and (iv) other real estate-related collateral acceptable to us provided such collateral has a readily ascertainable value and we can perfect a security interest in such property. In addition, CFIs may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that we have a lien on each member's capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.

Using a risk-based approach and taking into consideration each borrower's financial strength, we consider the types and level of collateral to be the primary indicator of credit quality on our credit products. At December 31, 2014 and 2013, we had rights to collateral on a borrower-by-borrower basis with an unpaid principal balance or market value, if available, in excess of our outstanding extensions of credit.

We have never experienced a credit loss on our credit products. Based upon our collateral and lending policies, the collateral held as security, and the repayment history on our credit products, management has determined that there were no probable credit losses on our credit products as of December 31, 2014 and 2013. Accordingly, we have not recorded any allowance for credit losses.

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GOVERNMENT-INSURED MORTGAGE LOANS

We invest in government-insured fixed rate mortgage loans that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, we only have credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance. Management views this risk as remote. As a result, we did not establish an allowance for credit losses for our government-insured mortgage loans at December 31, 2014 and 2013. Furthermore, none of these mortgage loans have been placed on non-accrual status because of the U.S. Government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

CONVENTIONAL MORTGAGE LOANS

We have several layers of legal loss protection on our conventional mortgage loans that are defined in agreements among us and our participating PFIs. These loss layers may vary depending on the MPF product alternatives selected and consist of (i) homeowner equity, (ii) primary mortgage insurance (PMI), (iii) a first loss account (FLA), and (iv) a credit enhancement obligation of the PFI.

We utilize an allowance for credit losses to reserve for estimated losses in our conventional mortgage loan portfolio at the balance sheet date. At December 31, 2014 and 2013, our allowance for credit losses on conventional mortgage loans was $4.9 million and $8.0 million. The measurement of our allowance for credit losses is determined by (i) reviewing similar conventional mortgage loans for impairment on a collective basis, (ii) reviewing conventional mortgage loans for impairment on an individual basis, (iii) estimating additional credit losses in the conventional mortgage loan portfolio, (iv) considering the recapture of performance-based credit enhancement fees from the PFI, if available, and (v) considering the credit enhancement obligation of the PFI, if estimated losses exceed the FLA.

Collectively Evaluated Conventional Mortgage Loans

We collectively evaluate the majority of our conventional mortgage loan portfolio for impairment and estimate an allowance for credit losses based upon factors that vary by MPF product. These factors include, but are not limited to, (i) loan delinquencies, (ii) loans migrating to collateral-dependent status, (iii) actual historical loss severities, and (iv) certain quantifiable economic factors, such as unemployment rates and home prices. We utilize a roll-rate methodology when estimating our allowance for credit losses. This methodology projects loans migrating to collateral-dependent status based on historical average rates of delinquency. We then apply a loss severity factor to calculate an estimate of credit losses.

Individually Identified Conventional Mortgage Loans

We individually evaluate certain conventional mortgage loans, including troubled debt restructurings (TDRs) and collateral-dependent loans, for impairment. Our TDRs include loans granted under our temporary loan modification plan and loans discharged under Chapter 7 bankruptcy that have not been reaffirmed by the borrower. We generally measure impairment of TDRs based on the present value of expected future cash flows discounted at the loan's effective interest rate. Collateral-dependent loans are loans in which repayment is expected to be provided solely by the sale of the underlying collateral. Our collateral-dependent loans include loans in process of foreclosure, loans 180 days or more past due, and bankruptcy loans and TDRs 60 days or more past due. We measure impairment of collateral-dependent loans based on the estimated fair value of the underlying collateral, which is determined using property values, less selling costs and expected proceeds from the PMI. Prior to January 1, 2014, we only evaluated TDRs and collateral-dependent loans that were in process of foreclosure on an individual basis.

Estimating Additional Credit Loss in the Conventional Mortgage Loan Portfolio

We may make an adjustment for certain limitations in our estimation of credit losses. This adjustment recognizes the imprecise nature of an estimate and represents a subjective management judgment that is intended to cover losses resulting from other factors that may not be captured in the methodology previously described at the balance sheet date.

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Performance-Based Credit Enhancement Fees

When reserving for estimated credit losses, we may take into consideration performance-based credit enhancement fees available for recapture from the PFIs. Performance-based credit enhancement fees available for recapture, if any, consist of accrued performance-based credit enhancement fees to be paid to the PFIs and projected performance-based credit enhancement fees to be paid to the PFIs over the next 12 months, less any losses incurred that are in the process of recapture.

Available performance-based credit enhancement fees cannot be shared between master commitments and, as a result, some master commitments may have sufficient performance-based credit enhancement fees to recapture losses while other master commitments may not. At December 31, 2014 and 2013, we determined that the amount of performance-based credit enhancement fees available for recapture from the PFIs at the master commitment level was immaterial. As such, we did not factor credit enhancement fees into our estimate of allowance for credit losses.

PFI Credit Enhancement Obligation

When reserving for estimated credit losses, we may take into consideration the PFI credit enhancement obligation, which is intended to absorb losses in excess of the FLA. At December 31, 2014 and 2013, we determined that the amount of credit enhancement obligation available to offset losses was immaterial. As such, we did not factor credit enhancement obligation into our estimate of the allowance for credit losses.

Other-Than-Temporary Impairment

We evaluate our individual AFS and HTM securities in an unrealized loss position for OTTI on a quarterly basis. A security is considered impaired when its fair value is less than its amortized cost basis. We consider an OTTI to have occurred under any of the following circumstances:

• we have an intent to sell the impaired debt security;

• based on available evidence, we believe it is more likely than not that we will be required to sell the impaired debt security before the recovery of its amortized cost basis; or

• we do not expect to recover the entire amortized cost basis of the impaired debt security.

If either of the first two conditions is met, we recognize an OTTI charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value as of the reporting date. If neither of the first two conditions is met, we perform an analysis to determine if we believe we will recover the entire amortized cost basis of the debt security, which includes a cash flow analysis for private-label MBS. The present value of the cash flows expected to be collected is compared to the amortized cost basis of the debt security to determine whether a credit loss exists. If there is a credit loss (the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security), the carrying value of the debt security is adjusted to its fair value. However, rather than recognizing the entire difference between the amortized cost basis and fair value in earnings, only the amount of the impairment representing the credit loss (i.e., the credit component) is recognized in earnings, while the amount related to all other factors is recognized in AOCI. The credit loss on a debt security is limited to the amount of that security's unrealized loss. The total OTTI is presented in the Statements of Income with an offset for the amount of the non-credit portion of OTTI that is recognized in AOCI, if applicable.

Refer to “Item 8. Financial Statements and Supplementary Data — Note 7 — Other-than-Temporary Impairment” for additional discussion on our OTTI analysis.

BANK DEVELOPMENTS

Potential Merger

On September 25, 2014, the boards of directors of the Bank and the Seattle Bank executed a definitive merger agreement after receiving unanimous approval from their boards of directors. Material details of the merger agreement are included in the Bank’s Form 8-K filed with the SEC on September 25, 2014.

On October 31, 2014, the banks submitted a joint merger application to the Finance Agency. The Finance Agency approved the merger application on December 19, 2014, subject to the satisfaction of specific closing conditions set forth in the Finance Agency's approval letter, including the ratification of the merger by members of both banks.

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On January 12, 2015, the banks mailed a joint merger disclosure statement, voting ballots. and related materials to their respective members and requested that ballots be returned by the close of business on February 23, 2015. Additional details regarding the disclosure statement can be found in the Bank's Form 8-K filed with the SEC on January 12, 2015.

On February 27, 2015, the banks issued a joint press release announcing the ratification of the merger by members of both banks. The consummation of the merger will be effective only after the Finance Agency determines that the closing conditions identified in the approval letter have been satisfied and the Finance Agency determines that the continuing bank's organizational certificate complies with the requirements of the Finance Agency's merger rules. Assuming the Finance Agency makes these determinations, the merger is expected to be effective on May 31, 2015.

We believe that the merger would combine two complementary organizations with similar cultures, membership characteristics, and solid financial positions. The continuing bank would remain a member-owned and member-centric cooperative, deeply focused on helping its members strengthen their institutions to better serve their customers and communities. It would provide funding solutions for more than 1,500 member financial institutions in 13 states and the U.S. Pacific territories. The continuing bank would be headquartered in Des Moines. 

LEGISLATIVE AND REGULATORY DEVELOPMENTS

The legislative and regulatory environment in which the Bank and its members operate continues to evolve as a result of regulations enacted pursuant to the Housing Act and the Dodd-Frank Act. Our business operations, funding costs, rights, obligations, and/or the environment in which we carry out our housing finance, community lending and liquidity mission are likely to continue to be significantly impacted by these changes. Significant regulatory actions and developments for the period covered by this report are summarized below.

Federal Housing Finance Agency Proposed Rule

The Finance Agency issued on September 12, 2014, a proposed rule that would:

• Impose a new test on all FHLBank members that requires them to maintain at least one percent of their assets in long term first-lien home mortgage loans, including MBS backed by such loans, on an ongoing basis, with maturities of five years or more to maintain their membership in their respective FHLBank. The proposal also suggests the possibility of a two percent or a five percent test as options.

• Require all insured depository members (other than FDIC-insured depositories with less than $1.1 billion in assets) to maintain, on an ongoing basis (rather than only at the time of application for membership as required by current regulations), at least 10 percent of their assets in a broader range of residential mortgage loans, including those secured by junior liens and MBS, in order to maintain their membership in the FHLBanks.

• Eliminate all currently eligible captive insurance companies from FHLBank membership. Current captive insurance company members would have their memberships terminated five years after this rule is finalized. There would be restrictions on the level and maturity of advances that FHLBanks could make to these members during the sunset period. Under the proposed rule, a captive insurance company is a company that is authorized under state law to conduct an insurance business but whose primary business is not the underwriting of insurance for non-affiliated persons or entities; and

• Clarify how an FHLBank should determine the “principal place of business” of an insurance company or CDFI for purposes of membership. The proposed rule would also change the way the principal place of business is determined for an institution that becomes a member of an FHLBank after issuance of the final rule. Current rules define an institution’s principal place of business as the state in which it maintains its home office. The proposal would add a second component requiring an institution to conduct business operations from the home office in order for that state to be considered its principal place of business. The changes would apply prospectively.

If the proposed rule is adopted in its current form, our financial condition and results of operation may be materially impacted due to loss of members and potential members. Refer to "Item 1A. Risk Factors" for additional discussion of the potential impact of the proposed rule on the Bank.

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Federal Home Loan Bank Capital Stock and Capital Plans

The Finance Agency issued on October 8, 2014, a proposed rule that would transfer existing parts 931 and 933 of the Federal Housing Finance Board regulations, which address requirements for FHLBanks’ capital stock and capital plans, to new Part 1277 of the Finance Agency regulations (Capital Proposed Rule). The Capital Proposed Rule would not make any substantive changes to these requirements, but would delete certain provisions that applied only to the one-time conversion of FHLBank stock to the new capital structure required by the Gramm-Leach-Bliley Act. The Capital Proposed Rule would also make certain clarifying changes so that the rules would more precisely reflect long-standing practices and requirements with regard to transactions in FHLBank stock. If adopted as proposed, it is not expected that the Capital Proposed Rule would have a significant impact on our financial condition or operations.

Margin and Capital Requirements for Covered Swap Entities

On September 3, 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, the Farm Credit Administration, and the Finance Agency (collectively, the Agencies), jointly proposed a rule to establish minimum margin collection requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants (collectively, Swap Entities) that are subject to the jurisdiction of one of the Agencies (the Proposed Rule). In addition, the Proposed Rule affords the Agencies discretion to subject other persons to the Proposed Rule’s requirements (such persons, together with Swap Entities, Covered Swap Entities).

The Proposed Rule would subject non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and between Covered Swap Entities and financial end users that have material swaps exposure (i.e., an average daily aggregate notional of $3 billion or more in uncleared swaps) to a mandatory two-way initial margin requirement. The amount of the initial margin required to be posted or collected would be either the amount calculated using a standardized schedule set forth in the Proposed Rule, which provides the gross initial margin (as a percentage of total notional exposure) for certain asset classes, or an internal margin model conforming to the requirements of the Proposed Rule that is approved by the applicable Agency. The Proposed Rule specifies the types of collateral that may be posted as initial margin (generally, cash, certain government securities, certain liquid debt, certain equity securities and gold); and sets forth haircuts for certain collateral asset classes. Initial margin must be segregated with an independent, third-party custodian and may not be rehypothecated.

The Proposed Rule would require variation margin to be exchanged daily for non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities and between Covered Swap Entities and all financial end users (without regard to the swaps exposure of the particular financial end-user). The variation margin amount is the daily mark-to-market change in the value of the swap to the Covered Swap Entity, taking into account variation margin previously paid or collected. Variation margin may only be paid in cash, is not subject to segregation with an independent, third-party custodian, and may, if permitted by contract, be rehypothecated.

Under the Proposed Rule, the variation margin requirement would become effective on December 1, 2015 and the initial margin requirement would be phased in over a four-year period commencing on that date. For entities that have less than a $1 trillion notional amount of non-cleared derivatives, the Proposed Rule’s initial margin requirement would not come into effect until December 1, 2019.

We would not be a Covered Swap Entity under the Proposed Rule, although the Finance Agency has discretion to designate us as a Covered Swap Entity. Rather, we would be a financial end-user under the Proposed Rule, and we would likely have material swaps exposure upon the effective date of the Proposed Rule’s initial margin requirement.

Since we are currently posting and collecting variation margin on our non-cleared swaps, it is not anticipated that the Proposed Rule’s variation margin requirement, if adopted, would have a material impact on our costs. However, if the Proposed Rule’s initial margin requirement is adopted, it is anticipated that our cost of engaging in non-cleared swaps would increase.

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Finance Agency Proposed Rule on Responsibilities of Boards of Directors; Corporate Practices and Corporate Governance Matters

On January 28, 2014, the Finance Agency published a proposed rule to relocate and consolidate existing Federal Housing Finance Board and Office of Federal Housing Enterprise Oversight regulations pertaining to director responsibilities, corporate practices, and corporate governance matters for Fannie Mae, Freddie Mac, and the FHLBanks (each a "regulated entity"). The proposed rule would make certain amendments or additions to the corporate governance rules currently applicable to the FHLBanks, including provisions to:

• revise existing risk management provisions to better align them with more recent proposals of the Federal Reserve Board, including requirements that each regulated entity adopt an enterprise wide risk management program and appoint a chief risk officer with certain enumerated responsibilities;

• require each regulated entity to maintain a compliance program headed by a compliance officer who reports directly to the chief executive officer and must regularly report to the board of directors (or a board committee);

• require each regulated entity’s board to establish committees specifically responsible for the following matters: (a) risk management; (b) audit; (c) compensation; and (d) corporate governance;

• require each FHLBank to designate in its bylaws a body of law to follow for its corporate governance practices and procedures that may arise for which no federal law controls, choosing from (a) the law of the jurisdiction in which the FHLBank maintains its principal office; (b) the Delaware General Corporation Law; or (c) the Revised Model Business Corporation Act. The proposed rule states that the Finance Agency has the authority to review a regulated entity’s indemnification policies, procedures and practices and may limit or prohibit indemnification payments in support of the safe and sound operations of the regulated entity.

Finance Agency Final Rule on Executive Compensation

On January 28, 2014, the Finance Agency issued a final rule effective February 27, 2014 setting forth requirements and processes with respect to compensation provided to executive officers of the FHLBanks and the Office of Finance. The final rule addresses the authority of the Director of the Finance Agency to: 1) approve executive officer agreements that provide for compensation in connection with termination of employment and 2) review the compensation arrangements of executive officers of the FHLBanks and to prohibit an FHLBank or the Office of Finance from providing compensation to any executive officer that the Director determines is not reasonable and comparable with compensation for employment in other similar businesses involving similar duties and responsibilities.

Finance Agency Final Rule on Golden Parachute Payments

On January 28, 2014, the Finance Agency issued a final rule effective February 27, 2014 setting forth the standards that the Director of the Finance Agency will take into consideration when determining whether to limit or prohibit golden parachute payments. The primary impact of this final rule is to better conform existing Finance Agency regulations on golden parachutes with FDIC golden parachute regulations and to further limit golden parachute payments made by an FHLBank or the Office of Finance that is assigned a less than satisfactory composite Finance Agency examination rating.

Basel Committee on Bank Supervision - Liquidity Coverage Ratio

On September 3, 2014, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (Banking Agencies) finalized the liquidity coverage ratio (LCR) rule, applicable to: (i) U.S. banking organizations with $250 billion or more in consolidated total assets or $10 billion or more in total on-balance sheet foreign exposure, and their consolidated subsidiary depository institutions with $10 billion or more in total consolidated assets; and (ii) certain other U.S. bank or savings and loan holding companies having at least $50 billion in total consolidated assets. The LCR rule requires such covered companies to maintain a stock of “high quality liquid assets” (HQLA) that is no less than 100 percent of their total net cash outflows over a prospective 30-day stress period. Among other things, the final rule defines the various categories of HQLA, called Levels 1, 2A, or 2B. The treatment of HQLAs for the LCR is most favorable under the Level 1 category, less favorable under the Level 2A category, and least favorable under the Level 2B category.

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Under the final rule, collateral pledged to the FHLBanks but not securing existing borrowings may be considered eligible HQLA to the extent the collateral itself qualifies as eligible HQLA; qualifying FHLBank System consolidated obligations are categorized as Level 2A HQLAs; and the amount of a covered company’s funding that is assumed to run off includes 25 percent of FHLBank advances maturing within 30 days, to the extent such advances are not secured by level 1 or level 2A HQLA, where 0 percent and 15 percent run-off assumptions apply, respectively. At this time, the impact of the final rule is uncertain. The final rule requires that all covered companies be fully compliant by January 1, 2017.

Money Market Mutual Fund Reform

On July 23, 2014, the SEC approved final regulations governing money market mutual funds. The final regulations, among other things, will:

• Require institutional prime money market funds (including institutional municipal money market funds) to sell and redeem shares based on their floating net asset value, which would result in the daily share prices of the money market funds fluctuating along with changes in the market-based value of the funds’ investments;

• Allow money market fund boards of directors to directly address a run on a fund by imposing liquidity fees or suspending redemptions temporarily; and

• Include enhanced diversification, disclosure and stress testing requirements as well as provide updated reporting by money market funds and private funds that operate like money market funds.

The final regulations do not change the existing regulatory treatment of our consolidated obligations as liquid assets. Consolidated obligation discount notes continue to be included in the definition of “daily liquid assets,” and the definition of “weekly liquid assets” continues to include our consolidated obligation discount notes with a remaining maturity up to 60 days. The future impact of these regulations on demand for our consolidated obligations is unknown.

Joint Final Rule on Credit Risk Retention for Asset-Backed Securities

On October 22, 2014, the Finance Agency and other U.S. federal regulators jointly approved a final rule requiring sponsors of asset-backed securities (ABS) to retain credit risk in those transactions. The final rule largely retains the risk retention framework contained in the proposal issued by the agencies in August 2013 and generally requires sponsors of ABS to retain a minimum 5 percent economic interest in a portion of the credit risk of the assets collateralizing the ABS, unless all securitized assets satisfy specified qualifications. The final rule specifies criteria for qualified residential mortgage (QRM), commercial real estate, auto, and commercial loans that would make them exempt from the risk retention requirement. The definition of QRM is aligned with the definition of "qualified mortgage" (QM) as provided in Section 129C of the Truth in Lending Act, and its implementing regulations, as adopted by the Consumer Financial Protection Bureau. The QM definition requires, among other things, full documentation and verification of consumers' debt and income and a debt-to-income ratio that does not exceed 43 percent; and restricts the use of certain product features, such as negative amortization and interest-only and balloon payments.

Other exemptions from the credit risk requirement include certain mortgage loans secured by one-to-four unit residential properties that meet the criteria for QM and certain types of community-focused residential mortgages (including extensions of credit made by community development financial institutions). The final rule also includes a provision that requires the agencies to periodically review the definition of QRM, the exemption for certain community-focused residential mortgages, and the exemption for certain three-to four unit residential mortgage loans and consider whether they should be modified.

The final rule exempts agency MBS from the risk retention requirements as long as the sponsoring agency is operating under the conservatorship or receivership of the Finance Agency and fully guarantees the timely payment of principal and interest on all assets in the issued security. Further, MBS issued by any limited-life regulated entity succeeding to either Fannie Mae or Freddie Mac operating with capital support from the United States would be exempt from the risk retention requirements. The final rule will be effective December 24, 2015 for the residential mortgage-backed securitizations and December 24, 2016 for all other securitization types. We have not yet determined the effect, if any, that this rule may have on our operations.

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OFF-BALANCE SHEET ARRANGEMENTS

Our significant off-balance sheet arrangements consist of the following:

• joint and several liability for consolidated obligations issued on behalf of the other 11 FHLBanks;

• standby letters of credit;

• standby bond purchase agreements; and

• commitments to issue consolidated obligations.

For a complete discussion of our off-balance sheet arrangements, refer to "Item 8 — Financial Statements and Supplementary Data — Note 18 — Commitments and Contingencies."

CONTRACTUAL OBLIGATIONS

The following table shows our contractual obligations due by payment period at December 31, 2014 (dollars in millions):

	Payments Due by Period
	< 1 Year		1 to 3 Years		>3 to 5 Years		>5 Years		Total
Bonds1	$	18,558	$	5,876	$	2,516	$	5,383	$	32,333
Operating leases	1		2		2		7		12
Mandatorily redeemable capital stock	—		4		20		—		24
Commitments to purchase mortgage loans	70		—		—		—		70
Pension and postretirement contributions2	1		1		1		3		6
Total	$	18,630	$	5,883	$	2,539	$	5,393	$	32,445

1 Excludes contractual interest payments related to bonds. Total is based on contractual maturities; the actual timing of payments could be impacted by factors affecting redemptions.

2 Represents the future funding contribution for our Pentegra Defined Benefit Plan for Financial Institutions and the scheduled benefit payments for our other unfunded benefit plans.

RISK MANAGEMENT

We have risk management policies, established by our Board of Directors, that monitor and control our exposure to market, liquidity, credit, operational, and business risk, as well as capital adequacy. Our primary objective is to manage our assets and liabilities in ways that protect the par redemption value of our capital stock from risks, including fluctuations in market interest rates and spreads.

We periodically evaluate our risk management policies in order to respond to changes in our financial position and general market conditions. Our key risk measures are Market Value of Capital Stock (MVCS) Sensitivity and Economic Value of Capital Stock (EVCS).

VALUATION MODELS

We use sophisticated risk management systems to evaluate our financial position and risk exposure. These systems employ various mathematical models and valuation techniques to measure interest rate risk. For example, we use valuation techniques designed to model explicit and embedded options and other cash flow uncertainties across a number of hypothetical interest rate environments. The techniques used to model options rely on:

• understanding the contractual and behavioral features of each instrument;

• using appropriate market data, such as yield curves and implied volatilities; and

• using appropriate option valuation models and prepayment estimates or forecasts to describe the evolution of interest rates over time and the expected cash flows of financial instruments in response.

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The method for calculating fair value is dependent on the instrument type. Option-free instruments, such as plain vanilla interest rate swaps, bonds, and advances require an assessment of the future course of interest rates. Once the course of interest rates has been specified and the expected cash flows determined, the appropriate forward rates are used to discount the future cash flows to a fair value. Options and option-embedded instruments, such as cancelable interest rate swaps, swaptions, interest rate caps and floors, callable bonds, and mortgage-related instruments, are typically evaluated using an interest rate tree (lattice) or Monte Carlo simulations that generate a large number of possible interest rate scenarios.

Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different. Our risk computations require the use of instantaneous shifts in assumptions, such as interest rates, spreads, volatilities, and prepayment speeds. These computations may differ from our actual interest rate risk exposure because they do not take into account any portfolio re-balancing and hedging actions that are required to maintain risk exposures within our policies and guidelines. Management has adopted controls, procedures, and policies to monitor and manage assumptions used in these models.

Market Risk

We define market risk as the risk that MVCS or net income will change as a result of changes in market conditions, such as interest rates, spreads, and volatilities. Interest rate risk, including mortgage prepayment risk, was our predominant type of market risk exposure during 2014 and 2013. Our general approach toward managing interest rate risk is to acquire and maintain a portfolio of assets and liabilities, which taken together, limit our expected exposure to interest rate risk. Management regularly reviews our sensitivity to interest rate changes by monitoring our market risk measures in parallel and non-parallel interest rate shifts and spread and volatility movements.

MARKET VALUE OF CAPITAL STOCK SENSITIVITY

We define MVCS as an estimate of the market value of assets minus the market value of liabilities (excluding mandatorily redeemable capital stock) divided by the total shares of capital stock outstanding. It represents an estimation of the “liquidation value” of one share of our capital stock if all assets and liabilities were liquidated at current market prices. MVCS does not represent our long-term value, as it takes into account short-term market price fluctuations. These fluctuations are often unrelated to the long-term value of the cash flows from our assets and liabilities.

The MVCS calculation uses market prices, as well as interest rates and volatilities, and assumes a static balance sheet. The timing and variability of balance sheet cash flows are calculated by an internal model. To ensure the accuracy of the MVCS calculation, we reconcile the computed market prices of complex instruments, such as derivatives and mortgage assets, to market observed prices or dealers' quotes.

Interest rate risk stress tests of MVCS involve instantaneous parallel and non-parallel shifts in interest rates. The resulting percentage change in MVCS from the base case value is an indication of longer-term repricing risk and option risk embedded in the balance sheet.

To protect the MVCS from large interest rate swings, we use hedging transactions, such as entering into or canceling interest rate swaps, caps, and floors, issuing fixed rate and callable debt, and altering the funding structures supporting MBS and MPF purchases.

We monitor and manage to the MVCS policy limits to ensure the stability of the Bank's value. As of December 31, 2014, the policy limits for MVCS are 2.2 percent, 5 percent, and 12 percent declines from the base case in the up and down 50, 100, and 200 basis point parallel interest rate shift scenarios and 2.5 percent, 5.5 percent, and 13 percent declines from the base case in the up and down 50, 100, and 200 basis point non-parallel interest rate shift scenarios. Any breach of policy limits requires an immediate action to bring the exposure back within policy limits, as well as a report to the Board of Directors.

During the first quarter of 2008, due to the low interest rate environment, our Board of Directors suspended indefinitely the policy limit pertaining to the down 200 basis point parallel interest rate shift scenario. In October 2012, our Board of Directors amended the suspension by approving a rule for compliance to the down 200 basis point scenario that reinstates/suspends the associated policy limit when the 10-year swap rate increases above/drops below the 2.50 percent and remains so for five consecutive days. At December 31, 2014, the 10-year swap rate was below 2.50 percent and therefore the associated policy limit was suspended. At December 31, 2013, the 10-year swap was above 2.50 percent and the applicable policy limits were in place.

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The following tables show our base case and change from base case MVCS in dollars per share and percent change respectively, based on outstanding shares, including shares classified as mandatorily redeemable, assuming instantaneous parallel shifts in interest rates at December 31, 2014 and 2013:

	Market Value of Capital Stock (dollars per share)
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
2014	$	118.3	$	121.3	$	123.1	$	123.8	$	124.0	$	123.2	$	120.2
2013	$	114.8	$	120.1	$	121.5	$	121.2	$	120.3	$	119.1	$	115.8

	% Change from Base Case
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
2014	(4.4	)%	(2.0	)%	(0.6	)%	—	%	0.2	%	(0.4	)%	(2.9	)%
2013	(5.3	)%	(0.9	)%	0.3	%	—	%	(0.7	)%	(1.7	)%	(4.4	)%

The following tables show our base case and change from base case MVCS in dollars per share and percent change respectively, based on outstanding shares, including shares classified as mandatorily redeemable, assuming instantaneous non-parallel shifts in interest rates at December 31, 2014 and 2013:

	Market Value of Capital Stock (dollars per share)
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
2014	$	121.8	$	122.9	$	123.5	$	123.8	$	124.1	$	123.8	$	121.4
2013	$	122.0	$	122.7	$	122.3	$	121.2	$	120.0	$	117.7	$	115.8

	% Change from Base Case
	Down 200		Down 100		Down 50		Base Case		Up 50		Up 100		Up 200
2014	(1.6	)%	(0.7	)%	(0.2	)%	—	%	0.3	%	—	%	(1.9	)%
2013	0.7	%	1.2	%	0.9	%	—	%	(1.0	)%	(2.9	)%	(4.4	)%

The increase in our base case MVCS at December 31, 2014 when compared to December 31, 2013 was primarily attributable to the following factors:

• Option-adjusted spread: The spread between mortgage interest rates and LIBOR, adjusted for the mortgage prepayment option, decreased at December 31, 2014 when compared to December 31, 2013. This had a positive impact on MVCS as it increased the value of mortgage-related assets.

• Adjusted net income earned, net of dividend. During 2014, our adjusted net income earned, net of dividend, increased our market value of equity, thereby increasing MVCS. For additional information on our adjusted net income measure, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — Adjusted Earnings."

The increase in our base case MVCS at 2014 was partially offset by an increase in activity-based capital stock driven by higher advance growth and decreased funding costs relative to the LIBOR swap curve. During 2014, our advance activity with members increased, and therefore our activity-based capital stock balances increased. As we issued this activity-based capital stock at par, which is below our current MVCS level, our MVCS was negatively impacted. In addition, our funding costs relative to the LIBOR swap curve decreased during 2014, thereby increasing the present value of our liabilities that fund mortgage assets and decreasing MVCS.

PROJECTED INCOME SENSITIVITY

We monitor projected 24-month income sensitivity to limit short-term earnings volatility of the Bank. The projected 24-month income simulation policy limit is based on forward interest rates and business assumptions. The income sensitivity policy limit specifies a floor on our projected earned dividend for each shock scenario. Our earned dividend is computed as an annualized ratio of projected net income to average projected capital stock over the projection horizon. We were in compliance with the projected 24-month income simulation policy limit at December 31, 2014 and 2013.

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DERIVIATIVES

We use derivatives to manage the interest rate risk, including mortgage prepayment risk, in our Statements of Condition. Finance Agency regulations and our ERMP establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.

Our current hedging strategies include hedges of specific assets and liabilities that qualify for fair value hedge accounting and economic hedges that are used to reduce overall market risk exposure in our Statements of Condition. All hedging strategies are approved by our Asset-Liability Committee.

The following table summarizes our approved and utilized derivative hedging strategies (dollars in millions):

			December 31,
Hedged Item / Hedging Instrument	Hedging Objective	Hedge Accounting Designation	2014  Notional Amount		2013  Notional Amount
Advances
Pay-fixed, receive floating interest rate swap (without options)1	Converts the advance's fixed rate to a variable rate index.	Fair Value	$	8,638	$	7,884
		Economic	8		15
Pay-fixed, receive floating interest rate swap (with options)1	Converts the advance's fixed rate to a variable rate index and offsets option risk in the advance.	Fair Value	2,009		2,297
Pay float, receive floating basis swap2	Reduces interest rate sensitivity and repricing gaps by converting the advance's variable rate to a different variable rate index.	Economic	—		200
Investments
Pay-fixed, receive floating interest rate swap3	Converts the investment's fixed rate to a variable rate index.	Fair Value	5,495		4,372
		Economic	1,005		1,028
Mortgage Loans
Forward settlement agreement	Protects against changes in market value of fixed rate mortgage delivery commitments resulting from changes in interest rates.	Economic	65		28
Bonds
Receive-fixed, pay floating interest rate swap (without options)4	Converts the bond's fixed rate to a variable rate index.	Fair Value	11,286		14,519
		Economic	—		465
Receive-fixed, pay floating interest rate swap (with options)4	Converts the bond's fixed rate to a variable rate index and offsets option risk in the bond.	Fair Value	11,275		3,465
Receive float, pay floating basis swap5	Reduces interest rate sensitivity and repricing gaps by converting the bond's variable rate to a different variable rate index.	Economic	—		50
Stand-Alone Derivatives
Mortgage delivery commitment	Exposed to fair value risk associated with fixed rate mortgage purchase commitments.	Economic	70		30
Total			$	39,851	$	34,353

1 At December 31, 2014 and 2013, the par value of fixed rate advances outstanding was $18.2 billion and $17.5 billion, of which 58 percent were swapped to a variable rate index at both period-ends.

2 At December 31, 2014 and 2013, the par value of variable rate advances outstanding was $46.7 billion and $27.9 billion, of which none were swapped during 2014 and one percent were swapped during 2013 to a variable rate index.

3 At December 31, 2014 and 2013, the amortized cost of fixed rate AFS securities outstanding was $7.2 billion and $5.5 billion, of which 80 and 77 percent were swapped to a variable rate index. At December 31, 2014 and 2013, the fair value of fixed rate trading securities outstanding was $1.1 billion and $1.0 billion and all of these trading securities were swapped to a variable rate index.

4 At December 31, 2014 and 2013, the par value of fixed rate bonds outstanding was $32.1 billion and $29.4 billion, of which 70 and 63 percent were swapped to a variable rate index.

5 At December 31, 2014 and 2013, the par value of variable rate bonds outstanding was $0.2 billion and $0.8 billion, of which none were swapped during 2014 and six percent were swapped during 2013 to a variable rate index.

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Advances

We make advances to our members and eligible housing associates on the security of eligible collateral. We issue fixed and variable rate advances, callable advances, and putable advances. The optionality embedded in certain advances can create additional interest rate risk. When a borrower prepays an advance, we could suffer lower future income if the principal portion of the prepaid advance was reinvested in lower-yielding assets that continue to be funded by higher-costing debt. To protect against this risk, we charge a prepayment fee that makes us financially indifferent to a borrower's decision to prepay an advance. When we offer advances (other than overnight advances) that a borrower may prepay without a prepayment fee, we generally finance such advances with short-term or callable debt or otherwise hedge the embedded option.

Mortgage Assets

We manage the interest rate risk, including mortgage prepayment risk, associated with mortgage assets using a combination of debt issuance and derivatives. We may use derivative agreements to transform the characteristics of mortgage assets to more closely match the characteristics of the related funding.

The prepayment options embedded in mortgage assets can result in extensions or contractions in the expected maturities of these investments, depending on changes in and levels of interest rates. The Finance Agency limits this source of interest rate risk by restricting the types of MBS we may own to those with limited average life changes under certain interest rate shock scenarios.

We enter into commitments to purchase mortgages from our PFIs. We may establish an economic hedge of these commitments by selling TBAs. A TBA represents a forward contract for the sale of MBS at a future agreed upon date. Upon expiration of the mortgage purchase commitment, we purchase the TBA to close the hedged position.

Non-Mortgage Investments

We manage the risk of changing market prices of certain fixed rate non-mortgage assets by using derivative agreements to transform the fixed rate characteristics to more closely match the characteristics of the related funding.

Consolidated Obligations

We manage the risk of changing market prices of a consolidated obligation by matching the cash inflows on the derivative agreement with the cash outflows on the consolidated obligation. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank serves as sole counterparty to derivative agreements associated with specific debt issues for which it is the primary obligor.

In a typical transaction, fixed rate consolidated obligations are issued for us by the Office of Finance and we simultaneously enter into a matching derivative agreement in which the counterparty pays us fixed cash flows designed to mirror in timing, optionality, and amount of the cash outflows paid by us on the consolidated obligation. In this typical transaction, we pay a variable cash flow that closely matches the interest payments we receive on short-term or variable rate assets. This intermediation between the capital and derivative markets permits us to raise funds at lower costs than would otherwise be available through the issuance of variable rate consolidated obligations in the capital markets.

We may enter into derivative agreements on variable rate consolidated obligations. For example, we may enter into a derivative agreement where the counterparty pays us variable rate cash flows and we pay a different variable rate linked to LIBOR. This type of hedge allows us to manage our repricing risk between assets and liabilities.

We may also enter into interest rate swaps with an upfront payment in a comparable amount to the discount on the hedged consolidated obligation. This cash payment equates to the initial fair value of the interest rate swap and is amortized over the estimated life of the interest rate swap to net interest income as the discount on the bond is expensed.

Balance Sheet

We may enter into certain economic derivatives as macro balance sheet hedges to protect against changes in interest rates, including prepayments on mortgage assets. These economic derivatives may include interest rate caps, floors, swaps, and swaptions.

See additional discussion regarding our derivative contracts in “Item 8. Financial Statements and Supplementary Data — Note 11 — Derivatives and Hedging Activities.”

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Capital Adequacy

An adequate capital position is necessary for providing safe and sound operations of the Bank. To ensure we remain adequately capitalized in a wide range of interest rate scenarios, we measure and monitor EVCS and retained earnings, and maintain capital levels in accordance with Finance Agency regulations.

ECONOMIC VALUE OF CAPITAL STOCK

We define EVCS as the net present value of expected future cash flows of our assets and liabilities (excluding mandatorily redeemable capital stock), discounted at our cost of funds, divided by the total shares of capital stock outstanding. This method reduces the impact of day-to-day price changes that cannot be attributed to any of the standard market factors, such as movements in interest rates or volatilities. Thus, EVCS provides an estimated measure of the long-term value of one share of our capital stock.

The following table shows EVCS in dollars per share based on outstanding shares, including shares classified as mandatorily redeemable, at December 31, 2014 and 2013:

Economic Value of Capital Stock (dollars per share)
2014	$	126.6
2013	$	123.5

The increase in our EVCS at December 31, 2014 when compared to December 31, 2013 was primarily attributable to the following factors:

• Slope of yield curves. The slope of the yield curves used to discount cash flows flattened at December 31, 2014 when compared to December 31, 2013. This had a positive impact on EVCS as the flattening of the yield curves increased the value of long-term mortgage-related assets and reduced the value of short-term funding.

• Decreased funding costs relative to the LIBOR swap curve. Our funding costs relative to the LIBOR swap curve decreased at December 31, 2014 when compared to December 31, 2013. This had a positive impact on EVCS mainly through its impact on the value of mortgage-related assets and their associated funding.

The increase in our base case EVCS at December 31, 2014 was partially offset by an increase in activity-based capital stock driven by higher advance growth. During 2014, our advance activity with members increased, and therefore our activity-based capital stock balances increased. As we issued this activity-based capital stock at par, which is below our current EVCS level, our EVCS was negatively impacted.

RETAINED EARNINGS MINIMUM LEVEL AND REGULATORY CAPITAL REQUIREMENTS

Our ERMP provides policy limits and requires a minimum level of retained earnings based on the level of market risk, credit risk, and operational risk within the Bank. We are also subject to three regulatory capital requirements. For additional information on compliance with these requirements, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital".

Liquidity Risk

We define liquidity risk as the risk that we will be unable to meet our obligations as they come due or meet the credit needs of our members and housing associates in a timely and cost efficient manner. To manage this risk, we maintain liquidity in accordance with Finance Agency regulations. For additional information on compliance with these requirements, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Liquidity Requirements".

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Credit Risk

We define credit risk as the potential that our borrowers or counterparties will fail to meet their obligations in accordance with agreed upon terms. Our primary credit risks arise from our ongoing lending, investing, and hedging activities. Our overall objective in managing credit risk is to operate a sound credit granting process and to maintain appropriate credit administration, measurement, and monitoring practices.

ADVANCES

We manage our credit exposure to advances through an approach that provides for an established credit limit for each borrower, ongoing reviews of each borrower's financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, we lend to our borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

We are required by regulation to obtain sufficient collateral to fully secure our advances and other credit products. Eligible collateral includes (i) whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages, (ii) loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae and FFFELP guaranteed student loans, (iii) cash deposited with us, and (iv) other real estate-related collateral acceptable to us provided such collateral has a readily ascertainable value and we can perfect a security interest in such property. CFIs may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that we have a lien on each borrower's capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.

Borrowers may pledge collateral to us by executing a blanket lien, specifically assigning collateral, or placing physical possession of collateral with us or our custodians. We perfect our security interest in all pledged collateral by filing Uniform Commercial Code financing statements or taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to us by our members, or any affiliates of our members, has priority over the claims and rights of any other party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket lien, we are granted a security interest in all financial assets of the borrower to fully secure the borrower's obligation. Other than securities and cash deposits, we do not initially take delivery of collateral pledged by blanket lien borrowers. In the event of deterioration in the financial condition of a blanket lien borrower, we have the ability to require delivery of pledged collateral sufficient to secure the borrower's obligation. With respect to non-blanket lien borrowers that are federally insured, we generally require collateral to be specifically assigned. With respect to non-blanket lien borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), we generally take control of collateral through the delivery of cash, securities, or loans to us or our custodians.

Although management has policies and procedures in place to manage credit risk, we may be exposed to this risk if our outstanding advance value exceeds the liquidation value of our collateral. We mitigate this risk by applying collateral discounts or haircuts to the unpaid principal balance or market value, if available, of the collateral to determine the advance equivalent value of the collateral securing each borrower's obligation. The amount of these discounts will vary based on the type of collateral and security agreement. We determine these discounts or haircuts using data based upon historical price changes, discounted cash flow analyses, and loan level modeling.

At December 31, 2014 and 2013, borrowers pledged $178.1 billion and $140.1 billion of collateral (net of applicable discounts) to support activity with us, including advances. At December 31, 2014 and 2013, our advance balances were $65.2 billion and $45.7 billion. Borrowers pledge collateral in excess of their collateral requirement mainly to demonstrate available liquidity and to borrow additional amounts in the future.

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The following table shows the amount of collateral pledged to us (net of applicable discounts) by collateral type (dollars in billions):    

	December 31,
	2014				2013
Collateral Type	Discount Range1	Amount		% of Total	Discount Range1	Amount		% of Total
Single-family loans	20-45%	$	116.0	65.2	19-48%	$	83.7	59.7
Multi-family loans	28-43	4.1		2.3	45-57	3.0		2.1
Other real estate	14-54	34.4		19.3	14-64	30.6		21.8
Securities
Cash, agency and RMBS2	0-47	14.3		8.0	0-47	13.1		9.4
CMBS3	13-56	3.4		1.9	13-51	3.8		2.7
Government-insured loans	4-13	3.1		1.7	4-13	3.3		2.4
Secured small business and agribusiness loans	26-46	2.8		1.6	26-46	2.6		1.9
Total		$	178.1	100.0		$	140.1	100.0

1 Represents the range of discounts applied to the unpaid principal balance or market value of collateral pledged.

2 Represents cash, agency securities and residential mortgage-backed securities (RMBS).

3 Represents commercial mortgage-backed securities (CMBS).

Based upon our collateral and lending policies, the collateral held as security, and the repayment history on credit products, management has determined that there are no probable credit losses on our credit products as of December 31, 2014 and 2013. Accordingly, we have not recorded any allowance for credit losses on our credit products.

MORTGAGE LOANS

We are exposed to mortgage asset credit risk through our participation in the MPF program. Mortgage asset credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage assets is affected by a number of factors, including loan type, borrower's credit history, and other factors such as home price fluctuations, unemployment levels, and other economic factors in the local market or nationwide.

Through our participation in the MPF program, we invest in conventional and government-insured residential mortgage loans that are acquired through or purchased from a PFI. There are six MPF loan products under the MPF program: Original MPF, MPF 100, MPF 125, MPF Plus, MPF Government, and MPF Xtra (MPF Xtra is a trademark of the FHLBank of Chicago). While still held in our Statements of Condition, we currently do not offer the MPF 100 or MPF Plus loan products. MPF Xtra loan products are passed through to a third-party investor and are not maintained in our Statements of Condition.

The following table presents the unpaid principal balance of our MPF portfolio by product type (dollars in millions):

	December 31,
Product Type	2014		2013
Original MPF	$	867	$	842
MPF 100	28		35
MPF 125	3,879		3,629
MPF Plus	1,142		1,439
MPF Government	570		547
Total unpaid principal balance	$	6,486	$	6,492

We manage the credit risk on mortgage loans acquired in the MPF program by (i) using agreements to establish credit risk sharing responsibilities with our PFIs, (ii) monitoring the performance of the mortgage loan portfolio and creditworthiness of PFIs, and (iii) establishing credit loss reserves to reflect management's estimate of probable credit losses inherent in the portfolio.

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Government-Insured Mortgage Loans. For our government-insured mortgage loans, our loss protection consists of the loan guarantee and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. Therefore, we have not recorded any allowance for credit losses on government-insured mortgage loans.

Conventional Mortgage Loans. For our conventional mortgage loans, we have several layers of legal loss protection that are defined in agreements among us and our PFIs. These loss layers may vary depending on the MPF product alternatives selected and consist of (i) homeowner equity, (ii) PMI, (iii) a FLA, and (iv) a credit enhancement obligation of the PFI. For a detailed discussion of these loss layers, refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses.”

The following tables shows characteristics of our conventional MPF portfolio:

	December 31,
FICO® Score1	2014		2013
<620	1.6	%	1.8	%
620 to < 660	5.0		5.5
660 to < 700	11.5		11.8
700 to < 740	17.9		18.0
>= 740	64.0		62.9
Total	100.0	%	100.0	%
Weighted average FICO score	746		745

1 Represents the original FICO® score of the primary borrower for the related loan.

	December 31,
Loan-to-Value1	2014		2013
<= 60%	15.0	%	16.7	%
> 60% to 70%	15.4		16.0
> 70% to 80%	27.0		28.4
> 80% to 90%2	36.9		34.1
> 90%2	5.7		4.8
Total	100.0	%	100.0	%
Weighted average loan-to-value	71.7	%	70.9	%

1 Represents the loan-to-value at origination for the related loan.

2 These conventional loans were required to have PMI at origination.

The following table shows the state concentrations of our conventional MPF portfolio. State concentrations are calculated based on unpaid principal balances.

	December 31,
	2014		2013
Iowa	36.3	%	34.9	%
Missouri	18.1		17.2
Minnesota	17.3		17.6
South Dakota	5.5		5.0
California	2.8		3.3
All others	20.0		22.0
Total	100.0	%	100.0	%

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Mortgage Insurance. The following table summarizes the unpaid principal balance and maximum coverage outstanding of our seriously delinquent conventional mortgage loans (those 90 days or more past due or in the process of foreclosure) with PMI at December 31, 2014 (dollars in thousands):

Insurance Provider	Unpaid Principal Balance		Maximum Coverage Outstanding1
Genworth Mortgage Insurance	$	2,518	$	593
United Guaranty Residential Insurance	1,568		290
Radian Guaranty, Inc.	1,565		347
Triad Guaranty Insurance Co.2	1,285		262
Republic Mortgage Insurance	1,155		276
CMG Mortgage Insurance Co.	806		195
Mortgage Guaranty Insurance Co.	536		114
PMI Mortgage Insurance Co.2	492		120
Total	$	9,925	$	2,197

1 Represents the estimated contractual limit for reimbursement of principal losses assuming PMI at origination is still in effect. The amount of expected claims under these insurance contracts is substantially less than the contractual limit for reimbursement.

2 Triad Guaranty Insurance Co. and PMI Mortgage Insurance Co. have been directed to only pay out 75 and 67 percent, respectively, of their claim amounts as a result of their current financial condition. The remainder of the claim payments have been deferred to a later date. The maximum coverage outstanding calculated in the table above does not factor in this limitation on claim payments.

At the time of purchase, in order to limit our loss exposure to that of an investor in an MBS that is rated the equivalent of AA by an NRSRO, we require a credit risk sharing arrangement with the PFI on all MPF loans. Under the PFI credit enhancement obligation loss layer, we require PFIs to absorb losses in excess of the FLA. To secure this obligation, a PFI may either pledge collateral or purchase supplemental mortgage insurance (SMI) from mortgage insurers. As a result of rating downgrades on SMI providers, we canceled all outstanding SMI policies in 2012. With respect to the master commitments that had been covered by the SMI policies canceled in 2012, we hold additional retained earnings to mitigate our exposure to credit risk and no credit enhancement fees are paid to the PFI.

Allowance for Credit Losses. We utilize an allowance for credit losses to reserve for estimated losses in our conventional mortgage portfolio. During 2014 and 2013, we recorded reversals for credit losses on our mortgage loans of $2.4 million and $5.9 million due to a reduction in loan delinquencies and improvements in housing markets. In addition, during 2013, we began utilizing external property valuations rather than average loss severity rates on our individually evaluated mortgage loans, which resulted in losses that were lower than previously estimated. During 2012, we did not record a provision or reversal for credit losses on our mortgage loans. Refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses” for additional information on our allowance for credit losses.

The following table presents a rollforward of the allowance for credit losses on our conventional mortgage loans (dollars in millions):

	For the Years Ended December 31,
	2014			2013			2012
Balance, beginning of period	$	8		$	16		$	19
Charge-offs	(1		)	(2		)	(3		)
Reversal for credit losses	(2		)	(6		)	—
Balance, end of period	$	5		$	8		$	16

Non-Accrual Loans and Delinquencies. We place a conventional mortgage loan on non-accrual status if it is determined that either the collection of interest or principal is doubtful or interest or principal is 90 days or more past due. We do not place a government-insured mortgage loan on non-accrual status due to the U.S. Government guarantee of the loan and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. Refer to “Item 8. Financial Statements and Supplementary Data — Note 10 — Allowance for Credit Losses” for a summary of our non-accrual loans and mortgage loan delinquencies.

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INVESTMENTS

We maintain an investment portfolio primarily to provide investment income and liquidity. Our primary credit risk on investments is the counterparties' ability to meet repayment terms. We mitigate this credit risk by purchasing investment quality securities. We define investment quality as a security with adequate financial backings so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security. We consider a variety of credit quality factors when analyzing potential investments, including collateral performance, marketability, asset class or sector considerations, local and regional economic conditions, NRSRO credit ratings, and/or the financial health of the underlying issuer.

Finance Agency regulations limit the type of investments we may purchase. We are prohibited from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. Our unsecured credit exposures to U.S. branches and agency offices of foreign commercial banks include the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual repayment obligations. Our unsecured credit exposures to domestic counterparties and U.S. subsidiaries of foreign commercial banks include the risk that these counterparties have extended credit to foreign counterparties. We were in compliance with the above regulation and did not own any financial instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks, as of December 31, 2014.

Finance Agency regulations also include limits on the amount of unsecured credit we may extend to a counterparty or to a group of affiliated counterparties. This limit is based on a percentage of eligible regulatory capital and the counterparty's overall credit rating. Under these regulations, the level of eligible regulatory capital is determined as the lesser of our total regulatory capital or the eligible amount of regulatory capital of the counterparty. The eligible amount of regulatory capital is then multiplied by a stated percentage. The percentage that we may offer for term extensions of unsecured credit ranges from one to 15 percent based on the counterparty's credit rating. Our total overnight unsecured exposure to a counterparty may not exceed twice the regulatory limit for term exposures, or a total of two to 30 percent of the eligible amount of regulatory capital, based on the counterparty's credit rating. At December 31, 2014, we were in compliance with the regulatory limits established for unsecured credit.

Our short-term portfolio may include, but is not limited to, interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, certificates of deposit, and commercial paper. Our long-term portfolio may include, but is not limited to, other U.S. obligations, GSE obligations, state or local housing agency obligations, taxable municipal bonds, and MBS. We face credit risk from unsecured exposures primarily within our short-term portfolio. We do not consider investments issued or guaranteed by the U.S. Government, an agency or instrumentality of the U.S. Government, or the FDIC to be unsecured.

We generally limit our unsecured credit exposure to the following overnight investment types:

• Federal funds sold. Unsecured loans of reserve balances at the Federal Reserve Banks between financial institutions.

• Commercial paper. Unsecured debt issued by corporations, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.

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At December 31, 2014, our unsecured investment exposure consisted of overnight Federal funds sold. The following table presents our unsecured investment exposure by counterparty credit rating and domicile at December 31, 2014 (excluding accrued interest receivable) (dollars in millions):

	Credit Rating1
Domicile of Counterparty	A		BBB		Total
Domestic	$	120	$	—	$	120
U.S. subsidiaries of foreign commercial banks	—		240		240
U.S. branches and agency offices of foreign commercial banks
Canada	600		—		600
Germany	300		—		300
Netherlands	300		—		300
Norway	300		—		300
Total U.S. branches and agency offices of foreign commercial banks	1,500		—		1,500
Total unsecured investment exposure	$	1,620	$	240	$	1,860

1 Represents the lowest credit rating available for each investment based on an NRSRO.

The following table summarizes the carrying value of our investments by credit rating (dollars in millions):

	December 31, 2014
	Credit Rating1
	AAA		AA		A		BBB		BB		Unrated		Total
Interest-bearing deposits2	$	—	$	2	$	—	$	—	$	—	$	—	$	2
Securities purchased under agreements to resell	2,536		300		—		—		—		2,255		5,091
Federal funds sold	—		—		1,620		240		—		—		1,860
Investment securities:
Mortgage-backed securities
GSE single-family	—		2,826		—		—		—		—		2,826
GSE multifamily	—		7,465		—		—		—		—		7,465
Other U.S. obligations single-family	—		1,979		—		—		—		—		1,979
Other U.S. obligations commercial	—		2		—		—		—		—		2
Private-label residential	—		—		8		14		3		—		25
Total mortgage-backed securities	—		12,272		8		14		3		—		12,297
Non-mortgage-backed securities
Other U.S. obligations	—		420		—		—		—		—		420
GSE obligations	—		2,849		—		—		—		—		2,849
State or local housing agency obligations	35		61		—		—		—		—		96
Other	359		105		—		—		—		—		464
Total non-mortgage-backed securities	394		3,435		—		—		—		—		3,829
Total investments3	$	2,930	$	16,009	$	1,628	$	254	$	3	$	2,255	$	23,079

1 Represents the lowest credit rating available for each investment based on an NRSRO.

2 Interest bearing deposits are rated AA because they are guaranteed by the FDIC up to $250,000.

3 At December 31, 2014, eight percent of our total investments were unsecured.

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The following table summarizes the carrying value of our investments by credit rating (dollars in millions):

	December 31, 2013
	Credit Rating1
	AAA		AA		A		BBB		BB		Unrated		Total
Interest-bearing deposits2	$	—	$	2	$	—	$	—	$	—	$	—	$	2
Securities purchased under agreements to resell	—		3,700		3,300		—		—		1,200		8,200
Federal funds sold	—		—		900		300		—		—		1,200
Investment securities:
Mortgage-backed securities
GSE single-family	—		3,449		—		—		—		—		3,449
GSE multifamily	—		4,683		—		—		—		—		4,683
Other U.S. obligations single-family	—		5		—		—		—		—		5
Other U.S. obligations commercial	—		2		—		—		—		—		2
Private-label residential	—		—		10		17		3		—		30
Total mortgage-backed securities	—		8,139		10		17		3		—		8,169
Non-mortgage-backed securities
Other U.S. obligations	—		448		—		—		—		—		448
GSE obligations	—		1,489		—		—		—		—		1,489
State or local housing agency obligations	23		72		—		—		—		—		95
Other3	331		196		—		—		—		1		528
Total non-mortgage-backed securities	354		2,205		—		—		—		1		2,560
Total investments4	$	354	$	14,046	$	4,210	$	317	$	3	$	1,201	$	20,131

1 Represents the lowest credit rating available for each investment based on an NRSRO.

2 Interest bearing deposits are rated AA because they are guaranteed by the FDIC up to $250,000.

3 Other "unrated" investment represents an equity investment in a SBIC.

4 At December 31, 2013, six percent of our total investments were unsecured.

Our total investments increased at December 31, 2014 when compared to December 31, 2013. The increase was primarily due to the purchase of GSE and other U.S. obligation MBS during the year. This was partially offset by a reduction in short-term investments.

At December 31, 2014, we did not consider any of our investments to be other-than-temporarily impaired. At December 31, 2013, we had one non-MBS classified as AFS for which we previously changed our intent and decided to sell. As a result, this security was deemed other-than-temporarily impaired. As such, during 2013, we recorded OTTI charges of $1.4 million on this security through “Other-than-temporary impairment losses" in the Statements of Income. This security was subsequently sold in January of 2014. We did not consider any of our other securities to be other-than-temporarily impaired at December 31, 2013. For more information on our evaluation of OTTI, refer to “Item 8. Financial Statements and Supplementary Data — Note 7 — Other-Than-Temporary Impairment.”

Mortgage-Backed Securities

We are exposed to mortgage asset credit risk through our investments in MBS. Mortgage asset credit risk is the risk that we will not receive timely payments of principal and interest due from mortgage borrowers because of borrower defaults. Credit risk on mortgage assets is affected by a number of factors, including investment ratings and performance, and other economic factors in the local market or nationwide.

We limit our investments in MBS to those guaranteed by the U.S. Government, issued by a GSE, or that we determine to be investment quality at the time of purchase. We perform ongoing analysis on these investments to determine potential credit issues. At December 31, 2014 and 2013, we owned $12.3 billion and $8.2 billion of MBS, of which approximately 99.8 percent and 99.6 percent were guaranteed by the U.S. Government or issued by GSEs and 0.2 percent and 0.4 percent were private-label MBS.

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Our private-label MBS are variable rate securities backed by prime loans that were securitized prior to 2004. We record these investments as HTM. The following table summarizes characteristics of our private-label MBS (dollars in millions):

	December 31, 2014
Credit rating:
A	$	8
BBB	14
BB	3
Total unpaid principal balance	$	25
Amortized cost	$	25
Gross unrealized gains	—
Gross unrealized losses	(1		)
Fair value	$	24
Weighted average percentage of fair value to unpaid principal balance	98.8		%
Original weighted average FICO® score	725
Original weighted average credit support1	3.9		%
Weighted average credit support2	12.1		%
Weighted average collateral delinquency rate3	7.9		%

1 Based on the credit support at the time of issuance and is calculated using the current unpaid principal balance of the individual securities.

2 Based on the credit support as of December 31, 2014 and is calculated using the current unpaid principal balance of the individual securities.

3 Represents the percentage of underlying loans that are 60 days or more past due.

The following table shows the state concentrations of our private-label MBS. State concentrations are calculated based on unpaid principal balances.

	December 31, 2014
California	12.0	%
Georgia	10.2
Florida	8.3
New York	7.3
Illinois	5.3
All other	56.9
Total	100.0	%

DERIVATIVES

We execute most of our derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty (bilateral derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent), with a Derivative Clearing Organization (cleared derivatives).

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in our policies and Finance Agency regulations.

Bilateral Derivatives. Due to risk of nonperformance by the counterparties to our derivative agreements, we generally require collateral on bilateral derivative agreements. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty. A counterparty generally must deliver collateral to us if the total market value of our exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, we do not anticipate any credit losses on our bilateral derivative agreements.

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Cleared Derivatives. For cleared derivatives, the Clearinghouse is our counterparty. We are subject to risk of nonperformance by the Clearinghouse and clearing agent. The requirement that we post initial and variation margin through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. However, the use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. We do not anticipate any credit losses on our cleared derivatives.

The contractual or notional amount of derivatives reflects our involvement in the various classes of financial instruments. Our maximum credit risk is the estimated cost of replacing derivatives if there is a default, minus the value of any related collateral, including initial and variation margin. In determining maximum credit risk, we consider accrued interest receivables and payables as well as our ability to net settle positive and negative positions with the same counterparty and/or clearing agent when netting requirements are met.

The following table shows our derivative counterparty credit exposure (dollars in millions):

	December 31, 2014
Credit Rating1	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged To (From) Counterparty		Net Credit Exposure  to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Bilateral derivatives
A	$	949	$	2		$	—	$	2
Cleared derivatives2, 3	4		—			—		—
Liability positions with credit exposure
Bilateral derivatives
BBB	5,460		(41		)	42		1
Cleared derivatives2	17,160		(158		)	235		77
Total derivative positions with credit exposure to non-member counterparties	23,573		(197		)	277		80
Member institutions3,4	55		—			—		—
Total	23,628		$	(197	)	$	277	$	80
Derivative positions without credit exposure	16,223
Total notional	$	39,851

1 Represents the lowest credit rating available for each counterparty based on an NRSRO.

2 Represents derivative transactions cleared with Clearinghouses, which are not rated.

3 Net credit exposure is less than $1.0 million.

4 Represents mortgage delivery commitments with our member institutions.

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The following table shows our derivative counterparty credit exposure (dollars in millions):

	December 31, 2013
Credit Rating1	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged To (From) Counterparty			Net Credit Exposure to Counterparties
Non-member counterparties:
Asset positions with credit exposure
Bilateral derivatives
AA	$	721	$	14		$	(13	)	$	1
A	3,208		51			(41		)	10
Cleared derivatives2	18,980		40			39			79
Liability positions with credit exposure
Bilateral derivatives
A	3,095		(68		)	71			3
BBB3	2,853		(69		)	69			—
Total derivative positions with credit exposure to non-member counterparties	28,857		(32		)	125			93
Member institutions3,4	4		—			—			—
Total	28,861		$	(32	)	$	125		$	93
Derivative positions without credit exposure	5,492
Total notional	$	34,353

1 Represents the lowest credit rating available for each counterparty based on an NRSRO.

2 Represents derivative transactions cleared with Clearinghouses, which are not rated.

3 Net credit exposure is less than $1.0 million.

4 Represents mortgage delivery commitments with our member institutions.

Operational Risk

We define operational risk as the risk of loss or harm from inadequate or failed processes, people, and/or systems, including those emanating from external sources. Operational risk is inherent in all of our business activities and processes. Management has established policies and procedures to reduce the likelihood of operational risk and designed our annual risk assessment process to provide ongoing identification, measurement, and monitoring of operational risk.

Business Risk

We define business risk as the risk of an adverse impact on our financial condition or profitability resulting from external factors that may occur in both the short- and long-term. Business risk includes political, strategic, reputation, regulatory, and/or environmental factors, many of which are beyond our control. From time to time, proposals are made, or legislative and regulatory changes are considered, which could affect our cost of doing business or other aspects of our business. We control business risk through strategic and annual business planning and monitoring of our external environment. For additional information on some of the more important risks we face, refer to "Item 1A. Risk Factors."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Market Risk” and the sections referenced therein for quantitative and qualitative disclosures about market risk.

73

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AUDITED FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm	75
Statements of Condition	76
Statements of Income	77
Statements of Comprehensive Income	78
Statements of Capital	79
Statements of Cash Flows	80
Notes to the Financial Statements	82
Background Information	82
Note 1 - Summary of Significant Accounting Policies	83
Note 2 - Recently Adopted and Issued Accounting Guidance	91
Note 3 - Cash and Due from Banks	92
Note 4 - Trading Securities	93
Note 5 - Available-for-Sale Securities	94
Note 6 - Held-to-Maturity Securities	96
Note 7 - Other-Than-Temporary Impairment	98
Note 8 - Advances	99
Note 9 - Mortgage Loans Held for Portfolio	101
Note 10 - Allowance for Credit Losses	101
Note 11 - Derivatives and Hedging Activities	106
Note 12 - Deposits	112
Note 13 - Consolidated Obligations	113
Note 14 - Affordable Housing Program	115
Note 15 - Capital	116
Note 16 - Pension and Postretirement Benefit Plans	118
Note 17 - Fair Value	121
Note 18 - Commitments and Contingencies	129
Note 19 - Activities with Stockholders	131
Note 20 - Activities with Other FHLBanks	132
SUPPLEMENTARY DATA:
Supplementary Financial Data (Unaudited)	133

74

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of the Federal Home Loan Bank of Des Moines:

In our opinion, the accompanying statements of condition and the related statements of income, comprehensive income, capital, and cash flows present fairly, in all material respects, the financial position of the Federal Home Loan Bank of Des Moines (the "Bank") at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bank's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Bank's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Minneapolis, MN

March 6, 2015

75

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CONDITION

(dollars and shares in thousands, except capital stock par value)

	December 31,
	2014			2013
ASSETS
Cash and due from banks (Note 3)	$	495,197		$	448,278
Interest-bearing deposits	1,942			1,863
Securities purchased under agreements to resell	5,091,000			8,200,000
Federal funds sold	1,860,000			1,200,000
Investment securities
Trading securities (Note 4)	2,530,490			1,018,373
Available-for-sale securities (Note 5)	12,383,792			7,932,520
Held-to-maturity securities (fair value of $1,299,048 and $1,842,599) (Note 6)	1,211,460			1,778,306
Total investment securities	16,125,742			10,729,199
Advances (Note 8)	65,168,274			45,650,220
Mortgage loans held for portfolio, net
Mortgage loans held for portfolio (Note 9)	6,567,369			6,565,293
Allowance for credit losses on mortgage loans (Note 10)	(4,900		)	(8,000		)
Total mortgage loans held for portfolio, net	6,562,469			6,557,293
Accrued interest receivable	84,440			72,561
Premises, software, and equipment, net	18,794			18,968
Derivative assets, net (Note 11)	80,112			93,011
Other assets	35,975			32,626
TOTAL ASSETS	$	95,523,945		$	73,004,019
LIABILITIES
Deposits (Note 12)
Interest-bearing	$	417,348		$	467,362
Non-interest-bearing	95,210			231,704
Total deposits	512,558			699,066
Consolidated obligations (Note 13)
Discount notes	57,772,890			38,136,652
Bonds (includes $0 and $50,033 at fair value under the fair value option)	32,362,110			30,195,568
Total consolidated obligations	90,135,000			68,332,220
Mandatorily redeemable capital stock (Note 15)	24,367			8,719
Accrued interest payable	89,509			81,420
Affordable Housing Program payable (Note 14)	41,232			37,688
Derivative liabilities, net (Note 11)	76,632			57,420
Other liabilities	332,499			330,619
TOTAL LIABILITIES	91,211,797			69,547,152
Commitments and contingencies (Note 18)
CAPITAL (Note 15)
Capital stock - Class B putable ($100 par value); 34,685 and 26,916 issued and outstanding shares	3,468,503			2,691,568
Retained earnings
Unrestricted	645,434			627,473
Restricted	74,989			50,782
Total retained earnings	720,423			678,255
Accumulated other comprehensive income	123,222			87,044
TOTAL CAPITAL	4,312,148			3,456,867
TOTAL LIABILITIES AND CAPITAL	$	95,523,945		$	73,004,019

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

76

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF INCOME

(dollars in thousands)

	For the Years Ended December 31,
	2014			2013			2012
INTEREST INCOME
Advances	$	233,094		$	194,977		$	242,541
Prepayment fees on advances, net	6,380			5,823			28,091
Interest-bearing deposits	263			386			692
Securities purchased under agreements to resell	3,953			3,851			4,577
Federal funds sold	2,416			1,268			2,340
Trading securities	33,161			33,261			24,170
Available-for-sale securities	104,492			76,657			75,704
Held-to-maturity securities	42,705			64,677			113,729
Mortgage loans held for portfolio	244,533			253,472			284,104
Total interest income	670,997			634,372			775,948
INTEREST EXPENSE
Consolidated obligations - Discount notes	43,026			13,631			11,405
Consolidated obligations - Bonds	376,961			407,186			523,305
Deposits	68			115			368
Borrowings from other FHLBanks	1			1			1
Mandatorily redeemable capital stock	245			317			238
Total interest expense	420,301			421,250			535,317
NET INTEREST INCOME	250,696			213,122			240,631
Reversal for credit losses on mortgage loans	(2,398		)	(5,922		)	—
NET INTEREST INCOME AFTER REVERSAL FOR CREDIT LOSSES	253,094			219,044			240,631
OTHER (LOSS) INCOME
Other-than-temporary impairment losses	—			(1,394		)	—
Net gains (losses) on trading securities	68,008			(106,643		)	23,077
Net gains from sale of available-for-sale securities	826			3,039			12,644
Net gains from sale of held-to-maturity securities	8,887			—			1,007
Net gains on consolidated obligations held at fair value	2			1,028			4,187
Net (losses) gains on derivatives and hedging activities	(123,411		)	85,300			(24,847		)
Net losses on extinguishment of debt	(12,651		)	(25,742		)	(76,781		)
Other, net	7,065			9,898			11,436
Total other loss	(51,274		)	(34,514		)	(49,277		)
OTHER EXPENSE
Compensation and benefits	32,189			33,111			32,017
Contractual services	7,038			6,550			6,047
Professional fees	5,482			3,710			5,081
Other operating expenses	9,903			9,757			9,090
Federal Housing Finance Agency	3,914			3,130			4,430
Office of Finance	3,777			3,104			2,833
Other, net	5,010			3,119			8,015
Total other expense	67,313			62,481			67,513
NET INCOME BEFORE ASSESSMENTS	134,507			122,049			123,841
Affordable Housing Program assessments	13,475			12,237			12,408
NET INCOME	$	121,032		$	109,812		$	111,433

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

77

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

	For the Years Ended December 31,
	2014			2013			2012
Net income	$	121,032		$	109,812		$	111,433
Other comprehensive income (loss)
Net unrealized gains (losses) on available-for-sale securities
Unrealized gains (losses)	39,058			(62,737		)	28,185
Reclassification adjustment for other-than-temporary impairment losses on available-for-sale securities included in net income	—			1,394			—
Reclassification of realized net gains included in net income	(826		)	(3,039		)	(12,644		)
Total net unrealized gains (losses) on available-for-sale securities	38,232			(64,382		)	15,541
Pension and postretirement benefits	(2,054		)	1,788			(464		)
Total other comprehensive income (loss)	36,178			(62,594		)	15,077
TOTAL COMPREHENSIVE INCOME	$	157,210		$	47,218		$	126,510

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

78

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CAPITAL

(dollars and shares in thousands)

	Capital Stock Class B (putable)					Retained Earnings								Accumulated Other Comprehensive Income
	Shares		Par Value			Unrestricted			Restricted		Total						Total Capital
BALANCE, DECEMBER 31, 2011	21,089		$	2,108,878		$	562,442		$	6,533	$	568,975		$	134,561		$	2,812,414
Proceeds from issuance of capital stock	12,304		1,230,404			—			—		—			—			1,230,404
Repurchases/redemptions of capital stock	(12,671	)	(1,267,120		)	—			—		—			—			(1,267,120		)
Net shares reclassified to mandatorily redeemable capital stock	(95	)	(9,448		)	—			—		—			—			(9,448		)
Comprehensive income	—		—			89,146			22,287		111,433			15,077			126,510
Cash dividends on capital stock	—		—			(58,459		)	—		(58,459		)	—			(58,459		)
BALANCE, DECEMBER 31, 2012	20,627		$	2,062,714		$	593,129		$	28,820	$	621,949		$	149,638		$	2,834,301
Proceeds from issuance of capital stock	23,707		2,370,689			—			—		—			—			2,370,689
Repurchases/redemptions of capital stock	(17,212	)	(1,721,197		)	—			—		—			—			(1,721,197		)
Net shares reclassified to mandatorily redeemable capital stock	(206	)	(20,638		)	—			—		—			—			(20,638		)
Comprehensive income (loss)	—		—			87,850			21,962		109,812			(62,594		)	47,218
Cash dividends on capital stock	—		—			(53,506		)	—		(53,506		)	—			(53,506		)
BALANCE, DECEMBER 31, 2013	26,916		$	2,691,568		$	627,473		$	50,782	$	678,255		$	87,044		$	3,456,867
Proceeds from issuance of capital stock	26,654		2,665,421			—			—		—			—			2,665,421
Repurchases/redemptions of capital stock	(18,578	)	(1,857,807		)	—			—		—			—			(1,857,807		)
Net shares reclassified to mandatorily redeemable capital stock	(307	)	(30,679		)	—			—		—			—			(30,679		)
Comprehensive income	—		—			96,825			24,207		121,032			36,178			157,210
Cash dividends on capital stock	—		—			(78,864		)	—		(78,864		)	—			(78,864		)
BALANCE, DECEMBER 31, 2014	34,685		$	3,468,503		$	645,434		$	74,989	$	720,423		$	123,222		$	4,312,148

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

79

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS

(dollars in thousands)

	For the Years Ended December 31,
	2014			2013			2012
OPERATING ACTIVITIES
Net income	$	121,032		$	109,812		$	111,433
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	16,422			7,454			345,823
Other-than-temporary impairment losses	—			1,394			—
Net (gains) losses on trading securities	(68,008		)	106,643			(23,077		)
Net gains from sale of available-for-sale securities	(826		)	(3,039		)	(12,644		)
Net gains from sale of held-to-maturity securities	(8,887		)	—			(1,007		)
Net gains on consolidated obligations held at fair value	(2		)	(1,028		)	(4,187		)
Net change in derivatives and hedging activities	83,569			(94,698		)	(252,407		)
Net losses on extinguishment of debt	12,651			25,742			76,781
Other adjustments	(5,436		)	(6,109		)	(2,338		)
Net change in:
Accrued interest receivable	(17,737		)	(5,587		)	6,667
Other assets	2,077			651			8,351
Accrued interest payable	8,056			(26,114		)	(48,547		)
Other liabilities	4,516			(930		)	1,024
Total adjustments	26,395			4,379			94,439
Net cash provided by operating activities	147,427			114,191			205,872
INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits	(141,147		)	153,080			249,499
Securities purchased under agreements to resell	3,109,000			(4,775,000		)	(2,825,000		)
Federal funds sold	(660,000		)	(240,000		)	1,155,000
Premises, software, and equipment	(3,172		)	(7,860		)	(4,431		)
Trading securities
Proceeds from maturities of long-term	23,422			20,414			1,014,576
Purchases of long-term	(1,469,832		)	(140,579		)	(631,229		)
Available-for-sale securities
Proceeds from sales and maturities of long-term	1,114,893			1,193,847			2,035,916
Purchases of long-term	(5,234,762		)	(4,202,180		)	(1,503,591		)
Held-to-maturity securities
Net decrease in short-term	—			—			340,000
Proceeds from sales and maturities of long-term	570,949			1,259,430			1,816,267
Advances
Principal collected	100,214,404			69,392,615			47,984,315
Originated	(119,806,365		)	(88,698,098		)	(48,376,241		)
Mortgage loans held for portfolio
Principal collected	902,676			1,580,359			2,262,571
Originated or purchased	(923,934		)	(1,221,421		)	(2,114,487		)
Proceeds from sales of foreclosed assets	14,788			24,974			28,081
Net cash (used in) provided by investing activities	(22,289,080		)	(25,660,419		)	1,431,246

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

80

FEDERAL HOME LOAN BANK OF DES MOINES

STATEMENTS OF CASH FLOWS (continued from previous page)

(dollars in thousands)

	For the Years Ended December 31,
	2014			2013			2012
FINANCING ACTIVITIES
Net change in deposits	(265,531		)	(310,255		)	338,249
Net payments on derivative contracts with financing elements	(8,502		)	(7,967		)	(8,963		)
Net proceeds from issuance of consolidated obligations
Discount notes	215,049,362			129,559,266			324,661,807
Bonds	24,564,549			38,190,376			24,089,562
Payments for maturing and retiring consolidated obligations
Discount notes	(195,415,765		)	(100,100,032		)	(322,795,668		)
Bonds	(22,449,260		)	(41,990,760		)	(27,381,008		)
Bonds transferred to other FHLBanks	—			(172,741		)	(427,909		)
Proceeds from issuance of capital stock	2,665,421			2,370,689			1,230,404
Payments for repurchases/redemptions of capital stock	(1,857,807		)	(1,721,197		)	(1,267,120		)
Net payments for repurchases/redemptions of mandatorily redeemable capital stock	(15,031		)	(21,480		)	(6,056		)
Cash dividends paid	(78,864		)	(53,506		)	(58,459		)
Net cash provided by (used in) financing activities	22,188,572			25,742,393			(1,625,161		)
Net increase in cash and due from banks	46,919			196,165			11,957
Cash and due from banks at beginning of the period	448,278			252,113			240,156
Cash and due from banks at end of the period	$	495,197		$	448,278		$	252,113
SUPPLEMENTAL DISCLOSURES
Interest paid	$	842,344		$	854,429		$	1,136,948
Affordable Housing Program payments	$	9,931		$	11,269		$	14,537
Transfers of mortgage loans to real estate owned	$	9,943		$	15,466		$	21,025

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

81

FEDERAL HOME LOAN BANK OF DES MOINES

NOTES TO THE FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Des Moines (the Bank) is a federally chartered corporation organized on October 31, 1932, that is exempt from all federal, state, and local taxation (except real property taxes) and is one of 12 district Federal Home Loan Banks (FHLBanks). The FHLBanks were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act). With the passage of the Housing and Economic Recovery Act of 2008 (Housing Act), the Federal Housing Finance Agency (Finance Agency) was established and became the new independent federal regulator of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), as well as the FHLBanks and FHLBanks' Office of Finance, effective July 30, 2008. The Finance Agency's mission is to ensure that the Enterprises and FHLBanks operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. The Finance Agency establishes policies and regulations governing the operations of the Enterprises and FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.

The FHLBanks are government-sponsored enterprises (GSEs) that serve the public by enhancing the availability of funds for residential mortgages and targeted community development. The Bank provides a readily available, low cost source of funds to its member institutions and eligible housing associates in Iowa, Minnesota, Missouri, North Dakota, and South Dakota. Commercial banks, thrifts, credit unions, insurance companies, and community development financial institutions (CDFIs) may apply for membership. State and local housing associates that meet certain statutory criteria may also borrow from the Bank; while eligible to borrow, housing associates are not members of the Bank and, as such, are not permitted to hold capital stock.

The Bank is a cooperative. This means the Bank is owned by its customers, whom the Bank calls members. As a condition of membership in the Bank, all members must purchase and maintain membership capital stock based on a percentage of their total assets as of the preceding December 31^st. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with the Bank.

The Bank's current members own nearly all of the outstanding capital stock of the Bank. Former members own the remaining capital stock, included in mandatorily redeemable capital stock, to support business transactions still carried on the Bank's Statements of Condition. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank's Board of Directors.

PROPOSED MERGER

On September 25, 2014, the Bank and the Federal Home Loan Bank of Seattle executed a definitive merger agreement after receiving unanimous approval from their boards of directors. Material details of the merger agreement are included in the Bank’s Form 8-K filed with the Securities and Exchange Commission (SEC) on September 25, 2014.

On October 31, 2014, the banks submitted a joint merger application to the Finance Agency. The Finance Agency approved the merger application on December 19, 2014, subject to the satisfaction of specific closing conditions set forth in the Finance Agency's approval letter, including the ratification of the merger by members of both banks.

On January 12, 2015, the banks mailed a joint merger disclosure statement, voting ballots, and related materials to their respective members and requested that ballots be returned by the close of business on February 23, 2015. Additional details regarding the disclosure statement can be found in the Bank's Form 8-K filed with the SEC on January 12, 2015.

On February 27, 2015, the banks issued a joint press release announcing the ratification of the merger by members of both banks. The consummation of the merger will be effective only after the Finance Agency determines that the closing conditions identified in the approval letter have been satisfied and the Finance Agency determines that the continuing bank's organizational certificate complies with the requirements of the Finance Agency's merger rules. Assuming the Finance Agency makes these determinations, the merger is expected to be effective on May 31, 2015.

82

We believe that the merger would combine two complementary organizations with similar cultures, membership characteristics, and solid financial positions. The continuing bank would remain a member-owned and member-centric cooperative, deeply focused on helping its members strengthen their institutions to better serve their customers and communities. It would provide funding solutions for more than 1,500 member financial institutions in 13 states and the U.S. Pacific territories. The continuing bank would be headquartered in Des Moines. 

Note 1 — Summary of Significant Accounting Policies

BASIS OF PRESENTATION

The Bank prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP).

Reclassifications

Certain amounts in the Bank's 2013 and 2012 financial statements and footnotes have been reclassified to conform to the presentation for the year ended December 31, 2014. These amounts were not deemed to be material.

During the first quarter of 2014, the Bank identified certain classification errors in its previously reported "Note 10 - Allowance for Credit Losses - Individually Evaluated Impaired Loans" for the year ended December 31, 2013 contained in the 2013 Form 10-K. Management determined, after evaluating the quantitative and qualitative aspects of the classification errors, that such errors were not material to the previously issued financial statements and footnotes. The Bank corrected the recorded investment classification error and the average recorded investment classification error in this 2014 Form 10-K filing. 

The following tables summarize the revisions made to the Bank’s allowance for credit losses footnote in this 2014 Form 10-K filing (dollars in thousands):

	December 31, 2013
	Previously Reported		Revised
Recorded investment
Impaired loans with an allowance	$	39,715	$	19,719
Impaired loans without an allowance	1,125		21,121

	For the Year Ended December 31, 2013
	Previously Reported		Revised
Average recorded investment
Impaired loans with an allowance	$	48,930	$	38,932
Impaired loans without an allowance	1,162		11,160

SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make subjective assumptions and estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. The most significant of these estimates include the fair value of derivatives, certain investment securities, and certain consolidated obligations that are reported at fair value on the Statements of Condition, and the allowance for credit losses on mortgage loans. Actual results could significantly differ from these estimates.

Fair Value. The fair value amounts, recorded in the Bank's Statements of Condition and presented in the footnote disclosures, have been determined by the Bank using available market information and management's best judgment of appropriate valuation methods. Although management uses its best judgment in estimating the fair value of financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values may not be indicative of the amounts that would have been realized in market transactions at the reporting dates. See “Note 17 — Fair Value” for more information.

83

Financial Instruments Meeting Netting Requirements

The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that may be presented on a net basis when there is a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). The Bank has elected to offset its derivative asset and liability positions, as well as cash collateral received or pledged, when it has met the netting requirements.

The net exposure for these financial instruments can change on a daily basis and therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the requirements for netting, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in “Note 11 — Derivatives and Hedging Activities.”

Based on the fair value of the related collateral held, the Bank's securities purchased under agreements to resell were fully collateralized for the periods presented. There were no offsetting liabilities related to these securities at December 31, 2014 and 2013.

Interest-Bearing Deposits, Securities Purchased Under Agreements to Resell, and Federal Funds Sold

These investments provide short-term liquidity and are carried at cost. Interest-bearing deposits include certificates of deposit not meeting the definition of a security. The Bank treats securities purchased under agreements to resell as short-term secured investments. These secured investments are held in safekeeping in the name of the Bank by third-party custodians approved by the Bank. Should the market value of the underlying securities decrease below the market value required as collateral, the counterparty must either place an equivalent amount of additional securities in safekeeping in the name of the Bank or remit an equivalent amount of cash. Otherwise, the dollar value of the resale agreement will be decreased accordingly. Federal funds sold consist of short-term, unsecured loans generally transacted with counterparties that are considered by the Bank to be of investment quality.

Investment Securities

The Bank classifies investment securities as trading, available-for-sale (AFS), and held-to-maturity (HTM) at the date of acquisition. Purchases and sales of investment securities are recorded on a trade date basis.

Trading. Securities classified as trading are carried at fair value and generally entered into for liquidity purposes. In addition, the Bank classifies certain securities as trading that do not qualify for hedge accounting, primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. The Bank records changes in the fair value of these securities through other (loss) income as “Net gains (losses) on trading securities.” Finance Agency regulation prohibits trading in or the speculative use of these instruments.

Available-for-Sale. Securities that are not classified as trading or HTM are classified as AFS and carried at fair value. The Bank records changes in the fair value of these securities through accumulated other comprehensive income (AOCI) as “Net unrealized gains (losses) on available-for-sale securities.” For AFS securities that have been hedged and qualify as a fair value hedge, the Bank records the portion of the change in fair value related to the risk being hedged together with the related change in fair value of the derivative through other (loss) income as “Net (losses) gains on derivatives and hedging activities.” The Bank records the remainder of the change in fair value through AOCI as “Net unrealized gains (losses) on available-for-sale securities.”

Held-to-Maturity. Securities that the Bank has both the ability and intent to hold to maturity are classified as HTM and carried at amortized cost, which represents the amount at which an investment is acquired, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts.

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Certain changes in circumstances may cause the Bank to change its intent to hold a security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a HTM security due to certain changes in circumstances, such as evidence of significant deterioration in the issuer's creditworthiness or changes in regulatory requirements, is not considered to be inconsistent with its original classification. Other events that are isolated, non-recurring, and unusual for the Bank that could not have been reasonably anticipated may cause the Bank to sell or transfer an HTM security without necessarily calling into question its intent to hold other debt securities to maturity. In addition, the sale of a debt security that meets either of the following two conditions would not be considered inconsistent with the original classification of that security: (i) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security's fair value or (ii) the sale occurs after the Bank has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on the debt security payable in equal installments (both principal and interest) over its term.

Premiums and Discounts. The Bank amortizes premiums and accretes discounts on investment securities using the contractual level-yield method (level-yield method). The level-yield method recognizes the income effects of premiums and discounts over the contractual life of the securities based on the actual behavior of the underlying assets, including adjustments for actual prepayment activities, and reflects the contractual terms of the securities without regard to changes in estimated prepayments based on assumptions about future borrower behavior.

Gains and Losses on Sales. The Bank computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in other (loss) income.

Investment Securities - Other-Than-Temporary Impairment

The Bank evaluates its individual AFS and HTM securities in an unrealized loss position for other-than-temporary impairment (OTTI) on a quarterly basis. A security is considered impaired when its fair value is less than its amortized cost basis. The Bank considers an OTTI to have occurred under any of the following conditions:

•it has an intent to sell the impaired debt security;

• it believes it is more likely than not that it will be required to sell the impaired debt security before the recovery of its amortized cost basis; or

• it does not expect to recover the entire amortized cost basis of the impaired debt security.

Recognition of OTTI. If either of the first two conditions is met, the Bank recognizes an OTTI charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value as of the reporting date. If neither of the first two conditions is met, the Bank performs an analysis to determine if it will recover the entire amortized cost basis of the debt security, which includes a cash flow analysis for private-label mortgage-backed securities (MBS). The present value of the cash flows expected to be collected is compared to the amortized cost basis of the debt security to determine whether a credit loss exists. If there is a credit loss (the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security), the carrying value of the debt security is adjusted to its fair value. However, rather than recognizing the entire difference between the amortized cost basis and fair value in earnings, only the amount of the impairment representing the credit loss (i.e., the credit component) is recognized in earnings, while the amount related to all other factors is recognized in AOCI. The credit loss on a debt security is limited to the amount of that security's unrealized losses. The total OTTI is presented in the Statements of Income with an offset for the amount of the non-credit portion of OTTI that is recognized in AOCI, if applicable. See "Note 7 — Other-Than-Temporary Impairment" for additional information.

Variable Interest Entities

The Bank has determined its investments in private-label MBS to be variable interest entities (VIEs). These securities are classified as HTM in the Bank's Statements of Condition. The Bank has no liabilities related to these VIEs and the maximum loss exposure for these VIEs is limited to the carrying value of the securities.

If the Bank determines it is the primary beneficiary of a VIE, it would be required to consolidate that VIE. On a quarterly basis, the Bank performs an evaluation to determine whether it is the primary beneficiary of its VIEs. To perform this evaluation, the Bank considers whether it possesses both of the following characteristics: (i) the power to direct the VIEs activities that most significantly affect the VIEs economic performance and (ii) the obligation to absorb the VIEs losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

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Based on an evaluation of these characteristics, the Bank has determined that consolidation is not required for its VIEs for the periods presented. The Bank has not provided financial or other support (explicitly or implicitly) to its VIEs and does not intend to provide that support in the future.

Advances

The Bank reports advances (secured loans to members, former members, or eligible housing associates) at amortized cost, net of premiums, discounts, and fair value hedging adjustments. The Bank amortizes/accretes premiums, discounts, and fair value hedging adjustments on advances to interest income using the level-yield method over the contractual life of the advances. The Bank records interest on advances to interest income as earned.

Advance Modifications. In cases in which the Bank funds a new advance concurrently with or within a short period of time before or after the prepayment of an existing advance, the Bank evaluates whether the new advance meets the accounting criteria to qualify as a modification of an existing advance or whether it constitutes a new advance. The Bank compares the present value of cash flows on the new advance to the present value of cash flows remaining on the existing advance. If there is at least a ten percent difference in the present value of the cash flows or if the Bank concludes the difference between the advances is more than minor based on a qualitative assessment of the modifications made to the original contractual terms, then the advance is accounted for as a new advance. In all other instances, the new advance is accounted for as a modification.

Prepayment Fees. The Bank charges a prepayment fee for advances that terminate prior to their stated maturity or outside of a predetermined call or put date. Prepayment fees are recorded net of fair value hedging adjustments in the Statements of Income. If a new advance does not qualify as a modification of an existing advance, it is treated as an advance termination and any net prepayment fee is recorded immediately through “Prepayment fees on advances, net” in the Statements of Income. If a new advance qualifies as a modification of an existing advance, any net prepayment fee is deferred, recorded in the basis of the modified advance, and amortized using the level-yield method over the contractual life of the modified advance to advance interest income in the Statements of Income.

Mortgage Loans Held for Portfolio

The Bank classifies mortgage loans that it has the intent and ability to hold for the foreseeable future or until maturity or payoff as held for portfolio. Accordingly, these mortgage loans are reported net of premiums, discounts, basis adjustments from mortgage loan commitments, and the allowance for credit losses.

Premiums and Discounts. The Bank amortizes/accretes premiums, discounts, and basis adjustments on mortgage loans to interest income using the level-yield method over the contractual life of the mortgage loans.

Credit Enhancement Fees. The Bank requires a credit risk sharing arrangement with the participating financial institution (PFI) on all mortgage loans at the time of purchase in order to limit its credit risk exposure to that of an investor in an MBS that is rated the equivalent of AA by a nationally recognized statistical rating organization (NRSRO). For conventional mortgage loans, PFIs retain a portion of the credit risk by having a credit enhancement obligation to the Bank. To secure this obligation, a PFI may either pledge collateral or purchase supplemental mortgage insurance (SMI). For those PFIs that pledge collateral, PFIs are paid a credit enhancement fee for assuming this credit risk and in some instances, all or a portion of the credit enhancement fee may be performance-based. Credit enhancement fees are paid monthly or accrued based on the remaining unpaid principal balance of the loans in a master commitment. Credit enhancement fees are recorded as an offset to mortgage loan interest income. To the extent the Bank experiences losses in a master commitment, it may be able to recapture performance-based credit enhancement fees paid to the PFIs to offset these losses. In lieu of pledging collateral, a PFI could purchase SMI. However, as a result of ratings downgrades on SMI providers, the Bank canceled all outstanding SMI policies in 2012. With respect to the master commitments that had been covered by the SMI policies canceled in 2012, the Bank holds additional retained earnings to mitigate its exposure to credit risk and no credit enhancement fees are paid to the PFI. 

Other Fees. The Bank may receive other non-origination fees, such as delivery commitment extension fees, pair-off fees, and price adjustment fees. Delivery commitment extension fees are received when a PFI requests to extend the delivery commitment period beyond the original stated expiration. These fees compensate the Bank for lost interest as a result of late funding and are recorded in other (loss) income. Pair-off fees represent a make-whole provision and are received when the amount funded is less than a specific percentage of the delivery commitment amount. These fees are also recorded in other (loss) income. Price adjustment fees are received when the amount funded is greater than a specified percentage of the delivery commitment amount. These fees are recorded as a part of the carrying value of the loan.

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Allowance for Credit Losses

An allowance for credit losses is a valuation allowance separately established for each identified portfolio segment to provide for probable losses inherent in the Bank's portfolio of financing receivables as of the reporting date. To the extent necessary, an allowance for credit losses for off-balance sheet credit exposures is recorded as a liability. See "Note 10 — Allowance for Credit Losses" for details on each of the Bank's allowance methodologies.

Portfolio Segments.A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology for determining its allowance for credit losses. The Bank has developed and documented a systematic methodology for determining an allowance for credit losses for credit products (advances, standby letters of credit, and other extensions of credit to borrowers), government-insured mortgage loans held for portfolio, conventional mortgage loans held for portfolio, and term securities purchased under agreements to resell.

Classes of Financing Receivables.Classes of financing receivables generally are a disaggregation of a portfolio segment to the extent that it is needed to understand the exposure to credit risk arising from the financing receivables. The Bank assesses and measures its credit risk arising from financing receivables at the portfolio segment level. As such, it has determined that no further disaggregation of the portfolio segments identified above is needed.

Non-Accrual Loans. The Bank places a conventional mortgage loan on non-accrual status if it is determined that either the collection of interest or principal is doubtful or interest or principal is 90 days or more past due. The Bank does not place a government-insured mortgage loan on non-accrual status due to the U.S. Government guarantee of the loan and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. For those mortgage loans placed on non-accrual status, accrued but uncollected interest is reversed against interest income and cash payments received are recorded as a reduction of principal. A loan on non-accrual status may be restored to accrual status when none of its contractual principal and interest is due and unpaid and the Bank expects repayment of the remaining contractual principal and interest.

Troubled Debt Restructurings. The Bank considers a troubled debt restructuring (TDR) to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties and that concession would not have been considered otherwise. The Bank's TDRs include loans granted under its temporary loan modification plan and loans discharged under Chapter 7 bankruptcy that have not been reaffirmed by the borrower. The Bank does not consider government-insured mortgage loans to be TDRs due to the U.S. Government guarantee of the loan and contractual obligation of the loan servicer to repurchase the loan when certain criteria are met. The Bank places all TDRs on non-accrual status at the time of modification.

Impairment Methodology. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank considers all TDRs and collateral-dependent loans to be impaired. Collateral-dependent loans are loans in which repayment is expected to be provided solely by the sale of the underlying collateral. The Bank's collateral-dependent loans include loans in process of foreclosure, loans 180 days or more past due, and bankruptcy loans and TDRs 60 days or more past due. The Bank measures impairment of collateral-dependent loans based on the estimated fair value of the underlying collateral, which is determined using property values, less selling costs and expected proceeds from primary mortgage insurance (PMI). The Bank generally measures impairment of TDRs based on the present value of expected future cash flows discounted at the loan's effective interest rate. Interest income on impaired loans is recognized in the same manner as non-accrual loans noted above.

Charge-Off Policy. The Bank evaluates whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include, but are not limited to, the transfer of a mortgage loan to real estate owned (REO). A charge-off is recorded if it is estimated that the recorded investment in the loan will not be recovered.

Real Estate Owned

REO includes assets received in satisfaction of debt through foreclosures. REO is recorded at the lower of cost or estimated fair value less selling costs. At the date of transfer of a loan to REO, if it is estimated that the recorded investment in the asset will not be recovered, the Bank will either recognize a charge-off of unrecoverable amounts to the allowance for credit losses or set up a credit enhancement fee receivable if there are performance-based credit enhancement fees available for recapture. Subsequent gains and losses on REO are recorded in other expense in the Statements of Income. REO is recorded as a component of "Other assets" in the Statements of Condition.

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Derivatives

All derivatives are recognized in the Statements of Condition at their fair values and reported as either derivative assets or derivative liabilities, net of cash collateral, including initial and variation margin, and accrued interest received from or pledged to clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent and/or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative.

Derivative Designations. Each derivative is designated as one of the following:

• a fair value hedge of an associated financial instrument or firm commitment; or

• an economic hedge to manage certain defined risks in the Bank's Statements of Condition.

Accounting for Fair Value Hedges. If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the fair value hedging relationship and an expectation to be highly effective, they qualify for fair value hedge accounting and the offsetting changes in fair value of the hedged items attributable to the hedged risk are recorded in earnings. Two approaches to fair value hedge accounting include:

• Long-haul hedge accounting. The application of long-haul hedge accounting requires the Bank to formally assess (both at the hedge's inception and at least quarterly) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value of hedged items due to benchmark interest rate changes and whether those derivatives are expected to remain effective in future periods.

• Short-cut hedge accounting. Transactions that meet certain criteria qualify for short-cut hedge accounting in which an assumption can be made that the change in fair value of a hedged item due to changes in the benchmark interest rate exactly offsets the change in fair value of the related derivative. Under the short-cut method, the entire change in fair value of the interest rate swap is considered to be effective at achieving offsetting changes in fair value of the hedged asset or liability.

Derivatives are typically executed at the same time as the hedged item, and the Bank designates the hedged item in a fair value hedge relationship at the trade date. In many hedging relationships, the Bank may designate the fair value hedging relationship upon its commitment to disburse an advance or trade a consolidated obligation in which settlement occurs within the shortest period of time possible for the type of instrument based on market settlement conventions. The Bank then records the changes in fair value of the derivative and the hedged item beginning on the trade date.

Changes in the fair value of a derivative that is designated as a fair value hedge, along with changes in the fair value of the hedged item, are recorded in other (loss) income as “Net (losses) gains on derivatives and hedging activities.” The amount by which the change in fair value of the derivative differs from the change in fair value of the hedged item is known as hedge ineffectiveness.

Accounting for Economic Hedges. An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that does not qualify or was not designated for fair value hedge accounting, but is an acceptable hedging strategy under the Bank’s risk management program. Changes in the fair value of derivatives that are designated as economic hedges are recorded in other (loss) income as “Net (losses) gains on derivatives and hedging activities” with no offsetting fair value adjustments for the underlying assets, liabilities, or firm commitments, unless changes in the fair value of the assets or liabilities are normally marked to fair value through earnings (e.g., trading securities and fair value option instruments).

Accrued Interest Receivables and Payables. The net settlements of interest receivables and payables related to derivatives designated as fair value hedges are recognized as adjustments to the interest income or interest expense of the designated hedged item. The net settlements of interest receivables and payables related to derivatives designated as economic hedges are recognized in other (loss) income as “Net (losses) gains on derivatives and hedging activities.”

Discontinuance of Hedge Accounting. The Bank discontinues fair value hedge accounting prospectively when either (i) it determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item due to changes in the benchmark interest rate, (ii) the derivative and/or the hedged item expires or is sold, terminated, or exercised, (iii) a hedged firm commitment no longer meets the definition of a firm commitment, or (iv) management determines that designating the derivative as a hedging instrument is no longer appropriate.

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When fair value hedge accounting is discontinued, the Bank either terminates the derivative or continues to carry the derivative on the Statements of Condition at its fair value. For any remaining hedged item, the Bank ceases to adjust the hedged item for changes in fair value and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining contractual life of the hedged item using a level-yield methodology.

When fair value hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Bank continues to carry the derivative on the Statements of Condition at its fair value, removing from the Statements of Condition any hedged item that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.

Embedded Derivatives. The Bank may issue debt, make advances, or purchase financial instruments in which a derivative instrument is “embedded.” Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the debt, advance, or purchased financial instrument (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If the Bank determines that the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as an economic derivative instrument. However, if the Bank elects to carry the entire contract (the host contract and the embedded derivative) at fair value in the Statements of Condition, changes in fair value of the entire contract will be reported in current period earnings.

Premises, Software, and Equipment

The Bank records premises, software, and equipment at cost less accumulated depreciation and amortization and computes depreciation and amortization using the straight-line method over the estimated useful lives of assets, which range from approximately two to 20 years. The Bank amortizes leasehold improvements using the straight-line method over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The Bank may capitalize improvements and major renewals but expenses ordinary maintenance and repairs when incurred. The Bank includes gains and losses on the disposal of premises, software, and equipment in other (loss) income.

Software. The cost of computer software developed or obtained for internal use is capitalized and amortized over future periods. At December 31, 2014 and 2013, the Bank had $14.9 million and $14.2 million in unamortized computer software costs, of which $5.0 million and $10.6 million related to software projects not yet placed into service. A majority of these costs relate to the Bank's initiative to replace its core banking system. Amortization of computer software costs charged to expense was $2.0 million, $1.7 million, and $1.5 million for the years ended December 31, 2014, 2013, and 2012.

Accumulated Depreciation and Amortization. At December 31, 2014 and 2013, accumulated depreciation and amortization related to premises, software, and equipment was $14.3 million and $12.5 million.

Depreciation and Amortization Expense. For the years ended December 31, 2014, 2013, and 2012, depreciation and amortization expense for premises, software, and equipment was $2.9 million, $2.4 million, and $2.5 million.

Consolidated Obligations

The Bank reports consolidated obligations at amortized cost, net of premiums, discounts, and fair value hedging adjustments unless the Bank has elected the fair value option, in which case, the consolidated obligations are carried at fair value.

Premiums and Discounts. The Bank amortizes/accretes premiums, discounts, and fair value hedging adjustments on consolidated obligations to interest expense using the level-yield method over the contractual life of the consolidated obligations.

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Concessions. The Bank pays concessions to dealers in connection with the issuance of certain consolidated obligations. The Office of Finance prorates the amount of the concession to each FHLBank based upon the percentage of the debt issued that is assumed by the FHLBank. Concessions paid on consolidated obligations designated under the fair value option are expensed as incurred and recorded in other expense. Concessions paid on consolidated obligations not designated under the fair value option are deferred and amortized over the contractual life of the consolidated obligations using the level-yield method. Unamortized concessions are included in “Other assets” in the Statements of Condition and the amortization of those concessions is included in consolidated obligation interest expense.

Mandatorily Redeemable Capital Stock

The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of redemption, gives notice of intention to withdraw from membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. Shares meeting this definition are reclassified to a liability at fair value. Dividends on mandatorily redeemable capital stock are classified as interest expense in the Statements of Income. The repurchase or redemption of mandatorily redeemable capital stock is transacted at par value and is reflected as a cash outflow in the financing activities section of the Statements of Cash Flows.

If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

Restricted Retained Earnings

In 2011, the Bank entered into a Joint Capital Enhancement Agreement (JCE Agreement), as amended, with the other 11 FHLBanks. The JCE Agreement is intended to enhance the capital position of each FHLBank by allocating the earnings historically paid to satisfy the Resolution Funding Corporation obligation to a separate restricted retained earnings account. Under the JCE Agreement, each FHLBank allocates 20 percent of its quarterly net income to a restricted retained earnings account until the balance of that account equals at least one percent of its average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends and are presented separately in the Bank's Statements of Condition.

Finance Agency Expenses

The FHLBanks are assessed for a portion of the costs of operating the Finance Agency. Each FHLBank is required to pay their pro-rata share of the annual assessment based on the ratio between each FHLBank's minimum required regulatory capital and the minimum required regulatory capital of all 12 FHLBanks.

Office of Finance Expenses

The Bank is assessed for a portion of the costs of operating the Office of Finance. The Office of Finance allocates its operating and capital expenditures to the FHLBanks as follows: (i) two-thirds based on each FHLBank's share of total consolidated obligations outstanding and (ii) one-third based upon an equal pro-rata allocation.

Assessments

The FHLBank Act requires each FHLBank to establish and fund an Affordable Housing Program (AHP), which provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low to moderate income households. Annually, the FHLBanks must set aside for the AHP the greater of ten percent of their current year net earnings or their pro-rata share of an aggregate $100 million to be contributed in total by the FHLBanks. For purposes of the AHP assessment, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The Bank may issue AHP advances at below-market interest rates. Discounts on AHP advances are accreted to advance interest income using the level-yield method over the contractual life of the advances. For additional information on the Bank's AHP, see "Note 14 — Affordable Housing Program."

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Note 2 — Recently Adopted and Issued Accounting Guidance

ADOPTED ACCOUNTING GUIDANCE

Joint and Several Liability Arrangements

On February 28, 2013, the Financial Accounting Standards Board (FASB) issued guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance was fixed at the reporting date. This guidance requires an entity to measure these obligations as the sum of the amount the entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the entity expects to pay on behalf of its co-obligors. In addition, this guidance requires an entity to disclose the nature and amount of the obligations as well as other information about these obligations. This guidance became effective for the Bank beginning on January 1, 2014 and was applied retrospectively to obligations with joint and several liabilities that existed at January 1, 2014. Based on how the Bank previously reported joint and several liability arrangements, the adoption of this guidance did not have an effect on the Bank's financial condition, results of operations, cash flows, or financial statement disclosures.

ISSUED ACCOUNTING GUIDANCE

Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern

On August 27, 2014, the FASB issued guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or within one year after the financial statements are available to be issued, when applicable. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations for the assessed period. This guidance becomes effective for the interim and annual periods ending after December 15, 2016, and early application is permitted. Management will be required to make the initial assessment required by this guidance as of December 31, 2016. We do not expect this guidance to have an effect on the Bank's financial condition, results of operations, cash flows, or financial statement disclosures.

Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure

On August 8, 2014, the FASB issued amended guidance relating to the classification and measurement of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this guidance require that a mortgage loan be de-recognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. This guidance became effective for the Bank beginning on January 1, 2015 and was adopted prospectively. The adoption of this guidance did not have a material effect on the Bank's financial condition, results of operations, or cash flows.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures

On June 12, 2014, the FASB issued amended guidance for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financing. This amendment requires secured borrowing accounting treatment for repurchase-to-maturity transactions and provides guidance on accounting for repurchase financing arrangements. In addition, this guidance requires additional disclosures, particularly on transfers accounted for as sales that are economically similar to repurchase agreements and on the nature of collateral pledged in repurchase agreements accounted for as secured borrowings. This guidance became effective for the Bank beginning on January 1, 2015. The adoption of this guidance did not have an effect on the Bank's financial condition, results of operations, cash flows, or financial statement disclosures.

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Revenue from Contracts with Customers

On May 28, 2014, the FASB issued guidance on revenue from contracts with customers. This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, or lease contracts. This guidance becomes effective for the interim and annual reporting periods beginning after December 15, 2016, and early application is not permitted. The guidance provides entities with the option of using the following two methods upon adoption: a full retrospective method, retrospectively to each prior reporting period presented; or a transition method, retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. The Bank is in the process of evaluating this guidance and its expected effect on the Bank's financial condition, results of operations, or cash flows is not expected to be material.

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

On January 17, 2014, the FASB issued guidance clarifying when consumer mortgage loans collateralized by real estate should be reclassified to REO. Specifically, such collateralized mortgage loans should be reclassified to REO when either the creditor obtains legal title to the residential real estate property upon completion of a foreclosure or the borrower conveys all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This guidance became effective for the Bank beginning on January 1, 2015 and was adopted prospectively. The adoption of this guidance did not have an effect on the Bank’s financial condition, results of operations, or cash flows.

Finance Agency Advisory Bulletin on Asset Classification

On April 9, 2012, the Finance Agency issued Advisory Bulletin 2012-02, Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention (AB 2012-02). AB 2012-02 establishes a standard and uniform methodology for classifying assets and prescribes the timing of asset charge-offs, excluding investment securities. The guidance in AB 2012-02 is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. The adverse classification requirements were implemented as of January 1, 2014; this implementation did not have a material effect on the Bank's financial condition, results of operations, or cash flows. The charge-off requirements were implemented on January 1, 2015. This guidance did not have a material effect on the Bank's financial condition, results of operations, or cash flows.

Note 3 — Cash and Due from Banks

Compensating Balances

The Bank maintains collected cash balances with commercial banks in return for certain services. These arrangements contain no legal restrictions on the withdrawal of funds. Average collected cash balances were $146.7 million and $124.0 million for the years ended December 31, 2014 and 2013.

Pass-Through Deposit Reserves

The Bank acts as a pass-through correspondent for certain member institutions required to deposit reserves with the Federal Reserve Bank of Chicago. At December 31, 2014 and 2013, pass-through deposit reserves amounted to $23.2 million and $9.7 million.

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Note 4 — Trading Securities

Major Security Types

Trading securities were as follows (dollars in thousands):

	December 31,
	2014		2013
Non-mortgage-backed securities
Other U.S. obligations	$	256,267	$	266,898
GSE obligations	1,531,811		54,971
Other1	280,215		263,354
Total non-mortgage-backed securities	2,068,293		585,223
Mortgage-backed securities
GSE multifamily	462,197		433,150
Total fair value	$	2,530,490	$	1,018,373

1 Consists of taxable municipal bonds.

Interest Rate Payment Terms

The following table summarizes the Bank's trading securities by interest rate payment terms (dollars in thousands):

	December 31,
	2014		2013
Fixed rate	$	1,060,715	$	1,018,373
Variable rate	1,469,775		—
Total fair value	$	2,530,490	$	1,018,373

Net Gains (Losses) on Trading Securities

The Bank did not sell any trading securities during the years ended December 31, 2014, 2013, and 2012. During the year ended December 31, 2014, the Bank recorded net holding gains of $68.0 million on its trading securities compared to net holding losses of $106.6 million and net holding gains of $23.1 million for the same periods in 2013 and 2012.

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Note 5 — Available-for-Sale Securities

Major Security Types

AFS securities were as follows (dollars in thousands):

	December 31, 2014
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Non-mortgage-backed securities
Other U.S. obligations	$	158,864	$	4,761	$	(56	)	$	163,569
GSE obligations	993,681		22,682		(4,055		)	1,012,308
State or local housing agency obligations	36,320		176		(148		)	36,348
Other2	176,277		7,425		—			183,702
Total non-mortgage-backed securities	1,365,142		35,044		(4,259		)	1,395,927
Mortgage-backed securities
Other U.S. obligations single-family	1,979,226		340		(3,875		)	1,975,691
GSE single-family	1,991,471		17,586		(150		)	2,008,907
GSE multifamily	6,921,322		85,334		(3,389		)	7,003,267
Total mortgage-backed securities	10,892,019		103,260		(7,414		)	10,987,865
Total	$	12,257,161	$	138,304	$	(11,673	)	$	12,383,792

	December 31, 2013
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Non-mortgage-backed securities
Other U.S. obligations	$	175,097	$	6,474	$	(23	)	$	181,548
GSE obligations	1,101,693		27,845		(2,663		)	1,126,875
State or local housing agency obligations	24,868		—		(1,897		)	22,971
Other2	257,584		5,994		(4		)	263,574
Total non-mortgage-backed securities	1,559,242		40,313		(4,587		)	1,594,968
Mortgage-backed securities
GSE single-family	2,074,709		14,700		(960		)	2,088,449
GSE multifamily	4,210,170		51,681		(12,748		)	4,249,103
Total mortgage-backed securities	6,284,879		66,381		(13,708		)	6,337,552
Total	$	7,844,121	$	106,694	$	(18,295	)	$	7,932,520

1 Amortized cost includes adjustments made to the cost basis of an investment for accretion, amortization, previous OTTI recognized in earnings, and/or fair value hedge accounting adjustments.

2 Consists of Private Export Funding Corporation bonds and/or taxable municipal bonds.

Interest Rate Payment Terms

The following table summarizes the Bank's AFS securities by interest rate payment terms (dollars in thousands):

	December 31,
	2014		2013
Fixed rate	$	7,219,515	$	5,503,644
Variable rate	5,037,646		2,340,477
Total amortized cost	$	12,257,161	$	7,844,121

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Unrealized Losses

The following tables summarize AFS securities with unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands):

	December 31, 2014
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities
Other U.S. obligations	$	34,993	$	(56	)	$	—	$	—		$	34,993	$	(56	)
GSE obligations	230,965		(286		)	109,669		(3,769		)	340,634		(4,055		)
State or local housing agency obligations	—		—			6,527		(148		)	6,527		(148		)
Total non-mortgage-backed securities	265,958		(342		)	116,196		(3,917		)	382,154		(4,259		)
Mortgage-backed securities
Other U.S. obligations single-family	1,698,157		(3,875		)	—		—			1,698,157		(3,875		)
GSE single-family	—		—			107,910		(150		)	107,910		(150		)
GSE multifamily	1,331,057		(3,053		)	74,806		(336		)	1,405,863		(3,389		)
Total mortgage-backed securities	3,029,214		(6,928		)	182,716		(486		)	3,211,930		(7,414		)
Total	$	3,295,172	$	(7,270	)	$	298,912	$	(4,403	)	$	3,594,084	$	(11,673	)

	December 31, 2013
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-mortgage-backed securities
Other U.S. obligations	$	38,342	$	(23	)	$	—	$	—		$	38,342	$	(23	)
GSE obligations	135,655		(1,081		)	59,061		(1,582		)	194,716		(2,663		)
State or local housing agency obligations	22,971		(1,897		)	—		—			22,971		(1,897		)
Other	10,190		(4		)	—		—			10,190		(4		)
Total non-mortgage-backed securities	207,158		(3,005		)	59,061		(1,582		)	266,219		(4,587		)
Mortgage-backed securities
GSE single-family	124,896		(153		)	209,691		(808		)	334,587		(961		)
GSE multifamily	2,031,114		(11,908		)	54,292		(839		)	2,085,406		(12,747		)
Total mortgage-backed securities	2,156,010		(12,061		)	263,983		(1,647		)	2,419,993		(13,708		)
Total	$	2,363,168	$	(15,066	)	$	323,044	$	(3,229	)	$	2,686,212	$	(18,295	)

Contractual Maturity

The following table summarizes AFS securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in thousands):

	December 31, 2014				December 31, 2013
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due in one year or less	$	66,673	$	66,904	$	9,981	$	10,071
Due after one year through five years	898,464		915,574		1,031,840		1,056,323
Due after five years through ten years	247,821		255,333		331,391		339,266
Due after ten years	152,184		158,116		186,030		189,308
Total non-mortgage-backed securities	1,365,142		1,395,927		1,559,242		1,594,968
Mortgage-backed securities	10,892,019		10,987,865		6,284,879		6,337,552
Total	$	12,257,161	$	12,383,792	$	7,844,121	$	7,932,520

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Prepayment Fees

During the years ended December 31, 2014 and 2012, the Bank did not receive any prepayment fees on AFS securities. During the year ended December 31, 2013, an AFS security with an outstanding par value of $11.2 million was prepaid and the Bank received a $1.2 million prepayment fee. This prepayment fee was recorded as interest income on AFS securities in the Statements of Income.

Net Gains from Sale of AFS Securities

During the year ended December 31, 2014, the Bank received $97.2 million in proceeds from the sale of an AFS security and recognized a gross gain of $0.8 million. During the year ended December 31, 2013, the Bank received $120.8 million in proceeds from the sale of AFS securities and recognized gross gains of $3.0 million. During the year ended December 31, 2012, the Bank received $80.3 million in proceeds from the sale of AFS securities and recognized gross gains of $12.6 million.

Note 6 — Held-to-Maturity Securities

Major Security Types

HTM securities were as follows (dollars in thousands):

	December 31, 2014
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Non-mortgage-backed securities
GSE obligations	$	305,126	$	69,730	$	—		$	374,856
State or local housing agency obligations	59,963		6,042		—			66,005
Total non-mortgage-backed securities	365,089		75,772		—			440,861
Mortgage-backed securities
Other U.S. obligations single-family	3,247		11		—			3,258
Other U.S. obligations commercial	1,415		—		(1		)	1,414
GSE single-family	816,793		12,302		(31		)	829,064
Private-label residential	24,916		58		(523		)	24,451
Total mortgage-backed securities	846,371		12,371		(555		)	858,187
Total	$	1,211,460	$	88,143	$	(555	)	$	1,299,048

	December 31, 2013
	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Non-mortgage-backed securities
GSE obligations	$	306,853	$	30,862	$	—		$	337,715
State or local housing agency obligations	72,662		2,518		—			75,180
Other2	807		—		—			807
Total non-mortgage-backed securities	380,322		33,380		—			413,702
Mortgage-backed securities
Other U.S. obligations single-family	5,303		22		—			5,325
Other U.S. obligations commercial	1,985		6		—			1,991
GSE single-family	1,360,705		31,937		(426		)	1,392,216
Private-label residential	29,991		63		(689		)	29,365
Total mortgage-backed securities	1,397,984		32,028		(1,115		)	1,428,897
Total	$	1,778,306	$	65,408	$	(1,115	)	$	1,842,599

1 Amortized cost includes adjustments made to the cost basis of an investment for accretion and/or amortization.

2 Consists of an investment in a Small Business Investment Company.

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Interest Rate Payment Terms

The following table summarizes HTM securities by interest rate payment terms (dollars in thousands):

	December 31,
	2014		2013
Fixed rate	$	674,145	$	1,077,367
Variable rate	537,315		700,939
Total amortized cost	$	1,211,460	$	1,778,306

Unrealized Losses

The following tables summarize HTM securities with unrealized losses by major security type and the length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands):

	December 31, 2014
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities
Other U.S. obligations commercial	$	—	$	—		$	248	$	(1	)	$	248	$	(1	)
GSE single-family	1,436		(4		)	38,607		(27		)	40,043		(31		)
Private-label residential	—		—			16,243		(523		)	16,243		(523		)
Total mortgage-backed securities	$	1,436	$	(4	)	$	55,098	$	(551	)	$	56,534	$	(555	)

	December 31, 2013
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities
GSE single-family	$	71,023	$	(54	)	$	113,532	$	(372	)	$	184,555	$	(426	)
Private-label residential	—		—			19,517		(689		)	19,517		(689		)
Total mortgage-backed securities	$	71,023	$	(54	)	$	133,049	$	(1,061	)	$	204,072	$	(1,115	)

Contractual Maturity

The following table summarizes HTM securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees (dollars in thousands):

	December 31, 2014				December 31, 2013
Year of Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Non-mortgage-backed securities
Due after one year through five years	$	—	$	—	$	807	$	807
Due after ten years	365,089		440,861		379,515		412,895
Total non-mortgage-backed securities	365,089		440,861		380,322		413,702
Mortgage-backed securities	846,371		858,187		1,397,984		1,428,897
Total	$	1,211,460	$	1,299,048	$	1,778,306	$	1,842,599

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Net Gains from Sale of HTM Securities

During the year ended December 31, 2014, the Bank sold HTM securities with a carrying amount of $65.7 million and recognized gross gains of $8.9 million. During the year ended December 31, 2012, the Bank sold an HTM security with a carrying amount of $24.9 million and recognized a gross gain of $1.0 million. The HTM securities sold had less than 15 percent of the acquired principal outstanding at the time of sale. As such, the sales were considered maturities for purpose of security classification and did not impact the Bank's ability and intent to hold the remaining HTM securities through their stated maturities. During the year ended December 31, 2013, the Bank did not sell any HTM securities.

Note 7 — Other-Than-Temporary Impairment

The Bank evaluates its individual AFS and HTM securities in an unrealized loss position for OTTI on a quarterly basis. As part of its evaluation of securities for OTTI, the Bank considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, the Bank will recognize an OTTI charge to earnings equal to the entire difference between the security's amortized cost basis and its fair value at the reporting date. For securities in an unrealized loss position that meet neither of these conditions, the Bank performs analyses to determine if any of these securities are other-than-temporarily impaired.

During 2013, the Bank changed its intent and decided to sell three similar non-MBS held in its AFS portfolio. Two of these securities were sold in 2013 and the Bank recorded gross gains on these sales of $1.1 million through "Net gains on sale of available-for-sale securities" in the Statements of Income. The third and only remaining security of that type was deemed other-than-temporarily impaired as the Bank intended to sell this security and it was in a loss position. As such, the Bank recorded OTTI charges of $1.4 million in 2013 through “Other-than-temporary impairment losses" in the Statements of Income. These charges represented the entire difference between the amortized cost basis and estimated fair value of the security. The declines in value were due to changes in interest rates, credit spreads, and illiquidity in the credit markets, and not to a significant deterioration in the fundamental credit quality of the obligation. This security was subsequently sold in January of 2014.

Private-Label Mortgage-Backed Securities

On a quarterly basis, the Bank engages other designated FHLBanks to perform cash flow analyses on its private-label MBS using two third-party models in order to assess whether the entire amortized cost bases of these securities will be recovered. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path.

As of December 31, 2014, the Bank obtained cash flow analyses for all of its private-label MBS from its designated FHLBanks. The first third-party model considered borrower characteristics and the particular attributes of the loans underlying the Bank's securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model was the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which is based upon an assessment of the individual housing markets. CBSAs refer collectively to metropolitan and micropolitan statistical areas as defined by the U.S. Office of Management and Budget. A CBSA must contain at least one urban area with a population of 10,000 or more people.

The FHLBanks' OTTI Governance Committee developed a short-term housing price forecast with projected changes ranging from a decrease of four percent to an increase of seven percent over the twelve month period beginning October 1, 2014. For the vast majority of markets, the projected short-term housing price changes range from a decrease of one percent to an increase of six percent. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

The month-by-month projections of future loan performance derived from the first model, which reflected projected prepayments, defaults, and loss severities, were then input into a second model that allocated the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities was derived from the presence of subordinate securities, losses were generally allocated first to the subordinate securities until their principal balance was reduced to zero.

98

The Bank compared the present value of the cash flows expected to be collected with respect to its private-label MBS to the amortized cost bases of the securities to determine whether a credit loss existed. At December 31, 2014, the Bank's cash flow analyses for private-label MBS did not project any credit losses. Even under an adverse scenario that delays recovery of the housing price index, no credit losses were projected. The Bank does not intend to sell its private-label MBS and it is not more likely than not that the Bank will be required to sell its private-label MBS before recovery of their amortized cost bases. As a result, the Bank did not consider any of its private-label MBS to be other-than-temporarily impaired at December 31, 2014.

All Other AFS and HTM Investment Securities

On a quarterly basis, the Bank reviews all remaining AFS and HTM securities in an unrealized loss position to determine whether they are other-than temporarily impaired. The following was determined for the Bank's other investment securities in an unrealized loss position at December 31, 2014:

• Other U.S. obligations and GSE securities. The unrealized losses were due primarily to interest rate volatility. The strength of the issuers' guarantees through direct obligations or support from the U.S. Government was sufficient to protect the Bank from losses based on current expectations. The Bank expects to recover the amortized cost bases on these securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before recovery of their amortized cost bases. As such, the Bank did not consider these securities to be other-than-temporarily impaired at December 31, 2014.

• State housing agency obligations. The unrealized losses were due to changes in interest rates, credit spreads, and illiquidity in the credit markets, and not to a significant deterioration in the fundamental credit quality of the obligations. The creditworthiness of the issuers and the strength of the underlying collateral and credit enhancements was sufficient to protect the Bank from losses based on current expectations. The Bank does not intend to sell these securities nor is it more likely than not that it will be required to sell these securities before recovery of their amortized cost bases. As such, the Bank did not consider these securities to be other-than-temporarily impaired at December 31, 2014.

Note 8 — Advances

The Bank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics, and optionality. Fixed rate advances generally have maturities ranging from overnight to 20 years. Variable rate advances generally have maturities ranging from one year to 20 years, where the interest rates reset periodically to a specified interest rate index such as London Interbank Offered Rate (LIBOR). At December 31, 2014, the Bank had advances outstanding with interest rates ranging from 0.21 percent to 8.25 percent.

Contractual Maturity

The following table summarizes the Bank's advances outstanding by contractual maturity (dollars in thousands):

	December 31, 2014				December 31, 2013
Year of Contractual Maturity	Amount			Weighted Average Interest Rate	Amount			Weighted Average Interest Rate
Overdrawn demand deposit accounts	$	66		3.28	$	—		—
Due in one year or less	7,997,497			0.66	6,948,856			0.60
Due after one year through two years	4,028,617			1.45	4,479,162			0.95
Due after two years through three years	4,437,280			1.68	2,936,056			1.76
Due after three years through four years	20,706,329			0.56	3,298,142			2.28
Due after four years through five years	21,447,326			0.33	20,558,211			0.54
Thereafter	6,335,093			0.98	7,139,820			0.85
Total par value	64,952,208			0.67	45,360,247			0.84
Premiums	137				153
Discounts	(6,388		)		(7,879		)
Fair value hedging adjustments	222,317				297,699
Total	$	65,168,274			$	45,650,220

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The following table summarizes advances at December 31, 2014 and 2013, by year of contractual maturity or next call date for callable advances, and by year of contractual maturity or next put date for putable advances (dollars in thousands):

	Year of Contractual Maturity or Next Call Date				Year of Contractual Maturity or Next Put Date
	2014		2013		2014		2013
Overdrawn demand deposit accounts	$	66	$	—	$	66	$	—
Due in one year or less	52,277,849		33,150,516		10,080,697		9,345,956
Due after one year through two years	3,774,834		3,227,821		3,801,817		4,411,162
Due after two years through three years	3,400,538		2,370,262		3,558,980		2,673,256
Due after three years through four years	2,515,829		2,664,631		19,787,129		2,246,842
Due after four years through five years	1,624,991		2,700,477		21,447,326		19,602,111
Thereafter	1,358,101		1,246,540		6,276,193		7,080,920
Total par value	$	64,952,208	$	45,360,247	$	64,952,208	$	45,360,247

The Bank offers advances to members and eligible housing associates that may be prepaid on pertinent dates (call dates) prior to maturity without incurring prepayment fees (callable advances). If the call option is exercised, replacement funding may be available. Other advances may only be prepaid by paying a fee to the Bank (prepayment fee) that makes the Bank financially indifferent to the prepayment of the advance. At December 31, 2014and 2013, the Bank had callable advances outstanding totaling $44.6 billion and $26.4 billion. The Bank also offers putable advances. With a putable advance, the Bank has the right to terminate the advance from the borrower on predetermined exercise dates, and the borrower may then apply for a new advance at the prevailing market rate. Generally, put options are exercised when interest rates increase. At December 31, 2014and 2013, the Bank had putable advances outstanding totaling $2.1 billion and $2.4 billion.

Interest Rate Payment Terms

The following table summarizes advances by interest rate payment terms and contractual maturity (dollars in thousands):

	December 31,
	2014		2013
Fixed rate
Due in one year or less	$	7,302,497	$	6,320,856
Due after one year	10,932,958		11,133,041
Total fixed rate	18,235,455		17,453,897
Variable rate
Due in one year or less	695,066		628,000
Due after one year	46,021,687		27,278,350
Total variable rate	46,716,753		27,906,350
Total par value	$	64,952,208	$	45,360,247

Prepayment Fees

The Bank charges a prepayment fee for advances that a borrower elects to terminate prior to the stated maturity or outside of a predetermined call or put date. The fees charged are priced to make the Bank financially indifferent to the prepayment of the advance. Prepayment fees are recorded net of fair value hedging adjustments in the Statements of Income. The following table summarizes the Bank's prepayment fees on advances, net (dollars in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Gross prepayment fee income	$	30,464		$	21,460		$	375,635
Fair value hedging adjustments1	(24,084		)	(15,637		)	(347,544		)
Prepayment fees on advances, net	$	6,380		$	5,823		$	28,091

1 Represents the amortization/accretion of fair value hedging adjustments on closed advance fair value hedge relationships resulting from advance prepayments.

For information related to the Bank's credit risk exposure on advances, refer to "Note 10 — Allowance for Credit Losses."

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Note 9 — Mortgage Loans Held for Portfolio

The Mortgage Partnership Finance (MPF) program(Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago) involves investment by the Bank in single family mortgage loans held for portfolio that are either purchased from PFIs or funded by the Bank through PFIs. MPF loans may also be acquired through participations in pools of eligible mortgage loans purchased from other FHLBanks. The Bank's PFIs generally originate, service, and credit enhance mortgage loans that are sold to the Bank. PFIs participating in the servicing release program do not service the loans owned by the Bank. The servicing on these loans is sold concurrently by the PFI to a designated mortgage service provider.

The following table presents information on the Bank's mortgage loans held for portfolio (dollars in thousands):

	December 31,
	2014			2013
Fixed rate, long-term single family mortgage loans	$	5,024,393		$	4,823,351
Fixed rate, medium-term1 single family mortgage loans	1,462,014			1,668,190
Total unpaid principal balance	6,486,407			6,491,541
Premiums	82,206			80,911
Discounts	(12,191		)	(15,652		)
Basis adjustments from mortgage loan commitments	10,947			8,493
Total mortgage loans held for portfolio	$	6,567,369		$	6,565,293

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

The following table presents the Bank's mortgage loans held for portfolio by collateral or guarantee type (dollars in thousands):

	December 31,
	2014		2013
Conventional mortgage loans	$	5,916,651	$	5,944,999
Government-insured mortgage loans	569,756		546,542
Total unpaid principal balance	$	6,486,407	$	6,491,541

For information related to the Bank's credit risk exposure on mortgage loans held for portfolio, refer to "Note 10 — Allowance for Credit Losses."

Note 10 — Allowance for Credit Losses

The Bank has established an allowance for credit losses methodology for each of its financing receivable portfolio segments: advances, standby letters of credit, and other extensions of credit to borrowers (collectively, credit products), government-insured mortgage loans held for portfolio, conventional mortgage loans held for portfolio, and term securities purchased under agreements to resell.

Credit Products

The Bank manages its credit exposure to credit products through an approach that includes establishing a credit limit for each borrower, ongoing reviews of each borrower's financial condition, and detailed collateral and lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, the Bank lends to eligible borrowers in accordance with the FHLBank Act, Finance Agency regulations, and other applicable laws.

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The Bank is required by regulation to obtain sufficient collateral to fully secure credit products. The estimated value of the collateral required to secure each borrower's credit products is calculated by applying collateral discounts, or haircuts, to the unpaid principal balance or market value, if available, of the collateral. Eligible collateral includes (i) whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages, (ii) loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including MBS issued or guaranteed by Fannie Mae, Freddie Mac, or Government National Mortgage Association and Federal Family Education Loan Program guaranteed student loans, (iii) cash deposited with the Bank, and (iv) other real estate-related collateral acceptable to the Bank provided such collateral has a readily ascertainable value and the Bank can perfect a security interest in such property. In addition, community financial institutions may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that the Bank has a lien on each member's capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.

Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and overall credit exposure to the borrower. The Bank can also require additional or substitute collateral to protect its security interest. The Bank periodically evaluates and makes changes to its collateral guidelines and collateral haircuts.

Borrowers may pledge collateral to the Bank by executing a blanket lien, specifically assigning collateral, or placing physical possession of collateral with the Bank or its custodians. The Bank perfects its security interest in all pledged collateral by filing Uniform Commercial Code financing statements or by taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to the Bank by its members, or any affiliates of its members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

Under a blanket lien, the Bank is granted a security interest in all financial assets of the borrower to fully secure the borrower's obligation. Other than securities and cash deposits, the Bank does not initially take delivery of collateral pledged by blanket lien borrowers. In the event of deterioration in the financial condition of a blanket lien borrower, the Bank has the ability to require delivery of pledged collateral sufficient to secure the borrower's obligation. With respect to non-blanket lien borrowers that are federally insured, the Bank generally requires collateral to be specifically assigned. With respect to non-blanket lien borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), the Bank generally takes control of collateral through the delivery of cash, securities, or loans to the Bank or its custodians.

Using a risk-based approach and taking into consideration each borrower's financial strength, the Bank considers the types and level of collateral to be the primary indicator of credit quality on its credit products. At December 31, 2014 and 2013, the Bank had rights to collateral on a borrower-by-borrower basis with an unpaid principal balance or market value, if available, in excess of its outstanding extensions of credit.

At December 31, 2014 and 2013, none of the Bank's credit products were past due, on non-accrual status, or considered impaired. In addition, there were no TDRs related to credit products during the years ended December 31, 2014 and 2013.

The Bank has never experienced a credit loss on its credit products. Based upon the Bank's collateral and lending policies, the collateral held as security, and the repayment history on credit products, management has determined that there were no probable credit losses on its credit products as of December 31, 2014 and 2013. Accordingly, the Bank has not recorded any allowance for credit losses for its credit products.

Government-Insured Mortgage Loans

The Bank invests in government-insured fixed rate mortgage loans that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. As such, the Bank only has credit risk for these loans if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance. Management views this risk as remote. As a result, the Bank did not establish an allowance for credit losses for its government-insured mortgage loans at December 31, 2014 and 2013. Furthermore, none of these mortgage loans have been placed on non-accrual status because of the U.S. Government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

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Conventional Mortgage Loans

The Bank's management of credit risk in the MPF program involves several layers of legal loss protection that are defined in agreements among the Bank and its participating PFIs. For the Bank's conventional MPF loans, the availability of loss protection may differ slightly among MPF products. The Bank's loss protection consists of the following loss layers, in order of priority:

• Homeowner Equity.

• Primary Mortgage Insurance. At the time of origination, PMI is required on all loans with homeowner equity of less than 20 percent of the original purchase price or appraised value, whichever is less and as applicable to the specific loan.

• First Loss Account. The first loss account (FLA) is a memorandum account used to track the Bank's potential loss exposure under each master commitment prior to the PFI's credit enhancement obligation. For absorbing certain losses in excess of the FLA, PFIs are paid a credit enhancement fee, a portion of which may be performance-based. The Bank records credit enhancement fees paid to PFIs as a reduction to mortgage loan interest income. Credit enhancement fees paid totaled $4.4 million, $4.3 million, and $7.4 million during the years ended December 31, 2014, 2013, and 2012. To the extent the Bank experiences losses under the FLA, it may be able to recapture performance-based credit enhancement fees paid to the PFI to offset these losses. The FLA balance for all master commitments with a PFI credit enhancement obligation was $92.2 million and $87.3 million at December 31, 2014 and 2013.

• Credit Enhancement Obligation of PFI. PFIs have a credit enhancement obligation at the time a mortgage loan is purchased to absorb certain losses in excess of the FLA in order to limit the Bank's loss exposure to that of an investor in an MBS that is rated the equivalent of AA by an NRSRO. PFIs pledge collateral to secure this obligation.

The Bank utilizes an allowance for credit losses to reserve for estimated losses in its conventional mortgage loan portfolio at the balance sheet date. The measurement of the Bank's allowance for credit losses is determined by (i) reviewing similar conventional mortgage loans for impairment on a collective basis, (ii) reviewing conventional mortgage loans for impairment on an individual basis, (iii) estimating additional credit losses in the conventional mortgage loan portfolio, (iv) considering the recapture of performance-based credit enhancement fees from the PFI, if available, and (v) considering the credit enhancement obligation of the PFI, if estimated losses exceed the FLA.

Collectively Evaluated Conventional Mortgage Loans. The Bank collectively evaluates the majority of its conventional mortgage loan portfolio for impairment and estimates an allowance for credit losses based upon factors that vary by MPF product. These factors include, but are not limited to, (i) loan delinquencies, (ii) loans migrating to collateral-dependent status, (iii) actual historical loss severities, and (iv) certain quantifiable economic factors, such as unemployment rates and home prices. The Bank utilizes a roll-rate methodology when estimating its allowance for credit losses. This methodology projects loans migrating to collateral-dependent status based on historical average rates of delinquency. The Bank then applies a loss severity factor to calculate an estimate of credit losses.

Individually Identified Conventional Mortgage Loans. The Bank individually evaluates certain conventional mortgage loans, including TDRs and collateral-dependent loans, for impairment. The Bank's TDRs include loans granted under its temporary loan modification plan and loans discharged under Chapter 7 bankruptcy that have not been reaffirmed by the borrower. The Bank generally measures impairment of TDRs based on the present value of expected future cash flows discounted at the loan's effective interest rate. Collateral-dependent loans are loans in which repayment is expected to be provided solely by the sale of the underlying collateral. The Bank's collateral-dependent loans include loans in process of foreclosure, loans 180 days or more past due, and bankruptcy loans and TDRs 60 days or more past due. The Bank measures impairment of collateral-dependent loans based on the estimated fair value of the underlying collateral, which is determined using property values, less selling costs and expected proceeds from PMI. Prior to January 1, 2014, the Bank only evaluated TDRs and collateral-dependent loans that were in process of foreclosure on an individual basis.

Estimating Additional Credit Loss in the Conventional Mortgage Loan Portfolio. The Bank may make an adjustment for certain limitations in its estimation of credit losses. This adjustment recognizes the imprecise nature of an estimate and represents a subjective management judgment that is intended to cover losses resulting from other factors that may not be captured in the methodology previously described at the balance sheet date.

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Performance-Based Credit Enhancement Fees. When reserving for estimated credit losses, the Bank may take into consideration performance-based credit enhancement fees available for recapture from the PFIs. Performance-based credit enhancement fees available for recapture, if any, consist of accrued performance-based credit enhancement fees to be paid to the PFIs and projected performance-based credit enhancement fees to be paid to the PFIs over the next 12 months, less any losses incurred that are in the process of recapture.

Available performance-based credit enhancement fees cannot be shared between master commitments and, as a result, some master commitments may have sufficient performance-based credit enhancement fees to recapture losses while other master commitments may not. At December 31, 2014 and 2013, the Bank determined that the amount of performance-based credit enhancement fees available for recapture from the PFIs at the master commitment level was immaterial. As such, it did not factor credit enhancement fees into its estimate of the allowance for credit losses.

PFI Credit Enhancement Obligation. When reserving for estimated credit losses, the Bank may take into consideration the PFI credit enhancement obligation, which is intended to absorb losses in excess of the FLA. At December 31, 2014 and 2013, the Bank determined that the amount of credit enhancement obligation available to offset losses was immaterial. As such, it did not factor credit enhancement obligation into its estimate of the allowance for credit losses.

Allowance for Credit Losses on Conventional Mortgage Loans. The following table presents a rollforward of the allowance for credit losses on the Bank's conventional mortgage loan portfolio (dollars in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Balance, beginning of year	$	8,000		$	15,793		$	18,963
Charge-offs	(702		)	(1,871		)	(3,170		)
Reversal for credit losses	(2,398		)	(5,922		)	—
Balance, end of year	$	4,900		$	8,000		$	15,793

The following table summarizes the allowance for credit losses and recorded investment of the Bank's conventional mortgage loan portfolio by impairment methodology (dollars in thousands):

	December 31,
	2014		2013
Allowance for credit losses
Collectively evaluated for impairment	$	1,500	$	4,500
Individually evaluated for impairment	3,400		3,500
Total allowance for credit losses	$	4,900	$	8,000
Recorded investment1
Collectively evaluated for impairment	$	5,966,025	$	5,996,590
Individually evaluated for impairment, with or without a related allowance	50,151		40,840
Total recorded investment	$	6,016,176	$	6,037,430

1 Represents the unpaid principal balance adjusted for accrued interest, unamortized premiums, discounts, basis adjustments, and direct write-downs.

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Credit Quality Indicators. Key credit quality indicators for mortgage loans include the migration of past due loans, loans in process of foreclosure, and non-accrual loans. The tables below summarize the Bank's key credit quality indicators for mortgage loans (dollars in thousands):

	December 31, 2014
	Conventional			Government Insured			Total
Past due 30 - 59 days	$	70,646		$	20,279		$	90,925
Past due 60 - 89 days	22,000			7,036			29,036
Past due 90 - 179 days	16,355			4,644			20,999
Past due 180 days or more	38,157			6,155			44,312
Total past due mortgage loans	147,158			38,114			185,272
Total current mortgage loans	5,869,018			547,686			6,416,704
Total recorded investment of mortgage loans1	$	6,016,176		$	585,800		$	6,601,976
In process of foreclosure (included above)2	$	26,715		$	4,111		$	30,826
Serious delinquency rate3	0.9		%	1.8		%	1.0		%
Past due 90 days or more and still accruing interest4	$	—		$	10,799		$	10,799
Non-accrual mortgage loans5	$	58,832		$	—		$	58,832

	December 31, 2013
	Conventional			Government Insured			Total
Past due 30 - 59 days	$	75,521		$	19,714		$	95,235
Past due 60 - 89 days	21,925			7,128			29,053
Past due 90 - 179 days	17,864			5,515			23,379
Past due 180 days or more	50,271			4,130			54,401
Total past due mortgage loans	165,581			36,487			202,068
Total current mortgage loans	5,871,849			524,947			6,396,796
Total recorded investment of mortgage loans1	$	6,037,430		$	561,434		$	6,598,864
In process of foreclosure (included above)2	$	37,582		$	1,106		$	38,688
Serious delinquency rate3	1.1		%	1.7		%	1.2		%
Past due 90 days or more and still accruing interest4	$	—		$	9,645		$	9,645
Non-accrual mortgage loans5	$	71,221		$	—		$	71,221

1 Represents the unpaid principal balance adjusted for accrued interest, unamortized premiums, discounts, basis adjustments, and direct write-downs.

2 Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu has been reported. Loans in process of foreclosure are included in past due or current loans depending on their payment status.

3 Represents mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total recorded investment.

4 Represents government-insured mortgage loans that are 90 days or more past due.

5 Represents conventional mortgage loans that are 90 days or more past due and TDRs.

Individually Evaluated Impaired Loans. As previously described, the Bank evaluates certain conventional mortgage loans for impairment individually. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table summarizes the recorded investment and related allowance of the Bank's individually evaluated impaired loans (dollars in thousands):

	December 31, 2014				December 31, 2013
	Recorded Investment		Related Allowance		Recorded Investment		Related Allowance
Impaired loans with an allowance	$	19,342	$	3,400	$	19,719	$	3,500
Impaired loans without an allowance	30,809		—		21,121		—
Total	$	50,151	$	3,400	$	40,840	$	3,500

The Bank did not recognize any interest income on impaired loans during the years ended December 31, 2014, 2013, and 2012.

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The following table summarizes the average recorded investment of the Bank's individually evaluated impaired loans (dollars in thousands):

	For the Years Ended December 31,
	2014		2013
Impaired loans with an allowance	$	19,530	$	38,932
Impaired loans without an allowance	25,965		11,160
Total	$	45,495	$	50,092

Real Estate Owned. At December 31, 2014 and 2013, the Bank had $8.9 million and $12.2 million of REO recorded as a component of "Other assets" in the Statements of Condition.

Term Securities Purchased Under Agreements to Resell

Term securities purchased under agreements to resell are considered collateralized financing agreements and represent short-term investments. The terms of these investments are structured such that if the market value of the underlying securities decreases below the market value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. Otherwise, the dollar value of the resale agreement will decrease accordingly. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement will be charged to earnings to establish an allowance for credit losses. Based upon the collateral held as security, the Bank determined that no allowance for credit losses was needed for its term securities purchased under agreements to resell at December 31, 2014 and 2013.

Off-Balance Sheet Credit Exposures

At December 31, 2014 and 2013, the Bank did not record a liability to reflect an allowance for credit losses for off-balance sheet credit exposures. For additional information on the Bank's off-balance sheet credit exposures, see "Note 18 — Commitments and Contingencies."

Note 11 — Derivatives and Hedging Activities

Nature of Business Activity

The Bank is exposed to interest rate risk primarily from the effect of interest rate changes on its interest-earning assets and its related funding sources. The goal of the Bank's interest rate risk management strategy is not to eliminate interest rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept.

The Bank enters into derivative contracts to manage the interest rate risk exposures inherent in its otherwise unhedged assets and funding positions. Finance Agency regulations and the Bank's Enterprise Risk Management Policy (ERMP) establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.

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

• reduce funding costs by combining a derivative with a consolidated obligation, as the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation;

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

• preserve a favorable interest rate spread between the yield of an asset and the cost of the related liability. Without the use of derivatives, this interest rate spread could be reduced or eliminated when a change in the interest rate on the asset does not match a change in the interest rate on the liability;

• mitigate the adverse earnings effects of the shortening or extension of certain assets and liabilities; and

• manage embedded options in assets and liabilities.

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Application of Derivatives

Derivative instruments are used by the Bank in two ways:

• as a fair value hedge of an associated financial instrument or firm commitment for those items qualifying under applicable accounting guidance; or

• as an economic hedge to manage certain defined risks in its Statements of Condition. These hedges are primarily used to manage mismatches between the coupon features of the Bank's assets and liabilities and offset prepayment risk in certain assets.

Derivative instruments are used by the Bank when they are considered to be a cost-effective alternative to achieve the Bank's financial and risk management objectives. The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.

The Bank transacts most of its derivative transactions with large banks and major broker-dealers. Over-the-counter derivative transactions may be either executed directly with a counterparty (bilateral derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent) with a Derivative Clearing Organization (cleared derivatives). Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearinghouse), the derivative transaction is novated and the executing counterparty is replaced with the Clearinghouse.

Types of Derivatives

The Bank may use the following derivative instruments:

• Interest Rate Swaps. An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional amount at a variable interest rate index for the same period of time. The variable interest rate received or paid by the Bank in most derivative transactions is the LIBOR.

• Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank against future interest rate changes. The Bank may enter into both payer and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

• Interest Rate Caps and Floors. In an interest rate cap agreement, a cash flow is generated if the price or interest rate of an underlying variable rises above a certain threshold (or “cap”) price. In an interest rate floor agreement, a cash flow is generated if the price or interest rate of an underlying variable falls below a certain threshold (or “floor”) price. Interest rate caps and floors are designed as protection against the interest rate on a variable rate asset or liability falling below or rising above a certain level.

• Options. An option is an agreement between two entities that conveys the right, but not the obligation, to engage in a future transaction on some underlying security or other financial asset at an agreed upon price during a certain period of time or on a specific date. Premiums or swap fees paid to acquire options are considered the fair value of the option at inception of the hedge and are reported as derivative assets or derivative liabilities in the Statements of Condition.

• Futures/Forwards Contracts. The Bank may use futures and forward contracts to hedge interest rate risk. For example, certain mortgage purchase commitments entered into by the Bank are considered derivatives. The Bank may hedge these commitments by selling “to-be-announced” (TBA) MBS for forward settlement. A TBA represents a forward contract for the sale of MBS at a future agreed upon date for an established price.

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Types of Hedged Items

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

The Bank may have the following types of hedged items:

• Investment Securities. The Bank primarily invests in other U.S. obligations, GSE obligations, state or local housing agency obligations, and MBS, and classifies them as either trading, AFS, or HTM. The interest rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. The Bank may fund investment securities with callable consolidated obligations or utilize interest rate swaps, caps, floors, or swaptions to manage interest rate and prepayment risk. The Bank manages the risk arising from changing market prices of trading securities by entering into economic derivatives that generally offset the changes in fair value of the securities. The fair value changes of both the trading securities and the associated derivatives are included in other (loss) income as “Net gains (losses) on trading securities” and “Net (losses) gains on derivatives and hedging activities.” The Bank manages the risk arising from changing market prices on AFS securities by entering into fair value derivatives that generally offset the changes in fair value of the securities. The Bank records the portion of the change in fair value related to the risk being hedged together with the related change in fair value of the derivative through other (loss) income as “Net (losses) gains on derivatives and hedging activities.” The Bank records the remainder of the change in fair value through AOCI as “Net unrealized gains (losses) on available-for-sale securities.”

• Advances. The Bank offers a wide range of fixed and variable rate advance products with different maturities, interest rates, payment characteristics, and optionality. The Bank may use derivatives to adjust the repricing and/or option characteristics of advances in order to more closely match the characteristics of its funding liabilities. In general, whenever a borrower executes a fixed rate advance or a variable rate advance with embedded options, the Bank will simultaneously execute a derivative with terms that offset the terms and embedded options, if any, in the advance. For example, the Bank may hedge a fixed rate advance with an interest rate swap where the Bank pays a fixed rate coupon and receives a variable rate coupon, effectively converting the fixed rate advance to a variable rate advance. This type of hedge is typically treated as a fair value hedge. In addition, the Bank may hedge a putable advance, which gives the borrower the option to put or extinguish the fixed rate advance, by entering into a cancelable interest rate swap.

• Mortgage Loans. The Bank invests in fixed rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in actual and estimated prepayment speeds. The Bank manages the interest rate and prepayment risk associated with mortgage loans through a combination of debt issuance and derivatives. The Bank may issue both callable and noncallable debt and prepayment-linked consolidated obligations to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may also purchase interest rate caps, floors, or swaptions to minimize the interest rate risk, including prepayment risk, embedded in mortgage assets. Although these derivatives are valid economic hedges, they are not specifically linked to individual mortgage assets and, therefore, do not receive fair value hedge accounting. These derivatives are recorded through earnings with no offsetting hedged item fair value adjustment. As a result, they introduce the potential for earnings variability.

• Consolidated Obligations. The Bank may enter into derivatives to hedge the interest rate risk associated with its consolidated obligations. For example, the Bank may issue and hedge a fixed rate consolidated obligation with an interest rate swap where the Bank receives a fixed rate coupon and pays a variable rate coupon, effectively converting the fixed rate consolidated obligation to a variable rate consolidated obligation. This type of hedge is typically treated as a fair value hedge. The Bank may also issue variable interest rate consolidated obligations indexed to LIBOR, the U.S. Prime rate, or the Federal funds rate and simultaneously execute interest rate swaps to hedge the basis risk of the variable interest rate debt. Interest rate swaps used to hedge the basis risk of variable interest rate debt do not qualify for hedge accounting. As a result, this type of hedge is treated as an economic hedge. This strategy of issuing consolidated obligations while simultaneously entering into derivatives enables the Bank to offer a wider range of attractively priced advances to its borrowers and may allow the Bank to reduce its funding costs.

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• Firm Commitments. Certain mortgage purchase commitments are considered derivatives. The Bank normally hedges these commitments by selling TBA MBS for forward settlement. A TBA represents a forward contract for the sale of MBS at a future agreed upon date for an established price. The mortgage purchase commitment and the TBA used in the firm commitment hedging strategy (economic hedge) are recorded as a derivative asset or derivative liability at fair value, with changes in fair value recognized in current period earnings. When the mortgage purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized over the contractual life of the mortgage loan using the level-yield method. The Bank may also hedge a firm commitment for a forward-starting advance through the use of an interest-rate swap (fair value hedge). In this case, the interest rate swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The fair value change associated with the firm commitment and subsequent advance along with the fair value change on the interest rate swap will be recorded through other (loss) income as “Net (losses) gains on derivatives and hedging activities.”

Financial Statement Effect and Additional Financial Information

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

The following table summarizes the Bank's fair value of derivative instruments, including the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest (dollars in thousands):

	December 31, 2014								December 31, 2013
	Notional Amount		Derivative Assets			Derivative  Liabilities			Notional Amount		Derivative Assets			Derivative  Liabilities
Derivatives designated as hedging instruments (fair value)
Interest rate swaps	$	38,703,467	$	84,362		$	459,437		$	32,537,432	$	181,724		$	391,597
Derivatives not designated as hedging instruments (economic)
Interest rate swaps	1,012,577		11,714			51,260			1,757,673		72,439			25,102
Forward settlement agreements (TBAs)	65,000		1			322			28,000		160			3
Mortgage delivery commitments	70,106		245			7			29,651		6			124
Total derivatives not designated as hedging instruments	1,147,683		11,960			51,589			1,815,324		72,605			25,229
Total derivatives before netting and collateral adjustments	$	39,851,150	96,322			511,026			$	34,352,756	254,329			416,826
Netting adjustments and cash collateral1			(16,210		)	(434,394		)			(161,318		)	(359,406		)
Total derivative assets and total derivative liabilities			$	80,112		$	76,632				$	93,011		$	57,420

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty. Cash collateral posted by the Bank (including accrued interest) was $418.2 million and $277.1 million at December 31, 2014 and 2013. At December 31, 2014, the Bank had not received any cash collateral from clearing agents and/or counterparties. At December 31, 2013, cash collateral received from clearing agents and/or counterparties (including accrued interest) was $79.0 million.

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The following table summarizes the components of “Net (losses) gains on derivatives and hedging activities” as presented in the Statements of Income (dollars in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Derivatives designated as hedging instruments (fair value)
Interest rate swaps	$	(40,065	)	$	12,026		$	1,707
Derivatives not designated as hedging instruments (economic)
Interest rate swaps	(62,469		)	84,987			2,450
Interest rate caps	—			3,992			(13,080		)
Forward settlement agreements (TBAs)	(5,156		)	5,171			(13,242		)
Mortgage delivery commitments	4,677			(4,846		)	9,247
Net interest settlements	(20,398		)	(16,030		)	(11,929		)
Total net (losses) gains related to derivatives not designated as hedging instruments	(83,346		)	73,274			(26,554		)
Net (losses) gains on derivatives and hedging activities	$	(123,411	)	$	85,300		$	(24,847	)

The following tables summarize, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships, the net fair value hedge ineffectiveness, and the effect of those derivatives on the Bank's net interest income (dollars in thousands):

	For the Year Ended December 31, 2014
Hedged Item Type	(Losses) Gains on Derivatives			Gains (Losses) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect on Net Interest Income1
Available-for-sale investments	$	(325,302	)	$	281,225		$	(44,077	)	$	(115,192	)
Advances	45,525			(43,717		)	1,808			(163,434		)
Consolidated obligation bonds	65,889			(63,685		)	2,204			70,291
Total	$	(213,888	)	$	173,823		$	(40,065	)	$	(208,335	)

	For the Year Ended December 31, 2013
Hedged Item Type	Gains (Losses) on Derivatives			(Losses) Gains on Hedged Items			Net Fair Value Hedge Ineffectiveness		Effect on Net Interest Income1
Available-for-sale investments	$	181,593		$	(173,015	)	$	8,578	$	(42,506	)
Advances	232,454			(229,657		)	2,797		(163,154		)
Consolidated obligation bonds	(151,125		)	151,776			651		59,708
Total	$	262,922		$	(250,896	)	$	12,026	$	(145,952	)

	For the Year Ended December 31, 2012
Hedged Item Type	(Losses) Gains on Derivatives			Gains(Losses) on Hedged Items			Net Fair Value Hedge Ineffectiveness			Effect on Net Interest Income1
Available-for-sale investments	$	(9,575	)	$	10,676		$	1,101		$	(12,730	)
Advances	(7,222		)	10,628			3,406			(195,719		)
Consolidated obligation bonds	31,922			(34,722		)	(2,800		)	123,918
Total	$	15,125		$	(13,418	)	$	1,707		$	(84,531	)

1 The net interest income on derivatives in fair value hedge relationships is included in the interest income or interest expense line item of the respective hedged item type.

110

Managing Credit Risk on Derivatives

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative contracts. The Bank manages credit risk through credit analyses, collateral requirements, and adherence to the requirements set forth in the Bank's policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations. For bilateral derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in these contracts to mitigate the risk. The Bank requires collateral agreements with collateral delivery thresholds on the majority of its bilateral derivatives.

For cleared derivatives, the Clearinghouse is the Bank's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent notifies the Bank of the required initial and variation margin. The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily through a clearing agent for changes in the fair value of cleared derivatives.

The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and has determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default, including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

A majority of the Bank's bilateral derivative contracts contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank's credit rating. If the Bank's credit rating is lowered by an NRSRO, the Bank may be required to deliver additional collateral on bilateral derivative instruments in net liability positions. The aggregate fair value of all bilateral derivative instruments with credit-risk related contingent features that were in a net liability position (before cash collateral and related accrued interest) at December 31, 2014 was $259.0 million, for which the Bank posted collateral of $183.5 million in the normal course of business. If the Bank's credit rating had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver an additional $51.1 million of collateral to its bilateral derivative counterparties at December 31, 2014.

For cleared derivatives, the Clearinghouse determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to, credit rating downgrades. The Bank was not required to post additional initial margin by its clearing agents, based on credit considerations, at December 31, 2014.

111

Offsetting of Derivative Assets and Derivative Liabilities

The Bank presents derivative instruments, related cash collateral, including initial and variation margin, received or pledged, and associated accrued interest on a net basis by clearing agent and/or by counterparty when it has met the netting requirements. The following table presents the fair value of derivative instruments meeting or not meeting the netting requirements, including the related collateral received from or pledged to counterparties (dollars in thousands):

	December 31, 2014						December 31, 2013
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
Derivative instruments meeting netting requirements
Gross recognized amount
Bilateral derivatives	$	59,574		$	316,472		$	209,378		$	411,289
Cleared derivatives	36,503			194,547			44,945			5,413
Total gross recognized amount	96,077			511,019			254,323			416,702
Gross amounts of netting adjustments and cash collateral
Bilateral derivatives	(56,327		)	(239,847		)	(195,177		)	(353,993		)
Cleared derivatives	40,117			(194,547		)	33,859			(5,413		)
Total gross amounts of netting adjustments and cash collateral	(16,210		)	(434,394		)	(161,318		)	(359,406		)
Net amounts after netting adjustments and cash collateral
Bilateral derivatives	3,247			76,625			14,201			57,296
Cleared derivatives	76,620			—			78,804			—
Total net amounts after netting adjustments and cash collateral	79,867			76,625			93,005			57,296
Bilateral derivatives instruments not meeting netting requirements1	245			7			6			124
Total derivative assets and total derivative liabilities
Bilateral derivatives	3,492			76,632			14,207			57,420
Cleared derivatives	76,620			—			78,804			—
Total derivative assets and total derivative liabilities	$	80,112		$	76,632		$	93,011		$	57,420

1 Represents mortgage delivery commitments that are not subject to an enforceable netting agreement.

Note 12 — Deposits

The Bank offers demand and overnight deposits as well as short-term interest bearing deposits to members and qualifying non-members. Deposits classified as demand and overnight pay interest based on a daily interest rate. Short-term interest bearing deposits pay interest based on a fixed rate determined at the issuance of the deposit. Average interest rates paid on interest-bearing deposits were 0.01 percent, 0.02 percent, and 0.04 percent for the years ended December 31, 2014, 2013, and 2012.

The following table details the Bank's interest bearing and non-interest bearing deposits (dollars in thousands):

	December 31,
	2014		2013
Interest-bearing
Demand and overnight	$	402,803	$	458,209
Term	14,545		9,153
Non-interest-bearing
Demand	95,210		231,704
Total	$	512,558	$	699,066

The aggregate amount of term deposits with a denomination of $250 thousand or more (FDIC insured limit) was $14.5 million and $8.9 million at December 31, 2014 and 2013.

112

Note 13 — Consolidated Obligations

Consolidated obligations consist of bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of Finance as their agent. Bonds are issued primarily to raise intermediate- and long-term funds for the Bank and are not subject to any statutory or regulatory limits on their maturity. Discount notes are issued primarily to raise short-term funds for the Bank and have original maturities of up to one year. Discount notes sell at or below their face amount and are redeemed at par value when they mature.

Although the Bank is primarily liable for the portion of consolidated obligations issued on its behalf, it is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all FHLBank System consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority. At December 31, 2014 and 2013, the total par value of outstanding consolidated obligations of the 12 FHLBanks was $847.2 billion and $766.8 billion.

DISCOUNT NOTES

The following table summarizes the Bank's discount notes (dollars in thousands):

	December 31, 2014				December 31, 2013
	Amount			Weighted Average Interest Rate	Amount			Weighted Average Interest Rate
Par value	$	57,781,155		0.09	$	38,143,400		0.10
Discounts	(8,265		)		(6,748		)
Total	$	57,772,890			$	38,136,652

BONDS

The following table summarizes the Bank's bonds outstanding by contractual maturity (dollars in thousands):

	December 31, 2014				December 31, 2013
Year of Contractual Maturity	Amount			Weighted Average Interest Rate	Amount			Weighted Average Interest Rate
Due in one year or less	$	18,392,675		0.59	$	17,437,015		0.33
Due after one year through two years	3,144,800			2.31	2,485,075			3.03
Due after two years through three years	2,731,455			3.39	1,864,840			3.48
Due after three years through four years	632,740			1.47	2,080,710			4.21
Due after four years through five years	1,883,450			2.02	582,735			1.60
Thereafter	5,382,770			3.06	5,545,470			2.96
Index amortizing notes	165,016			5.21	209,600			5.21
Total par value	32,332,906			1.53	30,205,445			1.56
Premiums	21,045				22,027
Discounts	(18,289		)		(17,751		)
Fair value hedging adjustments	26,448				(14,186		)
Fair value option adjustments	—				33
Total	$	32,362,110			$	30,195,568

The following table summarizes the Bank's bonds outstanding by call features (dollars in thousands):

	December 31,
	2014		2013
Noncallable or nonputable	$	19,667,906	$	26,765,445
Callable	12,665,000		3,440,000
Total par value	$	32,332,906	$	30,205,445

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The following table summarizes the Bank's bonds outstanding by year of contractual maturity or next call date (dollars in thousands):

	December 31,
Year of Contractual Maturity or Next Call Date	2014		2013
Due in one year or less	$	22,057,675	$	19,582,015
Due after one year through two years	2,604,800		2,490,075
Due after two years through three years	2,161,455		1,759,840
Due after three years through four years	232,740		1,915,710
Due after four years through five years	658,450		237,735
Thereafter	4,452,770		4,010,470
Index amortizing notes	165,016		209,600
Total par value	$	32,332,906	$	30,205,445

Bonds are issued with fixed or variable rate payment terms that use a variety of indices for interest rate resets including, but not limited to, LIBOR and the Federal funds rate. To meet the specific needs of certain investors, both fixed and variable rate bonds may also contain certain embedded features, which result in complex coupon payment terms and call features. When bonds are issued on the Bank's behalf, it may concurrently enter into a derivative agreement to effectively convert the fixed rate payment stream to variable or to offset the embedded features in the bond.

Beyond having fixed or variable rate payment terms, bonds may also have the following broad terms regarding either principal repayment or interest payments:

• Indexed Principal Redemption Bonds (Index Amortizing Notes). These notes repay principal according to predetermined amortization schedules that are linked to the level of a certain index and have fixed rate coupon payment terms. Usually, as market interest rates rise (fall), the average life of the index amortizing notes extends (contracts); and

• Optional Principal Redemption Bonds (Callable Bonds). These bonds may be redeemed by the Bank in whole or in part at its discretion on predetermined call dates according to the terms of the bond offerings.

With respect to interest payments, bonds may also have the following terms:

• Step-Up Bonds. These bonds pay interest at increasing fixed rates for specified intervals over the life of the bond. These bonds generally contain provisions enabling the Bank to call the bonds at its option on the step-up dates.

• Step-Down Bonds. These bonds pay interest at decreasing fixed rates for specified intervals over the life of the bond. These bonds generally contain provisions enabling the Bank to call the bonds at its option on the step-down dates.

Interest Rate Payment Terms

The following table summarizes the Bank's bonds by interest rate payment terms (dollars in thousands):

	December 31,
	2014		2013
Fixed rate	$	29,512,906	$	27,625,445
Simple variable rate	250,000		800,000
Step-up	2,420,000		1,680,000
Step-down	150,000		100,000
Total par value	$	32,332,906	$	30,205,445

Extinguishment of Debt

During the year ended December 31, 2014, the Bank extinguished bonds with a total par value of $115.0 million and recognized losses of $12.7 million in other (loss) income. During the year ended December 31, 2013, the Bank extinguished bonds with a total par value of $162.1 million and recognized losses of $25.7 million in other (loss) income. During the year ended December 31, 2012, the Bank extinguished bonds with a total par value of $556.1 million and recognized losses of $76.8 million.

114

Concession on Consolidated Obligations

Unamortized concessions on consolidated obligations are included as a component of "Other assets" in the Statements of Condition and totaled $3.1 million and $3.2 million at December 31, 2014 and 2013. Amortization of such concessions is recorded as consolidated obligation interest expense in the Statements of Income and totaled $1.9 million, $1.6 million, and $7.7 million for the years ended December 31, 2014, 2013, and 2012.

Note 14 — Affordable Housing Program

The FHLBank Act requires each FHLBank to establish and fund an AHP, which provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low to moderate income households. Annually, the FHLBanks must set aside for the AHP the greater of 10 percent of their current year net earnings or their pro-rata share of an aggregate $100 million to be contributed in total by the FHLBanks. For purposes of the AHP assessment, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. The Bank accrues the AHP assessment on a monthly basis and reduces the AHP liability as program funds are distributed.

If the Bank experienced a net loss during a quarter, but still had net earnings for the year, the Bank's obligation to the AHP would be calculated based on its year-to-date net earnings. If the Bank had net earnings in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the Bank experienced a net loss for a full year, it would have no obligation to the AHP for the year, because its required annual AHP contribution is limited to its annual net earnings. If the aggregate 10 percent AHP calculation previously discussed was less than $100 million for the FHLBanks, each FHLBank would be required to assure that the aggregate contribution of the FHLBanks equals $100 million. The pro-ration would be made on the basis of an FHLBank's income in relation to the income of all FHLBanks for the previous year, subject to the annual earnings limitation previously discussed.

There was no shortfall, as described above, in 2014, 2013, or 2012. If an FHLBank finds that its required contributions are contributing to its financial instability, it may apply to the Finance Agency for a temporary suspension of its contributions. The Bank did not make any such application in 2014, 2013, or 2012. At December 31, 2014 and 2013, the Bank had no outstanding AHP advances.

The following table presents a rollforward of the Bank’s AHP liability (dollars in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Balance, beginning of year	$	37,688		$	36,720		$	38,849
Assessments	13,475			12,237			12,408
Disbursements	(9,931		)	(11,269		)	(14,537		)
Balance, end of year	$	41,232		$	37,688		$	36,720

115

Note 15 — Capital

The Bank is subject to three regulatory capital requirements:

• Risk-based capital. The Bank must maintain at all times permanent capital greater than or equal to the sum of its credit, market, and operations risk capital requirements, all calculated in accordance with Finance Agency regulations.Only permanent capital, defined as Class B capital stock, which includes mandatorily redeemable capital stock, and retained earnings, can satisfy this risk-based capital requirement.

• Regulatory capital. The Bank is required to maintain a minimum four percent capital-to-asset ratio, which is defined as total regulatory capital divided by total assets. Total regulatory capital includes all capital stock, including mandatorily redeemable capital stock, and retained earnings. It does not include AOCI.

• Leverage capital. The Bank is required to maintain a minimum five percent leverage ratio, which is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times, divided by total assets. At December 31, 2014 and 2013, the Bank did not have any nonpermanent capital.

If the Bank's capital falls below the required levels, the Finance Agency has authority to take actions necessary to return it to levels that it deems to be consistent with safe and sound business operations. The following table shows the Bank's compliance with the Finance Agency's regulatory capital requirements (dollars in thousands):

	December 31, 2014						December 31, 2013
	Required			Actual			Required			Actual
Regulatory capital requirements
Risk-based capital	$	579,898		$	4,213,293		$	676,384		$	3,378,542
Regulatory capital	$	3,820,958		$	4,213,293		$	2,920,161		$	3,378,542
Leverage capital	$	4,776,197		$	6,319,939		$	3,650,201		$	5,067,814
Capital-to-assets ratio	4.00		%	4.41		%	4.00		%	4.63		%
Leverage ratio	5.00		%	6.62		%	5.00		%	6.94		%

The Bank issues a single class of capital stock (Class B capital stock). The Bank's capital stock has a par value of $100 per share, and all shares are issued, redeemed, or repurchased by the Bank at the stated par value. The Bank has two subclasses of capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st, subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding in the Bank's Statements of Condition. All capital stock issued is subject to a five year notice of redemption period.

The capital stock requirements established in the Bank's Capital Plan are designed so that the Bank can remain adequately capitalized as member activity changes. The Bank's Board of Directors may make adjustments to the capital stock requirements within ranges established in the Capital Plan.

Capital Classification Determination

The Bank is subject to the Finance Agency's regulation on FHLBank capital classification and critical capital levels (the Capital Rule). The Capital Rule, among other things, establishes criteria for four capital classifications (adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An adequately capitalized FHLBank is one that has sufficient permanent and total capital to satisfy its risk-based and minimum capital requirements. The Bank satisfied these requirements at December 31, 2014 and was classified as adequately capitalized. If the Bank becomes classified into a capital classification other than adequately capitalized, it will be subject to the corrective action requirements for that capital classification in addition to being subject to prohibitions on declaring dividends and redeeming or repurchasing capital stock.

116

Excess Stock

Capital stock owned by members in excess of their investment requirement is deemed excess capital stock. Under its Capital Plan, the Bank, at its discretion and upon 15 days' written notice, may repurchase excess membership capital stock. The Bank, at its discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock. At December 31, 2014 and 2013, the Bank had no excess capital stock outstanding.

Mandatorily Redeemable Capital Stock

The Bank reclassifies capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) when a member engages in any of the following activities: (i) submits a written notice to redeem all or part of its capital stock, (ii) submits a written notice of its intent to withdraw from membership, or (iii) terminates its membership voluntarily as a result of a consolidation into a non-member or into a member of another FHLBank. Dividends on mandatorily redeemable capital stock are classified as interest expense in the Statements of Income. At December 31, 2014 and 2013, the Bank's mandatorily redeemable capital stock totaled $24.4 million and $8.7 million.

If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense. The Bank recorded interest expense on mandatorily redeemable capital stock of $0.2 million, $0.3 million, and $0.2 million for the years ended December 31, 2014, 2013, and 2012.

The following table summarizes the Bank's mandatorily redeemable capital stock by year of contractual redemption (dollars in thousands):

	December 31,
Year of Contractual Redemption	2014		2013
Due in one year or less	$	40	$	149
Due after one year through two years	53		40
Due after two years through three years	3,902		55
Due after three years through four years	3,650		3,792
Due after four years through five years	16,473		4,475
Past contractual redemption date due to outstanding activity with the Bank	249		208
Total	$	24,367	$	8,719

The following table summarizes a rollforward of the Bank's mandatorily redeemable capital stock (dollars in thousands):

	For the Years Ended December 31,
	2014			2013			2012
Balance, beginning of period	$	8,719		$	9,561		$	6,169
Capital stock subject to mandatory redemption reclassified from capital stock	30,679			20,658			9,458
Capital stock subject to mandatory redemption reclassified to capital stock	—			(20		)	(10		)
Net redemption of mandatorily redeemable capital stock	(15,031		)	(21,480		)	(6,056		)
Balance, end of period	$	24,367		$	8,719		$	9,561

Restricted Retained Earnings

The Bank entered into a JCE Agreement with all of the other FHLBanks in February 2011. The JCE Agreement, as amended, is intended to enhance the capital position of the Bank over time. It requires the Bank to allocate 20 percent of its quarterly net income to a separate restricted retained earnings account until the balance of that account equals at least one percent of its average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends. At December 31, 2014 and 2013, the Bank's restricted retained earnings account totaled $75.0 million and $50.8 million.

117

Accumulated Other Comprehensive Income

The following table summarizes changes in AOCI (dollars in thousands):

	Net unrealized gains on AFS securities (Notes 5 and 7)			Pension and postretirement benefits (Note 16)			Total AOCI
Balance, December 31, 2011	$	137,240		$	(2,679	)	$	134,561
Other comprehensive income (loss)	15,541			(464		)	15,077
Balance, December 31, 2012	152,781			(3,143		)	149,638
Other comprehensive (loss) income before reclassifications
Net unrealized losses	(62,737		)	—			(62,737		)
Reclassifications from other comprehensive (loss) income to net income
Other-than-temporary impairment losses on securities	1,394			—			1,394
Net realized gains on sale of securities	(3,039		)	—			(3,039		)
Amortization - pension and postretirement	—			1,788			1,788
Net current period other comprehensive (loss) income	(64,382		)	1,788			(62,594		)
Balance, December 31, 2013	88,399			(1,355		)	87,044
Other comprehensive income (loss) before reclassifications
Net unrealized gains	39,058			—			39,058
Reclassifications from other comprehensive income (loss) to net income
Net realized gains on sale of securities	(826		)	—			(826		)
Amortization - pension and postretirement	—			(2,054		)	(2,054		)
Net current period other comprehensive income (loss)	38,232			(2,054		)	36,178
Balance, December 31, 2014	$	126,631		$	(3,409	)	$	123,222

Note 16 — Pension and Postretirement Benefit Plans

Qualified Defined Benefit Multiemployer Plan

The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB Plan), a tax-qualified defined benefit pension plan. The Pentegra DB Plan is treated as a multiemployer plan for accounting purposes, but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures are not applicable to the Pentegra DB Plan. Under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately.

The Pentegra DB Plan covers all officers and employees of the Bank that meet certain eligibility requirements if hired on or before December 31, 2010. The Pentegra DB Plan operates on a fiscal year from July 1 through June 30. The Pentegra DB Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333. There are no collective bargaining agreements in place that require contributions to the plan.

The Pentegra DB Plan's annual valuation process includes calculating the plan's funded status and separately calculating the

funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra DB Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the

market value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.

The most recent Form 5500 available for the Pentegra DB Plan is for the year ended June 30, 2013. The Bank's contributions for the plan years ended June 30, 2013 and June 30, 2012 were not more than five percent of the total contributions to the Pentegra DB Plan.

118

The following table summarizes the net pension cost and funded status of the Pentegra DB Plan (dollars in thousands):

	2014			2013			2012
Net pension cost1	$	2,002		$	4,354		$	4,032
Pentegra DB Plan's funded status as of July 1	111.3		%	101.3		%	108.4		%
Bank's funded status as of July 1	123.1		%	111.6		%	123.8		%

1 Represents the net pension cost charged to compensation and benefits expense in the Statements of Income for the years ended December 31, 2014, 2013, and 2012.

The Pentegra DB Plan's funded status and the Bank's funded status reflect the Moving Ahead for Progress in the 21^st Century Act (MAP-21) enacted on July 6, 2012, which changed the calculation of the discount rate used to determine the pension plan liability. MAP-21 allows plan sponsors to measure the pension plan liability using the 25-year average of interest rates to determine the discount rate. Prior to MAP-21, the discount rate used in measuring the pension plan liability was based on the 24-month average of interest rates.

The Pentegra DB Plan's funded status as of July 1, 2014 is preliminary and may further increase because plan participants are permitted to make contributions for the plan year ended June 30, 2014 through March 15, 2015. Contributions made on or before March 15, 2015, and designated for the plan year ended June 30, 2014, will be included in the final valuation as of July 1, 2014. The final funded status as of July 1, 2014 will not be available until the Form 5500 for the plan year July 1, 2014 through June 30, 2015 is filed (this Form 5500 is due to be filed no later than April 2016).

The Pentegra DB Plan's funded status as of July 1, 2013 includes all contributions made by plan participants through March 15, 2014. The final funded status as of July 1, 2013 will not be available until the Form 5500 for the plan year July 1, 2013 through June 30, 2014 is filed (this form 5500 is due to be filed no later than April 2015).

Qualified Defined Contribution Plan

The Bank participates in the Pentegra Defined Contribution Plan for Financial Institutions (Pentegra DC Plan), a tax-qualified defined contribution plan. The Pentegra DC Plan covers all officers and employees of the Bank that meet certain eligibility requirements. The Bank contributes a percentage of participants’ compensation by making a matching contribution equal to a percentage of the participant's voluntary contributions, subject to certain limitations. For the years ended December 31, 2014, 2013, and 2012, the Bank contributed $1.3 million, $1.2 million, and $1.1 million.

Nonqualified Supplemental Defined Contribution and Defined Benefit Retirement Plans

The Bank offers the Benefit Equalization Plan (BEP). The BEP is a nonqualified retirement plan that restores defined contributions and defined benefits offered under the qualified plans that have been limited by laws governing such plans. The BEP covers selected officers of the Bank. The BEP is made up of two parts: BEP Defined Contribution Plan and BEP Defined Benefit Plan. There are no funded plan assets that have been designated to provide benefits under this plan.

BEP Defined Contribution Plan. For each of the years ended December 31, 2014, 2013, and 2012, the Bank contributed $0.1 million to the BEP Defined Contribution Plan.

BEP Defined Benefit Plan. The benefit obligation was as follows (dollars in thousands):

	For the Years Ended December 31,
	2014			2013
Benefit obligation at beginning of year	$	8,497		$	9,412
Service cost	325			401
Interest cost	384			329
Actuarial loss (gain)	914			(425		)
Increase (decrease) due to change in the discount rate	1,137			(951		)
Benefits paid	(272		)	(269		)
Benefit obligation at end of year	$	10,985		$	8,497

The measurement date used to determine the current year's benefit obligation was December 31, 2014.

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The following amounts were recognized in the Statements of Condition (dollars in thousands):

	December 31,
	2014			2013
Accrued benefit liability	$	10,985		$	8,497
Accumulated other comprehensive loss	(3,409		)	(1,644		)
Net amount recognized	$	7,576		$	6,853

The accumulated benefit obligation was $10.8 million and $8.1 million at December 31, 2014 and 2013.

Components of net periodic benefit cost were as follows (dollars in thousands):

	For the Years Ended December 31,
	2014		2013		2012
Service cost	$	325	$	401	$	494
Interest cost	384		329		341
Amortization of prior service cost	22		22		23
Amortization of net loss	264		335		383
Total net periodic benefit cost	$	995	$	1,087	$	1,241

The following table details the change in AOCI (dollars in thousands):

	For the Year Ended December 31, 2014
	Prior Service Cost			Net Loss (Gain)			Total
Balance at beginning of year	$	22		$	1,622		$	1,644
Net loss on defined benefit plan	—			2,051			2,051
Amortization	(22		)	(264		)	(286		)
Balance at end of year	$	—		$	3,409		$	3,409

Amounts in AOCI expected to be recognized as components of net periodic benefit cost during 2015 are (dollars in thousands):

Projected amortization of prior service cost	$	—
Projected amortization of net loss	1,155
Total projected amortization of amounts in accumulated other comprehensive income	$	1,155

Key assumptions used for the actuarial calculations to determine the benefit obligation are as follows:

	December 31,
	2014		2013
Discount rate	3.71	%	4.58	%
Salary increases	4.80	%	4.80	%

Key assumptions used for the actuarial calculations to determine the net periodic benefit cost are as follows:

	For the Years Ended December 31,
	2014		2013		2012
Discount rate	4.58	%	3.71	%	4.20	%
Salary increases	4.80	%	5.00	%	4.80	%

The 2014 discount rate used to determine the benefit obligation was determined using a discounted cash flow approach, which incorporates the timing of each expected future benefit payment. Future benefit payments were estimated based on census data, benefit formulas and provisions, and valuation assumptions reflecting the probability of decrement and survival. The present value of the future benefit payments was calculated using duration-based interest rate yields from the Citigroup Pension Discount Curve as of December 31, 2014, and solving for the single discount rate that produced the same present value.

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The Bank estimates that its required contributions for the year ended December 31, 2015 will be $0.5 million.

Estimated future benefit payments reflecting expected future services for the years ending after December 31, 2014 are (dollars in thousands):

Year	Amount
2015	$	479
2016	514
2017	523
2018	532
2019	549
2020 through 2024	2,960

Note 17 — Fair Value

Fair value amounts are determined by the Bank using available market information and reflect the Bank's best judgment of appropriate valuation methods. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability.

The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

• Level 1 Inputs. Quoted prices (unadjusted) for identical assets or liabilities in an active market that the Bank can access on the measurement date.

• Level 2 Inputs. Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active, (iii) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, implied volatilities, and credit spreads), and (iv) market-corroborated inputs.

• Level 3 Inputs. Unobservable inputs for the asset or liability.

The Bank reviews its fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. These reclassifications are reported as transfers in/out as of the beginning of the quarter in which the changes occur. There were no such transfers during the years ended December 31, 2014 and 2013.

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The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank's financial instruments at December 31, 2014 (dollars in thousands). The fair values do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets and liabilities.

				Fair Value
Financial Instruments	Carrying Value			Level 1			Level 2			Level 3			Netting Adjustment1			Total
Assets
Cash and due from banks	$	495,197		$	495,197		$	—		$	—		$	—		$	495,197
Interest-bearing deposits	1,942			—			1,921			—			—			1,921
Securities purchased under agreements to resell	5,091,000			—			5,091,000			—			—			5,091,000
Federal funds sold	1,860,000			—			1,860,000			—			—			1,860,000
Trading securities	2,530,490			—			2,530,490			—			—			2,530,490
Available-for-sale securities	12,383,792			—			12,383,792			—			—			12,383,792
Held-to-maturity securities	1,211,460			—			1,274,597			24,451			—			1,299,048
Advances	65,168,274			—			65,293,461			—			—			65,293,461
Mortgage loans held for portfolio, net	6,562,469			—			6,833,531			62,218			—			6,895,749
Accrued interest receivable	84,440			—			84,440			—			—			84,440
Derivative assets, net	80,112			1			96,321			—			(16,210		)	80,112
Other assets	12,069			12,069			—			—			—			12,069
Liabilities
Deposits	(512,558		)	—			(512,553		)	—			—			(512,553		)
Consolidated obligations
Discount notes	(57,772,890		)	—			(57,773,924		)	—			—			(57,773,924		)
Bonds	(32,362,110		)	—			(32,958,871		)	—			—			(32,958,871		)
Total consolidated obligations	(90,135,000		)	—			(90,732,795		)	—			—			(90,732,795		)
Mandatorily redeemable capital stock	(24,367		)	(24,367		)	—			—			—			(24,367		)
Accrued interest payable	(89,509		)	—			(89,509		)	—			—			(89,509		)
Derivative liabilities, net	(76,632		)	(322		)	(510,704		)	—			434,394			(76,632		)
Other
Commitments to fund advances	—			—			194			—			—			194
Standby letters of credit	(1,978		)	—			—			(1,978		)	—			(1,978		)
Standby bond purchase agreements	—			—			1,809			—			—			1,809

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

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The following table summarizes the carrying value, fair value, and fair value hierarchy of the Bank's financial instruments at December 31, 2013 (dollars in thousands):

				Fair Value
Financial Instruments	Carrying Value			Level 1			Level 2			Level 3			Netting Adjustment1			Total
Assets
Cash and due from banks	$	448,278		$	448,278		$	—		$	—		$	—		$	448,278
Interest-bearing deposits	1,863			—			1,833			—			—			1,833
Securities purchased under agreements to resell	8,200,000			—			8,200,000			—			—			8,200,000
Federal funds sold	1,200,000			—			1,200,000			—			—			1,200,000
Trading securities	1,018,373			—			1,018,373			—			—			1,018,373
Available-for-sale securities	7,932,520			—			7,932,520			—			—			7,932,520
Held-to-maturity securities	1,788,306			—			1,813,234			29,365			—			1,842,599
Advances	45,650,220			—			45,751,949			—			—			45,751,949
Mortgage loans held for portfolio, net	6,557,293			—			6,683,555			37,340			—			6,720,895
Accrued interest receivable	72,561			—			72,561			—			—			72,561
Derivative assets, net	93,011			160			254,169			—			(161,318		)	93,011
Other assets	10,529			10,529			—			—			—			10,529
Liabilities
Deposits	(699,066		)	—			(699,066		)	—			—			(699,066		)
Consolidated obligations
Discount notes	(38,136,652		)	—			(38,139,485		)	—			—			(38,139,485		)
Bonds	(30,195,568		)	—			(30,735,638		)	—			—			(30,735,638		)
Total consolidated obligations	(68,332,220		)	—			(68,875,123		)	—			—			(68,875,123		)
Mandatorily redeemable capital stock	(8,719		)	(8,719		)	—			—			—			(8,719		)
Accrued interest payable	(81,420		)	—			(81,420		)	—			—			(81,420		)
Derivative liabilities, net	(57,420		)	(3		)	(416,823		)	—			359,406			(57,420		)
Other
Standby letters of credit	(1,849		)	—			—			(1,849		)	—			(1,849		)
Standby bond purchase agreements	—			—			3,860			—			—			3,860

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

Summary of Valuation Techniques and Primary Inputs

Cash and Due from Banks. The fair value equals the carrying value.

Interest-Bearing Deposits. For interest-bearing deposits with less than three months to maturity, the fair value approximates the carrying value. For interest-bearing deposits with more than three months to maturity, the fair value is determined by calculating the present value of the expected future cash flows and reducing the amount for accrued interest receivable.

Securities Purchased under Agreements to Resell. For overnight and term securities purchased under agreements to resell with less than three months to maturity, the fair value approximates the carrying value. For term securities purchased under agreements to resell with more than three months to maturity, the fair value is determined by calculating the present value of the expected future cash flows and reducing the amount for accrued interest receivable. The discount rates used in these calculations are the rates for securities with similar terms.

Overnight Federal Funds Sold. The fair value approximates the carrying value.

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Investment Securities. The Bank's valuation technique incorporates prices from four designated third-party pricing vendors, when available. The pricing vendors generally use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, benchmark securities and yields, reported trades, dealer estimates, issuer spreads, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established process in place to challenge investment valuations, which facilitates resolution of questionable prices identified by the Bank. Annually, the Bank conducts reviews of the four pricing vendors to confirm and further augment its understanding of the vendors' pricing processes, methodologies, and control procedures for investment securities.

The Bank's valuation technique for estimating the fair values of its investment securities first requires the establishment of a “median” price for each security. If four prices are received, the average of the middle two prices is the median price; if three prices are received, the middle price is the median price; if two prices are received, the average of the two prices is the median price; and if one price is received, it is the median price (and also the final price) subject to validation of outliers.

All prices that are within a specified tolerance threshold of the median price are included in the cluster of prices that are averaged to compute a default price. All prices that are outside the threshold (outliers) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier (or outliers) is (are) in fact not representative of fair value and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security. In limited instances, when no prices are available from the four designated pricing services, the Bank obtains prices from dealers.

As of December 31, 2014 and 2013, three or four prices were received for substantially all of the Bank's investment securities and the final prices for substantially all of those securities were computed by averaging the prices received. Based on the Bank's review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices, the Bank believes its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further, that the fair value measurements are classified appropriately in the fair value hierarchy.

As an additional step, the Bank reviews the final fair value estimates of its private-label MBS holdings quarterly for reasonableness using an implied yield test. The Bank calculated an implied yield for each of its private-label MBS using the estimated fair value derived from the process previously described and the security's projected cash flows from the Bank's OTTI process. These yields were compared to the market yield of comparable securities according to dealers and/or other third-party sources. This analysis did not indicate any significant variances. Therefore, the Bank determined that its fair value estimates for private-label MBS were appropriate at December 31, 2014.

Advances. The fair value of advances is determined by calculating the present value of the expected future cash flows, excluding the amount for accrued interest receivable. The discount rates used in these calculations are equivalent to the replacement advance rates for advances with similar terms. In accordance with Finance Agency regulations, advances generally require a prepayment fee sufficient to make the Bank financially indifferent to a borrower's decision to prepay the advances. Therefore, the fair value of advances does not assume prepayment risk.

The Bank uses the following inputs for measuring the fair value of advances:

• Consolidated Obligation Curve (CO Curve). The Office of Finance constructs a market-observable curve referred to as the CO Curve. The CO Curve is constructed using the U.S. Treasury Curve as a base curve which is then adjusted by adding indicative spreads obtained largely from market-observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE trades, and secondary market activity. The Bank utilizes the CO Curve as its input to fair value for advances because it represents the Bank's cost of funds and is used to price advances.

• Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

• Spread assumption. Represents a spread adjustment to the CO Curve.

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Mortgage Loans Held for Portfolio. The fair value of mortgage loans held for portfolio is estimated based on quoted market prices of similar mortgage loans available in the market, if available, or modeled prices. The modeled prices start with prices for new MBS issued by GSEs or similar new mortgage loans. The prices are adjusted for credit risk, servicing spreads, seasoning, and cash flow remittances. The prices for new MBS or similar new mortgage loans are highly dependent upon the underlying prepayment assumptions priced in the secondary market. Changes in expected prepayment rates often have a material effect on the fair value estimates.

Impaired Mortgage Loans Held for Portfolio. The fair value of impaired mortgage loans held for portfolio is estimated by obtaining property values from an external pricing vendor. This vendor utilizes multiple pricing models that generally factor in market observable inputs, including actual sales transactions and home price indices, and considers underlying property characteristics. The Bank applies an adjustment to these values to capture certain limitations in the estimation process and takes into consideration estimated selling costs and expected PMI proceeds. In limited instances, the Bank may estimate the fair value of an impaired mortgage loan by calculating the present value of expected future cash flows discounted at the loan's effective interest rate.  

Real Estate Owned. The fair value of REO is estimated using a current property value from the MPF Servicer or a broker price opinion adjusted for estimated selling costs and expected PMI proceeds.

Accrued Interest Receivable and Payable. The fair value approximates the carrying value.

Derivative Assets and Liabilities. The fair value of derivatives is generally estimated using standard valuation techniques such as discounted cash flow analyses and comparisons to similar instruments. In limited instances, fair value estimates for interest-rate related derivatives may be obtained using an external pricing model that utilizes observable market data. The Bank is subject to credit risk in derivatives transactions due to the potential nonperformance of its derivatives counterparties. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily, through a clearing agent, for changes in the fair value of cleared derivatives. To mitigate credit risk on bilateral derivatives, the Bank enters into master netting agreements with its counterparties as well as collateral agreements that provide for the delivery of collateral at specified levels tied to those counterparties' credit ratings. The Bank has evaluated the potential for the fair value of its derivatives to be affected by counterparty credit risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.

The fair values of the Bank's derivative assets and derivative liabilities include accrued interest receivable/payable and cash collateral remitted to/received from counterparties. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values due to their short-term nature. The fair values of derivatives are netted by clearing agent and/or counterparty if the netting requirements are met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability.

The Bank's discounted cash flow model utilizes market-observable inputs (inputs that are actively quoted and can be validated to external sources). The Bank uses the following inputs for measuring the fair value of interest-related derivatives:

• Discount rate assumption. The Bank utilizes the Overnight-Index Swap (OIS) curve. 

• Forward interest rate assumption. The Bank utilizes the LIBOR swap curve.

• Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

For forward settlement agreements (TBAs), the Bank utilizes TBA securities prices that are determined by coupon class and expected term until settlement. For mortgage delivery commitments, the Bank utilizes TBA securities prices adjusted for factors such as credit risk and servicing spreads.

Other Assets. These represent assets held in a Rabbi Trust for the Bank's nonqualified retirement plan. These assets include cash equivalents and mutual funds, both of which are carried at estimated fair value based on quoted market prices as of the last business day of the reporting period.

125

Deposits. For deposits with three months or less to maturity, the fair value approximates the carrying value. For deposits with more than three months to maturity, the fair value is determined by calculating the present value of the expected future cash flows and reducing the amount for accrued interest payable. The discount rates used in these calculations are the cost of deposits with similar terms.

Consolidated Obligations. The fair value of consolidated obligations is based on prices received from pricing vendors (consistent with the methodology for investment securities discussed above) or determined by calculating the present value of the expected future cash flows and reducing the amount for accrued interest payable. For consolidated obligations elected under the fair value option, fair value includes accrued interest payable. The discount rates used in these calculations are for consolidated obligations with similar terms. The Bank uses the CO Curve and a volatility assumption for measuring the fair value of these consolidated obligations.

Mandatorily Redeemable Capital Stock. The fair value of capital stock subject to mandatory redemption is generally reported at par value. Fair value also includes an estimated dividend earned at the time of reclassification from equity to a liability (if applicable), until such amount is paid. Capital stock can only be acquired by members at par value and redeemed at par value. Capital stock is not publicly traded and no market mechanism exists for the exchange of stock outside the cooperative structure.

Commitments to Fund Advances. The fair value of advance commitments is based on the present value of fees currently charged for similar agreements, taking into account the remaining terms of the agreement and the difference between current levels of interest rates and the committed rates.

Standby Letters of Credit. The fair value of standby letters of credit is based on either the fees currently charged for similar agreements or the estimated cost to terminate the agreement or otherwise settle the obligation with the counterparty.

Standby Bond Purchase Agreements. The fair value of standby bond purchase agreements is calculated using the present value of the expected future fees related to the agreements. The discount rates used in the calculations are based on municipal spreads over the U.S. Treasury Curve, which are comparable to discount rates used to value the underlying bonds. Upon purchase of any bonds under these agreements, the Bank estimates fair value using the "Investment Securities" fair value methodology.

Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methods previously described are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair value estimates.

126

Fair Value on a Recurring Basis

The following table summarizes, for each hierarchy level, the Bank's assets and liabilities that are measured at fair value in the Statements of Condition at December 31, 2014 (dollars in thousands):

Recurring Fair Value Measurements	Level 1			Level 2			Level 3		Netting Adjustment1			Total
Assets
Trading securities
Other U.S. obligations	$	—		$	256,267		$	—	$	—		$	256,267
GSE obligations	—			1,531,811			—		—			1,531,811
Othernon-MBS	—			280,215			—		—			280,215
GSE multifamily MBS	—			462,197			—		—			462,197
Total trading securities	—			2,530,490			—		—			2,530,490
Available-for-sale securities
Other U.S. obligations	—			163,569			—		—			163,569
GSE obligations	—			1,012,308			—		—			1,012,308
State or local housing agency obligations	—			36,348			—		—			36,348
Other non-MBS	—			183,702			—		—			183,702
Other U.S. obligations single-family MBS	—			1,975,691			—		—			1,975,691
GSE single-family MBS	—			2,008,907			—		—			2,008,907
GSE multifamily MBS	—			7,003,267			—		—			7,003,267
Total available-for-sale securities	—			12,383,792			—		—			12,383,792
Derivative assets, net
Interest-rate related	—			96,076			—		(16,209		)	79,867
Forward settlement agreements (TBAs)	1			—			—		(1		)	—
Mortgage delivery commitments	—			245			—		—			245
Total derivative assets, net	1			96,321			—		(16,210		)	80,112
Other assets	12,069			—			—		—			12,069
Total recurring assets at fair value	$	12,070		$	15,010,603		$	—	$	(16,210	)	$	15,006,463
Liabilities
Derivative liabilities, net
Interest-rate related	$	—		$	(510,697	)	$	—	$	434,393		$	(76,304	)
Forward settlement agreements (TBAs)	(322		)	—			—		1			(321		)
Mortgage delivery commitments	—			(7		)	—		—			(7		)
Total derivative liabilities, net	(322		)	(510,704		)	—		434,394			(76,632		)
Total recurring liabilities at fair value	$	(322	)	$	(510,704	)	$	—	$	434,394		$	(76,632	)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

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The following table summarizes, for each hierarchy level, the Bank's assets and liabilities that are measured at fair value in the Statements of Condition at December 31, 2013 (dollars in thousands):

Recurring Fair Value Measurements	Level 1			Level 2			Level 3		Netting Adjustment1			Total
Assets
Trading securities
Other U.S. obligations	$	—		$	266,898		$	—	$	—		$	266,898
GSE obligations	—			54,971			—		—			54,971
Othernon-MBS	—			263,354			—		—			263,354
GSE multifamily MBS	—			433,150			—		—			433,150
Total trading securities	—			1,018,373			—		—			1,018,373
Available-for-sale securities
Other U.S. obligations	—			181,548			—		—			181,548
GSE obligations	—			1,126,875			—		—			1,126,875
State or local housing agency obligations	—			22,971			—		—			22,971
Other non-MBS	—			263,574			—		—			263,574
GSE single-family MBS	—			2,088,449			—		—			2,088,449
GSE multifamily MBS	—			4,249,103			—		—			4,249,103
Total available-for-sale securities	—			7,932,520			—		—			7,932,520
Derivative assets, net
Interest-rate related	—			254,163			—		(161,315		)	92,848
Forward settlement agreements (TBAs)	160			—			—		(3		)	157
Mortgage delivery commitments	—			6			—		—			6
Total derivative assets, net	160			254,169			—		(161,318		)	93,011
Other assets	10,529			—			—		—			10,529
Total recurring assets at fair value	$	10,689		$	9,205,062		$	—	$	(161,318	)	$	9,054,433
Liabilities
Bonds2	$	—		$	(50,033	)	$	—	$	—		$	(50,033	)
Derivative liabilities, net
Interest-rate related	—			(416,699		)	—		359,403			(57,296		)
Forward settlement agreements (TBAs)	(3		)	—			—		3			—
Mortgage delivery commitments	—			(124		)	—		—			(124		)
Total derivative liabilities, net	(3		)	(416,823		)	—		359,406			(57,420		)
Total recurring liabilities at fair value	$	(3	)	$	(466,856	)	$	—	$	359,406		$	(107,453	)

1 Amounts represent the application of the netting requirements that allow the Bank to net settle positive and negative positions and also cash collateral and the related accrued interest held or placed with the same clearing agent and/or counterparty.

2 Represents bonds recorded under the fair value option.

Fair Value on a Non-Recurring Basis

The Bank measures certain impaired mortgage loans held for portfolio and REO at level 3 fair value on a non-recurring basis. These assets are subject to fair value adjustments in certain circumstances. In the case of impaired mortgage loans, the Bank estimates fair value based primarily on property values from an external pricing vendor. These values are further adjusted by the Bank to capture certain limitations in the estimation process and take into consideration estimated selling costs and expected PMI proceeds. In the case of REO, the Bank estimates fair value based on a current property value from the MPF Servicer or a broker price opinion adjusted for estimated selling costs and expected PMI proceeds. The following table summarizes impaired mortgage loans held for portfolio and REO that were recorded at fair value as a result of a non-recurring change in fair value having been recorded in the quarter then ended (dollars in thousands):

	December 31,
	2014		2013
Impaired mortgage loans held for portfolio	$	15,942	$	37,340
Real estate owned	773		571
Total non-recurring assets	$	16,715	$	37,911

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Fair Value Option

The fair value option provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires entities to display the fair value of those assets and liabilities for which it has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income.

The Bank elected the fair value option for certain consolidated obligation bonds and discount notes that did not qualify for hedge accounting, primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value.

The following tables summarize the activity related to consolidated obligations for which the fair value option has been elected (dollars in thousands):

	For the Years Ended December 31,
Bonds	2014			2013			2012
Balance, beginning of period	$	50,033		$	1,866,985		$	2,694,687
New bonds elected for fair value option	—			—			100,000
Maturities and terminations	(50,000		)	(1,815,000		)	(925,000		)
Net gains on bonds held at fair value	(2		)	(1,028		)	(2,784		)
Change in accrued interest	(31		)	(924		)	82
Balance, end of period	$	—		$	50,033		$	1,866,985

	For the Years Ended December 31,
Discount Notes	2014		2013		2012
Balance, beginning of period	$	—	$	—	$	3,474,596
Maturities and terminations	—		—		(3,476,631		)
Net gains on discount notes held at fair value	—		—		(1,403		)
Change in unaccreted balance	—		—		3,438
Balance, end of period	$	—	$	—	$	—

For consolidated obligations recorded under the fair value option, the related contractual interest expense is recorded as part of net interest income in the Statements of Income. The remaining changes are recorded as “Net gains on consolidated obligations held at fair value” in the Statements of Income. At December 31, 2014, the Bank did not hold any consolidated obligations recorded under the fair value option. At December 31, 2013, the Bank determined no credit risk adjustments for nonperformance were necessary to the consolidated obligation bonds recorded under the fair value option.

The following table summarizes the difference between the unpaid principal balance and fair value of outstanding consolidated obligation bonds for which the fair value option has been elected (dollars in thousands):

	December 31,
	2014		2013
Unpaid principal balance	$	—	$	50,000
Fair value	—		50,033
Fair value over unpaid principal balance	$	—	$	33

Note 18 — Commitments and Contingencies

Joint and Several Liability. The 12 FHLBanks have joint and several liability for all consolidated obligations issued. Accordingly, if an FHLBank were unable to repay any consolidated obligation for which it is the primary obligor, each of the other FHLBanks could be called upon by the Finance Agency to repay all or part of such obligations. No FHLBank has ever been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank. At December 31, 2014 and 2013, the total par value of outstanding consolidated obligations issued on behalf of other FHLBanks for which the Bank is jointly and severally liable was approximately $757.1 billion and $698.5 billion.

129

The following table summarizes additional off-balance sheet commitments for the Bank (dollars in thousands):

	December 31, 2014						December 31, 2013
	Expire within one year		Expire after one year		Total		Total
Standby letters of credit	$	4,353,836	$	57,947	$	4,411,783	$	4,303,732
Standby bond purchase agreements	205,888		351,394		557,282		619,338
Commitments to purchase mortgage loans	70,106		—		70,106		29,651
Commitments to issue bonds	170,000		—		170,000		29,289
Commitments to issue discount notes	—		—		—		399,831
Commitments to fund advances	—		14,000		14,000		—
Other commitments	86,580		—		86,580		100,000

Standby Letters of Credit. A standby letter of credit is a financing arrangement between the Bank and a member. Standby letters of credit are executed with members for a fee. If the Bank is required to make payment for a beneficiary's draw, the payment is withdrawn from the member's demand account. Any resulting overdraft is converted into a collateralized advance to the member. The original terms of standby letters of credit range from less than one month to 13 years, currently no later than 2020. Unearned fees for standby letters of credit are recorded in “Other liabilities” in the Statements of Condition and amounted to $2.0 million and $1.8 million at December 31, 2014and2013.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of its borrowers. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit. Based on management's credit analyses and collateral requirements, the Bank does not deem it necessary to have any provision for credit losses on these standby letters of credit. All standby letters of credit are fully collateralized at the time of issuance. The estimated fair value of standby letters of credit at December 31, 2014and2013 is reported in “Note 17 — Fair Value.”

Standby Bond Purchase Agreements. The Bank has entered into standby bond purchase agreements with state housing associates within its district whereby, for a fee, it agrees to serve as a standby liquidity provider if required, to purchase and hold the housing associate's bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which the Bank would be required to purchase the bonds. The standby bond purchase commitments entered into by the Bank have original expiration periods of up to seven years, currently no later than 2017. At December 31, 2014 and 2013, the Bank had standby bond purchase agreements with four housing associates. During the years ended December 31, 2014, 2013, and 2012, the Bank was not required to purchase any bonds under these agreements. For the years ended December 31, 2014, 2013, and 2012, the Bank received fees for the guarantees that amounted to $1.7 million, $2.0 million, and $2.1 million. The estimated fair value of standby bond purchase agreements at December 31, 2014 and 2013 is reported in “Note 17 — Fair Value.”

Commitments to Purchase Mortgage Loans. The Bank enters into commitments that unconditionally obligate it to purchase mortgage loans from its members. Commitments are generally for periods not to exceed 45 days. These commitments are considered derivatives and their estimated fair value at December 31, 2014 and 2013 is reported in “Note 11 — Derivatives and Hedging Activities” as mortgage delivery commitments.

Commitments to Issue Bonds and Discount Notes. At December 31, 2014, the Bank had commitments to issue $170.0 million of consolidated obligation bonds. At December 31, 2013, the Bank had commitments to issue $29.3 million of consolidated obligation bonds and $399.8 million of consolidated obligation discount notes.

Commitments to Fund Advances. The Bank enters into commitments that legally bind it to fund additional advances up to 24 months in the future. At December 31, 2014, the Bank had commitments to fund advances of $14.0 million. At December 31, 2013, the Bank had no commitments to fund advances.

Other Commitments. On December 30, 2013, the Bank entered into an agreement with the Iowa Finance Authority (IFA) to purchase up to $100.0 million of taxable multi-family mortgage revenue bonds. The agreement expires on June 30, 2015. As of December 31, 2014, the Bank had purchased $13.4 million of bonds under the IFA agreement. These bonds are classified as AFS in the Bank's Statements of Condition.

130

As previously described in “Note 10 — Allowance for Credit Losses”, the FLA is a memorandum account used to track the Bank's potential loss exposure under each master commitment prior to the PFI's credit enhancement obligation. For absorbing certain losses in excess of the FLA, PFIs are paid a credit enhancement fee, a portion of which may be performance-based. To the extent the Bank experiences losses under the FLA, it may be able to recapture performance-based credit enhancement fees paid to the PFI to offset these losses. The FLA balance for all master commitments with a PFI credit enhancement obligation was $92.2 million and $87.3 million at December 31, 2014 and 2013.

Legal Proceedings. The Bank is not currently aware of any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which it is a party or of which any of its property is the subject.

Note 19 — Activities with Stockholders

The Bank is a cooperative whose current members own nearly all of the outstanding capital stock of the Bank. Former members own the remaining capital stock to support business transactions still carried on the Bank's Statements of Condition. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by the Bank's Board of Directors.

Transactions with Directors' Financial Institutions

In the normal course of business, the Bank extends credit to its members whose directors and officers serve as Bank directors (Directors' Financial Institutions). Finance Agency regulations require that transactions with Directors' Financial Institutions be made on the same terms and conditions as those with any other member.

The following table summarizes the Bank's outstanding transactions with Directors' Financial Institutions (dollars in thousands):

	December 31, 2014			December 31, 2013
	Amount		% of Total	Amount		% of Total
Advances	$	822,027	1.3	$	614,566	1.4
Mortgage loans	206,957		3.2	94,163		1.5
Deposits	3,362		0.7	2,550		0.4
Capital stock	55,000		1.6	40,982		1.5

Business Concentrations

The Bank considers itself to have business concentrations with stockholders owning 10 percent or more of its total capital stock outstanding (including mandatorily redeemable capital stock). At December 31, 2014, the Bank had the following business concentrations with stockholders (dollars in thousands):

	Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total	Advances		Loans		Income1
Wells Fargo Bank, N.A.	$	1,370,000	39.2	$	34,000,000	$	—	$	63,462
Superior Guaranty Insurance Company2	47,866		1.4	—		1,173,522		—
Total	$	1,417,866	40.6	$	34,000,000	$	1,173,522	$	63,462

1 Represents interest income earned on advances during the year ended December 31, 2014.

2 Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.

At December 31, 2013, the Bank had the following business concentrations with stockholders (dollars in thousands):

	Capital Stock					Mortgage		Interest
Stockholder	Amount		% of Total	Advances		Loans		Income1
Wells Fargo Bank, N.A.	$	770,000	28.5	$	19,000,000	$	—	$	14,470
Superior Guaranty Insurance Company2	60,130		2.2	—		1,477,856		—
Total	$	830,130	30.7	$	19,000,000	$	1,477,856	$	14,470

1 Represents interest income earned on advances during the year ended December 31, 2013.

2 Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.

131

Note 20 — Activities with Other FHLBanks

MPF Mortgage Loans. The Bank pays a service fee to the FHLBank of Chicago for its participation in the MPF program. This service fee expense is recorded in other expense. For the years endedDecember 31, 2014, 2013, and 2012, the Bank recorded $2.8 million, $2.6 million, and $2.5 million in service fee expense to the FHLBank of Chicago.

Overnight Funds. The Bank may lend or borrow unsecured overnight funds to or from other FHLBanks. All such transactions are at current market rates. The Bank did not loan any funds to other FHLBanks during the year ended December

31, 2012. The following table summarizes loan activity to other FHLBanks during the years ended December 31, 2014 and 2013 (dollars in thousands):

Other FHLBank	Beginning Balance		Advance		Principal Repayment			Ending Balance
2014
Chicago	$	—	$	10,000	$	(10,000	)	$	—
Topeka	—		10,000		(10,000		)	—
	$	—	$	20,000	$	(20,000	)	$	—
2013
Atlanta	$	—	$	17,000	$	(17,000	)	$	—

The following table summarizes borrowing activity from other FHLBanks during the years ended December 31, 2014, 2013, and 2012 (dollars in thousands):

Other FHLBank	Beginning Balance		Borrowing		Principal Payment			Ending Balance
2014
Atlanta	$	—	$	70,000	$	(70,000	)	$	—
Chicago	—		150,000		(150,000		)	—
Dallas	—		60,000		(60,000		)	—
San Francisco	—		150,000		(150,000		)	—
	$	—	$	430,000	$	(430,000	)	$	—
2013
Chicago	$	—	$	200,000	$	(200,000	)	$	—
New York	—		200,000		(200,000		)	—
Topeka	—		70,000		(70,000		)	—
	$	—	$	470,000	$	(470,000	)	$	—
2012
Chicago	$	—	$	125,000	$	(125,000	)	$	—

At December 31, 2014 and 2013, none of the previous transactions were outstanding on the Bank's Statements of Condition. The interest income and expense related to these transactions was immaterial.

Debt Transfers. The Bank may transfer debt from time to time in an effort to better match its projected asset cash flows or reduce its future interest costs. These transfers are accounted for in the same manner as debt extinguishments. In connection with these transactions, the assuming FHLBanks become the primary obligors for the transferred debt. During the year ended December 31, 2014, the Bank did not transfer any debt to other FHLBanks. During the year ended December 31, 2013, the Bank transferred $80.0 million and $70.0 million of par value bonds to the FHLBanks of San Francisco and Boston and recorded aggregate net losses of $13.9 million and $10.6 million through "Net losses on extinguishment of debt" in the Statements of Income. During the year ended December 31, 2012, the Bank transferred $380.0 million of par value bonds to the FHLBank of Boston and recorded aggregate net losses of $49.0 million through "Net losses on extinguishment of debt" in the Statements of Income.

132

SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)

Selected Quarterly Financial Information

The following tables present a summary of our Statements of Condition (dollars in millions):

	2014
Statements of Condition	December 31,			September 30,			June 30,			March 31,
Investments1	$	23,079		$	17,948		$	23,490		$	20,885
Advances	65,168			64,220			51,714			44,924
Mortgage loans held for portfolio, gross	6,567			6,530			6,493			6,492
Allowance for credit losses	(5		)	(6		)	(7		)	(7		)
Total assets	95,524			98,399			82,217			72,889
Consolidated obligations
Discount notes	57,773			62,803			59,331			42,816
Bonds	32,362			30,387			18,252			25,225
Total consolidated obligations2	90,135			93,190			77,583			68,041
Mandatorily redeemable capital stock	24			8			8			8
Total liabilities	91,212			94,079			78,424			69,415
Capital stock — Class B putable	3,469			3,456			2,954			2,670
Retained earnings	720			712			705			697
Accumulated other comprehensive income	123			152			134			107
Total capital	4,312			4,320			3,793			3,474

	2013
Statements of Condition	December 31,			September 30,			June 30,			March 31,
Investments1	$	20,131		$	12,336		$	12,412		$	15,895
Advances	45,650			45,787			26,513			24,802
Mortgage loans held for portfolio, gross	6,565			6,603			6,726			6,786
Allowance for credit losses	(8		)	(14		)	(15		)	(15		)
Total assets	73,004			65,063			46,022			47,926
Consolidated obligations
Discount notes	38,137			28,218			5,219			5,326
Bonds	30,195			32,227			36,817			38,146
Total consolidated obligations3	68,332			60,445			42,036			43,472
Mandatorily redeemable capital stock	9			13			15			11
Total liabilities	69,547			61,644			43,228			45,173
Capital stock — Class B putable	2,692			2,690			2,069			1,970
Retained earnings	678			656			639			636
Accumulated other comprehensive income	87			73			86			147
Total capital	3,457			3,419			2,794			2,753

1 Investments include interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, trading securities, AFS securities, and HTM securities.

2 The total par value of outstanding consolidated obligations of the 12 FHLBanks was $847.2 billion, $816.9 billion, $800.0 billion, and $753.9 billion at December 31, 2014, September 30, 2014, June 30, 2014, and March 31, 2014.

3 The total par value of outstanding consolidated obligations of the 12 FHLBanks was $766.8 billion, $720.7 billion, $704.5 billion, and $666.0 billion at December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013.

133

The following tables present a summary of our Statements of Income (dollars in millions):

	For the Three Months Ended
	2014
Statements of Income	December 31,			September 30,			June 30,			March 31,
Net interest income	$	74.0		$	64.0		$	60.3		$	52.4
Reversal for credit losses on mortgage loans	(0.7		)	(1.4		)	—			(0.3		)
Other (loss) income1	(22.0		)	(18.1		)	(14.6		)	3.4
Other expense2	18.9			17.7			15.7			15.0
Assessments	3.4			3.0			3.0			4.1
Net income	30.4			26.6			27.0			37.0

	For the Three Months Ended
	2013
Statements of Income	December 31,			September 30,			June 30,			March 31,
Net interest income	$	58.4		$	50.7		$	50.7		$	53.3
Reversal for credit losses on mortgage loans	(5.9		)	—			—			—
Other (loss) income1	(3.7		)	(3.4		)	(19.7		)	(7.7		)
Other expense2	19.8			13.9			13.6			15.2
Assessments	4.1			3.3			1.7			3.1
Net income	36.7			30.1			15.7			27.3

1 Other (loss) income includes, among other things, net gains (losses) on investment securities, net gains (losses) on derivatives and hedging activities, and net losses on the extinguishment of debt.

2 Other expense includes, among other things, compensation and benefits, professional fees, contractual services, and gains and losses on REO.

134

Investment Portfolio Analysis

The following table summarizes the carrying value of our investment portfolio (dollars in millions):

	December 31,
	2014		2013		2012
Trading securities
Other U.S. obligations	$	256	$	267	$	309
GSE obligations	1,532		55		64
Other1	280		263		295
Mortgage-backed securities
GSE multifamily	462		433		477
Total trading securities	2,530		1,018		1,145
Available-for-sale securities
Other U.S. obligations	164		181		163
GSE obligations	1,012		1,127		556
State or local housing agency obligations	36		23		8
Other1	184		264		401
Mortgage-backed securities
Other U.S. obligations single-family	1,976		—		—
GSE single-family	2,009		2,088		3,072
GSE multifamily	7,003		4,250		660
Total available-for-sale securities	12,384		7,933		4,860
Held-to-maturity securities
GSE obligations	305		307		308
State or local housing agency obligations	60		72		88
Other2	—		1		2
Mortgage-backed securities
Other U.S. obligations single-family	3		5		8
Other U.S. obligations commercial	2		2		3
GSE single-family	817		1,361		2,590
Private-label residential	25		30		41
Total held-to-maturity securities	1,212		1,778		3,040
Interest-bearing deposits	2		2		3
Securities purchased under agreements to resell	5,091		8,200		3,425
Federal funds sold	1,860		1,200		960
Total investments	$	23,079	$	20,131	$	13,433

1 Consists of Private Export Funding Corporation and/or taxable municipal bonds.

2 Consists of an investment in a Small Business Investment Company.

135

The following table summarizes the carrying value and yield characteristics of our investment portfolio on the basis of remaining terms to contractual maturity at December 31, 2014 (dollars in millions):

	Due in one year or less			Due after one year through five years			Due after five years through 10 years			Due after 10 years			Total
Trading securities
Other U.S. obligations	$	—		$	—		$	141		$	115		$	256
GSE obligations	—			1,470			—			62			1,532
Other1	—			13			142			125			280
Mortgage-backed securities
GSE multifamily	—			—			431			31			462
Total trading securities	—			1,483			714			333			2,530
Yield on trading securities	—		%	0.15		%	2.64		%	4.56		%
Available-for-sale securities
Other U.S. obligations	—			—			164			—			164
GSE obligations	67			915			30			—			1,012
State or local housing agency obligations	—			—			—			36			36
Other1	—			—			62			122			184
Mortgage-backed securities
Other U.S. obligations single-family	—			—			—			1,976			1,976
GSE single-family	—			—			—			2,009			2,009
GSE multifamily	—			359			5,521			1,123			7,003
Total available-for-sale securities	67			1,274			5,777			5,266			12,384
Yield on available-for-sale securities	3.76		%	2.64		%	2.70		%	1.29		%
Held-to-maturity securities
GSE obligations	—			—			—			305			305
State or local housing agency obligations	—			—			—			60			60
Mortgage-backed securities
Other U.S. obligations single-family	—			1			—			2			3
Other U.S. obligations commercial	—			—			2			—			2
GSE single-family	—			—			—			817			817
Private-label residential	—			—			—			25			25
Total held-to-maturity securities	—			1			2			1,209			1,212
Yield on held-to-maturity securities	—		%	0.68		%	0.84		%	2.85		%
Total investment securities	67			2,758			6,493			6,808			16,126
Interest-bearing deposits	1			1			—			—			2
Securities purchased under agreements to resell	5,091			—			—			—			5,091
Federal funds sold	1,860			—			—			—			1,860
Total investments	$	7,019		$	2,759		$	6,493		$	6,808		$	23,079

1 Consists of taxable municipal bonds.

At December 31, 2014, we had investments with a carrying value greater than 10 percent of our total capital with the following issuers (excluding GSEs and U.S. Government agencies) (dollars in millions):

	Carrying Value		Fair Value
Cantor Fitzgerald & Co.	$	750	$	750
Federal Reserve Bank	2,536		2,536
Nomura Securities International, Inc.	1,505		1,505
Total	$	4,791	$	4,791

136

Loan Portfolio Analysis

The following table presents supplemental information on our mortgage loans held for portfolio (dollars in thousands):

	December 31,
	2014			2013			2012			2011			2010
Past due 90 days or more and still accruing interest1	$	10,799		$	9,645		$	5,292		$	4,427		$	4,675
Non-accrual mortgage loans2	$	58,832		$	71,221		$	88,992		$	97,477		$	111,064
Allowance for credit losses
Balance, beginning of year	$	8,000		$	15,793		$	18,963		$	13,000		$	1,887
Charge-offs3	(702		)	(1,871		)	(3,170		)	(3,192		)	(1,005		)
(Reversal) provision for credit losses on mortgage loans	(2,398		)	(5,922		)	—			9,155			12,118
Balance, end of year	$	4,900		$	8,000		$	15,793		$	18,963		$	13,000
Non-accrual mortgage loans
Gross interest income that would have been recorded based on original terms during the year	$	2,464
Interest actually recognized into net income during the year	—
Interest shortfall	$	2,464

1 Represents government-insured mortgage loans that are 90 days or more past due.

2 Represents conventional mortgage loans that are 90 days or more past due and troubled debt restructurings.

3 The ratio of charge-offs to average mortgage loans outstanding was one percent or less for the years ended December 31, 2014, 2013, 2012, 2011, and 2010.

Short-Term Borrowings

Borrowings with original maturities of one year or less are classified as short-term. The following table summarizes our short-term borrowings for the years ended December 31, 2014, 2013, and 2012 (dollars in millions):

	Discount Notes									Bonds
	2014			2013			2012			2014			2013			2012
Outstanding at end of the period	$	57,773		$	38,137		$	8,675		$	4,954		$	14,500		$	14,375
Weighted-average rate at end of the period	0.09		%	0.10		%	0.13		%	0.18		%	0.10		%	0.19		%
Daily-average outstanding for the period	$	53,136		$	15,442		$	8,839		$	6,255		$	17,423		$	9,725
Weighted-average rate for the period	0.08		%	0.09		%	0.13		%	0.13		%	0.13		%	0.19		%
Highest outstanding at any month-end	$	64,422		$	38,137		$	14,158		$	14,700		$	22,200		$	14,375

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934 (Exchange Act) is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our president and chief executive officer (CEO) and chief financial officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.

Management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) with the participation of the president and CEO and CFO as of the end of the annual period covered by this report. Based on that evaluation, the president and CEO and the CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2014.

Report of Management on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting process is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are made only in accordance with authorizations of management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the framework established in "Internal Control — Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our assessment, management concluded that we maintained effective internal control over financial reporting as of December 31, 2014.

Additionally, our internal control over financial reporting as of December 31, 2014 has been audited by our independent registered public accounting firm, PricewaterhouseCoopers, LLP (PwC). Refer to “Item 8. Financial Statements and Supplementary Data — Report of Independent Registered Public Accounting Firm” for their audit report.

Changes in Internal Control over Financial Reporting

For the fourth quarter of 2014, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

The Board of Directors is responsible for monitoring our compliance with Finance Agency regulations and establishing policies and programs that carry out our housing finance mission. The Board of Directors adopts, reviews, and oversees the implementation of policies governing our advance, mortgage loan, investment, and funding activities. Additionally, the Board of Directors adopts, reviews, and oversees the implementation of policies that manage our exposure to market, liquidity, credit, operational, and business risks, as well as capital adequacy.

Our Board is comprised of Member Directors elected by our member institutions on a state-by-state basis and Independent Directors elected by a plurality of our members. Our Board currently includes nine Member Directors and six Independent Directors, two of which serve as public interest directors. Under the FHLBank Act, the only matters submitted to shareholders for votes are (i) the annual election of our Directors and (ii) any proposed agreement to merge with one or more FHLBanks. Finance Agency regulations require all of our Directors to be elected by our members. No member of management may serve as a director of an FHLBank.

Pursuant to the passage of the Housing Act, both Member and Independent Directors serve four-year terms. If any person has been elected to three consecutive full terms as a Member or Independent Director of our Board of Directors, the individual is not eligible for election to a Member or Independent Directorship for a term which begins earlier than two years after the expiration of the last expiring four-year term.

Member Directorships are allocated by the Finance Agency to the five states in our district and a member institution is eligible to participate in the election for the state in which it is located. Candidates for Member Directorships are not nominated by the Board. As provided for in the FHLBank Act, Member Directors are nominated by the members eligible to participate in the election in the relevant state. A member is entitled to cast, for each applicable Member Directorship, one vote for each share of capital stock that the member is required to hold as of the record date for voting, subject to a statutory limitation. Under this limitation, the total number of votes that each member may cast is limited to the average number of shares of our capital stock that were required to be held by all members in that state as of the record date for voting.

Member Directors are required, by statute and regulation, to meet certain eligibility requirements to serve as a director. To qualify as a Member Director an individual must (i) be an officer or director of a member institution in compliance with the minimum capital requirements established by its regulator and located in the state in which there is an open directorship and (ii) be a U.S. citizen. We are not permitted to establish additional qualifications to define eligibility criteria for Member Directors or nominees. Because of the structure of FHLBank Member Director nominations and elections, we may not know what factors our member institutions considered in selecting Member Director nominees or electing Member Directors.

Independent Directors are nominated by our Board of Directors after consultation with our Advisory Council, and then voted upon by all members within our five-state district. For each Independent Directorship, a member is entitled to cast the same number of votes as it would for a Member Directorship.

In order to be eligible to serve as an Independent Director on our Board, an individual must (i) be a U.S. citizen and (ii) maintain a principal residence in a state in our district (or own or lease a residence in the district and be employed in the district). In addition, the individual may not be an officer of any FHLBank or a director, officer, or employee of any member institution or of any recipient of our advances. By regulation, each public interest Independent Director must have more than four years of personal experience in representing consumer or community interests in banking services, credit needs, housing, or financial consumer protection. Each Independent Director, other than a public interest Independent Director, must have knowledge of, or experience in, financial management, auditing or accounting, risk management practices, derivatives, project development, organizational management, or the law.

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On an annual basis, our Board of Directors performs an assessment that includes consideration of the directors’ backgrounds, expertise, qualifications, and other factors. The Board of Directors also annually reviews its Corporate Governance Principles, which include a statement of the skills and qualifications it desires on the Board of Directors. Furthermore, each director annually provides us a certification that the director continues to meet all applicable statutory and regulatory eligibility and qualification requirements. In connection with the election or appointment of an Independent Director, the Independent Director completes an application to serve on the Board of Directors. As a result of the annual assessment and as of the filing date of this Form 10-K, nothing has come to the attention of the Board of Directors or management to indicate that any of the current directors do not continue to possess the necessary experience, qualifications, attributes, or skills expected of the directors that serve on our Board of Directors, as described in each director’s biography below.

Information regarding our current directors and executive officers is provided in the following sections. There are no family relationships among our directors or executive officers.

The table below shows membership information for the Bank’s Board of Directors at February 28, 2015:

				Expiration of
				Current Term As
		Member or		Director as of	Board
Director	Age	Independent	Director Since	December 31	Committees
Dale E. Oberkfell (chair)	59	Member	January 1, 2007	2017	a, b, e
Eric A. Hardmeyer (vice chair)	55	Member	January 1, 2008	2018	a, c, g
Steven L. Bumann	61	Member	January 1, 2015	2017	c, g
Van D. Fishback	68	Member	January 1, 2009	2016	a, e, g
Chris D. Grimm	56	Member	January 1, 2010	2015	a, b, d
W. Douglas Hile	62	Member	January 1, 2015	2018	b, c
Teresa J. Keegan	52	Member	January 1, 2012	2015	e, g
Michelle M. Keeley	50	Independent	January 1, 2015	2018	e, f
John F. Kennedy, Sr. *	59	Independent	May 14, 2007	2016	a, b, d
Ellen Z. Lamale	61	Independent	January 1, 2012	2015	a, c, f
Elsie M. Meeks *	61	Independent	January 1, 2015	2018	b, d
Paula R. Meyer	60	Independent	May 14, 2007	2016	a, e, f
John P. Rigler II	63	Member	January 1, 2013	2016	c, g
John H. Robinson	64	Independent	May 14, 2007	2015	a, d, f
Joseph C. Stewart III	45	Member	January 1, 2008	2017	d, f

a) Executive and Governance Committee

b) Audit Committee

c) Risk Committee

d) Mission, Member, and Housing Committee

e) Finance and Planning Committee

f) Human Resources and Compensation Committee (Compensation Committee)

g) Business Operations and Technology Committee

* Public Interest Independent Director

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The following describes the principal occupation, business experience, qualifications, and skills, among other matters of the 15 directors who currently serve on our Board of Directors. Except as otherwise indicated, each Director has been engaged in the principal occupation indicated for at least the past five years.

Dale E. Oberkfell, the Board's chair, has served in a variety of banking positions during his 30 years in the financial services industry. Mr. Oberkfell currently serves as executive vice president and CFO of Midwest BankCentre and treasurer and board secretary of Midwest BankCentre, Inc. in St. Louis, Missouri, positions he has held since joining Midwest BankCentre in January of 2012. During 2011 and 2010, he served as executive vice president and CFO of Reliance Bancshares, Inc. in Des Peres, Missouri, and as executive vice president and CFO of Reliance Bank, FSB in Fort Myers, Florida. Mr. Oberkfell was also a partner at the certified public accounting firm of Cummings, Oberkfell & Ristau, P.C. in St. Louis, Missouri. He is a licensed certified public accountant (CPA) and is active in the American Institute of Certified Public Accountants. He has held board positions for numerous organizations, including the West County YMCA, St. Louis Children's Choir, and Young Audiences. Mr. Oberkfell's position as an officer of a member institution and his involvement in and knowledge of accounting, auditing, internal controls, and financial management, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as chair of the Executive and Governance Committee and vice chair of the Audit Committee.

Eric A. Hardmeyer, the Board's vice chair, joined the Bank of North Dakota in Bismark, North Dakota, in 1985 as a loan officer and served as senior vice president of lending before becoming president and CEO in 2001. Mr. Hardmeyer serves on the board of directors of the Bismarck-Mandan Chamber of Commerce Foundation and Missouri Valley YMCA. He previously chaired the North Dakota Bankers Association. Mr. Hardmeyer's position as an officer of a member institution and his involvement in and knowledge of economic development, accounting, auditing, and financial management, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as chair of the Business Operations and Technology Committee and vice chair of the Executive and Governance Committee.

Steven L. Bumann has served as CFO at BankWest, Inc. in Pierre, South Dakota since 1995. Mr. Bumann has more than 30 years of banking experience and had held various leadership roles within the financial industry, including vice president and senior vice president roles at BankWest, Inc. He also earned his CPA while working for a local CPA firm and spent time working for the South Dakota Department of Legislative Audit. Mr. Bumann currently serves on the Board of Directors of the South Dakota Bankers Association and its Legislative Committee. He also serves on his local church Board of Elders, the Pierre School Board, and the Board of Avera Foundation in Pierre, South Dakota. Mr. Bumann's position as an officer of a member institution and his involvement and knowledge of accounting, auditing, and financial management, as indicated by his background, support his qualifications to serve on our Board of Directors.

Van D. Fishback is vice chair of First Bank & Trust in Brookings, South Dakota. Mr. Fishback joined First Bank & Trust in 1972 and previously served as its president and CEO. Mr. Fishback is also the vice chair of Fishback Financial Corporation, one of South Dakota's largest privately held bank holding companies. He is a licensed attorney and has been a member of the South Dakota bar since 1972. Mr. Fishback's position as an officer of a member institution and his involvement in and knowledge of financial management, community development, and the law, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as chair of the Finance and Planning Committee.

Chris D. Grimm joined BANK, Burlington, Iowa, as its president and CEO in 2001. Prior to accepting his current role at BANK, Mr. Grimm held a number of positions unrelated to the financial services industry. Mr. Grimm's position as an officer of a member institution and his involvement in and knowledge of financial management, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as chair of the Mission, Member, and Housing Committee.

W. Douglas Hile has served as president and CEO of KleinBank in Chaska, Minnesota since July of 2009. Mr. Hile has more than 35 years of banking experience and has held executive roles in money center, super regional and community banking organizations, including roles as president and CEO of Minnesota banks since 1993. He has demonstrated board leadership in community involvement with emphasis on affordable housing initiatives and the work of the Salvation Army. His banking industry service includes serving on the Board of Directors for the FHLB San Francisco and the Minnesota Bankers Association. He currently serves on the Independent Community Bankers of America FHLB Task Force. Mr. Hile's position as an officer of a member institution and his involvement in and knowledge of housing finance and financial management, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as vice chair of the Risk Committee.

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Teresa J. Keegan has served as the senior vice president and CFO of Fidelity Bank in Edina, Minnesota since 2002. Ms. Keegan has over 30 years of financial management experience in the areas of finance, information technology, human resources, audit and compliance. She serves on the board of Habitat for Humanity of Minnesota, and previously served on the Minnesota Bankers Association Insurance and Services, Inc. board and chaired the Minnesota Bankers Association Operations and Technology Committee. Ms. Keegan's position as an officer of a member institution and her involvement in and knowledge of financial management, as indicated by her background, support her qualifications to serve on our Board of Directors. She also serves as vice chair of the Finance and Planning Committee.

Michelle M. Keeley retired from her position as executive vice president of equities and fixed income investments for RiverSource Investments, LLC, a division of Ameriprise Financial Services in Minneapolis, Minnesota in 2010. Prior to joining RiverSource, Investments, LLC, Ms. Keeley held a number of different investment and leadership positions, including managing director and senior management team member at Zurich Global Assets in New York. She has served on the Board of Trustees for the Blake School in Minneapolis, Minnesota and is chair of the Blake Board. Ms. Keeley's involvement in and knowledge of financial management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors.

John F. Kennedy, Sr. has served as executive vice president and CFO for the St. Louis Equity Fund, Inc. in St. Louis, Missouri since June of 2012. From 2007 to June of 2012, he served as senior vice president and CFO. St. Louis Equity Fund, Inc. invests in affordable rental housing developments financed through corporate and bank investment in cooperation with federal, state, and local governments. Mr. Kennedy has been with the St. Louis Equity Fund, Inc. since 1998 and has more than 30 years of experience in affordable rental housing development and financing, residential homebuilding, public accounting, auditing, financial management, and representing low income individuals and families through the St. Louis Equity Fund, Inc. and the Gateway Community Development Fund, Inc., a certified CDFI. Mr. Kennedy’s involvement in and knowledge of accounting, auditing, financial management, and representing community interests in housing, as indicated by his background, support his qualifications to serve as a public interest Independent Director on our Board of Directors. He also serves as chair of the Audit Committee.

Ellen Z. Lamale retired from her position as senior vice president and chief risk officer (CRO) of The Principal Financial Group (The Principal Financial Group is a registered trademark) (Principal) in March of 2011. Prior to her retirement, she served as senior vice president and CRO of Principal since 2008. Ms. Lamale held executive positions at Principal for more than 10 years, and her responsibilities during her 34 year career at Principal included risk management, financial analysis, capital management, strategic planning, and auditing. Ms. Lamale has served on several community boards, including West Des Moines Youth Soccer Club, Iowa United Soccer Club, Des Moines Symphony Second Strings, and Des Moines Public Library Foundation. Currently, she is a volunteer with the West Des Moines Youth Justice Initiative. Ms. Lamale's involvement in and knowledge of accounting, auditing, financial, and risk management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors. She also serves as chair of the Risk Committee.

Elsie M. Meeks has served as state director of the United States Department of Agriculture (USDA) Rural Development in South Dakota since July of 2009. Prior to joining the USDA, Ms. Meeks was the president and CEO of First Nations Oweesta Corporation and was active in the development and management of The Lakota Funds, a small business and microenterprise development loan fund CDFI on the Pine Ridge Reservation in South Dakota. Ms. Meeks served on the U.S. Commission on Civil Rights, completing a six-year term. She is a director of the Northwest Area Foundation based in St. Paul, Minnesota and has served as a director and council member of several Native American organizations. Ms. Meek's involvement in and knowledge of economic development and community management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors.

Paula R. Meyer has over 30 years of senior executive experience in the financial services industry including marketing, operations, and management of mutual funds, investments, and insurance companies. She retired in 2006 as president of the mutual fund and certificate businesses at Ameriprise Financial in Minneapolis, Minnesota and has focused on board service since 2007. Prior to that, Ms. Meyer was president of Piper Capital Management. She serves on the board of directors of Mutual of Omaha in Omaha, Nebraska and First Command Financial Services in Fort Worth, Texas, a position she has held since 2009, and was formerly board chair emeritus of Luther College in Decorah, Iowa from 2001 to 2006. Ms. Meyer's involvement in and knowledge of risk management, marketing, and financial management, as indicated by her background, support her qualifications to serve as an Independent Director on our Board of Directors. She also serves as vice chair of the Human Resources and Compensation Committee.

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John P. RiglerII has served as president and CEO of State Bank in New Hampton, Iowa since February of 1995. Mr. Rigler has been in the banking industry for more than 35 years and has experience in trusts and investments, mergers and acquisitions, correspondent banking, and government relations, including lobbying efforts with the Iowa Legislature. He has also been active in economic development in Iowa for more than 20 years. Mr. Rigler served as chair of Iowa Community Development, L.C. (ICD). He assisted ICD with a tax credit application and received $245 million in new market tax credits. Mr. Rigler's position as an officer of a member institution and his involvement in and knowledge of financial management, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as vice chair of the Business Operations and Technology Committee.

John H. Robinson has served as chair of Hamilton Ventures, LLC, a consulting and investment company in Kansas City, Missouri since 2004. Mr. Robinson is an engineer with international experience as chairman of EPCglobal Ltd in Sheffield, England, from 2003 to 2004, and executive director of Amey Plc in London, England, from 2000 to 2002. He was managing partner and vice chair of Black & Veatch, Inc. from 1989 to 2000. He serves on the board of directors of Olsson Associates, Alliance Resources MLP, and Coeur Mining. Mr. Robinson's involvement in and knowledge of financial management, project development, and organizational management, as indicated by his background, support his qualifications to serve as an Independent Director on our Board of Directors. He also serves as chair of the Human Resources and Compensation Committee.

Joseph C. Stewart III has served as chair of the board of BancStar, Inc., a three-bank holding company in Des Peres, Missouri, and as CEO and director of Bank Star in Pacific, Missouri since 2004. Mr. Stewart has worked in various other capacities since joining the Bank Star Companies in 1994. He also serves as CEO and director for Bank Star One in Fulton, Missouri and Bank Star of the BootHeel in Steele, Missouri. Mr. Stewart currently serves on the board of directors for the Missouri Independent Bankers Association, as well as the government relations committee of the American Bankers Association. Mr. Stewart's position as an officer of a member institution and his involvement in and knowledge of accounting, risk management, and financial management, as indicated by his background, support his qualifications to serve on our Board of Directors. He also serves as vice chair of the Mission, Member, and Housing Committee.

Executive Officers

The following persons currently serve as executive officers of the Bank:

			Position Held
Executive Officer	Age	Position Held	Since
Richard S. Swanson	64	President and Chief Executive Officer	June 2006
Steven T. Schuler	63	Executive Vice President and Chief Financial Officer	September 2006
Daniel D. Clute	49	Executive Vice President and Chief Business Officer	October 2012
Dusan Stojanovic	55	Executive Vice President and Chief Risk Officer	February 2010
Mary L. Cecola	51	Senior Vice President and Chief Business Technology Officer	October 2012
Nancy L. Betz	56	Senior Vice President and Director of Human Resources	September 2007
George L. Crowley	66	Senior Vice President and Director of Credit and Mortgage Sales	September 2007
Ardis E. Kelley	47	Senior Vice President and Chief Accounting Officer	June 2012
Aaron B. Lee	42	Senior Vice President, General Counsel, and Corporate Secretary	March 2013
Kelly E. Rasmuson	52	Senior Vice President and Director of Internal Audit	September 2007
William R. Bemis	36	Senior Vice President and Treasurer	August 2014
Joelyn R. Jensen-Marren	49	Senior Vice President and Director of Portfolio Strategy	August 2014

Richard S. Swanson has served as the Bank's president and CEO since June of 2006. Mr. Swanson joined the Bank following a career in bank management, corporate and financial law practice, and public service based in Seattle, Washington. From 2004 to 2006, he advised companies in the areas of corporate governance and finance, banking law, and SEC regulation as a principal of the law firm of Hillis, Clark, Martin & Peterson. From 1990 to 2003, Mr. Swanson was CEO and a director of HomeStreet Bank. He also served the FHLBank of Seattle as a member director from 1998 to 2003 and as vice chair from 2002 to 2003. Throughout his career, Mr. Swanson has been a director of public and private companies, as well as non-profit organizations and industry associations. He is recognized as a Board Leadership Fellow by the National Association of Corporate Directors, and currently serves on the Board of Directors of the FHLBanks' Office of Finance and, by appointment of the Finance Agency, as director and chair of the Financing Corporation (FICO). Mr. Swanson received his undergraduate degree from Harvard College, was a Marshall Scholar at Cambridge University, and earned his law degree from Stanford Law School.

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Steven T. Schuler has served as executive vice president and CFO since September of 2006. In his role, Mr. Schuler has management responsibility for accounting and financial reporting, information technology, and business process management. Prior to joining the Bank, Mr. Schuler served in various accounting and financial management positions in the commercial banking and wireless technology industries. From 2001 to 2006, Mr. Schuler served as CFO, treasurer, and secretary for Iowa Wireless Services, Inc. From 1977 to 2001, Mr. Schuler had a long career with Brenton Banks, Inc., a publicly traded regional commercial banking company which was sold to Wells Fargo in 2001. He served in various capacities eventually serving as corporate senior vice president, CFO, secretary, and treasurer. Throughout his career, Mr. Schuler has served on the boards of various non-profit, public service, and industry association organizations. Mr. Schuler currently serves as a board member and prior chair of the Iowa State University Foundation. Mr. Schuler received a Bachelor’s degree in Accounting from Iowa State University and holds a CPA certificate from the State of Iowa.

Daniel D. Clute has been executive vice president and chief business officer (CBO) since October of 2012. Mr. Clute is responsible for the Bank's credit sales, marketing communications, community investment, external relations, and member financial services. He joined the bank in August 2011 as senior vice president and director of communications and external relations. Prior to joining the Bank, his career included senior roles in treasury, corporate finance, public relations, and public service. From 2007 to 2011, he served as vice president and treasurer of Wells Fargo Financial, Inc., a unit of Wells Fargo & Company, where he was responsible for funding, treasury operations, and asset-liability management for the international finance company. From 2000 to 2007, Mr. Clute served in several roles at Citigroup, including the senior finance and administrative officer for a Citi Cards operations center and the state director of public affairs for Citigroup businesses in Iowa. From 1989 to 2000, he served in several management roles at Wells Fargo Financial, Inc. Mr. Clute served as an elected member of the Iowa House of Representatives from 2007 to 2009 and prior to that was an elected member of the Clive, Iowa, City Council from 2002 to 2007. He also has a long history of non-profit board of director leadership, including president of the board of directors of Habitat for Humanity of Iowa, Inc. He was appointed by the governor of Iowa in 2012 to a four-year term on the Board of Directors of the Iowa Student Loan Liquidity Corporation. Mr. Clute received his undergraduate and Masters of Business Administration degrees from the University of Iowa in 1988 and 1989, respectively.

Dusan Stojanovic has been with the Bank since March of 2008 and is currently serving as executive vice president and CRO, a position he has held since February 2010. Mr. Stojanovic joined the Bank as a Financial Risk Officer in March 2008. He has management responsibility for enterprise risk management, including credit risk, market risk, operational risk, and model risk. Prior to joining the Bank, Mr. Stojanovic held a variety of regulatory risk management and model validation positions with the Federal Reserve Bank of Chicago from 2006 to 2008, Federal Reserve Bank of Richmond from 2005 to 2006, and Federal Reserve Bank of St. Louis from 1995 to 2003. From 2003 to 2004, Mr. Stojanovic served as the vice governor for banking supervision at the National Bank of Serbia. Mr. Stojanovic received his undergraduate degree in Economics from the University of Belgrade and his M.A. and Ph.D. degrees in Economics from Washington University in St. Louis, Missouri. He also holds the Chartered Financial Analyst designation from the CFA institute.

Mary L. Cecola has been senior vice president and chief business technology officer (CBTO) since October 2012. Ms. Cecola is responsible for providing leadership, technology strategy, management and direction for the Information Technology Department. Prior to joining the Bank, Mrs. Cecola worked as the global chief information officer at Deutsche Bank in Chicago, Illinois. During her tenure at Deutsche Bank, she had national and international information technology responsibilities. Her leadership experience includes global technology, strategy, governance, operations, asset management, mutual fund investments and business technology solutions. Ms. Cecola received her undergraduate degree as well as her M.S. from Northern Illinois University.

Nancy L. Betz has been with the Bank since April of 2004 and is currently serving as senior vice president and director of human resources. Ms. Betz joined the Bank as director of human resources and became senior vice president in September of 2007. Ms. Betz has management responsibility for the Human Resources Department. Prior to joining the Bank, she worked as director of human resources at Wells Fargo Home Mortgage and DuPont Pioneer. During her tenure at DuPont Pioneer, she held a variety of positions, including global human resources for the sales and marketing division and corporate learning and development responsibilities. Her leadership responsibilities have involved aligning human capital and workforce strategies with the business strategy. Ms. Betz received her undergraduate degree in Business Management and M.S. from Drake University.

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George L. Crowley has been with the Bank since November of 1980 and is currently serving as senior vice president and director of credit and mortgage sales, a position he has held since September of 2007. Previously, he was vice president of credit and mortgage sales and began his career at the Bank as the manager of the regional office in Saint Louis, Missouri. Mr. Crowley has management responsibility for the Credit Sales Department, which has primary responsibility to recruit membership, promote product usage, and maintain member relations. Prior to joining the Bank, Mr. Crowley worked in the correspondent division of First National Bank in St. Louis, Missouri. His previous experience also includes working as a system engineer for Nixdorf Computer. Mr. Crowley received his undergraduate degree from Saint Louis University and also graduated from the Graduate School of Banking in Madison, Wisconsin.

Ardis E. Kelley has been senior vice president and chief accounting officer since she joined the Bank in June of 2012. Ms. Kelley has management responsibility for the Accounting Department. Prior to joining the Bank, Ms. Kelley worked as assistant vice president of accounting and reporting at CNA Insurance in Chicago, Illinois. Previous experience includes senior manager of transaction support and accounting policy at Accenture in Chicago, Illinois as well as accounting and audit positions in Cedar Rapids, Iowa, New York City, New York, and Los Angeles, California. Ms. Kelley received her undergraduate degree in psychology and linguistics from the University of California, Los Angeles and a M.A. degree from the University of Southern California.

Aaron B. Lee joined the Bank in August of 2005 as associate general counsel and became senior vice president, general counsel and corporate secretary in March of 2013. In this role, he has direct responsibility for the Legal and Compliance Department. Prior to joining the Bank, Mr. Lee worked in private practice as an associate attorney with the law firm of Harris, Mericle & Wakayama PLLC in Seattle, Washington. He received his undergraduate degree from the University of Iowa and his Juris Doctor degree from DePaul University College of Law in Chicago, Illinois.

Kelly E. Rasmuson joined the Bank in September of 2006 as director of internal audit and became senior vice president in September of 2007. Mr. Rasmuson has management responsibility for the Internal Audit Department. Prior to joining the Bank, Mr. Rasmuson held positions of increasing responsibility with the internal audit and mergers and acquisition teams at Principal Financial Group in Des Moines, Iowa from 1997 to 2006. Before moving to Iowa, he worked in a variety of positions at several companies in Columbus, Ohio, including audit roles with the accounting firm Coopers & Lybrand. Mr. Rasmuson received his undergraduate degree from the University of Northern Iowa and his MBA from Xavier University. He is also a Certified Internal Auditor and CPA.

William R. Bemis joined the Bank in May of 2013 as vice president and treasurer and became senior vice president in August of 2014. Mr. Bemis has management responsibility for the Treasury Department. Prior to joining the Bank, Mr. Bemis worked in securitized product research and portfolio management at AmerUs Capital Management and Aviva Investors, in Des Moines, Iowa. During his tenure at AmerUs and Aviva, he held a variety of capital market positions, most recently as vice president and senior portfolio manager of securitized products. Mr. Bemis received his undergraduate degree in finance from the University of Nebraska and his MBA degree from the University of Iowa. He holds the CFA designation, and is a member of the CFA Society of Iowa.

Joelyn R. Jensen-Marren has been with the Bank since April of 1999 and is currently serving as senior vice president and director of portfolio strategy, a position she has held since March of 2008. Ms. Jensen-Marren has management responsibility for the Portfolio Strategy Department. Previously, she held a number of different roles in capital markets from 2007 to 2014 and market risk management from 1999 to 2007 at the Bank, including interim financial risk officer in 2007. Prior to joining the Bank, Ms. Jensen-Marren was the investment portfolio manager at RBC-Centura in North Carolina from 1997 to 1999. From 1991 to 1997, she held various roles in investment portfolio management at CoBank, a member of the Federal Farm Credit System in Colorado. Ms. Jensen-Marren received an undergraduate degree from Iowa State University and her M.S. degree in finance from the University of Colorado.

Code of Ethics

We have adopted a Code of Ethics that sets forth the guiding principles and rules of conduct by which we operate and conduct our daily business with our customers, vendors, shareholders, and fellow employees. The Code of Ethics applies to all of our directors, officers, and employees. The purpose of the Code of Ethics is to promote honest and ethical conduct and compliance with the law, particularly as it relates to the maintenance of our financial books and records and the preparation of our financial statements. The Code of Ethics can be found on our website at www.fhlbdm.com. We disclose on our website any amendments to, or waivers of, the Code of Ethics. The information contained in or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this or any report filed with the SEC.

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Audit Committee

The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its review and oversight responsibilities for (i) the integrity of the Bank's financial statements and financial reporting process and systems of internal accounting and financial reporting controls, (ii) the independence, scope of audit services, and performance of the Bank's internal audit function as well as the appointment or replacement of the Bank's chief audit executive, (iii) the selection and replacement, qualifications, independence, scope of audit, and performance of the Bank's external auditor, (iv) the Bank's compliance with laws, regulations and policies, including the Code of Ethics, as applicable to the Committee's duties and responsibilities, (v) the procedures for complaints regarding questionable accounting, internal accounting controls, and auditing matters, and oversight of fraud investigations, and (vi) the Bank's and Audit Committee's compliance with the Finance Agency's Examination Guidance for the examination of accounting practices. The Audit Committee has adopted a charter outlining its roles and responsibilities, which is available on our website at www.fhlbdm.com. The information contained in or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this or any report filed with the SEC. The members of our Audit Committee for 2015 are John Kennedy (chair), Dale Oberkfell (vice chair), Chris Grimm, Doug Hile, and Elsie Meeks. The Audit Committee held a total of seven in-person meetings and four telephonic meetings in 2014. As of February 28, 2015, the Audit Committee has held one in-person meeting and one telephonic meeting and is scheduled to hold five in-person meetings and three telephonic meetings throughout the remainder of 2015. Refer to Exhibit 99.1 of this 2014 Annual Report for the Audit Committee Report.

Audit Committee Financial Expert

Our Board of Directors determined that the following members of its Audit Committee qualify as audit committee financial experts under Item 407(d)(5) of Regulation S-K: Doug Hile, John Kennedy, Elsie Meeks, and Dale Oberkfell. Refer to “Item 13. Certain Relationships and Related Transactions, and Director Independence” for details on our director independence. For information concerning the experience through which these individuals acquired the attributes required to be deemed financial experts, refer to the biographical information in Item 10.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis section provides information related to the administration of our executive compensation policies and programs. We believe we have historically taken a prudent and effective approach to executive compensation with practices aligned with the Finance Agency's guidance on FHLBank executive compensation.

This Compensation Discussion and Analysis includes the following parts:

i. Compensation Philosophy - provides detail on the framework we use when making executive compensation decisions.

ii. Elements of Executive Compensation - provides a discussion of each element of compensation payable to our named executive officers (NEOs), comprised of our President and CEO (President), CFO, CRO, CBO, and CBTO, and provides greater detail on our approach, structure, and practices with regard to executive compensation.

iii. Finance Agency Oversight - Executive Compensation - provides detail on the Finance Agency regulations relating to executive compensation.

iv. Roles and Responsibilities of the Human Resources and Compensation Committee (Compensation Committee) and Management in Establishing Executive Compensation - provides detail on the role of the Compensation Committee and management in making executive compensation decisions and explains why we determined executive compensation payouts in 2014 were appropriate.

v. Analysis Tools the Compensation Committee Uses - provides detail on how the Compensation Committee utilizes information and tools to arrive at executive compensation decisions.

vi. Compensation Decisions in 2014 - describes the compensation paid and the benefits made available to our NEOs during 2014.

vii. Benefits and Retirement Philosophy - provides detail on the retirement programs offered to NEOs.

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viii. Potential Payments upon Termination or Change of Control - provides information on the termination payments and benefits that would be payable to each NEO, as applicable.

ix. Merger Integration - provides information on compensation and employment decisions impacting the NEOs as a result of the potential merger.

 x. Director Compensation - provides detail on the compensation paid to the members of our Board of Directors in 2014 and the director fee schedule for 2015.

xi. Compensation Committee Report - outlines the Compensation Committee's recommendation to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report on Form 10-K.

Compensation Philosophy

Our compensation philosophy, practices, and principles are an important part of our business strategy. Our philosophy assists us in attracting, retaining, and engaging employees with the skills and talent we need to create and implement strategies necessary to demonstrate value for our members, which is critical to our long-term success. Our executive compensation practices provide a framework to ensure an appropriately balanced approach to compensation through a combination of base salary, benefits, and annual and deferred cash incentive awards. Although we refine our compensation programs as economic conditions and competitive practices change, we strive to maintain consistency in our philosophy and approach with respect to executive compensation.

We believe our current employees and those individuals in our potential talent pool are highly marketable and can be attracted to opportunities across a broad spectrum of U.S. financial services businesses. Our competition for talent primarily includes FHLBanks, commercial banks, and other financial services companies, such as insurance companies.

We have designed our incentive opportunities to motivate our NEOs to achieve our objectives for delivering value to our members, as customers and as shareholders, without taking undue risk.

Our executive compensation program is designed to do the following:

i. Attract, reward, retain, and engage experienced, highly-qualified NEOs critical to our long-term success and enhancement of our member value.

ii. Link executive compensation to Bank performance and individual performance while monitoring the Bank's exposure to risk.

iii. Structure our total compensation package for NEOs so that it consists of a balance of competitive annual base pay and incentive pay that generally defers 50 percent of the total incentive award into future periods and is earned only upon satisfaction of a long-term performance goal. Thus, a deferred payout calibrated to the long-term value of the Bank, as measured by our EVCS, is a critical component of our compensation. This approach aligns with the principles for executive compensation required by the Finance Agency.

In 2014, we implemented our executive compensation philosophy to provide competitive compensation to our NEOs that was largely linked to the achievement of short and long-term objectives of the Bank and our individual NEOs' performance.

For more information on our EVCS, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Capital Adequacy — Economic Value of Capital Stock."

Elements of Executive Compensation

Our executive compensation program is comprised of the following elements: (i) base salary, (ii) an incentive plan (IP) that generally includes a 50 percent annual cash award and a 50 percent deferral of the incentive award, (iii) retirement benefits, (iv) health and welfare benefits, (v) the potential for payments in the event of termination, and (vi) limited perquisites. The following discussion provides more detail for each of these elements.

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BASE SALARY

Base salary is a fixed component of our NEOs' total compensation that is intended to provide a level of compensation necessary to attract and retain highly-qualified executives. The Compensation Committee and/or certain executive management, where appropriate, review the level of base salaries annually and approve and recommend adjustments to base salaries for our NEOs.

Each NEO's minimum base salary is established by their respective employment agreement with us except for the CBTO. The CBTO does not have an employment agreement with us and her base salary is established by the CEO based upon input from the CFO. For further information regarding base salary and the terms of the employment agreements, see the narrative discussion following the "Summary Compensation Table" in this Item 11.

INCENTIVE PLAN

In December 2013, the Compensation Committee approved our 2014 IP effective January 1, 2014. The IP includes an annual cash incentive and a deferred cash incentive. Under the IP, our NEOs, except the CBTO, are required to defer 50 percent of their total cash incentive for three years following the end of the performance plan period. The CBTO is required to defer 35 percent of her total cash incentive. The 2014 deferred opportunities are payable in 2018. The deferred awards are not finally earned until completion of the respective performance periods and are subject to the quarterly average of our EVCS in 2017 and approvals by the Compensation Committee and Board of Directors in 2018. We believe tying the amount of the final awards to the level of our EVCS ensures that our participating NEOs continue to operate the Bank in a profitable, prudent manner without taking unnecessary or excessive risk. It also discourages our NEOs from taking short-term measures in 2014 that could negatively impact longer-term Bank performance.

On April 11, 2014, we received a non-objection letter from the Finance Agency for our 2014 IP. The IP had previously been approved by our Board of Directors, subject to the Finance Agency's non-objection. The incentive awards for 2014 were based on objective quantitative and qualitative factors tied to bank-wide goals that were focused on our strategic imperatives of strengthening our partnership with members, disciplined pursuit of long-term business performance, and stewardship of our public mission (Bank-wide Goals), as well as on other factors derived from individual and/or team achievement of objectives aimed at improving the Bank's performance and service to its shareholding members (Individual Goals). The Individual Goals were linked to our 2014 Strategic Business Plan and the NEO's individual responsibilities.

For additional information about our Bank-wide Goals and Individual Goals, see “Establishment of Performance Measures for the IP ” in this Item 11. For more information relating to estimated IP awards, see “Components of 2014 Non-Equity Incentive Plan Compensation" in this Item 11.

RETIREMENT BENEFITS

Our NEOs participate in the Pentegra Defined Benefit Plan for Financial Institutions (DB Plan) and/or the Pentegra Defined Contribution Plan for Financial Institutions (DC Plan) to the same extent as our other employees. In addition, all of our NEOs participate in our Third Amended and Restated Benefit Equalization Plan (BEP), which is a non-qualified plan that allows them to receive amounts they would have been entitled to receive under the DB Plan and/or the DC Plan had the plans not been subject to Internal Revenue Code contribution limitations. NEOs hired on or after January 1, 2011 are not eligible to participate in the DB Plan or the defined benefit component of the BEP. However, they are eligible to receive an additional Bank contribution of eligible compensation to the DC Plan at the end of each calendar year.

HEALTH AND WELFARE BENEFITS

Our NEOs are eligible for the same medical, dental, life insurance, and other benefits available to our full-time employees.

PAYMENTS IN THE EVENT OF TERMINATION

The employment agreements we entered into with certain NEOs governed their compensation for 2014 and provide for payments in the event of termination based on certain triggering events. For additional details, see "Potential Payments Upon Termination or Change of Control" in this Item 11.

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PERQUISITES

Our NEOs, except the CBTO, are eligible to receive perquisites in the form of financial planning assistance. In addition, our President receives a monthly car allowance. These perquisites are provided as a convenience associated with the NEOs overall duties and responsibilities.

Finance Agency Oversight - Executive Compensation

Beginning in November of 2008, the FHLBanks were directed to provide all compensation actions affecting their five most highly compensated officers to the Finance Agency for prior review.

Section 1113 of the Housing Act amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Housing Enterprises Act) and requires the Director of the Finance Agency to prohibit any FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities.

On October 27, 2009, the Finance Agency issued a bulletin entitled Principles for Executive Compensation at the Federal Home Loan Banks and the Office of Finance, which established the following principles for executive compensation:

i. executive compensation must be reasonable and comparable to that offered to executives in similar positions at comparable financial institutions;

ii. executive compensation should be consistent with sound risk management and preservation of the par value of the FHLBank's capital stock;

iii. a significant percentage of an executive's incentive-based compensation should be tied to longer-term performance and outcome-indicators and be deferred and made contingent upon performance over several years; and

iv. the Board of Directors should promote accountability and transparency in the process of setting compensation.

On April 14, 2011, the Finance Agency issued a proposed rule along with six other federal financial regulators that could impose additional requirements and restrictions on incentive compensation arrangements.

On January 28, 2014, the Finance Agency issued a final rule, effective February 27, 2014, that implements Section 1113 of the Housing Act and continues the requirement that the Director of the Finance Agency approve any agreements or contracts of executive officers that provide compensation in connection with termination of employment to determine if the FHLBanks overall compensation of executives is reasonable and comparable. The final rule also ensures that the FHLBanks comply with processes used by the Finance Agency in its oversight of executive compensation. A final rule on amending the Finance Agency's rule on golden parachute payments was also issued by the Finance Agency on this date.

Roles and Responsibilities of the Compensation Committee and Management in Establishing Executive Compensation

The Compensation Committee, with the assistance of our President, approves and recommends to the Board of Directors all compensation decisions for our NEOs. Our President makes recommendations to the Compensation Committee concerning all elements of compensation for our NEOs. Throughout the year, our President and Compensation Committee review, on an informal basis, the performance of our NEOs, future management changes, and other matters relating to compensation. Any employment or severance agreement for our President is also approved by the Board of Directors.

Throughout the year, the Board of Directors reviews our Bank-wide Goals and achievement levels. When final numbers for a calendar year are determined, the Compensation Committee reviews the performance results to determine the level of performance that has been achieved for purposes of making compensation decisions for our NEOs. The Compensation Committee also determines the compensation awards tied to the Individual Goals for our President and approves them for our other NEOs, except the CBTO, based on recommendations made by our President. The President discusses the CBTO's achievement and performance on her Individual Goals with the CFO, to whom the CBTO reports. Our Compensation Committee recommends the incentive awards comprising of Bank-wide Goals and Individual Goals to the Board of Directors for their approval.

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Merit increases and Individual Goal incentive compensation decisions are based upon an evaluation of an NEO's overall performance and not solely on a statistical or formulaic analysis of particular results or criterion. Because of our size and the number of NEOs involved, our President recommends to the Compensation Committee merit increases and Individual Goal payouts for the other NEOs. The Board of Directors completes an evaluation of our President's performance and the Compensation Committee recommends compensation for our President to the Board of Directors. The Compensation Committee and our President consider overall performance in the areas of key role responsibilities, our shared values, and strategic responsibilities established for the year in analyzing merit increases and Individual Goal recommendations.

Analysis Tools the Compensation Committee Uses

For 2014, the Compensation Committee engaged McLagan Partners to advise them on executive compensation decisions. This included an analysis of McLagan Partners' broad-based executive compensation benchmarking survey data to evaluate and advise our Compensation Committee and Board of Directors on whether the objectives of our executive compensation program were being met.

MCLAGAN PARTNERS' EXECUTIVE COMPENSATION BENCHMARKING SURVEY DATA

We engage McLagan Partners annually to provide the Compensation Committee with an updated analysis of the compensation of our NEOs compared to similar positions in commercial banks, the FHLBank System, and proxy data from publicly traded banks with assets between $5 billion and $20 billion. Their analysis considers all components of the NEOs' total compensation except benefits.

When using commercial bank comparisons, our NEOs are compared to divisional positions. For example, a divisional CFO role is compared to our CFO role versus the overall commercial bank CFO role which is larger and broader in scope and responsibility. When using FHLBank System comparisons, our NEOs are compared to the same position within the FHLBanks. For example, our CFO role is compared to other CFO roles in the FHLBank System. When using proxy data comparisons, our NEOs are compared based on their salary rank within the Bank to the market's top paid incumbents regardless of position.

Compensation Decisions in 2014

How we compensate our NEOs sets the tone for how we administer pay throughout the entire Bank. For 2014, our Compensation Committee considered numerous factors (including those previously discussed) before deciding on the appropriate total compensation for our NEOs, in the context of the current business, operating and regulatory environment, which are more fully described in the following narrative.

BASE SALARY LEVELS

The Compensation Committee followed its historical practice of adjusting base salaries after a review of individual performance and current compensation of our NEOs compared to survey data. The Compensation Committee determined increases in our NEOs' base salaries between 3.04 percent and 14.58 percent for 2014 were appropriate based on (i) our NEOs' individual performance, contributions to the Bank, length of time in position, and changes in responsibilities, if applicable, (ii) a review of the compensation data paid by other FHLBanks, and (iii) a review of the McLagan Partners' executive compensation survey data.

For 2014, the Compensation Committee approved increases for our NEOs, except the CBTO, effective January 1, 2014. These increases were reviewed by the Finance Agency. The CBTO's increase was approved by our President effective March 1, 2014. The 2014 increases in base salary for our President, Richard S. Swanson, CFO, Steven T. Schuler, CRO, Dusan Stojanovic, CBO, Daniel D. Clute, CBTO, Mary L. Cecola, were 3.07 percent, 4.34 percent, 3.04 percent, 14.58 percent, and 4.00 percent of 2013 base salary. The larger increase of 14.58 percent for our CBO included a merit increase and market adjustment to bring his base salary closer to competitive levels for similar roles based on the market data.

For 2015, the Compensation Committee approved increases in base salaries between 3.06 percent and 18.20 percent for all NEOs, effective January 1, 2015. The CBTO's increase is effective March 1, 2015. The larger increase of 18.20 percent includes a merit and market adjustment for our CBO, whose compensation as determined by the Compensation Committee is low compared to the market data for similar positions. These increases were reviewed by the Finance Agency and a non-objection was received on December 23, 2014.

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At its January 2015 meeting, the Compensation Committee determined the Bank-wide Goals and Individual Goals incentive awards that would be paid out to participating NEOs for the 2014 performance year. The Bank-wide and Individual Goal awards were based on the pay targets, ranges, and performance measures established by the Board of Directors and management, as appropriate, for 2014. The following sections provide additional details on the decisions the Compensation Committee made and how they arrived at those decisions.

ESTABLISHMENT OF PAY TARGETS AND RANGES

IP pay targets established for our NEOs take into consideration total compensation practices (base salary, incentives, and benefits) of the survey data reviewed. Under the IP, our NEOs are assigned target award opportunities, stated as percentages of base salary. The target award opportunities correspond to the determination made by our Compensation Committee and our President on each NEO's level of responsibility and ability to contribute to and influence overall Bank performance. For 2014, the IP target award opportunities were the same as 2013.

Awards are paid to our NEOs based upon the achievement level of Bank-wide Goals and a subjective determination by the Compensation Committee for our President and by our President for the other NEOs regarding individual performance and achievement of Individual Goals. The CFO consults with the President on the individual performance and achievement of Individual Goals for our CBTO. In addition, 50 percent of the incentive award for participating NEOs, except the CBTO, is deferred for three years following the end of the performance period, and subject to our achievement of requisite EVCS levels and Compensation Committee and Board of Directors approvals at the time of payment. The deferral percentage for the CBTO is 35 percent.

The annual and deferred IP award opportunities for our NEOs in 2014 were a percentage of base salary as follows:

Named Executive Officer	Incentive Plan	Threshold	Target	Maximum
Richard S. Swanson	Annual	25.0%	37.5%	50.0%
	Deferred	25.0%	37.5%	50.0%
Steven T. Schuler	Annual	20.0%	30.0%	40.0%
	Deferred	20.0%	30.0%	40.0%
Dusan Stojanovic	Annual	20.0%	30.0%	40.0%
	Deferred	20.0%	30.0%	40.0%
Daniel D. Clute	Annual	20.0%	30.0%	40.0%
	Deferred	20.0%	30.0%	40.0%
Mary L. Cecola	Annual	13.0%	26.0%	39.0%
	Deferred	7.0%	14.0%	21.0%

ESTABLISHMENT OF PERFORMANCE MEASURES FOR THE IP

In December 2013, the Compensation Committee and the Board of Directors approved the following Bank-wide Goals for 2014:

i. Strengthen Partnership with Members as measured by (i) member product usage, (ii) an advances plus standby letters of credit to assets ratio, and (iii) member satisfaction.

ii. Disciplined Pursuit of Long-Term Business Performance as measured by (i) the “preservation of the enterprise value” measured by the quarterly average of MVCS, (ii) the “quality of risk management” measured by the Risk Committee of the Board of Directors in the areas of credit risk, market risk, operational risk, internal controls, model risk, IT risk, and remediation of exam findings, (iii) the "successful implementation" of the core banking system Phase 1.1, satisfactory progress on core banking system Phase 2.0, completion and Board approval of a business model framework and development of implementation plan to achieve cost savings for the Bank, and (iv) the "profitability" of the Bank measured by adjusted return on capital stock (AROCS). AROCS is a comprehensive measure of our profitability that we believe is most meaningful to our shareholders. For additional information on our adjusted earnings measure, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — Adjusted Earnings."

iii. Stewardship of our Public Mission as measured by (i) our mission related assets and (ii) community impact metrics of AHP and Homeownership Fund applications.

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The Bank’s IP design has historically included both Bank-wide Goals and Individual Goal components. This plan design has resulted in positive results for the Bank and reasonable payouts to our participating NEOs. We believe this plan design has accomplished and driven the behaviors of all employees, including our NEOs, in accordance with our Board of Directors' expectations.

After a discussion with the Compensation Committee and the Board of Directors in November 2013, we changed the weightings of our Bank-wide Goals for NEOs, excluding the CBTO, which remained in alignment with the directive of the Finance Agency. For 2014, Bank-wide Goals are weighted at 90 percent of the award opportunity and Individual Goals are weighted at 10 percent of the award opportunity. For the CBO, CFO, and CRO, the Bank-wide Goal weighting of 90 percent includes 20 percent based on certain Bank-wide Goals related to the strategic imperative and strategies each of the NEOs focused on in 2014. The President’s Bank-wide Goal weighting of 90 percent is based on the Bank-wide Goals which remained unchanged from 2013. These weightings were determined by the Compensation Committee based upon the relative need for our NEOs to focus on certain strategic imperatives and/or strategies contained in our Strategic Business Plan. The CBTO's Bank-wide Goals are weighted at 60 percent of the award opportunity and Individual Goals are weighted at 40 percent of the award opportunity.

When establishing the Bank-wide IP performance goals, the Compensation Committee and the Board of Directors anticipated that we would reasonably achieve the target level of performance aligned with objectives contained in our Strategic Business Plan. The maximum level provides a goal that is anticipated to be more challenging to reach, based on the previous year's performance results and current market trends and conditions. The Bank-wide Goal incentive awards are paid based on the actual results we achieve. The weightings for each goal area are determined based on our Strategic Business Plan and areas of key focus, such as delivering member value and managing risk.

The Individual IP performance goals for our President are recommended by our President and established by the Board of Directors. Consistent with the other NEOs, our President has responsibility for setting, implementing, executing, and achieving action items associated with one or more strategic imperatives or strategies outlined in our Strategic Business Plan. Performance ratings for our President are determined by the Board of Directors based on his contribution to our success, accomplishment of role responsibilities and strategic responsibilities tied to our Strategic Business Plan, our shared values, and his overall job performance.

Individual IP performance goals for our other NEOs are established by our President and other management based on the strategic imperatives, strategies and outcomes to be accomplished as outlined in our Strategic Business Plan for which each NEO has responsibility. Specifically, each NEO has primary responsibility for setting, implementing, executing, and achieving action items associated with one or more strategic imperatives and/or strategies outlined in our Strategic Business Plan. Performance ratings for the other NEOs are based on an analysis by our President and/or other management of their contribution and accomplishment of role responsibilities, strategic responsibilities tied to our Strategic Business Plan, our shared values, and each NEO's overall job performance.

For 2014, Individual Goals for the President and other NEOs were generally subjective and aligned with each of their roles or strategic responsibilities tied to our Strategic Business Plan.

The 2014 to 2016 Strategic Business Plan was approved by the Board of Directors in December of 2013 and included the following strategic imperatives for which strategies and action steps were developed that formed the basis for Bank-wide Goals:

i. Strengthen partnership with members.

ii. Disciplined pursuit of long-term business performance.

iii. Stewardship of our public mission.

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2014 IP PERFORMANCE RESULTS

On a regular basis during 2014, management provided an update to the Board of Directors on the status of performance relative to Bank-wide Goals. The following table provides the 2014 IP Bank-wide Goals approved by the Board of Directors in December 2013, as well as our performance results for 2014:

Bank-wide Goals	2014 Results			Threshold			Target			Maximum
Strengthen Partnership with Members (40% Total Weight)
Member Product Usage Index (“Touch Points”) (15% Weight)	1.69			1.30			1.70			2.10
Member Satisfaction - % of Members "Very Satisfied" and "Satisfied" (15% Weight)	98		%	90		%	93		%	96		%
Member Product and Service Satisfaction Survey - Results of questions on advance products, collateral reporting requirements and credit scoring methodology (10% Weight)
Advances (3.33% Weight)	92		%	82		%	88		%	94		%
Collateral (3.33% Weight)	86		%	74		%	80		%	86		%
Credit (3.33% Weight)	79		%	70		%	76		%	82		%
Disciplined Pursuit of Long-Term Business Performance (40% Total Weight)
Preservation of the Enterprise Value (measured by quarterly average of MVCS) (10% Weight)1	$	123.4		$	100.0		$	115.0		$	125.0
Quality of Risk Management (measured by Board of Directors assessment) (10% Weight)2	9.45			5.00			10.00			15.00
Operational Excellence (10% Weight)
Successful implementation of CBS Phase 1.1 (2% Weight)	Completed within cost and scope on May 12, 2014			Completed within cost and scope by July 31, 2014			Completed within cost and scope by June 30, 2014			Completed within cost and scope by May 31, 2014
Satisfactory progress on CBS Phase 2.0 (2% Weight)	On time, within cost and scope of approved plan			Progress behind approved plan by 5%			On time, within cost and scope of approved plan			Progress ahead of approved plan by 5% or more
Business Model Framework Approval (2% Weight)	Completed and approved by Board prior to June 30, 2014			Completed and approved by Board by September 30, 2014			Completed and approved by Board by August 31, 2014			Completed and approved by Board prior to June 30, 2014
Operating Efficiency Savings (4% Weight)	$1.0 million			$500 thousand			$1.0 million			$1.5 million
Profitability (measured by AROCS) (10% Weight)	4.99		%	3.00		%	4.50		%	6.00		%
Stewardship of our Public Mission (20% Total Weight)
Mission Related Asset Ratio (15% Weight)	76		%	65		%	80		%	85		%
Community Impact (5% Weight)
AHP Applications (2.5% Weight)	67			45			60			75
Homeownership Fund Applications (2.5% Weight)	152			110			135			160

1 Threshold for this goal was $100.0 or ranking in upper half of the FHLBank System.

2 Qualitative assessment covers the following areas: Credit Risk (2.5%), Market Risk (2.5%), Operational Risk (1.0%), Internal Controls - SOX 404 (1.0%), IT Risk (1.0%), Model Risk (1.0%), and Remediation of Exam Findings (1.0%). There will be no payout if the assessment is less than threshold.

In January of 2015, the Compensation Committee reviewed the annual performance evaluation results of our President conducted by the Board of Directors. Based on this review, the Compensation Committee determined our President had exceeded expectations on the strategic imperatives and overall job performance goals established for Individual Goals of the IP. In conjunction with our achievement of Bank-wide Goals under the IP, the Compensation Committee awarded our President the incentive amounts identified in the table on the following page.

Additionally, our President evaluated the performance of the other NEOs and shared their performance results with the Compensation Committee in January of 2015. He determined that each of these individuals met or exceeded expectations on their respective strategic imperatives and job performance goals established for Individual Goals of the IP. Our CFO evaluated the performance of our CBTO and determined that she had exceeded expectations on her respective strategies and job performance goals established for Individual Goals of the IP. For Bank-wide Goals under the IP, the Bank achieved maximum on four goals, exceeded target on six of the goals, achieved target on two goals, and achieved at or slightly below target for the remaining three goals.

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The overall weighted achievement of the Bank-wide Goals was 111.8 percent of target for our President, CFO, CBO, and CRO. In addition, the CBTO had different weightings on her Bank-wide Goals. The overall weighted achievement of the Bank-wide Goals for our CBTO was 117.6 percent of target.

The overall achievement on the Individual Goals for the President was 133.3% of target. For the CFO, CBO, and CRO, the overall achievement on the Individual Goals was 125%, 125%, and 116.7% of target, respectively. In addition the CBTO had different weightings on her Individual Goals. The overall achievement of the Individual Goals for our CBTO was 125% of target. Because of the Bank's aggregate performance and based on achievements related to Individual Goals, the Compensation Committee awarded each NEO the amounts identified in the following table:

Named Executive Officer	Bank-wide Performance Award		Individual Performance Award		Total Incentive Award1		Percent of Base Salary
Richard S. Swanson	$	524,280	$	69,500	$	593,780	85.4	%
Steven T. Schuler	217,417		27,000		244,417		67.9
Dusan Stojanovic	184,186		21,350		205,536		67.4
Daniel D. Clute	165,877		20,625		186,502		67.8
Mary L. Cecola	74,395		52,702		127,097		48.2

1 The total incentive is the sum of the Bank-wide and Individual Goal awards.

The following table provides compensation information for our NEOs for the years ended December 31, 2014, 2013, and 2012:

Summary Compensation Table
Name and Principal Position	Year	Salary		Non-Equity Incentive Plan Compensation1		Change in Pension Value and Non-Qualified Deferred Compensation Earnings2		All Other Compensation3		Total
Richard S. Swanson	2014	$	695,000	$	593,780	$	1,004,000	$	68,513	$	2,361,293
President and CEO	2013	670,000		500,001		242,000		67,700		1,479,701
	2012	645,833		840,784		443,000		71,568		2,001,185
Steven T. Schuler	2014	360,000		244,417		463,000		30,152		1,097,569
CFO	2013	345,000		204,591		106,000		26,838		682,429
	2012	333,333		334,911		196,000		28,695		892,939
Dusan Stojanovic	2014	305,000		205,536		291,000		24,467		826,003
CRO	2013	296,000		195,404		45,000		23,622		560,026
	2012	285,417		282,248		129,000		22,770		719,435
Daniel D. Clute	2014	275,000		186,502		—		32,435		493,937
CBO	2013	240,000		162,484		—		28,875		431,359
	2012	192,203		148,330		—		11,519		352,052
Mary L. Cecola	2014	265,210		127,097		—		26,086		418,393
CBTO4	2013	255,008		131,157		—		37,133		423,298

1 The components of this column for 2014 are provided in the “Components of 2014 Non-Equity Incentive Plan Compensation” table on the following page.

2 Represents the change in value of the DB Plan and BEP DB Plan, if applicable. The significant change from 2013 to 2014 was due to a decline in interest rates and a change in mortality assumptions resulting in longer life expectancies of plan participants. All earnings on non-qualified deferred compensation are at the market rate.

3 The components of this column for 2014 are provided in the “Components of 2014 All Other Compensation” table on the following page.

4 Ms. Cecola was not an NEO prior to 2013.

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COMPONENTS OF 2014 NON-EQUITY INCENTIVE PLAN COMPENSATION

Named Executive Officer	Annual Incentive		Deferred Incentive1		Total
Richard S. Swanson	$	296,890	$	296,890	$	593,780
Steven T. Schuler	122,208		122,209		244,417
Dusan Stojanovic	102,768		102,768		205,536
Daniel D. Clute	93,251		93,251		186,502
Mary L. Cecola	82,613		44,484		127,097

1 The deferred incentive amounts were earned as of December 31, 2014, but will not be paid until March 2018, and remain subject to modification and forfeiture under the terms of the IP. For the President, CFO, CRO, and CBO, the deferred incentive is 50 percent of the total incentive earned in 2014. For the CBTO, the deferred incentive is 35 percent of the total incentive earned in 2014.

COMPONENTS OF 2014 ALL OTHER COMPENSATION

	Bank Contributions to Vested Defined Contribution Plans
Named Executive Officer	DC Plan		BEP DC Plan		Car Allowance		Financial Planning		Relocation		Total
Richard S. Swanson	$	15,000	$	44,513	$	9,000	$	—	$	—	$	68,513
Steven T. Schuler	15,038		13,895		—		1,219		—		30,152
Dusan Stojanovic	15,038		9,429		—		—		—		24,467
Daniel D. Clute	22,194		10,241		—		—		—		32,435
Mary L. Cecola	25,688		398		—		—		—		26,086

The following table provides estimated potential payouts under our IP of non-equity incentive plan awards:

2014 Grants of Plan-Based Awards
		Estimated Future Payouts Under Non-Equity Incentive Plan Awards
Named Executive Officer	Incentive Plan	Threshold		Target		Maximum
Richard S. Swanson	Annual	$	173,750	$	260,625	$	347,500
	Deferred	173,750		260,625		347,500
Steven T. Schuler	Annual	72,000		108,000		144,000
	Deferred	72,000		108,000		144,000
Dusan Stojanovic	Annual	61,000		91,500		122,000
	Deferred	61,000		91,500		122,000
Daniel D. Clute	Annual	55,000		82,500		110,000
	Deferred	55,000		82,500		110,000
Mary L. Cecola	Annual	31,621		63,242		94,863
	Deferred	21,081		42,162		63,242

In November 2014, we entered into amended employment agreements with the President, CFO, CBO, and CRO. These agreements are filed as exhibits to our quarterly report on Form 10-Q, filed November 12, 2014. Refer to "Item 15. Exhibits and Financial Statement Schedules" for additional information. We do not have an employment agreement with the CBTO.

The employment agreements provide, with respect to each of our NEOs, except the CBTO, that we shall initially pay the respective NEO an annualized base salary of not less than the amount set forth in the respective agreement. In each case, base salary may only be adjusted upward from the 2014 base salary based on an annual review by the Board of Directors and may not be adjusted downward unless such downward adjustment is part of a nondiscriminatory cost reduction plan applicable to our total compensation budget.

Additionally, the respective agreements provide that each NEO is entitled to participate in the IP. Each agreement provides that the incentive targets for the IP are to be established by our Board of Directors and that the target for the IP shall not be set lower than the designated percentage of base salary set forth in the employment agreement unless as a result of Board action affecting all NEOs. The agreements further provide that each NEO is entitled to participate in all eligible retirement benefit programs offered by the Bank.

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Refer to the discussion of IP under “2014 IP Performance Results” in this Item 11 for additional information on the levels of awards under the IP. Actual non-equity incentive award amounts earned for the year ended December 31, 2014 are included in the non-equity incentive plan compensation column under the “Summary Compensation Table” in this Item 11.

The 2014 IP provides that unless otherwise directed by the Compensation Committee, payments under Bank-wide Goals and Individual Goals shall be made in a lump sum through regular payroll distribution, as soon as possible after the Board of Directors approves the payout of a particular award, but in no case more than 75 days after the end of the calendar year for which the performance or deferral period is ended.

Under the IP, the Compensation Committee may determine a participating NEO is not eligible to receive all or any part of the deferred incentive if the respective NEO (i) has not achieved a performance level of “meets expectations” or higher evaluation of overall performance during a performance period or deferred performance period, (ii) has not achieved a “meets expectations” or higher evaluation of overall performance at the time of payout, (iii) is subject to any disciplinary action or probationary status at the time of payout, or (iv) fails to comply with regulatory requirements or standards, internal control standards, professional standards or any internal standard, or fails to perform responsibilities assigned under our Strategic Business Plan.

In addition, under the IP, the Compensation Committee may also consider a variety of other objective and subjective factors to determine the appropriate payouts such as (i) operational errors or omissions that result in material revisions to the financial results, information submitted to the Finance Agency, or data used to determine incentive payouts, (ii) whether submission of information to the SEC, Office of Finance, or Finance Agency is untimely, and (iii) whether the organization fails to make sufficient and timely progress, as determined by the Finance Agency, in the remediation of examination, monitoring, and other supervisory findings and matters requiring attention.

If one of the above occurs, the Compensation Committee shall consider the facts and circumstances and reduce incentive awards commensurate with the materiality of the exception relative to our financial and operational performance and financial reporting responsibilities.

Each employment agreement provides that we or the applicable NEO may terminate employment for any reason (other than good reason or cause) on 60 days written notice to the other party. An applicable NEO may be entitled to certain payments upon termination or change of control. For more information, see “Potential Payments Upon Termination or Change of Control" in this Item 11.

Benefits and Retirement Philosophy

We consider benefits to be an important aspect of our ability to attract and retain qualified employees and therefore we design our programs to be competitive with other financial services businesses. The following is a summary of the retirement benefits that our NEOs were eligible to receive, except the CBO and/or CBTO in some cases.

QUALIFIED DEFINED BENEFIT PLAN

All employees who have met the eligibility requirements participate in our DB Plan, administered by Pentegra, which is a tax-qualified multiemployer defined benefit plan. In November of 2010, the Compensation Committee approved an amendment to our DB Plan. Under the amendment, new employees hired on or after January 1, 2011, including any NEO, are not eligible to participate in the DB Plan. The plan requires no employee contributions. All of our NEOs, with the exception of our CBO and CBTO, participate in the DB Plan.

The pension benefits payable under the DB Plan are determined under a pre-established formula that provides a retirement benefit payable at age 65 or normal retirement under the DB Plan. The benefit formula is 2.25 percent per each year of the benefit service multiplied by the highest three consecutive years' average compensation. Average compensation is defined as the total taxable compensation as reported on the IRS Form W-2 (excluding deferred award payouts). In the event of retirement prior to attainment of age 65, a reduced pension benefit is payable under the plan. Upon termination of employment prior to age 65, participants meeting the five-year vesting and age 55 early retirement eligibility criteria are entitled to an early retirement benefit. The regular form of retirement benefits provides a single life annuity, with a guaranteed 12-year payment, or additional payment options are also available. The benefits are not subject to offset for Social Security or any other retirement benefits received.

During 2014, each of the NEOs' DB Plan liabilities grew more than in prior years. This was due to a decrease in interest rates, which caused an increase in pension plan liabilities.

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NON-QUALIFIED DEFINED BENEFIT PLAN

Our BEP DB Plan is an unfunded, non-qualified pension plan similar to the DB Plan. The BEP was amended in March of 2011 and states that NEOs hired on or after January 1, 2011 are not eligible to participate in the BEP DB Plan. All of our NEOs, with the exception of our CBO and CBTO, participate in the BEP DB Plan.

In determining whether a restoration of retirement benefits is due to our participating NEOs, the BEP DB Plan utilizes the identical benefit formulas applicable to our DB Plan; however, the BEP DB Plan does not limit the annual earnings or benefits of our participating NEOs. Rather, if the benefits payable from the DB Plan have been reduced or otherwise limited, our participating NEOs' lost benefits are payable under the terms of the BEP DB Plan. As a non-qualified plan, the benefits received from the BEP DB Plan do not receive the same tax treatment and funding protection as with our qualified plans. Payment options under the BEP DB Plan include a lump-sum distribution, annuity payments, or installment payment options.

CURRENT ACCRUED RETIREMENT BENEFITS

The following table provides the present value of the current accrued benefits payable to our participating NEOs upon retirement at age 65 from the DB Plan and the BEP DB Plan, and is calculated in accordance with the formula currently in effect for specified years-of-service and remuneration for participating in both plans. Our pension benefits do not include any reduction for a participant's Social Security benefits. The vesting period for the pension plans is five years. See “Item 8. Financial Statements and Supplementary Data — Note 16 — Pension and Postretirement Benefits” for details regarding valuation method and assumptions.

2014 Pension Benefits Table
Named Executive Officer1	Plan Name	Number of Years Credited Service	12/31/13 Present Value of Accumulated Benefit		12/31/14 Present Value of Accumulated Benefit		Change in Present Value of Accumulated Benefit
Richard S. Swanson	Pentegra DB Plan	7.58	$	513,000	$	787,000	$	274,000
	BEP DB Plan	7.58	1,406,000		2,136,000		730,000
Steven T. Schuler	Pentegra DB Plan	7.25	459,000		719,000		260,000
	BEP DB Plan	7.25	356,000		559,000		203,000
Dusan Stojanovic	Pentegra DB Plan	5.75	230,000		417,000		187,000
	BEP DB Plan	5.75	118,000		222,000		104,000

1 Only employees hired prior to January 1, 2011 are eligible for the DB Plan and BEP DB Plan. Mr. Clute and Ms. Cecola were both hired after January 1, 2011 and therefore they are not eligible to participate in these plans.

QUALIFIED DEFINED CONTRIBUTION PLAN

All employees who have met the eligibility requirements may elect to participate in our DC Plan, a retirement savings plan qualified under the Internal Revenue Code. Employees (including NEOs) may receive a match on employee contributions at 100 percent up to six percent of eligible compensation. Employees are eligible for the match immediately and all matching contributions are immediately 100 percent vested. Employees hired on or after January 1, 2011 receive an additional four percent Bank contribution of eligible compensation to the DC Plan at the end of each calendar year. Vesting in the additional four percent DC Plan contribution is 100 percent at the completion of three years of service.

NON-QUALIFIED DEFINED CONTRIBUTION PLAN

NEOs participating in the BEP are eligible to participate in the defined contribution component of the BEP (BEP DC Plan), a non-qualified defined contribution plan that is the same as the DC Plan. The BEP DC Plan ensures, among other things, that participants whose benefits under the DC Plan would otherwise be restricted by certain provisions of the Internal Revenue Code are able to make elective pre-tax deferrals and to receive a matching contribution relating to such deferrals. The investment returns credited to a participating NEO's account are at the market rate for the NEO's selected investment. The selections may be altered at any time. Aggregate earnings are calculated by subtracting the 2013 year-end balance from the 2014 year-end balance, less the NEO's and Bank's contributions. The Bank immediately matches 100 percent of NEOs' contributions up to six percent of salary for salary and incentive deferrals. Prior to June 2014, all of our NEOs, with the exception of our CBTO, participated in the BEP DC Plan.

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In June 2014, The BEP DC Plan was amended and approved by the Board of Directors. The amendment provides that any officer of the Bank whose base earnings exceed the IRS plan limits is eligible to participate in the BEP DC. As such, all NEO's now participate in the BEP DC Plan.

2014 Non-Qualified Deferred Compensation Table
Named Executive Officer	Executive Contributions In Last FY1		Registrant Contributions In Last FY2		Aggregate Earnings In Last FY		Aggregate Withdrawals In Last FY		Aggregate Balance At Last FYE
Richard S. Swanson	$	356,945	$	44,513	$	138,267	$	—	$	1,136,371
Steven T. Schuler	72,331		13,895		43,529		—		644,195
Dusan Stojanovic	24,466		9,429		12,962		—		188,959
Daniel D. Clute	22,095		10,241		2,987		—		59,168
Mary L. Cecola	6,630		398		—		—		7,028

1 Amounts shown are included in the "Salary" column of the “Summary Compensation Table” in this Item 11.

2 Amounts shown are included in the "All Other Compensation" column of the “Summary Compensation Table” in this Item 11.

Potential Payments Upon Termination or Change of Control

The following paragraphs set out the material terms relating to termination of each of our NEOs and the potential compensation that would be due to each upon termination under the current employment agreements, as applicable. For purposes of the following discussion regarding potential payments upon termination or change of control, the following are the definitions of “Cause,” “Good Reason,” “Disability,” and "Change of Control."

“Cause” generally means a felony conviction, a willful act of misconduct that materially impairs the Bank's business or goodwill or causes material damage, a willful breach of certain representations in the employment agreement, a willful and continued failure to perform material duties, a willful material violation of the Bank's Code of Ethics, or receipt by the Bank of any regulatory order that the NEO be terminated or the NEO's authority be materially reduced.

“Good Reason” generally means a reduction in the NEO's base salary or incentive plan bonus opportunity, unless as part of a nondiscriminatory cost reduction applicable to the Bank's total compensation budget, a reduction in the NEO's corporate officer title, a material change by the Bank in the geographic location in which the NEO is required to perform services or a material breach of the employment agreement by the Bank.

“Disability” means the NEO is receiving benefits under a disability plan sponsored by the Bank for a period of not less than three months by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months and which has rendered the NEO incapable of performing their duties.

“Change of Control” means a merger, reorganization or consolidation of the Bank with or into another FHLBank or other entity, a sale or transfer of all or substantially all of the business or assets of the Bank to another FHLBank or other entity, the purchase by the Bank or transfer to the Bank of all or substantially all of the business or assets of another FHLBank, or the liquidation of the Bank, and, in the case of the President, the definition of a “Change of Control” includes an event that as a result of one or a series of related transactions, the number of directors of the Bank elected by members of the Bank located in Iowa, Missouri, North Dakota, South Dakota, and Minnesota cease to constitute a majority of the directors of the Bank that are elected by members of the Bank (excluding non-member independent directors).

These definitions are summaries only and each respective employment agreement, between us and our NEOs, except the CBTO, who does not have an employment agreement with us, provides the relevant definitions in full. Copies of the employment agreements are filed as exhibits to our quarterly report on Form 10-Q, filed with the SEC on November 12, 2014.

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TERMINATION FOR CAUSE OR WITHOUT GOOD REASON

If an NEO's employment is terminated by us for cause or by the NEO without good reason, the employment agreement entitles the respective NEO to the following:

i. Base salary accrued through the date of termination;

ii. Accrued but unpaid award(s) under any IP in an amount equal to that which the NEO would have received in the year of termination;

iii. Accrued and earned vacation through the date of termination; and

iv. All other vested benefits under the terms of our employee benefit plans, subject to the terms of such plans.

Assuming one or more of the previously discussed events for the receipt of termination payments occurred as of December 31, 2014, the total amounts payable to our NEOs are outlined in the table below:

Named Executive Officer	Severance Pay1		Annual Incentive		Deferred Incentive		Vacation Payout2		Total
Richard S. Swanson	$	—	$	—	$	—	$	69,724	$	69,724
Steven T. Schuler	—		—		—		36,000		36,000
Dusan Stojanovic	—		—		—		12,904		12,904
Daniel D. Clute	—		—		—		25,032		25,032
Mary L. Cecola3	—		—		—		—		—

1 Termination under these circumstances would not result in severance payments from the Bank but would result in salary earned through December 31, 2014, as reflected under the "Salary" column of the "Summary Compensation Table" in this Item 11.

2 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.

3 As of December 31, 2014, there is not an employment agreement in force between the Bank and Ms. Cecola. However, like all employees, Ms. Cecola is eligible to receive a payout in connection with unused vacation upon termination for cause.

TERMINATION WITHOUT CAUSE, FOR GOOD REASON, OR FOLLOWING A MERGER/CHANGE IN CONTROL

If, however, the NEO's employment is terminated by us without cause, by the NEO for good reason, or following a merger/change in control, in addition to the payouts previously mentioned, the NEO would be entitled to severance payments equal to a multiple of the NEO's base salary as follows:

i. Two times the annual base salary in effect on the date of termination for the President and one times the annual base salary in effect on the date of termination for the CBO, CFO, and CRO, or, in the case that the termination occurs within 24 months following a Change of Control, 2.99 times the annual base salary in effect on the date of termination for the President and two times the annual base salary in effect on the date of termination for the CBO, CFO, and CRO;

ii. One times the participating NEO's targeted non-deferred IP award in effect for the calendar year in which the date of termination occurs, or, in the case that the termination occurs within 24 months following a Change of Control, 2.99 times the targeted non-deferred plan award in effect for the calendar year in which the date of termination occurs for the President and two times the targeted non-deferred plan award in effect for the calendar year in which the date of termination for the CBO, CFO, and CRO;

iii. The IP award for the calendar year in which the date of termination occurs and prorated for the portion of the calendar year in which the NEO was employed;

iv. The accrued but unpaid IP awards covering periods prior to the one in which the NEO's employment was terminated, calculated in accordance with the terms of the IP as if termination was due to death or disability; and

v. Any benefits mandated under any applicable health care continuation laws, provided that the continuing bank will continue paying its portion of the medical and/or dental insurance premiums for the NEO for the one-year period following the date of termination.

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 The IP award would be paid at target for Individual Goals and based on the calendar year actual results for Bank-wide Goals, and would be paid at the regular time that such payments are made to all employees enrolled in the plans. The base salary amount, the IP award for the calendar year in which the date of termination occurs, and the accrued but unpaid IP awards for any performance period ending prior to the year in which the date of termination occurs would be paid in a lump sum within ten days following the NEO executing a release of claims against us, which would entitle them to the payments described. Assuming one or more of the previously discussed events for the receipt of termination payments occurred as of December 31, 2014, the total amounts payable to our NEOs are outlined in the table below:

Termination Without Cause or For Good Reason
Named Executive Officer	Severance Pay		Annual Incentive		Deferred Incentive		Vacation Payout1		Total
Richard S. Swanson	$	1,390,000	$	557,515	$	717,706	$	69,724	$	2,734,945
Steven T. Schuler	360,000		230,209		288,228		36,000		914,437
Dusan Stojanovic	305,000		194,268		248,596		12,904		760,768
Daniel D. Clute	275,000		175,751		155,404		25,032		631,187
Mary L. Cecola2	—		—		—		—		—

Termination Without Cause or For Good Reason Following Change in Control
Named Executive Officer	Severance Pay		Annual Incentive		Deferred Incentive		Vacation Payout1		Total
Richard S. Swanson	$	2,078,050	$	1,076,159	$	717,706	$	69,724	$	3,941,639
Steven T. Schuler	720,000		338,209		288,228		36,000		1,382,437
Dusan Stojanovic	610,000		285,768		248,596		12,904		1,157,268
Daniel D. Clute	550,000		258,251		155,404		25,032		988,687
Mary L. Cecola2	—		—		—		—		—

1 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.

2 As of December 31, 2014, there is not an employment agreement in force between the Bank and Ms. Cecola. However, like all employees, Ms. Cecola is eligible to receive a payout in connection with unused vacation upon termination without cause.

TERMINATION FOR DEATH, DISABILITY, OR RETIREMENT

If the NEO's employment is terminated due to death, disability, or qualifying retirement, in addition to the payouts previously mentioned under the section entitled "Termination For Cause or Without Good Reason", the NEO is entitled to the following:

i. The IP award for the calendar year in which the date of termination occurs and prorated for the portion of the calendar year in which the NEO was employed;

ii. To the extent not already paid to the NEO, the accrued but unpaid IP awards covering periods prior to the one in which the NEO's employment was terminated;

iii. Other coverage continuation rights that are available to such employees upon death, disability, or retirement, as provided for under the terms of such plans; and

iv. For the CBO, CFO and CRO, in the case of a qualifying retirement (as defined in their respective employment agreements), any pro-rated award that such executive would have been entitled to receive under the IPIP, calculated by treating the date of the executive’s qualifying retirement as the date of such executive’s death.

Payment of all accrued amounts, other than IP award amounts, shall be paid in lump sum within ten days or no later than the first payroll date on or after the NEO's date of termination. Payment of all IP award amounts, if any, shall be paid as otherwise provided under the applicable IP.

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Assuming one or more of the previously discussed events for the receipt of termination payments occurred as of December 31, 2014, the total amounts payable to our NEOs are outlined in the table below:

Termination by Death, Disability, or Retirement
Named Executive Officer	Severance Pay		Annual Incentive		Deferred Incentive		Vacation Payout1		Total
Richard S. Swanson	$	—	$	296,890	$	1,107,412	$	69,724	$	1,474,026
Steven T. Schuler	—		122,209		447,778		36,000		605,987
Dusan Stojanovic	—		102,768		388,636		12,904		504,308
Daniel D. Clute	—		93,251		273,379		25,032		391,662
Mary L. Cecola2	—		82,613		44,484		—		127,097

1 This amount represents accrued but unused vacation and would be paid in a lump sum upon termination.

2 While there is no employment agreement in force between the Bank and Ms. Cecola, as an employee of the Bank, she is entitled to receive earned but not paid incentives upon termination for death, disability, or retirement.

Merger Integration

As a result of the potential merger between the Bank and the Seattle Bank, the Compensation Committee approved in August 2014 several compensation plans impacting our NEOs, including an Integration Performance Incentive Plan (IPIP), a severance policy, and an enhanced severance policy.

The purpose of the IPIP is to motivate and retain executives, senior officers, and other contributors involved in the Bank’s contemplated merger. It was submitted to the Finance Agency for review and non-objection. The non-objection was received on September 18, 2014.

The IPIP is designed in two phases: (i) Phase 1 covers the period from the execution of the definitive agreement to the closing of the merger and (ii) Phase 2 covers the period from the closing of the merger through the integration date (Integration Date), which is the date approximately 80 percent of the work is complete in merging the two banks. Our NEOs are only eligible to participate in Phase 2 of the IPIP Plan.

During Phase 2, our NEOs will be eligible to receive compensation based on Bank-wide performance goals. Three to five performance measures will be identified for overall success of the merger. The Compensation Committee will determine success against the Bank-wide measures and will have the ability to exercise negative discretion on individual payouts or payouts for the entire participant group. Potential payouts for the Bank-wide measures occur upon the Integration Date. Our CBTO’s weighting for Bank-wide performance goals will be 70 percent of her overall payout opportunity. In addition, our CBTO will be eligible to receive compensation based on three to five department goals that are designed to support the integration process of the two Banks. The department goals will be weighted at 30 percent of her overall payout opportunity. The results of the department performance measures will be assessed by the Bank’s executive team and the Bank’s CEO and communicated to the Compensation Committee.

Pursuant to the terms of the IPIP, subject to the discretion of the Bank’s Compensation Committee, our CEO will be eligible for a payment of between $200,000 and $250,000. Our CFO, CBO, and CRO will be eligible to receive a payment of between $75,000 and $100,000. Our CBTO will be eligible to receive a payment of between $20,000 and $40,000.

In November 2014, the Compensation Committee approved an Amended IPIP. The IPIP was amended due to the decision of the Board to integrate the two Banks, if the merger is approved, earlier than anticipated under the IPIP. The Amended IPIP provides two phases as follows:

• Phase 1 - The period beginning with the date a definitive merger agreement is executed between the Bank and Seattle Bank and ending on the day which is 30 days following the effective date of the merger or November 30, 2015, whichever occurs first.

• Phase 2 - The period beginning with the day which is the first day following the close of Phase 1 and ending on the date of final integration. Final integration is defined as the date when all departmental goals have been completed, as determined by the Compensation Committee, or June 30, 2016, whichever occurs first.

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The NEOs will participate in both phases of the Amended IPIP, but payment will not be made until the merger integration has been completed or June 30, 2016, whichever occurs first. The CEO, CFO, CBO, and CRO are eligible for an award based on Bank-wide goals in a range of 20-35 percent of base pay. The CBTO is eligible for an award based on 70 percent departmental goals and 30 percent Bank-wide goals in a range of 10-35 percent of base pay.

The Amended IPIP was submitted to the Finance Agency in December 2014 for review and non-objection. To date, we have not had a response from the Finance Agency.

SEVERANCE POLICY

On August 11, 2014, the Board also approved changes to our severance policy in its employee handbook (Severance Policy) subject to non-objection by the Finance Agency, which the Bank received on September 18, 2014. The Severance Policy impacts our CBTO and other employees and would apply if those individuals were involuntarily terminated due to a decision by the Bank to reduce the number of Bank employees for reasons unrelated or not exclusively related to the performance of employees (a Reduction in Force).

To be eligible for a separation allowance under the Severance Policy, our CBTO and other employees must meet certain eligibility requirements: (i) the employee must be a regular full-time employee, (ii) the reason for separation must be Reduction in Force, (iii) the employee must not have refused to accept a position of comparable status or pay (as determined by the Bank in its sole discretion) and which does not require relocation of primary residence, (iv) the employee must not have refused to accept a position of comparable status or pay with another employer (as determined by the Bank in its sole discretion) who acquires any of the assets or operations of the Bank and which does not require relocation of primary residence, and (v) the employee must sign a separation and release agreement, in a form acceptable to the Bank, that releases the Bank from any and all claims against the Bank arising out of the employee’s employment with the Bank or his/her termination of employment.

The Severance Policy provides that if these conditions are met, our CBTO would be eligible for a severance allowance equal to one year of her salary, generally payable in a single lump sum. Under the Bank’s prior severance policy, our CBTO was eligible for two weeks of salary for every year of full service (a minimum of four weeks and a maximum of six months). Pursuant to the Severance Policy, our CBTO would also be paid for all unused vacation for which she may be eligible. In the event of termination due to Reduction in Force, extended medical and dental coverage at the current employee rates would be provided through the end of the month covered by the severance period.

ENHANCED SEVERANCE POLICY

On August 11, 2014, the Board also approved an Enhanced Severance Policy subject to non-objection by the Finance Agency, which the Bank received on September 18, 2014. The Enhanced Severance Policy impacts our CBTO and other employees. The Enhanced Severance Policy provides severance pay to eligible Senior Vice Presidents of the Bank (Participants), including our CBTO. The Enhanced Severance Policy would be effective for a two year period following the consummation of a merger, reorganization or consolidation of the Bank with or into another Federal Home Loan Bank or other entity. The Enhanced Severance Policy terminates upon the earlier of (i) the date on which the Participant terminates employment with the Bank and (ii) the date of payment to the Participant of all severance payable under the Enhanced Severance Policy.

A Participant may be eligible for pay under the Enhanced Severance Policy if the Bank has terminated the Participant other than for Cause. The Bank shall be considered to have terminated the Participant for “Cause” because the Participant:

i. shall have been convicted of (or pled guilty or nolo contendere to) a felony or any crime involving dishonesty or fraud;

ii. shall have committed willful acts of misconduct that materially impair the goodwill or business of the Bank or cause material damage to its property, goodwill, or business, monetarily or otherwise;

iii. shall have a willful and continued failure to perform his or her material duties;

iv. shall have willfully violated any material policies of the Bank contained in the Bank's Code of Ethics to the extent such acts would provide grounds for a termination for Cause with respect to other employees; or

v. was the subject of a regulatory order or directive of judicial determination that the Participant be terminated or the authority of the Participant be materially reduced.

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Alternatively, a Participant may be eligible for severance pay pursuant to the Enhanced Severance Policy (Severance Pay) if the Participant has terminated his or her employment after a base pay reduction, a reduction in corporate officer title, or a material change by the Bank in the geographic location in which the Participant is required to work (“Termination by Participant with Good Reason”).

Under the Enhanced Severance Policy, if our CBTO’s employment with the Bank were to end due to Termination by Participant with Good Reason or termination by the Bank other than for Cause (a “Payment Event”), our CBTO would be eligible for Severance Pay in the amount equal to one and a half years of base salary, outplacement services for a period not to exceed nine months, health and dental continuation during the severance period, and deferred earned and unpaid awards for prior periods.

Pursuant to the Enhanced Severance Policy, Severance Pay would be paid in a lump sum cash amount that must be made no later than the second regularly scheduled payroll date that follows the date of the Payment Event. The Severance Pay is subject to withholding for all applicable federal, state, local or foreign taxes and any other legally required withholding.

EMPLOYMENT AGREEMENT BETWEEN RICHARD S. SWANSON AND THE CONTINUING BANK

In connection with the merger and his service as CEO of the continuing bank, Richard S. Swanson entered into a new employment agreement with the Bank on January 6, 2015. Mr. Swanson’s agreement will be effective upon the effective date of the merger and is subject to non-objection by the Finance Agency. Upon effectiveness of the merger, the employment agreement will supersede Mr. Swanson’s current employment agreement with the Bank.

The employment agreement provides that the continuing bank will initially pay Mr. Swanson an annualized base salary of $720,000. Mr. Swanson’s base salary may only be adjusted upward from the initial base salary based on an annual review by the board of directors of the continuing bank and may not be adjusted downward unless such downward adjustment is part of a nondiscriminatory cost reduction plan applicable to the continuing bank’s total compensation budget.

In addition, Mr. Swanson’s new employment agreement provides that he will be entitled to participate in all IPs approved by the continuing bank’s board of directors. Mr. Swanson’s incentive target will not be set lower than 75 percent of his base salary except as a result of a decision by the board of directors of the continuing bank affecting all executive officers covered by the IP, such as a nondiscriminatory cost reduction plan applicable to the continuing bank’s total compensation budget. The agreement further provides that Mr. Swanson will be entitled to participate in all eligible retirement benefit programs offered by the continuing bank. Mr. Swanson will also be eligible for certain perquisites, including reimbursement for financial planning expenses not to exceed $3,500 annually and a company car allowance in the amount of $750 per month.

Mr. Swanson’s new employment agreement provides that:

i. the continuing bank or Mr. Swanson may terminate employment for any reason (other than good reason or cause) on 60 days’ written notice to the other party;

ii. the continuing bank may terminate for cause immediately on written notice to Mr. Swanson; and

iii. Mr. Swanson may terminate for good reason on written notice to the continuing bank, in each case, in accordance with the procedures set forth in the employment agreement.

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Potential Payments Upon Termination or Change of Control

The following paragraphs set out the material terms relating to the potential compensation that would be due to Mr. Swanson upon a termination of employment under his employment agreement. For purposes of the following discussion regarding potential payments upon a termination or change of control, the following are the definitions of “Cause,” “Good Reason,” “Disability,” and “Change of Control.”

“Cause” generally means a felony conviction, a willful act of misconduct that materially impairs the continuing bank’s business or goodwill or causes material damage, a willful breach of certain representations in the employment agreement, a willful and continued failure to perform material duties, a willful material violation of the continuing bank’s code of ethics, or receipt by the continuing bank of any regulatory order that he be terminated or his authority be materially reduced.

“Good Reason” generally means a reduction in the executive’s base salary or IP bonus opportunity, unless as part of a nondiscriminatory cost reduction applicable to the continuing bank’s total compensation budget, a reduction in the executive’s corporate officer title, a material change by the continuing bank in the geographic location in which the executive is required to perform his services or a material breach of the employment agreement by the continuing bank.

“Disability” means the executive is receiving benefits under a disability plan sponsored by the continuing bank for a period of not less than three months by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months and which has rendered the executive incapable of performing his duties.

“Change of Control” means a merger, reorganization or consolidation of the continuing bank with or into another FHLBank or other entity, a sale or transfer of all or substantially all of the business or assets of the continuing bank to another FHLBank or other entity, the purchase by the continuing bank or transfer to the continuing bank of all or substantially all of the business or assets of another FHLBank, or the liquidation of the continuing bank.

Amounts payable under the employment agreement are subject to reduction in the event the amounts constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code.

Termination for Cause or Without Good Reason

If Mr. Swanson’s employment is terminated by the continuing bank for Cause or by Mr. Swanson without Good Reason, the employment agreement entitles Mr. Swanson to the following:

i.base salary accrued through the date of termination;

ii. accrued but unpaid award(s) under any IP in an amount equal to that which he would have received in the year of termination;

iii. accrued and earned vacation through the date of termination; and

iv. all other vested benefits under the terms of the continuing bank’s employee benefit plans, subject to the terms of such plans.

Payment of the foregoing accrued amounts, other than IP award amounts, will be paid in a lump sum within ten days or no later than the first payroll date on or after Mr. Swanson’s date of termination. Payment of all IP award amounts, if any, will be paid as otherwise provided for under the applicable IP.

Termination Without Cause, for Good Reason, Following a Change of Control, or Within a Specified Period of Time Following the Effective Date of the Employment Agreement

If Mr. Swanson’s employment is terminated by the continuing bank without Cause or by Mr. Swanson for Good Reason, in addition to the payouts previously mentioned under “Termination for Cause or Without Good Reason,” the employment agreement entitles Mr. Swanson to the following:

i. two times the annual base salary in effect on the date of termination, or, in the case that the termination occurs on or before December 31, 2015, or within 24 months following a Change of Control, 2.99 times the annual base salary in effect on the date of termination;

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ii. one times the targeted non-deferred IP award in effect for the calendar year in which the date of termination occurs, or, in the case that the termination occurs on or before December 31, 2015, or within 24 months following a Change of Control, 2.99 times the targeted non-deferred IP award in effect for the calendar year in which the date of termination occurs;

iii. the IP award for the calendar year in which the date of termination occurs, prorated for the portion of the calendar year in which Mr. Swanson was employed;

iv. the accrued but unpaid IP awards covering periods prior to the one in which Mr. Swanson’s employment terminated, calculated in accordance with the terms of the IP as if termination was due to death or disability; and

v. any benefits mandated under any applicable health care continuation laws, provided that the continuing bank will continue paying its portion of the medical and/or dental insurance premiums for Mr. Swanson for the one-year period following the date of termination.

In the event of termination by the continuing bank without Cause or by Mr. Swanson for Good Reason on or before December 31, 2015, Mr. Swanson also will be eligible for payment of premiums by the continuing bank for continued participation in the continuing bank’s group health care benefit (medical, dental, and vision) plans for a period of 18 months following the date of determination or, if earlier, June 30, 2017, subject to compliance with applicable laws (in lieu of the benefits under the last bullet above).

The base salary amount will be paid in a lump sum within ten days or no later than the first payroll date on or after the date of effectiveness of Mr. Swanson’s release of claims against the continuing bank. Payment of all IP award amounts will be paid as otherwise provided under the applicable IP, subject to effectiveness of a release of claims against the continuing bank.

Termination for Death, Disability, or Retirement

If Mr. Swanson’s employment is terminated due to death, disability, or qualifying retirement, in addition to the payouts previously mentioned under the section entitled “Termination for Cause or Without Good Reason,” he would be entitled to the following:

i. the IP award for the calendar year in which the date of termination occurs and prorated for the portion of the calendar year in which he was employed;

ii. to the extent not already paid to him, the accrued but unpaid IP awards covering periods prior to the one in which Mr. Swanson’s employment is terminated;

iii. other coverage continuation rights that are available upon death, disability, or retirement, as provided for under the terms of such plans; and

iv. in the case of a qualifying retirement (as defined in the employment agreement), any pro-rated award that Mr. Swanson would have been entitled to receive under the IPIP, calculated by treating the date of his qualifying retirement as his date of death.

Payment of the foregoing accrued amounts, other than IP award amounts, will be paid in a lump sum within ten days or no later than the first payroll date on or after Mr. Swanson’s date of termination. Payment of all IP award amounts, if any, will be paid as otherwise provided under the applicable IP.

Director Compensation

During 2014, the Board of Directors held eight in-person board meetings and 35 in-person committee meetings. In addition, there were four telephonic board meetings and 14 telephonic committee meetings held throughout the year. Pursuant to our 2014 Director Fee Policy, Directors receive one quarter of the annual compensation following the end of each calendar quarter. If it is determined at the end of the calendar year that a Director has attended less than 75 percent of the meetings they were required to attend during the year, the Director will not receive one quarter of the annual compensation for the fourth quarter of the calendar year.

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Directors are expected to attend all Board meetings and meetings of the Committees on which they serve, and to remain engaged and actively participate in all meetings. In addition to our right to withhold fourth quarter annual compensation from a Director, the Board of Directors directs the Corporate Secretary to make any other appropriate adjustments in the payments to any Director who regularly fails to attend Board meetings or meetings of Committees on which the Director serves, or who consistently demonstrates a lack of participation in or preparation for such meetings, to ensure that no Director is paid fees that do not reflect that Director's performance of his/her duties. To assist the Board in making such determinations, the Corporate Secretary will, on a quarterly basis and prior to payment of the most recently completed quarter's Director fees, review the attendance of each Director during the quarter and raise any attendance issues identified with the Board Chair. In the event the potential issue involves the Board Chair, the Corporate Secretary will raise such issue with the Board Vice Chair.

The total expenses paid on behalf of the Board of Directors for travel and other reimbursed expenses for 2014 was $266 thousand and annual compensation paid to the Board of Directors, by position, for 2014 was as follows:

Board of Director Position	2014
Chair	$	90,000
Vice Chair	85,000
Audit Committee Chair	80,000
Committee Chairs	75,000
Other Directors	65,000

The following table sets forth each Director's compensation for the year ended December 31, 2014:

Director Compensation
Director Name	Fees Earned Or Paid In Cash
Dale E. Oberkfell, Chair	$	90,000
Eric A. Hardmeyer, Vice Chair	85,000
Johnny A. Danos	65,000
Gerald D. Eid	65,000
Michael J. Finley	65,000
Van D. Fishback	75,000
Chris D. Grimm	75,000
Teresa J. Keegan	65,000
John F. Kennedy Sr.	80,000
Ellen Z. Lamale	75,000
Paula R. Meyer	75,000
John P. Rigler II	65,000
John H. Robinson	75,000
Joseph C. Stewart III	65,000
Kevin J. Swalley	65,000

In December of 2014, the Compensation Committee approved the Director Fee Policy for 2015, subject to the review and comment of the Finance Agency. This policy is filed as an exhibit to this annual report on Form 10-K. Refer to "Item 15. Exhibits and Financial Statement Schedules" for additional information. Under the policy, the 2015 Director compensation fees increased. The annual aggregate fees by position are as follows:

Board of Director Position	2015
Chair	$	95,000
Vice Chair	90,000
Audit Committee Chair	85,000
Committee Chairs	80,000
Other Directors	70,000

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Compensation Committee Report

The Compensation Committee reviewed and discussed the 2014 Compensation Discussion and Analysis set forth in Item 11 with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report on Form 10-K. The Compensation Committee includes the following individuals:

Compensation Committee

John H. Robinson, Chair

Paula R. Meyer, Vice Chair

Michelle M. Keeley

Ellen Z. Lamale

Joseph C. Stewart III

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table presents members (or combination of members within the same holding company) holding five percent or more of our outstanding capital stock at February 28, 2015 (shares in thousands):

Name	Address	City	State	Shares of Capital Stock	% of Total Capital Stock
Wells Fargo Bank, N.A.	101 N Phillips Ave	Sioux Falls	SD	13,700	40.1	%
Superior Guaranty Insurance Company1	90 S 7th St.	Minneapolis	MN	461	1.3
				14,161	41.4
All others				20,008	58.6
Total capital stock				34,169	100.0	%

1 Superior Guaranty Insurance Company is an affiliate of Wells Fargo Bank, N.A.

Additionally, due to the fact that a majority of our Board of Directors is nominated and elected from our membership, these member directors are officers or directors of member institutions that own our capital stock. The following table presents total outstanding capital stock owned by those members who had an officer or director serving on our Board of Directors at February 28, 2015 (shares in thousands):

Name	Address	City	State	Shares of Capital Stock	% of Total Capital Stock
Bank of North Dakota	1200 Memorial Hwy	Bismarck	ND	300	0.88	%
Midwest BankCentre	2191 Lemay Ferry Road	Saint Louis	MO	55	0.16
BankWest, Inc.	420 S Pierre St.	Pierre	SD	39	0.11
First Bank & Trust	520 6th St.	Brookings	SD	34	0.10
KleinBank	19943 County Rd 43	Big Lake	MN	32	0.10
State Bank	25 N Chestnut Ave	New Hampton	IA	23	0.08
First Bank & Trust, N.A.	101 2nd St. NW	Pipestone	MN	14	0.04
First Bank & Trust	110 N Minnesota Ave	Sioux Falls	SD	10	0.03
Fidelity Bank	7600 Parklawn Ave	Edina	MN	5	0.01
BANK	409 Hwy 61 S	Wapello	IA	4	0.01
First Bank & Trust of Milbank	215 W 4th Ave	Milbank	SD	3	0.01
Bank Star	1999 W Osage St.	Pacific	MO	1	*
Bank Star of the BootHeel	100 S Walnut St.	Steele	MO	1	*
Bank Star One	118 W 5th St.	Fulton	MO	1	*
				522	1.53
All others				33,647	98.47
Total capital stock				34,169	100.00	%

* Amount is less than 0.01 percent.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

DIRECTOR INDEPENDENCE

General

As of the date of this annual report on Form 10-K, we have 15 directors, all of whom were elected by our member institutions. Pursuant to the passage of the Housing Act, the Finance Agency implemented regulations whereby all new or re-elected directors will be elected by our member institutions. All directors are independent of management from the standpoint they are not our employees, officers, or stockholders. Only member institutions can own our capital stock. Thus, our directors do not personally own our stock. In addition, we are required to determine whether our directors are independent under three distinct director independence standards. Finance Agency regulations and the Housing Act, which applied Section 10A(m) of the Exchange Act to the FHLBanks, provide independence criteria for directors who serve as members of our Audit Committee. Additionally, SEC rules require our Board of Directors to apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of our directors.

Finance Agency Regulations

The Finance Agency director independence standards prohibit individuals from serving as members of our Audit Committee if they have one or more “disqualifying relationships” with us or our management that would interfere with the exercise of that individual's independent judgment. Disqualifying relationships considered by our Board are (i) employment with us at any time during the last five years, (ii) acceptance of compensation from us other than for service as a director, (iii) being a consultant, advisor, promoter, underwriter, or legal counsel for us at any time within the last five years, and (iv) being an immediate family member of an individual who is or who has been, within the past five years, one of our executive officers. The Board assesses the independence of all directors under the Finance Agency's independence standards, regardless of whether they serve on our Audit Committee. As of February 28, 2015, all of our directors, including all members of our Audit Committee, were independent under these criteria.

Exchange Act

Section 10A(m) of the Exchange Act sets forth the independence requirements of directors serving on the Audit Committee of a reporting company. Under Section 10A(m), in order to be considered independent, a member of the Audit Committee may not, other than in his or her capacity as a member of the Board or any other Board Committee (i) accept any consulting, advisory, or other compensation from us or (ii) be an affiliated person of the Bank. As of February 28, 2015, all of our directors, including all members of our Audit Committee, were independent under these criteria.

SEC Rules

In addition, pursuant to SEC rules, we adopted the independence standards of the New York Stock Exchange (NYSE) to determine which of our directors are independent for SEC disclosure purposes. In making an affirmative determination of the independence of each director, the Board first applied the objective measures of the NYSE independence standards to assist the Board in determining whether a particular director has a material relationship with us.

Based upon the fact that each of our Member Directors are officers or directors of member institutions, and that each such member routinely engages in transactions with us, the Board affirmatively determined none of the Member Directors on the Board meet the NYSE independence standards. In making this determination, the Board recognized a Member Director could meet the NYSE objective standards on any particular day. However, because the volume of business between a Member Director's institution and us can change frequently, and because we generally encourage increased business with all members, the Board determined to avoid distinguishing among the Member Directors based upon the amount of business conducted with us and our respective members at a specific time, resulting in the Board's categorical finding that no Member Director is independent under an analysis using the NYSE standards.

With regard to our Independent Directors, the Board affirmatively determined Michelle Keeley, John Kennedy, Ellen Lamale, Elsie Meeks, Paula Meyer, and John Robinson are each independent in accordance with NYSE standards. In concluding our six Independent Directors are independent under the NYSE rules, the Board first determined all Independent Directors met the objective NYSE independence standards. In further determining none of its Independent Directors had a material relationship with us, the Board noted the Independent Directors are specifically prohibited from being an officer of the Bank or an officer or director of a member.

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Our Board has a standing Audit Committee. All Audit Committee members are independent under the Finance Agency's independence standards and the independence standards under Section 10A(m) of the Exchange Act in accordance with the Housing Act. For the reasons described above, our Board determined none of the current Member Directors serving on the Audit Committee are independent using the NYSE independence standards. The Member Directors serving on the Audit Committee are Dale Oberkfell, Chris Grimm, and Doug Hile. Our Board determined, however, the Independent Directors serving on the Audit Committee are independent under the NYSE independence standards. The Independent Directors serving on the Audit Committee are John Kennedy and Elsie Meeks.

Compensation Committee

The Board has a standing Compensation Committee. Our Board determined all members of the Compensation Committee are independent under the Finance Agency's independence standards. For the reasons described above, our Board determined none of the current Member Directors serving on the Compensation Committee are independent using the NYSE independence standards. The Member Director serving on the Compensation Committee is Joe Stewart. Our Board determined the Independent Directors serving on the Compensation Committee are independent under the NYSE independence standards. The Independent Directors serving on the Compensation Committee are Michelle Keeley, Ellen Lamale, Paula Meyer, and John Robinson.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The Audit Committee pre-approves all audit and permitted non-audit services performed by PwC. However, services for fees payable by us of $10,000 or less may be pre-approved by the Audit Committee Chair with notification subsequently provided to the Audit Committee.

The following table sets forth the aggregate fees billed by PwC (dollars in millions):

	For the Years Ended December 31,
	2014		2013
Audit fees1	$	0.6	$	0.6
Audit-related fees2	0.2		0.1
All other fees3	—		—
Total	$	0.8	$	0.7

1 Represents fees incurred in connection with the annual audit of our financial statements and internal control over financial reporting and quarterly review of our financial statements. In addition to these fees, we incurred assessments of $33,000 and $16,000 from the Office of Finance for audit fees on the Combined Financial Report for the years ended December 31, 2014 and 2013.

2 Represents fees related to other audit and attest services and technical accounting consultations.

3 Represents fees related to non-audit services. Amounts for 2014 and 2013 are less than $0.1 million.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

The financial statements are set forth in Item 8 of this annual report on Form 10-K.

(b) Exhibits

2.1	Agreement and Plan of Merger between the Federal Home Loan Bank of Des Moines and the Federal Home Loan Bank of Seattle dated September 25, 20141
3.1	Organization Certificate of the Federal Home Loan Bank of Des Moines dated October 13, 19322
3.2	Bylaws of the Federal Home Loan Bank of Des Moines, as amended and restated effective February 26, 20093
4.1	Federal Home Loan Bank of Des Moines Capital Plan, as amended, approved by the Federal Housing Finance Agency on August 5, 2011 and effective September 5, 20114
10.1	Integration Performance Incentive Plan, effective as of September 18, 20145
10.2	Amended Severance Policy, effective as of September 18, 20145
10.3	Enhanced Severance Policy, effective as of November 10, 20145
10.4	Employment Agreement with Richard S. Swanson, dated November 10, 20145
10.5	Employment Agreement with Steven T. Schuler, dated November 10, 20145
10.6	Employment Agreement with Dusan Stojanovic, dated November 10, 20145
10.7	Employment Agreement with Daniel D. Clute, dated November 10, 20145
10.8	Lease Agreement for 801 Walnut Street between the Federal Home Loan Bank of Des Moines and Wells Fargo Financial, Inc., as amended, dated April 27, 20046
10.9	Joint Capital Enhancement Agreement, as amended, effective August 5, 20117
10.10	Federal Home Loan Bank of Des Moines Third Amended and Restated Benefit Equalization Plan, effective January 1, 20118
10.11	Federal Home Loan Bank of Des Moines Pentegra Defined Benefit Plan for Financial Institutions, effective January 1, 20118
10.12	Federal Home Loan Bank of Des Moines Pentegra Defined Contribution Plan for Financial Institutions, effective January 1, 20118
10.13	Federal Home Loan Bank of Des Moines 2014 Incentive Plan Document, effective January 1, 20149
10.14	2015 Director Fee Policy, effective January 1, 2015
12.1	Computation of Ratio of Earnings to Fixed Charges
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 Executive Vice President and 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 Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Federal Home Loan Bank of Des Moines Audit Committee Report
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

1    Incorporated by reference to the correspondingly numbered exhibit to our Form 8-K filed with the SEC on September 25, 2014 (Commission File No. 000-51999).

2    Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form 10 filed with the SEC on May 12, 2006 (Commission File No.

000-51999).

3    Incorporated by reference to the correspondingly numbered exhibit to our Form 8-K filed with the SEC on March 2, 2009 (Commission File No. 000-51999).

4    Incorporated by reference to exhibit 99.2 to our Form 8-K filed with the SEC on July 17, 2013 (Commission File No. 000-51999).

5     Incorporated by reference to the correspondingly numbered exhibits on our Form 10-Q filed with the SEC on November 12, 2014 (Commission File 000-51999).

6    Incorporated by reference to exhibits 10.3 and 10.3.1 to our Form 10-K filed with the SEC on March 30, 2007 (Commission File No. 000-51999).

7    Incorporated by reference to exhibit 99.1 to our Form 8-K filed with the SEC on August 5, 2011 (Commission File No. 000-51999).

8    Incorporated by reference to the exhibits to our Form 10-K filed with the SEC on March 18, 2011 (Commission File No. 000-51999).

9    Incorporated by reference to exhibit 10.1 to our Form 8-K filed with the SEC on April 17, 2014 (Commission File No. 000-51999).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 DES MOINES (Registrant)
March 6, 2015	By:	/s/ Richard S. Swanson
		Richard S. Swanson
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

March 6, 2015

Signature	Title
Principal Executive Officer:
/s/ Richard S. Swanson	President & Chief Executive Officer
Richard S. Swanson
Principal Financial Officer:
/s/ Steven T. Schuler	Executive Vice President & Chief Financial Officer
Steven T. Schuler
Principal Accounting Officer:
/s/ Ardis E. Kelley	Senior Vice President & Chief Accounting Officer
Ardis E. Kelley
Directors:
/s/ Dale E. Oberkfell	Chairman of the Board of Directors
Dale E. Oberkfell
/s/ Eric A. Hardmeyer	Vice Chairman of the Board of Directors
Eric A. Hardmeyer
/s/ Steven L. Bumann	Director
Steven L. Bumann
/s/ Van D. Fishback	Director
Van D. Fishback
/s/ Chris D. Grimm	Director
Chris D. Grimm

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Signature	Title
/s/ W. Douglas Hile	Director
W. Douglas Hile
/s/ Teresa J. Keegan	Director
Teresa J. Keegan
/s/ Michelle M. Keeley	Director
Michelle M. Keeley
/s/ John F. Kennedy, Sr.	Director
John F. Kennedy, Sr.
/s/ Ellen Z. Lamale	Director
Ellen Z. Lamale
/s/ Elsie M. Meeks	Director
Elsie M. Meeks
/s/ Paula R. Meyer	Director
Paula R. Meyer
/s/ John P. Rigler II	Director
John P. Rigler II
/s/ John H. Robinson	Director
John H. Robinson
/s/ Joseph C. Stewart III	Director
Joseph C. Stewart III

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