UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014

OR

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

FOR THE TRANSITION PERIOD FROM ________ TO ________ .

Commission file number: 000-51402

FEDERAL HOME LOAN BANK OF BOSTON

(Exact name of registrant as specified in its charter)

Federally chartered corporation (State or other jurisdiction of incorporation or organization)	04-6002575 (I.R.S. Employer Identification Number)
800 Boylston Street Boston, Massachusetts (Address of principal executive offices)	02199 (Zip Code)

(617) 292-9600

(Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:

Class B Stock, par value $100 per share

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

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

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

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

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

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

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

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

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. As of February 28, 2015, including mandatorily redeemable capital stock, we had zero outstanding shares of Class A stock and 24,859,970 outstanding shares of Class B stock.

DOCUMENTS INCORPORATED BY REFERENCE

None

FEDERAL HOME LOAN BANK OF BOSTON 2014 Annual Report on Form 10-K Table of Contents
PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	16
ITEM 1B.	UNRESOLVED STAFF COMMENTS	23
ITEM 2.	PROPERTIES	23
ITEM 3.	LEGAL PROCEEDINGS	23
ITEM 4.	MINE SAFETY DISCLOSURES	24
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	25
ITEM 6.	SELECTED FINANCIAL DATA	26
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	79
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	86
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	156
ITEM 9A.	CONTROLS AND PROCEDURES	156
ITEM 9B.	OTHER INFORMATION	157
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	158
ITEM 11.	EXECUTIVE COMPENSATION	166
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	190
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	192
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	194
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	195

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PART I

ITEM 1.    BUSINESS

General

The Federal Home Loan Bank of Boston is a federally chartered corporation organized by the U.S. Congress (Congress) in 1932 pursuant to the Federal Home Loan Bank Act of 1932 (as amended, the FHLBank Act) and is a government-sponsored enterprise (GSE). Unless otherwise indicated or unless the context requires otherwise, all references in this discussion to “the Bank,” "we," "us," "our," or similar references mean the Federal Home Loan Bank of Boston. Our primary regulator is the Federal Housing Finance Agency (the FHFA).

We are privately capitalized, and our mission is to provide highly reliable wholesale funding and liquidity to our members. We develop and deliver competitively priced financial products, services, and expertise that support housing finance, community development, and economic growth, including programs targeted to lower-income households. We principally serve the residential-mortgage and community-development lending activities of our members and certain nonmember institutions (referred to as housing associates) located in our district. Our district is comprised of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. There are 12 district Federal Home Loan Banks (the FHLBanks or the FHLBank System) located across the United States (the U.S.), each supporting the lending activities of its members within their districts. Each FHLBank is a separate entity with its own board of directors, management, and employees.

We are exempt from ordinary federal, state, and local taxation except for local real-estate tax. In lieu of taxes, we set aside funds at a 10 percent rate on our income for our Affordable Housing Program (AHP). For additional information, see — AHP Assessment.

We are managed with the primary objectives of enhancing the value of our membership and fulfilling our public purpose. In pursuit of our primary objectives, we have four long-term strategic priorities, which are to:

• position the Bank to compete effectively in the wholesale funding market and meet members' need for funding housing, community development and economic growth;

• optimize our capital structure considering our risk profile and retained earnings balance, while maintaining sufficient capital for dividends and excess stock repurchase strategies;

• advocate stakeholder interests in policy matters, and effectively respond to pending GSE reform and other legislative and regulatory initiatives; and

• continue to evolve as a strong and agile organization that responds quickly and effectively to emerging risks and opportunities while upholding our commitment to efficient and effective operations.

We combine private capital and public sponsorship in a way that is intended to enable our members and housing associates to assure the flow of credit and other services for housing and community development. We serve the public through our members and housing associates by providing these institutions with a readily available, low-cost source of funds, called advances, as well as other products and services that are intended to support the availability of residential-mortgage and community-investment credit. In addition, we provide liquidity by enabling members to sell mortgage loans through a mortgage loan purchase program. Under this program, we offer participating financial institutions the opportunity to originate mortgage loans for sale to us or to designated third-party investors. Our primary source of income is derived from the interest spread between interest-earning assets and interest-bearing liabilities. We are generally able to borrow funds at favorable rates due to our GSE status.

Our members and housing associates are comprised of institutions located throughout our district. Institutions eligible for membership include thrift institutions (savings banks, savings and loan associations, and cooperative banks), commercial banks, credit unions, qualified community development financial institutions (CDFIs), and insurance companies that are active in housing finance. We are also authorized to lend to housing associates such as state housing-finance agencies located in New England. Members are required to purchase and hold our capital stock as a condition of membership and for advances and certain other activities transacted with us. Our capital stock is not publicly traded on any stock exchange. We are capitalized by the capital stock purchased by our members and by retained earnings. Members may receive dividends, which are determined by our board of directors, and may request redemption or, at our sole discretion, repurchase of their capital stock at par value subject to certain conditions, as discussed further in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital. The U.S. government does not guarantee either the member's investment in or any dividend on our stock.

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Federal Housing Finance Agency

The FHFA, an independent agency in the executive branch of the U.S. government, supervises and regulates the FHLBanks. The FHFA is financed through assessments on the entities it regulates, which include the FHLBanks, as discussed under Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1 — Summary of Significant Accounting Policies — FHFA Expenses.

The FHFA has broad supervisory authority over the FHLBanks, including, but not limited to, the power to suspend or remove any entity-affiliated party (including any director, officer, or employee) of an FHLBank who violates certain laws or commits certain other acts; to issue and serve a notice of charges upon an FHLBank or any entity-affiliated party; to obtain a cease and desist order, or a temporary cease and desist order; to stop or prevent any unsafe or unsound practice or violation of law, order, rule, regulation, or condition imposed in writing; to issue civil money penalties against an FHLBank or an entity-affiliated party; to require an FHLBank to maintain capital levels in excess of usual regulatory requirements; to require an FHLBank to take certain actions, or refrain from certain actions, under the prompt corrective action provisions that authorize or require the FHFA to take certain supervisory actions, including the appointment of a conservator or receiver for an FHLBank under certain conditions; and to require any one or more of the FHLBanks to repay the primary obligations of another FHLBank on outstanding consolidated obligations (COs).

The FHFA conducts an annual on-site examination and other periodic reviews of our operations to assess our safety and soundness as well as our compliance with statutory and regulatory requirements. In addition, we are required to submit information on our financial condition and results of operations each month to the FHFA. We are generally prohibited by FHFA regulations from disclosing the results of the FHFA's examinations and reviews. However, we do consider the information we gather from these processes in setting our business objectives and conducting our operations. Information from those examinations and reviews could become publicly available either through the FHFA or through the FHFA's Office of Inspector General, which can sometimes occur via their reports to Congress.

The Office of Finance

The Federal Home Loan Banks' Office of Finance (the Office of Finance) facilitates the issuing and servicing of FHLBank debt in the form of COs. The FHLBanks, through the Office of Finance as their agent, are the issuers of COs for which they are jointly and severally liable. The Office of Finance also provides the FHLBanks with credit and market data and maintains the FHLBanks' joint relationships with credit-rating agencies. The FHLBanks are charged for the costs of operating the Office of Finance, as discussed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1 — Summary of Significant Accounting Policies — Office of Finance Expenses. The Office of Finance is governed by a board of directors that is constituted of the FHLBank presidents and five independent directors.

Available Information

Our web site (www.fhlbboston.com) provides a link to the section of the Electronic Data Gathering and Reporting (EDGAR) web site, as maintained by the Securities and Exchange Commission (the SEC), containing all reports electronically filed, or furnished, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, and reports on Form 8-K as well as any amendments to such reports. These reports are made available free of charge on our web site as soon as reasonably practicable after electronically filing or being furnished to the SEC. 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 Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports and other information regarding our electronic filings (located at http://www.sec.gov). The Bank's and the SEC's web site addresses have been included as inactive textual references only. Information on those web sites is not part of this report.

Employees

As of February 28, 2015, we had 199 full-time employees and one part-time employee.

Membership

The following table summarizes our membership, by type of institution, as of December 31, 2014, 2013, and 2012.

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Membership Summary
Number of Members by Institution Type
	December 31,
	2014	2013	2012
Commercial banks	55	58	65
Credit unions	159	156	155
Insurance companies	32	27	27
Thrift institutions	199	201	205
Community development financial institutions, non-depository institutions	4	1	—
Total members	449	443	452

As of December 31, 2014, 2013, and 2012, 69.9 percent, 68.2 percent, and 66.6 percent, respectively, of our members had outstanding advances with us. These usage rates are calculated excluding housing associates and other nonmember borrowers. While eligible to borrow, housing associates are not members and, as such, cannot hold our capital stock. Other nonmember borrowers consist of institutions that are former members or that have acquired former members and assumed the advances held by those former members. These other nonmember borrowers are required to hold capital stock to support outstanding advances with us until those advances either mature or are paid off. In addition, nonmember borrowers are required to deliver all required collateral to us or our safekeeping agent until all outstanding advances either mature or are paid off. Other than housing associates, nonmember borrowers may not request new advances and are not permitted to extend or renew any advances they have assumed.

Our membership includes the majority of Federal Deposit Insurance Corporation (FDIC)-insured institutions and large credit unions in our district that are eligible to become members. We do not anticipate that a substantial number of additional FDIC-insured institutions will become members. Many other institutions that are eligible for membership, such as insurance companies, smaller credit unions, and CDFIs have thus far elected not to become members or do not meet our membership eligibility requirements. We note that, for a variety of reasons including merger of members, we could experience a contraction in our membership which could lower overall demand for our products and services.

Economic Conditions

While our membership is limited to institutions with their principal place of business located in our district, both U.S. national and New England economic conditions, particularly in the housing market, impact our results of operations, financial condition, and future prospects. For example, demand for advances is influenced in part by factors such as the level of our members' deposits, which serve as liquidity alternatives to advances, and demand for residential mortgage loans which members can generally use as collateral for advances. For information on some of the economic factors that have impacted us in 2014 and are expected to impact us in 2015, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Economic Conditions.

Business Lines

Our business lines include offering credit products, such as advances, access to the Mortgage Partnership Finance^® (MPF^®) program, deposit and safekeeping services, and access to the AHP. We also maintain a portfolio of investments for liquidity purposes and to supplement earnings.

Advances. We serve as a source of liquidity and make advances to our members and housing associates secured by mortgage loans and other eligible collateral. We offer an array of fixed- and variable-rate advances products, with repayment terms intended to provide funding alternatives to our members in many interest-rate environments and situations. Principal repayment terms may be structured as 1) interest-only to maturity (sometimes referred to as bullet advances) or to an optional early termination date or series of dates or 2) amortizing advances, which are fixed-rate and term structures with equal monthly payments of interest and principal.

"Mortgage Partnership Finance," "MPF," "eMPF" and "MPF Xtra" are registered trademarks of the Federal Home Loan Bank of Chicago.

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We price advances based on the estimated marginal cost of funding with a similar maturity profile, as well as market rates for comparable funding alternatives. In accordance with the FHLBank Act and FHFA regulations, we price our advance products in a consistent and nondiscriminatory manner to all members. However, we are permitted to price our products on a differential basis, which is based on the creditworthiness of the member, volume, or other reasonable criteria applied consistently to all members.

Our major competitors are other sources of liquidity, including deposits, investment banks, commercial banks, and, in certain instances, other FHLBanks.

We had 314 members, three housing associates, and three nonmember institutions with advances outstanding as of December 31, 2014. We have never experienced a credit loss on an advance. For information on competition and trends in demand for advances, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Advances Balances.

Members that have an approved line of credit with us may from time to time overdraw their demand-deposit account. These overdrawn demand-deposit accounts are reported as advances in the statements of condition. These line of credit advances are fully secured by eligible collateral pledged by the member to us. In cases where the member overdraws its demand-deposit account by an amount that exceeds its approved line of credit, we may assess a penalty fee to the member.

In addition to making advances to members, we are permitted under the FHLBank Act, to make advances to housing associates that are approved mortgagees under Title II of the National Housing Act. Housing associates must be chartered under law and have succession, be subject to inspection and supervision by a governmental agency, and lend their own funds as their principal activity in the mortgage field. Housing associates are not subject to capital stock investment requirements; however, they are subject to the same underwriting standards as members, but are more limited in the forms of collateral that they may pledge to secure advances.

Our advance products can also help members in their asset-liability management. For example, we offer advances that members can use to match the cash-flow patterns of their mortgage loans. Such advances can reduce a member's interest-rate risk associated with holding long-term, fixed-rate mortgages. As another example, we also offer advances with interest rates that vary based on changes in the yield curve. We may also offer advances that shift from fixed to floating-rates or vice versa after a certain period or upon the occurrence of a certain condition.

Generally, advances may be prepaid at any time. We charge prepayment fees to make us financially indifferent to advance prepayments, except in cases where the prepayment of an advance does not have an adverse financial impact on us.

We also offer an advance restructuring program under which the prepayment fee on prepaid advances may be satisfied by the member's agreement to pay an interest rate on a new advance sufficient to amortize the prepayment fee by the maturity date of the new advance, rather than paying the fee in immediately available funds to us.

Targeted Housing and Community Investment Programs.We offer several solutions that are targeted to meet the affordable housing or economic development needs of communities that our members serve. These programs include the AHP, the Equity Builder Program (EBP), Community Development Advances (CDA), and the New England Fund (NEF).

The AHP provides subsidies in the form of direct grants or subsidized interest rates on advances (AHP advances) to help fund affordable housing projects that are directly sponsored by members.

The EBP offers members grants to provide households with incomes at or below 80 percent of the area median income with down-payment, closing-cost, homebuyer counseling, and rehabilitation assistance. The EBP is funded with a portion of the AHP assessment.

CDAs are discounted advances offered at interest rates that are lower than our regular advances programs for the purpose of helping our members fund community development efforts, such as small business, roads and schools, and affordable housing for individuals with incomes at or below defined percentages of area median income.

NEF advances are targeted to support housing and community development initiatives that benefit moderate-income households and neighborhoods. The interest rates on NEF are not subsidized and must generally be at or above our cost of funding plus general and administrative expenses.

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Investments. We maintain a portfolio of investments for liquidity purposes and to supplement earnings. To better meet members' potential borrowing needs at times when access to the capital markets is unavailable (either due to requests that follow the end of daily debt issuance activities or due to a market disruption event impacting CO issuance) and in support of certain statutory and regulatory liquidity requirements, as discussed in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Investments — Investments Credit Risk, we maintain a portfolio of short-term investments issued by highly rated institutions, including overnight federal funds and securities purchased under agreements to resell (secured by U.S. Department of the Treasury (U.S. Treasury) securities, Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), or Federal Home Loan Mortgage Corporation (Freddie Mac) securities).

We also endeavor to enhance interest income and further support our contingent liquidity needs and mission by maintaining a longer-term investment portfolio, which includes debentures issued by U.S. government agencies and instrumentalities, supranational institutions, MBS, and asset-backed securities (ABS) that are issued either by GSE mortgage agencies or by other private-sector entities provided that they are rated in at least the second highest rating category from a nationally recognized statistical rating organization (NRSRO) as of the date of purchase. Our ABS holdings are further limited to securities backed by loans secured by real estate. We have also purchased securities issued by HFAs that are rated in at least the second-highest rating category from an NRSRO as of the date of purchase. The long-term investment portfolio is intended to provide us with higher returns than those available in the short-term money-markets. For a discussion of developments and factors that have impacted and could continue to impact the profitability of our investments, particularly our long-term investment portfolio, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary.

We endeavor to maintain our total investments at a level less than 50 percent of our total assets because investing activities are incremental to our primary mission. Our total investments were 30.6 percent of our total assets at December 31, 2014, and 29.1 percent at December 31, 2013. We expect to continue to be able to satisfy this investment objective for the foreseeable future without this objective causing a material impact on our results of operations or financial condition.

Under our regulatory authority to purchase MBS, additional investments in MBS, ABS, and certain securities issued by the Small Business Administration (SBA) are prohibited if our investments in such securities exceed 300 percent of capital. Capital for this calculation is defined as capital stock, mandatorily redeemable capital stock, and retained earnings. At December 31, 2014, and 2013, our MBS, ABS, and SBA holdings represented 230 percent and 162 percent of capital, respectively.

Mortgage Loan Finance. We participate in the MPF program, which is a secondary mortgage market structure under which we either invest in or, for fees, facilitate Fannie Mae's investment in eligible mortgage loans (referred to as MPF loans) from FHLBank members. MPF loans are either conventional, residential, fixed-rate mortgage loans (conventional mortgage loans) or government mortgage fixed-rate loans that are insured or guaranteed by the Federal Housing Administration (the FHA), the U.S. Department of Veterans Affairs (the VA), the Rural Housing Service of the U.S. Department of Agriculture (RHS), or the U.S. Department of Housing and Urban Development (HUD) and are secured by one- to four-family residential properties with original maturities ranging from five years to 30 years or participations in such mortgage loans (government mortgage loans). For information on trends in the growth of the program in 2014, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Mortgage Loans.

We have offered our members Original MPF, MPF 125, MPF Plus, MPF Government, and MPF Xtra, each being closed-loan products in which we, or Fannie Mae in the case of MPF Xtra, invest in MPF loans that have been acquired or have already been closed by the participating financial institutions with its own funds. The participating financial institution performs all of the traditional retail loan origination functions under these MPF products. We continue to offer Original MPF, MPF Government, and MPF Xtra. We do not currently offer our members new master commitments under either MPF 125 or MPF Plus.

The FHLBank of Chicago (in this capacity, the MPF Provider) establishes general eligibility standards under which an FHLBank member may become a participating financial institution, the structure of MPF loan products, and the eligibility rules for MPF loans. In addition, the MPF Provider manages the pricing and delivery mechanism for MPF loans and the back-office processing of MPF loans as master servicer and master custodian. The FHLBanks that participate in the MPF Program (including the Bank, the MPF Banks) pay fees to the MPF Provider for these services.

The MPF Provider has engaged Wells Fargo Bank N.A. as the vendor for master servicing and as the primary custodian for the MPF program (referred to herein as the master servicer). The MPF Provider also has contracted with other custodians meeting MPF program eligibility standards at the request of certain participating financial institutions. These other custodians are typically affiliates of participating financial institutions, and in some cases a participating financial institution may act as self-custodian.

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The MPF Provider publishes and maintains the MPF Origination Guide, MPF Servicing Guide, and MPF Underwriting Guide (together, the MPF guides), which detail the requirements participating financial institutions must follow in originating, underwriting, or selling and servicing MPF loans. The MPF Provider also maintains the infrastructure through which MPF Banks may purchase MPF loans through their participating financial institutions.

For conventional mortgage loan products (MPF loan products other than government mortgage loans and MPF Xtra), participating financial institutions assume or retain a portion of the credit risk on the MPF loans they sell to an MPF Bank by providing credit enhancement either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage guaranty insurance. The participating financial institution's credit enhancement covers losses for MPF loans under a master commitment in excess of the MPF Bank's allocated portion of credit losses up to an agreed upon amount, called the first loss account. A master commitment is an agreement that provides the terms under which the participating financial institution delivers mortgage loans to an MPF Bank. Participating financial institutions are paid a credit-enhancement fee for providing credit enhancement and in some instances all or a portion of the credit-enhancement fee may be adjusted based upon the performance of loans purchased by the MPF Bank. See —MPF Products, below, for a summary of the credit-enhancement and risk-sharing arrangements for the MPF program.

We also offer the MPF Xtra product, which provides our participating financial institutions with the ability to sell certain fixed-rate loans to Fannie Mae, as a third-party investor. Such loans are not held on our balance sheet and the related credit and market risks are transferred to Fannie Mae.

Participating Financial Institution Eligibility

Members and eligible housing associates may apply to become a participating financial institution. All of the participating financial institution's obligations under the applicable agreement are secured in the same manner as the other obligations of the participating financial institution under its regular advances agreement with us. We have the right to request additional collateral to secure the participating financial institution's obligations.

Repurchases of MPF Loans

When a participating financial institution fails to comply with its representations and warranties concerning its duties and obligations described within applicable agreements, the MPF guides, applicable laws, or terms of mortgage documents, the participating financial institution may be required to repurchase the MPF loans that are impacted by such failure. Reasons that would require a participating financial institution to repurchase an MPF loan may include, but are not limited to, MPF loan ineligibility, failure to deliver documentation to an approved custodian, a servicing breach, fraud, or other misrepresentation. In such instances, we can require that the participating financial institution compensate us for any losses or costs that we incur. Additionally, subject to our approval, participating financial institutions may repurchase delinquent government mortgage loans so that they may comply with loss-mitigation requirements of the applicable government agency to preserve the insurance or guaranty coverage. The repurchase price for each such delinquent loan is equal to the current scheduled principal balance and accrued interest on the government mortgage loan.

MPF Products

A variety of MPF loan products have been developed to meet the differing needs of participating financial institutions. We have offered five MPF loan products from which participating financial institutions may have chosen. These products include Original MPF, MPF Government, MPF 125, MPF Plus, and MPF Xtra. Currently only Original MPF, MPF Government, and MPF Xtra are being offered. The products have different credit-risk-sharing characteristics based upon the different levels for the first loss account and credit enhancement and the types of credit-enhancement fees (performance-based, fixed amount, or none). There is no first loss account, credit enhancement, or credit-enhancement fees for MPF Xtra because the credit risk for such loans is transferred to Fannie Mae. The following table provides a comparison of the MPF products.

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MPF Product Comparison Chart
Product Name	Bank's First Loss Account Size	Participating Financial Institution Credit-Enhancement Description	Credit-Enhancement Fee Paid to the Member	Credit-Enhancement Fee Offset(1)	Servicing Fee to Servicer
Original MPF	3 to 6 basis points added each year	Equivalent to double-A	7 to 11 basis points per year paid monthly	No	25 basis points per year
MPF Government	N/A	N/A Unreimbursed servicing expenses	N/A(2)	N/A	44 basis points per year(2)
MPF 125 (3)	100 basis points fixed based on the size of loan pool at closing	After first-loss account, up to double-A	7 to 10 basis points per year paid monthly; performance- based	Yes	25 basis points per year
MPF Plus (4)	An agreed upon amount no less than expected losses	0 to 20 basis points, after first-loss account and supplemental mortgage insurance, up to double-A	7 basis points per year fixed plus 6 to 7 basis points per year performance- based (delayed for 1 year), all fees paid monthly	Yes	25 basis points per year
MPF Xtra	N/A	N/A	None	N/A	25 basis points per year

_______________________

(1) Future payouts of performance-based credit-enhancement fees are reduced when losses are allocated to the first loss account.

(2) For master commitments issued prior to February 2, 2007, the participating financial institution is paid a monthly government loan fee equal to 0.02 percent (two basis points) per annum based on the month-end outstanding aggregate principal balance of the master commitment which is in addition to the customary 0.44 percent (44 basis points) per annum servicing fee that continues to apply for master commitments issued after February 2, 2007, and that is retained by the participating financial institution on a monthly basis based on the outstanding aggregate principal balance of the MPF Government loans.

(3) We do not currently offer new master commitments to our members under MPF 125.

(4) Currently, no supplemental mortgage guaranty insurance provider has the required NRSRO rating and so we do not offer new master commitments to our members under MPF Plus at this time.

MPF Servicing

The participating financial institution, or a servicer it engages, generally retains the right and responsibility for servicing MPF loans it delivers, which includes loan collections and remittances, default management, loss mitigation, foreclosure, and disposition of the real estate acquired through foreclosure or deed in lieu of foreclosure.

If there is a loss on a conventional mortgage loan, the loss is allocated to the master commitment and shared in accordance with the risk-sharing structure for that particular master commitment. The servicer pays any gain on sale of real-estate-owned property (REO) to the related MPF Bank, or in the case of a participation, to us and other MPF Bank(s) based upon their respective interests in the MPF loan. However, the amount of the gain is available to reduce subsequent losses incurred under the master commitment before such losses are allocated between us and the participating financial institution.

Loss Allocation

Credit losses from conventional mortgage loans that are not covered by the borrower's equity in the mortgaged property, property insurance, or primary mortgage insurance are allocated between us and the participating financial institution as follows:

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• Credit losses are allocated first to us, up to an agreed-upon amount, called the first loss account determined for the MPF product as follows:

Original MPF. The first loss account starts out at zero on the day the first MPF loan under a master commitment is purchased but increases monthly over the life of the master commitment at a rate that ranges from 0.03 percent to 0.06 percent (three to six basis points) per annum based on the month-end outstanding aggregate principal balance of the master commitment. The first loss account is structured so that over time, it should cover expected losses on a master commitment, though losses early in the life of the master commitment could exceed the first loss account and be charged in part to the participating financial institution's credit enhancement.

MPF 125. The first loss account is equal to 1.00 percent (100 basis points) of the aggregate principal balance of the MPF loans funded under the master commitment. Once the master commitment is fully funded or expires, the first loss account is expected to cover expected losses on that master commitment, although we may economically recover a portion of losses incurred under the first loss account by withholding performance credit-enhancement fees payable to the participating financial institution.

MPF Plus. The first loss account is equal to an agreed-upon number of basis points of the aggregate principal balance of the MPF loans funded under the master commitment that is not less than the amount of expected losses on the master commitment. Once the master commitment is fully funded, the first loss account is expected to cover expected losses on that master commitment, although we may economically recover a portion of losses incurred under the first loss account by withholding performance credit-enhancement fees payable to the participating financial institution.

• Credit losses are allocated second to the participating financial institution under its credit-enhancement obligation for losses for each master commitment in excess of the first loss account, if any, up to the credit enhancement. The credit enhancement may consist of a direct liability of the participating financial institution to pay credit losses up to a specified amount, a contractual obligation of the participating financial institution to provide supplemental mortgage guaranty insurance, or a combination of both.

• Third, any remaining unallocated losses are absorbed by us.

We occasionally invest in participation interests in MPF loans together with other MPF Banks. For participation interests, MPF loan losses (other than those allocable to the participating financial institution) are allocated among us and the participating MPF Bank(s) pro rata based upon the respective participation interests in the related master commitment.

Other Banking Activities. We engage in other banking activities including, among others:

• offering standby letters of credit, which are financial instruments we issue for a fee under which we agree to honor payment demands made by a beneficiary in the event the primary obligor cannot fulfill its obligations; and

• acting as a correspondent for deposit, disbursement, funds transfer, and safekeeping services.

Consolidated Obligations

We fund our activities principally through the sale of debt securities referred to herein as COs. Our ability to access the money and capital markets through the sale of COs using a variety of debt structures and maturities has historically allowed us to manage our balance sheet effectively and efficiently. The FHLBanks are among the world's most active issuers of debt, issuing on a near-daily basis, including sometimes multiple issuances in a single day. The FHLBanks compete with Fannie Mae, Freddie Mac, and other GSEs for funds raised through the issuance of unsecured debt in the agency debt market.

COs, consisting of bonds and discount notes, represent our primary source of debt to fund advances, mortgage loans, and investments. All COs are issued on behalf of an FHLBank (as the primary obligor) through the Office of Finance, but all COs are the joint and several obligation of each of the FHLBanks. COs are not obligations of the U.S. government and are not guaranteed by the U.S. government or any government agency. Moody's Investors Service Inc. (Moody's) currently rates COs Aaa/P-1, and Standard & Poor’s Financial Services LLC (S&P) currently rates them AA+/A-1+. The GSE status of the FHLBanks and the ratings of the COs have historically provided the FHLBanks with ready capital market access. For information on the market for COs during the period covered by this report, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Liquidity.

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CO Bonds. CO bonds may have original maturities of up to 30 years (although there is no statutory or regulatory limit on maturities) and are generally issued to raise intermediate and long-term funds. CO bonds may also contain embedded options that affect the term or yield structure of the bond. Such options include call options under which we can redeem bonds prior to maturity.

CO bonds may be issued with either fixed-rate coupon-payment terms, zero-coupon terms, or variable-rate coupon-payment terms that use a variety of indices for interest-rate resets including the London Interbank Offered Rate (LIBOR), the Federal Funds (Effective) rate, and others.

In the aggregate, the FHLBanks may comprise a significant percentage of the federal funds sold market from time to time; however, each FHLBank, including us, manages its investment portfolio separately.

CO bonds can be issued and distributed through negotiated or competitively bid transactions with approved underwriters or selling group members. We frequently participate in these issuances. Each FHLBank requests funding through the Office of Finance, and the Office of Finance endeavors to issue the requested bonds and allocate proceeds in accordance with each FHLBank's requested funding. In some cases, proceeds from partially fulfilled offerings must be allocated among the requesting FHLBanks in accordance with predefined rules that apply to particular issuance programs. Conversely, under certain programs, proceeds from bond offerings that exceed aggregate FHLBank demand will be allocated to the FHLBanks in accordance with predefined rules that apply to particular issuance programs. The Office of Finance also prorates the amounts of fees paid to dealers in connection with the sale of COs to each FHLBank based upon the percentage of debt issued that is assumed by each FHLBank.

The Office of Finance has established an allocation methodology for the proceeds from the issuance of COs when COs cannot be issued in sufficient amounts to satisfy all FHLBank demand for funding during periods of financial distress and when its existing allocation processes are deemed insufficient. In general, this methodology provides that the proceeds in such circumstances will be allocated among the FHLBanks based on relative FHLBank total regulatory capital, with FHLBanks with greater total regulatory capital in absolute terms receiving greater allocations of issuance proceeds. The Office of Finance will use this method in such periods unless it determines that there is an overwhelming reason to adopt a different allocation method. As is the case during any instance of a disruption in our ability to access the capital markets, market conditions or this allocation could adversely impact our ability to finance our operations, financial condition and results of operations.

CO Discount Notes. CO discount notes are short-term obligations issued at a discount to par with no coupon. Terms range from overnight up to one year. We generally participate in CO discount note issuance on a daily basis as a means of funding short-term assets and managing our short-term funding gaps. Each FHLBank submits commitments to issue CO discount notes in specific amounts with specific terms to the Office of Finance, which in turn, aggregates these commitments into offerings to securities dealers. Such commitments may specify yield limits that we have specified in our commitment, above which we will not accept funding. CO discount notes are sold either at auction on a scheduled basis or through a direct bidding process on an as-needed basis through a group of dealers known as the selling group, who may turn to other dealers to assist in the ultimate distribution of the securities to investors. The selling group dealers receive no selling concession if the bonds are sold at auction. Otherwise, we pay the dealer a selling concession.

FHFA regulations require that each FHLBank maintain the following types of assets, free from any lien or pledge, in an amount at least equal to the amount of that FHLBank's participation in the total COs outstanding:

• cash;

• obligations of, or fully guaranteed by, the U.S. government;

• secured advances;

• mortgages, which have any guaranty, insurance, or commitment from the U.S. government or any agency of the U.S.; and

• investments described in Section 16(a) of the FHLBank Act, which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.

The following table illustrates our compliance with this regulatory requirement:

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Ratio of Non-Pledged Assets to Total Consolidated Obligations by Carrying Value
(dollars in thousands)
	December 31,
	2014			2013
Cash and due from banks	$	1,124,536		$	641,033
Advances	33,482,074			27,516,678
Investments (1)	16,879,299			12,981,340
Mortgage loans, net	3,483,948			3,368,476
Accrued interest receivable	77,411			83,458
Less: pledged assets	(451,632		)	(482,807		)
Total non-pledged assets	$	54,595,636		$	44,108,178
Total consolidated obligations	$	50,815,382		$	39,526,687
Ratio of non-pledged assets to consolidated obligations	1.07			1.12

_______________________

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

Although each FHLBank is primarily liable for the portion of COs corresponding to the proceeds received by that FHLBank, each FHLBank is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all COs. Under FHFA regulations, if the principal or interest on any CO issued on behalf of one of the FHLBanks is not paid in full when due, then the FHLBank primarily responsible for the payment may not pay dividends to, or redeem or repurchase shares of stock from, any member of such FHLBank. The FHFA, in its discretion, may require any FHLBank to make principal or interest payments due on any COs, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation.

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

Neither the FHFA nor any predecessor to it has ever required us to repay obligations in excess of our participation nor have they allocated to us any outstanding liability of any other FHLBank's COs.

Capital Resources

Total Stock-Investment Requirement (TSIR). Each member is required to satisfy its TSIR at all times, which is an amount of stock equal to its activity-based stock-investment requirement plus its membership stock-investment requirement. Any stock held by a member in excess of its TSIR is referred to as excess stock. At December 31, 2014, members and nonmembers with capital stock outstanding held excess capital stock totaling $633.0 million, representing approximately 23.3 percent of total capital stock outstanding.

Membership Stock-Investment Requirement (MSIR). The MSIR is equal to 0.35 percent of the value of certain member assets eligible to secure advances subject to a current minimum balance of $10,000 and a current maximum balance of $25.0 million.

Activity-Based Stock-Investment Requirement (ABSIR). Certain activity with us has an associated ABSIR. For example, advances have an ABSIR. The ABSIR for advances varies by term with longer terms typically requiring a higher ABSIR.

Redemption of Excess Stock. Members may submit a written request for redemption of excess stock. The stock subject to the request will be redeemed at par value by us upon expiration of the stock-redemption period, which is five years for Class B stock, provided that the stock is not required to support the member's TSIR. Note also that the stock-redemption period also applies to stock held by a member that (1) gives notice of intent to withdraw from membership or (2) becomes a nonmember due to merger or acquisition, charter termination, or involuntary termination of membership. At the end of the stock-redemption period, we must comply with the redemption request unless doing so would cause us to fail to comply with our minimum

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regulatory capital requirements, would cause the member to fail to comply with its TSIR, or would violate any other applicable limitation or prohibition.

Repurchase of Excess Stock. Our capital plan provides us with the authority and discretion to repurchase excess stock from any member at par value upon 15 days prior written notice to the member, unless a shorter notice period is agreed to in writing with the member, so long as the repurchase will not cause us to fail to meet any of our regulatory capital requirements or violate any other applicable limitation or prohibition. Effective January 1, 2015, we ended our general moratorium on excess stock repurchases, and we now consider honoring members’ requests for excess stock repurchases. We retain sole discretion over any repurchases of excess stock in accordance with our capital plan. As a result of rescinding the moratorium, through February 28, 2015, we repurchased $249.3 million of excess capital stock, of which $241.3 million was mandatorily redeemable capital stock.

Statutory and Regulatory Restrictions on Capital-Stock Redemption and Repurchases. In accordance with the Gramm-Leach-Bliley Act of 1999, as amended (the GLB Act), our stock is putable by the member. However, there are significant statutory and regulatory restrictions on the obligation or right to redeem outstanding stock, including the following:

• Our board of directors, or a committee of the board, may decide to suspend redemptions if it reasonably believes that continued redemptions would cause us to fail to meet any of our minimum capital requirements, would prevent us from maintaining adequate capital against potential risks that are not adequately reflected in our minimum capital requirements, or would otherwise prevent us from operating in a safe and sound manner.

• We may not redeem or repurchase any capital stock without the prior written approval of the FHFA if our board of directors or the FHFA has determined that we have incurred or are likely to incur losses that result in or are likely to result in charges against our capital stock while such charges are continuing or expected to continue.

• If, during the period between receipt of a stock-redemption notification from a member and the actual redemption, we become insolvent and are either liquidated or forced to merge with another FHLBank, the redemption value of the stock will be established either through the market-liquidation process or through negotiation with a merger partner. In either case all senior claims must first be settled, and there are no claims which are subordinated to the rights of FHLBank stockholders.

• We can only redeem stock investments that exceed the members' TSIR.

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

Additionally, we cannot redeem or repurchase shares of capital stock from any of our members if:

• following such redemption, we would fail to satisfy our minimum capital requirements;

• we become undercapitalized or our capital would be insufficient to maintain a classification of adequately capitalized after redeeming or repurchasing shares, except, in this latter case, with the Director of the FHFA's permission;

• the principal or interest due on any CO issued through the Office of Finance on which we are the primary obligor has not been paid in full when due;

• we fail to provide to the FHFA a certain quarterly certification required by the FHFA's regulations prior to declaring or paying dividends for a quarter;

• we fail to certify in writing to the FHFA that we will remain in compliance with our liquidity requirements and will remain capable of making full and timely payment of all of our current obligations;

• we notify the FHFA that we cannot provide the required certification, project we will fail to comply with statutory or regulatory liquidity requirements, or will be unable to timely and fully meet all of our current obligations; or

• we actually fail to comply with statutory or regulatory liquidity requirements or to timely and fully meet all of our current obligations, or negotiate to enter or enter into an agreement with one or more other FHLBanks to obtain financial assistance to meet our current obligations.

In addition to possessing the authority to suspend capital stock redemptions or repurchases, our board of directors also has a statutory obligation to review and adjust member capital stock purchase requirements to comply with our minimum capital requirements, and each member must comply promptly with any such requirement. However, a member may be able to reduce its outstanding business with us as an alternative to purchasing additional capital stock.

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Mandatory Purchases of Capital Stock. Our board of directors has a right and an obligation to call for additional capital-stock purchases by our members in accordance with our capital plan, if needed to satisfy statutory and regulatory capital requirements. These requirements include the maintenance of a stand-alone credit rating of no lower than double-A from an NRSRO. Our board of directors has never called for any additional capital-stock purchases by members under our capital plan.

Retained Earnings. Our current minimum retained earnings target is $700.0 million, which was selected for the reasons discussed under Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Internal Capital Practices and Policies — Retained Earnings and the Minimum Retained Earnings Target.

As of December 31, 2014, our retained earnings totaled $901.7 million. Of that amount, $136.8 million is in a restricted retained earnings account and is not available to pay dividends, as discussed under Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. We are required to allocate 20 percent of net income to this restricted retained earnings account in accordance with our capital plan and a joint capital enhancement agreement (as amended, the Joint Capital Agreement) among the FHLBanks.

Dividends. We may pay dividends from current net earnings or unrestricted retained earnings, subject to certain limitations and conditions. For additional information see Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Interest-Rate-Exchange Agreements

In general, we use interest-rate-exchange agreements (derivatives) in two ways: 1) as a fair-value or cash-flow hedge of a hedged financial instrument, firm commitment, or a forecasted transaction, or 2) as economic hedges in asset-liability management that are not designated as hedges. In addition to using interest-rate-exchange agreements to manage mismatches of interest rates between assets and liabilities, we also use interest-rate-exchange agreements to manage embedded options in assets and liabilities and to hedge the market value of existing assets, liabilities, and anticipated transactions. We may also enter into interest-rate-exchange agreements concurrently with the issuance of COs to reduce funding costs. We enter into derivatives directly with principal counterparties and also enter into centrally-cleared derivatives where our counterparty is a derivatives clearing organization (DCO). FHFA regulations require the documentation of non-speculative use of these instruments and the establishment of limits to credit risk arising from these instruments.

AHP Assessment

Annually, the FHLBanks collectively must set aside for the AHP the greater of $100 million or 10 percent of the current year's net income before interest expense associated with mandatorily redeemable capital stock and the assessment for AHP. For the year ended December 31, 2014, our AHP assessment was $17.6 million.

If the result of the aggregate 10 percent calculation described above is less than $100 million for all FHLBanks, then each FHLBank would be required to contribute such prorated sums as may be required to assure that the aggregate contributions of the FHLBanks equals $100 million. The shortfall would be allocated among the FHLBanks based upon the ratio of each FHLBank's income before AHP to the sum of the income before AHP of the FHLBanks combined, except that the required annual AHP contribution for an FHLBank cannot exceed its net earnings for the year. Accordingly, the actual amount of each future AHP assessment is dependent upon both our net income before interest expense associated with mandatorily redeemable capital stock and the income of the other FHLBanks. Thus, future AHP assessments are not determinable.

Risk Management

We have a comprehensive risk-governance structure. We have identified the following major risk categories relevant to business activities:

• Credit risk, the risk to earnings or capital due to an obligor's failure to meet the terms of any contract with us or otherwise perform as agreed;

• Market risk, the risk to earnings or shareholder value due to adverse movements in interest rates, market prices, or interest-rate spreads;

• Liquidity risk, the risk that we may be unable to meet our funding requirements, or meet the credit needs of members, at a reasonable cost and in a timely manner;

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• Leverage risk, the risk that our capital is not sufficient to support the level of assets that can result from a deterioration of our capital base, a deterioration of the assets, or from overbooking assets;

• Business risk, the risk to earnings or capital arising from adverse business decisions or improper implementation of those decisions, or from external factors as may occur in both the short- and long-run, including from legislative and regulatory developments;

• Operational risk, the risk of unexpected loss resulting from human error, fraud, vendor or third-party failure, unenforceability of legal contracts, or deficiencies in internal controls or information systems; and

• Reputation risk, the risk to earnings or capital arising from negative public opinion, which can affect our ability to establish new business relationships or maintain existing business relationships.

Credit, market, liquidity, and leverage risks are discussed in greater detail throughout Item 7 —Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 7A — Quantitative and Qualitative Disclosures About Market Risk. Business, operational and reputation risks are discussed in greater detail below.

The board of directors determines our risk profile and provides risk oversight through the review and approval of our risk management policy. The board of directors also evaluates and approves risk tolerances and risk limits. The board of directors' Risk Committee provides additional oversight for market risk, credit risk, and operational risk. The board of directors also reviews the results of an annual risk assessment that we perform for our major business processes.

Management establishes a quantifiable connection between our desired risk profile and our risk tolerances and risk limits as expressed in our risk-management policy. Management is responsible for maintaining internal policies consistent with the risk management policy and maintains various standing committees intended to assess and manage each of the major risk categories relevant to our business activities. Our chief risk officer is responsible for communicating material changes to these internal policies to the board of directors' Risk Committee. Management is also responsible for monitoring, measuring, and reporting risk exposures to the board of directors. Additionally, our internal audit department may report to the board's Audit Committee the results of internal audit work on the effectiveness of management's risk management processes and controls.

Business Risk

Management's strategies for mitigating business risk include annual and long-term strategic planning exercises; continually monitoring key economic indicators, projections, competitive threats, and our external environment; and developing contingency plans where appropriate.

Operational Risk

We are subject to operational risk, which is the risk of unexpected loss resulting from, among other possible sources, human error, fraud, unenforceability of legal contracts, or deficiencies in internal controls or information systems.

We have policies and procedures intended to mitigate operational risks. We train our employees for their roles and maintain written policies and procedures for our key functions. We maintain a system of internal controls designed to adequately segregate responsibilities and appropriately monitor and report on our activities to management and the board of directors. Our Internal Audit department, which reports directly to the Audit Committee of the board of directors, regularly monitors our adherence to established policies and procedures. Some operational risks are beyond our control, and the failure of other parties to adequately address their operational risks could adversely impact us.

Operational risk includes risk arising from breaches of our cybersecurity or other cyber incidents that could result in a failure or interruption of our information technology or other technology. We have not experienced a disruption in our information systems or other technology that has had a material adverse impact on us. However, we rely heavily on our information systems and other technology to conduct and manage our business and failures or interruptions of these information systems or other technology could have a material adverse impact on our financial condition and results of operations. We take several steps to protect our information systems and technology, including operational redundancy and supplier diversity along with monitored physical and logical security controls to protect our information systems and data.

Additionally, most of our information systems have been co-located with a third-party service provider to a site designed to host information systems with specialized environmental controls, certain power, heating and cooling system redundancies, 24-hour onsite staffing, and physical security. We rely on this service provider to continue to provide a secure location and a stable operating environment for these systems. Any failure to provide such stability or security by the third-party service provider could result in failures or interruptions in our ability to conduct business. We take several steps to mitigate the risks of our

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reliance on this third-party service provider, including physical and monitored logical security controls to protect our information systems and data within the co-location space along with maintaining redundancy of systems at an alternate location that we control for disaster-recovery and business continuity. Additionally, we review the provider's controls report annually and monitor and meet with the provider on a regular basis. We have a disaster-recovery site intended to provide continuity of operations in the event that our primary information systems become unavailable, but there can be no assurance that the disaster-recovery site will work as intended in the event of an actual disruption or failure.

Further, our AHP and MPF investment activities rely on the secure processing, storage, and transmission of a large volume of private borrower information, such as names, residential addresses, social security numbers, credit rating data, and other consumer financial information. We take several steps to protect such data, including information technology and security, general computing controls governing access to programs and data along with physical and logical security. Additionally, we review related third-party service providers' controls reports annually. Despite these steps, this information could be exposed in several ways, including through unauthorized access to our computer systems, computer viruses that attack our computer systems, software or networks, accidental delivery of information to an unauthorized party, and loss of encrypted media containing this information. Any of these events could result in financial losses, legal and regulatory sanctions, and reputational damage.

Disaster-Recovery/Business Continuity Provisions. We maintain a disaster-recovery/business continuity site in Massachusetts to provide continuity of operations in the event that our Boston headquarters becomes unavailable. Data for critical computer systems is backed up regularly and stored offsite to avoid disruption in the event of a computer failure. We also have a reciprocal back-up agreement in place with the FHLBank of Topeka to provide short-term advances in the event that our facilities are inoperable.

Insurance Coverage. We have insurance coverage for employee fraud, forgery, alteration, and embezzlement, as well as director and officer liability protection for, among other things, breach of duty, negligence, and acts of omission. Additionally, insurance coverage is currently in place for general liability, bankers professional liability, employment practices liability, cyber liability, electronic data-processing equipment and software, personal property, leasehold improvements, fire, explosion, water damage, and personal injury including slander and libelous actions. We maintain additional insurance protection as deemed appropriate, which covers liability arising from automobiles, company credit cards, and business-travel accidents for both directors and staff. We use the services of an insurance consultant who periodically conducts a review of our insurance coverage levels.

Reputation Risk

We take several steps to manage reputation risk. We have established a code of ethics and business conduct and operational risk-management procedures intended to ensure ethical behavior among our staff and directors and require all employees to annually certify compliance with our code of ethics. We work to ensure that all communications are presented accurately, consistently, and in a timely way to multiple audiences and stakeholders. In particular, we regularly conduct outreach efforts with our membership and with housing and economic-development advocacy organizations throughout our district. We also cultivate relationships with government officials at the federal, state, and municipal levels; key media outlets; nonprofit housing and community-development organizations; and regional and national trade and business associations to foster awareness of our mission, activities, and value to members. We work with the Council of Federal Home Loan Banks and the Office of Finance to coordinate communications on a broader scale.

ITEM 1A.    RISK FACTORS

The following discussion summarizes some of the most important risks that we face. This discussion is not exhaustive, and there may be other risks that we face, which are not described below. The risks described below, if realized, may result in us being prohibited from paying dividends and/or repurchasing and redeeming our capital stock, and could adversely impact our business operations, financial condition, and future results of operations.

BUSINESS AND REPUTATION RISKS

Sustained low advances balances and/or limited opportunities for loan purchases at our offered pricing could adversely impact results of operations.

Our primary business is providing liquidity to our members by making advances to, and purchasing mortgage loans from, our members. Many of our competitors are not subject to the same body of regulation applicable to us. This is one factor among

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several that may enable our competitors to offer wholesale funding on terms that we are not able to offer and that members deem more desirable than the terms we offer on our advances.

The availability to our members of different products from alternative funding sources, with terms more attractive than the terms of products we offer, as can happen from time-to-time, may significantly decrease the demand for our advances and/or loan purchases. Further, any changes we make in the pricing of our advances in an effort to compete effectively with these competitive funding sources could decrease the profitability of advances, which could reduce earnings. More generally, a decrease in the demand for advances and/or loan purchases, or a decrease in the profitability of advances and/or mortgage loan investments, could adversely impact our financial condition and results of operations.

The loss of significant members could result in lower demand for our products and services.

At December 31, 2014, our five largest stock-holding members held 33.1 percent of our stock and our largest stock-holding member had affiliates with memberships in other FHLBanks, allowing their affiliates the flexibility of borrowing from other FHLBanks. The loss of significant members or a significant reduction in the level of business they conduct with us is likely to lower overall demand for our products and services in the future and adversely impact our performance.

Also, consolidations within the financial services industry could reduce the number of current and potential members in our district. Industry consolidation could also cause us to lose members whose business and stock investments are so substantial that their loss could threaten our viability. In turn, we might be forced to consider strategic alternatives, which could include a merger with another FHLBank.

A decrease in demand for our products and services due to the loss of significant members could adversely impact our results of operations and financial condition, the impact of which could be greater during periods when we are experiencing losses or reduced net income.

We are subject to a complex body of laws and regulations, which could change in a manner detrimental to our business operations and/or financial condition.

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and as such, are governed by federal laws and regulations promulgated, adopted, and applied by the FHFA, an independent agency in the executive branch of the federal government that regulates the FHLBanks, Fannie Mae, and Freddie Mac. Congress may amend the FHLBank Act or other statutes in ways that significantly affect (1) the rights and obligations of the FHLBanks and (2) the manner in which the FHLBanks carry out their mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the FHFA or other financial services regulators could adversely impact our ability to conduct business or the cost of doing business.

For example, we note that Congress, the Obama administration, and various federal agencies have advanced plans to reform the federal support of U.S. housing finance, specifically targeting Fannie Mae and Freddie Mac. These plans are likely to directly and indirectly impact other GSEs that support the U.S. housing market, including the FHLBanks. Any such reforms that are implemented could adversely impact the profitability of the FHLBanks or limit future growth opportunities.

As another example, we note that the FHFA has proposed a rule on FHLBank membership that would, among other things, decrease the types of institutions eligible for FHLBank membership which could, in turn, result in lower demand for advances and other Bank products and services. For additional information on that proposed rule, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments — Proposed Rule on FHLBank Membership.

We cannot predict what additional regulations will be issued or what additional legislation will be enacted, and we cannot predict the effect of any such additional regulations or legislation on our business operations and/or financial condition. Additional changes in regulatory or statutory requirements could result in, for example, an increase in the FHLBanks' cost of funding, a change in permissible business activities, limitations on advances made to our members, or a decrease in the size, scope, or nature of the FHLBanks' lending, investment, or mortgage-financing activities, all and any of which could adversely impact our financial condition and results of operations.

Our dividend practices could decrease demand for our products that require capital stock purchases and/or result in withdrawals from membership.

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Historically, the board has varied dividend declarations based on our financial condition, outlook and economic environment. For example, from November 2008 until January 2011, the board did not declare any dividends based on our focus on accumulating retained earnings toward our retained earnings target at the time. As our financial condition and outlook improved, the board recommenced declaring dividends, and dividends have been declared each quarter since that time. Nonetheless, if our financial performance or condition were to deteriorate significantly in the future, our board of directors could determine to reduce or eliminate dividends.

Should the board of directors determine to suspend or lower dividend declarations, we could experience decreased member demand for our products requiring capital stock purchases and/or withdrawals from membership that could adversely impact our business operations and financial condition.

Limiting or ending repurchases of excess stock from members could decrease demand for advance products and increase membership withdrawals.

From December 8, 2008, until January 1, 2015, we maintained a general moratorium on excess stock repurchases although we completed several partial repurchases of excess stock during that period. A period of limited excess stock repurchases could provide an incentive for members to limit certain of their business with us to avoid associated stock purchase requirements and a disincentive to prospective members from becoming members, either of which could adversely impact our business operations and financial condition.

An NRSRO's downgrade of the U.S. federal government's credit ratings could adversely impact our funding costs and/or access to the capital markets, require us to deliver collateral to certain derivatives counterparties, and/or adversely impact demand for certain of our products.

Certain of the NRSROs have indicated that the credit ratings of the FHLBanks are constrained by the credit ratings of the U.S. federal government. Accordingly, a downgrade of the U.S. federal government's credit rating by such an NRSRO is likely to be followed by a similar downgrade of the FHLBanks. Further downgrades of the U.S. federal government (and, in turn, the FHLBanks) are possible, and any resulting downgrades to our credit ratings could adversely impact our funding costs and/or market access. Additionally, further downgrades could trigger obligations to deliver collateral (in some cases, in addition to amounts already delivered, depending on the downgrade) to certain derivatives counterparties to which we are a net obligor, as discussed under Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Derivatives and Hedging Activities and Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Derivative Instruments — Derivative Instruments Credit Risk. Further, member and housing associate demand for certain of our products, such as letters of credit and standby bond purchase agreements, is influenced by our credit ratings and downgrade of our credit ratings could weaken or eliminate demand for such products. To the extent that we cannot access funding when needed on acceptable terms to effectively manage our cost of funds or demand for our products falls, our financial condition and results of operations could be adversely impacted.

Negative information about the FHLBanks or housing GSEs in general could adversely impact our cost and availability of financing, or could limit membership growth.

Negative information about us or any other FHLBank, such as material losses or increased risk of losses, could also adversely impact our cost of funds. More broadly, negative information about housing GSEs, in general, could adversely impact us. Potential sources of negative information about the FHLBanks include NRSROs, the FHFA, and its Office of the Inspector General. Further, an FHFA rule annually requires us to perform stress tests under various scenarios and make the results of a severely adverse economic conditions test publicly available. The results of the stress test, or the public’s reaction to the results, could adversely impact the Bank.

The housing GSEs Fannie Mae, Freddie Mac, and the FHLBanks issue highly rated agency debt to fund their operations. From time to time negative announcements by any of the housing GSEs concerning accounting problems, risk-management issues, and regulatory enforcement actions have created pressure on debt pricing for all GSEs, as investors have perceived such instruments as bearing increased risk.

Any such negative information or other factors could result in the FHLBanks having to pay a higher rate of interest on COs to make them attractive to investors. If we maintain our existing pricing on our advances products and other services notwithstanding increases in CO interest rates, the spreads we earn would fall and our results of operations would be adversely impacted. If, in response to this decrease in spreads, we change the pricing of our advances, the advances may be less attractive to members, and the amount of new advances and our outstanding advance balances may decrease. In either case, the increased cost of issuing COs could adversely impact our financial condition and results of operations. Moreover, such negative

18

information could deter prospective members from becoming members and could adversely impact our financial condition and results of operations.

We could fail to meet our minimum regulatory capital requirements and/or maintain a capital classification of "adequately capitalized," which could result in prohibitions on dividends, excess stock repurchases, capital stock redemptions, and additional regulatory prohibitions.

We are required to satisfy certain minimum regulatory capital requirements, including risk-based capital requirements and certain regulatory capital and leverage ratios, and are subject to the FHFA's regulation on FHLBank capital classification and critical capital levels (the Capital Rule), as described in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital. Any failure to satisfy these requirements will result in our becoming subject to certain capital restoration requirements and being prohibited from paying dividends and redeeming or repurchasing capital stock without the prior approval of the FHFA.

The Capital Rule, among other things, establishes criteria for four capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An adequately capitalized FHLBank is one that has sufficient permanent and total capital to satisfy its risk-based and minimum capital requirements. We satisfied these requirements at December 31, 2014. However, pursuant to the Capital Rule, the FHFA has discretion to reclassify an FHLBank and modify or add to corrective action requirements for a particular capital classification. If we become classified into a capital classification other than adequately capitalized, we would be subject to the corrective action requirements for that capital classification in addition to being subject to prohibitions on declaring dividends and redeeming or repurchasing capital stock.

We could be subject to enforcement action by the FHFA that could result in prohibitions on dividends, excess stock repurchases, and capital stock redemptions and/or adversely impact our results of operations.

The FHFA is the FHLBank System's safety and soundness regulator and has broad powers to cause us to take or refrain from taking certain actions including, but not limited to, paying dividends, repurchasing excess stock, redeeming capital stock, increasing or decreasing our total assets, and curtailing our investing activities.

Our efforts to maintain adequate capital levels could impede our ability to generate asset growth including, but not limited to, meeting member advance requests.

We are mandated to maintain minimum regulatory capital thresholds including, but not limited to, a minimum regulatory capital ratio of 4.0 percent, which is a percentage equal to permanent capital divided by total assets. Moreover, we have a policy that requires us to maintain a minimum regulatory capital amount equal to 4.0 percent of total assets plus our minimum retained earnings target. As a condition for borrowing advances from us, members are required to invest in capital stock, permitting members to leverage their stock investment to borrow at multiples of that stock investment. In certain scenarios, members seeking to leverage their excess stock availability may be unable to borrow at the fullest capacity if overall asset growth causes our total regulatory capital ratio to fall below 4.0 percent, even after discretionary assets, including, but not limited to, short-term investments, are disposed.

We could become primarily liable for all or a portion of the COs of the other FHLBanks, which could adversely impact our financial condition and results of operations.

Each of the FHLBanks relies upon the issuance of COs as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, we are jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether we receive all or any portion of the proceeds from any particular issuance of COs. The FHFA, at its discretion, may require any FHLBank to make principal or interest payments due on any COs, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation (although this has never happened). Accordingly, we could incur significant liability beyond our primary obligation under COs due to the failure of other FHLBanks to meet their obligations, which could adversely impact our financial condition and results of operations.

Loan-modification programs could adversely impact the value of our investments in MBS and mortgage loans.

Federal and state government authorities, as well as private entities, such as financial institutions and the servicers of residential mortgage loans, have proposed, commenced, or promoted implementation of programs intended to provide homeowners with assistance in avoiding residential mortgage loan foreclosures. Loan-modification programs, as well as future legislative, regulatory or other actions, including, for example, amendments to the bankruptcy laws or the use of eminent domain, in each

19

case resulting in the modification of outstanding mortgage loans via the reduction of interest rates or principal balances of modified mortgage loans, could adversely impact the value of and the returns from our investments in MBS and mortgage loans.

Compliance with regulatory contingency liquidity requirements could adversely impact our results of operations.

We are required to maintain sufficient liquidity through short-term investments in an amount at least equal to our cash outflows under two different scenarios, as discussed in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources. The requirement is designed to enhance our protection against temporary disruptions in access to the capital markets resulting from a rise in capital markets volatility. To satisfy this additional requirement, we maintain balances in shorter-term investments, which could earn lower interest rates than alternate investment options and could, in turn, adversely impact net interest income. In certain circumstances, we may need to fund overnight or shorter-term advances with short-term discount notes that have maturities beyond the maturities of the related advances, thus increasing our short-term advance pricing or reducing net income through lower net interest spread. To the extent these increased prices make our advances less competitive, advance levels and, therefore, our net interest income could be adversely impacted.

MARKET AND LIQUIDITY RISKS

Prolonged, low interest rates could continue to adversely impact our financial condition and results of operations.

Like many financial institutions, we realize a significant portion of our income from the spread between interest earned on our outstanding loans and investments and interest paid on our borrowings and other liabilities, as measured by our net interest spread. However, the Federal Open Market Committee (the FOMC) has taken and could continue several measures intended to maintain low short-term and longer-term interest rates. These measures as well as other systemic events could continue to result in a prolonged low interest-rate environment. A continued and prolonged low interest-rate environment could continue to adversely impact us in various ways, including lower market yields on investments and faster prepayments on our investments with associated reinvestment risk. Our investment income and, in turn, our financial condition and results of operations, could be adversely impacted to the extent that the foregoing, or similar, risks are realized.

Changes in interest rates could adversely impact our financial condition and results of operations.

Although we use various methods and procedures to monitor and manage exposures due to changes in interest rates, we could experience instances when either our interest-bearing liabilities will be more sensitive to changes in interest rates than our interest-earning assets, or vice versa. These impacts could be exacerbated by prepayment risk, which is the risk that mortgage-related assets will be refinanced and prepaid in low interest-rate environments. The realization of such risk could require us to reinvest the proceeds at lower, and possibly negative, spreads, or will remain outstanding at below-market yields when interest rates increase. Moreover, accelerated prepayments in a low interest-rate environment could result in elevated levels of premium expense recognition due to the fact that the majority of our mortgage assets were purchased at premium prices. In any case, changes in interest rates could adversely impact our financial condition and results of operations.

Any inability of the Bank to access the capital markets could adversely impact our business operations, financial condition, and results of operations.

Our primary source of funds is the sale of COs in the capital markets. Our ability to obtain funds through the sale of COs depends in part on prevailing conditions in the capital markets at that time, which are beyond our control. Accordingly, 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 our operations would be adversely impacted, which would thereby adversely impact our financial condition and results of operations.

CREDIT RISKS

We are subject to credit-risk exposures related to the loans that back our investments. Increased delinquency rates and credit losses beyond those currently expected could adversely impact the yield on or value of those investments.

We invested in private-label MBS until the third quarter of 2007. These investments are backed by prime, subprime, and/or Alt-A hybrid and pay-option adjustable-rate mortgage loans. Many of these investments have sustained and will sustain credit losses under current modeling assumptions, and have been downgraded by various NRSROs. As described under Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates,

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other-than-temporary-impairment assessment is a subjective and complex determination by management. The assumptions we made for our other-than-temporary-impairment assessments of our private-label MBS resulted in projected future credit losses, thereby causing other-than-temporary impairment losses from certain of these securities. We incurred credit losses of $1.6 million for private-label MBS that we determined were other-than-temporarily impaired for the year ended December 31, 2014. If macroeconomic trends or collateral credit performance within our private-label MBS portfolio deteriorate further than currently anticipated, or if foreclosures or similar activity are delayed or impeded, we may use even more stressful assumptions, including, but not limited to, lower house prices, higher loan-default rates, and higher loan-loss severities in future other-than-temporary impairment assessments.

Declines in U.S. home prices or in activity in the U.S. housing market or rising delinquency or default rates on mortgage loans could result in credit losses and adversely impact our business operations and/or financial condition.

A deterioration of the U.S. housing market and national decline in home prices could adversely impact the financial condition of a number of our borrowers, particularly those whose businesses are concentrated in the mortgage industry. One or more of our borrowers may default on their obligations to us for a number of reasons, such as changes in financial condition, a reduction in liquidity, operational failures, or insolvency. In addition, the value of residential mortgage loans pledged to us as collateral may decrease. If a borrower defaults, and we are unable to obtain additional collateral to make up for the reduced value of such residential mortgage loan collateral, we could incur losses. A default by a borrower lacking sufficient collateral to cover its obligations to us could result in significant financial losses, which would adversely impact our results of operations and financial condition. Our top five advances borrowing members by par value of outstanding advances are set forth in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Advances in the table captioned “Top Five Advance-Borrowing Institutions.”

Further, as discussed in Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates, our methodology for determining our allowance for loan losses is determined based on our investments in MPF loans and considers factors relevant to those investments. Important factors in determining this allowance are the delinquency rates and trends in the delinquency rates on our investments in conventional mortgage loans. If delinquency or default rates rise for these investments or other factors in determining the allowance worsen, we may determine to increase our allowance for loan losses, which would adversely impact our results of operations and financial condition.

We have geographic concentrations that could adversely impact our business operations and/or financial condition.

We, by nature of our charter and our business operations, are exposed to credit risk resultant from limited geographic diversity. Our advances business is generally limited to operations within our district. While we employ conservative credit rating and collateral practices to limit exposure, a decline in our district's economic conditions could create a credit exposure to our members' advances obligations in excess of collateral held.

We have concentrations of mortgage loans in some geographic areas based on our investments in MPF loans and private-label MBS and on our receipt of collateral pledged for advances. See Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Mortgage Loans for additional information on these concentrations. To the extent that any of these geographic areas experience significant declines in the local housing markets, declining economic conditions, or a natural disaster, we could experience increased losses on our investments in the MPF loans or the related MBS or be exposed to a greater risk that the pledged collateral securing related advances would be inadequate in the event of default on such an advance.

Counterparty credit risk could adversely impact us.

We assume counterparty credit risk through our money-market and derivatives transactions. Our counterparties include major domestic and international financial institutions. The insolvency or other inability of a significant counterparty to perform its obligations under such transactions or other agreements could have an adverse impact on our financial condition and results of operations.

OPERATIONAL RISKS

The inability to retain key personnel could adversely impact our operations.

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We rely on key personnel for many of our functions and have a relatively small workforce, given the size and complexity of our business. Our ability to retain such personnel is important to our ability to conduct our operations and measure and maintain risk and financial controls. Our ability to retain key personnel could be challenged as the U.S. employment market improves.

We rely heavily upon information systems and other technology and any disruption or failure of such information systems or other technology could adversely impact our reputation, financial condition, and results of operations.

We rely heavily on our information systems and other technology to conduct and manage our business, and so failures or interruptions of these information systems or other technology could have a material adverse impact on our financial condition and results of operations as discussed under Item 1 — Business — Risk Management — Operational Risk. Additionally, most of our information systems have been co-located with a third-party service provider on which we are reliant to provide a secure location and a stable operating environment for these systems. Any failure to provide such stability or security by the third-party service provider could result in failures or interruptions in our ability to conduct business. Further, our AHP, MPF, and certain collateral activities rely on the secure processing, storage, and transmission of a large volume of private borrower information, such as names, residential addresses, social security numbers, credit rating data, and other consumer financial information. This information could be exposed in several ways, including through unauthorized access to our computer systems, computer viruses that attack our computer systems, software or networks, accidental delivery of information to an unauthorized party, and loss of encrypted media containing this information. Any of these events could result in financial losses, legal and regulatory sanctions, and reputational damage.

We rely on third parties for certain important services and could be adversely impacted by disruptions in those services.

We rely on third parties to provide certain important services. For example, in participating in the MPF program, we rely on the FHLBank of Chicago in its capacity as the MPF Provider. Our investments in mortgage loans through the MPF program account for 6.3 percent of our total assets as of December 31, 2014, and 22.5 percent of interest income for the year ended December 31, 2014. If the FHLBank of Chicago changes, or ceases to operate the MPF program or experiences a failure or interruption in its information systems and other technology in its operation of the MPF program, our mortgage-investment business could be adversely impacted, and we could experience a related decrease in net interest margin, financial condition, and profitability. In the same way, we could be adversely impacted if any of the FHLBank of Chicago's third-party vendors engaged in the operation of the MPF program were to experience operational or technological difficulties.

As another example, we rely on the Office of Finance for, among other things, the placement of COs, which are our primary source of funds. A disruption in this service would disrupt our access to these funds, as also discussed under — Market and Liquidity Risks — Any inability of the Bank to access the capital markets could adversely impact our business operations, financial condition, and results of operations.

We rely on models for many of our business operations and changes in the assumptions used could have a significant effect on our financial position, results of operations, and assessments of risk exposure.

For example, we use models to assist in our determination of the fair values of financial instruments. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments 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. Pricing models and their underlying changes in assumptions are based on our best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions could have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities. While the models we use to value instruments and measure risk exposures are subject to periodic validation by our staff and by independent parties, rapid changes in market conditions in the interim could impact our financial position. The use of different models and assumptions, as well as changes in market conditions, could significantly impact our financial condition and results of operations.

We use derivatives to manage our interest-rate risk, however, we could be unable to enter into effective derivative instruments on acceptable terms.

We use derivatives to reduce our interest-rate risk. If, due to an absence of creditworthy swap dealers or guarantors, we are unable to manage our hedging positions properly, or we are unable to enter into hedging instruments upon acceptable terms, we could be unable to effectively manage our interest-rate and other risks without altering our business strategies, which could adversely impact our financial condition and results of operations.

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ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

We occupy approximately 54,000 rentable square feet in the Prudential Tower, 800 Boylston Street, Boston, Massachusetts 02199 that serves as our headquarters. We also maintain 9,969 square feet of leased property for an off-site back-up facility in Westborough, Massachusetts.

We believe our properties are adequate to meet our requirements for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Private-label MBS Complaint

On April 20, 2011, we filed a complaint (the original complaint) in the Superior Court Department of the Commonwealth of Massachusetts in Suffolk County, against various securities dealers, underwriters, control persons, issuers/depositors, and credit rating agencies based on our investments in certain private-label MBS issued by 115 securitization trusts for which we originally paid approximately $5.8 billion. Since the original complaint was filed, the defendants filed certain notices of removal to remove the case to the United States District Court for the District of Massachusetts. On March 9, 2012, our motion to remand the matter to state court was denied.

On June 29, 2012, we filed an amended complaint (the amended complaint) in the United States District Court for the District of Massachusetts against various securities dealers, underwriters, control persons, issuers/depositors, and credit rating agencies based on our investments in certain private-label MBS issued by 111 securitization trusts for which we originally paid approximately $5.7 billion. The amended complaint asserts, as the original complaint had asserted, claims based on untrue or misleading statements in the sale of securities, signing or circulating securities documents that contained material misrepresentations and omissions, negligent misrepresentation, unfair or deceptive trade practices, fraud by the rating agencies, and controlling person liability. We are seeking various forms of relief including rescission, recovery of damages, recovery of purchase consideration plus interest (less income received to date), and recovery of reasonable attorneys' fees and costs of suit.

On September 30, 2013, the court issued orders granting and denying motions to dismiss filed by the defendants. More specifically, the court:

• upheld claims based on negligent misrepresentation and unfair or deceptive trade practices against non-rating agency defendants;

• upheld claims based on fraud but dismissed claims based on negligent misrepresentation and unfair or deceptive trade practices against rating agency defendants;

• upheld claims based on the Massachusetts Uniform Securities Act against underwriter and corporate seller defendants, but dismissed such claims against issuer/depositor defendants and control person defendants (with respect to claims that were premised solely on control of an issuer/depositor); and

• dismissed the claims against DB Structured Products, Inc. that were solely premised on a claim of its successor liability.

On January 28, 2014, Moody's Investors Service, Inc., Moody's Corporation, McGraw Hill Financial, Inc. and Standard & Poor's Financial Services LLC (the credit rating agency defendants) filed renewed motions for reconsideration of their previously denied motions to dismiss the claims against these defendants based on lack of jurisdiction or, alternatively, for leave to make an immediate appeal. We simultaneously filed a separate motion to sever and transfer the claims against the credit rating agency defendants to the U.S. District Court for the Southern District of New York.

On September 30, 2014, the court dismissed our claims against the credit rating agency defendants, based on a recent Supreme Court case. The court held that the United States District Court for the District of Massachusetts (the Massachusetts District Court) lacks personal jurisdiction over our claims against the credit rating agency defendants and declined to grant our motion to transfer those claims to another federal district court that does have personal jurisdiction. The court certified the ruling for immediate appeal. To preserve our rights with respect to a permissive appeal, on October 10, 2014, we sought permission from the United States Court of Appeals for the First Circuit to appeal. Later that same month, we filed a notice of appeal to preserve our right to appeal under a separate grant of appellate jurisdiction. On October 14, 2014, we entered into tolling agreements with the credit rating agency defendants regarding the claims we had asserted against them in the Massachusetts District Court. Those agreements toll the statute of limitations for purposes of our filing a possible new action in a different jurisdiction, which we may determine is appropriate in the event our appeal is not successful.

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In addition to our appeal with respect to the dismissal of our claims against Moody’s and S&P, we continue to pursue claims in this litigation against the following and/or their affiliates and subsidiaries and/or entities under their control or controlled by affiliates or subsidiaries thereof: Barclays Capital Inc.; The Bear Stearns Companies LLC; Credit Suisse (USA), Inc.; DB Structured Products, Inc.; DB U.S. Financial Market Holding Corporation; EMC Mortgage Corporation; Impac Mortgage Holdings, Inc.; JPMorgan Chase & Co.; Morgan Stanley; Nomura Holding America, Inc.; RBS Holdings USA Inc.; UBS Americas Inc.; and WaMu Capital Corp.

Citizens Bank, N.A., which is affiliated with RBS Holdings USA Inc., but is not a defendant in the complaint, is a member of the Bank and held approximately 11.7 percent of our capital stock (including mandatorily redeemable capital stock) as of December 31, 2014.

During the year endedDecember 31, 2014, we agreed with certain defendants in our private-label MBS litigation to settle our claims against them for an aggregate amount of $22.0 million (which amount is net of legal fees and expenses).

Class Action Complaint

On January 13, 2014, we filed a class action complaint (the class action complaint) in the Superior Court Department of the Commonwealth of Massachusetts in Suffolk County, against EMC Mortgage Corporation and Bear, Stearns & Co., Inc. now known as J.P. Morgan Securities, LLC, based on our investment in certain private-label MBS trusts. The class action complaint asserts claims of conversion, unjust enrichment, and violation of Massachusetts statutory law based on the withholding of value that rightfully belonged to the private-label MBS trusts. We are seeking various forms of relief including restitution, recovery of damages, and reasonable attorneys' fees and costs of suit.

Other Legal Proceedings

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

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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PART II

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

The par value of our capital stock is $100 per share. Our stock is not publicly traded and can be purchased only by our members at par. As of February 28, 2015, 448 members and 6 nonmembers held a total of 24.9 million shares of our Class B stock. Our capital plan provides us with the authority to issue Class A capital stock, $100 par value per share (Class A stock). However, we have not issued and do not intend to issue Class A stock at this time.

Dividends are solely within the discretion of our board of directors. The board of directors declared dividends during 2014, 2013, and 2012 as set forth in the below table. Dividend rates are quoted in the form of an interest rate, which is then applied to each stockholder's average capital-stock-balance outstanding during the preceding calendar quarter to determine the dollar amount of the dividend that each stockholder will receive. The dividend rate was based upon a spread to average short-term interest rates experienced during the quarter.

Quarterly Dividends Declared (dollars in thousands)
	2014						2013						2012
Dividends Declared in the Quarter Ending	Average Capital Stock (1) during preceding quarter		Dividend Amount (2)		Annualized Dividend Rate		Average Capital Stock (1) during preceding quarter		Dividend  Amount (2)		Annualized Dividend Rate		Average Capital Stock (1) during preceding quarter		Dividend  Amount (2)		Annualized Dividend Rate
March 31	$	2,466,229	$	9,262	1.49	%	$	3,439,178	$	3,199	0.37	%	$	3,597,733	$	4,443	0.49	%
June 30	2,544,005		9,347		1.49		3,403,198		3,357		0.40		3,569,114		4,615		0.52
September 30	2,504,180		9,240		1.48		2,381,304		2,256		0.38		3,413,061		4,413		0.52
December 31	2,415,369		9,071		1.49		2,423,200		2,260		0.37		3,426,296		4,134		0.48

_________________________

(1) Average capital stock amounts do not include average balances of mandatorily redeemable stock.

(2) The dividend amounts do not include the interest expense on mandatorily redeemable stock.

On February 19, 2015, our board of directors declared a cash dividend that was equivalent to an annual yield of 1.74 percent, the approximate daily average three-month LIBOR for the fourth quarter of 2014 plus 150 basis points. The dividend amount, based on average daily balances of Class B shares outstanding for the fourth quarter of 2014 totaled $10.5 million and was paid on March 3, 2015. In declaring the dividend, the board stated that it expects to follow this formula for declaring cash dividends through 2015, though a quarterly loss or a significant adverse event or trend would cause a dividend to be reduced or suspended.

Dividends are declared and paid in accordance with a schedule adopted by the board of directors that enables our board of directors to declare each quarterly dividend after net income is known, rather than basing the dividend on estimated net income. For example, in 2014, quarterly dividends were declared in February, April, July, and October based on the immediately preceding quarter's net income and were paid on the second business day of the month that followed the month of declaration. We expect to continue this approach through 2015.

Dividends may be paid only from current net earnings or previously retained earnings. In accordance with the FHLBank Act and FHFA regulations, we may not declare a dividend if we are not in compliance with our minimum capital requirements or if we would fall below our minimum capital requirements or would not be adequately capitalized as a result of a dividend except, in this latter case, with the Director of the FHFA's permission. Further, we may not pay dividends if the principal and interest due on any CO issued through the Office of Finance on which we are the primary obligor has not been paid in full, or under certain circumstances, if we become a noncomplying FHLBank as that term is defined in FHFA regulations as a result of any inability to either comply with regulatory liquidity requirements or satisfy our current obligations.

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We maintain a policy providing that when our minimum retained earnings target exceeds the level of our retained earnings, the quarterly dividend payout cannot exceed 40 percent of our earnings for the quarter. Our minimum retained earnings target was $700.0 million as of December 31, 2014, compared with $901.7 million in retained earnings at December 31, 2014.

We may not pay dividends in the form of capital stock or issue new excess stock to members if our excess stock exceeds 1.0 percent of our total assets or if the issuance of excess stock would cause our excess stock to exceed 1.0 percent of our total assets. At December 31, 2014, we had excess stock outstanding totaling $633.0 million or 1.1 percent of our total assets.

Should we determine to issue Class A stock, dividends declared on Class A stock may differ from dividends declared on Class B stock but may not exceed dividends declared on Class B stock.

We maintain a policy establishing a minimum capital level in excess of regulatory requirements to provide further protection for our capital base. This adopted minimum capital level provides that we will maintain a minimum capital level equal to 4.0 percent of total assets plus our minimum retained earnings target, an amount equal to $2.9 billion at December 31, 2014. Our permanent capital level was $3.6 billion at December 31, 2014, so we were in excess of this requirement by $709.1 million on that date. If necessary to satisfy this adopted minimum capital level, however, we will take steps to control asset growth and/or maintain capital levels, the latter of which may limit future dividends.

Our capital plan and the Joint Capital Agreement require us to allocate 20 percent of our net income to a separate restricted retained earnings account. The Joint Capital Agreement requires each FHLBank to make such contributions until the total amount in the restricted retained earnings account is at least equal to 1.0 percent of the daily average carrying value of that FHLBank's outstanding total COs (excluding fair-value adjustments) for the calendar quarter. Amounts in the restricted retained earnings account cannot be used to pay dividends. As of December 31, 2014, $136.8 million of our retained earnings are amounts in the restricted retained earnings account compared with our total contribution requirement of $484.7 million at that date. For additional information on the Joint Capital Agreement, see Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Internal Capital Practices and Policies — Restricted Retained Earnings and the Joint Capital Agreement.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for each of the five years ended December 31, 2014, 2013, 2012, 2011, and 2010, have been derived from our audited financial statements. Financial information is included elsewhere in this report in regard to our financial condition as of December 31, 2014 and 2013, and our results of operations for the years ended December 31, 2014, 2013, and 2012. This selected financial data should be read in conjunction with the financial statements and the related notes appearing in this report.

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SELECTED FINANCIAL DATA
(dollars in thousands)
	December 31,
	2014			2013			2012			2011			2010
Statement of Condition
Total assets	$	55,106,677		$	44,638,076		$	40,209,017		$	49,968,337		$	58,647,301
Investments(1)	16,879,299			12,981,340			15,554,057			21,379,548			27,134,475
Advances	33,482,074			27,516,678			20,789,704			25,194,898			28,034,949
Mortgage loans held for portfolio, net(2)	3,483,948			3,368,476			3,478,896			3,109,223			3,245,954
Deposits and other borrowings	369,331			517,565			594,968			654,246			745,521
Consolidated obligations:
Bonds	25,505,774			23,465,906			26,119,848			29,879,460			35,102,750
Discount notes	25,309,608			16,060,781			8,639,048			14,651,793			18,524,841
Total consolidated obligations	50,815,382			39,526,687			34,758,896			44,531,253			53,627,591
Mandatorily redeemable capital stock	298,599			977,348			215,863			227,429			90,077
Class B capital stock outstanding-putable(3)	2,413,114			2,530,471			3,455,165			3,625,348			3,664,425
Unrestricted retained earnings	764,888			681,978			523,203			375,158			249,191
Restricted retained earnings	136,770			106,812			64,351			22,939			—
Total retained earnings	901,658			788,790			587,554			398,097			249,191
Accumulated other comprehensive loss	(436,986		)	(481,516		)	(476,620		)	(534,411		)	(638,111		)
Total capital	2,877,786			2,837,745			3,566,099			3,489,034			3,275,505
Results of Operations
Net interest income	$	213,292		$	255,855		$	312,448		$	305,976		$	297,583
Provision (reduction of provision) for credit losses	61			(1,954		)	(3,127		)	(831		)	6,701
Net impairment losses on held-to-maturity securities recognized in earnings	(1,579		)	(2,566		)	(7,173		)	(77,067		)	(84,762		)
Litigation settlements	22,000			53,305			2,317			—			—
Other (loss) income	(586		)	(7,295		)	(17,252		)	23,841			(1,482		)
Other expense	65,655			64,717			63,283			65,099			59,564
AHP and REFCorp assessments (4)	17,623			24,229			23,122			28,890			38,489
Net income	$	149,788		$	212,307		$	207,062		$	159,592		$	106,585
Other Information
Dividends declared	$	36,920		$	11,071		17,605			$	10,686		$	—
Dividend payout ratio(5)	24.65		%	5.21		%	8.50		%	6.70		%	N/A
Weighted-average dividend rate(6)	1.49			0.38			0.50			0.30			N/A
Return on average equity(7)	5.24			7.40			6.03			4.73			3.52		%
Return on average assets	0.29			0.54			0.45			0.30			0.17
Net interest margin(8)	0.41			0.65			0.68			0.58			0.47
Average equity to average assets	5.50			7.26			7.39			6.41			4.81
Total regulatory capital ratio(9)	6.56			9.63			10.59			8.51			6.83

_______________________

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

(2) The allowance for credit losses amounted to $2.0 million, $2.2 million, $4.4 million, $7.8 million, and $8.7 million for the years ended December 31, 2014, 2013, 2012, 2011, and 2010, respectively.

(3) Capital stock is putable at the option of a member, subject to applicable restrictions.

(4) Prior to the satisfaction of the FHLBanks' REFCorp obligation in the second quarter of 2011, each FHLBank was required to pay to REFCorp 20 percent of net income calculated in accordance with GAAP after the assessment for the AHP, but before the assessment for the REFCorp until the total amount of payments actually made was equivalent to a $300 million

27

annual annuity whose final maturity date was April 15, 2030. The FHFA shortened or lengthened the period during which the FHLBanks made payments to REFCorp based on actual payments made relative to the referenced annuity.

(5) The dividend payout ratio for 2010 is not meaningful.

(6) Weighted-average dividend rate is the dividend amount declared divided by the average daily balance of capital stock eligible for dividends. See Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities for additional information.

(7) Return on average equity is net income divided by the total of the average daily balance of outstanding Class B capital stock, accumulated other comprehensive loss and total retained earnings.

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

(9) Total regulatory capital ratio is capital stock (including mandatorily redeemable capital stock) plus total retained earnings as a percentage of total assets. See Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Capital.

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

Forward-Looking Statements

This report includes statements describing anticipated developments, projections, estimates, or future predictions of ours that are “forward-looking statements.” These statements may use forward-looking terminology such as, but not limited to, “anticipates,” “believes,” “expects,” “plans,” “intends,” “may,” “could,” “estimates,” “assumes,” “should,” “will,” “likely,” or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the risk factors set forth in Item 1A — Risk Factors and the risks set forth below. Accordingly, we caution that actual results could differ materially from those expressed or implied in these forward-looking statements or could impact the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, you are cautioned not to place undue reliance on such statements. We do not undertake to update any forward-looking statement herein or that may be made from time to time on our behalf.

Forward-looking statements in this report may include, among others, our expectations for:

• income, retained earnings, and dividend payouts;

• repurchases of excess stock;

• credit losses on advances and investments in mortgage loans and ABS, particularly private-label MBS;

• balance-sheet changes and components thereof, such as changes in advances balances and the size of our portfolio of investments in mortgage loans;

• our minimum retained earnings target; and

• the interest-rate environment in which we do business.

Actual results may differ from forward-looking statements for many reasons, including, but not limited to:

• changes in interest rates, the rate of inflation (or deflation), housing prices, employment rates, and the general economy, including changes resulting from changes in U.S. fiscal policy or ratings of the U.S. federal government;

• changes in demand for our advances and other products;

• the willingness of our members to do business with us;

• changes in the financial health of our members;

• changes in borrower defaults on mortgage loans;

• changes in the credit performance and loss severities of our investments;

• changes in prepayment rates on advances and investments;

• the value of collateral we hold as security for obligations of our members and counterparties;

• issues and events across the FHLBank System and in the political arena that may lead to legislative, regulatory, judicial, or other developments impacting demand for COs, our financial obligations with respect to COs, our ability to access the capital markets, our members, the manner in which we operate, or the organization and structure of the FHLBank System;

• competitive forces including, without limitation, other sources of funding available to our members, other entities borrowing funds in the capital markets, and our ability to attract and retain skilled employees;

28

• the pace of technological change and our ability to develop and support technology and information systems sufficient to manage the risks of our business effectively;

• the loss of members due to, among other ways, member withdrawals, mergers and acquisitions;

• changes in investor demand for COs;

• changes in the terms or availability of derivatives and other agreements we enter into in support of our business operations;

• the timing and volume of market activity;

• the volatility of reported results due to changes in the fair value of certain assets and liabilities, including, but not limited to, private-label MBS;

• our ability to introduce new (or adequately adapt current) products and services and successfully manage the risks associated with our products and services, including new types of collateral used to secure advances;

• losses arising from litigation filed against us or one or more of the other FHLBanks;

• gains resulting from legal claims we have;

• losses arising from our joint and several liability on COs;

• significant business disruptions resulting from vendor or third-party failure natural or other disasters, cyberincidents, acts of war, or terrorism; and

• new accounting standards.

These risk factors are not exhaustive. New risk factors emerge from time to time. We cannot predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements.

EXECUTIVE SUMMARY

Our success in 2014 yielded continued improvements in the value we provide our members. Our financial condition continued to strengthen with retained earnings growing to $901.7 million at December 31, 2014, from $788.8 million at December 31, 2013, a surplus of $201.7 million over our minimum retained earnings target, as we continue to satisfy all regulatory capital requirements as of December 31, 2014. Our improving financial condition enabled us to lift the general moratorium on repurchases of excess stock, which was the last continuing capital preservation measure we had in place as a result of losses and potential losses arising from our investments in private-label MBS. We were also able to maintain a dividend spread of 125 basis points over the daily average three-month LIBOR on which our quarterly dividends were based throughout 2014, and the dividend declared on February 19, 2015, represents a spread of 150 basis points over the daily average three-month LIBOR. Although our net income declined to $149.8 million for the year ended December 31, 2014, from $212.3 million for the year ended December 31, 2013, a significant component of the decline is the difference in litigation settlements year-over-year. Our return on average equity was 5.24 percent at December 31, 2014 compared with 7.40 percent at December 31, 2013, a decline of 216 basis points, of which 110 basis points is attributable to the decline in litigation settlements. Compression in net interest margin led to the year-over-year decline in our net interest income, the other significant component of the decline in net income, although the decline in net interest income reflected a return to net interest spreads and margins that were closer to long-term historical norms.

As of January 1, 2015, we lifted the general moratorium on excess stock repurchases in place since December 8, 2008. The moratorium was a key part of our capital preservation strategy when our financial condition was threatened by losses and potential additional losses from our investments in private-label MBS. During the moratorium, we conducted repurchases of excess capital stock (including excess mandatorily redeemable capital stock) from members at the direction of the board of directors totaling $1.5 billion between 2012 and 2014. Repurchases of excess stock have led to reductions in our capital levels, including reductions to mandatorily redeemable capital stock from $977.3 million at December 31, 2013 to $298.6 million at December 31, 2014. Dividend payments on mandatorily redeemable capital stock are classified as interest expense, so the repurchase of this stock should lead to a reduction in interest expense, all other things being equal. For the year ended December 31, 2014, interest expense on mandatorily redeemable capital stock amounted to $8.8 million compared with $5.8 million for the year ended December 31, 2013.

Net Interest Margin

In 2014, we experienced compression in net interest margin, as expected. Net interest margin fell to 0.41 percent for the year ended December 31, 2014, from 0.65 percent for the year ended December 31, 2013. The compression resulted from the run-off of higher-yielding long-term advances, investments and mortgage loans, a reduction in prepayment fee income, and the

29

increase in our dividends paid on mandatorily-redeemable capital stock, which are classified as interest expense. We expect some further compression in 2015 for the stated reasons.

Advances Balances

We continue to deliver on our primary mission, which is supplying liquidity to our members, with advances balances growing to $33.5 billion at December 31, 2014 from $27.5 billion at December 31, 2013. While advances growth was broadly dispersed across our membership and multiple product sectors during this period, the increase was concentrated primarily in lower-margin short-term and floating-rate advances. We cannot predict whether this trend will continue.

Investments in Private-Label MBS

The amortized cost of our total investments in private-label MBS and ABS backed by home-equity loans has declined to $1.3 billion at December 31, 2014, compared with $6.4 billion at its peak in September 30, 2007, and other-than-temporary impairment credit losses recognized in recent periods have dropped significantly from those of earlier periods.

For the year ended December 31, 2014 and 2013, we recognized $36.0 million and $19.7 million, respectively, in interest income resulting from the increased accretable yields of certain private-label MBS for which we had previously recognized credit losses. For a discussion of this accounting treatment, see Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1 — Summary of Significant Accounting Policies — Investment Securities — Other-than-Temporary Impairment — Interest Income Recognition.

Regulatory Developments

We continue to operate in a regulatory environment undergoing profound change with multiple regulations being issued and proposed during the year and into 2015, including those described in — Legislative and Regulatory Developments. Such developments impact the way we conduct business and could impact the way we satisfy our mission as well as the value of our membership.

ECONOMIC CONDITIONS

Economic Environment

Driven by robust job gains, 2014 was the strongest year of the U.S. labor market recovery to date since the end of the recession that commenced in 2008. The economy’s momentum seems to be on a more self-sustaining path moving into 2015, with moderate improvements and persistent growth in employment, wages, and housing prices. Consistent with trends over the past two years, the New England region trails the pace of the national recovery in such areas.

Monthly job growth in 2014 has been the strongest since 1999 and the unemployment rate is down to 5.5 percent, the lowest since mid-2008 and over one percentage point lower than 12 months ago. Both the New England region and the United States experienced similar decreases in unemployment rates during the year, and all of New England except Vermont experienced year-over-year unemployment rate decline.

The United States and New England housing markets continued to improve in 2014, with year-over-year home prices increasing at their fastest pace since 2006. Looking ahead, we would expect that the recent strengthening in the broader economy, accompanied by meaningful income growth, should increase housing market activity, amid historically low mortgage rates and a gradual easing of lending standards.

Interest-Rate Environment

Since 2010 and continuing into 2015, we generally have been operating in a historically low interest-rate environment, which has adversely impacted our results of operations.

We note that on March 18, 2015, the FOMC issued a press release providing that an accommodative stance of monetary policy remains appropriate and that when it decides to take a less accommodative stance, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of two percent.

The interest-rate environment adversely impacts our results of operations. Interest rates continue to hover close to record low levels, compressing the yields and margins that we can earn on our liquidity investments and short-term advances because our

30

funding costs essentially have a floor of zero percent. Moreover, spreads on high-quality interest-bearing assets in which we invest remain low relative to the yields at which we can issue comparable term debt.

The following chart illustrates the interest-rate environment.

The federal funds target rate has remained constant at zero to 0.25 percent during the time periods displayed in the chart above.

RESULTS OF OPERATIONS

Comparison of the year ended December 31, 2014, versus the year ended December 31, 2013

Net income decreased to $149.8 million at December 31, 2014 from $212.3 million at December 31, 2013. The reasons for the decrease are discussed under — Executive Summary.

Net Interest Income

Net interest income for the year endedDecember 31, 2014, decreased $42.6 million from $255.9 million in 2013 to $213.3 million in 2014. Contributing to the decrease in net interest income was a decrease in net prepayment fees of $19.2 million, as well as a narrowing of the spread between interest earned on assets and interest paid on liabilities. Partially offsetting these decreases to net interest income was an increase in interest income resulting from an increase in average earning assets of $12.4 billion from $39.3 billion for 2013, to $51.7 billion for 2014. The increase in average earning assets was driven by an increase of $8.4 billion in average advances and an increase of $4.1 billion in average investment balances. For additional information see — Rate and Volume Analysis. We note that growth in these asset categories was concentrated in low-margin, short-term maturities, which, together with the ongoing decline in higher-yielding, long-term assets, such as MBS and mortgage loans held for portfolio, is a primary contributing factor to the decline in net interest income.

Additionally, $36.0 million of our interest income for the year endedDecember 31, 2014, was from the accretion of discount on securities that were other-than-temporarily impaired in prior periods, but for which a significant improvement in projected cash flows has subsequently been recognized. This represents an increase of $16.3 million from $19.7 million of accretion recorded in 2013.

Notwithstanding the increase in the accretion of discount on securities that were other-than-temporarily impaired in prior periods, but for which a significant improvement in projected cash flows has subsequently been recognized, net interest spread

31

was 0.36 percent for the year endedDecember 31, 2014, a 20 basis point decrease from the same period in 2013, and net interest margin was 0.41 percent, a 24 basis point decrease from the same period in 2013. This trend is attributable to several factors. First, a 41 basis point decrease in the average yield on earning assets (of which five basis points is attributable to declining net prepayment fee income) and a 21 basis point decrease in the average yield on interest-bearing liabilities. Second, much of the growth in advances that has occurred this year has been in low-margin products such as short-term and floating- rate advances, which have replaced higher-yielding advances that have matured or were prepaid. Third, though we were able to refinance much of our higher-cost callable debt in the years between 2008 and 2012, these opportunities have largely been exhausted, but our fixed-rate, mortgage-related assets continue to expire. We have been expecting this compression as noted under — Executive Summary, and anticipate that the trend will continue through at least 2015.

The following table presents major categories of average balances, related interest income/expense, and average yields for interest-earning assets and interest-bearing liabilities. Our primary source of earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments less interest paid on COs, deposits, and other sources of funds.

Net Interest Spread and Margin (dollars in thousands)
	For the Years Ended December 31,
	2014							2013							2012
	Average Balance			Interest Income / Expense		Average Yield		Average Balance			Interest Income / Expense		Average Yield		Average Balance			Interest Income / Expense		Average Yield
Assets
Advances	$	30,029,148		$	236,368	0.79	%	$	21,603,302		$	252,333	1.17	%	$	23,839,576		$	356,408	1.50	%
Securities purchased under agreements to resell	5,039,178			3,048		0.06		2,819,425			2,388		0.08		5,522,049			9,383		0.17
Federal funds sold	4,553,444			3,560		0.08		1,726,425			1,625		0.09		1,514,981			2,101		0.14
Investment securities(1)	8,689,736			190,032		2.19		9,671,840			202,178		2.09		11,974,134			225,929		1.89
Mortgage loans	3,381,904			125,600		3.71		3,456,276			128,232		3.71		3,301,652			136,356		4.13
Other earning assets	7,660			11		0.14		1,061			4		0.38		1,210			6		0.50
Total interest-earning assets	51,701,070			558,619		1.08		39,278,329			586,760		1.49		46,153,602			730,183		1.58
Other non-interest-earning assets	376,461							404,331							482,669
Fair-value adjustments on investment securities	(147,541		)					(155,825		)					(121,859		)
Total assets	$	51,929,990		$	558,619	1.08	%	$	39,526,835		$	586,760	1.48	%	$	46,514,412		$	730,183	1.57	%
Liabilities and capital
Consolidated obligations
Discount notes	$	22,697,109		$	15,461	0.07	%	$	9,106,041		$	6,952	0.08	%	$	12,581,614		$	11,641	0.09	%
Bonds	24,477,324			320,976		1.31		25,130,271			318,174		1.27		28,279,001			404,996		1.43
Deposits	469,845			67		0.01		601,628			19		—		723,477			60		0.01
Mandatorily redeemable capital stock	581,634			8,819		1.52		798,340			5,754		0.72		217,754			1,035		0.48
Other borrowings	2,751			4		0.15		4,485			6		0.13		1,885			3		0.16
Total interest-bearing liabilities	48,228,663			345,327		0.72		35,640,765			330,905		0.93		41,803,731			417,735		1.00
Other non-interest-bearing liabilities	844,204							1,017,983							1,274,792
Total capital	2,857,123							2,868,087							3,435,889
Total liabilities and capital	$	51,929,990		$	345,327	0.66	%	$	39,526,835		$	330,905	0.84	%	$	46,514,412		$	417,735	0.90	%
Net interest income				$	213,292						$	255,855						$	312,448
Net interest spread						0.36	%						0.56	%						0.58	%
Net interest margin						0.41	%						0.65	%						0.68	%

_________________________

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(1) The average balances of held-to-maturity securities and available-for-sale securities are reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value or the noncredit component of a previously recognized other-than-temporary impairment reflected in accumulated other comprehensive loss.

Rate and Volume Analysis

Changes in both average balances (volume) and interest rates influence changes in net interest income and net interest margin. The following table summarizes changes in interest income and interest expense for the years endedDecember 31, 2014 and 2013. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.

Rate and Volume Analysis (dollars in thousands)
	For the Year Ended  December 31, 2014 vs. 2013									For the Year Ended  December 31, 2013 vs. 2012
	Increase (Decrease) due to									Increase (Decrease) due to
	Volume			Rate			Total			Volume			Rate			Total
Interest income
Advances	$	80,937		$	(96,902	)	$	(15,965	)	$	(31,238	)	$	(72,837	)	$	(104,075	)
Securities purchased under agreements to resell	1,486			(826		)	660			(3,455		)	(3,540		)	(6,995		)
Federal funds sold	2,252			(317		)	1,935			265			(741		)	(476		)
Investment securities	(21,181		)	9,035			(12,146		)	(46,442		)	22,691			(23,751		)
Mortgage loans	(2,762		)	130			(2,632		)	6,181			(14,305		)	(8,124		)
Other earning assets	11			(4		)	7			(1		)	(1		)	(2		)
Total interest income	60,743			(88,884		)	(28,141		)	(74,690		)	(68,733		)	(143,423		)
Interest expense
Consolidated obligations
Discount notes	9,333			(824		)	8,509			(2,872		)	(1,817		)	(4,689		)
Bonds	(8,392		)	11,194			2,802			(42,533		)	(44,289		)	(86,822		)
Deposits	(5		)	53			48			(9		)	(32		)	(41		)
Mandatorily redeemable capital stock	(1,902		)	4,967			3,065			3,953			766			4,719
Other borrowings	(2		)	—			(2		)	4			(1		)	3
Total interest expense	(968		)	15,390			14,422			(41,457		)	(45,373		)	(86,830		)
Change in net interest income	$	61,711		$	(104,274	)	$	(42,563	)	$	(33,233	)	$	(23,360	)	$	(56,593	)

Average Balance of Advances Outstanding

The average balance of total advances increased $8.4 billion, or 39.0 percent, for the year endedDecember 31, 2014, compared with the same period in 2013. We experienced a rise in advances balances during the year concentrated in short-term and floating-rate advances, as discussed under — Executive Summary — Advances Balances. We cannot predict whether this trend will continue. The following table summarizes average balances of advances outstanding during the years endedDecember 31, 2014, 2013, and 2012 by product type.

33

Average Balance of Advances Outstanding by Product Type (dollars in thousands)
	For the Year Ended December 31,
	2014		2013		2012
Fixed-rate advances—par value
Long-term	$	10,805,161	$	10,041,449	$	9,959,076
Short-term	9,898,654		6,130,420		4,385,688
Putable	2,384,041		2,791,694		3,912,714
Amortizing	868,322		880,488		1,100,731
Overnight	772,223		688,633		390,225
All other fixed-rate advances	72,000		77,355		55,615
	24,800,401		20,610,039		19,804,049
Variable-rate indexed advances—par value
Simple variable	4,875,301		436,767		3,350,440
Putable	49,595		113,288		82,558
All other variable-rate indexed advances	38,814		31,816		20,339
	4,963,710		581,871		3,453,337
Total average par value	29,764,111		21,191,910		23,257,386
Net premiums	20,517		32,617		20,205
Market value of bifurcated derivatives	1,440		1,043		362
Hedging adjustments	243,080		377,732		561,623
Total average balance of advances	$	30,029,148	$	21,603,302	$	23,839,576

In addition, the average balance of fixed-rate advances that were hedged with interest-rate swaps to yield an effective floating rate totaled $4.4 billion for the year endedDecember 31, 2014. Therefore, a significant portion of our advances, including overnight advances, short-term fixed-rate advances, fixed-rate putable advances, certain fixed-rate bullet advances, and variable-rate advances, either earn a short-term interest rate or are swapped to a short-term index, resulting in yields that closely follow short-term market interest-rate trends. The average balance of all such advances totaled $20.1 billion for the year endedDecember 31, 2014, representing 66.9 percent of the total average balance of advances outstanding during the year endedDecember 31, 2014. The average balance of all such advances totaled $12.2 billion for the year endedDecember 31, 2013, representing 56.7 percent of the total average balance of advances outstanding during the year endedDecember 31, 2013.

For the years endedDecember 31, 2014 and 2013, net prepayment fees on advances and investments were $10.5 million and $29.7 million, respectively. Prepayment-fee income is unpredictable and inconsistent from period to period, occurring only when advances and investments are prepaid prior to the scheduled maturity or repricing dates, and generally when prevailing reinvestment yields are lower than those of the prepaid advances.

Average Balance of Investments

Average short-term money-market investments, consisting of interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold, increased $5.1 billion, or 111.1 percent, for the year endedDecember 31, 2014, compared with the same period in 2013. The yield earned on short-term money-market investments is highly correlated to short-term market interest rates. These investments are used for liquidity management and to manage our leverage ratio in response to fluctuations in other asset balances. We have increased these investments principally in response to growth in our advances balances to maintain our contingency liquidity to refinance debt used to fund advances. For the year endedDecember 31, 2014, average balances of securities purchased under agreements to resell increased $2.2 billion and average balances of federal funds sold increased $2.8 billion in comparison to the year endedDecember 31, 2013.

Average investment-securities balances decreased $982.1 million, or 10.2 percent for the year endedDecember 31, 2014, compared with the same period in 2013, a decrease consisting primarily of a $1.3 billion decline in agency and supranational institutions' debentures offset by a $320.9 million increase in MBS.

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Average Balance of COs

Average CO balances increased$12.9 billion, or 37.8 percent, for the year ended December 31, 2014, compared with the same period in 2013, resulting from our increased funding needs principally due to the increase in our average advances balances and short-term money-market investment balances. This overall increase consisted of an increase of $13.6 billion in CO discount notes and a decrease of $652.9 million in CO bonds.

The average balance of CO discount notes represented approximately 48.1 percent of total average COs during the year ended December 31, 2014, as compared with 26.6 percent of total average COs during the year ended December 31, 2013. The average balance of CO bonds represented 51.9 percent and 73.4 percent of total average COs outstanding during the years ended December 31, 2014 and 2013, respectively. The growth in average CO discount notes is commensurate with our asset growth, which has been primarily in short-term assets.

Impact of Derivatives and Hedging Activities

Net interest income includes interest accrued on interest-rate-exchange agreements that are associated with advances, investments, deposits, and debt instruments that qualify for hedge accounting. We generally use derivative instruments that qualify for hedge accounting as interest rate risk-management tools. These derivatives serve to stabilize net interest income and net interest margin when interest rates fluctuate. Accordingly, the impact of derivatives on net interest income and net interest margin should be viewed in the overall context of our risk-management strategy. The following tables show the net effect of derivatives and hedging activities on net interest income, net gains (losses) on derivatives and hedging activities, and net unrealized gains (losses) on trading securities for the years endedDecember 31, 2014, 2013, and 2012 (dollars in thousands).

	For the Year Ended December 31, 2014
Net Effect of Derivatives and Hedging Activities	Advances			Investments			Mortgage Loans			Deposits		CO Bonds			Total
Net interest income
Amortization / accretion of hedging activities in net interest income (1)	$	(6,037	)	$	—		$	(260	)	$	—	$	11,011		$	4,714
Net interest settlements included in net interest income (2)	(130,580		)	(37,989		)	—			1,152		54,356			(113,061		)
Total net interest income	(136,617		)	(37,989		)	(260		)	1,152		65,367			(108,347		)
Net gains (losses) on derivatives and hedging activities
Gains (losses) on fair-value hedges	347			1,123			—			—		(936		)	534
Losses on cash-flow hedges	—			—			—			—		(442		)	(442		)
(Losses) gains on derivatives not receiving hedge accounting	(4		)	(6,348		)	—			—		65			(6,287		)
Mortgage delivery commitments	—			—			1,510			—		—			1,510
Net gains (losses) on derivatives and hedging activities	343			(5,225		)	1,510			—		(1,313		)	(4,685		)
Subtotal	(136,274		)	(43,214		)	1,250			1,152		64,054			(113,032		)
Net gains on trading securities	—			972			—			—		—			972
Total net effect of derivatives and hedging activities	$	(136,274	)	$	(42,242	)	$	1,250		$	1,152	$	64,054		$	(112,060	)

_____________________

(1) Represents the amortization/accretion of hedging fair-value adjustments and cash-flow hedge amortization reclassified from accumulated other comprehensive loss.

(2) Represents interest income/expense on derivatives included in net interest income.

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	For the Year Ended December 31, 2013
Net Effect of Derivatives and Hedging Activities	Advances			Investments			Mortgage Loans			Deposits		CO Bonds			Total
Net interest income
Amortization / accretion of hedging activities in net interest income (1)	$	(7,584	)	$	—		$	(470	)	$	—	$	25,285		$	17,231
Net interest settlements included in net interest income (2)	(149,026		)	(38,474		)	—			1,580		63,690			(122,230		)
Total net interest income	(156,610		)	(38,474		)	(470		)	1,580		88,975			(104,999		)
Net (losses) gains on derivatives and hedging activities
Gains (losses) on fair-value hedges	897			1,679			—			—		(451		)	2,125
Gains on cash-flow hedges	—			—			—			—		12			12
Gains on derivatives not receiving hedge accounting	2			6,538			—			—		301			6,841
Mortgage delivery commitments	—			—			(1,538		)	—		—			(1,538		)
Net gains (losses) on derivatives and hedging activities	899			8,217			(1,538		)	—		(138		)	7,440
Subtotal	(155,711		)	(30,257		)	(2,008		)	1,580		88,837			(97,559		)
Net losses on trading securities	—			(13,190		)	—			—		—			(13,190		)
Total net effect of derivatives and hedging activities	$	(155,711	)	$	(43,447	)	$	(2,008	)	$	1,580	$	88,837		$	(110,749	)

_____________________

(1) Represents the amortization/accretion of hedging fair-value adjustments.

(2) Represents interest income/expense on derivatives included in net interest income.

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	For the Year Ended December 31, 2012
Net Effect of Derivatives and Hedging Activities	Advances			Investments			Mortgage Loans			Deposits		CO Bonds			Total
Net interest income
Amortization / accretion of hedging activities in net interest income (1)	$	(9,415	)	$	—		$	(344	)	$	—	$	21,272		$	11,513
Net interest settlements included in net interest income (2)	(192,918		)	(41,028		)	—			1,541		88,668			(143,737		)
Total net interest income	(202,333		)	(41,028		)	(344		)	1,541		109,940			(132,224		)
Net gains (losses) on derivatives and hedging activities
(Losses) gains on fair-value hedges	(1,195		)	1,682			—			—		135			622
Losses on cash-flow hedges	—			—			—			—		(183		)	(183		)
(Losses) gains on derivatives not receiving hedge accounting	(15		)	(11,129		)	—			—		627			(10,517		)
Mortgage delivery commitments	—			—			2,585			—		—			2,585
Net (losses) gains on derivatives and hedging activities	(1,210		)	(9,447		)	2,585			—		579			(7,493		)
Subtotal	(203,543		)	(50,475		)	2,241			1,541		110,519			(139,717		)
Net gains on trading securities	—			7,087			—			—		—			7,087
Total net effect of derivatives and hedging activities	$	(203,543	)	$	(43,388	)	$	2,241		$	1,541	$	110,519		$	(132,630	)

_____________________

(1) Represents the amortization/accretion of hedging fair-value adjustments.

(2) Represents interest income/expense on derivatives included in net interest income.

Net interest margin for the years endedDecember 31, 2014 and 2013, was 0.41 percent and 0.65 percent, respectively. If derivatives had not been used as hedges to mitigate the impact of interest-rate fluctuations, net interest margin would have been 0.63 percent and 0.96 percent, respectively.

Interest paid and received on interest-rate-exchange agreements that are economic hedges is classified as net losses on derivatives and hedging activities in other income. As shown under — Other Income (Loss) below, interest accruals on derivatives classified as economic hedges totaled a net expense of $6.9 million and $3.8 million, respectively for the years endedDecember 31, 2014 and 2013.

Other Income (Loss)

The following table presents a summary of other income (loss) for the years endedDecember 31, 2014, 2013, and 2012. Additionally, detail on the components of net gains (losses) on derivatives and hedging activities is provided, indicating the source of these gains and losses by type of hedging relationship and hedge accounting treatment.

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Other Income (Loss) (dollars in thousands)
	For the Years Ended December 31,
	2014			2013			2012
Gains (losses) on derivatives and hedging activities:
Net gains related to fair-value hedge ineffectiveness	$	534		$	2,125		$	622
Net (losses) gains related to cash-flow hedge ineffectiveness	(442		)	12			(183		)
Net unrealized (losses) gains related to derivatives not receiving hedge accounting associated with:
Advances	(201		)	(3,249		)	(50		)
Trading securities	836			13,874			(2,974		)
Mortgage delivery commitments	1,510			(1,538		)	2,585
Net interest-accruals related to derivatives not receiving hedge accounting	(6,922		)	(3,784		)	(7,493		)
Net (losses) gains on derivatives and hedging activities	(4,685		)	7,440			(7,493		)
Net other-than-temporary impairment credit losses on held-to-maturity securities recognized in income	(1,579		)	(2,566		)	(7,173		)
Litigation settlements	22,000			53,305			2,317
Loss on early extinguishment of debt	(3,068		)	(5,148		)	(23,474		)
Service-fee income	7,159			6,586			6,074
Net unrealized gains (losses) on trading securities	972			(13,190		)	7,087
Other	(964		)	(2,983		)	554
Total other income (loss)	$	19,835		$	43,444		$	(22,108	)

As noted in the Other Income (Loss) table above, accounting for derivatives and hedged items results in the potential for considerable timing differences between income recognition from assets or liabilities and income effects of hedging instruments entered into to mitigate interest-rate risk and cash-flow activity.

Changes in the fair value of trading securities are recorded in other income (loss). For the years endedDecember 31, 2014 and 2013, we recorded net unrealized gains on trading securities of $972,000 and unrealized losses of $13.2 million, respectively. Changes in the fair value of the associated economic hedges amounted to net gains of $836,000 and $13.9 million for the years endedDecember 31, 2014 and 2013, respectively. In addition to the changes in fair value are interest accruals on these economic hedges, which resulted in a net expense of $7.1 million and $7.3 million for the years endedDecember 31, 2014 and 2013, respectively, and are included in other income (loss).

Operating Expenses

For the year endedDecember 31, 2014, compensation and benefits expense and other operating expenses totaled $57.5 million, representing an increase of $1.3 million from the total of $56.2 million for the year endedDecember 31, 2013.

Comparison of the year ended December 31, 2013, versus the year ended December 31, 2012

For the years ended December 31, 2013 and 2012, we recognized net income of $212.3 million and $207.1 million, respectively. This $5.2 million increase was primarily driven by an increase in litigation settlements of $51.0 million, an $18.3 million decrease in loss on early extinguishment of debt, an increase of $14.9 million in net gains on derivatives and hedging activities, and a $4.6 million decrease in credit losses on other-than-temporary impairment of investment securities. Offsetting these increases to net income was a decrease in net interest income of $56.6 million of which $36.6 million relates to net prepayment fees that declined from $66.3 million in 2012 to $29.7 million in 2013 and a $20.3 million increase in the net unrealized losses on trading securities.

Net Interest Income

Net interest income for the year ended December 31, 2013, decreased $56.6 million from $312.4 million in 2012 to $255.9 million in 2013. This decrease was primarily attributable to a $36.6 million decrease in prepayment fee income and a decline in

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average earning assets, which decreased from $46.2 billion for the year ended December 31, 2012, to $39.3 billion for the year ended December 31, 2013. This decline in average earning assets was driven by a $4.8 billion drop in average investments balances and a decrease of $2.2 billion in average advances balances. Partially offsetting these declines in net interest income was $19.7 million of increased accretable yields of certain private-label MBS for which we had previously recognized other-than-temporary impairment credit losses, an increase of $10.4 million from $9.3 million recorded in 2012.

Net interest margin for the year ended December 31, 2013, in comparison with the same period in 2012, decreased to 65 basis points from 68 basis points, and net interest spread decreased to 56 basis points from 58 basis points for the same period in 2012. Contributing to the decrease in net interest spread was the change in average yield on interest-earning assets, which decreased by nine basis points to 1.49 percent, while the average cost of interest-bearing liabilities decreased by seven basis points to 0.93 percent. The decline in the average yield on interest-earning assets in 2013 is primarily attributable to the decreases in prepayment fee income partially offset by the accretion of discount from previously impaired investment securities.

The average balance of fixed-rate advances hedged with interest-rate swaps to yield an effective floating rate totaled $4.8 billion for the year ended December 31, 2013. Therefore, a significant portion of our advances, including overnight advances, short-term fixed-rate advances, fixed-rate putable advances, certain fixed-rate bullet advances, and variable-rate advances, either earn a short-term interest rate or are swapped to a short-term index, resulting in yields that closely follow short-term market interest-rate trends. The average balance of all such advances totaled $12.2 billion for the year ended December 31, 2013, representing 56.7 percent of the total average balance of advances outstanding during the year ended December 31, 2013. The average balance of all such advances totaled $14.5 billion for the year ended December 31, 2012, representing 60.6 percent of the total average balance of advances outstanding during the year ended December 31, 2012.

For the years ended December 31, 2013 and 2012, net prepayment fees on advances were $23.5 million and $65.8 million, respectively. For the years ended December 31, 2013 and 2012, prepayment fees on investments were $6.2 million and $535,000, respectively.

Average short-term money-market investments, consisting of interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold, decreased $2.5 billion, or 35.4 percent, for the year ended December 31, 2013, compared with the same period in 2012. For the year ended December 31, 2013, average balances of securities purchased under agreements to resell decreased $2.7 billion and average balances of federal funds sold increased $211.4 million in comparison to the year ended December 31, 2012.

Average investment-securities balances decreased $2.3 billion, or 19.2 percent for the year ended December 31, 2013, compared with the same period in 2012, which occurred in the following investment categories:

• $1.1 billion decline in MBS;

• $835.0 million decline in agency and supranational institutions' debentures; and

• $379.1 million decline in FDIC-guaranteed corporate bonds.

Average CO balances decreased $6.6 billion, or 16.2 percent, for the year ended December 31, 2013, compared with the same period in 2012, resulting from our reduced funding needs principally due to the decline in our average investments and advances balances. This overall decline consisted of a decrease of $3.5 billion in CO discount notes and a decrease of $3.1 billion in CO bonds.

The average balance of term CO discount notes decreased $3.4 billion and overnight CO discount notes decreased $62.0 million for the year ended December 31, 2013, in comparison with the same period in 2012. The average balance of CO discount notes represented approximately 26.6 percent of total average COs during the year ended December 31, 2013, as compared with 30.8 percent of total average COs during the year ended December 31, 2012. The average balance of CO bonds represented 73.4 percent and 69.2 percent of total average COs outstanding during the years ended December 31, 2013 and 2012, respectively.

Impact of Derivatives and Hedging Activities

Net interest margin for the years ended December 31, 2013 and 2012, was 0.65 percent and 0.68 percent, respectively. If derivative instruments had not been used as hedges to mitigate the impact of interest-rate fluctuations, net interest margin would have been 0.96 percent and 0.99 percent, respectively.

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Other Income (Loss) and Operating Expenses

For the years ended December 31, 2013 and 2012, we recorded net unrealized losses on trading securities of $13.2 million and unrealized gains of $7.1 million, respectively. Changes in the fair value of the associated economic hedges amounted to a net gain of $13.9 million and a net loss of $3.0 million for the years ended December 31, 2013 and 2012, respectively. In addition to the changes in fair value are interest accruals on these economic hedges, which resulted in a net expense of $7.3 million and $7.4 million for the years ended December 31, 2013 and 2012, respectively.

For the year ended December 31, 2013, compensation and benefits expense and other operating expenses totaled $56.2 million, representing an increase of $2.7 million from the total of $53.5 million for the year ended December 31, 2012.

FINANCIAL CONDITION

Advances

At December 31, 2014, the advances portfolio totaled $33.5 billion, an increase of $6.0 billion compared with $27.5 billion at December 31, 2013. See — Executive Summary — Advances Balances.

The following table summarizes advances outstanding by product type at December 31, 2014 and 2013.

Advances Outstanding by Product Type (dollars in thousands)
	December 31, 2014				December 31, 2013
	Par Value		Percent of Total		Par Value		Percent of Total
Fixed-rate advances
Long-term	$	12,029,059	36.2	%	$	10,331,903	38.0	%
Short-term	10,526,292		31.6		10,340,279		38.0
Putable	2,180,225		6.6		2,492,175		9.1
Overnight	1,545,869		4.6		1,473,251		5.4
Amortizing	883,106		2.7		868,869		3.2
All other fixed-rate advances	72,000		0.2		72,500		0.3
	27,236,551		81.9		25,578,977		94.0
Variable-rate advances
Simple variable	5,915,000		17.8		1,485,000		5.5
Putable	74,000		0.2		116,000		0.4
All other variable-rate indexed advances	49,163		0.1		31,287		0.1
	6,038,163		18.1		1,632,287		6.0
Total par value	$	33,274,714	100.0	%	$	27,211,264	100.0	%

See Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 8 — Advances for disclosures relating to redemption terms of the advances portfolio.

Advances Credit Risk

We endeavor to minimize credit risk on advances by monitoring the financial condition of our borrowers and by holding sufficient collateral to protect the Bank from credit losses. All pledged collateral is subject to haircuts assigned based on our opinion of the risk that such collateral presents. We are prohibited by Section 10(a) of the FHLBank Act from making advances without sufficient collateral to secure the advance. We have never experienced a credit loss on an advance.

We monitor the financial condition of all members and housing associates by reviewing available financial data, such as regulatory call reports filed by depository institution members, regulatory financial statements filed with the appropriate state insurance department by insurance company members, audited financial statements of housing associates, SEC filings, and

40

rating-agency reports to ensure that potentially troubled members are identified as soon as possible. In addition, we have access to most members' regulatory examination reports. We analyze this information on a regular basis.

Our members continue to be challenged by economic conditions, although improvements continue. Aggregate nonperforming assets for depository institution members declined from 0.64 percent of assets as of December 31, 2013, to 0.51 percent of assets as of September 30, 2014. The aggregate ratio of tangible capital to assets among the membership decreased from 9.61 percent of assets as of December 31, 2013, to 9.00 percent as of September 30, 2014. (September 30, 2014, is the date of our most recent data on our membership for this report.). There were no member failures during 2014. All of our extensions of credit to members are secured by eligible collateral as noted herein. However we could incur losses if a member were to default, if the value of the collateral pledged by the member declined to a point such that we were unable to realize sufficient value from the pledged collateral to cover the member's obligations, and we were unable to obtain additional collateral to make up for the reduction in value of such collateral. Although not expected, a default by a member with significant obligations to us could result in significant financial losses, which would adversely impact our results of operations and financial condition.

We assign each non-insurance company borrower to one of the following three credit status categories based primarily on our assessment of the borrower's overall financial condition and other factors:

• Category-1: members that are generally in satisfactory financial condition;

• Category-2: members that show weakening financial trends in key financial indices and/or regulatory findings; and

• Category-3: members with financial weaknesses that present an elevated level of concern. We also place housing associates and non-member borrowers in Category-3.

We lend to insurance company members upon a review of an updated statement of their financial condition and their pledge of sufficient amounts of eligible collateral.

Each credit status category reflects our increasing level of control over the collateral pledged by the borrower as its financial condition weakens. Category-1 borrowers retain possession of eligible one- to four-family mortgage loan collateral pledged to us, provided the borrower executes a written security agreement and agrees to hold such collateral for our benefit. Category-1 borrowers must specifically list with us all mortgage loan collateral other than loans secured by first-mortgage loans on owner-occupied one- to four-family residential property. Category-2 borrowers retain possession of eligible mortgage loan collateral, however, we require such borrowers to specify all mortgage loan collateral pledged to us. Category-3 borrowers are required to place physical possession of all pledged eligible collateral with us or an approved safekeeping agent, with which we have a control agreement. All securities pledged to us by our borrowers must be delivered to us, an approved safekeeping agent, or be held by the borrower's securities corporation in a custodial account with us. We have control agreements with approved safekeeping agents which are intended to give us appropriate control over the related collateral.

Our agreements with our borrowers require each borrower to have sufficient eligible collateral pledged to us to fully secure all outstanding extensions of credit, including advances, accrued interest receivable, standby letters of credit, MPF credit-enhancement obligations, and lines of credit (collectively, extensions of credit) at all times. We generally accept the following types of assets as collateral:

• fully disbursed, whole first-mortgage loans on improved residential property (not more than 45 days delinquent), or securities representing a whole interest in such mortgages;

• securities issued, insured, or guaranteed by the U.S. government or any agency thereof (including without limitation, MBS issued or guaranteed by Freddie Mac, Fannie Mae, and Ginnie Mae);

• cash or deposits in a collateral account with us; and

• other real-estate-related collateral acceptable to us if such collateral has a readily ascertainable value and we can perfect our security interest in the collateral.

In addition, in the case of any community financial institution, as defined in accordance with the FHLBank Act, we may accept as collateral secured loans for small business and agriculture, or securities representing a whole interest in such secured loans.

To mitigate the credit risk, market risk, liquidity risk, and operational risk associated with collateral, we discount the book value or market value of pledged collateral to establish the lending value of the collateral to us. Collateral that we have determined to contain a low level of risk, such as U.S. government obligations, is discounted at a lower rate than collateral that carries a higher level of risk, such as commercial real estate mortgage loans. We periodically analyze the discounts applied to all eligible collateral types to verify that current discounts are sufficient to fully secure us against losses in the event of a borrower default.

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Our agreements with our members and borrowers grant us authority, in our sole discretion, to adjust the discounts applied to collateral at any time based on our assessment of the member's financial condition, the quality of collateral pledged, or the overall volatility of the value of the collateral.

We generally require all borrowing members and housing associates to execute a security agreement that grants us a blanket lien on all assets of such borrower that consist of, among other types of collateral: fully disbursed whole first-mortgage loans and deeds of trust constituting first liens against real property; U.S. federal, state, and municipal obligations; GSE securities; corporate debt obligations; commercial paper; funds placed in deposit accounts with us; COs, such other items or property that are offered to us by the borrower as collateral; and all proceeds of all of the foregoing. In the case of insurance companies and housing associates, in some instances we establish a specific lien instead of a blanket lien subject to our receipt of additional safeguards from such members. We protect our security interest in pledged assets by filing a Uniform Commercial Code (UCC) financing statement in the appropriate jurisdiction. Our employees conduct on-site reviews of collateral pledged by borrowers to confirm the existence of the pledged collateral and to determine that the pledged collateral conforms to our eligibility requirements. We may conduct an onsite collateral review at any time.

Our agreements with borrowers allow us, in our sole discretion, to refuse to make extensions of credit against any collateral, require substitution of collateral, or adjust the discounts applied to collateral at any time. We also may require members to pledge additional collateral regardless of whether the collateral would be eligible to originate a new extension of credit. Our agreements with our borrowers also afford us the right, in our sole discretion, to declare any borrower to be in default if we deem ourselves to be insecure.

Beyond our practice of taking security interests in collateral, Section 10(e) of the FHLBank Act affords any security interest granted by a federally insured depository institution member or such a member's affiliate to us priority over the claims or rights of any other party, including any receiver, conservator, trustee, or similar entity that has the rights of a lien creditor, unless these claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchasers or by parties that are secured by actual perfected security interests. In this regard, the priority granted to our security interests under Section 10(e) may not apply when lending to insurance company members due to the anti-preemption provision contained in the McCarran-Ferguson Act in which Congress declared that federal law would not preempt state insurance law unless the federal law expressly regulates the business of insurance. Thus, if state law conflicts with Section 10(e) of the FHLBank Act, the protection afforded by this provision may not be available to us. However, we protect our security interests in the collateral pledged by our borrowers, including insurance company members, by filing UCC financing statements, or by taking possession or control of such collateral, or by taking other appropriate steps. We have not experienced any rehabilitation, conservatorship, receivership, liquidation or other insolvency event for an insurance company member and therefore have continuing uncertainty on the potential inapplicability of Section 10(e). Additionally, we note that the relevant state insolvency authority could take actions that could impede our ability to sell collateral that any such insolvent member has pledged to us.

The following table shows the asset quality of the one- to four-family mortgage loan portfolios held on the balance sheets of our borrowers. One- to four-family mortgage loans constitute the largest asset type pledged as collateral to us. Note that these figures include all one- to four-family mortgage loans on borrowers' balance sheets. The figures in this table include loans that are not pledged as collateral to us. Qualified collateral does not include loans that have been in default within the most recent 12-month period, except that whole first-mortgage collateral on one- to four-family residential property is acceptable provided no payment is overdue by more than 45 days, unless the collateral is insured or guaranteed by the U.S. or any agency thereof.

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2014 Quarterly Borrower Asset Quality  (dollars in thousands)
	2014—Quarter Ended (1)
	March 31			June 30			September 30
Total borrower assets	$	1,232,683,356		$	1,268,345,339		$	1,260,967,717
Total 1-4 family first lien mortgage loans	$	96,286,367		$	97,450,092		$	99,289,760
1-4 family first lien mortgage loans as a percentage of total borrower assets	7.81		%	7.68		%	7.87		%
1-4 family first lien mortgage loans delinquent 30-89 days as a percentage of 1-4 family mortgage loans	0.80		%	0.62		%	0.52		%
1-4 family first lien mortgage loans delinquent 90+ days as a percentage of 1-4 family mortgage loans	1.55		%	1.46		%	1.43		%
1-4 family REO as a percentage of 1-4 family mortgage loans	0.17		%	0.16		%	0.15		%

_______________________

(1) September 30, 2014 is the most recent data available for inclusion in this table.

The following table provides information regarding advances outstanding with our borrowers in Category-1, Category-2, Category-3, and insurance company members, at December 31, 2014, along with their corresponding collateral balances.

Advances Outstanding by Borrower Credit Status Category As of December 31, 2014 (dollars in thousands)
	Number of Borrowers	Par Value of Advances Outstanding		Discounted Collateral		Ratio of Discounted Collateral to Advances
Category-1	273	$	24,611,071	$	58,183,193	236.4	%
Category-2	18	6,180,038		10,485,799		169.7
Category-3	16	577,725		843,300		146.0
Insurance companies	13	1,905,880		2,058,430		108.0
Total	320	$	33,274,714	$	71,570,722	215.1	%

The method by which a borrower pledges collateral is dependent upon the category to which it is assigned and on the type of collateral that the borrower pledges. Moreover, borrowers in Category-1 are permitted to specifically list and identify single-family residential mortgage loans at a lower discount than is allowed if the collateral is not specifically listed and identified.

Based upon the method by which borrowers pledge collateral to us, the following table shows the total potential lending value of the collateral that borrowers have pledged to us, net of our collateral valuation discounts as of December 31, 2014.

Collateral by Pledge Type (dollars in thousands)
	Discounted Collateral
Collateral not specifically listed and identified	$	35,409,646
Collateral specifically listed and identified	31,714,535
Collateral delivered to us	8,757,523

We accept nontraditional and subprime loans that are underwritten in accordance with applicable regulatory guidance as eligible collateral for our advances. However, we do not accept as eligible collateral any mortgage loan that allows for negative amortization, including, but not limited to, pay-option adjustable-rate mortgage loans. We recognize that nontraditional and subprime loans may present incremental credit risk to us. Therefore, we have monitoring and review procedures in place to measure the incremental risk presented by this collateral and to mitigate this incremental credit risk. Further, we apply baseline collateral valuation discounts to nontraditional and subprime loans secured by a mortgage on the borrower's primary residence

43

of 35 percent and 40 percent of book value, respectively. These discounts reflect the incremental credit risk associated with these types of loans relative to conventional mortgage loans. Borrowers in Category-1 also have the option of providing loan level data for their subprime and nontraditional loans to potentially obtain a more favorable valuation based on the credit risk profile of the pledged loan portfolio, subject to a minimum discount of 25 percent of book value. In addition, we limit the amount of borrowing capacity that a member may derive from subprime loan collateral to the lower of two times the pledging member's most recently reported capital as determined in accordance with generally accepted accounting principles (GAAP) or one-half of its total borrowing capacity. Additionally, private-label MBS issued or acquired and residential mortgage loans originated or acquired by our members after July 10, 2007, are not eligible collateral unless it can be documented that all loans, including all loans in MBS pools, are in compliance with regulatory underwriting standards on subprime or nontraditional lending, as applicable.

At both December 31, 2014, and 2013, the amount of pledged nontraditional and subprime loan collateral was nine percent of total member borrowing capacity.

We have not recorded any allowance for credit losses on credit products at December 31, 2014, and 2013, for the reasons discussed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Allowance for Credit Losses.

The following table presents the top five advance-borrowing institutions at December 31, 2014, and the interest earned on outstanding advances to such institutions for the year endedDecember 31, 2014.

Top Five Advance-Borrowing Institutions (dollars in thousands)
	December 31, 2014
Name	Par Value of Advances		Percent of Total Par Value of Advances		Weighted-Average Rate (1)		Advances Interest Income for the Year Ended December 31, 2014
Citizens Bank, N.A.	$	5,768,096	17.3	%	0.26	%	$	12,800
Webster Bank, N.A.	2,859,394		8.6		0.50		10,889
People's United Bank, N.A.	2,030,561		6.1		0.26		4,832
Berkshire Bank	952,493		2.9		0.29		2,825
Brookline Bank	791,785		2.4		0.88		7,163
Total of top five advance-borrowing institutions	$	12,402,329	37.3	%			$	38,509

_______________________

(1) Weighted-average rates are based on the contract rate of each advance without taking into consideration the effects of interest-rate-exchange agreements that we may use as hedging instruments.

Investments

At December 31, 2014, investment securities and short-term money market instruments totaled $16.9 billion, compared with $13.0 billion at December 31, 2013.

Short-term money market investments increased $3.2 billion to $7.8 billion at December 31, 2014, compared with December 31, 2013. The increase was attributable to a $1.7 billion increase in federal funds sold and a $1.5 billion increase in securities purchased under agreements to resell.

Investment securities increased$698.0 million to $9.1 billion at December 31, 2014, compared with December 31, 2013. The increase was attributable to a $1.5 billion increase in MBS offset by a decrease of $786.4 million in agency and supranational institutions' debentures.

Held-to-Maturity Securities

The following table provides a summary of our held-to-maturity securities.

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Held-to-Maturity Securities (dollars in thousands)
	December 31,
	2014														2013		2012
	Due in one year or less			Due after one year through five years			Due after five years through ten years			Due after ten years			Total Carrying Value		Total Carrying Value		Total Carrying Value
Non-MBS
U.S. agency obligations	$	—		$	5,777		$	—		$	—		$	5,777	$	8,503	$	12,877
State or local housing-finance-agency securities (1)	150			3,592			17,115			157,530			178,387		183,625		189,719
GSEs	—			—			—			—			—		67,504		69,246
Total non-mortgage-backed securities	150			9,369			17,115			157,530			184,164		259,632		271,842
MBS (1)
U.S. government guaranteed - single-family	—			—			612			19,787			20,399		27,767		38,313
U.S. government guaranteed - multifamily	—			—			—			115,712			115,712		213,144		451,559
GSEs - single-family	—			30,838			67,796			1,322,167			1,420,801		1,773,905		2,357,479
GSEs - multifamily	123,847			195,309			222,974			—			542,130		700,348		957,503
Private-label - residential	—			203			6			1,052,600			1,052,809		1,141,390		1,284,990
Private-label - commercial	—			—			—			—			—		—		9,822
ABS backed by home equity loans	—			—			—			16,174			16,174		22,475		24,827
Total mortgage-backed securities	123,847			226,350			291,388			2,526,440			3,168,025		3,879,029		5,124,493
Total held-to-maturity securities	$	123,997		$	235,719		$	308,503		$	2,683,970		$	3,352,189	$	4,138,661	$	5,396,335
Yield on held-to-maturity securities	5.43		%	4.91		%	3.54		%	2.55		%

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(1) Maturity ranges are based on the contractual final maturity of the security.

Available-for-Sale Securities

We classify certain investment securities as available-for-sale to enable liquidation at a future date or to enable the application of hedge accounting using interest-rate swaps. By classifying investments as available-for-sale, we can consider these securities to be a source of short-term liquidity, if needed. From time to time, we invest in certain securities and simultaneously enter into matched-term interest-rate swaps to achieve a LIBOR-based variable yield, particularly when we can earn a wider interest spread between the swapped yield on the investment and short-term debt instruments than we can earn between the bond's fixed yield and comparable-term fixed-rate debt. Because an interest-rate swap can only be designated as a hedge of an available-for-sale investment security, we classify these investments as available-for-sale. The following table provides a summary of our available-for-sale securities.

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Available-for-Sale Securities (dollars in thousands)
	December 31,
	2014														2013		2012
	Due in one year or less			Due after one year through five years			Due after five years through ten years			Due after ten years			Total Carrying Value		Total Carrying Value		Total Carrying Value
Non-MBS
Supranational institutions	$	—		$	—		$	—		$	447,685		$	447,685	$	415,135	$	473,484
U.S. government corporations	—			—			—			284,997			284,997		238,785		291,081
GSEs	—			—			—			123,453			123,453		888,525		2,085,084
Total non-mortgage-backed securities	—			—			—			856,135			856,135		1,542,445		2,849,649
MBS (1)
U.S. government guaranteed - single-family	—			—			47,688			158,340			206,028		271,597		73,359
U.S. government guaranteed - multifamily	—			—			—			871,423			871,423		309,101		—
GSEs - single-family	—			—			—			3,548,392			3,548,392		1,872,167		2,244,794
GSEs - multifamily	—			—			—			—			—		—		100,435
Total mortgage-backed securities	—			—			47,688			4,578,155			4,625,843		2,452,865		2,418,588
Total available-for-sale securities	$	—		$	—		$	47,688		$	5,434,290		$	5,481,978	$	3,995,310	$	5,268,237
Yield on available-for-sale securities	—		%	—		%	0.63		%	2.31		%

________________________

(1) MBS maturity ranges are based on the contractual final maturity of the security.

Trading Securities

We classify certain investments acquired for purposes of meeting short-term contingency liquidity needs and asset/liability management as trading securities and carry them at fair value. However, we do not participate in speculative trading practices and hold these investments indefinitely as we periodically evaluate our liquidity needs. The following table provides a summary of our trading securities.

Trading Securities (dollars in thousands)
	December 31,
	2014														2013		2012
	Due in one year or less			Due after one year through five years			Due after five years through ten years			Due after ten years			Total Carrying Value		Total Carrying Value		Total Carrying Value
MBS (1)
U.S. government guaranteed - single-family	$	—		$	16		$	6,611		$	5,608		$	12,235	$	14,331	$	16,876
GSEs - single-family	—			633			1,399			268			2,300		3,486		4,946
GSEs - multifamily	—			230,434			—			—			230,434		229,357		252,471
Total mortgage-backed securities	$	—		$	231,083		$	8,010		$	5,876		$	244,969	$	247,174	$	274,293
Yield on trading securities	—		%	3.92		%	1.62		%	1.76		%

________________________

(1) MBS maturity ranges are based on the contractual final maturity of the security.

Certain Investment Concentrations

At December 31, 2014, we held securities from the following issuers with total carrying values greater than 10 percent of total capital, as follows:

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Securities from issuers which Represent Total Carrying Value Greater than 10 Percent of Total Capital As of December 31, 2014 (dollars in thousands)
Name of Issuer	Carrying Value(1)		Fair Value
Non-MBS:
GSEs
Fannie Mae	$	123,453	$	123,453
Supranational institution
Inter-American Development Bank	447,685		447,685
MBS:
Fannie Mae	3,065,180		3,108,412
Freddie Mac	2,678,877		2,705,956
Ginnie Mae	1,178,109		1,178,888

_______________________

(1) Carrying value for trading securities and available-for-sale securities represents fair value.

Our MBS investment portfolio consists of the following categories of securities as of December 31, 2014 and 2013. The percentages in the table below are based on carrying value.

Mortgage-Backed Securities
	December 31, 2014		December 31, 2013
Single-family MBS - U.S. government-guaranteed and GSE	64.8	%	60.2	%
Multifamily MBS - U.S. government-guaranteed and GSE	21.9		22.1
Private-label residential MBS	13.1		17.4
ABS backed by home-equity loans	0.2		0.3
Total MBS	100.0	%	100.0	%

Investments Credit Risk

We are subject to credit risk on unsecured investments consisting primarily of short-term (meaning under one year to maturity and currently consisting of overnight risk only) money-market instruments issued by high-quality financial institutions and long-term (original maturity in excess of one year) debentures issued or guaranteed by U.S. agencies, U.S government-owned corporations, GSEs, and supranational institutions. We place short-term funds with large, high-quality financial institutions with long-term credit ratings no lower than single-A (or equivalent) on an unsecured basis; currently all such placements expire within one day.

In addition to these unsecured short-term investments, we also make secured investments in the form of securities purchased under agreements to resell secured by U.S. Treasury and agency obligations, whose terms to maturity are up to 35 days. We have also invested in and are subject to secured credit risk related to MBS, ABS, and HFA securities that are directly or indirectly supported by underlying mortgage loans.

We actively monitor our investments' credit exposures and the credit quality of our counterparties, including assessments of each counterparty's financial performance, capital adequacy, and sovereign support as well as related market signals. We endeavor to reduce or suspend credit limits and/or seek to reduce existing exposures, as appropriate, as a result of these monitoring activities.

Credit ratings of our investments are provided in the following table.

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Credit Ratings of Investments at Carrying Value As of December 31, 2014 (dollars in thousands)
	Long-Term Credit Rating (1)
Investment Category	Triple-A		Double-A		Single-A		Triple-B		Below Triple-B		Unrated
Money-market instruments: (2)
Interest-bearing deposits	$	—	$	163	$	—	$	—	$	—	$	—
Securities purchased under agreements to resell	—		3,500,000		1,750,000		—		—		—
Federal funds sold	—		600,000		1,950,000		—		—		—
Total money-market instruments	—		4,100,163		3,700,000		—		—		—
Investment securities:
Non-MBS:
U.S. agency obligations	—		5,777		—		—		—		—
U.S. government-owned corporations	—		284,997		—		—		—		—
GSEs	—		123,453		—		—		—		—
Supranational institutions	447,685		—		—		—		—		—
HFA securities	21,925		40,350		113,997		—		—		2,115
Total non-MBS	469,610		454,577		113,997		—		—		2,115
MBS:
U.S. government guaranteed - single-family (2)	—		238,662		—		—		—		—
U.S. government guaranteed - multifamily(2)	—		987,135		—		—		—		—
GSE – single-family (2)	—		4,971,493		—		—		—		—
GSE – multifamily (2)	—		772,564		—		—		—		—
Private-label – residential	7,515		203		39,318		82,468		923,299		6
ABS backed by home-equity loans	572		1,136		7,909		2,272		4,285		—
Total MBS	8,087		6,971,193		47,227		84,740		927,584		6
Total investment securities	477,697		7,425,770		161,224		84,740		927,584		2,121
Total investments	$	477,697	$	11,525,933	$	3,861,224	$	84,740	$	927,584	$	2,121

_______________________

(1) Ratings are obtained from Moody's, Fitch, Inc. (Fitch), and S&P and are each as of December 31, 2014. If there is a split rating, the lowest rating is used.

(2) The issuer rating is used for these investments, and if a rating is on negative credit watch, the rating in the next lower rating category is used and then the lowest rating is determined.

FHFA regulations include limits on the amount of unsecured credit an individual FHLBank may extend to a counterparty or to a group of affiliated counterparties. This limit is based on a percentage of eligible regulatory capital and the counterparty's long-term unsecured credit rating. Under these regulations, the level of eligible regulatory capital is determined as the lesser of our total regulatory capital or the eligible amount of regulatory capital of the counterparty. The eligible amount of regulatory capital is then multiplied by a specified percentage for each counterparty, which product is the maximum amount of unsecured credit exposure we may extend to that counterparty. The percentage that we may offer for extensions of unsecured credit other than overnight sales of federal funds ranges from one percent to 15 percent based on the counterparty's credit rating. Extensions of unsecured credit other than sales of federal funds include on- and off-balance sheet and derivative transactions. See — Derivative Instruments Credit Risk for additional information related to derivatives exposure.

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FHFA regulations allow additional unsecured credit for overnight sales of federal funds. The specified percentage of eligible regulatory capital used for determining the maximum amount of unsecured credit exposure we may offer to a counterparty for overnight sales of federal funds is twice the amount that we may extend to that counterparty for extensions of credit other than overnight sales of federal funds reduced by the amount of any other unsecured credit exposure attributable to other than overnight sales of federal funds. During the year ended December 31, 2014, we were in compliance with FHFA regulatory limits established for unsecured credit.

We are prohibited by FHFA regulations from investing in financial instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks. We are also prohibited by FHFA regulations from investing in financial instruments issued by foreign sovereign governments, including those countries that are members of the European Union. Our unsecured credit risk to U.S. branches and agency offices of foreign commercial banks includes, among other things, the risk that, as a result of political or economic conditions in a country, the counterparty may be unable to meet their contractual repayment obligations. Notwithstanding the foregoing credit limits based on FHFA regulations, from time to time, we impose internal limits on all or specific individual counterparties that are lower than the maximum credit limits allowed by regulation. We are in compliance with these FHFA regulations as of December 31, 2014.

The table below presents our short-term unsecured money market credit exposure.

Short-term Unsecured Money-Market Credit Exposure by Investment Type (dollars in thousands)
	Carrying Value
	December 31, 2014		December 31, 2013
Federal funds sold	$	2,550,000	$	850,000

At December 31, 2014, our unsecured credit exposure related to money-market instruments and debentures, including accrued interest, was $3.4 billion to nine counterparties and issuers, of which $2.6 billion was for federal funds sold, and $875.7 million was for debentures issued by GSEs and supranational institutions. The following issuers/counterparties individually accounted for greater than 10 percent of total unsecured credit exposure as of December 31, 2014:

Issuers / Counterparties Representing Greater Than 10 Percent of Total Unsecured Credit Related to Money-Market Instruments and to Debentures As of December 31, 2014
Issuer / counterparty	Percent
National Australia Bank LTD (1)	17.5	%
Rabobank Nederland (1)	16.1
Bank of Nova Scotia (1)	16.1
Inter-American Development Bank (a supranational institution)	13.3
Standard Chartered Bank (1)	13.1
Canadian Imperial Bank of Commerce (1)	11.7

_______________________

(1) Overnight federal funds sold

Private-Label MBS

Of our $8.6 billion in par value of MBS and ABS investments at December 31, 2014, $1.7 billion in par value are private-label MBS and ABS backed by home equity loans, as set forth in the table below:

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Unpaid Principal Balance of Private-Label MBS and ABS Backed by Home Equity Loans by Fixed Rate or Variable Rate (dollars in thousands)
	December 31, 2014						December 31, 2013
Private-label MBS	Fixed Rate (1)		Variable Rate (1)		Total		Fixed Rate (1)		Variable Rate (1)		Total
Private-label residential MBS
Prime	$	12,334	$	152,296	$	164,630	$	15,585	$	176,416	$	192,001
Alt-A	27,447		1,532,827		1,560,274		31,040		1,684,971		1,716,011
Total private-label residential MBS	39,781		1,685,123		1,724,904		46,625		1,861,387		1,908,012
ABS backed by home equity loans
Subprime	—		17,440		17,440		—		23,980		23,980
Total par value of private-label MBS	$	39,781	$	1,702,563	$	1,742,344	$	46,625	$	1,885,367	$	1,931,992

_______________________

 (1) The determination of fixed or variable rate is based upon the contractual coupon type of the security.

The following table provides additional information related to our investments in MBS issued by private trusts and ABS backed by home equity loans. The amounts outstanding as of December 31, 2014, are stratified by year of issuance of the security. The table also sets forth the credit ratings and summary credit enhancements associated with our private-label MBS and ABS, stratified by year of securitization. Average current credit enhancements as of December 31, 2014, reflect the percentage of subordinated class outstanding balances as of December 31, 2014, to our senior class outstanding balances as of December 31, 2014, weighted by the par value of our respective senior class securities, and shown by year of securitization. Average current credit enhancements as of December 31, 2014, are indicative of the ability of subordinated classes to absorb loan collateral lost principal and interest shortfall before senior classes are impacted.

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Private-Label MBS and ABS Backed by Home Equity Loans by Year of Securitization At December 31, 2014 (dollars in thousands)
				Year of Securitization
	Total			2007			2006			2005			2004 and prior
Par value by credit rating
Triple-A	$	8,113		$	—		$	—		$	7,515		$	598
Double-A	1,339			—			—			—			1,339
Single-A	47,226			—			—			26,598			20,628
Triple-B	84,909			—			—			18,502			66,407
Below Investment Grade
Double-B	67,563			—			—			36,719			30,844
Single-B	64,653			16,279			—			37,025			11,349
Triple-C	873,214			194,686			478,852			184,205			15,471
Double-C	291,072			126,329			125,529			39,214			—
Single-C	70,228			7,238			30,373			32,617			—
Single-D	234,021			62,970			65,059			105,250			742
Unrated	6			—			—			—			6
Total	$	1,742,344		$	407,502		$	699,813		$	487,645		$	147,384
Amortized cost	$	1,344,925		$	283,855		$	490,793		$	423,983		$	146,294
Gross unrealized gains	76,550			33,141			31,158			11,980			271
Gross unrealized losses	(47,209		)	(7,738		)	(10,995		)	(20,931		)	(7,545		)
Fair value	$	1,374,266		$	309,258		$	510,956		$	415,032		$	139,020
Other-than-temporary impairment for the year ended December 31, 2014:
Total other-than-temporary impairment losses on held-to-maturity securities	$	(1,771	)	$	(438	)	$	—		$	(1,293	)	$	(40	)
Net amount of impairment losses reclassified to (from) accumulated other comprehensive loss	192			(598		)	(449		)	1,255			(16		)
Net impairment losses on held-to-maturity securities recognized in income	$	(1,579	)	$	(1,036	)	$	(449	)	$	(38	)	$	(56	)
Weighted average percentage of fair value to par value	78.87		%	75.89		%	73.01		%	85.11		%	94.33		%
Original weighted average credit support	26.49			28.74			28.83			26.14			10.32
Weighted average credit support	10.17			5.96			6.07			16.08			21.70
Weighted average collateral delinquency (1)	26.42			32.47			29.46			20.90			13.59

_______________________

 (1) Represents loans that are 60 days or more delinquent.

Mortgage Loans

We invest in mortgages through the MPF program. The MPF program is further described under — Mortgage Loans Credit Risk and in Item 1 — Business — Business Lines — Mortgage Loan Finance.

As of December 31, 2014, our mortgage loan investment portfolio totaled $3.5 billion, an increase of $115.5 million from December 31, 2013. We do not expect the balance of this portfolio to change significantly in 2015 as we expect continued strong competition from Fannie Mae and Freddie Mac for loan investment opportunities. We note further that the Director of the FHFA has delayed increases in Fannie Mae and Freddie Mac guaranty fees and certain other fees pending further study, which increases would have tended to weaken competition from Fannie Mae and Freddie Mac.

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The following table presents information relating to our mortgage portfolio for the five year period ended December 31, 2014.

Par Value of Mortgage Loans Held for Portfolio  (dollars in thousands)
	December 31,
	2014		2013		2012		2011		2010
Mortgage loans outstanding
Conventional mortgage loans
Original MPF	$	2,309,566	$	2,088,774	$	2,006,797	$	1,535,698	$	1,321,586
MPF 125	255,169		220,690		201,145		204,371		243,390
MPF Plus	432,934		564,471		771,125		1,037,031		1,343,611
Total conventional mortgage loans	2,997,669		2,873,935		2,979,067		2,777,100		2,908,587
Government mortgage loans	425,663		439,357		444,041		308,914		322,776
Total par value outstanding	$	3,423,332	$	3,313,292	$	3,423,108	$	3,086,014	$	3,231,363

Mortgage Loans Credit Risk

We are subject to credit risk from the mortgage loans in which we invest due to our exposure to the credit risk of the underlying borrowers and the credit risk of the participating financial institutions when the participating financial institutions retain credit-enhancement and/or servicing obligations.

We are also subject to credit risk through MPF Xtra, even though we do not acquire mortgage loans through this program. For MPF Xtra, we indemnify the MPF Provider for certain retained risks, including the risk of the MPF Provider's required repurchase of loans in the event of fraudulent or inaccurate representations and warranties from the participating financial institution regarding the sold loans. We may, in turn, seek reimbursement from the related participating financial institution in any such circumstance, at which point we are exposed to the credit risk of the participating financial institution. The participating financial institution's reimbursement obligation in such a circumstance would become an obligation under such participating financial institution's advances agreement with us. However, in the event that such a participating financial institution became insolvent and we lacked sufficient collateral under the advances agreement to satisfy the obligation, we would sustain a loss in the amount of such collateral shortfall.

Although our mortgage loan portfolio includes loans throughout the U.S., concentrations of five percent or greater of the outstanding principal balance of our conventional mortgage loan portfolio are shown in the following table:

State Concentrations by Outstanding Principal Balance
	Percentage of Total Outstanding Principal Balance of Conventional Mortgage Loans
	December 31, 2014		December 31, 2013
Massachusetts	44	%	41	%
Maine	11		11
Wisconsin	10		8
Connecticut	7		7
New Hampshire	5		5
All others	23		28
Total	100	%	100	%

The following table provides a summary of certain characteristics of our investments in mortgage loans.

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Characteristics of Our Investments in Mortgage Loans(1)
	December 31,
	2014		2013
Loan-to-value ratio at origination
< 60.00%	26	%	29	%
60.01% to 70.00%	16		16
70.01% to 80.00%	20		20
80.01% to 90.00%	24		21
Greater than 90.00%	14		14
Total	100	%	100	%
Weighted average loan-to-value ratio	71	%	70	%
FICO score
< 620	1	%	2	%
620 to < 660	5		6
660 to < 700	12		12
700 to < 740	17		18
≥ 740	64		61
Not available	1		1
Total	100	%	100	%
Weighted average FICO score	749		746

_______________________

(1) Percentages are calculated based on unpaid principal balance at the end of each period.

Government mortgage loans may not exceed the loan-to-value limits set by the applicable federal agency. Conventional mortgage loans with loan-to-value ratios greater than 80 percent require certain amounts of primary mortgage insurance from a mortgage insurance company rated at least triple-B (or equivalent rating).

Allowance for Credit Losses on Mortgage Loans. The allowance for credit losses on mortgage loans was $2.0 million at December 31, 2014, compared with $2.2 million at December 31, 2013.

For information on the determination of the allowance at December 31, 2014, see Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Allowance for Credit Losses, and for information on our methodology for estimating the allowance, see — Critical Accounting Estimates — Allowance for Loan Losses.

We place conventional mortgage loans on nonaccrual status when the contractual principal or interest is 90 days or more past due. Accrued interest on nonaccrual loans is reversed against interest income. We monitor the delinquency levels of the mortgage loan portfolio on a monthly basis. Our investments in conventional mortgage loans that are delinquent and our allowance for credit losses are shown in the following table:

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Delinquent Mortgage Loans (dollars in thousands)
	December 31,
	2014			2013			2012			2011			2010
Total par value past due 90 days or more and still accruing interest	$	7,191		$	19,450		$	23,210		$	24,438		$	19,874
Nonaccrual loans, par value	38,658			46,012			50,571			55,124			54,401
Troubled debt restructurings (not included above)	3,045			2,589			1,909			245			238
Nonaccrual loans:
Gross amount of interest that would have been recorded based on original terms	$	1,948		$	2,247		$	2,420		$	2,510		$	2,460
Interest actually recognized in income during the period	1,282			1,483			1,730			2,016			1,930
Shortfall	$	666		$	764		$	690		$	494		$	530
Allowance for credit losses on mortgage loans, balance at beginning of year	$	2,221		$	4,414		$	7,800		$	8,653		$	2,100
Net charge-offs	(270		)	(239		)	(259		)	(22		)	(148		)
Provision (reduction of provision) for credit losses	61			(1,954		)	(3,127		)	(831		)	6,701
Allowance for credit losses on mortgage loans, balance at end of year	$	2,012		$	2,221		$	4,414		$	7,800		$	8,653

Although delinquent loans in our portfolio are spread throughout the U.S., delinquent loanconcentrations of five percent or greater of the outstanding principal balance of our total conventional mortgage loans delinquent by more than 30 days are shown in the following table:

State Concentrations of Delinquent Conventional Mortgage Loans
	Percentage of Total Outstanding Principal Balance of Delinquent Conventional Mortgage Loans
	December 31, 2014		December 31, 2013
Massachusetts	31	%	30	%
California	15		18
Connecticut	13		10
All others	41		42
Total	100	%	100	%

Higher-Risk Loans. Ourportfolio includes certain higher-risk conventional mortgage loans. These include high loan-to-value ratio mortgage loans and subprime mortgage loans. The higher-risk loans represent a relatively small portion of our conventional mortgage loan portfolio (5.0 percent by outstanding principal balance), but a disproportionately higher portion of the conventional mortgage loan portfolio delinquencies (31.9 percent by outstanding principal balance). The table below shows the balance of higher-risk conventional mortgage loans and their delinquency rates as of December 31, 2014.

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Summary of Higher-Risk Conventional Mortgage Loans As of December 31, 2014 (dollars in thousands)
High-Risk Loan Type	Total Par Value		Percent Delinquent 30 Days		Percent Delinquent 60 Days		Percent Delinquent 90 Days or More and Nonaccruing
Subprime loans (1)	$	141,875	6.09	%	2.41	%	7.91	%
High loan-to-value loans (2)	6,261		9.11		—		10.05
Subprime and high loan-to-value loans (3)	1,394		—		18.47		45.77
Total high-risk loans	$	149,530	6.16	%	2.46	%	8.35	%

_______________________

(1) Subprime loans are loans to borrowers with FICO^® credit scores of 660 or lower.

(2) High loan-to-value loans have an estimated current loan-to-value ratio greater than 100 percent based on movements in property values in the core-based statistical areas where the property securing the loan is located.

(3) These loans are subprime and also have a current estimated loan-to-value ratio greater than 100 percent.

Our portfolio consists solely of fixed-rate conventionally amortizing first-mortgage loans. The portfolio does not include adjustable-rate mortgage loans, pay-option adjustable-rate mortgage loans, interest-only mortgage loans, junior lien mortgage loans, or loans with initial teaser rates.

Mortgage Insurance Companies. We are exposed to credit risk from mortgage insurance companies that provide credit enhancement in place of the participating financial institution and for primary mortgage insurance coverage on individual loans. As of December 31, 2014, we were the beneficiary of primary mortgage insurance coverage of $59.2 million on $238.9 million of conventional mortgage loans, and supplemental mortgage insurance coverage of $22.5 million on mortgage pools with a total unpaid principal balance of $334.0 million.

We have analyzed our potential loss exposure to all of the mortgage insurance companies and do not expect incremental losses based on these exposures at this time.

Deposits

We offer demand and overnight deposits, custodial mortgage accounts, and term deposits to our members. Deposit programs are intended to provide members a low-risk earning asset that satisfies liquidity requirements. Deposit balances depend on members' needs to place excess liquidity and can fluctuate significantly. Due to the relatively small size of our deposit base and the unpredictable nature of member demand for deposits, we do not rely on deposits as a core component of our funding. At December 31, 2014, and December 31, 2013, deposits totaled $369.3 million and $517.6 million, respectively.

Consolidated Obligations

See — Liquidity and Capital Resources for information regarding our COs.

Derivative Instruments

All derivatives are recorded on the statement of condition at fair value and classified as either derivative assets or derivative liabilities. Derivatives outstanding with counterparties with which we have an enforceable master-netting agreement are classified as assets or liabilities according to the net fair value of derivatives aggregated by each counterparty. Derivatives that have been cleared through a clearing member with a DCO are classified as assets or liabilities according to the net fair value of those derivatives that have been transacted through a particular clearing member with a particular DCO. Derivative assets' net fair value, net of cash collateral and accrued interest, totaled $14.5 million and $4.3 million as of December 31, 2014, and December 31, 2013, respectively. Derivative liabilities' net fair value, net of cash collateral and accrued interest, totaled $558.9 million and $608.2 million as of December 31, 2014, and December 31, 2013, respectively.

We offset fair-value amounts recognized for derivative instruments and fair-value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivatives recognized at fair value executed with the same counterparty under a master-netting arrangement as well as arising from derivatives cleared through a DCO.

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We base the estimated fair values of these agreements on the cost of interest-rate-exchange agreements with similar terms or available market prices. Consequently, fair values for these instruments must be estimated using techniques such as discounted cash-flow analysis and comparison with similar instruments. Estimates developed using these methods are subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. We formally establish hedging relationships associated with balance-sheet items to obtain economic results. These hedge relationships may include fair-value and cash-flow hedges, as well as economic hedges.

We had commitments for which we were obligated to invest in mortgage loans with par values totaling $26.9 million and $11.1 million at December 31, 2014 and 2013, respectively. All commitments to invest in mortgage loans are recorded at fair value on the statement of condition as derivatives. Upon satisfaction of the commitment, the recorded fair value is then reclassified as a basis adjustment of the purchased mortgage assets.

The following table presents a summary of the notional amounts and estimated fair values of our outstanding derivatives, excluding accrued interest, and related hedged item by product and type of accounting treatment as of December 31, 2014 and 2013. The notional amount is a factor in determining periodic interest payments or cash flows received and paid. Accordingly, the notional amount does not represent actual amounts exchanged or our overall exposure to credit and market risk. The hedge designation “fair value” represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge changes in fair value attributable to changes in the designated benchmark interest rate, which is LIBOR. The hedge designation "cash flow" represents the hedge classification for transactions that qualify for hedge-accounting treatment and hedge the exposure to variability in expected future cash flows. The hedge designation “economic” represents hedge strategies that do not qualify for hedge accounting, but are acceptable hedging strategies under our risk-management policy.

Hedged Item and Hedge-Accounting Treatment (dollars in thousands)
			December 31, 2014					December 31, 2013
Hedged Item	Derivative	Designation	Notional Amount		Fair  Value			Notional Amount		Fair Value
Advances (1)	Swaps	Fair value	$	4,771,265	$	(192,873	)	$	4,962,980	$	(277,060	)
	Swaps	Economic	190,500		(1,473		)	154,500		(893		)
Total associated with advances			4,961,765		(194,346		)	5,117,480		(277,953		)
Available-for-sale securities	Swaps	Fair value	611,915		(318,895		)	611,915		(218,658		)
	Caps	Economic	300,000		—			300,000		43
Total associated with available-for-sale securities			911,915		(318,895		)	911,915		(218,615		)
Trading securities	Swaps	Economic	210,000		(17,766		)	215,000		(18,602		)
COs	Swaps	Fair value	7,196,345		3,736			6,112,695		(14,453		)
	Swaps	Economic	22,500		(33		)	904,000		120
	Forward starting swaps	Cash Flow	1,096,800		(42,209		)	1,410,800		(51,466		)
Total associated with COs			8,315,645		(38,506		)	8,427,495		(65,799		)
Deposits	Swaps	Fair value	—		—			20,000		1,143
Total			14,399,325		(569,513		)	14,691,890		(579,826		)
Mortgage delivery commitments			26,927		63			11,056		(35		)
Total derivatives			$	14,426,252	(569,450		)	$	14,702,946	(579,861		)
Accrued interest					(20,100		)			(26,249		)
Cash collateral and accrued interest					45,209					2,276
Net derivatives					$	(544,341	)			$	(603,834	)
Derivative asset					$	14,548				$	4,318
Derivative liability					(558,889		)			(608,152		)
Net derivatives					$	(544,341	)			$	(603,834	)

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 _______________________

(1) As of December 31, 2014 and 2013 embedded derivatives separated from the advance contract with notional amounts of $190.5 million and $154.5 million, respectively, and fair values of $1.5 million and $892,000, respectively, are not included in the table.

The following tables present our hedging strategies at December 31, 2014 and 2013.

Hedging Strategies As of December 31, 2014 (dollars in thousands)
		Notional Amount
Hedged Item / Hedging Instrument	Hedging Objective	Fair Value Hedge Designation		Economic Hedge Designation		Cash Flow Hedge Designation
Advances
Pay fixed, receive floating interest-rate swap (without options)	Converts the advance's fixed rate to a variable rate index	$	2,537,040	$	116,500	$	—
Pay fixed, receive floating interest-rate swap (with options)	Converts the advance's fixed rate to a variable rate index and offsets option risk in the advance	2,210,225		—		—
Pay floating with embedded features, receive floating interest-rate swap (noncallable)	Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable rate to a different variable rate index and/or offsets embedded option risk in the advance	24,000		—		—
Pay floating, receive floating basis swap	Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable-rate to a different variable-rate index	—		74,000		—
		4,771,265		190,500		—
Investments
Pay fixed, receive floating interest-rate swap	Converts the investment's fixed rate to a variable rate index	611,915		210,000		—
Interest-rate cap	Offsets the interest-rate cap embedded in a variable rate investment	—		300,000		—
		611,915		510,000		—
CO Bonds
Receive fixed, pay floating interest-rate swap (without options)	Converts the bond's fixed rate to a variable rate index	4,296,345		22,500		—
Receive fixed, pay floating interest-rate swap (with options)	Converts the bond's fixed rate to a variable rate index and offsets option risk in the bond	2,900,000		—		—
Forward-starting interest-rate swap	To lock in the cost of funding on anticipated issuance of debt	—		—		1,096,800
		7,196,345		22,500		1,096,800
Stand-Alone Derivatives
Mortgage delivery commitments	N/A	—		26,927		—
Total		$	12,579,525	$	749,927	$	1,096,800

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Hedging Strategies As of December 31, 2013 (dollars in thousands)
		Notional Amount
Hedged Item / Hedging Instrument	Hedging Objective	Fair Value Hedge Designation		Economic Hedge Designation		Cash Flow Hedge Designation
Advances
Pay fixed, receive floating interest-rate swap (without options)	Converts the advance's fixed rate to a variable rate index	$	2,410,805	$	38,500	$	—
Pay fixed, receive floating interest-rate swap (with options)	Converts the advance's fixed rate to a variable rate index and offsets option risk in the advance	2,532,175		—		—
Pay floating with embedded features, receive floating interest-rate swap (noncallable)	Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable rate to a different variable rate index and/or offsets embedded option risk in the advance	20,000		—		—
Pay floating, receive floating basis swap	Reduces interest-rate sensitivity and repricing gaps by converting the advance's variable-rate to a different variable-rate index	—		116,000		—
		4,962,980		154,500		—
Investments
Pay fixed, receive floating interest-rate swap	Converts the investment's fixed rate to a variable rate index	611,915		215,000		—
Interest-rate cap	Offsets the interest-rate cap embedded in a variable rate investment	—		300,000		—
		611,915		515,000		—
Deposits
Receive fixed, pay floating interest-rate swap	Converts the deposit's fixed rate to a variable rate index	20,000		—		—
CO Bonds
Receive fixed, pay floating interest-rate swap (without options)	Converts the bond's fixed rate to a variable rate index	4,767,695		4,000		—
Receive fixed, pay floating interest-rate swap (with options)	Converts the bond's fixed rate to a variable rate index and offsets option risk in the bond	1,345,000		—		—
Receive floating, pay floating basis swap	Reduces interest-rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index.	—		900,000		—
Forward-starting interest-rate swap	To lock in the cost of funding on anticipated issuance of debt	—		—		1,410,800
		6,112,695		904,000		1,410,800
Stand-Alone Derivatives
Mortgage delivery commitments	N/A	—		11,056		—
Total		$	11,707,590	$	1,584,556	$	1,410,800

The following tables provide a summary of our hedging relationships for fair-value hedges of advances and COs that qualify for hedge accounting by year of contractual maturity. Interest accruals on interest-rate-exchange agreements in qualifying hedge relationships are recorded as interest income on advances and interest expense on COs in the statement of operations. The notional amount of derivatives in qualifying fair-value hedge relationships of advances and COs totals $12.0 billion, representing 83.0 percent of all derivatives outstanding as of December 31, 2014. Economic hedges and cash-flow hedges are not included within the two tables below.

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Fair-Value Hedge Relationships of Advances By Year of Contractual Maturity As of December 31, 2014 (dollars in thousands)
										Weighted-Average Yield (3)
	Derivatives					Advances(1)						Derivatives
Maturity	Notional		Fair Value			Hedged Amount		Fair-Value Adjustment(2)		Advances		Receive Floating Rate		Pay Fixed Rate		Net Receive Result
Due in one year or less	$	296,250	$	(3,152	)	$	296,250	$	3,167	3.07	%	0.23	%	2.70	%	0.60	%
Due after one year through two years	1,060,695		(26,875		)	1,060,695		26,727		2.61		0.24		2.31		0.54
Due after two years through three years	1,711,930		(116,360		)	1,711,930		115,399		3.89		0.24		3.76		0.37
Due after three years through four years	863,850		(31,084		)	863,850		30,983		2.75		0.24		2.42		0.57
Due after four years through five years	309,250		(6,823		)	309,250		6,807		2.46		0.24		2.19		0.51
Thereafter	529,290		(8,579		)	529,290		8,472		2.68		0.24		2.23		0.69
Total	$	4,771,265	$	(192,873	)	$	4,771,265	$	191,555	3.12	%	0.24	%	2.86	%	0.50	%

_______________________

(1) Included in the advances hedged amount are $2.2 billion of putable advances, which would accelerate the termination date of the derivative and the hedged item if the put option is exercised.

(2) The fair-value adjustment of hedged advances represents the amounts recorded for changes in the fair value attributable to changes in the designated benchmark interest rate, LIBOR.

(3) The yield for floating-rate instruments and the floating-rate leg of interest-rate swaps is the coupon rate in effect as of December 31, 2014.

Fair-Value Hedge Relationships of Consolidated Obligations By Year of Contractual Maturity As of December 31, 2014 (dollars in thousands)
											Weighted-Average Yield (3)
	Derivatives					CO Bonds (1)							Derivatives
Year of Maturity	Notional		Fair Value			Hedged Amount		Fair-Value Adjustment(2)			CO Bonds		Receive Fixed Rate		Pay Floating  Rate		Net Pay Result
Due in one year or less	$	1,762,695	$	7,288		$	1,762,695	$	(7,284	)	0.72	%	0.76	%	0.16	%	0.12	%
Due after one year through two years	2,197,245		41			2,197,245		1,880			0.62		0.69		0.18		0.11
Due after two years through three years	1,471,000		(367		)	1,471,000		2,589			1.09		1.10		0.15		0.14
Due after three years through four years	385,000		888			385,000		(246		)	1.57		1.57		0.15		0.15
Due after four years through five years	690,405		(104		)	690,405		1,542			1.60		1.60		0.10		0.10
Thereafter	690,000		(4,010		)	690,000		4,327			1.66		1.80		0.04		(0.10	)
Total	$	7,196,345	$	3,736		$	7,196,345	$	2,808		0.98	%	1.03	%	0.15	%	0.10	%

_______________________

(1) Included in the CO bonds hedged amount are $2.9 billion of callable CO bonds, which would accelerate the termination date of the derivative and the hedged item if the call option is exercised.

(2) The fair-value adjustment of hedged CO bonds represents the amounts recorded for changes in the fair value attributable to changes in the designated benchmark interest rate, LIBOR.

(3) The yield for floating-rate instruments and the floating-rate leg of interest-rate swaps is the coupon rate in effect as of December 31, 2014.

We may engage in derivatives directly with affiliates of certain of our members that act as derivatives dealers to us. These derivatives are entered into for our own risk-management purposes and are not related to requests from our members to enter into such contracts.

Derivative Instruments Credit Risk. We are subject to credit risk on derivatives. This risk arises from the risk of counterparty default on the derivative. The amount of loss created by default is the replacement cost of the defaulted contract, net of any collateral held by us or pledged by us to counterparties (unsecured derivatives exposure). We currently are receiving only cash collateral from counterparties with whom we are in a current positive fair-value position (i.e., we are in the money). The resulting net exposure at fair value is reflected in the derivatives table below. We presently pledge securities collateral for

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bilateral derivatives (principal-to-principal derivatives that are not centrally cleared) to counterparties with whom we are in a current negative fair-value position (i.e., we are out-of-the-money) by an amount that exceeds an exposure threshold defined in our master netting agreement with the counterparty. We may also pledge cash collateral, including, for cleared derivatives, initial and variation margin, as required by the applicable DCO. From time to time, due to timing differences or derivatives valuation differences between our calculated derivatives values and those of our counterparties, and to the contractual haircuts applied, we pledge to counterparties securities collateral whose fair value exceeds the current negative fair-value positions with them. The table below details our counterparty credit exposure as of December 31, 2014.

Derivatives Counterparty Current Credit Exposure As of December 31, 2014 (dollars in thousands)
Credit Rating (1)	Notional Amount		Net Derivatives Fair Value Before Collateral			Cash Collateral Pledged To /(From) Counterparty			Non-cash Collateral Pledged To Counterparty		Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Bilateral derivatives
Double-A	$	240,000	$	510		$	—		$	—	$	510
Single-A	615,000		383			(290		)	—		93
Liability positions with credit exposure:
Bilateral derivatives
Single-A	1,354,750		(31,179		)	—			33,050		1,871
Triple-B	979,945		(34,877		)	—			36,995		2,118
Cleared derivatives	4,200,450		(31,624		)	45,499			—		13,875
Total derivative positions with nonmember counterparties to which we had credit exposure	7,390,145		(96,787		)	45,209			70,045		18,467
Mortgage delivery commitments (2)	26,927		71			—			—		71
Total	$	7,417,072	$	(96,716	)	$	45,209		$	70,045	$	18,538
Derivative positions without credit exposure: (3)
Double-A	$	280,000
Single-A	5,317,140
Triple-B	1,412,040
Total derivative positions without credit exposure	$	7,009,180

_______________________

(1) Bilateral derivatives ratings are obtained from Moody's, Fitch, and S&P. Each rating classification includes all rating levels within that category. If there is a split rating, the lowest rating is used. In the case where the obligations are unconditionally and irrevocably guaranteed, the rating of the guarantor is used.

(2) Total fair-value exposures related to commitments to invest in mortgage loans are offset by certain pair-off fees. Commitments to invest in mortgage loans are reflected as derivatives. We do not collateralize these commitments. However, should the participating financial institution fail to deliver the mortgage loans as agreed, the participating financial institution is charged a fee to compensate us for the nonperformance.

(3) These represent derivatives positions with counterparties for which we are in a net liability position and for which we have delivered securities collateral to the counterparty in an amount equal to or less than the net derivative liability, or derivative positions with counterparties for which we are in a net asset position and for which the counterparty has delivered collateral to us in an amount which exceeds our net derivative asset.

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Bilateral derivatives. The credit risk arising from unsecured credit exposure on derivatives is mitigated by the credit quality of the counterparties and by the early termination ratings triggers contained in all master derivatives agreements. We enter into new bilateral derivatives only with nonmember institutions that have long-term senior unsecured credit ratings that are at or above single-A (or its equivalent) by S&P and Moody's, although risk-reducing trades may be approved for counterparties whose ratings have fallen below these ratings. We actively monitor these exposures and the credit quality of our counterparties, using stress testing of counterparty exposures and assessments of each counterparty's financial performance, capital adequacy, sovereign support, and related market signals. We can reduce or suspend credit limits and/or seek to reduce existing exposures, as appropriate, as a result of these monitoring activities. We do not enter into interest-rate-exchange agreements with other FHLBanks. We use master-netting agreements to reduce our credit exposure from counterparty defaults. The master agreements contain bilateral-collateral-exchange provisions that require credit exposures beyond a defined amount to be secured by U.S. federal government or GSE-issued securities or cash. Exposures are measured daily, and adjustments to collateral positions are made daily. The master agreements generally provide for lower amounts of unsecured exposure to lower-rated counterparties. These agreements are bilateral and could require us to deliver additional collateral to certain of our counterparties if our credit rating is downgraded by an NRSRO, which could increase our exposure to loss in the event of a default by a counterparty to which we were the net creditor at the time of any such default, as further detailed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Derivatives and Hedging Activities.

The following counterparties accounted for more than 10 percent of the total notional amount of bilateral derivatives outstanding (dollars in thousands):

	December 31, 2014
Counterparty	Notional Amount Outstanding		Percent of Total Notional Outstanding		Fair Value
Deutsche Bank AG	$	1,247,415	12.2	%	$	(343,004	)
JP Morgan Chase Bank NA	1,224,750		12.0		(30,778		)
Barclays Bank PLC	1,110,795		10.9		(21,880		)
HSBC Bank USA	1,024,000		10.0		(16,001		)

	December 31, 2013
Counterparty	Notional Amount Outstanding		Percent of Total Notional Outstanding		Fair Value
Deutsche Bank AG	$	1,932,915	16.1	%	$	(243,819	)
JP Morgan Chase Bank NA	1,559,750		13.0		(71,584		)
Barclays Bank PLC	1,397,795		11.6		(44,427		)
Goldman Sachs Bank USA	1,356,560		11.3		(67,389		)

We may deposit funds with these counterparties and their affiliates for short-term money-market investments, including overnight federal funds, term federal funds, and interest-bearing certificates of deposit. We also engage in short-term secured reverse repurchase agreements with affiliates of these counterparties. All of these counterparties have affiliates that buy, sell, and distribute our COs.

Cleared derivatives. The credit risk from unsecured credit exposure on cleared swaps is mitigated by the credit quality of the DCO counterparty. Our internal policies require that the DCO must have a rating of at least single-A or the equivalent. We actively monitor these exposures and the credit quality of our DCO counterparties, using stress testing of DCO counterparties exposures and assessments of each counterparty's financial performance, and capital adequacy. We can reduce existing exposures to a DCO by unwinding any trade, by entering into an offsetting trade, or by moving trades to another DCO.

LIQUIDITY AND CAPITAL RESOURCES

Our financial structure is designed to enable us to expand and contract our assets, liabilities, and capital in response to changes in membership composition and member credit needs. Our primary source of liquidity is our access to the capital markets through CO issuance, which is described in Item 1 — Business — Consolidated Obligations. Outstanding COs and the condition of the market for COs are discussed below under — Debt Financing — Consolidated Obligations. Our equity capital resources are governed by our capital plan, certain portions of which are described under — Capital below as well as by applicable legal and regulatory requirements.

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Liquidity

We monitor our financial position in an effort to ensure that we have ready access to sufficient liquid funds to meet normal transaction requirements, take advantage of investment opportunities, fund our member credit needs, and cover unforeseen liquidity demands. We strive to maintain the liquidity necessary to meet member-credit demands, repay maturing COs, meet other obligations and commitments, and respond to changes in membership composition.

We are not able to predict future trends in member-credit needs since they are driven by complex interactions among a number of factors, including, but not limited to mortgage originations, other loan portfolio growth, deposit growth, and the attractiveness of the pricing and availability of advances versus other wholesale borrowing alternatives.

Our contingency liquidity plans are intended to ensure that we are able to meet our obligations and the liquidity needs of members in the event of operational disruptions at the Bank or the Office of Finance or short-term disruptions of the capital markets.

For information and discussion of our guarantees and other commitments we may have, see — Off-Balance-Sheet Arrangements and Aggregate Contractual Obligations below, and for further information and discussion of the joint and several liability for FHLBank COs, see — Debt Financing— Consolidated Obligations below.

Internal Sources of Liquidity

Liquidity Reserves for Deposits. Applicable law requires us to hold a total amount of cash, obligations of the U.S., and advances with maturities of less than five years, in an amount not less than the amount of total member deposits with us. We have complied with this requirement during the year ended December 31, 2014. The following table provides our liquidity position with respect to this requirement.

Liquidity Reserves for Deposits (dollars in thousands)
	December 31,
	2014		2013
Liquid assets(1)
Cash and due from banks	$	1,124,536	$	641,033
Interest-bearing deposits	163		195
Advances maturing within five years	31,648,239		25,596,986
Total liquid assets(1)	32,772,938		26,238,214
Total deposits	369,331		517,565
Excess liquid assets(1)	$	32,403,607	$	25,720,649

 ________________________

(1) For purposes of the regulatory requirement liquid assets include cash, obligations of the U.S., and advances with maturities of less than five years.

Structural Liquidity. We maintain structural liquidity to support our day-to-day business needs and our contractual obligations. We define structural liquidity as projected net cash flow adjusted to assume all maturing advances are renewed, member overnight deposits are withdrawn at a rate of 50 percent per day, and loan investment commitments are taken down at a rate in excess of our ordinary experience (such adjustments are collectively referred to as our secondary uses of funds). We define projected net cash flow as projected sources of funds less projected uses of funds based on contractual maturities or expected option exercise periods, as applicable. We have a management action trigger based on our structural liquidity, a five business day test that is triggered if structural liquidity is less than negative $1.0 billion. We complied with this management action trigger at all times during the year endedDecember 31, 2014.

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Structural Liquidity As of December 31, 2014 (dollars in thousands)
	5 Days
Projected net cash flow	$	8,097,150
Less: Secondary uses of funds	(4,555,896		)
Structural liquidity	$	3,541,254

Projected Net Cash Flows. We also have established a management action trigger based on projected net cash flow. This is a 21 business day test which is triggered if projected net cash flow is negative at or before day 21. We complied with this management action trigger as of December 31, 2014. At December 31, 2014, projected net cash flow at day 21 was $5.6 billion.

Contingency Liquidity. FHFA regulations require us to hold contingency liquidity in an amount sufficient to enable us to cover our liquidity requirements for a minimum of five business days without access to the CO debt markets. For contingency liquidity, we define adjusted net cash flow as projected sources of funds less uses of funds excluding reliance on access to the CO debt markets and including funding a portion of outstanding letters of credit. We complied with this requirement at all times during the year ended December 31, 2014. As of December 31, 2014 and 2013, we held a surplus of $12.4 billion and $10.9 billion, respectively, of contingency liquidity for the following five days, exclusive of access to the proceeds of CO debt issuance.

Contingency Liquidity As of December 31, 2014 (dollars in thousands)
	Cumulative Fifth Business Day
Adjusted net cash flow	$	(325,953	)
Contingency borrowing capacity (exclusive of CO issuances)	12,699,295
Net contingency liquidity	$	12,373,342

Additional Liquidity Requirements. In addition, certain FHFA guidance requires us to maintain sufficient liquidity through short-term investments in an amount at least equal to our anticipated cash outflows under two different scenarios. One scenario assumes that we cannot borrow funds from the capital markets for a period of 15 business days and that during that time we do not renew any maturing, prepaid, and put or called advances. The second scenario assumes that we cannot borrow funds from the capital markets for five business days and that during that period we will renew maturing and called advances for all members except very large, highly rated members. We were in compliance with these liquidity requirements at all times during the year endedDecember 31, 2014.

Balance Sheet Gap Policy. Further, we are sensitive to maintaining an appropriate funding balance between our assets and liabilities and maintain a policy that limits the potential gap between assets inclusive of projected prepayments, funded by liabilities, inclusive of projected calls, maturing in less than one year. The established policy limits this imbalance to a gap of 20 percent of total assets. We maintained compliance with this limit at all times during the year endedDecember 31, 2014. During the year endedDecember 31, 2014, this gap averaged 1.0 percent (maximum level 2.1 percent and minimum level 0.2 percent). As of December 31, 2014, this gap was 0.4 percent, compared with 2.1 percent at December 31, 2013.

External Sources of Liquidity

FHLBank P&I Funding Contingency Plan Agreement. We have a source of emergency external liquidity through the FHLBank P&I Funding Contingency Plan Agreement. Under the terms of that agreement, in the event we do not fund our principal and interest payments under a CO by deadlines established in the agreement, the other FHLBanks will be obligated to fund any shortfall to the extent that any of the other FHLBanks have a net positive settlement balance (that is, the amount by which end-of-day proceeds received by such FHLBank from the sale of COs on that day exceeds payments by such FHLBank on COs on the same day) in its account with the Office of Finance on the day the shortfall occurs. We would then be required to repay the funding FHLBanks. We have never drawn funding under this agreement.

Debt Financing — Consolidated Obligations

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Our primary source of liquidity is via CO issuances. At December 31, 2014, and December 31, 2013, outstanding COs, including both CO bonds and CO discount notes, totaled $50.8 billion and $39.5 billion, respectively. CO bonds are generally issued with either fixed-rate coupon-payment terms or variable-rate coupon-payment terms that use a variety of indices for interest-rate resets. Some of the fixed-rate bonds that we have issued are callable bonds that may be redeemed at par on one or more dates prior to their maturity date. In addition, to meet our needs and the needs of certain investors in COs, fixed- and variable-rate bonds may also contain certain provisions that may result in complex coupon-payment terms and call or amortization features. When such COs (structured bonds) are issued, we enter into interest-rate-exchange agreements containing offsetting features, which effectively change the characteristics of the bond to those of a simple variable-rate bond.

The Office of Finance has established a methodology for the allocation of the proceeds from the issuance of COs when COs cannot be issued in sufficient amounts to satisfy all FHLBank demand for funding during periods of financial distress and when its existing allocation processes are deemed insufficient. In general, this methodology provides that the proceeds in such circumstances will be allocated among the FHLBanks based on relative FHLBank total regulatory capital, with FHLBanks with greater total regulatory capital in absolute terms receiving greater allocations of issuance proceeds. The Office of Finance will use this method in such periods unless it determines that there is an overwhelming reason to adopt a different allocation method. As is the case during any instance of a disruption in our ability to access the capital markets, market conditions or this allocation could adversely impact our ability to finance our operations, which could adversely impact our financial condition and results of operations.

See Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Consolidated Obligations for a summary of CO bonds by contractual maturity dates and call dates as of December 31, 2014, and December 31, 2013. CO bonds outstanding for which we are primarily liable at December 31, 2014, and December 31, 2013, include issued callable bonds totaling $4.5 billion and $2.5 billion, respectively.

CO discount notes are also a significant funding source for us. CO discount notes are short-term instruments with maturities ranging from overnight to one year. We use CO discount notes primarily to fund short-term advances and investments, and longer-term advances and investments with short repricing intervals. CO discount notes comprised 49.8 percent and 40.6 percent of the outstanding COs for which we are primarily liable at December 31, 2014, and December 31, 2013, respectively, but accounted for 91.4 percent and 90.3 percent of the proceeds from the issuance of such COs during the years endedDecember 31, 2014 and 2013, respectively, due, in particular, to our frequent overnight CO discount note issuances.

The table below shows our short-term borrowings for the years ended December 31, 2014, 2013, and 2012 (dollars in thousands).

	CO Discount Notes									CO Bonds with Original Maturities of One Year or Less
	For the Years Ended December 31,									For the Years Ended December 31,
	2014			2013			2012			2014			2013			2012
Outstanding par amount at end of the period	$	25,312,040		$	16,062,000		$	8,640,000		$	1,722,240		$	2,196,850		$	1,312,470
Weighted-average rate at the end of the period	0.08		%	0.07		%	0.09		%	0.13		%	0.12		%	0.15		%
Daily-average par amount outstanding for the period	$	22,697,109		$	9,106,041		$	12,581,614		$	1,629,902		$	1,445,704		$	1,150,150
Weighted-average rate for the period	0.07		%	0.08		%	0.09		%	0.12		%	0.12		%	0.21		%
Highest par amount outstanding at any month-end	$	28,500,000		$	16,062,000		$	16,611,503		$	2,495,790		$	2,525,300		$	2,696,500

Although we are primarily liable for our portion of COs, that is, those issued on our behalf, we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on COs issued by all of the FHLBanks. The par amounts of the FHLBanks' outstanding COs were $847.2 billion and $766.8 billion at December 31, 2014 and 2013, respectively. COs are backed only by the combined financial resources of the FHLBanks. COs are not obligations of the U.S. government, and the U.S. government does not guarantee them. We have never paid any obligations on behalf of the other FHLBanks.

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We have evaluated the financial condition of the other FHLBanks based on known regulatory actions, publicly available financial information, and individual long-term credit rating downgrades as of each period presented. Based on this evaluation, as of December 31, 2014, and through the filing of this report, we believe there is a remote likelihood that we will be required to repay the principal or interest on any CO on behalf of another FHLBank.

The FHLBank Act authorizes the Secretary of the U.S. Treasury, at his or her discretion, to purchase COs of the FHLBanks aggregating not more than $4.0 billion under certain conditions. The terms, conditions, and interest rates are determined by the Secretary of the U.S. Treasury. There were no such purchases by the U.S. Treasury during the year ended December 31, 2014.

For additional information on COs, including their issuance, see Item 1 — Business — Consolidated Obligations.

Financial Conditions for Consolidated Obligations

We have experienced relatively favorable CO issuance costs and stable market access during the period covered by this report. Further, financial markets have remained generally calm notwithstanding the turmoil in global markets. The U.S. economy showed signs of strength during the year ended December 31, 2014.

We continue to operate in a prolonged, historically low interest-rate environment as discussed under — Economic Conditions — Interest-Rate Environment. Overall, we have experienced relatively low CO issuance costs during the period covered by this report, reflecting the low interest-rate environment together with continuing investor preferences for low-risk investments. We have experienced good market demand for all tenors of COs with the strongest demand for short-term COs, and have been able to issue debt in the amounts and structures required to meet our funding and risk-management needs. However, our cost of funds for longer-term debt has increased relative to the cost of issuing shorter-term debt, as measured relative to comparable term interest-rate swap yields. Throughout the year ended December 31, 2014, COs were issued at yields that were generally at or below equivalent-maturity LIBOR swap yields for debt maturing in less than three years, while longer-term issues bore funding costs that were typically higher than equivalent maturity LIBOR swap yields. We continue to experience similar pricing into the first quarter of 2015. We believe that the market’s reaction to expected changes in FOMC monetary policies will be an important factor that could shape investor demand for debt, including COs in 2015.

Additionally, we note that the NRSROs have historically indicated that FHLBank credit ratings, including credit ratings for COs, are constrained by the rating of the U.S. federal government. Accordingly, an NRSRO's downgrade of the U.S. federal government could result in a downgrade of the FHLBanks and COs. For a discussion of how an NRSRO downgrade could impact us, see Item 1A — Risk Factors — Business and Reputation Risks — An NRSRO's downgrade of the U.S. federal government's credit ratings could adversely impact our funding costs and/or access to the capital markets, require us to deliver collateral to certain derivatives counterparties, and/or adversely impact demand for certain of our products.

Capital

Total capital at December 31, 2014, was $2.9 billion compared with $2.8 billion at year-end 2013.

Capital stock declined by $117.4 million due to the repurchase of $1.0 billion of excess capital stock (of which $733.6 million was mandatorily redeemable capital stock) and the reclassification of capital stock to mandatorily redeemable capital stock amounting to $54.9 million. Offsetting these decreases was the issuance of $203.9 million of capital stock.

The FHLBank Act and FHFA regulations specify that each FHLBank is required to satisfy certain minimum regulatory capital requirements. We were in compliance with these requirements at December 31, 2014, as discussed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Capital.

Our membership includes commercial banks, thrifts, credit unions, insurance companies, and community development financial institutions with capital stock outstanding by member type shown in the table below (dollars in thousands).

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Capital Stock Outstanding by Member Type (dollars in thousands)
	December 31, 2014
Thrift institutions	$	1,173,720
Commercial banks	784,164
Credit unions	279,112
Insurance companies	176,023
Community development financial institutions	95
Total GAAP capital stock	2,413,114
Mandatorily redeemable capital stock	298,599
Total regulatory capital stock	$	2,711,713

Capital stock subject to a stock redemption period is reclassified to mandatorily redeemable capital stock in the liability section of the statement of condition. Mandatorily redeemable capital stock totaled $298.6 million and $977.3 million at December 31, 2014, and December 31, 2013, respectively. For additional information on the redemption of our capital stock, see Item 1 — Business — Capital Resources — Redemption of Excess Stock and Item 8 — Financial Statements and Supplementary Data —Note 1 — Summary of Significant Accounting Policies — Mandatorily Redeemable Capital Stock.

We have the authority, but are not obliged, to repurchase excess stock, as discussed under Item 1 — Business — Capital Resources — Repurchase of Excess Stock. At December 31, 2014, and December 31, 2013, excess capital stock totaled $633.0 million and $1.7 billion, respectively, as set forth in the following table (dollars in thousands):

	Membership Stock Investment Requirement		Activity-Based Stock Investment Requirement		Total Stock Investment Requirement (1)		Outstanding Class B Capital Stock (2)		Excess Class B Capital Stock
December 31, 2014	$	632,454	$	1,446,248	$	2,078,725	$	2,711,713	$	632,988
December 31, 2013	626,354		1,169,536		1,795,913		3,507,819		1,711,906

_______________________

(1) Total stock-investment requirement is rounded up to the nearest $100 on an individual member basis.

(2) Class B capital stock outstanding includes mandatorily redeemable capital stock.

Capital Rule

The Capital Rule, among other things, establishes criteria for four capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An FHLBank is adequately capitalized if it has sufficient permanent and total capital to meet or exceed its risk-based and minimum capital requirements. FHLBanks that are adequately capitalized have no corrective action requirements. FHLBanks that are not adequately capitalized must submit capital restoration plans, are subject to corrective action requirements and are prohibited from paying dividends, redeeming or repurchasing excess stock, and subject to certain asset growth restrictions. The FHFA may place critically undercapitalized FHLBanks into conservatorship or receivership.

The Director of the FHFA has discretion to add to or modify the corrective action requirements for each capital classification other than adequately capitalized if the Director of the FHFA determines that such action is necessary to ensure the safe and sound operation of the FHLBank and the FHLBank's compliance with its risk-based and minimum capital requirements.

If we became classified into a capital classification other than adequately capitalized, we could be adversely impacted by the corrective action requirements for that capital classification.

The Capital Rule requires the Director of the FHFA to determine on no less than a quarterly basis the capital classification of each FHLBank. By letter dated December 19, 2014, the Director of the FHFA notified us that, based on September 30, 2014, financial information, we met the definition of adequately capitalized under the Capital Rule. We have not yet received our capital classification based on our December 31, 2014 financial information.

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Internal Capital Practices and Policies

We also take steps as we believe prudent beyond legal or regulatory requirements in an effort to protect our capital, reflected in our targeted capital ratio operating range, internal minimum capital requirement in excess of regulatory requirements, minimum retained earnings target, and limitations on dividends.

Targeted Capital Ratio Operating Range

We target an operating capital ratio range as required by FHFA regulations. Currently, this range is set at 4.0 percent to 7.5 percent. Our capital ratio was 6.6 percent at December 31, 2014.

Internal Minimum Capital Requirement in Excess of Regulatory Requirements

To provide further protection for our capital base, we maintain an internal minimum capital requirement whereby the amount of paid-in capital stock and retained earnings (together, our actual regulatory capital) must exceed the sum of our regulatory capital requirement plus our minimum retained earnings target (together, our internal minimum capital requirement). As of December 31, 2014, this internal minimum capital requirement equaled $2.9 billion, which was satisfied by our actual regulatory capital of $3.6 billion.

Retained Earnings and the Minimum Retained Earnings Target

At December 31, 2014, we had total retained earnings of $901.7 million compared with our minimum retained earnings target of $700.0 million. We generally view our minimum retained earnings target as a floor for retained earnings rather than as a retained earnings limit and expect to continue to grow our retained earnings even though we exceed the target.

Our methodology for determining retained earnings adequacy and selection of the minimum retained earnings target incorporates an assessment of the various risks that could adversely impact retained earnings if trigger stress-scenario conditions were to occur. Principal elements are market risk and credit risk. Market risk is represented through the Bank's Value at Risk (VaR) market-risk measurement, which estimates the 99^th percentile worst case of potential changes in our market value of equity due to potential shifts in yield curves applicable to our assets, liabilities, and off-balance-sheet transactions. Credit risk is represented through incorporation of valuation deterioration due but not limited to actual and potential adverse ratings migrations for our assets and actual and potential defaults.

Our minimum retained earnings target could be superseded by FHFA mandates, either in the form of an order specific to us or by promulgation of new regulations requiring a level of retained earnings that is different from our current target. Moreover, we may, at any time, change our methodology or assumptions for modeling our minimum retained earnings target and will do so when prudential or other reasons warrant such a change. Either of these events could result in us increasing our minimum retained earnings target and, in turn, reducing or eliminating dividends, as necessary.

For information on limitations on dividends, including limitations when we are under our minimum retained earnings target, see Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Restricted Retained Earnings and the Joint Capital Agreement

At December 31, 2014, our total retained earnings included $136.8 million in restricted retained earnings. Our capital plan and the Joint Capital Agreement require us to allocate a certain percentage of quarterly net income to a restricted retained earnings account, which we refer to as restricted retained earnings, in accordance with the Joint Capital Agreement. The Joint Capital Agreement is a voluntary capital initiative among the FHLBanks intended to build greater safety and soundness in the FHLBank System. Generally, the agreement requires each FHLBank to allocate an amount at least equal to 20 percent of its quarterly net income (net of that FHLBank's obligation to its Affordable Housing Program) to a restricted retained earnings account. The FHLBanks commenced this obligation with their results at September 30, 2011. The percentage of the required allocation is subject to adjustment when an FHLBank has had an adjustment to a prior calendar quarter's net income. The agreement requires each FHLBank to contribute to its restricted retained earnings account until the total amount in that account is equal to 1 percent of the daily average carrying value of that FHLBank's outstanding total COs (excluding fair-value adjustments) for the calendar quarter (total required contribution). At December 31, 2014, our total required contribution to the restricted retained earnings account was $484.7 million compared with our total contribution on that date of $136.8 million. The agreement refers to the period of required contributions to the restricted retained earnings account as the “dividend restriction period.” Additionally, the agreement provides:

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• that amounts held in an FHLBank's unrestricted retained earnings account may not be transferred into the restricted retained earnings account;

• during the dividend restriction period, an FHLBank shall redeem or repurchase capital stock only at par value, and shall only conduct such redemption or repurchase if it would not result in the FHLBank's total regulatory capital falling below its aggregate paid in amount of capital stock;

• that any quarterly net losses will be netted against the FHLBank's other quarters' net income during the same calendar year so that the minimum required annual allocation into the FHLBank's restricted retained earnings account is satisfied;

• if the FHLBank sustains a net loss for a calendar year, the net loss will be applied to reduce the FHLBank's retained earnings that are not in the FHLBank's restricted retained earnings account to zero prior to application of such net loss to reduce any balance in the FHLBank's restricted retained earnings account;

• if the FHLBank incurs net losses for a cumulative year-to-date period resulting in a decline to the balance of its restricted retained earnings account, the FHLBank's required allocation percentage will increase from 20 percent to 50 percent of quarterly net income until its restricted retained earnings account balance is restored to an amount equal to the regular required allocation (net of the amount of the decline);

• if the balance in the FHLBank's restricted retained earnings account exceeds 150 percent of its total required contribution to the account, the FHLBank may release such excess from the account;

• in the event of the liquidation of the FHLBank, or the taking of the FHLBank's retained earnings by future federal action, such event will not affect the rights of the FHLBank's Class B stockholders under the FHLBank Act in the FHLBank's retained earnings, including those held in the restricted retained earnings account;

• for the restriction on the payment of dividends from amounts in the restricted retained earnings account for at least one year following the termination of the Joint Capital Agreement; and

• for certain procedural mechanisms for determining when an automatic termination event has occurred.

The agreement will terminate upon an affirmative vote of two-thirds of the boards of directors of the then existing FHLBanks, or automatically if a change in the FHLBank Act, FHFA regulations, or other applicable law has the effect of:

• creating any new or higher assessment or taxation on the net income or capital of any FHLBank;

• requiring the FHLBanks to retain a higher level of restricted retained earnings than what is required under the agreement; or

• establishing general restrictions on dividend payments requiring a new or higher mandatory allocation of an FHLBank's net income to any retained earnings account than the amount specified in the agreement, or prohibiting dividend payments from any portion of an FHLBank's retained earnings not held in the restricted retained earnings account.

Off-Balance-Sheet Arrangements and Aggregate Contractual Obligations

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

• commitments that obligate us for additional advances;

 • standby letters of credit;

 • commitments for unused lines-of-credit advances; and

 • unsettled COs.

Off-balance-sheet arrangements are more fully discussed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 19 — Commitments and Contingencies.

Contractual Obligations. The following table presents our contractual obligations as of December 31, 2014.

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Contractual Obligations as of December 31, 2014 (dollars in thousands)
	Payment Due By Period
Contractual Obligations	Total		Less than one year		One to three years		Three to five years		More than five years
Consolidated obligation bonds(1)	$	25,328,340	$	6,675,745	$	10,416,315	$	4,637,195	$	3,599,085
Estimated interest payments on long-term debt(2)	2,022,016		429,304		606,753		332,912		653,047
Capital lease obligations	78		47		31		—		—
Operating lease obligations	22,749		2,495		5,003		5,104		10,147
Mandatorily redeemable capital stock	298,599		697		25,590		272,312		—
Commitments to invest in mortgage loans	26,927		26,927		—		—		—
Pension and post-retirement contributions	5,470		172		573		950		3,775
Total contractual obligations	$	27,704,179	$	7,135,387	$	11,054,265	$	5,248,473	$	4,266,054

_______________________

(1) Includes CO bonds outstanding at December 31, 2014, at par value, based on the contractual maturity date of the CO bonds. No effect for call dates on callable CO bonds has been considered in determining these amounts.

(2) Includes estimated interest payments for CO bonds. For floating-rate CO bonds, the forward interest-rate curve of the underlying index as of December 31, 2014, has been used to estimate future interest payments. No effect for call dates on callable CO bonds has been considered in determining these amounts.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expenses during the reported periods. Although management believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.

We have identified five accounting estimates that we believe are critical because they require us to make subjective or complex judgments about matters that are inherently uncertain, and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These estimates include accounting for derivatives, the use of fair-value estimates, accounting for deferred premiums and discounts on prepayable assets, the allowance for loan losses, and other-than-temporary-impairment of investment securities. The Audit Committee of our board of directors has reviewed these estimates.

Accounting for Derivatives

Derivatives are required to be carried at fair value on the statement of condition. Any change in the fair value of a derivative is required to be recorded each period in current period earnings or other comprehensive income, depending on the type of hedge transaction. All of our derivatives are either 1) inherent to another activity, such as forward commitments to purchase mortgage loans under the MPF program, 2) embedded in a host financial instrument, such as an advance or an investment security, or 3) derivative contracts structured to offset some or all of the risk exposure inherent in our member-lending, investment, and funding activities. We are required to recognize unrealized losses or gains on derivative positions, regardless of whether offsetting gains or losses on the associated assets or liabilities being hedged are permitted to be recognized in a symmetrical manner. Therefore, the accounting framework imposed can introduce the potential for considerable income variability. Specifically, a mismatch can exist between the timing of income and expense recognition from assets or liabilities and the income effects of derivatives positioned to mitigate market-risk and cash-flow variability. Therefore, during periods of significant changes in interest rates and other market factors, our reported earnings may exhibit considerable variability. We generally employ hedging techniques that are effective under the hedge-accounting requirements. However, not all of our hedging relationships meet the hedge-accounting requirements. In some cases, we have elected to retain or enter into derivatives that are economically effective at reducing risk but do not meet the hedge-accounting requirements, either because the cost of the hedge was economically superior to nonderivative hedging alternatives or because no nonderivative hedging alternative was available. As required by FHFA regulation and our policy, derivatives that do not qualify as hedging instruments pursuant to GAAP may be used only if we document a nonspeculative purpose.

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A hedging relationship is created from the designation of a derivative financial instrument as either hedging our exposure to changes in the fair value of a recognized asset, liability, or unrecognized firm commitment, or changes in future variable cash flows attributable to a recognized asset or liability or forecasted transaction. Fair-value hedge accounting allows for the offsetting changes in the fair value of the hedged risk in the hedged item to also be recorded in current period earnings.

The short-cut method can be used when the assumption can be made that the change in fair value of a hedged item, due to changes in the benchmark rate, exactly offsets the change in fair value of the related derivative. In many hedging relationships that use the short-cut method, we may designate the hedging relationship upon our commitment to disburse an advance or trade a CO provided that the period of time between the trade date and the settlement date of the hedged item is within established market-settlement conventions for the advances and CO markets. We define these market-settlement conventions to be five business days or less for advances and 30 calendar days or less, using a next business day convention, for COs. In such circumstances, although the advance or CO will not be recognized in the financial statements until settlement date, the hedge relationship qualifies for applying the short-cut method. We then record changes in the fair value of the derivative and hedged item beginning on the trade date.

Beginning in November 2014, to streamline certain operational processes, we voluntarily discontinued the use of short-cut hedge accounting for new hedge relationships entered into after that date. Short-cut hedge relationships entered into prior to that date will continue as short-cut hedge relationships until they mature or are terminated.

Hedge relationships not treated as short-cut accounting are treated as a long-haul fair-value hedge, where the change in the value of the hedged item attributable to changes in the benchmark interest rate must be measured separately from the derivative and effectiveness testing must be performed with results falling within established tolerances. If the hedge fails its effectiveness test, the hedge no longer qualifies for hedge accounting and the derivative is marked through current-period earnings without any offset related to the hedged item.

For derivative transactions that potentially qualify for long-haul fair-value hedge-accounting treatment, management must assess how effective the derivatives have been, and are expected to be, in hedging changes in the estimated fair values of the hedged items attributable to the risks being hedged. Hedge-effectiveness testing is performed at the inception of the hedging relationship and on an ongoing basis. We perform testing at hedge inception based on regression analysis of the hypothetical performance of the hedge relationship using historical market data. We then perform regression testing on an ongoing basis using accumulated actual values in conjunction with hypothetical values. Specifically, each month we use a consistently applied statistical methodology that uses a sample of at least 31 historical interest-rate environments and includes an R-square test, a slope test, and an F-statistic test. These tests measure the degree of correlation of movements in estimated fair values between the derivative and the related hedged item. For the hedging relationship to be considered effective, the R-square must be greater than 0.8, the slope must be between -0.8 and -1.25, and the computed F-statistic test significance must be less than 0.05.

We use the overnight-index swap (OIS) curve for valuation of our interest-rate derivatives in which the recipient of collateral maintains the right to rehypothecate pledged collateral, while LIBOR is used as the discount rate for interest-rate derivatives in which the recipient of collateral has no right to rehypothecate pledged collateral. Additionally, we use the OIS curve as the discount rate for derivatives cleared through a DCO.

We use the LIBOR swap curve to discount cash flows on all associated 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. For any such hedging relationship where the valuation of the derivative transaction is based on the OIS curve, there could be an increase in hedge ineffectiveness that in turn could result in the loss of hedge accounting for certain hedge relationships. Loss of hedge accounting for those hedge relationships would lead to increased net income volatility, which could be material. However, through December 31, 2014, no hedge relationships failed our hedge effectiveness criteria as a result of using the OIS curve as the discount rate for the derivative and the LIBOR swap curve as the discount rate for the hedged item.

The fair values of the derivatives and hedged items do not have any cumulative economic effect if the derivative and the hedged item are held to maturity, or mutual optional termination at par. Since these fair values fluctuate throughout the hedge period and eventually return to par value on the maturity date, the effect of fair values is normally only a timing issue.

For derivatives and hedged items that meet the requirements described above, we do not anticipate any significant impact on our financial condition or operating performance. For derivatives where no identified hedged item qualifies for hedge accounting, changes in the market value of the derivative are reflected in earnings. As of December 31, 2014, we held derivatives that are marked to market with no offsetting qualifying hedged item including $300.0 million notional of interest-rate caps, $423.0 million notional of interest-rate swaps, and $26.9 million notional of mortgage-delivery commitments. The

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total fair value of these positions as of December 31, 2014, was an unrealized loss of $19.2 million. The following table shows the estimated changes in the fair value of these derivatives under alternative parallel interest-rate shifts:

Estimated Change in Fair Value of Undesignated Derivatives As of December 31, 2014 (dollars in thousands)
	+50 basis points		+100 basis points
Change from base case
Interest-rate caps and swaps(1)	$	5,714	$	11,141

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(1) Given the low interest-rate environment experienced at the end of 2014, we do not believe that technical valuations generated through a down 100 basis point and a down 50 basis point rate shock are representative of potential shifts in the instruments' values.

These derivatives economically hedge certain advances, investment securities, and CO bonds. Although these economic hedges do not qualify or were not designated for hedge accounting, they are an acceptable hedging strategy under our risk-management program. Our projections of changes in value of the derivatives have been consistent with actual experience.

Fair-Value Estimates

Overview. We measure certain assets and liabilities, including investment securities classified as available-for-sale and trading, as well as all derivatives and mandatorily redeemable capital stock at fair value on a recurring basis. Additionally, certain held-to-maturity securities are measured at fair value on a nonrecurring basis due to the recognition of other-than-temporary impairment. Management also estimates the fair value of some of the collateral that borrowers pledge against advance borrowings to confirm that collateral is sufficient to meet regulatory requirements and to protect against losses. Accounting guidance defines fair value, establishes a framework for measuring fair value, establishes a fair-value hierarchy based on the inputs used to measure fair value, and requires certain disclosures for fair-value measurements. The book values and fair values of our financial assets and liabilities, along with a description of the valuation techniques used to determine the fair values of these financial instruments, is disclosed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Fair Values.

We generally consider a market to be inactive if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes we receive vary significantly either over time or among independent pricing services or dealers; and (4) there is a limited availability of public market information.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants at the measurement date, or an exit price. In general, the transaction price will equal the exit price and, therefore, represent the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the transaction and the asset or liability. To determine the fair value or the exit price, entities must determine the unit of account, principal market, market participants, and for non-financial instruments the highest and best use. These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.

Fair values are based on quoted market prices or market-based prices, if such prices are available. If quoted market prices or market-based prices are not available, fair values are determined based on valuation models that use either:

• discounted cash flows, using market estimates of interest rates and volatility; or

• dealer prices and prices of similar instruments.

Pricing models and their underlying assumptions are based on management's best estimate with respect to:

• discount rates;

• prepayments;

• market volatility; and

• other factors.

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These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the income and expense related thereto. The use of different assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings.

Accounting guidance establishes a three-level fair-value hierarchy for classifying financial instruments that is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The three levels of the fair-value hierarchy are:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 – Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities.

• Level 3 – Unobservable inputs.

Each asset or liability is assigned to a level based on the lowest level of any input that is significant to the fair-value measurement. The majority of our financial instruments carried at fair value fall within the Level 2 category and are valued primarily using inputs and assumptions that are observable in the market, that can be derived from observable market data, or that can be corroborated by recent trading activity of similar instruments with similar characteristics.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that are actively traded and have quoted market prices or parameters readily available, there is little to no subjectivity in determining fair value.

Valuation of Derivatives and Hedged Items. For purposes of estimating the fair value of derivatives and items for which we are hedging the changes in fair value attributable to changes in the designated benchmark interest rate, we employ a valuation model that uses market data from the Eurodollar futures, cash LIBOR, U.S. Treasury obligations, and the U.S. dollar interest-rate-swap markets to construct discount and forward-yield curves using standard financial market techniques.

As discussed under — Accounting for Derivatives, OIS is used as the discount rate for valuation of our bilateral derivatives in which the recipient of collateral maintains the right to rehypothecate pledged collateral and for all derivatives cleared through a DCO, while LIBOR continues to be the appropriate discount rate for bilateral derivatives in which the recipient of collateral has no right to rehypothecate pledged collateral.

The valuation adjustments for our hedged items in which the designated hedged risk is the risk of changes in fair value attributable to changes in the benchmark interest rate (LIBOR-based) are calculated using the same model that is used to calculate the fair values of the associated hedging derivatives.

Valuation of Investment Securities. To ensure consistency in determination of investment securities values, including the other-than-temporary impairment for private-label residential MBS and certain home equity loan investments (including home equity ABS) among the FHLBanks, the FHLBanks formed a pricing committee (the Pricing Committee) establishing a formal process to ensure consistency in key other-than-temporary impairment modeling assumptions used for purposes of their cash-flow analyses for the majority of these securities. As a voting member, we provide input into the procedures considered by the Pricing Committee in determining fair values, and vote to adopt amendments to the procedures from time to time. We participate in the Pricing Committee as an important part of our continuing efforts to refine the valuation procedures for our investment securities and to enhance consistency among the FHLBanks on certain investment securities' valuation determinations.

For the period ended December 31, 2014, we employed the procedures to value our MBS that have been established by the Pricing Committee and also applied those procedures to value our non-MBS investments with the exception of floating-rate HFA securities. We have reviewed the Pricing Committee's procedures and determined that they are reasonably designed to determine that the estimated prices were exit prices. Accordingly, the following descriptions of our procedures for the period ended December 31, 2014, are the same as those established by the Pricing Committee. These processes are described in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Fair Values — Investment Securities.

The four designated and market-recognized pricing vendors from whom we collected prices used various proprietary models. The inputs to those models were derived from various sources including, but not limited to benchmark yields, reported trades, dealer indications, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many private-label MBS (and to a lesser extent other investment securities) do not trade on a daily basis, the pricing vendors used available information such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the

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prices for individual securities. Each pricing vendor has an established challenge process in place for all securities valuations, which facilitates resolution of potentially erroneous prices as identified by our methodology.

For the period ended December 31, 2014, we conducted reviews of the four pricing vendors to confirm and further augment our understanding of the vendors' pricing processes, methodologies, and control procedures. To the extent available, we also reviewed the vendors' independent auditors' reports regarding the internal controls over their valuation processes.

Our valuation technique first requires the establishment of a “median price” for each security using a formula that is based upon the number of vendor prices received:

• If four prices are received, the middle two prices are averaged to establish a median price;

• if three prices are received, the middle price is the median price;

• if two prices are received, the prices are averaged to establish a median price; and

• if one price is received, it is the median price (and also the final price), subject to further validation, consistent with the evaluation of “outliers” as discussed below.

In the cases where two or more vendor prices are obtained, each vendor price is then compared to the median price defined above. Differences between all vendor prices received and the median price are then compared to the security's applicable tolerance parameters. All vendor prices that are within the security's tolerance parameters are averaged to arrive at the security's default price. In cases where one or more vendor prices have differences greater than the applicable tolerance parameter, these out-of-tolerance prices (theoutliers) are subject to further analysis. Further analysis to exclude a vendor price or to determine if an outlier is a better estimate of fair value includes, but is not limited to, comparison to i) prices provided by a fifth, third-party recognized valuation service, ii) observed market prices for similar securities, iii) nonbinding dealer estimates, or iv) use of internal model prices, which we believe generally reflect the relevant facts and circumstances that a market participant would consider. Additionally, we ordinarily challenge a pricing vendor when a price falls outside of the tolerance parameters and/or if we determine that a price should be excluded as a result of our further analysis. When a pricing vendor agrees that its price is incorrect, we exclude that price from our determination of that security's final price. When a pricing vendor disagrees that its price is incorrect, our internal subject matter experts determine whether or not to consider that price in the determination of that security's final price in the valuation process based on all information available to the subject matter experts. In the case where management determines an outlier price is more representative of the security's price, then the outlier price will be used as the final price rather than the default price. If, on the other hand, management determines that an outlier (or outliers) is (are) in fact not representative of fair value, then the outlier(s) will be excluded from the default price calculation, and the default price is then used as the final price. In all cases, the final price is used to determine the fair value of the security.

As an additional step, we reviewed the final fair-value estimates of our private-label MBS as of December 31, 2014, for reasonableness using an implied yield test. We calculated an implied yield for each of our private-label MBS using the estimated fair value derived from the process described above and the security's projected cash flows from our other-than-temporary-impairment assessment process and compared such yield to the market yield for comparable securities according to dealers and other third-party sources to the extent comparable market yield data was available. We evaluated significant variances in conjunction with all of the other available pricing information to determine whether an adjustment to the fair-value estimate derived from the process described above was necessary.

As of December 31, 2014, four vendor prices were received for 91.5 percent of our investment securities and the final prices for substantially all of those securities were computed by averaging the four prices. Based on our review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or, in those instances in which there were outliers or significant yield variances, our additional analyses), we believe the final prices used are reasonably likely to be exit prices and further that the fair-value measurements are classified appropriately in the fair-value hierarchy.

Deferred Premium/Discount Associated with Prepayable Mortgage-Backed Securities

When we purchase MBS, we often pay an amount that is different than the unpaid principal balance. The difference between the purchase price and the contractual note amount is a premium if the purchase price is higher, and a discount if the purchase price is lower. Accounting guidance permits us to amortize (or accrete) these premiums (or discounts) in a manner such that the yield recognized on the underlying asset is constant over the asset's estimated life.

We typically pay more than the unpaid principal balances when the interest rates on the purchased mortgages are greater than prevailing market rates for similar mortgages on the transaction date. The net purchase premiums paid are then amortized using

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the constant-effective-yield method over the expected lives of the mortgages as a reduction in their book yields (that is, interest income). Similarly, if we pay less than the unpaid principal balances due to interest rates on the purchased mortgages being lower than prevailing market rates on similar mortgages on the transaction date, the net discount is accreted in the same manner as the premiums, resulting in an increase in the mortgages' book yields. The constant-effective-yield amortization method is applied using expected cash flows that incorporate prepayment projections that are based on mathematical models that describe the likely rate of consumer refinancing activity in response to incentives created (or removed) by changes in interest rates. While changes in interest rates have the greatest effect on the extent to which mortgages may prepay, in general prepayment behavior can also be affected by factors not contingent on interest rates. Generally, however, when interest rates decline, prepayment speeds are likely to increase, which accelerates the amortization of premiums and the accretion of discounts. The opposite occurs when interest rates rise.

We estimate prepayment speeds on each individual security using the most recent three months of historical constant prepayment rates, as available, or may subscribe to third-party data services that provide estimates of cash flows, from which we determine expected asset lives. The constant-effective-yield method uses actual historical prepayments received and projected future prepayment speeds, as well as scheduled principal payments, to determine the amount of premium/discount that should be recognized so that the book yield of each MBS is constant for each month until maturity.

In general, lower interest rates are expected to result in the acceleration of premium and discount amortization and accretion, compared with the effect of higher interest rates that would tend to decelerate the amortization and accretion of premiums and discounts. Exact trends will depend on the relationship between market interest rates and coupon rates on outstanding mortgage assets, the historical evolution of mortgage interest rates, the age of the mortgage loans, demographic and population trends, and other market factors. Changes in amortization will also depend on the accuracy of prepayment projections compared with actual experience. Prepayment projections are inherently subject to uncertainty because it is difficult to accurately predict future market conditions and the response of borrowing consumers in terms of refinancing activity to future market conditions even if the market conditions were known. However, actual prepayment speeds observed in these rate environments can be influenced by factors such as home price trends and lender credit underwriting standards. For example, in the recent very-low interest-rate environment, borrower refinancing activity has generally been lower than models would have predicted based on experience prior to the housing recession that commenced in 2008.

If we determine that an other-than-temporary impairment exists, we account for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment at an amortized cost basis equal to the previous amortized cost basis reduced by the other-than-temporary impairment recognized in income. The difference between the new amortized cost basis and the cash flows expected to be collected is amortized or accreted into interest income prospectively over the remaining life of the investment security based on the amount and timing of future estimated cash flows.

Upon subsequent evaluation of a debt security where there is no additional other-than-temporary impairment, we adjust the accretable yield on a prospective basis if there is a significant increase in the security's expected cash flows. The new accretable yield is used to calculate the amount to be recognized into income over the remaining life of the security so as to match the amount and timing of future cash flows expected to be collected. The estimated cash flows and accretable yield are re-evaluated on a quarterly basis.

The effect on interest income from the amortization and accretion of premiums and discounts on MBS, including MBS in both the held-to-maturity and available-for-sale portfolios and including accretion associated with a significant increase in a security's expected cash flows, for the years ended December 31, 2014, 2013, and 2012, was a net increase to income of $16.7 million, $10.4 million, and $2.0 million, respectively.

Allowance for Loan Losses

Advances. We have experienced no credit losses on advances and currently do not anticipate any credit losses on advances for the reasons discussed under — Financial Condition — Advances Credit Risk. Accordingly, we make no allowance for losses on advances.

At December 31, 2014, and December 31, 2013, we had rights to collateral, either loans or securities, on a member-by-member basis, with an estimated fair value in excess of outstanding advances. We believe that policies and procedures are in place to appropriately manage the credit risk associated with advances.

Mortgage Loans. We invest in both conventional mortgage loans and government mortgage loans under the MPF program. We have determined that no allowance for losses is necessary for government mortgage loans, as discussed under Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Allowance for Credit

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Losses. Conventional loans, in addition to having the related real estate as collateral, are credit enhanced either by qualified collateral pledged by the member, or by supplemental mortgage insurance purchased by the member. The credit enhancement is the participating financial institution's potential loss in the second-loss position after the first loss account is exhausted. We incur all losses in excess of the credit enhancement.

As of December 31, 2014, and December 31, 2013, the allowance for loan losses on the conventional mortgage loan portfolio was $2.0 million and $2.2 million, respectively. The allowance reflects our estimate of probable incurred losses inherent in the MPF portfolio as of December 31, 2014 and 2013.

Our allowance for loan-losses methodology estimates the amount of probable incurred losses that are inherent in the portfolio, but have not yet been realized. We then apply the risk-mitigating features of the MPF program to the estimated loss, which can include primary mortgage insurance, supplemental mortgage insurance, member-provided credit enhancements (described below), and any other credit enhancement. The credit enhancement represents the participating financial institution's continuing obligation to absorb a portion of the credit losses arising from the participating financial institution's master commitment(s). Additionally, certain credit-enhancement fees can be withheld from the participating financial institution to mitigate losses from our investments in MPF loans and therefore we consider our expectations by each master commitment for such withheld fees in determining the allowance for loan losses. More specifically the amount of credit-enhancement fees available to mitigate losses is calculated by adding accrued credit-enhancement fees to be paid to participating financial institutions and projected credit-enhancement fees to be paid to the participating financial institutions over the remaining estimated life of the master commitment and then subtracting any losses incurred or expected to be incurred.

For additional information on the allowance for loan losses, see Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Allowance for Credit Losses.

Other-Than-Temporary Impairment of Investment Securities

We evaluate held-to-maturity and available-for-sale investment securities in an unrealized loss position as of the end of each quarter for other-than-temporary impairment. For debt securities in an unrealized loss position, we assess whether (a) we have the intent to sell the debt security, or (b) it is more likely than not that we will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an other-than-temporary impairment on the security must be recognized. Further, if the present value of cash flows expected to be collected (discounted at the security's effective yield) is less than the amortized cost basis of the security, an other-than-temporary impairment is considered to have occurred because the entire amortized cost basis of the security will not be recovered.

These evaluations are inherently subjective and consider a number of qualitative factors. In addition to monitoring the credit ratings of these securities for downgrades, as well as placement on negative outlook or credit watch, we evaluate other factors that may be indicative of other-than-temporary impairment. Depending on the type of security, these include, but are not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of a security has been less than its cost, any credit enhancement or insurance, and certain other collateral-related characteristics such as FICO credit scores, loan-to-value ratios, delinquency and foreclosure rates, geographic concentrations, and the security's performance. If either our initial analysis identifies securities at risk of other-than-temporary impairment or the security is a private-label MBS, we perform additional testing of these investments.

At-risk securities and all private-label residential MBS are evaluated by estimating projected cash flows using models that incorporate projections and assumptions that are typically based on the structure of the security, existing credit enhancement, and certain economic assumptions, such as geographic housing prices, projected delinquency and default rates, expected loss severity on the collateral supporting our security, underlying loan-level borrower and loan characteristics, and prepayment speeds. The projected cash flows and losses are allocated to various security classes, including the security classes that we own, based on the cash flow and loss allocation rules of the individual security.

We perform our other-than-temporary impairment analysis for our private-label residential MBS using key modeling assumptions, inputs, and methodologies provided by the OTTI Governance Committee for our cash-flow projections used in analyzing credit losses and determining other-than-temporary impairment for private-label MBS. We participate in the OTTI Governance Committee, a committee that was formed by the FHLBanks to ensure consistency among the FHLBanks in their analyses of other-than-temporary impairment of private-label MBS in accordance with certain related guidance provided by the FHFA. The FHFA provides certain guidelines to the FHLBanks for determining other-than-temporary impairment with the objective of promoting consistency in the determination of other-than-temporary impairment for private-label MBS among the FHLBanks. In general terms, these guidelines provide that each FHLBank:

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• will identify the private-label MBS in its portfolio that should be subject to a cash-flow analysis consistent with GAAP and other applicable regulatory guidance;

• will use the same key modeling assumptions, inputs, and methodologies as the other FHLBanks for generating the cash-flow projections used in analyzing credit losses and determining other-than-temporary impairment for private-label MBS;

• will consult with any other FHLBank that holds any common private-label MBS with it to ensure consistent results regarding the recognition of other-than-temporary impairment, including the determination of fair value and the credit-loss component, for each such security;

• is responsible for making its own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and performing the required present value calculations using appropriate historical cost bases and yields; and

• may engage another FHLBank to perform the cash-flow projections underlying its other-than-temporary impairment determination.

The modeling assumptions, inputs, and methodologies for the other-than-temporary impairment analyses of our private-label residential MBS are material to the determination of other-than-temporary impairment. Accordingly, management has reviewed the assumptions approved by the OTTI Governance Committee and determined that they are reasonable. We base this view on our review of the methodology used to derive and/or formulate these assumptions by monitoring trends in the behavior of the underlying collateral and by comparison to "most likely" projections reported by various market observers and participants. However, any changes to the assumptions, inputs, or methodologies for the other-than-temporary impairment analyses as described in this section could result in materially different outcomes to this analysis including the realization of additional other-than-temporary impairment charges, which may be substantial.

In accordance with related FHFA guidance, we have contracted with the FHLBanks of San Francisco and Chicago to perform cash-flow analyses for certain of our residential private-label MBS, as described in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 7 — Other-Than-Temporary Impairment. We have tested the results of the FHLBank of San Francisco and the FHLBank of Chicago cash-flow modeling based on our internal modeling and determined that these results are reasonable. For each of these analyses, third-party models are employed to project expected losses associated with the underlying loan collateral and to model the resultant lifetime cash flows as to how they would pass through the deal structures underlying our MBS investments. These models use expected borrower default rates, projected loss severities, and forecasted voluntary prepayment speeds, all tailored to individual security product type. These analyses are based on the expected behavior of the underlying loans, whereby these loan-performance scenarios are applied against each security's credit-support structure to monitor credit-enhancement sufficiency to protect our investment. Model output includes projected cash flows, including any shortfalls in the capacity of the underlying collateral in conjunction with credit enhancements to fully return all contractual cash flows.

Since December 31, 2008, we had used increasingly stressful assumptions that on average reduce our projections of prepayment rates and increase our projections of default rates and loss severities for the loans underlying these securities. Due to the widening economic recovery, most parts of the country appear to be participating in a housing recovery, allowing us to maintain or improve the assumptions we use in our other-than-temporary-impairment analysis, although some parts of the country are still failing to fully participate in the housing recovery, leading us to increase the severity of the assumptions for those areas for the assessment for the quarter ended December 31, 2014.

We own certain private-label MBS that are insured by third-party bond insurers (referred to as monoline insurers). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The cash-flow analysis of the MBS protected by such third-party insurance looks first to the performance of the underlying security, considering its embedded credit enhancement(s), which may be in the form of excess spread, overcollateralization, and/or credit subordination to determine the collectability of all amounts due. If these protections are deemed insufficient to make timely payment of all amounts due, then we consider the capacity of the third-party bond insurer to cover any shortfalls. Certain of the monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. Accordingly, we have performed analyses to assess the financial strength of these monoline insurers to establish an expected case regarding the time horizon of the bond insurers' ability to fulfill their financial obligations and provide credit support. The projected time horizon of credit protection provided by an insurer is a function of claim-paying resources and anticipated claims in the future. This projection is referred to as the burn-out period and is expressed in months. The burn-out period for each monoline insurer is incorporated in the third-party cash-flow model as a key input. Any cash-flow shortfalls that occurred beyond the end of the burn-out period were considered not recoverable and the insured security was then deemed to be credit-impaired.

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In instances in which a determination is made that a credit loss exists (defined as the difference between the present value of the cash flows expected to be collected, discounted at the security's effective yield, and the amortized cost basis, but limited to the difference between amortized cost and fair value of the security), but we do not intend to sell the debt security and it is not likely that we will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis, the impairment is separated into (a) the amount of the total impairment related to the credit loss and (b) the amount of the total impairment related to all other factors. If our cash-flow analysis results in a present value of expected cash flows that is less than the amortized cost basis of a security (that is, a credit loss exists), an other-than-temporary impairment is considered to have occurred. If we determine that an other-than-temporary impairment exists, we account for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment at an amortized cost basis equal to the previous amortized cost basis reduced by the other-than-temporary impairment recognized in income. The difference between the new amortized cost basis and the cash flows expected to be collected is amortized or accreted into interest income prospectively over the remaining life of the investment security based on the amount and timing of future estimated cash flows.

See Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 7 — Other-Than-Temporary Impairment for additional information related to management's other-than-temporary impairment analysis for the current period.

In addition to evaluating our residential private-label MBS under a base-case (or best estimate) scenario, a cash-flow analysis was also performed for each of these securities under a more stressful housing price index scenario that was determined by the OTTI Governance Committee. This more stressful scenario was based on a housing price forecast that was decreased five percentage points followed by a recovery path that is 33.0 percent lower than the base case. The base case and adverse case scenarios for other-than-temporarily impaired private-label MBS for the three months ended December 31, 2014, were credit losses of $411,000 and $1.6 million, respectively.

RECENT ACCOUNTING DEVELOPMENTS

See Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Recently Issued and Adopted Accounting Guidance and Interpretations for a discussion of recent accounting developments impacting or that could impact us.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

The legislative and regulatory environment in which we, our members, and our financial counterparties operate continues to evolve rapidly due to the implementation of reforms for financial entities, which reforms commenced in the wake of the last recession. Our business operations, funding costs, rights, obligations, and/or the environment in which we carry out our housing finance mission are likely to continue to be significantly impacted by these changes. We summarize certain significant regulatory actions and developments for the period covered by this report below.

Significant FHFA Developments

Proposed Rule on FHLBank Membership.On September 12, 2014, the FHFA issued a proposed rule that would:

• impose a test on all FHLBank members requiring them to maintain at least one percent of their assets in first-lien home mortgage loans with maturities of five years or more, including MBS backed by such loans, on an ongoing basis, to maintain their membership in their respective FHLBank;

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

• eliminate all currently eligible captive insurance companies from FHLBank membership subjecting existing captive members to a five-year wind-down period (the proposed rule defines "insurance company" to be a company whose primary business is the underwriting of insurance for non-affiliated persons or entities, thus excluding captive insurance companies); and

• clarify how an FHLBank should determine the “principal place of business” of an insurance company or CDFI for purposes of membership. The proposed rule would also change the way the principal place of business is determined for an institution that becomes a member of an FHLBank after issuance of the final rule. Current rules define an institution’s principal place of business as the state in which it maintains its home office. The proposal would add a

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second component requiring an institution to conduct business operations from the home office for that state to be considered its principal place of business. The changes would apply prospectively.

If enacted as proposed, this rule would reduce the number of entities eligible for Bank membership and, in turn, reduce overall demand for our products and services thereby adversely impacting our results of operations.

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

Final Rule on Golden Parachute Payments. On January 28, 2014, the FHFA issued a final rule setting forth the standards that the Director of the FHFA will take into consideration when determining whether to limit or prohibit golden parachute payments. The primary impact of this final rule is to better conform existing FHFA regulations on golden parachutes with FDIC golden parachute regulations, and to further limit golden parachute payments made by an FHLBank or the Office of Finance that is assigned a less than satisfactory composite FHFA examination rating. This final rule and any other rule the FHFA enacts impacting FHLBank compensation could limit our ability to recruit and retain desired personnel.

Other Significant Developments

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

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

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

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

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

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Since we are currently posting and collecting variation margin on our bilateral derivatives, we do not anticipate that the Proposed Rule’s variation margin requirement, if adopted, would have a material impact on our costs. However, if the Proposed Rule’s initial margin requirement is adopted, we anticipate that our cost of engaging in bilateral derivatives would increase.

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

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

SEC Final Rule on Money Market Mutual Fund Regulations. On July 23, 2014, the SEC approved final regulations governing money-market mutual funds, which, among other things:

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

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

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

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

CREDIT RATING AGENCY DEVELOPMENTS

As of February 28, 2015, Moody’s long-and short-term credit ratings for us and 11 other FHLBanks are AAA and P-1, with a stable outlook.

As of February 28, 2015, S&P’s long- and short-term credit ratings for us and 10 other FHLBanks are AA+ and A-1+, with a stable outlook. The other FHLBank is rated AA and A-1+, with a stable outlook.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Sources and Types of Market and Interest-Rate Risk

Market risk is the risk to earnings or shareholder value due to adverse movements in interest rates, market prices, or interest-rate spreads. Market risk arises in the normal course of business from our investment in mortgage assets, where risk cannot be eliminated; from the fact that assets and liabilities are priced in different markets; and from tactical decisions to, from time to time, assume some risk to generate income.

Our balance sheet is comprised of different portfolios that require different types of market- and interest-rate-risk management strategies. The majority of our balance sheet is comprised of assets that can be funded individually or collectively without imposing significant residual interest-rate risk on ourselves.

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However, those assets with embedded options, particularly our mortgage-related assets, including the portfolio of whole loans acquired through the MPF program, our portfolio of MBS and ABS, and our portfolio of bonds issued by HFAs, represent more complex cash-flow structures and contain more risk of prepayment and/or call options.

Further, unequal moves in the various different yield curves associated with our assets and liabilities create risks that changes in individual portfolio or instrument valuations, or changes in projected income, will not be equally offset by changes in valuations or projected income associated with individual portfolios or instruments on the opposite side of the balance sheet, even if the financial terms of the opposing financial portfolios or instruments are closely matched.

These risks cannot always be profitably managed with a strategy in which each asset is offset by a liability with a substantially identical cash-flow structure. Therefore, we generally view each portfolio as a whole and allocate funding and hedging to these portfolios based on an evaluation of the collective market and interest-rate risks posed by these portfolios. We measure the estimated impact to fair value of these portfolios as well as the potential for income to decline due to movements in interest rates, and make adjustments to the funding and hedge instruments assigned as necessary to keep the portfolios within established risk limits.

We also incur interest-rate risk in the investment of our capital and retained earnings in interest-earning assets. Traditionally we have sought to match our capital against liquid short-term money market assets to maintain liquidity and to provide our members with a money-market-based return on capital. While this capital investment strategy is comparatively risk-neutral in terms of our market risk, it exposes our interest income to the level and volatility of rates in the markets. As the FOMC sought to stimulate the U.S. economy during and after the prolonged economic recession through a low-rate accommodative policy, the net interest income realized on our investments has been lower than could have been realized on alternative longer-term investments.

Types of Market and Interest-Rate Risk

Interest-rate and market risk can be divided into several categories, including repricing risk, yield-curve risk, basis risk, and options risk. Repricing risk refers to differences in the average sensitivities of asset and liability yields attributable to differences in the average timing of maturities and/or coupon resets between assets and liabilities. Differences in the timing of repricing of assets and liabilities can cause spreads between assets and liabilities to either increase or decline.

Yield-curve risk reflects the sensitivity of net income to changes in the shape or slope of the yield curve that could impact the performance of assets and liabilities differently, even though average sensitivities are the same.

When assets and liabilities are affected by yield changes in different markets, basis risk can result. For example, if we invest in LIBOR-based floating-rate assets and fund those assets with short-term discount notes, potential compression in the spread between LIBOR and discount-note rates could adversely impact our net income.

We also face options risk, particularly in our portfolio of advances, mortgage loans, MBS, and HFA securities. When a borrower prepays an advance, we could suffer lower future income if the principal portion of the prepaid advance is reinvested in lower-yielding assets that continue to be funded by higher-cost debt. For this reason, we are required by regulation to assess a prepayment fee that makes us financially indifferent to the prepayment, or in the case of callable advances, to charge an interest rate that is reflective of the value of the member's option to prepay the advance without a fee. However, in the mortgage loan, MBS, and HFA-bond portfolios, borrowers or issuers often have the right to repay their obligations prior to maturity without penalty, potentially requiring us to reinvest the returned principal at lower yields. If interest rates decline, borrowers may be able to refinance existing mortgage loans at lower interest rates, resulting in the prepayment of these existing mortgages and forcing us to reinvest the proceeds in lower-yielding assets. If interest rates rise, borrowers may avoid refinancing mortgage loans for periods longer than the average term of liabilities funding the mortgage loans, causing us to have to refinance the assets at higher cost. This right of redemption is effectively a call option that we have written to the obligor. Another less prominent form of options risk includes coupon-cap risk, which may be embedded into certain floating-rate MBS and limit the amount by which asset coupons may increase.

Strategies to Manage Market and Interest-Rate Risk

General

We use various strategies and techniques in an effort to manage our market and interest-rate risk. Principal among our tools for interest-rate-risk management is the issuance of debt that can be used to match interest-rate-risk exposures of our assets. For

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example, we can issue a CO with a maturity of five years to fund an investment with a five year maturity. The debt may be noncallable until maturity or callable on and/or after a certain date.

COs may be issued to fund specific assets or to manage the overall exposure of a portfolio or the balance sheet. At December 31, 2014, fixed-rate noncallable debt, not hedged by interest-rate swaps, amounted to $14.6 billion, compared with $13.4 billion at December 31, 2013, and fixed-rate callable debt not hedged by interest-rate swaps amounted to $1.6 billion and $1.2 billion at December 31, 2014, and December 31, 2013, respectively.

To achieve certain risk-management objectives, we also use interest-rate derivatives that alter the effective maturities, repricing frequencies, or option-related characteristics of financial instruments. These may include swaps, swaptions, caps, collars, and floors; futures and forward contracts; and exchange-traded options. For example, as an alternative to issuing a fixed-rate bond to fund a fixed-rate advance, we might enter into an interest-rate swap that receives a floating-rate coupon and pays a fixed-rate coupon, thereby effectively converting the fixed-rate advance to a floating-rate advance.

Because the interest-rate swaps and hedged assets and liabilities trade in different markets, they are subject to basis risk that is reflected in our VaR calculations and fair-value disclosures, but that is not reflected in hedge ineffectiveness, because these interest-rate swaps are designed to only hedge changes in fair values of the hedged items that are attributable to changes in the benchmark LIBOR interest rate.

Advances

In addition to the general strategies described above, we use contractual provisions that require borrowers to pay us prepayment fees, which make us financially indifferent if the borrower prepays such advances prior to maturity. These provisions protect against a loss of income under certain interest-rate environments.

Prepayment-fee income can be used to offset the cost of purchasing and retiring high-cost debt to maintain our asset-liability sensitivity profile. In cases where derivatives are used to hedge prepaid advances, prepayment-fee income can be used to offset the cost of terminating the associated hedge.

Investments

We hold certain long-term bonds issued by U.S. federal agencies, U.S. federal government corporations and instrumentalities, and supranational institutions as available-for-sale. To hedge the market and interest-rate risk associated with these assets, we may enter into interest-rate swaps with matching terms to those of the bonds to create synthetic floating-rate assets. At December 31, 2014, and December 31, 2013, this portfolio of hedged investments had an amortized cost of $928.6 million and $828.6 million, respectively.

We also manage the market and interest-rate risk in our MBS portfolio. For MBS classified as held-to-maturity, we use debt that matches the characteristics of the portfolio assets. For example, for floating-rate ABS, we use debt that reprices on a short-term basis, such as CO discount notes or CO bonds that are swapped to a LIBOR-based floating-rate. For commercial MBS that are nonprepayable or prepayable for a fee for an initial period, we may use fixed-rate debt.

We also use interest-rate swaps to manage the fair-value sensitivity of the portion of our MBS portfolio that is classified as trading securities. These interest-rate-exchange agreements provide an economic offset to the duration and convexity risks arising from these assets.

Mortgage Loans

We manage the interest-rate and prepayment risk associated with mortgage loans through the issuance of both callable and noncallable debt to achieve cash-flow patterns and liability durations similar to those expected on the mortgage loans.

We mitigate our exposure to changes in interest rates by funding a portion of our mortgage portfolio with callable debt. When interest rates change, our option to redeem this debt offsets a large portion of the fair-value change driven by the mortgage-prepayment option. These bonds are effective in managing prepayment risk by allowing us to respond in kind to prepayment activity. Conversely, if interest rates increase, we may allow the debt to remain outstanding until maturity. We use various cash instruments including shorter-term debt, callable, and noncallable long-term debt to reprice debt when mortgages prepay faster or slower than expected. Our debt-repricing capacity depends on market demand for callable and noncallable debt, which fluctuates from time to time. Additionally, because the mortgage-prepayment option is not fully hedged by callable debt, the combined market value of our mortgage assets and debt will be affected by changes in interest rates.

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Swapped Consolidated Obligation Debt

We may also issue bonds together with interest-rate swaps that receive a coupon that offsets the bond coupon and that offsets any optionality embedded in the bond, thereby effectively creating a floating-rate liability. We may employ this strategy to secure long-term debt that meets funding needs versus relying on short-term CO discount notes. Total CO bond debt used in conjunction with interest-rate-exchange agreements was $7.2 billion, or 28.4 percent of our total outstanding CO bonds at December 31, 2014, compared with $7.0 billion, or 30.2 percent of total outstanding CO bonds, at December 31, 2013.

Measurement of Market and Interest-Rate Risk

We measure our exposure to market and interest-rate risk using several techniques applied to the balance sheet and to certain portfolios within the balance sheet. Principal among these measurements as applied to the balance sheet is the potential future change in market value of equity (MVE) and interest income due to potential changes in interest rates, interest-rate volatility, spreads, and market prices. We also measure VaR, duration of equity, convexity, and the other metrics discussed below.

We use certain quantitative systems to evaluate our risk position. These systems are capable of employing various interest-rate term-structure models and valuation techniques to determine the values and sensitivities of complex or option-embedded instruments such as mortgage loans; MBS; callable bonds and swaps; and adjustable-rate instruments with embedded caps and floors, among others. These models require the following:

• specification of the contractual and behavioral features of each instrument;

• determination and specification of appropriate market data, such as yield curves and implied volatilities;

• utilization of appropriate term-structure and prepayment models to reasonably describe the potential evolution of interest rates over time and the expected behavior of financial instruments in response;

• for option-free instruments, the expected cash flows are specified in accordance with the term structure of interest rates and discounted using spot rates derived from the same term structure; and

• for option-embedded instruments, the models use standardized option pricing methodology to determine the likelihood of embedded options being exercised or not.

We use various measures of market and interest-rate risk, as set forth below in this section. Some measures have associated, prescriptive corrective actions under our policies, as described below, but others do not.

Market Value of Equity Estimation and Market Risk Limit. MVE is the net economic value of total assets and liabilities, including any off-balance-sheet items. In contrast to the GAAP-based shareholder's equity account, MVE represents the shareholder's equity account in present-value terms. Specifically, MVE equals the difference between the theoretical market value of our assets and the theoretical market value of our liabilities, net of the theoretical market value of all derivatives.

Market Value of Equity/Book Value of Equity Ratio. MVE, and in particular, the ratio of MVE to the book value of equity (BVE), is a theoretical measure of the current value of shareholder investment based on market rates, spreads, prices, and volatility at the reporting date. However, we caution that care must be taken to properly interpret the results of the MVE analysis as the theoretical basis for these valuations may not be fully representative of future realized prices. Further, valuations are based on market curves and prices respective of individual assets, liabilities, and derivatives, and therefore are not representative of future net income to be earned by us through the spread between asset market curves and the market curves for funding costs. MVE should not be considered indicative of our market value as a going concern because it does not consider future new business activities, risk-management strategies, or the net profitability of assets after funding costs are subtracted. 

For purposes of measuring this ratio, the BVE is equal to our permanent capital, which consists of the par value of capital stock including mandatorily redeemable capital stock, plus retained earnings. BVE excludes accumulated other comprehensive loss. At December 31, 2014, our MVE was $3.5 billion and our BVE was $3.6 billion. At December 31, 2013, our MVE was $4.2 billion and our BVE was $4.3 billion. Our ratio of MVE to BVE was 97.1 percent at December 31, 2014, compared with 97.5 percent at December 31, 2013.

Market Value of Equity/Par Stock Ratio. We also measure the ratio of our MVE to the par value of our Class B Stock, which we refer to as our MVE to par stock ratio. We have established an MVE to par stock ratio floor of 100 percent with an associated

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management action trigger of 102 percent, reflecting our intent to preserve the value of our members' capital investment. As of December 31, 2014, and December 31, 2013, that ratio was 129.3 percent and 119.4 percent, respectively.

Value at Risk. VaR measures the change in our MVE to a 99th percent confidence interval, based on a set of stress scenarios (VaR stress scenarios) using historical interest-rate and volatility movements that have been observed over six-month intervals starting at the most recent month-end and going back monthly to 1992.

The table below presents the historical simulation VaR estimate as of December 31, 2014, and December 31, 2013, which represents the estimates of potential reduction to our MVE from potential future changes in interest rates and other market factors. Estimated potential market value loss exposures are expressed as a percentage of the current MVE and are based on the historical relative behavior of interest rates and other market factors over a 120-business-day time horizon.

	Value-at-Risk (Gain) Loss Exposure (1)
	December 31, 2014				December 31, 2013
Confidence Level	% of MVE (2)		$ million		% of MVE (2)		$ million
50%	0.09	%	$	3.2	(0.12	)%	$	(5.0	)
75%	0.32		11.1		0.46		19.1
95%	1.10		38.5		1.64		68.8
99%	2.15		75.6		3.27		136.9

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(1) To be consistent with FHFA guidance, we have excluded VaR stress scenarios prior to 1992 because market-risk stress conditions are effectively captured in those scenarios beginning in 1992 and therefore properly present our current VaR exposure.

(2) Loss exposure is expressed as a percentage of base MVE.

The following table outlines our VaR exposure to the 99th percentile, consistent with FHFA regulations, over 2014 and 2013.

Value-at-Risk 99th Percentile (dollars in millions)
	2014		2013
Year ending December 31	$	75.6	$	136.9
Average VaR for year ending December 31	84.4		115.7
Maximum month-end VaR during the year ending December 31	103.4		164.1
Minimum month-end VaR during the year ending December 31	71.1		61.0

Our risk-management policy requires that VaR not exceed $275.0 million and an associated management action trigger of $225.0 million. Should the limit be exceeded, the policy requires management to notify the board of directors' Risk Committee of such breach. We complied with our VaR limit at all times during the year ended December 31, 2014.

Duration of Equity. Another measure of risk that we use is duration of equity. Duration of equity measures the percentage change to shareholder value due to movements in interest rates. A positive duration of equity generally indicates an appreciation in shareholder value in times of falling rates and a depreciation in shareholder value for increasing rate environments. We have established a limit of +/- 4.0 years for duration of equity with an associated management action trigger of +/- 3.5 years based on a balanced consideration of market-value sensitivity and net interest-income sensitivity. Our policies require us to notify our board of directors' Risk Committee of such breach. We did not breach this limit in 2014.

As of December 31, 2014, our duration of equity was +0.01 years, compared with +0.88 years at December 31, 2013.

Certain Market and Interest-Rate Risk Metrics under Potential Interest-Rate Scenarios

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We also monitor the sensitivities of MVE and the duration of equity to potential interest-rate scenarios. The following table presents certain market and interest-rate risk metrics under different interest-rate scenarios (dollars in millions).

	December 31, 2014
	Down 300(1)	Down 200(1)	Down 100(1)	Base	Up 100	Up 200	Up 300
MVE	$3,512	$3,465	$3,486	$3,507	$3,487	$3,400	$3,273
Percent change in MVE from base	0.1%	(1.2)%	(0.6)%	—%	(0.6)%	(3.1)%	(6.7)%
MVE/BVE	97.2%	95.9%	96.5%	97.1%	96.5%	94.1%	90.6%
MVE/Par Stock	129.5%	127.8%	128.6%	129.3%	128.6%	125.4%	120.7%
Duration of Equity	+1.39 years	+0.37 years	-0.67 years	+0.01 years	+1.63 years	+3.15 years	+4.11 years
Return on Regulatory Capital less 3-month LIBOR (2)	3.1%	2.9%	3.0%	3.2%	2.8%	2.4%	1.8%
Net income percent change from base	(16.3)%	(21.0)%	(19.2)%	—%	19.0%	34.8%	47.4%

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(1) Given the current environment of low interest rates, downward rate shocks are floored as they approach zero, and therefore may not be fully representative of the indicated rate shock.

(2) The income simulation metric for December 31, 2014, is based on projections of adjusted net income over a range of potential interest-rate scenarios over the following 12-month horizon divided by regulatory capital. Regulatory capital is capital stock (including mandatorily redeemable capital stock) plus total retained earnings, and projections of adjusted net income exclude a) interest expense on mandatorily redeemable capital stock; b) projected prepayment penalties; c) loss on early extinguishment of debt; or d) changes in fair values from trading securities and hedging activities.

	December 31, 2013
	Down 300(1)	Down 200(1)	Down 100(1)	Base	Up 100	Up 200	Up 300
MVE	$4,223	$4,245	$4,211	$4,189	$4,135	$4,042	$3,930
Percent change in MVE from base	0.8%	1.3%	0.5%	—%	(1.3)%	(3.5)%	(6.2)%
MVE/BVE	98.3%	98.8%	98.0%	97.5%	96.2%	94.1%	91.5%
MVE/Par Stock	120.4%	121.0%	120.1%	119.4%	117.9%	115.2%	112.0%
Duration of Equity	+0.14 years	+0.14 years	+0.43 years	+0.88 years	+1.86 years	+2.54 years	+2.94 years
Return on Regulatory Capital less 3-month LIBOR (2)	2.6%	2.8%	2.6%	2.8%	2.6%	2.2%	1.7%
Net Income percent change from base	(16.0)%	(12.0)%	(17.5)%	—%	24.0%	42.4%	59.9%

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(1) Given the current environment of low interest rates, downward rate shocks are floored as they approach zero, and therefore may not be fully representative of the indicated rate shock.

(2) The income simulation metric for December 31, 2013, is based on projections of adjusted net income over a range of potential interest-rate scenarios over the following 12-month horizon divided by regulatory capital. Regulatory capital is capital stock (including mandatorily redeemable capital stock) plus total retained earnings, and projections of adjusted net income exclude a) interest expense on mandatorily redeemable capital stock; b) projected prepayment penalties; c) loss on early extinguishment of debt; or d) changes in fair values from trading securities and hedging activities.

Convexity Management Action Trigger and Limit. We measure the convexity of our MVE and have established a management action trigger at a decline of 10 percent and a limit at a decline of 15 percent in an up or down 200 basis point parallel rate shock scenario. Our policies require management to notify the board of director’s Risk Committee if the limit is breached. As per the percent change in MVE lines in the above tables, we satisfied the limit at each of December 31, 2014, and December 31, 2013.

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MPF Portfolio Management Action Trigger of 25 Percent of Our VaR Limit. We have established a management action trigger for VaR exposure from our investments in mortgage loans through the MPF program such that the VaR from these investments shall not exceed 25 percent of our overall VaR limit. While we seek to limit interest-rate risk through matching asset maturity and optionality with its corresponding funding, mortgage loans cannot be perfectly match funded due to factors including, but not limited to, borrower prepayment behavior and basis risk between the swap and our funding curves. This management action trigger was $68.8 million at December 31, 2014, based on our overall VaR limit of $275.0 million. Our actual MPF portfolio VaR exposure at December 31, 2014, was $49.6 million, compared with $87.0 million as of December 31, 2013.

Duration Gap. We measure the duration gap of our assets and liabilities, including all related hedging transactions. Duration gap is the difference between the estimated durations (percentage change in market value for a 100 basis point shift in interest rates) of assets and liabilities (including the effect of related hedges) and reflects the extent to which estimated sensitivities to market changes, including, but not limited to, maturity and repricing cash flows for assets and liabilities, are matched. Higher numbers, whether positive or negative, indicate greater sensitivity in the MVE in response to changing interest rates. A positive duration gap means that our total assets have an aggregate duration, or sensitivity to interest-rate changes, greater than our liabilities, and a negative duration gap means that our total assets have an aggregate duration shorter than our liabilities. Our duration gap was +0.01 months at December 31, 2014, compared with +0.98 months at December 31, 2013.

Income Simulation and Repricing Gaps. To provide an additional perspective on market and interest-rate risks, we have an income-simulation model that projects adjusted net income over the ensuing 12-month period using a range of potential interest-rate scenarios, including parallel interest-rate shocks, nonparallel interest-rate shocks, and nonlinear changes to our funding curve and LIBOR. The income simulation metric is based on projections of adjusted net income divided by regulatory capital. Regulatory capital is capital stock (including mandatorily redeemable capital stock) plus total retained earnings, and projections of adjusted net income exclude a) interest expense on mandatorily redeemable capital stock; b) projected prepayment penalties; c) loss on early extinguishment of debt; or d) changes in fair values from trading securities and hedging activities. The simulations are solely based on simulated movements in the swap and the CO curve and do not reflect potential impacts of credit events, including, but not limited to, potential, additional other-than-temporary impairment charges. Management has put in place escalation-action triggers whereby senior management is explicitly informed of instances where our projected return on regulatory capital would fall below three-month LIBOR over the following 12-month horizon in any of the assumed interest-rate scenarios. The results of this analysis for December 31, 2014, and December 31, 2013, showed that in the worst-case scenario, our return on regulatory capital falls to 184 basis points and 173 basis points, respectively, above the average yield on three-month LIBOR under a yield curve scenario wherein interest rates instantaneously rise by 300 basis points in a parallel fashion across all yield curves.

Economic Capital Ratio Limit. We have established a limit of 4.0 percent for the ratio of the MVE to the market value of assets, referred to as the economic capital ratio. FHFA regulations require us to maintain a regulatory capital ratio of book value of regulatory capital to book value of total assets of no less than 4.0 percent, as discussed in Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Capital. We seek to ensure that the regulatory capital ratio will not fall below the 4.0 percent threshold at a future time by establishing the economic capital ratio limit at 4.0 percent. We also maintain a management action trigger of 4.5 percent for this ratio. The economic capital ratio serves as a proxy for benchmarking future capital adequacy by discounting our balance sheet and derivatives at current market expectations of future values. Our economic capital ratio was 6.3 percent as of December 31, 2014, compared with 9.3 percent as of December 31, 2013.

Our economic capital ratio was not below 4.0 percent at any time during the year ended December 31, 2014.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to financial statements and supplementary data:

	Management's Report on Internal Control over Financial Reporting	87
	Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP	88
	Statements of Condition as of December 31, 2014 and 2013	89
	Statements of Operations for the Years Ended December 31, 2014, 2013, and 2012	90
	Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013, and 2012	91
	Statements of Capital for the Years Ended December 31, 2014, 2013, and 2012	92
	Statements of Cash Flows for the Years Ended December 31, 2014, 2013, and 2012	93
	Notes to the Financial Statements	95
	Note 1 — Summary of Significant Accounting Policies	95
	Note 2 — Recently Issued and Adopted Accounting Guidance	105
	Note 3 — Cash and Due from Banks	106
	Note 4 — Trading Securities	106
	Note 5 — Available-for-Sale Securities	107
	Note 6 — Held-to-Maturity Securities	109
	Note 7 — Other-Than-Temporary Impairment	111
	Note 8 — Advances	115
	Note 9 — Mortgage Loans Held for Portfolio	117
	Note 10 — Allowance for Credit Losses	117
	Note 11 — Derivatives and Hedging Activities	124
	Note 12 — Deposits	131
	Note 13 — Consolidated Obligations	132
	Note 14 — Affordable Housing Program	134
	Note 15 — Capital	135
	Note 16 — Accumulated Other Comprehensive Loss	138
	Note 17 — Employee Retirement Plans	140
	Note 18 — Fair Values	144
	Note 19 — Commitments and Contingencies	151
	Note 20 — Transactions with Shareholders	153
	Note 21 — Transactions with Other FHLBanks	154
	Note 22 — Subsequent Events	154
Supplementary Data
	Supplementary financial data (unaudited)	156

86

Management's Report on Internal Control over Financial Reporting

The management of the Federal Home Loan Bank of Boston is responsible for establishing and maintaining adequate internal control over financial reporting.

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of internal control over financial reporting as of December 31, 2014, based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that, as of December 31, 2014, internal control over financial reporting is effective based on the criteria established in Internal Control – Integrated Framework (2013).

Additionally, our internal control over financial reporting as of December 31, 2014, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

87

Report of Independent Registered Public Accounting Firm

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

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

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

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

Boston, Massachusetts

March 23, 2015

88

FEDERAL HOME LOAN BANK OF BOSTON STATEMENTS OF CONDITION (dollars and shares in thousands, except par value)
	December 31, 2014			December 31, 2013
ASSETS
Cash and due from banks	$	1,124,536		$	641,033
Interest-bearing deposits	163			195
Securities purchased under agreements to resell	5,250,000			3,750,000
Federal funds sold	2,550,000			850,000
Investment securities:
Trading securities	244,969			247,174
Available-for-sale securities - includes $641 and $3,381 pledged as collateral at December 31, 2014 and 2013, respectively that may be repledged	5,481,978			3,995,310
Held-to-maturity securities - includes $66,279 and $65,996 pledged as collateral at December 31, 2014 and 2013, respectively that may be repledged (a)	3,352,189			4,138,661
Total investment securities	9,079,136			8,381,145
Advances	33,482,074			27,516,678
Mortgage loans held for portfolio, net of allowance for credit losses of $2,012 and $2,221 at December 31, 2014 and 2013, respectively	3,483,948			3,368,476
Accrued interest receivable	77,411			83,458
Premises, software, and equipment, net	3,951			4,108
Derivative assets, net	14,548			4,318
Other assets	40,910			38,665
Total Assets	$	55,106,677		$	44,638,076
LIABILITIES
Deposits
Interest-bearing	$	345,561		$	498,675
Non-interest-bearing	23,770			18,890
Total deposits	369,331			517,565
Consolidated obligations (COs):
Bonds	25,505,774			23,465,906
Discount notes	25,309,608			16,060,781
Total consolidated obligations	50,815,382			39,526,687
Mandatorily redeemable capital stock	298,599			977,348
Accrued interest payable	91,225			83,386
Affordable Housing Program (AHP) payable	66,993			62,591
Derivative liabilities, net	558,889			608,152
Other liabilities	28,472			24,602
Total liabilities	52,228,891			41,800,331
Commitments and contingencies (Note 19)
CAPITAL
Capital stock – Class B – putable ($100 par value), 24,131 shares and 25,305 shares issued and outstanding at December 31, 2014 and 2013, respectively	2,413,114			2,530,471
Retained earnings:
Unrestricted	764,888			681,978
Restricted	136,770			106,812
Total retained earnings	901,658			788,790
Accumulated other comprehensive loss	(436,986		)	(481,516		)
Total capital	2,877,786			2,837,745
Total Liabilities and Capital	$	55,106,677		$	44,638,076

_______________________________________

(a)   Fair values of held-to-maturity securities were $3,710,815 and $4,499,441 at December 31, 2014 and 2013, respectively.

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

89

FEDERAL HOME LOAN BANK OF BOSTON STATEMENTS OF OPERATIONS (dollars in thousands)
	For the Years Ended December 31,
	2014			2013			2012
INTEREST INCOME
Advances	$	227,308		$	228,825		$	290,604
Prepayment fees on advances, net	9,060			23,508			65,804
Securities purchased under agreements to resell	3,048			2,388			9,383
Federal funds sold	3,560			1,625			2,101
Trading securities	9,395			9,559			10,101
Available-for-sale securities	66,516			63,005			69,674
Held-to-maturity securities	112,636			123,416			145,619
Prepayment fees on investments	1,485			6,198			535
Mortgage loans held for portfolio	125,600			128,232			136,356
Other	11			4			6
Total interest income	558,619			586,760			730,183
INTEREST EXPENSE
Consolidated obligations - bonds	320,976			318,174			404,996
Consolidated obligations - discount notes	15,461			6,952			11,641
Deposits	67			19			60
Mandatorily redeemable capital stock	8,819			5,754			1,035
Other borrowings	4			6			3
Total interest expense	345,327			330,905			417,735
NET INTEREST INCOME	213,292			255,855			312,448
Provision (reduction of provision) for credit losses	61			(1,954		)	(3,127		)
NET INTEREST INCOME AFTER PROVISION (REDUCTION OF PROVISION) FOR CREDIT LOSSES	213,231			257,809			315,575
OTHER INCOME (LOSS)
Total other-than-temporary impairment losses on investment securities	(1,771		)	(181		)	(14,283		)
Net amount of impairment losses reclassified to (from) accumulated other comprehensive loss	192			(2,385		)	7,110
Net other-than-temporary impairment losses on investment securities, credit portion	(1,579		)	(2,566		)	(7,173		)
Litigation settlements	22,000			53,305			2,317
Loss on early extinguishment of debt	(3,068		)	(5,148		)	(23,474		)
Service fees	7,159			6,586			6,074
Net unrealized gains (losses) on trading securities	972			(13,190		)	7,087
Net (losses) gains on derivatives and hedging activities	(4,685		)	7,440			(7,493		)
Other	(964		)	(2,983		)	554
Total other income (loss)	19,835			43,444			(22,108		)
OTHER EXPENSE
Compensation and benefits	36,729			36,628			34,977
Other operating expenses	20,818			19,591			18,541
Federal Housing Finance Agency (the FHFA)	2,980			3,181			4,513
Office of Finance	2,760			2,549			2,708
Other	2,368			2,768			2,544
Total other expense	65,655			64,717			63,283
INCOME BEFORE ASSESSMENTS	167,411			236,536			230,184
AHP	17,623			24,229			23,122
NET INCOME	$	149,788		$	212,307		$	207,062

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

90

FEDERAL HOME LOAN BANK OF BOSTON STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2014, 2013, and 2012 (dollars in thousands)
	For the Year Ended December 31,
	2014			2013			2012
Net income	$	149,788		$	212,307		$	207,062
Other comprehensive income:
Net unrealized gains (losses) on available-for-sale securities	28,142			(79,122		)	25,917
Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities
Net amount of impairment losses reclassified (from) to non-interest income	(192		)	2,385			(7,110		)
Accretion of noncredit portion	49,178			57,862			72,931
Total net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities	48,986			60,247			65,821
Net unrealized (losses) gains relating to hedging activities
Unrealized (losses) gains	(38,502		)	13,419			(32,733		)
Reclassification adjustment for previously deferred hedging gains and losses included in net income	8,668			14			14
Total net unrealized (losses) gains relating to hedging activities	(29,834		)	13,433			(32,719		)
Pension and postretirement benefits	(2,764		)	546			(1,228		)
Total other comprehensive income (loss)	44,530			(4,896		)	57,791
Comprehensive income	$	194,318		$	207,411		$	264,853

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

91

FEDERAL HOME LOAN BANK OF BOSTON STATEMENTS OF CAPITAL YEARS ENDED DECEMBER 31, 2014, 2013, and 2012 (dollars and shares in thousands)
	Capital Stock Class B – Putable					Retained Earnings								Accumulated Other Comprehensive Loss
	Shares		Par Value			Unrestricted			Restricted		Total						Total Capital
BALANCE, DECEMBER 31, 2011	36,253		$	3,625,348		$	375,158		$	22,939	$	398,097		$	(534,411	)	$	3,489,034
Proceeds from sale of capital stock	683		68,243														68,243
Repurchase of capital stock	(2,374	)	(237,412		)												(237,412		)
Shares reclassified to mandatorily redeemable capital stock	(10	)	(1,014		)												(1,014		)
Comprehensive income						165,650			41,412		207,062			57,791			264,853
Cash dividends on capital stock						(17,605		)			(17,605		)				(17,605		)
BALANCE, DECEMBER 31, 2012	34,552		3,455,165			523,203			64,351		587,554			(476,620		)	3,566,099
Proceeds from sale of capital stock	2,098		209,839														209,839
Repurchase of capital stock	(2,750	)	(275,011		)												(275,011		)
Shares reclassified to mandatorily redeemable capital stock	(8,595	)	(859,522		)												(859,522		)
Comprehensive income						169,846			42,461		212,307			(4,896		)	207,411
Cash dividends on capital stock						(11,071		)			(11,071		)				(11,071		)
BALANCE, DECEMBER 31, 2013	25,305		2,530,471			681,978			106,812		788,790			(481,516		)	2,837,745
Proceeds from sale of capital stock	2,039		203,882														203,882
Repurchase of capital stock	(2,664	)	(266,347		)												(266,347		)
Shares reclassified to mandatorily redeemable capital stock	(549	)	(54,892		)												(54,892		)
Comprehensive income						119,830			29,958		149,788			44,530			194,318
Cash dividends on capital stock						(36,920		)			(36,920		)				(36,920		)
BALANCE, DECEMBER 31, 2014	24,131		$	2,413,114		$	764,888		$	136,770	$	901,658		$	(436,986	)	$	2,877,786

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

92

FEDERAL HOME LOAN BANK OF BOSTON STATEMENTS OF CASH FLOWS (dollars in thousands)
	For the Year Ended December 31,
	2014			2013			2012
OPERATING ACTIVITIES
Net income	$	149,788		$	212,307		$	207,062
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	(69,567		)	(52,782		)	(17,874		)
Provision (reduction of provision) for credit losses	61			(1,954		)	(3,127		)
Change in net fair-value adjustments on derivatives and hedging activities	(41,025		)	(1,899		)	104,657
Net other-than-temporary impairment losses on investment securities, credit portion	1,579			2,566			7,173
Loss on early extinguishment of debt	3,068			5,148			23,474
Other adjustments	194			670			(414		)
Net change in:
Market value of trading securities	(972		)	13,190			(7,087		)
Accrued interest receivable	6,044			16,946			16,113
Other assets	3,615			(3,031		)	1,268
Accrued interest payable	7,839			(12,970		)	(14,428		)
Other liabilities	4,354			16,026			17,281
Total adjustments	(84,810		)	(18,090		)	127,036
Net cash provided by operating activities	64,978			194,217			334,098
INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits	(43,191		)	(2,279		)	(15		)
Securities purchased under agreements to resell	(1,500,000		)	265,000			2,885,000
Federal funds sold	(1,700,000		)	(250,000		)	1,670,000
Premises, software, and equipment	(1,756		)	(1,619		)	(1,741		)
Trading securities:
Proceeds from long-term	3,177			13,929			6,957
Available-for-sale securities:
Proceeds from long-term	1,298,755			1,767,583			1,604,039
Purchases of long-term	(2,676,090		)	(739,317		)	(1,615,479		)
Held-to-maturity securities:
Proceeds from long-term	863,763			1,335,016			1,320,633
Advances to members:
Proceeds	287,664,979			222,580,630			153,743,070
Disbursements	(293,721,805		)	(229,520,657		)	(149,439,369		)
Mortgage loans held for portfolio:
Proceeds	425,114			707,309			853,382
Purchases	(555,520		)	(617,971		)	(1,243,059		)
Proceeds from sale of foreclosed assets	8,146			11,972			9,408
Net cash (used in) provided by investing activities	(9,934,428		)	(4,450,404		)	9,792,826
FINANCING ACTIVITIES
Net change in deposits	(146,802		)	(75,860		)	(78,217		)
Net payments on derivatives with a financing element	(17,653		)	(18,756		)	(31,807		)
Net proceeds from issuance of consolidated obligations:
Discount notes	127,396,166			62,164,153			116,545,038

93

Bonds	11,962,889			6,560,509			11,306,531
Bonds transferred from other Federal Home Loan Banks (the FHLBanks)	—			80,135			427,909
Payments for maturing and retiring consolidated obligations:
Discount notes	(118,148,757		)	(54,742,653		)	(122,558,485		)
Bonds	(9,859,853		)	(9,136,984		)	(15,409,688		)
Proceeds from issuance of capital stock	203,882			209,839			68,243
Payments for redemption of mandatorily redeemable capital stock	(733,641		)	(98,037		)	(12,580		)
Payments for repurchase of capital stock	(266,347		)	(275,011		)	(237,412		)
Cash dividends paid	(36,931		)	(11,060		)	(17,605		)
Net cash provided by (used in) financing activities	10,352,953			4,656,275			(9,998,073		)
Net increase in cash and due from banks	483,503			400,088			128,851
Cash and due from banks at beginning of the year	641,033			240,945			112,094
Cash and due from banks at end of the year	$	1,124,536		$	641,033		$	240,945
Supplemental disclosures:
Interest paid	$	414,950		$	418,173		$	495,601
AHP payments	$	12,012		$	11,077		$	5,415
Noncash transfers of mortgage loans held for portfolio to real-estate-owned (REO)	$	8,455		$	9,499		$	13,488

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

94

FEDERAL HOME LOAN BANK OF BOSTON

NOTES TO FINANCIAL STATEMENTS

Background Information

We are a federally chartered corporation and one of 12 district Federal Home Loan Banks (the FHLBanks or the FHLBank System). The FHLBanks are government-sponsored enterprises (GSEs) that serve the public by enhancing the availability of credit for residential mortgages and targeted community development. Each FHLBank operates in a specifically defined geographic territory, or district. We provide a readily available, competitively priced source of funds to our members and certain nonmember institutions located within the six New England states, which are Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. Certain regulated financial institutions, including community development financial institutions (CDFIs) and insurance companies with their principal places of business in New England and engaged in residential housing finance, may apply for membership. State and local housing authorities (housing associates) that meet certain statutory criteria may also borrow from us. While eligible to borrow, housing associates are not our members and, therefore, are not allowed to hold capital stock. As a cooperative, current and former members own all of our outstanding capital stock and may receive dividends on their investment. We do not have any wholly or partially owned subsidiaries, and we do not have an equity position in any partnerships, corporations, or off-balance-sheet special-purpose entities.

All members must purchase our stock as a condition of membership, as well as a condition of engaging in certain business activities with us. Capital stock of former members will remain outstanding as long as business activities with those former members exist. See Note 15 — Capital, for a complete description of the capital-stock-purchase requirements.

The FHFA, our primary regulator, was established and became the independent federal regulator of the FHLBanks, Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae), effective July 30, 2008, with the passage of the Housing and Economic Recovery Act of 2008, as amended (HERA). Pursuant to HERA, all existing regulations, orders, determinations, and resolutions of the FHLBanks' former regulator, the Federal Housing Finance Board (the Finance Board), remain in effect until modified, terminated, set aside, or superseded by the FHFA Director, any court of competent jurisdiction, or operation of law. In accordance with HERA, the Finance Board was abolished one year after the date of enactment of HERA.

A purpose of the FHFA is to ensure that the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls. In addition, the FHFA is responsible for ensuring that 1) the operations and activities of each FHLBank foster liquid, efficient, competitive, and resilient national housing finance markets, 2) each FHLBank complies with the title and the rules, regulations, guidelines, and orders issued under HERA and the authorizing statutes, 3) each FHLBank carries out its statutory mission only through activities that are authorized under and consistent with HERA and the authorizing statutes, and 4) the activities of each FHLBank and the manner in which such FHLBank is operated is consistent with the public interest. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.

The Office of Finance is the FHLBanks' fiscal agent and is a joint office of the FHLBanks established to facilitate the issuance and servicing of the FHLBanks' COs and to prepare the combined quarterly and annual financial reports of all the FHLBanks. As provided by the Federal Home Loan Bank Act of 1932, as amended (the FHLBank Act), and applicable regulations, COs are backed only by the financial resources of all the FHLBanks and are our primary source of funds. Deposits, other borrowings, and the issuance of capital stock, which is principally held by our current and former members, provide other funds. We primarily use these funds to provide loans, called advances, and other products and also to fund investments. Investments are principally used for liquidity and leverage management. In addition, we offer correspondent services, such as wire-transfer, investment-securities-safekeeping, and settlement services.

Note 1 — Summary of Significant Accounting Policies

Use of Estimates

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make subjective assumptions and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. The most significant of these estimates include but are not limited to, fair-value estimates, other-than-temporary impairment analysis, the allowance for loan losses, and deferred premium/discounts associated with prepayable assets. Actual results could differ from these estimates.

Fair Value

95

We determine the fair-value amounts recorded on the statement of condition and in the note disclosures for the periods presented by using available market and other pertinent information, and reflect our best judgment of appropriate valuation methods. Although we use our best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values may not be indicative of the amounts that would have been realized in market transactions at the reporting dates. See Note 18 — Fair Values for more information.

Financial Instruments Meeting Netting Requirements

We present certain financial instruments on a net basis when they have a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). For these financial instruments, we have elected to offset our asset and liability positions, as well as cash collateral received or pledged, when we have met the netting requirements.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the

time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or

pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the

requirements for netting, any excess cash collateral received or pledged is recognized as a derivative liability or derivative

asset. See Note 11 — Derivatives and Hedging Activitiesfor additional information regarding these agreements.

Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented. At December 31, 2014, we had $5.3 billion in securities purchased under agreements to resell. There were no offsetting amounts related to these securities at December 31, 2014.

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

These investments provide short-term liquidity and are carried at cost. Federal funds sold consist of short-term, unsecured loans transacted with counterparties that we consider to be of investment quality. Securities purchased under agreements to resell are treated as short-term collateralized loans that are classified as assets in the statement of condition. These securities purchased under agreements to resell are held in safekeeping in our name by third-party custodians, which we have approved. If the fair value of the underlying securities decreases below the fair value required as collateral, the counterparty has the option to provide additional securities in safekeeping in our name in an amount equal to the decrease or remit cash in such amount. If the counterparty defaults on this obligation, we will decrease the dollar value of the resale agreement accordingly. We have not sold or repledged the collateral received on securities purchased under agreements to resell. Securities purchased under agreements to resell averaged $5.0 billion during 2014 and $2.8 billion during 2013, and the maximum amount outstanding at any month-end during 2014 and 2013 was $7.8 billion and $3.8 billion, respectively.

Investment Securities

We classify investments as trading, available-for-sale, or held-to-maturity at the date of acquisition. Purchases and sales of securities are recorded on a trade date basis.

Trading. Securities classified as trading are held for liquidity purposes and carried at fair value. We record changes in the fair value of these investments through other income as net unrealized gains (losses) on trading securities. FHFA regulation prohibits trading in or the speculative use of these instruments and limit the credit risks we have from these instruments.

Available-for-sale. We classify certain investments that are not classified as held-to-maturity or trading as available-for-sale and carry them at fair value. Changes in fair value of available-for-sale securities not being hedged by derivatives, or in an economic hedging relationship, are recorded in other comprehensive income (loss) as net unrealized gains (losses) on available-for-sale securities. For available-for-sale securities that have been hedged under fair-value hedge designations, we record the portion of the change in fair value related to the risk being hedged in other income as net (losses) gains on derivatives and hedging activities together with the related change in the fair value of the derivative. The remainder of the change in the fair value of the investment is recorded in other comprehensive income (loss) as net unrealized gains (losses) on available-for-sale securities.

Held-to-Maturity. We carry at amortized cost certain investments for which we have both the ability and intent to hold to maturity, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts using the level-yield method, previous other-than-temporary impairment, and accretion of the noncredit portion of other-than-temporary impairment recognized in other comprehensive income (loss).

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Changes in circumstances may cause us to change our intent to hold certain securities to maturity without calling into question our intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to certain changes in circumstances, such as evidence of significant deterioration in the issuer's creditworthiness or changes in regulatory requirements, is not considered to be inconsistent with its original classification. Other events that are isolated, nonrecurring, and unusual for us that could not have been reasonably anticipated may cause us to sell or transfer a held-to-maturity security without necessarily calling into question our intent to hold other debt securities to maturity. In addition, sale of a debt security that meets either of the following two conditions would not be considered inconsistent with the original classification of that security:

• the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) that interest-rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security's fair value; or

• the sale of a security occurs after we have already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on a debt security payable in equal installments (both principal and interest) over its term.

Premiums and Discounts. We amortize premiums and accrete discounts on mortgage-backed securities (MBS) using the level-yield method over the estimated lives of the securities. This method requires a retrospective adjustment of the effective yield each time we change the estimated life, based on actual prepayments received and changes in expected prepayments, as if the new estimate had been known since the original acquisition date of the securities. We estimate prepayment speeds on each individual security using the most recent three months of historical constant prepayment rates, as available, or may subscribe to third-party data services that provide estimates of future cash flows, from which we determine expected asset lives. We amortize premiums and accrete discounts on other investments using the level-yield method to the contractual maturity of the securities.

Gains and Losses on Sales. We compute gains and losses on sales of investment securities using the specific identification method and include these gains and losses in other income (loss).

Securities issued by GSEs and U.S. government-owned corporations are not guaranteed by the U.S. government.

Investment Securities – Other-than-Temporary Impairment

We evaluate our individual available-for-sale and held-to-maturity securities in an unrealized loss position for other-than-temporary impairment each quarter. An investment is considered impaired when its fair value is less than its amortized cost. We consider other-than-temporary impairment to have occurred if we:

• have an intent to sell the investment;

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

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

Recognition of Other-than-Temporary Impairment. If either of the first two conditions above is met, we recognize an other-than-temporary impairment charge in earnings equal to the entire difference between the security's amortized cost and its fair value as of the statement of condition date.

For securities in an unrealized loss position that meet neither of the first two conditions (excluding agency MBS) and for each of our private-label MBS, we perform an analysis to determine if we will recover the entire amortized cost of each of these securities. The present value of the cash flows expected to be collected is compared with the amortized cost of the debt security to determine whether a credit loss exists. If the present value of the cash flows expected to be collected is less than the amortized cost of the debt security, the security is deemed to be other-than-temporarily impaired and the carrying value of the debt security is adjusted to its fair value. However, rather than recognizing the entire difference between the amortized cost and fair value in earnings, only the amount of the impairment representing the credit loss (that is, the credit component) is recognized in earnings, while the amount related to all other factors (that is, the noncredit component) is recognized in other comprehensive income (loss). For a security that is determined to be other-than-temporarily impaired, in the event that the present value of the cash flows expected to be collected is less than the fair value of the security, the credit loss on the security is limited to the amount of that security's unrealized losses.

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In performing a detailed cash-flow analysis, we identify the best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows (discounted at the security's effective yield) that is less than the amortized cost basis of a security (that is, a credit loss exists), other-than-temporary impairment is considered to have occurred. For determining the present value of variable-rate and hybrid private-label residential MBS, we use the effective interest rate derived from a variable-rate index, such as one-month LIBOR, plus the contractual spread, plus or minus a fixed-spread adjustment when there is an existing discount or premium on the security. Because the implied forward yield curve of a selected variable-rate index changes over time, the effective interest rates derived from that index will also change over time and would therefore impact the present value of the subject security.

The total other-than-temporary impairment is presented in the statement of operations with an offset for the amount of the noncredit portion of other-than-temporary impairment that is recognized in other comprehensive income (loss). The remaining amount in the statement of operations represents the credit loss for the period.

Accounting for Other-than-Temporary Impairment Recognized in Other Comprehensive Income. For subsequent accounting of other-than-temporarily impaired securities, we record an additional other-than-temporary impairment if the present value of cash flows expected to be collected is less than the amortized cost of the security. The total amount of this additional other-than-temporary impairment (both credit and non-credit, if any) is determined as the difference between the security's amortized cost less the amount of other-than-temporary impairment recognized in other comprehensive income (loss) prior to the determination of this additional other-than-temporary impairment and its fair value. Any additional credit loss is limited to that security's unrealized losses, or the difference between the security's amortized cost and its fair value as of the statement of condition date. This additional credit loss, up to the amount in other comprehensive income (loss) related to the security, is reclassified out of other comprehensive income (loss) and recognized in earnings. Any credit loss in excess of the amount reclassified out of other comprehensive income (loss) is also recognized in earnings.

Interest Income Recognition. Upon subsequent evaluation of a debt security when there is no additional other-than-temporary impairment, we adjust the accretable yield on a prospective basis if there is a significant increase in the security's expected future cash flows. This adjusted yield is used to calculate the amount to be recognized into income over the remaining life of the security so as to match the amount and timing of future cash flows expected to be collected. Subsequent changes in estimated cash flows that are deemed significant will change the accretable yield on a prospective basis. For debt securities classified as held-to-maturity, the other-than-temporary impairment recognized in other comprehensive income (loss) is accreted to the carrying value of each security on a prospective basis, based on the amount and timing of future estimated cash flows (with no effect on earnings unless the security is subsequently sold or there are additional decreases in cash flows expected to be collected). The estimated cash flows and accretable yield are re-evaluated each quarter.

Advances

We report advances at amortized cost. Advances carried at amortized cost are reported net of premiums/discounts and any hedging adjustments, as discussed in Note 8 — Advances. We generally record our advances at par. However, we may record premiums or discounts on advances in the following cases:

• Advances may be acquired from another FHLBank when one of our members acquires a member of another FHLBank. In these cases, we may purchase the advances from the other FHLBank at a price that results in a fair market yield for the acquired advance.

• In the event that a hedge of an advance is discontinued, the cumulative hedging adjustment is recorded as a premium or discount and amortized over the remaining life of the advance.

• When the prepayment of an advance is followed by disbursement of a new advance and the transactions effectively represent a modification of the previous advance the prepayment fee received is deferred, recorded as a discount to the modified advance, and accreted over the life of the new advance.

• When an advance is modified under our advance restructuring program and our analysis of the restructuring concludes that the transaction is an extinguishment of the prior loan rather than a modification, the deferred prepayment fee is recognized into income immediately, recorded as premium on the new advance, and amortized over the life of the new advance.

• When we make an AHP advance, the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and our related cost of funds for comparable maturity funding is charged against the AHP liability and recorded as a discount on the AHP advance.

We amortize the premiums and accrete the discounts on advances to interest income using the level-yield method. We record interest on advances to interest income as earned.

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Prepayment Fees. We charge borrowers a prepayment fee when they prepay certain advances before the original maturity. We record prepayment fees net of hedging fair-value adjustments included in the carrying value of the advance as prepayment fees on advances, net in the interest income section of the statement of operations.

Advance Modifications. In cases in which we fund a new advance concurrently with or within a short period of time of the prepayment of an existing advance by the same member, we evaluate whether the new advance meets the accounting criteria to qualify as a modification of the existing advance or whether it constitutes a new advance. We compare the present value of cash flows on the new advance with the present value of cash flows remaining on the existing advance. If there is at least a 10 percent difference in the present value of cash flows or if we conclude the difference between the advances is more than minor based on a qualitative assessment of the modifications made to the advance's original contractual terms, the advance is accounted for as a new advance. In all other instances, the new advance is accounted for as a modification.

If a new advance qualifies as a modification of the existing advance, the net prepayment fee on the prepaid advance is deferred, recorded in the basis of the modified advance, and amortized to interest income over the life of the modified advance using the level-yield method. This amortization is recorded in advance-interest income. If the modified advance is hedged, changes in fair value are recorded after the amortization of the basis adjustment. This amortization results in offsetting amounts being recorded in net interest income and net (losses) gains on derivatives and hedging activities in other income.

For prepaid advances that were hedged and met the hedge-accounting requirements, we terminate the hedging relationship upon prepayment and record the prepayment fee net of the hedging fair-value adjustment in the basis of the advance as prepayment fees on advances, net in interest income. If we fund a new advance to a member concurrent with or within a short period of time after the prepayment of a previous advance to that member, we evaluate whether the new advance qualifies as a modification of the original hedged advance. If the new advance qualifies as a modification of the original hedged advance, the hedging fair-value adjustment and the prepayment fee are included in the carrying amount of the modified advance and are amortized in interest income over the life of the modified advance using the level-yield method. If the modified advance is also hedged and the hedge meets the hedging criteria, the modified advance is marked to fair value after the modification, and subsequent fair-value changes are recorded in other income as net (losses) gains on derivatives and hedging activities.

If a new advance does not qualify as a modification of an existing advance, prepayment of the existing advance is treated as an advance termination and any prepayment fee, net of hedging adjustments, is recorded to prepayment fees on advances, net in the interest income section of the statement of operations.

Commitment Fees

We record commitment fees for standby letters of credit to members as deferred fee income when received, and amortize these fees on a straight-line basis to service-fees income in other income over the term of the standby letter of credit. Based upon past experience, we believe the likelihood of standby letters of credit being drawn upon is remote based upon past experience.

Mortgage Loans Held for Portfolio

We participate in the Mortgage Partnership Finance^® (MPF^®) program through which we invest in conventional, residential, fixed-rate mortgage loans (conventional mortgage loans) and government-insured or -guaranteed residential fixed-rate mortgage loans (government mortgage loans) that are purchased from participating financial institutions (see Note 9 — Mortgage Loans Held for Portfolio). We classify our investments in mortgage loans for which we have the intent and ability to hold for the foreseeable future or until maturity or payoff as held for portfolio. As of December 31, 2014, all our investments in mortgage loans are held for portfolio. Accordingly, these investments are reported at their principal amount outstanding net of unamortized premiums, discounts, unrealized gains and losses from investments initially classified as mortgage loan commitments and the allowance for credit losses on mortgage loans.

Premiums and Discounts. We compute the amortization of mortgage-loan-origination fees (premiums and discounts) as interest income using the level-yield method over the contractual term to maturity of each individual loan, which results in income recognition in a manner that is effectively proportionate to the actual repayment behavior of the underlying assets and reflects the contractual terms of the assets without regard to changes in estimated prepayments based on assumptions about future borrower behavior.

Credit-Enhancement Fees. For conventional mortgage loans, participating financial institutions retain a portion of the credit risk on the loans in which we invest by providing credit-enhancement protection either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage insurance. Participating financial institutions are paid a credit-enhancement fee for assuming credit risk and in some instances all or a portion of the

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credit-enhancement fee may be performance-based. Credit-enhancement fees are paid monthly and are determined based on the remaining unpaid principal balance of the pertinent MPF loans. The required credit-enhancement amount varies depending on the MPF product. Credit-enhancement fees are recorded as an offset to mortgage-loan-interest income. To the extent that losses in the current month exceed performance-based credit-enhancement fees accrued, the remaining losses may be recovered from future performance-based credit-enhancement fees payable to the participating financial institution.

Other Fees. We record other nonorigination fees in connection with our MPF program activities, such as delivery-commitment-extension fees, pair-off fees, price-adjustment fees, and counterparty fees in connection with the MPF Xtra^® product in other income. Delivery-commitment-extension fees are charged when a participating financial institution requests to extend the period of the delivery commitment beyond the original stated expiration. Pair-off fees represent a make-whole provision; they are received when the amount funded under a delivery commitment is less than a certain threshold (under-delivery) of the delivery-commitment amount. Price-adjustment fees are received when the amount funded is greater than a certain threshold (over-delivery) of the delivery-commitment amount. To the extent that pair-off fees relate to under-deliveries of loans, they are recorded in service fee income. Fees related to over-deliveries represent purchase-price adjustments to the related loans acquired and are recorded as part of the carrying value of the loan. The FHLBank of Chicago pays us a counterparty fee for the costs and expenses of marketing activities for loans originated for sale via the MPF Xtra product.

We offer the MPF Xtra product, which provides our participating financial institutions with the ability to sell certain fixed-rate loans to Fannie Mae, as a third-party investor. Loans sold under MPF Xtra are first sold to the FHLBank of Chicago (the MPF Provider), which concurrently sells them to Fannie Mae. The MPF Provider is the master servicer for such loans. Such loans are not held on our balance sheet and the related credit and market risks are transferred to Fannie Mae. Unlike other MPF products, participating financial institutions under the MPF Xtra product do not provide any credit-enhancement amount and do not receive credit-enhancement fees because the credit risk of such loans is transferred to Fannie Mae. Through a purchase price adjustment, the MPF Provider receives a transaction fee for its master servicing and custodial and administrative activities for such loans from the participating financial institutions, and the MPF Provider pays us a counterparty fee for the costs and expenses of marketing activities for these loans. We indemnify the MPF Provider for certain retained risks, including the risk of the MPF Provider's required repurchase of loans in the event of fraudulent or inaccurate representations and warranties from the participating financial institution regarding the sold loans. We may, in turn, seek reimbursement from the related participating financial institution in any such circumstance, however, the value of such a reimbursement right may be limited in the event of the related participating financial institution's insolvency.

Mortgage-Loan Participations. We may purchase and sell participations in MPF loans from other FHLBanks from time to time. References to our investments in mortgage loans throughout this report include any participation interests we own.

Allowance for Credit Losses

An allowance for credit losses is a valuation allowance separately established for each identified portfolio segment, if necessary, to provide for probable losses inherent in our portfolio as of the statement of condition date. To the extent necessary, an allowance for credit losses for off-balance-sheet credit exposure is recorded as a liability.

Portfolio Segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology for determining its allowance for credit losses. We have established an allowance methodology for each of our portfolio segments. See Note 10 – Allowance for Credit Losses for additional information.

Nonaccrual Loans. We place conventional mortgage loans on nonaccrual status when the collection of the contractual principal or interest is 90 days or more past due. When a conventional mortgage loan is placed on nonaccrual status, accrued but uncollected interest is reversed against interest income in the current period. We generally record cash payments received on nonaccrual loans first as interest income and then as a reduction of principal as specified in the contractual agreement, unless we consider the collection of the remaining principal amount due to be doubtful. If we consider the collection of the remaining principal amount to be doubtful, cash payments received are applied first solely to principal until the remaining principal amount due is expected to be collected and then as a recovery of any charge-off, if applicable, followed by recording interest income. A loan on nonaccrual status may be restored to accrual status when the collection of the contractual principal and interest is less than 90 days past due. We do not place government mortgage loans on nonaccrual status when the collection of the contractual principal or interest is 90 days or more past due because of the U.S. government guarantee of the loan and the contractual obligations of each related servicer, as more fully discussed in Note 10 – Allowance for Credit Losses.

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

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Loans that are on nonaccrual status and that are considered collateral-dependent are measured for impairment based on the fair value of the underlying property less estimated selling costs. Loans are considered collateral-dependent if repayment is expected to be provided solely by the sale of the underlying property, that is, there is no other available and reliable source of repayment. Collateral-dependent loans are impaired if the fair value of the underlying collateral less estimated selling costs is insufficient to recover the unpaid principal balance on the loan. Interest income on impaired loans is recognized in the same manner as nonaccrual loans as discussed above.

Charge-Off Policy. We evaluate whether to record a charge-off on a conventional mortgage loan upon the occurrence of a confirming event. Confirming events include, but are not limited to, the occurrence of foreclosure or notification of a claim against any of the credit enhancements. A charge-off is recorded if we determine that the recorded investment in the loan is not likely to be recovered.

Troubled Debt Restructurings

We consider a troubled debt restructuring of a financing receivable to have occurred when we grant a concession to a borrower that we would not otherwise consider for economic or legal reasons related to the borrower's financial difficulties. We place conventional mortgage loans that are deemed to be troubled debt restructurings as a result of our modification program on nonaccrual when payments are 60 days or more past due.

We also consider troubled debt restructurings to have occurred when a borrower has filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code (Chapter 7 bankruptcy) pursuant to which the bankruptcy court has discharged the borrower's obligation to us and the borrower has not reaffirmed the debt. However, we do not consider a trouble debt restructuring of a financing receivable to have occurred when we expect to collect the recorded investment in full.

Real Estate Owned

REO includes assets that have been received in satisfaction of debt or as a result of actual foreclosures. REO is recorded as other assets in the statement of condition and is carried at the lower of cost or fair value less estimated selling costs. Fair value is derived from third-party valuations of the property. If the fair value of the REO less estimated selling costs is less than the recorded investment in the MPF loan at the date of transfer, we recognize a charge-off to the allowance for credit losses. Subsequent realized gains and realized or unrealized losses are included in other income (loss) in the statement of operations.

Derivatives

All derivatives are recognized on the statement of condition at fair value and are reported as either derivative assets or derivative liabilities, net of cash collateral, including initial and variation margin, and accrued interest received from or pledged to clearing members and/or counterparties. We offset fair-value amounts recognized for derivatives and fair-value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivatives recognized at fair value executed with the same clearing member and/or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Derivative assets and derivative liabilities reported on the statement of condition also include net accrued interest. Cash flows associated with derivatives are reflected as cash flows from operating activities in the statement of cash flows unless the derivative meets the criteria to be a financing derivative.

Each derivative is designated as one of the following:

• a qualifying hedge of the change in fair value of a recognized asset or liability or an unrecognized firm commitment (a fair value hedge);

• a qualifying hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a cash-flow hedge); or

• a nonqualifying hedge of an asset or liability (an economic hedge) for asset-liability-management purposes.

Accounting for Fair-Value and Cash-Flow Hedges. If hedging relationships meet certain criteria, including, but not limited to, formal documentation of the hedging relationship and an expectation to be highly effective, they qualify for fair-value or cash-flow hedge accounting and the offsetting changes in fair value of the hedged items attributable to the hedged risk are recorded either in earnings in the case of fair-value hedges or other comprehensive income (loss) in the case of cash-flow hedges. Our approaches to hedge accounting are:

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• long-haul hedge accounting, which generally requires us to formally assess (both at the hedge's inception and at least quarterly) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value or cash flows of hedged items attributable to the hedged risk or forecasted transactions and whether those derivatives may be expected to remain effective in future periods; and 

• short-cut hedge accounting, which can be used for transactions for which the assumption can be made that the change in fair value of a hedged item, due to changes in the benchmark rate, exactly offsets the change in fair value of the related derivative. Under the short-cut method, the entire change in fair value of the interest-rate swap is considered to be effective at achieving offsetting changes in fair values or cash flows of the hedged asset or liability. Beginning in November 2014, to streamline certain operational processes, we voluntarily discontinued the use of short-cut hedge accounting for new hedge relationships entered into after that date; short-cut hedge relationships entered into prior to that date will continue as short-cut hedge relationships until they mature or are terminated.

Derivatives that are used in fair-value hedges are typically executed at the same time as the hedged items, and we designate the hedged item in a qualifying hedge relationship as of the trade date. In many hedging relationships that use the short-cut method, we may designate the hedging relationship upon our commitment to disburse an advance or trade a CO that settles within the shortest period of time possible for the type of instrument based on market-settlement conventions. In such circumstances, although the advance or CO will not be recognized in the financial statements until settlement date, the hedge meets the criteria for applying the short-cut method, provided all other short-cut criteria are also met. We then record the changes in fair value of the derivative and the hedged item beginning on the trade date.

Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in other income (loss) as net (losses) gains on derivatives and hedging activities.

Changes in the fair value of a derivative that is designated and qualifies as a cash-flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income (loss), a component of capital, until earnings are affected by the variability of the cash flows of the hedged transaction.

For both fair-value and cash-flow hedges, any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative differ from the change in the fair value of the hedged item attributable to the hedged risk or the variability in the cash flows of the forecasted transaction) is recorded in other income (loss) as net (losses) gains on derivatives and hedging activities.

Accounting for Economic Hedges. An economic hedge is defined as a derivative hedging specific or nonspecific assets, liabilities, or firm commitments that does not qualify or was not designated for fair-value or cash-flow hedge accounting, but is an acceptable hedging strategy under our risk-management policy. These economic hedging strategies also comply with FHFA regulatory requirements prohibiting speculative derivative transactions. An economic hedge by definition introduces the potential for earnings variability caused by the changes in fair value of the derivatives that are recorded in income but not offset by corresponding changes in the fair value of the economically hedged assets, liabilities, or firm commitments. As a result, we recognize only the net interest and the change in fair value of these derivatives in other income (loss) as net gains (losses) on derivatives and hedging activities with no offsetting fair-value adjustments for the economically hedged assets, liabilities, or firm commitments.

Accrued Interest Receivable and Payable. The differential between accrual of interest receivable and payable on derivatives designated as a fair-value hedge or as a cash-flow hedge is recognized through adjustments to the interest income or interest expense of the designated hedged investment securities, advances, COs, deposits, or other financial instruments. The differential between accrual of interest receivable and payable on economic hedges is recognized in other income (loss), along with changes in fair value of these derivatives, as net (losses) gains on derivatives and hedging activities.

Discontinuance of Hedge Accounting. We may discontinue hedge accounting prospectively when:

• we determine that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item attributable to the hedged risk (including hedged items such as firm commitments or forecasted transactions);

• the derivative and/or the hedged item expires or is sold, terminated, or exercised;

• it is no longer probable that the forecasted transaction will occur in the originally expected period;

• a hedged firm commitment no longer meets the definition of a firm commitment; or

• we determine that designating the derivative as a hedging instrument is no longer appropriate.

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When hedge accounting is discontinued because we determine that the derivative no longer qualifies as an effective fair-value hedge of an existing hedged item, we either terminate the derivative or continue to carry the derivative on the statement of condition at its fair value and cease to adjust the hedged asset or liability for changes in fair value, and begin to amortize the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield method.

When hedge accounting is discontinued because we determine that the derivative no longer qualifies as an effective cash-flow hedge of an existing hedged item, we continue to carry the derivative on the statement of condition at its fair value and amortize the cumulative other comprehensive loss adjustment to earnings when earnings are affected by the existing hedged item.

If it is no longer probable that a forecasted transaction will occur by the end of the originally expected period or within two months thereafter, we immediately recognize the gain or loss that was in accumulated other comprehensive loss in earnings.

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

Embedded Derivatives. We may issue debt, make advances, or purchase financial instruments in which a derivative is embedded. Upon execution of these transactions, we assess whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance, debt, deposit, or other financial instrument (the host contract) and whether a separate, nonembedded instrument with the same terms as the embedded instrument would meet the definition of a derivative. When we determine that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative instrument. If the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current earnings (for example, an investment security classified as trading, as well as hybrid financial instruments) or if we cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract is carried on the statement of condition at fair value and no portion of the contract is designated as a hedging instrument. At December 31, 2014, and 2013, we had certain advances with embedded features that met the requirement to be separated from the host contract and designate the embedded features as a stand-alone derivative. The value of the embedded derivatives is included in total advances on the statement of condition. See Note 8 — Advances for the fair value of the embedded derivatives.

Premises, Software, and Equipment

We record premises, software, and equipment at cost less accumulated depreciation and amortization and compute depreciation on a straight-line basis over estimated useful lives ranging from three to 10 years. We amortize leasehold improvements on a straight-line basis over the shorter of the estimated useful life of the improvement or the remaining term of the lease. We capitalize improvements and major renewals but expense ordinary maintenance and repairs when incurred. We include gains and losses on disposal of premises, software, and equipment in other income (loss) on the statement of operations. The cost of purchased software and certain costs incurred in developing computer software for internal use are capitalized and amortized over future periods. At December 31, 2014, and 2013, we had $1.2 million and $1.6 million, respectively, in unamortized computer software costs.

Accumulated Depreciation and Amortization. Our accumulated depreciation and amortization related to premises, software, and equipment was $14.9 million and $13.0 million at December 31, 2014, and 2013, respectively.

Depreciation and Amortization Expense. Depreciation and amortization expense for premises, software, and equipment was $1.9 million for the years ended December 31, 2014, 2013, and 2012. These amounts include $857,000, $714,000, and $827,000 of amortization of computer software costs for the years ended December 31, 2014, 2013, and 2012, respectively.

Disposal of Premises, Software, and Equipment. There were no realized gains or losses on disposal of premises, software, and equipment in 2014 and 2013. For the year ended December 31, 2012, we had a net realized gain of $4,000 on disposal of premises, software, and equipment.

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Consolidated Obligations

We record COs at amortized cost.

Discounts and Premiums. We accrete discounts and amortize premiums on COs to interest expense using the level-yield method over the contractual term to maturity of the CO.

Concessions on COs. We pay concessions to dealers in connection with the issuance of certain COs. The Office of Finance prorates the amounts paid to dealers based upon the percentage of debt issued that we assumed. We defer and amortize these dealer concessions using the level-yield method over the contractual term to maturity of the COs. Unamortized concessions are included in other assets on the statement of condition and the amortization of those concessions is included in CO interest expense on the statement of operations.

Mandatorily Redeemable Capital Stock

We reclassify stock subject to redemption from equity to a liability after a member exercises a written redemption request, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or other involuntary termination from membership, since the shares meet the definition of a mandatorily redeemable financial instrument upon such instances. Member shares meeting this definition are reclassified to a liability at fair value. Dividends declared on mandatorily redeemable capital stock are accrued at the expected dividend rate and reflected as interest expense on the statement of operations. The repayment of these mandatorily redeemable financial instruments is reflected as cash outflows in the financing activities section of the statement of cash flows once settled.

We do not take into consideration our members' right to cancel a redemption request in determining when shares of capital stock should be classified as a liability because such cancellation would be subject to a cancellation fee equal to two percent of the par amount of the shares of Class B stock that is the subject of the redemption notice. If a member cancels its written notice of redemption or notice of withdrawal, we will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

Restricted Retained Earnings

In 2011, the FHLBanks entered into a joint capital enhancement agreement, as amended (the Joint Capital Agreement). Since the third quarter of 2011, the Joint Capital Agreement has required each FHLBank to contribute 20 percent of its quarterly net income to a separate restricted retained earnings account at that FHLBank until that account balance equals at least one percent of that FHLBank's average balance of outstanding COs for the previous quarter. Restricted retained earnings are not available to pay dividends, and we present them separate from other retained earnings on the statement of condition.

FHFA Expenses

We fund a portion of the costs of operating the FHFA. The portion of the FHFA's expenses and working capital fund paid by the FHLBanks is allocated among the FHLBanks based on the pro rata share of the annual assessments based on the ratio between each FHLBank's minimum required regulatory capital and the aggregate minimum required regulatory capital of every FHLBank. We must pay an amount equal to one-half of our annual assessment twice each year.

Office of Finance Expenses

Each FHLBank's proportionate share of Office of Finance operating and capital expenditures has been calculated using a formula based upon the following components: (1) two-thirds based upon each FHLBank's share of total COs outstanding and (2) one-third based upon an equal pro rata allocation.

Assessments

Affordable Housing Program. The FHLBank Act requires us to establish and fund an AHP based on positive annual net earnings, providing grants to members to assist in the purchase, construction, or rehabilitation of housing for very low- to moderate-income households. We charge the required funding for the AHP to earnings and establish a liability, except when annual net earnings are zero or negative, in which case there is no requirement to fund an AHP. We also issue AHP advances at interest rates below the customary interest rate for nonsubsidized advances. A discount on the AHP advance and charge against the AHP liability is recorded for the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and our related cost of funds for comparable maturity funding. The discount on AHP advances is

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accreted to interest income on advances using the level-yield method over the life of the advance. See Note 14 — Affordable Housing Program for additional information.

Cash Flows

In the statement of cash flows, we consider noninterest bearing cash and due from banks as cash and cash equivalents. Federal funds sold and interest-bearing deposits are not treated as cash equivalents for purposes of the statement of cash flows, but are instead treated as short-term investments and are reflected in the investing activities section of the statement of cash flows.

Related-Party Activities

We defined related parties as members with 10 percent or more of the voting interests of our capital stock outstanding. See Note 20 — Transactions with Shareholders for additional information.

Segment Reporting

We report on an enterprise-wide basis. The enterprise-wide method of evaluating our financial information reflects the manner in which the chief operating decision-maker manages the business.

Reclassification

Certain amounts in the 2013 and 2012 financial statements have been reclassified to conform to the financial statement presentation for the year ended December 31, 2014.

Subsequent Events

Subsequent events have been evaluated through the date of filing this financial report with the Securities and Exchange Commission. See Note 22 — Subsequent Events for more information.

"Mortgage Partnership Finance", "MPF" and MPF Xtra are registered trademarks of the FHLBank of Chicago.

Note 2 — Recently Issued and Adopted Accounting Guidance

Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.On August 8, 2014, the Financial Accounting Standards Board (the FASB) issued amended guidance relating to the classification and measurement of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this guidance require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. This guidance becomes effective for us for the interim and annual periods beginning after December 15, 2014, and may be adopted using either the modified retrospective transition method or the prospective transition method. The adoption of the new guidance did not have a material effect on our financial condition, results of operations, or cash flows.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. On June 12, 2014, the FASB issued amended guidance for repurchase-to-maturity transactions and provided guidance on accounting for repurchase financing arrangements. This amendment requires secured borrowing accounting treatment for repurchase-to-maturity transactions and provides guidance on accounting for repurchase financing arrangements. In addition, this guidance requires additional disclosures, particularly on transfers accounted for as sales that are economically similar to repurchase agreements and on the nature of collateral pledged in repurchase agreements accounted for as secured borrowings. The guidance will be effective for the first interim or annual period beginning after December 15, 2014. The changes in accounting for transactions outstanding on the effective date are required to be presented as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The adoption of the new guidance did not have a material effect on our financial condition, results of operations, or cash flows.

Revenue from Contracts with Customers. On May 28, 2014, the FASB issued guidance for accounting for revenue arising from contracts with customers. This guidance will supersede most current revenue recognition guidance regarding the measurement of revenue and timing of when it is recognized and provides for the recognition of revenue in an amount that the entity expects to be entitled to in exchange for goods or services. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. This guidance

105

applies to all contracts with customers except those that are within the scope of other standards, such as financial instruments, guarantees (other than product or service warranties), insurance contracts, or lease contracts.

The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The guidance provides entities with the option of using the following two methods upon adoption: a full retrospective method, retrospectively to each prior reporting period presented; or a transition method, retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application. We are currently assessing the effect that this guidance will have on our financial condition, results of operations, and cash flows.

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. On January 17, 2014, the FASB issued guidance clarifying when consumer mortgage loans collateralized by real estate should be reclassified to REO. Specifically, such collateralized mortgage loans should be reclassified to REO when either the creditor obtains legal title to the residential real estate property upon completion of a foreclosure, or the borrower conveys all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This guidance is effective for interim and annual periods beginning on or after December 15, 2014, and may be adopted under either the modified retrospective transition method or the prospective transition method. The adoption of the new guidance did not have a material effect on our financial condition, results of operations, and cash flows.

Framework for Adversely Classifying Loans, Other REO, and Other Assets and Listing Assets for Special Mention. On April 9, 2012, the FHFA issued Advisory Bulletin 2012-02, Framework for Adversely Classifying Loans, Other REO, and Other Assets and Listing Assets for Special Mention (AB 2012-02). AB 2012-02 establishes a standard and uniform methodology for adversely classifying loans, other REO, and certain other assets (excluding investment securities), and prescribes the timing of asset charge-offs based on these classifications. The guidance is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000. The adverse classification requirements were implemented as of January 1, 2014, and did not have a material effect on our results of operations or financial condition. The charge-off requirements were implemented on January 1, 2015, and did not have a material effect on our results of operations or financial condition.

Note 3 — Cash and Due from Banks

Compensating Balances. We maintain collected cash balances with a commercial bank in return for certain services. The related agreement contains no legal restrictions on the withdrawal of funds. The average collected cash balance was $189.9 million and $189.4 million for the years ended December 31, 2014 and 2013, respectively.

Note 4 — Trading Securities

Major Security Types. Our trading securities as of December 31, 2014 and 2013, were (dollars in thousands):

	December 31, 2014		December 31, 2013
MBS
U.S. government-guaranteed – single-family	$	12,235	$	14,331
GSEs – single-family	2,300		3,486
GSEs – multifamily	230,434		229,357
Total	$	244,969	$	247,174

Net unrealized gains (losses) on trading securities were as follows:

	For the Years Ended December 31,
	2014		2013			2012
Net unrealized gains (losses) on trading securities held at period-end	$	972	$	(13,056	)	$	7,087
Net unrealized losses on trading securities matured during the year	—		(134		)	—
Net unrealized gains (losses) on trading securities	$	972	$	(13,190	)	$	7,087

We do not participate in speculative trading practices and typically hold these investments over a longer time horizon.

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Note 5 — Available-for-Sale Securities

Major Security Types. Our available-for-sale securities as of December 31, 2014, were (dollars in thousands):

			Amounts Recorded in Accumulated Other Comprehensive Loss
	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair  Value
Supranational institutions	$	472,440	$	—	$	(24,755	)	$	447,685
U.S. government-owned corporations	322,436		—		(37,439		)	284,997
GSEs	133,748		—		(10,295		)	123,453
	928,624		—		(72,489		)	856,135
MBS
U.S. government guaranteed – single-family	207,090		375		(1,437		)	206,028
U.S. government guaranteed – multifamily	874,817		204		(3,598		)	871,423
GSEs – single-family	3,545,070		14,742		(11,420		)	3,548,392
	4,626,977		15,321		(16,455		)	4,625,843
Total	$	5,555,601	$	15,321	$	(88,944	)	$	5,481,978

_______________________

(1) Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and fair-value hedge accounting adjustments.

Our available-for-sale securities as of December 31, 2013, were (dollars in thousands):

			Amounts Recorded in Accumulated Other Comprehensive Loss
	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair  Value
Supranational institutions	$	439,098	$	—	$	(23,963	)	$	415,135
U.S. government-owned corporations	273,342		—		(34,557		)	238,785
GSEs	896,767		2,292		(10,534		)	888,525
	1,609,207		2,292		(69,054		)	1,542,445
MBS
U.S. government guaranteed – single-family	273,861		416		(2,680		)	271,597
U.S. government guaranteed – multifamily	309,506		77		(482		)	309,101
GSEs – single-family	1,904,501		5,237		(37,571		)	1,872,167
	2,487,868		5,730		(40,733		)	2,452,865
Total	$	4,097,075	$	8,022	$	(109,787	)	$	3,995,310

_______________________

(1) Amortized cost of available-for-sale securities includes adjustments made to the cost basis of an investment for accretion, amortization, collection of cash, and fair-value hedge accounting adjustments.

The following table summarizes our available-for-sale securities with unrealized losses as of December 31, 2014, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands): 

107

	Less than 12 Months					12 Months or More					Total
	Fair  Value		Unrealized  Losses			Fair  Value		Unrealized  Losses			Fair  Value		Unrealized  Losses
Supranational institutions	$	—	$	—		$	447,685	$	(24,755	)	$	447,685	$	(24,755	)
U.S. government-owned corporations	—		—			284,997		(37,439		)	284,997		(37,439		)
GSEs	—		—			123,453		(10,295		)	123,453		(10,295		)
	—		—			856,135		(72,489		)	856,135		(72,489		)
MBS
U.S. government guaranteed – single-family	—		—			154,665		(1,437		)	154,665		(1,437		)
U.S. government guaranteed – multifamily	610,470		(3,497		)	23,567		(101		)	634,037		(3,598		)
GSEs – single-family	453,043		(888		)	915,354		(10,532		)	1,368,397		(11,420		)
	1,063,513		(4,385		)	1,093,586		(12,070		)	2,157,099		(16,455		)
Total temporarily impaired	$	1,063,513	$	(4,385	)	$	1,949,721	$	(84,559	)	$	3,013,234	$	(88,944	)

The following table summarizes our available-for-sale securities with unrealized losses as of December 31, 2013, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands):

	Less than 12 Months					12 Months or More					Total
	Fair  Value		Unrealized  Losses			Fair  Value		Unrealized  Losses			Fair  Value		Unrealized  Losses
Supranational institutions	$	—	$	—		$	415,135	$	(23,963	)	$	415,135	$	(23,963	)
U.S. government-owned corporations	—		—			238,785		(34,557		)	238,785		(34,557		)
GSEs	—		—			105,644		(10,534		)	105,644		(10,534		)
	—		—			759,564		(69,054		)	759,564		(69,054		)
MBS
U.S. government guaranteed – single-family	211,044		(2,680		)	—		—			211,044		(2,680		)
U.S. government guaranteed – multifamily	164,407		(482		)	—		—			164,407		(482		)
GSEs – single-family	1,383,396		(37,571		)	—		—			1,383,396		(37,571		)
	1,758,847		(40,733		)	—		—			1,758,847		(40,733		)
Total temporarily impaired	$	1,758,847	$	(40,733	)	$	759,564	$	(69,054	)	$	2,518,411	$	(109,787	)

Redemption Terms. The amortized cost and fair value of our available-for-sale securities by contractual maturity at December 31, 2014 and 2013, were (dollars in thousands):

	December 31, 2014				December 31, 2013
Year of Maturity	Amortized Cost		Fair  Value		Amortized Cost		Fair  Value
Due in one year or less	$	—	$	—	$	780,589	$	782,881
Due after one year through five years	—		—		—		—
Due after five years through 10 years	—		—		—		—
Due after 10 years	928,624		856,135		828,618		759,564
	928,624		856,135		1,609,207		1,542,445
MBS (1)	4,626,977		4,625,843		2,487,868		2,452,865
Total	$	5,555,601	$	5,481,978	$	4,097,075	$	3,995,310

_______________________

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(1) MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities because borrowers of the underlying loans may have the right to call or prepay obligations with or without call or prepayment fees.

Interest-Rate-Payment Terms. The following table details additional interest-rate-payment terms for our available-for-sale securities (dollars in thousands):

	December 31, 2014		December 31, 2013
Amortized cost of available-for-sale securities other than MBS:
Fixed-rate	$	928,624	$	1,609,207
Amortized cost of available-for-sale MBS:
Fixed-rate	3,136,075		1,789,311
Variable-rate	1,490,902		698,557
	4,626,977		2,487,868
Total	$	5,555,601	$	4,097,075

Note 6 — Held-to-Maturity Securities

Major Security Types. Our held-to-maturity securities as of December 31, 2014, were (dollars in thousands):

	Amortized Cost		Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Fair Value
U.S. agency obligations	$	5,777	$	—		$	5,777	$	360	$	—		$	6,137
State or local housing-finance-agency obligations (HFA securities)	178,387		—			178,387		30		(18,136		)	160,281
	184,164		—			184,164		390		(18,136		)	166,418
MBS
U.S. government guaranteed – single-family	20,399		—			20,399		487		—			20,886
U.S. government guaranteed – multifamily	115,712		—			115,712		298		(6		)	116,004
GSEs – single-family	1,420,801		—			1,420,801		40,518		(157		)	1,461,162
GSEs – multifamily	542,130		—			542,130		29,949		—			572,079
Private-label – residential	1,327,967		(275,158		)	1,052,809		319,306		(13,957		)	1,358,158
Asset-backed securities (ABS) backed by home equity loans	16,958		(784		)	16,174		856		(922		)	16,108
	3,443,967		(275,942		)	3,168,025		391,414		(15,042		)	3,544,397
Total	$	3,628,131	$	(275,942	)	$	3,352,189	$	391,804	$	(33,178	)	$	3,710,815

Our held-to-maturity securities as of December 31, 2013, were (dollars in thousands):

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	Amortized Cost		Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Fair Value
U.S. agency obligations	$	8,503	$	—		$	8,503	$	682	$	—		$	9,185
HFA securities	183,625		—			183,625		30		(19,598		)	164,057
GSEs	67,504		—			67,504		160		—			67,664
	259,632		—			259,632		872		(19,598		)	240,906
MBS
U.S. government guaranteed – single-family	27,767		—			27,767		644		—			28,411
U.S. government guaranteed – multifamily	213,144		—			213,144		883		—			214,027
GSEs – single-family	1,773,905		—			1,773,905		45,472		(360		)	1,819,017
GSEs – multifamily	700,348		—			700,348		38,683		—			739,031
Private-label – residential	1,465,379		(323,989		)	1,141,390		312,228		(17,595		)	1,436,023
ABS backed by home equity loans	23,414		(939		)	22,475		986		(1,435		)	22,026
	4,203,957		(324,928		)	3,879,029		398,896		(19,390		)	4,258,535
Total	$	4,463,589	$	(324,928	)	$	4,138,661	$	399,768	$	(38,988	)	$	4,499,441

The following table summarizes our held-to-maturity securities with unrealized losses as of December 31, 2014, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands). 

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair  Value		Unrealized Losses			Fair Value		Unrealized Losses
HFA securities	$	14,850	$	(150	)	$	139,544	$	(17,986	)	$	154,394	$	(18,136	)
MBS
U.S. government guaranteed - multifamily	9,282		(6		)	—		—			9,282		(6		)
GSEs – single-family	—		—			38,121		(157		)	38,121		(157		)
Private-label – residential	80,439		(1,028		)	544,369		(45,104		)	624,808		(46,132		)
ABS backed by home equity loans	206		(3		)	14,641		(1,074		)	14,847		(1,077		)
	89,927		(1,037		)	597,131		(46,335		)	687,058		(47,372		)
Total	$	104,777	$	(1,187	)	$	736,675	$	(64,321	)	$	841,452	$	(65,508	)

The following table summarizes our held-to-maturity securities with unrealized losses as of December 31, 2013, which are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands). 

110

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair  Value		Unrealized Losses			Fair Value		Unrealized Losses
HFA securities	$	—	$	—		$	157,752	$	(19,598	)	$	157,752	$	(19,598	)
MBS
GSEs – single-family	35,723		(144		)	42,229		(216		)	77,952		(360		)
Private-label – residential	34,910		(317		)	910,016		(72,461		)	944,926		(72,778		)
ABS backed by home equity loans	—		—			20,418		(1,586		)	20,418		(1,586		)
	70,633		(461		)	972,663		(74,263		)	1,043,296		(74,724		)
Total	$	70,633	$	(461	)	$	1,130,415	$	(93,861	)	$	1,201,048	$	(94,322	)

Redemption Terms. The amortized cost and fair value of our held-to-maturity securities by contractual maturity at December 31, 2014, and 2013, are shown below (dollars in thousands). Expected maturities of some securities and MBS may differ from contractual maturities because borrowers of the underlying loans may have the right to call or prepay their obligations with or without call or prepayment fees.

	December 31, 2014						December 31, 2013
Year of Maturity	Amortized Cost		Carrying Value (1)		Fair Value		Amortized Cost		Carrying Value (1)		Fair Value
Due in one year or less	$	150	$	150	$	150	$	67,504	$	67,504	$	67,664
Due after one year through five years	9,369		9,369		9,751		2,794		2,794		2,984
Due after five years through 10 years	17,115		17,115		16,973		27,229		27,229		27,427
Due after 10 years	157,530		157,530		139,544		162,105		162,105		142,831
	184,164		184,164		166,418		259,632		259,632		240,906
MBS (2)	3,443,967		3,168,025		3,544,397		4,203,957		3,879,029		4,258,535
Total	$	3,628,131	$	3,352,189	$	3,710,815	$	4,463,589	$	4,138,661	$	4,499,441

_______________________

(1) Carrying value of held-to-maturity securities represents the sum of amortized cost and the amount of noncredit-related other-than-temporary impairment recognized in accumulated other comprehensive loss.

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

Interest-Rate-Payment Terms. The following table details additional interest-rate-payment terms for investment securities classified as held-to-maturity (dollars in thousands):

	December 31, 2014		December 31, 2013
Amortized cost of held-to-maturity securities other than MBS:
Fixed-rate	$	11,634	$	82,527
Variable-rate	172,530		177,105
	184,164		259,632
Amortized cost of held-to-maturity MBS:
Fixed-rate	1,176,474		1,593,361
Variable-rate	2,267,493		2,610,596
	3,443,967		4,203,957
Total	$	3,628,131	$	4,463,589

Note 7 — Other-Than-Temporary Impairment

We evaluate our individual available-for-sale and held-to-maturity securities for other-than-temporary impairment each quarter.

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Available-for-Sale Securities

We determined that none of our available-for-sale securities were other-than-temporarily impaired at December 31, 2014. At December 31, 2014, we held certain available-for-sale securities in an unrealized loss position. These unrealized losses reflect the impact of normal yield and spread fluctuations attendant with security markets. These unrealized losses are considered temporary as we expect to recover the entire amortized cost basis on these available-for-sale securities in an unrealized loss position and neither intend to sell these securities nor is it more likely than not that we will be required to sell these securities before the anticipated recovery of each security's remaining amortized cost basis. Additionally, there have been no shortfalls of principal or interest on any available-for-sale security. Regarding securities that were in an unrealized loss position as of December 31, 2014:

• Debentures issued by a supranational institution that were in an unrealized loss position as of December 31, 2014, are expected to return contractual principal and interest based on our review and analysis of independent third-party credit reports on the supranational institution, and the supranational institution's triple-A (or equivalent) rating by each of the nationally recognized statistical rating organizations (NRSROs) that rates it.

• Debentures issued by U.S. government-owned corporations are not obligations of the U.S. government and not guaranteed by the U.S. government. However, these securities are rated at the same level as the U.S. government by the NRSROs. These ratings reflect the U.S. government's implicit support of the government-owned corporation as well as the entity's underlying business and financial risk.

• The probability of default on debt issued by Fannie Mae and Freddie Mac is remote given their status as GSEs and their support from the U.S. government.

• The U.S. government-guaranteed securities that we hold are MBS issued by the Government National Mortgage Association (Ginnie Mae). The strength of Ginnie Mae's guarantees as a direct obligation from the U.S. government is sufficient to protect us from losses based on current expectations.

• Agency MBS. For MBS issued by Fannie Mae and Freddie Mac, which we sometimes refer to as agency MBS in this report, the strength of the issuers' guarantees through direct obligation or support from the U.S. government is sufficient to protect us from losses based on current expectations.

Held-to-Maturity Securities

HFA Securities. We have reviewed our investments in HFA securities and have determined that unrealized losses reflect the impact of normal market yield and spread fluctuations and illiquidity in the credit markets. We have determined that all unrealized losses are temporary given the creditworthiness of the issuers and the underlying collateral, including an assessment of past payment history (no shortfalls of principal or interest), property vacancy rates, debt service ratios, over-collateralization and other credit enhancement, and third-party bond insurance as applicable. As of December 31, 2014, none of our held-to-maturity investments in HFA securities were rated below investment grade by an NRSRO. Because the decline in market value is attributable to changes in interest rates and credit spreads and to illiquidity in this market and not to a significant deterioration in the fundamental credit quality of these obligations, and because we do not intend to sell the investments nor is it more likely than not that we will be required to sell the investments before recovery of the amortized cost basis, we do not consider these investments to be other-than-temporarily impaired at December 31, 2014.

Agency MBS. For agency MBS, we determined that the strength of the issuers' guarantees through direct obligation or support from the U.S. government is sufficient to protect us from losses based on current expectations. Additionally, there have been no shortfalls of principal or interest on any such security. As a result, we have determined that, as of December 31, 2014, all of the gross unrealized losses on such MBS are temporary. We do not believe that the declines in market value of these securities are attributable to credit quality, and because we do not intend to sell the investments, nor is it more likely than not that we will be required to sell the investments before recovery of the amortized cost basis, we do not consider any of these investments to be other-than-temporarily impaired at December 31, 2014.

Private-Label Residential MBS and ABS Backed by Home Equity Loans. To ensure consistency in determination of the other-than-temporary impairment for private-label residential MBS and certain home equity loan investments (including home equity ABS) among all FHLBanks, the FHLBanks use an FHLBank System governance committee (the OTTI Governance Committee) and a formal process to ensure consistency in key other-than-temporary impairment modeling assumptions used for purposes of their cash-flow analyses for the majority of these securities. We use the FHLBanks' uniform framework and

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approved assumptions for purposes of our other-than-temporary impairment cash-flow analyses of our private-label residential MBS and certain home equity loan investments. For certain private-label residential MBS and home equity loan investments where underlying collateral data is not available, we have used alternative procedures to assess these securities for other-than-temporary impairment. We are responsible for making our own determination of impairment and the reasonableness of assumptions, inputs, and methodologies used and for performing the required present value calculations using appropriate historical cost bases and yields.

Our evaluation includes estimating the projected cash flows that we are likely to collect based on an assessment of available information, including the structure of the applicable security and certain assumptions to determine whether we will recover the entire amortized cost basis of the security, such as:

• the remaining payment terms for the security;

• prepayment speeds;

• default rates;

• loss severity on the collateral supporting each security based on underlying loan-level borrower and loan characteristics;

• expected housing price changes; and

• interest-rate assumptions.

In accordance with related guidance from the FHFA, we have contracted with the FHLBanks of San Francisco and Chicago to perform the cash-flow analysis underlying our other-than-temporary impairment decisions in certain instances. In the event that neither the FHLBank of San Francisco nor the FHLBank of Chicago has the ability to model a particular MBS that we own, we project the expected cash flows for that security based on our expectations as to how the underlying collateral and impact on deal structure resultant from collateral cash flows are forecasted to occur over time. These assumptions are based on factors including, but not limited to, loan-level data for each security and modeling variable expectations for securities similar in nature to securities modeled by either the FHLBank of San Francisco or the FHLBank of Chicago. We form our expectations for those securities by reviewing, when available, loan-level data for each such security, and, when such loan-level data is not available for a security, by reviewing loan-level data for similar loan pools as a proxy for such data. Specifically, we have contracted with the FHLBank of San Francisco to perform cash-flow analyses for our residential private-label MBS other than subprime private-label MBS, and with the FHLBank of Chicago to perform cash-flow analyses for our subprime private-label MBS.

To assess whether the entire amortized cost basis of private-label residential MBS will be recovered, cash-flow analyses for each of our private-label residential MBS were performed. These analyses use two third-party models.

The first third-party model considers borrower characteristics and the particular attributes of the loans underlying our securities, in conjunction with assumptions about current home prices and future changes in home prices and interest rates, producing monthly projections of prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing-price changes, based on an assessment of individual housing markets for the relevant states and core-based statistical areas (CBSA), as defined by the United States Office of Management and Budget. The OTTI Governance Committee developed a short-term housing price forecast, with projected changes ranging from a decrease of 4.0 percent to an increase of 7.0 percent over the 12- month period beginning October 1, 2014. For the vast majority of markets, the projected short-term housing price changes range from a decrease of 1.0 percent to an increase of 6.0 percent. Thereafter, we have projected a unique recovery path for each relevant geographic area based on an internally developed framework derived from historical data.

The month-by-month projections of future loan level performance are derived from the first model to determine projected prepayments, defaults, and loss severities. These projections are then input into a second model that allocates the cash flows and losses among the various classes in the securitization structure in accordance with the cash-flow and loss-allocation rules prescribed by the securitization structure. In a securitization in which the credit enhancement for the senior securities is derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero. The projected cash flows are based on a number of assumptions and expectations and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach described above reflects a best estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path described in the prior paragraph.

For those securities for which an other-than-temporary impairment was determined to have occurred during the year endedDecember 31, 2014, the following table presents a summary of the average projected values over the remaining lives of the

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securities for the significant inputs used to measure the amount of the credit loss recognized in earnings, as well as related current credit enhancement. Credit enhancement is defined as the percentage of subordinated tranches, over-collateralization, and other credit enhancement, if any, in a security structure that will generally absorb losses before we will experience a credit loss on the security. The calculated averages represent the dollar-weighted averages of all the private-label residential MBS and home equity loan investments in each category shown (dollars in thousands).

			Weighted Average of Significant Inputs						Weighted Average Current Credit Enhancement
Private-label MBS by Year of Securitization	Par Value		Projected Prepayment Rates		Projected Default Rates		Projected Loss Severities
Alt-A Private-label residential MBS (1)
2007	$	60,375	6.5	%	53.0	%	45.0	%	9.4	%
2006	64,374		8.6		42.6		44.9		6.1
2005	17,102		7.7		25.0		39.0		35.7
2004 and prior	3,794		13.1		15.7		10.9		5.6
Total	$	145,645	7.6	%	44.3	%	42.9	%	11.3	%

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(1) Securities are classified in the table above based upon the current performance characteristics of the underlying loan pool and therefore the manner in which the loan pool backing the security has been modeled (as prime, Alt-A, or subprime), rather than their classification of the security at the time of issuance.

The following table sets forth our securities for which other-than-temporary impairment credit losses were recognized during the life of the security through December 31, 2014 (dollars in thousands). Securities are classified in the table below based on their classifications at the time of issuance. 

	December 31, 2014
Other-Than-Temporarily Impaired Investment (1)	Par Value		Amortized Cost		Carrying Value		Fair Value
Private-label residential MBS – Prime	$	58,548	$	50,272	$	39,479	$	50,972
Private-label residential MBS – Alt-A	1,440,361		1,051,888		787,524		1,095,293
ABS backed by home equity loans – Subprime	4,266		3,810		3,026		3,882
Total other-than-temporarily impaired securities	$	1,503,175	$	1,105,970	$	830,029	$	1,150,147

_______________________

(1) We have instituted litigation in relation to certain of the private-label MBS in which we invested. Our complaint asserts, among others, claims for untrue or misleading statements in the sale of securities. It is possible that classifications of private-label MBS as provided herein when based on classification at the time of issuance as disclosed by those securities' issuance documents, as well as other statements about the securities, are inaccurate.

The following table presents a roll-forward of the amounts related to credit losses recognized in earnings. The roll-forward is the amount of credit losses on investment securities on which we recognized a portion of other-than-temporary impairment charges into accumulated other comprehensive loss (dollars in thousands).

	For the Year Ended December 31,
	2014			2013			2012
Balance at beginning of year	$	603,786		$	631,330		$	633,488
Additions:
Credit losses for which other-than-temporary impairment was not previously recognized	74			—			1
Additional credit losses for which an other-than-temporary impairment charge was previously recognized(1)	1,505			2,566			7,172
Reductions:
Securities matured during the year(2)	(684		)	(10,397		)	—
Increase in cash flows expected to be collected which are recognized over the remaining life of the security(3)	(36,028		)	(19,713		)	(9,331		)
Balance at end of year	$	568,653		$	603,786		$	631,330

_______________________

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(1) For the years endedDecember 31, 2014, 2013, and 2012, additional credit losses for which an other-than-temporary impairment charge was previously recognized relate to securities that were also previously impaired prior to January 1, 2014, 2013, and 2012.

(2) Represents reductions related to securities having reached final maturity during the period and, therefore, are no longer held by us at the end of the period.

(3) Represents amounts accreted as interest income during the current period.

Note 8 — Advances

General Terms. We offer a wide range of fixed- and variable-rate advance products with different maturities, interest rates, payment characteristics, and optionality. Advances have maturities ranging from one day to 30 years or even longer with the approval of our credit committee. At both December 31, 2014, and 2013, we had advances outstanding with interest rates ranging from (0.22) percent to 8.37 percent, as summarized below (dollars in thousands). Advances with negative interest rates contain embedded interest-rate features that have met the requirements to be separated from the host contract and are recorded as stand-alone derivatives, and which we economically hedge with derivatives containing offsetting interest-rate features.

	December 31, 2014					December 31, 2013
Year of Contractual Maturity	Amount			Weighted Average Rate		Amount			Weighted Average Rate
Overdrawn demand-deposit accounts	$	19,863		0.44	%	$	9,287		0.43	%
Due in one year or less	20,561,912			0.41		15,413,949			0.50
Due after one year through two years	4,114,587			1.63		2,025,840			1.99
Due after two years through three years	3,564,747			2.68		2,875,074			2.26
Due after three years through four years	2,299,457			2.16		3,116,119			2.89
Due after four years through five years	1,087,673			2.11		2,156,717			2.21
Thereafter	1,626,475			2.98		1,614,278			2.98
Total par value	33,274,714			1.11	%	27,211,264			1.35	%
Premiums	32,887					49,447
Discounts	(18,549		)			(20,290		)
Market value of bifurcated derivatives (1)	1,467					892
Hedging adjustments	191,555					275,365
Total	$	33,482,074				$	27,516,678

_________________________

(1) At December 31, 2014, and 2013, we had certain advances with embedded features that met the requirements to be separated from the host contract and designated as a stand-alone derivative.

We offer putable advances that provide us with the right to put the fixed-rate advance to the borrower (and thereby extinguish the advance) on predetermined exercise dates (put dates), and offer, subject to certain conditions, replacement funding at then-current advances rates. Generally, we would exercise the put options when interest rates increase. At December 31, 2014, and 2013, we had putable advances outstanding totaling $2.3 billion and $2.6 billion, respectively.

The following table sets forth our advances outstanding by the year of contractual maturity or next put date for putable advances (dollars in thousands):

Year of Contractual Maturity or Next Put Date, Par Value	December 31, 2014		December 31, 2013
Overdrawn demand-deposit accounts	$	19,863	$	9,287
Due in one year or less	22,737,137		17,778,624
Due after one year through two years	3,767,187		1,938,590
Due after two years through three years	2,155,922		2,477,674
Due after three years through four years	1,931,707		1,619,094
Due after four years through five years	1,036,423		1,824,967
Thereafter	1,626,475		1,563,028
Total par value	$	33,274,714	$	27,211,264

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We also offer callable advances that provide borrowers with the right to repay, on predetermined option exercise dates, the advance prior to maturity without incurring prepayment or termination fees (callable advances). If the call option is exercised, replacement funding may be available. At December 31, 2014, and 2013, we had callable advances outstanding totaling $30.0 million and $30.5 million, respectively.

Interest-Rate-Payment Terms. The following table details interest-rate-payment types for our outstanding advances (dollars in thousands):

Par value of advances	December 31, 2014		December 31, 2013
Fixed-rate
Due in one year or less	$	15,546,613	$	14,151,949
Due after one year	11,689,938		11,427,028
Total fixed-rate	27,236,551		25,578,977
Variable-rate
Due in one year or less	5,035,163		1,271,287
Due after one year	1,003,000		361,000
Total Variable-rate	6,038,163		1,632,287
Total par value	$	33,274,714	$	27,211,264

Credit-Risk Exposure and Security Terms. Our potential credit risk from advances is principally concentrated in commercial banks, insurance companies, savings institutions, and credit unions. At December 31, 2014 and 2013, we had $10.7 billion and $7.8 billion, respectively, of advances issued to members with at least $1.0 billion of advances outstanding. These advances were made to three borrowers at both December 31, 2014, and 2013, representing 32.0 percent and 28.6 percent, respectively, of total par value of outstanding advances. For information related to our credit risk on advances and allowance for credit losses, see Note 10 — Allowance for Credit Losses.

Prepayment Fees. We record prepayment fees received from borrowers on certain prepaid advances net of any associated basis adjustments related to hedging activities on those advances and net of deferred prepayment fees on advance prepayments considered to be loan modifications. Additionally, for certain advances products, the prepayment-fee provisions of the advance agreement could result in either a payment from the borrower or to the borrower when such an advance is prepaid, based upon market conditions at the time of prepayment (referred to as a symmetrical prepayment fee). Advances with a symmetrical prepayment fee provision are hedged with derivatives containing offsetting terms, so that we are financially indifferent to the borrower's decision to prepay such advances. The net amount of prepayment fees is reflected as interest income in the statement of operations.

We also offer an advance restructuring program under which the prepayment fee on prepaid advances may be satisfied by the borrower's agreement to pay an interest rate on a new advance sufficient to amortize the prepayment fee by the maturity date of the new advance, rather than paying the fee in immediately available funds to us. If we conclude an advance restructuring is an extinguishment of the prior loan rather than a modification, the deferred prepayment fee is recognized into income immediately.

For the years endedDecember 31, 2014, 2013, and 2012, net advance prepayment fees recognized in income are reflected in the following table (dollars in thousands):

	2014			2013			2012
Prepayment fees received from borrowers	$	18,215		$	47,790		$	118,376
Less: hedging fair-value adjustments on prepaid advances	(2,548		)	(21,092		)	(59,508		)
Less: net premiums associated with prepaid advances	(3,948		)	(4,424		)	(2,815		)
Less: deferred recognition of prepayment fees received from borrowers on advance prepayments deemed to be loan modifications	(2,659		)	(5,611		)	(6,388		)
Prepayment fees recognized in income on advance restructurings deemed to be extinguishments	—			6,845			16,139
Net prepayment fees recognized in income	$	9,060		$	23,508		$	65,804

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Note 9 — Mortgage Loans Held for Portfolio

We invest in mortgage loans through the MPF program. These investments are either guaranteed or insured by federal agencies, as is the case with government mortgage loans, or are credit-enhanced by the related participating financial institution, as is the case with conventional mortgage loans. All such investments are held for portfolio. The mortgage loans are typically originated and credit-enhanced by the related participating financial institution. The majority of these loans are serviced by the originating institution or an affiliate thereof. However, a portion of these loans are sold servicing-released by the participating financial institution and serviced by a third-party servicer.

The following table presents certain characteristics of these investments (dollars in thousands):

	December 31, 2014			December 31, 2013
Real estate
Fixed-rate 15-year single-family mortgages	$	570,663		$	595,319
Fixed-rate 20- and 30-year single-family mortgages	2,852,669			2,717,973
Premiums	62,554			59,154
Discounts	(2,761		)	(3,440		)
Deferred derivative gains, net	2,835			1,691
Total mortgage loans held for portfolio	3,485,960			3,370,697
Less: allowance for credit losses	(2,012		)	(2,221		)
Total mortgage loans, net of allowance for credit losses	$	3,483,948		$	3,368,476

The following table details the par value of mortgage loans held for portfolio (dollars in thousands):

	December 31, 2014		December 31, 2013
Conventional mortgage loans	$	2,997,669	$	2,873,935
Government mortgage loans	425,663		439,357
Total par value	$	3,423,332	$	3,313,292

See Note 10 — Allowance for Credit Losses for information related to our credit risk from our investments in mortgage loans and allowance for credit losses based on these investments.

Note 10 — Allowance for Credit Losses

An allowance for credit losses is a valuation allowance separately established for each identified portfolio segment, if necessary, to provide for probable losses inherent in our portfolio as of the statement of condition date. To the extent necessary, an allowance for credit losses for off-balance-sheet credit exposure is recorded as a liability.

Portfolio Segments. We have established an allowance methodology for each of our portfolio segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. We have developed and documented a systematic methodology for determining an allowance for credit losses for our:

• credit products, such as our advances and letters of credit;

• investments in government mortgage loans held for portfolio;

• investments in conventional mortgage loans held for portfolio;

• investments via term securities purchased under agreements to resell; and

• investments via term federal funds sold.

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

Secured Member Credit Products

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We manage our credit exposure to secured member credit products through an integrated approach that generally includes establishing a credit limit for each borrower, an ongoing review of each borrower's financial condition, and collateral and lending policies that are intended to limit risk of loss while balancing borrowers' needs for a reliable source of funding. In addition, we lend to eligible borrowers in accordance with the FHLBank Act, FHFA regulations, and other applicable laws. The FHLBank Act requires us to obtain sufficient collateral to secure our credit products. The estimated value of the collateral pledged to secure each borrower's credit products is calculated by applying collateral discounts, or haircuts, to the market value or unpaid principal balance of the collateral, as applicable. We accept certain investment securities, residential mortgage loans, deposits, and other assets as collateral. We require all borrowers that pledge securities collateral to place physical possession of such securities collateral with our safekeeping agent, the borrower's approved designated agent, or the borrower's securities corporation, subject to a control agreement giving us appropriate control over such collateral. In addition, community financial institutions are eligible to use expanded statutory collateral provisions for small-business and agriculture loans. Members also pledge their Bank capital stock as collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition, performance, borrowing capacity, and our overall credit exposure to the borrower. We can call for additional or substitute collateral to further safeguard our security interest. We believe our policies appropriately manage our credit risks arising from our credit products.

Depending on the financial condition of the borrower, we may allow the borrower to retain possession of loan collateral pledged to us while agreeing to hold such collateral for our benefit or require the borrower to specifically assign or place physical possession of such loan collateral with us or a third-party custodian that we approve.

We are provided an additional safeguard for our security interests by Section 10(e) of the FHLBank Act, which generally affords any security interest granted by a borrower to the Bank priority over the claims and rights of any other party. The exceptions to this prioritization are limited to claims that would be entitled to priority under otherwise applicable law and are held by bona fide purchasers for value or by secured parties with higher priority perfected security interests. However, the priority granted to our security interests under Section 10(e) of the FHLBank Act may not apply when lending to insurance company members. This is due to the anti-preemption provision contained in the McCarran-Ferguson Act, which provides that federal law does not preempt state insurance law unless the federal law expressly regulates the business of insurance. Thus, if state law conflicts with Section 10(e) of the FHLBank Act, the protection afforded by this provision may not be available to us. However, we perfect our security interests in the collateral pledged by our members, including insurance company members, by filing UCC-1 financing statements, taking possession or control of such collateral, or taking other appropriate steps.

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

We continue to evaluate and make changes to our collateral guidelines based on market conditions. At December 31, 2014, and 2013, none of our secured member credit products outstanding were past due, on nonaccrual status, or considered impaired. In addition, there were no troubled debt restructurings related to credit products during the years endedDecember 31, 2014, and 2013.

Based upon the collateral held as security, our credit extension and collateral policies, management's credit analysis, and the repayment history on secured member credit products, we have not recorded any allowance for credit losses on our secured member credit products at December 31, 2014, and 2013. At December 31, 2014, and 2013, no liability to reflect an allowance for credit losses for off-balance-sheet credit exposures was recorded. See Note 19 — Commitments and Contingencies for additional information on our off-balance-sheet credit exposure.

Government MortgageLoans Held for Portfolio

We invest in government mortgage loans secured by one- to four-family residential properties. Government mortgage loans are mortgage loans insured or guaranteed by the Federal Housing Administration, the U.S. Department of Veterans Affairs, the Rural Housing Service of the U.S. Department of Agriculture, or by the U.S. Department of Housing and Urban Development.

The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable insurance or guaranty with respect to defaulted government-guaranteed mortgage loans. Any losses incurred on these loans that are not recovered from the insurer or guarantor are absorbed by the related servicer. Therefore, we only have credit risk for these loans if the servicer fails to pay for losses not covered by insurance or guarantees. Based on our assessment of our servicers for our government loans, there is no allowance for credit losses for the government mortgage loan portfolio as of December 31, 2014,

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and 2013. In addition, these mortgage loans are not placed on nonaccrual status due to the government guarantee or insurance on these loans and the contractual obligation of the loan servicers to repurchase their related loans when certain criteria are met.

Conventional Mortgage Loans Held for Portfolio

Our methodology for determining our loan loss reserve consists of estimating loan loss severity using a third-party model incorporating delinquency to default transition performance of the loans, relevant market conditions affecting the performance of the loans, and portfolio level credit protection, particularly credit enhancements, as discussed below under — Credit Enhancements. Our inputs to the third-party model consist of loan-related characteristics, such as credit scores, occupancy statuses, loan-to-value ratios, property types, and locations. We update our view of the loan transition performance and market conditions quarterly and periodically adjust our methodology to reflect the changes in the loans’ performances and the market.

Individually Evaluated Mortgage Loans. Certain conventional mortgage loans, primarily impaired mortgage loans that are

considered collateral dependent, may be specifically identified for purposes of calculating the allowance for credit losses. A

mortgage loan is considered collateral dependent if repayment is only expected to be provided by the sale of the underlying

property, that is, if it is considered likely that the borrower will default and there is no credit enhancement from a

participating financial institution to offset losses under the master commitment. The estimated credit losses on impaired

collateral-dependent loans may be separately determined because sufficient information exists to make a reasonable estimate

of the inherent loss on these loans on an individual loan basis. We may estimate the fair value of this collateral by applying an appropriate loss severity rate or using third party estimates or a property valuation model. The resulting incurred loss is equal to the difference between the carrying value of the loan and the estimated fair value of the collateral less estimated selling costs.

Collectively Evaluated Mortgage Loans. We evaluate the credit risk of our investments in conventional mortgage loans for impairment on a collective basis that considers loan-pool-specific attribute data at the master commitment pool level, applies estimated loss severities, and incorporates available credit enhancements to establish our best estimate of probable incurred losses at the reporting date. We do not consider credit-enhancement cash flows that are projected and assessed as not probable of receipt in reducing estimated losses. Migration analysis is a methodology for estimating the rate of default experienced on pools of similar loans based on our historical experience. We apply migration analysis to conventional loans that are currently not past due, loans that are 30 to 59 days past due, 60 to 89 days past due, and 90 or more days past due. We then estimate the dollar amount of loans in these categories that we believe are likely to migrate to a realized loss position and apply a loss severity factor to estimate losses that would be incurred at the statement of condition date. Additionally, for our investments in loans modified under our temporary loan modification plan, on the effective date of a loan modification we measure the present value of expected future cash flows discounted at the loan's effective interest rate and reduce the carrying value of the loan accordingly. See — Troubled Debt Restructurings below for information on our temporary loan modification program and loans that have been discharged pursuant to Chapter 7 bankruptcy.

Estimating a Margin of Imprecision. We also assess a factor for the margin of imprecision to the estimation of credit losses for the homogeneous population. The margin of imprecision is a factor in the allowance for credit losses that recognizes the imprecise nature of the measurement process and is included as part of the mortgage loan allowance for credit loss. This amount represents a subjective management judgment based on facts and circumstances that exist as of the reporting date that is unallocated to any specific measurable economic or credit event and is intended to cover other inherent losses that may not be captured in our methodology. The actual loss that may occur on homogeneous populations of mortgage loans may differ from the estimated loss.

Credit Quality Indicators. Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The tables below set forth certain key credit quality indicators for our investments in mortgage loans at December 31, 2014 and 2013 (dollars in thousands):

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	December 31, 2014
	Recorded Investment in Conventional Mortgage Loans			Recorded Investment in Government Mortgage Loans			Total
Past due 30-59 days delinquent	$	32,068		$	19,811		$	51,879
Past due 60-89 days delinquent	9,834			4,591			14,425
Past due 90 days or more delinquent	37,927			7,467			45,394
Total past due	79,829			31,869			111,698
Total current loans	2,986,749			405,808			3,392,557
Total mortgage loans	$	3,066,578		$	437,677		$	3,504,255
Other delinquency statistics
In process of foreclosure, included above (1)	$	13,709		$	2,786		$	16,495
Serious delinquency rate (2)	1.27		%	1.71		%	1.32		%
Past due 90 days or more still accruing interest	$	—		$	7,467		$	7,467
Loans on nonaccrual status (3)	$	38,832		$	—		$	38,832

_______________________

(1) Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu of foreclosure has been reported.

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

(3) Includes conventional mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest as well as loans modified within the previous six months under our temporary loan modification plan.

	December 31, 2013
	Recorded Investment in Conventional Mortgage Loans			Recorded Investment in Government Mortgage Loans			Total
Past due 30-59 days delinquent	$	31,401		$	17,690		$	49,091
Past due 60-89 days delinquent	10,786			4,618			15,404
Past due 90 days or more delinquent	45,916			19,913			65,829
Total past due	88,103			42,221			130,324
Total current loans	2,848,158			409,478			3,257,636
Total mortgage loans	$	2,936,261		$	451,699		$	3,387,960
Other delinquency statistics
In process of foreclosure, included above (1)	$	18,570		$	7,904		$	26,474
Serious delinquency rate (2)	1.59		%	4.41		%	1.97		%
Past due 90 days or more still accruing interest	$	—		$	19,913		$	19,913
Loans on nonaccrual status (3)	$	46,208		$	—		$	46,208

_______________________

(1) Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in-lieu of foreclosure has been reported.

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

(3) Includes conventional mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest as well as loans modified within the previous six months under our temporary loan modification plan.

Individually Evaluated Impaired Loans. The following tables present the recorded investment, par value and any related allowance for impaired loans individually assessed for impairment at December 31, 2014 and 2013, and the average recorded investment and interest income recognized on these loans during the years endedDecember 31, 2014 and 2013 (dollars in thousands).

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	As of December 31, 2014						As of December 31, 2013
	Recorded Investment		Par Value		Related Allowance		Recorded Investment		Par Value		Related Allowance
Individually evaluated impaired mortgage loans with no related allowance	$	6,679	$	6,654	$	—	$	3,231	$	3,223	$	—
Individually evaluated impaired mortgage loans with a related allowance	3,097		3,073		544		3,440		3,415		605
Total individually evaluated impaired mortgage loans	$	9,776	$	9,727	$	544	$	6,671	$	6,638	$	605

	For the Years Ended December 31,
	2014				2013				2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Individually evaluated impaired mortgage loans with no related allowance	$	5,058	$	191	$	3,426	$	186	$	2,021	$	120
Individually evaluated impaired mortgage loans with a related allowance	2,913		16		2,346		18		—		—
Total individually evaluated impaired mortgage loans	$	7,971	$	207	$	5,772	$	204	$	2,021	$	120

Credit Enhancements. Our allowance for credit losses factors in the credit enhancements associated with conventional mortgage loans under the MPF program. These credit enhancements apply after the homeowner's equity is exhausted and can include primary and/or supplemental mortgage insurance or other kinds of credit enhancement. The credit enhancement amounts estimated to protect us against credit losses are determined through the use of a model. Any incurred losses that would be recovered from the credit enhancements are not reserved as part of our allowance for loan losses. In such cases, a receivable is generally established to reflect the expected recovery from credit-enhancement arrangements.

Conventional mortgage loans are required to be credit enhanced so that the risk of loss is limited to the losses equivalent to an investor in a double-A rated MBS at the time of purchase. We share the risk of credit losses on our investments in mortgage loans with the related participating financial institution by structuring potential losses on these investments into layers with respect to each master commitment. We analyze the risk characteristics of our mortgage loans using a third-party model to determine the credit enhancement amount at the time of purchase. This credit-enhancement amount is broken into a first-loss account and a credit-enhancement obligation of each participating financial institution, which is calculated based on the risk analysis to equal the difference between the amounts needed for the master commitment to have a rating equivalent to a double-A rated MBS and our initial first-loss account exposure.

The first-loss account represents the first layer or portion of credit losses that we absorb with respect to our investments in mortgage loans after considering the borrower's equity and primary mortgage insurance. The participating financial institution is required to cover the next layer of losses up to an agreed-upon credit-enhancement obligation amount, which may consist of a direct liability of the participating financial institution to pay credit losses up to a specified amount, a contractual obligation of a participating financial institution to provide supplemental mortgage insurance, or a combination of both. We absorb any remaining unallocated losses.

The aggregate amount of the first-loss account is documented and tracked but is neither recorded nor reported as an allowance for loan losses in our financial statements. As credit and special hazard losses are realized that are not covered by the liquidation value of the real property or primary mortgage insurance, they are first charged to us, with a corresponding reduction of the first-loss account for that master commitment up to the amount in the first-loss account at that time. Over time, the first-loss account may cover the expected credit losses on a master commitment, although losses that are greater than expected or that occur early in the life of a master commitment could exceed the amount in the first-loss account. In that case, the excess losses would be charged to the participating financial institution's credit-enhancement amount, then to us after the participating financial institution's credit-enhancement amount has been exhausted.

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For loans in which we buy or sell participations from or to other FHLBanks that participate in the MPF program (MPF Banks), the amount of the first-loss account remaining to absorb losses for loans that we own is partly dependent on the percentage of our participation in such loans. Assuming losses occur on a proportional basis between loans that we own and loans owned by other MPF Banks, at December 31, 2014, and 2013, the amount of first-loss account remaining for losses allocatable to us was $17.1 million and $17.0 million, respectively.

Participating financial institutions are paid a credit-enhancement fee for assuming credit risk and in some instances all or a portion of the credit-enhancement fee may be performance-based. For certain MPF products, our losses incurred under the first-loss account can be mitigated by withholding future performance-based credit-enhancement fees that would otherwise be payable to the participating financial institutions. We record credit-enhancement fees paid to participating financial institutions as a reduction to mortgage-loan-interest income. We incurred credit-enhancement fees of $3.0 million, $3.0 million, and $3.2 million during the years endedDecember 31, 2014, 2013, and 2012, respectively.

Withheld performance-based credit-enhancement fees can mitigate losses from our investments in mortgage loans and therefore we consider our expectations for each master commitment for such withheld fees in determining the allowance for loan losses. More specifically, we determine the amount of credit-enhancement fees available to mitigate losses as follows: accrued credit-enhancement fees to be paid to participating financial institutions; plus projected credit-enhancement fees to be paid to the participating financial institutions using the weighted average life of the loans within each relevant master commitment (the CE Fees Estimation Factor); minus any losses incurred or expected to be incurred.

The following table demonstrates the impact on our estimate of the allowance for credit losses resulting from the loss-mitigating features of conventional mortgage loans (dollars in thousands).

	December 31, 2014			December 31, 2013
Total estimated losses	$	3,174		$	3,983
Less: estimated losses in excess of the first-loss account, to be absorbed by participating financial institutions	(925		)	(1,079		)
Less: estimated performance-based credit-enhancement fees available for recapture	(237		)	(683		)
Net allowance for credit losses	$	2,012		$	2,221

Roll-Forward of Allowance for Credit Losses on Mortgage Loans. The following table presents a roll-forward of the allowance for credit losses on conventional mortgage loans for the years endedDecember 31, 2014, 2013, and 2012, as well as the recorded investment in mortgage loans by impairment methodology at December 31, 2014, 2013, and 2012 (dollars in thousands). The recorded investment in a loan is the par amount of the loan, adjusted for accrued interest, unamortized premiums or discounts, deferred derivative gains and losses, and direct write-downs. The recorded investment is net of any valuation allowance.

	2014			2013			2012
Allowance for credit losses
Balance, beginning of year	$	2,221		$	4,414		$	7,800
Charge-offs	(270		)	(333		)	(259		)
Recoveries	—			94			—
Provision (reduction of provision) for credit losses	61			(1,954		)	(3,127		)
Balance, end of year	$	2,012		$	2,221		$	4,414
Ending balance, individually evaluated for impairment	$	544		$	605		$	—
Ending balance, collectively evaluated for impairment	$	1,468		$	1,616		$	4,414
Recorded investment, end of year (1)
Individually evaluated for impairment	$	9,776		$	6,671		$	2,752
Collectively evaluated for impairment	$	3,056,802		$	2,929,590		$	3,041,418

_________________________

(1) These amounts exclude government mortgage loans because we make no allowance for credit losses based on our investments in government mortgage loans, as discussed above under — Government Mortgage Loans Held for Portfolio.

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Troubled Debt Restructurings. We consider a troubled debt restructuring of a financing receivable to have occurred when we grant a concession to a borrower that we would not otherwise consider for economic or legal reasons related to the borrower's financial difficulties. We have granted a concession when we do not expect to collect all amounts due to us under the original contract as a result of the restructuring.

We also consider troubled debt restructurings to have occurred when a borrower has filed for bankruptcy under Chapter 7 bankruptcy pursuant to which the bankruptcy court has discharged the borrower's obligation to us and the borrower has not reaffirmed the debt, except in certain cases where certain supplemental mortgage insurance policies are held or where all contractual amounts due are still expected to be collected as a result of certain credit enhancements or government guarantees.

Our program for mortgage loan troubled debt restructurings primarily involves modifying the borrower's monthly payment for a period of up to 36 months to achieve a housing expense ratio of no more than 31 percent of their qualifying monthly income. The principal amortization schedule for the outstanding principal balance is first recalculated to reflect a new principal and interest payment for a term not to exceed 40 years. This would result in a balloon payment at the original maturity date of the loan as the maturity date and number of remaining monthly payments are not adjusted. If the 31 percent housing expense ratio is not achieved through reamortization, the interest rate is reduced for the temporary modification period of up to 36 months in 0.125 percent increments below the original note rate, to a floor rate of 3.00 percent, resulting in reduced principal and interest payments, until the desired 31 percent housing expense ratio is met.

A mortgage loan considered to be a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring the loss severity rate incurred as of the reporting date as well as the economic loss attributable to delaying the original contractual principal and interest due dates, if applicable. During the year endedDecember 31, 2014, we had 31 troubled debt restructurings, and the recorded investment in these troubled debt restructurings post-modification was $3.6 million as of the modification date. During the year endedDecember 31, 2013, we had five troubled debt restructurings, and the recorded investment in these troubled debt restructurings post-modification was $1.0 million as of the modification date. During the year ended December 31, 2012, we had 13 troubled debt restructurings, and the recorded investment in these troubled debt restructurings post-modification was $2.6 million as of the modification date.

As of December 31, 2014, we had mortgage loans with a recorded investment of $6.7 million that we considered troubled debt restructurings of which $3.1 million were performing and $3.6 million were nonperforming. As of December 31, 2013, we had mortgage loans with a recorded investment of $3.3 million that we considered troubled debt restructurings, of which $2.6 million were performing and $706,000 were nonperforming.

As of December 31, 2014 and 2013, we had troubled debt restructurings with a recorded investment of $159,000 and $86,000, respectively, that resulted from borrowers that filed for Chapter 7 bankruptcy in which the bankruptcy court discharged the borrowers' obligations to us and the borrowers did not reaffirm the debt. We did not record an additional impairment charge or increase our allowance for credit losses since there is sufficient credit-enhancement remaining for the master commitment associated with these loans.

Certain of our investments in conventional mortgage loans modified as troubled debt restructurings within the previous 12 months experienced a payment default. We consider a loan modified as a troubled debt restructuring to be in default if its contractual principal or interest is 60 days or more past due. During the year ended December 31, 2014, we did not have any recorded investments in troubled debt restructurings that were subsequently defaulted. During the years ended December 31, 2013, and 2012, the recorded investment in troubled debt restructurings that subsequently defaulted was $120,000 and $442,000, respectively.

REO. At December 31, 2014 and 2013, we had $4.3 million and $5.3 million, respectively, in assets classified as REO. During the years endedDecember 31, 2014, 2013, and 2012, we sold REO assets with a recorded carrying value of $8.3 million, $12.1 million, and $10.2 million, respectively. Upon the sale of these properties, and inclusive of any proceeds received from primary mortgage-insurance coverage, we recognized net losses totaling $377,000 and $3.0 million and net gains totaling $409,000 during the years endedDecember 31, 2014, 2013, and 2012, respectively. Gains and losses on the sale of REO assets are recorded in other income.

Federal Funds Sold and Securities Purchased Under Agreements to Resell.

These investments are all short term (less than three months), and they are generally transacted with counterparties that we consider to be of investment quality. We invest in federal funds sold and we only evaluate these investments for purposes of an allowance for credit losses only if the investment is not paid when due. All investments in federal funds sold as of December 31, 2014 and 2013, were repaid according to their contractual terms. Securities purchased under agreements to resell

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are considered collateralized financing arrangements and effectively represent short-term loans. The terms of these loans are structured such that if the market value of the underlying securities decreases below the market value required as collateral, the counterparty must provide additional securities as collateral in an amount equal to the decrease or remit cash in such amount. If we determine that an agreement to resell is impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is charged to earnings. Based upon the collateral held as security, we determined that no allowance for credit losses was needed for the securities purchased under agreements to resell at December 31, 2014 and 2013.

Note 11 — Derivatives and Hedging Activities

Nature of Business Activity

We are exposed to interest-rate risk primarily from the effects of interest-rate changes on interest-earning assets and funding sources that finance these assets. The goal of our interest-rate risk-management strategy is to manage interest-rate risk within appropriate limits. As part of our effort to mitigate the risk of loss, we have established policies and procedures, which include guidelines on the amount of exposure to interest-rate changes we will accept. In addition, we monitor the risk to our interest income, net interest margin, and average maturity of interest-earning assets and funding sources.

Consistent with FHFA regulations, we enter into derivatives to manage the interest-rate-risk exposures inherent in otherwise unhedged assets and liabilities and achieve our risk-management objectives. FHFA regulation prohibits us from trading in or the speculative use of these derivative instruments. The use of derivatives is an integral part of our financial management strategy. We may enter into derivatives that do not necessarily qualify for hedge accounting.

The most common ways in which we use derivatives are to:

• change the repricing frequency of assets and liabilities from fixed to floating or floating to fixed, considering interest-rate-risk-management and funding needs;

• hedge the cash flows of assets and liabilities that have embedded options, considering interest-rate-risk-management and funding needs; and

• hedge the mark-to-market sensitivity of existing assets or liabilities or of anticipated transactions.

Application of Derivatives

We may use derivatives to adjust the effective maturity, repricing frequency, or option characteristics of our financial instruments, including our advances products, investments, and COs to achieve risk-management objectives. We use derivatives as:

• a fair-value or cash-flow hedge of a non-derivative financial instrument or a forecasted transaction; and

• an economic hedge in general asset-liability management where derivatives serve a documented risk-mitigation purpose but do not qualify for hedge accounting. These hedges are primarily used to manage certain mismatches between the coupon features of our assets and liabilities. For example, we use derivatives in our overall interest-rate-risk management to adjust the interest-rate sensitivity of COs to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments, or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities.

We transact most of our derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute COs. Derivative transactions may be either over-the-counter with a counterparty (bilateral derivatives) or cleared through a futures commission merchant (clearing member) with a derivatives clearing organization (DCO) as the counterparty (cleared derivatives).

Once a derivative transaction has been accepted for clearing by a DCO, the derivative transaction is novated and the executing counterparty is replaced with the DCO. We are not a derivatives dealer and do not trade derivatives for short-term profit.

Types of Derivatives

We may use the following derivatives to reduce funding costs and/or to manage our interest-rate risks.

• Interest-Rate Swaps. An interest-rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated.

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One of the simplest forms of an interest-rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional amount at a variable-rate index for the same period of time. The variable-rate index we utilize in most of our derivative transactions is LIBOR.

• Optional Termination Interest-Rate Swaps. In optional termination interest-rate swap, one counterparty has the right, but not the obligation, to terminate the interest-rate swap prior to its stated maturity date. We use optional termination interest-rate swaps to hedge callable CO bonds and putable advances. In each case, we own an option to terminate the hedged item, that is, redeem a callable bond or demand repayment of a putable advance on specified dates, and the counterparty to the optional termination interest-rate swap owns the option to terminate the interest-rate swap on those same dates.

• Forward-Start Interest-Rate Swaps. A forward-start interest-rate swap is an interest rate swap (as described above) with a deferred effective date. We designate forward-start interest-rate swaps as cash-flow hedges of expected debt issuances.

• Swaptions. A swaption is an option on an interest-rate swap that gives the buyer the right to enter into a specified interest-rate swap at a certain time in the future. When used as a hedge, a swaption can protect us if we are planning to lend or borrow funds in the future against future interest-rate changes. We may enter into both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

• Interest-Rate Cap and Floor Agreements. In an interest-rate cap agreement, a cash flow is generated if the price or rate of an underlying variable rises above a certain threshold or cap price. In an interest-rate floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold or floor price. These agreements are intended to serve as protection against the interest rate on a variable-rate asset or liability falling below or rising above a certain level.

• Options. An option is an agreement between two entities that conveys the right, but not the obligation, to engage in a future transaction on an underlying security or other financial asset at an agreed-upon price during a certain period of time or on a specific date.

• Futures/Forwards Contracts. We may use futures and forward contracts to hedge interest-rate risk. For example, certain mortgage purchase commitments that we enter into are considered derivatives. We may hedge these commitments by selling MBS to-be-announced (TBA) for forward settlement. A TBA represents a forward contract for the sale of MBS at a future agreed-upon date for an established price.

Types of Assets and Liabilities Hedged

We formally document at inception all relationships between derivatives designated as hedging instruments and hedged items, as well as our risk-management objectives and strategies for undertaking various hedge transactions and our method of assessing hedge effectiveness. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets or liabilities on the statement of condition; firm commitments; or forecasted transactions. We also formally assess (both at the hedge's inception and monthly on an ongoing basis) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value or cash flows of the hedged items attributable to the hedged risk and whether those derivatives may be expected to remain effective in future periods. We typically use regression analyses or other statistical or scenario-based analyses to assess the effectiveness of our hedges. We apply hedge accounting to hedges that we deem highly effective and that otherwise meet the hedge-accounting requirements. When we determine that a derivative has not been or is not expected to be effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.

Investments. We primarily invest in U.S. agency obligations, MBS, ABS, and the taxable portion of HFA securities, which may be classified as held-to-maturity, available-for-sale, or trading securities. The interest-rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. FHFA guidance and our policies limit this source of interest-rate risk by restricting the types of mortgage investments we may own to those with limited average life changes under certain interest-rate-shock scenarios and establishing limitations on duration of equity and changes to market value of equity. We may manage our prepayment and duration risk by funding investment securities with COs that have call features or by hedging the prepayment risk with caps or floors, optional termination interest rate swaps, or swaptions.

For available-for-sale securities to which a qualifying fair-value hedge relationship has been designated, we record the portion of the change in fair value related to the risk being hedged in other income as net (losses) gains on derivatives and hedging activities together with the related change in fair value of the derivative, and the remainder of the change in fair value is recorded in other comprehensive loss as net unrealized loss on available-for-sale securities.

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We may also manage the risk arising from changing market prices or cash flows of investment securities classified as trading by entering into economic hedges that offset the changes in fair value or cash flows of the securities. These economic hedges are not specifically designated as hedges of individual assets, but rather are collectively managed to provide an offset to the changes in the fair values of the assets. The market-value changes of trading securities are included in net unrealized gains (losses) on trading securities in the statement of operations, while the changes in fair value of the associated derivatives are included in other income as net (losses) gains on derivatives and hedging activities.

Advances. We offer an array of advance structures intended to meet our members' funding needs. These advances may have maturities up to 30 years with variable or fixed rates and may include early termination features or options. The repricing characteristics and optionality embedded in certain advances may create interest-rate risk. We may use interest-rate swaps to adjust the repricing and/or options characteristics of advances to more closely match the characteristics of our funding liabilities. Typically, we hedge fixed-rate advances with interest-rate swaps where we pay a fixed-rate coupon and receive a variable-rate coupon, effectively converting the advance to a floating-rate advance. This type of hedge is treated as a fair-value hedge. Additionally, certain floating-rate advances that contain either an interest-rate cap or floor, or both a cap and a floor, may be hedged with a derivative containing an offsetting cap and/or floor, where the hedge relationship is treated as a fair-value hedge.

With each issuance of a putable advance, we effectively purchase from the related borrower an embedded put option that enables us to terminate a fixed-rate advance on predetermined put dates, and offer, subject to certain conditions, replacement funding at then-current advances rates. We may hedge a putable advance by entering into a derivative that is cancelable by the derivative counterparty, where we pay a fixed-rate coupon and receive a variable-rate coupon. This type of hedge is treated as a fair-value hedge. The swap counterparty would normally exercise its option to cancel the derivative at par on any defined exercise date if interest rates had risen, and at that time, we could, at our option, require immediate repayment of the advance.

Additionally, the borrower's ability to prepay an advance can create interest-rate risk. When a borrower prepays an advance, we could suffer lower future income if the principal portion of the prepaid advance were invested in lower-yielding assets that continue to be funded by higher-cost debt. To protect against this risk, we generally charge a prepayment fee that makes us financially indifferent to a borrower's decision to prepay an advance. If the advance is hedged with a derivative instrument, the prepayment fee will generally offset the cost of terminating the designated hedge. When we offer advances (other than short-term advances) that a borrower may prepay without a prepayment fee, we usually finance such advances with callable debt or otherwise hedge this option.

COs. We may enter into derivatives to hedge (or partially hedge, depending on the risk strategy) the interest-rate risk associated with our specific debt issuances, including using derivatives to change the effective interest-rate sensitivity of debt to better match the characteristics of funded assets. We endeavor to manage the risk arising from changing market prices and volatility of a CO by matching the cash inflow on the derivative with the cash outflow on the CO.

As an example of such a hedging strategy, when fixed-rate COs are issued, we simultaneously enter into a matching derivative in which the counterparty pays us fixed-interest cash flows designed to mirror in timing and amount the interest cash outflows we pay on the CO. At the same time, we may pay a variable cash flow that closely matches the interest payments we receive on short-term or variable-rate assets. In some cases, the hedged CO may have a nonstatic coupon that is subject to fair-value risk and that is matched by the receivable coupon on the hedging interest-rate swap. These transactions are treated as fair-value hedges.

In a typical cash-flow hedge of anticipated CO issuance, we may enter into interest-rate swaps for the anticipated issuance of fixed-rate CO bonds to lock in a spread between an earning asset and the cost of funding. The interest-rate swap is terminated upon issuance of the fixed-rate CO bond. Changes in fair value of the hedging derivative, to the extent that the hedge is effective, will be recorded in accumulated other comprehensive loss and reclassified into earnings in the period or periods during which the cash flows of the fixed-rate CO bond affects earnings (beginning upon issuance and continuing over the life of the CO bond).

Firm Commitments. Mortgage-purchase commitments are considered derivatives. We may hedge these commitments by selling MBS TBA or other derivatives for forward settlement. These hedges do not qualify for hedge accounting treatment. The mortgage purchase commitment and the TBA used in the economic hedging strategy are recorded on the statement of condition at fair value, with changes in fair value recognized in current period earnings. When the mortgage purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan. The basis adjustments on the resulting performing loans are then amortized into net interest income over the life of the loans.

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We may also hedge a firm commitment for a forward-starting advance through the use of an interest-rate swap. In this case, the swap functions as the hedging instrument for both the firm commitment and the subsequent advance. The fair-value change associated with the firm commitment is recorded as a basis adjustment of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment is then amortized into interest income over the life of the advance.

Financial Statement Impact and Additional Financial Information. The notional amount of derivatives is a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives reflects our involvement in the various classes of financial instruments and represents neither the actual amounts exchanged nor our overall exposure to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

The following table presents the fair value of derivatives, including the effect of netting adjustments and cash collateral as of December 31, 2014 and 2013 (dollars in thousands):

	December 31, 2014								December 31, 2013
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments
Interest-rate swaps	$	12,579,525	$	26,381		$	(553,967	)	$	11,707,590	$	33,361		$	(568,477	)
Forward-start interest-rate swaps	1,096,800		—			(42,209		)	1,410,800		2,408			(53,875		)
Total derivatives designated as hedging instruments	13,676,325		26,381			(596,176		)	13,118,390		35,769			(622,352		)
Derivatives not designated as hedging instruments
Economic hedges:
Interest-rate swaps	423,000		31			(19,849		)	1,273,500		610			(20,146		)
Interest-rate caps or floors	300,000		—			—			300,000		43			—
Mortgage-delivery commitments (1)	26,927		71			(8		)	11,056		5			(39		)
Total derivatives not designated as hedging instruments	749,927		102			(19,857		)	1,584,556		658			(20,185		)
Total notional amount of derivatives	$	14,426,252							$	14,702,946
Total derivatives before netting and collateral adjustments			26,483			(616,033		)			36,427			(642,537		)
Netting adjustments and cash collateral including related accrued interest (2)			(11,935		)	57,144					(32,109		)	34,385
Derivative assets and derivative liabilities			$	14,548		$	(558,889	)			$	4,318		$	(608,152	)

_______________________

(1) Mortgage-delivery commitments are classified as derivatives with changes in fair value recorded in other income.

(2) Amounts represent the effect of master-netting agreements intended to allow us to settle positive and negative positions with the same counterparty. Cash collateral and related accrued interest posted was $45.5 million and $2.3 million at December 31, 2014, and 2013, respectively. Cash collateral and related accrued interest received was $290,000 at December 31, 2014. There was no cash collateral received at December 31, 2013.

Net (losses) gains on derivatives and hedging activities recorded in Other Income (Loss) for the years endedDecember 31, 2014, 2013, and 2012 were as follows (dollars in thousands):

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	For the Years Ended December 31,
	2014			2013			2012
Derivatives designated as hedging instruments
Interest-rate swaps	$	534		$	2,125		$	622
Cash flow hedge ineffectiveness	(442		)	12			(183		)
Total net gains related to derivatives designated as hedging instruments	92			2,137			439
Derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	(6,244		)	6,848			(9,781		)
Interest-rate caps or floors	(43		)	(7		)	(736		)
Mortgage-delivery commitments	1,510			(1,538		)	2,585
Total net (losses) gains related to derivatives not designated as hedging instruments	(4,777		)	5,303			(7,932		)
Net (losses) gains on derivatives and hedging activities	$	(4,685	)	$	7,440		$	(7,493	)

The following tables present, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair-value hedge relationships and the impact of those derivatives on our net interest income for the years endedDecember 31, 2014, 2013, and 2012 (dollars in thousands):

	For the Year Ended December 31, 2014
	Gain/(Loss) on Derivative			Gain/(Loss) on Hedged Item			Net Fair-Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income (1)
Hedged Item:
Advances	$	84,157		$	(83,810	)	$	347		$	(130,580	)
Investments	(98,883		)	100,006			1,123			(37,989		)
Deposits	(1,143		)	1,143			—			1,152
COs – bonds	9,677			(10,613		)	(936		)	54,356
Total	$	(6,192	)	$	6,726		$	534		$	(113,061	)
	For the Year Ended December 31, 2013
	Gain/(Loss) on Derivative			Gain/(Loss) on Hedged Item			Net Fair-Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income (1)
Hedged Item:
Advances	$	214,872		$	(213,975	)	$	897		$	(149,026	)
Investments	144,167			(142,488		)	1,679			(38,474		)
Deposits	(1,543		)	1,543			—			1,580
COs – bonds	(80,712		)	80,261			(451		)	63,690
Total	$	276,784		$	(274,659	)	$	2,125		$	(122,230	)

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	For the Year Ended December 31, 2012
	Gain/(Loss) on Derivative			Gain/(Loss) on Hedged Item			Net Fair-Value Hedge Ineffectiveness			Effect of Derivatives on Net Interest Income (1)
Hedged Item:
Advances	$	109,560		$	(110,755	)	$	(1,195	)	$	(192,918	)
Investments	18,136			(16,454		)	1,682			(41,028		)
Deposits	(1,301		)	1,301			—			1,541
COs – bonds	(129,829		)	129,964			135			88,668
Total	$	(3,434	)	$	4,056		$	622		$	(143,737	)

______________

(1) The net interest on derivatives in fair-value hedge relationships is presented in the statement of operations as interest income or interest expense of the respective hedged item.

The following table presents the gains (losses) recognized in accumulated other comprehensive loss, the gains (losses) reclassified from accumulated other comprehensive loss into income, and the effect of our hedging activities on our net (losses) gains on derivatives and hedging activities in the statement of income for our forward-start interest-rate swaps associated with CO bond hedged items in cash-flow hedge relationships (dollars in thousands).

Derivatives and Hedged Items in Cash Flow Hedging Relationships	(Losses) Gains Recognized in Other Comprehensive Loss on Derivatives (Effective Portion)			Location of (Losses) Gains Reclassified from Accumulated Other Comprehensive Loss into Net Income (Effective Portion)	Losses Reclassified from Accumulated Other Comprehensive Loss into Net Income (Effective Portion)			(Losses) Gains Recognized in Net (Losses) Gains on Derivatives and Hedging Activities (Ineffective Portion)
Interest-rate swaps - CO bonds
For the Year Ended December 31, 2014	$	(38,502	)	Interest expense	$	(8,652	)	$	(442	)
For the Year Ended December 31, 2013	13,419			Interest expense	—			12
For the Year Ended December 31, 2012	(32,733		)	Interest expense	—			(183		)

For the years endedDecember 31, 2014, 2013, and 2012, there were no reclassifications from accumulated other comprehensive loss into earnings as a result of the discontinuance of cash-flow hedges because the original forecasted transactions were not expected to occur by the end of the originally specified time period or within a two-month period thereafter. As of December 31, 2014, the maximum length of time over which we are hedging our exposure to the variability in future cash flows for forecasted transactions is nine years.

As of December 31, 2014, the amount of deferred net losses on derivatives accumulated in other comprehensive loss related to cash flow hedges expected to be reclassified to earnings during the next 12 months is $23.0 million.

Managing Credit Risk on Derivatives. We are subject to credit risk on our hedging activities due to the risk of nonperformance by nonmember counterparties (including DCOs and their clearing members acting as agent to the DCOs as well as bilateral counterparties) to the derivative agreements. We manage credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in our policies, U.S. Commodity Futures Trading Commission (the CFTC) regulations, and FHFA regulations. All counterparties must execute master-netting agreements prior to entering into any bilateral derivative with us.

Our master-netting agreements for bilateral derivatives contain bilateral-collateral exchange agreements that require that credit exposure beyond a defined threshold amount (which may be zero) be secured by readily marketable, U.S. Treasury or GSE securities, or cash. The level of these collateral threshold amounts (when applicable) varies according to the counterparty's Standard & Poor's Ratings Services (S&P) or Moody's Investors Service Inc. (Moody's) long-term credit ratings. Credit exposures are then measured daily and adjustments to collateral positions are made in accordance with the terms of the master-netting agreements. These master-netting agreements also contain bilateral ratings-tied termination events permitting us to terminate all outstanding derivatives transactions with a counterparty in the event of a specified rating downgrade by Moody's or S&P. Based on credit analyses and collateral requirements, we do not anticipate any credit losses on our derivative agreements.

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We execute bilateral derivatives with nonmember counterparties with long-term ratings of single-A (or equivalent) or better by the major NRSROs at the time of the transaction, although risk-reducing trades (trades that reduce our net credit exposure or exposure sensitivity to the counterparty) are permitted for counterparties whose ratings have fallen below these ratings. Some of these counterparties or their affiliates buy, sell, and distribute COs. See Note 13 — Consolidated Obligations for additional information.

For cleared derivatives, the DCO is our counterparty. The DCO notifies the clearing member of the required initial and variation margin and our agent (clearing member) notifies us of the required initial and variation margin. We post initial margin and exchange variation margin through a clearing member who acts as our agent to the DCO and who guarantees our performance to the DCO, subject to the terms of relevant agreements. These arrangements expose us to institutional credit risk in the event that one of our clearing members or one of the DCOs fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because the DCO, which is fully secured at all times through margin maintained with its clearing members, is substituted for the credit risk exposure of individual counterparties in bilateral derivatives and collateral is posted at least once daily for changes in the value of cleared derivatives through a clearing member.

We have analyzed the rights, rules, and regulations governing our cleared derivatives and determined that those rights, rules, and regulations should result in a net claim through each of our clearing members with the related DCO upon an event of default including a bankruptcy, insolvency or similar proceeding involving the DCO or one of our clearing members, or both. For this purpose, net claim generally means a single net amount reflecting the aggregation of all amounts indirectly owed by us to the relevant DCO and indirectly payable to us from the relevant DCO. Based on this analysis, we are presenting a net derivative receivable or payable for all of our transactions through a particular clearing member with a particular DCO.

Certain of our bilateral derivatives master-netting agreements contain provisions that require us to post additional collateral with our bilateral derivatives counterparties if our credit ratings are lowered. Under the terms that govern such agreements, if our credit rating is lowered by Moody's or S&P to a certain level, we are required to deliver additional collateral on bilateral derivatives in a net liability position. In the event of a split between such credit ratings, the lower rating governs. The aggregate fair value of all bilateral derivatives with these provisions that were in a net-liability position (before cash collateral and related accrued interest) at December 31, 2014, was $558.9 million for which we had delivered collateral with a post-haircut value of $439.8 million in accordance with the terms of the master-netting agreements. The following table sets forth the post-haircut value of incremental collateral that certain bilateral derivatives counterparties could have required us to deliver based on incremental credit rating downgrades at December 31, 2014 (dollars in thousands).

Post-haircut Value of Incremental Collateral to be Delivered  as of December 31, 2014
Ratings Downgrade (1)
From	To	Incremental Collateral(2)
AA+	AA or AA-	$	33,224
AA-	A+, A or A-	46,493
A-	below A-	47,639

_______________________

(1) Ratings are expressed in this table according to S&P's conventions but include the equivalent of such rating by Moody's. If there is a split rating, the lower rating is used.

(2) Additional collateral of $3.8 million could be called by counterparties as of December 31, 2014, at our current credit rating of AA+ (based on the lower of our credit ratings from S&P and Moody's) and is not included in the table.

For cleared derivatives, the DCO determines initial margin requirements. We note that we clear our trades via clearing members of the DCOs. These clearing members who act as our agent to the DCOs are CFTC- registered futures commission merchants. Our clearing members may require us to post margin in excess of DCO requirements based on our credit or other considerations, including but not limited to, credit rating downgrades. We were not required to post any such excess margin by our clearing members based on credit considerations at December 31, 2014.

Offsetting of Certain Derivatives. We present derivatives, related cash collateral, including initial and variation margin, received or pledged, and associated accrued interest, on a net basis by clearing members and/or by counterparty.

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The following table presents separately the fair value of derivatives meeting or not meeting netting requirements, with and without the legal right of offset, including the related collateral received from or pledged to counterparties, based on the terms of our master netting arrangements or similar agreements as of December 31, 2014 and 2013 (dollars in thousands).

	December 31, 2014						December 31, 2013
	Derivative Assets			Derivative Liabilities			Derivative Assets			Derivative Liabilities
Derivatives meeting netting requirements
Gross recognized amount
Bilateral derivatives	$	20,083		$	(578,073	)	$	31,271		$	(639,372	)
Cleared derivatives	6,329			(37,952		)	5,151			(3,126		)
Total gross recognized amount	26,412			(616,025		)	36,422			(642,498		)
Gross amounts of netting adjustments and cash collateral
Bilateral derivatives	(19,481		)	19,191			(31,259		)	31,259
Cleared derivatives	7,546			37,953			(850		)	3,126
Total gross amounts of netting adjustments and cash collateral	(11,935		)	57,144			(32,109		)	34,385
Net amounts after netting adjustments and cash collateral
Bilateral derivatives	602			(558,882		)	12			(608,113		)
Cleared derivatives	13,875			1			4,301			—
Total net amounts after netting adjustments and cash collateral	14,477			(558,881		)	4,313			(608,113		)
Derivatives not meeting netting requirements
Mortgage delivery commitments	71			(8		)	5			(39		)
Total derivative assets and total derivative liabilities
Bilateral derivatives	602			(558,882		)	12			(608,113		)
Cleared derivatives	13,875			1			4,301			—
Mortgage delivery commitments	71			(8		)	5			(39		)
Total derivative assets and total derivative liabilities presented in the statement of condition	14,548			(558,889		)	4,318			(608,152		)
Non-cash collateral received or pledged not offset (1)
Can be sold or repledged
Bilateral derivatives	—			66,056			—			71,063
Cannot be sold or repledged
Bilateral derivatives	—			392,944			—			420,910
Total non-cash collateral received or pledged, not offset	—			459,000			—			491,973
Net amount
Bilateral derivatives	602			(99,882		)	12			(116,140		)
Cleared derivatives	13,875			2			4,301			—
Mortgage delivery commitments	71			(8		)	5			(39		)
Total net amount	$	14,548		$	(99,888	)	$	4,318		$	(116,179	)

_______________________

(1) Includes non-cash collateral at fair value. Any overcollateralization with a counterparty is not included in the determination of the net amount. At December 31, 2014, and 2013, we had additional net credit exposure of $4.0 million and $7.1 million, respectively, due to instances where our collateral pledged to a counterparty exceeded our net derivative liability position.

Note 12 — Deposits

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We offer demand and overnight deposits for members and qualifying nonmembers. In addition, we offer short-term interest-bearing deposit programs to members. Members that service mortgage loans may deposit funds collected in connection with mortgage loans pending disbursement of such funds to the owners of the mortgage loans. We classify these items as "other" in the following table.

Deposits classified as demand, overnight, and other pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit. Deposits at December 31, 2013, include hedging adjustments of $1.1 million. The average interest rates paid on average deposits during 2014 and 2013 was 0.014 percent and 0.003 percent, respectively.

The following table details interest- and noninterest-bearing deposits (dollars in thousands):

	December 31, 2014		December 31, 2013
Interest-bearing
Demand and overnight	$	340,441	$	473,600
Term	—		20,676
Other	5,120		4,399
Noninterest-bearing
Other	23,770		18,890
Total deposits	$	369,331	$	517,565

The aggregate amount of time deposits with a denomination of $250,000 or more was $20.0 million as of December 31, 2013.

Note 13 — Consolidated Obligations

COs consist of CO bonds and CO discount notes. CO bonds are issued primarily to raise intermediate- and long-term funds and are not subject to any statutory or regulatory limits on maturity. CO discount notes are issued to raise short-term funds and have original maturities of up to one year. These notes sell at less than their face amount and are redeemed at par value when they mature.

Although we are primarily liable for our portion of COs (that is, those issued from which we received issuance proceeds), we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on all COs. The FHFA, at its discretion, may require any FHLBank to make principal or interest payments due on any CO whether or not the CO represents a primary liability of such FHLBank. Although an FHLBank has never paid the principal or interest payments due on a CO on behalf of another FHLBank, if that event should occur, FHFA regulations provide that the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank for any payments made on its behalf and other associated costs, including interest to be determined by the FHFA. If, however, the FHFA determines that the noncomplying FHLBank is unable to satisfy its repayment obligations, the FHFA may allocate the outstanding liabilities of the noncomplying FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all COs outstanding. The FHFA reserves the right to allocate the outstanding liabilities for the COs among the FHLBanks in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner. See Note 19 – Commitments and Contingencies for additional information regarding the FHLBanks' joint and several liability.

The par values of the FHLBanks' outstanding COs, including COs held by other FHLBanks, were approximately $847.2 billion and $766.8 billion at December 31, 2014 and 2013, respectively. Regulations require each FHLBank to maintain unpledged qualifying assets equal to outstanding COs for which it is primarily liable. Such qualifying assets include cash; secured advances; obligations of or fully guaranteed by the U.S.; obligations, participations, or other instruments of or issued by Fannie Mae or Ginnie Mae; mortgages, obligations, or other securities which are or ever have been sold by Freddie Mac under the FHLBank Act; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. Any assets subject to a lien or pledge for the benefit of holders of any issues of COs are treated as if they were free from lien or pledge for purposes of compliance with these regulations.

COs - Bonds. The following table sets forth the outstanding CO bonds for which we were primarily liable at December 31, 2014 and 2013, by year of contractual maturity (dollars in thousands):

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	December 31, 2014					December 31, 2013
Year of Contractual Maturity	Amount			Weighted Average Rate (1)		Amount			Weighted Average Rate (1)
Due in one year or less	$	6,675,745		1.41	%	$	7,646,100		0.99	%
Due after one year through two years	5,573,745			1.46		4,454,885			2.07
Due after two years through three years	4,842,570			1.91		2,903,390			1.93
Due after three years through four years	2,392,380			1.77		3,245,980			2.17
Due after four years through five years	2,244,815			1.95		1,651,560			1.85
Thereafter	3,599,085			2.79		3,368,740			2.64
Total par value	25,328,340			1.79	%	23,270,655			1.78	%
Premiums	199,628					228,753
Discounts	(19,386		)			(20,081		)
Hedging adjustments	(2,808		)			(13,421		)
	$	25,505,774				$	23,465,906

_______________________

(1) The CO bonds' weighted-average rate excludes concession fees.

COs outstanding were issued with either fixed-rate coupon-payment terms or variable-rate coupon-payment terms that may use a variety of indices for interest-rate resets, including the federal funds effective rate, LIBOR, and others. To meet the expected specific needs of certain investors in COs, both fixed-rate CO bonds and variable-rate CO bonds may contain features, which may result in complex coupon-payment terms and call options. When these COs are issued, we may enter into derivatives containing features that offset the terms and embedded options, if any, of the CO bonds.

Our CO bonds outstanding at December 31, 2014 and 2013, included (dollars in thousands):

	December 31, 2014		December 31, 2013
Par value of CO bonds
Noncallable and nonputable	$	20,853,340	$	20,755,655
Callable	4,475,000		2,515,000
Total par value	$	25,328,340	$	23,270,655

The following is a summary of the CO bonds for which we were primarily liable at December 31, 2014 and 2013, by year of contractual maturity or next call date for callable CO bonds (dollars in thousands):

Year of Contractual Maturity or Next Call Date	December 31, 2014		December 31, 2013
Due in one year or less	$	10,805,745	$	10,066,100
Due after one year through two years	4,928,745		4,459,885
Due after two years through three years	4,252,570		2,838,390
Due after three years through four years	2,027,380		3,105,980
Due after four years through five years	1,619,815		1,476,560
Thereafter	1,694,085		1,323,740
Total par value	$	25,328,340	$	23,270,655

CO bonds, beyond having fixed-rate or variable-rate interest-rate payment terms, may also have the following interest-rate payment terms:

Step-Up bonds pay interest at increasing fixed rates for specified intervals over the life of the CO bond and can be called at our option on the step-up dates.

The following table sets forth the CO bonds for which we were primarily liable by interest-rate-payment type at December 31, 2014 and 2013 (dollars in thousands):

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	December 31, 2014		December 31, 2013
Par value of CO bonds
Fixed-rate	$	22,513,340	$	19,815,655
Simple variable-rate	1,970,000		2,570,000
Step-up	845,000		885,000
Total par value	$	25,328,340	$	23,270,655

COs – Discount Notes. Outstanding CO discount notes for which we were primarily liable, all of which are due within one year, were as follows (dollars in thousands):

	Book Value		Par Value		Weighted Average Rate (1)
December 31, 2014	$	25,309,608	$	25,312,040	0.08	%
December 31, 2013	$	16,060,781	$	16,062,000	0.07	%

_______________________

(1) The CO discount notes' weighted-average rate represents a yield to maturity excluding concession fees.

Concessions on COs. Unamortized concessions on COs were $6.4 million and $5.6 million at December 31, 2014 and 2013, respectively, and are included in other assets on the statement of condition. The amortization of these concessions is included in CO interest expense and totaled $2.1 million, $2.9 million, and $4.0 million in 2014, 2013, and 2012, respectively.

Note 14 — Affordable Housing Program

The FHLBank Act requires each FHLBank to establish and maintain an AHP to provide subsidies in the form of direct grants and below-market interest-rate advances (AHP advances). These funds are intended to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10 percent of net income before interest expense associated with mandatorily redeemable capital stock and the assessment for AHP. We accrue this expense monthly based on our net earnings, and the accruals are accumulated into our AHP payable account. We reduce our AHP payable account as we disburse the funds either in the form of direct grants to member institutions or as a discount on below-market-rate AHP advances. We had outstanding principal in AHP advances of $100.5 million and $99.9 million at December 31, 2014 and 2013, respectively.

If we experience a net loss during a quarter, but still have net earnings for the year, our obligation to the AHP would be calculated based on our net earnings for that calendar year. In annual periods where our net earnings are zero or less, our AHP assessment is zero since our required annual contribution is limited to our annual net earnings. If the result of the aggregate 10 percent calculation described above was less than $100 million for all the FHLBanks, then each FHLBank would be required to contribute such prorated sums as may be required to assure that the aggregate contributions of the FHLBanks equals $100 million. The proration would be made on the basis of the income of the FHLBanks for the year, except that the required annual AHP contribution for an FHLBank cannot exceed its net earnings for the year pursuant to an FHFA regulation. Each FHLBank's required annual AHP contribution is limited to its annual net earnings. Our AHP expense for 2014, 2013, and 2012 was $17.6 million, $24.2 million, and $23.1 million, respectively.

There was no shortfall, as described above, in 2014, 2013, or 2012. If an FHLBank is experiencing financial instability and finds that its required AHP contributions are contributing to the financial instability, the FHLBank may apply to the FHFA for a temporary suspension of its contributions. We did not make such an application in 2014, 2013, or 2012.

The following table presents a roll-forward of the AHP liability for the years endedDecember 31, 2014 and 2013 (dollars in thousands):

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	2014			2013
Balance at beginning of year	$	62,591		$	50,545
AHP expense for the period	17,623			24,229
AHP direct grant disbursements	(12,012		)	(11,077		)
AHP subsidy for AHP advance disbursements	(1,321		)	(1,148		)
Return of previously disbursed grants and subsidies	112			42
Balance at end of year	$	66,993		$	62,591

Note 15 — Capital

We are subject to capital requirements under our capital plan, the FHLBank Act, and FHFA regulations:

1. Risk-based capital. We are required to maintain at all times permanent capital, defined as Class B stock, including Class B stock classified as mandatorily redeemable capital stock, and retained earnings, in an amount at least equal to the sum of our credit-risk capital requirement, market-risk capital requirement, and operations-risk capital requirement, calculated in accordance with FHFA rules and regulations, referred to herein as the risk-based capital requirement. Only permanent capital satisfies the risk-based capital requirement.

2. Total regulatory capital. We are required to maintain at all times a total capital-to-assets ratio of at least four percent. Total regulatory capital is the sum of permanent capital, the amount paid-in for Class A stock, the amount of any general loss allowance if consistent with GAAP and not established for specific assets, and other amounts from sources determined by the FHFA as available to absorb losses. We have never issued Class A stock.

3. Leverage capital. We are required to maintain at all times a leverage capital-to-assets ratio of at least five percent. A leverage capital-to-assets ratio is defined as permanent capital weighted 1.5 times divided by total assets.

The FHFA may require us to maintain a greater amount of permanent capital than is required as defined by the risk-based capital requirements.

The following tables demonstrate our compliance with our regulatory capital requirements at December 31, 2014 and 2013 (dollars in thousands):

Risk-Based Capital Requirements	December 31, 2014		December 31, 2013
Permanent capital
Class B capital stock	$	2,413,114	$	2,530,471
Mandatorily redeemable capital stock	298,599		977,348
Retained earnings	901,658		788,790
Total permanent capital	$	3,613,371	$	4,296,609
Risk-based capital requirement
Credit-risk capital	$	414,765	$	423,522
Market-risk capital	75,560		136,943
Operations-risk capital	147,097		168,140
Total risk-based capital requirement	$	637,422	$	728,605
Permanent capital in excess of risk-based capital requirement	$	2,975,949	$	3,568,004

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	December 31, 2014						December 31, 2013
	Required			Actual			Required			Actual
Capital Ratio
Risk-based capital	$	637,422		$	3,613,371		$	728,605		$	4,296,609
Total regulatory capital	$	2,204,267		$	3,613,371		$	1,785,523		$	4,296,609
Total capital-to-asset ratio	4.0		%	6.6		%	4.0		%	9.6		%
Leverage Ratio
Leverage capital	$	2,755,334		$	5,420,057		$	2,231,904		$	6,444,913
Leverage capital-to-assets ratio	5.0		%	9.8		%	5.0		%	14.4		%

We are a cooperative whose members and former members own all of our capital stock. Shares of capital stock cannot be purchased or sold except between us and our members at $100 per share par value. We have only issued Class B stock and each member is required to purchase Class B stock equal to the sum of 0.35 percent of certain member assets eligible to secure advances under the FHLBank Act, 3.00 percent for overnight advances, 4.00 percent for advances with an original maturity greater than overnight and up to three months, and 4.50 percent for all other advances and other specified assets related to activity between us and the member.

The Gramm-Leach-Bliley Act of 1999, as amended, made FHLBank membership voluntary for all members. Members may redeem Class B stock after no sooner than five years' notice provided in accordance with our capital plan (the redemption-notice period). The effective date of termination of membership for any member that voluntarily withdraws from membership is the end of the redemption-notice period, at which time any stock that is held as a condition of membership shall be divested, subject to any other applicable restrictions at that time. At that time, any stock held pursuant to activity-based stock investment requirements shall remain outstanding until such requirements are eliminated by disposition of the related business activity. Any member that withdraws from membership may not be readmitted to membership in any FHLBank until five years from the divestiture date for all capital stock that is held as a condition of membership. This restriction does not apply if the member is transferring its membership from one FHLBank to another on an uninterrupted basis.

The redemption-notice period can also be triggered by the involuntary termination of membership of a member by our board of directors or by the FHFA, the merger or acquisition of a member into a nonmember institution, or the relocation of a member to a principal location outside our district. At the end of the redemption-notice period, if the former member's activity-based stock investment requirement is greater than zero, we may require the associated remaining obligations to us to be satisfied in full prior to allowing the member to redeem the remaining shares.

Because our Class B stock is subject to redemption in certain instances, we can experience a reduction in our capital, particularly due to membership terminations due to merger and acquisition activity. However, there are several mitigants to this risk, including, but not limited to, the following:

• the activity-based portion of the stock-investment requirement allows us to retain stock beyond the redemption-notice period if the associated member-related activity is still outstanding, until the obligations are paid in full;

• the redemption notice period allows for a significant period in which we can restructure our balance sheet to accommodate a reduction in capital;

• our board of directors may modify the membership stock-investment requirement or the activity-based stock-investment requirement, or both, to address expected shortfalls in capitalization due to membership termination; and

• our board of directors or the FHFA may suspend redemptions in the event that such redemptions would cause us not to meet our minimum regulatory capital requirements.

Our board of directors may declare and pay dividends in either cash or capital stock, subject to limitations in applicable law and our capital plan.

Restricted Retained Earnings. Pursuant to the Joint Capital Agreement, and our capital plan, we, together with the other FHLBanks, are required to contribute 20 percent of our quarterly net income to a restricted retained earnings account until the balance of that account equals at least one percent of the FHLBank's average balance of outstanding COs (excluding fair-value adjustments) for the calendar quarter. At December 31, 2014, our total contribution requirement totaled $484.7 million. As of

136

December 31, 2014 and 2013, restricted retained earnings totaled $136.8 million and $106.8 million, respectively. These restricted retained earnings are not available to pay dividends.

Mandatorily Redeemable Capital Stock. We will reclassify capital stock subject to redemption from equity to liability once a member exercises a written notice of redemption, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or involuntary termination from membership. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense in the statement of operations. If a member cancels its written notice of redemption or notice of withdrawal, we will reclassify mandatorily redeemable capital stock from a liability to equity. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.

At December 31, 2014 and 2013, we had $298.6 million and $977.3 million, respectively, in capital stock subject to mandatory redemption. Redemption of capital stock is subject to the redemption-notice period and our satisfaction of applicable minimum capital requirements. For the years ended December 31, 2014, 2013, and 2012, dividends on mandatorily redeemable capital stock of $8.8 million, $5.8 million, and $1.0 million, respectively, were recorded as interest expense.

The following table is a roll-forward of our capital stock that is subject to mandatory redemption during the years ended December 31, 2014, 2013, and 2012 (dollars in thousands).

	2014			2013			2012
Balance at beginning of year	$	977,348		$	215,863		$	227,429
Capital stock subject to mandatory redemption reclassified from capital	54,892			859,522			1,014
Redemption/repurchase of mandatorily redeemable capital stock	(733,641		)	(98,037		)	(12,580		)
Balance at end of year	$	298,599		$	977,348		$	215,863

The number of stockholders holding mandatorily redeemable capital stock was seven, six, and six at each of December 31, 2014, 2013, and 2012, respectively.

Consistent with our capital plan, we are not required to redeem membership stock until the expiration of the redemption-notice period. Furthermore, we are not required to redeem activity-based stock until the later of the expiration of the redemption-notice period or the activity to which the capital stock relates no longer remains outstanding. If activity-based stock becomes excess stock as a result of an activity-based asset no longer outstanding, we may repurchase such shares, in our sole discretion, subject to the statutory and regulatory restrictions on excess capital-stock redemption discussed below. The year of redemption in the following table represents the end of the redemption-notice period. However, as discussed above, if activity to which the capital stock relates remains outstanding beyond the redemption-notice period, the activity-based stock associated with this activity will remain outstanding until the activity no longer remains outstanding. The following table sets forth the amount of mandatorily redeemable capital stock by year of expiry of the redemption-notice period at December 31, 2014 and 2013 (dollars in thousands).

Expiry of Redemption-Notice Period	December 31, 2014		December 31, 2013
Past redemption date (1)	$	697	$	697
Due in one year or less	—		—
Due after one year through two years	25,383		—
Due after two years through three years	207		116,745
Due after three years through four years	217,420		832
Due after four years through five years	54,892		859,074
Total	$	298,599	$	977,348

_______________________

(1) Amount represents mandatorily redeemable capital stock that has reached the end of the five-year redemption-notice period but the member-related activity remains outstanding. Accordingly, these shares of stock will not be redeemed until the activity is no longer outstanding.

A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership prior to the end of the redemption-notice period. Our capital plan provides that we will charge the member a cancellation fee in the amount of 2.0 percent of the par amount of the shares of Class B stock that is the subject of the redemption notice. We will assess a

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redemption-cancellation fee unless the board of directors decides that it has a bona fide business purpose for waiving the imposition of the fee, and such a waiver is consistent with the FHLBank Act.

Excess Capital Stock. Our capital plan provides us with the discretion to repurchase capital stock from a member at par value if that stock is not required by the member to meet its total stock investment requirement (excess capital stock) subject to all applicable limitations. In conducting any repurchases, we repurchase any shares that are the subject of an outstanding redemption notice from the member from whom we are repurchasing prior to repurchasing any other shares that are in excess of the member's total stock-investment requirement. We may also allow the member to sell the excess capital stock at par value to another one of our members.

Beginning on December 8, 2008, we instituted a moratorium on all excess capital stock repurchases to help preserve our capital in the light of the challenges that arose at that time, principally due to our investments in private-label MBS. Effective January 1, 2015, we rescinded the moratorium on excess capital stock repurchases. At December 31, 2014 and 2013, members and nonmembers with capital stock outstanding held excess capital stock totaling $633.0 million and $1.7 billion, respectively, representing approximately 23.3 percent and 48.8 percent, respectively, of total capital stock outstanding. FHFA rules limit our ability to create member excess capital stock under certain circumstances. We may not pay dividends in the form of capital stock or issue new excess capital stock to members if our excess capital stock exceeds one percent of our total assets or if the issuance of excess capital stock would cause our excess capital stock to exceed one percent of our total assets. At December 31, 2014, we had excess capital stock outstanding totaling 1.1 percent of our total assets. For the year ended December 31, 2014, we complied with the FHFA's excess capital stock rule.

The table below presents the partial repurchases of excess capital stock that have been completed during the years ended December 31, 2014, 2013, and 2012 (dollars in thousands):

Date of Repurchase	Total Excess Capital Stock Repurchased		Amount Repurchased from Mandatorily Redeemable Capital Stock
July 31, 2014	$	499,993	$	359,943
May 1, 2014	499,994		373,698
March 11, 2013	299,983		24,973
March 9, 2012	249,982		12,570

Capital Classification Determination.We are subject to the FHFA's regulation on FHLBank capital classification and critical capital levels (the Capital Rule). The Capital Rule, among other things, defines criteria for four capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. An adequately capitalized FHLBank is one that has sufficient permanent and total capital to satisfy its risk-based and minimum capital requirements. We satisfied these requirements at December 31, 2014. However, pursuant to the Capital Rule, the FHFA has discretion to reclassify an FHLBank and modify or add to corrective action requirements for a particular capital classification. If we become classified into a capital classification other than adequately capitalized, we will be subject to the corrective action requirements for that capital classification in addition to being subject to prohibitions on declaring dividends and redeeming or repurchasing capital stock. By letter dated December 19, 2014, the Director of the FHFA notified us that, based on September 30, 2014 financial information, we met the definition of adequately capitalized under the Capital Rule.

Note 16 — Accumulated Other Comprehensive Loss

The following table presents a summary of changes in accumulated other comprehensive loss for the years endedDecember 31, 2014, 2013, and 2012 (dollars in thousands):

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	Net Unrealized Loss on Available-for-sale Securities			Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities			Net Unrealized Loss Relating to Hedging Activities			Pension and Postretirement Benefits			Total Accumulated Other Comprehensive Loss
Balance, December 31, 2011	$	(48,560	)	$	(450,996	)	$	(32,308	)	$	(2,547	)	$	(534,411	)
Other comprehensive income (loss) before reclassifications:
Net unrealized gains (losses)	25,917			—			(32,733		)	—			(6,816		)
Noncredit other-than-temporary impairment losses	—			(10,931		)	—			—			(10,931		)
Accretion of noncredit loss	—			72,931			—			—			72,931
Net actuarial loss										(1,702		)	(1,702		)
Reclassifications from other comprehensive income to net income
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)	—			3,821			—			—			3,821
Amortization - hedging activities (2)	—			—			14			—			14
Amortization - pension and postretirement benefits (3)	—			—			—			474			474
Other comprehensive income (loss)	25,917			65,821			(32,719		)	(1,228		)	57,791
Balance, December 31, 2012	(22,643		)	(385,175		)	(65,027		)	(3,775		)	(476,620		)
Other comprehensive income (loss) before reclassifications:
Net unrealized (losses) gains	(79,122		)	—			13,419			—			(65,703		)
Noncredit other-than-temporary impairment losses	—			(63		)	—			—			(63		)
Accretion of noncredit loss	—			57,862			—			—			57,862
Net actuarial loss										(254		)	(254		)
Reclassifications from other comprehensive income to net income
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)	—			2,448			—			—			2,448
Amortization - hedging activities (2)	—			—			14			—			14
Amortization - pension and postretirement benefits (3)	—			—			—			800			800
Other comprehensive income (loss)	(79,122		)	60,247			13,433			546			(4,896		)
Balance, December 31, 2013	(101,765		)	(324,928		)	(51,594		)	(3,229		)	(481,516		)
Other comprehensive income (loss) before reclassifications:
Net unrealized gains (losses)	28,142			—			(38,502		)	—			(10,360		)
Noncredit other-than-temporary impairment losses	—			(1,259		)	—			—			(1,259		)
Accretion of noncredit loss	—			49,178			—			—			49,178
Net actuarial loss										(3,240		)	(3,240		)
Reclassifications from other comprehensive income to net income
Noncredit other-than-temporary impairment losses reclassified to credit loss (1)	—			1,067			—			—			1,067
Amortization - hedging activities (4)	—			—			8,668			—			8,668
Amortization - pension and postretirement benefits (3)	—			—			—			476			476
Other comprehensive income (loss)	28,142			48,986			(29,834		)	(2,764		)	44,530
Balance, December 31, 2014	$	(73,623	)	$	(275,942	)	$	(81,428	)	$	(5,993	)	$	(436,986	)

_______________________

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(1) Recorded in net amount of impairment losses reclassified to (from) accumulated other comprehensive loss in the statement of operations.

(2) Recorded in net (losses) gains on derivatives and hedging activities in the statement of operations.

(3) Recorded in other operating expenses in the statement of operations.

(4) Amortization of hedging activities includes $8.7 million recorded in CO bond interest expense and $16,000 recorded in net (losses) gains on derivatives and hedging activities in the statement of operations.

Note 17 — Employee Retirement Plans

Qualified Defined Benefit Multiemployer Plan. We participate in the Pentegra Defined Benefit Plan for Financial Institutions (the Pentegra Defined Benefit Plan), a funded, tax-qualified, noncontributory defined-benefit pension plan. The Pentegra Defined Benefit Plan is treated as a multiemployer plan for accounting purposes, but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code. Accordingly, certain multiemployer plan disclosures are not applicable to the Pentegra Defined Benefit Plan. Under the Pentegra Defined Benefit Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers since assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The plan covers substantially all of our officers and employees. We were not required nor did we pay a funding improvement surcharge to the plan for the years ended December 31, 2014, 2013, and 2012.

The Pentegra Defined Benefit Plan operates on a fiscal year from July 1 through June 30. The Pentegra Defined Benefit Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333. We do not have any collective bargaining agreements in place.

The Pentegra Defined Benefit Plan's annual valuation process includes calculating the plan's funded status and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra Defined Benefit Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. Accordingly, the market value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.

The most recent Form 5500 available for the Pentegra Defined Benefit Plan is for the plan year ended June 30, 2013. For the Pentegra Defined Benefit Plan plan years ended June 30, 2013 and 2012, our contributions did not represent more than five percent of the total contributions to the Pentegra Defined Benefit Plan.

The following table sets forth our net pension costs and funded status under the Pentegra Defined Benefit Plan (dollars in thousands):

	For the Years Ended December 31,
	2014				2013				2012
Net pension cost	$	2,851			$	3,908			$	4,367
Pentegra Defined Benefit Plan funded status as of July 1 (1)	111.3		%	(2)	101.3		%	(3)	108.4		%
Our funded status as of July 1 (1)	113.3		%		100.1		%		106.1		%

______________________

(1) The increase in the funded status from July 1, 2013 to July 1, 2014, of both the Pentegra Defined Benefit Plan as a whole and our funded status, reflects a provision contained in the Highway and Transportation Funding Act of 2014 (HATFA), which was signed into law by President Obama on August 8, 2014, and which modifies the interest rates that had been set by the Moving Ahead for Progress in the 21st Century Act (MAP-21). MAP-21, signed into law by President Obama in 2012, changed the calculation of the discount rate used in measuring the pension plan liability. MAP-21 allows plan sponsors to measure the pension plan liability using a 25-year average of interest rates plus or minus a corridor. Prior to MAP-21, the discount rate used in measuring the pension plan liability was based on the 24-month average of interest rates. HATFA amended MAP-21 by extending the time period and reducing the rate at which the 25-year corridors widen. Over time, the pension funding stabilization effect of MAP-21 will decline because the 24-month smoothed segment rates and the amended 25-year corridors are likely to converge.

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(2) The funded status as of July 1, 2014, is preliminary and may increase because the plan's participants were permitted to make contributions for the plan year ended June 30, 2014, through March 15, 2015. Contributions made on or before March 15, 2015, and designated for the plan year ended June 30, 2014, will be included in the final valuation as of July 1, 2014. The final funded status as of July 1, 2014, will not be available until the Form 5500 for the plan year July 1, 2014, through June 30, 2015 is filed. This Form 5500 is due to be filed no later than April 2016.

(3) The funded status as of July 1, 2013, is preliminary and may increase because the plan's participants were permitted to make contributions for the plan year ended June 30, 2013, through March 15, 2014. Contributions made on or before March 15, 2014, and designated for the plan year ended June 30, 2013, will be included in the final valuation as of July 1, 2013. The final funded status as of July 1, 2013, will not be available until the Form 5500 for the plan year July 1, 2013, through June 30, 2014 is filed. This Form 5500 is due to be filed no later than April 2015.

Qualified Defined Contribution Plan. We also participate in the Pentegra Defined Contribution Plan for Financial

Institutions, a tax-qualified defined contribution plan. The plan covers substantially all of our officers and employees. We contribute a percentage of the participants' compensation by making a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations. Our matching contributions are charged to compensation and benefits expense.

Nonqualified Defined Contribution Plan. We also maintain the Thrift Benefit Equalization Plan, a nonqualified, unfunded deferred compensation plan covering certain of our senior officers and directors. The plan's liability consists of the accumulated compensation deferrals and the accumulated earnings on these deferrals. Our obligation from this plan was $5.6 million and $5.1 million at December 31, 2014 and 2013, respectively, which is recorded in other liabilities on the statement of condition. We maintain a rabbi trust intended to satisfy future benefit obligations which is recorded in other assets on the statement of condition.

The following table sets forth expenses relating to our defined contribution plans (dollars in thousands):

	For the Years Ended December 31,
	2014		2013		2012
Qualified Defined Contribution Plan - Pentegra Defined Contribution Plan	$	974	$	939	$	946
Nonqualified Defined Contribution Plan - Thrift Benefit Equalization Plan	154		146		104

Nonqualified Supplemental Defined Benefit Retirement Plan. We also maintain a nonqualified, single-employer unfunded defined-benefit plan covering certain senior officers, for which our obligation is detailed below. We maintain a rabbi trust intended to meet future benefit obligations.

Postretirement Benefits. We sponsor a fully insured postretirement benefit program that includes life insurance benefits for eligible retirees. We provide life insurance to all employees who retire on or after age 55 after completing six years of service. No contributions are required from the retirees. There are no funded plan assets that have been designated to provide postretirement benefits.

In connection with the nonqualified supplemental defined benefit retirement plan and postretirement benefits, we recorded the following amounts as of December 31, 2014 and 2013 (dollars in thousands):

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	Nonqualified Supplemental Defined Benefit Retirement Plan						Postretirement Benefits
	December 31, 2014			December 31, 2013			December 31, 2014			December 31, 2013
Change in benefit obligation (1)
Benefit obligation at beginning of year	$	9,069		$	7,969		$	633		$	721
Service cost	551			588			24			33
Interest cost	463			381			32			29
Actuarial loss (gain)	3,169			385			71			(131		)
Benefits paid	(644		)	(254		)	(21		)	(19		)
Benefit obligation at end of year	12,608			9,069			739			633
Change in plan assets
Fair value of plan assets at beginning of year	—			—			—			—
Employer contribution	644			254			21			19
Benefits paid	(644		)	(254		)	(21		)	(19		)
Fair value of plan assets at end of year	—			—			—			—
Funded status at end of year	$	(12,608	)	$	(9,069	)	$	(739	)	$	(633	)

______________________

(1) This represents projected benefit obligation for the nonqualified supplemental defined benefit retirement plan and accumulated postretirement benefit obligation for postretirement benefits.

Amounts recognized in other liabilities on the statement of condition for our nonqualified supplemental defined benefit retirement plan and postretirement benefits at December 31, 2014 and 2013, were $13.3 million and $9.7 million, respectively.

Amounts recognized in other comprehensive income for our nonqualified supplemental defined benefit retirement plan and postretirement benefits as of December 31, 2014 and 2013, were (dollars in thousands):

	Nonqualified Supplemental Defined Benefit Retirement Plan				Postretirement Benefits
	2014		2013		2014		2013
Net actuarial loss	$	5,847	$	3,151	$	146	$	78

The accumulated benefit obligation for the nonqualified supplemental defined benefit retirement plan was $8.9 million and $5.9 million at December 31, 2014 and 2013, respectively.

The following table presents the components of net periodic benefit cost and other amounts recognized in accumulated other comprehensive loss for our nonqualified supplemental defined benefit retirement plan and postretirement benefits for the years endedDecember 31, 2014, 2013, and 2012 (dollars in thousands):

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	Nonqualified Supplemental Defined Benefit Retirement Plan									Postretirement Benefits
	2014			2013			2012			2014			2013			2012
Net Periodic Benefit Cost
Service cost	$	551		$	588		$	418		$	24		$	33		$	32
Interest cost	463			381			293			32			29			28
Amortization of net actuarial loss	474			788			465			2			12			9
Net periodic benefit cost	1,488			1,757			1,176			58			74			69
Other Changes in Benefit Obligations Recognized in Accumulated Other Comprehensive Loss
Amortization of net actuarial loss	(474		)	(788		)	(465		)	(2		)	(12		)	(9		)
Net actuarial loss (gain)	3,169			385			1,657			71			(131		)	45
Total recognized in accumulated other comprehensive loss	2,695			(403		)	1,192			69			(143		)	36
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	4,183		$	1,354		$	2,368		$	127		$	(69	)	$	105

The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2015 is $917,000 for our nonqualified supplemental defined benefit retirement plan and $6,000 for our postretirement benefits.

Key assumptions used for the actuarial calculations to determine benefit obligations and net periodic benefit cost for our nonqualified supplemental defined benefit retirement plan and postretirement benefits at December 31, 2014 and 2013, were:

	Nonqualified Supplemental Defined Benefit Retirement Plan				Postretirement Benefits
	2014		2013		2014		2013
Benefit obligation
Discount rate	3.84	%	4.76	%	4.03	%	5.03	%
Salary increases	5.50	%	5.50	%	—		—
Net periodic benefit cost
Discount rate	4.76	%	3.80	%	5.03	%	4.10	%
Salary increases	5.50	%	5.50	%	—		—

The discount rate for the nonqualified supplemental defined benefit retirement plan as of December 31, 2014, was determined by using a discounted cash-flow approach, which incorporates the timing of each expected future benefit payment. The estimate of the future benefit payments is based on the plan's census data, benefit formula and provisions, and valuation assumptions reflecting the probability of decrement and survival. The present value of the future benefit payments is then determined by using duration-based interest-rate yields from the Citigroup Pension Discount Curve as of December 31, 2014, and solving for the single discount rate that produces the same present value.

Our nonqualified supplemental defined benefit retirement plan and postretirement benefits are not funded; therefore, no contributions will be made in 2015 other than the payment of benefits.

Estimated future benefit payments for our nonqualified supplemental defined benefit retirement plan and postretirement benefits, reflecting expected future services, for the years ending December 31 are (dollars in thousands):

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	Estimated Future Payments
Years	Nonqualified Supplemental Defined Benefit Retirement Plan		Postretirement Benefits
2015	$	157	$	15
2016	234		13
2017	313		13
2018	378		14
2019	543		15
2020-2024	3,682		93

Note 18 — Fair Values

The carrying values, fair values, and fair-value hierarchy of our financial instruments at December 31, 2014 and 2013, were as follows (dollars in thousands). These fair values do not represent an estimate of our overall market value as a going concern, which would take into account, among other things, our future business opportunities and the net profitability of our assets and liabilities.

	December 31, 2014
	Carrying Value			Total Fair Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral
Financial instruments
Assets:
Cash and due from banks	$	1,124,536		$	1,124,536		$	1,124,536		$	—		$	—	$	—
Interest-bearing deposits	163			163			163			—			—		—
Securities purchased under agreements to resell	5,250,000			5,249,941			—			5,249,941			—		—
Federal funds sold	2,550,000			2,549,982			—			2,549,982			—		—
Trading securities(1)	244,969			244,969			—			244,969			—		—
Available-for-sale securities(1)	5,481,978			5,481,978			—			5,481,978			—		—
Held-to-maturity securities(2)	3,352,189			3,710,815			—			2,176,268			1,534,547		—
Advances	33,482,074			33,618,345			—			33,618,345			—		—
Mortgage loans, net	3,483,948			3,612,078			—			3,612,078			—		—
Accrued interest receivable	77,411			77,411			—			77,411			—		—
Derivative assets(1)	14,548			14,548			—			26,483					(11,935		)
Other assets (1)	11,200			11,200			5,682			5,518			—		—
Liabilities:
Deposits	(369,331		)	(369,330		)	—			(369,330		)	—		—
COs:
Bonds	(25,505,774		)	(25,741,697		)	—			(25,741,697		)	—		—
Discount notes	(25,309,608		)	(25,310,307		)	—			(25,310,307		)	—		—
Mandatorily redeemable capital stock	(298,599		)	(298,599		)	(298,599		)	—			—		—
Accrued interest payable	(91,225		)	(91,225		)	—			(91,225		)	—		—
Derivative liabilities(1)	(558,889		)	(558,889		)	—			(616,033		)	—		57,144
Other:
Commitments to extend credit for advances	—			430			—			430			—		—
Standby letters of credit	(745		)	(745		)	—			(745		)	—		—

_______________________

(1) Carried at fair value on a recurring basis.

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(2) Private-label residential MBS and HFA securities are categorized as Level 3. Private-label residential MBS that have incurred other-than-temporary impairment losses are measured at fair value on a nonrecurring basis. See the recurring and nonrecurring tables below for more details.

	December 31, 2013
	Carrying Value			Total Fair Value			Level 1			Level 2			Level 3		Netting Adjustments and Cash Collateral
Financial instruments
Assets:
Cash and due from banks	$	641,033		$	641,033		$	641,033		$	—		$	—	$	—
Interest-bearing deposits	195			195			195			—			—		—
Securities purchased under agreements to resell	3,750,000			3,749,942			—			3,749,942			—		—
Federal funds sold	850,000			849,993			—			849,993			—		—
Trading securities(1)	247,174			247,174			—			247,174			—		—
Available-for-sale securities(1)	3,995,310			3,995,310			—			3,995,310			—		—
Held-to-maturity securities(2)	4,138,661			4,499,441			—			2,877,334			1,622,107		—
Advances	27,516,678			27,632,970			—			27,632,970			—		—
Mortgage loans, net	3,368,476			3,396,499			—			3,396,499			—		—
Accrued interest receivable	83,458			83,458			—			83,458			—		—
Derivative assets(1)	4,318			4,318			—			36,427			—		(32,109		)
Other assets(1)	10,086			10,086			5,197			4,889			—		—
Liabilities:
Deposits	(517,565		)	(517,552		)	—			(517,552		)	—		—
COs:
Bonds	(23,465,906		)	(23,584,981		)	—			(23,584,981		)	—		—
Discount notes	(16,060,781		)	(16,061,486		)	—			(16,061,486		)	—		—
Mandatorily redeemable capital stock	(977,348		)	(977,348		)	(977,348		)	—			—		—
Accrued interest payable	(83,386		)	(83,386		)	—			(83,386		)	—		—
Derivative liabilities(1)	(608,152		)	(608,152		)	—			(642,537		)	—		34,385
Other:
Commitments to extend credit for advances	—			(2,098		)	—			(2,098		)	—		—
Standby letters of credit	(562		)	(562		)	—			(562		)	—		—

_______________________

(1) Carried at fair value on a recurring basis.

(2) Private-label residential MBS and HFA securities are categorized as Level 3. Private-label residential MBS that have incurred other-than-temporary impairment losses are measured at fair value on a nonrecurring basis. See the recurring and nonrecurring tables below for more details.

Fair-Value Methodologies and Techniques

We have determined the fair-value amounts above using available market and other pertinent information and our best judgment of appropriate valuation methods. Although we use our best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of our financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect our judgment of how a market participant would estimate the fair values.

Fair-Value Hierarchy. Fair value is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal (or advantageous) market for the asset or liability at the measurement date (an exit price).

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U.S. GAAP establishes a fair-value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The inputs are evaluated and an overall level for the fair-value measurement is determined. This overall level is an indication of market observability of the fair-value measurement for the asset or liability.

The fair-value hierarchy prioritizes the inputs used to measure fair value into three broad levels:

Level 1 Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date.

Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified or contractual term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, volatilities, and prepayment speeds); and (4) inputs that are derived principally from or corroborated by observable market data (e.g., implied spreads).

Level 3 Unobservable inputs for the asset or liability.

We review the fair-value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. These reclassifications are reported as transfers in/out as of the beginning of the quarter in which the changes occur. There were no such transfers during the years ended December 31, 2014 and 2013.

Summary of Valuation Methodologies and Primary Inputs

Cash and Due from Banks. The fair value approximates the recorded carrying value.

Interest-Bearing Deposits. The fair value approximates the recorded carrying value.

Securities Purchased under Agreements to Resell. The fair value is determined by calculating the present value of expected future cash flows. The discount rates used in these calculations are the rates for securities with similar terms.

Federal Funds Sold. The fair value is determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for federal funds with similar terms.

Investment Securities. We determine the fair values of our investment securities, other than HFA floating-rate securities, based on prices obtained for each of these securities that we request from four designated third-party pricing vendors. The fair value of each such security is the average of such vendor prices that are within a cluster pricing tolerance range. A cluster is defined as a group of available vendor prices for a given security that is within a defined price tolerance range of the median vendor price depending on the security type. An outlier is any vendor price that is outside of the defined cluster and is evaluated for reasonableness. The use of the average of available vendor prices within a cluster and the evaluation of reasonableness of outlier prices does not discard available information. In addition, the fair values produced by this method are reviewed for reasonableness.

We request prices on each of our securities subject to this fair-value method from four third-party vendors, when available. These pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing. We establish a median price for each security using a formula that is based on the number of prices received:

• if four prices are received, the average of the two middle prices is used;

• if three prices are received, the middle price is used;

• if two prices are received, the average of the two prices is used; and

• if one price is received, it is used subject to validation of outliers as described below.

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Vendor prices that are outside of a defined cluster are identified as outliers and are subject to additional review including, but not limited to, comparison to prices provided by an additional third-party valuation vendor, prices for similar securities, and/or nonbinding dealer estimates, or the use of internal model prices, which we believe reflect the facts and circumstances that a market participant would consider. We also perform this analysis in those limited instances where no third-party vendor price or only one third-party vendor price is available to determine fair value. If the analysis indicates that an outlier (or outliers) is (are) not representative of fair value and that the average of the vendor prices within the tolerance threshold of the median price is the best estimate, then we use the average of the vendor prices within the tolerance threshold of the median price as the final price. If, on the other hand, we determine that an outlier (or some other price identified in the analysis) is a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price. In all cases, the final price is used to determine the fair value of the security.

As of December 31, 2014, four vendor prices were received for 91.5 percent of our investment securities and the final prices for substantially all of those securities were computed by averaging the four prices. The relative proximity of the prices received supports our conclusion that the final computed prices are reasonable estimates of fair value. Based on the current low level of market activity for private-label residential MBS, the nonrecurring fair-value measurements for such securities as of December 31, 2014 and 2013, fell within Level 3 of the fair-value hierarchy. Our fixed-rate HFA securities also fall within Level 3 of the fair-value hierarchy due to the current lack of market activities for these bonds.

As an additional step, we reviewed the final fair-value estimates of our private-label MBS holdings as of December 31, 2014, for reasonableness using an implied yield test. We calculated an implied yield for each of our private-label MBS using the estimated fair value derived from the process described above and the security's projected cash flows from our other-than-temporary impairment process. This yield was compared to the implied yield for comparable securities according to price information from dealers and other third-party sources. Significant variances or inconsistencies were evaluated in conjunction with all of the other available pricing information to determine whether an adjustment to the fair-value estimate was appropriate.

Investment Securities – HFA Floating Rate Securities. The fair value isdetermined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for securities with similar terms. Our floating rate HFA securities also fall within Level 3 of the fair-value hierarchy due to the current lack of market activity for these bonds.

Advances. We determine the fair value of advances by calculating the present value of expected future cash flows from the advances and excluding the amount of accrued interest receivable. The discount rates used in these calculations are the current replacement rates for advances with similar terms. We calculate our replacement advance rates at a spread to our cost of funds. Our cost of funds approximates the CO curve. See — COs within this note for a discussion of the CO curve. We use market-based expectations of future interest-rate volatility implied from current market prices for similar options to estimate the fair values of advances with optionality. In accordance with the FHFA's advances regulations, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient to make us financially indifferent to the borrower's decision to prepay the advances. Therefore, we do not assume prepayment risk when we determine the fair value of advances. Additionally, we do not account for credit risk in determining the fair value of our advances due to the strong credit protections that mitigate the credit risk associated with advances. Collateral requirements for advances provide surety for the repayment such that the probability of credit losses on advances is very low. We have the ability to establish a blanket lien on all financial assets of most members, and in the case of federally insured depository institutions, our lien has a statutory priority over all other creditors with respect to collateral that has not been perfected by other parties. All of these factors serve to mitigate credit risk on advances.

Mortgage Loans. The fair values for mortgage loans are determined based on quoted market prices of similar mortgage loans adjusted for credit and liquidity risk.

REO. Fair value is derived from third-party valuations of the property, which fall within Level 3 of the fair-value hierarchy.

Accrued Interest Receivable and Payable. The fair value approximates the recorded carrying value.

Derivative Assets/Liabilities - Interest-Rate-Exchange Agreements. We base the fair values of interest-rate-exchange agreements on available market prices of derivatives having similar terms, including accrued interest receivable and payable. The fair-value methodology uses standard valuation techniques for derivatives such as discounted cash-flow analysis and comparisons with similar instruments.

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The fair values of all interest-rate-exchange agreements are netted by clearing member and/or by counterparty, including cash collateral received from or delivered to the counterparty. If these netted amounts are positive, they are classified as an asset, and if negative, they are classified as a liability. We generally use a midmarket pricing convention based on the bid-ask spread as a practical expedient for fair-value measurements. Because these estimates are made at a specific point in time, they are susceptible to material near-term changes. We have evaluated the potential for the fair value of the instruments to be affected by counterparty risk and our own credit risk and have determined that no adjustments were significant to the overall fair-value measurements.

The discounted cash-flow model uses market-observable inputs (inputs that are actively quoted and can be validated to external sources), including the following:

• Discount rate assumption. At December 31, 2014 and 2013, we used either the overnight-index swap (OIS) curve or the LIBOR swap curve depending on the terms of the ISDA agreement we have with each derivative counterparty.

• Forward interest-rate assumption. LIBOR swap curve.

• Volatility assumption. Market-based expectations of future interest-rate volatility implied from current market prices for similar options.

Derivative Assets/Liabilities – Commitments to Invest in Mortgage Loans.Commitments to invest in mortgage loans are recorded as derivatives in the statement of condition. The fair values of such commitments are based on the end-of-day delivery commitment prices provided by the FHLBank of Chicago and a spread, derived from MBS TBA delivery commitment prices with adjustment for the contractual features of the MPF program, such as servicing and credit-enhancement features.

Deposits. We determine the fair values of term deposits by calculating the present value of expected future cash flows from the deposits and reducing this amount by any accrued interest payable. The discount rates used in these calculations are the costs of currently issued deposits with similar terms.

COs. We estimate fair values based on the cost of issuing comparable term debt, excluding non-interest selling costs. Fair values of COs without embedded options are determined based on internal valuation models that use market-based yield curve inputs obtained from the Office of Finance. Fair values of COs with embedded options are determined by internal valuation models with market-based inputs obtained from the Office of Finance and derivative dealers.

The inputs used to determine the fair values of COs are as follows:

• CO Curve. The Office of Finance constructs an internal yield curve, referred to as the CO curve, using the U.S. Treasury curve as a base yield curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE debt trades, and secondary market activity.

• Volatility Assumption. To estimate the fair values of COs with optionality, we use market-based expectations of future interest-rate volatility implied from current market prices for similar options.

Mandatorily Redeemable Capital Stock. The fair value of capital stock subject to mandatory redemption is generally equal to its par as indicated by contemporaneous member purchases and sales at par value. Capital stock can only be acquired by our members at par value and redeemed at par value. Our capital stock is not traded and no market mechanism exists for the exchange of capital stock outside of our cooperative structure.

Commitments. The fair value of our standby bond-purchase agreements is based on the present value of the estimated fees we receive for providing these agreements discounted at yields comparable to those of the related bonds, taking into account the remaining terms of such agreements. For fixed-rate advance commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

Subjectivity of Estimates. Estimates of the fair value of financial assets and liabilities using the methodologies described above are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest-rate volatility, possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. The use of different assumptions could have a material effect on the fair-value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes.

Fair Value Measured on a Recurring Basis.

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The following tables present our assets and liabilities that are measured at fair value on the statement of condition, which are recorded on a recurring basis at December 31, 2014 and 2013, by fair-value hierarchy level (dollars in thousands):

	December 31, 2014
	Level 1		Level 2			Level 3		Netting Adjustment (1)			Total
Assets:
Trading securities:
U.S. government-guaranteed – single-family MBS	$	—	$	12,235		$	—	$	—		$	12,235
GSEs – single-family MBS	—		2,300			—		—			2,300
GSEs – multifamily MBS	—		230,434			—		—			230,434
Total trading securities	—		244,969			—		—			244,969
Available-for-sale securities:
Supranational institutions	—		447,685			—		—			447,685
U.S. government-owned corporations	—		284,997			—		—			284,997
GSEs	—		123,453			—		—			123,453
U.S. government guaranteed – single-family MBS	—		206,028			—		—			206,028
U.S. government guaranteed – multifamily MBS	—		871,423			—		—			871,423
GSEs – single-family MBS	—		3,548,392			—		—			3,548,392
Total available-for-sale securities	—		5,481,978			—		—			5,481,978
Derivative assets:
Interest-rate-exchange agreements	—		26,412			—		(11,935		)	14,477
Mortgage delivery commitments	—		71			—		—			71
Total derivative assets	—		26,483			—		(11,935		)	14,548
Other assets	5,682		5,518			—		—			11,200
Total assets at fair value	$	5,682	$	5,758,948		$	—	$	(11,935	)	$	5,752,695
Liabilities:
Derivative liabilities
Interest-rate-exchange agreements	$	—	$	(616,025	)	$	—	$	57,144		$	(558,881	)
Mortgage delivery commitments	—		(8		)	—		—			(8		)
Total liabilities at fair value	$	—	$	(616,033	)	$	—	$	57,144		$	(558,889	)

_______________________

(1) These amounts represent the application of the netting requirements which allow us to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing member and/or counterparty.

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	December 31, 2013
	Level 1		Level 2			Level 3		Netting Adjustment (1)			Total
Assets:
Trading securities:
U.S. government-guaranteed – single-family MBS	$	—	$	14,331		$	—	$	—		$	14,331
GSEs – single-family MBS	—		3,486			—		—			3,486
GSEs – multifamily MBS	—		229,357			—		—			229,357
Total trading securities	—		247,174			—		—			247,174
Available-for-sale securities:
Supranational institutions	—		415,135			—		—			415,135
U.S. government-owned corporations	—		238,785			—		—			238,785
GSEs	—		888,525			—		—			888,525
U.S. government guaranteed – single-family MBS	—		271,597			—		—			271,597
U.S. government guaranteed – multifamily MBS	—		309,101			—		—			309,101
GSEs – single-family MBS	—		1,872,167			—		—			1,872,167
Total available-for-sale securities	—		3,995,310			—		—			3,995,310
Derivative assets:
Interest-rate-exchange agreements	—		36,422			—		(32,109		)	4,313
Mortgage delivery commitments	—		5			—		—			5
Total derivative assets	—		36,427			—		(32,109		)	4,318
Other assets	5,197		4,889			—		—			10,086
Total assets at fair value	$	5,197	$	4,283,800		$	—	$	(32,109	)	$	4,256,888
Liabilities:
Derivative liabilities
Interest-rate-exchange agreements	$	—	$	(642,498	)	$	—	$	34,385		$	(608,113	)
Mortgage delivery commitments	—		(39		)	—		—			(39		)
Total liabilities at fair value	$	—	$	(642,537	)	$	—	$	34,385		$	(608,152	)

_______________________

(1) These amounts represent the application of the netting requirements which allow us to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing member and/or counterparty.

Fair Value on a Nonrecurring Basis

We measure certain held-to-maturity investment securities and REO at fair value on a nonrecurring basis, that is, they are not measured at fair value on an ongoing basis but are subject to fair-value adjustments only in certain circumstances (for example, upon recognizing an other-than-temporary impairment on a held-to-maturity security).

The following tables present financial assets by level within the fair-value hierarchy which are recorded at fair value on a nonrecurring basis at December 31, 2014 and 2013 (dollars in thousands).

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	December 31, 2014
	Level 1		Level 2		Level 3		Total
Held-to-maturity securities:
Private-label residential MBS	$	—	$	—	$	23,259	$	23,259
REO	—		—		843		843
Total assets recorded at fair value on a nonrecurring basis	$	—	$	—	$	24,102	$	24,102

	December 31, 2013
	Level 1		Level 2		Level 3		Total
REO	$	—	$	—	$	115	$	115

Note 19 — Commitments and Contingencies

Joint and Several Liability. COs are backed by the financial resources of the FHLBanks. The FHFA has authority to require any FHLBank to repay all or a portion of the principal and interest on COs for which another FHLBank is the primary obligor. No FHLBank has ever been asked or required to repay the principal or interest on any CO on behalf of another FHLBank. We evaluate the financial condition of the other FHLBanks primarily based on known regulatory actions, publicly available financial information, and individual long-term credit-rating action as of each period-end presented. Based on this evaluation, as of December 31, 2014, and through the filing of this report, we believe there is a remote likelihood that we will be required to repay the principal or interest on any CO on behalf of another FHLBank.

We have considered applicable FASB guidance and determined it is not necessary to recognize a liability for the fair value of our joint and several liability for all of the COs. The joint and several obligation is mandated by FHFA regulations and is not the result of an arms-length transaction among the FHLBanks. The FHLBanks have no control over the amount of the guaranty or the determination of how each FHLBank would perform under the joint and several obligation. Because the FHLBanks are subject to the authority of the FHFA as it relates to decisions involving the allocation of the joint and several liability for the FHLBanks' COs, the FHLBanks' joint and several obligation is excluded from the initial recognition and measurement provisions. Accordingly, we have not recognized a liability for our joint and several obligation related to other FHLBanks' COs at December 31, 2014 and 2013. The par amounts of other FHLBanks' outstanding COs for which we are jointly and severally liable totaled $796.4 billion and $727.5 billion at December 31, 2014 and 2013, respectively. See Note 13 — Consolidated Obligations for additional information.

Off-Balance-Sheet Commitments

The following table sets forth our off-balance-sheet commitments as of December 31, 2014 and 2013 (dollars in thousands):

	December 31, 2014						December 31, 2013
	Expire within one year		Expire after one year		Total		Expire within one year		Expire after one year		Total
Standby letters of credit outstanding (1)	$	4,065,555	$	125,381	$	4,190,936	$	2,873,616	$	247,399	$	3,121,015
Commitments for unused lines of credit - advances (2)	1,255,445		—		1,255,445		1,283,361		—		1,283,361
Commitments to make additional advances	592,430		63,185		655,615		436,954		60,078		497,032
Commitments to invest in mortgage loans	26,927		—		26,927		11,056		—		11,056
Unsettled CO bonds, at par (3)	15,000		—		15,000		36,400		—		36,400
Unsettled CO discount notes, at par	500,000		—		500,000		1,215,000		—		1,215,000

__________________________

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(1) The amount of standby letters of credit outstanding excludes commitments to issue standby letters of credit that expire within one year. At December 31, 2014 and 2013, these amounts totaled $26.2 million and $15.7 million, respectively.

(2) Commitments for unused line-of-credit advances are generally for periods of up to 12 months. Since many of these commitments are not expected to be drawn upon, the total commitment amount does not necessarily indicate future liquidity requirements.

(3) We had $15.0 million in unsettled CO bonds that were hedged with associated interest-rate swaps at December 31, 2014. We had no unsettled CO bonds that were hedged with associated interest-rate swaps at December 31, 2013.

Standby Letters of Credit.A standby letter of credit is a financing arrangement pursuant to which we agree for a fee to fund the associated obligation to a third-party beneficiary should the primary obligor fail to fund such obligation. If we are required to make payment for a beneficiary's draw, the payment amount is converted into a collateralized advance to the primary obligor. The original terms of these standby letters of credit range fromfinal expiries in 21 days to 20 years. Our unearned fees for the value of the guarantees related to standby letters of credit are recorded in other liabilities and totaled $745,000 and $562,000 at December 31, 2014 and 2013, respectively.

We monitor the creditworthiness of our members and housing associates that have standby letter of credit agreements outstanding based on our evaluations of the financial condition of the member or housing associate. We review available financial data, which can include regulatory call reports filed by depository institution members, regulatory financial statements filed with the appropriate state insurance department by insurance company members, audited financial statements of housing associates, SEC filings, and rating-agency reports to ensure that potentially troubled members are identified as soon as possible. In addition, we have access to most members' regulatory examination reports. We analyze this information on a regular basis.

Standby letters of credit are fully collateralized at the time of issuance. Based on our credit analyses and collateral requirements, we have not deemed it necessary to record any additional liability on these commitments.

Commitments to Invest in Mortgage Loans. Commitments to invest in mortgage loans are generally for periods not to exceed 45 business days. Such commitments are recorded as derivatives at their fair values on the statement of condition.

Pledged Collateral. We have pledged securities, as collateral, related to derivatives. See Note 11 — Derivatives and Hedging Activities for additional information about our pledged collateral and other credit-risk-related contingent features.

Lease Commitments. We charged to operating expense net rental costs of approximately $2.8 million, $2.7 million, and $2.6 millionfor the years ended December 31, 2014, 2013, and 2012, respectively. Future minimum rentals at December 31, 2014, were as follows (dollars in thousands):

	Equipment		Premises
	Capital Leases		Operating Leases
2015	$	47	$	2,495
2016	31		2,499
2017	—		2,504
2018	—		2,568
2019	—		2,536
Thereafter	—		10,147
Total minimum lease payments	$	78	$	22,749

Lease agreements for our premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. We do not expect any such increases to have a material effect on us.

Legal Proceedings. We are subject to various legal proceedings arising in the normal course of business from time to time. We would record an accrual for a loss contingency when it is probable that a loss has been incurred and the amount can be reasonably estimated. Management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on our financial condition, results of operations, or cash flows.

Other commitments and contingencies are discussed in Note 8 — Advances, Note 11 — Derivatives and Hedging Activities, Note 13 — Consolidated Obligations, Note 14 — Affordable Housing Program, Note 15 — Capital, and Note 17 — Employee Retirement Plans.

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Note 20 — Transactions with Shareholders

We are a cooperative whose members own our capital stock and may receive dividends on their investment in our capital stock. In addition, certain former members and nonmembers that still have outstanding transactions with us are also required to maintain their investment in our capital stock until the transactions mature or are paid off. All advances are issued to members or housing associates, and mortgage loans held for portfolio are generally acquired from our members or housing associates. We also maintain demand-deposit accounts for members and housing associates primarily to facilitate settlement activities that are directly related to advances, mortgage-loan purchases, and other transactions between us and the member or housing associate. In instances where the member has an officer who serves as a director of the Bank, those transactions are subject to the same eligibility and credit criteria, as well as the same terms and conditions, as transactions with all other members.

Related Parties. We define related parties as members with 10 percent or more of the voting interests of our capital stock outstanding. Under the FHLBank Act and FHFA regulations, each member directorship is designated to one of the six states in our district. Each member eligible to vote is entitled to cast by ballot one vote for each share of stock that it was required to hold as of the record date, which is December 31, of the year prior to each election, subject to the limitation that no member may cast more votes than the average number of shares of our stock that are required to be held by all members located in such member's state. Eligible members are permitted to vote all their eligible shares for one candidate for each open member directorship in the state in which the member is located and for each open independent directorship. A nonmember stockholder is not entitled to cast votes for the election of directors unless it was a member as of the record date. At December 31, 2014 and 2013, no shareholder owned more than 10 percent of the total voting interests due to statutory limits on members' voting rights, therefore, we did not have any related parties.

Shareholder Concentrations. We consider shareholder concentrations as members or nonmembers whose capital stock holdings (including mandatorily redeemable capital stock) are in excess of 10 percent of total capital stock outstanding. The following tables present transactions with shareholders whose holdings of capital stock exceed 10 percent or more of total capital stock outstanding at December 31, 2014 and 2013 (dollars in thousands):

As of December 31, 2014	Capital Stock Outstanding		Percent of Total		Par Value of Advances		Percent of Total Par Value of Advances		Total Accrued Interest Receivable		Percent of Total Accrued Interest Receivable on Advances
Citizens Bank, N.A.	$	317,502	11.7	%	$	5,768,096	17.3	%	$	283	1.0	%

As of December 31, 2013	Capital Stock Outstanding		Percent of Total		Par Value of Advances		Percent of Total Par Value of Advances		Total Accrued Interest Receivable		Percent of Total Accrued Interest Receivable on Advances
Bank of America, N.A.(1)	$	857,835	24.5	%	$	98,370	0.4	%	$	420	1.4	%
Citizens Bank, N.A.	430,077		12.3		2,269,149		8.3		187		0.6

__________________________

(1) Bank of America, N.A. is a nonmember and its shares of capital stock are classified as mandatorily redeemable capital stock.

We held sufficient collateral to support the advances to the above institutions such that we do not expect to incur any credit losses on these advances.

We recognized interest income on outstanding advances and fees on letters of credit from Citizens Bank, N.A. during the years endedDecember 31, 2014, 2013, and 2012 as follows (dollars in thousands):

	For the Years Ended December 31,
Citizens Bank, N.A.	2014		2013		2012
Interest income on advances	$	12,800	$	1,380	$	10,019
Fees on letters of credit	3,753		3,086		1,281

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We recognized interest income on outstanding advances and fees on letters of credit from Bank of America, N.A. during the years endedDecember 31, 2013, and 2012 as follows (dollars in thousands):

	For the Years Ended December 31,
Bank of America, N.A.	2013		2012
Interest income on advances (1)	$	5,277	$	6,717
Fees on letters of credit	30		31

__________________________

(1) Includes interest income from advances outstanding to Bank of America Rhode Island, N.A. through the date of its merger with Bank of America, N.A. in April 2013.

We did not receive any prepayment fees from Citizens Bank, N.A. during 2014 and 2013. During 2012, we received prepayment fees of $29,000 from Citizens Bank, N.A. The corresponding principal amount prepaid to us during 2012 was $135,000.

During 2013, we received prepayment fees of $903,000 from Bank of America, N.A. and the corresponding principal amount prepaid to us was $4.2 million. During 2012, we did not receive any prepayment fees from Bank of America, N.A.

Transactions with Directors' Institutions. We provide, in the ordinary course of business, products and services to members whose officers or directors serve on our board of directors. In accordance with FHFA regulations, transactions with directors' institutions are conducted on the same terms as those with any other member. 

The following table presents the outstanding balances of capital stock, advances, and accrued interest receivable with members whose officers or directors serve on our board of directors, and those balances as a percentage of our total balance as reported on our statement of condition (dollars in thousands):

	Capital Stock Outstanding		Percent of Total		Par Value of Advances		Percent of Total Par Value of Advances		Total Accrued Interest Receivable		Percent of Total Accrued Interest Receivable on Advances
As of December 31, 2014	$	79,386	2.9	%	$	918,127	2.8	%	$	1,227	4.2	%
As of December 31, 2013	127,020		3.6		659,333		2.4		1,693		5.6

Note 21 — Transactions with Other FHLBanks

We may occasionally enter into transactions with other FHLBanks. These transactions are summarized below.

Overnight Funds. We may borrow or lend unsecured overnight funds from or to other FHLBanks. All such transactions are at current market rates. Interest income and interest expense related to these transactions with other FHLBanks are included within other interest income and interest expense from other borrowings in the statement of operations.

MPF Mortgage Loans. We pay a transaction-services fee to the FHLBank of Chicago for our participation in the MPF program. This fee is assessed monthly, and is based upon the amount of mortgage loans which we invested in after January 1, 2004, and which remain outstanding on our statement of condition. For the years ended December 31, 2014, 2013 and 2012, we recorded $1.6 million, $1.5 million, and $1.3 million, respectively in MPF transaction-services fee expense to the FHLBank of Chicago which has been recorded in the statement of operations as other expense.

COs. From time to time, one FHLBank may transfer to another FHLBank the COs for which the transferring FHLBank was originally the primary obligor but upon transfer the assuming FHLBank becomes the primary obligor. During the year ended December 31, 2014, there were no transfers of COs between us and other FHLBanks. During the years ended December 31, 2013, and 2012, we assumed debt obligations with a par amount of $70.0 million and $380.0 million, respectively, and a fair value of approximately $80.1 million and $427.9 million, respectively, on the day they were assumed, which had been the obligations of another FHLBank.

Note 22 — Subsequent Events

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Effective January 1, 2015, we rescinded our moratorium on excess capital stock repurchases. As a result, through February 28, 2015, we repurchased $249.3 million of excess capital stock, of which $241.3 million was mandatorily redeemable capital stock.

On February 19, 2015, the board of directors declared a cash dividend at an annualized rate of 1.74 percent based on capital stock balances outstanding during the fourth quarter of 2014. The dividend, including dividends on mandatorily redeemable capital stock, amounted to $11.7 million and was paid on March 3, 2015.

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Supplementary Financial Data

Supplementary financial data for the years ended December 31, 2014 and 2013, are included in the following tables. The following unaudited results of operations include, in the opinion of management, all adjustments necessary for a fair statement of the results of operations for each quarterly period presented below.

2014 Quarterly Results of Operations – Unaudited  (dollars in thousands)
	2014 – Quarter Ended
	December 31			September 30			June 30			March 31
Total interest income	$	145,005		$	140,101		$	136,812		$	136,701
Total interest expense	87,933			88,497			86,765			82,132
Net interest income before provision for credit losses	57,072			51,604			50,047			54,569
(Reduction of) provision for credit losses	(233		)	373			243			(322		)
Net interest income after provision for credit losses	57,305			51,231			49,804			54,891
Net impairment losses on investment securities recognized in income	(411		)	(311		)	(399		)	(458		)
Litigation settlements	(12		)	17,543			159			4,310
Other (loss) income	(1,721		)	553			1,900			(1,318		)
Non-interest expense	16,655			15,673			16,373			16,954
Income before assessments	38,506			53,343			35,091			40,471
AHP assessments	3,969			5,470			3,778			4,406
Net income	$	34,537		$	47,873		$	31,313		$	36,065

2013 Quarterly Results of Operations – Unaudited  (dollars in thousands)
	2013 – Quarter Ended
	December 31			September 30			June 30			March 31
Total interest income	$	141,031		$	139,879		$	145,273		$	160,577
Total interest expense	80,637			81,476			84,563			84,229
Net interest income before provision for credit losses	60,394			58,403			60,710			76,348
Provision (reduction of provision) for credit losses	240			83			(1,190		)	(1,087		)
Net interest income after provision for credit losses	60,154			58,320			61,900			77,435
Net impairment losses on investment securities recognized in income	(223		)	(1,528		)	(394		)	(421		)
Litigation settlements	52,493			812			—			—
Other income (loss)	855			592			(6,466		)	(2,276		)
Non-interest expense	18,088			15,784			15,390			15,455
Income before assessments	95,191			42,412			39,650			59,283
AHP assessments	9,886			4,333			4,061			5,949
Net income	$	85,305		$	38,079		$	35,589		$	53,334

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities

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Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures.

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, with the participation of the president and chief executive officer and chief financial officer, as of the end of the period covered by this report. Based on that evaluation, our president and chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the fiscal year covered by this report.

Management's Report on Internal Control over Financial Reporting

Management's report on internal control over financial reporting as of December 31, 2014, is included in Item 8 — Financial Statements and Supplementary Data — Management's Report on Internal Control over Financial Reporting.

The Bank's independent registered public accounting firm, PricewaterhouseCoopers LLP, has also issued a report regarding the effectiveness of the Bank's internal control over financial reporting as of December 31, 2014, which is included in Item 8 — Financial Statements and Supplementary Data — Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2014, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. OTHER INFORMATION

None

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our board of directors is constituted of a combination of industry directors nominated and elected by our members on a state-by-state basis (member directors) and independent directors nominated by our board and elected by a plurality of all our members (independent directors). Our board of directors is currently constituted of nine member directors and seven independent directors. Two of the independent directors are designated as public interest directors.

An FHFA regulation (the Election Regulation) regarding FHLBank board of director elections and director eligibility gives the Director of the FHFA the annual responsibility to determine the size of each FHLBank's board of directors. Further, for each FHLBank, the Election Regulation requires the Director of the FHFA to allocate:

• the directorships between member directorships and independent directorships, subject to the requirement that a majority, but no more than 60 percent, of the directorships be member directorships; and

• the member directorships among the states in each FHLBank's district based on the number of shares of FHLBank stock required to be held by members in each state, subject to any state statutory minimum. For us, the only state statutory minimum is for Massachusetts, which is three member directorships.

If, during a director's term of office, the Director of the FHFA eliminates the directorship to which he or she has been elected or, for member directorships, redesignates such directorship to another state, the director's term will end as of December 31 of the year in which the Director of the FHFA takes such action.

Based on the requirements of the Election Regulation, the Director of the FHFA allocated our member directorships among the six New England states that comprise our district for each of 2014 and 2015 as follows:

	Number of Member Directorships
State	2015	2014
Connecticut	2	1
Maine	1	1
Massachusetts	3	3
New Hampshire	1	1
Rhode Island	1	1
Vermont	1	1
Total	9	8

The elections for the member directorships for 2014 were completed in the fourth quarter of 2014 and involved elections for one Connecticut member directorship, one New Hampshire member directorship, one Vermont member directorship, and two independent directorships. See — 2014 Director Elections below for additional information on the 2014 election. The Vermont member directorship was filled by the board rather than by member election, in accordance with the Election Regulation, because the nomination process for our Vermont member directorship did not result in a candidate to stand for election. See — Member Director and Member Director Nominee Requirements and Nominations below for additional information.

Director Requirements

Board of director elections are conducted in accordance with applicable law, including the Election Regulation, and our governance documents. Accordingly:

• each director is required to be a U.S. citizen;

• no director may be a member of our management;

• each director is elected for a four-year term (unless the Director of the FHFA designates a shorter term for staggering purposes); and

• no director can be elected to more than three consecutive full terms.

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Additional requirements are applicable to member directors, independent directors, and nominees for each as set forth in the following two sections. Apart from such additional requirements, however, FHLBanks are not permitted to establish additional eligibility criteria for directorships.

The Election Regulation provides for members to elect directors by ballot, rather than by voting at a meeting. As a result, we do not solicit proxies, and members are not permitted to solicit or use proxies to cast their votes in the election. A member may not split its votes among multiple nominees for a single directorship. There are no family relationships between any current director (or any of the nominees from the most recent election), any executive officer, and any proposed executive officer. No director or executive officer has an involvement in any legal proceeding required to be disclosed pursuant to Item 401(f) of Regulation S-K.

Member Director and Member Director Nominee Requirements and Nominations

Candidates for member directorships in a particular state are nominated by members in that state. Each member that is required to hold stock as of the record date, which is December 31 of the year prior to each election (the record date), may nominate and vote for representatives from members in its respective state for open member directorships. FHLBank boards of directors are not permitted to nominate or elect member directors, although they may elect a director to fill a vacant directorship. Further, the Election Regulation provides that no director, officer, employee, attorney, or agent, other than in a personal capacity, may support the nomination or election of a particular individual for a member directorship. In addition to the requirements applicable to all directors, each member director and each nominee for member directorships must be an officer or director of a member that is in compliance with the minimum capital requirements established by its regulator.

Because of the foregoing requirements for member director nominations and elections, we do not know what factors our members considered in nominating candidates for member directorships or in voting to elect our member directors. However, when our board of directors has a vacancy, FHFA regulations require the remaining directors to elect a director to fill the vacancy and, in those instances, we can know what was considered in electing such directors. As noted above, the board elected a candidate, Director Michael R. Tuttle, to fill the Vermont member directorship, because our nomination process in Vermont did not result in a candidate to stand for election. The board elected Director Tuttle following a robust process of inviting all Vermont members to put forward a candidate, conducting telephonic interviews with six interested officers of Vermont members, and conducting in-person interviews with three. The board selected Director Tuttle due to his industry knowledge and broad experience with a complex financial institution, including business management, finance and accounting, strategic planning, and credit and risk management.

Independent Director and Independent Director Nominee Requirements and Nominations

Candidates for independent directorships are nominated by our board of directors. In addition to the requirements applicable to all directors, each independent director is required to be a bona fide resident of our district, and no independent director may serve as an officer, employee, or director of any of our members or other recipient of advances from us and may not be an officer of any FHLBank. At least two of the independent directors must be public interest directors. Public interest directors, as defined by FHFA regulations, are independent directors who have at least four years of experience representing consumer or community interests in banking services, credit needs, housing, or consumer financial protection. Pursuant to FHFA regulations, each independent director must either satisfy the requirements to be a public interest director or have knowledge or experience in one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk-management practices, and the law.

Our members are permitted to (and we ask them to) identify candidates to be considered for inclusion on the nominee slate for independent directorship, but to be considered for nomination, an individual must submit an application to us. We are required to submit information about nominees for independent directorships to the FHFA for review prior to announcing such nominations. In addition, our board of directors is required by FHFA regulations to consult with the Advisory Council (a council that reviews and advises on our AHP projects) in establishing the independent director nominee slate. Before nominating any individual for an independent directorship, other than for a public interest directorship, our board of directors must determine that the nominee's knowledge or experience is commensurate with that needed to oversee a financial institution with a size and complexity that is comparable to ours. Our board of directors has made these determinations for each nominee for independent directorships. The Election Regulation permits our directors, officers, attorneys, employees, agents, and Advisory Council to support the candidacy of the board of director nominees for independent directorships.

In determining whom to nominate for independent directorships, the board of directors selected:

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• Joan Carty in 2014 to serve as a public interest director, based on her experience serving as president and chief executive officer of Housing Development Fund, a Stamford, Connecticut-based CDFI that finances multifamily housing, lends directly to low and moderate-income households for first-time purchases, and provides homeownership counseling, homebuyer education, and foreclosure-intervention counseling;

• Patrick E. Clancy in 2014 to serve as a public interest director, based on his experience as a developer of affordable housing, particularly through his role as president and chief executive officer of The Community Builders, a Boston, Massachusetts-based nonprofit corporation that has developed more than 25,000 affordable housing units over the past 40 years;

• Cornelius K. Hurley in 2013 to serve as an independent director, based on his legal and banking experience, having served as general counsel of a large regional bank, and as director of the Center for Finance, Law and Policy at Boston University School of Law, in Boston, Massachusetts;

• Andrew J. Calamare in 2012 to serve as an independent director, based on his significant experience in business, organizational management, legal, bank regulatory, and insurance company matters, as well as experience and involvement in multiple boards of directors that represent consumer or community interests;

• Jay F. Malcynsky in 2012 to serve as an independent director, based on his significant experience in law, government-relations and political consulting as well as his involvement in multiple boards of directors of charitable organizations; and

• Emil J. Ragones in 2011 to serve as an independent director, based on his experience as a former partner at Ernst & Young specializing in information technology audit and controls and related experience in implementing business strategies for financial systems, incorporating or improving information technology and financial controls, addressing regulatory examination findings surrounding information technology and financial controls, and reviewing governance matters applicable to information technology.

Further, all of the independent directors have been independent directors of the Bank prior to their most recent nominations, and our board of directors considered their experience gained from serving on and contributions to our board in selecting them for their most recent nominations.

Separate from the 2014 Director Elections, on May 21, 2014, our board elected Eric Chatman to fill the remainder of a vacant independent directorship created upon the retirement of a former director prior to the end of his elected term. In electing Director Chatman, the board considered his affordable housing experience, particularly through his role as president and executive officer of the Connecticut Housing Finance Authority; his prior FHLBank experience as treasurer of the FHLBank of Des Moines; his private banking experience; and his significant capital markets experience.

Additional information on the backgrounds of our directors, including these independent directors, is available under — Information Regarding Current Directors.

2014 Director Elections

For the election of both member and independent directors, each member eligible to vote is entitled to cast by ballot one vote for each share of stock that it was required to hold as of the record date, subject to the limitation that no member may cast more votes than the average number of shares of our stock that are required to be held by all members located in such member's state. Eligible members are permitted to vote all their eligible shares for one candidate for each open member directorship in the state in which the member is located and for each open independent directorship. For independent directors, unless the board of directors nominates more persons than there are independent directorships to be filled in an election, the candidates must receive at least 20 percent of the number of votes eligible to be cast in the election to be elected. If no nominee receives at least 20 percent of the eligible votes, the Election Regulation requires us to identify additional nominees and conduct additional elections until the directorship is filled.

As contemplated by the Election Regulation, no in-person meeting of the members was held in connection with the election. Information about the results of the election was reported on a current report on Form 8-K filed with the SEC on October 24, 2014, as supplemented by Form 8-K/A filed with the SEC on January 12, 2015.

Information Regarding Current Directors

The term for each director position is four years unless a shorter term is assigned to a director position by the FHFA to implement staggering of the expiration dates of the terms. None of our directors serve as an executive officer of the Bank.

Member Directors

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The member directors currently serving on the board of directors provided the information set forth below regarding their principal occupation, business experience, and other matters.

Donna L. Boulanger, age 61, has served as president, chief executive officer and trustee of North Brookfield Savings Bank, located in North Brookfield, Massachusetts, since February 2008. Ms. Boulanger also currently serves on the First District Community Depository Institutions Advisory Council of the Federal Reserve Bank of Boston, and on the boards of directors of the Massachusetts Bankers Association and the Depositors Insurance Fund, which is also a Bank member. Ms. Boulanger began serving as a director of the Bank on January 1, 2014, and her current term will conclude on December 31, 2017.

Steven A. Closson (vice chair), age 65, serves as a director of Androscoggin Savings Bank, located in Lewiston, Maine. Mr. Closson joined Androscoggin Savings Bank as a senior vice president and treasurer in 1987 and was promoted to president and chief executive officer and elected to Androscoggin Savings Bank's board of directors in 1991. He retired from that position on December 31, 2011. Mr. Closson has served as a director of the Bank since January 1, 2004, and his current term will conclude on December 31, 2015.

Stephen G. Crowe, age 64, serves as a director of MountainOne Bank and a trustee of MountainOne Financial, its holding company. Mr. Crowe is a Massachusetts certified public accountant. From 2002 to 2012, Mr. Crowe served as president and chief executive officer of MountainOne Bank. Mr. Crowe served as president and chief executive officer of Williamstown Savings Bank from 1994 to 2009 and Hoosac Bank from 2002 to 2009. Mr. Crowe is also a former director of The Savings Bank Life Insurance Company of Massachusetts, which is also a Bank member. Mr. Crowe served as a treasurer of the American Bankers Association in 2011 and 2012, and served on the board of trustees for the Massachusetts College of Liberal Arts from 2004 to 2014. Mr. Crowe's service as a director of the Bank began on January 1, 2012, and his current term will conclude on December 31, 2015.

Martin J. Geitz, age 58, has served as president and chief executive officer of The Simsbury Bank & Trust Company, located in Simsbury, Connecticut, since October 2004 and its holding company, SBT Bancorp, Inc., since its formation in 2005. Mr. Geitz is also a member of the board of directors of The Simsbury Bank & Trust Company and SBT Bancorp, Inc. Mr. Geitz currently serves as the president of the Connecticut Community Bankers Association. Mr. Geitz began serving as a director of the Bank on January 1, 2014, and his current term will conclude on December 31, 2017.

John W. McGeorge, age 70, has served as chief executive officer and chairman of the board of Needham Bank, of Needham, Massachusetts since April 2006. He also served as president of Needham Bank from April 2006 through April 2012. Mr. McGeorge began serving as a director of the Bank on January 1, 2014, and his current term will conclude on December 31, 2017.

Gregory R. Shook, age 64, has served as president, chief executive officer and a director of Essex Savings Bank, Essex Connecticut since July 22, 1999. Mr. Shook also serves on the board of directors of Essex Financial Services, Inc. a subsidiary of Essex Savings Bank. Additionally, Mr. Shook served from 2011 to 2013 on the initial Federal Reserve Bank of Boston, First District, Community Depository Institutions Advisory Council. Mr. Shook began serving as a director of the Bank on January 1, 2015, and his current term will conclude on December 31, 2016.

Stephen R. Theroux, age 65, has served as president, since 2007, and chief executive officer, since 2012, of Lake Sunapee Bank, FSB, located in Newport, New Hampshire, and its holding company, New Hampshire Thrift Bancshares, Inc. Mr. Theroux also serves as a director and vice-chair of both companies. Mr. Theroux joined Lake Sunapee Bank, FSB, in 1987 and has served as its chief financial officer, chief operating officer and corporate secretary at various times throughout his career. In addition, Mr. Theroux has served as chairman of the Board of Charter Trust Company, located in Concord, New Hampshire, since 2014. Mr. Theroux is also a past chairman of the board of Proctor Academy, located in Andover, New Hampshire, and currently serves as a trustee. Mr Theroux began serving as a director of the Bank on January 1, 2015, and his current term will conclude on December 31, 2018.

John F. Treanor, age 67, has served as a director of The Washington Trust Company, located in Westerly, Rhode Island, since 2001. Mr. Treanor also served as president and chief operating officer at The Washington Trust Company for 10 years prior to his retirement in October 2009. Prior positions included executive vice president, chief financial officer, and chief operating officer of Springfield Institution for Savings in Springfield, Massachusetts (1994 to 1999); executive vice president, treasurer, and chief financial officer of Sterling Bancshares Corporation in Waltham, Massachusetts (1991 to 1994); and various senior management positions at Shawmut National Corporation in Boston, Massachusetts and Hartford, Connecticut (1969-1991). Mr. Treanor also serves on the board of directors of Thielsch Engineering Company. Mr. Treanor has served as a director of the Bank since January 1, 2011, and his current term will conclude on December 31, 2016.

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Michael R. Tuttle, age 60, has served as president, chief executive officer and director of Merchants Bancshares, Inc., in South Burlington, Vermont, since January 2007. Mr. Tuttle served as president and chief executive officer of Merchants Bank from January 2006 to December 2014. He is a director of both Merchants Bancshares Inc. and Merchants Bank, its wholly-owned subsidiary. Mr. Tuttle is also a former director of Fairpoint Communication, Inc. Mr. Tuttle began serving as a director of the Bank on January 1, 2015 and his current term will conclude on December 31, 2018.

Independent Directors

The independent directors currently serving on the board provided the following information about their principal occupation, business experience, and other matters.

Andrew J. Calamare(chair), age 59, has served as president and chief executive officer of The Co-operative Central Bank, located in Boston, Massachusetts, since March 2015. Prior to his current position, Mr. Calamare had served as executive vice president of The Co-operative Central Bank since January 2011. Prior to that position, Mr. Calamare served as president and chief executive officer of the Life Insurance Association of Massachusetts since 2000. Prior to that position, Mr. Calamare served as of counsel with the law firm Quinn and Morris, as special counsel to the Rhode Island General Assembly, and as Commissioner of Banks for the Commonwealth of Massachusetts. Mr. Calamare has served as a director of the Bank since March 30, 2007, and his current term will conclude on December 31, 2016.

Joan Carty, age 63, has served as president and chief executive officer of Housing Development Fund in Stamford, Connecticut, since 1994. She has also served as executive director of Bridgeport Neighborhood Fund, of Bridgeport, Connecticut; Neighborhood Preservation Program, of Stamford, Connecticut; and Neighborhood Housing Services, of Brooklyn, New York. Ms. Carty has served as a director of the Bank since January 1, 2008, and her current term will conclude on December 31, 2018.

Eric Chatman, age 54, has served as president and executive director of the Connecticut Housing Finance Authority from April 2012 until March 2015 and, in that capacity, was responsible for the policy development, strategic planning and execution of the Connecticut Housing Finance Authority affordable housing finance mission. Prior to serving in that role, Mr. Chatman served as deputy director and chief financial officer of the Iowa Finance Authority from 2008 to 2012. Mr. Chatman has also held various corporate finance, treasury, and capital markets roles, both domestic and international, including treasurer of the Federal Home Loan Bank of Des Moines. Mr. Chatman has served as a director of the Bank since June 16, 2014, and his current term will conclude on December 31, 2015.

Patrick E. Clancy, age 68, served from 1977 through 2011 as president and chief executive officer of The Community Builders, a Boston-based nonprofit corporation that has developed or redeveloped approximately 25,000 units of affordable and mixed-income housing. He continues to engage in the field as an independent consultant and developer. Mr. Clancy has served as director of the Bank since March 30, 2007, and his current term will conclude on December 31, 2018.

Cornelius K. Hurley, age 69, has served as director of the Boston University Center for Finance, Law & Policy, the successor to the Morin Center for Banking and Financial Law at Boston University School of Law, since 2005. Prof. Hurley also serves as a director of Computershare Trust Company, N.A., located in Canton, Massachusetts, a wholly owned subsidiary of Computershare, Ltd. Prior to serving as director of the Center for Finance, Law & Policy, Prof. Hurley served as managing director of The Secura Group from 1990 to 1997, and as general counsel and director of human resources of Shawmut National Corporation and its predecessor companies from 1981 to 1990. He also previously served as assistant general counsel to the Board of Governors of the Federal Reserve System. Prof. Hurley was previously appointed as a director of the Bank on March 30, 2007, for a term that expired on December 31, 2008. Prof. Hurley was reappointed as a director of the Bank on April 16, 2009, to fill an open vacancy on the board, which ended on December 31, 2013. His current term will conclude on December 31, 2017.

Jay F. Malcynsky, age 61, has served as president and managing partner of Gaffney, Bennett and Associates, Inc., a Connecticut-based corporation specializing in government relations and political consulting, since 1984. Mr. Malcynsky is also a practicing lawyer in Connecticut and Washington, D.C., specializing in administrative law and regulatory compliance. Mr. Malcynsky previously served as a director of the Bank from 2002 to 2004. Mr. Malcynsky was reappointed as a director on March 30, 2007, and his current term will conclude on December 31, 2016.

Emil J. Ragones, age 68, has served since 2008 as executive in residence at Accounting Management Solutions, Inc., located in Boston, Massachusetts, providing accounting and financial management services. Since January 2013, Mr. Ragones has

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served as an adjunct professor at the Boston College Carroll School of Management in the Masters of Science in Accounting Program. Prior to his current position, Mr. Ragones served as partner at Ernst & Young for 39 years, including 24 years of service as an audit partner. In addition to performing financial statement audits, Mr. Ragones specialized in providing information technology auditing, as well as advisory and consulting services to clients in a variety of industries, including financial services. Prior to his retirement from Ernst & Young in 2007, Mr. Ragones spent seven years in the firm's National professional practice office for assurance services. Mr. Ragones has served as a director of the Bank since September 24, 2010, and his current term will conclude on December 31, 2015.

Audit Committee Financial Expert

Our board of directors has a standing Audit Committee that satisfies the "Audit Committee" definition under Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Our board of directors' Audit Committee Charter is available in full on our website at the following location: http://www.fhlbboston.com/downloads/aboutus/Audit_Committee_Charter.pdf.

The members of the Audit Committee are Directors Ragones (chair), Crowe (vice chair), Chatman, Malcynsky, McGeorge, Treanor, and Calamare (ex officio). The board has determined that Director Crowe is the "audit committee financial expert" within the meaning of the SEC rules. Mr. Crowe is not an auditor or accountant for us, does not perform fieldwork, and is not a Bank employee. In accordance with the SEC's safe harbor relating to Audit Committee financial experts, a person designated or identified as an Audit Committee financial expert will not be deemed an "expert" for purposes of federal securities laws. In addition, such a designation or identification does not impose on any such person any duties, obligations, or liabilities that are greater than those imposed on such persons as a member of the Audit Committee and board of directors in the absence of such designation or identification and does not affect the duties, obligations, or liabilities of any other member of the Audit Committee or board of directors. See Item 13 — Certain Relationships and Related Transactions, and Director Independence for additional information regarding Mr. Crowe’s independence.

Report of the Audit Committee

The Audit Committee assists the board in fulfilling its oversight responsibilities for (1) the integrity of our financial reporting, (2) the establishment of an adequate administrative, operating, and internal accounting control system, (3) our compliance with legal and regulatory requirements, (4) the independent registered public accounting firm's independence, qualifications, and performance, (5) the independence and performance of our internal audit function, and (6) our compliance with internal policies and procedures. The Audit Committee has adopted, and annually reviews, a charter outlining the practices it follows.

Management is responsible for the Bank's internal controls and the financial reporting process. PricewaterhouseCoopers LLP (PwC), our independent registered public accounting firm, is responsible for performing an independent audit of the financial statements and of the effectiveness of internal control over financial reporting in accordance with auditing standards promulgated by the Public Company Accounting Oversight Board (PCAOB). Our internal auditors are responsible for preparing an annual audit plan and conducting internal audits under the direction of the Director of Internal Audit, who is accountable to the Audit Committee. The Audit Committee acts in an oversight role with the responsibility to monitor and oversee these processes.

The Audit Committee discussed with our internal auditors and PwC the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and PwC, with and without management present, to discuss the results of their examinations, their evaluations of the Bank's internal controls and the overall quality of the Bank's financial reporting.

The Audit Committee has reviewed and discussed the audited financial statements with management, including a discussion of the quality, not just the acceptability, of the accounting principles used, the reasonableness of significant accounting judgments and estimates, and the clarity of disclosures in the financial statements. In addressing the quality of management's accounting judgments, members of the Audit Committee asked for representations and reviewed certifications prepared by the chief executive officer and chief financial officer that the audited financial statements present, in all material respects, the financial condition and results of operations, and have expressed to both management and PwC their general preference for conservative policies when a range of accounting options is available. In meeting with PwC, the Audit Committee asked them to address and discuss their responses to several questions that the Audit Committee believes are particularly relevant to its oversight. These questions include:

• Are there significant judgments or estimates made by management in preparing the financial statements that would have been made differently had PwC themselves prepared and been responsible for the financial statements?

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• Based on PwC's experience, and their knowledge of the Bank, do the financial statements present fairly, with clarity and completeness, the Bank's financial position and performance for the reporting period in accordance with GAAP and SEC disclosure requirements?

• Based on PwC's experience, and their knowledge of the Bank, has the Bank implemented internal controls and internal audit procedures that are appropriate for the Bank?

The Audit Committee believes that by focusing its discussions with PwC, it promotes a meaningful discussion that provides a basis for its oversight judgments.

The Audit Committee has discussed with PwC the matters required to be discussed by PCAOB Auditing Standard No. 16, Communications with Audit Committees, PwC has provided to the Audit Committee the written disclosures and the letter required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, and the Audit Committee has discussed with PwC their independence.

In reliance on these reviews and discussions, and the report of the independent registered public accounting firm, the Audit Committee has recommended to the board of directors, and the board of directors has approved, that the audited financial statements be included in the Bank's annual report on Form 10-K for the year ended December 31, 2014, for filing with the SEC.

Executive Officers

The following table sets forth the names, titles, and ages of our executive officers:

Name (1)	Title	Age
Edward A. Hjerpe III	President and Chief Executive Officer	56
George H. Collins	Executive Vice President and Chief Risk Officer	55
M. Susan Elliott	Executive Vice President and Chief Business Officer	60
Frank Nitkiewicz	Executive Vice President and Chief Financial Officer	53
Timothy J. Barrett	Senior Vice President and Treasurer	56
Brian G. Donahue	Senior Vice President, Controller and Chief Accounting Officer	48
Barry F. Gale	Senior Vice President and Executive Director of Human Resources	55
Sean R. McRae	Senior Vice President and Chief Information Officer	50
Carol Hempfling Pratt	Senior Vice President, General Counsel, and Corporate Secretary	56

_________________________

(1) Each of the executive officers listed serves on our Management Committee, with the exception of Mr. Donahue.

Edward A. Hjerpe III has served as president and chief executive officer since July 2009. Mr. Hjerpe came to us from Strata Bank and Service Bancorp, Inc., where he was interim chief executive officer from September 2008 until joining us. Mr. Hjerpe was a financial, strategy, and management consultant from August 2007 to September 2008. He was both president and chief operating officer of the New England Region of Webster Bank and senior vice president of Webster Financial Corporation from May 2004 to June 2007. Prior to those roles, Mr. Hjerpe served as executive vice president, chief operating officer, and chief financial officer at FIRSTFED AMERICA BANCORP, Inc. from July 1997 to May 2004. Mr. Hjerpe also worked with us from 1988 to 1997, first as vice president and director of financial analysis and economic research, and ultimately as executive vice president and chief financial officer. Mr. Hjerpe has been involved in numerous community, civic, industry, and nonprofit organizations over the course of his career. He currently serves as a member of the board of directors of the Office of Finance and as a member of the FHLBank Presidents Conference. He is also a current member and past chair of the board of Dental Services of Massachusetts, a current member and past chair of the board of trustees of St. Anselm College in Manchester, New Hampshire, and a current member of the board of directors of the Pentegra Defined Benefit Plan for Financial Institutions. Mr. Hjerpe earned a B.A. in business and economics from St. Anselm College, and an M.A. and Ph.D. in economics from the University of Notre Dame.

George H. Collins has served as executive vice president and chief risk officer since January 2015, and previously as senior vice president and chief risk officer since November 2006. Prior to assuming that position, Mr. Collins served as first vice president, director of market risk management from 2005 to 2006. Mr. Collins joined us in July 2000 as vice president and assistant treasurer. He holds a B.S. in applied mathematics and economics from the State University of New York at Stony Brook.

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M. Susan Elliott has served as executive vice president and chief business officer since October 2009. Prior to assuming that position, Ms. Elliott served as executive vice president of member services since January 1994. She previously served as senior vice president and director of marketing from August 1992 to January 1994. Ms. Elliott joined us in 1981. Ms. Elliott holds a B.S. from the University of New Hampshire and an M.B.A. from Babson College.

Frank Nitkiewicz has served as executive vice president and chief financial officer since January 2006. Prior to assuming that position, Mr. Nitkiewicz served as senior vice president, chief financial officer, and treasurer from August 1999 until December 31, 2005, and senior vice president and treasurer from October 1997 to August 1999. Mr. Nitkiewicz joined us in 1991. He holds a B.S. and a B.A. from the University of Maryland and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University.

Timothy J. Barrett has served as senior vice president and treasurer since November 2010. Prior to employment with us, Mr. Barrett served as assistant treasurer at FMR LLC, the parent company of Fidelity Investments from September 2008 to October 2010; as treasurer and chief investment officer at Fidelity Personal Bank & Trust from August 2007 to September 2008; as managing director, global treasury at Investors Bank & Trust from September 2004 to July 2007; in various senior roles in treasury at FleetBoston Financial (including merged entities) from 1985 to 2004; and as an investment manager for Citibank, NA from 1981 to 1985. Mr. Barrett received his B.A. from St. Anselm College and his M.B.A. from Rensselaer Polytechnic Institute.

Brian G. Donahue has served as senior vice president, controller, and chief accounting officer since January 2013, and previously as first vice president, controller and chief accounting officer since February 2010. Prior to assuming that position, Mr. Donahue served as first vice president and controller since 2007; vice president and controller from 2004 to 2007, assistant vice president and assistant controller from 2001 to 2004, and in progressively responsible positions from 1992 to 1999, when he served as assistant controller. Mr. Donahue worked for two years as assistant vice president and division controller for State Street Bank and Trust Company, from 1999 to 2001. Prior to joining us in 1992, Mr. Donahue was an associate with Price Waterhouse. Mr. Donahue earned his B.B.A. from James Madison University and his M.B.A. from Boston University, and is a certified public accountant.

Barry F. Gale has served as senior vice president and executive director of human resources since April 2013. Prior to employment with us, Mr. Gale served as senior director of human resources at Thomson Reuters, where he spent 18 years in progressively senior roles. Prior to that position, Mr. Gale served in human resources roles at Citizens Financial Group and The Colonial Group. Mr. Gale holds a B.S. in business management from The University of Massachusetts, Boston.

Sean R. McRae has served as senior vice president and chief information officer since April 2014. Prior to employment with us, Mr. McRae worked for Thomson Reuters for 19 years in a variety of technology leadership roles, the most recent of which was serving as chief technology officer of their global emerging markets business. Prior to Thomson Reuters, Mr. McRae served as software engineer, application architect, network engineer, business analyst, and project manager at John Hancock in Boston. Mr. McRae holds a B.S. in Computer Science from Bridgewater State College.

Carol Hempfling Pratt has served as senior vice president and general counsel since June 2010. Prior to employment with us, Ms. Pratt spent her entire legal career specializing in corporate and banking law at the Boston law firm of Foley Hoag LLP, where she began as an associate in 1984 and was promoted to partner in 1992. Ms. Pratt holds a B.A. from Northwestern University and a J.D. from Northwestern University School of Law.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics and Business Conduct that sets forth the guiding principles and rules of behavior by which we operate and conduct our daily business with our customers, vendors, shareholders, and with our employees. The Code of Ethics and Business Conduct applies to all directors and employees, including the chief executive officer, chief financial officer, and chief accounting officer, and all other professionals serving in a finance, accounting, treasury, or investor-relations role. The purpose of the Code of Ethics and Business Conduct is to avoid conflicts of interest and to promote honest and ethical conduct and compliance with the law, particularly as related to the maintenance of our financial books and records and the preparation of our financial statements. The Code of Ethics and Business Conduct can be found on our website (http://www.fhlbboston.com/downloads/aboutus/code_of_ethics.pdf). All future amendments to, or waivers from, the Code of Ethics and Business Conduct will be posted on our website. The information contained within or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this or any report filed with the SEC.

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ITEM 11.    EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

We attract, reward, and retain senior managers, including our president, chief financial officer, and other most highly compensated executive officers (the named executive officers) by offering a total rewards package that includes base salary, cash incentive opportunities, qualified and nonqualified retirement plans, and certain perquisites.

For the year ended December 31, 2014, the named executive officers were:

Edward A. Hjerpe III	President and Chief Executive Officer;
Frank Nitkiewicz	Executive Vice President and Chief Financial Officer;
M. Susan Elliott	Executive Vice President and Chief Business Officer;
George H. Collins	Senior Vice President and Chief Risk Officer;
Carol Hempfling Pratt	Senior Vice President and General Counsel; and
Timothy J. Barrett	Senior Vice President and Treasurer.

Compensation program objectives are set forth in our Total Rewards Philosophy, which was used in determining the total rewards packages for the named executive officers for 2014. Total rewards packages, including base salary, cash incentive opportunities, and retirement plans, were set based on each named executive officer's performance, tenure, experience, and complexity of position and to be competitive in the labor market for senior managers in which we compete. Overall, the named executive officers were awarded moderate increases in base salary effective January 1, 2015. Additionally, we adopted an executive incentive plan (an EIP) in 2014 (the 2014 EIP). Cash incentives awarded under EIPs in 2014 were determined based on the criteria set forth in the 2014 EIP and the 2012 EIP.

Compensation Committee

Pursuant to a charter approved by the board of directors, the Human Resources and Compensation Committee (the Compensation Committee) assists the board of directors in developing and maintaining human resources and compensation policies that support our business objectives. The Compensation Committee develops and recommends the compensation philosophy for the board of directors' review and approval. The Compensation Committee reviews and recommends to the board of directors, for its approval, human resources policies and plans applicable to the compensation philosophy, such as compensation, benefits, and incentive plans in which the named executive officers may participate.

The members of the Compensation Committee are:

Stephen G. Crowe, Chair;

Jay F. Malcynsky, Vice Chair;

Joan Carty;

Steven A. Closson;

John W. McGeorge; and

Andrew J. Calamare (ex officio).

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee has at any time been an officer or employee with us. None of our executive officers has served or is serving on our board of directors or the compensation committee of any entity whose executive officers served on the Compensation Committee or our board of directors.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on our review and discussion, we recommended to the board of directors that the Compensation Discussion and Analysis be included in the annual report on the Form 10-K for the year ending December 31, 2014.

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Shareholder Advisory Vote on Executive Compensation

We are governed and directors are elected as described under Item 10 — Directors, Executive Officers and Corporate Governance. As such, we do not engage in a proxy process and have not otherwise engaged in any activity that would require a consent solicitation of our members. Accordingly, there is no shareholder advisory vote on executive compensation in determining our compensation policies and decisions.

Objectives of our Compensation Program and What it is Designed to Reward

We are committed to providing a compensation package that enables us to attract, retain, motivate, and reward highly skilled executive officers, including the named executive officers, who contribute significantly to the achievement of our mission, goals and objectives. The FHFA reviews FHLBank compensation of the named executive officers, as described under — FHFA Oversight of Executive Compensation.

In 2014, the Compensation Committee retained McLagan Partners (McLagan), a compensation consulting firm specializing in the financial services industry, to assist with a comprehensive total rewards study. A major outcome of the study was the adoption of an updated "Total Rewards Philosophy," the principles of which have been the basis for determining total compensation for the named executive officers since that time.

The Total Rewards Philosophy defines compensation goals, competitive market and peer groups, components and comparability of the total rewards package, performance evaluation and compensation, and responsibility for administration and oversight of compensation and benefits programs. The Compensation Committee and board of directors are responsible for periodically reviewing the Total Rewards Philosophy to ensure consistency with our overall business objectives, the competitive market, and our financial condition.

The Total Rewards Philosophy provides for a total compensation and benefits package for employees, including the named executive officers, that:

• Is tailored to our unique cooperative structure;

• Is reasonable, comparable, and competitive in the marketplace in which we compete and therefore enables us to attract, retain, motivate, and reward talent;

• Is aligned with prudent risk-management practices;

• Directly links individual total rewards opportunities to our mission and annual and long-term business and financial strategies while also considering business unit/team, and individual performance; and

• Capitalizes on the perceived value of compensation and benefits to employees while optimizing the efficiency of employee-related expenses.

Risk and Bank Compensation Practices and Policies

Our chief risk officer reviews the design of our compensation plans and policies, including the 2014 EIP, to ensure these plans do not promote or reward imprudent risk taking. Additionally, the 2014 EIP includes long-term incentive opportunities based on the level of retained earnings and targeted regulatory results at December 31, 2016, with associated deferred payouts of 50 percent of the 2014 EIP's awards, which are intended to align management's interests with risk-management objectives.

Further, as described under — Executive Incentive Plan — Additional Conditions on Long-Term Awards, the long-term incentive opportunities are subject to reduction or elimination in certain cases including in the case of certain material revisions to our financial results or to data used to determine the 2014 short-term awards, which are intended to further reduce the risk of imprudent risk-taking.

Further, our chief risk officer and our head of human resources jointly engage in periodic reviews of our compensation practices and policies in an effort to ensure that such practices or policies do not result in risks that are reasonably likely to have a material adverse effect. They report on the results of these reviews to the Compensation Committee at least annually. In developing that report, compensation policies and practices are reviewed first on a stand-alone basis, then in combination with enterprise-wide risk-management controls that constrain risk-taking, and finally in conjunction with procedural risk controls at the business department level that are intended to further mitigate risk-taking activities. In January 2015, the Compensation Committee concluded that none of the compensation policies or plans in effect are reasonably likely to have a material adverse effect on the Bank based on the report and related discussions.

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Compensation plans and policies for staff engaged in risk-management and compliance functions are designed to manage any conflict of interests and promote independence in risk management in a manner independent of the financial performance of the business areas these personnel monitor. For example, as discussed under — Executive Incentive Plan — Incentive Goals, Mr. Collins' goals, as chief risk officer, differ somewhat and have different weightings under the 2014 EIP than the other named executive officers. These differences are intended to align his incentives with appropriately managing our risk profile. Likewise, all participants in the 2014 EIP working in ERM have somewhat different goals and weightings than their peers in other departments. Additionally, the review of the chief risk officer includes input by the board of directors’ risk committee.

In addition to our internal processes, the FHFA has oversight authority over our executive compensation. In the exercise of this authority, the FHFA has issued certain compensation principles, one of which is that executive compensation should be consistent with sound risk management and preservation of the par value of FHLBank stock. Also, the FHFA reviews all executive compensation, including the 2014 EIP, relative to these principles and such other factors as the FHFA determines to be appropriate, prior to their effectiveness. For additional information on this oversight, see — FHFA Oversight of Executive Compensation.

Overview of the Labor Market for Senior Managers

The labor market in which we compete for senior managers, including the named executive officers, is across a broad group of organizations representing different industries. In particular, we experience a greater frequency of competition for talent with financial services firms, including commercial banks, other FHLBanks, other GSEs, such as Fannie Mae and Freddie Mac, and other financial institutions, including those in the private sector. We also recognize that a “one-size-fits-all” approach to compensation may need to be adjusted at times to attract employees that may have critical skills (e.g., technology staff) to attract and retain the most qualified and highly sought-after staff. The local financial services labor market is dominated by traditionally high-paying asset-management firms that may be labor market competitors even though they are not business competitors. As a result, we may, at times, have to expand recruiting efforts to a regional or national basis to recruit named executive officers and other senior executives with the specialized skills needed to manage the complex risks of a wholesale lending and mortgage loan investment operation. For these reasons, we must be positioned to offer comparable compensation packages to attract, retain, motivate, and reward top talent. When setting compensation levels, we also consider the high cost of living in the Boston area.

Our competitive peer groups for our named executive officers include:

• The other FHLBanks, particularly for determining mix of pay within the total rewards package due to the FHLBank System’s unique cooperative structure. We consider, in particular, those FHLBanks in major metropolitan areas that share a similar cost of living as the Boston area.

• The commercial/regional banks, GSEs and diversified financial firm peers as the primary peer group for competitive positioning for total rewards for all levels of our positions that require financial services experience. For executive officers, we may consider peers that are smaller in assets or adjust the level of a matched position versus larger asset peers to establish reasonable market benchmarks.

Both peer groups are considered in setting the total rewards package. However, no specific target among the peer groups is selected for named executive officer compensation. Rather, the data is used as a general matter to ensure the total rewards packages remain competitive as determined by the Compensation Committee relative to those peer groups.

The first competitive peer group consists of the other FHLBanks that serve as the primary peer group for determining the proportionate mix of pay and benefits. While all of the FHLBanks share the same mission, they may differ in their relative mix of products and services and location among urban and smaller-city locations, both of which impact labor-market competition and compensation by individual FHLBank. However, due to the FHLBank System's unique cooperative structure, all FHLBanks generally must rely on a similarly structured total rewards package for the named executive officers, including base salary, cash incentives, and benefits, since none can offer equity-based compensation opportunities such as those offered at their non-FHLBank competitors. In 2014, we participated in, and used the results of, the annual FHLBank System survey of key positions to determine whether the total rewards packages for the named executive officers, as well as the proportionate mix of pay and benefits, are competitive with the median for each matched position as discussed below in more detail.

The second primary peer group, commercial/regional banks, serves as a relevant comparator group for competitive positioning of the total rewards package for those positions requiring financial services experience, including the named executive officers. The commercial/regional bank peer group focuses on large and mid-sized commercial/regional banks and financial services firms but excludes large global investment banks. Both the Bank and commercial banks engage in wholesale lending and share

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similarities in several functional areas, particularly middle-office and support areas, but with a marked difference between the two in capital-market activities and market risk. The commercial bank peer group consists mostly of banks with multiple product lines/offerings and significant assets. The most significant difference between us and the commercial/regional bank peer group is that we are focused on wholesale banking activities while the peer group generally engages in both wholesale and retail activities. The market analysis focuses on the wholesale activities and excludes retail-focused positions.

We worked with McLagan to match several of the positions held by the named executive officers to comparable positions in the commercial/regional banks peer group of McLagan's proprietary 2014 FHLB Custom Survey and its 2014 Finance and Business Services Survey. Named executive officer positions were matched to those survey positions that represented realistic job opportunities based on scope, similarity of positions, experience, complexity, and responsibilities. Realistic job opportunities included positions for which the named executive officers would be qualified at the external firms as well as positions at the firm that we would consider when recruiting for experienced executives. This approach generally resulted in comparing the named executive officers to divisional rather than overall heads of businesses and functions.

The following is a list of survey participants that were included by McLagan in the commercial/regional banks peer group in the 2014 FHLB Custom Survey or the 2014 Finance and Business Services Survey as well as proxy data from smaller public peers with assets between $5 and $20 billion. Not all participants reported positions that matched the data set for the named executive officers.

ABN AMRO	EverBank Financial	Popular Community Bank
AIB Capital Markets	F.N.B. Corp.	PrivateBancorp Inc.
Ally Financial Inc.	Fannie Mae	Prosperity Bancshares Inc.
Ameriprise Financial, Inc.	Fidelity Investments	Provident Financial Services
Astoria Financial Corp.	Fifth Third Bank	Prudential Financial
Australia & New Zealand Banking Group	First Commonwealth Financial	Putnam Investments
BancFirst Corp.	First Financial Bancorp.	Rabobank Nederland
BancorpSouth Inc.	First Financial Bankshares	RBS/Citizens Bank
Bank Hapoalim	First Interstate BancSystem	Regions Financial Corporation
Bank of America	First Merchants Corp.	Renasant Corp.
Bank of Hawaii Corp.	First Midwest Bancorp Inc.	Royal Bank of Canada
Bank of Ireland Corporate Banking	First Niagara	Santander Bank, NA
Bank of the West	Freddie Mac	Societe Generale
Bank of Tokyo - Mitsubishi UFJ	Frost National Bank	South State Corporation
BankUnited Inc.	Fulton Financial Corp.	Standard Bank
Bayerische Landesbank	GE Capital	Standard Chartered Bank
BBCN Bancorp Inc.	Glacier Bancorp Inc.	State Street Bank & Trust Company
BBVA Compass	Hancock Holding Co.	SunTrust Banks
Berkshire Hills Bancorp Inc.	Heartland Financial USA Inc.	Susquehanna Bancshares Inc.
BlackRock, Inc.	Hilltop Holdings Inc.	SVB Financial Group
BMO Financial Group	Home BancShares Inc.	Synovus
BNP Paribas	HSBC	Taylor Capital Group Inc.
BOK Financial Corporation	Huntington Bancshares, Inc.	TCF Financial Corp.
Boston Private Financial Holdings, Inc.	IBERIABANK Corp.	TD Securities
Branch Banking & Trust Co.	Independent Bank Corp.	Texas Capital Bancshares Inc.
Brookline Bancorp Inc.	ING	The Bank of Nova Scotia
Brown Brothers Harriman & Co.	International Bancshares Corp.	The Capital Group Companies, Inc
Capital Bank Financial	Investors Bancorp Inc. (MHC)	The CIT Group
Capital One	JPMorgan	The Norinchukin Bank, New York Branch
Cathay General Bancorp	KBC Bank	The Vanguard Group, Inc.
Chemical Financial Corp.	KeyCorp	Tompkins Financial Corporation
China International Capital Corporation	Landesbank Baden-Wuerttemberg	Trustmark Corp.
China Merchants Bank	Lloyds Banking Group	U.S. Bancorp

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CIBC World Markets	Loomis, Sayles & Company, L.P.	UMB Financial Corp.
Citigroup	M&T Bank Corporation	Umpqua Holdings Corp.
City National Bank	Macquarie Bank	UniCredit
Columbia Banking System Inc.	MB Financial Inc.	Union Bank, N.A.
Comerica	Mitsubishi UFJ Trust & Banking Corp.	United Bankshares Inc.
Commerzbank	Mizuho Bank	United Community Banks Inc.
Commonwealth Bank of Australia	Mizuho Corporate Bank, Ltd.	Valley National Bancorp
Community Bank System Inc.	National Australia Bank	Washington Federal Inc.
Corp PacWest Bancorp	National Penn Bancshares Inc.	Webster Bank
Crédit Agricole CIB	Natixis	Wellington Management Company, LLP
Credit Industriel et Commercial	NBT Bancorp Inc.	Wells Fargo Bank
CVB Financial Corp.	Nord/LB	WesBanco Inc.
Dexia	Northwest Bancshares, Inc.	Western Alliance Bancorp
DnB Bank	OCBC Bank	Westpac Banking Corporation
DVB Bank	Old National Bancorp	Wintrust Financial Corp.
DZ Bank	Park National Corp.	Zions Bancorporation
Eaton Vance Investment Managers	Pinnacle Financial Partners
Espirito Santo Investment	PNC Bank

Data from international banks only contained results from their U.S. operations.

Elements of our Compensation Plan and Why Each Element is Selected

We compensate the named executive officers principally based on their tenure, performance, the criticality of the role, and experience through a package that consists of a mix of base salary, annual and deferred cash-incentive opportunities, qualified and nonqualified retirement plans, and various other health and welfare benefits, that is, total rewards. From time to time, we will also award special cash bonuses outside of an EIP to compensate a named executive officer based on unusual or exemplary circumstances. Each compensation element is discussed in greater detail below. Due to our cooperative structure, we cannot offer equity-based compensation programs, so we offer higher base salaries, cash-incentive opportunities, and certain retirement benefits to keep our compensation packages competitive relative to the market and to replace some of the value of compensation that competitors might offer through equity-based compensation programs. The named executive officers may also be provided with certain additional perquisites. Although we do not engage in benchmarking, the Total Rewards Philosophy provides that our total rewards package, including that for named executive officers, should be comparable with the total rewards package for matched positions in the two primary peer groups, as discussed under — Overview of the Labor Market for Senior Managers above. Historically, the Compensation Committee has set total rewards packages for each of the named executive officers so that their total rewards package of base salary, cash incentives, and retirement plans would be comparable with the total rewards packages at the commercial/regional bank peer group, including base salary and short- and long-term incentives, and so that their total cash compensation, that is, base salary plus cash incentives, would be competitive with the median total cash compensation of the named executive officer's peers at other FHLBanks, particularly the FHLBanks of Atlanta, Chicago, Dallas, New York, and San Francisco, since these FHLBanks are also located in larger urban areas and are more representative of the Boston labor market than FHLBanks located in smaller cities. The Compensation Committee has also considered total cash compensation at the other FHLBanks as the comparator since it includes base salaries and cash incentives, but does not consider the value of retirement plans since they are generally of similar value across the FHLBank System. The Compensation Committee has been informed by the same data in setting current total rewards packages.

How we Determine the Amount for Each Element of our Compensation Plan

The board of directors sets annual goals and objectives for the chief executive officer. In 2014, these goals and objectives were developed to align with our strategic business plan. At the end of the year, the chief executive officer provides the Compensation Committee with a self-assessment of his corporate and individual achievements. Based on the Compensation Committee's evaluation of his performance and review of competitive market data for the defined peer groups, the Compensation Committee determines and recommends an appropriate total compensation and benefits package to the board of directors for approval. In the case of other named executive officers, the chief executive officer reviews individual performance and submits market data and recommendations to the Compensation Committee regarding appropriate compensation, although the board of director’s Risk Committee provides input on the evaluation of the chief risk officer. The Compensation Committee

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reviews these recommendations and submits its recommendations to the full board of directors. The board of directors reviews the recommendations and approves the compensation it considers appropriate giving consideration to the Total Rewards Philosophy.

The Compensation Committee does not set specific, predetermined targets for the allocation of total rewards between base salary, cash incentives, and benefits, including retirement and other health and welfare plans and perquisites. Rather, the Compensation Committee considers the value and mix of the total rewards package offered to each named executive officer compared with the total rewards package for positions of comparable scope, responsibility, and complexity of position at the two defined peer groups, the incumbent's performance, experience and tenure, and internal equity.

Base Salary

Base salary adjustments for all named executive officers are considered at least annually as part of the year-end annual performance review process and more often if considered necessary by the Compensation Committee during the year, such as in recognition of a promotion or to ensure internal equity.

After review and nonobjection by the FHFA, the board of directors awarded the named executive officers an increase in base salary on January 15, 2015, with retroactive application to January 1, 2015. In determining the amount of the increases, the Compensation Committee considered market data from the annual FHLBank System survey of key positions, and the McLagan 2014 FHLB Custom Survey, and McLagan's 2014 Finance and Business Survey discussed under — Overview of the Labor Market for Senior Managers above. Additionally, the Compensation Committee considered the recommendations of Mr. Hjerpe for the other named executive officers based on individual performance, tenure, experience, and complexity of the named executive officer's position and internal equity. Mr. Hjerpe recommended, and the board of directors awarded at the recommendation of the Compensation Committee, merit increases in base salary for each of the named executive officers. The percentage increases in base salary were generally consistent with merit and adjustment increases granted to staff.

The following table sets forth the base salary increases which took effect on January 1, 2015:

Name and Principal Position	Pre-Adjustment Annual Base Salary	Post-Adjustment Annual Base Salary	Percent Increase
Edward A. Hjerpe III	$710,000	$733,300	3.3%
President and Chief Executive Officer
Frank Nitkiewicz	$346,000	$358,000	3.5%
Executive Vice President and Chief Financial Officer
M. Susan Elliott	$346,000	$358,000	3.5%
Executive Vice President and Chief Business Officer
George H. Collins	$300,000	$330,000	10.0%
Executive Vice President(1) and Chief Risk Officer
Carol Hempfling Pratt	$285,000	$295,000	3.5%
Senior Vice President and General Counsel
Timothy J. Barrett	$285,000	$295,000	3.5%
Senior Vice President and Treasurer

_______________________

(1) In January 2015, Mr. Collins was promoted from senior vice president to executive vice president.

Executive Incentive Plan

General Overview of EIPs

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EIPs are cash incentive plans which are reviewed by the Compensation Committee and may be adopted by the board of directors on an annual basis. EIPs are not necessarily adopted every year. For example, no EIP was adopted in 2009 based on our annual net loss in 2008 and expectations of additional losses in 2009. Generally, EIPs are used to promote achievement of strategic objectives by aligning cash incentive opportunities for corporate officers, including the named executive officers, with our short- and long-term financial performance and strategic direction. These incentive opportunities are also designed to facilitate retention and commitment of key officers. EIPs generally include specific goals, such as goals based on profitability, business growth, regulatory examination results and remediation, and operational goals for each of the corporate officers, including the named executive officers.

The Compensation Committee reviews each EIP's plan design, eligible participants, goals, goal weighting, achievement levels, and payout opportunities. The Compensation Committee administers the EIP and has full power and binding authority to construe, interpret, and administer and adjust the EIP during or at the end of the plan year for extraordinary circumstances. Extraordinary circumstances may include changes in, among other things, business strategy, termination or commencement of business lines, significant growth or consolidation of the membership base, impact of severe economic fluctuations, or significant regulatory or other changes impacting us or the FHLBank System. The Committee may not make adjustments for extraordinary circumstances that include changes to goals, weights, or levels of achievement without resubmission to the FHFA.

Purpose of the 2014 EIP

The 2014 EIP is intended to:

• reflect a reasonable assessment of our financial situation and prospects while rewarding achievement of our financial plan and strategic objectives in our strategic business plan;

• reinforce and reward our commitment to conservative, prudent, sound risk-management practices and preservation of the par value of our capital stock;

• tie a significant percentage of incentive awards to our long-term financial condition and performance; and

• recognize the importance of individual performance through metrics linked to our strategic goals and/or objectives of the participant’s principal functions and independent of the areas that they monitor.

2014 EIP Plan Design

The design of the 2014 EIP was guided by principles intended to:

• promote achievement of our financial plan and strategic objectives in our strategic business plan;

• provide a total rewards package that is competitive with other financial institutions in the labor markets in which we compete; and

• facilitate the retention and commitment of our corporate officers.

Incentive Goals

The 2014 EIP's short-term financial and nonfinancial goals were derived from, or are consistent with, our strategic business plan and objectives and were generally weighted based on desired business outcomes. Where possible, the goal achievement levels have generally been set so that the target (that is, middle achievement level) is consistent with projections in our strategic business plan. For certain nonfinancial EIP goals for which there is no direct reference in the strategic business plan, the goals and goal achievement levels are established consistent with our strategic objectives and the impact of achievement of the objectives. To mitigate unnecessary or excessive risk-taking, the 2014 EIP contains measures for overall performance that are achieved through Bankwide collaboration of activity but cannot be individually attained or altered by participants in the 2014 EIP. Additionally, the 2014 EIP includes long-term incentive opportunities based on the level of retained earnings and targeted regulatory results at December 31, 2016, which are intended to align management's interests with our long-term financial performance and condition. Further, Mr. Collins' goals, as chief risk officer, differ somewhat and have different weightings than the other named executive officers, which are intended to align his incentives with appropriately managing our risk profile and are intended to be independent of the financial performance of the individual business areas that ERM monitors. Further, as described in greater detail under — Determination of Awards under the 2014 EIP, the Compensation Committee and the board of directors maintained authority over all awards under the 2014 EIP, however the 2014 EIP prohibits award payouts to participants that do not receive a performance rating of “consistently meets expectations” or better.

Short-Term Incentive Goals and Actual Achievement

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The 2014 EIP includes the following short-term incentive goals for the named executive officers, except for Mr. Collins:

• Pre-assessment, pre-other-than-temporary impairment core net income (the net income goal): Pre-assessment, pre-other-than-temporary impairment core net income (as such term is defined in the 2014 EIP) is a measure of net income that excludes or adjusts the timing of recognition of the impact of AHP expenses, gains (losses) on debt retirement, net prepayment fees, net unrealized gains (or losses) attributable to hedges, other-than-temporary impairment credit losses on private-label MBS, gains from the accretion of prior other-than-temporary impairment credit losses due to improvements in projected private-label MBS performance, and private-label MBS litigation settlement income. The difference between GAAP net income and this measure of net income is that GAAP net income does not provide for the exclusions described in the immediately prior sentence. Achievement of this goal was subject to compliance with our VaR and duration of equity limits for at least 10 of the 12 months of the year. We complied with these limits for 12 months. These limits are described under Item 7A — Quantitative and Qualitative Disclosures about Market Risk — Measurement of Market and Interest-Rate Risk.

• New business and mission goal (the new business goal): This goal is measured by the total amount of advances originated during 2014 to depository institution members with maturities of greater than or equal to one year in term (and not pre-payable without fee), including advances restructurings that result in extension of the advance in maturity of one year or longer, but excluding certain AHP-related advances and advances to insurance company members.

• Insurance advances disbursements (the insurance advances goal): This goal is measured by the total amount of advances originated in 2014 (any type and maturity of advance) to insurance company members.

• Insurance membership (the insurance membership goal): This goal is measured by the number of insurance companies approved for membership by the president and chief executive officer in 2014.

• Individual, Bankwide, or department-specific initiatives goal (the individual goal): Unlike the other short-term goals, this goal is measured according to each individual EIP participant's successful contributions toward the achievement of Bankwide strategic goals or completion of department-specific initiatives. Individual goals for all plan participants are established at the beginning of the plan year but can be modified throughout the year on a case-by-case basis with the written approval of the chief executive officer, except for the named executive officers. Revisions to individual goals for the named executive officers must be recommended by the chief executive officer and approved by the Compensation Committee. Each EIP participant, including the named executive officers, establishes an individual goal comprised of two to four initiatives that are evaluated by that participant's manager, except in the case of Mr. Hjerpe who, in his role as president and chief executive officer, establishes his goal and initiatives in concert with the Compensation Committee. Achievement of Mr. Hjerpe's individual goal is evaluated by the Compensation Committee at the end of the year and the Compensation Committee, in turn, makes a recommendation to the board of directors. Initiatives within each participant's individual goal may be weighted equally or may have different weights based on the criticality of the initiative and the participant's ability to influence the outcome.

Mr. Collins' short-term incentive goals, as chief risk officer, differ somewhat and have different weightings from the other named executive officers. These differences are intended to align his incentives with appropriately managing our risk profile and are intended to be independent of the financial performance of the individual business areas that ERM monitors. Under the 2014 EIP, Mr. Collins' short-term incentive goals include the net income goal and individual goal but exclude the new business goal, insurance advances goal, and insurance membership goal. Mr. Collins' short-term goals also include:

• Bankwide ERM initiatives (the ERM goals): These goals are described and measured as set forth in Table 11.2. Mr. Collins' achievement of these goals was evaluated by Mr. Hjerpe in his capacity as Mr. Collins' manager.

• Remediation of 2013 Report of Examination Findings (the remediation goal): This goal is measured by the clearance rate of 2013 FHFA examination findings that identified our weaknesses, excluding a finding on our asset classification report.

The following Table 11.1 sets forth the named executive officers' short-term goals and the related weight for all goals and the levels of achievement, and the actual achievement for each of those goals, other than ERM and individual goals which are set forth in Tables 11.2 and 11.3, respectively, for the year ended December 31, 2014.

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Table 11.1
	Weighting
Goal	Named Executive Officers other than Chief Risk Officer	Chief Risk Officer	Threshold	Target	Excess	Actual Achievement
Net Income	35%	25%	$114.6 million(1)	$127.2 million(1)	$152.7 million(1)	$119.0 million
New Business	30%	NA	$1.25 billion	$2.5 billion	$3.75 billion	$2.95 billion
Insurance Advances	15%	NA	$300 million	$600 million	$1 billion	$793.6 million
Insurance Membership	10%	NA	3 new members	5 new members	7 new members	7 new members
Remediation	NA	30%	3 out of 4 clearance of certain remediation matters	4 out of 4 clearance of certain remediation matters	N/A	4 of 4 clearance of the remediation matters
ERM	NA	35%	See Table 11.2	See Table 11.2	See Table 11.2	See Table 11.2
Individual	10%	10%	See Table 11.3	See Table 11.3	See Table 11.3	See Table 11.3

___________________________

(1) These performance levels were adjusted from the amounts originally established in the 2014 EIP. The 2014 EIP provides that the originally established performance levels were to be adjusted up or down by $350,000 for every basis point by which the average daily federal funds rate deviated from the 0.08 percent assumed in our strategic business plan. In 2014, the average daily federal funds rate deviation was 0.007 percent, resulting in a $0.2 million increase for each of the performance levels.

The following table 11.2 sets forth the ERM Goals and the actual achievement for the year ended December 31, 2014.

Table 11.2 ERM Goals and Actual Achievement
Goals	Threshold	Target	Excess	Actual Achievement
Conduct formal Bankwide training sessions on ERM practices	Survey officers and gain buy-in for topics to be covered by March 31, 2014	Conduct three of four training sessions on separate risk topics by October 31, 2014	Conduct four training sessions on separate risk topics by October 31, 2014	Excess
Enhance project prioritization framework by developing new procedures and implement the new program	ERM completes a draft new framework by April 30, 2014 in collaboration with certain other Bank departments.	Vet new framework with key constituents throughout the Bank and receive management committee’s approval by September 30, 2014.	Achieve target criteria by August 15, 2014.	2/3 between Target and Excess
Enhance model management framework, working with model owners of mission critical applications, in addition to the validation requirements	Prepare an overview of competitor systems and their pros and cons.	Assess the current systems’ fit with the long-term information technology architecture plan.	Assess risk management best practices in the area covered by the model.	Threshold

The following Table 11.3 sets forth the named executive officers' individual, Bankwide or department specific goals, levels of achievement, and actual results. Each component of each named executive officer’s individual, Bankwide or department specific goals was weighted equally.

Table 11.3

Individual, Bankwide or Department-Specific Goals by each Named Executive Officer

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Mr. Hjerpe
Goals	Threshold	Target	Excess	Actual Achievement
MVE to Par Stock(1) ratio	Ratio is at 2013 level.	Ratio is at 2013 level, plus six percent.	Ratio is at 2013 level, plus 10 percent.	Excess
Maintain financial capacity and regulatory support for excess stock repurchases and pay a dividend at a specified level.	$500 million excess stock repurchase by June 30, 2014 and dividends paid for four quarters.	$1 billion excess stock repurchase by December 31, 2014 and dividends paid for four quarters.	Achieve target criteria on this goal, and achieve excess criteria on the net income goal.	Target
Meet with and make presentations on the financial condition and other important aspects of the Bank to member trade associations and other industry groups.	Attend and present at four such meetings.	Attend and present at six such meetings.	Attend and present at eight such meetings.	Excess
Mr. Nitkiewicz
Goals	Threshold	Target	Excess	Actual Achievement
Evaluate strategies to: (A)eliminate the moratorium on voluntary excess stock repurchases and (B) reduce capital stock investment requirements.	Execute excess stock repurchases as contemplated in the Bank’s business plan utilizing board approved repurchase allocation strategy within 2014.	Achieve threshold criteria plus prepare exit strategy from the moratorium on excess stock repurchases and present it to our asset-liability committee (ALCO) by October 31, 2014.	Achieve target criteria plus develop a plan to implement revisions to capital stock investment requirements and present it to ALCO by December 31, 2014.	Split Target/Excess
Evaluate and implement refinements to electronic swap trading capabilities.	Enter into agreements with at least two swap execution facilities (SEFs) by the effective date for mandatory execution of certain interest rate swaps.	Complete electronic integration of at least two SEF trading platforms to the Bank’s electronic infrastructure to enable trade data capture without manual data entry by December 31, 2014.	Complete cost, benefit and feasibility analysis of executing swaps on one or more designated contract markets and present findings and recommendation to ALCO.	Target
Develop template for internal committee document libraries applied initially to certain Bank committees	Establish and implement electronic repositories for certain Bank committees by March 31, 2014.	Achieve threshold criteria plus design and implement workflow for document management and distribution, versioning, and automated archiving certain Bank committees by September 30, 2014.	Achieve target criteria plus develop project plan to apply document management template to all internal committees.	Excess
Ms. Elliott
Goals	Threshold	Target	Excess	Actual Achievement
Lead a strategy to increase business with insurance companies.	Develop a target list of insurance companies to develop advances business from, ensure that staff meet with a minimum of ten and personally meet with a minimum of five insurance company members to discuss opportunities to increase advances.	Achieve threshold criteria plus generate $600 million in advances disbursements from insurance companies.	Achieve target criteria plus generate $1 billion in advances disbursements from insurance companies.	Split Target/Excess
Conduct outreach to certain depository institution members and develop our long-term advances business.	Develop an outreach target list and submit it to President Hjerpe by January 31, 2014.	Achieve threshold criteria plus ensure that staff meet with all members on the outreach target list and personally meet with a minimum of 10 of such members by December 31, 2014.	Achieve target criteria plus generate $3.75 billion in long-term advances disbursements by December 31, 2014, excluding insurance company member volume.	Split Target/Excess

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Meet with certain members’ regulators.	Meet with two depository institution regulators (state or federal) and one insurance company state regulator.	Meet with four depository institution regulators (state or federal and two insurance company state regulators).	Meet with six depository institution regulators (state or federal) and four insurance company regulators.	Excess
Mr. Collins
Goals	Threshold	Target	Excess	Actual Achievement
Efficiently resolve internal audit findings	All summary of outstanding audit finding (SOAF) items opened in first and second quarters of 2014 moved to “submitted status” with internal audit by the third and fourth quarters of 2014, respectively.	All SOAF items opened in the first and second quarters of 2014 moved to completed status with internal audit by the third and fourth quarters of 2014, respectively.	No outstanding SOAF items as of December 31, 2014.	No payout
Improve chief risk officer communication and visibility	Expand attendance at staff meeting to include all ERM officers once a month.	Achieve threshold criteria plus initiate ERM meetings once every two months with all staff, including a topical presentation of a risk issue.	Achieve target criteria plus have regular meetings with corporate officers one on one throughout the year - with a minimum of 36 such meetings.	Split Threshold/Target
Ms. Pratt
Goals	Threshold	Target	Excess	Actual Achievement
Support member services’ member and regulatory outreach efforts	Participate in three meetings with member regulators.	Achieve threshold criteria plus attend an industry conference or convention as requested by member services.	Achieve target criteria plus participate in one additional meeting with a member regulator.	Excess
Improve administrative efficiency and records management for board committees	No threshold opportunity.	Design and implement an electronic repository for board committee charters, minutes, reports, and related materials.	Work with board committee management liaisons to populate an electronic repository with historic information going back at least to January 1, 2011, including, at a minimum, committee charters, minutes and periodic reports that are regularly reviewed by the committees.	Target
Mr. Barrett
Goals	Threshold	Target	Excess	Actual Achievement
Select and implement a vendor solution for long term investment front office trading deal capture and interface with the Bank’s accounting module.	Present business case to our project committee for funding and resources by February 28, 2014.	Achieve threshold criteria plus document and review with our operations committee workflow enhancements that reduced transaction risk, reduced paper trail, and integrated the solution into the Bank’s accounting module.	Achieve target criteria plus implement the solution by December 31, 2014.	Target
Analyze and develop pricing or product enhancement to support growth in our advances business.	Develop and complete a business case for a Bank product designed to address certain new liquidity regulatory requirements impacting certain of our members.	Achieve threshold criteria plus market a special or product targeted at insurance company members by June 30, 2014.	Achieve target criteria plus the Bank achieves total long- term advance activity generated from “specials” in excess of the total 2013 level by December 31, 2014.	Excess

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Long-Term Incentive Goals

In addition, the 2014 EIP includes two long-term incentive goals, each of which is weighted at 50 percent. The first is based on our retained earnings at December 31, 2016 adjusted to remove the impacts of certain prepayment fees, debt retirement costs and settlement income arising from our investments in private-label MBS. The following table sets forth such goal.

Long-Term Goal	Retained Earnings as of December 31, 2016
Threshold	$881.8 million
Target	$979.8 million
Excess	$1,175.8 million

The second long-term incentive goal will be measured by the achievement of certain targeted regulatory goals by December 31, 2016. This goal is weighted at 50 percent of the total long-term opportunity.

Incentive Opportunities under the 2014 EIP

Incentive opportunities under the 2014 EIP are based on each named executive officer's base salary at December 31, 2014 (referred to as 2014 incentive salaries).

The following Table 11.4 sets forth the combined short and long-term incentive opportunities under the 2014 EIP, in each case expressed as percentages of the named executive officers' 2014 incentive salaries:

Table 11.4
	Combined Short- and Long-Term Incentive Opportunity
	Threshold	Target	Excess
President	30.00%	60.00%	90.00%
All Other Named Executive Officers	22.00%	44.00%	66.00%

At the conclusion of 2014, individual awards were calculated based on actual goal achievement as of December 31, 2014. Participants were eligible to receive 50 percent of such award in a cash payment in March 2015, following non-objection by the FHFA and approval of the board of directors. Table 11.5 below sets forth the incentive opportunities for the short-term incentive opportunity that were payable in March 2015, in each case expressed as percentages of the named executive officers' 2014 incentive salaries:

Table 11.5
	Short -Term Incentive Opportunity
	Threshold	Target	Excess
President	15.00%	30.00%	45.00%
All Other Named Executive Officers	11.00%	22.00%	33.00%

The remaining 50 percent of the combined award, calculated at the end of 2014, then becomes the target long-term incentive opportunity, with threshold and excess incentive opportunities tied to threshold and excess levels of achievement of the long-term goal, as set forth in Table 11.6 below.

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Table 11.6
	Long-Term Incentive Opportunity
	Threshold	Target	Excess
All Named Executive Officers	50% of the remaining 50% of the combined short- and long-term incentive opportunity	100% of the remaining 50% of the combined short- and long-term incentive opportunity	150% of the remaining 50% of the combined short- and long-term incentive opportunity

Determination of Awards under the 2014 EIP

Awards for the short-term goals, other than the ERM and individual goals under the 2014 EIP, were based on actual goal achievement determined objectively at the conclusion of the year. Results for each goal were measured and the award for each goal was then calculated independently based on the following formula:

Award for Each Goal = Goal Weight (Table 11.1) X Incentive Opportunity for Level of Achievement (Table 11.4) X 2014 Incentive Salary

If the result for the goal were less than the threshold level of achievement (Table 11.1), the award for that goal would have been zero. However, all goals in the 2014 EIP were achieved above threshold. For goals achieved above the excess level of achievement (Table 11.1), there were no incremental payouts for achievements above excess per plan design. The remaining annual goals were achieved at a level between the threshold and excess levels of achievement. In administering the EIP, as with prior EIPs, the Compensation Committee determined that participants would receive an interpolated award for having exceeded threshold. In such instance, the award for each goal would be calculated according to the following formula:

Award for Each Goal = Goal Weight (Table 11.1) X Incentive Opportunity (Table 11.4) Interpolated for Actual Level of Achievement X 2014 Incentive Salary

Our staff calculated the named executive officers' awards under the 2014 EIP's short-term goals, in accordance with actual year-end results and the foregoing formulas. Mr. Hjerpe reviewed the results of each of the other named executive officer's level of achievement under that named executive officer's individual goal, and for Mr. Collins, also the ERM goals, and made award recommendations to the Compensation Committee for the Compensation Committee's consideration. The Compensation Committee discussed and adopted those recommendations. The Compensation Committee determined Mr. Hjerpe's incentive award for his individual goal following the Compensation Committee's review of the level of achievement for this goal as provided by Mr. Hjerpe and the Compensation Committee's assessment of Mr. Hjerpe's achievement of this goal. The Compensation Committee and board of directors determined that Mr. Hjerpe achieved two of his goals at excess and one at target, as set forth in Table 11.3.

Based on those calculations and determinations, the combined incentive awards were calculated, by goal, as follows:

2014 Combined Short-and Long-Term Awards as Calculated by Goal
Participant	Net Income		New Business		Insurance Advances		Insurance Membership		Remediation		ERM		Individual		Total Combined Award
Mr. Hjerpe	$	100,583	$	150,804	$	79,364	$	63,900	NA		NA		$	56,801	$	451,452
Mr. Nitkiewicz	35,946		53,893		28,362		22,836		NA		NA		18,269		159,306
Ms. Elliott	35,946		53,893		28,362		22,836		NA		NA		19,891		160,928
Mr. Collins	22,262		NA		NA		NA		$	39,600	$	48,556	4,950		115,368
Ms. Pratt	29,608		44,392		23,362		18,810		NA		NA		15,676		131,848
Mr. Barrett	29,608		44,392		23,362		18,810		NA		NA		15,676		131,848

The named executive officers were eligible to receive 50 percent of the combined award illustrated above in a cash payment in March 2015, following approval of the board of directors. The below table's column “short-term award” sets forth the short-

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term incentive award paid to the named executive officers in March 2015 and the remaining 50 percent which then becomes the target level of achievement for the long-term incentive opportunity.

In addition to the foregoing awards, Mr. Hjerpe recommended, and the Compensation Committee and the board of directors awarded, Mr. Nitkiewicz and Mr. Barrett each an additional $15,000 payment in recognition of the fact that both individuals took on additional responsibilities associated with the duties of the chief information officer position while the Bank conducted a thorough search to fill the vacancy in this strategically important position. During the position’s vacancy, Mr. Nitkiewicz assumed leadership for the Bank’s technology-related work, and Mr. Barrett assumed leadership for the Bank’s operations functions. These payments are represented in the non-equity incentive plan compensationshort-term column of the Summary Compensation Table.

	2014 Combined Short-and Long-Term Awards, Short-Term Awards and Long-Term Incentive Opportunity at Target Level of Achievement
Participant	Combined Short and Long Term Award		Short-Term Award		Long-Term Opportunity at Target
Mr. Hjerpe	$	451,452	$	225,726	$	225,726
Mr. Nitkiewicz	159,306		79,653		79,653
Ms. Elliott	160,928		80,464		80,464
Mr. Collins	115,368		57,684		57,684
Ms. Pratt	131,848		65,924		65,924
Mr. Barrett	131,848		65,924		65,924

Final awards under the 2014 EIP's long-term incentive opportunities cannot be determined until after December 31, 2016, since they are based on retained earnings and targeted regulatory results as of that date. Based on the Bank's and individual levels of achievement as of December 31, 2014, the named executive officers are eligible for long-term incentive opportunities, payable in March 2017, as follows:

	Long-Term Incentive Opportunity at Threshold, Target, and Excess
Participant	Threshold		Target		Excess
Mr. Hjerpe	$	112,863	$	225,726	$	338,589
Mr. Nitkiewicz	39,827		79,653		119,480
Ms. Elliott	40,232		80,464		120,696
Mr. Collins	28,842		57,684		86,526
Ms. Pratt	32,962		65,924		98,886
Mr. Barrett	32,962		65,924		98,886

Additional Conditions on Long-Term Awards

Long-term awards are subject to the following additional conditions:

• Participants must be employed by us on the payment date in March 2017 to receive the long-term award, although participants that terminate employment by reason of death or disability or who are eligible to retire prior to that date may receive payment of the award in certain instances, as detailed in the 2014 EIP.

• Subject to the discretion of the board of directors, the calculated long-term award may be reduced or eliminated (but not to a number that is less than zero) for some or all participants, as applicable, if, during calendar years 2015 and/or 2016, any of the following occur such that if it had occurred prior to the year-end 2014 calculations, it would have negatively impacted the goal results and reduced the associated payout calculation:

◦ operational errors or omissions result in material revisions to our 2014 financial results, information submitted to the FHFA, or data used to determine the combined award at year-end 2014;

◦ significant information to the SEC, Office of Finance, and/or FHFA is submitted materially beyond any deadline or applicable grace period, other than late submissions that are caused by acts of God or other events beyond the reasonable control of the participants; or

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◦ we fail to make sufficient progress, as determined by the FHFA, in the timely remediation of examination and other supervisory findings relevant to the goal results or payout calculation.

• The actual payment of the long-term award is subject to the final approval of the board of directors and review and non-objection by the FHFA (to the extent required by the FHFA).

Retirement and Deferred Compensation Plans

We offer participation in qualified and nonqualified retirement plans to the named executive officers as key elements of our total rewards package. The benefits received under these plans are intended to enhance the competitiveness of our total compensation and benefits relative to the market by complementing the named executive officers' base salary and cash incentive opportunities. We maintain four retirement plans in which the named executive officers participate, including:

• Pentegra Defined Benefit Plan for Financial Institutions (the Pentegra Defined Benefit Plan), a funded, tax-qualified, noncontributory plan that provides retirement benefits for all eligible employees;

• Pension Benefit Equalization Plan (the Pension BEP), a nonqualified, unfunded defined benefit plan covering certain senior officers, as defined in the plan, which includes the named executive officers and other personnel as determined by the board of directors;

• Pentegra Defined Contribution Plan for Financial Institutions (the Pentegra Defined Contribution Plan), a 401(k) thrift plan, under which we match employee contributions for all eligible employees; and

• Thrift Benefit Equalization Plan (the Thrift BEP), a nonqualified, unfunded defined contribution plan with a deferred compensation feature, which is available to the named executive officers, other personnel as determined by the board of directors, and directors.

The Compensation Committee believes that the Thrift BEP, together with the Pension BEP, provide retirement benefits that are necessary for our total rewards package to remain competitive, particularly compared with labor market competitors who may offer equity-based compensation. Additional information regarding these plans can be found with the Pension Benefits and Nonqualified Deferred Compensation tables below.

All benefits payable under the Pension BEP and Thrift BEP are paid solely out of our general assets, or from assets set aside in rabbi trusts subject to the claims of our creditors in the event of our insolvency.

Perquisites

Perquisites for the named executive officers may include supplemental life insurance (Mr. Nitkiewicz and Ms. Elliott only), airline program memberships, spouse travel during business, child care when traveling on business, parking, or a 100 percent mass transportation subsidy. Mr. Hjerpe is also eligible for the personal use of an automobile. The Compensation Committee believes that the perquisites offered to the named executive officers are reasonable and necessary for the total compensation package to remain competitive in recruiting and retaining them.

Change-in-Control Agreement

We have a change-in-control agreement with Mr. Hjerpe. The board of directors had determined that having the change in control agreement in place would be an effective recruitment and retention tool since the events under which we provide payment to Mr. Hjerpe would provide a measure of protection to Mr. Hjerpe in the instance of our relocation in excess of 50 miles or his termination of employment or material diminution in duties or base compensation resulting from merger, consolidation, reorganization, sale of all or substantially all of our assets, or our liquidation or dissolution. Under the terms of the change of control agreement, in the event that either:

• Mr. Hjerpe terminates his employment with us for a Good Reason (as defined in the change in control agreement) that is not remedied within certain cure periods by us; or

• we (or our successor in the event of a reorganization) terminate Mr. Hjerpe's employment without Cause (as defined by the change in control agreement).

We have agreed to pay Mr. Hjerpe an amount equal to his annualized base salary at the time of such termination to be paid in equal installments over the following 12 months according to our regular payroll cycle during such period. Notwithstanding the foregoing, our obligation to pay Mr. Hjerpe such amount will be subject to Mr. Hjerpe's execution of our standard release of claims agreement and our compliance with applicable statutory and regulatory requirements at the time such payment would

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otherwise be made. Payments to Mr. Hjerpe under the change-in-control agreement are in lieu of any severance payments that would be otherwise payable to him.

Employment Status and Severance Benefits

Pursuant to the FHLBank Act, our employees, including the named executive officers as of December 31, 2014, are "at will" employees. Each may resign his or her employment at any time and we may terminate his or her employment at any time for any reason or no reason, with or without cause, and with or without notice. Under our severance policy, all regular full- and part-time employees who work at least 1,000 hours per year whose employment is terminated involuntarily for reasons other than "cause," (as determined by us at our sole discretion), are provided with severance packages reflecting their status in the organization and tenure. Severance packages for employees leaving by mutual agreement or terminated for cause is at our sole discretion, provided that such severance shall not exceed that paid to employees terminated involuntarily for reasons other than cause. The severance policy does not constitute a contractual relationship between the Bank and the named executive officers, and we reserve the right to modify, revoke, suspend, terminate, or change the severance policy at any time without notice.

To receive this severance benefit, individuals must agree to execute our standard release of claims agreement. In addition and at our sole discretion, we may provide outplacement and/or such other services as may assist in ensuring a smooth career transition.

As chief executive officer, Mr. Hjerpe is eligible for 12 months of base pay under the severance policy unless he has received payments under the change in control agreement in lieu of any severance payments that would otherwise be payable to him by us. Based on their statuses as executive officers, Mr. Nitkiewicz, Ms. Elliott, Mr. Collins, Ms. Pratt, and Mr. Barrett are eligible for a minimum of six months and a maximum of 12 months of base pay under the severance policy, depending on their tenure of employment. All severance packages for executive officers, including the named executive officers, must have the approval of the chief executive officer and the Compensation Committee prior to making any award under the severance policy.

FHFA Oversight of Executive Compensation

The FHFA provides certain oversight of FHLBank executive officer compensation. Section 1113 of HERA requires that the Director of the FHFA prohibit an FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. In connection with this responsibility, the FHFA has issued final rules on executive compensation and golden parachute payments, which provide for oversight of such compensation and payments. In addition to those rules, the FHFA has issued an advisory bulletin on principles for FHLBank executive compensation together with certain protocols for the review of proposed FHLBank compensation actions. The FHFA could issue additional rules, advisory bulletins, and/or review protocols that could further impact named executive officer compensation.

Compensation Tables

The following table sets forth all compensation received from the Bank for the years ended December 31, 2014, 2013, and 2012, by our named executive officers.

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Summary Compensation Table for 2014, 2013 and 2012
Name and Principal Position	Year	Salary(1)		Bonus		Non-equity Incentive Plan CompensationShort-Term(2)		Non-equity Incentive Plan CompensationLong-Term(3)		Change in Pension Value and Nonqualified Deferred Compensation Earnings(4)		All Other Compensation(5)		Total
Edward A. Hjerpe III	2014	$	710,000	$	—	$	225,726	$	251,504	$	700,000	$	86,490	$	1,973,720
President and	2013	669,500		—		221,082		213,242		1,000		79,217		1,184,041
Chief Executive Officer	2012	650,000		—		251,503		107,578		270,000		68,477		1,347,558
Frank Nitkiewicz(7)	2014	346,000		—		94,653		87,311		1,125,000		33,871		1,686,835
Executive Vice President	2013	335,900		—		78,987		82,071		—		30,730		527,688
and Chief Financial Officer	2012	325,900		—		87,311		38,449		293,000		27,501		772,161
M. Susan Elliott	2014	346,000		—		80,464		90,581		1,478,000		37,416		2,032,461
Executive Vice President	2013	335,900		—		76,631		83,563		124,000		34,759		654,853
and Chief Business Officer	2012	325,900		—		90,580		43,104		309,000		31,022		799,606
George H. Collins(6)	2014	300,000		—		57,684		78,542		726,000		19,777		1,182,003
Senior Vice President and	2013	290,070		—		69,612		62,004		77,000		15,300		513,986
Chief Risk Officer	2012	275,470		1,067		78,542		35,915		214,000		15,000		619,994
Carol Hempfling Pratt	2014	285,000		—		65,924		75,279		131,000		24,472		581,675
Senior Vice President and	2013	274,800		—		165,261		68,439		35,000		22,372		565,872
General Counsel	2012	265,300		—		75,278		17,639		60,000		20,288		438,505
Timothy J. Barrett	2014	285,000		—		80,924		73,598		119,000		17,513		576,035
Senior Vice President and	2013	274,800		—		66,546		62,642		31,000		10,351		445,339
Treasurer	2012	265,300		—		73,597		—		55,000		9,379		403,276

_______________________

(1) Amounts shown are not reduced to reflect the named executive officers' elections, if any, to defer receipt of salary into the Pentegra Defined Contribution Plan or the Thrift BEP.

(2) Represents amounts paid under the 2014 EIP during 2015 in respect of service performed in 2014, under the 2013 EIP during 2014 in respect of service performed in 2013, and under the 2012 EIP during 2013 in respect of service performed in 2012.

(3) Represents amounts paid under the 2012, 2011, and 2010 EIP for satisfying long-term goals based on our retained earnings at December 31, 2014, December 31, 2013, and December 31, 2012, respectively, which amounts were $815.7 million, $722.3 million, and $560.5 million, respectively. That amount resulted in awards at "excess" to each of the named executive officers participating in the 2012, 2011 and 2010 EIP, or 150 percent of the remaining incentive opportunity under that plan. This amount of retained earnings has been adjusted from the amount determined in accordance with GAAP to net out the impacts of prepayment fee income, private-label MBS litigation settlement income (2012 EIP and 2011 EIP only), and debt retirement expense, such that these "one-time" income/expense events are recognized over the original term to maturity of the affected asset or liability.

(4) The amounts shown reflect the actuarial increase/decrease in the present value of the named executive officer's benefits under all pension plans established by us determined using interest-rate and mortality-rate assumptions consistent with those used in our financial statements. No amount of above market earnings on nonqualified deferred compensation is reported because above market rates are not possible under the Thrift BEP, the only such plan that we offer.

(5) See the Other Compensation Table below for amounts, which include our match on employee contributions to the Thrift BEP and the Pentegra Defined Contribution Plan, insurance premiums paid by us with respect to supplemental life insurance, and perquisites.

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(6) The 2012 bonus amount for Mr. Collins is a cash award based on his years of service (15 years of service as of 2012). The amount of this award is the same amount paid to any employee that completed as many years of service in 2012.

(7) The change in pension values under the Pentegra Defined Benefit Plan and Pension BEP for Mr. Nitkiewicz decreased by $76,000 during 2013. In accordance with SEC guidance, the amount reported in the table is $0.

Other Compensation Table
Name	Year	Contributions to Defined Contribution Plans(1)		Insurance Premiums		Perquisites(2)		Total
Edward A. Hjerpe III	2014	$	68,688	$	—	$	17,802	$	86,490
	2013	61,733		—		17,484		79,217
	2012	52,420		—		16,057		68,477
Frank Nitkiewicz	2014	30,431		3,440		—		33,871
	2013	27,709		3,021		—		30,730
	2012	24,792		2,709		—		27,501
M. Susan Elliott	2014	30,353		7,063		—		37,416
	2013	28,184		6,575		—		34,759
	2012	24,881		6,141		—		31,022
George H. Collins	2014	19,777		—		—		19,777
	2013	15,300		—		—		15,300
	2012	15,000		—		—		15,000
Carol Hempfling Pratt	2014	24,472		—		—		24,472
	2013	22,372		—		—		22,372
	2012	20,288		—		—		20,288
Timothy J. Barrett	2014	17,513		—		—		17,513
	2013	10,351		—		—		10,351
	2012	9,379		—		—		9,379

_______________________

(1) Amounts include our contributions to the Pentegra Defined Contribution Plan, as well as contributions to the Thrift BEP. Contributions to the Thrift BEP are also shown in the Nonqualified Deferred Compensation Table below.

The Pentegra Defined Contribution Plan, a 401(k) thrift plan, excludes hourly, flex staff, and short-term employees from participation, but continues to include all other employees. Employees may elect to defer one percent to 50 percent of their plan salary, as defined in the plan document. We make contributions based on the amount the employee contributes, up to the first three percent of plan salary, multiplied by the following factors:

• 100 percent during the second and third years of employment.

• 150 percent during the fourth and fifth years of employment.

• 200 percent following completion of five or more years of employment.

Participant deferrals are limited on an annual basis by Internal Revenue Code (IRC) rules. For 2014, the maximum elective deferral amount was $17,500 (or $23,000 per year for participants who attain age 50 in 2014), and the maximum matching contribution under the terms of the Pentegra Defined Contribution Plan was $15,600 (three percent multiplied by two multiplied by the $260,000 IRC compensation limit).

A description of the Thrift BEP follows the Nonqualified Deferred Compensation Table.

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(2) Amount for Mr. Hjerpe includes the following perquisites: personal use of a Bank-owned vehicle, parking, reimbursement for mass transportation, spousal travel expenses, and airline program memberships.

The following table shows the potential payouts for our non-equity incentive plan awards under the 2014 EIP, for our named executive officers:

Grants of Plan-Based Awards for Fiscal Year 2014
	Estimated Possible Payouts Under Non-equity Incentive Plan Awards (1)
Short-Term Component:	Threshold		Target		Excess
Mr. Hjerpe	$	106,500	$	213,000	$	319,500
Mr. Nitkiewicz	38,060		76,120		114,180
Ms. Elliott	38,060		76,120		114,180
Mr. Collins	33,000		66,000		99,000
Ms. Pratt	31,350		62,700		94,050
Mr. Barrett	31,350		62,700		94,050
Long-Term Component:
Mr. Hjerpe
If short-term component results in:	Threshold		Target		Excess
Threshold	$	53,250	$	106,500	$	159,750
Target	106,500		213,000		319,500
Excess	159,750		319,500		479,250
Mr. Nitkiewicz and Ms. Elliot
If short-term component results in:	Threshold		Target		Excess
Threshold	$	19,030	$	38,060	$	57,090
Target	38,060		76,120		114,180
Excess	57,090		114,180		171,270
Mr. Collins
If short-term component results in:	Threshold		Target		Excess
Threshold	$	16,500	$	33,000	$	49,500
Target	33,000		66,000		99,000
Excess	49,500		99,000		148,500
Mr. Barrett and Ms. Pratt
If short-term component results in:	Threshold		Target		Excess
Threshold	$	15,675	$	31,350	$	47,025
Target	31,350		62,700		94,050
Excess	47,025		94,050		141,075

______________________

(1) Amounts represent potential awards under the 2014 EIP; actual amounts awarded are reflected in the Summary Compensation Table above. See Executive Incentive Plans above for further discussion of performance goals and plan payouts.

Retirement Plan

The following table sets forth the pension benefits for the fiscal year ended December 31, 2014, for our named executive officers.

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Pension Benefits Table
Name	Plan Name	No. of Years of Credited Service(1)		Present Value of Accumulated Benefit(2)		Payments During Year Ended December 31, 2014
Edward A. Hjerpe III	Pentegra Defined Benefit Plan	22.67	(3)	$	1,266,000	$	—
	Pension BEP	5.50		613,000		—
Frank Nitkiewicz	Pentegra Defined Benefit Plan	22.83		1,222,000		—
	Pension BEP	23.83		1,623,000		—
M. Susan Elliott	Pentegra Defined Benefit Plan	32.58		2,261,000		—
	Pension BEP	33.08		2,472,000		—
George H. Collins	Pentegra Defined Benefit Plan	16.83	(4)	944,000		—
	Pension BEP	17.33	(5)	895,000		—
Carol Hempfling Pratt	Pentegra Defined Benefit Plan	3.50		155,000		—
	Pension BEP	4.50		128,000		—
Timothy J. Barrett	Pentegra Defined Benefit Plan	3.17		138,000		—
	Pension BEP	4.17		106,000		—

_______________________

(1) Equals number of years of credited service as of December 31, 2014.

(2) See Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 17 — Employee Retirement Plans for a description of valuation methods and assumptions.

(3) Number of years of credited service for the Pentegra Defined Benefit Plan includes 15.59 years of service at the Bank and 7.08 years of service at FIRSTFED AMERICA BANCORP, Inc., which entities are both participants in the Pentegra Defined Benefit Plan.

(4) Number of years of credited service for the Pentegra Defined Benefit Plan includes 2.33 years of service at the FHLBank of Pittsburgh.

(5) Number of years of credited service for the Pension BEP includes recognition of 2.83 years of service at the FHLBank of Pittsburgh.

We participate in the Pentegra Defined Benefit Plan to provide retirement benefits for eligible employees, including the named executive officers. Employees become eligible to participate in the Pentegra Defined Benefit Plan the first day of the month following satisfaction of our waiting period, which is one year of service with us. The Pentegra Defined Benefit Plan excludes hourly paid employees, flex staff, and short-term employees from participation. Participants are 20 percent vested in their retirement benefit after the completion of two years of employment and vest at an additional 20 percent per year thereafter until they are fully vested after the completion of six years of employment. Participants who have reached age 65 are automatically 100 percent vested, regardless of completed years of employment. All of the named executive officers are participants in the Pentegra Defined Benefit Plan and are 100 percent vested in their benefits pursuant to the plan's provisions except for Ms. Pratt and Mr. Barrett, who are 60 percent vested.

Benefits under the Pentegra Defined Benefit Plan are based on the participant's years of service and earnings, defined as base salary excluding the participant's voluntary contribution to the Thrift BEP, subject to the applicable IRC limits on annual earnings ($260,000 for 2014). For participants hired prior to January 9, 2006, the benefit is calculated as 2.00 percent multiplied by the participant's years of benefit service multiplied by the high three-year average salary. For the other participants, the benefit is calculated as 1.50 percent multiplied by the participant's years of benefit service multiplied by the high five-year average salary. Annual benefits provided under the plan are subject to IRC limits, which vary by age and benefit option selected. The regular form of benefit is a straight life annuity with a 12 times initial death benefit feature. Lump sum and other additional payout options are also available. Participants are eligible for a lump sum option beginning at age 45. Benefits are payable in the event of retirement, death, disability, or termination of employment if vested. Normal retirement is age 65, but a participant may elect early retirement as early as age 45. However, if a participant elects early retirement, the normal retirement benefit is reduced by an early retirement factor based on the participant's age when beginning early retirement. If the sum of the participant's age and vesting service at the time of termination of employment is at least 70, that is, the "Rule of 70," the benefit is reduced by an early retirement factor of one and a half percent per year for each year that payments commence before age 65. If age and vesting service do not equal at least 70, the benefit is reduced by an early retirement factor of three

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percent per year for participants hired prior to January 9, 2006, and, for the other participants, the benefit is reduced by an actuarial equivalency factor for each year that payments commence before age 65.

The amount of pension benefits payable from the Pension BEP to a named executive officer is the amount that would be payable to the executive under the Pentegra Defined Benefit Plan:

• ignoring the limits on benefit levels imposed by the IRC (including the limit on annual compensation discussed above);

• including in the definition of salary any amounts deferred by a participant under the Thrift BEP in the year deferred and any incentive compensation in the year paid;

• recognizing the participant's full tenure with us or any other employer participating in the Pentegra Defined Benefit Plan from initial date of employment to the date of membership in the Pentegra Defined Benefit Plan, for each named executive officer who was a participant before January 1, 2009, and for all other participants, recognizing only the participant's years of service with us from initial date of employment with us, but disregarding prior service of participants who were re-employed by us and received a full distribution of the Pension BEP benefit at the time of termination;

• applying an increased benefit accrual rate of 2.375 percent of the participant's highest three-year average salary, multiplied by the participant's total benefit service, for those whose most recent date of hire by the Bank is prior to January 9, 2006, and who have continuously been an “Executive Officer” (as such term is defined by the plan) since January 1, 2008, and, for all other participants, applying the same accrual rate and average salary as the participant is eligible to receive under the Pentegra Defined Benefit Plan; and

• reduced by the participant's actual accrued benefit from the Pentegra Defined Benefit Plan. As in the Pentegra Defined Benefit Plan for those employees hired before January 9, 2006, benefits from the Pension BEP are reduced by an early retirement factor of, for participants hired prior to January 9, 2006, three percent per year, and for the other participants, benefits are reduced by an actuarial equivalency factor for each year that payments commence before age 65, or, for all participants, benefits are reduced by an early retirement factor of one and a half percent if the participant satisfies the Rule of 70.

Total benefits payable under both the Pentegra Defined Benefit Plan and the Pension BEP are subject to an overall maximum annual benefit amount not to exceed a specified percentage of high three-year, or five-year average salary, as applicable, as follows: Mr. Hjerpe, 80 percent as president; Mr. Nitkiewicz, Ms. Elliott, and Mr. Collins, 70 percent as executive vice presidents; and Ms. Pratt and Mr. Barrett 65 percent as senior vice presidents. Our only named executive officer that has reached the maximum annual benefit amount is Ms. Elliott. All benefits payable under the Pension BEP are paid solely from either our general assets or from assets held in a rabbi trust subject to the claims of our creditors in the event of the Bank's insolvency. In 2009, the Pension BEP was amended to require that we contribute at least annually to any rabbi trust so established an amount to fund participant benefits on a plan termination basis and anticipated administrative, trust and investment advisory expenses that may be paid by the trust over the next 12 months. Previously, no funding standard has been applied to the Pension BEP rabbi trust which was established in 2005. Retirement benefits from the Pentegra Defined Benefit Plan and the Pension BEP are not subject to any offset provision for Social Security benefits.

Nonqualified Deferred Compensation

The following table sets forth the nonqualified deferred compensation for the fiscal year ended December 31, 2014, for our named executive officers.

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Nonqualified Deferred Compensation Table
Name	Executive Contributions in Year Ended December 31, 2014(1)		Our Contributions in Year Ended December 31, 2014(2)		Aggregate Earnings in Year Ended December 31, 2014			Aggregate Withdrawals/ Distributions		Aggregate Balance at December 31, 2014
Edward A. Hjerpe III	$	34,343	$	53,088	$	38,229		$	—	$	424,537
Frank Nitkiewicz	16,036		14,831		20,337			—		209,215
M. Susan Elliott	50,631		14,753		15,884			—		344,017
George H. Collins	2,088		4,177		(19		)	—		13,183
Carol Hempfling Pratt	35,197		13,368		8,846			—		247,617
Timothy J. Barrett	3,875		5,813		5,878			—		50,538

_______________________

(1) Amounts are also reported as salary in the Summary Compensation Table above.

(2) Amounts are also reported as contributions to defined contribution plans in the Other Compensation Table above.

Thrift BEP participants may elect to defer receipt of up to 100 percent of base salary and/or incentive compensation into the Thrift BEP. We match participant contributions based on the amount the employee contributes, typically, up to the first three percent of compensation beginning with the initial date of membership in the Thrift BEP, and then according to the same schedule as the Pentegra Defined Contribution Plan after the first year of service. However, in 2010 the board of directors adopted the Second Amendment to the Thrift BEP so that the Compensation Committee has the flexibility to modify our matching contribution rate in an offer letter, employment agreement, or other writing approved by the Compensation Committee so long as our maximum matching contribution rate does not exceed the maximum matching contribution rate available to any participant under the Pentegra Defined Contribution Plan (the Contribution Limit). The Compensation Committee has granted such a modification to Ms. Pratt permitting her matching contribution rate to be at the Contribution Limit irrespective of her tenure at the Bank. Our matching contribution is immediately vested at 100 percent, as in the Pentegra Defined Contribution Plan. Participants may defer their contributions into one or more investment funds as elected by the participant. Participants may elect to receive distributions in a lump sum or in semi-annual installments over a period that does not exceed 11 years. Participants may withdraw contributions under the plan's hardship provisions and may also begin to receive distributions while still employed through scheduled distribution accounts.

The Thrift BEP provides participants an opportunity to defer taxation on income and to make-up for benefits that would have been provided under the Pentegra Defined Contribution Plan except for IRC limitations on annual contributions under 401(k) thrift plans. It also provides participants with an opportunity for incentive compensation to be deferred and matched. The Compensation Committee and board of directors approve participation in the Thrift BEP. All of the named executive officers are current participants. All benefits payable under the Thrift BEP are paid solely from our general assets or from assets held in a rabbi trust subject to the claims of our creditors in the event of our insolvency. In 2009, the Thrift BEP was amended to require us to contribute at least quarterly to any rabbi trust established for the Thrift BEP an amount to fund participant benefits on a plan termination basis. A rabbi trust was established for the Thrift BEP effective January 1, 2010.

Post-Termination Payment

The following table represents the amount that would be payable to the named executive officers as of December 31, 2014, had their employment been terminated involuntarily for reasons other than "cause" on that date. Under our severance policy (and for Mr. Hjerpe, under the change in control agreement) and based on status in the organization and tenure for Mr. Hjerpe, Mr. Nitkiewicz, Ms. Elliott and Mr. Collins, the amount is equal to 12 months' base salary and for Ms. Pratt and Mr. Barrett the amount is equal to six months' base salary, all based on annual salary in effect on December 31, 2014.

Name	Cash Severance(1)
Edward A. Hjerpe III(2)	$	710,000
Frank Nitkiewicz	346,000
M. Susan Elliott	346,000
George H. Collins	300,000
Carol Hempfling Pratt	142,500
Timothy J. Barrett	142,500

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_______________________

(1) Severance payments do not result in an acceleration of retirement or other benefit plans as described above.

(2) Severance payments to Mr. Hjerpe may consist of either payments under our severance policy or under the change in control agreement but not both. Each, however, provides for 12 months of base salary.

Director Compensation

We pay members of the board of directors fees for each board and committee meeting that they attend. FHFA regulations permit the payment of reasonable director compensation, and such compensation is subject to the FHFA's oversight. We are a cooperative and our capital stock may only be held by current and former members, so we do not provide compensation to our directors in the form of stock or stock options. The amounts paid to the members of the board of directors for attendance at board and committee meetings during the year ended December 31, 2014, along with the annual maximum compensation amounts are detailed in the following table:

Summary of the 2014 and 2013 Director Compensation Policies
	2014		2013
Fee per board meeting:
Chair of the board	$	11,250	$	9,900
Vice chair of the board	9,450		8,450
Audit committee chair	9,450		8,450
Other committee chairs	9,450		7,750
All other board members	8,500		7,000
Fee per committee meeting	2,250		2,000
Fee per telephonic conference call	1,500		1,325
Annual maximum compensation amounts:
Chair of the board	$	85,000	$	75,000
Vice chair of the board	72,500		65,000
Audit committee chair	72,500		65,000
Other committee chairs	72,500		60,000
All other board members	65,000		55,000

The aggregate amounts earned or paid to individual members of the board of directors for attendance at board and committee meetings during 2014 are detailed in the following table:

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2014 Director Compensation
	Fees Earned or Paid in Cash
Andrew J. Calamare, Chair	$	85,000
Steven A. Closson, Vice Chair	72,500
Donna L. Boulanger	65,000
Joan Carty	72,500
Eric Chatman	61,250
Patrick E. Clancy	65,000
Peter F. Crosby	72,500
Stephen G. Crowe	72,500
Martin J. Geitz	65,000
Cornelius K. Hurley	72,500
Jay F. Malcynsky	72,500
John W. McGeorge	65,000
Emil J. Ragones	72,500
John F. Treanor	72,500
Kenneth A. Wilman Jr.	65,000
	$	1,051,250

Directors may elect to defer the receipt of meeting fees pursuant to the Thrift BEP, although there is no Bank-matching contribution for such deferred fees. For additional information on the Thrift BEP, see — Retirement and Deferred Compensation Plans above. FHFA regulations permit the payment or reimbursement of reasonable expenses incurred by directors in performing their duties, and in accordance with those regulations, we have adopted a policy governing such payment and reimbursement of expenses. Such paid and reimbursed board of director expenses aggregated to $140,000 for the year ended December 31, 2014.

The 2015 Directors Compensation Policy provides for the following payments and compensation caps:

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Summary of the 2015 Director Compensation Policy
	2015 Director Compensation
Fee per board meeting:
Chair of the board	$	11,250
Vice chair of the board and committee chairs	9,450
All other board members	8,500
Fee per committee meeting	2,250
Fee per telephonic conference call	1,500
Annual maximum compensation amounts:
Chair of the board	$	85,000
Vice chair of the board and committee chairs	72,500
All other board members	65,000
Annual maximum for spouse/guest travel expenses (perquisites)(1):
Chair of the board	$	2,000
Vice chair of the board	2,000
All other board members, including committee chairs(2)	1,000
Annual maximum compensation amounts, including fees and perquisites:
Chair of the board	$	87,000
Vice chair of the board	74,500
Committee chairs(2)	73,500
All other board members(2)	66,000

_______________________

(1) Costs paid/reimbursed by the Bank related to the attendance by a director’s spouse/guest at certain Bank or Federal Home Loan Bank System events.

(2) Directors who attend meetings of the Council of FHLBanks as a substitute for the Chair or Vice Chair may receive reimbursement for spouse/guest expenses relating to attendance at such meetings, even if such reimbursement, when combined with other spouse/guest expenses, would exceed these maximums.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

We are a cooperative, our members or former members own all of our outstanding capital stock, and our directors are elected by and a majority are from our membership. Each member is eligible to vote for the open member directorships in the state in which its principal place of business is located and for each open independent directorship. See Item 10 — Directors, Executive Officers and Corporate Governance for additional information on the election of our directors. Membership is voluntary, and members must give notice of their intent to withdraw from membership. Members that withdraw from membership may not be readmitted to membership for five years.

We do not offer any compensation plan under which our equity securities are authorized for issuance. Members, former members, and successors to former members, including affiliated institutions under common control of a single holding company, holding five percent or more of our outstanding capital stock as of February 28, 2015, are noted in the following table.

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Stockholders Holding Five Percent or More of Outstanding Capital Stock As of February 28, 2015  (dollars in thousands)
Member Name and Address	Capital Stock		Percent of Total Capital Stock
Citizens Bank, N.A.	$	317,502	12.77	%
One Citizens Plaza
Providence, RI 02903
People's United Bank, N.A.	164,375		6.61
850 Main Street
Bridgeport, CT 06604
Webster Bank, N.A.	142,575		5.74
145 Bank Street
Waterbury, CT 06702

Additionally, due to the fact that a majority of our board of directors is elected from our membership, these member directors serve as officers or directors of members that own our capital stock. The following table provides capital stock outstanding to members whose officers or directors were serving as our directors as of February 28, 2015:

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Capital Stock Outstanding to Members whose Officers or Directors were Serving on our Board of Directors As of February 28, 2015 (dollars in thousands)
Member Name and Address	Capital Stock		Percent of Total Capital Stock
The Washington Trust Company	$	37,730	1.52	%
23 Broad Street
Westerly, RI 02891
Needham Bank	14,345		0.58
1063 Great Plain Avenue
Needham, MA 02492
Lake Sunapee Bank	10,762		0.43
9 Main Street
Newport, NH 03773
MountainOne Bank	7,877		0.32
93 Main Street
North Adams, MA 01247
Androscoggin Savings Bank	4,897		0.20
30 Lisbon Street
Lewiston, ME 04240
Merchants Bank	4,378		0.18
275 Kennedy Drive
South Burlington, VT 05403
The Simsbury Bank & Trust Company	1,881		0.07
981 Hopmeadow Street
Simsbury, CT 06070
North Brookfield Savings Bank	1,662		0.07
35 Summer Street
North Brookfield, MA 01535
Depositors Insurance Fund	1,099		0.04
One Linscott Road
Woburn, MA 01801
Essex Savings Bank	1,029		0.04
35 Plains Road
Essex, CT 06426
Total stock ownership by members whose officers or directors serve as directors of the Bank	$	85,660	3.45	%

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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Transactions with Related Persons

We have a cooperative ownership structure. As such, capital stock ownership in the Bank is a prerequisite to transacting any member business with us. Our members and certain former members or their successors own all of our stock, the majority of our directors are elected by and from the membership, and we conduct our advances and mortgage loan business almost exclusively with members. Grants under the AHP and AHP advances are also made in partnership or in connection with our members. Therefore, in the normal course of business, we extend credit and offer services and AHP benefits to members whose officers and directors may serve as our directors, as well as to entities that hold five percent or more of our capital stock. It is our policy that extensions of credit, all other Bank products and services, and AHP benefits are offered on terms and conditions that are no more favorable to such members than the terms and conditions of comparable transactions with other members.

In addition, we may purchase short-term investments, federal funds, and MBS from, and enter into interest-rate-exchange agreements with, members or their affiliates whose officers or directors serve as directors of the Bank, as well as from members or their affiliates who hold five percent or more of our capital stock. All such purchase transactions are effected at the then-current market rate and all MBS are purchased through securities brokers or dealers, also at the then-current market rate.

For the year ended December 31, 2014, the review and approval of transactions with related persons was governed by our Conflict of Interest Policy for Bank Directors (the Conflict Policy), our Code of Ethics and Business Conduct (Code of Ethics) and our Related Persons Transaction Policy (the Related Persons Policy), each of which are in writing. Under the Conflict Policy, each director is required to disclose to the board of directors all actual or potential conflicts of interest, including any personal financial interest that he or she has, as well as such interests of any immediate family member or business associate of the director known to the director, in any matter to be considered by the board of directors or in which another person does, or proposes to do, business with the Bank. Following such disclosure, the board is empowered to determine whether an actual conflict exists. In the event the board determines the existence of a conflict with respect to any matter, the affected director is required to be recused from all further considerations relating to that matter. The Conflict Policy is administered by the Governance Committee of the board of directors.

The Code of Ethics requires that all directors and executive officers (as well as all other employees) avoid conflicts of interest, or the appearance of conflicts of interest. In particular, subject to limited exceptions for interests arising through ownership of mutual funds and certain financial interests acquired prior to employment by the Bank, no employee may have a financial interest in any of our members that is not transacted in the ordinary course of the member's business and, in the case of an extension of credit, involves more than the normal risk of repayment or of loss to the member. Employees are required to disclose annually all financial interests and financial relationships with members. These disclosures are reviewed by our ethics officer, who is principally responsible for enforcing the Code of Ethics on a day-to day basis. The ethics officer is charged with attempting to resolve any apparent conflict involving an employee other than our president and chief executive officer and, if an apparent conflict has not been resolved within 60 days, to report it to our president and chief executive officer for resolution. The ethics officer is charged with reporting any apparent conflict involving a director or our president and chief executive officer to the Governance Committee of the board of directors for resolution. Our ethics officer is Carol Hempfling Pratt, senior vice president, general counsel and corporate secretary of the Bank.

The Related Persons Policy provides for the board of director’s Governance Committee’s review of certain transactions not in the ordinary course of our business that would be with related persons to determine whether such transactions would be in the best interests, or not be inconsistent with the best interests, of the Bank and our members.

Director Independence

General

The board of directors is required to evaluate and report on the independence of the directors of the Bank under two distinct director independence standards. First, FHFA regulations establish independence criteria for directors who serve as members of the board of directors' Audit Committee. Second, SEC rules require that our board of directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of our directors.

As of the date of this report, our board of directors is constituted of nine member directors and seven independent directors, as discussed in Item 10 — Directors, Executive Officers and Corporate Governance. None of our directors is an "inside" director. That is, none of our directors is a Bank employee or officer. Further, our directors are prohibited from personally owning stock or stock options in the Bank. Each of the member directors, however, is a senior officer, director, or trustee of an institution that is a member of the Bank that is encouraged to engage in transactions with us on a regular basis, and some of the independent

193

directors also engage in transactions either directly or indirectly with us from time to time in the ordinary course of the Bank's business.

FHFA Regulations Regarding Independence

The FHFA regulations on director independence standards prohibit an individual from serving as a member of the board of directors' Audit Committee if he or she has one or more disqualifying relationships with us or our management that would interfere with the exercise of that individual's independent judgment. Disqualifying relationships considered by the board are: employment with the Bank at any time during the last five years; acceptance of compensation from us other than for service as a director; being a consultant, advisor, promoter, underwriter, or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The board assesses the independence of each director who serves on the Audit Committee under the FHFA's regulations on these independence standards. As of March 20, 2015, all of our directors serving on the board of directors' Audit Committee were independent under these criteria.

SEC Rule Regarding Independence

SEC rules require our board of directors to adopt a standard of independence to evaluate its directors. Pursuant thereto, the board adopted the independence standards of the New York Stock Exchange (the NYSE) to determine which of its directors are independent, which members of its Audit Committee are not independent, and whether the board of directors' Audit Committee financial expert is independent.

After applying the NYSE independence standards, the board determined that, as of March 20, 2015, all of our independent (that is, nonmember) directors are independent, including Directors Calamare, Carty, Chatman, Clancy, Hurley, Malcynsky, and Ragones. Based upon the fact that each member director is a senior official of an institution that is a member of the Bank (and thus is an equity holder in the Bank), that each such institution routinely engages in transactions with us, and that such transactions occur frequently and are encouraged, the board of directors has determined that for the present time it would conclude that none of the member directors meets the independence criteria under the NYSE independence standards.

It is possible that under a strict reading of the NYSE objective criteria for independence (particularly the criterion regarding the amount of business conducted with us by the director's institution), a member director could meet the independence standard on a particular day. However, because the amount of business conducted by a member director's institution may change frequently, and because we generally desire to increase the amount of business we conduct with each member, the directors deemed it inappropriate to draw distinctions among the member directors based upon the amount of business conducted with us by any director's institution at a specific time.

The board of directors has a standing Audit Committee and a standing Compensation Committee. For the reasons noted above, the board of directors determined that none of the current member directors on these committees, including Directors Crowe, Closson, McGeorge, and Treanor are independent under the NYSE standards for these committees. The board determined that all of the independent directors on these committees, including Directors Calamare (ex-officio), Carty, Chatman, Malcynsky and Ragones are independent under the NYSE independence standards for these committees. The board of directors also determined that Director Crowe is the "Audit Committee financial expert" within the meaning of the SEC rules, and further determined that as of March 20, 2015, is not independent under NYSE standards. As stated above, the board of directors determined that each director on the Audit Committee is independent under the FHFA's regulations applicable to the board of director's Audit Committee.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the aggregate fees billed by PwC for professional services rendered in connection with the audit of our financial statements for 2014 and 2013, as well as the fees billed by PwC for audit-related services rendered by PwC to us during 2014 and 2013.

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Principal Accounting Fees and Services  (dollars in thousands)
	Year Ended December 31,
	2014		2013
Audit fees(1)	$	815	$	737
Audit-related fees(2)	90		84
All other fees	—		—
Tax fees	—		—
Total	$	905	$	821

_______________________

(1) Audit fees consist of fees incurred in connection with the audit of our financial statements, including audit of internal controls over financial reporting, review of quarterly or annual management's discussion and analysis, and review of financial information filed with the SEC.

(2) Audit-related fees consist of fees related to accounting research and consultations, operations reviews of new products and supporting processes, and fees related to participation in and presentations at conferences.

The Audit Committee selects our independent registered public accounting firm and preapproves all audit services to be provided by it to us. The Audit Committee also reviews and preapproves all audit-related and nonaudit-related services rendered by the independent registered public accounting firm in accordance with the Audit Committee's charter. In its review of these services and related fees and terms, the Audit Committee considers, among other things, the possible effect of the performance of such services on the independence of our independent registered public accounting firm.

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES

a)    Financial Statements

Our financial statements are set forth under Item 8 — Financial Statements and Supplementary Data of this report on Form 10-K.

b)    Financial Statement Schedule

None.

c)    Exhibits

Number	Exhibit Description	Reference
3.1	Restated Organization Certificate of the Federal Home Loan Bank of Boston	Exhibit 3.1 to our Registration Statement on Form 10 filed with the SEC on October 31, 2005
3.2	By-laws of the Federal Home Loan Bank of Boston	Exhibit 3.2 to our Form 8-K filed with the SEC on October 31, 2013
4	Amended and Restated Capital Plan of the Federal Home Loan Bank of Boston	Exhibit 99.2 to our Form 8-K filed with the SEC on August 5, 2011
10.1	The Federal Home Loan Bank of Boston Pension Benefit Equalization Plan effective January 1, 2009, as amended on April 15, 2009 *	Exhibit 10.1.3 to our Second Quarter 2009 Form 10-Q filed with the SEC on August 12, 2009
10.1.1	First Amendment to the Federal Home Loan Bank of Boston Pension Benefit Equalization Plan effective September 1, 2009 *	Exhibit 10.2 to our Third Quarter 2009 Form 10-Q filed with the SEC on November 12, 2009
10.1.2	Second Amendment to the Federal Home Loan Bank of Boston Pension Benefit Equalization Plan effective December 21, 2012 *	Exhibit 10.1.2 to our 2012 Form 10-K filed with the SEC on March 26, 2013
10.1.3	Third Amendment to the Pension Benefit Equalization Plan effective June 30, 2014*	Exhibit 10.1 to our 2014 Form 10-Q filed with the SEC on August 8, 2014

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10.2.1	The Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan as amended and restated on December 30, 2008, effective January 1, 2009 *	Exhibit 10.2.3 to our 2008 Form 10-K filed with the SEC on April 10, 2009
10.2.2	First Amendment to the Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan effective September 1, 2009 *	Exhibit 10.3 to our Third Quarter 2009 Form 10-Q filed with the SEC on November 12, 2009
10.2.3	Second Amendment to the Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan effective July 1, 2010 *	Exhibit 10.1 to our Second Quarter 2010 Form 10-Q filed with the SEC on August 12, 2010
10.2.4	Third Amendment to the Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan effective December 21, 2012 *	Exhibit 10.2.4 to our 2012 Form 10-K filed with the SEC on March 26, 2013
10.2.5	Fourth Amendment to the Thrift Benefit Equalization Plan effective June 30, 2014*	Exhibit 10.2 to our 2014 Form 10-Q filed with the SEC on August 8, 2014
10.3	The Federal Home Loan Bank of Boston 2012 Executive Incentive Plan *	Exhibit 99.1 to our Form 8-K filed with the SEC on May 11, 2012.
10.4	The Federal Home Loan Bank of Boston 2013 Executive Incentive Plan *	Exhibit 99.1 to our Form 8-K filed with the SEC on March 29, 2013.
10.5	The Federal Home Loan Bank of Boston 2014 Executive Incentive Plan *	Exhibit 99.1 to our Form 8-K filed with the SEC on April 15, 2014.
10.6	Lease between the Federal Home Loan Bank of Boston and BP Prucenter Acquisition LLC	Exhibit 10.1 to our Form 8-K filed with the SEC on October 27, 2010
10.7	Mortgage Partnership Finance Services Agreement dated August 15, 2007 between the Federal Home Loan Bank of Boston and the Federal Home Loan Bank of Chicago	Exhibit 10 to our Third Quarter 2007 Form 10-Q filed with the SEC on November 9, 2007
10.8	Federal Home Loan Banks P&I Funding and Contingency Plan Agreement, effective as of July 20, 2006, by and among the Office of Finance and each of the Federal Home Loan Banks	Exhibit 10.1 to our Form 8-K filed with the SEC on June 23, 2006
10.9.1	The Federal Home Loan Bank of Boston 2013 Director Compensation Policy *	Exhibit 10.1 to our Form 8-K/A as filed with the SEC on December 21, 2012
10.9.2	The Federal Home Loan Bank of Boston 2014 Director Compensation Policy *	Exhibit 10.1 to our Form 8-K/A as filed with the SEC on December 20, 2013
10.9.3	The Federal Home Loan Bank of Boston 2015 Director Compensation Policy *	Exhibit 10.1 to our Form 8-K as filed with the SEC on October 24, 2014
10.10	Offer Letter for Edward A. Hjerpe III, dated May 18, 2009 *	Exhibit 10.1 to our Second Quarter 2009 Form 10-Q filed with the SEC on August 12, 2009
10.10.1	Amendment to Offer Letter for Edward A. Hjerpe III, dated July 3, 2009 *	Exhibit 10.1.1 to our Second Quarter 2009 Form 10-Q filed with the SEC on August 12, 2009
10.11	Change in Control Agreement between the Federal Home Loan Bank of Boston and Edward A. Hjerpe III, dated as of May 18, 2009 *	Exhibit 10.1.2 to our Second Quarter 2009 Form 10-Q filed with the SEC on August 12, 2009
10.12	Joint Capital Enhancement Agreement, among the Federal Home Loan Banks as amended August 5, 2011	Exhibit 99.1 to our Form 8-K filed with the SEC on August 5, 2011.
10.13	Severance Policy, as adopted March 23, 2012 *	Exhibit 10.11 to our Form 10-K filed with the SEC on March 23, 2012.
12	Computation of ratios of earnings to fixed charges	Filed within this Form 10-K

196

31.1	Certification of the president and chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed within this Form 10-K
31.2	Certification of the chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed within this Form 10-K
32.1	Certification of the president and chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed within this Form 10-K
32.2	Certification of the chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed within this Form 10-K
101.INS	XBRL Instance Document	Filed within this Form 10-K
101.SCH	XBRL Taxonomy Extension Schema Document	Filed within this Form 10-K
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed within this Form 10-K
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed within this Form 10-K
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed within this Form 10-K
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed within this Form 10-K

* Management contract or compensatory plan.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date	FEDERAL HOME LOAN BANK OF BOSTON (Registrant)
March 23, 2015	By:	/s/	Edward A. Hjerpe III
			Edward A. Hjerpe III President and Chief Executive Officer
March 23, 2015	By:	/s/	Frank Nitkiewicz
			Frank Nitkiewicz Executive Vice President and Chief Financial Officer
March 23, 2015	By:	/s/	Brian G. Donahue
			Brian G. Donahue Senior Vice President, Controller and Chief Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

March 23, 2015	By:	/s/	Andrew J. Calamare
			Andrew J. Calamare Director
March 23, 2015	By:	/s/	Joan Carty
			Joan Carty Director
March 23, 2015	By:	/s/	Eric Chatman
			Eric Chatman Director
March 23, 2015	By:	/s/	Patrick E. Clancy
			Patrick E. Clancy Director
March 23, 2015	By:	/s/	Steven A. Closson
			Steven A. Closson Director
March 23, 2015	By:	/s/	Stephen G. Crowe
			Stephen G. Crowe Director
March 23, 2015	By:	/s/	Martin J. Geitz
			Martin J. Geitz Director
March 23, 2015	By:	/s/	Cornelius K. Hurley
			Cornelius K. Hurley Director

198

March 23, 2015	By:	/s/	Jay F. Malcynsky
			Jay F. Malcynsky Director
March 23, 2015	By:	/s/	John W. McGeorge
			John W. McGeorge Director
March 23, 2015	By:	/s/	Emil J. Ragones
			Emil J. Ragones Director
March 23, 2015	By:	/s/	Gregory R. Shook
			Gregory R. Shook Director
March 23, 2015	By:	/s/	Stephen R. Theroux
			Stephen R. Theroux Director
March 23, 2015	By:	/s/	John F. Treanor
			John F. Treanor Director
March 23, 2015	By:	/s/	Michael R. Tuttle
			Michael R. Tuttle Director

199