12/31/2019 12/31/2018
Par value of consolidated obligations of FHLBank Topeka $ 59,481
$ 44,623

Par value of consolidated obligations of all FHLBanks $ 1,025,895
$ 1,031,617

FHFA regulations provide that we must maintain aggregate assets of the following types, free from any lien or pledge, in an amount at least equal to the amount of our consolidated obligations outstanding:


▪	~~Cash;~~


▪	~~Obligations of, or fully guaranteed by, the U.S. government;~~


▪	~~Secured advances;~~


▪	~~Mortgages that have any guaranty, insurance or commitment from the U.S. government or any agency of the U.S. government; and~~


▪	Investments described in Section 16(a) of the Bank Act, which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.

▪Cash;

▪Obligations of, or fully guaranteed by, the U.S. government;

▪Secured advances;

▪Mortgages that have any guaranty, insurance or commitment from the U.S. government or any agency of the U.S. government; and

▪Investments described in Section 16(a) of the Bank Act, which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.

Table 42 illustrates our compliance with the FHFA’s regulations for maintaining aggregate assets at least equal to the amount of consolidated obligations outstanding as of December 31, ~~2019~~2021 and ~~2018~~2020 (dollar amounts in thousands):

Table 42


	12/31/2021		12/31/2020
Total non-pledged assets	$	47,781,713	$	52,352,049
Total carrying value of consolidated obligations	$	44,199,598	$	48,530,494
Ratio of non-pledged assets to consolidated obligations	1.08		1.08

12/31/2019 12/31/2018
Total non-pledged assets $ 63,017,801
$ 47,568,214
Total carrying value of consolidated obligations $ 59,461,225
$ 44,574,726
Ratio of non-pledged assets to consolidated obligations 1.06
1.07

The Office of Finance has responsibility for facilitating and executing the issuance of the consolidated obligations on behalf of the FHLBanks. It also prepares the FHLBanks’ Combined Quarterly and Annual Financial Reports, services all outstanding debt, serves as a source of information for the FHLBanks on capital market developments and manages the FHLBanks’ relationship with the ~~NRSROs~~nationally recognized statistical ratings organizations (NRSRO) with respect to ratings on consolidated obligations. In addition, the Office of Finance administers two tax-exempt government corporations, the Resolution Funding Corporation and the Financing Corporation, which were established as a result of the savings and loan crisis of the 1980s.

Consolidated Obligation Bonds: Consolidated obligation bonds are primarily used to satisfy our ~~term~~ funding needs. Typically, the maturities of these bonds range from less than one year to 30 years, but the maturities are not subject to any statutory or regulatory limit. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with approved underwriters or selling group members.

Consolidated obligation bonds generally are issued with either fixed or variable rate payment terms that use a variety of standardized indices for interest rate resets including, but not limited to, ~~LIBOR, Secured Overnight Financing Rate (SOFR), Constant Maturity Swap, U.S. Prime~~SOFR and Three-Month U.S. Treasury Bill Auction Yield. In addition, to meet the specific needs of certain investors in consolidated obligations, both fixed and variable rate bonds may also contain certain embedded features, which result in complex coupon payment terms and call features. Normally, when such a complex consolidated obligation bond is issued, we simultaneously enter into a derivative containing mirror or offsetting features to synthetically convert the terms of the complex bond to a simple variable rate callable bond tied to one of the standardized indices. We also simultaneously enter into derivatives containing offsetting features to synthetically convert the terms of some of our fixed rate callable and bullet bonds and floating rate bonds to a simple variable rate callable or bullet bond tied to one of the standardized indices.

Consolidated Obligation Discount Notes: The Office of Finance also sells consolidated obligation discount notes on behalf of the FHLBanks that generally are used to meet short-term funding needs. These securities have maturities up to one year and are offered daily through certain securities dealers in a discount note selling group. In addition to the daily offerings of discount notes, the FHLBanks auction discount notes with fixed maturity dates ranging from 4 to 26 weeks through competitive auctions held twice a week utilizing the discount note selling group. The amount of discount notes sold through the auctions varies based upon market conditions and/or on the funding needs of the FHLBanks. Discount notes are sold at a discount and mature at par.

Derivatives

FHLBank’s Risk Management Policy (RMP) establishes guidelines for our use of derivatives. Interest rate swaps, ~~swaptions,~~ interest rate cap and floor agreements, calls, puts, ~~futures, forward contracts,~~ and other derivatives can be used as part of our interest rate risk management and funding strategies. This policy, along with FHFA regulations, prohibits trading in, or the speculative use of, derivatives and limits credit risk to counterparties that arises from derivatives. In general, we have the ability to use derivatives to reduce funding costs for consolidated obligations and to manage other risk elements such as interest rate risk and mortgage prepayment ~~risk, unsecured credit risk, and foreign currency~~ risk.

We use derivatives in our overall interest rate risk management to adjust the interest rate sensitivity of consolidated obligations to approximate more closely the interest rate sensitivity of assets, including advances, investments and mortgage loans, and/or to adjust the interest rate sensitivity of advances, investments, and mortgage loans to approximate more closely the interest rate sensitivity of liabilities. We also use derivatives to manage embedded options in assets and liabilities, to hedge the market value of existing assets, liabilities, and anticipated transactions, to hedge the duration risk of prepayable instruments, to mitigate adverse impacts to earnings from the contraction or extension of certain assets (e.g., advances or mortgage assets) and liabilities, and to reduce funding costs as discussed below. Generally, we designate derivatives as a fair value hedge of an underlying financial instrument or firm commitment. Economic hedges are defined as derivatives hedging specific or non-specific underlying assets, liabilities, or firm commitments that do not qualify for hedge accounting, but are acceptable hedging strategies under our RMP for asset/liability management.

We often execute derivatives concurrently with the issuance of consolidated obligation bonds (collectively referred to as swapped consolidated obligation bond transactions) to reduce funding costs or to alter the characteristics of our liabilities to more closely match the characteristics of our assets. At times, we also execute derivatives concurrently with the issuance of consolidated obligation discount notes in order to create synthetic variable rate debt at a cost that is often lower than funding alternatives and comparable variable rate cash instruments issued directly by us. This strategy of issuing consolidated obligations while simultaneously entering into derivatives enables us to more effectively fund our variable rate and short-term fixed rate assets. It also allows us, in some instances, to offer a wider range of advances at more attractive terms than would otherwise be possible. Swapped consolidated obligation transactions depend on price relationships in both the FHLBank consolidated obligation market and the derivatives market, primarily the interest rate swap market. If conditions in these markets change, we may adjust the types or terms of the consolidated obligations issued and derivatives utilized to better match assets, meet customer needs, and/or improve our funding costs.

We purchase interest rate caps with various terms and strike rates to manage embedded interest rate cap risk associated with our variable rate MBS and CMO portfolios. Although these derivatives are valid economic hedges against the option risk of our portfolio of MBS and CMOs, they are not specifically linked to individual investment securities and therefore do not receive fair value hedge accounting. The derivatives are marked to fair value through earnings. We may also use interest rate caps and floors, swaptions, and callable swaps to manage and hedge prepayment and option risk on MBS, CMOs and mortgage loans.

See Item 7A – “Quantitative and Qualitative Disclosures About Market Risk” for further information on derivatives.

Deposits

The Bank Act allows us to accept deposits from our members, housing associates, any institution for which we are providing correspondent services, other FHLBanks, and other government instrumentalities. We offer several types of deposit programs, including demand, overnight, and term deposits.

Liquidity Requirements: To support deposits, FHFA regulations require us to have at least an amount equal to current deposits received from our members invested in obligations of the U.S. government, deposits in eligible banks or trust companies, or advances with remaining maturities not exceeding five years. In addition, we must meet the additional liquidity policies and guidelines outlined in our RMP. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk Management” for further discussion of our liquidity requirements.

Capital, Capital Rules and Dividends

FHLBank Capital Adequacy and Form Rules: We must comply with regulatory requirements for total regulatory capital, leverage capital, and risk-based capital. Our RMP requires that we also maintain a ratio of total capital to total assets of not less than 4.6 percent of total assets, total capital stock to total assets of 2 percent, and permanent capital must exceed our risk-based capital requirement. To satisfy these capital requirements, we maintain a capital plan. The Gramm-Leach-Bliley Act (GLB Act) allows us to have two classes of stock, and each class may have sub-classes. Under our capital plan, we have two classes of authorized stock – Class A Common Stock and Class B Common Stock. Both classes have $100 par value per share. Class A Common Stock is ~~conditionally redeemable on six months’ written notice from the member, and~~required for membership. Class B Common Stock supports member activities with us, to the extent Class A Common Stock is ~~conditionally redeemable on five years’ written notice from~~insufficient to support the member, subject in each case to certain conditions and limitations that may restrict our ability to effectuate such redemptions. Membership is voluntary. However, other than non-member housing associates (see Item 1 – “Business – Advances”), membership is required in order to utilize our credit and mortgage finance products. Members that withdraw may not reapply for membership for five years.

calculated activity requirement. The GLB Act and the FHFA rules and regulations define total capital for regulatory capital adequacy purposes as the sum of an FHLBank’s permanent capital, plus the amounts paid in by its stockholders for Class A Common Stock; any general loss allowance, if consistent with U.S. generally accepted accounting principles (GAAP) and not established for specific assets; and other amounts from sources determined by the FHFA as available to absorb losses. The GLB Act and FHFA regulations define permanent capital for the FHLBanks as the amount paid in for Class B Common Stock plus the amount of an FHLBank’s retained earnings, as determined in accordance with GAAP.

Under the GLB Act and the FHFA rules and regulations, we are subject to risk-based capital rules. Only permanent capital can satisfy our risk-based capital requirement. In addition, the GLB Act specifies a five percent minimum leverage capital requirement based on total FHLBank capital, which includes a 1.5 weighting factor applicable to permanent capital, and a four percent minimum total capital requirement that does not include the 1.5 weighting factor applicable to permanent capital. We may not redeem or repurchase any of our capital stock without FHFA approval if the FHFA or our ~~Board~~board of ~~Directors~~directors determines that we have incurred, or are likely to incur, losses that result in, or are likely to result in, charges against our capital, even if we are in compliance with our minimum regulatory capital requirements. Therefore, a member’s right to have its excess shares of capital stock redeemed is conditional on, among other factors, the FHLBank maintaining compliance with ~~the three~~ regulatory capital ~~requirements: risk-based, leverage,~~requirements.

See Item 5 – “Market for Registrant’s Common Equity – Related Stockholder Matters and ~~total capital.~~

~~Following are highlights from our capital plan:~~


▪	~~Two classes of authorized stock - Class A Common Stock~~Issuer Purchases of Equity Securities” and ~~Class B Common Stock;~~


▪	~~Both classes have $100 par value per share and both are defined as common stock;~~


▪	Class A Common Stock is required for membership. The membership or asset-based stock requirement for each member is currently 0.1 percent of that member's total assets at the end of the prior calendar year, with a minimum requirement of 10 shares ($1,000) and a cap of 5,000 shares ($500,000);

▪

To the extent a member’s asset-based requirement in Class A Common Stock is insufficient to support its calculated activity-based requirement, Class B Common Stock must be purchased in order to support that member’s activities with us. The activity-based stock requirement is the sum of the stock requirements for each activity less the asset-based stock requirement in Class A Common Stock and is calculated whenever a member enters into a transaction, such as an advance (4.5 percent of outstanding advances (range = 4.0 to 6.0 percent));


▪	~~Excess stock is calculated daily. We may exchange excess Class B Common Stock for Class A Common Stock, but only if we continue to meet our regulatory capital requirements after the exchange;~~

▪

A member may hold excess Class A Common Stock or Class B Common Stock, subject to our right to repurchase excess stock or to exchange excess Class B Common Stock for Class A Common Stock, or may ask to redeem all or part of its excess Class A Common Stock or Class B Common Stock. A member may also ask to exchange all or part of its excess Class A Common Stock or Class B Common Stock for Class B Common Stock or Class A Common Stock, respectively, but all such exchanges are completed at our discretion;


▪	As a member increases its activities with us above the amount of activity supported by its asset-based requirement, excess Class A Common Stock is first exchanged for Class B Common Stock to meet the activity requirement prior to the purchase of additional Class B Common Stock;

▪

Under the plan, the Board of Directors establishes a dividend parity threshold that is a rate per annum expressed as a positive or negative spread relative to a published reference interest rate index (e.g., Federal funds) or an internally calculated reference interest rate based upon any of our assets or liabilities (e.g., average yield on advances, average cost of consolidated obligations, etc.);


▪	Class A Common Stock and Class B Common Stock share in dividends equally up to the dividend parity threshold, then the dividend rate for Class B Common Stock can exceed the rate for Class A Common Stock, but the Class A Common Stock dividend rate can never exceed the Class B Common Stock dividend rate;


▪	~~A member may submit a redemption request to us for any or all of its excess Class A Common Stock and/or Class B Common Stock;~~

▪

Within five business days of receipt of a redemption request for excess Class A Common Stock, we must notify the member if we decline to repurchase the excess Class A Common Stock, at which time the six-month waiting period will apply. Otherwise, we will repurchase any excess Class A Common Stock within five business days, though it is usually repurchased on the same date as the member’s redemption request;

▪

Within five business days of receipt of a redemption request for excess Class B Common Stock, we must notify the member if we decline to repurchase the excess Class B Common Stock, at which time the five-year waiting period will apply. Otherwise, we will repurchase any excess Class B Common Stock within five business days, though it is usually repurchased on the same date as the member’s redemption request;

▪

A member may cancel or revoke its written redemption request prior to the end of the redemption period (six months for Class A Common Stock and five years for Class B Common Stock) or its written notice of withdrawal from membership prior to the end of a six-month period starting on the date we received the member’s written notice of withdrawal from membership. Our capital plan provides that we will charge the member a cancellation fee in accordance with a schedule where the amount of the fee increases with the passage of time. There is no grace period after the submission of a redemption request during which the member may cancel its redemption request without being charged a cancellation fee; and


▪	~~Each required share of Class A Common Stock and Class B Common Stock is entitled to one vote subject to the statutorily imposed voting caps.~~

~~See~~ Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital” and Note 12 of the Notes to Financial Statements under Item 8 – “Financial Statements and Supplementary Data” for additional information regarding capital.

Dividends: We may pay dividends from unrestricted retained earnings and current income. (For a discussion regarding restricted retained earnings, please see Joint Capital Enhancement Agreement under this Item 1.) Our ~~Board~~board of ~~Directors~~directors may declare and pay dividends in either cash or capital stock. Under our capital plan, all dividends that are payable in capital stock must be paid in the form of Class B Common Stock, regardless of the class of stock upon which the dividend is being paid.

Consistent with FHFA guidance in Advisory Bulletin (AB) 2003-AB-08, Capital Management and Retained Earnings,,and other respective guidance, we adopted guidelines to establish a minimum or threshold level for our retained earnings in light of alternative possible future financial and economic scenarios, which are currently included under our RMP. ~~Our~~The calculation of our minimum (threshold) level of retained earnings ~~is calculated quarterly~~incorporates regulatory-based estimates of market risk and ~~re-evaluated by the Board of Directors as part of each quarterly dividend declaration. The retained earnings threshold~~credit risk, and includes ~~detailed calculations of five components:~~

▪

Market risk, which is calculated using the percentage change method at a 99 percent confidence level for an 120-business day period (consistent with the market component of our regulatory risk‐based capital value-at-risk requirement). For periods prior to March 31, 2019, market risk was calculated using a Monte Carlo simulation where the 99 percent confidence level result over a 90-day simulation horizon represented the minimum market risk exposure level;


▪	Credit risk, which requires that retained earnings be sufficient to credit-enhance all of our assets from their actual rating levels to the equivalent of triple-A ratings (where advances are considered to be triple-A rated);


▪	Pre-settlement risk, which is based upon the pre-settlement risk exposure associated with recently issued and unsettled debt issuance and is based on the current daily potential maximum price risk exposure, based on the 99^th ~~percentile of daily price risk calculated on the most recent 10 years of daily activity;~~

▪

Operations risk, which is calculated using a combination of: (1) the Basel II basic indicator approach; and (2) the Basel II standardized approach. For periods prior to September 30, 2019, operations risk was calculated using a combination of : (1) the Basel II standardized approach; and (2) our operational risk event loss history, taking into consideration operational loss events reported by the FHLBank System that could impact us in the future; and

▪

Net income volatility, which is calculated using: (1) the largest net loss on derivative hedging activities under 100-basis-point interest rate shock scenarios (maximum derivative hedging loss under up or down shocks); and (2) dividend payment risk, computed as four times the dollar amount of dividends paid at the average overnight Federal funds rate on average stock for the most recent calendar quarter. For periods prior to December 31, 2019, the dividend payment risk subcomponent was computed as four times the dollar amount of dividends paid on all stock (including mandatorily redeemable capital stock) for the most recently paid quarterly dividend.

The retained earnings threshold was considered by the Board of Directors when dividends were declared during the last two years, but the retained earnings threshold calculated in accordance with the RMP did not significantly affect the amount of dividends declaredestimates for risk exposure from operational risk, settlement risk related to unsettled consolidated obligations, and paid. Tables 5 and 6 reflect the quarterly retained earnings threshold calculations utilized during 2019 and 2018 (in thousands), respectively, compared to the actual amount of retained earnings at the end of each quarter:

~~Table 5~~

Retained Earnings Component (based upon prior quarter end) 12/31/2019 09/30/2019 06/30/2019 03/31/2019
Market Risk $ 108,053
$ 107,575
$ 155,131
$ 142,109
Credit Risk 50,732
64,756
50,933
55,035
Pre-settlement Risk 30,000
30,000
30,000
30,000
Operations Risk 44,296
44,296
34,003
31,230
Net Income Volatility 68,525
120,208
150,598
124,285
Total Retained Earnings Threshold 301,606
366,835
420,665
382,659
Actual Retained Earnings as of End of Quarter 999,809
972,948
950,276
942,840
Overage $ 698,203
$ 606,113
$ 529,611
$ 560,181

~~Table 6~~

Retained Earnings Component (based upon prior quarter end) 12/31/2018 09/30/2018 06/30/2018 03/31/2018
Market Risk $ 123,960
$ 134,678
$ 135,894
$ 82,048
Credit Risk 60,928
62,329
78,556
60,963
Pre-settlement Risk 30,000
30,000
30,000
30,000
Operations Risk 31,219
30,817
30,791
27,544
Net Income Volatility 123,440
131,568
144,184
127,517
Total Retained Earnings Threshold 369,547
389,392
419,425
328,072
Actual Retained Earnings as of End of Quarter 914,022
894,016
875,790
854,241
Overage $ 544,475
$ 504,624
$ 456,365
$ 526,169

Under our retained earnings policy, any shortage of actual retained earnings with respect to the retained earnings threshold is to be met over a period generally not to exceed one year from the quarter-end calculation. The policy also provides that meeting the established retained earnings threshold has priority over the payment of dividends, but that the Board of Directors must balance dividends on capital stock against the period over which the retained earnings threshold is met.net income volatility. The retained earnings threshold level fluctuates from period to period because it is a function of the size and composition of our balance sheet and the risks contained therein at that point in time. As of December 31, 2021, our retained earnings threshold was $0.3 billion. Retained earnings of $1.1 billion exceeded our retained earnings threshold by $0.8 billion at December 31, 2021.

The retained earnings threshold is calculated quarterly and considered by the board of directors as part of each quarterly dividend declaration. The policy also provides that meeting the established retained earnings threshold has priority over the payment of dividends, but that the board of directors must balance dividends on capital stock against the period over which the retained earnings threshold is met. During the year ended December 31, 2021, the threshold did not significantly affect the amount of dividends declared and paid.

Joint Capital Enhancement Agreement (JCE Agreement) – We, along with the other FHLBanks, entered into a JCE Agreement intended to enhance the capital position of each FHLBank. More specifically, the intent of the JCE Agreement is to allocate a portion of each FHLBank’s earnings to a Separate Restricted Retained Earnings Account (RRE Account) at that FHLBank. Thus, in accordance with the JCE Agreement, each FHLBank allocates 20 percent of its net income to an RRE Account and will do so until the balance of the account equals at least one percent of that FHLBank’s average balance of outstanding consolidated obligations ~~for~~calculated as of the ~~previous~~last day of each calendar quarter. Additionally, the JCE Agreement provides that amounts in restricted retained earnings in excess of 150 percent of an FHLBank's restricted retained earnings minimum (i.e., one percent of that FHLBank's average balance of outstanding consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. Restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.

Tax Status

Section 1433 of the Bank Act provides that we and the other FHLBanks are exempt from all federal, state and local taxation except for real property taxes.

Assessments

We are subject to a regulatory AHP assessment based on a percentage of our earnings. The FHLBanks are required to set aside annually the greater of an aggregate of $100 million or 10 percent of their current year’s income subject to assessment to be contributed to the following year's AHP. In accordance with FHFA guidance for the calculation of AHP expense, interest expense on mandatorily redeemable capital stock is added back to income before charges for AHP.

Other Mission-Related Activities

In addition to supporting residential mortgage lending, one of our core missions is to support related housing and community development. We administer and fund a number of targeted programs specifically designed to fulfill that mission. These programs provide housing opportunities for thousands of very low-, low- and moderate-income households and strengthen communities primarily in Colorado, Kansas, Nebraska, and Oklahoma.

Affordable Housing Program: Amounts specified by the AHP requirements described in Item 1 – “Business – Assessments” are reserved for this program. AHP provides cash grants to members to finance the purchase, construction, or rehabilitation of very low-, low-, and moderate-income owner occupied or rental housing. In addition to the competitive AHP program funds, a customized homeownership set-aside program called the Homeownership Set-aside Program (HSP) is offered under the AHP. The HSP provides down payment, closing cost, and purchase-related repair assistance to first-time homebuyers in Colorado, Kansas, Nebraska, and Oklahoma.

Community Investment Cash Advance (CICA) Program: CICA loans to members specifically target underserved markets in both rural and urban areas. CICA loans represented ~~2.8 percent,~~ 3.0 percent, 3.8 percent and ~~3.5~~2.8 percent of total advances outstanding as of December 31, ~~2019, 2018,~~2021, 2020, and ~~2017,~~2019, respectively. Programs offered during ~~2019~~2021 under the CICA Program, which is not funded through the AHP, include:

▪

~~Community Housing Program (CHP) –~~CHP makes loans available to members for financing the construction, acquisition, rehabilitation, and refinancing of owner-occupied housing for households whose incomes do not exceed 115 percent of the area’s median income and rental housing occupied by or affordable for households whose incomes do not exceed 115 percent of the area’s median income. For rental projects, at least 51 percent of the units must have tenants that meet the income guidelines, or at least 51 percent of the units must have rents affordable to tenants that meet the income guidelines. We provide advances for CHP-based loans to members at our estimated cost of funds for a comparable maturity plus a mark-up for administrative costs; and

▪

~~Community Development Program (CDP) –~~CDP provides advances to members to finance CDP-qualified member financing including loans to small businesses, small farms, small agri-business, public or private utilities, schools, medical and health facilities, churches, day care centers, or for other community development purposes that meet one of the following criteria: (1) loans to firms that meet the Small Business Administration’s definition of a qualified small business concern; (2) financing for businesses or projects located in an urban neighborhood, census tract or other area with a median income at or below 100 percent of the area median; (3) financing for businesses, farms, ranches, agri-businesses, or projects located in a rural community, neighborhood, census tract, or unincorporated area with a median income at or below 115 percent of the area median; (4) firms or projects located in a Native American Area, Federally Declared Disaster Area, or United States Department of Agriculture Drought Area; (5) businesses in urban areas in which at least 51 percent of the employees of the business earn at or below 100 percent of the area median; or (6) businesses in rural areas in which at least 51 percent of the employees of the business earn at or below 115 percent of the area median. We provide advances for CDP-based loans to members at our estimated cost of funds for a comparable maturity plus a mark-up for administrative costs.

▪Community Housing Program (CHP) –CHP makes loans available to members for financing the construction, acquisition, rehabilitation, and refinancing of owner-occupied housing for households whose incomes do not exceed 115 percent of the area’s median income and rental housing occupied by or affordable for households whose incomes do not exceed 115 percent of the area’s median income. For rental projects, at least 51 percent of the units must have tenants that meet the income guidelines, or at least 51 percent of the units must have rents affordable to tenants that meet the income guidelines. We provide advances for CHP-based loans to members at our estimated cost of funds for a comparable maturity plus a mark-up for administrative costs; and

▪Community Development Program (CDP) –CDP provides advances to members to finance CDP-qualified member financing including loans to small businesses, small farms, small agri-business or for community development purposes that meet one of the following criteria: (1) loans to firms that meet the Small Business Administration’s (SBA) definition of a small business concern; (2) financing for businesses or projects located in an urban neighborhood, Census tract or other area with a median income at or below 100 percent of the area median; (3) financing for businesses, farms, ranches, agri-businesses, or projects located in a rural community, neighborhood, Census tract, or unincorporated area with a median income at or below 115 percent of the area median; (4) firms or projects located in a Native American Area or any Federally Declared Disaster Area; (5) projects in urban areas in which at least 51 percent of the employees of the project, or at least 51 percent of the families benefiting from or receiving services from the project, earn at or below 100 percent of the area median; or (6) projects in rural areas in which at least 51 percent of the employees of the project, or at least 51 percent of the families benefiting from or receiving services from the project, earn at or below 115 percent of the area median. We provide advances for CDP-based loans to members at our estimated cost of funds for a comparable maturity plus a mark-up for administrative costs.

Competition

Advances: Demand for advances is affected by, among other things, the cost of alternative sources of liquidity available to our members, including deposits from members’ customers and other sources of liquidity that are available to members. Members mostly access alternative funding other than advances through Federal funds purchased, the brokered deposit market, and ~~through~~ repurchase agreements with ~~commercial customers.~~financial counterparties. Large members may have broader access to funding through repurchase agreements with investment banks and commercial banks as well as access to the national and global credit markets. While the availability of alternative funding sources to members can influence member demand for advances, the cost of the alternative funding relative to advances is ~~the~~a primary consideration when accessing alternative funding. Other considerations include product availability through FHLBank, dividend rates on FHLBank stock, the member’s creditworthiness, ease of execution, level of diversification, and availability of member collateral for other types of borrowings. We believe our advance product offerings are evolving to meet member demand as market conditions in the competitive environment change. All product development initiatives involve an evaluation of the market opportunity relative to the operational requirements of offering the product while maintaining high levels of risk management and regulatory compliance. Certain product initiatives may also require the filing of a New Business Activity Notice with and non-objection by our regulator.

Mortgage Loans: We are subject to competition in purchasing conventional, conforming fixed rate residential mortgage loans and government-guaranteed residential mortgage loans. We face competition in ~~customer service,~~ the prices paid for these assets, customer service, and in ancillary services such as automated underwriting. The most direct competition for purchasing residential mortgage loans comes from the other housing GSEs, which also purchase conventional, conforming fixed rate mortgage loans, specifically Fannie Mae and Freddie Mac. To a lesser extent, we also compete with regional and national financial institutions that buy and/or invest in mortgage loans. Depending on market conditions, these investors may seek to hold, securitize, or sell conventional, conforming fixed rate mortgage loans. We continuously reassess our potential for success in attracting and retaining members for our mortgage loan products and services, just as we do with our advance products. We compete for the purchase of mortgage loans primarily on the basis of price, products and product features, and services offered.

Debt Issuance: We compete with the U.S. government (including debt programs explicitly guaranteed by the U.S. government), U.S. government agencies, Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities for funds raised through the issuance of unsecured debt in the national and global capital markets. Collectively, Fannie Mae, Freddie Mac, and the FHLBanks are generally referred to as the housing GSEs, and the cost of the debt of each can be positively or negatively affected by political, financial, or other news that reflects upon any of the three housing GSEs. If the supply of competing debt products increases without a corresponding increase in demand, our debt costs may increase, or less debt may be issued. We compete for the issuance of debt primarily on the basis of rate, term, structure of the debt, liquidity of the instrument, and perceived risk of the issuer.

Derivatives: The ~~sale~~issuance of callable debt and the simultaneous execution of callable interest rate swaps with options that mirror the options in the debt have been an important source of competitive funding for us. As such, the depth of the markets for callable debt and mirror-image derivatives is an important ~~determinant~~factor of our relative cost of funds. There is considerable competition among high-credit-quality issuers, especially among the three housing GSEs, for callable debt and for derivatives. There can be no assurance that the current breadth and depth of these markets will be sustained.

Regulatory Oversight, Audits and Examinations

General: Our business is subject to extensive regulation and supervision. As discussed throughout this Form 10-K, the laws, regulations, and regulatory guidance to which we are subject cover all key aspects of our business, and directly and indirectly affect our product and service offerings, collateral practices, pricing, competitive position, relationship with members and third parties, capital structure, and liquidity practices. As a result, such laws and regulations have a significant effect on our results of operations and financial condition. For a discussion of risks relating to the complex body of laws and regulations to which we are subject, see Item 1A – “Risk Factors – Business Risk – Legislative and Regulatory”. For a discussion of recent regulatory and legislative developments impacting us, see “Legislative and Regulatory Developments” under this Item 1.

We are supervised and regulated by the FHFA, ~~which is~~ an independent agency in the executive branch of the U.S. government. The FHFA is responsible for providing supervision, regulation and housing mission oversight of the FHLBanks to ~~promote~~ensure they fulfill their ~~safety~~mission by operating in a safe and ~~soundness so they~~sound manner to serve as a reliable source of liquidity and funding for housing finance and community investment. The FHFA is headed by a Director appointed by the President of the United States for a five-year term, with the advice and consent of the Senate. The Federal Housing Finance Oversight Board advises the Director with respect to overall strategies and policies in carrying out the duties of the Director. The Federal Housing Finance Oversight Board is comprised of the Secretary of the Treasury, Secretary of HUD, Chair of the Securities and Exchange Commission (SEC), and the Director, who serves as the Chairperson of the Federal Housing Finance Oversight Board. The FHFA is funded in part through assessments from the FHLBanks, with the remainder of its funding provided by Fannie Mae and Freddie Mac; no tax dollars or other appropriations support the operations of the FHFA or the FHLBanks. To assess our safety and soundness, the FHFA conducts comprehensive annual ~~on-site~~ examinations, as well as periodic ~~on-site and off-site~~ reviews. Additionally, we are required to submit monthly information onabout our financial condition and results of operations to the FHFA. This information is available to all FHLBanks.

Before a government corporation issues and offers obligations to the public, the Government Corporation Control Act provides that the Secretary of the Treasury will prescribe the form, denomination, maturity, interest rate, and conditions of the obligations; the manner and time issued; and the selling price. The Bank Act also authorizes the Secretary of the Treasury, at his or her discretion, to purchase consolidated obligations up to an aggregate principal amount of $4 billion. No borrowings under this authority have been outstanding since 1977.

The U.S. Treasury receives the FHFA’s annual report to Congress, monthly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.

~~Audits and Examinations:~~ We have an internal audit department and our Board of Directors has an audit committee. The Chief Audit Executive reports directly to the audit committee. In addition, an independent registered public accounting firm audits our annual financial statements and effectiveness of internal controls over financial reporting. The independent registered public accounting firm conducts these audits following standards of the Public Company Accounting Oversight Board (United States) and ~~Government Auditing Standards~~ ~~issued by the Comptroller General of the United States. The FHLBanks, the FHFA, and Congress all receive the audit reports.~~ We must submit annual management reports to Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General. These reports include a statement of financial condition, a statement of operations, a statement of cash flows, a statement of internal accounting and administrative control systems, and the report of the independent public accounting firm on the financial statements.

Audits and Examinations: We have an internal audit department and our board of directors has an audit committee. The Chief Audit Executive reports directly to the audit committee. In addition, an independent registered public accounting firm audits our annual financial statements and effectiveness of internal controls over financial reporting. The independent registered public accounting firm conducts these audits following standards of the Public Company Accounting Oversight Board (United States) and Government Auditing Standards issued by the Comptroller General of the United States. The FHLBanks, the FHFA, and Congress all receive the audit reports.

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

~~Personnel~~Human Capital Resources

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

Workforce Profile: Our workforce is primarily comprised of corporate employees, with our principal operations in one location. As of ~~March 13, 2020,~~December 31, 2021, we had ~~233~~234 full-time and 3 part-time employees. As of December 31, 2021, approximately 51 percent of our workforce identifies as female and 49 percent identifies as male. As of December 31, 2021, 87 percent are non-minority and 13 percent are minority. Our workforce is appropriately staffed, and generally includes a number of longer-tenured employees. We strive to both develop talent from within the organization and supplement with external hires. We believe that developing talent internally results in institutional strength and continuity and also promotes loyalty and commitment in our employee base, which strengthens our success. Adding new employees contributes to new ideas, continuous improvement, and our goals of a diverse and inclusive workforce and equitable workplace. As of December 31, 2021, the average tenure of our employees was 10.2 years. There are ~~not represented by a~~no collective bargaining ~~unit, and we have a good relationship~~agreements with our employees.

Total Rewards: We seek to attract, develop and retain talented employees to achieve our strategic business initiatives, enhance business performance and increase shareholder value and provide members a reasonable return on their investment in FHLBank. To achieve this objective, we focus on a combination of development programs, benefits and employee wellness programs and strive to recognize and reward performance. Specifically, our programs include:

•Cash compensation – competitive base salary, performance-based incentives and other cash subsidies;

•Benefits – health insurance, life and accidental death and dismemberment insurance, supplemental life insurance, and a 401(k) retirement savings plans with a competitive employer match;

•Wellness program – employee assistance program, interactive education sessions focused on employee total health, and sporting events sponsorships;

•Time away from work – including paid time off for vacation, illness, personal, holiday, and volunteer opportunities;

•Culture and Development – various cultural and inclusion initiatives and leadership development opportunities; internal educational and development opportunities and fee reimbursement for external educational and development programs; employee engagement opportunities to drive our Employer of Choice vision; and educational assistance programs;

•Work/Life balance – flexible work arrangements, including a hybrid work schedule allowing a balance between in-office and remote work, two-thirds paid salary continuation for short-term disability, 100 percent paid parental, military, bereavement, jury duty and court appearances leave;

•Management succession planning – our board and leadership actively engage in management succession planning, with a defined plan for our Executive Team, which is reviewed and adjusted annually, to support a smooth transition of operations in the event of an unplanned or planned absence of executives, designed to help assure the successor executives are fully qualified to assume responsibility for ongoing operations;

•Our Performance Management framework includes planned quarterly, documented discussions coordinated between manager and employee. At the start of every quarter, managers and employees are asked to work together to set new goals or update existing goals and review the previous quarter’s goals. In addition to encouraging goal alignment with ever-changing business needs, this quarterly framework also is intended to provide a natural opportunity for feedback and development conversations to occur between employee and manager throughout the year; and

•We are committed to the health, safety and wellness of our employees. In response to the COVID-19 pandemic, we implemented significant operating environment changes, adopted safety protocols and procedures that we believe are in the best interest of our employees and members, and which are designed to comply with or exceed government regulations.

Diversity, Equity and Inclusion: Diversity, Equity and Inclusion (DEI) is a strategic business priority for us and one of our defined corporate Values. Our DEI officer is a member of our Executive Team, reports to our Chief Executive Officer (CEO), and serves as a liaison to the board of directors. We believe that diversity increases capacity for innovation and creativity; equity helps ensure that we are intentional in recognizing and addressing our employees’ individual needs and in providing opportunities in order to optimize success; and inclusion helps us to leverage the unique perspectives of all employees to help ensure optimal decision-making and strengthen our retention efforts. We operationalize our commitment through the development and execution of a three-year DEI strategic plan that includes quantifiable metrics to measure success and we report regularly on our performance to management and the board of directors. We offer a range of opportunities for our employees to connect, and grow personally and professionally through our Inclusion, Diversity, and Equity Advisory council. We consider learning an important component of our DEI strategy and regularly offer educational opportunities to our employees and strive to evaluate equitable and inclusive behaviors as part of our recruiting, promotion and succession planning processes. We also incorporate DEI as a key component of our incentive plan framework to attempt to ensure organizational focus and individual and collective accountability.

Where to Find Additional Information

We file our annual, quarterly, and current reports and related information with the SEC. You can find our SEC filings at the SEC’s website at www.sec.gov. Additionally, on our website at www.fhlbtopeka.com, you can find a link to the SEC’s website which can be used to access free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Except for the documents specifically incorporated by reference into this Annual Report on Form 10-K, information contained on our website or that can be accessed through our website is not incorporated by reference into this Annual Report on Form 10-K. Reference to our website is made as an inactive textual reference.

Legislative and Regulatory Developments

~~FHFA Advisory Bulletin 2020-01 - Acquired Member Assets Risk Management.~~FHLBank Membership. On January 31, 2020, the FHFA issued an Advisory Bulletin on risk management of AMA (the AMA AB). The guidance communicates the FHFA’s expectations with respect to an FHLBank’s funding of its members through the purchase of eligible mortgage loans and includes expectations that an FHLBank will have board-established limits on AMA portfolios and management-established thresholds to serve as monitoring tools to manage AMA-related risk exposure. The AMA AB provides that the board of an FHLBank should ensure that the FHLBank serves as a liquidity source for members, and an FHLBank should ensure that its portfolio limits do not result in the FHLBank’s acquisition of mortgages from smaller members being “crowded out” by the acquisition of mortgages from larger members. The AMA AB contains the expectation that the board of an FHLBank should set limits on the size and growth of portfolios and on acquisitions from a single PFI. In addition, the guidance sets forth that the board of an FHLBank should consider concentration risk in the geographic area, high-balance loans, and third-party loan originations. The FHLBanks are expected to demonstrate their progress toward adherence to the AMA AB by September ~~30, 2020 and should have final limits in place by December 31, 2020.~~

~~We continue to evaluate the potential impact of the AMA AB on our financial condition and results of operations.~~

~~FHLBank Membership Request for Input.~~ On February 24, 2020, the FHFA issued a Request for Input on FHLBank membership (the Membership RFI). The Membership RFI, as part of a holistic review of FHLBank membership, seeks public input on whether the FHFA's existing regulation on FHLBank membership, located at 12 CFR part 1263, remains adequate to ensure: (1) the FHLBank System remains safe and sound and able to provide liquidity to members in a variety of conditions; and (2) the advancement of the FHLBank's housing finance and community development mission. The FHFA is seeking input on several broad questions relating to FHLBank membership requirements, as well as on certain more specific questions related to the implementation of the current membership regulation. Responses are due no later than June 23, 2020.

Any rulemaking actions taken by the FHFA as a result of the Membership RFI to update the current FHLBank membership regulation may impact FHLBank membership eligibility or requirements, and ultimately our business, business opportunities, and results of operations.

~~FHFA Proposed Amendments to Stress Test Rule.~~ ~~On December 16, 2019,~~9, 2021, the FHFA published a ~~proposed rule amending its stress testing rule, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, to:~~Supervisory Letter on FHLBank Membership Issues covering five issues, including: (1) raise the minimum threshold to conduct periodic stress tests for entities regulated by the FHFA from those with consolidated assets of more than $10 billion to those with consolidated assets of more than $250 billion; (2) remove the requirements for ~~FHLBanks to conduct stress tests; and~~de novo CDFIs; (2) automatic transfer of membership; (3) ~~remove the adverse scenario from the list of required scenarios. The proposed rule maintains the FHFA’s discretion to require that an FHLBank~~large non-member institutions merging with ~~total consolidated assets below the $250 billion threshold conduct stress testing. The proposed amendments align the FHFA’s stress testing rules~~small member institutions; (4) membership applicant’s compliance with rules adopted by other financial institution regulators that implement the Dodd-Frank Act stress testing requirements, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.

The results of our most recent annual severely adverse economic conditions stress test were published to our public website on November 15, 2019. If the proposed rule is adopted as proposed, it will eliminate these stress testing requirements for FHLBanks. We do not expect this rule, if adopted as proposed, to materially impact our financial condition ~~or results of operations.~~

~~FDIC Brokered Deposits Restrictions.~~ On December 12, 2019, the Federal Deposit Insurance Corporation (FDIC) issued a proposed rule to amend its brokered deposits restrictions that apply to less than well-capitalized insured depository institutions. The FDIC states that the proposed amendments are intended to modernize its brokered deposit regulationsrequirements; and would establish a new framework for analyzing whether deposits placed through deposit placement arrangements qualify as brokered deposits. These deposit placement arrangements include those between insured depository institutions and third parties, such as financial technology companies, for a variety of business purposes, including access to deposits. By creating a new framework for analyzing certain provisions of the “deposit broker” definition, including shortening the list of activities considered “facilitating” and expanding the scope of the “primary purpose” exception, the proposed rule would narrow(5) the definition of ~~“deposit broker” and exclude more deposits from treatment as “brokered deposits.”~~insurance company. The ~~proposed rule would also establish an application and reporting process with respect to the primary purpose exception.~~

If this rule is adopted as proposed, it may have an effect on member demand for advances, but we cannot predict the extent of the impact. We do not expect this rule, if adopted as proposed, to materially affect our financial condition or results of operations.

~~FHFA~~ Supervisory Letter ~~on Planning for LIBOR Phase-Out.~~ ~~On September 27, 2019, the FHFA issued a supervisory letter (the Supervisory Letter)~~is intended to provide uniform guidance to the FHLBanks in the event they encounter similar circumstances.

The FHFA issued the letter to provide uniform guidance regarding the identified membership issues. The guidance could result in: (1) fewer opportunities for FHLBank membership; and/or (2) ineligibility for continued membership by certain entities, most notably CDFIs, insurance companies, and large institutions that have acquired small members. Accordingly, the guidance could result in reduced opportunities for us to grow our membership and, in turn, fewer opportunities to provide our financial services.

Regulatory Interpretation on Eligibility of Mortgage Participations as Collateral for FHLBank Advances. On October 4, 2021, the FHFA published a Regulatory Interpretation on Eligibility of Mortgage Loan Participations as Collateral for Federal Home Loan Bank Advances. The Regulatory Interpretation addresses whether an FHLBank can accept as collateral to secure advances mortgage loan participations that cannot be readily liquidated in the form in which they are to be pledged. The Regulatory Interpretation concludes that mortgage loan participations must meet the requirements of FHFA regulation 12 CFR 1266.7(a)(4), including the requirement that the ~~FHFA stated is designed~~collateral can be “liquidated in due course” in order to ~~ensure the FHLBanks will~~ be ~~able~~eligible to ~~identify and prudently manage the risks associated with the termination of LIBOR in~~secure FHLBank advances. It further concludes that participations for which there would be a safe and sound manner. The Supervisory Letter provides that the FHLBanks should cease entering into new LIBOR referenced financial assets, liabilities, and derivatives with maturities beyond December 31, 2021 for all product types except investments. On March 16, 2020, in light of market volatility, the FHFA extended from March 31, 2020known impediment to June 30, 2020 the FHLBanks’ ability to enter into instruments referencing LIBOR that mature after December 31, 2021, except for investments and option embedded products. With respect to investments, the FHLBanks should, by December 31, 2019, stop purchasing investments that reference LIBOR and mature after December 31, 2021. These phase-out datesliquidation do not ~~apply to~~meet such requirement and therefore are not eligible collateral ~~accepted by~~for advances. Finally, the ~~FHLBanks.~~Regulatory Interpretation rescinds prior guidance from FHLBank System regulators that provides mortgage loan participations may be eligible as collateral under regulatory provisions other than 12 CFR 1266.7(a)(4). The Supervisory Letter also directs the FHLBanks to update their pledged collateral certification reporting requirements by March 31, 2020 in an effort to encourage members to distinguish LIBOR-linked collateral maturing afterRegulatory Interpretation became effective on December ~~31,~~13, 2021. The FHLBanks are expected to cease entering into LIBOR-indexed financial instruments maturing after December 31, 2021 by the deadlines specified in the Supervisory Letter, subject to limited exceptions granted by the FHFA under the Supervisory Letter for LIBOR-linked products serving compelling mission, risk mitigating, and/or hedging purposes that

Although we do not currently ~~have readily available alternatives.~~

As a result of the Supervisory Letter and the extension, beginning July 1, 2020, we expect to suspend transactions in advances with terms directly linked to LIBOR that mature after December 31, 2021. In addition, beginning July 1, 2020, we expect to no longer enter into consolidated obligation bonds and derivatives with swaps, caps, or floors indexed to LIBOR that terminate after December 31, 2021. We have ceased purchasing investments that reference LIBOR and mature after December 31, 2021.

We continue to evaluate the potential impact of the Supervisory Letter on our financial condition and results of operations and LIBOR transition planning, but we may experience increased basis risk from our inability to fund LIBOR-indexed assets with LIBOR-indexed debt, reduced investment opportunities, and lower overall demand or increased costs for advances, which in turn may negatively impact the future composition of our balance sheet, capital stock levels, primary mission assets ratio, and net income.

~~For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under Item 7.~~

~~FHFA Advisory Bulletin 2019-03 - Capital Stock Management.~~ On August 14, 2019, the FHFA issued an Advisory Bulletin (the Capital Stock Management AB) providing for each FHLBank to maintain a ratio of at least two percent of capital stock to total assets in order to help preserve the cooperative structure incentives that encourage members to remain fully engaged in the oversight of their investment in the FHLBank. In February 2020, the FHFA began to consider the proportion of capital stock to assets, measured on a daily average basis at month end, when assessing each FHLBank’s capital management practices.

~~We do not~~ expect the ~~Capital Stock Management AB~~Regulatory Interpretation to have a material impact on our ~~capital management practices,~~ financial condition or results of ~~operations.~~operations, this restriction on collateral may negatively impact future borrowing by certain members.

~~SEC Final Rule on Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships.~~Fair Housing and Fair Lending Enforcement. On July 5, 2019, the SEC published a final rule, which became effective on October 3, 2019 (Final Rule), that adopts amendments to its auditor independence rules to modify the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period. The Final Rule, among other things, focuses the analysis on beneficial ownership rather than on both record and beneficial ownership; replaces the existing ten percent bright-line shareholder ownership test with a “significant influence” test; and adds a “known through reasonable inquiry” standard with respect to identifying beneficial owners of the audit client’s equity securities.

Under the prior loan rule on debtor-creditor relationships, the independence of an accounting firm generally could be called into question if it or a covered person in the accounting firm received a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.” A covered person in the firm includes personnel on the audit engagement team, personnel in the chain of command, partners and managers who provide ten or more hours of non-audit services to the audit client, and partners in the office where the lead engagement partner practices in connection with the client. The Final Rule replaced the existing ten percent bright-line test with a significant influence test similar to that referenced in other SEC rules and based on concepts applied in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 323.

Under the Final Rule, which is now in effect, with certain exceptions, the receipt of loans from the beneficial owners of an audit client’s equity securities where such beneficial owner has significant influence over the audit client would impair the independence of the auditor. The analysis under the Final Rule would be based on the facts and circumstances and would focus on whether the beneficial owners of an audit client’s equity securities have the ability to exercise significant influence over the operating and financial policies of an audit client.

~~There were no members with the ability to exercise significant influence over the operating and financial policies of FHLBank at December 31, 2019.~~

~~FHFA Advisory Bulletin 2019-01 Business Resiliency Management.~~ On May 7, 2019, the FHFA issued an advisory bulletin on Business Resiliency Management for FHLBanks and other entities regulated by the FHFA (the Business Resiliency AB) that communicates the FHFA’s expectations with respect to minimizing the impact of disruptions in service from uncontrolled events and the maintenance of business operations at predefined levels. The Business Resiliency AB rescinds the FHFA’s 2002 disaster recovery guidance. The new guidance states that a business resiliency program should guide the regulated entity to respond appropriately to disruptions affecting business operations, personnel, equipment, facilities, information technology systems, and information assets. The Business Resiliency AB provides guidance on the elements of a safe and sound business resiliency program, which include governance, risk assessment and business impact analysis, risk mitigation and plan development, testing and analysis, and risk monitoring and program sustainability.

~~We do not expect the Business Resiliency AB to have a material effect on our financial condition or results of operations.~~

~~Final Rule on FHLBank Capital Requirements.~~ ~~On February 20, 2019,~~9, 2021, the FHFA published a ~~final rule, effective January 1, 2020, that adopted, with amendments,~~Policy Statement on Fair Lending to communicate the ~~regulations of~~FHFA’s general position on monitoring and information gathering, supervisory examinations, and administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act, and the Federal Housing ~~Finance Board (FHFB, predecessor to~~Enterprises Financial Safety and Soundness Act. The Policy Statement became effective on the ~~FHFA) pertaining to~~date of publication.

On August 12, 2021, the ~~capital requirements for~~FHFA and HUD announced they had entered into a Memorandum of Understanding regarding fair housing and fair lending enforcement. Under the ~~FHLBanks. This final rule carries over most~~Memorandum of Understanding, the two agencies will focus on enhancing their enforcement of the ~~prior FHFB regulations without material change but substantively revises~~Fair Housing Act, and their oversight of Fannie Mae, Freddie Mac, and the ~~credit risk component~~FHLBanks.

We continue to monitor these actions and guidance as they evolve and to evaluate their potential impact on us.

COVID-19 Presidential, Legislative and Regulatory Developments. In light of the ~~risk-based capital requirement, as well as~~COVID-19 pandemic, the limitations on extensions of unsecured credit. The main revisions remove requirements that we calculate credit risk capital charges and unsecured credit limits based on ratings issued by an NRSRO, and instead require that we establish and use our own internal rating methodology (which may include, but not solely rely on, NRSRO ratings). The rule imposes a new credit risk capital charge for cleared derivatives. This final rule also revises the percentages used in the regulation’s tables to calculate credit risk capital charges for advances and for non-mortgage assets. This final rule also rescinds certain contingency liquidity requirements that were partPresident of the ~~FHFB regulations, as these requirements are now addressed in an Advisory Bulletin on FHLBank Liquidity Guidance issued by~~United States, through executive orders, governmental agencies, including the ~~FHFA in 2018.~~

~~We do not expect this rule to materially affect our financial condition or results of operations.~~

~~FDIC Final Rule on Reciprocal Deposits.~~ On February 4, 2019, the FDIC published a final rule, effective March 6, 2019, related to the treatment of “reciprocal deposits,” which implements Section 202 of the Economic Growth, Regulatory Relief,Securities and Consumer Protection Act of 2018. This final rule exempts, for certain insured depository institutions (depositories), certain reciprocal deposits (deposits acquired by a depository from a network of participating depositories that enables depositors to receive FDIC insurance coverage for the entire amount of their deposits) from being subject to FDIC restrictions on brokered deposits. Under the rule, well-capitalized and well-rated depositories are not required to treat reciprocal deposits as brokered deposits up to the lesser of twenty percent of their total liabilities or $5 billion. Reciprocal deposits held by depositories that are not well-capitalized and well-rated may also be excluded from brokered deposit treatment in certain circumstances.

We do not expect the rule to materially affect our financial condition or results of operations. The rule could, however, enhance depositories’ liquidity by increasing the attractiveness of deposits that exceed FDIC insurance limits. This could affect the demand for certain advance products.

~~Developments applicable to interest rate swaps:~~

~~Uncertainty Regarding Brexit~~. In June 2016, the United Kingdom (the UK) voted in favor of leaving the European Union (the EU), and in March 2017, Article 50 of the Lisbon Treaty was invoked, commencing a period of negotiations between the UK and the European Council for the UK’s withdrawal from the EU, which was subsequently extended by the European Council members in agreement with the UK. On January 31, 2020, the UK withdrew from the EU, with a transition period to last until December 31, 2020, which period may be extended for an additional two years. During this transition period, the UK and the EU will negotiate the details of their future relationship, including what conditions will apply to EU-based entities that want to do business with the UK, and vice versa, after the transition period.

~~We do not have material exposure to non-cleared swap counterparties based in the UK or the EU.~~

~~CFTC No-action Relief for LIBOR Amendments.~~ ~~On December 17, 2019, three divisions of the Commodity Futures Trading~~Exchange Commission (CFTC) issued no-action letters to provide relief with respect to the transition away from LIBOR and other interbank offered rates (IBORs). Among other forms of relief, the letters, subject to certain limitations:

permit registered swap dealers, major swap participants, security-based swap participants, and major security-based swap participants (covered swap entities) to amend an uncleared swap entered into before the compliance date of the CFTC’s uncleared swap margin requirements (such swap, a legacy swap, and such requirements, the CFTC margin rules) to include LIBOR or other IBOR fallbacks without the legacy swap becoming subject to the CFTC margin rules; and

provide time-limited relief, until December 31, 2021, for: (1) swaps that are not subject to the central clearing requirement because they were executed prior to the relevant compliance date; and (2) swaps that are subject to the trade execution requirement to be amended to include LIBOR or other IBOR fallbacks without becoming subject to such clearing or trade execution requirements.

~~We do not expect these no-action letters to have a material effect on our financial condition or results of operations.~~

~~Margin and Capital Requirements for Agency Covered Swap Entities.~~ ~~On November 7, 2019,~~(SEC), the Office of the Comptroller of the Currency, the Federal Reserve Board, the ~~FDIC,~~Federal Deposit Insurance Corporation (FDIC), the ~~Farm~~National Credit Union Administration, the Commodity Futures Trading Commission (CFTC) and the FHFA, ~~(collectively,~~as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the ~~Agencies) jointly~~financial, operational, credit, market, and other effects of the COVID-19 pandemic, and Congress has enacted, and may continue to enact, COVID-19 pandemic relief legislation, some of which may have a direct or indirect impact on us or our members. Many of these actions are temporary in nature. We continue to monitor these actions and guidance as they evolve and to evaluate their potential impact on us.

Executive and legislative branches of the federal and state governments and their agencies have continued to take steps to provide relief in connection with the continuing COVID-19 pandemic. For example, on March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, which provided an additional $1.9 trillion dollars for COVID-19 pandemic relief. Among other appropriations, the legislation allocated $7.25 billion in additional funds to support the Paycheck Protection Program (PPP). This legislation also expanded eligibility for the PPP to include certain nonprofit organizations and digital news services. Since the legislation did not expand the PPP application deadline beyond March 31, 2021, the PPP Extension Act of 2021 was signed into law on March 30, 2021, which extended the application deadline to May 31, 2021. As another example, on June 25, 2021, the Federal Reserve announced a final extension of its Paycheck Protection Program Liquidity Facility (PPPLF) by an additional month to July 30, 2021. The PPPLF provides collateralized PPP loan liquidity to eligible Federal Reserve member financial institutions to facilitate PPP loan originations at such financial institutions. The extension allowed additional processing time for banks, CDFIs, and other financial institutions to pledge to the facility any PPP loans approved by the SBA through the June 30, 2021 expiration of the PPP program. Additionally, the Federal Reserve continued to purchase agency securities throughout the year resulting in increased competition from Fannie Mae and Freddie Mac for purchases of mortgage loans via the MPF Program.

These and other forms of COVID-19 pandemic-related relief have provided alternative sources of liquidity for members which has tended to reduce their needs for advances, which is reflected in the decline in advances balances we experienced during the year ended December 31, 2021. COVID-19 pandemic-related relief may continue to suppress members’ demand for advances if such relief continues to provide alternative sources of liquidity. Similarly, the increased competition from Fannie Mae and Freddie Mac facilitated by the Federal Reserve’s purchases of agency securities has resulted in fewer opportunities for us to purchase mortgage loans from our members.

Executive and legislative branches of the federal and state governments and their agencies may take further steps to provide relief in connection with the continuing COVID-19 pandemic. While many relief programs and actions are temporary in nature, as with the existing relief efforts, they may have a direct or indirect impact on us or our members. Those impacts could, in turn, result in reduced demand for advances and/or heightened competition for mortgage loan purchases. We are unable to predict whether any such actions may be taken.

Cessation of the Use of LIBOR. On March 5, 2021, the U.K. Financial Conduct Authority (FCA) confirmed that the publication of the principal tenors of U.S. dollar LIBOR (i.e., overnight, one-month, three-month, six-month and twelve-month LIBOR) will cease immediately following a final publication on June 30, 2023. As of January 1, 2022, the one-week and two-month U.S. dollar LIBOR settings and all non-U.S. dollar LIBOR settings ceased to be provided by any administrator. Although the FCA has indicated that it does not expect the remaining U.S. dollar LIBOR settings to become unrepresentative before the cessation date, there is no assurance that any of them will continue to be published or be representative through any particular date.

Some of our assets and liabilities continue to be indexed to the principal U.S. dollar LIBOR tenors. Given the developments discussed above, however, we have taken and will continue to take steps to transition our LIBOR-linked financial instruments and contracts. To that end, and consistent with an FHFA supervisory letter sent to the FHLBanks on September 27, 2019 regarding the phase-out of LIBOR, we stopped purchasing investments that reference LIBOR. In addition, we have a ~~proposed rule~~LIBOR transition plan and will continue to analyze potential risks associated with the LIBOR transition, including, but not limited to, financial, market, accounting, operational, legal, tax, reputational and compliance risks, and will update such plan, to the extent necessary, to address such risks going forward. In accordance with such LIBOR transition plan, we are in the process of amendingour financial instruments and contracts that require adding or adjusting fallback language, including investments and derivatives. In addition, although the state of New York adopted legislation aimed at ensuring legal clarity for legacy instruments governed by New York law during the U.S. dollar LIBOR transition, which may apply to certain of our LIBOR-based financial instruments and contracts, there is no assurance that legislative or regulatory actions will dictate what happens if LIBOR ceases to exist or is no longer available, or what those actions might be. Accordingly, despite the efforts discussed in this paragraph, the contractual consequences of LIBOR cessation for some existing LIBOR-indexed instruments may not be clear.

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act was signed into law. The legislation provides a statutory fallback mechanism on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR, for certain contracts that reference LIBOR and contain no fallback provisions or insufficient fallback provisions.

Adoption of SOFR. We continue to take steps to adopt SOFR, an alternative to U.S. dollar LIBOR, for our relevant products, services and financial instruments. Since 2018, market activity in SOFR-linked financial instruments has continued to develop; however, the market transition from LIBOR to SOFR or another alternate reference rate has been and is expected to continue to be complicated, including the development of term and credit adjustments to accommodate, to the extent possible, differences between LIBOR and SOFR or any other alternate reference rate as well as other market conventions. Accordingly, alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of the financial instruments, which could adversely affect the value of, and return on, such financial instruments. In addition, the overnight Treasury repurchase market underlying SOFR has experienced and could continue to experience disruptions from time to time, which has resulted and may result in unexpected fluctuations in SOFR. The introduction of alternate reference rates also creates challenges in hedging and asset-liability management and may result in additional basis risk and increased volatility. While market activity in SOFR-linked financial instruments has continued to develop, the progress has been uneven. There can be no guarantee that SOFR will become the leading benchmark to replace U.S. dollar LIBOR and will be used across market segments and financial products in a timely manner. Further, a robust member demand for SOFR-linked advances is yet to develop. Any disruption in the market transition towards SOFR or another alternate reference rate could result in increased financial, operational, legal or reputational risks.

U.S. Treasury and Fannie Mae Preferred Stock Purchase Agreement. On January 14, 2021, the U.S. Treasury and Fannie Mae entered into a letter agreement amending the terms of their Preferred Stock Purchase Agreement, which could impact PFIs that participate in the MPF Program’s MPF Xtra product (where MPF loans acquired are concurrently sold to Fannie Mae). Under the Preferred Stock Purchase Agreement, the U.S. Treasury provides liquidity to Fannie Mae in exchange for senior preferred stock. Under the Preferred Stock Purchase Agreement amendment, which was to take effect January 1, 2022, the FHFA (acting as conservator for Fannie Mae) and the U.S. Treasury agreed to limit the dollar volume of loans Fannie Mae could purchase from a single seller through Fannie Mae’s cash window to $1.5 billion per year. As administrator of the MPF Program, the FHLBank Chicago purchases MPF Xtra loans from PFIs and sells them to Fannie Mae via the cash window process. Based on volumes for the MPF Xtra product program, the Preferred Stock Purchase Agreement amendment would ~~amend~~significantly curtail MPF Xtra cash window sales. On September 14, 2021, the ~~Agencies’ regulations~~FHFA and the U.S. Treasury temporarily suspended certain provisions of the Preferred Stock Purchase Agreement, including limits on Fannie Mae’s cash window limits, until at least September 14, 2022.

Although we do not currently expect the cash window limits to have a material impact on our financial condition or results of operations, they may negatively impact the volume of loans that ~~established minimum margin and capital~~PFIs are able to sell through the MPF Program.

Amendment to FINRA Rule 4210: Margining of Covered Agency Transactions. The Financial Industries Regulatory Authority (FINRA) amended FINRA Rule 4210 delaying the effectiveness of margining requirements for ~~uncleared swaps (the prudential~~covered agency transactions until April 26, 2022 (from the original effective date of January 26, 2022). On March 3, 2022, the SEC approved a further delay to the effectiveness of these margin ~~rules)~~requirements until October 26, 2022. Once the margining requirements are effective, we may be required to collateralize our transactions that are covered agency transactions, which include to be announced transactions (TBAs). These collateralization requirements could have the effect of reducing the overall profitability of engaging in covered agency transactions, including TBAs. Further, the collateralization requirements would expose us to credit risk from our counterparties to such transactions.

Affordable Housing. As previously disclosed, legislation has been introduced in the U.S. Senate and House of Representatives that, if enacted, would require the FHLBanks to set aside higher percentages of their earnings for ~~covered swap entities under~~their affordable housing and community investment programs than is currently required by law. Increased contributions to our AHP would result in less net income being available for other purposes. The FHLBanks continue to actively monitor any such potential legislation and developments.

CFTC and Other Derivatives Developments. The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was signed into law in July 2010, enacted numerous legal and regulatory changes for the ~~jurisdiction of one~~financial services industry, which have been gradually implemented over the ensuing years.

The Dodd-Frank Act mandated the U.S. federal regulation of the ~~Agencies (Agency covered swap entities). In addition~~over-the-counter (OTC) derivatives market and granted new joint regulatory authority to ~~other changes,~~ the ~~proposed amendments would permit those uncleared swaps entered into by Agency covered swap entities before~~SEC and the ~~compliance date~~CFTC over OTC derivatives. The SEC and CFTC have completed most of their rules to implement the ~~prudential margin rules (Agency legacy swaps) to retain their legacy status and not~~Dodd-Frank Act’s requirements. Pursuant thereto, certain of our derivatives operations have become subject to, the prudential margin rules in the event that they are amended to replace LIBOR or another rate that is reasonably expected to be discontinued or is reasonably determined to have lost its relevance as a reliable benchmark due to a significant impairment. Amongamong other things, the proposed rule would also amend the prudential margin rules to: (1) extend the phase-in compliance date for initial margin requirements from September 1, 2020 to September 1, 2021 for Agency covered swap entity counterparties with an average daily aggregate notional amountnew recordkeeping, reporting and documentation requirements. In addition, certain non-cleared derivatives entered into as part of ~~non-cleared swaps from $8 billion to $50 billion; (2) clarify that an Agency covered swap entity does not~~our derivatives operations have to execute initial margin trading documentation with a counterparty prior to the time that the counterparty is required to collect or post initial margin; and (3) permit Agency legacy swaps to retain their legacy status and not become subject to two-way variation margin requirements and may become subject to two-way initial margin requirements. These margining requirements are expected to increase the ~~prudential margin rules~~cost and reduce the availability of non-cleared derivatives. Collectively, the Dodd-Frank Act requirements have increased the direct and indirect costs of our hedging and related activities and will likely increase them further in the ~~event that they are amended due to certain life-cycle activities, such as reductions of notional amounts or portfolio compression exercises.~~

future. We do not expect ~~this rule, if adopted as proposed,~~these costs to have a material ~~effect~~impact on our financial condition or results of operations.

~~CFTC Advisory on Initial Margin Documentation Requirements.~~ On July 9, 2019, the CFTC issued an advisory (the Advisory) on the CFTC margin rules to clarify that documentation governing the posting, collection, and custody of initial margin is not required to be completed until such time as the aggregate unmargined exposure to a counterparty (and its margin affiliates) exceeds a threshold of $50 million. The CFTC margin rules provide that CFTC covered swap entities are required to post and collect initial margin with counterparties that are swap dealers or financial end users with material swaps exposure, as defined under the rule. The CFTC margin rules, however, contain an initial margin threshold amount of $50 million between a covered swap entity (and its margin affiliates) on the one hand, and its counterparty (and its margin affiliates) on the other. The Advisory clarifies that no initial margin documentation is required until the amount of initial margin exchangeable between a covered swap entity (and its margin affiliates) and its counterparty (and its margin affiliates) exceeds the initial margin threshold amount of $50 million. The Advisory, however, does instruct CFTC covered swap entities to closely monitor initial margin amounts if they are approaching the $50 million initial margin threshold with a counterparty and to take appropriate steps to ensure that the required documentation is in place at such time as the threshold is reached.

~~We are monitoring the initial margin thresholds and do not currently expect our documentation requirements to change based on the clarification to the CFTC margin rules provided by the Advisory.~~

Item 1A: Risk Factors

Business Risk - General

Changes in economic conditions, or federal fiscal and monetary policy could impact our business. Our net income is sensitive to changes in market conditions that can impact the interest we earn and pay and introduce volatility in other income (loss). These conditions include, but are not limited to, the following: (1) changes in interest rates; (2) fluctuations in both debt and equity capital markets; (3) conditions in the financial, credit, mortgage, and housing markets; (4) the willingness and ability of financial institutions to expand lending; and (5) ~~and~~ the strength of the U.S. economy and the local economies in which we conduct business. Our financial condition, results of operations, and ability to pay dividends could be negatively affected by changes in one or more of these conditions. Additionally, our business and results of operations may be affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve, which regulates the supply of money and credit in the U.S. The Federal Reserve’s policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities, which could adversely affect our financial condition, results of operations, and ability to pay dividends.

An The Federal Open Market Committee (FOMC) has indicated their intention to raise the Federal funds rate during 2022 and has begun slowing the pace of asset purchases in an effort to curb inflationary pressures in a tightening labor market. Slowing the growth in their balance sheet holdings of U.S. government bonds and MBS, coupled with rising short term interest rates, may introduce risks to the market that could trigger an economic ~~downturn, natural disaster,~~recession. Further, adverse trends in employment levels, a slowdown in regional or ~~pandemic in~~national economic activity, prolonged inflation, geopolitical instability or conflicts (including the ~~FHLBank’s region~~recent outbreak of hostilities between Russia and Ukraine), trade disruptions, and economic or other sanctions could adversely affect ~~our profitability and financial condition.~~ ~~Economic recession over a prolonged period or other unfavorable~~overall economic conditions ~~in our region~~ (including on a state or local level). If economic and market conditions deteriorate, it could have an adverse effect on our business, including the demand for our products and services, and the value of the collateral securing advances, investments, and mortgage loans held for portfolio.

The impacts of climate change and/or natural disasters in ~~portfolio.~~ the FHLBank’s region could have a material adverse impact on our members and our business. Portions of our region ~~also~~ are subject to risks from tornadoes, floods, or other natural ~~disasters,~~disasters. Climate change is increasing the frequency and ~~all are subject to pandemic risk.~~intensity of these weather events. These natural disasters, including those resulting from significant climate changes, could damage or destroy our properties (headquarters or business resiliency center), damage or dislocate the facilities of our members, ~~may~~ damage or destroy collateral that members have pledged to secure advances or mortgages, damage or destroy collateral securing certain securities, disrupt business for us or our members, negatively impact the livelihood of borrowers of members, or otherwise could cause significant economic dislocation in the affected areas of our region.

~~Additionally, the impact~~ Any of ~~widespread health emergencies~~these situations may adversely impact our financial condition and results of ~~operations, such as~~operations.

Climate change regulation and market reactions to climate change could adversely impact our members and our business, including the potential for an increase in climate risk assessment and supervision by our regulators. The shift toward a lower-carbon economy, driven by policy regulations, low-carbon technology advancement, consumer sentiment, and/or liability risks, may negatively impact ~~from the recent outbreak of the coronavirus, which was first detected in Wuhan, Hubei Province, China but has now spread to other countries, including the United States. If~~ our ~~members are adversely affected, or if the virus leads to a widespread health emergency that impacts our employees or vendors,~~ business model and/or the ~~borrowers~~business models of our members, asset valuations, and operating costs.

The impact of the COVID-19 pandemic and its variants on our members and our business has and is expected to continue to adversely affect our profitability and financial condition. The COVID-19 pandemic has and will likely continue to have negative economic effects both in the U.S. and around the world. Although certain economic conditions improved in 2021, the pandemic, and our response to it, continues to evolve and continues to affect member loan demand, interest rates, and capital market volatility. High levels of liquidity at member banks have reduced demand for advances, which could persist or decline further if levels of liquidity in the financial markets and deposit levels at member banks remain elevated or if another economic ~~growth generally,~~downturn occurs. The pandemic has also created shifts in certain demographic and economic trends, including employment trends, that have impacted our business environment. Further, supply and demand imbalances related to the pandemic have contributed to inflationary pressures that will likely increase operating costs for us and our members, and could have a negative effect on borrowers of loans made by our members.

Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), which are beyond our control. Volatility in the capital markets caused by the COVID-19 pandemic has impacted demand for FHLBank debt and the cost of the debt the FHLBanks issue, which could impact our liquidity and profitability. Our business and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments, and their agencies. As stated previously, the Federal Reserve’s policies directly and indirectly influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. In response to COVID-19, the FOMC lowered the target range for Federal funds to a target range of zero to 0.25 percent. The outlook for 2022 is uncertain, but the FOMC has indicated their intention to raise interest rates or use other policies if economic conditions warrant, each of which could further impact the efficiency of our asset and liability management activities and continue to negatively affect our financial condition and results of ~~operations~~operations.

Significant borrower defaults on loans made by our members could occur as a result of reduced economic activity and inflation and these defaults could cause members to fail. We could be adversely ~~affected.~~impacted by the reduction in business volume that could arise from the failure of one or more of our members. Further, counterparty default, whether as a result of the operational or financial impacts of the COVID-19 pandemic, could adversely impact our financial condition and results of operations. The extent to which the COVID-19 pandemic continues to impact our business will depend on future developments, including governmental, regulatory, and private sector actions and responses, actions taken to contain or prevent further spread, and actions taken in an effort to recover economically, each of which are highly uncertain and cannot be predicted.

Business Risk - Legislative and Regulatory

Our business has been, and may continue to be, adversely impacted by legislation and other ongoing actions by the U. S. government in response to periodic disruptions in the financial markets. To the extent that any actions by the U.S. government in response to an economic downturn, recession, inflation or other macro-level events or conditions cause a significant decrease in the aggregate amount of advances or increase our operating costs, our financial condition and results of operations may be adversely affected. Our primary regulator, the FHFA, also continues to issue proposed and final regulatory and other ~~requirements as a result~~requirements. Additionally, potential legislative and regulatory changes affecting our members, investors, and dealers of consolidated obligations could adversely affect our business activities, financial condition, and results of operations. Policymakers and regulators have been examining potential policy measures intended to improve the ~~Recovery Act,~~resilience of money market funds and broader short-term funding markets in recent years, including in response to the ~~Dodd-Frank Act~~market stress experienced in the short-term funding markets in March 2020 caused by the COVID-19 pandemic. In December 2021, the SEC proposed additional money market fund reform in an effort to improve the resilience and ~~other significant legislation.~~transparency of money market funds. We cannot predict the effect of any new regulations or other regulatory guidance, including money market reforms, on our operations. Changes in regulatory requirements could result in, among other things, an increase in our cost of funding or overall cost of doing business, or a decrease in the size, scope or nature of our membership base, or our lending, investment, or mortgage loan activity, which could negatively affect our financial condition and results of operations. See Item 1 – “Business – Legislative and Regulatory Developments” for more information on potential future legislation and other regulatory activity affecting us.

We are subject to a complex body of laws and regulatory and other requirements that could change in a manner detrimental to our operations. The FHLBanks are GSEs organized under the authority of the Bank Act, and, as such, are governed by federal laws, regulations and other guidance adopted and applied by the FHFA, which serves as the federal regulator of the FHLBanks and the Office of Finance, Fannie Mae, and Freddie Mac. There is a risk that actions by the FHFA toward Fannie Mae and Freddie Mac may have an unfavorable impact on the FHLBanks’ operations and/or financial condition because of the significant difference in their business models compared to ours. In addition, Congress may amend the Bank Act or pass other legislation that significantly affects the rights, obligations, and permissible activities of the FHLBanks and the manner in which the FHLBanks carry out their housing-finance and liquidity missions and business operations. The U.S. Congress is considering broad legislation for reform of GSEs as a result of the disruptions in the financial and housing markets and the conservatorships of Fannie Mae and Freddie Mac. We do not know how, when, or to what extent GSE reform legislation will be adopted, and if adopted, how it would impact the business or operations of FHLBank or the FHLBank System. We are, or may also become, subject to further regulations promulgated by the SEC, CFTC, Federal Reserve Bank, Financial Crimes Enforcement Network, or other regulatory agencies. In addition, there is a risk that our funding costs and access to funds could be adversely affected by changes in investors’ perception of the systemic risks associated with Fannie Mae and Freddie Mac.

We cannot predict whether new regulatory or other requirements will be promulgated by the FHFA or other regulatory agencies, or whether Congress will enact new legislation, and we cannot predict the effect of any new regulatory requirements or legislation on our operations. Changes in regulatory, statutory or other requirements could result in, among other things, an increase in our cost of funding and the cost of operating our business, a change in our permissible business activities, increases in required contributions to affordable housing programs, or a decrease in the size, scope or nature of our membership or our lending, investment or mortgage loan activities, which could negatively affect our financial condition and results of operations.

A majority of the states, and some municipalities, have enacted laws prohibiting mortgage loans considered predatory or abusive. Some of these laws impose liability for violations not only on the originator, but also upon purchasers and assignees of mortgage loans. We take measures that we consider reasonable and appropriate to reduce our exposure to potential liability under these laws and are not aware of any potential or pending claim, action, or proceeding asserting that we are liable under these laws. However, there can be no assurance that we will never have any liability under predatory or abusive lending laws. This may negatively impact our financial condition and results of operations and potentially negatively impact our reputation.

Business Risk - Strategic

We face competition for loan demand, purchases of mortgage loans and access to funding, which could adversely affect our earnings. Our primary business is making advances to our members. We compete with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks, and, in certain circumstances, other FHLBanks. Our members have access to alternative funding sources that may offer more favorable terms than we offer on our advances, including more flexible credit or collateral standards. In addition, many of our competitors are not subject to the same regulations that are applicable to us. This enables those competitors to offer products and terms that we are not able to offer.

The availability of alternative funding sources to our members may significantly decrease the demand for our advances. Any change we might make in pricing our advances, in order to compete more effectively with competitive funding sources, may decrease our profitability on advances. A decrease in the demand for our advances or a decrease in our profitability on advances, would negatively affect our financial condition and results of operations.

Likewise, our acquisition of mortgage loans is subject to competition. The most direct competition for purchases of mortgage loans comes from other buyers of conventional, conforming, fixed rate mortgage loans, such as Fannie Mae and Freddie Mac. Increased competition can result in the acquisition of a smaller market share of the mortgage loans available for purchase and, therefore, lower income from this business activity.

We also compete in the capital markets with Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities for funds raised through the issuance of consolidated obligations and other debt instruments. Our ability to obtain funds through the issuance of debt depends in part on prevailing market conditions in the capital markets (including investor demand), such as effects on the reduction in liquidity in financial markets, which are beyond our control. Accordingly, we may not be able to obtain funding on terms that are acceptable to us. Increases in the supply of competing debt products in the capital markets may, in the absence of increases in demand, result in higher debt costs to us or lesser amounts of debt issued at the same cost than otherwise would be the case. Although our supply of funds through issuance of consolidated obligations has always kept pace with our funding needs, we cannot guarantee that this will continue in the future, especially in the case of financial market disruptions when the demand for advances by our members typically increases.

Member mergers or consolidations, failures, changes in member eligibility, or other changes in member business with us may adversely affect our financial condition and results of operations. The financial services industry periodically experiences consolidation, which may occur as a result of various factors including adjustments in business strategies and increasing expense and compliance burdens. If future consolidation occurs within our district, it may reduce the number of current and potential members in our district, resulting in a loss of business to us and a potential reduction in our profitability. Member failures and out-of-district consolidations, as well as members being deemed ineligible for continued FHLBank membership, also can reduce the number of current and potential members in our district. The resulting loss of business could negatively impact our financial condition and the results of operations, as well as our operations generally. If our advances are concentrated in a smaller number of members, our risk of loss resulting from a single event (such as the loss of a member’s business due to the member’s acquisition by a ~~non-member)~~non-member or a member being deemed ineligible for continued membership) would become proportionately greater.

Further, while member failures may cause us to liquidate pledged collateral if the outstanding advances are not repaid, historically, failures have been resolved either through repayment directly from the FDIC or through the purchase and assumption of the advances by another surviving financial institution. Liquidation of pledged collateral by us may cause financial statement losses. Additionally, if members become financially distressed, we may, at the request of their regulators, decrease lending limits or, in certain circumstances, cease lending activities to certain members if they do not have adequate eligible collateral to support additional borrowings. If members are unable to obtain sufficient liquidity from us, that member's financial position may continue to deteriorate. This may negatively impact our reputation and, therefore, negatively impact our financial condition and results of operations.

A high proportion of advances and capital is concentrated with a few members, and a loss of, or change in business activities with, such institutions could adversely affect us. We have a concentration of advances (see Table ~~26)~~21) and capital with a few institutions. A reduction in advances by such institutions, or the loss of membership by such institutions, whether through merger, consolidation, withdrawal, or other action, may result in a reduction in our total assets and a possible reduction of capital as a result of the repurchase or redemption of capital stock. The reduction in assets and capital may also reduce our net income.

Changes in our credit ratings may adversely affect our business operations. As of ~~March 13, 2020,~~February 28, 2022, we are rated Aaa with a stable outlook by Moody’s and AA+ with a stable outlook by S&P. Adverse revisions to or the withdrawal of our credit ratings could adversely affect us in a number of ways. It might influence counterparties to limit the types of transactions they would be willing to enter into with us or cause counterparties to cease doing business with us. We have issued letters of credit to support deposits of public unit funds with our members. In some circumstances, loss of or reduction in any of our current ratings could result in our letters of credit no longer being acceptable to collateralize public unit deposits or other transactions. We have also executed various standby bond purchase agreements (SBPA) in which we provide a liquidity facility for bonds issued by the HFAs by agreeing to purchase the bonds in the event they are tendered and cannot be remarketed in accordance with specified terms and conditions. If our current short-term ratings are reduced, suspended, or withdrawn, the issuers will have the right to terminate these SBPAs, resulting in the loss of future fees that would be payable to us under these agreements.

Changes in the credit standing of the U.S. Government or other FHLBanks, including the credit ratings assigned to the U.S. Government or those FHLBanks, could adversely affect us. Pursuant to criteria used by S&P and Moody’s, the FHLBank System’s debt is linked closely to the U.S. sovereign rating because of the FHLBanks’ status as GSEs and the public perception that the FHLBank System would be likely to receive U.S. government support in the event of a crisis. The U.S. government’s fiscal challenges could impact the credit standing or credit rating of the U.S. government, which could in turn result in a revision of the rating assigned to us or the consolidated obligations of the FHLBank System.

The FHLBanks issue consolidated obligations that are the joint and several liability of all FHLBanks. Significant developments affecting the credit standing of one or more of the other FHLBanks, including revisions in the credit ratings of one or more of the other FHLBanks, could adversely affect the cost of consolidated obligations. An increase in the cost of consolidated obligations would adversely affect our cost of funds and negatively affect our financial condition. As of ~~March 13, 2020,~~February 28, 2022, the consolidated obligations of the FHLBanks are rated Aaa/P-1 by Moody’s and AA+/A-1+ by S&P. All of the FHLBanks are rated Aaa with a stable outlook by Moody’s and AA+ with a stable outlook by S&P. Changes in the credit standing or credit ratings of one or more of the other FHLBanks could result in a revision or withdrawal of the ratings of the consolidated obligations by the rating agencies at any time, which may negatively affect our cost of funds and our ability to issue consolidated obligations for our benefit.

We may become liable for all or a portion of the consolidated obligations of one or more of the other FHLBanks. We are jointly and severally liable with the other FHLBanks for all consolidated obligations issued on behalf of all FHLBanks through the Office of Finance. We cannot pay any dividends to members or redeem or repurchase any shares of our capital stock unless the principal and interest due on all our consolidated obligations have been paid in full. If another FHLBank were to default on its obligation to pay principal or interest on any consolidated obligation, the FHFA may allocate the outstanding liability among one or more of the remaining FHLBanks on a pro rata basis or on any other basis the FHFA may determine. As a result, our ability to pay dividends to our members or to redeem or repurchase shares of our capital stock could be affected not only by our own financial condition, but also by the financial condition of one or more of the other FHLBanks.

Credit Risk

Declines in U.S. home prices or in activity in the U.S. housing market or rising delinquency or default rates on mortgage loans could result in credit losses and adversely impact our business operations and/or financial condition. A deterioration of the U.S. housing market and national decline in home prices could adversely impact the financial condition of a number of our borrowers, particularly those whose businesses are concentrated in the mortgage industry. One or more of our borrowers may default on their obligations to us for a number of reasons, such as changes in financial condition, a reduction in liquidity, operational failures, or insolvency. In addition, the value of residential mortgage loans pledged to us as collateral may decrease. If a borrower defaults, and we are unable to obtain additional collateral to make up for the reduced value of such residential mortgage loan collateral, we could incur losses. A default by a borrower lacking sufficient collateral to cover its obligations to us could result in significant financial losses, which would adversely impact our results of operations and financial condition.

Defaults by one or more of our institutional counterparties on its obligations to us could adversely affect our results of operations or financial condition. We have a high concentration of credit risk exposure to financial institutions as counterparties, ~~the majority~~some of which are ~~located within~~outside of the United ~~States, Canada, Australia, and Europe.~~States. Our primary exposures to institutional counterparty risk are with: (1) obligations of mortgage servicers that service the loans we have as collateral on our credit obligations; (2) third-party providers of credit enhancements on the MBS that we hold in our investment portfolio, including mortgage insurers, bond insurers, and financial guarantors; (3) third-party providers of PMI and SMI for mortgage loans purchased under the MPF Program; (4) uncleared derivative counterparties; (5) third-party custodians and futures commission merchants associated with cleared derivatives; and (6) unsecured money market and Federal funds investment transactions. A default by a counterparty with significant obligations to us could adversely affect our ability to conduct operations efficiently and at cost-effective rates, which in turn could adversely affect our results of operations and financial condition.

A default by a derivatives clearinghouse on its obligations could adversely affect our results of operations or financial condition. The Dodd-Frank Act and implementing CFTC regulations require all clearable derivatives transactions to be cleared through a derivatives clearinghouse. As a result of such statutes and regulations, we are required to centralize our risk with the derivatives clearinghouses as opposed to the pre-Dodd-Frank Act methods of entering into derivatives transactions that allowed us to distribute our risk among various counterparties. A default by a derivatives clearinghouse could: (1) adversely affect our financial condition in the event the derivatives clearinghouse is unable to make payments owed to us or return our posted initial margin; (2) jeopardize the effectiveness of derivatives hedging transactions; and (3) adversely affect our operations as we may be unable to enter into certain derivatives transactions or do so at cost-effective rates.

Securities or loans pledged as collateral by our members or collateral securing mortgage loans or MBS investments could be adversely affected by the devaluation of, or inability to liquidate, the collateral in the event of a default. Although we seek to obtain sufficient collateral on our credit obligations to protect ourselves from credit losses, changes in market conditions, uninsured or underinsured natural disasters, or other factors may cause the collateral to deteriorate in value, which could lead to a credit loss in the event of a default by a member or a borrower and adversely affect our financial condition and results of operations. A reduction in liquidity in the financial markets or otherwise could have the same effect.

Our funding depends on our ability to access the capital markets. Our primary source of funds is the sale of consolidated obligations in the capital markets, including the short-term discount note market. Our ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand) at the time. Our counterparties in the capital markets are also subject to additional regulation following the financial crisis that ~~ended~~began in ~~2010.~~2008. These regulations could alter the balance sheet composition, market activities, and behavior of our counterparties in a way that could be detrimental to our access to the capital markets and overall financial market liquidity, which could have a negative impact on our funding costs and results of operations. Further, we rely on the Office of Finance for the issuance of consolidated obligations, and a failure or interruption of services provided by the Office of Finance could hinder our ability to access the capital markets. Accordingly, we cannot make any assurance that we will be able to obtain funding on terms acceptable to us in the future, if we are able to obtain funding at all in the case of ~~another~~future severe financial, economic, geopolitical, or other ~~disruption.~~disruptions. If we cannot access funding when needed, our ability to support and continue our operations would be adversely affected, negatively affecting our financial condition and results of operations.

Market Risk

Our profitability may be adversely affected if we are not successful in managing our interest rate risk. Like most financial institutions, our results of operations are significantly affected by our ability to manage interest rate risk. We use a number of tools to monitor and manage interest rate risk, including income simulations and duration/market value sensitivity analyses. ~~Given the unpredictability of the financial markets, capturing all potential outcomes in these analyses is extremely difficult.~~ Key assumptions used in our market value sensitivity analyses include interest rate volatility, mortgage prepayment projections and the future direction of interest rates, among other factors. Key assumptions used in our income simulations include projections of ~~advances~~advance volumes and pricing, ~~MPF~~mortgage loan volumes and pricing, market conditions for our debt, prepayment speeds and cash flows on mortgage-related assets, the level of short-term interest rates, and other factors. These assumptions are inherently uncertain and, as a result, the measures cannot precisely estimate net interest income or the market value of our equity nor can they precisely predict the effect of higher or lower interest rates or changes in other market factors on net interest income or the market value of our equity. Actual results will most likely differ from simulated results due to the timing, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. Our ability to maintain a positive spread between the interest earned on our earning assets and the interest paid on our interest-bearing liabilities may be affected by the unpredictability of changes in interest rates.

~~There~~Prepayment risk is ~~substantial uncertainty regarding~~the risk that the principal amount or a portion thereof outstanding of a mortgage loan or debt security is paid back prior to maturity, which can reduce income if we are unable to reinvest prepaid cash flows at favorable rates. Extension risk is the risk that the expected life of a loan will lengthen, typically observed in rising rate environments, thereby creating fair value and funding risk. The direction of interest rate changes, either actual or perceived, can impact prepayment and extension risk on fixed rate mortgage loans and mortgage-related securities. Residential mortgage-related assets typically have no restrictions on prepayment, while commercial mortgage-related assets typically charge a yield maintenance or prepayment fee structured to compensate the security holder for the loss of income resulting from the prepayment and thereby reduce reinvestment risk. Other external factors, such as property values or credit scores, can also impact prepayment and extension risk, as both impact the ability of the borrower to refinance. Although the factors impacting prepayments are observable and we generally expect prepayment and extension behavior in certain environments, the timing and volume of prepayments, particularly in commercial mortgage-related assets, can be difficult to predict.

Our business, results of operations and financial condition could be adversely impacted by the replacement of the LIBOR benchmark interest rate ~~which could adversely affect our business, results of operations, and financial condition.~~ In July 2017, the United Kingdom's Financial Conduct Authority (FCA) announced that it plans to phase out the regulatory oversight of LIBOR interest rate indices by 2021. The FCA and the submitting LIBOR banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. While we currently expect LIBOR to be viable benchmark until the end of 2021, it is possible that LIBOR will become unavailable prior to the end of 2021. We are unable to predict when LIBOR will cease to be available and market participants have not agreed on a cessation trigger. The Alternative Reference Rates Committee (ARRC) in the United States has identified SOFR as the rate that represents best practice for use in new US Dollar (USD) derivatives and other financial contracts as its recommended alternative to USD LIBOR in the United States. SOFR is intended to be a broad measure of the average cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR rates in April 2018. As noted throughout this annual report, many of our assets and liabilities, including derivative assets and derivative liabilities, are indexed to USD LIBOR. A portion of these assets and liabilities and related collateral have maturity dates that extend beyond 2021.

~~We are evaluating the potential impact of the replacement of the LIBOR benchmark interest rate, including the likelihood of SOFR prevailing as the most widely adopted replacement reference rate.~~. The market transition away from LIBOR has been and is expected to continue to be ~~gradual and~~ complicated, including the development of term and credit adjustments to accommodate differences between LIBOR, an unsecured rate, and SOFR, a secured rate. Introduction of an alternative reference rate also may introduce additional basis risk for market participants as an alternative index is utilized along with LIBOR. ~~There can~~Demand for SOFR term debt has gained momentum as LIBOR approaches cessation. Among other factors, demand for SOFR-indexed instruments will continue to be ~~no guarantee that~~dependent upon market participants' preference for SOFR ~~will become widely used and that other~~over existing alternative reference rates ~~may~~ or ~~may~~an alternative reference rate that has yet to be developed. The publication of LIBOR on a representative basis ceased for one-week and two-month LIBOR effective January 1, 2022. The remaining LIBOR tenors will cease publication immediately after June 30, 2023, and although the FCA does not ~~be developed with additional complications. We are not able~~expect these remaining LIBOR tenors to ~~predict whether~~become unrepresentative prior to the cessation date, there is no assurance LIBOR will ~~cease~~continue to be ~~available after 2021, whether SOFR will become~~ a widely accepted reference rate in place of LIBOR, or what the precise impact of a possible transition to SOFR or another alternate replacement reference rate will have on our business, financial condition, or results of operations.viable index through any particular date. The upcoming discontinuance of LIBOR and transition to SOFR or an alternative reference rate could adversely impact existing financial assets and liabilities indexed to LIBOR, including the effectiveness of existing hedging transactions, which could have an adverse impact on our business, financial condition, and results of operations.

For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under Item 7.

We rely on derivatives to lower our cost of funds and reduce our interest rate, option and prepayment risk, and we may not be able to enter into effective derivative instruments on acceptable terms; thus, these derivatives may adversely affect our results of operations. We use derivatives to: (1) obtain funding at more favorable rates; and (2) reduce our interest rate risk, option risk and mortgage prepayment risk. Management determines the nature and quantity of hedging transactions using derivatives based on various factors, including market conditions and the expected volume and terms of advances or other transactions. As a result, our effective use of derivatives depends on management’s ability to determine the appropriate hedging positions considering: (1) our assets and liabilities; and (2) prevailing and anticipated market conditions. In addition, the effectiveness of our hedging strategies depends on our ability to enter into derivatives with acceptable counterparties, or through derivative clearinghouses, on terms desirable to us and in the quantities necessary to hedge our corresponding obligations, interest rate risk or other risks. The cost of entering into derivative instruments has increased as a result of: (1) consolidations, mergers and bankruptcy or insolvency of financial institutions, which have led to fewer counterparties, resulting in less liquidity in the derivatives market; and (2) increased uncertainty related to the potential changes in legislation and regulations regarding ~~over-the-counter~~OTC derivatives including increased margin and capital requirements, and increased regulatory costs and transaction fees associated with clearing and custodial arrangements. If we are unable to manage our hedging positions properly, or are unable to enter into derivative hedging instruments on desirable terms or at all, we may incur higher funding costs, be required to limit certain advance product offerings, and be unable to effectively manage our interest rate risk and other risks, which could negatively affect our financial condition and results of operations.

The use of derivatives also subjects us to earnings volatility caused primarily by the changes in the fair values of derivatives that do not qualify for hedge accounting and, to a lesser extent, by hedge ineffectiveness, which is the difference in the amounts recognized in our earnings for the changes in fair value of a derivative and the related hedged item. If we are unable to apply hedge accounting due to changes in accounting guidance or other changes in circumstances that impact our ability to utilize hedge accounting, the result could be an increase in the volatility of our earnings from period to period. Such increases in earnings volatility could affect our ability to pay dividends, our ability to meet our retained earnings threshold, and our members’ willingness to hold the capital stock necessary for membership and/or lending activities with us.

Liquidity and Capital Risk

We may not be able to meet our obligations as they come due or meet the credit and liquidity needs of our members in a timely and cost-effective manner. We seek to be in a position to meet our members’ credit and liquidity needs and to pay our obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. In addition, we are subject to various regulatory liquidity requirements, including a contingency funding plan designed to protect against temporary access disruptions ~~in access~~ to the FHLBank debt markets in response to a rise in capital market volatility. Our efforts to manage our liquidity position, including carrying out our contingency funding plan and the related costs, may not enable us to meet our obligations and the credit and liquidity needs of our members, which could have an adverse effect on our net interest income, and thereby, our financial condition and results of operations.

An increase in required AHP contributions could adversely affect our results of operations, our ability to pay dividends, or our ability to redeem or repurchase capital stock. The Bank Act requires each FHLBank to contribute to its AHP the greater of: (1) 10 percent of that FHLBank’s net earnings for the previous year; or (2) that FHLBank’s pro rata share of an aggregate of $100 million, the proration of which is based on the net earnings of the FHLBanks for the previous year. A failure of the FHLBanks to make the minimum $100 million annual AHP contribution in a given year or new or modified legislation could result in an increase in our required AHP contribution, which could adversely affect our results of operations, our ability to pay dividends, or our ability to redeem or repurchase capital stock.

We may not be able to pay dividends at rates consistent with past practices. Our ~~Board~~board of ~~Directors~~directors may only declare dividends on our capital stock, payable to members, from our unrestricted retained earnings and current net income. Our ability to pay dividends also is subject to statutory and regulatory requirements, including meeting all regulatory capital requirements. The potential promulgation of regulations or other requirements by the FHFA that would require higher levels of required or restricted retained earnings could lead to higher levels of retained earnings, and thus, lower amounts of unrestricted retained earnings available to be paid out to our members as dividends. Failure to meet any of our regulatory capital requirements would prevent us from paying any dividend.

Events such as changes in our market risk profile, credit quality of assets held, and increased volatility of net income caused by the application of certain GAAP may affect the adequacy of our retained earnings and may require us to increase our threshold level of retained earnings and correspondingly reduce our dividends from historical payout ratios to achieve and maintain the threshold amounts of retained earnings under our RMP. Additionally, FHFA regulations on capital classifications could restrict our ability to pay dividends. Further, our ability to pay dividends at historical rates is impacted directly by our net income, so a decline in net income could result in a decline in dividend rates. A decline in dividend rates may diminish members’ interest in holding FHLBank capital stock and could decrease demand for ~~advances.~~advances, AMA or letters of credit.

Lack of a public market and restrictions on transferring our stock could result in an illiquid investment for the holder. Under the GLB Act, FHFA regulations and our capital plan, our Class A Common Stock may be redeemed upon the expiration of a six-month redemption period and our Class B Common Stock after a five-year redemption period following our receipt of a redemption request. Only capital stock in excess of a member’s minimum investment requirement, capital stock held by a member that has submitted a notice to withdraw from membership, or capital stock held by a member whose membership has been terminated may be redeemed at the end of the redemption period. Further, we may elect to repurchase excess capital stock of a member at any time at our sole discretion.

We cannot guarantee, however, that we will be able to redeem capital stock even at the end of the redemption periods. The redemption or repurchase of our capital stock is prohibited by FHFA regulations and our capital plan if the redemption or repurchase of the capital stock would cause us to fail to meet our minimum regulatory capital requirements. Likewise, under such regulations and the terms of our capital plan, we could not honor a member’s capital stock redemption request if the redemption would cause the member to fail to maintain its minimum capital stock investment requirement. Moreover, since our capital stock may only be owned by our members (or, under certain circumstances, former members and certain successor institutions), and our capital plan requires our approval before a member may transfer any of its capital stock to another member, we can provide no assurance that a member would be allowed to sell or transfer any excess capital stock to another member at any point in time.

We may also suspend the redemption of capital stock if we reasonably believe that the redemption would prevent us from maintaining adequate capital against a potential risk, or would otherwise prevent us from operating in a safe and sound manner. In addition, approval from the FHFA for redemptions or repurchases is required if the FHFA or our ~~Board~~board of ~~Directors~~directors were to determine that we have incurred, or are likely to incur, losses that result in, or are likely to result in, charges against our capital. Under such circumstances, we cannot guarantee that the FHFA would grant such approval or, if it did, upon what terms it might do so. We may also be prohibited from repurchasing or redeeming our capital stock if the principal and interest due on any consolidated obligations that we issued through the Office of Finance has not been paid in full or if we become unable to comply with regulatory liquidity requirements to satisfy our current obligations.

Accordingly, there are a variety of circumstances that would preclude us from redeeming or repurchasing our capital stock that is held by a member. Since there is no public market for our capital stock and transfers require our approval, we cannot guarantee that a member’s purchase of our capital stock would not effectively become an illiquid investment.

Operational Risk

We rely on financial models to manage our market and credit risk, to make business decisions, and for financial accounting and reporting purposes. The impact of financial models and the underlying assumptions used to value financial instruments may have an adverse impact on our financial condition and results of operations. We make significant use of financial models for managing risk. For example, we use models to measure and monitor exposures to interest rate and other market risks, including prepayment risk and credit risk. We also use models in determining the fair value of financial instruments for which independent price quotations are not available or reliable. The degree of management judgment in determining the fair value of a financial instrument is dependent on the availability of quoted market prices or observable market parameters. For financial instruments that are actively traded and have quoted market prices or parameters readily available, there is little to no subjectivity in determining fair value. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on management's best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities. While the models we use to value instruments and measure risk exposures are subject to regular validation by independent parties, rapid changes in market conditions could impact the value of our instruments. The use of different models and assumptions, as well as changes in market conditions, could impact our financial condition and results of operations.

The information provided by these models is also used in making business decisions relating to strategies, initiatives, transactions, and products, and in financial statement reporting. We have adopted policies, procedures, and controls to monitor and manage assumptions used in these models. However, models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different. If the results are not reliable due to inaccurate assumptions, judgments, or estimates, we could make poor business decisions, including asset and liability management, or other decisions, which could result in an adverse financial impact. Furthermore, any strategies that we employ to attempt to manage the risks associated with the use of models may not be effective.

We rely heavily on information systems and other technology. A failure, interruption, or security breach, including events caused by cyberattacks, of our information systems or those of critical vendors and third parties, such as the Federal Reserve Banks,could disrupt our business or adversely affect our reputation. We rely heavily on information systems and other technology to conduct and manage our ~~business.~~business, and we rely on vendors and other third parties to perform certain critical services. If key technology platforms become obsolete, or if we experience disruptions, including difficulties in our ability to process transactions, our revenue and results of operations could be materially adversely affected. To the extent that we or one of our critical vendors experience a failure or interruption in any of these systems or other technology, including events caused by cyberattacks, we may be unable to conduct and manage our business effectively, including, without limitation, our funding, hedging, and advance activities. For example, the Federal Reserve Banks experienced an outage on February 24, 2021, which resulted in widespread disruptions to its financial services, including services that we utilize. Additionally, asuch failure in or breach ~~of our operational or security systems or infrastructure, or those of third parties with which we do business, including as a result of cyber-attacks,~~ could disrupt our systems or data necessary for the operation of our business and/or result in the disclosure or misuse of confidential or proprietary information, or the unavailability of systems or data that are necessary for the operation of our business. While we have implemented ~~disaster recovery,~~ business ~~continuity,~~resiliency and legacy software reduction plans, we can make no assurance that these plans will be able to prevent, timely and adequately address, or mitigate the negative effects of any such failure or interruption. Cyberattacks, in particular those on financial institutions or financial market infrastructures, have become more frequent, sophisticated, and difficult to detect or prevent. There may be an increased risk of cyberattacks as a result of geopolitical conflicts. A failure to maintain current technology, systems, and facilities or an operational failure or interruption could significantly harm our customer relations, risk management, and profitability, which could negatively affect our financial condition and results of operations.

For additional information on information system and security threats, see “Risk Management – Operations Risk Management” under Item 7.

Our controls and procedures may fail or be circumvented, and risk management policies and procedures may be inadequate. We may fail to identify and manage risks related to a variety of aspects of our business, including without limitation, operational risk, legal and compliance risk, human capital risk, liquidity risk, market risk, and credit risk. We have adopted controls, procedures, policies, and systems to monitor and manage these risks. Our management cannot provide complete assurance that such controls, procedures, policies, and systems are adequate to identify and manage the risks inherent in our business and because our business continues to evolve, we may fail to fully understand the implications of changes in our business, and therefore, we may fail to enhance our risk governance framework to timely or adequately address those changes. Failed or inadequate controls and risk management practices could have an adverse effect on our financial condition, results of operations or reputation.

For additional information on internal controls, see “Risk Management – Operations Risk Management” under Item 7.

We may be unable to attract and retain a highly qualified and diverse workforce, including key management. Our success depends on the talents and efforts of our employees, and particularly our management. We have experienced higher employee turnover and increased competition in hiring and retaining skilled key personnel in 2021, as the ongoing COVID-19 pandemic brought about significant disruptions and changes to the U.S. labor market. We may be unable to retain key management or to attract other highly qualified employees, particularly if we do not offer employment terms that are competitive with the rest of the market. Failure to attract and retain highly qualified and diverse employees, or failure to develop and implement an adequate succession plan for key members of management, could adversely affect our financial condition and results of operations.

Reliance on FHLBank Chicago as MPF Provider could have a negative impact on our business if FHLBank Chicago were to default on its contractual obligations owed to us.As part of our business, we participate in the MPF Program with FHLBank Chicago. In its role as MPF Provider, FHLBank Chicago provides the infrastructure, operational support, and maintenance of investor relations for the MPF Program and is also responsible for publishing and maintaining the MPF Guides, which include the requirements PFIs must follow in originating or selling and servicing MPF mortgage loans. If FHLBank Chicago changes its MPF Provider role, ceases to operate the MPF Program, or experiences a failure or interruption in its information systems and other technology, our mortgage loan assets could be adversely affected, and we could experience a related decrease in our net interest margin and profitability. In the same way, we could be adversely affected if any of FHLBank Chicago's third-party vendors engaged in the operation of the MPF Program, or investors that purchase mortgages under the MPF Program, were to experience operational or other difficulties that prevent the fulfillment of their contractual obligations.

Item 1B: Unresolved Staff Comments

Not applicable.

Item 2: Properties

We own our primary facility located at 500 SW Wanamaker Road, Topeka, Kansas. Our facility is Leadership in Energy and Environment Design (LEED) Certified Gold status, in alignment with our commitment to sustainability, energy efficiency, and natural resource conservation.

Item 3: Legal Proceedings

We are subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on our financial condition or results of operations. Additionally, management does not believe that we are subject to any material pending legal proceedings outside of ordinary litigation incidental to our business.

Item 4: Mine Safety Disclosures

Not applicable.

PART II

Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As a cooperative, members own almost all of our Class A Common Stock and Class B Common Stock with the remainder of the capital stock held by former members that are required to retain capital stock ownership to support outstanding advance and mortgage loan activity the former members executed while they were members. However, the portion of our capital stock subject to mandatory redemption is treated as a liability and not as capital, including the capital stock of former members. There is no public trading market for our capital stock.

All of our member directors are elected by and from the membership, and we conduct our business in advances and mortgage loan acquisitions almost exclusively with our members. Depending on the class of capital stock, it may be redeemed at par value either six months (Class A Common Stock) or five years (Class B Common Stock) after we receive a written request by a member, subject to regulatory limits and to the satisfaction of any ongoing stock investment requirements applying to the member under our capital plan. We may repurchase shares held by members in excess of the members’ required stock holdings at our discretion at any time at par value. Par value of all common stock is $100 per share. As of ~~March 13, 2020,~~February 28, 2022, we had ~~706~~677 stockholders of record and ~~4,524,494~~3,549,630 shares of Class A Common Stock and ~~13,099,122~~14,716,757 shares of Class B Common Stock outstanding, including ~~15,214~~5,643 shares of Class A Common Stock and ~~8,500~~no shares of Class B Common Stock subject to mandatory redemption by members or former members. ~~"Classes"~~“Classes” of stock are not registered under the Securities Act of 1933, as amended. The Recovery Act amended the Exchange Act to require the registration of a class of common stock of each FHLBank under Section 12(g) of the Exchange Act and for each FHLBank to maintain such registration and to be treated as an “issuer” under the Exchange Act, regardless of the number of members holding such a class of stock at any given time. Pursuant to an FHFA regulation, we voluntarily registered one of our classes of stock pursuant to Section 12(g)(1) of the Exchange Act.

Dividends may be paid in cash or shares of Class B Common Stock as authorized under our capital plan and approved by our ~~Board~~board of ~~Directors.~~directors. FHFA regulation prohibits any FHLBank from paying a stock dividend if excess stock outstanding will exceed one percent of its total assets after payment of the stock dividend. We ~~were able to~~consistently manage our excess capital stock position in ~~the past two years in~~ order to be able to pay stock dividends.

~~Due to the decline in interest rates in recent periods,~~Base stock dividends on Class A Common Stock and Class B Common Stock ~~will likely be lower~~are anticipated to remain at current levels or increase in ~~2020 than~~2022 relative to what was paid in ~~2019.~~2021. Historically, dividend levels have been influenced by several factors and objectives, including the ~~following objectives:~~following: (1) ~~moving~~ dividend ~~rates gradually over time;~~rate consistency; (2) ~~having dividends reflective of~~ the current level of ~~current~~ short‑term interest rates; and (3) ~~managing~~ the ~~balance~~level of retained earnings ~~to appropriate levels~~ as set forth in the retained earnings policy. See Item 1 – “Business – Capital, Capital Rules and Dividends” for more information regarding our retained earnings policy, and also see Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital” for a discussion of restrictions on dividend payments in the form of capital stock.

~~Item 6: Selected Financial Data~~

~~Table 7 presents Selected Financial Data for the periods indicated (dollar amounts in thousands):~~

~~Table 7~~

12/31/2019 12/31/2018 12/31/2017 12/31/2016 12/31/2015
Statement of Condition (as of period end):
Total assets $ 63,276,654
$ 47,715,256
$ 48,076,605
$ 45,216,749
$ 44,426,133
Investments¹
20,086,473
10,305,382
13,998,599
13,609,653
13,606,080
Advances 30,241,315
28,730,113
26,295,849
23,985,835
23,580,371
Mortgage loans, net²
10,633,009
8,410,462
7,286,397
6,640,725
6,390,708
Total liabilities 60,485,603
45,261,004
45,570,502
43,254,301
42,584,381
Deposits 790,640
473,820
461,769
598,931
759,366
Consolidated obligation discount notes, net³
27,447,911
20,608,332
20,420,651
21,775,341
21,813,446
Consolidated obligation bonds, net³
32,013,314
23,966,394
24,514,468
20,722,335
19,866,034
Total consolidated obligations, net³
59,461,225
44,574,726
44,935,119
42,497,676
41,679,480
Mandatorily redeemable capital stock 2,415
3,597
5,312
2,670
2,739
Total capital 2,791,051
2,454,252
2,506,103
1,962,448
1,841,752
Capital stock 1,766,456
1,524,537
1,640,039
1,226,675
1,208,947
Total retained earnings 999,809
914,022
840,406
735,196
651,782
Accumulated other comprehensive income (loss) (AOCI) 24,786
15,693
25,658
577
(18,977 )
Statement of Income (for the year ended):
Net interest income 256,064
271,197
270,008
257,184
239,680
Provision (reversal) for credit losses on mortgage loans 387
27
(186 ) (109 ) (1,909 )
Other income (loss) 22,973
(12,847 ) 15,987
(13,830 ) (80,089 )
Other expenses 72,816
69,108
67,036
63,706
57,762
Income before assessments 205,834
189,215
219,145
179,757
103,738
AHP 20,597
18,944
21,934
17,984
10,378
Net income 185,237
170,271
197,211
161,773
93,360
Selected Financial Ratios and Other Financial Data (for the year ended):
Dividends paid in cash⁴
281
399
267
291
296
Dividends paid in stock⁴
99,169
96,256
91,734
78,068
68,415
Weighted average dividend rate⁵
6.46 % 6.13 % 5.77 % 5.29 % 5.26 %
Dividend payout ratio⁶
53.69 % 56.77 % 46.65 % 48.44 % 73.60 %
Return on average equity 7.32 % 6.82 % 8.18 % 7.45 % 4.78 %
Return on average assets 0.33 % 0.31 % 0.37 % 0.33 % 0.21 %
Average equity to average assets 4.45 % 4.62 % 4.55 % 4.47 % 4.45 %
Net interest margin⁷
0.45 % 0.50 % 0.51 % 0.53 % 0.55 %
Total capital ratio⁸
4.41 % 5.14 % 5.21 % 4.34 % 4.14 %
Regulatory capital ratio⁹
4.38 % 5.12 % 5.17 % 4.34 % 4.19 %


¹	~~Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold.~~


²	~~The allowance for credit losses on mortgage loans was $985,000, $812,000, $1,208,000, $1,674,000, and $1,972,000 as of December 31, 2019, 2018, 2017, 2016, and 2015, respectively.~~


³	Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 17 to the financial statements for a description of the total consolidated obligations of all FHLBanks for which we are jointly and severally liable.


⁴	Dividends reclassified as interest expense on mandatorily redeemable capital stock and not included as dividends recorded in accordance with GAAP were $139,000, $229,000, $195,000, $79,000, and $39,000 for the years ended December 31, 2019, 2018, 2017, 2016, and 2015, respectively.


⁵	~~Dividends paid in cash and stock on both classes of stock as a percentage of average capital stock eligible for dividends.~~


⁶	Ratio disclosed represents dividends declared and paid during the year as a percentage of net income for the period presented, although the FHFA regulation requires dividends be paid out of known income prior to declaration date.


⁷	~~Net interest income as a percentage of average earning assets.~~


⁸	~~GAAP capital stock, which excludes mandatorily redeemable capital stock, plus retained earnings and AOCI as a percentage of total assets.~~


⁹	~~Regulatory capital (i.e., permanent capital and Class A Common Stock) as a percentage of total assets.~~

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding our business and assessing our operations both historically and prospectively. This discussion should be read in conjunction with our audited financial statements and related notes presented under Item 8 of this report. Our MD&A includes the following sections:


▪	~~Executive Level Overview - a general description of our business and financial highlights;~~


▪	~~Financial Market Trends - a discussion of current trends in the financial markets and overall economic environment, including the related impact on our operations;~~


▪	~~Critical Accounting Policies and Estimates - a discussion of accounting policies that require critical estimates and assumptions;~~


▪	~~Results of Operations - an analysis of our operating results, including disclosures about the sustainability of our earnings;~~


▪	~~Financial Condition - an analysis of our financial position;~~


▪	~~Liquidity and Capital Resources - an analysis of our cash flows and capital position;~~


▪	~~Risk Management - a discussion of our risk management strategies; and~~


▪	~~Recently Issued Accounting Standards.~~

▪Selected Financial Data - tabular highlights of our financial position, results of operations, selected financial ratios and other financial data;

▪Executive Level Overview - a general description of our business and financial highlights;

▪Financial Market Trends - a discussion of current trends in the financial markets and overall economic environment, including the related impact on our operations;

▪Critical Accounting Policies and Estimates - a discussion of accounting policies that require critical estimates and assumptions;

▪Results of Operations - an analysis of our operating results, including disclosures about the sustainability of our earnings;

▪Financial Condition - an analysis of our financial position;

▪Liquidity and Capital Resources - an analysis of our cash flows and capital position;

▪Risk Management - a discussion of our risk management strategies; and

▪Recently Issued Accounting Standards.

Additionally, refer to Item 7 – ~~"Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations"~~Operations” in our ~~2018~~2020 Annual Report on Form 10-K for our MD&A for the fiscal year ~~2018~~2020 compared to fiscal year ~~2017.~~2019.

Selected Financial Data

Table 3 presents Selected Financial Data for the periods indicated (dollar amounts in thousands):

Table 3


	12/31/2021			12/31/2020			12/31/2019			12/31/2018			12/31/2017
Statement of Condition (as of period end):
Total assets	$	48,021,238		$	52,591,712		$	63,276,654		$	47,715,256		$	48,076,605
Investments1	16,058,574			17,251,975			20,086,473			10,305,382			13,998,599
Advances	23,484,288			21,226,823			30,241,315			28,730,113			26,295,849
Mortgage loans, net	8,135,046			9,205,207			10,633,009			8,410,462			7,286,397
Total liabilities	45,306,972			49,923,945			60,485,603			45,261,004			45,570,502
Deposits	946,207			1,229,361			790,640			473,820			461,769


Consolidated obligations, net2	44,199,598			48,530,494			59,461,225			44,574,726			44,935,119

Total capital	2,714,266			2,667,767			2,791,051			2,454,252			2,506,103
Capital stock	1,499,301			1,574,004			1,766,456			1,524,537			1,640,039
Retained earnings	1,142,650			1,051,455			999,809			914,022			840,406

Statement of Income (for the year ended):
Net interest income	296,648			251,012			256,064			271,197			270,008

Other income (loss)	(41,434)			(40,148)			22,973			(12,847)			15,987
Other expenses	77,529			80,407			72,816			69,108			67,036
Income before assessments	178,435			131,173			205,834			189,215			219,145
AHP	17,845			13,123			20,597			18,944			21,934
Net income	160,590			118,050			185,237			170,271			197,211
Selected Financial Ratios and Other Financial Data (for the year ended):

Dividends paid	69,395			70,824			99,450			96,655			92,001
Weighted average dividend rate3	4.49		%	4.38		%	6.46		%	6.13		%	5.77		%
Dividend payout ratio4	43.21		%	59.99		%	53.69		%	56.77		%	46.65		%
Return on average equity	5.88		%	4.50		%	7.32		%	6.82		%	8.18		%
Return on average assets	0.33		%	0.21		%	0.33		%	0.31		%	0.37		%
Average equity to average assets	5.54		%	4.59		%	4.45		%	4.62		%	4.55		%
Net interest margin5	0.61		%	0.44		%	0.45		%	0.50		%	0.51		%
Total capital ratio6	5.65		%	5.07		%	4.41		%	5.14		%	5.21		%
Regulatory capital ratio7	5.50		%	5.00		%	4.38		%	5.12		%	5.17		%

1 Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold.

2 Consolidated obligations are bonds and discount notes that we are primarily liable to repay. See Note 16 to the financial statements for a description of the total consolidated obligations of all FHLBanks for which we are jointly and severally liable.

3 Dividends paid in cash and stock on both classes of stock as a percentage of average capital stock eligible for dividends.

4 Ratio disclosed represents dividends declared and paid during the year as a percentage of net income for the period presented. FHFA regulation requires dividends be paid out of known income prior to declaration date.

5 Net interest income as a percentage of average earning assets.

6 GAAP capital stock, which excludes mandatorily redeemable capital stock, plus retained earnings and accumulated other comprehensive income (AOCI) as a percentage of total assets.

7 Regulatory capital (i.e., permanent capital and Class A Common Stock) as a percentage of total assets.

Executive Level Overview

We are a regional wholesale bank that makes advances (loans) to, purchases mortgage loans from, and provides limited other financial services primarily to our members. ~~The FHLBanks, together with the Office~~Our mission is to be a reliable source of ~~Finance, a joint office~~liquidity and low-cost funding for our members in support of residential mortgage lending and related housing and economic development needs of the ~~FHLBanks, make up the FHLBank System, which consists of 11 district FHLBanks.~~communities served by our members. As an independent, member-owned ~~cooperatives, the FHLBanks~~cooperative, we seek to maintain a balance between ~~their~~our public purpose and ~~their~~our ability to provide adequate returns on the capital supplied by ~~their~~our members. Our members include commercial banks, savings institutions, credit unions, insurance companies, and CDFIs.

We continue to conduct business without operational difficulties or disruptions despite the ongoing COVID-19 pandemic. The ~~FHLBanks are supervised~~majority of our employees returned to the office in October 2021.

The Federal Reserve’s rapid reduction in the Federal funds target rate and ~~regulated~~purchase of U.S. Treasury bonds in response to the COVID-19 pandemic-related market volatility resulted in sudden declines across the interest rate curve in March 2020 that generally persisted throughout 2021. Interest rates for tenors greater than two years closed higher at the end of 2021 than at the end of 2020, but the historically low rate levels supported an improvement in market conditions during 2021 despite uncertainty caused by the ~~FHFA, an independent agency in~~COVID-19 Delta and Omicron variants. Lower advance demand has continued due to abundant liquidity held by members resulting from economic stimulus packages passed by Congress along with the ~~executive branch~~Federal Reserve Bank’s easing of ~~the U.S. government.~~monetary policy, security purchase programs, and newly created lending facilities. Deposit growth continues to outpace loan demand at depository members, which also impacts advance demand. The ~~FHFA’s mission is to ensure~~surge of mortgage loan prepayments that ~~the housing GSEs operate in a safe~~occurred during 2020 and ~~sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment.~~

~~Our primary funding source is consolidated obligations issued~~ through the ~~FHLBanks’ Office~~first quarter of Finance that facilitates the issuance and servicing of the consolidated obligations. The FHFA and the U.S. Secretary of the Treasury oversee the issuance of FHLBank debt. Consolidated obligations are debt instruments that constitute the joint and several obligations of all FHLBanks. Although consolidated obligations are not obligations of, nor guaranteed by, the U.S. government, the capital markets have traditionally viewed the FHLBanks’ consolidated obligations as “Federal agency” debt. As a result, the FHLBanks have historically had ready access to funding at relatively favorable spreads to U.S. Treasuries. Additional funds are provided by deposits (received from both member and non-member financial institutions), other borrowings, and the issuance of capital stock.

We serve eligible financial institutions in Colorado, Kansas, Nebraska, and Oklahoma (collectively, the Tenth District of the FHLBank System), who are also the member-owners of FHLBank. Initially, a member is required to purchase shares of Class A Common Stock based on the member’s total assets subject to a per member cap of $500 thousand. Each member may be required to purchase activity-based capital stock (Class B Common Stock) as it engages in certain business activities with FHLBank, including advances, standby letters of credit, and AMA, at levels determined by management with the Board of Director’s approval and within the ranges stipulated in our Capital Plan. Currently, our capital increases when members are required to purchase additional capital stock2021 has reduced net interest income in the form of ~~Class B Common Stock to support an increase~~accelerated amortization of premiums on mortgage-related assets and reinvestment at lower market rates, but recent increases in ~~their advance borrowings. In~~mortgage interest rates have slowed prepayments and related premium amortization. The decline in short-term interest rates also impacted net interest income in the ~~past, capital stock also~~form of increased ~~when members sold additional mortgage loans to us; however, members are no longer required to purchase capital stock~~net interest settlement expense on interest rate swaps for ~~AMA activity, as the mortgage loans are supported by the retained earnings of FHLBank (former members previously required to purchase AMA activity-based stock are subject~~2021 compared to the prior ~~requirement as long as there are UPBs outstanding). At our discretion, we may repurchase excess stock resulting from a decline~~year period. The decrease in ~~a member’s advances. We believe it is important to manage our business~~market interest rates and the ~~associated risks so that we strive~~tightening of consolidated obligation bond spreads to ~~provide franchise value by maintaining~~benchmark rates has allowed us to replace maturing and called debt at a ~~core mission~~lower cost, which has reduced overall funding costs for current and future periods and more than offset the negative impacts to interest income. In addition, management has actively managed our funding composition in response to market conditions, as the stability of the interest rate environment has enabled us to reduce our allocation of discount note funding in favor of floating rate term debt, which more closely matches asset ~~focus~~composition and meeting the following objectives: (1) achieve our liquidity, housing finance and community development missions by meeting member credit needs by offering advances, supporting residential mortgage lending through the MPF Program and through other products; (2) periodically repurchase excess capital stock in orderreprices to ~~appropriately manage the size of our balance sheet; and (3) pay acceptable dividends.~~market interest rates more quickly than discount notes.

2021 Financial Highlights:

•Net income: Net income for the year ended December 31, ~~2019~~2021 was ~~$185.2~~$160.6 million compared to ~~$170.3~~$118.1 million for the year ended December 31, ~~2018.~~2020. The ~~$14.9~~$42.5 million ~~or 8.8 percent,~~increase for the year was primarily attributed to an increase in net income for the year ended December 31, 2019 compared to the prior year was due largely to a $37.7 million increase in unrealized net gains on economic derivatives and trading securities resulting from declines in longer-term market interest ~~rates since December 31, 2018. The unrealized net gains on trading securities were due to decreases in mortgage and U.S. Treasury~~income.

•Net interest rates and were partially offset by negative fair value fluctuations on some interest rate swaps caused by a decrease in LIBOR between periods. Detailed discussion relating to the fluctuations in net gains (losses) on derivatives and hedging activities and net gains (losses) on trading securities can be found in "Results of Operations" under this MD&A.

income/margin: For the year ended December 31, ~~2019,~~2021, net interest income was ~~$256.1~~$296.6 million compared to ~~$271.2~~$251.0 million for the same period in the prior year. ~~The volume of interest-earning assets~~Net interest margin increased for the year ended December 31, 2019 compared to the prior year, but an increase in premium amortization and tightening spreads caused a $15.1 million, or 5.6 percent, decline in net interest income. Premium amortization on mortgage-related assets increased due to the decline in long-term market interest rates during 2019. This decline resulted in an increase in prepayment speeds on mortgage-related assets which accelerates premium amortization, thereby reducing net interest income. However, this decrease in long-term market interest rates also allowed us to replace some callable debt at a lower cost, which will provide a greater benefit in future periods. The accelerated amortization of concessions (i.e., broker fees) on the called debt further reduced net interest income for the year ended December 31, 2019. Changes in regulatory liquidity requirements effective March 31, 2019 changed the level and composition of assets held for liquidity purposes and the structure of the related funding, which has resulted in spread compression.

The change in net interest income for the year ended December 31, 2019 was also impacted by the adoption of a new hedge accounting standard on January 1, 2019 that requires fair value fluctuations on designated fair value hedges to be presented in the income statement line item related to the hedged item, which is interest income/expense for us. The guidance was adopted prospectively, so the fair value fluctuations on fair value hedges in the prior year are presented in other income, which creates a lack of comparability between periods. Fair value fluctuations on designated fair value hedges decreased net interest income by $2.4 million for the year ended December 31, 2019.

~~Total assets increased $15.6 billion, or 32.6 percent,~~17 basis points, from December 31, 2018 to December 31, 2019. Although we experienced growth in mortgage loans and advances, the majority of the increase was in short- and long-term investments in response to changes to regulatory liquidity requirements that became effective March 31, 2019, including the purchase of $5.7 billion in U.S. Treasury obligations since the third quarter of 2018. We believe the MPF Program continues to meet the needs of members by providing a reliable option for mortgage sales, as indicated by mortgage deliveries of over $1.0 billion for each of the last two quarters of 2019.

Total liabilities increased $15.2 billion, or 33.6 percent, from December 31, 2018 to December 31, 2019, which corresponded with the increase in assets, but the funding mix remained consistent between periods. Our funding mix generally is driven by asset composition, but we may also shift our debt composition as a result of market conditions that impact the cost of consolidated obligations swapped or indexed to LIBOR, SOFR, Prime, Treasury bills, or the overnight index swap (OIS) rate. For additional information on market trends impacting the cost of issuing debt, including discussion of the transition from LIBOR to an alternate reference rate, see "Market Trends" and "Financial Condition" under this MD&A.

Total capital increased $336.8 million, or 13.7 percent, between periods primarily due to an increase in capital stock held in excess of activity requirements, capital stock related to advance utilization, and growth in retained earnings.

~~An increase in average assets and average equity combined with the increase in net income resulted in a return on average equity (ROE) of 7.32~~0.44 percent for the year ended December 31, ~~2019 compared~~2020 to ~~6.82~~0.61 percent ~~for the prior year. Dividends paid to members totaled $99.5 million~~ for the year ended December 31, ~~2019~~2021. This improvement was attributed primarily to the decrease in the cost of debt. Slowing prepayment speeds and the corresponding decline in premium amortization on mortgage loans also provided a positive contribution to net interest margin for the year ended December 31, 2021 compared to ~~$96.7 million~~the prior year period.

•Total assets: Total assets decreased from $52.6 billion as of December 31, 2020 to $48.0 billion as of December 31, 2021, driven largely by the decrease in the short-term liquidity portfolio between those periods.

•Advances: Advances increased from $21.2 billion at December 31, 2020 to $23.5 billion at December 31, 2021. The average balance of advances declined $1.7 billion, or 6.8 percent, for the year ended December 31, 2021 when compared to the prior year period.

•Mortgage loans: Mortgage loans decreased by $1.1 billion from December 31, 2020 to December 31, 2021, representing 16.9 percent of total assets as of December 31, 2021, compared to 17.5 percent as of December 31, 2020. The average balance of mortgage loans decreased $2.1 billion, or 19.6 percent, for the year ended December 31, 2021 when compared to the prior year period as prepayments outpaced acquisitions during 2021.

•Performance ratios: Return on average equity (ROE) increased to 5.88 percent for the year ended December 31, 2021 compared to 4.50 percent for the prior ~~year. From December 31, 2018~~year period due primarily to ~~December 31, 2019,~~ the ~~dividend rate~~increase in net income for the year.

•Dividends: The Class A Common Stock ~~increased to 2.50 percent from 2.00 percent and the~~weighted average dividend rate ~~for~~of 0.25 percent per annum and the Class B Common Stock ~~increased to 7.50~~weighted average dividend rate of 5.63 percent ~~from 7.25 percent. The~~per annum combined for a weighted average dividend rate for the year ended December 31, ~~2019 was 6.46~~2021 of 4.49 percent ~~which represented a dividend payout ratio of 53.7 percent,~~per annum, compared to a weighted average dividend rate of ~~6.13 percent and a payout ratio of 56.8~~4.38 percent for the same period in ~~2018. Differences in the weighted average dividend rates between periods are due to the difference in the mix of outstanding Class A Common Stock and~~2020. The Class B Common Stock ~~between those periods~~dividend rate for the fourth quarter of 2021 consisted of a base dividend rate of 5.75 percent and a special dividend rate of 1.00 percent in recognition of the ~~increases~~improvement in 2021 financial performance, especially in the dividend rates. Other factors impacting the outstanding stock class mix during 2019 and, therefore, the average dividend rates, include regular exchanges of excess Class B Common Stock to Class A Common Stock and periodic repurchases of excess Class A Common Stock (see “Liquidity and Capital Resources - Capital” under this Item 7).fourth quarter.

Our strategic business plan is structured in such a way that our business activities are intended to achieve our mission consistent with the FHFA’s core mission achievement guidance. The Primary Mission Asset ratio is calculated as average advances and average mortgage loans to average consolidated obligations less average U.S. Treasury securities classified as trading or available-for-sale with maturities of ten years or less, utilizing par balances. Our Primary Mission Asset ratio was 75 percent for 2019. We intend to manage our balance sheet with the goal of maintaining a Primary Mission Asset ratio within a range of 70 to 80 percent. However, this ratio is dependent on several variables such as member demand for our advance and mortgage loan products, so it is possible that we will be unable to maintain this level indefinitely.

Financial Market Trends

The primary external factors that affect net interest income are market interest rates and the general state of the economy.

General discussion of the level of market interest rates:

Table 84 presents selected market interest rates as of the dates or for the periods shown.

Table 84


Market Instrument	Average Rate				12/31/2019		12/31/2018		Market Instrument	Average Rate		Average Rate		12/31/2021		12/31/2020
	2019		2018		Ending Rate		Ending Rate			2021		2020		Ending Rate		Ending Rate
Secured Overnight Financing Rate^1,2	2.21	%	N/A		1.55	%	3.00	%

Secured Overnight Financing Rate1									Secured Overnight Financing Rate1	0.04	%	0.36	%	0.05	%	0.07	%
Federal funds effective rate¹	2.16		1.83	%	1.55		2.40		Federal funds effective rate1	0.08		0.36		0.07		0.09
Federal Reserve interest rate on excess reserves¹	2.13		1.88		1.55		2.40		Federal Reserve interest rate on excess reserves1	0.13		0.38		0.15		0.10
3-month U.S. Treasury bill¹	2.09		1.96		1.55		2.36		3-month U.S. Treasury bill1	0.04		0.35		0.04		0.07
3-month LIBOR¹	2.33		2.31		1.91		2.81		3-month LIBOR1	0.16		0.65		0.21		0.24
2-year U.S. Treasury note¹	1.97		2.53		1.57		2.51		2-year U.S. Treasury note1	0.26		0.39		0.73		0.12
5-year U.S. Treasury note¹	1.95		2.75		1.69		2.53		5-year U.S. Treasury note1	0.86		0.54		1.26		0.36
10-year U.S. Treasury note¹	2.14		2.91		1.92		2.70		10-year U.S. Treasury note1	1.44		0.89		1.51		0.92
30-year residential mortgage note rate^1,3	4.22		4.80		3.95		4.84
30-year residential mortgage note rate1,2									30-year residential mortgage note rate1,2	3.14		3.30		3.33		2.90


¹	~~Source is Bloomberg.~~


²	~~SOFR was first published on April 3, 2018.~~


³	~~Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate.~~

1 Source is Bloomberg.

2 Mortgage Bankers Association weekly 30-year fixed rate mortgage contract rate.

During ~~2019,~~2021, market conditions continued to improve, supported by accommodative fiscal and monetary policies, although this recovery was hindered by emergence of the ~~cost~~COVID-19 Delta and Omicron variants, supply chain disruptions, accelerating inflation, geopolitical conflict, and labor market dislocation. Interest rates remained at low levels but were higher for maturities of ~~FHLBank consolidated obligations~~two years and longer relative to the prevailing yields at the end of 2020. Inflation measures continued to trend upward toward the end of 2021 as ~~measured by~~supply chain disruptions and other economic factors caused increases in prices of commodities and consumer goods and wages, which will likely prompt the ~~spread~~Federal Reserve to raise interest rates earlier and more often than previously signaled. The unemployment rate has improved from 2020 highs but remains near pre-pandemic levels despite rising demand for labor. Mortgage rates began an upward trend relative to the historical lows at earlier points in 2021, which has slowed prepayments and reduced refinance incentive. Despite this increase, mortgage rates remain historically low, which has contributed to elevated home prices. Financial institutions continued to experience high levels of liquidity and lower relative loan demand through the end of 2021 resulting from continued fiscal and monetary policy support and competition among lenders.

Spreads to comparative U.S. Treasury ~~rates~~instruments for FHLBank consolidated obligations remained relatively ~~stable, although~~narrow during 2021, resulting in lower costs to issue consolidated obligations driven by robust market demand for the ~~yield curve flattened, which made shorter-term debt more expensive relative~~instruments and lower issuance needs by the FHLBanks due to ~~longer-term structures. However, in March 2020,~~lower advance demand. At the ~~Federal Open Market Committee (FOMC) announced two emergency decreases to~~January 2022 meeting, the FOMC maintained the Federal funds rate ~~bringing the target~~at a range ~~to zero to~~between 0 percent and 0.25 percent ~~due~~and the interest rate on reserve balances at 0.15 percent, but signaled the likelihood of raising rates in 2022, possibly multiple times. The FOMC will continue quantitative easing, repo, and overnight lending programs and purchases of U.S. Treasuries and Agency MBS, but announced the planned pace of the reduction of monthly net asset purchases. Monetary and fiscal actions in response to the ~~anticipated negative~~economic impact of ~~coronavirus on~~ the ~~U.S. economy.~~COVID-19 pandemic and uncertain economic outlooks for the next several years have kept Treasury and other benchmark rates to near historic lows. The improvement in the economic outlook in early 2022 combined with anticipation of FOMC expects to maintain this target range until it is confident that the economy has recovered from the downturn related to the coronavirus outbreak and is on track to achieve its maximum employment and price stability goals. The FOMC also announced an increaseremoval of monetary accommodation could result in ~~bond purchases as part of quantitative easing.~~additional interest rate increases. We issue debt at a spread above U.S. Treasury securities; as a result, the level of interest rates impacts the cost of issuing FHLBank consolidated obligations and the cost of advances to our members and housing associates. Beginning in February 2022, markets began experiencing increased volatility due to the conflict between Ukraine and Russia, and the level and volatility of interest rates and credit spreads may continue to be affected by the geopolitical conflict, government actions (including sanctions) taken in response to the conflict, and resulting economic and market uncertainties.

The COVID-19 pandemic has caused significant economic and financial turmoil both in the U.S. and around the world. The global economy appears to be emerging from the economic downturn, but recovery is threatened by a resurgence of infectious cases and the emergence of more contagious variants of the virus. The pace of global economic recovery is dependent upon the course of the virus and measures taken to control its spread, vaccination rates, the impact and extent of policy support, and other structural economic factors. Our ability to obtain funds through the issuance of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in global financial markets. Although we believe it is a declining risk, volatility in the capital markets caused by the COVID-19 pandemic can impact demand for FHLBank debt and the cost of the debt the FHLBanks issue. The outlook for 2022 is uncertain, and it is likely that the FOMC will raise interest rates and reduce asset purchases or use other programs if economic conditions warrant, each of which could impact the efficiency of our asset and liability management activities. Supply chain disruptions and labor market constraints are expected to keep inflation elevated into 2022, which could impact economic growth. Higher levels of inflation and higher inflation expectations could result in higher interest rates, especially short- and intermediate-term interest rates. For further discussion, see this Item 7 – “Financial Condition – Consolidated Obligations.”

~~In July 2017, the FCA announced that it planned to phase out the regulatory oversight~~The publication of LIBOR ~~interest rate indices by 2021. The FCA~~on a representative basis ceased for one-week and two-month LIBOR effective January 1, 2022, and the ~~submitting~~remaining LIBOR ~~banks have indicated they~~tenors will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. The ARRC in the United States has proposed SOFR as its recommended alternative to USD LIBOR in the United States. SOFR is intended to be a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR rates in April 2018.cease immediately after June 30, 2023. As noted throughout this annual report, many of our assets and liabilities and related collateral, including derivative assets and derivative liabilities, are indexed to ~~USD LIBOR. A portion~~one-month or three-month tenors of ~~these assets and liabilities and related collateral~~LIBOR, some of which have maturity dates that extend beyond ~~2021.~~June 30, 2023. For additional information on our LIBOR transition efforts and LIBOR exposure, see “Risk Management – Interest Rate Risk Management” under this Item 7.

~~Other factors impacting FHLBank consolidated obligations:~~

We believe investors continue to view FHLBank consolidated obligations as carrying a relatively strong credit profile. Historically, our strong credit profile has resulted in steady investor demand for FHLBank discount notes and short-term bonds. We believe several market events continue to have the potential to impact the demand for our consolidated obligations including geopolitical events and/or disruptions; potential policy changes under the current administration; recent regulatory changes in liquidity requirements; changes in interest rates and the shape of the yield curve as the FOMC contemplates changes to monetary policy; and the replacement of LIBOR with another index as previously discussed.

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect our reported results and disclosures. Several of our accounting policies are inherently subject to valuation assumptions and other subjective assessments and are more critical than others in terms of their importance to results. These assumptions and assessments include: (1) the accounting related to derivatives and hedging activities; and (2) fair value determinations.

Changes in any of the estimates and assumptions underlying critical accounting policies could have a material effect on our financial statements.

The accounting policies that management believes are the most critical to an understanding of our financial condition and results of operations and require complex management judgment are described below.

Accounting for Derivatives and Hedging Activities: Derivative instruments are carried at fair value on the Statements of Condition. Any change in the fair value of a derivative is recorded each period in current period earnings or other comprehensive income (OCI), depending upon whether the derivative is designated as part of a hedging relationship and, if it is, the type of hedging relationship. A majority of our derivatives are structured to offset some or all of the risk exposure inherent in our lending, mortgage purchase, investment, and funding activities. We are required to recognize unrealized gains or losses on derivative positions, regardless of whether offsetting gains or losses on the hedged assets or liabilities are recognized simultaneously. Therefore, the accounting framework introduces the potential for considerable income variability from period to period. Specifically, a mismatch can exist between the timing of income and expense recognition from assets or liabilities and the income effects of derivative instruments positioned to mitigate market risk and cash flow variability. Therefore, during periods of significant changes in interest rates and other market factors, reported earnings may exhibit considerable variability. We seek to utilize hedging techniques that are effective under the hedge accounting requirements; however, in some cases, we have elected to enter into derivatives that are economically effective at reducing risk but do not meet hedge accounting requirements, either because it was more cost effective to use a derivative hedge compared to a non-derivative hedging alternative, or because a non-derivative hedging alternative was not available. As required by FHFA regulation and our RMP, derivative instruments that do not qualify as hedging instruments may be used only if we document a non-speculative purpose at the inception of the derivative transaction.

A hedging relationship is created from the designation of a derivative financial instrument as hedging our exposure to changes in the fair value of a financial instrument. Fair value hedge accounting allows for the offsetting fair value of the hedged risk in the hedged item to also be recorded in current period earnings. ~~Highly~~Perfectly effective hedges that use interest rate swaps as the hedging instrument and that meet certain stringent criteria can qualify for “shortcut” fair value hedge accounting. Shortcut hedge accounting allows for the assumption of no ineffectiveness, which means that the change in fair value of the hedged item can be assumed to be equal to the change in fair value of the derivative. If the hedge is not designated for shortcut hedge accounting, it is treated as a “long haul” fair value hedge, where the change in fair value of the hedged item must be measured separately from the derivative, and for which quantitative effectiveness testing must be performed regularly with results falling within established tolerances. If the hedge fails effectiveness testing, the hedge no longer qualifies for hedge accounting and the derivative is marked to estimated fair value through current period earnings without any offsetting change in estimated fair value related to the hedged item.

For derivative transactions that potentially qualify for long haul fair value hedge accounting treatment, management must assess how effective the derivatives have been, and are expected to be, in hedging offsetting changes in the estimated fair values attributable to the risks being hedged in the hedged items. Quantitative hedge effectiveness testing is performed at the inception of the hedging relationship and on an ongoing basis for long haul fair value hedges. We perform testing at hedge inception based on regression analysis of the hypothetical performance of the hedging relationship using historical market data. We then perform regression testing on an ongoing basis using accumulated actual values in conjunction with hypothetical values. Specifically, each month we use a consistently applied statistical methodology that employs the most recent 30 historical interest rate environments and includes an R-squared test (commonly used statistic to measure correlation of the data), a slope test, and an F-statistic test (commonly used statistic to measure how well the regression model describes the collection of data). These tests measure the degree of correlation of movements in estimated fair values between the derivative and the related hedged item. For the hedging relationship to be considered effective, results must fall within established tolerances.

Given that a derivative qualifies for long haul fair value hedge accounting treatment, the most important element of effectiveness testing is the price sensitivity of the derivative and the hedged item in response to changes in interest rates and volatility as expressed by their effective durations. The effective duration will be influenced mostly by the final maturity and any option characteristics. In general, the shorter the effective duration, the more likely it is that effectiveness testing would fail because of the impact of the short-term index side of the interest rate swap. In this circumstance, the slope criterion is the more likely factor to cause the effectiveness test to fail.

The estimated fair values of the derivatives and hedged items do not have any cumulative economic effect if the derivative and the hedged item are held to maturity, or contain mutual optional termination provisions at par. Since these fair values fluctuate throughout the hedge period and eventually return to zero (derivative) or par value (hedged item) on the maturity or option exercise date, the earnings impact of fair value changes is only a timing issue for hedging relationships that remain outstanding to maturity or the call termination date.

For derivative instruments and hedged items that meet the requirements as described above and are designated as fair value hedges, we do not anticipate any significant impact on our financial condition or operating performance. For derivative instruments not qualifying for hedge accounting or with no identified hedged item (economic derivatives or economic hedges), changes in the market value of the derivative are reflected in income without any offset. ~~As of December 31, 2019 and 2018, we held a portfolio of derivatives that are marked to market with no offsetting qualifying hedged item.~~ This portfolio of economic derivatives consisted primarily of: (1) interest rate swaps hedging fixed rate MBS and non-MBS trading investments; and (2) interest rate caps hedging adjustable rate MBS with embedded ~~caps; and (3) interest rate swaps hedging variable rate consolidated obligation bonds.~~caps. While the fair value of derivative instruments with no offsetting qualifying hedged item will fluctuate with changes in interest rates and the impact on our earnings can be material, the change in fair value of trading securities ~~being hedged by~~associated with economic hedges is expected to partially offset that impact. The change in fair value of the derivatives classified as economic hedges is only partially offset by the change in the fair value of trading securities being hedged by economic hedges because the amount of economic hedges exceeds the amount of swapped trading securities and because of the relationship between mortgage rates relative to the interest rate swap curve for the swapped MBS trading securities. See Tables 6247 and 6348 under Item 7A – ~~"Quantitative~~“Quantitative and Qualitative Disclosures About Market Risk,"” which present the notional amount and fair value amount for derivative instruments by hedged item, hedging instrument, hedging objective, and accounting designation. The total par value of non-MBS and MBS classified as trading securities related to economic hedges was $1.9 billion and $0.8 billion, respectively, as of December 31, 2019, which matches the notional amount of interest rate swaps hedging the GSE debentures and MBS in trading securities on that date. For asset/liability management purposes, our fixed rate GSE debentures and MBS currently classified as trading are matched to interest rate swaps that effectively convert the securities from fixed rate investments to variable rate instruments. See Tables 1510 through 1812 under this Item 7, which show the relationship of gains/losses on economic hedges and gains/losses on the trading securities being hedged by economic derivatives. Our projections of changes in fair value of the derivatives have been consistent with actual results.

See Note 1 and Note 7 of the Notes to Financial Statements under Item 8 – “Financial Statements and Supplementary Data” for additional discussion of accounting for derivatives and types of hedging transactions.

Fair Value: As of December 31, ~~2019~~2021 and ~~2018,~~2020, certain assets and liabilities, including investments classified as trading or available-for-sale, and all derivatives, were presented in the Statements of Condition at fair value. Under GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values play an important role in the valuation of certain assets, liabilities and derivative transactions. The fair values we generate directly impact the Statements of Condition, Statements of Income, Statements of Comprehensive Income, Statements of Capital, and Statements of Cash Flows as well as risk-based capital, duration of equity (DOE), and market value of equity (MVE) disclosures. Management also estimates the fair value of collateral that borrowers pledge against advance borrowings and other credit obligations to confirm that we have sufficient collateral to meet regulatory requirements and to protect ourselves from a credit loss.

Fair value measurement under GAAP uses a three-level fair value hierarchy to reflect the level of judgment involved in estimating fair value. Fair values are based on market prices when they are available (generally considered a Level 1 or Level 2 valuation under GAAP). If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility, or on prices of similar instruments (generally considered a Level 3 valuation under GAAP). Pricing models and their underlying assumptions are based on our best estimates for discount rates, prepayment speeds, market volatility and other factors. We validate our financial models at least annually and the models are calibrated to values from outside sources on a monthly basis. We validate modeled values to outside valuation services routinely to determine if the values generated from discounted cash flows are reasonable. Additionally, due diligence procedures are completed for third-party pricing vendors. The assumptions used by third-party pricing vendors or within our models may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the related income and expense. See Note 1615 of the Notes to Financial Statements under ~~Part II,~~ Item 8 – “Financial Statements and Supplementary Data” for a detailed discussion of the assumptions used to calculate fair values and the due diligence procedures completed. The use of different assumptions as well as changes in market conditions could result in materially different net income and retained earnings.

As of December 31, ~~2019,~~2021, we had no fair values that were classified as Level 3 valuations for financial instruments that are measured on a recurring basis at fair value. However, we have impaired mortgage loans and ~~REO,~~real estate owned (REO), which were written down to their fair values and considered Level 3 valuations as of year-end. Based on the validation of our inputs and assumptions with other market participant data, we have concluded that the pricing ~~derived~~for impaired mortgage loans and REO should be considered a Level 3 ~~valuations.~~valuation.

Results of Operations

Earnings Analysis: Table 95 presents changes in the major components of our net income (dollar amounts in thousands):

~~Table 9~~

Increase (Decrease) in Earnings Components
2019 vs. 2018
Dollar Change Percentage Change
Total interest income $ 231,743
18.4 %
Total interest expense 246,876
25.0
Net interest income (15,133 ) (5.6 )
Provision (reversal) for credit losses on mortgage loans 360
1,333.3
Net interest income after mortgage loan loss provision (15,493 ) (5.7 )
Net gains (losses) on trading securities 92,171
420.7
Net gains (losses) on derivatives and hedging activities (54,432 ) (1,705.8 )
Other non-interest income (1,919 ) (15.7 )
Total other income (loss) 35,820
278.8
Operating expenses 965
1.7
Other non-interest expenses 2,743
21.6
Total other expenses 3,708
5.4
AHP assessments 1,653
8.7
NET INCOME $ 14,966
8.8 %

Table ~~10 presents the amounts contributed by our principal sources of interest income (dollar amounts in thousands):~~5


	Increase (Decrease) in Earnings Components
	2021 vs. 2020




	Dollar Change		Percentage Change
Total interest income	$	(277,345)	(37.4)	%
Total interest expense	(322,981)		(65.9)
Net interest income	45,636		18.2
Provision (reversal) for credit losses on mortgage loans	(34)		(4.7)
Net interest income after mortgage loan loss provision	45,670		18.1
Net gains (losses) on trading securities	(162,231)		(207.6)
Net gains (losses) on derivatives	159,847		123.5
Other non-interest income	1,098		9.8
Total other income (loss)	(1,286)		(3.2)
Operating expenses	2,110		3.6
Other non-interest expenses	(4,988)		(22.8)
Total other expenses	(2,878)		(3.6)
AHP assessments	4,722		36.0
NET INCOME	$	42,540	36.0	%

~~Table 10~~

Year Ended December 31,
2019 2018 2017
Interest Income Percent of Total Interest Income Percent of Total Interest Income Percent of Total
Investments¹
$ 466,531
31.3 % $ 361,563
28.8 % $ 214,239
25.7 %
Advances 716,199
48.1
637,203
50.7
402,071
48.3
Mortgage loans held for portfolio 304,582
20.5
256,698
20.4
214,388
25.8
Other 1,440
0.1
1,545
0.1
1,280
0.2
TOTAL INTEREST INCOME $ 1,488,752
100.0 % $ 1,257,009
100.0 % $ 831,978
100.0 %


¹	~~Includes trading securities, available-for-sale securities, held-to-maturity securities, interest-bearing deposits, securities purchased under agreements to resell and Federal funds sold.~~

Net income ~~for the year ended December 31, 2019 was $185.2~~increased $42.5 million, ~~compared~~or 36.0 percent, to ~~$170.3~~$160.6 million for the year ended December 31, ~~2018. The $14.9 million, or 8.8 percent, increase in net income for the year ended December 31, 2019~~2021 compared to the prior year was due largely to a $37.7 million increase in net unrealized gains on trading securities and derivatives. The net unrealized gains on trading securities were due mostly to decreases in mortgage and U.S. Treasury interest rates during 2019, which were partially offset by the negative fair value fluctuations on some interest rate swaps caused by the decrease in LIBOR between periods. Detailed discussion relating to the fluctuations in net gains (losses) on derivatives and hedging activities and net gains (losses) on trading securities can be found in this section under the heading "Net Gains (Losses) on Derivatives and Hedging Activities" and "Net Gains (Losses) On Trading Securities." Net interest income decreased by $15.1$118.1 million for the year ended December 31, ~~2019 compared~~2020 primarily attributed to ~~the same period~~an increase of $45.6 million in ~~the prior year due primarily to increased premium amortization,~~net interest income, as discussed in greater detail below. ~~Other expenses~~

Net Interest Income: Net interest income increased ~~by $3.7~~$45.6 million, ~~from December 31, 2018~~or 18.2 percent, to December 31, 2019 primarily due to an increase in mortgage loan transaction fees due to the growth in the mortgage loan portfolio and FHLBank System-related expenses. An increase in average assets and average equity combined with the increase in net income resulted in an ROE of 7.32 percent for the year ended December 31, 2019 compared to 6.82 percent for the prior year. Dividends paid to members totaled $99.5$296.6 million for the year ended December 31, ~~2019~~2021 compared to ~~$96.7 million for the prior year.~~

~~Net Interest Income:~~ Net interest income was $256.1 million for the year ended December 31,2019 compared to $271.2 million for the same period in the prior year. The volume of interest-earning assets increased for the year ended December 31, 2019 compared to the prior year, but an increase in premium amortization and tightening spreads caused a $15.1 million, or 5.6 percent, decline in net interest income. Premium amortization on mortgage-related assets increased due to the decline in long-term market interest rates during 2019. This decline resulted in an increase in prepayment speeds on mortgage-related assets which accelerates premium amortization, thereby reducing net interest income. However, this decrease in long-term market interest rates also allowed us to replace some callable debt at a lower cost, which will provide a greater benefit in future periods. The accelerated amortization of concessions (i.e., broker fees) on the called debt further reduced net interest income.

~~Yields~~:2020. Market interest rates and trends affect ~~yields~~net interest income and net interest margin on earning assets, including advances, mortgage loans, and investments. ~~The average yield on total interest-earning assets for the year ended December 31, 2019 was 2.62 percent~~Net interest margin increased 17 basis points during 2021 compared to ~~2.34~~2020, to 0.61 percent for the year ended December 31, ~~2018. The average cost of interest-bearing liabilities for the year ended December 31, 2019 was 2.28 percent, compared to 1.92~~2021 from 0.44 percent for the ~~year ended December 31, 2018. Net~~prior year. The increase in net interest income and net interest margin ~~declined by 5 basis points to 45 basis points~~ for the current year ~~ended December 31, 2019 compared to 50 basis points~~was the result of a significant decrease in the ~~prior year due largely to an increase in average funding~~ cost of debt between periods, driven ~~largely~~ by the ~~changes~~repricing of liabilities funding short-term investments and fixed-rate mortgage assets (see Table8). The decrease in ~~short-term~~market interest rates and the ~~accelerated amortization~~tightening of ~~concessions. These same factors also caused net~~consolidated obligation bond spreads to benchmark rates allowed us to replace called debt at a lower cost from early 2020 through the first quarter of 2021, which has reduced overall funding costs for current and future periods. Debt maturing between periods was replaced at lower interest ~~spread to decline by 8 basis points for~~rates. Further, the same period, to 34 basis points for the year ended December 31, 2019 compared to 42 basis points for the same period in the prior year (see Table 13). Recent changes in regulatory liquidity requirements changed the level and compositionpace of ~~assets held for liquidity purposes and the structure of the related funding. The change in liquidity requirements~~called bonds has resulted in margin and spread compression, specifically as it relates to overnight assets funded with term debt, as the average cost of discount notes increased 39 basis points during 2019 compared to 2018 and the average yield on short-term investments increased 35 basis points over the same period. The increase in premium amortization on mortgage loans and theslowed, thereby reducing accelerated concession amortization on ~~consolidated obligations decreased net~~called debt in the current periods compared to the prior year periods. Replacing callable debt results in accelerated amortization of concessions (broker fees) in the month of the call, but the refinanced debt will continue to provide additional benefit in the form of lower rates for future periods.

Interest income for both periods was reduced by declines in the average balance and average rate across most asset categories. Slowing prepayments and the associated reduction in premium amortization contributed to the increase in yield on mortgage loans, which partially offset the impact of the $2.1 billion decline in the average balance for the current year. The average balance of advances declined $1.7 billion, but the majority of the decline in the average balance of advances was in the line of credit product. The average balance of other short-term advances increased between years. During 2021, advance prepayments and modifications were elevated, which impacts the yield and spread on the portfolio by changing the timing of the cash flows, but the prepayment fees offset the reduction in yield and make us financially indifferent to the prepayment or modification. The pace of prepayments and modifications is expected to slow in 2022. Modifications reduce the interest rate on the advance but the advance is retained and the member pays a prepayment fee for the modification.

Mortgage prepayments slowed during 2021 and are expected to stabilize in 2022. At current rate levels, should mortgage and MBS prepayments slow, the lower premium amortization would result in a wider spread. However, this is highly dependent on the level of interest rates. We anticipate additional prepayments of commercial MBS during 2022, assuming real estate prices remain at current levels. We typically receive a yield maintenance fee when a commercial MBS prepays, but spread ~~by four basis points and decreased net interest margin by four basis points.~~compression is still a risk if prepaid principal is not reinvested at favorable rates and/or spreads. For further discussion of ~~how we use bonds~~investments, advances and ~~discount notes,~~mortgage loans, see this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial ~~Condition – Consolidated Obligations.~~Condition.”

~~Average Balances:~~ The average balance of interest-earning assets increased $3.0 billion, or 5.5 percent, for the year ended December 31, 2019 compared to the same period in the prior year. This increase was due to a $3.0 billion, or 19.1 percent, increase in the average balance of investments, which consist of interest-bearing deposits, Federal funds sold, reverse repurchase agreements,

Net interest income and investment securities, largely in response to changes in regulatory liquidity requirements. The average balance of advances decreased $1.6 billion, or 5.3 percent, during 2019 compared to 2018, almost entirely as a result of a decrease in the average balance of line of credit advances. A portion of the growth in average advances over the past few years has resulted from our members’ ability to invest advances in excess reserves at the Federal Reserve and receive a profitable risk adjusted return largely because of the dividend paid on the capital stock supporting the advances. During 2018 and 2019, the short-term advance rates became less attractive relative to the yield on excess reserves at the Federal Reserve. The average balance of mortgage loans increased $1.5 billion, or 19.3 percent, despite prepayment activity associated with the decline in mortgage interest rates during 2019. The increase in mortgage loans was attributed in large part to continued production from our top five PFIs and utilization of recent program enhancements that provide PFIs with additional funding opportunities.

~~Our~~ net interest ~~spread is~~margin are also impacted by derivative and hedging activities, as net interest settlements on derivatives and the changes in fair values of hedged assets and liabilities ~~hedged with~~and the corresponding derivative instruments designated ~~under~~in fair value hedging relationships are ~~adjusted for changes~~recorded in ~~fair values, while other assets and liabilities are carried at historical cost. Net~~net interest ~~payments or receipts~~income. For 2021, interest income was reduced by net interest settlement expense on ~~interest rate swaps designated as~~ fair value hedges of advances and available-for-sale securities caused by the ~~amortization/accretion of hedging activities are recognized as adjustments to the~~decline in short-term interest income or expense of the hedged asset or liability. However, net interest payments or receipts on derivatives that do not qualify for hedge accounting (economic hedges) flow through net gains (losses) on derivativesrates. Tables 6 and hedging activities instead of net interest income (net interest received/paid on economic derivatives is identified in Tables 15 and 16 under this Item 7), which does not reflect the full economic impact of the swaps on yields, especially for trading investments that are swapped to a variable rate. For 2019, net interest income is also impacted by unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships as a result of new hedge accounting guidance adopted January 1, 2019. Tables 11 and 127 present the impact of derivatives and hedging activities recorded in net interest income (in thousands):

~~Table 11~~

2019
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Unrealized gains (losses) due to fair value changes $ 47
$ (2,274 ) $ —
$ 193
$ (363 ) $ (2,397 )
Net amortization/accretion of hedging activities (1,356 ) —
(2,029 ) —
—
(3,385 )
Net interest received (paid) 19,860
1,281
—
20
(5,312 ) 15,849
TOTAL $ 18,551
$ (993 ) $ (2,029 ) $ 213
$ (5,675 ) $ 10,067

~~Table 12~~

2018
Advances Investments Mortgage Loans Consolidated Obligation Discount Notes Consolidated Obligation Bonds Total
Net amortization/accretion of hedging activities $ (3,881 ) $ —
$ (403 ) $ —
$ —
$ (4,284 )
Net interest received (paid) 9,653
474
—
12
(5,178 ) 4,961
TOTAL $ 5,772
$ 474
$ (403 ) $ 12
$ (5,178 ) $ 677

Table 136


	2021

	Advances		Investments		Mortgage Loans		Consolidated Obligation Discount Notes		Consolidated Obligation Bonds		Total
Unrealized gains (losses) due to fair value changes	$	2,053	$	3,418	$	—	$	(31)	$	1,053	$	6,493
Net amortization/accretion of hedging activities	(2,730)		—		(1,037)		—		—		(3,767)
Net interest received (paid)	(65,822)		(101,261)		—		11		31,688		(135,384)
TOTAL	$	(66,499)	$	(97,843)	$	(1,037)	$	(20)	$	32,741	$	(132,658)

Table 7


	2020

	Advances		Investments		Mortgage Loans		Consolidated Obligation Discount Notes		Consolidated Obligation Bonds		Total
Unrealized gains (losses) due to fair value changes	$	(1,687)	$	(2,862)	$	—	$	(175)	$	(313)	$	(5,037)
Net amortization/accretion of hedging activities	(1,566)		—		(3,236)		—		—		(4,802)
Net interest received (paid)	(47,328)		(104,230)		—		18,402		36,206		(96,950)
TOTAL	$	(50,581)	$	(107,092)	$	(3,236)	$	18,227	$	35,893	$	(106,789)

Table 8 presents average balances and yields of major earning asset categories and the sources funding those earning assets (dollar amounts in thousands):

Table 138


																				2021						2020						2019

	2019						2018						2017
	Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/ Expense		Yield		Average Balance		Interest Income/Expense		Yield			Average Balance		Interest Income/Expense		Yield		Average Balance		Interest Income/Expense		Yield		Average Balance		Interest Income/Expense		Yield
Interest-earning assets:																			Interest-earning assets:
Interest-bearing deposits	$	888,890	$	19,801	2.23	%	$	762,346	$	14,957	1.96	%	$	417,175	$	4,204	1.01	%	Interest-bearing deposits	$	955,851	$	943	0.10	%	$	1,405,969	$	6,092	0.43	%	$	888,890	$	19,801	2.23	%
Securities purchased under agreements to resell	4,521,312		104,397		2.31		3,571,355		71,298		2.00		2,323,216		23,937		1.03		Securities purchased under agreements to resell	2,058,381		1,672		0.08		3,885,281		17,812		0.46		4,521,312		104,397		2.31
Federal funds sold	1,476,595		32,834		2.22		2,229,989		40,306		1.81		2,716,688		27,994		1.03		Federal funds sold	2,724,279		2,146		0.08		2,452,063		5,050		0.21		1,476,595		32,834		2.22
Investment securities^1,2	12,121,452		309,499		2.55		9,401,909		235,002		2.50		8,864,480		158,104		1.78		Investment securities1,2	11,490,425		116,673		1.02		13,580,306		162,149		1.19		12,121,452		309,499		2.55
Advances^2,3	28,322,033		716,199		2.53		29,899,634		637,203		2.13		31,605,448		402,071		1.27
Mortgage loans^4,5	9,326,732		304,582		3.27		7,816,191		256,698		3.28		6,891,057		214,388		3.11
Advances1,2																			Advances1,2	23,178,487		129,586		0.56		24,877,906		268,051		1.08		28,322,033		716,199		2.53
Mortgage loans3,4																			Mortgage loans3,4	8,481,472		211,770		2.50		10,549,506		280,708		2.66		9,326,732		304,582		3.27
Other interest-earning assets	47,752		1,440		3.02		46,113		1,545		3.35		29,530		1,280		4.33		Other interest-earning assets	39,120		938		2.40		44,875		1,211		2.70		47,752		1,440		3.02
Total earning assets	56,704,766		1,488,752		2.62		53,727,537		1,257,009		2.34		52,847,594		831,978		1.57		Total earning assets	48,928,015		463,728		0.94		56,795,906		741,073		1.30		56,704,766		1,488,752		2.62
Other non-interest-earning assets	241,586						357,122						204,665						Other non-interest-earning assets	324,482						303,440						241,586
Total assets	$	56,946,352					$	54,084,659					$	53,052,259					Total assets	$	49,252,497					$	57,099,346					$	56,946,352

Interest-bearing liabilities:																			Interest-bearing liabilities:
Deposits	$	544,001	9,820		1.81		$	560,819	8,912		1.59		$	486,747	3,371		0.69		Deposits	$	1,032,746	400		0.04		$	819,270	1,802		0.22		$	544,001	9,820		1.81
Consolidated obligations²:
Consolidated obligations1:																			Consolidated obligations1:
Discount Notes	23,972,736		532,155		2.22		24,713,789		451,380		1.83		26,811,378		237,019		0.88		Discount Notes	10,760,061		5,481		0.05		17,325,512		123,124		0.71		23,972,736		532,155		2.22
Bonds	29,441,519		689,275		2.34		25,988,893		524,255		2.02		23,038,357		320,895		1.39		Bonds	34,128,310		160,173		0.47		35,560,196		363,896		1.02		29,441,519		689,275		2.34
Other borrowings	51,854		1,438		2.78		44,565		1,265		2.84		19,257		685		3.56		Other borrowings	46,896		1,026		2.19		50,726		1,239		2.44		51,854		1,438		2.78
Total interest-bearing liabilities	54,010,110		1,232,688		2.28		51,308,066		985,812		1.92		50,355,739		561,970		1.11		Total interest-bearing liabilities	45,968,013		167,080		0.36		53,755,704		490,061		0.91		54,010,110		1,232,688		2.28
Capital and other non-interest-bearing funds	2,936,242						2,776,593						2,696,520						Capital and other non-interest-bearing funds	3,284,484						3,343,642						2,936,242
Total funding	$	56,946,352					$	54,084,659					$	53,052,259					Total funding	$	49,252,497					$	57,099,346					$	56,946,352

Net interest income and net interest spread⁶			$	256,064	0.34	%			$	271,197	0.42	%			$	270,008	0.46	%
Net interest income and net interest spread5																			Net interest income and net interest spread5			$	296,648	0.58	%			$	251,012	0.39	%			$	256,064	0.34	%

Net interest margin⁷					0.45	%					0.50	%					0.51	%
Net interest margin6																			Net interest margin6					0.61	%					0.44	%					0.45	%


¹	The non-credit portion of the other-than-temporary (OTTI) discount on held-to-maturity securities and the fair value adjustment on available-for-sale securities are excluded from the average balance for calculations of yield since the changes are adjustments to equity.

Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment. For 2019, interest amounts reported for advances, investment securities, consolidated obligation discount notes, and consolidated obligation bonds include realized and unrealized gains (losses) on hedged items and derivatives in qualifying hedge relationships. Prior period interest amounts do not conform to new hedge accounting guidance adopted January 1, 2019.


³	~~Advance income includes prepayment fees on terminated advances.~~


⁴	CE fee payments are netted against interest earnings on the mortgage loans. The expense related to CE fee payments to PFIs was $6.9 million, $6.1 million and $5.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.


⁵	~~Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.~~


⁶	~~Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.~~


⁷	~~Net interest margin is defined as net interest income as a percentage of average interest-earning assets.~~

1 Interest income/expense and average rates include the effect of associated derivatives that qualify for hedge accounting treatment.

2 Interest income includes prepayment/yield maintenance fees.

3 Credit enhancement fee payments are netted against interest earnings on the mortgage loans. The expense related to credit enhancement fee payments to PFIs was $6.4 million, $7.7 million and $6.9 million for the years ended December 31, 2021, 2020, and 2019, respectively.

4 Mortgage loans average balance includes outstanding principal for non-performing conventional loans. However, these loans no longer accrue interest.

5 Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

6 Net interest margin is defined as net interest income as a percentage of average interest-earning assets.

Changes in the volume of interest-earning assets and the level of interest rates influence changes in net interest income, net interest spread and net interest margin. Table 149 summarizes changes in interest income and interest expense (in thousands):

Table 149


																			2021 vs. 2020						2020 vs. 2019

	2019 vs. 2018									2018 vs. 2017
	Increase (Decrease) Due to									Increase (Decrease) Due to									Increase (Decrease) Due to						Increase (Decrease) Due to
	Volume^1,2			Rate^1,2			Total			Volume^1,2			Rate^1,2			Total			Volume1,2		Rate1,2		Total		Volume1,2		Rate1,2		Total
Interest Income³:																		Interest Income3:
Interest-bearing deposits	$	2,668		$	2,176		$	4,844		$	5,014		$	5,739		$	10,753	Interest-bearing deposits	$	(1,509)	$	(3,640)	$	(5,149)	$	7,628	$	(21,337)	$	(13,709)
Securities purchased under agreements to resell	20,834			12,265			33,099			17,253			30,108			47,361		Securities purchased under agreements to resell	(5,869)		(10,271)		(16,140)		(12,928)		(73,657)		(86,585)
Federal funds sold	(15,481		)	8,009			(7,472		)	(5,741		)	18,053			12,312		Federal funds sold	508		(3,412)		(2,904)		13,398		(41,182)		(27,784)
Investment securities	69,338			5,159			74,497			10,090			66,808			76,898		Investment securities	(23,060)		(22,416)		(45,476)		33,592		(180,942)		(147,350)
Advances	(35,004		)	114,000			78,996			(22,785		)	257,917			235,132		Advances	(17,215)		(121,250)		(138,465)		(78,355)		(369,793)		(448,148)
Mortgage loans	49,338			(1,454		)	47,884			29,914			12,396			42,310		Mortgage loans	(52,447)		(16,491)		(68,938)		36,867		(60,741)		(23,874)
Other assets	51			(156		)	(105		)	602			(337		)	265		Other assets	(146)		(127)		(273)		(83)		(146)		(229)
Total earning assets	91,744			139,999			231,743			34,347			390,684			425,031		Total earning assets	(99,738)		(177,607)		(277,345)		119		(747,798)		(747,679)
Interest Expense³:																		Interest Expense3:
Deposits	(274		)	1,182			908			583			4,958			5,541		Deposits	377		(1,779)		(1,402)		3,374		(11,392)		(8,018)
Consolidated obligations:																		Consolidated obligations:
Discount notes	(13,891		)	94,666			80,775			(19,895		)	234,256			214,361		Discount notes	(34,102)		(83,541)		(117,643)		(118,496)		(290,535)		(409,031)
Bonds	74,711			90,309			165,020			45,191			158,169			203,360		Bonds	(14,104)		(189,619)		(203,723)		121,505		(446,884)		(325,379)
Other borrowings	202			(29		)	173			743			(163		)	580		Other borrowings	(89)		(124)		(213)		(30)		(169)		(199)
Total interest-bearing liabilities	60,748			186,128			246,876			26,622			397,220			423,842		Total interest-bearing liabilities	(47,918)		(275,063)		(322,981)		6,353		(748,980)		(742,627)
Change in net interest income	$	30,996		$	(46,129	)	$	(15,133	)	$	7,725		$	(6,536	)	$	1,189	Change in net interest income	$	(51,820)	$	97,456	$	45,636	$	(6,234)	$	1,182	$	(5,052)


¹	~~Weighted average dividend rates are dividends paid in cash and stock on both classes of stock divided by the average of capital stock eligible for dividends.~~

We ~~paid dividend rates of 2.50 percent~~anticipate that our base stock dividends on Class A Common Stock and ~~7.50 percent on~~ Class B Common Stock will remain at or above 2021 levels throughout 2022. Dividend rates typically move in tandem with short-term market rates and could therefore be impacted by projected increases in market rates for ~~the fourth quarter of 2019.~~2022. Adverse ~~changes in~~ market conditions may result in lower dividend rates in future quarters. While there is no assurance that our ~~Board~~board of ~~Directors~~directors will not change the dividend parity threshold in the future, the capital plan requires that we provide members with 90 days' notice prior to the end of a dividend period in which a different dividend parity threshold is utilized in the payment of a dividend.

Under the capital plan, all dividends paid in the form of capital stock must be paid in the form of Class B Common Stock. We expect to continue paying dividends primarily in the form of capital stock, but future dividends may be paid in cash. The payment of cash dividends instead of stock dividends should not have a significant impact from a liquidity perspective, as the subsequent redemption of excess stock created by stock dividends would utilize liquidity resources in the same manner as a cash dividend.

As of December 31, 2019, 63.3 percent of our capital was capital stock, and 36.7 percent was retained earnings and AOCI. As of December 31, 2018, 62.1 percent of our capital was capital stock, and 37.9 percent was retained earnings and AOCI. As mentioned previously, we were in compliance with our minimum regulatory capital requirements as of December 31, 2019. Additionally, within our RMP we have an internal minimum total capital-to-asset ratio requirement of 4.04 percent, which is in excess of the 4.00 percent regulatory requirement. All regulatory and internal capital ratios include mandatorily redeemable capital stock as capital, which we treat as a liability under GAAP. We expect to maintain a regulatory capital-to-asset percentage greater than the regulatory minimum of 4.0 percent and greater than our RMP minimum of 4.04 percent. However, our GAAP total capital percentage could drop below these levels because mandatorily redeemable capital stock is considered a liability under GAAP. See Table 7 under Item 6 – “Selected Financial Data” for reported percentages for total capital ratio and regulatory capital ratio.

Liquidity: We maintain high levels of liquidity to achieve our mission of serving as an economical funding source for our members and housing associates. As part of fulfilling our mission, we also maintain minimum liquidity requirements in accordance with certain FHFA regulations and guidelines and in accordance with policies established by management and the ~~Board~~board of ~~Directors.~~directors. Our business model enables us to manage the levels of our assets, liabilities, and capital in response to member credit demand, membership composition, and market conditions. As such, assets and liabilities utilized for liquidity purposes can vary significantly in the normal course of business due to the amount and timing of cash flows as a result of these factors.

Sources and Uses of Liquidity – A primary source of our liquidity is the issuance of consolidated obligations. The capital markets traditionally have treated FHLBank obligations as U.S. government agency debt. As a result, even though the U.S. government does not guarantee FHLBank debt, we generally have comparatively stable access to funding at relatively favorable spreads to U.S. Treasury rates. We are primarily and directly liable for our portion of consolidated obligations (i.e., those obligations issued on our behalf). In addition, we are jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all FHLBanks. Our uses of liquidity primarily include issuing advances, purchasing investments and mortgage loans, and repaying called and maturing consolidated obligations for which we are the primary obligor. We also use liquidity to repay member deposits, pledge collateral to derivative counterparties, and redeem or repurchase capital stock. Our other sources of liquidity include our short-term liquidity portfolio, deposit inflows, repayments of advances and mortgage loans, maturing investments, trading and available-for-sale investments, interest income, or the sale of unencumbered assets.

During the year ended December 31, ~~2019,~~2021, proceeds (net of premiums and discounts) from the issuance of bonds and discount notes were ~~$24.7~~$40.0 billion and ~~$818.1~~$265.1 billion, respectively, compared to ~~$10.8~~$48.0 billion and ~~$1,036.7~~$631.0 billion for the year ended December 31, ~~2018.~~2020. The ~~large~~ difference between the proceeds from bonds and discount notes reflects the cumulative effect of using short-term discount notes to fund short-term advances and our short-term liquidity portfolio. ~~Our other sources~~The change in these issuances year over year reflects the decrease in asset balances and also reflects our composition shift from discount notes to the use of liquidity include deposit inflows, repayments of advances and mortgage loans, maturing investments, interest income, maturing Federal funds sold, and proceeds from maturing reverse repurchase agreements or the sale of unencumbered assets.term funding indexed to SOFR.

Our short-term liquidity portfolio ~~which~~ consists of cash, short-term investments, and long-term investments with remaining maturities of one year or ~~less and includes~~less. Short-term investments may include Federal funds sold, interest-bearing demand deposits, certificates of deposit, ~~commercial paper,~~ and reverse repurchase ~~agreements, increased~~agreements. The short-term liquidity portfolio decreased between periods, from ~~$2.6~~$11.8 billion as of December 31, ~~2018~~2020 to ~~$9.4~~$7.2 billion as of December 31, ~~2019.~~2021. The ~~increase between periods~~short-term liquidity portfolio was ~~relative to the decrease~~elevated at year end 2020 in ~~targeted leverage~~anticipation of potential year-end financial disruptions that were not anticipated at the end of ~~2018 combined with accumulation of liquidity in anticipation of potential advance demand at the end of 2019.~~2021. The maturities of our short-term investments are structured to provide periodic cash flows to support our ongoing liquidity needs. To enhance our liquidity position, short-term investment securities (i.e., ~~commercial paper and~~ marketable certificates of deposit) are also classified as trading when held so that they can be readily sold should liquidity be needed immediately.

We also maintain a portfolio of GSE debentures, U.S. Treasury obligations, and GSE MBS that can be pledged as collateral for financing in the securities repurchase agreement market and are classified as trading to enhance our liquidity position. The par value of these debentures and U.S. Treasury obligations was ~~$1.9~~$1.3 billion and ~~$1.2~~$1.6 billion as of December 31, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively. The par value of these MBS was $0.8 billion ~~and $0.9 billion~~ as of both December 31, ~~2019~~2021 and December 31, ~~2018, respectively.~~2020. We also ~~hold $4.2~~held $2.8 billion and $3.5 billion in par value of U.S. Treasury obligations classified as available-for-sale as of December 31, 2021 and December 31, 2020, respectively, as an additional source of liquidity to satisfy regulatory liquidity ~~requirements that went into effect March 31, 2019.~~requirements. In addition to the balance sheet sources of liquidity discussed previously, we have established lines of credit with numerous counterparties in the Federal funds market as well as with the other FHLBanks. Accordingly, we expect to maintain a sufficient level of liquidity for the foreseeable future.

We strive to manage our average capital ratio to remain above our minimum regulatory and RMP requirements in an effort to ensure that we have the ability to issue additional consolidated obligations should the need arise. Excess capital capacity ensures we are able to meet the liquidity needs of our members and/or repurchase excess stock either upon the submission of a redemption request by a member or at our discretion for balance sheet or capital management purposes.

Our uses of liquidity primarily include issuing advances, purchasing investments and mortgage loans, and repaying called and maturing consolidated obligations for which we are the primary obligor. We also use liquidity to repay member deposits, pledge collateral to derivative counterparties, redeem or repurchase capital stock, and pay dividends to members.

During the year ended December 31, ~~2019,~~2021, advance disbursements totaled ~~$323.5~~$497.2 billion compared to ~~$394.8~~$383.7 billion for the prior year ~~period.~~period which reflects increased member utilization of short-term advances. During the year ended December 31, ~~2019,~~2021, investment purchases (excluding overnight investments) totaled ~~$9.2~~$3.7 billion compared to ~~$4.4~~$1.3 billion for the same period in the prior year. ~~The increase in investment purchases was primarily U.S. Treasury obligations purchased in response to new regulatory liquidity requirements.~~ During the year ended December 31, ~~2019,~~2021, payments on consolidated obligation bonds and discount notes were ~~$16.7~~$40.0 billion and ~~$811.3~~$269.4 billion, respectively, compared to ~~$11.4~~$42.3 billion and ~~$1,036.5~~$647.5 billion for the prior year period.

~~Liquidity Requirements~~ – We are subject to funding gap and cash balance guidelines for measuring required liquidity. Funding gaps are defined as the difference between our assets and liabilities scheduled to mature during a specific period stated as a percentage of total assets. FHFA liquidity guidelines require that we manage our funding gap to a minimum ratio for the three-month and one-year horizons calculated with data as of the calendar month-end using the average ratio for the three most recent month-ends. FHFA guidelines require us to maintain a minimum number of days of positive cash balances without access to the capital markets for the issuance of consolidated obligations.

FHFA guidelines allow High Quality Liquid Assets (HQLA) to be included in liquidity metrics. The FHFA defines HQLA as uncommitted and unencumbered U.S. Treasury securities that have a remaining maturity of no greater than 10 years designated as trading and available-for-sale. We are also allowed to include some legacy GSE debentures as HQLA. We calculate our liquidity under the funding gap guidelines monthly and are required to submit applicable data in a report to the FHFA monthly. We calculate our liquidity under the cash balance guidelines daily and are required to submit applicable data in a report to the FHFA weekly. Statutory liquidity requires us to have an amount equal to current deposits received from members invested in obligations of the United States, deposits in eligible banks or trust companies, and advances with a remaining maturity not exceeding five years. Statutory liquidity is calculated daily. See “Risk Management - Liquidity Risk Management” under this Item 2 for additional discussion on our liquidity requirements. We remained in compliance with all liquidity requirements in effect during 2019.

Contingency plans are in place at FHLBank and the Office of Finance that prioritize the allocation of liquidity resources in the event of financial market disruptions, as well as systemic Federal Reserve wire transfer system disruptions. Further, under the Bank Act, the Secretary of Treasury has the authority, at his discretion, to purchase consolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

Generally, our liquid assets are funded with discount notes or floating rate bonds of a shorter tenor. In order to help ensure sufficient liquidity, we generally maintain a relatively longer weighted-average maturity on our consolidated obligation discount notes and floating rate bonds than the weighted average maturity of short-term liquid investment and short-term advance balances. Over time, especially as the yield curve steepens on the short end, maintaining the differential between the weighted average original maturity of discount notes and short-term liquid investments will increase our cost of funds and reduce our net interest income.

Off-Balance Sheet Arrangements: In the ordinary course of business, we engage in financial transactions that, in accordance with GAAP, are not recorded on the Statements of Condition or may be recorded on the Statements of Condition in amounts that are different from the full contract or notional amount of the transactions. See Note 1716 of the Notes to Financial Statements under ~~Part II,~~ Item 8 – “Financial Statements and Supplementary Data” for more information on our off-balance sheet arrangements.

~~Contractual Obligations:~~ Table 47 represents the payment due dates or expiration terms under the specified contractual obligation type, excluding derivatives, by period as of December 31, 2019 (in thousands). Consolidated obligations listed exclude discount notes, which have maturities of one year or less, and are based on contractual maturities. Actual distributions could be influenced by factors affecting potential early redemptions.

~~Table 47~~

Contractual Obligations Total Payments due by period
1 Year or Less
After 1 Through 3 Years
After 3 Through 5 Years
After 5 Years
Consolidated obligation bonds $ 31,970,700
$ 15,991,800
$ 7,693,350
$ 2,509,250
$ 5,776,300
Financing obligation 35,000
—
—
—
35,000
Commitments to fund mortgage loans 221,800
221,800
—
—
—
Advance commitments 79,975
64,282
15,693
—
—
Expected future pension benefit payments 13,372
1,198
2,417
1,626
8,131
Mandatorily redeemable capital stock 2,415
1,545
870
—
—
TOTAL $ 32,323,262
$ 16,280,625
$ 7,712,330
$ 2,510,876
$ 5,819,431

Risk Management

Active risk management continues to be an essential part of our operations and a key determinant of our ability to: (1) provide liquidity to our members at reasonable costs to them; (2) maintain the par value of members’ capital stock; (3) repurchase or redeem members’ capital stock; and (4) maintain earnings to return an acceptable dividend to our members and meet retained earnings thresholds. Proper identification, assessment and management of risks, complemented by adequate internal controls, enable our stakeholders to have confidence in our ability to meet our housing finance mission, serve our stockholders, earn a profit, compete in the industry, and sustain and prosper over the long term. We maintain comprehensive risk management processes to facilitate, control and monitor risk taking. Periodic reviews by internal and external auditors, FHFA examiners and independent consultants subject our practices to additional scrutiny, further strengthening the process.

We maintain an enterprise risk management (ERM) program in an effort to enable the identification of all inherent significant risks to the organization and institute the prompt and effective management of any major risk exposures. Under this program, we perform annual risk assessments designed to identify and evaluate all material risks that could adversely affect the achievement of our performance objectives and compliance requirements. ERM is a process, effected by our ~~Board~~board of ~~Directors,~~directors, management and other personnel, applied in strategy setting and across FHLBank. It is designed to: (1) identify and evaluate potential risks or events that may affect FHLBank; (2) manage these risks to desired residual risk levels consistent with our Risk Appetite Statement; and (3) provide reasonable assurance regarding the achievement of FHLBank's strategic, operations, reporting and compliance objectives. Our ERM program is a structured and disciplined approach that aligns strategy, processes, people, technology and knowledge with the purpose of identifying, evaluating and managing the uncertainties we face as we create value. It is a continuous process of identifying, prioritizing, assessing and managing inherent enterprise risks (i.e., business, compliance, credit, liquidity, market and operations) before they become realized risk events.

Our Risk Philosophy Statement, approved by our ~~Board~~board of ~~Directors,~~directors, establishes the broad parameters we consider in executing our business strategy and represents a set of shared attitudes and beliefs that characterize how we consider risk in everything we do. Our Risk Appetite Statement, also approved by our ~~Board~~board of ~~Directors,~~directors, defines the level of risk exposure we are willing to accept or retain in pursuit of stakeholder value. We accept a measured and managed amount of market risk while seeking to manage our risk exposure to business, compliance, credit, liquidity and operations risk to a low residual risk level. While we consider our risk appetite first in evaluating strategic alternatives, defining and managing to a specific risk appetite does not ensure we will not incur greater than expected losses or be faced with an unexpected, catastrophic loss. By defining and managing to a specific risk appetite, our ~~Board~~board of ~~Directors~~directors and senior management strive to ensure that there is a common understanding of our desired risk profile, which enhances the ability of both to make improved strategic and tactical decisions. Our monthly Risk Dashboard provides a holistic view of our risk profile and the means for reporting our key risk metrics as defined within our Risk Appetite Metrics document, which is also approved by our ~~Board~~board of ~~Directors.~~directors. The Risk Dashboard is intended to demonstrate, at an entity level, whether our enterprise risks are well controlled and normal operations are expected with standard ~~Board~~board of ~~Directors~~directors involvement.

As part of our ERM program, entity level risk assessment workshops are conducted with our management committees to identify and reach a general consensus on the primary risks that must be managed to help ensure achievement of our strategic objectives and allow for future success for the organization. By using this type of top-down assessment, we seek to: (1) gain an understanding of our current risk universe; (2) obtain management’s input on new and/or increasing areas of exposure; (3) determine the impact our primary risks might have on achieving our strategic business plan objectives; (4) discuss and validate our current risk management approach; (5) identify other risk management strategies that might be implemented to better ensure alignment with our desired residual risk profile; and (6) prioritize the allocation of resources to address those areas where current risk management strategies may be falling short relative to the overall level of perceived residual risk. The results of these activities, including any risk strategies and action plans for enhancing risk management practices, are summarized in an annual risk assessment report, which is reviewed by the Strategic Risk Management Committee and approved by the ~~Risk Oversight Committee~~board of ~~the Board of Directors.~~directors.

Business units also play key roles in our risk management program. We utilize a customized business unit risk assessment approach to ensure that: (1) risk assessments are completed annually for all of our business units; (2) effective internal controls and strategies are in place for managing the identified risks within the key processes throughout FHLBank; and (3) risk management or internal control weaknesses are properly identified with necessary corrective actions taken. As a result of our efforts, 22 business unit risk assessments were completed in 2019 addressing 134 key processes throughout FHLBank. The number of business unit risk assessments and key processes will necessarily fluctuate over time as organizational changes occur, responsibilities shift and new products and services are developed. The results of all risk assessments are reviewed by senior management and presented to the Risk Oversight Committee of the ~~Board~~board of ~~Directors~~directors on a scheduled basis in order to keep our ~~Board~~board of ~~Directors~~directors apprised of any weaknesses in the current risk management process of each business unit and the steps undertaken by management to address any identified weaknesses. Each process level risk is associated with one or more entity level risks to establish a relationship or connection between the top down or entity level risks and the risks managed at the business unit level.

Effective risk management programs include not only conformance to risk management best practices by management but also incorporate Board of Director oversight. As previously noted, our ~~Board~~board of ~~Directors~~directors plays an active role in the ERM process by regularly reviewing risk management policies and approving aggregate levels of risk. Involvement by the ~~Board~~board of ~~Directors~~directors in establishing risk tolerance levels, including oversight of the development and maintenance of programs to manage it, is substantial and reflects a high level of director fiduciary responsibility and accountability. In addition to establishing the formal Risk Philosophy Statement, Risk Appetite Statement, Risk Appetite Metrics and reviewing the annual and business unit risk assessment results, our ~~Board~~board of ~~Directors~~directors reviews both the RMP and Member Products Policy at least annually. Various management committees, including the Executive Team, the Strategic Risk Management Committee, the Asset/Liability Committee, the Credit Underwriting Committee, the Market Risk Analysis Committee, the Operations Risk Committee, the Disclosure Committee, the Technology Committee, and the ~~Technology~~Model Risk Management Committee, oversee our risk management process. The following discussion highlights our different strategies to diversify and manage risk. See Item 7A – “Quantitative and Qualitative Disclosures About Market Risk” for a separate discussion of market risk.

Interest Rate Risk Management: Interest rate risk is the risk that relative and absolute changes in interest rates may adversely affect an institution's financial condition and performance. The goal of an interest rate risk management strategy is not necessarily to eliminate interest rate risk, but to manage it by setting, and operating within, an appropriate framework and limits. We generally manage interest rate risk by acquiring and maintaining a portfolio of assets and liabilities and entering into related derivative transactions to limit the expected mismatches in duration and ~~market value of equity~~MVE sensitivity. See Part I, Item 7A - ~~"Quantitative~~“Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk” for additional information on interest rate risk measurement.

Transition from LIBOR to an Alternative Reference Rate – ~~Many~~Some of our assets, liabilities, and ~~liabilities~~collateral pledged are indexed to LIBOR, so we continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate, including the likelihood of SOFR prevailing as the most widely adopted replacement reference rate.with exposure extending past December 31, 2021 and June 30, 2023. We have assessed our current LIBOR exposure, which included evaluating the fallback language of derivative and investment contracts indexed to LIBOR, and have developed a transition plan for the eventual replacement of LIBOR that includes strategies to manage and reduce exposure, ~~in addition to operational readiness. Our swap agreements are governed by~~operating under the ~~International Swap Dealers Association (ISDA). ISDA is~~assumption that SOFR will become the dominant replacement in the ~~process~~capital markets. On July 1, 2021, the FHFA issued a Supervisory Letter to the FHLBanks regarding an FHLBank’s use of ~~developing~~alternative rates other than SOFR. The Supervisory Letter provides guidance on considerations such as volume of underlying transactions, credit sensitivity and modeling risk, among others, that an FHLBank should consider prior to using an alternative reference rate.

The publication of LIBOR on a ~~protocol~~representative basis ceased for one-week and two-month LIBOR as of January 1, 2022, and the remaining LIBOR tenors will cease immediately after June 30, 2023. Although the FCA does not expect LIBOR to ~~modify legacy trades~~become unrepresentative before the cessation date and intends to ~~include fallback language. The market transition away from~~consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the cessation date, there is ~~expected~~no assurance that LIBOR, of any particular currency or tenor, will continue to be ~~gradual and complex, including the development~~published or be representative through any particular date. As of ~~term and credit adjustments to accommodate differences between LIBOR, an unsecured rate, and SOFR, a secured rate. SOFR is based on a broad segment~~December 31, 2021, all of the overnight U.S. Treasuries repurchase market and is intended to be a measure of the average cost of borrowing cash overnight collateralized by U.S. Treasury securities. We started participating in SOFR-indexed debt issuances in November 2018 and swapping certain financial instruments to SOFR in January 2019 in an effort to manage our exposure to LIBOR ~~assets~~was in investments and ~~liabilities with maturities beyond 2021. Derivative~~in derivatives hedging investments and ~~investment exposure will also be impacted by the actions of industry groups and standard setters, which are still under deliberation.~~

~~In September 2019, the FHFA issued a supervisory letter~~consolidated obligation bonds indexed to the ~~FHLBanks providing LIBOR transition guidance. The supervisory letter states that~~one-month and three-month tenors. We are prohibited by ~~March 31, 2020, the FHLBanks should no longer~~our regulator to enter into new financial assets, liabilities, ~~and~~or derivatives that reference LIBOR.

As part of our transition plan, we transferred LIBOR-indexed MBS with an amortized cost of $2.0 billion from held-to-maturity to available-for-sale during the second quarter of 2021. This transfer will enable us to sell these securities to reduce LIBOR exposure when market conditions and ~~mature after December 31, 2021, for all product types except investments. On March 16, 2020,~~reinvestment opportunities are favorable. Market activity in ~~light of market volatility, the FHFA extended from March 31, 2020~~SOFR-based financial instruments continues to ~~June 30, 2020 the FHLBanks’ ability~~develop. We offer advances indexed to ~~enter into instruments referencing LIBOR that mature after December 31, 2021, except for investments~~SOFR and ~~option embedded products. With respect~~issue variable rate consolidated obligation bonds indexed to ~~investments, the FHLBanks should, by December 31, 2019, stop purchasing investments that reference LIBOR~~SOFR. In addition, we have been using SOFR- and ~~mature after December 31, 2021. For additional information, see "Legislative~~OIS-based derivatives to manage interest-rate risk and ~~Regulatory Developments" under Item 1.~~reduce funding costs.

~~The principal balance of~~All variable rate advances indexed to LIBOR have matured as of December 31, 2019 was $665 million, which represents 3.08 percent of total variable rate advances. The contractual maturities of these LIBOR-indexed advances are all due in 2020; thus, at December 31, 2019, we have no LIBOR exposure after 2021. We have no$1.7 billion in advances indexed to SOFR as of December 31, ~~2019.~~2021.

Table 4841 presents the par value of variable rate investment securities by the related interest rate index as of December 31, ~~2019~~2021 (dollar amounts in thousands):

~~Table 48~~

12/31/2019
Index Amount Percent
Non-mortgage-backed securities:
LIBOR $ 82,805
2.4 %
Non-mortgage-backed securities 82,805
2.4
Mortgage-backed securities:
LIBOR 3,430,554
97.6
Other 23
—
Mortgage-backed securities 3,430,577
97.6
TOTAL $ 3,513,382
100.0 %

Table 4941


12/31/2021
Index	Amount		Percent
Non-mortgage-backed securities:
LIBOR	$	74,865	3.7	%


Non-mortgage-backed securities	74,865		3.7
Mortgage-backed securities:
LIBOR	1,886,492		94.0
SOFR	45,000		2.2

Other	19		0.1
Mortgage-backed securities	1,931,511		96.3
TOTAL	$	2,006,376	100.0	%

Table 42 presents the par value of investment securities indexed to LIBOR outstanding by year of contractual maturity as of December 31, ~~2019~~2021 (in thousands):

~~Table 49~~

12/31/2019
Year of Contractual Maturity Amount
Non-mortgage-backed securities:
2020 $ —
2021 —
Thereafter 82,805
Non-mortgage-backed securities 82,805
Mortgage-backed securities:
2020 —
2021 2,291
Thereafter 3,428,263
Mortgage-backed securities 3,430,554
TOTAL $ 3,513,359

Table 5042


12/31/2021
Year of Contractual Maturity	Amount
Non-mortgage-backed securities:
After June 30, 2023	$	74,865
Non-mortgage-backed securities	74,865
Mortgage-backed securities:
2022	40,138
Through June 30, 2023	79,771
Thereafter	1,766,583
Mortgage-backed securities	1,886,492
TOTAL	$	1,961,357

Table 43 presents the notional amount of interest rate swaps (excludes interest rate caps and mortgage delivery commitments) by related interest rate index as of December 31, ~~2019~~2021 (amounts in thousands):

Table50 43


12/31/2021
Index	Pay Side		Receive Side
Fixed rate	$	13,962,268	$	6,813,000
LIBOR	25,000		4,860,723
SOFR	4,903,000		7,191,246
OIS	1,885,000		1,910,299

TOTAL	$	20,775,268	$	20,775,268

12/31/2019
Index Pay Side Receive Side
Fixed rate $ 14,555,853
$ 4,622,282
LIBOR 1,310,000
7,049,661
SOFR 1,743,781
5,371,203
OIS 1,938,500
2,404,988
Other —
100,000
TOTAL $ 19,548,134
$ 19,548,134

Table 5144 presents the notional amount of interest rate swaps (excludes interest rate caps and mortgage delivery commitments) indexed to LIBOR outstanding by termination date as of December 31, ~~2019~~2021 (in thousands). Actual terminations of certain derivatives will differ from contractual termination dates because derivative counterparties may have call options within the derivative contracts. Likewise, if the financial instrument being hedged by the derivative (either as a qualifying fair value hedge or as an economic hedge) is called or paid off prior to contractual maturity, we could potentially call or terminate the corresponding derivative prior to the termination date.

~~Table 51~~

12/31/2019
Year Pay Side Receive Side
Cleared Bilateral Cleared Bilateral
2020 $ 235,000
$ 130,000
$ 239,223
$ 158,000
2021 —
635,000
630,481
15,000
Thereafter —
310,000
1,615,412
4,391,545
TOTAL $ 235,000
$ 1,075,000
$ 2,485,116
$ 4,564,545

Table ~~52 presents the par value~~44


12/31/2021
Year	Pay Side				Receive Side
	Cleared		Bilateral		Cleared		Bilateral

2022	—		—		89,230		25,000
Prior to June 30, 2023	—		—		301,107		—
Thereafter	—		25,000		890,303		3,555,083
TOTAL	$	—	$	25,000	$	1,280,640	$	3,580,083

As of December 31, 2021, all $15.8 billion of variable rate consolidated obligation bonds ~~by the related interest rate index as of~~were indexed to SOFR. As if December 31, ~~2019 (dollar amounts in thousands):~~

~~Table 52~~

12/31/2019
Index Amount Percent
SOFR $ 7,227,000
44.4 %
LIBOR 6,510,000
39.9
U.S. Treasury 2,550,000
15.7
TOTAL $ 16,287,000
100.0 %

~~Table 53 presents the par value of~~2021, all LIBOR-indexed consolidated obligation bonds ~~indexed to LIBOR outstanding by year of maturity and by year of maturity or next call date for callable bonds as of December 31, 2019 (in thousands):~~have matured.

~~Table 53~~

12/31/2019
Year Maturity Date Maturity or Next Call Date
2020 $ 5,490,000
$ 5,760,000
2021 750,000
750,000
Thereafter 270,000
—
TOTAL $ 6,510,000
$ 6,510,000

Credit Risk Management: Credit risk is defined as the potential that a borrower or counterparty will fail to meet its financial obligations in accordance with agreed terms. We manage credit risk by following established policies, evaluating the creditworthiness of our counterparties, and utilizing collateral agreements and settlement netting for derivative transactions where enforceability of the legal right of offset has been determined. The most important step in the management of credit risk is the initial decision to extend credit. Continuous monitoring of counterparties is completed for all areas where we are exposed to credit risk, whether that is through lending, investing or derivative activities.

Lending and AMA Activities – Credit risk with members arises largely as a result of our lending and AMA activities (members’ CE obligations on conventional mortgage loans that we acquire through the MPF Program). We manage our exposure to credit risk on advances, letters of credit, and members’ CE obligations on conventional mortgage loans through a combined approach that provides ongoing review of the financial condition of our members coupled with credit enhancement sufficiency analysis, investment grade determination, and prudent collateralization.

At the time an advance is originated, we are required to obtain and then to maintain a security interest in sufficient collateral of the borrower, which is eligible in one or more of the following categories:

▪Fully disbursed, whole first mortgages on 1-4 family residential property or securities representing a whole interest in such mortgages;

▪Securities issued and guaranteed or insured by the U.S. government, U.S. government agencies and mortgage GSEs including, without limitation, MBS issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae;

▪Cash or deposits;

▪Other acceptable real estate-related collateral, provided such collateral has a readily ascertainable market value and we can perfect a security interest in such property (e.g., privately issued collateralized mortgage obligations, mortgages on multifamily residential real property, second mortgages on 1-4 family residential property, mortgages on commercial real estate); or

▪In the case of any CFI, secured loans to small business, small farm and small agri‑business or securities representing a whole interest in such secured loans.

The Bank Act affords any security interest granted to us by any of our members, or any affiliate of any such member, priority over the claims and rights of any party, including any receiver, conservator, trustee, or similar party having rights of a lien creditor. The only exceptions are claims and rights held by actual bona fide purchasers for value or by parties that are secured by actual perfected security interests, and provided that such claims and rights would otherwise be entitled to priority under applicable law. In addition, our claims are given certain preferences pursuant to the receivership provisions in the Federal Deposit Insurance Act. Most members provide us a blanket lien covering substantially all of the member’s assets and their consent for us to file a financing statement evidencing the blanket lien. Based on the blanket lien, the financing statement and the statutory preferences, we normally do not take control of collateral, other than securities collateral, pledged by blanket lien borrowers. We take control of all securities collateral through delivery of the securities to us or to an approved third-party custodian. With respect to non-blanket lien borrowers (typically insurance companies, CDFIs, and housing associates), and given the interaction with certain state insurance laws with the Bank Act, we take control of all pledged collateral. If the financial condition of a blanket lien member warrants such action because of the deterioration of the member’s financial condition, regulatory concerns about the member or other factors, we will take control of sufficient collateral intended to fully collateralize the member’s indebtedness to us.

Since the FHLBank System was established in 1932, the U.S. has experienced a wide range of economic conditions, including periods of depression, recession, and expansion, but no degree of economic downturn has ever resulted in a credit loss on an advance. Even during the most recent financial crisis, which resulted in the failure of a number of member financial institutions, there were no credit losses on advances. In addition, the FHLBanks have never accepted collateral in satisfaction of an advance, but rather have been paid in full by an institution that assumes the advance, the FDIC, or some other receiver.

As also provided in the Bank Act, a member’s investment in our capital stock is held as additional collateral for the member’s advances and other credit obligations (letters of credit, CE obligations, etc.). In addition, we can call for additional collateral or substitute collateral during the life of an advance or other credit obligation to protect our security interest.

Credit risk arising from AMA activities under our MPF Program falls into three categories: (1) the risk of credit losses on the mortgage loans represented in our FLA and last loss positions; (2) the risk that a PFI will not perform as promised with respect to its loss position provided through its CE obligations on conventional mortgage loan pools, which are covered by the same collateral arrangements as those described for advances; and (3) the risk that a third-party insurer (obligated under PMI or SMI arrangements) will fail to perform as expected. Should a PMI third-party insurer fail to perform, it would increase our credit risk exposure because our FLA is the next layer to absorb credit losses on conventional mortgage loan pools. Likewise, if ana SMI third-party insurer fails to perform, it would increase our credit risk exposure because it would reduce the participating member’s CE obligation loss layer since SMI is purchased by PFIs to cover all or a portion of their CE obligation exposure for mortgage pools under certain MPF Program products. Credit risk exposure to third-party insurers to which we have PMI and/or SMI exposure is monitored on ~~a monthly~~an ongoing basis and regularly reported to the ~~Board~~board of ~~Directors. We~~directors. In addition, we perform a credit analysis of third-party PMI and SMI ~~insurers on at least a semi-annual basis.~~insurers. On ~~a monthly~~an ongoing basis, we review trends that could identify changing risks ~~with~~within our mortgage loan portfolio for macro- and micro-economic environment-related issues, including adverse changes in credit characteristics (loan purpose, low FICO scores, ~~and~~high debt-to-income ratios, high LTV ~~ratios.~~ratios, etc.) and/or various types of concentrations (geographic, high-balance loans, third-party originated, etc.). Based on the credit underwriting standards under the MPF Program and this ~~monthly~~ongoing review, we have concluded that the mortgage loans we hold would not be considered subprime.

Investments – Our RMP restricts the acquisition of investments to high-quality, short-term money market instruments and highly rated long-term securities. The short-term investment portfolio represents unsecured credit and reverse repurchase agreements. Counterparty ratings are monitored daily while performance and capital adequacy are monitored on a monthly basis in an effort to mitigate unsecured credit risk on our short-term investments. Collateral eligibility and transaction margin requirements on our reverse repurchase agreements are monitored daily. U.S. Treasury obligations and MBS securitized by Fannie Mae or Freddie Mac represent the majority of our long-term investments. Other long-term investments include MBS issued by Ginnie Mae, unsecured GSE debentures and collateralized state and local housing finance agency securities.

Derivatives – We transact most of our derivatives with large banks and major broker-dealers. ~~Over-the-counter~~OTC derivative transactions may be either executed with a counterparty (uncleared derivatives) or with an executing broker and cleared through a Futures Commission Merchant (i.e., clearing agent) that acts on our behalf to clear and settle derivative transactions through a Clearinghouse (cleared derivatives).

We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative transactions. The amount of credit risk on derivatives depends on the extent to which netting procedures and collateral requirements are used and are effective in mitigating the risk. We manage this risk through credit analysis and collateral management. We are also required to follow the requirements set forth by applicable regulation.

Uncleared Derivatives. We are subject to non-performance by the counterparties to our uncleared derivative transactions. All bilateral security agreements with our non-member counterparties include bilateral-collateral-exchange provisions that require all credit exposures be collateralized, subject to a minimum transfer amount. As a result of these risk mitigation practices, we do not anticipate any credit losses on our uncleared derivative transactions as of December 31, ~~2019.~~2021.

Cleared Derivatives. We are subject to nonperformance by the Clearinghouse(s) and clearing agent(s). The requirement that we post initial and variation margin, through the clearing agent, to the Clearinghouse, exposes us to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties and collateral and/or payments are posted daily for changes in the value of cleared derivatives through a clearing agent. We do not anticipate any credit losses on our cleared derivatives as of December 31, ~~2019.~~2021.

We regularly monitor the exposures on our derivative transactions by determining the market value of positions using internal pricing models. The market values generated by the pricing model used to value derivatives are compared to dealer model results on a monthly basis to ensure that our derivative pricing model is reasonably calibrated to actual market pricing methodologies utilized by the dealers. In addition, we have our internal pricing model validated ~~annually~~regularly by an independent consultant. As a result of these risk mitigation initiatives, management does not anticipate any credit losses on our derivative transactions. See Note 87 of the Notes to Financial Statements under ~~Part II,~~ Item 8 for additional information on managing credit risk on derivatives.

The contractual or notional amount of derivative transactions reflects our involvement in the various classes of financial instruments. The maximum credit risk with respect to derivative transactions is the estimated cost of replacing the derivative transactions if there are defaults, minus the value of any related collateral posted to satisfy the initial margin (if required). Our derivative transactions are subject to variation margin which is derived from the change in market value of the transaction and must be posted by the net debtor on demand. Cleared transactions are subject to initial margin as well as variation margin. The initial margin is intended to protect the Clearinghouse against default of a customer. Initial margin is calculated to cover the potential price volatility of the derivative transaction between the time of the default and the assignment of the transaction to another clearing agent or termination of the transaction. Although the initial margin requirement should decrease over time as the duration and market volatility decrease, it remains outstanding for the life of the transaction; thus, it is possible that we could either have: (1) net credit exposure with a Clearinghouse even if our net creditor position has been fully satisfied by the receipt of variation margin; or (2) net credit exposure with a Clearinghouse despite being the net debtor (i.e., being in a liability position). In determining maximum credit risk, we consider accrued interest receivables and payables as well as the netting requirements to net assets and liabilities.

Tables 54 and 55 present derivative notional amounts and counterparty credit exposure by whole-letter rating (in the event of a split rating, we use the lowest rating published by Moody's or S&P) for derivative positions with counterparties to which we had credit exposure (in thousands):

~~Table 54~~

12/31/2019
Credit Rating Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged From (To) Counterparty Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A $ 63,500
$ 257
$ —
$ 257
Cleared derivatives¹
14,150,148
1,821
(145,658 ) 147,479
Liability positions with credit exposure:
Uncleared derivatives²:

Single-A 6,123,478
(78,575 ) (84,633 ) 6,058
Triple-B 286,008
(5,894 ) (6,409 ) 515
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE $ 20,623,134
$ (82,391 ) $ (236,700 ) $ 154,309

Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated AA- by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A by S&P as of ~~December 31, 2019. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of~~ ~~December 31, 2019~~.


²	~~Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.~~

~~Table 55~~

12/31/2018
Credit Rating Notional Amount Net Derivatives Fair Value Before Collateral Cash Collateral Pledged From (To) Counterparty Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives:
Single-A $ 36,000
$ 14
$ —
$ 14
Liability positions with credit exposure:
Uncleared derivatives¹:

Single-A 1,225,774
(18,975 ) (22,261 ) 3,286
Cleared derivatives²
4,623,289
(4,963 ) (36,140 ) 31,177
TOTAL DERIVATIVE POSITIONS WITH CREDIT EXPOSURE $ 5,885,063
$ (23,924 ) $ (58,401 ) $ 34,477


¹	~~Exposure can change on a daily basis; thus, there is often a short lag time between the date the exposure is identified, collateral is requested and collateral is returned.~~

Represents derivative transactions cleared with LCH Limited and CME Clearing. LCH Limited was rated A+ by S&P; LCH Limited's parent company, LCH Group Holdings Limited, was not rated; and London Stock Exchange Group, LCH Group Holdings Limited's ultimate parent, was rated A3 by Moody's and A- by S&P as of December 31, 2018. CME Clearing is not rated; however, CME Clearing's parent company, CME Group, Inc., was rated Aa3 by Moody's and AA- by S&P as of December 31, 2018.

~~Foreign Counterparty Risk~~– Loans, acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets payable to us by entities of foreign countries, regardless of the currency in which the claim is denominated are referred to as "cross-border outstandings." Our cross-border outstandings consist primarily of short-term trading securities and Federal funds sold issued by banks and other financial institutions, which are non-sovereign entities, and derivative asset exposure with counterparties that are also non-sovereign entities. Secured reverse repurchase agreements outstanding are excluded from cross-border outstandings because they are fully collateralized.

In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. We continue to cautiously place unsecured cross-border outstandings.

~~Table 56 presents the fair value of cross-border outstandings as of December 31, 2019 (dollar amounts in thousands):~~

~~Table 56~~

Total¹
Amount Percent of Total Assets
Federal funds sold²
$ 450,000
0.7 %

Derivative assets:
Net exposure at fair value (12,235 )
Cash collateral held 12,869

Net exposure after cash collateral 634
—

TOTAL $ 450,634
0.7 %


¹	~~Represents foreign countries where individual exposure is less than one percent of total assets.~~


²	~~Consists solely of overnight Federal funds sold.~~

~~Table 57 presents the fair value of cross-border outstandings to countries in which we do business as of December 31, 2018 (dollar amounts in thousands).~~

~~Table 57~~

Total¹
Amount Percent of Total Assets
Federal funds sold²
$ 50,000
0.1 %

Derivative assets:
Net exposure at fair value (18,961 )
Cash collateral held 22,261

Net exposure after cash collateral 3,300
—

TOTAL $ 53,300
0.1 %

~~__________~~


¹	~~Represents foreign countries where individual exposure is less than one percent of total assets.~~


²	~~Consists solely of overnight Federal funds sold.~~

~~Table 58 presents the fair value of cross-border outstandings to countries in which we do business as of December 31, 2017 (dollar amounts in thousands).~~

~~Table 58~~

Canada
Other¹
Total
Amount Percent of Total Assets Amount Percent of Total Assets Amount Percent of Total Assets
Federal funds sold²
$ 400,000
0.8 % $ 775,000
1.6 % $ 1,175,000
2.4 %

Trading securities³
400,017
0.8
184,967
0.4
584,984
1.2

Derivative assets:
Net exposure at fair value 1,420
(9,883 ) (8,463 )
Cash collateral held (1,402 ) 11,626
10,224

Net exposure after cash collateral 18
—
1,743
—
1,761
—

TOTAL $ 800,035
1.6 % $ 961,710
2.0 % $ 1,761,745
3.6 %

~~__________~~


¹	Represents other foreign countries where individual exposure is less than one percent of total assets. Total cross-border outstandings to countries that individually represented between 0.75 and 1.0 percent of our total assets as of December 31, 2017 were $0.4 billion (Netherlands).


²	~~Consists solely of overnight Federal funds sold.~~


³	~~Consists of certificates of deposit with remaining maturities of less than three months.~~

Liquidity Risk Management: Maintaining the ability to meet our obligations as they come due and to meet the credit needs of our members and housing associates in a timely and cost-efficient manner is the primary objective of managing liquidity risk. We seek to be in a position to meet the credit needs of our members, as well as our debt service and liquidity needs, without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs.

We manage liquidity, first and foremost, to meet the needs of members, while adhering to regulatory and statutory liquidity requirements and guidance. We maintain daily liquidity levels above certain thresholds and consider hypothetical adverse scenarios. These thresholds are outlined in our internal policies and comply with federal statutes, FHFA regulations and other FHFA guidance not issued in the form of regulations. We remained in compliance with liquidity regulatory requirements throughout 2021.

We are focused on maintaining a cost-effective liquidity and funding balance between our financial assets and financial liabilities. The FHLBanks work collectively to manage the system-wide liquidity and funding management and jointly monitor the combined refinancing risk. In managing and monitoring the amounts of assets that require refunding, we may consider contractual maturities of the financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations). See the Notes to the Financial Statements under Part I, Item 8 for more detailed information regarding contractual maturities of certain of our financial assets and liabilities.

Our derivative instruments contain provisions that require all credit exposures be collateralized. See Note 7 of the Notes to Financial Statements under Item 8 for additional information on collateral posting requirements.

FHFA regulations require us to always have at least an amount equal to our current deposits received from our members invested in obligations of the United States, deposits in eligible banks or trust companies, or advances with remaining maturities not exceeding five years. ~~Table 59 summarizes our compliance with the Bank Act liquidity requirements as of December 31, 2019 and 2018 (in thousands):~~

~~Table 59~~

12/31/2019 12/31/2018
Liquid assets¹
$ 3,688,874
$ 735,702
Total qualifying deposits 790,640
473,820
Excess liquid assets over requirement $ 2,898,234
$ 261,882


¹	Although we have other assets that qualify as eligible investments under the liquidity requirements, only interest-earning deposits, Federal funds sold, and deposits with the Federal Reserve are listed because these exceed the liquidity requirements without the consideration of any other eligible investments.

We generally maintained stable access to the capital markets throughout ~~2019.~~2021. For additional discussion of the market for our consolidated obligations and the overall market affecting liquidity see “Financial Market Trends” under this Item 7.

An entity’s liquidity position is vulnerable to any rating, event, performance or ratio trigger (collectively called triggers) that would lead to the termination of the entity’s credit availability or the acceleration of repayment of credit obligations owed by the entity. We have reviewed documents concerning our vulnerability to transactions that contain triggers to gain an understanding of the manner in which risks can arise from such triggers. Triggers adverse to us currently exist in agreements for uncleared derivative transactions and SBPAs. Our staff monitors triggers in order to properly manage any type of potential risks from triggers. For additional information regarding our credit exposure relating to derivative contracts, see Note 87 of the Notes to Financial Statements under ~~Part II,~~ Item 8 – “Financial Statements and Supplementary Data.”

With respect to advances, letters of credit, ~~standby credit facility commitments,~~ and SBPAs, credit practices are impacted by certain triggers based on the member’s or housing associate’s financial performance (or the ratings of bonds underlying SBPAs) as defined in detail in our policies and/or the appropriate agreements. See Notes 1, 5 and 716 in Item 8 – “Financial Statements and Supplementary Data – Notes to Financial Statements” for collateral requirements designed for our credit products.

We have executed SBPAs with multiple state housing finance authorities. All of the SBPAs contain rating triggers beneficial to us providing that if the housing finance authority bonds covered by the SBPA are rated below investment grade (triple-B), we would not be obligated to purchase the bonds even though we were otherwise required to do so under the terms of the SBPA contract. In addition, some transactions also contain a provision that allows us to terminate our obligation to purchase these bonds under the SBPA upon 30 days prior written notice if the long-term rating on the underlying bonds were to be withdrawn, suspended or reduced below single-A. As of December 31, ~~2019~~2021 and ~~2018,~~2020, we were a party to, or participated in, 2325 and 24 SBPAs, respectively, in which our ~~aggregate~~ principal ~~and interest~~ commitments were $0.7 billion for both periods. We were required to purchase $122.4 million in bonds under these agreements during the year ended December 31, 2020. These bonds were classified as available-for-sale securities, and ~~$0.8 billion, respectively.~~were acquired at par and sold at par within the same month. We were not required to purchase any bonds under any agreements during the year ended December 31, 2021.

Business Risk Management: Business risk is the risk of an adverse impact on our profitability resulting from external factors that may occur in both the short and long run. We manage business risk, in part, through a commitment to strategic planning and by having a strategic business plan in effect at all times that describes how the business activities will achieve our mission and also details the operating goals and strategic objectives for each major business activity. The Strategic Business Plan is intended to make transparent our strategic plans as well as the strategic planning process that helps formulate that plan. The Strategic Business Plan is augmented from time-to-time, at least annually, with appropriate research and analysis. The Strategic Business Plan provides a mechanism for management and the ~~Board~~board of ~~Directors~~directors to be fully engaged in fulfilling their responsibilities for establishing our long-term strategic direction. Directors’ knowledge of the external environment through their positions with member institutions in the financial services industry as well as a variety of other professions provides a strong experience base to complement the capabilities and competencies of management. Full development of the Strategic Business Plan, including tactical strategies and implementation, is delegated to ~~management and facilitated by the Strategic Planning and Member Solutions department.~~management. We use planning scenarios to develop the Strategic Business Plan and we continue to refine and enhance the scenario planning process each year. We believe this process results in the development of robust and effective future scenarios, thereby enhancing the overall effectiveness of our strategic planning process and the development of risk strategies for each scenario. The ~~Board~~board of ~~Directors~~directors plays a key role in the development of the Strategic Business Plan and regularly monitors progress in the achievement of business objectives. Two ~~Board~~board of ~~Directors’~~directors’ meetings are set aside each year for strategic planning purposes.

To manage business and strategic risk, earnings simulations are conducted annually with estimated base-, best- and worst-case scenarios. These earnings simulations are based upon a set of assumptions developed for each of the three scenarios that consider factors such as: (1) the effects of changes in interest rates and ~~spreads,~~spreads; (2) the balances of advances, mortgage loans, and ~~investments,~~investments; (3) operating ~~expenses,~~expenses; and (4) dividends. The worst-case scenario assumptions typically include a pessimistic interest rate assumption, an overall decline in advance balances of approximately 20 percent due to either a declining economy, the loss of a large borrowing member due to merger or acquisition, or changes in mortgage flow as a result of ~~the~~a declining economy. ~~The Strategic Planning and Member Solutions department monitors~~We monitor key indicators tied to the various scenario assumptions and ~~provides~~provide a monthly report to the Executive Committee and the ~~Board~~board of ~~Directors.~~directors. This key indicator report includes advance balance monitoring for our largest eight members and our overall membership. See Table 2621 under this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Advances” for advance concentration to the top five borrowers.

Business risk also includes political, reputation, and regulatory risk. Congress occasionally considers legislation that could have an impact on the housing GSEs, including the FHLBanks. Legislation has the power to impact our cost of funds and our cost of doing business. It could also limit or expand existing authorities or change the competitive balance among the FHLBanks and other housing GSEs. Consequently, we seek to: (1) positively influence legislative outcomes; (2) support, oppose, or comment on regulatory proposals; and (3) continually educate all stakeholders about our positive impact on the communities we serve. To manage these types of business risks, we maintain a Government Relations Officer position and work with lobbying firms in Washington, D.C. Additionally, we, along with the other 10 FHLBanks, partner with our Washington, D.C.-based trade association, the Council of FHLBanks, to ensure that the FHLBank System's common legislative and regulatory interests are served. More specifically, we promote the enactment of laws and regulations that are beneficial to FHLBank Topeka and our members, and we oppose detrimental laws and regulations. We also work to enhance awareness and understanding of the FHLBanks among Washington leaders, including members of Congress and their staff, Executive departments, regulators, trade associations, and the financial media.

For additional discussions of general business risk, legislative and regulatory business risk and strategic business risk, see Item 1A - ~~"Risk~~“Risk Factors."”

Joint and Several Liability - Although we are primarily liable for our portion of consolidated obligations (i.e., those issued on our behalf), we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on consolidated obligations of all the FHLBanks. See Item 1 – “Business – Debt Financing – Consolidated Obligations” and Note 109 of the Notes to Financial Statements under ~~Part II,~~ Item 8 for additional information regarding FHLBank’s joint and several liability.

Operations Risk Management: Operations risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, or systems, or from external events. This category of risk is inherent in our daily business activities and involves people, information technology (IT) systems, processes, and external events (including fraud, ~~information~~ security incidents, and business disruptions). A number of strategies are used to manage and mitigate operations risk, including systems and procedures to monitor transactions and financial positions, segregation of duties, documentation of transactions, secondary reviews, comprehensive risk assessments conducted at the entity and business unit level, and periodic reviews by our Internal Audit department. The Operations Risk Committee serves as the primary venue for overseeing all of our operations risk management initiatives and activities.

Human Error and Circumvention or Failure of Internal Controls and Procedures - Employees play a vital role in implementing our risk management practices and strategies. We look to recruit, develop, promote, and retain high-quality employees by offering a fair and competitive compensation package and by providing a comfortable, secure and professional work environment in a cost-effective manner. To ensure our employees understand the importance of establishing and maintaining an effective internal control system, we maintain an Internal Control Policy which, in addition to defining internal control and describing the five interrelated components and underlying principles of FHLBank’s internal control framework, outlines the objectives for our internal controls, establishes and delineates management’s responsibilities for implementing and maintaining internal controls, and establishes the Internal Audit department as the business unit responsible for reviewing the adequacy of our internal controls. We have established and maintain an effective internal control system, guided by the Internal Control Policy, that addresses: (1) the establishment of strategies aligned with our mission and vision; (2) the efficiency and effectiveness of our activities; (3) the safeguarding of our assets: (4) the reliability, completeness and timely reporting of financial and management information (and the transparency of that information) to the ~~Board~~board of ~~Directors~~directors and outside parties, including the Office of Finance, the SEC and the FHFA; and (5) compliance with applicable laws, regulations, policies, supervisory determinations and directives. The annual business unit risk assessment program serves to reinforce our focus on maintaining strong internal controls by identifying significant inherent risks and the internal controls and strategies used to mitigate those risks to acceptable residual risk levels. The business unit risk assessment program provides management and the ~~Board~~board of ~~Directors~~directors with a thorough understanding of our risk management and internal control structure.

Systems Malfunctions and Information Security Threats - We rely heavily on IT systems and other technology to conduct our business. To manage operations risk as it relates to IT systems, we devote significant management attention and resources to technology. Our Technology Committee assists executive management in overseeing the development and implementation of significant technology strategies. The Technology Committee is also charged with providing strategic oversight of all technology-related activities, monitoring the strategic alignment and synchronization of IT services with our Strategic Business Plan (as well as our immediate and long-term goals and objectives), reviewing the operational health of IT systems, and reviewing new and/or anticipated projects related to our strategic initiatives. Protection of our information assets is also necessary to establish and maintain trust between us and our customers, maintain compliance with applicable laws and regulations, and protect our reputation. Consequently, we maintain an enterprise-wide ~~information~~ security program. The goal of our enterprise ~~information~~ security program is to maintain ~~an information~~a security framework such that: (1) physical and information assets are protected from unauthorized access, modification, disclosure and destruction; (2) integrity and confidentiality of information is maintained; (3) physical and information assets and information systems are available when needed; and (4) ~~cyber security~~cybersecurity threats and/or other information security risks are identified, monitored, ~~assessed,~~ and ~~appropriately managed or mitigated~~addressed through our enterprise information security program.

Man-made or Natural Disasters - ~~Business~~We manage the risk of business disruption and systems failure due to man-made or natural disasters ~~are managed~~ by having in place at all times a ~~disaster recovery~~business resiliency plan, the purpose of which is to provide contingency plans for situations where operations cannot be carried out in their normal manner. We maintain ~~contingency plans~~an alternate data center that is geographically located far enough from our primary data center to prevent both data centers from being impacted by the same event. We also maintain an off-site business resumption center which ~~deal with business interruptions lasting for a prolonged period of time. An off-site recovery~~includes computer equipment, office space, supplies, and other resources to allow our employees to resume operations ~~center~~if our headquarters is also maintained which is an important component of our overall disaster recovery planning effort. The recovery center is maintained on a different power grid and is serviced by another telephone central office than our main headquarters. Aninaccessible. Our on-site power ~~generator supports~~generators support both the ~~site~~alternate data center and business resumption center in case of total power failure. ~~The off-site recovery center~~Business partners may also resume operations by working remotely in situations where our headquarters is ~~also used to store computer equipment, information, supplies, and other resources specifically acquired for~~inaccessible. Comprehensive business ~~continuity purposes. Comprehensive testing is conducted~~resiliency exercises utilizing the ~~off-site recovery location at least once each year with additional limited tests~~alternate data center and business resumption center are conducted on a quarterly ~~basis.~~basis and vary in scope and duration to simulate various types of disruptions. The disaster recovery plans are reviewed and updated ~~semi-annually with employee emergency contact information updated weekly through our human resource information system.~~annually. We also have a reciprocal back-up agreement in place with FHLBank Boston to provide short-term advances to our members on our behalf in the event that our facilities are inoperable. In the event that FHLBank Boston’s facilities are inoperable, we have agreed to provide short-term liquidity advances to FHLBank Boston’s members. We complete an annual test of this agreement with FHLBank Boston to ensure the process and related systems are functioning properly. We also ~~maintained~~maintain a funds transfer contingency agreement with ~~the~~ FHLBank Boston that is tested annually, which authorizes either FHLBank Topeka or FHLBank Boston to process wire transfers for the other during a contingency situation.

Internal or External Fraud - Our Anti-Fraud Policy, which includes our Whistleblower Procedures, along with our Anti-Money Laundering Policy, forms the foundation of our Fraud Awareness Program. Our Fraud Awareness Program establishes our methodology or framework for preventing, detecting, deterring, reporting, remediating, and punishing suspicious activities, money laundering activities, dishonest activities, violations of the Code of Ethicsand other fraudulent activities that could create risks for us or undermine the public’s confidence in the integrity of our activities. Employees may submit good faith complaints or concerns regarding accounting or auditing matters, fraud concerns, potential wrongdoing or violations of applicable securities laws and regulations, or violations of the Commodity Exchange Act and relevant implementing regulations to management or our anonymous reporting service without fear of dismissal or retaliation of any kind. We are committed to achieving compliance with all applicable securities laws and regulations, the Commodity Exchange Act and relevant implementing regulations, accounting standards, accounting controls and audit practices. Decisions to prosecute or refer fraud investigation results to the appropriate law enforcement and/or regulatory agencies for independent investigation shall be made in conjunction with legal counsel and appropriate senior management, as will final decisions on disposition of the case.

Recently Issued Accounting Standards

See Note 2 of the Notes to Financial Statements under ~~Part II,~~ Item 8 – "Financial Statements and Supplementary Data" for a discussion of recently issued accounting standards.

Item 7A:Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk that changes in market value may adversely affect our financial condition and performance. Interest rate risk is a component of market risk and represents our most significant market risk exposure. Interest rate risk is the risk that the market value of our asset, liability, and derivative portfolios will be negatively impacted by interest rate volatility or that earnings will be affected significantly by interest rate changes. We ~~measure~~manage interest rate risk ~~exposure~~through the characteristics of our portfolio of assets and liabilities and by ~~various methods, including~~using derivative transactions to limit duration mismatches and reduce MVE sensitivity. Matching the ~~calculation~~duration of ~~DOE~~assets with the duration of liabilities funding those assets is accomplished through the use of different debt maturities and ~~MVE in different~~embedded option characteristics, as well as the use of derivatives, primarily interest rate ~~scenarios.~~swaps, interest rate caps, and interest rate floors. Interest rate swaps increase the flexibility of our funding alternatives by providing cash flows or characteristics that might not be as readily available or cost-effective if obtained in the standard GSE debt market.

Duration of Equity: DOE aggregates the estimated sensitivity of market value for each of our financial assets and liabilities to changes in interest rates. In essence, DOE indicates the sensitivity of theoretical MVE to changes in interest rates. However, MVE should not be considered indicative of our market value as a going concern or our value in a liquidation scenario. A positive DOE results when the duration of assets and designated derivatives is greater than the duration of liabilities and designated ~~derivatives. A positive DOE generally indicates~~derivatives, indicating a degree of interest rate risk exposure in a rising interest rate environment. A negative DOE ~~indicates~~results in the opposite scenario, indicating a degree of interest rate risk exposure in a declining interest rate environment. Higher DOE numbers, whether positive or negative, indicate greater volatility of ~~MVE~~market value in response to changing interest rates. That is, if we have a DOE of 3.0, a 100 basis point (one percent) increase in interest rates would cause our MVE to decline by approximately three percent whereas a 100 basis point decrease in interest rates would cause our MVE to increase by approximately three percent. It should be noted that aA decline in ~~MVE~~market value does not necessarily translate directly into a decline in ~~near-term~~ income, especially for entities that do not trade financial instruments. Changes in market value may indicate trends in income over longer periods, and knowing the sensitivity of our market value to changes in interest rates provides a measure of the interest rate risk we take.

Under the RMP, ~~approved by our Board of Directors,~~ our DOE is generally limited to a range of ±5.0 assuming current interest rates. In addition, our DOE is generally limited to a range of ±7.0 assuming an instantaneous parallel increase or decrease in interest rates of 200 basis points. During periods of extremely low interest rates, the FHFA requires that the FHLBanks employ a constrained down shock analysis to limit the evolution of forward interest rates to positive non-zero values. Since our market risk model imposes a positive non-zero boundary on post-shock interest rates, no additional calculations are necessary in order to meet this FHFA requirement when applicable.

The DOE parameters established by our Board of Directors represent one way to establish general limits on the amount of interest rate risk that we find acceptable. If our DOE exceeds the policy limits established by the Board of Directors, we either: (1) take asset/liability actions to bring the DOE back within the ranges established in our RMP; or (2) review and discuss potential asset/liability management actions with the Board of Directors at the next regularly scheduled meeting that could bring the DOE back within the ranges established in the RMP and ascertain a course of action, which can include a determination that no asset/liability management actions are necessary. A determination that no asset/liability management actions are necessary can be made only if the Board of Directors agrees with management’s recommendations. All of our DOE measurements were inside Board of Director established policy limits (discussed in previous paragraph) and operating ranges (discussed in next paragraph) as of December 31, 2019. On an ongoing basis, we actively monitor portfolio relationships and overall DOE dynamics as a part of our evaluation processes for determining acceptable future asset/liability management actions.

We typically maintain DOE within the above ranges through management of the durations of our assets, liabilities and derivatives. Significant resources in terms of staffing, software and equipment are continuously devoted to assuring that the level of interest rate risk existing in our balance sheet is properly measured and limited to prudent and reasonable levels. The DOE that management and the Board of Directors consider prudent and reasonable is somewhat lower than the RMP limits mentioned above and can change depending upon market conditions and other factors. As set forth in our Risk Appetite Metrics approved by the Board of Directors, we typically manage our DOE in the current base scenario to remain in the range of ±2.5 and in the ±200 basis point interest rate shock scenarios to remain in the range of ±4.0. When DOE exceeds ~~either~~ the limits established by the RMP, ~~or the more narrowly-defined ranges to which we manage DOE,~~ corrective actions taken may include: (1) the purchase of interest rate caps, interest rate floors, ~~swaptions~~ or other derivatives; (2) the sale of assets; and/or (3) the addition to the balance sheet of assets or liabilities having characteristics that are such that they counterbalance the excessive duration observed. For example, if our DOE has become more positive than desired due to variable rate MBS that have reached interest rate cap limits, we may purchase interest rate caps that have the effect of removing those MBS cap limits. We would be short caps in the MBS investments and long caps in the offsetting derivative positions, thus reducing our DOE. Further, if an increase in our DOE were due to the extension of mortgage loans, MBS or new advances to members, the more appropriate action would be to add new long-term liabilities, whether callable or non-callable, to the balance sheet to offset the lengthening asset position.

Table 6045 presents our DOE in the base and the up and down 200 basis point interest rate shock scenarios:

Table 6045


Duration of Equity
Date	Up 200 Basis Points	Base	Down 200 Basis Points
12/31/2021	0.6	-0.4	1.5
09/30/2021	0.4	-2.7	1.5
06/30/2021	-0.1	-2.4	1.2
03/31/2021	-0.4	-4.0	1.7
12/31/2020	-1.3	-1.2	0.5
09/30/2020	-0.9	1.1	0.4
06/30/2020	-1.5	-3.9	0.4
03/31/2020	-0.5	-2.3	0.7

Duration of Equity
Date Up 200 Basis Points Base Down 200 Basis Points
12/31/2019 0.8 -0.9 2.4
09/30/2019 1.0 -0.7 2.0
06/30/2019 1.4 -0.4 2.6
03/31/2019 1.6 0.0 3.8
12/31/2018 2.3 1.3 2.8
09/30/2018 2.9 1.2 1.9
06/30/2018 3.0 0.7 1.9
03/31/2018 3.4 0.5 2.2

All DOE results continue to remain inside our operating range of ±2.5 in the base scenario and ±4.0 in the ±200 basis point interest rate shock scenarios. Our DOE as of December 31, 2019 decreased in all scenarios from December 31, 2018. The primary factors contributing to ~~these~~the net changes in duration ~~during the period~~from December 31, 2020 to December 31, 2021 were: (1) the ~~decrease~~increase in ~~long-term~~ interest rates and the relative level of mortgage rates during the period; (2) the ~~increase~~decrease in outstanding balance of and percent of total assets represented by the fixed rate mortgage loan portfolio during the period; and (3) asset/liability actions taken by management throughout the period, including replacing ~~either~~ called or matured long-term unswapped callable consolidated obligation bonds with newly issued ~~bonds with relatively short lock-out periods as conditions permitted and the continued issuance of discount notes funding the growth in short-term advances.~~swapped callable bonds.

The ~~decrease~~overall increase in ~~longer-term~~ interest rates ~~from~~since December 31, ~~2018~~2020 generally ~~shortens~~lengthened the duration profile for both the fixed rate mortgage loan portfolio and the associated unswapped callable consolidated obligation bonds funding these assets. With the ~~increase~~decrease in our mortgage loan portfolio during this period, as discussed in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – MPF Program,” the duration profile changed as expected since a general ~~decrease~~increase in ~~long-term~~ interest rates typically generates ~~faster~~slower prepayments for both new production mortgage loans, as well as the outstanding fixed rate mortgage loan portfolio. Generally, lower interest rates indicate a relative ~~increase~~decrease in refinancing incentive for borrowers.

The fixed rate mortgage loan portfolio increased in net outstanding balance, but decreased as an overall percentage of total assets with the increase in total assets during the period, decreasing from 17.6 percent of total assets as of December 31, 2018 to 16.8 percent as of December 31, 2019. Even with this slight weighting decrease, the mortgage loan portfolio remains a sizable portion of our balance sheet and changes occurring with this portfolio tend to be magnified in terms of DOE. Since the DOE calculation is a market value based measurement and as portfolio market values increase or decrease, they become larger or smaller contributors to the overall market value of total assets. With the mortgage loan portfolio continuing to comprise a significant percentage of overall assets, its behavior is quite visible in the duration risk profile and changes in this portfolio are typically magnified as interest rates change.

This magnification occurs when a portfolio market value weighting as a percent of the overall net market value of the balance sheet changes, causing the remaining portfolios to be a smaller or larger component of the total balance sheet composition. For example, when our advance balances increase, our mortgage loan portfolio effectively decreases as a proportion of our total assets, assuming all other asset portfolios and interest rates remain constant. This relationship then causes the duration of the mortgage loan portfolio to have a somewhat smaller contribution impact to the overall DOE since DOE is a market value weighted measurement. With the absolute growth in the mortgage loan portfolio during the period, the mortgage loan portfolio increased as a percentage of the market value of the net balance sheet, causing the DOE profile to have a marginally larger impact from the mortgage loan duration profile. With these balance sheet dynamics, we continue to actively manage and monitor the contributing factors of our market risk profile, including DOE. As the relationship of the fixed rate mortgage loan assets and the associated callable liabilities vary based on market conditions, we evaluate and manage these market driven sensitivities as both portfolios change in balance level and overall proportion.

New mortgage loans were continually added to the mortgage loan portfolio to replace mortgage loans that were prepaid during the period and we continue to actively manage this ongoing growth to position the balance sheet sensitivity to perform within our established risk tolerances. To effectively manage these changes in the mortgage loan portfolio (including new production and prepaid loans) and related sensitivity to changes in market conditions, unswapped callable consolidated obligation bonds that either matured or were called were replaced with reissuance of unswapped callable consolidated obligation bonds with relatively long maturities and short lock-out periods (generally three months to one year). This reissuance continues to favorably position us for potential declines in the interest rate environment. Generally, the maturity or the call of higher rate callable bonds and reissuance of these bonds generally extends the duration profile of this portfolio. This liability extension corresponds with the expected longer duration profile of the new fixed rate mortgage loans, all else being ~~equal.~~

As long-term interest rates decreased during 2019, we experienced prepayments of the fixed rate mortgage loan portfolio. As interest rates fluctuated during 2019, the shorter lock-out periods of the callable bonds plus maturities of non-callable bonds provided the opportunity to refinance a measured amount of our liabilities during this period. The overall decrease in long-term interest rates caused the duration profile of the existing portfolio of unswapped callable bonds to shorten as expected. In addition, the unswapped callable bond portfolio became a slightly larger percentage ofequal, and positions the balance sheet as the portfolio expanded during the period and based on the elevated issuance of discount notes in response to the growth in short-term advances and associated capital stock activity. The discount note portfolio level naturally diluted the percentage of outstanding unswapped callable bonds and impacts the weighting of this portfolio as an overall percentage of liabilities. As discussed previously, a portfolio weighting change can alter the impact of a portfolio's overall contribution to net DOE. While the unswapped callable bonds relative weighting led to a slightly smaller contribution to DOE, the overall shortening of the absolute portfolio duration served to lessen the impact of the weighting change. This liability behavior includes the inherent convexity (discussed below) profile of these portfolios and demonstrates the specific duration sensitivity tofor future changes in ~~interest~~ rates, including rate increases where the mortgage loan portfolio will likely lengthen in ~~certain shock scenarios. Further~~duration as expected prepayments slow. For further discussion of the ~~unswapped callable bond calls, maturities on non-callable bonds~~call and reissuance of ~~callable~~consolidated obligation bonds, ~~in relation to the mortgage portfolios is discussed in~~see Item 7 ~~– "Management’s~~- “Management's Discussion and Analysis of Financial Condition and Results of Operations –- Financial Condition –- Consolidated Obligations.” The combination of these factors contributed to the net DOE ~~decrease~~changes in all ~~scenarios.~~

~~We purchased $1.1 billion of fixed rate multi-family GSE MBS~~scenarios during the period. These fixed rate securities were effectively swapped to LIBOR and impact DOE only slightly since they are reflected as variable rate instruments and are further described in Item 7 – "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Net Gains (Losses) on Trading Securities." As mentioned previously, the addition of mortgage securities, whether fixed or variable rate, typically lengthens the duration profile of the respective portfolios and generally lengthens our DOE. The relationship of the variable rate GSE MBS/CMOs and the purchased interest rate cap portfolio provides a measured impact on the positively shocked duration results as well. We did not purchase additional interest rate caps during 2019.

We generally purchase interest rate caps to offset the impact of embedded caps in variable rate GSE MBS/CMOs in rising interest rate scenarios. As expected, these interest rate caps are a satisfactory interest rate risk hedge to rising interest rates and provide an offsetting risk response to the risk profile changes in variable rate GSE CMOs with embedded caps. We periodically assess derivative strategies to ensure that overall balance sheet risk is appropriately hedged within our established risk appetite and make adjustments to the derivative portfolio as needed. This evaluation is completed considering not only the par value of the variable rate MBS/CMO investments with embedded caps being hedged with purchased interest rate caps, but also the composition of the purchased cap portfolio and expected prepayments of the variable rate MBS/CMO investments with embedded caps. This evaluation of the relative relationship between the variable rate investment portfolio and the purchased cap portfolio continues to indicate a sufficient hedging relationship, including a convexity profile that continues to perform well within our expectations. Our purchases of interest rate caps tend to partially offset the negative convexity of our mortgage assets and the effects of any interest rate caps embedded in the variable rate MBS/CMOs.

Convexity is the measure of the exponential change in prices for a given change in interest rates; or more simply stated, it measures the rate of change in duration as interest rates change. When an instrument is negatively convex, price generally increases at a slower pace as interest rates decline. When an instrument’s convexity profile approaches zero, it simply demonstrates that the duration profile is flattening or that the duration is changing at an increasingly slower rate. When an instrument’s convexity profile moves further from zero, the duration profile is steepening and is changing in price at an increasingly faster rate. Duration is a measure of the relative risk of a financial instrument, and the more rapidly duration changes as interest rates change, the riskier the instrument. The variable rate MBS/CMOs have negative convexity as a result of the embedded caps and prepayment options. Additionally, all of our mortgage loans are fixed rate, so they have negative convexity as a result of the prepayment options. We seek to mitigate this negative convexity with purchased options that have positive convexity (interest rate caps) and callable liabilities that have negative convexity (unswapped callable bonds), which offset some or all of the negative convexity risk in our assets. With the changes in current capital market conditions, the relatively low level of interest rates and the general shape of the yield curve, all of which make it challenging to manage our market risk position, we continue to take measured asset/liability actions to stay within established policy limits.

With respect to the down instantaneous shock scenarios, the sensitivities of both the assets and liabilities are impacted to a large extent by the absolute level of rates and the positive non-zero boundary methodology as discussed previously. Since the term structure of interest rates is at or near historically low levels, an instantaneous parallel shock of down 100 basis points or 200 basis points will effectively produce a flattened term structure of interest rates near zero, ~~for much of the interest rate term structure. This flattened term structure~~which will ~~produce slight, if any, variations in valuations, which~~ generate near zero duration ~~results since the duration measurement captures the sensitivity of valuations to changes in rates.~~results. These near zero duration results should be viewed in the context of the broader risk profile of the base and positive interest rate shock scenarios to establish a sufficient vantage point for helping discern the overall sensitivity of our balance sheet and of DOE. The net DOE decrease in the down 200 basis point interest rate shock scenario during the period is generally a function of related factors noted previously, including the impact of the changing term structure of interest rates. As with all scenario changes that occurred during the period, the impact from various sensitivities was expected and discussed during our regular interest-rate risk profile review process.

As noted previously, if at any point a risk measurement nears or exceeds an operating range or policy limit established by the Board of Directors, certain actions may be implemented both by management and the Board of Directors. We typically manage a DOE measurement that exceeds the established limits with various asset/liability management actions. Whenever an established limit is exceeded, the Board of Directors is advised by management and the issue is discussed at the next regularly scheduled Board of Directors’ meeting. If after discussion, the Board of Directors determines that asset/liability management action is required, management implements the Board-approved approach to address the situation. Even though all of our DOE measurements are inside management’s operating range as of December 31, 2019, active monitoring of portfolio relationships and overall DOE dynamics continues as do evaluation processes for acceptable future asset/liability management actions.

~~In calculating DOE, we also calculate our duration~~Duration gap ~~which~~ is the difference between the duration of our assets and the duration of our liabilities. Our base duration gap was ~~-0.5~~-0.3 months and ~~0.8~~-0.8 months for December 31, ~~2019~~2021 and ~~2018,~~2020, respectively. Again, as discussed previously, the relative performance of the duration gap was primarily the result of the changes in the fixed rate mortgage loan portfolio and the associated funding decisions made by management in response to the interest rate environment. All FHLBanks are required to submit this base duration gap number to the Office of Finance as part of the quarterly reporting process created by the FHFA.

Matching the duration of assets with the duration of liabilities funding those assets is accomplished through the use of different debt maturities and embedded option characteristics, as well as the use of derivatives, primarily interest rate swaps, caps, floors and swaptions as discussed previously. Interest rate swaps increase the flexibility of our funding alternatives by providing desirable cash flows or characteristics that might not be as readily available or cost-effective if obtained in the standard GSE debt market. FHFA regulation prohibits the speculative use of derivatives, and we do not engage in derivatives trading for short-term profit. Because we do not engage in the speculative use of derivatives through trading or other activities, the primary risk posed by derivative transactions is credit risk in that a counterparty may fail to meet its contractual obligations on a transaction and thereby force us to replace the derivative at market price (see Item 7 – “Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management – Credit Risk Management” for additional information).

As discussed earlier, the funding of mortgage loans and prepayable assets with liabilities that have similar duration or average cash flow patterns over time is our primary strategy for and means of managing the interest rate risk for these assets. To achieve the desired liability durations, we issue debt across a broad spectrum of final maturities. Because the durations of mortgage loans and other prepayable assets change as interest rates change, callable consolidated obligation bonds with similar duration characteristics, on average, are frequently issued. The duration of callable bonds shortens when interest rates decrease and lengthens when interest rates increase, allowing the duration of the debt to better match the typical duration of mortgage loans and other prepayable assets as interest rates change. In addition to actively monitoring this relationship, the funding and hedging profile and process are continually measured and reevaluated. We may also use purchased interest rate caps, floors and swaptions to manage the duration of our assets and liabilities. For example, in order to manage our interest-rate risk in rising interest rate environments, we may purchase out-of-the-money interest rate caps to help manage the duration extension of mortgage assets, especially variable rate MBS/CMOs with periodic and lifetime embedded interest rate caps. We may also purchase receive-fixed or pay-fixed swaptions (options to enter into receive-fixed rate or pay-fixed rate interest rate swaps) to manage our overall DOE in falling or rising interest rate environments, respectively. During times of falling interest rates, when mortgage assets are prepaying quickly and shortening in duration, we may also synthetically convert fixed rate debt to variable rate using interest rate swaps in order to shorten the duration of our liabilities to more closely match the shortening duration of mortgage assets. As we need to lengthen the liability duration, we terminate selected interest rate swaps to effectively extend the duration of the previously swapped debt.

Market Value of Equity

MVE is the net value of our assets and liabilities. Estimating sensitivity of MVE to changes in interest rates is another measure of interest rate risk. ~~We generally maintain an MVE within limits specified by the Board of Directors in the RMP.~~ The RMP measures our market value risk in terms of the MVE in relation to total regulatory capital stock outstanding (TRCS). TRCS includes all capital stock outstanding, including stock subject to mandatory redemption. As a cooperative, we believe using the TRCS results is an appropriate measure because it reflects our market value relative to the book value of our capital stock. Our RMP stipulates MVE shall not be less than: (1) 100 percent of TRCS under the base case scenario; or (2) 90 percent of TRCS under a ±200 basis point instantaneous parallel shock in interest rates. Table 6146 presents MVE as a percent of TRCS. As of December 31, ~~2019~~,2021, all scenarios are well above the specified limits and much of the relative level in the ratios during the periods covered by the table can be attributed to the relative level of the fixed rate mortgage loan and associated funding portfolio market values as interest rates have continued to remain at historically low levels along with the relative level of outstanding capital.

The MVE to TRCS ratios can be greatly impacted by the level of capital outstanding based on our capital management approach. Typically, as advances increase and the associated capital level increases, the ratio will generally decline since the new advances are primarily short-term with market values at or near par. Conversely, as advance balances decrease and the capital level decreases as capital stock is repurchased, the ratio will generally increase. However, if excess capital stock is not repurchased, the capital level remains higher thereby causing a decrease in the ratio. The relative level of advance, mortgage loan, and letters of credit balances, which trigger required stock, (the activity-based capital stock requirement for letters of credit balances was effective January 22, 2021) and excess stock as of December 31, ~~2019~~2021 (see Table 4438 under Part I, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Capital”) contributed to the MVE levels as of December 31, ~~2019.~~2021. These relationships primarily generate the changes in the MVE/TRCS levels and produce the changes in the ratios in all interest rate scenarios in the table below.

Table 6146


Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date	Up 200 Basis Points	Base	Down 200 Basis Points
12/31/2021	186	184	195
09/30/2021	209	201	206
06/30/2021	201	192	196
03/31/2021	205	194	191
12/31/2020	201	183	189
09/30/2020	186	177	182
06/30/2020	231	210	209
03/31/2020	184	173	177

Market Value of Equity as a Percent of Total Regulatory Capital Stock
Date Up 200 Basis Points Base Down 200 Basis Points
12/31/2019 175 174 176
09/30/2019 174 174 179
06/30/2019 171 174 176
03/31/2019 172 176 176
12/31/2018 167 173 174
09/30/2018 167 174 175
06/30/2018 168 175 174
03/31/2018 164 171 170

Detail of Derivative Instruments by Type of Instrument by Type of Risk

Various types of derivative instruments are utilized to mitigate the interest rate risks described in the preceding sections as well as to better match the terms of assets and liabilities. Generally, we designate derivative instruments as either: (1) a fair value hedge of an underlying financial instrument; or (2) an economic hedge used in asset/liability management. An economic hedge is defined as a derivative hedging specific or non-specific underlying assets, liabilities or firm commitments that either does not qualify for hedge accounting, or for which we have not elected hedge accounting, but is an acceptable hedging strategy under our RMP. For hedging relationships that are not designated for shortcut hedge accounting, we formally assess (both at the hedge’s inceptionTables 47 and monthly on an ongoing basis) whether the derivatives used have been highly effective in offsetting changes in the fair values of hedged items and whether those derivatives may be expected to remain highly effective in future periods. We typically use regression analyses or similar statistical analyses to assess the quantitative effectiveness of our long haul hedges. We determine the hedge accounting to be applied when the hedge is entered into by completing detailed documentation, which includes a checklist setting forth criteria that must be met to qualify for hedge accounting.

~~Tables 62 and 63~~48 present the notional amount and fair value amount (fair value includes net accrued interest receivable or payable on the derivative) for derivative instruments by hedged item, hedging instrument, hedging objective and accounting designation (in thousands):

~~Table 62~~

12/31/2019
Hedged Item Hedging Instrument Hedging Objective Accounting Designation Notional Amount Fair Value Amount
Advances
Fixed rate non-callable advances Pay fixed, receive variable interest rate swap Convert the advance’s fixed rate to a variable rate index Fair Value Hedge $ 3,160,580
$ 953
Fixed rate convertible advances Pay fixed, receive variable interest rate swap Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance Fair Value Hedge 1,607,500
(24,784 )
Firm commitment to issue a fixed rate advance Forward settling interest rate swap Protect against fair value risk Fair Value Hedge 35,504
28
Firm commitment to issue a fixed rate advance Forward settling interest rate swap Protect against fair value risk Economic Hedge 35,077
(532 )
Fixed rate non-callable advances Pay fixed, receive variable interest rate swap Convert the advance’s fixed rate to a variable rate index Economic Hedge 6,000
(62 )
Investments
Fixed rate non-MBS available-for-sale investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Fair Value Hedge 4,200,000
(352 )
Fixed rate MBS available-for-sale investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Fair Value Hedge 2,822,646
(49,571 )
Fixed rate non-MBS trading investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Economic Hedge 1,898,500
248
Adjustable rate MBS with embedded caps Interest rate cap Offset the interest rate cap embedded in a variable rate investment Economic Hedge 1,130,000
117
Fixed rate MBS trading investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Economic Hedge 790,045
(24,861 )
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments Mortgage purchase commitment Protect against fair value risk Economic Hedge 221,800
470
Consolidated Obligation Discount Notes
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months Receive fixed, pay variable interest rate swap Convert the discount note's fixed rate to a variable rate Fair Value Hedge 1,383,782
47
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds Receive fixed, pay variable interest rate swap Convert the bond’s fixed rate to a variable rate index Fair Value Hedge 2,628,500
14,013
Fixed rate callable consolidated obligation bonds Receive fixed, pay variable interest rate swap Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond Fair Value Hedge 500,000
2,635
Variable rate consolidated obligation bonds Receive variable interest rate, pay variable interest rate swap Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index Economic Hedge 370,000
(342 )
Callable step-up/step-down consolidated obligation bonds Receive variable interest rate with embedded features, pay variable interest rate swap Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond Fair Value Hedge 110,000
95
TOTAL $ 20,899,934
$ (81,898 )

Table 6347

12/31/2021

Hedged Item

Hedging Instrument

Hedging Objective

Accounting Designation

Notional Amount

Fair Value Amount

Advances

Fixed rate non-callable advances

Pay fixed, receive variable interest rate swap

Convert the advance’s fixed rate to a variable rate index

Fair Value Hedge

4,808,953

(7,734)

Fixed rate convertible advances

Pay fixed, receive variable interest rate swap

Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance

Fair Value Hedge

1,385,150

(38,292)

Firm commitment to issue a fixed rate advance

Forward settling interest rate swap

Protect against fair value risk

Economic Hedge

2,490

—

Fixed rate non-callable advances

Pay fixed, receive variable interest rate swap

Convert the advance’s fixed rate to a variable rate index

Economic Hedge

37,977

(1,189)

Firm commitment to issue a fixed rate advance

Forward settling interest rate swap

Protect against fair value risk

Fair Value Hedge

18,316

232

Investments

Fixed rate non-MBS available-for-sale investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Fair Value Hedge

2,700,000

(424)

Fixed rate MBS available-for-sale investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Fair Value Hedge

2,970,019

(57,966)

Fixed rate non-MBS trading investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Economic Hedge

1,298,500

(115)

Fixed rate MBS trading investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Economic Hedge

740,863

(27,654)

Adjustable rate MBS with embedded caps

Interest rate cap

Offset the interest rate cap embedded in a variable rate investment

Economic Hedge

477,500

335

Mortgage Loans Held for Portfolio

Fixed rate mortgage purchase commitments

Mortgage purchase commitment

Protect against fair value risk

Economic Hedge

72,025

(13)

Consolidated Obligation Bonds

Fixed rate non-callable consolidated obligation bonds

Receive fixed, pay variable interest rate swap

Convert the bond’s fixed rate to a variable rate index

Fair Value Hedge

1,187,000

14,261

Fixed rate callable consolidated obligation bonds

Receive fixed, pay variable interest rate swap

Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond

Fair Value Hedge

4,682,000

(35,627)

Callable step-up/step-down consolidated obligation bonds

Receive variable interest rate with embedded features, pay variable interest rate swap

Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond

Fair Value Hedge

924,000

(10,017)

Firm commitment to issue a consolidated obligation bond

Receive fixed, pay variable interest rate swap

Protect against fair value risk

Fair Value Hedge

20,000

(57)

TOTAL

21,324,793

(164,260)

12/31/2018
Hedged Item Hedging Instrument Hedging Objective Accounting Designation Notional Amount Fair Value Amount
Advances
Fixed rate non-callable advances Pay fixed, receive variable interest rate swap Convert the advance’s fixed rate to a variable rate index Fair Value Hedge $ 2,647,704
$ (1,102 )
Fixed rate convertible advances Pay fixed, receive variable interest rate swap Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance Fair Value Hedge 1,150,850
10,028
Firm commitment to issue a fixed rate advance Forward settling interest rate swap Protect against fair value risk Fair Value Hedge 140,475
(670 )
Firm commitment to issue a fixed rate advance Forward settling interest rate swap Protect against fair value risk Economic Hedge 9,136
(38 )
Fixed rate non-callable advances Pay fixed, receive variable interest rate swap Convert the advance’s fixed rate to a variable rate index Economic Hedge 2,000
(10 )
Investments
Fixed rate MBS available-for-sale investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Fair Value Hedge 1,752,493
40,197
Adjustable rate MBS with embedded caps Interest rate cap Offset the interest rate cap embedded in a variable rate investment Economic Hedge 1,373,200
1,044
Fixed rate MBS trading investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Economic Hedge 847,284
12,238
Fixed rate non-MBS trading investments Pay fixed, receive variable interest rate swap Convert the investment’s fixed rate to a variable rate index Economic Hedge 648,500
(1,199 )
Mortgage Loans Held for Portfolio
Fixed rate mortgage purchase commitments Mortgage purchase commitment Protect against fair value risk Economic Hedge 101,551
549
Consolidated Obligation Discount Notes
Firm commitments to issue discount notes Discount note commitment Protect against fair value risk Economic Hedge 525,000
—
Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months Receive fixed, pay variable interest rate swap Convert the discount note's fixed rate to a variable rate Fair Value Hedge 49,403
—
Consolidated Obligation Bonds
Fixed rate non-callable consolidated obligation bonds Receive fixed, pay variable interest rate swap Convert the bond’s fixed rate to a variable rate index Fair Value Hedge 1,440,000
9,443
Fixed rate callable consolidated obligation bonds Receive fixed, pay variable interest rate swap Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond Fair Value Hedge 680,000
(2,729 )
Variable rate consolidated obligation bonds Receive variable interest rate, pay variable interest rate swap Reduce basis risk by converting an undesirable variable rate index in the bond to a more desirable variable rate index Economic Hedge 645,000
(15,406 )
Callable step-up/step-down consolidated obligation bonds Receive variable interest rate with embedded features, pay variable interest rate swap Reduce interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond Fair Value Hedge 470,000
(4,325 )
Complex consolidated obligation bonds Receive variable with embedded features, pay variable interest rate swap Reduce interest rate sensitivity and re-pricing gaps by converting the bond’s variable rate to a different variable rate index and/or to offset embedded options risk in the bond Fair Value Hedge 15,000
(1,050 )
TOTAL $ 12,497,596
$ 46,970
Table 48

12/31/2020

Hedged Item

Hedging Instrument

Hedging Objective

Accounting Designation

Notional Amount

Fair Value Amount

Advances

Fixed rate non-callable advances

Pay fixed, receive variable interest rate swap

Convert the advance’s fixed rate to a variable rate index

Fair Value Hedge

3,922,227

(10,550)

Fixed rate convertible advances

Pay fixed, receive variable interest rate swap

Convert the advance’s fixed rate to a variable rate index and offset option risk in the advance

Fair Value Hedge

1,656,550

(108,780)

Fixed rate non-callable advances

Pay fixed, receive variable interest rate swap

Convert the advance’s fixed rate to a variable rate index

Economic Hedge

37,171

(1,866)

Firm commitment to issue a fixed rate advance

Forward settling interest rate swap

Protect against fair value risk

Fair Value Hedge

19,915

Firm commitment to issue a fixed rate advance

Forward settling interest rate swap

Protect against fair value risk

Economic Hedge

9,285

(403)

Investments

Fixed rate non-MBS available-for-sale investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Fair Value Hedge

3,450,000

(321)

Fixed rate MBS available-for-sale investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Fair Value Hedge

2,885,402

(141,371)

Fixed rate non-MBS trading investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Economic Hedge

1,648,500

(63)

Fixed rate MBS trading investments

Pay fixed, receive variable interest rate swap

Convert the investment’s fixed rate to a variable rate index

Economic Hedge

781,703

(65,771)

Adjustable rate MBS with embedded caps

Interest rate cap

Offset the interest rate cap embedded in a variable rate investment

Economic Hedge

602,500

141

Mortgage Loans Held for Portfolio

Fixed rate mortgage purchase commitments

Mortgage purchase commitment

Protect against fair value risk

Economic Hedge

133,456

650

Consolidated Obligation Discount Notes

Fixed rate non-callable consolidated obligation discount notes with tenors of 6 to 12 months

Receive fixed, pay variable interest rate swap

Convert the discount note's fixed rate to a variable rate

Fair Value Hedge

174,613

Consolidated Obligation Bonds

Fixed rate non-callable consolidated obligation bonds

Receive fixed, pay variable interest rate swap

Convert the bond’s fixed rate to a variable rate index

Fair Value Hedge

3,253,500

17,952

Fixed rate callable consolidated obligation bonds

Receive fixed, pay variable interest rate swap

Convert the bond’s fixed rate to a variable rate index and offset option risk in the bond

Fair Value Hedge

500,000

TOTAL

19,074,822

(310,316)

Item 8: Financial Statements and Supplementary Data

The following financial statements and accompanying notes, including the Report of Independent Registered Public Accounting Firm, are set forth on pages F-1 to ~~F-64~~F-61 of this Form 10‑K.

Audited Financial Statements



Description		Page Number
~~Description~~		~~Page Number~~
Management's Report on Internal Control over Financial Reporting	F-~~F-1~~1
Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP(PCAOB ID 238)		F-~~F-2~~2
Statements of Condition as of December 31, ~~2019~~2021 and ~~2018~~2020		F-4
Statements of Income for the Years Ended December 31, ~~2019, 2018,~~2021, 2020, and ~~2017~~2019		F-~~F-6~~6
Statements of Comprehensive Income for the Years Ended December 31, ~~2019, 2018,~~2021, 2020, and ~~2017~~2019		F-~~F-8~~8
Statements of Capital for the Years Ended December 31, ~~2019, 2018,~~2021, 2020, and ~~2017~~2019		F-~~F-9~~9
Statements of Cash Flows for the Years Ended December 31, ~~2019, 2018,~~2021, 2020, and ~~2017~~2019		F-~~F-10~~10
Notes to Financial Statements		F-~~F-13~~13

~~Tables 64 and 65 present supplementary quarterly financial information (unaudited) for the years ended December 31, 2019 and 2018 (in thousands):~~

~~Table 64~~

2019
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
Interest income $ 339,822
$ 396,060
$ 379,556
$ 373,314
Interest expense 270,418
321,645
330,326
310,299
Net interest income 69,404
74,415
49,230
63,015
Provision (reversal) for credit losses on mortgage loans (122 ) 393
38
78
Net interest income after mortgage loan loss provision 69,526
74,022
49,192
62,937
Other non-interest income (loss) 7,438
(1,507 ) 4,368
12,674
Other non-interest expense 18,880
18,633
18,313
16,990
Assessments 5,811
5,391
3,529
5,866
NET INCOME $ 52,273
$ 48,491
$ 31,718
$ 52,755

~~Table 65~~

2018
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
Interest income $ 350,382
$ 317,122
$ 313,712
$ 275,793
Interest expense 282,207
249,463
244,828
209,314
Net interest income 68,175
67,659
68,884
66,479
Provision (reversal) for credit losses on mortgage loans 372
(391 ) 16
30
Net interest income after mortgage loan loss provision 67,803
68,050
68,868
66,449
Other non-interest income (loss) (1,822 ) (1,500 ) (2,538 ) (6,987 )
Other non-interest expense 17,722
20,428
15,493
15,465
Assessments 4,831
4,618
5,089
4,406
NET INCOME $ 43,428
$ 41,504
$ 45,748
$ 39,591

The significant fluctuations that have occurred in non-interest income (loss) are primarily the result of the recognition of net gains/losses on derivatives and hedging activities as well as the recording of fair value changes on our trading securities. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” for additional information.

Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with our accountants on accounting and financial disclosure during the two most recent fiscal years.

Item 9A:Controls and Procedures

Disclosure Controls and Procedures

Senior management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance in achieving their desired objectives; however, in designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management, with the participation of the President and CEO, our principal executive officer, and the Chief Financial Officer (CFO), our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, ~~2019.~~2021. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, ~~2019.~~2021.

Management’s Report on Internal Control Over Financial Reporting

Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm with respect to FHLBank’s internal control over financial reporting are included under Item 8 – “Financial Statements and Supplementary Data.”

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth quarter of the year for which this annual report on Form 10-K is filed that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B: Other Information

None.

PART III

Item 10: Directors, Executive Officers and Corporate Governance

Information About Our Executive Officers

Table 6649 sets forth certain information about each of our executive officers as of the date of this annual report on Form 10-K.

Table 66



Executive Officer			Age		Position Held
Mark E. Yardley			6466		President and Chief Executive Officer
~~Patrick C. Doran~~Sonia R. Betsworth			5960		EVP/Chief Administrative Officer
Jeffrey B. Kuzbel			55		EVP/Chief Financial Officer
Denise L. Cauthon			58		SVP/Chief Accounting Officer
Brian J. Dreher			51		SVP/Chief Information Officer
Dan J. Hess			56		SVP/Chief Business Officer
Amanda J. Kiefer			46		SVP/Chief Human Resources and Inclusion Officer
Carl M. Koupal, III			38		SVP/Chief Compliance and Ethics Officer and General Counsel, Corporate Secretary
~~Sonia R. Betsworth~~			58	~~SVP/Chief Administrative Officer~~
~~Denise L. Cauthon~~	56	~~SVP/Chief Accounting Officer~~
~~Joe B. Edwards~~	63	~~SVP/Chief Information Officer~~
~~Dan J. Hess~~	54	~~SVP/Chief Business Officer~~
Thomas E. Millburn1	4951			SVP/Chief Audit Executive
~~William W. Osborn~~			54	~~SVP/Chief Financial Officer~~
Martin L. Schlossman, Jr.	5153			SVP/Chief Risk Officer

__________

1 Although Mr. Millburn is a non-voting member of FHLBank's executive team, he is not considered an "executive officer" as defined in Rule 3b-7 of the Exchange Act because he is not in charge of a principal business unit, division or function, nor does he perform a policy making function.

No executive officer has any family relationship with any other executive officer or director. All executive officers, other than the Chief Compliance and Ethics Officer (CCEO) and General Counsel, Corporate Secretary, the Chief Audit Executive, and the Chief Risk Officer (CRO), may be removed from office or discharged by the ~~Board~~board of ~~Directors~~directors or the President and CEO with or without cause. The Chief Audit Executive may be removed from office, with or without cause, only with the approval of the Audit Committee. The CCEO and General Counsel, Corporate Secretary, and the CRO may be removed from office, with or without cause, only with the approval of the Risk Oversight Committee.

There are no arrangements or understandings between any executive officer and any other person pursuant to which the executive officer was or is to be selected as an officer of FHLBank, including no employment agreement between any executive officer and FHLBank.

Except as otherwise indicated below, each officer has been engaged in the principal occupation listed above for at least five years:

Mark E. Yardley became President and CEO in March 2017, after serving as Interim President and CEO starting in January 2017. From May 2010 through December 2016, he was Executive Vice President and CRO. Mr. Yardley previously served as Executive Vice President and CFO from February 2005 to May 2010, First Senior Vice President and CFO from December 1999 through February 2005 and as First Senior Vice President, Director of Finance, from January 1999 to December 1999. Mr. Yardley joined FHLBank in 1984 as Director of Internal Audit and was promoted to Assistant Vice President in 1990 and Vice President in 1991.

~~Patrick C. Doran~~Sonia R. Betsworth became Executive Vice President ~~CCEO~~ and General Counsel in December 2017. From March 2016 to December 2017, he served as Executive Vice President, Chief Compliance Officer and General Counsel, and from December 2015 to March 2016, he was Senior Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary. He served as Senior Vice President, General Counsel and Corporate Secretary from May 2004 to December 2015.

~~Sonia R. Betsworth became~~ Chief Administrative Officer (CAO) in January 2022, after serving as Senior Vice President and CAO since March 2017, ~~after serving~~and as Interim CAO starting in January 2017. From March 2013 through December 2016, she was Senior Vice President and Chief Credit Officer. She served as Senior Vice President, Director of Credit from July 2009 to March 2013; Senior Vice President, Director of Member Products from April 2006 through June 2009; Director of Sales, Lending and Collateral from 2002 to April 2006; and Director of Credit and Collateral from 1999 to 2002. She joined FHLBank in 1983. Ms. Betsworth was named Assistant Vice President in 1994 and Vice President in 1998.

Jeffrey B. Kuzbel became Executive Vice President and CFO in January 2022, after serving as Senior Vice President and CFO starting in April 2021. Prior to joining FHLBank in 2021, Mr. Kuzbel served as LIBOR Transition Executive at Capital One Financial from 2019 to March 2021; Treasury & Balance Sheet Management CFO at Capital One Financial from 2016 through 2018; Managing Vice President, Balance Sheet Management, at Capital One Financial from 2013 through 2015; Vice President, Balance Sheet Strategy from 2010 through 2012; and Senior Director, Treasury Finance & Analytics during 2009. Prior to his tenure at Capital One Financial, Mr. Kuzbel served as Lead Director – Market Risk Management for Freddie Mac, as Vice President – Fixed Income Portfolio Management and Trading at Advanced Investment Management, Inc., and as Head of Investments at the Federal Home Loan Bank of Pittsburgh.

Denise L. Cauthon became Senior Vice President and Chief Accounting Officer in December 2010. Ms. Cauthon served as First Vice President and Chief Accounting Officer from May to December 2010, First Vice President and Controller from March 2007 to April 2010, and Vice President and Controller from January 2005 to March 2007. Ms. Cauthon joined FHLBank in 1989 as a staff internal auditor and was promoted to Assistant Liability Manager and then Financial Reporting Accountant in 1998. Ms. Cauthon was promoted to Financial Reporting and Operations Manager in 1999 and was named Assistant Vice President in 2000. She was promoted to Assistant Controller-Financial Reporting in 2002 and became Vice President in 2004.

~~Joe B. Edwards~~Brian Dreher became Senior Vice President and Chief Information Officer (CIO) in ~~July 2013. Prior to joining FHLBank in 2013, Mr. Edwards was Senior~~January 2022, after serving as Vice President and ~~CIO at ACE Cash Express, Inc., a multi-unit retailer~~Director of ~~financial services, where he was responsible for~~ IT ~~development, operations, business intelligence~~Infrastructure & Operations starting in 2014. He served as Vice President, Assistant Director of Information Technology from 2010 to 2014 and ~~call center operations~~Vice President, Software Development Manager from ~~January 1998 through his retirement~~2004 to 2010. He joined FHLBank in ~~December 2012.~~1998.

Dan J. Hess became Senior Vice President and Chief Business Officer in March 2013. Mr. Hess previously served as Senior Vice President, Director of Member Products from July 2009 to March 2013; First Vice President, Director of Sales from April 2002 to May 2009; and Senior Vice President, Director of Sales from May 2009 to July 2009. Mr. Hess joined FHLBank in 1995 as a Correspondent Banking Account Manager for Kansas. He was promoted to Lending Officer in 1997, to Assistant Vice President and Lending Manager in 1999, and to Vice President in 2000.

Amanda J. Kiefer became Senior Vice President and Chief Human Resources and Inclusion Officer in October 2021. Ms. Kiefer previously served as First Vice President, Director of Human Resources and Inclusion since January 2016, and as Interim Director of Human Resources from October 2015 to January 2016. Ms. Kiefer joined FHLBank in 2011 as Officer and Corporate Counsel, and was subsequently promoted to Assistant Vice President, Assistant General Counsel and Office of Minority and Women Inclusion Officer.

Carl M. Koupal, III became Senior Vice President and CCEO and General Counsel, Corporate Secretary in October 2021. Mr. Koupal previously served as First Vice President, Associate General Counsel, Director of Legal Services and Compliance, Corporate Secretary from April 2018 to October 2021, and as Vice President, Assistant General Counsel, Director of Compliance and Corporate Secretary from March 2016 through March 2018. Mr. Koupal joined FHLBank in 2008 as a Law Clerk and was promoted to Staff Attorney in 2009, Legal and Compliance Officer in 2011, Assistant Vice President, Assistant General Counsel, Director of Compliance and Assistant Corporate Secretary in 2014, and Vice President, Assistant General Counsel, Director of Compliance and Corporate Secretary in 2016.

Thomas E. Millburn became Senior Vice President, Chief Audit Executive in March 2016. Mr. Millburn previously served as Senior Vice President, Chief Internal Audit Officer from March 2011 to March 2016 and Senior Vice President, Director of Internal Audit from December 2010 to March 2011. Mr. Millburn joined FHLBank in 1994 as a staff internal auditor and was promoted to Assistant Vice President, Director of Internal Audit in 1999, Vice President in 2000 and ~~then to~~ First Vice President in March 2004.

William W. Osborn became Senior Vice President and CFO in June 2010. Mr. Osborn joined FHLBank in May 2006 as Director of Product Profitability and Pricing. He was promoted to Director of Banking Strategies in January 2008, to First Vice President in April 2008 and to Senior Vice President in April 2009.

Martin L. Schlossman, Jr. became CRO in March 2017, after serving as Interim CRO starting in January 2017. Mr. Schlossman previously served as Senior Vice President, Associate CRO from March 2012 through December 2016. He joined FHLBank in November 2000 as an Enterprise Risk Analyst and was promoted to Planning Officer in December 2001, Assistant Vice President in March 2004, Vice President in June 2005, and First Vice President in March 2009. He was named Associate CRO in June 2010 and was promoted to Senior Vice President in March 2012.

Directors

The Bank Act (as amended by the Recovery Act) and FHFA regulations mandate that our ~~Board~~board of ~~Directors~~directors consist of 13 directors or such other number as may be provided by the FHFA, a majority of whom are to be member directors and at least two-fifths of whom are to be independent directors. Due to the interplay of the “method of equal proportions,” which the FHFA uses to allocate member directorships to each state in our four-state district, the requirement that at least two-fifths of the directorate must be comprised of independent directors, and the requirement that the number of member directorships allocated to each of those four states must be at least equal to the number allocated to each state on December 31, 1960, the FHFA may require from time to time the allocation of additional member director seats. AsOur board of ~~the date of this annual report on Form 10-K, our Board of Directors~~directors currently consists of 17 directors, 10 of whom are member directors and 7 of whom are ~~independent directors. In addition, FHLBank currently has one vacant independent directorship, which when filled will bring FHLBank’s board to 18 directors, including 8~~ independent directors. Under the FHFA regulations, new and re‑elected directors serve four-year terms, subject to adjustment by the FHFA to establish staggering of the board. Directors cannot be elected to serve more than three consecutive full terms. A director who was term-limited may be re‑elected to a directorship for a term that commences no earlier than two years after the expiration of the third full term. Each director must be: (1) a citizen of the United States; and (2) either a bona fide resident in our district or serve as an officer or director of a member located in our district. Additionally, at least two of the independent directors must qualify as public interest directors. To qualify as a public interest director, an individual must have more than four years of experience in representing consumer or community interests in banking services, credit needs, housing, or consumer financial protections.

Member directorships are designated to each of the four states in our district and each of our members is entitled to nominate and vote for candidates representing the state in which the member’s principal place of business is located. To qualify as a nominee for a member directorship, a nominee must be an officer or director of a member located in the state to which the director of the FHFA has allocated the directorship, and such member must meet all minimum capital requirements established by its appropriate Federal banking agency or appropriate state regulator. Member directors are nominated by members located in the state to which the member directorship is assigned, based on a determination by the nominating institution that the nominee possesses the applicable experience, qualifications, attributes and skills to qualify the nominee to serve as an FHLBank director, without any participation from our ~~Board~~board of ~~Directors.~~directors. Following the nomination process, a member is entitled to cast, for each applicable member directorship, one vote for each share of capital stock that the member is required to hold, subject to a statutory limitation. Under this limitation, the total number of votes that each member may cast is limited to the average number of shares of capital stock that were required to be held by all members in that state as of the record date for voting.

Each of our member directors meets the required qualifications and, as such, each is an officer or director of a member in the respective state from which they were nominated and elected.

Independent directors are elected by ballot from among those eligible persons nominated by the ~~Board~~board of ~~Directors~~directors after consultation with the Affordable Housing Advisory Council and after the nominee has been submitted to the FHFA for review. In nominating independent directors, our ~~Board~~board of ~~Directors~~directors may consider an individual’s current and prior experience on the ~~Board~~board of ~~Directors,~~directors, the qualifications of the nominee, and the skills and experience most likely to add strength to the ~~Board~~board of ~~Directors,~~directors, among other skills, qualifications and attributes. FHFA regulations require us to encourage the consideration of diversity in nominating or soliciting nominees for positions on our ~~Board~~board of ~~Directors.~~directors. Pursuant to our Procedures for Identifying and Evaluating Candidates for Independent Directorships and Filling Vacant Directorships, our ~~Board~~board of ~~Directors~~directors will consider diversity in nominating independent directors and in electing member directors when the ~~Board~~board of ~~Directors~~directors is permitted to elect or appoint member directors in the event of a vacancy, and in evaluating potential director candidates, the ~~Board~~board of ~~Directors~~directors may also identify appropriate criteria that will promote appropriate diversity on the ~~Board~~board of ~~Directors~~directors and help meet ~~FHLBank’s~~our strategic needs, including desired skill sets, experience, residence, ability to devote sufficient time to service on the ~~Board~~board of ~~Directors,~~directors, ethnicity and/or gender. If our ~~Board~~board of ~~Directors~~directors nominates only one individual for each independent directorship, then each nominee must receive at least 20 percent of the number of votes eligible to be cast in the election to be elected. If our ~~Board~~board of ~~Directors~~directors nominates more persons for the type of independent directorship to be filled than there are directorships of that type to be filled in the election, then the nominee receiving the highest number of votes will be elected. Each member voting in the independent director election is entitled to cast one vote for each share of capital stock that the member is required to hold, subject to the statutory limitation discussed above. Our ~~Board~~board of ~~Directors~~directors has adopted procedures for the nomination and election of independent directors, consistent with the requirements of the Bank Act and FHFA regulations.

There are no arrangements or understandings between any director and any other person pursuant to which the director was or is to be selected as a director or nominee. No director has any family relationship with any other director or executive officer. No director or executive officer of FHLBank has been involved in any legal proceeding during the past ten years that would affect the integrity or ability of such director or nominee to serve in such capacity, including any proceedings identified in Item 401(f) of Regulation S-K.

On November ~~15, 2019, Craig A. Meader~~9, 2021, Michael B. Jacobson from the state of ~~Kansas~~Nebraska and ~~G. Bridger Cox and Donald R. Abernathy~~Mark J. O'Connor from the state of ~~Oklahoma~~Colorado were each declared elected as member directors and ~~Holly Johnson was~~Jeffrey R. Noordhoek and Paul E. Washington were each declared elected as an independent ~~director~~directors of FHLBank’s ~~Board~~board of ~~Directors.~~directors. Each of the directors elected in ~~2019~~2021 will serve four-year terms expiring December 31, ~~2023.~~2025.

Table 6750 sets forth certain information regarding each of our directors as of the date of this annual report on Form 10-K.

Table 67

Director

Age

Type of

Directorship

Director Since

Current Term

Expiration

Board Committee

Membership¹

Donald R. Abernathy, Jr.

6165

Member

January 2020

December 2023

(a), (d)

Milroy A. Alexander

7072

Independent

January 2015

December ~~2020~~2024

(a), (b), (c), (e) Chair

Robert E. Caldwell, II

4951

Independent

January 2004

December 2022

(b), (c) Vice Chair, (d)

G. Bridger Cox

6769

Member

January 2011

December 2023

(b), (c) Chair

~~Holly Johnson~~Michael B. Jacobson

5668

~~Independent~~Member

January ~~2016~~2022

December ~~2023~~2025

~~(a)~~(d), ~~(b)~~(f)

~~Lynn Katzfey~~Holly Johnson

5658

Independent

~~July 2019~~January 2016

December ~~2020~~2023

(a), ~~(e)~~(d)

Lynn Jenkins Katzfey

Independent

July 2019

December 2024

(e), (f)

Jane C. Knight

7678

Independent

January 2004

December 2022

(d), (e)

Barry Lockard

5456

Member

January 2019

December 2022

(b), (e), (f)

~~Richard S. Masinton~~

~~Independent~~

~~April 2007~~

~~December 2021~~

~~(b) Chair, (c), (d)~~

~~Neil F. M. McKay~~

~~Independent~~

~~April 2007~~

~~December 2020~~

~~(d), (f)~~

Craig A. Meader

6264

Member

January 2020

December 2023

(e), (f)

L. Kent Needham

6668

Member

January 2013

December ~~2020~~2024

(a), (c), (d) Chair, (f)

Jeffrey R. Noordhoek

Independent

July 2020

December 2025

(b), (f)

Mark J. O’Connor

5557

Member

May 2011

December ~~2021~~2025

(c), (d), (f) Chair

Thomas H. Olson, Jr.

5456

Member

January 2013

December ~~2020~~2024

(a), (b) Chair, (c), (e)

Mark W. Schifferdecker

5557

Member

January 2011

December 2022

(a) Chair, (b), (c), (d)

Douglas E. Tippens

6567

Member

January 2015

December 2022

(b), (e), (f)

~~Gregg L. Vandaveer~~Paul E. Washington

6752

~~Member~~Independent

~~January 2018~~July 2021

December ~~2021~~2025

~~(e)~~(a), ~~(f)~~(e)


1 Board of Director committees are as follows: (a) Audit; (b) Compensation, Human Resources and Inclusion; (c) Executive; (d) Risk Oversight; (e) Housing and Governance; and (f) Operations. ¹	~~Board of Director committees are as follows: (a) Audit; (b) Compensation, Human Resources and Inclusion; (c) Executive; (d) Risk Oversight; (e) Housing and Governance; and (f) Operations.~~

The following describes the principal occupation, business experience, qualifications and skills, among other matters, of the 17 directors who currently serve on the ~~Board~~board of ~~Directors.~~directors. Except as otherwise indicated, each director has been engaged in the principal occupation described below for at least five years:

Donald R. Abernathy, Jr. has served as ~~the~~President at Legacy Bank, Hinton, Oklahoma, since June of 2021 and was Senior Vice President from December 2020 to June 2021. Prior to his positions at Legacy Bank, Mr. Abernathy served as President and CEO of The Bankers Bank, Oklahoma City, Oklahoma, since 1993, and ~~has~~had served on the board of directors of Bankers Banc Investment Services, Inc., since December 2006. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Abernathy's nomination since he is a member director, Mr. Abernathy possesses a bachelor's degree of business administration, has more than 40 years of banking experience, including 2530 as a President and CEO, and served on the board of directors of the Independent Community Bankers of America, that assists in his service as a director. Prior to his current term, Mr. Abernathy served as a member director of FHLBank from January 2017 through December 2018.

Milroy A. Alexander has been a housing, financial and business consultant since 2010, serving nonprofit housing organizations, local housing authorities and the City of Denver Housing and Neighborhood Redevelopment department. ~~He completed his final term as a director~~A former board member of the Municipal Securities Rulemaking Board, ~~in September 2013. He~~he was also a member of the board of trustees of Rose Community Foundation for 10 years ending in December 2017, and is currently board chair of the Lowry Redevelopment Authority and Northeast Denver Housing Center. Mr. Alexander previously served as Executive Director and CEO of the Colorado Housing and Finance Authority in Denver, Colorado. The ~~Board~~board of ~~Directors~~directors considered Mr. Alexander’s qualifications, skills and attributes, including his more than 2221 years of service at a state HFA, including nine years as Executive Director and CEO and 12 years as CFO, his certification as a CPA, his more than 1011 years as an auditor with Touche Ross & Co. (now Deloitte), his past service on the audit committees of many organizations and his ability to enhance the diversity of viewpoints among the directors serving on the ~~Board~~board of ~~Directors~~directors by providing the ~~Board~~board of ~~Directors~~directors with racial diversity, when making his nomination.

Robert E. Caldwell, II is the Vice Chair of our ~~Board~~board of ~~Directors.~~directors. Mr. Caldwell is currently Executive Vice President and Chief Administrative Officer for Nebco, Inc., a supplier of materials to the construction industry to construct buildings, streets and highways, which he began in August 2014. Prior to his service at Nebco, Inc., Mr. Caldwell was the President and Chief Operating Officer of WRK Real Estate, LLC, which he began in January 2014. He previously served as President and CEO of Hampton Enterprises, Inc., a commercial real estate development, general contracting, construction management and property management firm, since 2006, and General Counsel for Linweld, Inc., a large independent manufacturer and distributor of industrial/medical gases and welding supplies. The ~~Board~~board of ~~Directors~~directors considered Mr. Caldwell’s qualifications, skills and attributes, including his B.S. in business administration, his J.D. and MBA, his experience as General Counsel for Linweld, Inc., a subsidiary of a Japanese public company, his service as President and CEO of a commercial real estate and construction company, and his prior service as an FHLBank director, when making his nomination.

G. Bridger Cox is the Chair of our ~~Board~~board of ~~Directors.~~directors. Mr. Cox has been Chairman ~~and President~~ of Citizens Bank & Trust Company, Ardmore, Oklahoma, since 1996. He also served as President of Citizens Bank & Trust Company from 1996 to 2021. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Cox’s nomination since he is a member director, Mr. Cox is a graduate of the Stonier Graduate School of Banking at Rutgers University, possesses more than 30 years of banking management experience, has served on the board of directors of the Oklahoma Industrial Finance Authority and the Oklahoma Development Finance Authority, and has prior experience as an FHLBank director, that assists in his service as a director. Prior to his current term, Mr. Cox served as a member director of FHLBank from January 1998 through December 2006.

Michael B. Jacobson has served as Chairman, President and CEO of NebraskaLand Bank, North Platte, Nebraska, since 1998. He has also served as Chairman, President and CEO of NebraskaLand Financial Services, Inc. since 2000. Mr. Jacobson also serves on the Government Relations committee of the Nebraska Bankers Association, Chairman of North Platte Redevelopment Authority, Chair of the North Platte Airport Authority, on the Great Plans Health board of directors, as a University of Nebraska Foundation Trustee, and on Governor Pete Ricketts' Agricultural committee. Although the board of directors did not participate in Mr. Jacobson's nomination since he is a member director, Mr. Jacobson possesses a B.S. in agricultural economics, is a graduate of the Colorado Graduate School of Banking and possesses over 40 years of banking experience, including over 25 years as the CEO of a bank, that assists in his service as a director. Prior to his current term, Mr. Jacobson served as a member director of FHLBank from January 2012 through December 2019.

Holly Johnson, a Chickasaw citizen and certified public accountant, owns a tribal consulting company providing services to the Chickasaw Nation in the area of administrative support and policy development. She served as Secretary of the Department of Treasury for the Chickasaw Nation from October 2012 to December 2019, where she was responsible for all finance and accounting functions. From October 2010 to September 2012, she served as the Administrator of Planning and Organizational Development for the Chickasaw Nation. From August 2003 to October 2010, she served as an Elected Tribal Legislator for the Pontotoc District. Ms. Johnson serves as a trustee of the Chickasaw Foundation and is a past trustee of the Ada City Schools Foundation and the Chickasaw Nation's 401(k) plans, a past board member of the Ada Chamber of Commerce, a member of the Oklahoma State University School of Accounting Executive Advisory Board, and a ~~current~~former appointed commissioner of the Oklahoma Ethics Commission. The ~~Board~~board of ~~Directors~~directors considered Ms. Johnson's qualifications, skills and attributes, including her role as Secretary for the Department of Treasury for the Chickasaw Nation, her experience as a CPA and at public accounting firms, her experience in and knowledge of auditing and accounting, financial management, organizational management, project development and risk management practices, and her ability to enhance the diversity of viewpoints among the directors serving on the ~~Board~~board of ~~Directors~~directors by providing the ~~Board~~board of ~~Directors~~directors with gender and racial diversity, when making her nomination.

Lynn Jenkins Katzfey has been a partner at LJ Strategies since January 2019. Ms. Katzfey worked as a certified public accountant for 16 years before launching a career in public service. Ms. Katzfey served as Treasurer of the State of Kansas and was subsequently elected to serve five terms in the U.S. House of Representatives. She currently serves on the boards of directors for American Century Investments Mutual Funds and previously served on the board of directors of MGP Ingredients, Inc. The ~~Board~~board of ~~Directors~~directors considered Ms. Katzfey's qualifications, skills and attributes, including her role as a member of the U.S. House of Representatives, including service in leadership roles and on the House Financial Services Committee and the House Ways and Means Committee, her role as the Treasurer of the State of Kansas, her experience as a ~~certified public accountant~~CPA and at public accounting firms, her experience in and knowledge of auditing and accounting, financial management, organizational management, project development, and the law, and her ability to enhance the diversity of viewpoints among the directors serving on the ~~Board~~board of ~~Directors~~directors by providing the ~~Board~~board of ~~Directors~~directors with gender diversity, when making her nomination.

Jane C. Knight, now retired, served as Vice President of Site-based Strategies for Kansas Big Brothers Big Sisters from 2002 through 2005. Prior to that, she directed the Wichita office for Kansas Governor Bill Graves and was in charge of addressing constituent concerns, including housing issues. The ~~Board~~board of ~~Directors~~directors considered Ms. Knight’s qualifications, skills and attributes, including her prior management skills, her service as Director of the Kansas Governor’s regional office, her experience with housing issues through the Governor’s office and Habitat for Humanity, her experience with not-for-profit organizations, her ability to enhance the diversity of viewpoints among the ~~Board~~board of ~~Directors~~directors by providing the ~~Board~~board of ~~Directors~~directors with gender diversity, and her prior service as an FHLBank director, when making her nomination.

Barry J. Lockard has served as President and CEO of Cornhusker Bank, Lincoln, Nebraska, since 2007. Mr. Lockard previously held senior leadership roles at Black and Decker, Cincinnati Bell, and First National Bank of Omaha. He also served eight years in the Nebraska Army National Guard. He has served on the boards of directors of the Nebraska Bankers Association, the American Bankers Association Community Bankers Council, and is a trustee for the Graduate School of Banking at Colorado, where he has also served as a member of the faculty. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Lockard’s nomination since he is a member director, Mr. Lockard possesses a bachelor’s degree in business administration, is a graduate of the Colorado Graduate School of Banking, and has more than 1114 years as a bank CEO, that assists in his service as a director.

Richard S. Masinton, now retired, was Executive Vice President of Quinn Capital, LLC, a private equity company in Leawood, Kansas from January 2009 through 2014. Mr. Masinton previously served as CFO, then Executive Vice President of Russell Stover Candies in Kansas City, Missouri, from 1996 until 2008. Mr. Masinton has served on the board of directors of No More Homeless Pets Kansas City, an animal welfare charity. He also sat on the boards of directors of Eco-Choice Springwater, LLC and CRB Biosoft, LLC. Mr. Masinton retired from the boards of directors of OneNeck IT Services Corp in 2008 and Enterprise Financial Services Corporation, a publicly owned bank holding company, in 2007. He has also served on the board of advisors of the University of Kansas School of Business and on an advisory board at the University of Oklahoma School of Business. The Board of Directors considered Mr. Masinton’s qualifications, skills and attributes, including his Master's Degree in Accounting, Finance and Economics, his certification as a CPA, his experience on the board of a publicly owned bank holding company, including his 7 years of experience as Chairman of the audit committee of such bank holding company, his 40 years of experience as a corporate executive, and his prior service as an FHLBank director, when making his nomination.

Neil F. M. McKay was CFO and Treasurer of Capitol Federal Savings in Topeka, Kansas, from 1994 through March 2006. Mr. McKay, now retired, has held significant executive positions in various financial institutions including Heartland Federal Savings in Ponca City, Oklahoma, and First Nationwide Bank (now part of Citibank) in San Francisco, California. He was also a CPA in public practice for 12 years. The Board of Directors considered Mr. McKay’s qualifications, skills and attributes, including his certification as a CPA, his 12 years of service as an audit manager of large, publicly traded banks, his experience as Controller of a $30 billion publicly traded bank, his experience as CFO of an $8 billion publicly traded bank, and his prior service as an FHLBank director, when making his nomination.

Craig A. Meader has served as Chairman and CEO of First National Bank of Kansas since 1988. Mr. Meader has served as Chairman of the Kansas Bankers Association and the Bankers Bank of Kansas. Mr. Meader is a former member of the ABA Community Bankers Council, Government Relations Council and the ABA ~~Board~~board of ~~Directors.~~directors. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Meader’s nomination since he is a member director, Mr. Meader possesses a bachelor’s degree in business administration and finance, is a graduate of the Madison Wisconsin Graduate School of Banking, served on the board of directors of Bankers’ Bank of Kansas, N.A. for seven years, including one year as Chairman, and has more than 3040 years as a bank CEO, that assists in his service as a director.

L. Kent Needham has served as Chairman, President and CEO of The First Security Bank, Overbrook, Kansas, since 2007. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Needham’s nomination since he is a member director, Mr. Needham possesses an MBA, is a graduate of the Colorado Graduate School of Banking, and has over 4140 years of banking experience, including more than 2120 years as CEO, that assists in his service as a director.

Jeffrey R. Noordhoek has served as CEO of Nelnet, Inc., a publicly traded company, since January 2014, and previously served as President of Nelnet, Inc. from January 2006 through December 2013. The board of directors considered Mr. Noordhoek's qualifications, skills and attributes, including his position as CEO of Nelnet, Inc., which is a publicly traded company listed on the New York Stock Exchange and is the largest education payment plan provider in the United States; his lending, financial services, capital markets and derivatives experience; and his experience overseeing a large team of information technology and IT security professionals, when making his nomination.

Mark J. O’Connor currently serves as President of Investments of FirstBank Holding Company, Lakewood, Colorado, and has ~~served~~held many leadership positions with the bank since 1989. He also serves as ~~Vice~~the President of ~~FirstBank since 2002. Although~~ the Board of ~~Directors~~The Impact Development Fund, Loveland, Colorado. Although the board of directors did not participate in Mr. O’Connor’s most recent nomination since he is a member director, Mr. O’Connor has more than 3130 years of banking experience. He is a graduate of the Pacific Coast Banking School, currently serves as the President of Investments and Chairs the ALCO Committee of a large bank holding company and has over 1718 years of investment portfolio management experience. ~~Mr. O’Connor serves on the Foundation Board of a local university and chairs its Investment Committee.~~ His experience on the board of a state housing finance authority, including service as chairman, and his prior experience as an FHLBank director assist in his service as a director.

Thomas H. Olson, Jr. has been CEO of Points West Community Bank, Windsor, Colorado, ~~since 1998.~~from 1998 through 2019. Mr. Olson is currently ~~also~~ the chairman of Points West Community Bank, Windsor, Colorado, Chairman of First Nebraska Bancs, Inc., Chairman of Bank of Estes Park, Chairman of First National Financial, Director of Nebraska State Bank, ~~Chairman~~Director of ~~Woodstock Land and~~O&F Cattle Co., and Director of Rush Creek Land and Livestock. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Olson's nomination since he is a member director, Mr. Olson has a B.S. in Finance and Accounting, is a graduate of the Colorado Graduate School of Banking, and has over 26 years of banking experience, including more than 21 years as CEO, that assists in his service as a director.

Mark W. Schifferdecker has been President and CEO of The GNBank, N.A., Girard, Kansas, since 2003. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Schifferdecker’s nomination since he is a member director, Mr. Schifferdecker has experience as a CPA, possesses more than 1617 years of experience as the CEO of a community bank, served more than 10 years as an auditor with KPMG, served six years on the board of directors of the Federal Reserve Bank of Kansas City, including two years as Chairman of the Audit Committee, and served on the board of directors of Bankers’ Bank of Kansas, N.A., including one year as Chairman, that assists in his service as a director.

Douglas E. Tippens has served as Executive Vice President of BancFirst, Oklahoma City, Oklahoma, since December 2017. He served as Market President of BancFirst from November 2015 to December 2017. Before his service at BancFirst, Mr. Tippens served as President and CEO of Bank of Commerce, Yukon, Oklahoma, since 2006, and served on the board of directors of Bank of Commerce, Chelsea, Oklahoma, since 2013. Although the ~~Board~~board of ~~Directors~~directors did not participate in Mr. Tippens’ nomination since he is a member director, Mr. Tippens possesses a B.S. in agriculture economics, an MBA, is a graduate of the Graduate School of Banking at the University of Wisconsin, has more than 40 years of banking experience, including 10 years as president and CEO, and served on the board of directors of the Federal Reserve Bank of Kansas City, Oklahoma City Branch, that assists in his service as a director.

~~Gregg L. Vandaveer~~Paul E. Washington has served as Executive Vice President for IMA Financial Group, Denver Colorado, since May 2021. Mr. Washington served as market director (a regional president-equivalent position) for JLL, a Fortune 500, SEC registered commercial real estate services company from April 2017 to May 2021. He currently serves on the boards of directors for Independent Bank Group, Inc.; Colorado Concern; Downtown Denver Partnership; and ~~CEO~~Denver Museum of ~~Sooner State Bank, Tuttle, Oklahoma, since April 2001. Although~~Nature & Science. Mr. Washington holds bar licenses in Colorado and California and previously served on the ~~Board~~Colorado Housing and Finance Authority board of ~~Directors did not participate in Mr. Vandaveer's nomination since~~directors from 2013 to 2021 where he ~~is a member director, Mr. Vandaveer possesses a B.S. in journalism, is a graduate~~served as both board chair and chair of the ~~Southwest Graduate School~~Finance committee. The board of ~~Banking at SMU,~~directors considered Mr. Washington's qualifications, skills, and ~~has more than 37 years~~attributes, including his degree in business and his J.D and L.L.M. in taxation, his prior experience in leading a large real estate services company, his prior service on the board of ~~banking experience, including 21 years as President~~directors of the Colorado Housing and ~~CEO, that assists in~~Finance Authority, and his ~~service as a director.~~ability to enhance the diversity of viewpoints among the directors serving on the board of directors by providing the board of directors with racial diversity, when making his nomination.

Code of Ethics

We have adopted a Code of Ethics that applies to our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions) and employees. Our Code of Ethics is filed as an exhibit to reports we file with the SEC and has been posted on our website at www.fhlbtopeka.com in the ~~"Board Governance"~~“Board Governance” page. We will also post on our website any amendments to, or waivers from, a provision of our Code of Ethics that applies to the principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions as required by applicable rules and regulations. Except for the documents specifically incorporated by reference into this annual report on Form 10-K, information contained on our website or that can be accessed through our website is not incorporated by reference into this annual report on Form 10-K. Reference to our website is made as an inactive textual reference. The Code of Ethics is available, in print, free of charge, upon request. Written requests may be made to the CCEO and General Counsel of FHLBank at 500 SW Wanamaker, Topeka, Kansas, 66606.

Audit Committee Financial Expert

We have a separately-designated, standing audit committee, which consists of Mark W. Schifferdecker (chair), Donald R. Abernathy, Jr., Milroy A. Alexander, Holly Johnson, ~~Lynn Katzfey,~~ L. Kent Needham, ~~and~~ Thomas H. Olson, Jr. and Paul E Washington.

The ~~Board~~board of ~~Directors~~directors has determined that Mark W. Schifferdecker is an “audit committee financial expert” as that term is defined under SEC regulations. Mr. Schifferdecker is “independent” in accordance with the Nasdaq Independence Standards (defined under Item 13 below) for audit committee members, as those standards were applied by our ~~Board~~board of ~~Directors.~~directors.

The Compensation, Human Resources and Inclusion Committee Report is included following the Compensation Discussion and Analysis in Item 11 - “Executive Compensation.”

Item 11. Executive Compensation

Compensation Discussion and Analysis

Overview of Previous Year Performance and Compensation: Our overall executive compensation philosophy is to attract, retain, and motivate highly-qualified executive officers who will advance: (1) our business objectives to promote our long-term growth and profitability in accordance with achievement of our long-term strategic objectives; and (2) our mission of supporting our members’ efforts to build strong communities.

During 2019, we experienced strong performance overall against our long-term objectives. These objectives were designed to drive performance in key areas that align our incentive compensation with our members’ view of our performance and with our ongoing long-term financial stability.

The named executive officers in ~~2019 were comprised of~~2021 were: (1) the President and ~~CEO,~~CEO; (2) the Senior Vice President and CFO; (3) the Senior Vice President and CAO; (4) the Senior Vice President and CRO; (5) the Senior Vice President and CIO; and our former Executive Vice President and CCEO and General Counsel ~~the Senior Vice President and CFO, the Senior Vice President and CAO, and the Senior Vice President and CIO~~(Former GC) (collectively, the Named Executive Officers). As announced in Form 8-Ks filed on August 18, 2021, as amended on September 16, 2021, and on October 27, 2021, the Former GC ceased to serve as an executive officer effective September 10, 2021. In a Form 8-K filed on March 15, 2021, FHLBank announced that Jeff Kuzbel was named FHLBank's CFO, effective April 1, 2021.

In determining the appropriate total compensation package for our Named Executive Officers for ~~2019,~~2021, we considered the principal objectives of our compensation program as: (1) attracting and retaining highly-qualified and talented individuals; and (2) motivating these individuals to achieve short- and long-term FHLBank-wide performance goals through incentive compensation.

In ~~2019, we provided competitive compensation opportunities for our~~2021, the Named Executive Officers ~~based in part on adjustments~~did not receive an adjustment to base salary ~~in line~~because of the market challenges associated with ~~our~~the COVID-19 pandemic. Named Executive ~~Pay Philosophy and on~~Officers were eligible for incentive compensation achievable through our Executive Incentive Compensation Plan (EICP). The EICP provides cash-based annual incentives and deferred incentive awards, which promote the achievement of short- and long-term objectives. The achievement of both short- and long-term goals translated to incentive awards earned by our Named Executive Officers in recognition of their contribution to our overall performance and success.

Framework for Compensation Decisions: The Compensation, Human Resources and Inclusion Committee of the ~~Board~~board of ~~Directors~~directors (Compensation Committee) oversees the compensation of the Named Executive Officers. The Compensation Committee’s responsibilities in ~~2019~~2021 included:


▪	~~Advising the Board of Directors on the establishment of appropriate compensation, incentive and benefits programs, including the recommendation of performance goals for the EICP;~~


▪	~~Approving the base salaries and salary adjustments of the CCEO and General Counsel, CFO, CAO, and CIO, as recommended by the CEO; and~~


▪	~~Recommending to the Board of Directors the base salary, including any salary adjustments, of the CEO.~~

▪Advising the board of directors on the establishment of appropriate compensation, incentive and benefits programs, including the recommendation of performance goals for the EICP;

▪Approving the base salaries for the CFO, CAO, CRO, CIO and Former GC, as recommended by the CEO;

▪Approving the annual and deferred cash incentive awards of the CEO, CFO, CAO, CRO, CIO and Former GC; and

▪Recommending to the board of directors the base salary, including any salary adjustments, of the CEO.

Elements of Executive Compensation in ~~2019:~~ 2021: To implement our compensation objectives, the elements of our ~~2019~~2021 compensation program for the Named Executive Officers included: (1) annual base salary; (2) annual and deferred cash incentive award opportunities under our EICP; (3) retirement and other benefits; (4) limited perquisites; and (5) potential payments upon termination or change in control.

Use of Benchmarks - We believe a key to attracting and retaining ~~highly-qualified~~highly qualified executive officers is the identification of the appropriate peer groups within which we compete for executive talent. We have historically recruited nationally, both within and outside of the FHLBank System, in our efforts to attract ~~highly-qualified~~highly qualified candidates for the Named Executive Officer positions. To ensure that we are offering and paying competitive compensation to retain our Named Executive Officers, the ~~Board~~board of ~~Directors~~directors (and/or Compensation Committee) periodically retains compensation consultants to assist with comparative analyses of the Named Executive Officers’ total compensation through a review of survey data reflecting potential comparator benchmarks for total compensation. Our Compensation Committee has used the survey data as guideposts in considering and determining competitive levels of base salary and total compensation for our Named Executive Officers among other factors as described above.

For ~~2019~~2021 compensation, the Compensation Committee considered the competitiveness of the total compensation paid to our Named Executive Officers by reviewing comparative survey data obtained from the compensation consultant, McLagan Partners, Inc. (McLagan).

The Compensation Committee generally considers a market composite benchmark when making pay decisions regarding the Named Executive Officers. The market composite benchmark is created by McLagan is pulled from a proprietary survey database and is calculated by considering three peer groups: (1) commercial banks with $20 billion or more in assets, including Federal Reserve Banks (excluding former ~~"bulge bracket"~~“bulge bracket” investment banks); (2) other FHLBanks; and (3) publicly available proxy data for regional and community banks with assets between $10 billion and $20 billion. Additionally, in calculating the market composite benchmark, for the commercial banks' peer group, Divisional Heads are used as the relevant comparison at the median. For the other FHLBanks' peer group, overall Functional Heads are used at the median. For the third peer group, ~~salary rank is used except for~~this only applies to the CEO and CFO ~~where the actual position is used; in addition,~~positions reflected as the low ~~quartile is used.~~quartile.

In addition to the FHLBanks, the following is a list of survey participants that were included by McLagan in the ~~2019~~ FHLBank Custom Compensation ~~Survey:~~

Survey that was used for the Named Executive Officers, excluding CEO and CFO, 2021 compensation review:



~~AIB~~ABN AMRO			~~ICBC Financial Services~~HSBC
AIB			Huntington Bancshares, Inc.
Ally Financial Inc.			ING
~~Associated~~Arvest Bank			Intesa Sanpaolo
Australia & New Zealand Banking Group			Investors Bancorp, ~~Inc~~Inc.
Banco Bilbao Vizcaya Argentaria			JP Morgan Chase
~~Banco ltau Unibanco~~Bank ABC			KBC Bank
Bank Hapoalim			KeyCorp


Bank of America ~~Merrill Lynch~~		~~Landesbank Baden-Wuerttemberg~~Lloyds Banking Group
Bank of Ireland		M&T Bank Corporation
Bank of New York Mellon		~~Lloyds Banking Group~~Macquarie Bank
Bank of Nova Scotia		~~M&T Bank Corporation~~Mitsubishi UFJ Trust
Bank of the West		~~Macquarie Bank~~
~~Bayerische Landesbank~~	~~MB Financial Bank~~



~~BBVA Compass~~	MUFG Bank, Ltd.
~~BMO Financial Group~~Bayerische Landesbank		~~MUFG Securities~~
~~BNP Paribas~~	National Australia Bank
~~BOK Financial Corporation~~BBVA		Natixis
~~Branch Banking & Trust Co.~~BBVA Compass		New York Community Bank
BMO Financial Group		Nomura Securities
BNP Paribas CIB		Nord/LB
BOK Financial Corporation		Nordea Bank
Brown Brothers Harriman		~~Nord/LB~~
~~Capital One~~	~~Nordea Bank~~
~~Charles Schwab & Co.~~	~~Norinchukin Bank, New York Branch~~
~~China Construction Bank~~	Northern Trust Corporation
Capital One		OCBC Bank
CIBC World Markets		~~PacWest Bancorp~~OneMain Financial
CIT Group Inc.		People's United ~~Bank, National Assoc~~Financial, Inc.
Citigroup		PNC Bank
Citizens Financial Group		~~Popular Community Bank~~Regions Financial Corporation
City National Bank		~~Rabobank~~
~~Comerica~~	~~Regions Financial Corporation~~
~~Commerce Bank~~	Royal Bank of Canada
~~Commerzbank~~Comerica		Royal Bank of Scotland Group
Commerzbank		Sallie Mae
Commonwealth Bank of Australia		Santander Bank, NAN.A.
~~Credit~~Crédit Agricole CIB		Siemens Financial Services
Credit Industriel et Commercial – N.Y.		Signature Bank -– NY
~~Credit lndustriel et Commercial - N.Y.~~Fannie Mae		Societe Generale
~~Cullen Frost Bankers, Inc.~~		~~Standard Chartered Bank~~
~~DBS Bank~~	~~State Street Corporation~~
~~DZ Bank~~	~~Sterling National Bank~~
~~East West Bancorp~~	~~Sumitomo Mitsui Banking Corporation~~
~~Fannie Mae~~	~~Sumitomo Mitsui Trust Bank~~
Federal Reserve Bank of Atlanta	~~SunTrust Banks~~Standard Chartered Bank
Federal Reserve Bank of Boston		~~SVB Financial Group~~State Street Corporation
Federal Reserve Bank of ~~Cleveland~~Chicago		~~Synchrony Financial~~Sterling National Bank
Federal Reserve Bank of Kansas City		Sumitomo
Federal Reserve Bank of Minneapolis		SVB Financial Group
Federal Reserve Bank of New York		Synovus Financial Corporation
Federal Reserve Bank of Richmond		TD ~~Ameritrade~~Securities
Federal Reserve Bank of San Francisco		~~TD Securities~~Texas Capital Bank
Federal Reserve Bank of St Louis		~~Texas Capital Bank~~Truist
Fifth Third Bank		~~The PrivateBank~~U.S. Bancorp
First Citizens Bank - NC		~~U.S. Bancorp~~UMB Financial Corporation
First National Bank of Omaha		UniCredit Bank AG
First Republic Bank		~~UMB Financial Corporation~~Valley National Bancorp
First Tennessee Bank/ First Horizon		~~Umpqua Holding Corporation~~Webster Bank
~~FNB Omaha~~Flagstar Bank		~~UniCredit Bank AG~~
~~Freddie Mac~~	~~Valley National Bank~~
~~GE Capital~~	~~Webster Bank~~
~~Hancock Bank~~	Wells Fargo Bank
~~HSBC~~Freddie Mac		~~Westpac Banking~~Wintrust Financial Corporation
~~Huntington Bancshares, Inc.~~Frost Bank		Zions Bancorporation
Hancock Whitney Bank

The following is a list of regional and community banks with $10 billion to $20 billion in assets, which is the peer group used for the ~~2019~~CEO and CFO 2021 compensation benchmarks:



~~Arvest~~Ameris Bancorp	~~FirstBank Holding Company~~Great Western Bancorp
Atlantic Union Bkshs Corp.	Heartland Financial USA Inc.
Axos Financial Inc.	Home BancShares Inc.
Bank of Hawaii Corp.	~~Flagstar Bank~~Hope Bancorp, Inc.
~~Berkshire~~Banner Corp.	Independent Bank	~~Golden 1 Credit Union~~ Corp.
~~Boeing Employees Credit Union~~Berkshire Hills Bancorp Inc.	~~Great Western Bank~~Independent Bk Group Inc.
~~Bremer Financial Corporation~~Cadence Bancorp.	~~MidFirst Bank~~International Bancshares Corp.
Cathay General Bancorp	~~SchoolsFirst Federal Credit Union~~Northwest Bancshares, Inc.
~~Chemical Financial Corporation~~CenterState Bank Corp.	~~Simmons First National Corporation~~Pacific Premier Bancorp
~~City National Bank of Florida~~Columbia Banking System Inc.	~~South State Bank~~Renasant Corp.
Community Bank System Inc.	~~Trustmark~~South State Corporation
~~Eastern Bank~~Customers Bancorp Inc	~~United Bank - VA~~TowneBank
CVB Financial Corp.	Trustmark Corp.
First Financial Bancorp.	United Bankshares Inc.
First Interstate BancSystem ~~Inc~~	United Community Banks ~~Inc~~Inc.
First Merchants Corp.	Washington Federal Inc.
First Midwest ~~Bank~~Bancorp Inc.	WesBanco Inc.
Glacier Bancorp Inc.	WSFS Financial Corp.

The intent to remain competitive primarily with the other FHLBanks and to also consider the broader labor market of a limited group of financial services institutions reflects our belief that the knowledge and skills necessary to effectively perform our Named Executive Officers’ duties may be developed as a result of experience not only at other FHLBanks, but also at a variety of other financial services institutions. We recognize that Topeka’s geographic location may be a disadvantage in attracting executives, but generally is a positive factor in retaining executives.

Of the FHLBank-based survey data and the broader survey data utilized, the Compensation Committee considered the 25^th percentile, 50^th percentile (median) and 75^th percentile compensation ranges for analyzing executive positions similar to those of our Named Executive Officers in assessing the competitiveness of our total compensation for the Named Executive Officers. The Compensation Committee generally strives to establish annual base salary and incentive compensation opportunities for our Named Executive Officers in the median range of the survey data reviewed assuming target level performance would be achieved. The ultimate compensation determined appropriate in any given year, however, will depend on the scope of a Named Executive Officer’s responsibilities as compared to similar positions within our identified peer group(s), the experience and performance of the individual Named Executive Officer, and our overall performance. ~~Generally, the Compensation Committee and CEO recommend below median pay for poor performance and above median pay for superior performance.~~ While survey information is one factor in setting compensation for our Named Executive Officers, we believe that surveys are not the sole governing factor and independent decisions by the Compensation Committee are necessary to make compensation consistent with our financial condition and future prospects.

Annual Base Salary - A significant element of each Named Executive Officer’s total compensation is annual base salary, which is designed to reward our Named Executive Officers for past performance and their commitment to future performance and to serve as the foundation for competitive total compensation. Adjustments to annual base salaries for the Named Executive Officers are considered annually and ~~were~~ made effective January 1st, following an analysis of our total compensation practices and FHLBank’s performance.

~~For 2019,~~The Compensation Committee and the CEO determined that, with respect to the market challenges associated with the COVID-19 pandemic, it was appropriate not to adjust base pay for the Named Executive Officers for 2021. The Compensation Committee determined that ~~appropriate~~the annual base salaries for each Named Executive Officer ~~should be~~remained competitive with the salaries of comparable executive positions within financial institutions that are regarded as peers for purposes of providing guideposts for a competitive compensation analysis, as discussed in more detail previously under “Use of Benchmarks.” Adjustments to annual base salaries of the Named Executive Officers for 2019 were based on: (1) each Named Executive Officer’s scope of responsibility and accountability; (2) analysis of our comparator peer groups; (3) performance of FHLBank based on achievement levels of FHLBank-wide goals in the prior year; (4) the perceived performance of each Named Executive Officer, as a subjective matter; and (5) other factors such as experience, time in position, general economic conditions, and labor supply and demand conditions.

A final factor that the Compensation Committee generally considers in determining base salary increases in its effort to retain our Named Executive Officers is the relative difference in compensation between the executive officers as well as the pay relationship between executive officers and other employees at FHLBank. The Compensation Committee believes that internal pay equity provides an additional perspective to that of peer group survey compensation information. While comparisons to compensation levels of executive positions within our peer groups are the primary basis used to assess the overall competitiveness of our compensation program, we also believe thatinformation and helps ensure our executive compensation practices ~~should be~~are internally consistent and equitable.

The Compensation Committee also considered guidance and communications from ~~FHLBank's~~our regulator, the FHFA, in determining total compensation for the Named Executive Officers as more specifically addressed below under “FHFA Oversight.”

In 2019, the Compensation Committee and the CEO determined that, with respect to competitive pay positioning for purposes of retaining our Named Executive Officers, it was appropriate to increase the base salaries of the Named Executive Officers to maintain competitive base and total compensation. Consideration was also given to each Named Executive Officer’s scope of responsibility, market comparators, individual and FHLBank performance, and other factors as described above. Table 68 presents the total base salary and the percentage of salary increase for the Named Executive Officers, effective January 1, 2019:

~~Table~~68

Named Executive Officer Percentage Increase Salary
Mark E. Yardley, President & CEO¹
5.0 % $ 682,500
Patrick C. Doran, EVP, CCEO & General Counsel²
3.5
402,100
William W. Osborn, SVP & CFO²
3.5
373,000
Sonia R. Betsworth, SVP & CAO²
3.5
324,200
Joe B. Edwards, SVP & CIO²
5.5
306,750


¹	~~Salary increase recommended by the Compensation Committee and approved by the Board of Directors.~~


²	~~Salary increase recommended by the CEO and approved by the Compensation Committee.~~

Annual and Deferred Cash Incentive Awards - Our EICP is a cash-based annual incentive plan with a long-term deferral component that establishes individual incentive compensation award opportunities related to achievement of performance objectives during the performance periods. The EICP establishes two performance periods: (1) a Base Performance Period aligned with the calendar year; and (2) a Deferral Performance Period (or the long-term performance period), which is a three-year period commencing the calendar year following the Base Performance Period. Named Executive Officers may earn an annual cash incentive during a Base Performance Period and a deferred cash incentive during a Deferral Performance Period. For each Base Performance Period, the ~~Board~~board of ~~Directors~~directors will establish a Total Base Opportunity for Named Executive Officers. The Total Base Opportunity is equal to a percentage of each Named Executive Officer’s annual base salary at the beginning of the Base Performance Period and is composed of the Cash Incentive and the Deferred Incentive.

We believe that well-designed incentive compensation plans provide important opportunities to motivate our Named Executive Officers to accomplish financial, risk, and operational goals that promote our mission. Thus, motivating our Named Executive Officers to accomplish business and financial short- and long-term goals that promote a high level of performance for our members is a key objective of our total compensation program. Consequently, our compensation and benefits programs are designed to motivate our Named Executive Officers to engage in the behaviors and performance necessary to deliver our desired results.

To effectively motivate the Named Executive Officers to accomplish both short- and long-term goals that promote our performance, we believe that incentive awards must represent pay at risk. In other words, the administration of our incentive compensation plans must be such that awards are distributed only in exchange for accomplishing pre-established goals, recommended by the Compensation Committee and approved by the ~~Board~~board of ~~Directors,~~directors, and are distributed only in accordance with such achievement. In ~~2019,~~2021, generally we achieved the pre-established goal targets. Goal attainment varied between the threshold, target, and optimum pre-established levels.

~~Beginning in~~In the fourth quarter of ~~2018,~~2020, goal metrics, metric performance ranges and metric weights for cash incentive award opportunities under the ~~2019~~2021 EICP were developed. The proposed performance objectives reflected the drivers of our business and mission and were based upon the Compensation Committee’s and management’s discussions with respect to our primary mission and stockholder perceptions of success. The Compensation Committee and management took steps intended to align the performance objectives to the Strategic Business Plan. The Compensation Committee reviewed and analyzed the proposed ~~2019~~2021 performance objectives, as appropriate, before submitting the objectives to the ~~Board~~board of ~~Directors~~directors for approval.

For the Base Performance Period of January 1, ~~2019~~2021 to December 31, ~~2019,~~2021, the ~~Board~~board of ~~Directors~~directors approved a Total Base Opportunity equal to a percentage of each Named Executive Officer’s annual base salary at the beginning of the Base Performance Period. Certain Named Executive Officers have a greater and more direct impact than others on the success of FHLBank; therefore, these differences are recognized by varying the Total Base Opportunity for each Named Executive Officer. The Total Base Opportunity is the amount that may be earned for achieving performance levels under established Performance Measures and is comprised of the Cash Incentive and the Deferred Incentive. In the event FHLBank’s performance during the Base Performance Period results in the achievement of a Total Base Opportunity that exceeds 100 percent of a Participant’s base salary at the start of the Base Performance Period, the Target Document provides that the Total Base Opportunity shall be capped at 100 percent of the Participant’s base salary in accordance with regulatory restrictions. The Deferred Incentive is 50 percent of the Total Base Opportunity, which shall be deferred for the Deferral Performance Period, which is the three-year period from January 1, ~~2020~~2022 to December 31, ~~2022,~~2024, over which FHLBank applies a six percent compounding interest rate per year, as further described below, and becomes payable after the end of the Deferral Performance Period, subject to review by the Director of the FHFA. The Cash Incentive is the portion of the Total Base Opportunity that is not the Deferred Incentive and becomes payable after the end of the Base Performance Period upon achievement of established Performance Measures, subject to review by the Director of the FHFA.

Awards under the EICP may be granted for achievement of Performance Measures corresponding to achievement levels, from threshold, to target, to optimum performance for each goal metric. Threshold represents the minimum achievement level; target represents the expected achievement level; and optimum represents the achievement level that substantially exceeds the target level. Awards may be earned for performance attainment within these achievement levels as a percentage of base salary that corresponds to actual performance. For performance that falls between any two levels of achievement, linear interpolation is used to ensure that the award is consistent with the level of performance achieved. Named Executive Officers may earn annual awards expressed as a percent of their base salary at the beginning of the Performance Period. Table 6951 presents the Total Base Opportunity for each Named Executive Officer for each achievement level for the Base Performance Period:

Table 6951


Position	Total Base Opportunity
	Threshold		Target		Optimum
CEO	37.5	%	75.0	%	112.5	%
CFO and Former GC	30.0		60.0		90.0
CAO	27.5		55.0		82.5
CRO and CIO	25.0		50.0		75.0

Position Total Base Opportunity
Threshold Target Optimum
CEO 37.5 % 75.0 % 112.5 %
CCEO & General Counsel, CFO and CAO 27.5
55.0
82.5
CIO 25.0
50.0
75.0

The Total Base Opportunity Goal Metrics for ~~2019~~2021 are described in Table ~~70:~~52:

Table 70



Total Base Opportunity Goal Metric			Definition
Adjusted Return Spread on Total Regulatory Capital¹			The spread between: (a) adjusted net income divided by the daily average total regulatory capital and (b) the average daily Overnight Federal funds effective rate (Fed Effective).
GAAP Return Spread on Total Regulatory Capital			The spread between: (a) GAAP net income divided by the daily average total regulatory capital; and (b) the Fed Effective rate.
Adjusted Net Income after Capital Charge			The dollar amount of adjusted net income as defined in the above metric that exceeds the cost of the required return on capital.
GAAP Net Income after Capital Charge			The dollar amount of GAAP net income that exceeds the cost of the required return on capital.
Member Product Utilization			Member product utilization is defined as the weighted average ~~2019~~2021 attainment in member utilization in each of three product categories: (1) Overnight Line of Credit or advances; (2) MPF Program; and (3) Letters of Credit.
Diversity and Inclusion			FHLBank’s Diversity and Inclusion (D&I) initiative is defined as the advancement of D&I, to the maximum extent possible in balance with financially safe and sound business practices, through inclusion and utilization of diverse-owned ~~business~~businesses as vendors and the inclusion of diverse individuals within its workforce, as defined in the D&I Policy, in all business activities of FHLBank. ~~One point is~~Points are awarded ~~for~~by achievement ~~of each~~ of the following ~~(5 total points possible)~~(one point awarded for each): (1) attain a workforce ratio of at least 11.0 percent business partners of color as of 12/31/2019; (2) increase the number of viable diverse suppliers registered to do business with FHLBank in Supplier Gateway by 3 percent; (3) 80Culture: 85 percent of business partners attend one D&I Awareness ~~Activity; (4) 80~~Activity and one D&I Training Event; (2) Workforce: Attain a workforce ratio of at least 11.75 percent of business partners ~~complete one D&I Training;~~of color as of December 31, 2021; (3) Marketplace: Increase the number of viable and ~~(5) participate~~certified diverse suppliers in 15SupplierGATEWAY by 12; and (4) Marketplace: Participate in 10 outreach opportunities with diverse potential ~~diverse~~ directors and/or in Workforce, Vendors, Capital Markets and/or with members.
Risk Management – Market, Credit and Liquidity Risks			Management of FHLBank risks as determined by the weighted average rating by the board of directors in an annual evaluation of the Risk Appetite metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk categories are market, credit and liquidity risks.
Risk Management – Compliance, Business and Operations Risks			Management of FHLBank risks as determined by the weighted average rating by the board of directors in an annual evaluation of the Risk Appetite metrics in this area using a 1 (lowest) to 5 (highest) point scale. General risk categories are compliance, business and operations risks.

As part of evaluating our financial performance and measuring EICP performance, we begin with the components of “adjusted income” and “adjusted ROE,” non-GAAP financial measures defined in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.” We adjust net income reported in accordance with GAAP for the impact of: (1) AHP assessments (equivalent to an effective minimum income tax rate of 10 percent); (2) fair value changes on derivatives and hedging activities (excludes net interest settlements related to derivatives not qualifying for hedge accounting); (3) prepayment fees on terminated advances; and (4) other items excluded because they are not considered a part of our routine operations, such as gains/losses on retirement of debt, gains/losses on mortgage loans held for sale, and gains/losses on securities. For measuring our EICP performance, we further adjust for other items excluded because they are not considered a part of our routine operations or ongoing business model, such as interest expense on mandatorily redeemable capital stock, amortization of derivative option costs and amortization/accretion of premium/discount on unswapped MBS classified as trading. This resulting EICP adjusted income, also a non-GAAP financial measure of income, is used to compute an EICP adjusted ROE that is then compared to the average overnight Federal funds effective rate with the difference referred to as EICP adjusted ROE spread.

1 As part of evaluating our financial performance and measuring EICP performance, we begin with the components of “adjusted income” and “adjusted ROE,” non-GAAP financial measures defined in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.” We adjust net income reported in accordance with GAAP for the impact of: (1) AHP assessments (equivalent to an effective minimum income tax rate of 10 percent); (2) fair value changes on derivatives and hedging activities (excludes net interest settlements); and (3) unpredictable items, such as prepayment/yield maintenance fees, gains/losses on retirement of debt, gains/losses on mortgage loans held for sale, and gains/losses on securities. For measuring our EICP performance, we further adjust for other items excluded because they are not considered a part of our routine operations or ongoing business model, such as interest expense on mandatorily redeemable capital stock, amortization of derivative option costs and amortization/accretion of premium/discount on unswapped MBS classified as trading. This resulting EICP adjusted income, also a non-GAAP financial measure of income, is used to compute an EICP adjusted ROE that is then compared to the average overnight Federal funds effective rate with the difference referred to as EICP adjusted ROE spread.

The profit-oriented objectives of “Adjusted Return Spread on Total Regulatory Capital” and “Adjusted Net Income after Capital Charge” (non-GAAP financial measures) and ~~"GAAP~~“GAAP Return Spread on Total Regulatory ~~Capital"~~Capital” and ~~"GAAP~~“GAAP Net Income after Capital ~~Charge"~~Charge” were based on the belief that profitability is critical to the long-term viability of the organization. The ~~"Member~~“Member Product ~~Utilization"~~Utilization” objective reflects our desire to be our ~~members~~members’ preferred source of liquidity and funding for housing finance, community lending and financial management activities. We divided the member product objective to focus on Overnight Line of Credit or advances, the MPF Program, and Letters of Credit. The performance objective for “Diversity and Inclusion” establishes our commitment to ~~the advancement of~~advancing D~~&I awareness.~~&I. Finally, the “Risk Management” objectives were included in recognition of the impact that the Named Executive Officers have on management of business, compliance, credit, liquidity, market and operations risks and an effort to reward positive risk management performance as determined by the ~~Board~~board of ~~Directors.~~directors. We divided the risk management objectives to provide balance and focus in the amount of risk exposure we are willing to accept/retain in pursuit of stakeholder value.

The Total Base Opportunity available to Participants for the Financial Performance Goals shall be adjusted as reflected in Table 53 below if the daily average Total Regulatory Capital is below 4.75 percent for 2021. The Financial Performance Goals include the Adjusted Return Spread on Total Regulatory Capital, GAAP Return Spread on Total Regulatory Capital, Adjusted Net Income after Capital Charge, and GAAP Net Income after Capital Charge goals, which represent 40 percent of the Base Opportunity Metric Weights at Table 55.

Table 53


Daily Average Total Regulatory Capital			Financial Performance Goals Adjustment
≥4.75%			0%
≥4.70% and <4.75%			(25)%
≥4.65% and <4.70%			(50)%
≥4.60% and <4.65%			(75)%
<4.60%			(100)%

Award levels were set at Threshold, Target and Optimum percentages of annual base salary. Table 7154 sets forth the specific annual goal performance ranges, the actual achievement levels, and the incentive payout for each of our Total Base Opportunity Goal Metrics in ~~2019:~~2021:

Table 7154


Total Base Opportunity Goal Metrics	Annual Performance Range									Actual Achievement			Incentive Payout1
	Threshold			Target			Optimum
Adjusted Return Spread on Total Regulatory Capital	4.47		%	5.40		%	6.33		%	5.30		%	94.62	%
GAAP Return Spread on Total Regulatory Capital2	3.35		%	4.85		%	6.34		%	5.96		%	137.25	%
Adjusted Net Income after Capital Charge	$	94,760,000		$	118,449,000		$	142,139,000		$	122,817,589		109.22	%
GAAP Net Income after Capital Charge	$	74,623,000		$	106,604,000		$	138,585,000		$	140,441,327		150.00	%
Member Product Utilization - Overnight Line of Credit or advances	54.75		%	59.00		%	63.25		%	31.86		%
Member Product Utilization - MPF Program	21.50		%	23.00		%	24.50		%	24.34		%	36.17	%
Member Product Utilization - Letters of Credit	31.50		%	32.75		%	34.00		%	30.68		%
Diversity and Inclusion	Achieve 2 out of 4			Achieve 3 out of 4			Achieve 4 out of 4			4 of 4			150.00	%
Risk Management – Market, Credit and Liquidity Risks (5.0 point scoring scale)	4.00			4.50			5.00			4.28			78.00	%
Risk Management – Compliance, Business and Operations Risks (5.0 point scoring scale)	3.00			4.00			5.00			4.39			119.50	%
TOTAL WEIGHTED AVERAGE INCENTIVE PAYOUT													103.06	%

Total Base Opportunity Goal Metrics Annual Performance Range Actual Achievement Incentive Payout
Threshold Target Optimum
Adjusted Return Spread on Total Regulatory Capital 3.91 % 4.73 % 5.54 % 4.47 % 84.15 %
GAAP Return Spread on Total Regulatory Capital 3.51 % 4.73 % 5.94 % 5.21 % 119.83 %
Adjusted Net Income after Capital Charge $ 77,588,000
$ 96,985,000
$ 116,382,000
$ 95,753,535
96.83 %
GAAP Net Income after Capital Charge $ 67,889,000
$ 96,895,000
$ 126,080,000
$ 114,454,568
130.02 %
Member Product Utilization - Line of Credit or advances 66.00 % 70.50 % 75.00 % 61.69 % 66.38 %
Member Product Utilization - MPF Program 23.50 % 25.00 % 26.50 % 25.49 %
Member Product Utilization - Letters of Credit 28.00 % 30.50 % 33.00 % 32.96 %
Diversity and Inclusion Achieve 3 of 5 Achieve 4 of 5 Achieve 5 of 5 5
150.00 %
Risk Management – Market, Credit and Liquidity Risks (5.0 point scoring scale) 4.00
4.50
5.00
4.73
123.00 %
Risk Management – Compliance, Business and Operations Risks (5.0 point scoring scale) 3.00
4.00
5.00
4.09
104.50 %
TOTAL WEIGHTED AVERAGE INCENTIVE PAYOUT 106.78 %

1 If the actual achievement is Optimum or higher, the incentive payout is capped at 150.00 percent.

2 Annual performance ranges have been updated to reflect revisions approved by the board of directors to align the ranges with the original intent and will differ from those included in the 2021 Executive Incentive Compensation Plan Targets document filed as Exhibit 10.16 to the 2020 Form 10-K.

We believe the goals incorporated into the EICP are indicative of ~~FHLBank's~~our balanced approach to profitability and risk management. As reflected in Table ~~71,~~54, we ~~exceeded Threshold~~achieved near Target for the ~~profitability goals~~Adjusted Return Spread on Total Regulatory Capital goal and ~~further,~~ exceeded Target for the ~~two~~ GAAP ~~profitability~~Return Spread on Total Regulatory Capital and the Adjusted Net Income after Capital Charge goals. We achieved optimum for the GAAP Net Income after Capital Charge goal. For our Member Product Utilization goal, we exceeded Target for the MPF Program ~~and Letters of Credit components of the Member Product Utilization goal~~component, but were below Threshold for the Overnight Line of Credit or advances component and the Letters of Credit component. We exceeded ~~Target~~Threshold performance for ~~each~~Market, Credit and Liquidity component of the Risk Management goals and exceeded Target for the Compliance, Business and Operations component of the Risk goals. We achieved Optimum for the Diversity and Inclusion goal in ~~2019.~~2021.

Table 7255 provides the metric weight for each Total Base Opportunity Goal Metric as a percent of the Total Base Opportunity for each Named Executive Officer in ~~2019:~~2021:

Table 72



Performance Objective	Metric Weight
Adjusted Return Spread on Total Regulatory Capital	15	%
GAAP Return Spread on Total Regulatory Capital	5
Adjusted Net Income after Capital Charge	15
GAAP Net Income after Capital Charge	5
Member Product Utilization	10
Diversity and Inclusion	10
Risk Management - Market, Credit, and Liquidity	20
Risk Management - Compliance, Business, and Operations	20
TOTAL	100	%

Table 7356 presents the base salary, aggregate goal achievement, Total Base Opportunity, Cash Incentive and Deferred Incentive for each Named Executive Officer as calculated under the EICP for the Base Performance Period of January 1, ~~2019~~2021 to December 31, ~~2019~~2021 and the Deferral Performance Period, which is the three-year period from January 1, ~~2020~~2022 to December 31, ~~2022:~~2024:

Table 7356


Named Executive Officer	Base Salary		Incentive Percent of Base Salary		Total Base Opportunity		Cash Incentive¹		Deferred Incentive		Named Executive Officer	Base Salary		Incentive Percent of Base Salary		Total Base Opportunity		Cash Incentive1		Deferred Incentive
Mark E. Yardley, President & CEO	$	682,500	80.08	%	$	546,568	$	273,284	$	273,284	Mark E. Yardley, President & CEO	$	725,000	77.29	%	$	560,365	$	280,183	$	280,182
Patrick C. Doran, EVP, CCEO & General Counsel	402,100		58.73		236,144		118,072		118,072
William W. Osborn, SVP & CFO	373,000		58.73		219,055		109,528		109,527
Sonia R. Betsworth, SVP & CAO	324,200		58.73		190,395		95,198		95,197
Jeffrey B. Kuzbel, EVP & CFO											Jeffrey B. Kuzbel, EVP & CFO	430,000		61.83		265,884		132,942		132,942
Sonia R. Betsworth, EVP & CAO											Sonia R. Betsworth, EVP & CAO	335,000		56.68		189,880		94,940		94,940
Martin L. Schlossman, Jr., SVP & CRO											Martin L. Schlossman, Jr., SVP & CRO	328,500		51.53		169,269		84,635		84,634
Joe B. Edwards, SVP & CIO	306,750		53.39		163,770		81,885		81,885		Joe B. Edwards, SVP & CIO	318,000		51.53		163,859		81,930		81,929
Patrick C. Doran, Former GC											Patrick C. Doran, Former GC	289,435		61.83		178,968		89,484		89,484


¹	~~Cash Incentive is included as non-equity incentive plan compensation in Table 78 for all Named Executive Officers.~~

1 Cash Incentive is included as non-equity incentive plan compensation in Table 61 for all Named Executive Officers except for Mr. Doran. Mr. Doran's Cash Incentive is included as severance payments presented in the components of "All Other Compensation" in Table 62.

The final value of the Deferred Incentive portion of the Total Base Opportunity for the calendar year ~~2020~~2022 to calendar year ~~2022~~2024 is measured by applying a six percent interest credit, compounded annually, to the Deferred Incentive presented in Table ~~73,~~56, as long as FHLBank has an MVE of not less than 100 percent of TRCS outstanding, as of the last day of the Deferral Performance Period. We believe our long-term goals effectively motivate our Named Executive Officers to develop strategies and policies to achieve long-term growth and provide increased value to members while taking future risk into account.

For any Performance Period, an award will not be payable if we fail to achieve performance at or above the Performance Measure(s) set by the Compensation Committee. The Compensation Committee may, in its discretion, reduce or eliminate an award payable under the EICP under any of the following circumstances: (1) we receive a composite “4” or “5” rating in our FHFA examination in any single year in any single Base Performance Period or Deferral Performance Period; (2) the ~~Board~~board of ~~Directors~~directors finds a serious, material safety or soundness problem or a serious, material risk management deficiency exists, or if: (a) operational errors or omissions result in material revisions to the financial results, information submitted to the FHFA, or to data used to determine incentive payouts; (b) submission of material information to the SEC, Office of Finance, and/or FHFA is significantly past due; or (c) we fail to make sufficient progress, as determined by the ~~Board~~board of ~~Directors,~~directors, in the timely remediation of significant examination, monitoring or other supervisory findings; (3) during the most recent FHFA examination, the FHFA identified an unsafe or unsound practice or condition that is material to the financial operation of FHLBank within a Named Executive Officer’s area(s) of responsibility and such unsafe or unsound practice or condition is not subsequently resolved in favor of FHLBank by the last day of the Base Performance Period or Deferral Performance Period; or (4) a given participant does not achieve satisfactory individual achievement levels (as determined in the sole discretion of the Compensation Committee) during the Deferral Performance Period. Additionally, Deferred Incentive awards shall be reduced by one-third for each year during the Deferral Performance Period in which we have negative net income, as defined and in accordance with GAAP. As noted above, for Participants to be eligible to receive a Final Deferred Incentive Award, FHLBank must have an MVE of not less than 100 percent of FHLBank’s TRCS outstanding, as of the last day of the Deferral Performance Period.

Under the EICP Targets for the ~~2017-2019~~2019-2021 Deferral Performance Period, the achievement of base award opportunities is measured over a three-year performance period. The metric weight for the ~~2017-2019~~2019-2021 performance goals as a percent of the total EICP award opportunity for all Named Executive Officers and the ~~2017-2019~~2019-2021 goal achievement percentage is included in Table ~~74:~~57:

Table 7457


Objective	Metric Weight		2019-2021
			Goal Achievement Percentage
Total Return	50.0	%	125.00	%
MVE/Total Regulatory Capital	50.0		75.00
Overall Payout Percentage	100.0	%	100.00	%

Objective Metric Weight 2017-2019
Goal
Achievement Percentage
Total Return 50.0 % 125.00 %
MVE/Total Regulatory Capital 50.0
125.00
Overall Payout Percentage 100.0 % 125.00 %

Based on the performance results, Table 7558 presents the Final Deferred Incentive Award for the ~~2017-2019~~2019-2021 Deferral Performance Period for each Named Executive Officer:

Table 7558


Named Executive Officer	Deferred Incentive		Goal Achievement Percentage		Final Deferred Incentive Award¹		Named Executive Officer	Deferred Incentive		Goal Achievement Percentage		Final Deferred Incentive Award1
Mark E. Yardley, President & CEO	$	127,749	125.00	%	$	159,687	Mark E. Yardley, President & CEO	$	201,761	100.00	%	$	201,761
Patrick C. Doran, EVP, CCEO & General Counsel	109,758		125.00		137,198
William W. Osborn, SVP & CFO	103,500		125.00		129,375
Sonia R. Betsworth, SVP & CAO	71,769		125.00		89,712

Sonia R. Betsworth, EVP & CAO							Sonia R. Betsworth, EVP & CAO	82,008		100.00		82,008
Martin L. Schlossman, Jr., SVP & CRO2							Martin L. Schlossman, Jr., SVP & CRO2	78,024		100.00		78,024
Joe B. Edwards, SVP & CIO	85,808		125.00		107,260		Joe B. Edwards, SVP & CIO	69,208		100.00		69,208
Patrick C. Doran, Former GC							Patrick C. Doran, Former GC	101,725		100.00		101,725


¹	~~Final Deferred Incentive Award is included as non-equity incentive plan compensation in Table 78 for all Named Executive Officers.~~

1 The amount reflected is subject to Compensation Committee approval following completion of the calculation of award payable amounts and the non-disapproval of the FHFA and is included as non-equity incentive plan compensation in Table 61 for all Named Executive Officers except for Mr. Doran. Mr. Doran's Final Deferred Incentive Award is included as a severance payment presented in the components of “All Other Compensation” in Table 62.

2 The amount reflected for Mr. Schlossman, Jr. is based on the Non-NEO EICP for which the goal achievement percentage is the same as the NEO EICP for the 2019-2021 Deferral Performance Period.

A Named Executive Officer, in the discretion of the Compensation Committee, shall be required to forfeit an award earned under the EICP if the Named Executive Officer is: (1) terminated from employment with FHLBank for Cause as defined under the EICP; (2) engages in competition with FHLBank or interferes with the business relationships of FHLBank during his or her employment or for a period of one year following his or her termination; or (3) discloses confidential information of FHLBank.

Bonuses - On occasion, the Compensation Committee may elect to award a Named Executive Officer additional compensation in the form of a bonus in recognition of that Named Executive Officer's performance. ~~There were no such bonuses awarded~~In April 2021, Mr. Kuzbel, joined FHLBank as SVP and CFO and received a hiring bonus in the amount of $150,000 with the first $100,000 paid on April 15, 2021 in accordance with his offer letter, and the remaining $50,000 bonus to be paid on the first payroll date following completion of his first year of employment with FHLBank, subject to a ~~Named Executive Officer in 2019.~~clawback of the entire $150,000 bonus amount if Mr. Kuzbel’s employment with FHLBank ends within one year of the payment of the additional bonus.

Retirement and Other Benefits - In ~~2019,~~2021, we maintained a comprehensive retirement program for our eligible employees comprised of two qualified retirement plans: (1) the Pentegra Defined Benefit Plan for Financial Institutions, a tax-qualified multiple-employer defined-benefit plan (DB Plan);, which was hard frozen December 31, 2019; and (2) the ~~Pentegra Financial Institutions Thrift~~Federal Home Loan Bank of Topeka 401(k) Plan, a defined contribution retirement savings plan qualified under the Internal Revenue Code (IRC) for employees of FHLBank (DC Plan). In response to federal legislation, which imposed restrictions on the ~~pension~~retirement benefits payable to our executives, we subsequently established a third retirement plan, the Benefit Equalization Plan (BEP) in order to maintain the competitive level of our total compensation for executive officers, including the Named Executive Officers. Generally, the BEP is characterized as a non-qualified “excess benefit” plan, which restores those retirement benefits that exceed the IRC limits applicable to the qualified DB Plan and DC Plan. In this respect, the BEP is an extension of our retirement commitment to our Named Executive Officers and other eligible highly compensated employees that preserves and restores the full pension and thrift benefits that, due to IRC limitations, are not payable from the qualified pension plans.

DB Plan - The board of directors resolved, effective December 31, 2019, to: (1) freeze the DB Plan to discontinue the future accrual of new benefits under the DB Plan; and (2) revise the BEP to cease any further accrual of pension benefit under the BEP (as described further below).

Our DB Plan ~~covers~~covered all full-time employees of FHLBank as of January 1, 2009 who ~~have~~ met the eligibility requirements of: (1) attainment of age 21; (2) completion of twelve months of employment; and (3) employed by FHLBank as of December 31, 2008, including certain of the Named Executive Officers. Employees ~~are~~were not fully vested until they ~~have~~ completed five years of employment. The regular form of retirement benefits provides a single life annuity; a lump-sum payment or other additional payment options are also available to a limited degree for those Named Executive Officers who were employed prior to a plan change in 2003. The benefits are not subject to offset for social security or any other retirement benefits received. In ~~2019,~~2021, four of the Named Executive Officers (the CEO, ~~CCEO~~CAO, CRO, and ~~General Counsel, CFO, and CAO)~~the Former GC) participated in the DB Plan, which required no contribution from those four Named Executive Officers.

The DB Plan ~~provides~~made available a normal retirement benefit at or after age 65 where a Named Executive Officer participant has met the vesting requirement of completing five years of employment equal to 2.0 percent of his/her highest three-year average salary multiplied by his/her years of benefit service, up to 30 years. Two Named Executive Officer participants (Mr. Yardley and Ms. Betsworth) are eligible to receive benefits in excess of 2.0 percent because of a plan change in 2003. The amount in excess of 2.0 percent is a calculated “frozen add-on” determined at the time of the plan change. The formula for this “frozen add-on” is the old benefit formula as of August 31, 2003 minus the new benefit formula as of September 1, 2003. Earnings are defined as base salary plus overtime and bonuses, subject to an annual IRC Section 401(a)(17) limit of $280,000 on earnings for 2019. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit option selected. The annual IRC Section 415(b)(1)(A) benefit limit is $225,000 for 2019. Benefits are payable in the event of retirement, death, disability, or termination of employment if vested. Only the portion of the benefit accrued before September 1, 2003 is payable as a lump sum to employees who have attained age 50; otherwise, benefits are paid in installments.

Early retirement benefits are payable at a reduced rate. Upon termination of employment prior to age 65, Named Executive Officer participants meeting the 5-year vesting and age 45 early retirement eligibility criteria are entitled to an early retirement benefit. Each of the Named Executive Officers participating in the DB Plan is eligible for early retirement. The early retirement benefit amount is calculated by taking the normal retirement benefit amount and reducing it by 3.0 percent times the difference between the age of the early retiree and age 65. If the Named Executive Officer was employed prior to September 1, 2003 and his/her age and benefit service added together totaled 70 (Rule of 70), the normal retirement benefit amount would be reduced by 1.5 percent for each year between the age of the early retiree and age 65 for the portion of the normal retirement benefit accrued prior to September 1, 2003.

The measurement date used to determine the current year’s benefit obligation was December 31, 2019. The present value of the accrued benefit of the DB Plan, calculated through September 1, 2003, was valued at 50 percent of benefit value using the 2000 RP Mortality table (generational table for annuities) and 50 percent of benefit value using the 2000 RP Mortality table (statistical mortality table for lump sums), discounted to the current age of each Named Executive Officer at 3.22 percent interest. The present value of benefits accrued after September 1, 2003 is multiplied by a present value factor which uses the 2000 RP Mortality table (generational table for annuities) discounted to the current age of each Named Executive Officer at 3.22 percent. As of December 31, 2019, the actuary’s calculations utilized: (1) the projected unit credit valuation method; (2) the PRI-2012 white collar worker annuitant tables (with Scale MP-2019); and (3) a 3.00 percent discount rate as the primary assumptions attributable to valuation of benefits under the DB portion of the BEP (see "BEP" below).

The Board of Directors decided to hard freeze the DB Plan effective as of year-end 2019. Accordingly, benefits under the DB Plan cease accruing thereafter. Additionally, the Board of Directors decided to revise the BEP to cease any further accrual of pension benefit as provided in the BEP, and described further below, as of the same date.

DC Plan - The DC Plan is a tax-qualified, defined contribution ~~pension~~ plan. Substantially all officers and employees of FHLBank are covered by the plan. FHLBank contributes a matching amount equal to a percentage of voluntary employee contributions, subject to certain limitations (see ~~"BEP"~~“BEP” below).

All employees who have met the eligibility requirements can choose to participate in the DC Plan. We match employee contributions based on the length of service and the amount of an employee’s contribution. These employer contributions are immediately 100 percent vested. During ~~2019,~~2021, matching ratios for all employees, including the Named Executive Officers (with the exception of Mr. Kuzbel), under the DC Plan were as follows:



Year 1		No match
~~Year 1~~		~~No match~~
Years 2 through 3	100 percent match up to 34 percent of employee’s eligible compensation
Years 4 through 5		150 percent match up to 34 percent of employee’s eligible compensation
After 5 years		200 percent match up to 34 percent of employee’s eligible compensation

~~For an employee hired on or after January 1, 2009, we~~We also make a monthly basic contribution in an amount equal to two percent of ~~that employee's~~all employees’, including the Named Executive Officers’, monthly eligible ~~compensation.~~

~~Beginning January 1, 2020, we match up to four percent of an employee's eligible~~ compensation ~~using the previously mentioned matching ratios based on years~~after one year of service. ~~Additionally, beginning January 1, 2020, in conjunction with the DB Plan hard freeze, all employees receive a monthly basic contribution equal to two percent of eligible compensation.~~

BEP - The BEP is an unfunded, nonqualified supplemental executive retirement plan that permits Named Executive Officers and certain other participants in the BEP to defer compensation and to receive matching contributions ~~and pension accruals~~ that would otherwise have been made or accrued under FHLBank’s DC ~~Plan or DB~~ Plan, as appropriate, but for the limitations imposed by the IRC. Each of the Named Executive Officers are participants in the BEP. As part of Mr. Kuzbel's offer letter, he is eligible to receive an employer contribution of 10 percent as though he were a tenured employee of FHLBank.

The BEP allows the Named Executive Officers to receive a rate of return based on our return on equity calculated for EICP purposes for the previous year. For ~~2019,~~2021, the rate of return earned on the defined contribution portion of the BEP was ~~7.18~~4.73 percent, which was our 2020 return on equity calculated for EICP ~~purposes for 2018.~~purposes.

Named Executive Officers are at all times 100 percent vested in their defined contribution account balances of the BEP. In the event of unforeseen emergencies, they may request withdrawals equal to the lesser of the amounts necessary to meet their financial hardships or the amount of their account balances. As of December 31, ~~2019,~~2021, each of the Named Executive Officers would be entitled to receive his or her respective balance of compensation deferred through participation under the BEP within ninety days of any such Named Executive Officer’s termination of employment due to death, disability or retirement and upon a change in control as defined in the BEP and in accordance with IRC Section 409A and applicable regulations. For each Named Executive Officer, these amounts are listed in Table 8265 under the column titled “Aggregate Balance at Last FYE.”

As indicated above, the pension accrual benefit of the BEP ~~ceases~~ceased further accruals as of ~~year-end~~December 31, 2019.

Other benefits - We are also committed to providing competitive benefits designed to promote health and welfare for all employees (including their families), including the Named Executive Officers. We offer all employees a variety of benefits including insurance (medical, dental, vision, prescription drug, life, long-term disability and travel accident), short-term disability salary continuation, flexible spending accounts, health savings account, an employee assistance program and education benefits. The Named Executive Officers participate in these benefit programs on the same basis as all other eligible employees.

Perquisites - The ~~Board~~board of ~~Directors~~directors views limited perquisites afforded to the Named Executive Officers as an element of the total compensation program. Any perquisites provided, however, are not intended to materially add to any Named Executive Officer’s compensation package and, as such, are provided to them primarily as a convenience associated with their respective duties and responsibilities. Examples of ongoing perquisites that were provided to the Named Executive Officers in ~~2019~~2021 include cell phone reimbursement, limited spousal travel and limited club dues. As part of Mr. Kuzbel's offer letter, he was eligible to receive a relocation stipend and relocation benefits (plus a tax gross up). Total perquisites to ~~any single~~each Named Executive Officer ~~did not exceed $10,000.~~are presented in Table 62.

Potential payments upon termination or change in control

Severance Benefits - We provide severance benefits to the Named Executive Officers pursuant to our Executive Officer Severance Policy. The policy’s primary objective is to provide a level of protection to officers from loss of income during a period of unemployment. These officers are eligible to receive severance pay under the policy if we terminate the officer’s employment with or without cause, subject to certain limitations. These limitations include: (1) the officer voluntarily terminates employment, including as a result of disability or death; or (2) the officer’s employment is terminated by us for misconduct.

Provided the requirements of the policy are met and the Named Executive Officer provides us an enforceable release, Table 7659 presents the term and amounts that would have been payable to the Named Executive Officer under the Executive Officer Severance Policy as of December 31, ~~2019,~~2021, or other effective policy, absent a qualifying event that would result in payments under the Change in Control Plan (see ~~"Change~~“Change in Control ~~Plan"~~Plan” below):

Table 7659


Officer	Months	Severance Amount¹		COBRA²		Severance Total		Officer	Months	Severance Amount1		COBRA2		Severance Total
Mark E. Yardley	12	$	682,500	$	13,255	$	695,755	Mark E. Yardley	12	$	725,000	$	20,254	$	745,254
Patrick C. Doran	9	301,575		14,450		316,025
William W. Osborn	6	186,500		9,497		195,997
Jeffrey B. Kuzbel								Jeffrey B. Kuzbel	6	215,000		14,697		229,697
Sonia R. Betsworth	6	162,100		6,570		168,670		Sonia R. Betsworth	6	167,500		10,039		177,539
Joe B. Edwards	6	153,375		6,628		160,003
Martin L. Schlossman, Jr.								Martin L. Schlossman, Jr.	6	164,250		14,477		178,727
Joe B. Edwards3								Joe B. Edwards3	6	159,000		10,127		169,127


¹	~~Severance Amount equals the number of months of base salary as described under the Executive Officer Severance Policy.~~


²	~~COBRA equals the number of months of medical, dental and vision coverage cost as described under the Executive Officer Severance Policy.~~

1 Severance Amount equals the number of months of base salary as described under the Executive Officer Severance Policy.

2 COBRA equals the number of months of medical, dental and vision coverage cost as described under the Executive Officer Severance Policy.

3 Mr. Edwards retired on January 7, 2022; consequently, the Severance Policy was no longer applicable to Mr. Edwards as of that date.

The amounts above do not include accrued incentive plan payments as presented in the Summary Compensation Table; the aggregate balance of the DC Plan as presented in the Nonqualified Deferred Compensation Table; or the present value of accumulated benefits of the BEP as presented in the Pension Benefits Table.

Change in Control Plan - The Change in Control Plan provides that, upon both a change in control and the termination of a participant that qualifies as a Change in Control Termination, a participant will be entitled to a cash lump sum payment. A Change in Control means the occurrence of any of the following events, provided it shall not include any reorganization that is mandated by any Federal statute, rule, regulations or directive: (1) the merger, reorganization, or consolidation of FHLBank Topeka with or into another FHLBank or other entity; (2) the sale or transfer of all or substantially all of the business or assets of FHLBank Topeka to another FHLBank or other entity; (3) the purchase by FHLBank Topeka or transfer to FHLBank Topeka of substantially all of the business or assets of another FHLBank; (4) a change in the composition of the ~~Board~~board of ~~Directors,~~directors, as a result of one or a series of related transactions, that causes the combined number of member directors from the states of Colorado, Kansas, Nebraska and Oklahoma to cease to constitute a majority of the directors of FHLBank Topeka; or (5) the liquidation or dissolution of FHLBank Topeka. We provide for payments under a Change in Control to: (1) promote key employee loyalty and to assure continued dedication to FHLBank Topeka, notwithstanding the possibility, threat or occurrence of a Change in Control; and (2) to reduce the personal uncertainties to key employees who are vital to FHLBank Topeka's future success associated with a pending or possible Change in Control, and to encourage those key employees' continued dedication to FHLBank Topeka.

A Participant in the Change in Control Plan will receive in a cash lump sum, an amount that, when combined with any amount payable under an FHLBank severance policy, equals a compensation multiplier times the sum of: (1) the Participant’s then annualized base salary; and (2) an amount equal to the target Total Base Opportunity as reflected in FHLBank’s EICP Targets document for the year in which the change in control occurs. Participants at Tier 1 are subject to a compensation multiplier of 2.99, participants at Tier 2 are subject to a compensation multiplier of 2.0, and participants at Tier 3 are subject to a compensation multiplier of 1.0. A Participant is also eligible to receive the continuation of certain group health care benefits for a period of years equal to his or her compensation multiplier. The Compensation Committee approved the following Participants in the Change in Control Plan and their effective Tiers: CEO at Tier 1; ~~CCEO and General Counsel,~~CFO at Tier 2; ~~and CFO~~ and CAO at Tier 3.

Table 7760 represents the elements of potential payments upon a Change in Control and the total amount that would be payable to the participating Named Executive Officers as of December 31, ~~2019~~2021 subject to FHLBank’s Change in Control Plan, as currently in effect:

Table 7760


Officer	Severance Amount¹		Incentive²		COBRA³		Change in Control Total		Officer	Severance Amount1		Incentive2		COBRA3		Change in Control Total
Mark E. Yardley	$	2,040,675	$	1,530,506	$	39,766	$	3,610,947	Mark E. Yardley	$	2,167,750	$	1,625,813	$	60,763	$	3,854,326
Patrick C. Doran	804,200		442,310		38,532		1,285,042
William W. Osborn	373,000		205,150		18,995		597,145
Jeffrey B. Kuzbel									Jeffrey B. Kuzbel	860,000		516,000		58,787		1,434,787
Sonia R. Betsworth	324,200		178,310		13,140		515,650		Sonia R. Betsworth	335,000		184,250		20,079		539,329


¹	~~Compensation multiplier times the annual base salary at year end as described under the Change in Control Plan.~~


²	~~Compensation multiplier times target Total Base Opportunity reflected in the 2019 EICP Targets as described in under the Change in Control Plan.~~


³	~~COBRA equals the number of months of medical, dental and vision coverage cost as described under the Change in Control Plan.~~

1 Compensation multiplier times the annual base salary at year end as described under the Change in Control Plan.

2 Compensation multiplier times target Total Base Opportunity reflected in the 2021 EICP Targets as described in under the Change in Control Plan.

3 COBRA equals the number of months of medical, dental and vision coverage cost as described under the Change in Control Plan.

Why We Choose to Pay These Elements: We believe the Compensation Committee’s analyses described above provided an appropriate process to determine ~~2019~~2021 compensation levels for each Named Executive Officer that reasonably positions us to competitively manage our operations for success and to accomplish our mission.

The mix of compensation elements that comprised the total compensation of our Named Executive Officers in ~~2019~~2021 particularly allowed us to provide total compensation that we believe appropriately balanced reasonable guaranteed pay through carefully considered base salary determinations with additional at-risk cash compensation opportunities for the Named Executive Officers. This means that while we strived to match an appropriate level of compensation comparable to that reflected by our perceived peer groups and internal pay analysis through annual base salary and retirement benefits components, we also strived to provide a component of compensation that is at-risk in both the shorter term and the longer term. These at-risk awards represent an opportunity to reward our Named Executive Officers based on the achievement of both our annual and long-term performance goals and the discretion vested in our Compensation Committee.

FHFA Oversight: Section 1113 of the Recovery Act requires that the Director of the FHFA prevent an FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. In 2009, the FHFA issued an advisory bulletin establishing certain principles for executive compensation at the FHLBanks and the Office of Finance that include: (1) such compensation must be reasonable and comparable to that offered to executives in similar positions at comparable financial institutions; (2) such compensation should be consistent with sound risk management and preservation of the par value of FHLBank capital stock; (3) a significant percentage of an executive’s incentive based compensation should be tied to longer-term performance and outcome-indicators and be deferred and made contingent upon performance over several years; and (4) the ~~Board~~board of ~~Directors~~directors should promote accountability and transparency in the process of setting compensation. On January 28, 2014, the FHFA issued a final rule on executive compensation, which defines “reasonable” and “comparable” compensation and establishes the review and approval process for certain compensation payments and agreements.

The FHLBanks have been directed to provide all compensation actions affecting their Named Executive Officers to the FHFA for review.

Compensation, Human Resources and Inclusion Committee Report: The Compensation, Human Resources and Inclusion Committee of our ~~Board~~board of ~~Directors~~directors has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and discussions with management, the Compensation, Human Resources and Inclusion Committee has recommended to the ~~Board~~board of ~~Directors~~directors that the Compensation Discussion and Analysis be included in our annual report on Form 10-K.

The Compensation, Human Resources and Inclusion Committee

of the ~~Board~~board of ~~Directors~~directors

~~Richard S. Masinton,~~Thomas H. Olson, Jr., Chair

Milroy A. Alexander

Robert E. Caldwell, II

G. Bridger Cox

~~Holly Johnson~~Barry J. Lockard

~~Thomas H. Olson, Jr.~~Jeffrey R. Noordhoek

Mark W. Schifferdecker

Douglas E. Tippens

Table 7861 presents the Summary Compensation Table for the Named Executive ~~Officers.~~Officers for the years for which they represented Named Executive Officers of FHLBank.

Table 61


Name and Principal Position	Year	Salary		Bonus		Non-Equity Incentive Plan Compensation1		Change in Pension Value and Nonqualified Deferred Compensation Earnings2		All Other Compensation3		Total
Mark E. Yardley4	2021	$	725,000	$	—	$	481,944	$	407,337	$	105,952	$	1,720,233
President & CEO	2020	725,000		—		431,271		1,233,185		99,021		2,488,477
	2019	682,500		—		437,126		2,360,858		62,290		3,542,774
Jeffrey B. Kuzbel5 EVP & CFO	2021	322,500		125,000		132,942		619		161,543		742,604


Sonia R. Betsworth6	2021	335,000		—		176,948		17,490		44,207		573,645
EVP & CAO	2020	335,000		—		144,967		540,074		45,145		1,065,186
	2019	324,200		—		187,491		889,388		25,588		1,426,667
Martin L Schlossman, Jr.7 SVP & CRO	2021	328,500		—		162,659		4,211		42,668		538,038


Joe B. Edwards8	2021	318,000		—		151,138		6,615		32,446		508,199
SVP & CIO	2020	318,000		—		128,717		5,874		32,860		485,451
	2019	306,750		—		192,368		2,346		25,207		526,671
Patrick C. Doran9	2021	289,435		—		—		11,407		446,094		746,936
Former GC	2020	415,000		—		186,739		291,156		60,423		953,318
	2019	402,100		—		258,903		513,675		35,881		1,210,559

1 All compensation reported under “non-equity incentive plan compensation” represents performance awards earned pursuant to achievement of performance objectives under FHLBank’s EICP, subject to the approval of the Compensation Committee and not disapproved by the FHFA. The deferred compensation earned and the accrued component of the EICP for 2020 was reduced when paid in 2021, and the amounts in the table have been updated to reflect the actual amounts paid. The changes reflect immaterial corrections to represent actual amounts paid, which were paid in line with the final calculation of the performance metrics within the deferred incentive plan. The value decreased $91,804 from $523,075, $39,780 from $184,747, $42,797 from $171,514 and $55,392 from $242,131 for Mr. Yardley, Ms. Betsworth, Mr. Edwards and Mr. Doran, respectively.

2 The change in pension value will fluctuate with changes in discount rates used to calculate the present value of accumulated benefits and can result in decreases. However, per SEC rules, any net actuarial decreases in pension plan values have been excluded from this column. Nonqualified deferred compensation earnings include above market earnings attributable to the BEP, which are calculated by multiplying the nonqualified deferred compensation average balance of the applicable year by the average rate of return in excess of the long-term applicable Federal rate (120 percent compounded quarterly) published by the IRS.

3 The 2021 components of All Other Compensation are provided in Table 7862.

4 Above market earnings attributable to the BEP for Mr. Yardley were $56,337, $65,185, and $48,858 for 2021, 2020, and 2019, respectively. The aggregate change in the value of Mr. Yardley’s accumulated benefit under FHLBank’s DB Plan was $111,000, $383,000, and $406,000 for 2021, 2020, and 2019, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $240,000, $785,000, and $1,906,000 for 2021, 2020, and 2019, respectively.

5 Above market earnings attributable to the BEP for Mr. Kuzbel were $619 for 2021.

6 Above market earnings attributable to the BEP for Ms. Betsworth were $17,490, $19,074, and $13,388 for 2021, 2020, and 2019, respectively. The aggregate change in the value of Ms. Betsworth's accumulated benefit under FHLBank’s DB Plan was $(62,000), $361,000 and $470,000 for 2021, 2020, and 2019, respectively. The aggregate change in the value of her accumulated benefit under the defined benefit portion of the BEP was $(18,000), $160,000 and $406,000 for 2021, 2020, and 2019, respectively.

7 Above market earnings attributable to the BEP for Mr. Schlossman, Jr. was $4,211 for 2021. The aggregate change in the value of Mr. Schlossman, Jr.'s accumulated benefit under FHLBank’s DB Plan was $(51,000) for 2021. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $(16,000) for 2021.

8 Above market earnings attributable to the BEP for Mr. Edwards were $6,615, $5,874 and $2,346 in 2021, 2020, and 2019, respectively.

9 Above market earnings attributable to the BEP for Mr. Doran were $11,407, $15,196, and $10,675 for 2021, 2020, and 2019, respectively. The aggregate change in the value of Mr. Doran’s accumulated benefit under FHLBank’s DB Plan was $(22,000), $148,000 and $259,000 for 2021, 2020, and 2019, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $(13,000), $128,000, and $244,000 in 2021, 2020, and 2019, respectively. Mr. Doran ceased to serve as an executive officer on September 10, 2021 and is no longer an employee of FHLBank.

100

Name and Principal Position
Year Salary Bonus
Non-Equity Incentive Plan Compensation¹
Change in Pension Value and Nonqualified Deferred Compensation Earnings²
All Other Compensation³
Total
Mark E. Yardley⁴
2019 $ 682,500
$ —
$ 437,126
$ 2,360,858
$ 62,290
$ 3,542,774
President & CEO 2018 650,000
—
306,822
1,044,036
60,175
2,061,033
2017 550,000
—
355,720
1,297,561
58,773
2,262,054
Patrick C. Doran⁵
2019 402,100
—
258,903
513,675
35,881
1,210,559
EVP, CCEO & General 2018 388,500
—
202,515
129,384
33,855
754,254
Counsel 2017 357,500
50,000
213,443
324,590
36,455
981,988
William W. Osborn⁶
2019 373,000
—
241,950
409,268
29,047
1,053,265
SVP & CFO 2018 360,400
—
175,583
77,427
29,163
642,573
2017 330,500
—
188,557
251,542
28,521
799,120
Sonia R. Betsworth⁷
2019 324,200
—
187,491
889,388
25,588
1,426,667
SVP & CAO 2018 313,200
—
155,810
78,397
25,752
573,159
2017 286,250
1,450
159,570
525,768
24,036
997,074
Joe B. Edwards⁸
2019 306,750
—
192,368
2,346
25,207
526,671
SVP & CIO 2018 290,745
—
158,241
161
25,847
474,994
2017 274,875
—
175,554
—
20,447
470,876


¹	~~All compensation reported under “non-equity incentive plan compensation” represents performance awards earned pursuant to achievement of performance objectives under FHLBank’s EICP.~~

The change in pension value will fluctuate with changes in discount rates used to calculate the present value of accumulated benefits and can result in decreases. However, per SEC rules, any net actuarial decreases in pension plan values have been excluded from this column. Nonqualified deferred compensation earnings include above market earnings attributable to the BEP, which are calculated by multiplying the nonqualified deferred compensation average balance of the applicable year by the average rate of return in excess of the long-term applicable Federal rate (120 percent compounded quarterly) published by the IRS.


³	~~The 2019 components of All Other Compensation are provided in Table 79.~~

⁴

Above market earnings attributable to the BEP for Mr. Yardley were $48,858, $51,036, and $36,561 for 2019, 2018, and 2017, respectively. The aggregate change in the value of Mr. Yardley’s accumulated benefit under FHLBank’s DB Plan was $406,000, $(44,000), and $264,000 for 2019, 2018, and 2017, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $1,906,000, $1,037,000, and $997,000 for 2019, 2018, and 2017, respectively.

⁵

Above market earnings attributable to the BEP for Mr. Doran were $10,675, $10,384, and $6,590 for 2019, 2018, and 2017, respectively. The aggregate change in the value of Mr. Doran’s accumulated benefit under FHLBank’s DB Plan was $259,000, $12,000, and $157,000 for 2019, 2018, and 2017, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $244,000, $107,000, and $161,000 in 2019, 2018, and 2017, respectively.

⁶

Above market earnings attributable to the BEP for Mr. Osborn were $3,268, $2,427, and $542 for 2019, 2018, and 2017, respectively. The aggregate change in the value of Mr. Osborn's accumulated benefit under FHLBank’s DB Plan was $227,000, $2,000 and $132,000 for 2019, 2018, and 2017, respectively. The aggregate change in the value of his accumulated benefit under the defined benefit portion of the BEP was $179,000, $73,000 and $119,000 for 2019, 2018, and 2017, respectively.

⁷

Above market earnings attributable to the BEP for Ms. Betsworth were $13,388, $13,397, and $7,768 for 2019, 2018, and 2017, respectively. The aggregate change in the value of Ms. Betsworth's accumulated benefit under FHLBank’s DB Plan was $470,000, $(119,000), and $280,000 for 2019, 2018, and 2017, respectively. The aggregate change in the value of her accumulated benefit under the defined benefit portion of the BEP was $406,000, $184,000, and $238,000 for 2019, 2018, and 2017, respectively.


⁸	~~Above market earnings attributable to the BEP for Mr. Edwards were $2,346 and $161 in 2019 and 2018, respectively.~~

Table 7962 presents the components of “All Other Compensation” for ~~2019~~2021 as summarized in Table ~~78.~~61.

Table 62


Named Executive Officer	Perquisites and Personal Benefits1		Gross-ups for Taxes		Life Insurance Premiums		Long Term and Individual Disability Premiums		FHLBank Contribution to DC Plan		FHLBank Contribution to Defined Contribution Portion of BEP		Severance Payments		Other Miscellaneous		Total All Other Compensation
Mark E. Yardley	$	—	$	—	$	855	$	8,912	$	29,000	$	66,871	$	—	$	314	$	105,952
Jeffrey B. Kuzbel	127,367		261		368		1,492		—		30,458		—		1,597		161,543
Sonia R. Betsworth	—		—		573		697		17,719		23,701		—		1,517		44,207
Martin L. Schlossman, Jr.	—		—		562		683		18,018		21,892		—		1,513		42,668
Joe B. Edwards	—		—		544		661		29,000		1,927		—		314		32,446
Patrick C. Doran2	—		—		533		4,157		26,812		16,026		398,252		314		446,094

~~Table 79~~1 Perquisites and personal benefits are only included if more than $10,000 in aggregate for an individual. Perquisites and personal benefits for Mr. Kuzbel consist of an upfront relocation stipend of $25,000, additional relocation support of $98,931 and spousal travel of $3,436.

2 Severance payments for Mr. Doran represent salary continuation benefit payments of $125,564, $49,557 in health care benefits, an accrued vacation payout of $31,922, a non-equity incentive plan - cash incentive accrual of $89,484, and a deferred incentive accrual of $101,725, paid or accrued in accordance with his severance agreement.

Named Executive Officer
Life Insurance Premiums
Long Term and Individual Disability Premiums
FHLBank Contribution to DC Plan
FHLBank Contribution to Defined Contribution Portion of BEP
Other Miscellaneous
Total All Other Compensation
Mark E. Yardley $ 855
$ 8,281
$ 16,403
$ 36,256
$ 495
$ 62,290
Patrick C. Doran 681
4,758
16,800
13,430
212
35,881
William W. Osborn 631
762
15,531
12,123
—
29,047
Sonia R. Betsworth 549
667
8,973
15,399
—
25,588
Joe B. Edwards 516
627
24,064
—
—
25,207

Table 8063 presents the Grants of Plan Based Awards Table for the Named Executive Officers.

Table 8063


Name	Plan	Estimated Future Payouts Under Non‑Equity Incentive Plan Awards¹						Name	Plan	Estimated Future Payouts Under Non‑Equity Incentive Plan Awards1
		Threshold		Target		Optimum				Threshold		Target		Optimum
Mark E. Yardley	EICP-Cash Incentive	$	127,969	$	255,938	$	383,907	Mark E. Yardley	EICP-Cash Incentive	$	135,938	$	271,875	$	407,813
President & CEO	EICP-Deferred Incentive Opportunity	127,969		255,937		383,906		President & CEO	EICP-Deferred Incentive Opportunity	135,937		271,875		407,812
Patrick C. Doran	EICP-Cash Incentive	55,289		110,578		165,867
EVP, CCEO & General Counsel	EICP-Deferred Incentive Opportunity	55,289		110,577		165,866
William W. Osborn	EICP-Cash Incentive	51,288		102,575		153,863
SVP & CFO	EICP-Deferred Incentive Opportunity	51,287		102,575		153,862
Jeffrey B. Kuzbel2								Jeffrey B. Kuzbel2	EICP-Cash Incentive	64,500		129,000		193,500
EVP & CFO								EVP & CFO	EICP-Deferred Incentive Opportunity	64,500		129,000		193,500
Sonia R. Betsworth	EICP-Cash Incentive	44,578		89,155		133,733		Sonia R. Betsworth	EICP-Cash Incentive	46,063		92,125		138,188
SVP & CAO	EICP-Deferred Incentive Opportunity	44,577		89,155		133,732
EVP & CAO								EVP & CAO	EICP-Deferred Incentive Opportunity	46,062		92,125		138,187
Martin L. Schlossman, Jr.								Martin L. Schlossman, Jr.	EICP-Cash Incentive	41,063		82,125		123,188
SVP & CRO								SVP & CRO	EICP-Deferred Incentive Opportunity	41,062		82,125		123,187
Joe B. Edwards	EICP-Cash Incentive	38,344		76,688		115,032		Joe B. Edwards	EICP-Cash Incentive	39,750		79,500		119,250
SVP & CIO	EICP-Deferred Incentive Opportunity	38,344		76,687		115,031		SVP & CIO	EICP-Deferred Incentive Opportunity	39,750		79,500		119,250
Patrick C. Doran3								Patrick C. Doran3	EICP-Cash Incentive	43,416		86,831		130,246
Former GC								Former GC	EICP-Deferred Incentive Opportunity	43,415		86,831		130,246



Federally chartered corporation of the United States						48-0561319
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
500 SW Wanamaker Road Topeka, KS						66606
(Address of principal executive offices)						(Zip Code)



			Shares outstanding as of
			~~March 13, 2020~~February 28, 2022
Class A Stock, par value $100 per share			~~4,524,494~~3,549,630
Class B Stock, par value $100 per share			~~13,099,122~~14,716,757



PART I		56
Item 1.	Business	56
Item 1A.	Risk Factors	2420
Item 1B.	Unresolved Staff Comments	3128
Item 2.	Properties	3128
Item 3.	Legal Proceedings	3128
Item 4.	Mine Safety Disclosures	3128
PART II		3128
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3128
Item 6.	~~Selected Financial Data~~[Reserved]	32
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3429
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	8374
Item 8.	Financial Statements and Supplementary Data	9079
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	9179
Item 9A.	Controls and Procedures	9279
Item 9B.	Other Information	9279
~~PART III~~Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	9280
Item 11.	Executive Compensation	9886
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~116~~104
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~117~~105
Item 14.	Principal ~~Accounting~~Accountant Fees and Services	~~119~~107
PART IV
Item 15.	Exhibits, Financial Statement Schedules	~~119~~109
Item 16.	Form 10-K Summary	~~121~~110



~~Product Name~~	~~Size of~~ ~~FHLBank’s FLA~~	~~PFI CE Obligation Description~~	~~CE Fee~~ ~~Paid to PFI~~	~~CE Fee Offset~~¹	~~Servicing Fee~~ ~~to PFI~~²
~~MPF Original~~	~~4 basis points (bps) per year against unpaid balance, accrued monthly~~	~~Greater of aggregate sum of the loan level credit enhancements (LLCEs) or one percent of gross fundings~~	~~10 bps per year, paid monthly based on remaining UPB; guaranteed~~³	No	~~25 bps per year, paid monthly~~
~~MPF 100~~⁴	~~100 bps fixed based on gross fundings~~	~~Aggregate sum of the LLCEs less FLA~~	~~7 to 10 bps per year, paid monthly based on remaining UPB; performance-based after 3 years~~	~~Yes; after first 3 years, to the extent recoverable in future periods~~	~~25 bps per year, paid monthly~~
~~MPF 125~~	~~100 bps fixed based on gross fundings~~	~~Greater of aggregate sum of the LLCEs less FLA or 25 bps~~	~~7 to 10 bps per year, paid monthly based on remaining UPB; performance-based~~	~~Yes; to the extent recoverable in future periods~~	~~25 bps per year, paid monthly~~
~~MPF Plus~~⁵	~~Sized to equal expected losses~~	~~0 to 20 bps after FLA and SMI~~	~~7 bps per year plus 6 to 7 bps per year, performance-based (delayed for 1 year); all fees paid monthly based on remaining UPB~~	~~Yes; to the extent recoverable in future periods~~	~~25 bps per year, paid monthly~~
~~MPF Xtra~~	~~N/A~~	~~N/A~~	~~N/A~~	~~N/A~~	~~25 bps per year, paid monthly~~
~~MPF Government~~	~~N/A~~	~~N/A (unreimbursed servicing expenses only)~~	~~N/A~~⁶	~~N/A~~	~~44 bps per year, paid monthly~~
~~MPF Government MBS~~	~~N/A~~	~~N/A (unreimbursed servicing expenses only)~~	~~N/A~~	~~N/A~~	~~Based on note rate~~
~~MPF Direct~~	~~N/A~~	~~N/A~~	~~N/A~~	~~N/A~~	~~Servicing released only~~



~~Product Name~~	~~FLA~~	~~CE Obligation Calculation~~
~~MPF Original~~	~~4 bps x unpaid principal, annually~~¹	~~(LLCE~~² ~~x PSF~~³~~) x Gross Fundings~~
~~MPF 100~~	~~100 bps x loan funded amount~~	~~((LLCE x PSF) - FLA) x Gross Fundings~~
~~MPF 125~~	~~100 bps x loan funded amount~~	~~((LLCE x PSF) - FLA) x Gross Fundings~~
~~MPF Plus~~	~~5 x variable CE Fee~~	~~(LLCE x PSF) - FLA - SMI~~⁴ ~~= PCE~~⁵



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A


•	~~The volume and quality of eligible mortgage loans originated and sold by participating members to FHLBank through its various mortgage finance products (Mortgage Partnership Finance~~^® ~~(MPF~~^®~~) Program). “Mortgage Partnership Finance,” “MPF,” “MPF Xtra,” and “MPF Direct” are registered trademarks of FHLBank Chicago.~~


▪	Line of credit advances are variable rate, non-amortizing, prepayable, revolving line products that provide an alternative to the purchase of Federal funds, brokered deposits or repurchase agreement borrowings;


▪	~~Short-term fixed rate advances are non-amortizing, non-prepayable loans with terms to maturity from 3 to 93 days;~~


▪	~~Regular fixed rate advances are non-amortizing loans, prepayable potentially with a fee, with terms to maturity from 94 days to 360 months;~~


▪	Symmetrical fixed rate advances are non-amortizing loans with terms to maturity from 94 days to 360 months, prepayable with a fee, but the borrower also has the contractual ability to realize a gain from the market movement of interest rates upon prepayment;


▪	Callable advances can have a fixed or variable rate of interest for the term of the advance and contain an option(s) that allows for the prepayment of the advance without a fee on specified dates, with terms to maturity of 12 to 360 months for fixed rate loans or terms to maturity of 4 to 180 months for variable rate loans;


▪	Amortizing advances are fixed rate loans with terms to maturity of 12 to 360 months, prepayable with a fee, that contain a set of predetermined principal payments to be made during the life of the advance;


▪	~~Forward settling advance commitments lock in the rate and term of future funding of regular and amortizing fixed rate advances up to 24 months in advance;~~


▪	Member option advances are fixed rate advances with terms from 12 to 360 months that provide the member with an option to prepay without a fee at specific intervals throughout the life of the advance and are issued at a discount to reflect the cost of that option;


▪	Structured advances are other advance types (e.g., regular fixed rate, callable, amortizing or adjustable rate) with terms from 12 to 180 months with an embedded interest rate cap, floor, or collar; and


▪	~~Standby credit facilities are variable rate, non-amortizing, prepayable, revolving standby credit lines that provide the ability to draw advances after normal cutoff times.~~


▪	~~Fully disbursed, whole first mortgages on 1-4 family residential property or securities representing a whole interest in such mortgages;~~


▪	Securities issued and guaranteed or insured by the U.S. government, U.S. government agencies and mortgage GSEs including, without limitation, MBS issued or guaranteed by Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) or Government National Mortgage Association (Ginnie Mae);


▪	Other acceptable real estate-related collateral, provided such collateral has a readily ascertainable market value and we can perfect a security interest in such property (e.g., privately issued collateralized mortgage obligations (CMOs), mortgages on multifamily residential real property, second mortgages on 1-4 family residential property, mortgages on commercial real estate); or


▪	~~In the case of any CFI, secured loans to small business, small farm and small agri‑business or securities representing a whole interest in such secured loans.~~


▪	Mortgage characteristics: MPF loans must be qualifying 5- to 30-year conforming conventional, fixed rate, fully amortizing mortgage loans, secured by first liens on owner-occupied 1- to 4-unit single-family residential properties and single-unit second homes.


▪	Documentation and compliance: Mortgage documents and transactions are required to comply with all applicable laws. MPF mortgage loans are documented using standard Fannie Mae/Freddie Mac uniform instruments.


▪	Government loans: Government mortgage loans sold under the MPF Program have substantially the same parameters as conventional MPF mortgage loans except that their LTVs may not exceed the LTV limits set by the applicable government agency and they must meet all requirements to be insured or guaranteed by the applicable government agency.


²	The PFI has the option of retaining or selling the servicing on all MPF products except MPF Direct. If the servicing is sold (servicing released), the PFI will receive an upfront servicing released premium as opposed to receiving servicing fees over time.


³	~~The credit enhancement paid upfront when the mortgage loan is purchased is based upon the present value of the monthly CE fee payments, with consideration for expected prepayments.~~


⁴	~~The MPF 100 product is currently inactive due to regulatory requirements relating to loan originator compensation under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).~~


⁵	~~Due to higher costs associated with the acquisition of supplemental insurance policies, the MPF Plus product is currently not active.~~


⁶	~~Two government master commitments have been grandfathered and paid 2 bps per year. All other government master commitments are not paid a CE fee.~~


¹	~~Starts at zero and increases monthly over the life of the master commitment.~~


²	~~LLCE represents the sum of the loan level credit enhancement amounts of the loans sold into the pool of loans covered by the master commitment agreement.~~


³	~~The S&P Level’s Pool Size Factor (PSF) is applied at the MPF FHLBank level against the total of loans in portfolio.~~


⁵	~~PCE represents the CE obligation that the PFI elects to retain rather than covering with SMI. Under this MPF product, the retained amount can range from 0 to 20 bps.~~


▪	~~Instruments, such as common stock, that represent ownership in an entity, other than stock in small business investment companies or certain investments targeted to low-income persons or communities;~~


▪	~~Instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks;~~