10-K 1 fhlb12311510k.htm FORM 10-K DECEMBER 31, 2015 10-K

 
 
 
 
 
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, 2015
OR
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 

Commission File Number: 000-51999
 

FEDERAL HOME LOAN BANK OF DES MOINES
(Exact name of registrant as specified in its charter)
 
Federally chartered corporation
(State or other jurisdiction of incorporation or organization)
 
42-6000149
(I.R.S. employer identification number)
 
 
 
 
 
 
 
Skywalk Level
801 Walnut Street, Suite 200
Des Moines, IA
(Address of principal executive offices)
 


50309
(Zip code)
 

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

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class B Stock, par value $100
Name of Each Exchange on Which Registered: None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer x
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Registrant's stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2015, the aggregate par value of the stock held by current and former members of the registrant was $4,003,435,100. At February 29, 2016, 53,617,490 shares of stock were outstanding.




Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this report, including statements describing the objectives, projections, estimates, or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as believes, projects, expects, anticipates, estimates, intends, strategy, plan, could, should, may, and will or their negatives or other variations on these terms. By their nature, forward-looking statements involve risk or uncertainty, and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These risks and uncertainties include, but are not limited to, the following:
 
political or economic events, including legislative, regulatory, monetary, judicial, or other developments that affect us, our members, our counterparties, and/or our investors in the consolidated obligations of the 11 Federal Home Loan Banks (FHLBanks);

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

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

risks related to the other FHLBanks that could trigger our joint and several liability for debt issued by the other 10 FHLBanks;

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

changes in our capital structure and capital requirements;

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

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

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

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

increases in delinquency or loss estimates on mortgage loans;

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

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

the ability to attract and retain key personnel;

member consolidations and failures;

reliance on FHLBank of Chicago as MPF provider, and Fannie Mae, Redwood Trust Inc., and Ginnie Mae as the ultimate investors in certain MPF products; and

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


3


PART I

ITEM 1. BUSINESS
OVERVIEW
The Federal Home Loan Bank of Des Moines (the Bank, we, us, or our) is a federally chartered corporation organized on October 31, 1932, that is exempt from all federal, state, and local taxation (except real property taxes) and is one of 11 district FHLBanks. The FHLBanks were created under the authority of the Federal Home Loan Bank Act of 1932 (FHLBank Act). With the passage of the Housing and Economic Recovery Act of 2008 (Housing Act), the Federal Housing Finance Agency (Finance Agency) was established and became the new independent federal regulator of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), as well as the FHLBanks and FHLBanks' Office of Finance (Office of Finance), effective July 30, 2008. The Finance Agency's mission is to ensure that the Enterprises and FHLBanks operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. The Finance Agency establishes policies and regulations governing the operations of the Enterprises and FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.
We are a cooperative. This means we are owned by our customers, whom we call members. Our members include commercial banks, thrifts, credit unions, insurance companies, and community development financial institutions (CDFIs) in our district of Alaska, Hawaii, Idaho, Iowa, Minnesota, Missouri, Montana, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands. While not considered members, we also conduct certain business activities with state and local housing associates meeting certain statutory criteria.

MERGER

Effective May 31, 2015, the Bank and the Federal Home Loan Bank of Seattle (Seattle Bank), two mutual entities for accounting purposes, completed the previously announced merger (Merger) pursuant to the Merger Agreement, dated September 25, 2014. Similar to us, the Seattle Bank, a cooperative owned by its members, was one of the 12 district FHLBanks and served the public by enhancing the availability of funds for residential mortgages and targeted community development. At closing, the Seattle Bank merged with and into the Des Moines Bank, with the Des Moines Bank surviving the Merger as the continuing Bank. The first date of operations for the combined Bank was June 1, 2015.

At the time of the Merger, the corporate existence of the Seattle Bank ceased, and each member of the Seattle Bank automatically ceased to be a member of the Seattle Bank and became a member of the Des Moines Bank. In addition, the geographical territory previously included in the district for the Seattle Bank (Alaska, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands) was included in the district for the Des Moines Bank.

The Merger had a significant impact on all aspects of our financial condition, results of operations, and cash flows, and as a result, financial results for the current period may not be directly comparable to financial results prior to the Merger. For additional information on the Merger, refer to "Item 8. Financial Statements and Supplementary Data — Note 2 — Merger".
BUSINESS MODEL
Our mission is to be a reliable provider of funding, liquidity, and services for the Bank's members so they can meet the housing, business, and economic development needs of the communities they serve. We strive to achieve our mission within an operating principle that balances the trade-off between attractively priced products, reasonable returns on capital stock, and maintaining adequate capital to support safe and sound business operations.

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We are capitalized primarily through the purchase of capital stock by our members. As a condition of membership, all of our members must purchase and maintain membership capital stock based on a percentage of their total assets as of the preceding December 31st subject to a cap of $10 million and a floor of $10,000. Each member is also required to purchase and maintain activity-based capital stock to support certain business activities with us. Member demand for our products expands and contracts with economic and market conditions. Our self-capitalizing capital structure, which allows us to repurchase or require additional capital stock based on member activity, provides us with the flexibility to effectively and efficiently meet the changing needs of our membership. While eligible to borrow, housing associates are not members and, as such, are not permitted to purchase capital stock.
Our capital stock is not publicly traded. It is purchased and redeemed by members or repurchased by us at a par value of $100 per share. Our current members own nearly all of our outstanding capital stock. Former members own the remaining capital stock, included in mandatorily redeemable capital stock, to support business transactions still carried in our Statements of Condition. All stockholders, including current and former members, may receive dividends on their capital stock investment to the extent declared by our Board of Directors.
Our primary business activities are providing collateralized loans, known as advances, to members and housing associates and acquiring residential mortgage loans from or through our members. Our primary source of funding and liquidity is the issuance of debt securities, referred to as consolidated obligations, in the capital markets. Consolidated obligations are the joint and several obligations of all FHLBanks and are backed only by the financial resources of the FHLBanks. A critical component to the success of our operations is the ability to issue consolidated obligations regularly in the capital markets under a wide range of maturities, structures, and amounts, and at relatively favorable spreads to market interest rates.
Our net income is primarily attributable to the difference between the interest income we earn on our advances, mortgage loans, and investments, and the interest expense we pay on our consolidated obligations and member deposits, as well as components of other income (loss) (e.g., gains and losses on derivatives and hedging activities). Because we are a cooperative, we operate with narrow margins and expect to be profitable over the long-term based on our prudent lending standards, conservative investment strategies, and diligent risk management practices. Because we operate with narrow margins, our net income is sensitive to changes in market conditions that can impact the interest we earn and pay and introduce volatility in other income (loss).
A portion of our annual net income is used to fund our Affordable Housing Program (AHP), which provides grants and subsidized advances to members to support housing for very low to moderate income households. By regulation, we are required to contribute 10 percent of our net earnings each year to the AHP. In addition to the required AHP assessment, our Board may elect to make voluntary contributions to the AHP. For purposes of the required AHP assessment, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. For additional details on our AHP, refer to the "Affordable Housing Program Assessments" section of Item 1.
We have risk management policies that monitor and control our exposure to market, liquidity, credit, operational, and strategic risk, as well as capital adequacy. Our primary objective is to manage assets, liabilities, and derivative exposures in ways that protect the par redemption value of our capital stock. For additional information on our risk management practices, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”

MEMBERSHIP
Our membership is diverse and includes both small and large commercial banks, thrifts, credit unions, insurance companies, and CDFIs. The majority of depository institutions in our district that are eligible for membership are currently members.
The following table summarizes our membership by type of institution:
 
 
December 31,
Institutional Entity
 
2015
 
2014
 
2013
Commercial banks
 
1,088

 
942

 
968

Thrifts
 
65

 
48

 
52

Credit unions
 
221

 
110

 
109

Insurance companies
 
67

 
55

 
53

Community development financial institutions
 
4

 
1

 
1

Total
 
1,445

 
1,156

 
1,183



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The following table summarizes our membership by asset size:
 
 
December 31,
Membership Asset Size1
 
2015
 
2014
 
2013
Depository institutions2
 
 
 
 
 
 
Less than $100 million
 
31
%
 
35
%
 
38
%
$100 million to $500 million
 
46

 
47

 
46

Greater than $500 million
 
18

 
13

 
12

Insurance companies
 
 
 
 
 
 
Less than $100 million
 
1

 
1

 

$100 million to $500 million
 
1

 
1

 
1

Greater than $500 million
 
3

 
3

 
3

Total
 
100
%
 
100
%
 
100
%

1
Membership asset size is based on September 30, 2015 financial information received from members.

2
Depository institutions consist of commercial banks, thrifts, and credit unions.

Our membership level increased during 2015 due to the addition of 335 new members primarily through the Merger, partially offset by 28 member consolidations, 10 out-of-district or non-member consolidations, six dissolved charters, and two involuntary terminations. We did not experience any credit losses on advances outstanding with failed or dissolved member institutions during the year. At December 31, 2015, approximately 75 percent of our members were Community Financial Institutions (CFIs). For 2015, CFIs are defined under the FHLBank Act to include all Federal Deposit Insurance Corporation (FDIC) insured institutions with average total assets over the previous three-year period of less than $1.123 billion. CFIs are eligible to pledge certain collateral types that non-CFIs cannot pledge, including small business, small agri-business, and small farm loans.

BUSINESS SEGMENTS
We manage our operations as one business segment. Management and our Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.
PRODUCTS AND SERVICES
Advances
We carry out our mission primarily through lending funds, which we call advances, to our members and eligible housing associates (collectively, borrowers). Our advance products are designed to help borrowers compete effectively in their markets and meet the credit needs of their communities. Borrowers generally use our advance products as sources of wholesale funding for mortgage lending, affordable housing and other community lending (including economic development), and general asset-liability management.
Our advance products include the following:

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

Fixed Rate Advances. These advances are available over a variety of terms in amortizing and non-amortizing structures and are used to fund both the short- and long-term liquidity needs of our borrowers. Using an amortizing advance, a borrower makes predetermined principal payments at scheduled intervals throughout the term of the advance to manage the interest rate risk associated with long-term fixed rate amortizing assets. Forward starting advances are a type of fixed rate non-amortizing advance with settlement dates up to two years in the future, allowing members to lock in an interest rate at the outset, while delaying the receipt of funding. Delayed amortizing advances are a type of fixed rate advance with a feature that delays commencement of the repayment of the principal up to five years, allowing members control over the principal cash flows and the repayment of the advance. Certain long-term fixed rate, amortizing, and forward starting advances contain a symmetrical prepayment feature. This feature allows borrowers to prepay an advance and potentially realize a gain if interest rates rise to a level greater than those existing when the advance was originated.


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

Callable Advances. These advances may be prepaid by borrowers on pertinent dates (call dates) and therefore provide borrowers a source of long-term financing with prepayment flexibility. Callable advances can be either fixed or floating in nature. Floating rate callable advances may reset at different frequencies ranging from one to six months and are callable at each reset. These advances are often referred to as either Member Option Variable Rate Advances (MOVR) or Member Option LIBOR Advances (MOLA) and are a significant portion of our floating rate advances. Interest rates on MOVR advances reset at each call date to be consistent with the Bank's current offering rate, but in line with our underlying cost of funds. Interest rates on MOLA reset at each call date consistent with the underlying LIBOR index. Fixed rate callable advances may have different call schedules based on member specifications, and principal balances may be amortizing in nature. The Bank generally funds advances indexed to a discount note rate with discount notes, and advances indexed to LIBOR with LIBOR indexed debt or debt swapped to a LIBOR index.

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

Community Investment Advances. These advances are below-market rate funds used by borrowers in both affordable housing projects and community development. Interest rates on these advances represent our cost of funds plus a mark-up to cover our administrative expenses. This mark-up is determined by our Asset-Liability Committee. On an annual basis, our Board of Directors establishes limits on the total amount of funds available for community investment advances.
For the years ended December 31, 2015, 2014, and 2013, advances represented 61, 63, and 58 percent of our total average assets and generated 39, 36, and 32 percent of our total interest income. For additional information on our advances, including our top five borrowers, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Advances.” In addition, refer to “Item 1A. Risk Factors” for a discussion on our exposure to customer concentration risk.
COLLATERAL
We are required by regulation to obtain and maintain a security interest in eligible collateral at the time we originate or renew an advance and throughout the life of the advance to ensure a fully collateralized position. Eligible collateral includes (i) whole first mortgages on improved residential real property or securities representing a whole interest in such mortgages, (ii) loans and securities issued, insured, or guaranteed by the U.S. Government or any agency thereof, including mortgage-backed securities (MBS) issued or guaranteed by Fannie Mae, Freddie Mac, or Government National Mortgage Association (Ginnie Mae) and Federal Family Education Loan Program (FFELP) guaranteed student loans, (iii) cash deposited with us, and (iv) other real estate-related collateral acceptable to us provided such collateral has a readily ascertainable value and we can perfect a security interest in such property. CFIs may also pledge collateral consisting of secured small business, small agri-business, or small farm loans. As additional security, the FHLBank Act provides that we have a lien on each member's capital stock investment; however, capital stock cannot be pledged as collateral to secure credit exposures.
Borrowers may pledge collateral to us by executing a blanket lien, specifically assigning collateral, or placing physical possession of collateral with us or our custodians. We perfect our security interest in all pledged collateral by filing Uniform Commercial Code financing statements or taking possession or control of the collateral. Under the FHLBank Act, any security interest granted to us by our members, or any affiliates of our members, has priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), unless those claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that have perfected security interests.

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Under a blanket lien, we are granted a security interest in all financial assets of the borrower to fully secure the borrower's obligation. Other than securities and cash deposits, we do not initially take delivery of collateral pledged by blanket lien borrowers. In the event of deterioration in the financial condition of a blanket lien borrower, we have the ability to require delivery of pledged collateral sufficient to secure the borrower's obligation. With respect to non-blanket lien borrowers that are federally insured, we generally require collateral to be specifically assigned. With respect to non-blanket lien borrowers that are not federally insured (typically insurance companies, CDFIs, and housing associates), we generally take control of collateral through the delivery of cash, securities, or loans to us or our custodians.
For additional information on our collateral requirements, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Advances.”
HOUSING ASSOCIATES
The FHLBank Act permits us to provide advances to eligible housing associates. Housing associates are approved mortgagees under Title II of the National Housing Act that meet certain criteria, including: (i) chartered under law and have succession, (ii) subject to inspection and supervision by some governmental agency, and (iii) lend their own funds as their principal activity in the mortgage field. The same regulatory lending requirements that apply to our members generally apply to housing associates. Because housing associates are not members, they are not subject to certain provisions of the FHLBank Act applicable to members and cannot own our capital stock. In addition, they may only pledge certain types of collateral including: (i) Federal Housing Administration (FHA) mortgages, (ii) Ginnie Mae securities backed by FHA mortgages, (iii) certain residential mortgage loans, and (iv) cash deposited with us. As of December 31, 2015, we had three housing associates with outstanding advances of $122 million, which represented less than one percent of our total advances outstanding.
PREPAYMENT FEES
We charge a borrower a prepayment fee when the borrower prepays certain advances before the original maturity. For advances with symmetrical prepayment features, we may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid.
Standby Letters of Credit
We may issue standby letters of credit on behalf of our members, certain other FHLBank members (through a master participation agreement), and housing associates to facilitate business transactions with third parties. These letters of credit are generally used to facilitate residential housing finance and community lending, assist with asset-liability management, or provide liquidity or other funding. Standby letters of credit must be fully collateralized with eligible collateral at the time of issuance.
Mortgage Loans
We invest in mortgage loans through the Mortgage Partnership Finance (MPF) program (Mortgage Partnership Finance and MPF are registered trademarks of the FHLBank of Chicago), a secondary mortgage market structure developed by the FHLBank of Chicago to help fulfill the housing mission of the FHLBanks. As a result of the Merger, we also acquired mortgage loans previously purchased by the Seattle Bank under the Mortgage Purchase Program (MPP). These programs are considered core mission activities of the FHLBanks, as defined by Finance Agency regulations.
MPF
Under the MPF program, we purchase or fund eligible mortgage loans (MPF loans) from or through, members or housing associates called participating financial institutions (PFIs). We may also acquire MPF loans through participations with other FHLBanks. MPF loans are conforming conventional or government-insured fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from five to 30 years. For the years ended December 31, 2015, 2014, and 2013, MPF loans represented 6, 8, and 12 percent of our total average assets and generated 27, 36, and 40 percent of our total interest income.

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MPF Provider
The FHLBank of Chicago serves as the MPF Provider for the MPF program. In its role as MPF Provider, the FHLBank of Chicago provides the infrastructure and operational support for the MPF program and is responsible for publishing and maintaining the MPF Guides, which detail the requirements PFIs must follow in originating, selling, and servicing MPF loans. The MPF Provider provides a service for FHLBanks, if needed, that establishes the base price of MPF loan products utilizing the agreed upon methodologies determined by the participating MPF FHLBanks. In exchange for providing these services, the MPF Provider receives a fee from each of the FHLBanks participating in the MPF program. The MPF Provider has engaged Wells Fargo Bank N.A. (Wells Fargo) as the master servicer for the MPF program.
MPF Governance Committee
The MPF Governance Committee, which consists of representatives from each of the FHLBanks participating in the MPF program, is responsible for recommending and implementing strategic MPF program decisions, including, but not limited to, pricing methodology changes. Participating MPF FHLBanks are allowed to determine their own price or adjust the base price of MPF loan products established by the FHLBank of Chicago. Accordingly, we monitor daily market conditions and make price adjustments to our MPF loan products when deemed necessary. This allows us to impact the level of member demand in our MPF program as well as profitability, risk management, and regulatory requirements.
Participating Financial Institutions
Our members and eligible housing associates must apply to become a PFI. In order to do MPF business with us, each member or eligible housing associate must meet certain eligibility standards and sign a PFI Agreement. The PFI Agreement provides the terms and conditions for the sale or funding of MPF loans, including the servicing of MPF loans.
PFIs may either retain the servicing of MPF loans or sell the servicing to an approved third-party provider. If a PFI chooses to retain the servicing, it receives a servicing fee to manage the servicing activities. If a PFI chooses to sell the servicing rights to an approved third-party provider, the servicing is transferred concurrently with the sale of the MPF loans and a servicing fee is paid to the third-party provider. Throughout the servicing process, the master servicer monitors the PFI's compliance with MPF program requirements and makes periodic reports to the MPF Provider.
MPF Loan Types
We have offered eight MPF loan products under the MPF program: Original MPF, MPF 100, MPF 125, MPF Plus, MPF Government, MPF Government MBS, MPF Xtra, and MPF Direct. While still held in our Statements of Condition, we currently do not offer the MPF 100 or MPF Plus loan products. The discussion below outlines characteristics of our active MPF loans products.
Original MPF, MPF 125, and MPF Government are closed loan products in which we purchase loans acquired or closed by the PFI. MPF Xtra, MPF Direct, and MPF Government MBS are off-balance sheet loan products. MPF Xtra is an off-balance sheet loan product in which we assign 100 percent of our interest in PFI master commitments to the FHLBank of Chicago. The FHLBank of Chicago then purchases mortgage loans from our PFIs and sells MPF Xtra loans to Fannie Mae. MPF Direct is an off-balance sheet jumbo loan product in which mortgage loans are sold from our PFIs to a real estate investment trust. MPF Government MBS is an off-balance sheet loan product where our PFIs sell government loans directly to the FHLBank of Chicago where they are pooled and securitized into Ginnie Mae MBS securities. We receive a small fee for our continued management of the PFI relationship under MPF Xtra, MPF Direct, and MPF Government MBS.
The PFI performs all traditional retail loan origination functions on our MPF loan products. We are responsible for managing the interest rate risk, including mortgage prepayment risk, and liquidity risk associated with the MPF loans we purchase and carry on our Statements of Condition. In order to limit our credit risk exposure to that of an investor in an MBS that is rated the equivalent of AA by a nationally recognized statistical rating organization (NRSRO), we require a credit risk sharing arrangement with the PFI on all MPF loans at the time of purchase.
For additional discussion on our mortgage loans and their related credit risk, refer to “Item 8. Financial Statements and Supplementary Data — Note 11 — Allowance for Credit Losses” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Mortgage Loans.”

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MPF Loan Volume
Over the years, our member base for MPF loans has evolved from large-volume loan purchases from a small number of large PFIs to purchasing the majority of our MPF loans from a diverse base of banks and credit unions. Our ability to price MPF loans, coupled with the low interest rate environment, has allowed us to serve the liquidity needs of a broad range of members and maintain relatively stable mortgage loan volumes. During the years ended December 31, 2015, 2014, and 2013, we purchased $0.8 billion, $0.9 billion, and $1.2 billion of MPF loan products (excluding MPF Xtra, MPF Direct, and MPF Government MBS). In addition, our members delivered $1.0 billion, $0.7 billion, and $1.6 billion of MPF Xtra and MPF Direct loans during the years ended December 31, 2015, 2014, and 2013. We began offering MPF Direct in 2015 and MPF Government MBS in 2016.
The growth of our MPF loan portfolio could be affected by Finance Agency regulation. If we exceed $2.5 billion in MPF loan purchases in a calendar year (excluding MPF Xtra, MPF Direct, and MPF Government MBS), we will become subject to housing goals as specified by the Finance Agency. We believe that these goals may be difficult to implement and could potentially change the credit profile of the MPF program.
MPP
Effective May 31, 2015, as a part of the Merger, we acquired mortgage loans previously purchased by the Seattle Bank under the MPP. Similar to the MPF program, the MPP includes a risk sharing arrangement under which we manage the interest rate risk, including prepayment risk, and liquidity risk of MPP loans, while the members retain the primary credit risk.
Through the MPP, the Seattle Bank purchased mortgage loans directly from PFIs. MPP loans were conforming conventional or government-insured fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from five to 30 years. MPP PFIs were responsible for all traditional retail loan origination functions related to MPP loans. MPP PFIs who sold MPP loans to the Seattle Bank could either continue to service the mortgage loans or sell the servicing rights to a third party service provider.
In 2005, the Seattle Bank ceased entering into new MPP master commitment contracts and therefore all MPP loans acquired were originated prior to 2006. We currently do not purchase mortgage loans under this program and we expect that the $531 million outstanding at December 31, 2015 will continue to decrease as the remaining MPP loans are paid off. We do not service the acquired MPP loans nor do we own any servicing rights. Effective November 1, 2015, we engaged Bank of New York Mellon as the MPP master servicer. Prior to November 1, 2015 JP Morgan Chase Bank was the MPP master servicer. For the year ended December 31, 2015, MPP loans represented less than one percent of our total average assets and generated two percent of our total interest income.
For additional information on our mortgage loans, including concentrations held with PFIs, see “Item 7. Management's Discussion and Analysis of Financial Condition and Risk Management — Credit Risk — Mortgage Loans.”
TEMPORARY LOAN MODIFICATION PLANS

We offer loan modification plans for our MPF and MPP PFIs. Under these plans, we generally permit the recapitalization of past due amounts up to the original loan amount and/or reduce the interest rate for a specified period of time. No other terms of the original loan, including contractual maturity, are generally modified. At December 31, 2015, 57 modified loans totaling $21 million were outstanding in our Statements of Condition.
Investments
We maintain an investment portfolio primarily to provide investment income and liquidity. Our investment portfolio consists of both short- and long-term investments. Our short-term investments may include, but are not limited to, interest-bearing deposits, Federal funds sold, securities purchased under agreements to resell, certificates of deposit, commercial paper, and U.S. treasury obligations. Our long-term investments may include, but are not limited to, other U.S. obligations, government-sponsored enterprise (GSE) obligations, state or local housing agency obligations, taxable municipal bonds, and MBS. Our long-term investments generally provide higher returns than our short-term investments. For the years ended December 31, 2015, 2014, and 2013, investments represented 32, 28, and 29 percent of our total average assets and generated 32, 28, and 28 percent of our total interest income.
We do not have any subsidiaries. We also have no equity positions in any partnerships, corporations, or off-balance sheet special purpose entities. We limit new investments in MBS to those guaranteed by the U.S. Government, issued by a GSE, or that we deem to be investment quality at the time of purchase. Our Enterprise Risk Management Policy (ERMP) prohibits new purchases of private-label MBS.

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REGULATORY RESTRICTIONS
To minimize credit risk, the Finance Agency prohibits us from investing in certain types of securities, unless otherwise approved by the Finance Agency, including:

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

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

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

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

non-U.S. dollar denominated securities;

interest-only or principal-only stripped securities;

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

fixed or variable rate MBS that, on trade date, are at rates equal to their contractual cap and that have average lives that vary by more than six years under an assumed instantaneous interest rate change of 300 basis points.
The Finance Agency further limits our investments in MBS by requiring that the total book value of our MBS not exceed three times regulatory capital at the time of purchase. For details on our compliance with this regulatory requirement, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Investments.” For additional discussion on our investments and their related credit risk, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Credit Risk — Investments."
Standby Bond Purchase Agreements
We currently hold standby bond purchase agreements with housing associates within our district whereby, for a fee, we agree to serve as a standby liquidity provider if required, to purchase and hold the housing associate's bonds until the designated marketing agent can find a suitable investor or the housing associate repurchases the bonds according to a schedule established by the agreement. Each standby bond purchase agreement includes the provisions under which we would be required to purchase the bonds. If purchased, the bonds would be classified as available-for-sale (AFS) securities in our Statements of Condition. For additional details on our standby bond purchase agreements, refer to “Item 8. Financial Statements and Supplementary Data — Note 19 — Commitments and Contingencies.”
Deposits
We accept deposits from our members and eligible housing associates. We offer several types of deposit programs, including demand, overnight, and term deposits. Deposit programs provide us funding while providing members a low-risk interest-earning asset.
Consolidated Obligations
Our primary source of funding and liquidity is the issuance of debt securities, referred to as consolidated obligations, in the capital markets. Consolidated obligations (bonds and discount notes) are the joint and several obligations of all FHLBanks and are backed only by the financial resources of the FHLBanks. They are not obligations of the U.S. Government, and the U.S. Government does not guarantee them. At February 29, 2016, Standard & Poor's Ratings Services (S&P) and Moody's Investors Service, Inc. (Moody's) rated the consolidated obligations AA+/A-1+ and Aaa/P-1, both with a stable outlook.

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The Office of Finance issues all consolidated obligations on behalf of the FHLBanks. It is also responsible for servicing all outstanding debt, coordinating transfers of debt between the FHLBanks, serving as a source of information for the FHLBanks on capital market developments, managing the FHLBank System's relationship with the rating agencies with respect to consolidated obligations, and preparing and making available the FHLBank System's Combined Financial Reports.
Although we are primarily responsible for the portion of consolidated obligations issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. The Finance Agency has never exercised this discretionary authority.
To the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the FHLBank otherwise responsible for the payment. However, if the Finance Agency determines that an FHLBank is unable to satisfy its obligations, then it may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that it may determine.

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

BONDS
Bonds are generally issued to satisfy our intermediate- and long-term funding needs. Typically, they have maturities ranging up to 30 years, although there is no statutory or regulatory limitation as to their maturity. Bonds are issued with either fixed or variable rate payment terms that use a variety of indices for interest rate resets including, but not limited to, LIBOR and the Federal funds rate. To meet the specific needs of certain investors, both fixed and variable rate bonds may also contain certain embedded features, which result in complex coupon payment terms and call features. When bonds are issued on our behalf, we may concurrently enter into a derivative agreement to effectively convert the fixed rate payment stream to variable or to offset the embedded features in the bond.
Depending on the amount and type of funding needed, bonds may be issued through negotiated or competitively bid transactions with approved underwriters or selling group members (i.e., TAP Issue Program, auction, and Global Debt Program), or through debt transfers between FHLBanks.
The TAP Issue Program is used to issue fixed rate, noncallable bonds with standard maturities of two, three, five, seven, or ten years. The goal of the TAP Issue Program is to aggregate frequent smaller bond issues into a larger bond issue that may have greater market liquidity.
An auction process is used to issue fixed rate, callable bonds. Auction structures are determined by the FHLBanks in consultation with the Office of Finance and the securities dealer community. We may receive zero to 100 percent of the proceeds of the bonds issued via the callable auction depending on (i) the amounts and costs for the bonds bid by underwriters, (ii) the maximum costs we or other FHLBanks participating in the same issue, if any, are willing to pay for the obligations, and (iii) the guidelines for allocation of bond proceeds among multiple participating FHLBanks administered by the Office of Finance.
The Global Debt Program allows the FHLBanks to diversify their funding sources to include overseas investors. Global Debt Program bonds may be issued in maturities ranging up to 30 years and can be customized with different terms and currencies. The FHLBanks approve the terms of the individual issues under the Global Debt Program.
For additional information on our bonds, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Consolidated Obligations” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”
DISCOUNT NOTES
Discount notes are generally issued to satisfy our short-term funding needs. They have maturities of up to 365/366 days and are offered daily through a discount note selling group and other authorized underwriters. Discount notes are generally sold at a discount and mature at par.

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On a daily basis, we may request that specific amounts of discount notes with specific maturity dates be offered by the Office of Finance for sale through certain securities dealers. We may receive zero to 100 percent of the proceeds of the discount notes issued via this sales process depending on (i) the time of the request, (ii) the maximum costs we or other FHLBanks participating in the same issue, if any, are willing to pay for the discount notes, and (iii) the amount of orders for the discount notes submitted by dealers.
Twice weekly, we may request that specific amounts of discount notes with fixed maturities of four to 26 weeks be offered by the Office of Finance through competitive auctions conducted with securities dealers in the discount note selling group. One or more of the FHLBanks may also request that amounts of those same discount notes be offered for sale for their benefit through the same auction. The discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. We may receive zero to 100 percent of the proceeds of the discount notes issued through a competitive auction depending on the amounts of the discount notes bid by underwriters and the guidelines for allocation of discount note proceeds among multiple participating FHLBanks administered by the Office of Finance.
For additional information on our discount notes, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Consolidated Obligations” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity — Sources of Liquidity.”
Derivatives
We use derivatives to manage interest rate risk, including mortgage prepayment risk, in our Statements of Condition. Finance Agency regulations and our ERMP establish guidelines for derivatives, prohibit trading in or the speculative use of derivatives, and limit credit risk arising from derivatives.
The goal of our interest rate risk management strategy is not to eliminate interest rate risk, but to manage it within appropriate limits. One key way we manage interest rate risk is to acquire and maintain a portfolio of assets and liabilities which, together with their associated derivatives, are conservatively matched with respect to the expected repricings.
We can use interest rate swaps, swaptions, interest rate caps and floors, options, and future/forward contracts as part of our interest rate risk management strategies. These derivatives can be used as either a fair value hedge of a financial instrument or firm commitment or an economic hedge to manage certain defined risks in our Statements of Condition. We use economic hedges primarily to (i) manage mismatches between the coupon features of our assets and liabilities and offset prepayment risk in certain assets, or, (ii) mitigate the income statement volatility that occurs when financial instruments are recorded at fair value and hedge accounting is not permitted.
Additional information on our derivatives can be found in "Item 8. Financial Statements and Supplementary Data — Note 12 — Derivatives and Hedging Activities” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition — Derivatives.”
CAPITAL AND DIVIDENDS
Capital Stock
Our capital stock has a par value of $100 per share, and all shares are issued, redeemed, or repurchased by us at the stated par value. We generally issue a single class of capital stock (Class B capital stock). We have two subclasses of Class B capital stock: membership and activity-based. Each member must purchase and hold membership capital stock in an amount equal to 0.12 percent of its total assets as of the preceding December 31st subject to a cap of $10.0 million and a floor of $10,000. Each member is also required to purchase activity-based capital stock equal to 4.00 percent of its advances and mortgage loans outstanding in our Statements of Condition. All Class B capital stock issued is subject to a five year notice of redemption period.

The capital stock requirements established in our Capital Plan are designed so that we remain adequately capitalized as member activity changes. Our Board of Directors may make adjustments to the capital stock requirements within ranges established in our Capital Plan. We amended our Capital Plan effective at the closing of the Merger to, among other things (i) authorize two classes of capital stock of the Bank, consisting of the Bank's Class A stock (to accommodate former Seattle bank Class A stock) and Class B stock; and (ii) authorize the distribution of additional capital from merger, either as a dividend or capital distribution, if and when declared by our Board of Directors.
 

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Capital stock owned by members in excess of their capital stock requirement is deemed excess capital stock. Under our Capital Plan, we, at our discretion and upon 15 days' written notice, may repurchase excess membership capital stock. We, at our discretion, may also repurchase excess activity-based capital stock to the extent that (i) the excess capital stock balance exceeds an operational threshold set forth in the Capital Plan, which is currently set at zero, or (ii) a member submits a notice to redeem all or a portion of the excess activity-based capital stock.
As part of the Merger, on the effective date of the Merger (merger date), each share of Seattle Bank Class A stock outstanding was converted into one share of Des Moines Bank Class A stock and each share of Seattle Bank Class B stock outstanding was converted into one share of Des Moines Bank Class B stock. Immediately following the Merger, all shares of Des Moines Bank Class A stock and excess shares of Class B stock were repurchased and Des Moines Class B stock was issued as needed to meet our activity and membership stock requirements in accordance with the combined Bank's Capital Plan. No shares of Seattle Bank capital stock remained outstanding. The Merger did not have an impact on the total capital stock held by Des Moines Bank stockholders prior to the Merger.

We reclassify capital stock subject to redemption from equity to a liability (mandatorily redeemable capital stock) at the time shares meet the definition of a mandatorily redeemable financial instrument. This occurs after a member provides written notice of redemption, gives notice of intention to withdraw from membership, or attains non-member status by merger or consolidation, charter termination, or other involuntary termination from membership. On the Merger date, we assumed Seattle Bank's mandatorily redeemable capital stock. We immediately redeemed all shares of this stock, with the exception of shares required to meet members' activity and membership stock requirement, and shares subject to the mandatory five year waiting period upon written notice of a member's intent to withdraw from membership in accordance with our Capital Plan.
For additional information on our capital, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital.”
Additional Capital from Merger
We recognized the net assets acquired from the Seattle Bank by recording the par value of capital stock issued in the transaction as capital stock, with the remaining portion of net assets acquired reflected in a new capital account captioned “Additional capital from merger.” This balance primarily represents the amount of the Seattle Bank's closing retained earnings balance, adjusted for fair value and other purchase accounting adjustments, and identified intangible assets. We treat this additional capital from merger as a component of total capital for regulatory capital purposes. Dividends to our members have been paid from this account since the merger date and we intend to pay future dividends to members, when and if declared, from this account until the additional capital from merger balance is depleted.
Retained Earnings
Our ERMP requires a minimum level of retained earnings and additional capital from merger based on the level of market risk, credit risk, and operational risk within the Bank. If realized financial performance results in actual retained earnings below the minimum level, we will establish an action plan as determined by our Board of Directors to enable us to return to our targeted level of retained earnings within twelve months. At December 31, 2015, our actual retained earnings were above the minimum level, and therefore no action plan was necessary.
In 2011, we entered into a Joint Capital Enhancement Agreement (JCE Agreement), as amended, with the other FHLBanks. The JCE Agreement is intended to enhance the capital position of each FHLBank by allocating the earnings historically paid to satisfy the Resolution Funding Corporation obligation to a separate restricted retained earnings account. Under the JCE Agreement, each FHLBank allocates 20 percent of its quarterly net income to a restricted retained earnings account until the balance of that account equals at least one percent of its average balance of outstanding consolidated obligations for the previous quarter. The restricted retained earnings are not available to pay dividends and are presented separately in our Statements of Condition. At December 31, 2015 and 2014, our restricted retained earnings account totaled $101 million and $75 million. One percent of our average balance of outstanding consolidated obligations for the three months ended September 30, 2015 was $1.1 billion. To review the JCE Agreement, as amended, see Exhibit 99.1 of our Form 8-K filed with the Securities and Exchange Commission (SEC) on August 5, 2011.

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Dividends
Our Board of Directors may declare and pay different dividends for each subclass of capital stock. Dividend payments may be made in the form of cash and/or additional shares of capital stock. Historically, we have only paid cash dividends. By regulation, we may pay dividends from current earnings, unrestricted retained earnings, or additional capital from merger, but we may not declare a dividend based on projected or anticipated earnings. We are prohibited from paying a dividend in the form of additional shares of capital stock if, after the issuance, the outstanding excess capital stock would be greater than one percent of our total assets. Our Board of Directors may not declare or pay dividends if it would result in our non-compliance with regulatory capital requirements.
Our Board of Directors believes any returns on capital stock above an appropriate benchmark rate that are not retained for capital growth should be returned to members that utilize our product and service offerings. Our current philosophy is to pay a membership capital stock dividend similar to a benchmark rate of interest, such as average-three month LIBOR, and an activity-based capital stock dividend, when possible, at least 50 basis points in excess of the membership capital stock dividend. Our actual dividend payout is determined quarterly by our Board of Directors, based on policies, regulatory requirements, financial projections, and actual performance.
For additional information on our dividends, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Dividends.”
COMPETITION
Advances
One of our primary businesses is to make advances to our members and eligible housing associates. Demand for our advances is affected by, among other things, the cost of other available sources of funding for our borrowers. We compete with other suppliers of secured and unsecured wholesale funding including, but not limited to, investment banks, commercial banks, other GSEs, and U.S. Government agencies. We may also compete with other FHLBanks to the extent that member institutions have affiliated institutions located outside of our district. Furthermore, our members typically have access to brokered deposits and resale agreements, each of which represent competitive alternatives to our advances. Many of our competitors are not subject to the same body of regulation that we are, which enables those competitors to offer products and terms that we may not be able to offer. Efforts to effectively compete with other suppliers of wholesale funding by changing the pricing of our advances may result in a decrease in the profitability of our advance business.
Mortgage Loans
The purchase of mortgage loans through the MPF program is subject to competition on the basis of prices paid for mortgage loans, customer service, and ancillary services, such as automated underwriting and loan servicing options. We compete primarily with other GSEs, such as Fannie Mae, Freddie Mac, and other financial institutions and private investors for acquisition of conventional fixed rate mortgage loans.
Consolidated Obligations
Our primary source of funding is through the issuance of consolidated obligations. We compete with the U.S. Government, Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of debt in the national and global debt markets. In the absence of increased demand, increased supply of competing debt products may result in higher debt costs or lesser amounts of debt issued at the same cost. Although our debt issuances have kept pace with the funding needs of our members, there can be no assurance that this will continue.
TAXATION
We are exempt from all federal, state, and local taxation except real property taxes.

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AFFORDABLE HOUSING PROGRAM ASSESSMENTS
The FHLBank Act requires each FHLBank to establish and fund an AHP, which provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low to moderate income households. Annually, the FHLBanks must set aside for the AHP the greater of ten percent of their current year net earnings or their pro-rata share of an aggregate $100 million to be contributed in total by the FHLBanks. In addition to the required AHP assessment, our Board may elect to make voluntary contributions to the AHP. For purposes of the required AHP assessment, net earnings is defined as net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. We accrue the AHP assessment on a monthly basis and reduce our AHP liability as program funds are distributed. For additional information on our AHP, refer to “Item 8. Financial Statements and Supplementary Data — Note 15 — Affordable Housing Program.”
OVERSIGHT, AUDITS, AND EXAMINATIONS
The Finance Agency supervises and regulates the FHLBanks and the Office of Finance. The Finance Agency has a statutory responsibility and corresponding authority to ensure that the FHLBanks operate in a safe and sound manner. Consistent with that duty, the Finance Agency has an additional responsibility to ensure the FHLBanks carry out their housing and community development finance mission. In order to carry out those responsibilities, the Finance Agency establishes regulations governing the entire range of operations of the FHLBanks, conducts ongoing off-site monitoring and supervisory reviews, performs annual on-site examinations and periodic interim on-site reviews, and requires the FHLBanks to submit monthly and quarterly information regarding their financial condition, results of operations and risk metrics.

The Comptroller General of the United States (the “Comptroller General”) has authority under the FHLBank Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of a FHLBank’s financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General may also conduct his or her own audit of the financial statements of any FHLBank.

As required by federal regulation, we have an internal audit department and an audit committee of our Board. An independent public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) audits our annual financial statements. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, must adhere to PCAOB and Government Auditing Standards, as issued by the Comptroller General, when conducting our audits. Our Board, our senior management, and the Finance Agency receive these audit reports. We also submit annual management reports to Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General. These reports include audited financial statements, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on the financial statements.
AVAILABLE INFORMATION
We are required to file with the SEC an annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains a website containing these reports and other information regarding our electronic filings located at www.sec.gov. These reports may also be read and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Further information about the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330.
We also make our annual reports, quarterly reports, current reports, and amendments to all such reports filed with or furnished to the SEC available, free of charge, on our internet website at www.fhlbdm.com as soon as reasonably practicable after such reports are available. Annual and quarterly reports for the FHLBanks on a combined basis are also available, free of charge, at the website of the Office of Finance as soon as reasonably practicable after such reports are available. The internet website address to obtain these reports is www.fhlb-of.com.
Information contained in the previously mentioned websites, or that can be accessed through those websites, is not incorporated by reference into this annual report on Form 10-K and does not constitute a part of this or any report filed with the SEC.

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PERSONNEL
As of February 29, 2016, we employed 271 full-time and eight part-time employees. Our employees are not covered by a collective bargaining agreement.

ITEM 1A. RISK FACTORS

The following discussion summarizes some of the more important risks we face. This discussion is not exhaustive, and there may be other risks we face, which are not described below. The risks described below, if realized, could negatively affect our business operations, financial condition, and future results of operations and, among other things, could result in our inability to pay dividends on our capital stock or repurchase capital stock.
WE ARE SUBJECT TO A COMPLEX BODY OF LAWS AND REGULATIONS THAT COULD CHANGE IN A MANNER DETRIMENTAL TO OUR BUSINESS OPERATIONS
The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and as such, are governed by federal laws and regulations adopted and applied by the Finance Agency. From time to time, Congress may amend the FHLBank Act or other statutes in ways that affect the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency or other financial services regulators could adversely impact our ability to conduct business or the cost of doing business.
We cannot predict when new regulations will be promulgated by the Finance Agency or whether Congress will enact new legislation, and we cannot predict the effect of any new regulations or legislation on our business operations. Changes in regulatory or statutory requirements could result in, among other things, changes to the eligibility criteria of our membership, changes to the types of business activities that we are permitted to engage in, an increase in our cost of funding or cost of operation, or a decrease in the size, scope, or nature of our lending, investment, or MPF program activities, which could negatively affect our financial condition and results of operations.

For a discussion of recent legislative and regulatory activity that could affect us, refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments.”
RECENT REGULATORY CHANGES TO THE FHLB MEMBERSHIP ELIGIBILITY REQUIREMENTS COULD ADVERSELY AFFECT OUR BUSINESS
On January 20, 2016, the Finance Agency issued a final rule that changes the eligibility requirements for FHLBank members by eliminating currently eligible captive insurance companies from FHLBank membership. As of December 31, 2015, we had 13 captive insurance company members with advances outstanding of $15.2 billion, which represented 17 percent of our total advances outstanding. Of these captive insurance company members, six members with advance balances outstanding of $9.2 billion will have their membership terminated after five years of the effective date of the final rule, February 19, 2016, and seven members with advance balances outstanding of $6.0 billion will have their membership terminated within one year, according to the final rule. In addition, three out of our top five borrowers at December 31, 2015 were captive insurance company members. Once our captive insurance company members have their membership terminated and their advances mature, our advance and capital stock levels will decrease. Further, we could experience lower demand for advances and other products and services, including letter of credit activity. Our core mission asset ratio may also be negatively impacted. The magnitude of the impact of the final rule will depend, in part, on our size and profitability at the time of membership termination or maturity of the related advances. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments" for additional discussion of the final rule and its impact on membership.

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WE ARE JOINTLY AND SEVERALLY LIABLE FOR THE CONSOLIDATED OBLIGATIONS OF OTHER FHLBANKS AND MAY BE REQUIRED TO PROVIDE FINANCIAL ASSISTANCE TO OTHER FHLBANKS
Each of the FHLBanks relies upon the issuance of consolidated obligations as a primary source of funds. Consolidated obligations are the joint and several obligations of the 11 FHLBanks and are backed only by the financial resources of the FHLBanks. They are not obligations of the U.S. Government, and the U.S. Government does not guarantee them. The Finance Agency, at its discretion, may require any FHLBank to make principal and/or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that consolidated obligation. Furthermore, if the Finance Agency determines that an FHLBank is unable to satisfy its obligations, it may allocate the outstanding liability among the remaining FHLBanks on a pro-rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding, or on any other basis that it may determine. Accordingly, we could incur liability beyond our primary obligation under consolidated obligations, which could negatively affect our financial condition and results of operations. Moreover, we may not pay dividends to, or redeem or repurchase capital stock from, any of our members if timely payment of principal and interest on all FHLBank consolidated obligations has not been made. Accordingly, our ability to pay dividends or to redeem or repurchase capital stock may be affected not only by our financial condition, but by the financial condition of the other FHLBanks.
Due to our relationship with other FHLBanks, we could also be impacted by events other than the default on a consolidated obligation. Events that impact other FHLBanks include, but are not limited to, member failures, capital deficiencies, and other-than-temporary impairment (OTTI) charges. These events may cause the Finance Agency, at its discretion, to require any FHLBank to either provide capital to or buy assets of any other FHLBank. If we were called upon by the Finance Agency to do either of these items, it may negatively impact our financial condition.
Additionally, the FHLBank Act requires each FHLBank to establish and fund an AHP. Annually, the FHLBanks are required to set aside, in the aggregate, the greater of $100 million or ten percent of their current year net earnings. AHP contributions made by the FHLBanks were $334 million, $269 million, and $293 million for 2015, 2014, and 2013. If the FHLBanks do not make the minimum $100 million AHP contribution in a given year, we could be required to contribute more than ten percent of our current year net earnings. An increase in our AHP contributions could adversely impact our financial condition and results of operations.
ACTUAL OR PERCEIVED CHANGES IN THE FHLBANK'S CREDIT RATINGS AS WELL AS THE U.S. GOVERNMENT'S CREDIT RATING COULD ADVERSELY AFFECT OUR BUSINESS
Our consolidated obligations are currently rated AA+/A-1+ by S&P and Aaa/P-1 by Moody's, both with a stable outlook. These ratings are subject to reduction or withdrawal at any time by an NRSRO, and the FHLBank System may not be able to maintain these credit ratings. Adverse rating agency actions on the FHLBank System or U.S. Government may reduce investor confidence and negatively affect our cost of funds and ability to issue consolidated obligations on acceptable terms, which could adversely impact our financial condition and results of operations.
A reduction in our credit rating could also trigger additional collateral posting requirements under our derivative agreements. For cleared derivatives, the Derivative Clearing Organization (Clearinghouse) determines initial margin requirements and generally credit ratings are not factored into the initial margin. However, clearing agents may require additional initial margin to be posted based on credit considerations, including but not limited to, credit rating downgrades. We were not required to post additional initial margin by our clearing agents, based on credit considerations at December 31, 2015. For the majority of uncleared derivative contracts, we are required to deliver additional collateral on derivatives in net liability positions to counterparties if there is deterioration in our credit rating. At December 31, 2015, if our credit rating had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, we would have been required to deliver an additional $61 million of collateral to our uncleared derivative counterparties. Further, demand for certain Bank products, including, but not limited to, standby letters of credit and standby bond purchase agreements, is influenced by our credit rating. A reduction in our credit rating could weaken or eliminate demand for such products.

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


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

Our primary source of funds is through the issuance of consolidated obligations in the capital markets. Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing market conditions in the capital markets and rating agency actions, both of which are beyond our control. In addition, changes to the regulatory environment that affect bank counterparties and debt underwriters could adversely affect our ability to access the capital markets or the cost of that funding. We cannot make any assurance that we will be able to obtain funding on terms acceptable to us, if at all. If we cannot access funding when needed, our ability to support and continue business operations, including our compliance with regulatory liquidity requirements, could be adversely impacted, which would thereby adversely impact our financial condition and results of operations. Although our debt issuances have historically kept pace with the funding needs of our members and eligible housing associates, there can be no assurance that this will continue.
FAILURE TO MEET MINIMUM REGULATORY CAPITAL REQUIREMENTS COULD ADVERSELY AFFECT OUR ABILITY TO REDEEM OR REPURCHASE CAPITAL STOCK, PAY DIVIDENDS, AND ATTRACT NEW MEMBERS
We are required to maintain capital to meet specific minimum requirements, as defined by the Finance Agency. Historically, our capital has exceeded all capital requirements and we have maintained adequate capital and leverage ratios. If we fail to meet any of these requirements or if our Board of Directors or the Finance Agency determines that we have incurred, or are likely to incur, losses resulting in, or losses that are expected to result in, a charge against capital, we would not be able to redeem or repurchase any capital stock while such charges are continuing or expected to continue. In addition, failure to meet our capital requirements could result in the Finance Agency's imposition of restrictions pertaining to dividend payments, lending, investing, or other business activities. Additionally, the Finance Agency could require that we call upon our members to purchase additional capital stock to meet our minimum regulatory capital requirements. Members may be unable or unwilling to satisfy such calls for additional capital, which could lead to a member's involuntary termination of membership as a result of noncompliance with the Bank's Capital Plan.
WE COULD BE ADVERSELY AFFECTED BY OUR EXPOSURE TO CUSTOMER CONCENTRATION RISK
We are subject to customer concentration risk as a result of our reliance on a relatively small number of member institutions for a large portion of our total advances and resulting interest income. At December 31, 2015 and 2014, advances outstanding to our top five borrowers totaled $50.5 billion and $42.6 billion, representing 57 and 66 percent of our total advances outstanding. Advance balances with these members and our other members could change due to factors such as a change in member demand, relocation of members out of our district, or members with affiliated institutions located outside of our district choosing to do business with another FHLBank. In addition, advance balances could change as a result of new or modified legislation enacted by Congress or regulations adopted by the Finance Agency or other financial services regulators. If, for any reason, we were to lose, or experience a decrease in the amount of business with our top five borrowers, our financial condition and results of operations could be negatively affected.  Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Statements of Condition - Advances” for additional information on our top five borrowers.

WE FACE COMPETITION FOR ADVANCES, MORTGAGE LOANS, AND FUNDING
Our primary business activities are providing advances to members and housing associates and acquiring residential mortgage loans from or through our members. Demand for our advances is affected by, among other things, the cost of other available sources of funding for our borrowers. We may from time to time compete with other suppliers of secured and unsecured wholesale funding including, but not limited to, investment banks, commercial banks, other GSEs, and U.S. Government agencies. We may also compete with other FHLBanks to the extent that member institutions have affiliated institutions located outside of our district. Furthermore, our members typically have access to brokered deposits and resale agreements, each of which represent competitive alternatives to our advances. Many of our competitors are not subject to the same body of regulation that we are, which enables those competitors to offer products and terms that we may not be able to offer. Efforts to effectively compete with other suppliers of wholesale funding by changing the pricing of our advances may result in a decrease in the profitability of our advance business. A decrease in the demand for advances or a decrease in the profitability on advances would negatively affect our financial condition and results of operations.
The purchase of mortgage loans through the MPF program is subject to competition on the basis of prices paid for mortgage loans, customer service, and ancillary services, such as automated underwriting and loan servicing options. We compete primarily with other GSEs, such as Fannie Mae, Freddie Mac, and other financial institutions, the Federal Reserve, and private investors for acquisition of conventional fixed rate mortgage loans. Increased competition could result in a reduction in the amount of mortgage loans we are able to purchase, which could negatively affect our financial condition and results of operations.

19


We also compete with the U.S. Government, Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of debt in the national and global markets. In the absence of increased demand, increased supply of competing debt products may result in higher debt costs or lesser amounts of debt issued at the same cost. An increase in funding costs would negatively affect our financial condition and results of operations.
WE COULD BE ADVERSELY AFFECTED BY OUR EXPOSURE TO CREDIT RISK
We are exposed to credit risk if the market value of an obligation declines as a result of deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. We assume unsecured and secured credit risk exposure in that a borrower or counterparty could default and we may suffer a loss if we are not able to fully recover amounts owed to us in a timely manner.
We attempt to mitigate unsecured credit risk by limiting the terms of unsecured investments and the borrowing capacity of our counterparties. We attempt to mitigate secured credit risk through collateral requirements and credit analysis of our borrowers and counterparties. We require collateral on advances, standby letters of credit, certain mortgage loan credit enhancements provided by PFIs, certain investments, and derivatives. All advances, standby letters of credit, and applicable mortgage loan credit enhancements are required to be fully collateralized. We evaluate the types of collateral pledged by our borrowers and counterparties and assign a borrowing capacity to the collateral, generally based on a percentage of its unpaid principal balance or estimated market value, if available. We generally have the ability to call for additional or substitute collateral during the life of an obligation to ensure we are fully collateralized.
If a borrower or counterparty fails, we have the right to take ownership of the collateral covering the obligation. However, if the liquidation value of the collateral is less than the value of the outstanding obligation, we may incur losses that could adversely affect our financial condition and results of operations. If we are unable to secure the obligations of borrowers and counterparties, our lending, investing, and hedging activities could decrease, which would negatively impact our financial condition and results of operations.
CHANGES IN ECONOMIC CONDITIONS OR FEDERAL FISCAL AND MONETARY POLICY COULD ADVERSELY IMPACT OUR BUSINESS
As a cooperative, we operate with narrow margins and expect to be profitable over the long-term based on our prudent lending standards, conservative investment strategies, and diligent risk management practices. Because we operate with narrow margins, our net income is sensitive to changes in market conditions that can impact the interest we earn and pay and introduce volatility in other income (loss). These conditions include, but are not limited to, changes in interest rates and the money supply, inflation, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy and the local economies in which we conduct business. Our financial condition, results of operations, and ability to pay dividends could be negatively affected by changes in economic conditions.
Additionally, our business and results of operations may be affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve, which regulates the supply of money and credit in the U.S. The Federal Reserve's policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities, which could adversely affect our financial condition, results of operations, and ability to pay dividends.
WE COULD BE ADVERSELY AFFECTED BY OUR INABILITY TO ENTER INTO DERIVATIVE INSTRUMENTS ON ACCEPTABLE TERMS
We use derivatives to manage interest rate risk, including mortgage prepayment risk, in our Statements of Condition. Our effective use of derivative instruments depends upon management's ability to determine the appropriate hedging strategies and positions in light of our assets and liabilities as well as prevailing and anticipated market conditions. In addition, the effectiveness of our hedging strategies depends upon our ability to enter into derivatives with acceptable counterparties, on terms desirable to us, and in quantities necessary to hedge our corresponding assets and liabilities. If we are unable to manage our hedging positions properly, or are unable to enter into derivative instruments on desirable terms, we may incur higher funding costs and be unable to effectively manage our interest rate risk and other risks, which could negatively affect our financial condition and results of operations.

20


The continued implementation of the Dodd-Frank Act could adversely impact our ability to execute derivatives to hedge interest rate risk. Derivatives regulations under the Dodd-Frank Act have impacted and will continue to substantially impact the derivatives markets by, among other things: (i) requiring extensive regulatory and public reporting of derivatives transactions, (ii) requiring a wide range of over-the-counter derivatives to be cleared through recognized clearing facilities and traded on exchanges or exchange-like facilities, (iii) requiring the collection and segregation of collateral for most uncleared derivatives, and (iv) significantly broadening limits on the size of positions that may be maintained in specified derivatives. These market structure reforms may make many derivatives products more costly to execute, may significantly reduce the liquidity of certain derivatives markets, and could diminish customer demand for covered derivatives. These changes could negatively impact our ability to execute derivatives in a cost efficient manner, which could have an adverse impact on our results of operations and our ability to achieve our risk management objectives.
EXPOSURE TO OPTION RISK IN OUR FINANCIAL ASSETS AND LIABILITIES COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS
Our mortgage assets provide homeowners the option to prepay their mortgages prior to maturity. The effect of changes in interest rates can exacerbate prepayment or extension risk, which is the risk that mortgage assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer than expected at below-market yields when interest rates increase. Our advances, consolidated obligations, and derivatives may provide us, the borrower, the issuer, or the counterparty with the option to call or put the asset or liability. These options leave us susceptible to unpredictable cash flows associated with our financial assets and liabilities. The exercise of the option and the prepayment or extension risk is dependent upon general market conditions and if not managed appropriately, could have an adverse effect on our financial condition and results of operations.
INCREASES IN DELINQUENCY OR LOSS ESTIMATES ON OUR MPF AND MPP LOANS MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During 2015, we observed continuing signs of improvement in the U.S. housing market. To the extent that economic conditions weaken and result in increased unemployment and a decline in home prices, we could see an increase in loan delinquencies or loss estimates and decide to increase our allowance for credit losses on mortgage loans. In addition, to the extent that mortgage insurance providers fail to fulfill their obligations to pay us for claims, we could bear additional losses on certain mortgage loans with outstanding mortgage insurance coverage. As a result, our financial condition and results of operations could be adversely impacted.
THE IMPACT OF FINANCIAL MODELS AND THE UNDERLYING ASSUMPTIONS USED TO VALUE FINANCIAL INSTRUMENTS AND COLLATERAL MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The degree of management judgment involved in determining the fair value of financial instruments or collateral is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments and collateral that are actively traded and have quoted market prices or parameters readily available, there is little to no subjectivity in determining fair value. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. We utilize external and internal pricing models to determine the fair value of certain financial instruments and collateral. For external pricing models, we review the vendors' pricing processes, methodologies, and control procedures for reasonableness. For internal pricing models, the underlying assumptions are based on management's best estimates for discount rates, prepayments, market volatility, and other factors. The assumptions used in both external and internal pricing models could have a significant effect on the reported fair values of assets and liabilities or collateral, the related income and expense, and the expected future behavior of assets and liabilities or collateral. While models we use to value financial instruments and collateral are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of our financial instruments and collateral. The use of different models and assumptions, as well as changes in market conditions, could impact our financial condition and results of operations as well as the amount of collateral we require from borrowers and counterparties.
The information provided by our internal financial models is also used in making business decisions relating to strategies, initiatives, transactions, and products. We have adopted controls, procedures, and policies to monitor and manage assumptions used in our internal models. However, models are inherently imperfect predictors of actual results because they are based on assumptions about future performance or activities. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different. If the results are not reliable due to inaccurate assumptions, we could make poor business decisions, including asset and liability management, or other decisions, which could result in an adverse financial impact.

21


FAILURES OR INTERRUPTIONS IN INTERNAL CONTROLS, INFORMATION SYSTEMS, AND OTHER OPERATING TECHNOLOGIES COULD HARM OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, REPUTATION, AND RELATIONS WITH MEMBERS
Control failures, including failures in our controls over financial reporting, or business interruptions with members, vendors, or counterparties, could result from human error, fraud, breakdowns in information and computer systems, lapses in operating processes, or natural or man-made disasters. If a significant control failure or business interruption were to occur, it could materially damage our financial condition and results of operations. We may not be able to foresee, prevent, mitigate, reverse, or repair the negative effects of such failures or interruptions.
Moreover, we rely heavily upon information systems and other operating technologies to conduct and manage our business. To the extent that we, our members, vendors, or counterparties experience a technical failure or interruption in any of these systems or other operating technologies, including any "cyberattacks" or other breaches of technical security, we may be unable to conduct and manage our business effectively. We are in the process of replacing our core banking system. This project could also subject us to a higher level of operational risk or risk of technical failure or interruption. Although we have implemented a disaster recovery and business continuity plan, we can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of any technical failure or interruption. Any technical failure or interruption could harm our customer relations, risk management, and profitability, and could adversely impact our financial condition and results of operations.
During 2015, we identified several control deficiencies in our internal control over financial reporting. These control deficiencies were evaluated, individually and in the aggregate, and identified as three material weaknesses in our internal controls, which are described more fully in “Item 9A. Controls and Procedures”. These control deficiencies could result in a misstatement of any of our financial statement accounts and disclosures that could in turn result in a material misstatement of the annual or interim financial statements that would not be prevented or detected. Accordingly, management has concluded that these control deficiencies constitute material weaknesses. In addition, other material weaknesses or deficiencies may be identified in the future.
Management is taking steps to remediate the identified material weaknesses and strengthen our internal control over financial reporting. However, if we are unable to correct material weaknesses or deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected. This failure could cause our members to lose confidence in our reported financial information, subject us to government enforcement actions, and generally, materially, and adversely impact our business and financial condition.
THE INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD ADVERSELY IMPACT OUR BUSINESS
We rely heavily upon our employees in order to successfully execute our business and strategies. The success of our business mission depends, in large part, on our ability to attract and retain certain key personnel with required talents and skills. Should we be unable to hire or retain key personnel with the needed talents or skills, our business operations could be adversely impacted.
MEMBER CONSOLIDATIONS AND FAILURES COULD ADVERSELY AFFECT OUR BUSINESS
Member consolidations and failures could reduce the number of current and potential members in our district. During 2015, although our membership level increased primarily due to the merger, the increase was partially offset by 28 member consolidations. If the number of member consolidations and/or failures were to accelerate, we could experience a reduction in the level of our members' advance and other business activities. This loss of business could negatively impact our business operations, financial condition, and results of operations.

22


RELIANCE ON THE FHLBANK OF CHICAGO, AS MPF PROVIDER, AND FANNIE MAE, RED WOOD TRUST, INC., AND GINNIE MAE AS THE ULTIMATE INVESTORS IN THE MPF XTRA, MPF DIRECT, AND MPF GOVERNMENT MBS PRODUCTS, COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS
As part of our business, we participate in the MPF program with the FHLBank of Chicago. In its role as MPF Provider, the FHLBank of Chicago provides the infrastructure and operational support for the MPF program and is responsible for publishing and maintaining the MPF Guides, which detail the requirements PFIs must follow in originating, selling, and servicing MPF loans. If the FHLBank of Chicago changes its MPF Provider role, ceases to operate the MPF program, or experiences a failure or interruption in its information systems and other technology, our mortgage purchase business could be adversely affected, and we could experience a related decrease in our net interest margin and profitability. In the same way, we could be adversely affected if any of the FHLBank of Chicago's third-party vendors supporting the operation of the MPF program were to experience operational or technical difficulties.
Additionally, under the MPF Xtra loan product, we assign 100 percent of our interest in PFI master commitments to the FHLBank of Chicago, who then purchases mortgage loans from our PFIs and sells those loans to Fannie Mae. Under the MPF Direct product, mortgage loans are sold directly from our PFIs to Redwood Trust, Inc., a real estate investment trust. Through the MPF Government MBS product our PFIs sell government loans directly to the FHLBank of Chicago where they are pooled and securitized into Ginnie Mae MBS securities. Should the FHLBank of Chicago, Fannie Mae, Red Wood Trust, Inc., or Ginnie Mae experience any operational difficulties or inability to continue to do business, those difficulties could have a negative impact on the value of the Bank to our membership.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES
On January 2, 2007, we executed a 20 year lease with an affiliate of our member, Wells Fargo, for approximately 43,000 square feet of office space. The office space is located at 801 Walnut Street, Suite 200, Des Moines, Iowa and is used for substantially all primary business functions.
On June 10, 2011, we executed a three year lease with Tomorrow 30 Des Moines, Limited Partnership, for approximately 6,000 square feet of office space. On April 29, 2014, we extended this lease agreement for an additional three years. On February 17, 2015, a second amendment was executed for the rental of approximately 6,500 in additional square feet. The office space is located at 666 Walnut Street, Suite 1910, Des Moines, Iowa and is used for general business functions.
On July 20, 2015, we executed an 88 month lease commencing on October 1, 2015 with 900 Fourth Avenue Property LLC, for approximately 8,200 square feet of office space. The office space is located at 901 5th Avenue, Suite 3800, Seattle, Washington and is used for substantially all primary business functions of our Western Office.

We also maintain a leased, off-site back-up facility with approximately 3,500 square feet in Urbandale, Iowa.

ITEM 3. LEGAL PROCEEDINGS

As a result of the Merger, we are currently involved in a number of legal proceedings initiated by the Seattle Bank against various entities relating to its purchases and subsequent impairments of certain private-label MBS, as described below (the Private-Label MBS Litigation). Although the Seattle Bank sold all private-label MBS during the first quarter of 2015, we continue to be involved in these proceedings. The Private-Label MBS Litigation is described in “Part I. Item 3. Legal Proceedings” in the Seattle Bank's 2014 Form 10-K and below. After consultation with legal counsel, other than the Private-Label MBS Litigation, we do not believe any legal proceedings to which we are a party could have a material impact on our financial condition, results of operations, or cash flows.


23


Private-Label MBS Litigation

As the Seattle Bank previously reported, in December of 2009, it filed 11 complaints in the Superior Court of Washington for King County relating to private-label MBS that it purchased from various dealers and financial institutions in an aggregate original principal amount of approximately $4 billion. The Seattle Bank's complaints under Washington State law requested rescission of its purchases of the securities and repurchases of the securities by the defendants for the original purchase prices plus 8 percent per annum (plus related costs), minus distributions on the securities received by the Seattle Bank. The Seattle Bank asserted that the defendants made untrue statements and omitted important information in connection with their sales of the securities to the Seattle Bank.

In October 2010, each of the defendant groups filed a motion to dismiss the proceedings against it. The issues raised by those motions were fully briefed and were the subject of oral arguments that occurred in March and April 2011. In a series of decisions handed down in June, July, and August 2011, the judge handling the pre-trial motions ruled in favor of the Seattle Bank on all issues, except that the judge granted the defendants' motions to dismiss certain of the Seattle Bank's allegations of misrepresentation as to owner occupancy of properties securing loans in the securitized loan pools. In addition, the judge granted motions to dismiss a group of related entities as defendants in one of the 11 cases for lack of personal jurisdiction. The resolution of the pre-trial motions allowed the cases to proceed to the discovery phase, which is now complete. In a series of rulings in November 2015, the judge denied the defendants' motions for summary judgment on common issues and granted Seattle Bank's motion to strike the seller defendants' due diligence defenses. Defendants' motions for summary judgment on individual issues are fully briefed and scheduled for oral argument in March 2016. The first trials will likely be held no earlier than the last quarter of 2016. Estimating trial dates, however, can be very difficult, and actual trial dates may be earlier or later than our estimate.

Litigation Settlement Gains

Litigation settlement gains are considered realized and recorded when we receive cash or assets that are readily convertible to known amounts of cash or claims to cash. In addition, litigation settlement gains are considered realizable and recorded when we enter into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized or realizable, we consider potential litigation settlement gains to be gain contingencies, and therefore they are not recorded in the Statements of Income.
We record legal expenses related to litigation settlements as incurred in other expenses in the Statements of Income with the exception of certain legal expenses related to litigation settlement awards that are contingent based fees for the attorneys representing the Bank. We incur and recognize these contingent based legal fees only when litigation settlement awards are received, at which time these fees are netted against the gains received on the litigation settlement. 
During 2015, we recognized $14 million in net gains on litigation settlements primarily due to the settlement of one of our private-label MBS claims. We continue to pursue litigation against other defendants with respect to private-label MBS. We did not record any net gains on litigation settlements during 2014 or 2013.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


24


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
We are a cooperative. This means we are owned by our customers, whom we call members. Our current and former members own all of our outstanding capital stock. Our capital stock is not publicly traded and has a par value of $100 per share. All shares are issued, redeemed, or repurchased by us at the stated par value. Our capital stock may be redeemed with a five year notice from the member or voluntarily repurchased by us at par value, subject to certain limitations set forth in our Capital Plan. At February 29, 2016, we had 1,435 current members that held 53 million shares of capital stock and 21 former members that held 1 million shares of mandatorily redeemable capital stock.
We paid the following quarterly cash dividends during 2015 and 2014 (dollars in millions):
 
 
2015
 
2014
Quarter Declared and Paid
 
Amount1
 
Annualized Rate2
 
Amount1
 
Annualized Rate2
First Quarter
 
$
26

 
2.94
%
 
$
19

 
2.80
%
Second Quarter
 
24

 
2.94

 
18

 
2.79

Third Quarter
 
25

 
2.87

 
20

 
2.81

Fourth Quarter
 
27

 
2.75

 
22

 
2.87


1
Amounts exclude cash dividends paid on mandatorily redeemable capital stock for each quarter of 2015 and 2014. The total dividends paid on mandatorily redeemable capital stock during 2015 were $3 million. Total dividends paid on mandatorily redeemable capital stock during 2014 were less than $1 million. For financial reporting purposes, these dividends were classified as interest expense.

2
Reflects the annualized rate paid on our average capital stock outstanding during the prior quarter regardless of its classification for financial reporting purposes as either capital stock or mandatorily redeemable capital stock.
For each quarter during 2015 and 2014, the Bank paid an annualized rate of 3.50 percent on activity-based capital stock and an annualized rate of 0.50 percent on membership capital stock.
For additional information on our dividends, see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital — Dividends.”


25


ITEM 6. SELECTED FINANCIAL DATA

The following tables present selected financial data for the periods indicated (dollars in millions):
 
December 31,
Statements of Condition
2015
 
2014
 
2013
 
2012
 
2011
Cash
$
982

 
$
495

 
$
448

 
$
252

 
$
240

Investments1
40,167

 
23,079

 
20,131

 
13,433

 
14,637

Advances
89,173

 
65,168

 
45,650

 
26,614

 
26,591

Mortgage loans held for portfolio, gross
6,756

 
6,567

 
6,565

 
6,968

 
7,157

Allowance for credit losses
(1
)
 
(5
)
 
(8
)
 
(16
)
 
(19
)
Total assets
137,381

 
95,524

 
73,004

 
47,367

 
48,733

Consolidated obligations
 
 
 
 
 
 
 
 
 
Discount notes
98,994

 
57,773

 
38,137

 
8,675

 
6,810

Bonds
31,211

 
32,362

 
30,195

 
34,345

 
38,012

Total consolidated obligations2
130,205

 
90,135

 
68,332

 
43,020

 
44,822

Mandatorily redeemable capital stock
103

 
24

 
9

 
9

 
6

Total liabilities
131,756

 
91,212

 
69,547

 
44,533

 
45,921

Capital stock — Class B putable
4,714

 
3,469

 
2,692

 
2,063

 
2,109

Additional capital from merger
194

 

 

 

 

Retained earnings
801

 
720

 
678

 
622

 
569

Accumulated other comprehensive income (loss)
(84
)
 
123

 
87

 
149

 
134

Total capital
5,625

 
4,312

 
3,457

 
2,834

 
2,812

 
For the Years Ended December 31,
Statements of Income
2015
 
2014
 
2013
 
2012
 
2011
Net interest income
$
317

 
$
251

 
$
213

 
$
241

 
$
236

Provision (reversal) for credit losses on mortgage loans
2

 
(2
)
 
(6
)
 

 
9

Other income (loss)3
(30
)
 
(51
)
 
(35
)
 
(49
)
 
(67
)
Other expense4
137

 
67

 
62

 
68

 
62

AHP assessments
15

 
14

 
12

 
13

 
20

AHP voluntary contributions
2

 

 

 

 

Net income
131

 
121

 
110

 
111

 
78

Selected Financial Ratios5
 
 
 
 
 
 
 
 
 
Net interest spread6
0.25
%
 
0.28
%
 
0.34
%
 
0.42
%
 
0.36
%
Net interest margin7
0.28

 
0.30

 
0.39

 
0.49

 
0.44

Return on average equity
2.74

 
3.17

 
3.68

 
3.98

 
2.78

Return on average capital stock
3.42

 
4.04

 
4.94

 
5.44

 
3.66

Return on average assets
0.12

 
0.14

 
0.20

 
0.23

 
0.15

Average equity to average assets
4.21

 
4.56

 
5.40

 
5.69

 
5.27

Regulatory capital ratio8
4.23

 
4.41

 
4.63

 
5.69

 
5.51

Dividend payout ratio9
78.99

 
65.16

 
48.72

 
52.46

 
83.34


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

2
The total par value of outstanding consolidated obligations of the 11 FHLBanks was $905.2 billion, $847.2 billion, $766.8 billion, $687.9 billion, and $691.8 billion at December 31, 2015, 2014, 2013, 2012, and 2011.

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

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

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

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

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

8
Represents period-end regulatory capital expressed as a percentage of period-end total assets. Regulatory capital includes Class B capital stock (including mandatorily redeemable capital stock), additional capital from merger, and retained earnings.

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

26


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

Our Management's Discussion and Analysis (MD&A) is designed to provide information that will help the reader develop a better understanding of our financial statements, changes in our financial statements from year to year, and the primary factors driving those changes. Our MD&A is organized as follows:
CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision (Reversal) for Credit Losses on Mortgage Loans
 
 
 
 
Other Income (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
Affordable Housing Program Assessments and Voluntary Contributions
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Due from Banks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mandatorily Redeemable Capital Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

27


FORWARD-LOOKING INFORMATION

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

EXECUTIVE OVERVIEW

Our Bank is a member-owned cooperative serving shareholder members in our region. Our mission is to be a reliable provider of funding, liquidity, and services for the Bank's members so they can meet the housing, business, and economic development needs of the communities they serve. We strive to achieve our mission within an operating principle that balances the trade-off between attractively priced products, reasonable returns on capital stock, and maintaining adequate capital to support safe and sound business operations. Our members include commercial banks, thrifts, credit unions, insurance companies, and CDFIs.

Merger

On June 1, 2015, we announced the successful completion of the Merger with the Seattle Bank, pursuant to the definitive merger agreement dated September 25, 2014. The Merger closed on May 31, 2015 and the two Banks were operational as one Bank, the Federal Home Loan Bank of Des Moines, on June 1, 2015.
On the effective date of the Merger, the corporate existence of the Seattle Bank ceased, and each member of the Seattle Bank automatically ceased to be a member of the Seattle Bank and automatically became a member of the Des Moines Bank. In addition, the geographical territory previously included in the district for the Seattle Bank (Alaska, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming, and the U.S. Pacific territories of American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands) was included in the district for our combined Bank. We now provide funding solutions and liquidity to nearly 1,500 member financial institutions in 13 states and three U.S. Pacific territories. Our headquarters remain in Des Moines with a western regional office in Seattle.

Financial Results

The Merger had a significant impact on all aspects of our financial condition, results of operations, and cash flows, and as a result, financial results for the current period may not be directly comparable to financial results prior to the Merger. For additional information on the Merger, refer to "Item 8. Financial Statements and Supplementary Data— Note 2 — Merger".

In 2015, we reported net income of $131 million compared to $121 million in 2014. Our net income, calculated in accordance with accounting principles generally accepted in the United States of America (GAAP), was primarily driven by net interest income, other income (loss), and other expense.

Net interest income totaled $317 million in 2015 compared to $251 million in 2014. The increase was primarily due to an increase in interest income resulting from higher advance and investment volumes. Our net interest margin was 0.28 percent during 2015 compared with 0.30 percent during 2014.

We recorded a loss of $30 million in 2015 in other income (loss) compared to a loss of $51 million in 2014. The primary drivers of other income (loss) in 2015 were net gains (losses) on derivatives and hedging activities, net gains (losses) on trading securities, and net gains on litigation settlements, as described on the following page.


28


We utilize derivative instruments to manage interest rate risk, including mortgage prepayment risk. Accounting rules require all derivatives to be recorded at fair value and therefore we may be subject to income statement volatility. In 2015, we recorded net losses of $38 million on our derivatives and hedging activities through other income (loss) compared to net losses of $123 million in 2014. These fair value changes were primarily attributable to the impact of changes in interest rates on interest rate swaps that we utilize to hedge our investment securities portfolio. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities" for additional discussion on our derivatives and hedging activities, including the net impact of economic hedge relationships.

Trading securities are recorded at fair value with changes in fair value reflected through other income (loss). In 2015, we recorded net losses on trading securities of $12 million compared to net gains of $68 million in 2014. These changes in fair value were primarily due to the impact of changes in interest rates and credit spreads on our fixed rate trading securities.

During 2015, other income (loss) also included net gains on litigation settlements of $14 million. During 2014, other income (loss) also included losses on the extinguishment of debt of $13 million and realized gains on the sale of HTM and AFS securities of $10 million.

Other expense totaled $137 million for 2015 compared to $67 million for 2014. The increase was primarily due to merger related expenses of $39 million for 2015. During 2014, merger related expenses totaled $2 million. Merger related expenses primarily consisted of compensation and benefit expenses and merger transaction and integration expenses. In addition, compensation and benefits, professional fees, contractual services, and other operating expenses also increased during 2015 when compared to 2014 due primarily to additional costs associated with operating a larger institution and temporary transitional expenses due to the Merger.

Annually, we must set aside for the AHP the greater of 10 percent of our current year net earnings or our pro-rata share of an aggregate $100 million to be contributed in total by the FHLBanks. We recorded AHP assessments of $15 million for 2015 compared to $14 million for 2014. In addition, our Board of Directors approved a voluntary contribution of $2 million for 2015. The voluntary contribution was made to bring our total 2015 contribution in alignment with what the Des Moines and Seattle banks contributed in 2014. This voluntary contribution will be awarded in 2016 together with our 10 percent required contribution.

We expect net income to be higher in 2016 as a result of a settlement in February 2016 with one defendant in our Private-Label MBS Litigation for $137 million (net of certain legal fees and expenses).

Our total assets increased to $137.4 billion at December 31, 2015 from $95.5 billion at December 31, 2014 due primarily to an increase in advances and investments. Advances increased $24.0 billion due primarily to an increase in borrowings from insurance company members and a large depository institution member, along with advances acquired as a result of the Merger. Investments increased $17.1 billion due primarily to the acquisition of investment securities as a result of the Merger.

Our total liabilities increased to $131.8 billion at December 31, 2015 from $91.2 billion at December 31, 2014 due primarily to an increase in consolidated obligations assumed as a result of the Merger and consolidated obligations issued to fund the increase in advances. Total capital increased to $5.6 billion at December 31, 2015 from $4.3 billion at December 31, 2014. The increase was primarily due to an increase of $1.2 billion in capital stock outstanding due to member activity and as a result of the Merger. In addition, on the merger date, we recorded additional capital from merger, which primarily represents the amount of the Seattle Bank's closing retained earnings balance, adjusted for fair value and other purchase accounting adjustments, and identified intangible assets. Dividends to our members have been paid from this account since the merger date and we intend to pay future dividends to our members, when and if declared, from this account until the additional capital from merger balance is depleted. Additional capital from merger totaled $194 million at December 31, 2015. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Statements of Condition” for additional discussion on our financial condition.


29


Adjusted Earnings

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

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

As a member-owned cooperative, we endeavor to operate with a low but stable adjusted net interest margin. As indicated in the tables that follow, our adjusted net interest income and adjusted net income increased during 2015 when compared to 2014. The improvement in our adjusted net interest income and adjusted net income was primarily due to an increase in interest income due to higher advance and investment volumes. Our adjusted net interest margin declined over prior year due to lower yields on our interest-earning assets driven by the low interest rate environment and higher average volumes of advances that generate lower margins when compared to the majority of our other interest-earning assets. The decline was partially offset by lower costs paid on our interest-bearing liabilities as a result of our increased utilization of discount notes to fund the increase in advances, primarily floating rate callable advances, and the low interest rate environment.

The following table summarizes the reconciliation between GAAP and adjusted net interest income (dollars in millions):
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
GAAP net interest income before provision (reversal) for credit losses on mortgage loans
 
$
317

 
$
251

 
$
213

Exclude:
 
 
 
 
 
 
Prepayment fees on advances, net
 
11

 
6

 
6

Net premium amortization related to prepaid advances
 
(10
)
 

 

Prepayment fees on investments, net
 
3

 

 
1

Total adjustments
 
4

 
6

 
7

Include items reclassified from other income (loss):
 
 
 
 
 
 
Net interest expense on economic hedges
 
(21
)
 
(20
)
 
(16
)
Adjusted net interest income
 
$
292

 
$
225

 
$
190

Adjusted net interest margin
 
0.26
%
 
0.27
%
 
0.35
%


30


The following table summarizes the reconciliation between GAAP net income before assessments and adjusted net income before assessments (dollars in millions):
 
 
For the Years Ended December 31,
 
 
2015
 
2014
 
2013
GAAP net income before assessments
 
$
148

 
$
135

 
$
122

Exclude:
 
 
 
 
 
 
Prepayment fees on advances, net
 
11

 
6

 
6

Net premium amortization related to prepaid advances
 
(10
)
 

 

Prepayment fees on investments, net
 
3

 

 
1

Other-than-temporary impairment losses
 

 

 
(1
)
Net gains (losses) on trading securities
 
(12
)
 
68

 
(107
)
Net gains (losses) from sale of available-for-sale securities
 

 
1

 
3

Net gains (losses) from sale of held-to-maturity securities
 

 
9

 

Net gains (losses) on financial instruments held at fair value
 

 

 
1

Net gains (losses) on derivatives and hedging activities
 
(38
)
 
(123
)
 
85

Net gains (losses) on extinguishment of debt
 

 
(13
)
 
(26
)
Gains on litigation settlements, net
 
14

 

 

Merger related expenses
 
(39
)
 
(2
)
 

Include:
 
 
 
 
 
 
Net interest expense on economic hedges
 
(21
)
 
(20
)
 
(16
)
Amortization of hedging costs1
 

 

 
(7
)
Adjusted net income before assessments
 
$
198

 
$
169

 
$
137


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

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


31


CONDITIONS IN THE FINANCIAL MARKETS

Economy and Financial Markets

Economic and market data received prior to the Federal Open Market Committee (FOMC or Committee) meeting in December of 2015 indicated economic activity had been expanding moderately. Conditions in the labor market continued to show signs of improvement. Growth in household spending and business fixed investments had been moderate and the housing sector had shown further improvement while net exports remained subdued. Inflation continued to run below the Committee's longer-run objective of two percent, partly reflecting declines in energy prices and non-energy import prices. Market-based measurements of inflation compensation remained low and long-term inflation expectations edged down. Recent global economic and financial developments may restrain economic activity and likely put further downward pressure on inflation measurements.

In its December 16, 2015 statement, the FOMC stated it expects that, with appropriate policy accommodation and gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will continue to improve toward levels the FOMC judges consistent with its dual mandate to foster maximum employment and price stability. The FOMC sees risks to the outlook for the economy and the labor market as nearly balanced but continues to monitor global developments. In addition, the FOMC stated it anticipates that inflation will remain near recent low levels in the near term, but it anticipates inflation will rise towards its two percent objective over the medium term as the labor market improves further and the effects of lower energy prices and import prices dissipate. The FOMC will continue to monitor inflation developments closely.

In the first two months of 2016, the market has experienced significant volatility driven by a decline in commodity prices and further signs of global growth weakness. This has resulted in lower interest rates and a decline in equity markets. The recent activity has caused market participants to question whether the FOMC will continue to increase rates in 2016.

Mortgage Markets

The housing market has continued to improve over the past year, as indicated by rising home prices, lower inventories of properties for sale, and increased housing construction activity along with increased sales of existing homes. The improvement in the housing market has been partly attributable to the continued strengthening of the economy. The outlook for a sustainable recovery in residential sales and home prices remains promising over the long term, as consumer sentiment continues to improve and first time home buyer activity improves. Many market participants, however, expect this recovery to occur at a slower pace than in previous years.

Recent market volatility has resulted in lower mortgage rates, which may result in an increase in refinancing volume and may stimulate additional demand for home purchases as the cost of debt becomes more affordable.

Interest Rates

The following table shows information on key market interest rates1:
 
Fourth Quarter 2015
3-Month
Average
 
Fourth Quarter 2014
3-Month
Average
 
2015
12-Month
Average
 
2014
12-Month
Average
 
2015
Ending Rate
 
2014
Ending Rate
Federal funds
0.16
%
 
0.10
%
 
0.13
%
 
0.09
%
 
0.20
%
 
0.06
%
Three-month LIBOR
0.41

 
0.24

 
0.32

 
0.23

 
0.61

 
0.26

2-year U.S. Treasury
0.82

 
0.52

 
0.67

 
0.45

 
1.05

 
0.67

10-year U.S. Treasury
2.18

 
2.27

 
2.13

 
2.53

 
2.27

 
2.17

30-year residential mortgage note
3.89

 
3.97

 
3.85

 
4.18

 
4.01

 
3.83


1
Source is Bloomberg.


32


The Federal Reserve's key target interest rate, the Federal funds rate, maintained a range of 0.00 to 0.25 percent during most of 2015. In its December 16, 2015 statement, the FOMC decided to raise the target range for the Federal funds rate to 0.25 to 0.50 percent. The Committee's stance on monetary policy remains accommodative even after this increase, supporting further improvement in labor market conditions and a return to two percent inflation. In determining the timing and size of future adjustments to the target range for the Federal Funds rate, the FOMC will assess realized and expected economic progress towards its longer-run goals of maximum employment and a two percent inflation rate. The assessment will take into account measures of labor market conditions, indicators of inflation pressures, inflation expectations, and financial and international developments. The Committee anticipates it will be appropriate for only gradual increases to the target range for the Federal funds rate based on expectations of economic conditions. It is expected the Federal funds rate will remain at low levels until incoming information indicates economic conditions have continued to evolve.

The 10-year U.S. Treasury yields and mortgage rates were lower on average during 2015 when compared to 2014. Interest rates were volatile as concerns of growth and declines in commodity prices have impacted markets globally. While the FOMC considers removing monetary policy accommodation as data warrants, foreign central banks eased monetary policy further in 2015.

In its December 16, 2015 statement, the FOMC stated that it is maintaining its existing policy of reinvesting principal payments from the Federal Reserve's holdings of agency debt and agency MBS into agency MBS and rolling over maturing U.S. Treasury securities at auction. The FOMC also stated that the policy of keeping the Federal Reserve's holdings of longer-term securities at sizable levels should help maintain accommodative financial conditions and when the Committee decides to begin removing policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of two percent. The Committee further stated that it currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target Federal funds rate below the rate that the Committee views as normal in the long run.

Funding Spreads

The following table reflects our funding spreads to LIBOR (basis points)1:
 
Fourth Quarter 2015
3-Month
Average
 
Fourth Quarter 2014
3-Month
Average
 
2015
12-Month
Average
 
2014
12-Month
Average
 
 2015
Ending Spread
 
 2014
Ending Spread
3-month
(13.2
)
 
(15.6
)
 
(14.7
)
 
(15.6
)
 
(20.2
)
 
(14.8
)
2-year
0.7

 
(10.0
)
 
(7.8
)
 
(8.3
)
 
(0.2
)
 
(11.1
)
5-year
17.5

 
5.8

 
6.8

 
4.3

 
16.2

 
1.5

10-year
61.4

 
37.1

 
49.1

 
36.1

 
59.5

 
39.9


1
Source is the Office of Finance.

As a result of our credit quality, we generally have ready access to funding at relatively competitive interest rates. During 2015, our funding spreads relative to LIBOR deteriorated when compared to spreads at December 31, 2014. During 2015, we utilized consolidated obligation discount notes in place of step-up, callable, and term fixed rate consolidated obligation bonds to capture attractive funding, to match the repricing structures on advances and investments, and meet liquidity requirements. Spreads relative to LIBOR increased on long-term debt as investor demand remained more focused on short-term maturities.


33


RESULTS OF OPERATIONS

Net Income

The following table presents comparative highlights of our net income for the years ended December 31, 2015, 2014, and 2013 (dollars in millions). See further discussion of these items in the sections that follow.
 
 
 
 
 
2015 vs. 2014
 
 
 
2014 vs. 2013
 
2015
 
2014
 
$ Change
 
% Change
 
2013
 
$ Change
 
% Change
Net interest income
$
317

 
$
251

 
$
66

 
26
%
 
$
213

 
$
38

 
18
 %
Provision (reversal) for credit losses on mortgage loans
2

 
(2
)
 
4

 
200

 
(6
)
 
4

 
67

Other income (loss)
(30
)
 
(51
)
 
21

 
41

 
(35
)
 
(16
)
 
(46
)
Other expense
137

 
67

 
70

 
104

 
62

 
5

 
8

AHP assessments
15

 
14

 
1

 
7

 
12

 
2

 
17

AHP voluntary contributions
2

 

 
2

 
100

 

 

 

Net income
$
131

 
$
121

 
$
10

 
8
%
 
$
110

 
$
11

 
10
 %

34


Net Interest Income

Our net interest income is impacted by changes in average interest-earning asset and interest-bearing liability balances, and the related yields. The following table presents average balances and rates of major asset and liability categories (dollars in millions):    
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
 
Average
Balance1
 
Yield
 
Interest
Income/
Expense
 
Average
Balance1
 
Yield
 
Interest
Income/
Expense
 
Average
Balance1
 
Yield
 
Interest
Income/
Expense
Interest-earning assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
$
554

 
0.12
%
 
$
1

 
$
358

 
0.07
%
 
$

 
$
336

 
0.11
%
 
$

Securities purchased under agreements to resell
6,450

 
0.10

 
7

 
7,640

 
0.05

 
4

 
4,776

 
0.08

 
4

Federal funds sold
4,276

 
0.12

 
5

 
3,160

 
0.08

 
2

 
1,447

 
0.09

 
1

Mortgage-backed securities2,3
16,644

 
0.97

 
162

 
9,919

 
1.19

 
118

 
7,056

 
1.53

 
108

    Other investments2,3,4
8,425

 
1.14

 
96

 
2,576

 
2.43

 
63

 
2,199

 
3.04

 
67

Advances3,5
69,784

 
0.46

 
324

 
52,983

 
0.45

 
239

 
32,104

 
0.63

 
201

Mortgage loans6
6,758

 
3.63

 
245

 
6,514

 
3.75

 
245

 
6,714

 
3.78

 
253

Loans to other FHLBanks
1

 
0.17

 

 

 

 

 

 

 

Total interest-earning assets
112,892

 
0.74

 
840

 
83,150

 
0.81

 
671

 
54,632

 
1.16

 
634

Non-interest-earning assets
646

 

 

 
657

 

 

 
540

 

 

Total assets
$
113,538

 
0.74
%
 
$
840

 
$
83,807

 
0.80
%
 
$
671

 
$
55,172

 
1.15
%
 
$
634

Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
822

 
0.03
%
 
$

 
$
533

 
0.01
%
 
$

 
$
746

 
0.02
%
 
$

Consolidated obligations
 
 
 
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Discount notes3
70,818

 
0.15

 
106

 
53,136

 
0.08

 
43

 
15,442

 
0.09

 
14

Bonds3
35,962

 
1.15

 
414

 
25,401

 
1.48

 
377

 
34,933

 
1.17

 
407

Other interest-bearing liabilities7
77

 
3.26

 
3

 
12

 
2.11

 

 
14

 
2.33

 

Total interest-bearing liabilities
107,679

 
0.49

 
523

 
79,082

 
0.53

 
420

 
51,135

 
0.82

 
421

Non-interest-bearing liabilities
1,081

 

 

 
906

 

 

 
1,057

 

 

Total liabilities
108,760

 
0.48

 
523

 
79,988

 
0.53

 
420

 
52,192

 
0.81

 
421

Capital
4,778

 

 

 
3,819

 

 

 
2,980

 

 

Total liabilities and capital
$
113,538

 
0.46
%
 
$
523

 
$
83,807

 
0.50
%
 
$
420

 
$
55,172

 
0.76
%
 
$
421

Net interest income and spread8
 
 
0.25
%
 
$
317

 
 
 
0.28
%
 
$
251

 
 
 
0.34
%
 
$
213

Net interest margin9
 
 
0.28
%
 
 
 
 
 
0.30
%
 
 
 
 
 
0.39
%
 
 
Average interest-earning assets to interest-bearing liabilities
 
 
104.84
%
 
 
 
 
 
105.14
%
 
 
 
 
 
106.84
%
 
 

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

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

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

4
Other investments primarily include other U.S. obligations, GSE obligations, state or local housing agency obligations, and taxable municipal bonds.

5
Advance interest income includes prepayment fee income of $11 million, $6 million, and $6 million for the years ended December 31, 2015, 2014, and 2013.

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

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

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

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



35


The following table presents changes in interest income and interest expense. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather equally attributable to both volume and rate changes, are allocated to the volume and rate categories based on the proportion of the absolute value of the volume and rate changes (dollars in millions).
 
2015 vs. 2014
 
2014 vs. 2013
 
Total Increase
(Decrease) Due to
 
Total Increase
(Decrease)
 
Total Increase
(Decrease) Due to
 
Total Increase
(Decrease)
 
Volume
 
Rate
 
 
Volume
 
Rate
 
Interest income
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
$

 
$
1

 
$
1

 
$

 
$

 
$

Securities purchased under agreements to resell
(1
)
 
4

 
3

 
2

 
(2
)
 

Federal funds sold
1

 
2

 
3

 
1

 

 
1

Mortgage-backed securities
69

 
(25
)
 
44

 
38

 
(28
)
 
10

Other investments
81

 
(48
)
 
33

 
11

 
(15
)
 
(4
)
Advances
79

 
5

 
84

 
107

 
(68
)
 
39

Mortgage loans
9

 
(8
)
 
1

 
(7
)
 
(2
)
 
(9
)
Total interest income
238

 
(69
)
 
169

 
152

 
(115
)
 
37

Interest expense
 
 
 
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
 
 
 
Discount notes
17

 
46

 
63

 
31

 
(2
)
 
29

Bonds
133

 
(96
)
 
37

 
(125
)
 
95

 
(30
)
Other interest-bearing liabilities
3

 

 
3

 

 

 

Total interest expense
153

 
(50
)
 
103

 
(94
)
 
93

 
(1
)
Net interest income
$
85

 
$
(19
)
 
$
66

 
$
246

 
$
(208
)
 
$
38

    
NET INTEREST SPREAD

Net interest spread equals the yield on total interest-earning assets minus the cost of total interest-bearing liabilities. During 2015, our net interest spread was 0.25 percent compared to 0.28 percent and 0.34 percent for the same periods in 2014 and 2013. Our net interest spread during 2015 was primarily impacted by a lower yield on total interest-earning assets, driven by the low interest rate environment and higher average volumes of advances that generate lower margins when compared to the majority of our other interest-earning assets. The decline was partially offset by lower costs paid on our interest-bearing liabilities as a result of our increased utilization of discount notes to fund the increase in advances, primarily floating rate callable advances, and the low interest rate environment.

Advances

Interest income on advances (including prepayment fees on advances, net) increased 35 percent during 2015 when compared to 2014 and 19 percent during 2014 when compared to 2013. The increase in 2015 was primarily due to higher average volumes and higher advance prepayment income, offset in part by the low interest rate environment. Average advance volumes increased primarily due to an increase in borrowings from insurance company members and a large depository institution member, along with advances acquired as a result of the Merger. Advance prepayment fee income increased to $11 million during 2015 from $6 million during 2014 due primarily to a prepayment by a large depository institution member. The increase in 2014 when compared to 2013 was primarily due to higher average volumes, offset in part by the low interest rate environment.

Investments

Interest income on investments increased 45 percent during 2015 when compared to 2014 and four percent during 2014 when compared to 2013. The increase in 2015 was due primarily to higher average volumes of MBS and other investments, partially offset by the low interest rate environment. Average investment volumes increased due to the acquisition of certain MBS and non-MBS investments as a result of the Merger which include other U.S. obligation, GSE obligation, and state or local housing agency obligation securities. We also purchased certain GSE and other U.S. obligation MBS, and other U.S. obligation non-MBS during the year that met our targets. In addition, we received net prepayment fee income during 2015 of $3 million as a result of certain MBS prepayments. The increase in 2014 when compared to 2013 was due mainly to the higher average volumes of MBS and money-market investments, partially offset by the low interest rate environment.

36



Mortgage Loans

Interest income on mortgage loans was relatively stable during 2015 when compared to 2014 and decreased four percent during 2014 when compared to 2013. The decrease during 2014 was due to lower average mortgage loan volumes and the low interest rate environment.

Consolidated Obligation Bonds

Interest expense on bonds increased 10 percent during 2015 when compared to 2014 and decreased seven percent during 2014 when compared to 2013. The increase during 2015 was due to higher average bond volumes primarily due to bonds assumed as a result of the Merger, partially offset by the low interest rate environment. The decrease in 2014 was primarily due to lower average bond volumes.

Consolidated Obligation Discount Notes

Interest expense on discount notes increased 145 percent during 2015 when compared to 2014 and 214 percent during 2014 when compared to 2013. The increase in 2015 was due to higher discount note rates as well as increased average volumes. Discount notes were utilized to capture attractive funding, match repricing structures on advances and investments, and provide additional liquidity. Average volumes also increased during 2015 due to the assumption of discount notes as a result of the Merger. The increase in 2014 when compared to 2013 was primarily due to higher average volumes.

Provision (Reversal) for Credit Losses on Mortgage Loans

During 2015, we recorded a provision for credit losses on MPF program mortgage loans of $1 million due primarily to increased loan charge-offs. We also recorded a provision for credit losses on MPP mortgage loans acquired from the Seattle Bank of $1 million during 2015 due to current and projected loan delinquencies and loss severity. During 2014, we recorded a reversal for credit losses on our MPF loans of $2 million due primarily to a reduction in loan delinquencies and improvements in housing market forecasts.

A charge-off is recorded if it is estimated that the recorded investment in a loan will not be recovered. We evaluate whether to record a charge-off based upon the occurrence of a confirming event. Prior to January 1, 2015, charge-offs generally were recorded at the time a mortgage loan was transferred to REO. Beginning January 1, 2015, we began to also charge-off the portion of the outstanding conventional mortgage loan balance in excess of the fair value of the underlying collateral for all collateral-dependent mortgage loans.

Other Income (Loss)

The following table summarizes the components of other income (loss) (dollars in millions):
 
For the Years Ended December 31,
 
2015
 
2014
 
2013
Other-than-temporary impairment losses
$

 
$

 
$
(1
)
Net gains (losses) on trading securities
(12
)
 
68

 
(107
)
Net gains (losses) from sale of available-for-sale securities

 
1

 
3

Net gains (losses) from sale of held-to-maturity securities

 
9

 

Net gains (losses) on financial instruments held at fair value

 

 
1

Net gains (losses) on derivatives and hedging activities
(38
)
 
(123
)
 
85

Net gains (losses) on extinguishment of debt

 
(13
)
 
(26
)
Gains on litigation settlements, net
14

 

 

Other, net
6

 
7

 
10

Total other income (loss)
$
(30
)
 
$
(51
)
 
$
(35
)
    
Other income (loss) can be volatile from period to period depending on the type of financial activity recorded. During 2015, other income (loss) was primarily impacted by net gains (losses) on derivatives and hedging activities, net gains (losses) on trading securities, and gains on litigation settlements, net.


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We use derivatives to manage interest rate risk, including mortgage prepayment risk. During 2015, 2014, and 2013, gains and losses on our derivatives and hedging activities were primarily attributable to the impact of changes in interest rates on fair value hedge relationships and interest rate swaps that we utilize to economically hedge our investment securities portfolio.
 
We recorded losses on fair value hedge relationships of $7 million during 2015 through other income (loss) compared to losses of $40 million during 2014 and gains of $12 million during 2013. The losses in 2014 were due to the divergence between the curves used to value our assets, liabilities, and derivatives. We use the LIBOR swap curve to discount cash flows on all hedged assets or liabilities in fair value hedging relationships where the hedged risk is changes in fair value attributable to changes in the designated benchmark interest rate, LIBOR. We utilize the LIBOR and Overnight-Index Swap (OIS) curves to discount cash flows on derivatives in fair value hedging relationships. During 2014, a divergence between the curves used to value our hedged items and related derivatives occurred. Due to this divergence and an increase in the volume of AFS investment hedge relationships that had longer terms to maturity, we experienced additional hedge ineffectiveness.

During 2015, we recorded losses of $31 million on economic hedge relationships compared to losses of $83 million in 2014 and gains of $73 million in 2013. These fair value changes were primarily attributable to the impact of changes in interest rates on interest rate swaps that we utilize to economically hedge our trading securities portfolio. Refer to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Hedging Activities” for additional discussion on our derivatives and hedging activities, including the net impact of our fair value and economic hedge relationships.

Trading securities are recorded at fair value with changes in fair value reflected through other income (loss). During 2015, we recorded losses on trading securities of $12 million compared to gains of $68 million in 2014 and losses of $107 million in 2013. These changes in fair value were primarily due to the impact of changes in interest rates and credit spreads on our fixed rate trading securities, which are generally offset by changes in fair value on derivatives that we utilize to economically hedge the majority of these securities, as previously noted. During 2015, credit spreads widened and, as a result, we incurred losses on both our trading securities and on the interest rate swaps hedging these securities.

During 2015, other income (loss) also included net gains on litigation settlements of $14 million. The net gains on litigation settlements were primarily due to the settlement of one of our private-label MBS claims. During 2014, other income (loss) also included losses on the extinguishment of debt of $13 million and realized gains on the sale of AFS and HTM securities of $10 million.

Hedging Activities

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

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

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


38


The following tables categorize the net effect of hedging activities on net income by product (dollars in millions):
 
 
For the Year Ended December 31, 2015
Net Effect of
Hedging Activities
 
Advances
 
Investments
 
Mortgage
Loans
 
Bonds
 
Discount Notes
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
Net amortization/accretion1
 
$
7

 
$
2

 
$
(2
)
 
$
5

 
$

 
$
12

Net interest settlements
 
(203
)
 
(158
)
 

 
117

 

 
(244
)
Total impact to net interest income
 
(196
)
 
(156
)
 
(2
)
 
122

 

 
(232
)
Other income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
Net gains (losses) on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) on fair value hedges
 

 
(10
)
 

 
3

 

 
(7
)
Gains (losses) on economic hedges
 

 
(32
)
 
(1
)
 
1

 
1

 
(31
)
Total net gains (losses) on derivatives and hedging activities
 

 
(42
)
 
(1
)
 
4

 
1

 
(38
)
Net gains (losses) on trading securities2
 

 
(10
)
 

 

 

 
(10
)
Total impact to other income (loss)
 

 
(52
)
 
(1
)
 
4

 
1

 
(48
)
Total net effect of hedging activities4
 
$
(196
)
 
$
(208
)
 
$
(3
)
 
$
126

 
$
1

 
$
(280
)

 
 
For the Year Ended December 31, 2014
Net Effect of
Hedging Activities
 
Advances
 
Investments
 
Mortgage
Loans
 
Bonds
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
 
Net amortization/accretion1
 
$
(32
)
 
$

 
$
(2
)
 
$
24

 
$