Registrant's stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. As of February 28, 2022,2023, including mandatorily redeemable capital stock, we had 9,762,69220,870,108 outstanding shares of Class B stock.

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

We are a privately capitalized cooperative, and our mission is to provide our members with highly reliable wholesale funding liquidity, and a competitive return on investment to our member shareholders.liquidity. We develop and deliver competitively priced financial products and services, and expertise that supportsupports housing finance, community development, and economic growth, including programs targeted to lower-income households.households, and a competitive return on investment to our member shareholders. We serve the residential-mortgage and community-development lending activities of our members and certain nonmember institutions (referred to as housing associates) located in our district. Our district is comprised of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. There are 11 district Federal Home Loan Banks (the FHLBanks or the FHLBank System) located across the U.S., each supporting the lending activities of its members within their districts. Each FHLBank is a separate entity with its own board of directors, management, and employees.

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

We combine private capital and public sponsorship in a way that is intended to enable our members and housing associates to assure the flow of credit and other services for housing finance, community development, and economic growth. We serve the public through our members and housing associates by providing these institutions with readily available, low-cost loan products, called advances, as well as other products and services that are intended to support the availability of residential-mortgage and community-investment credit. In addition, we provide liquidity by enabling members to sell mortgage loans to us or to designate third-party investors through a mortgage loan purchase program. Our primary sources of income come from the margin earned on interest-earning assets funded by interest-bearing liabilities and equity capital. We are generally able to borrow funds at favorable rates due to our GSE status. Our debt is not backed by the U.S. government, but it does represent the joint and several obligation of the 11 FHLBanks.

Our members and housing associates are comprised of financial institutions located throughout our district. Institutions eligible for membership include savings institutions (savings banks, savings and loan associations, and cooperative banks), commercial banks, credit unions, qualified community development financial institutions (CDFIs), and insurance companies that meet regulatory requirements, including having a home financing policy that is consistent with the Bank's housing finance mission.

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

The FHFA conducts an annual examination and other periodic reviews of our operations to assess our safety and soundness as well as our compliance with statutory and regulatory requirements, and requires ongoing reporting of specific information through the issuance of special data requests. In addition, we are required to submit information on our financial condition and results of operations each month to the FHFA, and we are required to report other supplemental information to the FHFA on a periodic basis. We are generally prohibited by FHFA regulations from disclosing the results of the FHFA's examinations and reviews. However, information from those examinations and reviews could become publicly available either through the FHFA or through the FHFA's Office of Inspector General, which can sometimes occur via their reports to Congress.

Our capital stock is registered with the U.S. Securities and Exchange Commission (SEC) under Section 12(g) of the Securities Exchange Act of 1934 and, as a result, we are required to comply with the disclosure and reporting requirements of the Exchange Act. We are not subject to the provisions of the Securities Act of 1933. We are also subject to regulation by the Financial Crimes Enforcement Network (FinCEN), and the Commodity Futures Trading Commission.

The Government Corporations Control Act, to which we are subject, provides that before a government corporation issues and offers obligations to the public, the Secretary of the U.S. Department of the Treasury (U.S. Treasury) shall prescribe the form, denomination, maturity, interest rate, and conditions of the obligations, the method and time issued, and the selling price. The FHLB Act also authorizes the Secretary of the U.S. Treasury discretion to purchase consolidated obligations up to an aggregate principal amount of $4.0 billion.

We must submit annual management reports to Congress, the President, the Office of Management and Budget, and the Comptroller General of the United States. These reports include a statement of financial condition, a statement of operations, a statement of cash flows, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on our financial statements.

The Comptroller General of the United States has authority under the FHLBank Act to audit or examine the FHFA and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporations Control Act provides that the Comptroller General may review any audit of the financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, then the results and any recommendations must be reported to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General may also conduct his or her own audit of any financial statements of an FHLBank.

Our website, www.fhlbboston.com, provides a link to the section of the Electronic Data Gathering and Reporting (EDGAR) website, as maintained by the SEC, containing all reports electronically filed, or furnished, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K as well as any amendments to such reports. Specific links to our annual reports on Form 10-K and quarterly reports on Form 10-Q are made available free of charge through our website as soon as reasonably practicable after electronically filing or being furnished to the SEC. In addition, the SEC’s EDGAR website, which contains our periodic and current reports and other information regarding our electronic filings may be accessed directly at http://www.sec.gov. The Bank's and the SEC's website addresses have been included as inactive textual references only. Information on those websites is not part of this report.

Our human capital is a significant contributor to the success of our strategic business objectives. In managing our human capital, we focus on our workforce profile and the various programs and philosophies described below.

Our workforce is primarily comprised of corporate employees, with our principal operations in one location. As of December 31, 2021,2022, we had 183188 full-time employees and no part-time employees. We employ temporary personnel to supplement our workforce as business needs arise. As of December 31, 2021,2022, approximately 4039 percent of our workforce was female, 6061 percent male, 7271 percent non-minority and 2829 percent minority (gender and minority status are based on employee self-identification) and the average tenure of our employees was 12.612.5 years. Our workforce is leanly staffed, and historically has included a number of longer-tenured employees. We strive to both develop talent from within the organization and supplement with external hires. We believe that developing talent internally results in institutional strength and continuity and promotes loyalty and commitment in our employee base, which furthers our success, while adding new employees contributes to new ideas, continuous improvement, and our goals of having a diverse and inclusive workforce. In 2021, consistent with other employers, we experienced higher2022, our staff turnover relative to the past several years driven by a competitive labor market for

quality talent and anticipated retirements of seasoned employees. Our commitmentreturned to ensure a compelling employee value proposition servedlevels similar to offset this higher rate of turnover.those prior to the COVID-19 pandemic. There are no collective bargaining agreements with our employees.

We have designed a total rewards structure to attract, retain and motivate a diverse employee population while supporting business and mission objectives throughout all economic cycles. We maintain a competitive and comprehensive total rewards program consisting of base salary, annual incentives, retirement programs, and health and welfare benefits including:

Diversity, equity and inclusion are strategic business priorities for the Bank. The director of the Bank's office of minority and women inclusion is a member of our senior management, reports to the president and chief executive officer, and serves as a liaison to our board of directors. We recognize the correlation between a diverse and inclusive environment and overall performance where valuing the unique perspectives of all employees strengthens innovation, creativity, and our ability to attract and retain employees. We operationalize our commitment through the development and execution of a three-year diversity, equity and inclusion strategic plan that includes quantifiable metrics to measure its success and report regularly on its performance to management and the board of directors. We offer a range of opportunities for our employees to become educated, connect, and grow personally and professionally through different avenues, including the efforts of our Inclusion Council. We consider building awareness and learning to be key elements of our diversity, equity and inclusion strategic plan and regularly offer educational opportunities to our employees that have included the identification of actions aligned with these learning opportunities.

As of December 31, 2022, 2021, and 2020, and 2019,65.9 percent, 57.0 percent, 60.0 percent, and 66.060.0 percent, respectively, of our members had outstanding advances with us. These usage rates are calculated excluding housing associates and other nonmember borrowers. While eligible to borrow, housing associates are not members and, as such, cannot hold our capital stock. Other nonmember borrowers consist of institutions that are former members or that have acquired former members and assumed the advances and capital stock held by those former members. These other nonmember borrowers are required to hold capital stock to support outstanding advances with us until those advances either mature or are paid off. In addition, nonmember borrowers are required to deliver all required collateral to us or our safekeeping agent until all outstanding advances either mature or are paid off. Other than housing associates, nonmember borrowers may not request new advances and are not permitted to extend or renew any advances they have assumed.

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

With respect to advances outside our targeted housing and community investment programs, we price advances to generate a targeted profit margin above the estimated marginal cost of raising funding with a similar maturity profile as well as associated operating and administrative costs. In accordance with the FHLBank Act and FHFA regulations, we price our advance products in a consistent and nondiscriminatory manner to all members. However, we are permitted to differentially price our products based on the creditworthiness of the member, volume, or other reasonable criteria applied consistently to all members.

Our major competitors are other sources of liquidity, including retail deposits, investment banks, commercial banks, wholesale/brokered deposits, and, in limited instances, other FHLBanks.

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

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

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

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

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

We have never experienced a credit loss on an advance.

The AHP is a statutorily mandated program under which we provide subsidies in the form of direct grants or discountedsubsidized advances issued at interest rates on advancesbelow our funding cost (AHP advances) to help fund affordable housing projects that are directly sponsored by members. AHP funds are required to be used for homeownership housing for households with incomes at or below 80 percent of the median income for the area, or rental housing in which 20 percent of the units are for households with incomes that do not exceed 50 percent of the median income for the area. Program funds must be used for the direct costs to purchase,acquire, construct, or rehabilitate affordable housing. For further information about how AHP subsidies are funded, see AHP Assessment below.

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

CDAs are discounted advances offered at interest rates that are lower than our regular advance products for the purpose of helping our members fund community development efforts, such as supporting the growth of small businesses, and the

The HOW program enables members to provide down payment assistance forto households with incomes above 80 percent up to 120 percent of the area median income. For 2021 the Bank contributed $1.3 million for the HOW program.

HHNE provides New England housing finance agencies (HFAs) with subsidies or grants for targeted initiatives serving individuals and families who qualify for loans under the agencies' income guidelines. HHNE program subsidies are used to write down interest rates to a significant discount to market rates on eligible advances to HFAs or to purchase bonds from HFAs at deeply discounted yields for the purpose of expanding affordable rental and homeownership initiatives, or to provide direct grants to HFAs for these purposes. Examples of uses include, but are not limited to, short-term construction lending, workforce housing, deferred loan programs for homeownership, multifamily loan refinance, and rental housing expansion, particularly in areas with job growth that exceeds the supply of rental units. For the year ended December 31, 2021, the subsidy expense for this program was $700 thousand, all of which was provided to HFAs in the form of grants.

Under our regulatory authority to purchase MBS, additional investments in MBS and asset-backed securities (ABS) are prohibited if our investments in such securities exceed 300 percent of capital at the time of purchase. Capital for this calculation is defined as capital stock, mandatorily redeemable capital stock, and retained earnings. On December 31, 2021,2022, and 2020,2021, our MBS and ABS holdings represented 276220 percent and 192276 percent of capital, respectively.

We conduct our investment activities so as to strive to comply with the FHFA’s core mission achievement advisory bulletin, which establishes a ratio by which the FHFA will assess each FHLBank’s core mission achievement. Core mission achievement is determined using a ratio of primary mission assets, which includes advances and acquired member assets (mortgage loans acquired from members), to COs excluding the amount funding U.S. Treasury securities with maturities no greater than 10

 

The core mission advisory bulletin provides the FHFA’s expectations about the content of each FHLBank’s strategic plan based on its ratio, as follows:

Our core mission achievement ratio for the years ended December 31, 2022 and 2021 and 2020 was 71.272.3 percent and 76.871.2 percent, respectively.

A variety of MPF loan products have been developed to meet the differing needs of participating financial institutions. We have offered our members MPF Original, MPF 125, MPF Plus, MPF 35, MPF Government, MPF Government MBS and MPF Xtra, each being closed-loan products in which we (or a third party investor in the case of MPF Xtra, or MPF Government MBS) invest in MPF loans that have been acquired or have already been closed by thea participating financial institutionsinstitution with its own funds. The products have different credit-risk-sharing characteristics based upon the different levels for the first loss account and credit-enhancement and the types of credit-enhancement fees (performance-based, fixed amount, or none). In the case of MPF Xtra and MPF Government MBS, each product facilitates the investment in MPF loans by third party investors for which we are paid fees and under which the related credit and market risks are transferred to the investors. There are no first loss account, credit-enhancement, or credit-enhancement fees for MPF Xtra and MPF Government MBS because the loans are sold to third parties that assume the embedded credit risk. For government mortgage 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.

The participating financial institution is responsible for all of the traditional retail loan origination functions under all of these MPF loan products. A master commitment provides the terms under which the participating financial institution delivers mortgage loans to us. We continue to offer MPF Original, MPF 35, MPF Government, MPF Government MBS, and MPF Xtra. We do not currently offer our members new master commitments under MPF 125 or MPF Plus.

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

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

The MPF Provider publishes and maintains:

The MPF Provider also maintains the infrastructure through which MPF Banks may purchase MPF loans through their participating financial institutions.

For conventional mortgage loan products (MPF loan products other than government mortgage loans and products in which we do not invest such as MPF Xtra), participating financial institutions assume or retain a portion of the credit risk on the MPF loans they sell to an MPF Bank by providing credit-enhancement either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage guaranty insurance. The FHFA Acquired Member Assets (AMA) rule allows each FHLBank to utilize its own model to determine the credit-enhancement for an AMA asset or pool of loans in lieu of a nationally recognized statistical ratings organization (NRSRO) ratings model. We determined, based on documented analysis, that assets delivered to us were credit enhanced to at least a level at which we have a high degree of confidence that we will not bear material losses beyond the losses absorbed by our first loss account, even under reasonably likely adverse changes to expected economic conditions. Loans are assessed by third party credit models, and a credit-enhancement is calculated based on credit attributes of the loans in each master commitment. Credit losses on a loan may only be absorbed by a credit-enhancement amount stated in the applicable master commitment. The participating financial institution's credit-enhancement covers losses for MPF loans in excess of the MPF Bank's allocated portion of credit losses up to an agreed upon amount, called the first loss account. Participating financial institutions are paid a credit-enhancement fee for providing credit-enhancement and in some instances all or a portion of the credit-enhancement fee may be adjusted based upon the performance of loans purchased by the Bank. Losses that exceed the amount of the participating financial institutions' credit-enhancement obligation are borne by the Bank.

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

When a participating financial institution fails to comply with its representations and warranties concerning its duties and obligations described within applicable agreements, the MPF guides, applicable laws, or terms of mortgage documents, the participating financial institution may be required to repurchase the MPF loans that are impacted by such failure. Reasons that would require a participating financial institution to repurchase an MPF loan may include, but are not limited to, MPF loan ineligibility, failure to deliver documentation to an approved custodian, a servicing breach, fraud, or other misrepresentation. In such instances, we can require that the participating financial institution compensate us for any losses or costs that we incur.

The servicer (the participatingParticipating financial institution, a servicer engaged byinstitutions can retain the participating financial institution, or a servicer to which the servicing rights were sold) generally retains the right and responsibilityresponsibilities for servicing MPF loans it delivers, includingsold to us under the MPF program or choose a servicing released option. Servicing functions include 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.

We 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.

We fund our activities principally through the sale of debt securities known as consolidated obligations, 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 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.

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 secured overnight financing rate (SOFR), 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 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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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.

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. All issuances and repurchases/redemptions of our capital stock are effected at a par value of $100 per share. We 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.

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.

In general, we use interest-rate-exchange agreements (derivatives) in three ways: 1) as a fair-value hedge of a hedged financial instrument or a firm commitment, 2) as a cash-flow hedge of a hedged financial instrument or a forecasted transaction, or 3) as economic hedges in asset-liability management that are not designated as hedges. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, we also use 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 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 derivatives where our counterparty is a derivatives 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.

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.AHP (net earnings). For the year ended December 31, 2021,2022, our AHP assessment was $7.7$20.5 million. In addition to the required assessment, our Board may

If the result of the aggregate 10 percent of current year net earnings 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.

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

The board of directors provides risk oversight through the review and approval of our risk-management policy and also evaluates and approves risk tolerances and risk limits. The board of directors' Risk Committee provides additional oversight of the Bank's risk governance structure. 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 Auditinternal audit department may report to the board'sboard of directors' Audit Committee the results of internal audit work on the effectiveness of management's risk management processes and controls.

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 when appropriate.

We are subject to operational risk which can result from 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 Auditinternal 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 systems. We have not experienced a disruption in our information systems that has had a material adverse impact on us. However, we rely heavily on our information systems to conduct and manage our business, and any failures or interruptions of these information systems could have a material adverse impact on our financial condition and results of operations. We take many steps to protect our information systems and data, including operational redundancy and supplier diversity, monitored physical and logical security controls, mandatory staff training and testing on cyber risks, and third party facilitated penetration testing.

Further, our AHP, MPF, and certain collateral activities rely on the secure processing, storage, and transmission 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 measures, such as implementing general computing controls governing access to programs and data. Additionally, we review related third-party service organizations' controls reports annually. Despite these steps, this information could be exposed in several ways, including through unauthorized access to our computer systems, computer viruses that attack our computer systems, software or networks, accidental delivery of information to an unauthorized party, and loss of storage media containing this information. Any of these events could result in financial losses, legal and regulatory sanctions, and reputational damage.

We are implementing a continuous strategy to ensure our mission critical applications and supporting infrastructure remain protected against evolving security threats. 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 its implementation. Furthermore, ourthe board of directors recently approved a new standing committee, the Technology Committee, that will provide oversight and strategic direction in senior management approvesmanagement’s approval and provides oversightimplementation of all major information technology-related investments.

The Bank’s commitment to its DE&Idiversity, equity and inclusion (DE&I) program is strong as the program continues to evolve. The Bank has a three-year DE&I strategic plan that contains specific metrics and measures so we can evaluate the program’s effectiveness over the three-year time horizon. The plan is built on a foundation of four pillars: Supplier Diversity, Workforce, Capital Markets,supplier diversity, workforce, capital markets, and Governance.governance. The plan aligns objectives, goals, and metrics with these pillars.

Having effective DE&I programs and awareness benefits our organization in a number of ways including:

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 annually to certify compliance with our code of ethics. We work to ensure that all communications are presented accurately, consistently, and in a timely manner 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 maintain relationships with government officials at the federal, state, and municipal levels; 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 FHLBanks and the Office of Finance to coordinate communications on a broader scale.

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

Our primary business is providing liquidity to our members by making advances to, and purchasing residential 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 or purchase residential mortgage loans on terms that

we are unable to offer and that members deem more desirable than the terms we offer on our advances or purchases of residential mortgage loans.

TheAs can happen from time-to-time, the availability to our members of different products from alternative sources, such as the Board of Governors of the Federal Reserve System's (the Federal Reserve) limited time Bank Term Funding Program on March 12, 2023, through at least March 11, 2024, with terms that may be 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 or for residential mortgage loans in an effort to compete effectively with these competitive funding sources could decrease the profitability of advances and purchased loans, 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. In 2020, 2021 and continuing inthrough the first quarter of 2022, a decrease in the demand for advances resulted from elevated deposit balances reported by our members in connection with U.S. government monetary policy and fiscal stimulus programs in response to the coronavirusCOVID-19 pandemic and related economic downturn. This decrease in advances has adversely impactedhad an adverse impact on our financial condition and results of operations andduring the aforementioned periods. A reversion to such conditions can be expected to have adverse impact is likely to continue, or worsen, if advances balances remain at current levels or further decline.our performance.

As of December 31, 2021,2022, our five largest stock-holding members held 22.446.3 percent of our advances and 40.0 percent of our stock. The loss of significant members or a significant reduction in the level of business they conduct with us would likely 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 multiple members whose business and ownership of our stock 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.

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 U.S. 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, the 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, including the ultimate resolution to the conservatorship of Fannie Mae and Freddie Mac. If implemented, these plans are likely tocould also directly andor indirectly impact the business and results of operations of other GSEs that support the U.S. housing market, including the FHLBanks. In addition, recent tax changes have reduced the tax incentive for home ownership slightly. Any such changes or reforms that are implemented could adversely impact the profitability of the FHLBanks or limit future growth opportunities.

We cannot predict what, if any, regulations will be issued or revised or what legislation will be enacted or repealed, and we cannot predict the effect of any such regulations or legislation on our business operations and/or financial condition. Changes inLegislative, regulatory, or statutory requirementsother changes could result in, for example, an increase in the FHLBanks' cost of funding, a change in permissible business activities, change in our membership, limitations on advances made to our members, (including whether a member meets required tangible capital levels to access advances), an increase in our mandatory contribution to affordable housing or

community development programs, or a decrease in the size, scope, or nature of the FHLBanks' lending, investment, or mortgage-financing activities, any of which could adversely impact our financial condition and results of operations.

Historically, our board of directors has varied dividend declarations based on our financial condition, performance, outlook and economic environment. In the first quarter of 2021,Throughout 2022, our board reduced our dividend from recent levels, and subsequently increased the dividend in the third quarter of 2021, though still below recent levels.maintained dividends at a consistent level. If our financial performance or condition were to deteriorate significantly in the future, our board of directors could determine to reduce or eliminate dividends.

A reduction inor suspension of our dividend or a determination by our board of directors to suspend or further lower dividend declarations, could result in decreased member demand for our products requiring capital stock purchases, reduced ability to add new members, and/or withdrawals from membership that could adversely impact our business operations and financial condition.

A period of financial distress could cause the Bank to impose a moratorium on repurchases of excess stock, which could provide an incentive for members to limit certain 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 results of operations and financial condition.

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 FHLBanksFHLBanks' credit rating. Prolonged or repeated shutdowns of the U.S. federal government, such as that experienced in early 2019, among other things, could be followed by a downgrade of the credit ratings of the U.S. federal government. Downgrades of the U.S. federal government's credit rating, (and,resulting from, among other things, the U.S. federal government’s failure to increase the U.S. Treasury debt ceiling, are possible and could cause a downgrade in turn, the FHLBanks'FHLBanks’ credit rating) are possible,rating, and any resulting downgrades to our credit ratings could adversely impact our funding costs and/or access to the capital markets. Further, member and housing associate demand for certain of our products, such as letters of credit, is influenced by our credit ratings, and downgrade of our credit ratings could weaken or eliminate demand for such products. To the extent that we cannot access funding when needed on acceptable terms to effectively manage our cost of funds or demand for our products falls, our financial condition and results of operations could be adversely impacted.

Negative information about us or any other FHLBank, such as material losses or increased risk of losses, could 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, but are not necessarily limited to, NRSROs, the FHFA, and its Office of Inspector General.

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

Any 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.

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 on December 31, 2021.2022. 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.

Finally, the FHFA is the FHLBank System's safety and soundness regulator and has broad powers, including enforcement 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.

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. 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.

The occurrence of natural disasters, war or other international conflict (including the recent outbreak ofcontinuing hostilities between Russia and Ukraine), civil unrest, political protest or instability, acts of terrorism, and health emergencies, including the spread of infectious diseases or a pandemic, the effects of climate change, or other unexpected or disastrous conditions, events, or emergencies could adversely affect our business, including demand for the Bank’s products and services and the value of our assets and member-pledged collateral. The effects of disasters or emergencies could disrupt general economic conditions and financial markets and interfere with our employees, our workplace, our vendors and service providers, the businesses of our members, and our counterparties and thus could impair our ability to manage our business, as well as our results of operations and financial condition.

Significant borrower defaults on loans made by our members could occur as a result of reduced economic activity and these defaults could cause members to fail. We could be adversely impacted by the reduction in business volume that would arise from the failure of one or more of our members. Our investments in mortgages and MBS could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays in foreclosures resulting from the economic effects of the COVID-19 pandemic.a natural or man-made disaster (such as a pandemic or act of war, respectively). Our other investments could also be negatively affected by extreme price volatility caused by uncertainties stemming from the results of the COVID-19 pandemic.a natural or man-made disaster. Our financial counterparties could be adversely impacted by the COVID-19 pandemic,a natural or man-made disaster, and related fiscal stimulus and monetary policies that may affect their profitability, asset quality, and capitalization.

MARKET AND LIQUIDITY RISKS

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. 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 are 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 of prepaid assets at lower, and possibly negative, spreads, or such assets could 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, as was the case during 2020, due to the fact that a substantial portion of our mortgage assets were purchased at premium prices.recognition.

Our primary source of funds is the 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. For example, Congressional failure to raise the U.S. Treasury debt ceiling could raise the potential for defaults on U.S. Treasury debt, which, in turn, would impact the demand and pricing for our COs. Accordingly, we cannot make any assurance that we will be able to obtain funding on terms acceptable to us, if at all. If we cannot access funding when needed, our ability to support and continue our operations would be adversely impacted, which would thereby adversely impact our financial condition and results of operations.

In July 2017, the United Kingdom’s Financial Conduct Authority (FCA), which regulates the London Interbank Offered Rate (LIBOR), announced its intention to stop persuading or compelling the group of major banks that sustains LIBOR to submit rate quotations after 2021. In March 2021, the FCA further announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, or, in the case of some more frequently used U.S. dollar LIBOR settings, including those used by us, immediately after June 30, 2023. Although the FCA does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date. There is no assurance that LIBOR will continue to be accepted or used by the markets generally or by any issuers, investors, or counterparties at any time, even if LIBOR continues to be available.

In September 2019, the FHFA issued a supervisory letter (LIBOR Supervisory Letter) to the FHLBanks relating to their planning for the LIBOR phase-out. Under the LIBOR Supervisory Letter, with limited exceptions, the FHLBanks were required, by December 31, 2019, to stop purchasing investments that reference LIBOR and mature after December 31, 2021, and were required, by March 31, 2020 (later extended by the FHFA to June 30, 2020), to no longer enter into any other new financial assets, liabilities, and derivatives that reference LIBOR and mature after December 31, 2021. As a result of the limitations introduced by the LIBOR Supervisory Letter, we and the other FHLBanks may experience less flexibility in our access to funding, higher funding costs, or lower overall demand or increased costs for advances; which may, in turn, negatively affect the future composition of our balance sheets, capital stock levels, primary mission assets, ratios, and net income. Under the restrictions in the LIBOR Supervisory Letter, we are not permitted to continue to use instruments that

In December 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act. The final rule establishes that after the LIBOR cessation date, which is expected to be June 30, 2023, the Federal Reserve-selected benchmark replacement will replace references to overnight, one-month, three-month, six-month, and twelve-month LIBOR in certain contracts that lack sufficient fallback language. The Federal Reserve-selected benchmark replacement will be a certain SOFR, as required by the Adjustable Interest Rate (LIBOR) Act, and the particular SOFR will vary depending on the contract type and tenor. We continue to evaluate the potential impact of the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement.

Alternatives may or may not be developed with or without additional complications. The market transition away from LIBOR and towards SOFR or other alternative reference rates, which will include the development of term and credit adjustments to accommodate differences between LIBOR and SOFR or other alternative reference rates, is expected to continue to be complicated. Transition in the markets and in our systems could be disruptive. We continue to evaluate the potential impact of the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement.

We use derivatives to manage interest-rate risk. If, due to an absence of creditworthy swap dealers or guarantors, or to a decline in our own creditworthiness, 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. In addition, while we are no longer entering into LIBOR-based derivatives, we do have outstanding derivatives based on LIBOR. Any failure by market participants to successfully transition away from LIBOR to a replacement benchmark interest rate and to implement transitional contractual arrangements for legacy LIBOR-based derivatives could adversely affect the trading or market value of derivatives. If we are unable to manage our hedging positions properly or are unable to enter into hedging instruments upon acceptable terms, the effectiveness of our management of interest-rate and other risks may be adversely affected, or we may be required to change our investment strategies and advance product offerings, which could adversely affect our financial condition and results of operations.

CREDIT RISKS

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.

Further, our methodology for determining our allowance for loan losses on our investments in MPF loans considers factors relevant to those investments, including market 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 used 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, by nature of our charter and our business operations, are exposed to credit risk resulting from limited geographic diversity. Our advances business is generally limited to operations within our district, although members may pledge mortgage loan collateral secured by real estate from outside our district. While we employ conservative credit underwriting 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.

OPERATIONAL RISKS

We are implementing a continuous strategy to ensure our mission critical applications and supporting infrastructure remain protected against evolving security threats. The pace of change to 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.

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 9.64.4 percent of our total assets as of December 31, 2021,2022, and 21.97.0 percent of interest income for the year ended December 31, 2021.2022. 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 activities 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.

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 pricing 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 assumptions are based on our best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions could have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities. While the models we use to value instruments and measure risk exposures are subject to periodic validation by our staff and by independent parties, rapid changes in market conditions in the interim could impact our financial position. The use of different models and assumptions, as well as changes in market conditions, could significantly impact our financial condition and results of operations.

GENERAL RISK FACTORS

We rely on key personnel for many of our functions and have a relatively small workforce, relative to the size and complexity of our business. Our ability to retain such personnel is important for us to conduct our operations and measure and maintain risk and financial controls. Our ability to retain key personnel could be challenged asbecause in the U.S., and the Boston area in particular, emerges from the effects of COVID-19, and competition for talent increases relative to pre-pandemic levels.remains high.

None.

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 7,461 square feet of leased property for a business continuity site in Massachusetts. We believe our properties are adequate to meet our requirements for the foreseeable future.

On April 20, 2011, we filed a complaint (subsequently amended) in the Superior Court Department of the Commonwealth of Massachusetts in Suffolk County against various securities dealers, underwriters, control persons, and issuers/depositors (securities defendants) along with certain credit rating agency defendants, based on our investments in certain private-label MBS issued by 115 securitization trusts for which we originally paid approximately $5.8 billion.

Between the date of filing and November 2020, we resolved our claims against all of the securities defendants and certain rating agency defendants. However, we continue to pursue fraud claims against Moody’s Investors Service, Inc. and Moody’s Corporation (collectively referred to as “Moody’s”) with respect to eleven securitization trusts.

Our original Massachusetts complaint was removed by the defendants (including Moody’s) to the United States District Court for the District of Massachusetts (Massachusetts District Court) and was pending there for several years, but in January 2017 the court, upon our motion (following our successful appeal to the United States Court of Appeals for the First Circuit of an earlier adverse ruling dismissing our claims), severed our claims against Moody's and transferred the severed claims to the United States District Court for the Southern District of New York (S.D.N.Y.). Shortly thereafter, based upon the Supreme Court’s Lightfoot v. Cendant Mortgage Corp. decision, the S.D.N.Y. dismissed our claims against Moody’s for lack of federal jurisdiction.

On November 2, 2017, we refiled our complaint against Moody’s in the Supreme Court of New York, and subsequently amended such complaint on February 5, 2018. In that action, on March 26, 2019, an order of the New York Supreme Court was entered granting in part and denying in part the defendants’ motion to dismiss. The defendants appealed, and on October 17, 2019, the New York Supreme Court Appellate Division (Appellate Division) affirmed the order of the New York Supreme Court denying the defendants’ motion to dismiss. On January 30, 2020, the Appellate Division denied defendants’ motion for

reargument or for leave to appeal, a ruling that ended the appeal but not the litigation as a whole. Our case against Moody’s continues in the New York Supreme Court with respect to the remaining eleven securitizations.

From time to time, we are subject to various 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.

Not applicable.

The par value of our capital stock is $100 per share. Our stock is not publicly traded and can be purchased only by our members at par. As of February 28, 2022, 4252023, 427 members and 11seven nonmembers held a total of 9.820.9 million shares of our Class B stock. As of December 31, 2021, our capital plan no longer includes the authority to issue Class A capital stock. We have never issued Class A stock.

Subject to regulatory limitations, dividends are solely within the discretion of our board of directors. The board of directors declared dividends during 2022, 2021, 2020, and 20192020 as set forth in Table 3 below. 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.

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On February 18, 2022,24, 2023, our board of directors declared a cash dividend that was equivalent to an annual yield of 2.056.67 percent, the approximate daily average of SOFR rates for the fourth quarter of 20212022 plus 200300 basis points. The dividend amount, based on average daily balances of Class B shares outstanding for the fourth quarter of 20212022, totaled $5.1$31.0 million and was paid on March 2, 2022.2023. In declaring the dividend, the board stated that it expects to follow this formula for declaring cash dividends through 2022,2023, though a quarterly loss or a significant adverse event or trend 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 2021,2022, 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 in 2022.2023.

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 when due, 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 if our minimum retained earnings target exceeds the level of our retained earnings, the quarterly dividend payout cannot exceed 40 percent of our net income for the quarter. Our minimum retained earnings target was $700.0 million as of December 31, 2021,2022, compared with $1.5$1.7 billion in retained earnings at December 31, 2021.2022.

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, 2021,2022, we had excess stock outstanding totaling $32.6$56.9 million or 0.1 percent of our total assets.

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 $1.8$3.1 billion at December 31, 2021.2022. Our permanent capital level was $2.5$3.7 billion at December 31, 2021,2022, so we were in excess of this requirement by $750.8$616.1 million on that date. If necessary to satisfy this adopted minimum capital level, however, we will take steps to control asset growth and/or maintain capital levels, the latter of which may limit future dividends.

Some of the risks and uncertainties that could affect our forward-looking statements include the following:

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.

Net income for the year ending December 31, 2021,2022, was $69.5$184.2 million, compared with net income of $120.3$69.5 million for 2020,2021, the result of a decrease of $77.7 million in gains on sales of securities, an increase of $34.4$70.1 million in net interest income after provision for credit losses, an improvement of $46.0 million in net unrealized losses on trading securities, and a $25.6$11.5 million decrease in litigation settlement income. These decreases to net income were partially offset by a decrease of $49.1 million in net losses on derivatives, a $17.6early extinguishment of debt.

The $70.1 million increase in net interest income after provision for credit losses during 2022 was primarily due to a $14.4 billion increase in average total earning assets and a $13.8 million reductionsignificant increase in operating and other expenses.interest rates due to aggressive monetary policy tightening by the Federal Reserve. The increase in average earning assets was driven primarily by a $10.2 billion, or 66.4 percent, increase in average advances balances, as demand for advances returned among depository members to near pre-pandemic levels. In addition, the significant increase in interest rates attributable to the 425 basis point increase in the Federal Reserve’s target range for the federal funds rate during 2022 led to higher earnings on capital.

Our retained earnings grew to $1.5$1.7 billion at December 31, 2021,2022, an increase of $49.8$142.2 million from December 31, 2020,2021, and equals 4.762.7 percent of total assets at December 31, 2021.2022. We continue to satisfy all regulatory capital requirements as of December 31, 2021. 2022.

On February 18, 2022,24, 2023, our board of directors declared a cash dividend that was equivalent to an annual yield of 2.056.67 percent, the approximate daily average of SOFR for the fourth quarter of 20212022 plus 200300 basis points.

Our overall results of operations are influenced by the economy and financial markets, and, in particular, by members’ demand for advancesliquidity and our ability to maintain sufficient access to funding at relatively favorable costs. The continued COVID-19 pandemic, which began to affect businessesWhile the effects of high inflation and the economy in March 2020, andFederal Reserve’s aggressive monetary policy response, combined with weakening economic growth as measured by gross domestic product, present uncertainties about the responsefuture of the U.S. governmenteconomy, the year ending December 31, 2022, saw a continued increase in demand for advances. During the year ended December 31, 2022, advances balances increased to $41.6 billion, an increase of 237.1 percent from $12.3 billion at December 31, 2021. The significant increase in advances was concentrated in variable-rate advances and the Federal Reserve through changes in monetary policyshort-term fixed-rate advances, and implementationwas due to slowing growth or declines of unprecedented fiscal stimulus programs, led to interest rates that remain historically low and substantially elevated deposits reported by member depository institutions. The elevated level of depositsdeposit balances at member depository institutions, has been the primary cause of the significantan increase in lending to their customers, rising interest rates, and continued decline in advances balances which began in the second quarter of 2020. In addition, agency mortgage-backed security purchases by the Federal Reserve aimed at supporting the housingreduced market through the pandemic have tightened yield spreads we earn on new mortgage acquisitions and have provided an incentive to some of our members to sell loans to Fannie Mae and Freddie Mac rather than to us. This activity has reduced our outstanding balances of mortgage loans.liquidity. These developments impacted our financial condition as of December 31, 2021,2022, and results of operations for the year ended December 31, 2021.2022.

Generally, investor demand for high credit quality, fixed-income investments, including COs, continued to be strong relative to other investments. Moreover, a declining supply of COs, primarily as a result of lower advances balances throughout theInvestor appetite for FHLBank System has further increasedCOs remains relatively strong despite the relative demand for COs and improved our relative costvolume of borrowing.issuance used to keep pace with advance growth. Our flexibility in utilizing various funding tools, in combination with a diverse investor base and our status as a government-sponsored enterprise, have helped provide reliable market access and demand for consolidated obligations throughout fluctuating market environments and regulatory changes affecting dealers of and investors in COs. The Bank has continued to meet all funding needs during the year ended December 31, 2021.

Net interest spread was 0.570.42 percent for the year ended December 31, 2021,2022, a 2515 basis point increasedecrease from 2020,2021, and net interest margin was 0.600.57 percent, a 21three basis point increasedecrease from 2020.2021. The increasedecrease in both net interest spread was primarily a result of a $30.7 million reduction in prepayment fee income, and the maturity of the U.S Treasury obligations portfolio classified as trading securities for which the coupon income was recognized in net interest income while interest expense on associated economic hedges was recognized in net losses on derivatives, partially offset by a $22.2 million increase in unrealized gains on fair value hedges. The decrease in net interest margin resultswas primarily from an improvement in funding costs and a reductiondriven by the decrease in net premium amortization on mortgage-related assets relative tointerest spread, partially offset by the same periodbenefit of a significant increase in 2020. The sharply-reduced interest rate environment in 2020 triggered refinancing incentives on residential mortgage loans, resulting in increases of mortgage prepayment activity that resulted in accelerated net premium amortization of our agency residential MBS as well as our whole mortgage loans. Refinancing activity of mortgage loans remains high but has moderated during 2021.rates.

In July 2017, the United Kingdom's FCA, the regulator for LIBOR, announced that after 2021 it will no longer persuade or compel the major banks that sustain LIBOR to submit rates for the calculation of LIBOR. The Alternative Reference Rates Committee (ARRC), which was established in 2014 by the Federal Reserve and the Federal Reserve Bank of New York to help ensure a successful transition in the U.S. from LIBOR, recommended SOFR as the alternative reference rate to U.S. dollar LIBOR.

On July 1, 2021, the FHFA issued a Supervisory Letter regarding its expectations for an FHLBank’s use of alternative rates other than SOFR. The Supervisory Letter provides guidance on considerations, such as volume of underlying transactions, credit sensitivity, modeling risk and others, that an FHLBank should take into account prior to employing an alternative reference rate.

We recognize that the discontinuance of LIBOR as an interest rate benchmark and the transition to alternative reference rates, including SOFR, present risks and challenges that could affect our business. Certain of our investment securities and member collateral pledged to us and investment securities and derivatives are indexed to LIBOR with exposure extending beyond June 30, 2023. We are implementing our transition plan for the eventual replacement of the LIBOR benchmark interest rate, with SOFR as the expected replacement benchmark. The transition plan includes continuing to monitor and address market developments regarding fallbacks related to LIBOR-based derivatives, investment securities and other financial instruments, and assessing our operational readiness, including updating processes, models, and information technology systems to support the transition from LIBOR to an alternative reference rate.

The economy continued to rebound in 2021 from the recessionary effects of the COVID-19 pandemic. Real gross domestic product (GDP) grewincreased at 7.0an annual rate of 2.7 percent (annualized) in the fourth quarter of 2022 and at 5.72.1 percent for the full year. Real GDP growth slowed from above 6 percent (annualized) in the first half of 2021 to approximately 2 percent (annualized) in the third quarter, possibly attributable to a combination of a surge in COVID-19 cases, supply bottlenecks, and waning impact from federal COVID-19 related relief programs. GDP growth reboundedThe expansion in the fourth quarter as the number of COVID-19 cases declinedwas driven mainly by private inventory investment, consumer spending, business investment, and government spending. The increase in the early part of the quarter before rising againpersonal consumption expenditures reflected an increase in December.spending on services, partially offset by a drop in spending on goods.

The labor market has also continued to improve, in 2021, with job growth averaging 537,000 new jobs291,000 per month in 2021. Nonfarmthe fourth quarter of 2022. In February 2023, employment increased by 18.8 million since April 2020 but remained down by311,000 and the unemployment rate was 3.6 million compared to its pre-pandemic level in February 2020. The labor force participation rate improved from 61.5 percent in February 2021 to 62.3 percent in February 2022. However, the participation rate remains below the February 2020 level of 63.4 percent. The unemployment rate stood at 3.9 percent in December, a decline of 2.8 percentage points from December in 2020. The New England region’s unemployment rate also declined in 2021 and was 4.3 percent in December 2021 compared to 6.9 percent in December 2020.for the

Supply chain challenges, combined with unusually high demand for goodsIn February 2023, the Consumer Price Index increased 0.4 percent from the preceding month, representing a year-over-year increase of 6.0 percent. CPI inflation was driven mainly by the cost of shelter, food, and increasingly tight labor market conditions, have pushed up inflation. From December 2020 to December 2021, the consumer price index rose 7.0 percent, the fastest rate of inflation in nearly 40 years.

On March 16, 2022,February 1, 2023, the FOMC raised the target range for the federal funds rate to 25 to 50between 450 and 475 basis points and stated that ongoing increases in the target range will likely be appropriate given elevated rates of inflation. The FOMC also stated that it expects to beginwould continue reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities at a coming meeting.by reinvesting principal payments from its securities holdings only if they exceed monthly caps.

Short-term interestAs the Federal Reserve continues with a tightening policy stance, short-term rates were close to zero throughout 2021 in keepingrose commensurate with the Federal Reserve’s target range formagnitude of the increase in the federal funds rate. At the end of 2022, 5- and 10-year Treasury rates were lower than overnight or 3-month rates, consistent with expectations of further interest rate of zerohikes in the near term followed by softening economic activity leading to 25 basis points. Long-terma fall in interest rates generally followedover a rising trend over the course of 2021 as strengthening economic recovery and rising inflation increased expectations that the Federal Reserve would change its interest rate policy to a less accommodative stance.longer term.

We derived the selected results of operations for the years ended December 31, 2022, 2021, 2020, and 2019,2020, and the selected statement of condition data as of December 31, 20212022 and 2020,2021, from financial statements included elsewhere herein. We derived the selected results of operations for the years ended December 31, 20182019 and 2017,2018, and the selected statement of condition data as of December 31, 2020, 2019, 2018, and 2017,2018, 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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Net interest income after provision for credit losses for the year ending December 31, 2021,2022, was $212.2$282.3 million, compared with $194.6$212.2 million for 2020.2021. The $70.1 million increase of $17.6 million in net interest income after provision for credit losses is attributable to several favorable factors, including: the absence of margin compression on liquid investments that the Bank experienced during the second quarter of 2020 following the sudden interest-rate cutswas driven by the FOMC in March 2020; a $33.2 million decrease in net amortization of premium on mortgage-backed securities and mortgage loans; a $16.5 million increase in net unrealized gains from fair value hedges; a $10.0 million increase in prepayment income; a $1.5$10.2 billion increase in the average balance of U.S. Treasury securities;advances, a $3.4 billion increase in the average balance of money market investments, a $1.3 billion increase in the average balance of investments securities, an increase of net accretion of discounts and premiums on mortgage-backed securities and mortgage loans of $42.6 million resulting from significant increases in mortgage rates during 2022, an increase of $22.2 million of net unrealized gains on fair value hedges, an $11.5 million decrease in losses on early extinguishment of debt, and higher returns from investing the Bank’s capital in a general improvement in funding costs.higher interest-rate environment. These positive factors were partially offset by reductions to net interest income resulting from average balance decreases of $12.4 billion for advances and $840.1 million for mortgage loans, as well as a $9.0$30.7 million decrease in accretion of significant improvement in projected cash flows resulting from sales of previously impaired private-label MBS, as all private-label MBS were sold in 2020. In addition, net interestprepayment fee income, was negatively affected by lower income from investing our capital, resulting from the near-zero, and substantially lower, average short-term interest rates in 2021 compared to the year prior and the $541.3a $587.2 million declinedecrease in the average balance of outstanding capital stockmortgage loans, and the maturity of the U.S. Treasury obligations portfolio classified as trading securities for which the coupon income was recognized in 2021 compared to the same period a year prior.

Table 6 presents major categories of average balances, related interest income/expense, and average yields/rates 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.