UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2020~~2021

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

Commission File Number: 000-51404

FEDERAL HOME LOAN BANK OF INDIANAPOLIS

(Exact name of registrant as specified in its charter)


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)

(317) 465-0200

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

☐

Large accelerated filer

☐

Accelerated filer

☐

Emerging growth company

Non-accelerated Filer

☐

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes x No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


			Shares outstanding as of October 31, ~~2020~~2021
Class A Stock, par value $100			—
Class B Stock, par value $100			~~24,861,251~~22,965,620


Table of Contents		Page
		Number

	Special Note Regarding Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS (unaudited)

	Statements of Condition as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	4

	Statements of Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	5

	Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6

	Statements of Capital for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	7

	Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	9

	Notes to Financial Statements:
	Note 1 - Summary of Significant Accounting Policies	11
	Note 2 - Recently Adopted and Issued Accounting Guidance	1311
	Note 3 - Investments	1411
	Note 4 - Advances	1815
	Note 5 - Mortgage Loans Held for Portfolio	1916
	Note 6 - Derivatives and Hedging Activities	2319
	Note 7 - Consolidated Obligations	2824
	Note 8 - Affordable Housing Program	3026
	Note 9 - Capital	3026
	Note 10 - Accumulated Other Comprehensive Income	3328
	Note 11 - Segment Information	3430
	Note 12 - Estimated Fair Values	3531
	Note 13 - Commitments and Contingencies	3835
	Note 14 - Related Party and Other Transactions	3936

	Defined Terms	4037

Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Presentation	4239
	Executive Summary	4239
	Selected Financial Data	4541
	Results of Operations and Changes in Financial Condition	4642
	Operating Segments	5249
	Analysis of Financial Condition	5350
	Liquidity and Capital Resources	6157
	Off-Balance Sheet Arrangements	6459
	Critical Accounting Policies and Estimates	6459
	Recent Accounting and Regulatory Developments	6460
	Risk Management	6661
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	7164
Item 4.	CONTROLS AND PROCEDURES	7267

PART II.	OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	7267
Item 1A.	RISK FACTORS	7368
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7469
Item 3.	DEFAULTS UPON SENIOR SECURITIES	7469
Item 4.	MINE SAFETY DISCLOSURES	7469
Item 5.	OTHER INFORMATION	7469
Item 6.	EXHIBITS	7570

As used in this Form 10-Q, unless the context otherwise requires, the terms "we," "us," "our," and ~~the~~ "Bank" refer to the Federal Home Loan Bank of Indianapolis or its management. We use acronyms and terms throughout that are defined herein or in the Defined Terms in Part I Item 1.

Special Note Regarding Forward-Looking Statements

Statements in this Form 10-Q, including statements describing our objectives, projections, estimates or predictions, may be considered to be "forward-looking statements." These statements may use forward-looking terminology, such as "anticipates," "believes," "could," "estimates," "may," "should," "expects," "will," or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements involve risk or uncertainty and that actual results either could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following:

•economic and market conditions, including the timing and volume of market activity, inflation or deflation, changes in the value of global currencies, and changes in the financial condition of market participants;

•volatility of market prices, interest rates, and indices or the availability of suitable interest rate indices, or other factors, resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, including those determined by the ~~FRB~~Federal Reserve and the FDIC, or a decline in liquidity in the financial markets, that could affect the value of investments or collateral we hold as security for the obligations of our members and counterparties;

•changes in demand for our advances and purchases of mortgage loans resulting from:

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

◦changes in products or services we are able to provide;

◦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;

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

◦changes in the terms and conditions of ownership of our capital stock;

•changes in mortgage asset prepayment patterns, delinquency rates and housing values or improper or inadequate mortgage originations and mortgage servicing;

•ability to introduce and successfully manage new products and services, including new types of collateral securing advances;

•political events, including federal government shutdowns, administrative, legislative, regulatory, or other developments, ~~national or international health crises (such as the COVID-19 pandemic) and the responses of governments and financial markets to such crises,~~ changes in international political structures and alliances, and judicial rulings that affect us, our status as a secured creditor, our members (or certain classes of members), prospective members, counterparties, GSEs generally, one or more of the FHLBanks and/or investors in the consolidated obligations of the FHLBanks;

•national or international health crises, such as the COVID-19 pandemic, including any resurgence of the pandemic, new and evolving pandemic strains, and the effects of health crises on our and our counterparties' operations, member demand, market liquidity, and the global funding markets, and the governmental, regulatory, and fiscal interventions undertaken to stabilize local, national, and global economic conditions;

•ability to access the capital markets and raise capital market funding on acceptable terms;

•changes in our credit ratings or the credit ratings of the other FHLBanks and the FHLBank System;

•changes in the level of government guarantees provided to other United States and international financial institutions;

•dealer commitment to supporting the issuance of our consolidated obligations;

•ability of one or more of the FHLBanks to repay its portion of the consolidated obligations, or otherwise meet its financial obligations;

•ability to attract and retain skilled personnel;

•ability to develop, implement and support technology and information systems sufficient to manage our business effectively;

•nonperformance of counterparties to uncleared and cleared derivative transactions;

•changes in terms of derivative agreements and similar agreements;

•loss arising from natural disasters, acts of war, riots, insurrection or acts of terrorism;

•changes in or differing interpretations of accounting guidance; and

•other risk factors identified in our filings with the SEC.

Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, additional disclosures may be made through reports filed with the SEC in the future, including our Forms 10-K, 10-Q and 8-K.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Federal Home Loan Bank of Indianapolis

Statements of Condition

(Unaudited, $ amounts in thousands, except par value)

September 30, 2020 December 31, 2019
Assets:
Cash and due from banks $ 130,595 $ 220,294
Interest-bearing deposits (Note 3) 56,028 809,141
Securities purchased under agreements to resell (Note 3) 4,500,000 1,500,000
Federal funds sold (Note 3) 952,000 2,550,000
Trading securities (Note 3) 5,058,984 5,016,649
Available-for-sale securities, amortized cost of $10,266,677 and $8,394,665 (Note 3) 10,363,969 8,484,478
Held-to-maturity securities, net (estimated fair values of $4,296,287 and $5,216,206) (Note 3) 4,272,457 5,216,401
Advances (Note 4) 31,264,246 32,480,108
Mortgage loans held for portfolio, net (Note 5)
9,237,185 10,815,037
Accrued interest receivable 105,170 131,822
Premises, software, and equipment, net 35,126 36,549
Derivative assets, net (Note 6) 319,838 208,008
Other assets 46,064 42,288
Total assets $ 66,341,662 $ 67,510,775
Liabilities:

Deposits $ 1,299,227 $ 960,304
Consolidated obligations (Note 7):
Discount notes 19,461,386 17,676,793
Bonds 41,148,153 44,715,224
Total consolidated obligations, net 60,609,539 62,392,017
Accrued interest payable 64,322 178,981
Affordable Housing Program payable (Note 8) 34,581 38,084
Derivative liabilities, net (Note 6) 6,991 3,206
Mandatorily redeemable capital stock (Note 9) 262,454 322,902
Other liabilities 642,985 458,521
Total liabilities 62,920,099 64,354,015
Commitments and contingencies (Note 13)
Capital (Note 9):

Capital stock (putable at par value of $100 per share):
Class B issued and outstanding shares: 22,236,699 and 19,740,755, respectively 2,223,670 1,974,076
Retained earnings:
Unrestricted 861,455 864,454
Restricted 262,390 250,854
Total retained earnings 1,123,845 1,115,308
Total accumulated other comprehensive income (loss) (Note 10) 74,048 67,376
Total capital 3,421,563 3,156,760
Total liabilities and capital $ 66,341,662 $ 67,510,775


	September 30, 2021		December 31, 2020
Assets:
Cash and due from banks	$	1,953,744	$	1,811,544
Interest-bearing deposits (Note 3)	100,041		100,026
Securities purchased under agreements to resell (Note 3)	4,200,000		2,500,000
Federal funds sold (Note 3)	2,075,000		1,215,000
Trading securities (Note 3)	4,858,818		5,094,703
Available-for-sale securities, amortized cost of $9,141,491 and $10,007,978 (Note 3)	9,319,579		10,144,899
Held-to-maturity securities (estimated fair values of $4,510,359 and $4,723,796) (Note 3)	4,496,595		4,701,302
Advances (Note 4)	26,958,039		31,347,486
Mortgage loans held for portfolio, net (Note 5)	7,570,462		8,515,645
Accrued interest receivable	75,813		103,076
Premises, software, and equipment, net	31,541		33,993
Derivative assets, net (Note 6)	231,280		283,082
Other assets	89,482		74,000

Total assets	$	61,960,394	$	65,924,756

Liabilities:
Deposits	$	1,736,009	$	1,375,206
Consolidated obligations (Note 7):
Discount notes	12,713,890		16,617,079
Bonds	43,225,386		43,332,946
Total consolidated obligations, net	55,939,276		59,950,025
Accrued interest payable	64,042		63,581
Affordable Housing Program payable (Note 8)	30,466		34,402
Derivative liabilities, net (Note 6)	18,542		22,979
Mandatorily redeemable capital stock (Note 9)	50,442		250,768
Other liabilities	570,382		777,493

Total liabilities	58,409,159		62,474,454

Commitments and contingencies (Note 13)	0		0

Capital (Note 9):
Capital stock (putable at par value of $100 per share):
Class B issued and outstanding shares: 22,364,922 and 22,075,696, respectively	2,236,492		2,207,570
Retained earnings:
Unrestricted	881,456		868,904
Restricted	281,820		268,426
Total retained earnings	1,163,276		1,137,330
Total accumulated other comprehensive income (Note 10)	151,467		105,402

Total capital	3,551,235		3,450,302

Total liabilities and capital	$	61,960,394	$	65,924,756

The accompanying notes are an integral part of these financial statements.

Federal Home Loan Bank of Indianapolis

Statements of Income

(Unaudited, $ amounts in thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Interest Income:
Advances $ 45,084 $ 207,226 $ 291,030 $ 641,126
Interest-bearing deposits 364 6,923 5,396 16,610
Securities purchased under agreements to resell 820 24,212 10,879 69,872
Federal funds sold 542 10,163 10,155 50,678
Trading securities 22,335 18,441 71,651 31,896
Available-for-sale securities 22,539 48,360 72,682 154,627
Held-to-maturity securities 11,201 36,388 60,147 116,245
Mortgage loans held for portfolio 48,268 87,741 189,496 277,440
Total interest income 151,153 439,454 711,436 1,358,494
Interest Expense:
Consolidated obligation discount notes 10,967 110,286 111,056 368,799
Consolidated obligation bonds 77,398 271,639 398,449 803,497
Deposits 32 3,655 2,821 10,170
Mandatorily redeemable capital stock 2,037 3,514 7,777 8,585
Other interest expense 0 36 0 36
Total interest expense 90,434 389,130 520,103 1,191,087
Net interest income 60,719 50,324 191,333 167,407
Provision for (reversal of) credit losses 124 (180) 172 (166)
Net interest income after provision for credit losses 60,595 50,504 191,161 167,573
Other Income:
Net realized gains from sale of available-for-sale securities 504 0 504 0
Net gains (losses) on trading securities (19,331) 5,601 1,975 26,257
Net losses on derivatives and hedging activities (297) (3,612) (52,124) (21,399)
Service fees 128 186 425 581
Standby letters of credit fees 188 201 506 503
Other, net 1,931 410 1,911 3,328
Total other income (loss) (16,877) 2,786 (46,803) 9,270
Other Expenses:
Compensation and benefits 14,519 12,698 44,156 40,255
Other operating expenses 7,847 7,925 22,881 21,045
Federal Housing Finance Agency 1,181 1,012 3,516 3,009
Office of Finance 1,293 1,370 3,604 3,515
Other 2,053 1,154 5,244 3,526
Total other expenses 26,893 24,159 79,401 71,350
Income before assessments 16,825 29,131 64,957 105,493
Affordable Housing Program assessments 1,886 3,265 7,273 11,408
Net income $ 14,939 $ 25,866 $ 57,684 $ 94,085


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest Income:
Advances	$	20,432	$	45,084	$	84,716	$	291,030
Interest-bearing deposits	136		364		413		5,396
Securities purchased under agreements to resell	540		820		1,192		10,879
Federal funds sold	728		542		2,182		10,155
Trading securities	10,473		22,335		41,064		71,651
Available-for-sale securities	22,477		22,539		73,497		72,682
Held-to-maturity securities	7,694		11,201		25,367		60,147
Mortgage loans held for portfolio	44,111		48,268		124,512		189,496

Total interest income	106,591		151,153		352,943		711,436

Interest Expense:
Consolidated obligation discount notes	1,675		10,967		7,607		111,056
Consolidated obligation bonds	46,601		77,398		153,071		398,449
Deposits	42		32		122		2,821
Mandatorily redeemable capital stock	312		2,037		2,345		7,777

Total interest expense	48,630		90,434		163,145		520,103

Net interest income	57,961		60,719		189,798		191,333
Provision for (reversal of) credit losses	(16)		124		28		172

Net interest income after provision for credit losses	57,977		60,595		189,770		191,161

Other Income:




Net gains (losses) on trading securities	(8,207)		(19,331)		(35,566)		1,975
Net realized gains from sale of available-for-sale securities	—		504		—		504
Net gains (losses) on derivatives	(1,361)		(297)		(2,013)		(52,124)
Service fees	123		128		382		425
Standby letters of credit fees	189		188		614		506

Other, net	389		1,931		4,972		1,911
Total other income (loss)	(8,867)		(16,877)		(31,611)		(46,803)

Other Expenses:
Compensation and benefits	14,570		14,519		44,420		44,156
Other operating expenses	7,352		7,847		22,041		22,881
Federal Housing Finance Agency	1,473		1,181		4,420		3,516
Office of Finance	1,493		1,293		4,718		3,604
Other	2,030		2,053		7,887		5,244
Total other expenses	26,918		26,893		83,486		79,401

Income before assessments	22,192		16,825		74,673		64,957

Affordable Housing Program assessments	2,250		1,886		7,702		7,273

Net income	$	19,942	$	14,939	$	66,971	$	57,684

The accompanying notes are an integral part of these financial statements.

Federal Home Loan Bank of Indianapolis

Statements of Comprehensive Income

(Unaudited, $ amounts in thousands)

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
Net income $ 14,939 $ 25,866 $ 57,684 $ 94,085
Other Comprehensive Income:
Net change in unrealized gains (losses) on available-for-sale securities 77,290 (2,139) 7,479 16,842
Pension benefits, net 867 486 (807) (2,882)
Total other comprehensive income (loss) 78,157 (1,653) 6,672 13,960
Total comprehensive income $ 93,096 $ 24,213 $ 64,356 $ 108,045


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

Net income	$	19,942	$	14,939	$	66,971	$	57,684

Other Comprehensive Income:

Net change in unrealized gains (losses) on available-for-sale securities	(36,864)		77,290		41,167		7,479



















Pension benefits, net	(5,093)		867		4,898		(807)

Total other comprehensive income (loss)	(41,957)		78,157		46,065		6,672

Total comprehensive income (loss)	$	(22,015)	$	93,096	$	113,036	$	64,356

The accompanying notes are an integral part of these financial statements.

Federal Home Loan Bank of Indianapolis

Statements of Capital

Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited, $ amounts and shares in thousands)

Capital Stock Retained Earnings Accumulated
Other
Comprehensive
Income (Loss)
Total
Capital
Shares Par Value Unrestricted Restricted Total
Balance, June 30, 2020 21,943 $ 2,194,319 $ 868,328 $ 259,403 $ 1,127,731 $ (4,109) $ 3,317,941
Total comprehensive income 11,952 2,987 14,939 78,157 93,096
Proceeds from issuance of capital stock 305 30,432 30,432
Redemption/repurchase of capital stock (6) (585) (585)
Shares reclassified to mandatorily redeemable capital stock, net (5) (496) (496)
Cash dividends on capital stock
(3.50% annualized)
(18,825) — (18,825) (18,825)
Balance, September 30, 2020 22,237 $ 2,223,670 $ 861,455 $ 262,390 $ 1,123,845 $ 74,048 $ 3,421,563
Balance, June 30, 2019 20,485 $ 2,048,523 $ 856,911 $ 236,142 $ 1,093,053 $ 57,300 $ 3,198,876
Total comprehensive income 20,692 5,174 25,866 (1,653) 24,213
Proceeds from issuance of capital stock 398 39,796 39,796
Shares reclassified to mandatorily redeemable capital stock, net (1,489) (148,870) (148,870)
Cash dividends on capital stock
(5.50% annualized)
(28,339) — (28,339) (28,339)
Balance, September 30, 2019 19,394 $ 1,939,449 $ 849,264 $ 241,316 $ 1,090,580 $ 55,647 $ 3,085,676



	Capital Stock			Retained Earnings						Accumulated Other Comprehensive Income		Total Capital
	Shares	Par Value		Unrestricted		Restricted		Total

Balance, June 30, 2021	22,339	$	2,233,916	$	878,581	$	277,832	$	1,156,413	$	193,424	$	3,583,753

Total comprehensive income (loss)				15,954		3,988		19,942		(41,957)		(22,015)

Proceeds from issuance of capital stock	183	18,302										18,302

Redemption/repurchase of capital stock	(113)	(11,277)										(11,277)

Shares reclassified to mandatorily redeemable capital stock, net	(44)	(4,449)										(4,449)





Cash dividends on capital stock (2.35% annualized)				(13,079)		—		(13,079)				(13,079)

Balance, September 30, 2021	22,365	$	2,236,492	$	881,456	$	281,820	$	1,163,276	$	151,467	$	3,551,235


Balance, June 30, 2020	21,943	$	2,194,319	$	868,328	$	259,403	$	1,127,731	$	(4,109)	$	3,317,941

Total comprehensive income				11,952		2,987		14,939		78,157		93,096

Proceeds from issuance of capital stock	305	30,432										30,432

Redemption/repurchase of capital stock	(6)	(585)										(585)

Shares reclassified to mandatorily redeemable capital stock, net	(5)	(496)										(496)





Cash dividends on capital stock (3.50% annualized)				(18,825)		—		(18,825)				(18,825)

Balance, September 30, 2020	22,237	$	2,223,670	$	861,455	$	262,390	$	1,123,845	$	74,048	$	3,421,563

The accompanying notes are an integral part of these financial statements.

Federal Home Loan Bank of Indianapolis

Statements of Capital

Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited, $ amounts and shares in thousands)

Capital Stock Retained Earnings Accumulated
Other
Comprehensive
Income (Loss)
Total
Capital
Shares Par Value Unrestricted Restricted Total
Balance, December 31, 2019 19,741 $ 1,974,076 $ 864,454 $ 250,854 $ 1,115,308 $ 67,376 $ 3,156,760
Total comprehensive income (loss) 46,148 11,536 57,684 6,672 64,356
Proceeds from issuance of capital stock 2,640 264,022 264,022
Redemption/repurchase of capital stock (6) (585) (585)
Shares reclassified to mandatorily redeemable capital stock, net (138) (13,843) (13,843)
Partial recovery of prior capital distribution to Financing Corporation 10,574 — 10,574 10,574
Cash dividends on capital stock
(3.91% annualized)
(59,721) — (59,721) (59,721)
Balance, September 30, 2020 22,237 $ 2,223,670 $ 861,455 $ 262,390 $ 1,123,845 $ 74,048 $ 3,421,563
Balance, December 31, 2018 19,310 $ 1,930,952 $ 855,311 $ 222,499 $ 1,077,810 $ 41,687 $ 3,050,449
Total comprehensive income 75,268 18,817 94,085 13,960 108,045
Proceeds from issuance of capital stock 1,594 159,476 159,476
Shares reclassified to mandatorily redeemable capital stock, net (1,510) (150,979) (150,979)
Cash dividends on capital stock
(5.50% annualized)
(81,315) — (81,315) (81,315)
Balance, September 30, 2019 19,394 $ 1,939,449 $ 849,264 $ 241,316 $ 1,090,580 $ 55,647 $ 3,085,676


	Capital Stock			Retained Earnings						Accumulated Other Comprehensive Income		Total Capital
	Shares	Par Value		Unrestricted		Restricted		Total


Balance, December 31, 2020	22,076	$	2,207,570	$	868,904	$	268,426	$	1,137,330	$	105,402	$	3,450,302

Total comprehensive income				53,577		13,394		66,971		46,065		113,036

Proceeds from issuance of capital stock	449	44,929										44,929

Redemption/repurchase of capital stock	(113)	(11,277)										(11,277)

Shares reclassified to mandatorily redeemable capital stock, net	(47)	(4,730)										(4,730)





Cash dividends on capital stock (2.48% annualized)				(41,025)		—		(41,025)				(41,025)

Balance, September 30, 2021	22,365	$	2,236,492	$	881,456	$	281,820	$	1,163,276	$	151,467	$	3,551,235

Balance, December 31, 2019	19,741	$	1,974,076	$	864,454	$	250,854	$	1,115,308	$	67,376	$	3,156,760

Total comprehensive income				46,148		11,536		57,684		6,672		64,356

Proceeds from issuance of capital stock	2,640	264,022										264,022

Redemption/repurchase of capital stock	(6)	(585)										(585)

Shares reclassified to mandatorily redeemable capital stock, net	(138)	(13,843)										(13,843)

Partial recovery of prior capital distribution to Financing Corporation				10,574		—		10,574				10,574

Cash dividends on capital stock (3.91% annualized)				(59,721)		—		(59,721)				(59,721)

Balance, September 30, 2020	22,237	$	2,223,670	$	861,455	$	262,390	$	1,123,845	$	74,048	$	3,421,563

The accompanying notes are an integral part of these financial statements.

Federal Home Loan Bank of Indianapolis

Statements of Cash Flows

(Unaudited, $ amounts in thousands)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Operating Activities:	Operating Activities:					Operating Activities:
Net income	Net income	$	57,684	$	94,085	Net income	$	66,971	$	57,684
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization and depreciation	Amortization and depreciation	53,918		61,251		Amortization and depreciation	61,766		53,918

Changes in net derivative and hedging activities	Changes in net derivative and hedging activities	(470,940)		(348,291)		Changes in net derivative and hedging activities	87,188		(470,940)

Provision for (reversal of) credit losses		172		(166)
Net gains on trading securities		(1,975)		(26,257)
Provision for credit losses						Provision for credit losses	28		172
Net losses (gains) on trading securities						Net losses (gains) on trading securities	35,566		(1,975)
Net realized gains from sale of available-for-sale securities	Net realized gains from sale of available-for-sale securities	(504)		0		Net realized gains from sale of available-for-sale securities	—		(504)

Changes in:	Changes in:					Changes in:
Accrued interest receivable	Accrued interest receivable	26,910		(8,667)		Accrued interest receivable	26,750		26,910
Other assets	Other assets	(1,670)		(736)		Other assets	(17,725)		(1,670)
Accrued interest payable	Accrued interest payable	(114,660)		(3,243)		Accrued interest payable	461		(114,660)
Other liabilities	Other liabilities	44,253		16,652		Other liabilities	19,697		44,253
Total adjustments, net	Total adjustments, net	(464,496)		(309,457)		Total adjustments, net	213,731		(464,496)

Net cash used in operating activities		(406,812)		(215,372)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	280,702		(406,812)

Investing Activities:	Investing Activities:					Investing Activities:
Net change in:	Net change in:					Net change in:
Interest-bearing deposits	Interest-bearing deposits	(34,408)		221,363		Interest-bearing deposits	492,551		(34,408)
Securities purchased under agreements to resell	Securities purchased under agreements to resell	(3,000,000)		(337,274)		Securities purchased under agreements to resell	(1,700,000)		(3,000,000)
Federal funds sold	Federal funds sold	1,598,000		1,670,000		Federal funds sold	(860,000)		1,598,000
Trading securities:	Trading securities:					Trading securities:
Proceeds from maturities	Proceeds from maturities	3,160,000		0		Proceeds from maturities	2,000,000		3,160,000
Proceeds from sales						Proceeds from sales	50,006		—
Purchases	Purchases	(3,200,361)		(4,385,044)		Purchases	(1,849,689)		(3,200,361)
Available-for-sale securities:	Available-for-sale securities:					Available-for-sale securities:
Proceeds from maturities	Proceeds from maturities	93,550		510,500		Proceeds from maturities	727,875		93,550
Proceeds from sales	Proceeds from sales	96,779		0		Proceeds from sales	—		96,779
Purchases	Purchases	(1,564,036)		(610,415)		Purchases	(140,093)		(1,564,036)
Held-to-maturity securities:	Held-to-maturity securities:					Held-to-maturity securities:
Proceeds from maturities	Proceeds from maturities	1,128,834		813,026		Proceeds from maturities	770,773		1,128,834

Purchases	Purchases	(125,019)		(109,369)		Purchases	(742,571)		(125,019)
Advances:	Advances:					Advances:
Principal repayments	Principal repayments	199,835,256		289,850,757		Principal repayments	193,228,613		199,835,256
Disbursements to members	Disbursements to members	(198,028,162)		(289,182,302)		Disbursements to members	(189,160,818)		(198,028,162)
Mortgage loans held for portfolio:	Mortgage loans held for portfolio:					Mortgage loans held for portfolio:
Principal collections	Principal collections	3,175,183		1,211,661		Principal collections	2,348,187		3,175,183
Purchases from members	Purchases from members	(1,509,048)		(876,635)		Purchases from members	(1,577,038)		(1,509,048)
Purchases of premises, software, and equipment	Purchases of premises, software, and equipment	(3,889)		(4,596)		Purchases of premises, software, and equipment	(3,375)		(3,889)
Loans to other Federal Home Loan Banks:	Loans to other Federal Home Loan Banks:					Loans to other Federal Home Loan Banks:
Principal repayments	Principal repayments	80,000		0		Principal repayments	30,000		80,000
Disbursements	Disbursements	(80,000)		0		Disbursements	(30,000)		(80,000)

Net cash provided by (used in) investing activities		1,622,679		(1,228,328)
Net cash provided by investing activities						Net cash provided by investing activities	3,584,421		1,622,679

(continued)

The accompanying notes are an integral part of these financial statements.

Federal Home Loan Bank of Indianapolis

Statements of Cash Flows, continued

(Unaudited, $ amounts in thousands)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Financing Activities:	Financing Activities:					Financing Activities:
Changes in deposits	Changes in deposits	338,552		128,515		Changes in deposits	360,803		338,552
Net payments on derivative contracts with financing elements	Net payments on derivative contracts with financing elements	(2,307)		185		Net payments on derivative contracts with financing elements	(11,629)		(2,307)
Net proceeds from issuance of consolidated obligations:	Net proceeds from issuance of consolidated obligations:					Net proceeds from issuance of consolidated obligations:
Discount notes	Discount notes	238,137,022		245,285,750		Discount notes	183,417,467		238,137,022
Bonds	Bonds	37,468,384		28,145,595		Bonds	33,114,188		37,468,384
Payments for matured and retired consolidated obligations:	Payments for matured and retired consolidated obligations:					Payments for matured and retired consolidated obligations:
Discount notes	Discount notes	(236,329,608)		(250,889,998)		Discount notes	(187,316,013)		(236,329,608)
Bonds	Bonds	(41,057,605)		(21,359,255)		Bonds	(33,075,310)		(41,057,605)
Loans from other Federal Home Loan Banks:
Proceeds from borrowings		0		250,000
Principal repayments		0		(250,000)

Proceeds from issuance of capital stock	Proceeds from issuance of capital stock	264,022		159,476		Proceeds from issuance of capital stock	44,929		264,022
Proceeds from issuance of mandatorily redeemable capital stock		0		3,704

Payments for redemption/repurchase of capital stock	Payments for redemption/repurchase of capital stock	(585)		0		Payments for redemption/repurchase of capital stock	(11,277)		(585)
Payments for redemption/repurchase of mandatorily redeemable capital stock	Payments for redemption/repurchase of mandatorily redeemable capital stock	(74,294)		(540)		Payments for redemption/repurchase of mandatorily redeemable capital stock	(205,056)		(74,294)
Partial recovery of prior capital distribution to Financing Corporation	Partial recovery of prior capital distribution to Financing Corporation	10,574		0		Partial recovery of prior capital distribution to Financing Corporation	—		10,574
Dividend payments on capital stock	Dividend payments on capital stock	(59,721)		(80,622)		Dividend payments on capital stock	(41,025)		(59,721)

Net cash provided by (used in) financing activities		(1,305,566)		1,392,810
Net cash used in financing activities						Net cash used in financing activities	(3,722,923)		(1,305,566)

Net decrease in cash and due from banks		(89,699)		(50,890)
Net increase (decrease) in cash and due from banks						Net increase (decrease) in cash and due from banks	142,200		(89,699)

Cash and due from banks at beginning of period	Cash and due from banks at beginning of period	220,294		100,735		Cash and due from banks at beginning of period	1,811,544		220,294

Cash and due from banks at end of period	Cash and due from banks at end of period	$	130,595	$	49,845	Cash and due from banks at end of period	$	1,953,744	$	130,595

Supplemental Disclosures:	Supplemental Disclosures:					Supplemental Disclosures:
Cash activities:	Cash activities:					Cash activities:
Interest payments	Interest payments	$	716,017	$	1,158,294	Interest payments	$	220,573	$	716,017
Affordable Housing Program payments	Affordable Housing Program payments	10,776		15,085		Affordable Housing Program payments	11,638		10,776
Non-cash activities:	Non-cash activities:					Non-cash activities:
Purchases of investment securities, traded but not yet settled	Purchases of investment securities, traded but not yet settled	65,000		54,609		Purchases of investment securities, traded but not yet settled	122,924		65,000
Capitalized interest on certain held-to-maturity securities	Capitalized interest on certain held-to-maturity securities	1,349		3,900		Capitalized interest on certain held-to-maturity securities	841		1,349
Par value of shares reclassified to mandatorily redeemable capital stock, net	Par value of shares reclassified to mandatorily redeemable capital stock, net	13,843		150,979		Par value of shares reclassified to mandatorily redeemable capital stock, net	4,730		13,843

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 1 - Summary of Significant Accounting Policies

Unless the context otherwise requires, the terms "we," "us," "our," and "Bank" refer to the Federal Home Loan Bank of Indianapolis or its management. We use acronyms and terms throughout these Notes to Financial Statements that are defined in the Defined Terms.

Basis of Presentation. The accompanying interim financial statements have been prepared in accordance with GAAP and SEC requirements for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. Certain disclosures that would have substantially duplicated the disclosures in the financial statements, and notes thereto, included in our ~~2019~~2020 Form 10-K have been omitted unless the information contained in those disclosures materially changed. Therefore, these interim financial statements should be read in conjunction with our audited financial statements, and notes thereto, included in our ~~2019~~2020 Form 10-K.

The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full calendar year or any other interim period.

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. Although the reported amounts and disclosures reflect our best estimates, actual results could differ significantly from these estimates. The most significant estimates pertain to derivatives and hedging activities, and the fair value of financial instruments.

Significant Accounting Policies. Our significant accounting policies and certain other disclosures are set forth in our ~~2019~~2020 Form 10-K in Note 1 - Summary of Significant Accounting Policies. ~~The adoption of ASU 2016-13,~~There have been no significant changes to these policies through ~~Measurement of Expected Credit Losses on Financial Instruments,~~ ~~resulted in the following revisions to our significant accounting policies.~~September 30, 2021.

~~Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold.~~These investments 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. We use the collateral maintenance provision practical expedient for securities purchased under agreements to resell. Consequently, a credit loss would be recognized if there is a collateral shortfall which we do not believe the counterparty will replenish in accordance with its 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. For more information on the allowance methodology related to these investments, see ~~Note 3 - Investments.~~

~~Investment Securities.~~

~~HTM Securities~~. HTM securities are evaluated quarterly for expected credit losses on a collective, or pooled, basis unless an individual assessment is deemed necessary, e.g. the securities do not possess similar risk characteristics. If deemed 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, which is measured separately. For more information on the allowance methodology related to these investments, see ~~Note 3 - Investments.~~

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

~~AFS Securities.~~ We individually evaluate our AFS securities for impairment on a quarterly basis. 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 contractually due. When a shortfall is considered possible, we compare the present value of cash flows to be collected from the security with its amortized cost. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses. The allowance is limited by the amount of the unrealized loss and excludes any uncollectible accrued interest receivable, which is measured separately.

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, any remaining difference between the security’s estimated fair value and 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 will be required to sell the security before recovery of its amortized cost basis, any allowance for credit losses is charged off and the amortized cost basis is written down to the security’s estimated fair value at the reporting date with any such impairment reported in earnings as net gains (losses) on investment securities. For more information on the allowance methodology related to these investments, see ~~Note 3 - Investments.~~

~~Advances.~~Our advances are evaluated quarterly on a collective, or pooled, basis unless an individual assessment is deemed necessary, e.g. the advances do not possess similar risk characteristics. If any credit losses are expected, 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, which is measured separately. For more information on the allowance methodology related to advances, see ~~Note 4 - Advances.~~

~~Mortgage Loans Held for Portfolio.~~On a quarterly basis, we apply a systematic approach for estimating the allowance for expected credit losses on our 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, current and historical economic conditions, and reasonable and supportable forecasts of expected economic conditions. An allowance for credit losses is recorded with a corresponding adjustment to the provision for credit losses.

We measure expected losses 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 pool and evaluated for expected losses on an individual basis. In addition, we individually evaluate all TDRs, any remaining exposure to delinquent conventional MPP loans paid in full by servicers, and collateral dependent loans. 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). The Bank estimates expected losses on collateral dependent loans by applying a practical expedient that considers the expected loss of a collateral dependent loan to be equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs.

~~When developing the allowance for credit losses, we consider how credit enhancements are expected to mitigate credit losses and reduce the allowance accordingly.~~

~~If a loan is purchased at a discount, the discount does not offset the allowance for credit losses.~~

~~The allowance excludes uncollectible accrued interest receivable, as we charge off accrued interest receivable by reversing interest income if a mortgage loan is placed on nonaccrual status.~~

~~For more information on the allowance methodology related to mortgage loans, see~~ ~~Note 5 - Mortgage Loans Held for Portfolio.~~

~~Off-Balance Sheet Credit Exposures.~~ We evaluate our off-balance sheet credit exposures on a quarterly basis for expected credit losses. If deemed necessary, an allowance for expected credit losses is recorded in other liabilities with a corresponding adjustment to the provision for credit losses. For more information about our off-balance sheet credit exposures, see ~~Note 13 - Commitments and Contingencies.~~

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

Note 2 - Recently Adopted and Issued Accounting Guidance

We did not adopt any new accounting guidance or elect to apply certain optional expedients prescribed by existing accounting guidance that are applicable and remain available in 2021. Further, the FASB has not issued any new and applicable accounting guidance since the filing of our 2020 Form 10-K. See Note 2 - Recently Adopted and Issued Accounting ~~Guidance.~~Guidancein our 2020 Form 10-K for additional detail.

Note 3 - Investments

Short-term Investments.

~~Measurement of Credit Losses on Financial Instruments (ASU 2016-13).~~ On June 16, 2016, the FASB issued guidance replacing the current incurred loss model. The guidance requires entities to measure expected credit losses based on consideration of a broad range of relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount of the financial instrument.

This guidance was effective for the interim and annual periods beginning on January 1, 2020 and was applied using a modified-retrospective method. In spite of the requirement to measure expected credit losses over the estimated life of our financial instruments, i.e.We invest in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold ~~investment securities, advances, and mortgage loans held for portfolio, the adoption~~to provide short-term liquidity. These investments are generally transacted with counterparties that maintain a credit rating of ~~this guidance had no effect on our allowance for credit losses given the specific terms, issuer guarantees, and/~~triple-B or ~~collateralized/secured nature of the instruments, and therefore 0 cumulative-effect adjustment was recorded to retained earnings as of January 1, 2020.~~

~~Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13).~~higher (investment grade) by an NRSRO. At September 30, 2021 ~~On August 28, 2018, the FASB issued guidance to update the disclosure requirements for fair value measurement. This guidance was issued as part of the FASB's disclosure framework project~~ and ~~is intended to improve disclosure effectiveness.~~

The guidance was effective for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance will allow us to eliminate an annual disclosure related to the process for determining the estimated fair value of Level 3 impaired mortgage loans held for portfolio, but had no effect on our financial condition, results of operations or cash flows.

~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15)~~. On August 29, 2018, the FASB issued guidance on implementation costs incurred in a hosting arrangement that is a service contract. The guidance aligns the requirements for capitalizing such costs with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.

This guidance was effective for the interim and annual periods beginning on January 1, 2020. The adoption of this guidance on a prospective basis had no effect on our financial condition, results of operations, or cash flows.

~~The CARES Act and Interagency Statement~~. On March 27, 2020, Section 4013 of the CARES Act was signed into law and provides optional, temporary relief from the accounting and reporting requirements for TDRs on certain conventional loan modifications related to COVID-19 that are offered by financial institutions, including a forbearance arrangement, an interest rate modification, a repayment plan, or any similar arrangement that defers or delays payment of principal or interest. To qualify for such relief, a loan must have been current as of December 31, 2019 and the modification must occur between March 1, 2020 and the earlier of December 31, 2020, ~~or 60 days following the termination~~none of these investments were with counterparties rated below single-A and none were with unrated counterparties. The NRSRO ratings may differ from our internal ratings of the ~~national emergency declared by the President of the United States.~~

In addition to the CARES Act, the Board of Governors of the Federal Reserve System, the FDIC, National Credit Union Administration, OCC, CFPB and the State Banking Regulators (collectively, the "Banking Agencies") issued a Revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (the "Interagency Statement") in April 2020. The Interagency Statement primarily offers certain interpretations of existing GAAP relative to conventional loan modifications that occur in response to the COVID-19 pandemic.

~~In the second quarter of 2020, we elected to apply the TDR relief that is provided by the CARES Act and further clarified by the Interagency Statement. As such, all qualifying COVID-related loan modifications considered to be formal, i.e. the legal terms of the loan were changed, are excluded from TDR classification and accounting.~~ ~~As of September 30, 2020, we had $1.8 million of loans outstanding with such formal modifications.~~ For all informal COVID-related loan modifications, i.e. the legal terms of the loan were not changed, we continue to follow our existing past-due, non-accrual, TDR, and charge-off accounting policies as disclosed in ~~Note 1 - Summary of Significant Accounting Policies~~ ~~in our 2019 Form 10-K.~~investments, if applicable.

1311

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

~~Recently Issued Accounting Guidance.~~Investment Securities.

Trading Securities.

~~Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14).~~Major Security Types. ~~On August 28, 2018, the FASB issued~~

~~guidance to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement~~

~~plans. This guidance was issued as part~~The following table presents our trading securities by type of ~~the FASB's disclosure framework project and is intended to improve disclosure~~

~~effectiveness.~~security.

The guidance is effective for the annual period ended December 31, 2020. The adoption of this guidance will require us to add a disclosure to describe the reasons for any significant gains and losses related to changes in our benefit obligation and remove an existing disclosure regarding amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year. The guidance will have no effect on our financial condition, results of operations or cash flows.


Security Type	September 30, 2021		December 31, 2020
Non-mortgage-backed securities:
U.S. Treasury obligations	$	4,858,818	$	5,094,703









Total trading securities at estimated fair value	$	4,858,818	$	5,094,703

~~Facilitation~~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 ~~Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04).~~On March 12, 2020, the FASB issued optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform, if certain criteria are met. These transactions include: (i) contract modifications, (ii) hedging relationships, and (iii) sales or transfers of debt securities classified as HTM.associated derivatives.

The guidance is effective from March 12, 2020 through December 31, 2022. We may elect to adopt the guidance for eligible contract modifications and hedging relationships existing as of January 1, 2020 and prospectively thereafter until the expiration date of the guidance. The one-time election to sell, transfer, or both sell and transfer debt securities classified as HTM may be made at any time after March 12, 2020, but no later than December 31, 2022.

We expect that we will elect to apply certain of the expedients and exceptions provided in the guidance; however, we are still evaluating the guidance and have yet to apply any of its provisions. Therefore, the impact of the adoption of the guidance on our financial condition, results of operations, or cash flows has not yet been determined.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net unrealized gains (losses) on trading securities held at period end	$	6,400	$	(27,983)	$	(22,506)	$	(19,333)
Net realized gains (losses) on trading securities that matured/sold during the period	(14,607)		8,652		(13,060)		21,308
Net gains (losses) on trading securities	$	(8,207)	$	(19,331)	$	(35,566)	$	1,975

~~Note 3 - Investments~~

~~Short-term Investments.~~

~~We invest in interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold to provide short-term liquidity.~~Available-for-Sale Securities.

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


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
September 30, 2021	Cost (1)		Gains		Losses		Fair Value
GSE and TVA debentures	$	2,683,050	$	45,617	$	—	$	2,728,667
GSE MBS	6,458,441		133,300		(829)		6,590,912
Total AFS securities	$	9,141,491	$	178,917	$	(829)	$	9,319,579

December 31, 2020
GSE and TVA debentures	$	3,462,885	$	40,252	$	—	$	3,503,137
GSE MBS	6,545,093		98,263		(1,594)		6,641,762
Total AFS securities	$	10,007,978	$	138,515	$	(1,594)	$	10,144,899

(1) Includes adjustments made to the cost basis for ~~Credit Losses.~~ ~~These investments are generally transacted with counterparties that maintain a credit rating of triple-B~~purchase discount or ~~higher (investment grade) by an NRSRO. At~~premium and related accretion or amortization, and, if applicable, fair-value hedging basis adjustments. Net unamortized premium at September 30, 2021 and December 31, 2020 ~~NaN~~totaled $15,352 and $16,300, respectively. The applicable fair value hedging basis adjustments at September 30, 2021 and December 31, 2020 totaled $287,859 and $627,619, respectively. Excludes accrued interest receivable at September 30, 2021 and December 31, 2020 of ~~these investments were with counterparties rated below single-A~~$26,112 and ~~NaN were with unrated counterparties. The NRSRO ratings may differ from our internal ratings of the investments, if applicable.~~$34,616, respectively.

~~Interest-Bearing Deposits.~~ ~~Interest-bearing deposits are considered overnight investments given our ability to withdraw funds from these accounts at any time.~~ ~~As such, 0 allowance for credit losses was recorded for these investments at September 30, 2020 or December 31, 2019.~~

~~The carrying values of interest-bearing deposits at September 30, 2020 and December 31, 2019 exclude accrued interest receivable of $15 and $1,080, respectively.~~

~~Securities Purchased Under Agreements to Resell.~~ Securities purchased under agreements to resell are structured such that they are evaluated regularly to determine if the market value of the underlying securities decreases below the market value required as collateral (i.e. subject to collateral maintenance provisions). If so, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash, generally by the next business day. Based upon the collateral held as security and collateral maintenance provisions with our counterparties, 0 allowance for credit losses was recorded for securities purchased under agreements to resell at September 30, 2020 or December 31, 2019.

~~The carrying values of securities purchased under agreements to resell as of September 30, 2020 and December 31, 2019 exclude accrued interest receivable of $10 and $65, respectively.~~

1412

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

~~Federal Funds Sold.~~ Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit an individual FHLBank may extend to a counterparty. All investments in federal funds sold at September 30, 2020Unrealized Loss Positions. The following table presents impaired AFS securities (i.e., in an unrealized loss position), aggregated by major security type and ~~December 31, 2019 were repaid according to the contractual terms and, therefore, 0 allowance for credit losses was recorded.~~length of time that individual securities have been in a continuous unrealized loss position.

~~The carrying values~~


	Less than 12 months				12 months or More				Total
	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
September 30, 2021	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

GSE MBS	$	174,857	$	(829)	$	—	$	—	$	174,857	$	(829)
Total impaired AFS securities	$	174,857	$	(829)	$	—	$	—	$	174,857	$	(829)

December 31, 2020

GSE MBS	$	132,054	$	(179)	$	179,387	$	(1,415)	$	311,441	$	(1,594)
Total impaired AFS securities	$	132,054	$	(179)	$	179,387	$	(1,415)	$	311,441	$	(1,594)

Realized Gains and Losses. There were no sales of ~~federal funds sold at~~AFS securities during the three or nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, for strategic, economic and ~~December 31, 2019 exclude accrued interest receivable~~operational reasons, we sold certain of $3our GSE MBS. Proceeds from the AFS sales totaled $96,779, resulting in net realized gains of $504, comprised of realized gains of $715 and ~~$111, respectively.~~realized losses of $211 determined by the specific identification method.

~~Investment Securities.~~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.

~~Trading Securities.~~



	September 30, 2021				December 31, 2020
	Amortized		Estimated		Amortized		Estimated
Year of Contractual Maturity	Cost		Fair Value		Cost		Fair Value
Due in 1 year or less	$	584,204	$	585,335	$	705,134	$	705,442
Due after 1 year through 5 years	1,411,287		1,437,066		1,215,038		1,225,187
Due after 5 years through 10 years	687,559		706,266		1,542,713		1,572,508

Total non-MBS	2,683,050		2,728,667		3,462,885		3,503,137
Total MBS	6,458,441		6,590,912		6,545,093		6,641,762
Total AFS securities	$	9,141,491	$	9,319,579	$	10,007,978	$	10,144,899

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

Security Type September 30, 2020 December 31, 2019
Non-mortgage-backed securities:
U.S. Treasury obligations $ 5,058,984 $ 5,016,649
Total trading securities at estimated fair value $ 5,058,984 $ 5,016,649

~~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.~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net unrealized gains (losses) on trading securities held at period end $ (27,983) $ 5,601 $ (19,333) $ 26,257
Net realized gains on trading securities that matured/sold during the period 8,652 0 21,308 0
Net gains (losses) on trading securities $ (19,331) $ 5,601 $ 1,975 $ 26,257

~~Available-for-Sale Securities.~~

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

Gross Gross
Amortized Unrealized Unrealized Estimated
September 30, 2020
Cost (1)
Gains Losses Fair Value
GSE and TVA debentures $ 3,985,296 $ 40,308 $ 0 $ 4,025,604
GSE MBS 6,281,381 64,408 (7,424) 6,338,365
Total AFS securities $ 10,266,677 $ 104,716 $ (7,424) $ 10,363,969
December 31, 2019
GSE and TVA debentures $ 3,885,012 $ 41,840 $ 0 $ 3,926,852
GSE MBS 4,509,653 51,200 (3,227) 4,557,626
Total AFS securities $ 8,394,665 $ 93,040 $ (3,227) $ 8,484,478

~~(1)~~ Includes adjustments made to the cost basis for accretion, amortization, net charge-offs, and, if applicable, fair-value hedging basis adjustments, and excludes accrued interest receivable at September 30, 2020 and December 31, 2019 of $30,237 and $32,963, respectively. Carrying value equals estimated fair value.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

~~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.

Less than 12 months 12 months or More Total
Estimated Unrealized Estimated Unrealized Estimated Unrealized
September 30, 2020 Fair Value Losses Fair Value Losses Fair Value Losses
GSE MBS $ 691,312 $ (4,636) $ 453,630 $ (2,788) $ 1,144,942 $ (7,424)
Total impaired AFS securities $ 691,312 $ (4,636) $ 453,630 $ (2,788) $ 1,144,942 $ (7,424)
December 31, 2019
GSE MBS $ 339,981 $ (1,134) $ 519,446 $ (2,093) $ 859,427 $ (3,227)
Total impaired AFS securities $ 339,981 $ (1,134) $ 519,446 $ (2,093) $ 859,427 $ (3,227)

~~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.

September 30, 2020 December 31, 2019
Amortized Estimated Amortized Estimated
Year of Contractual Maturity Cost Fair Value Cost Fair Value
Due in 1 year or less $ 1,208,283 $ 1,209,339 $ 570,209 $ 571,588
Due after 1 year through 5 years 1,166,278 1,176,543 1,729,664 1,742,681
Due after 5 years through 10 years 1,610,735 1,639,722 1,489,144 1,514,978
Due after 10 years 0 0 95,995 97,605
Total non-MBS 3,985,296 4,025,604 3,885,012 3,926,852
Total MBS 6,281,381 6,338,365 4,509,653 4,557,626
Total AFS securities $ 10,266,677 $ 10,363,969 $ 8,394,665 $ 8,484,478

~~Realized Gains and Losses.~~ During the three and nine months ended September 30, 2020, for strategic, economic and operational reasons, we sold certain of our GSE MBS. Proceeds from the AFS sales totaled $96,779, resulting in net realized gains of $504, comprised of realized gains of $715 and realized losses of $211 determined by the specific identification method. ~~There were 0 sales during the three or nine months ended September 30, 2019.~~

1613

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Held-to-Maturity Securities.

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


				Gross		Gross							Gross		Gross
				Unrecognized		Unrecognized							Unrecognized		Unrecognized
		Amortized		Holding		Holding		Estimated			Amortized		Holding		Holding		Estimated
September 30, 2020		Cost (1)		Gains (2)		Losses (2)		Fair Value
September 30, 2021										September 30, 2021	Cost (1)		Gains (2)		Losses (2)		Fair Value

MBS:	MBS:									MBS:
Other U.S. obligations - guaranteed MBS	Other U.S. obligations - guaranteed MBS	$	2,749,359	$	5,890	$	(6,902)	$	2,748,347	Other U.S. obligations - guaranteed MBS	$	2,737,308	$	8,716	$	(6,875)	$	2,739,149
GSE MBS	GSE MBS	1,523,098		25,202		(360)		1,547,940		GSE MBS	1,759,287		16,904		(4,981)		1,771,210
Total HTM securities	Total HTM securities	$	4,272,457	$	31,092	$	(7,262)	$	4,296,287	Total HTM securities	$	4,496,595	$	25,620	$	(11,856)	$	4,510,359

December 31, 2019
December 31, 2020										December 31, 2020

MBS:	MBS:									MBS:
Other U.S. obligations - guaranteed MBS	Other U.S. obligations - guaranteed MBS	$	3,059,875	$	6,948	$	(13,217)	$	3,053,606	Other U.S. obligations - guaranteed MBS	$	2,622,677	$	6,920	$	(4,590)	$	2,625,007
GSE MBS	GSE MBS	2,156,526		10,117		(4,043)		2,162,600		GSE MBS	2,078,625		21,640		(1,476)		2,098,789

Total HTM securities	Total HTM securities	$	5,216,401	$	17,065	$	(17,260)	$	5,216,206	Total HTM securities	$	4,701,302	$	28,560	$	(6,066)	$	4,723,796

(1) Carrying value equals amortized cost, which includes adjustments made to the cost basis for purchase discount or premium and related accretion ~~amortization and/~~or ~~net charge-offs~~amortization. Net unamortized premium at September 30, 2021 and ~~excludes~~December 31, 2020 totaled $28,418 and $7,101, respectively. Excludes accrued interest receivable at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 of ~~$2,819~~$2,061 and ~~$7,156,~~$2,689, respectively.

(2) Gross unrecognized holding gains (losses) represent the cumulative increases (decreases) in estimated fair value.

Contractual Maturity. ~~MBS~~HTM securities are not presented by contractual maturity because ~~their~~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.

Allowance for Credit Losses on Investment Securities. At September 30, 2021 and December 31, 2020, 100% of our AFS and HTM securities were rated single-A, or above, by an NRSRO, based on the lowest long-term credit rating for each security. These may differ ~~for any~~from our internal ratings of the securities, if applicable.

AFS Securities. At September 30, 2021 and December 31, 2020, certain of our AFS securities were in an unrealized loss position; ~~however,~~however, we did 0tnot record an allowance for credit losses because ~~these~~those losses ~~are~~were considered temporary and we ~~expect~~expected to recover the entire amortized cost basis on these securities at maturity based upon the following 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 implicit government guarantee such that we consider the risk of nonpayment to be zero, and (iv) we had no intention of selling any of these securities nor did we consider it more likely than not that we will be required to sell any of these securities before recovery of each security's remaining amortized cost ~~basis, (ii)~~basis.

HTM Securities. At September 30, 2021 and December 31, 2020, we did not record an allowance for credit losses on any of our HTM securities based on the following factors: (i) all securities were ~~highly-rated, (iii)~~highly rated, (ii) we have not experienced, nor do we expect, any payment defaults on the securities, ~~and (iv)~~(iii) the U.S., GSE, and other ~~agency~~Agency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be ~~zero.~~

~~HTM Securities.~~ ~~At September 30, 2020,~~ ~~we did 0t establish an allowance for credit losses on any of our HTM securities based on the following factors: (i)~~zero, and (iv) we had no intention of selling any of these securities nor did we consider it more likely than not that we will be required to sell any of these securities, (ii) all securities were highly-rated and/or had short remaining terms to maturity, (iii) we have not experienced, nor do we expect, any payment defaults on the securities, and (iv) the U.S., GSE, and other agency obligations carry an explicit or implicit government guarantee such that we consider the risk of nonpayment to be zero.securities.

~~Under the previous security impairment methodology for AFS and HTM securities, the Bank did 0t recognize any OTTI during the three or nine months ended September 30, 2019.~~

1714

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 4 - Advances

The following table presents advances outstanding by redemption term.

September 30, 2020 December 31, 2019
Redemption Term Amount WAIR % Amount WAIR %
Overdrawn demand and overnight deposit accounts $ 0 0 $ 37 3.99
Due in 1 year or less 9,075,746 0.83 11,791,716 1.85
Due after 1 year through 2 years 2,304,357 1.72 2,106,315 2.12
Due after 2 years through 3 years 2,965,939 1.80 2,505,693 2.16
Due after 3 years through 4 years 4,017,918 1.56 2,625,446 2.44
Due after 4 years through 5 years 2,751,069 1.46 4,076,103 2.08
Thereafter 9,349,544 1.11 9,166,357 1.89
Total advances, par value 30,464,573 1.23 32,271,667 1.98
Fair-value hedging adjustments, net 795,676 207,111
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees 3,997 1,330
Total advances (1)
$ 31,264,246 $ 32,480,108


	September 30, 2021			December 31, 2020
Redemption Term	Amount		WAIR %	Amount		WAIR %
Overdrawn demand and overnight deposit accounts	$	29,977	2.43	$	—	—
Due in 1 year or less	6,865,431		0.60	10,115,576		0.51
Due after 1 year through 2 years	2,340,823		1.89	2,149,839		1.57
Due after 2 years through 3 years	3,770,555		1.50	2,760,624		2.02
Due after 3 years through 4 years	2,736,669		1.32	3,725,103		1.36
Due after 4 years through 5 years	1,848,753		1.33	3,020,039		1.29
Thereafter	9,030,857		0.89	8,919,678		1.05
Total advances, par value	26,623,065		1.07	30,690,859		1.06

Fair-value hedging basis adjustments, net	325,320			645,946
Unamortized swap termination fees associated with modified advances, net of deferred prepayment fees	9,654			10,681
Total advances (1)	$	26,958,039		$	31,347,486

(1) Carrying value equals amortized cost, which ~~includes adjustments made to the cost basis for accretion, amortization and/or net charge-offs and~~ excludes accrued interest receivable at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 of ~~$16,409~~$12,422 and ~~$27,019,~~$14,961, respectively.

The following table presents advances outstanding by the earlier of the 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
September 30,
2020 December 31,
2019 September 30,
2020 December 31,
2019
Overdrawn demand and overnight deposit accounts $ 0 $ 37 $ 0 $ 37
Due in 1 year or less 14,236,204 18,497,813 13,580,996 14,560,066
Due after 1 year through 2 years 2,135,657 1,514,015 3,360,257 3,329,315
Due after 2 years through 3 years 2,305,249 2,127,903 3,496,144 3,254,093
Due after 3 years through 4 years 2,545,418 2,117,546 4,341,918 3,025,551
Due after 4 years through 5 years 1,995,369 2,454,103 2,123,719 3,481,353
Thereafter 7,246,676 5,560,250 3,561,539 4,621,252
Total advances, par value $ 30,464,573 $ 32,271,667 $ 30,464,573 $ 32,271,667


	Earlier of Redemption or Next Call Date				Earlier of Redemption or Next Put Date
	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Overdrawn demand and overnight deposit accounts	$	29,977	$	—	$	29,977	$	—
Due in 1 year or less	11,806,255		15,296,034		12,302,331		14,645,076
Due after 1 year through 2 years	2,004,432		1,797,049		2,876,028		3,107,339
Due after 2 years through 3 years	2,358,055		2,440,024		4,094,555		3,160,729
Due after 3 years through 4 years	1,985,969		2,246,102		2,788,069		3,824,603
Due after 4 years through 5 years	1,335,378		2,076,839		1,598,753		2,585,439
Thereafter	7,102,999		6,834,811		2,933,352		3,367,673
Total advances, par value	$	26,623,065	$	30,690,859	$	26,623,065	$	30,690,859

Advance Concentrations. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our top five borrowers held ~~38%~~40% and ~~42%~~44%, respectively, of total advances outstanding at par.

Allowance for Credit Losses on Advances. Our evaluation of credit losses on advances utilizes a basic framework that considers the adequacy of the advances' associated collateral and the associated members' willingness and ability to pledge additional collateral to satisfy any current or anticipated future deficiency. Our agreements with borrowers 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 our 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. 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 an advance's credit quality. At September 30, 2020 and December 31, 2019, we had rights to collateral on a borrower-by-borrower basis with an estimated value, after haircuts, equal to or in excess of our advances outstanding.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

At September 30, 2020 and December 31, 2019, we did 0t have any advances that were past due, on non-accrual status, or considered impaired. In addition, there were 0 TDRs related to advances during the three or nine months ended September 30, 2020 or 2019.

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

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 5 - Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio consist 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. The balances also reflect the sale of a 90% participating interest in a $100 million MCC of certain newly acquired MPP loans to another FHLBank in 2016. The MPP and MPF Program loans are 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, type and product.


Term	Term	September 30, 2020		December 31, 2019		Term	September 30, 2021		December 31, 2020
Fixed-rate long-term mortgages	Fixed-rate long-term mortgages	$	8,007,228	$	9,677,008	Fixed-rate long-term mortgages	$	6,330,986	$	7,257,237
Fixed-rate medium-term (1) mortgages	Fixed-rate medium-term (1) mortgages	1,025,956		908,526		Fixed-rate medium-term (1) mortgages	1,059,771		1,065,329
Total mortgage loans held for portfolio, UPB	Total mortgage loans held for portfolio, UPB	9,033,184		10,585,534		Total mortgage loans held for portfolio, UPB	7,390,757		8,322,566
Unamortized premiums	Unamortized premiums	198,183		231,807		Unamortized premiums	177,749		187,425
Unamortized discounts	Unamortized discounts	(1,813)		(2,158)		Unamortized discounts	(2,441)		(1,638)

Fair-value hedging adjustments, net		8,031		154
Hedging basis adjustments, net						Hedging basis adjustments, net	4,722		7,642
Total mortgage loans held for portfolio	Total mortgage loans held for portfolio	9,237,585		10,815,337		Total mortgage loans held for portfolio	7,570,787		8,515,995
Allowance for credit losses	Allowance for credit losses	(400)		(300)		Allowance for credit losses	(325)		(350)
Total mortgage loans held for portfolio, net (2)	Total mortgage loans held for portfolio, net (2)	$	9,237,185	$	10,815,037	Total mortgage loans held for portfolio, net (2)	$	7,570,462	$	8,515,645

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

(2) Excludes accrued interest receivable at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 of ~~$38,057~~$27,990 and ~~$47,722,~~$34,151, respectively.


Type	Type	September 30, 2020		December 31, 2019		Type	September 30, 2021		December 31, 2020
Conventional	Conventional	$	8,759,844	$	10,263,249	Conventional	$	7,197,498	$	8,069,274
Government-guaranteed or -insured	Government-guaranteed or -insured	273,340		322,285		Government-guaranteed or -insured	193,259		253,292
Total mortgage loans held for portfolio, UPB	Total mortgage loans held for portfolio, UPB	$	9,033,184	$	10,585,534	Total mortgage loans held for portfolio, UPB	$	7,390,757	$	8,322,566


Product	Product	September 30, 2020		December 31, 2019		Product	September 30, 2021		December 31, 2020
MPP	MPP	$	8,854,990	$	10,363,081	MPP	$	7,275,562	$	8,163,902
MPF Program	MPF Program	178,194		222,453		MPF Program	115,195		158,664
Total mortgage loans held for portfolio, UPB	Total mortgage loans held for portfolio, UPB	$	9,033,184	$	10,585,534	Total mortgage loans held for portfolio, UPB	$	7,390,757	$	8,322,566

Conventional MPP. The following table presents the activity in the LRA, which is reported in other liabilities.


	Three Months Ended September 30,				Nine Months Ended September 30,
LRA Activity	2021		2020		2021		2020
Liability, beginning of period	$	220,061	$	196,653	$	207,305	$	186,585
Additions	5,007		5,344		18,371		17,658
Claims paid	(29)		(52)		(94)		(293)
Distributions to PFIs	(117)		(891)		(660)		(2,896)
Liability, end of period	$	224,922	$	201,054	$	224,922	$	201,054

1916

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

~~Conventional MortgageLoans.~~ 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.~~ ~~The following table presents the activity in the LRA, which is reported in other liabilities.~~

Three Months Ended September 30, Nine Months Ended September 30,
LRA Activity 2020 2019 2020 2019
Liability, beginning of period $ 196,653 $ 180,074 $ 186,585 $ 174,096
Additions 5,344 3,402 17,658 10,392
Claims paid (52) (64) (293) (206)
Distributions to PFIs (891) (823) (2,896) (1,693)
Liability, end of period $ 201,054 $ 182,589 $ 201,054 $ 182,589

Credit Quality Indicators for Conventional Mortgage Loans and Other Delinquency Statistics.All qualifying COVID-related loan modifications considered to be formal, i.e. the legal terms of the loan were changed, are excluded from TDR classification and existing accounting policies and the loans are returned to current status upon modification. As of September 30, 2021 and December 31, 2020, we had $29,567, or 0.4%, and $12,309, or 0.2%, respectively, of our total conventional loans outstanding with formal modifications.

We have continued to apply our existing accounting policies for past due, non-accrual, and charge-offs resulting from COVID-related loan modifications considered to be informal, i.e. the legal terms of the loan were not changed. Based on information from our mortgage servicers, as of September 30, 2021 and December 31, 2020, the UPB of conventional loans in an informal forbearance arrangement, including current loans, totaled $37,558 and $111,516, respectively, or 0.5% and 1.4%, respectively, of our total conventional loans outstanding. As of September 30, 2021, no informal COVID-19-related loan modifications were classified as TDRs.

Payment status is the key credit quality indicator for conventional mortgage loans and allows us to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal and/or interest in accordance with the terms of the loan. Other delinquency statistics include non-accrual loans and loans in process of foreclosure. The tables below present the key credit quality indicators and other delinquency statistics for our mortgage loans held for ~~portfolio.~~portfolio aggregated by (i) the most recent five origination years and (ii) all prior origination years. Amounts are based on amortized cost, which excludes accrued interest receivable.

Origination Year
Payment Status as of September 30, 2020 Prior to 2016 2016 to 2020 Total
Past due:
30-59 days $ 20,307 $ 23,459 $ 43,766
60-89 days 8,495 21,688 30,183
90 days or more 37,920 82,822 120,742
Total past due 66,722 127,969 194,691
Total current 2,881,490 5,884,711 8,766,201
Total conventional mortgage loans, amortized cost (1)
$ 2,948,212 $ 6,012,680 $ 8,960,892


	Origination Year
Payment Status as of September 30, 2021	Prior to 2017		2017 to 2021		Total
Past due:
30-59 days	$	16,664	$	10,675	$	27,339
60-89 days	3,041		1,740		4,781
90 days or more	23,574		16,127		39,701
Total past due	43,279		28,542		71,821
Total current	2,685,414		4,618,028		7,303,442
Total conventional mortgage loans, amortized cost	$	2,728,693	$	4,646,570	$	7,375,263

~~The Bank continues to apply its existing accounting policies for~~As of September 30, 2021, the UPB of conventional loans in an informal forbearance arrangement included amounts 30-59 days past due of $3,753, 60-89 days past due ~~non-accrual,~~of $3,036, and ~~charge-offs~~90 days or more past due of $27,945, for ~~COVID-related loan modifications considered to be informal, i.e. the legal terms~~total past due of ~~the loan were not changed. Based on the most recent information received from~~$34,734.

~~our mortgage servicers, as~~


	Origination Year
Payment Status as of December 31, 2020	Prior to 2016		2016 to 2020		Total
Past due:
30-59 days	$	19,893	$	22,130	$	42,023
60-89 days	6,980		12,078		19,058
90 days or more	27,467		67,075		94,542
Total past due	54,340		101,283		155,623
Total current	2,468,908		5,635,070		8,103,978
Total conventional mortgage loans, amortized cost	$	2,523,248	$	5,736,353	$	8,259,601

As of ~~September 30,~~December 31, 2020, the UPB of conventional loans in an informal forbearance arrangement ~~totaled $184,936, or 2.1% of our total conventional loans outstanding. The payment status as of September 30, 2020 includes such loans 30 to 59~~included amounts 30-59 days past due of ~~$15,684,~~$10,214, 60-89 days past due of ~~$24,359,~~$12,661, and 90 days or more past due of ~~$105,295,~~$79,011, for total past due of ~~$145,338. Such loans with a current payment status totaled $39,598. For more information, see~~ ~~Note 2 - Recently Adopted and Issued Accounting Guidance~~.


~~Payment Status as of December 31, 2019~~	~~Total~~
~~Past due:~~
~~30-59 days~~	$	~~44,479~~
~~60-89 days~~	~~9,868~~
~~90 days or more~~	~~10,668~~
~~Total past due~~	~~65,015~~
~~Total current~~	~~10,470,495~~
~~Total conventional mortgage loans, recorded investment~~ ~~(1)(2)~~	$	~~10,535,510~~

$101,886.

2017

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Other Delinquency Statistics as of September 30, 2020 Conventional Government Total
In process of foreclosure (3)
$ 2,594 $ 0 $ 2,594
Serious delinquency rate (1)(4)
1.35 % 2.99 % 1.40 %
Past due 90 days or more still accruing interest (1)(5)
$ 40,210 $ 7,369 $ 47,579
On non-accrual status (6)
$ 93,137 $ 0 $ 93,137
Other Delinquency Statistics as of December 31, 2019
In process of foreclosure (3)
$ 2,071 $ 0 $ 2,071
Serious delinquency rate (1)(4)
0.10 % 0.94 % 0.13 %
Past due 90 days or more still accruing interest (1)(5)
$ 10,127 $ 3,069 $ 13,196
On non-accrual status $ 1,063 $ 0 $ 1,063


Other Delinquency Statistics as of September 30, 2021	Conventional			Government			Total
In process of foreclosure (1)	$	2,121		$	—		$	2,121
Serious delinquency rate (2)	0.54		%	1.44		%	0.56		%
Past due 90 days or more still accruing interest (3)	$	18,979		$	2,094		$	21,073
On non-accrual status (4)	$	32,581		$	—		$	32,581

Other Delinquency Statistics as of December 31, 2020
In process of foreclosure (1)	$	2,689		$	—		$	2,689
Serious delinquency rate (2)	1.14		%	3.36		%	1.21		%
Past due 90 days or more still accruing interest (3)	$	36,585		$	7,933		$	44,518
On non-accrual status (4)	$	87,763		$	—		$	87,763

(1)~~Based on the amortized cost at September 30, 2020, which excludes accrued interest receivable. Based on the recorded investment at December 31, 2019, which includes accrued interest receivable.~~

~~(2)~~ The recorded investment in a loan is the UPB of the loan, adjusted for accrued interest, net of any 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.

~~(3)~~ Includes loans for which the decision of foreclosure or similar alternative, such as pursuit of ~~deed-in-lieu~~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.

~~(4)~~(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.

~~(5)~~(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.~~status as they are well-secured and in the process of collection.

~~(6)~~(4) As of September 30, 2021 and December 31, 2020, ~~$93,082~~$32,526 and $87,708, respectively, of UPB of these conventional mortgage loans on non-accrual status did not have a specifically assigned allowance for credit losses and ~~$79,779~~$18,166 and $59,306, respectively, of UPB of these conventional mortgage loans were in informal forbearance related to the COVID-19 pandemic.

Allowance for Credit Losses.

~~Collectively Evaluated Mortgage Loans.~~Conventional loans current to 179 days past due are collectively evaluated at the pool level using a recognized third-party credit and prepayment model, which considers both current and historical information and events and reasonable and supportable forecasts that rely upon certain key inputs and assumptions, to estimate potential ranges of credit loss exposure. One such key input is a 3-year forecast of housing prices before full reversion to historical inputs over 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.

Seriously delinquent conventional loans 180 days or more past due are also collectively evaluated at the pool level based on current and historical information and events and reasonable and supportable forecasts.

~~Prior to January 1, 2020, our allowance was based on our best estimate of probable losses over a loss emergence period of 24 months.~~ ~~For information on the prior methodology for evaluating credit losses, see~~ ~~Notes to Financial Statements - Note 7 - Allowance for Credit Losses~~ ~~in the 2019 Form 10-K.~~

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

~~Individually Evaluated Mortgage Loans.~~Certain conventional mortgage loans, primarily TDRs, are specifically identified for purposes of calculating the allowance for loan losses. The measurement of our allowance for individually evaluated 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 statements, sales listings or other evidence of current expected liquidation amounts.

~~Interest income recognized on impaired MPP conventional loans was not material for the periods presented.~~

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

Components and Rollforward of Allowance for Credit Losses. The following table presents the components of the allowance for credit losses, including the credit enhancement waterfall for MPP.


Components of Allowance	Components of Allowance	September 30, 2020		December 31, 2019		Components of Allowance	September 30, 2021		December 31, 2020
MPP estimated losses remaining after borrower's equity, before credit enhancements		$	12,484	$	4,410
Portion of estimated expected losses recoverable from credit enhancements:
MPP expected losses remaining after borrower's equity, before credit enhancements						MPP expected losses remaining after borrower's equity, before credit enhancements	$	5,028	$	10,305
Portion of expected losses recoverable from credit enhancements:						Portion of expected losses recoverable from credit enhancements:
PMI	PMI	(2,930)		(667)		PMI	(837)		(2,277)
LRA (1)	LRA (1)	(7,718)		(2,581)		LRA (1)	(3,299)		(6,847)
SMI	SMI	(1,608)		(927)		SMI	(674)		(963)
Total portion recoverable from credit enhancements	Total portion recoverable from credit enhancements	(12,256)		(4,175)		Total portion recoverable from credit enhancements	(4,810)		(10,087)
Allowance for unrecoverable PMI/SMI	Allowance for unrecoverable PMI/SMI	22		15		Allowance for unrecoverable PMI/SMI	32		32
Allowance for MPP credit losses	Allowance for MPP credit losses	250		250		Allowance for MPP credit losses	250		250
Allowance for MPF Program credit losses	Allowance for MPF Program credit losses	150		50		Allowance for MPF Program credit losses	75		100
Allowance for credit losses	Allowance for credit losses	$	400	$	300	Allowance for credit losses	$	325	$	350

(1) Amounts recoverable are limited to (i) the ~~estimated~~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 ~~incurred~~expected and to distribute any excess funds to the PFIs.

~~The table below presents a rollforward of our allowance for credit losses.~~

Three Months Ended September 30, Nine Months Ended September 30,
Rollforward of Allowance 2020 2019 2020 2019
Balance, beginning of period $ 325 $ 600 $ 300 $ 600
Charge-offs (50) (26) (93) (101)
Recoveries 1 56 21 117
Provision for (reversal of) credit losses 124 (180) 172 (166)
Balance, end of period $ 400 $ 450 $ 400 $ 450

2218

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The table below presents a rollforward of our allowance for credit losses.


	Three Months Ended September 30,				Nine Months Ended September 30,
Rollforward of Allowance	2021		2020		2021		2020
Balance, beginning of period	$	325	$	325	$	350	$	300
Charge-offs	5		(50)		(87)		(93)
Recoveries	11		1		34		21
Provision for (reversal of) credit losses	(16)		124		28		172
Balance, end of period	$	325	$	400	$	325	$	400

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, ~~the risk of loss was immaterial, consequently,~~ we did ~~0t establish~~not record an allowance for credit losses for government-guaranteed or -insured mortgage loans at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020. Furthermore, ~~NaN~~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.

Note 6 - Derivatives and Hedging Activities

Managing Credit Risk on Derivatives. We are subject to credit risk due to the risk of nonperformance by the counterparties to our derivative transactions.

Uncleared Derivatives. 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 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 September 30, ~~2020~~2021 was ~~$5,777,~~$412, for which we have posted collateral in cash, including accrued interest, of $894 in the normal course of business. 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 ~~of $650~~ to our uncleared derivative counterparties at September 30, ~~2020.~~2021.

Cleared Derivatives. The 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 ~~cred~~itcredit rating downgrades. At September 30, ~~2020,~~2021, we were not required by our clearing agents to post any additional margin.

2319

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Financial Statement Effect and Additional Financial Information.

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.

Estimated Fair Value Estimated Fair Value
Notional of Derivative of Derivative
September 30, 2020 Amount Assets Liabilities
Derivatives designated as hedging instruments:
Interest-rate swaps $ 39,270,303 $ 16,091 $ 962,018
Total derivatives designated as hedging instruments 39,270,303 16,091 962,018
Derivatives not designated as hedging instruments:
Interest-rate swaps 9,162,000 7,753 324
Swaptions 0 0 0
Interest-rate caps/floors 625,500 451 0
Interest-rate forwards 261,200 470 8
MDCs 261,771 201 250
Total derivatives not designated as hedging instruments 10,310,471 8,875 582
Total derivatives before adjustments $ 49,580,774 24,966 962,600
Netting adjustments and cash collateral (1)
294,872 (955,609)
Total derivatives, net $ 319,838 $ 6,991
December 31, 2019
Derivatives designated as hedging instruments:
Interest-rate swaps $ 41,108,749 $ 60,155 $ 318,815
Total derivatives designated as hedging instruments 41,108,749 60,155 318,815
Derivatives not designated as hedging instruments:
Interest-rate swaps 7,634,000 450 27
Swaptions 850,000 16 0
Interest-rate caps/floors 668,500 215 0
Interest-rate forwards 70,200 0 216
MDCs 70,693 105 3
Total derivatives not designated as hedging instruments 9,293,393 786 246
Total derivatives before adjustments $ 50,402,142 60,941 319,061
Netting adjustments and cash collateral (1)
147,067 (315,855)
Total derivatives, net $ 208,008 $ 3,206


			Estimated Fair Value
	Notional		Derivative		Derivative
September 30, 2021	Amount		Assets		Liabilities
Derivatives designated as hedging instruments:
Interest-rate swaps	$	42,839,114	$	78,296	$	380,416
Total derivatives designated as hedging instruments	42,839,114		78,296		380,416
Derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	9,327,000		4,321		161

Interest-rate caps/floors	625,500		644		—
Interest-rate forwards	141,100		336		47
MDCs	139,076		81		257
Total derivatives not designated as hedging instruments	10,232,676		5,382		465
Total derivatives before adjustments	$	53,071,790	83,678		380,881
Netting adjustments and cash collateral (1)			147,602		(362,339)
Total derivatives, net			$	231,280	$	18,542

December 31, 2020
Derivatives designated as hedging instruments:
Interest-rate swaps	$	40,227,966	$	13,018	$	761,330
Total derivatives designated as hedging instruments	40,227,966		13,018		761,330
Derivatives not designated as hedging instruments:
Economic hedges;
Interest-rate swaps	9,177,000		5,404		181

Interest-rate caps/floors	625,500		1,113		—
Interest-rate forwards	180,900		—		1,486
MDCs	180,152		1,022		—
Total derivatives not designated as hedging instruments	10,163,552		7,539		1,667
Total derivatives before adjustments	$	50,391,518	20,557		762,997
Netting adjustments and cash collateral (1)			262,525		(740,018)
Total derivatives, net			$	283,082	$	22,979

(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 September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, including accrued interest, totaled ~~$1,251,375~~$510,835 and ~~$464,187,~~$1,003,437, respectively. Cash collateral received from counterparties and held at both September 30, ~~2020~~2021 and December 31, ~~2019, including~~2020, including accrued interest, totaled ~~$894 and $1,265, respectively.~~$894. At September 30, ~~2020~~2021 and December 31, ~~2019, 0~~2020, no securities were pledged as collateral.

2420

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ 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.

September 30, 2020 December 31, 2019
Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities
Derivative instruments meeting netting requirements:
Gross recognized amount
Uncleared $ 4,517 $ 961,467 $ 51,955 $ 318,023
Cleared 19,778 875 8,881 819
Total gross recognized amount 24,295 962,342 60,836 318,842
Gross amounts of netting adjustments and cash collateral
Uncleared 15,766 (954,734) (36,954) (315,036)
Cleared 279,106 (875) 184,021 (819)
Total gross amounts of netting adjustments and cash collateral 294,872 (955,609) 147,067 (315,855)
Net amounts after netting adjustments and cash collateral
Uncleared 20,283 6,733 15,001 2,987
Cleared 298,884 0 192,902 0
Total net amounts after netting adjustments and cash collateral 319,167 6,733 207,903 2,987
Derivative instruments not meeting netting requirements (1)
671 258 105 219
Total derivatives, at estimated fair value $ 319,838 $ 6,991 $ 208,008 $ 3,206


	September 30, 2021				December 31, 2020
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Derivative instruments meeting netting requirements:
Gross recognized amount
Uncleared	$	78,602	$	376,138	$	13,793	$	755,118
Cleared	4,659		4,439		5,742		6,393
Total gross recognized amount	83,261		380,577		19,535		761,511
Gross amounts of netting adjustments and cash collateral
Uncleared	(78,283)		(357,900)		(13,793)		(733,625)
Cleared	225,885		(4,439)		276,318		(6,393)
Total gross amounts of netting adjustments and cash collateral	147,602		(362,339)		262,525		(740,018)
Net amounts after netting adjustments and cash collateral
Uncleared	319		18,238		—		21,493
Cleared	230,544		—		282,060		—
Total net amounts after netting adjustments and cash collateral	230,863		18,238		282,060		21,493
Derivative instruments not meeting netting requirements (1)	417		304		1,022		1,486
Total derivatives, at estimated fair value	$	231,280	$	18,542	$	283,082	$	22,979

(1) Includes MDCs and certain interest-rate forwards.

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents, by type of hedged item, the ~~components of~~ net gains (losses) on derivatives and the related hedged items in qualifying fair-value hedging ~~activities reported in other~~relationships and the impact on net interest income.

Three Months Ended September 30, Nine Months Ended September 30,
Type of Hedge 2020 2019 2020 2019
Net gain (loss) on derivatives not designated as hedging instruments:
Interest-rate swaps $ 11,994 $ (2,550) $ (8,287) $ (14,636)
Swaptions 0 (430) (323) (1,023)
Interest-rate caps/floors (228) (799) 236 (801)
Interest-rate forwards (917) (268) (11,840) (1,487)
Net interest settlements (11,579) 127 (40,491) (4,961)
MDCs 433 308 8,581 1,509
Total net gains (losses) on derivatives not designated as hedging instruments $ (297) $ (3,612) $ (52,124) $ (21,399)



Three Months Ended September 30, 2021	Advances		Investments		CO Bonds		Total
Changes in estimated fair value:
Hedged items (attributable to risk being hedged)	$	(66,161)	$	(30,326)	$	37,891	$	(58,596)
Derivatives	58,792		32,609		(35,558)		55,843
Net changes in estimated fair value before price alignment interest	(7,369)		2,283		2,333		(2,753)
Price alignment interest (1)	22		10		(2)		30
Net interest settlements on derivatives (2)	(45,957)		(25,658)		27,351		(44,264)
Amortization/accretion of gains (losses) on active hedging relationships	—		1,114		44		1,158
Net gains (losses) on qualifying fair-value hedging relationships	(53,304)		(22,251)		29,726		(45,829)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	(58)		(11,472)		—		(11,530)
Net gains (losses) on derivatives and hedging activities in net interest income (3)	$	(53,362)	$	(33,723)	$	29,726	$	(57,359)



Three Months Ended September 30, 2020
Changes in estimated fair value:
Hedged items (attributable to risk being hedged)	$	(104,009)	$	(50,989)	$	13,439	$	(141,559)
Derivatives	99,757		53,325		(13,934)		139,148
Net changes in estimated fair value before price alignment interest	(4,252)		2,336		(495)		(2,411)
Price alignment interest (1)	92		73		(10)		155
Net interest settlements on derivatives (2)	(54,836)		(39,134)		15,069		(78,901)
Amortization/accretion of gains (losses) on active hedging relationships	1		1,263		751		2,015
Net gains (losses) on qualifying fair-value hedging relationships	(58,995)		(35,462)		15,315		(79,142)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	—		—		—		—
Net gains (losses) on derivatives and hedging activities in net interest income (3)	$	(58,995)	$	(35,462)	$	15,315	$	(79,142)

2522

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents, by type of hedged item, the net gains (losses) on derivatives and the related hedged items in qualifying fair-value hedging relationships and the impact on net interest income.

Three Months Ended September 30, 2020 Advances Investments CO Bonds Total
Changes in estimated fair value:
Hedged items (attributable to risk being hedged) $ (104,009) $ (50,989) $ 13,439 $ (141,559)
Derivatives 99,757 53,325 (13,934) 139,148
Net changes in estimated fair value before price alignment interest (4,252) 2,336 (495) (2,411)
Price alignment interest (1)
92 73 (10) 155
Net interest settlements on derivatives (2)
(54,836) (39,134) 15,069 (78,901)
Amortization/accretion of gains (losses) on active hedging relationships 1 1,263 751 2,015
Net gains (losses) on qualifying fair-value hedging relationships (58,995) (35,462) 15,315 (79,142)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships 0 0 0 0
Net gains (losses) on derivatives and hedging activities in net interest income (3)
$ (58,995) $ (35,462) $ 15,315 $ (79,142)


Three Months Ended September 30, 2019
Nine Months Ended September 30, 2021										Nine Months Ended September 30, 2021	Advances		Investments		CO Bonds		Total
Changes in estimated fair value:	Changes in estimated fair value:									Changes in estimated fair value:
Hedged items (attributable to risk being hedged)	Hedged items (attributable to risk being hedged)	$	101,809	$	140,243	$	(10,308)	$	231,744	Hedged items (attributable to risk being hedged)	$	(299,081)	$	(256,325)	$	121,951	$	(433,455)
Derivatives	Derivatives	(96,264)		(150,320)		5,782		(240,802)		Derivatives	293,540		266,802		(116,664)		443,678
Net changes in estimated fair value before price alignment interest	Net changes in estimated fair value before price alignment interest	5,545		(10,077)		(4,526)		(9,058)		Net changes in estimated fair value before price alignment interest	(5,541)		10,477		5,287		10,223
Price alignment interest (1)	Price alignment interest (1)	782		201		(147)		836		Price alignment interest (1)	58		27		(6)		79
Net interest settlements on derivatives (2)	Net interest settlements on derivatives (2)	13,271		6,556		(3,967)		15,860		Net interest settlements on derivatives (2)	(137,849)		(86,438)		61,588		(162,699)
Amortization/accretion of gains (losses) on active hedging relationships	Amortization/accretion of gains (losses) on active hedging relationships	0		117		187		304		Amortization/accretion of gains (losses) on active hedging relationships	—		5,274		206		5,480
Net gains (losses) on qualifying fair-value hedging relationships	Net gains (losses) on qualifying fair-value hedging relationships	19,598		(3,203)		(8,453)		7,942		Net gains (losses) on qualifying fair-value hedging relationships	(143,332)		(70,660)		67,075		(146,917)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	2		0		(514)		(512)		Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	(170)		(24,264)		—		(24,434)
Net gains (losses) on derivatives and hedging activities in net interest income (3)	Net gains (losses) on derivatives and hedging activities in net interest income (3)	$	19,600	$	(3,203)	$	(8,967)	$	7,430	Net gains (losses) on derivatives and hedging activities in net interest income (3)	$	(143,502)	$	(94,924)	$	67,075	$	(171,351)

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

Nine Months Ended September 30, 2020 Advances Investments CO Bonds Total
Changes in estimated fair value:
Hedged items (attributable to risk being hedged) $ 530,727 $ 589,234 $ (26,013) $ 1,093,948
Derivatives (533,327) (614,242) 28,821 (1,118,748)
Net changes in estimated fair value before price alignment interest (2,600) (25,008) 2,808 (24,800)
Price alignment interest (1)
732 474 (159) 1,047
Net interest settlements on derivatives (2)
(83,275) (72,815) 43,844 (112,246)
Amortization/accretion of gains (losses) on active hedging relationships (13) 1,902 2,084 3,973
Net gains (losses) on qualifying fair-value hedging relationships (85,156) (95,447) 48,577 (132,026)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships 0 0 (36) (36)
Net gains (losses) on derivatives and hedging activities in net interest income (3)
$ (85,156) $ (95,447) $ 48,541 $ (132,062)


Nine Months Ended September 30, 2019
Nine Months Ended September 30, 2020										Nine Months Ended September 30, 2020
Changes in estimated fair value:	Changes in estimated fair value:									Changes in estimated fair value:
Hedged items (attributable to risk being hedged)	Hedged items (attributable to risk being hedged)	$	432,419	$	507,397	$	(109,183)	$	830,633	Hedged items (attributable to risk being hedged)	$	530,727	$	589,234	$	(26,013)	$	1,093,948
Derivatives	Derivatives	(431,365)		(535,526)		104,749		(862,142)		Derivatives	(533,327)		(614,242)		28,821		(1,118,748)
Net changes in estimated fair value before price alignment interest	Net changes in estimated fair value before price alignment interest	1,054		(28,129)		(4,434)		(31,509)		Net changes in estimated fair value before price alignment interest	(2,600)		(25,008)		2,808		(24,800)
Price alignment interest (1)	Price alignment interest (1)	477		(877)		(153)		(553)		Price alignment interest (1)	732		474		(159)		1,047
Net interest settlements on derivatives (2)	Net interest settlements on derivatives (2)	56,729		32,167		(34,564)		54,332		Net interest settlements on derivatives (2)	(83,275)		(72,815)		43,844		(112,246)
Amortization/accretion of gains (losses) on active hedging relationships	Amortization/accretion of gains (losses) on active hedging relationships	0		293		372		665		Amortization/accretion of gains (losses) on active hedging relationships	(13)		1,902		2,084		3,973
Net gains (losses) on qualifying fair-value hedging relationships	Net gains (losses) on qualifying fair-value hedging relationships	58,260		3,454		(38,779)		22,935		Net gains (losses) on qualifying fair-value hedging relationships	(85,156)		(95,447)		48,577		(132,026)
Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	0		0		(6,678)		(6,678)		Amortization/accretion of gains (losses) on discontinued fair-value hedging relationships	—		—		(36)		(36)
Net gains (losses) on derivatives and hedging activities in net interest income (3)	Net gains (losses) on derivatives and hedging activities in net interest income (3)	$	58,260	$	3,454	$	(45,457)	$	16,257	Net gains (losses) on derivatives and hedging activities in net interest income (3)	$	(85,156)	$	(95,447)	$	48,541	$	(132,062)

(1) Relates to derivatives for which variation margin payments are characterized as daily settled contracts.

(2) 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.

(3) Excludes the interest income/expense of the respective hedged items recorded in net interest income.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents the components of net gains (losses) on derivatives reported in other income.


	Three Months Ended September 30,				Nine Months Ended September 30,
Type of Hedge	2021		2020		2021		2020
Net gains (losses) on derivatives not designated as hedging instruments:
Economic hedges:
Interest-rate swaps	$	175	$	11,994	$	8,369	$	(8,287)
Swaptions	—		—		—		(323)
Interest-rate caps/floors	(72)		(228)		(468)		236
Interest-rate forwards	(459)		(917)		2,353		(11,840)
Net interest settlements	(1,333)		(11,579)		(9,571)		(40,491)
MDCs	328		433		(2,696)		8,581
Net gains (losses) on derivatives in other income	$	(1,361)	$	(297)	$	(2,013)	$	(52,124)

The following table presents the amortized cost of, and the related cumulative basis adjustments on, hedged items in qualifying fair-value hedging relationships.

September 30, 2020 Advances Investments CO Bonds
Amortized cost of hedged items (1)
$ 19,491,639 $ 10,216,030 $ 13,114,608
Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)
$ 794,820 $ 682,858 $ 31,892
For discontinued fair-value hedging relationships 856 50,648 0
Total cumulative fair-value hedging basis adjustments on hedged items $ 795,676 $ 733,506 $ 31,892


September 30, 2021	Advances		Investments		CO Bonds
Amortized cost of hedged items (1)	$	16,446,754	$	9,141,491	$	19,794,934

Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)	$	324,690	$	(71,459)	$	(100,409)
For discontinued fair-value hedging relationships	630		359,318		—
Total cumulative fair-value hedging basis adjustments on hedged items	$	325,320	$	287,859	$	(100,409)


December 31, 2019
December 31, 2020								December 31, 2020
Amortized cost of hedged items (1)	Amortized cost of hedged items (1)	$	17,320,223	$	8,394,665	$	17,039,657	Amortized cost of hedged items (1)	$	17,219,312	$	9,882,225	$	17,406,679

Cumulative basis adjustments included in amortized cost:	Cumulative basis adjustments included in amortized cost:							Cumulative basis adjustments included in amortized cost:
For active fair-value hedging relationships (2)	For active fair-value hedging relationships (2)	$	207,111	$	150,372	$	7,855	For active fair-value hedging relationships (2)	$	645,146	$	501,865	$	21,605
For discontinued fair-value hedging relationships	For discontinued fair-value hedging relationships	0		0		(36)		For discontinued fair-value hedging relationships	799		125,754		—
Total cumulative fair-value hedging basis adjustments on hedged items	Total cumulative fair-value hedging basis adjustments on hedged items	$	207,111	$	150,372	$	7,819	Total cumulative fair-value hedging basis adjustments on hedged items	$	645,945	$	627,619	$	21,605

(1) Includes only the portion of the amortized cost of the hedged items in qualifying fair-value hedging relationships.

(2) Excludes any offsetting effect of the net estimated fair value of the associated derivatives.

Note 7 - Consolidated Obligations

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 of the FHLBanks' consolidated obligations outstanding. The par values of the FHLBanks' consolidated obligations outstanding at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 totaled ~~$819.9~~$641.4 billion and ~~$1.0 trillion,~~$746.8 billion, respectively. As provided by the Bank Act and Finance Agency regulations, consolidated obligations are backed only by the financial resources of all FHLBanks.

~~Discount Notes.~~ ~~The following table presents our discount notes outstanding, all of which are due within one year of issuance.~~

Discount Notes September 30, 2020 December 31, 2019
Book value $ 19,461,386 $ 17,676,793
Par value $ 19,466,035 $ 17,713,204
Weighted average effective interest rate 0.14 % 1.59 %

2824

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Notes to Financial Statements, continued

(Unaudited, $ 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	September 30, 2021			December 31, 2020
Book value	$	12,713,890		$	16,617,079
Par value	12,715,399			16,620,486

Weighted average effective interest rate	0.05		%	0.12		%

CO Bonds. The following table presents our CO bonds outstanding by contractual maturity.


		September 30, 2020			December 31, 2019				September 30, 2021			December 31, 2020
Year of Contractual Maturity	Year of Contractual Maturity	Amount		WAIR%	Amount		WAIR%	Year of Contractual Maturity	Amount		WAIR%	Amount		WAIR%
Due in 1 year or less	Due in 1 year or less	$	28,157,490	0.30	$	23,404,785	1.88	Due in 1 year or less	$	19,458,850	0.27	$	31,126,310	0.29
Due after 1 year through 2 years	Due after 1 year through 2 years	5,208,700		0.79	6,881,120		1.93	Due after 1 year through 2 years	4,130,410		0.96	4,109,700		0.70
Due after 2 years through 3 years	Due after 2 years through 3 years	1,325,275		1.97	4,020,790		2.10	Due after 2 years through 3 years	3,001,900		0.68	1,753,010		1.34
Due after 3 years through 4 years	Due after 3 years through 4 years	798,600		2.00	1,234,375		2.18	Due after 3 years through 4 years	3,730,900		0.73	767,250		1.93
Due after 4 years through 5 years	Due after 4 years through 5 years	919,900		1.46	3,471,250		2.11	Due after 4 years through 5 years	5,420,250		1.06	837,300		1.13
Thereafter	Thereafter	4,638,150		3.01	5,650,600		3.11	Thereafter	7,514,000		2.13	4,652,000		2.91
Total CO bonds, par value	Total CO bonds, par value	41,048,115		0.78	44,662,920		2.09	Total CO bonds, par value	43,256,310		0.83	43,245,570		0.70
Unamortized premiums	Unamortized premiums	89,220			67,708			Unamortized premiums	87,809			87,133
Unamortized discounts	Unamortized discounts	(12,815)			(13,321)			Unamortized discounts	(11,725)			(12,703)
Unamortized concessions	Unamortized concessions	(8,259)			(9,902)			Unamortized concessions	(6,599)			(8,659)
Fair-value hedging adjustments, net		31,892			7,819
Fair-value hedging basis adjustments, net								Fair-value hedging basis adjustments, net	(100,409)			21,605
Total CO bonds	Total CO bonds	$	41,148,153		$	44,715,224		Total CO bonds	$	43,225,386		$	43,332,946

The following tables present the par value of our CO bonds outstanding by redemption feature and the earlier of the year of contractual maturity or next call date.


Redemption Feature	Redemption Feature	September 30, 2020		December 31, 2019		Redemption Feature	September 30, 2021		December 31, 2020
Non-callable / non-putable	Non-callable / non-putable	$	35,073,615	$	28,829,420	Non-callable / non-putable	$	26,902,810	$	36,809,070
Callable	Callable	5,974,500		15,833,500		Callable	16,353,500		6,436,500
Total CO bonds, par value	Total CO bonds, par value	$	41,048,115	$	44,662,920	Total CO bonds, par value	$	43,256,310	$	43,245,570

Year of Contractual Maturity or Next Call Date September 30, 2020 December 31, 2019
Due in 1 year or less $ 31,386,990 $ 36,243,785
Due after 1 year through 2 years 5,223,700 4,484,620
Due after 2 years through 3 years 1,255,275 742,790
Due after 3 years through 4 years 380,100 516,375
Due after 4 years through 5 years 603,900 380,750
Thereafter 2,198,150 2,294,600
Total CO bonds, par value $ 41,048,115 $ 44,662,920


Year of Contractual Maturity or Next Call Date	September 30, 2021		December 31, 2020
Due in 1 year or less	$	35,255,350	$	34,272,810
Due after 1 year through 2 years	4,482,410		4,159,700
Due after 2 years through 3 years	652,900		1,608,010
Due after 3 years through 4 years	608,900		443,750
Due after 4 years through 5 years	437,750		563,300
Thereafter	1,819,000		2,198,000
Total CO bonds, par value	$	43,256,310	$	43,245,570

~~The following table presents the par value of our CO bonds outstanding by interest-rate payment type.~~

Interest-Rate Payment Type September 30, 2020 December 31, 2019
Fixed-rate $ 20,805,115 $ 27,565,920
Step-up 15,000 30,000
Simple variable-rate 20,228,000 17,067,000
Total CO bonds, par value $ 41,048,115 $ 44,662,920

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

The following table presents the par value of our CO bonds outstanding by interest-rate payment type.


Interest-Rate Payment Type	September 30, 2021		December 31, 2020
Fixed-rate	$	33,086,810	$	24,750,570
Step-up	628,500		15,000
Simple variable-rate	9,541,000		18,480,000



Total CO bonds, par value	$	43,256,310	$	43,245,570

Note 8 - Affordable Housing Program

The following table summarizes the activity in our AHP funding obligation.

Three Months Ended September 30, Nine Months Ended September 30,
AHP Activity 2020 2019 2020 2019
Liability at beginning of period $ 36,661 $ 40,247 $ 38,084 $ 40,747
Assessment (expense) 1,886 3,265 7,273 11,408
Subsidy usage, net (1)
(3,966) (6,442) (10,776) (15,085)
Liability at end of period $ 34,581 $ 37,070 $ 34,581 $ 37,070


	Three Months Ended September 30,				Nine Months Ended September 30,
AHP Activity	2021		2020		2021		2020
Liability at beginning of period	$	30,765	$	36,661	$	34,402	$	38,084
Assessment (expense)	2,250		1,886		7,702		7,273
Subsidy usage, net (1)	(2,549)		(3,966)		(11,638)		(10,776)
Liability at end of period	$	30,466	$	34,581	$	30,466	$	34,581

(1) Subsidies disbursed are reported net of returns/recaptures of previously disbursed subsidies.

Note 9 - Capital

Classes of Capital Stock. We amended and restated our capital plan effective September 26, 2020. The amended plan, like the prior plan, divides our Class B stock into 2 sub-series: Class B-1 and Class B-2. However, under the amended plan, any Class B stock supporting activity requirements is classified as B-2, while all other Class B stock is classified as B-1. A member's Class B-1 stock is reclassified as B-2 as needed to help fulfill the member's activity stock requirement, and the member may be required to purchase additional Class B-2 stock to fully meet that requirement. Any excess stock is automatically classified as Class B-1.

~~Under the amended capital plan, PFIs may opt in to an activity stock (i.e., Class B-2 stock) requirement in connection with their sales of mortgage loans~~ to us under Advantage MPP. PFIs may elect this stock requirement under an MCC until such election is withdrawn. As of September 30, 2020, no such shares of Class B-2 stock were issued and outstanding.

The amended capital plan also permits the board of directors to authorize the issuance of Class A stock although, as of September 30, 2020, the board of directors had not authorized such issuance. If authorized, a member may elect to purchase Class A stock, rather than Class B-2 stock, to satisfy the member’s activity stock requirement, subject to certain restrictions.

Under our prior capital plan, Class B-1 was stock held by our members that was not subject to a redemption request. Class B-2 stock consisted solely of required stock that was subject to a redemption request.

The following table presents the capital stock outstanding by ~~sub-series under the prior and amended capital plan.~~sub-series.

September 30, 2020 December 31, 2019
Prior capital plan
Class B-1 issued and outstanding shares: 0 and 19,737,727, respectively $ — $ 1,973,773
Class B-2 issued and outstanding shares: 0 and 3,028, respectively — 303
Amended capital plan
Class B-1 issued and outstanding shares: 8,401,720 and 0, respectively 840,172 —
Class B-2 issued and outstanding shares: 13,834,979 and 0, respectively 1,383,498 —
Total Class B issued and outstanding shares: 22,236,699 and 19,740,755, respectively $ 2,223,670 $ 1,974,076


Capital stock outstanding	September 30, 2021		December 31, 2020
Class B-1	$	968,869	$	797,196
Class B-2	1,267,623		1,410,374

Total Class B	$	2,236,492	$	2,207,570

Mandatorily Redeemable Capital Stock.The following table presents the activity in our MRCS.


	Three Months Ended September 30,				Nine Months Ended September 30,
MRCS Activity	2021		2020		2021		2020
Liability at beginning of period	$	232,893	$	299,704	$	250,768	$	322,902
Reclassification from capital stock	4,449		496		4,730		13,843


Redemptions/repurchases	(186,900)		(37,750)		(205,056)		(74,331)
Accrued distributions	—		4		—		40
Liability at end of period	$	50,442	$	262,454	$	50,442	$	262,454

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

~~Dividends.~~ Our board of directors may, but is not required to, declare and pay dividends on our capital stock in either cash or capital stock or a combination thereof, as long as we are in compliance with Finance Agency regulations. The amount of the dividend to be paid is based on the average number of shares of each sub-series held by the member during the dividend payment period (applicable quarter).

Under our prior capital plan, which was in effect through September 25, 2020, the Class B-2 dividend was calculated at 80% of the amount of the Class B-1 dividend. The amended plan, however, does not mandate a specific difference between Class B-1 and Class B-2 dividend rates. Rather, the board of directors may set a dividend rate on Class B-2 stock that is equal to or greater than the rate on Class B-1 stock. The plan also authorizes the board of directors to set a dividend rate on Class A stock (if issued and outstanding) that is equal to or less than the rate on Class B-2 stock.

~~Mandatorily Redeemable Capital Stock.The following table presents the activity in our MRCS.~~

Three Months Ended September 30, Nine Months Ended September 30,
MRCS Activity 2020 2019 2020 2019
Liability at beginning of period $ 299,704 $ 174,193 $ 322,902 $ 168,876
Reclassification from capital stock 496 148,870 13,843 150,979
Proceeds from issuance (1)
0 0 0 3,704
Redemptions/repurchases (37,750) (43) (74,331) (540)
Accrued distributions 4 692 40 693
Liability at end of period $ 262,454 $ 323,712 $ 262,454 $ 323,712

~~(1)~~ ~~Represents a purchase of capital stock by a captive insurance company member, which is considered mandatorily redeemable as a result of the Final Membership Rule.~~

The following table presents MRCS by contractual year of redemption. The year of redemption is the later of (i) the final year of the five-year redemption period, or (ii) the first year in which a non-member no longer has an activity-based stock requirement.


MRCS Contractual Year of Redemption	MRCS Contractual Year of Redemption	September 30, 2020		December 31, 2019		MRCS Contractual Year of Redemption	September 30, 2021		December 31, 2020
Year 1 ~~(1)~~(2)	Year 1 ~~(1)~~(2)	$	9,289	$	680	Year 1 ~~(1)~~(2)	$	12,431	$	9,274
Year 2	Year 2	0		8,649		Year 2	471		—
Year 3	Year 3	26,723		0		Year 3	9,873		26,723
Year 4	Year 4	150,957		26,723		Year 4	4,270		150,957
Year 5	Year 5	13,843		150,958		Year 5	23,397		32,791
Thereafter ~~(2)~~(3)	Thereafter ~~(2)~~(3)	61,642		135,892		Thereafter ~~(2)~~(3)	—		31,023
Total MRCS	Total MRCS	$	262,454	$	322,902	Total MRCS	$	50,442	$	250,768

(1) Balances at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 include ~~$637~~$597 and ~~$680,~~$624, respectively, of Class B stock 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.

(2) Balance at September 30, 2021 includes $11,835 of Class B stock held by one captive insurance company whose membership was terminated on February 19, 2021 but will not be redeemed until the associated credit products and other obligations are no longer outstanding. Such amount was properly classified as "thereafter" as of December 31, 2020.

(3)Represents the five-year redemption period of Class B stock held by certain captive insurance companies which ~~begins~~began immediately upon their respective terminations of membership ~~no later than~~on February 19, ~~2021, in accordance with the Final Membership Rule. However, upon~~2021. Upon their respective terminations, we ~~currently intend to repurchase~~repurchased their excess stock ~~(if any) in accordance with our capital plan, the balances of which at September 30, 2020 and December 31, 2019 totaled~~ ~~$48,682~~ ~~and $61,642, respectively.~~totaling $18,063.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

The following table presents the distributions related to MRCS.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
MRCS Distributions	MRCS Distributions	2020		2019		2020		2019		MRCS Distributions	2021		2020		2021		2020
Recorded as interest expense	Recorded as interest expense	$	2,037	$	3,514	$	7,777	$	8,585	Recorded as interest expense	$	312	$	2,037	$	2,345	$	7,777
Recorded as distributions from retained earnings	Recorded as distributions from retained earnings	4		692		40		693		Recorded as distributions from retained earnings	13		4		97		40
Total	Total	$	2,041	$	4,206	$	7,817	$	9,278	Total	$	325	$	2,041	$	2,442	$	7,817

Capital Requirements. We are subject to 3 capital requirements under our capital plan and Finance Agency regulations as disclosed in Note 1312 - Capital in our ~~2019~~2020 Form 10-K. As presented in the following table, we were in compliance with ~~those~~these requirements at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Regulatory Capital Requirements	Regulatory Capital Requirements	Required		Actual		Required		Actual		Regulatory Capital Requirements	Required		Actual		Required		Actual
Risk-based capital	Risk-based capital	$	578,760	$	3,609,969	$	639,495	$	3,412,286	Risk-based capital	$	973,066	$	3,450,210	$	630,661	$	3,595,668

Total regulatory capital	Total regulatory capital	$	2,653,666	$	3,609,969	$	2,700,431	$	3,412,286	Total regulatory capital	$	2,478,416	$	3,450,210	$	2,636,990	$	3,595,668
Total regulatory capital-to-asset ratio		4.00%		5.44%		4.00%		5.05%
Total regulatory capital-to-assets ratio										Total regulatory capital-to-assets ratio	4.00%		5.57%		4.00%		5.45%

Leverage capital	Leverage capital	$	3,317,083	$	5,414,954	$	3,375,539	$	5,118,429	Leverage capital	$	3,098,020	$	5,175,315	$	3,296,238	$	5,393,502
Leverage ratio	Leverage ratio	5.00%		8.16%		5.00%		7.58%		Leverage ratio	5.00%		8.36%		5.00%		8.18%

~~Partial Recovery of Prior Capital Distribution to Financing Corporation.~~ The Competitive Equality Banking Act of 1987 was enacted in August 1987, which, among other things, provided for the recapitalization of the Federal Savings and Loan Insurance Corporation through a newly-chartered entity, FICO. The capitalization of FICO was provided by capital distributions from the FHLBanks to FICO in 1987, 1988 and 1989 that aggregated to $680 million in exchange for FICO nonvoting capital stock. Upon passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Bank's previous investment in capital stock of FICO was determined to be non-redeemable and, therefore, the Bank charged-off its prior capital distributions to FICO directly against retained earnings.

Upon the dissolution of FICO in October 2019, FICO determined that excess funds aggregating to $200 million were available for distribution to its sole stockholders, the FHLBanks. Specifically, the Bank received $10,574 during the nine months ended September 30, 2020 which was determined based on our proportionate ownership of FICO's nonvoting capital stock. The Bank treated the receipt of these funds as a partial recovery of the prior capital distributions made by the Bank to FICO. These funds have been credited to unrestricted retained earnings.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 10 - Accumulated Other Comprehensive Income

The following table presents a summary of the changes in the components of AOCI.

AOCI Rollforward Unrealized Gains (Losses) on AFS Securities Pension Benefits Total AOCI
Balance, June 30, 2020 $ 20,002 $ (24,111) $ (4,109)
OCI before reclassifications:
Net change in unrealized gains (losses) 77,290 0 77,290
Reclassifications from OCI to net income:
Pension benefits, net 0 867 867
Total other comprehensive income 77,290 867 78,157
Balance, September 30, 2020 $ 97,292 $ (23,244) $ 74,048
Balance, June 30, 2019 $ 71,967 $ (14,667) $ 57,300
OCI before reclassifications:
Net change in unrealized gains (losses) (2,139) 0 (2,139)
Reclassifications from OCI to net income:
Pension benefits, net 0 486 486
Total other comprehensive income (loss) (2,139) 486 (1,653)
Balance, September 30, 2019 $ 69,828 $ (14,181) $ 55,647

AOCI Rollforward Unrealized Gains (Losses) on AFS Securities Pension Benefits Total AOCI
Balance, December 31, 2019 $ 89,813 $ (22,437) $ 67,376
OCI before reclassifications:
Net change in unrealized gains (losses) 7,479 0 7,479
Reclassifications from OCI to net income:
Pension benefits, net 0 (807) (807)
Total other comprehensive income (loss) 7,479 (807) 6,672
Balance, September 30, 2020 $ 97,292 $ (23,244) $ 74,048
Balance, December 31, 2018 $ 52,986 $ (11,299) $ 41,687
OCI before reclassifications:
Net change in unrealized gains (losses) 16,842 0 16,842
Reclassifications from OCI to net income:
Pension benefits, net 0 (2,882) (2,882)
Total other comprehensive income (loss) 16,842 (2,882) 13,960
Balance, September 30, 2019 $ 69,828 $ (14,181) $ 55,647



AOCI Rollforward	Unrealized Gains (Losses) on AFS Securities		Pension Benefits		Total AOCI
Balance, June 30, 2021	$	214,952	$	(21,528)	$	193,424

OCI before reclassifications:
Net change in unrealized gains (losses)	(36,864)		—		(36,864)


Reclassifications from OCI to net income:


Pension benefits, net	—		(5,093)		(5,093)
Total other comprehensive income (loss)	(36,864)		(5,093)		(41,957)

Balance, September 30, 2021	$	178,088	$	(26,621)	$	151,467


Balance, June 30, 2020	$	20,002	$	(24,111)	$	(4,109)

OCI before reclassifications:
Net change in unrealized gains (losses)	77,290		—		77,290


Reclassifications from OCI to net income:


Pension benefits, net	—		867		867
Total other comprehensive income	77,290		867		78,157

Balance, September 30, 2020	$	97,292	$	(23,244)	$	74,048


AOCI Rollforward	Unrealized Gains (Losses) on AFS Securities		Pension Benefits		Total AOCI
Balance, December 31, 2020	$	136,921	$	(31,519)	$	105,402

OCI before reclassifications:
Net change in unrealized gains (losses)	41,167		—		41,167

Reclassifications from OCI to net income:

Pension benefits, net	—		4,898		4,898
Total other comprehensive income	41,167		4,898		46,065

Balance, September 30, 2021	$	178,088	$	(26,621)	$	151,467


Balance, December 31, 2019	$	89,813	$	(22,437)	$	67,376

OCI before reclassifications:
Net change in unrealized gains (losses)	7,479		—		7,479


Reclassifications from OCI to net income:

Pension benefits, net	—		(807)		(807)
Total other comprehensive income (loss)	7,479		(807)		6,672

Balance, September 30, 2020	$	97,292	$	(23,244)	$	74,048

3328

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 11 - Segment Information

The following table presents our financial performance by operating segment.


		Three Months Ended September 30, 2020						Three Months Ended September 30, 2019							Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
		Traditional		Mortgage Loans		Total		Traditional		Mortgage Loans		Total			Traditional		Mortgage Loans		Total		Traditional		Mortgage Loans		Total
Net interest income	Net interest income	$	65,392	$	(4,673)	$	60,719	$	38,149	$	12,175	$	50,324	Net interest income	$	49,655	$	8,306	$	57,961	$	65,392	$	(4,673)	$	60,719
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	0		124		124		0		(180)		(180)		Provision for (reversal of) credit losses	—		(16)		(16)		—		124		124
Other income (loss)	Other income (loss)	(16,480)		(397)		(16,877)		2,678		108		2,786		Other income (loss)	(8,779)		(88)		(8,867)		(16,480)		(397)		(16,877)
Other expenses	Other expenses	22,992		3,901		26,893		20,636		3,523		24,159		Other expenses	23,016		3,902		26,918		22,992		3,901		26,893
Income before assessments		25,920		(9,095)		16,825		20,191		8,940		29,131
Affordable Housing Program assessments		2,796		(910)		1,886		2,371		894		3,265
Net income		$	23,124	$	(8,185)	$	14,939	$	17,820	$	8,046	$	25,866
Income (loss) before assessments														Income (loss) before assessments	17,860		4,332		22,192		25,920		(9,095)		16,825
Affordable Housing Program assessments (credits)														Affordable Housing Program assessments (credits)	1,816		434		2,250		2,796		(910)		1,886
Net income (loss)														Net income (loss)	$	16,044	$	3,898	$	19,942	$	23,124	$	(8,185)	$	14,939

		Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019							Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
		Traditional		Mortgage Loans		Total		Traditional		Mortgage Loans		Total			Traditional		Mortgage Loans		Total		Traditional		Mortgage Loans		Total
Net interest income	Net interest income	$	177,645	$	13,688	$	191,333	$	121,594	$	45,813	$	167,407	Net interest income	$	177,792	$	12,006	$	189,798	$	177,645	$	13,688	$	191,333
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	0		172		172		0		(166)		(166)		Provision for (reversal of) credit losses	—		28		28		—		172		172
Other income (loss)	Other income (loss)	(43,771)		(3,032)		(46,803)		9,078		192		9,270		Other income (loss)	(31,388)		(223)		(31,611)		(43,771)		(3,032)		(46,803)
Other expenses	Other expenses	67,601		11,800		79,401		61,012		10,338		71,350		Other expenses	71,356		12,130		83,486		67,601		11,800		79,401
Income before assessments		66,273		(1,316)		64,957		69,660		35,833		105,493
Affordable Housing Program assessments		7,405		(132)		7,273		7,825		3,583		11,408
Net income		$	58,868	$	(1,184)	$	57,684	$	61,835	$	32,250	$	94,085
Income (loss) before assessments														Income (loss) before assessments	75,048		(375)		74,673		66,273		(1,316)		64,957
Affordable Housing Program assessments (credits)														Affordable Housing Program assessments (credits)	7,739		(37)		7,702		7,405		(132)		7,273
Net income (loss)														Net income (loss)	$	67,309	$	(338)	$	66,971	$	58,868	$	(1,184)	$	57,684

The following table presents our asset balances by operating segment.

By Date Traditional Mortgage Loans Total
September 30, 2020 $ 57,104,477 $ 9,237,185 $ 66,341,662
December 31, 2019 56,695,738 10,815,037 67,510,775


By Date	Traditional		Mortgage Loans		Total
September 30, 2021	$	54,389,932	$	7,570,462	$	61,960,394
December 31, 2020	57,409,111		8,515,645		65,924,756

3429

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 12 - Estimated Fair Values

The following tables present the carrying value and estimated fair value of each of our financial instruments. The total of the estimated fair values does not represent an estimate of our overall market value as a going concern, which would take into account, among other considerations, future business opportunities and the net profitability of assets and liabilities.

September 30, 2020
Estimated Fair Value
Carrying Netting
Financial Instruments Value Total Level 1 Level 2 Level 3
Adjustments (1)
Assets:
Cash and due from banks $ 130,595 $ 130,595 $ 130,595 $ 0 $ 0 $ —
Interest-bearing deposits 56,028 56,028 56,007 21 0 —
Securities purchased under agreements to resell 4,500,000 4,500,000 0 4,500,000 0 —
Federal funds sold 952,000 952,000 0 952,000 0 —
Trading securities 5,058,984 5,058,984 0 5,058,984 0 —
AFS securities 10,363,969 10,363,969 0 10,363,969 0 —
HTM securities 4,272,457 4,296,287 0 4,296,287 0 —
Advances 31,264,246 31,278,477 0 31,278,477 0 —
Mortgage loans held for portfolio, net 9,237,185 9,683,385 0 9,599,563 83,822 —
Accrued interest receivable 105,170 105,170 0 105,170 0 —
Derivative assets, net 319,838 319,838 0 24,966 0 294,872
Grantor trust assets (2)
27,428 27,428 27,428 0 0 —
Liabilities:
Deposits 1,299,227 1,299,227 0 1,299,227 0 —
Consolidated obligations:
Discount notes 19,461,386 19,463,824 0 19,463,824 0 —
Bonds 41,148,153 41,804,331 0 41,804,331 0 —
Accrued interest payable 64,322 64,322 0 64,322 0 —
Derivative liabilities, net 6,991 6,991 0 962,600 0 (955,609)
MRCS 262,454 262,454 262,454 — 0 —


	September 30, 2021
			Estimated Fair Value
	Carrying										Netting
Financial Instruments	Value		Total		Level 1		Level 2		Level 3		Adjustments (1)
Assets:
Cash and due from banks	$	1,953,744	$	1,953,744	$	1,953,744	$	—	$	—	$	—
Interest-bearing deposits	100,041		100,041		100,000		41		—		—
Securities purchased under agreements to resell	4,200,000		4,200,000		—		4,200,000		—		—
Federal funds sold	2,075,000		2,075,000		—		2,075,000		—		—
Trading securities	4,858,818		4,858,818		—		4,858,818		—		—
AFS securities	9,319,579		9,319,579		—		9,319,579		—		—
HTM securities	4,496,595		4,510,359		—		4,510,359		—		—
Advances	26,958,039		26,929,765		—		26,929,765		—		—
Mortgage loans held for portfolio, net	7,570,462		7,839,709		—		7,809,902		29,807		—
Accrued interest receivable	75,813		75,813		—		75,813		—		—
Derivative assets, net	231,280		231,280		—		83,678		—		147,602
Grantor trust assets (2)	60,129		60,129		60,129		—		—		—

Liabilities:
Deposits	1,736,009		1,736,009		—		1,736,009		—		—
Consolidated obligations:
Discount notes	12,713,890		12,713,966		—		12,713,966		—		—
Bonds	43,225,386		43,615,928		—		43,615,928		—		—
Accrued interest payable	64,042		64,042		—		64,042		—		—
Derivative liabilities, net	18,542		18,542		—		380,881		—		(362,339)
MRCS	50,442		50,442		50,442		—		—		—

3530

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)


		December 31, 2019													December 31, 2020
				Estimated Fair Value													Estimated Fair Value
		Carrying										Netting			Carrying										Netting
Financial Instruments	Financial Instruments	Value		Total		Level 1		Level 2		Level 3		Adjustments (1)		Financial Instruments	Value		Total		Level 1		Level 2		Level 3		Adjustments (1)
Assets:	Assets:													Assets:
Cash and due from banks	Cash and due from banks	$	220,294	$	220,294	$	220,294	$	0	$	0	$	—	Cash and due from banks	$	1,811,544	$	1,811,544	$	1,811,544	$	—	$	—	$	—
Interest-bearing deposits	Interest-bearing deposits	809,141		809,141		809,000		141		0		—		Interest-bearing deposits	100,026		100,026		100,000		26		—		—
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,500,000		1,500,000		0		1,500,000		0		—		Securities purchased under agreements to resell	2,500,000		2,500,000		—		2,500,000		—		—
Federal funds sold	Federal funds sold	2,550,000		2,550,000		0		2,550,000		0		—		Federal funds sold	1,215,000		1,215,000		—		1,215,000		—		—
Trading securities	Trading securities	5,016,649		5,016,649		0		5,016,649		0		—		Trading securities	5,094,703		5,094,703		—		5,094,703		—		—
AFS securities	AFS securities	8,484,478		8,484,478		0		8,484,478		0		—		AFS securities	10,144,899		10,144,899		—		10,144,899		—		—
HTM securities	HTM securities	5,216,401		5,216,206		0		5,216,206		0		—		HTM securities	4,701,302		4,723,796		—		4,723,796		—		—
Advances	Advances	32,480,108		32,425,749		0		32,425,749		0		—		Advances	31,347,486		31,290,664		—		31,290,664		—		—
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	10,815,037		10,943,595		0		10,935,787		7,808		—		Mortgage loans held for portfolio, net	8,515,645		8,922,185		—		8,860,853		61,332		—
Accrued interest receivable	Accrued interest receivable	131,822		131,822		0		131,822		0		—		Accrued interest receivable	103,076		103,076		—		103,076		—		—
Derivative assets, net	Derivative assets, net	208,008		208,008		0		60,941		0		147,067		Derivative assets, net	283,082		283,082		—		20,557		—		262,525
Grantor trust assets (2)	Grantor trust assets (2)	26,050		26,050		26,050		0		0		—		Grantor trust assets (2)	51,032		51,032		51,032		—		—		—

Liabilities:	Liabilities:													Liabilities:
Deposits	Deposits	960,304		960,304		0		960,304		0		—		Deposits	1,375,206		1,375,206		—		1,375,206		—		—
Consolidated obligations:	Consolidated obligations:													Consolidated obligations:
Discount notes	Discount notes	17,676,793		17,679,210		0		17,679,210		0		—		Discount notes	16,617,079		16,617,976		—		16,617,976		—		—
Bonds	Bonds	44,715,224		45,036,500		0		45,036,500		0		—		Bonds	43,332,946		43,952,206		—		43,952,206		—		—
Accrued interest payable	Accrued interest payable	178,981		178,981		0		178,981		0		—		Accrued interest payable	63,581		63,581		—		63,581		—		—
Derivative liabilities, net	Derivative liabilities, net	3,206		3,206		0		319,061		0		(315,855)		Derivative liabilities, net	22,979		22,979		—		762,997		—		(740,018)
MRCS	MRCS	322,902		322,902		322,902		0		0		—		MRCS	250,768		250,768		250,768		—		—		—

(2) Included in other assets on the statement of condition.

Summary of Valuation Techniques and Significant Inputs. A description of the valuation techniques, significant inputs, and levels of fair value hierarchy is disclosed in Note 1716 - Estimated Fair Values in our ~~2019~~2020 Form 10-K. No significant changes have been made in the current year.

3631

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Estimated Fair Value Measurements. The following tables present, by level within the fair value hierarchy, the estimated fair value of our financial assets and liabilities that are recorded at estimated fair value on a recurring or non-recurring basis on our statement of condition.

Netting
September 30, 2020 Total Level 1 Level 2 Level 3
Adjustments (1)
Trading securities:
U.S. Treasury securities $ 5,058,984 $ 0 $ 5,058,984 $ 0 $ —
Total trading securities 5,058,984 0 5,058,984 0 —
AFS securities:
GSE and TVA debentures 4,025,604 0 4,025,604 0 —
GSE MBS 6,338,365 0 6,338,365 0 —
Total AFS securities 10,363,969 0 10,363,969 0 —
Derivative assets:
Interest-rate related 319,637 0 24,765 0 294,872
MDCs 201 0 201 0 0
Total derivative assets, net 319,838 0 24,966 0 294,872
Grantor trust assets (2)
27,428 27,428 0 0 —
Total assets at recurring estimated fair value $ 15,770,219 $ 27,428 $ 15,447,919 $ 0 $ 294,872
Derivative liabilities:
Interest-rate related $ 6,741 $ 0 $ 962,350 $ 0 $ (955,609)
MDCs 250 0 250 0 0
Total derivative liabilities, net 6,991 0 962,600 0 (955,609)
Total liabilities at recurring estimated fair value $ 6,991 $ 0 $ 962,600 $ 0 $ (955,609)
Mortgage loans held for portfolio (3)
$ 1,511 $ 0 $ 0 $ 1,511 $ —
Total assets at non-recurring estimated fair value $ 1,511 $ 0 $ 0 $ 1,511 $ —


									Netting
September 30, 2021	Total		Level 1		Level 2		Level 3		Adjustments (1)
Trading securities:
U.S. Treasury securities	$	4,858,818	$	—	$	4,858,818	$	—	$	—
Total trading securities	4,858,818		—		4,858,818		—		—
AFS securities:
GSE and TVA debentures	2,728,667		—		2,728,667		—		—
GSE MBS	6,590,912		—		6,590,912		—		—

Total AFS securities	9,319,579		—		9,319,579		—		—
Derivative assets:
Interest-rate related	231,199		—		83,597		—		147,602
MDCs	81		—		81		—		—
Total derivative assets, net	231,280		—		83,678		—		147,602
Other assets:
Grantor trust assets	60,129		60,129		—		—		—
Total assets at recurring estimated fair value	$	14,469,806	$	60,129	$	14,262,075	$	—	$	147,602

Derivative liabilities:
Interest-rate related	$	18,285	$	—	$	380,624	$	—	$	(362,339)
MDCs	257		—		257		—		—
Total derivative liabilities, net	18,542		—		380,881		—		(362,339)
Total liabilities at recurring estimated fair value	$	18,542	$	—	$	380,881	$	—	$	(362,339)

Mortgage loans held for portfolio (2)	$	1,141	$	—	$	—	$	1,141	$	—
Total assets at non-recurring estimated fair value	$	1,141	$	—	$	—	$	1,141	$	—

3732

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Netting
December 31, 2019 Total Level 1 Level 2 Level 3
Adjustments (1)
Trading securities:
U.S. Treasury securities $ 5,016,649 $ 0 $ 5,016,649 $ 0 $ —
Total trading securities 5,016,649 0 5,016,649 0 —
AFS securities:
GSE and TVA debentures 3,926,852 0 3,926,852 0 —
GSE MBS 4,557,626 0 4,557,626 0 —
Total AFS securities 8,484,478 0 8,484,478 0 —
Derivative assets:
Interest-rate related 207,903 0 60,836 0 147,067
MDCs 105 0 105 0 —
Total derivative assets, net 208,008 0 60,941 0 147,067
Grantor trust assets (2)
26,050 26,050 0 0 —
Total assets at recurring estimated fair value $ 13,735,185 $ 26,050 $ 13,562,068 $ 0 $ 147,067
Derivative liabilities:
Interest-rate related $ 3,203 $ 0 $ 319,058 $ 0 $ (315,855)
MDCs 3 0 3 0 0
Total derivative liabilities, net 3,206 0 319,061 0 (315,855)
Total liabilities at recurring estimated fair value $ 3,206 $ 0 $ 319,061 $ 0 $ (315,855)
Mortgage loans held for portfolio (4)
$ 1,504 $ 0 $ 0 $ 1,504 $ —
Total assets at non-recurring estimated fair value $ 1,504 $ 0 $ 0 $ 1,504 $ —


									Netting
December 31, 2020	Total		Level 1		Level 2		Level 3		Adjustments (1)
Trading securities:
U.S. Treasury securities	$	5,094,703	$	—	$	5,094,703	$	—	$	—
Total trading securities	5,094,703		—		5,094,703		—		—
AFS securities:
GSE and TVA debentures	3,503,137		—		3,503,137		—		—
GSE MBS	6,641,762		—		6,641,762		—		—
Total AFS securities	10,144,899		—		10,144,899		—		—
Derivative assets:
Interest-rate related	282,060		—		19,535		—		262,525
MDCs	1,022		—		1,022		—		—
Total derivative assets, net	283,082		—		20,557		—		262,525
Other assets:
Grantor trust assets	51,032		51,032		—		—		—
Total assets at recurring estimated fair value	$	15,573,716	$	51,032	$	15,260,159	$	—	$	262,525

Derivative liabilities:
Interest-rate related	$	22,979	$	—	$	762,997	$	—	$	(740,018)
MDCs	—		—		—		—		—
Total derivative liabilities, net	22,979		—		762,997		—		(740,018)
Total liabilities at recurring estimated fair value	$	22,979	$	—	$	762,997	$	—	$	(740,018)

Mortgage loans held for portfolio (3)	$	1,460	$	—	$	—	$	1,460	$	—
Total assets at non-recurring estimated fair value	$	1,460	$	—	$	—	$	1,460	$	—

(2) ~~Included in other assets on the statement of condition.~~

~~(3)~~ Amounts are as of the date the fair-value adjustment was recorded during the nine months ended September 30, ~~2020.~~2021.

~~(4)~~(3) Amounts are as of the date the fair-value adjustment was recorded during the year ended December 31, ~~2019.~~2020.

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 13 - Commitments and Contingencies

The following table presents our off-balance-sheet commitments at their notional amounts.

September 30, 2020
Type of Commitment Expire within one year Expire after one year Total
Standby letters of credit outstanding
$ 416,488 $ 100,152 $ 516,640
Unused lines of credit (1)
949,984 0 949,984
Commitments to fund additional advances (2)
10,500 0 10,500
Commitments to fund or purchase mortgage loans, net (3)
261,771 0 261,771
Unsettled CO bonds, at par 250,000 0 250,000


	September 30, 2021
Type of Commitment	Expire within one year		Expire after one year		Total
Standby letters of credit outstanding	$	70,984	$	303,170	$	374,154
Unused lines of credit (1)	923,200		—		923,200
Commitments to fund additional advances (2)	33,000		—		33,000
Commitments to fund or purchase mortgage loans, net (3)	139,076		—		139,076
Unsettled CO bonds, at par	640,000		—		640,000

(1) Maximum line of credit amount per member is ~~$50,000.~~$100,000.

(2) Generally for periods up to six months.

(3) Generally for periods up to 91 days.

~~Table of Contents~~

~~Notes to Financial Statements, continued~~

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

Liability for Credit Losses. We monitor the creditworthiness of our members that have standby letters of credit and lines of credit. As standby letters of credit and lines of credit are subject to the same collateralization and borrowing limits that apply to advances and are fully collateralized at the time of issuance, we have not recorded a liability for credit losses on these credit products.

Legal Proceedings. We are subject to legal proceedings arising in the normal course of business. We record an accrual for a loss contingency when it is probable that a loss for which we could be liable has been incurred and the amount can be reasonably estimated. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these proceedings could have a material effect on our financial condition, results of operations or cash flows.

Additional discussion of other commitments and contingencies is provided in Note 4 - Advances; Note 5 - Mortgage Loans Held for Portfolio; Note 6 - Derivatives and Hedging Activities; Note 7 - Consolidated Obligations; Note 9 - Capital; and Note 12 - Estimated Fair Values.

Table of Contents

Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

Note 14 - Related Party and Other Transactions

Transactions with Related Parties. The following table presents the aggregate balances of capital stock and advances outstanding for directors' financial institutions and their balances as a percent of the total balances on our statement of condition.

September 30, 2020 December 31, 2019
Balances with Directors' Financial Institutions Par value % of Total Par value % of Total
Capital stock $ 423,986 17 % $ 57,133 2 %
Advances 3,544,862 12 % 698,699 2 %


	September 30, 2021				December 31, 2020
Balances with Directors' Financial Institutions	Par value		% of Total		Par value		% of Total
Capital stock	$	433,736	19	%	$	426,003	17	%
Advances	3,239,201		12	%	5,397,433		18	%

The par values at September 30, ~~2020~~2021 reflect changes in the composition of directors' financial institutions effective January 1, ~~2020,~~2021, due to changes in board membership resulting from the ~~2019~~2020 director election.

The following table presents our transactions with directors' financial institutions, taking into account the beginning and ending dates of the directors' terms, merger activity and other changes in the composition of directors' financial institutions.


Transactions with Directors' Financial Institutions	Transactions with Directors' Financial Institutions	Three Months Ended September 30,				Nine Months Ended September 30,				Transactions with Directors' Financial Institutions	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net capital stock issuances (redemptions and repurchases)	Net capital stock issuances (redemptions and repurchases)	$	450	$	268	$	78,071	$	4,836	Net capital stock issuances (redemptions and repurchases)	$	—	$	450	$	—	$	78,071
Net advances (repayments)	Net advances (repayments)	(784,706)		57,019		(1,504,938)		142,464		Net advances (repayments)	(146,031)		(784,706)		(2,189,295)		(1,504,938)
Mortgage loan purchases	Mortgage loan purchases	7,390		7,954		34,254		19,282		Mortgage loan purchases	18,293		7,390		47,915		34,254

Transactions with Other FHLBanks. Occasionally, we loan or borrow short-term funds to/from other FHLBanks. The following table presents the loans to/borrowings from other FHLBanks.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Loans to other FHLBanks	Loans to other FHLBanks	2020		2019		2020		2019		Loans to other FHLBanks	2021		2020		2021		2020
Principal repayments										Principal repayments	$	10,000	$	60,000	$	30,000	$	80,000
Disbursements	Disbursements	$	(60,000)	$	0	$	(80,000)	$	0	Disbursements	(10,000)		(60,000)		(30,000)		(80,000)
Principal repayments		60,000		0		80,000		0

Borrowings from other FHLBanks
Proceeds from borrowings		$	0	$	250,000	$	0	$	250,000
Principal repayments		0		(250,000)		0		(250,000)

There were 0 loans to or borrowings from other FHLBanks outstanding at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

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Notes to Financial Statements, continued

(Unaudited, $ amounts in thousands unless otherwise indicated)

DEFINED TERMS

2005 SERP: Federal Home Loan Bank of Indianapolis 2005 Supplemental Executive Retirement Plan, as amended

ABS: Asset-Backed Securities

Advance: Secured loan to members, former members or Housing Associates

AFS: Available-for-Sale

Agency: GSE and Ginnie Mae

AHP: Affordable Housing Program

AMA: Acquired Member Assets

AOCI: Accumulated Other Comprehensive Income (Loss)

Bank Act: Federal Home Loan Bank Act of 1932, as amended

bps: basis points

CARES Act: Coronavirus Aid, Relief and Economic Security Act

CDFI: Community Development Financial Institution

CE: Credit Enhancement

CFI: Community Financial Institution, an FDIC-insured depository institution with average total assets below an annually- adjusted limit established by the Finance Agency Director based on the Consumer Price Index

CFPB: Bureau of Consumer Financial Protection

CFTC: United States Commodity Futures Trading Commission

Clearinghouse: A United States Commodity Futures Trading Commission-registered derivatives clearing organization

CME: CME Clearing

CMO: Collateralized Mortgage Obligation

CO bond: Consolidated Obligation bond

COVID-19: Coronavirus Disease 2019

DB Plan: Pentegra Defined Benefit Pension Plan for Financial Institutions, as amended

DC Plan: Collectively, the Pentegra Defined Contribution Retirement Savings Plan for Financial Institutions, as amended, in effect through October 1, 2020 and the Federal Home Loan Bank of Indianapolis Retirement Savings Plan, commencing October 2, 2020

DDCP: Directors' Deferred Compensation Plan

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended

EFFR: Effective Federal Funds Rate

Exchange Act: Securities Exchange Act of 1934, as amended

Fannie Mae: Federal National Mortgage Association

FASB: Financial Accounting Standards Board

FCA: United Kingdom Financial Conduct Authority

FDIC: Federal Deposit Insurance Corporation

FHA: Federal Housing Administration

FHLBank: A Federal Home Loan Bank

FHLBanks: The 11 Federal Home Loan Banks or a subset thereof

FHLBank System: The 11 Federal Home Loan Banks and the Office of Finance

~~FICO:~~ ~~The Financing Corporation~~

FICO®: Fair Isaac Corporation, the creators of the FICO credit score

Final Membership Rule: Final Rule on FHLBank Membership issued by the Finance Agency effective February 19, 2016

Finance Agency: Federal Housing Finance Agency, successor to Finance Board

Finance Board: Federal Housing Finance Board, predecessor to Finance Agency

FLA: First Loss Account

FOMC: Federal Open Market Committee

Form 8-K: Current Report on Form 8-K as filed with the SEC under the Exchange Act

Form 10-K: Annual Report on Form 10-K as filed with the SEC under the Exchange Act

Form 10-Q: Quarterly Report on Form 10-Q as filed with the SEC under the Exchange Act

~~FRB:~~ ~~Federal Reserve Board~~

Freddie Mac: Federal Home Loan Mortgage Corporation

Frozen SERP: Federal Home Loan Bank of Indianapolis Supplemental Executive Retirement Plan, frozen effective December 31, 2004

GAAP: Generally Accepted Accounting Principles in the United States of America

Ginnie Mae: Government National Mortgage Association

GLB Act: Gramm-Leach-Bliley Act of 1999, as amended

GSE: United States Government-Sponsored Enterprise

HERA: Housing and Economic Recovery Act of 2008, as amended

Housing Associate: Approved lender under Title II of the National Housing Act of 1934 that is either a government agency or is chartered under federal or state law with rights and powers similar to those of a corporation

Table of Contents

HTM: Held-to-Maturity

HUD: United States Department of Housing and Urban Development

JCE Agreement: Joint Capital Enhancement Agreement, as amended, among the 11 FHLBanks

KESP: Key Employee Severance Policy

LCH: LCH.Clearnet LLC

~~Table of Contents~~

LIBOR: London Interbank Offered Rate

LRA: Lender Risk Account

LTV: Loan-to-Value

MAP-21: Moving Ahead for Progress in the 21st Century Act, enacted on July 6, 2012

MBS: Mortgage-Backed Securities

MCC: Master Commitment Contract

MDC: Mandatory Delivery Commitment

Moody's: Moody's Investor Services

MPF: Mortgage Partnership Finance®

MPP: Mortgage Purchase Program, including Original and Advantage unless indicated otherwise

MRCS: Mandatorily Redeemable Capital Stock

MVE: Market Value of Equity

NRSRO: Nationally Recognized Statistical Rating Organization

OCC: Office of the Comptroller of the Currency

OCI: Other Comprehensive Income (Loss)

OIS: Overnight-Indexed Swap

ORERC: Other Real Estate-Related Collateral

OTTI: Other-Than-Temporary Impairment or -Temporarily Impaired (as the context indicates)

PFI: Participating Financial Institution

PMI: Primary Mortgage Insurance

REMIC: Real Estate Mortgage Investment Conduit

REO: Real Estate Owned

RMBS: Residential Mortgage-Backed Securities

S&P: Standard & Poor's Rating Service

Safety and Soundness Act: Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended

SBA: Small Business Administration

SEC: Securities and Exchange Commission

Securities Act: Securities Act of 1933, as amended

SERP: ~~Federal Home Loan Bank of Indianapolis~~Collectively, the 2005 ~~Supplemental Executive Retirement Plan and/or a similar frozen plan~~SERP and the Frozen SERP

SETP: Federal Home Loan Bank of Indianapolis 2016 Supplemental Executive Thrift Plan, as amended and restated

SMI: Supplemental Mortgage Insurance

SOFR: Secured Overnight Financing Rate

TBA: To Be Announced, a forward contract for the purchase or sale of MBS at a future agreed-upon date for an established price

TDR: Troubled Debt Restructuring

TVA: Tennessee Valley Authority

UPB: Unpaid Principal Balance

VaR: Value at Risk

WAIR: Weighted-Average Interest Rate

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Item 2. 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 our ~~2019~~2020 Form 10-K and the interim Financial Statements and related Notes to Financial Statements contained in Item 1. Financial Statements.

Unless otherwise stated, amounts disclosed in this Item 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.

Executive Summary

Overview. As 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 and therefore~~cooperative. Therefore, it is generally designed to expand and contract in asset size as the needs of our members and their communities ~~change over time.~~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 issuance of~~by issuing capital stock to our members.

Our primary source of revenue is interest earned on advances, mortgage loans, and investments, including MBS.

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

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

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

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

~~COVID-19 Pandemic.~~The effects of the COVID-19 pandemic, and the fiscal, monetary, and social-distancing mitigation actions taken in response, on the global and U.S. economies continue to evolve, with the full duration and long-term impact of the pandemic remaining uncertain. At the end of the third quarter 2020, confirmed cases of COVID-19 were again rapidly rising in the U.S., signaling a renewed surge in the virus. Uneven economic reopenings across the U.S. and a trend of returning to shelter-in-place, stay-at-home, travel restrictions, and business closures protocols, caused by the resurgence of the pandemic, creates headwinds for the economy. Pre-pandemic economic growth and financial market stability will likely not completely return until an effective vaccine and enhanced therapeutic treatments are widely available.rates.

Economy and Financial ~~Markets~~.Markets. The federal government has enacted several financial relief programs to help offset declines in business and family incomes. The American Rescue Plan Act of 2021, the third major COVID-19 relief bill, was passed by the U.S. ~~economy rebounded~~Congress in March 2021. This legislation provided significant financial relief to businesses and individuals affected by the COVID-19 pandemic, including extending unemployment assistance programs to September 6, 2021. Another major relief bill is currently under consideration by Congress.

In October 2021, the Bureau of Labor Statistics reported that the U.S. unemployment rate had declined to 4.8% in September 2021, compared to 5.9% in June 2021 and 6.7% in December 2020. If COVID-19 vaccines continue to be successfully administered and the virus, along with its variants, is effectively contained, business conditions are expected to continue to improve and the unemployment rate could continue to decline in the ~~third quarter 2020 due to unprecedented federal government fiscal relief combined with FRB monetary policy support to fight the impact of COVID-19. The~~ United States.

U.S. real gross domestic product ("GDP") ~~advanced estimate rose 33.1%~~increased at an ~~annualized~~annual rate ~~for the third quarter 2020, following the second quarter 2020 COVID-19 induced loss~~ of ~~-31.4%. The economic boost~~2.0% (advance estimate) in the third quarter ~~can be attributed~~of 2021 after increasing at annual rates of 6.3% (revised) and 6.7% (revised) in the second and first quarters of 2021, according to ~~business reopenings, government fiscal support for consumers, households, and businesses, continued low interest~~the Bureau of Economic Analysis. Recent changes in unemployment rates and ~~smoothly functioning financial~~GDP reflect the continued economic recovery, reopening of establishments, and ~~capital markets, but~~continued government response related to the ~~economy still has a long way to go to reach pre-pandemic performance.~~

COVID-19 pandemic.

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~~While the economy gained strength~~Conditions in U.S. Housing Markets. The seasonally adjusted annual rate of U.S. home sales declined by 4% in September of 2021, compared to September of 2020, attributed to low housing inventory levels and higher home prices in the third quarter ~~2020, it has not fully recovered, and appears to be entering a slowdown phase. According to the Bureau~~ of Economic Analysis preliminary review, third quarter 2020 real GDP is 2.9% below the first quarter 2020 level. Recent trends in "high frequency economic data", such as mobility, travel, petroleum usage, new business applications, business reopenings, bankruptcies, hours worked, and unemployment claims, that incorporate the growing

COVID-19 infection rate information point to slowing economic activity. This trend is exacerbated by the lack of additional federal stimulus relief needed by consumers, households, small business, and state/local governments. These emerging trends are reflected in the labor market. Despite the surge in third quarter 2020 real GDP, monthly nonfarm payroll increases fell from 4.8 million in June 2020 to 0.6 million in September 2020. Moreover, although 11.4 million jobs have been recovered since April 2020, a deficit of about 10.7 million jobs remains today. The U.S. labor market, particularly the leisure and hospitality industries, remain challenged and will likely continue to be until a vaccine combined with enhanced therapeutics are widely available to control COVID-19. Layering the uncertainty of the impact of the presidential and congressional elections, particularly if contested, on top of the current economic environment may lead to a period of economic uncertainty and financial market volatility through the end of the year.2021.

Unprecedented monetary policy action taken by the FRB this year in response to COVID-19 served to quickly promote financial market stability in the U.S. and abroad by providing ample liquidity and credit flows and preserving the smooth functioning of capital markets-supported by lower interest rates for the foreseeable future. FRB forward guidance has made it clear that it does not plan to raise interest rates until the economy achieves full employment and inflation is back on track to exceed its 2.0% objective. The FRB has so far accomplished this using three monetary policy mechanisms.

First, at the outset of the pandemic in early March 2020, the FRB reduced its policy rate from a range of 1.50% to 1.75% to its "zero lower bound" of 0% to 0.25%. Lower short-term interest rate borrowing costs for consumers, households, and businesses, along with pent-up demand and fiscal relief, has stimulated spending, driving third quarter 2020 real GDP higher. For example, of the net 33% third quarter 2020 real GDP growth estimate, 25 percentage points of the increase is attributed to consumer spending, 7 percentage points to increased spending on business inventories, and 5 percentage points to business fixed investment. These increases were offset by decreases in net exports and government spending of 3 and 1 percentage points, respectively. FOMC minutes and FRB policy maker "forward guidance" public commentary strongly suggest the policy rate will remain at the "zero lower bound" until the pandemic is controlledBusiness closures and the ~~economy is firmly on a positive track-possibly as long as past 2023.~~

~~Second,~~resulting spike in ~~late March~~unemployment during 2020 ~~the FRB committed~~caused many homeowners to large scale asset purchases, referred to as quantitative easing. Throughout this year, the FRB has increased its holding of Treasury securities and MBS, including commercial MBS, issued by government agencies or GSEs in "the amounts needed to support smooth market functioning and effective transmission of monetary policy." At the end of the third quarter 2020, the FRB’s total assets stood at $7.1 trillion, representing an increase of $2.9 trillion year-to-date. The bulk of FRB purchases have been in U.S. Treasury securities and Agency MBS while a much smaller volume of corporate debt, high-yield debt, loans, and money market mutual funds have been purchased to support the smooth function of capital markets.

The FRB asset purchase program has been very successful in supporting the economy and financial market stability. The Chicago Board Options Exchange Volatility Index (VIX), a key financial benchmark for stock market volatility, dropped from its high in March 2020 at 83 points to 26 points at the end of third quarter. The low interest rate environment created by the FRB has supported the U.S. equity markets. Long-term interest rates, as benchmarked by the 10-year U.S. Treasury, have been driven to historically low levels in the 0.60% to 0.90% range. With respect to the credit markets, the FRB low-rate environment and asset purchases have driven spreads down to near pre-pandemic levels. The Bloomberg Barclays Investment Grade U.S. Corporate Bond index ended the third quarter 2020 at an option adjusted spread ("OAS") of 125 bps, well below the COVID-19 high of 381 bps. Similarly, the Bloomberg Barclays High Yield Index OAS decreased to 502 bps, significantly down from the pandemic peak of 1,099 bps. FRB actions have also provided significant support for the MBS TBA market. According to the Bloomberg Fannie Mae 30-year OAS Index, spreads have tightened from a high of 136 bps at the end of the first quarter 2020 to a low of 7 bps at the end of the third quarter 2020.

Third, the FRB has adopted a new policy framework for managing inflation. Over the past number of years, the economy has not generated enough inflation to reach the FRB target of 2.0% annually. To counter this, the FRB has moved to targeting an "average inflation rate." This means the FRB will let inflation move above the 2.0% target for a period before raising rates, adding support to the view that interest rates will remain lower, and longer, for this cycle.

~~Table of Contents~~

The COVID-19 pandemic hit Indiana at a time when its economy was already slowing. Moody’s Analytics forecast that the state’s Gross State Product ("GSP") for the full year 2020 will approximate $323 billion, below 2019’s GSP of $341 billion. Moreover, Moody’s estimates that the 2019 pre-pandemic GSP of $341 billion will not be reached until sometime in early 2022. With respect to unemployment, Moody’s estimates that the state’s unemployment rate will be 6.28% in the fourth quarter of 2020, significantly higher than the 3.2% unemployment rate in the fourth quarter of 2019. Over the longer-term, Moody’s believes that slowing population growth and weaknesses in manufacturing will hold job growth back, causing Indiana to lag the rest of the country in economic growth.

The COVID-19 pandemic pushed Michigan’s weak economy into a recession. Moody’s Analytics estimates that GSP for the full year 2020 will be $439 billion, well below the state’s 2019 pre-pandemic GSP of $474 billion. Looking forward, Moody’s forecasts that Michigan’s GSP will not recover to 2019 levels until late 2022. Regarding unemployment, Moody’s projects that the state’s unemployment rate in the fourth quarter of 2020 will be about 6.97%, far above the pre-pandemic rate of 3.9% in the fourth quarter of 2019. Unfortunately, Moody’s does not see Michigan’s unemployment rate returning to pre-COVID-19 levels in the next 10 years. All together, Michigan faces an uphill battle to achieve pre-pandemic economic growth. Michigan's strained state and local government finances, a labor market reliant on the service sector, and a persistent out-migration trend present significant headwinds.

~~Conditions in the U.S. Housing Market.~~Demand for homes is robust, driving home prices higher. The COVID-19 pandemic combined with historically low mortgage finance rates, firmly below 3.0% for a 30-year fixed rate Agency mortgage, has driven demand to record levels for 1-4 single family housing. The Mortgage Bankers Association Mortgage Applications Purchase Index is well above its year-ago level at approximately 21.6% higher. In September 2020, the CoreLogic Home Price Index advanced 6.7% year-over-year. Across the board, the numbers point to a very strong housing market. Pending home sales are up 20.5%seek relief from their ~~year-ago levels as~~mortgage payments, resulting in higher rates of ~~September 30, 2020. Existing home sales are up by 20.9% this year compared~~mortgage loan delinquency. Mortgage loan delinquency rates have declined in 2021 due to year-to-date September 2019. New home sales followed suit with annualized unit sales of 595 thousand in September 2020, well above the 570 annualized units sold in April 2020. The market consensus is that the drivers of housing demand will stay in play for the remainder of 2020businesses reopening and ~~into next year.~~reduced unemployment.

Interest Rate Levels and Volatility. ~~FRB actions to drive its policy rate down to the “zero lower bound”~~The level and ~~engage in asset purchases supported by "forward guidance" communication has made it clear that the FRB does not plan to raise~~volatility of interest rates ~~any time soon. Future~~and credit spreads were affected by several factors ~~that may cause~~during the ~~FRB to increase interest rates include: (1)~~three and nine months ended September 30, 2021, principally the continued economic recovery from the COVID-19 pandemic ~~is under control with an effective vaccine~~ and ~~therapeutic drugs widely available; (2)~~efforts in response by the Federal Reserve to maintain low short-term interest rates and facilitate liquidity. Overall economic conditions and financial regulation also continue to be influencing factors.

On March 15, 2020, the FOMC lowered the federal funds rate to a target range of 0.0% to 0.25%, noting that the COVID-19 pandemic had harmed communities and disrupted economic activity in many countries, including the United States. At its meeting in November 2021, the FOMC maintained the federal funds target range, and signaled that it would begin the process of gradually tapering its purchases of Treasury securities and Agency MBS, as the economic recovery remains broadly on track. While still characterizing inflation as transitory, Federal Reserve officials acknowledged that the supply chain disruptions have created sizeable price increases in some parts of the economy ~~is on~~that could last longer than previously assumed.

The following table presents certain key interest rates.



	Three-Month Average				Nine-Month Average				Period End
	September 30,				September 30,				September 30,		December 31,
	2021		2020		2021		2020		2021		2020
Federal Funds Effective	0.09	%	0.09	%	0.08	%	0.45	%	0.06	%	0.09	%
SOFR	0.05	%	0.09	%	0.04	%	0.45	%	0.05	%	0.07	%
Overnight LIBOR	0.08	%	0.08	%	0.08	%	0.46	%	0.08	%	0.08	%
1-week OIS	0.09	%	0.09	%	0.08	%	0.45	%	0.08	%	0.09	%
3-month LIBOR	0.13	%	0.25	%	0.16	%	0.79	%	0.13	%	0.24	%
3-month U.S. Treasury yield	0.04	%	0.11	%	0.04	%	0.44	%	0.04	%	0.07	%
2-year U.S Treasury yield	0.22	%	0.14	%	0.18	%	0.47	%	0.28	%	0.12	%
10-year U.S. Treasury yield	1.32	%	0.65	%	1.41	%	0.90	%	1.49	%	0.92	%

The averages of short-term interest rates remained low and generally were even lower or little changed in the three and nine months ended September 30, 2021, compared to the same periods in 2020, impacting the Bank's results of operations, primarily by decreasing both interest income and interest expense. However, longer-term interest rates, while still relatively low, have increased in the three and nine months ended September 30, 2021 compared to the corresponding periods in 2020. Changes in the short- and long-term interest rates also impacted the fair values of certain assets and liabilities. The prevailing expectation of prolonged low interest rates will likely continue to be a ~~firm path to sustainable growth; (3) full employment is near achievement;~~significant factor driving the Bank's results of operations and ~~(4) inflation has increased above~~changes in its ~~target rate for a period of time such that it averages 2.0%.~~financial condition.

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 net interest margin volatility in our MPP and MBS portfolios. A flat or inverted yield curve, ~~where~~in which the difference between short-term interest rates and long-term interest rates is low, or negative, respectively, ~~tends to~~can have an unfavorable impact on our net interest margins. A steep yield curve, in which the difference between short-term and long-term interest rates is high, can have a favorable impact on our net interest margins. The level of interest rates also directly affects our earnings on assets funded by our interest-free capital.

Lending and investing activity by our member institutions is a key driver for our balance sheet and income growth. Such activity is a function of both prevailing interest rates and economic activity, including local economic factors, particularly relating to the housing and mortgage markets. Positive economic trends could drive interest rates higher, which could impair growth of the mortgage market. A less active mortgage market could affect demand for advances and activity levels in our Advantage MPP. However, borrowing patterns between our insurance company and depository members 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.

The results of operations and the changes in the financial condition of the Bank were affected by the disruptions in the financial markets caused by the COVID-19 pandemic as discussed herein. However, we have continued to be a reliable source of liquidity for our members and maintain a full-service business operation while continuing a work-from-home program that began on March 16, 2020. In September 2020, approximately 20% of our employees returned to work at one of our physical locations.

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Selected Financial Data

The following table presents a summary of selected financial information ($ amounts in millions).


		As of and for the Three Months Ended																As of and for the Three Months Ended
		September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019				September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Statement of Condition:	Statement of Condition:																Statement of Condition:
Advances	Advances	$	31,264		$	34,848		$	38,927		$	32,480		$	32,487		Advances	$	26,958		$	27,633		$	29,784		$	31,347		$	31,264
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	9,237			10,083			10,649			10,815			11,104			Mortgage loans held for portfolio, net	7,570			7,737			8,057			8,516			9,237
Cash and short-term investments	Cash and short-term investments	5,639			5,791			8,085			5,079			5,521			Cash and short-term investments	8,329			7,268			8,873			5,627			5,639
Investment securities	Investment securities	19,695			19,817			20,487			18,718			17,754			Investment securities	18,675			19,689			19,480			19,941			19,695
Total assets	Total assets	66,342			71,070			78,666			67,511			67,262			Total assets	61,960			62,771			66,680			65,925			66,342

Discount notes	Discount notes	19,462			28,234			29,653			17,677			15,300			Discount notes	12,714			14,445			17,573			16,617			19,462
CO bonds	CO bonds	41,148			36,973			42,079			44,715			47,169			CO bonds	43,225			42,363			42,794			43,333			41,148
Total consolidated obligations	Total consolidated obligations	60,610			65,207			71,732			62,392			62,469			Total consolidated obligations	55,939			56,808			60,367			59,950			60,610

MRCS	MRCS	262			300			323			323			324			MRCS	50			233			233			251			262

Capital stock	Capital stock	2,224			2,194			2,098			1,974			1,939			Capital stock	2,237			2,234			2,214			2,208			2,224
Retained earnings	Retained earnings	1,124			1,128			1,124			1,115			1,091			Retained earnings	1,163			1,157			1,153			1,137			1,124
AOCI	AOCI	74			(4)			(81)			68			56			AOCI	151			193			180			105			74
Total capital	Total capital	3,422			3,318			3,141			3,157			3,086			Total capital	3,551			3,584			3,547			3,450			3,422

Statement of Income:	Statement of Income:																Statement of Income:
Net interest income	Net interest income	$	61		$	67		$	63		$	70		$	50		Net interest income	$	58		$	57		$	75		$	72		$	61
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	—			—			—			—			—			Provision for (reversal of) credit losses	—			—			—			—			—
Other income (loss)	Other income (loss)	(17)			(25)			(5)			11			3			Other income (loss)	(9)			(10)			(13)			(9)			(17)
Other expenses	Other expenses	27			26			26			28			24			Other expenses	27			28			28			30			27
AHP assessments	AHP assessments	2			2			3			6			3			AHP assessments	2			2			4			4			2
Net income	Net income	$	15		$	14		$	29		$	47		$	26		Net income	$	20		$	17		$	30		$	29		$	15

Selected Financial Ratios:	Selected Financial Ratios:																Selected Financial Ratios:
Net interest margin (1)	Net interest margin (1)	0.35		%	0.37		%	0.36		%	0.41		%	0.29		%	Net interest margin (1)	0.37		%	0.36		%	0.44		%	0.43		%	0.35		%
Return on average equity (2)	Return on average equity (2)	1.70		%	1.64		%	3.81		%	6.05		%	3.31		%	Return on average equity (2)	2.22		%	1.94		%	3.40		%	3.49		%	1.70		%
Return on average assets (2)	Return on average assets (2)	0.08		%	0.07		%	0.17		%	0.28		%	0.15		%	Return on average assets (2)	0.13		%	0.11		%	0.18		%	0.18		%	0.08		%

Weighted average dividend rate (3)	Weighted average dividend rate (3)	3.50		%	4.00		%	4.25		%	4.75		%	5.50		%	Weighted average dividend rate (3)	2.35		%	2.57		%	2.50		%	3.00		%	3.50		%
Dividend payout ratio (4)	Dividend payout ratio (4)	126.01		%	150.84		%	70.91		%	48.35		%	106.89		%	Dividend payout ratio (4)	65.59		%	81.59		%	46.70		%	55.32		%	126.01		%

Average equity to average assets																	Average equity to average assets	5.67		%	5.47		%	5.24		%	5.19		%	4.86		%
Total capital ratio (5)	Total capital ratio (5)	5.16		%	4.67		%	3.99		%	4.68		%	4.59		%	Total capital ratio (5)	5.73		%	5.71		%	5.32		%	5.23		%	5.16		%
Total regulatory capital ratio (6)	Total regulatory capital ratio (6)	5.44		%	5.10		%	4.51		%	5.05		%	4.99		%	Total regulatory capital ratio (6)	5.57		%	5.77		%	5.40		%	5.45		%	5.44		%
Average equity to average assets		4.86		%	4.39		%	4.43		%	4.66		%	4.55		%

(1) Annualized net interest income expressed as a percentage of average interest-earning assets.

(2) Annualized, as appropriate.

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

(4) Dividends paid in cash during the period divided by net income for the period. By dividing dividends paid in cash during the period by the net income for the prior period, the dividend payout ratios for each of the three months ended September 30, ~~2020,~~2021, June 30, ~~2020,~~2021, March 31, ~~2020,~~2021, December 31, ~~2019~~2020 and September 30, ~~2019 would be~~ 2020 wo~~143%~~uld be 76%, ~~67%~~47%, ~~44%~~46%, ~~89%~~112% and ~~79%~~143%, respectively.

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

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

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Results of Operations and Changes in Financial Condition

Results of Operations for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019.~~2020. The following table presents the comparative highlights of our results of operations ($ amounts in millions).


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended September 30,								Nine Months Ended September 30,

Condensed Statements of Comprehensive Income	Condensed Statements of Comprehensive Income	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change		Condensed Statements of Comprehensive Income	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Net interest income	Net interest income	$	61	$	50	$	11	21	%	$	191	$	167	$	24	14	%	Net interest income	$	58	$	61	$	(3)	(5)	%	$	190	$	191	$	(1)	(1)	%
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	—		—		—				—		—		—				Provision for (reversal of) credit losses	—		—		—				—		—		—
Net interest income after provision for credit losses	Net interest income after provision for credit losses	61		50		11		20	%	191		167		24		14	%	Net interest income after provision for credit losses	58		61		(3)		(4)	%	190		191		(1)		(1)	%
Other income (loss)	Other income (loss)	(17)		3		(20)				(47)		9		(56)				Other income (loss)	(9)		(17)		8				(32)		(47)		15
Other expenses	Other expenses	27		24		3				79		71		8				Other expenses	27		27		—				83		79		4
Income before assessments	Income before assessments	17		29		(12)		(42)	%	65		105		(40)		(38)	%	Income before assessments	22		17		5		32	%	75		65		10		15	%
AHP assessments	AHP assessments	2		3		(1)				7		11		(4)				AHP assessments	2		2		—				8		7		1
Net income	Net income	15		26		(11)		(42)	%	58		94		(36)		(39)	%	Net income	20		15		5		33	%	67		58		9		16	%
Total other comprehensive income (loss)	Total other comprehensive income (loss)	78		(2)		80				6		14		(8)				Total other comprehensive income (loss)	(42)		78		(120)				46		6		40

Total comprehensive income		$	93	$	24	$	69	284	%	$	64	$	108	$	(44)	(40)	%
Total comprehensive income (loss)																		Total comprehensive income (loss)	$	(22)	$	93	$	(115)	(124)	%	$	113	$	64	$	49	76	%

~~The decrease in net~~Net income for the three months ended September 30, ~~2020~~2021 was $19.9 million, an increase of $5.0 million compared to the corresponding period in the prior ~~year~~ year. The increase was ~~substantially~~primarily due to lower ~~net earnings on trading securities and~~but still accelerated amortization of purchase premium resulting from ~~higher~~lower but still elevated prepayments on mortgage loans, ~~both resulting from the decline in market interest rates. These decreases were~~ partially offset by ~~additional~~lower net interest income resulting from the ~~Bank's growth~~decline in average asset ~~balances and by lower net losses on qualifying fair-value hedging relationships.~~balances.

~~The decrease in net~~Net income for the nine months ended September 30, ~~2020~~2021 was $67.0 million, an increase of $9.3 million compared to the corresponding period in the prior ~~year~~year. The increase was ~~substantially~~primarily due to net hedging gains on qualifying fair-value hedging relationships and lower but still accelerated amortization of purchase premium, ~~resulting from higher prepayments on mortgage loans and~~substantially offset by lower ~~net~~ earnings on ~~trading securities, both resulting from~~ the ~~decline in market interest rates. These decreases were partially offset~~portion of the Bank's assets funded by ~~additional~~its capital and lower net interest income resulting from narrower interest spreads and the ~~Bank's growth~~decline in average asset balances.

~~The increase in total~~Total other comprehensive ~~income~~loss for the three months ended September 30, ~~2020~~2021 was $42.0 million, a decrease of $120.1 million compared to the corresponding period in the prior ~~year~~year. The decrease was due to net unrealized ~~gains~~losses on AFS ~~securities.~~securities in the current period compared to net unrealized gains in the corresponding period in the prior year.

~~The decrease in total~~Total other comprehensive income for the nine months ended September 30, ~~2020~~2021 was $46.1 million, an increase of $39.4 million compared to the corresponding period in the prior ~~year~~year. The increase was due to ~~lower~~higher net unrealized gains on AFS ~~securities.~~

securities in the current period.

Adjusted Net Income, a Non-GAAP Financial Measure

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

Table of Contents

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

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

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



	Three Months Ended September 30,				Nine Months Ended September 30,

Reconciliation of Net Income	2021		2020		2021		2020
GAAP net income	$	19.9	$	14.9	$	67.0	$	57.7
Adjustments to exclude:
Fair-value hedging (gains) losses (1)	2.8		2.4		(10.2)		24.6
Amortization/accretion of (gains) losses on active and discontinued fair-value hedging relationships (2)	11.5		(0.6)		24.4		(1.8)
Trading (gains) losses, net of economic hedging gains (losses) (3)	7.7		5.6		26.9		4.9
Net unrealized (gains) losses on other economic hedges	0.4		1.9		0.8		1.2
Net realized (gains) on sales of investment securities	—		(0.5)		—		(0.5)
Interest expense on MRCS	0.3		2.0		2.3		7.8
Total adjustments	22.7		10.8		44.2		36.2

AHP assessments on adjustments	(2.2)		(0.9)		(4.2)		(2.8)

Adjusted net income (non-GAAP measure)	$	40.4	$	24.8	$	107.0	$	91.1

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

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

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

Adjusted net income for the three months ended September 30, 2021 was $40.4 million, an increase of $15.6 million compared to the corresponding period in the prior year. The increase was primarily due to lower accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans, partially offset by lower net interest income resulting from the decline in average asset balances.

Adjusted net income for the nine months ended September 30, 2021 was $107.0 million, an increase of $15.9 million compared to the corresponding period in the prior year. The increase was primarily due to higher earnings (excluding net gains and losses) on trading securities and lower accelerated amortization of purchase premium, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the decline in average asset balances.

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Changes in Financial Condition for the Nine Months Ended September 30, ~~2020.~~2021. The following table presents the comparative highlights of our changes in financial condition ($ amounts in millions).


Condensed Statements of Condition	Condensed Statements of Condition	September 30, 2020		December 31, 2019		$ Change		% Change		Condensed Statements of Condition	September 30, 2021		December 31, 2020		$ Change		% Change
Advances	Advances	$	31,264	$	32,480	$	(1,216)	(4)	%	Advances	$	26,958	$	31,347	$	(4,389)	(14)	%
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	9,237		10,815		(1,578)		(15)	%	Mortgage loans held for portfolio, net	7,570		8,516		(946)		(11)	%
Cash and short-term investments (1)	Cash and short-term investments (1)	5,639		5,079		560		11	%	Cash and short-term investments (1)	8,329		5,627		2,702		48	%
Investment securities and other assets (2)	Investment securities and other assets (2)	20,202		19,137		1,065		6	%	Investment securities and other assets (2)	19,103		20,435		(1,332)		(7)	%
Total assets	Total assets	$	66,342	$	67,511	$	(1,169)	(2)	%	Total assets	$	61,960	$	65,925	$	(3,965)	(6)	%

Consolidated obligations	Consolidated obligations	$	60,610	$	62,392	$	(1,782)	(3)	%	Consolidated obligations	$	55,939	$	59,950	$	(4,011)	(7)	%
MRCS	MRCS	262		323		(61)		(19)	%	MRCS	50		251		(201)		(80)	%
Other liabilities	Other liabilities	2,048		1,639		409		25	%	Other liabilities	2,420		2,274		146		6	%
Total liabilities	Total liabilities	62,920		64,354		(1,434)		(2)	%	Total liabilities	58,409		62,475		(4,066)		(7)	%

Capital stock	Capital stock	2,224		1,974		250		13	%	Capital stock	2,237		2,208		29		1	%
Retained earnings (3)	Retained earnings (3)	1,124		1,115		9		1	%	Retained earnings (3)	1,163		1,137		26		2	%
AOCI	AOCI	74		68		6		10	%	AOCI	151		105		46		44	%
Total capital	Total capital	3,422		3,157		265		8	%	Total capital	3,551		3,450		101		3	%

Total liabilities and capital	Total liabilities and capital	$	66,342	$	67,511	$	(1,169)	(2)	%	Total liabilities and capital	$	61,960	$	65,925	$	(3,965)	(6)	%

Total regulatory capital (4)	Total regulatory capital (4)	$	3,610	$	3,412	$	198	6	%	Total regulatory capital (4)	$	3,450	$	3,596	$	(146)	(4)	%

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

(2) Includes trading, AFS and HTM securities.

(3) Includes restricted retained earnings at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 of $~~262~~282 million and ~~$251~~$268 million, respectively.

(4) Total capital less AOCI plus MRCS.

~~The decrease in total~~Total assets at September 30, ~~2020 compared to~~2021 were $62.0 billion, a net decrease of $4.0 billion, or 6%, from December 31, ~~2019 was~~2020, driven primarily by a net decrease in advances, partially offset by a net ~~decreases~~increase in ~~mortgage~~the liquidity portfolio.

Advances outstanding at September 30, 2021, at carrying value, totaled $27.0 billion, a net decrease of $4.4 billion, or 14%, from December 31, 2020. The par value of advances to depository institutions - comprising commercial banks, savings institutions and credit unions - and insurance companies decreased by 19% and 6%, respectively.

Mortgage loans held for portfolio at September 30, 2021 totaled $7.6 billion, a net decrease of $946 million, or 11%, from December 31, 2020, as principal repayments by borrowers significantly outpaced the Bank's purchases from its members during the period.

The liquidity portfolio at September 30, 2021 totaled $13.2 billion, a net increase of $2.5 billion, or 23%, from December 31, 2020. Cash and ~~advances~~ short-term investments increased by $2.7 billion, or 48%, to ~~members, partially offset~~$8.3 billion. U.S. Treasury securities, classified as trading securities, decreased by ~~an increase in available-for-sale securities.~~$236 million, or 5%, to $4.9 billion. As a result, cash and short-term investments represented 63% of the liquidity portfolio at September 30, 2021, while U.S. Treasury securities represented 37%.

~~The decrease in total liabilities~~FHLBank Indianapolis' consolidated obligations outstanding at September 30, ~~2020 compared to~~2021 totaled $55.9 billion, a net decrease of $4.0 billion, or 7%, from December 31, ~~2019 was attributable to a decrease in consolidated obligations. Such decrease~~2020, which reflected the net decrease in the Bank's total assets.

~~The increase in total~~Total capital at September 30, ~~2020 compared to~~2021 was $3.6 billion, a net increase of $101 million, or 3%, from December 31, ~~2019~~2020.

The Bank's regulatory capital-to-assets ratio at September 30, 2021 was ~~substantially due to proceeds from the issuance~~5.57%, which exceeds all applicable regulatory capital requirements.

Table of ~~capital stock.~~Contents

Analysis of Results of Operations for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019.~~2020.

Net Interest Income. ~~The increase in net interest income for the~~ ~~three months ended September 30, 2020~~ compared to the corresponding period in 2019 was primarily due to the Bank's growth in average asset balances, lower net losses on qualifying fair-value hedging relationships, and an increase in interest income on trading securities, in which the associated increase in net interest settlements on derivatives is recorded in other income. Such increases were substantially offset by accelerated amortization of purchase premium resulting from higher prepayments on mortgage loans.

~~Hedging gains (losses) on qualifying fair-value hedging relationships are reported in net interest income. As a result, net interest income for the~~ ~~three months ended September 30, 2020~~ ~~included net hedging losses of $2 million, compared to net hedging losses for the~~ ~~three months ended September 30, 2019~~ of $9 million. In general, we hold the derivatives and associated hedged items to the maturity, call, or put date. As a result, we expect that nearly all of the net gains and losses on these financial instruments will reverse over the remaining contractual terms of the hedged items.

~~Table of Contents~~

~~The increase in net interest income for the~~ ~~nine months ended September 30, 2020~~ compared to the corresponding period in 2019 was primarily due to an increase in interest income on trading securities, in which the associated increase in net interest settlements on derivatives is recorded in other income, and the Bank's growth in average asset balances. Such increases were substantially offset by accelerated amortization of purchase premium resulting from higher prepayments on mortgage loans. Net interest income for the ~~nine months ended September 30, 2020~~ ~~included net hedging losses of $25 million, compared to net hedging losses for the nine months ended September 30, 2019 of $31 million.~~

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).


		Three Months Ended September 30,													Three Months Ended September 30,
		2020						2019							2021						2020
		Average Balance		Interest Income/ Expense (1)		Average Yield (1) (2)		Average Balance		Interest Income/ Expense (1)		Average Yield (1) (2)			Average Balance		Interest Income/ Expense (1)		Average Yield/ Cost of Funds (1) (2)		Average Balance		Interest Income/ Expense (1)		Average Yield/ Cost of Funds (1) (2)
Assets:	Assets:													Assets:
Federal funds sold and securities purchased under agreements to resell	Federal funds sold and securities purchased under agreements to resell	$	5,945	$	2	0.09	%	$	5,944	$	34	2.29	%	Federal funds sold and securities purchased under agreements to resell	$	6,344	$	2	0.08	%	$	5,945	$	2	0.09	%
Investment securities (3)	Investment securities (3)	19,860		56		1.12	%	17,430		104		2.35	%	Investment securities (3)	19,218		41		0.84	%	19,860		56		1.12	%
Advances (4)	Advances (4)	32,990		45		0.54	%	32,100		207		2.56	%	Advances (4)	28,378		20		0.29	%	32,990		45		0.54	%
Mortgage loans held for portfolio (4) (5)	Mortgage loans held for portfolio (4) (5)	9,673		48		1.99	%	11,275		87		3.09	%	Mortgage loans held for portfolio (4) (5)	7,660		44		2.28	%	9,673		48		1.99	%
Other assets (interest-earning) (6)	Other assets (interest-earning) (6)	1,528		—		0.09	%	1,298		7		2.12	%	Other assets (interest-earning) (6)	671		—		0.08	%	1,528		—		0.09	%
Total interest-earning assets	Total interest-earning assets	69,996		151		0.86	%	68,047		439		2.56	%	Total interest-earning assets	62,271		107		0.68	%	69,996		151		0.86	%
Other assets (7)	Other assets (7)	(639)						(6)						Other assets (7)	476						(639)
Total assets	Total assets	$	69,357					$	68,041					Total assets	$	62,747					$	69,357

Liabilities and Capital:	Liabilities and Capital:													Liabilities and Capital:
Interest-bearing deposits	Interest-bearing deposits	$	1,264	—		0.01	%	$	743	4		1.95	%	Interest-bearing deposits	$	1,677	—		0.01	%	$	1,264	—		0.01	%
Discount notes	Discount notes	24,479		11		0.18	%	19,185		110		2.28	%	Discount notes	13,350		2		0.05	%	24,479		11		0.18	%
CO bonds (4)	CO bonds (4)	38,965		77		0.79	%	43,996		271		2.45	%	CO bonds (4)	43,282		47		0.43	%	38,965		77		0.79	%
MRCS	MRCS	280		2		2.90	%	273		4		5.10	%	MRCS	174		—		0.71	%	280		2		2.90	%
Other borrowings		—		—		—	%	6		—		2.28	%

Total interest-bearing liabilities	Total interest-bearing liabilities	64,988		90		0.55	%	64,203		389		2.40	%	Total interest-bearing liabilities	58,483		49		0.33	%	64,988		90		0.55	%
Other liabilities	Other liabilities	999						740						Other liabilities	707						999
Total capital	Total capital	3,370						3,098						Total capital	3,557						3,370
Total liabilities and capital	Total liabilities and capital	$	69,357					$	68,041					Total liabilities and capital	$	62,747					$	69,357

Net interest income	Net interest income			$	61					$	50			Net interest income			$	58					$	61

Net spread on interest-earning assets less interest-bearing liabilities (2)						0.31	%					0.16	%
Net spread on interest-earning assets less interest-bearing liabilities (1) (2)														Net spread on interest-earning assets less interest-bearing liabilities (1) (2)					0.35	%					0.31	%

Net interest margin (8)						0.35	%					0.29	%
Net interest margin (1) (8)														Net interest margin (1) (8)					0.37	%					0.35	%

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

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		Nine Months Ended September 30,													Nine Months Ended September 30,
		2020						2019							2021						2020
		Average Balance		Interest Income/ Expense (1)		Average Yield (1) (2)		Average Balance		Interest Income/ Expense (1)		Average Yield (1) (2)			Average Balance		Interest Income/ Expense (1)		Average Yield/ Cost of Funds (1) (2)		Average Balance		Interest Income/ Expense (1)		Average Yield/Cost of Funds (1) (2)
Assets:	Assets:													Assets:
Federal funds sold and securities purchased under agreements to resell	Federal funds sold and securities purchased under agreements to resell	$	5,450	$	21	0.52	%	$	6,697	$	120	2.41	%	Federal funds sold and securities purchased under agreements to resell	$	7,281	$	3	0.06	%	$	5,450	$	21	0.52	%
Investment securities (3)	Investment securities (3)	19,913		205		1.37	%	15,848		303		2.55	%	Investment securities (3)	19,615		140		0.95	%	19,913		205		1.37	%
Advances (4)	Advances (4)	33,977		291		1.14	%	32,077		641		2.67	%	Advances (4)	29,000		85		0.39	%	33,977		291		1.14	%
Mortgage loans held for portfolio (4) (5)	Mortgage loans held for portfolio (4) (5)	10,277		189		2.46	%	11,355		277		3.27	%	Mortgage loans held for portfolio (4) (5)	7,937		125		2.10	%	10,277		189		2.46	%
Other assets (interest-earning) (6)	Other assets (interest-earning) (6)	1,563		5		0.46	%	1,011		17		2.20	%	Other assets (interest-earning) (6)	767		—		0.07	%	1,563		5		0.46	%
Total interest-earning assets	Total interest-earning assets	71,180		711		1.34	%	66,988		1,358		2.71	%	Total interest-earning assets	64,600		353		0.73	%	71,180		711		1.34	%
Other assets (7)	Other assets (7)	55						218						Other assets (7)	653						55
Total assets	Total assets	$	71,235					$	67,206					Total assets	$	65,253					$	71,235

Liabilities and Capital:	Liabilities and Capital:													Liabilities and Capital:
Interest-bearing deposits	Interest-bearing deposits	$	1,392	3		0.27	%	$	647	10		2.10	%	Interest-bearing deposits	$	1,628	—		0.01	%	$	1,392	3		0.27	%
Discount notes	Discount notes	24,772		111		0.60	%	20,586		369		2.40	%	Discount notes	16,187		8		0.06	%	24,772		111		0.60	%
CO bonds (4)	CO bonds (4)	40,503		398		1.31	%	41,870		803		2.57	%	CO bonds (4)	42,943		153		0.48	%	40,503		398		1.31	%
MRCS	MRCS	302		8		3.44	%	207		9		5.54	%	MRCS	216		2		1.45	%	302		8		3.44	%
Other borrowings		—		—		—	%	2		—		2.31	%

Total interest-bearing liabilities	Total interest-bearing liabilities	66,969		520		1.04	%	63,312		1,191		2.51	%	Total interest-bearing liabilities	60,974		163		0.36	%	66,969		520		1.04	%
Other liabilities	Other liabilities	1,020						783						Other liabilities	720						1,020
Total capital	Total capital	3,246						3,111						Total capital	3,559						3,246
Total liabilities and capital	Total liabilities and capital	$	71,235					$	67,206					Total liabilities and capital	$	65,253					$	71,235

Net interest income	Net interest income			$	191					$	167			Net interest income			$	190					$	191

Net spread on interest-earning assets less interest-bearing liabilities (2)						0.30	%					0.20	%
Net spread on interest-earning assets less interest-bearing liabilities (1) (2)														Net spread on interest-earning assets less interest-bearing liabilities (1) (2)					0.37	%					0.30	%

Net interest margin (8)						0.36	%					0.33	%
Net interest margin (1) (8)														Net interest margin (1) (8)					0.39	%					0.36	%

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

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

(2) Annualized.

(3) Consists of trading, AFS and HTM securities. 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. Interest income/expense and average yield/cost of funds includes all other components of interest, including the ~~effects~~impact of ~~associated derivative transactions, except for trading securities~~net interest payments or receipts on derivatives in ~~which such effects are included~~qualifying hedging relationships and amortization of hedge accounting basis adjustment. Excludes net interest payment or receipts on derivatives in ~~other income.~~economic hedging relationships.

(4) Interest income/expense and average ~~yield~~yield/cost of funds 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 basis adjustments, and prepayment fees on advances. ~~Excluded are~~Excludes net interest payments or receipts on derivatives in economic hedging relationships.

(5) Includes non-accrual loans.

(6) 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.

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

(8) Annualized net interest income expressed as a percentage of the average balance of interest-earning assets.

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The decrease in net interest income for the three months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to the decline in average asset balances, partially offset by lower but still accelerated amortization of purchase premium resulting from lower prepayments on mortgage loans. Net interest income for the three months ended September 30, 2021 included net hedging losses of $3 million, compared to net hedging losses for the corresponding period in 2020 of $2 million.

~~Yields.~~

The decrease in net interest income for the nine months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to lower interest income on the portion of the Bank's assets funded by its capital, narrower interest spreads, and the decline in average asset balances, substantially offset by net hedging gains on qualifying fair-value hedging relationships and lower but still accelerated amortization of purchase premium. Net interest income for the nine months ended September 30, 2021 included net hedging gains of $10 million, compared to net hedging losses for the corresponding period in 2020 of $25 million.

Yields/Cost of Funds. The average yield on total interest-earning assets, including the impact of ~~net~~hedging gains orand losses ~~on qualifying fair-value hedging relationships,~~but excluding certain impacts of trading securities, for the three months ended September 30, ~~2020~~ 2021 was ~~0.86%~~0.68%, a decrease of ~~170~~18 bps compared to the corresponding period in ~~2019,~~2020, resulting primarily from decreases in market interest rates that led to lower yields on substantially all of our interest-earning assets. The yield on mortgage loans held for portfolio increased due to lower but still accelerated amortization of purchase premium resulting from lower but still elevated prepayments on mortgage loans. The average cost of funds of total interest-bearing liabilities, including the impact of hedging gains and losses but excluding certain impacts of trading securities, for the three months ended September 30, 2021 was 0.33%, a decrease of 22 bps due to lower funding costs on our consolidated obligations. The net effect was an increase in the overall net interest spread under GAAP of 4 bps to 0.35% from 0.31% for the corresponding period in 2020.

The average yield on total interest-earning assets, including the impact of hedging gains and losses but excluding certain impacts of trading securities, for the nine months ended September 30, 2021 was 0.73%, a decrease of 61 bps compared to the corresponding period in 2020, resulting primarily from decreases in market interest rates that led to lower yields on all of our interest-earning assets. The average cost of funds of total interest-bearing liabilities, including the impact of ~~net~~ hedging gains orand losses ~~on qualifying fair-value hedging relationships,~~but excluding certain impacts of trading securities, for the nine months ended September 30, 2021 was ~~0.55%~~0.36%, a decrease of ~~185~~68 bps due to lower funding costs on ~~all of~~ our ~~interest-bearing liabilities.~~consolidated obligations. The net effect was an increase in the overall net interest spread under GAAP of 157 bps to ~~0.31% for the three months ended September 30, 2020~~0.37% from ~~0.16%~~0.30% for the corresponding period in ~~2019. The increase was due to a combination of factors.~~

The average yield on total interest-earning assets, including the impact of net hedging gains or losses on qualifying fair-value hedging relationships, for the nine months ended September 30, 2020 was 1.34%, a decrease of 137 bps compared to the corresponding period in 2019, resulting primarily from decreases in market interest rates that led to lower yields on all of our interest-earning assets. The average cost of total interest-bearing liabilities, including the impact of net hedging gains or losses on qualifying fair-value hedging relationships, was 1.04%, a decrease of 147 bps due to lower funding costs on all of our interest-bearing liabilities. The net effect was an increase in the net interest spread of 10 bps to 0.30% for the nine months ended September 30, 2020 from 0.20% for the corresponding period in 2019. The increase was primarily due to an increase in interest income on trading securities, in which the associated increase in net interest settlements on derivatives is recorded in other income.2020.

Average Balances. The average balances outstanding of interest-earning assets for the three months ended September 30, ~~2020~~ ~~increased~~2021 decreased by 3%11% compared to the corresponding period in ~~2019.~~2020. The average ~~balance~~balances of ~~investment securities increased~~advances and mortgage loans decreased by 14% ~~due to purchases of trading securities to enhance liquidity~~ and ~~purchases of AFS securities.~~21%, respectively, reflecting paydowns by our borrowers. The ~~increase~~decrease in average interest-bearing liabilities ~~was due to an increase~~reflected the decrease in ~~discount notes outstanding to fund the increases in~~average interest-earning assets. The average balances of total interest-earning assets, net of interest-bearing liabilities, ~~increased~~ decreased by ~~30%~~24%.

The average balances outstanding of interest-earning assets for the nine months ended September 30, ~~2020 increased~~2021 decreased by 6%9% compared to the corresponding period in ~~2019.~~2020. The average ~~balance~~balances of ~~investment securities increased~~advances and mortgage loans decreased by ~~26% due to purchases of trading securities to enhance liquidity~~15% and ~~purchases of AFS securities.~~23%, respectively, reflecting paydowns by our borrowers. The ~~increase~~decrease in average interest-bearing liabilities ~~was due to an increase~~reflected the decrease in ~~discount notes outstanding to fund the increases in~~average interest-earning assets. The average balances of total interest-earning assets, net of interest-bearing liabilities, ~~increased~~decreased by ~~15%~~14%.

Provision for Credit Losses. ~~In spite of the requirement to measure expected credit losses over the estimated life of our financial instruments under new accounting guidance effective January 1, 2020, the~~The change in the ~~provision~~provisions for (reversal of) credit losses for the three and nine months ended September 30, ~~2020~~2021 compared to the corresponding periods in ~~2019~~2020 was insignificant. ~~For more information, see~~ ~~Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance~~.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Components	Components	2020		2019		2020		2019		Components	2021		2020		2021		2020

Net gains (losses) on trading securities (1)		$	(19)	$	6	$	2	$	26
Net unrealized gains (losses) on trading securities (1)										Net unrealized gains (losses) on trading securities (1)	$	6	$	(28)	$	(23)	$	(19)
Net realized gains (losses) on trading securities (1)										Net realized gains (losses) on trading securities (1)	(14)		9		(13)		21
Net gains (losses) on derivatives hedging trading securities	Net gains (losses) on derivatives hedging trading securities	14		(3)		(7)		(20)		Net gains (losses) on derivatives hedging trading securities	1		14		9		(7)
Net gains (losses) on trading securities, net of associated derivatives	Net gains (losses) on trading securities, net of associated derivatives	(5)		3		(5)		6		Net gains (losses) on trading securities, net of associated derivatives	(7)		(5)		(27)		(5)
Net interest settlements on derivatives	Net interest settlements on derivatives	(12)		—		(40)		(5)		Net interest settlements on derivatives	(2)		(12)		(10)		(40)
Net gains (losses) on other derivatives not designated as hedging instruments	Net gains (losses) on other derivatives not designated as hedging instruments	(2)		(1)		(5)		4		Net gains (losses) on other derivatives not designated as hedging instruments	—		(2)		(1)		(5)
Net realized gains from sale of available-for-sale securities	Net realized gains from sale of available-for-sale securities	1		—		1		—		Net realized gains from sale of available-for-sale securities	—		1		—		1
Change in fair value of investments indirectly funding our SERP	Change in fair value of investments indirectly funding our SERP	1		—		—		2		Change in fair value of investments indirectly funding our SERP	—		1		3		—

Other, net	Other, net	—		1		2		2		Other, net	—		—		3		2

Total other income (loss)	Total other income (loss)	$	(17)	$	3	$	(47)	$	9	Total other income (loss)	$	(9)	$	(17)	$	(32)	$	(47)

(1) Before impact of associated derivatives.

~~Table of Contents~~

The ~~decrease~~decreases in total other ~~income~~loss for the three and nine months ended September 30, ~~2020~~2021 compared to the corresponding periods in ~~2019 was~~2020 were primarily due to ~~higher~~lower net interest settlements on ~~economic hedging relationships and~~derivatives, partially offset by higher net losses on trading ~~securities, net of associated derivatives.~~

securities.

~~Net Gains (Losses) on Trading Securities.~~ We purchase fixed-rate U.S. Treasury securities to enhance our liquidity. These securities are classified as trading securities and are recorded at fair value, with changes in fair value reported in other income. There are a number of factors that affect the fair value of these securities, including changes in interest rates, the passage of time, and volatility, which were magnified by the disruptions in the financial markets in the ~~nine months ended September 30, 2020~~. These trading securities are economically hedged, so that over time the gains (losses) on these securities will be generally offset by the change in fair value of the associated derivatives. Net gains (losses) on trading securities, net of associated derivatives, for the three and nine months ended September 30, 2020 were $(5) million and $(5) million, respectively, a decrease of $8 million and $11 million, respectively, compared to the corresponding periods in 2019.

~~Net Gains (Losses) on Derivatives and Hedging Activities.~~ ~~Our net 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 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. Terminating the financial instrument or hedging relationship may result in a realized gain or loss.

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 other income as net gains (losses) on derivatives and hedging activities.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Components	Components	2020		2019		2020		2019		Components	2021		2020		2021		2020
Compensation and benefits	Compensation and benefits	$	15	$	12	$	44	$	40	Compensation and benefits	$	14	$	15	$	44	$	44
Other operating expenses	Other operating expenses	8		8		23		21		Other operating expenses	7		8		22		23
Finance Agency and Office of Finance	Finance Agency and Office of Finance	2		3		7		7		Finance Agency and Office of Finance	4		2		9		7
Other	Other	2		1		5		3		Other	2		2		8		5

Total other expenses	Total other expenses	$	27	$	24	$	79	$	71	Total other expenses	$	27	$	27	$	83	$	79

The net increase in compensation and benefits for the three months ended September 30, 2020 compared to the corresponding period in 2019 was due to increases in compensation, primarily driven by slightly higher headcount and salaries, and post-retirement benefits, primarily due to changes in market conditions.

The increase in compensation and benefits for the nine months ended September 30, 2020 compared to the corresponding period in 2019 was due to increases in post-retirement benefits, primarily due to changes in market conditions, and increases in compensation primarily driven by slightly higher headcount and salaries. The increase intotal other ~~operating~~ expenses for the nine months ended September 30, ~~2020~~2021 compared to the corresponding period in ~~2019~~2020 was primarily due to ~~various software-related expenses and various consulting and professional services engagements.~~higher non-service costs associated with our SERP.

Total Other Comprehensive Income (Loss). Total OCI for the three ~~and~~months ended September 30, 2021 consisted primarily of net unrealized losses on AFS securities, compared to net unrealized gains on AFS securities for the corresponding period in 2020.

Total OCI for the nine months ended September 30, 2021 and 2020 consisted substantially of net unrealized gains on AFS ~~securities, particularly MBS.~~securities. These amounts were primarily impacted by changes in interest rates, credit spreads and volatility, which were magnified by the disruptions in the financial markets during 2020. ~~Total OCI for the corresponding periods in 2019 consisted substantially of net unrealized losses and gains, respectively, on AFS securities.~~

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Traditional	Traditional	2020		2019		2020		2019		Traditional	2021		2020		2021		2020
Net interest income	Net interest income	$	65	$	38	$	177	$	121	Net interest income	$	50	$	65	$	178	$	177
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	—		—		—		—		Provision for (reversal of) credit losses	—		—		—		—
Other income (loss)	Other income (loss)	(17)		3		(44)		9		Other income (loss)	(9)		(17)		(31)		(44)
Other expenses	Other expenses	23		21		68		61		Other expenses	23		23		72		68
Income before assessments	Income before assessments	25		20		65		69		Income before assessments	18		25		75		65
AHP assessments	AHP assessments	2		2		7		7		AHP assessments	2		2		8		7

Net income	Net income	$	23	$	18	$	58	$	62	Net income	$	16	$	23	$	67	$	58

The decrease in net income for the traditional segment for the three months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to lower net interest income resulting from the decline in average asset balances.

The increase in net income for the traditional segment for the ~~three~~nine months ended September 30, ~~2020~~2021 compared to the corresponding period in ~~2019~~2020 was primarily due to ~~additional~~net hedging gains on qualifying fair-value hedging relationships, substantially offset by lower earnings on the portion of the Bank's assets funded by its capital and lower net interest income resulting from narrower interest spreads and the ~~Bank's growth in average asset balances and by lower net losses on qualifying fair-value hedging relationships, partially offset by lower net earnings on trading securities.~~

The decrease in net income for the traditional segment for the nine months ended September 30, 2020 compared to the corresponding period in 2019 was primarily due to lower net earnings on trading securities, partially offset by additional net interest income resulting from the Bank's growthdecline in average asset balances.

Mortgage Loans. The mortgage loans segment includes (i) 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. The following table presents the financial performance of our mortgage loans segment ($ amounts in millions).


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Mortgage Loans	Mortgage Loans	2020		2019		2020		2019		Mortgage Loans	2021		2020		2021		2020
Net interest income	Net interest income	$	(4)	$	12	$	14	$	46	Net interest income	$	8	$	(4)	$	12	$	14
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	—		—		—		—		Provision for (reversal of) credit losses	—		—		—		—
Other income (loss)	Other income (loss)	—		—		(3)		—		Other income (loss)	—		—		—		(3)
Other expenses	Other expenses	4		3		12		10		Other expenses	4		4		12		12
Income before assessments		(8)		9		(1)		36
AHP assessments		—		1		—		4
Income (loss) before assessments										Income (loss) before assessments	4		(8)		—		(1)
AHP assessments (credits)										AHP assessments (credits)	—		—		—		—

Net income		$	(8)	$	8	$	(1)	$	32
Net income (loss)										Net income (loss)	$	4	$	(8)	$	—	$	(1)

The ~~decrease~~increase in net income for the mortgage loans segment for the three ~~and nine~~ months ended September 30, ~~2020~~2021 compared to the corresponding ~~periods~~period in ~~2019~~2020 was primarily due ~~substantially~~ to lower but still accelerated amortization of purchase premium resulting from ~~higher~~lower but still elevated MPP loan prepayments.

The increase in net income for the mortgage loans segment for the nine months ended September 30, 2021 compared to the corresponding period in 2020 was primarily due to lower but still accelerated amortization of purchase premium, resulting from lower but still elevated MPP loan prepayments, and ~~accelerated amortization of concession fees on called consolidated obligations. Such decreases were partially~~hedging losses in 2020, substantially offset by ~~reductions in funding costs, partially~~lower net interest income resulting from ~~calls of higher-yielding CO bonds~~the decline in ~~2019 and 2020.~~

average MPP loan balances.

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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).


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Major Asset Categories	Major Asset Categories	Carrying Value		% of Total		Carrying Value		% of Total		Major Asset Categories	Carrying Value		% of Total		Carrying Value		% of Total
Advances	Advances	$	31,264	47	%	$	32,480	48	%	Advances	$	26,958	44	%	$	31,347	48	%
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	9,237		14	%	10,815		16	%	Mortgage loans held for portfolio, net	7,570		12	%	8,516		13	%
Cash and short-term investments	Cash and short-term investments	5,639		8	%	5,079		8	%	Cash and short-term investments	8,329		13	%	5,627		9	%
Trading securities	Trading securities	5,059		8	%	5,017		7	%	Trading securities	4,859		8	%	5,095		8	%
Other investment securities	Other investment securities	14,636		22	%	13,701		20	%	Other investment securities	13,816		22	%	14,846		22	%
Other assets (1)	Other assets (1)	507		1	%	419		1	%	Other assets (1)	428		1	%	494		—	%

Total assets	Total assets	$	66,342	100	%	$	67,511	100	%	Total assets	$	61,960	100	%	$	65,925	100	%

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

~~Total~~The mix of our assets ~~as of~~at September 30, ~~2020 were~~2021 changed ~~$66.3 billion~~, ~~a net decrease of $1.2 billion, or 2%,~~ compared to December 31, ~~2019, primarily driven by decreases~~2020 in ~~mortgage loans held for portfolio and~~that advances ~~to members, partially offset by an increase in AFS securities.~~

~~Our~~ ~~advance portfolio comprised~~ ~~47%~~ as a percent of total assets ~~at September 30, 2020. Mortgage loans held for portfolio has~~ declined from 48% to 44% while cash a~~16%~~ ~~to 14%~~ ~~of total assets at September 30, 2020, while trading and other investment securities have~~nd short-term investments increased from ~~27%~~9% to ~~30%.~~13%, reflecting primarily the paydowns of short-term advances.

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 September 30, ~~2020~~2021 at carrying value totaled ~~$31.3~~$27.0 billion,, a net decrease of ~~$1.2~~$4.4 billion, or 4%14%, compared to December 31, ~~2019.~~2020. The high levels of liquidity injected by the Federal ~~Reserve's actions~~Reserve and held by our members as deposits, alternative sources of wholesale funds available to ~~increase liquidity~~our members, continued consolidation in the ~~markets has had an adverse effect on~~financial services industry involving our ~~members' demand for wholesale funding. However, the average daily balance of outstanding advances for the nine months ended September 30, 2020 totaled $34.0 billion.~~members, and governmental relief efforts continue to pressure overall advance levels.

~~The par value of advances to depository institutions - comprising commercial banks, savings institutions and credit unions - and insurance companies decreased~~ ~~by 1% and 11%, respectively~~. Advances to depository institutions, as a percent of total advances outstanding at par value, were ~~55%~~54% at September 30, ~~2020,~~2021, while advances to insurance companies were ~~45%~~46%.

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


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Borrower Type	Borrower Type	Par Value		% of Total		Par Value		% of Total		Borrower Type	Par Value		% of Total		Par Value		% of Total
Depository institutions:	Depository institutions:									Depository institutions:
Commercial banks and savings institutions(1)	Commercial banks and savings institutions(1)	$	13,567	44	%	$	13,663	42	%	Commercial banks and savings institutions(1)	$	11,766	44	%	$	14,749	48	%
Credit unions	Credit unions	2,793		9	%	2,798		9	%	Credit unions	2,268		9	%	2,548		8	%
Former members - depositories	Former members - depositories	480		2	%	540		2	%	Former members - depositories	254		1	%	268		1	%
Total depository institutions	Total depository institutions	16,840		55	%	17,001		53	%	Total depository institutions	14,288		54	%	17,565		57	%

Insurance companies:	Insurance companies:									Insurance companies:
Captive insurance companies ~~(1)~~(2)	Captive insurance companies ~~(1)~~(2)	326		1	%	2,724		8	%	Captive insurance companies ~~(1)~~(2)	263		1	%	288		1	%
Other insurance companies	Other insurance companies	13,293		44	%	12,541		39	%	Other insurance companies	12,067		45	%	12,832		42	%
Former members - insurance		6		—	%	6		—	%
Former members - insurance companies										Former members - insurance companies	5		—	%	6		—	%
Total insurance companies	Total insurance companies	13,625		45	%	15,271		47	%	Total insurance companies	12,335		46	%	13,126		43	%

CDFIs	CDFIs	—		—	%	—		—	%	CDFIs	—		—	%	—		—	%

Total advances		$	30,465	100	%	$	32,272	100	%
Total advances outstanding										Total advances outstanding	$	26,623	100	%	$	30,691	100	%

(1) ~~Memberships must terminate no later than~~Includes advances outstanding at September 30, 2021 and December 31, 2020 of $2.5 billion, or 9%, and $4.6 billion, or 15%, of total advances outstanding, respectively, to Flagstar Bank, FSB ("Flagstar"). The parent company of Flagstar announced a merger pursuant to which Flagstar would merge with a non-member depository. On the effective date of Flagstar's merger, any outstanding advances will be required to be repaid at their respective maturity dates. For more information, see Item 1A. Risk Factors.

(2) 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 Membership Rule, had their memberships terminated on February 19, 2021. ~~See certain restrictions on and maturities of~~The outstanding advances in ~~Notes~~ to ~~Financial Statements - Note 5 - Advances~~ ~~in the 2019 Form 10-K. These advances mature on~~one captive insurer are not required to be repaid prior to their various maturity dates through 2024.

~~On August 26, 2020, our board of directors approved the involuntary termination of a captive insurance company member~~

~~that had repaid all outstanding advances and directed the repurchase of all of that member's Class B stock. This stock was~~

~~repurchased on August 28, 2020.~~

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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).


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Product Type and Redemption Term	Product Type and Redemption Term	Par Value		% of Total		Par Value		% of Total		Product Type and Redemption Term	Par Value		% of Total		Par Value		% of Total
Fixed-rate:	Fixed-rate:									Fixed-rate:
Fixed-rate (1)	Fixed-rate (1)									Fixed-rate (1)
Due in 1 year or less	Due in 1 year or less	$	8,840	29	%	$	11,167	35	%	Due in 1 year or less	$	6,797	26	%	$	10,023	33	%
Due after 1 year	Due after 1 year	8,500		28	%	7,479		23	%	Due after 1 year	6,562		25	%	7,998		26	%
Total	Total	17,340		57	%	18,646		58	%	Total	13,359		51	%	18,021		59	%

Callable or prepayable
Due in 1 year or less		—		—	%	—		—	%
Due after 1 year		24		—	%	34		—	%
Total		24		—	%	34		—	%

Putable	Putable									Putable
Due in 1 year or less	Due in 1 year or less	—		—	%	—		—	%	Due in 1 year or less	—		—	%	—		—	%
Due after 1 year	Due after 1 year	7,578		25	%	6,094		19	%	Due after 1 year	8,097		30	%	7,252		24	%
Total	Total	7,578		25	%	6,094		19	%	Total	8,097		30	%	7,252		24	%

Other (2)	Other (2)									Other (2)
Due in 1 year or less	Due in 1 year or less	41		—	%	50		—	%	Due in 1 year or less	23		—	%	32		—	%
Due after 1 year	Due after 1 year	145		—	%	175		1	%	Due after 1 year	129		—	%	147		—	%
Total	Total	186		—	%	225		1	%	Total	152		—	%	179		—	%

Total fixed-rate	Total fixed-rate	25,128		82	%	24,999		78	%	Total fixed-rate	21,608		81	%	25,452		83	%

Variable-rate:	Variable-rate:									Variable-rate:
Variable-rate (1)	Variable-rate (1)									Variable-rate (1)
Due in 1 year or less	Due in 1 year or less	40		—	%	442		1	%	Due in 1 year or less	10		—	%	24		—	%
Due after 1 year	Due after 1 year	—		—	%	—		—	%	Due after 1 year	—		—	%	—		—	%
Total	Total	40		—	%	442		1	%	Total	10		—	%	24		—	%

Callable or prepayable	Callable or prepayable									Callable or prepayable
Due in 1 year or less	Due in 1 year or less	156		1	%	133		—	%	Due in 1 year or less	36		—	%	36		—	%
Due after 1 year	Due after 1 year	5,141		17	%	6,698		21	%	Due after 1 year	4,939		19	%	5,179		17	%
Total	Total	5,297		18	%	6,831		21	%	Total	4,975		19	%	5,215		17	%

Total variable-rate	Total variable-rate	5,337		18	%	7,273		22	%	Total variable-rate	4,985		19	%	5,239		17	%

Overdrawn demand and overnight deposit accounts	Overdrawn demand and overnight deposit accounts	—		—	%	—		—	%	Overdrawn demand and overnight deposit accounts	30		—	%	—		—	%

Total advances	Total advances	$	30,465	100	%	$	32,272	100	%	Total advances	$	26,623	100	%	$	30,691	100	%

(1) Includes advances without call or put options.

(2) Includes callable or prepayable advances and hybrid, fixed-rate amortizing/mortgage matched advances.

~~Advances~~During the nine months ended September 30, 2021, the par value of advances due in one year or less decreased by 32%, while advances due after one year decreased by 4%. As a result, advances due in one year or less, as a percentage of the total outstanding at par, ~~decreased~~ totaled 26% at September 30, 2021, a decrease from ~~36%~~33% at December 31, ~~2019 to 30% at September 30,~~ 2020 ~~reflecting members' decreased demand for shorter-term funding. For~~. For additional information, see Notes to Financial Statements - Note 4 - Advances.

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Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio at September 30, 2021, at carrying value, totaled $7.6 billion, a net decrease of $946 million, or 11%, from December 31, 2020, as principal repayments by borrowers significantly outpaced the Bank's purchases. For the nine months ended September 30, 2021, purchases of mortgage loans from the Bank's members under Advantage MPP totaled $1.6 billion, while MPP and MPF program repayments totaled $2.3 billion. In addition to low interest rates, Federal Reserve purchases of Fannie Mae and Freddie Mac MBS encouraged refinancing activity by borrowers.

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

September 30, 2020 December 31, 2019
Product Type UPB % of Total UPB % of Total
MPP:
Conventional Advantage $ 8,164 90 % $ 9,526 90 %
Conventional Original 456 5 % 561 5 %
FHA 235 3 % 276 3 %
Total MPP 8,855 98 % 10,363 98 %
MPF Program:
Conventional 140 2 % 176 2 %
Government 38 — % 47 — %
Total MPF Program 178 2 % 223 2 %
Total mortgage loans held for portfolio $ 9,033 100 % $ 10,586 100 %

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


	September 30, 2021				December 31, 2020
Product Type	UPB		% of Total		UPB		% of Total
MPP:
Conventional Advantage	$	6,786	92	%	$	7,529	90	%
Conventional Original	324		4	%	417		5	%
FHA	166		2	%	218		3	%
Total MPP	7,276		98	%	8,164		98	%

MPF Program:
Conventional	87		2	%	123		2	%
Government	28		—	%	36		—	%
Total MPF Program	115		2	%	159		2	%

Total mortgage loans held for portfolio	$	7,391	100	%	$	8,323	100	%

~~As disclosed in the~~ ~~Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance, we adopted ASU 2016-13,~~ ~~Measurement of Expected Credit Losses on Financial Instruments, beginning January, 1, 2020. As a result, w~~We maintain an allowance for credit losses based on our best ~~estimate~~estimate of expected losses over the remaining life of each loan. ~~Previously, our allowance was based on our best estimate of probable losses over a loss emergence period of 24 months.~~ Our estimate of MPP losses remaining after borrower's equity, but before credit enhancements, was ~~$12~~$5 million and $4$10 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. After consideration of the portion recoverable under the associated credit enhancements, the resulting allowance was less than $1 million at September 30, ~~2020~~ 2021 and December 31, ~~2019.~~2020. For more information, see Notes to Financial Statements - Note 5 - Mortgage Loans Held for Portfolio.

Consistent with other lenders in the mortgage loan industry, we developed a loan forbearance program for our MPP ~~due~~in response to the COVID-19 pandemic. Under the forbearance program, our servicers can agree to reduce or suspend the borrower's monthly payments for a specified period. ~~The forbearance may be granted up~~We issued additional guidelines to ~~90 days from the date of the first reduced or suspended payment. Initially, written approval from us was required for longer periods. However, effective May 11, 2020,~~provide delegated authority to our servicers so they may extend ~~the~~ forbearance periods and establish qualified forbearance resolution plans ~~with borrowers without~~within our ~~review and approval. In addition, we have~~established parameters. We also authorized the suspension of foreclosure sales ~~and evictions~~ (with certain exceptions) through ~~December~~July 31, ~~2020~~2021, suspension of evictions through September 30, 2021 and, for borrowers under loss mitigation agreements related to the COVID-19 pandemic, the suspension of any negative credit reporting and the waiver of late fees.

~~Since June 30, 2020, the total~~The UPB of our conventional mortgage loans in ~~COVID-related~~COVID-19-related informal forbearance programs declined by ~~approximately 32% to $184.9~~$74 million from $112 million at December 31, 2020 to $38 million at September 30, ~~2020.~~2021 as a result of borrowers becoming current, repaying their loans in full, or moving to a COVID-19-related formal forbearance program. The ~~total~~ UPB of loans in ~~COVID-related~~COVID-19-related formal forbearance programs increased by $18 million from $12 million at December 31, 2020 to $30 million at September 30, ~~2020 totaled $1.8 million.~~2021.

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Cash and Investments. The following table presents a comparison of the components of our cash and investments at carrying value ($ amounts in millions).


Components	Components	September 30, 2020		December 31, 2019		Change		Components	September 30, 2021		December 31, 2020		Change
Cash and short-term investments:	Cash and short-term investments:							Cash and short-term investments:
Cash and due from banks	Cash and due from banks	$	131	$	220	$	(89)	Cash and due from banks	$	1,954	$	1,812	$	142
Interest-bearing deposits	Interest-bearing deposits	56		809		(753)		Interest-bearing deposits	100		100		—
Securities purchased under agreements to resell	Securities purchased under agreements to resell	4,500		1,500		3,000		Securities purchased under agreements to resell	4,200		2,500		1,700
Federal funds sold	Federal funds sold	952		2,550		(1,598)		Federal funds sold	2,075		1,215		860
Total cash and short-term investments	Total cash and short-term investments	5,639		5,079		560		Total cash and short-term investments	8,329		5,627		2,702

Trading securities:	Trading securities:							Trading securities:
U.S. Treasury obligations	U.S. Treasury obligations	5,059		5,017		42		U.S. Treasury obligations	4,859		5,095		(236)
Total trading securities	Total trading securities	5,059		5,017		42		Total trading securities	4,859		5,095		(236)

Other investment securities:	Other investment securities:							Other investment securities:
AFS securities:	AFS securities:							AFS securities:
GSE and TVA debentures	GSE and TVA debentures	4,026		3,927		99		GSE and TVA debentures	2,729		3,503		(774)
GSE MBS	GSE MBS	6,338		4,558		1,780		GSE MBS	6,590		6,642		(52)

Total AFS securities	Total AFS securities	10,364		8,485		1,879		Total AFS securities	9,319		10,145		(826)

HTM securities:	HTM securities:							HTM securities:

Other U.S. obligations - guaranteed MBS	Other U.S. obligations - guaranteed MBS	2,749		3,060		(311)		Other U.S. obligations - guaranteed MBS	2,738		2,623		115
GSE MBS	GSE MBS	1,523		2,156		(633)		GSE MBS	1,759		2,078		(319)

Total HTM securities	Total HTM securities	4,272		5,216		(944)		Total HTM securities	4,497		4,701		(204)

Total investment securities	Total investment securities	19,695		18,718		977		Total investment securities	18,675		19,941		(1,266)

Total cash and investments, carrying value	Total cash and investments, carrying value	$	25,334	$	23,797	$	1,537	Total cash and investments, carrying value	$	27,004	$	25,568	$	1,436

Cash and Short-Term Investments. Cash andshort-term investments at September 30, 2021 totaled $8.3 billion, an increase of $2.7 billion, or 48%, from December 31, 2020. The total outstanding balance and composition of our short-term investments ~~outstanding~~ 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.

~~Cash andshort-term investments at September 30, 2020 totaled~~ ~~$5.6 billion, an increase of $560 million, or 11%, from December 31, 2019. Cash and short-term investments as a percent of total assets at September 30, 2020 and December 31, 2019 totaled~~ 8%.

Trading Securities. The Bank purchases U.S. Treasury securities as trading securities to enhance its liquidity. Such securities outstanding at September 30, ~~2020~~2021 totaled ~~$5.1~~$4.9 billion,~~, an~~ ~~increase~~ a decrease of ~~$42~~$236 million, or 1%5%, from December 31, ~~2019.~~

~~As a result, the liquidity portfolio at September 30, 2020 totaled~~ ~~$10.7 billion, an increase of $602 million, or 6%,~~ ~~from December 31, 2019. Cash and short-term investments represented~~ ~~53%~~ ~~of the liquidity portfolio at September 30, 2020, while U.S. Treasury securities represented~~ ~~47%~~.2020.

Other Investment Securities. AFS securities at September 30, ~~2020~~2021 totaled ~~$10.4~~$9.3 billion,, a net ~~increase~~decrease of ~~$1.9 billion,~~$826 million, or ~~22%~~8%, from December 31, ~~2019.~~2020. The ~~increase~~decrease resulted ~~primarily~~ from ~~purchases of~~changes in the fair-value hedging basis adjustments associated with these securities and principal payments on GSE ~~MBS to maintain a ratio of MBS~~ and ~~ABS to total regulatory capital of up to 300%.~~ ~~Generally, our goal is to maintain these investments near the 300% limit in order to enhance earnings and capital for our members and diversify our revenue stream.~~TVA debentures.

Net unrealized gains on AFS securities at September 30, ~~2020~~2021 totaled ~~$97~~$178 million, a net increase of $7$41 million compared to December 31, ~~2019,~~2020, primarily due to changes in interest rates, credit spreads and volatility.

HTM securities at September 30, ~~2020~~2021 totaled ~~$4.3~~$4.5 billion,, a net decrease of ~~$944~~$204 million, or ~~18%~~4%, from December 31, ~~2019.~~ 2020. The ~~Bank purchased three HTM securities during the nine months ended September 30, 2020.~~decrease resulted from principal payments on these securities.

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

September 30, 2020 December 31, 2019
Interest-Rate Payment Terms Estimated Fair Value % of Total Estimated Fair Value % of Total
Trading Securities:
U.S. Treasury obligations fixed-rate $ 5,059 100 % $ 5,017 100 %
Total trading securities $ 5,059 100 % $ 5,017 100 %
Amortized Cost % of Total Amortized Cost % of Total
AFS Securities:
Total non-MBS fixed-rate $ 3,985 39 % $ 3,885 46 %
Total MBS fixed-rate 6,282 61 % 4,510 54 %
Total AFS securities $ 10,267 100 % $ 8,395 100 %
HTM Securities:
MBS:
Fixed-rate $ 302 7 % $ 760 15 %
Variable-rate 3,970 93 % 4,456 85 %
Total MBS 4,272 100 % 5,216 100 %
Total HTM securities $ 4,272 100 % $ 5,216 100 %
Total AFS and HTM securities:
Total fixed-rate $ 10,569 73 % $ 9,155 67 %
Total variable-rate 3,970 27 % 4,456 33 %
Total AFS and HTM securities $ 14,539 100 % $ 13,611 100 %


	September 30, 2021				December 31, 2020
Interest-Rate Payment Terms	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
Trading Securities:
U.S. Treasury obligations fixed-rate	$	4,859	100	%	$	5,095	100	%

Total trading securities	$	4,859	100	%	$	5,095	100	%

	Amortized Cost		% of Total		Amortized Cost		% of Total
AFS Securities:
Total non-MBS fixed-rate	$	2,683	29	%	$	3,463	35	%
Total MBS fixed-rate	6,458		71	%	6,545		65	%

Total AFS securities	$	9,141	100	%	$	10,008	100	%

HTM Securities:
MBS:
Fixed-rate	$	227	5	%	$	283	6	%
Variable-rate	4,270		95	%	4,418		94	%
Total MBS	4,497		100	%	4,701		100	%

Total HTM securities	$	4,497	100	%	$	4,701	100	%

Total AFS and HTM securities:
Total fixed-rate	$	9,368	69	%	$	10,291	70	%
Total variable-rate	4,270		31	%	4,418		30	%

Total AFS and HTM securities	$	13,638	100	%	$	14,709	100	%

The mix of fixed- vs. variable-rate AFS and HTM securities at September 30, ~~2020~~2021 changed slightly from December 31, ~~2019,~~2020, primarily due to ~~purchases of~~principal payments on fixed-rate MBS. However, all of the fixed-rate AFS securities are swapped to effectively create variable-rate exposures, consistent with our balance sheet strategies to manage interest-rate risk.

Total Liabilities.~~Total liabilities at September 30, 2020 were~~ ~~$62.9 billion~~, ~~a net decrease of $1.4 billion, or 2%, from December 31, 2019, substantially due to an decrease in consolidated obligations.~~

Deposits (Liabilities). Total deposits at September 30, ~~2020~~2021 were ~~$1.3~~$1.7 billion,, a net increase of ~~$339~~$361 million, or ~~35%~~26%, from December 31, ~~2019.~~2020. These deposits represent a relatively small portion of our funding. The balances of these accounts can fluctuate from period to period and vary ~~depending~~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.

Consolidated Obligations. The carrying value of consolidated obligations outstanding at September 30, ~~2020~~2021 totaled ~~$60.6~~$55.9 billion, a net decrease of ~~$1.8~~$4.0 billion, or 3%7%, from December 31, ~~2019.~~2020. Such decrease reflected the net decrease in the Bank's total assets.

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


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
By Term	By Term	Par Value		% of Total		Par Value		% of Total		By 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:									Consolidated obligations due in 1 year or less:
Discount notes	Discount notes	$	19,466	32	%	$	17,713	28	%	Discount notes	$	12,715	22	%	$	16,620	28	%
CO bonds	CO bonds	28,157		47	%	23,405		38	%	CO bonds	19,459		35	%	31,127		52	%
Total due in 1 year or less	Total due in 1 year or less	47,623		79	%	41,118		66	%	Total due in 1 year or less	32,174		57	%	47,747		80	%
Long-term CO bonds	Long-term CO bonds	12,891		21	%	21,258		34	%	Long-term CO bonds	23,798		43	%	12,119		20	%

Total consolidated obligations	Total consolidated obligations	$	60,514	100	%	$	62,376	100	%	Total consolidated obligations	$	55,972	100	%	$	59,866	100	%

The mix of our funding has changed significantly. The percentage of consolidated obligations due in 1 year or less ~~increased~~decreased from ~~66%~~80% at December 31, ~~2019~~2020 to ~~79%~~57% at September 30, ~~2020~~2021 as the Bank took advantage of market opportunities to replace maturing short-term debt with long-term callable debt at favorable terms. As a result, long-term CO bonds increased from 20% of ~~seeking~~total consolidated obligations at December 31, 2020 to 43% at September 30, 2021. We continue to seek to maintain a sufficient liquidity and funding balance between our financial assets and financial liabilities.

Additionally, the FHLBanks work collectively to manage FHLB System-wide liquidity and funding and jointly monitor System-wide refinancing risk. 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). For more detailed information regarding contractual maturities of certain of our financial assets and liabilities, see ~~Notes to Financial Statements - Note 3 - Investments~~, ~~Notes to Financial Statements - Note 4 - Advances, and~~ ~~Notes to Financial Statements - Note 7 - Consolidated Obligations~~.

Derivatives. 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	Hedged Item	September 30, 2020		December 31, 2019		Hedged Item	September 30, 2021		December 31, 2020
Advances	Advances	$	18,696	$	17,113	Advances	$	17,355	$	16,573
Investments	Investments	15,138		13,917		Investments	14,307		15,035
Mortgage loans	Mortgage loans	523		991		Mortgage loans	280		361
CO bonds	CO bonds	13,074		17,031		CO bonds	20,530		17,473
Discount notes	Discount notes	2,150		1,350		Discount notes	600		950

Total notional	Total notional	$	49,581	$	50,402	Total notional	$	53,072	$	50,392

The ~~decrease~~increase in the total notional amount during the nine months ended September 30, ~~2020~~2021 of ~~$821 million,~~$2.7 billion, or 2%5%, was ~~primarily~~substantially due to ~~a decrease~~an increase in derivatives hedging CO bonds, driven primarily by the ~~decrease~~increase in long-term CO bonds outstanding.

The following table presents the ~~net~~ cumulative impact of fair-value hedging basis adjustments on our statement of condition ($ amounts in millions).


September 30, 2020		Advances		Investments		CO Bonds		Total
September 30, 2021										September 30, 2021	Advances		Investments		CO Bonds		Total
Cumulative fair-value hedging basis adjustments on hedged items	Cumulative fair-value hedging basis adjustments on hedged items	$	796	$	734	$	(32)	$	1,498	Cumulative fair-value hedging basis adjustments on hedged items	$	325	$	288	$	100	$	713
Estimated fair value of associated derivatives, net	Estimated fair value of associated derivatives, net	(791)		(751)		31		(1,511)		Estimated fair value of associated derivatives, net	(327)		(1)		(93)		(421)

Net cumulative fair-value hedging basis adjustments	Net cumulative fair-value hedging basis adjustments	$	5	$	(17)	$	(1)	$	(13)	Net cumulative fair-value hedging basis adjustments	$	(2)	$	287	$	7	$	292

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Total Capital. ~~Total capital at September 30, 2020 was~~ ~~$3.4 billion, a net increase of $265 million, or 8%, from December 31, 2019, substantially due to proceeds from the issuance of capital stock.~~

The following table presents a percentage breakdown of the components of GAAP capital.


Components	Components	September 30, 2020		December 31, 2019		Components	September 30, 2021		December 31, 2020
Capital stock	Capital stock	65	%	63	%	Capital stock	63	%	64	%
Retained earnings	Retained earnings	33	%	35	%	Retained earnings	33	%	33	%
AOCI	AOCI	2	%	2	%	AOCI	4	%	3	%
Total GAAP capital	Total GAAP capital	100	%	100	%	Total GAAP capital	100	%	100	%

The changes in the components of GAAP capital at September 30, ~~2020~~2021 compared to December 31, ~~2019~~2020 were ~~substantially~~primarily due to ~~a high level of capital stock issued and outstanding.~~an increase in unrealized gains on AFS securities.

The following table presents a reconciliation of GAAP capital to regulatory capital ($ amounts in millions).


Reconciliation	Reconciliation	September 30, 2020		December 31, 2019		Reconciliation	September 30, 2021		December 31, 2020

Total GAAP capital	Total GAAP capital	$	3,422	$	3,157	Total GAAP capital	$	3,551	$	3,450
Exclude: AOCI	Exclude: AOCI	(74)		(68)		Exclude: AOCI	(151)		(105)
Add: MRCS	Add: MRCS	262		323		Add: MRCS	50		251
Total regulatory capital	Total regulatory capital	$	3,610	$	3,412	Total regulatory capital	$	3,450	$	3,596

~~Table of Contents~~

Liquidity and Capital Resources

Liquidity. Our primary sources of liquidity are holdings of liquid assets, comprised of cash, short-term investments, and trading securities, as well as the issuance of consolidated obligations.

Our cash and short-term investments ~~totaled~~ ~~$5.6 billion~~at September 30, ~~2020.~~2021 totaled $8.3 billion. Our short-term investments generally consist of high-quality financial instruments, many of which mature overnight. Our trading securities at September 30, ~~2020~~2021 totaled ~~$5.1~~$4.9 billion and consisted solely of U.S. Treasury securities. As a result, our liquidity portfolio at September 30, ~~2020~~2021 totaled ~~$10.7~~$13.2 billion, or ~~16% o~~f21% of total assets. The level of our liquidity fluctuates and is influenced by regulatory requirements, actual and anticipated member advance activity and market conditions.

During the nine months ended September 30, ~~2020,~~2021, we maintained sufficient access to funding; our net proceeds from the issuance of consolidated obligations ~~totaled $275.6~~totaled $216.5 billion.

In 2018, the Finance Agency issued Advisory Bulletin 2018-07 that communicates the Finance Agency's expectations with respect to the maintenance of sufficient liquidity. The Bank has fully implemented such liquidity guidance on a timely basis. After December 31, 2019, the standard increased from 10 to 20 calendar days of liquidity sufficient to cover a temporary inability to issue consolidated obligations. In May 2020, however, as a result of continuing market conditions, the Finance Agency indicated that an FHLBank would be considered to have adequate reserves of liquid assets if, by August 31, 2020, it maintains 15 days of positive liquidity and, by December 31, 2020, it maintains 20 days of positive liquidity. This guidance updated the March 2020 guidance on temporary relaxation of liquidity expectations. Our liquidity exceeded the 20-day standard at September 30, 2020. We anticipate our liquidity will continue to meet or exceed the Finance Agency's standards going forward.

New or revised regulatory guidance from the Finance Agency could continue to increase the amount and change the characteristics of liquidity that we are required to maintain. We have not identified any other trends, demands, commitments, or events that are likely to materially increase or decrease our liquidity.

Changes in Cash Flow. Net cash ~~used in~~provided by operating activities for the nine months ended September 30, ~~2020~~2021 was ~~$407~~$281 million,, compared to net cash used in operating activities for the nine months ended September 30, ~~2019~~2020 of ~~$215~~$407 million. The net ~~increase~~change in cash ~~used~~provided by operating activities of ~~$192~~$688 million was substantially due to the fluctuation in variation margin payments on cleared derivatives. Such payments are treated by the clearinghouses as daily settled contracts.

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Capital Resources.

Total Regulatory Capital. The following table provides a breakdown of our outstanding capital stock and MRCS ~~outstanding~~ ($ amounts in millions).


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
By Type of Member Institution	By Type of Member Institution	Amount		% of Total		Amount		% of Total		By Type of Member Institution	Amount		% of Total		Amount		% of Total
Capital Stock:	Capital Stock:									Capital Stock:
Depository institutions:	Depository institutions:									Depository institutions:
Commercial banks and savings institutions	Commercial banks and savings institutions	$	1,105	44	%	$	955	42	%	Commercial banks and savings institutions	$	1,130	50	%	$	1,108	45	%
Credit unions	Credit unions	298		12	%	277		12	%	Credit unions	303		13	%	298		12	%
Total depository institutions	Total depository institutions	1,403		56	%	1,232		54	%	Total depository institutions	1,433		63	%	1,406		57	%
Insurance companies	Insurance companies	821		33	%	742		32	%	Insurance companies	804		35	%	802		33	%
CDFIs	CDFIs	—		—	%	—		—	%	CDFIs	—		—	%	—		—	%
Total capital stock, putable at par value	Total capital stock, putable at par value	2,224		89	%	1,974		86	%	Total capital stock, putable at par value	2,237		98	%	2,208		90	%

MRCS:	MRCS:									MRCS:
Captive insurance companies(1)	Captive insurance companies(1)	62		3	%	136		6	%	Captive insurance companies(1)	12		1	%	31		1	%
Former members ~~(1)~~	Former members ~~(1)~~	200		8	%	187		8	%	Former members ~~(1)~~	38		1	%	220		9	%

Total MRCS	Total MRCS	262		11	%	323		14	%	Total MRCS	50		2	%	251		10	%

Total regulatory capital stock	Total regulatory capital stock	$	2,486	100	%	$	2,297	100	%	Total regulatory capital stock	$	2,287	100	%	$	2,459	100	%

(1) ~~Balances, at both September 30, 2020 and December 31, 2019, include less than~~ ~~$1 million~~Represents captive insurance companies whose membership was terminated on February 19, 2021. On that date, we repurchased their excess stock of ~~MRCS that had reached the end of the five-year redemption period but~~$18.1 million. The remaining balance will not be redeemed until the associated credit products and other obligations are no longer outstanding.

On August 26, 2020, our board of directors approved the involuntary termination of a captive insurance company member that had repaid all outstanding advances and directed the repurchase of all of that member's Class B stock. This stock, totaling $18.3 million, was repurchased on August 28, 2020.

~~We amended and restated our capital plan effective September 26, 2020. For more information, see~~ ~~Notes to Financial Statements - Note 9 - Capital~~.

Excess Capital Stock. The following table presents the composition of our excess capital stock ($ amounts in millions).


Components	Components	September 30, 2020			December 31, 2019			Components	September 30, 2021			December 31, 2020
Member capital stock not subject to outstanding redemption requests	Member capital stock not subject to outstanding redemption requests	$	661		$	441		Member capital stock not subject to outstanding redemption requests	$	842		$	605
Member capital stock subject to outstanding redemption requests	Member capital stock subject to outstanding redemption requests	—			1			Member capital stock subject to outstanding redemption requests	11			—
MRCS	MRCS	225			175			MRCS	28			225

Total excess capital stock	Total excess capital stock	$	886		$	617		Total excess capital stock	$	881		$	830

Excess stock as a percentage of regulatory capital stock	Excess stock as a percentage of regulatory capital stock	36		%	27		%	Excess stock as a percentage of regulatory capital stock	39		%	34		%

The increase inin excess stock during the nine months ended September 30, ~~2020~~2021 resulted substantially from ~~advance activity.~~the reduction in advances outstanding.

On July 29, 2021, our board of directors authorized the repurchase of $181 million par value of excess MRCS held by former members or their successors-in-interest. The repurchase occurred on September 2, 2021.

In addition, we repurchased $11.3 million par value of excess stock subject to outstanding redemption requests on September 2, 2021.

Finance Agency rules limit the ability of an FHLBank to pay dividends in the form of additional shares of capital stock or otherwise issue excess stock under certain circumstances, including when its total excess stock exceeds 1% of total assets or if the issuance of excess stock would cause total excess stock to exceed 1% of total assets. Our ~~total~~ excess stock at September 30, ~~2020~~2021 was ~~1.34%~~1.42% of our total assets. Therefore, as a result of these regulatory limitations, we are currently not permitted to distribute stock dividends or issue excess stock to our ~~members.~~members, should we choose to do so.

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Under the amended capital plan, the Bank is required to repurchase excess stock if its regulatory capital ratio as of the last day of any month exceeds a specific ratio established by the board of directors from time to time, currently 5.75%, by at least 25 bps. As a result, the current threshold for repurchase is a regulatory capital ratio of 6.0%. Our regulatory capital ratio at ~~September 30, 2020 wa~~s 5.44%, the only month end since the effectiveness of the amended capital plan. Excess stock shall be repurchased under these circumstances only to the extent required to reduce the Bank's regulatory capital ratio to the specific ratio which was initially used to calculate the repurchase obligation.

Capital Distributions. Our board of directors seeks to reward our members with a competitive, risk-adjusted return on their investment, particularly those who actively utilize our products. Our board of directors' decision to declare dividends is influenced by our financial condition, overall financial performance and retained earnings, as well as actual and anticipated developments in 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 the stability of our current capital stock position and membership.

On October 28, ~~2020,~~2021, our board of directors declared ~~its third quarter 2020 dividends for the period ended September 25, 2020~~ ~~on Class B-1 and Class B-2 capital stock at annualized rates of 3.00% and 2.40%, respectively.~~

As a ~~result of implementing the amended capital plan effective September 26, 2020, the board of directors also declared dividends for the remaining five-day period of the quarter~~cash dividend on Class B-2 activity-based stock at an ~~annualized~~annualized rate of ~~3.00%~~3.25% and on Class B-1 non-activity-based stock at an annualized rate of ~~3.00%~~1.00%, resulting in a spread between the rates of 2.25 percentage points. The overall weighted-average annualized rate declared was 2.25%. ~~Given the short period of time that the amended capital plan was in effect during the quarter, the Board declared the same rate on the Class B-1 stock as on the Class B-2 stock.~~

The prior capital plan required that dividends on Class B-2 stock be calculated as 80% of the dividends declared on Class B-1 stock, while the amended capital plan permits the dividends on Class B-2 (activity-based) stock to be equal to or greater than the dividends on Class B-1 (non-activity-based) stock.

The dividends were paid in cash on October 29, ~~2020.~~2021.

Adequacy of Capital. We must maintain sufficient permanent capital to meet the combined credit risk, market risk and operations risk components of the risk-based capital requirement. As presented in the following table, we were in compliance with the risk-based capital requirement at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 ($ amounts in ~~millions)~~millions).


Risk-Based Capital Components	Risk-Based Capital Components	September 30, 2020		December 31, 2019		Risk-Based Capital Components	September 30, 2021		December 31, 2020
Credit risk	Credit risk	$	167	$	294	Credit risk	$	155	$	158
Market risk	Market risk	278		198		Market risk	594		327
Operations risk	Operations risk	134		147		Operations risk	224		146

Total risk-based capital requirement	Total risk-based capital requirement	$	579	$	639	Total risk-based capital requirement	$	973	$	631

Permanent capital	Permanent capital	$	3,610	$	3,412	Permanent capital	$	3,450	$	3,596

The ~~decrease~~increase in ~~the~~our total risk-based capital requirement was ~~driven by a decrease in the credit risk component,~~ primarily for mortgage loans held for portfolio, based on changes in the requirements outlined in the Finance Agency Final Rule on FHLBank Capital Requirements, which took effect January 1, 2020. This decrease was partially offsetcaused by an increase in the market risk ~~capital components~~component due to changes in the market environment, including changes in interest rates ~~spreads,~~ and ~~volatility,~~option adjusted spreads and changes in the composition of our balance ~~sheet composition.~~sheet. Our permanent capital at September 30, ~~2020~~2021 remained well in excess of our total risk-based capital requirement.

In August 2019, the Finance Agency issued Advisory Bulletin 2019-03 requiring that, beginning in February 2020, we maintain a ratio of total regulatory capital stock to total assets, measured on a daily average basis at month end, of at least two percent. At September 30, 2020, our ratio exceeded this requirement.

~~Table of Contents~~

Off-Balance Sheet Arrangements

At September 30, ~~2020,~~2021, principal previously paid in full by our MPP ~~servicers~~servicers totaling less than $1 million rem~~$1 million~~ ~~remains~~ains subject to potential claims by those servicers for any losses resulting from past or future liquidations of the underlying properties. AnAn estimate of the losses is included in the MPP allowance for ~~credit~~loan losses. For more information, see Notes to Financial Statements - Note 76 - ~~Allowance~~Mortgage Loans Held for ~~Credit Losses~~Portfolio in our ~~2019~~2020 Form 10-K.

Critical Accounting Policies and Estimates

A full discussion of our critical accounting policies and estimates is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our ~~2019~~2020 Form 10-K.

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Recent Accounting and Regulatory Developments

Accounting Developments. For a description of how recent accounting developments may impact our financial condition, results of operations or cash flows, see Notes to Financial Statements - Note 2 - Recently Adopted and Issued Accounting Guidance.

Legislative and Regulatory Developments.

~~COVID-19 Pandemic.~~

Finance ~~Agency Supervisory Letter - Paycheck Protection Program (PPP) Loans as Collateral for FHLBank Advances~~Agency.. On July 1, 2020, Congress approved an extension of the Paycheck Protection Program until August 8, 2020. The April 23, 2020 Supervisory Letter from the Finance Agency allowing FHLBanks to accept PPP loans as collateral for advances remains in effect.

~~Federal Reserve Lending Facilities.~~FHLBank Membership Supervisory Letter. On September 9, 2021, the Finance Agency published a Supervisory Letter on FHLBank Membership Issues covering five issues, including (1) Requirements for De Novo CDFI, (2) Automatic Transfer of Membership, (3) Large Non-Member Institution Merging with a Small Member, (4) Applicant’s Compliance with "Financial Condition" Requirement, and (5) Definition of Insurance Company. The ~~Federal Reserve announced~~Supervisory Letter is intended to provide uniform guidance to the FHLBanks in the event they encounter similar circumstances. The Bank continues to evaluate the Supervisory Letter and its effect on ~~July 28, 2020 that its lending facilities scheduled to expire on or around September 30, 2020 would be extended through December 31, 2020.~~Bank membership.

~~Coronavirus Aid, Relief,~~Regulatory Interpretation on Eligibility of Mortgage Participations as Collateral for FHLBank Advances. On October 4, 2021, the Finance Agency published a Regulatory Interpretation on Eligibility of Mortgage Loan Participations as Collateral for FHLBank Advances. The Regulatory Interpretation addresses whether an FHLBank can accept as collateral to secure advances mortgage loan participations that cannot be readily liquidated in the form in which they are to be pledged. The Regulatory Interpretation concludes that mortgage loan participations must meet the requirements of Finance Agency regulation 12 CFR 1266.7(a)(4), including the requirement that the collateral can be "liquidated in due course" in order to be eligible to secure FHLBank advances. It further concludes that participations for which there would be a known impediment to liquidation do not meet such requirement and ~~Economic Security Act~~therefore are not eligible collateral for advances. Finally, the Regulatory Interpretation rescinds prior guidance from FHLBank System regulators that provide mortgage loan participations may be eligible as collateral under regulatory provisions other than 12 CFR 1266.7(a)(4). The ~~CARES Act provisions began to expire in July 2020, but some have been extended by regulatory action.~~Regulatory Interpretation becomes effective on December 13, 2021.

•~~Additional federal unemployment funds expired~~Although we do not currently expect the Regulatory Interpretation to have a material impact on ~~July 31, 2020.~~our financial condition or results of operations, this restriction on collateral may negatively impact future borrowing by certain members.

•Fair Housing and Fair Lending Enforcement. ~~Statutory eviction freeze for federally-backed properties expired on~~On July ~~25, 2020.~~

•~~Foreclosure moratorium on federally-backed properties was extended by~~9, 2021, the Finance Agency published a Policy Statement on ~~August 27, 2020~~Fair Lending to ~~last until at least December 31, 2020.~~communicate the Finance Agency’s general position on monitoring and information gathering, supervisory examinations, and administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act. The Policy Statement became effective on the date of publication.

~~Congress may enact additional phases~~On August 12, 2021, the Finance Agency and HUD announced they had entered into a Memorandum of Understanding regarding fair housing and fair lending enforcement. Under the Memorandum of Understanding, the two agencies will focus on enhancing their enforcement of the ~~CARES~~Fair Housing Act, ~~or other COVID-19 pandemic relief legislation. We continue~~and their oversight of Fannie Mae, Freddie Mac, and the FHLBanks.

The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on the actual and potential impacts of the CARES Act and other COVID-19-related legislation on our business, including: the continuing impacts to the U.S. economy, impacts to mortgages held or serviced by our members and that we accept as collateral, and the impacts on MPP.Bank.

COVID-19 Developments.

Additional COVID-19 Presidential, Legislative and Regulatory ~~Developments~~Developments. . In light of the COVID-19 pandemic, the President of the United States, through executive orders, governmental agencies, including the SEC, OCC, ~~FRB,~~Federal Reserve, FDIC, National Credit Union Administration, CFTC and the Finance Agency, as well as state ~~and local~~ governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the ~~pandemic. State~~pandemic, and ~~local actions~~the Congress has enacted and may continue to ~~include efforts to reduce the spread~~enact pandemic relief legislation, some of ~~COVID-19 through substantial limitations on travel, public social interaction and commercial activities. These regulatory actions and guidance have had and will continue to~~which may have a direct or indirect impact on ~~us and our~~the Bank or its members. ~~Some~~Many of these actions ~~may be short-term~~are temporary in ~~duration, but their actual duration will depend on several factors. We continue~~nature. The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential impact on ~~our financial condition and results of operations.~~the Bank.

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~~Other Regulatory~~Legislative Developments.

~~Margin and Capital Requirements for Covered Swap Entities~~Affordable Housing. ~~On July 1, 2020, the OCC, the FRB, the FDIC, the Farm Credit Administration, and the Finance Agency (collectively, "Prudential Banking Regulators") jointly published~~Congress continues to consider a ~~final rule, effective August 31, 2020, amending regulations that establish minimum margin and capital requirements for uncleared swaps for covered swap entities under the jurisdiction~~legislative proposal, recently as part of the ~~Prudential Banking Regulators ("Prudential Margin Rules")~~Congressional budget reconciliation process, that, if enacted in its proposed form, would require the FHLBanks to increase the contribution to their affordable housing programs, in each year from 2022 to 2027, to 15% of their net income for the preceding year, an increase from the current level of 10% (with the aggregate annual contributions from the FHLBanks unchanged at no less than $100,000,000). ~~In addition~~The FHLBanks continue to ~~other changes,~~actively monitor the final rule: (1) allows swaps entered into by a covered swap entity prior to an applicable compliance date to retain their legacy status and not become subject to the Prudential Margin Rules in the event that the legacy swaps are amended to replace an interbank offered rate (such as LIBOR) or other discontinued rate, or due to other technical amendments such as notional reductions or portfolio compression exercises; (2) introduces a new Phase 6 compliance date for initial margin requirements for covered swap entities and their counterparties with an average daily aggregate notional amount ("AANA") of uncleared swaps from $8 billion to $50 billion, and limits Phase 5 to counterparties with an AANA of uncleared swaps from $50 billion to $750 billion; and (3) clarifies that initial margin trading documentation does not need to be executed prior to a counterparty reaching the initial margin threshold.proposal.

On the same date, the Prudential Banking Regulators issued an interim final rule, effective September 1, 2020, extending the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extending the initial margin compliance date for Phase 6 counterparties to September 1, 2022. On July 10, 2020, the CFTC issued a final rule and a proposed rule to amend the minimum margin and capital requirements for uncleared swaps under the jurisdiction of the CFTC ("CFTC Margin Rules") which collectively, among other things, extend the initial margin compliance date for Phase 5 counterparties to September 1, 2021 and extend the initial margin compliance date for Phase 6 counterparties to September 1, 2022, thereby aligning with the Prudential Banking Regulators.

On September 22, 2020, the CFTC issued a proposed rule to amend the CFTC Margin Rules which would permit, among other changes, covered swap entities to maintain separate minimum transfer amounts ("MTA") for initial and variation margin for each swap counterparty, provided the combined MTA does not exceed $500,000. Separately, on September 23, 2020, the CFTC issued a proposed rule to address concerns by covered entities related to determining initial margin compliance across different regulators and jurisdictions. The CFTC’s proposed rule would, among other things, require entities subject to the CFTC’s jurisdiction to calculate the AANA for uncleared swaps during March, April and May of the current year, based on an average of month-end dates, as opposed to the existing requirement which requires the calculation of AANA during June, July and August of the prior year, based on daily calculations. Parties would continue to be expected to exchange initial margin based on the AANA totals as of September 1 of the current year. The proposed change aligns with the recommendation of the Basel Committee on Banking Supervision and Board of the International Organization of Securities Commission.

~~We donot expect thesefinal rules or the CFTC proposed rules, if adopted as proposed, to have a material adverse effect on our financial condition or results of operations.~~

~~ISDA Interbank Offered Rate ("IBOR") Fallbacks Protocol.~~ On October 23, 2020, the International Swaps and Derivatives Association, Inc. ("ISDA"), launched the Supplement to the 2006 ISDA Definitions ("Supplement") and the ISDA 2020 IBOR Fallbacks Protocol ("Protocol"). Both the Supplement and the Protocol will take effect on January 25, 2021. On that date, all legacy bilateral derivative transactions subject to Protocol-covered agreements (including ISDA agreements) that incorporate certain covered ISDA definitional booklets and reference a covered IBOR, including US Dollar LIBOR, will be amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR's cessation. Both an FHLBank and its relevant counterparty must have adhered to the Protocol to effectively amend legacy derivative contracts, otherwise the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. As of January 25, 2021, new and future derivative contracts will be subject to the relevant IBOR fallbacks set forth in the Supplement.

On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that requires each FHLBank to adhere to the Protocol no later than December 31, 2020, and to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020.

We adhered to the Protocol on October 23, 2020, and will work with counterparties, as necessary, to address its over-the-counter derivative agreements referencing US Dollar LIBOR as a part of its LIBOR transition efforts.

~~Table of Contents~~

Risk Management

We have exposure to a number of risks in pursuing our business objectives. These risks may be broadly classified as market, credit, liquidity, operational, and business. Market risk is discussed in Item 3. Quantitative and Qualitative Disclosures about Market Risk. For more information, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management in our ~~2019~~2020 Form 10-K.

Credit Risk Management. We face credit risk on advances and other credit products, investments, mortgage loans, derivative financial instruments, and AHP grants.

Advances and Other Credit Products. New or renewed credit extensions to captive insurance companies that became members prior to September 12, 2014 are subject to certain regulatory restrictions relating to maturity dates and cannot exceed 40% of the member's total assets. As of September 30, 2020, no such captive insurance company member's total balance of credit products exceeded the percentage limit. We may impose additional restrictions on extensions of credit to our members, including captive insurance companies, at our discretion.

Concentration. Our credit risk is magnified due to the concentration of advances in a few borrowers. As of September 30, ~~2020,~~2021, our top borrower held ~~10%~~12% of total advances outstanding, at par, and our top five borrowers held ~~38%~~40% of total advances outstanding, at par. As a result of this concentration, we perform frequent credit and collateral reviews on our largest borrowers. ~~In addition, we analyze the implications to our financial management and profitability if we were to lose the business of one or more of these borrowers.~~

Investments. We are also exposed to credit risk through our investment ~~portfolios.~~portfolio. Our policies restrict the acquisition of investments to high-quality, short-term money market instruments and high-quality long-term securities.

The following table presents the unsecured investment credit exposure to private counterparties, categorized by the domicile of the counterparty's ultimate parent, based on the lowest of the counterparty's NRSRO long-term credit ratings, stated in terms of the S&P equivalent. The table does not reflect the foreign sovereign government's credit rating ($ amounts in millions).


September 30, 2020		A		Total
September 30, 2021						September 30, 2021	AA		A		Total
Domestic	Domestic	$	143	$	143	Domestic	$	—	$	100	$	100
Australia	Australia	865		865		Australia	960		—		960
Canada						Canada	—		500		500

Netherlands						Netherlands	—		615		615

Total unsecured credit exposure	Total unsecured credit exposure	$	1,008	$	1,008	Total unsecured credit exposure	$	960	$	1,215	$	2,175

A Finance Agency regulation provides that the total amount of our investments in MBS and ABS, calculated using amortized historical cost, must not exceed 300% of our total regulatory capital, as of the day we purchase the securities, based on the capital amount most recently reported to the Finance Agency. If our outstanding 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 investments were within the capital limitation. At September 30, ~~2020,~~2021, these investments totaled ~~277%~~312% of total regulatory ~~capital.~~capital due to the reduction in total regulatory capital resulting from the repurchases of excess stock on September 2, 2021 totaling $192.3 million. Generally, our goal is to maintain these investments near the 300% limit in order to enhance earnings and capital for our members and diversify our revenue stream. However, we do not expect our ratio to fall below 300% until some time in 2022. As a result, the opportunity to further enhance our earnings will not be available until we are again permitted to purchase these investments.

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The following table presents the carrying values of our investments, excluding accrued interest, grouped by credit rating and investment category. Applicable rating levels are determined using the lowest relevant long-term rating from S&P ~~Moody's~~ and ~~Fitch Ratings, Inc.,~~Moody's, each stated in terms of the S&P equivalent. Rating modifiers are ignored when determining the applicable rating level for a given counterparty or investment. Amounts reported do not reflect any subsequent changes in ratings, outlook, or watch status ($ amounts in millions).


														Below																			Below
														Investment																			Investment
September 30, 2020		AAA			AA			A			BBB			Grade			Total
September 30, 2021																				September 30, 2021	AAA			AA			A			BBB			Grade			Total
Short-term investments:	Short-term investments:																			Short-term investments:
Interest-bearing deposits	Interest-bearing deposits	$	—		$	—		$	56		$	—		$	—		$	56		Interest-bearing deposits	$	—		$	—		$	100		$	—		$	—		$	100
Securities purchased under agreements to resell	Securities purchased under agreements to resell	—			4,500			—			—			—			4,500			Securities purchased under agreements to resell	—			4,200			—			—			—			4,200
Federal funds sold	Federal funds sold	—			—			952			—			—			952			Federal funds sold	—			960			1,115			—			—			2,075
Total short-term investments	Total short-term investments	—			4,500			1,008			—			—			5,508			Total short-term investments	—			5,160			1,215			—			—			6,375

Trading securities:	Trading securities:																			Trading securities:
U.S. Treasury obligations	U.S. Treasury obligations	—			5,059			—			—			—			5,059			U.S. Treasury obligations	—			4,859			—			—			—			4,859
Total trading securities	Total trading securities	—			5,059			—			—			—			5,059			Total trading securities	—			4,859			—			—			—			4,859

Other investment securities:	Other investment securities:																			Other investment securities:
GSE and TVA debentures	GSE and TVA debentures	—			4,026			—			—			—			4,026			GSE and TVA debentures	—			2,729			—			—			—			2,729
GSE MBS	GSE MBS	—			7,861			—			—			—			7,861			GSE MBS	—			8,350			—			—			—			8,350
Other U.S. obligations - guaranteed RMBS	Other U.S. obligations - guaranteed RMBS	—			2,749			—			—			—			2,749			Other U.S. obligations - guaranteed RMBS	—			2,737			—			—			—			2,737
Total other investment securities	Total other investment securities	—			14,636			—			—			—			14,636			Total other investment securities	—			13,816			—			—			—			13,816

Total investments, carrying value	Total investments, carrying value	$	—		$	24,195		$	1,008		$	—		$	—		$	25,203		Total investments, carrying value	$	—		$	23,835		$	1,215		$	—		$	—		$	25,050

Percentage of total	Percentage of total	—		%	96		%	4		%	—		%	—		%	100		%	Percentage of total	—		%	95		%	5		%	—		%	—		%	100		%

December 31, 2019
Short-term investments:
Interest-bearing deposits		$	—		$	—		$	809		$	—		$	—		$	809
Securities purchased under agreements to resell		—			1,500			—			—			—			1,500
Federal funds sold		—			1,090			1,460			—			—			2,550
Total short-term investments		—			2,590			2,269			—			—			4,859

Trading securities:
U.S. Treasury obligations		—			5,017			—			—			—			5,017
Total trading securities		—			5,017			—			—			—			5,017

Other investment securities:
GSE and TVA debentures		—			3,927			—			—			—			3,927
GSE MBS		—			6,714			—			—			—			6,714
Other U.S. obligations - guaranteed RMBS		—			3,060			—			—			—			3,060
Total other investment securities		—			13,701			—			—			—			13,701

Total investments, carrying value		$	—		$	21,308		$	2,269		$	—		$	—		$	23,577

Percentage of total		—		%	90		%	10		%	—		%	—		%	100		%


													Below
													Investment
December 31, 2020	AAA			AA			A			BBB			Grade			Total






















Short-term investments:
Interest-bearing deposits	$	—		$	—		$	100		$	—		$	—		$	100
Securities purchased under agreements to resell	—			2,500			—			—			—			2,500
Federal funds sold	—			100			1,115			—			—			1,215
Total short-term investments	—			2,600			1,215			—			—			3,815

Trading securities:
U.S. Treasury obligations	—			5,095			—			—			—			5,095
Total trading securities	—			5,095			—			—			—			5,095

Other investment securities:
GSE and TVA debentures	—			3,503			—			—			—			3,503
GSE MBS	—			8,720			—			—			—			8,720
Other U.S. obligations - guaranteed RMBS	—			2,623			—			—			—			2,623
Total other investment securities	—			14,846			—			—			—			14,846

Total investments, carrying value	$	—		$	22,541		$	1,215		$	—		$	—		$	23,756

Percentage of total	—		%	95		%	5		%	—		%	—		%	100		%

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Mortgage Loans Held for Portfolio. The following table presents the changes in the LRA for original MPP and Advantage MPP ($ amounts in millions).


		Three Months Ended September 30, 2020						Three Months Ended September 30, 2021
LRA Activity	LRA Activity	Original		Advantage		Total			LRA Activity	Original		Advantage		Total
Liability, beginning of period	Liability, beginning of period	$	6	$	191	$	197		Liability, beginning of period	$	4	$	216	$	220
Additions	Additions	—		5		5			Additions	—		5		5
Claims paid	Claims paid	—		—		—			Claims paid	—		—		—
Distributions to PFIs	Distributions to PFIs	(1)		—		(1)			Distributions to PFIs	—		—		—
Liability, end of period	Liability, end of period	$	5	$	196	$	201		Liability, end of period	$	4	$	221	$	225


		Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2021
LRA Activity	LRA Activity	Original		Advantage		Total			LRA Activity	Original		Advantage		Total
Liability, beginning of period	Liability, beginning of period	$	7	$	180	$	187		Liability, beginning of period	$	4	$	203	$	207
Additions	Additions	—		17		17			Additions	—		18		18
Claims paid	Claims paid	—		—		—			Claims paid	—		—		—
Distributions to PFIs	Distributions to PFIs	(2)		(1)		(3)			Distributions to PFIs	—		—		—
Liability, end of period	Liability, end of period	$	5	$	196	$	201		Liability, end of period	$	4	$	221	$	225

Derivatives. The following table presents key information on derivative positions with counterparties on a settlement date basis using the lower credit rating from S&P orand Moody's, stated in terms of the S&P equivalent ($ amounts in millions).

September 30, 2020
Notional
Amount
Net Estimated Fair Value
Before Collateral
Cash Collateral
Pledged To (From)
Counterparties
Net Credit
Exposure
Non-member counterparties:
Asset positions with credit exposure
Uncleared derivatives - A $ 233 $ — $ — $ —
Cleared derivatives (1)
32,694 19 278 297
Liability positions with credit exposure
Uncleared derivatives - A 13,483 (920) 939 19
Uncleared derivatives - BBB 580 (9) 11 2
Cleared derivatives (1)
1,911 — 2 2
Total derivative positions with credit exposure to non-member counterparties 48,901 (910) 1,230 320
Total derivative positions with credit exposure to member institutions (2)
125 — — —
Subtotal - derivative positions with credit exposure 49,026 $ (910) $ 1,230 $ 320
Derivative positions without credit exposure 555
Total derivative positions $ 49,581


September 30, 2021	Notional Amount		Net Estimated Fair Value Before Collateral		Cash Collateral Pledged To (From) Counterparties		Net Credit Exposure
Non-member counterparties:
Asset positions with credit exposure

Uncleared derivatives - A	$	63	$	—	$	—	$	—

Cleared derivatives (1)	9,900		3		77		80
Liability positions with credit exposure

Uncleared derivatives - A	199		(5)		5		—

Cleared derivatives (1)	14,956		(3)		154		151
Total derivative positions with credit exposure to non-member counterparties	25,118		(5)		236		231
Total derivative positions with credit exposure to member institutions (2)	42		—		—		—
Subtotal - derivative positions with credit exposure	25,160		$	(5)	$	236	$	231
Derivative positions without credit exposure	27,912

Total derivative positions	$	53,072

(1) Represents derivative transactions cleared by two clearinghouses (one rated AA- and the other unrated).

(2) Includes MDCs from member institutions under our MPP.

~~Table of Contents~~

~~Business Risk Management.~~

~~Replacement of the LIBOR Benchmark Interest Rate.~~ In July 2017, the Financial Conduct Authority ("FCA"), a regulator of financial services firms and financial markets in the UK, announced that it planned to phase out its regulatory oversight responsibilities for LIBOR interest rate indices. The FCA indicated that it will cease persuading or compelling banks to submit rates for the calculation of LIBOR after 2021, and that the continuation of LIBOR on the current basis will not be guaranteed after 2021. The Alternative Reference Rates Committee has proposed SOFR as its recommended alternative to LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in April 2018.

Many of our advances, investments, CO bonds, derivative assets, derivative liabilities, and related collateral are indexed to LIBOR. Some of these assets and liabilities and related collateral have maturity dates that extend beyond 2021. As a result, we are continuing to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate, including the likelihood of SOFR as the dominant replacement on an ongoing basis.

We continue to implement our transition plan that has the flexibility to evolve with market developments and standards, member needs, and guidance provided by the issuers of Agency securities. The key components of our LIBOR replacement plan are: exposure, fallback language, information technology systems preparation, and balance sheet strategy. We have evaluated our current exposure to LIBOR including completing an inventory of all financial instruments impacted and identifying financial instruments and contracts that may require adding or adjusting fallback language. We have assessed our operational readiness including potential effects on core Bank systems and replacing LIBOR references in policies and procedures. From a balance-sheet management perspective, we participate in the issuance of SOFR-indexed debt. In addition, in accordance with the Supervisory Letter issued by the Finance Agency to the FHLBanks on September 27, 2019, we have ceased purchasing investments that reference LIBOR and mature after December 31, 2021. We have also ceased the issuance of LIBOR-indexed debt with maturities beyond 2021. Further, beginning March 31, 2020, we have ceased entering into transactions in certain structured advances and advances with terms directly linked to LIBOR that mature after December 31, 2021. Beginning June 30, 2020, we are no longer authorized to enter into derivatives with swaps, caps, or floors indexed to LIBOR that terminate after December 31, 2021.

We have revised our members' collateral reporting requirements to distinguish LIBOR-linked collateral that matures after December 31, 2021. Finally, we have implemented OIS as an alternative interest rate hedging strategy for certain financial instruments.

~~Table of Contents~~

~~The following table presents our LIBOR-rate indexed financial instruments outstanding at September 30, 2020 and December 31, 2019 by year of maturity ($ amounts in millions).~~

LIBOR-Indexed Financial Instruments Year of Maturity
September 30, 2020 2020 2021 2022 and thereafter Total
Assets:
Advances, par value (1)
$ — $ 175 $ 3,600 $ 3,775
Mortgage-backed securities, par value (2)
— — 3,867 3,867
Total $ — $ 175 $ 7,467 $ 7,642
Interest-rate swaps - receive leg, notional:
Cleared $ 1,916 $ 2,162 $ 6,988 $ 11,066
Uncleared 10 117 11,521 11,648
Total $ 1,926 $ 2,279 $ 18,509 $ 22,714
Liabilities:
CO bonds, par value (2)
$ 3,075 $ 6,450 $ — $ 9,525
Interest-rate swaps - pay leg, notional:
Cleared $ 3,572 $ 9,344 $ 434 $ 13,350
Uncleared 80 1,030 264 1,374
Total $ 3,652 $ 10,374 $ 698 $ 14,724
Other derivatives, notional:
Interest-rate caps held $ — $ — $ 626 $ 626

December 31, 2019
Assets:
Advances, par value (1)
$ 178 $ 311 $ 3,841 $ 4,330
Mortgage-backed securities, par value (2)
12 — 4,437 4,449
Total $ 190 $ 311 $ 8,278 $ 8,779
Interest-rate swaps - receive leg, notional:
Cleared $ 4,364 $ 1,871 $ 7,087 $ 13,322
Uncleared 279 117 10,814 11,210
Total $ 4,643 $ 1,988 $ 17,901 $ 24,532
Liabilities:
CO bonds, par value (2)
$ 10,235 $ 1,050 $ — $ 11,285
Interest-rate swaps - pay leg, notional:
Cleared $ 4,520 $ 849 $ 234 $ 5,603
Uncleared 2,737 2,445 6,248 11,430
Total $ 7,257 $ 3,294 $ 6,482 $ 17,033
Other derivatives, notional:
Interest-rate caps held $ 43 $ — $ 626 $ 669

~~(1)~~ ~~Year of maturity on our advances is based on redemption term.~~

~~(2)~~ Year of maturity on our MBS and CO bonds is based on contractual maturity. The actual maturities on MBS will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

~~For more information, see~~ ~~Item 1A. Risk Factors - Changes to or Replacement of the LIBOR Benchmark Interest Rate Could Adversely Affect Our Business, Financial Condition and Results of Operations~~ ~~in our 2019 Form 10-K.~~

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Measuring Market Risks

To evaluate market risk, we utilize multiple risk measurements, including duration of equity, duration gap, convexity, VaR, earnings at risk, and changes in MVE. Periodically, we conduct stress tests to measure and analyze the effects that extreme movements in the level of interest rates and the shape of the yield curve would have on our risk position.

As part of our overall interest-rate risk management process, we continue to evaluate strategies to manage interest-rate risk. Certain strategies, if implemented, could have an adverse impact on future earnings. We are in the process of refining certain methodologies underlying the calculations of our key risk metrics. The changes in the methodologies are subject to either approval or non-objection by the Finance Agency. If implemented, the net impact of the changes on our metrics is expected to be slightly favorable.

~~Market Risk-Based Capital Requirement.~~ When calculating the risk-based capital requirement, the VaR comprising the first factor of the market risk component is defined as the potential dollar loss from adverse market movements, for a holding period of 120 business days based on those adverse historical prices and market rates. As of September 30, 2020, VaR is reported as the average of the five worst scenarios. As of December 31, 2019, VaR is reported at the 99th percent confidence interval. The table below presents the VaR ($ amounts in millions).


~~Date~~	~~VaR~~
~~September 30, 2020~~	$	~~278~~
~~December 31, 2019~~	~~198~~

Market Value of Equity. MVE represents the difference between the estimated market value of total assets and the estimated market value of total liabilities, including any off-balance sheet positions. It measures, in present value terms, the long-term economic value of current capital and the long-term level and volatility of net interest income.

We also monitor the sensitivities of MVE to potential interest-rate scenarios. We measure potential changes in the market value to book value of equity based on the current month-end level of rates versus various large parallel and non-parallel shifts in rates. Our board of directors determines acceptable ranges for the change in MVE for 200 bps parallel upward or downward shift in the interest-rate ~~curves.~~curves as well as certain flattening and steepening scenarios.

Key Metrics. The following table presents certain market and interest-rate metrics under different interest-rate scenarios ($ amounts in millions).

September 30, 2020
Down 200 (1)
Down 100 (1)
Base Up 100 Up 200
MVE $ 3,685 $ 3,696 $ 3,623 $ 3,601 $ 3,535
Percent change in MVE from base 1.7 % 2.0 % 0 % (0.6) % (2.4) %
MVE/Book value of equity 100.0 % 100.3 % 98.4 % 97.7 % 96.0 %
Duration of equity (2)
(0.1) 0.3 1.6 1.3 2.2


December 31, 2019
September 30, 2021																	September 30, 2021	Down 200 (1)			Down 100 (1)			Base			Up 100			Up 200
MVE	MVE	$	3,353		$	3,285		$	3,237		$	3,175		$	3,171		MVE	$	3,691		$	3,578		$	3,544		$	3,534		$	3,493
Percent change in MVE from base	Percent change in MVE from base	3.6		%	1.5		%	0		%	(1.9)		%	(2.0)		%	Percent change in MVE from base	4.1		%	1.0		%	—		%	(0.3)		%	(1.5)		%
MVE/Book value of equity		96.4		%	94.4		%	93.0		%	91.2		%	91.1		%
MVE/book value of equity																	MVE/book value of equity	102.5		%	99.4		%	98.4		%	98.1		%	97.0		%
Duration of equity ~~(2)~~	Duration of equity ~~(2)~~	2.0			0.5			2.4			0.5			0.5			Duration of equity ~~(2)~~	1.9			1.8			0.4			0.7			1.6


December 31, 2020
MVE	$	3,621		$	3,605		$	3,559		$	3,579		$	3,590
Percent change in MVE from base	1.8		%	1.3		%	0		%	0.6		%	0.9		%
MVE/book value of equity	97.8		%	97.4		%	96.2		%	96.7		%	97.0		%
Duration of equity	—			0.8			0.7			(0.7)			0.4

(1) Given the low interest rates in the short-to-medium term points of the yield curves, downward rate shocks are constrained to prevent rates from becoming negative.

~~(2)~~ ~~We use interest-rate shocks~~ During periods of extremely low interest rates, the Finance Agency requires that FHLBanks employ a constrained down-shock analysis to limit the evolution of forward interest rates to positive non-zero values. Since our market risk model imposes a positive non-zero boundary on post-shock interest rates, no additional calculations are necessary in ~~50 bps increments~~order to ~~determine duration of equity.~~meet this Finance Agency requirement when applicable.

The changes in ~~these~~those key metrics from December 31, ~~2019~~2020 resulted primarily from the change in market value of the Bank's assets and liabilities in response to changes in the market environment, changes in portfolio composition, and our hedging strategies.

Duration Gap. The base case duration gap was ~~0.05%~~(0.02)% and ~~0.08%~~0.01% at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

For information about our use of derivative hedges, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Use of Derivative Hedges in our ~~2019~~2020 Form 10-K.

Table of Contents

Replacement of the LIBOR Benchmark Interest Rate

In March 2021, the FCA announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, or, in the case of some more frequently used U.S. dollar LIBOR settings, immediately after June 30, 2023.

Many of our advances, investments, CO bonds, derivative assets, derivative liabilities, and related collateral are directly or indirectly indexed to LIBOR. Some of these assets and liabilities and related collateral have maturity dates that extend beyond the date in which the applicable LIBOR setting ceases to be provided or to be representative.

We continue to implement our transition plan that has reduced our exposure to the transition and has the flexibility to evolve with market developments and standards, member needs, and guidance provided by the issuers of Agency securities. As a result, we do not expect the initial transition on December 31, 2021 to have a material adverse impact on the Bank's business, financial condition or results of operations.

For more information, see Item 1A. Risk Factors - Changes to or Replacement of the LIBOR Benchmark Interest Rate Could Adversely Affect Our Business, Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Form 10-K.

Table of Contents

The following table presents our LIBOR-rate indexed financial instruments outstanding at September 30, 2021 and December 31, 2020 by year of maturity ($ amounts in millions).


LIBOR-Indexed Financial Instruments	Year of Maturity
September 30, 2021	2021		2022		Through June 30, 2023		Thereafter		Total
Assets:
Advances, par value (1)	$	—	$	198	$	78	$	2,324	$	2,600
Mortgage-backed securities, par value (2)	—		—		—		2,879		2,879
Total	$	—	$	198	$	78	$	5,203	$	5,479

Interest-rate swaps - receive leg, notional (2):
Cleared	$	147	$	1,421	$	770	$	3,768	$	6,106
Uncleared	22		320		316		6,498		7,156
Total	$	169	$	1,741	$	1,086	$	10,266	$	13,262

Liabilities:
CO bonds, par value (2)	$	825	$	—	$	—	$	—	$	825

Interest-rate swaps - pay leg, notional (2):
Cleared	$	4,815	$	1,434	$	200	$	—	$	6,449
Uncleared	—		—		—		15		15
Total	$	4,815	$	1,434	$	200	$	15	$	6,464

Other derivatives, notional:
Interest-rate caps held (2)	$	—	$	15	$	—	$	611	$	626


December 31, 2020
Assets:
Advances, par value (1)	$	40	$	353	$	187	$	2,913	$	3,493
Mortgage-backed securities, par value (2)	—		32		—		3,555		3,587
Total	$	40	$	385	$	187	$	6,468	$	7,080

Interest-rate swaps - receive leg, notional (2):
Cleared	$	2,037	$	1,464	$	786	$	4,218	$	8,505
Uncleared	105		320		316		9,914		10,655
Total	$	2,142	$	1,784	$	1,102	$	14,132	$	19,160

Liabilities:
CO bonds, par value (2)	$	6,675	$	—	$	—	$	—	$	6,675

Interest-rate swaps - pay leg, notional (2):
Cleared	$	12,711	$	234	$	200	$	—	$	13,145
Uncleared	2,950		—		—		204		3,154
Total	$	15,661	$	234	$	200	$	204	$	16,299

Other derivatives, notional:
Interest-rate caps held (2)	$	—	$	15	$	—	$	611	$	626

(1) Year of maturity on our advances is based on redemption term.

(2) Year of maturity on our MBS, interest-rate swaps, CO bonds and interest-rate caps is based on contractual maturity. The actual maturities on MBS will likely differ from contractual maturities as borrowers have the right to prepay their obligations with or without prepayment fees.

Table of Contents

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and (b) accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, to allow timely decisions regarding required disclosures.

As of September 30, ~~2020,~~2021, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (the principal executive officer), Chief Financial Officer (the principal financial officer) and Chief Accounting Officer (the principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. In making this evaluation, we used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2020.~~2021.

Internal Control Over Financial Reporting

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in rules 13a-15(f) and 15(d)-15(f) of the Exchange Act, that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures and other internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II. OTHER INFORMATION

Item 1. 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.

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Item 1A. RISK FACTORS

Except as ~~set forth~~noted below, ~~there~~there have been no material changes in the risk factors described in Item 1A. Risk Factors of our ~~2019~~2020 Form 10-K.

~~The COVID-19 Pandemic and Related Developments Have Created Substantial Economic and~~A Loss of Significant Borrowers, PFIs, Acceptable Loan Servicers or Other Financial ~~Disruptions and Uncertainties As Well As Significant Operational Challenges, Which Could Heighten Many of the Risks We Face and~~ Counterparties Could Adversely ~~Affect~~Impact Our Profitability, Our Ability to Achieve Business ~~Financial Condition, Results of Operations,~~Objectives, Our Ability to Pay Dividends ~~and~~or Redeem or Repurchase Capital ~~Stock.~~Stock, and Our Risk Concentration.

The ~~pandemic caused~~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, a member's loss of market share, resolution of a financially distressed member, or regulatory changes relating to FHLBank membership.

On April 26, 2021, Flagstar Bancorp, Inc., the parent company of Flagstar Bank, FSB ("Flagstar"), historically one of our largest and most active borrowers, announced it had reached an agreement to merge with another institution and, pursuant to the agreement, Flagstar would merge with a non-member depository. At September 30, 2021, Flagstar had advances outstanding totaling $2.5 billion or 9% of the Bank's total advances outstanding, at par. Flagstar has not been an active PFI seller since 2011. The parties currently expect that the Flagstar parent company merger will close in 2022, as soon as regulatory approvals are received, with Flagstar's merger expected to close thereafter. On the effective date of the Flagstar merger, the successor bank would not be eligible for membership in our Bank. As a result, as with any loss of a large borrower, the consummation of the expected Flagstar merger could have a material adverse effect upon our future results of operations and financial condition.

As the financial industry continues to consolidate into a smaller number of institutions, this could lead to further loss of large members and a related decrease in our membership and significant loss of business. Our largest borrower had advances outstanding at September 30, 2021 totaling $3.1 billion, or 12% of the Bank's total advances outstanding, at par. If advances are concentrated in a smaller number of members, our risk of loss resulting from a single event could become greater. Loss of other large advance borrowers, without replacement of such advances by existing or new members, would be expected to reduce our interest income and profitability accordingly.

During the nine months ended September 30, 2021, our top-selling PFI sold us mortgage loans totaling $185 million, or 12% of the total mortgage loans purchased by the ~~outbreak~~Bank. 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 ~~COVID-19~~MPP loans on properties in Michigan and ~~governmental~~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 ~~public actions taken in response, such as shelter-in-place, stay-at-home or similar orders, travel restrictions and business shutdowns, have reduced~~Dodd-Frank Act capital requirements are causing some mortgage servicing rights to be transitioned to non-depository institutions and may inreduce the future significantly reduce economic activity and have created substantial uncertainty about the future economic environment. In addition, the pandemic and related developments have resulted in substantial disruptions in the financial markets, including dramatic increases in market volatility. There are no comparable recent events that provide guidance as to the effects that the COVID-19 pandemic and government actions may have. The ultimate effectsavailability of ~~the outbreak, including the duration, speed and severity~~buyers of ~~the pandemic, the depth~~mortgage servicing rights. A scarcity of the economic downturn and the timing and shape of the economic recovery, continue to evolve and are highly uncertain and difficult to predict. These circumstances could heighten many of the risks we face, as described in the "Risk Factors" section of our 2019 Form 10-K, andmortgage servicers could adversely affect our ~~business, financial condition,~~ results of ~~operations, ability to pay dividends and redeem or repurchase capital stock.~~

A prolonged economic downturn, or periods of significant economic and financial disruptions and uncertainties, resulting from the COVID-19 pandemic will lead to increased credit risk exposure (and possible increased risk of credit losses for us), in particular due to declines in the value of our assets or collateral securing our advances, due to member financial difficulties or failures, or from one or more members facing both circumstances together. Many businesses in our district and across the U.S. have been, and may in the future be, required by government orders to suspend or substantially curtail operations from time to time or for an indefinite time in an attempt to slow the spread of COVID-19, resulting in widespread employee layoffs and a dramatic increase in unemployment insurance claims. In turn, higher loan delinquencies stemming from rising unemployment, as well as the effects of mortgage forbearance and other debt relief, could reduce the fair value of our mortgage assets and mortgage-related collateral, and increase the Bank's exposure to credit losses in our MPP portfolio. Further, significant borrower defaults on loans made by our member institutions could occur as a result of the economic downturn, and these defaults could cause members to fail. We could be adversely impacted by the reduction in business volume that would arise from the failure of one or more of our members. Moreover, this significant slowdown in economic activity could reduce demand for our members’ products and services, which could negatively impact our members’ demand for our products and services.operations.

The ~~disruptions~~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. In addition, since the Dodd-Frank Act, the requirements for posting margin or other collateral to ~~interest rates, credit spreads~~financial counterparties has tended to increase, both in terms of the amount of collateral to be posted and the ~~availability~~types of ~~funds in~~transactions for which margin is now required. These factors tend to increase the ~~capital markets in connection with the COVID-19 pandemic~~risk exposure that we have ~~also adversely affected,~~to any one counterparty, and as such may ~~continue~~tend to ~~adversely affect,~~increase our access to funding, as well as the valuation of and the market and book yields on our assets. Our cost of funding may similarly be adversely affected. The FRB’s policies directly and indirectly influence the yield on our interest-bearing assets and the costreliance upon each of our ~~interest-bearing liabilities. In response to the COVID-19 pandemic, the FOMC lowered the target range for federal funds from 1.50% to 1.75% to a target range~~counterparties. A failure of ~~0.00% to 0.25%. The FRB additionally increased their purchases~~any one of US Treasuries and agency MBS, thereby lowering agency MBS yields and increasing GSE purchase prices for conforming mortgages. The outlook for the remainder of 2020 is uncertain, and FOMC may maintain current low interest rates environment, and it may set negative interest rates if economic conditions warrant. These factors are beyond our control and, coupled with variability in our members’ demands for advances, have challenged and may continue to challenge our ability to manage our assets and liabilities (including the pricing of advances) andmajor financial counterparties, or continuing market consolidation, could ~~adversely~~ affect our profitability, results of operations, and ~~liquidity.~~ability to enter into additional transactions with existing counterparties without exceeding internal or regulatory risk limits.

In addition, the shelter-in-place, stay-at-home or similar orders, travel restrictions and business shutdowns or limitations as a result of the COVID-19 pandemic have led to substantial changes in normal business practices, such as the implementation of work-from-home arrangements, for us as well as for many of our members, dealers, and other third-party service providers. These changes in business practices have resulted in significant operational challenges, including heightened risks of operational errors, disruptions, failures and cybersecurity breaches, which could adversely affect our ability, and that of our members, counterparties and third-party vendors, to conduct and manage our respective businesses. Currently, most of our employees are working remotely. At this time, we cannot predict when our full employee base will return to work in our offices. In addition, some or all of our employees, management or board of directors could contract COVID-19, which, depending on the number and severity of such cases, could similarly affect our ability to conduct our business.

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~~For more information, see~~ ~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting and Regulatory Developments – Legislative and Regulatory Developments.~~

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

EXHIBIT INDEX


Exhibit Number						Description

3.1*						Organization Certificate of the Federal Home Loan Bank of Indianapolis, incorporated by reference to Exhibit 3.1 of our Registration Statement on Form 10 (Commission File No. 000-51404) filed on February 14, 2006

3.2*						Bylaws of the Federal Home Loan Bank of Indianapolis, as amended effective June 28, 2019, incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q (Commission File No. 000-51404) filed on August 12, 2019

4.1*						Capital Plan of the Federal Home Loan Bank of Indianapolis, effective ~~February 10, 2020 through September 25, 2020, incorporated by reference to Exhibit 4.2 of our Annual Report on Form 10-K (Commission File No. 000-51404) filed on March 10, 2020~~

4.2*						~~Capital Plan of the Federal Home Loan Bank of Indianapolis, effective~~ September 26, 2020, incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K (Commission File No. 000-51404) filed on August 17, 2020

10.1*						Joint Capital Enhancement Agreement dated August 5, 2011, incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K (Commission File No. 000-51404) filed on August 5, 2011

10.2*10.2						2005 Supplemental Executive ~~Thrift~~Retirement Plan, dated January 1, 2008, as ~~Amended~~amended and Restated Effective as of ~~January~~August 1, 2021 ~~incorporated by reference to Exhibit 10.1 to our~~ C ~~urrent Report on Form 8-K (Commission File No. 000-51404) filed on August 26, 2020.~~

31.1						Certification of the President - Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of the Executive Vice President - Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3						Certification of the Senior Vice President - Chief Accounting Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002

32						Certification of the President - Chief Executive Officer, Executive Vice President - Chief Financial Officer, and Senior Vice President - Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

* These documents are incorporated by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	FEDERAL HOME LOAN BANK OF INDIANAPOLIS

November 10, ~~2020~~2021	By:	/s/ CINDY L. KONICH
	Name:	Cindy L. Konich
	Title:	President - Chief Executive Officer

November 10, ~~2020~~2021	By:	/s/ GREGORY L. TEARE
	Name:	Gregory L. Teare
	Title:	Executive Vice President - Chief Financial Officer

November 10, ~~2020~~2021	By:	/s/ K. LOWELL SHORT, JR.
	Name:	K. Lowell Short, Jr.
	Title:	Senior Vice President - Chief Accounting Officer

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	Capital Stock			Retained Earnings						Accumulated Other Comprehensive Income (Loss)		Total Capital
	Shares	Par Value		Unrestricted		Restricted		Total

Balance, June 30, 2020	21,943	$	2,194,319	$	868,328	$	259,403	$	1,127,731	$	(4,109)	$	3,317,941

Total comprehensive income				11,952		2,987		14,939		78,157		93,096

Proceeds from issuance of capital stock	305	30,432										30,432

Redemption/repurchase of capital stock	(6)	(585)										(585)

Shares reclassified to mandatorily redeemable capital stock, net	(5)	(496)										(496)





Cash dividends on capital stock (3.50% annualized)				(18,825)		—		(18,825)				(18,825)

Balance, September 30, 2020	22,237	$	2,223,670	$	861,455	$	262,390	$	1,123,845	$	74,048	$	3,421,563

Balance, June 30, 2019	20,485	$	2,048,523	$	856,911	$	236,142	$	1,093,053	$	57,300	$	3,198,876

Total comprehensive income				20,692		5,174		25,866		(1,653)		24,213

Proceeds from issuance of capital stock	398	39,796										39,796



Shares reclassified to mandatorily redeemable capital stock, net	(1,489)	(148,870)										(148,870)



Cash dividends on capital stock (5.50% annualized)				(28,339)		—		(28,339)				(28,339)

Balance, September 30, 2019	19,394	$	1,939,449	$	849,264	$	241,316	$	1,090,580	$	55,647	$	3,085,676


	Origination Year
Payment Status as of September 30, 2020	Prior to 2016		2016 to 2020		Total
Past due:
30-59 days	$	20,307	$	23,459	$	43,766
60-89 days	8,495		21,688		30,183
90 days or more	37,920		82,822		120,742
Total past due	66,722		127,969		194,691
Total current	2,881,490		5,884,711		8,766,201
Total conventional mortgage loans, amortized cost (1)	$	2,948,212	$	6,012,680	$	8,960,892


	September 30, 2020		December 31, 2019
Prior capital plan
Class B-1 issued and outstanding shares: 0 and 19,737,727, respectively	$	—	$	1,973,773
Class B-2 issued and outstanding shares: 0 and 3,028, respectively	—		303

Amended capital plan
Class B-1 issued and outstanding shares: 8,401,720 and 0, respectively	840,172		—
Class B-2 issued and outstanding shares: 13,834,979 and 0, respectively	1,383,498		—

Total Class B issued and outstanding shares: 22,236,699 and 19,740,755, respectively	$	2,223,670	$	1,974,076