the participating financial institution, paid on a monthly basis based on the outstanding aggregate principal balance of the MPF Government loans.


~~(3)~~(5)	We do not currently offer new master commitments to our members under MPF 125.


~~(4)~~(6)	~~Currently, no supplemental mortgage guaranty insurance provider has the required NRSRO rating and so we~~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, including 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:

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.~~MPF Original. 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. We may recover a portion of losses incurred under the first loss account by withholding performance credit-enhancement fees payable to the participating financial institution.

MPF 35. The first loss account is equal to 35 basis points of the aggregate principal balance of the MPF loans funded under the master commitment. We may recover a portion of losses we absorb by withholding performance credit-enhancement fees that would otherwise be 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 amount of 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.

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We ~~occasionally~~may 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 for which we earn a fee.

Consolidated Obligations

We fund our activities principally through the sale of debt securities known as consolidated obligations, and 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 ana single FHLBank (as the primary obligor) through the Office of Finance, but all COs are the joint and several obligation of ~~each~~all 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. As of February ~~29, 2016,~~28, 2017, Moody's Investors Service Inc. (Moody's) rated COs Aaa/P-1, and Standard & Poor’s Financial Services LLC (S&P) rated 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.

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(in the aggregate, the FHLBanks may comprise a significant percentage of the federal funds sold market from time to time however, each FHLBank, including the Bank, manages its investment portfolio ~~separately.~~separately), and others. Some CO bonds may contain different coupon characteristics at different points in time.

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~~if 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.

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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.

Negative Pledge Requirement.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:

													Ratio of Non-Pledged Assets to Total Consolidated Obligations by Carrying Value	(dollars in thousands)
	December 31,						December 31,
	2015			2014			2016			2015

Cash and due from banks	$	254,218		$	1,124,536		$	520,031		$	254,218
Advances	36,076,167			33,482,074			39,099,339			36,076,167
Investments ⁽¹⁾	18,019,181			16,879,299			18,031,331			18,019,181
Mortgage loans, net	3,581,788			3,483,948			3,693,894			3,581,788
Accrued interest receivable	84,442			77,411			84,653			84,442
Less: pledged assets	(396,439		)	(451,632		)	(322,031		)	(396,439		)
Total non-pledged assets	$	57,619,357		$	54,595,636		$	61,107,217		$	57,619,357
Total consolidated obligations	$	53,912,506		$	50,815,382		$	57,225,398		$	53,906,374
Ratio of non-pledged assets to consolidated obligations	1.07			1.07			1.07			1.07

_______________________


(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.

Joint and Several Liability.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.

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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

As a cooperative, we are owned by our member institutions, which are required to purchase shares of our capital stock as a condition of membership in us and to support the capital requirements for certain credit products that we ~~provide,~~provide. All issuances and ~~for which all transfers~~repurchases/redemptions of our capital stock are ~~exchanged~~effected at a par value of $100 per share. We currently issue one class of stock, Class B, which shareholders may redeem five years after providing a written redemption request. Our equity capital also includes retained earnings.

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, ~~2015,~~2016, members and nonmembers with capital stock outstanding held excess capital stock totaling ~~$158.9~~$78.3 million, representing approximately ~~6.7~~3.2 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~~that 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. The stock-redemption period also applies (with certain exceptions) 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 regulatory capital requirements, cause the member to fail to comply with its TSIR, or 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 shareholder 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. On July 24, 2015, our board of directors authorized management to implement an excess stock management program, under which we are authorized to repurchase excess stock to maintain excess stock within a targeted range between zero and $200 million. We expect to execute repurchases under the program from time to time to stay within this targeted excess stock range and to ensure a fair distribution of ownership consistent with shareholders’ total stock investment requirements in ~~2016.~~2017. In addition, shareholders may request that we voluntarily repurchase excess stock shares at any time. In either case, we retain sole discretion over any voluntary repurchases of excess stock in accordance with our capital plan. During the year ended December 31, ~~2015,~~2016, we repurchased ~~$602.1~~$390.1 million of excess capital stock, of which ~~$256.7~~$9.3 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, prevent us from maintaining adequate capital against potential risks that are not adequately reflected in our minimum capital requirements, or 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 determine 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.

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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~~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.

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. 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, ~~2015,~~2016, our retained earnings totaled ~~$1.1~~$1.2 billion. Of that amount, ~~$194.6~~$229.3 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~~three ways: 1) as a fair-value hedge of a hedged financial instrument or a firm commitment, 2) a cash-flow hedge of a hedged financial instrument ~~firm commitment,~~ or a forecasted transaction, or 2)3) as economic hedges in asset-liability management that are not designated as hedges. In addition to using ~~interest-rate-exchange agreements~~derivatives to manage mismatches of interest rates between assets and liabilities, we also use ~~interest-rate-exchange agreements~~derivatives 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~~

derivatives concurrently with the issuance of COs to reduce funding costs. We enter into derivatives directly with principal counterparties and also enter into ~~centrally cleared~~centrally-cleared derivatives where our counterparty is a derivatives

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clearing organization (DCO). FHFA regulations require the documentation of nonspeculative 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, ~~2015,~~2016, our AHP assessment was ~~$32.3~~$19.4 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;

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~~ineffective people, processes or ~~third-party failure, unenforceability of legal contracts,~~systems, whether emanating internally or ~~deficiencies in internal controls or information systems;~~externally; 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 provides risk oversight through the review and approval of our ~~risk- management~~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

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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 includes, but is not limited to, the risk of unexpected loss resulting from ~~among other possible sources,~~ human error, fraud, vendor or third-party failure, 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, monitored physical and logical security controls to protect our information systems and data, mandatory staff training on cyber risks, and third party facilitated penetration testing.

Additionally, most of our information systems have either been placed with infrastructure-as-a-service (IaaS) providers or have been co-located with a third-party service ~~provider to a site~~provider. Both types of environments are designed to host information systems with specialized environmental ~~controls;~~controls, certain power, heating and cooling system ~~redundancies;~~redundancies, 24-hour onsite ~~staffing;~~staffing, and physical security. We rely on ~~this~~these service ~~provider~~providers to continue to provide a secure ~~location~~locations and a stable operating ~~environment~~environments for ~~these systems.~~the systems deployed there. 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 reliance on ~~this~~these third-party service ~~provider,~~providers, including physical ~~and~~and/or monitored logical security controls to protect our information systems and hosted data ~~within the co-location space~~ along with maintaining redundancy of systems at an alternate ~~location that we control~~locations for disaster-recovery and business continuity. Additionally, we review the ~~provider's~~providers' controls report annually and monitor and meet with ~~the provider~~providers on a regular basis. We ~~have a~~maintain disaster-recovery ~~site~~sites intended to provide continuity of operations in the event that our primary information systems become unavailable, but there can be no complete assurance that ~~the~~those disaster-recovery ~~site~~sites will work as intended in the event of an actual disruption or failure. Moreover, certain of our ~~applications~~application vendors host their applications in either a software-as-a-service framework or a hosted service model, either on their own hardware or ~~on third-party, cloud-based environments.~~with a third-party. We have executed contracts with these providers stipulating standards for control intended to mitigate our risks based on loss of access or security breaches. Additionally, we actively manage these service providers through our vendor management program.

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. 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~~organizations' control 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.

We are implementing a multi-year strategy to modernize most of our mission critical applications and supporting infrastructure. The pace of change in our information technology increases the risk of failures or interruptions of information systems or other technology, which could have a material adverse impact on our financial condition and results of operations. We have taken steps to mitigate the risks arising from the pace of change by strictly adhering to our information technology-related policies, guidelines, procedures and industry best practices and engaging third party experts to guide and advise on the strategy as a

whole and on particular components, and we intend to follow these practices during the remainder of the implementation of this program. Furthermore, our senior management approves and provides oversight of all major information technology-related investments.

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, computer systems fraud, 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 commercial property and general liability, bankers professional liability, employment practices liability, cyber

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liability, ~~electronic data-processing equipment~~ and ~~software, personal property, leasehold improvements, fire, explosion, water damage, and personal injury including slander and libelous actions.~~fiduciary liability. 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.~~accidents. 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~~maintain 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 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, ~~2015~~2016, our five largest stock-holding members held ~~31.1~~32.3 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 iswould 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 ownership of our 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.

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.

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The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and as such, are governed by federal laws and by 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, from time to time, ~~Congress,~~ the ~~Obama administration,~~executive branch, Congress, and various independent federal agencies have advanced plans to reform the federal support of U.S. housing finance, specifically targeting Fannie Mae and Freddie Mac. ~~These~~If implemented, these plans are likely to also 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. In addition, we cannot predict what actions the Trump administration will take and how or whether any such actions will affect the FHLBanks, our ability to conduct business, the cost of doing business, or our profitability.

We cannot predict what ~~additional~~ regulations will be issued or revised or what ~~additional~~ legislation will be enacted or repealed, and we cannot predict the effect of any such ~~additional~~ regulations or legislation on our business operations and/or financial condition. ~~Additional changes~~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.

Historically, our board of directors has varied dividend declarations based on our financial condition, outlook and economic environment. For example, from November 2008 until January 2011, the board of directors 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 of directors recommenced declaring dividends, and dividends have been declared each quarter since that time. Nonetheless, ifIf 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 shareholder-initiated excess stock repurchases although we completed several Bank-initiated partial repurchases of excess stock during the latter part of that period. We have since rescinded the moratorium, however, that period of constrained excess stock repurchases and the potential for another such period 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 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 an NRSRO is likely to be followed by a similar downgrade of the FHLBanks. Downgrades of the U.S. federal ~~government~~government's credit rating (and, in turn, the ~~FHLBanks)~~FHLBanks' credit rating) are possible, and any resulting downgrades to our credit ratings could adversely impact our funding costs and/or access to the capital markets. Additionally, 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 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Derivative Instruments — Derivative Instruments Credit Risk and Item 8 — Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Derivatives and Hedging Activities. 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

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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 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 topics such as 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 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~~would 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, ~~2015.~~2016. 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 calculated

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economic capital requirement. 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.

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. Moreover, any changes in regulatory liquidity requirements could adversely affect our financial condition and results of operations.

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. A ~~continued and prolonged~~very 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 or curtailment of our ability 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~~issuance 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

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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~~may sustain further 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, 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~~other-than-temporary-impairment losses from certain of these securities. We incurred credit losses of $~~4.1~~3.3 million for private-label MBS that we determined were other-than-temporarily impaired for the year ended December 31, ~~2015~~2016. 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.

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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.

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~~for us 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.~~improves, particularly in the Boston area.

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. We take steps to mitigate the risks of such reliance, as discussed under Item 1 — Business — Risk Management — Operational Risk, however failures or interruptions of these information systems or other technology could have a material adverse impact on our financial condition and results of operations. Additionally, most of our information systems have been co-located with a third-party service provider, or are hosted with IaaS providers, 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, or IaaS providers, 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 are implementing a multi-year strategy to modernize most of our mission critical applications and supporting infrastructure. The increased pace of change to our information technology environment can elevate the risk of failures or interruptions of information systems or other technology, which could have a material adverse impact on our financial condition and results of operations.

We rely on third parties for certain important services and could be adversely impacted by disruptions in those 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 ~~6.2~~6.0 percent of our total assets as of December 31, ~~2015,~~2016, and ~~21.0~~16.9 percent of interest income for the year ended December 31, ~~2015.~~2016. 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, 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 or curtailment of our ability 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 changes in 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

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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 manage 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.

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 (the Massachusetts Superior Court), 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.~~Massachusetts (the Massachusetts District Court). On March 9, 2012, our motion to remand the matter to ~~state court~~the Massachusetts Superior Court was denied.

On June 29, 2012, we filed an amended complaint (the amended complaint) in the ~~United States~~Massachusetts 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~~Massachusetts District 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 (together Moody's), 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

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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.~~York (S.D.N.Y.).

On September 30, 2014, the ~~court~~Massachusetts District Court dismissed our claims against the credit rating agency defendants, ~~based on a recent Supreme Court case. The court held~~holding that ~~the United States District Court for the District of Massachusetts (the Massachusetts District Court) lacks~~it lacked 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 (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. ~~Oral argument on the Bank’s appeal against Moody’s was completed on February 1, 2016, and we await a ruling.~~

On October 14, 2014, we also 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~~

On May 2, 2016, the ~~statute~~First Circuit ruled favorably on our appeal of ~~limitations for purposes~~the dismissal of our ~~filing~~claims against Moody’s. The First Circuit vacated the Massachusetts District Court's ruling that federal law does not permit the transfer of cases from one federal court to another where the first court is found to lack personal jurisdiction. The First Circuit remanded the case to the Massachusetts District Court to determine whether transfer of our claims to the S.D.N.Y. would be in the interest of justice. On August 1, 2016, Moody's filed a ~~possible new action~~petition for writ of certiorari to the Supreme Court of the United States (the Supreme Court), asking the Supreme Court to review the First Circuit’s decision. On October 11, 2016, the Supreme Court denied Moody’s petition. Then on January 6, 2017, the Massachusetts District Court ruled that transfer of our claims against Moody’s to the S.D.N.Y. would be in ~~a different jurisdiction, which we may determine is appropriate as to Moody’s if our appeal is not successful.~~the interests of justice and ordered that those claims be severed and transferred.

In addition to ~~our appeal with respect to the dismissal of~~ our claims against Moody’s, 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.;~~ Credit Suisse (USA), Inc.; Impac Mortgage Holdings, Inc.; Morgan Stanley; Nomura Holding America, Inc.; RBS Holdings USA Inc.; and UBS Americas Inc. (collectively the securities defendants).

~~During~~On February 3, 2017, we, along with the ~~year ended December 31, 2015,~~securities defendants, filed a joint motion for remand of our remaining claims against the securities defendants to the Massachusetts Superior Court in light of the U.S. Supreme Court’s January 18, 2017, decision in Lightfoot v. Cendant Mortgage Corp. On February 7, 2017, the joint motion to remand was granted.

Over the past five years, we have agreed with certain defendants in our private-label MBS litigation to settle our claims against them for an aggregate amount of ~~$184.9~~$301.7 million (which amount is net of legal fees and expenses).

~~Class Action Complaint~~

On May 8, 2015, we voluntarily dismissed a class action complaint we had filed against EMC Mortgage Corporation and Bear, Stearns & Co., Inc. now known as J.P. Morgan Securities, LLC, based on claims we made arising from our investment in certain private-label MBS trusts. Of that amount, $39.2 million represents settlements during the year ended December 31, 2016.

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 ~~29, 2016, 445~~28, 2017, 446 members and 5five nonmembers held a total of ~~24.3~~24.6 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 2016, 2015, ~~2014,~~ and ~~2013~~2014 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)	Quarterly Dividends Declared (dollars in thousands)																			Quarterly Dividends Declared (dollars in thousands)

		2015						2014						2013							2016						2015						2014
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			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		$	2,390,541	$	10,484	1.74	%	$	2,466,229	$	9,262	1.49	%	$	3,439,178	$	3,199	0.37	%		$	2,265,359	$	19,529	3.42	%	$	2,390,541	$	10,484	1.74	%	$	2,466,229	$	9,262	1.49	%
June 30		2,425,312		10,525		1.76		2,544,005		9,347		1.49		3,403,198		3,357		0.40			2,343,265		21,148		3.63		2,425,312		10,525		1.76		2,544,005		9,347		1.49
September 30		2,461,879		20,132		3.28		2,504,180		9,240		1.48		2,381,304		2,256		0.38			2,377,314		21,574		3.65		2,461,879		20,132		3.28		2,504,180		9,240		1.48
December 31		2,507,938		20,987		3.32		2,415,369		9,071		1.49		2,423,200		2,260		0.37			2,388,743		22,818		3.80		2,507,938		20,987		3.32		2,415,369		9,071		1.49

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(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 ~~18, 2016~~16, 2017, our board of directors declared a cash dividend that was equivalent to an annual yield of ~~3.42~~3.94 percent, the approximate daily average three-month LIBOR for the fourth quarter of ~~2015~~2016 plus 300 basis points. The dividend amount, based on average daily balances of Class B shares outstanding for the fourth quarter of ~~2015~~2016 totaled ~~$19.5~~$23.6 million and was paid on March 2, ~~2016~~2017. In declaring the dividend, the board stated that it expects to follow this formula for declaring cash dividends through ~~2016,~~2017, though a quarterly loss or a significant adverse event or trend ~~would~~could 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 ~~2015,~~2016, 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 ~~2016.~~2017.

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.

We maintain a policy providing that ~~when~~if our minimum retained earnings target exceeds the level of our retained earnings, the quarterly dividend payout cannot exceed 40 percent of our ~~earnings~~net income for the quarter. Our minimum retained earnings target was $700.0 million as of December 31, ~~2015,~~2016, compared with ~~$1.1~~$1.2 billion in retained earnings at December 31, ~~2015.~~2016.

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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, ~~2015,~~2016, we had excess stock outstanding totaling ~~$158.9~~$78.3 million or ~~0.3~~0.1 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 an amount we measure as our risk exposure with 99 percent confidence using our economic capital model, an amount equal to ~~$2.9~~$3.0 billion at December 31, ~~2015.~~2016. Our permanent capital level was ~~$3.5~~$3.7 billion at December 31, ~~2015,~~2016, so we were in excess of this requirement by ~~$617.1~~$692.2 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, ~~2015, $194.6~~2016, $229.3 million of our retained earnings are amounts in the restricted retained earnings account compared with our total contribution requirement of $~~530.1~~551.3 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

We derived the selected results of operations for the years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013,~~2014, and the selected statement of condition data as of December 31, ~~2015~~2016 and ~~2014,~~2015, from financial statements included elsewhere herein. We derived the selected results of operations for the years ended December 31, ~~2012~~2013 and ~~2011,~~2012, and the selected statement of condition data as of December 31, 2014, 2013, ~~2012,~~ and ~~2011,~~2012, from financial statements not included herein. 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,															December 31,
	2015			2014			2013			2012			2011			2016			2015			2014			2013			2012
Statement of Condition
Total assets	$	58,108,801		$	55,106,677		$	44,638,076		$	40,209,017		$	49,968,337		$	61,545,586		$	58,108,801		$	55,106,677		$	44,638,076		$	40,209,017
Investments⁽¹⁾	18,019,181			16,879,299			12,981,340			15,554,057			21,379,548			18,031,331			18,019,181			16,879,299			12,981,340			15,554,057
Advances	36,076,167			33,482,074			27,516,678			20,789,704			25,194,898			39,099,339			36,076,167			33,482,074			27,516,678			20,789,704
Mortgage loans held for portfolio, net⁽²⁾	3,581,788			3,483,948			3,368,476			3,478,896			3,109,223			3,693,894			3,581,788			3,483,948			3,368,476			3,478,896
Deposits and other borrowings	482,602			369,331			517,565			594,968			654,246			482,163			482,602			369,331			517,565			594,968
Consolidated obligations:
Bonds	25,433,409			25,505,774			23,465,906			26,119,848			29,879,460			27,171,434			25,433,409			25,505,774			23,465,906			26,119,848
Discount notes	28,479,097			25,309,608			16,060,781			8,639,048			14,651,793			30,053,964			28,479,097			25,309,608			16,060,781			8,639,048
Total consolidated obligations	53,912,506			50,815,382			39,526,687			34,758,896			44,531,253			57,225,398			53,912,506			50,815,382			39,526,687			34,758,896
Mandatorily redeemable capital stock	41,989			298,599			977,348			215,863			227,429			32,687			41,989			298,599			977,348			215,863
Class B capital stock outstanding-putable⁽³⁾	2,336,662			2,413,114			2,530,471			3,455,165			3,625,348			2,411,306			2,336,662			2,413,114			2,530,471			3,455,165
Unrestricted retained earnings	934,214			764,888			681,978			523,203			375,158			987,711			934,214			764,888			681,978			523,203
Restricted retained earnings	194,634			136,770			106,812			64,351			22,939			229,275			194,634			136,770			106,812			64,351
Total retained earnings	1,128,848			901,658			788,790			587,554			398,097			1,216,986			1,128,848			901,658			788,790			587,554
Accumulated other comprehensive loss	(442,597		)	(436,986		)	(481,516		)	(476,620		)	(534,411		)	(383,514		)	(442,597		)	(436,986		)	(481,516		)	(476,620		)
Total capital	3,022,913			2,877,786			2,837,745			3,566,099			3,489,034			3,244,778			3,022,913			2,877,786			2,837,745			3,566,099
Results of Operations
Net interest income	$	225,697		$	213,292		$	255,855		$	312,448		$	305,976		$	251,749		$	225,697		$	213,292		$	255,855		$	312,448
(Reduction of) provision for credit losses	(330		)	61			(1,954		)	(3,127		)	(831		)	(277		)	(330		)	61			(1,954		)	(3,127		)
Net impairment losses on held-to-maturity securities recognized in earnings	(4,059		)	(1,579		)	(2,566		)	(7,173		)	(77,067		)	(3,310		)	(4,059		)	(1,579		)	(2,566		)	(7,173		)
Litigation settlements	184,879			22,000			53,305			2,317			—			39,211			184,879			22,000			53,305			2,317
Other (loss) income	(8,819		)	(586		)	(7,295		)	(17,252		)	23,841
Other losses, net																(6,577		)	(8,819		)	(586		)	(7,295		)	(17,252		)
Other expense	76,382			65,655			64,717			63,283			65,099			88,746			76,382			65,655			64,717			63,283
AHP and REFCorp assessments ⁽⁴⁾	32,328			17,623			24,229			23,122			28,890
AHP assessments																19,397			32,328			17,623			24,229			23,122
Net income	$	289,318		$	149,788		$	212,307		$	207,062		$	159,592		$	173,207		$	289,318		$	149,788		$	212,307		$	207,062
Other Information
Dividends declared	$	62,128		$	36,920		$	11,071		$	17,605		$	10,686		$	85,069		$	62,128		$	36,920		$	11,071		$	17,605
Dividend payout ratio	21.47		%	24.65		%	5.21		%	8.50		%	6.70		%	49.11		%	21.47		%	24.65		%	5.21		%	8.50		%
Weighted-average dividend rate⁽⁵⁾⁽⁴⁾	2.54			1.49			0.38			0.50			0.30			3.63			2.54			1.49			0.38			0.50
Return on average equity⁽⁶⁾⁽⁵⁾	9.54			5.24			7.40			6.03			4.73			5.49			9.54			5.24			7.40			6.03
Return on average assets	0.52			0.29			0.54			0.45			0.30			0.29			0.52			0.29			0.54			0.45
Net interest margin⁽⁷⁾⁽⁶⁾	0.41			0.41			0.65			0.68			0.58			0.43			0.41			0.41			0.65			0.68
Average equity to average assets	5.45			5.50			7.26			7.39			6.41			5.35			5.45			5.50			7.26			7.39
Total regulatory capital ratio⁽⁸⁾⁽⁷⁾	6.04			6.56			9.63			10.59			8.51			5.95			6.04			6.56			9.63			10.59

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(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 $~~1.0 million~~650,000, $~~2.0~~1.0 million, $2.0 million, $2.2 million, and $4.4 million ~~and $7.8 million for the years ended~~as of December 31, 2016, 2015, 2014, 2013, ~~2012,~~ and ~~2011,~~2012, 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 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.

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~~(5)~~	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.


~~(6)~~(5)	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.


~~(7)~~(6)	Net interest margin is net interest income before provision for credit losses as a percentage of average earning assets.


~~(8)~~(7)	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. WeThese forward-looking statements speak only as of the date they are made, and 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 stock in excess of a shareholder’s total stock investment requirement (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 executive branch, 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;

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;

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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

~~We had a strong~~For the year ~~in 2015. Our~~ended December 31, 2016 net income ~~increased~~decreased to $173.2 million, from $289.3 million for the year ended December 31, 2015, ~~from $149.8~~largely due to a $145.7 million ~~for the year ended December 31, 2014,~~decrease in litigation settlement income related to private-label MBS. The Bank had the highest annual net income in ~~the Bank's~~its history in 2015, largely due to $184.9 million in litigation settlement income that declined to $39.2 million for the year ended December 31, 2016. Our return on average equity was 5.49 percent for the year ended December 31, 2016, compared with 9.54 percent for the year ended December 31, 2015, a decrease of 405 basis points. The decrease in return on average equity was largely a result of the aforementioned significant decrease in litigation settlement income related to private-label ~~MBS for~~MBS. Offsetting the ~~year. In addition, advances balances grew as discussed below.~~decline in litigation settlement income in part was a $26.1 million increase in net interest income. Our financial condition continued to strengthen with retained earnings growing to ~~$1.1~~$1.2 billion at December 31, ~~2015~~2016, from ~~$901.7 million~~$1.1 billion at December 31, ~~2014,~~2015, a surplus of ~~$428.8~~$517.0 million over our minimum retained earnings target, as we continue to satisfy all regulatory capital requirements as of December 31, ~~2015~~2016. We also provided a dividend spread of 300 basis points over the daily average three-month LIBOR. ~~Our return on average equity was 9.54 percent for the year ended~~ ~~December 31, 2015, compared with 5.24 percent for the year ended December 31, 2014, an increase of 430 basis points.~~

Net Interest Margin

In ~~2015~~2016, net interest margin was ~~flat relative to~~0.43 percent a slight increase of two basis points from the year ended December 31, ~~2014, at~~ ~~0.41 percent. We view this~~2015. The improvement of net interest margin benefited from improvement in net interest spread and modest increase in interest rates, though interest rates remained low compared to historical standards as ~~a favorable outcome in the face of the continuing very low interest-rate environment~~ discussed under — Economic Conditions — Interest-Rate Environment.

Advances Balances

We continue to deliver on our primary mission, supplying liquidity to our members, with advances balances growing to ~~$36.1 billion~~ ~~at December 31, 2015, from $33.5~~$39.1 billion at December 31, ~~2014.~~2016, from $36.1 billion at December 31, 2015. The increase in advances was broadly based, with ~~long-term~~variable-rate advances as the ~~most significant~~largest contributor. We cannot predict whether this trend will continue.

~~Investments~~Accretable yields from investments in ~~Private-Label~~private-label MBS

~~The amortized cost of our total investments in private-label MBS and ABS backed by home-equity loans has declined to $1.2 billion at~~ ~~December 31, 2015, 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 earlier periods.~~

For the years ended December 31, ~~2015~~2016 and ~~2014,~~2015, we recognized ~~$38.8~~$38.0 million and ~~$36.0~~$38.8 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.

The amortized cost of our total investments in private-label MBS and ABS backed by home-equity loans has declined to $1.0 billion at December 31, 2016. Other-than-temporary impairment credit losses were $3.3 million for the year ending December 31, 2016.

Excess Stock Management Program

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~~On July 24, 2015,~~Under the excess stock management program adopted by our board of directors ~~authorized management to implement an~~on July 24, 2015, we repurchased $375.3 million in excess stock ~~management program, under which we may repurchase excess stock to maintain aggregate excess stock within a targeted range between zero~~in 2016. For additional information see — Liquidity and $200 million. Repurchases of excess stock have led to reductions in our capital levels, including reductions to mandatorily redeemable capital stock from $298.6 million at December 31, 2014, to $42.0 million at December 31, 2015. 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, 2015, interest expense on mandatorily redeemable capital stock amounted to $1.6 million compared with $8.8 million for the year ended December 31, 2014.Capital Resources — Internal Capital Practices and Policies — Excess Stock Management Program.

Regulatory Developments

The FHFA ~~and other regulators with authority over us or our way of doing business have~~has issued or proposed ~~multiple~~ regulations ~~during the year and into 2016,~~ as described in — Legislative and Regulatory Developments. Recent executive branch efforts at regulatory reform may affect the development or implementation of new regulations affecting us. Such developments affect 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

The U.S. economy grew modestly in ~~2015 proved resilient. Against~~2016 at an annualized rate of 1.6 percent, the ~~backdrop~~slowest rate of ~~a historically severe winter and economic instability overseas, the U.S. economy continued to expand.~~

growth in five years. The labor market continued to improve, with nonfarm payroll growth ~~averaging over 200,000 per month for~~continuing and the ~~year. At five percent in December, the~~overall unemployment rate ~~declined 0.6~~decreasing to 4.7 percent, a decline of 1.3 percentage ~~point~~points since December ~~2014.~~2015. Alternative broader gauges of unemployment also showed steady improvement. All six of the New England states continued to see unemployment rates decline between December ~~2014~~2015 and ~~2015. Over this period, the region’s~~December 2016. The unemployment rate ~~dropped 0.7 percentage points and~~in Massachusetts, in particular, declined sharply from 4.9 percent in December 2015 ~~was 4.7 percent.~~to 2.8 percent in December 2016.

The gradual recovery in the housing market continued in ~~2015.~~2016. The FHFA reported that house prices were up ~~5.8~~6.2 percent in ~~December 2015~~the fourth quarter of 2016 compared to a year prior. Annual house price changes were positive for all nine census regions, reflecting a broad housing market recovery across the U.S. The housing market provided a significant boost to the New England economy in ~~2015,~~2016, with rising prices and construction activity.

The U.S. and New England economies appear likely to continue to grow at a modest ~~pace. Even though equity prices have been volatile~~pace in 2017. The Trump administration’s policies on individual and ~~overseas risks appear to have heightened in early 2016, continued job gains, lower energy prices, and rising house prices look likely to support consumer~~corporate taxation, fiscal spending, and ~~economic growth~~international trade, among other areas, could make a meaningful impact on the U.S. economy in ~~2016.~~2017 and beyond but are currently subject to much uncertainty.

Interest-Rate Environment

~~Since 2010 and continuing into 2016, we generally have been operating in a historically low interest-rate environment, which has adversely impacted our results of operations.~~

~~We note that on~~On March ~~16, 2016, despite having~~15, 2017, the Federal Open Market Committee (FOMC) increased the targeted federal funds rate ~~for the first time since 2006 at its December 2015 meeting, the Federal Open Market Committee (the FOMC) issued~~to a ~~press release providing that in light~~range of ~~ongoing global risks and continued low price inflation, a more accommodative stance of monetary policy remains appropriate.~~0.75 percent to 1.00 percent. The FOMC's statement noted that ~~the FOMC expects~~ economic conditions ~~that~~ will likely warrant ~~only~~ gradual increases in the federal funds rate. Projections by FOMC participants in March 2017 suggest a further increase in the target range for the fed funds rate of 50 basis points by the end of 2017.

~~The interest-rate environment adversely impacts our results of operations. Interest~~Even with the increase in the targeted federal funds rate and long-term interest rates, ~~continue to hover close to record~~interest rates remain low ~~levels,~~by historical standards, compressing the yields and margins that we can earn on our liquidity investments and short-term advances because our funding costs ~~essentially~~effectively have a floor ofat or near zero percent. ~~Moreover, spreads~~However, this trend has favorably impacted our funding cost as yields on CO debt have been slower to rise than many other high-quality ~~interest-bearing assets in~~investment yields.

Longer-term interest rates have risen significantly following the November 2016 elections on expectations of policies to reduce income taxes and regulations while increasing public infrastructure spending, which ~~we invest remain low relative to the yields at which we can issue comparable term debt.~~could stimulate economic growth.

The following chart illustrates the interest-rate environment.



	2016		2015		2014
	Ending	Average	Ending	Average	Ending	Average
3-month LIBOR	1.00%	0.74%	0.61%	0.32%	0.26%	0.23%
2-year U.S. Treasury yield	1.19%	0.83%	1.05%	0.67%	0.66%	0.45%
5-year U.S. Treasury yield	1.93%	1.33%	1.76%	1.52%	1.65%	1.63%
10-year U.S. Treasury yield	2.44%	1.84%	2.27%	2.13%	2.17%	2.53%

________________

~~Table of Contents~~

Source: Bloomberg

The federal funds target rate has remained constant at zero to 0.25 percent during the time periods from the fourth quarter 2014 through the third quarter 2015. On December 17, 2015, the FOMC had raised the target range for the federal funds rate by 25 basis points, to 0.25 to 0.50 percent.

RESULTS OF OPERATIONS

Comparison of the year ended December 31, ~~2015,~~2016, versus the year ended December 31, ~~2014~~2015

Net income ~~increased~~decreased to$173.2 million for the year ended December 31, 2016, from $289.3 million for the year ended December 31, 2015~~, from~~ ~~$149.8 million~~ ~~for the year ended~~ ~~December 31, 2014~~. The reasons for the ~~increase~~decrease are discussed under — Executive Summary.

Net Interest Income

Net interest income after provision for credit losses for the year ending December 31, ~~2015,~~2016, was ~~$226.0~~$252.0 million, compared with ~~$213.2~~$226.0 million for ~~2014.~~2015. The ~~$12.8~~$26.0 million increase in net interest income after provision for credit losses was primarily attributable to a ~~$3.5~~$3.3 billion increase in average earning assets, from ~~$51.7~~$55.3 billion for ~~2014,~~2015, to ~~$55.2~~$58.6 billion for ~~2015.~~2016. The increase in average earning assets was driven by a ~~$2.3~~$3.7 billion increase in average advances balances ~~and~~partially offset by a ~~$1.0 billion increase~~$458.4 million decrease in average investments balances. For additional information see — Rate and Volume Analysis. ~~Additional increases~~Net interest income also benefited from a slight increase in net interest margin as discussed under — Executive Summary. Offsetting the increase to net interest income included a $7.2 million reduction of interest expense on mandatorily redeemable capital stock and a $2.8 million increase in accretion of discount on securities that were other-than-temporarily impaired in prior periods, butafter provision for ~~which a significant improvement in projected cash flows has subsequently been recognized. Offsetting these increases~~credit losses was a ~~$2.2~~$4.1 milliondecrease in net prepayment fees from advances and investments ~~and advances~~ from ~~$10.5 million in the year ending December 31, 2014, to~~ $8.3 million in the year ending December 31, ~~2015.~~2015, to $4.2 million in the year ending December 31, 2016.

Net interest spread was ~~0.37~~0.38 percent for the year ended December 31, ~~2015,~~2016, a one basis point increase from ~~2014,~~2015, and net interest margin was ~~0.41~~0.43 percent, ~~unchanged~~a two basis point increase from ~~2014.~~2015. The increase in net interest spread reflects a ~~two~~15 basis point ~~decrease~~increase in the average yield on earning assets and a ~~three~~14 basis point ~~decrease~~increase in the average yield on interest-bearing liabilities.

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.

~~Table of Contents~~

Net Interest Spread and Margin (dollars in thousands)	Net Interest Spread and Margin (dollars in thousands)																						Net Interest Spread and Margin (dollars in thousands)

		For the Years Ended December 31,																						For the Year Ended December 31,
		2015							2014							2013								2016						2015							2014
		Average Balance			Interest Income / Expense		Average Yield		Average Balance			Interest Income / Expense		Average Yield		Average Balance			Interest Income / Expense		Average Yield			Average Balance		Interest Income / Expense		Average Yield		Average Balance			Interest Income / Expense		Average Yield		Average Balance			Interest Income / Expense		Average Yield
Assets
Advances		$	32,330,089		$	247,002	0.76	%	$	30,029,148		$	236,368	0.79	%	$	21,603,302		$	252,333	1.17	%		$	36,042,906	$	340,903	0.95	%	$	32,330,089		$	247,002	0.76	%	$	30,029,148		$	236,368	0.79	%
Securities purchased under agreements to resell		4,815,227			4,825		0.10		5,039,178			3,048		0.06		2,819,425			2,388		0.08			3,394,038		11,474		0.34		4,815,227			4,825		0.10		5,039,178			3,048		0.06
Federal funds sold		5,343,833			6,481		0.12		4,553,444			3,560		0.08		1,726,425			1,625		0.09			5,707,301		22,562		0.40		5,343,833			6,481		0.12		4,553,444			3,560		0.08
Investment securities⁽¹⁾		9,140,609			203,837		2.23		8,689,736			190,032		2.19		9,671,840			202,178		2.09			9,641,477		212,777		2.21		9,140,609			203,837		2.23		8,689,736			190,032		2.19
Mortgage loans		3,557,110			122,704		3.45		3,381,904			125,600		3.71		3,456,276			128,232		3.71			3,637,645		119,910		3.30		3,557,110			122,704		3.45		3,381,904			125,600		3.71
Other earning assets		36,489			73		0.20		7,660			11		0.14		1,061			4		0.38			177,628		538		0.30		79,148			73		0.09		19,699			11		0.06
Total interest-earning assets		55,223,357			584,922		1.06		51,701,070			558,619		1.08		39,278,329			586,760		1.49			58,600,995		708,164		1.21		55,266,016			584,922		1.06		51,713,109			558,619		1.08
Other non-interest-earning assets		427,606							376,461							404,331								338,118						384,947							364,422
Fair-value adjustments on investment securities		(31,331		)					(147,541		)					(155,825		)						26,624						(31,331		)					(147,541		)
Total assets		$	55,619,632		$	584,922	1.05	%	$	51,929,990		$	558,619	1.08	%	$	39,526,835		$	586,760	1.48	%		$	58,965,737	$	708,164	1.20	%	$	55,619,632		$	584,922	1.05	%	$	51,929,990		$	558,619	1.08	%
Liabilities and capital
Consolidated obligations
Discount notes		$	25,243,798		$	28,221	0.11	%	$	22,697,109		$	15,461	0.07	%	$	9,106,041		$	6,952	0.08	%		$	26,979,622	$	93,362	0.35	%	$	25,243,798		$	28,221	0.11	%	$	22,697,109		$	15,461	0.07	%
Bonds		26,048,777			329,285		1.26		24,477,324			320,976		1.31		25,130,271			318,174		1.27			27,487,501		361,006		1.31		26,048,777			329,285		1.26		24,477,324			320,976		1.31
Deposits		417,278			77		0.02		469,845			67		0.01		601,628			19		—			490,359		679		0.14		417,278			77		0.02		469,845			67		0.01
Mandatorily redeemable capital stock		58,092			1,636		2.82		581,634			8,819		1.52		798,340			5,754		0.72			36,397		1,364		3.75		58,092			1,636		2.82		581,634			8,819		1.52
Other borrowings		3,583			6		0.17		2,751			4		0.15		4,485			6		0.13			654		4		0.61		3,583			6		0.17		2,751			4		0.15
Total interest-bearing liabilities		51,771,528			359,225		0.69		48,228,663			345,327		0.72		35,640,765			330,905		0.93			54,994,533		456,415		0.83		51,771,528			359,225		0.69		48,228,663			345,327		0.72
Other non-interest-bearing liabilities		816,042							844,204							1,017,983								818,814						816,042							844,204
Total capital		3,032,062							2,857,123							2,868,087								3,152,390						3,032,062							2,857,123
Total liabilities and capital		$	55,619,632		$	359,225	0.65	%	$	51,929,990		$	345,327	0.66	%	$	39,526,835		$	330,905	0.84	%		$	58,965,737	$	456,415	0.77	%	$	55,619,632		$	359,225	0.65	%	$	51,929,990		$	345,327	0.66	%
Net interest income					$	225,697						$	213,292						$	255,855						$	251,749						$	225,697						$	213,292
Net interest spread							0.37	%						0.36	%						0.56	%						0.38	%						0.37	%						0.36	%
Net interest margin							0.41	%						0.41	%						0.65	%						0.43	%						0.41	%						0.41	%

_________________________


(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 ended December 31, ~~2015~~2016 and ~~2014~~2015. 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.

~~Table of Contents~~

Rate and Volume Analysis (dollars in thousands)	Rate and Volume Analysis (dollars in thousands)																			Rate and Volume Analysis (dollars in thousands)

		For the Year Ended December 31, 2015 vs. 2014									For the Year Ended December 31, 2014 vs. 2013										For the Year Ended December 31, 2016 vs. 2015									For the Year Ended December 31, 2015 vs. 2014
		Increase (Decrease) due to									Increase (Decrease) due to										Increase (Decrease) due to									Increase (Decrease) due to
		Volume			Rate			Total			Volume			Rate			Total				Volume			Rate			Total			Volume			Rate			Total
Interest income
Advances		$	17,726		$	(7,092	)	$	10,634		$	80,937		$	(96,902	)	$	(15,965	)		$	30,564		$	63,337		$	93,901		$	17,726		$	(7,092	)	$	10,634
Securities purchased under agreements to resell		(141		)	1,918			1,777			1,486			(826		)	660				(1,798		)	8,447			6,649			(141		)	1,918			1,777
Federal funds sold		700			2,221			2,921			2,252			(317		)	1,935				470			15,611			16,081			700			2,221			2,921
Investment securities		10,001			3,804			13,805			(21,181		)	9,035			(12,146		)		11,072			(2,132		)	8,940			10,001			3,804			13,805
Mortgage loans		6,312			(9,208		)	(2,896		)	(2,762		)	130			(2,632		)		2,736			(5,530		)	(2,794		)	6,312			(9,208		)	(2,896		)
Other earning assets		56			6			62			11			(4		)	7				164			301			465			51			11			62
Total interest income		34,654			(8,351		)	26,303			60,743			(88,884		)	(28,141		)		43,208			80,034			123,242			34,649			(8,346		)	26,303
Interest expense
Consolidated obligations
Discount notes		1,901			10,859			12,760			9,333			(824		)	8,509				2,070			63,071			65,141			1,901			10,859			12,760
Bonds		20,131			(11,822		)	8,309			(8,392		)	11,194			2,802				18,602			13,119			31,721			20,131			(11,822		)	8,309
Deposits		(8		)	18			10			(5		)	53			48				16			586			602			(8		)	18			10
Mandatorily redeemable capital stock		(11,424		)	4,241			(7,183		)	(1,902		)	4,967			3,065				(718		)	446			(272		)	(11,424		)	4,241			(7,183		)
Other borrowings		1			1			2			(2		)	—			(2		)		(8		)	6			(2		)	1			1			2
Total interest expense		10,601			3,297			13,898			(968		)	15,390			14,422				19,962			77,228			97,190			10,601			3,297			13,898
Change in net interest income		$	24,053		$	(11,648	)	$	12,405		$	61,711		$	(104,274	)	$	(42,563	)		$	23,246		$	2,806		$	26,052		$	24,048		$	(11,643	)	$	12,405

Average Balance of Advances Outstanding

The average balance of total advances increased ~~$2.3~~$3.7 billion, or ~~7.7~~11.5 percent, for the year ended December 31, ~~2015~~2016, compared with the same period in ~~2014~~2015. We experienced a ~~broadly~~broad based rise in advances balances during the year with ~~long-term~~short-term fixed rate advances and variable-rate indexed advances as the most significant ~~contributor.~~contributors. We cannot predict whether this trend will continue. The following table summarizes average balances of advances outstanding during the years ended December 31, ~~2015~~2016, ~~2014~~2015, and ~~2013~~2014 by product type.

~~Table of Contents~~

Average Balance of Advances Outstanding by Product Type (dollars in thousands)	Average Balance of Advances Outstanding by Product Type (dollars in thousands)							Average Balance of Advances Outstanding by Product Type (dollars in thousands)

		For the Year Ended December 31,							For the Year Ended December 31,
		2015		2014		2013			2016		2015		2014
Fixed-rate advances—par value
Long-term		$	12,975,786	$	10,805,161	$	10,041,449		$	13,469,835	$	12,975,786	$	10,805,161
Short-term		9,721,359		9,898,654		6,130,420			11,304,530		9,721,359		9,898,654
Putable		2,069,459		2,384,041		2,791,694			2,350,279		2,069,459		2,384,041
Amortizing									862,266		875,163		868,322
Overnight		918,740		772,223		688,633			840,878		918,740		772,223
Amortizing		875,163		868,322		880,488
All other fixed-rate advances		78,677		72,000		77,355			70,136		78,677		72,000
		26,639,184		24,800,401		20,610,039			28,897,924		26,639,184		24,800,401

Variable-rate indexed advances—par value
Simple variable ⁽¹⁾		5,408,571		4,875,301		436,767			6,501,997		5,408,571		4,875,301
Putable		45,158		49,595		113,288			462,976		45,158		49,595
All other variable-rate indexed advances		48,655		38,814		31,816			40,115		48,655		38,814
		5,502,384		4,963,710		581,871			7,005,088		5,502,384		4,963,710
Total average par value		32,141,568		29,764,111		21,191,910			35,903,012		32,141,568		29,764,111
Net premiums		11,754		20,517		32,617			3,820		11,754		20,517
Market value of bifurcated derivatives		2,227		1,440		1,043			4,122		2,227		1,440
Hedging adjustments		174,540		243,080		377,732			131,952		174,540		243,080
Total average balance of advances		$	32,330,089	$	30,029,148	$	21,603,302		$	36,042,906	$	32,330,089	$	30,029,148

_____________________


(1)	Includes floating-rate advances that may be contractually prepaid by the borrower on a floating-rate reset date without incurring prepayment or termination fees.

In addition, the average balance of fixed-rate advances that were hedged with interest-rate swaps to yield an effective floating rate totaled ~~$6.2~~$9.2 billion for the year ended December 31, ~~2015~~2016. 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 $28.3 billion for the year endedDecember 31, 2016, representing 78.6 percent of the total average balance of advances outstanding during the year endedDecember 31, 2016. The average balance of all such advances totaled $22.3 billion for the year ended December 31, 2015, representing 69.0 percent of the total average balance of advances outstanding during the year ended December 31, 2015. ~~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~~.

For the years ended December 31, ~~2015~~2016 and ~~2014~~2015, net prepayment fees on advances and investments were ~~$8.3~~$4.2 million and ~~$10.5~~$8.3 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 $591.4 million,~~decreased $1.0 billion, or ~~6.2~~9.4 percent, for the year ended December 31, ~~2015~~2016, compared with the same period in ~~2014~~2015. The yield earned on short-term money-market investments is highly correlated to short-term market interest rates. As a result of the FOMC’s target range for the federal funds rate, average yields on overnight federal funds sold increased from 0.12 percent during the year ended December 31, 2015 to 0.40 percent during the year ended December 31, 2016, while average yields on securities purchased under agreements to resell increased from 0.10 percent for the year ended December 31, 2015 to 0.34 percent for the year ended December 31, 2016. 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 the level of our contingency liquidity.~~ For the year ended December 31, ~~2015~~,2016, average balances of federal funds sold increased ~~$790.4~~$363.5 million and average balances of securities purchased under agreements to resell decreased ~~$224.0 million~~$1.4 billion in comparison to the year ended December 31, ~~2014~~.2015.

~~Table of Contents~~

Average investment-securities balances increased ~~$450.9~~$500.9 million, or ~~5.2~~5.5 percent for the year ended December 31, ~~2015~~2016, compared with the same period in ~~2014~~2015, an increase consisting primarily of a ~~$581.3~~$409.1 million increase in MBS ~~offset by~~and a ~~$124.9~~$101.5 million ~~decline~~increase in ~~agency and supranational institutions' debentures.~~U.S. Treasury obligations.

Average Balance of COs

Average CO balances increased ~~$4.1~~$3.2 billion, or ~~8.7~~6.2 percent, for the year ended December 31, ~~2015~~2016, compared with the same period in ~~2014~~2015, 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 ~~$2.5~~$1.7 billion in CO discount notes and an increase of ~~$1.6~~$1.4 billion in CO bonds.

The average balance of CO discount notes represented approximately 49.5 percent of total average COs during the year ended December 31, 2016, compared with 49.2 percent of total average COs during the year ended December 31, 2015~~, compared with 48.1 percent of total average COs during the year ended~~ ~~December 31, 2014~~. The average balance of CO bonds represented ~~50.8~~50.5 percent and ~~51.9~~50.8 percent of total average COs outstanding during the years ended December 31, ~~2015~~2016 and ~~2014~~2015, respectively. The proportional growth in average CO discount notes was slightly higher than our short-term asset growth.

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~~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 ended December 31, ~~2015~~2016, ~~2014~~2015, and ~~2013~~2014 (dollars in thousands).


	For the Year Ended December 31, 2015															For the Year Ended December 31, 2016
Net Effect of Derivatives and Hedging Activities	Advances			Investments			Mortgage Loans			CO Bonds			Total			Advances			Investments			Mortgage Loans			CO Bonds			Total
Net interest income
Amortization / accretion of hedging activities in net interest income ⁽¹⁾	$	(4,852	)	$	—		$	(534	)	$	(5,292	)	$	(10,678	)	$	(2,692	)	$	—		$	(651	)	$	(5,682	)	$	(9,025	)
Net interest settlements included in net interest income ⁽²⁾	(131,019		)	(37,657		)	—			63,390			(105,286		)	(96,079		)	(35,203		)	—			27,182			(104,100		)
Total net interest income	(135,871		)	(37,657		)	(534		)	58,098			(115,964		)	(98,771		)	(35,203		)	(651		)	21,500			(113,125		)

Net (losses) gains on derivatives and hedging activities
(Losses) gains on fair-value hedges	(391		)	1,510			—			(8,308		)	(7,189		)
Losses on cash-flow hedges	—			—			—			(127		)	(127		)
Gains (losses) on fair-value hedges																1,592			1,819			—			(10,409		)	(6,998		)
Gains on cash-flow hedges																—			—			—			29			29
(Losses) gains on derivatives not receiving hedge accounting	—			(4,288		)	—			118			(4,170		)	(12		)	(1,379		)	—			39			(1,352		)
Mortgage delivery commitments	—			—			226			—			226			—			—			(270		)	—			(270		)
Net (losses) gains on derivatives and hedging activities	(391		)	(2,778		)	226			(8,317		)	(11,260		)
Net gain (losses) on derivatives and hedging activities																1,580			440			(270		)	(10,341		)	(8,591		)

Subtotal	(136,262		)	(40,435		)	(308		)	49,781			(127,224		)	(97,191		)	(34,763		)	(921		)	11,159			(121,716		)

Net losses on trading securities	—			(4,890		)	—			—			(4,890		)	—			(4,410		)	—			—			(4,410		)
Total net effect of derivatives and hedging activities	$	(136,262	)	$	(45,325	)	$	(308	)	$	49,781		$	(132,114	)	$	(97,191	)	$	(39,173	)	$	(921	)	$	11,159		$	(126,126	)

_____________________


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

~~Table of Contents~~


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


	For the Year Ended December 31, 2014																	For the Year Ended December 31, 2015
Net Effect of Derivatives and Hedging Activities	Advances			Investments			Mortgage Loans			Deposits		CO Bonds			Total			Advances			Investments			Mortgage Loans			CO Bonds			Total
Net interest income
Amortization / accretion of hedging activities in net interest income ⁽¹⁾	$	(6,037	)	$	—		$	(260	)	$	—	$	11,011		$	4,714		$	(4,852	)	$	—		$	(534	)	$	(5,292	)	$	(10,678	)
Net interest settlements included in net interest income ⁽²⁾	(130,580		)	(37,989		)	—			1,152		54,356			(113,061		)	(131,019		)	(37,657		)	—			63,390			(105,286		)
Total net interest income	(136,617		)	(37,989		)	(260		)	1,152		65,367			(108,347		)	(135,871		)	(37,657		)	(534		)	58,098			(115,964		)

Net (losses) gains on derivatives and hedging activities
Gains (losses) on fair-value hedges	347			1,123			—			—		(936		)	534
(Losses) gains on fair-value hedges																		(391		)	1,510			—			(8,308		)	(7,189		)
Losses on cash-flow hedges	—			—			—			—		(442		)	(442		)	—			—			—			(127		)	(127		)
(Losses) gains on derivatives not receiving hedge accounting	(4		)	(6,348		)	—			—		65			(6,287		)	—			(4,288		)	—			118			(4,170		)
Mortgage delivery commitments	—			—			1,510			—		—			1,510			—			—			226			—			226
Net gains (losses) on derivatives and hedging activities	343			(5,225		)	1,510			—		(1,313		)	(4,685		)
Net (losses) gains on derivatives and hedging activities																		(391		)	(2,778		)	226			(8,317		)	(11,260		)

Subtotal	(136,274		)	(43,214		)	1,250			1,152		64,054			(113,032		)	(136,262		)	(40,435		)	(308		)	49,781			(127,224		)

Net gains on trading securities	—			972			—			—		—			972
Net losses on trading securities																		—			(4,890		)	—			—			(4,890		)
Total net effect of derivatives and hedging activities	$	(136,274	)	$	(42,242	)	$	1,250		$	1,152	$	64,054		$	(112,060	)	$	(136,262	)	$	(45,325	)	$	(308	)	$	49,781		$	(132,114	)

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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~~are subject to 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 Activities for 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, 2016 and 2015, we had $~~6.7~~6.0 billion and $6.7 billion in securities purchased under agreements to resell. There were no offsetting amounts related to these securities at December 31, 2016 and 2015.

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 $3.4 billion during 2016 and $4.8 billion during 2015, ~~and $5.0 billion during 2014,~~ and the maximum amount outstanding at any month-end during 2016 and 2015 ~~and 2014~~ was ~~$8.1~~$7.0 billion and ~~$7.8~~$8.1 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 (losses) gains on trading securities. FHFA regulations prohibit 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) ~~gains~~ 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~~losses 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) ~~gains~~ on available-for-sale securities.

Held-to-Maturity. Certain investments for which we have both the ability and intent to hold to maturity are classified as held-to-maturity and are carried at cost, 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).

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,

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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).

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.

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,~~London Interbank Offered Rate (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

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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.

Advances issued under our Jobs for New England (JNE) and Helping to House New England (HHNE) programs have an interest rate of zero percent. Due to the below market interest rate, we record a discount on the advance and an interest rate subsidy expense at the time that we transact the advance. The subsidy expense is recorded in other expense in the statement of operations. We do not charge a prepayment fee for advances issued under the JNE and HHNE programs.

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.

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

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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~~losses 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~~losses 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.

Mortgage Loans Held for Portfolio

We participate in the MPFprogram 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, ~~2015,~~2016, 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, direct write-downs, 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

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.

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Other Fees. We record other nonorigination fees in connection with our MPF program activities in other income. Such fees include delivery-commitment-extension fees, pair-off fees, price-adjustment fees, and counterparty fees in connection with MPF products under which we facilitate third party investment in loans (non-investment MPF products) such as with

the MPF Xtra^® product. 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 under non-investment MPF products.

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.

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. A charge-off is recorded if it is estimated that the recorded investment in a loan will not be recovered. We evaluate whether to record a charge-off 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. We charge off the portion of outstanding conventional mortgage loan balances in excess of fair value of the underlying property, less cost to sell and adjusted for any available credit enhancements for loans that are 180 or more days

past due, when the borrower has filed for bankruptcy protection and the loan is at least 30 days past due, or when there is evidence of fraud.

Troubled Debt Restructurings

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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.

Real Estate Owned

~~REO~~Real-estate-owned property (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. At December 31, 2016 and 2015, we had $2.2 million and $3.6 million, respectively, in assets classified as REO. 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:

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.

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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~~losses 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~~losses 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 ~~(losses) 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~~losses 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.

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.

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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, ~~2015,~~2016, and ~~2014,~~2015, we had certain advances with embedded features that met the requirement to be separated from the host contract and designated the embedded features as stand-alone derivatives. 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 these 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, ~~2015,~~2016, and ~~2014,~~2015, we had ~~$1.3~~$1.8 million and ~~$1.2~~$1.3 million, respectively, in unamortized computer software costs.

Accumulated Depreciation and Amortization. Our accumulated depreciation and amortization related to premises, software, and equipment was ~~$14.5~~$15.8 million and ~~$14.9~~$14.5 million at December 31, ~~2015,~~2016, and ~~2014,~~2015, respectively.

Depreciation and Amortization Expense. Depreciation and amortization expense for premises, software, and equipment was ~~$1.7~~$1.5 million, ~~$1.9~~$1.7 million, and $1.9 million for the years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013,~~2014, respectively. These amounts include $640,000, $820,000, ~~$857,000,~~ and ~~$714,000~~$857,000 of amortization of computer software costs for the years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013,~~2014, respectively.

Disposal of Premises, Software, and Equipment. ~~Net realized losses on disposal of premises, software, and equipment was $65,000 for the year ended December 31, 2015.~~ There were no realized gains or losses on disposal of premises, software, and equipment ~~in 2014~~for the years ended December 31, 2016 and ~~2013.~~2014. Net realized losses on disposal of premises, software, and equipment were $65,000 for the year ended December 31, 2015.

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~~record concessions paid on COs as a direct reduction from their carrying amounts, consistent with the presentation of discounts on COs. These dealer

concessions are amortized 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~~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

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declared on mandatorily redeemable capital stock are accrued at the expected dividend rate for Class B stock 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

The joint capital enhancement agreement, as amended (the Joint Capital Agreement) requires 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.

Litigation Settlements

Litigation settlement gains, net of related legal expenses, are recorded in other income (loss). A litigation settlement gain is considered realized and recorded when we receive cash or assets that are readily convertible to known amounts of cash or claims to cash. In addition, a litigation settlement gain is considered realizable and recorded when we enter into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized or realizable, we consider potential litigation settlement gains to be gain contingencies, and therefore they are not recorded in the statement of operations. The related legal expenses are contingent-based fees and are only incurred and recorded upon a litigation settlement gain.

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 of each FHLBank's minimum required regulatory capital to 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 divided equally among the FHLBanks.

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

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.

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Related-Party Activities

We define related parties as members with 10 percent or more of the voting interests of our outstanding capital stock. 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 ~~2014~~2015 and ~~2013~~2014 financial statements have been reclassified to conform to the financial statement presentation for the year ended December 31, ~~2015.~~2016.

~~Subsequent Events~~On January 1, 2016, we retrospectively adopted the guidance Simplifying the Presentation of Debt Issuance Costs issued by the Financial Accounting Standards Board (FASB) on April 7, 2015. As a result, $6.1 million of unamortized debt issuance costs included in other assets at December 31, 2015, were reclassified as a reduction in the balance of the corresponding CO bonds on the statement of condition at December 31, 2015. Accordingly, our total assets and total liabilities each decreased by $6.1 million at December 31, 2015. The adoption of this guidance did not have any effect on our results of operations and cash flows.

~~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.~~

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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, ~~2015,~~2016, four vendor prices were received for ~~96.1 percent~~substantially all 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, ~~2015~~2016 and ~~2014,~~2015, fell within Level 3 of the fair-value hierarchy. Our fixed-rate HFA securities fall within Level 3 of the fair-value hierarchy due to the current lack of market activities for these bonds.

Investment Securities – HFA Floating Rate Securities. 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 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~~believe that credit risk is negligible as a component of value 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.

The fair value of impaired conventional mortgage loans is based on the lower of the carrying value of the loans or fair value of the collateral less estimated costs to sell. The fair value of impaired government mortgage loans is equal to the unpaid principal balance.

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.

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:

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Discount rate assumption. At December 31, ~~2015~~2016 and ~~2014,~~2015, 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 rates 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.~~ ToPrior to 2016, fair values of CO bonds with embedded options were determined by internal valuation models with market-based inputs obtained from the Office of Finance and derivative dealers. Additionally, to estimate the fair values of ~~COs~~CO bonds with optionality, we ~~use~~used market-based expectations of future interest-rate volatility implied from current market prices for similar options.

Beginning in 2016, we determined the estimated fair value of callable CO bonds by using prices received from designated third-party pricing vendors. The pricing vendors we used apply various proprietary models to price CO bonds. The inputs to those models are derived from various sources including, but not limited to, benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many CO bonds do not trade on a daily basis, the pricing vendors use available information, as applicable, such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to determine the prices for individual CO bonds. Each pricing vendor has an established challenge process in place for all valuations, which facilitates resolution of potentially erroneous prices identified by us.

When pricing vendors are used, we use the same valuation technique as described above for Investment Securities.

Four vendor prices were received for substantially all of our callable CO bonds and the final prices for those bonds were computed by averaging the prices received. 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, we believe our final prices result in reasonable estimates of fair value and that the fair value measurements are classified appropriately in the fair value hierarchy.

We have conducted reviews of our pricing vendors to confirm and further augment our understanding of the vendors' pricing processes, methodologies and control procedures for callable CO bonds.

Adjustments may be necessary to reflect the 11 FHLBanks' credit quality when valuing COs measured at fair value. Due to the joint and several liability for COs, we monitors our own creditworthiness and the creditworthiness of the other FHLBanks to determine whether any credit adjustments are necessary in our fair value measurement of COs. No adjustments were considered necessary at December 31, 2016 or 2015.

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. For fixed-rate advance commitments, fair value 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.

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, ~~2015~~2016 and ~~2014,~~2015, by fair-value hierarchy level (dollars in thousands):

~~151~~



	December 31, 2016
	Level 1		Level 2			Level 3		Netting Adjustment ⁽¹⁾		Total
Assets:
Trading securities:
U.S. Treasury obligations	$	—	$	399,521		$	—	$	—	$	399,521
U.S. government-guaranteed – single-family MBS	—		8,494			—		—		8,494
GSEs – single-family MBS	—		768			—		—		768
GSEs – multifamily MBS	—		203,839			—		—		203,839
Total trading securities	—		612,622			—		—		612,622
Available-for-sale securities:
State or local HFA securities	—		—			8,146		—		8,146
Supranational institutions	—		422,620			—		—		422,620
U.S. government-owned corporations	—		271,957			—		—		271,957
GSEs	—		117,468			—		—		117,468
U.S. government guaranteed – single-family MBS	—		124,727			—		—		124,727
U.S. government guaranteed – multifamily MBS	—		563,361			—		—		563,361
GSEs – single-family MBS	—		4,403,855			—		—		4,403,855
GSEs-multifamily	—		676,530			—		—		676,530
Total available-for-sale securities	—		6,580,518			8,146		—		6,588,664
Derivative assets:
Interest-rate-exchange agreements	—		55,008			—		6,520		61,528
Mortgage delivery commitments	—		70			—		—		70
Total derivative assets	—		55,078			—		6,520		61,598
Other assets	8,394		9,385			—		—		17,779
Total assets at fair value	$	8,394	$	7,257,603		$	8,146	$	6,520	$	7,280,663
Liabilities:
Derivative liabilities
Interest-rate-exchange agreements	$	—	$	(460,116	)	$	—	$	102,411	$	(357,705	)
Mortgage delivery commitments	—		(171		)	—		—		(171		)
Total liabilities at fair value	$	—	$	(460,287	)	$	—	$	102,411	$	(357,876	)

~~Table of Contents~~_______________________


(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.



	December 31, 2015
	Level 1		Level 2			Level 3		Netting Adjustment ⁽¹⁾		Total
Assets:
Trading securities:
U.S. government-guaranteed – single-family MBS	$	—	$	10,296		$	—	$	—	$	10,296
GSEs – single-family MBS	—		1,449			—		—		1,449
GSEs – multifamily MBS	—		218,389			—		—		218,389
Total trading securities	—		230,134			—		—		230,134
Available-for-sale securities:
Supranational institutions	—		438,913			—		—		438,913
U.S. government-owned corporations	—		265,968			—		—		265,968
GSEs	—		117,792			—		—		117,792
U.S. government guaranteed – single-family MBS	—		156,642			—		—		156,642
U.S. government guaranteed – multifamily MBS	—		744,762			—		—		744,762
GSEs – single-family MBS	—		4,590,208			—		—		4,590,208
Total available-for-sale securities	—		6,314,285			—		—		6,314,285
Derivative assets:
Interest-rate-exchange agreements	—		27,120			—		12,979		40,099
Mortgage delivery commitments	—		18			—		—		18
Total derivative assets	—		27,138			—		12,979		40,117
Other assets	6,373		8,919			—		—		15,292
Total assets at fair value	$	6,373	$	6,580,476		$	—	$	12,979	$	6,599,828
Liabilities:
Derivative liabilities
Interest-rate-exchange agreements	$	—	$	(521,152	)	$	—	$	79,170	$	(441,982	)
Mortgage delivery commitments	—		(25		)	—		—		(25		)
Total liabilities at fair value	$	—	$	(521,177	)	$	—	$	79,170	$	(442,007	)

_______________________


(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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~~Table~~The following table presents a reconciliation of ~~Contents~~available-for-sale securities that are measured at fair value on a recurring basis

using significant unobservable inputs (Level 3) during the year ended December 31, 2016. There were no Level 3 available-for-sale securities during the years ended December 31, 2015 and 2014.

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 )



	For the Year Ended December 31, 2016
Balance at beginning of year	$	—
Purchases	9,350
Unrealized losses included in other comprehensive income	(1,204		)
Balance at end of year	$	8,146

~~_______________________~~


~~(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, mortgage loans held for portfolio, 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 were recorded at fair value on a nonrecurring basis. ~~During the year ended December 31, 2015, the~~The fair values presented are as of the date the fair value adjustment was recorded. ~~The fair values presented at December 31, 2014, are as of period-end.~~

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	December 31, 2016
	Level 1		Level 2		Level 3		Total
Held-to-maturity securities:
Private-label residential MBS	$	—	$	—	$	8,498	$	8,498
Mortgage loans held for portfolio	—		—		5,618		5,618
REO	—		—		786		786

Total assets recorded at fair value on a nonrecurring basis	$	—	$	—	$	14,902	$	14,902

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	December 31, 2015
	Level 1		Level 2		Level 3		Total
Held-to-maturity securities:
Private-label residential MBS	$	—	$	—	$	16,653	$	16,653
Mortgage loans held for portfolio	—		—		5,376		5,376
REO	—		—		2,284		2,284

Total assets recorded at fair value on a nonrecurring basis	$	—	$	—	$	24,313	$	24,313

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

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, ~~2015~~2016, 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 the FHLBank Act and 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, ~~2015~~2016 and ~~2014.~~2015. The par amounts of other FHLBanks' outstanding COs for which we are jointly and severally liable totaled $~~851.4~~932.1 billion and $~~796.4~~851.4 billion at December 31, ~~2015~~2016 and ~~2014,~~2015, 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, ~~2015~~2016 and ~~2014~~2015 (dollars in thousands):

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	December 31, 2015						December 31, 2014						December 31, 2016						December 31, 2015
	Expire within one year		Expire after one year		Total		Expire within one year		Expire after one year		Total		Expire within one year		Expire after one year		Total		Expire within one year		Expire after one year		Total
Standby letters of credit outstanding ⁽¹⁾	$	3,998,609	$	77,477	$	4,076,086	$	4,065,555	$	125,381	$	4,190,936	$	4,050,447	$	179,632	$	4,230,079	$	3,998,609	$	77,477	$	4,076,086
Commitments for unused lines of credit - advances ⁽²⁾	1,263,182		—		1,263,182		1,255,445		—		1,255,445		1,255,140		—		1,255,140		1,263,182		—		1,263,182
Commitments to make additional advances	650,890		54,308		705,198		592,430		63,185		655,615		44,865		65,972		110,837		650,890		54,308		705,198
Commitments to invest in mortgage loans	24,714		—		24,714		26,927		—		26,927		22,524		—		22,524		24,714		—		24,714
Unsettled CO bonds, at par ⁽³⁾	25,000		—		25,000		15,000		—		15,000		—		—		—		25,000		—		25,000
Unsettled CO discount notes, at par	700,000		—		700,000		500,000		—		500,000		—		—		—		700,000		—		700,000

__________________________

(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, ~~2015~~2016 and ~~2014,~~2015, these amounts totaled $~~27.3~~2.7 million and $~~26.2~~27.3 million, respectively. Also excluded are commitments to issue standby letters of credit that expire after one year totaling $285,000 and $4.0 million at December 31, ~~2015.~~2016 and 2015, 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 $25.0 million and $15.0 million, in unsettled CO bonds that were hedged with associated interest-rate swaps at~~ ~~December 31, 2015~~ ~~and 2014, respectively.~~

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, our strategy is to take prompt action to recover the funds paid to the third-party beneficiary, including converting the payment amount ~~is converted~~ into a collateralized advance to the primary ~~obligor.~~obligor, withdrawing the payment amount from the primary obligor's demand deposit account with us, or selling collateral pledged by the primary obligor in a commercially reasonable manner to offset the payment amount. The original terms of these standby letters of credit have original expiration periods of up to 20 years, currently expiring no later than ~~2024.~~2026. Our unearned fees for the value of the guarantees related to standby letters of credit are recorded in other liabilities and totaled $~~831,000~~1.1 million and $~~745,000~~831,000 at December 31, ~~2015~~2016 and ~~2014,~~2015, 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 $2.9 million, ~~$2.8~~$2.9 million, and ~~$2.7~~$2.8 million for the years ended December 31, ~~2015~~2016, ~~2014,~~2015, and ~~2013,~~2014, respectively. Future minimum rentals at December 31, ~~2015~~2016, were as follows (dollars in thousands):

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	Equipment		Premises		Equipment		Premises
	Capital Leases		Operating Leases		Capital Leases		Operating Leases
2016	$	31	$	2,499
2017	—		2,504		$	41	$	2,504
2018	—		2,568		41		2,567
2019	—		2,537		41		2,537
2020	—		2,537		22		2,537
2021					—		2,537
Thereafter	—		7,610		—		5,073
Total minimum lease payments	$	31	$	20,255	$	145	$	17,755

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.

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 or director 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 is 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, ~~2015~~2016 and ~~2014,~~2015, 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, ~~2015~~2016 and ~~2014~~2015 (dollars in thousands):

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	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		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, 2016
Citizens Bank, N.A.													$	357,508	14.6	%	$	7,260,446	18.6	%	$	2,625	7.3	%

As of December 31, 2015
Citizens Bank, N.A.	$	308,280	13.0	%	$	6,015,163	16.7	%	$	1,583	4.5	%	$	308,280	13.0	%	$	6,015,163	16.7	%	$	1,583	4.5	%

As of December 31, 2014
Citizens Bank, N.A.	$	317,502	11.7	%	$	5,768,096	17.3	%	$	283	1.0	%

We held sufficient collateral to support the advances to the above institution 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 ended December 31, ~~2015~~2016, ~~2014~~2015, and ~~2013~~2014 as follows (dollars in thousands):


	For the Years Ended December 31,						For the Year Ended December 31,
Citizens Bank, N.A.	2015		2014		2013		2016		2015		2014
Interest income on advances	$	14,745	$	12,800	$	1,380	$	34,276	$	14,745	$	12,800
Fees on letters of credit	3,768		3,753		3,086		3,059		3,768		3,753

During 2016, we received prepayment fees of $368,000 from Citizens Bank, N.A. and the corresponding principal amount prepaid to us was $2.0 million. We did not receive any prepayment fees from Citizens Bank, N.A. during 2015 ~~2014~~ and ~~2013.~~2014.

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		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, 2016													$	91,374	3.7	%	$	1,554,753	4.0	%	$	1,631	4.5	%
As of December 31, 2015	$	72,251	3.0	%	$	1,064,489	3.0	%	$	1,297	3.7	%	72,251		3.0		1,064,489		3.0		1,297		3.7
As of December 31, 2014	79,386		2.9		918,127		2.8		1,227		4.2

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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 member 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 in a member directorship, 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. In 2014, 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 by the members. 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 program) 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. 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:

Andrew J. Calamare in 2016, based on his significant experience in business; organizational management; legal, bank regulatory, and insurance company matters; as well as involvement in multiple boards of directors that represent consumer or community interests;

Antoinette C. Lazarus in 2016, based on her significant experience in compliance, regulatory matters and accounting; valuable understanding of the fund management and insurance industries; and involvement in multiple boards of directors of charitable organizations;

Jay F. Malcynsky in 2016, 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;

Eric Chatman in 2015, based on 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;

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Emil J. Ragones in 2015, 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;

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; and

Cornelius K. Hurley in 2013, 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, based on his significant experience in business; organizational management; legal, bank regulatory, and insurance company matters; as well as multiple boards of directors that represent consumer or community interests; and

Jay F. Malcynsky in 2012, 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.Massachusetts.

Further, with the exception of new director Antoinette C. Lazarus, 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 our board in selecting them for their most recent nominations.

Additional information on the backgrounds of our directors, including these independent directors, is available under — Information Regarding Current Directors.

Annual 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 to the members via email and on a current ~~report~~reports on Form 8-K filed with the SEC on September 16, 2016 and October ~~23, 2015,~~28, 2016, as supplemented by ~~two~~a Form 8-K/AsA filed with the SEC on ~~October 28, 2015, and~~ January ~~14, 2016.~~19, 2017.

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

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.

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Donna L. Boulanger, age ~~62,~~63, 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 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.

Stephen G. Crowe ~~(vice~~(vice chair), age ~~65, serves~~66, has served as the community engagement officer of MountainOne Bank since April 2016. Mr. Crowe served as a director of MountainOne Bank and a trustee of MountainOne Financial, its holding ~~company. Mr. Crowe is a Massachusetts certified public accountant. From~~company, from 2002 to ~~2012, Mr. Crowe served~~April 2016, and as president and chief executive officer of MountainOne ~~Bank.~~Bank from 2002 to 2012. Mr. Crowe also served as president and chief executive officer of Williamstown Savings Bank from 1994 to 2009 and of 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. He was a Massachusetts certified public accountant from 1976 to June 2016. 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.~~2012. Mr. Crowe's service as a director of the Bank began on January 1, 2012, and his current term will conclude on December 31, 2019.

Martin J. Geitz, age ~~59,~~60, 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 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 ~~71,~~72, has served as chairman of the board of Needham Bank, of Needham, Massachusetts, since April 2006. Mr. McGeorge also served as chief executive officer of Needham Bank from April 2006 until May 2015, and 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 ~~65,~~66, has served as president, chief executive officer and a director of Essex Savings Bank, located in 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.~~2020.

Stephen R. Theroux, age ~~66, has~~67, was appointed vice president in January 2017 and elected a director in February 2017 of American European Insurance Company, a New Hampshire-domiciled insurance company headquartered in Cherry Hill, New Jersey, in January 2017. Also in January 2017, Mr. Theroux retired from Lake Sunapee Bank, FSB, and its holding company, Lake Sunapee Bank Group, located in Newport, New Hampshire, both of which he had served as president ~~since 2007,~~ and as chief executive officer, ~~since~~commencing in 2007 and 2012, respectively. He also held various other positions with Lake Sunapee Bank dating back to 1987. Mr. Theroux’s retirement coincided with the January 2017 merger of Lake Sunapee Bank Group with Bar Harbor Bankshares, located in Bar Harbor, Maine, and the simultaneous merger of their subsidiary banks. In connection with those mergers, Mr. Theroux’s positions as director and vice-chair of Lake Sunapee Bank, FSB ~~located in Newport, New Hampshire,~~and Lake Sunapee Bank Group ceased, and he became a director of Bar Harbor Bank & Trust 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. Mr. Theroux also serves as a director of Lake Sunapee Bank Group. 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.Bar Harbor Bankshares. 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 ~~68,~~69, 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.~~2020.

Michael R. Tuttle, age ~~61,~~62, has served as a director of Merchants Bank since 2006 and as a director of Merchants Bancshares, Inc., located in South Burlington, Vermont, since 2007. He is also the former president and chief executive officer of each of Merchants Bancshares Inc. (from 2007 through 2015) and Merchants Bank (from 2006 through 2014). Mr. Tuttle has served on the board of the Vermont Economic Development Authority since October 2016 and 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.

John Witherspoon, age ~~59,~~60, has served as president and chief executive officer of Skowhegan Savings Bank in Skowhegan, Maine, since November 2007. Prior positions included serving as chief executive officer of the Finance Authority of Maine between 2004 and 2007, and as president and chief executive officer of United Kingfield Bank and its predecessor, Kingfield Savings Bank, from 1984 until 2004. Mr. Witherspoon began serving as a director of the Bank on January 1, 2016, and his current term will conclude on December 31, 2019.

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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 ~~60,~~61, has served as president and chief executive officer of The Co-operative Central Bank, located in Boston, Massachusetts, since March 2015, and served as executive vice president of The Co-operative Central Bank ~~between~~from January 2011 ~~and~~to March 2015. Prior to that position, Mr. Calamare served as president and chief executive officer of the Life Insurance Association of Massachusetts since 2000. Previously, 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.~~2020.

Joan Carty, age ~~64,~~65, has served as president and chief executive officer of Housing Development Fund in Stamford, Connecticut, since 1994. She ~~has also~~previously 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 ~~55,~~56, founded in June 2015 and is president of The Chatman Group, LLC, a consulting and advisory firm focused on affordable housing and financial advisory services for non-profits, housing finance authorities and financial institutions. Mr. Chatman served as president and executive director of the Connecticut Housing Finance Authority from ~~April~~May 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.~~Moines and division manager, treasury department, at the African Development Bank. Mr. Chatman has served as a director of the Bank since June 16, 2014, and his current term will conclude on December 31, 2019.

Patrick E. Clancy, age ~~69,~~70, 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 ~~70,~~71, 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~~Previous roles included serving ~~as director of the Center for Finance, Law & Policy, Prof. Hurley served~~ as managing director of The Secura Group ~~from 1990~~(1990 to ~~1997,~~1997) and as general counsel and director of human resources of Shawmut National Corporation and its predecessor companies ~~from 1981~~(1981 to ~~1990.~~1990). He also previously served as assistant general counsel to the Board of Governors of the Federal Reserve System. Prof. Hurley was 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, and has served on the board of directors continuously since that date. His current term will conclude on December 31, 2017.

Antoinette C. Lazarus, age 53, has served as chief compliance officer and as privacy and anti-money laundering officers for Landmark Partners, a Simsbury, Connecticut-based registered investment adviser since 2006. Prior to her work at Landmark Partners, Ms. Lazarus served from 2004 to 2006 as vice president of compliance for Prudential Financial, Inc., a Hartford, Connecticut-based financial products and services company and from 2001 to 2004 as director of fund accounting for CIGNA

Retirement and Investment Services, a Hartford-based retirement services business that was acquired in 2004 by Prudential Financial, Inc. From 1988 to 2001 Ms. Lazarus served in multiple fund accounting, reporting and valuation roles at Aetna Financial Services, a financial services company based in Hartford that was acquired by ING in 2000. Ms. Lazarus has served as a director of the Bank since January 1, 2017, and her current term will conclude on December 31, 2020.

Jay F. Malcynsky, age ~~62,~~63, 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.~~2020.

Emil J. Ragones, age ~~69,~~70, is an adjunct professor at the Boston College Carroll School of Management in the Masters of Science in Accounting Program, a position he has held since January 2013. He served as executive in residence at Accounting Management Solutions, Inc., located in ~~Boston,~~Waltham, Massachusetts, from 2008 through April 2015, providing accounting and financial management advisory services. Mr. Ragones previously worked 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,~~assurance, 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 and advisory business ~~services.~~services, focusing on reviewing and reporting on financial and information technology controls and Sarbanes-Oxley Act Section 404 compliance and reporting. Mr. Ragones has served as a director of the Bank since September 24, 2010, and his current term will conclude on December 31, 2019.

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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, Lazarus, Malcynsky, 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),~~PwC, our independent registered public accounting firm, is responsible for performing an independent audit of the financial statements and 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?

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.

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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, ~~2015,~~2016, 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	5758
George H. Collins	Executive Vice President and Chief Risk Officer	5657
M. Susan Elliott	Executive Vice President and Chief Business Officer	6162
Frank Nitkiewicz	Executive Vice President and Chief Financial Officer	5455
Timothy J. Barrett	Senior Vice President and Treasurer	5758
Brian G. Donahue	Senior Vice President, Controller and Chief Accounting Officer	4950
Barry F. Gale	Senior Vice President and Executive Director of Human Resources	5657
Sean R. McRae	Senior Vice President and Chief Information Officer	5152
Carol Hempfling Pratt	Senior Vice President, General Counsel, and Corporate Secretary	5758

_________________________


(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 joined 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~~Massachusetts/Rhode Island 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 former member and past chair of the board of Dental Services of Massachusetts, a ~~current~~former 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 is also our chief compliance officer. Mr. Collins previously served as senior vice president and chief risk officer, a position he held 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.

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

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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~~over 25 years 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.~~LLP. Ms. Pratt holds a B.A. ~~from Northwestern University~~ and a J.D. from Northwestern ~~University School of Law.~~University.

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, ~~2015,~~2016, 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		Executive 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 ~~2015.~~2016. 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 increases in base salary based on our Total Rewards Philosophy (defined below) reflecting performance and market conditions, effective January 1, ~~2016.~~2017. Additionally, we adopted an executive incentive plan (an EIP) in ~~2015~~2016 (the ~~2015~~2016 EIP). Cash incentives awarded under EIPs in ~~2015~~2016 were generally determined based on the criteria set forth in the ~~2015~~2016 EIP and the ~~2013~~2014 EIP. Finally, all Bank employees, including the named executive officers, were awarded a special cash bonus equal to 4 percent of base salary as of December 1, 2015, in recognition of our success for the year ended December 31, 2015, reflected in our record net income for the year as well as a number of measures that are indicators of our success against meaningful criteria for the past several years.

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:

John W. McGeorge, Chair

Jay F. Malcynsky, Vice Chair

Joan Carty

Martin J. Geitz

Michael R. Tuttle; 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

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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~~the Compensation Committee's review and discussion, wethey 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, ~~2015.~~2016.

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 ~~2015~~2016 EIP, to ensure these plans do not promote or reward imprudent risk taking. Additionally, the ~~2015~~2016 EIP includes long-term incentive opportunities based on the average core return on capital stock over the three-year period starting January 1, ~~2015,~~2016, and ending December 31, ~~2017,~~2018, and targeted regulatory results at December 31, ~~2017,~~2018, with associated deferred payouts of 50 percent of the ~~2015~~2016 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 ~~2015~~2016 short-term awards, which are intended to further reduce the risk of imprudent risk-taking.

Further, our chief risk officer and our ~~head~~executive director 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

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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 ~~2016,~~2017, 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.

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'~~Collins's goals, as chief risk officer, differ somewhat and have different weightings under the ~~2015~~2016 EIP than goals of the other named executive officers. These differences are intended to align his incentives with appropriately managing our risk profile. Likewise, all participants in the ~~2015~~2016 EIP working in our enterprise risk-management (ERM) department have somewhat different goals and weightings ~~than~~from 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 ~~2015~~2016 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) and to attract and retain the most qualified and highly sought-after staff. The local financial services labor market is dominated by asset-management firms that ~~may be~~are considered 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 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 assimilar to the cost of living in 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~~generally 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 ~~2015,~~2016, we participated in, and used the results of, the annual McLagan FHLBank System

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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 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 similarities in several functional areas, particularly middle-office and support areas. The ~~commercial~~commercial/regional 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 ~~2015~~2016 FHLB Custom 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.

The following is a list of survey participants that were included by McLagan in the commercial/regional banks peer group in the ~~2015~~2016 FHLB Custom Survey as well as proxy data from smaller public peers with assets between $5$10 billion and $20 billion. Not all participants reported positions that matched the data set for the named executive officers.



ABN AMRO	Espirito Santo Investment	~~Park National Corp.~~Rabobank
AIB ~~Capital Markets~~	~~EverBank~~Fannie Mae	~~People's United Bank~~Regions Financial Corporation
Ally Financial Inc.	~~F.N.B. Corp.~~Federal Reserve Bank of New York	~~Pinnacle Financial Partners~~
~~Ameriprise Financial, Inc.~~	~~Fannie Mae~~	~~PNC~~Royal Bank of Canada
Associated ~~Banc-Corp~~	~~FCB Financial Holdings Inc.~~	~~PrivateBancorp Inc.~~
~~Astoria Financial Corp.~~Bank	Fidelity Investments	~~Provident Financial Services~~Royal Bank of Scotland Group
Australia & New Zealand Banking Group	Fifth Third Bank	~~Prudential Financial~~
~~Banc of California Inc.~~	~~First Citizens~~Santander Bank,	~~Putnam Investments~~
~~BancFirst Corp.~~	~~First Commonwealth Financial~~	~~Rabobank~~ NA
Banco Bilbao Vizcaya Argentaria	First ~~Financial Bancorp.~~	~~Rabobank Nederland~~
~~Banco Santander~~	~~First Financial Bankshares~~	~~RBS /~~ Citizens Bank
~~BancorpSouth Inc.~~	~~First Interstate BancSystem~~	~~Regions~~Siemens Financial ~~Corporation~~Services
Bank Hapoalim	First ~~Merchants Corp.~~Niagara	~~Renasant Corp.~~Societe Generale
Bank of America Merrill Lynch	~~First Merit~~Freddie Mac	Standard Chartered Bank	~~Royal Bank of Canada~~
~~Bank of Hawaii Corp.~~	~~First Midwest Bancorp Inc.~~	~~Sallie Mae~~
Bank of Ireland Corporate Banking	~~First Niagara~~	~~Santander Bank, NA~~
~~Bank of the Ozarks Inc.~~	~~Flushing Financial Corp.~~	~~Societe Generale~~
~~Bank of the West~~	~~Freddie Mac~~	~~South State Corporation~~
~~BankUnited Inc.~~	~~Fulton Financial Corp.~~	~~Standard Chartered Bank~~
~~Bayerische Landesbank~~	~~GE Capital~~Haitong	State Street Bank & Trust Company
~~BBCN Bancorp Inc.~~	~~Glacier Bancorp Inc.~~	~~Sterling Bancorp~~
~~BBVA Compass~~	~~Great Western Bancorp~~	~~Sumitomo Mitsui Banking Corporation~~
~~Berkshire Hills Bancorp Inc.~~Bank of the West	Hancock Bank	~~Sumitomo Mitsui Trust Bank~~
~~BlackRock, Inc.~~	~~Heartland Financial USA Inc.~~	SunTrust Banks
~~BMO Capital Markets~~Bayerische Landesbank	~~Hilltop Holdings Inc.~~	~~Susquehanna Bancshares Inc.~~
~~BNP Paribas~~	~~Home BancShares Inc.~~HSBC	SVB Financial Group
~~BOK Financial Corporation~~	~~HSBC~~	~~Synovus~~

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~~Boston Private Financial~~BBVA Compass	Huntington Bancshares, Inc.	~~Talmer Bancorp Inc.~~Synovus
~~Branch Banking & Trust Co.~~BlackRock, Inc.	~~IBERIABANK Corp.~~ING	~~TCF Financial Corp~~TD Ameritrade
~~Brookline~~BMO Financial Group	Investors Bancorp, ~~Inc.~~	~~Independent Bank Corp.~~	~~TCF Financial Corp.~~
~~Brown Brothers Harriman & Co. Capital Group~~	~~ING~~Inc	TD Securities
~~Capital Bank Finl Corp~~BNP Paribas	~~International Bancshares Corp.~~	~~Texas Capital Bancshares Inc.~~
~~Capital One~~	~~Investors Bancorp Inc~~JPMorgan	The Bank Of New York Mellon
~~Cathay General Bancorp~~BOK Financial Corporation	~~JPMorgan~~KBC Bank	The Bank of Nova Scotia
~~Chemical~~Boston Private Financial ~~Corp.~~Holdings, Inc.	~~KBC Bank~~KeyCorp	The CIT Group
~~China Merchants Bank~~	~~KeyCorp~~	~~The Norinchukin Bank, New York~~ Branch
~~CIBC World Markets~~ Banking & Trust Co.	Landesbank Baden-Wuerttemberg	The Northern Trust Corporation
~~Citigroup~~Capital Group	Lloyds Banking Group	The Vanguard Group, Inc.
~~Citizens Financial Group~~Capital One	M&T Bank Corporation	~~Tompkins~~U.S. Bancorp
CIBC World Markets	Macquarie Bank	Umpqua Holding Corporation
Citigroup	Mizuho Bank	UniCredit
Citizens Financial ~~Corporation~~Group	Mizuho Capital Markets	Webster Bank
City National Bank	~~Macquarie~~Mizuho Trust & Banking Co. (USA)	Wells Fargo Bank	~~Trustmark Corp.~~
~~CLSA~~	~~MB Financial Inc.~~	~~U.S. Bancorp~~
~~Columbia Banking System Inc.~~	~~Mitsubishi Securities~~	~~UMB Financial Corp.~~
Comerica	~~Mitsubishi UFJ Trust &~~MUFG Securities	Westpac Banking Corporation
~~Umpqua Holding Corporation~~Commerce Bank	MUFG Union Bank	Zions Bancorporation
Commerzbank	~~Mizuho~~National Australia Bank	~~UniCredit~~Federal Home Loan Bank of Atlanta
Commonwealth Bank of Australia	~~Mizuho Capital Markets~~Natixis	~~Union Bkshs Corp~~
~~Community~~Federal Home Loan Bank ~~System Inc.~~	~~MUFG Union Bank~~	~~United Bankshares Inc.~~of Chicago
Crédit Agricole CIB	~~National Australia~~Nomura Securities	Federal Home Loan Bank	~~United Community Banks Inc.~~ of Cincinnati
Credit Industriel et Commercial	~~National Penn Bancshares Inc.~~Nord/LB	~~United Financial Bancorp~~Federal Home Loan Bank of Dallas
Cullen Frost Bankers, Inc.	~~Natixis~~	~~United Overseas Bank Group~~
~~Customers Bancorp Inc~~	~~NBT Bancorp Inc.~~	~~Valley National Bancorp~~
~~CVB Financial Corp.~~	~~New York Community~~Nordea Bank	~~Washington~~ Federal ~~Inc.~~Home Loan Bank of Des Moines
DBS Bank	~~Nomura Securities~~OCBC Bank	~~Webster~~Federal Home Loan Bank
~~Dexia~~	~~Nord/LB~~	~~Wells Fargo Bank~~ of Indianapolis
DnB Bank	~~Northwest Bancshares, Inc.~~People's United Bank	~~WesBanco Inc.~~Federal Home Loan Bank of New York
DVB Bank	~~OCBC~~People's United Bank, National Association	~~Westamerica Bancorp.~~Federal Home Loan Bank of Pittsburgh
DZ Bank	~~Old National~~PNC Bank	Federal Home Loan Bank of San Francisco
East West Bancorp	~~Western Alliance Bancorp~~
~~Eagle Bancorp Inc~~Prudential Financial	~~Opus~~Federal Home Loan Bank	~~Westpac Banking Corporation~~
~~Erste Group Bank AG~~	~~PacWest Bancorp~~	~~Zions Bancorporation~~ of Topeka

Data from international banks ~~only~~ contained results from their U.S. ~~operations.~~operations only.

Elements of our Compensation Plan and Why Each Element is Selected

We compensate the named executive officers principally based on their performance, skills, experience, the criticality of the role, and tenure 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 may offer higher base salaries, in addition to 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

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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 total cash compensation of the named executive officer's peers at other FHLBanks. 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 ~~2015,~~2016, 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 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 ~~February 5, 2016,~~January 4, 2017, with retroactive application to January 1, ~~2016.~~2017. In determining the amount of the increases, the Compensation Committee considered market data from the McLagan ~~2015~~2016 FHLB Custom 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, 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:

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Name and Principal Position	Pre-Adjustment Annual Base Salary	Post-Adjustment Annual Base Salary	Percent Increase	Pre-Adjustment Annual Base Salary	Post-Adjustment Annual Base Salary	Percent Increase
Edward A. Hjerpe III	$733,300	$756,700	3.19%	$756,700	$781,300	3.25%
President and Chief Executive Officer

Frank Nitkiewicz	$358,000	$369,280	3.15%	$369,280	$380,880	3.14%
Executive Vice President and Chief Financial Officer

M. Susan Elliott	$358,000	$369,280	3.15%	$369,280	$380,680	3.09%
Executive Vice President and Chief Business Officer

George H. Collins	$330,000	$339,570	2.90%	$339,570	$350,070	3.09%
Executive Vice Presidentand Chief Risk Officer

Carol Hempfling Pratt	$295,000	$324,500	10.00%	$324,500	$334,700	3.14%
Senior Vice President and General Counsel

Timothy J. Barrett	$295,000	$324,500	10.00%	$324,500	$334,700	3.14%
Senior Vice President and Treasurer

Executive Incentive Plan

General Overview of EIPs

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 or other members of management or highly compensated employees, 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 or other members of management or highly compensated employees, including the named executive officers.

The Compensation Committee reviews each component of the EIP's plan design, including 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 ~~2015~~2016 EIP

The ~~2015~~2016 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.

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~~2015~~2016 EIP Plan Design

The design of the ~~2015~~2016 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 ~~2015~~2016 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 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 ~~2015~~2016 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 ~~2015~~2016 EIP. Additionally, the ~~2015~~2016 EIP includes long-term incentive opportunities based on the average core return on capital stock over the three-year period starting January 1, ~~2015,~~2016, and ending December 31, ~~2017,~~2018, and targeted regulatory results at December 31, ~~2017,~~2018, which are intended to align management's interests with our long-term financial performance and condition. Further, Mr. ~~Collins'~~Collins's goals, as chief risk officer, differ somewhat and have different weightings ~~than~~from the goals and weightings of 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 ~~2015~~2016 EIP, the Compensation Committee and the board of directors maintained authority over all awards under the ~~2015~~2016 EIP, however, the ~~2015~~2016 EIP prohibits award payouts to participants that do not receive a performance rating of ~~“consistently meets~~“meets expectations” or better.

Short-Term Incentive Goals and Actual Achievement

The ~~2015~~2016 EIP includes the following short-term incentive goals for the named executive officers:

Pre-assessment ~~pre-other-than-temporary-impairment~~ core return on capital stock (the core return goal): Pre-assessment ~~pre-other-than-temporary-impairment~~ core return on capital stock (as such term is defined in the ~~2015~~2016 EIP and referred to in this report as core return on capital stock) is a measure of return on capital stock that excludes or adjusts the timing of recognition of the impact of AHP expenses, expenses of the HHNE and JNE initiatives, 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. In addition, with the approval of the board of directors, we also adjusted the calculation of core return on capital stock by including unbudgeted voluntary pension contributions to the extent funded by current period litigation income. The difference between GAAP return on capital stock and this measure of return on capital stock is that GAAP return on capital stock does not provide for the ~~exclusions~~adjustments described ~~in the immediately prior sentence,~~above, and core return on capital stock includes shares classified as mandatorily redeemable capital stock. 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 and Related Policy Constraints.

~~Housing Finance Agency (the HFA goal)~~Implement the HHNE Initiative (HHNE initiative): This goal is measured by the ~~promotion~~launch and disbursement of the allocated subsidy in our ~~products and services to HFAs and their use of our products and services.~~HHNE initiative.

~~Economic and community development~~Implement the JNE initiative ~~(the ECDI goal)~~(JNE initiative): This goal is measured by the launch and disbursement of the allocated subsidy in our ~~outreach to understand economic development needs in New England and potential strategies to address them.~~JNE initiative.

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

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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.

The ~~2015~~2016 EIP includes the following short-term incentive goals for the named executive officers, except for Mr. Collins:

New business and mission goal (the new business goal): This goal is measured by the total amount of advances originated during ~~2015~~2016 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 amount of new advances originated in ~~2015~~2016 (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 ~~2015.~~2016.

Mr. ~~Collins'~~Collins's 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 ~~2015~~2016 EIP, Mr. ~~Collins'~~Collins's short-term incentive goals include the core return goal, HHNE initiative, JNE initiative, and individual goal but exclude the new business goal, insurance advances goal, and insurance membership goal. Mr. ~~Collins'~~Collins's 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'~~Collins's achievement of these goals was evaluated by Mr. Hjerpe in his capacity as Mr. ~~Collins'~~Collins's manager.

Remediation of ~~2014~~2015 Report of Examination Findings (the remediation goal): This goal is measured by the clearance rate of ~~2014~~2015 FHFA examination findings that identified our ~~weaknesses, excluding a finding on our asset classification report.~~weaknesses.

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, ~~2015.~~2016.

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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

Named Executive Officers other than Chief Risk Officer

Chief Risk Officer

Threshold

Target

Excess

Actual

Achievement

Core Return

30%

25%

2.85 percent ⁽¹⁾

3.20 percent⁽¹⁾

3.88 percent⁽¹⁾

4.43 percent

25%

20%

4.10 percent ⁽¹⁾

4.58 percent⁽¹⁾

5.55 percent⁽¹⁾

5.88 percent

New Business

25%

$1.25 billion

$2.5 billion

$3.75 billion

$3.78 billion

20%

$1.50 billion

$2.75 billion

$4.00 billion

$4.37 billion

Insurance Advances

15%

$300 million

$600 million

$1 billion

$1.7 billion

15%

$500.0 million

$1.0 billion

$1.5 billion

$2.8 billion

Insurance Membership

10%

3 new members

5 new members

7 new members

10%

3 new members

5 new members

7 new members

5 new members

HFA

Management committee members complete four or more meetings with HFAs and present a specific lien collateralization option.

Threshold criteria plus present the MPF program to one or more HFAs and complete analysis and consider specific criteria for HFA bond investments and present to an internal committee by April 30, 2015.

Target criteria plus
disburse a minimum of one advance to an HFA in our district and approve one such HFA to participate in the MPF program or purchase one or more loans from an existing HFA under the program.

Excess

ECDI

N/A

Complete legal, regulatory and financial analysis; meet with a minimum of three financial intermediaries and present report of alternative strategies to the board at March 2015 meeting.

N/A

Target

HHNE Initiative

10%

Announce the initiative by January 15, 2016 and disburse 50% of allocated subsidy by December 31, 2016

Threshold criteria plus disburse 75% of allocated subsidy by December 31, 2016

Target criteria plus

disburse 100% of allocated subsidy by December 31, 2016

Excess Achieved

JNE Initiative

10%

Announce the initiative by January 15, 2016 and disburse 50% of allocated subsidy by December 31, 2016

Threshold criteria plus disburse 75% of allocated subsidy by December 31, 2016

Target criteria plus

disburse 100% of allocated subsidy by December 31, 2016

Excess Achieved

Remediation

20%

Clear all remediation matters requiring board attention and clear 3 out of 4 of the other remediation matters.

Clear all remediation matters requiring board attention and clear all other remediation matters.

Target criteria plus receive fewer matters requiring board attention in the 2016 regulatory examination.

Target

15%

Clear all remediation matters requiring board attention and 66% of the other remediation matters.

Clear all remediation matters requiring board attention and clear all other remediation matters.

Target criteria plus receive 3 or fewer matters requiring board attention in the 2016 regulatory examination.

Threshold not satisfied

ERM

35%

See Table 11.2

35%

See Table 11.2

Individual

10%

See Table 11.3

10%

See Table 11.3

___________________________

(1)

These performance levels were adjusted from the amounts originally established in the ~~2015~~2016 EIP. The ~~2015~~2016 EIP provides that the originally established performance levels were to be adjusted up or down by 1.25 basis points for every basis point by which the average daily federal funds rate deviated from the 0.25 percent assumed in our strategic business plan. In 2015, the average daily federal funds rate deviation was 11.45 basis points, resulting in a 14.31 basis point downward adjustment for each of the performance levels. In addition, the 2015 EIP provides that each of the originally established performance levels were to be adjusted up or down by one basis point for every ~~$7.5 million~~basis point by which the ~~quantity of our~~ average ~~stock outstanding minus~~daily federal funds rate deviated from the ~~average aggregate stock investment requirement for all shareholders (average excess stock) is greater or less than the $361.5 million~~0.67 percent assumed in our strategic business plan. In ~~2015,~~2016, the average ~~excess stock was $424.6 million, resulting in a 8.41 basis point decrease for~~daily federal funds rate deviation, and therefore, the adjustment to each of the performance ~~levels. Taken together, these adjustments amounted to a 22.72~~levels, was -27.03 basis ~~point decrease for each of the performance levels.~~points.

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The following table 11.2 sets forth the ERM Goals and the actual achievement for the year ended December 31, ~~2015.~~2016.



Table 11.2 ERM Goals and Actual Achievement
Goals	Threshold	Target	Excess	Actual Achievement
~~Optimize ERM structure for efficiency~~Review risk policies with department staff to: a) enhance awareness and engagement by taking a bottom-up perspective and b) generate, as deemed warranted, recommended changes to ~~provide career growth opportunities for staff.~~better align practice with policy	~~Assess each area in ERM by June 2015.~~By November 30, 2016, review and provide summary of recommended changes (if any) to 6 policies to the Chief Risk Officer.	~~Make recommendations by September 2015.~~By November 30, 2016, review and provide summary of recommended changes (if any) to 9 policies to the Chief Risk Officer.	~~Implement recommendations by December 2015.~~By November 30, 2016, review and provide summary of recommended changes (if any) to 12 policies to the Chief Risk Officer.	Excess
~~Develop a risk allocation model by product to quantify the amount of risk each business and product contributes~~Contribute to the ~~Bank’s overall risk profile.~~new Bank activities for 2016 via active participation with key constituents co-led by ERM and business unit management.	~~Develop model.~~	~~Present model to~~Of the ~~board~~targeted and key action plans supporting business unit objectives agreed upon quarterly by ~~September 2015.~~	~~Incorporate model into capital planning process.~~	~~Target~~
~~Model risk management: a) develop model performance metrics for four~~leadership of ERM, ~~models by June 30, 2015;~~Member Services and ~~b) complete full model assessment for certain key Bank models, including the completion~~Treasury, satisfactorily meet 75% of ~~a business case comparing those models with alternative models and providing a recommendation by December 31, 2015.~~	~~Develop model performance metrics for the four ERM models and complete a full model assessment, business case and recommendation for one model by December 31, 2015.~~	~~Timely completion of either a or b of this goal.~~	~~Timely completion of both a and b of this goal.~~	~~Excess~~
~~Conduct training sessions on various ERM matters.~~	~~Conduct three trainings by December 31, 2015.~~targeted action plans	Threshold criteria plus ~~conduct an additional three sessions led~~satisfactorily meet 100% of key action plans	Target criteria plus satisfactorily meet 100% of targeted and key action plans	75% between Target and Excess
Revamp reporting to Asset-liability, Credit and Operations committees and b) Revamp the Risk committee report	Complete all 4 by ~~non-corporate officers.~~December 31, 2016	Complete management committees by June 30, 2016, and Risk committee by October 31, 2016	Complete management committees by June 30, 2016, and Risk committee by September 30, 2016	Excess
Working with the Risk Committee for the Risk Management Policy and internal management committees for the Market Risk Management, Credit Risk Management, Liquidity Risk Management and Capital Management Policies, complete a review of internal risk limits and triggers and make recommendations where appropriate	Complete the review and update of the Risk Management Policy by September 30, 2016	Threshold criteria plus review 2 of 4 management policies by December 31, 2016	Target criteria plus review ~~materials from three sessions with the board’s risk committee.~~4 management policies by December 31, 2016	Excess

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
Mr. Hjerpe
Goals	Threshold	Target	Excess	Actual Achievement

~~MVE to Par Stock ratio.~~
	~~Ratio is at 2014 year-end level.~~	~~Ratio is at 2014 year-end level, plus 4 percent.~~	~~Ratio is at 2014 year-end level, plus 8 percent.~~	~~Excess.~~
Maintain financial capacity to pay a dividend at a specified minimum level for four quarters.	Dividends in an amount at or above a specified minimum level paid for four ~~quarters.~~quarters and achieve a core mission asset ratio of 65% or higher for 2016.	~~Achieve threshold criteria plus end excess stock repurchase moratorium.~~Dividends in an amount at or above a specified minimum level paid for four quarters and achieve a core mission asset ratio of 70% or higher for 2016.	Achieve target criteria, plus exceed “target” on the pre-assessment, ~~pre-OTTI~~ core return on capital stock goal as defined in the ~~2015~~2016 EIP.	~~Excess.~~

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				Excess
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~~five such meetings.	Attend and present at ~~six~~seven such meetings, including at least one insurance company focused meeting.	Attend and present at ~~eight~~nine such meetings including at least one insurance ~~company meeting and one housing finance agency meeting.~~company.	~~Excess.~~Target

Mr. Nitkiewicz
Goals	Threshold	Target	Excess	Actual Achievement
~~Evaluate strategies to normalize stock management and reduce stock investment requirements in~~Implement finance project of the ~~future.~~new general ledger/ accounts payable/ human resources financial system.	~~By June 30, 2015, present plan~~Deploy general ledger/ accounts payable /fixed assets phase of new system in time to ~~asset-liability committee (ALCO)~~retire legacy systems within 2016.	Deploy general ledger/ accounts payable /fixed assets phase of new system in time to retire legacy systems by May 31, 2016.	Deploy general ledger/ accounts payable /fixed assets phase of new system plus complete assessment of one new financial function, such as procurement or budgeting cost allocation, for implementation in a future phase.	Target
Manage Bank’s capital position adequately and ~~finance committee to establish a range of acceptable excess stock levels~~efficiently and ~~a plan to maintain these levels.~~assess opportunities for improvement.	Maintain ~~compliance with~~Bank’s excess stock ~~ranges prescribed~~position within parameters approved by board of directors under the excess stock management program for 3 out of 4 quarter-ends in ~~target requirement for the second half of 2015.~~2016.	~~Implement reduction~~Maintain Bank’s excess stock position within parameters approved by board of directors under the excess stock ~~investment requirements as directed by 2015 Strategic Business Plan.~~management program for each quarter-end in 2016.	~~Split Threshold/Target.~~
~~Lead initiative to replace general ledger and accounts payable~~Specify requirements for online member-initiated stock repurchase or redemption transactions for potential inclusion in core banking system ~~with a broader financial system, potentially integrated with human resource system.~~requirements document.	Oversee the completion of business requirements document for financial system including general ledger, accounts payable, budgeting, procurement, and reporting functionality, in tandem with development of business requirements document for human resources system.	~~Achieve threshold criteria plus select vendor for contract negotiations and obtain our project committee’s approval of financial system (with or without human resource system).~~	~~Achieve target criteria plus finalize contract with selected vendor and present a staged implementation plan to our project committee.~~	~~Excess.~~
~~Evaluate the mission and strategic functions of departments under the chief financial officer to ensure optimal effectiveness and efficiency.~~	~~Conduct an evaluation of the current mission and functional roles within each department reporting to the chief financial officer.~~	~~Achieve threshold criteria plus assess and document any recommended changes to current scope of roles within these departments.~~	~~Achieve target criteria plus develop implementation plan to effect recommended changes.~~	~~Split Target/Excess.~~Excess

Ms. Elliott
Goals	Threshold	Target	Excess	Actual Achievement
~~Drive the insurance company strategy implementation.~~Implement JNE and HHNE initiatives and disburse related advances.	~~Develop a target list~~Announce JNE and HHNE initiatives by the later of ~~insurance companies to develop advances business from, ensure that staff meet with~~January 15, 2016 or 15 days after regulator approval.	Achieve threshold criteria, plus (1) conduct a minimum of 10three group meetings or webinars to provide an overview of ~~those targets~~the JNE and ~~personally meet with~~HHNE initiatives and (2) disburse 50% * of both JNE and HHNE initiative funds in 2016. *If regulator approval is received later than March 1, 2016, this amount will be prorated.	Achieve target criteria, plus disburse 100%* of both JNE and HHNE initiative funds in 2016. *If regulator approval is received later than March 1, 2016, this amount will be prorated.	Excess
Conduct member outreach, including to a minimum of five ~~of these targets.~~	~~Achieve threshold criteria plus generate $500 million in advances disbursements to~~ insurance companies.	~~Achieve target criteria plus generate $1 billion in advances disbursements to insurance companies.~~Conduct 10 meetings with members.	~~Excess.~~Conduct 15 meetings with members.	Conduct 20 meetings with members.	80% between Target and Excess
Conduct outreach to ~~depository institution members~~regulators between March and ~~develop long term advances business.~~	~~Develop target list and submit to President Hjerpe by January 31, 2015.~~	~~Achieve threshold criteria plus ensure that staff meet with all on target list and personally meet with a minimum of 10 of these targets (excluding insurance companies).~~	~~Achieve target criteria plus generate $3.5 billion in long term advances disbursements (excluding insurance company volume).~~	~~Excess.~~

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~~Conduct outreach to and develop business with New England housing finance agencies.~~December 2016.	Conduct ~~four~~5 meetings with ~~New England housing finance agencies and document presentation of financial strategies model.~~regulators.	~~Achieve threshold criteria plus conduct one additional meeting~~Conduct 7 meetings with another New England housing finance agency; document presentation of specific lien option for advances to two of these housing finance agencies; and disburse at least one advance to one housing finance agency.regulators.	~~Achieve target criteria plus conduct one additional meeting~~Conduct 11 meetings with ~~another New England housing finance agency and present MPF program to a housing finance agency.~~regulators.	~~Excess.~~Excess

Mr. Collins
Goals	Threshold	Target	Excess	Actual Achievement

~~Efficiently resolve internal audit findings.~~

Recommend and implement enhancements to the Bank’s compliance program as required by new regulation.	~~All summary~~Complete assessment of ~~outstanding audit finding (SOAF) items opened in first and second quarters of 2014 moved to “submitted status” with internal audit.~~compliance program by February 28, 2016.	~~All SOAF items opened in~~Review assessment results and recommendations with the ~~first~~Bank’s management committee and ~~second quarters~~board of ~~2015 moved to “completed status” with internal audit.~~directors by March 31, 2016.	~~No outstanding SOAF items as of~~Develop plan for program enhancements by June 30, 2016 and deliver agreed- upon required elements through December 31, ~~2015.~~2016.	~~Threshold not satisfied~~Excess
~~Improve chief~~Implement effective risk ~~officer communication and visibility.~~management program consistent with new regulation.	~~Meet monthly with enterprise~~Complete assessment of existing risk management ~~officers and hold six department-wide meetings.~~framework versus new requirements by March 31, 2016.	~~Achieve threshold criteria plus conduct one-on-one meetings two levels down twice a year.~~Review assessment with the Bank’s management committee and board of directors by April 30, 2016.	~~Achieve target criteria plus conduct at least 36 one-on-one meetings with corporate officers.~~Develop plan for program enhancements by June 30, 2016 and deliver agreed upon required elements through December 31, 2016.	~~Threshold not satisfied~~ No Payout⁽¹⁾

Ms. Pratt
Goals	Threshold	Target	Excess	Actual Achievement
~~Improve organizational~~Conduct member regulator outreach.	Participate in five meetings with member regulators, at least two of which must be with insurance regulators.	Participate in seven such meetings, at least two of which must be with insurance regulators.	Participate in 11 such meetings, at least two of which must be with insurance regulators.	Target
Successfully implement certain changes to vendor lifecycle management process.	Obtain operations committee review and ~~operational efficiency in contracting, procurement~~management committee approval of revised vendor policy, and complete and publish new vendor selection /contracting procedures and vendor management ~~functions.~~procedures by March 31, 2016.	~~Create~~Achieve threshold criteria, plus hold training sessions for vendor managers and ~~chair cross-functional team to explore ways to (1) better coordinating procurement, contracting and vendor management functions and (2) improve compliance with~~ related ~~policies.~~	~~Draft an action plan designed to improve coordination of those functions.~~officers by June 30, 2016.	Achieve target criteria, plus ~~obtain management committee approval of the action plan~~create and ~~begin implementing prior to commencement of 2015 FHFA examination.~~publish computer-based training module on vendor contracting by September 30, 2016.	~~Excess.~~
~~Support new technology solutions.~~	~~Support initiative to migrate to a new cloud-based email solution, including by reviewing contract and providing written comments and advice on legal risks.~~	~~Achieve threshold criteria plus support request for proposal (RFP) process for new general ledger solution, including by drafting template contractual provisions for inclusion in the RFP.~~	Achieve target criteria plus, with respect to the general ledger solution, support contract negotiations to a conclusion that is satisfactory to the business units, as evidenced by either an executed contract or an affirmative decision by the business units after negotiations that execution of a contract is not in the Bank’s best interests.	~~Split Target/Excess.~~Target

Mr. Barrett
Goals	Threshold	Target	Excess	Actual Achievement

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~~Analyze and recommend process improvements for straight-through-processing (STP)~~Engage with the Office of ~~long term investments and letters of credit.~~Finance regarding market access strategy, including analyzing supplemental debt distribution methods.	~~Identify potential process improvements~~Report new funding strategy to ~~STP and present to internal committee by June 30, 2105.~~asset-liability committee.	Achieve threshold criteria, plus ~~obtain departmental approvals on proposed improvements by September 30, 2015,~~join the Office of Finance and ~~executive committee’s approval to pursue proposed improvements by December 31, 2015.~~	~~Achieve target criteria plus submit proposed improvements to business~~other FHLBanks’ working group, and ~~operations committees by December 31, 2015, for contribution to other Bank projects.~~	~~Threshold.~~
~~Develop and present feasibility analysis on new products.~~	~~Structure and fund a long term advance by March 31, 2015, using new spread-based process.~~	~~Achieve threshold criteria plus present feasibility analysis of new MPF products to ALCO by December 31, 2015.~~attend one meeting.	Achieve target criteria, plus present ~~ALCO with~~ a ~~recommendation whether the Bank will follow the MPF governing committee’s recommend initiatives~~market access strategy to ~~increase volume and ad a new non-qualified mortgage product by December 31, 2015.~~FHLBank System CFO committee.	~~Split Threshold/Target.~~Target
~~Analyze the feasibility of investing in HFA bonds.~~Recommend and implement process change improvements to long-term investment straight-through-processing (STP).	~~Provide ALCO with~~Present a ~~comparison of HFA bonds~~business case for a process change to ~~funding, highlighting risk and return drivers by March 31, 2015.~~operations committee intended to improve STP, including, but not limited to, removing redundancies or consolidating responsibilities.	~~Achieve threshold criteria plus structure~~Initiate internal project processes to implement STP process change, including a ~~bond with HFA that meet~~completed business case for the ~~Bank’s risk profile. Provide to ALCO for review and approval by June 30, 2015.~~process change.	~~Achieve target criteria plus develop related policies and procedures.~~Fully implement process change.	~~Split Target/Excess.~~Target

_______________________


(1)	An assessment of existing risk management framework versus new requirements was completed in May 2016. The Bank determined that the existing risk management program was compliant with new requirements, and no changes were required.

Long-Term Incentive Goals

In addition, the ~~2015~~2016 EIP includes two long-term incentive goals. The first, weighted at 67 percent of the total long-term opportunity, is based on our average core return on capital stock over the three-year period starting January 1, ~~2015,~~2016, and ending December 31, ~~2017.~~2018. The ~~2015~~2016 EIP provides that the performance levels for this goal will be adjusted up or down by ~~1.45~~0.8 basis points for every basis point by which the average daily federal funds rate deviates from the ~~1.06~~1.15 percent that we have forecast. In addition, the 2015 EIP provides that each of the performance levels will be adjusted up or down by one basis point for every $7.5 million by which the quantity of our average stock outstanding minus the average aggregate stock investment requirement for all shareholders is greater or less than the average excess stock that we have forecast for the period.

For information on how core return on capital stock is determined, see — Short-Term Incentive Goals and Actual Achievement.



Long-Term Goal		Average Core Return on Capital Stock from January 1, ~~2015~~2016 to December 31, ~~2017~~2018
Threshold		~~3.42%~~4.18%
Target		~~4.27%~~5.23%
Excess		~~5.12%~~6.27%

The second long-term incentive goal will be measured by the achievement of certain targeted regulatory goals by December 31, ~~2017.~~2018. This goal is weighted at 33 percent of the total long-term opportunity.

Incentive Opportunities under the ~~2015~~2016 EIP

Incentive opportunities under the ~~2015~~2016 EIP are based on each named executive officer's base salary at December 31, ~~2015~~2016 (referred to as ~~2015~~2016 incentive salaries).

The following Table 11.4 sets forth the combined short and long-term incentive opportunities under the ~~2015~~2016 EIP, in each case expressed as percentages of the named executive officers' ~~2015~~2016 incentive salaries:

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Table 11.4
	Combined Short- and Long-Term Incentive Opportunity
	Threshold	Target	Excess
President	50.00%	75.00%	100.00%
All Other Named Executive Officers	30.00%	50.00%	70.00%

At the conclusion of ~~2015,~~2016, individual awards were calculated based on actual goal achievement as of December 31, ~~2015.~~2016. Participants were eligible to receive 50 percent of such award in a cash payment in March ~~2016,~~2017, 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 ~~2016,~~2017, in each case expressed as percentages of the named executive officers' ~~2015~~2016 incentive salaries:



Table 11.5
	Short -Term Incentive Opportunity
	Threshold	Target	Excess
President	25.00%	37.50%	50.00%
All Other Named Executive Officers	15.00%	25.00%	35.00%

The remaining 50 percent of the combined award, calculated at the end of ~~2015,~~2016, 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,~~goals, as set forth in Table 11.6 below.



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 ~~2015~~2016 EIP

Awards for the short-term goals, other than the ERM and individual goals under the ~~2015~~2016 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	~~2015~~2016 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 absent an act of discretion. 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	~~2015~~2016 Incentive Salary

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Our staff calculated the named executive officers' awards under the ~~2015~~2016 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. Mr. Hjerpe recommended that Mr. Collins be awarded a payout of threshold for his individual goals because his actual achievement was very close to achieving the threshold criteria and the results of the 2015 FHFA regulatory examination were positive. 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 ~~all three~~one 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:


2015 Combined Short-and Long-Term Awards as Calculated by Goal
2016 Combined Short-and Long-Term Awards as Calculated by Goal																					2016 Combined Short-and Long-Term Awards as Calculated by Goal
Participant	Core Return		New Business		Insurance Advances		Insurance Membership		HFA		ECDI		Remediation		ERM		Individual		Total Combined Award		Core Return		New Business		Insurance Advances		Insurance Membership		HHNE		JNE		Remediation		ERM		Individual		Total Combined Award
Mr. Hjerpe	$	219,990	$	183,325	$	109,995	$	73,330	$	36,665	$	27,499	NA		NA		$	73,330	$	724,134	$	189,175	$	151,340	$	113,505	$	56,753	$	75,670	$	75,670	N/A		N/A		$	66,211	$	728,324
Mr. Nitkiewicz	75,180		62,650		37,590		25,060		12,530		8,950		NA		NA		19,154		241,114		64,624		51,699		38,774		18,464		25,850		25,850		N/A		N/A		21,418		246,679
Ms. Elliott	75,180		62,650		37,590		25,060		12,530		8,950		NA		NA		25,060		247,020		64,624		51,699		38,774		18,464		25,850		25,850		N/A		N/A		25,358		250,619
Mr. Collins	57,750		NA		NA		NA		11,550		8,250		$	33,000	$	75,076	9,900		195,526		47,540		N/A		N/A		N/A		23,770		23,770		$	—	$	81,709	11,885		188,674
Ms. Pratt	61,950		51,625		30,975		20,650		10,325		7,375		NA		NA		19,176		202,076		56,788		45,430		34,073		16,225		22,715		22,715		N/A		N/A		16,224		214,170
Mr. Barrett	61,950		51,625		30,975		20,650		10,325		7,375		NA		NA		12,782		195,682		56,788		45,430		34,073		16,225		22,715		22,715		N/A		N/A		16,224		214,170

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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, ~~2015,~~2016, 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 or financial relationship with any of our members that is not transacted in the ordinary course of the member's business ~~and,~~or, 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 non-ordinary-course 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~~eight 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~~an 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 directors also engage in transactions either directly or indirectly with us from time to time in the ordinary course of the Bank's business.

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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 ~~18, 2016,~~24, 2017, 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 the independence of 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 ~~18, 2016,~~24, 2017, all of our independent (that is, nonmember) directors are independent, including Directors Calamare, Carty, Chatman, Clancy, Hurley, Lazarus, Malcynsky, and Ragones. Based upon the fact that each member director is ~~a senior official~~an officer or director 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, Geitz, McGeorge, Treanor, and Tuttle, 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, Lazarus, 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 ~~18, 2016,~~24, 2017, 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 ~~2015~~2016 and ~~2014,~~2015, as well as the fees billed by PwC for audit-related and other services rendered by PwC to us during ~~2015~~2016 and ~~2014.~~2015.

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Principal Accounting Fees and Services (dollars in thousands)	Principal Accounting Fees and Services (dollars in thousands)					Principal Accounting Fees and Services (dollars in thousands)

		Year Ended December 31,					Year Ended December 31,
		2015		2014			2016		2015
Audit fees⁽¹⁾		$	784	$	815		$	795	$	784
Audit-related fees⁽²⁾		48		90			126		48
All other fees⁽³⁾		20		—			6		20
Tax fees		—		—			—		—
Total		$	852	$	905		$	927	$	852

_______________________


(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.


(3)	All other fees consist of fees related to research regarding healthcare initiatives amongst the FHLBanks.

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	~~Filed within this~~Exhibit 3.2 to our 2015 Form 10-K filed with the SEC on March 18, 2016
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

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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
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 Federal Home Loan Bank of Boston 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 2013 Executive Incentive Plan *	~~Exhibit 99.1 to our Form 8-K filed with the SEC on March 29, 2013.~~
~~10.4~~10.3.1	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.
~~10.5~~10.3.2	The Federal Home Loan Bank of Boston 2015 Executive Incentive Plan *	Exhibit 99.1 to our Form 8-K filed with the SEC on April 8, 2015.
10.3.3	The Federal Home Loan Bank of Boston 2016 Executive Incentive Plan *	Exhibit 99.1 to our Form 8-K filed with the SEC on March 10, 2016.
10.4	MPF Consolidated Interbank Agreement dated as of July 22, 2016	Exhibit 10.1 to our Third Quarter 2016 Form 10-Q filed with the SEC on November 10, 2016.
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~~10.8.1	~~The~~Amended and Restated Federal Home Loan ~~Bank~~Banks P&I Funding and Contingency Plan Agreement, effective as of Boston 2014 Director Compensation Policy *	~~Exhibit 10.1 to our Form 8-K/A as filed with~~January 1, 2017, by and among the ~~SEC on December 20, 2013~~
~~10.9.2~~	~~The~~Office of Finance and each of the Federal Home Loan Bank of Boston 2015 Director Compensation Policy *Banks	~~Exhibit 10.1 to our~~Filed within this Form ~~8-K as filed with the SEC on October 24, 2014~~10-K
~~10.9.3~~10.9.1	The Federal Home Loan Bank of Boston 2016 Director Compensation Policy *	Exhibit 10.1 to our Form 8-K/A as filed with the SEC on October 28, 2015
10.9.2	The Federal Home Loan Bank of Boston 2017 Director Compensation Policy *	Exhibit 10.1 to our Form 8-K as filed with the SEC on October 28, 2016
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.
10.14	The Federal Home Loan Bank of Boston Split-Dollar Insurance Termination Agreement between Frank Nitkiewicz and the Federal Home Loan Bank of Boston dated May 24, 2005 *	Filed within this Form 10-K
10.15	The Federal Home Loan Bank of Boston Split-Dollar Insurance Termination Agreement between M. Susan Elliott and the Federal Home Loan Bank of Boston dated May 24, 2005 *	Filed within this Form 10-K
12	Computation of ratios of earnings to fixed charges	Filed within this Form 10-K

~~201~~

~~Table of Contents~~



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.

~~202~~

~~Table of Contents~~

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 ~~18, 2016~~24, 2017	By:	/s/	Edward A. Hjerpe III
			Edward A. Hjerpe III President and Chief Executive Officer
March ~~18, 2016~~24, 2017	By:	/s/	Frank Nitkiewicz
			Frank Nitkiewicz Executive Vice President and Chief Financial Officer
March ~~18, 2016~~24, 2017	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 ~~18, 2016~~24, 2017	By:	/s/	Donna L. Boulanger
			Donna L. Boulanger Director
March ~~18, 2016~~24, 2017	By:	/s/	Andrew J. Calamare
			Andrew J. Calamare Director
March ~~18, 2016~~24, 2017	By:	/s/	Joan Carty
			Joan Carty Director
March ~~18, 2016~~24, 2017	By:	/s/	Eric Chatman
			Eric Chatman Director
March ~~18, 2016~~24, 2017	By:	/s/	Patrick E. Clancy
			Patrick E. Clancy Director
March ~~18, 2016~~24, 2017	By:	/s/	Stephen G. Crowe
			Stephen G. Crowe Director
March ~~18, 2016~~24, 2017	By:	/s/	Martin J. Geitz
			Martin J. Geitz Director
March ~~18, 2016~~24, 2017	By:	/s/	Cornelius K. Hurley



				Cornelius K. Hurley Director

~~203~~

~~Table of Contents~~

March 24, 2017	By:	/s/	Antoinette C. Lazarus
			Antoinette C. Lazarus Director
March ~~18, 2016~~24, 2017	By:	/s/	Jay F. Malcynsky
			Jay F. Malcynsky Director
March 24, 2017	By:	/s/	John W. McGeorge
			John W. McGeorge Director
March ~~18, 2016~~24, 2017	By:	/s/	Emil J. Ragones
			Emil J. Ragones Director
March ~~18, 2016~~24, 2017	By:	/s/	Gregory R. Shook
			Gregory R. Shook Director
March ~~18, 2016~~24, 2017	By:	/s/	Stephen R. Theroux
			Stephen R. Theroux Director
March ~~18, 2016~~24, 2017	By:	/s/	John F. Treanor
			John F. Treanor Director
March ~~18, 2016~~24, 2017	By:	/s/	Michael R. Tuttle
			Michael R. Tuttle Director
March ~~18, 2016~~24, 2017	By:	/s/	John C. Witherspoon
			John C. Witherspoon Director

~~204~~199



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)



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

FEDERAL HOME LOAN BANK OF BOSTON ~~2015~~2016 Annual Report on Form 10-K Table of Contents


PART I
ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	1718
ITEM 1B.	UNRESOLVED STAFF COMMENTS	2324
ITEM 2.	PROPERTIES	2324
ITEM 3.	LEGAL PROCEEDINGS	2324
ITEM 4.	MINE SAFETY DISCLOSURES	2425
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	2526
ITEM 6.	SELECTED FINANCIAL DATA	2627
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2829
	EXECUTIVE SUMMARY	2930
	ECONOMIC CONDITIONS	3031
	RESULTS OF OPERATIONS	3132
	FINANCIAL CONDITION	40
	LIQUIDITY AND CAPITAL RESOURCES	61
	CRITICAL ACCOUNTING ESTIMATES	7170
	RECENT ACCOUNTING DEVELOPMENTS	7977
	LEGISLATIVE AND REGULATORY DEVELOPMENTS	7977
	CREDIT RATING AGENCY DEVELOPMENTS	8178

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	8178
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	8885
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	~~159~~154
ITEM 9A.	CONTROLS AND PROCEDURES	~~159~~154
ITEM 9B.	OTHER INFORMATION	~~160~~155
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	~~161~~157
ITEM 11.	EXECUTIVE COMPENSATION	~~169~~165
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	~~195~~190
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	~~197~~192
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	~~199~~194
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	~~200~~195



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
MPF Original ~~MPF~~	3 to 6 basis points added each year	Equivalent to double-A⁽²⁾	7 to 1110 basis points per year paid monthly	No	25 basis points per year
MPF Government	N/A	N/A ~~Unreimbursed servicing expenses~~⁽³⁾	N/A⁽²⁾⁽³⁾	N/A	44 basis points per year⁽²⁾⁽⁴⁾
MPF 125⁽³⁾⁽⁵⁾	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⁾⁽⁶⁾	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 35	35 basis points of the aggregate principal balance of the MPF loans funded under the master commitment	After first loss account, up to double-A, minimum equal to 25 basis points	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 Direct	N/A	N/A	None	N/A	N/A
MPF Government MBS	N/A	N/A Unreimbursed servicing expenses	None	N/A	19 to 56.5 basis points per year based on coupon rate
MPF Xtra	N/A	N/A	None	N/A	25 basis points per year

Advances Outstanding by Product Type (dollars in thousands)	Advances Outstanding by Product Type (dollars in thousands)								Advances Outstanding by Product Type (dollars in thousands)

	December 31, 2015				December 31, 2014				December 31, 2016				December 31, 2015
	Par Value		Percent of Total		Par Value		Percent of Total		Par Value		Percent of Total		Par Value		Percent of Total
Fixed-rate advances
Long-term	$	13,392,525	37.2	%	$	12,029,059	36.2	%	$	13,051,558	33.4	%	$	13,392,525	37.2	%
Short-term	11,777,324		32.8		10,526,292		31.6		12,260,502		31.3		11,777,324		32.8
Putable	2,022,200		5.6		2,180,225		6.6		2,735,050		7.0		2,022,200		5.6
Overnight	1,080,755		3.0		1,545,869		4.6		1,577,162		4.0		1,080,755		3.0
Amortizing	887,558		2.5		883,106		2.7		861,920		2.2		887,558		2.5
All other fixed-rate advances	97,000		0.3		72,000		0.2		40,000		0.1		97,000		0.3
	29,257,362		81.4		27,236,551		81.9		30,526,192		78.0		29,257,362		81.4

Variable-rate advances
Simple variable ⁽¹⁾	6,504,375		18.1		5,915,000		17.8		7,895,783		20.2		6,504,375		18.1
Putable	157,500		0.4		74,000		0.2		616,000		1.6		157,500		0.4
All other variable-rate indexed advances	48,546		0.1		49,163		0.1		76,880		0.2		48,546		0.1
	6,710,421		18.6		6,038,163		18.1		8,588,663		22.0		6,710,421		18.6
Total par value	$	35,967,783	100.0	%	$	33,274,714	100.0	%	$	39,114,855	100.0	%	$	35,967,783	100.0	%

							Membership Summary	Number of Members by Institution Type
	December 31,			December 31,
	2015	2014	2013	2016	2015	2014
Commercial banks	52	55	58	52	52	55
Credit unions	159	159	156	159	159	159
Insurance companies	41	32	27	46	41	32
Thrift institutions	190	199	201
Savings institutions				186	190	199
Community development financial institutions (CDFI), non-depository institutions	4	4	1	4	4	4
Total members	446	449	443	447	446	449


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


(3)	For government loans, participating financial institutions provide the required credit enhancement by delivering loans that are guaranteed or insured by a department or agency of the U.S. government.


	For the Year Ended December 31, 2013																	For the Year Ended December 31, 2014
Net Effect of Derivatives and Hedging Activities	Advances			Investments			Mortgage Loans			Deposits		CO Bonds			Total			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		$	(6,037	)	$	—		$	(260	)	$	—	$	11,011		$	4,714
Net interest settlements included in net interest income ⁽²⁾	(149,026		)	(38,474		)	—			1,580		63,690			(122,230		)	(130,580		)	(37,989		)	—			1,152		54,356			(113,061		)
Total net interest income	(156,610		)	(38,474		)	(470		)	1,580		88,975			(104,999		)	(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	897			1,679			—			—		(451		)	2,125			347			1,123			—			—		(936		)	534
Gains on cash-flow hedges	—			—			—			—		12			12
Gains on derivatives not receiving hedge accounting	2			6,538			—			—		301			6,841
Losses on cash-flow hedges																		—			—			—			—		(442		)	(442		)
(Losses) gains on derivatives not receiving hedge accounting																		(4		)	(6,348		)	—			—		65			(6,287		)
Mortgage delivery commitments	—			—			(1,538		)	—		��			(1,538		)	—			—			1,510			—		—			1,510
Net gains (losses) on derivatives and hedging activities	899			8,217			(1,538		)	—		(138		)	7,440			343			(5,225		)	1,510			—		(1,313		)	(4,685		)

Subtotal	(155,711		)	(30,257		)	(2,008		)	1,580		88,837			(97,559		)	(136,274		)	(43,214		)	1,250			1,152		64,054			(113,032		)

Net losses on trading securities	—			(13,190		)	—			—		—			(13,190		)
Net gains on trading securities																		—			972			—			—		—			972
Total net effect of derivatives and hedging activities	$	(155,711	)	$	(43,447	)	$	(2,008	)	$	1,580	$	88,837		$	(110,749	)	$	(136,274	)	$	(42,242	)	$	1,250		$	1,152	$	64,054		$	(112,060	)

Other Income (Loss) (dollars in thousands)	Other Income (Loss) (dollars in thousands)										Other Income (Loss) (dollars in thousands)


		For the Years Ended December 31,										For the Year Ended December 31,
		2015			2014			2013				2016			2015			2014
Gains (losses) on derivatives and hedging activities:
Net (losses) gains related to fair-value hedge ineffectiveness		$	(7,189	)	$	534		$	2,125			$	(6,998	)	$	(7,189	)	$	534
Net (losses) gains related to cash-flow hedge ineffectiveness		(127		)	(442		)	12
Net gains (losses) related to cash-flow hedge ineffectiveness												29			(127		)	(442		)
Net unrealized gains (losses) related to derivatives not receiving hedge accounting associated with:
Advances		17			(201		)	(3,249		)		(12		)	—			(4		)
Trading securities		2,721			836			13,874				4,477			2,721			836
CO Bonds												33			17			(154		)
Other investments												—			—			(43		)
Mortgage delivery commitments		226			1,510			(1,538		)		(270		)	226			1,510
Net interest-accruals related to derivatives not receiving hedge accounting		(6,908		)	(6,922		)	(3,784		)		(5,850		)	(6,908		)	(6,922		)
Net (losses) gains on derivatives and hedging activities		(11,260		)	(4,685		)	7,440
Net losses on derivatives and hedging activities												(8,591		)	(11,260		)	(4,685		)
Net other-than-temporary impairment credit losses on held-to-maturity securities recognized in income		(4,059		)	(1,579		)	(2,566		)		(3,310		)	(4,059		)	(1,579		)
Litigation settlements		184,879			22,000			53,305				39,211			184,879			22,000
Loss on early extinguishment of debt		(354		)	(3,068		)	(5,148		)		(1,484		)	(354		)	(3,068		)
Service-fee income		8,050			7,159			6,586				7,701			8,050			7,159
Net unrealized (losses) gains on trading securities		(4,890		)	972			(13,190		)		(4,410		)	(4,890		)	972
Other		(365		)	(964		)	(2,983		)		207			(365		)	(964		)
Total other income		$	172,001		$	19,835		$	43,444			$	29,324		$	172,001		$	19,835

2015 Quarterly Borrower Asset Quality (dollars in thousands)

	2015—Quarter Ended ⁽¹⁾
	March 31			June 30			September 30
Total borrower assets⁽²⁾	$	1,288,130,026		$	1,306,038,612		$	1,254,192,144
Total 1-4 family first lien mortgage loans⁽³⁾	$	100,209,885		$	102,500,300		$	105,108,971
1-4 family first lien mortgage loans delinquent 30-89 days as a percentage of 1-4 family mortgage loans ⁽⁴⁾	0.66		%	0.51		%	0.43		%
1-4 family first lien mortgage loans delinquent 90+ days as a percentage of 1-4 family mortgage loans⁽⁵⁾	1.35		%	1.28		%	1.25		%
1-4 family REO as a percentage of 1-4 family mortgage loans	0.13		%	0.12		%	0.12		%


~~(1)~~	~~September 30, 2015 is the most recent data available for inclusion in this table.~~


~~(3)~~	~~Includes 1-4 family first lien mortgage loans from depository and CDFI members only.~~


~~(4)~~	~~Credit union early delinquencies are reported at 30-59 days past due and are included on this line.~~


~~(5)~~	~~Credit union non-performing loans are reported over 60 days past due. These 60+ day 1-4 family first lien mortgage loans are included on this line.~~

Advances Outstanding by Borrower Credit Status Category As of December 31, 2015 (dollars in thousands)
Advances Outstanding by Borrower Credit Status Category As of December 31, 2016 (dollars in thousands)								Advances Outstanding by Borrower Credit Status Category As of December 31, 2016 (dollars in thousands)


	Number of Borrowers	Par Value of Advances Outstanding		Discounted Collateral		Ratio of Discounted Collateral to Advances		Number of Borrowers	Par Value of Advances Outstanding		Discounted Collateral		Ratio of Discounted Collateral to Advances
Category-1	273	$	32,486,367	$	72,269,857	222.5	%	268	$	35,681,470	$	80,428,301	225.4	%
Category-2	20	610,304		1,129,225		185.0		16	433,978		843,039		194.3
Category-3	15	677,441		875,330		129.2		18	429,084		681,238		158.8
Insurance companies	19	2,193,671		2,276,167		103.8		21	2,570,323		3,290,202		128.0
Total	327	$	35,967,783	$	76,550,579	212.8	%	323	$	39,114,855	$	85,242,780	217.9	%

Collateral by Pledge Type (dollars in thousands)	Collateral by Pledge Type (dollars in thousands)		Collateral by Pledge Type (dollars in thousands)

	Discounted Collateral		Discounted Collateral
Collateral not specifically listed and identified	$	31,895,675	$	29,533,221
Collateral specifically listed and identified	39,955,443		50,845,813
Collateral delivered to us	11,955,110		11,531,436

Top Five Advance-Borrowing Institutions (dollars in thousands)	Top Five Advance-Borrowing Institutions (dollars in thousands)									Top Five Advance-Borrowing Institutions (dollars in thousands)

		December 31, 2015									December 31, 2016
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, 2015			Par Value of Advances		Percent of Total Par Value of Advances		Weighted-Average Rate ⁽¹⁾		Advances Interest Income for the Year Ended December 31, 2016
Citizens Bank, N.A.		$	6,015,163	16.7	%	0.52	%	$	14,745		$	7,260,446	18.6	%	0.83	%	$	34,276
Webster Bank, N.A.											2,842,896		7.2		0.95		20,731
People's United Bank, N.A.		3,205,225		8.9		0.46		5,372			2,805,025		7.2		0.71		14,856
Webster Bank, N.A.		2,664,115		7.4		0.79		14,599
Berkshire Bank		1,173,471		3.3		0.57		5,232			1,167,812		3.0		0.78		7,501
Massachusetts Mutual Life Insurance Co.		1,100,000		3.1		2.22		18,402			1,100,000		2.8		2.14		24,638
Total of top five advance-borrowing institutions		$	14,157,974	39.4	%			$	58,350		$	15,176,179	38.8	%			$	102,002


(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.

Held-to-Maturity Securities (dollars in thousands)	Held-to-Maturity Securities (dollars in thousands)																			Held-to-Maturity Securities (dollars in thousands)

		December 31,																			December 31,
		2015														2014		2013			2016														2015		2014
		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			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		$	—		$	3,605		$	—		$	—		$	3,605	$	5,777	$	8,503		$	—		$	2,159		$	—		$	—		$	2,159	$	3,605	$	5,777
State or local housing-finance-agency obligations (HFA securities) ⁽¹⁾		—			17,978			—			152,950			170,928		178,387		183,625			—			14,478			—			148,090			162,568		170,928		178,387
GSEs		—			—			—			—			—		—		67,504			—			—			—			—			—		—		—
Total non-MBS		—			21,583			—			152,950			174,533		184,164		259,632			—			16,637			—			148,090			164,727		174,533		184,164
MBS ⁽¹⁾
U.S. government guaranteed - single-family		—			—			440			15,559			15,999		20,399		27,767			—			—			373			12,346			12,719		15,999		20,399
U.S. government guaranteed - multifamily		—			—			—			17,794			17,794		115,712		213,144			—			—			—			1,532			1,532		17,794		115,712
GSEs - single-family		1			38,466			69,310			985,347			1,093,124		1,420,801		1,773,905			28			24,034			49,082			739,692			812,836		1,093,124		1,420,801
GSEs - multifamily		27,914			343,374			15,347			—			386,635		542,130		700,348			32,587			286,080			—			—			318,667		386,635		542,130
Private-label - residential		—			—			5			951,539			951,544		1,052,809		1,141,390			—			—			5			807,340			807,345		951,544		1,052,809
ABS backed by home equity loans		—			—			—			14,936			14,936		16,174		22,475			—			—			—			12,941			12,941		14,936		16,174
Total MBS		27,915			381,840			85,102			1,985,175			2,480,032		3,168,025		3,879,029			32,615			310,114			49,460			1,573,851			1,966,040		2,480,032		3,168,025
Total held-to-maturity securities		$	27,915		$	403,423		$	85,102		$	2,138,125		$	2,654,565	$	3,352,189	$	4,138,661		$	32,615		$	326,751		$	49,460		$	1,721,941		$	2,130,767	$	2,654,565	$	3,352,189
Yield on held-to-maturity securities		5.97		%	3.92		%	3.79		%	3.51		%								4.86		%	3.64		%	2.05		%	3.78		%


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

Available-for-Sale Securities (dollars in thousands)	Available-for-Sale Securities (dollars in thousands)																			Available-for-Sale Securities (dollars in thousands)

		December 31,																			December 31,
		2015														2014		2013			2016														2015		2014
		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			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
HFA securities																					$	—		$	8,146		$	—		$	—		$	8,146	$	—	$	—
Supranational institutions		$	—		$	—		$	121,722		$	317,191		$	438,913	$	447,685	$	415,135		—			—			161,746			260,874			422,620		438,913		447,685
U.S. government corporations		—			—			—			265,968			265,968		284,997		238,785			—			—			—			271,957			271,957		265,968		284,997
GSEs		—			—			—			117,792			117,792		123,453		888,525			—			—			—			117,468			117,468		117,792		123,453
Total non-MBS		—			—			121,722			700,951			822,673		856,135		1,542,445			—			8,146			161,746			650,299			820,191		822,673		856,135
MBS ⁽¹⁾
U.S. government guaranteed - single-family		—			40,116			—			116,526			156,642		206,028		271,597			—			31,606			—			93,121			124,727		156,642		206,028
U.S. government guaranteed - multifamily		—			—			—			744,762			744,762		871,423		309,101			—			—			—			563,361			563,361		744,762		871,423
GSEs - single-family		—			—			—			4,590,208			4,590,208		3,548,392		1,872,167			—			—			—			4,403,855			4,403,855		4,590,208		3,548,392
GSEs - multifamily																					—			—			676,530			—			676,530		—		—
Total MBS		—			40,116			—			5,451,496			5,491,612		4,625,843		2,452,865			—			31,606			676,530			5,060,337			5,768,473		5,491,612		4,625,843
Total available-for-sale securities		$	—		$	40,116		$	121,722		$	6,152,447		$	6,314,285	$	5,481,978	$	3,995,310		$	—		$	39,752		$	838,276		$	5,710,636		$	6,588,664	$	6,314,285	$	5,481,978
Yield on available-for-sale securities		—		%	0.76		%	6.00		%	2.51		%								—		%	0.80		%	2.07		%	3.17		%


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

Trading Securities (dollars in thousands)	Trading Securities (dollars in thousands)																			Trading Securities (dollars in thousands)

		December 31,																			December 31,
		2015														2014		2013			2016														2015		2014
		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			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. Treasury obligations																					$	399,521		$	—		$	—		$	—		$	399,521	$	—	$	—
MBS ⁽¹⁾
U.S. government guaranteed - single-family		$	—		$	31		$	6,038		$	4,227		$	10,296	$	12,235	$	14,331		3			61			6,226			2,204			8,494		10,296		12,235
GSEs - single-family		—			942			304			203			1,449		2,300		3,486			7			478			194			89			768		1,449		2,300
GSEs - multifamily		—			218,389			—			—			218,389		230,434		229,357			—			203,839			—			—			203,839		218,389		230,434
Total MBS		$	—		$	219,362		$	6,342		$	4,430		$	230,134	$	244,969	$	247,174		10			204,378			6,420			2,293			213,101		230,134		244,969
Total trading securities																					$	399,531		$	204,378		$	6,420		$	2,293		$	612,622	$	230,134	$	244,969
Yield on trading securities		—		%	3.98		%	1.76		%	1.86		%								0.43		%	4.07		%	2.04		%	2.10		%

Securities from issuers which Represent Total Carrying Value Greater than 10 Percent of Total Capital As of December 31, 2015 (dollars in thousands)
Securities from issuers which Represent Total Carrying Value Greater than 10 Percent of Total Capital As of December 31, 2016 (dollars in thousands)					Securities from issuers which Represent Total Carrying Value Greater than 10 Percent of Total Capital As of December 31, 2016 (dollars in thousands)

Name of Issuer	Carrying Value⁽¹⁾		Fair Value			Carrying Value⁽¹⁾		Fair Value
Non-MBS:
GSEs
Fannie Mae	$	117,792	$	117,792		$	117,468	$	117,468

Supranational institution
Inter-American Development Bank	438,913		438,913			422,620		422,620

MBS:
Fannie Mae	3,463,609		3,488,326			3,310,062		3,324,913
Freddie Mac	2,826,196		2,846,018			3,106,432		3,119,635
Ginnie Mae	905,376		905,744			679,227		679,472


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

Mortgage-Backed Securities
	December 31, 2015		December 31, 2014		December 31, 2016		December 31, 2015
Single-family MBS - U.S. government-guaranteed and GSE	71.5	%	64.8	%	67.5	%	71.5	%
Multifamily MBS - U.S. government-guaranteed and GSE	16.7		21.9		22.2		16.7
Private-label residential MBS	11.6		13.1		10.1		11.6
ABS backed by home-equity loans	0.2		0.2		0.2		0.2
Total MBS	100.0	%	100.0	%	100.0	%	100.0	%

Credit Ratings of Investments at Carrying Value As of December 31, 2015 (dollars in thousands)
Credit Ratings of Investments at Carrying Value As of December 31, 2016 (dollars in thousands)													Credit Ratings of Investments at Carrying Value As of December 31, 2016 (dollars in thousands)

	Long-Term Credit Rating ⁽¹⁾													Long-Term Credit Rating ⁽¹⁾
Investment Category	Triple-A		Double-A		Single-A		Triple-B		Below Triple-B		Unrated			Triple-A		Double-A		Single-A		Triple-B		Below Triple-B		Unrated
Money-market instruments: ⁽²⁾
Interest-bearing deposits	$	—	$	197	$	—	$	—	$	—	$	—		$	—	$	278	$	—	$	—	$	—	$	—
Securities purchased under agreements to resell	—		3,000,000		1,200,000		2,500,000		—		—			—		3,000,000		1,000,000		1,999,000		—		—
Federal funds sold	—		1,175,000		945,000		—		—		—			—		—		2,700,000		—		—		—
Total money-market instruments	—		4,175,197		2,145,000		2,500,000		—		—			—		3,000,278		3,700,000		1,999,000		—		—

Investment securities:

Non-MBS:
U.S. agency obligations	—		3,605		—		—		—		—			—		2,159		—		—		—		—
U.S. Treasury obligations														—		399,521		—		—		—		—
U.S. government-owned corporations	—		265,968		—		—		—		—			—		271,957		—		—		—		—
GSEs	—		117,792		—		—		—		—			—		117,468		—		—		—		—
Supranational institutions	438,913		—		—		—		—		—			422,620		—		—		—		—		—
HFA securities	20,770		39,610		110,548		—		—		—			27,691		36,125		106,898		—		—		—
Total non-MBS	459,683		426,975		110,548		—		—		—			450,311		827,230		106,898		—		—		—

MBS:
U.S. government guaranteed - single-family ⁽²⁾	—		182,937		—		—		—		—			—		145,940		—		—		—		—
U.S. government guaranteed - multifamily⁽²⁾	—		762,556		—		—		—		—			—		564,893		—		—		—		—
GSE – single-family ⁽²⁾	—		5,684,781		—		—		—		—			—		5,217,459		—		—		—		—
GSE – multifamily ⁽²⁾	—		605,024		—		—		—		—			—		1,199,036		—		—		—		—
Private-label – residential	—		248		43,194		63,872		844,224		6			—		2,284		16,749		69,121		712,489		6,702
ABS backed by home-equity loans	583		1,136		7,047		2,093		4,077		—			590		1,136		5,665		1,624		3,926		—
Total MBS	583		7,236,682		50,241		65,965		848,301		6			590		7,130,748		22,414		70,745		716,415		6,702

Total investment securities	460,266		7,663,657		160,789		65,965		848,301		6			450,901		7,957,978		129,312		70,745		716,415		6,702

Total investments	$	460,266	$	11,838,854	$	2,305,789	$	2,565,965	$	848,301	$	6		$	450,901	$	10,958,256	$	3,829,312	$	2,069,745	$	716,415	$	6,702


(1)	Ratings are obtained from Moody's, Fitch, Inc. (Fitch), and S&P and are each as of December 31, ~~2015~~2016. 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.

Short-term Unsecured Money-Market Credit Exposure by Investment Type (dollars in thousands)	Short-term Unsecured Money-Market Credit Exposure by Investment Type (dollars in thousands)					Short-term Unsecured Money-Market Credit Exposure by Investment Type (dollars in thousands)

		Carrying Value					Carrying Value
		December 31, 2015		December 31, 2014			December 31, 2016		December 31, 2015
Federal funds sold		$	2,120,000	$	2,550,000		$	2,700,000	$	2,120,000

Issuers / Counterparties Representing Greater Than 10 Percent of Total Unsecured Credit Related to Money-Market Instruments and to Debentures As of December 31, ~~2015~~2016

Issuer / counterparty	Percent
~~Australia and New Zealand Banking Group Limited~~ Bank of Nova Scotia⁽¹⁾	~~22.8~~14.6	%
~~Rabobank Nederland~~ Bank of Tokyo-Mitsubishi UFJ, LTD⁽¹⁾	~~18.4~~14.6
~~Bank of New York Mellon~~Cooperatieve Rabobank U.A.⁽¹⁾	~~16.9~~14.6
Landesbank Baden-Wuerttemberg⁽¹⁾	14.6
Inter-American Development Bank (a supranational institution)	~~15.0~~10.9
~~Bank of Nova Scotia~~⁽¹⁾ U.S. Treasury	~~13.5~~10.2


(1)	Consists of overnight federal funds sold. We sold federal funds to either the U.S. branch or agency of the named commercial bank.

Unpaid Principal Balance of Private-Label MBS and ABS Backed by Home Equity Loans by Fixed Rate or Variable Rate (dollars in thousands)	Unpaid Principal Balance of Private-Label MBS and ABS Backed by Home Equity Loans by Fixed Rate or Variable Rate (dollars in thousands)												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, 2015						December 31, 2014						December 31, 2016						December 31, 2015
Private-label MBS	Fixed Rate ⁽¹⁾		Variable Rate ⁽¹⁾		Total		Fixed Rate ⁽¹⁾		Variable Rate ⁽¹⁾		Total		Fixed Rate ⁽¹⁾		Variable Rate ⁽¹⁾		Total		Fixed Rate ⁽¹⁾		Variable Rate ⁽¹⁾		Total
Private-label residential MBS
Prime	$	10,680	$	126,518	$	137,198	$	12,334	$	152,296	$	164,630	$	8,780	$	102,747	$	111,527	$	10,680	$	126,518	$	137,198
Alt-A	23,178		1,361,942		1,385,120		27,447		1,532,827		1,560,274		18,808		1,161,415		1,180,223		23,178		1,361,942		1,385,120
Total private-label residential MBS	33,858		1,488,460		1,522,318		39,781		1,685,123		1,724,904		27,588		1,264,162		1,291,750		33,858		1,488,460		1,522,318
ABS backed by home equity loans
Subprime	—		15,999		15,999		—		17,440		17,440		—		13,848		13,848		—		15,999		15,999
Total par value of private-label MBS	$	33,858	$	1,504,459	$	1,538,317	$	39,781	$	1,702,563	$	1,742,344	$	27,588	$	1,278,010	$	1,305,598	$	33,858	$	1,504,459	$	1,538,317


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