Document:

Exhibit 4.1 Capital Plan Amended 11-5-12

Exhibit 4.1

CAPITAL PLAN 

of the

Federal Home Loan Bank of Seattle

Adopted March 5, 2002, as amended on November 22, 2002, 
December 8, 2004, March 9, 2005, June 8, 2005, October 11, 2006  
February 20, 2008, March 6, 2009, September 5, 2011 and November 5, 2012

Page  1

TABLE OF CONTENTS 

	
						
	Section I.
	 
	Definitions
	 
	3
	

	Section II.
	 
	Stock Investment
	 
	6
	

	A.
	 
	General
	 
	6
	

	B.
	 
	Required Amount
	 
	6
	

	C.
	 
	Period Review
	 
	9
	

	D.
	 
	Amendments to the Capital Plan
	 
	10
	

	E.
	 
	Member Compliance
	 
	10
	

	Section III.
	 
	Transition
	 
	11
	

	Manner of Conversion/Exchange
	 
	11
	

	Section IV.
	 
	Classes of Stock
	 
	12
	

	A.
	 
	General
	 
	12
	

	B.
	 
	Rights, Terms and Preferences
	 
	12
	

	C.
	 
	Exchange of Ownership
	 
	18
	

	Section V.
	 
	Retained Earnings
	 
	19
	

	A.
	 
	Implementation
	 
	19
	

	B.
	 
	Definitions Applicable to Section V of the Capital Plan
	 
	19
	

	C.
	 
	Establishment of Restricted Retained Earnings
	 
	24
	

	D.
	 
	Limitations of Dividends, Stock Repurchases and Stock Redemptions
	 
	26
	

	E.
	 
	Termination of Retained Earnings Capital Plan Amendment Obligations
	 
	26
	

	 
	 
	 
	 
	 

Page  2

Section I.  Definitions
As used herein, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa):
		
	1.
	“Activity-Based Member Stock Purchase Requirement” means Stock that a Member must acquire, hold or utilize as a condition of transacting business with the Bank, the aggregate amount of which is a function of the volume of the particular products or services provided to that Member by the Bank.

		
	2.
	“Advance” has the same meaning as set forth in 12 C.F.R. 900.2.

		
	3.
	“Bank” means the Federal Home Loan Bank of Seattle.

		
	4.
	“Bank Act” means the Federal Home Loan Bank Act (12 U.S.C 1421, et seq.), as amended from time to time.

		
	5.
	“Board of Directors” means the Board of Directors of the Bank.

		
	6.
	“Business Day” means any day on which the Bank is open to conduct business.

		
	7.
	“Capital Plan” means this capital plan, as amended, supplemented, or modified from time to time.

		
	8.
	“Class A Stock” means Stock issued by the Bank that has a par value of one hundred dollars ($100) per share and is redeemable at par for cash on six (6) months written notice to the Bank, consistent with the Regulations.

		
	9.
	“Class B Stock” means Stock issued by the Bank that has a par value of one hundred dollars ($100) per share and is redeemable at par for cash on five (5) years written notice to the Bank, consistent with the Regulations. 

		
	10.
	“Conversion Date” means the date upon which Current Stock is converted into the new Class B Stock.

		
	11.
	“Current Stock” means all stock outstanding on the close of business on the last Business Day prior to the Conversion Date.

		
	12.
	“Excess Stock” means the Stock held by a Holder that is in excess of that Holder's current Total Stock Purchase Requirement. 

Page  3

		
	13.
	“Excess Stock Pool” means the aggregate amount of Excess Stock held by all Holders.  

		
	14.
	“Finance Agency” means the Federal Housing Finance Agency or, where appropriate in the context, its predecessor agency, the Federal Housing Finance Board.

		
	15.
	“GAAP” means Generally Accepted Accounting Principles in the United States. 

		
	16.
	“Holder” means a Member or a successor to a former Member that owns Stock. 

		
	17.
	“Home Mortgage Loan” means:

		
	a.
	A loan, whether or not fully amortizing, or an interest in such a loan, which is secured by a mortgage, a deed of trust, or other security agreement that creates a lien on one of the following interests in property:

		
	i.
	One-to-four family property or multi-family property, in fee simple;

		
	ii.
	A leasehold on one-to-four family property or multi-family property under a lease of not less than 99 years that is renewable, or under a lease having a period of not less than 50 years to run from the date the mortgage was executed; or

		
	b.
	A mortgage pass-through security that represents an undivided ownership interest in:

		
	i.
	Long-term loans provided that, at the time of issuance of the security, all of the loans satisfy the requirements set forth in Section I(17)(a) hereof; or

		
	ii.
	A security that represents an undivided ownership interest in long-term loans, provided that, at the time of issuance of the security, all of the loans satisfy the requirements set forth in Section I(17)(a) hereof.

		
	18. 
	“Member” means an institution that has been approved for Membership, that has purchased Stock in the Bank and continues to be entitled to Membership. 

		
	19. 
	“Member Advance Stock Purchase Requirement” means a specific Activity-Based Member Stock Purchase Requirement where the activity is the outstanding principal balance of one or more Advances made by the Bank to the Member.

		
	20. 
	“Member MPP Stock Purchase Requirement” means a specific Activity-Based 

Page  4

Member Stock Purchase Requirement where the activity is the outstanding principal balance of one or more loans sold to the Bank by the Member pursuant to the Bank's Mortgage Purchase Program.
		
	21. 
	“Membership” means all of the rights, privileges and obligations associated with being a Member of the Bank.

		
	22.
	“Membership Stock Purchase Requirement” means Stock that must be purchased and held as a condition of Membership in the Bank, as set forth in Section II (B)(1)(b) hereof.

		
	23.
	“Mortgage Purchase Program” or “MPP” means the program established by the Bank pursuant to 12 C.F.R. 955 for the purchase of loans from its Members.

		
	24.
	“Redemption Cancellation Fee” means the fee imposed by the Bank upon a Holder that has given the Bank notice of its intent to redeem Stock and that subsequently revokes or cancels such redemption request.

		
	25.
	“Regulations” means the regulations of the Finance Agency found at 12 C.F.R. Chapters IX and XII, as amended from time to time.

		
	26.
	“Stock” means Class A Stock and/or Class B Stock as defined in the Bank Act, and as further defined by the Regulations. 

		
	27.
	“Total Stock Purchase Requirement” means the amount of Stock that a Holder is required to hold or utilize pursuant to Section II (B)(1)(a) hereof.

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Section II.  Stock Investment
A.General.  
Adequate capitalization is required in order to: (a) provide for the safe and sound operation of the Bank; (b) permit prudent leveraging into products and services of benefit to Members; (c) provide appropriate risk-adjusted Member dividend returns; (d) protect the Bank's creditors against potential loss; (e) generate earnings sufficient to meet the Bank's various community support and public purpose obligations; and (f) comply with statutory and regulatory capital requirements as established by federal law and the Finance Agency. The need for capital is a function of the volumes of and risks inherent in the products and services provided by the Bank to its Members.  Therefore, the capital stock of the Bank should be contributed by its Members in general proportion to the distribution of such products and services to its Members.  Accordingly, this Capital Plan requires Members to establish and maintain certain capital stock investments in the Bank.
		
	B.
	Required Amount.

		
	1.
	Stock Purchase Requirements.

		
	a.
	Total Stock Purchase Requirement.  The amount of Stock that each Member or successor to a former Member is required to hold or utilize shall at all times equal the greater of:

		
	i.
	The Membership Stock Purchase Requirement; or

		
	ii.
	The sum of the Member MPP Stock Purchase Requirement and the Member Advance Stock Purchase Requirement.

		
	b.
	Membership Stock Purchase Requirement.  A Member's Membership Stock Purchase Requirement shall be equal to the greater of five hundred dollars ($500), or one-half of one percent (0.5%) of the Member's Home Mortgage Loans, as of the most recent calendar year-end; provided that a Member's Membership Stock Purchase Requirement shall in no event exceed a dollar amount established from time to time by the Board of Directors within a range of not less than ten million dollars ($10 million) and not greater than fifty million dollars ($50 million).  Only Class B Stock may be utilized to meet the Membership Stock Purchase Requirement.  The Bank will calculate the Membership Stock Purchase Requirement annually by April 30 of each year based on Member's Home Mortgage Loans as of the most recent calendar 

Page  6

year-end.  The Bank may, for a bona fide business purpose, recalculate a Member's Membership Stock Purchase Requirement between annual calculations, based on the Member's most current Home Mortgage Loans.  The Board of Directors may change the above percentage within a range of not less than one-half of one percent (0.5%) or not greater than one percent (1.0%). Any such increase or decrease in the Membership Stock Purchase Requirement will be applied at the implementation date of the change to all Home Mortgage Loan balances of each Member. The Membership Stock Purchase Requirement of a non-member successor to a former Member shall be equal to that of the former Member on the day before the liquidation, merger, or consolidation of the Member until the next calculation of the Membership Stock Purchase Requirement. Notwithstanding any other provision of this Capital Plan, on that date, the Membership Stock Purchase Requirement of the non-member successor to the former Member shall be reduced to $0. In the event that (1) a Member becomes insolvent or otherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or state law, and (2) the Board of Directors terminates the Membership of the Member, the Membership Stock Purchase Requirement of the Member shall be reduced to $0 on the date that the Member's Membership is terminated. In the event that a Member provides the Bank with written notice of its intent to withdraw from Membership, the Membership Stock Purchase Requirement for said Member shall not be increased during the pendency of said notice.
		
	c.
	Member MPP Stock Purchase Requirement.  The Member MPP Stock Purchase Requirement shall be equal to five percent (5.0%) of the outstanding principal balance of loans sold by the Member to the Bank pursuant to the Bank's Mortgage Purchase Program.  The Board of Directors may change the above percentage within a range of not less than zero percent (0.0%) or not greater than six percent (6.0%).  Only Class B Stock may be utilized to meet the Member MPP Stock Purchase Requirement.  Any such change in the Member MPP Stock Purchase Requirement will be applied from the implementation date of the change to all new loans purchased by the Bank under its Mortgage Purchase Program. The requirements of this Section II(B)(1)(c) shall apply to a successor to a former Member that acquires the duties and obligations of the former Member with respect to any Mortgage Purchase Program loans sold by the former Member to the Bank.

		
	d.
	Member Advance Stock Purchase Requirement. 

Page  7

		
	i.
	The Member Advance Stock Purchase Requirement shall be equal to four percent (4.0%) of the outstanding principal balance of Advances extended from the Bank to a Member.  The Board of Directors may change the above percentage within a range of not less than two and one-half percent (2.5%) or not greater than six percent (6.0 %). Any such change in the Member Advance Stock Purchase Requirement will be applied from the implementation date of the change in the requirement to all new and renewed Advances.  At its option, the Bank may issue either Class A Stock or Class B Stock in satisfaction of this requirement, as determined by the Board of Directors. Said determination shall be made periodically and applied consistently to all Members.  The Bank may issue Class A Stock only to satisfy the Member Advance Stock Purchase Requirement for a new Advance, or for the renewal of an existing Advance initially capitalized by the Excess Stock Pool, and only to a Member that has no excess Class B Stock available to capitalize the new or renewing Advance. The requirements of this Section II(B)(1)(d) shall apply to a successor to a former Member that is allowed by the Bank to retain Advances acquired from a former Member.

		
	ii.
	Notwithstanding any other provision in this Capital Plan, a Member  may utilize Stock from the Excess Stock Pool to satisfy its Member Advance Stock Purchase Requirement if all of the following conditions are met:

		
	(a)
	The Member owns no other Stock that can be used to capitalize a new Advance or the renewal of an existing Advance to satisfy the Member Advance Stock Purchase Requirement.

		
	(b)
	The Member is requesting a new Advance or the renewal of an existing Advance, and the maturity does not exceed one year. 

		
	(c)
	The Member would utilize no more than twenty five percent (25%) of the total amount of the Excess Stock Pool, measured on the date the Advance is received by the Member.

		
	(d)
	The aggregate amount of all Stock from the Excess Stock Pool being utilized to capitalize Advances would not exceed fifty percent (50%) of the Excess Stock Pool, measured on the date the Advance is received by the Member.  

Page  8

		
	iii.
	Authority to use Stock from the Excess Stock Pool shall expire on December 31, 2016.  However, Advances utilizing Stock from the Excess Stock Pool received by the Member prior to the expiration of the Excess Stock Pool may continue to be capitalized utilizing Stock from the Excess Stock Pool until the maturity date of said Advances. An Advance acquired by a successor to a former Member which was capitalized with Stock from the Excess Stock Pool can continue to be capitalized by Stock in the Excess Stock Pool until the maturity of the Advance.

		
	iv.
	The Bank reserves the right to suspend, at any time, the use of the Excess Stock Pool. 

		
	e.
	Recalculation of Stock Purchase Requirements. The Member Advance Stock Purchase Requirement and the Member MPP Stock Purchase Requirement will be recalculated whenever any activity occurs that results in a change in the outstanding principal balances of either Advances or MPP loans.                      

		
	f.
	Notice of Change in Stock Purchase Requirements. In the event the Board of Directors changes the Member Advance Stock Purchase Requirement, the Member MPP Stock Purchase Requirement, or the Membership Stock Purchase Requirement, in accordance with the provisions set forth above, the Bank shall provide its Members with prior written notice of any such change.

		
	2.
	Excess Stock.  Subject to the right of the Bank to repurchase Stock pursuant to Sections IV(B)(6) and IV(B)(7) hereof, a Member or a successor to a former Member may hold Stock in excess of its Total Stock Purchase Requirement.

		
	C.
	Periodic Review.  

To maintain prudent capitalization and ongoing compliance with the Regulations, the Board of Directors shall review the Bank's Capital Plan at least annually to determine whether adjustments are required with respect to one or more of the following:
		
	1.
	The specific Stock purchase requirement percentages, and/or the types of loans and activities, to which such requirements shall apply.

		
	2.
	The exercise by the Bank of its discretion to repurchase Excess Stock.

		
	3.
	Any increases or decreases to the Redemption Cancellation Fees.

Page  9

		
	4.
	The introduction of any new class or subclass of capital stock.

		
	D.
	Amendments to the Capital Plan. 

Any modifications to this Capital Plan shall require an amendment to the Capital Plan by the Board of Directors and approval from the Finance Agency.
		
	E.
	Member Compliance.  

Each Member is required to comply with any changes in, or adjustments or amendments to this Capital Plan, including without limitation any change, adjustment or amendment that may increase a Member's Total Stock Purchase Requirement, within 10 Business Days after notice of such adjustment, change or amendment has been mailed by the Bank to such Member.  In order to effectuate the purchase of additional Stock by a Member that may be required due to any such change, adjustment or amendment, the Bank may at any time following 10 Business Days after the mailing of the notice of the purchase requirement by the Bank to such Member, issue Stock in the name of such Member and withdraw appropriate payment from the Member's demand deposit account held with the Bank.  In addition, in the event any Member fails to comply with any requirement of this Capital Plan, the Member's access to products and services of the Bank shall be suspended until such requirement is met, and such failure to comply may lead to involuntary termination of the Member's Membership.

Page  10

Section III.  Transition
Manner of Conversion/Exchange.  
The following steps, which constitute the Bank's Plan of Recapitalization for purposes of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended, shall be taken in order to implement the amendment of this Capital Plan effective on the Conversion Date:
		
	1.
	Establish Dates.  Following Finance Agency approval of the amendment to this Capital Plan, the Bank will establish the Conversion Date, and notify all Holders of the Conversion Date. Holders shall be notified by the Bank of the Conversion Date no later than 5 days prior to the Conversion Date.

		
	2.
	Conversion of Current Stock to Class B Stock.  On the Conversion Date, all of the outstanding Current Stock of the Bank shall be converted automatically to Class B Stock of equal par value without any action on the part of the Holders.  The Bank will reflect the conversion by appropriate book entries. 

		
	3.
	Members in the Process of Withdrawing from Membership.  Any Member that has filed its written notice to withdraw from Membership with the Bank prior to the Conversion Date shall have its Current Stock converted to Class B Stock in accordance with this Capital Plan, and the effective date of withdrawal established pursuant to 12 C.F.R. 925.26 shall remain unchanged.

Page  11

Section IV.  Classes of Stock
A.    General.  
Except when issued as dividends to Holders in accordance with Section IV(B)(4), Stock shall be issued only to Members and may be held only by Members and their transferees in accordance with Section IV(B)(9), and is tradable only between the Bank and its Members.  Stock shall be issued by the Bank in accordance with 12 C.F.R. 931.2 of the Regulations. 
		
	B.
	Rights, Terms and Preferences.  

Terms and Preferences.  The terms and preferential rights of stockholders are as follows:
		
	1.
	Ownership.  The retained earnings, surplus, undivided profits, and equity reserves, if any, of the Bank are owned by the Holders of Class B Stock proportionate to the total par value of any outstanding shares of Class B Stock; provided, however, that Holders have no right to receive any portion of these items except through the declaration of a dividend by the Board of Directors or through liquidation of the Bank.

		
	2.
	Dividends.  At the discretion of the Board of Directors and subject to the terms and conditions set forth herein and in the Bank Act or the Regulations, dividends may from time to time (quarterly or otherwise) be declared and paid on Class A Stock and Class B Stock. Stock dividends are non-cumulative with respect to payment obligation.  Any dividend on Class A Stock shall be paid equally on all Class A Stock and any dividend on Class B Stock shall be paid equally on all Class B Stock.  Dividends may be paid in the form of cash or stock.  Dividends shall be paid to a Holder based on the average number of shares of Stock actually owned by the Holder during the period for which the dividend has been declared. In no event will the Board of Directors declare or pay any dividend on its Class A Stock or Class B Stock if after doing so it would fail to meet any of its minimum capital requirements or if the Board of Directors determines in its discretion that to do so would create a safety and soundness issue for the Bank. No dividend shall be declared or paid except out of previously retained earnings or current net earnings, as determined in accordance with GAAP, and in accordance with the requirements set forth in the Bank Act or the Regulations. For purposes of this Section IV(B)(2), net earnings shall equal net income under GAAP, plus or minus any adjustments as authorized or required by the Finance Agency.

		
	3.
	Dividend Rate.  The dividend rate shall be determined by the Board of Directors in its discretion at such time as a dividend is declared. The 

    

Page  12

dividend rate that is declared on Class A Stock may differ from the dividend rate declared on Class B Stock. 
		
	4.
	Form of Payment.  Holders of Class A Stock shall receive dividend payments with respect to such Class A Stock in the form of cash or Class A Stock. Holders of Class B Stock shall receive dividend payments with respect to such Class B Stock in the form of cash or Class B Stock. The Board of Directors shall determine the form of payment of dividends on Stock.  All dividend payments, with respect to such class of Stock, shall be pro rata as to both amount and character.

		
	5.
	Rights of Holders in the Event of Liquidation, Merger or Consolidation of the Bank.  Subject to applicable law and Regulations, which could modify, restrict or eliminate any rights set forth in this Section, in the event of liquidation, merger or other consolidation of the Bank, the Holders of Class A Stock and Class B Stock shall be entitled to receive the par value of their Class A Stock and Class B Stock plus any declared but unpaid dividends on a pari passu basis, provided that payment obligations to the Bank's creditors have been fully satisfied. The Holders of Class B Stock shall thereafter be entitled to receive the retained earnings, surplus, undivided profits and equity reserves, if any, provided that payment obligations to the Bank's creditors have been fully satisfied.

		
	6.
	Repurchase at Discretion of Bank.

		
	a.
	Subject to the provisions of 12 C.F.R. 931.8(a), the Bank may elect to repurchase at any time and at par, Excess Stock; provided, however, that the Bank must give five (5) Business Days prior written notice of any such repurchase by the Bank.  Said notice shall specify the class of Stock and the number of shares to be repurchased.  In no event will the Bank make any such repurchase if such repurchase would cause the Bank to fail any minimum capital requirement set forth in applicable law or Regulations or cause the seller to fail to satisfy its Total Stock Purchase Requirement.  The Bank will not repurchase any Excess Stock which is Class B Stock unless the Holder has no Class A Stock outstanding that could be repurchased as Excess Stock.

		
	b.
	A Holder who receives written notice from the Bank of the Bank's intention to repurchase the Holder's shares of Excess Stock shall be permitted to specify by written notice to the Bank, delivered at least one (1) Business Day prior to the date on which the repurchase is to be finalized, the particular shares that are the subject of the repurchase.  Such notice shall identify the particular shares that are subject to repurchase by reference to the number and class of Stock, 

Page  13

and specifying the date and manner in which such shares were acquired (i.e. whether by purchase at par value or as a stock distribution or dividend from the Bank).  If a Holder fails to timely deliver written notice to the Bank identifying the shares to be repurchased, the shares of the Holder's Stock subject to repurchase within a particular class shall be determined using a first-acquired, first-repurchased method of identification. 
		
	7.
	Redemption at Member Request.

		
	a.
	Subject to the restrictions set forth below and in 12 CFR 931.8(a), Class A Stock shares are redeemable for cash at par value at the request of the Holder following six (6) months prior written notice to the Bank of such redemption request and Class B Stock shares are redeemable for cash at par value at the request of the Holder following five (5) years prior written notice to the Bank of such redemption request; provided, however, that a Holder shall not have more than one notice of redemption outstanding at one time with respect to the same shares of Stock.  The applicable notice period shall begin on the date that written notice of the redemption request is received by the Bank.  In accordance with Section IV(B)(6) and prior to the expiration of the applicable redemption period, the Bank has the right in its sole discretion, but not the obligation, upon five (5) Business Days prior written notice to the Holder, to repurchase at par, any or all of the shares of Excess Stock for which a Holder has provided a redemption notification unless a shorter notice period is agreed to in writing by the affected Holder.  The Bank may suspend redemption of Stock by a Holder if the Bank reasonably believes that the continued redemption of Stock would cause the Bank to fail to meet its minimum capital requirements as set forth in applicable law or Regulations, would prevent the Bank from maintaining adequate capital against a potential risk that may not be adequately reflected in its minimum capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner. In the event the Bank suspends a redemption of Stock, the following provisions shall apply:

		
	i.
	The Bank will notify the Finance Agency in writing within two (2) Business Days of the date of the decision to suspend the redemption of Stock, informing the Finance Agency of the reasons for the suspension and of the strategies and time frames for addressing the conditions that led to the suspension.

		
	ii.
	The Finance Agency may require the Bank to re-institute the redemption of a Holder's Stock.

Page  14

		
	iii.
	The Bank will not repurchase any Stock without the written permission of the Finance Agency during any period in which the Bank has suspended redemption of Stock under this Section.

		
	iv.
	The Bank will not charge a Redemption Cancellation Fee if Stock is not redeemed due to the suspension of Stock redemptions under this Section.

		
	b.
	A Holder who provides written notice to the Bank of its intention to redeem Stock pursuant to this Section shall identify in that written notice the particular shares that are the subject of that redemption request by reference to the class of Stock, the number of shares in that class, the date acquired, and the manner in which the shares subject to notice were acquired (i.e. whether by purchase at par value or as a stock distribution or dividend by the Bank).  Failure to identify the class of Stock and number of shares in that class to be redeemed shall render the notice invalid.  If a Holder fails to identify the specific shares to be redeemed by reference to the date and manner in which the shares were acquired, the shares of the Holder's Stock subject to redemption within a particular class shall be determined using a first-acquired, first-redeemed method of identification.  

		
	c.
	The Stock of a Holder will not be redeemed if such redemption would cause the Holder to fail to satisfy its Total Stock Purchase Requirement.  In the event that a redemption would cause a Holder to fail to satisfy its Total Stock Purchase Requirement on the redemption date, such portion of the request that causes the Holder to fail its Total Stock Purchase Requirement will be cancelled by the Bank five (5) Business Days following the expiration of such redemption period, and the Redemption Cancellation Fee will apply to the cancelled portion of the request.

		
	d.
	A Holder that previously had notified the Bank in writing of its intent to redeem some or all of its Stock, and that subsequently decides to cancel its redemption request before the completion of the applicable notification period, shall do so by providing written notice to the Bank of its intent to cancel its redemption.  Said notice shall include a copy of the redemption request and shall specify the particular shares that are subject to the notice to cancel the redemption request by reference to the class of Stock, the number of shares in that class, and if applicable, the date acquired, and the manner in which the shares subject to the notice were acquired.  Failure to identify accurately the shares of Stock that are subject to 

Page  15

the notice to cancel the redemption request shall render such notice invalid.  If a Holder cancels a redemption request, the Bank shall impose a Redemption Cancellation Fee equal to the applicable amount shown in the following table; provided, however, that the Board of Directors may waive the imposition of such fee if it has a bona fide business purpose for doing so and the waiver is consistent with Section 7(j) of the Bank Act. If a Redemption Cancellation Fee is imposed by the Bank, the Bank shall notify the Holder of the amount of the fee that is imposed.
    

	
		
	Cancellation of Redemption Request
Occurs During:
	Maximum Cancellation Fee

	Year 1
	20% of dividends received during the
time the request was outstanding

	Year 2
	Year 1 fee plus 40% of the dividends
received during the second year the 
request was outstanding

	Year 3
	Year 2 fee plus 60% of the dividends
received during the third year the 
request was outstanding

	Year 4
	Year 3 fee plus 80% of the dividends
received during the fourth year the 
request was outstanding

	Year 5
	Year 4 fee plus 100% of the dividends
received during the fifth year the 
request was outstanding

		
	e.
	In the event the Bank does impose such a Redemption Cancellation Fee, the Holder, within ten (10) business days from the date of mailing by the Bank to the Holder of written notice that sets forth the amount of the fee, may provide written notice of its intent to revoke the cancellation and to proceed with the redemption of the Stock subject to the redemption request in accordance with the original redemption timetable, in which event no Redemption Cancellation Fee shall be imposed.

		
	f.
	The Bank may retain the proceeds of redemption by a Holder of Stock as additional collateral if the Bank reasonably determines that there is an existing or anticipated collateral deficiency related to any obligations owed by the Holder to the Bank and the Holder has failed to deliver additional collateral to resolve the existing or 

Page  16

anticipated collateral deficiency to the Bank's satisfaction, until all such obligations have been satisfied or the anticipated deficiency is resolved to the Bank's satisfaction.
		
	8.
	Voting Rights.  Holders will have the right to vote their Stock in elections of the Bank's Board of Directors pursuant to applicable law and Regulations.

		
	9.
	Transferability.  

		
	a.
	Except as set forth herein, a Holder may not transfer Stock to any other person or entity.

		
	b.
	A Holder may transfer at par value the Excess Stock held by that Holder to a Member. 

		
	c.
	In the event of a merger or consolidation of two or more Members, the Stock of the disappearing Member or Members may be transferred at par value to the surviving or consolidated Member.

		
	d.
	Notwithstanding any other provision of this Capital Plan, (i) in the event of a proposed merger of a Member into a non-Member in which the non-Member will be the successor institution, a Member, prior to such proposed merger and with the prior approval of the Bank, may transfer its Activity-Based Member Stock Purchase Requirement, together with the rights and obligations associated with the related Advances and/or Mortgage Purchase Program activities, to a Member that is Affiliated with either the merging Member or the merging non-Member, and (ii) in the event of a merger of a Member into a non-Member in which the non-Member will be the successor institution, the successor non-Member, following such proposed merger and with the prior approval of the Bank, may transfer the Activity-Based Member Stock Purchase Requirement that it has assumed by virtue of the merger with the Member, together with the rights and obligations associated with the related Advances and/or Mortgage Purchase Program activities, to a Member that is Affiliated with the successor non-Member. In addition, any such successor non-Member that holds Stock shall, if requested to do so by the Bank in its discretion, transfer the Activity-Based Member Stock Purchase Requirement that it has assumed by virtue of the merger with the Member, together with the rights and obligations associated with the related Advances and/or Mortgage Purchase Program activities, to a Member that is Affiliated with the successor non-Member, and said transfer must take place no later than 60 days following the request from the Bank. Upon the transfer of Stock pursuant to the preceding d(ii) hereof, the stock redemption 

    

Page  17

period that became applicable to any such Stock by virtue of the merger of the Member into the successor non-Member shall be deemed to be cancelled and inapplicable, as of the date of the transfer of Stock to the successor non-Member pursuant to d(ii) hereof, and the Bank, in its discretion, may impose a cancellation fee in accordance with the amounts set forth in Section IV(B)(7)(d). The Activity-Based Member Stock Purchase Requirement of any Member or non-Member that has been transferred pursuant to this Section shall terminate with respect to the transferor as of the effective date of the transfer. 
		
	a.
	For purposes of this Section IV(B)(9), the term “Affiliated” means to control, to be controlled by, or to be under common control with.

		
	f.
	Each transferor shall give the Bank at least 30 days prior notice of any transfer it intends to make pursuant to this Section, unless this prior notice requirement is waived by the Bank.

		
	g.
	All transfers permitted by this Section shall: (1) be subject to applicable law and Regulations, and the prior approval of the Bank, (2) be subject to the terms, limits and conditions set forth in this Capital Plan, including without limitation the applicable provisions of Section IV(C), and (3) be transferred at par value.

C.    Exchange of Ownership.
		
	1.
	Consolidation of Members.  Upon a merger or consolidation of two or more Members, the Total Stock Purchase Requirement will be calculated for the surviving or consolidated institution using data as of the effective date of the merger or consolidation.  Excess Stock, if any, of the surviving or consolidated institution will be subject to the other terms and conditions set forth in this Capital Plan.   

		
	1.
	Withdrawals and Terminations of Membership.

		
	a.
	Law and Regulations.  All withdrawals and terminations of Membership shall be subject to applicable law and Regulations.

		
	a.
	Disposition of capital of a terminated Member.  In the event  that a Member withdraws from Membership or has had its Membership terminated and on the effective date of such withdrawal or termination remains indebted to the Bank or has outstanding business transactions with the Bank, the Bank shall not redeem or repurchase any Stock that is required by any Activity-Based Member Stock Purchase Requirement of such Member, in accordance with the provisions hereof, until such indebtedness and business .

Page  18

transactions have been extinguished or settled, including any fees relating to the prepayment of Advances.
		
	c.
	Stock redemption notices of a terminated Member.

		
	i.
	Voluntary withdrawal of Membership.  The receipt by the Bank of a Member's notice of withdrawal of Membership shall commence the redemption period of all Stock held by that Member that is not already subject to a pending request for redemption.  In the case of an institution the Membership of which has been terminated as a result of a merger or consolidation into a nonmember or into a member of another Federal Home Loan Bank, the applicable stock redemption period for any Stock that is not subject to a pending notice of redemption shall be deemed to commence on the date on which the charter of the Member is cancelled.

		
	ii.
	Involuntary termination of Membership.  In the event of an involuntary termination of a Member's Membership, the redemption period for all Stock owned by the Member and not already subject to a pending request for redemption, shall commence on the date that the Bank terminates the institution's Membership.

Page  19

Section V.  Retained Earnings

		
	A.
	Implementation.  

The provisions of this Section V shall become effective upon, and only upon, the occurrence of the Interim Capital Plan Amendment Implementation Date.  Until the Restriction Termination Date, in the event of any conflict between this Section V and the remainder of this Capital Plan, the applicable terms of this Section V shall govern and shall be interpreted in a manner such that the restrictions set forth herein are supplementary to, and not in lieu of, the requirements of the remainder of this Capital Plan.
		
	B.
	Definitions Applicable to Section V of this Capital Plan.

As used in this Section V, the following terms shall have the meanings set forth below (terms defined in the singular shall have the same meaning when used in the plural and vice versa).  Capitalized terms used in this Section V and not defined below shall have the meanings ascribed to them elsewhere in this Capital Plan.
		
	1.
	”Act” means the Federal Home Loan Bank Act, as amended as of the Effective Date.

		
	2.
	”Adjustment to Prior Net Income” means either an increase, or a decrease, to a prior calendar quarter's Quarterly Net Income subsequent to the date on which any allocation to Restricted Retained Earnings for such calendar quarter was made. 

		
	3.
	“Agreement” means the Joint Capital Enhancement Agreement adopted by the FHLBanks on the Effective Date and amended on the date on which the FHFA has approved the Retained Earnings Capital Plan Amendments for all of the FHLBanks that have issued capital stock pursuant to a capital plan as of the Effective Date. 

		
	4.
	“Allocation Termination Date” means the date the Bank's obligation to make allocations to the Restricted Retained Earnings account is terminated permanently.  That date is determined pursuant to Section V(E) of this Capital Plan.

		
	5.
	“Automatic Termination Event” means (i) a change in the Act, or another applicable statute, occurring subsequent to the Effective Date, that will have the effect of creating a new, or higher, assessment or taxation on net income or capital of the FHLBanks, or (ii) a change in the Act, another applicable statute, 

Page  20

or the Regulations, occurring subsequent to the Effective Date, that will result in a higher mandatory allocation of an FHLBank's Quarterly Net Income to any Retained Earnings account than the annual amount, or total amount, specified in an FHLBank's capital plan as in effect immediately prior to the Automatic Termination Event.  
		
	6.
	“Automatic Termination Event Declaration Date” means the date specified in Section V(E)(1)(a) or V(E)(1)(b) of this Capital Plan.

		
	7.
	“Bank's Total Consolidated Obligations” means the daily average carrying value for the calendar quarter, excluding the impact of fair value adjustments (i.e., fair value option and hedging adjustments), of the Bank's portion of outstanding System Consolidated Obligations for which it is the primary obligor.

		
	8.
	“Declaration of Automatic Termination” means a signed statement, executed by officers authorized to sign on behalf of each FHLBank that is a signatory to the Agreement, in which at least 2/3 of the then existing FHLBanks declare their concurrence that a specific statutory or regulatory change meets the definition of an Automatic Termination Event.

		
	9.
	“Dividend” means a distribution of cash, other property, or stock to a Stockholder with respect to its holdings of Stock.

		
	10.
	“Dividend Restriction Period” means any calendar quarter: (i) that includes the REFCORP Termination Date, or occurs subsequent to the REFCORP Termination Date; (ii) that occurs prior to an Allocation Termination Date; and (iii) during which the amount of the Bank's Restricted Retained Earnings is less than the amount of the Bank's RREM.  If the amount of the Bank's Restricted Retained Earnings is at least equal to the amount of the Bank's RREM, and subsequently the Bank's Restricted Retained Earnings becomes less than its RREM, the Bank shall be deemed to be in a Dividend Restriction Period (unless an Allocation Termination Date has occurred).

		
	11.
	“Effective Date” means February 28, 2011.  

		
	12.
	“FHFA” means the Federal Housing Finance Agency, or any successor thereto.

		
	13.
	“FHLBank” means a Federal Home Loan Bank chartered under the Act.

		
	14.
	“Interim Capital Plan Amendment Implementation Date” means 31 days after the date by which the FHFA has approved a capital plan amendment substantially the same as the Retained Earnings Capital Plan Amendments for all of the FHLBanks that have issued Stock pursuant to a capital plan as of the Effective Date. 

Page  21

		
	15.
	“Net Loss” means that the Quarterly Net Income of the Bank is negative, or that the annual net income of the Bank calculated on the same basis is negative.

		
	16.
	“Quarterly Net Income” means the amount of net income of an FHLBank for a calendar quarter calculated in accordance with GAAP, after deducting the FHLBank's required contributions for that quarter to the Affordable Housing Program under section 10(j) of the Act, as reported in the Bank's quarterly and annual financial statements filed with the Securities and Exchange Commission. 

		
	17.
	“REFCORP Termination Date” means the last day of the calendar quarter in which the FHLBanks' final regular payments are made on obligations to REFCORP in accordance with Section 997.5 of the Regulations and Section 21B(f) of the Act.

		
	18.
	“Regular Contribution Amount” means the result of (i) 20 percent of Quarterly Net Income; plus (ii) 20 percent of a positive Adjustment to Prior Net Income for any prior calendar quarter that includes the REFCORP Termination Date, or occurred subsequent to the REFCORP Termination Date, to the extent such adjustment has not yet been made in the current calendar quarter; minus (iii) 20 percent of the absolute value of a negative Adjustment to Prior Net Income for any prior calendar quarter that includes the REFCORP Termination Date, or occurred subsequent to the REFCORP Termination Date, to the extent such adjustment has not yet been made in the current calendar quarter. 

		
	19.
	“Regulations” mean: (i) the rules and regulations of the Federal Housing Finance Board (except to the extent that they may be modified, terminated, set aside or superseded by the Director of the FHFA) in effect on the Effective Date; and (ii) the rules and regulations of the FHFA, as amended from time to time.

		
	20.
	“Restricted Retained Earnings” means the cumulative amount of Quarterly Net Income and Adjustments to Prior Net Income allocated to the Bank's Retained Earnings account restricted pursuant to the Retained Earnings Capital Plan Amendment, and does not include amounts retained in: (i) any accounts in existence at the Bank on the Effective Date; or (ii) any other Retained Earnings accounts subject to restrictions that are not part of the terms of the Retained Earnings Capital Plan Amendment.

		
	21.
	“Restricted Retained Earnings Minimum” (“RREM”) means a level of Restricted Retained Earnings calculated as of the last day of each calendar quarter equal to one percent of the Bank's Total Consolidated Obligations.

		
	22.
	“Restriction Termination Date” means the date the restriction on the Bank paying Dividends out of the Restricted Retained Earnings account, or otherwise 

Page  22

reallocating funds from the Restricted Retained Earnings account, is terminated permanently.  That date is determined pursuant to Section V(E) of this Capital Plan.  
		
	23.
	“Retained Earnings” means the retained earnings of an FHLBank calculated pursuant to GAAP.

		
	24.
	“Retained Earnings Capital Plan Amendment” means the amendment to this Capital Plan, made a part thereof, adopted effective on the Interim Capital Plan Amendment Implementation Date, adding Section V to this Capital Plan and similar amendments to the capital plans of the other FHLBanks that have issued capital stock pursuant to a capital plan as of the Effective Date.

		
	25.
	“Special Contribution Amount” means the result of: (i) 50 percent of Quarterly Net Income; plus (ii) 50 percent of a positive Adjustment to Prior Net Income for any prior calendar quarter that includes the REFCORP Termination Date, or occurred subsequent to the REFCORP Termination Date, to the extent such adjustment has not yet been made in the current calendar quarter; minus (iii) 50 percent of the absolute value of a negative Adjustment to Prior Net Income for any prior calendar quarter that includes the REFCORP Termination Date, or occurred subsequent to the REFCORP Termination Date, to the extent such adjustment has not yet been made by the current calendar quarter. 

		
	26.
	“Stockholder” means: (i) an institution that has been approved for membership in the Bank, and has purchased Stock in accordance with the Regulations; (ii) a former member of the Bank that continues to own Stock; or (iii) a successor to an entity that was a member of the Bank that continues to own Stock.

		
	27.
	“System Consolidated Obligation” means any bond, debenture, or note authorized under the Regulations to be issued jointly by the FHLBanks pursuant to Section 11(a) of the Act, as amended, or any bond or note previously issued by the Federal Housing Finance Board on behalf of all FHLBanks pursuant to Section 11(c) of the Act, on which the FHLBanks are jointly and severally liable, or any other instrument issued through the Office of Finance, or any successor thereto, under the Act, that is a joint and several liability of all the FHLBanks. 

		
	28.
	“Total Capital” means Retained Earnings, the amount paid in for Stock, the amount of any general allowance for losses, and the amount of other instruments that the FHFA has determined to be available to absorb losses incurred by the Bank.

Page  23

		
	C.
	Establishment of Restricted Retained Earnings.

		
	1.
	Segregation of Account.  No later than the REFCORP Termination Date, the Bank shall establish an account in its official books and records in which to allocate its Restricted Retained Earnings, with such account being segregated on its books and records from the Bank's Retained Earnings that are not Restricted Retained Earnings for purposes of tracking the accumulation of Restricted Retained Earnings and enforcing the restrictions on the use of the Restricted Retained Earnings imposed in the Retained Earnings Capital Plan Amendment.

		
	2.
	Funding of Account.

		
	a.
	Date on which Allocation Begins.  The Bank shall allocate to its Restricted Retained Earnings account an amount at least equal to the Regular Contribution Amount beginning on the REFCORP Termination Date.  The Bank shall allocate amounts to the Restricted Retained Earnings account only through contributions from its Quarterly Net Income or Adjustments to Prior Net Income occurring on or after the REFCORP Termination Date, but nothing in the Retained Earnings Capital Plan Amendment shall prevent the Bank from allocating a greater percentage of its Quarterly Net Income or positive Adjustment to Prior Net Income to its Restricted Retained Earnings account than the percentages set forth in the Retained Earning Capital Plan Amendment.

		
	b.
	Ongoing Allocation.  During any Dividend Restriction Period that occurs before the Allocation Termination Date, the Bank shall continue to allocate its Regular Contribution Amount (or when and if required under Section V(C)(2)(d) below, its Special Contribution Amount) to its Restricted Retained Earnings account.  

		
	c.
	Treatment of Quarterly Net Losses and Annual Net Losses.  In the event the Bank sustains a Net Loss for a calendar quarter, the following shall apply: (i) to the extent that its cumulative calendar year-to-date net income is positive at the end of such quarter, the Bank may decrease the amount of its Restricted Retained Earnings such that the cumulative addition to the Restricted Retained Earnings account calendar year-to-date at the end of such quarter is equal to 20 percent of the amount of such cumulative calendar year-to-date net income; (ii) to the extent that its cumulative calendar year-to-date net income is negative at the end of such quarter (a) the Bank may decrease the amount of its Restricted Retained Earnings account such that the cumulative addition calendar year-to-date to the Restricted Retained Earnings at the end of such quarter is zero, and (b) the Bank shall apply any remaining portion of the 

Page  24

Net Loss for the calendar quarter first to reduce Retained Earnings that are not Restricted Retained Earnings until such Retained Earnings are reduced to zero, and thereafter may apply any remaining portion of the Net Loss for the calendar quarter to reduce Restricted Retained Earnings; and (iii) for any subsequent calendar quarter in the same calendar year, the Bank may decrease the amount of its quarterly allocation to its Restricted Retained Earnings account in that subsequent calendar quarter such that the cumulative addition to the Restricted Retained Earnings account calendar year-to-date is equal to 20 percent of the amount of such cumulative calendar year-to-date net income.
In the event the Bank sustains a Net Loss for a calendar year, any such Net Loss first shall be applied to reduce Retained Earnings that are not Restricted Retained Earnings until such Retained Earnings are reduced to zero, and thereafter any remaining portion of the Net Loss for the calendar year may be applied to reduce Restricted Retained Earnings.
		
	d.
	Funding at the Special Contribution Amount.  If during a Dividend Restriction Period, the amount of the Bank's Restricted Retained Earnings decreases in any calendar quarter, except as provided in Sections V(C)(2)(c)(i) and (ii)(a) above, the Bank shall allocate the Special Contribution Amount to its Restricted Retained Earnings account beginning at the following calendar quarter-end (except as provided in the last sentence of this subsection).  Thereafter, the Bank shall continue to allocate the Special Contribution Amount to its Restricted Retained Earnings account until the cumulative difference between: (i) the allocations made using the Special Contribution Amount; and (ii) the allocations that would have been made if the Regular Contribution Amount applied, is equal to the amount of the prior decrease in the amount of its Restricted Retained Earnings account arising from the application of Section V(C)(2)(c)(ii)(b).  If at any calendar quarter-end the allocation of the Special Contribution Amount would result in a cumulative allocation in excess of such prior decrease in the amount of Restricted Retained Earnings: (i) the Bank may allocate such percentage of Quarterly Net Income to the Restricted Retained Earnings account that shall exactly restore the amount of the prior decrease, plus the amount of the Regular Contribution Amount for that quarter; and (ii) the Bank in subsequent quarters shall revert to paying at least the Regular Contribution Amount.

		
	e.
	Release of Restricted Retained Earnings.  If the Bank's RREM decreases from time to time due to fluctuations in the Bank's Total Consolidated Obligations, amounts in the Restricted Retained Earnings account in excess of 150 percent of the RREM may be released by the Bank from the restrictions otherwise imposed on such amounts pursuant 

Page  25

to the provisions of the Retained Earnings Capital Plan Amendment, and reallocated to its Retained Earnings that are not Restricted Retained Earnings.  Until the Restriction Termination Date, the Bank may not otherwise reallocate amounts in its Restricted Retained Earnings account (provided that a reduction in the Restricted Retained Earnings account following a Net Loss pursuant to Section V(C)(2)(c) is not a reallocation).  
		
	f.
	No Effect on Rights of Shareholders as Owners of Retained Earnings.  In the event of the liquidation of the Bank, or a taking of the Bank's Retained Earnings by any future federal action, nothing in the Retained Earnings Capital Plan Amendment shall change the rights of the holders of the Bank's Class B Stock that confer ownership of Retained Earnings, including Restricted Retained Earnings, as granted under section 6(h) of the Act. 

		
	D.
	Limitations on Dividends, Stock Repurchases and Stock Redemptions.

		
	1.
	General Rule on Dividends.  From the REFCORP Termination Date through the Restriction Termination Date, the Bank may not pay Dividends, or otherwise reallocate funds, out of Restricted Retained Earnings.  During a Dividend Restriction Period, the Bank may not pay Dividends out of the amount of Quarterly Net Income required to be allocated to Restricted Retained Earnings.

		
	2.
	Limitations on Repurchase and Redemption.  From the REFCORP Termination Date through the Restriction Termination Date, the Bank shall not engage in a repurchase or redemption transaction if following such transaction the Bank's Total Capital as reported to the FHFA falls below the Bank's aggregate paid-in amount of Stock.

		
	E.
	Termination of Retained Earnings Capital Plan Amendment Obligations.

		
	1.
	Notice of Automatic Termination Event.

		
	a.
	Action by FHLBanks.  If the Bank desires to assert that an Automatic Termination Event has occurred (or will occur on the effective date of a change in a statute or the Regulations), the Bank shall provide prompt written notice to all of the other FHLBanks (and provide a copy to the FHFA) identifying the specific statutory or regulatory change that is the basis for the assertion.  For the purposes of this section, 'prompt written notice' means notice delivered no later than 90 calendar days subsequent to: (1) the date the specific statutory change takes effect; or (2) the date an 

Page  26

interim final rule or final rule effecting the specific regulatory change is published in the Federal Register.  
If within 60 calendar days of transmission of such a written notice to all of the other FHLBanks, at least 2/3 of the then existing FHLBanks (including the Bank) execute a Declaration of Automatic Termination concurring that the specific statutory or regulatory change identified in the written notice constitutes an Automatic Termination Event, then the Declaration of Automatic Termination shall be delivered by the Bank to the FHFA within 10 calendar days of the date that the Declaration of Automatic Termination is executed.  After the expiration of a 60 calendar day period that begins when the Declaration of Automatic Termination is delivered to the FHFA, an Automatic Termination Event Declaration Date shall be deemed to occur (except as provided in Section V(E)(1)(c)). 
After the expiration of a 60 calendar day period that begins when the Declaration of Automatic Termination is delivered to the FHFA by another FHLBank pursuant to the terms of its capital plan, an Automatic Termination Event Declaration Date shall also be deemed to occur (except as provided in Section V(E)(1)(c)).
If a Declaration of Automatic Termination concurring that the specific statutory or regulatory change identified in the written notice constitutes an Automatic Termination Event has not been executed by at least the required 2/3 of the then existing FHLBanks within 60 calendar days of transmission of such notice to all of the other FHLBanks, the Bank may request a determination from the FHFA that the specific statutory or regulatory change constitutes an Automatic Termination Event.  Such request must be filed with the FHFA within 10 calendar days after the expiration of the 60 calendar day period that begins upon transmission of the written notice of the basis of the assertion to all of the other FHLBanks.  
		
	b.
	Action by FHFA.  The Bank (or a Notifying Bank) may request a determination from the FHFA that a specific statutory or regulatory change constitutes an Automatic Termination Event, and may claim that an Automatic Termination Event has occurred, or will occur, with respect to a specific statutory or regulatory change only if the Bank has complied with the time limitations and procedures of Section V(E)(1)(a).    

If within 60 calendar days after the Bank delivers such request to the FHFA, or a similar request is delivered by another FHLBank pursuant to its capital plan, the FHFA provides the requesting FHLBank with a written determination that a specific statutory or regulatory change is an Automatic Termination Event, then an Automatic Termination Event Declaration Date shall be deemed to occur as of the expiration of such 60 calendar day period 

Page  27

(except as provided in Section V(E)(1)(c)).  The date of such Automatic Termination Event Declaration Date shall be as of the expiration of such 60 calendar day period (except as provided in Section V(E)(1)(c)) no matter on which day prior to the expiration of the 60 calendar day period the FHFA has provided its written determination.  
If the FHFA fails to make a determination within 60 calendar days after an FHLBank delivers such request to the FHFA, then an Automatic Termination Event Declaration Date shall be deemed to occur as of the date of the expiration of such 60 calendar day period (except as provided in Section V(E)(1)(c)); provided, however, that the FHFA may make a written request for information from that FHLBank, and toll such 60 calendar day period from the date that the FHFA transmits its request until that FHLBank delivers to the FHFA information responsive to its request.  
If within 60 calendar days after an FHLBank delivers to the FHFA a request for determination that a specific statutory or regulatory change constitutes an Automatic Termination Event (or such longer period if the 60 calendar day period is tolled pursuant to the preceding sentence), the FHFA provides that FHLBank with a written determination that a specific statutory or regulatory change is not an Automatic Termination Event, then an Automatic Termination Event shall not have occurred with respect to such change.
		
	c.
	Proviso as to Occurrence of Automatic Termination Event Declaration Date.  In no case under this Section V(e)(1) may an Automatic Termination Event Declaration Date be deemed to occur prior to: (1) the date the specific statutory change takes effect; or (2) the date an interim final rule or final rule effecting the specific regulatory change is published in the Federal Register.

		
	2.
	Notice of Voluntary Termination.  If the FHLBanks terminate the Agreement, then the FHLBanks shall provide written notice to the FHFA that the FHLBanks have voted to terminate the Agreement. 

		
	3.
	Consequences of an Automatic Termination Event or Vote to Terminate the Agreement.

		
	a.
	Consequences of Voluntary Termination.  In the event the FHLBanks deliver written notice to the FHFA that the FHLBanks have voted to terminate the Agreement, then without any further action by the Bank or the FHFA: (i) the date of delivery of such notice shall be an Allocation Termination Date; and (ii) one year from the date of delivery of such notice shall be a Restriction Termination Date.

Page  28

		
	b.
	Consequences of an Automatic Termination Event Declaration Date.  If an Automatic Termination Event Declaration Date has occurred, then without further action by the Bank or the FHFA: (i) the date of the Automatic Termination Event Declaration Date shall be an Allocation Termination Date; and (ii) one year from the date of the Automatic Termination Event Declaration Date shall be a Restriction Termination Date.  

		
	c.
	Deletion of Operative Provisions of Retained Earnings Capital Plan Amendment.  Without any further action by the Bank or the FHFA, on the Restriction Termination Date, Section V of this Capital Plan shall be deleted.

Page  29Exhibit 10.1 - FHLBC Board of Directors Compensation Policy (10-1-12)

FEDERAL HOME LOAN BANK OF CHICAGO
2012 BOARD OF DIRECTORS COMPENSATION POLICY 

[Revised as of October 1, 2012]

GENERAL

 Section 1261.21 of the Rules and Regulations of the Federal Housing Finance Agency requires the Board of Directors to adopt a written policy to provide for the payment of reasonable compensation to Bank Directors for the performance of their duties as members of the Board of Directors. Pursuant to that regulation, this 2012 Board of Directors' Compensation Policy ("Policy") sets forth the activities and functions for which attendance is necessary and appropriate and may be compensated, and sets forth the methodology for determining the amount of compensation to be paid. This Policy shall be reviewed annually by the Human Resources & Compensation Committee. 

COMPENSATION POLICY METHODOLOGY

The goal of the Policy is to appropriately compensate the Directors for actual attendance and participation at the meetings of the Board of Directors and the committees of the Board and also for work performed on behalf of the Board of Directors and the Bank apart from such meetings.  

The compensation provided in this Policy was determined after a review of comparative compensation studies by third parties with expertise in the compensation of directors (McLagan "Directors Compensation Analysis" September 2010) and the compensation paid to directors of other Federal Home Loan Banks in 2012.

PAYMENT AND FEE STRUCTURE

Members of the Board will have the following maximum annual compensation, as further calculated pursuant to this Policy.

	
			
	Position
	Max. Compensation
	Position Duties

	Chairman
	$90,000
	Preside at the meetings of the Board of Directors and the Executive & Governance Committee and attend other committee meetings.  Represent the Bank at the Council of FHLBs. 

	Vice Chairman
	$80,000
	Attend meetings of the Board and other committee meetings, as well as chair meetings of the Board in the Chairman's absence.  Represent the Bank at the Council of FHLBs.

	Audit Committee Chairman
	$80,000
	Attend meetings of the Board and other committee meetings, as well as chair meetings of the Audit Committee.

	Committee Chairman
	$75,000
	Attend meetings of the Board and other committee meetings, as well as chair meetings of their respective committees.

	Director
	$70,000
	Attend meetings of the Board and meetings of committees to which such Director is appointed.

QUARTERLY RETAINER 

In order to compensate Directors for their time while serving as Directors outside of normal Committee and Board meetings, Directors shall be paid a quarterly retainer, at the end of each quarter. The retainer shall compensate Directors for their time preparing for meetings, attending Bank-sponsored member meetings and events, attending Community Investment Advisory Council meetings, attending FHLB System meetings, Board training sessions, and other activities outside of normal Committee and Board meetings. The amount of the quarterly retainer varies depending on the responsibilities of the Director as set forth below: 

		
	Chairman
	$11,250

		
	Vice Chairman
	$10,000

		
	Audit Committee Chairman
	$10,000

		
	Committee Chairman
	$9,375 

		
	Director
	$8,750 

BOARD MEETING FEES 

In order to compensate Directors for their time while serving as Directors, each Director who attends a meeting of the full Board of Directors or a Committee meeting (including participating by telephone) shall be paid a Board Meeting Attendance Fee. The amount of the Board Meeting Attendance Fee varies depending on the role served at the meeting. 

Board Meeting Attendance Fees shall be calculated for each director as follows:

	
			
	1/2 the director's total 2012 maximum compensation (based on their role)
	÷
	75% of the total attendance fee opportunities for 2012

An “attendance fee opportunity” means a day on the 2012 Board Schedule where the full Board of Directors and/or a Committee on which the director serves is scheduled to meet.  On a day where more than one meeting occurs, only one Board Meeting Attendance Fee shall be paid.

No additional meeting fees will be paid to any Director for their participation in any other special meetings or events on behalf of the Board of Directors or the Bank.

EXPENSES

Each Director will be reimbursed for necessary and reasonable travel, subsistence and other related expenses incurred in connection with the performance of their official duties (including telephonic meetings or in-person meetings called at the request of the Federal Housing Finance Agency or other FHLB System body) as are payable to senior officers of the Bank under the Bank's Employee Reimbursement Policy.

The Bank will pay the transportation and other reasonable travel expenses of one guest of a director to attend a Board meeting only as specified in advance by the Bank.  It is the director's responsibility to pay the transportation and other travel expenses of a guest that accompanies such director to any other Board meeting.

PERFORMANCE AND ATTENDANCE STANDARDS

The following performance criteria shall be considered in assessing a director's performance:

		
	*
	Did the director attend the required number of Board and Committee meetings in the specific assessment period?

		
	*
	Did the director attend most of his or her scheduled meetings in person?

		
	*
	Was the director prepared for meetings?

		
	*
	Did the director demonstrate knowledge of Bank policies and other relevant governance documents?

		
	*
	Did the director demonstrate understanding of the FHLB System?

		
	*
	Did the director actively participate in meetings?

		
	*
	Did the director participate in education, training and FHLB System events during the specific assessment period?

		
	*
	Did the director make decisions or suggestions that support the Bank's mission and vision?

		
	*
	Did the director support Board decisions, even if he or she did not agree with the decision?

		
	*
	Did the director maintain confidentiality of the discussions at meetings? 

		
	*
	Did the director participate in Bank-related events (i.e., FHLB System meetings, member meetings, Bank-sponsored conferences, etc.)?

		
	*
	If a new director, did the director participate in all new director training and educational opportunities?

Each director shall fulfill his or her responsibilities by regularly and consistently attending meetings of the Board of Directors and any assigned committees.  The Board's attendance standard shall be to attend in person or by telephone at least 75% of the total scheduled meetings of the Board and assigned committees, measured annually.

The Human Resources & Compensation Committee of the Board of Directors shall withhold the fourth quarter retainer payment to any Director who does not fulfill his or her responsibilities by failing to meet the majority of the performance criteria set forth above or by failing to attend 75% of the meetings of the Board of Directors and any assigned committees.

The Human Resources & Compensation Committee may designate a director's absence for a good cause from a scheduled meeting as an “excused absence.”  An “excused absence” shall be recorded as a director in attendance for the 75% attendance standard but such director shall not be paid a meeting fee.  Examples of what may be an “excused absence” include a medical condition of the director or their immediate family and an unexpected business conflict pertaining to the directors' primary business.

COMPLIANCE WITH LEGAL REQUIREMENTS

This Policy shall be in compliance with Section 7(i) of the Federal Home Loan Bank Act (12 U.S.C. §1427(i)), as amended, and any regulations issued by the Federal Housing Finance Agency, including 12 C.F.R. Part 1261.

TRANSITIONAL PROVISION

The provisions of this revised Policy shall be applied commencing as of October 1, 2012.  Thus, there will be a fourth quarter retainer payment (payable in early 2013) subject to performance and attendance criteria and Meeting Attendance Fees.  Any payments for the fourth quarter 2012 shall be subject to the 2012 maximum compensation amounts.

EFFECTIVE DATE

This revised 2012 Board of Directors Compensation Policy is effective as of October 1, 2012.

APPROVED BY THE BOARD
OF DIRECTORS
            
Dated:  September 25, 2012

/s/ Peter E. Gutzmer                
Its Corporate Secretary

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