ITEM 1. BUSINESS

As used in this Form 10-K, 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, ~~dollar~~ amounts disclosed in this Item 1 are rounded to the nearest million; therefore, dollar amounts of less than one million may not be reflected 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. Amounts used to calculate dollar and percentage changes are based on numbers in the thousands. Accordingly, calculations based upon the disclosed amounts (millions) may not produce the same results.

Background Information

The Federal Home Loan Bank of Indianapolis is a regional wholesale bank that serves its member financial institutions in Michigan and Indiana. We are one of 11 regional FHLBanks across the United States, which, along with the Office of Finance, compose the FHLBank System established in 1932. Each FHLBank is a federal instrumentality of the United States of America that is privately capitalized and funded, receives no Congressional appropriations, and operates as an independent entity with its own board of directors, management, and employees.

Our mission is to provide reliable and readily available liquidity to our member institutions into support of housing finance and community investment. Our advance and mortgage purchase programs provide funding to assist members with asset/liability management, interest-rate risk management, mortgage pipelines, and other liquidity needs. In addition to funding, we provide various correspondent services, such as securities safekeeping and wire transfers. We also help to meet the economic and housing needs of communities and families through grants and low-cost advances that help support affordable housing and economic development initiatives.

We are wholly owned by our member institutions. All federally- insured depository institutions (including commercial banks, savings associations and credit unions), CDFIs certified by the CDFI Fund of the United States Treasury, certain non-federally insured credit unions and non-captive insurance companies are eligible to become members of our Bank if they have a principal place of business, or are domiciled, in our district states of Michigan or Indiana. Applicants for membership must meet certain requirements that demonstrate that they are engaged in residential housing finance. All member institutions are required to purchase a minimum amount of our Class B capital stock as a condition of membership. Only members may own our capital stock, except for stock held by former members or their legal successors during their stock redemption period. Our capital stock is not publicly-traded; it is purchased by members from us and redeemed or repurchased by us at the stated par value. With written approval from us, a member may transfer any of its excess capital stock in our Bank to another member at par value.

As a financial cooperative, our members are also our primary customers. We are generally limited to making advances to and purchasing mortgage loans from ~~members; however, by regulation, we are also permitted to make advances to and purchase loans from Housing Associates, but they may not purchase our stock and have no voting rights.~~members. We do not lend directly to or purchase mortgage loans directly from the general public.

~~The~~Our principal funding source ~~of our funding~~ is the proceeds from the sale to the public of FHLBank debt instruments, known as consolidated obligations, which consist of CO bonds and discount notes. The Office of Finance was established as a joint office of the FHLBanks to facilitate the issuance and servicing of consolidated obligations. The United States government does not guarantee, directly or indirectly, our consolidated obligations, which are the joint and several obligations of all FHLBanks.

We are wholly owned by our member institutions. All federally insured depository institutions (including commercial banks, savings associations and credit unions), CDFIs certified by the CDFI Fund of the United States Treasury, certain non-federally insured credit unions, and non-captive insurance companies are eligible to become members if they have a principal place of business, or are domiciled, in our district states of Michigan or Indiana. Applicants for membership must meet specific requirements that demonstrate that they are engaged in residential housing finance.

All member institutions are required to purchase a minimum amount of our Class B capital stock as a condition of membership. Only members may own our capital stock, except for former members or their legal successors holding stock during their stock redemption period. Our capital stock is not publicly traded; it is purchased by members from us and redeemed or repurchased by us at the stated par value. With our written approval, a member may transfer any of its capital stock in excess of the required minimum to another member at par value. For additional information regarding our capital plan, see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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Each FHLBank was organized under the authority of the Bank Act as a GSE, ~~i.e.,~~which is an entity that combines elements of private capital, public sponsorship, and public policy. The public sponsorship and public policy attributes of the FHLBanks include:

•an exemption from federal, state, and local taxation, except employment and real estate taxes;

•an exemption from registration under the Securities Act (although the FHLBanks are required by federal law to register a class of their equity securities under the Exchange Act);

•the requirement that at least 40% of our directors be non-member "independent" directors; that two of these "independent" directors have more than four years of experience representing consumer or community interests in banking services, credit needs, housing, or consumer financial protections; and that the remaining "independent" directors have demonstrated knowledge or experience in auditing or accounting, derivatives, financial management, organizational management, project development or risk management practices, or other expertise established by Finance Agency regulations;

•the United States Treasury's authority to purchase up to $4.0 billion of FHLBank consolidated obligations; and

•the required allocation of 10% of annual net earnings before interest expense on MRCS to fund the AHP.

As an FHLBank, we seek to maintain a balance between fulfilling our public policy mission and ~~our goal of~~ providing ~~adequate~~sufficient returns on our members' ~~capital.~~capital, while maintaining an appropriate risk profile. Consistent with our business model, we place the highest priority on being able to meet our members' liquidity and funding needs in all business and market environments.

The Finance Agency ~~has been~~is the federal regulator of the FHLBanks, Fannie Mae and Freddie ~~Mac since July 2008.~~Mac. The Finance Agency's stated mission is to ensure that the housing GSEs operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment.

Membership

Our membership territory is comprised of the states of Michigan and Indiana. The ~~Finance Agency's operating expenses with respect~~following table presents the composition of our members by type of financial institution.


Type of Institution	December 31, 2022	% of Total		December 31, 2021	% of Total
Commercial banks and savings associations	165	48	%	168	48	%
Credit unions	131	38	%	128	37	%
Insurance companies	46	13	%	48	14	%
CDFIs	4	1	%	4	1	%
Total member institutions	346	100	%	348	100	%

In 2022, 5 new members were added and 7 members merged, consolidated, relocated or terminated, including Flagstar Bank, FSB, formerly one of our largest members and our largest borrower at December 31, 2022.

Governance

Our board of directors is responsible for the overall oversight and management of the Bank pursuant to the ~~FHLBanks are funded by assessments on~~Bank Act. The combination of public sponsorship and private ownership that drives our business model is reflected in the ~~FHLBanks. No tax dollars are used to support the operations~~composition of our board of directors. A majority of the ~~Finance Agency relating to~~directors must be officers and/or directors of our member institutions, while at least 40% of the ~~FHLBanks.~~board must be independent directors. The professional backgrounds of our independent directors cover a wide range of industries and expertise in areas such as financial markets and economics, affordable housing, accounting and technology, including cybersecurity.

We maintain a Strategic Business Plan that provides the framework for our future business direction. The goals and strategies for the Bank's major business activities are encompassed in this plan, which is updated and approved by the board of directors at least annually and at any other time that revisions are deemed necessary.

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Operating Segments

We manage our operations by grouping products and services within two operating segments. The segments identify the principal ways we provide services to our members. These segments reflect our two primary ~~mission asset~~mission-asset activities and the manner in which they are managed from the perspective of development, resource allocation, product delivery, pricing, credit risk and operational administration.

These operating segments are (i) traditional, which consists of credit products, investments, and correspondent services and deposits; and (ii) mortgage loans, which consist substantially of mortgage loans purchased from our members through our MPP. The revenues, profit or loss, and total assets for each segment are disclosed in Notes to Financial Statements - Note 1815 - Segment Information.

Traditional.

Credit Products. We offer our members a wide variety of credit products, including advances, standby letters of credit, and lines of credit. We approve member credit requests based on our assessment of the member's creditworthiness and financial condition, as well as its collateral position. All credit products must be fully collateralized by a member's pledge of eligible assets.

Our primary credit product is advances. Members ~~utilize~~use advances for a wide variety of purposes including, but not limited to:

•funding for single-family mortgages and multi-family mortgages held in portfolio, including both conforming and non-conforming mortgages (as determined in accordance with secondary market criteria);

•temporary funding during the origination, packaging, and sale of mortgages into the secondary market;

•funding for commercial ~~real estate~~real-estate loans and, especially with respect to CFIs, funding for small business, small farm, and small agri-business portfolio loans;

•acquiring or holding MBS;

•short-term liquidity;

•asset/liability and interest-rate risk management;

•a cost-effective alternative to holding short-term investments to meet contingent liquidity needs;

•a ~~competitively priced~~competitively-priced alternative source of funds, especially with respect to smaller members with ~~less diverse~~less-diverse funding sources; and

~~low-cost~~•at-cost funding to help support affordable housing and economic development initiatives.

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We offer standby letters of credit, typically for up to 10 years in term, which are rated Aaa by Moody's and AA+ by S&P. Letters of credit are performance contracts that guarantee the performance of a member to a third party and are subject to the same collateralization and borrowing limits that are applicable to advances. Letters of credit may be offered to assist members in facilitating residential housing finance, community lending, asset/liability management, or liquidity. We also offer a standby letter of credit product to collateralize public deposits.

We also offer lines of credit which allow members to fund short-term cash needs without submitting a new application for each funding request.

Advances. We offer a wide array of fixed-rate and adjustable-rate advances, on which interest is generally due monthly. The maturities of advances currently offered typically range from 1 day to 10 years, although the maximum maturity may be longer in some instances. Our primary advance products include:

•Fixed-rate Bullet Advances, which have fixed rates throughout the term of the advances. These advances are typically referred to as "bullet" advances because no principal payment is due until maturity. Prepayments prior to maturity may be subject to prepayment fees. These advances can include a feature that allows for delayed ~~settlement.~~

settlement;

•Putable Advances, which are fixed-rate advances that give us an option to terminate the advance prior to ~~maturity.~~maturity based on a predetermined schedule. We ~~would normally exercise the~~consider exercising our option ~~to terminate the advance~~ when interest rates ~~increase.~~have increased since the origination of the advance. Upon our exercise of the option, the member must repay the putable advance, ~~or convert it~~but replacement funding will be available to ~~a floating-rate instrument under~~ the ~~terms established~~member at ~~the time of the original issuance.~~

current market rates;

•Fixed-rate Amortizing Advances, which are fixed-rate advances that require principal payments either monthly, annually, or based on a specified amortization schedule and may have a balloon payment of remaining principal at ~~maturity.~~

maturity;

•Adjustable-rate Advances, which are sometimes called "floaters," reprice periodically based on a variety of indices, including ~~LIBOR. LIBOR floaters are~~EFFR, SOFR and the ~~most common type~~FHLBanks cost of funds index. We no longer offer new LIBOR-indexed adjustable-rate ~~advance we extend to our members.~~advances. Prepayment terms are agreed to before the advance is extended. Most frequently, no prepayment fees are required if a member prepays an ~~adjustable rate~~adjustable-rate advance on a reset date, after a pre-determined lock-out period, with the required notification. No principal payment is due prior to ~~maturity.~~

maturity;

•Other Variable-rate Advances, which reprice daily. These advances may be extended on terms from one day to six months and may be prepaid on any given business day during that term without fee or penalty. No principal payment is due until ~~maturity.~~

maturity; and

•Callable Advances, which are fixed-rate advances that give the member an option to prepay the advance before maturity on call dates with no prepayment fee, which members normally would exercise when interest rates ~~decrease.~~

have decreased since the origination of the advance.

We also offer customized advances to meet the particular needs of our members. Our entire menu of advance products is generally available to each creditworthy member, regardless of the member's asset size. Finance Agency regulations require us to price our credit products consistently and without discrimination to any member applying for advances. We are also prohibited from pricing our advances below our marginal cost of matching term and maturity funds in the marketplace, including embedded options, and the administrative cost associated with extending such advances to members. Therefore, advances are typically priced at standard spreads above our cost of funds. Our board-approved credit policy allows us to offer lower rates on certain types of advances transactions. Determinations of such rates are based on factors such as volume, maturity, product type, funding availability and costs, and competitive factors in regard to other sources of funds.

~~Advances Concentration.~~ Credit risk can be magnified if a lender's portfolio is concentrated in a few borrowers. At December 31, 2017, our top five borrowers accounted for 45% of total advances outstanding, at par. Because of this concentration in advances, we perform frequent credit and collateral reviews on our largest borrowers. In addition, we regularly analyze the implications to our financial management and profitability if we were to lose the business of one or more of these customers.

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The following tables present the par value of advances outstanding to our largest borrowers ($ amounts in millions). At our discretion, and provided the borrower meets our contractual requirements, advances to borrowers that are no longer members may remain outstanding until maturity, subject to certain regulatory requirements.

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 %

For the years ended December 31, 2017, 2016, and 2015, we did not have gross interest income on advances, excluding the effects of interest-rate swaps, from any one customer that exceeded 10% of our total interest income.

~~See~~ ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Analysis of Financial Condition - Total Assets - Advances~~ ~~for additional information on advances.~~

Collateral. All credit products extended to a member must be fully collateralized by the member's pledge of eligible assets. Each borrowing member and its affiliates that hold pledged collateral are required to grant us a security interest in such collateral. All such security interests held by us are afforded a priority by the Competitive Equality Banking Act of 1987 over the claims of any party, including any receiver, conservator, trustee, or similar party having rights as a lien creditor, except for claims held by bona fide purchasers for value or by parties that are secured by prior perfected security interests, provided that such claims would otherwise be entitled to priority under applicable law. Moreover, with respect to federally-insured depository institution members, our claims are given certain preferences pursuant to the receivership provisions of the Federal Deposit Insurance Act.

With respect to insurance company members, however, Congress provided in the McCarran-Ferguson Act of 1945 that state law generally governs the regulation of insurance and shall not be preempted by federal law unless the federal law expressly regulates the business of insurance. Thus, if a court were to determine that the priority status afforded the FHLBanks under Section 10(e) of the Bank Act conflicts with state insurance law applicable to our insurance company members, the court might then determine that the priority of our security interest would be governed by state law, not Section 10(e). Under these circumstances, the "super lien" priority protection afforded to our security interest under Section 10(e) may not fully apply when we lend to insurance company members. However, our security interests in collateral posted by insurance company members have express statutory protections in the jurisdictions where our members are domiciled. In addition, we monitor applicable states' laws, and take all necessary action to obtain and maintain a prior perfected security interest in the collateral, including by taking possession or control of the collateral when appropriate.

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Collateral Status Categories.We take collateral under a blanket, specific listings or possession status depending on the credit quality of the borrower, the type of institution, and our lien position on assets owned by the member (i.e., blanket, specific, or partially subordinated). The blanket status is the least restrictive and allows the member to retain possession of the pledged collateral, provided that the member executes a written security agreement and agrees to hold the collateral for our benefit. Under the specific listings status, the member maintains possession of the specific collateral pledged, but the member generally provides listings of loans pledged with detailed loan information such as loan amount, payments, maturity date, interest rate, LTV, collateral type and FICO^® ~~scores, etc.~~ scores. Members under possession status are required to place the collateral ~~in possession~~ with ~~our Bank~~us or awith an approved third-party custodian in amounts sufficient to secure all outstanding obligations.

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Eligible Collateral. Eligible collateral types include certain investment securities, one-to-four family first mortgage loans, multi-family first mortgage loans, deposits in our Bank, certain ~~ORERC~~other real estate-related collateral assets ~~such~~(such as commercial MBS, municipal securities, commercial real estate loans and home equity ~~loans,~~loans), and small business loans or farm real estate loans from CFIs. While we only extend credit based on the borrowing capacity for such approved collateral, our contractual arrangements typically allow us to take other assets as collateral to provide additional ~~protection, including (in~~protection. In addition, under the ~~case of members and former members)~~Bank Act, we have a lien on the borrower's stock in our ~~Bank.~~Bank as security for all of the borrower's indebtedness.

We have an Anti-Predatory Lending Policy and a Subprime and Nontraditional Residential Mortgage Policy that establish guidelines for any subprime or nontraditional loans included in the collateral pledged to us. Loans that are delinquent or violate those policies do not qualify as acceptable collateral and are required to be removed from any collateral value calculation. ~~With respect to~~Consistent with the CFPB home mortgage lending rules, ~~adopted by the CFPB for residential loans originated on or after January 10, 2014,~~ we accept loans that comply with or are exempt from the ability-to-pay requirements as collateral.

In order to help mitigate the market, credit, liquidity, operational and business risk associated with collateral, we apply an over-collateralization requirement to the book value or market value of pledged collateral to establish its lending value. Collateral that we have determined to contain a low level of risk, such as United States government obligations, is over-collateralized at a lower rate than collateral that carries a higher level of risk, such as small business ~~loans.~~loans. Standard requirements range from 100% for deposits (cash) to 140% - 155% for residential mortgages pledged through blanket status. Over-collateralization requirements for eligible securities range from 103% to 190%; less traditional types of collateral have standard over-collateralization ratios up to 360%.

The over-collateralization requirement applied to asset classes may also vary depending on collateral status, ~~since~~because lower requirements are applied as our levels of information and control over the assets increase. Over-collateralization requirements are applied using market values for collateral in listing and possession status and book value for collateral pledged through blanket status. In no event, however, would market values assigned to whole loan collateral exceed par value. ~~See~~ For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk Management - Advances ~~for more information.~~ and Other Credit Products.

Collateral Review and Monitoring. We verify collateral balances by performing periodic, ~~on-site~~ collateral audits on our borrowers, which allows us to verify loan pledge eligibility, credit strength and documentation quality, as well as adherence to our Anti-Predatory Lending Policy, our Subprime and Nontraditional Residential Mortgage Policy, and other collateral policies. In addition, ~~on-site~~ collateral audit findings are used to adjust over-collateralization amounts to mitigate credit risk and collateral liquidity concerns.

Investments. We maintain a portfolio of investments, purchased from approved counterparties, members and their affiliates, or other FHLBanks, to provide liquidity, utilize balance sheet capacity and supplement our earnings. ~~Our investment portfolio may only include investments deemed investment quality at the time of purchase.~~Higher earnings bolster our ability to support affordable housing and community investment.

Our ~~portfolio of~~ short-term investments ~~in highly-rated entities ensures the availability of~~are placed with large, high-quality financial institutions with investment-grade long-term credit ratings. Such investments typically include interest-bearing demand deposit accounts, unsecured federal funds ~~to meet our members' credit needs. Our short-term investment portfolio typically includes~~sold and securities purchased under agreements to resell, which are secured by ~~United States Treasuries or agency MBS passthroughs, and unsecured federal funds sold.~~U.S. Treasury obligations. Each may be purchased with either overnight or term ~~maturities.~~maturities, or in the case of demand deposit accounts, redeemed at any time during business hours. In the aggregate, the FHLBanks may represent a significant percentage of the federal funds sold market at any one time, although each FHLBank manages its investment portfolio separately.

Our liquidity portfolio also includes investments in U.S. Treasury obligations.

The ~~longer term investment portfolio~~longer-term investments typically ~~generates~~generate higher returns and ~~may~~ consist of (i) securities issued by the United States government, its agencies, and certain GSEs, and (ii) MBS and ABS issued by Fannie Mae, Freddie Mac and Ginnie Mae that derive credit enhancement from their relationship with the United States government, and (iii) other MBS, ABS, CMOs and REMICs rated AAA or equivalent by at least two NRSROs at the time of purchase.Agency MBS.

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All unsecured investments ~~including those with our members or their affiliates,~~ are subject to certain selection criteria. Each unsecured counterparty must be approved and has an exposure limit, which is computed in the same manner regardless of the counterparty's status as a member, affiliate of a member or unrelated party. These criteria determine the permissible amount and maximum term of the investment. ~~See~~For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk Management - Investments ~~for more information.~~.

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Under Finance Agency regulations, except for certain investments authorized under state trust law for our retirement plans, we are prohibited from investing in the following types of securities:

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

•instruments issued by non-United States entities, other than those issued by United States branches and agency offices of foreign commercial banks;

•non-investment grade debt instruments, other than certain investments targeted to low-income persons or communities and instruments that were downgraded after their purchase;

•whole mortgages or other whole loans, except for:


◦	~~those acquired under the MPP or the MPF Program;~~


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


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

◦those acquired under an AMA program, such as MPP;

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

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

•non-United States dollar denominated securities.

In addition, we are prohibited ~~by a Finance Agency regulation and Advisory Bulletin, as well as internal policy,~~ from purchasing certain types of investments, such as interest-only or principal-only stripped MBS, ~~CMOs, REMICs or ABS;~~Collateralized Mortgage Obligations ("CMO") and Real Estate Mortgage Investment Conduits ("REMIC"); residual-interest or interest-accrual classes of CMOs, REMICs ~~ABS~~ and MBS; and CMOs or REMICs with underlying collateral containing pay option/negative amortization mortgage loans, unless those loans or securities are guaranteed by the United States government, Fannie Mae, Freddie Mac or Ginnie Mae.

Finance Agency regulation further provides that the total book value of our investments in MBS ~~and ABS~~ must not exceed 300% of our total regulatory capital, consisting of Class B stock, Class A stock, if any, retained earnings, and MRCS, as of the day we purchase the investments, based on the capital amount most recently reported to the Finance Agency. If the outstanding balances of our investments in MBS ~~and ABS~~ exceed the limitation at any time, but were in compliance at the time we purchased the investments, we would not be considered out of compliance with the regulation, but we would not be permitted to purchase additional investments in MBS ~~or ABS~~ until these outstanding balances were within the capital limitation. Generally, our goal is to maintain these investments near the 300% limit.

Deposit Products. Deposit products provide a small portion of our funding ~~resources, while also giving members a high-quality asset that satisfies their regulatory liquidity requirements.~~resources. We offer several types of deposit products to our members and other institutions including overnight and demand deposits. We may accept uninsured deposits from:

•our ~~members;~~members, which they can use to help satisfy their liquidity requirements;

•institutions eligible to become members;

•any institution for which we are providing correspondent services;

•interest-rate swap counterparties;

•other FHLBanks; or

•other federal government instrumentalities.

Mortgage Loans. Mortgage loans held for portfolio consist substantially of residential mortgage loans purchased from our members through our ~~MPP~~ ~~and participating interests purchased~~MPP. We may also purchase or participate in ~~2012-2014 from the FHLBank of Topeka in residential~~ mortgage loans ~~that were originated by certain of its members~~ under ~~the MPF Program~~.other AMA programs. These programs help fulfill the FHLBank System's housing mission and provide an additional source of liquidity to FHLBank members that choose to sell mortgage loans into the secondary market rather than holding them in their own portfolios. ~~These~~AMA programs are ~~considered AMA,~~ a core mission activity of the FHLBanks, as defined by Finance Agency regulations. ~~For additional information, please refer to~~ ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Analysis of Financial Condition - Mortgage Loans Held for Portfolio~~.

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Mortgage Purchase Program.

Overview. We purchase mortgage loans directly from our members through our MPP. Members that participate in the MPP are known as PFIs. By regulation, we are not permitted to purchase loans directly from any institution that is not a member or Housing Associate of the FHLBank System, and we may not use a trust or other entity to purchase the loans. We purchase conforming, medium- or long-term, fixed-rate, fully amortizing, level payment loans predominantly for primary, owner-occupied, detached residences, including single-family properties, and two-, three-, and four-unit properties. Additionally, to a lesser degree, we purchase loans for primary, owner-occupied, attached residences (including condominiums and planned unit developments), and second/vacation ~~homes, and investment properties.~~homes.

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Our mortgage loan purchases are governed by the Finance Agency's AMA regulation. Further, while the regulation does not expressly limit us to purchasing fixed-rate loans, before purchasing adjustable-rate loans we would need to analyze whether such purchases would require Finance Agency approval under its New Business Activity regulation. Such regulation provides that any material change to an FHLBank's business activity that results in new risks or operations needs to be pre-approved by the Finance Agency.

Under Finance Agency regulations, all pools of mortgage loans currently purchased by us, other than government-insured mortgage loans, must have sufficient credit enhancement to be rated by us as at least investment grade. ~~In accordance with such regulations, we limit~~We operate our credit enhancement model and methodology accordingly to estimate the ~~pools~~amount of credit enhancement required for those pools. Other than for FHA mortgage loans, ~~that~~the PFIs provide or arrange for the credit enhancement. In this way, the PFIs share the credit risk with us on conventional mortgage loans. We manage the interest-rate risk, prepayment option risk, and liquidity risk.

Our original MPP, which we ~~will purchase~~ceased offering for conventional loans in 2010, relied on credit enhancement from LRA and SMI to ~~those with~~achieve an implied ~~NRSRO~~ credit rating of at least ~~BBB.~~AA based on a NRSRO model in compliance with Finance Agency regulations. In 2010, we began offering Advantage MPP for new conventional MPP loans, which utilizes an enhanced fixed LRA account for credit enhancement consistent with Finance Agency regulations, instead of utilizing a spread LRA with coverage from SMI providers. The only substantive difference between the two programs is the credit enhancement structure. Upon implementation of Advantage MPP, the original MPP was phased out and is no longer being used for acquisitions of new conventional loans. Under Advantage MPP, the funds in the LRA are established at the time of loan purchase. As a result, at the time of pool closing, the LRA is sufficient to cover expected losses in excess of the borrower's equity and PMI, if any, on a pool basis.

In 2012 - 2014, we purchased participating interests from another FHLBank in mortgage loans originated by certain of its PFIs through their participation in the Mortgage Partnership Finance® Program. In 2016, we sold a 90% participating interest in a $100 million MCC of certain newly acquired MPP loans to another FHLBank.

Mortgage Standards.All loans we purchase must meet the guidelines for our MPP or be specifically approved as an exception based on compensating factors. Our guidelines generally meet or exceed the underwriting standards of Fannie Mae and Freddie Mac. For example, the maximum LTV ratio for any conventional mortgage loan at the time of purchase is 95%, and borrowers must meet certain minimum credit scores depending upon the type of property or loan. In addition, we will not knowingly purchase any loan that violates the terms of our Anti-Predatory Lending Policy or our Subprime and Nontraditional Residential Mortgage Policy. Furthermore, we require our members to warrant to us that all of the loans ~~pledged or~~ sold to us are in compliance with all applicable laws, including prohibitions on ~~anti-predatory~~predatory lending. All loans purchased through our MPP ~~with applications dated on or after January 10, 2014~~ must qualify as "Safe-Harbor Qualified Mortgages" under CFPB rules.

Under our guidelines, a PFI must:

•be an active originator of conventional mortgages and have servicing capabilities, if applicable, or use a servicer that we approve;

•advise us if it has been the subject of any adverse action by either Fannie Mae or Freddie Mac; and

•along with its parent company, if applicable, meet the capital requirements of each state and federal regulatory agency with jurisdiction over the member's or parent company's activities.

~~Mortgage Loan Concentration.~~ Our board of directors has established a limit that restricts the current outstanding balance (as determined at the last reported month end balance) of MPP loans previously purchased from any one PFI to 50%~~of the total MPP portfolio balance.~~

For the years ended December 31, 2017, 2016, and 2015, no mortgage loans outstanding previously purchased from any one PFI contributed interest income that exceeded 10% of our total interest income. See Item 1A. Risk Factors - 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 ~~for additional information.~~

Credit Enhancement.FHA mortgage loans are backed by insurance provided by the United States government and, therefore, no additional credit enhancements (such as an LRA or SMI) are required.

For conventional mortgage loans, the credit enhancement required to reach the minimum credit rating is determined by using ~~an NRSRO~~a credit risk model. The model is used to evaluate each MCC or pool of MCCs to ensure the LRA percentage as credit enhancement is sufficient. The model evaluates the characteristics of the loans the PFIs actually delivered for the likelihood of timely payment of principal and interest. The model's results are based on numerous standard borrower and loan attributes, such as the LTV ratio ~~loan purpose (such~~and borrower's credit score, as ~~purchase of home, refinance, or cash-out refinance), type of documentation, income~~well as housing market factors, such as the Home Price Index and ~~debt expense ratios and credit scores.~~zip code. Based on the credit assessment, we are required to hold risk-based capital to help mitigate the potential credit risk in accordance with the Finance Agency regulations.

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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~~130 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~~ ~~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~~. ~~The~~Bank Act requires the Finance Agency to establish low-income housing goals for mortgage purchases. Under its housing goals regulation, the Finance Agency may establish low-income housing goals for FHLBanks that acquire, in any calendar year, more than $2.5 billion of conventional mortgages through an AMA program. If we exceed this volume threshold and fail to meet any affordable housing 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 and 2015, our conventional mortgage purchase volume exceeded $2.5 billion. The Finance Agency determined with respect to those two years, however, that it would not require us to submit a housing plan, which could otherwise have been required under the regulation.

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,~~ 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.

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.~~.

~~Community Investment and Affordable Housing Programs~~

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. 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.

~~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.

In addition, we offer a variety of specialized advance programs to support housing and community development needs. Through our Community Investment Program, 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 have maturities ranging from overnight to 20 years~~and are priced at our cost of funds plus reasonable administrative expenses.~~

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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~~ Consistent with our risk management philosophy, we use interest-rate exchange agreements (i.e., interest-rate swaps) to convert many of the fixed-rate CO bonds that we issue to variable-rate instruments that periodically reset based on an index such as SOFR. Generally, we receive a coupon on the interest-rate swap that is identical to the coupon we pay on the CO bond while paying variable-rate coupon on the interest-rate swap that resets based on the applicable index. Typically, the formula for the variable-rate coupon also includes a spread to the index. For more information, see Notes to Financial Statements - Note 118 - Derivatives and Hedging Activitiesand Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Use of Derivative Hedges.

Competition

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.

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Affordable Housing Programs, Community Investment and 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. 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, 2022, 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 ~~information.~~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 2022.

In addition to our required allocation, which totaled $20 million in 2022, we support and provide voluntary funding to our AHP and various affordable housing, small business and community investment programs. In 2022, such voluntary funding included an additional 2.5% of net earnings.

Under our Elevate program, we support the growth and development of small businesses in Michigan and Indiana by providing grant funding for capital expenditures, workforce training, or other business-related needs. The total amounts awarded in 2022 were $0.5 million.

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 Michigan and one Indiana community which is awarded following an application process.

Our voluntary allocation in 2022 totaled $6 million. As a result, our combined required and voluntary allocation in 2022 totaled $26 million.

In addition, we offer a variety of specialized advance programs to support housing and community development needs. Through our Community Investment Program, 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, 2022, we had $1.0 billion of outstanding principal on Community Investment Program-related advances.

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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, 2022, the Bank had 257 full-time and 1 part-time employee, of which 58% were male and 42% were female, while 73% were non-minority and 27% were minority.

Our workforce historically has included a large number of longer-tenured employees. As of December 31, 2022, the average tenure of the Bank’s employees was 7.9 years. There are no collective bargaining 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 hire externally, as needed. We believe that developing talent internally results in building bench strength, retaining institutional knowledge, increasing workforce continuity and promoting 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 opportunities;

◦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

◦Use of our insurance provider's rewards app to inspire achievement of fitness and health goals;

•Employee engagement

◦Employee resource groups; and

◦Cultural awareness and inclusion activities/events;

•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, sick time, birthday holiday, Bank holidays, 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.

Our performance management framework includes establishing individual performance goals tailored to reflect business and development objectives while also reflecting our 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.

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 Ambassadors, FHLBI Cares, cultural awareness events, and employee resource groups.

Supervision and Regulation

Our business is subject to extensive regulation and supervision. The ~~Bank Act.~~ 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, relationships 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.

We are supervised and regulated by the Finance Agency, an independent agency in the executive branch of the United States government, established by ~~HERA.~~the Housing and Economic Recovery Act of 2008.

~~Under the~~The Bank ~~Act, the~~Act. The Finance Agency's responsibility is to ensure that, pursuant to the Bank Act and 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~~

The Housing and Economic Recovery Act of 2008 also established the Federal Housing Finance Oversight Board, comprised of the Secretaries of the Treasury and ~~HUD,~~the United States Department of Housing and Urban Development, 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.

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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~~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. In 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 %
AvailableInformation

~~Competition~~

We operate in a highly competitive environment. Member demand for advances is affected by, among other factors, the cost and availability of other sources of funds, including deposits. We compete with other suppliers of wholesale funding, both secured and unsecured. 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. Larger institutions may have access to all of these alternatives as well as independent access to the national and global credit markets. The availability of alternative funding sources can be affected by a variety of factors, including market conditions, member creditworthiness, regulatory restrictions, and collateral availability and valuation.

Likewise, our MPP is subject to significant competition. The most direct competition for mortgage purchases 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.

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. Increases in the supply of competing debt products, 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.

~~Employees~~

~~As of December 31, 2017, we had 238 full-time employees and 3 part-time employees. Employees are not represented by a collective bargaining unit.~~

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~~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"~~"Resources" 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 at www.fhlbi.comby ~~scrolling to the bottom of any web page on~~ ~~www.fhlbi.com~~selecting "About" and then ~~selecting~~ "Corporate ~~Governance" in the navigation menu.~~Governance."

Our ~~2018~~2023 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"~~"Products and ~~"Bulletins, Publications~~Services" and ~~Presentations".~~then selecting "Community Development - Community Investment Program (CIP) - CIP Forms & Applications."

~~Our~~The written charters adopted by the board for its Audit, ~~Committee operates under a written charter adopted~~Executive/Governance, and Human Resources Committees are available on our website at www.fhlbi.com by selecting "About" and then selecting "Corporate Governance." These charters were most recently amended by the board of directors ~~that was most recently amended~~as to the Audit Committee on March ~~24, 2017. The Audit Committee charter is available on our website by scrolling~~18, 2022, as to the ~~bottom of any web page~~Executive/Governance Committee on ~~www.fhlbi.com~~January 20, 2023, and ~~then selecting "Corporate Governance" in~~as to the ~~navigation menu.~~Human Resources Committee on January 20, 2023.

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~~2023 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

Economic Conditions and Policy, Global Political or Economic Events 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, and the strength of the local economies in which we conduct business.

Our business and results of operations are significantly affected by the monetary and fiscal 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. These policies are directly impacted by prevailing economic conditions in the United States. For example, the FOMC's policy statements in 2022 and into 2023 provide that inflation continues to exceed the Federal Reserve's target. As a result, the FOMC has continued a series of rapid increases in the federal funds target rate throughout 2022. Such increases 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. This, in turn, directly impacts our liquidity, financial condition and results of operations.

As another example, a breach or near-breach of the federal debt limit could affect us. The U.S. Treasury has advised that the debt limit has been reached and that it is taking certain cash management measures to avoid breaching the limit. The U.S. Treasury has also advised that it believes it can continue such cash management measures until some time in June 2023. If Congress does not increase the debt limit prior to the time that such measures are exhausted, the U.S. Treasury would lose its borrowing authority at such time and a broad range of government payments could not be satisfied. Such an occurrence or near occurrence is likely to cause disruptions in the capital markets and could result in higher interest rates and borrowing costs for the FHLBanks. To the extent that we cannot access funding when needed on acceptable terms to effectively manage our cost of funds, our liquidity, financial condition and results of operations could be adversely affected.

Further, a breach of the federal debt limit could trigger an economic recession resulting from the federal government's failure to make its payments and the resulting loss of market confidence. Such a recession could be severe. Any recession could adversely affect our members and, in turn, could adversely affect their demand for advances and other products and services, thereby adversely affecting our results of operations.

Additionally, we are affected by the global economy through member ownership and investments, and through capital markets exposures. Global political, economic, and business uncertainty can lead to increased volatility in capital markets. One example of this has been realized through the COVID-19 pandemic and related developments, which resulted in market uncertainty causing substantial disruptions in the financial markets and increased volatility. While the disruptions have been short-lived, the pandemic continues and a resurgence could result in further disruptions and increased volatility that could be more severe or long-lasting than prior disruptions. Disruptions could adversely affect us in many ways, including reduced market access to funding and increased costs of funding. Prolonged disruptions may also result in decreased valuations of, and reduced market and book yields on, our assets.

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 created uncertainty leading to increased volatility in certain capital markets from time to time. They have also been cited by the FOMC as contributing to upward pressure on inflation and weighing on global economic activity.

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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.

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.

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,~~United States Commodity Futures Trading Commission, 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.

As an example of one source of potential regulatory change, the Director of the Finance Agency has stated that the Finance Agency is engaged in a comprehensive review of the FHLBank System. The Director of the Finance Agency has also stated that this review includes the FHLBanks' mission, purpose, organization, operational efficiency, products, services, collateral requirements, and membership eligibility, among other aspects subject to the review. Following the conclusion of the review in the coming months, the Finance Agency is expected to release a report of its findings that could include statutory and regulatory recommendations that, if accepted, could significantly alter one or more aspects of the way we do business, demand for our products and services, and the value of Bank membership. Any such regulatory change could adversely affect our results of operations, financial condition, liquidity and capital resources.

Environmental, Social and Governance, or ESG, matters could also lead to enhanced governmental, regulatory or societal attention on us or the FHLBank System in general. Such attention could lead to additional legislation or regulations increasing our compliance costs and operational burdens. For example, the SEC has proposed a rule on climate change disclosures which, if adopted as proposed, would result in significant additional climate-related disclosure requirements. Further, we could become subject to obligations to monitor the use of the proceeds of advances to avoid their deployment to societally-disfavored industries. Such impacts could adversely affect our financial condition and results of operations.

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. For example, recent increases in interest rates and the corresponding declines in the values of certain assets could cause one or more of our members to not have positive tangible capital. We are generally prohibited from making advances to members that do not have positive tangible capital. Thus, further rises in market interest rates could prevent us from making advances to certain members and, in turn, adversely affect our financial condition and results of operations.

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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 expenses, could harm our business.

Assets and Collateral.Changes that impact the types or values of assets we own or the collateral we hold could increase our risk of credit loss. For example, the CFPB has issued rules that include standards for mortgage lenders to follow during the loan approval process to determine whether a borrower has the ability to repay. Failure to satisfy those standards provides the borrower with certain rights that could impede or prevent the lender from foreclosing in the 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 to impede or prevent us from realizing upon the mortgage loan 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 Credit Losses Could Adversely Affect Our Financial Condition and Results of Operations."

Liquidity and Capital.Changes impacting liquidity or capital could adversely affect our results of operations. For example, we are subject to various liquidity requirements, which may constrain our ability to ~~rely on their pledged collateral,~~invest excess cash flow in higher yielding assets from time to time. If liquidity requirements are 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 risks discussed under "A Failure to Meet Minimum Regulatory Capital Requirements Could Affect Our Ability to Pay Dividends, Redeem or ~~their desire to maintain membership~~Repurchase Capital Stock, Retain Existing Members and Attract New Members." By way of further example, we, together with the other FHLBanks, currently play a predominant role as lenders in ~~our Bank. Changes to~~ the federal funds markets. Accordingly, any disruptions in the federal funds market or any related regulatory ~~environment that~~or policy change may adversely affect our cash management activities, results of operations and reputation.

Growth.Changes may either directly or indirectly restrict our growth. For example, the Finance Agency could issue an order requiring us to further constrain our growth in acquisition of assets via MPP.

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 capital markets. ~~Similarly,~~For example, a significant number of investors in FHLBank short-term consolidated obligations are money market funds. However, if these investors risk and return preferences or regulatory ~~actions or public policy changes,~~requirements shift, their demand for this debt could decrease. Such a decrease could, due to the FHLBanks’ concentration in money market investors, lead to an inability to access funding on acceptable terms.

Other Housing GSEs.Changes impacting other housing GSEs, including those that give preference to certain sectors, business models, regulated entities, assets, or activities, could negatively impact us. For example, changes in the ~~status~~statuses 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~~FHLBank Membership.Changes that reduce the ~~FHLBanks~~benefits of FHLBank membership or restrict the eligibility for FHLBank membership could negatively impact our results of operations.

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A Failure to ~~maintain sufficient liquidity through short-term investments in an amount at least equal~~Meet Minimum Regulatory Capital Requirements Could Affect Our Ability 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 markets 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 pricingPay Dividends, Redeem or ~~reducing net income through lower net interest spreads. To the extent these increased prices make our advances less competitive, advance levels~~Repurchase Capital Stock, Retain Existing Members 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 weAttract New Members.

We are required to maintain ~~which~~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, 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 their desire to remain as members. Moreover, 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.

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.

Restrictions on the Redemption, Repurchase, or Transfer of the Bank's Capital Stock Could Result in an Illiquid Investment for the Holder, Which Could Affect Member Interest in Our Products with Capital Stock Purchase Requirements and Our Ability to Retain Existing Members and Attract New Members.

Under the Gramm-Leach Bliley Act of 1999, as amended, 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. In addition, subject to applicable law, 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. 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.

Any such illiquidity could negatively affect member interest in conducting business with us when such business includes a requirement to purchase capital stock. Further, it could cause existing members to take steps to withdraw from membership and disincentivize prospective members from joining us. Any resulting loss of business could then negatively affect our results of operations and financial condition.

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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.

Significant Borrowers. The loss of any significant borrower or PFI could adversely impact our profitability and our ability to achieve business objectives. 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, resolution of a financially distressed member, or regulatory changes relating to FHLBank membership. As the financial industry continues to consolidate into a smaller number of institutions, this could lead to a further loss of large members and a related decrease in advances outstanding.

For example, in December 2022, Flagstar Bancorp, Inc., the parent company of Flagstar Bank, FSB ("Flagstar"), completed its merger with a non-member depository institution. At December 31, 2022, Flagstar was our largest borrower with advances outstanding totaling $4.6 billion, or 12% of our total advances outstanding, at par. As a result of the merger, Flagstar became ineligible for Bank membership and is no longer eligible to renew its advances or use any additional Bank products and services. 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, 2022, our top-selling PFI sold us mortgage loans totaling $272 million, or 24% of the total mortgage loans purchased by the Bank in 2022. Our larger PFIs originate mortgages on properties in several states. We also purchase mortgage loans from many smaller PFIs that predominantly originate mortgage loans on properties in Michigan and Indiana. 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. A scarcity of qualified mortgage servicers could adversely affect our ~~business, profitability and~~ results of operations.

Financial Counterparties.The ~~CFPB rules include~~number of counterparties that meet our internal and regulatory standards for ~~mortgage lenders to follow during~~derivative, repurchase, federal funds sold, TBA, and other financial transactions, such as broker-dealers and their affiliates, has decreased over time. In addition, since the ~~loan approval process to determine whether a borrower has the ability to repay the mortgage loan. The~~ Dodd-Frank Act, ~~provides defenses~~the requirements for posting margin or other collateral to foreclosure and causes of action for damages if the mortgage lender does not meet the standards in the CFPB rules. A mortgage borrower can assert these defenses and causes of action against the original mortgage lender and against purchasers and other assignees of the mortgage loan, which would include us if we were 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 mortgages and subsequently liquidate such collateral, we could be subject to these defenses to foreclosure or causes 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.~~

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~~Regulatory reform since the most recent~~ financial ~~crisis~~counterparties has tended to increase, both in terms of the amount of ~~margin~~ collateral ~~that we must provide~~ to ~~collateralize certain kinds of financial transactions,~~be posted and ~~has broadened~~ the ~~categories~~types of transactions for which ~~we are required to post margin.~~margin is now required. For 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 Rule 4210, ~~will~~which is currently proposed to take effect on October 25, 2023, 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 Rule 4210,~~this rule, 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 of the Dodd-Frank Act may indirectly affect us due to its effects on our members. 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, but are subject to a 15% haircut and are capped at 40% of the liquidity requirement. This haircut could make it more costly for any Covered Organization to hold consolidated obligations, which could reduce demand for them. On the other hand, these changes appear to have increased demand for FHLBank advances from the largest depository institution members of the FHLBank System, but do not appear to have affected 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. For example, it is thought that the largest members of the FHLBank System have increased their advances levels to meet new Basel III regulatory requirements. At the same time, changes to SEC guidance pertaining to prime money market funds appears to have resulted in a significant increase in demand for 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 on the FHLBank System as a whole or upon our Bank, nor can we predict what additional regulatory actions may be taken as a result.

~~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 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 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 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.

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. Continued economic uncertainties could lead to further global capital market volatility, lower credit availability, and weaker economic growth. As a result, our business could be exposed to unfavorable market conditions, lower demand for mission-related assets, lower earnings, or reduced ability to pay dividends or redeem or repurchase capital stock.

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 at, Our Main Office or Our Backup Facilities; 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 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 unable 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 repurchase 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 and more expensive to issue our debt. 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 ability to meet the Finance Agency's mandates on FHLBank liquidity.

~~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~~

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 could result from a variety of factors, including acquisition, consolidation of charters within a bank holding company, loss of market share to non-depository institutions, resolution of a financially distressed member, or regulatory changes. As of December 31, 2017, our top two borrowers, Flagstar Bank, FSB and Lincoln National Life Insurance Company, held $5.7 billion and $2.9 billion, respectively, or a total of 25% of total advances outstanding, at par.

At December 31, 2017, 28% of our outstanding par value of MPP loans had been purchased from two PFIs. One of these PFIs originates mortgages on properties in several states, while the other PFI originates mortgages on properties principally in Michigan. We also purchase mortgage loans from many smaller PFIs that predominantly originate mortgage loans on properties in Michigan and Indiana. Therefore, 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.

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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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 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 existing 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.

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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, on March 12, 2023, the Federal Reserve implemented a bank term funding program to support federally-insured depository institutions in response to prevailing market uncertainty about the banking industry resulting from the insolvencies of certain regional depository institutions. Loans under the program are generally made on very favorable terms, and our depository institution members may determine to request loans under that program rather than requesting advances from us. For additional information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Accounting and Regulatory Developments - Legislative and Regulatory Developments.

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. S&P downgraded the United States' sovereign credit rating in 2011, which corresponded with a near breach of the federal debt limit. It is possible that a credit rating agency could again downgrade the United States' sovereign credit rating in connection with the current debate in U.S. Congress concerning whether or not the federal debt limit will be raised. If the sovereign credit rating is downgraded, the credit rating of each FHLBank and the FHLBanks' consolidated obligations and outlooks may also be downgraded.

~~Uncertainty remains regarding possible longer-term effects resulting from rating actions. Any future downgrades~~Downgrades in ~~our~~the credit ratings and ~~outlook,~~outlooks, 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.

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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. Seven of the directorships are designated for independent directors, but two of these directorships are held by directors who will be term-limited as of December 31, 2023. Each has served as a director of the Bank for 15 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's Human Resources Committee engages in 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. Increased remote-working opportunities have also increased competition in hiring and retaining skilled key personnel. Failure to attract and retain skilled key personnel, or failure to develop and implement an effective succession plan for key personnel, could adversely affect our business and operations and, in turn, our results of operations.

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.

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 or MBS 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~~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 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.

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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 United Kingdom Financial Conduct Authority 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 agreements 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 still lack clarity in some instances. Further, as LIBOR has been a principal floating-rate benchmark in the financial markets, its cessation has affected, and may continue to affect, the financial markets generally and our business, financial condition, and results of operations.

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. 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 continues to develop, the progress has been uneven in the commercial loan market, 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. 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 volatility or 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.

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~~In prior years, adverse~~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 ~~housing~~capital markets, such as investor demand and ~~mortgage markets, along with a large drop~~liquidity, and on dealer commitment to inventory and support our debt. Any disruption in the debt market could have an adverse impact on our interest ~~rates, allowed us~~spreads, opportunities to call ~~a portion of our debt~~ and reissue itexisting debt or roll over maturing debt, or our ability to satisfy the Finance Agency's liquidity requirements.

Operational Risk

A Cybersecurity Event; Interruption in Our Information Systems; Unavailability of, or an Interruption of Service at, ~~a lower cost, resulting~~Our Main Office or Our Backup Facilities; or Failure of or an Interruption 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 balanceInformation Systems 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. Similarly, work-from-home arrangements that we have used and that have been and are used by third party vendors present additional risks of cybersecurity events. 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.

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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.

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~~While we take steps to review and ~~Analysis of Financial Condition~~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 valuations, which could result in sub-optimal strategies and, ~~Results of Operations - Critical Accounting Policies and Estimates and Risk Management -Operational Risk Management~~ ~~for more information.~~

~~A Prolonged Delay~~ in ~~the Initiation or Completion of Foreclosure Proceedings on Mortgage Loans May Have an Adverse Effect on Our Business, Financial Condition 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.

General Risks

Natural Disasters, Including those Resulting from Significant Climate Change, and Similar Catastrophic Events 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. Likewise, similar catastrophic events, such as epidemics or pandemics (as was realized in the COVID-19 pandemic), acts of war or terrorism, and/or disruptions in the availability of critical infrastructure on which we rely due to a cyber incident or otherwise could occur. Any such natural disasters or similar catastrophic events 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~~

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.

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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.ITEM 1B. UNRESOLVED STAFF COMMENTS

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.None.

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~~lease 8,800 square ~~feet. We~~feet to a single tenant. In addition, we 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 ~~hold for lease~~a disruption to ~~various tenants~~ the ~~remaining 52,000 square feet.~~ 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 provides for two sub-series of Class B capital stock: Class B-1 and Class B-2. 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. Class B-1 stock is automatically reclassified as Class B-2 as needed to help fulfill a member’s activity-based stock requirement and before the member is required to purchase additional Class B-2 stock to fully meet its capital stock requirement. Excess Class B-2 stock is automatically reclassified as Class B-1.

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, 2022, such Class B-2 stock issued and outstanding totaled $85 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, 2022, the board of directors had not authorized the issuance of Class A stock.

Number of Shareholders

As of February 28, ~~2018,~~2023, we had ~~392~~359 shareholders and ~~$2.0~~$2.5 billion par value of regulatory capital stock, which includes Class B ~~common~~ stock and MRCS issued and outstanding. As of February 28, 2023, 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.

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,~~2022, our excess stock was ~~0.54%~~0.82% 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, which allows our business to be scalable and self-capitalizing without taking undue risks, diminishing capital adequacy or jeopardizing profitability. Therefore, the Bank 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 size of our balance sheet and 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 capital which has no associated interest cost, i.e., interest-free capital. We use funding and hedging strategies to manage the related interest-rate risk.

Due to our cooperative ownership 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.

In addition, as a cooperative, some members utilize our products more heavily and own more capital stock than others. As a result, we must achieve a balance in generating membership value from rates we charge on advances or prices we pay to purchase mortgage loans and paying a competitive dividend rate.

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

~~Economic~~Table of Contents

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

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

Economy and ~~the strength of housing markets.~~

In the December 2017 FOMC meeting, the FOMC increased the federal funds target range by 0.25% as expected. This was the third increase in 2017, for a total of 1.25% since the tightening cycle began. Several more rate increases are expected by the market during 2018. The FOMC has been able 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, 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 to the federal funds target and short-term rate increases, interest rates on longer-maturity U.S. treasuries have increased less than short-term interest rates, resulting 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% in the fourth quarter 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 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.Financial Markets. The U.S. economy has produced over two million jobs annually for each 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 surprisedclosed out an uneven 2022 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.~~

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 projectfourth quarter U.S. real gross domestic product 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%~~2.7%. The ~~University of Michigan Research Seminar in Quantitative Economics has reported continued growth in personal income and real disposable income for~~rate was down slightly from 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 anthird quarter annual rate of ~~+0.9%~~3.2%, as economic activity slightly cooled in the fourth quarter. Consumer spending helped drive the fourth quarter gain, while the housing market weakened and businesses cut back their spending on equipment, according to the U.S Commerce Department. U.S. real gross domestic product increased by 2.1% for the year 2022.

Workers' wage gains in 2022 helped consumer spending, the economy's main engine, grow at an annual pace of 2.1% in the fourth quarter, compared to the third quarter, and 1.9% compared to the fourth quarter of 2021.

High inflation has clearly cut into households' purchasing power. However, inflation eased in December 2022 for the sixth straight month following a mid-2022 peak.

Easing inflation follows several signs that U.S economic activity cooled in the fourth quarter. Job and wage growth slowed in December, though the labor market remained tight with historically low unemployment continuing at 3.5% in December 2022. Improving supply chains and reduced demand have relieved price pressures on goods, but services prices continued to climb in part because of wage gains in a tight labor market. Federal Reserve officials are concerned that tight U.S. labor markets could sustain higher prices in the years to come.

According to the Bureau of Labor Statistics, the overall consumer price index increased 6.5% in December from a year ago. Consumer inflation, excluding volatile energy and food prices, the so-called core consumer-price-index, rose 5.7% in December from a year earlier. The index had accelerated to a new four-decade high in September of 6.6%, compared to a year earlier.

Many economists are worried about the possibility of a recession within the next 12 months. They expect the Federal Reserve's efforts to combat high inflation by raising interest rates to further weigh on the economy by triggering spending cutbacks and job losses.

Conditions in U.S. Housing Markets. Home sales slipped to cap their worst year since 2014, primarily driven by higher home prices and higher mortgage interest rates. According to the National Association of Realtors ("NAR"), existing-home sales fell for the eleventh straight month in December 2022, the slowest sales pace since November 2010, as the once-booming housing market has become a bigger drag on the U.S. economy. Sales in December were down 34% from a year earlier. Sales in 2022 fell 17.8% from the prior year.

Despite the sharp decline in sales, home prices have risen on a year-over-year basis, in part because supply remained tight. But price growth has slowed from its red-hot pace earlier in the year. According to the NAR, the median sales price of an existing home climbed in December by only 2.3% from a year earlier. Prices fell for the sixth straight month.

Total housing inventory at the end of December was enough to cover 2.9 months of sales, still historically low.

The Federal Reserve's rate increases have fueled higher mortgage rates. In late October, the average rate on a 30-year fixed-rate mortgage, according to Freddie Mac, reached its highest level in two decades at 7.08%. However, it had declined by the end of the year to 6.42%

With sustained price appreciation and higher mortgage rates, affordability continues to be a challenge for potential home buyers.

Interest Rate Levels and Volatility.The Federal Reserve seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of these goals, at its meeting in November 2022, the FOMC raised the target range for the federal funds rate by another 75 bps to 3.75% to 4.0% and, at its meeting in December 2022, it raised the target range by another 50 bps to 4.25% to 4.50%.

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The following table presents certain key interest rates.


	Average for Twelve-Months Ended				Period End
	December 31,				December 31,
	2022		2021		2022		2021
Federal Funds Effective	1.68	%	0.08	%	4.33	%	0.07	%
SOFR	1.64	%	0.04	%	4.30	%	0.05	%
Overnight LIBOR	1.68	%	0.08	%	4.32	%	0.06	%
1-week Overnight-Indexed Swap	1.76	%	0.08	%	4.34	%	0.08	%
3-month LIBOR	2.41	%	0.16	%	4.77	%	0.21	%
3-month U.S. Treasury yield	2.04	%	0.04	%	4.37	%	0.04	%
2-year U.S Treasury yield	2.99	%	0.26	%	4.43	%	0.73	%
10-year U.S. Treasury yield	2.95	%	1.44	%	3.88	%	1.51	%

Source: Bloomberg

The level and volatility of interest rates, including the shape of the yield curve during the three and twelve months ended 2022 were affected by several factors, principally efforts by the Federal Reserve to raise interest rates and tighten monetary policy to combat high inflation.

In 2022, as the FOMC raised short-term rates, portions of the Treasury yield curve became inverted. Investors use the 10-year Treasury yield as an indicator of investor confidence. In recent months, the 2-year rate has been consistently higher than the 10-year rate, and the 3-month rate nudged above the 10-year rate for the first ~~three quarters of 2017. Projected job growth through 2019 is expected~~time since before the Covid-19 pandemic. That change inverted what many regard as a critical relationship in the U.S. yield curve, signaling a coming recession.

At its meeting on February 1, 2023, the FOMC decided to ~~increase~~raise the target range for the federal funds rate by ~~1.2%~~another 25 bps to 4.50% to 4.75%.

The FOMC stated that "recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run."

"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."

"In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans."

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, ~~can~~or negative, respectively, may 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, may 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~~2022 and ~~2016~~.2021. The following table presents the comparative highlights of our results of operations ($ amounts in millions).


	Years Ended December 31,
Condensed Statements of Comprehensive Income	2022		2021		$ Change		% Change
Net interest income	$	291	$	252	$	39	16	%
Provision for (reversal of) credit losses	—		—		—
Net interest income after provision for credit losses	291		252		39		16	%
Other income (loss)	19		(34)		53
Other expenses	113		113		—
Income before assessments	197		105		92		88	%
AHP assessments	20		11		9
Net income	177		94		83		88	%
Total other comprehensive income (loss)	(159)		28		(187)
Total comprehensive income	$	18	$	122	$	(104)	(85)	%

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~~2022 compared to ~~2016~~the prior year was primarily due to higher ~~net~~earnings on the portion of the Bank's assets funded by its capital, and lower accelerated amortization of mortgage purchase premiums resulting from lower principal prepayments by borrowers, each driven by the increase in market interest ~~income as a result of asset growth and higher spreads,~~rates, but partially offset by ~~net losses on derivatives and hedging activities.~~declines in the fair values of the investments indirectly funding the liabilities under certain employee benefit plans.

The ~~increase~~decrease in total ~~other comprehensive income~~OCI for the year ended December 31, ~~2017~~2022 compared to ~~2016~~the prior year was primarily due to ~~larger~~the unrealized ~~gains~~losses on ~~non-OTTI~~ AFS ~~securities.~~securities, in particular investments in MBS, driven by the increase in market interest rates.

The following table presents the returns on average assets and returns on average equity.


	Years Ended December 31,
Ratios	2022		2021
Return on average assets	0.28	%	0.15	%
Return on average equity	5.03	%	2.64	%

Results of Operations for the Years Ended December 31, ~~2016~~2021 and ~~2015~~. ~~The following table presents the comparative highlights~~2020. A comparison of our results of operations ~~($ 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 %

~~The decrease in net income~~ for the ~~year~~years ended December 31, ~~2016 compared to 2015 was primarily due to higher other expenses~~2021 and ~~lower net proceeds from litigation settlements related to certain private-label RMBS, partially offset by higher net interest income.~~

~~The increase~~2020 is contained in ~~total other comprehensive income for~~ the ~~year ended December 31, 2016 compared to 2015 was primarily due to unrealized gains~~corresponding Item 7in our 2021 Form 10-K, filed with the SEC on ~~non-OTTI AFS securities in 2016 compared to unrealized losses on those securities in 2015.~~

March 10, 2022.

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Changes in Financial Condition for the Year Ended December 31, ~~2017.~~ 2022. 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, 2022		December 31, 2021		$ Change		% Change
Advances	$	34,055	$	28,096	$	5,959		21	%	Advances	$	36,683	$	27,498	$	9,185	33	%
Mortgage loans held for portfolio, net	10,356		9,501		855			9	%	Mortgage loans held for portfolio, net	7,687		7,616		71		1	%
Cash and investments ⁽¹⁾	17,628		16,008		1,620			10	%
Liquidity investments (1)										Liquidity investments (1)	10,805		10,995		(190)		(2)	%
Other investment securities (2)										Other investment securities (2)	16,420		13,474		2,946		22	%
Other assets	310		302		8			2	%	Other assets	689		422		267		63	%
Total assets	$	62,349	$	53,907	$	8,442		16	%	Total assets	$	72,284	$	60,005	$	12,279	20	%

Consolidated obligations	$	58,254	$	50,269	$	7,985		16	%	Consolidated obligations	$	67,270	$	54,478	$	12,792	23	%
MRCS	164		170		(6		)	(3	%)	MRCS	373		50		323		639	%
Other liabilities	985		1,032		(47		)	(5	%)	Other liabilities	1,257		1,921		(664)		(34)	%
Total liabilities	59,403		51,471		7,932			15	%	Total liabilities	68,900		56,449		12,451		22	%

Capital stock	1,858		1,493		365			24	%	Capital stock	2,123		2,246		(123)		(5)	%
Retained earnings ⁽²⁾	976		887		89			10	%
Retained earnings (3)										Retained earnings (3)	1,287		1,177		110		9	%
AOCI	112		56		56			98	%	AOCI	(26)		133		(159)		(119)	%
Total capital	2,946		2,436		510			21	%	Total capital	3,384		3,556		(172)		(5)	%

Total liabilities and capital	$	62,349	$	53,907	$	8,442		16	%	Total liabilities and capital	$	72,284	$	60,005	$	12,279	20	%

Total regulatory capital ⁽³⁾	$	2,998	$	2,550	$	448		18	%
Total regulatory capital (4)										Total regulatory capital (4)	$	3,783	$	3,473	$	310	9	%


⁽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, federal funds sold and trading securities.

(2) Includes AFS and HTM securities.

(3) Includes restricted retained earnings at December 31, 2022 and 2021 of $323 million and $287 million, respectively.

(4) Total capital less AOCI plus MRCS.

Total assets at December 31, ~~2017 compared to~~2022 were$72.3 billion, a net increase of $12.3 billion, or 20%, from December 31, ~~2016 was~~2021, driven primarily ~~attributable to an~~by a net increase in advances outstanding.

Advances outstanding at December 31, 2022, at carrying value, totaled $36.7 billion, a net increase of $9.2 billion, or 33%, from December 31, 2021. The ~~increase in total liabilities was attributable~~par value of advances outstanding increased by 37% to $37.3 billion, which included a net increase in ~~consolidated~~short-term and long-term advances of 85% and 17%, respectively. The par value of advances to depository institutions — comprising commercial banks, savings institutions and credit unions — and insurance companies increased by 63% and 6%, respectively.

Purchases of mortgage loans from the Bank's members for the year ended December 31, 2022 totaled $1.2 billion. Mortgage loans held for portfolio at December 31, 2022 totaled $7.7 billion, a net increase of $71 million, or 0.9%, from December 31, 2021, as the Bank's purchases slightly exceeded principal repayments by borrowers.

Liquidity investments, which consist of cash and short-term investments as well as U.S. Treasury obligations, at December 31, 2022 totaled $10.8 billion, a net decrease of $190 million, or 2%, from December 31, 2021. Cash and short-term investments increased by $1.5 billion, or 22%, to ~~fund our asset growth.~~

~~The increase in total capital was primarily as a result of additional capital stock issued~~$8.6 billion to ~~members in connection with~~support the increase in advances. U.S. Treasury obligations, classified as trading securities, decreased by $1.7 billion, or 43%, to $2.2 billion, as substantially all of the Bank's purchases of U.S. Treasury obligations in 2022 were classified as available-for-sale. As a result, cash and short-term investments represented 79% of the total liquidity investments at December 31, 2022, while U.S. Treasury obligations represented 21%.

Other investment securities, which consist substantially of mortgage-backed securities and U.S. Treasury obligations classified as held-to-maturity or available-for-sale, at December 31, 2022 totaled $16.4 billion, a net increase of $2.9 billion, or 22%, from December 31, 2021, due to purchases of U.S. Treasury obligations.

The ~~growth~~Bank's consolidated obligations outstanding at December 31, 2022 totaled $67.3 billion, a net increase of $12.8 billion, or 23%, from December 31, 2021, which reflected increased funding needs associated with the net increase in the Bank's total assets.

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Total capitalat December 31, 2022 was $3.4 billion, a net decrease of $172 million, or 4.8%, from December 31, 2021. The net decrease primarily resulted from a transfer of capital stock to MRCS upon a member's merger into a non-member, repurchases of capital stock, and unrealized losses on investments in MBS driven by the increase in market interest rates, partially offset by capital stock issuances to support the increase in advances and a net increase in retained ~~earnings also contributed to the increase.~~earnings.

The Bank's regulatory capital-to-assets ratio at December 31, 2022 was 5.23%, which exceeds all applicable regulatory capital requirements.

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

~~Events~~During 2022, demand by our members for advances was strong, primarily due to our depository members' loan growth outpacing their deposit growth, the rapid rise in market interest rates, including the adverse impact on their investment portfolios, and the availability of suitable products to assist our members in managing their balance sheets in the ~~capital and housing markets~~uncertain economic environment. We expect these factors to continue to favorably impact demand for advances 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.2023. However, we ~~anticipate spreads normalizing across the balance sheet in coming quarters.~~

During recent years, 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 continue to pressure overall advances levels. Although we believe thatexpect total advances outstanding to ~~our member institutions could continue~~moderately decline in 2023, based on a slowing economy resulting from the Federal Reserve's actions to ~~increase, we anticipate more modest growth in our total advances balance in coming quarters.~~

~~The steady growth~~combat persistent inflation, a resurgence of brokered deposits and the Federal Reserve's new bank term funding program as competitive wholesale funding alternatives, and the inability of Flagstar Bank, FSB ("Flagstar"), historically one 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,largest and ~~consumer product preferences. Interest rates are expected~~most active borrowers, to continue to trend upward, which may lead to slowing mortgage market activity, particularly refinancing activity, and a resulting decline in mortgage purchase volume. 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~~renew its advances outstanding as a result of ~~purchases~~the consummation of ~~GSE debentures~~the merger of its parent company into a non-member depository institution in late 2022.

Despite rising mortgage interest rates, we expect our mortgage loan balance outstanding to slightly increase in 2023 due to continuing strong demand by our members to participate in our Advantage MPP and ~~agency~~lower levels of prepayments by our borrowers.

The loss of Flagstar as a member is expected to reduce the level of liquidity we regularly need to maintain. However, we expect to continue to maintain relatively high levels of liquidity to be able to timely support our members' needs.

We continue to seek to maintain investments in MBS ~~while our private-label RMBS portfolio continues~~up to ~~run off.~~300% of total regulatory capital. We expect to continue purchasing U.S. Treasury obligations as AFS while other long-term investments, such as Agency debentures, are expected to increase our MBS holdings in 2018, along with an increasing level of non-MBS short-term liquid investments. The Finance Agency has announced that it intends 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 increased significantly in ~~2018 will depend on~~2022. Going forward, we expect the cost to further 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 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 be phased out, our adjustable-rate funding continues to be replaced by SOFR-indexed instruments.

~~In addition~~Despite the expected increase in funding costs, our overall interest spreads are expected to ~~having embedded prepayment options~~increase in 2023 as the ongoing rise in market interest rates drives asset yields higher and ~~basis risk exposure, which increase both our market risk and~~results in higher earnings ~~volatility,~~on the ~~amortization of purchased premiums on mortgage assets could also cause volatility in our earnings. However, we do not anticipate any major changes in the composition~~portion of our ~~statement of condition that would increase earnings sensitivity to changes in the market environment.~~ assets funded by our capital.

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 the first quarter of 2023, we ~~must use the OIS curve~~retired two swapped CO bonds prior to their contractual maturity dates and recognized net gains on debt extinguishment in ~~place~~other income of ~~the LIBOR rate curve~~$19.8 million.

Considering our inherent relatively low margins as ~~the discount rate~~a cooperative, we 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~~low. However, in 2023, we must absorb significant cost increases resulting from inflation and ~~staffing. We expect operating expenses~~we plan 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 2023.

As a result of all of the foregoing factors, we have forecasted net income in 2023 to be significantly higher than net income in 2022.

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Our board of ~~directors' decisions~~directors seeks to reward our members with a sufficient, risk-adjusted return on their investment, particularly those who actively utilize our products and services. On February 23, 2023, our board of directors declared a cash dividend on Class B-2 activity-based stock at an annualized rate of 6.0% and on Class B-1 non-activity-based stock at an annualized rate of 2.0%, resulting in a spread between the rates of 4.0 percentage points. The overall weighted-average annualized rate paid was 4.84%. While the overall dividend rate in 2023 will depend on many factors, we expect the board to continue to declare ~~dividends are influenced by our~~a competitive dividend and maintain a meaningful spread between the rates on activity-based stock and non-activity-based stock.

The ultimate effects of economic and financial ~~condition, overall financial performance~~markets activity, including fiscal and ~~retained earnings,~~monetary policies, the conditions in the housing markets and the level and volatility of market interest rates, as well as ~~actual~~legislative and ~~anticipated developments in~~regulatory actions, continue to evolve and are highly uncertain and, therefore, the ~~overall economic and financial environment including the level of interest rates and conditions in 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~~2022 and ~~2015.~~2021.

~~Net~~ Interest ~~Income~~.~~Net interest income, which is primarily the interest~~Income. Interest income on advances, mortgage loans held for portfolio, ~~short-term investments,~~ and investment securities ~~less~~is our primary source of revenue. Interest income for the year ended December 31, 2022 totaled $1.4 billion, an increase of $921 million compared to the prior year, primarily driven by an increase in yields resulting from the increase in market interest rates.

Interest Expense. Interest expense on consolidated obligations ~~and interest-bearing deposits,~~is our primary expense. Interest expense for the year ended December 31, 2022 totaled $1.1 billion, an increase of $882 million compared to the prior year, primarily driven by an increase in our cost of funds resulting from the increase in market interest rates.

Net Interest Income.As a result, net interest income is our primary source of earnings. The increase in net interest income for the year ended December 31, 2022 compared to the prior year was primarily due to higher earnings on the portion of the Bank's assets funded by its capital, and lower accelerated amortization of mortgage purchase premiums resulting from lower prepayments on mortgage loans, each driven by the increase in market interest rates.

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 $3 million for the year ended December 31, 2022, compared to net hedging gains of $8 million for the year ended December 31, 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							2022						2021						2020
	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	%
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	)%

Securities purchased under agreements to resell																			Securities purchased under agreements to resell	$	3,181	$	54	1.68	%	$	3,271	$	2	0.05	%	$	3,155	$	12	0.37	%
Federal funds sold																			Federal funds sold	4,019		78		1.94	%	3,755		3		0.08	%	2,561		11		0.42	%
MBS (2) (3)																			MBS (2) (3)	10,055		245		2.44	%	10,917		112		1.03	%	10,567		128		1.21	%
Other investment securities (2) (3)																			Other investment securities (2) (3)	8,064		135		1.67	%	8,347		68		0.81	%	9,417		137		1.45	%
Advances (3)																			Advances (3)	29,939		634		2.12	%	28,609		115		0.40	%	32,919		329		1.00	%
Mortgage loans held for portfolio (3)(4)																			Mortgage loans held for portfolio (3)(4)	7,685		207		2.69	%	7,852		169		2.15	%	9,927		231		2.33	%
Other assets (interest-earning) (5)																			Other assets (interest-earning) (5)	1,733		38		2.16	%	734		1		0.07	%	1,470		5		0.38	%
Total interest-earning assets	59,035		1,016		1.72	%	51,166		695		1.36	%	44,645		544		1.22	%	Total interest-earning assets	64,676		1,391		2.15	%	63,485		470		0.74	%	70,016		853		1.22	%
Other assets ⁽⁴⁾	444						326						378
Other assets (6)																			Other assets (6)	(567)						612						(22)
Total assets	$	59,479					$	51,492					$	45,023					Total assets	$	64,109					$	64,097					$	69,994

Liabilities and Capital:																			Liabilities and Capital:
Interest-bearing deposits	$	555	5		0.86	%	$	597	1		0.12	%	$	706	—		0.01	%	Interest-bearing deposits	$	1,029	12		1.17	%	$	1,609	—		0.01	%	$	1,384	2		0.21	%
Discount notes	20,116		182		0.91	%	16,129		64		0.40	%	12,617		19		0.16	%	Discount notes	19,320		374		1.93	%	15,012		9		0.06	%	22,868		117		0.51	%
CO bonds ⁽²⁾	35,302		560		1.59	%	31,662		425		1.34	%	28,546		328		1.15	%
CO bonds (3)																			CO bonds (3)	39,578		712		1.80	%	43,033		206		0.48	%	41,105		462		1.12	%
MRCS	167		7		4.22	%	152		7		4.35	%	15		1		3.53	%	MRCS	73		2		2.92	%	174		3		1.49	%	290		9		2.96	%

Total interest-bearing liabilities	56,140		754		1.34	%	48,540		497		1.02	%	41,884		348		0.83	%	Total interest-bearing liabilities	60,000		1,100		1.83	%	59,828		218		0.36	%	65,647		590		0.90	%
Other liabilities	679						653						782						Other liabilities	594						708						1,052
Total capital	2,660						2,299						2,357
Capital stock																			Capital stock	2,230						2,228						2,153
All other components of capital																			All other components of capital	1,285						1,333						1,142
Total liabilities and capital	$	59,479					$	51,492					$	45,023					Total liabilities and capital	$	64,109					$	64,097					$	69,994

Net interest income			$	262					$	198					$	196			Net interest income			$	291					$	252					$	263

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					0.32	%					0.38	%					0.32	%

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

Average interest-earning assets to interest-bearing liabilities	1.05						1.05						1.07						Average interest-earning assets to interest-bearing liabilities	1.08						1.06						1.07


⁽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.~~


⁽⁵⁾	~~Net interest income expressed as a percentage of the average balance of interest-earning assets.~~

(1) Includes hedging gains (losses) on qualifying fair-value hedging relationships. Excludes impact of purchase discount (premium) recorded through mark-to-market gains (losses) on trading securities and net interest settlements on derivatives hedging trading securities.

(2) The average balances of AFS securities are based on amortized cost; therefore, the resulting yields do not reflect changes in the estimated fair value that are a component of OCI.

(3) Except for AFS securities, interest income/expense and average yield/cost of funds include all components of interest, including the impact of net interest payments or receipts on derivatives in qualifying hedge relationships, amortization of hedge accounting basis adjustments, and prepayment fees on advances. Excludes net interest payments or receipts on derivatives in economic hedging relationships, including those hedging trading securities.

(4) Includes non-accrual loans.

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(5) Consists of interest-bearing deposits and loans to other FHLBanks (if applicable). Includes the rights or obligations to cash collateral, except for variation margin payments characterized as daily settled contracts.

(6) Includes cumulative changes in the estimated fair value of AFS securities and grantor trust assets.

(7) Net interest income expressed as a percentage of the average balance of interest-earning assets.

Changes in both volume and interest rates determine changes in net interest income and net interest margin. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but are attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the volume and rate changes. The following table presents the changes in interest income and interest expense by volume and rate ($ amounts in millions).


	Year Ended December 31,
	2022 vs. 2021
Components	Volume		Rate		Total
Increase (decrease) in interest income:


Securities purchased under agreements to resell	$	—	$	52	$	52
Federal funds sold	—		75		75
MBS	(9)		142		133
Other investment securities	—		67		67
Advances	6		513		519
Mortgage loans held for portfolio	(4)		42		38
Other assets (interest-earning)	2		35		37
Total	(5)		926		921
Increase (decrease) in interest expense:
Interest-bearing deposits	—		12		12
Discount notes	3		362		365
CO bonds	(18)		524		506
MRCS	(2)		1		(1)

Total	(17)		899		882

Increase (decrease) in net interest income	$	12	$	27	$	39

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
Average Balances. The average balances outstanding of interest-earning assets for the year ended December 31, 2022 increased by 2% compared to the prior year. The average balances of advances outstanding increased by 5%, reflecting higher member utilization of advances. However, the average balances of MBS outstanding decreased by 8%, reflecting the reduced capacity to purchase MBS during part of 2022 due to the negative impact of a capital stock repurchase on total regulatory capital. Such decrease in this higher-yielding asset resulted in an overall decrease in interest income due to changes in volume. The average balances outstanding of interest-bearing liabilities for the year ended December 31, 2022 increased by 0.3% compared to the prior year. The average balances of discount notes outstanding increased by 29%, reflecting a change in mix of funding. The average balances of CO bonds decreased by 8%. Such decrease in this previously higher-costing liability resulted in an overall decrease in interest expense due to changes in volume. As a result, the average balances of total interest-earning assets, net of interest-bearing liabilities, increased by 28%. Such increase contributed to the increase in interest income on the portion of the Bank's assets funded by its interest-free capital.

~~Yields.~~Yields/Cost of Funds. The average yield on total interest-earning assets for the year ended December 31, ~~2017~~2022, including the impact of net hedging gains/losses but excluding certain impacts of trading securities, was ~~1.72%~~2.15%, an increase of 36141 bps compared to ~~2016,~~2021, resulting primarily from increases in market interest rates that led to higher yields on ~~advances and investment securities.~~all of our interest-earning assets. Such increase contributed to the increase in interest income on the portion of the Bank's assets funded by its interest-free capital. The average cost of funds of total interest-bearing liabilities for the year ended December 31, ~~2017~~2022, including the impact of net hedging gains/losses but excluding certain impacts of funding trading securities, was ~~1.34%~~1.83%, an increase of 32147 bps ~~from the prior year~~ due to higher funding costs on ~~consolidated obligations.~~all of our interest-bearing liabilities. The net effect was ~~an increase~~a decrease in the net interest spread of 6 bps to 0.32% for the year ended December 31, 2022 from 0.38% for the year ended December 31, ~~2017 from 0.34% for the year ended December 31, 2016.~~2021.

The average yield on total interest-earning assets for the year ended December 31, 2016 was 1.36%, an increase of 14 bps compared to 2015, resulting primarily from increases in market interest rates that led to higher yields on advances and investment securities, partially offset by lower yields on mortgage loans. The decrease in the yields on mortgage loans was due to an increase in prepayments of our higher-yielding MPP loans, resulting in accelerated amortization of purchase premiums on our newer loans. The cost of total interest-bearing liabilities for the year ended December 31, 2016 was 1.02%, an increase of 19 bps from the prior year due to higher funding costs on consolidated obligations and accelerated amortization of concession fees associated with the exercise of our call option on certain CO bonds that funded our mortgage portfolios and which were reissued at a lower cost. The net effect was a reduction in the net interest spread to 0.34% for the year ended December 31, 2016 from 0.39% for the year ended December 31, 2015.

~~Average Balances.~~ The average balances of interest-earning assets for the year ended December 31, 2017 increased compared to 2016, largely due to advances and, to a lesser extent, mortgage loans and investment securities. The average amount of advances outstanding increased by 20%, generally due to members' higher funding needs. The average amount of mortgage loans held for portfolio outstanding increased by 13% due to higher purchases from members under MPP Advantage. Additionally, the increase in the average balances of investment securities was due primarily to purchases of agency MBS. The increase in average interest-bearing liabilities for the year ended December 31, 2017, compared to 2016, was due to an increase in consolidated obligations to fund the increases in the average balances of all interest-earning assets.

The average balances of interest-earning assets for the year ended December 31, 2016 increased compared to 2015, largely due to advances, investment securities and mortgage loans. The average amount of advances outstanding increased by 13%, generally due to members' higher funding needs. The increase in the average balances of investment securities was due primarily to purchases of GSE debentures and agency MBS. Additionally, the average amount of mortgage loans held for portfolio outstanding increased by 14% due to higher purchases from members under MPP Advantage. The increase in average interest-bearing liabilities for the year ended December 31, 2016, compared to 2015, was due to an increase in consolidated obligations to fund the increases in the average balances of all interest-earning assets.

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~~Provision for (Reversal of) Credit Losses.~~ ~~The change in the provision for (reversal of) credit losses for the year ended December 31, 2017 compared to 2016 was insignificant.~~

~~The change in the provision for (reversal of) credit losses for the year ended December 31, 2016 compared to 2015 was due to a lower reversal of estimated MPP losses resulting from modeling updates.~~

Other ~~Income (Loss).~~Income.The following table presents a comparison of the components of other income ($ amounts in millions).

Years Ended December 31,
Components 2017 2016 2015
Total OTTI losses $ —
$ —
$ —
Non-credit portion reclassified to (from) other comprehensive income —
—
—
Net OTTI credit losses —
—
—
Net gains (losses) on derivatives and hedging activities (9 ) 2
3
Other
Litigation settlements, net ⁽¹⁾
1
—
5
Other miscellaneous 2
4
2
Total other income (loss) $ (6 ) $ 6
$ 10


	Years Ended December 31,
Components	2022		2021
Net unrealized gains (losses) on trading securities (1)	$	(1)	$	(15)
Net realized gains (losses) on trading securities (2)	(22)		(33)
Net gains (losses) on trading securities	(23)		(48)

Net gains (losses) on derivatives hedging trading securities	19		15
Net gains (losses) on other derivatives not designated as hedging instruments	(4)		(2)
Net interest settlements on economic derivatives (3)	33		(9)
Net gains (losses) on derivatives	48		4

Change in fair value of investments indirectly funding the liabilities under the SERP	(8)		5
Other, net	2		5

Total other income (loss)	$	19	$	(34)


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

(1) Includes impact of purchase discount (premium) recorded through mark-to-market gains (losses). Excludes impact of associated derivatives.

(2) Includes, at maturity, 100% of original discount (premium) as gain (loss). Excludes impact of associated derivatives.

(3) Generally offsetting interest income on trading securities or interest expense on the associated funding is included in net interest income.

The ~~net decrease~~increase in total other income for the year ended December 31, ~~2017~~2022 compared to ~~2016~~2021 was due primarily ~~due~~ to higher net interest settlements received on economic derivatives, particularly on swaps hedging trading securities, and lower net losses on ~~derivatives and hedging activities.~~

~~The decrease~~trading securities, partially offset by declines in ~~total other income for~~ the ~~year ended December 31, 2016 compared to 2015 was primarily due to lower net proceeds from litigation settlements related to certain of our private-label RMBS.~~

~~OTTI Losses.As described in detail in~~ ~~Notes to Financial Statements - Note 6 - Other-Than-Temporary Impairment, OTTI credit losses recorded on private-label RMBS are derived from projections~~fair values of the ~~future cash flows~~investments indirectly funding the liabilities under the SERP. The assets are held in a grantor trust and consist of ~~the individual securities. These projections~~a diversified portfolio of mutual funds that are ~~based on~~invested in equity securities, bonds and alternative investments which declined in value in 2022 as a ~~number~~result of ~~assumptions~~changes in economic conditions and ~~expectations, which are updated on a quarterly basis. OTTI losses over the past several years have been insignificant due to the continuing economic recovery, particularly~~increases in ~~the housing~~ market ~~and its favorable impact on housing prices.~~interest rates.

Net Gains (Losses) on ~~Derivatives~~Trading Securities. We purchase fixed-rate U.S. Treasury obligations to enhance our liquidity. The shorter-term securities are classified as trading securities and ~~Hedging Activities.~~ ~~Our net~~are recorded at fair value, with changes in fair value reported in other income. Such changes include the impact of purchase discount (premium) recorded through mark-to-market gains (losses) on ~~derivatives and hedging activities fluctuate due to~~volatility 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 allthese securities. There are a number 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. Terminating the financial instrument or hedging relationship may result in a realized gain or loss. See ~~Notes to Financial Statements - Note 11 - Derivatives and Hedging Activities~~ ~~for more information.~~

~~The Bank uses interest-rate swaps to hedge the risk of changes in~~factors that affect the fair value of ~~certain of its advances, consolidated obligations and AFS~~these securities, ~~due to~~including changes in market interest rates. These hedging relationships are designated as fair value hedges. Changes in the estimated fair value of the derivative and, to the extent these relationships qualify for hedge accounting, changes in the fair value of the hedged item that are attributable to the hedged risk are recorded in earnings. The estimated fair values are based on a wide range of factors, including current and projected levels of interest rates, ~~credit spreads~~the passage of time, and volatility.

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~~For those hedging relationships~~ These trading securities are economically hedged, so that ~~qualified for hedge accounting,~~over time the ~~differences between~~gains (losses) on these securities will be generally offset by the change in ~~the estimated fair value of the hedged items and the change in the estimated~~ fair value of the associated ~~interest-rate swaps, i.e., hedge ineffectiveness, resulted in a net loss of $7 million~~derivatives, except for the year ended December 31, 2017 compared to a net gain of $4 million for each of the years ended December 31, 2016 and 2015. The losses for the year ended December 31, 2017 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) MBS. There is less offsetting hedge ineffectiveness on the related funding due to the increased issuance of floating rate notes.any purchase discount/premium.

To the extent these hedges do not qualify for hedge accounting, or cease to qualify because they are determined to be ineffective, only the change in the fair value of the derivative is recorded in earnings with no offsetting change in the fair value of the hedged item.

For derivatives not qualifying for hedge accounting (economic hedges), the net interest settlements and the changes in the estimated fair value of the derivatives are recorded in net gains (losses) on derivatives and hedging activities. For economic hedges, the Bank recorded a net loss of $2 million for each of the years ended December 31, 2017 and 2016, respectively and a net loss of $1 million for the year ended December 31, 2015.

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The tables below present the net effect of derivatives on net interest income and other income (loss), within the net gains (losses) on derivatives and hedging activities, by type of hedge and hedged item ($ amounts in millions).

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⁾	~~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.~~

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Other Expenses. The following table presents a comparison of the components of other expenses ($ amounts in millions).


	Years Ended December 31,							Years Ended December 31,
Components	2017		2016		2015		Components	2022		2021
Compensation and benefits	$	48	$	46	$	43	Compensation and benefits	$	59	$	61
Other operating expenses	26		25		22		Other operating expenses	31		30
Finance Agency and Office of Finance expenses	7		6		6
Finance Agency and Office of Finance							Finance Agency and Office of Finance	12		12
Voluntary contributions to AHP and related programs							Voluntary contributions to AHP and related programs	6		—
Other	1		1		1		Other	5		10

Total other expenses	$	82	$	78	$	72	Total other expenses	$	113	$	113

The slight increase in total other expenses for the year ended December 31, ~~2017~~2022 compared to ~~2016~~2021 was due primarily to ~~increases~~voluntary contributions to our AHP and related programs, substantially offset by a decrease in ~~compensation and benefits, primarily driven by salary increases and higher head count. The increase in headcount was primarily~~other expenses due to ~~strengthening our information security, business continuity and risk management capabilities and reducing our reliance on contractual resources.~~

The increase in total other expenses for the year ended December 31, 2016 compared to 2015 was driven primarily by increases in compensation and benefits and other operating expenses. The increase in compensation and benefits wasaccelerated amortization of net actuarial loss due to ~~merit increases, higher head count, and higher incentive compensation achievement. The increase~~settlements in ~~other operating expenses was primarily due to higher professional fees and services.~~2021 under our SERP.

~~Office of Finance Expenses~~.The FHLBanks fund the costs of the Office of Finance as a joint office that facilitates issuing and servicing consolidated obligations, preparation of the FHLBanks' combined quarterly and annual financial reports, and certain other functions. For each of the years ended December 31, 2017, 2016 and 2015, our assessments to fund the Office of Finance totaled approximately $4 million, $3 million, and $3 million, respectively.

~~Finance Agency Expenses~~.EachFHLBank is assessed a portion of the operating costs of our regulator, the Finance Agency. ~~We have no direct control over these costs.~~The portion of the Finance Agency's expenses and working capital fund not allocated to Freddie Mac and Fannie Mae is allocated among the FHLBanks as assessments, which are based on the ratio of each FHLBank's minimum required regulatory capital to the aggregate minimum required regulatory capital of every FHLBank. For ~~each of~~ the years ended December 31, ~~2017~~2022 and 2021, our portion totaled $7 million and $6 million, ~~2016~~respectively.

Our proportionate share of the Office of Finance's operating and ~~2015~~,capital expenditures is calculated based upon two components as follows: (i) two-thirds based on our share of total consolidated obligations outstanding and (ii) one-third based on equal pro-rata allocation. For the years ended December 31, 2022 and 2021, our assessments to fund the Office of Finance ~~Agency assessments~~ totaled ~~approximately $3 million.~~$5 million and $6 million, respectively.

In 2022, other expenses include an additional 2.5% of net earnings accrued for voluntary contributions to our AHP of $4 million and voluntary allocations to various affordable housing, small business and community investment programs totaling $2 million, both to be available in 2023. The combined required and voluntary contributions and allocations in 2022 totaled $26 million and further demonstrate our commitment to promoting affordable, sustainable and equitable housing in Michigan and Indiana.

AHP Assessments. The FHLBanks are required to set aside annually, in the aggregate, the greater of $100 million or 10% of their net earnings to fund the AHP. For purposes of the AHP calculation, net earnings is defined as income before assessments, plus interest expense related to MRCS, if applicable. For ~~each of~~ the years ended December 31, ~~2017~~, ~~2016~~2022 and ~~2015~~,2021, our AHP ~~expense~~assessment was ~~approximately $18 million, $13~~$20 million and ~~$13~~$11 million, respectively. Our AHP ~~expense~~assessment fluctuates in accordance with our net earnings.

~~If we experienced a net loss during a quarter but still had net earnings for the year~~Our voluntary contributions to ~~date, our obligation to the~~ AHP would be calculated based on our year-to-date net earnings. If we experienced a net loss for a full year, we would have no obligation to the AHP for the year, since our required annual contribution is limited to annual net earnings.and other related programs are reported in other expenses.

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. There was no shortfall in 2017, 2016 or ~~2015~~.

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 make such an application in 2017, ~~2016~~ or ~~2015~~.

Total Other Comprehensive Income (Loss).Total ~~other comprehensive income (loss) for the years ended~~ ~~2017~~, ~~2016~~ ~~and~~ ~~2015~~ was $55 million, $33 million and $(24) million, respectively. Total other comprehensive income for the years ended December 31, 2017 and 2016 consisted substantially of unrealized gains on non-OTTI AFS securities. Total other comprehensive lossOCI for the year ended December 31, ~~2015~~2022 consisted primarily of ~~decreases in the fair value of~~net unrealized losses on AFS securities, ~~primarily agency~~compared to net unrealized gains on AFS securities for 2021. These amounts were primarily impacted by changes in interest rates, credit spreads and ~~to a lesser extent, an increase in the amortized cost basis of OTTI AFS MBS not offset by an increase in the fair value.~~volatility.

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Operating Segments

Our products and services are grouped within two operating segments:traditional and mortgage loans.

Traditional. The traditional segment consists of (i) credit products (including advances, standby letters of credit, and lines of credit), (ii) investments (including federal funds sold, securities purchased under agreements to resell, ~~AFS securities~~interest-bearing demand deposit accounts, and ~~HTM~~investment securities), and (iii) ~~and~~ correspondent services and deposits. The following table presents the financial performance of our traditional segment ($ amounts in millions).


	Years Ended December 31,								Years Ended December 31,
Traditional	2017			2016		2015		Traditional	2022		2021
Net interest income	$	193		$	144	$	128	Net interest income	$	241	$	230
Provision for (reversal of) credit losses	—			—		—		Provision for (reversal of) credit losses	—		—
Other income (loss)	(5		)	7		13		Other income (loss)	20		(33)
Other expenses	70			66		62		Other expenses	97		97
Income before assessments	118			85		79		Income before assessments	164		100
Total assessments	12			9		8
AHP assessments								AHP assessments	17		10

Net income	$	106		$	76	$	71	Net income	$	147	$	90

The increase in net income for the traditional segment for the year ended December 31, ~~2017~~2022 compared to ~~2016~~the prior year was primarily due to higher ~~net interest income primarily as a result~~earnings on the portion of ~~higher yields on and higher average balances of advances and investments outstanding, partially offset~~Bank's assets funded by ~~higher funding costs. This net increase was partially offset~~its capital, driven by ~~higher expenses and net losses on derivatives and hedging activities.~~

~~The~~the increase in ~~net income for the traditional segment for the year ended December 31, 2016 compared to 2015 was due to higher net~~market interest income primarily as a result of higher yields on and higher average balances of advances and investments outstanding, partially offset by higher funding costs. This net increase was partially offset by lower net proceeds from litigation settlements related to certain private-label RMBS.rates.

Mortgage Loans. The mortgage loans segment ~~includes (i)~~consists substantially of mortgage loans purchased from our members through our ~~MPP and (ii) participating interests purchased in 2012 - 2014 from the FHLBank of Topeka in mortgage loans originated by certain of its PFIs under the MPF Program.~~ MPP. The following table presents the financial performance of our mortgage loans segment ($ amounts in millions).


	Years Ended December 31,										Years Ended December 31,
Mortgage Loans	2017			2016			2015			Mortgage Loans	2022		2021
Net interest income	$	69		$	54		$	68		Net interest income	$	50	$	22
Provision for (reversal of) credit losses	—			—			—			Provision for (reversal of) credit losses	—		—
Other income (loss)	(1		)	(1		)	(3		)	Other income (loss)	(1)		(1)
Other expenses	12			12			10			Other expenses	16		16
Income before assessments	56			41			55			Income before assessments	33		5
Total assessments	6			4			5
AHP assessments										AHP assessments	3		1

Net income	$	50		$	37		$	50		Net income	$	30	$	4

The increase in net income for the mortgage loans segment for the year ended December 31, ~~2017~~2022 compared to ~~2016~~the prior year was substantially due to ~~higher net interest income resulting from an increase in the average outstanding balance~~lower accelerated amortization of mortgage ~~loans held for portfolio, a decrease in amortization of concession fees on called consolidated obligations, and a decrease in amortization of purchased~~purchase premiums resulting from lower ~~prepayments.~~

~~The decrease in net income for~~principal prepayments, driven by the mortgage loans segment for the year ended December 31, 2016 compared to 2015 was primarily due to a decrease in net interest income resulting from higher prepayments of MPP loans, which caused accelerated amortization of purchased premiums on our newer loans. The decrease also resulted from higher funding costs and the accelerated amortization of concession fees associated with the exercise of our call option on certain CO bonds funding our mortgage loan portfolio which were reissued at a lower cost. Partially offsetting this decrease was an increase in ~~the average outstanding balance of mortgage loans held for portfolio.~~market interest rates.

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Analysis of Financial Condition

Total Assets. The table below presents the comparative highlights of our major asset categories ($ amounts in millions).


	December 31, 2017				December 31, 2016					December 31, 2022				December 31, 2021
Major Asset Categories	Carrying Value		% of Total		Carrying Value		% of Total		Major Asset Categories	Carrying Value		% of Total		Carrying Value		% of Total
Advances	$	34,055	55	%	$	28,096	52	%	Advances	$	36,683	51	%	$	27,498	46	%
Mortgage loans held for portfolio, net	10,356		17	%	9,501		18	%	Mortgage loans held for portfolio, net	7,687		11	%	7,616		13	%
Cash and short-term investments	4,601		7	%	4,128		8	%	Cash and short-term investments	8,575		12	%	7,048		12	%
Investment securities	13,027		21	%	11,880		22	%
Trading securities									Trading securities	2,230		3	%	3,947		7	%
MBS									MBS	10,307		14	%	10,777		18	%
Other investment securities									Other investment securities	6,113		8	%	2,697		4	%
Other assets ⁽¹⁾	310		—	%	302		—	%	Other assets (1)	689		1	%	422		—	%

Total assets	$	62,349	100	%	$	53,907	100	%	Total assets	$	72,284	100	%	$	60,005	100	%


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

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

Total assets ~~were $62.3 billion~~ as of December 31, ~~2017,~~2022 were $72.3 billion, an increase of ~~16%~~$12.3 billion, or 20%, compared to December 31, ~~2016. This increase of $8.4 billion was~~2021, primarily ~~due~~driven by net increases in advances outstanding to ~~an increase in advances.~~members. The mix of our assets at December 31, 2022 changed compared to December 31, 2021 in that advances as a percent of total assets ~~changed~~increased from 46% to 51%. In addition, substantially all of our purchases of U.S. Treasury obligations in 2022 were classified as AFS securities.

Advances. In general, advances fluctuate in accordance with our members' funding needs, primarily determined by their deposit levels, mortgage pipelines, loan growth, investment opportunities, available collateral, other balance sheet strategies, and the cost of alternative funding options.

Advances at December 31, 2022 at carrying value totaled $36.7 billion, a net increase of $9.2 billion, or 33%, compared to December 31, 2021. This increase reflects higher demand by our members for advances primarily in response to our depository members' loan growth outpacing their deposit growth, rising market interest rates, including the adverse impact on their investment portfolios, and the availability of suitable products to assist our members in managing their balance sheets in the current economic environment.

Our advances portfolio is well-diversified with advances to commercial banks and savings institutions, credit unions, and insurance companies. As a percent of total advances outstanding at par value, at December 31, 2022, advances to depository institutions were 64%, while advances to insurance companies were 36%.

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The table below presents advances outstanding by type of financial institution ($ amounts in millions).


	December 31, 2022				December 31, 2021
Borrower Type	Par Value		% of Total		Par Value		% of Total
Depository institutions:
Commercial banks and saving institutions	$	13,920	37	%	$	12,199	45	%
Credit unions	5,163		14	%	2,199		8	%
Former members - depositories	4,772		13	%	225		1	%
Total depository institutions	23,855		64	%	14,623		54	%

Insurance companies:
Captive insurance company (1)	213		1	%	263		1	%
Other insurance companies	13,217		35	%	12,419		45	%
Former members - insurance companies	5		—	%	5		—	%
Total insurance companies	13,435		36	%	12,687		46	%

CDFIs	1		—	%	—		—	%

Total advances outstanding	$	37,291	100	%	$	27,310	100	%

(1) Captive insurance companies that were admitted as FHLBank members prior to September 12, 2014, and did not meet the definition of "insurance company" or fall within another category of institution that is eligible for FHLBank membership under the Final Rule on FHLBank Membership, had their memberships terminated on February 19, 2021. The outstanding advances to one captive insurer are not required to be repaid prior to their various maturity dates through 2024.

Our advances portfolio includes fixed- and variable-rate advances, as well as callable or prepayable and putable advances. Prepayable advances may be prepaid on specified dates without incurring repayment or termination fees. All other advances may only be prepaid by the borrower paying a fee that is sufficient to make us financially indifferent to the prepayment.

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The following table presents the par value of advances outstanding by product type and redemption term, some of which contain call or put options ($ amounts in millions).


	December 31, 2022				December 31, 2021
Product Type and Redemption Term	Par Value		% of Total		Par Value		% of Total
Fixed-rate:
Without call or put options (1)
Due in 1 year or less	$	13,592	36	%	$	7,720	29	%
Due after 1 through 5 years	7,559		20	%	5,772		21	%
Due after 5 through 15 years	1,696		5	%	776		3	%
Thereafter	15		—	%	5		—	%
Total	22,862		61	%	14,273		53	%

Callable or prepayable
Due in 1 year or less	2		—	%	—		—	%
Due after 1 through 5 years	—		—	%	2		—	%
Due after 5 through 15 years	41		—	%	5		—	%

Total	43		—	%	7		—	%

Putable
Due in 1 year or less	5		—	%	—		—	%
Due after 1 through 5 years	1,296		4	%	2,289		8	%
Due after 5 through 15 years	7,191		19	%	5,747		21	%

Total	8,492		23	%	8,036		29	%

Total fixed-rate	31,397		84	%	22,316		82	%

Variable-rate:
Without call or put options
Due in 1 year or less	515		2	%	18		—	%
Due after 1 through 5 years	160		—	%	167		1	%


Total	675		2	%	185		1	%

Callable or prepayable
Due in 1 year or less	403		1	%	126		—	%
Due after 1 through 5 years	3,011		8	%	2,831		10	%
Due after 5 through 15 years	1,450		4	%	1,297		5	%
Thereafter	355		1	%	555		2	%
Total	5,219		14	%	4,809		17	%

Total variable-rate	5,894		16	%	4,994		18	%



Total advances	$	37,291	100	%	$	27,310	100	%

(1) Includes amortizing/mortgage matched advances.

During the year ended December 31, 2022, the par value of advances due in one year or less increased by 85%, while advances due after one year increased by 17%. As a result, advances due in one year or less, as a percentage of the total outstanding at par, totaled 39% at December 31, 2022, an increase from 29% at December 31, 2021. However, during the year ended December 31, 2022, in response to our exercise of an option on certain long-term putable advances, several members replaced that funding with short-term advances without put options. Based on the earlier of the redemption or the next put date, advances due in one year or less increased by 50%, while advances due after one year increased by 23%. As a result, advances due in one year or less on that basis, as a percentage of the total outstanding at par, totaled 54% and 49% at December 31, 2022 and 2021, respectively. For additional information, see Notes to Financial Statements - Note 5 - Advances.

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The following table presents our variable-rate advances outstanding by the associated interest-rate index ($ amounts in millions).


Variable Interest-Rate Index	December 31, 2022		December 31, 2021
SOFR	$	2,401	$	842
FHLBanks cost of funds	1,870		1,701
LIBOR	1,278		2,441
Other	345		10
Total variable-rate advances, at par value	$	5,894	$	4,994

The shift from LIBOR-indexed advances to SOFR-indexed advances is due to our continued steps to transition our LIBOR-linked financial instruments and contracts to SOFR. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Replacement of the LIBOR Benchmark Interest Rate.

Mortgage Loans Held for Portfolio.We purchase fixed-rate mortgage loans from our members to support our housing mission, provide an additional source of liquidity to our members, diversify our assets, and generate additional earnings. In general, our volume of mortgage loans purchased is affected by several factors, including interest rates, competition, the general level of housing and refinancing activity in the United States, consumer product preferences, our balance sheet capacity and risk appetite, and regulatory considerations.

Mortgage loans held for portfolio at December 31, 2022, at carrying value, totaled $7.7 billion, a net increase of $71 million, or 1%, from December 31, 2021, as the Bank's purchases from its members slightly ~~during 2017,~~exceeded principal repayments by borrowers.

The following table summarizes the activity in the UPB of mortgage loans held for portfolio ($ amounts in millions).


Mortgage Loans Activity	2022		2021		2020
Balance, beginning of year	$	7,434	$	8,323	$	10,585
Purchases	1,146		2,082		2,022
Principal repayments	(1,047)		(2,971)		(4,284)
Balance, end of year	$	7,533	$	7,434	$	8,323

A breakdown of the UPB of mortgage loans held for portfolio by primary product type is presented below ($ amounts in millions).


	December 31, 2022				December 31, 2021
Product Type	UPB		% of Total		UPB		% of Total
MPP:
Conventional Advantage	$	7,082	94	%	$	6,875	93	%
Conventional Original	236		3	%	300		4	%
FHA	128		2	%	155		2	%
Total MPP	7,446		99	%	7,330		99	%




Total Mortgage Partnership Finance® Program	87		1	%	104		1	%

Total mortgage loans held for portfolio	$	7,533	100	%	$	7,434	100	%

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The following table presents the UPB of mortgage loans by redemption term. All of our mortgage loans have fixed rates ($ amounts in millions).


Redemption Term	December 31, 2022		December 31, 2021
Due in 1 year or less	$	287	$	288
Due after 1 through 5 years	1,206		1,216
Due after 5 through 15 years	2,943		2,990
Thereafter	3,097		2,940
Total mortgage loans held for portfolio, UPB	$	7,533	$	7,434

We maintain an allowance for credit losses based on our best estimate of expected losses over the remaining life of each loan. The following table presents the components of the allowance for credit losses, including the credit enhancement waterfall for MPP ($ amounts in millions).


Components of Allowance	December 31, 2022		December 31, 2021
MPP expected losses remaining after borrower's equity, before credit enhancements	$	4.7	$	2.4
Portion of expected losses recoverable from credit enhancements:
PMI	(1.4)		(0.5)
LRA (1)	(3.0)		(1.3)
SMI	(0.2)		(0.4)
Total portion recoverable from credit enhancements	(4.6)		(2.2)
Allowance for unrecoverable PMI/SMI	—		—

Allowance for MPP credit losses	0.1		0.2
Allowance for Mortgage Partnership Finance® Program credit losses	0.1		0.1

Allowance for credit losses	$	0.2	$	0.3

(1) Amounts recoverable are limited to (i) the expected losses remaining after borrower's equity and PMI and (ii) the remaining balance in each pool's portion of the LRA. The remainder of the total LRA balance is available to cover any losses not yet expected and to distribute any excess funds to the PFIs.

Our MPP was designed to require loan servicers to foreclose loans and liquidate properties in the servicer's name rather than in the Bank's name. Therefore, we do not take title to any foreclosed property or enter into any other legal agreement under which the borrower conveys all interest in the property to the Bank to satisfy the loan. Upon completion of a triggering event (short sale, deed in lieu of foreclosure, foreclosure sale or post-sale confirmation or ratification, as applicable), the servicer is required to remit to us the full UPB and accrued interest at the next feasible remittance. Upon receipt of the full UPB and accrued interest, the mortgage loan is derecognized from the statement of condition. As a result of these factors, we do not classify as Real Estate Owned any foreclosed properties collateralizing MPP loans that were previously recorded on the statement of condition.

As the servicer progresses through the process from foreclosure to liquidation, the Bank is paid in full and the servicer files a claim against the various credit enhancements for reimbursement of losses incurred. The claim is then reviewed and paid as appropriate under the various credit enhancement policies or guidelines. At December 31, 2022, principal previously paid in full by our MPP servicers totaling $0.4 million remains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. An estimate of the losses is included in the MPP allowance for credit losses.

In the case of a delay in receiving final payoff from the servicer beyond the second remittance cycle after a triggering event, we reclassify the amount owed from mortgage loans to a separate amount receivable from the servicer. The receivable is then evaluated for the amount expected to be recovered.

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Liquidity and Other Investment Securities. We maintain our investment portfolio for liquidity purposes, to use balance sheet capacity and to supplement our earnings. The earnings on our investments bolster our capacity to meet our commitments to affordable housing and community investments and to cover operating expenses. The following table presents a comparison of the components of our liquidity investments and other investment securities at carrying value ($ amounts in millions).


	December 31, 2022				December 31, 2021
Components	Carrying Value		% of Total		Carrying Value		% of Total
Cash and short-term investments:
Cash and due from banks	$	21	—	%	$	868	4	%
Interest-bearing deposits	856		3	%	100		—	%
Securities purchased under agreements to resell	4,550		17	%	3,500		14	%
Federal funds sold	3,148		12	%	2,580		11	%
Total cash and short-term investments	8,575		32	%	7,048		29	%

Trading securities:
U.S. Treasury obligations	2,230		8	%	3,947		16	%
Total trading securities	2,230		8	%	3,947		16	%

Total liquidity investments	10,805		40	%	10,995		45	%

Other investment securities:
AFS securities:
U.S. Treasury obligations	4,210		16	%	—		—	%
GSE and TVA debentures	1,903		7	%	2,697		11	%
GSE multifamily MBS	6,067		22	%	6,463		26	%
Total AFS securities	12,180		45	%	9,160		37	%

HTM securities:

Other U.S. obligations single-family MBS	2,992		11	%	2,626		11	%
GSE single-family MBS	620		2	%	816		3	%
GSE multifamily MBS	628		2	%	872		4	%
Total HTM securities	4,240		15	%	4,314		18	%

Total other investment securities	16,420		60	%	13,474		55	%

Total cash and investments, carrying value	$	27,225	100	%	$	24,469	100	%

Liquidity Investments.

Cash and Short-Term Investments.Cash andshort-term investments at December 31, 2022 totaled $8.6 billion, an increase of $1.5 billion, or 22%, from December 31, 2021 to support the increase in advances. Cash and short-term investments as a percent of total assets at December 31, 2022 and December 31, 2021 each totaled 12%.

Trading Securities. The Bank has purchased fixed-rate U.S. Treasury obligations as trading securities to enhance its liquidity. Such securities outstanding at December 31, 2022 totaled $2.2 billion, a decrease of $1.7 billion, or 43%, from December 31, 2021, as substantially all of the Bank's purchases of U.S. Treasury obligations in 2022 were classified as AFS.

Liquidity investments at December 31, 2022 totaled $10.8 billion, a decrease of $190 million, or 2%, from December 31, 2021. The total outstanding balance and composition of our liquidity investments are influenced by our liquidity needs, regulatory requirements, actual and anticipated member advance activity, market conditions, and the availability of short-term investments at attractive interest rates, relative to our cost of funds.

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Other Investment Securities.AFS securities at December 31, 2022 totaled $12.2 billion, a net increase of $3.0 billion, or 33%, from December 31, 2021. The increase resulted primarily from purchases of U.S. Treasury obligations classified as AFS.

Net unrealized losses on AFS securities at December 31, 2022 totaled $(10) million, a net decrease of $162 million compared to December 31, 2021, primarily due to changes in interest rates, credit spreads and volatility.

HTM securities at December 31, 2022 totaled $4.2 billion, a net decrease of $74 million, or 2%, from December 31, 2021. The decrease was due to repayments of HTM securities exceeding purchases.

Interest-Rate Payment Terms. Our investment securities are presented below by interest-rate payment terms ($ amounts in millions).


	December 31, 2022				December 31, 2021
Interest-Rate Payment Terms	Amortized Cost		% of Total		Amortized Cost		% of Total






AFS Securities (1):
Total non-MBS fixed-rate	$	6,091	50	%	$	2,652	29	%
Total MBS fixed-rate	6,099		50	%	6,356		71	%

Total AFS securities	$	12,190	100	%	$	9,008	100	%

HTM Securities:
Total MBS fixed-rate	$	204	5	%	$	218	5	%
Total MBS variable-rate	4,036		95	%	4,096		95	%


Total HTM securities	$	4,240	100	%	$	4,314	100	%

AFS and HTM securities:
Total fixed-rate	$	12,394	75	%	$	9,226	69	%
Total variable-rate	4,036		25	%	4,096		31	%

Total AFS and HTM securities	$	16,430	100	%	$	13,322	100	%

(1) Carrying value is equal to estimated fair value.

The mix of fixed- vs. variable-rate AFS and HTM securities at December 31, 2022 changed slightly from December 31, 2021, primarily due to purchases of fixed-rate U.S. Treasury obligations. However, all of the ~~growth~~fixed-rate AFS securities are swapped to effectively create variable-rate securities, consistent with our balance sheet strategies to manage interest-rate risk.

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Investments by Year of Contractual Maturity.The following table provides, by year of contractual maturity, carrying values and yields for AFS and HTM securities as of December 31, 2022 ($ amounts in ~~advances.~~millions).


				Due after			Due after
	Due in			one year			five years			Due after
	one year			through			through			ten
Investments	or less			five years			ten years			years			Total
AFS Securities:
U.S. Treasury obligations	$	—		$	—		$	4,210		$	—		$	4,210
GSE and TVA debentures	131			1,595			177			—			1,903
GSE MBS (1)	19			2,245			3,476			327			6,067
Total AFS securities	150			3,840			7,863			327			12,180

HTM Securities:

Other U.S. obligations - guaranteed MBS (1)	—			—			—			2,992			2,992
GSE MBS (1)	—			2			261			985			1,248
Total HTM securities	—			2			261			3,977			4,240

Total AFS and HTM securities, carrying value	$	150		$	3,842		$	8,124		$	4,304		$	16,420


Yield on AFS securities (2)	2.03		%	2.60		%	2.77		%	2.87		%
Yield on HTM securities (2)	—		%	4.59		%	3.41		%	2.98		%

(1) Year of redemption on our MBS is based on contractual maturity. Their actual maturities will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

(2) The weighted average yields on AFS and HTM securities are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the impact of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable AFS or HTM portfolio. The result is then multiplied by 100 to express it as a percentage.

At December 31, 2022, based on contractual maturities, as a percentage of total carrying value, AFS and HTM securities due in one year or less were 1%, due after one year through five years were 23%, due after 5 years through 10 years were 50%, and due after 10 years were 26%.

The following table presents our variable-rate MBS outstanding by the associated interest-rate index ($ amounts in millions).


Variable Interest-Rate Index	December 31, 2022		December 31, 2021
SOFR	$	1,994	$	1,400
LIBOR	2,018		2,669
Total variable-rate MBS, at principal amount	$	4,012	$	4,069

The shift from LIBOR-indexed MBS to SOFR-indexed MBS is due to our continued steps to transition our LIBOR-linked financial instruments and contracts to SOFR. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Replacement of the LIBOR Benchmark Interest Rate.

Under the Finance Agency's Prudential Management and Operations Standards, if our non-advance assets were to grow by more than 30% over the six calendar quarters preceding a Finance Agency determination that we have failed to meet any of these standards, the Finance Agency would be required to impose one or more sanctions on us, which could include, among others, a limit on asset growth, an increase in the level of retained earnings, and a prohibition on dividends or the redemption or repurchase of ~~capital~~capital stock. Through the six-quarter period ended December 31, ~~2017,~~2022, our growth in non-advance assets did not exceed 30%.

~~Advances.~~ In general, advances fluctuate in accordance with our members' funding needs, primarily determined by their deposit levels, mortgage pipelines, loan growth, investment opportunities, available collateral, other balance sheet strategies, and the cost

Table of ~~alternative funding options.~~Contents

~~Advances~~Total Liabilities. Total liabilities at ~~carrying value totaled $34.1 billion at~~ December 31, ~~2017~~,2022 were $68.9 billion, a net increase of 21% compared to December 31, 2016, in spite of the 10% decline in advances outstanding to captive insurers. In accordance with the Final Membership Rule, by February 19, 2017, the memberships of the six captive insurers that were admitted as members on or after September 12, 2014 were terminated and all of their outstanding advances were fully repaid.

Advances to depository members - comprising commercial banks, savings institutions and credit unions - increased by 42%. Advances to insurance company members (excluding captive insurance companies) increased by 8%. The significant increase in advances to depository members resulted in a change in the mix of advances by member type during the year. Advances to depository institutions, as a percent of total advances outstanding, increased from 47% at December 31, 2016 to 55% at December 31, 2017, while advances to all insurance companies decreased from 53% to 45% at those dates.

~~Table of Contents~~

~~The table below presents advances outstanding by type of financial institution ($ amounts in millions).~~

December 31, 2017 December 31, 2016
Borrower Type Par Value % of Total Par Value % of Total
Depository institutions:
Commercial banks and saving institutions $ 15,818
46 % $ 10,805
39 %
Credit unions 2,901
9 % 2,385
8 %
Total depository institutions 18,719
55 % 13,190
47 %

Insurance companies:
Captive insurance companies⁽¹⁾
—
— % 56
— %
Captive insurance companies⁽²⁾
3,020
9 % 3,310
12 %
Other insurance companies 12,389
36 % 11,482
41 %
Total insurance companies 15,409
45 % 14,848
53 %

Total members 34,128
100 % 28,038
100 %

Former members 41
— % 94
— %

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


⁽¹⁾	~~Membership terminated by February 19, 2017.~~


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

~~Table of Contents~~

Our advance portfolio includes fixed- and variable-rate advances, as well as callable or prepayable and putable advances. For prepayable advances, the advance can be prepaid on specified dates without incurring repayment or termination fees. All other advances may only be prepaid by the borrower paying a fee that is sufficient to make us financially indifferent to the prepayment of the advance.

~~The following table presents the par value of advances outstanding by product type and contractual maturity dates, some of which contain call or put options ($ amounts in millions).~~

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.~~


⁽²⁾	~~Includes hybrid, fixed-rate amortizing/mortgage matched advances.~~

Callable advances with lockout dates that have not yet passed have not been classified as callable or prepayable, but instead as either fixed- or variable-rate. If the lockout dates were ignored, total callable or prepayable advances would total $8.9$12.5 billion, or ~~26%~~22%, ~~and $7.8 billion or 28%, of advances outstanding, at par, at December 31, 2017 and 2016, respectively.~~

Advances due in one year or less increased from 45% of the total outstanding, at par, at December 31, 2016 to 50% of the total outstanding, at par, at December 31, 2017, reflecting members' increased demand for short-term funding. However, longer-term advances also grew during the year. See ~~Notes to Financial Statements - Note 7 - Advances~~ ~~for more information.~~

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~~Mortgage Loans Held for Portfolio.~~We purchase mortgage loans from our members to support our housing mission, provide an additional source of liquidity to our members, diversify our assets, and generate additional earnings. In general, our volume of mortgage loans purchased is affected by several factors, including interest rates, competition, the general level of housing and refinancing activity in the United States, consumer product preferences and regulatory considerations.

In 2010, we began offering MPP Advantage for new conventional MPP loans, which utilizes an enhanced fixed LRA account for credit enhancement consistent with Finance Agency regulations, instead of utilizing coverage from SMI providers. The only substantive difference between our original MPP and MPP Advantage for conventional mortgage loans is the credit enhancement structure. Upon implementation of MPP Advantage, the original MPP was phased out and is no longer being used for acquisitions of new conventional loans. See ~~Item 1. Business - Operating Segments - Mortgage Loans~~ ~~for more detailed information about the credit enhancement structures for our original MPP and MPP Advantage.~~

~~In 2012 - 2014, we purchased participating interests from the FHLBank of Topeka in mortgage loans originated by certain of its PFIs through their participation in the MPF Program.~~

To continue to meet the needs of our members and maintain an appropriate level of mortgage loans held for portfolio on our statement of condition, in December 2016, we agreed to sell a 90% participating interest in a $100 million MCC of certain newly acquired MPP loans to the FHLBank of Atlanta. Principal settled in December 2016 totaled $72 million, and the remaining $18 million settled in January 2017.

~~A breakdown of mortgage loans held for portfolio by primary product type is presented below ($ amounts in millions).~~

December 31, 2017 December 31, 2016
Product Type UPB % of Total UPB % of Total
MPP:
Conventional Advantage $ 8,608
85 % $ 7,412
80 %
Conventional Original 850
8 % 1,096
12 %
FHA 361
4 % 422
4 %
Total MPP 9,819
97 % 8,930
96 %
MPF Program:
Conventional 243
2 % 288
3 %
Government 62
1 % 75
1 %
Total MPF Program 305
3 % 363
4 %

Total mortgage loans held for portfolio $ 10,124

100 % $ 9,293
100 %

The increase in the UPB of mortgage loans held for portfolio was due to purchases under MPP Advantage exceeding repayments of outstanding MPP and MPF Program loans. Over time, the aggregate outstanding balance of mortgage loans purchased under our original MPP and MPF Program will continue to decrease.

We have established and maintain an allowance for loan losses based on our best estimate of probable losses over the loss emergence period, which we have estimated to be 24 months. Our estimate of MPP losses remaining after borrowers' equity, but before credit enhancements, was $5 million at December 31, 2017 and $9 million at December 31, 2016. The decrease from December 31, 2016 to December 31, 2017 was primarily the result of a smaller delinquent loan population and improvements in third-party modeled values. After consideration of the portion recoverable under the associated credit enhancements, the resulting allowance for MPP loan losses was $750 thousand at December 31, 2017 and ~~2016. See~~ ~~Notes to Financial Statements - Note 9 - Allowance for Credit Losses, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates,~~ ~~and~~ ~~Risk Management - Credit Risk Management - Mortgage Loans Held for Portfolio - MPP~~ ~~for more information.~~

During the third quarter of 2017, major hurricanes caused substantial damage to property in several states on the southeastern coasts of the United States. In response to those hurricanes, the Bank communicated to its mortgage loan servicers that special relief would be available for borrowers in Federal Emergency Management Agency ("FEMA") designated disaster areas. Under this relief, mortgage loan servicers are authorized to grant forbearance or temporarily suspend mortgage payments for up to 90 days for borrowers whose income is adversely affected by the disaster or for borrowers whose property is located in a FEMA designated disaster area. Mortgage loan servicers were also directed to suspend collections and foreclosure proceedings in these areas for 90 days. Based on the circumstances of individual borrowers, additional forbearance time may be granted.

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The Bank has sought to analyze the potential impact of the hurricanes on the Bank’s mortgage loans held for portfolio. Because all or a portion of any incurred losses would be covered by the credit enhancements in place and because there is no concentration of the Bank's loans in the affected states, we do not expect that any net losses resulting from the hurricanes will have a material effect on the Bank’s financial condition or results of operations. Based on the limited information currently available, we did not record any additional allowance for loan losses as of December 31, 2017. If additional information becomes available indicating that any losses are probable and the amount of the loss can be reasonably estimated, we will record an appropriate addition to the allowance at that time.

~~Cash and Investments.~~We maintain our investment portfolio for liquidity purposes, to use balance sheet capacity and to supplement our earnings. The earnings on our investments bolster our capacity to meet our commitments to affordable housing and community investments and to cover operating expenses. The following table presents a comparison of the components of our cash and investments at carrying value ($ amounts in millions).

December 31,
Components of Cash and Investments 2017 2016 2015
Cash and short-term investments:
Cash and due from banks $ 55
$ 547
$ 4,932
Interest-bearing deposits 660
150
—
Securities purchased under agreements to resell 2,606
1,781
—
Federal funds sold 1,280
1,650
—
Total cash and short-term investments 4,601
4,128
4,932

Investment securities:
AFS securities:
GSE and TVA debentures 4,404

4,715

3,481
GSE MBS 2,507

1,076

269
Private-label RMBS 218

269

319
Total AFS securities 7,129

6,060

4,069
HTM securities:

GSE debentures —

—

100
Other U.S. obligations - guaranteed MBS 3,299

2,679

2,895
GSE MBS 2,553

3,082

3,268
Private-label RMBS and ABS 46
59
83
Total HTM securities 5,898
5,820
6,346
Total investment securities 13,027
11,880
10,415

Total cash and investments, carrying value $ 17,628
$ 16,008
$ 15,347

~~Cash and Short-Term Investments.~~The total outstanding balance and composition of our short-term investment portfolio is influenced by our liquidity needs, regulatory requirements, member advance activity, market conditions and the availability of short-term investments at attractive interest rates, relative to our cost of funds. See ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources~~ ~~for more information.~~

~~Cash andshort-term investments totaled $4.6 billion at December 31, 2017, an increase of 11% compared to~~ ~~December 31, 2016. However, cash and short-term investments as a percent of total assets were 7% at December 31, 2017 compared to 8% at December 31, 2016.~~

Cash and short-term investments totaled $4.1 billion at December 31, 2016, a decrease of 16% compared to December 31, 2015. Cash and short-term investments as a percent of total assets were 8% at December 31, 2016 compared to 10% at December 31, 2015. The concentration of cash at December 31, 2015 was due to a lack of short-term investments that met our minimum return thresholds on that date.

~~Investment Securities.~~AFS securities totaled $7.1 billion at December 31, 2017, a net increase of 18% compared to $6.1 billion at December 31, 2016. Because regulatory capital increased during 2017 as a result of additional capital stock issued to support advance growth, we purchased additional GSE MBS to maintain a ratio of MBS and ABS to total regulatory capital of up to 300%.

Net unrealized gains on AFS securities totaled $122 million at December 31, 2017, an increase of $55 million compared to December 31, 2016, primarily due to changes in interest rates, credit spreads and volatility, and higher volume.

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AFS securities totaled $6.1 billion at December 31, 2016, a net increase of 49% compared to $4.1 billion at December 31, 2015. The increase resulted from purchases of GSE debentures and MBS, partially offset by principal paydowns of private-label RMBS. See ~~Notes to Financial Statements - Note 4 - Available-for-Sale Securities~~ ~~for more information.~~

HTM securities totaled $5.9 billion at December 31, 2017, relatively unchanged from December 31, 2016. At December 31, 2017, the estimated fair value of our HTM securities in an unrealized loss position totaled $2.8 billion, a decrease of 19% from $3.4 billion at December 31, 2016, primarily due to changes in interest rates, credit spreads and volatility. The associated unrealized losses decreased from $23 million at December 31, 2016 to $12 million at December 31, 2017.

~~HTM securities totaled $5.8 billion at December 31, 2016, a decrease of 8% compared to $6.3 billion at December 31, 2015, primarily due to principal paydowns. See~~ ~~Notes to Financial Statements - Note 5 - Held-to-Maturity Securities~~ ~~for more information.~~

~~Interest-Rate Payment Terms.~~ ~~Our AFS and HTM securities are presented below at amortized cost by MBS and non-MBS and interest-rate payment terms ($ amounts in millions).~~

December 31, 2017 December 31, 2016
Interest-Rate Payment Terms Amortized Cost % of Total Amortized Cost % of Total
AFS Securities:
Total non-MBS fixed rate $ 4,357
62 % $ 4,693
78 %
MBS:
Fixed-rate 2,463
35 % 1,061
18 %
Variable-rate 187
3 % 239
4 %
Total MBS 2,650
38 % 1,300
22 %

Total AFS securities $ 7,007
100 % $ 5,993
100 %

HTM Securities:
MBS and ABS:

Fixed-rate $ 1,141
19 % $ 1,512
26 %
Variable-rate 4,757
81 % 4,308
74 %
Total MBS and ABS 5,898
100 % 5,820
100 %

Total HTM securities $ 5,898
100 % $ 5,820
100 %

Our purchases of MBS AFS in 2017 were substantially fixed rate and our purchases of MBS HTM in 2017 were substantially variable rate, which caused the changes in the mix of fixed- vs. variable-rate securities from December 31, 2016 to December 31, 2017.

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~~Issuer Concentration~~. As of December 31, 2017, we held securities classified as AFS and HTM from the following issuers with a carrying value greater than 10% of our total capital. The MBS issuers listed below include one or more trusts established as separate legal entities by the issuer. Therefore, the associated carrying and estimated fair values are not necessarily indicative of our exposure to that issuer ($ amounts in millions).

December 31, 2017
Name of Issuer Carrying Value Estimated Fair Value
Non-MBS:
Fannie Mae debentures $ 1,621
$ 1,621
Federal Farm Credit Bank debentures 1,906
1,906
Freddie Mac debentures 701
701
MBS:
Freddie Mac 1,191
1,206
Fannie Mae 3,869
3,876
Ginnie Mae 3,299
3,299
Subtotal 12,587
12,609
All other issuers 440
439
Total investment securities $ 13,027
$ 13,048

~~Investments by Year of Redemption.The following table provides, by year of redemption, carrying values and yields for AFS and HTM securities as well as carrying values for short-term investments ($ amounts in millions).~~

Due after Due after
Due in one year five years Due after
one year through through ten
Investments or less five years ten years years Total
AFS securities:
GSE and TVA debentures $ 84
$ 2,337
$ 1,792
$ 191
$ 4,404
GSE MBS ⁽¹⁾
—
—
2,507
—
2,507
Private-label RMBS ⁽¹⁾
—
—
—
218
218
Total AFS securities 84
2,337
4,299
409
7,129

HTM securities:
Other U.S. obligations - guaranteed MBS⁽¹⁾
—
—
1
3,298
3,299
GSE MBS ⁽¹⁾
—
1,020
503
1,030
2,553
Private-label RMBS and ABS ⁽¹⁾
1
—
7
38
46
Total HTM securities 1
1,020
511
4,366
5,898

Total investment securities 85
3,357
4,810
4,775
13,027

Short-term investments:
Interest-bearing deposits 660
—
—
—
660
Securities purchased under agreements to resell 2,606
—
—
—
2,606
Federal funds sold 1,280
—
—
—
1,280
Total short-term investments 4,546
—
—
—
4,546

Total investments, carrying value $ 4,631
$ 3,357
$ 4,810
$ 4,775
$ 17,573

Yield on AFS securities 3.77 % 1.69 % 2.58 % 4.56 %
Yield on HTM securities 3.59 % 3.37 % 1.76 % 1.80 %
Yield on total investment securities 3.77 % 2.20 % 2.50 % 2.04 %


⁽¹⁾	Year of redemption on our MBS and ABS is based on contractual maturity. Their actual maturities will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

The percentage of non-MBS AFS securities due in one year or less decreased to 2% at December 31, 2017 from 21% at December 31, 2016, and the percentage due after one year through five years increased to 53% at December 31, 2017 from 39% at December 31, 2016. The percentage due after 5 years through 10 years increased to 41% at December 31, 2017 from 37% at December 31, 2016. The changes were due to reinvestments in longer-term securities during 2017.

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~~See~~ ~~Notes to Financial Statements - Note 4 - Available-for-Sale Securities~~, ~~Note 5 - Held-to-Maturity Securities~~ ~~and~~ ~~Note 6 - Other-Than-Temporary Impairment~~ ~~for more information about our investments. See~~ ~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk Management - Investments~~ ~~for more information on the credit quality of our investments.~~

~~Total Liabilities.~~ ~~Total liabilities were $59.4 billion at December 31, 2017, an increase of 15% compared to December 31, 2016,~~2021, substantially due to an increase in consolidated obligations.

Deposits (Liabilities).Total deposits ~~were $565 million~~ at December 31, ~~2017, an increase~~2022 were $596 million, a net decrease of ~~8% compared to~~ $770 million, or 56%, from December 31, ~~2016~~.2021. These deposits ~~represent~~provide a relatively small portion of our funding. The balances of these accounts can fluctuate from period to period and vary depending upon such factors as the attractiveness of our deposit pricing relative to the rates available on alternative money market instruments, members' preferences with respect to the maturity of their investments, and members' liquidity.

At December 31, 2022, we had uninsured deposits totaling $24 million. The ~~following table presents the average amount~~maturities of these deposits are $12 million in three months or less, $3 million in three months to six months and ~~the average rate paid on, each category of deposits that exceeds 10% of average total deposits ($ amounts~~$9 million in ~~millions).~~

Years Ended December 31,
Category of Deposit 2017 2016 2015
Interest-bearing overnight deposits:
Average balance $ 125
$ 176
$ 291
Average rate paid 0.75 % 0.14 % 0.01 %
Interest-bearing demand deposits:
Average balance $ 379
$ 415
$ 414
Average rate paid 0.71 % 0.09 % 0.01 %

six through 12 months. We had no ~~individual time~~uninsured deposits ~~in amounts of $100 thousand or more~~outstanding at December 31, ~~2017 or 2016.~~2021. For details on the average balances and average rates paid, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations and Changes in Financial Condition - Analysis of Results of Operations for the Years Ended December 31, 2022 and 2021.

Consolidated Obligations.The overall balance of our consolidated obligations fluctuates in relation to our total assets and the availability of alternative sources of funds. The carrying value of consolidated obligations outstanding at December 31, 2022 totaled $67.3 billion, a net increase of $12.8 billion, or 23%, from December 31, 2021, which reflected increased funding needs associated with the net increase in the Bank's total assets.

The composition of our consolidated obligations can fluctuate significantly based on comparative changes in their cost levels, supply and demand conditions, demand for various types and maturities of advances, and our overall balance sheet management strategy. Discount notes are issued to provide short-term funds, while CO bonds are generally issued to provide a longer-term mix of funding.

~~The carrying value~~ Some CO bonds are issued with terms which permit us to repay them when more favorable funding opportunities emerge. We apply a variety of strategies to effectively manage the balance and structure of our consolidated obligations ~~outstanding at December 31, 2017 totaled $58.3 billion, a net increase of $8.0 billion or 16% from December 31, 2016, which included an increase in discount notes~~as market conditions and ~~CO bonds to fund~~ our asset ~~growth.~~levels change.

The following table presents a breakdown by term of our consolidated obligations outstanding ($ amounts in millions).


										December 31, 2022				December 31, 2021
	December 31, 2017				December 31, 2016
By Term	Par Value		% of Total		Par Value		% of Total
Term									Term	Par Value		% of Total		Par Value		% of Total
Consolidated obligations due in 1 year or less:									Consolidated obligations due in 1 year or less:
Discount notes	$	20,394	35	%	$	16,820	34	%	Discount notes	$	27,534	40	%	$	12,118	22	%
CO bonds	14,021		24	%	16,234		32	%	CO bonds	10,016		14	%	14,357		26	%
Total due in 1 year or less	34,415		59	%	33,054		66	%	Total due in 1 year or less	37,550		54	%	26,475		48	%
Long-term CO bonds	23,962		41	%	17,274		34	%	Long-term CO bonds	31,986		46	%	28,193		52	%

Total consolidated obligations	$	58,377	100	%	$	50,328	100	%	Total consolidated obligations	$	69,536	100	%	$	54,668	100	%

SEC guidance limiting the ability of prime money market funds to invest in commercial paper created a pricing advantage for FHLBank funding and led to increased demand for FHLBank debt instruments by money market funds.

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The ~~table below presents certain information for each category~~mix of our funding has changed from December 31, 2021 as discount notes outstanding increased and CO bonds outstanding decreased, primarily due to the increase in short-term ~~borrowings for which the average balance outstanding during each year exceeded 30% of capital at year end ($ amounts in millions).~~

Discount Notes
CO Bonds With Original Maturities of One Year or Less
Short-term Borrowings 2017 2016 2015 2017 2016 2015
Outstanding at year end $ 20,358
$ 16,802
$ 19,252
$ 6,795
$ 7,499
$ 7,632
Weighted average rate at year end 1.22 % 0.51 % 0.31 % 1.26 % 0.66 % 0.28 %
Daily average outstanding for the year $ 20,116
$ 16,129
$ 12,617
$ 6,315
$ 8,656
$ 8,484
Weighted average rate for the year 0.91 % 0.40 % 0.16 % 0.91 % 0.52 % 0.19 %
Highest outstanding at any month end $ 22,413
$ 19,511
$ 19,252
$ 7,279
$ 10,247
$ 10,164

advances. We continue to seek to maintain a sufficient liquidity and funding balance between our financial assets and financial liabilities.

Additionally, in light of each FHLBank's large reliance on short-term funding, the FHLBanks work collectively to manage FHLB System-wide liquidity and funding and jointly monitor System-wide refinancing ~~risk.~~risk, i.e. the potential difficulty or inability to roll over short-term consolidated obligations when market conditions change. In managing and monitoring the amounts of assets that require refunding, the FHLBanks may consider contractual maturities of the financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations). ~~See~~ ~~Notes to Financial Statements - Note 4 - Available-for-Sale Securities~~, ~~Note 5 - Held-to-Maturity Securities~~, ~~Note 7 - Advances, and~~ ~~Note 13 - Consolidated Obligations~~ ~~for more detailed information regarding contractual maturities of certain~~

All of our ~~financial assets~~variable-rate CO bonds outstanding at December 31, 2022 and ~~liabilities.~~2021 were indexed to SOFR.

Derivatives.We classify interest-rate swaps as derivative assets or liabilities according to the net estimated fair value of the interest-rate swaps with each counterparty. Asof December 31, ~~2017~~2022 and ~~2016,~~2021, we had derivative assets, net of collateral held or posted, including accrued interest, with estimated fair values of ~~$128~~$434 million and ~~$135~~$220 million, respectively, and derivative liabilities, net of collateral held or posted, including accrued interest, with estimated fair values of $3 $19 million and ~~$25~~$12 million, respectively. The estimated fair values are based on a wide range of factors, including current and projected levels of interest rates, credit spreads and volatility. Increases and decreases in the fair value of derivatives are primarily caused by changes in the derivatives' respective underlying interest-rate indices.

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The volume of derivative hedges is often expressed in terms of notional amounts, which is the amount upon which interest payments are calculated. The following table presents the notional amounts by type of hedged item regardless of whether ~~or not~~ it is in a qualifying hedge relationship ($ amounts in millions).


Hedged Item	December 31, 2017		December 31, 2016		Hedged Item	December 31, 2022		December 31, 2021
Advances	$	11,296	$	9,382	Advances	$	24,038	$	21,084
Investments	7,238		6,244		Investments	15,936		13,356
Mortgage loans	144		548
Mortgage loans MDCs					Mortgage loans MDCs	61		194
CO bonds	13,524		8,865		CO bonds	30,940		21,177
Discount notes	298		773		Discount notes	2,000		—

Total notional	$	32,500	$	25,812	Total notional	$	72,975	$	55,811

~~Federal Home Loan Bank of Indianapolis~~

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

These Notes to Financial Statements should be read in conjunction with the Statements of Condition as of December 31, ~~2017~~2022 and ~~2016~~,2021, and the Statements of Income, Comprehensive Income, Capital, and Cash Flows for the years ended December 31, ~~2017,~~ ~~2016~~,2022, 2021, and ~~2015. We use acronyms~~2020. Acronyms and terms used throughout these Notes to Financial Statements ~~that~~ are defined herein or in the ~~Glossary of~~Defined Terms. Unless the context otherwise requires, the terms "Bank," "we," "us," and "our" refer to the Federal Home Loan Bank of Indianapolis or its management.

Background Information

The Federal Home Loan Bank of Indianapolis, a federally chartered corporation, is one of 11 regional wholesale FHLBanks in the United States. The FHLBanks are GSEs that were organized under the Bank Act to serve the public by enhancing the availability of credit for residential mortgages and targeted community development. Even though ~~we are~~the Bank is part of the FHLBank System, we operate as a separate entity with our own management, employees, shareholders and board of directors.

Each FHLBank is a financial cooperative that provides a readily available, competitively-priced source of funds to its member institutions. Regulated financial depositories and non-captive insurance companies engaged in residential housing finance that have their principal place of business located in, or are domiciled in, our district states of Michigan or Indiana are eligible for ~~membership in our Bank.~~membership. Additionally, qualified CDFIs are eligible to be members. Housing Associates, including state and local housing authorities, that meet certain statutory and regulatory criteria may also borrow from ~~us. While eligible to borrow, Housing Associates~~us, but are not members and, as such, are not allowed to hold our capital stock.

Each member must purchase a minimum amount of our capital stock based on the amount of its total ~~mortgage~~ assets. A member may be required to purchase additional activity-based capital stock as it engages in certain business activities with us. Members and former members own all of our capital stock. Former members (including certain non-member institutions that own our capital stock as a result of a merger with or acquisition of a member) hold our capital stock beyond the redemption period solely to support credit products or mortgage loans still outstanding on our statement of condition. All owners of our capital stock, to the extent declared by our board of directors, receive dividends on their capital stock, subject to ~~the~~ applicable ~~regulations as discussed in~~ ~~Note 15 - Capital. See~~ ~~Note 21 - Related Party and Other Transactionsfor more information about transactions with related parties.~~regulations.

The FHLBanks' Office of Finance ~~was established to facilitate~~facilitates the issuance and servicing of the debt instruments of the FHLBanks, known as consolidated obligations, consisting of bonds and discount notes, and ~~to prepare~~prepares and ~~publish~~publishes the FHLBanks' combined quarterly and annual financial reports.

~~Consolidated~~Proceeds from the issuance of consolidated obligations are the primary source of funds for the FHLBanks. Deposits, other borrowings and capital stock ~~sold~~issued to members provide additional funds. We primarily use these funds to:

•disburse advances to members;

•acquire mortgage loans from PFIs through our MPP;

•maintain liquidity; and

•invest in other opportunities to support the residential housing market.

We also provide correspondent services, such as wire transfer, security safekeeping, and settlement services, to our members.

The Finance Agency is the independent federal regulator of the FHLBanks, Freddie Mac, and Fannie Mae. The Finance Agency's stated mission is to ensure that the housing GSEs operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation. The accompanying financial statements have been prepared in accordance with GAAP and SEC requirements.

The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of ~~our~~the Bank's financial position, results of operations and cash flows for the periods presented. All such adjustments were of a normal recurring nature.

Use of Estimates.When preparing financial statements in accordance with GAAP, we are required to make subjective assumptions and estimates that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expense. ~~The most significant estimates pertain to derivatives and hedging activity, fair value, the provision for credit losses, and OTTI.~~ Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates. The most significant estimates pertain to the fair values of financial instruments.

Estimated Fair Value.The estimated fair value amounts, recorded on the statement of condition and presented in the accompanying disclosures, ~~have been~~reflect appropriate valuation methods and were determined based on the assumptions that we believe market participants would use in pricing the asset or ~~liability and reflect our best judgment of appropriate valuation methods.~~liability. Although we use our best judgment in estimating fair value, there are inherent limitations in any valuation technique. Therefore, these estimated fair values may not be indicative of the amounts that would have been realized in market transactions on the reporting dates. ~~See~~ For more information, see Note 1916 - Estimated Fair Values.

Changes in Estimates.Changes in estimates are accounted for ~~more information.~~prospectively, i.e. in the period of change, and do not result in a revision or restatement of prior period amounts.

Reclassifications.We have reclassified certain amounts ~~from the~~reported in prior ~~period~~periods to conform to the current period presentation. These reclassifications had no effect on total assets, total liabilities, total capital, net income, total comprehensive income or net cash flows.

Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold. These investments provide short-term liquidity and are carried at cost. ~~Interest-bearing deposits may include certificates of deposit and bank notes not meeting the definition of a security.~~ Securities purchased under agreements to resell are ~~considered~~treated as short-term, collateralized ~~financings.~~financings and are generally transacted with an overnight term. These securities are held in safekeeping in ~~our~~the Bank's name by third-party custodians approved by us. IfFor securities outstanding longer than overnight, if the market value of the underlying assets declines below the market value required as collateral, the counterparty must (i) place an equivalent amount of additional securities in safekeeping in ~~our~~the Bank's name, and/or (ii) remit an equivalent amount of ~~cash, or the dollar value of the resale agreement will be reduced accordingly.~~cash. Federal funds sold ~~consist of~~are short-term, unsecured loans ~~made~~that are generally transacted with an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit an individual FHLBank may extend to ~~investment-grade counterparties.~~a counterparty.

Investment Securities.Purchases and sales of securities are recorded on a trade date basis. We classify investments as trading, HTM or AFS at the date of acquisition. ~~We did not have any investments~~

Trading Securities. Securities classified as trading ~~during~~are held for liquidity purposes and carried at fair value. Changes in the ~~years ended~~ ~~December 31, 2017, 2016 or 2015.~~fair value of these securities are recorded through other income as net gains (losses) on trading securities. Finance Agency regulation and our risk management policies prohibit the speculative use of these instruments and limit the credit risk arising from these securities.

HTM Securities. Securities for which we have both the positive intent and ability to hold to maturity are classified as ~~HTM.~~HTM and carried at amortized cost. The carrying value includes adjustments made to the cost basis of the security for purchase discount and related accretion, purchase premium and related amortization, and collection of ~~principal, and, if applicable, OTTI recognized in earnings (credit losses) and OCI (non-credit losses).~~principal.

Certain changes in circumstances may cause us to change our intent to hold a particular security to maturity without necessarily calling into question our intent to hold other debt securities to maturity. Thus, the sale or transfer of an HTM security due to certain changes in circumstances, such as evidence of significant deterioration in the issuer's creditworthiness or changes in regulatory requirements, is not considered to be inconsistent with its original classification. Other isolated, non-recurring, and unusual events, which could not have been reasonably anticipated, may also cause us to sell or transfer an HTM security without necessarily calling into question our intent to hold other debt securities to maturity.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

In addition, sales of HTM debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (i) the sale occurs near enough to its maturity date (or call date, if exercise of the call is probable) that interest-rate risk is substantially eliminated as a pricing factor and any changes in market interest rates would not have a significant effect on the security's fair value, or (ii) the sale occurs after we have already collected a substantial portion (at least ~~85%) of the principal outstanding at acquisition due either to prepayments or to scheduled payments payable in equal installments (both principal and interest) over its term.~~

AFS Securities. Securities that ~~have readily determinable fair values and~~ are not classified as trading or HTM are classified as AFS and carried at estimated fair value. ~~We record changes~~Changes in the fair value of these securities are recorded in OCI as net change in unrealized gains (losses) on AFS securities, except for AFS securities in hedging relationships that ~~have been hedged and for which the hedging relationship qualifies~~qualify as a fair-value ~~hedge.~~hedges. For ~~these~~those securities, ~~we record~~ the portion of the change in fair value attributable to the risk being hedged is recorded in ~~other~~interest income ~~(loss) as net gains (losses) on derivatives and hedging activities~~ together with the related change in the fair value of the derivative, and ~~record~~ the remainder of the change in the fair value of the ~~securities in OCI. For AFS securities that are OTTI, changes in fair value, net of any credit loss, are~~security is recorded in OCI as ~~the non-credit portion.~~net change in unrealized gains (losses) on AFS securities. In general, securities classified as AFS may be sold at any time, although specific consideration is given to securities in an unrealized loss position.

Amortization of Purchase Premiums and Discounts.WeSince we hold a large number of similar loans underlying our MBS, for which prepayments are probable and the timing and amount of prepayments can be reasonably estimated, we amortize ~~purchased~~or accrete premiums, discounts, and ~~accrete purchased discounts~~cumulative fair-value hedging basis adjustments on MBS ~~and ABS at an individual security level~~to interest income using a level-yield under the retrospective ~~level-yield method (retrospective~~ interest ~~method) over the estimated remaining cash flows of each security.~~method. This method requires that we estimate prepayments over the estimated life of ~~the securities~~each security and ~~make a retrospective adjustment of~~retrospectively adjust the effective yield each time ~~we change~~ the estimated remaining cash flows ~~of the securities~~change as if the new ~~estimates~~estimate had been used since the original acquisition date. Changes in interest rates are a significant assumption used in ~~prepayment speed estimates.~~estimating the timing and amount of prepayments.

WeFor all non-MBS securities, we amortize ~~purchased~~or accrete premiums, discounts, and ~~accrete purchased discounts on all other investment securities at an individual security level~~ cumulative fair-value hedging basis adjustments using a ~~contractual~~ level-yield methodology ~~under~~over the contractual life of each security, with the exception of our callable non-MBS securities, on which the purchase premium is amortized to the next call date. For all non-MBS securities, prepayments are not estimated but only taken into account as they actually occur.

Gains and Losses on Sales. We compute gains and losses on sales of investment securities using the specific identification method and include these gains and losses in other income ~~(loss)~~ as net realized gains (losses) from sale of securities.

~~Investment Securities - Other-Than-Temporary Impairment.~~ On a quarterly basis, we evaluate our individual AFS and HTM securities that have been previously OTTI or are in an unrealized loss position to determine if any such securities are OTTI. A security is in an unrealized loss position (i.e., impaired) when its estimated fair value is less than its amortized cost. We consider an impaired debt security to be OTTI under any of the following conditions:

~~we intend to sell the debt security;~~

~~based on available evidence, we believe it is more likely than not that we will be required to sell the debt security before the anticipated recovery of its remaining amortized cost; or~~

~~we do not expect to recover the entire amortized cost of the debt security.~~

~~Recognition of OTTI.~~If either of the first two conditions above is met, we recognize an OTTI loss in earnings equal to the entire difference between the debt security's amortized cost and its estimated fair value as of the statement of condition date. For those impaired securities that meet neither of these two conditions, we perform a cash flow analysis to determine whether we expect to recover the entire amortized cost of each security.

If the present value of the cash flows expected to be collected is less than the amortized cost of the debt security, a credit loss equal to that difference is recorded, and the carrying value of the debt security is adjusted to its estimated fair value. However, rather than recognizing the entire difference between the amortized cost and estimated fair value in earnings, only the amount of the impairment representing the credit loss (i.e., the credit component) is recognized in earnings, while the remaining amount, if any, related to all other factors (i.e., the non-credit component) is recognized in OCI. The credit loss on a debt security is capped at the amount of that security's unrealized loss. The new amortized cost basis of the OTTI security, which reflects the credit loss, will not be adjusted for any subsequent recoveries of fair value.

~~The total OTTI loss is presented in other income (loss) with an offset for the portion recognized in OCI. The remaining amount represents the credit loss.~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~Additional OTTI.~~Subsequent to any recognition of OTTI, if the present value of cash flows expected to be collected is less than the amortized cost basis (which reflects previous credit losses), we record an additional credit loss equal to that difference as additional OTTI. The total amount of additional OTTI (both credit and non-credit component, if any) is determined as the difference between the security's amortized cost, less the amount of OTTI recognized in AOCI prior to the determination of this additional OTTI, and its fair value. For certain AFS or HTM securities that were previously impaired and have subsequently incurred additional credit losses, an amount equal to the additional credit losses, up to the amount of non-credit losses remaining in AOCI, is reclassified out of AOCI and into other income (loss).

Subsequent increases and decreases (if not an additional OTTI) in the estimated fair value of OTTI AFS securities are netted against the non-credit component of OTTI recognized previously in AOCI. For HTM securities, the OTTI in AOCI is accreted to the carrying value of each security on a prospective basis, based on the amount and timing of future projected cash flows (with no effect on earnings unless the security is subsequently sold, matures or additional OTTI is recognized). For debt securities classified as AFS, we do not accrete the OTTI in AOCI to the carrying value because the subsequent measurement basis for these securities is estimated fair value.

~~Interest Income Recognition.~~ As of the initial OTTI measurement date, a new accretable yield is calculated for the OTTI debt security. This yield is then used to calculate the portion of the credit losses included in the amortized cost of the security to be recognized into interest income each period over the remaining life of the security so as to match the amount and timing of future cash flows expected to be collected.

On a quarterly basis, we re-evaluate the estimated cash flows and accretable yield. If there is no additional OTTI and there is either (i) a significant increase in the security's expected cash flows or (ii) a favorable change in the timing and amount of the security's expected cash flows, we adjust the accretable yield on a prospective basis.

~~Variable Interest Entities.~~ We do not have any special purpose entities or any other type of off-balance sheet conduits. We have investments in VIEs that consist of senior interests in private-label RMBS and ABS. The carrying amounts of the investments are included in HTM or AFS securities. We have no liabilities related to these VIEs. The maximum loss exposure on these VIEs is limited to our carrying value.

On an annual basis, or more frequently as needed, we conduct an evaluation to determine whether we are the primary beneficiary of any VIE. To make this determination, we consider whether we possess both of the following characteristics:

~~the power to direct the VIE's activities that most significantly affect the VIE's economic performance; and~~

~~the obligation to absorb the VIE's losses, or the right to receive benefits from the VIE, that could potentially be significant to the VIE.~~

~~Based on an evaluation of the above characteristics, we have determined that we are not the primary beneficiary of a VIE and, therefore, consolidation is not required for our investments in VIEs as of~~ ~~December 31, 2017~~ or ~~2016. In addition, we have not provided financial or other support (explicitly or implicitly) to any VIE during the years ended~~ ~~December 31, 2017~~, ~~2016, or~~ ~~2015. Furthermore, we were not previously contractually required to provide, nor do we intend to provide, that support to any VIE in the future.~~

Advances.We record advances at amortized cost, adjusted ~~for unamortized premiums, discounts, prepayment fees and~~to include deferred swap termination fees ~~unearned commitment fees, and fair-value hedging adjustments. We amortize/accrete premiums, discounts, hedging basis adjustments,~~associated with modified advances, net of deferred prepayment fees, and ~~deferred swap termination~~cumulative fair-value hedging basis adjustments. We amortize such fees and ~~recognize unearned commitment fees on advances, to~~hedging basis adjustments to interest income using a level-yield ~~methodology.~~methodology over the contractual life of the advance. When an advance is prepaid, ~~any remaining premium or discount is amortized at the time of prepayment. We record interest on advances~~we amortize to interest income ~~as earned.~~a proportionate share of the remaining balance of those adjustments.

Prepayment Fees. We charge ~~a borrower~~ a prepayment fee when ~~the~~a borrower repays certain advances prior to ~~the original~~ maturity. We report prepayment fees, net of any associated swap termination fees and ~~hedge accounting~~cumulative fair-value hedging basis ~~adjustments.~~adjustments, in interest income on advances.

Advance Modifications. When we fund a new advance concurrent with, or within a short period of time after, the prepayment of an original advance, we determine whether the transaction is effectively either (i) two separate transactions (the prepayment of anthe original advance and the disbursement of a new advance), defined as an advance extinguishment, or (ii) the continuation of the original advance as modified, defined as an advance modification.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

We account for the transaction as an extinguishment if both of the following criteria are met: (i) the effective yield of the new advance is at least equal to the effective yield for a comparable advance to a member with similar collection risks who is not prepaying, and (ii) modifications of the original advance are determined to be more than minor, i.e., if the present value of the cash flows under the terms of the new advance is at least 10% different from the present value of the remaining cash flows under ~~the terms of~~ the original advance or through an evaluation of qualitative factors, which may include changes in the interest-rate exposure to the member by moving from a fixed to an ~~adjustable rate~~adjustable-rate advance. In all other instances, the transaction is accounted for as an advance modification.

If the transaction is determined to be an advance extinguishment, we recognize income from nonrefundable prepayment fees, net of associated swap termination fees, in the period that the extinguishment occurs. Alternatively, if no prepayment fees are received (e.g., the member requests that we embed the prepayment fee into the rate of the new advance), the ~~difference between~~excess of the present value of the cash flows of the new advance ~~and that~~over those of an advance with a current market rate ~~advance of~~and otherwise comparable terms is immediately recognized in ~~current~~ income, and the basis of the new advance is adjusted accordingly.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

If the transaction is determined to be an advance modification, the ~~income from~~ nonrefundable prepayment fees, net of associated swap termination fees, ~~associated with the modification of the original advance is~~are not immediately recognized in ~~current~~ income but isare (i) included in the carrying value of the modified advance and amortized into interest income over the life of the new advance using a level-yield methodology ~~when the prepayment fee is received up front~~ or (ii) embedded into the rate of the modified advance and recorded as an adjustment to the interest accrual. If the modified advance is hedged in a qualifying hedge relationship, the modified advance is marked to fair value, and subsequent fair value changes attributable to the hedged risk are recorded in other income (loss).

Mortgage Loans Held for Portfolio.We classify mortgage loans, for which we have the positive intent and ability to hold for the foreseeable future or until maturity or payoff, as held for portfolio. Accordingly, these mortgage loans are reported at amortized cost, adjusted ~~for~~to include premiums paid to and discounts received from PFIs, ~~deferred loan fees or costs,~~ hedging basis adjustments, and the allowance for ~~loan~~credit losses.

Amortization of Purchase Premiums and Discounts.We ~~defer and amortize/~~amortize or accrete premiums and discounts ~~certain loan fees or costs,~~ and hedging basis adjustments to interest income using a level-yield methodology over the contractual ~~level-yield interest method.~~life of each loan. When a loan is prepaid, ~~any remaining premium or discount is amortized~~we amortize to interest income ~~in the period in which the loan is prepaid and derecognized. For partial prepayments,~~ a proportionate share of ~~any~~the remaining ~~premium or discount is amortized to interest income in the period in which the prepayment occurs.~~balance of those adjustments.

Non-accrual Loans. We place a conventional mortgage loan on non-accrual status if it is determined that either (i) the collection of interest or principal is doubtful, or (ii) interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection (e.g., through credit enhancements and monthly servicer remittances on a scheduled/scheduled ~~basis)~~basis in which we receive monthly principal and interest payments from the servicer regardless of whether the borrower has made payments to the servicer). Monthly servicer remittances ~~on MPP~~for loans on an actual/actual basis may also be well secured; however, servicers on actual/actual remittance do not advance principal and interest due, regardless of borrower creditworthiness, until the payments are received from the borrower or when the loan is repaid. As a result, these loans are placed on non-accrual status once they become 90 days delinquent.

A government-guaranteed or -insured mortgage loan is not placed on non-accrual status when the collection of the contractual principal or interest is 90 days or more past due because of the contractual obligation of the loan servicer to pay defaulted interest at the contractual rate.

For those mortgage loans placed on non-accrual status, accrued but uncollected interest is reversed against interest income (for any interest accrued in the current year) and/or the allowance for ~~loan~~credit losses (for any interest accrued in the previous year). We record ~~cash~~ payments received on non-accrual loans as a direct reduction of the ~~recorded investment in~~amortized cost of the loan. When the ~~recorded investment~~amortized cost has been fully collected, any additional amounts collected are recognized as interest income. A loan on non-accrual status may be restored to accrual status when it becomes current (zero days past due) and three consecutive and timely monthly payments have been ~~made.~~received.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~REO.~~ Our MPP was designed to require loan servicers to foreclose and liquidate in the servicer's name rather than in our name. Therefore, we do not take title to any foreclosed property or enter into any other legal agreement under which the borrower conveys all interest in the property to us to satisfy the loan. 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. Upon full receipt, the mortgage loan is removed from our statement of condition. As a result of these factors, we do not classify as REO any foreclosed properties collateralizing MPP loans that were previously recorded on our statement of condition.

Under the MPF Program, REO is recorded in other assets and includes assets that have been received in satisfaction of debt through foreclosures. REO is recorded at the lower of cost or fair value less estimated selling costs. We recognize a charge-off to the allowance for credit losses if the fair value of the REO less estimated selling costs is less than the recorded investment in the loan at the date of the transfer from mortgage loans to REO. Any subsequent gains, losses, and carrying costs are included in other expense.

Loan Participations. ~~We may sell~~All participating interests in ~~MPP~~ loans acquired from our PFIs that are sold to other ~~FHLBanks. The terms of the sale of these participating interests~~FHLBanks meet the accounting requirements for a sale and, therefore, ~~the participating interests~~ are ~~de-recognized~~derecognized from our reported mortgage loan balances and a pro-rata portion of the fixed LRA is assumed by the participating FHLBank for its use in loss mitigation. As a result, available funds remaining in our LRA ~~include~~are limited to our pro-rata portion ~~only~~ of the fixed LRA that is associated with the participating interests retained by us. The portion of the participation fees received related to our upfront costs is recognized immediately into income, while the remaining portion related to our ongoing costs is deferred and amortized to income over the remaining life of the participated loans.

~~Allowance for Credit Losses.~~ An allowance for credit losses is separately established for each identified portfolio segment if it is probable that impairment has occurred as of the statement of condition date and the amount of loss can be reasonably estimated. See ~~Note 9 - Allowance for Credit Losses~~ ~~for details on each allowance methodology.~~

~~Portfolio Segments.~~ A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology for determining its allowance for credit losses. We have developed and documented a systematic methodology for determining an allowance for credit losses, where applicable, for (i) credit products (advances, letters of credit, and other extensions of credit to members); (ii) term securities purchased under agreements to resell and term federal funds sold; (iii) government-guaranteed or -insured mortgage loans held for portfolio; and (iv) conventional mortgage loans held for portfolio.

~~Classes of Financing Receivables.~~ Classes of financing receivables generally are a disaggregation of a portfolio segment to the extent that they are needed to understand the exposure to credit risk arising from these financing receivables. We determined that no further disaggregation of our portfolio segments is needed, as the credit risk arising from these financing receivables is adequately assessed and measured at the portfolio segment level.

Troubled Debt ~~Restructuring.~~ ~~TDRs~~Restructuring ("TDR"). A TDR related to MPP loans ~~occur~~typically occurs when a concession is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties that would not have been otherwise considered. Although we do not participate in government-sponsored loan modification programs, we do consider certain conventional loan modifications to be TDRs when the modification agreement permits the recapitalization of past due amounts, generally up to the original loan amount. If a borrower is having financial difficulty and a significant concession has been granted by the PFI with our approval, the loan modification is considered a TDR. No other terms of the original loan are modified, except for the possible extension of the contractual maturity date on a case-by-case basis. In no event does the borrower's original interest rate change.

MPP loans discharged in Chapter 7 bankruptcy proceedings without a reaffirmation of the debt are considered TDRs unless they are covered by SMI policies. Loans discharged in Chapter 7 bankruptcy proceedings with SMI policies are also considered to be TDRs unless (i) we will not suffer more than an insignificant delay in receiving all principal and interest due or (ii) we are not relinquishing a legal right to pursue the borrower for deficiencies for those loans not affirmed.

TDRs related to MPF Program loans occur when a concession is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties that would not have been otherwise considered. Such TDRs generally involve modifying the borrower's monthly payment for a period of up to 36 months. MPF Program loans discharged in Chapter 7 bankruptcy proceedings without a reaffirmation of the debt are also considered TDRs.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~For both the MPP and the MPF Program, modifications~~Modifications of government loans are not considered or accounted for as TDRs because we anticipate no loss of principal or interest accrued at the original contract rate, ~~without~~or significant delay, due to the ~~government-guarantee~~government guarantee or insurance.

~~Impairment Methodology.~~ ~~A loan is considered impaired when, based on current and historical information and events, it is probable that not all~~

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Notes to Financial Statements, continued

($ amounts ~~due according to the contractual terms of the loan agreement will be collected.~~in thousands unless otherwise indicated)

Loans that are considered collateral dependent are subject to individual evaluation for impairment instead of collective evaluation. Loans are considered collateral dependent if repayment is expected to be provided solely by the sale of the underlying property, i.e., there is no other available and reliable source of repayment (including LRA and SMI). We consider all impaired loans to be collateral dependent and, therefore, measure impairment based on the fair value of the underlying collateral less costs to sell.

~~Interest income on impaired loans is recognized in the same manner as non-accrual loans.~~

~~Charge-Off Policy.~~Charge-Offs. A charge-off is recorded to the extent that the ~~recorded investment~~amortized cost (including UPB, ~~accrued interest,~~ unamortized premiums or discounts, and hedging basis adjustments) inof a loan will not be fully recovered. We record a charge-off on a conventional mortgage loan against the ~~loan~~credit loss allowance upon the occurrence of a confirming event. Confirming events include, but are not limited to, the settlement of a claim against any of the credit enhancements, delinquency in excess of 180 days unless we determine that the delinquent loan is well-secured and in-process of collection, and filing for bankruptcy protection. We ~~charge-off~~charge off the portion of the outstanding conventional mortgage loan balance in excess of the fair value of the underlying property, less ~~cost~~costs to sell and adjusted for any available credit enhancements.

~~Derivatives.~~Allowance for Credit Losses on Financial Instruments.Our financial instruments, i.e. interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, investment securities, advances (including off-balance sheet credit exposures), and mortgage loans held for portfolio, are evaluated quarterly for expected credit losses. If necessary, an allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses. The allowance for credit losses excludes uncollectible accrued interest receivable for all instruments, which is measured separately. Any uncollectible accrued interest is written off by a reversal of interest income.

For more information on the allowance methodology related to our financial instruments, see Note 4 - Investments, Note 5 - Advances, Note 6 - Mortgage Loans Held for Portfolio, and Note 17 - Commitments and Contingencies.

Financial Instruments Meeting Netting Requirements.We present certain financial instruments on a net basis when we have a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements).

Derivatives and Hedging Activities.We record derivative instruments, including related cash collateral ~~(including initial~~ and ~~variation margin received or pledged/posted) and associated~~ accrued interest, on a net basis, by clearing agent and/or by counterparty, ~~when the netting requirements have been met,~~ as either derivative assets or derivative liabilities at their estimated fair values. Changes in the estimated fair value of derivatives are recorded in current period earnings.

For derivative instruments that meet the netting requirements, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset, respectively.

Cash flows associated with derivatives are reported as cash flows from operating activities in the statement of cash flows unless the derivatives contain financing elements, in which case they are reflected as cash flows from financing activities. Derivative For derivative instruments that ~~include non-standard terms,~~do not meet the netting requirements, cash collateral is recognized as an interest-bearing asset or ~~require an upfront cash payment, or both, often contain a financing element.~~liability, as appropriate.Additional information regarding these transactions is provided in Note 8 - Derivatives and Hedging Activities.

~~Changes in the estimated fair value of derivatives are recorded in earnings regardless of how changes in the estimated fair value of the assets or liabilities being hedged may be recorded.~~

Designations. ~~Each derivative is designated as one of the following:~~


~~(i)~~	~~a qualifying fair-value hedge of the change in fair value of a recognized asset or liability, an unrecognized firm commitment, or a forecasted transaction (a fair-value hedge); or~~


~~(ii)~~	~~a non-qualifying hedge (economic hedge) for asset/liability management purposes.~~

Derivatives are recorded beginning on the trade date and typically executed and designated in a qualifying hedging relationship at the same time as the acquisition of the associated hedged item. We may also designate the hedging relationship upon the Bank's commitment to disburse an advance, purchase ~~mortgage loans,~~financial instruments, or trade a consolidated obligation in which settlement occurs within the shortest period of time possible for the type of instrument based on market settlement conventions. Each derivative is designated as one of the following:

(i)a qualifying hedge of the change in fair value of a recognized asset or liability (e.g., advances, AFS investments, and CO bonds) or an unrecognized firm commitment (fair-value hedge); or

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~~Table~~(ii)a non-qualifying hedge for asset/liability management purposes (economic hedge).

In all cases involving a fair-value hedge of ~~Contents~~

a recognized asset, liability or firm commitment, the designated risk being hedged is the risk of changes in the fair value of the hedged item attributable to changes in the designated benchmark interest rate.

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

Accounting for Qualifying Hedges. Hedging relationships must meet certain criteria ~~to qualify for hedge accounting~~ including, but not limited to, formal documentation of the hedging relationship and an expectation to be highly ~~effective.~~effective to qualify for hedge accounting. Two approaches to account for qualifying fair-value hedge relationships include:

(i)Shortcut hedge accounting ~~include:~~- Hedging relationships that meet certain criteria qualify for the shortcut method of hedge accounting. Under the shortcut method, an assumption can be made that the entire change in fair value of a hedged item, due to changes in the benchmark interest rate, equates to the entire change in fair value of the related derivative. As a result, the derivative is considered to be perfectly effective in achieving offsetting changes in the fair value of the hedged asset or liability attributable to the hedged risk. When applying the shortcut method, we document, at inception of the hedging relationship, a quantitative long-haul method that we can apply should we subsequently determine a hedging relationship no longer qualifies for shortcut hedge accounting; or

100

~~(i)~~

Long-haul hedge accounting - The application of long-haul hedge accounting requires us to formally assess (both at the hedge's inception and at least quarterly) whether the derivatives used in hedging transactions are highly effective in offsetting changes in the fair value of hedged items or forecasted transactions and whether those derivatives may be expected to remain highly effective in future periods.

~~(ii)~~

Short-cut hedge accounting - Transactions that meet certain criteria qualify for the short-cut method of hedge accounting in which an assumption can be made that the entire change in fair value of a hedged item, due to changes in the benchmark rate, exactly offsets the entire change in fair value of the related derivative. Therefore, the derivative is considered to be highly effective at achieving offsetting changes in fair values of the hedged asset or liability. For all existing hedging relationships entered into prior to April 1, 2008, we continue to use the short-cut method of accounting provided they still meet the assumption of "no ineffectiveness." We no longer apply this method to any other hedging relationships.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

(ii)Long-haul hedge accounting - The application of long-haul hedge accounting requires us to assess whether the derivatives used in hedging relationships are highly effective in achieving offsetting changes in the fair value of hedged items or forecasted transactions attributable to the hedged risk and whether those derivatives may be expected to remain highly effective in future periods. As part of the assessment, a regression analysis is performed at the inception of each hedging relationship and at each month-end thereafter.

While a number of long-haul methods and techniques are permissible, we utilize the following:

•Total Contractual Coupon Method -In calculating the change in fair value of the hedged item attributable to changes in the benchmark interest rate, the estimated coupon cash flows are based on the full contractual coupon.

•Benchmark Component Method - In calculating the change in fair value of the hedged item attributable to changes in the benchmark interest rate, the credit and any other risks embedded in the contractual coupon rate are excluded from the estimated cash flows by aligning the interest component of the derivative with the hedged item. Given this alignment, the application of the benchmark component method generally results in less hedge ineffectiveness in comparison to the total contractual coupon method.

Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, ~~(including changes that reflect losses or firm commitments),~~ are recorded in ~~other~~net interest income ~~(loss) as net gains (losses) on derivatives and hedging activities. As a result, for fair-value hedges, any hedge ineffectiveness (which represents the amount by which the change~~ in the ~~fair value of~~same line as the ~~derivative differs from the change in the fair value~~earnings effect of the hedged ~~item attributable to the hedged risk) is recorded in other income (loss) as net gains (losses) on derivatives and hedging activities.~~item.

Accounting for Non-Qualifying Hedges.An economic hedge is defined as a derivative that hedges specific or non-specific underlying assets, liabilities, or firm commitments and does not qualify, or was not designated, for hedge accounting. As a result, we recognize ~~only~~ the net interest ~~settlement~~settlements and the change in fair value of these derivatives in other income (loss) ~~as net gains (losses) on derivatives and hedging activities~~ with no offsetting ~~fair value~~fair-value adjustments in earnings for the hedged assets, liabilities, or firm commitments. An economic hedge by definition, therefore, introduces the potential for earnings variability.

Accrued Interest Receivables and Payables. The difference between the interest receivable and payable on a derivative designated as a qualifying hedge is recognized as ana net adjustment to the interest income or expense of the designated hedged item. The difference between the interest receivable and payable on an economic hedge is recognized in other income as net gains (losses) on derivatives.

Discontinuance of Hedge Accounting. We discontinue hedge accounting prospectively when: (i) the hedging relationship ceases to be highly ~~effective;~~effective or is otherwise discontinued; (ii) the derivative and/or the hedged item expires or matures, is sold, terminated, transferred or exercised; or (iii) a hedged firm commitment no longer meets the definition of a firm ~~commitment; or (iv) we elect to discontinue hedge accounting.~~commitment.

When hedge accounting is discontinued ~~we either terminate~~and the derivative orand hedged item remain, we: (i) continue to carry the derivative on the statement of condition at ~~its~~ fair value as an economic hedge; (ii) cease ~~to adjust~~adjusting the hedged asset or liability for changes in fair ~~value~~value; and (iii) amortize the cumulative basis adjustment on the hedged item into interest income over the remaining life of the hedged item using a level-yield methodology.

When we discontinue a qualifying hedge relationship by terminating the derivative and subsequently designating the associated hedged item into a new qualifying hedge relationship, we: (i) recognize the cumulative gain (loss) on the derivative in current period earnings; (ii) pay or receive a termination fee with the counterparty, substantially offsetting the recognized gain (loss) on the derivative; (iii) cease adjusting the hedged asset or liability for changes in fair value; and (iv) amortize the cumulative basis adjustment on the hedged item into interest income over the remaining life of the hedged item using a level-yield methodology.

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

Embedded Derivatives. We may issue consolidated obligations, disburse advances, or purchase financial instruments in which a derivative instrument is embedded. In order to determine whether an embedded derivative must be bifurcated from the host instrument and separately valued, we must assess, upon execution of the transaction, whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the consolidated obligation, advance or purchased financial instrument (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

If we determine that (i) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (ii) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative instrument pursuant to an economic ~~hedge, and the~~hedge. The host contract is accounted for based on the guidance applicable to instruments of that type that are not hedged. However, if (i) the entire contract (the host contract and the embedded derivative) is required to be measured at fair value, with changes in fair value reported in earnings (such as an investment security classified as trading), or (ii) we cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract is carried at fair value, and no portion of the contract is designated as a hedging instrument.

~~Financial Instruments Meeting Netting Requirements~~.We present certain financial instruments, including our derivative asset and liability positions as well as cash collateral received or pledged, on a net basis when we have a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements).

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time a change in the exposure is identified and additional collateral is requested, and the time the additional collateral is received or pledged. Likewise, there may be a delay before excess collateral is returned. For derivative instruments that meet the netting requirements, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset, respectively.~~Additional information regarding these transactions is provided in~~ ~~Note 11 - Derivatives and Hedging Activities.~~

Premises, Software, and Equipment. We record premises, software, and equipment at cost, less accumulated depreciation and ~~amortization,~~amortization, in other assets, and compute depreciation and amortization using the straight-line method over their respective estimated useful lives, which range from 13 to 40 years. WeWe capitalize improvements and major renewals, but expense maintenance and repairs when incurred. We depreciate building improvements using the straight-line method over the ~~shorter of the~~ estimated useful life of the ~~improvement or the remaining life of the building.~~improvement. In addition, we capitalize software development costs for internal use software with an estimated economic useful life of at least one year. If capitalized, we use the straight-line method for computing amortization. We include any gain or loss on disposal (other than abandonment) of premises, software, and equipment in other ~~income (loss).~~income. Any loss on abandonment ~~of premises, software, and equipment~~ is included in other operating expenses.

Consolidated Obligations. Consolidated obligations are recorded at amortized cost, adjusted ~~for~~to include concessions, ~~accretion of~~ discounts, ~~amortization of~~ premiums, principal payments, and cumulative fair-value hedging basis adjustments.

~~Discounts and Premiums.~~ We accrete/amortize the discounts and premiums as well as hedging basis adjustments on CO bonds to interest expense using the level-yield interest method over the term to contractual maturity of the corresponding CO bonds. Any remaining unamortized premium or discount is recognized upon prepayment.

Concessions. Concessions are paid to dealers in connection with the issuance of certain consolidated obligations. The Office of Finance prorates the amount of our concession based upon the percentage of the debt issued on ~~our~~the Bank's behalf. We record concessions paid on consolidated obligations as a direct deduction from their carrying amounts, consistent with the presentation of discounts on consolidated obligations. The concessions are deferred and amortized, using ~~the~~a level-yield ~~interest method,~~methodology, to interest expense over the term to contractual maturity of the corresponding consolidated ~~obligations. Any~~obligation. When we prepay a CO bond, a proportionate share of any remaining ~~unamortized~~balance of concessions ~~are~~is recognized ~~upon prepayment.~~as interest expense.

Discounts and Premiums. We accrete or amortize the discounts and premiums as well as cumulative fair-value hedging basis adjustments to interest expense using a level-yield methodology over the term to contractual maturity of the corresponding CO bond. When we prepay a CO bond, a proportionate share of the remaining balance of those adjustments is recognized as interest income.

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Debt Extinguishments.When we extinguish a CO prior to the contractual maturity date on other than a call date, any gain or loss resulting from the extinguishment is recorded in other income (loss) as the difference between the cash paid (market price) and the current carrying value. We do not consider these gains or losses to be extraordinary.

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

Mandatorily Redeemable Capital Stock. When a member withdraws or attains non-member status by merger or acquisition, charter termination, relocation or other involuntary termination from membership, the member's shares are then subject to redemption, at which time a five-year redemption period ~~commences.~~commences for Class B stock. Since the shares meet the definition of a mandatorily redeemable financial instrument, the shares are reclassified from capital to liabilities as MRCS at estimated fair value, which is equal to par value. Dividends declared on shares classified as a liability are accrued at the expected dividend rate and reported as interest expense.

We reclassify MRCS from liabilities to capital when non-members subsequently become members through either acquisition, merger, or election. After the reclassification, dividends declared on that capital stock are no longer classified as interest expense.

Restricted Retained Earnings. In accordance with our Joint Capital Enhancement Agreement, as amended, among the 11 FHLBanks, we allocate 20% of the Bank's net income each quarter to a separate restricted retained earnings account until the balance of that account, calculated as of the last day of each calendar quarter, equals at least 1% of the average balance of the Bank's outstanding consolidated obligations for the current quarter.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Employee Retirement and Deferred Compensation Plans. We recognize the ~~minimum~~ required contribution to the DB ~~plan as expense~~Plan ratably over the plan year to which it relates. Without a prefunding election, any contribution made in excess of the minimum required contribution is recorded as an expense in the quarterly reporting period in which the contribution is ~~made.~~made; with a prefunding election, such excess contribution is recorded as a prepaid asset.

~~Restricted Retained Earnings.~~ ~~In accordance with~~Settlement gains and losses are recognized in earnings only when the ~~Bank's JCE Agreement, we allocate 20%~~total cost of ~~our net income each quarter to~~all settlements during a ~~separate restricted retained earnings account until~~year exceeds the ~~balance of that account equals at least 1%~~sum of the ~~average balance~~service and interest cost components of ~~our outstanding consolidated obligations~~the net periodic pension cost for the ~~previous quarter.~~year.

~~Gains on Litigation Settlements.~~ Litigation settlement gains, net of related legal fees and litigation expenses, are recorded in other income when realized. A litigation settlement gain is considered realized when we receive cash or assets that are readily convertible to known amounts of cash or claims to cash. In addition, a settlement gain is considered realized when we enter into a signed agreement not subject to appeal, the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized, we consider potential litigation settlement gains to be gain contingencies and, therefore, they are not recorded in the statement of income.

Finance Agency Expenses. The portion of the Finance Agency's expenses and working capital fund not allocated to Freddie Mac and Fannie Mae is allocated among the FHLBanks as assessments, which are based on the ratio of each FHLBank's minimum required regulatory capital to the aggregate minimum required regulatory capital of every FHLBank. We record our share of these assessments in other expenses.

~~Office~~Office of Finance Expenses. Our proportionate share of the Office of Finance's operating and capital expenditures is calculated based upon two components as follows: (i) two-thirds based on our share of total consolidated obligations outstanding and (ii) one-third ~~based~~ based on equal ~~pro rata~~pro-rata allocation. We record our share of these expenditures in other expenses.

~~Affordable Housing Program Assessments.~~ The Bank Act requires each FHLBank to establish and fund an AHP, which provides subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low- to moderate-income households. Each period, we charge/(credit) the required funding for AHP to earnings and increase/(decrease) the associated liability. We typically make the AHP subsidy available to members as a grant. As an alternative, we can issue AHP advances at interest rates below the customary interest rate for non-subsidized advances.

Cash Flows.We consider cash and due from banks on the statement of condition as cash and cash equivalents within the statement of cash flows because of their highly liquid nature. Federal funds sold, securities purchased under agreements to resell, and interest-bearing deposits are not treated as cash and cash equivalents, but instead are treated as short-term investments. Accordingly, their associated cash flows are reported in the investing activities section of the statement of cash flows.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Note 2 - Recently Adopted and Issued Accounting Guidance

Recently Adopted Accounting Guidance.

~~Contingent Put and Call Options in Debt Instruments (Accounting Standards Update (ASU) 2016-06)~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). On March ~~14, 2016,~~12, 2020, the FASB issued ~~amendments~~optional guidance for a limited period of time to ~~clarify~~ease the ~~requirements~~potential burden in accounting for ~~assessing whether contingent call (put) options that can accelerate~~(or recognizing the ~~payment of principal on debt instruments are clearly and closely related to their debt host contracts. The amendments require entities to apply only~~effects of) reference rate reform. Specifically, the ~~four-step decision sequence when assessing whether the economic characteristics and risks of call (put) options are clearly and closely~~guidance provides accounting relief related to the ~~economic characteristics and risks of their debt hosts. Consequently, when a call (put) option is contingently exercisable, an~~following:

Contract modifications. Entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity ~~does~~that makes this election would not have to ~~assess whether~~remeasure the ~~event~~contracts at the modification date or reassess a previous accounting determination.

Hedging relationships. Entities can elect various optional expedients that ~~triggers the ability~~would allow them to ~~exercise~~continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.

Sales or transfers of debt securities classified as HTM. Entities can make a ~~call (put) option is related~~one-time election to sell and/or reclassify HTM securities that were purchased prior to January 1, 2020 and reference an interest ~~rates or credit risks.~~rate affected by reference rate reform.

This ~~amended~~ guidance was originally effective ~~for~~from March 12, 2020 through December 31, 2022 but was extended with the ~~interim and annual periods beginning~~issuance of ASU 2022-06. The guidance will be applied when we implement the fallback provisions associated with our financial instruments that remain indexed to LIBOR on ~~January 1, 2017. The adoption of this guidance on January 1, 2017 had no~~the cessation date; however, its effect on ~~our~~the Bank's financial condition, results of operations, orand cash ~~flows.~~flows is not expected to be material.

Reference Rate Reform (Topic 848): Deferral of the Sunset Date (ASU 2022-06). On December 21, 2022, the FASB issued guidance to extend the sunset (or expiration) date of ASU 2020-04 (Topic 848) to December 31, 2024. This change takes into account the United Kingdom Financial Conduct Authority's extension of the cessation date of the overnight 1-, 3-, 6-, and 12-month LIBOR tenors to June 30, 2023, which is beyond the original expiration date of the guidance.

Recently Issued Accounting Guidance.

~~Revenue from Contracts with Customers~~Fair-Value Hedging - Portfolio Layer Method (ASU ~~2014-09)~~2022-01).On ~~May~~March 28, ~~2014,~~2022, the FASB issued ~~new~~ guidance on revenue from contracts with customers. This guidance outlines a comprehensive model for recognizing revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. In addition, this guidance amendsexpanding the existing ~~requirements for the recognition~~last-of-layer fair-value hedging method by allowing entities to hedge multiple layers of a ~~gain or loss on~~single closed portfolio of prepayable financial assets rather than a single (or last) layer only. To reflect the transfer of nonfinancial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, or lease contracts.

On August 12, 2015, the FASB issued an amendment to defer the effective date of the guidance by one year. In 2016, the FASB issued additional amendments to clarify certain aspects of the guidance; however, the amendments do not change, the ~~core principle in~~last-of-layer method was renamed the ~~guidance.~~portfolio layer method.

The guidance became effective for interim and annual periods beginning on January 1, 2018. The guidance provides entities with the option of using either of the following two methods upon adoption: (i) a full retrospective method, applied to each prior reporting period presented; or (ii) a modified retrospective method, with the cumulative effect of initially applying this guidance recognized at the date of initial adoption. The adoption of this guidance will have no effect on our financial condition, results of operations, or cash flows.

~~Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)~~. On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes, but is not limited to, the following provisions:

~~equity investments (with certain exceptions) to be measured at fair value with changes in fair value recognized in net income;~~

separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments;

separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the statement of condition or in the accompanying notes to the financial statements; and

elimination of the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

The guidance became effective for the interim and annual periods beginning on January 1, ~~2018. The amendments, in general, should be applied by means of a cumulative-effect adjustment to the statement of condition as of the beginning of the period of adoption. The~~2023. Upon adoption, of this guidance ~~will have~~had no ~~effect~~impact on ~~our~~the Bank's financial condition, results of operations, or cash ~~flows.~~flows.

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~Classification of Certain Cash Receipts~~Troubled Debt Restructurings ("TDR") and ~~Cash Payments~~Vintage Disclosures (ASU ~~2016-15)~~2022-02). On August 26, 2016, the FASB issued amendments to clarify existing guidance on the classification of certain cash receipts and payments on the statement of cash flows to reduce current and potential future diversity in practice regarding eight specific cash flow issues.

These amendments became effective for interim and annual periods beginning on January 1, 2018. These amendments should be applied using a retrospective transition method to each period presented. The adoption of these amendments will have no effect on our financial condition, results of operations, or cash flows.

~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07).~~On March 10, 2017, the FASB issued amendments to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that an employer disaggregate the service cost component from the other components of net pension and benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement.

These amendments became effective for interim and annual periods beginning on January 1, 2018. The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit cost. The adoption of these amendments will have no effect on our financial condition, results of operations, or cash flows. However, the adoption will result in a reclassification within other expenses on the income statement of the non-service components of our net periodic pension cost.

~~Leases (ASU 2016-02). On February 25, 2016,~~31, 2022, the FASB issued guidance ~~which~~eliminating the accounting guidance for TDRs by creditors that have adopted the current expected credit losses methodology while enhancing disclosure requirements for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. Additionally, the guidance requires ~~recognition of lease assets and lease liabilities on the statement of condition and~~ disclosure of ~~key information about leasing arrangements. In particular, this~~current-period gross write-offs by year of origination.

The guidance requires a lessee, in an operating or finance lease, to recognize on the statement of condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for a lease with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize a lease asset and lease liability. Under previous guidance, a lessee was not required to recognize a lease asset and lease liability arising from an operating lease on the statement of condition. While this guidance does not fundamentally change lessor accounting, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP.

~~This guidance is~~became effective for the interim and annual periods beginning on January 1, ~~2019, and early~~2023. Upon adoption, ~~is permitted. However, we plan to adopt~~ this guidance did not have a material impact on the effective date. The guidance requires lessors and lessees to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach. Upon adoption, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities on the statement of condition, but we do not expect its effect on our Bank's financial condition, results of operations, or cash flows, ~~to be material.~~

~~Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08).~~On March 30, 2017, the FASB issued amendments to shorten the amortization period for certain callable debt securities purchased at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. No change is required for securities purchased at a discount.

~~These amendments are effective beginning on January 1, 2019. Early adoption is permitted; however,~~nor do we plan to adopt the amendments on the effective date. The amendments should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this guidance will have no effect on our financial condition, results of operations, or cash flows.

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12).~~ On August 28, 2017, the FASB issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in OCI. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:

~~Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.~~

~~Measurement of the hedged item in a partial-term fair value hedge of interest-rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.~~

Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest-rate risk.

This guidance is effective beginning January 1, 2019. Early adoption is permitted; however, we plan to adopt the guidance on the effective date. We are in the process of evaluating this guidance; but we currently expect ~~its adoption~~it to have ~~no effect on our financial condition, results of operations, or cash flows. However, the amended presentation and disclosure guidance will result in~~ a prospective reclassification on the income statement of the change in fair value of hedging instruments and related hedged items in fair value hedging relationships from other income to interest income.

~~Measurement of Credit Losses on Financial Instruments (ASU 2016-13).~~ On June 16, 2016, the FASB issued amended guidance for the measurement of credit losses on financial instruments. The amendments require entities to measure expected losses over the entire estimated life of a financial instrument instead of incurred losses. Such measurement must be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

The amended guidance requires a financial asset, or a group of financial assets, measured at amortized cost basis to be presented at the net amount expected to be collected over the contractual term of the financial asset. The guidance also requires, among other provisions, the following:

The statement of income must reflect the measurement of credit losses for newly recognized financial assets, as well as the increases or decreases in expected credit losses that have taken place during the period.

Entities must determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination in a manner similar to other financial assets measured at amortized cost. The initial allowance for credit losses is required to be added to the purchase price.

Entities must record credit losses relating to AFS debt securities through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost.

~~Public entities must further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).~~

This guidance is effective for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted as of the interim and annual reporting periods beginning after December 15, 2018; however, we plan to adopt this guidance on the effective date. This guidance should be applied using a modified-retrospective approach whereby a cumulative-effect adjustment is recorded to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In addition, the guidance requires the use of a prospective transition approach for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination and for debt securities for which OTTI had been recognized before the effective date. We are in the process of evaluating this guidance, but expect the adoption to result in an increase to the allowance for credit losses, including an allowance for debt securities, primarily due to the requirement to measure losses for the entire estimated life of the financial asset. Thematerial impact on our ~~financial condition, results of operations, and cash flows will depend upon the composition of financial assets held at the adoption date as well as the economic conditions and forecasts at that time.~~future disclosures.

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

Note 3 - Cash and Due from Banks

Compensating Balances. We Periodically, we maintain cash balances with commercial banks in return for certain services. These agreements contain no legal restrictions on the withdrawal of funds. The average cash balances ~~were $35,592, $101,311, and $81,853~~ for the years ended December 31, ~~2017,~~ ~~2016~~2022, 2021, and 2020, were $104,501, $227,913, and ~~2015,~~$65,945, respectively.

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~~Pass-through Deposit Reserves.~~Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Note 4 - Investments

Short-term Investments. We ~~act as~~invest in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that maintain a ~~pass-through correspondent~~credit rating of triple-B or higher (investment grade) by an NRSRO. At December 31, 2022 and 2021, none of these investments were with counterparties rated below triple-B. The NRSRO ratings may differ from any internal ratings of the investments, if applicable.

Allowance for ~~member institutions required~~Credit Losses.

Interest-Bearing Deposits. Interest-bearing deposits are considered overnight investments given our ability to ~~deposit reserves with the Federal Reserve Banks. The amount reported as cash and due~~withdraw funds from ~~banks includes pass-through reserves deposited with the Federal Reserve Banks of $51,576 and $29,118~~these accounts at any time. As such, no allowance for credit losses was recorded for these investments at December 31, ~~2017~~2022 and ~~2016, respectively.~~2021.

Securities Purchased Under Agreements to Resell.We use the collateral maintenance provision with our counterparties as a practical expedient for securities purchased under agreements to resell whereby a credit loss is recognized only if there is a collateral shortfall which we do not believe the counterparty is willing or able to replenish in accordance with the contractual terms. The credit loss would be limited to the difference between the estimated fair value of the collateral and the investment’s amortized cost. Based upon the collateral held as security and collateral maintenance provisions with our counterparties, no allowance for credit losses was recorded for securities purchased under agreements to resell at December 31, 2022 and 2021.

~~Note 4 - Available-for-Sale Securities~~

Federal Funds Sold. As our investments in federal funds sold are typically transacted on an overnight term, we would only evaluate these instruments for expected credit losses if they were not repaid according to their contractual terms at maturity. At December 31, 2022 and 2021, all investments in federal funds sold were repaid according to their contractual terms and, therefore, no allowance for credit losses was recorded.

Investment Securities.

Trading Securities.

Major Security Types.The following table presents our trading securities by type of security.


Security Type	December 31, 2022		December 31, 2021
U.S. Treasury obligations	$	2,230,248	$	3,946,799









Total trading securities at estimated fair value	$	2,230,248	$	3,946,799

Net Gains (Losses) on Trading Securities. The following table presents net gains (losses) on trading securities, excluding any offsetting effect of gains (losses) on the associated derivatives.


	Years Ended December 31,
	2022		2021		2020
Net gains (losses) on trading securities held at year end	$	(18,461)	$	(17,608)	$	(7,202)
Net gains (losses) on trading securities that matured/sold during the year	(4,113)		(29,706)		(7,282)
Net gains (losses) on trading securities	$	(22,574)	$	(47,314)	$	(14,484)

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Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Available-for-Sale Securities.

Major Security Types.The following table presents ourAFS securities by type of security.

Gross Gross
Amortized Non-Credit Unrealized Unrealized Estimated
December 31, 2017
Cost ⁽¹⁾
OTTI Gains Losses Fair Value
GSE and TVA debentures $ 4,357,250
$ —
$ 46,679
$ —
$ 4,403,929
GSE MBS 2,460,455
—
45,840
—
2,506,295
Private-label RMBS 189,212
(68 ) 29,390
—
218,534
Total AFS securities $ 7,006,917
$ (68 ) $ 121,909
$ —
$ 7,128,758

December 31, 2016
GSE and TVA debentures $ 4,693,211
$ —
$ 25,624
$ (4,201 ) $ 4,714,634
GSE MBS 1,058,037
—
18,279
(234 ) 1,076,082
Private-label RMBS 242,181
(263 ) 27,201
—
269,119
Total AFS securities $ 5,993,429
$ (263 ) $ 71,104
$ (4,435 ) $ 6,059,835


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
Security Type	Cost (1)		Gains		Losses		Fair Value
U.S. Treasury obligations	$	4,207,974	$	3,502	$	(1,802)	$	4,209,674
GSE and TVA debentures	1,882,802		20,144		(243)		1,902,703
GSE multifamily MBS	6,099,000		20,064		(51,604)		6,067,460
Total AFS securities	$	12,189,776	$	43,710	$	(53,649)	$	12,179,837


	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
Security Type	Cost (1)		Gains		Losses		Fair Value
GSE and TVA debentures	$	2,651,571	$	45,557	$	(12)	$	2,697,116
GSE multifamily MBS	6,356,422		109,956		(3,559)		6,462,819
Total AFS securities	$	9,007,993	$	155,513	$	(3,571)	$	9,159,935


⁽¹⁾	Includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal, and, if applicable, OTTI recognized in earnings (credit losses) and fair-value hedge accounting adjustments.

(1) Includes adjustments made to the cost basis for purchase discount or premium and related accretion or amortization, and, if applicable, fair-value hedging basis adjustments. Includes at December 31, 2022 and 2021 net unamortized discounts totaling $(294,587) and net unamortized premiums totaling $14,344, respectively. The applicable fair value hedging basis adjustments at December 31, 2022 and 2021 totaled net losses of $(1,099,886) and net gains of $206,199, respectively. Excludes accrued interest receivable at December 31, 2022 and 2021 of $53,358 and $32,127, respectively.

Unrealized Loss Positions. The following table presents impaired AFS securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.


	December 31, 2022
	Less than 12 months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Security Type	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasury obligations	$	1,836,099	$	(1,802)	$	—	$	—	$	1,836,099	$	(1,802)
GSE and TVA debentures	75,024		(243)		—		—		75,024		(243)
GSE multifamily MBS	3,484,309		(41,046)		301,339		(10,558)		3,785,648		(51,604)
Total impaired AFS securities	$	5,395,432	$	(43,091)	$	301,339	$	(10,558)	$	5,696,771	$	(53,649)


	December 31, 2021
	Less than 12 months				12 months or more				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
Security Type	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
GSE and TVA debentures	$	250,145	$	(12)	$	—	$	—	$	250,145	$	(12)
GSE multifamily MBS	384,015		(3,559)		—		—		384,015		(3,559)
Total impaired AFS securities	$	634,160	$	(3,571)	$	—	$	—	$	634,160	$	(3,571)

106

Less than 12 months 12 months or more Total
Estimated Unrealized Estimated Unrealized Estimated Unrealized
December 31, 2017 Fair Value Losses Fair Value Losses Fair Value Losses
GSE and TVA debentures $ —
$ —
$ —
$ —
$ —
$ —
GSE MBS —
—
—
—
—
—
Private-label RMBS —
—
2,494
(68 ) 2,494
(68 )
Total impaired AFS securities $ —
$ —
$ 2,494
$ (68 ) $ 2,494
$ (68 )

December 31, 2016
GSE and TVA debentures $ 525,722
$ (3,604 ) $ 176,104
$ (597 ) $ 701,826
$ (4,201 )
GSE MBS —
—
78,704
(234 ) 78,704
(234 )
Private-label RMBS —
—
3,002
(263 ) 3,002
(263 )
Total impaired AFS securities $ 525,722

$ (3,604 )
$ 257,810

$ (1,094 )
$ 783,532
$ (4,698 )

~~107~~

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Realized Gains and Losses. During the year ended December 31, 2020, for strategic, economic and operational reasons, we sold certain of our GSE multifamily MBS. Proceeds from the sales totaled $96,779, resulting in net realized gains from the sale of AFS securities of $504, comprised of realized gains of $715 and realized losses of $(211) determined by the specific identification method.

Contractual Maturity.The amortized cost and estimated fair value of non-MBS AFS securities are presented below by contractual maturity. MBS are not presented by contractual maturity because their actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.


	December 31, 2022				December 31, 2021
	Amortized		Estimated		Amortized		Estimated
Year of Contractual Maturity	Cost		Fair Value		Cost		Fair Value
Due in 1 year or less	$	131,329	$	131,517	$	581,801	$	582,240
Due after 1 year through 5 years	1,575,581		1,594,583		1,494,109		1,523,600
Due after 5 years through 10 years	4,383,866		4,386,277		575,661		591,276

Total non-MBS	6,090,776		6,112,377		2,651,571		2,697,116
Total MBS	6,099,000		6,067,460		6,356,422		6,462,819
Total AFS securities	$	12,189,776	$	12,179,837	$	9,007,993	$	9,159,935

December 31, 2017 December 31, 2016
Amortized Estimated Amortized Estimated
Year of Contractual Maturity Cost Fair Value Cost Fair Value
Due in 1 year or less $ 83,666
$ 83,754
$ 972,508
$ 974,215
Due after 1 year through 5 years 2,317,516
2,336,699
1,841,488
1,855,517
Due after 5 years through 10 years 1,766,440
1,791,829
1,734,156
1,740,029
Due after 10 years 189,628
191,647
145,059
144,873
Total non-MBS 4,357,250
4,403,929
4,693,211
4,714,634
Total MBS 2,649,667
2,724,829
1,300,218
1,345,201
Total AFS securities $ 7,006,917
$ 7,128,758
$ 5,993,429
$ 6,059,835

~~Realized Gains~~Allowance for Credit Losses. At December 31, 2022 and ~~Losses.~~ ~~There were no sales~~2021, 100% of our AFS securities ~~during~~were rated single-A, or above, by an NRSRO, based on the ~~years ended~~lowest long-term credit rating for each security. The NRSRO ratings may differ from any internal ratings of the securities, if applicable.

We individually evaluate our AFS securities for impairment. Impairment exists when the estimated fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, we consider whether there could be a shortfall in receiving all cash flows that are contractually due by evaluating several qualitative factors. In those instances where we determine a shortfall could exist, we compare the present value of cash flows to be collected from the security to its amortized cost. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded, but the allowance is limited to the amount of the unrealized loss.

If we do not intend to sell an impaired AFS security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, net of the allowance for credit losses, any difference between the security’s estimated fair value and net amortized cost is recorded to net unrealized gains (losses) on AFS securities within OCI. If we intend to sell an impaired AFS security, or more likely than not we will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses is reversed and the amortized cost is written down to the security’s estimated fair value at the reporting date with any such impairment reported in earnings.

At December 31, ~~2017, 2016,~~2022 and 2021, certain of our AFS securities were in an unrealized loss position; however, we did not record an allowance for credit losses because those losses were considered temporary and we expected to recover the entire amortized cost basis on these securities at maturity based upon the following qualitative factors: (i) all securities were highly-rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, (iii) the U.S., GSE, and other Agency obligations carry an explicit or ~~2015. As~~implicit government guarantee such that we consider the risk of ~~December 31, 2017,~~nonpayment to be zero, and (iv) we had no intention of selling ~~the AFS~~any of these securities ~~in an unrealized loss position~~ nor did we consider it more likely than not that we will be required to sell any of these securities before ~~our anticipated~~ recovery of each security's remaining amortized cost basis.

~~Note 5 -~~

107

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Held-to-Maturity ~~Securities~~Securities.

Major Security Types.The following table presents our HTM securities by type of security.

Gross Gross
Unrecognized Unrecognized Estimated
Amortized Non-Credit Carrying Holding Holding Fair
December 31, 2017
Cost ⁽¹⁾
OTTI Value Gains Losses Value
MBS and ABS:
Other U.S. obligations -guaranteed MBS $ 3,299,157
$ —
$ 3,299,157
$ 6,555
$ (6,690 ) $ 3,299,022
GSE MBS 2,553,193
—
2,553,193
26,727
(4,529 ) 2,575,391
Private-label RMBS 37,889
—
37,889
240
(307 ) 37,822
Private-label ABS 7,480
(51 ) 7,429
40
(405 ) 7,064
Total HTM securities $ 5,897,719
$ (51 ) $ 5,897,668
$ 33,562
$ (11,931 ) $ 5,919,299

December 31, 2016
MBS and ABS:
Other U.S. obligations -guaranteed MBS $ 2,678,437
$ —
$ 2,678,437
$ 5,412
$ (12,720 ) $ 2,671,129
GSE MBS 3,082,343
—
3,082,343
46,480
(8,841 ) 3,119,982
Private-label RMBS 49,748
—
49,748
61
(533 ) 49,276
Private-label ABS 9,148
(103 ) 9,045
40
(780 ) 8,305
Total HTM securities $ 5,819,676
$ (103 ) $ 5,819,573
$ 51,993
$ (22,874 ) $ 5,848,692


	December 31, 2022
			Gross		Gross
			Unrecognized		Unrecognized		Estimated
	Amortized		Holding		Holding		Fair
Security Type	Cost (1)		Gains		Losses		Value

MBS:
Other U.S. obligations single-family	$	2,991,702	$	2,128	$	(43,106)	$	2,950,724
GSE single-family	619,910		518		(39,634)		580,794
GSE multifamily	628,589		—		(3,889)		624,700
Total HTM securities	$	4,240,201	$	2,646	$	(86,629)	$	4,156,218


	December 31, 2021

			Gross		Gross
			Unrecognized		Unrecognized		Estimated
	Amortized		Holding		Holding		Fair
Security Type	Cost (1)		Gains		Losses		Value
MBS:
Other U.S. obligations single-family	$	2,626,143	$	7,384	$	(9,238)	$	2,624,289
GSE single-family	815,924		14,424		(4,773)		825,575
GSE multifamily	871,706		779		(192)		872,293
Total HTM securities	$	4,313,773	$	22,587	$	(14,203)	$	4,322,157

(1) Carrying value equals amortized cost, which includes adjustments made to the cost basis for purchase discount or premium and related accretion or amortization. Net unamortized premium at December 31, 2022 and 2021 totaled $26,125 and $28,440, respectively.


⁽¹⁾	~~Includes adjustments made to the cost basis of an investment for accretion, amortization, collection of principal, and, if applicable, OTTI recognized in earnings (credit losses).~~

~~108~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~Unrealized Loss Positions.~~ The following table presents impaired HTM securities (i.e., in an unrealized loss position), aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

Less than 12 months 12 months or more Total
Estimated Unrealized Estimated Unrealized Estimated Unrealized
December 31, 2017 Fair Value Losses Fair Value Losses Fair Value
Losses ⁽¹⁾
MBS and ABS:
Other U.S. obligations - guaranteed MBS $ 1,140,624
$ (3,274 ) $ 886,359
$ (3,416 ) $ 2,026,983
$ (6,690 )
GSE MBS 513,244
(2,191 ) 203,401
(2,338 ) 716,645
(4,529 )
Private-label RMBS 14,712
(26 ) 11,369
(281 ) 26,081
(307 )
Private-label ABS —
—
7,064
(416 ) 7,064
(416 )
Total impaired HTM securities $ 1,668,580
$ (5,491 ) $ 1,108,193
$ (6,451 ) $ 2,776,773
$ (11,942 )

December 31, 2016
MBS and ABS:
Other U.S. obligations - guaranteed MBS $ 367,474
$ (997 ) $ 1,426,182
$ (11,723 ) $ 1,793,656
$ (12,720 )
GSE MBS 1,281,827
(7,915 ) 320,141
(926 ) 1,601,968
(8,841 )
Private-label RMBS 18,166
(62 ) 15,770
(471 ) 33,936
(533 )
Private-label ABS —
—
8,304
(843 ) 8,304
(843 )
Total impaired HTM securities $ 1,667,467
$ (8,974 ) $ 1,770,397
$ (13,963 ) $ 3,437,864
$ (22,937 )


⁽¹⁾	For private-label ABS, the total of unrealized losses does not agree to total gross unrecognized holding losses at December 31, 2017 and 2016 of $405 and $780, respectively. Total unrealized losses include non-credit-related OTTI losses recorded in AOCI of $51 and $103, respectively, and gross unrecognized holding gains on previously OTTI securities of $40 and $40, respectively.

~~Contractual Maturity.~~MBS and ABS are not presented by contractual maturity because their actual maturities will likely differ from contractual maturities as certain borrowers have the right to prepay their obligations with or without prepayment fees.

Contractual Maturity. HTM securities are not presented by contractual maturity because they consisted entirely of MBS, whose actual maturities will likely differ from their contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

~~Note 6 - Other-Than-Temporary Impairment~~

~~OTTI Evaluation Process~~Realized Gains and ~~Results - Private-label RMBS and ABS.~~ Losses. During the year ended December 31, 2022, for operational reasons, we sold a portion of our HTM MBS. Proceeds from the sales totaled $69,919, resulting in net realized losses of $(1,059) determined by the specific identification method. For each of these HTM securities, we had previously collected at least 85% of the principal outstanding at the time of acquisition. As ~~described in~~ ~~Note 1 - Summary of Significant Accounting Policies, on a quarterly basis we evaluate our individual AFS and HTM investment securities for OTTI.~~

~~To ensure consistency in~~such, the ~~determination of OTTI for private-label RMBS and ABS, all FHLBanks use a common framework and formal governance process to determine and approve the key OTTI modeling assumptions used~~sales were considered maturities for purposes of security classification.

Allowance for Credit Losses. At December 31, 2022 and 2021, 100% of our ~~cash flow analysis~~HTM securities were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for ~~substantially all~~each security. The NRSRO ratings may differ from any internal ratings of ~~these securities.~~the securities, if applicable.

Our ~~evaluation includes~~HTM securities are evaluated for expected credit losses on a ~~projection~~collective, or pooled, basis unless an individual assessment is deemed necessary, e.g. the securities do not possess similar risk characteristics. We consider several qualitative factors when evaluating the potential for credit losses on our HTM securities and, if deemed necessary, an allowance for credit losses is recorded.

At December 31, 2022 and 2021, we did not record an allowance for credit losses on any of ~~future cash flows~~our HTM securities based on the following qualitative factors: (i) all securities were highly-rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, and (iii) the U.S., GSE, and other Agency obligations carry an ~~assessment~~explicit or implicit government guarantee such that we consider the risk of ~~the structure of each security and certain assumptions (some of which are determined based upon other assumptions) such as:~~nonpayment to be zero.

~~the remaining payment terms for the security;~~

~~market interest rates;~~

~~expected housing price changes; and~~

~~based on underlying loan-level borrower and loan characteristics:~~


◦	~~prepayment speed;~~


◦	~~default rate; and~~


◦	~~loss severity on the collateral supporting our security.~~

~~109~~

108

Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

A significant modeling assumption is the forecast of future housing price changes for the relevant states and CBSAs, which are based upon an assessment of the individual housing markets. As currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The FHLBanks developed a short-term housing price forecast with projected changes ranging from a decrease of 5.0% to an increase of 12.0% over a twelve-month period. For the vast majority of markets, the changes range from an increase of 2.0% to an increase of 6.0%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

The following table presents the other significant modeling assumptions used to determine the amount of credit loss recognized in earnings during the year ended December 31, 2017 on the two private-label RMBS for which an OTTI was determined to have occurred, as well as the related current credit enhancement.

Significant Modeling Assumptions

Current Credit
Classification ⁽¹⁾
Prepayment Rates Default Rates Loss Severities
Enhancement ⁽²⁾
Prime 9 % 11 % 26 % — %
Subprime ⁽³⁾
8 % 40 % 42 % — %


⁽¹⁾	The classification (prime, Alt-A or subprime) is based on the model used to project the cash flows for the security, which may not be the same as the rating agency's classification at the time of origination.


⁽²⁾	Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before we will experience a loss on the security. A credit enhancement percentage of zero reflects a security that has no remaining credit support and is likely to have experienced an actual principal loss.


⁽³⁾	~~Modeling assumptions assume no payout from monoline bond insurers.~~

Our cash flow analysis uses two third-party models to assess whether the entire amortized cost basis of each of our private-label RMBS and ABS will be recovered. Since the projected cash flows are based on a number of assumptions and expectations, the results of these models can vary significantly with changes in those assumptions and expectations. The scenario of cash flows determined based on the model approach reflects a best estimate scenario.

~~The first third-party model considers borrower characteristics, collateral characteristics and the particular attributes of the loans underlying our securities, in conjunction with the assumptions.~~

The month-by-month projections of future loan performance derived from the first model are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities is derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balances are reduced to zero.

In performing the detailed cash flow analysis, we determine the present value of the cash flows expected to be collected, discounted at the security's effective yield. For variable-rate and hybrid private-label RMBS, we use the effective interest rate derived from a variable-rate index (e.g., 12-month LIBOR) plus the contractual spread, plus or minus a fixed spread adjustment. As the implied forward curve of the index changes over time, the effective interest rates derived from that index will also change over time.

~~Results of OTTI Evaluation Process - Private-label RMBS and ABS.~~ ~~As part of our evaluation as described in~~ Note ~~1 - Summary of Significant Accounting Policies~~, we did not have any change in intent to sell, nor were we required to sell, any OTTI security during the years ended December 31, 2017, 2016, or 2015. Therefore, we performed a cash flow analysis to determine whether we expect to recover the entire amortized cost of each security. As a result of our cash flow analysis, we recognized credit losses of $207, $197, and $61 during the years ended December 31, 2017, 2016, and 2015, respectively. We determined that the unrealized losses on the remaining private-label RMBS and ABS were temporary as we expect to recover the entire amortized cost.

~~110~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

The following table presents a rollforward of the amounts related to credit losses recognized in earnings. The rollforward excludes accretion of credit losses for securities that have not experienced a significant increase in cash flows.

Credit Loss Rollforward 2017 2016 2015
Balance at beginning of year $ 51,514
$ 60,673
$ 69,626
Additions:
Additional credit losses for which OTTI was previously recognized ⁽¹⁾
207
197
61
Reductions:
Increases in cash flows expected to be collected (accreted as interest income over the remaining lives of the applicable securities) (6,786 ) (9,356 ) (9,014 )
Balance at end of year $ 44,935
$ 51,514
$ 60,673


⁽¹⁾	~~Relates to all securities impaired prior to January 1, 2017, 2016, and 2015, respectively.~~

~~The following table presents the December 31, 2017 classification and balances of OTTI securities impaired prior to that date (i.e., life-to-date) but not necessarily as of that date.~~

December 31, 2017
HTM Securities AFS Securities
Estimated Estimated
OTTI Life-to-Date ⁽¹⁾
UPB Amortized Cost Carrying Value
Fair
Value
UPB Amortized Cost
Fair
Value
Private-label RMBS - prime $ —
$ —
$ —
$ —
$ 224,574
$ 189,212
$ 218,534
Private-label ABS - subprime 552
487
436
476
—
—
—
Total $ 552
$ 487
$ 436
$ 476
$ 224,574
$ 189,212
$ 218,534


⁽¹⁾	Securities are classified based on the originator's classification at the time of origination or based on the classification by the NRSROs upon issuance. Because there is no universally accepted definition of prime, Alt-A or subprime underwriting standards, such classifications are subjective.

~~Evaluation Process and Results - All Other AFS and HTM Securities.~~

~~Other U.S. and GSE Obligations and TVA Debentures.~~ For other U.S. obligations, GSE obligations, and TVA debentures, we determined that, based on current expectations, the strength of the issuers' guarantees through direct obligations of or support from the United States government is sufficient to protect us from any losses. As a result, all of the gross unrealized losses as of ~~December 31, 2017~~ ~~are considered temporary.~~

~~Note 7~~5 - Advances

We offer a wide range of fixed- and adjustable-rate advance products with ~~different~~various maturities, interest rates, payment characteristics and optionality. Adjustable-rate advances have interest rates that reset periodically at a fixed spread to SOFR, LIBOR or another specified index. ~~Longer-term advances may be available subject to market conditions for both fixed-rate and adjustable-rate products.~~

~~111~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

The following table presents advances outstanding by ~~year~~redemption term.


	December 31, 2022			December 31, 2021
Redemption Term	Amount		WAIR %	Amount		WAIR %
Overdrawn demand and overnight deposit accounts	$	430	6.74	$	—	—
Due in 1 year or less	14,517,059		3.77	7,863,703		0.59
Due after 1 year through 2 years	2,726,023		2.82	2,684,996		2.02
Due after 2 years through 3 years	3,316,683		2.73	3,536,759		1.35
Due after 3 years through 4 years	2,045,370		2.70	2,931,260		1.29
Due after 4 years through 5 years	3,938,017		3.96	1,908,432		1.34
Thereafter	10,747,880		2.70	8,384,458		0.82
Total advances, par value	37,291,462		3.26	27,309,608		1.03

Fair-value hedging basis adjustments, net	(615,859)			179,115
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees	6,856			9,112
Total advances (1)	$	36,682,459		$	27,497,835

(1) Carrying value equals amortized cost, which excludes accrued interest receivable at December 31, 2022 and 2021 of ~~contractual maturity.~~$50,446 and $13,075, respectively.

December 31, 2017 December 31, 2016
Year of Contractual Maturity Amount WAIR % Amount WAIR %
Overdrawn demand and overnight deposit accounts $ —
—
$ —
—
Due in 1 year or less 16,935,411
1.46
12,598,864
0.91
Due after 1 year through 2 years 2,701,784
1.96
2,752,629
1.74
Due after 2 years through 3 years 2,682,073
1.69
1,920,962
2.10
Due after 3 years through 4 years 2,172,549
1.78
2,605,198
1.38
Due after 4 years through 5 years 2,213,319
1.93
2,009,395
1.47
Thereafter 7,464,333
1.66
6,244,912
1.20
Total advances, par value 34,169,469
1.61
28,131,960
1.22
Fair-value hedging adjustments (126,137 )
(57,716 )
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees 11,732

21,709

Total advances $ 34,055,064

$ 28,095,953

We offer our members certain advances that provide them the right, at predetermined future dates, to call (i.e., prepay) the advance prior to maturity without incurring prepayment or termination fees. ~~Borrowers typically exercise their call options for fixed-rate advances when interest rates decline.~~ We also offer certain adjustable-rate advances that may be contractually prepaid by the borrower at the interest-rate reset date without incurring prepayment or termination fees. All other advances may only be prepaid by paying a fee that is sufficient to make us financially indifferent to the prepayment of the advance.

We also offer putable advances. Under the terms of a putable advance, we retain the right to extinguish or put the fixed-rate advance to the member on predetermined future dates and offer replacement funding at ~~prevailing~~current market rates, subject to certain conditions.

The following table presents advances outstanding by the earlier of the ~~year of contractual maturity~~redemption date or the next call date and next put date.


										Earlier of Redemption or Next Call Date				Earlier of Redemption or Next Put Date
	Year of Contractual Maturity or Next Call Date				Year of Contractual Maturity or Next Put Date					December 31,				December 31,
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Term									Term	2022		2021		2022		2021
Overdrawn demand and overnight deposit accounts	$	—	$	—	$	—	$	—	Overdrawn demand and overnight deposit accounts	$	430	$	—	$	430	$	—
Due in 1 year or less	25,067,272		19,390,714		17,032,411		12,767,364		Due in 1 year or less	19,337,582		12,547,866		20,226,164		13,452,703
Due after 1 year through 2 years	2,412,184		2,502,629		2,701,784		2,757,629		Due after 1 year through 2 years	2,299,023		2,578,396		3,207,023		3,090,101
Due after 2 years through 3 years	1,716,873		1,856,463		3,406,673		1,915,962		Due after 2 years through 3 years	2,385,483		2,127,759		4,082,583		3,636,259
Due after 3 years through 4 years	928,649		1,548,998		2,718,049		2,605,198		Due after 3 years through 4 years	1,592,245		1,997,060		2,045,370		3,007,160
Due after 4 years through 5 years	1,494,529		900,095		2,524,619		2,535,895		Due after 4 years through 5 years	2,773,917		1,530,307		4,173,117		1,485,332
Thereafter	2,549,962		1,933,061		5,785,933		5,549,912		Thereafter	8,902,782		6,528,220		3,556,775		2,638,053
Total advances, par value	$	34,169,469	$	28,131,960	$	34,169,469	$	28,131,960	Total advances, par value	$	37,291,462	$	27,309,608	$	37,291,462	$	27,309,608

In accordance with the Final Membership Rule, captive insurance companies that were admitted as FHLBank members on or after September 12, 2014 repaid all of their outstanding advances and had their memberships terminated by February 19, 2017.

Under the Final Membership Rule, captive insurance companies that were admitted as FHLBank members prior to September 12, 2014, and do not meet the new definition of "insurance company" or fall within another category of institution that is eligible for FHLBank membership, shall have their memberships terminated no later than February 19, 2021. Prior to termination, new or renewed extensions of credit to such members will be subject to certain restrictions relating to maturity dates and the ratio of advances to the captive insurer's total assets and may be subject to additional restrictions at our discretion. The outstanding advances to these captive insurers mature on various dates through 2025.

~~112~~

109

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

~~Credit Risk Exposure and Security Terms~~Advance Concentrations. ~~We lend to members according to Federal statutes, including the Bank Act. The Bank Act requires each FHLBank to hold, or have access to, collateral to fully secure its advances.~~ At December 31, ~~2017~~2022 and ~~2016~~,2021, our top five borrowers held ~~45%~~41% and 43%, respectively, of total advances outstanding at par. ~~As security~~Our top borrower at December 31, 2022 and 2021 held 12%.

Allowance for Credit Losses. Advances are evaluated for expected credit losses on a collective, or pooled, basis unless an individual assessment is deemed necessary, e.g. the advances do not possess similar risk characteristics.

Using a risk-based approach, we consider the amount and quality of the collateral pledged and the borrower's financial condition to ~~these~~be the primary indicators of an advance's credit quality. We manage our exposure to advances outstanding through an integrated approach that generally includes establishing a credit limit for each borrower, and an ongoing review of each borrower's financial condition, coupled with conservative collateral/lending policies intended to limit the risk of loss while balancing the borrower's needs for a reliable source of funding. In addition, we lend to eligible borrowers in accordance with federal statutes and Finance Agency regulations. Specifically, we comply with the Bank Act, which requires us to obtain sufficient collateral to fully secure credit products. We evaluate and update our collateral guidelines, as necessary, based on current market conditions.

We accept certain investment securities, residential mortgage loans, deposits, and other real estate-related assets as collateral. In addition, certain members that qualify as CFIs are eligible to utilize expanded statutory collateral provisions for small business and agriculture loans. Under the Bank Act, our capital stock owned by our members serves as additional security. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance; borrowing capacity; and overall credit exposure to the borrower. As part of our risk-based approach, we also evaluate and determine whether a borrower may retain physical possession of the collateral pledged to us or must specifically deliver the collateral to us or our document custody agent.

Our evaluation of credit losses on advances utilizes a framework that considers the adequacy of the advances' associated collateral and the associated member's willingness and ability to pledge additional collateral to satisfy any current or anticipated future deficiency. Our agreements with borrowers ~~we held, or had access~~allow us, at any time and in our sole discretion, to require substitution of collateral, adjust the over-collateralization requirements applied to collateral, or refuse to make extensions of credit against any collateral. We also may require borrowers to pledge additional collateral regardless of whether the collateral would be eligible to originate a new extension of credit. Our agreements with our borrowers also afford us the right, in our sole discretion, to declare any borrower to be in default if we deem the Bank to be inadequately secured.

We determine the estimated value of the collateral required to secure each member's advances by applying collateral discounts, or haircuts, to the market value or UPB of the collateral, as applicable. At December 31, 2022 and 2021, we had rights to collateral on a borrower-by-borrower basis with an estimated ~~fair~~lendable value ~~at December 31, 2017 and 2016 that was well~~equal to or in excess of ~~the~~our advances ~~outstanding~~outstanding.

At December 31, 2022 and 2021, we did not have any advances that were past due, on ~~those dates, respectively. See~~ ~~Note 9 - Allowance for Credit Lossesfor information~~non-accrual status, or considered impaired. In addition, there were no troubled debt restructurings related to advances during the years ended December 31, 2022, 2021, or 2020.

Based upon the collateral held as security, our credit ~~risk~~extension and collateral policies, our credit analysis and the repayment history on advances, ~~and~~we have not recorded an allowance ~~methodology~~ for credit ~~losses.~~losses on advances.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Note 86 - Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio consist substantially of residential loans acquired from our members through the MPP and participating interests purchased in 2012 - 2014 from the FHLBank of Topeka in residential loans that were originated by certain of its PFIs through their participation in the MPF Program offered by the FHLBank of Chicago.MPP. The ~~MPP and MPF Program~~mortgage loans are ~~fixed rate~~fixed-rate and either credit enhanced by PFIs, if conventional, or guaranteed or insured by government agencies.

The following tables present information on mortgage loans held for portfolio by term and type.


Term	December 31, 2022		December 31, 2021
Fixed-rate long-term mortgages	$	6,676,752	$	6,417,543
Fixed-rate medium-term (1) mortgages	856,446		1,016,851
Total mortgage loans held for portfolio, UPB	7,533,198		7,434,394
Unamortized premiums	168,593		181,172
Unamortized discounts	(9,466)		(2,389)

Hedging basis adjustments, net	(5,670)		3,157
Total mortgage loans held for portfolio	7,686,655		7,616,334
Allowance for credit losses	(200)		(200)
Total mortgage loans held for portfolio, net (2)	$	7,686,455	$	7,616,134

Term December 31, 2017 December 31, 2016
Fixed-rate long-term mortgages $ 8,989,545
$ 8,086,412
Fixed-rate medium-term ⁽¹⁾ mortgages
1,134,303
1,206,978
Total mortgage loans held for portfolio, UPB 10,123,848

9,293,390
Unamortized premiums 234,519
210,116
Unamortized discounts (2,426 ) (2,383 )
Fair-value hedging adjustments 1,250
1,124
Allowance for loan losses (850 ) (850 )
Total mortgage loans held for portfolio, net $ 10,356,341

$ 9,501,397


⁽¹⁾	~~Defined as a term of~~ 15 ~~years or less at origination.~~

(1) Defined as a term of 15 years or less at origination.

Type December 31, 2017 December 31, 2016
Conventional $ 9,701,600
$ 8,796,407
Government -guaranteed or -insured 422,248
496,983
Total mortgage loans held for portfolio, UPB $ 10,123,848
$ 9,293,390
(2) Excludes accrued interest receivable at December 31, 2022 and 2021 of $30,396 and $27,977, respectively.


Type	December 31, 2022		December 31, 2021
Conventional	$	7,383,168	$	7,254,056
Government-guaranteed or -insured	150,030		180,338
Total mortgage loans held for portfolio, UPB	$	7,533,198	$	7,434,394

~~In December 2016, we agreed~~

Conventional MPP.Our management of credit risk considers the several layers of loss protection that are defined in our agreements with the PFIs. Our loss protection consists of the following loss layers, in order of priority, (i) borrower equity; (ii) PMI up to ~~sell~~coverage limits (when applicable for the acquisition of mortgages with an initial LTV ratio of over 80% at the time of purchase); (iii) available funds remaining in the LRA; and (iv) SMI coverage (as applicable) purchased by the seller from a ~~90% participating interest in a $100 million MCC of certain newly acquired MPP loans~~third-party provider naming the Bank as the beneficiary, up to the ~~FHLBank of Atlanta. Principal amounts settled in December 2016 totaled $72 million, and~~policy limits. Any losses not absorbed by the ~~remaining $18 million settled in January 2017.~~loss protection are borne by the Bank.

~~See~~ ~~Note 9 - Allowance for Credit Losses~~ ~~for information related to our credit risk on mortgage loans and allowance methodology for loan losses.~~

~~Note 9 - Allowance for Credit Losses~~

We have established a methodology to determine the allowance for credit losses for each of our portfolio segments: credit products (advances, letters of credit, and other extensions of credit to members); term securities purchased under agreements to resell and term federal funds sold; government-guaranteed or -insured mortgage loans held for portfolio; and conventional mortgage loans held for portfolio.

~~Credit Products~~. We manage our exposure to credit products through an integrated approach that generally includes establishing a credit limit for each borrower, and an ongoing review of each borrower's financial condition, coupled with conservative collateral/lending policies to limit the risk of loss while balancing the borrower's needs for a reliable source of funding. In addition, we lend to eligible borrowers in accordance with federal statutes and Finance Agency regulations. Specifically, we comply with the Bank Act, which requires us to obtain sufficient collateral to fully secure credit products. We evaluate and update our collateral guidelines, as necessary, based on current market conditions.

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

We accept certain investment securities, residential mortgage loans, deposits, and other real estate-related assets as collateral. In addition, certain members that qualify as CFIs are eligible to utilize expanded statutory collateral provisions for small business and agriculture loans. Under the Bank Act, our members' capital stock in our Bank serves as additional security. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance; borrowing capacity; and overall credit exposure to the borrower. To ensure that we are sufficiently protected, we evaluate and determine whether a member may retain physical possession of its collateral that is pledged to us or must specifically deliver the collateral to us or our safekeeping agent. We perfect our security interest in all pledged collateral and we can also require additional or substitute collateral to protect our security interest.

We determine the estimated value of the collateral required to secure each member's credit products by applying collateral discounts, or haircuts, to the market value or UPB of the collateral, as applicable. Using a risk-based approach, we consider the amount and quality of the collateral pledged and the borrower's financial condition to be the primary indicators of credit quality on the borrower's credit products. At December 31, 2017 and 2016, we had rights to collateral on a borrower-by-borrower basis with an estimated value in excess of our outstanding extensions of credit.

At December 31, 2017 and 2016, we did not have any credit products that were past due, on non-accrual status, or considered impaired. In addition, there were no TDRs related to credit products during the years ended December 31, 2017, 2016, or 2015.

Based upon the collateral held as security, our credit extension and collateral policies, our credit analysis and the repayment history on credit products, we have not recorded any allowance for credit losses on credit products, and no liability was recorded to reflect an allowance for credit losses for off-balance sheet credit exposures. For additional information about off-balance sheet credit exposure, see ~~Note 20 - Commitments and Contingencies~~.

~~Term Securities Purchased Under Agreements to Resell and Term Federal Funds Sold.~~ These assets generally have maturities ranging from 1 to 270 days. Given their short-term nature and the credit quality of the counterparties, credit risk is minimal and, as such, we have not established an allowance for credit losses for these products.

Government-Guaranteed or -Insured MortgageLoans.~~We invest in~~These fixed-rate mortgage loans ~~that~~ are guaranteed or insured by the FHA, Department of Veterans Affairs, Rural Housing Service of the Department of Agriculture, or ~~HUD.~~United States Department of Housing and Urban Development. The servicer provides and maintains a guaranty or insurance from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guaranty or insurance with respect to defaulted government-guaranteed or -insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer or guarantor are absorbed by the servicers. ~~Therefore, we did not establish an allowance for credit losses for government-guaranteed or -insured mortgage loans at~~ ~~December 31, 2017~~ or ~~2016~~.

~~Conventional Mortgage Loans.~~ We invest in conventional mortgage loans primarily through the MPP. Additionally, we hold participating interests in conventional mortgage loans that were originated by PFIs of the FHLBank of Topeka through the MPF Program.

~~Conventional MPP.~~Our management of credit risk considers the several layers of loss protection that are defined in our agreements with the PFIs. Our loss protection consists of the following loss layers, in order of priority, (i) borrower equity; (ii) ~~PMI up to coverage limits (when applicable for the acquisition of mortgages with an initial LTV ratio of over~~ ~~80%~~ at the time of purchase); (iii) available funds remaining in the LRA; and (iv) SMI coverage (as applicable) purchased by the seller from a third-party provider naming the Bank as the beneficiary, up to the policy limits. ~~Any losses not absorbed by the loss protection are borne by the Bank.~~

For conventional mortgage loans under our original MPP, credit enhancement is provided through allocating a portion of the periodic interest payments on the loans into an LRA. In addition, the PFI selling conventional loans to us is required to purchase SMI, paid through periodic interest payments, as an enhancement to cover credit losses over and above those covered by the LRA, but the covered losses are limited to the terms of the policy.

~~Beginning with MPP Advantage, we discontinued the use of SMI for all loan purchases and replaced it with a fixed LRA. The fixed LRA is funded with a portion of each loan's purchase proceeds.~~

~~114~~

111

Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

~~The LRA~~Credit Quality Indicators for Conventional Mortgage Loans and Other Delinquency Statistics.Payment status is ~~segregated by pools of~~the key credit quality indicator for conventional mortgage loans and ~~used~~allows us to ~~cover losses in a pool beyond~~monitor the migration of past due loans. Past due loans are those ~~covered by an individual loan's PMI (as applicable), but is limited~~where the borrower has failed to ~~covering losses~~make timely payments of ~~that specific pool only. Any excess funds are ultimately distributed to the member~~principal and/or interest in accordance with ~~a step-down schedule that is established upon execution of an MCC, subject to performance~~the terms of the ~~related pool.~~loan. Other delinquency statistics include non-accrual loans and loans in process of foreclosure.

The ~~following table presents~~tables below present the ~~activity~~key credit quality indicators and other delinquency statistics for our mortgage loans held for portfolio aggregated by (i) the most recent five origination years and (ii) all other prior origination years. Amounts are based on amortized cost, which excludes accrued interest receivable.


	December 31, 2022
	Origination Year
Payment Status	Prior to 2018		2018 to 2022		Total
Past due:
30-59 days	$	17,892	$	13,041	$	30,933
60-89 days	4,537		1,992		6,529
90 days or more	9,498		2,979		12,477
Total past due	31,927		18,012		49,939
Total current	2,422,623		5,062,416		7,485,039
Total conventional mortgage loans, amortized cost	$	2,454,550	$	5,080,428	$	7,534,978


	December 31, 2021
	Origination Year
Payment Status	Prior to 2017		2017 to 2021		Total
Past due:
30-59 days	$	16,968	$	12,662	$	29,630
60-89 days	4,175		1,767		5,942
90 days or more	18,599		11,206		29,805
Total past due	39,742		25,635		65,377
Total current	2,447,420		4,921,101		7,368,521
Total conventional mortgage loans, amortized cost (1)	$	2,487,162	$	4,946,736	$	7,433,898

112

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)


	December 31, 2022
Other Delinquency Statistics	Conventional			Government			Total
In process of foreclosure (1)	$	1,655		$	—		$	1,655
Serious delinquency rate (2)	0.16		%	1.07		%	0.18		%
Past due 90 days or more still accruing interest (3)	$	6,283		$	1,552		$	7,835
On non-accrual status (4)	$	10,984		$	—		$	10,984


	December 31, 2021
Other Delinquency Statistics	Conventional			Government			Total
In process of foreclosure (1)	$	1,999		$	—		$	1,999
Serious delinquency rate (2)	0.40		%	0.86		%	0.41		%
Past due 90 days or more still accruing interest (3)	$	15,725		$	1,364		$	17,089
On non-accrual status (4)	$	23,487		$	—		$	23,487

(1) Includes loans for which the decision of foreclosure or similar alternative, such as pursuit of deed-in-lieu of foreclosure, has been reported. Loans in process of foreclosure are included in past due categories depending on their delinquency status, but are not necessarily considered to be on non-accrual status.

(2) Represents loans 90 days or more past due (including loans in process of foreclosure) expressed as a percentage of the total mortgage loans. The percentage excludes principal and interest amounts previously paid in full by the servicers on conventional loans that are pending resolution of potential loss claims. Our servicers repurchase seriously delinquent government loans, including FHA loans, when certain criteria are met.

(3) Although our past due scheduled/scheduled MPP loans are classified as loans past due 90 days or more based on the loan's delinquency status, we do not consider these loans to be on non-accrual status as they are well-secured and in the ~~LRA, which is reported in other liabilities.~~process of collection.

LRA Activity 2017 2016 2015
Liability, beginning of year $ 125,683
$ 91,552
$ 61,949
Additions 25,350
36,341
31,573
Claims paid (617 ) (1,054 ) (1,576 )
Distributions to PFIs (1,701 ) (1,156 ) (394 )
Liability, end of year $ 148,715
$ 125,683
$ 91,552

~~We determine our~~(4) As of December 31, 2022 and 2021, of these conventional mortgage loans on non-accrual status, $3,160 and $11,701, respectively, of UPB did not have a related allowance for ~~loan~~credit losses ~~based~~because these loans were either previously charged off to the expected recoverable value and/or the fair value of the underlying collateral, including any credit enhancements, exceeded the amortized cost of the loans.

Allowance for Credit Losses. We apply a systematic approach for estimating expected credit losses on our ~~best~~conventional mortgage loans over their estimated remaining lives through analyses that include, among other considerations, various loan portfolio and collateral-related characteristics, past loan performance, historical and current economic conditions, and reasonable and supportable forecasts of expected economic conditions.

We estimate ~~of probable~~expected losses ~~over~~on our conventional mortgage loans on a collective basis, pooling loans with similar risk characteristics. If a mortgage loan no longer shares risk characteristics with other loans, it is removed from the ~~loss emergence period. We use the~~pool and evaluated for expected losses on an individual basis. In addition, we individually evaluate all troubled debt restructurings, any remaining exposure to delinquent conventional MPP ~~portfolio's delinquency migration (movement of~~ loans paid in full by servicers, and collateral-dependent loans. Loans are considered collateral-dependent when a borrower is experiencing financial difficulty and repayment is expected to be substantially through the ~~various stages~~sale of ~~delinquency) to determine whether~~the underlying collateral. We estimate expected losses on collateral-dependent loans by applying a practical expedient that considers the expected loss ~~event is probable. Once~~of a ~~loss event is deemed~~collateral-dependent loan to be ~~probable, we utilize a systematic methodology that incorporates all credit enhancements~~equal to the difference between the amortized cost of the loan and ~~servicer advances to establish~~the estimated fair value of the collateral, less estimated selling costs.

When determining the allowance for ~~loan losses. Although~~credit losses, we ~~do not reserve for any estimated~~consider how credit enhancements are expected to mitigate credit losses ~~that would be recovered from~~and then reduce the allowance accordingly because the credit enhancements ~~as part of the estimate of the recoverable credit enhancements, we evaluate the recovery and collectability of amounts under our PMI/SMI policies.~~

~~Conventional MPF Program.Our management of credit risk~~are entered into in the MPF Program considers the several layers of loss protection that are defined in agreements among the FHLBank of Topeka and its PFIs. The availability of loss protection may differ slightly among MPF products. The loss layers, in order of priority, are (i) borrower equity; (ii) PMI, (~~when applicable for~~conjunction with the purchase of ~~mortgages with an initial LTV ratio~~a loan and cannot be both legally detached and separately exercised.

113

Table of ~~over~~ ~~80%~~ ~~at the time of purchase)~~; (iii) FLA, which represents the first layer or portion of credit losses that we absorb after the borrower's equity, PMI, and recoverable CE fees; and (iv) the CE Obligation of a PFI, which absorbs lossesContents

Notes to Financial Statements, continued

($ amounts in excess of the FLA in order to limit our loss exposure to that of an investor in an MBS deemed to be investment-grade. Any losses not absorbed by the loss protection are shared among the participating FHLBanks based upon the applicable percentage of participation.thousands unless otherwise indicated)

PFIs retain a portion of the credit risk on the loans they sell by providing credit enhancement through a direct liability to pay credit losses up to a specified amount. PFIs are paid a CE fee for assuming credit risk and, in some instances, all or a portion of the CE fee may be performance-based. To the extent the Bank is responsible for losses in a pool, it may be able to recapture CE fees paid to that PFI to offset those losses. All CE fees are paid monthly based on the remaining UPB of the loans in a pool.

The allowance for MPF Program conventional loans is determined by analyzing the portfolio's delinquency migration and charge-offs over a historical period to determine the probability of default and loss severity rates. The analysis of conventional loans evaluated for impairment (i) considers loan pool-specific attribute data; (ii) applies estimated default probabilities and loss severities; and (iii) incorporates the applicable credit enhancements in order to determine our best estimate of probable losses.

Collectively Evaluated Mortgage Loans.

~~MPP.~~ ~~For performing conventional~~ Conventional loans current to 179 days past due ~~and~~are collectively evaluated ~~for impairment, we use~~at the pool level using a recognized third-party credit and prepayment model, which considers both historical and current information and events and reasonable and supportable forecasts that rely upon certain key inputs and assumptions, to estimate potential ranges of credit loss ~~exposure. The loss projection~~exposure over the estimated lives of the loans. One such key input is a 3-year forecast of housing prices with a 2-year gradual transition to full reversion to historical inputs after 5 years. Additionally, the evaluation is based upon distinct underlying loan characteristics, including loan vintage (year of origination), geographic location, credit support features and other factors, and a projected migration of loans through the various stages of delinquency.

~~For~~Seriously delinquent conventional loans ~~past due~~ 180 days or more past due and not charged-off are also collectively evaluated ~~for impairment, we evaluate~~at the ~~pools~~pool level based on ~~current~~loan-specific attribution data, including the use of loan-level property values from a third-party.

Individually Evaluated Mortgage Loans.Certain conventional mortgage loans, primarily troubled debt restructurings, are specifically identified and ~~historical information and events. This loan loss analysis incorporates third-party modeled values and considers MPP pool-specific attribute data, estimated liquidation values~~evaluated for purposes of ~~real estate collateral held, estimated costs associated with maintaining and disposing of the collateral, and credit enhancements.~~

~~115~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~MPF Program.~~ ~~Our loan loss analysis includes collectively evaluating conventional loans for impairment within each pool. The measurement of~~determining the allowance for ~~loan losses consists of (i) evaluating homogeneous pools of current and delinquent mortgage loans; and (ii) estimating~~ credit losses in the pool based upon the default probability ratios, loss severity rates, FLAs and CE obligations. Additional analyses include consideration of various data observations such as past performance, current performance, loan portfolio characteristics, collateral-related characteristics, industry data and prevailing economic conditions.

~~Individually Evaluated Mortgage Loans.~~

losses. The measurement of our allowance for ~~loans~~ individually evaluated ~~for loss~~loans considers loan-specific attribution data similar to homogeneous pools of delinquent loans evaluated on a collective basis, including the use of loan-level property values from a third-party.

We also individually evaluate any remaining exposure to delinquent MPP conventional loans paid in full by the servicers. An estimate of the loss, if any, is equal to the estimated cost associated with maintaining and disposing of the property (which includes the UPB, interest owed on the delinquent loan to date, and estimated costs associated with disposing of the collateral) less the estimated fair value of the collateral (net of estimated selling costs) and the amount of credit enhancements including the PMI, LRA and SMI. The estimated fair value of the collateral is obtained from ~~HUD~~United States Department of Housing and Urban Development statements, sales listings or other evidence of current expected liquidation amounts.

~~Individually Evaluated Impaired Loans.~~ The tables below present the conventional loans individually evaluated for impairment with and without an allowance for loan losses. Due to the minimal change in terms of modified loans (i.e., no principal forgiven), our pre-modification recorded investment in TDRs was not materially different than the post-modification recorded investment.

December 31, 2017 December 31, 2016

Individually Evaluated
Impaired Loans
Recorded Investment UPB Related Allowance for Loan Losses Recorded Investment UPB Related Allowance for Loan Losses
MPP conventional loans without allowance for loan losses⁽¹⁾
$ 13,261
$ 13,343
$ —
$ 15,158
$ 15,219
$ —
MPP conventional loans with allowance for loan losses 1,270
1,272
54
349
358
30
Total $ 14,531
$ 14,615
$ 54
$ 15,507
$ 15,577
$ 30


⁽¹⁾	No allowance for loan losses was recorded on these impaired loans after consideration of the underlying loan-specific attribute data, estimated liquidation value of real estate collateral held, estimated costs associated with maintaining and disposing of the collateral, and credit enhancements.

Years Ended December 31,
2017 2016 2015

Individually Evaluated Impaired Loans
Average Recorded Investment
Interest
Income Recognized
Average Recorded Investment
Interest
Income Recognized
Average Recorded Investment Interest Income Recognized
MPP conventional loans without allowance for loan losses $ 14,011
$ 675
$ 16,623
$ 758
$ 17,967
$ 872
MPP conventional loans with allowance for loan losses 1,259
69
353
39
881
105
Total $ 15,270
$ 744
$ 16,976
$ 797
$ 18,848
$ 977

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~~Table of Contents~~

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

~~Credit Quality Indicators.~~ ~~The tables below present the key credit quality indicators for our mortgage loans held for portfolio.~~

Delinquency Status as of December 31, 2017 Conventional Government Total
Past due:
30-59 days $ 63,670
$ 11,848
$ 75,518
60-89 days 9,944
2,121
12,065
90 days or more 19,576
2,555
22,131
Total past due 93,190
16,524
109,714
Total current 9,878,030
412,869
10,290,899
Total mortgage loans, recorded investment ⁽¹⁾
$ 9,971,220
$ 429,393
$ 10,400,613

Delinquency Status as of December 31, 2016
Past due:
30-59 days $ 46,118
$ 17,183
$ 63,301
60-89 days 11,044
3,548
14,592
90 days or more 29,098
2,350
31,448
Total past due 86,260
23,081
109,341
Total current 8,949,441
482,316
9,431,757
Total mortgage loans, recorded investment ⁽¹⁾
$ 9,035,701
$ 505,397
$ 9,541,098

Other Delinquency Statistics as of December 31, 2017 Conventional Government Total
In process of foreclosure⁽²⁾
$ 11,081
$ —
$ 11,081
Serious delinquency rate ⁽³⁾
0.20 % 0.59 % 0.21 %
Past due 90 days or more still accruing interest ⁽⁴⁾
$ 16,603
$ 2,555
$ 19,158
On non-accrual status $ 3,464
$ —
$ 3,464

Other Delinquency Statistics as of December 31, 2016
In process of foreclosure⁽²⁾
$ 17,749
$ —
$ 17,749
Serious delinquency rate ⁽³⁾
0.32 % 0.46 % 0.33 %
Past due 90 days or more still accruing interest ⁽⁴⁾
$ 25,375
$ 2,350
$ 27,725
On non-accrual status $ 4,699
$ —
$ 4,699


⁽¹⁾	The recorded investment in a loan is the UPB of the loan, adjusted for accrued interest, net of any deferred loan fees or costs, unamortized premiums or discounts (which may include the basis adjustment related to any gain or loss on a delivery commitment prior to being funded) and direct charge-offs. The recorded investment is not net of any valuation allowance.


⁽²⁾	Includes loans for which the decision of foreclosure or similar alternative, such as pursuit of deed-in-lieu of foreclosure, has been reported. Loans in process of foreclosure are included in past due categories depending on their delinquency status, but are not necessarily considered to be on non-accrual status.

⁽³⁾

Represents loans 90 days or more past due (including loans in process of foreclosure) expressed as a percentage of the total recorded investment in mortgage loans. The percentage excludes principal and interest amounts previously paid in full by the servicers on conventional loans that are pending resolution of potential loss claims. Our servicers repurchase seriously delinquent government loans, including FHA loans, when certain criteria are met.


⁽⁴⁾	Although our past due scheduled/scheduled MPP loans are classified as loans past due 90 days or more based on the mortgagor's payment status, we do not consider these loans to be on non-accrual status.

Qualitative Factors.We also assess multiple qualitative factors in ~~the~~our estimation of ~~loan~~credit losses. These factors represent a subjective management judgment based on facts and circumstances that exist as of the reporting date that isare not ascribed to any specific measurable economic or credit event and ~~is intended to address other inherent losses that~~therefore may not otherwise be captured in our methodology.

Rollforward of Allowance for Credit Losses. The table below presents a rollforward of our allowance for credit losses.


Rollforward of Allowance	2022		2021		2020
Balance, beginning of year	$	200	$	350	$	300
Charge-offs	(11)		(81)		(140)
Recoveries	85		39		50
Provision for (reversal of) credit losses	(74)		(108)		140
Balance, end of year	$	200	$	200	$	350

Government-Guaranteed or -Insured Mortgage Loans. Based on the U.S. government guarantee or insurance on these loans, our assessment of our servicers, and the collateral backing the loans, we did not record an allowance for credit losses for government-guaranteed or -insured mortgage loans at December 31, 2022 or 2021. Furthermore, none of these mortgage loans have been placed on non-accrual status due to the U.S. government guarantee or insurance on these loans and the contractual obligation of the loan servicer to repurchase the loans when certain criteria are met.

~~117~~

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

~~Allowance for Loan Losses on Mortgage Loans.~~ Our loan loss analysis also compares, or benchmarks, our estimated losses, after credit enhancements, to actual losses occurring in the portfolio. As a result of our methodology, our allowance for loan losses reflects our best estimate of the probable losses in our original MPP, MPP Advantage, and MPF Program portfolios.

~~The following table presents the components of the allowance for loan losses, including the credit enhancement waterfall for MPP.~~

Components of Allowance December 31,
2017 December 31,
2016
MPP estimated incurred losses remaining after borrower's equity, before credit enhancements ⁽¹⁾
$ 5,360
$ 8,689
Portion of estimated incurred losses recoverable from credit enhancements:
PMI (995 ) (1,981 )
LRA⁽²⁾
(1,262 ) (2,418 )
SMI (2,383 ) (3,590 )
Total portion recoverable from credit enhancements (4,640 ) (7,989 )
Allowance for unrecoverable PMI/SMI 30
50
Allowance for MPP loan losses 750
750
Allowance for MPF Program loan losses 100
100
Total allowance for loan losses $ 850
$ 850


⁽¹⁾	~~Based on a loss emergence period of 24 months.~~


⁽²⁾	Amounts recoverable are limited to (i) the estimated losses remaining after borrower's equity and PMI and (ii) the remaining balance in each pool's portion of the LRA. The remainder of the total LRA balance is available to cover any losses not yet incurred and to distribute any excess funds to the PFIs.

The tables below present a rollforward of our allowance for loan losses, the allowance for loan losses by impairment methodology, and the recorded investment in mortgage loans by impairment methodology.

Rollforward of Allowance for Loan Losses 2017 2016 2015
Balance, beginning of year $ 850
$ 1,125
$ 2,500
Charge-offs (647 ) (857 ) (1,168 )
Recoveries 596
627
249
Provision for (reversal of) loan losses 51
(45 ) (456 )
Balance, end of year $ 850
$ 850
$ 1,125

Allowance for Loan Losses by Impairment Methodology December 31, 2017 December 31, 2016
Conventional loans collectively evaluated for impairment $ 652
$ 750
Conventional loans individually evaluated for impairment ⁽¹⁾
198
100
Total allowance for loan losses $ 850
$ 850

Recorded Investment by Impairment Methodology December 31, 2017 December 31, 2016
Conventional loans collectively evaluated for impairment $ 9,956,689
$ 9,020,194
Conventional loans individually evaluated for impairment ⁽¹⁾
14,531
15,507
Total recorded investment in conventional loans $ 9,971,220
$ 9,035,701

⁽¹⁾

~~The recorded investment in our MPP conventional loans individually evaluated for impairment excludes principal previously paid in full by the servicers as of~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~of $2,498 and~~ ~~$2,814~~, respectively, that remains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. However, the MPP allowance for loan losses as of December 31, 2017 and 2016 includes $144 and ~~$70, respectively, for these potential claims.~~

~~118~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

Note 107 - Premises, Software and Equipment

The following table presents ~~information on~~the types of our premises, software and equipment.


Type	December 31, 2017			December 31, 2016			Type	December 31, 2022		December 31, 2021
Premises	$	15,242		$	14,958		Premises	$	14,768	$	15,674
Computer software	38,559			38,497			Computer software	51,601		49,886
Data processing equipment	8,846			7,505			Data processing equipment	6,539		5,354
Furniture and equipment	4,539			3,920			Furniture and equipment	5,064		5,946
Other	563			513			Other	675		640
Premises, software and equipment, in service	67,749			65,393			Premises, software and equipment, in service	78,647		77,500
Accumulated depreciation and amortization	(36,085		)	(30,121		)	Accumulated depreciation and amortization	(54,068)		(48,420)
Premises, software and equipment, in service, net	31,664			35,272			Premises, software and equipment, in service, net	24,579		29,080
Capitalized assets in progress	5,131			2,366			Capitalized assets in progress	2,726		1,491
Premises, software and equipment, net	$	36,795		$	37,638		Premises, software and equipment, net	$	27,305	$	30,571

~~For the years ended~~ ~~December 31, 2017~~, ~~2016, and~~ ~~2015, the~~The depreciation and amortization expense for premises, software and equipment for the years ended December 31, 2022, 2021, and 2020 was ~~$5,965,~~ ~~$5,820~~,$8,182, $7,833, and ~~$5,461~~,$7,198, respectively, including amortization of computer software costs of ~~$4,276,~~ ~~$4,055~~,$5,935, $5,547, and ~~$3,633~~,$5,315, respectively.

Note 118 - Derivatives and Hedging Activities

Nature of Business Activity. We are exposed to interest-rate risk primarily from the effect of changes in market interest rates on our interest-earning assets and on our interest-bearing liabilities that finance those assets. The goal of our interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, we have established policies and procedures, which include guidelines on the ~~amount~~extent of exposure to changes in interest ~~rate changes~~rates that we are willing to accept. In addition, we monitor the risk to our interest income, net interest margin and average maturity of interest-earning assets and interest-bearing liabilities.

Consistent with Finance Agency regulation, we enter into derivatives to (i) manage the interest-rate risk exposures inherent in our otherwise unhedged assets and funding positions, (ii) achieve our risk management objectives, and (iii) act as an intermediary between our members and counterparties. Finance Agency regulation and our Capital Markets Policy prohibit trading in, or the speculative use of, these derivative instruments and limit credit risk arising from these instruments. However, the use of derivatives is an integral part of our financial management strategy.

We use derivative financial instruments when they are ~~considered to be~~ the most cost-effective alternative to achieve our financial and risk management objectives. The most common ways in which we use derivatives are to:

•reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;

•protect the value of existing asset and liability positions or of commitments and forecasted transactions;

•mitigate the adverse earnings effects of the shortening or extension of the duration of certain assets (e.g., advances or mortgage assets) and liabilities;

•reduce funding costs by executing a derivative concurrently with the issuance of a consolidated obligation as the cost of a combined funding structure can be lower than the cost of a comparable CO bond;

~~reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;~~

•preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., CO bond used to fund advance);

~~mitigate the adverse earnings effects of the shortening or extension of the duration of certain assets (e.g., advances or mortgage assets) and liabilities;~~

~~protect the value of existing asset and liability positions or of commitments and forecasted transactions;~~

•manage embedded options in assets and liabilities; and

•manage our overall asset/liability structure.

We reevaluate our hedging strategies from time to time and, consequently, we may adopt new strategies or change our hedging techniques. However, Finance Agency regulation and our risk management policies prohibit trading in, or the speculative use of, these derivative instruments and limit credit risk arising from these instruments.

~~119~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

We transact most of our derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. We are not a derivatives dealer and thus do not trade derivatives for short-term profit. ~~Over-the-counter derivative~~Derivative transactions may be either executed with a counterparty over-the-counter (uncleared derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent) with a ~~clearinghouse~~Clearinghouse (cleared derivatives). Once a derivative transaction has been accepted for clearing by a ~~clearinghouse,~~Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced ~~with~~by the ~~clearinghouse.~~Clearinghouse.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Types of Derivatives. We use the following types of derivative ~~instruments~~instruments.

Interest-Rate Swaps. We use interest-rate swaps to ~~reduce funding costs and to manage our exposure to interest-rate risks inherent~~hedge the risk of changes in the ~~normal course~~fair value of ~~business.~~

~~Interest-Rate Swaps.~~ ~~An interest-rate swap is an agreement between two entities~~certain of our assets and liabilities due to ~~exchange cash flows~~changes in the future. The agreement sets forth the manner in which the cash flows will be determined and the dates on which they will be paid. One of the simplest forms of interest-rate swap involves the promise by one party to pay cash flows equivalent to themarket interest on a notional amount at a predetermined fixed rate for a given period of time. In return for this promise, the party receives cash flows equivalent to the interest on the same notional amount at a variable-rate index for the same period of time.rates. The variable rate we receive or pay in most interest-rate swaps is currently indexed to ~~LIBOR.~~LIBOR, EFFR, or SOFR.

Interest-Rate Cap and Floor Agreements. In an interest-rate cap agreement, a cash flow is generated if the price or rate of an underlying variable rises above a certain threshold (or "cap") price. In an interest-rate floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold (or "floor") price. Caps may be used in conjunction with liabilities, We use caps and floors ~~may be used in conjunction with assets. Caps and floors are designed~~ to protect against ~~the~~ interest ~~rate~~rates on a variable-rate ~~asset~~assets or ~~liability~~liabilities falling below or rising above a certain ~~level.~~levels.

Interest-Rate Swaptions. ~~A swaption is an option on a swap that gives the buyer the right, but not the obligation,~~ We utilize payer or receiver swaptions to enter into a specified interest-rate swap with the following agreed upon terms with the seller: option premium, time until expiration, fixed vs. floating rates, and notional amount. When used as a hedge, a swaption can protect the buyer against sudden adverse moves in interest rates. To protect against the adverse effects of a sudden ~~decrease~~increases or decreases in interest rates, ~~a receiver swaption may be utilized in which the buyer has the option~~respectively.

Forward Contracts. We normally sell TBA MBS or other derivatives for forward settlement to ~~enter into a swap to receive the fixed rate and pay the floating rate. To~~ protect against changes in the ~~adverse effects~~market values of ~~a sudden increase~~fixed-rate MDCs resulting from changes in market interest ~~rates, a payer swaption may be utilized in which the buyer has the option to enter into a swap to pay the fixed rate and receive the floating rate.~~rates.

~~Forward Contracts.~~Forward contracts give the buyer the right to buy or sell a specific type of asset at a specific time at a given price. We may use forward contracts in order to hedge interest-rate risk. For example, certain MDCs entered into by us are considered derivatives. We may hedge these MDCs by selling TBAs for forward settlement.

Types of Hedged Items. We document at inception all relationships between the derivatives designated as hedging instruments and the hedged items, our risk management objectives and strategies for undertaking various hedge transactions, and our method of assessing effectiveness. This process includes linking all derivatives that are designated as fair-value hedges to (i) assets and liabilities on the statements of condition, or (ii) firm commitments. We also formally assess (both at the hedge's inception and at least quarterly), using regression analyses, whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value of the hedged items attributable to the hedged risk and whether those derivatives may be expected to remain effective in future periods. We have the following types of hedged items:

Investments.We primarily invest in ~~agency~~Agency MBS, U.S. Treasury obligations, and GSE and TVA debentures, which may be classified as trading, HTM or AFS securities. The interest-rate, prepayment and ~~prepayment~~duration risks associated with these investment securities are managed through a combination of debt issuance and derivatives. We may manage ~~the prepayment, interest-rate and duration~~those risks by funding these investment securities with ~~consolidated obligations~~CO bonds that contain call ~~features or by hedging~~features. We may also hedge the prepayment risk with caps or floors, callable swaps or swaptions. We may ~~also~~ manage the risk and volatility arising from changing market prices of investment securities by matching the cash ~~outflow~~outflows on the derivatives with the cash ~~inflow~~inflows on the investment securities. ~~On occasion, we may hold~~Certain of these derivatives ~~that are associated with HTM securities and~~qualify as fair-value hedges while others are designated as economic hedges. ~~Derivatives associated with AFS securities may qualify as a fair-value hedge or be designated as an economic hedge.~~

~~120~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

Advances.We offer a wide range of ~~fixed~~fixed- and ~~variable-rate~~adjustable-rate advance products with ~~different~~various maturities, interest rates, payment characteristics, and optionality. We may use derivatives to manage the repricing and/or options characteristics of advances in order to more closely match the characteristics of our funding liabilities. In general, whenever a member executes a fixed-rate advance or an adjustable-rate advance with embedded options, we may simultaneously execute a derivative with terms that offset the terms and embedded options in the advance. For example, we may hedge a fixed-rate advance with an interest-rate swap where we pay a ~~fixed-rate~~fixed rate and receive a ~~variable-rate~~variable rate, effectively converting the fixed-rate advance to an adjustable-rate advance. This type of hedge is typically treated as a fair-value hedge. In addition, we may hedge a callable, prepayable or putable advance by entering into a cancellable interest-rate swap.

Mortgage Loans.We invest in fixed-rate mortgage loans. The prepayment options embedded in these mortgage loans can result in extensions or contractions in the expected repayment of these loans, depending on changes in prepayment speeds. We manage the interest-rate and prepayment risks associated with mortgage loans through a combination of debt issuance and derivatives. We issue both callable and noncallable debt and prepayment-linked consolidated obligations to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. Interest-rate swaps, to the extent the payments on the mortgages loans result in a simultaneous reduction of the notional amount of the swaps, may ~~qualify for fair-value hedge accounting.~~

~~We may also~~ purchase interest-rate caps and floors, swaptions, callable swaps, calls, and puts to minimize the prepayment risk embedded in the loans. ~~Although these~~These derivatives are ~~valid~~considered economic hedges against the prepayment risk of the loans, but they are not specifically linked to individual ~~loans and, therefore, do not qualify for fair-value hedge accounting. These derivatives are marked to market value through earnings.~~loans.

Consolidated Obligations.We may enter into derivatives to hedge the interest-rate risk associated with our debt ~~issues.~~issuances. We manage the risk and volatility arising from changing market prices of a consolidated ~~obligation~~obligations by matching the cash ~~inflow~~inflows on the ~~derivative~~derivatives with the cash ~~outflow~~outflows on the consolidated ~~obligation.~~obligations.

In a typical transaction, we issue a fixed-rate consolidated obligation and simultaneously enter into a matching derivative in which the counterparty pays fixed cash flows to us designed to match in timing and amount the cash outflows we pay on the consolidated obligation. In turn, we pay a variable cash flow to the counterparty that closely matches the interest payments we receive on short-term or variable-rate ~~advances (typically one- or three-month LIBOR).~~advances. These transactions are typically treated as fair-value hedges. Additionally, we may issue variable-rate CO bonds indexed to ~~LIBOR,~~SOFR or the United States prime ~~rate, or federal funds~~ rate and simultaneously execute interest-rate swaps to hedge the basis risk of the variable-rate debt.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Firm Commitments.In connection with our purchases of mortgage loans, we enter into MDCs. Certain MDCs entered into by us are considered derivatives. ~~We normally hedge these commitments by selling TBA MBS or other derivatives for forward settlement.~~ The MDC and the TBA used in the firm commitment hedging strategy are treated as an economic hedge and are marked to ~~market~~fair value through earnings. When the MDC ~~derivative~~ settles, the current ~~market~~fair value of the commitment is included with the basis of the mortgage loan and amortized accordingly.

Managing Credit Risk on Derivatives. We are subject to credit risk due to the risk of nonperformance by the counterparties to our derivative transactions. We manage counterparty credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in our policies, ~~CFTC~~the United States Commodity Futures Trading Commission regulations, and Finance Agency regulations. ~~See~~ ~~Note 19 - Estimated Fair Values~~ for discussion regarding our fair value methodology for derivative assets and liabilities, including an evaluation of the potential for the estimated fair value of these instruments to be affected by counterparty credit risk.

Uncleared Derivatives. For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. We require collateral agreements with our uncleared derivatives. The exposure thresholds above which collateral must be delivered vary; the threshold is zero in ~~some~~most cases. Additionally, collateral related to derivatives with member institutions includes collateral assigned to us as evidenced by a written security agreement and held by the member institution for our benefit.

~~121~~

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~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

For certain of our uncleared derivatives, we have credit support agreements that contain provisions requiring us to post additional collateral with our counterparties if there is deterioration in our credit rating. If our credit rating is lowered by an NRSRO, we could be required to deliver additional collateral on uncleared derivative instruments in net liability positions. ~~The aggregate estimated fair value of all~~There were no uncleared derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest on cash collateral) at December 31, 2017 was $644, for which we have posted collateral, including accrued interest, with an estimated fair value of $34 in the normal course of business. In addition, we held other derivative instruments in a net liability position of $49 that are not subject to credit support agreements containing credit-risk related contingent features. If our credit rating had been lowered by an NRSRO (from an S&P equivalent of AA+ to AA), we would not have been required to deliver additional collateral to our uncleared derivative counterparties at December 31, 2017.2022.

Cleared Derivatives. For cleared derivatives, the ~~clearinghouse~~Clearinghouse is our counterparty. We use ~~LCH~~LCH.Clearnet LLC and CME Clearing as ~~clearinghouses~~Clearinghouses for all cleared derivative transactions. Collateral is required to be posted daily for changes in the value of cleared derivatives to mitigate each counterparty's credit risk. The ~~clearinghouse~~Clearinghouse notifies the clearing agent of the required initial and variation margin, and the clearing agent notifies us. The requirement that we post initial and variation margin through the clearing agent for the benefit of the ~~clearinghouse~~Clearinghouse exposes us to institutional credit risk in the event that the clearing agent or ~~clearinghouse~~Clearinghouse fails to meet its obligations.

~~Effective January 3, 2017, CME made certain amendments to its rulebook, including changing the legal characterization of~~At both Clearinghouses, initial margin is considered cash collateral and variation margin ~~payments to be daily settled contracts, rather than cash collateral. Variation margin payments related to LCH contracts were~~is characterized as ~~cash collateral until January 16, 2018, when LCH changed the characterization of variation margin payments to be~~a daily ~~settled contracts, consistent with CME. Initial margin continues to be considered by both clearinghouses as cash collateral.~~settlement payment.

The ~~clearinghouse~~Clearinghouse determines margin requirements which are generally not based on credit ratings. However, clearing agents may require additional margin to be posted by us based on credit considerations, including but not limited to any credit rating downgrades. At December 31, ~~2017,~~2022, we were not required by our clearing agents to post any additional margin.

~~122~~

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Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Financial Statement Effect and Additional Financial Information.

~~Derivative Notional Amounts~~.The notional amount of derivatives serves as a factor in determining periodic interest payments, or cash flows received and paid. The notional amount of derivatives also reflects the extent of our involvement in the various classes of financial instruments but represents neither the actual amounts exchanged nor our overall exposure to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged and any offsets between the derivatives and the ~~items being hedged.~~ hedged items.

We record derivative instruments, related cash collateral received or pledged/posted and associated accrued interest on a net basis, by clearing agent and/or by counterparty when the netting requirements have been met.

The following table presents the notional amount and estimated fair value of derivative assets and liabilities.


	December 31, 2022						December 31, 2021
	Notional		Derivative		Derivative		Notional		Derivative		Derivative
	Amount		Assets		Liabilities		Amount		Assets		Liabilities
Derivatives designated as hedging instruments:
Interest-rate swaps	$	66,103,220	$	919,089	$	2,178,897	$	46,395,451	$	105,446	$	413,324

Derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	6,200,000		599		525		8,595,000		357		148

Interest-rate caps/floors	611,000		1,310		—		625,500		1,077		—
Interest-rate forwards	30,200		131		—		98,200		1		199
MDCs	30,855		50		102		96,424		45		105
Total derivatives not designated as hedging instruments	6,872,055		2,090		627		9,415,124		1,480		452
Total derivatives before adjustments	$	72,975,275	921,179		2,179,524		$	55,810,575	106,926		413,776
Netting adjustments and cash collateral (1)			(486,758)		(2,160,315)				113,276		(401,591)
Total derivatives, net			$	434,421	$	19,209			$	220,202	$	12,185

(1) Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty. Cash collateral pledged to counterparties at December 31, 2022 and 2021, including accrued interest, totaled $1,854,876 and $515,761, respectively. Cash collateral received from counterparties and held at December 31, 2022 and 2021, including accrued interest, totaled $181,319 and $894, respectively. At December 31, 2022 and 2021, no securities were pledged as collateral.

118

Notional Estimated Fair Value Estimated Fair Value
Amount of of Derivative of Derivative
December 31, 2017 Derivatives Assets Liabilities
Derivatives designated as hedging instruments:
Interest-rate swaps $ 31,084,068
$ 298,625
$ 76,205
Total derivatives designated as hedging instruments 31,084,068
298,625
76,205
Derivatives not designated as hedging instruments:

Interest-rate swaps 1,026,778
1,187
734
Swaptions —
—
—
Interest-rate caps/floors 245,500
92
—
Interest-rate forwards 72,800
37
1
MDCs 70,831
73
48
Total derivatives not designated as hedging instruments 1,415,909
1,389
783
Total derivatives before adjustments $ 32,499,977
300,014
76,988
Netting adjustments⁽¹⁾

(150,868 ) (150,868 )
Cash collateral and variation margin for daily settled contracts ⁽¹⁾

(20,940 ) 76,598
Total derivatives, net
$ 128,206
$ 2,718

December 31, 2016
Derivatives designated as hedging instruments:
Interest-rate swaps $ 23,998,498
$ 230,705
$ 102,201
Total derivatives designated as hedging instruments 23,998,498
230,705
102,201
Derivatives not designated as hedging instruments:

Interest-rate swaps 901,344
1,430
31
Swaptions 350,000
2
50
Interest-rate caps/floors 364,500
322
2
Interest-rate forwards 99,100
339
352
MDCs 99,002
303
471
Total derivatives not designated as hedging instruments 1,813,946
2,396
906
Total derivatives before adjustments $ 25,812,444
233,101
103,107
Netting adjustments⁽¹⁾

(133,089 ) (133,089 )
Cash collateral ⁽¹⁾

34,836
55,207
Total derivatives, net
$ 134,848
$ 25,225

⁽¹⁾

Represents the application of the netting requirements that allow us to settle (i) positive and negative positions and (ii) cash collateral and related accrued interest held or placed, with the same clearing agent and/or counterparty (including fair value adjustments on derivatives for which variation margin payments are characterized as daily settled contracts). Cash collateral pledged to counterparties at December 31, 2017 and 2016 totaled $16,437 and $35,422, respectively. Cash collateral received from counterparties at December 31, 2017 and 2016 totaled $89,021 and $55,793, respectively. Variation margin for daily settled contracts totaled $24,954 at December 31, 2017.

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Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

The following table presents separately the estimated fair value of derivative instruments meeting and not meeting netting requirements, including the effect of the related ~~collateral received from or pledged~~collateral.


	December 31, 2022				December 31, 2021
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Derivative instruments meeting netting requirements:
Gross recognized amount
Uncleared	$	892,313	$	2,178,098	$	105,667	$	411,886
Cleared	28,685		1,324		1,213		1,586
Total gross recognized amount	920,998		2,179,422		106,880		413,472
Gross amounts of netting adjustments and cash collateral
Uncleared	(884,451)		(2,158,991)		(105,417)		(400,005)
Cleared	397,693		(1,324)		218,693		(1,586)
Total gross amounts of netting adjustments and cash collateral	(486,758)		(2,160,315)		113,276		(401,591)
Net amounts after netting adjustments and cash collateral
Uncleared	7,862		19,107		250		11,881
Cleared	426,378		—		219,906		—
Total net amounts after netting adjustments and cash collateral	434,240		19,107		220,156		11,881
Derivative instruments not meeting netting requirements (1)	181		102		46		304
Total derivatives, net, at estimated fair value	$	434,421	$	19,209	$	220,202	$	12,185

(1) Includes MDCs and certain interest-rate forwards.

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Notes to ~~counterparties~~Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

The following table presents the impact of qualifying fair-value hedging relationships on net interest income by hedged item, excluding any offsetting interest income/expense of the associated hedged items.


	Year Ended December 31, 2022
	Advances		AFS Securities		CO Bonds		Total
Net impact of fair-value hedging relationships on net interest income:
Net interest settlements on derivatives (1)	$	52,810	$	58,755	$	(136,188)	$	(24,623)


Net gains (losses) on derivatives (2)	725,919		432,904		(1,909,780)		(750,957)



Net gains (losses) on hedged items (3)	(731,398)		(502,643)		1,900,103		666,062
Net impact on net interest income	$	47,331	$	(10,984)	$	(145,865)	$	(109,518)

Total interest income (expense) recorded in the Statement of Income (4)	$	634,148	$	285,252	$	(712,038)	$	207,362



	Year Ended December 31, 2021
	Advances		AFS Securities		CO Bonds		Total
Net impact of fair-value hedging relationships on net interest income:
Net interest settlements on derivatives (1)	$	(183,075)	$	(110,510)	$	103,143	$	(190,442)


Net gains (losses) on derivatives (2)	425,804		303,349		(272,157)		456,996



Net gains (losses) on hedged items (3)	(429,900)		(321,097)		269,447		(481,550)
Net impact on net interest income	$	(187,171)	$	(128,258)	$	100,433	$	(214,996)

Total interest income (expense) recorded in the Statement of Income (4)	$	115,634	$	99,646	$	(206,429)	$	8,851



	Year Ended December 31, 2020
	Advances		AFS Securities		CO Bonds		Total
Net impact of fair-value hedging relationships on net interest income:
Net interest settlements on derivatives (1)	$	(135,342)	$	(109,907)	$	51,091	$	(194,158)


Net gains (losses) on derivatives (2)	(384,880)		(507,403)		21,467		(870,816)



Net gains (losses) on hedged items (3)	382,167		494,481		(13,617)		863,031
Net impact on net interest income	$	(138,055)	$	(122,829)	$	58,941	$	(201,943)

Total interest income (expense) recorded in the Statement of Income (4)	$	329,675	$	103,658	$	(461,953)	$	(28,620)

(1) Represents interest income/expense on derivatives in qualifying fair-value hedging relationships. Net interest settlements on derivatives that are not in qualifying fair-value hedging relationships are reported in other income.

(2)Includes increases (decreases) in estimated fair value and ~~variation margin for daily settled contracts.~~price alignment interest.

(3)Includes increases (decreases) in estimated fair value and amortization of net losses on ineffective and discontinued fair-value hedging relationships.

(4) For advances, AFS securities and CO bonds only.

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December 31, 2017 December 31, 2016
Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities
Derivative instruments meeting netting requirements:
Gross recognized amount
Uncleared $ 118,932
$ 27,491
$ 86,606
$ 45,449
Cleared 180,972
49,448
145,853
56,835
Total gross recognized amount 299,904
76,939
232,459
102,284
Gross amounts of netting adjustments, cash collateral and variation margin for daily settled contracts
Uncleared (113,842 ) (24,822 ) (76,255 ) (21,047 )
Cleared⁽¹⁾
(57,966 ) (49,448 ) (21,998 ) (56,835 )
Total gross amounts of netting adjustments, cash collateral and variation margin for daily settled contracts (171,808 ) (74,270 ) (98,253 ) (77,882 )
Net amounts after netting adjustments, cash collateral and variation margin for daily settled contracts
Uncleared 5,090
2,669
10,351
24,402
Cleared 123,006
—
123,855
—
Total net amounts after netting adjustments, cash collateral and variation margin for daily settled contracts 128,096
2,669
134,206
24,402
Derivative instruments not meeting netting requirements ⁽²⁾
110
49
642
823
Total derivatives, at estimated fair value $ 128,206
$ 2,718
$ 134,848
$ 25,225


⁽¹⁾ Notes to Financial Statements, continued ($ amounts in thousands unless otherwise indicated)	~~Variation margin for daily settled contracts totaled $24,954 at December 31, 2017.~~


⁽²⁾	~~Includes MDCs and certain interest-rate forwards.~~

The following table presents the components of net gains (losses) on derivatives ~~and hedging activities~~ reported in other ~~income (loss).~~income.


	Years Ended December 31,
Type of Hedge	2022		2021		2020
Net gain (loss) on derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	$	15,731	$	13,347	$	1,488
Swaptions	—		—		(324)
Interest-rate caps/floors	233		(36)		898
Interest-rate forwards	7,824		3,350		(13,377)
Net interest settlements (1)	33,391		(9,137)		(46,927)
MDCs	(8,750)		(3,840)		9,880
Net gains (losses) on derivatives in other income	$	48,429	$	3,684	$	(48,362)

(1) Relates to derivatives that are not in qualifying fair-value hedging relationships. The interest income/expense of the associated hedged items is recorded in net interest income.

The following table presents the amortized cost of, and the related cumulative basis adjustments on, hedged items in qualifying fair-value hedging relationships.


	December 31, 2022
	Advances		AFS Securities		CO Bonds
Amortized cost of hedged items (1)	$	20,766,832	$	12,189,776	$	28,717,246

Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)	$	(615,898)	$	(1,417,774)	$	(2,147,802)
For discontinued fair-value hedging relationships	39		317,888		—
Total cumulative fair-value hedging basis adjustments on hedged items	$	(615,859)	$	(1,099,886)	$	(2,147,802)


	December 31, 2021
	Advances		AFS Securities		CO Bonds
Amortized cost of hedged items (1)	$	17,374,515	$	9,007,993	$	20,902,714

Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)	$	178,543	$	(184,724)	$	(247,699)
For discontinued fair-value hedging relationships	572		390,923		—
Total cumulative fair-value hedging basis adjustments on hedged items	$	179,115	$	206,199	$	(247,699)

(1) Includes the amortized cost of the hedged items in active or discontinued fair-value hedging relationships.

(2) Includes effective and ineffective fair-value hedging relationships. Excludes any offsetting effect of the net estimated fair value of the associated derivatives.

121

Years Ended December 31,
Type of Hedge 2017 2016 2015
Net gain (loss) related to fair-value hedge ineffectiveness:
Interest-rate swaps $ (7,414 ) $ 4,488
$ 4,146
Total net gain (loss) related to fair-value hedge ineffectiveness (7,414 ) 4,488
4,146
Net gain (loss) on derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps 122
(196 ) 1,497
Swaptions (200 ) (290 ) —
Interest-rate caps/floors (228 ) 87
(251 )
Interest-rate forwards (1,728 ) (207 ) (3,372 )
Net interest settlements (416 ) (381 ) 392
MDCs 835
(1,229 ) 420
Total net gain (loss) on derivatives not designated as hedging instruments (1,615 ) (2,216 ) (1,314 )
Other ⁽¹⁾
(229 ) —
—
Net gains (losses) on derivatives and hedging activities $ (9,258 ) $ 2,272
$ 2,832


⁽¹⁾	~~Consists of price alignment amounts on derivatives for which variation margin payments are characterized as daily settled contracts.~~

~~124~~

Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

The following table presents, by type of hedged item, the gains (losses) on the derivatives and the related hedged items in fair-value hedging relationships and the effect of those derivatives on net interest income.

Gain (Loss) Gain (Loss) Net Fair- Effect on
on on Hedged Value Hedge Net Interest
Year Ended December 31, 2017 Derivative Item Ineffectiveness
Income ⁽¹⁾
Advances $ 61,439
$ (62,324 ) $ (885 ) $ (31,461 )
AFS securities 35,620
(39,843 ) (4,223 ) (48,144 )
CO bonds (46,299 ) 43,993
(2,306 ) 16,289
Total $ 50,760
$ (58,174 ) $ (7,414 )
$ (63,316 )

Year Ended December 31, 2016
Advances $ 118,029
$ (117,201 ) $ 828
$ (91,219 )
AFS securities 193,305
(194,083 ) (778 ) (94,018 )
CO bonds (30,252 ) 34,690
4,438
16,888
Total $ 281,082
$ (276,594 ) $ 4,488
$ (168,349 )

Year Ended December 31, 2015
Advances $ 22,761
$ (21,196 ) $ 1,565
$ (155,082 )
AFS securities 42,219
(46,145 ) (3,926 ) (98,063 )
CO bonds 1,696
4,811
6,507
56,976
Total $ 66,676
$ (62,530 ) $ 4,146

$ (196,169 )

⁽¹⁾

Includes the effect of derivatives in fair-value hedging relationships on net interest income that is recorded in the interest income/expense line item of the respective hedged items. Excludes the interest income/expense of the respective hedged items, which fully offsets the interest income/expense of the derivatives, except to the extent of any hedge ineffectiveness. Net interest settlements on derivatives that are not in fair-value hedging relationships are reported in other income (loss). These amounts do not include the effect of amortization/accretion related to fair value hedging activities.

Note 129 - ~~Deposits~~Deposit Liabilities

We offer demand and overnight deposits to members and qualifying non-members. In addition, we offer short-term interest-bearing deposit programs to members. A member that services mortgage loans may deposit funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans. We classify these items as other deposits.

Demand, overnight, and other deposits pay interest based on a daily interest rate. Time deposits pay interest based on a fixed rate determined at the origination of the deposit. ~~The WAIR paid on interest-bearing deposits was 0.86%, 0.12% and 0.01% during the years ended December 31, 2017, 2016 and 2015, respectively.~~

~~125~~

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

~~($ amounts in thousands unless otherwise indicated)~~

The following table presents the types of our interest-bearing and non-interest-bearing deposits.


Type	December 31, 2022		December 31, 2021
Interest-bearing:
Demand and overnight	$	571,971	$	1,363,988
Time	23,898		—
Other	38		903
Total interest-bearing	595,907		1,364,891
Non-interest-bearing:

Other (1)	—		1,506
Total non-interest-bearing	—		1,506
Total deposits	$	595,907	$	1,366,397

(1) Includes pass-through deposit reserves from members.

Type December 31,
2017 December 31,
2016
Interest-bearing:
Demand and overnight $ 513,150
$ 494,880
Time 50
50
Other 23
25
Total interest-bearing 513,223
494,955
Non-interest-bearing:

Other ⁽¹⁾
51,576
29,118
Total non-interest-bearing 51,576
29,118
Total deposits $ 564,799
$ 524,073


⁽¹⁾	~~Includes pass-through deposit reserves from members.~~

Note 1310 - Consolidated Obligations

Consolidated obligations consist of CO bonds and discount notes. CO bonds may be issued to raise ~~short, intermediate~~short-, intermediate- and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Discount notes are issued primarily to raise short-term funds and have original maturities of up to one ~~year~~.year. These notes generally sell at less than their face amount and are redeemed at par value when they mature.

The FHLBanks issue consolidated obligations through the Office of Finance as ~~our~~their agent under the oversight of the Finance Agency and the United States Secretary of the Treasury. In connection with each debt issuance, each FHLBank specifies the amount of debt to be issued on its behalf. Each FHLBank records as a liability the specific portion of consolidated obligations issued on its behalf and for which it is the primary obligor.

In addition to being the primary obligor for all consolidated obligations issued on our behalf, we are jointly and severally liable with each of the other FHLBanks for the payment of the principal and interest on all ~~FHLBank outstanding~~of the FHLBanks' consolidated ~~obligations.~~obligations outstanding. The par values of the FHLBanks' ~~outstanding~~ consolidated obligations outstanding at December 31, ~~2017~~2022 and ~~2016~~2021 totaled ~~$1.0~~$1.2 trillionand $~~989.3~~$652.9 billion,, respectively. As provided by the Bank Act and ~~applicable~~Finance Agency regulations, consolidated obligations are backed only by the financial resources of all FHLBanks.

The Finance Agency, in its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation whether or not the consolidated obligation represents a primary liability of that FHLBank. Although an FHLBank has never paid the principal or interest payments due on a consolidated obligation on behalf of another FHLBank, if that event should occur, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement for any payments made on behalf of another FHLBank and other associated costs, including interest to be determined by the Finance Agency. If, however, the Finance Agency determines that such other FHLBank is unable to satisfy its repayment obligations to the paying FHLBank, then the Finance Agency may allocate the outstanding liability of such other FHLBank among the remaining FHLBanks on a pro-rata basis in proportion to their participation in all outstanding consolidated obligations, or in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner. We do not believe that it is probable that we will be asked or required to make principal or interest payments on behalf of another FHLBank.

122

Table of Contents

Notes to Financial Statements, continued

($ amounts in thousands unless otherwise indicated)

Discount Notes. The following table presents our discount notes outstanding, all of which are due within one year of issuance.


Discount Notes	December 31, 2017			December 31, 2016			Discount Notes	December 31, 2022			December 31, 2021
Book value	$	20,358,157		$	16,801,763		Book value	$	27,387,492		$	12,116,358
Par value	$	20,394,192		$	16,819,659		Par value	27,533,665			12,117,846

Weighted-average effective interest rate	1.22		%	0.51		%
Weighted average effective interest rate							Weighted average effective interest rate	4.16		%	0.05		%



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~~
					Page Number
			~~Glossary of~~Defined Terms		3
			Special Note Regarding Forward-Looking Statements		5
ITEM 1.			BUSINESS		6
			~~Operating Segments~~Background Information		76
			~~Funding Sources~~Membership		147
			Governance		7
			Operating Segments		8
			Funding Sources		14
			Use of Derivatives		15
			Competition		15
			Affordable Housing Programs, Community Investment and ~~Affordable Housing Programs~~Small Business Grants		1516
			~~Use of Derivatives~~Human Capital Resources		1617
			Supervision and Regulation		1618
			~~Membership~~Available Information		1820
ITEM 1A.			~~Competition~~RISK FACTORS		1821
ITEM 1B.			~~Employees~~UNRESOLVED STAFF COMMENTS		1832
ITEM 2.			~~Available Information~~PROPERTIES		1932
ITEM ~~1A.~~3.			~~RISK FACTORS~~LEGAL PROCEEDINGS		2032
ITEM ~~1B.~~4.			~~UNRESOLVED STAFF COMMENTS~~		~~None~~
~~ITEM 2.~~	~~PROPERTIES~~MINE SAFETY DISCLOSURES	2932
~~ITEM 3.~~			~~LEGAL PROCEEDINGS~~	29
~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~	~~N/A~~
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			2933
ITEM 6.			~~SELECTED FINANCIAL DATA~~RESERVED		3134
ITEM 7.			MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		3234
			Executive Summary		3234
			Results of Operations and Changes in Financial Condition		3437
			Operating Segments		4345
			Analysis of Financial Condition		4446
			Liquidity ~~and Capital Resources~~		5356
			~~Off-Balance Sheet Arrangements~~Capital Resources		58
			~~Contractual Obligations~~Critical Accounting Estimates		5862
			~~Critical Accounting Policies and Estimates~~		59
	Recent Accounting and Regulatory Developments	6364
			Risk Management		6466
ITEM 7A.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		78
ITEM 8.			FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		8486
ITEM 9.			CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		~~None~~ 144
ITEM 9A.			CONTROLS AND PROCEDURES		~~150~~144
ITEM 9B.			OTHER INFORMATION		~~None~~ 144
ITEM ~~10.~~9C.			DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS		144
ITEM 10.			DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		~~151~~145
ITEM 11.			EXECUTIVE COMPENSATION		~~161~~155
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


Variable Interest-Rate Index	December 31, 2022		December 31, 2021
SOFR	$	50,344	$	24,710
EFFR	14,016		14,718
LIBOR	8,554		16,188
Total variable rate, at notional	$	72,914	$	55,616


	December 31, 2022
	Advances		AFS Securities		CO Bonds		Total
Cumulative fair-value hedging basis adjustments on hedged items	$	(616)	$	(1,100)	$	2,148	$	432
Estimated fair value of associated derivatives, net	618		1,361		(2,160)		(181)

Net cumulative fair-value hedging basis adjustments	$	2	$	261	$	(12)	$	251



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;~~



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	%



	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	%



	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



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	)



	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	%



	December 31,
Components of Cash and Investments	2017		2016		2015
Cash and short-term investments:
Cash and due from banks	$	55	$	547	$	4,932
Interest-bearing deposits	660		150		—
Securities purchased under agreements to resell	2,606		1,781		—
Federal funds sold	1,280		1,650		—
Total cash and short-term investments	4,601		4,128		4,932

Investment securities:
AFS securities:
GSE and TVA debentures	4,404		4,715		3,481
GSE MBS	2,507		1,076		269
Private-label RMBS	218		269		319
Total AFS securities	7,129		6,060		4,069
HTM securities:
GSE debentures	—		—		100
Other U.S. obligations - guaranteed MBS	3,299		2,679		2,895
GSE MBS	2,553		3,082		3,268
Private-label RMBS and ABS	46		59		83
Total HTM securities	5,898		5,820		6,346
Total investment securities	13,027		11,880		10,415

Total cash and investments, carrying value	$	17,628	$	16,008	$	15,347



	December 31, 2017
Name of Issuer	Carrying Value		Estimated Fair Value
Non-MBS:
Fannie Mae debentures	$	1,621	$	1,621
Federal Farm Credit Bank debentures	1,906		1,906
Freddie Mac debentures	701		701
MBS:
Freddie Mac	1,191		1,206
Fannie Mae	3,869		3,876
Ginnie Mae	3,299		3,299
Subtotal	12,587		12,609
All other issuers	440		439
Total investment securities	$	13,027	$	13,048



	Years Ended December 31,
Category of Deposit	2017			2016			2015
Interest-bearing overnight deposits:
Average balance	$	125		$	176		$	291
Average rate paid	0.75		%	0.14		%	0.01		%
Interest-bearing demand deposits:
Average balance	$	379		$	415		$	414
Average rate paid	0.71		%	0.09		%	0.01		%



	Discount Notes									CO Bonds With Original Maturities of One Year or Less
Short-term Borrowings	2017			2016			2015			2017			2016			2015
Outstanding at year end	$	20,358		$	16,802		$	19,252		$	6,795		$	7,499		$	7,632
Weighted average rate at year end	1.22		%	0.51		%	0.31		%	1.26		%	0.66		%	0.28		%
Daily average outstanding for the year	$	20,116		$	16,129		$	12,617		$	6,315		$	8,656		$	8,484
Weighted average rate for the year	0.91		%	0.40		%	0.16		%	0.91		%	0.52		%	0.19		%
Highest outstanding at any month end	$	22,413		$	19,511		$	19,252		$	7,279		$	10,247		$	10,164


Reconciliation	December 31, 2022		December 31, 2021

Total GAAP capital	$	3,384	$	3,556
Exclude: AOCI	26		(133)
Add: MRCS	373		50
Total regulatory capital	$	3,783	$	3,473


	December 31, 2022		December 31, 2021
Liquidity deposit reserves	$	42,388	$	29,540
Less: total deposits	596		1,366
Excess liquidity deposit reserves	$	41,792	$	28,174


	December 31, 2022		December 31, 2021
Aggregate qualifying assets	$	71,747	$	59,662
Less: total consolidated obligations outstanding	67,270		54,478
Aggregate qualifying assets in excess of consolidated obligations	$	4,477	$	5,184

Ratio of aggregate qualifying assets to consolidated obligations	1.07		1.10



	December 31, 2017				December 31, 2016
By Type of Member Institution	Amount		% of Total		Amount		% of Total
Depository institutions:
Commercial banks and savings institutions	$	945	47	%	$	691	41	%
Credit unions	240		12	%	212		14	%
Total depository institutions	1,185		59	%	903		55	%
Insurance companies	673		33	%	590		35	%
CDFIs	—		—	%	—		—	%
Total capital stock, putable at par value	1,858		92	%	1,493		90	%

MRCS:
Captive insurance companies ⁽¹⁾	—		—	%	3		—	%
Captive insurance companies ⁽²⁾	152		7	%	152		9	%
Former members ⁽³⁾	12		1	%	15		1	%
Total MRCS	164		8	%	170		10	%

Total regulatory capital stock	$	2,022	100	%	$	1,663	100	%


	December 31, 2022				December 31, 2021
Type of Member	Amount		% of Total		Amount		% of Total
Capital Stock:
Depository institutions:
Commercial banks and savings institutions (2)	$	889	36	%	$	1,126	49	%
Credit unions	409		16	%	309		13	%
Total depository institutions	1,298		52	%	1,435		62	%
Insurance companies	825		33	%	811		35	%
CDFIs	—		—	%	—		—	%

Total capital stock, putable at par value	2,123		85	%	2,246		97	%

MRCS:
Captive insurance company (1)	10		—	%	12		1	%
Other former members (2)	363		15	%	38		2	%

Total MRCS	373		15	%	50		3	%

Total regulatory capital stock	$	2,496	100	%	$	2,296	100	%


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


⁽³⁾	Balances at December 31, 2017 and 2016 include $3 million and $6 million, respectively, of MRCS that had reached the end of the five-year redemption period but will not be redeemed until the associated credit products and other obligations are no longer outstanding.


◦	~~Credit risk~~ ◦Credit risk, which represents the sum of our credit risk charges for all assets, off-balance sheet items and derivative contracts, calculated using the methodologies and risk weights assigned to each classification ~~in the regulations;~~


◦	~~Market risk~~, which represents the sum of the market value of our portfolio at risk from movements in interest rates, foreign exchange rates, commodity prices, and equity prices that could occur during periods of market stress, and the amount by which the market value of total capital is less than 85% of the book value of total capital; and


◦	~~Operations risk, which represents 30% of the sum of our credit risk and market risk capital requirements.~~


Risk-Based Capital Components	December 31, 2017		December 31, 2016		Risk-Based Capital Components	December 31, 2022			December 31, 2021
Credit risk	$	360	$	346	Credit risk	$	203		$	155
Market risk	336		239		Market risk	173			684
Operations risk	208		176
Operational risk					Operational risk	113			252

Total risk-based capital requirement	$	904	$	761	Total risk-based capital requirement	$	489		$	1,091

Permanent capital	$	2,998	$	2,550	Permanent capital	$	3,782		$	3,473

Permanent capital as a percentage of required risk-based capital					Permanent capital as a percentage of required risk-based capital	773		%	318		%



Types	December 31, 2017
Letters of credit outstanding	$	224
Unused lines of credit ⁽¹⁾	1,084
Commitments to fund additional advances ⁽²⁾	4
Commitments to fund or purchase mortgage loans, net ⁽³⁾	71
Unsettled CO bonds, at par	28