Basis of Presentation

The accompanying interim financial statements of the FHLB have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates. These assumptions and estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates. The interim financial statements presented are unaudited, but they include all adjustments (consisting of only normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations, and cash flows for such periods. These financial statements do not include all disclosures associated with annual financial statements and accordingly should be read in conjunction with the audited financial statements and notes included in the FHLB's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (SEC). Results for the six months ended June 30, 2017 are not necessarily indicative of operating results for the full year.

The FHLB presents certain financial instruments, including derivative instruments and securities purchased under agreements to resell, on a net basis when it has a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). For these instruments, the FHLB has elected to offset its asset and liability positions, as well as cash collateral received or pledged, when it has met the netting requirements. The FHLB did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the requirements for netting, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in Note 10. Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented. For more information about the FHLB's investments in securities purchased under agreements to resell, see “Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies” in the FHLB's 2016 Annual Report on Form 10-K.

The FHLB has evaluated subsequent events for potential recognition or disclosure through the issuance of these financial statements and believes there have been no material subsequent events requiring additional disclosure or recognition in these financial statements.

Change in Accounting Principle. Effective October 1, 2016, the FHLB changed its method of accounting for the amortization and accretion of premiums and discounts and hedging basis adjustments on mortgage loans held for portfolio to the contractual interest method (contractual method). Historically, the FHLB deferred and amortized premiums and accreted discounts into interest income using the retrospective interest method (retrospective method), which used both actual prepayment experience and estimates of future principal repayments in calculating the estimated lives of the loans. While both the retrospective and contractual methods are acceptable under GAAP, the contractual method has become preferable for recognizing net unamortized premiums on mortgage loans held for portfolio because (i) it reduces the FHLB's reliance on subjective assumptions and estimates that affected the reported amounts of assets, capital and income in the financial statements and (ii) it represents the base accounting model articulated in GAAP applicable to accounting for the amortization of premiums and the accretion of discounts, whereas the retrospective method is only permitted by the guidance in narrowly defined circumstances.

The change to the contractual method for amortizing premiums and accreting discounts and hedging basis adjustments on mortgage loans has been reported through retroactive application of the change in accounting principle to all periods presented. For the three and six months ended June 30, 2016, the effect of this change was an increase to net income (in thousands) of $5,017 and $13,179, respectively.

The following tables illustrate the effect of the change in amortization and accretion method on the FHLB's financial statements as of and for the three and six months ended June 30, 2016.



	As of and for the Three Months Ended June 30, 2016
(In thousands)	Previous Method		New Method		Effect of Change
Statements of Income:
Interest income - mortgage loans held for portfolio	$	58,433	$	64,008	$	5,575
Net interest income	77,035		82,610		5,575
Income before assessments	62,754		68,329		5,575
Affordable Housing Program assessments	6,378		6,936		558
Net income	56,376		61,393		5,017
Statements of Comprehensive Income:
Net income	$	56,376	$	61,393	$	5,017
Comprehensive income	56,927		61,944		5,017



	As of and for the Six Months Ended June 30, 2016
(In thousands)	Previous Method		New Method		Effect of Change
Statements of Condition:
Mortgage loans held for portfolio, net	$	8,509,933	$	8,496,646	$	(13,287	)
Total assets	106,141,555		106,128,268		(13,287		)
Affordable Housing Program payable	99,600		101,065		1,465
Total liabilities	101,143,798		101,145,263		1,465
Retained earnings:
Unrestricted	552,949		538,351		(14,598		)
Restricted	230,382		230,228		(154		)
Total retained earnings	783,331		768,579		(14,752		)
Total capital	4,997,757		4,983,005		(14,752		)
Total liabilities and capital	106,141,555		106,128,268		(13,287		)
Statements of Income:
Interest income - mortgage loans held for portfolio	$	117,248	$	131,892	$	14,644
Net interest income	156,811		171,455		14,644
Income before assessments	116,591		131,235		14,644
Affordable Housing Program assessments	11,868		13,333		1,465
Net income	104,723		117,902		13,179
Statements of Comprehensive Income:
Net income	$	104,723	$	117,902	$	13,179
Comprehensive income	105,890		119,069		13,179
Statements of Capital:
Total retained earnings, as of December 31, 2015	$	765,577	$	737,646	$	(27,931	)
Total comprehensive income	105,890		119,069		13,179
Total retained earnings, as of June 30, 2016	783,331		768,579		(14,752		)
Total capital	4,997,757		4,983,005		(14,752		)
Statements of Cash Flows:
Operating activities:
Net income	$	104,723	$	117,902	$	13,179
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	43,227		28,583		(14,644		)
Changes in:
Other liabilities	2,475		3,940		1,465
Total adjustments	53,970		40,791		(13,179		)
Net cash provided by operating activities	158,693		158,693		—