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

For the transition period from __________ to __________.

Commission File No. 000-51399

FEDERAL HOME LOAN BANK OF CINCINNATI

(Exact name of registrant as specified in its charter)

Federally chartered corporation	31-6000228
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
600 Atrium Two, P.O. Box 598,
Cincinnati, Ohio	45201-0598
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code

(513) 852-7500

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 per share

(Title of class)

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).

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 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 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 to 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
		(Do not check if a smaller reporting company)

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

o Yes   x No

As of February 28, 2015, the registrant had 43,469,466 shares of capital stock outstanding, which included stock classified as mandatorily redeemable. The capital stock of the registrant is not listed on any securities exchange or quoted on any automated quotation system, only may be owned by members and former members and is transferable only at its par value of $100 per share.

Documents Incorporated by Reference: None

Page 1 of 163

Table of Contents

	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	21
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	75
Item 8.	Financial Statements and Supplementary Data
	Financial Statements for the Years Ended 2014, 2013, and 2012	76
	Notes to Financial Statements	83
	Supplemental Financial Data	137
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	137
Item 9A.	Controls and Procedures	137
Item 9B.	Other Information	137
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	138
Item 11.	Executive Compensation	143
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	157
Item 13.	Certain Relationships and Related Transactions, and Director Independence	158
Item 14.	Principal Accountant Fees and Services	159
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	159
Signatures		160

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PART I

Special Cautionary Notice Regarding Forward Looking Information

This document contains forward-looking statements that describe the objectives, expectations, estimates, and assessments of the Federal Home Loan Bank of Cincinnati (the FHLBank). These statements use words such as “anticipates,” “expects,” “believes,” “could,” “estimates,” “may,” and “should.” By their nature, forward-looking statements relate to matters involving risks or uncertainties, some of which we may not be able to know, control, or completely manage. Actual future results could differ materially from those expressed or implied in forward-looking statements or could affect the extent to which we are able to realize an objective, expectation, estimate, or assessment. Some of the risks and uncertainties that could affect our forward-looking statements include the following:

▪ the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions, inflation and deflation, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, and members' mergers and consolidations, deposit flows, liquidity needs, and loan demand;

▪ political events, including legislative, regulatory, federal government, judicial or other developments that could affect us, our members, our counterparties, other FHLBanks and other government-sponsored enterprises (GSEs), and/or investors in the Federal Home Loan Bank System's (FHLBank System) debt securities, which are called Consolidated Obligations or Obligations;

▪ competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;

▪ the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on favorable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;

▪ changes in investor demand for Consolidated Obligations;

▪ the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;

▪ the ability to attract and retain skilled management and other key employees;

▪ the ability to develop, secure and support technology and information systems that effectively manage the risks we face;

▪ the ability to successfully manage new products and services; and

▪ the risk of loss arising from litigation filed against us or one or more other FHLBanks.

We do not undertake any obligation to update any forward-looking statements made in this document.

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Item 1. Business.

COMPANY INFORMATION

Organizational Structure

The FHLBank is a regional wholesale bank that provides financial products and services to our members. We are part of the FHLBank System (or System). Each FHLBank operates as a separate entity with its own stockholders, employees, Board of Directors, and business model. Our region, known as the Fifth District, is comprised of Kentucky, Ohio and Tennessee.

The U.S. Congress chartered the FHLBank System in the Federal Home Loan Bank Act of 1932 (the FHLBank Act) to help provide liquidity in the U.S. housing market. FHLBanks are GSEs of the United States of America; a GSE combines private sector ownership with public sector sponsorship. In addition to being GSEs, the FHLBanks are cooperative institutions, privately and wholly owned by their members, who purchase capital stock and who are the primary customers.

The FHLBanks are not government agencies and the U.S. government does not guarantee, directly or indirectly, the debt securities or other obligations of the FHLBank System.

The FHLBank System also includes the Federal Housing Finance Agency (Finance Agency) and the Office of Finance. The Finance Agency is an independent agency in the executive branch of the U.S. government that regulates the FHLBanks, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Office of Finance. The Office of Finance is a joint office of the FHLBanks that facilitates the issuance and servicing of the FHLBank System's Consolidated Obligations (or Obligations).

All federally insured depository institutions, insurance companies, and community development financial institutions chartered in the Fifth District may voluntarily apply for membership in our FHLBank. Such applicants must satisfy membership requirements in accordance with statutes and Finance Agency regulations. These requirements deal primarily with home financing activities, satisfactory financial condition such that Advances may be made safely to the member, and matters related to the regulatory, supervisory and management oversight of the applicant. By law, an institution is permitted to be a member of only one FHLBank, although a holding company may have memberships in more than one FHLBank through its subsidiaries.

The combination of public sponsorship and private ownership that drives our business model is reflected in the composition of our 17-member Board of Directors, all of whom members elect. Ten directors are officers and/or directors of our member institutions, while the remaining directors are independent directors who represent the public interest.

At December 31, 2014, we had 705 members, 203 full-time employees, and 1 part-time employee. Our employees are not represented by a collective bargaining unit.

Mission and Corporate Objectives

The FHLBank's mission is to provide financial intermediation between the capital markets and our member stockholders in order to facilitate and expand the availability of financing for housing and community lending and investment.

How We Achieve Our Mission

We achieve our mission through a cooperative business model. We raise private-sector capital from member stockholders and issue high-quality debt securities in the capital markets (along with other FHLBanks) in order to provide products and services (called Mission Asset Activity) to members and generate a competitive return on their capital investment in our company.

The primary products we offer are readily available low-cost loans called Advances, purchases of certain whole mortgage loans sold by qualifying members called the Mortgage Purchase Program (MPP), and Letters of Credit. We also offer affordable housing programs and related activities to support members in their efforts to assist low- and moderate-income households and their local communities. To a more limited extent, we also have several correspondent services that assist members in operational administration.

The primary way we obtain funding is through participation in the issuance of the FHLBank System's unsecured debt securities, called Consolidated Obligations, in the capital markets. Secondary sources of funding are capital and deposits we accept from our members. A critical component of the success of the FHLBank System is its ability to maintain a comparative

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advantage in funding, which is due largely to its GSE status and low risk operations. We regularly issue Obligations under a wide range of maturities, structures, and amounts, and at relatively favorable spreads to benchmark market interest rates (represented by U.S. Treasury securities and the London InterBank Offered Rate (LIBOR)) compared with many other financial institutions.

Because we are a cooperative organization with some members using our products more heavily than others and members having different percentages of capital stock, we must achieve a balance in generating membership value from product prices and characteristics and paying a competitive dividend rate. We attempt to achieve this balance by pricing Mission Asset Activity at relatively narrow spreads over funding costs, compared with other financial institutions, while still achieving acceptable profitability.

Corporate Objectives

Our corporate objectives, listed below, are to promote housing finance among members and ensure our operations and governance are effective and efficient. The first three objectives drive how members derive value from being in the cooperative.

▪ Mission Asset Activity:Implement strategies and practice effective ongoing operations aimed at promoting members’ usage of our products and services.

▪ Stock Return: Earn adequate profitability so that members receive a competitive long-term dividend rate on their capital stock investment.

▪ Housing and Community Investment Programs: Maintain effective housing and community investment programs that maximize mandatory programs and provide funding for additional voluntary contributions.

▪ Safe and Sound Operations:Optimize the FHLBank’s counterparty and deposit ratings, achieve an acceptable rating on annual regulatory examinations, and maintain an adequate amount and composition of capital.

▪ Risk Management: Employ effective risk management practices and maintain risk exposures at low to moderate levels.

▪ Governance: Operate in accordance with effective corporate governance processes.

Business Activities

Mission Asset Activity

The following are our principal business activities with members:

▪ We lend readily-available, competitively-priced and fully-collateralized Advances.

▪ We issue collateralized Letters of Credit.

▪ We purchase qualifying residential mortgage loans through the MPP and hold them on our balance sheet.

Together, these product offerings constitute “Mission Asset Activity.” We refer to Advances and Letters of Credit as Credit Services.

Affordable Housing and Community Investment

In addition, through various Housing and Community Investment programs, we assist members in serving very low-, low-, and moderate-income households and community economic development. These programs provide Advances at below-market rates of interest, as well as direct grants.

Investments

To help us achieve our mission and corporate objectives, we invest in highly-rated debt instruments of financial institutions and the U.S. government and in mortgage-related securities. In practice, these investments normally include shorter-term liquidity instruments and longer-term mortgage-backed securities, as permitted by Finance Agency regulation. Investments provide liquidity, help us manage market risk exposure, enhance earnings, and through the purchase of mortgage-related securities, support the housing market.

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Sources of Earnings

Our major source of revenue is interest income earned on Advances, MPP loans, and investments.

Major items of expense are:

▪ interest paid on Consolidated Obligations and deposits to fund assets;

▪ costs of providing below-market-cost Advances and direct grants and subsidies under the Affordable Housing Program; and

▪ non-interest expenses.

The largest component of earnings is net interest income, which equals interest income minus interest expense. We derive net interest income from the interest rate spread earned on assets versus funding costs and the use of financial leverage. Each of these can vary over time with changes in market conditions, including most importantly interest rates, business conditions and our risk management activities.

We believe members' capital investment is comparable to investing in adjustable-rate preferred equity instruments. Therefore, we structure our balance sheet risk exposures so that earnings tend to move in the same direction as changes in short-term market rates, which can help provide a degree of predictability for dividend returns.

Capital

Due to our cooperative structure, we obtain capital from members. Each member must own capital stock as a condition of membership and normally must hold additional stock above the membership stock amount in order to gain access to Advances and possibly to sell us MPP loans. We issue, redeem, and repurchase capital stock only at its stated par value of $100 per share. By law, our stock is not publicly traded.

We strive to ensure that assets are self-capitalizing, meaning that we acquire capital primarily in connection with growth in Mission Asset Activity. We also maintain an amount of capital to ensure we meet all of our regulatory and business requirements relating to capital adequacy and protection of creditors against losses. We hold retained earnings to protect members' stock investment against impairment risk.

Tax Status

We are exempt from all federal, state, and local taxation other than real property taxes. Any cash dividends we issue are taxable to members and do not benefit from the corporate dividends received exclusion. Notes 1 and 14 of the Notes to Financial Statements provide additional details regarding the assessment for the Affordable Housing Program.

Ratings of Nationally Recognized Statistical Rating Organizations

The FHLBank System's comparative advantage in funding is acknowledged in its excellent credit ratings from nationally recognized statistical rating organizations (NRSROs). Moody's Investors Service (Moody's) currently assigns, and historically has assigned, the System's Consolidated Obligations the highest ratings available: long-term debt is rated Aaa and short-term debt is rated P-1. It also assigns a Prime-1 short-term bond rating on each FHLBank. It affirmed these ratings in 2014 and maintained a stable outlook. In 2014, Standard & Poor's affirmed its issuer credit ratings on each FHLBank and its AA+ ratings on the System's senior debt and also maintained a stable outlook.

The ratings closely follow the U.S. sovereign ratings from both agencies. The lower-than AAA debt ratings from Standard & Poor's, which first occurred in 2011, continue to have had no discernible impact on the System's debt issuance capabilities.

The agencies' rationales for their ratings of the System and our FHLBank include the System's status as a GSE; the joint and several liability for Obligations; excellent overall asset quality; extremely strong capacity to meet commitments to pay timely principal and interest on debt; strong liquidity; conservative use of derivatives; adequate capitalization relative to our risk

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profile; a stable capital structure; and the fact that no FHLBank has ever defaulted on repayment of, or delayed return of principal or interest on, any Obligation.

A credit rating is not a recommendation to buy, sell or hold securities. A rating organization may revise or withdraw its ratings at any time, and each rating should be evaluated independently of any other rating. We cannot predict what future actions, if any, a rating organization may take regarding the System's or our ratings.

Regulatory Oversight

The Finance Agency is headed by a Director who has authority to promulgate regulations and to make other decisions. The Finance Agency is charged with ensuring that each FHLBank carries out its housing and community development finance mission, remains adequately capitalized, operates in a safe and sound manner, and complies with Finance Agency regulations.

To carry out these responsibilities, the Finance Agency conducts on-site examinations at least annually of each FHLBank, as well as periodic on- and off-site reviews, and receives monthly information on each FHLBank's financial condition and operating results. While an individual FHLBank has substantial discretion in governance and operational structure, the Finance Agency maintains broad supervisory and regulatory authority. In addition, the Comptroller General has authority to audit or examine the Finance Agency and the FHLBanks, to decide the extent to which the FHLBanks fairly and effectively fulfill the purposes of the FHLBank Act, and to review any audit, or conduct its own audit, of the financial statements of an FHLBank.

BUSINESS SEGMENTS

We manage the development, resource allocation, product delivery, pricing, credit risk management, and operational administration of our Mission Asset Activity in two business segments: Traditional Member Finance and the MPP. Traditional Member Finance includes Credit Services, Housing and Community Investment, Investments, some correspondent and deposit services, and other financial products of the FHLBank. See the “Segment Information” section of “Results of Operations” in Item 7 and Note 18 of the Notes to Financial Statements for more information on our business segments, including their results of operations.

Traditional Member Finance

Credit Services

Advances.Advances are competitively priced sources of funds available for members to help manage their asset/liability and liquidity needs. Advances can both complement and be alternatives to retail deposits, other wholesale funding sources, and corporate debt issuance. We strive to facilitate efficient, fast, and continual member access to funds. In most cases members can access funds on a same-day basis.

We price a variety of standard Advance programs every business day and several other standard programs on demand. We also offer customized, non-standard Advances that fall under one of the standard programs. Having diverse programs gives members the flexibility to choose and customize their borrowings according to size, maturity, interest rate, interest rate index (for adjustable-rate coupons), interest rate options, and other features.

Repurchase based (REPO) Advances are short-term, fixed-rate instruments structured similarly to repurchase agreements from investment banks, with one principal difference. Members collateralize their REPO Advances through our normal collateralization process, instead of being required to pledge specific securities as would be required in a repurchase agreement. A majority of REPO Advances outstanding have overnight maturities.

LIBOR Advances have adjustable interest rates typically priced off 1- or 3-month LIBOR indices. LIBOR Advances may be structured at the member's option as either prepayable with a fee or prepayable without a fee if the prepayment is made on a repricing date.

Regular Fixed-Rate Advances have terms of 3 months to 30 years, with interest normally paid monthly and principal repayment normally at maturity. Members may choose to purchase call options on these Advances, although in the last five years, balances with call options have been at or close to zero.

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Putable Advances are fixed-rate Advances that provide us an option to terminate the Advance, usually after an initial “lockout” period. Most have long-term original maturities. Selling us these options enables members to secure lower rates on Putable Advances compared to Regular Fixed-Rate Advances with the same final maturity.

Mortgage-Related Advances are fixed-rate, amortizing Advances with final maturities of 5 to 30 years. Some of these Advances, at the choice of the member, provide members with prepayment options without fees.

We also offer various other Advance programs that have smaller outstanding balances.

Letters of Credit. Letters of Credit are collateralized contractual commitments we issue on a member's behalf to guarantee its performance to third parties. A Letter of Credit may obligate us to make direct payments to a third party, in which case it is treated as an Advance to the member. The most popular use of Letters of Credit is as collateral supporting public unit deposits, which are deposits held by governmental units at financial institutions. We earn fees on Letters of Credit based on the actual notional amount of the Letters utilized.

How We Manage Risks of Credit Services. We manage market risk from Advances by funding them with Consolidated Obligations and interest rate swaps that have a close similarity of interest rate risk characteristics as the Advances. The net effect is that in practice we mitigate nearly all of Advances' market risk exposures.

In addition, for many, but not all, Advance programs, Finance Agency regulations require us to charge members prepayment fees for early termination of principal when the early termination results in an economic loss to us. We determine prepayment fees using standard present-value calculations that make us economically indifferent to the prepayment. The prepayment fee equals the present value of the estimated profit that we would have earned over the remaining life of the prepaid Advance. If a member prepays principal on an Advance that we have hedged with an interest rate swap, we may also assess the member a fee to compensate us for the cost we incur in terminating the swap before its stated final maturity. Some Advance programs are structured as non-prepayable and may have additional restrictions in order to terminate.

We manage credit risk on Advances by requiring each member to supply us with a security interest in eligible collateral that in the aggregate has estimated value in excess of the total Advances and Letters of Credit. Collateral is comprised mostly of single-family loans, home equity lines, multi-family loans and bond securities. The combination of conservative collateral policies and risk-based credit underwriting activities mitigates virtually all potential credit risk associated with Advances and Letters of Credit. We have never experienced a credit loss on Advances, nor have we ever determined it necessary to establish a loan loss reserve for Advances. Item 7's “Quantitative and Qualitative Disclosures About Risk Management” and Notes 8 and 10 of the Notes to Financial Statements have more detail on our credit risk management of member borrowings.

Housing and Community Investment

Our Housing and Community Investment Programs include the Affordable Housing Program and various housing and community economic development-related Advance programs. We fund the Affordable Housing Program with an accrual equal to 10 percent of our previous year's net earnings, mandated by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. See Note 14 of the Notes to Financial Statements for a complete description of the Affordable Housing calculation.

The Affordable Housing Program provides funding for the development of affordable housing. The Program consists of a Competitive Program and a homeownership program called Welcome Home, which assists homebuyers with down payments and closing costs. Under the Competitive Program, we distribute funds in the form of either grants or below-market rate Advances to members that apply and successfully compete in an annual offering. Under Welcome Home, we make funds available beginning in March until they have been fully committed. For both programs, the income of qualifying individuals or households must be 80 percent or less of the area median income. We set aside up to 35 percent of the Affordable Housing accrual for Welcome Home and allocate the remainder to the Competitive Program.

Our Board of Directors also may allocate funds to voluntary housing programs. In 2014, the Board re-authorized an additional $1 million to the Carol M. Peterson Housing Fund for use during the year. These funds are primarily used as grants to pay for accessibility rehabilitation and emergency repairs for special needs and elderly homeowners. In March 2015, the Board re-authorized this fund in the same amount for use in 2015. In 2012, the Board of Directors also established the Disaster Reconstruction Program, a $5 million voluntary housing program that provides grants for purchase or rehabilitation of a home to Fifth District residents that have suffered loss or damage to their primary residence as a result of a state or federally declared disaster. Since the program's inception, we have disbursed nearly $3 million to assist 172 households.

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Two other housing programs that fall outside the auspices of the Affordable Housing Program are the Community Investment Program and the Economic Development Program. Advances under the former program have rates equal to our cost of funds, while Advances under the latter program have rates equal to our cost of funds plus three basis points. Members use the Community Investment Program to serve housing needs of low- and moderate-income households and, under certain conditions, community economic development projects. The Economic Development Program is a discounted Advance program used to promote economic development and job creation and retention.

Investments

Types of Investment Assets. We hold investments in order to have sufficient asset liquidity. Permissible liquidity investments include Federal funds, certificates of deposit, bank notes, bankers' acceptances, commercial paper, securities purchased under agreements to resell, and debt securities issued by the U.S. government or its agencies. The first five categories represent unsecured lending to private counterparties. We also may place deposits with the Federal Reserve Bank. We are prohibited by Finance Agency regulations from investing (secured or unsecured) in financial investments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. Most liquidity investments have short-term maturities.

We are also permitted by regulation to purchase the following other investments, which have longer original maturities than liquidity investments and do not provide us with liquidity:

▪ mortgage-backed securities and collateralized mortgage obligations supported by mortgage securities (together, referred to as mortgage-backed securities) and issued by GSEs or private issuers;

▪ asset-backed securities collateralized by manufactured housing loans or home equity loans and issued by GSEs or private issuers; and

▪ marketable direct obligations of certain government units or agencies (such as state housing finance agencies) that supply needed funding for housing or community lending and that do not exceed 20 percent of our regulatory capital.

We have never purchased asset-backed securities and currently do not own any privately-issued mortgage-backed securities. Per Finance Agency regulations, the total investment in mortgage-backed securities and asset-backed securities may not exceed, on a book value basis, 300 percent of previous month-end regulatory capital on the day we purchase the securities. See the “Capital Resources” section below for the definition of regulatory capital.

Purposes of Having Investments. The investments portfolio helps us achieve corporate objectives in the following ways:

▪ Liquidity management. Liquidity investments help support the ability to fund assets on a timely basis, especially Advances. These investments supply a source of liquidity because we normally ensure they have shorter maturities than the debt we issue to fund them. We also may be able to obtain liquidity by selling certain investments for cash without a significant loss of value.

▪ Earnings enhancement. The investments portfolio assists with earning a competitive return on capital, which also increases funding for Housing and Community Investment programs.

▪ Market risk management. Liquidity investments help stabilize earnings because they typically earn a relatively stable spread to the cost of debt issued to fund them, with less market risk than mortgage assets.

▪ Debt issuance management. Maintaining a short-term liquidity investment portfolio can help us participate in attractively priced debt issuances, on an opportunistic basis. We can temporarily invest proceeds from debt issuances in short-term liquid assets and quickly access them to fund demand for Mission Asset Activity, rather than having debt issuances dictated solely by the timing of member demand.

▪ Support of housing market. Investment in mortgage-backed securities and state housing finance agency bonds directly supports the residential mortgage market by providing capital and financing for mortgages.

How We Manage Risks of Investments. We strive to ensure our investment holdings have a moderate degree of market risk and limited credit risk, which tends to lower the returns we can expect to earn on these securities. We believe that a philosophy of purchasing investments with a high amount of market or credit risk would be inconsistent with our GSE status and corporate objectives.

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Market risk associated with short-term investments tends to be minimal because of their short maturities and because we typically fund them with similar duration short-term Consolidated Obligations. We mitigate much of the market risk of mortgage-backed securities, which exists primarily from changes in mortgage prepayment speeds, by limiting their balances to 300 percent of regulatory capital, by funding them with a portfolio of long-term fixed-rate callable and noncallable Obligations, and by managing the market risk exposure of the entire balance sheet within prudent policy limits.

Finance Agency regulations and internal policies also provide controls on market risk exposure by restricting the types of mortgage loans, mortgage-backed securities and other investments we can hold. These restrictions prohibit, among others, the purchase of interest only or principal only stripped mortgage-backed securities and mortgage-backed securities whose average life varies more than six years under a 300 basis points interest rate shock.

Our internal policies specify guidelines for, and relatively tight constraints on, the types and amounts of short-term investments we are permitted to hold and the maximum amount of credit risk exposure we are permitted to have with eligible counterparties. We are permitted to invest only in the instruments of counterparties with high credit ratings, and because of our conservative investment policies and practices, we believe all of our investments have high credit quality. We have never had a credit loss or credit-related write down of any investment security.

Deposits

We provide a variety of deposit programs, including demand, overnight, term and Federal funds, which enable depositors to invest funds in short-term liquid assets. We accept deposits from members, other FHLBanks, any institution to which we offer correspondent services, and other government instrumentalities. The rates of interest we pay on deposits are subject to change daily based on comparable money market interest rates. The balances in deposit programs tend to vary positively with the amount of idle funds members have available to invest, as well as, the level of short-term interest rates. Deposits have represented a small component of our funding in recent years, typically between one and two percent of our funding sources.

Mortgage Purchase Program (MPP or Mortgage Loans Held for Portfolio)

Description of the MPP

Types of Loans and Benefits. Finance Agency regulations permit FHLBanks to purchase and hold specified whole mortgage loans from their members, which offers members a competitive alternative to the traditional secondary mortgage market and directly supports housing finance. We account for MPP loans as mortgage loans held for portfolio. By selling mortgage loans to us, members can increase their balance sheet liquidity and lower interest rate and mortgage prepayment risks. The MPP particularly enables small- and medium-sized community-based financial institutions to use their existing relationship with us to participate more effectively in the secondary mortgage market.

Under the MPP, we purchase two types of mortgage loans: qualifying conforming fixed-rate conventional 1-4 family residential mortgages and residential mortgages fully insured by the Federal Housing Administration (FHA). Members approved to sell us these loans are referred to as Participating Financial Institutions (PFIs). Although regulations permit us to purchase qualifying mortgage loans originated within any state or territory of the United States, beginning several years ago we no longer purchase loans originated in New York, Massachusetts, Maine, Rhode Island or New Jersey due to features of those states' Anti-Predatory Lending laws that are less restrictive than we prefer.

A “conventional” mortgage refers to a non-government-guaranteed mortgage. A “conforming” mortgage refers to the maximum amount permissible to be lent as a regular prime (i.e., non-jumbo, non-subprime) mortgage. For 2015, the Finance Agency re-established that limit at $417,000 with loans originated in a limited number of high-cost cities and counties receiving higher conforming limits. We do not purchase mortgages subject to these higher amounts.

Loan Purchase Process. A Master Commitment Contract is negotiated with each PFI, in which the PFI agrees to make a best efforts attempt to sell us a specific dollar amount of mortgage loans generally over a period of up to 12 months. We purchase loans pursuant to a Mandatory Delivery Contract, which is a legal commitment we make to purchase, and a PFI makes to deliver, a specified dollar amount of mortgage loans, with a forward settlement date, at a specified range of note rates and prices.

Shortly before delivering the loans that will fill the Mandatory Delivery Contract, the PFI must submit loan level detail including underwriting information. We apply procedures through the automated Loan Acquisition System designed to screen loans that do not comply with our policies. Our underwriting guidelines generally mirror those of Fannie Mae and Freddie Mac for conforming conventional loans, although our guidelines and pool composition requirements are more conservative in a

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number of ways in order to further limit credit risk exposure. PFIs are required to make certain representations and warranties against our underwriting guidelines on the loans they sell to us. If a PFI sells us a loan in breach of those representations and warranties, we have the contractual right to require the PFI to repurchase the loan.

How We Manage Risks of the MPP

Market Risk. We mitigate the MPP's market risk similarly to how we mitigate market risk from mortgage-backed securities.

Credit Risk - Conventional Mortgage Loans. A unique feature of the MPP is that it separates the various activities and risks associated with residential mortgage lending for conventional loans and allows these risks and activities to be taken on by different entities. We manage the funding of the loans, market risk (including interest rate risk and prepayment risk), and liquidity risk. PFIs manage marketing, originating and, in most cases, servicing the loans. PFIs may either retain servicing or sell it to a qualified and approved third-party servicer (also referred to as a PFI). Because PFIs manage and bear most of the credit risk, they do not pay us a guarantee fee to transfer credit risk.

We manage credit risk exposure for conventional loans through underwriting and pool composition requirements and by applying layered credit enhancements. These enhancements, which apply after a homeowner's equity is exhausted, include (in order of priority) primary mortgage insurance (when applicable), the Lender Risk Account (discussed below), and for loans acquired before February 2011, Supplemental Mortgage Insurance that the PFI purchased from one of our approved third-party providers naming us as the beneficiary.

Beginning in February 2011, we discontinued use of Supplemental Mortgage Insurance for new loan purchases and replaced it with expanded use of the Lender Risk Account and aggregation of loan purchases into larger pools to provide diversification in credit risk exposure. These credit enhancements are designed to adequately protect us against credit losses in scenarios of severe downward movements in housing prices and unfavorable changes in other factors that can affect loan delinquencies and defaults.

The Lender Risk Account is a key component of how we manage residual credit risk. It is a holdback of a portion of the initial purchase price. Starting after five years from the loan purchase date, we may return the holdback to PFIs if they manage credit risk to pre-defined acceptable levels of exposure on the loan pools they sell to us. Actual loan losses are deducted from the amount of the purchase-price holdback we return to the PFI. The Lender Risk Account provides PFIs with a strong incentive to sell us high quality performing mortgage loans.

Credit Risk - FHA Mortgage Loans. Because the FHA makes an explicit guarantee on FHA loans, we do not require any credit enhancements on these loans beyond underwriting, homeowner's equity, and primary mortgage insurance.

Item 7's “Quantitative and Qualitative Disclosures About Risk Management” provides more detail on how we manage market and credit risks for the MPP.

Earnings from the MPP

The MPP enhances long-term profitability on a risk-adjusted basis and augments the return on member stockholders' capital investment. We generate earnings in the MPP from monthly interest payments minus the cost of funding and the cost of hedging the MPP's interest rate risk. Interest income on each loan is computed as the mortgage note rate multiplied by the loan's principal balance:

▪ minus servicing costs (0.25 percent for conventional loans and 0.44 percent for FHA loans);

▪ minus the cost of Supplemental Mortgage Insurance (for applicable loans); and

▪ adjusted for the amortization of purchase premiums or the accretion of purchase discounts and for the amortization or accretion of fair value adjustments on loans initially classified as mortgage loan commitments.

For new loan purchases, we consider the cost of the Lender Risk Account when we set conventional loan prices and evaluate the MPP's expected return. The pricing of each structure depends on a number of factors and is specific to the PFI and to the loan pool. We do not receive fees or income for retaining the risk of losses in excess of any credit enhancements.

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FUNDING - CONSOLIDATED OBLIGATIONS

Our primary source of funding is through participation in the sale of debt securities (Consolidated Obligations). Obligations are the joint and several obligations of all the FHLBanks, backed only by the financial resources of these institutions.

There are two types of Consolidated Obligations: Consolidated Bonds (Bonds) and Consolidated Discount Notes (Discount Notes). We participate in the issuance of Bonds for three purposes:

▪ to finance and hedge intermediate- and long-term fixed-rate Advances and mortgage assets;

▪ to finance and hedge short-term, LIBOR-indexed adjustable-rate Advances, and swapped Advances, typically by synthetically transforming fixed-rate Bonds to adjustable-rate LIBOR funding through the execution of interest rate swaps; and

▪ to acquire liquidity.

Bonds may have fixed or adjustable rates of interest. Fixed-rate Bonds are either noncallable or callable. A callable Bond is one that we are able to redeem in whole or in part at our discretion on one or more predetermined call dates according to the Bond's offering notice. The maturity of Bonds typically ranges from one year to 20 years. Our adjustable-rate Bonds use LIBOR for interest rate resets. In the last five years, we have not participated in the issuance of range Bonds, zero coupon Bonds, or indexed principal redemption Bonds.

We use fixed-rate Bonds to fund longer-term fixed-rate Advances and longer-term fixed-rate mortgage assets, and use adjustable-rate Bonds to fund adjustable-rate LIBOR Advances.

We transact in interest rate swaps to synthetically convert some fixed-rate Bonds to adjustable-rate terms indexed to LIBOR. These are used to hedge adjustable-rate LIBOR Advances.

We participate in the issuance of Discount Notes to fund short-term Advances, adjustable-rate LIBOR Advances, putable Advances (which we normally swap to LIBOR), liquidity investments, and a portion of longer-term fixed-rate assets. Discount Notes have maturities from one day to one year, with most of ours normally maturing within three months.

The mix of Obligations fluctuates in response to relative changes in short-term versus long-term assets, relative changes in fixed-rate versus adjustable-rate assets, decisions on market risk management (particularly the amount of funding of longer-term assets with short-term Obligations), and differences in relative costs of various Obligations.

Interest rates on Obligations, including their relationship to other products such as U.S. Treasury securities and LIBOR, are affected by a multitude of factors such as: overall economic and credit conditions; credit ratings of the FHLBank System; investor demand and preferences for our debt securities; the level of interest rates and the shape of the U.S. Treasury curve and the LIBOR swap curve; and the supply, volume, timing, and characteristics of debt issuances by the FHLBanks, other GSEs, and other highly rated issuers.

Finance Agency regulations govern the issuance of Obligations. The Office of Finance services Obligations, prepares the FHLBank System's quarterly and annual combined financial statements, and serves as a source of information for the FHLBanks on capital market developments.

We have the primary liability for our portion of Obligations, i.e., those issued on our behalf for which we received the proceeds. However, we also are jointly and severally liable with the other FHLBanks for the payment of principal and interest on all Obligations. If we do not pay the principal or interest in full when due on any Obligation issued on our FHLBank's behalf, we are prohibited from paying dividends or redeeming or repurchasing shares of capital stock. If another FHLBank were unable to repay its participation in an Obligation for which it is the primary obligor, the Finance Agency could call on each of the other FHLBanks to repay all or part of the Obligation. The Finance Agency has never invoked this authority.

An FHLBank may not issue individual debt securities without Finance Agency approval.

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LIQUIDITY

Our business requires a continual and substantial amount of liquidity to meet financial obligations (primarily maturing Consolidated Obligations) in a timely and cost-efficient manner and to provide members access to timely Advance funding and mortgage loan sales in all financial environments. We obtain liquidity by issuing debt, holding short-term assets that mature before their associated funding, and having the ability to sell certain investments without significant accounting or economic consequences. Sources of asset liquidity include cash, maturing Advances, maturing investments, principal paydowns of mortgage assets, the ability to sell certain investments, and interest payments received. Uses of liquidity include repayments of Obligations, issuances of new Advances, purchases of loans under the MPP, purchases of investments, and payments of interest.

Liquidity requirements are significant because Advance balances can be volatile, many have short-term maturities, and we strive to allow members to borrow Advances on the same day they request them. We regularly monitor liquidity risks and the investment and cash resources available to meet liquidity needs, as well as statutory and regulatory liquidity requirements.

Because Obligations have favorable credit ratings and because the FHLBank System is one of the largest sellers of debt in the worldwide capital markets, the System historically has been able to satisfy its liquidity needs through debt issuance across a wide range of structures at relatively favorable spreads to benchmark market interest rates.

CAPITAL RESOURCES

Capital Plan

Basic Characteristics

Under Finance Agency regulations, regulatory capital is composed of all capital stock (including stock classified as mandatorily redeemable), retained earnings, general loss allowances, and other amounts from sources the Finance Agency determines are available to absorb losses. Currently, our regulatory capital consists of capital stock and retained earnings. Under the Gramm-Leach-Bliley Act of 1999 (GLB Act), permanent capital equals Class B stock plus retained earnings and is available to absorb financial losses.

Our Capital Plan has the following basic characteristics:

▪ We offer only one class of capital stock, Class B, which is redeemable upon a member's five-year advance written notice, with certain conditions described below.

▪ The Capital Plan enables us to efficiently expand and contract capital stock needed to capitalize assets in response to changes in our membership base and demand for Mission Asset Activity. This enables us to maintain a prudent amount of financial leverage and also consistently generate a competitive dividend return.

▪ We issue shares of capital stock as required for an institution to become a member or maintain membership, as required for members to capitalize Mission Asset Activity, and when we may pay dividends in the form of additional shares of stock.

▪ We may, subject to the restrictions described below, repurchase certain capital stock (i.e., "excess" capital stock).

▪ The concept of “cooperative capital,” explained below, better aligns the interests of heavy users of our products with light users by enhancing the dividend return.

Prudent risk management requires us to maintain effective financial leverage to minimize risk to capital stock while preserving profitability and to hold an adequate amount of retained earnings. Pursuant to these objectives, Finance Agency regulations stipulate that we must comply with three limits on capital leverage and risk-based capital. We have always complied with the regulatory capital requirements.

▪ We must maintain at least a four percent minimum regulatory capital-to-assets ratio. This has historically been the regulatory capital requirement that has been closest to affecting our operations.

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▪ We must maintain at least a five percent minimum leverage ratio of capital divided by total assets, which includes a 1.5 weighting factor applicable to permanent capital. Because all of our Class B stock is permanent capital, this requirement is met automatically if we satisfy the four percent unweighted capital requirement.

▪ We are subject to a risk-based capital rule in which we must hold an amount of "permanent" capital that exceeds the amount of exposure to market risk, credit risk, and operational risk. How we determine the amount of these risk exposures is stipulated by Finance Agency regulation. Permanent capital includes retained earnings and the regulatory amount of Class B capital stock.

In addition to the minimum capital requirements, the GLB Act and our Capital Plan promote the adequacy of our capital to absorb financial losses in three ways, which combine to give member stockholders a clear incentive to require us to minimize our risk profile:

▪ the five-year redemption period for Class B stock;

▪ the option we have to call on members to purchase additional capital if required to preserve safety and soundness; and

▪ the limitations, described below, on our ability to honor requested redemptions of capital if we are at risk of not maintaining safe and sound operations.

GAAP capital excludes mandatorily redeemable capital stock, while regulatory capital includes it. Mandatorily redeemable capital stock, which is stock subject to pending redemption, is accounted for as a liability on our Statements of Condition and related dividend payments are accounted for as interest expense. The classification of some capital stock as a liability has no effect on our safety and soundness, liquidity position, market risk exposure, or ability to meet interest payments on our participation in Obligations. Mandatorily redeemable capital stock is fully available to absorb losses until the stock is redeemed or repurchased. See Note 15 of the Notes to Financial Statements for more discussion of mandatorily redeemable capital stock.

Components of Capital Stock Purchases and Operations of the Capital Plan

Our Capital Plan ties the amount of each member's required capital stock to both the amount of the member's assets (membership stock) and the amount and type of its Mission Asset Activity with us (activity stock). Membership stock is required to become a member and maintain membership. The amount required for each member currently ranges from a minimum of $1 thousand to a maximum of $25 million for each member, with the amount within that range determined as a percentage of member assets.

In addition to its membership stock, a member may be required to purchase and hold activity stock to capitalize its Mission Asset Activity. For purposes of the Capital Plan, Mission Asset Activity includes the principal balance of Advances, guaranteed funds and rate Advance commitments, and the principal balance of loans and commitments in the MPP that occurred after implementation of the Capital Plan.

The FHLBank must capitalize all Mission Asset Activity with capital stock at a rate of at least four percent. However, each member is permitted to maintain an amount of activity stock within the range of minimum and maximum percentages for each type of Mission Asset Activity. The current percentages are as follows:

Mission Asset Activity	Minimum Activity Percentage	Maximum Activity Percentage
Advances	2%	4%
Advance Commitments	2	4
MPP	0	4

If a member owns more stock than is needed to satisfy both its membership stock requirement and the maximum activity stock percentages for its Mission Asset Activity, we designate the remaining stock as the member's excess capital stock. The member then utilizes its excess stock to capitalize additional Mission Asset Activity.

If an individual member's excess stock reaches zero, the Capital Plan normally permits us, within certain limits, to capitalize additional Mission Asset Activity of that member with excess stock owned by other members at the maximum percentage rate. This feature, called “cooperative capital,” enables us to more effectively utilize our capital stock. A member's use of cooperative capital reduces the ratio of its activity stock to its Mission Asset Activity for each type of Mission Asset Activity. There is a limit to how much cooperative capital a member may use, which we currently set at $200 million.

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When a member's ratio of activity stock to its Mission Asset Activity reaches the minimum activity stock percentage for all types of Mission Asset Activity, the member must capitalize additional Mission Asset Activity of a given type by purchasing capital stock at that asset type's minimum percentage rate, assuming availability of cooperative capital.

Statutory and Regulatory Restrictions on Capital Stock Redemption and Repurchases

In accordance with the GLB Act, our stock is putable by members. However, for us and the other FHLBanks, there are significant statutory and regulatory restrictions on our obligation or right to redeem or repurchase outstanding stock, including, but not limited to, the following:

▪ We may not redeem any capital stock if, following the redemption, we would fail to satisfy any Regulatory capital requirements. By law, we may not redeem any stock if we become undercapitalized.

▪ We may not redeem any capital stock without approval of the Finance Agency if either our Board of Directors or the Finance Agency determines that we have incurred or are likely to incur losses resulting or expected to result in a charge against capital.

If our FHLBank is liquidated and after payment in full to our creditors, stockholders would be entitled to receive the par value of their capital stock. In addition, each stockholder would be entitled to 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 of the FHLBank, the Board of Directors shall determine the rights and preferences of the FHLBank's stockholders, subject to any terms and conditions imposed by the Finance Agency.

Retained Earnings

Purposes and Amount of Retained Earnings

Retained earnings are important to protect members' capital stock investment against the risk of impairment and to enhance our ability to pay stable and competitive dividends when earnings may be volatile in light of the risks we face. Impairment risk is the risk that members would have to write down the par value of their capital stock investment in our FHLBank as a result of their analysis of ultimate recoverability. An extreme situation of earnings instability, in which losses exceeded the amount of our retained earnings for a period of time determined to be other-than-temporary, could result in a determination that the value of our capital stock was impaired.

We have a policy that sets forth a range for the amount of retained earnings we believe is needed to mitigate impairment risk and facilitate dividend stability in light of the risks we face. The current minimum retained earnings requirement is $450 million, based on mitigating quantifiable risks under very stressed business and market scenarios to at least a 99 percent confidence level. Given the regulatory environment, we carry a greater amount of retained earnings than required by the Policy. At the end of 2014, our retained earnings totaled $689 million. We believe the current amount of retained earnings is sufficient to protect our capital stock against impairment risk and to provide dividend stability if needed.

Joint Capital Agreement to Augment Retained Earnings

The FHLBanks entered into a Joint Capital Enhancement Agreement (the “Capital Agreement”) in February 2011. The Capital Agreement provides that each FHLBank will allocate quarterly at least 20 percent of its net income to a restricted retained earnings account (the “Account”). The 20 percent reserve allocation to the Account is similar to what had been required under the FHLBanks' REFCORP obligation, which was satisfied in 2011. The Account is not available to be distributed as dividends except under certain limited circumstances. The Capital Agreement does not limit our ability to use retained earnings held outside of the Account to pay dividends.

Although we have always maintained compliance with our capital requirements, we believe the Capital Agreement enhances risk mitigation by building a larger capital buffer over time to absorb unexpected losses, if any, that we may experience. Therefore, the Capital Agreement provides additional protection against impairment risk to stockholders' capital investment.

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USE OF DERIVATIVES

Finance Agency regulations and our policies establish guidelines for the execution and use of derivative transactions. We are prohibited from trading in, or the speculative use of, derivatives and have limits on the amount of credit risk to which we may be exposed. Most of our derivatives activity involves interest rate swaps, some of which may include options. We account for all derivatives at their fair values.

Similar to our participation in debt issuances, derivatives help us hedge market risk created by offering Advances and mortgage commitments. Derivatives related to Advances most commonly hedge either:

▪ below-market rates and/or the market risk exposure on Putable Advances, and certain other Advances, for which members have sold us options embedded within the Advances; or

▪ Regular Fixed-Rate Advances when it may not be as advantageous to issue Obligations or when it may improve our market risk management.

We also use derivatives to hedge the market risk created by commitment periods of Mandatory Delivery Contracts in the MPP.

Other derivatives related to Bonds help us intermediate between the preference of capital market investors for intermediate- and long-term fixed-rate debt securities and the preference of our members for shorter-term or adjustable-rate Advances. We can satisfy the preferences of both groups by issuing long-term fixed-rate Bonds and entering into an interest rate swap that synthetically converts the Bonds to an adjustable-rate LIBOR funding basis that matches up with the short-term and adjustable-rate Advances, thereby preserving a favorable interest rate spread.

Use of derivatives can result in a substantial amount of volatility of accounting and economic earnings. Because we have a cooperative business model, our Board of Directors has emphasized the importance of controlling earnings volatility. Accordingly, our strategy is to execute derivatives that we expect to be effective hedges of market risk exposure relative to their impacts on profitability. As a result, the volatility in the market value of equity and earnings from our use of derivatives has historically tended to be moderate.

COMPETITION

Numerous economic and financial factors influence members' use of Mission Asset Activity. One of the most important factors that affect Advance demand is the amount of member deposits, which for most members are their primary source of funds. In addition, both small and, in particular, large members typically have access to wholesale funds besides FHLBank Advances. Another important source of competition for Advances is the ongoing fiscal and monetary stimuli initiated by the federal government to combat the continued difficulties in the housing market and broader economy. This is discussed in Item 1A's “Risk Factors” and in Item 7's “Executive Overview" and "Conditions in the Economy and Financial Markets."

The holding companies of some of our large asset members have membership(s) in other FHLBanks through their affiliates. Others could initiate memberships in other Districts. The competition among FHLBanks for the business of multiple-membership institutions is similar to the FHLBanks' competition with other wholesale lenders and mortgage investors. We compete with other FHLBanks on the offerings and pricing of Mission Asset Activity, earnings and dividend performance, collateral policies, capital plans, and members' perceptions of our relative safety and soundness. Some members may also evaluate benefits of diversifying business relationships among FHLBank memberships. We regularly monitor these competitive forces among the FHLBanks.

The primary competitors for mortgage loans we purchase in the MPP are Fannie Mae and Freddie Mac, government agencies such as the Government National Mortgage Association (Ginnie Mae), and private issuers. Fannie Mae and Freddie Mac, in particular, have long-established and efficient programs and are the dominant purchasers of fixed-rate conventional mortgages. In addition, a number of private financial institutions have well-established securitization programs, although they may not currently be as active as they were historically. The MPP also competes with the Federal Reserve to the extent it purchases mortgage-backed securities and affects market prices and availability of supply.

For debt issuance, the FHLBank System competes with issuers in the national and global debt markets, including most importantly the U.S. government and other GSEs.

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Item 1A.Risk Factors.

The following are the most important risks we currently face. The realization of one or more of the risks could negatively affect our results of operations, financial condition, and, at the extreme, the viability of our business franchise. The effects could include reductions in Mission Asset Activity, lower earnings and dividends, and, at the extreme, impairment of our capital or an inability to participate in issuances of Consolidated Obligations. The risks identified below are not the only risks we face. Other risks not presently known or which we deem to be currently immaterial may also impact our business. Additionally, the risks identified may adversely affect our business in ways we do not expect or anticipate.

Economy. An economic downturn could lower Mission Asset Activity and profitability.

Member demand for Mission Asset Activity depends in large part on the general health of the economy and overall business conditions. Numerous external factors can affect our Mission Asset Activity and earnings including:

▪ the general state and trends of the economy and financial institutions, especially in our Fifth District;

▪ conditions in the financial, credit, mortgage, and housing markets;

▪ interest rates;

▪ competitive alternatives to our products, such as retail deposits and other sources of wholesale funding;

▪ actions of the Federal Reserve to affect liquidity reserves of financial institutions and the money supply;

▪ the willingness and ability of financial institutions to expand lending; and

▪ regulatory initiatives.

Because our business tends to be cyclical, a recessionary economy, or an economy characterized by stagflation, normally lowers the amount of Mission Asset Activity, can decrease profitability, and can cause stockholders to request redemption of a portion of their capital or request withdrawal from membership (both referred to here as “request withdrawal of capital”). These unfavorable effects are more likely to occur and be more severe if a weak economy is accompanied by significant changes in interest rates, stresses in the housing market, elevated competitive forces, or actual or potential changes in the legislative and regulatory environment.

In the last five years the economy has grown at a measured pace, contributing to tempered member demand for Mission Asset Activity. In addition, overall Advance demand has been and continues to be unfavorably affected by the substantial amount of deposit based liquidity provided to financial institutions through the monetary actions of the Federal Reserve, and a more onerous regulatory environment for our members. Acceleration of these conditions or another recession could decrease Mission Asset Activity and increase MPP credit losses, both of which could reduce profitability.

Competition. The competitive environment for our products could adversely affect business activities, including decreasing the level and utilization rates of Mission Asset Activity, earnings, and capitalization.

We operate in a highly competitive environment for Mission Asset Activity. Increased competition could decrease the amount of Mission Asset Activity and narrow profitability on that activity, both of which could cause stockholders to request withdrawals of capital. Historically, our primary competition has been from other wholesale lenders and debt issuers, including other GSEs. A substantial source of competition in the last seven years has come from the federal government's actions to stimulate the economy, especially the actions of the Federal Reserve System through its policies of quantitative easing and maintaining extremely low interest rates. Among other effects, these actions have significantly expanded liquidity and excess reserves available to many members. We expect overall, broad-based growth in Advance demand will remain modest until the government reduces these initiatives by tightening monetary policy and winding down its holdings of U.S. Treasury and mortgage-backed securities. Even if these events take place, we cannot provide assurance regarding the pace or strength of the renewed Advance demand that we would anticipate.

In addition, the FHLBank System competes for funds through issuance of debt with the U.S. Treasury, Fannie Mae, Freddie Mac, other GSEs, and corporate, state, and sovereign entities, among others. Increases in the supply and types of competing debt products or other regulatory factors could adversely affect the System's ability to access funding or increase the cost of our debt issuance. Either of these effects could in turn adversely affect our financial conditions and results of operations and the value of FHLBank membership.

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GSE Reform. Potential GSE reform could unfavorably affect our business model, financial condition, and results of operations.

The FHLBank System's regulator, the Finance Agency, also regulates Fannie Mae and Freddie Mac. While there appears to be consensus that a permanent financial and political solution for Fannie Mae and Freddie Mac should be implemented, which could include maintaining the current structure, no consensus has evolved to date around any of the various legislative proposals. However, some policy proposals have included provisions, such as limitations on Advances and portfolio investments, development of a covered bond market, and restrictions on GSE mortgage finance, that could threaten the FHLBank System's long-standing business model.

Because all the GSEs share a common regulator and general housing mission, the ultimate resolution to the conservatorship of Fannie Mae and Freddie Mac could threaten the FHLBanks. There are significant differences between the FHLBank System and Fannie Mae and Freddie Mac, including the System's focus on lending as opposed to guaranteeing mortgages and our distinctive cooperative business model. Legislation could inadequately account for these differences, which could imperil the ability of the FHLBank System to continue operating effectively within its current business model or could change the System's business model.

At this time, it is unknown if and when GSE reform will be enacted and, if it is, what the effects would be on the FHLBank System's business model or our financial condition and results of operations, including whether the effects would be positive or negative.

FHLBank Regulatory Environment. We face a heightened regulatory and legislative environment, which could unfavorably affect our business model, financial condition, and results of operations.

In addition to potential GSE reform, the legislative and regulatory environment in which the FHLBank System operates continues to undergo rapid change driven principally by reforms emanating from the Housing and Economic Reform Act of 2008 (HERA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). There have been numerous new regulations promulgated in the last several years and more are in the process of being promulgated for the FHLBank System, many of which are pursuant to HERA or the Dodd-Frank Act. Current and future legislative and regulatory actions could significantly affect us.

We believe that the legislative and regulatory actions have raised our operating costs and imparted added uncertainty regarding the business model under which the FHLBanks may operate in the future. We are unable at this time to predict what ultimate effects the heightened regulatory environment will have on the FHLBank System's business model or on our financial condition and results of operations.

There is one proposed regulation regarding membership requirements about which we are particularly concerned. This is discussed in the "Executive Overview."

Liquidity and Market Access. Impaired access to the capital markets for debt issuance could increase liquidity risk, decrease the amount of Mission Asset Activity, lower earnings by raising debt costs and, at the extreme, result in realization of liquidity risk preventing the System from meeting its financial obligations.

Our principal long-term source of funding, liquidity, and market risk management is through access to the capital markets for participation in the issuances of debt securities and execution of derivative transactions at prices and yields that are adequate to support our business model. Access to the capital markets on favorable terms is the fundamental source of the FHLBank System's business franchise. The System's strong debt ratings, the implicit U.S. government backing of our debt, and effective funding management are instrumental in ensuring satisfactory access to the capital markets.

Although the last several years were characterized by ongoing issues with the federal government's fiscal condition, we have been able to maintain access to the capital markets for debt issuances on acceptable terms (including when the FHLBank System's debt was downgraded by Standard & Poor's). However, there is no assurance this will continue to be the case. Future ability to access the capital markets could be adversely affected by external events (such as general economic and financial instabilities, political instability, wars, and natural disasters) and by the System's joint and several liability for Consolidated Obligations, which exposes us to events at other FHLBanks. If access to capital markets were to be impaired for any extended period, the effect on our financial condition and results of operations could be material. At the extreme, the System's ability to achieve its mission and satisfy its financial obligations could be threatened.

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Credit and Counterparty Risk. We are exposed to credit risk that, if realized, could materially affect our ability to pay members a competitive dividend.

We believe we have a small overall amount of residual credit risk exposure related to Credit Services, purchases of investments, and transactions in derivatives, and a moderate amount of credit risk exposure related to the MPP. However, we can make no assurances that credit losses will not materially affect our financial condition or results of operations. An extremely severe and prolonged economic downturn, especially if combined with continued significant disruptions in housing or mortgage markets, could result in credit losses on assets that could impair our financial condition or results of operations.

The FHLBank is an asset-based lender for Advances and Letters of Credit. Advances are over-collateralized and we have a perfected first lien position on such collateral. Under a "Blanket" lien collateral status, which we assign to 85 percent of members amounting to approximately two-thirds of pledged collateral, we do not have full information on the structure and risk characteristics of the loan collateral. This results in a degree of uncertainty as to the ultimate value we might obtain if we were forced to liquidate the loan collateral pledged to us under a Blanket lien.

Although credit losses in the MPP have been minor to date, they could increase under adverse economic scenarios involving significant reductions in home prices and sustained elevated levels of unemployment and other factors that influence delinquencies and defaults.

Some of our liquidity investments are unsecured, as are uncollateralized portions of interest rate swaps. We make unsecured liquidity investments in and transact derivatives with highly rated, investment-grade institutions, have conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices. Failure of an investment or derivative counterparty with which we have a large unsecured position could have a material adverse effect on our financial conditions and results of operations. To the extent we engage in derivative transactions required to be cleared under provisions of the Dodd-Frank Act, we may be exposed to nonperformance from central clearinghouses and Futures Commission Merchants.

Financial institutions are increasingly inter-related as a result of trading, clearing, counterparty, and other relationships. As a result, actual or potential defaults of one or more financial institutions could lead to market-wide disruptions making it difficult for us to find qualified counterparties for transactions.

Market Risk. Changes in interest rates and mortgage prepayment speeds (together referred to as market risk exposure or interest rate risk exposure) could significantly reduce our ability to pay members a competitive dividend from current earnings.

Exposure of earnings to unhedged changes in interest rates and mortgage prepayment speeds is one of our largest ongoing residual risks. We derive most of our income from the interest earned on assets less the interest paid on Consolidated Obligations and deposits used to fund the assets. We fund mortgage assets and hedge them with a combination of Consolidated Obligations and capital. Interest rate movements can lower profitability in two ways: 1) directly due to their impact on earnings from cash flow mismatches between assets and liabilities; and 2) indirectly via their impact on prepayment speeds, which can unfavorably affect the cash flow mismatches. The effects on income can include changes in amortization of purchase premiums on mortgage assets.

Because it is normally cost-prohibitive to completely mitigate market risk exposure, a residual amount of market risk normally remains after incorporating risk management activities. Sharp increases in interest rates, especially short-term rates, or sharp decreases in long-term interest rates could adversely affect us and our stockholders by making dividend rates less competitive relative to the returns available to members on alternative investments.

In some extremely stressful scenarios, changes in interest rates and prepayment speeds could result in dividends being below stockholders' expectations for an extended period of time. In such a situation, members could engage in less Mission Asset Activity and could request a withdrawal of capital. See Item 7's "Quantitative and Qualitative Disclosures About Risk Management" for additional information about market risk exposure.

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Asset Profitability. Spreads on assets to funding costs may narrow because of changes in market conditions and competitive factors, resulting in lower profitability.

Spreads on our assets tend to be narrow compared to those of many other financial institutions due to our cooperative business model, resulting in relatively lower profitability. Market conditions, competitive forces, and, as discussed above, market risk exposure could cause these already narrow asset spreads to decline, which could substantially reduce our profitability. A key spread relationship is that we tend to utilize Consolidated Discount Notes to fund a significant amount of assets that have adjustable-rates tied to LIBOR. Because rates on Discount Notes do not perfectly correlate with LIBOR, a narrowing of this spread, for example from investors changing perceptions about the quality of our debt, is a key risk for us. Realization of narrower spreads could result in lower dividends and a reduction in Mission Asset Activity.

Capital Adequacy. Failure to meet capital adequacy requirements mandated by Finance Agency regulations and by our policies, or not being able to pay dividends or repurchase or redeem capital stock, may lower demand for Mission Asset Activity, affect results of operations, and lower membership value.

To ensure safe and sound operations, we must hold a minimum amount of capital relative to our asset levels. We must also hold a minimum amount of retained earnings to, among other things, help protect members' capital stock investment against impairment risk. If we were to violate any capital requirement, we may be unable to pay dividends or redeem and repurchase capital stock. This could adversely affect the value of membership including members' capital investment. Outcomes could be reduced demand for Mission Asset Activity, decreased profitability, requests from members to redeem a portion of their capital or to withdraw from membership, or increased investors' perception of the riskiness of our FHLBank.

Business Concentration and Industry Consolidation. Sharp reductions in Mission Asset Activity resulting from lower usage by large members or consolidation of large members could adversely impact our net income and dividends.

The amount of Mission Asset Activity and capital is concentrated among a handful of large members. The financial industry continues to consolidate among a smaller number of institutions and to become more concentrated. Our large members could decrease their Mission Asset Activity and the amount of their capital stock as a result of merger and acquisition activity or their reduced demand for Mission Assets. At December 31, 2014, one member, JPMorgan Chase Bank, N.A., held over half of our Advances and one member PFI, Union Savings Bank, accounted for nearly 25 percent of the outstanding MPP principal balance. Our business model is structured to be able to absorb sharp changes in Mission Asset Activity because we can undertake commensurate reductions in liability balances and capital and because of our relatively low operating expenses. However, an extremely large reduction in Mission Asset Activity could affect our profitability and possibly our ability to pay competitive dividends.

Exposure to FHLBank System. Financial difficulties at other FHLBanks could require us to provide financial assistance to another FHLBank, which could adversely affect our results of operations or our financial condition.

Each FHLBank has a joint and several liability for principal and interest payments on Consolidated Obligations, which are backed only by the financial resources of the FHLBanks. Although no FHLBank has ever defaulted on its principal or interest share of an Obligation, there can be no assurance that this will continue to be the case. Financial performance issues could require our FHLBank to provide financial assistance to one or more other FHLBanks, for example, by making a payment on an Obligation on behalf of another FHLBank. Such assistance could adversely affect our financial condition, earnings, ability to pay dividends, or ability to redeem or repurchase capital stock.

Member Regulatory Environment. Members face increased regulatory scrutiny, which could further decrease Mission Asset Activity and lower profitability.

In the last number of years, regulation and scrutiny of the financial industry has increased significantly. We believe these activities have decreased members' overall usage of Advances.

The Basel Committee on Banking Supervision (the Basel Committee) has developed a proposed new capital regime for internationally active banks. Banks subject to the new regime are required, among other things, to have higher capital ratios. While it is uncertain how the new capital regime and other standards, such as those related to liquidity, developed by

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the Basel Committee will ultimately be implemented by U.S. regulatory authorities, the new regime could require some of our members to divest assets in order to comply with the regime's more stringent capital and liquidity requirements, thereby possibly lowering Advance demand. The proposed liquidity requirements may adversely impact Advance demand and investor demand for Consolidated Obligations because they would limit the ability of members to fully include Advances and Consolidated Obligations in required liquidity calculations. This could raise our debt costs and, in turn, raise the Advance rates we are able to offer members, thereby harming the ability to fulfill our business model.

Personnel Risk. Our financial condition and results of operations could suffer if we are unable to hire and retain skilled key personnel.

The success of our business mission depends, in large part, on the ability to attract and retain key personnel. Competition for qualified people or ineffective succession planning could affect the ability to hire or retain effective key personnel, thereby harming our financial condition and results of operations.

Operational and Compliance Risks. Failures or interruptions in our internal controls, compliance activities, 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 and counterparties could occur from human error, fraud, breakdowns in information and computer systems and financial and business models we use, 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.

We rely heavily on internal and third-party information systems and other technology to conduct and manage our business. Our operations rely on the secure processing, storage and transmission of confidential and other information in computer systems and networks. Computer systems, software and networks can be vulnerable to failures and interruptions including “cyberattacks” (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) that could jeopardize the confidentiality or integrity of information, or otherwise cause interruptions or malfunctions in operations. We can make no assurance that we will be able to prevent, timely and adequately address, or mitigate the negative effects of failures, interruptions, or "cyberattacks" in information systems and other technology. If we experience a failure, interruption, or "cyberattack" in any of these systems, we may be unable to effectively conduct or manage our business activities, operating processes, and risk management, which could significantly harm customer relations, our reputation, or profitability, potentially resulting in material adverse effects on our financial condition and results of operations.

Item 1B.Unresolved Staff Comments.

None.

Item 2.Properties.

Our offices are located in approximately 79,000 square feet of leased space in downtown Cincinnati, Ohio. We also maintain a leased, fully functioning, back-up facility in suburban Cincinnati. Additionally, we lease a small office in Nashville, Tennessee for the area marketing representative. We believe that our facilities are in good condition, well maintained, and adequate for our current needs.

Item 3.Legal Proceedings.

From time to time, we are subject to various legal proceedings arising in the normal course of business. Management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations.

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.

By law our stock is not publicly traded, and only our members (and former members with a withdrawal notice pending) may own our stock. The par value of our capital stock is $100 per share. As of December 31, 2014, we had 705 stockholders and 43 million shares of capital stock outstanding, all of which were Class B Stock.

We paid quarterly dividends in 2014 and 2013 as outlined in the table below.

(Dollars in millions)
	2014						2013
			Annualized						Annualized
Quarter	Amount		Rate		Form	Quarter	Amount		Rate		Form
First	$	47	4.00	%	Cash	First	$	39	4.25	%	Cash
Second	44		4.00		Cash	Second	43		4.25		Cash
Third	42		4.00		Cash	Third	49		4.25		Cash
Fourth	43		4.00		Cash	Fourth	47		4.00		Cash
Total	$	176	4.00			Total	$	178	4.18

Generally, our Board of Directors has discretion to declare or not declare dividends and to determine the rate of any dividend declared. Our Retained Earnings and Dividend Policy states that dividends for a quarter are declared and paid from retained earnings after the close of a calendar quarter and are based on average stock balances for the then closed quarter. Our Board of Directors' decision to declare dividends is influenced by the financial condition, overall financial performance and retained earnings of the FHLBank, and actual and anticipated developments in the overall economic and financial environment including, most importantly, interest rates and the mortgage and credit markets. The dividend rate is generally referenced as a spread to average short-term interest rates experienced during the quarter to help assess a competitive level for our stockholders.

A Finance Agency Capital Rule prohibits an FHLBank from issuing new excess capital stock to members, either by paying stock dividends or otherwise, if before or after the issuance the amount of member excess capital stock exceeds or would exceed one percent of the FHLBank's assets. Excess capital stock for this regulatory purpose is calculated as the aggregate of capital stock owned that is in excess of all membership and Mission Asset Activity requirements (as defined in our Capital Plan).

We may not declare a dividend if, at the time, we are not in compliance with all of our capital requirements. We also may not declare or pay a dividend if, after distributing the dividend, we would fail to meet any of our capital requirements or if we determine that the dividend would create a safety and soundness issue for the FHLBank. See Note 15 of the Notes to the Financial Statements for additional information regarding our capital stock.

RECENT SALES OF UNREGISTERED SECURITIES

From time to time, we provide Letters of Credit in the ordinary course of business to support members' obligations issued in support of unaffiliated, third-party offerings of notes, bonds or other securities. We did not provide such credit support during 2014 and 2013. We provided $8 million of such credit support during 2012. To the extent that these Letters of Credit are securities for purposes of the Securities Act of 1933, their issuance is exempt from registration pursuant to section 3(a)(2) thereof.

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Item 6. Selected Financial Data.

The following table presents selected Statement of Condition data, Statement of Income data and financial ratios for the five years ended December 31, 2014.

	Year Ended December 31,
(Dollars in millions)	2014			2013			2012			2011			2010
STATEMENT OF CONDITION DATA AT PERIOD END:
Total assets	$	106,640		$	103,181		$	81,562		$	60,397		$	71,631
Advances	70,406			65,270			53,944			28,424			30,181
Mortgage loans held for portfolio	6,989			6,826			7,548			7,871			7,782
Allowance for credit losses on mortgage loans	5			7			18			21			12
Investments (1)	26,007			22,364			19,950			21,941			33,314
Consolidated Obligations, net:
Discount Notes	41,232			38,210			30,840			26,136			35,003
Bonds	59,217			58,163			44,346			28,855			30,697
Total Consolidated Obligations, net	100,449			96,373			75,186			54,991			65,700
Mandatorily redeemable capital stock	63			116			211			275			357
Capital:
Capital stock - putable	4,267			4,698			4,010			3,126			3,092
Retained earnings	689			621			538			444			438
Accumulated other comprehensive loss	(17		)	(9		)	(11		)	(11		)	(7		)
Total capital	4,939			5,310			4,537			3,559			3,523
STATEMENT OF INCOME DATA:
Net interest income	$	317		$	328		$	308		$	249		$	275
(Reversal) provision for credit losses	—			(7		)	1			12			13
Non-interest income (loss)	23			20			13			(5		)	20
Non-interest expenses	68			64			58			57			56
Assessments	28			30			27			37			62
Net income	$	244		$	261		$	235		$	138		$	164
FINANCIAL RATIOS:
Dividend payout ratio (2)	72.2		%	68.1		%	60.1		%	95.4		%	84.1		%
Weighted average dividend rate (3)	4.00			4.18			4.44			4.25			4.38
Return on average equity	4.93			5.10			6.20			3.89			4.67
Return on average assets	0.24			0.28			0.35			0.21			0.24
Net interest margin (4)	0.31			0.35			0.46			0.37			0.40
Average equity to average assets	4.90			5.47			5.68			5.29			5.08
Regulatory capital ratio (5)	4.71			5.27			5.84			6.37			5.43
Operating expense to average assets	0.054			0.055			0.067			0.068			0.070

(1) Investments include interest bearing deposits in banks, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.

(2) Dividend payout ratio is dividends declared in the period as a percentage of net income.

(3) Weighted average dividend rates are dividends paid divided by the average number of shares of capital stock eligible for dividends.

(4) Net interest margin is net interest income before (reversal)/provision for credit losses as a percentage of average earning assets.

(5) Regulatory capital ratio is period-end regulatory capital (capital stock, mandatorily redeemable capital stock and retained earnings) as a percentage of period-end total assets.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

EXECUTIVE OVERVIEW

Financial Condition

Mission Asset Activity

The following table summarizes our financial condition.

	Year Ended December 31,
	Ending Balances				Average Balances
(In millions)	2014		2013		2014		2013
Total Assets	$	106,640	$	103,181	$	101,157	$	93,691
Mission Asset Activity:
Advances (principal)	70,299		65,093		66,492		61,327
Mortgage Purchase Program (MPP):
Mortgage loans held for portfolio (principal)	6,796		6,643		6,620		6,881
Mandatory Delivery Contracts (notional)	451		37		273		254
Total MPP	7,247		6,680		6,893		7,135
Letters of Credit (notional)	17,780		13,472		15,154		12,560
Total Mission Asset Activity	$	95,326	$	85,245	$	88,539	$	81,022

In 2014, the FHLBank fulfilled its mission by providing readily available and competitively priced wholesale funding to its member financial institutions, supporting its commitment to affordable housing, and paying stockholders a competitive dividend return on their capital investment. The majority of our members continued to have modest demand for new Advance borrowings due to measured economic growth and significant amounts of liquidity made available as a result of the actions of the Federal Reserve System.

Total assets at December 31, 2014increased$3.5 billion (three percent) from year-end 2013. Average asset balances were $7.5 billion (eight percent) higher in 2014 than 2013. The balance of Mission Asset Activity – comprising Advances, Letters of Credit, and total MPP – was $95.3 billion at December 31, 2014, an increase of $10.1 billion (12 percent) from year-end 2013. Mission Asset Activity on this date constituted 80 percent of adjusted Consolidated Obligations (which equal Obligations plus Letters of Credit and Mandatory Delivery Contracts), equal to our internal benchmark.

The growth in ending and average balances of Mission Asset Activity in 2014 was led by an increase in the principal balance of Advances, primarily from a few larger members. As of December 31, 2014, members funded on average 3.3 percent of their assets with Advances, and the penetration rate was relatively stable over the last year with 65-70 percent of members holding Mission Asset Activity.

The principal balance of mortgage loans held for portfolio at December 31, 2014rose$0.2 billion (two percent) from year-end 2013. During 2014, we purchased $1.2 billion of mortgage loans, while principal paydowns totaled $1.0 billion. Residual credit risk exposure in the mortgage loan portfolio continued to be modest. The allowance for credit losses in the MPP decreased to $5 million at December 31, 2014.

Based on 2014 earnings, we contributed $28 million to the Affordable Housing Program (AHP) pool of funds to be awarded to members in 2015. In addition, we continued our voluntary sponsorship of two other housing programs, which provide resources to pay for accessibility rehabilitation and emergency repairs for special needs and elderly homeowners and to help members aid their communities following natural disasters.

Investments and Other Assets

The balance of investments at December 31, 2014 was $26.0 billion, an increase of $3.6 billion (16 percent) from year-end 2013. At the end of 2014, investments included $14.7 billion of mortgage-backed securities and $11.3 billion of other investments, which are mostly short-term instruments we hold for liquidity.

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Investment balances averaged $27.5 billion in 2014, an increase of $2.7 billion (11 percent) from 2013's average. This growth occurred from both liquidity investments and mortgage-backed securities. All of our mortgage-backed securities held at December 31, 2014 were issued and guaranteed by Fannie Mae, Freddie Mac or a U.S. agency.

The balance of cash and due from banks at December 31, 2014 was $3.1 billion, a decrease of $5.5 billion (64 percent) from year-end 2013. The larger than normal balance of cash and due from banks at the end of 2013 was a result of holding $8.6 billion in deposits at the Federal Reserve due to narrower spreads and fewer eligible counterparties at that time for certain types of liquidity investments.

We maintained an adequate amount of asset liquidity throughout the year under a variety of liquidity measures as discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."

Capital

Capital adequacy remained strong throughout 2014, exceeding all minimum regulatory capital requirements. The GAAP capital-to-assets ratio at December 31, 2014 was 4.63 percent, while the regulatory capital-to-assets ratio was 4.71 percent. Both ratios exceeded the regulatory required minimum of four percent. Regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under GAAP.

The amounts of GAAP and regulatory capital decreased$371 million and $416 million, respectively, in 2014, primarily resulting from redemption and repurchase of $500 million in excess stock in February as part of our capital management strategy.

Total retained earnings were $689 million at December 31, 2014, an increase of $68 million (11 percent) from year-end 2013. Retained earnings were comprised of $529 million unrestricted and $160 million restricted. We believe the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment in the FHLBank and to provide the opportunity to stabilize future dividends. Our Capital Plan also has safeguards to prevent financial leverage ratios from falling below regulatory minimum levels.

Results of Operations

Overall Results

The table below summarizes our results of operations.

	For the Years Ended December 31,
(Dollars in millions)	2014			2013			2012
Net income	$	244		$	261		$	235
Affordable Housing Program accrual	28			30			27
Return on average equity (ROE)	4.93		%	5.10		%	6.20		%
Return on average assets	0.24			0.28			0.35
Weighted average dividend rate	4.00			4.18			4.44
Average 3-month LIBOR	0.23			0.27			0.43
Average overnight Federal funds effective rate	0.09			0.11			0.14
ROE spread to 3-month LIBOR	4.70			4.83			5.77
Dividend rate spread to 3-month LIBOR	3.77			3.91			4.01
ROE spread to Federal funds effective rate	4.84			4.99			6.06
Dividend rate spread to Federal funds effective rate	3.91			4.07			4.30

The spreads between ROE and short-term interest rates, for which we use 3-month LIBOR and Federal funds as proxies, are market benchmarks we believe member stockholders use to assess the competitiveness of the return on their capital investment in our company. Earnings continued to be sufficient to provide competitive returns on stockholders' capital investment. Consistent with experience over the last seven years, ROE was significantly above short-term rates, resulting in the ROE spreads being wider than the long-term historical average spread.

The lower net income and ROE in 2014 compared to 2013 resulted primarily from the following factors:

▪ implementation of a strategy to reduce market risk exposure to the possibility of higher interest rates;

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▪ an increase in net amortization related to mortgage assets in 2014;

▪ narrower spreads on LIBOR Advances funded by short-term debt;

▪ a decline in mortgage asset spreads due to the run-off of higher yielding mortgages in excess of the retirement of high-cost debt;

▪ a larger reversal for credit losses on mortgage loans held for portfolio in 2013;

▪ a reduction in earnings from interest-free capital as interest rates continued to be low and trend lower; and

▪ an increase in other expense.

Three factors increased income, offsetting a portion of the impact from the unfavorable factors:

▪ Advance growth;

▪ an increase in the average balance of mortgage-backed securities; and

▪ an increase in fees received from Letters of Credit due to the substantial growth in notional balances outstanding.

The decline in ROE was less than that of net income due to our repurchase of excess stock in February 2014.

Effect of Interest Rate Environment

Trends in market interest rates strongly influence the results of operations via how they affect members' demand for Mission Asset Activity, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following tables present key market interest rates (obtained from Bloomberg L.P.).

	Year 2014		Year 2013		Year 2012
	Ending	Average	Ending	Average	Ending	Average
Federal funds target	0-0.25%	0-0.25%	0-0.25%	0-0.25%	0-0.25%	0-0.25%
Federal funds effective	0.06	0.09	0.07	0.11	0.09	0.14
3-month LIBOR	0.26	0.23	0.25	0.27	0.31	0.43
2-year LIBOR	0.90	0.62	0.49	0.44	0.39	0.50
10-year LIBOR	2.28	2.65	3.09	2.47	1.84	1.88
2-year U.S. Treasury	0.67	0.45	0.38	0.30	0.25	0.27
10-year U.S. Treasury	2.17	2.53	3.03	2.34	1.76	1.78
15-year mortgage current coupon (1)	2.10	2.34	2.68	2.21	1.71	1.64
30-year mortgage current coupon (1)	2.85	3.23	3.63	3.07	2.22	2.54

	Year 2014 by Quarter - Average
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Federal funds target	0-0.25%	0-0.25%	0-0.25%	0-0.25%
Federal funds effective	0.07	0.09	0.09	0.10
3-month LIBOR	0.24	0.23	0.23	0.24
2-year LIBOR	0.49	0.54	0.71	0.75
10-year LIBOR	2.87	2.72	2.62	2.40
2-year U.S. Treasury	0.36	0.41	0.50	0.52
10-year U.S. Treasury	2.76	2.61	2.49	2.27
15-year mortgage current coupon (1)	2.51	2.35	2.34	2.16
30-year mortgage current coupon (1)	3.45	3.29	3.21	2.95

(1) Simple average of current coupon rates of Fannie Mae and Freddie Mac par mortgage-backed security indications.

Short-term interest rates remained close to zero in 2014. The Federal Reserve maintained the overnight Federal funds target and effective rates between zero and 0.25 percent, with other short-term interest rates generally consistent with their historical relationships to Federal funds. The Federal Reserve has communicated that it currently anticipates continuing actions to hold short-term interest rates at or near zero until at least mid-2015. Intermediate-term rates (up to five years) were relatively stable, while longer-term rates declined approximately 80 basis points and resulted in an overall flattening of the yield curve.

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The low interest rate environment remained favorable overall for our results of operations in 2014. The rate environment since 2008 has benefited our profitability (ROE) relative to interest rate levels, for several reasons:

▪ Reductions in, and low, market interest rates raise ROE compared to market rates to the extent we fund a portion of long-term assets with shorter-term debt.

▪ The low rate environment has provided the opportunity for us to retire many Consolidated Bonds and replace them with lower cost Obligations, at a pace exceeding mortgage asset paydowns, which have been slower than would be expected in more normal housing and mortgage environments.

▪ Earnings generated from funding assets with interest-free capital have not decreased as much as the reduction in overall interest rates because long-term assets do not reprice immediately to the lower rates.

Business Conditions and Outlook and Risk Management

This section summarizes the business outlook and what we believe are our current major risk exposures. Item 1A's “Risk Factors” has a detailed discussion of risk factors that could affect our corporate objectives, financial condition, and results of operations. "Quantitative and Qualitative Disclosures About Risk Management" provides details on current risk exposures.

Strategic/Business Risk

Advances.Our business is cyclical and Mission Asset Activity normally grows slowly, stabilizes, or declines in periods of difficult macro-economic conditions, when financial institutions have ample liquidity, or when there is significant growth in the money supply. In the last several years, measured economic growth has resulted in relatively slow growth in consumer, mortgage and commercial loans across the broad membership both in absolute terms and relative to deposit growth. Other important factors continuing to constrain widespread demand for Advances are the extremely low levels of interest rates resulting in favorable broad-based funding levels and the Federal Reserve's ongoing actions to provide an extraordinary amount of deposit-based liquidity to attempt to stimulate economic growth. We would expect to see a broad-based increase in Advance demand when the economy experiences a sustained improvement or if changes in Federal Reserve policy reduce other sources of liquidity available to our members.

The relative balance between loan and deposit growth provides an indication of potential member Advance demand. From September 30, 2013 to September 30, 2014 (the most recent period for which data are available), aggregate loan portfolios of Fifth District depository institutions grew $52.7 billion (4.3 percent) while their aggregate deposit balances rose $74.6 billion (3.6 percent). The data include the effect of large mergers and acquisitions only when they are available for both comparison dates. Most of the loan and deposit growth in this period occurred from our largest members, which is consistent with the concentration of financial activity. Excluding the five members with over $50 billion of assets and recent acquisitions, aggregate loans increased $12.0 billion (6.4 percent) in the 12-month period while aggregate deposits grew $4.7 billion (2.0 percent).

Members' faster loan growth than deposit growth could over time produce increased demand for Advances, although the impact in 2014 across the membership base was modest with most of the Advance growth coming from a few larger members.

MPP. Our current and ongoing strategy for the MPP has two components: 1) increase the number of regular sellers and participants in the program 2) and grow balances while maintaining them at a prudent level relative to capital to help manage market and credit risks consistent with our risk appetite.

Balances are influenced primarily by activity from large sellers and a Finance Agency regulation requiring that if purchases in a calendar year exceed $2.5 billion, we must enact additional housing goals. Given the uncertainty of the goal requirements and possible operational and economic impacts, we currently plan to limit our calendar year purchases to less than $2.5 billion until we receive further guidance from the Finance Agency and we confirm our ability to meet the goals.

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Regulatory and Legislative Risk

General. The FHLBank System currently faces heightened legislative and regulatory risks and uncertainties, which we believe has affected, and could continue to affect, our Mission Asset Activity, capitalization, and results of operations. Item 1A.'s "Risk Factors" provides details of some of the primary current and recent regulatory and legislative initiatives that could affect our business. The legislative and regulatory actions related to our company have raised our operating costs and increased uncertainty regarding the business model under which the FHLBanks may operate in the future. This is due primarily to the uncertainty around potential future GSE reform, which shows no signs of resolution.

Membership Requirements.In September 2014, the Finance Agency published a notice of proposed rulemaking that would modify membership requirements. This is the primary current regulatory action in process that could significantly affect how we achieve our mission. The primary provisions of the proposed rule include the following:

▪ A new membership requirement for all members to hold, on an ongoing basis, at least one percent of their assets in first-lien mortgage loans (including mortgage-backed securities), with the option of the Finance Agency making the requirement two percent or up to five percent.

▪ A requirement that all insured depository members with assets over $1.1 billion must hold, on an ongoing basis, at least 10 percent of their assets in a broader range of residential mortgage loans.

▪ Narrowing the definition of eligible insurance companies by eliminating from FHLBank membership all currently-eligible captive insurance companies.

▪ Clarification of how FHLBanks should determine the "principal place of business" for membership of insurance companies and community development financial institutions. Current rules define an institution's "principal place of business" as the state in which it maintains its home office. The proposed rule would also add a requirement that an institution should conduct business operations from the home office for that state to be considered its principal place of business. The change would be applied prospectively.

The proposed rule would disallow a number of financial institutions from being members of an FHLBank who are currently eligible under the FHLBank Act established by the U.S. Congress. We are thereby concerned that the rule, if adopted in its current form, would constrain the ability of the FHLBanks to fulfill their mission of promoting housing finance through providing liquidity and funding to financial institutions engaged in housing finance activities.

The comment period ended on January 12, 2015. Along with other FHLBanks, many members, and the U.S. Congress, we provided our comments on the proposed rule.

Market Risk

During 2014, as in 2013, the market risk exposure to changing interest rates was moderate overall and well within policy limits. We believe that profitability would not become uncompetitive unless long-term rates were to increase immediately and permanently by five percentage points or more combined with short-term rates increasing to at least eight percent. We believe such an extreme stress scenario, although plausible, is unlikely to occur in the foreseeable future. However, in anticipation of interest rates beginning to increase we adopted a strategy in late 2013, which we implemented in 2014, to lower market risk exposure to higher rates. Our market risk exposure to lower long-term interest rates, even up to two percentage points, would result in ROE still being well above market interest rates.

Capital Adequacy

We maintained compliance with regulatory capital requirements. Capital ratios at December 31, 2014 exceeded the regulatory required minimum of four percent. We believe that the amount of our retained earnings is sufficient to protect against impairment risk of capital stock and to provide the opportunity to stabilize dividends. Our Capital Plan has safeguards to prevent financial leverage from increasing beyond regulatory minimums or below safe levels. We believe members place a high value on their capital investment in our company.

Credit Risk

In 2014, we continued to experience minimal overall residual credit risk exposure from our Credit Services, making investments, and executing derivative transactions. We believe policies and procedures related to credit underwriting, Advance collateral management, and transactions with investment and derivative counterparties continue to fully mitigate these risks, and we continued to have no loan loss reserves or impairment recorded for these instruments.

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Residual credit risk exposure in the mortgage loan portfolio remained modest. The allowance for credit losses in the MPP continued to decline and was $5 million at December 31, 2014.

As in prior years, we did not evaluate any investments to be other-than-temporarily impaired in 2014. We held no private-label mortgage-backed securities. All of our mortgage-backed securities were issued and guaranteed by Fannie Mae or Freddie Mac, which we believe have the backing of the U.S. government, or by the National Credit Union Administration (NCUA) or Ginnie Mae, which issue guaranteed securities. Liquidity investments are either guaranteed by the U.S. government, secured (i.e., collateralized), or unsecured with our exposure limited to investment in the debt securities of highly rated, investment-grade institutions with appropriate limits on dollar and maturity exposure to each institution. We mitigate most of the credit risk exposure resulting from interest rate swap transactions through collateralization.

Liquidity Risk

Our liquidity position remained strong during 2014, as did our overall ability to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. There were minimal stresses on market access or liquidity from external market and political events. Although we can make no assurances, we expect this to continue to be the case and believe there is a remote possibility of a liquidity or funding crisis in the FHLBank System that could impair the FHLBank's ability to participate, on a cost-effective basis, in issuances of new debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends.

ANALYSIS OF FINANCIAL CONDITION

Mission Asset Activity

We regularly monitor the dollar and percentage amount of our balance sheet that is Mission Asset Activity, which we define as Advances, Letters of Credit, and total MPP. These are the primary means by which we fulfill our mission with direct connections to members. We measure Mission Asset Activity against Consolidated Obligations because the latter reflect the major source of our franchise value as a GSE. At December 31, 2014, the principal balance of Mission Asset Activity of $95.3 billion constituted 80 percent of adjusted Obligations (which equal Obligations plus Letters of Credit and Mandatory Delivery Contracts). The daily average percentage in 2014 was also 80 percent. These percentage levels were equal to our internal benchmark.

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Credit Services

Credit Activity and Advance Composition

The tables below show trends in Advance balances by major programs and in the notional amount of Letters of Credit.

(Dollars in millions)	December 31, 2014				December 31, 2013
	Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable Rate Indexed:
LIBOR	$	51,839	74	%	$	49,199	75	%
Other	515		1		413		1
Total	52,354		75		49,612		76
Fixed-Rate:
REPO	5,201		7		4,143		7
Regular Fixed-Rate	7,398		11		5,751		9
Putable (2)	1,617		2		2,146		3
Convertible (2)	—		—		10		—
Amortizing/Mortgage Matched	2,734		4		2,593		4
Other	995		1		838		1
Total	17,945		25		15,481		24
Other Advances	—		—		—		—
Total Advances Principal	$	70,299	100	%	$	65,093	100	%
Letters of Credit (notional)	$	17,780			$	13,472

(Dollars in millions)	December 31, 2014				September 30, 2014				June 30, 2014				March 31, 2014
	Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)		Balance		Percent(1)
Adjustable/Variable Rate Indexed:
LIBOR	$	51,839	74	%	$	49,244	69	%	$	48,973	71	%	$	49,269	75	%
Other	515		1		531		1		491		1		389		1
Total	52,354		75		49,775		70		49,464		72		49,658		76
Fixed-Rate:
REPO	5,201		7		8,993		12		7,817		11		4,465		7
Regular Fixed-Rate	7,398		11		7,004		10		6,507		9		5,903		9
Putable (2)	1,617		2		1,935		3		2,091		3		2,138		3
Convertible (2)	—		—		5		—		5		—		10		—
Amortizing/Mortgage Matched	2,734		4		2,702		4		2,627		4		2,618		4
Other	995		1		910		1		825		1		593		1
Total	17,945		25		21,549		30		19,872		28		15,727		24
Other Advances	—		—		1		—		—		—		—		—
Total Advances Principal	$	70,299	100	%	$	71,325	100	%	$	69,336	100	%	$	65,385	100	%
Letters of Credit (notional)	$	17,780			$	16,080			$	15,563			$	13,603

(1) As a percentage of total Advances principal.    

(2) Excludes Putable/Convertible Advances where the related put/conversion options have expired. Such Advances are classified based on their current terms.

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The growth in Advances was comprised primarily of fixed-rate, LIBOR based and short-term repurchase (REPO) Advances. Most of the Advance growth came from several larger members.

Members increased their available lines in the Letters of Credit program by $4.3 billion (32 percent) in 2014. As with Advances, most of the growth was from a few large members. We generally earn fees on Letters of Credit based on the actual notional amount of the Letters utilized, which normally is less than the available lines.

Advance Usage

In addition to analyzing Advance balances by dollar trends and the number of members utilizing them, we monitor the degree to which members use Advances to fund their balance sheets. The following table shows the unweighted, average ratio of each member's Advance balance to its most-recently available figures for total assets.

	December 31, 2014		September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013
Average Advances-to-Assets for Members
Assets less than $1.0 billion (639 members)	3.24	%	3.32	%	3.24	%	3.13	%	3.27	%
Assets over $1.0 billion (66 members)	3.75		3.77		3.42		3.17		3.33
All members	3.29		3.36		3.26		3.13		3.28

Overall Advance usage ratios were stable in 2014. Large members currently utilize Advances to fund a similar amount of their assets as smaller members.

The following table shows Advance usage of members by charter type.

(Dollars in millions)	December 31, 2014				December 31, 2013
	Par Value of Advances		Percent of Total Par Value of Advances		Par Value of Advances		Percent of Total Par Value of Advances
Commercial Banks	$	59,119	84	%	$	54,909	84	%
Thrifts and Savings Banks	4,067		6		3,106		5
Credit Unions	1,110		1		814		1
Insurance Companies	5,408		8		4,601		7
Community Development Financial Institutions	1		—		1		—
Total member Advances	69,705		99		63,431		97
Former member borrowings	594		1		1,662		3
Total par value of Advances	$	70,299	100	%	$	65,093	100	%

The following tables present principal balances for our top five Advance borrowers.

(Dollars in millions)
December 31, 2014					December 31, 2013
Name	Par Value of Advances		Percent of Total Par Value of Advances		Name	Par Value of Advances		Percent of Total Par Value of Advances
JPMorgan Chase Bank, N.A.	$	41,300	59	%	JPMorgan Chase Bank, N.A.	$	41,700	64	%
U.S. Bank, N.A.	8,338		12		U.S. Bank, N.A.	4,584		7
The Huntington National Bank	2,083		3		The Huntington National Bank	1,809		3
Nationwide Life Insurance Company	1,761		3		Western-Southern Life Assurance Co	1,342		2
Western-Southern Life Assurance Co	1,623		2		Protective Life Insurance Company	1,171		2
Total of Top 5	$	55,105	79	%	Total of Top 5	$	50,606	78	%

Advance concentration ratios are influenced by, and generally are similar to, concentration ratios of financial activity among our Fifth District financial institutions. We believe that having large financial institutions that actively use our Mission Asset Activity augments the value of membership to all members because it improves our operating efficiency, increases our earnings

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and thereby contributions to housing and community investment programs, may enable us over time to obtain more favorable funding costs, and helps us maintain competitively priced Mission Asset Activity.

Mortgage Loans Held for Portfolio (Mortgage Purchase Program, or "MPP")

MPP balances continue to be driven primarily by activity from two large sellers and a Finance Agency regulation requiring that if purchases in a calendar year exceed $2.5 billion, we will be subject to Finance Agency established housing goals. Given the uncertainty of the housing goal requirements and possible operational and economic impacts, we continue to limit our calendar year purchases to less than $2.5 billion. The number of regular sellers remained at a high level in 2014 compared to historical trends.

The table below shows principal paydowns and purchases of loans in the MPP for each of the last two years.

(In millions)	2014			2013
Balance, beginning of year	$	6,643		$	7,366
Principal purchases	1,226			1,171
Principal paydowns	(1,073		)	(1,894		)
Balance, end of year	$	6,796		$	6,643

The small increase in principal loan balance in 2014 reflected purchase activity closely matching principal paydowns. Purchases resulted from sales by 95 participating financial institutions (PFIs) during the year, with the number of monthly sellers averaging 60. Almost all loans acquired in 2014 were conventional, with less than one percent of purchases comprised of Federal Housing Administration (FHA) loans.

In the fourth quarter of 2014, MPP activity increased. At the end of the year, MPP commitments outstanding totaled $451 million, compared to only $37 million at the end of 2013.

The following tables show the percentage of principal balances from PFIs supplying five percent or more of total principal and the percentage of principal balances from all other PFIs. Similar to Advances, MPP activity is concentrated amongst a few members.

(Dollars in millions)	December 31, 2014					December 31, 2013
	Principal		% of Total			Principal		% of Total
Union Savings Bank	$	1,593	23	%	Union Savings Bank	$	1,433	22	%
PNC Bank, N.A. (1)	1,074		16		PNC Bank, N.A. (1)	1,356		20
Guardian Savings Bank FSB	406		6		All others	3,854		58
All others	3,723		55		Total	$	6,643	100	%
Total	$	6,796	100	%

(1)Former member.

We closely track the refinancing incentives of our mortgage assets (including those in the MPP and mortgage-backed securities) because the option for homeowners to change their principal payments normally represents a large portion of our market risk exposure. MPP principal paydowns in all of 2014 equated to a 12 percent annual constant prepayment rate, down from the 21 percent rate for all of 2013. Refinancing incentives for many mortgage assets declined because although mortgage rates trended lower in 2014, they still remained above the low levels experienced in the first half of 2013.

The MPP's composition of balances by loan type, original final maturity, and weighted-average mortgage note rate did not change materially in 2014. The weighted average mortgage note rate fell from 4.53 percent at the end of 2013 to 4.36 percent at the end of 2014. This decline reflected a continuing trend of prepayments of higher rate mortgages and purchases of lower rate mortgages. MPP yields earned during 2014, relative to funding costs, continued to offer favorable returns relative to their market risk exposure.

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Housing and Community Investment

In 2014, we accrued $28 million of earnings for the Affordable Housing Program, which will be awarded to members in 2015. This amount represents a $2 million (seven percent) decrease from 2013, due to 2014's lower earnings.

Including funds available in 2014 from previous years, we had $28 million available for the competitive Affordable Housing Program in 2014, which we awarded to 78 projects through a single competitive offering. In addition, we awarded $12 million to 173 members on behalf of more than 2,381 homebuyers through the Welcome Home Program, which assists homebuyers with down payments and closing costs. In total, just over one-quarter of members received approval for funding under the total Affordable Housing Program. 

Additionally, in 2014 our Board authorized $1 million to renew the Carol M. Peterson Housing Fund (CMP Fund) and continued its commitment to the $5 million Disaster Reconstruction Program. Both are voluntary programs beyond the 10 percent of earnings that we are required by law to set aside for the Affordable Housing Program.

Our activities to support affordable housing and economic development also include offering Advances through the Affordable Housing Program, Community Investment Program and Economic Development Program with below-market interest rates at or near zero profit for us. At the end of 2014, Advance balances under these programs totaled $460 million. AHP Advance balances have declined in recent years, reflecting our preference to distribute AHP subsidy in the form of grants.

Investments

The table below presents the ending and average balances of the investment portfolio.

(In millions)	2014				2013
	Ending Balance		Average Balance		Ending Balance		Average Balance
Liquidity investments	$	11,319	$	11,856	$	6,303	$	10,389
Mortgage-backed securities	14,688		15,594		16,061		14,320
Other investments (1)	—		98		—		161
Total investments	$	26,007	$	27,548	$	22,364	$	24,870

(1) The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

We continued to maintain a sufficient amount of asset liquidity. Liquidity investment levels can vary significantly based on liquidity needs, the availability of acceptable net spreads, the number of eligible counterparties that meet our unsecured credit risk criteria, and changes in the amount of Mission Assets. It is normal for liquidity investments to vary several billion dollars on a daily basis. Ending balances were noticeably higher at year-end 2014 compared to year-end 2013, which was primarily due to our decision to hold a larger portion of funds in deposits at the Federal Reserve at year-end 2013 resulting from the lack of suitable counterparties at the time.

Our overarching strategy for mortgage-backed securities is to keep holdings as close as possible to the regulatory maximum of three times regulatory capital, subject to the availability of securities that we believe provide acceptable risk/return tradeoffs. The balance of mortgage-backed securities at December 31, 2014 represented a 2.93 multiple of regulatory capital and consisted of $12.6 billion of securities issued by Fannie Mae or Freddie Mac (of which $1.5 billion were floating-rate securities), $1.1 billion of floating-rate securities issued by the NCUA, and $1.0 billion of securities issued by Ginnie Mae. We held no private-label mortgage-backed securities.

Total outstanding mortgage-backed securities balances were modestly lower at year-end 2014 relative to 2013 due to the repurchase of excess stock that occurred in early 2014, which limited our authority to purchase mortgage-backed securities until the regulatory multiple fell below three.

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The table below shows principal purchases and paydowns of our mortgage-backed securities for each of the last two years.

(In millions)	Mortgage-backed Securities Principal
	2014			2013
Balance, beginning of year	$	16,087		$	12,757
Principal purchases	722			6,017
Principal paydowns	(2,094		)	(2,687		)
Balance, end of year	$	14,715		$	16,087

Principal paydowns in 2014 equated to a 13 percent annual constant prepayment rate, down from the 17 percent rate in 2013.

Only two percent of total pass-through mortgage-backed securities had 30-year fixed-rate mortgages as collateral. Because approximately 75 percent of MPP loans have 30-year original terms, purchasing pass-throughs with shorter than 30-year original terms is one way we diversify mortgage assets to help manage market risk exposure.

Consolidated Obligations

The table below presents the ending and average balances of our participations in Consolidated Obligations.

(In millions)	2014						2013
	Ending Balance			Average Balance			Ending Balance			Average Balance
Discount Notes:
Par	$	41,238		$	35,996		$	38,217		$	34,581
Discount	(6		)	(4		)	(7		)	(7		)
Total Discount Notes	41,232			35,992			38,210			34,574
Bonds:
Unswapped fixed-rate	26,124			25,513			24,222			23,037
Unswapped adjustable-rate	27,610			29,355			28,650			24,319
Swapped fixed-rate	5,390			3,697			5,155			4,628
Total par Bonds	59,124			58,565			58,027			51,984
Other items (1)	93			116			136			125
Total Bonds	59,217			58,681			58,163			52,109
Total Consolidated Obligations (2)	$	100,449		$	94,673		$	96,373		$	86,683

(1) Includes unamortized premiums/discounts, fair value option valuation adjustments, hedging and other basis adjustments.

(2) The 12 FHLBanks have joint and several liability for the par amount of all of the Consolidated Obligations issued on their behalves. The par amount of the outstanding Consolidated Obligations of all 12 FHLBanks was (in millions) $847,175 and $766,837 at December 31, 2014 and 2013, respectively.

The composition of Consolidated Obligations remained relatively stable in 2014 compared to 2013, but can vary with balance sheet needs as well as the market and funding environment. The growth in total Consolidated Obligations in 2014 related mostly to the increase in Advance balances.

In 2014, interest costs of Consolidated Obligations relative to market indices (U.S. Treasuries and LIBOR) were comparable to recent years' historical differences.

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The following table shows the allocation on December 31, 2014 of unswapped fixed-rate Bonds according to their final remaining maturity and next call date (for callable Bonds). We believe that the allocations of Bonds among these classifications provide effective mitigation of market risk exposure to both higher and lower interest rates.

(In millions)	Year of Maturity								Year of Next Call
	Callable		Noncallable		Amortizing		Total		Callable
Due in 1 year or less	$	—	$	3,637	$	24	$	3,661	$	6,277
Due after 1 year through 2 years	390		3,093		2		3,485		405
Due after 2 years through 3 years	1,052		3,042		—		4,094		50
Due after 3 years through 4 years	1,485		2,685		—		4,170		—
Due after 4 years through 5 years	535		1,992		—		2,527		—
Thereafter	3,270		4,917		—		8,187		—
Total	$	6,732	$	19,366	$	26	$	26,124	$	6,732

Deposits

Members' deposits with us are normally a relatively minor source of low-cost funding. Total interest bearing deposits at December 31, 2014 were $0.7 billion, a decrease of 19 percent from year-end 2013. The average balance of total interest bearing deposits in 2014 was $0.8 billion, a decrease of 21 percent from the average balance during 2013.

Derivatives Hedging Activity and Liquidity

Our use of and accounting for derivatives is discussed in the "Effect of the Use of Derivatives on Net Interest Income" section in "Results of Operations." Liquidity is discussed in the "Liquidity Risk" section in “Quantitative and Qualitative Disclosures About Risk Management.” We did not change our strategy of using derivatives solely to manage market risk exposure in 2014.

Capital Resources

The GLB Act and Finance Agency regulations specify limits on how much we can leverage capital by requiring that we maintain, at all times, at least a four percent regulatory capital-to-assets ratio. A lower ratio indicates more leverage. If financial leverage increases too much, or becomes too close to the regulatory limit, we have discretionary ability within our Capital Plan to enact changes to ensure capitalization remains strong and in compliance with regulatory limits.

We have always complied with our regulatory capital requirements. The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis.

	Year Ended December 31,
(In millions)	2014				2013
	Period End		Average		Period End		Average
GAAP and Regulatory Capital
GAAP Capital Stock	$	4,267	$	4,298	$	4,698	$	4,534
Mandatorily Redeemable Capital Stock	63		105		116		139
Regulatory Capital Stock	4,330		4,403		4,814		4,673
Retained Earnings	689		666		621		598
Regulatory Capital	$	5,019	$	5,069	$	5,435	$	5,271

	2014				2013
	Period End		Average		Period End		Average
GAAP and Regulatory Capital-to-Assets Ratio
GAAP	4.63	%	4.90	%	5.15	%	5.47	%
Regulatory	4.71		5.01		5.27		5.63

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Both GAAP and regulatory capital-to-assets ratios remained above the regulatory required minimum of four percent. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same way that GAAP capital stock and retained earnings do. The regulatory capital-to-assets ratio of 4.71 percent at the end of 2014 means that, given the amount of regulatory capital, total assets could increase by approximately $19 billion with no new stock purchases before the capital-to-assets ratio would fall to four percent. This amount of growth in assets is unlikely to occur and, if it did, our Capital Plan would require us to obtain additional amounts of capital well before the four percent policy limit on capitalization would be reached.

The following table presents the sources of change in regulatory capital stock balances in 2014 and 2013.

(In millions)	2014			2013
Regulatory stock balance at beginning of year	$	4,814		$	4,221
Stock purchases:
Membership stock	11			16
Activity stock	73			705
Stock repurchases/redemptions:
Redemption of member excess	(1		)	(3		)
Repurchase of member excess	(498		)	—
Withdrawals	(69		)	(125		)
Regulatory stock balance at the end of the year	$	4,330		$	4,814

In 2014, the amount of capital decreased principally due to the redemption and repurchase of excess capital stock in February. The table below shows the amount of excess capital stock.

(In millions)	December 31, 2014		December 31, 2013
Excess capital stock (Capital Plan definition)	$	504	$	1,229
Cooperative utilization of capital stock	$	441	$	404
Mission Asset Activity capitalized with cooperative capital stock	$	11,020	$	10,100

Excess capital stock provides a base of capital to manage financial leverage at prudent levels, augment loss protections for bondholders, and capitalize a portion of growth in Mission Assets. The amount of excess capital stock, as defined by our Capital Plan, was $504 million at December 31, 2014, a decrease of $725 million from year-end 2013, primarily due to the stock repurchase noted above and, secondarily, our growth in Advances.

Membership and Stockholders

In 2014, we added two new member stockholders and lost 24 members, ending the year at 705. The 24 lost members included 21 that merged with other Fifth District members, two that merged out of the District, and one that failed and was taken into Federal Deposit Insurance Corporation receivership. The impact on our earnings and Mission Asset Activity from the members lost was negligible. We will continue to recruit the remaining institutions eligible for membership in order to maintain and expand our customer base.

In 2014, there were no material changes in the allocation of membership by state, charter type, or asset size. At the end of 2014, the composition of membership by state was Ohio with 307, Kentucky with 208, and Tennessee with 190.

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The following table provides the number of member stockholders by charter type.

	December 31,
	2014	2013
Commercial Banks	442	457
Thrifts and Savings Banks	101	109
Credit Unions	120	120
Insurance Companies	38	37
Community Development Financial Institutions	4	4
Total	705	727

The following table provides the ownership of capital stock by charter type.

(In millions)	December 31,
	2014		2013
Commercial Banks	$	3,441	$	3,878
Thrifts and Savings Banks	376		399
Credit Unions	121		120
Insurance Companies	328		301
Community Development Financial Institutions	1		—
Total GAAP Capital Stock	4,267		4,698
Mandatorily Redeemable Capital Stock	63		116
Total Regulatory Capital Stock	$	4,330	$	4,814

Credit union members hold relatively less stock than their membership proportion because they tend to be smaller than the average member and borrow less. Insurance company members hold relatively more stock than their membership proportion because they tend to be larger than the average member and borrow more.

The following table provides a summary of member stockholders by asset size.

	December 31,
Member Asset Size(1)	2014	2013
Up to $100 million	182	196
> $100 up to $500 million	381	394
> $500 million up to $1 billion	76	73
> $1 billion	66	64
Total Member Stockholders	705	727

(1) The December 31 membership composition reflects members' assets as of September 30 (the most-recently available figures for total assets).

Most members are smaller community financial institutions, with 80 percent having assets up to $500 million. As noted elsewhere, having larger members is important to help achieve our mission objectives, including providing valuable products and services to all members.

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RESULTS OF OPERATIONS

Components of Earnings and Return on Equity

The following table is a summary income statement for the last three years. Each ROE percentage is computed by dividing income or expense for the category by the average amount of stockholders' equity for the period. Factors determining the level of, and changes in, net income and ROE are explained in the remainder of this section.

(Dollars in millions)	2014				2013					2012
	Amount		ROE (1)		Amount			ROE (1)		Amount		ROE (1)
Net interest income	$	317	6.40	%	$	328		6.40	%	$	308	8.14	%
(Reversal) provision for credit losses	—		(0.01	)	(7		)	(0.15	)	1		0.04
Net interest income after (reversal) provision for credit losses	317		6.41		335			6.55		307		8.10
Net gains on derivatives and hedging activities	7		0.13		8			0.16		9		0.23
Other non-interest income	16		0.32		12			0.23		4		0.12
Total non-interest income	23		0.45		20			0.39		13		0.35
Total revenue	340		6.86		355			6.94		320		8.45
Total non-interest expense	68		1.38		64			1.26		58		1.53
Assessments	28		0.55		30			0.58		27		0.72
Net income	$	244	4.93	%	$	261		5.10	%	$	235	6.20	%

(1) The ROE amounts have been computed using dollars in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) in this table may produce nominally different results.

Net income declined$17 million (six percent) in 2014 over 2013. ROE declined less (three percent) due to our repurchase of excess stock in February 2014. Profitability remained competitive as ROE continued to significantly exceed our benchmarks relative to short-term interest rates. Details on the individual factors contributing to the decrease in profitability are in the sections below.

Net Interest Income

The largest component of net income is net interest income. Our principal goals in managing net interest income are to balance trade-offs between maintaining a moderate market risk profile, and ensuring profitability remains competitive. Effective risk/return management requires us to focus principally on the relationships among assets and liabilities that affect net interest income, rather than individual balance sheet and income statement accounts in isolation.

Our ROE normally is lower than that of many other financial institutions because of the cooperative wholesale business model that results in narrow spreads to funding costs on our primary assets (Advances), the moderate overall risk profile, and the objective to have positive correlation of dividends to short-term interest rates.

Components of Net Interest Income

We generate net interest income from the following two components:

▪ Net interest rate spread. This component equals the balance of total earning assets multiplied by the difference between the book yield on interest-earning assets and the book cost of interest-bearing liabilities. It is composed of net (amortization)/accretion, prepayment fees on Advances, and all other earnings from interest-earning assets net of funding costs. The latter is the largest component and represents the coupon yields of interest-earning assets net of the coupon costs of Consolidated Obligations and deposits.

▪ Earnings from funding assets with capital (“earnings from capital”). Because of our relatively low net interest rate spread compared to other financial institutions, we have historically derived a substantial proportion of net interest income from deploying interest-free capital in interest-earning assets. We deploy much of the capital in short-term and adjustable-rate assets in order to help ensure that ROE moves in the same direction as short-term interest rates and to help control market risk exposure.

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The following table shows the major components of net interest income. Reasons for the variance in net interest income between the periods are discussed below.

(Dollars in millions)	2014					2013					2012
	Amount			Pct of Earning Assets		Amount			Pct of Earning Assets		Amount			Pct of Earning Assets
Components of net interest rate spread:
Net (amortization)/accretion (1) (2)	$	(11	)	(0.01	)%	$	(1	)	—	%	$	(49	)	(0.07	)%
Prepayment fees on Advances, net (2)	4			—		2			—		20			0.03
Other components of net interest rate spread	291			0.29		290			0.31		293			0.44
Total net interest rate spread	284			0.28		291			0.31		264			0.40
Earnings from funding assets with interest-free capital	33			0.03		37			0.04		44			0.06
Total net interest income/net interest margin (3)	$	317		0.31	%	$	328		0.35	%	$	308		0.46	%

(1) Includes (amortization)/accretion of premiums/discounts on mortgage assets and Consolidated Obligations and deferred transaction costs (concession fees) for Consolidated Obligations.

(2) These components of net interest rate spread have been segregated here to display their relative impact.

(3) Net interest margin is net interest income before (reversal)/provision for credit losses as a percentage of average total interest earning assets.

Net Amortization/Accretion. Net amortization/accretion (generally referred to as "amortization") includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, as well as premiums, discounts and concessions paid on Consolidated Obligations. Periodic amortization adjustments do not necessarily indicate a trend in economic return over the entire life of mortgage assets, although amortization over the entire life is one component of lifetime economic returns.

While net amortization has been large and volatile in several periods over the last five years, it was moderate in 2014 and 2013. Net amortization was higher in 2014 compared to 2013 due primarily to the lower than normal amortization in 2013, which had resulted from a decline in actual and projected prepayment speeds in response to higher mortgage rates. Net amortization in 2014 was at a relatively normal level reflecting less fluctuation in mortgage rates.

Prepayment Fees on Advances. Fees for members' early repayment of certain Advances are designed to make us economically indifferent to whether members hold Advances to maturity or repay them before maturity. Although Advance prepayment fees can be and have been significant in the past, they were small in 2014 and 2013, reflecting a low amount of member prepayments of Advances.

Other Components of Net Interest Rate Spread. Excluding net amortization and prepayment fees, the total other components of net interest rate spread increased only $1 million in 2014 compared to 2013. However, there were several factors that on a net basis offset one another. The following factors are presented in estimated approximate order of impact from largest to smallest.

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2014 Versus 2013

▪ Asset-liability management-Unfavorable: Management strategies and actions related to reducing our market risk exposure, along with changes in the market rate environment, lowered earnings on a net basis of $29 million for the following reasons:

1) Net interest income decreased $18 million due to a decline in mortgage asset spreads resulting from management actions to reduce market risk exposure by extending debt maturities and from continued run-off of higher yielding mortgages.

2) Net interest income declined $11 million primarily because of changes in market spreads on Discount Notes funding LIBOR Advances. Secondarily, we extended maturities of Discount Notes in order to reduce the burden of replacing Discount Notes as frequently.

▪ Advance growth-Favorable: The $5.1 billion growth in average Advance balances at higher spreads improved net interest income by an estimated $26 million.

▪ Higher balances on mortgage-backed securities-Favorable: The average balance of the mortgage-backed security portfolio increased $1.3 billion compared to 2013's average, which increased net interest income by an estimated $5 million.

2013 Versus 2012

▪ Advance growth-Favorable: The $28.8 billion growth in average Advance balances and new capital stock purchased to support the growth improved net interest income by an estimated $77 million. Leveraging the additional capital with mortgage-backed securities contributed to the increase in net interest income.

▪ Asset-liability management-Unfavorable: Management strategies and actions, along with changes in the market rate environment, related to reducing our market risk exposure lowered earnings on a net basis, for the following reasons:

1) We carried a lower amount of short-term debt funding fixed-rate mortgages in 2013, which resulted in a year-over-year $19 million decrease in net interest income.

2) We use short-term Discount Notes to fund a substantial amount of LIBOR-indexed assets. The average market spread between LIBOR and Discount Notes narrowed in 2013, lowering net interest income by an estimated $15 million.

The overall impact of these items decreased interest income an estimated $34 million.

▪ Trading securities-Unfavorable: In 2012, we held a large amount of investments in short-term trading securities (including instruments of the U.S. Treasury and GSEs) in order to enhance asset liquidity and manage counterparty credit risk. No such securities were held in 2013. Many of the trading securities had been purchased with above-market coupon rates, which resulted in a $32 million increase in net interest income in 2012 compared to 2013. However, this was offset by earnings reductions in other non-interest income (specifically, net unrealized market value losses on trading securities), with the resulting combined earnings from the trading securities reflecting at-market rates.

▪ Lower balances on MPP loans-Unfavorable: The average balance of MPP loans declined $0.9 billion, which reduced net interest income by an estimated $13 million.

▪ Lower balances and narrower spreads on the short-term investment portfolio-Unfavorable: Average balances for short-term investments decreased $3.5 billion, while asset spreads tightened due to management actions to enhance liquidity. We estimate the earnings reduction from these changes in the short-term investment portfolio was approximately $8 million.

▪ Lower interest expense on Mandatorily Redeemable Stock-Favorable: Interest expense on this liability fell $7 million due primarily to a lower average balance.

▪ Additional factors-Favorable: Other factors included changes in Advance spreads and mortgage-backed security balances that were not caused by Advance growth.

Earnings From Capital. The earnings from funding assets with interest-free capital declined in 2014, as in the prior several years, due to the continued low interest rate environment.

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Average Balance Sheet and Rates

The following table provides average rates and average balances for major balance sheet accounts, which determine the changes in the net interest rate spread. All data include the impact of interest rate swaps, which we allocate to each asset and liability category according to their designated hedging relationship. The changes in the net interest rate spread and net interest margin in 2014 versus 2013 and in 2013 versus 2012 occurred mostly from the net impact of the factors discussed above in “Components of Net Interest Income.”

(Dollars in millions)	2014						2013						2012
	Average Balance		Interest		Average Rate (1)		Average Balance		Interest		Average Rate (1)		Average Balance		Interest		Average Rate (1)
Assets
Advances	$	66,642	$	318	0.48	%	$	61,574	$	308	0.50	%	$	32,781	$	261	0.80	%
Mortgage loans held for portfolio (2)	6,804		237		3.48		7,065		269		3.80		7,981		313		3.92
Federal funds sold and securities    purchased under resale agreements	9,673		7		0.07		9,110		8		0.09		8,004		11		0.14
Interest-bearing deposits in banks (3) (4) (5)	2,244		3		0.15		1,414		2		0.14		1,955		3		0.17
Mortgage-backed securities	15,594		343		2.20		14,320		313		2.19		11,375		293		2.58
Other investments (4)	37		—		0.08		26		—		0.12		4,392		40		0.90
Loans to other FHLBanks	—		—		—		4		—		0.13		3		—		0.12
Total earning assets	100,994		908		0.90		93,513		900		0.96		66,491		921		1.39
Less: allowance for credit losses    on mortgage loans	6						12						20
Other assets	169						190						231
Total assets	$	101,157					$	93,691					$	66,702
Liabilities and Capital
Term deposits	$	93	—		0.19		$	120	—		0.17		$	114	—		0.22
Other interest bearing deposits (5)	753		—		0.01		955		—		0.01		1,050		—		0.01
Short-term borrowings	35,992		28		0.08		34,574		37		0.11		29,499		31		0.10
Unswapped fixed-rate Bonds	25,605		519		2.03		23,117		488		2.11		18,738		544		2.90
Unswapped adjustable-rate Bonds	29,355		33		0.11		24,319		35		0.14		3,086		7		0.23
Swapped Bonds	3,721		7		0.20		4,673		7		0.15		9,267		19		0.21
Mandatorily redeemable capital stock	105		4		4.01		139		5		3.95		252		12		4.64
Other borrowings	—		—		—		4		—		0.12		1		—		0.29
Total interest-bearing liabilities	95,624		591		0.62		87,901		572		0.65		62,007		613		0.99
Non-interest bearing deposits	4						18						18
Other liabilities	573						651						888
Total capital	4,956						5,121						3,789
Total liabilities and capital	$	101,157					$	93,691					$	66,702
Net interest rate spread					0.28	%					0.31	%					0.40	%
Net interest income and    net interest margin (6)			$	317	0.31	%			$	328	0.35	%			$	308	0.46	%
Average interest-earning assets to    interest-bearing liabilities					105.62	%					106.38	%					107.23	%

(1) Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.

(2) Non-accrual loans are included in average balances used to determine average rate.

(3) Includes certificates of deposit and bank notes that are classified as available-for-sale securities.

(4) Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.

(5) The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.

(6) Net interest margin is net interest income before (reversal)/provision for credit losses as a percentage of average total interest earning assets.

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2014 Versus 2013.The net interest spread and net interest margin decreased due to an increase in Advances balances and, secondarily, to the net effect of the other earnings factors discussed in the previous section. Although theAdvance growth increased net interest income because of a larger asset base, the growth lowered the spread and margin because Advances tend to have narrower spreads to funding costs compared to mortgage assets.

The decline in the average rate on total earning assets and total interest-bearing liabilities resulted from the continued low rate environment and an increase in the balance sheet composition of instruments (due to the Advance growth) that tend to carry lower interest rates. The low rate environment particularly resulted in a decline in the average rate of long-term assets (such as certain Advances and mortgage loans held for portfolio) and long-term liabilities (unswapped fixed-rate Bonds). This is because a substantial portion of the principal paid down on these assets and liabilities, which had higher rates, was replaced with new assets and liabilities at lower rates.

Rates on short-term assets (Federal funds sold and securities sold under resale agreements) and liabilities (short-term borrowings and unswapped adjustable-rate Bonds) decreased slightly in 2014 as the low-rate rate environment continued.

2013 Versus 2012.The decline in net interest spread and net interest margin and in the average rate on total earning assets and total interest-bearing liabilities resulted from the same factors listed above in the 2014 versus 2013 comparison. The average rate on other investments decreased in 2013 since most of the instruments in this portfolio in 2012 were trading securities with above-market coupons purchased at premiums, with corresponding market value adjustments reflected in non-interest income as losses to the securities' fair values. All of these investments matured in late 2012.

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Volume/Rate Analysis

Changes in both average balances (volume) and interest rates influence changes in net interest income. The following table summarizes these changes and trends in interest income and interest expense.

(In millions)	2014 over 2013									2013 over 2012
	Volume (1)(3)			Rate (2)(3)			Total			Volume (1)(3)			Rate (2)(3)			Total
Increase (decrease) in interest income
Advances	$	25		$	(15	)	$	10		$	169		$	(122	)	$	47
Mortgage loans held for portfolio	(10		)	(22		)	(32		)	(35		)	(9		)	(44		)
Federal funds sold and securities purchased under resale agreements	1			(2		)	(1		)	1			(4		)	(3		)
Interest-bearing deposits in banks	1			—			1			(1		)	—			(1		)
Mortgage-backed securities	28			2			30			69			(49		)	20
Other investments	—			—			—			(21		)	(19		)	(40		)
Loans to other FHLBanks	—			—			—			—			—			—
Total	45			(37		)	8			182			(203		)	(21		)
Increase (decrease) in interest expense
Term deposits	—			—			—			—			—			—
Other interest-bearing deposits	—			—			—			—			—			—
Short-term borrowings	1			(10		)	(9		)	5			1			6
Unswapped fixed-rate Bonds	51			(20		)	31			111			(167		)	(56		)
Unswapped adjustable-rate Bonds	7			(9		)	(2		)	32			(4		)	28
Swapped Bonds	(2		)	2			—			(8		)	(4		)	(12		)
Mandatorily redeemable capital stock	(1		)	—			(1		)	(5		)	(2		)	(7		)
Other borrowings	—			—			—			—			—			—
Total	56			(37		)	19			135			(176		)	(41		)
Increase (decrease) in net interest income	$	(11	)	$	—		$	(11	)	$	47		$	(27	)	$	20

(1) Volume changes are calculated as the change in volume multiplied by the prior year rate.

(2) Rate changes are calculated as the change in rate multiplied by the prior year average balance.

(3) Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.

Effect of the Use of Derivatives on Net Interest Income

The following table shows the effect of using derivatives on net interest income. The effect on earnings from the non-interest components of derivatives related to market value adjustments is provided in the next section “Non-Interest Income and Non-Interest Expense.”

(In millions)	2014			2013			2012
Advances:
Amortization/accretion of hedging activities in net interest income	$	(3	)	$	(3	)	$	(4	)
Net interest settlements included in net interest income	(91		)	(107		)	(245		)
Mortgage loans:
Amortization of derivative fair value adjustments in net interest income	(4		)	(2		)	(3		)
Consolidated Obligation Bonds:
Net interest settlements included in net interest income	18			27			37
Decrease to net interest income	$	(80	)	$	(85	)	$	(215	)

Most of our derivatives synthetically convert the intermediate- and long-term fixed interest rates on certain Advances and Bonds to adjustable-coupon rates tied to short-term LIBOR (mostly one- and three-month repricing resets). These adjustable-rate coupons normally carry lower interest rates than the fixed rates. The use of derivatives lowered net interest income in each

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period primarily because the Advances that were swapped to short-term LIBOR had higher fixed interest rates than the Bonds that were swapped to short-term LIBOR. This reduction in earnings was acceptable because it enabled us, as we designed, to significantly lower market risk exposure by creating a much closer match of actual cash flows between assets and liabilities than would occur otherwise. The reduction in earnings was significantly smaller in 2014 and 2013 compared to 2012 primarily due to a decrease in the notional amount of swaps outstanding.

Provision for Credit Losses

In 2014, delinquency trends in the MPP continued to decrease while home prices were relatively steady, resulting in a $0.5 million reversal for estimated incurred credit losses. In 2013, we recorded a $7.5 million reversal for estimated incurred credit losses in the MPP driven by higher home prices combined with improved delinquency trends in that year. Further information is in the "Credit Risk - MPP" section in "Quantitative and Qualitative Disclosures About Risk Management" and Note 10 of the Notes to Financial Statements.

Non-Interest Income and Non-Interest Expense

The following table presents non-interest income and non-interest expense for each of the last three years.

(Dollars in millions)	2014			2013			2012
Non-interest income
Net gains on held-to-maturity securities	$	—		$	—		$	29
Net gains on derivatives and hedging activities	7			8			9
Other non-interest income (loss), net	16			12			(25		)
Total non-interest income	$	23		$	20		$	13
Non-interest expense
Compensation and benefits	$	37		$	34		$	31
Other operating expense	17			17			14
Finance Agency	7			5			6
Office of Finance	4			5			3
Other	3			3			4
Total non-interest expense	$	68		$	64		$	58
Average total assets	$	101,157		$	93,691		$	66,702
Average regulatory capital	5,069			5,271			4,050
Total other expense to average total assets (1)	0.07		%	0.07		%	0.09		%
Total other expense to average regulatory capital (1)	1.35			1.22			1.43

(1) Amounts used to calculate percentages are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.

Non-interest income increased in 2014 compared to 2013 primarily from higher fees received on Letters of Credit because notional balances of Letters increased.

The net gains on held-to-maturity securities in 2012 occurred from the sales of mortgage-backed securities. Each of the securities sold had less than 15 percent of the original acquired principal remaining and were sold under our periodic clean-up process.

The other non-interest loss in 2012 was due primarily to losses recorded on trading securities that were no longer held in 2013 or 2014. The losses on the trading securities occurred because these securities had above-market coupon rates and, therefore, were purchased at prices above par. The related premiums paid are recognized as mark-to-market losses as their fair values approach par at maturity.

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Effect of Derivatives and Hedging Activities

(In millions)	2014		2013			2012
Net gains on derivatives and hedging activities
Advances:
Gains on fair value hedges	$	5	$	10		$	7
Gains (losses) on derivatives not receiving hedge accounting	—		5			(5		)
Mortgage loans:
(Losses) gains on derivatives not receiving hedge accounting	—		(11		)	1
Consolidated Obligation Bonds:
Gains on fair value hedges	—		1			—
Gains on derivatives not receiving hedge accounting	2		3			6
Total net gains on derivatives and hedging activities	7		8			9
Net gains on financial instruments held at fair value (1)	2		—			2
Total net effect of derivatives and hedging activities	$	9	$	8		$	11

(1) Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."

The amounts of income volatility in overall derivatives and hedging activities were modest compared to the notional principal amounts, well within the range of normal historical fluctuation, and consistent with the close hedging relationships of our derivative transactions.

Analysis of Quarterly ROE

The following table summarizes the components of 2014's quarterly ROE and provides quarterly ROE for 2013 and 2012.

	1st  Quarter		2nd  Quarter		3rd  Quarter		4th  Quarter		Total
Components of 2014 ROE:
Net interest income:
Other net interest income	6.13	%	6.54	%	6.65	%	6.84	%	6.54	%
Net (amortization)/accretion	(0.13	)	(0.28	)	0.07		(0.52	)	(0.21	)
Prepayment fees	0.08		0.09		0.03		0.09		0.07
Total net interest income	6.08		6.35		6.75		6.41		6.40
(Reversal) Provision for credit losses	—		(0.07	)	—		0.03		(0.01	)
Net interest income after (reversal) provision for credit losses	6.08		6.42		6.75		6.38		6.41
Net (losses) gains on derivatives and    hedging activities	(0.09	)	0.28		0.01		0.35		0.13
Other non-interest income	0.38		0.25		0.30		0.36		0.32
Total non-interest income	0.29		0.53		0.31		0.71		0.45
Total revenue	6.37		6.95		7.06		7.09		6.86
Total non-interest expense	1.35		1.38		1.42		1.37		1.38
Assessments	0.51		0.57		0.57		0.58		0.55
2014 ROE	4.51	%	5.00	%	5.07	%	5.14	%	4.93	%
2013 ROE	5.49	%	4.80	%	5.37	%	4.78	%	5.10	%
2012 ROE	6.50	%	6.03	%	6.05	%	6.22	%	6.20	%

ROE in the first quarter of 2014 was lower than the last three quarters because the second quarter and beyond reflect the full impact of the repurchase of excess stock in February. The upward trend in other net interest income throughout 2014 is attributable to a moderately increasing amount of short-funding.

The moderate volatility in quarterly ROEs in 2013 was due primarily to changes in asset-liability management strategies, the timing of Advance growth, reversal of credit losses, and net gains on derivatives and hedging activities.

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Quarterly ROEs in 2012 were at levels above six percent primarily due to management's asset-liability and market risk strategies (which includes calling and replacing bonds at substantially lower rates in excess of high-yielding mortgage paydowns and maintaining a higher amount of short-funding), higher Advance prepayment fees, lower net amortization, and the reduction in provision for credit losses.

Segment Information

Note 18 of the Notes to Financial Statements presents information on our two operating business segments. We manage financial operations and market risk exposure primarily at the macro level, and within the context of the entire balance sheet, rather than exclusively at the level of individual segments. Under this approach, the market risk/return profile of each segment may not match, or possibly even have the same trends as, what would occur if we managed each segment on a stand-alone basis. The tables below summarize each segment's operating results for the periods shown.

(Dollars in millions)	Traditional Member Finance			MPP			Total
2014
Net interest income after reversal for credit losses	$	238		$	79		$	317
Net income	$	181		$	63		$	244
Average assets	$	94,333		$	6,824		$	101,157
Assumed average capital allocation	$	4,622		$	334		$	4,956
Return on average assets (1)	0.19		%	0.93		%	0.24		%
Return on average equity (1)	3.91		%	18.96		%	4.93		%
2013
Net interest income after reversal for credit losses	$	229		$	106		$	335
Net income	$	184		$	77		$	261
Average assets	$	86,609		$	7,082		$	93,691
Assumed average capital allocation	$	4,733		$	388		$	5,121
Return on average assets (1)	0.21		%	1.09		%	0.28		%
Return on average equity (1)	3.88		%	20.00		%	5.10		%
2012
Net interest income after provision for credit losses	$	210		$	97		$	307
Net income	$	154		$	81		$	235
Average assets	$	58,708		$	7,994		$	66,702
Assumed average capital allocation	$	3,335		$	454		$	3,789
Return on average assets (1)	0.26		%	1.01		%	0.35		%
Return on average equity (1)	4.62		%	17.76		%	6.20		%

(1) Amounts used to calculate returns are based on numbers in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.

Traditional Member Finance Segment

The increase in net interest income in 2014 compared to 2013 was due primarily to Advance growth, an increase in mortgage-backed securities leverage, and a decrease in net amortization expense of mortgage-backed securities. However, net income decreased as these factors were more than offset by a decrease in unrealized net gains on derivatives and hedging activities. Despite the decrease in net income, ROE increased slightly in 2014 primarily due to a lower amount of capital.

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The increase in net income from 2012 to 2013 was due primarily to Advance growth and lower net amortization for mortgage-backed securities. These favorable factors were partially offset by net gains on securities sales recognized in 2012 that did not reoccur in 2013, decreased short-funding, and narrower spreads between LIBOR and Discount Notes.

ROE decreased in 2013 compared to 2012 even though net income increased because the total increase in net income was insufficient to offset the increase in average total capital to support Advance growth. The growth in capital diluted ROE because earnings were spread over a larger capital base.

MPP Segment

Compared to the Traditional Member Finance segment, the MPP segment can exhibit more earnings volatility relative to short-term interest rates and more credit risk exposure. However, the MPP segment also provides the opportunity for enhancing risk-adjusted returns, which normally augments earnings. Although mortgage assets are the largest source of our market risk, we believe that we have historically managed this risk prudently and consistently with our risk appetite and corporate objectives. We also believe that these assets do not excessively elevate the balance sheet's overall market risk exposure.

The MPP continued to earn a substantial level of profitability compared to market interest rates, with a moderate amount of market risk and credit risk. In 2014, the MPP averaged seven percent of total average assets while accounting for 26 percent of earnings.

Net interest income decreased 25 percent in 2014 compared to 2013 as a result of higher net amortization expense, smaller reversals of MPP credit losses, management actions to extend debt maturities, run-off of higher yielding MPP loans, and lower average MPP balances. Net income decreased by a smaller amount (18 percent) because the factors above were partially offset by a small gain in 2014 compared to losses in 2013 on derivatives and hedging activities.

Net amortization of MPP assets was $13 million higher in 2014 due to a lower than normal amount of amortization in 2013 as a result of increases in mortgage rates.

ROE decreased only modestly in 2014 compared to 2013 because the net income decrease was partially offset by a lower amount of capital allocated reflecting the repurchase of excess stock.

Net income for 2013 decreased $4 million compared to 2012 as a result of lower MPP balances and a decrease in the amount of short-funding. These factors were mostly offset by lower net amortization as well as reversals for credit losses.

Despite the reduction in net income, ROE increased in 2013 as a result of a lower amount of capital allocated due to lower MPP balances and Advance growth, which resulted in more capital being allocated to the Traditional Member Finance segment.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT

Overview

We face various risks that could affect the ability to achieve our mission and corporate objectives. We generally categorize risks into: 1) business/strategic risk, 2) regulatory/legislative risk, 3) market risk (also referred to as interest rate or prepayment risk), 4) credit risk, 5) capital adequacy (capital risk), 6) funding/liquidity risk, 7) accounting risk, and 8) operational risk. Our Board of Directors establishes objectives regarding risk philosophy, risk appetite, risk tolerances, and financial performance expectations. Market, credit, capital, liquidity, and operational risks are discussed below. Other risks are discussed throughout this filing.

We strive to maintain a risk profile that ensures we operate safely and soundly, to promote prudent growth in Mission Asset Activity, to consistently generate competitive earnings, and to protect the par value of members' capital stock investment. We believe our business is financially sound and adequately capitalized on a risk-adjusted basis.

We practice this conservative risk philosophy in many ways:

▪ We operate with moderate market risk and limited residual credit risk, liquidity risk, operational risk, and capital impairment risk.

▪ We have a priority to ensure competitive and relatively stable profitability.

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▪ We make conservative investment choices in terms of the types of investments we purchase and counterparties with which we engage.

▪ We use derivatives primarily to hedge individual assets and liabilities.

▪ We normally operate with less financial leverage than Finance Agency regulations permit.

▪ We are judicious in instituting regular, large-scale, district-wide repurchases of excess stock.

▪ We have significantly increased retained earnings in recent years and hold an amount that we assess is consistent with achieving the first corporate objective listed above.

▪ We create a working and operating environment that emphasizes a stable employee base.

We have numerous Board-adopted policies and processes that address risk management including tolerances, limits, guidelines, and regulatory compliance. Our cooperative business model, corporate objectives, capital structure, and regulatory oversight provide us clear incentives to minimize risk exposures to the extent possible. Our policies and operating practices are designed to limit risk exposures from ongoing operations in the following broad ways:

▪ by anticipating potential business risks and developing appropriate responses;

▪ by defining permissible lines of business;

▪ by limiting the kinds of assets we are permitted to hold in terms of their credit risk exposure and the kinds of hedging and financing arrangements we are permitted to use;

▪ by limiting the amount of market risk and capital risk to which we are permitted to be exposed;

▪ by specifying very conservative tolerances for credit risk posed by Advances;

▪ by specifying capital adequacy minimums; and

▪ by requiring strict adherence to internal controls and operating procedures, adequate insurance coverage, and comprehensive Human Resources policies, procedures, and strategies.

Market Risk

Overview

Market risk exposure is the risk that profitability and the value of stockholders' capital investment may decrease and that profitability may be uncompetitive as a result of changes and volatility in the market environment and economy. Along with business/strategic risk, market risk is normally one of our largest residual risks.

Our risk appetite is to maintain market risk exposure within a prudent moderate range while earning a competitive return on members' capital stock investment. There is normally a tradeoff between long-term market risk exposure and shorter-term exposure. Effective management of both components is important in order to attract and retain members and capital and to support Mission Asset Activity.

The primary challenges in managing market risk exposure arise from 1) the tradeoff between earning a competitive return and correlating profitability with short-term interest rates and 2) the market risk exposure of owning mortgage assets. Mortgage assets grant homeowners prepayment options that tend to adversely affect us when interest rates increase or decrease. We mitigate the market risk of mortgage assets primarily by funding them with a portfolio of long-term fixed-rate callable and noncallable Bonds that have expected cash flows similar to the aggregate cash flows expected from mortgage assets under a wide range of interest rate and prepayment environments. Because it is normally cost-prohibitive to completely mitigate mortgage prepayment risk, a residual amount of market risk normally remains after funding and hedging activities.

We analyze market risk using numerous analytical measures under a variety of interest rate and business scenarios, including stressed scenarios, and perform sensitivity analyses on the many variables that can affect market risk, using several market risk

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models from third-party software companies. These models employ rigorous valuation techniques for the optionality that exists in mortgage prepayments, call and put options, and caps/floors. We regularly assess the effects of different assumptions, techniques and methodologies on the measurements of market risk exposure, including comparisons to alternative models and information from brokers/dealers.

We have historically emphasized strategies aimed at ensuring a moderate level of market risk, with the goal of generating competitive profitability over a wide variety of market and business environments and having a moderate amount of earnings volatility. These strategies include, among others: 1) conservative management of market risk exposure, 2) controlled growth in mortgage assets and 3) hedging practices that attempt to optimize earnings volatility from the use of derivatives.

Policy Limits on Market Risk Exposure

We have five sets of policy limits regarding market risk exposure, which primarily address long-term market risk exposure. We determine compliance with our policy limits at every month end or more frequently if market or business conditions change significantly or are volatile.

▪ Market Value of Equity Sensitivity. The market value of equity for the entire balance sheet in two hypothetical interest rate scenarios (up 200 basis points and down 200 basis points from the current interest rate environment) must be between positive and negative 10 percent of the current balance sheet's market value of equity. The interest rate movements are “shocks,” defined as instantaneous, permanent, and parallel changes in interest rates in which every point on the yield curve is changed by the same amount. We reduced this limit from 12 percent to 10 percent in early 2015 to better align our market risk policy with our risk appetite.

▪ Duration of Equity. The duration of equity for the entire balance sheet in the current (“flat rate” or “base case”) interest rate environment and in the two interest rate shock scenarios must be between positive and negative six years.

▪ Mortgage Assets Portfolio.The net market value of the mortgage assets portfolio as a percentage of the book value of portfolio assets must be between positive and negative three percent in each of the two interest rate shock scenarios. Net market value is defined as the market value of assets minus the market value of liabilities, with no assumed capital allocation.

▪ Market Capitalization. The market capitalization ratio (defined as the ratio of the market value of equity to the par value of regulatory stock) must be above 95 percent in the current rate environment and must be above 85 percent in each of the two interest rate shock scenarios.

▪ Mortgage Assets as a Multiple of Regulatory Capital. The amount of mortgage assets must be less than six times the amount of regulatory capital.

In addition, Finance Agency regulations and an internal policy provide controls on market risk exposure by restricting the types of mortgage loans, mortgage-backed securities and other investments we can hold. We also manage market risk exposure by charging members prepayment fees on many Advance programs where an early termination of an Advance would result in an economic loss to us.

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Market Value of Equity and Duration of Equity - Entire Balance Sheet

Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables, as presented in the following tables for various instantaneous and permanent interest rate shocks. Average results are compiled using data for each month end. Given the current very low level of rates, the down rate shocks are nonparallel scenarios, with short-term rates decreasing less than long-term rates so that no rate falls below zero.

Market Value of Equity

(Dollars in millions)	Down 300			Down 200			Down 100			Flat Rates		Up 100			Up 200			Up 300
Average Results
2014 Full Year
Market Value of Equity	$	4,763		$	4,908		$	4,961		$	4,889	$	4,771		$	4,626		$	4,479
% Change from Flat Case	(2.6		)%	0.4		%	1.5		%	—		(2.4		)%	(5.4		)%	(8.4		)%
2013 Full Year
Market Value of Equity	$	5,288		$	5,319		$	5,268		$	5,127	$	4,962		$	4,788		$	4,620
% Change from Flat Case	3.1		%	3.7		%	2.8		%	—		(3.2		)%	(6.6		)%	(9.9		)%
Month-End Results
December 31, 2014
Market Value of Equity	$	4,714		$	4,824		$	4,938		$	4,920	$	4,835		$	4,688		$	4,524
% Change from Flat Case	(4.2		)%	(2.0		)%	0.4		%	—		(1.7		)%	(4.7		)%	(8.1		)%
December 31, 2013
Market Value of Equity	$	5,205		$	5,271		$	5,187		$	5,044	$	4,925		$	4,814		$	4,711
% Change from Flat Case	3.2		%	4.5		%	2.8		%	—		(2.4		)%	(4.6		)%	(6.6		)%

Duration of Equity

(In years)	Down 300		Down 200		Down 100		Flat Rates	Up 100	Up 200	Up 300
Average Results
2014 Full Year	(3.7	)	(2.1	)	1.0		2.0	3.0	3.3	3.3
2013 Full Year	0.1		1.2		2.9		3.4	3.5	3.7	3.6
Month-End Results
December 31, 2014	(3.8	)	(3.4	)	(0.2	)	1.0	2.6	3.5	3.7
December 31, 2013	(2.3	)	1.0		2.9		2.5	2.4	2.3	2.1

During 2014, as in 2013, consistent with our historical practice and risk appetite, we positioned market risk exposure to higher interest rates at a moderate level. In late 2013, we adopted a strategy to lower risk exposure to higher rates and to reduce the variability of risk positioning. We maintained the strategy throughout 2014. Market risk exposure continued to benefit from exposure to lower rates by way of relatively subdued mortgage prepayment speeds (given the level of rates and composition of mortgage assets) over the last several years.

Based on the totality of our risk analysis, we expect that profitability, defined as the level of ROE compared with short-term market rates, will remain competitive unless interest rates change by extremely large amounts in a short period of time. Decreases in long-term interest rates even up to two percentage points (which would put fixed-rate mortgages below two percent) would still result in profitability being well above market interest rates. Similarly, we believe that profitability would not become uncompetitive in a rising rate environment unless long-term rates were to permanently increase in a short period of time by more than five percentage points or more combined with short-term rates increasing to at least eight percent.

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Market Risk Exposure of the Mortgage Assets Portfolio

The mortgage assets portfolio normally accounts for almost all market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining positive net spreads. Sensitivities of the market value of equity allocated to the mortgage assets portfolio under interest rate shocks (in basis points) are shown below. At December 31, 2014, the mortgage assets portfolio had an assumed capital allocation of $1.1 billion based on the entire balance sheet's regulatory capital-to-assets ratio. Average results are compiled using data for each month-end. The market value sensitivities are one measure we use to analyze the portfolio's estimated market risk exposure.

% Change in Market Value of Equity-Mortgage Assets Portfolio

	Down 300		Down 200		Down 100		Flat Rates	Up 100		Up 200		Up 300
Average Results
2014 Full Year	(19.1	)%	(3.9	)%	3.6	%	—	(9.7	)%	(22.1	)%	(35.0	)%
2013 Full Year	6.3	%	10.6	%	8.9	%	—	(14.0	)%	(29.0	)%	(43.7	)%
Month-End Results
December 31, 2014	(25.0	)%	(13.7	)%	(1.0	)%	—	(7.9	)%	(21.4	)%	(36.6	)%
December 31, 2013	7.7	%	16.3	%	11.3	%	—	(12.6	)%	(24.6	)%	(36.1	)%

The risk exposure of the mortgage assets portfolio to higher interest rates was slightly lower in 2014 compared to 2013. The dollar amount of exposure for any individual rate shock can be obtained by multiplying the percentage change by the assumed equity allocation. We believe the mortgage assets portfolio continues to have an acceptable amount of market risk exposure relative to the inherent market risks of owning mortgages and relative to their actual and expected profitability. We believe this exposure is consistent with our risk appetite philosophy and cooperative business model.

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Use of Derivatives in Market Risk Management

The following table presents the notional principal amounts of the derivatives used to hedge other financial instruments classified by how we designate the hedging relationship.

(In millions)		December 31, 2014				December 31, 2013
Hedged Item/Hedging Instrument	Hedging Objective	Fair Value Hedge		Economic Hedge		Fair Value Hedge		Economic Hedge
Advances:
Pay-fixed, receive floating interest rate swap (without options)	Converts the Advance's fixed rate to a variable rate index.	$	1,734	$	15	$	1,284	$	—
Pay-fixed, receive floating interest rate swap (with options)	Converts the Advance's fixed rate to a variable rate index and offsets option risk in the Advance.	1,653		128		2,093		128
Total Advances		3,387		143		3,377		128
Mortgage Loans:
Forward settlement agreement	Protects against changes in market value of fixed rate Mandatory Delivery Contracts resulting from changes in interest rates.	—		439		—		31
Consolidated Obligations Bonds:
Receive-fixed, pay floating interest rate swap (without options)	Converts the Bond's fixed rate to a variable rate index.	760		2,215		855		—
Receive-fixed, pay floating interest rate swap (with options)	Converts the Bond's fixed rate to a variable rate index and offsets option risk in the Bond.	155		2,277		285		4,015
Total Consolidated Obligations    Bonds		915		4,492		1,140		4,015
Stand-Alone Derivatives:
Mandatory Delivery Contracts	Protects against fair value risk associated with fixed rate mortgage purchase commitments.	—		451		—		37
Total		$	4,302	$	5,525	$	4,517	$	4,211

In addition to issuing long-term Bonds, we may engage in derivative transactions, primarily interest rate swaps and forward settlement agreements of mortgage-backed securities, to manage the market risk exposure associated with our MPP delivery commitments and LIBOR-indexed assets. The notional amount of derivatives at December 31, 2014 increased by $1.1 billion (13 percent) from the end of 2013.

The increase in the notional amount of interest rate swaps was due primarily to our decision to enter into new transactions with the derivatives clearing house following the resolution of prior uncertainties that had existed in 2013 surrounding costs, operating and regulatory processes, and the credit and legal risks associated with clearing requirements under the Dodd-Frank Act.

Credit Risk

Overview

Our business entails a significant amount of inherent credit risk exposure. We believe our risk management practices discussed below bring the amount of residual credit risk to a minimal level. We have no loan loss reserves or impairment recorded for Credit Services, investments, and derivatives and a modest amount of legacy credit risk exposure to the MPP.

Credit Services

Overview. Our goal is to manage credit risk exposure to Advances and Letters of Credit to a zero level of expected losses. We continued to achieve this objective in 2014 by employing the following practices:

▪ significant over-collateralization;

▪ significant further discounts applied to subprime and nontraditional loan collateral;

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▪ close monitoring of financial condition, performance, and repayment capacities of members; and

▪ review and verification of the quality, documentation, and administration of collateral.

Because of these factors, we have never experienced a credit loss nor established a loan loss reserve for Advances. Prospectively, we expect to collect all amounts due in accordance with their contractual terms.

Collateral. We require each member to provide us a security interest in eligible collateral before it can undertake any secured borrowing. At December 31, 2014, our policy of over-collateralization resulted in total collateral pledged of $253.0 billion to serve members' total borrowing capacity of $210.1 billion. The estimated value of pledged collateral is discounted in order to offset market, credit, and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. Over-collateralization by one member is not applied to another member.

The table below shows the total pledged collateral (unadjusted for Collateralized Maintenance Requirements). The collateral composition in 2014 was consistent with that in 2013.

	December 31, 2014				December 31, 2013
(Dollars in billions)			Percent of Total				Percent of Total
	Collateral Amount		Pledged Collateral		Collateral Amount		Pledged Collateral
Single-family loans	$	140.4	55	%	$	125.0	56	%
Multi-family loans	38.2		15		33.2		15
Commercial real estate	29.5		12		26.5		12
Home equity loans/lines of credit	22.0		9		20.4		9
Bond securities	22.3		9		17.0		8
Farm real estate	0.6		—		0.6		—
Total	$	253.0	100	%	$	222.7	100	%

We assign each member one of four levels of collateral status: Blanket, Securities, Listing, and Physical Delivery. Assignment is based in part on an internal credit rating model that reflects our view of the member's current financial condition and performance. Blanket collateral status, which we assign to approximately 85 percent of borrowers, is the least restrictive status and is available to lower-risk bank and credit union members. Approximately 66 percent of pledged collateral is under Blanket status. We monitor the level of eligible collateral pledged under Blanket status using quarterly regulatory financial reports or periodic collateral “Certification” documents submitted by all significant borrowers.

Under Listing collateral status, a member provides us detailed information on specifically identified individual loans that meet certain minimum qualifications. Physical Delivery is the most restrictive collateral status, which we assign to members experiencing significant financial difficulties, insurance companies pledging loans, and newly chartered institutions. We require borrowers in Physical Delivery to deliver into our custody securities and/or original notes, mortgages or deeds of trust. Under any collateral status, members may elect to pledge bond securities, which we either hold in our custody or, less often, have third parties control on our behalf. We use third-party services to regularly estimate market values of collateral under Listing and Physical status.

Borrowing Capacity/Lendable Value. We determine borrowing capacity against pledged collateral by establishing minimum levels of over-collateralization (Collateralized Maintenance Requirements or CMRs). CMRs result in a lendable value, or borrowing capacity, that is less than the amount of pledged collateral.

CMRs are determined by statistical analysis and management assumptions relating to historical price volatility, inherent credit risks, liquidation costs, and the current credit and economic environment. We apply CMR results to the estimated values of pledged assets. CMRs vary among pledged assets and members based on the financial strength of the member institution, the issuer of bond collateral or the quality of securitized assets, the marketability of the pledged assets, the payment performance of pledged loan collateral, and the quality of loan collateral as reflected in the manner in which it was underwritten and is administered.

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The table below indicates the range of lendable values remaining after the application of CMRs for each major collateral type pledged at December 31, 2014.

	Lending Values Applied to Collateral
Blanket Status:
Prime 1-4 family loans	67-87%
Multi-family loans	53-77%
Prime home equity loans/lines of credit	57-77%
Commercial real estate loans	61-80%
Farm real estate loans	65-83%
Listing Status/Physical Delivery:
Cash/U.S. Government/U.S. Treasury/U.S. agency securities	79-100%
U.S. agency mortgage-backed securities/collateralized mortgage obligations	79-98%
Private-label residential mortgage-backed securities	43-87%
Private-label commercial mortgage-backed securities	33-86%
Municipal securities	25-93%
Small Business Administration certificates	88-93%
1-4 family loans	67-94%
Multi-family loans	57-87%
Home equity loans/lines of credit	63-87%
Commercial real estate loans	65-91%
Farm real estate loans	67-91%

The ranges of lendable values exclude subprime and nontraditional mortgage loan collateral. Loans pledged by lower risk members for which we require only high level, summary reporting of eligible balances are generally discounted more heavily than loans on which we have detailed loan structure and underwriting information.

Subprime and Nontraditional Mortgage Loan Collateral.We have policies and processes to identify subprime and nontraditional residential mortgage loans pledged by members. We perform collateral reviews, sometimes engaging third parties, to determine whether the pledged loans meet our definition of subprime, nontraditional, or both. Depending on the quality of underwriting and administration, we may subject these loans to higher CMRs. We also limit the overall percentage of borrowing capacity that members can receive from subprime and nontraditional collateral.

Collateralization of Former Members. Former members may maintain existing Advances up to their maturity date as long as they meet certain requirements. Underwriting criteria, including the forms of collateral that may be pledged, are generally the same for members and former members. One exception is that former members with outstanding Advances must deliver sufficient collateral into our custody, regardless of whether they would qualify for Blanket or Listing status as a member. Alternatively, if a former member is acquired by a member of another FHLBank, we may allow its outstanding Advances to be covered by that FHLBank's collateral under the terms and conditions of an intercreditor agreement. On December 31, 2014, we had $0.6 billion of Advances outstanding to former members. This amount continued to be overcollateralized through a combination of subordination or other intercreditor security agreements with other FHLBanks and marketable securities and loan collateral held in our custody.

Internal Credit Ratings. We perform credit underwriting of our members and nonborrower members and assign them an internal credit rating on a scale of one to seven, with a higher number representing a less favorable assessment of the institution's credit and overall financial condition. The credit ratings are based on internal credit analysis and consideration of available credit ratings from independent credit rating organizations. The credit ratings are used in conjunction with other measures of the credit risk and pledged collateral, as described above, in managing credit risk exposure to member and nonmember borrowers.

A less favorable credit rating can cause us to 1) decrease the institution's borrowing capacity via higher CMRs, 2) require the institution to provide an increased level of detail on pledged collateral, 3) require it to deliver collateral into our custody, and/or 4) prompt us to more closely and/or frequently monitor the institution using several established processes.

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The following tables show the distribution of internal credit ratings we assigned to member and nonmember borrowers, which we use to help manage credit risk exposure.

(Dollars in billions)
December 31, 2014				December 31, 2013
	Borrowers				Borrowers
		Collateral-Based				Collateral-Based
Credit		Borrowing		Credit		Borrowing
Rating	Number	Capacity		Rating	Number	Capacity
1-3	547	$	131.1	1-3	505	$	108.4
4	107	74.9		4	125	58.7
5	37	3.6		5	59	4.0
6	14	0.2		6	26	0.9
7	12	0.3		7	22	0.4
Total	717	$	210.1	Total	737	$	172.4

A “4” rating is our assessment of the lowest level of satisfactory performance. At December 31, 2014, 63 borrowers (nine percent of the total) had credit ratings of "5" through "7," a net decrease of 44 from the end of 2013. These members had $4.1 billion of borrowing capacity at December 31, 2014. There was a net decrease of 18 members who had a "4" credit rating and a net increase of 42 members with credit ratings of "1," "2," or "3." These trends indicate a general improvement in the overall financial condition of our members during the recovery cycle for the overall economy and housing market.

Member Failures, Closures, and Receiverships. There was one member failure in 2014. All Advance exposure to this member was fully collateralized by assets held in our custody at the time of failure and all Advances have been subsequently repaid by the acquiring institution.

MPP

Overview. We believe that the residual amount of credit risk exposure to loans in the MPP is modest, based on the following factors:

▪ various credit enhancements for conventional loans, which are designed to protect us against credit losses;

▪ conservative underwriting and loan characteristics consistent with favorable expected credit performance;

▪ a relatively minor overall amount of delinquencies and defaults when compared to national averages;

▪ charge-offs totaling $1.8 million in 2014 and $14.8 million over the life of the program, which represent an immaterial percentage of conventional loans' current unpaid principal balances at December 31, 2014 and of total purchases-to-date for the entire MPP; and

▪ in addition to the low program-to-date charge-offs, based on financial analysis, we believe that future credit losses will not harm capital adequacy and will not significantly affect profitability except under the most extreme and unlikely credit conditions.

Portfolio Loan Characteristics. The following table shows FICO^® credit scores of homeowners at origination dates for the conventional loan portfolio.

FICO® Score (1)	December 31, 2014		December 31, 2013
< 620	—	%	—	%
620 to < 660	2		2
660 to < 700	8		9
700 to < 740	18		18
>= 740	72		71
Weighted Average	760		758

(1) Represents the FICO^® score at origination.

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There was little change in the distribution of FICO^® scores at origination in 2014 compared to 2013. The distribution of FICO^® scores at origination is one indication of the portfolio's overall favorable credit quality. At December 31, 2014, 72 percent of the portfolio had scores at an excellent level of 740 or above and 90 percent had scores above 700, which is a threshold generally considered indicative of homeowners' with good credit quality.

The following tables show loan-to-value ratios for conventional loans based on values estimated at the origination dates and current values estimated at the noted periods. The estimated current ratios are based on original loan values, principal paydowns that have occurred since origination, and a third-party estimate of changes in historical home prices for the zip code in which each loan resides. Both measures are weighted by current unpaid principal.

	Based on Estimated Origination Value					Based On Estimated Current Value
Loan-to-Value	December 31, 2014		December 31, 2013		Loan-to-Value	December 31, 2014		December 31, 2013
<= 60%	17	%	19	%	<= 60%	34	%	33	%
> 60% to 70%	16		17		> 60% to 70%	25		26
> 70% to 80%	55		53		> 70% to 80%	25		25
> 80% to 90%	7		7		> 80% to 90%	12		11
> 90%	5		4		> 90% to 100%	3		3
					> 100%	1		2
Weighted Average	72	%	71	%	Weighted Average	65	%	65	%

The levels of loan-to-value ratios and overall positive trends in the last several years are consistent with the portfolio's excellent credit quality. The positive trends reflect the sustained recovery and improvement in the overall housing market. At December 31, 2014 and 2013, we estimated that 16 percent of loans have current loan-to-value ratios above 80 percent.

Based on the available data, we believe we have little exposure to loans in the MPP considered to have characteristics of “subprime” or “alternative/nontraditional” loans. Further, we do not knowingly purchase any loan that violates the terms of our Anti-Predatory Lending Policy.

The geographical allocation of conventional loans in the MPP is concentrated in Ohio, as shown in the following table based on unpaid principal balance.

	December 31, 2014			December 31, 2013
Ohio	61	%	Ohio	59	%
Kentucky	13		Kentucky	13
Indiana	8		Indiana	7
Tennessee	3		Tennessee	3
Michigan	2		California	2
All others	13		All others	16
Total	100	%	Total	100	%

Lender Risk Account. Conventional mortgage loans are supported against credit losses by various combinations of primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) (for loans purchased before February 2011), and the Lender Risk Account. The Lender Risk Account is a holdback of a portion of the initial purchase price. Starting after five years from the loan purchase date, we may return the holdback to PFIs if they manage credit risk to predefined acceptable levels of exposure on the loan pools they sell to us. The Lender Risk Account is funded by the FHLBank from a portion of the purchase proceeds to cover expected credit losses for a specific pool of loans. As a result, some pools of loans may have sufficient credit enhancements to recapture all losses while other pools of loans may not have enough credit enhancements to recapture all losses.

The amount of loss claims against the Lender Risk Account in 2014 was approximately $2 million. The Account had balances of $129 million and $115 million at December 31, 2014 and 2013, respectively. For more information, see Note 10 of the Notes to Financial Statements.

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Credit Performance. The table below provides an analysis of conventional loans delinquent or in foreclosure, along with the national average serious delinquency rate.

	Conventional Loan Delinquencies
(Dollars in millions)	December 31, 2014			December 31, 2013
Early stage delinquencies - unpaid principal balance (1)	$	61		$	59
Serious delinquencies - unpaid principal balance (2)	$	43		$	58
Early stage delinquency rate (3)	1.0		%	1.0		%
Serious delinquency rate (4)	0.7		%	1.0		%
National average serious delinquency rate (5)	2.4		%	2.9		%

(1) Includes conventional loans 30 to 89 days delinquent and not in foreclosure.

(2) Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.

(3) Early stage delinquencies expressed as a percentage of the total conventional loan portfolio.

(4) Serious delinquencies expressed as a percentage of the total conventional loan portfolio.

(5) National average number of fixed-rate prime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The December 31, 2014 rate is based on September 30, 2014 data.

The MPP has experienced a relatively small amount of delinquencies and foreclosures, with rates continuing to be well below national averages.

We consider a high risk loan as having a current loan-to-value ratio above 100 percent. At December 31, 2014, high risk loans had experienced a moderate amount of serious delinquencies (i.e., delinquencies that are 90 days or more past due or in the process of foreclosure). For example, of the $51 million of conventional principal balances with current estimated loan-to-values above 100 percent, $4 million (seven percent) were seriously delinquent. We believe these data further support our view that the overall portfolio is comprised of high-quality, well-performing loans.

Credit Losses. The following table shows the effects of credit enhancements on the determination of the allowance for credit losses at the noted periods.

(In millions)	December 31, 2014			December 31, 2013
Estimated incurred credit losses, before credit enhancements	$	(23	)	$	(31	)
Estimated amounts deemed recoverable by:
Primary mortgage insurance	2			3
Supplemental mortgage insurance	13			17
Lender Risk Account	3			4
Allowance for credit losses, after credit enhancements	$	(5	)	$	(7	)

The data presented above provide further information on the aggregate health of the portfolio. Credit risk exposure depends on the actual and potential credit performance of the loans in each pool compared to the pool's equity (on individual loans) and credit enhancements, including PMI (for individual loans), the Lender Risk Account, and SMI.

The allowance for credit losses at December 31, 2014 decreased $2 million compared to the end of 2013 as problem loans continued to liquidate, new delinquency trends continued to stabilize and housing prices, which affect both delinquency rates and loss severities, remained relatively stable.

In addition to the allowance for credit losses recorded, we regularly analyze potential ranges of additional lifetime credit risk exposure for the loans in the MPP. Even under adverse scenarios for either home prices or unemployment rates, we expect that further credit losses would not significantly decrease our overall annual profitability or dividends payable to members. For example, assuming a 20 percent decline in all home prices in each of the next two years, we estimate that our lifetime credit losses, net of the effect of credit enhancements, could increase by approximately $13 million, which would decrease annual ROE by approximately only 0.05 percentage points over the next five years (most of the losses are estimated to occur in the next five years).

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Credit Risk Exposure to Insurance Providers.

PMI

Some of our conventional loans carry PMI as a credit enhancement feature. Based on the guidelines of the MPP, we have assessed that we do not have any credit risk exposure to the PMI providers.

SMI

Another credit enhancement feature on some conventional loans is SMI purchased from Genworth and Mortgage Guaranty Insurance Corporation (MGIC). Beginning February 1, 2011, we discontinued use of SMI as a credit enhancement for new loan purchases; instead, we now augment credit enhancements with a greater amount of the purchase proceeds added to the Lender Risk Account. At December 31, 2014, we had $1.9 billion of conventional loans purchased prior to February 2011 with outstanding SMI coverage through Genworth and MGIC that are paying down over time. Both providers have experienced weak financial condition in recent years; although, the most recent available information indicates there has been improvements in their financial health. However, due to the uncertainty of MGIC and Genworth's financial condition, we estimate that $0.4 million of payments are not probable at December 31, 2014. The estimation of SMI exposure, similar to overall trends of our loan losses, has declined in the last year.

Investments

Liquidity Investments. Liquidity investments are either unsecured, guaranteed by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the debt securities of highly rated, investment-grade institutions, have appropriate and conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices, including active monitoring of credit quality of our counterparties and of the environment in which they operate. We believe we purchased all liquidity investments from counterparties that have a strong ability to repay principal and interest.

Our unsecured liquidity investments to a counterparty or group of affiliated counterparties are limited by Finance Agency regulations to maturities of no more than nine months and limited to a dollar amount based on a percentage of eligible regulatory capital (defined as the lessor of our regulatory capital or the eligible amount of a counterparty's Tier 1 capital). The permissible percentage ranges from one percent to 15 percent based on the counterparty's lowest long-term credit rating of its debt from a nationally recognized statistical rating organization (NRSRO). In 2014, pursuant to a Finance Agency regulation, we reduced reliance on NRSRO ratings for unsecured investment activity by enhancing internal credit risk analytics on unsecured counterparties.

The lowest long-term credit rating for a counterparty to which we are permitted to extend credit is double-B. In practice, for many years we have generally invested funds only in those eligible institutions with long-term credit ratings of at least single-A. In addition, we restrict maturities, reduce dollar exposure, and avoid new investments with counterparties we deem to represent elevated credit risk.

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The following table presents the carrying value of liquidity investments outstanding in relation to the counterparties' lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services. For resale agreements, the ratings shown are based on ratings of the associated collateral.

(In millions)	December 31, 2014
	Long-Term Rating
	AAA		AA		A		Total
Unsecured Liquidity Investments
Federal funds sold	$	—	$	2,100	$	4,500	$	6,600
Certificates of deposit	—		950		400		1,350
Total unsecured liquidity investments	—		3,050		4,900		7,950
Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell	—		3,343		—		3,343
Government-sponsored enterprises (1)	—		26		—		26
Total guaranteed/secured liquidity investments	—		3,369		—		3,369
Total liquidity investments	$	—	$	6,419	$	4,900	$	11,319

	December 31, 2013
	Long-Term Rating
	AAA		AA		A		Total
Unsecured Liquidity Investments
Federal funds sold	$	—	$	760	$	980	$	1,740
Certificates of deposit	—		1,800		385		2,185
Total unsecured liquidity investments	—		2,560		1,365		3,925
Guaranteed/Secured Liquidity Investments
Securities purchased under agreements to resell	—		2,350		—		2,350
Government-sponsored enterprises (1)	—		28		—		28
Total guaranteed/secured liquidity investments	—		2,378		—		2,378
Total liquidity investments	$	—	$	4,938	$	1,365	$	6,303

(1) Consists of securities that are issued and effectively guaranteed by Fannie Mae and/or Freddie Mac, which have the support of the U.S. government, although they are not obligations of the U.S. government.

At December 31, 2014 and 2013, as well as many business days between these two dates, we purchased a portion of our total liquidity investments from counterparties for which the investments are secured with collateral (secured resale agreements). We believe these investments present little or no credit risk exposure to us.

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The following table presents credit ratings of our unsecured investment credit exposures by the domicile of the counterparty or the domicile of the counterparty's parent for U.S. branches and agency offices of foreign commercial banks.

(In millions)	December 31, 2014
		Counterparty Rating (1)
Domicile of Counterparty	Sovereign Rating (1)	AA		A		Total
Domestic	AA+	$	550	$	200	$	750
U.S. branches and agency offices of foreign commercial banks:
Canada	AAA	400		2,000		2,400
Finland	AAA	1,400		—		1,400
Netherlands	AAA	—		900		900
United Kingdom	AA+	—		900		900
Germany	AAA	—		900		900
Australia	AAA	700		—		700
Total U.S. branches and agency offices of foreign commercial banks		2,500		4,700		7,200
Total unsecured investment credit exposure		$	3,050	$	4,900	$	7,950

(1) Represents the lowest long-term credit rating provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services.

The following table presents the remaining contractual maturity of our unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty's parent for U.S. branches and agency offices of foreign commercial banks.

(In millions)	December 31, 2014
Domicile of Counterparty	Overnight		Due 2 days through 30 days		Due 31 days through 90 days		Due 91 days through 180 days		Total
Domestic	$	—	$	—	$	750	$	—	$	750
U.S. branches and agency offices of foreign commercial banks:
Canada	1,800		600		—		—		2,400
Finland	1,400		—		—		—		1,400
Netherlands	900		—		—		—		900
United Kingdom	900		—		—		—		900
Germany	900		—		—		—		900
Australia	700		—		—		—		700
Total U.S. branches and agency offices of foreign commercial banks	6,600		600		—		—		7,200
Total unsecured investment credit exposure	$	6,600	$	600	$	750	$	—	$	7,950

At December 31, 2014, all of the $8.0 billion of unsecured liquidity exposure was to counterparties with holding companies domiciled in countries receiving either AAA or AA long-term sovereign ratings. Furthermore, we restrict a significant portion of unsecured lending to overnight maturities, which further limits risk exposure to these counterparties. By Finance Agency regulation, all counterparties exposed to non-U.S. countries are required to be domestic U.S. branches of foreign counterparties. We also limit exposure to counterparties and countries that could have significant direct or indirect exposure to European sovereign debt.

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Mortgage-Backed Securities.

GSE Mortgage-Backed Securities

Over 85 percent of our mortgage-backed securities are single-family GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest. We believe that the conservatorships of Fannie Mae and Freddie Mac lower the chance that they would not be able to fulfill their credit guarantees and that the securities issued by these two GSEs are effectively government guaranteed. In addition, based on the data available to us and our purchase practices, we believe that most of the mortgage loans backing our GSE mortgage-backed securities are of high quality with acceptable credit performance.

Mortgage-Backed Securities Issued by Other Government Agencies

We also invest in mortgage-backed securities issued and guaranteed by Ginnie Mae and the NCUA. These investments totaled $2.0 billion at December 31, 2014. The majority of the Ginnie Mae securities are fixed rate. The NCUA securities have floating rate coupons tied to one-month LIBOR with interest rate caps ranging from seven to eight percent. We believe that the strength of the issuers' guarantees and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.

Private-Label Mortgage-Backed Securities

We held no private-label mortgage-backed securities at December 31, 2014.

Derivatives

Credit Risk Exposure. We mitigate most of the credit risk exposure resulting from interest rate swap transactions through collateralization. The table below presents the derivative positions to which we had credit risk exposure at December 31, 2014.

(In millions)
Credit Rating (1)	Total Notional		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	$	170	$	—		$	—	$	—
A	19		—			—		—
Liability positions with credit exposure:
Cleared derivatives (2)	3,607		(2		)	13		11
Total derivative positions with credit exposure to non-member counterparties	3,796		(2		)	13		11
Member institutions (3)	450		4			—		4
Total	$	4,246	$	2		$	13	$	15

(1) Each category includes the related plus (+) and minus (-) ratings (i.e., “A” includes “A+” and “A-” ratings).

(2) Represents derivative transactions cleared with clearinghouses, which are not rated.

(3) Represents Mandatory Delivery Contracts.

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Based on both the gross and net exposures, we had a minimal amount of residual credit risk exposure on bilateral derivatives throughout 2014. Gross exposure would likely increase if interest rates rise and could increase if the composition of our derivatives change. However, contractual collateral provisions in these derivatives would limit net exposure to acceptable levels.

The following table presents counterparties that provided 10 percent or more of the total notional amount of bilateral interest rate swap derivatives outstanding.

(In millions)
December 31, 2014						December 31, 2013
Counterparty	Credit Rating Category	Notional Principal		Net Unsecured Exposure		Counterparty	Credit Rating Category	Notional Principal		Net Unsecured Exposure
Wells Fargo Bank, N.A.	AA	$	1,104	$	—	Morgan Stanley Capital Services	BBB	$	3,421	$	—
Deutsche Bank AG	A	1,049		—		Deutsche Bank AG	A	1,458		—
HSBC Bank USA, N.A.	A	1,000		—		Royal Bank of Scotland PLC	A	1,142		—

Although we cannot predict if we will realize credit risk losses from any of our derivatives counterparties, we believe that all of them will be able to continue making timely interest payments and, more generally, to continue to satisfy the terms and conditions of their derivative contracts with us. As of December 31, 2014, we had $0.5 billion of notional principal of interest rate swaps outstanding to one member, JPMorgan Chase Bank, N.A. (JPMorgan), which also had outstanding credit services with us. Due to the amount of market value collateralization, we had no outstanding credit exposure to this counterparty related to interest rate swaps outstanding.

Lehman Brothers Derivatives. See Note 20 of the Notes to Financial Statements for information on derivatives we had with Lehman Brothers at the time of their bankruptcy in September 2008.

Exposure to Member Concentration

We regularly assess concentration risks from business activity. The increase over the last two years in Advance borrowings from one member, JPMorgan, raised borrower concentration ratios. We believe that the current concentration of Advance activity is consistent with our risk management philosophy, and the impact of borrower concentration on market risk, credit risk, and operational risk, after considering mitigating controls, is small.

Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that the Capital Plan provides for additional capital when Mission Assets grow and the opportunity for us to retire capital when Mission Assets decline, thereby acting, along with our efficient operating expenses, to preserve competitive profitability.

We believe the effect on credit risk exposure from borrower concentration is minimal because of our application of normal credit risk mitigations, the most important of which is over-collateralization of borrowings. In the remote possibility of failure of a member to whom we lent a large amount of Advances, combined with the Federal Deposit Insurance Corporation's decision not to repay Advances, we would implement our member failure plan. Our member failure plan, which we test periodically, would liquidate collateral to recover losses from losing principal and interest on the Advance balances.

Advance concentration has a minor effect on market risk exposure because Advances are largely match funded. Finally, the increase in Advance concentration has not affected capital adequacy because Advance growth from the member is supported by new purchases of capital stock as required by the Capital Plan.

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Capital Adequacy

Retained Earnings

We must hold sufficient capital to protect against exposure to various risks and we regularly conduct a variety of measurements and assessments for capital adequacy. The $689 million of retained earnings at December 31, 2014 substantially exceeded our policy minimum of $450 million. Given the regulatory environment, we carry a greater amount of retained earnings than required by the policy. We will continue to bolster capital adequacy over time by allocating a portion of earnings to a separate restricted retained earnings account in accordance with the FHLBank System's Capital Agreement. We believe that the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment and to provide the opportunity to stabilize dividends.

Risk-Based Capital

The following table shows the amount of risk-based capital required based on Finance Agency prescribed measurements, the amount of permanent capital, and the amount of excess permanent capital.

(Dollars in millions)	December 31, 2014			Monthly Average 2014			December 31, 2013
Market risk-based capital	$	125		$	165		$	199
Credit risk-based capital	246			241			222
Operational risk-based capital	111			122			126
Total risk-based capital requirement	482			528			547
Total permanent capital	5,019			5,069			5,435
Excess permanent capital	$	4,537		$	4,541		$	4,888
Risk-based capital as a percent of permanent capital	10		%	10		%	10		%

The risk-based capital requirement has historically not been a constraint on operations and we do not use it to actively manage any of our risks. It has normally ranged from 10 to 20 percent, which is significantly less than the amount of permanent capital. This measure has been at the low end of the range for several years, primarily due to the low level of interest rates during this period limiting estimated exposure to extreme lower rate scenarios.

Dodd-Frank Stress Test

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, all FHLBanks are required to perform an annual stress test for capital adequacy. Our first test was completed and published in July 2014, based on our financial condition as of September 30, 2013 and the methodology prescribed by the Finance Agency. Capital adequacy was sufficient under all established scenarios to fully absorb losses under both adverse and severely adverse economic conditions.

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Market Capitalization Ratios

We measure two sets of market capitalization ratios. One measures the market value of capital (i.e., stockholder equity) relative to the par value of regulatory capital stock (capital stock and mandatorily redeemable capital stock). The other measures the market value of capital relative to the book value of total capital, which includes retained earnings, and mandatorily redeemable capital stock. The measures provide a point-in-time indication of the FHLBank's liquidation or franchise value and also serve as a measure of realized or potential market risk exposure.

The following table presents the market value of equity to regulatory capital stock (excluding retained earnings) for the interest rate environments for which we have policy limits. A base case value below par could indicate that, in the event of an immediate liquidation scenario, capital stock may be impaired and returned at some value less than par.

	December 31, 2014		Monthly Average Year Ended December 31, 2014		December 31, 2013
Market Value of Equity to Par Value of Regulatory Capital Stock - Base Case (Flat Rates) Scenario	114	%	112	%	105	%
Market Value of Equity to Par Value of Regulatory Capital Stock - Down Shock (1)	114		114		108
Market Value of Equity to Par Value of Regulatory Capital Stock - Up Shock (2)	108		106		100

(1) Represents a down shock of 100 basis points.

(2) Represents an up shock of 200 basis points.

In 2014, the market capitalization ratios in the scenarios presented continued to be above the minimum policy limits. The ratios increased in 2014 due to the combined effect of several factors, which included the repurchase of excess stock, modest declines in long-term market rates and modestly higher market prices on mortgage assets relative to funding. The ratios remained at favorable levels because retained earnings were 16 percent of regulatory capital stock at December 31, 2014 and we maintained market risk exposure at moderate levels.

The following table presents the market value of equity to the book value of total capital and mandatorily redeemable capital stock for the same interest rate environments. A base case value below par could indicate that interest rate risk has been or could be incurred in the future or that, in the event of an immediate liquidation scenario, a portion of retained earnings would need to be utilized in order to return regulatory capital stock at par. The base case ratio of 98 percent at December 31, 2014 indicates that approximately $90 million of retained earnings would be required in order to return regulatory capital stock at par.

	December 31, 2014		Monthly Average Year Ended December 31, 2014		December 31, 2013
Market Value of Equity to Book Value of Capital - Base Case (Flat Rates) Scenario (1)	98	%	97	%	93	%
Market Value of Equity to Book Value of Capital - Down Shock (1)(2)	99		99		96
Market Value of Equity to Book Value of Capital - Up Shock (1)(3)	94		92		89

(1) Capital includes total capital and mandatorily redeemable capital stock.

(2) Represents a down shock of 100 basis points.

(3) Represents an up shock of 200 basis points.

Liquidity Risk

Liquidity Overview

As shown on the Statements of Cash Flows, in 2014, our portion of the System's debt issuances totaled $270.4 billion for Discount Notes and $41.5 billion for Bonds. The System's favorable debt ratings, the implicit U.S. government backing of our debt, and our effective risk management have been instrumental in ensuring satisfactory access to the capital markets.

Our liquidity position remained strong during 2014 and our overall ability to fund our operations through debt issuances at acceptable interest costs remained sufficient. Although we can make no assurances, we expect this to continue to be the case,

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and we believe the possibility of a liquidity or funding crisis in the FHLBank System that would impair the FHLBank's ability to participate, on a cost-effective basis, in issuances of new debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends is remote.

We must meet both operational and contingency liquidity requirements. We satisfied the operational liquidity requirement by both meeting a contingency liquidity requirement, discussed below, and because we were able to adequately access the capital markets to issue debt. The amount of overnight liquidity was generally in the range of $5 billion to $15 billion during 2014. In addition, Finance Agency guidance requires us to target at least 5 to 15 consecutive days of positive liquidity based on specific assumptions under two scenarios. We target holding at least three extra days of positive liquidity under each scenario, although as market conditions warrant we may hold additional amounts.

Contingency Liquidity Requirement

Contingency liquidity risk is the potential inability to meet liquidity needs because our access to the capital markets to issue Consolidated Obligations is restricted or suspended for a period of time due to a market disruption, operational failure, or real or perceived credit quality problems. We continued to hold an ample amount of liquidity reserves to protect against contingency liquidity risk.

(In millions)	December 31, 2014			December 31, 2013
Contingency Liquidity Requirement
Total Contingency Liquidity Reserves (1)	$	30,594		$	30,699
Total Requirement (2)	(12,155		)	(11,752		)
Excess Contingency Liquidity Available	$	18,439		$	18,947

(1) Includes, among others, cash, overnight Federal funds, overnight deposits, self-liquidating term Federal funds, 95 percent of the market value of available-for-sale negotiable securities, and 75 percent of the market value of certain held-to-maturity obligations, including obligations of the United States, U.S. government agency obligations and mortgage-backed securities.

(2) Includes net liabilities maturing in the next seven business days, assets traded not yet settled, Advance commitments outstanding, Advances maturing in the next seven business days, and a three percent hypothetical increase in Advances.

Deposit Reserve Requirement

To support our member deposits, we also must meet a statutory deposit reserve requirement. The sum of our investments in obligations of the United States, deposits in eligible banks or trust companies, and Advances with a final maturity not exceeding five years must equal or exceed the current amount of member deposits. The following table presents the components of this liquidity requirement.

(In millions)	December 31, 2014			December 31, 2013
Deposit Reserve Requirement
Total Eligible Deposit Reserves	$	77,920		$	73,531
Total Member Deposits	(730		)	(898		)
Excess Deposit Reserves	$	77,190		$	72,633

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Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2014. The allocations according to the expiration terms and payment due dates of these obligations were not materially different from those at the end of 2013. Changes reflected normal business variations. We believe that, as in the past, we will continue to have sufficient liquidity, including from access to the debt markets to issue Consolidated Obligations, to satisfy these obligations timely.

(In millions)	< 1 year		1<3 years		3<5 years		> 5 years		Total
Contractual Obligations
Long-term debt (Bonds) - par (1)	$	32,501	$	11,514	$	6,892	$	8,217	$	59,124
Operating leases (include premises and equipment)	1		2		1		6		10
Mandatorily redeemable capital stock	61		—		2		—		63
Commitments to fund mortgage loans	451		—		—		—		451
Pension and other postretirement benefit obligations	3		5		5		26		39
Total Contractual Obligations	$	33,017	$	11,521	$	6,900	$	8,249	$	59,687

(1) Does not include Discount Notes and contractual interest payments related to Bonds. Total is based on contractual maturities; the actual timing of payments could be affected by factors affecting redemptions.

Off-Balance Sheet Arrangements

The following table summarizes our off-balance sheet items at December 31, 2014. The allocations according to the expiration terms and payment due dates of these items were not materially different from those at the end of 2013, and changes reflected normal business variations.

(In millions)	< 1 year		1<3 years		3<5 years		> 5 years		Total
Off-balance sheet items(1)
Standby Letters of Credit	$	17,233	$	479	$	14	$	54	$	17,780
Standby bond purchase agreements	37		150		—		—		187
Consolidated Obligations traded, not yet settled	5		—		17		—		22
Total off-balance sheet items	$	17,275	$	629	$	31	$	54	$	17,989

(1) Represents notional amount of off-balance sheet obligations.

Operational Risk

Operational risk is defined as the risk of an unexpected loss resulting from human error, fraud, inability to enforce legal contracts, or deficiencies in internal controls or information systems. We mitigate operational risk through adherence to internal policies, conformance with entity level controls, department procedures and controls, use of tested information systems, disaster recovery provisions for those systems, acquisition of insurance coverage to help protect us from financial exposure relating to errors or fraud by our personnel, and comprehensive policies and procedures related to Human Resources. In addition, the Internal Audit Department, which reports directly to the Audit Committee of the Board of Directors, regularly monitors and tests compliance with our policies, procedures, applicable regulatory requirements and best practices.

Internal Department Procedures and Controls

Each of our departments maintains and regularly reviews and enhances, as needed, a system of internal procedures and controls, including those that address proper segregation of duties. Each system is designed to prevent any one individual from processing the entirety of a transaction that affects member accounts, correspondent FHLBank accounts or third-party servicers providing support to us. We review daily and periodic transaction activity reports in a timely manner to detect erroneous or fraudulent activity. Procedures and controls also are assessed on an enterprise-wide basis, independently from the business unit departments. We also are in compliance with Sarbanes-Oxley Sections 302 and 404, which focus on the control environment over financial reporting.

Information Systems

We rely heavily upon internal and third-party information systems and other technology to conduct and manage our business. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Our computer systems, software and networks may be subjected to “cyberattacks” (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) that could jeopardize the confidentiality or integrity of such information, or otherwise cause interruptions or malfunctions in our operations.

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We mitigate the risk associated with cyberattacks through the implementation of multiple layers of security controls. Administrative, physical, and logical controls are in place for establishing, administering and actively monitoring system access, sensitive data, and system change. Additionally, separate groups within our organization and/or third parties validate the strength of our security and confirm that established policies and procedures are adequately followed.

Disaster Recovery Provisions

We have a Business Resumption Contingency Plan that provides us with the ability to maintain operations in various scenarios of business disruption. A committee of staff reviews and updates this plan periodically to ensure that it serves our changing operational needs and those of our members. We have an off-site facility in a suburb of Cincinnati, Ohio, which is tested at least annually. We also have a back-up agreement in place with the FHLBank of Indianapolis in the event that both of our Cincinnati-based facilities are inoperable.

Insurance Coverage

We have insurance coverage for cyber risks, employee fraud, forgery and wrongdoing, as well as Directors' and Officers' liability coverage that provides protection for claims alleging breach of duty, misappropriation of funds, neglect, acts of omission, employment practices, and fiduciary liability. We also have property, casualty, computer equipment, automobile, and various types of other coverage as well.

Human Resources Policies and Procedures

The risks associated with our Human Resources function are categorized as either Employment Practices Risk or Human Capital Risk. Employment Practices Risk is the potential failure to properly administer our policies regarding employment practices and compensation and benefit programs for eligible staff and retirees, and the potential failure to observe and properly comply with federal, state and municipal laws and regulations. Human Capital Risk is the potential inability to attract and retain appropriate levels of qualified human resources to maintain efficient operations.

Comprehensive policies and procedures are in place to limit Employment Practices Risk. These are supported by an established internal control system that is routinely monitored and audited. With respect to Human Capital Risk, we strive to maintain a competitive salary and benefit structure, which is regularly reviewed and updated as appropriate to attract and retain qualified staff. In addition, we have a management succession plan that is reviewed and approved by our Board of Directors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Introduction

The preparation of financial statements in accordance with GAAP requires management to make a number of significant judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expenses during the reported periods. Although management believes its judgments, estimates, and assumptions are reasonable, actual results may differ and other parties could arrive at different conclusions.

We have identified the following critical accounting policies that require management to make subjective or complex judgments about inherently uncertain matters. Our financial condition and results of operations could be materially affected under different conditions or different assumptions related to these accounting policies.

Accounting for Derivatives and Hedging Activity

In accordance with Finance Agency regulations, we execute all derivatives to manage market risk exposure, not for speculation or solely for earnings enhancement. As in past years, in 2014 all outstanding derivatives hedged specific assets, liabilities, or Mandatory Delivery Contracts. We record derivative instruments at their fair values on the Statements of Condition, and we record changes in these fair values in current period earnings. We strive to ensure that our use of derivatives maximizes the probability that they are highly effective in offsetting changes in the market values of the designated balance sheet instruments.

Fair Value Hedges

As indicated in the "Use of Derivatives in Market Risk Management" section of "Quantitative and Qualitative Disclosures About Risk Management," we designate a portion of our derivatives as fair value hedges. Fair value hedge accounting permits the changes in fair values of the hedged risk in the hedged instruments to be recorded in the current period, thus offsetting, partially or fully, the change in fair value of the derivatives. For derivatives accounted as fair value hedges, the hedged risk is

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designated to be changes in LIBOR benchmark interest rates. The result is that there has been a relatively small amount of unrealized earnings volatility from hedging market risk with derivatives.

In order to determine if a derivative qualifies for fair value hedge accounting, we must assess how effective the derivative has been, and is expected to be, in hedging changes in the fair values of the risk being hedged. Each month we perform effectiveness testing using a consistently applied standard statistical methodology, regression analysis, that measures the degree of correlation and relationship between the fair values of the derivative and hedged instrument. The results of the statistical measures must pass predefined threshold values to enable us to conclude that the fair values of the derivative transaction have a close correlation with the fair values of the hedged instrument. If any measure is outside of its respective tolerance, the hedge would no longer qualify for fair value hedge accounting. This means we must then record the fair value change of the derivative in current earnings without any offset in the fair value change of the related hedged instrument. Due to the intentional matching of terms between the derivative and the hedged instrument, we expect that failing an effectiveness test will be infrequent, which has been the case historically.

If a derivative/hedged instrument transaction fails effectiveness testing, it does not mean that the hedge relationship is no longer successful in achieving its intended economic purpose. For example, a Consolidated Obligation hedged with an interest rate swap creates adjustable-rate LIBOR funding, which is used to match fund adjustable-rate LIBOR and other short-term Advances. The hedge achieves the desired result (matching the net funding with the asset) because, economically, the Advance is part of the overall hedging strategy and the reason for engaging in the derivative transaction.

Fair value differences that have actually occurred have historically resulted in a relatively small amount of earnings volatility.Each month, we compute fair values on all derivatives and related hedged instruments across a range of interest rate scenarios. As of year-end 2014, for derivatives receiving long-haul fair value hedge accounting, the total net difference between the fair values of the derivatives and related hedged instruments under an assumption of stressed interest rate environments was in a range of zero to negative $2 million. This range is minimal compared to the notional principal amount.

Fair Value Option--Economic Hedge

We account for a portion of Advance and Bond-related derivatives using an accounting election called "fair value option," which is included in the economic hedge category. An economic hedge under the fair value option does not require passing effectiveness testing to permit the derivatives' fair market value to be offset with the market value of the hedged instrument, as is required under a fair value hedge. However, it records the fair market value of the hedged instrument at its full fair value instead of only the value of hedging the benchmark interest rate (LIBOR).

The effect of electing full fair value is that the hedged instruments' market value includes the impact of changes in spreads between LIBOR and the interest rate index related to the hedged instrument. This spread includes a credit risk component. Therefore, full fair value results in a different kind of unrealized earnings volatility, (which could be higher or lower, compared to accounting under fair value hedge treatment.

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

The accounting for amortization/accretion of premiums/discounts can result in earnings volatility, most of which relates to our MPP, mortgage-backed securities, and Consolidated Obligations. Normally, earnings volatility associated with amortization/accretion of premiums/discounts for Obligations is less pronounced than that for mortgage assets.

When we purchase or invest in mortgages, we normally pay an amount that differs from the principal balance. A premium price is paid if the purchase price exceeds the principal amount. A discount price is paid if the purchase price is less than the principal amount. Premiums/discounts are required to be deferred and amortized/accreted to net interest income in a manner such that the yield recognized each month on the underlying asset is constant over the asset's historical life and estimated future life. This is called the constant effective (level) yield method.

We typically pay more than the principal balance when the interest rate on a purchased mortgage is greater than the prevailing market rate for similar mortgages. The net purchase premium is amortized as a reduction in the mortgage's book yield. Similarly, if we pay less than the principal balance, the net discount is accreted in the same manner as the premium, resulting in an increase in the mortgage's book yield.

We have historically purchased most MPP loans at premium prices. Mortgage-backed securities outstanding at the end of 2014 were purchased at net discount prices close to par. At the end of 2014, the MPP had a net premium balance of $194 million and

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mortgage-backed securities had a net discount balance of $27 million, resulting in a total mortgage net premium balance of $167 million.

When mortgage principal cash flows are volatile, there can be substantial fluctuation in the accounting recognition of premiums and discounts. We update the constant effective yield method monthly using actual historical and projected principal cash flows. Projected principal cash flows requires us to estimate mortgage prepayment speeds, which are driven primarily by changes in interest rates. When interest rates decline, actual and projected prepayment speeds are likely to increase. This accelerates the amortization/accretion, resulting in a reduction in the mortgages' book yields on premium balances and an increase in book yields on discount balances. The opposite effect tends to occur when interest rates rise. The immediate adjustment and the schedules for future amortization/accretion are based on applying the new constant effective yield as if it had been in effect since the purchase of the assets. See Note 1 of the Notes to Financial Statements for additional information.

Our mortgages under the MPP are stratified for amortization purposes into multiple portfolios according to common characteristics such as coupon interest rate, state of origination, final original maturity (mostly 15, 20, and 30 years), loan age, and type of mortgage (i.e., conventional and FHA). We compute amortization/accretion for each mortgage-backed security separately. Projected prepayment speeds are derived using a market-tested third-party prepayment model. We regularly test the reasonableness and accuracy of the prepayment model by comparing its projections to actual prepayment results experienced over time and to dealer prepayment indications.

It is difficult to calculate how much amortization/accretion is likely to change over time because prepayment projections are inherently subject to uncertainty. Exact trends depend on the relationship between market interest rates and coupon rates on outstanding mortgage assets, the historical evolution of mortgage interest rates, the age of the mortgage loans, demographic and population trends, and other market factors. Changes in amortization/accretion also depend on 1) the accuracy of prepayment projections compared to actual realized prepayments and 2) term structure models used to simulate possible future evolution of various interest rates. The term structure models depend heavily on theories and assumptions related to future interest rates and interest rate volatility. We strive to maintain consistency in our use of prepayment and term structure models, although we do enhance these models based on developments in theories, technologies, best practices, and market conditions.

We regularly perform analyses that test the sensitivity of premium/discount recognition for mortgage assets to changes in prepayment speeds. The following table shows, as of year-end 2014, the estimated adjustments to the immediate recognition of premium amortization/discount accretion for various interest rate shocks (with interest rates not permitted to fall below zero percent). Although some of the changes shown below would result in a substantial change in ROE in the quarter in which the rate change occurred, it currently would not materially threaten our profitability.

(In millions)	-200			-100			-50			Base			+50		+100		+200
	$	(48	)	$	(23	)	$	(12	)	$	(3	)	$	2	$	6	$	10

Provision for Credit Losses

We evaluate Advances and the MPP to assure an adequate reserve is maintained to absorb probable losses inherent in these portfolios.

Advances

We evaluate probable credit losses inherent in Advances due to borrower default or delayed receipt of interest and principal, taking into consideration the amount recoverable from the collateral pledged by members to secure Advances. This analysis is performed for each member separately on at least a quarterly basis. We believe we have adequate policies and procedures in place to effectively manage credit risk exposure on Advances. These include monitoring the creditworthiness and financial condition of the institutions to which we lend funds, determining the quality and value of collateral pledged, estimating borrowing capacity based on collateral value and type for each member, and evaluating historical loss experience. At December 31, 2014, we had rights to collateral (either loans or securities), on a member-by-member basis, with an estimated fair value that exceeds the amount of outstanding Advances. At the end of 2014, the aggregate estimated value of this collateral was $253.0 billion. Although some of this overcollateralization may reflect a desire to maintain excess borrowing capacity, all of a member's pledged collateral would be available as necessary to cover any of that member's credit obligations to the FHLBank.

Based on the nature and quality of the collateral held as security for Advances, including overcollateralization, our credit analyses of members and collateral, and members' prior repayment history (i.e., we have never recorded a loss from an

69

Advance), we believe that no allowance for losses was necessary at December 31, 2014. See Notes 1 and 10 of the Notes to Financial Statements for additional information.

Mortgage Loans Acquired Under the MPP

We analyze loans in the MPP on at least a quarterly basis by 1) estimating the incurred credit losses inherent in the portfolio and comparing these to credit enhancements, including the recoverability of insurance, and 2) establishing reserves based on the results. We apply a consistent methodology to determine our estimates.

We acquire both FHA and conventional fixed-rate mortgage loans under the MPP. Because FHA mortgage loans are U.S. government insured, we have determined that they do not require a loan loss allowance. We are protected against credit losses on conventional mortgage loans from several sources, in order of priority:

▪ having the related real estate as collateral, which effectively includes the borrower's equity; and

▪ by credit enhancements including 1) primary mortgage insurance, if applicable, 2) the member's available funds remaining in the Lender Risk Account, and 3) if applicable, Supplemental Mortgage Insurance coverage up to the policy limit, applied on a loan-by-loan basis.

We assume any credit exposure if losses exceed the related real estate residual value and credit enhancements.

The key estimates and assumptions that affect our allowance for credit losses generally include:

▪ the characteristics of specific conventional loans outstanding under the MPP;

▪ evaluations of the overall delinquent loan portfolio through the use of migration analysis;

▪ loss severity estimates;

▪ historical claims and default experience;

▪ expected proceeds from credit enhancements;

▪ evaluation of exposure to Supplemental Mortgage Insurance providers and their ability to pay claims;

▪ comparisons to industry reported data; and

▪ current economic trends and conditions.

These estimates require significant judgments, especially considering the current national housing market, the inability to readily determine the fair value of all underlying properties, the application of pool level credit enhancements, and the uncertainty in other macroeconomic factors that make estimating defaults and severity imprecise.

Based on our analysis, as of December 31, 2014, we determined that an allowance for credit losses of $5 million was required for our conventional mortgage loans in the MPP. Further substantial reductions in home prices or other economic variables that affect mortgage defaults could increase credit losses experienced in the portfolio.

Other-Than-Temporary Impairment Analysis for Investment Securities

We closely monitor the performance of our investment securities to evaluate our exposure to the risk of loss of principal or interest on these investments and to determine on a quarterly basis whether this risk of loss represents an other-than-temporary impairment.

An investment security is deemed impaired if the fair value of the security is less than its amortized cost. To determine whether an impairment is other-than-temporary, we assess whether the amortized cost basis of the security will be recovered by considering numerous factors, as described in Notes 1 and 7 of the Notes to Financial Statements. We must recognize impairment losses if we intend to sell the security or if available evidence indicates it is more likely than not we will be required to sell the security before the recovery of its amortized cost basis. We also must recognize impairment losses when any credit losses are expected for the security. This includes consideration of market conditions and projections of future results, which requires significant judgments, estimates and assumptions, especially considering the uncertainty in the national housing market and other macroeconomic factors that make estimating future results imprecise.

70

If we were to determine that an other-than-temporary impairment existed, the security would initially be written down to current market value, with the loss recognized in non-interest income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of the amortized cost basis. If we do not intend to sell the security and it is not more likely than not we will be required to sell the security before recovery, the security would be written down to current market value with a separate display of losses related to credit deterioration and losses related to all other factors on the income statement. Any non-credit loss related amounts would then be reclassified and recorded in other comprehensive income, resulting in only net credit-related losses recorded on the income statement. As of December 31, 2014 we did not consider any of our investment securities to be other-than-temporarily impaired.

Fair Values

We carry certain assets and liabilities on the Statement of Conditions at estimated fair value, including all derivatives, investments classified as available-for-sale and trading, and any financial instruments where we elected the fair value option. Fair value is defined as the price - the “exit price” - that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Because our financial instruments generally do not have available quoted market prices, we determine fair values based on 1) our valuation models or 2) dealer indications, which may be based on the dealers' own valuation models and/or prices of similar instruments.

Valuation models and their underlying assumptions are based on the best estimates of management with respect to discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, and the income and expense related thereto. The use of different assumptions or changes in the models and assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings.

We have control processes designed to ensure that fair value measurements are appropriate and reliable, that they are based on observable inputs wherever possible and that our valuation approaches and assumptions are reasonable and consistently applied. Where applicable, valuations are also compared to alternative external market data (e.g., quoted market prices, broker or dealer indications, pricing services and comparative analyses to similar instruments). For further discussion regarding how we measure financial assets and financial liabilities at fair value, see Note 19 of the Notes to Financial Statements.

We categorize each of our financial instruments carried at fair value into one of three levels in accordance with the fair value hierarchy. The hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources (Levels 1 and 2), while unobservable inputs reflect our assumptions of market variables (Level 3). Management utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Because items classified as Level 3 are valued using significant unobservable inputs, the process for determining the fair value of these items is generally more subjective and involves a high degree of management judgment and use of assumptions. As of December 31, 2014 and 2013, all of our assets and liabilities measured at fair value on a recurring basis were classified as Level 2 within the fair value hierarchy.

RECENTLY ISSUED ACCOUNTING STANDARDS AND INTERPRETATIONS

See Note 2 of the Notes to Financial Statements for a discussion of recently issued accounting standards and interpretations.

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OTHER FINANCIAL INFORMATION

Income Statements

Summary income statements for each quarter within the two years ended December 31, 2014 are provided in the tables below.

	2014
(In millions)	1st  Quarter		2nd  Quarter			3rd  Quarter		4th  Quarter		Total
Interest income	$	229	$	226		$	228	$	225	$	908
Interest expense	152		149			145		145		591
Net interest income	77		77			83		80		317
(Reversal) provision for credit losses	—		(1		)	—		1		—
Non-interest income	4		6			4		9		23
Non-interest expense	24		23			25		24		96
Net income	$	57	$	61		$	62	$	64	$	244

	2013
(In millions)	1st Quarter			2nd  Quarter			3rd  Quarter			4th  Quarter		Total
Interest income	$	217		$	224		$	230		$	229	$	900
Interest expense	142			145			139			146		572
Net interest income	75			79			91			83		328
Reversal for credit losses	(2		)	(4		)	(1		)	—		(7		)
Non-interest income	8			2			4			6		20
Non-interest expense	22			23			24			25		94
Net income	$	63		$	62		$	72		$	64	$	261

Investment Securities

Data on investments for the years ended December 31, 2014, 2013 and 2012 are provided in the tables below.

(In millions)	Carrying Value at December 31,
	2014		2013		2012
Trading securities:
Mortgage-backed securities:
Other U.S. obligation single-family mortgage-backed securities	$	2	$	2	$	2
Total trading securities	2		2		2
Available-for-sale securities:
Certificates of deposit	1,350		2,185		—
Total available-for-sale securities	1,350		2,185		—
Held-to-maturity securities:
Government-sponsored enterprises	26		28		26
Mortgage-backed securities:
Other U.S. obligation single-family mortgage-backed securities	2,039		1,909		1,411
Government-sponsored enterprise single-family mortgage-backed securities	12,647		14,150		11,361
Total held-to-maturity securities	14,712		16,087		12,798
Total securities	16,064		18,274		12,800
Securities purchased under agreements to resell	3,343		2,350		3,800
Federal funds sold	6,600		1,740		3,350
Total investments	$	26,007	$	22,364	$	19,950

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As of December 31, 2014, investments had the following maturity and yield characteristics.

(Dollars in millions)	Due in one year or less			Due after one year through five years			Due after five through 10 years			Due after 10 years			Carrying Value
Trading securities:
Mortgage-backed securities(1):
Other U.S. obligation single-family mortgage-backed securities	$	—		$	—		$	1		$	1		$	2
Total trading securities	—			—			1			1			2
Yield on trading securities	—		%	—		%	2.36		%	2.46		%
Available-for-sale securities:
Certificates of deposit	$	1,350		$	—		$	—		$	—		$	1,350
Total available-for-sale securities	1,350			—			—			—			1,350
Yield on available-for sale securities	0.15		%	—		%	—		%	—		%
Held-to-maturity securities:
Government-sponsored enterprises	$	26		$	—		$	—		$	—		$	26
Mortgage-backed securities(1):
Other U.S. obligation single-family mortgage-backed securities	—			213			839			987			2,039
Government-sponsored enterprise single-family mortgage-backed securities	—			149			620			11,878			12,647
Total held-to-maturity securities	26			362			1,459			12,865			14,712
Yield on held-to-maturity securities	0.09		%	2.17		%	1.82		%	2.27		%
Total securities	$	1,376		$	362		$	1,460		$	12,866		$	16,064
Securities purchased under agreements to resell	3,343			—			—			—			3,343
Federal funds sold	6,600			—			—			—			6,600
Total investments	$	11,319		$	362		$	1,460		$	12,866		$	26,007

(1) Mortgage-backed securities allocated based on contractual principal maturities assuming no prepayments.

As of December 31, 2014, the FHLBank held securities of the following issuers with a book value greater than 10 percent of FHLBank capital. The table includes government-sponsored enterprises, securities of the U.S. government, and government agencies and corporations.

(In millions)	Total		Total
Name of Issuer	Carrying Value		Fair Value
Freddie Mac	$	4,557	$	4,585
Fannie Mae	8,116		8,161
National Credit Union Administration Trust	1,052		1,056
Government National Mortgage Association	989		994
Certificates of deposit (4 issuers)	1,350		1,350
Total investment securities	$	16,064	$	16,146

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Loan Portfolio Analysis

The FHLBank's outstanding loans, loans 90 days or more past due and accruing interest, and allowance for credit loss information for the five years ended December 31 are shown below. The FHLBank's interest and related shortfall on non-accrual loans and loans modified in troubled debt restructurings was not material during the years presented below.

(Dollars in millions)	2014			2013			2012			2011			2010
Domestic:
Advances	$	70,406		$	65,270		$	53,944		$	28,424		$	30,181
Real estate mortgages	$	6,989		$	6,826		$	7,548		$	7,871		$	7,782
Real estate mortgages past due 90 days    or more (including those in process of foreclosure)    and still accruing interest	$	66		$	89		$	113		$	145		$	133
Non-accrual loans, unpaid principal balance (1)	$	4		$	3		$	3		$	2		$	—
Troubled debt restructurings (not included above)	$	5		$	4		$	3		$	1		$	—
Allowance for credit losses on mortgage loans,    beginning of year	$	7		$	18		$	21		$	12		$	—
Charge-offs	(2		)	(4		)	(4		)	(3		)	(1		)
(Reversal) provision for credit losses	—			(7		)	1			12			13
Allowance for credit losses on mortgage loans,    end of year	$	5		$	7		$	18		$	21		$	12
Ratio of net charge-offs during the period to    average loans outstanding during the period	0.03		%	0.05		%	0.06		%	0.05		%	0.02		%

(1) See Note 1 of the Notes to Financial Statements for an explanation of the FHLBank's non-accrual policy.

Other Borrowings

Borrowings with original maturities of one year or less are classified as short-term. The following is a summary of short-term borrowings exceeding 30 percent of total capital for the years ended December 31:

(Dollars in millions)	2014			2013			2012
Discount Notes
Outstanding at year-end (book value)	$	41,232		$	38,210		$	30,840
Weighted average rate at year-end (1) (2)	0.09		%	0.09		%	0.13		%
Daily average outstanding for the year (book value)	$	35,992		$	34,574		$	29,499
Weighted average rate for the year (2)	0.08		%	0.11		%	0.10		%
Highest outstanding at any month-end (book value)	$	41,232		$	38,926		$	32,556
Bonds (short-term)
Outstanding at year-end (par value)	$	17,810		$	21,650		$	9,140
Weighted average rate at year-end (2) (3)	0.10		%	0.11		%	0.17		%
Daily average outstanding for the year (par value)	$	18,810		$	16,583		$	3,527
Weighted average rate for the year (2) (3)	0.10		%	0.13		%	0.19		%
Highest outstanding at any month-end (par value)	$	22,235		$	22,010		$	9,140

(1) Represents an implied rate without consideration of concessions.

(2) Amounts used to calculate weighted average rates for the year are based on dollars in thousands. Accordingly, recalculations based upon amounts in millions may not produce the same results.

(3) Represents the effective coupon rate.

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Term Deposits

At December 31, 2014, term deposits in denominations of $100,000 or more totaled $99,550,000. The table below presents the maturities for term deposits in denominations of $100,000 or more:

(In millions) By remaining maturity at December 31, 2014	3 months or less		Over 3 months but within 6 months		Over 6 months but within 12 months		Over 12 months but within 24 months		Total
Time certificates of deposit	$	22	$	13	$	34	$	31	$	100

Ratios

	2014		2013		2012
Return on average assets	0.24	%	0.28	%	0.35	%
Return on average equity	4.93		5.10		6.20
Average equity to average assets	4.90		5.47		5.68
Dividend payout ratio	72.20	%	68.10	%	60.09	%

Item 7A.Quantitative and Qualitative Disclosures About Market Risk.

Information required under this Item is set forth in the “Quantitative and Qualitative Disclosures About Risk Management” caption at Part II, Item 7, of this filing.

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Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

of the Federal Home Loan Bank of Cincinnati:

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 Cincinnati (the "FHLBank") 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 FHLBank 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 FHLBank'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 under Item 9A in Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the FHLBank'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.

Cincinnati, Ohio

March 19, 2015

76

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CONDITION

(In thousands, except par value)

	December 31,
	2014			2013
ASSETS
Cash and due from banks (Note 3)	$	3,109,970		$	8,598,933
Interest-bearing deposits	119			166
Securities purchased under agreements to resell	3,343,000			2,350,000
Federal funds sold	6,600,000			1,740,000
Investment securities:
Trading securities (Note 4)	1,341			1,578
Available-for-sale securities (Note 5)	1,349,977			2,184,879
Held-to-maturity securities (includes $0 and $0 pledged as collateral in 2014 and 2013, respectively, that may be repledged) (a) (Note 6)	14,712,271			16,087,162
Total investment securities	16,063,589			18,273,619
Advances (includes $15,042 and $0 at fair value under fair value option in 2014 and 2013, respectively) (Note 8)	70,405,616			65,270,390
Mortgage loans held for portfolio:
Mortgage loans held for portfolio (Note 9)	6,989,602			6,825,523
Less: allowance for credit losses on mortgage loans (Note 10)	4,919			7,233
Mortgage loans held for portfolio, net	6,984,683			6,818,290
Accrued interest receivable	81,384			85,151
Premises, software, and equipment, net	11,282			13,811
Derivative assets (Note 11)	14,699			3,241
Other assets	26,077			27,101
TOTAL ASSETS	$	106,640,419		$	103,180,702
LIABILITIES
Deposits (Note 12)	$	729,936		$	913,895
Consolidated Obligations, net (Note 13):
Discount Notes	41,232,127			38,209,946
Bonds (includes $4,209,640 and $4,018,370 at fair value under fair value option in 2014 and 2013, respectively)	59,216,557			58,162,739
Total Consolidated Obligations, net	100,448,684			96,372,685
Mandatorily redeemable capital stock (Note 15)	62,963			115,853
Accrued interest payable	114,781			116,381
Affordable Housing Program payable (Note 14)	98,103			93,789
Derivative liabilities (Note 11)	63,767			97,766
Other liabilities	183,177			160,226
Total liabilities	101,701,411			97,870,595
Commitments and contingencies (Note 20)
CAPITAL (Note 15)
Capital stock Class B putable ($100 par value); issued and outstanding shares: 42,665 shares in 2014 and 46,980 shares in 2013	4,266,543			4,697,985
Retained earnings:
Unrestricted	529,367			510,321
Restricted	159,694			110,843
Total retained earnings	689,061			621,164
Accumulated other comprehensive loss (Note 16)	(16,596		)	(9,042		)
Total capital	4,939,008			5,310,107
TOTAL LIABILITIES AND CAPITAL	$	106,640,419		$	103,180,702

(a) Fair values: $14,794,326 and $15,808,397 at December 31, 2014 and 2013, respectively.

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

77

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF INCOME

(In thousands)

	For the Years Ended December 31,
	2014			2013			2012
INTEREST INCOME:
Advances	$	314,800		$	305,658		$	240,637
Prepayment fees on Advances, net	3,624			2,473			20,064
Interest-bearing deposits	85			185			571
Securities purchased under agreements to resell	1,261			1,872			4,527
Federal funds sold	5,426			6,232			6,844
Trading securities	25			31			35,580
Available-for-sale securities	3,204			1,827			2,794
Held-to-maturity securities	343,042			313,181			297,127
Mortgage loans held for portfolio	236,882			268,691			312,696
Loans to other FHLBanks	—			5			3
Total interest income	908,349			900,155			920,843
INTEREST EXPENSE:
Consolidated Obligations - Discount Notes	27,439			36,686			30,699
Consolidated Obligations - Bonds	559,480			529,788			569,949
Deposits	264			326			383
Loans from other FHLBanks	—			5			1
Mandatorily redeemable capital stock	4,190			5,506			11,690
Other borrowings	—			—			1
Total interest expense	591,373			572,311			612,723
NET INTEREST INCOME	316,976			327,844			308,120
(Reversal) provision for credit losses	(500		)	(7,450		)	1,459
NET INTEREST INCOME AFTER (REVERSAL) PROVISION FOR CREDIT LOSSES	317,476			335,294			306,661
NON-INTEREST INCOME:
Net losses on trading securities	(9		)	(19		)	(32,770		)
Net realized gains from sale of held-to-maturity securities	—			—			29,292
Net gains on financial instruments held under fair value option	2,174			330			1,939
Net gains on derivatives and hedging activities	6,627			7,903			8,735
Standby Letters of Credit fees	10,767			8,066			3,144
Other, net	3,071			3,511			3,072
Total non-interest income	22,630			19,791			13,412
NON-INTEREST EXPENSE:
Compensation and benefits	36,777			33,992			30,854
Other operating expenses	17,454			17,493			14,048
Finance Agency	7,084			5,203			6,002
Office of Finance	4,374			4,535			3,442
Other	2,559			3,164			3,624
Total non-interest expense	68,248			64,387			57,970
INCOME BEFORE ASSESSMENTS	271,858			290,698			262,103
Affordable Housing Program assessments	27,605			29,620			27,379
NET INCOME	$	244,253		$	261,078		$	234,724

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

78

FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	For the Years Ended December 31,
	2014			2013			2012
Net income	$	244,253		$	261,078		$	234,724
Other comprehensive income adjustments:
Net unrealized gains (losses) on available-for-sale securities	97			(121		)	1,014
Pension and postretirement benefits	(7,651		)	2,813			(1,747		)
Total other comprehensive income adjustments	(7,554		)	2,692			(733		)
Comprehensive income	$	236,699		$	263,770		$	233,991

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CAPITAL

(In thousands)

	Capital Stock Class B - Putable					Retained Earnings								Accumulated Other Comprehensive			Total
	Shares		Par Value			Unrestricted			Restricted		Total			Loss			Capital
BALANCE, DECEMBER 31, 2011	31,259		$	3,125,895		$	432,530		$	11,683	$	444,213		$	(11,001	)	$	3,559,107
Proceeds from sale of capital stock	9,248		924,853														924,853
Net shares reclassified to mandatorily    redeemable capital stock	(401	)	(40,126		)												(40,126		)
Comprehensive income						187,779			46,945		234,724			(733		)	233,991
Cash dividends on capital stock						(141,056		)			(141,056		)				(141,056		)
BALANCE, DECEMBER 31, 2012	40,106		4,010,622			479,253			58,628		537,881			(11,734		)	4,536,769
Proceeds from sale of capital stock	7,208		720,820														720,820
Net shares reclassified to mandatorily    redeemable capital stock	(334	)	(33,457		)												(33,457		)
Comprehensive income						208,863			52,215		261,078			2,692			263,770
Cash dividends on capital stock						(177,795		)			(177,795		)				(177,795		)
BALANCE, DECEMBER 31, 2013	46,980		4,697,985			510,321			110,843		621,164			(9,042		)	5,310,107
Proceeds from sale of capital stock	835		83,543														83,543
Repurchase of capital stock	(4,979	)	(497,875		)												(497,875		)
Net shares reclassified to mandatorily    redeemable capital stock	(171	)	(17,110		)												(17,110		)
Comprehensive income						195,402			48,851		244,253			(7,554		)	236,699
Cash dividends on capital stock						(176,356		)			(176,356		)				(176,356		)
BALANCE, DECEMBER 31, 2014	42,665		$	4,266,543		$	529,367		$	159,694	$	689,061		$	(16,596	)	$	4,939,008

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

STATEMENTS OF CASH FLOWS

(In thousands)

	For the Years Ended December 31,
	2014			2013			2012
OPERATING ACTIVITIES:
Net income	$	244,253		$	261,078		$	234,724
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,188			(512		)	59,389
Net change in derivative and hedging activities	16,224			35,607			69,279
Net change in fair value adjustments on trading securities	9			19			32,770
Net change in fair value adjustments on financial instruments held under fair value option	(2,174		)	(330		)	(1,939		)
Other adjustments	(393		)	(7,464		)	(27,830		)
Net change in:
Accrued interest receivable	3,746			(1,216		)	30,354
Other assets	(739		)	(3,244		)	(726		)
Accrued interest payable	(3,177		)	10,829			(36,317		)
Other liabilities	19,252			25,470			42,856
Total adjustments	40,936			59,159			167,836
Net cash provided by operating activities	285,189			320,237			402,560
INVESTING ACTIVITIES:
Net change in:
Interest-bearing deposits	30,579			119,127			279,777
Securities purchased under agreements to resell	(993,000		)	1,450,000			(3,800,000		)
Federal funds sold	(4,860,000		)	1,610,000			(1,080,000		)
Premises, software, and equipment	(686		)	(7,203		)	(2,129		)
Trading securities:
Net decrease in short-term	—			—			2,510,301
Proceeds from maturities of long-term	228			325			317,746
Available-for-sale securities:
Net decrease (increase) in short-term	835,000			(2,185,000		)	4,172,157
Held-to-maturity securities:
Net decrease (increase) in short-term	1,386			(1,247		)	835,392
Proceeds from maturities of long-term	2,093,933			2,686,432			3,771,382
Proceeds from sale of long-term	—			—			507,531
Purchases of long-term	(719,833		)	(5,977,152		)	(5,323,500		)
Advances:
Proceeds	1,120,239,271			697,384,820			749,327,365
Made	(1,125,441,755		)	(708,852,213		)	(775,104,699		)
Mortgage loans held for portfolio:
Principal collected	1,070,820			1,890,141			2,666,537
Purchases	(1,260,888		)	(1,203,883		)	(2,374,523		)
Net cash used in investing activities	(9,004,945		)	(13,085,853		)	(23,296,663		)
The accompanying notes are an integral part of these financial statements.

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(continued from previous page)
FEDERAL HOME LOAN BANK OF CINCINNATI
STATEMENTS OF CASH FLOWS
(In thousands)
	For the Years Ended December 31,
	2014			2013			2012
FINANCING ACTIVITIES:
Net (decrease) increase in deposits and pass-through reserves	$	(200,660	)	$	(260,961	)	$	108,546
Net payments on derivative contracts with financing elements	(31,195		)	(42,054		)	(113,976		)
Net proceeds from issuance of Consolidated Obligations:
Discount Notes	270,415,559			165,083,112			250,629,492
Bonds	41,461,146			34,035,263			35,063,026
Payments for maturing and retiring Consolidated Obligations:
Discount Notes	(267,394,419		)	(157,714,961		)	(245,932,389		)
Bonds	(40,358,950		)	(20,166,866		)	(19,557,835		)
Proceeds from issuance of capital stock	83,543			720,820			924,853
Payments for repurchase/redemption of mandatorily redeemable capital stock	(70,000		)	(128,432		)	(104,079		)
Payments for repurchase of capital stock	(497,875		)	—			—
Cash dividends paid	(176,356		)	(177,795		)	(141,056		)
Net cash provided by financing activities	3,230,793			21,348,126			20,876,582
Net (decrease) increase in cash and cash equivalents	(5,488,963		)	8,582,510			(2,017,521		)
Cash and cash equivalents at beginning of the period	8,598,933			16,423			2,033,944
Cash and cash equivalents at end of the period	$	3,109,970		$	8,598,933		$	16,423
Supplemental Disclosures:
Interest paid	$	621,865		$	584,640		$	649,609
Affordable Housing Program payments, net	$	23,291		$	18,503		$	18,902

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

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FEDERAL HOME LOAN BANK OF CINCINNATI

NOTES TO FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Cincinnati (the FHLBank), a federally chartered corporation, is one of 12 District Federal Home Loan Banks (FHLBanks). The FHLBanks serve the public by enhancing the availability of credit for residential mortgages and targeted community development. The FHLBank provides a readily available, competitively-priced source of funds to its member institutions. The FHLBank is a cooperative whose member institutions own nearly all of the capital stock of the FHLBank and may receive dividends on their investment to the extent declared by the FHLBank's Board of Directors. Former members own the remaining capital stock to support business transactions still carried on the FHLBank's Statements of Condition. Regulated financial depositories and insurance companies engaged in residential housing finance may apply for membership. Housing associates, including state and local housing authorities, may also borrow from the FHLBank; while eligible to borrow, housing authorities are not members of the FHLBank and, therefore, are not allowed to hold capital stock. A housing authority is eligible to utilize the Advance programs of the FHLBank if it meets applicable statutory requirements. It must be a U.S. Department of Housing and Urban Development approved mortgagee and must also meet applicable mortgage lending, financial condition, as well as charter, inspection and supervision requirements.

All members must purchase stock in the FHLBank. Members must own capital stock in the FHLBank based on the amount of their total assets. Each member also may be required to purchase activity-based capital stock as it engages in certain business activities with the FHLBank. As a result of these requirements, the FHLBank conducts business with stockholders in the normal course of business. For financial statement purposes, the FHLBank defines related parties as those members with more than 10 percent of the voting interests of the FHLBank's outstanding capital stock. See Note 22 for more information relating to transactions with stockholders.

The Federal Housing Finance Agency (Finance Agency) was established and became the independent Federal regulator of the FHLBanks, Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae), effective July 30, 2008 with the passage of the “Housing and Economic Recovery Act of 2008” (HERA). Pursuant to HERA, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the former Federal Housing Finance Board will remain in effect until modified, terminated, set aside, or superseded by the Finance Agency Director, any court of competent jurisdiction, or operation of law. The Finance Agency's stated mission with respect to the FHLBanks is to provide effective supervision, regulation and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.

Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The FHLBank does not have any special purpose entities or any other type of off-balance sheet conduits.

The Office of Finance is a joint office of the FHLBanks established to facilitate the issuance and servicing of the debt instruments of the FHLBanks, known as Consolidated Obligations, and to prepare combined quarterly and annual financial reports of all 12 FHLBanks. As provided by the Federal Home Loan Bank Act of 1932, as amended (the FHLBank Act), or by Finance Agency regulation, the FHLBanks' Consolidated Obligations are backed only by the financial resources of the FHLBanks and are the primary source of funds for the FHLBanks. Deposits, other borrowings, and capital stock issued to members provide other funds. The FHLBank primarily uses its funds to provide Advances to members and to purchase loans from members through its Mortgage Purchase Program (MPP). The FHLBank also provides member institutions with correspondent services, such as wire transfer, security safekeeping, and settlement services.

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation.The FHLBank's accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (GAAP).

Cash Flows. In the Statements of Cash Flows, the FHLBank considers non-interest bearing cash and due from banks as cash and cash equivalents. Federal funds sold are not treated as cash equivalents for purposes of the Statements of Cash Flows, but are instead treated as short-term investments and are reflected in the investing activities section of the Statements of Cash Flows.

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

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

Fair Values. Some of the FHLBank's financial instruments lack an available trading market with prices characterized as those that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Therefore, the FHLBank uses pricing services and/or internal models employing significant estimates and present value calculations when disclosing fair values. See Note 19 for more information.

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 deposits (CDs) not meeting the definition of an investment security. The FHLBank treats securities purchased under agreements to resell as short-term collateralized loans, which are classified as assets in the Statements of Condition. Securities purchased under agreements to resell are held in safekeeping in the name of the FHLBank by third-party custodians approved by the FHLBank. If the market value of the underlying securities decrease below the market value required as collateral, the counterparty has the option to (1) place an equivalent amount of additional securities in safekeeping in the name of the FHLBank or (2) remit an equivalent amount of cash. Federal funds sold consist of short-term, unsecured loans generally transacted with counterparties that are considered by the FHLBank to be of investment quality.

Investment Securities.The FHLBank classifies investment securities as trading, available-for-sale and held-to-maturity at the date of acquisition. Purchases and sales of securities are recorded on a trade date basis.

Trading. Securities classified as trading are acquired for liquidity purposes and asset/liability management and carried at fair value. The FHLBank records changes in the fair value of these securities through other income as a net gain or loss on trading securities. However, the FHLBank does not participate in speculative trading practices and holds these investments indefinitely as management periodically evaluates its liquidity needs.

Available-for-Sale. Securities that are not classified as held-to-maturity or trading are classified as available-for-sale and are carried at fair value. The change in fair value of available-for-sale securities is recorded in other comprehensive income as a net unrealized gain or loss on available-for-sale securities.

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

Certain changes in circumstances may cause the FHLBank 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 held-to-maturity 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, nonrecurring, and unusual for the FHLBank that could not have been reasonably anticipated may cause the FHLBank to sell or transfer a held-to-maturity security without necessarily calling into question its intent to hold other debt securities to maturity.

In addition, sales of held-to-maturity debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to the security's maturity date (or call date if exercise of the call is probable) that interest rate risk is substantially eliminated as a pricing factor and changes in market interest rates would not have a significant effect on the security's fair value, or (2) the sale of the security occurs after the FHLBank has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the security or to scheduled payments on the security payable in equal installments (both principal and interest) over its term.

Premiums and Discounts. The FHLBank amortizes purchased premiums and accretes purchased discounts on mortgage-backed securities and other investment categories with a term of greater than one year using the retrospective level-yield method

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(retrospective method). The retrospective method requires that the FHLBank estimate prepayments over the estimated life of the securities and make a retrospective adjustment of the effective yield each time that the FHLBank changes the estimated life and/or prepayments as if the new estimate had been known since the original acquisition date of the securities. The FHLBank uses nationally recognized third-party prepayment models to project estimated cash flows. Due to their short term nature, the FHLBank amortizes premiums and accretes discounts on other investment categories with a term of one year or less using a straight-line methodology based on the contractual maturity of the securities. Analyses of the straight-line compared to the level-yield methodology have been performed by the FHLBank and it has determined that the impact of the difference on the financial statements for each period reported, taken individually and as a whole, is not material.

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

Investment Securities - Other-than-Temporary Impairment. The FHLBank evaluates its individual available-for-sale and held-to-maturity securities in an unrealized loss position for other-than-temporary impairment on a quarterly basis. A security is considered impaired when its fair value is less than its amortized cost. The FHLBank considers an other-than-temporary impairment to have occurred under any of the following circumstances:

▪ if the FHLBank has an intent to sell the impaired debt security;

▪ if, based on available evidence, the FHLBank 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

▪ if the FHLBank does not expect to recover the entire amortized cost basis of the debt security.

Recognition of Other-than-Temporary Impairment. If either of the first two conditions above is met, the FHLBank recognizes an other-than-temporary impairment charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value as of the Statement of Condition date. For securities in an unrealized loss position that do not meet either of these conditions, the entire loss position, or total other-than-temporary impairment, is evaluated to determine the extent and amount of credit loss.

Advances.The FHLBank reports Advances (loans to members, former members or housing associates) either at amortized cost or at fair value when the fair value option is elected. Advances carried at amortized cost are reported net of premiums, discounts (including discounts on Advances related to the Affordable Housing Program (AHP), as discussed below), unearned commitment fees and hedging adjustments. The FHLBank amortizes the premiums and accretes the discounts on Advances to interest income using a level-yield methodology. The FHLBank records interest on Advances to income as earned. For Advances carried at fair value, interest income is recognized based on the contractual interest rate.

Advance Modifications. In cases in which the FHLBank funds a new Advance concurrent with or within a short period of time before or after the prepayment of an existing Advance, the FHLBank 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 FHLBank 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 10 percent difference in the cash flows, or if the FHLBank concludes the differences between the Advances are more than minor based on qualitative factors, 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 FHLBank charges a borrower a prepayment fee when the borrower prepays certain Advances before the original maturity. The FHLBank records prepayment fees, net of basis adjustments related to hedging activities included in the carrying value of the Advances, as “Prepayment fees on Advances, net” in the interest income section of the Statements of Income.

If a new Advance qualifies as a modification of the existing Advance, the net prepayment fee on the prepaid Advance is deferred, recorded in the basis of the modified Advance, and amortized/accreted using a level-yield methodology over the life of the modified Advance to Advance interest income.

For prepaid Advances that are hedged and meet the hedge accounting requirements, the FHLBank terminates the hedging relationship upon prepayment and records the associated fair value gains and losses, adjusted for the prepayment fees, in interest income. If the FHLBank funds a new Advance to a member concurrent with or within a short period of time after the prepayment of a previous Advance to that member, the FHLBank evaluates whether the new Advance qualifies as a modification of the original hedged Advance. If the new Advance qualifies as a modification of the original hedged Advance,

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the fair value gains or losses of the Advance and the prepayment fees are included in the carrying amount of the modified Advance, and gains or losses and prepayment fees are amortized in interest income over the life of the modified Advance using a level-yield methodology. If the modified Advance also is hedged and the hedge meets the hedging criteria, the modified Advance is marked to fair value after the modification, and subsequent fair value changes are recorded in other income.

If a new Advance does not qualify as a modification of an existing Advance, it is treated as an Advance termination with subsequent funding of a new Advance and the existing fees, net of related hedging adjustments, are recorded in interest income as “Prepayment fees on Advances, net.”

The FHLBank defers commitment fees for Advances and amortizes them to interest income using a level-yield methodology. Refundable fees are deferred until the commitment expires or until the Advance is made. The FHLBank records commitment fees for Standby Letters of Credit as a deferred credit when it receives the fees and accretes them using a straight-line methodology over the term of the Standby Letter of Credit. Based upon past experience, the FHLBank's management believes that the likelihood of Standby Letters of Credit being drawn upon is remote.

Mortgage Loans Held for Portfolio.The FHLBank classifies mortgage loans as held for portfolio and, accordingly, reports them at their principal amount outstanding net of unamortized premiums and discounts and mark-to-market basis adjustments on loans initially classified as mortgage loan commitments. The FHLBank has the intent and ability to hold these mortgage loans to maturity.

Premiums and Discounts. The FHLBank defers and amortizes premiums and accretes discounts paid to and received by the FHLBank's participating members (Participating Financial Institutions, or PFIs) and mark-to-market basis adjustments, as interest income using the retrospective method. The FHLBank aggregates the mortgage loans by similar characteristics (type, maturity, note rate and acquisition date) in determining prepayment estimates for the retrospective method.

Other Fees. The FHLBank may receive non-origination fees, called pair-off fees. Pair-off fees represent a make-whole provision and are assessed when a member fails to deliver the quantity of loans committed to in a Mandatory Delivery Contract. Pair-off fees are recorded in other income. A Mandatory Delivery Contract is a legal commitment the FHLBank makes to purchase, and a PFI makes to deliver, a specified dollar amount of mortgage loans, with a forward settlement date, at a specified range of mortgage note rates and prices.

Allowance for Credit Losses.An allowance for credit losses is separately established for each identified portfolio segment, if it is probable that a loss triggering event has occurred in the FHLBank's portfolio as of the Statements of Condition date and the amount of loss can be reasonably estimated. To the extent necessary, an allowance for credit losses for off-balance sheet credit exposures is recorded as a liability. See Note 10 for details on each allowance methodology.

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 FHLBank has developed and documented a systematic methodology for determining an allowance for credit losses, where applicable, for (1) Advances, letters of credit and other extensions of credit to members, collectively referred to as “credit products”; (2) Federal Housing Administration mortgage loans held for portfolio; and (3) conventional mortgage loans held for portfolio.

Classes of Financing Receivables. Classes of financing receivables generally are a disaggregation of a portfolio segment to the extent needed to understand the exposure to credit risk arising from these financing receivables. The FHLBank determined that no further disaggregation of the portfolio segments identified above is needed as the credit risk arising from these financing receivables is assessed and measured by the FHLBank at the portfolio segment level.

Impairment Methodology. A loan is considered impaired when, based on current information and events, it is probable that the FHLBank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Loans that are on non-accrual status and that are considered collateral-dependent are measured for impairment based on the fair value of the underlying property (net of estimated selling costs) and the amount of applicable credit enhancements. Loans are considered collateral-dependent if repayment is expected to be provided solely by the sale of the underlying property, that is, there is no other available and reliable source of repayment. Collateral-dependent loans are impaired if the fair value of the underlying collateral is insufficient to recover the unpaid principal balance on the loan. Interest income on impaired loans is recognized in the same manner as non-accrual loans noted below.

Non-accrual Loans. The FHLBank places a conventional mortgage loan on non-accrual status if it is determined that either (1) the collection of interest or principal is doubtful (e.g., when a related allowance for credit losses is recorded on a loan

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considered to be a troubled debt restructuring as a result of the individual evaluation for impairment), or (2) interest or principal is past due for 90 days or more, except when the loan is well-secured and in the process of collection (e.g., through credit enhancements and with monthly settlements on a schedule/scheduled basis). Loans with settlements on a schedule/scheduled basis means the FHLBank receives monthly principal and interest payments from the servicer regardless of whether the mortgagee is making payments to the servicer. Loans with monthly settlement on an actual/actual basis are considered well-secured; however, servicers of actual/actual loan types contractually do not advance principal and interest regardless of borrower creditworthiness. As a result, these loans are placed on non-accrual status once they become 90 days delinquent.

For those mortgage loans placed on non-accrual status, accrued but uncollected interest is reversed against interest income. The FHLBank records cash payments received on non-accrual loans first as interest income and then as a reduction of principal as specified in the contractual agreement, unless the collection of the remaining principal amount due is considered doubtful. If the collection of the remaining principal amount due is considered doubtful, cash payments received are applied first solely to principal until the remaining principal amount due is expected to be collected and then as a recovery of any charge-off, if applicable, followed by recording interest income. A loan on non-accrual status may be restored to accrual status when (1) none of its contractual principal and interest is due and unpaid, and the FHLBank expects repayment of the remaining contractual interest and principal, or (2) it otherwise becomes well secured and in the process of collection.

Charge-off Policy. The FHLBank 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 occurrence of foreclosure or notification of a claim against any of the credit enhancements. A charge-off is recorded if the recorded investment in the loan will not be recovered.

Premises, Software and Equipment, Net. The FHLBank records premises, software and equipment at cost less accumulated depreciation and amortization. The FHLBank's accumulated depreciation and amortization related to these items was $18,556,000 and $19,161,000 at December 31, 2014 and 2013. The FHLBank computes depreciation on a straight-line methodology over the estimated useful lives of assets ranging from three to ten years. The FHLBank amortizes leasehold improvements on a straight-line basis over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The FHLBank capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred. Depreciation and amortization expense for premises, software and equipment was $3,108,000, $2,549,000, and $2,176,000 for the years ended December 31, 2014, 2013, and 2012.

The FHLBank includes gains and losses on disposal of premises, software and equipment in other income. The net realized (loss) gain on disposal of premises, software and equipment was $(106,000), $13,000, and $(3,000) for the years ended December 31, 2014, 2013, and 2012.

The cost of computer software developed or obtained for internal use is capitalized and amortized over future periods. As of December 31, 2014 and 2013, the FHLBank had $6,659,000 and $8,677,000 in unamortized computer software costs. Amortization of computer software costs charged to expense was $2,433,000, $1,814,000, and $1,528,000 for the years ended December 31, 2014, 2013, and 2012.

Derivatives. All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral and accrued interest from counterparties. The fair values of derivatives are netted by counterparty when the netting arrangements 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 Statement 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:

1. a qualifying hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a "fair value" hedge); or

2. a non-qualifying hedge (“economic hedge”) for asset/liability management purposes.

Accounting for Fair Value Hedges. If hedging relationships meet certain criteria including, but not limited to, formal documentation of the hedging relationship and an expectation to be highly effective, they are eligible for fair value hedge accounting and the offsetting changes in fair value of the hedged items attributable to the hedged risk may be recorded in earnings. The application of hedge accounting generally requires the FHLBank to evaluate the effectiveness of the hedging relationships at inception and on an ongoing basis and to calculate the changes in fair value of the derivatives and related

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hedged items independently. This is known as the “long-haul” method of accounting. Transactions that meet more stringent criteria qualify for the “shortcut” method of hedge accounting in which an assumption can be made that the change in fair value of a hedged item exactly offsets the change in value of the related derivative. The FHLBank discontinued use of the shortcut method effective July 1, 2009 for all new hedging relationships.

Derivatives are typically executed at the same time as the hedged Advances or Consolidated Obligations and the FHLBank designates the hedged item in a qualifying hedge relationship as of the trade date. In many hedging relationships, the FHLBank may designate the 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 FHLBank 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 and qualifies as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, are recorded in other income as “Net gains on derivatives and hedging activities.”

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 hedge accounting, but is an acceptable hedging strategy under the FHLBank's risk management program. These economic hedging strategies also comply with Finance Agency regulatory requirements prohibiting speculative hedge transactions. An economic hedge by definition introduces the potential for earnings variability caused by the changes in fair value of the derivatives that are recorded in the FHLBank's income but that are not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments. As a result, the FHLBank recognizes only the change in fair value of these derivatives in other income as “Net gains on derivatives and hedging activities” with no offsetting fair value adjustments for the assets, liabilities, or firm commitments.

The difference between accruals of interest receivables and payables on derivatives that are designated as fair value hedge relationships is recognized as adjustments to the interest income or expense of the designated hedged item. The differentials between accruals of interest receivables and payables on economic hedges are recognized in other income as “Net gains on derivatives and hedging activities.”

Embedded Derivatives. The FHLBank may issue debt, make Advances, or purchase financial instruments in which a derivative instrument is “embedded.” Upon execution of these transactions, the FHLBank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the Advance, debt, 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. When the FHLBank determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) 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 a stand-alone derivative instrument pursuant to an economic hedge. However, the entire contract is carried at fair value and no portion of the contract is designated as a hedging instrument if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current-period earnings (such as an investment security classified as “trading” as well as hybrid financial instruments that are selected for the fair value option), or if the FHLBank cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract.

Discontinuance of Hedge Accounting. The FHLBank discontinues hedge accounting prospectively when: (1) it determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item attributable to the hedged risk; (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; or (3) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued because the FHLBank determines that the derivative no longer qualifies as an effective fair value hedge of an existing hedged item, the FHLBank continues to carry the derivative on the Statements of Condition at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using a level-yield methodology.

Consolidated Obligations.Consolidated Obligations are recorded at amortized cost unless the FHLBank has elected the fair value option, in which case the Consolidated Obligations are carried at fair value.

Concessions. Dealers receive concessions in connection with the issuance of certain Consolidated Obligations. The Office of Finance prorates the amount of the concession to the FHLBank based upon the percentage of the debt issued that is assumed by

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the FHLBank. Concessions paid on Consolidated Obligations designated under the fair value option are expensed as incurred in other non-interest expense. Concessions paid on Consolidated Obligation Bonds not designated under the fair value option are deferred and amortized, using a level-yield methodology, over the terms to maturity or the expected lives of the Consolidated Obligation Bonds. Unamortized concessions are included in “Other assets,” and the amortization of those concessions is included in Consolidated Obligation Bond interest expense.

The FHLBank charges to expense as incurred the concessions applicable to Consolidated Obligation Discount Notes because of the short maturities of these Notes. Analyses of expensing concessions as incurred compared to a level-yield methodology have been performed by the FHLBank and it has determined that the impact of the difference on the financial statements for each period reported, taken individually and as a whole, is not material.

Discounts and Premiums. The FHLBank accretes the discounts and amortizes the premiums on Consolidated Obligation Bonds to interest expense using a level-yield methodology over the terms to maturity or estimated lives of the corresponding Consolidated Obligation Bonds. Due to their short-term nature, it expenses the discounts on Consolidated Obligation Discount Notes using a straight-line methodology over the term of the Notes. Analyses of a straight-line compared to a level-yield methodology have been performed by the FHLBank, and the FHLBank has determined that the impact of the difference on the financial statements for each period reported, taken individually and as a whole, is not material.

Mandatorily Redeemable Capital Stock. The FHLBank reclassifies stock subject to redemption from equity to liability upon expiration of the “grace period” after a member provides written notice of redemption, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or involuntary termination from membership, because the member shares then meet the definition of a mandatorily redeemable financial instrument. Shares meeting this definition are reclassified to a liability at fair value. Dividends declared on shares classified as a liability are accrued at the expected dividend rate and reflected as interest expense in the Statements of Income. The repurchase or redemption of mandatorily redeemable capital stock 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 FHLBank reclassifies the mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock are no longer classified as interest expense.

Employee Benefit Plans. The FHLBank records the periodic benefit cost associated with its employee retirement plans and its contributions associated with its defined contribution plans as compensation and benefits expense in the Statements of Income.

Restricted Retained Earnings.In 2011, the 12 FHLBanks entered into a Joint Capital Enhancement Agreement, as amended (Capital Agreement). Under the Capital Agreement, beginning in the third quarter of 2011, the FHLBank contributes 20 percent ofits quarterly net income to a separate restricted retained earnings account until the accountbalance equals at least one percent of the FHLBank's average balance of outstanding Consolidated Obligations forthe previous quarter. These restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.

Finance Agency Expenses. The FHLBank funds its proportionate share of the costs of operating the Finance Agency. The portion of the Finance Agency's expenses and working capital fund paid by each FHLBank has been allocated based on the FHLBank's pro rata share of total annual assessments (which are based on the ratio between each FHLBank's minimum required regulatory capital and the aggregate minimum required regulatory capital of every FHLBank).

Office of Finance Expenses. The FHLBank is assessed for its proportionate share of the costs of operating the Office of Finance. Each FHLBank's proportionate share of Office of Finance operating and capital expenditures is calculated using a formula that is based upon the following components: (1) two-thirds based upon each FHLBank's share of total Consolidated Obligations outstanding and (2) one-third based upon an equal pro rata allocation.

Voluntary Housing Programs. The FHLBank classifies amounts awarded under its voluntary housing programs as other expenses.

Affordable Housing Program (AHP).The FHLBank Act requires each FHLBank to establish and fund an AHP. The FHLBank charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The FHLBank issues AHP Advances at interest rates below the customary interest rate for non-subsidized Advances. When the FHLBank makes an AHP Advance, the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP Advance rate and the FHLBank's related cost of funds for comparable maturity funding is charged

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against the AHP liability and recorded as a discount on the AHP Advance. As an alternative, the FHLBank also has the authority to make the AHP subsidy available to members as a grant. The discount on AHP Advances is accreted to interest income on Advances using a level-yield methodology over the life of the Advance.

Note 2 - Recently Issued Accounting Standards and Interpretations

Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. On August 8, 2014, the Financial Accounting Standards Board (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 derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. This guidance became effective for the FHLBank for the interim and annual periods beginning on January 1, 2015, and was adopted prospectively. The adoption of this guidance will not have a material effect on the FHLBank'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 financings. 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 FHLBank for interim and annual periods beginning on January 1, 2015. The changes in accounting for transactions outstanding on the effective date were presented as a cumulative-effect adjustment to retained earnings as of January 1, 2015. The adoption of this guidance will not have a material effect on the FHLBank's financial condition, results of operations, or cash flows.

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 real estate owned. Specifically, such collateralized mortgage loans should be reclassified to real estate owned 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 FHLBank for interim and annual periods beginning on January 1, 2015, and was adopted prospectively. The adoption of this guidance will not have a material effect on the FHLBank's financial condition, results of operations, or cash flows.

Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention. On April 9, 2012, the Finance Agency issued an advisory bulletin that establishes a standard and uniform methodology for adverse classification and identification of special mention assets and off-balance sheet credit exposures at the FHLBanks, excluding investment securities. The adverse classification requirements were implemented as of January 1, 2014; this implementation did not have a material effect on the FHLBank's financial condition, results of operations, or cash flows. The charge-off requirements were implemented on January 1, 2015. The adoption of these requirements will not have a material effect on the FHLBank's financial condition, results of operations, or cash flows.

Note 3 - Cash and Due from Banks

Compensating Balances. The FHLBank maintains collected cash balances with commercial banks in return for certain services. These agreements contain no legal restrictions on the withdrawal of funds. The average collected cash balances for the years ended December 31, 2014 and 2013 were approximately $77,000 and $68,000.

Pass-through Deposit Reserves. The FHLBank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. The amount shown as “Cash and due from banks” includes pass-through reserves deposited with Federal Reserve Banks of approximately $298,000 and $15,884,000 as of December 31, 2014 and 2013.

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Note 4 - Trading Securities

Table 4.1 - Trading Securities by Major Security Types (in thousands)

Fair Value	December 31, 2014		December 31, 2013
Mortgage-backed securities:
Other U.S. obligation single-family mortgage-backed securities (1)	$	1,341	$	1,578
Total	$	1,341	$	1,578

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

Table 4.2 - Net Losses on Trading Securities (in thousands)

	For the Years Ended December 31,
	2014			2013			2012
Net (losses) gains on trading securities held at period end	$	(9	)	$	(19	)	$	8
Net losses on securities matured during the period	—			—			(32,778		)
Net losses on trading securities	$	(9	)	$	(19	)	$	(32,770	)

Note 5 - Available-for-Sale Securities

Table 5.1 - Available-for-Sale Securities by Major Security Types (in thousands)

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Certificates of deposit	$	1,350,001	$	3	$	(27	)	$	1,349,977
Total	$	1,350,001	$	3	$	(27	)	$	1,349,977
	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Certificates of deposit	$	2,185,000	$	1	$	(122	)	$	2,184,879
Total	$	2,185,000	$	1	$	(122	)	$	2,184,879

All securities outstanding with gross unrealized losses at December 31, 2014 have been in a continuous unrealized loss position for less than 12 months.

Table 5.2 - Available-for-Sale Securities by Contractual Maturity (in thousands)

	December 31, 2014				December 31, 2013
Year of Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	1,350,001	$	1,349,977	$	2,185,000	$	2,184,879

Table 5.3 - Interest Rate Payment Terms of Available-for-Sale Securities (in thousands)

	December 31, 2014		December 31, 2013
Amortized cost of available-for-sale securities:
Fixed-rate	$	1,350,001	$	2,185,000

Realized Gains and Losses. The FHLBank had no sales of securities out of its available-for-sale portfolio for the years ended December 31, 2014, 2013 or 2012.

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Note 6 - Held-to-Maturity Securities

Table 6.1 - Held-to-Maturity Securities by Major Security Types (in thousands)

	December 31, 2014
	Amortized Cost (1)		Gross Unrecognized Holding Gains		Gross Unrecognized Holding (Losses)			Fair Value
Non-mortgage-backed securities:
Government-sponsored enterprises (GSE) (2)	$	26,099	$	—	$	—		$	26,099
Total non-mortgage-backed securities	26,099		—		—			26,099
Mortgage-backed securities:
Other U.S. obligation single-family    mortgage-backed securities (3)	2,038,960		10,021		(1,017		)	2,047,964
GSE single-family mortgage-backed securities (4)	12,647,212		191,870		(118,819		)	12,720,263
Total mortgage-backed securities	14,686,172		201,891		(119,836		)	14,768,227
Total	$	14,712,271	$	201,891	$	(119,836	)	$	14,794,326
	December 31, 2013
	Amortized Cost (1)		Gross Unrecognized Holding Gains		Gross Unrecognized Holding (Losses)			Fair Value
Non-mortgage-backed securities:
GSE (2)	$	27,485	$	1	$	—		$	27,486
Total non-mortgage-backed securities	27,485		1		—			27,486
Mortgage-backed securities:
Other U.S. obligation single-family    mortgage-backed securities (3)	1,909,099		4,545		(26,396		)	1,887,248
GSE single-family mortgage-backed securities (4)	14,150,578		141,962		(398,877		)	13,893,663
Total mortgage-backed securities	16,059,677		146,507		(425,273		)	15,780,911
Total	$	16,087,162	$	146,508	$	(425,273	)	$	15,808,397

(1) Carrying value equals amortized cost.

(2) Consists of debt securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the support of the U.S. government, although they are not obligations of the U.S. government.

(3) Consists of Ginnie Mae mortgage-backed securities and/or mortgage-backed securities issued or guaranteed by the National Credit Union Administration (NCUA) and the U.S. government.

(4) Consists of mortgage-backed securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the support of the U.S. government, although they are not obligations of the U.S. government.

Table 6.2 - Net Purchased Discounts Included in the Amortized Cost of Mortgage-backed Securities Classified as Held-to-Maturity (in thousands)

	December 31, 2014			December 31, 2013
Premiums	$	24,473		$	32,458
Discounts	(51,357		)	(58,658		)
Net purchased discounts	$	(26,884	)	$	(26,200	)

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Table 6.3 summarizes the held-to-maturity securities with unrealized losses, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Table 6.3 - Held-to-Maturity Securities in a Continuous Unrealized Loss Position (in thousands)

	December 31, 2014
	Less than 12 Months					12 Months or more					Total
	Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)
Mortgage-backed securities:
Other U.S. obligation single-family    mortgage-backed securities (1)	$	—	$	—		$	197,625	$	(1,017	)	$	197,625	$	(1,017	)
GSE single-family mortgage-backed securities (2)	631,907		(1,348		)	5,555,049		(117,471		)	6,186,956		(118,819		)
Total	$	631,907	$	(1,348	)	$	5,752,674	$	(118,488	)	$	6,384,581	$	(119,836	)
	December 31, 2013
	Less than 12 Months					12 Months or more					Total
	Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)			Fair Value		Gross Unrealized (Losses)
Mortgage-backed securities:
Other U.S. obligation single-family    mortgage-backed securities (1)	$	663,278	$	(26,396	)	$	—	$	—		$	663,278	$	(26,396	)
GSE single-family mortgage-backed securities (2)	8,817,132		(397,252		)	48,902		(1,625		)	8,866,034		(398,877		)
Total	$	9,480,410	$	(423,648	)	$	48,902	$	(1,625	)	$	9,529,312	$	(425,273	)

(1) Consists of Ginnie Mae mortgage-backed securities.

(2) Consists of mortgage-backed securities issued and effectively guaranteed by Freddie Mac and/or Fannie Mae, which have the support of the U.S. government, although they are not obligations of the U.S. government.

Table 6.4 - Held-to-Maturity Securities by Contractual Maturity (in thousands)

	December 31, 2014				December 31, 2013
Year of Maturity	Amortized Cost (1)		Fair Value		Amortized Cost (1)		Fair Value
Non-mortgage-backed securities:
Due in 1 year or less	$	26,099	$	26,099	$	27,485	$	27,486
Due after 1 year through 5 years	—		—		—		—
Due after 5 years through 10 years	—		—		—		—
Due after 10 years	—		—		—		—
Total non-mortgage-backed securities	26,099		26,099		27,485		27,486
Mortgage-backed securities (2)	14,686,172		14,768,227		16,059,677		15,780,911
Total	$	14,712,271	$	14,794,326	$	16,087,162	$	15,808,397

(1) Carrying value equals amortized cost.

(2) Mortgage-backed securities are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

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Table 6.5 - Interest Rate Payment Terms of Held-to-Maturity Securities (in thousands)

	December 31, 2014		December 31, 2013
Amortized cost of non-mortgage-backed securities:
Fixed-rate	$	26,099	$	27,485
Total amortized cost of non-mortgage-backed securities	26,099		27,485
Amortized cost of mortgage-backed securities:
Fixed-rate	12,091,591		13,048,808
Variable-rate	2,594,581		3,010,869
Total amortized cost of mortgage-backed securities	14,686,172		16,059,677
Total	$	14,712,271	$	16,087,162

Realized Gains and Losses. The FHLBank sold securities out of its held-to-maturity portfolio during the periods noted below in Table 6.6, each of which had less than 15 percent of the acquired principal outstanding at the time of the sale. These sales are considered maturities for the purposes of security classification.

Table 6.6 - Proceeds from Sale and Gains on Held-to-Maturity Securities (in thousands)

	For the Years Ended December 31,
	2014		2013		2012
Proceeds from sale of held-to-maturity securities	$	—	$	—	$	507,531
Gross gains from sale of held-to-maturity securities	—		—		29,292

Note 7 - Other-Than-Temporary Impairment Analysis

The FHLBank evaluates its individual available-for-sale and held-to-maturity investment securities holdings in an unrealized loss position for other-than-temporary impairment on a quarterly basis.

For its other U.S. obligations and GSE investments (mortgage-backed securities and non-mortgage-backed securities), the FHLBank determined that the strength of the issuers' guarantees through direct obligations or support from the U.S. government is sufficient to protect the FHLBank from losses based on current expectations. As a result, the FHLBank determined that, as of December 31, 2014, all of the gross unrealized losses on these investments were temporary as the declines in market value of these securities were not attributable to credit quality. Furthermore, the FHLBank does not intend to sell the investments, and it is not more likely than not that the FHLBank will be required to sell the investments before recovery of their amortized cost bases. As a result, the FHLBank did not consider any of these investments to be other-than-temporarily impaired at December 31, 2014.

The FHLBank also reviewed its available-for-sale securities that have experienced unrealized losses at December 31, 2014 and determined that the unrealized losses were temporary, based on the creditworthiness of the issuers and the related collateral characteristics, and that the FHLBank will recover its entire amortized cost basis. Additionally, because the FHLBank does not intend to sell these securities, nor is it more likely than not that the FHLBank will be required to sell the securities before recovery, it did not consider the investments to be other-than-temporarily impaired at December 31, 2014.

The FHLBank did not consider any of its investments to be other-than-temporarily impaired at December 31, 2013.

Note 8 - Advances

The FHLBank 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 one day to 30 years. Variable-rate advances generally have maturities ranging from less than 30 days to 10 years, where the interest rates reset periodically at a fixed spread to the London Interbank Offered Rate (LIBOR) or other specified index. At December 31, 2014 and 2013, the FHLBank had Advances outstanding, including AHP Advances (see Note 14), at interest rates ranging from 0.00 percent to 9.20 percent. Advances with interest rates of 0.00 percent are AHP Advances. The following table presents Advance

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redemptions by contractual maturity, including index-amortizing Advances, which are presented according to their predetermined amortization schedules.

Table 8.1 - Advance Redemption Terms (dollars in thousands)

	December 31, 2014					December 31, 2013
Redemption Term	Amount			Weighted Average Interest Rate		Amount			Weighted Average Interest Rate
Overdrawn demand deposit accounts	$	—		—	%	$	150		0.20	%
Due in 1 year or less	14,139,630			0.40		17,729,350			0.42
Due after 1 year through 2 years	14,810,847			0.54		6,614,470			0.63
Due after 2 years through 3 years	12,829,760			0.69		9,485,558			0.64
Due after 3 years through 4 years	14,222,722			0.60		9,444,110			0.81
Due after 4 years through 5 years	10,724,619			0.54		11,831,887			0.61
Thereafter	3,570,929			1.51		9,987,245			0.78
Total par value	70,298,507			0.60		65,092,770			0.62
Commitment fees	(699		)			(750		)
Discount on AHP Advances	(12,110		)			(14,953		)
Premiums	3,058					3,413
Discounts	(12,572		)			(14,104		)
Hedging adjustments	129,390					204,014
Fair value option valuation adjustments and accrued interest	42					—
Total	$	70,405,616				$	65,270,390

The FHLBank offers Advances to members that may be prepaid on specified dates (call dates) without incurring prepayment or termination fees (callable Advances). If the call option is exercised, replacement funding may be available. Other Advances may only be prepaid subject to a prepayment fee paid to the FHLBank that makes the FHLBank financially indifferent to the prepayment of the Advance. At December 31, 2014 and 2013, the FHLBank had callable Advances (in thousands) of $15,098,357 and $10,072,203.

Table 8.2 - Advances by Year of Contractual Maturity or Next Call Date for Callable Advances (in thousands)

Year of Contractual Maturity or Next Call Date	December 31, 2014		December 31, 2013
Overdrawn demand deposit accounts	$	—	$	150
Due in 1 year or less	23,003,946		25,109,451
Due after 1 year through 2 years	12,159,384		5,300,184
Due after 2 years through 3 years	9,659,975		7,149,237
Due after 3 years through 4 years	12,295,893		7,050,325
Due after 4 years through 5 years	9,970,280		10,877,078
Thereafter	3,209,029		9,606,345
Total par value	$	70,298,507	$	65,092,770

The FHLBank also offers putable Advances. With a putable Advance, the FHLBank effectively purchases put options from the member that allows the FHLBank to terminate the Advance at predetermined dates. The FHLBank normally would exercise its option when interest rates increase relative to contractual rates. At December 31, 2014 and 2013, the FHLBank had putable Advances, excluding those where the related put options have expired, totaling (in thousands) $1,617,400 and $2,146,400.

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Table 8.3 - Advances by Year of Contractual Maturity or Next Put/Convert Date for Putable/Convertible Advances (in thousands)

Year of Contractual Maturity or Next Put/Convert Date	December 31, 2014		December 31, 2013
Overdrawn demand deposit accounts	$	—	$	150
Due in 1 year or less	15,753,030		19,681,750
Due after 1 year through 2 years	14,663,847		6,424,970
Due after 2 years through 3 years	12,115,860		9,338,558
Due after 3 years through 4 years	13,649,722		8,582,710
Due after 4 years through 5 years	10,715,119		11,256,887
Thereafter	3,400,929		9,807,745
Total par value	$	70,298,507	$	65,092,770

Table 8.4 - Advances by Interest Rate Payment Terms (in thousands)

	December 31, 2014		December 31, 2013
Fixed-rate (1)
Due in one year or less	$	8,638,946	$	6,706,181
Due after one year	9,306,104		8,774,636
Total fixed-rate (1)	17,945,050		15,480,817
Variable-rate (1)
Due in one year or less	5,500,684		10,580,389
Due after one year	46,852,773		39,031,564
Total variable-rate (1)	52,353,457		49,611,953
Total par value	$	70,298,507	$	65,092,770

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

Credit Risk Exposure and Security Terms. The FHLBank's potential credit risk from Advances is concentrated in commercial banks and insurance companies. The FHLBank's Advances outstanding that were greater than or equal to $1.0 billion per borrower were $56.6 billion (80.5 percent) and $51.6 billion (79.3 percent) at December 31, 2014 and 2013, respectively. These Advances were made to 6 borrowers (members and former members) at December 31, 2014 and 2013. See Note 10 for information related to the FHLBank's credit risk on Advances and allowance methodology for credit losses.

Table 8.5 - Borrowers Holding Five Percent or more of Total Advances, Including Any Known Affiliates that are Members of the FHLBank (dollars in millions)

December 31, 2014					December 31, 2013
	Principal		% of Total			Principal		% of Total
JPMorgan Chase Bank, N.A.	$	41,300	59	%	JPMorgan Chase Bank, N.A.	$	41,700	64	%
U.S. Bank, N.A.	8,338		12		U.S. Bank, N.A.	4,584		7
Total	$	49,638	71	%	Total	$	46,284	71	%

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Note 9 - Mortgage Loans Held for Portfolio

Total mortgage loans held for portfolio represent residential mortgage loans under the MPP that the FHLBank's members originate, credit enhance, and then sell to the FHLBank. The FHLBank does not service any of these loans. The FHLBank plans to retain its existing portfolio of mortgage loans.

Table 9.1 - Mortgage Loans Held for Portfolio (in thousands)

	December 31, 2014			December 31, 2013
Unpaid principal balance:
Fixed rate medium-term single-family mortgage loans (1)	$	1,393,525		$	1,482,345
Fixed rate long-term single-family mortgage loans	5,402,479			5,160,854
Total unpaid principal balance	6,796,004			6,643,199
Premiums	179,540			177,180
Discounts	(2,460		)	(3,631		)
Hedging basis adjustments (2)	16,518			8,775
Total mortgage loans held for portfolio	$	6,989,602		$	6,825,523

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

(2) Represents the unamortized balance of the mortgage purchase commitments' market values at the time of settlement. The market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.

Table 9.2 - Mortgage Loans Held for Portfolio by Collateral/Guarantee Type (in thousands)

	December 31, 2014		December 31, 2013
Unpaid principal balance:
Conventional mortgage loans	$	6,203,318	$	5,897,804
Federal Housing Administration (FHA) mortgage loans	592,686		745,395
Total unpaid principal balance	$	6,796,004	$	6,643,199

For information related to the FHLBank's credit risk on mortgage loans and allowance for credit losses, see Note 10.

Table 9.3 - Members, Including Any Known Affiliates that are Members of the FHLBank, and Former Members Selling Five Percent or more of Total Unpaid Principal (dollars in millions)

	December 31, 2014					December 31, 2013
	Principal		% of Total			Principal		% of Total
Union Savings Bank	$	1,593	23	%	Union Savings Bank	$	1,433	22	%
PNC Bank, N.A.(1)	1,074		16		PNC Bank, N.A. (1)	1,356		20
Guardian Savings Bank FSB	406		6

(1) Former member.

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Note 10 - Allowance for Credit Losses

The FHLBank has established an allowance methodology for each of the FHLBank's portfolio segments: credit products (Advances, Letters of Credit and other extensions of credit to members); FHA mortgage loans held for portfolio; and conventional mortgage loans held for portfolio.

Credit products

The FHLBank manages its credit exposure to credit products through an integrated approach that includes establishing a credit limit for each borrower, includes an ongoing review of each borrower's financial condition and is coupled with detailed collateral and lending policies to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, the FHLBank lends to eligible borrowers in accordance with federal statutes, including the FHLBank Act, and Finance Agency regulations, which require the FHLBank to obtain sufficient collateral to fully secure credit products. The estimated value of the collateral required to secure each member's credit products is calculated by applying collateral discounts, or haircuts, to the value of the collateral. The FHLBank accepts certain investment securities, residential mortgage loans, deposits, and other real estate related assets as collateral. In addition, community financial institutions are eligible to utilize expanded statutory collateral provisions for small business and agriculture loans. The FHLBank's capital stock owned by its member borrowers is also pledged as collateral. Collateral arrangements and a member’s borrowing capacity vary based on the financial condition and performance of the institution, the types of collateral pledged and the overall quality of those assets. The FHLBank can also require additional or substitute collateral to protect its security interest. Management of the FHLBank believes that these policies effectively manage the FHLBank's credit risk from credit products.

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

Using a risk-based approach, the FHLBank considers the payment status, collateralization levels, and borrower's financial condition to be indicators of credit quality for its credit products. At December 31, 2014 and 2013, the FHLBank had rights to collateral on a member-by-member basis with an estimated value in excess of its outstanding extensions of credit.

The FHLBank evaluates and makes changes to its collateral guidelines, as necessary, based on current market conditions. At December 31, 2014 and 2013, the FHLBank did not have any Advances that were past due, in non-accrual status, or impaired. In addition, there were no troubled debt restructurings related to credit products of the FHLBank during 2014 or 2013.

The FHLBank has not experienced any credit losses on Advances since it was founded in 1932. Based upon the collateral held as security, its credit extension and collateral policies, management's credit analysis and the repayment history on credit products, the FHLBank did not record any credit losses on credit products as of December 31, 2014 or 2013. Accordingly, the FHLBank did not record any allowance for credit losses on Advances.

At December 31, 2014 and 2013, no liability to reflect an allowance for credit losses for off-balance sheet credit exposures was recorded. See Note 20 for additional information on the FHLBank's off-balance sheet credit exposure.

MortgageLoans Held for Portfolio- FHA

The FHLBank invests in fixed-rate mortgage loans secured by one-to-four family residential properties insured by the FHA. Any losses from such loans are expected to be recovered from the FHA. Any losses from these loans that are not recovered from the FHA would be due to a claim rejection by the FHA and, as such, would be recoverable from the selling participating financial institutions. Therefore, the FHLBank only has credit risk for these loans if the seller or servicer fails to pay for losses not covered by the FHA insurance. As a result, the FHLBank did not establish an allowance for credit losses on its FHA insured mortgage loans. Furthermore, due to the insurance, none of these mortgage loans have been placed on non-accrual status.

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Mortgage Loans Held for Portfolio - Conventional Mortgage Purchase Program (MPP)

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

Collectively Evaluated Mortgage Loans. The credit risk analysis of conventional loans evaluated collectively for impairment considers historical delinquency migration, applies estimated loss severities, and incorporates the associated credit enhancements in order to determine the FHLBank's best estimate of probable incurred losses at the reporting date. The credit risk analysis of all conventional mortgage loans is performed at the individual Master Commitment Contract level to properly determine the credit enhancements available to recover losses on loans under each individual Master Commitment Contract. The Master Commitment Contract is an agreement with a member in which the member agrees to make every attempt to sell a specific dollar amount of loans to the FHLBank over a one-year period. Migration analysis is a methodology for determining, through the FHLBank's experience over a historical period, the rate of default on loans. The FHLBank applies migration analysis to loans based on payment status categories such as current, 30, 60, and 90 days past due. The FHLBank then estimates, based on historical experience, how many loans in these categories may migrate to a loss realization event and applies a current loss severity to estimate losses. The estimated losses are then reduced by the probable cash flows resulting from available credit enhancements. Any credit enhancement cash flows that are projected and assessed as not probable of receipt do not reduce estimated losses.

Individually Evaluated Mortgage Loans. Conventional mortgage loans that are considered troubled debt restructurings are specifically identified for purposes of calculating the allowance for credit losses. The FHLBank measures impairment of these specifically identified loans by either estimating the present value of expected cash flows, estimating the loan's observable market price, or estimating the fair value of the collateral if the loan is collateral dependent. Specifically identified loans evaluated for impairment are removed from the collectively evaluated mortgage loan population.

Qualitative Factors. The FHLBank also assesses other qualitative factors in its estimation of loan losses for the collectively evaluated population. This amount represents a subjective management judgment, based on facts and circumstances that exist as of the reporting date, that is intended to cover other incurred losses that may not otherwise be captured in the methodology described above.

Rollforward of Allowance for Credit Losses on Mortgage Loans. The following tables present a rollforward of the allowance for credit losses on conventional mortgage loans as well as the recorded investment in mortgage loans by impairment methodology. The recorded investment in a loan is the unpaid principal balance of the loan adjusted for accrued interest, unamortized premiums or discounts, hedging basis adjustments and direct write-downs. The recorded investment is not net of any allowance.

Table 10.1 - Rollforward of Allowance for Credit Losses on Conventional Mortgage Loans (in thousands)

	For the Years Ended December 31,
	2014			2013			2012
Balance, beginning of period	$	7,233		$	17,907		$	20,750
Charge-offs	(1,814		)	(3,224		)	(4,302		)
(Reversal) provision for credit losses	(500		)	(7,450		)	1,459
Balance, end of period	$	4,919		$	7,233		$	17,907

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Table 10.2 - Allowance for Credit Losses and Recorded Investment on Conventional Mortgage Loans by Impairment Methodology (in thousands)

	December 31, 2014		December 31, 2013
Allowance for credit losses, end of period:
Collectively evaluated for impairment	$	4,766	$	7,159
Individually evaluated for impairment	153		74
Total	$	4,919	$	7,233
Recorded investment, end of period:
Collectively evaluated for impairment	$	6,402,994	$	6,082,636
Individually evaluated for impairment	8,639		7,799
Total recorded investment	$	6,411,633	$	6,090,435

Credit Enhancements. The conventional mortgage loans under the MPP are supported by some combination of credit enhancements (primary mortgage insurance (PMI), supplemental mortgage insurance (SMI) and the Lender Risk Account (LRA), including pooled LRA for those members participating in an aggregated MPP pool). The amount of credit enhancements needed to protect the FHLBank against credit losses is determined through use of a third-party default model. These credit enhancements apply after a homeowner's equity is exhausted. Beginning in February 2011, the FHLBank discontinued the use of SMI for all new loan purchases and replaced it with expanded use of the LRA. The LRA is funded by the FHLBank as a portion of the purchase proceeds to cover expected losses. Excess funds over required balances are distributed to the member in accordance with a step-down schedule that is established upon execution of a Master Commitment Contract, subject to performance of the related loan pool. The LRA established for a pool of loans is limited to only covering losses of that specific pool of loans.

Table 10.3 - Changes in the LRA (in thousands)

	For the Years Ended December 31,
	2014			2013			2012
LRA at beginning of year	$	115,236		$	102,680		$	68,684
Additions	18,947			18,331			39,111
Claims	(2,075		)	(4,118		)	(3,409		)
Scheduled distributions	(2,895		)	(1,657		)	(1,706		)
LRA at end of period	$	129,213		$	115,236		$	102,680

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

Table 10.4 - Recorded Investment in Delinquent Mortgage Loans (dollars in thousands)

	December 31, 2014
	Conventional MPP Loans			FHA Loans			Total
Past due 30-59 days delinquent	$	49,053		$	42,744		$	91,797
Past due 60-89 days delinquent	13,597			12,881			26,478
Past due 90 days or more delinquent	42,991			25,045			68,036
Total past due	105,641			80,670			186,311
Total current mortgage loans	6,305,992			522,042			6,828,034
Total mortgage loans	$	6,411,633		$	602,712		$	7,014,345
Other delinquency statistics:
In process of foreclosure, included above (1)	$	34,854		$	11,687		$	46,541
Serious delinquency rate (2)	0.68		%	4.27		%	0.99		%
Past due 90 days or more still accruing interest (3)	$	41,857		$	25,045		$	66,902
Loans on non-accrual status, included above	$	3,574		$	—		$	3,574
	December 31, 2013
	Conventional MPP Loans			FHA Loans			Total
Past due 30-59 days delinquent	$	48,619		$	53,305		$	101,924
Past due 60-89 days delinquent	11,971			18,963			30,934
Past due 90 days or more delinquent	57,934			32,942			90,876
Total past due	118,524			105,210			223,734
Total current mortgage loans	5,971,911			654,399			6,626,310
Total mortgage loans	$	6,090,435		$	759,609		$	6,850,044
Other delinquency statistics:
In process of foreclosure, included above (1)	$	46,285		$	18,595		$	64,880
Serious delinquency rate (2)	0.96		%	4.41		%	1.34		%
Past due 90 days or more still accruing interest (3)	$	57,543		$	32,942		$	90,485
Loans on non-accrual status, included above	$	3,077		$	—		$	3,077

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

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

(3) Each conventional loan past due 90 days or more still accruing interest is on a schedule/scheduled monthly settlement basis and contains one or more credit enhancements. Loans that are well secured and in the process of collection as a result of remaining credit enhancements and schedule/scheduled settlement are not placed on non-accrual status.

The FHLBank did not have any real estate owned at December 31, 2014 or 2013.

Troubled Debt Restructurings. A troubled debt restructuring is considered 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 FHLBank's troubled debt restructurings primarily involve loans where an agreement permits the recapitalization of past due amounts up to the original loan amount and certain loans discharged in Chapter 7 bankruptcy. The FHLBank had 53 and 42 modified loans considered troubled debt restructurings at December 31, 2014 and 2013, respectively.

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A loan considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate) incurred as of the reporting date.

Table 10.5 - Recorded Investment in Troubled Debt Restructurings (in thousands)

Troubled debt restructurings	December 31, 2014		December 31, 2013
Conventional MPP Loans	$	8,639	$	7,799

Due to the minimal change in terms of modified loans (i.e., no principal forgiven), the FHLBank's pre-modification recorded investment was not materially different than the post-modification recorded investment in troubled debt restructurings.

Certain conventional MPP loans that were modified within the previous 12 months and considered troubled debt restructurings experienced a payment default as noted in the table below. A borrower is considered to have defaulted on a troubled debt restructuring if the borrower's contractually due principal or interest is 60 days or more past due at any time during the periods presented.

Table 10.6 - Recorded Investment of Financing Receivables Modified within the Previous 12 Months and Considered Troubled Debt Restructurings that Subsequently Defaulted (in thousands)

	For the Years Ended December 31,
Defaulted troubled debt restructurings	2014		2013		2012
Conventional MPP Loans	$	671	$	793	$	—

Modified loans that subsequently default may recognize a higher probability of loss when calculating the allowance for credit losses.

Individually Evaluated Impaired Loans. At December 31, 2014 and 2013, only certain conventional MPP loans individually evaluated for impairment required an allowance for credit losses. Table 10.7 presents the recorded investment, unpaid principal balance, and related allowance associated with these loans.

Table 10.7 - Individually Evaluated Impaired Loan Statistics by Product Class Level (in thousands)

	December 31, 2014						December 31, 2013
Conventional MPP loans	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance	$	5,297	$	5,165	$	—	$	4,959	$	4,828	$	—
With an allowance	3,342		3,293		153		2,840		2,801		74
Total	$	8,639	$	8,458	$	153	$	7,799	$	7,629	$	74

Table 10.8 - Average Recorded Investment of Individually Evaluated Impaired Loans and Related Interest Income Recognized (in thousands)

	For the Years Ended December 31,
	2014				2013				2012
Individually impaired loans	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Conventional MPP Loans	$	8,029	$	417	$	6,615	$	348	$	4,331	$	228

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Note 11 - Derivatives and Hedging Activities

Nature of Business Activity

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

The FHLBank transacts its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute Consolidated Obligations. Derivative transactions may be either executed 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.

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

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

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

▪ manage embedded options in assets and liabilities;

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

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

▪ protect the value of existing asset or liability positions.

Types of Derivatives

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

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

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Application of Interest Rate Swaps

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

Types of Hedged Items

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

Investments - The interest rate and prepayment risks associated with the FHLBank's investment securities are managed through a combination of debt issuance and, possibly, derivatives. The FHLBank may manage the prepayment and interest rate risks by funding investment securities with Consolidated Obligations that have call features or by hedging the prepayment risk with caps or floors, callable swaps or swaptions.

Advances- The FHLBank offers a wide array of Advance structures to meet members' funding needs. These Advances may have maturities up to 30 years with variable or fixed rates and may include early termination features or options. The repricing characteristics and optionality embedded in certain Advances may create interest-rate risk. The FHLBank may use derivatives to adjust the repricing and/or option characteristics of Advances in order to more closely match the characteristics of the FHLBank's funding liabilities. In general, whenever a member executes a fixed-rate Advance or a variable-rate Advance with embedded options, the FHLBank will simultaneously execute a derivative with terms that offset the terms and embedded options, if any, in the Advance. For example, the FHLBank may hedge a fixed-rate Advance with an interest rate swap where the FHLBank pays a fixed-rate coupon and receives a floating-rate coupon, effectively converting the fixed-rate Advance to a floating-rate Advance. These types of hedges are typically treated as fair value hedges.

When issuing a putable Advance, the FHLBank effectively purchases a put option from the member that allows the FHLBank to put or extinguish the fixed-rate Advance, which the FHLBank normally would exercise when interest rates increase. The FHLBank may hedge these Advances by entering into a cancelable derivative.

Mortgage Loans - The FHLBank invests in fixed-rate mortgage loans. The prepayment options embedded in these mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in estimated prepayment speeds. The FHLBank may manage the interest rate and prepayment risks associated with mortgages through a combination of debt issuance and derivatives. The FHLBank issues 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 FHLBank is also permitted to use derivatives to match the expected prepayment characteristics of the mortgages, although to date it has not done so.

Consolidated Obligations - The FHLBank enters into derivatives to hedge the interest rate risk associated with its specific debt issuances. The FHLBank manages the risk arising from changing market prices and volatility of a Consolidated Obligation by matching the cash inflow on a derivative with the cash outflow on the Consolidated Obligation.

For instance, in a typical transaction, fixed-rate Consolidated Obligations are issued by one or more FHLBanks, and the FHLBank simultaneously enters into a matching interest rate swap in which the counterparty pays fixed cash flows to the FHLBank designed to mirror in timing and amount the cash outflows the FHLBank pays on the Consolidated Obligation. The FHLBank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate Advances, typically 3-month LIBOR. These transactions are treated as fair value hedges.

This strategy of issuing Bonds while simultaneously entering into derivatives enables the FHLBank to offer a wider range of attractively priced Advances to its members and may allow the FHLBank to reduce its funding costs. The continued attractiveness of such debt depends on yield relationships between the Bond and the derivative markets. If conditions in these markets change, the FHLBank may alter the types or terms of the Bonds that it issues. By acting in both the capital and the

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swap markets, the FHLBank may raise funds at lower costs than through the issuance of simple fixed- or variable-rate Consolidated Obligations in the capital markets alone.

Firm Commitments - Certain mortgage purchase commitments are considered derivatives. The FHLBank may hedge these commitments by selling to-be-announced (TBA) mortgage-backed securities for forward settlement. A TBA represents a forward contract for the sale of mortgage-backed securities 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 the current period earnings. When the mortgage purchase commitment derivative settles, the current market value of the commitment is included in the basis of the mortgage loan and amortized accordingly.

Financial Statement Effect and Additional Financial Information

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

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Table 11.1 summarizes the 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.

Table 11.1 - Fair Value of Derivative Instruments (in thousands)

	December 31, 2014
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Derivatives designated as fair value hedging instruments:
Interest rate swaps	$	4,301,547	$	19,826		$	138,150
Derivatives not designated as hedging instruments:
Interest rate swaps	4,635,000		900			6,559
Forward rate agreements	439,000		6			4,924
Mortgage delivery commitments	451,292		3,799			1
Total derivatives not designated as hedging instruments	5,525,292		4,705			11,484
Total derivatives before netting and collateral adjustments	$	9,826,839	24,531			149,634
Netting adjustments and cash collateral (1)			(9,832		)	(85,867		)
Total derivative assets and total derivative liabilities			$	14,699		$	63,767
	December 31, 2013
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Derivatives designated as fair value hedging instruments:
Interest rate swaps	$	4,517,340	$	36,061		$	215,691
Derivatives not designated as hedging instruments:
Interest rate swaps	4,143,000		2,928			7,732
Forward rate agreements	31,000		454			—
Mortgage delivery commitments	36,620		2			412
Total derivatives not designated as hedging instruments	4,210,620		3,384			8,144
Total derivatives before netting and collateral adjustments	$	8,727,960	39,445			223,835
Netting adjustments and cash collateral (1)			(36,204		)	(126,069		)
Total derivative assets and total derivative liabilities			$	3,241		$	97,766

(1) Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLBank with the same clearing agent and/or counterparty. Cash collateral posted and related accrued interest was (in thousands) $78,755 and $109,288 at December 31, 2014 and 2013. Cash collateral received and related accrued interest was (in thousands) $2,720 and $19,423 at December 31, 2014 and 2013.

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Table 11.2 presents the components of net gains on derivatives and hedging activities as presented in the Statements of Income.

Table 11.2 - Net Gains on Derivatives and Hedging Activities (in thousands)

	For the Years Ended December 31,
	2014			2013			2012
Derivatives and hedged items in fair value hedging relationships:
Interest rate swaps	$	5,127		$	10,837		$	6,864
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	628			7,456			3,771
Forward rate agreements	(15,465		)	(845		)	(8,645		)
Net interest settlements	706			328			(2,378		)
Mortgage delivery commitments	15,631			(9,873		)	9,123
Total net gains (losses) related to derivatives not designated as hedging instruments	1,500			(2,934		)	1,871
Net gains on derivatives and hedging activities	$	6,627		$	7,903		$	8,735

Table 11.3 presents by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the FHLBank's net interest income.

Table 11.3 - Effect of Fair Value Hedge-Related Derivative Instruments (in thousands)

	For the Years Ended December 31,
2014	Gain/(Loss) on Derivative			Gain/(Loss) on Hedged Item			Net Fair Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income(1)
Hedged Item Type:
Advances	$	76,295		$	(71,315	)	$	4,980		$	(91,232	)
Consolidated Bonds	(15,633		)	15,780			147			18,298
Total	$	60,662		$	(55,535	)	$	5,127		$	(72,934	)
2013
Hedged Item Type:
Advances	$	156,025		$	(145,843	)	$	10,182		$	(106,452	)
Consolidated Bonds	(26,341		)	26,996			655			27,038
Total	$	129,684		$	(118,847	)	$	10,837		$	(79,414	)
2012
Hedged Item Type:
Advances	$	268,944		$	(261,817	)	$	7,127		$	(244,836	)
Consolidated Bonds	(8,666		)	8,403			(263		)	36,763
Total	$	260,278		$	(253,414	)	$	6,864		$	(208,073	)

(1) The net effect of derivatives, in fair value hedge relationships, on net interest income is included in the interest income or interest expense line item of the respective hedged item type. These amounts include the effect of net interest settlements attributable to designated fair value hedges but do not include (in thousands) $(3,310), $(3,022), and $(3,566) of (amortization)/accretion related to fair value hedging activities for the years endedDecember 31, 2014, 2013, and 2012, respectively.

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Offsetting of Derivative Assets and Derivative Liabilities

The FHLBank 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.

Table 11.4 presents separately the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral received from or pledged to counterparties. At December 31, 2014 and 2013, the FHLBank did not receive or pledge any non-cash collateral. Any overcollateralization under an individual clearing agent and/or counterparty level is not included in the determination of the net unsecured amount.

Table 11.4 - Offsetting of Derivative Assets and Derivative Liabilities (in thousands)

	December 31, 2014
	Derivative Assets			Derivative Liabilities
Derivative instruments meeting netting requirements:
Gross recognized amount:
Bilateral derivatives	$	19,585		$	141,352
Cleared derivatives	1,141			3,357
Total gross recognized amount	20,726			144,709
Gross amounts of netting adjustments and cash collateral:
Bilateral derivatives	(19,544		)	(82,510		)
Cleared derivatives	9,712			(3,357		)
Total gross amounts of netting adjustments and cash collateral	(9,832		)	(85,867		)
Net amounts after netting adjustments and cash collateral:
Bilateral derivatives	41			58,842
Cleared derivatives	10,853			—
Total net amounts after netting adjustments and cash collateral	10,894			58,842
Derivative instruments not meeting netting requirements(1):
Bilateral derivatives	3,805			4,925
Total derivative instruments not meeting netting requirements(1)	3,805			4,925
Total derivative assets and total derivative liabilities:
Bilateral derivatives	3,846			63,767
Cleared derivatives	10,853			—
Total derivative assets and total derivative liabilities	$	14,699		$	63,767
	December 31, 2013
	Derivative Assets			Derivative Liabilities
Bilateral derivative instruments meeting netting requirements:
Gross recognized amount	$	38,989		$	223,423
Gross amounts of netting adjustments and cash collateral	(36,204		)	(126,069		)
Net amounts after netting adjustments and cash collateral	2,785			97,354
Derivative instruments not meeting netting requirements(1)	456			412
Total derivative assets and total derivative liabilities	$	3,241		$	97,766

(1) Represents mortgage delivery commitments and forward rate agreements that are not subject to an enforceable netting agreement.

Credit Risk on Derivatives

The FHLBank is subject to credit risk due to the risk of non-performance by counterparties to its derivative transactions, and manages credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations. For bilateral derivatives, the

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degree of credit risk depends on the extent to which master netting arrangements are included in these contracts to mitigate the risk. The FHLBank requires collateral agreements with collateral delivery thresholds on the majority of its bilateral derivatives.

For cleared derivatives, the Clearinghouse is the FHLBank's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin and the clearing agent notifies the FHLBank of the required initial and variation margin. The requirement that the FHLBank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the FHLBank to 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 value of cleared derivatives.

The FHLBank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and 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 bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the FHLBank's clearing agent, or both. Based on this analysis, the FHLBank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

Certain of the FHLBank's bilateral interest rate swap contracts contain provisions that require the FHLBank to post additional collateral with its counterparties if there is deterioration in the FHLBank's credit ratings. The aggregate fair value of all bilateral interest rate swaps with credit-risk-related contingent features that were in a liability position at December 31, 2014 was (in thousands) $121,808, for which the FHLBank had posted collateral with a fair value of (in thousands) $62,966 in the normal course of business.

If one of the FHLBank's credit ratings had been lowered to the next lower rating that would have triggered additional collateral to be delivered, the FHLBank would have been required to deliver up to an additional (in thousands) $12,353 of collateral at fair value to its derivatives 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. At December 31, 2014, the FHLBank was not required to post additional initial margin by its clearing agents, based on credit considerations.

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Note 12 - Deposits

The FHLBank offers demand and overnight deposits to members and qualifying nonmembers. In addition, the FHLBank offers short-term interest bearing deposit programs to members. A member that services mortgage loans may deposit funds collected in connection with the mortgage loans at the FHLBank, pending disbursement of such funds to the owners of the mortgage loans. The FHLBank classifies these items as other interest bearing deposits.

Certain financial institutions have agreed to maintain compensating balances in consideration for correspondent and other non-credit services. These balances are included in interest bearing deposits on the accompanying financial statements. The compensating balances required to be held by the FHLBank averaged (in thousands) $3,597,698 and $3,982,567 during 2014 and 2013.

Deposits classified as demand, overnight, and other pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit. The average interest rate paid on interest bearing deposits was 0.03 percent during 2014, 2013, and 2012.

Non-interest bearing deposits represent funds for which the FHLBank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks.

Table 12.1- Deposits (in thousands)

	December 31, 2014		December 31, 2013
Interest bearing:
Demand and overnight	$	624,446	$	796,039
Term	99,600		96,100
Other	5,592		5,872
Total interest bearing	729,638		898,011
Non-interest bearing:
Other	298		15,884
Total non-interest bearing	298		15,884
Total deposits	$	729,936	$	913,895

The aggregate amount of time deposits with a denomination of $250 thousand or more was (in thousands) $99,550 and $96,000 as of December 31, 2014 and 2013, respectively.

Note 13 - Consolidated Obligations

Consolidated Obligations consist of Consolidated Bonds and Discount Notes. The FHLBanks issue Consolidated Obligations through the Office of Finance as their agent. In connection with each debt issuance, each FHLBank specifies the amount of debt it wants issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the FHLBank records as a liability its specific portion of Consolidated Obligations for which it is the primary obligor.

The Finance Agency and the U.S. Secretary of the Treasury oversee the issuance of FHLBank debt through the Office of Finance. Consolidated Bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated Discount Notes are issued primarily to raise short-term funds and have original maturities up to one year. These notes generally sell at less than their face amount and are redeemed at par value when they mature.

Although the FHLBank is primarily liable for its portion of Consolidated Obligations, the FHLBank is also jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all Consolidated Obligations of each of the other FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any Consolidated Obligation whether or not the Consolidated Obligation represents a primary liability of such FHLBank. Although an FHLBank has never paid the principal or interest payments due on a Consolidated Obligation on behalf

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of another FHLBank, if that event should occur, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement from the non-complying FHLBank for those payments and other associated costs, including interest to be determined by the Finance Agency. If, however, the Finance Agency determines that the non-complying FHLBank is unable to satisfy its repayment obligations, the Finance Agency may allocate the outstanding liabilities of the non-complying FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all Consolidated Obligations outstanding or in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner.

The par values of the 12 FHLBanks' outstanding Consolidated Obligations were approximately $847.2 billion and $766.8 billion at December 31, 2014 and 2013. Regulations require the FHLBank to maintain unpledged qualifying assets equal to its participation in the Consolidated Obligations outstanding. Qualifying assets are defined as cash; secured Advances; obligations of or fully guaranteed by the United States; obligations, participations, or other instruments of or issued by Fannie Mae or Ginnie Mae; mortgages, obligations, or other securities which are or ever have been sold by Freddie Mac under the FHLBank Act; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. Any assets subject to a lien or pledge for the benefit of holders of any issue of Consolidated Obligations are treated as if they were free from lien or pledge for purposes of compliance with these regulations.

Table 13.1 - Consolidated Discount Notes Outstanding (dollars in thousands)

	Book Value		Par Value		Weighted Average Interest Rate (1)
December 31, 2014	$	41,232,127	$	41,238,122	0.09	%
December 31, 2013	$	38,209,946	$	38,216,860	0.09	%

(1) Represents an implied rate without consideration of concessions.

Table 13.2 - Consolidated 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 1 year or less	$	32,477,000		0.24	%	$	35,691,500		0.34	%
Due after 1 year through 2 years	6,918,000			1.19		2,802,000			1.66
Due after 2 years through 3 years	4,594,000			1.56		3,295,000			2.12
Due after 3 years through 4 years	4,245,000			1.79		3,689,000			1.67
Due after 4 years through 5 years	2,647,000			2.08		3,415,000			1.86
Thereafter	8,217,000			2.79		9,102,000			2.66
Index amortizing notes	25,297			5.07		32,746			5.07
Total par value	59,123,297			1.00		58,027,246			1.04
Premiums	103,477					123,820
Discounts	(25,161		)			(22,781		)
Hedging adjustments	15,304					31,084
Fair value option valuation adjustment and    accrued interest	(360		)			3,370
Total	$	59,216,557				$	58,162,739

Consolidated Obligations outstanding were issued with either fixed-rate coupon payment terms or variable-rate coupon payment terms that may use a variety of indices for interest rate resets, including LIBOR. To meet the expected specific needs of certain investors in Consolidated Obligations, both fixed-rate Bonds and variable-rate Bonds may contain features that result in complex coupon payment terms and call options. When these Consolidated Obligations are issued, the FHLBank may enter into derivatives containing features that offset the terms and embedded options, if any, of the Consolidated Obligations.

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Table 13.3 - Consolidated Bonds Outstanding by Call Features (in thousands)

	December 31, 2014		December 31, 2013
Par value of Consolidated Bonds:
Non-callable	$	49,976,297	$	46,670,246
Callable	9,147,000		11,357,000
Total par value	$	59,123,297	$	58,027,246

Table 13.4 - Consolidated Bonds Outstanding by Contractual Maturity or Next Call Date (in thousands)

Year of Contractual Maturity or Next Call Date	December 31, 2014		December 31, 2013
Due in 1 year or less	$	40,774,000	$	41,493,500
Due after 1 year through 2 years	5,413,000		3,827,000
Due after 2 years through 3 years	3,317,000		2,915,000
Due after 3 years through 4 years	2,685,000		2,427,000
Due after 4 years through 5 years	1,992,000		2,095,000
Thereafter	4,917,000		5,237,000
Index amortizing notes	25,297		32,746
Total par value	$	59,123,297	$	58,027,246

Consolidated Bonds, beyond having fixed-rate or variable-rate interest-rate payment terms, may also have a step-up interest-rate payment type. Step-up bonds pay interest at increasing fixed rates for specified intervals over the life of the Consolidated Bond. These Consolidated Bonds generally contain provisions enabling the FHLBank to call the Consolidated Bonds at its option on the step-up dates.

Table 13.5 - Consolidated Bonds by Interest-rate Payment Type (in thousands)

	December 31, 2014		December 31, 2013
Par value of Consolidated Bonds:
Fixed-rate	$	31,363,297	$	29,362,246
Variable-rate	27,610,000		28,650,000
Step-up	150,000		15,000
Total par value	$	59,123,297	$	58,027,246

Concessions on Consolidated Obligations. Unamortized concessions included in other assets were (in thousands) $14,184 and $15,947 at December 31, 2014 and 2013. The amortization of these concessions is included in Consolidated Obligation interest expense and totaled (in thousands) $7,380, $7,026, and $21,704for the years endedDecember 31, 2014, 2013, and 2012, respectively.

Note 14 - Affordable Housing Program (AHP)

The FHLBank Act requires each FHLBank to establish an AHP. Each FHLBank 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-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10 percent of net earnings. For purposes of the AHP calculation, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The FHLBank accrues AHP expense monthly based on its net earnings. The FHLBank reduces the AHP liability as members use subsidies.

If the FHLBank experienced a net loss during a quarter, but still had net earnings for the year, the FHLBank's obligation to the AHP would be calculated based on the FHLBank's year-to-date net earnings. If the FHLBank had net earnings in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBank experienced a net loss for a full year, the FHLBank would have no obligation to the AHP for the year, because each FHLBank's required annual AHP contribution is limited to its annual net earnings. If the aggregate 10 percent calculation described above was less than $100 million for the FHLBanks, each FHLBank would be required to contribute a pro rata amount sufficient to

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assure that the aggregate contributions of the FHLBanks equaled $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.

There was no shortfall, as described above, in 2014, 2013 or 2012. If an FHLBank finds that its required AHP obligations are contributing to its financial instability, it may apply to the Finance Agency for a temporary suspension of its contributions. The FHLBank has never made such an application. The FHLBank had outstanding principal in AHP-related Advances (in thousands) of $102,465 and $116,503 at December 31, 2014 and 2013.

Table 14.1 - Analysis of the FHLBank's AHP Liability (in thousands)

	2014			2013
Balance at beginning of year	$	93,789		$	82,672
Assessments (current year additions)	27,605			29,620
Subsidy uses, net	(23,291		)	(18,503		)
Balance at end of year	$	98,103		$	93,789

Note 15 - Capital

The FHLBank is subject to three capital requirements under its Capital Plan and the Finance Agency rules and regulations. Regulatory capital does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock.

1. Risk-based capital. The FHLBank must maintain at all times permanent capital, defined as Class B stock and retained earnings, in an amount at least equal to the sum of its credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency.

2. Total regulatory capital. The FHLBank is required to maintain at all times a total regulatory capital-to-assets ratio of at least four percent. Total regulatory capital is the sum of permanent capital, Class A stock, any general loss allowance, if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the Finance Agency as available to absorb losses.

3. Leverage capital. The FHLBank is required to maintain at all times a leverage capital-to-assets ratio of at least five percent. Leverage capital is defined as the sum of permanent capital weighted 1.5 times and all other capital without a weighting factor.

The Finance Agency may require the FHLBank to maintain greater permanent capital than is required based on Finance Agency rules and regulations.

At December 31, 2014 and 2013, the FHLBank was in compliance with each of these capital requirements.

Table 15.1 - Capital Requirements (dollars in thousands)

	December 31, 2014						December 31, 2013
	Minimum Requirement			Actual			Minimum Requirement			Actual
Risk-based capital	$	481,835		$	5,018,567		$	547,455		$	5,435,002
Capital-to-assets ratio (regulatory)	4.00		%	4.71		%	4.00		%	5.27		%
Regulatory capital	$	4,265,617		$	5,018,567		$	4,127,228		$	5,435,002
Leverage capital-to-assets ratio (regulatory)	5.00		%	7.06		%	5.00		%	7.90		%
Leverage capital	$	5,332,021		$	7,527,851		$	5,159,035		$	8,152,503

The FHLBank currently offers only Class B stock, which is issued and redeemed at a par value of $100 per share. Class B stock may be issued to meet membership and activity stock purchase requirements, to pay dividends, and to pay interest on mandatorily redeemable capital stock. Membership stock is required to become a member of and maintain membership in the FHLBank. The membership stock requirement is based upon a percentage of the member's total assets, currently determined

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within a declining range from 0.15 percent to 0.03 percent of each member's total assets, with a current minimum of $1 thousand and a current maximum of $25 million for each member. In addition to membership stock, a member may be required to hold activity stock to capitalize its Mission Asset Activity with the FHLBank.

Mission Asset Activity includes Advances, certain funds and rate Advance commitments, and MPP activity that occurred after implementation of the Capital Plan on December 30, 2002. Members must maintain an activity stock balance at least equal to the minimum activity allocation percentage, which currently is zero percent for the MPP and two percent for all other Mission Asset Activity. If a member owns more than the maximum activity allocation percentage, which currently is four percent of all Mission Asset Activity, the additional stock is that member's excess stock. The FHLBank's unrestricted excess stock is defined as total Class B stock minus membership stock, activity stock calculated at the maximum allocation percentage, shares reserved for exclusive use after a stock dividend, and shares subject to redemption and withdrawal notices. The FHLBank's excess stock may normally be used by members to support a portion of their activity stock requirement as long as those members maintain at least their minimum activity stock allocation percentage.

A member may request redemption of all or part of its Class B stock or may withdraw from membership by giving five years' advance written notice. When the FHLBank repurchases capital stock, it must first repurchase shares for which a redemption or withdrawal notice's five-year redemption period or withdrawal period has expired. Since its Capital Plan was implemented, the FHLBank has repurchased, at its discretion, all member shares subject to outstanding redemption notices prior to the expiration of the five-year redemption period.

The Gramm-Leach-Bliley Act of 1999 (GLB Act) made membership in the FHLBanks voluntary for all members. Any member that has withdrawn from membership may not be readmitted to membership in any FHLBank until five years from the divestiture date for all capital stock that was held as a condition of membership, unless the institution has canceled its notice of withdrawal prior to the divestiture date. This restriction does not apply if the member is transferring its membership from one FHLBank to another on an uninterrupted basis.

In accordance with the FHLBank Act, each class of FHLBank stock is considered putable by the member and the FHLBank may repurchase, in its sole discretion, any member's stock investments that exceed the required minimum amount. However, there are significant statutory and regulatory restrictions on the obligation to redeem, or right to repurchase, the outstanding stock. As a result, whether or not a member may have its capital stock in the FHLBank repurchased (at the FHLBank's discretion at any time before the end of the redemption period) or redeemed (at a member's request, completed at the end of a redemption period) will depend on whether the FHLBank is in compliance with those restrictions.

The FHLBank's retained earnings are owned proportionately by the current holders of Class B stock. The holders' interest in the retained earnings is realized at the time the FHLBank periodically declares dividends or at such time as the FHLBank is liquidated. The FHLBank's Board of Directors may declare and pay dividends in either cash or capital stock, assuming the FHLBank is in compliance with Finance Agency rules and regulations.

Restricted Retained Earnings. The Joint Capital Enhancement Agreement (Capital Agreement) is intended to enhance the capital position of each FHLBank. The Capital Agreement provides that each FHLBank contributes 20 percent of its net income each quarter to a separate restricted retained earnings account until the balance of that account equals at least one percent of that FHLBank's average balance of outstanding Consolidated Obligations for the previous quarter. These restricted retained earnings are not available to pay dividends but are available to absorb unexpected losses, if any, that the FHLBank may experience.At December 31, 2014 and 2013 the FHLBank had (in thousands) $159,694 and $110,843 in restricted retained earnings.

Mandatorily Redeemable Capital Stock.The FHLBank is a cooperative whose members and former members own all of the FHLBank's capital stock. Member shares cannot be purchased or sold except between the FHLBank and its members at its $100 per share par value, as mandated by the FHLBank's Capital Plan. The FHLBank reclassifies stock subject to redemption from equity to liability upon expiration of the “grace period” after a member submits a written redemption request or withdrawal notice, or when the member attains nonmember status by merger or acquisition, relocation, charter termination, or involuntary termination of membership. A member may cancel or revoke its written redemption request or its withdrawal notice prior to the end of the five-year redemption period. Under the FHLBank's Capital Plan, there is a five calendar day “grace period” for revocation of a redemption request and a 30 calendar day “grace period” for revocation of a withdrawal notice during which the member may cancel the redemption request or withdrawal notice without a penalty or fee. The cancellation fee after the “grace period” is currently two percent of the requested amount in the first year and increases one percent a year until it reaches a maximum of six percent in the fifth year. The cancellation fee can be waived by the FHLBank's Board of Directors for a bona fide business purpose.

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Stock subject to a redemption or withdrawal notice that is within the “grace period” continues to be considered equity because there is no penalty or fee to retract these notices. Expiration of the “grace period” triggers the reclassification from equity to a liability (mandatorily redeemable capital stock) at fair value because after the “grace period” the penalty to retract these notices is considered substantive. If a member cancels its written notice of redemption or notice of withdrawal, the FHLBank will reclassify mandatorily redeemable capital stock from a liability to equity. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense in the Statements of Income. For the years ended December 31, 2014, 2013, and 2012 dividends on mandatorily redeemable capital stock in the amount (in thousands) of $4,190, $5,506 and $11,690 were recorded as interest expense.

Table 15.2 - Mandatorily Redeemable Capital Stock Roll Forward (in thousands)

	2014			2013			2012
Balance, beginning of year	$	115,853		$	210,828		$	274,781
Capital stock subject to mandatory redemption reclassified    from equity	17,110			33,457			40,126
Redemption (or other reduction) of mandatorily redeemable    capital stock	(70,000		)	(128,432		)	(104,079		)
Balance, end of year	$	62,963		$	115,853		$	210,828

The number of stockholders holding the mandatorily redeemable capital stock was 11 at December 31, 2014, 2013, and 2012.

As of December 31, 2014 there were no members or former members that had requested redemptions of capital stock whose stock had not been reclassified as mandatorily redeemable capital stock because the “grace periods” had not yet expired on these requests.

Table 15.3 shows the amount of mandatorily redeemable capital stock by contractual year of redemption. The year of redemption in the table is the end of the five-year redemption period. Consistent with the Capital Plan currently in effect, the FHLBank is not required to redeem membership stock until five years after either (i) the membership is terminated or (ii) the FHLBank receives notice of withdrawal. The FHLBank is not required to redeem activity-based stock until the later of the expiration of the notice of redemption or until the activity to which the capital stock relates no longer remains outstanding. If activity-based stock becomes excess stock as a result of an activity no longer remaining outstanding, the FHLBank may repurchase such shares, in its sole discretion, subject to the statutory and regulatory restrictions on capital stock redemption.

The GLB Act states that an FHLBank may repurchase, in its sole discretion, any member's stock investments that exceed the required minimum amount.

Table 15.3 - Mandatorily Redeemable Capital Stock by Contractual Year of Redemption (in thousands)

Contractual Year of Redemption	December 31, 2014		December 31, 2013
Year 1	$	130	$	114,531
Year 2	—		130
Year 3	—		—
Year 4	55		—
Year 5	2,278		71
Past contractual redemption date due to remaining activity(1)	60,500		1,121
Total	$	62,963	$	115,853

(1) Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because there is activity outstanding to which the mandatorily redeemable capital stock relates.

Excess Capital Stock. Finance Agency regulations limit the ability of an FHLBank to create member excess stock under certain circumstances. The FHLBank may not pay dividends in the form of capital stock or issue new excess stock to members if its excess stock exceeds one percent of its total assets or if the issuance of excess stock would cause the FHLBank's excess stock to exceed one percent of its total assets. At December 31, 2014, the FHLBank had excess capital stock outstanding totaling less

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than one percent of its total assets. At December 31, 2014, the FHLBank was in compliance with the Finance Agency's excess stock rules.

Note 16 - Accumulated Other Comprehensive (Loss) Income

The following tables summarize the changes in accumulated other comprehensive (loss) income for the years endedDecember 31, 2014, 2013, and 2012.

Table 16.1 - Accumulated Other Comprehensive (Loss) Income (in thousands)

	Net unrealized gains (losses) on available-for-sale securities			Pension and postretirement benefits			Total accumulated other comprehensive (loss) income
BALANCE, DECEMBER 31, 2011	$	(1,014	)	$	(9,987	)	$	(11,001	)
Other comprehensive income before reclassification:
Net unrealized gains	1,014			—			1,014
Net actuarial loss	—			(2,701		)	(2,701		)
Reclassifications from other comprehensive income to net income:
Amortization - pension and postretirement benefits	—			954			954
Net current period other comprehensive income (loss)	1,014			(1,747		)	(733		)
BALANCE, DECEMBER 31, 2012	—			(11,734		)	(11,734		)
Other comprehensive income before reclassification:
Net unrealized losses	(121		)	—			(121		)
Net actuarial gain	—			803			803
Reclassifications from other comprehensive income to net income:
Amortization - pension and postretirement benefits	—			2,010			2,010
Net current period other comprehensive (loss) income	(121		)	2,813			2,692
BALANCE, DECEMBER 31, 2013	(121		)	(8,921		)	(9,042		)
Other comprehensive income before reclassification:
Net unrealized gains	97			—			97
Net actuarial loss	—			(9,496		)	(9,496		)
Reclassifications from other comprehensive income to net income:
Amortization - pension and postretirement benefits	—			1,845			1,845
Net current period other comprehensive income (loss)	97			(7,651		)	(7,554		)
BALANCE, DECEMBER 31, 2014	$	(24	)	$	(16,572	)	$	(16,596	)

Note 17 - Pension and Postretirement Benefit Plans

Qualified Defined Benefit Multi-employer Plan. The FHLBank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Defined Benefit Plan), a tax-qualified defined benefit pension plan. The Pentegra Defined Benefit Plan is treated as a multi-employer 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 multi-employer plan disclosures, including the certified zone status, are not applicable to the Pentegra Defined Benefit Plan. Under the Pentegra Defined Benefit Plan, contributions made by one 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

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Pentegra Defined Benefit Plan covers substantially all officers and employees of the FHLBank who meet certain eligibility requirements.

The Pentegra Defined Benefit Plan operates on a plan year from July 1 through June 30. The Pentegra Defined Benefit 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 at the FHLBank.

The Pentegra Defined Benefit 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 Defined Benefit Plan accepts contributions for the prior plan year up to eight and a half months after the end of the prior plan year. 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 Defined Benefit Plan is for the year ended June 30, 2013. The FHLBank did not contribute more than five percent of the total contributions to the Pentegra Defined Benefit Plan for the plan year ended June 30, 2013 and 2012.

Table 17.1 - Pentegra Defined Benefit Plan Net Pension Cost and Funded Status (dollars in thousands)

	2014				2013				2012
Net pension cost charged to compensation and benefit expense for        the year ended December 31	$	6,041			$	5,516			$	4,638
Pentegra Defined Benefit Plan funded status as of July 1	111.31		%	(a)	101.31		%	(b)	108.39		%
FHLBank's funded status as of July 1	128.27		%		107.36		%		110.48		%

(a) The Pentegra Defined Benefit Plan's funded status as of July 1, 2014 is preliminary and may increase because the plan's participants were 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).

(b) The Pentegra Defined Benefit Plan's funded status as of July 1, 2013 is preliminary and may increase because the plan's participants were permitted to make contributions for the plan year ended June 30, 2013 through March 15, 2014. Contributions made on or before March 15, 2014, and designated for the plan year ended June 30, 2013, will be included in the final valuation as of July 1, 2013. 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 FHLBank also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a tax-qualified, defined contribution pension plan. The FHLBank contributes a percentage of the participants' compensation by making a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations. The FHLBank contributed $943,000, $875,000, and $848,000 in the years ended December 31, 2014, 2013, and 2012, respectively.

Nonqualified Supplemental Defined Benefit Retirement Plan. The FHLBank maintains a nonqualified, unfunded defined benefit plan. The plan ensures that participants receive the full amount of benefits to which they would have been entitled under the qualified defined benefit plan in the absence of limits on benefit levels imposed by the IRS. There are no funded plan assets. The FHLBank has established a grantor trust, which is included in held-to-maturity securities on the Statements of Condition, to meet future benefit obligations and current payments to beneficiaries.

Postretirement Benefits Plan. The FHLBank also sponsors a postretirement benefits plan that includes health care and life insurance benefits for eligible retirees. Future retirees are eligible for the postretirement benefits plan if they were hired prior to August 1, 1990, are age 55 or older, and their age plus years of continuous service at retirement are greater than or equal to 80. Spouses are covered subject to required contributions. There are no funded plan assets that have been designated to provide postretirement benefits.

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Table 17.2 presents the obligations and funding status of the FHLBank's nonqualified supplemental defined benefit retirement plan and postretirement benefits plan. The benefit obligation represents projected benefit obligation for the nonqualified supplemental defined benefit retirement plan and accumulated postretirement benefit obligation for the postretirement benefits plan.

Table 17.2 - Benefit Obligation, Fair Value of Plan Assets and Funded Status (in thousands)

	Defined Benefit Retirement Plan						Postretirement Benefits Plan
Change in benefit obligation:	2014			2013			2014			2013
Benefit obligation at beginning of year	$	26,511		$	27,293		$	3,957		$	4,859
Service cost	524			494			53			58
Interest cost	1,234			986			190			199
Actuarial loss (gain)	8,335			215			1,161			(1,018		)
Benefits paid	(2,744		)	(2,477		)	(164		)	(141		)
Benefit obligation at end of year	33,860			26,511			5,197			3,957
Change in plan assets:
Fair value of plan assets at beginning of year	—			—			—			—
Employer contribution	2,744			2,477			164			141
Benefits paid	(2,744		)	(2,477		)	(164		)	(141		)
Fair value of plan assets at end of year	—			—			—			—
Funded status at end of year	$	(33,860	)	$	(26,511	)	$	(5,197	)	$	(3,957	)

Amounts recognized in “Other liabilities” on the Statements of Condition for the FHLBank's nonqualified supplemental defined benefit plan and postretirement benefits plan as of December 31, 2014 and 2013 were (in thousands) $39,057 and $30,468.

Table 17.3 - Amounts Recognized in Accumulated Other Comprehensive Income (in thousands)

	Defined Benefit Retirement Plan				Postretirement Benefits Plan
	2014		2013		2014		2013
Net actuarial loss (gain)	$	15,409	$	8,919	$	1,163	$	2

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Table 17.4 - Net Periodic Benefit Cost and Other Amounts Recognized in Accumulated Other Comprehensive Income (in thousands)

	For the Years Ended December 31,
	Defined Benefit Retirement Plan									Postretirement Benefits Plan
	2014			2013			2012			2014		2013			2012
Net Periodic Benefit Cost
Service cost	$	524		$	494		$	578		$	53	$	58		$	72
Interest cost	1,234			986			963			190		199			200
Amortization of net loss	1,845			1,948			932			—		62			22
Net periodic benefit cost	3,603			3,428			2,473			243		319			294
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain)	8,335			215			2,261			1,161		(1,018		)	440
Amortization of net loss	(1,845		)	(1,948		)	(932		)	—		(62		)	(22		)
Total recognized in other comprehensive income	6,490			(1,733		)	1,329			1,161		(1,080		)	418
Total recognized in net periodic benefit cost and    other comprehensive income	$	10,093		$	1,695		$	3,802		$	1,404	$	(761	)	$	712

Table 17.5 presents the estimated net actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year.

Table 17.5 - Amortization for Next Fiscal Year (in thousands)

	Defined Benefit Retirement Plan		Postretirement Benefits Plan
Net actuarial loss	$	2,405	$	67

Table 17.6 presents the key assumptions used for the actuarial calculations to determine benefit obligations for the nonqualified supplemental defined benefit retirement plan and postretirement benefits plan.

Table 17.6 - Benefit Obligation Key Assumptions

	Defined Benefit Retirement Plan				Postretirement Benefits Plan
	2014		2013		2014		2013
Discount rate	3.67	%	4.32	%	3.96	%	4.88	%
Salary increases	4.50	%	4.50	%	N/A		N/A

Table 17.7 presents the key assumptions used for the actuarial calculations to determine net periodic benefit cost for the FHLBank's defined benefit retirement plans and postretirement benefit plans.

Table 17.7 - Net Periodic Benefit Cost Key Assumptions

	Defined Benefit Retirement Plan						Postretirement Benefits Plan
	2014		2013		2012		2014		2013		2012
Discount rate	4.32	%	3.26	%	3.96	%	4.88	%	4.16	%	4.73	%
Salary increases	4.50	%	4.50	%	4.50	%	N/A		N/A		N/A

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Table 17.8 - Postretirement Benefits Plan Assumed Health Care Cost Trend Rates

	2014		2013
Assumed for next year	8.50	%	9.00	%
Ultimate rate	5.25	%	5.25	%
Year that ultimate rate is reached	2024		2024

The effect of a percentage point increase in the assumed health care trend rates would be an increase in net periodic postretirement benefit expense of $44,000 and in accumulated postretirement benefit obligation (APBO) of $1,027,000. The effect of a percentage point decrease in the assumed health care trend rates would be a decrease in net periodic postretirement benefit expense of $35,000 and in APBO of $806,000.

The discount rates for the disclosures as of December 31, 2014 were determined by using a discounted cash flow approach, which incorporates the timing of each expected future benefit payment. Estimated future benefit payments are based on each plan's census data, benefit formulas and provisions, and valuation assumptions reflecting the probability of decrement and survival. The present value of the future benefit payments is determined by using weighted average duration based interest rate yields from a variety of highly rated relevant corporate bond indices as of December 31, 2014, and solving for the single discount rate that produces the same present value.

Table 17.9 presents the estimated future benefits payments reflecting expected future services for the years ended after December 31, 2014.

Table 17.9 - Estimated Future Benefit Payments (in thousands)

Years	Defined Benefit Retirement Plan		Postretirement Benefit Plan
2015	$	2,874	$	158
2016	2,987		163
2017	2,225		178
2018	2,192		172
2019	2,296		181
2020 - 2024	8,825		1,165

Note 18 - Segment Information

The FHLBank has identified two primary operating segments based on its method of internal reporting: Traditional Member Finance and the MPP. These segments reflect the FHLBank's two primary Mission Asset Activities and the manner in which they are managed from the perspective of development, resource allocation, product delivery, pricing, credit risk and operational administration. The segments identify the principal ways the FHLBank provides services to member stockholders. The FHLBank, as an interest rate spread manager, considers a segment's net interest income, net interest rate spread and, ultimately, net income as the key factors in allocating resources. Resource allocation decisions are made by considering these profitability measures in the context of the historical, current and expected risk profile of each segment and the entire balance sheet, as well as current incremental profitability measures relative to the incremental market risk profile.

Overall financial performance and risk management are dynamically managed primarily at the level of, and within the context of, the entire balance sheet rather than at the level of individual business segments or product lines. Also, the FHLBank hedges specific asset purchases and specific subportfolios in the context of the entire mortgage asset portfolio and the entire balance sheet. Under this holistic approach, the market risk/return profile of each business segment does not correspond, in general, to the performance that each segment would generate if it were completely managed on a separate basis, and it is not possible to accurately determine what the performance would be if the two business segments were managed on a stand-alone basis. Further, because financial and risk management is a dynamic process, the performance of a segment over a single identified period may not reflect the long-term expected or actual future trends for the segment.

The Traditional Member Finance segment includes products such as Advances and investments and the borrowing costs related to those assets. The FHLBank assigns its investments to this segment primarily because they historically have been used to

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provide liquidity for Advances and to support the level and volatility of earnings from Advances. Income from the MPP is derived primarily from the difference, or spread, between the yield on mortgage loans and the borrowing cost of Consolidated Obligations outstanding allocated to this segment at the time debt is issued. Both segments also earn income from investment of interest-free capital. Capital is allocated proportionate to each segment's average assets based on the total balance sheet's average capital-to-assets ratio. Expenses are allocated based on cost accounting techniques that include direct usage, time allocations and square footage of space used. AHP assessments are calculated using the current assessment rates based on the income before assessments for each segment. All interest rate swaps, including their market value adjustments, are allocated to the Traditional Member Finance segment because the FHLBank has not executed interest rate swaps in its management of the MPP's market risk. All derivatives classified as mandatory delivery commitments and forward rate agreements are allocated to the MPP segment.

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The following tables set forth the FHLBank's financial performance by operating segment for the years ended December 31.

Table 18.1 - Financial Performance by Operating Segment (in thousands)

	For the Years Ended December 31,
	Traditional Member Finance		MPP			Total
2014
Net interest income	$	237,828	$	79,148		$	316,976
Reversal for credit losses	—		(500		)	(500		)
Net interest income after reversal for credit losses	237,828		79,648			317,476
Non-interest income	22,460		170			22,630
Non-interest expense	58,876		9,372			68,248
Income before assessments	201,412		70,446			271,858
Affordable Housing Program assessments	20,560		7,045			27,605
Net income	$	180,852	$	63,401		$	244,253
Average assets	$	94,333,213	$	6,824,283		$	101,157,496
Total assets	$	99,629,924	$	7,010,495		$	106,640,419
2013
Net interest income	$	229,559	$	98,285		$	327,844
Reversal for credit losses	—		(7,450		)	(7,450		)
Net interest income after reversal for credit losses	229,559		105,735			335,294
Non-interest income (loss)	30,505		(10,714		)	19,791
Non-interest expense	55,459		8,928			64,387
Income before assessments	204,605		86,093			290,698
Affordable Housing Program assessments	21,011		8,609			29,620
Net income	$	183,594	$	77,484		$	261,078
Average assets	$	86,609,248	$	7,081,377		$	93,690,625
Total assets	$	96,336,915	$	6,843,787		$	103,180,702
2012
Net interest income	$	209,636	$	98,484		$	308,120
Provision for credit losses	—		1,459			1,459
Net interest income after provision for credit losses	209,636		97,025			306,661
Non-interest income	12,930		482			13,412
Non-interest expense	50,082		7,888			57,970
Income before assessments	172,484		89,619			262,103
Affordable Housing Program assessments	18,417		8,962			27,379
Net income	$	154,067	$	80,657		$	234,724
Average assets	$	58,707,558	$	7,994,445		$	66,702,003
Total assets	$	74,003,271	$	7,558,879		$	81,562,150

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Note 19 - Fair Value Disclosures

The fair value amounts recorded on the Statements of Condition and presented in the related note disclosures have been determined by the FHLBank using available market information and the FHLBank's best judgment of appropriate valuation methods. The fair values reflect the FHLBank's judgment of how a market participant would estimate the fair values.

Fair Value Hierarchy. The FHLBank records trading securities, available-for-sale securities, derivative assets, derivative liabilities, certain Advances and certain Consolidated Obligation Bonds at fair value on a recurring basis. GAAP establishes a fair value hierarchy and 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 measurement is determined. This overall level is an indication of how market observable the fair value measurement is. An entity must disclose the level within the fair value hierarchy in which the measurements are classified.

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 reporting entity 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: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) 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, and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs - Unobservable inputs for the asset or liability.

The FHLBank reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out at fair value as of the beginning of the quarter in which the changes occur. The FHLBank did not have any transfers of assets or liabilities recorded at fair value on a recurring basis during the years ended December 31, 2014 or 2013.

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Table 19.1 presents the carrying value, fair value, and fair value hierarchy of financial assets and liabilities of the FHLBank. These values do not represent an estimate of the overall market value of the FHLBank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

Table 19.1 - Fair Value Summary (in thousands)

	December 31, 2014
			Fair Value
Financial Instruments	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Assets:
Cash and due from banks	$	3,109,970	$	3,109,970	$	3,109,970	$	—	$	—	$	—
Interest-bearing deposits	119		119		—		119		—		—
Securities purchased under agreements to resell	3,343,000		3,343,002		—		3,343,002		—		—
Federal funds sold	6,600,000		6,600,000		—		6,600,000		—		—
Trading securities	1,341		1,341		—		1,341		—		—
Available-for-sale securities	1,349,977		1,349,977		—		1,349,977		—		—
Held-to-maturity securities	14,712,271		14,794,326		—		14,794,326		—		—
Advances (2)	70,405,616		70,279,438		—		70,279,438		—		—
Mortgage loans held for portfolio, net	6,984,683		7,219,198		—		7,178,047		41,151		—
Accrued interest receivable	81,384		81,384		—		81,384		—		—
Derivative assets	14,699		14,699		—		24,531		—		(9,832		)
Liabilities:
Deposits	729,936		729,782		—		729,782		—		—
Consolidated Obligations:
Discount Notes	41,232,127		41,224,739		—		41,224,739		—		—
Bonds (3)	59,216,557		59,496,247		—		59,496,247		—		—
Mandatorily redeemable capital stock	62,963		62,963		62,963		—		—		—
Accrued interest payable	114,781		114,781		—		114,781		—		—
Derivative liabilities	63,767		63,767		—		149,634		—		(85,867		)
Other:
Standby bond purchase agreements	—		1,381		—		1,381		—		—

(1) Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLBank with the same counterparty.

(2) Includes (in thousands) $15,042 of Advances recorded under the fair value option at December 31, 2014.

(3) Includes (in thousands) $4,209,640 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2014.

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	December 31, 2013
			Fair Value
Financial Instruments	Carrying Value		Total		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral (1)
Assets:
Cash and due from banks	$	8,598,933	$	8,598,933	$	8,598,933	$	—	$	—	$	—
Interest-bearing deposits	166		166		—		166		—		—
Securities purchased under agreements to resell	2,350,000		2,350,000		—		2,350,000		—		—
Federal funds sold	1,740,000		1,740,000		—		1,740,000		—		—
Trading securities	1,578		1,578		—		1,578		—		—
Available-for-sale securities	2,184,879		2,184,879		—		2,184,879		—		—
Held-to-maturity securities	16,087,162		15,808,397		—		15,808,397		—		—
Advances	65,270,390		65,065,523		—		65,065,523		—		—
Mortgage loans held for portfolio, net	6,818,290		6,827,406		—		6,774,514		52,892		—
Accrued interest receivable	85,151		85,151		—		85,151		—		—
Derivative assets	3,241		3,241		—		39,445		—		(36,204		)
Liabilities:
Deposits	913,895		913,799		—		913,799		—		—
Consolidated Obligations:
Discount Notes	38,209,946		38,200,971		—		38,200,971		—		—
Bonds (2)	58,162,739		58,075,025		—		58,075,025		—		—
Mandatorily redeemable capital stock	115,853		115,853		115,853		—		—		—
Accrued interest payable	116,381		116,381		—		116,381		—		—
Derivative liabilities	97,766		97,766		—		223,835		—		(126,069		)
Other:
Standby bond purchase agreements	—		3,715		—		3,715		—		—

(1) Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLBank with the same counterparty.

(2) Includes (in thousands) $4,018,370 of Consolidated Obligation Bonds recorded under the fair value option at December 31, 2013.

Summary of Valuation Methodologies and Primary Inputs.

Cash and due from banks: The fair value equals the carrying value.

Interest-bearing deposits: The fair value is determined based on each security's quoted prices, excluding accrued interest, as of the last business day of the period.

Securities purchased under agreements to resell:The fair value of overnight securities purchased under agreements to resell approximates the carrying value. The fair value of term securities purchased under agreements to resell is determined by calculating the present value of the 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. Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented.

Federal funds sold: The fair value of overnight Federal funds sold approximates the carrying value. The fair value of term Federal funds sold is determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for Federal funds with similar terms, as approximated by adding an estimated current spread to the LIBOR Swap Curve for Federal funds with similar terms. The fair value excludes accrued interest.

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Trading securities: The FHLBank's trading portfolio generally consists of mortgage-backed securities issued by Ginnie Mae. Quoted market prices in active markets are not available for these securities.

To value mortgage-backed security holdings, the FHLBank obtains prices from four designated third-party pricing vendors, when available. The pricing vendors use various proprietary models to price mortgage-backed securities. The inputs to those models are derived from various sources including, but not limited to: benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers and other market-related data. Because many mortgage-backed securities do not trade on a daily basis, the pricing vendors use available information 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 challenge process in place for all mortgage-backed security valuations, which facilitates resolution of potentially erroneous prices identified by the FHLBank.

The FHLBank has conducted reviews of the pricing methods employed by the third-party vendors, to confirm and further augment its understanding of the vendors' pricing processes, methodologies and control procedures for specific instruments.

The FHLBank's valuation technique 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, non-binding dealer estimates, and/or use of an internal model that is deemed most appropriate) 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 is 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.

If all prices received for a security are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.

Four vendor prices were received for most of the FHLBank's mortgage-backed security holdings and the final prices for those securities were computed by averaging the prices received. Based on the FHLBank'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 FHLBank believes its final prices result in reasonable estimates of fair value and further that the fair value measurements are classified appropriately in the fair value hierarchy.

Available-for-sale securities: The FHLBank's available-for-sale portfolio generally consists of certificates of deposit. Quoted market prices in active markets are not available for these securities. Therefore, the fair value is determined based on each security's indicative fair value obtained from a third-party vendor. The FHLBank performs several validation steps in order to verify the accuracy and reasonableness of these fair values. These steps may include, but are not limited to, a detailed review of instruments with significant periodic price changes and a derived fair value from an option-adjusted discounted cash flow methodology using market-observed inputs for the interest rate environment and similar instruments.

Held-to-maturity securities:The FHLBank's held-to-maturity portfolio generally consists of discount notes issued by Freddie Mac and/or Fannie Mae (non-mortgage-backed securities), and mortgage-backed securities. Quoted market prices are not available for these securities. The fair value for each individual mortgage-backed security is determined by using the third-party vendor approach described above. In general, in order to determine the fair value of its non-mortgage backed securities, the FHLBank can use either (a) an income approach based on a market-observable interest rate curve that may be adjusted for a spread, or (b) prices received from third-party pricing vendors. The income approach uses indicative fair values derived from a discounted cash flow methodology. The FHLBank believes that both methodologies result in fair values that are reasonable and similar in all material respects based on the nature of the financial instruments being measured.

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For its discount notes issued by Freddie Mac, and/or Fannie Mae, the FHLBank determines the fair value using the income approach. The market-observable interest rate curve used by the FHLBank includes the U.S. Government Agency Fair Value Curve.

Advances: The FHLBank determines the fair values of Advances by calculating the present value of expected future cash flows from the Advances excluding accrued interest. The discount rates used in these calculations are the replacement rates for Advances with similar terms, as approximated either by adding an estimated current spread to the LIBOR Swap Curve or by using current indicative market yields, as indicated by the FHLBank's pricing methodologies for Advances with similar current terms. Advance pricing is determined based on the FHLBank's rates on Consolidated Obligations. In accordance with Finance Agency regulations, Advances with a maturity and repricing period greater than six months require a prepayment fee sufficient to make the FHLBank financially indifferent to the borrower's decision to prepay the Advances. Therefore, the fair value of Advances does not assume prepayment risk.

For swapped option-based Advances, the fair value is determined (independently of the related derivative) by the discounted cash flow methodology based on the LIBOR Swap Curve and forward rates at period end adjusted for the estimated current spread on new swapped Advances to the swap curve. For swapped Advances with a conversion option, the conversion option is valued by taking into account the LIBOR Swap Curve and forward rates at period end and the market's expectations of future interest rate volatility implied from current market prices of similar options.

Mortgage loans held for portfolio, net: The fair values of performing mortgage loans are determined based on quoted market prices offered to approved members as indicated by the FHLBank's MPP pricing methodologies for mortgage loans with similar current terms excluding accrued interest. The quoted prices offered to members are based on Fannie Mae price indications on to-be-announced (TBA) mortgage-backed securities and FHA price indications on government-guaranteed loans. The FHLBank then adjusts these indicative prices to account for particular features of the FHLBank's MPP that differ from the Fannie Mae and FHA securities. These features include, but may not be limited to, the MPP's credit enhancements, and marketing adjustments that reflect the FHLBank's cooperative business model and preferences for particular kinds of loans and mortgage note rates. These quoted prices, however, can change rapidly based upon market conditions and are highly dependent upon the underlying prepayment assumptions. In order to determine the fair values, the loan amounts are also reduced for the FHLBank's estimate of expected net credit losses. The fair value of conventional mortgage loans 90 days or more delinquent are based on the estimated values of the underlying collateral or the present value of future cash flows and as such are classified as Level 3 in the fair value hierarchy.

Accrued interest receivable and payable: The fair value approximates the carrying value.

Derivative assets/liabilities: The FHLBank's derivative assets/liabilities generally consist of interest rate swaps, TBA mortgage-backed securities (forward rate agreements), and mortgage delivery commitments. The FHLBank's interest rate swaps are traded in the over-the-counter market. Therefore, the FHLBank determines the fair value of each individual interest rate swap using market value models that use readily observable market inputs as their basis (inputs that are actively quoted and can be validated to external sources). The FHLBank uses a mid-market pricing convention as a practical expedient for fair value measurements within a bid-ask spread. These models reflect the contractual terms of the interest rate swaps, including the period to maturity, as well as the significant inputs noted below. The fair value determination uses the standard valuation technique of discounted cash flow analysis.

The FHLBank performs several validation steps to verify the reasonableness of the fair value output generated by the primary market value model. In addition to an annual model validation, the FHLBank prepares a monthly reconciliation of the model's fair values to estimates of fair values provided by the derivative counterparties. The FHLBank believes these processes provide a reasonable basis for it to place continued reliance on the derivative fair values generated by the model.

The fair value of TBA mortgage-backed securities is based on independent indicative and/or quoted prices generated by market transactions involving comparable instruments. The FHLBank determines the fair value of mortgage delivery commitments using market prices from the TBA/mortgage-backed security market or TBA/Ginnie Mae market and adjustments noted below.

The FHLBank's discounted cash flow analysis uses market-observable inputs. Inputs, by class of derivative, are as follows:

Interest-rate swaps:

▪ Discount rate assumption. Overnight Index Swap Curve;

▪ Forward interest rate assumption. LIBOR Swap Curve; and

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▪ Volatility assumption. Market-based expectations of future interest rate volatility implied from current market prices for similar options.

TBA mortgage-backed securities:

▪ Market-based prices by coupon class and expected term until settlement.

Mortgage delivery commitments:

▪ TBA securities prices. Market-based prices by coupon class and expected term until settlement, adjusted to reflect the contractual terms of the mortgage delivery commitments, similar to the mortgage loans held for portfolio process. The adjustments to the market prices are market observable, or can be corroborated with observable market data.

The FHLBank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. 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. In addition, the FHLBank requires collateral agreements with collateral delivery thresholds on its bilateral derivatives. The FHLBank has evaluated the potential for the fair value of the instruments to be impacted by counterparty credit risk and has determined that no adjustments were significant or necessary to the overall fair value measurements.

The fair values of the FHLBank's derivatives include accrued interest receivable/payable and related 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. Derivatives are presented on a net basis by counterparty when it has met the netting requirements. If these netted amounts are positive, they are classified as an asset and if negative, they are classified as a liability.

Deposits: The FHLBank determines the fair values of FHLBank deposits with fixed rates by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rates used in these calculations are the cost of deposits with similar terms.

Consolidated Obligations: The FHLBank determines the fair values of Discount Notes by calculating the present value of expected future cash flows from the Discount Notes excluding accrued interest. The discount rates used in these calculations are current replacement rates for Discount Notes with similar current terms, as approximated by adding an estimated current spread to the LIBOR Swap Curve. Each month's cash flow is discounted at that month's replacement rate.

The FHLBank determines the fair values of non-option-based Consolidated Obligation Bonds by calculating the present value of scheduled future cash flows from the bonds excluding accrued interest. Inputs used to determine fair value of these Consolidated Obligation Bonds are the discount rates, which are estimated current market yields, as indicated by the Office of Finance, for bonds with similar current terms. 

The FHLBank determines the fair values of option-based Consolidated Obligation Bonds based on pricing received from designated third-party pricing vendors. The pricing vendors used apply various proprietary models to price Consolidated Obligation Bonds. The inputs to those models are derived from various sources including, but not limited to, benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many Consolidated Obligation Bonds 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 Consolidated Obligation Bonds. Each pricing vendor has an established challenge process in place for all valuations, which facilitates resolution of potentially erroneous prices identified by the FHLBank.

When pricing vendors are used, the FHLBank's valuation technique first requires the establishment of a “median” price for each Consolidated Obligation Bond. 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, non-binding dealer estimates, and/or use of an internal model that is deemed most appropriate) 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

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other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis confirms that an outlier is 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.

If all prices received for a Consolidated Obligation Bond are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.

Four vendor prices were received for the FHLBank's Consolidated Obligation Bonds and the final prices for those bonds were computed by averaging the prices received. Based on the FHLBank'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 FHLBank believes its final prices result in reasonable estimates of fair value and that the fair value measurements are classified appropriately in the fair value hierarchy.

The FHLBank has conducted reviews of its pricing vendors to confirm and further augment its understanding of the vendors' pricing processes, methodologies and control procedures for Consolidated Obligation Bonds.

Adjustments may be necessary to reflect the 12 FHLBanks' credit quality when valuing Consolidated Obligation Bonds measured at fair value. Due to the joint and several liability for Consolidated Obligations, the FHLBank monitors its own creditworthiness and the creditworthiness of the other FHLBanks to determine whether any credit adjustments are necessary in its fair value measurement of Consolidated Obligation Bonds. No adjustments were considered necessary at December 31, 2014 or 2013.

Mandatorily redeemable capital stock:The fair value of capital stock subject to mandatory redemption is par value for the dates presented, as indicated by member contemporaneous purchases and sales at par value. FHLBank stock can only be acquired by members at par value and redeemed at par value. FHLBank stock is not traded and no market mechanism exists for the exchange of stock outside the cooperative structure.

Commitments: The fair values of standby bond purchase agreements are based on the present value of the estimated fees taking into account the remaining terms of the agreements.

Subjectivity of estimates. Estimates of the fair values of financial assets and liabilities using the methods described above and other methods are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speeds, interest rate volatility, distributions of future interest rates used to value options, and discount rates that appropriately reflect market and credit risks. The judgments also include the parameters, methods, and assumptions used in models to value the options. The use of different assumptions could have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near term changes.

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Fair Value Measurements.

Table 19.2 presents the fair value of financial assets and liabilities, which are recorded on a recurring basis at December 31, 2014 or 2013, by level within the fair value hierarchy.

Table 19.2 - Fair Value Measurements (in thousands)

	Fair Value Measurements at December 31, 2014
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral (1)
Recurring fair value measurements - Assets
Trading securities:
Other U.S. obligation single-family mortgage-backed securities	$	1,341	$	—	$	1,341	$	—	$	—
Available-for-sale securities:
Certificates of deposit	1,349,977		—		1,349,977		—		—
Advances	15,042		—		15,042		—		—
Derivative assets:
Interest rate swaps	10,894		—		20,726		—		(9,832		)
Forward rate agreements	6		—		6		—		—
Mortgage delivery commitments	3,799		—		3,799		—		—
Total derivative assets	14,699		—		24,531		—		(9,832		)
Total assets at fair value	$	1,381,059	$	—	$	1,390,891	$	—	$	(9,832	)
Recurring fair value measurements - Liabilities
Consolidated Obligation Bonds	$	4,209,640	$	—	$	4,209,640	$	—	$	—
Derivative liabilities:
Interest rate swaps	58,842		—		144,709		—		(85,867		)
Forward rate agreement	4,924		—		4,924		—		—
Mortgage delivery commitments	1		—		1		—		—
Total derivative liabilities	63,767		—		149,634		—		(85,867		)
Total liabilities at fair value	$	4,273,407	$	—	$	4,359,274	$	—	$	(85,867	)

(1) Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLBank with the same counterparty.

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	Fair Value Measurements at December 31, 2013
	Total		Level 1		Level 2		Level 3		Netting Adjustment and Cash Collateral (1)
Recurring fair value measurements - Assets
Trading securities:
Other U.S. obligation single-family mortgage-backed securities	$	1,578	$	—	$	1,578	$	—	$	—
Available-for-sale securities:
Certificates of deposit	2,184,879		—		2,184,879		—		—
Derivative assets:
Interest rate swaps	2,785		—		38,989		—		(36,204		)
Forward rate agreements	454		—		454		—		—
Mortgage delivery commitments	2		—		2		—		—
Total derivative assets	3,241		—		39,445		—		(36,204		)
Total assets at fair value	$	2,189,698	$	—	$	2,225,902	$	—	$	(36,204	)
Recurring fair value measurements - Liabilities
Consolidated Obligation Bonds	$	4,018,370	$	—	$	4,018,370	$	—	$	—
Derivative liabilities:
Interest rate swaps	97,354		—		223,423		—		(126,069		)
Mortgage delivery commitments	412		—		412		—		—
Total derivative liabilities	97,766		—		223,835		—		(126,069		)
Total liabilities at fair value	$	4,116,136	$	—	$	4,242,205	$	—	$	(126,069	)

(1) Amounts represent the application of the netting requirements that allow the FHLBank to settle positive and negative positions and also cash collateral and related accrued interest held or placed by the FHLBank with the same counterparty.

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 a company 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. If elected, interest income and interest expense on Advances and Consolidated Bonds carried at fair value are recognized based solely on the contractual amount of interest due or unpaid and any transaction fees or costs are immediately recognized into other non-interest income or other non-interest expense. Additionally, concessions paid on Consolidated Obligations designated under the fair value option are expensed as incurred in other non-interest expense.

The FHLBank has elected the fair value option for certain Advances and Consolidated Obligation Bond transactions. The FHLBank elected the fair value option for these transactions so as to mitigate the income statement volatility that can arise when only the corresponding derivatives are marked at fair value in transactions that do not, or may not, meet hedge effectiveness requirements or otherwise qualify for hedge accounting (i.e., economic hedging transactions).

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Table 19.3 – Fair Value Option - Financial Assets and Liabilities (in thousands)

	For the Years Ended December 31,
	2014					2013					2012
	Advances		Consolidated Bonds			Advances		Consolidated Bonds			Advances		Consolidated Bonds
Balance at beginning of period	$	—	$	(4,018,370	)	$	—	$	(3,402,366	)	$	—	$	(4,900,296	)
New transactions elected for fair value option	15,000		(6,480,000		)	—		(4,015,000		)	—		(3,365,000		)
Maturities and terminations	—		6,285,000			—		3,400,000			—		4,860,000
Net gains on financial instruments held under fair value option	20		2,154			—		330			—		1,939
Change in accrued interest	22		1,576			—		(1,334		)	—		991
Balance at end of period	$	15,042	$	(4,209,640	)	$	—	$	(4,018,370	)	$	—	$	(3,402,366	)

Table 19.4 – Changes in Fair Values for Items Measured at Fair Value Pursuant to the Election of the Fair Value Option (in thousands)

	For the Years Ended December 31,
	2014					2013					2012
	Advances		Consolidated Bonds			Advances		Consolidated Bonds			Advances		Consolidated Bonds
Interest income (expense)	$	82	$	(5,899	)	$	—	$	(4,914	)	$	—	$	(8,934	)
Net gains on changes in fair value under fair value option	20		2,154			—		330			—		1,939
Total changes in fair value included in current period earnings	$	102	$	(3,745	)	$	—	$	(4,584	)	$	—	$	(6,995	)

For instruments recorded under the fair value option, the related contractual interest income and contractual interest expense are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments in which the fair value option has been elected are recorded as “Net gains on financial instruments held under fair value option” in the Statements of Income. The FHLBank has determined that no adjustments to the fair values of its instruments recorded under the fair value option for instrument-specific credit risk were necessary as of December 31, 2014 or 2013.

The following table reflects the difference between the aggregate unpaid principal balance outstanding and the aggregate fair value for Advances and Consolidated Bonds for which the fair value option has been elected.

Table 19.5 – Aggregate Unpaid Balance and Aggregate Fair Value (in thousands)

	December 31, 2014							December 31, 2013
	Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance			Aggregate Unpaid Principal Balance		Aggregate Fair Value		Aggregate Fair Value Over/(Under) Aggregate Unpaid Principal Balance
Advances (1)	$	15,000	$	15,042	$	42		$	—	$	—	$	—
Consolidated Bonds	4,210,000		4,209,640		(360		)	4,015,000		4,018,370		3,370

(1) At December 31, 2014 and 2013, none of the Advances were 90 days or more past due or had been placed on non-accrual status.

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Note 20 - Commitments and Contingencies

As previously described, Consolidated Obligations are backed only by the financial resources of the FHLBanks. The joint and several liability Finance Agency regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal and interest on Consolidated Obligations for which another FHLBank is the primary obligor. No FHLBank has ever been asked or required to repay the principal or interest on any Consolidated Obligation on behalf of another FHLBank, and as of December 31, 2014, and through the filing date of this report, the FHLBank does not believe that it is probable that it will be asked to do so.

The FHLBank determined that it was not necessary to recognize a liability for the fair values of its joint and several obligation related to other FHLBanks' Consolidated Obligations at December 31, 2014 or 2013. The joint and several obligations are mandated by Finance Agency regulations and are not the result of arms-length transactions among the FHLBanks. The FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligation.

Table 20.1 - Off-Balance Sheet Commitments (in thousands)

	December 31, 2014						December 31, 2013
Notional Amount	Expire within one year		Expire after one year		Total		Expire within one year		Expire after one year		Total
Standby Letters of Credit outstanding	$	17,233,206	$	546,385	$	17,779,591	$	13,317,887	$	154,086	$	13,471,973
Commitments for standby bond purchases	37,490		149,705		187,195		10,960		273,025		283,985
Commitments to purchase mortgage loans	451,292		—		451,292		36,620		—		36,620
Unsettled Consolidated Bonds, at par (1)(2)	17,000		—		17,000		240,000		—		240,000
Unsettled Consolidated Discount Notes, at par (1)	5,000		—		5,000		1,122,298		—		1,122,298

(1) Expiration is based on settlement period rather than underlying contractual maturity of Consolidated Obligations.

(2) Of the total unsettled Consolidated Bonds, $17,000 and $0 (in thousands) were hedged with associated interest rate swaps at December 31, 2014 and 2013, respectively.

Standby Letters of Credit. A Standby Letter of Credit is a financing arrangement between the FHLBank and its member. Standby Letters of Credit are executed for members for a fee. If the FHLBank is required to make payment for a beneficiary's draw, the payment amount is converted into a collateralized Advance to the member. The original terms of these Standby Letters of Credit range from less than 1 month to 19 years. Unearned fees and the value of guarantees related to Standby Letters of Credit are recorded in other liabilities and amounted to (in thousands) $4,441 and $3,145 at December 31, 2014 and 2013.

The FHLBank monitors the creditworthiness of its members that have Standby Letters of Credit. In addition, Standby Letters of Credit are fully collateralized at the time of issuance. As a result, the FHLBank has deemed it unnecessary to record any additional liability on these commitments.

Standby Bond Purchase Agreements. The FHLBank has executed standby bond purchase agreements with one state housing authority whereby the FHLBank, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bonds according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the FHLBank to purchase the bonds. The bond purchase commitments entered into by the FHLBank have original expiration periods up to 6 years, currently no later than 2017, although some are renewable at the option of the FHLBank. During 2014 and 2013, the FHLBank was not required to purchase any bonds under these agreements.

Commitments to Purchase Mortgage Loans. The FHLBank enters into commitments that unconditionally obligate the FHLBank to purchase mortgage loans. Commitments are generally for periods not to exceed 90 days. The delivery commitments are recorded as derivatives at their fair values.

Pledged Collateral. The FHLBank may pledge securities, as collateral, related to derivatives. See Note 11 - Derivatives and Hedging Activities for additional information about the FHLBank's pledged collateral and other credit-risk-related contingent features.

Lease Commitments. The FHLBank charged to operating expenses net rental and related costs of approximately $1,816,000,$1,713,000, and $1,905,000 for the years ending December 31, 2014, 2013, and 2012.

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Table 20.2 - Future Minimum Rentals for Operating Leases (in thousands)

Year	Premises		Equipment		Total
2015	$	831	$	146	$	977
2016	755		143		898
2017	758		143		901
2018	777		72		849
2019	796		—		796
Thereafter	5,865		—		5,865
Total	$	9,782	$	504	$	10,286

Lease agreements for FHLBank premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the FHLBank.

Legal Proceedings. From time to time, the FHLBank is subject to legal proceedings arising in the normal course of business. In March 2010, the FHLBank was advised by representatives of the Lehman Brothers Holdings, Inc. bankruptcy estate that they believed that the FHLBank had been unjustly enriched in connection with the close out of its interest rate swap transactions with Lehman at the time of the Lehman bankruptcy in 2008 and that the bankruptcy estate was entitled to the $43 million difference between the settlement amount the FHLBank paid Lehman in connection with the close-out transactions and the market value payment the FHLBank received when replacing the swaps with other counterparties. In May 2010, the FHLBank received a Derivatives Alternative Dispute Resolution notice from the Lehman bankruptcy estate with a settlement demand of $65.8 million, plus interest accruing primarily at LIBOR plus 14.5 percent since the bankruptcy filing, based on their view of how the settlement amount should have been calculated. In accordance with the Alternative Dispute Resolution Order of the Bankruptcy Court administering the Lehman estate, senior management of the FHLBank participated in a non-binding mediation in New York in August 2010, and counsel for the FHLBank continued discussions with the court-appointed mediator for several weeks thereafter. The mediation concluded in October 2010 without a settlement of the claims asserted by the Lehman bankruptcy estate. In April 2013, Lehman Brothers Special Financing Inc., through Lehman Brothers Holdings Inc. and the Plan Administrator under the Modified Third Amended Joint Chapter 11 Plan of Lehman Brothers Holdings Inc. and its Affiliated Debtors, filed an adversary complaint in the United States Bankruptcy Court for the Southern District of New York against the FHLBank seeking (a) a declaratory judgment on the interpretation of certain provisions and the calculation of amounts due under the agreement governing the 2008 swap transactions described above, and (b) additional amounts alleged as due as part of the termination of such transactions. The FHLBank believes that it correctly calculated, and fully satisfied its obligation to Lehman in September 2008, and the FHLBank intends to vigorously defend itself.

The FHLBank also is subject to other legal proceedings arising in the normal course of business. The FHLBank would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount can be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the FHLBank's financial condition or results of operations.

Note 21 - Transactions with Other FHLBanks

The FHLBank notes all transactions with other FHLBanks on the face of its financial statements. Occasionally, the FHLBank loans short-term funds to and borrows short-term funds from other FHLBanks. These loans and borrowings are transacted at then current market rates when traded. There were no such loans or borrowings outstanding at December 31, 2014, 2013, or 2012. The following table details the average daily balance of lending and borrowing between the FHLBank and other FHLBanks for the years endedDecember 31.

Table 21.1 - Lending and Borrowing Between the FHLBank and Other FHLBanks (in thousands)

	Average Daily Balances for the Years Ended December 31,
	2014		2013		2012
Loans to other FHLBanks	$	438	$	3,740	$	2,514
Borrowings from other FHLBanks	68		4,110		273

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The FHLBank may, from time to time, assume the outstanding primary liability for Consolidated Obligations of another FHLBank (at then current market rates on the day when the transfer is traded) rather than issuing new debt for which the FHLBank is the primary obligor. The FHLBank then becomes the primary obligor on the transferred debt. There are no formal arrangements governing the transfer of Consolidated Obligations between the FHLBanks, and these transfers are not investments of one FHLBank in another FHLBank. Transferring debt at current market rates enables the FHLBank System to satisfy the debt issuance needs of individual FHLBanks without incurring the additional selling expenses (concession fees) associated with new debt. It also provides the transferring FHLBanks with outlets for extinguishing debt structures no longer required for their balance sheet management strategies.

There were no Consolidated Obligations transferred to the FHLBank during the years ended December 31, 2014, 2013, or 2012. The FHLBank had no Consolidated Obligations transferred to other FHLBanks during these periods.

Note 22 - Transactions with Stockholders

As a cooperative, the FHLBank's capital stock is owned by its members, by former members that retain the stock as provided in the FHLBank's Capital Plan and by nonmember institutions that have acquired members and must retain the stock to support Advances or other activities with the FHLBank. All Advances are issued to members and all mortgage loans held for portfolio are purchased from members. The FHLBank also maintains demand deposit accounts for members, primarily to facilitate settlement activities that are directly related to Advances and mortgage loan purchases. Additionally, the FHLBank may enter into interest rate swaps with its stockholders. The FHLBank may not invest in any equity securities issued by its stockholders and it has not purchased any mortgage-backed securities securitized by, or other direct long-term investments in, its stockholders.

For financial statement purposes, the FHLBank defines related parties as those members with more than 10 percent of the voting interests of the FHLBank capital stock outstanding. Federal legislation prescribes the voting rights of members in the election of both member and independent directors. For member directorships, the Finance Agency designates the number of member directorships in a given year and an eligible voting member may vote only for candidates seeking election in its respective state. For independent directorships, the FHLBank's Board of Directors nominates candidates to be placed on the ballot in an at-large election. For both member and independent directorship elections, a member is entitled to vote one share of required capital stock, subject to a statutory limitation, for each applicable directorship. Under this limitation, the total number of votes that a member may cast is limited to the average number of shares of the FHLBank's capital stock that were required to be held by all members in that state as of the record date for voting. Nonmember stockholders are not eligible to vote in director elections. Due to the abovementioned statutory limitation, no member owned more than 10 percent of the voting interests of the FHLBank at December 31, 2014 or 2013.

All transactions with stockholders are entered into in the ordinary course of business. Finance Agency regulations require the FHLBank to offer the same pricing for Advances and other services to all members regardless of asset or transaction size, charter type, or geographic location. However, the FHLBank may, in pricing its Advances, distinguish among members based upon its assessment of the credit and other risks to the FHLBank of lending to any particular member or upon other reasonable criteria that may be applied equally to all members. The FHLBank's policies and procedures require that such standards and criteria be applied consistently and without discrimination to all members applying for Advances.

Transactions with Directors' Financial Institutions. In the ordinary course of its business, the FHLBank may provide products and services to members whose officers or directors serve as directors of the FHLBank (Directors' Financial Institutions). Finance Agency regulations require that transactions with Directors' Financial Institutions be made on the same terms as those with any other member. The following table reflects balances with Directors' Financial Institutions for the items indicated below. The FHLBank had no mortgage-backed securities or derivatives transactions with Directors' Financial Institutions at December 31, 2014 and 2013.

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Table 22.1 - Transactions with Directors' Financial Institutions (dollars in millions)

	December 31, 2014				December 31, 2013
	Balance		% of Total(1)		Balance		% of Total (1)
Advances	$	2,929	4.2	%	$	1,611	2.5	%
MPP	154		2.3		57		0.9
Regulatory capital stock	225		5.2		246		5.1

(1) Percentage of total principal (Advances), unpaid principal balance (MPP), and regulatory capital stock.

Concentrations. The following table shows regulatory capital stock balances, outstanding Advance principal balances, and unpaid principal balances of mortgage loans held for portfolio at the dates indicated to stockholders holding five percent or more of regulatory capital stock and include any known affiliates that are members of the FHLBank.

Table 22.2 - Stockholders Holding Five Percent or more of Regulatory Capital Stock (dollars in millions)

	Regulatory Capital Stock				Advance		MPP Unpaid
December 31, 2014	Balance		% of Total		Principal		Principal Balance
JPMorgan Chase Bank, N.A.	$	1,533	35	%	$	41,300	$	—
U.S. Bank, N.A.	475		11		8,338		38
Fifth Third Bank	248		6		24		3

	Regulatory Capital Stock				Advance		MPP Unpaid
December 31, 2013	Balance		% of Total		Principal		Principal Balance
JPMorgan Chase Bank, N.A.	$	1,533	32	%	$	41,700	$	—
U.S. Bank, N.A.	592		12		4,584		45
Fifth Third Bank	401		8		26		4

Nonmember Affiliates. The FHLBank has relationships with three nonmember affiliates, the Kentucky Housing Corporation, the Ohio Housing Finance Agency and the Tennessee Housing Development Agency. The FHLBank had no investments in or borrowings to any of these nonmember affiliates at December 31, 2014 or 2013. The FHLBank has executed standby bond purchase agreements with one state housing authority whereby the FHLBank, for a fee, agrees as a liquidity provider if required, to purchase and hold the authority's bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. For the years ended December 31, 2014 and 2013, the FHLBank was not required to purchase any bonds under these agreements.

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SUPPLEMENTAL FINANCIAL DATA

Supplemental financial data required is set forth in the “Other Financial Information” caption at Part II, Item 7 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

There were no changes in or disagreements with our accountants on accounting and financial disclosure during the two most recent fiscal years.

Item 9A. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

As of December 31, 2014, the FHLBank's management, including its principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, these two officers each concluded that, as of December 31, 2014, the FHLBank maintained effective disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that it files under the Exchange Act is (1) accumulated and communicated to management as appropriate to allow timely decisions regarding disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the FHLBank is responsible for establishing and maintaining adequate internal control over financial reporting. The FHLBank's internal control over financial reporting is designed by, or under the supervision of, the FHLBank's management, including its principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

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.

The FHLBank's management assessed the effectiveness of the FHLBank's internal control over financial reporting as of December 31, 2014. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its assessment, management of the FHLBank determined that, as of December 31, 2014, the FHLBank's internal control over financial reporting was effective based on those criteria.

The effectiveness of the FHLBank's internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in “Item 8. Financial Statements and Supplementary Data."

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the FHLBank's internal control over financial reporting that occurred during the fourth quarter ended December 31, 2014 that materially affected, or are reasonably likely to materially affect, the FHLBank's internal control over financial reporting. On May 14, 2013, the COSO published an updated Internal Control - Integrated Framework (2013) and related illustrative documents. The FHLBank adopted the new framework in 2014.

Item 9B. Other Information.

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

NOMINATION AND ELECTION OF DIRECTORS

The Finance Agency has authorized us to have a total of 17 directors: 10 member directors and seven independent directors. Two of our independent directors are designated as public interest directors and all 17 directors are elected by our members.

For both member and independent directorship elections, a member institution may cast one vote per seat or directorship up for election for each share of stock that the member was required to hold as of December 31 of the calendar year immediately preceding the election year. However, the number of votes that any member may cast for any one directorship cannot exceed the average number of shares of FHLBank stock that were required to be held by all members located in its state. The election process is conducted by mail. Our Board of Directors does not solicit proxies nor is any member institution permitted to solicit proxies in an election.

Finance Agency regulations also provide for two separate selection processes for member and independent director candidates.

Member director candidates are nominated by any officer or director of a member institution eligible to vote in the respective statewide election, including the candidate's own institution. After the FHLBank determines that the candidate meets all member director eligibility requirements per Finance Agency regulations, the candidate may run for election and the candidate's name is placed on the ballot.

Independent director candidates are self-nominated. Any individual may submit an independent director application form to the FHLBank and request to be considered for election. The FHLBank reviews all application forms to determine that the individual satisfies the appropriate public interest or non-public interest independent director eligibility requirements per Finance Agency regulations before forwarding the application form to the Board for review of the candidate's qualifications and skills. The Board then nominates an individual whose name will appear on the ballot after consultation with the Affordable Housing Advisory Council and after the nominee information has been submitted to the Finance Agency for review. As part of the nomination process, the Board may consider several factors including the individual's contributions and service on the Board, if a former or incumbent director, and the specific experience and qualifications of the candidate. The Board will also consider diversity in nominating independent directors and how the attributes of the candidate may add to the overall strength and skill set of the Board. These same factors are considered when the Board fills a member or independent director vacancy.

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DIRECTORS

The following table sets forth certain information (ages as of March 1, 2015) regarding each of our current directors.

Name	Age	Director Since	Expiration of Term as a Director	Independent or Member (State)
J. Lynn Anderson	51	2011	12/31/16	Member (OH)
Grady P. Appleton	67	2007	12/31/17	Independent (OH)
Greg W. Caudill	56	2014	12/31/17	Member (KY)
James R. DeRoberts	58	2008	12/31/18	Member (OH)
Mark N. DuHamel	57	2009	12/31/15	Member (OH)
Leslie D. Dunn	69	2007	12/31/16	Independent (OH)
James A. England	63	2011	12/31/18	Member (TN)
Charles J. Koch	68	2008 (1)	12/31/18	Independent (OH)
Michael R. Melvin	70	(1995-2001) 2006	12/31/15	Member (OH)
Thomas L. Moore	68	2013	12/31/16	Member (OH)
Donald J. Mullineaux, Chair	69	2010	12/31/15	Independent (KY)
Alvin J. Nance	57	2009	12/31/16	Independent (TN)
Charles J. Ruma	73	(2002-2004) 2007	12/31/15	Independent (OH)
David E. Sartore	54	2014	12/31/17	Member (KY)
William J. Small, Vice Chair	64	2007	12/31/17	Member (OH)
William S. Stuard, Jr.	60	2011	12/31/18	Member (TN)
Nancy E. Uridil	63	2015	12/31/18	Independent (OH)

(1) Mr. Koch, an independent director beginning in 2008, also served as a member director from 1990-1995 and 1998-2006.

Member Directors

Finance Agency regulations govern the eligibility requirements for our member directors. Each member director, and each nominee to a member directorship, must be a U.S. citizen and an officer or director of a member that: is located in the voting state to be represented by the member directorship, was a member of the FHLBank as of the record date, and meets all minimum capital requirements established by its appropriate Federal banking agency or state regulator.

Each member director is nominated and elected by our members through an annual voting process administered by us. Any member that is entitled to vote in the election may nominate an eligible individual to fill each available member directorship for its voting state, and all eligible nominees must be presented to the membership in the voting state. In accordance with Finance Agency regulations, except when acting in a personal capacity, no director, officer, attorney, employee or agent of the FHLBank may communicate in any manner that he or she directly or indirectly, supports or opposes the nomination or election of a particular individual for a member directorship or take any other action to influence the voting with respect to a particular individual. As a result, the FHLBank is not in a position to know which factors its member institutions considered in nominating candidates for member directorships or in voting to elect member directors.

Ms. Anderson has been the President of Nationwide Bank, Columbus, Ohio since November 2009. She also served as the Senior Vice President-Property and Casualty Product and Pricing for Nationwide Mutual Insurance Company from March 2003 until November 2009.

Mr. Caudill has been President and Chief Executive Officer of Farmers National Bank, Danville, Kentucky since 2002.

Mr. DeRoberts has been Chairman of The Arlington Bank, Upper Arlington, Ohio since 1999 and a partner at Gardiner Allen DeRoberts Insurance LLC, Columbus, Ohio since 2006. He also serves as a director of Park National Corporation, Newark, Ohio.

Mr. DuHamel has been a director and the Executive Vice President of FirstMerit Bank, N.A., Akron, Ohio, since February 2005 and Treasurer of FirstMerit Bank, N.A. since March 1996.

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Mr. England has been Chairman of Decatur County Bank, Decaturville, Tennessee since 1990. He also served as Chief Executive Officer of Decatur County Bank from 1990 to 2013.

Mr. Melvin has been President and a director of Perpetual Federal Savings Bank, Urbana, Ohio since 1980.

Mr. Moore has been a director at First Federal Bank of Ohio, Galion, Ohio, since 1995,serving as Chairman from November 2011 to November 2014. He also served as President and Chief Executive Officer of First Federal Bank of Ohio from 1995 to January 2014.

Mr. Sartore became Executive Vice President and Chief Financial Officer of Field & Main Bank, Henderson, Kentucky in January 2015 when Ohio Valley Financial Group and BankTrust Financial merged to form Field & Main Bank. Previously, Mr. Sartore was Senior Vice President and Chief Financial Officer of Ohio Valley Financial Group since 1992.

Mr. Small has been Chairman of First Defiance Financial Corp. and its subsidiary bank, First Federal Bank of the Midwest, of Defiance, Ohio, since 1999. He also served as Chief Executive Officer of First Defiance Financial Corp. from 1999 to December 2013. In addition, he served as Chief Executive Officer of First Federal Bank of the Midwest from 1999 until 2008.

Mr. Stuard has been President and Chief Executive Officer of F&M Bank, Clarksville, Tennessee, since January 1991.

Independent Directors

Finance Agency regulations also govern the eligibility requirements of our independent directors. Each independent director, and each nominee to an independent directorship, must be a U.S. citizen and bona fide resident of our District. At least two of our independent directors must be designated by our Board as public interest directors. Public interest independent directors must have more than four years experience representing consumer or community interest in banking services, credit needs, housing, or consumer financial protections. All other independent directors must have knowledge of or experience in one or more of the following areas: auditing and accounting; derivatives; financial management; organizational management; project development; risk management practices; and the law. Our Board of Directors nominates candidates for independent directorships. Directors, officers, employees, attorneys, or agents of the FHLBank are permitted to support directly or indirectly the nomination or election of a particular individual for an independent directorship.

Mr. Appleton has served as President and Chief Executive Officer of East Akron Neighborhood Development Corporation (EANDC), Akron, Ohio, since January 2014. He previously served as Executive Director of EANDC for more than 30 years. EANDC improves communities by providing quality and affordable housing, comprehensive homeownership services and economic development opportunities. Mr. Appleton's years of experience with EANDC bring insight to the Board that contributes to the FHLBank's corporate objective of maximizing the effectiveness of contributions to Housing and Community Investment programs. Mr. Appleton also served as a member of the FHLBank's Advisory Council from 1997 until 2006.

Ms. Dunn was Senior Vice President of Business Development, General Counsel and Secretary of Cole National Corporation, a New York Stock Exchange listed retailer now owned by Luxottica Group S.p.A., from September 1997 until October 2004. Prior to joining Cole, she had been a partner since 1985 in the Business Practice of the Jones Day law firm. She currently is engaged in various business and private company board activities and serves in leadership positions with a number of civic and philanthropic organizations. Ms. Dunn's experience as a senior officer of a publicly held company and as a law firm partner representing numerous publicly held companies brings perspective to the Board regarding the FHLBank's status as an SEC registrant, corporate governance matters, and the Board's responsibility to oversee the FHLBank's operations.

Mr. Koch is the retired Chairman of the Board and Chief Executive Officer of Charter One Bank, N.A., Cleveland, Ohio. He served as Charter One's Chief Executive Officer from 1987 to 2004, and as its Chairman of the Board from 1995 to 2004, when the bank was sold to Royal Bank of Scotland. Mr. Koch was a director of the Royal Bank of Scotland from 2004 until February 2009. He is currently a director of Assurant Inc. and Citizens Financial Group. Mr. Koch's prior leadership positions within the banking industry and various board positions held contribute skills important to the Board's responsibility for approving a strategic business plan that supports the FHLBank's mission and corporate objectives.

Dr. Mullineaux is the Emeritus duPont Endowed Chair in Banking and Financial Services in the Gatton College of Business and Economics at the University of Kentucky. He held the duPont Endowed Chair from 1984 until 2014. Previously, he was on the staff of the Federal Reserve Bank of Philadelphia, where he served as Senior Vice President and Director of Research from 1979 until 1984. He also served as a director of Farmers Capital Bank Corporation from 2005 until 2009. He has published numerous articles and lectured on a variety of banking topics, including risk management, financial markets and economics. He

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has served as the Curriculum Director for the ABA's Stonier Graduate School of Banking since 2001. Dr. Mullineaux brings knowledge and experience to the Board in areas vital to the operation of financial institutions in today's economy.

Mr. Nance has been Executive Director and the Chief Executive Officer of Knoxville's Community Development Corporation (KCDC) Knoxville, Tennessee since 2000. The KCDC is the public housing and redevelopment authority for the City of Knoxville and Knox County, which strives to improve Knoxville's neighborhoods and communities, including through providing quality affordable housing. Mr. Nance will leave KCDC to become Chief Executive Officer of the Development and Property Management operating divisions of Lawler Wood Housing Partners, LLC, Knoxville, Tennessee, effective April 1, 2015. Mr. Nance also served an eight-year term where he held the office of Vice Chairman on the Tennessee Housing Development Agency, the state's housing finance agency, which promotes the production of affordable housing for very low, low, and moderate, income individuals and families in the state. Mr. Nance also serves on the Board of Knoxville Habitat for Humanity. Mr. Nance's depth of experience with these organizations brings insight to the Board that contributes to the FHLBank's corporate objective of maximizing the effectiveness of its contributions to Housing and Community Investment programs.

Mr. Ruma has been President and Chief Executive Officer of Virginia Homes Ltd., a Columbus, Ohio area homebuilder, since 1975. He served on the board of the Ohio Housing Finance Agency (OHFA), the state's housing agency, from 2004 to 2009. OHFA helps Ohio's first-time homebuyers, renters, senior citizens, and others find quality, affordable housing that meets their needs. OHFA's programs also support developers and property managers of affordable housing throughout the state. Mr. Ruma's years of experience in the home building industry and with the OHFA bring insight to the Board that contributes to the FHLBank's mission and corporate objectives.

Ms. Uridil was the Senior Vice President of Global Operation for Moen Incorporated, North Olmsted, Ohio, from September 2005 until March 2014. Ms. Uridil is currently on the Board of Directors of Flexsteel Industries, Inc., where she serves on the Compensation Committee and chairs the Nominations and Governance Committee. Previously, Ms. Uridil served as a Senior Vice President of Estée Lauder Companies, from 2000 to 2005. Ms. Uridil also served as a Senior Vice President of Mary Kay, Incorporated, from 1996 to 2000. Ms. Uridil's qualifications and insight provide valuable skills to the Board in the important areas of personnel, compensation and operations.

EXECUTIVE OFFICERS

The following table sets forth certain information (ages as of March 1, 2015) regarding our executive officers.

Name	Age	Position	Employee of the FHLBank Since
Andrew S. Howell	53	President and Chief Executive Officer	1989
Donald R. Able	54	Executive Vice President-Chief Operating Officer and Chief Financial Officer	1981
R. Kyle Lawler	57	Executive Vice President-Chief Business Officer	2000
Damon v. Allen	44	Senior Vice President-Community Investment Officer	1999
J. Christopher Bates	39	Senior Vice President-Chief Accounting Officer	2005
Roger B. Batsel	43	Senior Vice President-Chief Information Officer	2014
Thomas J. Ciresi	61	Senior Vice President-Member Services	1981
James G. Dooley, Sr.	61	Senior Vice President-Internal Audit	2006
David C. Eastland	57	Senior Vice President-Chief Credit Officer	1999
Tami L. Hendrickson	54	Senior Vice President-Treasurer	2006
Stephen J. Sponaugle	52	Senior Vice President-Chief Risk Officer	1992

Except as described below, all of the executive officers named above have held their current positions for at least the past five years.

Mr. Howell became President and Chief Executive Officer in June 2012. Previously, he served as the Executive Vice President-Chief Operating Officer since January 2008.

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Mr. Able became the Executive Vice President-Chief Operating Officer and Chief Financial Officer in January 2015. Mr. Able served as the Executive Vice President-Chief Operating Officer and Interim Chief Financial Officer since March 2014. He became Executive Vice President-Chief Operating Officer in August 2012 and has served as the Principal Financial Officer since January 2007. Prior to that, he had served as the Senior Vice President-Chief Accounting and Technology Officer since January 2011 and as the Senior Vice President-Controller since March 2006.

Mr. Lawler became Executive Vice President-Chief Business Officer in August 2012. Previously, he served as the Senior Vice President-Chief Credit Officer since May 2007.

Mr. Allen became Senior Vice President-Community Investment Officer in January 2012. Previously, he served as the FHLBank's Vice President and Community Investment Officer since July 2011, and as Vice President-Housing and Community Investment from January 2009 to June 2011.

Mr. Bates became Senior Vice President-Chief Accounting Officer in January 2015. Previously, he served as the FHLBank's Vice President-Controller since January 2013 and as Vice President-Assistant Controller from January 2011 to January 2013. Prior to that, he was the Vice President-Financial Reporting from January 2009 to January 2011.

Mr. Batsel became Senior Vice President-Chief Information Officer in January 2014. Previously, he was the Senior Vice President, Chief Information Officer at MidCountry Financial Corp. from September 2011 to January 2014. Prior to that, he was the Senior Vice President and Managing Director of Information Systems at Republic Bank from April 2006 to September 2011.

Mr. Dooley became Senior Vice President-Internal Audit in January 2013. Previously, he served as Vice President-Internal Audit since 2006.

Mr. Eastland became the Senior Vice President-Chief Credit Officer in January 2015. Prior to that, he had served as the FHLBank's Vice President-Credit Risk Management since January 2002.

Ms. Hendrickson became Senior Vice President-Treasurer in January 2015. Previously, she served as the FHLBank's Vice President-Treasurer since January 2010.

All officers are appointed annually by our Board of Directors.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined (1) that each of Mr. Mark N. DuHamel, Chairman of the Audit Committee, and Committee member Ms. J. Lynn Anderson have the relevant accounting and related financial management expertise, and therefore are qualified, to serve as Audit Committee financial experts within the meaning of the regulations of the SEC and (2) that each is independent under SEC Rule 10A-3(b)(1). Mr. DuHamel's experience has principally been in the accounting, finance and treasury disciplines within the financial industry, and has included managing various accounting functions. Ms. Anderson's experience has principally been in the internal audit disciplines within the financial industry and is a Certified Public Accountant. For additional information regarding the independence of the directors of the FHLBank, see “Item 13. Certain Relationships and Related Transactions, and Director Independence.”

CODES OF ETHICS

The Board of Directors has adopted a “Code of Ethics for Senior Financial Officers” that applies to the principal executive officer and the principal financial officer, as well as all other executive officers. This policy serves to promote honest and ethical conduct, full, fair and accurate disclosure in the FHLBank's reports to regulatory authorities and other public communications, and compliance with applicable laws, rules and regulations. The Code is posted on the FHLBank's Web site (www.fhlbcin.com). If a waiver of any provision of the Code is granted to a covered officer, information concerning the waiver will be posted on our Web site.

The Board of Directors has also adopted a “Standards of Conduct” policy that applies to all employees. The purpose of this policy is to promote a strong ethical climate that protects the FHLBank against fraudulent activities and fosters an environment in which open communication is expected and protected.

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Item 11. Executive Compensation.

2014 COMPENSATION DISCUSSION AND ANALYSIS

The following provides discussion and analysis regarding our compensation program for executive officers for 2014, including in particular the executive officers named in the Summary Compensation Table below (the Named Executive Officers).

Compensation Program Overview (Philosophy and Objectives)

Our Board of Directors (the Board) is responsible for determining the philosophy and objectives of the compensation program. The philosophy of the program is to provide a flexible and market-based approach to compensation that attracts, retains and motivates high performing, accomplished financial services executives who, by their individual and collective performance, achieve strategic business initiatives and thereby enhance stockholder value. The program is primarily designed to focus executives on achieving the FHLBank's mission through increased business with member institutions within established risk and profitability tolerance levels, while also encouraging teamwork.

To achieve this, we compensate executive officers using a combination of base salary, short and long-term variable (incentive-based) cash compensation, retirement benefits and modest fringe benefits. We believe the compensation program communicates short and long-term goals and standards of performance for the FHLBank's mission and key business objectives and appropriately motivates and rewards executives commensurate with their contributions and achievements. The combination of base salary, which rewards individual performance, and short and long-term incentives, which reward teamwork, creates a total compensation opportunity for executives who contribute to and influence strategic plans and who are primarily responsible for the FHLBank's performance.

Oversight of the compensation program is the responsibility of the Personnel and Compensation Committee of the Board (the Committee). The Committee annually reviews the components of the compensation program to ensure that it is consistent with and supports the FHLBank's mission, strategic business objectives and annual goals. In carrying out its responsibilities, the Committee may engage executive compensation consultants to assist in evaluating the effectiveness of the compensation program and in determining the appropriate mix of compensation provided to executive officers. Because individuals are not permitted to own the FHLBank's capital stock, all compensation is paid in cash and we have no equity compensation plans or arrangements.

The Committee recommends the President's annual compensation package to the Board, which is responsible for approving all compensation provided to the President. Additionally, the Committee is responsible for reviewing and approving the compensation programs for all officers, including the other Named Executive Officers, and submitting its recommendations to the Board for final approval.

Management Involvement - Executive Compensation

While the Board is ultimately responsible for determining the compensation of the President and all other executive officers, the President and the Human Resources department periodically advise the Committee regarding competitive and administrative issues affecting our compensation program. The President and the Human Resources department also present recommendations to the Committee regarding the compensation of all other executive officers, and administer programs approved by the Committee and the Board.

Finance Agency Oversight - Executive Compensation

The Director of the Finance Agency is required by regulation to prohibit an 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. Finance Agency rules direct the FHLBanks to provide all compensation actions affecting their Named Executive Officers to the Finance Agency for review. Accordingly, following our Board's November 2014 and January 2015 meetings, we submitted the 2015 base salaries as well as short and long-term incentive payments earned for 2014 for our Named Executive Officers to the Finance Agency. At this time, we do not expect the statutory requirements to have a material impact on our executive compensation plans.

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Use of Comparative Compensation Data

The compensation program is designed to provide a market competitive compensation package when recruiting and retaining highly talented executives seeking stable, long-term employment. To this end, we gather compensation data from a wide variety of sources, including broad-based national and regional surveys, presentations at FHLBank System meetings, and formal and informal interactions with our compensation consultant. Our consultant, McLagan, is a nationally recognized compensation consulting firm specializing in the financial services industry. When determining compensation for our executive officers, the Committee and the President use this information to inform themselves regarding trends in compensation practices and as a comparison check against general market data (market check) to evaluate the reasonableness and effectiveness of our total compensation program and its components.

We also participate in multiple surveys including the annual McLagan Federal Home Loan Bank Custom Survey and the annual Federal Home Loan Bank System Key Position Compensation Survey. Both surveys contain executive and non-executive compensation information for various key positions across the 12 FHLBanks.

In setting 2015 compensation, we concentrated our attention on information from the McLagan Federal Home Loan Bank Custom Survey as it encompassedinformation relating to 2014 compensation from mortgage banks, commercial financial institutions, and other FHLBanks. While McLagan's compensation analysis included those financial institutions that typically had assets of less than $20 billion, we believe the positions at other FHLBanks generally are more directly comparable to ours given the unique nature of the FHLBank System. The FHLBanks share the same public policy mission, interact routinely with each other, and share a common regulator and regulatory constraints, including the need for Finance Agency review of all compensation actions affecting our executive officers. However, there are significant differences across the FHLBank System, including the sizes of the various FHLBanks, the complexity of their operations, their organizational and cost structures and the types of compensation packages offered. Thus, we do not and, as a practical matter, could not calculate compensation packages for our Named Executive Officers based solely on comparisons to the other FHLBanks.

Compensation Program Approach

The Committee utilizes a balanced approach for delivering base salary and short and long-term incentive pay with our compensation program. While our annual (short-term) incentive compensation component rewards all officers and staff for the achievement of FHLBank annual strategic business goals, our deferred (long-term) incentive compensation component is provided to executive and senior officers for achievement of specific, strategic and mission-related goals for which FHLBank performance is measured over a three-year period. The Committee has not established or assigned specific percentages to each element of the FHLBank's executive compensation program. Instead, the Committee strives to create a program that generally delivers a total compensation opportunity, i.e., base salary, annual and deferred incentive compensation and other benefits (including retirement plan), to each executive officer that, when the FHLBank meets its target performance goals, is at or near the median of the other FHLBanks and is generally consistent with our market check. However, individual elements of compensation as well as total compensation for individual executives may vary from the median due to an executive's tenure, experience and responsibilities.

While the competitiveness of the compensation program is considered an important factor for attracting and retaining executives, the Committee also reviews all elements of compensation to ensure the program is well designed and fiscally responsible from both a regulatory and corporate governance perspective.

Impact of Risk-Taking on Compensation Program

The Committee reviews the overall program to ensure the compensation of executive officers does not encourage unnecessary or excessive risk-taking that could threaten the long-term value of the FHLBank. Risk management is an integral part of our culture. The Committee believes that base salary is a sufficient percentage of total compensation to discourage such risk-taking by our executive officers. The Committee also believes the mix of incentive goals, which include risk-related metrics, does not encourage unnecessary or excessive risk-taking and achieves an appropriate balance of incentive for performance between the short and long-term organizational goals. Moreover, the Committee retains the discretion to reduce or withhold incentive compensation payments if it determines an executive has caused the FHLBank to incur such a risk that could threaten the long-term value of the FHLBank.

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Elements of Total Compensation Program

The following table summarizes all compensation to the FHLBank's Named Executive Officers for the years ended December 31, 2014, 2013 and 2012. Discussion of each component follows the table.

Summary Compensation Table

Name and Principal Position	Year	Salary(1)		Bonus		Non-Equity Incentive Plan Compensation(2)		Change in Pension Value & Non-Qualified Deferred Compensation Earnings(3)		All Other Compensation(4)		Total
Andrew S. Howell	2014	$	692,016	$	—	$	479,622	$	2,431,000	$	15,600	$	3,618,238
President and Chief Executive Officer	2013	617,775		—		340,546		189,000		15,300		1,162,621
	2012	491,055		—		271,561		810,000		15,000		1,587,616
Donald R. Able	2014	358,788		—		207,972		1,498,000		15,600		2,080,360
Executive Vice President-	2013	320,800		—		160,354		—		15,300		496,454
Chief Operating Officer and Chief Financial Officer	2012	291,989		—		135,824		680,000		15,000		1,122,813
R. Kyle Lawler	2014	331,154		—		199,572		646,000		15,600		1,192,326
Executive Vice President-	2013	315,087		—		157,180		26,000		15,300		513,567
Chief Business Officer	2012	277,020		—		133,056		227,000		15,000		652,076
Stephen J. Sponaugle	2014	281,292		—		138,781		694,000		15,600		1,129,673
Senior Vice President-	2013	245,725		—		117,640		—		11,922		375,287
Chief Risk Officer	2012	224,339		—		107,451		232,000		15,000		578,790
Roger B. Batsel (5)	2014	235,577		45,000		73,442		—		—		354,019
Senior Vice President-
Chief Information Officer

(1) Includes excess accrued vacation benefits automatically paid in accordance with established policy (applicable to all employees), which for 2014 were as follows: Mr. Howell, $50,246; Mr. Able, $21,288; Mr. Lawler, $9,231; and Mr. Sponaugle $6,100.

(2) Amounts shown for 2014 reflect total payments pursuant to the current portion of the 2014 Incentive Plan and the 2012-2014 Transitional Long-Term Non-Equity Incentive Plan (Transition Plan), as follows:

Name	Annual Incentive Plan		Transitional Long-Term Incentive Plan		Total
Andrew S. Howell	$	282,370	$	197,252	$	479,622
Donald R. Able	118,797		89,175		207,972
R. Kyle Lawler	113,314		86,258		199,572
Stephen J. Sponaugle	82,586		56,195		138,781
Roger B. Batsel	73,442		—		73,442

(3) Represents change in the actuarial present value of accumulated pension benefits only, which is primarily dependent on changes in interest rates, years of benefit service, salary and mortality assumptions. In 2014, there was a decline in the discount rates assumed and new mortality tables projecting longer life expectancies were issued by the Society of Actuaries, both of which increased pension values.

(4) Amounts represent matching contributions to the qualified defined contribution pension plan in 2014.

(5) Mr. Batsel joined the FHLBank in January 2014 as the Senior Vice President-Chief Information Officer. The amount set forth under Bonus represents a one-time signing/relocation bonus.

Salary

Base salary is both a key component of the total compensation program and a key factor when attracting and retaining executive talent. While base salaries for the Named Executive Officers are influenced by a number of factors, they generally target the median of the competitive market. Other factors affecting an executive's base salary include length of time in position, relevant experience, individual achievement, and the size and scope of assigned responsibilities as compared to the responsibilities of other executives. Base salary increases traditionally take effect at the beginning of each calendar year and are granted after a review of the individual's performance and leadership contributions to the achievement of our annual business plan goals and strategic objectives.

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Each of the Named Executive Officers received a base salary increase at the beginning of 2014. Total salary increases, including merit and market adjustments, ranged from 3.33 percent to 8.80 percent. For the Named Executive Officers other than the President, the Committee's actions were based on the President's recommendation for each executive, which took into consideration market data, and an evaluation of each executive's annual performance. Individually, directors provided feedback to the Chair, and the Committee recommended, and the Board subsequently approved a salary increase of 8.80 percent for Mr. Howell. In recommending and approving the 2014 increase, the Committee and Board took into consideration the directors' appraisals of Mr. Howell's performance during the year and noted, in particular, the sound performance of the FHLBank under his leadership as President.

In October 2014, the Committee recommended and the Board approved a 4.50 percent salary increase pool for 2015 for all employees, comprised of 3.00 percent for merit increases and 1.50 percent for market and promotional adjustments. Using the same process as described above, the Committee recommended, and the Board approved, the following 2015 base salaries and percent increases for the Named Executive Officers: Mr. Howell, $675,000 (9.22 percent); Mr. Able, $365,000 (12.31 percent); Mr. Lawler, $340,000 (9.68 percent); Mr. Sponaugle, $300,000 (13.21 percent); and Mr. Batsel, $260,000 (4.00 percent). On January 8, 2015, we were informed that the Finance Agency had completed its review of the Board-approved compensation actions affecting the Named Executive Officers in 2015.

Non-Equity Incentive Compensation Plan (Incentive Plan)

The 2014 Incentive Plan is a cash-based total incentive award that is divided into two equal parts: (1) a current incentive award, and (2) a three-year deferred incentive award.

The Incentive Plan goals generally reflect desired financial, operational and public mission objectives for the current and future fiscal years. Each goal is weighted reflecting its relative importance and potential impact on our strategic initiatives and annual business plan, and each is assigned a quantitative threshold, target and maximum level of performance. Each Named Executive Officer's award opportunity is based entirely on bank-wide performance. However, the Chief Risk Officer's (CRO) award opportunity is weighted 75 percent on bank-wide goals and 25 percent on Enterprise Risk Management (ERM) specific goals in order to provide incentive and maintain a certain level of independence for risk management initiatives.

When establishing the Incentive Plan goals and corresponding performance levels, the Board anticipates that we will successfully achieve a threshold level of performance nearly every year. The target level is aligned with expected performance and is anticipated to be reasonably achievable in a majority of plan years. The maximum level of performance reflects a graduated level of difficulty from the target performance level and requires superior performance to achieve.

Each executive officer, including the Named Executive Officers, is assigned a total incentive award opportunity, stated as a percentage of base salary, which corresponds to the individual's level of organizational responsibility and ability to contribute to and influence overall performance. The total incentive award opportunity established for executives is designed to be comparable to incentive opportunities for executives with similar duties and responsibilities at other financial institutions, primarily other FHLBanks, and generally consistent with our market check. The Board believes the total incentive opportunity and plan design provide an appropriate, competitive reward to all officers, including the Named Executive Officers, commensurate with the achievement levels expected for the incentive goals.

The authorization for payment of current and/or deferred incentive plan awards, if any, is generally granted following certification of the period-end performance results by the Board at its January meeting. The total incentive award earned is determined based on the actual achievement level for each goal in comparison with the performance levels established for that goal.

If actual performance falls below the threshold level of performance, no payment is made for that goal. If actual performance exceeds the maximum level, only the value assigned as the performance maximum is paid. When actual performance falls between the assigned threshold, target and maximum performance levels, an interpolated achievement is calculated for that goal. The achievement for each goal is then multiplied by the corresponding incentive weight assigned to that goal and the results for each goal are summed to arrive at the final incentive award payable to the executive. No final awards (or payments) will be made to executives under the Incentive Plan if we receive the lowest "Composite Rating" during the most recent examination by the Finance Agency. Such a rating would indicate that we have been found to be operating in an unacceptable manner, that we exhibit serious deficiencies in corporate governance, risk management or financial condition and performance, or that we are in substantial noncompliance with laws, Finance Agency regulations or supervisory guidance. The Board has sole discretion to increase or decrease any incentive plan awards.

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For calendar year 2014, the Board approved a total of six performance measures in the functional areas of Franchise Value Promotion, Member Asset Activity and Stockholder Risk/Return. The mix of financial and non-financial goals measures performance across our mission and corporate objectives and is intended to discourage unnecessary or excessive risk-taking. Because we consider risk management to be an essential component in the achievement of our mission and corporate objectives, the goals below include a separate risk-related metric.

At its January 2015 meeting, following certification of the 2014 performance results and in accordance with those results, the Board authorized the distribution to the Named Executive Officers of the current awards shown in Note 2 to the Summary Compensation Table. For the 2014 plan year, we cumulatively achieved approximately 91 percent of the available maximum incentive opportunity. This was a slight decrease in overall FHLBank performance from the 92 percent achieved for 2013 even though the FHLBank continued to exceed the threshold level of performance for all six goals.

The following table presents the incentive weights, threshold, target and maximum performance levels, and the actual results achieved for the 2014 Incentive Plan performance measures.

2014 Incentive Plan Performance Levels and Results

(Dollars in thousands)
	Incentive Weight		Threshold Performance			Target Performance			Maximum Performance			Results Achieved
Franchise Value Promotion
1) Mission Outreach	10.0	%	75			87			105			104
2) Mission Asset Participation	10.0		62		%	67		%	73		%	76		%
Member Asset Activity
3) Average Advance Balances for Members with Assets of $50 Billion or less	15.0		$	12,500,000		$	13,200,000		$	14,000,000		$	15,538,761
4) Mortgage Purchase Program New Mandatory Delivery Commitments	15.0		500,000			850,000			1,250,000			694,448
Stockholder Risk/Return
5) Decline in Market Value of Equity	25.0		< 10%			< 8%			4% or less			5.4		%
6) Profitability-Available Earnings vs. Average 3-month LIBOR rate	25.0		350 bps			400 bps			450 bps			443 bps

During 2014, the Board, the Committee and the President periodically reviewed the Incentive Plan goals presented above to determine progress toward the goals. Although the Board and the President discussed various external factors that were affecting achievement of the performance measures, the Board did not take any actions to revise or change the Incentive Plan goals.

The incentive program for the CRO is weighted 75 percent on bank-wide goals and 25 percent on the ERM department goal.

Implement specific initiatives of the FHLBank's ERM program within the ERM Department.

Weight of Goal: 100 percent

Threshold: 5 initiatives satisfactorily completed*

Target: 7 initiatives satisfactorily completed*    

Maximum: 10 initiatives satisfactorily completed*    

2014 Results Achieved: 8.5 initiatives satisfactorily completed*

* Specific initiatives include efforts in operational risk, market risk, credit risk, model risk and improvement of the FHLBank's general ERM program.

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The total incentive award opportunities for the 2014 plan year stated as a percentage of base salary were as follows:

	Incentive Opportunity
Name	Threshold		Target		Maximum
Andrew S. Howell	50.0	%	75.0	%	100.0	%
Donald R. Able	40.0		60.0		80.0
R. Kyle Lawler	40.0		60.0		80.0
Stephen J. Sponaugle	30.0		50.0		70.0
Roger B. Batsel	30.0		50.0		70.0

The current component of the Incentive Plan is awarded annually and designed to promote and reward higher levels of performance for accomplishing Board-approved goals. The long-term component of the Incentive Plan is a three-year deferred incentive award that is designed to promote higher levels of performance and long-term employment retention of selected executive and senior officers, including the Named Executive Officers.

Fifty percent of the total opportunity for the Incentive Plan is awarded in cash following the plan year and 50 percent is mandatorily deferred for three years after the end of the Plan year. The final value of the deferred award can be increased, decreased or remain the same based on the goal achievement level during the three-year period. If the goal achievement level over the three-year deferral period is below the threshold, no payment of the deferred award will be made. The following table presents the percentages, categorized by achievement level, in which the deferred award will be adjusted:

	Achievement Levels (1)
Name	Threshold		Target		Maximum
Andrew S. Howell	75.0	%	100.0	%	125.0	%
Donald R. Able	75.0		100.0		125.0
R. Kyle Lawler	75.0		100.0		125.0
Stephen J. Sponaugle	75.0		100.0		125.0
Roger B. Batsel	75.0		100.0		125.0

(1) Earned incentive awards that fall between any of the designated achievement levels (i.e. threshold, target, and maximum) will be interpolated.

The achievement levels presented above are determined using separate performance measures over the three-year deferral period (2015-2017).

The following table presents the performance measures and incentive weights used to determine the achievement level reached during the three-year deferral period:

2014 Deferred Annual Incentive Plan Goals (2015 - 2017 Performance Period)

1) OPERATING EFFICIENCY:
Ranking of Operating Efficiency Ratio in comparison to other FHLBanks	Weight: 20%
2) RISK ADJUSTED PROFITABILITY:
Ranking of Risk Adjusted Profitability in comparison to other FHLBanks	Weight: 20%
3) MARKET CAPITALIZATION RATIO:
Ratio of Market Value of Equity (MVE) to Par Value of Regulatory Capital Stock	Weight: 20%
4) ADVANCE UTILIZATION RATIO:
Ranking of average of each member's Advances-to-Assets ratio multiplied by the average member borrower penetration ratio in comparison to other FHLBanks	Weight: 20%
5) STRATEGIC BUSINESS PLAN ACHIEVEMENT:
Percentage of Strategic Business Plan strategies achieved	Weight: 20%

The Board has ultimate authority over the Incentive Plan described above and the Transition Plan (described below) and may modify or terminate the Plans at any time or for any reason. In addition, payments under the Plans are subject to certain claw back provisions which allow the FHLBank to recover any incentive paid to a participant based on achievement of financial or operational goals that subsequently are deemed to be inaccurate, misstated or misleading. Our Board believes these claw back

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requirements serve as deterrents to any manipulation of financial statements or performance metrics in a manner that would assure and/or increase an incentive payment.

At its November 2014 meeting, the Board established the 2015 Incentive Plan goals, the incentive weights and the performance levels (measures) corresponding to each Incentive Plan goal and award opportunity for the 2015 Incentive Plan. In December 2014, the 2015 Incentive Plan was sent to the Finance Agency. The Finance Agency has not yet provided its non-objection, and therefore, the plan is subject to change. The 2015 incentive award opportunities for our executives are set forth below.

2015 Incentive Plan Goals

Franchise Value Promotion
Mission Outreach	Weight:    10.0%
Mission Asset Participation	Weight:    10.0%
Member Asset Activity
Average Advances Balances for Members with Assets of $50 billion or less	Weight:    15.0%
Mortgage Purchase Program New Mandatory Delivery Commitments	Weight:    15.0%
Stockholder Risk/Return
Decline in Market Value of Equity	Weight:    25.0%
Profitability-Available Earnings vs. Average 3-month LIBOR Rate	Weight:    25.0%

As reflected above, the Board decided to keep all of the 2015 goals the same as those in 2014 although the performance metrics have been adjusted. In setting the performance measures for the 2015 Incentive Plan, the Board reviewed the results against target for 2014 and considered relevant aspects of our financial outlook for 2015 including the continued uncertainty of the economy and the government's liquidity programs that continue to affect Mission Asset Activity and profitability. The Board also considered opportunities to facilitate outreach to membership and increase mission asset participation by members. The goals for the deferred component of the 2015 Incentive Plan, which include the 2016 - 2018 performance period, are expected to be set at the November 2015 Board meeting.

The Board also approved a separate ERM department goal for the CRO, whose annual incentive is weighted 75 percent on bank-wide goals and 25 percent on the ERM goal.

2015 CRO's Goal

Implement specific initiatives of the FHLBank's ERM program within the ERM Department.

Weight of Goal: 100 percent

Threshold: 4 initiatives satisfactorily completed*

Target: 5 initiatives satisfactorily completed*    

Maximum: 7 initiatives satisfactorily completed*

* Specific initiatives include efforts in improvement of the FHLBank's general ERM program, operational risk and compliance and market risk.

Residual/Transitional Long-Term Non-Equity Incentive Plan Compensation

The former Executive Long-Term Incentive Plan (LTI Plan) was a cash-based, performance unit plan designed to promote higher levels of performance and long-term employment retention by selected executive and senior officers, including the Named Executive Officers, for accomplishing Board-approved long-term goals. Since the LTI Plan was initially created, the Board had established a new three-year performance period annually, commencing each January 1, so that three overlapping performance periods are in effect at one time. However, in May 2012, we received notification of the completion of the review by the Finance Agency of certain 2012 executive compensation actions, which effectively discontinued long-term plans for all FHLBanks. In order to assist in the transition of our executive incentive plans, the 2012 - 2014 Transition Plan was adopted to bridge the participants' cash compensation levels in 2015 to close what otherwise would be a gap in compensation until the deferred component of the 2012 Incentive Plan is fully implemented in 2016.

At the beginning of the 2012 - 2014 Transition Plan, the Board established a base award opportunity for each executive officer in the form of a grant of a fixed number of performance units, with an assigned value of $100 per unit, equal to a percentage of

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the participant's base salary. The value of each performance unit then fluctuates as a function of the actual performance in comparison with the performance levels established for each goal with interpolations made for results between achievement levels. The achievement level for each goal then is multiplied by the corresponding incentive weight assigned to that goal. The results for each goal are summed and multiplied by the executive officer's respective number of performance units to arrive at the final award payable.

If actual performance falls below the threshold level of performance for any of the goals, no payment is made for that goal. If actual performance exceeds the performance maximum for a goal, only the maximum for that goal is paid. The Board has sole discretion to increase or decrease awards up to 10 percent to recognize performance not captured by the total achievement level of the goals. During 2014, the Board, the Committee and the President periodically reviewed progress toward the Transition Plan goals. At its January 2015 meeting, following certification of the performance results for the 2012 - 2014 performance period and in accordance with those results, the Board authorized the distribution of Transition Plan payments to eligible officers including the Named Executive Officers. Cumulatively, we achieved approximately 85 percent of the available maximum incentive opportunity for FHLBank goals. The 2012 - 2014 Transition Plan payments are shown in Note 2 to the Summary Compensation Table.

The following table presents the incentive weights, threshold, target and maximum performance levels, and the actual results achieved for the 2012 - 2014 Transition Plan goals.

	Incentive Weight	Threshold Performance	Target Performance	Maximum Performance	Results Achieved
OPERATING EFFICIENCY:
Ranking of Operating Efficiency Ratio in comparison to other FHLBanks	30%	8th of 12	4th of 12	1st of 12	1st of 12
RISK ADJUSTED PROFITABILITY:
Ranking of Risk Adjusted Profitability in comparison to other FHLBanks	30%	8th of 12	4th of 12	1st of 12	2nd of 12
MARKET CAPITALIZATION RATIO:
Ratio of Market Value of Equity to Par Value of Regulatory Capital Stock	30%	95%	100%	110%	108%
MARKET PENETRATION:
Ratio of Member Advances to Member Assets	10%	3.5%	3.7%	4.0%	3.2%

Non-Equity Incentive Plan Compensation Grants

The following table provides information on grants made under our Incentive Plans.

Grants of Plan-Based Awards

		Estimated Future Payouts Under Non-Equity Incentive Plan Awards
Name	Grant Date (1)	Threshold		Target		Maximum
Andrew S. Howell	November 20, 2014	$	337,500	$	506,250	$	675,000
Donald R. Able	November 20, 2014	146,000		219,000		292,000
R. Kyle Lawler	November 20, 2014	136,000		204,000		272,000
Stephen J. Sponaugle	November 20, 2014	90,000		150,000		210,000
Roger B. Batsel	November 20, 2014	78,000		130,000		182,000

(1) Awards granted on this date are for the 2015 Incentive Plan.

Under the awards shown above, 50 percent of the estimated future payout will be awarded in cash following the Plan year. The other 50 percent of the estimated future payout will be mandatorily deferred for three years after the end of the Plan year. The final value of the deferred award can be increased, decreased or remain the same based on the achievement level of the deferred goals during the three-year period. See the "Non-Equity Incentive Compensation Plan (Incentive Plan)" section above for further detail.

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Retirement Benefits

We maintain a comprehensive retirement program for executive officers comprised of two qualified retirement plans (a defined benefit plan and a defined contribution plan) and a non-qualified pension plan. For our qualified plans, we participate in the Pentegra Defined Benefit Plan for Financial Institutions and the Pentegra Defined Contribution Plan for Financial Institutions. The non-qualified plan, the Benefit Equalization Plan (BEP), restores benefits that eligible highly compensated employees would have received were it not for Internal Revenue Service limitations on benefits from the defined benefit plan (DB/BEP). Generally, benefits under the BEP vest and are payable according to the corresponding provisions of the qualified plans.

The plans provide benefits based on a combination of an employee's tenure and annual compensation. As such, the benefits provided by the plans are one component of the total compensation opportunity for executive officers and, the Board believes, serve as valuable retention tools since retirement benefits increase as executives' tenure and compensation with the FHLBank grow.

Qualified Defined Benefit Pension Plan. The Pentegra Defined Benefit Plan for Financial Institutions (Pentegra DB) is a funded tax-qualified plan that is maintained on a non-contributory basis, i.e., employee contributions are not required. Participants' pension benefits vest upon completion of five years of service.

The pension benefits payable under the Pentegra DB plan are determined using a pre-established formula that provides a single life annuity payable monthly at age 65 or normal retirement. The benefit formula for employees hired prior to January 1, 2006, which includes Messrs. Howell, Able, Lawler, and Sponaugle, is 2.50 percent for each year of benefit service multiplied by the highest three-year average compensation. Compensation is defined as base salary, excess accrued vacation benefits and annual incentive compensation and excludes any long-term or deferred incentive payments. In the event of retirement prior to attainment of age 65, a reduced pension benefit is payable under the plan, with payments commencing as early as age 45. For employees who are hired after January 1, 2006, which includes Mr. Batsel, the Pentegra DB was amended. The current benefit formula is 1.25 percent for each year of benefit service multiplied by the highest five-year average compensation, where compensation is defined as base salary only and excludes all other forms of compensation. In addition, the current plan provides for a reduced pension benefit in the event of retirement prior to attainment of age 65 with payment commencing as early as age 55 if the participant has 10 years or more of service. Lastly, the Pentegra DB plan provides certain actuarially equivalent forms of benefit payments other than a single life annuity, including a limited lump sum distribution option, which is available only to employees, including Named Executive Officers, hired prior to February 1, 2006.

Non-Qualified Defined Benefit Pension Plan. Executive officers and other employees whose pay exceeds IRS pension limitations are eligible to participate in the Defined Benefit component of the Benefit Equalization Plan (DB/BEP), an unfunded, non-qualified pension plan that mirrors the Pentegra DB plan in all material respects. In determining whether a restoration of retirement benefits is due an eligible employee, the DB/BEP utilizes the identical benefit formula applicable to the Pentegra DB plan. In the event that the benefits payable from the Pentegra DB plan have been reduced or otherwise limited, the executive's lost benefits are payable under the terms of the DB/BEP. Because the DB/BEP is a non-qualified plan, the benefits received from this plan do not receive the same tax treatment and funding protection associated with the qualified plan.

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The following table provides the present value of benefits payable to the Named Executive Officers upon retirement at age 65 from the Pentegra DB plan and the DB/BEP, 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.

2014 Pension Benefits

Name	Plan Name	Number of Years Credited Service (1)	Present Value (2) of Accumulated Benefits
Andrew S. Howell	Pentegra DB	24.50	$	1,650,000
	DB/BEP	24.50	3,774,000
Donald R. Able	Pentegra DB	33.42	1,866,000
	DB/BEP	33.42	2,122,000
R. Kyle Lawler	Pentegra DB	13.50	1,055,000
	DB/BEP	13.50	626,000
Stephen J. Sponaugle	Pentegra DB	21.33	1,380,000
	DB/BEP	21.33	380,000
Roger B. Batsel	Pentegra DB	—	—
	DB/BEP	—	—

(1) For pension plan purposes, the calculation of credited service begins upon completion of a required waiting period following the date of employment. Accordingly, the years shown are less than the executive's actual years of employment. Because IRS regulations generally prohibit the crediting of additional years of service under the qualified plan, such additional service also is precluded under the DB/BEP, which only restores those benefits lost under the qualified plan.

(2) See Note 17 of the Notes to Financial Statements for details regarding valuation assumptions.

Qualified Defined Contribution Plan. The Pentegra Defined Contribution Plan for Financial Institutions (Pentegra DC) is a tax-qualified defined contribution plan to which we make tenure-based matching contributions. Matching contributions begin upon completion of one year of employment and subsequently increase based on length of employment to a maximum of six percent of eligible compensation. Eligible compensation in the Pentegra DC plan is defined as base salary and annual bonus (STI compensation) and excludes any deferred incentive payments or payments received from the LTI or Transition Plan.

Under the Pentegra DC plan, a participant may elect to contribute up to 100 percent of eligible compensation on either a before-tax or after-tax basis. The plan permits participants to self-direct investment elections into one or more investment funds. All returns are at the market rate of the related fund. Investment fund elections may be changed daily by the participants. A participant may withdraw vested account balances while employed, subject to certain plan limitations, which include those under IRS regulations. Participants also are permitted to revise their contribution/deferral election once each pay period. However, the revised election is only applicable to future earnings and may also be limited by IRS regulations.  

Fringe Benefits and Perquisites

Executive officers are eligible to participate in the traditional fringe benefit plans made available to all other employees, including participation in the pension plans, medical, dental and vision insurance program and group term life and long term disability (LTD) insurance plans, as well as annual leave (i.e., vacation) and sick leave policies. Executives participate in our subsidized medical, dental and vision insurance and group term life and LTD insurance programs on the same basis and terms as all of our employees. However, executives are required to pay higher premiums for medical coverage. Executive officers also receive on-site parking at our expense. The perquisites provided by the FHLBank represent a small fraction of an executive officer's annual compensation.

During 2014, the President was also provided with an FHLBank-owned vehicle for his business and personal use. The operating expenses associated with the vehicle, including an automobile club membership for emergency roadside assistance, also were provided. An executive officer's personal use of an FHLBank-owned vehicle, including use for the daily commute to and from work, is reported as a taxable fringe benefit. Additionally, with prior approval, our current Travel Policy permits a spouse to accompany an executive officer on authorized business trips. The transportation and other related expenses associated

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with the spouse's travel are reimbursed by the FHLBank and reported as a taxable fringe benefit. Perquisites did not individually or collectively exceed $10,000 for any of the Named Executive Officers and are therefore excluded from the Summary Compensation Table.

Other than normal pension benefits and eligibility to participate in our retiree supplemental benefits program (if hired prior to August 1, 1990), no perquisites or other special benefits are provided to our executive officers in the event of a change in control, resignation, retirement or other termination of employment.

Employment Arrangements and Severance Benefits

Pursuant to the FHLBank Act, all employees of the FHLBank are “at will” employees. Accordingly, an employee may resign employment at any time and an employee's employment may be terminated at any time for any reason, with or without cause and with or without notice.

We have a severance policy under which employees, including executive officers, may receive benefits in the event of termination of employment resulting from job elimination, substantial job modification, job relocation or a planned reduction in staff that causes an involuntary termination of employment. Under this policy, an executive officer is entitled to a lump sum payment of one month's pay for every full year of employment, pro-rated for partial years of employment, with a minimum of one month and a maximum of six months' severance pay if a general release of any claims against the FHLBank is signed. At our discretion, executive officers and employees receiving benefits under this policy may also receive outplacement assistance as well as continuation of health insurance coverage on a limited basis.

We have no termination of employment, severance or change-in-control arrangements with any Named Executive Officer.

COMPENSATION COMMITTEE REPORT

The Personnel and Compensation Committee of the Board of Directors (the Committee) of the FHLBank has furnished the following report for inclusion in this annual report on Form 10-K:

The Committee has reviewed and discussed the 2014 Compensation Discussion and Analysis set forth above with the FHLBank's management. Based on such review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report on Form 10-K.

Donald J. Mullineaux (Chair)

Grady P. Appleton

Leslie D. Dunn

Charles J. Koch

Michael R. Melvin

William J. Small (Vice Chair)

COMPENSATION OF DIRECTORS

As required by Finance Agency regulations and the FHLBank Act, we have established a formal policy governing the compensation and travel reimbursement provided to our directors. The goal of the policy is to compensate Board members for work performed on behalf of the FHLBank. Under our policy, compensation is comprised of per meeting fees, subject to an annual cap, and reimbursement for reasonable FHLBank travel-related expenses. The meeting fees are intended to compensate directors for time spent reviewing materials sent to them, preparing for meetings, participating in other FHLBank activities and attending the meetings of the Board of Directors and its committees.

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The following table sets forth the per meeting fees and the annual caps for 2014 and 2015:

	2014				2015
	Per Meeting Fee		Annual Cap		Per Meeting Fee		Annual Cap
Chair	$	14,000	$	98,000	$	15,000	$	105,000
Vice Chair	12,200		85,000		13,750		95,000
Other Members	10,000		70,000		10,500		72,500

In addition, annual fees, which are subject to certain attendance requirements, are paid as follows for certain Board Committee assignments that involve significant time and responsibilities.

	2014		2015
Audit Committee:
Chair	$	17,000	$	17,000
Other members	9,500		9,500
Finance and Risk Management Committee:
Chair	14,000		14,000
Other members	7,000		7,000
All other committees:
Chair	14,000		14,000

However, the Board Chair does not receive additional compensation for chairing any committee and no director may receive fees totaling more than the annual amount paid to the Board Chair.

During 2014, total directors' fees and travel expenses incurred by the FHLBank were $1,414,000 and $264,036, respectively.

With prior approval, our current Travel Policy permits a spouse to accompany a director on authorized business trips. The transportation and other related expenses associated with the spouse's travel are reimbursed by the FHLBank and reported as a taxable fringe benefit. During 2014, there were 15 directors that received reimbursement for spousal travel expenses.

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The following table sets forth the meeting fees earned by each director and expenses paid to each director for the year ended December 31, 2014.

2014 Directors Compensation Table

Name	Fees Earned or Paid in Cash		Total Expenses (1)		Total
J. Lynn Anderson	$	86,500	$	—	$	86,500
Grady P. Appleton	79,500		764		80,264
Greg W. Caudill	79,500		540		80,040
James R. DeRoberts	69,500		1,090		70,590
Mark N. DuHamel	94,000		857		94,857
Leslie D. Dunn	93,500		1,088		94,588
James A. England	79,500		845		80,345
Charles J. Koch	77,000		1,332		78,332
Michael R. Melvin	77,000		753		77,753
Thomas L. Moore	77,000		658		77,658
Donald J. Mullineaux	93,500		1,627		95,127
Alvin J. Nance	70,000		961		70,961
Charles J. Ruma	91,000		—		91,000
David E. Sartore	86,500		1,005		87,505
William J. Small, Vice Chair	85,000		686		85,686
William S. Stuard, Jr.	77,000		744		77,744
Carl F. Wick, Chair	98,000		757		98,757
Total	$	1,414,000	$	13,707	$	1,427,707

(1) Total expenses are comprised of spousal travel expenses reimbursed to the director by the FHLBank; directors' travel expenses are not included.

The following table summarizes the total number of board meetings and meetings of its designated committees held in 2013 and 2014.

	Number of Meetings Held
Meeting Type	2013	2014
Board Meeting	10	9
Audit Committee	13	11
Finance and Risk Management Committee	7	7
Governance	6	7
Housing and Community Development Committee	5	5
Personnel and Compensation Committee	5	8
Executive Committee	—	1

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Personnel and Compensation Committee of the Board of Directors is charged with responsibility for the FHLBank's compensation policies and programs. None of the 2014 or 2015 Personnel and Compensation Committee members are or previously were officers or employees of the FHLBank. Additionally, none of the FHLBank's executive officers served or serve on the board of directors or the compensation committee of any entity whose executive officers served on the FHLBank's Personnel and Compensation Committee or Board of Directors. This Committee was and is composed of the following members:

2014	2015
Carl F. Wick (Chair)	Donald J. Mullineaux (Chair)
Grady P. Appleton	Grady P. Appleton
Leslie D. Dunn	Leslie D. Dunn
Charles J. Koch	Charles J. Koch
Michael R. Melvin	Michael R. Melvin
William J. Small (Vice Chair)	William J. Small (Vice Chair)

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We have one class of capital stock, Class B Stock, all of which is owned by our current and former member institutions. Individuals, including directors and officers of the FHLBank, are not permitted to own our capital stock. Therefore, we have no equity compensation plans.

The following table lists institutions holding five percent or more of outstanding capital stock at February 28, 2015 and includes any known affiliates that are members of the FHLBank:

(Dollars in thousands)
		Capital		Percent of Total		Number
Name	Address	Stock		Capital Stock		of Shares
JPMorgan Chase Bank, N.A.	1111 Polaris Parkway Columbus, OH 43240	$	1,533,000	35	%	15,330,000
U.S. Bank, N.A.	425 Walnut Street Cincinnati, OH 45202	475,393		11		4,753,927
Fifth Third Bank	38 Fountain Square Plaza Cincinnati, OH 45263	247,687		6		2,476,870

The following table lists capital stock outstanding as of February 28, 2015 held by member institutions that have an officer or director who serves as a director of the FHLBank:

(Dollars in thousands)
		Capital		Percent of Total
Name	Address	Stock		Capital Stock
Nationwide (1)	One Nationwide Plaza Columbus, OH 43215	$	113,557	2.6	%
FirstMerit Bank, N.A.	111 Cascade Plaza, 7th Floor Akron, OH 44308	86,660		2.0
First Federal Bank of the Midwest	601 Clinton Street Defiance, OH 43512	13,792		0.3
F&M Bank	50 Franklin Street Clarksville, TN 37040	3,378		0.1
Perpetual Federal Savings Bank	120 North Main Street Urbana, OH 43078	2,794		0.1
First Federal Bank of Ohio	140 North Columbus Street Galion, OH 44833	1,902		0.0
Farmers National Bank	304 West Main Street Danville, KY 40422	1,722		0.0
Field & Main Bank	140 North Main Street Henderson, KY 42420	1,628		0.0
The Arlington Bank	2130 Tremont Center Upper Arlington, OH 43221	1,055		0.0
Decatur County Bank	56 North Pleasant Street Decaturville, TN 38329	646		0.0
The Plateau Group (2)	2701 North Main Street Crossville, TN 38555	93		0.0

(1) Includes Nationwide Bank, Nationwide Life Insurance Co., and Nationwide Mutual Insurance Co., which are FHLBank members.

(2) Includes two subsidiaries (Plateau Casualty Insurance Company and Plateau Insurance Company), which are FHLBank members.

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

DIRECTOR INDEPENDENCE

Because we are a cooperative, capital stock ownership is a prerequisite to transacting any business with us. Transactions with our stockholders are part of the ordinary course of - and are essential to the purpose of - our business.

Our capital stock is not permitted to be publicly traded and is not listed on any stock exchange. Therefore, we are not governed by stock exchange rules relating to director independence. If we were so governed, arguably none of our industry directors, who are elected by our members, would be deemed independent because all are directors and/or officers of members that do business with us. Messrs. Appleton, Koch, Mullineaux, Nance and Ruma and Mses. Dunn and Uridil, our seven non-industry directors, have no material transactions, relationships or arrangements with the FHLBank other than in their capacity as directors. Therefore, our Board of Directors has determined that each of them is independent under the independence standards of the New York Stock Exchange.

The Finance Agency director independence standards specify independence criteria for members of our Audit Committee. Under these criteria, all of our directors serving on the Audit Committee are independent.

TRANSACTIONS WITH RELATED PERSONS

See Note 22 of the Notes to Financial Statements for information on transactions with stockholders, including information on transactions with Directors' Financial Institutions and concentrations of business, and transactions with nonmember affiliates, which information is incorporated herein by reference.

See also “Item 11. Executive Compensation - Compensation Committee Interlocks and Insider Participation.”

Review and Approval of Related Persons Transactions. Ordinary course transactions with Directors' Financial Institutions and with members holding five percent or more of our capital stock are reviewed and approved by our management in the normal course of events so as to assure compliance with Finance Agency regulations.

As required by Finance Agency regulations, we have a written conflict of interest policy. This policy requires directors (1) to disclose to the Board of Directors any known personal financial interests that they, their immediate family members or their business associates have in any matter to be considered by the Board and in any other matter in which another person or entity does or proposes to do business with the FHLBank and (2) to recuse themselves from considering or voting on any such matter. The scope of the Finance Agency's conflict of interest Regulation (available at www.fhfa.gov) and our conflict of interest policy (posted on our Web site at www.fhlbcin.com) is similar, although not identical, to the scope of the SEC's requirements governing transactions with related persons. In March 2007, our Board of Directors adopted a written related person transaction policy that is intended to close any gaps between Finance Agency and SEC requirements. The policy includes procedures for identifying, approving and reporting related person transactions as defined by the SEC. One of the tools that we used to monitor non-ordinary course transactions and other relationships with our directors and executive officers is an annual questionnaire that uses the New York Stock Exchange criteria for independence. Finally, our Insider Trading Policy provides that any request for redemption of excess stock (except for de minimis amounts) held by a Director's Financial Institution must be approved by the Board of Directors or by the Executive Committee of the Board.

We believe these policies are effective in bringing to the attention of management and the Board any non-ordinary course transactions that require Board review and approval and that all such transactions since January 1, 2014 have been so reviewed and approved.

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Item 14. Principal Accountant Fees and Services.

The following table sets forth the aggregate fees billed to the FHLBank for the years ended December 31, 2014 and 2013 by its independent registered public accounting firm, PricewaterhouseCoopers LLP:

	For the Years Ended
(In thousands)	December 31,
	2014		2013
Audit fees	$	661	$	659
Audit-related fees	67		59
Tax fees	—		—
All other fees	—		—
Total fees	$	728	$	718

Audit fees were for professional services rendered for the audits of the FHLBank's financial statements.

Audit-related fees were for assurance and related services primarily related to accounting consultations, control advisory services and fees related to participation in and presentations at conferences.

The FHLBank is exempt from all federal, state and local income taxation. Therefore, no fees were paid for tax services during the years presented.

There were no other fees paid during the years presented.

The Audit Committee approves the annual engagement letter for the FHLBank's audit. The Audit Committee also establishes a fixed dollar limit for other recurring annual accounting related consultations, which include the FHLBank's share of FHLBank System-related accounting issues. The status of these services is periodically reviewed by the Audit Committee throughout the year with any increase in these services requiring pre-approval. All other services provided by the independent accounting firm are specifically approved by the Audit Committee in advance of commitment.

The FHLBank paid additional fees to PricewaterhouseCoopers LLP in the form of assessments paid to the Office of Finance. The FHLBank is assessed its proportionate share of the costs of operating the Office of Finance, which includes the expenses associated with the annual audits of the combined financial statements of the 12 FHLBanks. These assessments, which totaled $51,000 and $52,000 in 2014 and 2013, respectively, are not included in the table above.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Financial Statements. The following financial statements of the Federal Home Loan Bank of Cincinnati, set forth in Item 8 above, are filed as a part of this registration statement.

Report of Independent Registered Public Accounting Firm

Statements of Condition as of December 31, 2014 and 2013

Statements of Income for the years ended December 31, 2014, 2013 and 2012

Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012

Statements of Capital for the years ended December 31, 2014, 2013 and 2012

Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012

Notes to Financial Statements

(b) Exhibits.

See Index of Exhibits

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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, as of the 19th day of March 2015.

FEDERAL HOME LOAN BANK OF CINCINNATI

(Registrant)

By:	/s/ Andrew S. Howell
	Andrew S. Howell
	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 indicated as of the 19th day of March 2015.

Signatures	Title
/s/ Andrew S. Howell	President and Chief Executive Officer
Andrew S. Howell	(principal executive officer)
/s/ Donald R. Able	Executive Vice President - Chief Operating Officer and Chief Financial Officer
Donald R. Able	(principal financial officer)
/s/ J. Christopher Bates	Senior Vice President - Chief Accounting Officer
J. Christopher Bates	(principal accounting officer)
/s/ J. Lynn Anderson*	Director
J. Lynn Anderson
/s/ Grady P. Appleton*	Director
Grady P. Appleton
/s/ Greg W. Caudill*	Director
Greg W. Caudill
/s/ James R. DeRoberts*	Director
James R. DeRoberts
/s/ Mark N. DuHamel*	Director
Mark N. DuHamel
/s/ Leslie D. Dunn*	Director
Leslie D. Dunn
/s/ James A. England*	Director
James A. England
/s/ Charles J. Koch*	Director
Charles J. Koch
/s/ Michael R. Melvin*	Director
Michael R. Melvin
/s/ Thomas L. Moore*	Director
Thomas L. Moore

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/s/ Donald J. Mullineaux*	Director (Chair)
Donald J. Mullineaux
/s/ Alvin J. Nance*	Director
Alvin J. Nance
/s/ Charles J. Ruma*	Director
Charles J. Ruma
/s/ David E. Sartore*	Director
David E. Sartore
/s/ William J. Small*	Director (Vice Chair)
William J. Small
/s/ William S. Stuard, Jr.*	Director
William S. Stuard, Jr.
/s/ Nancy E. Uridil*	Director
Nancy E. Uridil
* Pursuant to Power of Attorney
/s/ Andrew S. Howell
Andrew S. Howell
Attorney-in-fact

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INDEX OF EXHIBITS

Exhibit Number (1)	Description of exhibit	Document filed or furnished, as indicated below
3.1	Organization Certificate	Form 10, filed December 5, 2005
3.2	Bylaws, as amended through March 18, 2010	Form 10-K, filed March 18, 2010
4	Capital Plan, as amended through November 25, 2013	Form 8-K, filed January 31, 2014
10.1.A	Form of Blanket Agreement for Advances and Security Agreement, as in effect for signatories prior to November 21, 2005	Form 10, filed December 5, 2005
10.1.B	Form of Blanket Security Agreement, for new signatories on and after November 21, 2005	Form 10, filed December 5, 2005
10.2	Form of Mortgage Purchase Program Master Selling and Servicing Master Agreement	Form 10, filed December 5, 2005
10.3	Federal Home Loan Banks P&I Funding and Contingency Plan Agreement, entered into as of July 20, 2006, by and among the Office of Finance and each of the Federal Home Loan Banks	Form 8-K, filed June 28, 2006
10.4	Joint Capital Enhancement Agreement, as amended on August 5, 2011, by and among each of the Federal Home Loan Banks	Form 8-K, filed August 5, 2011
10.5(2)	Incentive Compensation Plan	Form 10-Q, filed August 9, 2012
10.6 (2)	Transitional Executive Long-Term Incentive Plan	Form 10-Q, filed August 9, 2012
10.7 (2)	Federal Home Loan Bank of Cincinnati Benefit Equalization Plan (December 2008 Restatement)	Form 10-K, filed March 18, 2010
10.8 (2)	First Amendment to the Federal Home Loan Bank of Cincinnati Benefit Equalization Plan (December 2008 Restatement)	Form 10-K, filed March 18, 2010
10.9 (2)	Form of indemnification agreement effective as of July 29, 2009 between the Federal Home Loan Bank and each of its directors and executive officers	Form 8-K, filed July 30, 2009
12	Statements of Computation of Ratio of Earnings to Fixed Charges	Filed Herewith
24	Powers of Attorney	Filed Herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer	Filed Herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer	Filed Herewith
32	Section 1350 Certifications	Furnished Herewith

162

Exhibit Number (1)	Description of exhibit	Document filed or furnished, as indicated below
99.1	Audit Committee Letter	Furnished Herewith
99.2	Audit Committee Charter	Furnished Herewith
101.INS	XBRL Instance Document	Filed Herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed Herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed Herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed Herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed Herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed Herewith

(1) Numbers coincide with Item 601 of Regulation S-K.

(2) Indicates management compensation plan or arrangement.

163