Our original MPP, which we ceased offering for conventional loans in November 2010, relied on credit enhancement from LRA and SMI to achieve an implied credit rating of at least AA based on an NRSRO model in compliance with Finance Agency regulations. In November 2010, we began offering MPP Advantage for new conventional MPP loans, which utilizes an enhanced fixed LRA for additional credit enhancement, resulting in an implied credit rating of at least BBB, consistent with Finance Agency regulations, instead of utilizing coverage from an SMI provider. The only substantive difference between the two programs is the credit enhancement structure. For both the original MPP and MPP Advantage, the funds in the LRA are established in an amount sufficient to cover expected losses in excess of the borrower's equity and PMI, if any, and used to pay losses on a pool basis.

Credit losses on defaulted mortgage loans in a pool are ~~paid from~~absorbed by these sources, until they are exhausted, in the following order:

•borrower's equity;

•PMI, if applicable;

•LRA;

•SMI, if applicable; and

•our Bank.

LRA. We use either a "spread LRA" or a "fixed LRA" for credit enhancement. The spread LRA is used in combination with SMI for credit enhancement of conventional mortgage loans purchased under our original MPP, and the fixed LRA is used for all acquisitions of conventional mortgage loans under ~~MPP Advantage.~~Advantage MPP.

•Original MPP. The spread LRA is funded through a reduction to the net yield earned on the loans, and the corresponding purchase price paid to the PFI reflects our reduced net yield. The LRA for each pool of loans is funded monthly at an annual rate ranging from 6 to 20 bps, depending on the terms of the MCC, and is used to pay loan loss claims or is held until the LRA accumulates to a required "release point." The release point is 20 to 85 bps of the then outstanding principal balances of the loans in that pool, depending on the terms of the original contract. If the LRA exceeds the required release point, the excess amount is eligible for return to the PFI(s) that sold us the loans in that pool, generally subject to a minimum five-year lock-out period after the pool is closed to acquisitions.

~~MPP Advantage.~~ •Advantage MPP. The LRA for Advantage MPP ~~Advantage~~ differs from our original MPP in that the funding of the fixed LRA occurs at the time we acquire the loan and is based on the principal amount purchased. Depending on the terms of the MCC, the LRA funding amount varies between 110 bps and 120 bps of the principal amount. LRA funds not used to pay loan losses may be returned to the PFI subject to a ~~release~~retention schedule detailed in each MCC based on the original LRA amount. NoPer the retention schedule, no LRA funds are returned to the PFI for the first five years after the pool is closed to acquisitions. We absorb any losses in excess of available LRA funds.

SMI. For pools of loans acquired under our original MPP, we have credit protection from loss on each loan, where eligible, through SMI, which provides insurance to cover credit losses to approximately 50% of the property's original value, depending on the SMI contract terms, and subject, in certain cases, to an aggregate stop-loss provision in the SMI policy. Some MCCs that equal or exceed a contract amount of $35 million of total initial principal ~~to be sold on a "best-efforts" basis~~ include an aggregate loss/benefit limit or "stop-loss" that is equal to the total initial principal balance of loans under the MCC multiplied by the stop-loss percentage (ranges from 200 - 400 bps), as is then in effect, and represents the maximum aggregate amount payable by the SMI provider under the SMI policy for that pool. Even with the stop-loss provision, the aggregate of the LRA and the amount payable by the SMI provider under an SMI stop-loss contract will be equal to or greater than the amount of credit enhancement required for the pool to have an implied NRSRO credit rating of at least AA at the time of purchase. Non-credit losses, such as uninsured property damage losses that are not covered by the SMI, can be recovered from the LRA to the extent that there are releasable LRA funds available. We absorb any non-credit losses greater than the available LRA. We do not have SMI coverage on loans purchased under ~~MPP Advantage.~~Advantage MPP.

Pool Aggregation. We offer pool aggregation under our MPP. Our pool aggregation program is designed to reduce the credit enhancement costs to small and mid-size PFIs. ~~PFIs~~Under pool aggregation, a PFI's loans are ~~allowed to pool their loans~~pooled with similar ~~pools of~~ loans originated by other PFIs to create aggregate pools of approximately $100 million original UPB or greater. The combination of small and mid-size PFIs' loans into one pool also assists in the evaluation of the amount of LRA needed for the overall credit enhancement.

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Conventional Loan Pricing. We consider the cost of the credit enhancement (LRA and SMI, if applicable) when we formulate conventional loan pricing. Each of these credit enhancement structures is accounted for, not only in our expected return on acquired mortgage loans, but also in the risk review performed during the accumulation/pooling process. ~~The pricing of each structure is dependent on a number of factors and is specific to the PFI or group of PFIs.~~

We typically receive a 0.25% fee on cash-out refinancing transactions with LTVs between 75% and 80%. Our current guidelines do not allow cash-out refinance loans above 80% LTV. We also adjust the market price we pay for loans depending upon market conditions. We continue to evaluate the scope and rate of such fees as they evolve in the industry. We do not pay a PFI any fees other than the servicing fee when the PFI retains the servicing rights.

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Servicing. We do not service the mortgage loans we purchase. PFIs may elect to retain servicing rights for the loans sold to us, or they may elect to sell servicing rights to an MPP-approved servicer.

Those PFIs that retain servicing rights receive a monthly servicing fee and may be required to undergo a review by a third-party quality control contractor that advises the PFIs of any deficiencies in servicing procedures or processes and then notifies us so that we can monitor the PFIs' performance. The PFIs that retain servicing rights can sell those rights at a later date with our approval. ~~Servicing activities, whether retained or released, are subject to review by our master servicer, BNY Mellon.~~ If we deem servicing to be inadequate, we can require that the servicing of those loans be transferred to a servicer that is acceptable to us.

The servicers are responsible for all aspects of servicing, including, among other responsibilities, the administration of any foreclosure and claims processes from the date we purchase the loan until the loan has been fully satisfied. Our MPP was designed to require loan servicers to foreclose and liquidate in the servicer's name rather than in our name. As the servicer progresses through the process from foreclosure to liquidation, we are paid in full for all unpaid principal and accrued interest on the loan through the normal remittance process.

It is the servicer's responsibility to initiate ~~loss~~ claims for losses on the loans. ~~No payments from~~If a loss is expected, no claims are settled until we have reviewed and approved the ~~LRA (other than excess amounts released to the PFI over a period of time in accordance with each MCC) or SMI are made prior to the claims process.~~claim. For loans that are credit-enhanced with SMI, if it is determined that a loss is ~~covered,~~covered, the SMI provider pays the claim in full and seeks reimbursement from the LRA funds. The SMI provider is entitled to reimbursement for credit losses from funds available in the LRA that are equal to the aggregate amounts contributed to the LRA less any amounts paid for previous claims and any amounts that have been released to the PFI from the LRA or paid to us to cover prior claims. If the LRA has been depleted but is still being funded, based on our contractual arrangement, we and/or the SMI provider are entitled to reimbursement from those funds as they are received, up to the full reimbursable amount of the claim. These claim payments would be reflected as additional deductions from the LRA as they were paid. ~~See~~ For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk Management - Mortgage Loans Held for Portfolio - MPP~~for additional information.~~.

Housing ~~Goals~~. Goals.TheBank Act requires the Finance Agency to establish low-income housing goals for mortgage purchases. ~~Under its housing goals regulation, the~~The Finance Agency ~~may establish low-income housing~~issued a final FHLBank Housing Goals rule in 2020. The rule establishes two goals for ~~FHLBanks~~any FHLBank that ~~acquire,~~acquires mortgages in ~~any calendar year, more than $2.5 billion of conventional mortgages through~~ an AMA ~~program.~~program during a year: (i) a prospective target of 20% of the number of an FHLBank’s total AMA mortgage purchases for its purchases of mortgage loans to very low-income families, low-income families, or families in low-income areas; and (ii) a separate small-member participation housing goal with a target level of 50% of an FHLBank’s total AMA users. The rule provides that an FHLBank may request Finance Agency approval of alternative target levels for either or both of these goals. If we ~~exceed this volume threshold and~~ fail to meet ~~any affordable housing~~one or both goals, ~~established by the Finance Agency that were determined by the Director to have been feasible,~~ we may be required to submit a housing plan to the Finance Agency.

~~In 2016~~ The rule took effect August 24, 2020, and ~~2015, our conventional mortgage purchase volume exceeded $2.5 billion. The~~enforcement will phase in through December 31, 2023. During the phase-in period, the Finance Agency ~~determined with respect to those two years, however, that it would~~will monitor and report our housing goals performance, but will not ~~require us to submit~~impose a housing plan ~~which could otherwise have been required under~~remedy if we fail to meet either or both of the ~~regulation.~~housing goal target levels.

Funding Sources

The primary source of funds for each of the FHLBanks is the sale of consolidated obligations, which consist of CO bonds and discount notes. The Finance Agency and the United States Secretary of the Treasury oversee the issuance of this debt in the capital markets. Finance Agency regulations govern the issuance of debt on our behalf and authorize us to issue consolidated obligations through the Office of Finance, under Section 11(a) of the Bank Act. No FHLBank is permitted to issue individual debt without the approval of the Finance Agency.

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While the primary liability for consolidated obligations issued to provide funds for a particular FHLBank rests with that FHLBank, consolidated obligations are the joint and several obligations of all of the FHLBanks under Section 11(a). Although each FHLBank is a GSE, consolidated obligations are not obligations of, and are not guaranteed by, the United States government. Consolidated obligations are backed only by the financial resources of all of ~~the FHLBanks. Our consolidated obligations~~the FHLBanks and are rated Aaa by Moody's and AA+ by S&P.

Consolidated Obligation Bonds. CO bonds satisfy term funding requirements and are issued with a variety of maturities and terms under various programs. The maturities of these securities may range from 43 months to 30 years,but the maturities are not subject to any statutory or regulatory limit. CO bonds can be ~~fixed~~fixed- or ~~adjustable rate~~adjustable-rate and callable or non-callable. Those issued with adjustable-rate payment terms use a variety of indices for interest rate resets, including LIBOR, ~~Federal Funds,~~EFFR, United States Treasury Bill, Constant Maturity Swap, Prime Rate, SOFR, and others. CO bonds are issued and distributed through negotiated or competitively bid transactions with approved underwriters or selling group members.

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Consolidated Obligation Discount Notes. We also issue discount notes to provide short-term funds. These securities can have maturities that range from one day to one year, and are offered daily through a discount note selling group and other authorized securities dealers. Discount notes are generally sold below their face values and are redeemed at par when they mature.

Office of Finance. The issuance of consolidated obligations is facilitated and executed by the Office of Finance, which also services all outstanding debt, provides information on capital market developments to the FHLBanks, and manages our relationship with the NRSROs with respect to consolidated obligations. The Office of Finance also prepares and publishes the FHLBanks' combined quarterly and annual financial reports.

As the FHLBanks' fiscal agent for debt issuance, the Office of Finance can control the timing and amount of each issuance. Through its oversight of the United States financial markets, the United States Treasury can also affect debt issuance for the FHLBanks. ~~See~~ For more information, see Item 1. Business - Supervision and Regulation - Government Corporations Control Act ~~for additional information.~~.

Affordable Housing Programs, Community Investment and ~~Affordable Housing Programs~~Small Business Grants

Each FHLBank is required to set aside 10% of its annual net earnings before interest expense on MRCS to fund its AHP, subject to an annual FHLBank System-wide minimum of $100 million. If the FHLBanks' aggregate 10% contribution were less than $100 million, each FHLBank would be required to contribute an additional pro-rata amount. The proration would be based on the net earnings of each FHLBank in relation to the net earnings of all FHLBanks for the previous year, up to the Bank's annual net earnings. The FHLBanks' aggregate contribution exceeded the minimum of $100 million in 2021 and 2020.

If we determine that our required AHP contributions are adversely affecting our financial stability, we may apply to the Finance Agency for a temporary suspension of our contributions. We did not file an application in 2021 or 2020.

Through our AHP, we may provide cash grants or interest subsidies on advances to our members, which are, in turn, provided to awarded projects or qualified individuals to finance the purchase, construction, or rehabilitation of very low- to moderate-income owner-occupied or rental housing. Our AHP includes the following:

•Competitive Program, which is the primary grant program to finance the purchase, construction or rehabilitation of housing for individuals with incomes at or below 80% of the median income for the area, and to finance the purchase, construction, or rehabilitation of rental housing, with at least 20% of the units occupied by, and affordable for, very low-income households. Each year, 65% of our annual available AHP funds are granted through this program. AHP-related advances, of which none were outstanding at December 31, 2021 or 2020, are also part of this program.

•Set-Aside Programs, which include 35% of our annual available AHP funds, are administered through the following:


◦	~~Homeownership Opportunities Program, which provides assistance with down payments and closing costs to first-time homebuyers;~~


◦	~~Neighborhood Impact Program, which provides rehabilitation assistance to homeowners to help improve neighborhoods;~~


◦	Accessibility Modifications Program, which provides funding for accessibility modifications and minor home rehabilitation for eligible senior homeowners or owner-occupied households with one or more individuals having a permanent disability; and


◦	Disaster Relief Program, which may be activated at our discretion in cases of federal or state disaster declarations for rehabilitation or down payment assistance targeted to low- or moderate-income homeowner disaster victims.

◦Homeownership Opportunities Program, which provides assistance with down payments and closing costs to first-time homebuyers;

◦Neighborhood Impact Program, which provides rehabilitation assistance to homeowners to help improve neighborhoods;

◦Accessibility Modifications Program, which provides funding for accessibility modifications and minor home rehabilitation for eligible senior homeowners or owner-occupied households with one or more individuals having a permanent disability; and

◦Disaster Relief Program, which may be activated at our discretion in cases of federal or state disaster declarations for rehabilitation or down payment assistance targeted to low- or moderate-income homeowner disaster victims. The disaster relief program was not activated in 2021.

In addition, we offer a variety of specialized advance programs to support housing and community development needs. Through our Community Investment Program ("CIP"), we offer advances to our members involved in community economic development activities benefiting low- or moderate-income families or neighborhoods. These funds can be used for the development of housing, infrastructure improvements, or assistance to small businesses or businesses that are creating or retaining jobs in the member's community for low- and moderate-income families. These advances typically have maturities ranging from overnight to 20 yearsand are priced at our cost of funds plus reasonable administrative expenses. At December 31, 2021 and 2020, we had $873 million and $753 million, respectively, of outstanding principal on CIP-related advances.

We also offer small business grants under our Elevate program, which is designed to support the growth and development of small businesses in Michigan and Indiana by providing funding for capital expenditures, workforce training, or other business-related needs. The total amounts (in thousands) awarded in 2021, 2020 and 2019 were $520, $503 and $392, respectively.

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Community Mentors is an annual community engagement and economic development leadership program which includes a workshop and accompanying implementation grant of $10 thousand to one Indiana and one Michigan community which is awarded following an application process.

Use of Derivatives

Derivatives are an integral part of our financial management strategies to manage identified risks inherent in our lending, investing and funding activities and to achieve our risk management objectives. Finance Agency regulations and our ~~Enterprise Risk Management Policy~~risk management policies establish guidelines for the use of derivatives. Permissible derivatives include interest-rate swaps, swaptions, interest-rate cap and floor agreements, calls, puts, futures, and forward contracts. We are only permitted to execute derivative transactions to manage interest-rate risk exposure inherent in otherwise unhedged asset or liability positions, hedge embedded options in assets and liabilities including mortgage prepayment risk positions, hedge any foreign currency positions, and act as an intermediary between our members and interest-rate swap counterparties. We are prohibited from trading in or the speculative use of these instruments.

Our use of derivatives is the primary way we align the preferences of investors for the types of debt securities they want to purchase and the preferences of member institutions for the types of advances they want to hold and the types of mortgage loans they want to sell. ~~See~~ For more information, see Notes to Financial Statements - Note 118 - Derivatives and Hedging Activitiesand Item 7A. Quantitative and Qualitative Disclosures About Market Risk ~~for more information.~~ - Use of Derivative Hedges.

Supervision and Regulation

Our business is subject to extensive regulation and supervision. The laws and regulations to which we are subject cover all key aspects of our business, and directly and indirectly affect our product and service offerings, pricing, competitive position, strategic plan, relationship with members and third parties, capital structure, cash needs and uses, and information security. As discussed throughout this Form 10-K, such regulations can have a significant effect on key drivers of our results of operations.

The Bank Act. We are supervised and regulated by the Finance Agency, an independent agency in the executive branch of the United States government, established by HERA.

Under the Bank Act, the Finance Agency's responsibility is to ensure that, pursuant to regulations promulgated by the Finance Agency, each FHLBank:

•carries out its housing finance mission;

•remains adequately capitalized and able to raise funds in the capital markets; and

•operates in a safe and sound manner.

The Finance Agency is headed by a Director, who is appointed to a five-year term by the President of the United States, with the advice and consent of the Senate. The Director appoints a Deputy Director for the Division of Enterprise Regulation, a Deputy Director for the Division of FHLBank Regulation, and a Deputy Director for Housing Mission and Goals, who oversees the housing mission and goals of Fannie Mae and Freddie Mac, as well as the housing finance and community and economic development mission of the FHLBanks. HERA also established the Federal Housing Finance Oversight Board, comprised of the Secretaries of the Treasury and HUD, the Chair of the SEC, and the Finance Agency Director. The Federal Housing Finance Oversight Board functions as an advisory body to the Finance Agency Director. The Finance Agency's operating expenses are funded by assessments on the FHLBanks, Fannie Mae and Freddie Mac. As such, no tax dollars or other appropriations support the operations of the Finance Agency or the FHLBanks. In addition to reviewing our submissions of monthly and quarterly information on our financial condition and results of operations, the Finance Agency conducts annual ~~on-site~~ examinations and performs periodic ~~on- and off-site~~ reviews in order to assess our safety and soundness.

The United States Treasury receives a copy of the Finance Agency's annual report to Congress, monthly reports reflecting the FHLBank System's securities transactions, and other reports reflecting the FHLBank System's operations. Our annual financial statements are audited by an independent registered public accounting firm in accordance with standards issued by the Public Company Accounting Oversight Board, as well as the government auditing standards issued by the United States Comptroller General. The Comptroller General has authority under the Bank Act to audit or examine the Finance Agency and the FHLBank System and to decide the extent to which they fairly and effectively fulfill the purposes of the Bank Act. The Finance Agency's Office of Inspector General also has investigation authority over the Finance Agency and the FHLBank System.

~~GLB Act Amendments~~

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Each FHLBank is required to ~~the Bank Act.~~ ~~The GLB Act amended the Bank Act to require that each FHLBank~~ maintain a capital structure comprised of Class A stock, Class B stock, or both. A member can redeem Class A stock upon six months' prior written notice to its FHLBank. A member can redeem Class B stock upon five years' prior written notice to its FHLBank. Class B stock has a higher weighting than Class A stock for purposes of calculating the minimum leverage requirement applicable to each FHLBank.

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The Bank Act requires that each FHLBank maintain permanent capital and total capital in sufficient amounts to comply with specified, minimum risk-based capital and leverage capital requirements. From time to time, for reasons of safety and soundness, the Finance Agency may require one or more individual FHLBanks to maintain more permanent capital or total capital than is required by the regulations. Failure to comply with these requirements or the minimum capital requirements could result in the imposition of operating agreements, cease and desist orders, civil money penalties, and other regulatory action, including involuntary merger, liquidation, or reorganization as authorized by the Bank Act.

~~HERA Amendments to the Bank Act.~~ In addition to establishing the Finance Agency, HERA eliminated regulatory authority to appoint directors to our board. HERA also eliminated regulatory authority to cap director fees (subject to the Finance Agency's review of reasonableness of such compensation), but placed additional controls over executive compensation.

Government Corporations Control Act. We are subject to the Government Corporations Control Act, which provides that, before we can issue and offer consolidated obligations to the public, the Secretary of the United States Treasury must prescribe the form, denomination, maturity, interest rate, and conditions of the obligations; the way and time issued; and the selling price.

Furthermore, this Act provides that the United States Comptroller General may review any audit of the financial statements of an FHLBank conducted by an independent registered public accounting firm. If the Comptroller General undertakes such a review, the results and any recommendations must be reported to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General may also conduct a separate audit of any of our financial statements.

Federal Securities Laws. Our shares of Class B stock are registered with the SEC under the Exchange Act, and we are generally subject to the information, disclosure, insider trading restrictions, and other requirements under the Exchange Act, with certain exceptions. Our capital plan authorizes us to also issue Class A stock, but we have not issued any such stock. We are not subject to the registration provisions of the Securities Act. We have been, and continue to be, subject to all relevant liability provisions of the Securities Act and the Exchange Act.

Federal and State Banking Laws. We are generally not subject to the state and federal banking laws affecting United States retail depository financial institutions. However, the Bank Act requires the FHLBanks to submit reports to the Finance Agency concerning transactions involving loans and other financial instruments that involve fraud or possible fraud. In addition, we are required to maintain an anti-money laundering program, under which we are required to report suspicious transactions to the Financial Crimes Enforcement Network pursuant to the Bank Secrecy Act and the USA Patriot Act.

We contract with third-party compliance firms to perform certain services on our behalf to assist us with our compliance with these regulations as they are applicable to us. Finance Agency regulations require that we monitor and assess our third-party firms' performance of the services. As we identify deficiencies in our third-party firms' performance, we seek to remediate the deficiencies. Under certain circumstances, we are required to notify the Finance Agency about the deficiencies and our response to assure our compliance with these regulations.

As a wholesale secured lender and a secondary market purchaser of mortgage loans, we are not, in general, directly subject to the various federal and state laws regarding consumer credit protection, such as anti-predatory lending laws. However, as non-compliance with these laws could affect the value of these loans as collateral or acquired assets, we require our members to warrant that all of the loans pledged or sold to us are in compliance with all applicable laws. Federal law requires that, when a mortgage loan (defined to include any consumer credit transaction secured by the principal dwelling of the consumer) is sold or transferred, the new creditor shall, within 30 days of the sale or transfer, notify the borrower of the following: the identity, address and telephone number of the new creditor; the date of transfer; how to contact an agent or party with the authority to act on behalf of the new creditor; the location of the place where the transfer is recorded; and any other relevant information regarding the new creditor. In accordance with this statute, we provide the appropriate notice to borrowers whose mortgage loans we purchase under our MPP and have established procedures to ensure compliance with this notice requirement. In the case of the participating interests in mortgage loans we purchased from the FHLBank of Topeka under the MPF Program, the FHLBank of Chicago (as the MPF Provider) issued the appropriate notice to the affected borrowers and established its own procedures to ensure compliance with the notice requirement.

Regulatory Enforcement Actions. While examination reports are confidential between the Finance Agency and an FHLBank, the Finance Agency may publicly disclose supervisory actions or agreements that the Finance Agency has entered into with an FHLBank. We are not subject to any such Finance Agency actions, and we are not aware of any current Finance Agency actions with respect to other FHLBanks that ~~will~~could have a material adverse effect on our financial results.

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Membership

Our membership territory is comprised of the states of Michigan and Indiana. I~~n 2017, we gained 4 new members and lost 16 members (10 depositories as a result of in-district mergers and consolidations as well as 6 captive insurance companies), for a net loss of 12 members.~~

The following table presents the composition of our members by type of financial institution.

Type of Institution December 31, 2017 % of Total December 31, 2016 % of Total
Commercial banks and savings associations 201
53 % 210
53 %
Credit unions 123
32 % 121
31 %
Insurance companies 55
14 % 60
15 %
CDFIs 3
1 % 3
1 %
Total member institutions 382
100 % 394
100 %


Type of Institution	December 31, 2021	% of Total		December 31, 2020	% of Total
Commercial banks and savings associations	168	48	%	176	49	%
Credit unions	128	37	%	129	36	%
Insurance companies	48	14	%	50	14	%
CDFIs	4	1	%	4	1	%
Total member institutions	348	100	%	359	100	%

In 2021, no new members were added and 11 members merged, consolidated, or terminated. There was no significant impact on our business as a result of the reduction in membership.

Competition

We operate in a highly competitive environment. ~~Member demand~~Demand for advances is affected by, among other factors, the cost and availability of other sources of ~~funds,~~liquidity for our members, including ~~deposits.~~customer deposits, brokered deposits, reciprocal deposits and public funds. We compete with other suppliers of wholesale funding, both secured and unsecured. ~~Other~~Such other suppliers may include the United States government, the Federal Reserve Banks, corporate credit unions, the Central Liquidity Facility, investment banks, commercial banks, and in certain circumstances other FHLBanks. An example of this occurs when a financial holding company has subsidiary banks that are members of different FHLBanks and can, therefore, choose to take advances from the FHLBank with the best terms. LargerLarge institutions may also have ~~access to all of these alternatives as well as~~ independent access to the national and global credit markets. ~~The~~Also, the availability of alternative funding sources to members, such as growth in deposits from members' banking customers, can ~~be affected by~~significantly influence the demand for advances and can vary as a ~~variety~~result of several factors, including legislative or regulatory changes, market conditions, ~~member~~members' creditworthiness, ~~regulatory restrictions,~~ and ~~collateral~~ availability ~~and valuation.~~of collateral.

Likewise, our MPP is subject to significant competition. ~~The most direct~~Direct competition for ~~mortgage~~ purchases of mortgages comes from other buyers ~~or guarantors~~ of ~~government-guaranteed or~~ conventional, conforming, fixed-rate mortgage loans, such as ~~Ginnie Mae,~~ Fannie Mae and Freddie Mac. In addition, PFIs face increased origination competition from originators that are not our members.

We also compete with Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of ~~debt instruments.~~CO bonds and discount notes. Increases in the supply of competing debt products may, in the absence of increases in demand, ~~typically~~ result in higher debt costs to us or lesser amounts of debt issued ~~on our behalf~~ at the same cost than otherwise would be the case.

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Human Capital Resources

The Bank’s human capital is a significant contributor to the successful achievement of our strategic business objectives. In managing the Bank’s human capital, we focus on our workforce profile and the various associated programs and philosophies.

Workforce Profile.

Our workforce is substantially comprised of corporate office-based employees, with our operations in Indianapolis, Indiana and limited activities in a newly-established hub in Detroit, Michigan.As of December 31, ~~2017, we~~2021, the Bank had ~~238~~237 full-time and 2 part-time employees, of which 61% were male and ~~3 part-time~~39% were female, while 75% were non-minority and 25% were minority.

Our workforce historically has included a large number of longer-tenured employees. ~~Employees~~As of December 31, 2021, the average tenure of the Bank’s employees was 8.2 years. There are ~~not represented by a~~no collective bargaining ~~unit.~~agreements with our employees.

We seek to attract, develop, and retain talented employees to achieve our strategic business objectives, enhance business performance and provide a reasonable risk-return balance for our cooperative members, both as users of our products and as shareholders, tailored to our status and risk appetite as a housing GSE. We strive to both develop talent from within and supplement talent with external hires. We believe that developing talent internally results in institutional strength and continuity and promotes loyalty and commitment in our employee base, while adding new employees contributes to new ideas, continuous improvement, and our goals of a diverse and inclusive workforce.

Total Rewards.

We recognize and reward performance through a combination of competitive total rewards and development opportunities, including the following:

•Cash compensation

◦Salaries and wages; and

◦Incentive opportunities;

•Benefits and perquisites

◦Medical, dental, and vision insurance;

◦Wellness incentive credit opportunities to reduce the net cost of medical insurance to qualifying participants;

◦Life, long-term disability, and other insurance coverages;

◦401(k) retirement savings plan for which the Bank matches certain contributions;

◦Pension benefits or additional, non-elective defined contributions by the Bank;

◦Health Savings Account and Flexible Spending Accounts; and

◦Additional voluntary benefit opportunities

•Wellness programs

◦Employee assistance program;

◦Health coaching;

◦Interactive education sessions; and

◦An online portal to inspire fitness and health goals;

•Employee engagement

◦Employee resource groups; and

◦Cultural and inclusion initiatives;

•Work/Life balance

◦100% paid salary continuation for short-term disability, parental and military leave, bereavement, jury duty, and certain court appearances;

◦Hybrid workforce model; and

◦Vacation, illness, personal, holiday, and certain volunteer opportunities;

•Development

◦Training focused on leadership development, employee engagement, and skill enhancement;

◦Educational assistance programs and student loan repayment assistance;

◦Internal educational and development opportunities; and

◦Fee reimbursement for external educational and development programs;

•Management succession planning.

◦Our board and executive leadership actively engage in succession planning, with a defined plan for our President-CEO, Executive Vice Presidents, and Senior Vice Presidents.

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Performance Management.

~~AvailableInformation~~

Our performance management framework includes establishing individual performance goals tailored to reflect business and development objectives while also reflecting the Bank’s Guiding Principles for our corporate culture, periodic performance check-ins, and annual performance reviews. Overall annual performance ratings are calibrated and salary adjustments are differentiated for our highest performers.

We are committed to the health, safety, and wellness of our employees. In response to the continuing COVID-19 pandemic, we have continued significant operating environment changes, safety protocols and procedures that we have determined are in the best interest of our employees and members, and which comply with government regulations. In addition, the majority of our employees continue to work remotely to support safety protocols.

Diversity, Equity, and Inclusion Program.

Our Diversity, Equity, and Inclusion program is a strategic business priority. Our Senior Vice President – Chief Human Resources and Diversity, Equity, & Inclusion Officer is a member of our executive management team, reports directly to our President-CEO, and serves as a liaison to the board of directors. We recognize that diversity increases capacity for innovation and creativity, that equity recognizes the essential contributions of all of our employees, and that inclusion allows us to leverage the unique perspectives of all employees and strengthens our retention efforts. We evaluate inclusive behaviors as part of our annual performance management process.

Our commitment is demonstrated through the development and execution of a three-year Diversity, Equity, and Inclusion Strategic Plan ("DEI Strategic Plan"). The DEI Strategic Plan focuses on Workforce, Workplace, Community, Supplier Diversity, and Capital Markets and includes quantifiable metrics to measure the program's success, which are reported regularly to senior management and the board of directors. We consider learning an important component of our DEI Strategic Plan, so we offer a range of opportunities for our employees to connect and grow personally and professionally through our Diversity, Equity, and Inclusion Council, cultural awareness events, and employee resource groups.

AvailableInformation

Our Annual, Quarterly and ~~Quarterly~~Current Reports on Forms 10-K, ~~and~~ 10-Q, ~~together with our Current Reports on Form~~and 8-K, are filed with the SEC through the EDGAR filing system. A link to EDGAR is available through our public website at www.fhlbi.com by selecting "News" and then "Investor Relations."

We have a Code of Ethics for Senior Financial Officers ("Code of Ethics") that applies to our principal executive officer, principal financial officer, and principal accounting officer. We additionally have a Code of Conduct ~~that is applicable to all directors, officers,~~ and ~~employees and the members~~Conflict of ~~our~~Interest Policy for Affordable Housing Advisory ~~Council.~~Council Members, a Code of Conduct and Conflict of Interest Policy for Directors, and a Code of Conduct and Conflict of Interest Policy for Employees and Contractors (collectively, the "Codes of Conduct"). The Code of Ethics and Codes of Conduct isare available on our website by scrolling to the bottom of any web page on www.fhlbi.com and then selecting "Corporate Governance" in the navigation menu.

Our ~~2018~~2022 Targeted Community Lending Plan describes our plan to address the credit needs and market opportunities in our district states of Michigan and Indiana. It is available on our website at ~~www.fhlbi.comby selecting "Resources" and~~www.fhlbi.com/materials under "Bulletins, Publications, and ~~Presentations".~~Presentations."

~~Our Audit Committee operates under a~~The written ~~charter~~charters adopted by the board ~~of directors that was most recently amended on March 24, 2017. The~~for its Audit, ~~Committee charter is~~Executive/Governance, and Human Resources Committees are available on our website by scrolling to the bottom of any web page on www.fhlbi.com and then selecting "Corporate Governance" in the navigation menu. These charters were most recently amended by the board of directors as to the Audit Committee on March 19, 2021, as to the Executive/Governance Committee on January 21, 2022, and as to the Human Resources Committee on January 22, 2021.

We provide our website address and the SEC's website address solely for information. Except where expressly stated, information appearing on our website and the SEC's website is not incorporated into this ~~Annual Report on~~ Form 10-K.

Anyone may also request a copy of any of our public financial reports, our Code of Ethics, our Codes of Conduct, or our ~~2018~~2022 Targeted Community Lending Plan through our Corporate Secretary at FHLBank of Indianapolis, 8250 Woodfield Crossing Boulevard, Indianapolis, IN 46240, (317) 465-0200.

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ITEM 1A. RISK FACTORS

We use acronyms and terms throughout this Item that are defined herein or in the ~~Glossary of~~Defined Terms.

We have identified the following risk factors that could have a material adverse effect on our Bank. There may be other risks and uncertainties, including those discussed elsewhere in this Form 10-K, that are not described in these risk factors.

Business Risk - Economic

The COVID-19 Pandemic and Related Developments Have Resulted in Substantial Economic Uncertainty and Financial Market Disruptions As Well As Significant Strategic and Operational Challenges.

Economic Uncertainty.The COVID-19 pandemic and related developments, including governmental and public actions taken in response, such as shelter-in-place, stay-at-home or similar orders, travel restrictions and business shutdowns, have resulted in substantial uncertainty about the overall economic environment and could continue to do so. Despite significant improvements in the overall U.S. economy since the outbreak of the pandemic, considerable uncertainty remains. The uncertainty results from a myriad of factors including: possibilities of virus resurgence from further variants; vaccination rates; inflation; and supply chain disruptions. These factors could slow the timing and weaken the strength of the economic recovery or result in an economic downturn. A slower or weak economic recovery or economic downturn could adversely affect our business, financial condition, results of operations, ability to pay dividends and redeem or repurchase capital stock.

Financial Market Disruptions.This same uncertainty has resulted in highly volatile financial markets and resultant financial market disruptions, characterized by sharp changes to interest rates and spreads and availability of funds from time to time, and it may continue to do so. While these disruptions have been short-lived and have not materially affected us, there can be no guarantee that this will continue. Longer disruptions may adversely affect us in many ways including reduced market access to funding and increased costs of funding. The potential impact of the realization of such risks is discussed under "The Inability to Access Capital Markets on Acceptable Terms Could Adversely Affect Our Liquidity, Operations, Financial Condition and Results of Operations, and the Value of Membership in Our Bank." Prolonged financial market disruptions may also result in decreased valuations of and reduced market and book yields on our assets.

Strategic Challenges.Federal relief efforts designed to support the residential mortgage finance market during the pandemic have provided alternative sources of liquidity to our members, reducing their need for advances, and our advances balances have decreased as a result. Further, the Federal Reserve materially increased its holdings of Agency MBS, thereby increasing GSE purchase prices for conforming mortgages and reducing demand for our MPP. A prolonged reduction in demand for our products and services could adversely affect us in the same way as competition may adversely affect us as discussed under "Competition Could Negatively Impact Advances, the Supply of Mortgage Loans for our MPP, Our Access to Funding and Our Earnings."

Operational Challenges.Our ordinary operations have been impacted by the various public orders and restrictions issued in response to the pandemic. Examples of these include shelter-in-place, stay-at-home or similar orders, travel restrictions and business shutdowns. These have resulted in work-from-home arrangements, for us as well as for many of our members, dealers and other third-party service providers. These actions, together with the direct and indirect effect of COVID-19 infections (such as staffing disruptions), have resulted in and are expected to continue to result in significant operational challenges, including increased operational risks and risks of cybersecurity breaches. The potential impacts of the realization of such risks are discussed under "A Cybersecurity Event; Interruption in Our Information Systems; Unavailability of, or an Interruption of Service at, Our Main Office or Our Backup Facilities; or Failure of or an Interruption in Information Systems of Third-Party Vendors or Service Providers Could Adversely Affect Our Business, Risk Management, Financial Condition, Results of Operations, and Reputation.."

The pandemic has also resulted in disruptions to the labor market and could continue to do so. This could adversely affect us as discussed under "The Inability to Identify Eligible Nominees for our Board of Directors and to Attract and Retain Key Personnel Could Adversely Affect Our Operations, Our Results of Operations, and Our Ability to Satisfy our Mission."

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Economic Conditions and Policy, Global Political or Economic Events, a Major Natural Disaster, or Widespread Health Crises Could Have an Adverse Effect on Our Business, Liquidity, Financial Condition, and Results of Operations.

Our business, liquidity, financial condition, and results of operations are sensitive to general domestic and international business and economic conditions, such as changes in the money supply, inflation, volatility in both debt and equity capital markets, and the strength of the local economies in which we conduct business.

Our business and results of operations are significantly affected by the fiscal and monetary policies of the United States government and its agencies, including the Federal Reserve through its regulation of the supply of money and credit in the United States. The Federal Reserve's policies either directly or indirectly influence the yield on interest-earning assets, volatility of interest rates, prepayment speeds, the cost of interest-bearing liabilities and the demand for advances and for our debt. For example, in response to the COVID-19 pandemic, the FOMC has maintained a target range of 0.00% to 0.25% for the federal funds rate since March 15, 2020 and increased its holdings of U.S. Treasuries and Agency MBS, thereby lowering Agency MBS yields and increasing GSE purchase prices for conforming mortgages. These actions have adversely affected us through lower yields on our investments, higher costs of debt, and disruption of member demand for our products although the Federal Reserve has recently indicated its plans to raise the federal funds target range and taper net asset purchases.

By way of further example, we, together with the other FHLBanks, currently play a predominant role as lenders in the federal funds market; therefore, any disruption in the federal funds market or any related regulatory or policy change may adversely affect our cash management activities, results of operations, and reputation.

Additionally, we are affected by the global economy through member ownership and investments, and through capital markets exposures. Global political, economic, and business uncertainty has led to increased volatility in capital markets and has the potential to drive volatility in the future. One example of this has been realized through the COVID-19 pandemic as discussed under "The COVID-19 Pandemic and Related Developments Have Resulted in Substantial Economic Uncertainty and Financial Market Disruptions As Well As Significant Strategic and Operational Challenges." Another example has been realized through the geopolitical instability brought about by ongoing hostilities between Russia and Ukraine, which have led to economic and trade disruptions as well as sanctions. These and related developments have increased volatility in certain capital markets, which could lead to overall greater volatility in global capital markets particularly should the hostilities continue for an extended period with further resulting disruptions and sanctions.

Likewise, a major natural disaster or other catastrophic event, whether caused by climate change or otherwise, another health crisis, as well as international responses to such events, could increase economic uncertainties and lead to further global capital market volatility, lower credit availability, and weaker economic growth. Our members, counterparties and vendors could experience similar negative effects. As a result, our business could be exposed to unfavorable market conditions, lower demand for mission-related assets, increased risk of credit losses, lower earnings, or reduced ability to pay dividends or redeem or repurchase capital stock.

We Are Directly Impacted by the Condition of the Housing and Mortgage Markets Especially Those Markets' Conditions in Our District.

Of particular note among business and economic conditions, our business and results of operations are sensitive to the condition of the housing and mortgage markets. Adverse trends in the mortgage lending sector, including declines in home prices or loan performance, could reduce the value of collateral securing our advances and the fair value of our MBS. Such reductions in value would increase the possibility of under-collateralization, thereby increasing the risk of loss in case of a member's failure. Also, deterioration in the residential mortgage markets could negatively affect the value of our MPP portfolio, resulting in an increase in the allowance for credit losses on mortgage loans and possible additional realized losses if we were forced to liquidate our MPP portfolio.

Our district is comprised of the states of Michigan and Indiana. Increases in unemployment and foreclosure rates or decreases in job or income growth rates in either state could result in less demand for mission-related assets and in turn, adversely affect our profitability and results of operations. For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Summary - Business Environment.

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Business Risk - Legislative and Regulatory

Changes in the ~~Legal~~Legislative and Regulatory Environment for FHLBanks, Our Members, Our Debt Underwriters and Investors, or Other Housing GSEs ~~or Our Members~~ May Adversely Affect Our Business, Demand for Products, the Cost of Debt Issuance, and the Value of FHLBank ~~Membership~~Membership.

We could be materially adversely affected by: the adoption of new or revised laws, policies, regulations or accounting guidance; new or revised interpretations or applications of laws, policies, or regulations by the Finance Agency, ~~its Office of Inspector General,~~ the SEC, the CFTC, the CFPB, the Financial Stability Oversight Council, the Comptroller General, the FASB or other federal or state financial regulatory bodies; or judicial decisions that alter the present regulatory environment. Likewise, whenever federal elections result in changes in the executive branch or in the balance of political parties’ representation in Congress, there is increased uncertainty as to potential administrative, regulatory and legislative actions that may materially adversely affect our business.

Members.Changes impacting the environment in which our members provide financial products and services could negatively impact their ability to take full advantage of our products and services, their desire to maintain membership in our Bank, or our ability to rely on their pledged collateral.

Products and Services.Changes that ~~restrict the growth or alter the risk profile of our current business~~limit or prohibit the creation of new products or services could negatively impact our ~~earnings.~~earnings and reduce the value of FHLBank membership. For example, our earnings could be negatively impacted by legislative or regulatory changes that (i) reduce demand for advances or limit advances we make to our members, (ii) further restrict the products and services we are able to provide to our members or how we do business with our members and counterparties, (iii) further restrict the types, characteristics or volume of mortgages that we may purchase through our MPP or otherwise reduce the economic value of MPP to our members, or ~~(ii)~~(iv) otherwise require us to change the composition of our assets and liabilities. ~~In addition, the regulatory environment affecting our members could be changed in a manner that would negatively impact their ability~~Any resulting inability to ~~take full advantage of our~~adapt products and services to evolving industry standards and member preferences in a highly competitive and regulated environment, while managing our ~~ability to rely on their pledged~~expenses, could harm our business.

Assets and Collateral.Changes that impact the value of assets we acquire and the collateral ~~or their desire to maintain membership in~~we accept could increase our ~~Bank. Changes to the regulatory environment that affect our debt underwriters, particularly revised capital and liquidity requirements, could also adversely affect our cost~~risk of issuing debt in the capital markets. Similarly, regulatory actions or public policy changes, including those that give preference to certain sectors, business models, regulated entities, or activities, could negatively impact us.credit loss. For example, ~~changes in~~ the status of Fannie Mae and Freddie Mac during the next phases of their conservatorship or as a result of legislative or regulatory changes, may impact funding costs for the FHLBanks, which could negatively affect our business and results of operations.In addition, negative news articles, industry reports, and other announcements pertaining to GSEs, including Fannie Mae, Freddie Mac or any of the FHLBanks, could cause an increase in interest rates on all GSE debt, as investors may perceive these issuers or their debt instruments as bearing increased risk.

The Finance Agency requires the FHLBanks to maintain sufficient liquidity through short-term investments in an amount at least equal to an FHLBank's cash outflows under two hypothetical scenarios for the treatment of maturing advances. This regulatory guidance is designed to provide sufficient liquidity to protect against temporary disruptions in the capital marketsCFPB has issued rules that affect the FHLBanks' access to funding. To satisfy these two scenarios, we maintain balances in shorter-term investments, which may earn lower interest rates than alternate investment options. In certain circumstances we may also need to fund shorter-term advances with short-term discount notes that have maturities beyond those of the related advances, thus increasing our short-term advance pricing or reducing net income through lower net interest spreads. To the extent these increased prices make our advances less competitive, advance levels and net interest income may be negatively affected. In addition, issuance of new regulatory liquidity requirements or guidance in the future could substantially change the amount and characteristics of liquidity that we are required to maintain, which could adversely affect our business, profitability and results of operations.

~~The CFPB rules~~ include standards for mortgage lenders to follow during the loan approval process to determine whether a borrower has the ability to ~~repay~~repay. Failure to satisfy those standards provides the ~~mortgage loan. The Dodd-Frank Act provides defenses to foreclosure and causes of action for damages if~~borrower with certain rights that could impede or prevent the ~~mortgage~~ lender ~~does not meet the standards~~from foreclosing in the ~~CFPB rules. A~~event of the borrower’s default. Any party that acquires the loan from the lender could be similarly impeded or prevented from foreclosing. We accept mortgage loans as collateral and purchase mortgage loans under AMA programs, particularly MPP. Our risk of credit loss would tend to be higher on mortgage loans that did not comply with the CFPB’s standards given the possibility of the related borrower ~~can assert these defenses and causes of action against the original mortgage lender and against purchasers and other assignees of~~to impede or prevent us from realizing upon the mortgage loan ~~which would include us if we were~~in the event of default. Accordingly, the CFPB’s rules could increase our risk of credit loss. The possible impacts of the realization of an increased risk of credit loss are discussed under "An Increase in Our Exposure to purchase a loan under our AMA programs or if we were to direct a servicer to foreclose on mortgage loan collateral. In addition, mortgage lenders unable to sell mortgage loans (whether because they are not qualified mortgages or otherwise) would be expected to retain such loans as assets. If we were to make advances secured, in part, by non-safe harbor qualified mortgagesCredit Losses Could Adversely Affect Our Financial Condition and ~~subsequently liquidate such collateral, we could be subject to these defenses to foreclosure or causes~~Results of ~~action for damages by mortgage borrowers.This risk, in turn, could reduce the value of our advances collateral, potentially reducing our likelihood of full repayment on our advances if we were required to sell such collateral.~~Operations."

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Regulatory reform since the most recent financial crisis has tended to increase the amount of margin collateral that we must provide to collateralize certain kinds of financial transactions, and has broadened the categories of transactions for which we are required to post margin. ForAs another example, ~~the Dodd-Frank Act and related regulatory reform has increased the margin we must provide for cleared and uncleared derivative transactions, and Financial Industry Regulatory Authority~~FINRA Rule 4210, ~~will~~which is currently proposed to take effect on October 26, 2022, would require us to exchange margin on certain MBS ~~transactions beginning in June 2018.~~transactions. Materially greater margin requirements - due to ~~Dodd-Frank Act derivatives regulatory reform, Financial Industry Regulatory Authority~~FINRA Rule 4210, or otherwise - could adversely affect the availability and pricing of our derivative transactions, making such trades more costly and less attractive as risk management tools. New and expanded margin requirements on derivatives and MBS could also change our risk exposure to our counterparties and may require us to further enhance ~~further~~ our systems and processes.

~~Provisions~~Liquidity and Capital.Changes impacting liquidity or capital could adversely affect our results of ~~the Dodd-Frank Act may indirectly affect us due to its effects on our members.~~operations. For example, this law establishes a solvency framework to address the failure of a financial institution, which could include one or more of our members or financial counterparties. Because the Dodd-Frank Act requires several regulatory bodies to carry out its provisions, its full effect remains uncertain until after the required reports to Congress are issued and implementing regulations are adopted.

Solvency frameworks comparable to the Dodd-Frank Act have been enacted by several members of the European Union pursuant to the European Bank Recovery and Resolution Directive ("BRRD") developed by the Financial Stability Board. We engage in financial transactions with counterparties which are domiciled in countries that have adopted the BRRD. The failure of any such counterparty could subject our transactions with such party to the BRRD solvency framework, the results of which may not be wholly predictable.

In addition, the federal banking regulators are undertaking rulemaking from the Basel Committee on Bank Supervision. The FDIC, OCC, and FRB have established new minimum capital standards for financial institutions that incorporate (which in some cases may further strengthen) the Basel III regulatory capital reforms. Similarly, in 2014, the FRB, OCC and FDIC jointly adopted a rule that incorporates (and in some cases increases) Basel III liquidity requirements. The liquidity coverage ratio ("LCR") rule requires certain ~~non-banking financial organizations ("Covered Organizations")~~ to maintain sufficient amounts of high quality liquid assets ("HQLA") to withstand a 30-day run on the Covered Organization following severe economic stress, based on certain assumptions about outflow rates for HQLAs. If the Covered Organization qualifies as an "advanced approaches" banking organization, the HQLA requirements are also applied on a consolidated basis to each United States-based banking subsidiary of such Covered Organization with more than $10.0 billion in assets. HQLAs must be unencumbered, although they may be pledged as part of a blanket lien to a U.S. central bank or GSE, as long as they do not currently support credit or access to payment services extended to the Covered Organization by such central bank or GSE. HQLAs are divided into three classes or levels. FHLBank consolidated obligations are considered "Level 2A" liquidity assets; as such they can be counted for liquidity purposes, butwe are subject to ~~a 15% haircut and~~various liquidity requirements, which may constrain our ability to invest excess cash flow in higher yielding assets from time to time. If liquidity requirements are ~~capped at 40%~~increased, we could be further restrained from otherwise investing in higher yielding assets thereby adversely affecting our earnings. Similarly, we are subject to various capital requirements. If such requirements are increased, it could result in the realization of the ~~liquidity requirement. This haircut could make it more costly for any Covered Organization~~risks discussed under "A Failure to ~~hold consolidated obligations, which could reduce demand for them. On the other hand, these changes appear~~Meet Minimum Regulatory Capital Requirements Could Affect Our Ability to ~~have increased demand for FHLBank advances from the largest depository institution members of the FHLBank System, but do not appear to have affected~~Pay Dividends, Redeem or Repurchase Capital Stock, Retain Existing Members and Attract New Members."

Growth.Changes may either directly or indirectly restrict our ~~members. The LCR rule provisions became fully effective as of January 1, 2017.~~

~~The combined effect of these new and amended rules may create unanticipated risks as well.~~growth. For example, ~~it is thought~~the Finance Agency could issue an order requiring us to constrain our growth in acquisition of assets via MPP.

Risk Management.Changes that constrain the ~~largest members~~way we manage risk could adversely affect our earnings. For example, a Finance Agency advisory bulletin set forth limits for funding gaps and possible asset and liability mismatches. These limits could adversely affect our net interest margin and, in turn, our dividend rate.

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Underwriters and Investors.Changes affecting our debt underwriters and investors, particularly revised capital and liquidity requirements, could also adversely affect our cost of issuing debt in the ~~FHLBank System have increased their advances levels to meet new Basel III regulatory requirements. At~~capital markets. For example, the ~~same time, changes to SEC~~ ~~guidance pertaining to prime~~SEC’s implementation of money market ~~funds appears~~fund reforms from 2010 to ~~have~~2016 resulted in a significant increase in demand for U.S. government ~~funds~~ and agency debt, as well as FHLBank discount notes. These developments could influence regulatory guidance, particularly with respect to liquidity. We cannot predict what effects, if any, these developments will have onincluding the ~~FHLBank System~~FHLBanks’ short-term consolidated obligations. The holding of the FHLBanks’ consolidated obligations by money market funds, as a ~~whole or upon our Bank, nor can we predict what additional regulatory actions may be taken~~percentage of the total outstanding consolidated obligations, generally increased as a ~~result.~~result of these reforms until recent periods. While demand from these investors benefited our ability to access short-term funding at attractive costs, this demand could change if money market investor risk and return preferences and money market regulatory requirements shift over time. A decrease in this demand could, due to the FHLBanks’ concentration in money market investors, lead to significant investor outflows and unfavorable market conditions.

~~See~~ ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Accounting and Regulatory Developments - Legislative and Regulatory Developments~~ ~~for more information.~~

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~~Economic Conditions and Policy Could Have an Adverse Effect on Our Business, Liquidity, Financial Condition, and Results of Operations~~

~~Our~~Other Housing GSEs.Changes impacting other housing GSEs, including those that give preference to certain sectors, business ~~liquidity, financial condition, and results of operations are sensitive to general domestic and international business and economic conditions, such as~~models, regulated entities, assets, or activities, could negatively impact us. For example, changes in the ~~money supply, inflation, volatility in both debt~~statuses of Fannie Mae and ~~equity capital markets, and~~Freddie Mac as a result of legislative or regulatory changes, may impact funding costs for the ~~strength of the local economies in~~FHLBanks, which ~~we conduct business.~~

~~Our~~could negatively affect our business and results of ~~operations~~operations.In addition, negative news articles, industry reports, and other announcements pertaining to GSEs, including Fannie Mae, Freddie Mac or the FHLBanks, could cause an increase in interest rates on all GSE debt, as investors may perceive these issuers or their debt instruments as bearing increased risk.

FHLBank Membership.Changes that reduce the benefits of FHLBank membership or restrict the eligibility for FHLBank membership could negatively impact our earnings.

A Failure to Meet Minimum Regulatory Capital Requirements Could Affect Our Ability to Pay Dividends, Redeem or Repurchase Capital Stock, Retain Existing Members and Attract New Members.

We are ~~significantly affected~~required to maintain sufficient capital to meet specific minimum requirements established by the ~~fiscal~~Finance Agency. If we violate any of these requirements or if our board or the Finance Agency determines that we have incurred, or are likely to incur, losses resulting, or expected to result, in a charge against capital, we would not be able to redeem or repurchase any capital stock while such charges are continuing or expected to continue, even if the statutory redemption period had expired for some or all of such stock. Violations of, or regulator-mandated adjustments to, our capital requirements could also restrict our ability to pay dividends, lend, invest, or purchase mortgage loans or participating interests in mortgage loans, or other business activities. Moreover, the Finance Agency could set varying expectations for FHLBanks’ capital levels in ways that have potentially negative impacts on FHLBanks’ business activities. Additionally, the Finance Agency could direct us to call upon our members to purchase additional capital stock to meet our minimum regulatory capital requirements. Members may be unable or unwilling to satisfy such calls for additional capital, thereby adversely affecting their ability to continue doing business with us and monetary policies of the United States government and its agencies, including the FRB through its regulation of the supply of money and credit in the United States. The FRB's policies either directly or indirectly influence the yield on interest-earning assets, volatility of interest rates, prepayment speeds, the cost of interest-bearing liabilities and the demand for our debt.

~~The FOMC continues~~their desire to maintain its policy of reinvesting principal payments from its holdings of agency debt and agency MBS in agency MBS and of rolling over maturing United States Treasury securities at auction. These policies are intended to help maintain accommodative financial conditions. However, the FRB's continuing substantial participation in both short-term and MBS markets could adversely affect us through lower yields on our investments, higher costs of debt, and disruption of member demand for our products.

Our business and results of operations are sensitive to the condition of the housing and mortgage markets, as well as general business and economic conditions. Adverse trends in the mortgage lending sector, including declines in home prices or loan performance trends, could reduce the value of collateral securing member credit and the fair value of our MBS. This change could increase the possibility of under-collateralization, increasing the risk of loss in case of a member's failure, or could increase the risk of loss on our MBS because of additional credit impairment charges. Also, deterioration in the residential mortgage markets could negatively affect the value of our MPP portfolio, resulting in an increase in the allowance for credit losses on mortgage loans and possible additional realized losses if we were forced to liquidate our MPP portfolio.

Our district is comprised of the states of Michigan and Indiana. Increases in unemployment and foreclosure rates or decreases in job or income growth rates in either state could result in less demand for mission-related assets and therefore lower earnings. See ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Summary -Economic Environment~~ ~~for more information.~~

~~A Failure or Interruption in Our Information Systems, Information Systems of Third-Party Vendors or Service Providers; Unavailability of, or an Interruption of Service~~stock at ~~Our Main Office or Our Backup Facilities;~~par, or a ~~Cybersecurity Event Could Adversely Affect Our Business, Risk Management, Financial Condition, Results of Operations, and Reputation~~

~~We rely heavily on our information systems and other technology to conduct and manage our business, which inherently involves large financial transactions with~~call upon our members and other counterparties. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. These computer systems, software and networks are vulnerable to breaches, unauthorized access, damage, misuse, computer viruses or other malicious code and other events that could potentially jeopardize the confidentiality of such information or otherwise cause interruptions or malfunctions in our operations. In addition, our operations rely on the availability and functioning of our main office, our business resumption center and other facilities. There is no assurance that our business continuity plans, including our security measures, will provide fully effective security or prevent a failure or interruption in our operations. If we experience a significant failure or interruption in our business continuity, disaster recovery or certain information systems, or a significant cybersecurity event, we may be unablepurchase additional stock to conduct and manage our business functions effectively, we may incur significant expenses in remediating such incidents, and we may suffer reputational harm. Moreover, any of these occurrences could result in increased regulatory scrutiny of our operations.

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Despite our policies, procedures, controls and initiatives, some operational risks are beyond our control, and the failure of other parties to adequately address their operational risks could adversely affect us. In addition to internal computer systems, we outsource certain communication and information systems and other critical services to third-party vendors and service providers, including the Office of Finance, derivatives clearing organizations, and loan servicers. Compromised security at any of those third parties could expose us to cyber attacks or other breaches. If one or more of these key external parties were not able to perform their functions for a period of time, at an acceptable service level, or with increased volumes, our business operations could be constrained, disrupted, or otherwise negatively affected. In addition, any failure, interruption or breach in security of these systems, or any disruption of service, could result in failures or interruptions in our ability to conduct and manage our business effectively, including, without limitation, our advances, MPP, funding and hedging activities. There is no assurance that such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely. Any failure, interruption, or breach could significantly harm our customer relations and business operations, which could negatively affect our financial condition, results of operations, or ability to pay dividends or redeem or repurchaserestore capital, ~~stock.~~

We have purchased participating interests in MPF Program mortgage loans that the FHLBank of Topeka acquired from its PFIs. In its role as MPF Provider, the FHLBank of Chicago provides the infrastructure and operational support for the MPF Program and is responsible for publishing and maintaining the MPF Origination, Underwriting and Servicing Guides, which detail the requirements PFIs must follow in originating or selling and servicing MPF Program mortgage loans. If the FHLBank of Chicago changes or ceases to operate the MPF Program or experiences a failure or interruption in its information systems and other technology in its operation of the MPF Program, our MPF business could be adversely impacted, which could negatively affect our financial condition, profitability and cash flows. In the same way, we could be adversely affected if any of the FHLBank of Chicago's third-party vendors that are engaged in the operation of the MPF Program were to experience operational or technical difficulties.

~~The Inability to Access Capital Markets on Acceptable Terms Could Adversely Affect Our Liquidity, Operations, Financial Condition and Results of Operations, and the Value of Membership in Our Bank~~

Our primary source of funds is the sale of consolidated obligations in the capital markets. Our ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, such as investor demand and liquidity, and on dealer commitment to inventory and support our debt. Severe financial and economic disruptions in the past, and the United States government's measures to mitigate their effects, including increased capital requirements on dealers' inventory and other regulatory changes affecting dealers, have changed the traditional bases on which market participants value GSE debt securities and consequently could affect our funding costs and practices, which could make it more difficult for us to attract new members.

The formula for calculating risk-based capital includes factors that depend on interest rates and ~~more expensive~~other market metrics outside our control and could cause our minimum requirement to ~~issue~~increase to a point exceeding our ~~debt. Any further disruption~~capital level. Further, if our retained earnings were to become inadequate, the Finance Agency could initiate restrictions consistent with those associated with a failure of a minimum capital requirement.

Restrictions on the Redemption, Repurchase, or Transfer of the Bank's Capital Stock Could Result in an Illiquid Investment for the ~~debt market could have an adverse impact on~~Holder.

Under the GLB Act, Finance Agency regulations, and our ~~interest spreads, opportunities~~capital plan, our capital stock may be redeemed upon the expiration of a five-year redemption period, subject to ~~call and reissue existing debt~~certain conditions. In addition, subject to applicable law, we may elect to repurchase some or ~~roll over maturing debt,~~all of the excess capital stock of a shareholder at any time at our sole discretion.

There is no guarantee, however, that we will be able to redeem shareholders' capital stock, even at the end of the prescribed redemption period, or ~~ability~~to repurchase their excess capital stock. If a redemption or repurchase of capital stock would cause us to fail to meet our minimum regulatory capital requirements, Finance Agency regulations and our capital plan would prohibit the ~~Finance Agency's mandates~~redemption or repurchase. Restrictions on ~~FHLBank liquidity.~~the redemption or repurchase of our capital stock could result in an illiquid investment for holders of our stock. In addition, because 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 or nonmember shareholder may transfer any of its capital stock to another member or nonmember shareholder, we cannot provide assurance that we would allow a member or nonmember shareholder to transfer any excess capital stock to another member or nonmember shareholder at any time.

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Business Risk - Strategic

A Loss of Significant Borrowers, PFIs, Acceptable Loan Servicers or Other Financial Counterparties Could Adversely Impact Our Profitability, Our Ability to Achieve Business Objectives, Our Ability to Pay Dividends or Redeem or Repurchase Capital Stock, and Our Risk ~~Concentration~~Concentration.

Significant Borrowers.The loss of any large borrower or PFI could adversely impact our profitability and our ability to achieve business objectives. ~~The loss of a large borrower or PFI~~This could result from a variety of factors, including acquisition, consolidation of charters within a bank holding company, a member's loss of market share, ~~to non-depository institutions,~~ resolution of a financially distressed member, or regulatory ~~changes.~~changes relating to FHLBank membership. As the financial industry continues to consolidate into a smaller number of ~~December 31, 2017,~~institutions, this could lead to further loss of large members and a related decrease in our ~~top two borrowers,~~membership and significant loss of business.

For example, in April 2021, Flagstar Bancorp, Inc., the parent company of Flagstar Bank, FSB ("Flagstar"), historically one of our largest and ~~Lincoln National Life Insurance Company, held $5.7~~most active borrowers, announced it had reached an agreement to merge with another institution and, pursuant to the agreement, Flagstar would merge with a non-member depository. On the effective date of the Flagstar merger, the successor bank would not be eligible for membership in our Bank. At December 31, 2021, Flagstar had advances outstanding totaling $3.0 billion ~~and $2.9 billion, respectively,~~ or ~~a total~~11% of ~~25% of~~the Bank's total advances outstanding, at par. As a result, as with the loss of any large borrower, the consummation of the expected Flagstar merger could have a material adverse effect upon our future results of operations.

AtOur largest borrower had advances outstanding at December 31, ~~2017, 28%~~2021 totaling $3.1 billion, or 12% of our total advances outstanding, ~~par value~~at par. If advances are concentrated in a smaller number of ~~MPP~~members, our risk of loss resulting from a single event could become greater. Loss of other large advance borrowers, without replacement of such advances by existing or new members, would be expected to reduce our interest income and profitability accordingly.

Significant PFIs.During the year ended December 31, 2021, our top-selling PFI sold us mortgage loans ~~had been~~totaling $218 million, or 10% of the total mortgage loans purchased ~~from two PFIs. One of these~~by the Bank in 2021. Our larger PFIs ~~originates~~originate mortgages on properties in several ~~states, while the other PFI originates mortgages on properties principally in Michigan.~~states. We also purchase mortgage loans from many smaller PFIs that predominantly originate mortgage loans on properties in Michigan and Indiana. ~~Therefore, our~~Our concentration of MPP loans on properties in Michigan and Indiana could continue to increase over time, as we do not currently limit such concentration.

Loan Servicers.We do not service the mortgage loans we purchase. PFIs may elect to retain servicing rights for the loans sold to us, or they may elect to sell servicing rights to an MPP-approved servicer. Federal banking regulations and Dodd-Frank Act capital requirements are causing mortgage servicing rights to be transitioned to non-depository institutions, which may reduce the availability of buyers of mortgage servicing rights. A scarcity of mortgage servicers could adversely affect our results of operations.

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Financial Counterparties.The number of counterparties that meet our internal and regulatory standards for derivative, repurchase, federal funds sold, TBA, and other financial transactions, such as broker-dealers and their affiliates, has decreased over time. ~~Since~~In addition, since the Dodd-Frank Act, ~~however,~~ the requirements for posting margin or other collateral to financial counterparties has tended to increase, both in terms of the amount of collateral to be posted and the types of transactions for which margin is now required. ~~Continuing consolidation in the financial services industry has also reduced the number of high-quality counterparties available to us.~~ These factors tend to increase the risk exposure that we have to any one counterparty, and as such may tend to increase our reliance upon each of our counterparties. A failure of any one of our major financial counterparties, or continuing market consolidation, could affect our profitability, results of operations, and ability to enter into additional transactions with existing counterparties without exceeding internal or regulatory risk limits.

Competition Could Negatively Impact Advances, the Supply of Mortgage Loans for our MPP, Our Access to Funding and Our Earnings.

We operate in a highly competitive environment. Demand for advances is affected by, among other factors, the cost and availability of other sources of liquidity for our members, including customer deposits, brokered deposits, reciprocal deposits and public funds. We compete with other suppliers of wholesale funding, both secured and unsecured. Such other suppliers may include the United States government, the Federal Reserve Banks, corporate credit unions, the Central Liquidity Facility, investment banks, commercial banks, and in certain circumstances other FHLBanks. Large institutions may also have independent access to the national and global credit markets. Also, the availability of alternative funding sources to members, such as growth in deposits from members' banking customers, can significantly influence the demand for advances and can vary as a result of several factors, including legislative or regulatory changes, market conditions, members' creditworthiness, and availability of collateral. By way of example, certain regulatory responses to the COVID-19 pandemic have greatly increased our competitive environment with attendant risks and adverse effects as discussed in "Economic Conditions and Policy, Global Political or Economic Events, a Major Natural Disaster, or Widespread Health Crises Could Have an Adverse Effect on Our Business, Liquidity, Financial Condition, and Results of Operations."

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Likewise, our MPP is subject to significant competition. Direct competition for purchases of mortgages comes from other buyers of conventional, conforming, fixed-rate mortgage loans, such as Fannie Mae and Freddie Mac.

In addition, PFIs face increased origination competition from originators that are not our members. Increased competition can result in a smaller share of the mortgages available for purchase through our MPP and, therefore, lower earnings.

We also compete with Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of CO bonds and discount notes. Increases in the supply of competing debt products 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. There can be no assurance that our supply of funds through issuance of consolidated obligations will be sufficient to meet our future operational needs.

Downgrades of Our Credit Rating, the Credit Rating of One or More of the Other FHLBanks, or the Credit Rating of the Consolidated Obligations Could Adversely Impact Our Cost of Funds, Our Ability to Access the Capital Markets, and/or Our Ability to Enter Into Derivative Instrument Transactions on Acceptable ~~Terms~~Terms.

The FHLBanks' consolidated obligations are rated Aaa/P-1 with a stable outlook by Moody's and AA+/A-1+ with a stable outlook by S&P. Rating agencies may from time to time ~~change~~lower a rating or issue negative reports. Because each FHLBank has joint and several liability for all FHLBank consolidated obligations, negative developments at any FHLBank may affect these credit ratings or result in the issuance of a negative report regardless of an individual FHLBank's financial condition and results of operations. In addition, because of the FHLBanks' GSE status, the credit ratings of the respective FHLBanks are generally influenced by the sovereign credit rating of the United States.

Based on the credit rating agencies' criteria, downgrades to the United States' sovereign credit rating and outlook may occur. As a result, similar downgrades in the credit ratings and outlook on the FHLBanks and the FHLBanks' consolidated obligations may also occur, even though they are not obligations of the United States.

Uncertainty remains regarding possible longer-term effects resulting from rating actions. Any future downgrades in ~~our~~the credit ratings and outlook, especially a downgrade to an S&P AA rating or equivalent, could result in higher funding costs, additional collateral posting requirements for certain derivative instrument transactions, or disruptions in our access to capital markets. To the extent that we cannot access funding when needed on acceptable terms to effectively manage our cost of funds, our financial condition and results of operations and the value of membership in our Bank may be negatively affected.

The Inability to Identify Eligible Nominees for our Board of Directors and to Attract and Retain Key Personnel Could Adversely Affect Our Operations, Our Results of Operations, and Our Ability to Satisfy our Mission.

Board of Directors.The talent and experience of our board of directors is critical to our ability to satisfy our mission given the global nature and resulting, ever-growing complexities of the finance industry. However, our directors are subject to legal requirements that could disqualify prospective nominees that would otherwise have the talent and experience necessary for the role. For example, at least 40% of our board of directors' seats must be held by independent directors, who must meet certain specialized and narrow eligibility requirements (including citizenship, residency and expertise) but are subject to specific term limits. We currently have eight independent directors on our board. One of the independent directors will be term-limited as of December 31, 2022, and two others will be term-limited as of December 31, 2023. All three have served as directors of the Bank for 13 or more years. Thus, the term limits will result in our inability to re-nominate those directors resulting in the board's loss of their talent and experience. While our board has established and maintains a Succession Planning Committee to assist it with respect to succession planning for directorships, such legal requirements may challenge our ability to find prospective nominees who have specific expertise and specialized skills that meet the eligibility requirements.

Key Personnel.We rely on key personnel for many of our functions and have a relatively small workforce, given the size and complexity of our business. Our ability to attract and retain personnel with the required technical expertise and specialized skills is important for us to manage our business and conduct our operations successfully. However, competition for such personnel from within the financial services industry, including for risk management professionals, and from businesses outside the financial services industry, including the technology industry, have challenged and may continue to challenge our ability to recruit and retain such personnel. For example, we have experienced and continue to experience higher employee turnover and increased competition in hiring and retaining skilled key personnel due to the significant disruptions and changes to the U.S. labor market that have resulted from the COVID-19 pandemic. Failure to attract and retain skilled key personnel, or failure to develop and implement an effective succession plan, could adversely affect our business and operations and, in turn, our results of operations.

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Credit Risk

An Increase in Our Exposure to Credit Losses Could Adversely Affect Our Financial Condition and Results of ~~Operations~~Operations.

We are exposed to credit ~~losses from~~risk as part of our normal business operations through member products, mortgage servicers, investment securities and ~~unsecured counterparties.~~counterparty obligations. Periods of economic downturn, and periods of economic and financial disruptions and uncertainties, may increase credit risk. As an example, the COVID-19 pandemic has resulted in possible increases to our credit risk, as discussed under “The COVID-19 Pandemic and Related Developments Have Resulted in Substantial Economic Uncertainty and Financial Market Disruptions As Well As Significant Strategic and Operational Challenges.”

Member Products.

Advances.If a member fails and the appointed receiver or rehabilitator (or another applicable entity) does not either (i) promptly repay all of the failed institution's obligations to ~~our Bank~~us or (ii) properly assign or assume the outstanding advances, we may be required to liquidate the collateral pledged by the failed institution. The proceeds realized from the liquidation may not be sufficient to fully satisfy the amount of the failed institution's obligations plus the operational cost of liquidation, particularly if market price and interest-rate volatility adversely affect the value of the collateral. Price volatility could also adversely impact our determination of over-collateralization requirements, which could ultimately cause a collateral deficiency in a liquidation scenario. In some cases, we may not be able to liquidate the collateral for the value assigned to it or in a timely manner. Any of these scenarios could cause us to experience a credit loss, which in turn could adversely affect our financial condition and results of operations.

A deterioration of residential or commercial real estate property values could further affect the mortgages pledged as collateral for advances.In order to remain fully collateralized, we may require members to pledge additional collateral when ~~deemed~~we deem it necessary. If members are unable to fully collateralize their obligations with us, our advances could decrease further, negatively affecting our results of operations or ability to pay dividends or redeem or repurchase capital stock.

Mortgage Loans.~~Since the inception of the MPP, we have acquired only traditional fixed-rate loans with fixed terms of up to 30 years.~~ If delinquencies in our fixed-rate mortgages increase and residential property values decline, we could experience reduced yields or losses exceeding the protection provided by the LRA and SMI credit enhancement, ~~and CE obligations,~~ as applicable, on mortgage loans ~~purchased through our MPP or the participating interests in MPF Program loans acquired from the FHLBank of Topeka or another MPF FHLBank.~~that we have purchased.

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We are the beneficiary of third-party PMI and SMI (where applicable)coverage on conventional mortgage loans that we acquire through our MPP, ~~upon which~~and we rely in part on such coverage to reduce the risk of losses on those loans. As a result of actions by their respective state insurance regulators, however, certain of our PMI providers ~~are paying~~may pay less than 100% of the claim amounts. The remaining amounts are deferred until the funds are available or the PMI provider is liquidated. It is possible that insurance regulators may impose restrictions on the ability of our other PMI/SMI providers to pay claims. If our PMI/SMI providers further reduce the portion of mortgage insurance claims they will pay to us or further delay or condition the payment of mortgage insurance claims, or if additional adverse actions are taken by their state insurance regulators, we could experience higher losses on mortgage loans.

Mortgage Servicers.We are also exposed to credit losses from servicers ~~for~~of mortgage loans that we have purchased ~~under our MPP or through participating interests in mortgage loans purchased from other FHLBanks under the MPF Program~~ if they fail to perform their contractual obligations.

Investment ~~Securities.~~ Securities. The MBS market continues to face uncertainty over the potential changes in the Federal ~~Reserve~~Reserve's holdings of MBS and the effect of ~~existing,~~any new or proposed ~~governmental~~ actions. ~~Future~~Additionally, future declines in ~~the~~ housing ~~price forecast,~~prices, as well as other factors, such as increased loan default rates and loss severities and decreased prepayment speeds, may result in ~~additional OTTI charges or~~ unrealized losses, ~~on private-label RMBS,~~ which could adversely affect our ~~operating results, or ability to pay dividends or redeem or repurchase capital stock.~~financial condition.

We are also exposed to credit losses from third-party providers of credit enhancements on the MBS investments that we hold in our investment portfolios, including mortgage insurers, bond insurers and financial guarantors. Our results of operations could be adversely impacted if one or more of these providers fails to fulfill its contractual obligations to us.

~~Unsecured Counterparties.~~ Counterparty Obligations.We assume unsecured credit risk when entering into money market transactions and financial derivatives transactions with domestic and foreign counterparties or through derivatives clearing organizations. A counterparty default could result in losses if our credit exposure to that counterparty is not fully collateralized or if our credit obligations associated with derivative positions are over-collateralized. The insolvency or other inability of a significant counterparty, including a clearing organization, to perform its obligations under such transactions or other agreements could have an adverse effect on our financial condition and results of operations, as well as our ability to engage in routine derivative transactions. If we are unable to transact additional business with those counterparties, our ability to effectively use derivatives could be adversely affected, which could impair our ability to manage some aspects of our interest-rate risk.

~~Our~~

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Moreover, our ability to engage in routine derivatives, funding and other transactions could be adversely affected by the actions and commercial soundness of financial institutions that transact business with our counterparties. Financial services institutions are interrelated as a result of trading, clearing, counterparty and/or other relationships. Consequently, financial difficulties experienced by one or more financial services institutions could lead to market-wide disruptions that may impair our ability to find suitable counterparties for routine business transactions.

Providing Financial Support to Other FHLBanks Could Negatively Impact the Bank's Liquidity, Earnings and Capital and Our Members.

We are jointly and severally liable with the other FHLBanks for the consolidated obligations issued on behalf of the FHLBanks through the Office of Finance. If another FHLBank were to default on its obligation to pay principal and interest on any consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining FHLBanks on a pro-rata basis or on any other basis the Finance Agency may determine. In addition to possibly making payments due on consolidated obligations under our joint and several liability, we may voluntarily or involuntarily provide financial assistance to another FHLBank in order to resolve a condition of financial distress. Such assistance could negatively affect our financial condition, our results of operations and the value of membership in our Bank. Moreover, a Finance Agency regulation provides each FHLBank to contribute at least 10% of its annual net earnings before interest expense on MRCS subject to an FHLBank System-wide annual minimum contribution to AHP of $100 million. If the required contribution is increased or we become liable for a pro-rata share of the System's annual minimum contribution, our prior year's net earnings could be reduced or eliminated. Thus, these requirements could adversely affect our ability to pay dividends to our members or to redeem or repurchase capital stock.

Market Risk

Changes in Response to the Replacement of the LIBOR Benchmark Interest Rate Could Adversely Affect Our Business, Financial Condition and Results of Operations.

Cessation of the Use of LIBOR. A portion of our assets and liabilities remain directly or indirectly indexed to LIBOR. 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 and were no longer representative as of January 1, 2022. The remaining U.S. dollar LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after June 30, 2023. 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.

We have endeavored to identify and amend our financial instruments and contracts that may require adding or adjusting fallback language, including advances, investments and derivatives. Despite these efforts, the contractual consequences of LIBOR cessation for some existing LIBOR-indexed instruments may not be clear.

During 2021, we fully ceased purchasing investments or entering into financial instruments that reference LIBOR and mature after December 31, 2021. In addition, we have altered our hedging and interest-rate risk management strategies. Although the last of our consolidated obligations indexed to LIBOR matured in 2021, a portion of our assets remain indexed to LIBOR, with continuing exposure. As a result, we could experience disruptions in our access to funding; higher funding costs; increased basis risk; or lower overall demand or increased costs for advances. These developments could negatively affect the composition of our balance sheet, capital stock levels, asset mix and net income. As LIBOR has been a principal floating-rate benchmark in the financial markets, its cessation has affected, and will continue to affect, the financial markets generally and our business, financial condition, and results of operations.

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Adoption of SOFR. We continue to take steps to adopt SOFR, the alternative to U.S. dollar LIBOR recommended by the Alternative Reference Rates Committee 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 differences between LIBOR and SOFR or any other alternate reference rate as well as other market conventions. 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 continue to 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 and there can be no guarantee that SOFR will become widely accepted and used across market segments and financial products in a timely manner and any other alternative reference rate may or may not be developed. Further, a robust member demand for SOFR-linked advances has 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 to us.

Changes in Interest Rates or Changes in the Differences Between Short-Term Rates and Long-Term Rates Could Have an Adverse Effect on Our ~~Earnings~~Earnings.

Our ability to prepare for changes in interest rates, or to hedge related exposures such as basis risk, significantly affects the success of our asset and liability management activities and our level of net interest income.

The effect of interest rate changes can be exacerbated by prepayment and extension ~~risk,~~risks, which isare the ~~risk~~risks that mortgage-based investments will be refinanced by borrowers in low interest-rate environments or will remain outstanding longer than expected at below-market yields when interest rates increase. Decreases in interest rates typically cause mortgage prepayments to increase, which may result in increased premium amortization expense and a decrease in the yield of our mortgage assets as we experience a return of principal that we must re-invest in a lower rate environment. While these prepayments would reduce the asset balance, our balance of consolidated obligations may remain outstanding. Conversely, increases in interest rates typically cause mortgage prepayments to decrease or mortgage cash flows to slow, possibly resulting in the debt funding the portfolio to mature and the replacement debt to be issued at a higher cost, thus reducing our interest spread.

A flattening or inverted yield curve, in which the difference between short-term interest rates and long-term interest rates is lower or negative, respectively, relative to prior market conditions, will tend to reduce, and has reduced, the net interest margin on new loans added to the MPP portfolio. Until such time as the yield curve becomes steeper, we may continue to earn lower spread income from that portfolio.

Although derivatives are used to mitigate market risk, they also introduce the potential for short-term earnings volatility, principally due to basis risk because we must use the OIS curve instead of the LIBOR curve as the discount rate to estimate the fair values of collateralized LIBOR-based derivatives while many of the hedged items currently on the balance sheet are still valued using the LIBOR curve. Additionally, our U.S. Treasury liquidity portfolio is economically hedged with OIS interest rate swaps and may introduce income volatility due to non-symmetrical changes in U.S. Treasury rates and OIS swap rates.

Liquidity Risk

The Inability to Access Capital Markets on Acceptable Terms Could Adversely Affect Our Liquidity, Operations, Financial Condition and Results of Operations, and the Value of Membership in Our Bank.

Our primary source of funds is the sale of consolidated obligations in the capital markets. Our ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, such as investor demand and liquidity, and on dealer commitment to inventory and support our debt. Changes to the regulatory environment that affect investors and dealers of consolidated obligations have affected, and will continue to affect, our ability to access the capital markets on acceptable terms as discussed under "Changes in the Legislative and Regulatory Environment for FHLBanks, Our Members, Our Debt Underwriters and Investors, or Other Housing GSEs May Adversely Affect Our Business, Demand for Products, the Cost of Debt Issuance, and the Value of FHLBank Membership." Any further disruption in the debt market could have an adverse impact on our interest spreads, opportunities to call and reissue existing debt or roll over maturing debt, or our ability to satisfy the Finance Agency's liquidity requirements.

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~~In prior years, adverse conditions~~Operational Risk

A Cybersecurity Event; Interruption in ~~the housing and mortgage markets, along with a large drop~~Our Information Systems; Unavailability of, or an Interruption of Service at, Our Main Office or Our Backup Facilities; or Failure of or an Interruption in ~~market interest rates, allowed us to call a portion~~Information Systems of our debt and reissue it at a lower cost, resulting in mortgage spreads that were wider than historic norms and, consequently, higher earnings. More recently, however, we have had fewer opportunities to achieve those wider spreads in that manner. In addition, the outstanding balance of the investment securities that were purchased at higher spreads, as well as the earnings from those investments, have been decreasing. Going forward, we expect these trends to continue to have a moderating effect on our earnings.

~~Changes to~~Third-Party Vendors or ~~Replacement of the LIBOR Benchmark Interest Rate~~Service Providers Could Adversely Affect Our Business, Risk Management, Financial Condition, ~~and~~ Results of Operations, and Reputation.

~~Many~~Cybersecurity.We rely heavily on our information systems and other technology to conduct and manage our business, which inherently involves large financial transactions with our members and other counterparties. Our operations rely on the secure processing, storage and transmission of confidential and other information, both in our and third parties' computer systems and networks, including those of backup service providers. These computer systems, software and networks are vulnerable to breaches, unauthorized access, damage, misuse, computer viruses or other malicious code and other events that could potentially jeopardize the confidentiality of such information or otherwise cause interruptions or malfunctions in our operations, either directly or through a third party. We have not experienced a disruption in our information systems that has had a material adverse effect on us. However, as malicious threat tactics continue to become more pervasive and more sophisticated, and as regulatory scrutiny of cybersecurity risk management increases, we are required to implement more advanced mitigating controls, which increases our costs. Moreover, if we experience a significant cybersecurity event, either directly or through a third party, we may suffer significant financial or data loss; be unable to conduct and manage our business functions effectively; incur significant expenses in remediating such incidents; and suffer reputational harm. Any such occurrence could result in increased regulatory scrutiny of our assets and liabilities are indexed to LIBOR. On July 27, 2017, the Financial Conduct Authority ("FCA"), a regulator of financial services firms and financial markets in the United Kingdom, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. The FCA has indicated it will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. Further, in the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the FRB and the Federal Reserve Bank of New York. Other financial services regulators and industry groups are evaluating the possible phase-out of LIBOR and the development of alternate interest rate indices or reference rates.

The transition from LIBOR-referenced assets and liabilities to assets and liabilities indexed to a new reference rate also carries risks. The infrastructure necessary to manage hedging in the alternative reference rate still needs to be built out, and the transition in the markets, and adjustments in our systems, could be disruptive, with disruptions potentially beginning before the currently-planned phase-out of FCA's support of LIBOR. A mechanism does not yet exist to convert the credit and tenor features of LIBOR into any proposed replacement rate, nor has a market been established which could facilitate such conversion. Moreover, there is no guarantee that, if such a market were created and functioning at the time of the transition, the transition will be successful. Similarly, the transition from one reference rate to another could have accounting effects. For example, such transition could have an effect on our hedge effectiveness, which could affect our results of operations. Additionally, our risk management measuring, monitoring and valuation tools factor in LIBOR as a reference rate. Disruptions in the market for LIBOR, and its regulatory framework, could have unanticipated effects on our risk management activities as well.

Given the large volume of LIBOR-based mortgages and financial instruments, the basis adjustment to the replacement floating rate will receive extraordinary scrutiny, but whether the net impact is positive or negative cannot yet be ascertained. We expect that other market participants, including our member institutions, derivatives clearing organizations, and other financial counterparties are also monitoring the LIBOR transition, but we cannot predict how such institutions will react to the transition, or what effects such reactions will have on us. We are not able to predict at this time whether LIBOR will cease to be available after 2021, whether the alternative rates the FRB proposes to publish will become market benchmarks in place of LIBOR, whether the transitions to the new reference rates will be successful, or what the impact of such a transition will be on the Bank's business, financial condition or results of operations.

~~Competition Could Negatively Impact Advances, the Supply of Mortgage Loans for our MPP, Our Access to Funding and Our Earnings~~

We operate in a highly competitive environment. Demand for advances is affected by, among other factors, the cost and availability of other sources of liquidity for our members, including deposits. We compete with other suppliers of wholesale funding, both secured and unsecured. Such other suppliers may include the United States government, the Federal Reserve Banks, corporate credit unions, the Central Liquidity Facility, investment banks, commercial banks, and in certain circumstances other FHLBanks. Large institutions may also have independent access to the national and global credit markets. The availability of alternative funding sources to members can significantly influence the demand for advances and can vary as a result of several factors, including market conditions, members' creditworthiness, and availability of collateral. Lower demand for advances could negatively impact our earnings.

Likewise, our MPP is subject to significant competition. The most direct competition for purchases of mortgages comes from other buyers of conventional, conforming, fixed-rate mortgage loans, such as Fannie Mae and Freddie Mac. In addition, PFIs face increased origination competition from originators that are not members of our Bank. Increased competition can result in a smaller share of the mortgages available for purchase through our MPP and, therefore, lower earnings.

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We also compete with Fannie Mae, Freddie Mac, and other GSEs as well as corporate, sovereign, and supranational entities for funds raised through the issuance of CO bonds and discount notes. Increases in the supply of competing debt products 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. There can be no assurance that our ~~supply~~or any third parties' cybersecurity controls will timely detect or prevent all cybersecurity incidents. Although we carry cybersecurity insurance, its coverage may not be broad enough or adequate to cover losses we may incur if a significant cybersecurity event occurs.

Information Systems; Facilities; Unavailability or Interruption of ~~funds through~~Service.In addition, our operations rely on the availability and functioning of our main office, our business resumption center and other facilities. If we experience a significant failure or interruption in our business continuity, disaster recovery or certain information systems, we may be unable to conduct and manage our business functions effectively; incur significant expenses in remediating such incidents; and suffer reputational harm. Moreover, any of these occurrences could result in increased regulatory scrutiny of our operations.

Office of Finance.The Office of Finance is a joint office of the FHLBanks established to facilitate the issuance and servicing of consolidated obligations, among other activities. A failure or interruption of the Office of Finance's services as a result of breaches, cyber attacks, or technological outages (either in the Office of Finance or certain of its third party service providers, including those of backup service providers) could constrain or otherwise negatively affect our business operations, including disruptions to our access to funding through the sale of consolidated obligations. Moreover, any operational failure of the Office of Finance or of its third party providers could expose us to the risk of loss of data or confidential information, or other harm, including reputational damage.

Other Third Parties.Despite our policies, procedures, controls and initiatives, some operational risks are beyond our control, and the failure of other parties to adequately address their performance standards and operational risks could adversely affect us. In addition to internal computer systems, we outsource certain communication and information systems and other services critical to our business infrastructure, and regulatory compliance to third-party vendors and service providers, including derivatives clearing organizations, loan servicers, and the Federal Reserve as to funds transfers.

Compromised security or operational errors at any third party with whom we conduct business, or at any third party's contractors, could expose us to cyber attacks, other breaches or service failures or interruptions. If one or more of these external parties were not able to perform their functions for a period of time, at an acceptable service level, or with increased volumes, our business operations could be constrained, disrupted, or otherwise negatively affected. In addition, any failure, interruption or breach in security of these systems, any disruption of service, or any external party's failure to perform its contractual obligations could result in failures or interruptions in our ability to conduct and manage our business effectively, including, without limitation, our advances, MPP, funding, hedging activities and regulatory compliance. There is no assurance that such failures or interruptions will not occur or, if they do occur, that they will be ~~sufficient~~timely detected or adequately addressed by us or the third parties on which we rely. Any failure, interruption, or breach could significantly harm our customer relations and business operations, which could negatively affect our financial condition, results of operations, or ability to ~~meet our future operational needs.~~pay dividends or redeem or repurchase capital stock.

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A Failure of the Business and Financial Models and Related Processes Used to Evaluate Various Financial Risks and Derive Certain Estimates in Our Financial Statements Could Produce Unreliable Projections or Valuations, which Could Adversely Affect Our Business, Financial Condition, Results of Operations and Risk ~~Management~~Management.

We are exposed to market, business and operational risk, in part due to the significant use of business and financial models when evaluating various financial risks and deriving certain estimates in our financial statements. Our business could be adversely affected if these models fail to produce reliable projections or valuations. These models, which rely on various inputs including, but not limited to, loan volumes and pricing, market conditions for our consolidated obligations, interest-rate spreads and prepayment speeds, implied volatility of options contracts, and cash flows on mortgage-related assets, require management to make critical judgments about the appropriate assumptions that are used in the determinations of such risks and estimates and may overstate or understate the value of certain financial instruments, future performance expectations, or our level of risk exposure. Our models could produce unreliable results for a number of reasons, including, but not limited to, invalid or incorrect assumptions underlying the models, the need for manual adjustments in response to rapid changes in economic conditions, incorrect coding of the models, incorrect data being used by the models or inappropriate application of a model to products or events outside the model's intended use. In particular, models ~~are~~can be less dependable when the economic environment is outside of historical experience, as has been the case in recent years. ~~See~~ ~~Item 7. Management's Discussion and Analysis~~By way of ~~Financial Condition and Results~~example, one model’s predictions of ~~Operations - Critical Accounting Policies and Estimates and Risk Management -Operational Risk Management~~ ~~for more information.~~

~~A Prolonged Delay~~prepayment speeds has proven to be inaccurate in the ~~Initiation~~current economic environment. While we take steps to review and validate our models to minimize inaccuracies, there can be no assurance that all inaccuracies will be identified timely. The reliance on inaccurate models could result in unreliable projections or ~~Completion of Foreclosure Proceedings on Mortgage Loans May Have an Adverse Effect on Our Business, Financial Condition~~valuations, which could result in sub-optimal strategies and, ~~Results of Operations~~

~~The processing of foreclosures continues to be slow~~ in certain states due to prolonged foreclosure proceedings resulting from changes in state foreclosure laws, court procedures, post-foreclosure application of state eviction laws and the pipeline of foreclosures resulting from these delays. In addition, inadequate court budgets in certain states could further delay the processing of foreclosures. The foregoing factors continue to have a noticeable effect on the scheduling and enforcement of court-ordered foreclosure sales.

~~A prolonged delay of mortgage foreclosure proceedings may have adverse effects on our mortgage investments' income and expenses and the market value of the underlying collateral, which could~~turn, adversely affect our business, financial condition, results of operations and risk management.

Natural Disasters, Including those Resulting from Significant Climate Change, Could Adversely Affect Our Business and Our Members.

Regions in which we operate are subject to natural disasters, including risks from hurricanes, tornadoes, floods, wild fires, drought and other natural disasters. Climate change is increasing the frequency, intensity and duration of these weather events. These natural disasters could destroy or damage our assets or collateral that members have pledged to us; disrupt our business; increase the probability of power or other outages; negatively affect the livelihood of borrowers of our members; or otherwise cause significant economic dislocation in the affected regions. Any of these situations may adversely affect our financial condition and results of operations.

~~A Failure to Meet Minimum Regulatory Capital Requirements Could Affect Our Ability to Pay Dividends, Redeem or Repurchase Capital Stock, and Attract New Members~~

ITEM 1B. UNRESOLVED STAFF COMMENTS

We are required to maintain sufficient capital to meet specific minimum requirements established by the Finance Agency. If we violate any of these requirements or if our board or the Finance Agency determines that we have incurred, or are likely to incur, losses resulting, or expected to result, in a charge against capital, we would not be able to redeem or repurchase any capital stock while such charges are continuing or expected to continue, even if the statutory redemption period had expired for some or all of such stock. Violations of our capital requirements could also restrict our ability to pay dividends, lend, invest, or purchase mortgage loans or participating interests in mortgage loans, or other business activities. Additionally, the Finance Agency could direct us to call upon our members to purchase additional capital stock to meet our minimum regulatory capital requirements. Members may be unable or unwilling to satisfy such calls for additional capital, thereby adversely affecting their ability to continue doing business with us.

None.

The formula for calculating risk-based capital includes factors that depend on interest rates and other market metrics outside our control and could cause our minimum requirement to increase to a point exceeding our capital level. Further, if our retained earnings were to become inadequate, the Finance Agency could initiate restrictions consistent with those associated with a failure of a minimum capital requirement.

~~Table of Contents~~

The Dodd-Frank Act requires certain financial companies with total consolidated assets of more than $10.0 billion and that are regulated by a primary federal financial regulatory agency to conduct annual stress tests to determine whether the companies have the capital necessary to absorb losses under adverse economic conditions. The Finance Agency has implemented annual stress testing for the FHLBanks. We must report the results of our stress tests to the Finance Agency and the FRB on an annual basis, and we must also publicly disclose a summary of stress test results for the "severely adverse" scenario on an annual basis.

The severity of the hypothetical scenarios devised by the Finance Agency and the FRB and employed in these stress tests is not defined by law or regulation, and is thus subject to the regulators' discretion. Nonetheless, the results of the stress testing process may affect our approach to managing and deploying capital. The stress testing and capital planning processes may, among other things, require us to increase our capital levels, modify our business strategies, or decrease our exposure to various asset classes.

The stability of our capital is also important in maintaining the value of membership in our Bank. Failure to pay dividends or redeem or repurchase stock at par, or a call upon our members to purchase additional stock to restore capital, could make it more difficult for us to attract new members or retain existing members.

~~Restrictions on the Redemption, Repurchase, or Transfer of the Bank's Capital Stock Could Result in an Illiquid Investment for the Holder~~

Under the GLB Act, Finance Agency regulations, and our capital plan, our capital stock may be redeemed upon the expiration of a five-year redemption period, subject to certain conditions. Capital stock may become subject to redemption following the redemption period after a member (i) provides a written redemption notice to the Bank; (ii) gives notice of intention to withdraw from membership; (iii) attains nonmember status by merger or acquisition, charter termination, or other involuntary membership termination; or (iv) has its Bank capital stock transferred by a receiver or other liquidating agent for that member to a nonmember entity. In addition, we may elect to repurchase some or all of the excess capital stock of a shareholder at any time at our sole discretion.

There is no guarantee, however, that we will be able to redeem shareholders' capital stock, even at the end of the prescribed redemption period, or to repurchase their excess capital stock. If a redemption or repurchase of capital stock would cause us to fail to meet our minimum regulatory capital requirements, Finance Agency regulations and our capital plan would prohibit the redemption or repurchase. Moreover, only capital stock that is not required to meet a member's membership capital stock requirement or to support a member or nonmember shareholder's outstanding activity with the Bank (excess capital stock) may be redeemed at the end of the redemption period. Restrictions on the redemption or repurchase of our capital stock could result in an illiquid investment for holders of our stock. In addition, because 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 or nonmember shareholder may transfer any of its capital stock to another member or nonmember shareholder, we cannot provide assurance that we would allow a member or nonmember shareholder to transfer any excess capital stock to another member or nonmember shareholder at any time.

~~Providing Financial Support to Other FHLBanks Could Negatively Impact the Bank's Liquidity, Earnings and Capital and Our Members~~

We are jointly and severally liable with the other FHLBanks for the consolidated obligations issued on behalf of the FHLBanks through the Office of Finance. If another FHLBank were to default on its obligation to pay principal and interest on any consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. In addition to possibly making payments due on consolidated obligations under our joint and several liability, we may voluntarily or involuntarily provide financial assistance to another FHLBank in order to resolve a condition of financial distress. Such assistance could negatively affect our financial condition, our results of operation and the value of membership in our Bank. Moreover, a Finance Agency regulation provides for an FHLBank System-wide annual minimum contribution to AHP of $100 million, and we could be liable for a pro rata share of that amount (based on the FHLBanks' combined net earnings for the previous year), up to 100% of our net earnings for the previous year. Thus, our ability to pay dividends to our members or to redeem or repurchase capital stock could be affected by the financial condition of one or more of the other FHLBanks.

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ITEM 2. PROPERTIES

We own an office building containing approximately 117,000 square feet of office and storage space at 8250 Woodfield Crossing Boulevard, Indianapolis, IN, of which we use approximately ~~65,000~~108,200 square feet. We lease ~~or hold for lease to various tenants~~ the remaining ~~52,000~~8,800 square feet. We also lease office space in Detroit, MI, which is used for community and member engagement, and in Anderson, IN, which is used for business resumption activities in the event of a loss of or a disruption to the primary facility.

We also maintain two ~~leased off-site backup facilities of approximately 6,800 square feet and 200 square feet, respectively, that~~geographically dispersed, co-located data centers which are on electrical distribution grids that are separate from each other and from our office ~~building. In addition, we maintain a third leased off-site backup facility that we plan to begin using as our business resumption center in 2018. See~~ ~~Item~~buildings. For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Operational Risk Management ~~for additional information.~~.

In the opinion of management, our physical properties are suitable and adequate. All of our properties are insured to approximately replacement cost. In the event we were to need more space, our lease terms with tenants generally provide the ability to move tenants to comparable space at other locations at our cost for moving and outfitting any replacement space to meet our tenants' needs.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, we may from time to time become a party to lawsuits involving various business matters. We are unaware of any lawsuits presently pending which, individually or in the aggregate, could have a material effect on our financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We use acronyms and terms throughout this Item that are defined herein or in the ~~Glossary of Terms~~.Defined Terms.

No Trading Market

Our ~~Class B~~ capital stock is not publicly traded, and there is no established market for such stock. Members may be required to purchase additional shares of ~~Class B~~ stock from time to time ~~in order~~ to meet minimum stock purchase requirements under our capital plan. Our Class B stock may be redeemed, at a par value of $100 per share, up to five years after we receive a written redemption request by a member, subject to regulatory limits and the satisfaction of any ongoing stock purchase requirements applicable to the member. We may repurchase shares held by members in excess of their required holdings at our discretion at any time in accordance with our capital plan.

Our Class B ~~common~~ stock is registered under the Exchange ~~Act.~~Act and may be purchased, sold, redeemed and repurchased only at par. Because our shares of capital stock are "exempt securities" under the Securities Act, purchases and sales of stock by our members are not subject to registration under the Securities Act.

Depending on the class of capital stock, it may be redeemed 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 their required holdings at our discretion at any time in accordance with our capital plan.

Capital Structure

Our capital plan was amended and restated effective September 26, 2020. The amended plan continues to provide for two sub-series of Class B capital stock: Class B-1 and Class B-2. Under the amended plan, Class B-1 stock is held by our members to satisfy their membership stock requirements, while Class B-2 stock is held to satisfy members’ activity-based stock requirements. However, Class B-1 stock is automatically reclassified as Class B-2 as needed to help fulfill the member’s activity-based stock requirement, and the member may be required to purchase additional Class B-2 stock in order to fully meet that requirement. In addition, excess Class B-2 stock is automatically reclassified as Class B-1. The amended plan does not require that stock under redemption be converted or reclassified from one class to another. By contrast, under our prior capital plan in effect through September 25, 2020, Class B-1 was stock held by our members that was not subject to a redemption request, and Class B-2 stock consisted solely of required stock that was subject to a redemption request.

Under our capital plan, PFIs may opt in to an activity-based stock requirement in connection with their sales of mortgage loans to us under Advantage MPP. PFIs may elect this stock requirement each time they enter into an MCC with us based on the outstanding principal balance of loans purchased. As of December 31, 2021, such Class B-2 stock issued and outstanding totaled $65 million.

Our capital plan also permits the board of directors to authorize the issuance of Class A stock. Under the plan, Class A stock may be used at the member’s election, in lieu of Class B-2 stock, to satisfy the member’s activity-based stock requirement. Class A stock is subject to the same redemption requirements and limitations as Class B stock, except the applicable redemption period for Class A stock is six months. As of December 31, 2021, the board of directors had not authorized the issuance of Class A stock.

Number of Shareholders

As of February 28, ~~2018,~~2022, we had ~~392~~357 shareholders and ~~$2.0~~$2.1 billion par value of regulatory capital stock, which includes Class B ~~common~~ stock and MRCS issued and outstanding. As of February 28, 2022, we had no Class A stock outstanding.

Dividends

A cooperative enterprise enjoys the benefits of an integrated customer/shareholder base; however, there are certain tensions inherent in our membership structure that are unusual and unique to the FHLBanks. Because only member institutions and certain former members can own shares of our capital stock and, by statute and regulation, stock can be issued and repurchased only at par, there is no open market for our stock and no opportunity for stock price appreciation. As a result, return on equity can be received only in the form of dividends.

~~Dividends~~We may, but are not required to, ~~be paid~~pay dividends on our ~~Class B~~ capital stock. ~~Our~~Dividends are authorized by our board of directors ~~may declare~~ and ~~pay dividends in either cash or capital stock or a combination thereof,~~ subject to Finance Agency regulations. Dividends are non-cumulative and may be paid in cash or capital stock out of current net earnings, or from unrestricted retained earnings, or from restricted retained earnings after that balance exceeds 1.5% of the average balance of our outstanding consolidated obligations for the previous quarter. No dividend may be declared or paid if we are or would be, as a result of such payment, in violation of our minimum capital requirements. Moreover, we may not pay dividends if any principal or interest due on any consolidated obligation issued on behalf of any of the FHLBanks has not been paid in full or, under certain circumstances, if we fail to satisfy liquidity requirements under applicable Finance Agency regulations.

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Under ~~these~~Finance Agency regulations, stock dividends cannot be paid if our excess stock is greater than 1% of our total assets. At December 31, ~~2017,~~2021, our excess stock was ~~0.54%~~1.40% of our total ~~assets.~~assets.

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~~Our board of directors' decisions to declare dividends are influenced by~~Under our ~~financial condition, overall financial performance and retained earnings, as well as actual and anticipated developments in~~capital plan, the ~~overall economic and financial environment including the level of interest rates and conditions in the mortgage and credit markets. In addition, our~~ board of directors ~~considers several other factors, including our risk profile, regulatory requirements, our relationship with our members and~~may declare a dividend rate on Class B-2 stock that equals or exceeds the ~~stability of our current capital stock position and membership.~~

~~Our capital plan provides for two sub-series of Class B capital stock:~~rate on Class B-1 ~~and~~stock. Similarly, the board of directors may declare a dividend rate on Class ~~B-2.~~A stock that equals or exceeds the rate on Class B-1 is stock held by our members that is not subject to a redemption request, while Class B-2 is required stock that is subject to a redemption request. Class B-1 shareholders receive a higher dividend than Class B-2 shareholders. The Class B-2 dividend is presently equal to 80% of the amount of the Class B-1 dividend and can only be changed by an amendment to our capital plan with approval of the Finance Agency. stock.

The amount of the dividend to be paid is based on the average number of shares of each sub-series held by a member during the dividend payment period (applicable quarter).

For more information, see Notes to Financial Statements - Note 1512 - Capital and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Capital Resources.

We are exempt from federal, state, and local taxation, except for employment and real estate taxes. Despite our tax-exempt status, any cash dividends paid by us to our members are taxable dividends to the members, and our members do not benefit from the exclusion for corporate dividends received. The preceding statement is for general information only; it is not tax advice. Members should consult their own tax advisors regarding particular federal, state, and local tax consequences of purchasing, holding, and disposing of our Class B stock, including the consequences of any proposed change in applicable law.

~~We paid quarterly cash dividends as set forth in the following table ($ amounts in thousands).~~

Class B-1 Class B-2
By Quarter Paid Dividend on Capital Stock Interest Expense on MRCS Total
Annualized Dividend Rate ⁽¹⁾
Dividend on Capital Stock Interest Expense on MRCS Total
Annualized Dividend Rate ⁽¹⁾
2018
Quarter 1 ⁽²⁾
$ 11,481
$ 1,014
$ 12,495
2.50 % $ 6
$ 20
$ 26
2.00 %
Quarter 1 ⁽²⁾
19,518
1,723
21,241
4.25 % 10
34
44
3.40 %

2017
Quarter 4 $ 18,564
$ 1,724
$ 20,288
4.25 % $ 11
$ 44
$ 55
3.40 %
Quarter 3 17,373
1,703
19,076
4.25 % 14
52
66
3.40 %
Quarter 2 15,803
1,701
17,504
4.25 % 15
52
67
3.40 %
Quarter 1
15,545
1,824
17,369
4.25 % 19
54
73
3.40 %

2016
Quarter 4 $ 14,966
$ 1,844
$ 16,810
4.25 % $ 11
$ 57
$ 68
3.40 %
Quarter 3 14,637
1,804
16,441
4.25 % —
74
74
3.40 %
Quarter 2 14,384
1,930
16,314
4.25 % —
87
87
3.40 %
Quarter 1 15,797
29
15,826
4.25 % —
98
98
3.40 %


⁽¹⁾	Reflects the annualized dividend rate on all of our average capital stock outstanding in Class B-1 and Class B-2, respectively, regardless of its classification for financial reporting purposes as either capital stock or MRCS. The Class B-2 dividend is paid at 80% of the amount of the Class B-1 dividend.


⁽²⁾	Our board of directors declared a cash dividend of 4.25% (annualized) on our Class B-1 capital stock and 3.40% (annualized) on our Class B-2 capital stock. In addition, our board of directors declared a supplemental cash dividend of 2.50% (annualized) on our Class B-1 capital stock and 2.00% (annualized) on our Class B-2 capital stock.

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ITEM 6. ~~SELECTED FINANCIAL DATA~~[Reserved]

~~We use acronyms and terms throughout this Item that are defined herein or in the~~ ~~Glossary of Terms. The following table should be read in conjunction with the financial statements and related notes and the discussion set forth in~~ ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The table presents a summary of selected financial information derived from audited financial statements as of and for the years ended as indicated ($ amounts in millions).~~

As of and for the Years Ended December 31,
2017 2016 2015 2014 2013
Statement of Condition:

Advances $ 34,055
$ 28,096
$ 26,909
$ 20,789
$ 17,337
Mortgage loans held for portfolio, net 10,356
9,501
8,146
6,820
6,168
Cash and investments⁽¹⁾
17,628
16,008
15,347
14,090
14,099
Total assets 62,349
53,907
50,608
41,853
37,764

Discount notes 20,358
16,802
19,251
12,568
7,435
CO bonds 37,896
33,467
27,862
25,503
26,584
Total consolidated obligations 58,254
50,269
47,113
38,071
34,019

MRCS 164
170
14
16
17

Capital stock 1,858
1,493
1,528
1,551
1,610
Retained earnings ⁽²⁾
976
887
835
777
730
AOCI 112
56
23
47
22
Total capital 2,946
2,436
2,386
2,375
2,362

Statement of Income:

Net interest income $ 262
$ 198
$ 196
$ 184
$ 223
Provision for (reversal of) credit losses —
—
—
(1 ) (4 )
Net OTTI credit losses —
—
—
—
(2 )
Other income (loss), excluding net OTTI credit losses (6 ) 6
10
13
71
Other expenses 82
78
72
68
68
AHP assessments 18
13
13
13
25
Net income $ 156
$ 113
$ 121

$ 117

$ 203

Selected Financial Ratios:

Net interest margin⁽³⁾
0.45 % 0.39 % 0.44 % 0.47 % 0.56 %
Return on average equity 5.88 % 4.92 % 5.13 % 4.72 % 8.82 %
Return on average assets 0.26 % 0.22 % 0.27 % 0.30 % 0.51 %
Weighted average dividend rate ⁽⁴⁾
4.25 % 4.25 % 4.12 % 4.18 % 3.50 %
Dividend payout ratio ⁽⁵⁾
43.05 % 53.87 % 52.48 % 58.96 % 28.37 %
Total capital ratio ⁽⁶⁾
4.72 % 4.52 % 4.71 % 5.68 % 6.25 %
Total regulatory capital ratio ⁽⁷⁾
4.81 % 4.73 % 4.70 % 5.60 % 6.24 %
Average equity to average assets 4.47 % 4.46 % 5.23 % 6.29 % 5.75 %


⁽¹⁾	~~Consists of cash, interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, AFS securities, and HTM securities.~~


⁽²⁾	~~Includes restricted and unrestricted retained earnings.~~


⁽³⁾	~~Net interest income expressed as a percentage of average interest-earning assets.~~


⁽⁴⁾	~~Dividends paid in cash during the year divided by the average amount of Class B capital stock eligible for dividends under our capital plan, excluding MRCS.~~


⁽⁵⁾	~~Dividends paid in cash during the year divided by net income for the year. The ratio for the year ended December 31, 2014 includes a supplemental dividend of 2.0% related to 2013 results.~~


⁽⁶⁾	~~Capital stock plus retained earnings and AOCI expressed as a percentage of total assets.~~


⁽⁷⁾	~~Capital stock plus retained earnings and MRCS expressed as a percentage of total assets.~~

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Presentation

This discussion and analysis by management of the Bank's financial condition and results of operations should be read in conjunction with the Financial Statements and related Notes to Financial Statements contained in this Form 10-K.

As used in this Item, unless the context otherwise requires, the terms "Bank", "we," "us," and "our," ~~and the "Bank"~~ refer to the Federal Home Loan Bank of Indianapolis or its management. ~~We use acronyms~~Acronyms and terms used throughout this Item ~~that~~ are defined herein or in the ~~Glossary of~~Defined Terms.

Unless otherwise stated, amounts disclosed in this ~~section of the Form 10-K~~Item are rounded to the nearest million; therefore, dollar amounts of less than one million may not be reflected ~~and,~~or, due to rounding, may not appear to agree to the amounts presented in thousands in the Financial Statements and related Notes to Financial ~~Statements~~Statements. Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, ~~calculations~~calculations based upon the disclosed amounts (millions) may not produce the same results.

Executive Summary

Overview. WeAs an FHLBank, we are a regional wholesale bank that serves as a financial intermediary between the capital markets and our members. The Bank is structured as a financial cooperative. Therefore, it is generally designed to expand and contract in asset size as the needs of our members and their communities change. We primarily make secured loans in the form of advances to our members and purchase whole mortgage loans from our members. Additionally, we purchase other investments and provide other financial services to our members.

Our principal source of funding is the proceeds from the sale to the public of FHLBank debt instruments, called consolidated obligations, which are the joint and several obligation of all FHLBanks. We obtain additional funds from deposits, other borrowings, and ~~the sale of~~by issuing capital stock to our members. ~~As an FHLBank, we are generally designed to expand and contract in asset size as the needs of our members and their communities change over time.~~

Our primary source of revenue is interest earned on a~~dvances,~~advances, mortgage loans, and ~~long- and short-term investments.~~investments, including MBS.

Our net interest income is primarily determined by the spread between the interest rate earned on our assets and the interest rate paid on our share of the consolidated obligations. A substantial portion of net interest income may also be derived from deploying our interest-free capital. We use funding and hedging strategies to manage the related interest-rate risk.

Due to our cooperative structure and wholesale nature, we typically earn a narrow ~~net~~ interest spread. Accordingly, our net income is relatively low compared to our total assets and capital.

We group our products and services within two operating segments: traditional and mortgage ~~loans.~~loans.

~~Economic~~For more background information on the Bank, see Item 1. Business.

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Business Environment.

The ~~Bank’s~~Bank's financial performance is influenced by ~~a number of national and regional~~several key economic and market factors, including fiscal and monetary policies, the strength of the housing markets and the level and volatility of market interest ~~rates, inflation~~rates.

Economy and Financial Markets. U.S. real gross domestic product ("GDP") increased at an annual rate of 7.0% in the fourth quarter of 2021 after increasing at an annual rate of 2.3% in the third quarter of 2021, as reported by the Bureau of Economic Analysis. The acceleration in the fourth quarter was led by an upturn in exports as well as accelerations in inventory investment and consumer spending. However, in some parts of the country, COVID-19 cases resulted in continued restrictions and disruptions in the operations of establishments. In addition, government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or ~~deflation, monetary policies, and the strength of housing markets.~~tapered off.

In January 2022, the Bureau of Labor Statistics reported that the U.S. unemployment rate had declined to 3.9% in December ~~2017 FOMC meeting,~~2021, compared to 6.7% in December 2020. Employment growth continued in leisure and hospitality, professional and business services, retail trade, and transportation and warehousing.

Inflation has become a huge challenge to economic growth. The annual inflation rate for the U.S. in 2021 was 7.0%, the highest since 1982, as reported by the U.S. Department of Labor.

Conditions in U.S. Housing Markets. The seasonally adjusted annual rate of U.S. existing home sales declined by 8% in 2021, compared to 2020, attributed to low housing inventory levels and higher home prices. However, U.S. existing home sales unexpectedly increased in January, but investors purchasing in cash are squeezing out first-time buyers from the housing market amid record low inventory and higher prices. The surge in sales of existing homes also reflected buyers rushing to close contracts in anticipation of mortgage rates increasing.

Sales of new U.S. homes retreated in January after a flurry of purchases at the end of 2021, indicating the increases in mortgage rates may be starting to restrain demand. While underlying demand for new homes remains solid, fueled in part by record low inventory in the resale market, the highest mortgage rates since mid-2019 present a headwind. Higher materials costs are also contributing to housing price inflation and sidelining many prospective buyers. A further moderation in sales may help builders chip away at construction backlogs that are still elevated due to supply and transportation delays.

Interest Rate Levels and Volatility. The level and volatility of interest rates and credit spreads were affected by several factors during 2021, principally the continued economic recovery from the COVID-19 pandemic and efforts in response by the Federal Reserve to maintain low short-term interest rates and facilitate liquidity. Overall economic conditions and financial regulation also continue to be influencing factors.

Since March 15, 2020, the FOMC ~~increased~~has maintained a target range for the federal funds rate of 0.0% to 0.25%, noting that the COVID-19 pandemic had harmed communities and disrupted economic activity in many countries, including the United States. At its meeting in January 2022, the FOMC maintained the federal funds target range, ~~by 0.25%~~and signaled that it would continue the process of gradually tapering its purchases of Treasury securities and Agency MBS, as ~~expected. This was~~ the ~~third increase~~economic recovery remains broadly on track. However, in ~~2017, for a total of 1.25% since~~response to inflation concerns, the ~~tightening cycle began. Several more rate increases are expected by the market during 2018. The~~ FOMC has ~~been able~~indicated that it expects to take a slow and consistent approach to increasing short-term rates as expanding economic activity and a strong labor market have been accompanied by low inflation. The FOMC is still maintaining an accommodative monetary policy, but has begun to reduce its portfolio holdings accumulated during its long quantitative easing cycle. Since 2009,raise the Federal Reserve has purchased and accumulated over $4 trillion of securities, primarily U.S. Treasury and MBS. The Federal Reserve will continue to reinvest some of the cash flow generated, but intends to reduce its holdings over time. Subsequent totarget range for the federal funds ~~target and short-term~~ rate ~~increases,~~beginning in March.

The following table presents certain key interest rates ~~on longer-maturity U.S. treasuries have increased less than~~for both the twelve-month averages for 2021 and 2020 and at December 31, 2021 and 2020.


	Twelve-Month Average				December 31,
	2021		2020		2021		2020
Federal Funds Effective	0.08	%	0.36	%	0.07	%	0.09	%
SOFR	0.04	%	0.36	%	0.05	%	0.07	%
Overnight LIBOR	0.08	%	0.37	%	0.06	%	0.08	%
1-week OIS	0.08	%	0.36	%	0.08	%	0.09	%
3-month LIBOR	0.16	%	0.65	%	0.21	%	0.24	%
3-month U.S. Treasury yield	0.04	%	0.35	%	0.04	%	0.07	%
2-year U.S Treasury yield	0.26	%	0.39	%	0.73	%	0.12	%
10-year U.S. Treasury yield	1.44	%	0.89	%	1.51	%	0.92	%

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The averages of short-term interest rates ~~resulting~~were significantly lower during 2021, compared to 2020, impacting the Bank's results of operations, primarily by decreasing both interest income and interest expense. However, longer-term interest rates, while still relatively low, increased in ~~a higher and flattening yield curve.~~

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~~Real U.S. Gross Domestic Product ("GDP") increased by an annualized rate of 2.5%~~2021 compared to 2020. Changes in the ~~fourth quarter~~short- and long-term interest rates also impacted the fair values of ~~2017, moderately lower than the 3.2% increase during the 3rd quarter. The growth deceleration for the quarter has been attributed to a downturn in private inventory investment~~certain assets and increased imports, which is a subtraction in the calculation of GDP. However, this growth marks the current economic expansion at 102 months, compared to a long-term average of 47 months. On an annual basis, real GDP was up 2.3% for all of 2017, according to the advance estimate by the Bureau of Economic Analysis, compared to 1.5% in 2016. Personal consumption expenditures, non-residential fixed investment, and government spending have led GDP growth throughout the year. Strong consumer spending, led by a rebound in the retail sector in the fourth quarter, has been a primary growth factor. The energy sector has experienced a rebound and construction spending remains strong. Manufacturing growth, particularly in light vehicles, has begun to slow in the last quarter of 2017.

Indiana and Michigan’s preliminary unemployment rates for December 2017 improved to 3.4% and 4.7%, respectively. The strong labor market, marked by a 4.1% national unemployment rate in January 2018, has shown regular improvements since the peak unemployment rate of 10% in October 2009. Despite strong continued job growth, wage growth has remained muted throughout most of this expansion cycle. The U.S. economy has produced over two million jobs annually for eachliabilities of the past five years; however, many of those jobs are part-time or seasonal positions offering lower wages and low or no benefits. This is the likely cause of muted inflation levels despite strong employment and GDP figures through most of the economic cycle. However, markets were surprised with the release of the January 2018 Employment Situation report. The unemployment rate remained unchanged, but wages were up 2.9% from a year earlier, marking the fastest rate of wage growth since 2009.Bank.

The housing market has remained strong, showing continued strong price growth, particularly in the starter-home market. Researchers from Zillow, Mortgage Bankers Association, National Association of Realtors and Redfin all forecast that inventories of entry-level homes will remain tight and prices will continue to rise throughout 2018. They all also project rising mortgage rates, contributing to overall less affordable housing than we have enjoyed in recent years.

Indiana University’s Business Research Center projects the average economic growth rate for Indiana to virtually match the rate of national growth through 2020. Personal income growth in the state has lagged national growth levels, though the unemployment rate has been better. Personal income growth through 2020 is forecast to grow at an annual rate of 4.4%. The University of Michigan Research Seminar in Quantitative Economics has reported continued growth in personal income and real disposable income for the state in the past three years and projects continuing improvement in 2018. Michigan is entering its ninth year of economic expansion. Job growth has outpaced the national level through 2016, slowing to an annual rate of +0.9% in the first three quarters of 2017. Projected job growth through 2019 is expected to increase by 1.2%.

Impact on Operating Results. Market interest rates and trends affect yields and margins on earning assets, including advances, purchased mortgage loans, and our investment portfolio, which contribute to our overall profitability. Additionally, market interest rates drive mortgage origination and prepayment activity, which can lead to ~~both favorable and unfavorable~~net interest margin volatility in our MPP and MBS portfolios. A flat or inverted yield curve, in which the difference between short-term interest rates and long-term interest rates is low, or negative, respectively, can have an unfavorable impact on our net interest margins. A steep yield curve, in which the difference between short-term and long-term interest rates is high, can have a favorable impact on our net interest margins. The level of interest rates also directly affects our earnings on assets funded by our interest-free capital.

Lending and investing activity by our member institutions is a key driver for our balance sheet and income growth. Such activity is a function of both prevailing interest rates and economic ~~activity.~~activity, including local economic factors, particularly relating to the housing and mortgage markets. Positive economic trends ~~could~~can drive interest rates higher, which ~~could~~can impair growth of the mortgage market. A less active mortgage market ~~could~~can affect demand for advances and activity levels in our ~~mortgage program.~~Advantage MPP. However, borrowing patterns between our insurance company and depository members ~~tend to~~can differ during various economic and market conditions, thereby easing the potential magnitude of core business fluctuations during business cycles. Member demand for liquidity during stressed market conditions can lead to advances growth.

~~Local economic factors, particularly relating to the housing and mortgage markets, influence demand for advances and MPP sales activity by our member institutions.~~

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Results of Operations and Changes in Financial Condition

Results of Operations for the Years Ended December 31, ~~2017~~2021 and ~~2016~~.2020. The following table presents the comparative highlights of our results of operations ($ amounts in millions).


	Years Ended December 31,
Condensed Statements of Comprehensive Income	2021		2020		$ Change		% Change
Net interest income	$	252	$	263	$	(11)	(4)	%
Provision for (reversal of) credit losses	—		—		—
Net interest income after provision for credit losses	252		263		(11)		(4)	%
Other income (loss)	(34)		(55)		21
Other expenses	113		109		4
Income before assessments	105		99		6		6	%
AHP assessments	11		11		—
Net income	94		88		6		7	%
Total other comprehensive income (loss)	28		38		(10)
Total comprehensive income	$	122	$	126	$	(4)	(3)	%

Years Ended December 31,
Comparative Highlights 2017 2016 $ Change % Change
Net interest income $ 262
$ 198
$ 64
33 %
Provision for (reversal of) credit losses —
—
—

Net interest income after provision for credit losses 262
198
64
33 %
Other income (loss) (6 ) 6
(12 )
Other expenses 82
78
4

Income before assessments 174
126
48
38 %
AHP assessments 18
13
5

Net income 156
113
43
38 %
Total other comprehensive income (loss) 55
33
22

Total comprehensive income $ 211
$ 146
$ 65
44 %

The increase in net income for the year ended December 31, ~~2017~~2021 compared to ~~2016~~the prior year was primarily due to lower but still accelerated amortization of mortgage purchase premiums resulting from higher prepayments on mortgage loans and net hedging gains on qualifying fair-value hedging relationships, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income ~~as a result of~~resulting from the decline in average asset ~~growth and higher spreads, partially offset by net losses on derivatives and hedging activities.~~balances.

The ~~increase~~decrease in total ~~other comprehensive income~~OCI for the year ended December 31, ~~2017~~2021 compared to ~~2016~~the prior year was primarily due to ~~larger~~lower unrealized gains on ~~non-OTTI~~ AFS ~~securities.~~securities, partially offset by a change in net pension benefits.

The return on assets and return on equity for the year ended December 31, 2021 was 0.15% and 2.64%, respectively, compared to 0.13% and 2.67%, respectively, for the year ended December 31, 2020.

Results of Operations for the Years Ended December 31, ~~2016~~2020 and ~~2015~~. ~~The following table presents the comparative highlights~~2019. A comparison of our results of operations for the years ended December 31, 2020 and 2019 is contained in the corresponding Item 7in our 2020 Form 10-K, filed with the SEC on March 10, 2021.

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Adjusted Net Income, a Non-GAAP Financial Measure. The Bank reports its results of operations in accordance with GAAP. Management believes that a non-GAAP financial measure may also be useful to shareholders and other stakeholders as a key measure of its operating performance. Such measure can also provide additional insights into period-to-period comparisons of the Bank's operating results beyond its GAAP results, which are impacted by temporary changes in fair value and other factors driven by market volatility that hinder consistent performance measurement. As a result, the Bank is reporting adjusted net income as a non-GAAP financial measure.

Adjusted net income represents GAAP net income adjusted to exclude: (i) the mark-to-market adjustments and other transitory effects from derivatives and trading/hedging activities, (ii) interest expense on MRCS, (iii) realized gains and losses on sales of investment securities, and (iv) at the discretion of management, other eligible non-routine transactions. These adjustments reflect (i) the temporary nature of fair-value and certain other hedging gains (losses) due to the Bank's practice of holding its financial instruments to maturity, (ii) the treatment of interest on MRCS as dividends, (iii) the impact of the sale of investment securities, primarily for liquidity purposes or to reduce exposure to LIBOR-indexed instruments, the gains (losses) on which arise from accelerating the recognition of future income (expense), and (iv) any other eligible non-routine transactions that management determines can provide additional insights into period-to-period comparisons of the Bank’s operating results beyond its GAAP results.

Non-GAAP financial measures are not audited. In addition, non-GAAP financial measures have no standardized measurement prescribed by GAAP and may not be comparable to similar non-GAAP financial measures used by other companies. While the Bank believes that adjusted net income is helpful in understanding the Bank's performance, this measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyses of earnings reported in accordance with GAAP.

The following table presents a reconciliation of the Bank's GAAP net income to adjusted net income ($ amounts in millions).:

Years Ended December 31,
Comparative Highlights 2016 2015 $ Change % Change
Net interest income $ 198
$ 196
$ 2
1 %
Provision for (reversal of) credit losses —
—
—

Net interest income after provision for credit losses 198
196
2
1 %
Other income (loss) 6
10
(4 )
Other expenses 78
72
6

Income before assessments 126
134
(8 ) (6 %)
AHP assessments 13
13
—

Net income 113
121
(8 ) (7 %)
Total other comprehensive income (loss) 33
(24 ) 57

Total comprehensive income $ 146
$ 97
$ 49
51 %


	Years Ended December 31,
Reconciliation of Net Income	2021		2020
GAAP net income	$	93.9	$	87.9
Adjustments to exclude:
Fair-value hedging (gains) losses (1)	(8.4)		12.2
Amortization/accretion of (gains) losses on active and discontinued fair-value hedging relationships (2)	37.9		(0.1)
Trading (gains) losses, net of economic hedging gains (losses) (3)	32.8		11.0
Net unrealized losses on other economic hedges	1.2		1.2
Interest expense on MRCS	2.6		8.6
Net realized gains on sales of investment securities	—		(0.5)
Total adjustments	66.1		32.4

AHP assessments on adjustments	(6.4)		(2.4)

Adjusted net income (non-GAAP measure)	$	153.6	$	117.9

~~The decrease~~(1) Changes in fair value on hedged items (attributable to the risk being hedged) and associated derivatives in qualifying hedging relationships.

(2) Gains (losses) resulting from cumulative basis adjustments on hedged items.

(3) Includes both (i) unrealized (gains) losses on trading securities and (ii) realized (gains) losses on maturities of trading securities.

Adjusted net income for the year ended December 31, ~~2016~~2021 was $153.6 million, an increase of $35.7 million compared to ~~2015~~the prior year. The increase was primarily due to higher ~~other expenses~~interest spreads, lower accelerated amortization of mortgage purchase premiums and higher earnings (excluding net gains and losses) on trading securities, partially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net ~~proceeds~~interest income resulting from ~~litigation settlements related to certain private-label RMBS, partially offset by higher net interest income.~~the decline in average asset balances.

The increase in total other comprehensive income for the year ended December 31, 2016 compared to 2015 was primarily due to unrealized gains on non-OTTI AFS securities in 2016 compared to unrealized losses on those securities in 2015.

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Changes in Financial Condition for the Year Ended December 31, ~~2017.~~ 2021. The following table presents the comparative highlights of our changes in financial condition ($ amounts in millions).


Condensed Statements of Condition	December 31, 2017		December 31, 2016		$ Change			% Change		Condensed Statements of Condition		December 31, 2021			December 31, 2020			$ Change			% Change
Advances	$	34,055	$	28,096	$	5,959		21	%	Advances		$	27,498		$	31,347		$	(3,849)		(12)	%
Mortgage loans held for portfolio, net	10,356		9,501		855			9	%	Mortgage loans held for portfolio, net		7,616			8,516			(900)			(11)	%
Cash and investments ⁽¹⁾	17,628		16,008		1,620			10	%
Other assets	310		302		8			2	%
Cash and short-term investments (1)										Cash and short-term investments (1)		7,048			5,627			1,421			25	%
Investment securities and other assets (2)										Investment securities and other assets (2)		17,843			20,435			(2,592)			(13)	%
Total assets	$	62,349	$	53,907	$	8,442		16	%	Total assets		$	60,005		$	65,925		$	(5,920)		(9)	%

Consolidated obligations	$	58,254	$	50,269	$	7,985		16	%	Consolidated obligations		$	54,478		$	59,950		$	(5,472)		(9)	%
MRCS	164		170		(6		)	(3	%)	MRCS		50			251			(201)			(80)	%
Other liabilities	985		1,032		(47		)	(5	%)	Other liabilities		1,921			2,274			(353)			(16)	%
Total liabilities	59,403		51,471		7,932			15	%	Total liabilities		56,449			62,475			(6,026)			(10)	%

Capital stock	1,858		1,493		365			24	%	Capital stock		2,246			2,208			38			2	%
Retained earnings ⁽²⁾⁽³⁾	976		887		89			10	%		1,177			1,137			40			3	%
AOCI	112		56		56			98	%	AOCI		133			105			28			26	%
Total capital	2,946		2,436		510			21	%	Total capital		3,556			3,450			106			3	%

Total liabilities and capital	$	62,349	$	53,907	$	8,442		16	%	Total liabilities and capital		$	60,005		$	65,925		$	(5,920)		(9)	%

Total regulatory capital ⁽³⁾	$	2,998	$	2,550	$	448		18	%
Total regulatory capital (4)										Total regulatory capital (4)		$	3,473		$	3,596		$	(123)		(3)	%


⁽¹⁾	~~Includes cash, interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, AFS securities, and HTM securities.~~


⁽²⁾	~~Includes restricted retained earnings at December 31, 2017 and 2016 of $183 million and $152 million, respectively.~~


⁽³⁾	~~Total capital less AOCI plus MRCS.~~

~~The increase in total~~(1) Includes cash, interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold.

(2) Includes trading, AFS and HTM securities.

(3) Includes restricted retained earnings at December 31, 2021 and 2020 of $287 million and $268 million, respectively.

(4) Total capital less AOCI plus MRCS.

Total assets at December 31, ~~2017 compared to~~2021 were $60.0 billion, a net decrease of $5.9 billion, or 9%, from December 31, ~~2016 was~~2020, driven primarily ~~attributable~~by a net decrease in advances.

Advances outstanding at December 31, 2021, at carrying value, totaled $27.5 billion, a net decrease of $3.8 billion, or 12%, from December 31, 2020. The par value of advances to ~~an increase in advances outstanding.~~depository institutions - comprising commercial banks, savings institutions and credit unions - and insurance companies decreased by 17% and 3%, respectively.

Mortgage loans held for portfolio at December 31, 2021 totaled $7.6 billion, a net decrease of $900 million, or 11%, from December 31, 2020, as principal payments by borrowers significantly outpaced the Bank's purchases from its members during the period.

The ~~increase in total liabilities was attributable to~~liquidity portfolio, which consists of cash and short-term investments as well as U. S. Treasury securities, at December 31, 2021 totaled $10.9 billion, a net increase inof $273 million, or 3%, from December 31, 2020. Cash and short-term investments increased by $1.4 billion, or 25%, to $7.0 billion. U.S. Treasury securities, classified as trading securities, decreased by $1.1 billion, or 23%, to $3.9 billion. As a result, cash and short-term investments represented 64% of the liquidity portfolio at December 31, 2021, while U.S. Treasury securities represented 36%.

The Bank's consolidated obligations ~~to fund our asset growth.~~outstanding at December 31, 2021 totaled $54.5 billion, a net decrease of $5.5 billion, or 9%, from December 31, 2020, which reflected reduced funding needs associated with the net decrease in the Bank's total assets.

Total capital at December 31, 2021 was $3.6 billion, a net increase of $106 million or 3%, from December 31, 2020.

The ~~increase in total~~Bank's regulatory capital-to-assets ratio at December 31, 2021, was 5.79%, which exceeds all applicable regulatory capital ~~was primarily as a result~~requirements.

Table of ~~additional capital stock issued to members in connection with the increase in advances. The growth of retained earnings also contributed to the increase.~~Contents

Outlook. We believe that our financial performance will continue to provide reasonable, risk-adjusted returns for our members across a wide range of business, financial, and economic environments.

~~Events~~During 2021, demand for advances declined due to the unprecedented level of liquidity injected by the Federal Reserve, excess deposits held by our members, alternative sources of wholesale funds available to our members, continued consolidation in the capital and housing markets in the last several years have provided opportunities for us to generate spreads well above historical levels on certain types of transactions. Lower-cost debt issuances have allowed us to enjoy higher spreads on advances, MPP, MBS and other investments over the past three years, in particular. However, we anticipate spreads normalizing across the balance sheet in coming quarters.

~~During recent years,~~financial services industry involving our ~~advances business has experienced solid growth in both depository and insurance sectors. However, continued consolidation among our depository~~ members, and the ~~run-off from our captive insurance company advances will~~impacts of governmental relief efforts in response to the pandemic. We expect these factors to continue to ~~pressure overall~~dampen demand for advances ~~levels. Although~~in 2022. In addition, we ~~believe that~~expect the consummation of the merger of Flagstar Bank, historically one of our largest and most active borrowers, into a non-member depository institution, which is anticipated to result in repayment of their outstanding advances. As a result, we expect total advances outstanding to decline in 2022 by about 10%.

In spite of rising mortgage interest rates, we expect our ~~member institutions could continue~~mortgage loan balance outstanding to slightly increase ~~we anticipate more modest growth~~in 2022 due to continuing strong demand by our members to participate in our ~~total advances balance in coming quarters.~~Advantage MPP and lower levels of prepayments.

The ~~steady growth~~merger of our mortgage loans held for portfolio over the past several years reflects MPP Advantage purchases outpacing mortgage repayments. Factors that impact the volume of mortgage loans purchased include interest rates, competition, the general level of housing activity in the United States, the level of mortgage refinancing activity, and consumer product preferences. Interest rates areFlagstar Bank is expected to ~~continue~~reduce the amount of liquidity we need to ~~trend upward, which may lead to slowing mortgage market activity, particularly refinancing activity, and a resulting decline in mortgage purchase volume.~~maintain. However, ~~the impact of a decline in purchase volume would be eased by a slower pace of portfolio attrition. We anticipate modest growth in our purchased mortgage portfolio in 2018.~~

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~~Our investment securities portfolio continued to increase through 2017 as a result of purchases of GSE debentures and agency MBS, while our private-label RMBS portfolio continues to run off. We~~we expect to continue to ~~increase~~maintain relatively high levels of liquidity to be able to timely support our members' needs.

We continue to seek to maintain investments in MBS ~~holdings in 2018, along with an increasing level~~up to 300% of ~~non-MBS short-term liquid investments. The Finance~~total regulatory capital. Other long-term investments, such as Agency ~~has announced that it intends~~debentures, are likely to issue new minimum regulatory liquidity requirements for the FHLBanks in a separate rulemaking or guidance that may increase the Bank's liquidity requirements in the near future. A significant increase in required liquidity could cause a change in the mix of our investment portfolio and have an adverse impact on our earnings and capital adequacy.decline.

Access to debt markets has been ~~reliable. Institutional investors, driven by increased liquidity preferences, risk aversion, and~~reliable, while the ~~effects of money market fund reform, increased the market demand for FHLBank debt, which led to advantageous funding opportunities in 2017. The~~ cost of our consolidated obligations decreased significantly in ~~2018 will depend on~~2021, compared to 2020. Going forward, we expect the cost to increase, with the extent of the increase dependent upon several factors, including the direction and level of market interest rates, competition from other issuers of ~~agency~~Agency debt, changes in the investment ~~preferences~~references of potential buyers of ~~agency~~Agency debt securities, global demand, pricing in the interest-rate swap market, and other technical market factors. As LIBOR continues to phase out, our adjustable-rate funding continues to be replaced by SOFR-indexed CO bonds.

~~In addition~~Overall interest spreads were higher in 2021, compared to ~~having embedded prepayment options~~2020, and ~~basis risk exposure, which~~are expected to increase ~~both our market risk~~in 2022, in spite of the expected increase in funding costs. Advance and ~~earnings volatility, the~~investment spreads are expected to be flat while mortgage-related spreads are expected to widen due to anticipated lower amortization of ~~purchased~~purchase premiums on mortgage assets could also cause volatility in our earnings. However, we do not anticipate any major changes in the composition of our statement of condition that would increase earnings sensitivity to changes in the market environment.

resulting from lower prepayments. We will continue to engage in various hedging strategies and use derivatives to assist in mitigating the volatility of earnings ~~and the MVE~~ that arises from the maturity structure of our financial assets and liabilities. Although derivatives are used to mitigate market risk, they also introduce the potential for short-term earnings volatility, in part due to basis ~~risk since~~risk.

In light of our inherently low interest margins as a cooperative, we ~~must use the OIS curve in place of the LIBOR rate curve as the discount rate~~continue to ~~estimate the fair values of collateralized LIBOR-based interest-rate-related derivatives while the hedged items are still valued using the LIBOR rate curve.~~

We strive to keep our operating expense ratios relatively low while ~~maintaining adequate systems, support~~we resume many pandemic-restricted business activities and ~~staffing. We expect operating expenses to~~ continue to ~~increase modestly through 2019 as we continue to strategically~~ invest in technology to enhance our operating ~~and risk management~~ systems and member service capabilities. As a result, we expect a moderate increase in our operating expenses in 2022.

As a result of all of the foregoing factors, we have forecasted net income in 2022 to be slightly lower than net income in 2021.

Our board of ~~directors' decisions~~directors seeks to ~~declare dividends are influenced by~~reward our ~~financial condition,~~members with a competitive, risk-adjusted return on their investment, particularly those who actively utilize our products and services. On February 22, 2022, our board of directors declared a cash dividend on Class B-2 activity-based stock at an annualized rate of 3.25% and on Class B-1 non-activity-based stock at an annualized rate of 1.00%, resulting in a spread between the rates of 2.25 percentage points. The overall ~~financial performance~~weighted-average annualized rate paid was 2.31%. While the overall dividend rate in 2022 will depend on many factors, we expect the board to continue to maintain a meaningful spread between the rates on activity-based stock and ~~retained earnings, as well as actual and anticipated developments in the overall~~non-activity-based stock.

The ultimate effects of economic and financial ~~environment~~markets activity, including fiscal and monetary policies, the strength of the housing markets and the level and volatility of market interest rates continue to evolve and ~~conditions in~~are highly uncertain and, therefore, the ~~mortgage and credit markets. In addition,~~future impact on our ~~board considers several other factors, including our risk profile, regulatory requirements, our relationship with our members and the stability of our current capital stock position and membership.~~business is difficult to predict.

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Analysis of Results of Operations for the Years Ended December 31, ~~2017, 2016~~2021 and ~~2015.~~2020.

Net Interest ~~Income~~.Income.Net interest income, which is primarily the interest income on advances, mortgage loans held for portfolio, short-term investments, and investment securities less the interest expense on consolidated obligations and interest-bearing deposits, is our primary source of earnings.

The decrease in net interest income for the year ended December 31, 2021 compared to the prior year was primarily due to lower earnings on the portion of the Bank's assets funded by its capital and the decline in average asset balances, partially offset by lower amortization of mortgage purchase premiums resulting from lower prepayments on mortgage loans and net hedging gains on qualifying fair-value hedging relationships.

For the hedging relationships that qualified for hedge accounting, the differences between those changes in fair value (i.e. hedge ineffectiveness) are recorded in net interest income and resulted in net hedging gains of $8 million for the year ended December 31, 2021, compared to net hedging losses of $12 million for the year ended December 31, 2020. The gains and losses for the years ended December 31, 2021 and 2020 were primarily due to marginal mismatches in durations on, and the increase in volume of, swapped GSE MBS, particularly Fannie Mae Delegated Underwriting and Servicing ("DUS"). As a result of issuing floating-rate consolidated obligations to fund these MBS purchases instead of swapped fixed-rate consolidated obligations, our funding and operational costs were reduced, but there was less offsetting hedge ineffectiveness, resulting in higher unrealized hedging gains or losses. However, to mitigate the volatility, during 2020 we began implementing a strategy of terminating certain interest-rate swaps associated with the MBS DUS and entering into hedging relationships with new interest-rate swaps, a strategy we continued in 2021.

Our net gains (losses) on derivatives fluctuate due tovolatility in the overall interest-rate environment as we hedge our asset or liability risk exposures. In general, we hold derivatives and associated hedged items to the maturity, call, or put date. Therefore, due to timing, nearly all of the cumulative net gains and losses for these financial instruments will generally reverse over the remaining contractual terms of the hedged item. However, there may be instances when we terminate these instruments prior to the maturity, call or put date, which may result in a realized gain or loss. For more information, see Notes to Financial Statements - Note 8 - Derivatives and Hedging Activities.

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The following table presents average daily balances, interest income/expense, and average ~~yields~~yields/cost of funds of our major categories of interest-earning assets and their funding sources ($ amounts in millions).


	Years Ended December 31,																			Years Ended December 31,
	2017						2016						2015							2021							2020							2019
	Average Balance		Interest Income/ Expense		Average Yield		Average Balance		Interest Income/ Expense		Average Yield		Average Balance		Interest Income/ Expense		Average Yield			Average Balance		Interest Income/ Expense (1)			Average Yield/Cost of Funds (1)		Average Balance		Interest Income/ Expense (1)			Average Yield/Cost of Funds (1)		Average Balance		Interest Income/ Expense (1)			Average Yield/Cost of Funds (1)
Assets:																			Assets:
Federal funds sold and securities purchased under agreements to resell	$	4,919	$	50	1.02	%	$	4,215	$	17	0.40	%	$	3,698	$	4	0.12	%	Federal funds sold and securities purchased under agreements to resell	$	7,026	$	5		0.06	%	$	5,716	$	23		0.39	%	$	6,246	$	141		2.26	%
Investment securities ⁽¹⁾	12,621		240		1.90	%	11,872		182		1.53	%	10,012		149		1.48	%
Advances ⁽²⁾	31,209		406		1.30	%	25,974		220		0.85	%	22,988		127		0.55	%
Mortgage loans held for portfolio ⁽²⁾	9,922		315		3.17	%	8,792		274		3.12	%	7,734		264		3.42	%
Other assets (interest-earning) ⁽³⁾	364		5		1.47	%	313		2		0.63	%	213		—		(0.17	)%
Investment securities (2)																			Investment securities (2)	19,264		180			0.93	%	19,984		265			1.32	%	16,465		419			2.54	%
Advances (3)																			Advances (3)	28,609		115			0.40	%	32,919		329			1.00	%	31,969		813			2.54	%
Mortgage loans held for portfolio (3)(4)																			Mortgage loans held for portfolio (3)(4)	7,852		169			2.15	%	9,927		231			2.33	%	11,252		358			3.17	%
Other assets (interest-earning) (5)																			Other assets (interest-earning) (5)	734		1			0.07	%	1,470		5			0.38	%	1,091		22			2.02	%
Total interest-earning assets	59,035		1,016		1.72	%	51,166		695		1.36	%	44,645		544		1.22	%	Total interest-earning assets	63,485		470			0.74	%	70,016		853			1.22	%	67,023		1,753			2.62	%
Other assets ⁽⁴⁾	444						326						378
Other assets (6)																			Other assets (6)	612							(22)							179
Total assets	$	59,479					$	51,492					$	45,023					Total assets	$	64,097						$	69,994						$	67,202

Liabilities and Capital:																			Liabilities and Capital:
Interest-bearing deposits	$	555	5		0.86	%	$	597	1		0.12	%	$	706	—		0.01	%	Interest-bearing deposits	$	1,609	—			0.01	%	$	1,384	2			0.21	%	$	673	13			1.92	%
Discount notes	20,116		182		0.91	%	16,129		64		0.40	%	12,617		19		0.16	%	Discount notes	15,012		9			0.06	%	22,868		117			0.51	%	19,392		440			2.27	%
CO bonds ⁽²⁾	35,302		560		1.59	%	31,662		425		1.34	%	28,546		328		1.15	%
CO bonds (3)																			CO bonds (3)	43,033		206			0.48	%	41,105		462			1.12	%	42,994		1,050			2.44	%
MRCS	167		7		4.22	%	152		7		4.35	%	15		1		3.53	%	MRCS	174		3			1.49	%	290		9			2.96	%	236		12			5.02	%
Other borrowings																			Other borrowings	—		—			—	%	—		—			—	%	2		—			2.28	%
Total interest-bearing liabilities	56,140		754		1.34	%	48,540		497		1.02	%	41,884		348		0.83	%	Total interest-bearing liabilities	59,828		218			0.36	%	65,647		590			0.90	%	63,297		1,515			2.39	%
Other liabilities	679						653						782						Other liabilities	708							1,052							790
Total capital	2,660						2,299						2,357						Total capital	3,561							3,295							3,115
Total liabilities and capital	$	59,479					$	51,492					$	45,023					Total liabilities and capital	$	64,097						$	69,994						$	67,202

Net interest income			$	262					$	198					$	196			Net interest income			$	252						$	263						$	238

Net spread on interest-earning assets less interest-bearing liabilities					0.38	%					0.34	%					0.39	%	Net spread on interest-earning assets less interest-bearing liabilities						0.38	%						0.32	%						0.23	%

Net interest margin ⁽⁵⁾⁽⁷⁾					0.45	%					0.39	%					0.44	%						0.40	%						0.38	%						0.35	%

Average interest-earning assets to interest-bearing liabilities	1.05						1.05						1.07						Average interest-earning assets to interest-bearing liabilities	1.06							1.07							1.06



Federally Chartered Corporation						35-6001443
(State or other jurisdiction of incorporation)						(IRS employer identification number)

8250 Woodfield Crossing Blvd. Indianapolis, IN						46240
(Address of principal executive offices)						(Zip code)



				Page
				Number
			~~Glossary of~~Defined Terms	3
			Special Note Regarding Forward-Looking Statements	5
ITEM 1.			BUSINESS	6
			Operating Segments	7
			Funding Sources	1413
			Affordable Housing Programs, Community Investment and ~~Affordable Housing Programs~~Small Business Grants	1514
			Use of Derivatives	1615
			Supervision and Regulation	1615
			Membership	1817
			Competition	1817
			~~Employees~~Human Capital Resources	18
			Available Information	19
ITEM 1A.			RISK FACTORS	20
ITEM 1B.			UNRESOLVED STAFF COMMENTS	~~None~~
~~ITEM 2.~~	~~PROPERTIES~~	2930
ITEM 3.2.			~~LEGAL PROCEEDINGS~~PROPERTIES	2930
ITEM 3.			LEGAL PROCEEDINGS	30
ITEM 4.			MINE SAFETY DISCLOSURES	~~N/A~~ 30
ITEM 5.			MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	2931
ITEM 6.			~~SELECTED FINANCIAL DATA~~RESERVED	3132
ITEM 7.			MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
			Executive Summary	32
			Results of Operations and Changes in Financial Condition	34
			Operating Segments	43
			Analysis of Financial Condition	44
			Liquidity and Capital Resources	5354
			~~Off-Balance Sheet Arrangements~~Critical Accounting Estimates	5859
			~~Contractual Obligations~~	58
	~~Critical Accounting Policies and Estimates~~	59
	Recent Accounting and Regulatory Developments	6361
			Risk Management	64
ITEM 7A.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7876
ITEM 8.			FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	84
ITEM 9.			CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	~~None~~ 141
ITEM 9A.			CONTROLS AND PROCEDURES	~~150~~141
ITEM 9B.			OTHER INFORMATION	~~None~~ 141
ITEM ~~10.~~9C.			DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	141
ITEM 10.			DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	~~151~~142
ITEM 11.			EXECUTIVE COMPENSATION	~~161~~153
ITEM 12.			SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	~~192~~179
ITEM 13.			CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	~~192~~179
ITEM 14.			PRINCIPAL ACCOUNTING FEES AND SERVICES	~~194~~181
ITEM 15.			EXHIBITS, FINANCIAL STATEMENT SCHEDULES	~~195~~182
ITEM 16.			FORM 10-K SUMMARY	~~None~~ 183



December 31, 2017	Advances Outstanding		% of Total
Flagstar Bank, FSB	$	5,665	17	%
Lincoln National Life Insurance Company	2,900		8	%
Jackson National Life Insurance Company	2,621		8	%
Chemical Bank	2,337		7	%
American United Life Insurance Company	1,671		5	%
Subtotal - largest borrowers	15,194		45	%
Next five largest borrowers	6,802		19	%
Others	12,173		36	%
Total advances, par value	$	34,169	100	%

December 31, 2016	Advances Outstanding		% of Total
Lincoln National Life Insurance Company	$	3,350	12	%
Flagstar Bank, FSB	2,980		11	%
Jackson National Life Insurance Company	2,376		8	%
Tuebor Captive Insurance Company LLC	1,660		6	%
IAS Services LLC	1,650		6	%
Subtotal - largest borrowers	12,016		43	%
Next five largest borrowers	5,601		20	%
Others	10,515		37	%
Total advances, par value	$	28,132	100	%


	Years Ended December 31,
Components	2021		2020

Net realized gains from sale of available-for-sale securities	$	—	$	1

Net unrealized gains (losses) on trading securities (1)	(15)		(37)
Net realized gains (losses) on trading securities (2)	(33)		23
Net gains (losses) on trading securities	(48)		(14)

Net gains (losses) on derivatives hedging trading securities	15		3
Net interest settlements on derivatives (3)	(9)		(47)
Net gains (losses) on other derivatives not designated as hedging instruments	(2)		(4)
Net gains (losses) on derivatives	4		(48)

Change in fair value of investments indirectly funding our SERP	6		3
Other, net	4		3

Total other income (loss)	$	(34)	$	(55)


	Years Ended December 31,
Earnings Components of Trading Securities	2021		2020



Net interest income (1)	$	46	$	65

Other income:
Net unrealized gains (losses)	(15)		(37)
Net realized gains (losses)	(33)		23

Net interest settlements on derivatives	(9)		(52)
Change in fair value of derivatives	15		3


Other income (loss), net	(42)		(63)

Net impact of trading securities on income before assessments	$	4	$	2



x☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


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


◦	~~changes in our members' deposit flows and credit demands;~~


◦	~~federal or state regulatory developments impacting suitability or eligibility of membership classes;~~


◦	~~membership changes, including, but not limited to, mergers, acquisitions and consolidations of charters;~~


◦	changes in the general level of housing activity in the United States and particularly our district states of Michigan and Indiana, the level of refinancing activity and consumer product preferences; and


◦	~~competitive forces, including, without limitation, other sources of funding available to our members;~~


◦	~~certain investments targeted to low-income persons or communities; and~~


◦	~~certain foreign housing loans authorized under Section 12(b) of the Bank Act; and~~



	Class B-1								Class B-2
By Quarter Paid	Dividend on Capital Stock		Interest Expense on MRCS		Total		Annualized Dividend Rate ⁽¹⁾		Dividend on Capital Stock		Interest Expense on MRCS		Total		Annualized Dividend Rate ⁽¹⁾
2018
Quarter 1 ⁽²⁾	$	11,481	$	1,014	$	12,495	2.50	%	$	6	$	20	$	26	2.00	%
Quarter 1 ⁽²⁾	19,518		1,723		21,241		4.25	%	10		34		44		3.40	%

2017
Quarter 4	$	18,564	$	1,724	$	20,288	4.25	%	$	11	$	44	$	55	3.40	%
Quarter 3	17,373		1,703		19,076		4.25	%	14		52		66		3.40	%
Quarter 2	15,803		1,701		17,504		4.25	%	15		52		67		3.40	%
Quarter 1	15,545		1,824		17,369		4.25	%	19		54		73		3.40	%

2016
Quarter 4	$	14,966	$	1,844	$	16,810	4.25	%	$	11	$	57	$	68	3.40	%
Quarter 3	14,637		1,804		16,441		4.25	%	—		74		74		3.40	%
Quarter 2	14,384		1,930		16,314		4.25	%	—		87		87		3.40	%
Quarter 1	15,797		29		15,826		4.25	%	—		98		98		3.40	%



	Years Ended December 31,
Comparative Highlights	2017			2016		$ Change			% Change
Net interest income	$	262		$	198	$	64		33	%
Provision for (reversal of) credit losses	—			—		—
Net interest income after provision for credit losses	262			198		64			33	%
Other income (loss)	(6		)	6		(12		)
Other expenses	82			78		4
Income before assessments	174			126		48			38	%
AHP assessments	18			13		5
Net income	156			113		43			38	%
Total other comprehensive income (loss)	55			33		22
Total comprehensive income	$	211		$	146	$	65		44	%


⁽¹⁾	Consists of AFS and HTM securities. The average balances of investment securities are based on amortized cost; therefore, the resulting yields do not reflect changes in the estimated fair value of AFS securities that are included as a component of OCI, nor do they reflect OTTI-related non-credit losses. Interest income/expense includes the effect of associated derivative transactions.


⁽²⁾	Interest income/expense and average yield include all other components of interest, including the impact of net interest payments or receipts on derivatives in qualifying hedge relationships, amortization of hedge accounting adjustments, and prepayment fees on advances.


⁽³⁾	Consists of interest-bearing deposits, loans to other FHLBanks (if applicable), and grantor trust assets that are carried at estimated fair value. Includes the rights or obligations to cash collateral, except for variation margin payments characterized as daily settled contracts.


⁽⁴⁾	~~Includes changes in the estimated fair value of AFS securities and the effect of OTTI-related non-credit losses on AFS and HTM securities.~~


	Year Ended December 31,
	2021 vs. 2020
Components	Volume		Rate		Total
Increase (decrease) in interest income:
Federal funds sold and securities purchased under agreements to resell	$	4	$	(22)	$	(18)
Investment securities	(6)		(79)		(85)
Advances	(38)		(176)		(214)
Mortgage loans held for portfolio	(46)		(16)		(62)
Other assets (interest-earning)	(2)		(2)		(4)
Total	(88)		(295)		(383)
Increase (decrease) in interest expense:
Interest-bearing deposits	1		(3)		(2)
Discount notes	(30)		(78)		(108)
CO bonds	20		(276)		(256)
MRCS	(3)		(3)		(6)

Total	(12)		(360)		(372)

Increase (decrease) in net interest income	$	(76)	$	65	$	(11)



	Years Ended December 31,
	2017 vs. 2016						2016 vs. 2015
Components	Volume		Rate		Total		Volume		Rate			Total
Increase (decrease) in interest income:
Federal funds sold and securities purchased under agreements to resell	$	3	$	30	$	33	$	1	$	12		$	13
Investment securities	16		42		58		15		18			33
Advances	51		135		186		18		75			93
Mortgage loans held for portfolio	36		5		41		34		(24		)	10
Other assets (interest earning)	—		3		3		—		2			2
Total	106		215		321		68		83			151
Increase (decrease) in interest expense:
Interest-bearing deposits	—		4		4		—		1			1
Discount notes	19		99		118		7		38			45
CO bonds	53		82		135		38		59			97
MRCS	—		—		—		6		—			6
Total	72		185		257		51		98			149
Increase (decrease) in net interest income	$	34	$	30	$	64	$	17	$	(15	)	$	2


⁽¹⁾	~~See~~ ~~Notes to Financial Statements - Note 20 - Commitments and Contingencies~~ ~~and~~ ~~Item 3. Legal Proceedings~~ ~~for additional information on litigation settlements.~~



Year Ended December 31, 2017	Advances				Investments			Mortgage Loans			CO Bonds			Discount Notes			Other		Total
Net interest income:
Amortization/accretion of hedging activities ⁽¹⁾	$	—			$	2		$	(1	)	$	—		$	—		$	—	$	1
Net interest settlements ⁽²⁾	(31		)		(48		)	—			16			—			—		(63		)
Total net interest income	(31		)		(46		)	(1		)	16			—			—		(62		)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair-value hedges	(1		)		(4		)	—			(2		)	—			—		(7		)
Gains (losses) on derivatives not qualifying for hedge accounting ⁽³⁾	—				—			(1		)	—			(1		)	—		(2		)
Other ⁽⁴⁾	—			—	—			—			—			—			—		—
Net gains (losses) on derivatives and hedging activities	(1		)		(4		)	(1		)	(2		)	(1		)	—		(9		)
Total net effect of derivatives and hedging activities	$	(32	)		$	(50	)	$	(2	)	$	14		$	(1	)	$	—	$	(71	)

Year Ended December 31, 2016
Net interest income:
Amortization/accretion of hedging activities ⁽¹⁾	$	—			$	9		$	(2	)	$	—		$	—		$	—	$	7
Net interest settlements ⁽²⁾	(91		)		(94		)	—			17			—			—		(168		)
Total net interest income	(91		)		(85		)	(2		)	17			—			—		(161		)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair-value hedges	1				(1		)	—			4			—			—		4
Gains (losses) on derivatives not qualifying for hedge accounting ⁽³⁾	—				—			(2		)	—			—			—		(2		)
Net gains (losses) on derivatives and hedging activities	1				(1		)	(2		)	4			—			—		2
Total net effect of derivatives and hedging activities	$	(90	)		$	(86	)	$	(4	)	$	21		$	—		$	—	$	(159	)

Year Ended December 31, 2015
Net interest income:
Amortization/accretion of hedging activities ⁽¹⁾	$	—			$	12		$	(1	)	$	(4	)	$	—		$	—	$	7
Net interest settlements ⁽²⁾	(155		)		(98		)	—			57			—			—		(196		)
Total net interest income	(155		)		(86		)	(1		)	53			—			—		(189		)
Net gains (losses) on derivatives and hedging activities:
Gains (losses) on fair-value hedges	2				(4		)	—			6			—			—		4
Gains (losses) on derivatives not qualifying for hedge accounting ⁽³⁾	—				—			(3		)	2			—			—		(1		)
Net gains (losses) on derivatives and hedging activities	2				(4		)	(3		)	8			—			—		3
Total net effect of derivatives and hedging activities	$	(153	)		$	(90	)	$	(4	)	$	61		$	—		$	—	$	(186	)


(1) Includes an estimate of associated interest expense. ⁽¹⁾	~~Represents the amortization/accretion of fair value hedge accounting adjustments for both current and terminated hedge positions.~~


⁽²⁾	Represents interest income/expense on derivatives in qualifying hedge relationships. Excludes the interest income/expense of the respective hedged items, which fully offset the interest income/expense of the derivatives, except to the extent of any hedge ineffectiveness.


⁽³⁾	~~Includes net interest settlements on derivatives not qualifying for hedge accounting. See~~ ~~Notes to Financial Statements - Note 11 - Derivatives and Hedging Activities~~ ~~for additional information.~~


⁽⁴⁾	~~Consists of price alignment amounts on derivatives for which variation margin payments are characterized as daily settled contracts.~~


	Years Ended December 31,								Years Ended December 31,
Traditional	2017			2016		2015		Traditional	2021		2020
Net interest income	$	193		$	144	$	128	Net interest income	$	230	$	254
Provision for (reversal of) credit losses	—			—		—		Provision for (reversal of) credit losses	—		—
Other income (loss)	(5		)	7		13		Other income (loss)	(33)		(52)
Other expenses	70			66		62		Other expenses	97		93
Income before assessments	118			85		79		Income before assessments	100		109
Total assessments	12			9		8
AHP assessments								AHP assessments	10		12

Net income	$	106		$	76	$	71	Net income	$	90	$	97


⁽¹⁾	~~Includes accrued interest receivable, premises, software and equipment, derivative assets and other miscellaneous assets.~~


⁽²⁾	~~Membership must terminate no later than February 19, 2021.~~


	December 31, 2021				December 31, 2020
Product Type and Redemption Term	Par Value		% of Total		Par Value		% of Total
Fixed-rate:
Without call or put options
Due in 1 year or less	$	7,670	29	%	$	10,023	33	%
Due after 1 through 5 years	5,708		21	%	6,753		22	%
Due after 5 through 15 years	752		3	%	1,243		4	%
Thereafter	2		—	%	2		—	%
Total	14,132		53	%	18,021		59	%

Callable or prepayable
Due in 1 year or less	—		—	%	—		—	%
Due after 1 through 5 years	2		—	%	2		—	%
Due after 5 through 15 years	5		—	%	5		—	%
Thereafter	—		—	%	—		—	%
Total	7		—	%	7		—	%

Putable
Due in 1 year or less	—		—	%	—		—	%
Due after 1 through 5 years	2,289		8	%	1,700		6	%
Due after 5 through 15 years	5,747		21	%	5,552		18	%
Thereafter	—		—	%	—		—	%
Total	8,036		29	%	7,252		24	%

Other (1)
Due in 1 year or less	50		—	%	32		—	%
Due after 1 through 5 years	64		—	%	102		—	%
Due after 5 through 15 years	24		—	%	34		—	%
Thereafter	3		—	%	4		—	%
Total	141		—	%	172		—	%

Total fixed-rate	22,316		82	%	25,452		83	%

Variable-rate:
Without call or put options
Due in 1 year or less	18		—	%	24		—	%
Due after 1 through 5 years	167		1	%	—		—	%
Due after 5 through 15 years	—		—	%	—		—	%
Thereafter	—		—	%	—		—	%
Total	185		1	%	24		—	%

Callable or prepayable
Due in 1 year or less	126		—	%	36		—	%
Due after 1 through 5 years	2,831		10	%	3,099		11	%
Due after 5 through 15 years	1,297		5	%	1,380		4	%
Thereafter	555		2	%	700		2	%
Total	4,809		17	%	5,215		17	%

Total variable-rate	4,994		18	%	5,239		17	%



Total advances	$	27,310	100	%	$	30,691	100	%



	December 31, 2017				December 31, 2016
Product Type and Contractual Maturity	Par Value		% of Total		Par Value		% of Total
Fixed-rate:
Fixed-rate ⁽¹⁾
Due in 1 year or less	$	15,950	47	%	$	11,386	41	%
Due after 1 year	6,880		20	%	7,245		26	%
Total	22,830		67	%	18,631		67	%

Callable or prepayable
Due in 1 year or less	—		—	%	4		—	%
Due after 1 year	28		—	%	28		—	%
Total	28		—	%	32		—	%

Putable
Due in 1 year or less	28		—	%	43		—	%
Due after 1 year	1,825		5	%	901		3	%
Total	1,853		5	%	944		3	%

Other ⁽²⁾
Due in 1 year or less	127		—	%	31		—	%
Due after 1 year	295		1	%	565		2	%
Total	422		1	%	596		2	%

Total fixed-rate	25,133		73	%	20,203		72	%

Variable-rate:
Variable-rate ⁽¹⁾
Due in 1 year or less	37		—	%	59		—	%
Due after 1 year	2,193		7	%	2,346		8	%
Total	2,230		7	%	2,405		8	%

Callable or prepayable
Due in 1 year or less	793		2	%	1,076		4	%
Due after 1 year	6,013		18	%	4,448		16	%
Total	6,806		20	%	5,524		20	%

Total variable-rate	9,036		27	%	7,929		28	%

Total advances	$	34,169	100	%	$	28,132	100	%


⁽¹⁾	~~Includes advances without call or put options and callable advances whose lockout dates have not yet passed.~~