Exhibit 10.3.2

FEDERAL HOME LOAN BANK OF BOSTON

2007 EXECUTIVE INCENTIVE PLAN

February 2007

PURPOSE

The Federal Home Loan Bank of Boston (Bank) has established an Executive
Incentive Plan (EIP) to:

·                  promote achievement of the Bank’s financial plan and
strategic objectives as spelled out in the 2007 Strategic Business Plan;

·                  provide total annual compensation (i.e., salary plus
incentive) that is competitive with other financial institutions in the
employment markets in which the Bank competes, including other Federal Home Loan
Banks; and

·                  facilitate the retention and commitment of corporate
officers.

BANK’S OBJECTIVES FOR 2007

The focus of the Bank’s 2007 Strategic Business Plan is summarized in two words:
profitable growth.  The Bank is targeting steady growth in business with members
in terms of both advances and mortgages. While the Bank’s focus will be
profitable growth, we will continue to enhance the Bank’s operational
infrastructure, and we will maintain and reinforce the Bank’s commitment to
conservative and prudent risk management and compliance.

Also for 2007, the Bank has identified three all-encompassing long-term
strategic goals that demonstrate our commitment to the Bank’s mission, vision,
the needs of its stakeholders, and the well-being of the New England region:

1.               to foster a member-centric organization;

2.               to maintain trust and confidence among stakeholders; and

3.               to harness the power of technology to maintain maximum
efficiency and productivity.

The goals in the 2007 incentive plan are designed to reinforce the focus of the
Bank’s 2007 Strategic Business Plan.

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2007 Executive Incentive Plan

The incentive goals are summarized in the following table with more detail
following:

Goal

 

Weight

 

Threshold

 

Target

 

Excess

 

 

Pres.

 

1

 

2

 

 

 

 

 

 

Pre-tax ROE (Adjusted for Net Prepayment Fees) Spread to LIBOR

 

20%

 

20%

 

20%

 

300 basis points

 

400 basis points

 

500 basis points

Percentage Growth in Average Member Credit Extension (Advances and Letters of
Credit, net of CDA and NEF) Balances 2007 Over 2006 With National,
Growth-Oriented, and Insurance Company Segments

 

10%

 

10%

 

10%

 

Maintain 2006 average

 

4 percent

 

8 percent

Percentage Growth in Average Member Credit Extension (Advances and Letters of
Credit, net of CDA and NEF) Balances 2007 Over 2006 With Community Bank and
Credit Union Segments

 

10%

 

10%

 

10%

 

3 percent

 

5 percent

 

8 percent

Percentage Growth in Targeted Mission-Related Advances Programs (CDA and NEF)
2007 Over 2006

 

5%

 

5%

 

0%

 

10 percent

 

20 percent

 

30 percent

Examination Results

 

15%

 

15%

 

15%

 

N.A.

 

“2” rating in 2007 exam report

 

“1” rating in 2007 exam report

Operational Component

 

15%

 

25%

 

30%

 

As defined

 

As defined

 

As defined

Discretionary Component

 

25%

 

15%

 

15%

 

As documented by supervisor

 

As documented by supervisor

 

As documented by supervisor

 

PROFITABILITY GOAL

2007 Goal:

Pre-tax ROE (Adjusted for Net Prepayment Fees) Spread to LIBOR

Weight:

President: 20 percent; Tier 1: 20 percent; Tier 2: 20 percent

Threshold:

300 basis points

Target:

400 basis points

Excess:

500 basis points

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The metric will be the spread by which the Bank’s pre-tax (i.e., pre-REFCorp and
pre-AHP) ROE (adjusted for net prepayment fees) exceeds the daily average of the
bond-equivalent yield of three-month LIBOR.  The projection for this metric in
the 2007 Strategic Business Plan’s base case is 402 basis points.

The difference between “ROE” and “ROE Adjusted for Net Prepayment Fees” is that
the latter defers the net effect of prepayment fee income from advances or
investments and associated debt retirement and hedge unwind expenses over the
expected remaining lives of the assets that were prepaid.  The exclusion of
prepayment fee income and associated debt retirement and swap unwind expense
from the core ROE metric removes the potential for “windfall” compensation in
the event of heavy prepayment fee income and removes a conflict with the
objective of prudent asset-liability management by excluding the otherwise
punitive cost of debt retirement and swap unwind expense.

The metric is not distorted by the general level of interest rates (which
affects both dollar earnings and prepayment speeds on advances), and it is
independent of the Bank’s asset size.  It also eliminates a tax bias associated
with REFCorp and AHP.  It does, however, implicitly factor in operating
efficiencies, since projected core ROE will be impaired to the extent the Bank’s
budget is exceeded.

GROWTH GOALS

2007 Goal:

 

Growth in Average Member Credit Extensions (Advances and Letters of Credit, net
of CDA and NEF) with National, Growth-Oriented, and Insurance Company Accounts

Weight:

 

President: 10 percent; Tier 1: 10 percent; Tier 2: 10 percent

Threshold:

 

Maintain 2006 average

Target:

 

4 percent

Excess:

 

8 percent

 

 

 

2007 Goal:

 

Growth in Average Member Credit Extensions (Advances and Letters of Credit, net
of CDA and NEF) with Community Bank and Credit Union Segments

Weight:

 

President: 10 percent; Tier 1: 10 percent; Tier 2: 10 percent

Threshold:

 

3 percent

Target:

 

5 percent

Excess:

 

8 percent

 

 

 

2007 Goal:

 

Growth in Average Targeted Mission-Related Advances Programs

Weight:

 

President: 5 percent; Tier 1: 5 percent; Tier 2: 0 percent

Threshold:

 

10 percent

Target:

 

20 percent

Excess:

 

30 percent

 

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To achieve the projected level of growth, management will implement the member
differentiation strategy that began in 2006.  This effort will begin with the
alignment of processes, structures, people and systems to support and deliver
the core elements of the strategy.  Other processes that are integral to the
strategy will also be identified and aligned.  Top priority within this strategy
will be given to delivering solutions to the national account segment and
implementing collateral policy and process changes in support of solutions for
all segments.

For purposes of the 2007 EIP, the five member segments have been aggregated into
two groups with similar characteristics.  An average growth target based on
advances and letters of credit has been established for each group.(i)  The
table below shows the starting and target ending balances for these two groups:

$Billions

 

2006 Projected Average
Advances and Letters of
Credit (Net of CDA and NEF)
Base

 

Target Growth

 

2007 Projected Average
Advances and Letters of Credit
(Net of CDA and NEF)

 

National, Growth-
Oriented, and Insurance
Company Accounts

 

$

31.5 billion

 

4 percent

 

$

32.8 billion

 

Community Bank and
Credit Union Accounts

 

$

8.0 billion

 

5 percent

 

$

8.4 billion

 

 

The Bank currently holds a 68 percent market share of the wholesale funding used
by national accounts and a 80 percent market share of wholesale funding used by
growth oriented institutions.  The Bank will aggressively seek to expand its
market share in 2007 through pricing, product development and streamlining
internal policies and procedures to create a more user-friendly experience for
members.  In addition, the Bank is expanding its efforts to reach the insurance
industry with products that address their business needs.  These institutions do
not access the traditional wholesale funding market used by banks.

In contrast, the Bank enjoys a nearly 100 percent market share of wholesale
funding used by community institutions and credit unions.  Growth in advances
from this segment will be dependent on the Bank’s ability to help members expand
their own market share pursuant to their own business plans.  The Bank will also
compete for funding increasingly being diversified into brokered CD and
repurchase agreements.

Member demand for letters of credit is increasing for targeted purposes.  The
Bank earns a spread that is comparable to advances and remains well protected
from credit and other potential sources of risk.  As a result, management has
included letters of credit in the base and projections as a valuable product to
the membership that provides a reasonable return at reasonable risk to the Bank.

Management is managing MPF volume by not seeking master commitments from its
largest PFIs.  As a result, MPF volume is not included in the 2007 EIP goals.

The focus of the mission-related metric will be to expand member lending
activities in the communities they serve through the Bank’s Community
Development Advances (CDA) and New England Fund (NEF) advances.(ii)

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The projected average CDA and NEF advances balance for 2006 is $1.8 billion.  A
twenty percent increase would grow average mission-related advances to $2.2
billion.  This increase would be driven by relatively small advances
disbursements.

Bank staff will actively use the outreach and education tools available to
achieve the goal, including the successful Community Development Consult
program, funding strategies, training programs, and publication of examples of
successful initiatives.

Exam Goal

2007 Goal:

 

Examination Result

Weights:

 

President: 15 percent; Tier 1: 15 percent; Tier 2: 15 percent

Threshold:

 

None

Target:

 

“2” rating in 2007 exam report

Excess:

 

“1” rating in 2007 exam report

In the 2007 exam report, the Federal Housing Finance Board (Finance Board) will
rate the Bank “1,” “2,” “3,” or “4.”, with “1” being the highest possible rating
and “4” being the lowest.  A payment on this goal will be made at target if the
Bank’s rating is “2.”  A “1” rating will result in an excess payout on this
goal.

Operational Component

Weights:

 

President: 15 percent; Tier 1: 25 percent; Tier 2: 30 percent with
individualized weightings on each operational initiative.

Threshold:

 

As defined below

Target:

 

As defined below

Excess:

 

As defined below

 

Payments awarded under the Operational Component will be based on the individual
weighting for each participant and the Bank’s achievement, as assessed by
management at the end of the plan-year and approved by the Personnel Committee,
on the following key Bank-wide initiatives, which support the Bank’s
all-encompassing three strategic goals:

To foster a member-centric organization

 

Continue to engage the entire organization in the Competitive Positioning
Initiative:

·                  Threshold: Implement the member differentiation strategy that
began in 2006 by establishing written account plans for selected members.

·                  Target: Address the Competitive Positioning Initiative
collateral solutions by developing an implementation plan for a new collateral
system and executing in accordance with the approved plan.(1)

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(1)           Project plan development is dependent on the completion of
detailed requirements.  These requirements are under development.  While it is
our desire to complete this initiative in 2007, final implementation activities
may extend into 2008, depending on the overall scope and complexity of the
project, yet to be determined.

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·                  Excess:  Meet requirements for Threshold and Target, plus in
the fourth quarter conduct a survey of members focused on satisfaction level
with customer service, ease of doing business with the Bank and competitiveness
of policies and procedures, with particular focus on collateral.  Overall
satisfaction must be at least a “2” rating on a scale of 1 to 5, with “1” being
the highest rating.

Maintain trust and confidence among stakeholders

 

Ensure Sarbanes-Oxley compliance —

·                  Threshold:   N.A.

·                  Target:   Develop, review and obtain approval at the February
2007 Audit Committee meeting of a SOX Project Plan developed to support the
internal control assessment by management.  Complete all required SOX 404
implementation and compliance procedures  in accordance with SEC deadlines.
Provide status updates to the Audit Committee at least once per quarter.

·                  Excess: Meet requirements for Target, plus complete an
initial project plan directed toward an efficiency review of identified business
processes.

To harness the power of technology to maintain maximum efficiency and
productivity

 

Summit  —

·                  Threshold: Complete implementation of the derivatives basic
accounting phase by June 30, 2007.

·                  Target: Meet requirements for Threshold, plus complete
implementation of the derivatives valuation phase by year-end 2007.

·                  Excess: Meet requirements for Threshold, plus complete
implementation of the derivatives valuation phase by August 31, 2007.

To successfully complete department specific initiatives

 

In addition to the key bank-wide initiatives, there are department specific
initiatives and projects that contribute to the success of the bank. This
section provides for recognition of the participant’s successful completion of
those initiatives.

·                  Threshold: As determined by the manager

·                  Target: As determined by the manager

·                  Excess: As determined by the manager

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Operational Component Initiatives Weighted by Individual:

 

Participant

 

Competitive
Positioning %

 

SOX
%

 

Summit
%

 

Dept. Specific
Operational
Initiatives %

 

Total
%

 

Michael A. Jessee

 

5

 

5

 

5

 

0

 

15

 

Janelle K. Authur

 

5

 

5

 

0

 

15

 

25

 

Earl Baucom

 

5

 

10

 

5

 

5

 

25

 

George Collins

 

5

 

5

 

10

 

5

 

25

 

M. Susan Elliott

 

15

 

5

 

0

 

5

 

25

 

William Hamilton

 

5

 

5

 

0

 

15

 

25

 

Ellen McLaughlin

 

5

 

10

 

0

 

10

 

25

 

Frank Nitkiewicz

 

5

 

10

 

5

 

5

 

25

 

William L. Oakley

 

5

 

10

 

10

 

0

 

25

 

Daniel Devine

 

5

 

10

 

5

 

10

 

30

 

Brian Donahue

 

0

 

15

 

10

 

5

 

30

 

Jack Henderson, Jr.

 

10

 

10

 

0

 

10

 

30

 

Kelly A. LaCava

 

5

 

10

 

10

 

5

 

30

 

Rachele McDonough

 

10

 

5

 

0

 

15

 

30

 

William J. Murphy

 

15

 

10

 

0

 

5

 

30

 

Paul Pouliot

 

10

 

5

 

0

 

15

 

30

 

Allison Powell

 

10

 

5

 

0

 

15

 

30

 

Paul Webber

 

10

 

5

 

0

 

15

 

30

 

Kevin Whittaker

 

10

 

5

 

5

 

10

 

30

 

Kenneth Willis

 

10

 

5

 

0

 

15

 

30

 

 

Payments awarded to individual participants under the Operational Component for
the Competitive Positioning, SOX and Summit initiatives will be based on
achievement of the initiative at Threshold, Target or Excess and according to
the individual’s weight for that initiative.  Payments awarded under the
department-specific operational initiatives will be based on the individual’s
combined, overall performance on the one to three operational initiatives as
determined by the manager.  Managers may select a payout percentage for
department-specific objectives from a range of threshold to a maximum payout at
excess.  If the department-specific operational initiatives are not
substantially achieved, the manager may award zero for this initiative.

DISCRETIONARY COMPONENT

Weights:

 

President: 25 percent; Tier 1: 15 percent; Tier 2: 15 percent

Threshold:

 

As defined by manager/supervisor

Target:

 

As defined by manager/supervisor

Excess:

 

As defined by manager/supervisor

 

Payments awarded under the Discretionary Component will take into consideration
the individuals’ contribution toward the Bank’s or department’s specific goals
or initiatives. It is

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understood that the success of the bank in achieving its goals as set forth in
the Plan requires individual contribution. This component allows for recognition
of that contribution, as assessed by the manager/supervisor. The contribution
may also be toward a department specific initiative.

There may also be a subjective element in this component so that a
manager/supervisor can award a participant’s leadership, work ethic, attitude,
or other such similar intangible attribute that contributes to the Bank’s
success.  Managers/supervisors need to provide reasonable documentation that
states the basis for whatever award is recommended under the discretionary
component.

INCENTIVE POTENTIAL

Eligible employees will be assigned an incentive award potential expressed as a
percentage of the incumbent’s base salary in effect at year-end 2007 as follows:

 

 

Incentive as a Percent of Salary

 

 

 

Threshold

 

Target

 

Excess

 

 President

 

25.00

%

50.00

%

75.00

%

 Tier I

 

18.75

%

37.50

%

56.25

%

 Tier II

 

15.00

%

30.00

%

45.00

%

 

2007 PARTICIPATION

The following individuals are participants in the EIP for 2007:(iii)

 

President

 

Tier I

 

Tier II

Michael A. Jessee

 

Janelle K. Authur

 

Daniel Devine

 

 

Earl Baucom

 

Brian Donahue

 

 

George Collins

 

Jack Henderson, Jr.

 

 

M. Susan Elliott

 

Kelly A. LaCava

 

 

William Hamilton

 

Rachele McDonough

 

 

Ellen McLaughlin

 

William J. Murphy

 

 

Frank Nitkiewicz

 

Paul Pouliot

 

 

William L. Oakley

 

Allison Powell

 

 

 

 

Paul Webber

 

 

 

 

Kevin Whittaker

 

 

 

 

Kenneth Willis

 

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EIP Administration

The EIP is administered by the Personnel Committee of the Board of Directors
(Committee), which shall have full power and binding authority to construe,
interpret, and administer the EIP, and to adjust it during or at the end of the
calendar year covered by the EIP for extraordinary circumstances.  Extraordinary
circumstances may include changes in business strategy, termination or
commencement of business lines, impact of severe economic fluctuations,
significant growth or consolidation of the membership base, or significant
regulatory or other changes impacting the Bank or Bank System.

The Committee reserves the right at any time to amend, suspend or terminate the
EIP in whole or in part, for any reason, and without the consent of any EIP
participant.

The Bank’s President and Chief Executive Officer will determine participation in
the EIP with the concurrence of the Committee.

EIP awards shall not be considered earned or payable, in whole or in part, to
any participant for any reason until they are finally determined by the Bank’s
President and Chief Executive Officer with the concurrence of the Committee
following the end of the plan year.  Moreover, unless otherwise specifically
determined by the President and Chief Executive Officer with the concurrence of
the Committee, a participant will be entitled to payment of an award only if the
participant is employed on the date of payment of the award.  However, any
individual hired or promoted into an eligible position during the plan year who
is granted an award shall have any such incentive award prorated based on months
of EIP participation, providing he/she has served a minimum of six months in
that role and otherwise satisfies the EIP’s requirements.

Except as set forth in the following paragraph, any EIP participant who
terminates employment for any reason, whether voluntarily or involuntarily,
before the end of the plan year, defined as the period January 1, 2007 through
December 31, 2007, shall not be entitled to any award, except as otherwise
determined by the Bank’s President and Chief Executive Officer, with the
concurrence of the Committee, at their sole discretion.

EIP participants who terminate employment with the Bank by reason of death or
disability prior to the conclusion of the plan year will receive a pro rata
payment of any incentive award determined by the Bank’s President and Chief
Executive Officer, with the concurrence of the Committee, based on the months of
completed service as an EIP participant during the year.  Beneficiaries of such
payments will be the same as identified in the Bank’s group insurance plan.

The Bank may make such provisions, as it deems appropriate, for withholding
payroll taxes in connection with payment of EIP awards.

The Bank also has several other incentive programs for staff at the Bank
designed to motivate employees to become more innovative and productive. The
Bank’s President is responsible for the administration of each of these programs
and has the authority to construe, implement, and administer programs, as
appropriate.

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i  Average Advances and Letters of Credit Balances are defined as the average
daily balance of advances and Letters of Credit (net of CDA and NEF).  If a
member merges into a non-member, the merged entity’s balances will be excluded
from the calculation for 2007 and the average balance for 2006.  If, for
example, a community bank member is merged into a national account member, all
of the merged member’s balances for 2006 and to the 2007 merger date will be
included in the national account member group. The 2006 year-end average numbers
include Bank of America and exclude all institutions that were merged or
acquired through January 2, 2007.

ii  This goal is measured using the following advance product types: 822, 873,
877, 878, 879, 903, 904, and 914 and any new housing and community development
product codes introdued during the Plan year.

iii  All corporate officers are listed as EIP participants with one exception:
Paul Peduto, First Vice President, Sales and Business Development.  Mr. Peduto
is a participant in the Bank’s Sales Incentive Plan and is eligible for an
incentive award equivalent to a Tier II participant in the EIP.

 

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