Our assessment of Home Loan Bank 1Q/14 earnings focused on the dangerous cocktail of higher advance volume, lower NIM, and lower earnings resulting in large part from chasing business at the biggest banks. As before, we highlighted a strategic challenge of offering a product—advances—that cannot support FHLB infrastructure under current market conditions. 2Q/14 earnings show the same pattern, worsened this time by a large mark-to-market adjustment on derivatives held by the FHLB-San Francisco. The day after these earnings were released Seattle and Des Moines announced a proposed merger.

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