10-Q 1 fhlb-atlq32016.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________
  
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51845
 _____________________________________ 
FEDERAL HOME LOAN BANK OF ATLANTA
(Exact name of registrant as specified in its charter)
_____________________________________  

Federally chartered corporation
 
56-6000442
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1475 Peachtree Street, NE, Atlanta, Ga.
 
30309
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (404) 888-8000
_____________________________________  
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.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of October 31, 2016 was 48,019,363.



Table of Contents
 





PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CONDITION
(Unaudited)
(In millions, except par value)

 
As of September 30, 2016
 
As of December 31, 2015
Assets
 
 
 
Cash and due from banks
$
1,089

 
$
1,751

Interest-bearing deposits (includes deposits with another FHLBank of $3 as of September 30, 2016 and December 31, 2015)
1,092

 
1,088

Securities purchased under agreements to resell
1,111

 
2,500

Federal funds sold
8,449

 
5,421

Investment securities:
 
 
 
    Trading securities (includes another FHLBank’s bond of $0 and $52 as of September 30, 2016 and December 31, 2015, respectively)
619

 
1,265

    Available-for-sale securities
1,405

 
1,662

    Held-to-maturity securities (fair value of $25,678 and $23,263 as of September 30, 2016 and December 31, 2015, respectively)
25,614

 
23,239

Total investment securities
27,638

 
26,166

Advances
98,005

 
104,168

Mortgage loans held for portfolio, net:
 
 
 
Mortgage loans held for portfolio
484

 
586

Allowance for credit losses on mortgage loans
(1
)
 
(2
)
Total mortgage loans held for portfolio, net
483

 
584

Accrued interest receivable
175

 
171

Derivative assets
434

 
176

Premises and equipment, net
23

 
25

Other assets
157

 
196

Total assets
$
138,656

 
$
142,246

Liabilities
 
 
 
Interest-bearing deposits
$
1,125

 
$
1,084

Consolidated obligations, net:
 
 
 
Discount notes
55,162

 
69,434

Bonds
74,996

 
63,953

Total consolidated obligations, net
130,158

 
133,387

Mandatorily redeemable capital stock
8

 
14

Accrued interest payable
167

 
127

Affordable Housing Program payable
62

 
63

Derivative liabilities
100

 
124

Other liabilities
202

 
431

Total liabilities
131,822

 
135,230

Commitments and contingencies (Note 15)

 

Capital
 
 
 
Capital stock Class B putable ($100 par value) issued and outstanding shares:
 
 
 
Subclass B1 issued and outstanding shares: 8 and 7 as of September 30, 2016 and December 31, 2015, respectively
786

 
745

Subclass B2 issued and outstanding shares: 41 and 44 as of September 30, 2016 and December 31, 2015, respectively
4,085

 
4,356

Total capital stock Class B putable
4,871

 
5,101

Retained earnings:
 
 
 
Restricted
293

 
255

Unrestricted
1,570

 
1,585

Total retained earnings
1,863

 
1,840

Accumulated other comprehensive income
100

 
75

Total capital
6,834

 
7,016

Total liabilities and capital
$
138,656

 
$
142,246


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

3


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF INCOME
(Unaudited)
(In millions)
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest income
 
 
 
 
 
 
 
Advances
$
159

 
$
70

 
$
425

 
$
51

Prepayment fees, net
2

 
2

 
2

 
3

Interest-bearing deposits
5

 
1

 
13

 
3

Securities purchased under agreements to resell
1

 
1

 
3

 
3

Federal funds sold
8

 
3

 
24

 
8

Trading securities
8

 
17

 
34

 
51

Available-for-sale securities
26

 
26

 
78

 
82

Held-to-maturity securities
75

 
57

 
213

 
175

Mortgage loans
8

 
9

 
24

 
30

Total interest income
292

 
186

 
816

 
406

Interest expense
 
 
 
 
 
 
 
Consolidated obligations:
 
 
 
 
 
 
 
 Discount notes
70

 
15

 
196

 
33

 Bonds
128

 
75

 
351

 
221

Interest-bearing deposits
1

 

 
3

 

Mandatorily redeemable capital stock

 
1

 

 
1

Total interest expense
199

 
91

 
550

 
255

Net interest income
93

 
95

 
266

 
151

(Reversal) provision for credit losses
(1
)
 
1

 
(1
)
 

Net interest income after (reversal) provision for credit losses
94


94


267

 
151

Noninterest income (loss)
 
 
 
 
 
 
 
Total other-than-temporary impairment losses

 

 
(2
)
 

Net amount of impairment losses reclassified from accumulated other comprehensive income
(1
)
 
(1
)
 

 
(5
)
Net impairment losses recognized in earnings
(1
)

(1
)

(2
)
 
(5
)
Net losses on trading securities
(8
)
 
(15
)
 
(23
)
 
(42
)
Net gains on derivatives and hedging activities
29

 
16

 
42

 
228

Standby letters of credit fees
6

 
7

 
21

 
21

Other
2

 

 
4

 
1

Total noninterest income
28


7


42

 
203

Noninterest expense
 
 
 
 
 
 
 
Compensation and benefits
20

 
19

 
57

 
55

Other operating expenses
9

 
10

 
27

 
28

Finance Agency
2

 
2

 
6

 
6

Office of Finance
1

 
1

 
4

 
4

Other
2

 
1

 
5

 
5

Total noninterest expense
34


33


99


98

Income before assessments
88

 
68

 
210

 
256

Affordable Housing Program assessments
9

 
7

 
21

 
26

Net income
$
79


$
61


$
189


$
230


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

4


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
79

 
$
61

 
$
189

 
$
230

Other comprehensive income (loss):
 
 
 
 
 
 
 
Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities:
 
 
 
 
 
 
 
Noncredit losses on available-for-sale securities

 

 
(1
)
 

Net change in fair value on other-than-temporarily impaired available-for-sale securities
6

 
(8
)
 
24

 
(31
)
Reclassification of noncredit portion of impairment losses included in net income
1

 
1

 
1

 
5

Total net noncredit portion of other-than-temporary impairment losses on available-for-sale securities
7

 
(7
)
 
24

 
(26
)
   Other comprehensive income related to pension and postretirement benefit plans

 
1

 
1

 
2

Total other comprehensive income (loss)
7

 
(6
)
 
25

 
(24
)
Total comprehensive income
$
86

 
$
55

 
$
214

 
$
206


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

5


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CAPITAL
(Unaudited)
(In millions)
 
 
Capital Stock Class B Putable
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total Capital    
 
Shares        
 
Par Value
 
Restricted    
 
Unrestricted    
 
Total        
 
Balance, December 31, 2014
52

 
$
5,150

 
$
195

 
$
1,551

 
$
1,746

 
$
95

 
$
6,991

Issuance of capital stock
38

 
3,845

 

 

 

 

 
3,845

Repurchase/redemption of capital stock
(46
)
 
(4,596
)
 

 

 

 

 
(4,596
)
Net shares reclassified to mandatorily redeemable capital stock

 
(11
)
 

 

 

 

 
(11
)
Comprehensive income (loss)

 

 
46

 
184

 
230

 
(24
)
 
206

Cash dividends on capital stock

 

 

 
(152
)
 
(152
)
 

 
(152
)
Balance, September 30, 2015
44

 
$
4,388

 
$
241

 
$
1,583

 
$
1,824

 
$
71

 
$
6,283

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2015
51

 
$
5,101

 
$
255

 
$
1,585

 
$
1,840

 
$
75

 
$
7,016

Issuance of capital stock
40

 
4,020

 

 

 

 

 
4,020

Repurchase/redemption of capital stock
(42
)
 
(4,243
)
 

 

 

 

 
(4,243
)
Net shares reclassified to mandatorily redeemable capital stock

 
(7
)
 

 

 

 

 
(7
)
Comprehensive income

 

 
38

 
151

 
189

 
25

 
214

Cash dividends on capital stock

 

 

 
(166
)
 
(166
)
 

 
(166
)
Balance, September 30, 2016
49

 
$
4,871

 
$
293

 
$
1,570

 
$
1,863

 
$
100

 
$
6,834


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

6


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
 
For the Nine Months Ended September 30,
 
2016
 
2015
Operating activities
 
 
 
Net income
$
189

 
$
230

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
(34
)
 
(150
)
  Reversal of provision for credit losses
(1
)
 

Loss due to change in net fair value adjustment on derivative and hedging activities
61

 
53

  Net change in fair value adjustment on trading securities
23

 
42

  Net impairment losses recognized in earnings
2

 
5

Net change in:
 
 
 
  Accrued interest receivable
(4
)
 
9

  Other assets
33

 
26

  Affordable Housing Program payable
(2
)
 
(7
)
  Accrued interest payable
40

 
68

  Other liabilities
(97
)
 
(28
)
  Total adjustments
21

 
18

Net cash provided by operating activities
210

 
248

Investing activities
 
 
 
Net change in:
 
 
 
  Interest-bearing deposits
(623
)
 
(33
)
  Securities purchased under agreements to resell
1,389

 
(540
)
  Federal funds sold
(3,028
)
 
1,545

Trading securities:
 
 
 
  Proceeds from principal collected
623

 

Available-for-sale securities:
 
 
 
  Proceeds from principal collected
318

 
250

Held-to-maturity securities:
 
 
 
  Proceeds from principal collected
4,056

 
4,785

  Purchases of long-term
(6,566
)
 
(4,460
)
Advances:
 
 
 
  Proceeds from principal collected
199,870

 
181,439

  Made
(193,356
)
 
(169,612
)
Mortgage loans:
 
 
 
  Proceeds from principal collected
97

 
116

Proceeds from sale of foreclosed assets
11

 
12

Purchase of premises, equipment, and software
(2
)
 
(2
)
Net cash provided by investing activities
2,789

 
13,500

 
 
 
 
 
 
 
 
 
 
 
 

7


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CASH FLOWS—(Continued)
(Unaudited)
(In millions)

 
For the Nine Months Ended September 30,
 
2016
 
2015
Financing activities
 
 
 
Net change in:
 
 
 
Interest-bearing deposits
28

 
99

Net payments on derivatives containing a financing element
(58
)
 
(70
)
Proceeds from issuance of consolidated obligations:
 
 
 
 Discount notes
367,545

 
511,053

 Bonds
54,805

 
54,630

Payments for debt issuance costs
(8
)
 
(7
)
Payments for maturing and retiring consolidated obligations:
 
 
 
 Discount notes
(381,845
)
 
(506,358
)
 Bonds
(43,726
)
 
(71,807
)
Proceeds from issuance of capital stock
4,020

 
3,845

Payments for repurchase/redemption of capital stock
(4,243
)
 
(4,596
)
Payments for repurchase/redemption of mandatorily redeemable capital stock
(13
)
 
(13
)
Cash dividends paid
(166
)
 
(152
)
Net cash used in financing activities
(3,661
)
 
(13,376
)
Net (decrease) increase in cash and due from banks
(662
)
 
372

Cash and due from banks at beginning of the period
1,751

 
915

Cash and due from banks at end of the period
$
1,089

 
$
1,287

Supplemental disclosures of cash flow information:
 
 
 
 Cash paid for:
 
 
 
Interest
$
325

 
$
182

Affordable Housing Program assessments, net
$
21

 
$
31

 Noncash investing and financing activities:
 
 
 
Net shares reclassified to mandatorily redeemable capital stock
$
7

 
$
11

Transfers of mortgage loans to real estate owned
$
4

 
$
11


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

 


8


FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)

Note 1—Basis of Presentation

The accompanying unaudited interim financial statements of the Federal Home Loan Bank of Atlanta (Bank) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and income and expenses during the reporting period. Actual results could be different from these estimates. The foregoing interim financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods, have been included. The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending December 31, 2016, or for other interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2015, which are contained in the Bank’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 10, 2016 (Form 10-K).

The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to offset under master netting arrangements or by operation of law. Additional information regarding derivative instruments is provided in Note 13Derivatives and Hedging Activities to the Bank’s interim financial statements. The Bank does not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented. Based on the fair value of the related securities held as collateral, the securities purchased under agreements to resell were fully collateralized for the periods presented.

Refer to Note 2Summary of Significant Accounting Policies to the 2015 audited financial statements for a description of all the Bank’s significant accounting policies. There have been no changes to these policies as of September 30, 2016, except for a policy update concerning concessions during the first quarter of 2016, which is described below.

The Bank pays concessions to dealers in connection with the issuance of certain consolidated obligations. The Federal Home Loan Banks Office of Finance (Office of Finance) prorates the amount of the concession to the Bank based upon the percentage of the debt issued that is assumed by the Bank. As a result of adopting the Financial Accounting Standards Board’s (FASB) guidance, Simplifying the Presentation of Debt Issuance Costs, the Bank records concessions paid on consolidated obligations as a direct deduction from their carrying amounts, consistent with the presentation of discounts on consolidated obligations. The concessions are amortized, using the interest method, over the contractual term of the corresponding consolidated obligations. The amortization of those concessions is included in consolidated obligation interest expense. For additional discussion on this guidance, refer to Note 2Recently Issued and Adopted Accounting Guidance to the Bank's interim financial statements.


Note 2—Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued guidance intended to reduce diversity in how cash receipts and cash payments are presented and classified on the Statement of Cash Flows for certain transactions. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 15, 2017, and early application is permitted. This guidance will be applied using a retrospective transition method to each period presented. The Bank is in the process of evaluating this guidance and its impact on the Bank's Statement of Cash Flows, if any.

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued guidance intended to improve the timeliness of recording credit losses on loans and other financial instruments held by financial institutions and other organizations. This guidance requires all expected credit losses for financial assets that are held at the reporting date to be measured based on historical experience, current conditions, and reasonable and supportable forecasts. Credit losses related to available-for-sale securities will be recorded through an allowance for credit losses. Additionally, this guidance amends the accounting for purchased financial assets with credit deterioration and requires enhanced disclosures that provide additional information to help financial statement users better understand significant estimates and judgments. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 15, 2019, and early application is permitted for the interim and annual periods beginning after December 15, 2018. The Bank is in the process of evaluating this guidance, and its impact on the Bank’s financial condition and results of operations has not yet been determined.

9

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Contingent Put and Call Options in Debt Instruments. In March 2016, the FASB issued amended guidance to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This guidance requires entities to apply only the four-step decision sequence when performing this assessment. Consequently, when a call (put) option is contingently exercisable, an entity should not assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 15, 2016, and early application is permitted. This guidance will be applied on a modified retrospective basis to existing debt instruments as of the beginning of the period for which the amendments are effective. The adoption of this guidance will have no impact on the Bank's financial condition or results of operations.

Leases. In February 2016, the FASB issued guidance on accounting for leases and disclosure of key information about leasing arrangements. This guidance requires lessees to recognize the following for all operating and finance leases at the commencement date: (1) a lease liability, which is the obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset representing the lessee’s right to use, or control the use of, the underlying asset for the lease term. A lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities for short-term leases with a term of 12 months or less. This guidance does not fundamentally change lessor accounting; however, some changes have been made to align that guidance with the lessee guidance and other areas within GAAP. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 15, 2018, and early application is permitted. This guidance will be applied on a modified retrospective basis for leases existing at, or entered into after, the earliest period presented in the financial statements. The Bank is in the process of evaluating this guidance, and its impact on the Bank’s financial condition and results of operations has not yet been determined.

Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, the FASB issued guidance designed to improve the recognition, measurement, presentation, and disclosure of financial instruments through targeted changes to existing GAAP. These changes require the following: (1) entities to measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value with changes in fair value recognized in net income; (2) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (3) entities to separately present financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (4) reporting entities to separately present in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, these changes eliminate the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 31, 2017. The Bank is in the process of evaluating this guidance, and its impact on the Bank’s financial condition and results of operations has not yet been determined.

Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. In August 2014, the FASB issued guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide the related footnote disclosures. This guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This guidance becomes effective for the Bank for the interim and annual periods beginning after December 15, 2016, and early application is permitted. The adoption of this guidance will have no impact on the Bank's financial condition or results of operations.

Revenue from Contracts with Customers. In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Financial instruments and other contractual rights are excluded from the scope of this new revenue recognition guidance and will continue to be accounted for under existing guidance. In 2016, the FASB issued amendments, which did not change the core principle of the original guidance, but clarified certain aspects of the guidance. This guidance becomes effective for the Bank for the interim and annual reporting periods beginning after December 15, 2017. This guidance will be applied retrospectively either to each prior reporting period or with a cumulative effect recognized at the date of initial application, and early application is permitted for the interim and annual reporting periods beginning after December 15, 2016. The Bank continues to review this guidance; however, because the majority of contracts with the Bank's members are excluded

10

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


from the scope of this guidance, this guidance is not expected to have a material impact on the Bank's financial condition or results of operations.

Recently Adopted Accounting Guidance

Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. In March 2016, the FASB issued amended guidance designed to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Bank early adopted this guidance prospectively, and it became effective for the interim and annual periods beginning on January 1, 2016. However, the adoption of this guidance did not have an impact on the Bank's financial condition or results of operations.

Simplifying the Presentation of Debt Issuance Costs. In April 2015, the FASB issued guidance that requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2016. This amended guidance is required to be applied on a retrospective basis to each individual period presented on the Statements of Condition. As a result, $7 of debt issuance costs that were included in other assets were reclassified as a reduction in the corresponding consolidated obligations balance. Specifically, the reclassification resulted in a $5 reduction in the consolidated bonds balance and a $2 reduction in the consolidated discount notes balance on the Bank's Statement of Condition as of December 31, 2015. Accordingly, the Bank's total assets and total liabilities each decreased by $7 as of December 31, 2015. However, the adoption of this guidance did not have an impact on the Bank's results of operations.

Amendments to the Consolidation Analysis. In February 2015, the FASB issued amended guidance intended to enhance consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The new guidance places more emphasis on risk of loss when determining a controlling financial interest. Additionally, this guidance reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2016. However, this guidance did not have an impact on the Bank's financial condition or results of operations.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. In January 2015, the FASB issued amended guidance that eliminates the concept of extraordinary items from GAAP. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2016. However, this guidance did not have an impact on the Bank’s financial condition or results of operations.

11

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)



Note 3—Trading Securities

Major Security Types. The following table presents trading securities.
 
 
As of September 30, 2016
 
As of December 31, 2015
Government-sponsored enterprises debt obligations
$
618

 
$
1,212

Another FHLBank’s bond (1)

 
52

State or local housing agency debt obligations
1

 
1

Total
$
619

 
$
1,265

 ____________
(1) The Federal Home Loan Bank of Chicago is the primary obligor of this consolidated obligation bond.
The following table presents net losses on trading securities.
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net losses on trading securities held at period end
$
(7
)
 
$
(15
)
 
$
(13
)
 
$
(42
)
Net losses on trading securities that matured during the period
(1
)
 

 
(10
)
 

Net losses on trading securities
$
(8
)
 
$
(15
)
 
$
(23
)
 
$
(42
)

Note 4—Available-for-sale Securities

Major Security Type. The following table presents information on private-label residential mortgaged-backed securities (MBS) that are classified as available-for-sale.
 
 
Amortized    
Cost
 
Other-than-temporary
Impairment
Recognized in
Accumulated Other
Comprehensive Income
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair Value
As of September 30, 2016
$
1,286

 
$
10

 
$
129

 
$

 
$
1,405

As of December 31, 2015
$
1,567

 
$
19

 
$
114

 
$

 
$
1,662


The following table presents private-label residential MBS that are classified as available-for-sale with unrealized losses. The unrealized losses are aggregated by the length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
As of September 30, 2016

 
$

 
$

 
12

 
$
208

 
$
10

 
12

 
$
208

 
$
10

As of December 31, 2015
3

 
$
107

 
$
2

 
10

 
$
247

 
$
17

 
13

 
$
354

 
$
19



12

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following table presents private-label residential MBS that are classified as available-for-sale and issued by members or affiliates of members, all of which have been issued by Bank of America Corporation, Charlotte, NC.

 
Amortized  
Cost
 
Other-than-temporary  
Impairment
Recognized in
 Accumulated Other
Comprehensive Income
 
Gross
  Unrealized  
Gains
 
Gross
  Unrealized  
Losses
 
Estimated
  Fair  Value  
As of September 30, 2016
$
831

 
$
8

 
$
102

 
$

 
$
925

As of December 31, 2015
$
1,037

 
$
16

 
$
77

 
$

 
$
1,098


Note 5—Held-to-maturity Securities

Major Security Types. The following table presents held-to-maturity securities.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair  Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair  Value
State or local housing agency debt obligations
$
76

 
$

 
$

 
$
76

 
$
76

 
$

 
$

 
$
76

Government-sponsored enterprises debt obligations
6,291

 
4

 

 
6,295

 
5,693

 

 
12

 
5,681

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed residential
226

 
2

 

 
228

 
279

 
4

 

 
283

Government-sponsored enterprises residential
11,297

 
79

 
12

 
11,364

 
11,958

 
88

 
31

 
12,015

Government-sponsored enterprises commercial
6,879

 
7

 
10

 
6,876

 
4,140

 

 
16

 
4,124

Private-label residential
845

 
4

 
10

 
839

 
1,093

 
4

 
13

 
1,084

Total
$
25,614

 
$
96

 
$
32

 
$
25,678

 
$
23,239

 
$
96

 
$
72

 
$
23,263


The following tables present held-to-maturity securities with unrealized losses. The unrealized losses are aggregated by major security type and by the length of time that the individual securities have been in a continuous unrealized loss position.
 
 
As of September 30, 2016
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
Government-sponsored enterprises debt obligations
3

 
$
1,000

 
$

 

 
$

 
$

 
3

 
$
1,000

 
$

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises residential
69

 
2,394

 
9

 
7

 
361

 
3

 
76

 
2,755

 
12

Government-sponsored enterprises commercial
45

 
3,780

 
3

 
22

 
1,656

 
7

 
67

 
5,436

 
10

Private-label residential
16

 
105

 
1

 
58

 
516

 
9

 
74

 
621

 
10

Total
133

 
$
7,279

 
$
13

 
87

 
$
2,533

 
$
19

 
220

 
$
9,812

 
$
32

 

13

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


 
As of December 31, 2015
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
Government-sponsored enterprises debt obligations
20

 
$
4,535

 
$
7

 
3

 
$
745

 
$
5

 
23

 
$
5,280

 
$
12

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises residential
41

 
3,233

 
21

 
8

 
443

 
10

 
49

 
3,676

 
31

Government-sponsored enterprises commercial
31

 
2,680

 
9

 
25

 
1,037

 
7

 
56

 
3,717

 
16

Private-label residential
29

 
407

 
2

 
47

 
428

 
11

 
76

 
835

 
13

Total
121

 
$
10,855

 
$
39

 
83

 
$
2,653

 
$
33

 
204

 
$
13,508

 
$
72


Redemption Terms. The following table presents the amortized cost and estimated fair value of held-to-maturity securities by contractual maturity. Expected maturities of some securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

 
As of September 30, 2016
 
As of December 31, 2015
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Non-mortgage-backed securities:
 
 
 
 
 
 
 
Due in one year or less
$
2,215

 
$
2,217

 
$
651

 
$
651

Due after one year through five years
4,151

 
4,153

 
5,118

 
5,106

Due after five years through ten years
1

 
1

 

 

Total non-mortgage-backed securities
6,367

 
6,371

 
5,769

 
5,757

Mortgage-backed securities
19,247

 
19,307

 
17,470

 
17,506

Total
$
25,614

 
$
25,678

 
$
23,239

 
$
23,263


The following table presents private-label residential MBS that are classified as held-to-maturity and issued by members or affiliates of members, all of which have been issued by Bank of America Corporation, Charlotte, NC.
 
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
As of September 30, 2016
 
$
190

 
$

 
$
3

 
$
187

As of December 31, 2015
 
$
286

 
$

 
$
5

 
$
281



Note 6—Other-than-temporary Impairment

The Bank evaluates its individual available-for-sale and held-to-maturity securities holdings in an unrealized loss position for other-than-temporary impairment on a quarterly basis. As part of this process, the Bank considers its intent to sell each debt security and whether it is more likely than not that the Bank will be required to sell the security before its anticipated recovery of its amortized cost basis. If either of these conditions is met, the Bank recognizes the maximum impairment loss in earnings, which is equal to the entire difference between the security’s amortized cost basis and its fair value as of the Statements of Condition dates. For securities in an unrealized loss position that meet neither of these conditions, the Bank evaluates whether

14

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


there is other-than-temporary impairment by performing an analysis to determine if any of these securities will incur a credit loss, which could be up to the difference between the security’s amortized cost basis and its fair value.
Mortgage-backed Securities. The Bank’s investments in MBS consist of U.S. agency guaranteed securities and senior tranches of private-label MBS. The Bank has increased exposure to the risk of loss on its investments in MBS when the loans backing the MBS exhibit high rates of delinquency and foreclosures, as well as losses on the sale of foreclosed properties. To reduce its risk of loss on such securities, the Bank regularly requires high levels of credit enhancements from the structure of the collateralized mortgage obligation. Credit enhancements are defined as the percentage of subordinate tranches, overcollateralization, or excess spread, or the support of monoline insurance, if any, in a security structure that will absorb the losses before the security that the Bank purchased will take a loss. The Bank does not purchase credit enhancements for its MBS from monoline insurance companies.
The Bank’s investments in private-label MBS were rated “AAA” (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P), at their purchase dates. The “AAA”-rated securities achieved their ratings through credit enhancement, overcollateralization, and senior-subordinated shifting interest features; the latter results in subordination of payments by junior classes to ensure cash flows to the senior classes. The ratings on all of the Bank’s private-label MBS have changed since their purchase dates.
Non-private-label MBS. The unrealized losses related to U.S. agency MBS are caused by interest rate changes, not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises, and the Bank does not expect these securities to be settled at a price less than their amortized cost basis. In addition, the Bank does not intend to sell these investments, and it is not more likely than not that the Bank will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of September 30, 2016.
Private-label MBS. To assess whether the entire amortized cost basis of its private-label MBS will be recovered, the Bank performs a cash flow analysis for each of its private-label MBS using two third-party models.
The first third-party model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSA), which are based upon an assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people. The Bank’s housing price forecast as of September 30, 2016, included a short-term housing price forecast with projected changes ranging from a decrease of one percent to an increase of 10 percent over the 12 month period beginning July 1, 2016. For the vast majority of markets, the projected short-term housing price changes range from an increase of three percent to six percent. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults, and loss severities, were then input into a second model. The second model allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules.
At each quarter end, the Bank compares the present value of the cash flows (discounted at the securities' effective yield) expected to be collected with respect to its private-label MBS to the amortized cost basis of the security to determine whether a credit loss exists. For the Bank’s variable rate and hybrid private-label MBS, the Bank uses a forward interest rate curve to project the future estimated cash flows. The Bank then uses the effective interest rate for the security prior to impairment for determining the present value of the future estimated cash flows. For securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future estimated cash flows on a quarterly basis.

15

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following table presents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings for those securities for which an other-than-temporary impairment was determined to have occurred during the three-month period ended September 30, 2016, as well as related current credit enhancement.
 
 
 
Significant Inputs - Weighted Average (%) 
 
 
Classification of Securities (1)
 
Prepayment Rates
 
Default Rates
 
Loss Severities
 
Current Credit Enhancement (%)
Alt-A
 
12.45
 
19.21
 
43.00
 
0.00
____________
(1) The classification of securities is based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.

The following table presents a roll-forward of the amount of credit losses on the Bank’s investment securities recognized in earnings during the life of the securities for which a portion of the other-than-temporary loss was recognized in accumulated other comprehensive income.
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
$
480

 
$
526

 
$
505

 
$
542

Amount related to credit loss for which an other-than-temporary impairment was previously recognized
1

 
1

 
2

 
5

Increase in cash flows expected to be collected, (accreted as interest income over the remaining lives of the applicable securities)
(13
)
 
(10
)
 
(39
)
 
(30
)
Balance, end of period
$
468

 
$
517

 
$
468

 
$
517


Certain other private-label MBS that have not been designated as other-than-temporarily impaired have experienced unrealized losses and decreases in fair value due to interest rate volatility and illiquidity in the marketplace. These declines in fair value are considered temporary as the Bank expects to recover the amortized cost basis of the securities; the Bank does not intend to sell these securities; and it is not more likely than not that the Bank will be required to sell these securities before the anticipated recovery of the securities’ remaining amortized cost basis, which may be at maturity. This assessment is based on the fact that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.


16

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Note 7—Advances

Redemption Terms. The following table presents the Bank's advances outstanding.

 
As of September 30, 2016
 
As of December 31, 2015
Overdrawn demand deposit accounts
$

 
$
16

Due in one year or less
45,000

 
46,673

Due after one year through two years
8,217

 
12,747

Due after two years through three years
4,394

 
6,360

Due after three years through four years
3,422

 
2,994

Due after four years through five years
11,112

 
4,616

Due after five years
24,211

 
29,458

Total par value
96,356

 
102,864

Discount on AHP (1) advances
(5
)
 
(6
)
Discount on EDGE (2) advances
(4
)
 
(4
)
Hedging adjustments
1,659

 
1,315

Deferred commitment fees
(1
)
 
(1
)
Total
$
98,005

 
$
104,168

___________
(1) The Affordable Housing Program
(2) The Economic Development and Growth Enhancement program

The following table presents advances by year of contractual maturity or, for convertible advances, next conversion date.

 
As of September 30, 2016
 
As of December 31, 2015
Overdrawn demand deposit accounts
$

 
$
16

Due or convertible in one year or less
45,878

 
48,743

Due or convertible after one year through two years
7,460

 
11,434

Due or convertible after two years through three years
4,416

 
5,768

Due or convertible after three years through four years
3,429

 
3,020

Due or convertible after four years through five years
11,139

 
4,609

Due or convertible after five years
24,034

 
29,274

Total par value
$
96,356

 
$
102,864


Interest-rate Payment Terms. The following table presents interest-rate payment terms for advances.

 
As of September 30, 2016
 
As of December 31, 2015
Fixed-rate:
 
 
 
 Due in one year or less
$
38,673

 
$
32,011

 Due after one year
24,511

 
27,051

Total fixed-rate
63,184

 
59,062

Variable-rate:
 
 
 
 Due in one year or less
6,327

 
14,678

 Due after one year
26,845

 
29,124

Total variable-rate
33,172

 
43,802

Total par value
$
96,356

 
$
102,864



17

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, thrifts, and credit unions and further is concentrated in certain larger borrowing relationships. The concentration of the Bank’s advances to its 10 largest borrowers was $66,817 and $75,842 as of September 30, 2016 and December 31, 2015, respectively. This concentration represented 69.3 percent and 73.7 percent of total advances outstanding as of September 30, 2016 and December 31, 2015, respectively.
Based on the collateral pledged as security for advances, the Bank's credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of September 30, 2016 and December 31, 2015. No advance was past due as of September 30, 2016 and December 31, 2015.

Note 8—Mortgage Loans Held for Portfolio

The following table presents information on mortgage loans held for portfolio by contractual maturity at the time of purchase.
 
 
As of September 30, 2016
 
As of December 31, 2015
Fixed-rate medium-term (1) residential mortgage loans
 
$
44

 
$
66

Fixed-rate long-term residential mortgage loans
 
441

 
521

Total unpaid principal balance
 
485

 
587

Premiums
 
1

 
2

Discounts
 
(2
)
 
(3
)
Total
 
$
484

 
$
586

____________
(1) Medium-term is defined as a term of 15 years or less.

The following table presents the unpaid principal balance of mortgage loans held for portfolio by collateral or guarantee type.
 
 
As of September 30, 2016
 
As of December 31, 2015
Conventional mortgage loans
 
$
450

 
$
546

Government-guaranteed or insured mortgage loans
 
35

 
41

Total unpaid principal balance
 
$
485

 
$
587


Refer to Note 9Allowance for Credit Losses to the Bank’s interim financial statements for information related to the Bank's credit risk on mortgage loans and allowance for credit losses.

Note 9—Allowance for Credit Losses

The following table presents the activity in the allowance for credit losses related to conventional residential mortgage loans.
 
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
 
$
2

 
$
2

 
$
2

 
$
3

(Reversal) provision for credit losses
 
(1
)
 
1

 
(1
)
 

Balance, end of period
 
$
1

 
$
3

 
$
1

 
$
3


18

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)



The following table presents the recorded investment in conventional residential mortgage loans by impairment methodology.
 
 
As of September 30, 2016
 
As of December 31, 2015
Allowance for credit losses:
 
 
 
 
   Collectively evaluated for impairment
 
$
1

 
$
2

Recorded investment:
 
 
 
 
   Individually evaluated for impairment
 
$
13

 
$
15

   Collectively evaluated for impairment
 
438

 
532

Total recorded investment
 
$
451

 
$
547


Key credit quality indicators for mortgage loans include the migration of past due mortgage loans, nonaccrual mortgage loans, and mortgage loans in process of foreclosure. The following tables present the Bank's recorded investment in mortgage loans by these key credit quality indicators.
 
As of September 30, 2016
 
Conventional Residential Mortgage Loans
 
Government-guaranteed or Insured Residential Mortgage Loans
 
Total
Past due 30-59 days
$
15

 
$
4

 
$
19

Past due 60-89 days
4

 
1

 
5

Past due 90 days or more
12

 
2

 
14

Total past due mortgage loans
31

 
7

 
38

Total current mortgage loans
420

 
29

 
449

Total mortgage loans (1)
$
451

 
$
36

 
$
487

Other delinquency statistics:
 
 
 
 
 
  In process of foreclosure (2)
$
7

 
$
1

 
$
8

  Seriously delinquent rate (3)
2.69
%
 
5.29
%
 
2.88
%
  Past due 90 days or more and still accruing interest (4)
$

 
$
2

 
$
2

  Mortgage loans on nonaccrual status (5)
$
12

 
$

 
$
12

____________
(1) The difference between the recorded investment and the carrying value of total mortgage loans of $3 relates to accrued interest.
(2) Includes mortgage loans where the decision of foreclosure or similar alternative, such as a pursuit of deed-in lieu, has been reported. Mortgage loans in the process of foreclosure are included in past due or current mortgage loans depending on their delinquency status.
(3) Mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total mortgage loan portfolio segment.
(4) Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.
(5) Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.

19

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)



 
As of December 31, 2015
 
Conventional Residential Mortgage Loans
 
Government-guaranteed or Insured Residential Mortgage Loans
 
Total
Past due 30-59 days
$
17

 
$
4

 
$
21

Past due 60-89 days
5

 
1

 
6

Past due 90 days or more
18

 
3

 
21

Total past due mortgage loans
40

 
8

 
48

Total current mortgage loans
507

 
34

 
541

Total mortgage loans (1)
$
547

 
$
42

 
$
589

Other delinquency statistics:
 
 
 
 
 
  In process of foreclosure (2)
$
9

 
$
1

 
$
10

  Seriously delinquent rate (3)
3.32
%
 
6.65
%
 
3.55
%
Past due 90 days or more and still accruing interest (4)
$

 
$
3

 
$
3

  Mortgage loans on nonaccrual status (5)
$
18

 
$

 
$
18

____________
(1) The difference between the recorded investment and the carrying value of total mortgage loans of $3 relates to accrued interest.
(2) Includes mortgage loans where the decision of foreclosure or similar alternative, such as a pursuit of deed-in lieu, has been reported. Mortgage loans in the process of foreclosure are included in past due or current mortgage loans depending on their delinquency status.
(3) Mortgage loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total mortgage loan portfolio segment.
(4) Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.
(5) Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.

The financial amounts related to the Bank's troubled debt restructurings and impaired loans are not material to the Bank's financial condition or results of operations for the periods presented.

Note 10—Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the 11 Federal Home Loan Banks (FHLBanks) and are backed only by the financial resources of the FHLBanks. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks its specific portion of consolidated obligations for which it is the primary obligor and records it as a liability.
Interest-rate Payment Terms. The following table presents the Bank’s consolidated obligation bonds by interest-rate payment type. 
 
As of September 30, 2016
 
As of December 31, 2015
Fixed-rate
$
28,101

 
$
40,512

Step up/down
1,874

 
4,239

Simple variable-rate
44,868

 
19,022

Total par value
$
74,843

 
$
63,773



20

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Redemption Terms. The following table presents the Bank’s participation in consolidated obligation bonds outstanding by year of contractual maturity.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Amount
 
Weighted-
average
Interest Rate (%)    
 
Amount
 
Weighted-
average
Interest Rate (%)    
Due in one year or less
$
45,882

 
0.93
 
$
32,559

 
0.74
Due after one year through two years
23,177

 
1.04
 
17,132

 
1.41
Due after two years through three years
2,239

 
1.60
 
5,959

 
1.63
Due after three years through four years
1,534

 
1.68
 
2,124

 
1.67
Due after four years through five years
433

 
1.70
 
1,975

 
1.72
Due after five years
1,578

 
2.37
 
4,024

 
2.18
Total par value
74,843

 
1.03
 
63,773

 
1.16
Premiums
26

 
 
 
36

 
 
Discounts
(14
)
 
 
 
(20
)
 
 
Hedging adjustments
141

 
 
 
164

 
 
Total
$
74,996

 
 
 
$
63,953

 
 

The following table presents the Bank’s consolidated obligation bonds outstanding by call feature.
 
 
As of September 30, 2016
 
As of December 31, 2015
Noncallable
$
70,629

 
$
53,432

Callable
4,214

 
10,341

Total par value
$
74,843

 
$
63,773


The following table presents the Bank’s consolidated obligation bonds outstanding, by year of contractual maturity, or for callable consolidated obligation bonds, by next call date.

 
As of September 30, 2016
 
As of December 31, 2015
Due or callable in one year or less
$
49,761

 
$
41,410

Due or callable after one year through two years
21,622

 
16,277

Due or callable after two years through three years
1,619

 
3,461

Due or callable after three years through four years
1,155

 
1,055

Due or callable after four years through five years
243

 
1,023

Due or callable after five years
443

 
547

Total par value
$
74,843

 
$
63,773


Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds and have original contractual maturities of up to one year. These consolidated obligation discount notes are issued at less than their face amounts and redeemed at par value when they mature.

21

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following table presents the Bank’s participation in consolidated obligation discount notes.
 
 
Book Value
 
Par Value
 
Weighted-average
Interest Rate (%)
As of September 30, 2016
$
55,162

 
$
55,226

 
0.43
As of December 31, 2015
$
69,434

 
$
69,481

 
0.27

Note 11—Capital and Mandatorily Redeemable Capital Stock

Capital. The following table presents the Bank's compliance with the Federal Housing Finance Agency's (Finance Agency) regulatory capital rules and requirements.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Required    
 
Actual        
 
Required    
 
Actual        
Risk based capital
$
1,521

 
$
6,742

 
$
1,621

 
$
6,956

Total regulatory capital ratio
4.00
%
 
4.86
%
 
4.00
%
 
4.89
%
Total regulatory capital (1)
$
5,546

 
$
6,742

 
$
5,690

 
$
6,956

Leverage capital ratio
5.00
%
 
7.29
%
 
5.00
%
 
7.33
%
Leverage capital
$
6,933

 
$
10,113

 
$
7,113

 
$
10,433

____________
(1) Total regulatory capital does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock.
Mandatorily Redeemable Capital Stock. The following table presents the activity in mandatorily redeemable capital stock.

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
$
9

 
$
16

 
$
14

 
$
19

Net reclassification from capital during the period
5

 
4

 
7

 
11

Repurchase/redemption of mandatorily redeemable capital stock
(6
)
 
(3
)
 
(13
)
 
(13
)
Balance, end of period
$
8

 
$
17

 
$
8


$
17


The following table presents the amount of mandatorily redeemable capital stock by year of redemption. The year of redemption in the table is the end of the five-year redemption period, or with respect to activity-based stock, the later of the expiration of the five-year redemption period or the activity’s maturity date.
 
 
As of September 30, 2016
 
As of December 31, 2015
Due in one year or less
$
6

 
$
7

Due after one year through two years

 
1

Due after three years through four years
1

 

Due after four years through five years
1

 
6

Total
$
8

 
$
14



22

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Note 12—Accumulated Other Comprehensive Income

The following table presents the components comprising accumulated other comprehensive income.
 
Pension and
Postretirement
Benefits
 
Noncredit Portion
of Other-than-
temporary
Impairment  Losses
on Available-for-
sale Securities
 
Total  Accumulated
Other
Comprehensive
Income
Balance, June 30, 2015
$
(22
)
 
$
99

 
$
77

Other comprehensive income before reclassifications:
 
 
 
 
 
     Net change in fair value

 
(8
)
 
(8
)
Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
     Noncredit other-than-temporary impairment losses

 
1

 
1

     Amortization of pension and postretirement (1)
1

 

 
1

Net current period other comprehensive income (loss)
1

 
(7
)
 
(6
)
Balance, September 30, 2015
$
(21
)
 
$
92

 
$
71

 
 
 
 
 
 
Balance, June 30, 2016
$
(19
)
 
$
112

 
$
93

Other comprehensive income before reclassifications:
 
 
 
 
 
     Net change in fair value

 
6

 
6

Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
     Noncredit other-than-temporary impairment losses

 
1

 
1

Net current period other comprehensive income

 
7

 
7

Balance, September 30, 2016
$
(19
)
 
$
119

 
$
100

____________
(1) Included in Compensation and benefits on the Statements of Income.
 
Pension and
Postretirement
Benefits
 
Noncredit Portion
of Other-than-
temporary
Impairment  Losses
on Available-for-
sale Securities
 
Total  Accumulated
Other
Comprehensive
Income
Balance, December 31, 2014
$
(23
)
 
$
118

 
$
95

Other comprehensive income before reclassifications:
 
 
 
 
 
     Net change in fair value

 
(31
)
 
(31
)
Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
     Noncredit other-than-temporary impairment losses

 
5

 
5

     Amortization of pension and postretirement (1)
2

 

 
2

Net current period other comprehensive income (loss)
2

 
(26
)
 
(24
)
Balance, September 30, 2015
$
(21
)
 
$
92

 
$
71

 
 
 
 
 
 
Balance, December 31, 2015
$
(20
)
 
$
95

 
$
75

Other comprehensive income before reclassifications:
 
 
 
 
 
     Noncredit other-than-temporary impairment losses

 
(1
)
 
(1
)
     Net change in fair value

 
24

 
24

Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
     Noncredit other-than-temporary impairment losses

 
1

 
1

     Amortization of pension and postretirement (1)
1

 

 
1

Net current period other comprehensive income
1

 
24

 
25

Balance, September 30, 2016
$
(19
)
 
$
119

 
$
100

____________
(1) Included in Compensation and benefits on the Statements of Income.



23

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Note 13—Derivatives and Hedging Activities

Nature of Business Activity
The Bank is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and on its funding sources that finance these assets. To mitigate the risk of loss, the Bank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes that it is willing to accept. The Bank monitors the risk to its interest income, net interest margin, and average maturity of its interest-earning assets and funding sources. The goal of the Bank’s interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits.
The Bank enters into derivatives to manage the interest-rate risk exposure that is inherent in its otherwise unhedged assets and funding sources, to achieve the Bank's risk management objectives, and to act as an intermediary between its members and counterparties. The Bank transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. The Bank's over-the-counter derivative transactions may either be (1) uncleared derivatives, which are executed bilaterally with a counterparty; or (2) cleared derivatives, which are cleared through a Futures Commission Merchant (clearing agent) with a Derivative Clearing Organization (Clearinghouse). Once a derivative transaction has been accepted for clearing by a Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty. The Bank is not a derivative dealer and does not trade derivatives for short-term profit. For additional information on the Bank’s derivatives and hedging activities, see Note 18—Derivatives and Hedging Activities to the 2015 audited financial statements contained in the Bank’s Form 10-K.
Financial Statement Effect and Additional Financial Information
Derivative Notional Amounts. The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.
The following table presents the fair value of derivative instruments, including the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Notional
Amount of Derivatives    
 
Derivative Assets    
 
Derivative Liabilities    
 
Notional
Amount of Derivatives    
 
Derivative Assets    
 
Derivative Liabilities    
Derivatives in hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
$
72,534

 
$
246

 
$
1,773

 
$
80,290

 
$
312

 
$
1,467

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
1,798

 
17

 
55

 
3,008

 
10

 
74

  Interest rate caps or floors
15,500

 
1

 

 
16,500

 
15

 
10

Total derivatives not designated as hedging instruments
17,298

 
18

 
55

 
19,508

 
25

 
84

Total derivatives before netting and collateral adjustments
$
89,832

 
264

 
1,828

 
$
99,798

 
337

 
1,551

Netting adjustments and cash collateral (1)
 
 
170

 
(1,728
)
 
 
 
(161
)
 
(1,427
)
Derivative assets and derivative liabilities
 
 
$
434

 
$
100

 
 
 
$
176

 
$
124

___________
(1) 
Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty. Cash collateral posted and related accrued interest was $1,912 and $1,293 as of September 30, 2016 and December 31, 2015, respectively. Cash collateral received and related accrued interest was $14 and $27 as of September 30, 2016 and December 31, 2015, respectively.

24

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following table presents the components of net gains on derivatives and hedging activities as presented on the Statements of Income.

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Derivatives and hedged items in fair value hedging relationships:
 
 
 
 
 
 
 
  Interest rate swaps
$
28

 
$
21

 
$
53

 
$
238

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
  Interest rate swaps
8

 
11

 
20

 
36

  Interest rate caps or floors
(1
)
 
(1
)
 
(4
)
 
(1
)
  Net interest settlements
(6
)
 
(15
)
 
(27
)
 
(45
)
Total net gains (losses) related to derivatives not designated as hedging instruments
1

 
(5
)
 
(11
)
 
(10
)
Net gains on derivatives and hedging activities
$
29

 
$
16

 
$
42

 
$
228


The following tables present, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income.

 
 
For the Three Months Ended September 30,
 
 
2016
 
2015
Hedged Item Type
 
Gains (Losses) on Derivative       
 
Gains (Losses) on Hedged Item  
 
Net Fair Value
Hedge Ineffectiveness
 
Effect of Derivatives on Net Interest Income (1)
 
Gains (Losses) on Derivative       
 
Gains (Losses) on Hedged Item  
 
Net Fair Value
Hedge Ineffectiveness
 
Effect of Derivatives on Net Interest Income (1)
Advances
 
$
267

 
$
(241
)
 
$
26

 
$
(130
)
 
$
(327
)
 
$
357

 
$
30

 
$
(173
)
Consolidated obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonds
 
(88
)
 
88

 

 
50

 
77

 
(86
)
 
(9
)
 
124

Discount notes
 
(3
)
 
5

 
2

 
2

 

 

 

 
3

Total
 
$
176

 
$
(148
)
 
$
28

 
$
(78
)
 
$
(250
)
 
$
271

 
$
21

 
$
(46
)
____________
(1) 
The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.
 
 
For the Nine Months Ended September 30,
 
 
2016
 
2015
Hedged Item Type
 
Gains (Losses) on Derivative       
 
Gains (Losses) on Hedged Item  
 
Net Fair Value
Hedge Ineffectiveness
 
Effect of Derivatives on Net Interest Income (1)
 
Gains (Losses) on Derivative       
 
Gains (Losses) on Hedged Item  
 
Net Fair Value
Hedge Ineffectiveness
 
Effect of Derivatives on Net Interest Income (1)
Advances
 
$
(374
)
 
$
432

 
$
58

 
$
(414
)
 
$
71

 
$
187

 
$
258

 
$
(547
)
Consolidated obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonds
 
(29
)
 
24

 
(5
)
 
190

 
74

 
(94
)
 
(20
)
 
366

Discount notes
 
5

 
(5
)
 

 
(3
)
 
2

 
(2
)
 

 
6

Total
 
$
(398
)
 
$
451

 
$
53

 
$
(227
)
 
$
147

 
$
91

 
$
238

 
$
(175
)
____________
(1) 
The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

Managing Credit Risk on Derivatives

The Bank is subject to credit risk to its derivative transactions due to the risk of nonperformance by counterparties and manages this risk through credit analysis, collateral requirements, and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations. For uncleared derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank requires collateral agreements with collateral delivery thresholds on all uncleared derivatives. Additionally, collateral

25

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


related to derivatives with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.

For cleared derivatives, the Clearinghouse is the Bank's counterparty. The Clearinghouse notifies the clearing agent of the required initial and variation margin, and the clearing agent notifies the Bank. Because the Bank is required to post initial and variation margin through the clearing agent to the Clearinghouse, it exposes the Bank to institutional credit risk if the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives is intended to mitigate credit risk exposure because a central counterparty is substituted for individual counterparties, and collateral is posted daily through a clearing agent for changes in the fair value of cleared derivatives. The Bank has analyzed the enforceability of offsetting rights incorporated in its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable law upon an event of default, including a bankruptcy, insolvency, or similar proceeding involving the Clearinghouse or the Bank’s clearing agent, or both. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular Clearinghouse.

The Bank presents derivative instruments and the related cash collateral (including initial and variation margin) that is received or pledged, plus the associated accrued interest, on a net basis by clearing agent and/or by counterparty when it has met the netting requirements.

The following table presents the fair value of derivative instruments meeting or not meeting netting requirements, including the related collateral received from or pledged to counterparties.

 
As of September 30, 2016
 
As of December 31, 2015
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
Gross recognized amount:
 
 
 
 
 
 
 
     Uncleared derivatives
$
101

 
$
546

 
$
260

 
$
1,159

     Cleared derivatives
163

 
1,282

 
77

 
392

Total gross recognized amount
264

 
1,828

 
337

 
1,551

Gross amounts of netting adjustments and cash collateral:
 
 
 
 
 
 
 
     Uncleared derivatives
(89
)
 
(448
)
 
(258
)
 
(1,035
)
     Cleared derivatives
259

 
(1,280
)
 
97

 
(392
)
Total gross amounts of netting adjustments and cash collateral
170

 
(1,728
)
 
(161
)
 
(1,427
)
Derivative assets and derivative liabilities:
 
 
 
 
 
 
 
     Uncleared derivatives
12

 
98

 
2

 
124

     Cleared derivatives
422

 
2

 
174

 

Total derivative assets and total derivative liabilities
434

 
100

 
176

 
124

Non-cash collateral received or pledged not offset-cannot be sold or repledged: (1)
 
 
 
 
 
 
 
     Uncleared derivatives
11

 

 
2

 

Net unsecured amounts: (2)
 
 
 
 
 
 
 
    Uncleared derivatives
1

 
98

 

 
124

    Cleared derivatives
422

 
2

 
174

 

Total net unsecured amount
$
423

 
$
100

 
$
174

 
$
124

____________ 
(1)
Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.
(2) The Bank had net credit exposure of $422 and $170 as of September 30, 2016 and December 31, 2015, respectively, due to instances where the Bank’s pledged collateral to a counterparty exceeds the Bank’s net derivative liability position.

26

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Certain of the Bank’s uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by an NRSRO, the Bank may be required to deliver additional collateral on uncleared derivative instruments in net liability positions. The aggregate 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) as of September 30, 2016 was $458, for which the Bank has posted collateral with a fair value of $360 in the normal course of business. If the Bank’s credit ratings had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver an additional $75 of collateral at fair value to its uncleared derivative counterparties as of September 30, 2016.

Note 14—Estimated Fair Values

The Bank records trading securities, available-for-sale securities, derivative assets and liabilities, and grantor trust assets (publicly-traded mutual funds) at estimated fair value on a recurring basis. Fair value is a market-based measurement and is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. In general, the transaction price will equal the exit price and therefore, represents the fair value of the asset or liability at initial recognition. In determining whether a transaction price represents the fair value of the asset or liability at initial recognition, each reporting entity is required to consider factors specific to the transaction, the asset or liability, the principal or most advantageous market for the asset or liability, and market participants with whom the entity would transact in the market.

A fair value hierarchy is used to prioritize the inputs of valuation techniques used to measure fair value. The inputs are evaluated, and an overall level for the fair value measurement is determined. This overall level is an indication of how market-observable the fair value measurement is and defines the level of disclosure. In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market, and market participants. These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.

Outlined below is the application of the “fair value hierarchy” to the Bank's financial assets and liabilities that are carried at fair value or disclosed in the notes to the financial statements.

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The Bank carried grantor trust assets at fair value hierarchy Level 1 as of September 30, 2016 and December 31, 2015.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. The Bank carried trading securities and derivatives at fair value hierarchy Level 2 as of September 30, 2016 and December 31, 2015.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by limited market activity and reflect the entity's own assumptions. The Bank carried available-for-sale securities at fair value hierarchy Level 3 as of September 30, 2016 and December 31, 2015.

The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

For financial instruments carried at fair value, the Bank reviews the fair value hierarchy classification of financial assets and liabilities on a quarterly basis. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy. Such reclassifications are reported as transfers in/out at fair value as of the beginning of the quarter in which the changes occur. There were no such transfers during the periods presented.

27

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Estimated Fair Value Measurements on a Recurring Basis. The following tables present, for each fair value hierarchy level, the Bank’s financial assets and liabilities that are measured at fair value on a recurring basis on its Statements of Condition.
 
 
As of September 30, 2016
 
Fair Value Measurements Using
 
Netting Adjustment (1)
 
 
 
Level 1        
 
Level 2        
 
Level 3        
 
Total
Assets
 
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
 
  Government-sponsored enterprises debt obligations
$

 
$
618

 
$

 
$

 
$
618

  State or local housing agency debt obligations

 
1

 

 

 
1

Total trading securities

 
619

 

 

 
619

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
  Private-label residential MBS

 

 
1,405

 

 
1,405

Derivative assets:
 
 
 
 
 
 
 
 
 
  Interest-rate related

 
264

 

 
170

 
434

Grantor trust (included in Other assets)
37

 

 

 

 
37

Total assets at fair value
$
37

 
$
883

 
$
1,405

 
$
170

 
$
2,495

Liabilities
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
Interest-rate related
$

 
$
1,828

 
$

 
$
(1,728
)
 
$
100

Total liabilities at fair value
$

 
$
1,828

 
$

 
$
(1,728
)
 
$
100

____________ 
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.

 
As of December 31, 2015
 
Fair Value Measurements Using
 
Netting Adjustment (1)    
 
 
 
Level 1        
 
Level 2        
 
Level 3        
 
Total
Assets
 
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
 
  Government-sponsored enterprises debt obligations
$

 
$
1,212

 
$

 
$

 
$
1,212

  Another FHLBank’s bond

 
52

 

 

 
52

  State or local housing agency debt obligations

 
1

 

 

 
1

Total trading securities

 
1,265

 

 

 
1,265

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
  Private-label residential MBS

 

 
1,662

 

 
1,662

Derivative assets:
 
 
 
 
 
 
 
 
 
  Interest-rate related

 
337

 

 
(161
)
 
176

Grantor trust (included in Other assets)
31

 

 

 

 
31

Total assets at fair value
$
31

 
$
1,602

 
$
1,662

 
$
(161
)
 
$
3,134

Liabilities
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
Interest-rate related
$

 
$
1,551

 
$

 
$
(1,427
)
 
$
124

Total liabilities at fair value
$

 
$
1,551

 
$

 
$
(1,427
)
 
$
124

____________ 
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.

28

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following table presents a reconciliation of available-for-sale securities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Balance, beginning of period
$
1,469

 
$
1,823

 
$
1,662

 
$
1,981

Total (losses) gains realized and unrealized: (1)
 
 
 
 
 
 
 
  Included in net impairment losses recognized in earnings
(1
)
 
(1
)
 
(2
)
 
(5
)
     Included in other comprehensive income
7

 
(7
)
 
24

 
(26
)
     Accretion of credit losses in net interest income
13

 
10

 
39

 
30

Settlements
(83
)
 
(95
)
 
(318
)
 
(250
)
Balance, end of period
$
1,405

 
$
1,730

 
$
1,405

 
$
1,730

____________ 
(1) Related to available-for-sale securities held at period end.

Estimated Fair Value Measurements on a Nonrecurring Basis. The Bank periodically measures and recognizes certain assets at fair value on a nonrecurring basis. These assets are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances. These adjustments to fair value usually result from the application of lower of amortized cost or fair value accounting, or write-downs of individual assets due to impairment. The following tables present the fair value hierarchy and carrying value of all assets as of the last impairment date that were still held as of September 30, 2016 and December 31, 2015, for which a nonrecurring fair value adjustment was recorded during the periods presented.
 
As of September 30, 2016
 
Fair Value Measurements Using
 
 
 
Level 1        
 
Level 2        
 
Level 3        
Total
Mortgage loans held for portfolio
$

 
$

 
$
1

 
$
1

Real estate owned (included in Other assets)

 

 
1

 
1

Total nonrecurring assets at fair value
$

 
$

 
$
2

 
$
2


 
As of December 31, 2015
 
Fair Value Measurements Using
 
 
 
Level 1        
 
Level 2        
 
Level 3        
Total
Mortgage loans held for portfolio
$

 
$

 
$
1

 
$
1

Real estate owned (included in Other assets)

 

 
3

 
3

Total nonrecurring assets at fair value
$

 
$

 
$
4

 
$
4


Described below are the Bank's fair value measurement methodologies for financial assets and liabilities measured or disclosed at fair value.

Cash and Due from Banks. The estimated fair value approximates the recorded carrying value due to the short-term nature and negligible credit risk.

Interest-bearing Deposits. The estimated fair value is determined by calculating the present value of the expected future cash flows from the deposits and reducing this amount for accrued interest receivable. The discount rates used in these calculations are the rates for deposits with similar terms and represents market observable rates.

Securities purchased under agreements to resell. The estimated fair value is determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for securities with similar terms and represent market observable rates.

Federal Funds Sold. The estimated fair values of overnight federal funds sold approximate the carrying values. The estimated fair values of term federal funds sold are determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations are the rates for federal funds with similar terms and represent market observable rates.


29

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Investment Securities. The Bank obtains prices from four designated third-party pricing vendors, when available, to estimate the fair value of its investment securities. The pricing vendors use various proprietary models to price investment securities. The inputs to those models are derived from various sources including, but not limited to, the following: benchmark yields, reported trades, dealer estimates, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many investment securities do not trade on a daily basis, the pricing vendors use available information as applicable, such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to determine the prices for individual securities. Each pricing vendor has an established challenge process in place for all investment securities valuations, which facilitates resolution of potentially erroneous prices identified by the Bank.

The Bank periodically conducts reviews of the four pricing vendors to confirm and further augment its understanding of the vendors' pricing processes, methodologies, and control procedures for U.S. agency and private-label MBS.

The Bank's valuation technique for estimating the fair value of its investment securities first requires the establishment of a “median” price for each security.

All prices that are within a specified tolerance threshold of the median price are included in the “cluster” of prices that are averaged to compute a “default” price. All prices that are outside the threshold (“outliers”) are subject to further analysis (including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities, and/or non-binding dealer estimates) to determine if an outlier is a better estimate of fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price as appropriate) is used as the final price rather than the default price. Alternatively, if the analysis does not provide evidence that an outlier is more representative of the fair value, and the default price is the best estimate, then the default price is used as the final price. In all cases, the final price is used to determine the fair value of the security.

If all prices received for a security are outside the tolerance threshold level of the median price, then there is no default price, and the final price is determined by an evaluation of all outlier prices as described above.

Four vendor prices were received for a majority of the Bank's investment securities holdings, and the final prices for those securities were computed by averaging the prices received as of September 30, 2016 and December 31, 2015. Based on the Bank's review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or the Bank's additional analysis in those instances in which there were outliers or significant yield variances), the Bank believes that its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further, that the fair value measurements are classified appropriately in the fair value hierarchy. Based on the lack of significant market activity for private-label MBS, the fair value measurement for those securities were classified as Level 3 within the fair value hierarchy as of September 30, 2016 and December 31, 2015.

Advances. The Bank determines the estimated fair values of advances by calculating the present value of expected future cash flows from the advances, excluding the amount of the accrued interest receivable. The discount rates used in these calculations are the equivalent to the replacement advance rates for advances with similar terms. The Bank calculates its replacement advance rates at a spread to its cost of funds. The Bank's cost of funds approximates the consolidated obligation curve (see "Consolidated Obligations" paragraph within this note for a discussion of the consolidated obligation curve). To estimate the fair values of advances with optionality, market-based expectations of future interest rate volatility implied from current market prices for similar options are also used. In accordance with the Finance Agency's advances regulations, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient enough to make the Bank financially indifferent to the borrower's decision to prepay the advances, thereby removing prepayment risk from the fair value calculation. The Bank did not adjust the fair value measurement of advances for creditworthiness because advances were fully collateralized.

Mortgage Loans Held for Portfolio. The estimated fair values for mortgage loans are determined based on quoted market prices of similar mortgage loans available in the pass-through securities market. These prices, however, can change rapidly based upon market conditions and are highly dependent upon the underlying prepayment assumptions. The estimated fair values of impaired mortgage loans are based on the current property value, as provided by a third party vendor, adjusted for estimated selling costs.

Accrued Interest Receivable and Payable. The estimated fair value approximates the recorded carrying value due to the short-term nature and negligible credit risk.

30

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)



Derivative Assets and Liabilities. The Bank calculates the fair value of derivatives using a present value of future cash flows discounted by a market observable rate. The Bank used the Overnight Index Swap curve to discount future cash flows for collateralized derivatives.

Derivative instruments are transacted primarily in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point. The Bank does not provide a credit valuation adjustment based on aggregate exposure by derivative counterparty when measuring the fair value of its derivatives. This is because the collateral provisions pertaining to the Bank's derivatives obviate the need to provide such a credit valuation adjustment. The fair values of the Bank's derivatives take into consideration the effects of legally enforceable master netting agreements, where applicable, that allow the Bank to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each uncleared derivative counterparty have collateral thresholds that take into account both the Bank's and the counterparty's credit ratings. As a result of these practices and agreements, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was mitigated to an immaterial level, and no further adjustments were deemed necessary to the recorded fair values of derivative assets and liabilities on the Statements of Condition as of September 30, 2016 and December 31, 2015.

Grantor Trust Assets. Grantor trust assets, recorded in "Other assets" on the Statements of Condition, are carried at estimated fair value based on quoted market prices.

Interest-bearing Deposits. The Bank determines estimated fair values of Bank deposits by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rate used in these calculations is based on London Interbank Offered Rate (LIBOR).

Consolidated Obligations. The Bank calculates the fair value of consolidated obligation bonds and discount notes by calculating the present value of future cash flows using cost of funds as the discount rate. The Office of Finance constructs an internal curve, referred to as the consolidated obligation curve, using the U.S. Treasury curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent government-sponsored enterprise trades, and secondary market activity. To estimate the fair values of consolidated obligations with optionality, the Bank uses market based expectations of future interest rate volatility implied from current market prices for similar options.

Mandatorily Redeemable Capital Stock. The fair value of mandatorily redeemable capital stock is par value and also includes estimated dividends earned at the time of reclassification from capital to liabilities, until such amount is paid. Capital stock can be acquired by members only at par value and redeemed by the Bank at par value. Capital stock is not traded, and no market mechanism exists for the exchange of capital stock outside the cooperative structure.
The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of September 30, 2016 and December 31, 2015. Although the Bank uses its best judgment in estimating the fair values of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions although they do reflect the Bank’s judgment of how a market participant would estimate the fair value. The fair value tables presented below do not represent an estimate of the overall fair value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

31

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following tables present the carrying values and estimated fair values of the Bank’s financial instruments.
 
As of September 30, 2016
 
 
 
Estimated Fair Value
 
Carrying Value
 
Total        
 
Level 1        
 
Level 2        
 
Level 3        
 
Netting Adjustment (1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 Cash and due from banks
$
1,089

 
$
1,089

 
$
1,089

 
$

 
$

 
$

 Interest bearing-deposits
1,092

 
1,092

 

 
1,092

 

 

 Securities purchased under agreements to resell
1,111

 
1,111

 

 
1,111

 

 

 Federal funds sold
8,449

 
8,449

 

 
8,449

 

 

 Trading securities
619

 
619

 

 
619

 

 

 Available-for-sale securities
1,405

 
1,405

 

 

 
1,405

 

 Held-to-maturity securities
25,614

 
25,678

 

 
24,839

 
839

 

 Advances
98,005

 
97,684

 

 
97,684

 

 

 Mortgage loans held for portfolio, net
483

 
540

 

 
539

 
1

 

 Accrued interest receivable
175

 
175

 

 
175

 

 

 Derivative assets
434

 
434

 

 
264

 

 
170

    Grantor trust assets (included in Other assets)
37

 
37

 
37

 

 

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
1,125

 
1,125

 

 
1,125

 

 

 Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
Discount notes
55,162

 
55,177

 

 
55,177

 

 

Bonds
74,996

 
75,253

 

 
75,253

 

 

 Mandatorily redeemable capital stock
8

 
8

 
8

 

 

 

 Accrued interest payable
167

 
167

 

 
167

 

 

 Derivative liabilities
100

 
100

 

 
1,828

 

 
(1,728
)
____________ 
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.

32

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


 
As of December 31, 2015
 
 
 
Estimated Fair Value
 
Carrying Value
 
Total        
 
Level 1        
 
Level 2        
 
Level 3        
 
Netting Adjustment (1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 Cash and due from banks
$
1,751

 
$
1,751

 
$
1,751

 
$

 
$

 
$

 Interest bearing-deposits
1,088

 
1,088

 

 
1,088

 

 

 Securities purchased under agreements to resell
2,500

 
2,500

 

 
2,500

 

 

 Federal funds sold
5,421

 
5,421

 

 
5,421

 

 

 Trading securities
1,265

 
1,265

 

 
1,265

 

 

 Available-for-sale securities
1,662

 
1,662

 

 

 
1,662

 

 Held-to-maturity securities
23,239

 
23,263

 

 
22,179

 
1,084

 

 Advances
104,168

 
104,021

 

 
104,021

 

 

 Mortgage loans held for portfolio, net
584

 
647

 

 
646

 
1

 

 Accrued interest receivable
171

 
171

 

 
171

 

 

 Derivative assets
176

 
176

 

 
337

 

 
(161
)
    Grantor trust assets (included in Other assets)
31

 
31

 
31

 

 

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
1,084

 
1,084

 

 
1,084

 

 

 Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
Discount notes
69,434

 
69,432

 

 
69,432

 

 

Bonds
63,953

 
63,940

 

 
63,940

 

 

 Mandatorily redeemable capital stock
14

 
14

 
14

 

 

 

 Accrued interest payable
127

 
127

 

 
127

 

 

 Derivative liabilities
124

 
124

 

 
1,551

 

 
(1,427
)
____________ 
(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.

Note 15—Commitments and Contingencies

Consolidated obligations are backed only by the financial resources of the FHLBanks. At any time, the Finance Agency may require any FHLBank to make principal or interest payments due on any consolidated obligation, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has ever had to assume or pay the consolidated obligation of another FHLBank.

The par value of the other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $837,659 and $771,948 as of September 30, 2016 and December 31, 2015, respectively, exclusive of the Bank’s own outstanding consolidated obligations. None of the other FHLBanks defaulted on their consolidated obligations, the Finance Agency was not required to allocate any obligation among the FHLBanks, and no amount of the joint and several obligation was fixed as of September 30, 2016 and December 31, 2015. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to the other FHLBanks' consolidated obligations as of September 30, 2016 and December 31, 2015.

33

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


The following table presents the Bank's outstanding commitments, which represent off-balance sheet obligations.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
 
Expire Within One Year
 
Expire After One Year
 
Total
 
Expire Within One Year
 
Expire After One Year
 
Total
Standby letters of credit (1)
 
$
7,867

 
$
18,687

 
$
26,554

 
$
8,693

 
$
23,823

 
$
32,516

Commitments to fund additional advances
 
105

 
200

 
305

 
207

 
100

 
307

Unsettled consolidated obligation bonds, at par (2)
 
50

 

 
50

 
25

 

 
25

Unsettled consolidated obligation discount notes, at par (2)
 

 

 

 
100

 

 
100

____________
(1) 
"Expire Within One Year" includes 12 standby letters of credit for a total of $34 and 11 standby letters of credit for a total of $29 as of September 30, 2016 and December 31, 2015, respectively, that have no stated maturity date and are subject to renewal on an annual basis.
(2) 
Expiration is based on settlement period rather than underlying contractual maturity of consolidated obligations.
The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the member. In addition, standby letters of credit are fully collateralized from the time of issuance. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit that results in an internal credit rating, which focuses primarily on an institution’s overall financial health and takes into account the quality of assets, earnings, and capital position. In general, borrowers categorized into the highest risk rating category have more restrictions on the types of collateral that they may use to secure standby letters of credit, may be required to maintain higher collateral maintenance levels and deliver loan collateral, and may face more stringent collateral reporting requirements.
The carrying value of the guarantees related to standby letters of credit is recorded in "Other liabilities" on the Statements of Condition and amounted to $97 and $136 as of September 30, 2016 and December 31, 2015, respectively. Based on the Bank’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments.
The Bank had no commitments that unconditionally obligate the Bank to purchase closed mortgage loans as of September 30, 2016 and December 31, 2015. Such commitments would be recorded as derivatives at their fair values.
The Bank is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate, as of the date of the financial statements, that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.

Note 16—Transactions with Shareholders

The Bank is a cooperative whose member institutions own substantially all of the capital stock of the Bank. Former members and certain non-members, which own the Bank's capital stock as a result of a merger or acquisition of a member of the Bank, own the remaining capital stock to support business transactions still carried on the Bank’s Statements of Condition. All holders of the Bank’s capital stock receive dividends on their investments, to the extent declared by the Bank’s board of directors. All advances are issued to members and eligible “housing associates” under the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), and mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loan purchases. Transactions with any member that has an officer or director who is also a director of the Bank are subject to the same Bank policies as transactions with other members.

Related Parties. In accordance with GAAP, financial statements are required to disclose material related-party transactions other than compensation arrangements, expense allowances, or other similar items that occur in the ordinary course of business. Under GAAP, related parties include owners of more than 10 percent of the voting interests of the Bank. Due to limits on member voting rights under the FHLBank Act and Finance Agency regulations, no member owned more than 10 percent of the total voting interests. Therefore, the Bank had no such related party transactions required to be disclosed for the periods presented.


34

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions)


Shareholder Concentrations. The Bank considers shareholder concentration as members or non-members with regulatory capital stock outstanding in excess of 10 percent of the Bank's total regulatory capital stock. The following tables present transactions with shareholders whose holdings of regulatory capital stock exceed 10 percent of total regulatory capital stock outstanding.
 
As of September 30, 2016
 
Regulatory Capital Stock Outstanding
 
Percent of Total Regulatory Capital Stock Outstanding
 
Par Value of Advances
 
Percent of Total Par Value of Advances
 
Interest-bearing Deposits
 
Percent of Total Interest-bearing Deposits
Capital One, National Association
$
707

 
14.50
 
$
16,294

 
16.91
 
$
2

 
0.18
Navy Federal Credit Union
570

 
11.69
 
13,065

 
13.56
 

 
0.01
Bank of America, National Association
547

 
11.20
 
12,511

 
12.98
 

 
0.01

 
As of December 31, 2015
 
Regulatory Capital Stock Outstanding
 
Percent of Total Regulatory Capital Stock Outstanding
 
Par Value of Advances
 
Percent of Total Par Value of Advances
 
Interest-bearing Deposits
 
Percent of Total Interest-bearing Deposits
Capital One, National Association
$
869

 
16.99
 
$
20,095

 
19.54
 
$
2

 
0.18
Navy Federal Credit Union
643

 
12.57
 
14,773

 
14.36
 

 
0.01
Bank of America, National Association
579

 
11.31
 
13,262

 
12.89
 

 
0.01


Note 17—Subsequent Events

On October 26, 2016, the Bank's board of directors approved a cash dividend for the third quarter of 2016. The Bank paid the third quarter 2016 dividend on October 28, 2016, in the amount of $59 million.


35


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information

Some of the statements made in this quarterly report on Form 10-Q may be “forward-looking statements,” which include statements with respect to the plans, objectives, expectations, estimates, and future performance of the Bank and involve known and unknown risks, uncertainties, and other factors, many of which may be beyond the Bank’s control and may cause the Bank’s actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. The reader can identify these forward-looking statements through the Bank’s use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. Such forward-looking statements include statements regarding any one or more of the following topics:

the Bank’s business strategy and changes in operations, including, without limitation, product growth and change in product mix;

future performance, including profitability, developments, or market forecasts;

forward-looking accounting and financial statement effects; and

those other factors identified and discussed in the Bank’s public filings with the SEC.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, those risk factors provided under Item 1A of the Bank’s Form 10-K and those risk factors presented under Item 1A in Part II of this quarterly report on Form 10-Q.

All written or oral statements that are made by or are attributable to the Bank are expressly qualified in their entirety by this cautionary notice. The reader should not place undue reliance on forward-looking statements since the statements speak only as of the date that they are made. The Bank has no obligation and does not undertake publicly to update, revise, or correct any of the forward-looking statements after the date of this quarterly report, or after the respective dates on which these statements otherwise are made, whether as a result of new information, future events, or otherwise, except as otherwise may be required
by law.

The discussion presented below provides an analysis of the Bank’s financial condition as of September 30, 2016 and December 31, 2015, and results of operations for the third quarter and first nine months of 2016 and 2015. Management’s discussion and analysis should be read in conjunction with the financial statements and accompanying notes presented elsewhere in this report, as well as the Bank’s audited financial statements for the year ended December 31, 2015.

Executive Summary

Financial Condition

As of September 30, 2016, total assets were $138.7 billion, a decrease of $3.6 billion, or 2.52 percent, from December 31, 2015. This decrease was primarily due to a $6.2 billion, or 5.92 percent, decrease in advances, partially offset by a $3.1 billion, or 8.86 percent, increase in total investments.

As of September 30, 2016, total liabilities were $131.8 billion, a decrease of $3.4 billion, or 2.52 percent, from December 31, 2015. This decrease was primarily due to a 3.2 billion, or 2.42 percent, decrease in consolidated obligations as a result of the decrease in funding needs during the period.

As of September 30, 2016, total capital was $6.8 billion, a decrease of $182 million, or 2.60 percent, from December 31, 2015. This decrease was primarily due to a decrease in the Bank's subclass B2 activity-based capital stock resulting from a decrease in total outstanding advances during the period.


36


Results of Operations

The Bank recorded net income of $79 million for the third quarter of 2016, an increase of $18 million, or 29.3 percent, from net income of $61 million for the same period in 2015. The Bank recorded net income of $189 million for the first nine months of 2016, a decrease of $41 million, or 18.0 percent, from net income of $230 million for the same period in 2015. The changes were primarily related to changes in interest rates during the periods.

Net interest income was $93 million for the third quarter of 2016, a decrease of $2 million from net interest income of $95 million for the same period in 2015. Net interest income was $266 million for the first nine months of 2016, an increase of $115 million from net interest income of $151 million for the same period in 2015. During the third quarter and first nine months of 2015, there was $15 million and $177 million, respectively, of accelerated amortization related to previously restructured advances that were prepaid prior to their maturity, which decreased net interest income and was offset by net gains on derivatives and hedging activities. Additionally, during 2016, net interest income was adversely affected by an increase in short-term rates, which impacted consolidated obligation interest expense more than the offsetting increase in advance interest income.

One way in which the Bank analyzes its performance is by comparing its annualized return on equity (ROE) to three-month average LIBOR. The Bank's ROE was 4.47 percent for the third quarter of 2016, compared to 3.66 percent for the same period in 2015. This increase in ROE was primarily due to an increase in net income during the period. ROE spread to three-month average LIBOR increased to 368 basis points for the third quarter of 2016, compared to 335 basis points for the same period in 2015. This increase in the ROE spread to LIBOR was primarily due to the increase in ROE.

The Bank's annualized ROE was 3.70 percent for the first nine months of 2016, compared to 4.71 percent for the same period in 2015. This decrease in ROE was primarily due to a decrease in net income during the period. ROE spread to three-month average LIBOR decreased to 301 basis points for the first nine months of 2016, compared to 443 basis points for the same period in 2015. This decrease in the ROE spread to LIBOR was primarily due to the decrease in ROE.

The Bank's interest rate spread was 23 basis points for the third quarter and first nine months of 2016, compared to 27 basis points and 14 basis points for the third quarter and first nine months of 2015, respectively.

Business Outlook

The Bank’s business outlook remains largely unchanged from the discussion in the Bank’s Form 10-K. External factors, including low interest rates, deposit growth at member institutions, and the general state of the economy continue to impact the Bank’s overall business outlook and advances demand.

Given the large proportion of short-term advances outstanding, the Bank expects advances balances will continue fluctuating during 2016 as a result of scheduled repayments and prepayments. Earnings on the Bank’s investment portfolio are expected to remain low as higher-yielding investments that prepay or mature are replaced with lower-yielding instruments available in the current market.



37


Selected Financial Data

The following table presents a summary of certain financial information for the Bank for the periods presented (dollars in millions):
 
As of and for the Three Months Ended
 
September 30,
2016
 
June 30,
2016
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
Statements of Condition (at period end)
 
 
 
 
 
 
 
 
 
Total assets (1)
$
138,656

 
$
146,093

 
$
132,376

 
$
142,246

 
$
124,914

Advances
98,005

 
106,926

 
92,536

 
104,168

 
87,762

Mortgage loans held for portfolio
484

 
520

 
555

 
586

 
621

Allowance for credit losses on mortgage loans
(1
)
 
(2
)
 
(2
)
 
(2
)
 
(3
)
Investments (2)
38,290

 
36,842

 
37,620

 
35,175

 
34,662

Interest-bearing deposits
1,125

 
1,168

 
1,156

 
1,084

 
1,173

Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
  Discount notes (1)(3)
55,162

 
68,585

 
60,166

 
69,434

 
41,867

  Bonds (1)(3)
74,996

 
68,560

 
63,830

 
63,953

 
74,965

Total consolidated obligations, net (1)(3)
130,158

 
137,145

 
123,996

 
133,387

 
116,832

Mandatorily redeemable capital stock
8

 
9

 
13

 
14

 
17

Affordable Housing Program payable
62

 
60

 
65

 
63

 
60

Capital stock - putable
4,871

 
5,240

 
4,629

 
5,101

 
4,388

Retained earnings
1,863

 
1,839

 
1,838

 
1,840

 
1,824

Accumulated other comprehensive income
100

 
93

 
66

 
75

 
71

Total capital
6,834

 
7,172

 
6,533

 
7,016

 
6,283

Statements of Income (for the period ended)
 
 
 
 
 
 
 
 
 
Net interest income
93

 
80

 
93

 
92

 
95

(Reversal) provision for credit losses
(1
)
 

 

 
(1
)
 
1

Net impairment losses recognized in earnings
(1
)
 
(1
)
 

 

 
(1
)
Net losses on trading securities
(8
)
 
(6
)
 
(9
)
 
(19
)
 
(15
)
Net gains (losses) on derivatives and hedging activities
29

 
15

 
(2
)
 
33

 
16

Standby letters of credit fees
6

 
7

 
8

 
7

 
7

Other income
2

 
2

 

 
1

 

Noninterest expense
34

 
31

 
34

 
37

 
33

Income before assessments
88

 
66

 
56

 
78

 
68

Affordable Housing Program assessments
9

 
6

 
6

 
7

 
7

Net income
79

 
60

 
50

 
71

 
61

Performance Ratios (%)
 
 
 
 
 
 
 
 
 
Return on equity (4)
4.47

 
3.55

 
3.02

 
4.38

 
3.66

Return on assets (5)
0.22

 
0.17

 
0.15

 
0.21

 
0.18

Net interest margin (6)
0.26

 
0.24

 
0.28

 
0.28

 
0.28

Regulatory capital ratio (at period end) (7)
4.86

 
4.85

 
4.89

 
4.89

 
4.99

Equity to assets ratio (8)
4.85

 
4.87

 
4.89

 
4.89

 
4.89

Dividend payout ratio (9)
70.20

 
97.77

 
104.36

 
77.60

 
81.63


38


____________
(1) 
The Bank adopted new accounting guidance related to the presentation of debt issuance costs, as discussed in Note 2—Recently Issued and Adopted Accounting Guidance to the Bank's interim financial statements. As a result, $7 million of debt issuance costs that were included in other assets were reclassified as a reduction in the corresponding consolidated obligations balance on the Bank’s Statements of Condition as of December 31, 2015.
(2) Investments consist of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, and securities classified as trading, available-for-sale, and held-to-maturity.
(3) The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was as follows (in millions):
September 30, 2016
$
837,659

June 30, 2016
826,848

March 31, 2016
773,036

December 31, 2015
771,948

September 30, 2015
740,031


(4) Calculated as net income, divided by average total equity.
(5) Calculated as net income, divided by average total assets.
(6) Net interest margin is net interest income as a percentage of average earning assets.
(7) Regulatory capital ratio is regulatory capital, which does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock, as a percentage of total assets as of period end.
(8) Calculated as average total equity, divided by average total assets.
(9) Calculated as dividends declared during the period divided by net income during the period.

Financial Condition

The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated (dollars in millions). These items are discussed in more detail below.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Increase (Decrease)
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
 
Amount
 
Percent
Advances
$
98,005

 
70.68
 
$
104,168

 
73.23
 
$
(6,163
)
 
(5.92
)
Investment securities
27,638

 
19.93
 
26,166

 
18.40
 
1,472

 
5.63

Other investments
10,652

 
7.68
 
9,009

 
6.33
 
1,643

 
18.23

Mortgage loans, net
483

 
0.35
 
584

 
0.41
 
(101
)
 
(17.31
)
Other assets
1,878

 
1.36
 
2,319

 
1.63
 
(441
)
 
(19.02
)
Total assets
$
138,656

 
100.00
 
$
142,246

 
100.00
 
$
(3,590
)
 
(2.52
)
Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
  Discount notes
$
55,162

 
41.85
 
$
69,434

 
51.35
 
$
(14,272
)
 
(20.56
)
  Bonds
74,996

 
56.89
 
63,953

 
47.29
 
11,043

 
17.27

Deposits
1,125

 
0.85
 
1,084

 
0.80
 
41

 
3.78

Other liabilities
539

 
0.41
 
759

 
0.56
 
(220
)
 
(28.93
)
Total liabilities
$
131,822

 
100.00
 
$
135,230

 
100.00
 
$
(3,408
)
 
(2.52
)
Capital stock
$
4,871

 
71.28
 
$
5,101

 
72.71
 
$
(230
)
 
(4.51
)
Retained earnings
1,863

 
27.26
 
1,840

 
26.22
 
23

 
1.23

Accumulated other comprehensive income
100

 
1.46
 
75

 
1.07
 
25

 
33.61

Total capital
$
6,834

 
100.00
 
$
7,016

 
100.00
 
$
(182
)
 
(2.60
)

Advances

A significant percentage of advances made during the third quarter of 2016 were short-term advances. As of September 30, 2016, 65.6 percent of the Bank’s advances were fixed-rate, compared to 57.4 percent as of December 31, 2015. However, the Bank often simultaneously enters into derivatives with the issuance of advances to convert the rates on them, in effect, into short-term variable interest rates, the majority of which are based on LIBOR. As of September 30, 2016 and December 31, 2015, 44.5 percent and 48.1 percent, respectively, of the Bank’s fixed-rate advances were swapped, and 1.00 percent and 0.91 percent, respectively, of the Bank’s variable-rate advances were swapped. The majority of the Bank’s variable-rate advances were indexed to LIBOR. The Bank also offers variable-rate advances that may be tied to indices, such as the federal funds rate, prime rate, or constant maturity swap rates.


39


The following table presents the par value of outstanding advances by product characteristics (dollars in millions).

 
As of September 30, 2016
 
As of December 31, 2015
 
Amount
 
Percent of Total
 
Amount
 
Percent of Total
Fixed rate (1)
$
39,701

 
41.20
 
$
35,664

 
34.67
Adjustable or variable rate indexed
32,855

 
34.10
 
43,425

 
42.22
Hybrid
20,304

 
21.07
 
19,782

 
19.23
Convertible
1,823

 
1.89
 
2,394

 
2.33
Amortizing (2)
1,673

 
1.74
 
1,599

 
1.55
Total par value
$
96,356

 
100.00
 
$
102,864

 
100.00
____________ 
(1) 
Includes convertible advances whose conversion options have expired.
(2) 
The Bank offers a fixed-rate advance that may be structured with principal amortization in either equal increments or similar to a mortgage.

Refer to Note 7—Advances to the Bank’s interim financial statements for the concentration of the Bank’s advances to its 10 largest borrowing institutions.

Investments

The following table presents more detailed information regarding investments held by the Bank (dollars in millions).
 
 
 
 
Increase (Decrease)
 
As of September 30, 2016
 
As of December 31, 2015
 
Amount    
 
Percent    
Investment securities:
 
 
 
 
 
 
 
State or local housing agency debt obligations
$
77

 
$
77

 
$

 
(0.16
)
Government-sponsored enterprises debt obligations
6,909

 
6,957

 
(48
)
 
(0.67
)
  Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed residential
226

 
279

 
(53
)
 
(19.19
)
Government-sponsored enterprises residential
11,297

 
11,958

 
(661
)
 
(5.52
)
Government-sponsored enterprises commercial
6,879

 
4,140

 
2,739

 
66.16

Private-label residential
2,250

 
2,755

 
(505
)
 
(18.35
)
Total mortgage-backed securities
20,652

 
19,132

 
1,520

 
7.94

Total investment securities
27,638

 
26,166

 
1,472

 
5.63

Other investments:
 
 
 
 
 
 
 
Interest-bearing deposits (1)
1,092

 
1,088

 
4

 
0.32

Securities purchased under agreements to resell
1,111

 
2,500

 
(1,389
)
 
(55.57
)
Federal funds sold
8,449

 
5,421

 
3,028

 
55.86

Total other investments
10,652

 
9,009

 
1,643

 
18.23

Total investments
$
38,290

 
$
35,175

 
$
3,115

 
8.86

____________ 
(1) 
Interest-bearing deposits include a $1.1 billion business money market account with Branch Banking and Trust Company, one of the Bank’s ten largest borrowers as of September 30, 2016 and December 31, 2015.

The increase in total investments was primarily due to an increase in government-sponsored enterprises commercial MBS (which consist of multifamily collateral) and federal funds sold. The amount held in other investments will vary each day based on the Bank’s liquidity requirements as a result of advances demand, the earnings rates, and the availability of high quality counterparties in the federal funds market.

40


The Finance Agency regulations prohibit an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities would exceed 300 percent of the FHLBank’s previous month-end regulatory capital on the day it would purchase the securities. As of September 30, 2016, these investments amounted to 305 percent of the Bank's regulatory capital due to a decrease in regulatory capital that resulted from a decrease in advances. The Bank was in compliance with this regulatory limit at the time of its MBS purchases and will not be required to sell any previously purchased MBS. As of December 31, 2015, the Bank's MBS to regulatory capital amounted to 274 percent.

Mortgage Loans Held for Portfolio

As the Bank ceased purchasing new mortgage loans in 2008, the decrease in mortgage loans held for portfolio from December 31, 2015 to September 30, 2016 was primarily due to the maturity and prepayment of these assets during the period.
Prior to 2008, members that were selling mortgage loans to the Bank were located primarily in the southeastern United States; therefore, the Bank's conventional mortgage loan portfolio is concentrated in that region as of September 30, 2016 and December 31, 2015. The following table presents the percentage of unpaid principal balance of conventional residential mortgage loans held for portfolio for the five largest state concentrations.
 
 
As of September 30, 2016
 
As of December 31, 2015
 
Percent of Total
 
Percent of Total
Florida
28.17

 
28.08

South Carolina
25.33

 
25.27

Georgia
13.24

 
13.59

North Carolina
10.40

 
10.39

Virginia
7.87

 
7.90

All other
14.99

 
14.77

Total
100.00

 
100.00


Consolidated Obligations

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and consolidated obligation discount notes. The decrease in consolidated obligations from December 31, 2015 to September 30, 2016 is a result of a decrease in advances outstanding during the period. Consolidated obligation issuances financed 93.9 percent of the $138.7 billion in total assets as of September 30, 2016, remaining relatively stable compared to the financing ratio of 93.8 percent as of December 31, 2015.
The Bank often simultaneously enters into derivatives with the issuance of consolidated obligation bonds to convert the interest rates, in effect, into short-term variable interest rates, usually based on LIBOR. As of September 30, 2016 and December 31, 2015, 80.1 percent and 82.8 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped. The Bank had no variable-rate consolidated obligation bonds that were swapped as of September 30, 2016 and December 31, 2015. As of September 30, 2016 and December 31, 2015, 36.8 percent and 22.2 percent, respectively, of the Bank's fixed-rate consolidated obligation discount notes were swapped.

Deposits

The Bank offers demand and overnight deposit programs to members and qualifying non-members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit funds in the Bank that are collected in connection with the mortgage loans, pending disbursement of those funds to the owners of the mortgage loans. For demand deposits, the Bank pays interest at the overnight rate. Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may fluctuate significantly. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank.

To support its member deposits, the FHLBank Act requires the Bank to have an amount equal to or greater than the current deposits received from its members as a reserve. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies, or advances with maturities not exceeding five years. The Bank was in compliance with this depository liquidity requirement as of September 30, 2016.


41


Capital

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank was in compliance with these regulatory capital rules and requirements as shown in Note 11Capital and Mandatorily Redeemable Capital Stock to the Bank's interim financial statements.
Finance Agency regulations establish criteria for four capital classifications, based on the amount and type of capital held by an FHLBank, as follows:
Adequately Capitalized - FHLBank meets or exceeds both risk-based and minimum capital requirements;
Undercapitalized - FHLBank does not meet one or both of its risk-based or minimum capital requirements;
Significantly Undercapitalized - FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements; and
Critically Undercapitalized - FHLBank total capital is two percent or less of total assets.

Under the regulations, the Director of the Finance Agency (Director) will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. In the event that an FHLBank is not adequately capitalized, the regulations delineate the types of prompt corrective actions that the Director may order, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On September 20, 2016, the Bank received notification from the Director that, based on June 30, 2016 data, the Bank meets the definition of “adequately capitalized.”

The Bank had capital stock subject to mandatory redemption, consisting of B1 membership stock and B2 activity-based capital stock, from 11 and 13 members and former members, as of September 30, 2016 and December 31, 2015, respectively. The Bank is not required to redeem or repurchase such capital stock until the expiration of the five-year redemption period or, with respect to activity-based capital stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding. The Bank, in its discretion, may repurchase excess capital stock subject to certain limitations and thresholds in the Bank's capital plan.

The Bank's capital management plan is discussed in more detail in the Bank's Form 10-K, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Capital.

42


Results of Operations

The following is a discussion and analysis of the Bank's results of operations for the third quarter and first nine months of 2016 and 2015.

Net Income

The following table presents the Bank’s significant income items for the third quarter and first nine months of 2016 and 2015, and provides information regarding the changes during those periods (dollars in millions). These items are discussed in more detail below.

 
 
For the Three Months Ended September 30,
 
Increase (Decrease)
 
For the Nine Months Ended September 30,
 
Increase (Decrease)    
 
 
2016
 
2015
 
Amount
 
Percent
 
2016
 
2015
 
Amount
 
Percent
Net interest income
 
$
93

 
$
95

 
$
(2
)
 
(2.47
)
 
$
266

 
$
151

 
$
115

 
75.86

(Reversal) provision for credit losses
 
(1
)
 
1

 
(2
)
 
(214.02
)
 
(1
)
 

 
(1
)
 
(166.00
)
Noninterest income
 
28

 
7

 
21

 
329.77

 
42

 
203

 
(161
)
 
(78.86
)
Noninterest expense
 
34

 
33

 
1

 
1.67

 
99

 
98

 
1

 
0.86

Affordable Housing Program assessments
 
9

 
7

 
2

 
27.16

 
21

 
26

 
(5
)
 
(18.08
)
Net income
 
$
79

 
$
61

 
$
18

 
29.25

 
$
189

 
$
230

 
$
(41
)
 
(18.04
)


Net Interest Income

The primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including consolidated obligations, deposits, and other borrowings). Also included in net interest income are miscellaneous related items, such as prepayment fees, the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments. The Bank also recognizes significant improvements in expected cash flows related to other-than-temporary impairment securities through net interest income.

As discussed above, net interest income includes components of hedging activity. When hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability. The impact of hedging on net interest income was a decrease of $113 million and $151 million for the third quarter of 2016 and 2015, respectively, and a decrease of $334 million and $524 million for the first nine months of 2016 and 2015, respectively.

During the third quarter and first nine months of 2015, net interest income was impacted by $15 million and $177 million, respectively, of accelerated amortization related to previously restructured advances that were prepaid prior to their maturity, which decreased net interest income and was offset by net gains on derivatives and hedging activities. After considering the impact of these previously restructured advances, net interest income was adversely affected by an increase in short-term rates, which impacted consolidated obligation interest expense more than the offsetting increase in advance interest income. This was the result of the Federal Reserve raising interest rates in December 2015.


43


The following tables present spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the third quarter and first nine months of 2016 and 2015 (dollars in millions). The interest rate spread is affected by the inclusion or exclusion of net interest income or expense associated with the Bank's derivatives. For example, as discussed above, if the derivatives qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is included in net interest income and in the calculation of interest rate spread. If the derivatives do not qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is excluded from net interest income and from the calculation of interest rate spread and is recorded in "Noninterest income (loss)" as "Net gains on derivatives and hedging activities." Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.

 
For the Three Months Ended September 30,
 
2016
 
2015
 
Average  Balance
 
Interest
 
Yield/    
Rate
(%)
 
Average  Balance
 
Interest
 
Yield/    
Rate
(%)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits (1)
$
2,960

 
$
5

 
0.64
 
$
2,434

 
$
1

 
0.21
Securities purchased under agreements to resell
1,038

 
1

 
0.41
 
3,124

 
1

 
0.14
Federal funds sold
7,958

 
8

 
0.43
 
7,084

 
3

 
0.14
Investment securities (2)
27,405

 
109

 
1.58
 
25,561

 
100

 
1.55
Advances
103,318

 
161

 
0.62
 
95,455

 
72

 
0.30
Mortgage loans (3)
500

 
8

 
6.21
 
643

 
9

 
5.73
Loans to other FHLBanks

 

 
 
1

 

 
0.08
Total interest-earning assets
143,179

 
292

 
0.81
 
134,302

 
186

 
0.55
Allowance for credit losses on mortgage loans
(2
)
 
 
 
 
 
(2
)
 
 
 
 
Other assets
1,880

 
 
 
 
 
1,402

 
 
 
 
Total assets
$
145,057

 
 
 
 
 
$
135,702

 
 
 
 
Liabilities and Capital
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits (4)
$
1,153

 
1

 
0.31
 
$
1,217

 

 
0.03
Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
Discount notes
64,248

 
70

 
0.44
 
43,961

 
15

 
0.13
Bonds
70,397

 
128

 
0.72
 
82,033

 
75

 
0.37
Other borrowings
9

 

 
4.56
 
16

 
1

 
4.80
Total interest-bearing liabilities
135,807

 
199

 
0.58
 
127,227

 
91

 
0.28
Other liabilities
2,219

 
 
 
 
 
1,838

 
 
 
 
Total capital
7,031

 
 
 
 
 
6,637

 
 
 
 
Total liabilities and capital
$
145,057

 
 
 
 
 
$
135,702

 
 
 
 
Net interest income and net yield on interest-earning assets
 
 
$
93

 
0.26
 
 
 
$
95

 
0.28
Interest rate spread
 
 
 
 
0.23
 
 
 
 
 
0.27
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
105.43
 
 
 
 
 
105.56
____________ 
(1) 
Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.
(2) 
Includes trading securities at fair value and available-for-sale securities at amortized cost.
(3) 
Nonperforming mortgage loans are included in average balances used to determine average rate.
(4) 
Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.


44


 
For the Nine Months Ended September 30,
 
2016
 
2015
 
Average  Balance
 
Interest
 
Yield/    
Rate
(%)
 
Average  Balance
 
Interest
 
Yield/    
Rate
(%)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits (1)
$
2,805

 
$
13

 
0.60
 
$
2,420

 
$
3

 
0.19
Securities purchased under agreements to resell
1,034

 
3

 
0.37
 
2,686

 
3

 
0.13
Federal funds sold
8,164

 
24

 
0.39
 
7,875

 
8

 
0.13
Investment securities (2)
26,764

 
325

 
1.62
 
26,081

 
308

 
1.58
Advances
99,078

 
427

 
0.58
 
91,950

 
54

 
0.08
Mortgage loans (3)
536

 
24

 
6.04
 
685

 
30

 
5.97
Loans to other FHLBanks
2

 

 
0.37
 
7

 

 
0.11
Total interest-earning assets
138,383

 
816

 
0.79
 
131,704

 
406

 
0.41
Allowance for credit losses on mortgage loans
(2
)
 
 
 
 
 
(2
)
 
 
 
 
Other assets
1,861

 
 
 
 
 
1,399

 
 
 
 
Total assets
$
140,242

 
 
 
 
 
$
133,101

 
 
 
 
Liabilities and Capital
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits (4)
$
1,187

 
3

 
0.29
 
$
1,245

 

 
0.02
Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
Discount notes
63,287

 
196

 
0.41
 
39,257

 
33

 
0.11
Bonds
66,774

 
351

 
0.70
 
83,932

 
221

 
0.35
Other borrowings
11

 

 
4.80
 
18

 
1

 
4.25
Total interest-bearing liabilities
131,259

 
550

 
0.56
 
124,452

 
255

 
0.27
Other liabilities
2,155

 
 
 
 
 
2,110

 
 
 
 
Total capital
6,828

 
 
 
 
 
6,539

 
 
 
 
Total liabilities and capital
$
140,242

 
 
 
 
 
$
133,101

 
 
 
 
Net interest income and net yield on interest-earning assets
 
 
$
266

 
0.26
 
 
 
$
151

 
0.15
Interest rate spread
 
 
 
 
0.23
 
 
 
 
 
0.14
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
105.43
 
 
 
 
 
105.83

(1) 
Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.
(2) 
Includes trading securities at fair value and available-for-sale securities at amortized cost.
(3) 
Nonperforming mortgage loans are included in average balances used to determine average rate.
(4) 
Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.


45


Net interest income for the periods presented was affected by changes in average balances (volume changes) and changes in average rates (rate changes) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which volume changes and rate changes affected the Bank’s interest income and interest expense (in millions). As presented in the table below, the overall changes in net interest income during the third quarter and first nine months of 2016, compared to the same periods in 2015, were primarily rate related.
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016 vs. 2015
 
2016 vs. 2015
 
Volume (1)
 
Rate (1)
 
Increase (Decrease)    
 
Volume (1)
 
Rate (1)
 
Increase (Decrease)    
Increase (decrease) in interest income:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
$
1

 
$
3

 
$
4

 
$
1

 
$
9

 
$
10

 Securities purchased under agreements to resell
(1
)
 
1

 

 
(2
)
 
2

 

 Federal funds sold

 
5

 
5

 

 
16

 
16

 Investment securities
7

 
2

 
9

 
8

 
9

 
17

 Advances
6

 
83

 
89

 
4

 
369

 
373

    Mortgage loans
(2
)
 
1

 
(1
)
 
(7
)
 
1

 
(6
)
Total
11

 
95

 
106

 
4

 
406

 
410

Increase (decrease) in interest expense:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits

 
1

 
1

 

 
3

 
3

Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
     Discount notes
9

 
46

 
55

 
30

 
133

 
163

     Bonds
(12
)
 
65

 
53

 
(53
)
 
183

 
130

 Other borrowings
(1
)
 

 
(1
)
 
(1
)
 

 
(1
)
Total
(4
)
 
112

 
108

 
(24
)
 
319

 
295

Increase (decrease) in net interest income
$
15

 
$
(17
)
 
$
(2
)
 
$
28

 
$
87

 
$
115

____________ 
(1) 
Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is calculated as the change in rate multiplied by the previous volume. The rate/volume change, calculated as the change in rate multiplied by the change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of its total.

Noninterest Income (Loss)

The following table presents the components of noninterest income (loss) (dollars in millions).
 
 
 
For the Three Months Ended September 30,
 
Increase (Decrease)
 
For the Nine Months Ended September 30,
 
Increase (Decrease)
 
 
2016
 
2015
 
Amount
 
Percent
 
2016
 
2015
 
Amount
 
Percent
Net impairment losses recognized in earnings
 
$
(1
)
 
$
(1
)
 
$

 
20.43

 
$
(2
)
 
$
(5
)
 
$
3

 
69.82

Net losses on trading securities
 
(8
)
 
(15
)
 
7

 
47.92

 
(23
)
 
(42
)
 
19

 
45.45

Net gains on derivatives and hedging activities
 
29

 
16

 
13

 
79.05

 
42

 
228

 
(186
)
 
(81.55
)
Standby letters of credit fees
 
6

 
7

 
(1
)
 
(6.97
)
 
21

 
21

 

 
(0.66
)
Other
 
2

 

 
2

 
507.16

 
4

 
1

 
3

 
544.22

Total noninterest income
 
$
28

 
$
7

 
$
21

 
329.77

 
$
42

 
$
203

 
$
(161
)
 
(78.86
)

As previously discussed, during the third quarter and first nine months of 2015, previously restructured and redesignated advances were prepaid prior to their maturity resulting in $15 million and $177 million, respectively, of accelerated amortization, which reduced net interest income for the respective periods. This accelerated amortization was offset by corresponding increases in net gains on derivatives and hedging activities during 2015. The remaining changes in net gains on derivatives and hedging activities, as well as changes in net losses on trading securities, are primarily attributable to changes in interest rates during 2016.


46


The following tables present the net effect of derivatives and hedging activity on the Bank’s results of operations (in millions).
 
For the Three Months Ended September 30, 2016
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
Consolidated Obligation Discount Notes
 
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(35
)
 
$

 
$

$

 
 
$
(35
)
Net interest settlements included in net interest income (2)
(130
)
 

 
50

2

 
 
(78
)
Total effect on net interest (expense) income
$
(165
)
 
$

 
$
50

$
2

 
 
$
(113
)
Net gains on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 Gains on fair value hedges
$
26

 
$

 
$

$
2

 
 
$
28

 Gains on derivatives not receiving hedge accounting including net interest settlements

 
1

 


 
 
1

Total net gains on derivatives and hedging activities
26

 
1

 

2

 
 
29

Net losses on trading securities (3)

 
(7
)
 


 
 
(7
)
Total effect on noninterest income (loss)
$
26

 
$
(6
)
 
$

$
2

 
 
$
22

____________ 
(1) 
Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.
(2) 
Represents interest income or expense on derivatives included in net interest income.
(3) 
Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.

 
For the Three Months Ended September 30, 2015
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
 
Consolidated Obligation Discount Notes
 
Balance Sheet
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(107
)
 
$

 
$
2

 
$

 
$

 
$
(105
)
Net interest settlements included in net interest income (2)
(173
)
 

 
124

 
3

 

 
(46
)
Total effect on net interest (expense) income
$
(280
)
 
$

 
$
126

 
$
3

 
$

 
$
(151
)
Net gains on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) on fair value hedges
$
30

 
$

 
$
(9
)
 
$

 
$

 
$
21

Losses on derivatives not receiving hedge accounting including net interest settlements

 
(2
)
 

 

 
(3
)
 
(5
)
Total net gains (losses) on derivatives and hedging activities
30

 
(2
)
 
(9
)
 

 
(3
)
 
16

Net losses on trading securities (3)

 
(14
)
 

 

 

 
(14
)
Total effect on noninterest income (loss)
$
30

 
$
(16
)
 
$
(9
)
 
$

 
$
(3
)
 
$
2

____________ 
(1) 
Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.
(2) 
Represents interest income or expense on derivatives included in net interest income.
(3) 
Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.

47


 
For the Nine Months Ended September 30, 2016
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
 
Consolidated Obligation Discount Notes
 
Balance Sheet
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(105
)
 
$

 
$
(2
)
 
$

 
$

 
$
(107
)
Net interest settlements included in net interest income (2)
(414
)
 

 
190

 
(3
)
 

 
(227
)
Total effect on net interest (expense) income
$
(519
)
 
$

 
$
188

 
$
(3
)
 
$

 
$
(334
)
Net gains on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 
 
 Gains (losses) on fair value hedges
$
58

 
$

 
$
(5
)
 
$

 
$

 
$
53

 (Losses) gains on derivatives not receiving hedge accounting including net interest settlements

 
(6
)
 
2

 

 
(7
)
 
(11
)
Total net gains (losses) on derivatives and hedging activities
58

 
(6
)
 
(3
)
 

 
(7
)
 
42

Net losses on trading securities (3)

 
(22
)
 

 

 

 
(22
)
Total effect on noninterest income (loss)
$
58

 
$
(28
)
 
$
(3
)
 
$

 
$
(7
)
 
$
20

____________ 
(1) 
Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.
(2) 
Represents interest income or expense on derivatives included in net interest income.
(3) 
Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.
 
For the Nine Months Ended September 30, 2015
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
 
Consolidated Obligation Discount Notes
 
Balance Sheet
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(354
)
 
$

 
$
5

 
$

 
$

 
$
(349
)
Net interest settlements included in net interest income (2)
(547
)
 

 
366

 
6

 

 
(175
)
Total effect on net interest (expense) income
$
(901
)
 
$

 
$
371

 
$
6

 
$

 
$
(524
)
Net gains on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 
 
 Gains (losses) on fair value hedges
$
258

 
$

 
$
(20
)
 
$

 
$

 
$
238

 (Losses) gains on derivatives not receiving hedge accounting including net interest settlements

 
(8
)
 
3

 

 
(5
)
 
(10
)
Total net gains (losses) on derivatives and hedging activities
258

 
(8
)
 
(17
)
 

 
(5
)
 
228

Net losses on trading securities (3)

 
(41
)
 

 

 

 
(41
)
Total effect on noninterest income (loss)
$
258

 
$
(49
)
 
$
(17
)
 
$

 
$
(5
)
 
$
187

____________ 
(1) 
Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.
(2) 
Represents interest income or expense on derivatives included in net interest income.
(3) 
Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned;” therefore, this line item may not agree to the income statement.
Noninterest Expense and Assessments

Total noninterest expense remained relatively stable for the third quarter and first nine months of 2016, compared to the same periods in 2015. The changes in Affordable Housing Program assessments during the third quarter and first nine months of 2016, compared to the same periods in 2015, is due to the changes in income before assessments during the periods.

48


Liquidity and Capital Resources

Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called consolidated obligations, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, so the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank complies with operational liquidity and contingent liquidity, as well as other regulatory requirements. The Bank also performs a separate and independent measure of liquidity, a 45-day liquidity measurement, to validate the level of liquidity reserves.
Finance Agency regulations require the Bank to maintain operational liquidity (generally, the ready cash and borrowing capacity available to meet the Bank's intraday needs) and contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets. The Bank met these regulatory liquidity requirements throughout the first nine months of 2016. The Finance Agency has also provided liquidity guidance to the FHLBanks generally to provide ranges of days for which each FHLBank should maintain positive cash balances based upon different assumptions and scenarios. The Bank has operated within these ranges since the Finance Agency issued this guidance.
The Bank has established an internal liquidity measurement separate from the Finance Agency requirements described above. The Bank performs a supplemental analysis to confirm that liquidity reserves are sufficient to service debt obligations for at least 45 days. This analysis assumes no access to debt market issuance and other management assumptions, which are completely independent of the operational and contingent liquidity calculation measured above. The Bank met its 45 day internal liquidity goal throughout the first nine months of 2016.
The Bank’s principal source of liquidity is consolidated obligation debt instruments. To provide liquidity, the Bank also may use other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and loans from other FHLBanks. These funding sources depend on the Bank’s ability to access the capital markets at competitive market rates. Although the Bank maintains secured and unsecured lines of credit with money market counterparties, the Bank’s income and liquidity would be adversely affected if it were not able to access the capital markets at competitive rates for an extended period. Historically, the FHLBanks have had excellent capital market access although pricing and investor appetite tend to favor short-term discount notes during times of market volatility.
The Bank is focused on maintaining a liquidity and funding balance between its financial assets and financial liabilities. The FHLBanks work collectively to manage the system-wide liquidity and funding management and the FHLBanks jointly monitor the combined refinancing risk. In managing and monitoring the amounts of assets that require refunding, the Bank considers contractual maturities of its financial assets, as well as certain assumptions regarding expected cash flows (i.e. estimated prepayments and scheduled amortizations). See the notes to the Bank’s interim financial statements for information regarding contractual maturities of certain of the Bank’s financial assets and liabilities.
Contingency plans are in place that prioritize the allocation of liquidity resources in the event of operational disruptions at the Bank or the Office of Finance, as well as systemic Federal Reserve wire transfer system disruptions. Under the FHLBank Act, the Secretary of Treasury has the authority, at his discretion, to purchase consolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

Off-balance Sheet Commitments

The Bank’s primary off-balance sheet commitments are as follows:
the Bank’s joint and several liability for all FHLBank consolidated obligations; and
the Bank’s outstanding commitments arising from standby letters of credit.
Should an FHLBank be unable to satisfy its payment obligation under a consolidated obligation for which it is the primary obligor, any of the other FHLBanks, including the Bank, could be called upon to repay all or any part of such payment obligation, as determined or approved by the Finance Agency. As of September 30, 2016, none of the other FHLBanks defaulted on their consolidated obligations; the Finance Agency was not required to allocate any obligation among the FHLBanks; and no amount of the joint and several obligation was fixed. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations as of September 30, 2016 and December 31, 2015. The FHLBanks had $967.7 billion in aggregate par value of consolidated obligations issued and outstanding, $130.1 billion of which was attributable to the Bank as of September 30, 2016. No FHLBank has ever defaulted on its principal or interest payments under any consolidated obligation, and the Bank has never been required to make payments under any consolidated obligation as a result of the failure of another FHLBank to meet its obligations.

49


The Bank generally requires standby letters of credit to contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. Based on the creditworthiness of the member applicant and appropriate additional fees, the Bank may issue standby letters of credit that have terms of longer than one year without annual renewals or that have no stated maturity and are subject to renewal on an annual basis.
Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit on behalf of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. Management regularly reviews its standby letter of credit pricing in light of several factors, including the Bank’s potential liquidity needs related to draws on its standby letters of credit. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have an allowance for credit losses for these unfunded standby letters of credit as of September 30, 2016.
Refer to Note 15—Commitments and Contingencies to the Bank’s interim financial statements for more information about the Bank's outstanding standby letters of credit.

Contractual Obligations

As of September 30, 2016, there has been no material change outside the ordinary course of business in the Bank’s contractual obligations as reported in the Bank’s Form 10-K.

Legislative and Regulatory Developments

Significant regulatory actions and developments for the period covered by this report are summarized below.
Minority and Women Inclusion. On October 27, 2016, the Finance Agency proposed amendments to its Minority and Women Inclusion regulations that, if adopted, would clarify the scope of the FHLBanks’ obligation to promote diversity and ensure inclusion. These proposed amendments update existing Finance Agency regulations aimed at promoting diversity and the inclusion and utilization of minorities, women, and individuals with disabilities in all Bank business and activities, including management, employment and contracting.
The proposed amendments would:
require the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;
encourage the FHLBanks to expand contracting opportunities for minorities, women, and individuals with disabilities through subcontracting arrangements;
require the FHLBanks to amend their policies on equal opportunity in employment and contracting by adding sexual orientation, gender identity, and status as a parent to the list of protected classifications; and
require the FHLBanks to provide information in their annual reports to the Finance Agency about their efforts to advance diversity and inclusion through capital market transactions, affordable housing and community investment programs, initiatives to improve access to mortgage credit, and strategies for promoting the diversity of supervisors and managers.

Comments on the proposed amendments are due by December 27, 2016. The Bank is currently assessing the effect of the proposed amendments on the Bank.

FHLBank Membership for Non-Federally-Insured Credit Unions. On September 28, 2016, the Finance Agency proposed amendments to regulations governing FHLBank membership that would implement statutory amendments to the Federal Home Loan Bank Act (the “Bank Act”) that permit state-chartered credit unions without Federal share insurance to be members of FHLBanks, provided that certain prerequisites have been met. The new rule, if adopted, would generally treat these credit unions the same as other depository institutions with an additional requirement that they obtain an affirmative statement from their state regulator that they meet the requirements for Federal insurance as of the date of their application for FHLBank membership; a written statement from the state regulator that it cannot or will not make any determination regarding eligibility for Federal insurance; or if the regulator fails or refuses to respond to the credit union’s request within six months, confirmation of the failure to receive a response. The proposed rule would codify previous Finance Agency guidance permitting the FHLBanks to process applications for membership from these credit unions.


50


Comments are due on the proposed rule by November 28, 2016. The Bank is currently assessing the effect of the proposed rule but does not anticipate that, if adopted, it would materially impact the Bank.

Indemnification Payments. On September 20, 2016, the Finance Agency issued a re-proposed rule that, if adopted, would establish standards for identifying whether an indemnification payment by an FHLBank or the OF to an officer, director, employee, or other entity-affiliated party in connection with an administrative proceeding or civil action instituted by the Finance Agency is prohibited or permissible. Under the proposed rule, those payments with respect to an administrative proceeding or civil action initiated by the Finance Agency are only permitted if they relate to:

premiums for professional liability insurance or fidelity bonds for directors and officers, to the extent that the insurance or fidelity bond covers expenses and restitution, but not a judgment in favor of the Finance Agency or a civil money penalty;
expenses of defending an action, subject to an agreement to repay those expenses in certain instances; and
amounts due under an indemnification agreement entered into on or prior to September 20, 2016.

The proposed rule also outlines the process a board of directors must undertake prior to making any permitted indemnification payment for expenses of defending an action initiated by the Finance Agency.

Comments are due on the proposed rule by December 21, 2016. The Bank is currently assessing the effect of the proposed rule but does not anticipate that, if adopted, it would materially impact the Bank.
FHLBank New Business Activities. On August 23, 2016, the Finance Agency proposed a rule that, if adopted, would reduce the scope of new business activities (“NBAs”) for which a FHLBank must seek approval from the Finance Agency and would establish more certain timelines for Finance Agency review and approval of NBA notices. The proposed rule also would clarify the protocol for Finance Agency review of NBAs. Under the proposed rule, acceptance of new types of legally permissible collateral by the FHLBanks would not constitute a new business activity or require approval from the Finance Agency prior to acceptance. Instead, the Finance Agency would review new collateral types as part of the annual exam process.

On October 24, 2016, the FHLBanks provided comments to the proposed rule, which primarily related to certain procedures under the proposed rule. The Bank does not anticipate that the proposed rule, if adopted, would materially impact the Bank.
Mandatory Contractual Stay Requirements for Qualified Financial Contracts (“QFCs”). On August 19, 2016, the Office of the Comptroller of the Currency (“OCC”) issued a proposed rule, which, if adopted, would require certain systemically important financial institutions (“SIFI”) regulated by the OCC to limit a counterparty’s immediate termination or exercise of default rights in the event of bankruptcy or receivership of the SIFI or an affiliate of the SIFI. Covered QFCs include derivatives, repurchase agreements (know as “repos”) and reserve repos, and securities lending and borrowing agreements. On May 3, 2016, the Federal Reserve Board (“FRB”) issued a substantively identical proposed rule with respect to QFCs entered into with globally systemically important banking organizations (“GSIBs”) and their affiliates that are subject to regulation in the U.S. Further, on October 26, 2016, the Federal Deposit Insurance Corporation ("FDIC") issued a parallel proposed rule applicable to certain FDIC-supervised institutions.

The FHLBanks provided comments on the FRB proposed rule on August 5, 2016 and to the OCC proposed rule on October 18, 2016, which primarily seek clarification of an exemption and the recognition of a safe harbor. The Bank does not anticipate that the proposed rule, if adopted, would materially impact the Bank, but the Bank would need to amend any covered QFCs entered into with FRB regulated GSIBs or OCC regulated SIFIs.

European Union (“EU”) Market Abuse Regulation. The EU issued updated Market Abuse Regulations (“MAR”) that became effective July 3, 2016 and which contain rules on insider dealing, unlawful disclosure of inside information and market manipulation for debt and equity securities on European securities exchanges, which differ in certain respects from U.S. regulations. MAR applies to issuers with securities admitted to trading on EU exchanges, including EU exchanges on which FHLBank COs are listed. MAR contains an exemption to its requirements for certain public bodies and central banks of third countries. The OF and the FHLBanks are examining whether this exemption applies. If the exemption does not apply, the Bank anticipates that the most significant impact of the MAR on the Bank will be more stringent and detailed recordkeeping, creation of detailed lists on parties who have access to inside information, and notification requirements.
Financial Industry Regulatory Authority (“FINRA”) Rule 4210 establishing margin requirements for the TBA Market. On June 15, 2016, the SEC approved a proposed rule by FINRA to require the margining of certain “to-be-announced” (“TBA”) transactions. Specifically, the approved FINRA Rule 4210 will require FINRA members to collect from, but not post to, their

51


customer’s maintenance margin (i.e. initial margin) and variation margin on transactions that are “Covered Agency Transactions,” subject to certain exemptions. A “Covered Agency Transaction” includes (certain terms are defined under FINRA rules):

TBA transactions inclusive of ARM transactions, and Specified Pool Transactions, for which the difference between the trade date and contractual settlement date is greater than one business day; and
Collateralized mortgage obligations issued in conformity with a program of an agency or a GSEfor which the difference between the trade date and contractual settlement date is greater than three business days.

Covered Agency Transactions with a counterparty in multifamily housing securities are exempt from the margin requirements provided that certain requirements are met.

Under the rule, the Bank is exempt from posting initial margin but would be required to post variation margin to their FINRA-member counterparty in connection with covered transactions, provided the Bank has more than $10 million in gross open positions with the counterparty. FINRA members will be required to comply with the new margin requirements beginning in December 2017.

The Bank is currently assessing the financial and operational impacts of this rule on the Bank.


Risk Management

The Bank’s lending, investment and funding activities, and use of derivative hedge instruments expose the Bank to a number of risks. A robust risk management framework aligns risk-taking activities with the Bank’s strategies and risk appetite. A risk management framework also balances risks and rewards. The Bank’s risk management framework consists of risk governance, risk appetite, and risk management policies.

The Bank’s board of directors and management recognize that risks are inherent to the Bank’s business model and that the process of establishing a risk appetite does not imply that the Bank seeks to mitigate or eliminate all risk. By defining and managing to a specific risk appetite, the board of directors and management ensure that there is a common understanding of the Bank’s desired risk profile, which enhances their ability to make effective strategic and tactical decisions. Additionally, the Bank aspires (1) to achieve and exceed best practices in governance, ethics, and compliance; and (2) to sustain a corporate culture that fosters transparency, integrity, and adherence to legal and ethical obligations.
The Bank's board of directors and management have established this risk appetite statement and risk metrics for controlling and escalating actions based on the continuing objectives that represent the foundation of the Bank's strategic and tactical planning, as described in the Bank's Form 10-K.

Discussion of the Bank’s management of its credit risk and market risk is provided below. Further discussion of these risks, as well as the Bank’s management of its liquidity, operational, and business risks, is contained in the Bank’s Form 10-K.

Credit Risk

The Bank faces credit risk primarily with respect to its advances, investments, derivatives, and mortgage loan assets.

Advances

Secured advances to member financial institutions account for the largest category of Bank assets; thus, advances are a major source of the Bank’s credit risk exposure. The Bank uses a risk-focused approach to credit and collateral underwriting. The Bank attempts to reduce credit risk on advances by monitoring the financial condition of borrowers and the quality and value of the assets that borrowers pledge as eligible collateral.
The Bank utilizes a credit risk rating system for its members, which focuses primarily on an institution’s overall financial health and takes into account the quality of assets, earnings, and capital position. The Bank assigns each borrower that is an insured depository institution or an insurance company a credit risk rating from one to 10 according to the relative amount of credit risk that such borrower poses to the Bank (one being the least amount of credit risk and 10 the greatest amount of credit risk). In general, borrowers in category 10 may have more restrictions on the types of collateral they may use to secure advances, may be required to maintain higher collateral maintenance levels and deliver loan collateral, may be restricted from obtaining further advances, and may face more stringent collateral reporting requirements. At times, based upon the Bank's assessment of the borrower and its collateral, the Bank may place more restrictive requirements on a borrower than those

52


generally applicable to borrowers with the same rating. The Bank assigns each borrower that is not an insured depository institution or insurance company, such as housing associates, community development financial institutions, and corporate credit unions, a risk level rating based on a risk matrix developed for each entity type. Each matrix has risk levels that generally correspond to the one to 10 credit risk rating for insured depository institutions and insurance companies. Development of these risk matrices for borrowers that are not insured depository institutions or insurance companies enables the Bank to monitor and analyze the financial condition of these borrowers in a more consistent and complete manner. Total advances to these institutions totaled $789 million as of September 30, 2016.
The following table presents the number of borrowers and the par amount of advances outstanding to borrowers with the specified ratings as of the specified dates (dollars in millions).
 
 
 
As of September 30, 2016
 
As of December 31, 2015
Rating                 
 
Number of        
Borrowers
 
Outstanding        
Advances
 
Number of        
Borrowers
 
Outstanding        
Advances
1
 
32

 
$
3,695

 
39

 
$
3,757

2
 
35

 
16,777

 
22

 
17,643

3
 
86

 
17,303

 
77

 
19,943

4
 
91

 
25,173

 
95

 
28,779

5
 
109

 
25,919

 
121

 
26,125

6
 
69

 
4,373

 
93

 
3,681

7
 
39

 
1,507

 
38

 
1,477

8
 
10

 
356

 
9

 
170

9
 
8

 
86

 
13

 
243

10
 
23

 
378

 
28

 
364


The Bank establishes a credit limit for each borrower. The credit limit is not a committed line of credit, but rather an indication of the borrower’s general borrowing capacity with the Bank. The Bank determines the credit limit in its sole and absolute discretion by evaluating a wide variety of factors that indicate the borrower’s overall creditworthiness. The credit limit generally is expressed as a percentage equal to the ratio of the borrower’s total liabilities to the Bank (including the face amount of outstanding standby letters of credit, the principal amount of outstanding advances, and the total exposure of the Bank to the borrower under any derivative contract) to the borrower’s total assets. Generally, borrowers are held to a credit limit of no more than 30 percent. However, the Bank’s board of directors, or a relevant committee thereof, may approve a higher limit at its discretion, and such borrowers may be subject to certain additional collateral, reporting, and maintenance requirements. Six borrowers have been approved for a credit limit higher than 30 percent, and their total outstanding advance and standby letters of credit balance was $24.0 billion as of September 30, 2016.
Each borrower must maintain an amount of qualifying collateral that, when discounted to the lendable collateral value (LCV), is equal to at least 100 percent of the borrower's outstanding principal amount of all advances and other liabilities from the Bank. The LCV is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support. For each type of qualifying collateral, the Bank discounts the market value of the qualifying collateral to calculate the LCV. The Bank regularly reevaluates the appropriate level of discounting. The following table presents information about the types of collateral held for the Bank’s advances (dollars in millions).

 
Total Par 
Value of
Outstanding Advances
 
LCV of 
Collateral 
Pledged by Members
 
First Mortgage 
Collateral (%)
 
Securities 
Collateral (%)
 
Other Real Estate Related Collateral (%)
As of September 30, 2016
$
96,356

 
$
295,808

 
70.12
 
3.50
 
26.38
As of December 31, 2015
102,864

 
285,796

 
71.84
 
3.14
 
25.02
For purposes of determining each member's LCV, the Bank estimates the current market value of all residential first mortgage loans, multifamily and commercial real estate loans, home equity loans, and lines of credit pledged as collateral based on information provided by the member on its loan portfolio or on individual loans through the regular collateral reporting process. The estimated market value is discounted to account for (1) the price volatility of loans, (2) model data uncertainty, and (3) the estimated liquidation and servicing costs in the event of the member's default. Market values, and thus LCVs, change monthly. The use of this market-based valuation methodology allows the Bank to establish its collateral discounts with greater precision and to provide greater transparency with respect to the valuation of collateral pledged for advances and other credit products offered by the Bank.

53


The FHLBank Act affords any security interest granted to the Bank by any member of the Bank, or any affiliate of any such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor) other than the claims and rights of a party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with applicable state law.
In its history, the Bank has never experienced a credit loss on an advance. In consideration of this and the Bank’s policies and practices detailed above, the Bank has not established an allowance for credit losses on advances as of September 30, 2016 and December 31, 2015.

Investments

The Bank is subject to credit risk on unsecured investments, such as interest-bearing deposits and federal funds sold. These investments are generally transacted with government agencies and large financial institutions that are considered to be of investment quality. The Finance Agency defines investment quality as a security with adequate financial backing, so that full and timely payment of principal and interest on such security is expected, and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security.
In addition to Finance Agency regulations, the Bank follows guidelines approved by its board of directors regarding unsecured extensions of credit, with respect to term limits and eligible counterparties.
Finance Agency regulations prohibit the Bank from investing in any of the following securities:
instruments, such as common stock, that represent an ownership interest in an entity, other than stock in small business investment companies or certain investments targeted to low-income people or communities;
instruments issued by non-United States entities, other than those issued by United States branches and agency offices of foreign commercial banks;
debt instruments that are not of investment quality, other than certain investments targeted to low-income people or communities and instruments that the Bank determined became less than investment quality because of developments or events that occurred after purchase by the Bank;
whole mortgages or other whole loans, other than the following: (1) those acquired under the Bank’s mortgage purchase programs; (2) certain investments targeted to low-income people or communities; (3) certain marketable direct obligations of state, local, or tribal government units or agencies that are of investment quality; (4) MBS or asset-backed securities that are backed by manufactured housing loans or home equity loans; and (5) certain foreign housing loans that are authorized under section 12(b) of the FHLBank Act;
interest-only or principal-only stripped MBS, collateralized mortgage obligations (CMOs), collateralized debt obligations, and real estate mortgage investment conduits (REMICs);
residual-interest or interest-accrual classes of CMOs and REMICs;
fixed-rate or variable-rate MBS, CMOs, and REMICs that are at rates equal to their contractual cap on the trade date and that have average lives that vary by more than six years under an assumed instantaneous interest rate change of 300 basis points; and
non-U.S. dollar denominated securities.

Finance Agency regulations do not permit the Bank to rely exclusively on NRSRO ratings with respect to its investments. The Bank is required to make a determination of whether a security is of investment quality based on its own documented analysis, which includes the NRSRO rating as one of the factors that is assessed to determine investment quality. The Bank monitors the financial condition of investment counterparties to ensure that they are in compliance with the Bank's Risk Management Policy (RMP) and Finance Agency regulations. Unsecured credit exposure to any counterparty is limited by the credit quality and capital of the counterparty and by the capital of the Bank. On a regular basis, management produces financial monitoring reports detailing the financial condition of the Bank’s counterparties. These reports are reviewed by the Bank’s board of directors. In addition to the Bank's RMP and regulatory requirements, the Bank may limit or suspend overnight and term trading. Limiting or suspending counterparties limits the pool of available counterparties, shifts the geographical distribution of counterparty exposure, and may reduce the Bank’s overall investment opportunities.

54



The Bank only enters into investments with U.S. counterparties or U.S. branch offices of foreign banks that have been approved by the Bank through its internal approval process, but the Bank may still have exposure to foreign entities if a counterparty’s parent entity is located in another country. The following tables present the Bank’s gross exposure, by instrument type, according to the location of the parent company of the counterparty (in millions).
 
As of September 30, 2016
 
Federal Funds Sold         
 
Interest-bearing  
Deposits
 
Net Derivative Exposure (1)    
 
Total 
Australia
$
1,405

 
$

 
$

 
$
1,405

Canada
668

 

 

 
668

France
950

 

 
1

 
951

Germany
1,230

 

 
1

 
1,231

Netherlands
1,230

 

 

 
1,230

Norway
1,125

 

 

 
1,125

Sweden
821

 

 

 
821

Switzerland

 

 
9

 
9

United States of America
1,020

 
1,092

 

 
2,112

Total
$
8,449

 
$
1,092

 
$
11

 
$
9,552

____________ 
(1) Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral.
 
As of December 31, 2015
 
Federal Funds Sold         
 
Interest-bearing  
Deposits
 
Net Derivative Exposure (1)     
 
Total 
Australia
$
1,000

 
$

 
$

 
$
1,000

Canada
901

 

 

 
901

Germany
1,125

 

 
12

 
1,137

Netherlands
1,140

 

 

 
1,140

Switzerland

 

 
12

 
12

United States of America
1,255

 
1,088

 

 
2,343

Total
$
5,421

 
$
1,088

 
$
24

 
$
6,533

____________ 
(1) Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral.

The Bank experienced an increase in unsecured credit exposure in its investment portfolio related to non-U.S. government and non-U.S. government agency counterparties from $6.5 billion as of December 31, 2015 to $9.5 billion as of September 30, 2016. The following four counterparties each represented greater than 10 percent and collectively represented 47.1 percent of the total unsecured credit exposure to non-U.S. government or non-U.S. government agencies counterparties: Australia & New Zealand Banking Group, Branch Banking and Trust Company, Cooperatieve Rabobank UA, and DnB Bank ASA. Branch Banking and Trust was one of the Bank's top 10 advances borrowers as of September 30, 2016 and December 31, 2015. As of September 30, 2016, this unsecured credit portfolio consisted primarily of federal funds sold with overnight maturities.

The Bank’s RMP permits the Bank to invest in U.S. agency (i.e., Fannie Mae, Freddie Mac and Ginnie Mae) obligations including the following: (1) CMOs and REMICS that are backed by such securities; and (2) other MBS, CMOs, and REMICS that are of sufficient investment quality, which are typically rated AAA by S&P or Aaa by Moody’s at the time of purchase. The private-label MBS purchased by the Bank originally attained their triple-A ratings through credit enhancements, which primarily consisted of the subordination of the claims of the other tranches of these securities. In addition to NRSRO ratings, the Bank considers a variety of credit quality factors when analyzing potential investments, such as collateral performance, marketability, asset class considerations, local and regional economic conditions, and the financial health of the underlying issuer.



55


The following tables present information on the credit ratings of the Bank’s investments held as of September 30, 2016 and December 31, 2015 (in millions), based on their credit rating as of September 30, 2016 and December 31, 2015, respectively. The credit ratings reflect the lowest long-term credit ratings as reported by an NRSRO.
 
 
 
As of September 30, 2016
 
 
 
 
 
Carrying Value (1)
 
 
 
 
 
Investment Grade
 
Below Investment Grade
 
 
 
AAA
 
AA
 
A
 
BBB
 
BB
 
B
 
CCC
 
CC
 
C
 
D
 
Unrated
 
Total
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State or local housing agency debt obligations
$

 
$
77

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
77

Government-sponsored enterprises debt obligations

 
6,909

 

 

 

 

 

 

 

 

 

 
6,909

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed residential

 
226

 

 

 

 

 

 

 

 

 

 
226

Government-sponsored enterprises residential

 
11,297

 

 

 

 

 

 

 

 

 

 
11,297

Government-sponsored enterprises commercial
463

 
6,416

 

 

 

 

 

 

 

 

 

 
6,879

Private-label

 
2

 
19

 
242

 
384

 
259

 
543

 
8

 
95

 
687

 
11

 
2,250

Total mortgage-backed securities
463

 
17,941

 
19

 
242

 
384

 
259

 
543

 
8

 
95

 
687

 
11

 
20,652

Total investment securities
463

 
24,927

 
19

 
242

 
384

 
259

 
543

 
8

 
95

 
687

 
11

 
27,638

Other investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits

 
3

 
1,054

 
35

 

 

 

 

 

 

 

 
1,092

Securities purchased under agreements to resell

 
611

 

 
500

 

 

 

 

 

 

 

 
1,111

Federal funds sold

 
2,226

 
5,393

 
830

 

 

 

 

 

 

 

 
8,449

Total other investments


2,840


6,447


1,365
















10,652

Total investments
$
463


$
27,767


$
6,466


$
1,607


$
384


$
259


$
543


$
8


$
95


$
687


$
11


$
38,290

____________
(1) Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $38 million as of September 30, 2016.

56


 
As of December 31, 2015
 
 
 
 
 
Carrying Value (1)
 
 
 
 
 
Investment Grade
 
Below Investment Grade
 
 
 
 
 
AAA
 
AA
 
A
 
BBB
 
BB
 
B
 
CCC
 
CC
 
C
 
D
 
Unrated
 
Total
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State or local housing agency debt obligations
$

 
$
77

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$
77

Government-sponsored enterprises debt obligations

 
6,957

 

 

 

 

 

 

 

 

 

 
6,957

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed residential

 
279

 

 

 

 

 

 

 

 

 

 
279

Government-sponsored enterprises residential

 
11,958

 

 

 

 

 

 

 

 

 

 
11,958

Government-sponsored enterprises commercial
464

 
3,676

 

 

 

 

 

 

 

 

 

 
4,140

Private-label residential

 
7

 
25

 
325

 
421

 
368

 
616

 
151

 
101

 
729

 
12

 
2,755

Total mortgage-backed securities
464

 
15,920

 
25

 
325

 
421

 
368

 
616

 
151

 
101

 
729

 
12

 
19,132

Total investment securities
464

 
22,954

 
25

 
325

 
421

 
368

 
616

 
151

 
101

 
729

 
12

 
26,166

Other investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits

 
3

 
1,050

 
35

 

 

 

 

 

 

 

 
1,088

Securities purchased under agreements to resell

 
2,500

 

 

 

 

 

 

 

 

 

 
2,500

Federal funds sold

 
1,401

 
3,200

 
820

 

 

 

 

 

 

 

 
5,421

Total other investments


3,904


4,250


855
















9,009

Total investments
$
464

 
$
26,858

 
$
4,275

 
$
1,180

 
$
421

 
$
368

 
$
616

 
$
151

 
$
101

 
$
729

 
$
12

 
$
35,175

____________
(1) Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $40 million as of December 31, 2015.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term secured loans with investment-grade counterparties. From time to time, the Bank enters into these transactions with members on the same terms as advances. Since transactions with members are secured, members are not required to have an investment grade rating. The Bank is inherently exposed to credit risk associated with the risk of default by or insolvency of any counterparty with whom it conducts business. However, based upon the collateral held as security and the investment-grade of the related counterparties, the Bank considers its credit exposure related to these investments to be minimal.
Non-Private-label MBS
The unrealized losses related to U.S. agency and government-sponsored enterprise MBS are caused by interest rate changes. Because these securities are guaranteed by government agencies government-sponsored enterprises, it is expected that these securities would not be settled at a price less than the amortized cost basis. The Bank does not consider these investments to be other-than-temporarily impaired as of September 30, 2016 because the decline in fair value is attributable to changes in interest rates and not credit quality; the Bank does not intend to sell the investments; and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.

Private-label MBS

For disclosure purposes, the Bank classifies private-label MBS as either prime or Alt-A based upon the overall credit quality of the underlying loans as determined by the originator at the time of origination, unless otherwise noted. Although there is no universally accepted definition of Alt-A, generally, loans with credit characteristics that range between prime and subprime are classified as Alt-A. Participants in the mortgage market have used the Alt-A classification principally to describe loans for

57


which the underwriting process has been streamlined in order to reduce the documentation requirements of the borrower or allow for alternative documentation.
The following table presents information, based on investment ratings, on the Bank’s private-label MBS as of September 30, 2016 (dollars in millions).
 
Prime
 
Alt-A
 
Total
Investment Ratings:
 
 
 
 
 
AA
$
2

 
$

 
$
2

A
19

 

 
19

BBB
231

 
12

 
243

BB
366

 
18

 
384

B
210

 
50

 
260

CCC
535

 
107

 
642

CC
9

 

 
9

C
103

 

 
103

D
702

 
107

 
809

unrated
12

 

 
12

Total unpaid principal balance
$
2,189

 
$
294

 
$
2,483

Amortized cost
$
1,891

 
$
240

 
$
2,131

Gross unrealized losses
$
(13
)
 
$
(7
)
 
$
(20
)
Fair value
$
2,004

 
$
240

 
$
2,244

Other-than-temporary impairment (Year-to-date):
 
 
 
 
 
Credit-related losses
$
(2
)
 
$

 
$
(2
)
Non-credit-related losses

 

 

Total other-than-temporary impairment losses
$
(2
)
 
$

 
$
(2
)
Weighted average percentage of fair value to unpaid principal balance
91.53
%
 
81.73
%
 
90.37
%
Original weighted average credit support
9.06
%
 
22.82
%
 
10.68
%
Weighted average credit support
5.26
%
 
12.23
%
 
6.09
%
Weighted average collateral delinquency
10.87
%
 
18.31
%
 
11.75
%

The following table presents a summary of the significant inputs used to evaluate each of the Bank’s private-label MBS for other-than-temporary impairment as of September 30, 2016.
 
 
 
Significant Inputs - Weighted Average (%)
 
Classification of Securities (1)
 
Prepayment Rate
 
Default Rates
 
Loss Severities
 
Current Credit Enhancement (%)
 Prime
 
16.10
 
5.57
 
25.73
 
7.77
 Alt-A
 
13.36
 
18.84
 
36.21
 
4.10
Total
 
14.85
 
11.64
 
30.53
 
6.09
____________
(1) The classification of securities is based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.

In addition to the cash flow analysis of the Bank’s private-label MBS under a base case (best estimate) housing price scenario as described in Note 6–Other-than-temporary Impairment to the Bank’s interim financial statements, a cash flow analysis was also performed based on a housing price scenario that is more adverse than the base case (adverse case housing price scenario).
This more stressful scenario was primarily based on a short-term housing price forecast, which was five percentage points lower than the base case, followed by a recovery path with annual rates of housing price growth that were 33.0 percent lower than the base case. The results of the analysis were immaterial.

The adverse case housing price scenario and associated results do not represent the Bank’s current expectations and therefore, should not be construed as a prediction of the Bank’s future results, market conditions, or the actual performance of these securities. Rather, the results from this hypothetical adverse case housing price scenario provide a measure of the credit losses

58


that the Bank might incur if home price declines (and subsequent recoveries) are more adverse than those projected in the Bank’s base case assessment.
The Bank continues to actively monitor the credit quality of its private-label MBS investments. It is not possible to predict the magnitude of additional other-than-temporary impairment losses in future periods because that prediction depends on the actual performance of the underlying loan collateral as well as the Bank’s future modeling assumptions. Many factors could influence the Bank’s future modeling assumptions, including economic, financial market, and housing market conditions. If performance of the underlying loan collateral deteriorates and/or the Bank’s modeling assumptions become more pessimistic, the Bank could experience further losses on its investment portfolio.

Derivatives

The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. The amount of credit risk on derivatives depends on the extent to which netting procedures, collateral requirements, and other credit enhancements are used and are effective in mitigating the risk. The Bank manages credit risk through credit analysis, collateral management, and other credit enhancements. The Bank is also required to follow the requirements set forth by applicable regulations.

The Bank's over-the-counter derivative transactions may either be (1) uncleared derivatives, which are executed bilaterally with a counterparty; or (2) cleared derivatives, which are cleared through a Futures Commission Merchant (clearing agent) with a Derivative Clearing Organization (Clearinghouse). Once a derivative transaction has been accepted for clearing by a Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty.

For uncleared derivatives, the Bank is subject to nonperformance by counterparties. The Bank generally requires collateral on uncleared derivative transactions. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty. A counterparty must deliver collateral to the Bank if the total market value of the Bank's exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its uncleared derivatives as of September 30, 2016.
For cleared derivatives, the Bank is subject to credit risk due to nonperformance by the Clearinghouse and clearing agent. The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties, and collateral is posted daily for changes in the value of cleared derivatives through a clearing agent. This does introduce, however, a risk of concentration among the limited number of Clearinghouses and clearing agents. The Bank actively monitors Clearinghouses and clearing agents. An annual review of the Bank’s Clearinghouses is performed, and the Bank also monitors its exposure to Clearinghouses on a monthly basis. The Bank currently has the following two approved Clearinghouses: CME Group, Inc. and LCH. Clearnet Limited. The Bank also monitors the clearing agents through its unsecured credit system, and the Bank subjects these clearing agents to the same limits as other bilateral derivative counterparties. The parent companies of the clearing agents are monitored through annual reviews, as well as through the Bank’s daily monitoring tools, which include reviewing equity triggers, debt triggers, and credit default swap spread triggers. In addition, exposures to the clearing agents are monitored daily on a swap counterparty report. The Bank currently has the following three approved clearing agents: Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, and Goldman Sachs & Co. The Bank does not anticipate any credit losses on its cleared derivatives as of September 30, 2016.

The contractual or notional amount of derivative transactions reflects the involvement of the Bank in the various classes of financial instruments; however, the Bank's maximum credit risk with respect to derivative transactions, is the estimated cost of replacing the derivative transactions if there is default, less the value of any related collateral, including initial and variation margin. In determining maximum credit risk, the Bank considers accrued interest receivables and payables, as well as the netting requirements to net assets and liabilities.

59


The following tables present information on the credit ratings of, and the Bank’s credit exposure to, its derivative counterparties (in millions). The credit ratings reflect the lowest long-term credit rating by an NRSRO.
 
 
As of September 30, 2016
 
 
Notional Amount
 
Derivatives Fair Value Before Collateral
 
Cash Collateral Pledged To (From) Counterparty
 
Other Collateral Pledged To (From) Counterparty
 
Net Credit Exposure to Counterparties
Non-member counterparties:
 
 
 
 
 
 
 
 
 
 
  Asset positions with credit exposure:
 
 
 
 
 
 
 
 
 
 
    Single-A
 
$
170

 
$
1

 
$
(1
)
 
$

 
$

    Triple-B
 
3,438

 
1

 

 

 
1

 Cleared derivatives
 
2,656

 
9

 
2

 

 
11

  Liability positions with credit exposure:
 
 
 
 
 
 
 
 
 
 
     Single-A
 
1,528

 
(8
)
 
8

 

 

    Cleared derivatives
 
55,157

 
(1,129
)
 
1,540

 

 
411

Total derivative positions with non-member counterparties to which the Bank had credit exposure
 
62,949

 
(1,126
)
 
1,549

 

 
423

Member institutions (1)
 
234

 
11

 

 
(11
)
 

Total
 
$
63,183

 
$
(1,115
)
 
$
1,549

 
$
(11
)
 
$
423

____________ 
(1) Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.
 
 
As of December 31, 2015
 
 
Notional Amount
 
Derivatives Fair Value Before Collateral
 
Cash Collateral Pledged To (From) Counterparty
 
Other Collateral Pledged To (From) Counterparty
 
Net Credit Exposure to Counterparties
Non-member counterparties:
 
 
 
 
 
 
 
 
 
 
Asset positions with credit exposure:
 
 
 
 
 
 
 
 
 
 
    Triple-B
 
$
9,862

 
$
12

 
$
(12
)
 
$

 
$

    Cleared derivatives
 
684

 
12

 
(8
)
 

 
4

  Liability positions with credit exposure:
 
 
 
 
 
 
 
 
 
 
    Cleared derivatives
 
48,469

 
(327
)
 
497

 

 
170

Total derivative positions with non-member counterparties to which the Bank had credit exposure
 
59,015

 
(303
)
 
477

 

 
174

Member institutions (1)
 
185

 
2

 

 
(2
)
 

Total
 
$
59,200

 
$
(301
)
 
$
477

 
$
(2
)
 
$
174

____________ 
(1) Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.

Certain of the Bank's uncleared derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is a deterioration in the Bank's credit rating. If the Bank’s credit rating had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver up to an additional $75 million of collateral at fair value to its uncleared derivative counterparties as of September 30, 2016.

If the counterparty has an NRSRO rating, the net exposure after collateral is treated as unsecured credit, consistent with the Bank's RMP and Finance Agency regulations. If the counterparty does not have an NRSRO rating, the Bank requires collateral for the full amount of the exposure.

Mortgage Loan Programs

The Bank seeks to manage the credit risk associated with the Mortgage Purchase Program (MPP) and the Mortgage Partnership Finance® Program (MPF® Program or MPF) by maintaining underwriting and eligibility standards and structuring possible

60


losses into several layers to be shared with the participating financial institutions. In some cases, a portion of the credit support for MPP and MPF loans is provided under a primary and/or supplemental mortgage insurance policy. Currently, eight mortgage insurance companies provide primary and/or supplemental mortgage insurance for mortgage loans in which the Bank has a retained interest. As of September 30, 2016, five of the Bank’s eight mortgage insurance providers have been rated below "A" by one or more NRSROs for their claims paying ability or insurer financial strength, and three are no longer rated. Ratings downgrades imply an increased risk that these mortgage insurers may be unable to fulfill their obligations to pay claims that may be made under the insurance policies. The Bank holds additional risk-based capital to mitigate the incremental risk, if any, that results from the supplemental mortgage insurance providers.
The allowance for credit losses on MPF loans was $1 million as of September 30, 2016 and December 31, 2015.

Critical Accounting Policies and Estimates

A description of the Bank’s critical accounting policies and estimates is contained in detail in the Bank’s Form 10-K. There have been no material changes to these policies and estimates during the periods presented.

Recently Issued and Adopted Accounting Guidance

See Note 2–Recently Issued and Adopted Accounting Guidance to the Bank’s interim financial statements for a discussion of recently issued and adopted accounting guidance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The following quantitative and qualitative disclosures about market risk should be read in conjunction with the quantitative and qualitative disclosures about market risk that are included in the Bank’s Form 10-K. The information provided herein is intended to update the disclosures made in the Bank’s Form 10-K.

Changes in interest rates and spreads can have a direct effect on the value of the Bank’s assets and liabilities. As a result of the volume of the Bank’s interest-earning assets and interest-bearing liabilities, the component of market risk having the greatest effect on the Bank’s financial condition and results of operations is interest-rate risk. A description of the Bank’s management of interest-rate risk is contained in the Bank’s Form 10-K.

The Bank uses derivative financial instruments to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk management objectives.




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The following table presents the notional amounts of derivative financial instruments (in millions). The category “Fair value hedges” represents hedge strategies for which hedge accounting is achieved. The category “Non-qualifying hedges” represents hedge strategies for which the derivatives are not in designated hedging relationships that formally meet the hedge accounting requirements under GAAP.
 
 
 
 
 
 
As of September 30, 2016
 
As of December 31, 2015
Hedged Item / Hedging Instrument
 
Hedging Objective
 
Hedge
Accounting
Designation
 
Notional Amount
 
Notional Amount
Advances
 
 
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap (without options)
 
Converts the advance’s fixed rate to a variable rate index.
 
Fair value
hedges
 
$
5,486

 
$
5,928

Non-qualifying
hedges
 
1

 
1

Pay fixed, receive variable interest rate swap (with options)
 
Converts the advance’s fixed rate to a variable rate index and offsets option risk in the advance.
 
Fair value
hedges
 
22,911

 
22,733

Non-qualifying
hedges
 
40

 
40

Pay variable with embedded features, receive variable interest rate swap (non-callable)
 
Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index and/or offsets embedded option risk in the advance.
 
Fair value
hedges
 
313

 
378

Pay variable, receive variable basis swap
 
Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index.
 
Non-qualifying
hedges
 
20

 
20

 
 
 
 
Total
 
28,771

 
29,100

Investments
 
 
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap
 
Converts the investment’s fixed rate to a variable rate index.
 
Non-qualifying
hedges
 
606

 
1,179

Pay variable, receive variable interest rate swap
 
Converts the investment’s variable rate to a different variable rate index.
 
Non-qualifying
hedges
 

 
50

 
 
 
 
Total
 
606

 
1,229

Consolidated Obligation Bonds
 
 
 
 
 
 
 
 
Receive fixed, pay variable interest rate swap (without options)
 
Converts the bond’s fixed rate to a variable rate index.
 
Fair value
hedges
 
19,329

 
25,469

Non-qualifying
hedges
 
509

 
1,242

Receive fixed, pay variable interest rate swap (with options)
 
Converts the bond’s fixed rate to a variable rate index and offsets option risk in the bond.
 
Fair value
hedges
 
4,214

 
10,366

 
 
 
 
Total
 
24,052

 
37,077


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As of September 30, 2016
 
As of December 31, 2015
Hedged Item / Hedging Instrument
 
Hedging Objective
 
Hedge
Accounting
Designation
 
Notional Amount
 
Notional Amount
Consolidated Obligation Discount Notes
 
 
 
 
 
 
 
 
Receive fixed, pay variable interest rate swap
 
Converts the discount note's fixed rate to a variable rate index.
 
Fair value
hedges
 
20,280

 
15,416

Balance Sheet
 
 
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap
 
Converts the asset or liability fixed rate to a variable rate index.
 
Non-qualifying
hedges
 
105

 
105

Interest rate cap or floor
 
Protects against changes in income of certain assets due to changes in interest rates.
 
Non-qualifying hedges
 
15,500

 
16,500

 
 
 
 
Total
 
15,605

 
16,605

Intermediary Positions and Other
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap, and receive-fixed, pay variable interest rate swap
 
To offset interest rate swaps executed with members by executing interest rate swaps with derivatives counterparties.
 
Non-qualifying
hedges
 
518

 
371

Total notional amount
 
 
 
 
 
$
89,832

 
$
99,798


Interest-rate Risk Exposure Measurement

The Bank measures interest-rate risk exposure by various methods, including (1) calculating the effective duration and convexity of assets, liabilities, and equity under various scenarios; and (2) calculating the theoretical market value of equity. Effective duration, normally expressed in years or months, measures the price sensitivity of the Bank's interest-bearing assets and liabilities to changes in interest rates. As effective duration lengthens, market-value changes become more sensitive to interest-rate changes. The Bank employs sophisticated modeling systems to measure effective duration.

Bank policy requires the Bank to maintain its effective duration of equity within a range of +5 years to -5 years, assuming current interest rates, and within a range of +7 years to -7 years, assuming an instantaneous parallel increase or decrease in market interest rates of 200 basis points.

The following table presents the Bank’s effective duration exposure measurements as calculated in accordance with Bank policy (in years). 
 
As of September 30, 2016
 
As of December 31, 2015
 
Up 200 Basis Points    
 
Current    
 
Down 200 Basis
 Points (1)    
 
Up 200 Basis Points    
 
Current
 
Down 200 Basis 
Points (1)    
Assets
0.43

 
0.29

 
0.24

 
0.42

 
0.30

 
0.23

Liabilities
0.23

 
0.26

 
0.26

 
0.24

 
0.31

 
0.26

Equity
4.56

 
0.94

 
(0.03
)
 
3.94

 
0.19

 
(0.25
)
Effective duration gap
0.20

 
0.03

 
(0.02
)
 
0.18

 
(0.01
)
 
(0.03
)
____________ 
(1) 
The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists.

The Bank also analyzes its interest-rate risk and market exposure by evaluating the theoretical market value of equity. The market value of equity represents the net result of the present value of future cash flows discounted to arrive at the theoretical market value of each balance sheet item. By using the discounted present value of future cash flows, the Bank is able to factor in the various maturities of assets and liabilities, similar to the effective duration analysis discussed above. The Bank determines the theoretical market value of assets and liabilities utilizing a Level 3 pricing approach as more fully described in Note 14—Estimated Fair Values to the Bank's interim financial statements. The difference between the market value of total

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assets and the market value of total liabilities is the market value of equity. A more volatile market value of equity under different shock scenarios tends to result in a higher effective duration of equity, indicating increased sensitivity to interest rate changes.

The following table presents the Bank’s market value of equity measurements as calculated in accordance with Bank policy (in millions). 
 
As of September 30, 2016
 
As of December 31, 2015
 
Up 200 Basis Points    
 
Current
 
Down 200 Basis Points (1)    
 
Up 200 Basis Points    
 
Current
 
Down 200 Basis Points (1)  
Assets
$
135,680

 
$
136,684

 
$
137,332

 
$
139,647

 
$
140,659

 
$
141,254

Liabilities
129,342

 
129,964

 
130,111

 
132,943

 
133,655

 
134,061

Equity
6,338

 
6,720

 
7,221

 
6,704

 
7,004

 
7,193

____________ 
(1) 
The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Bank's President and Chief Executive Officer and the Bank's Executive Vice President and Chief Financial Officer (Certifying Officers) are responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

As of September 30, 2016, the Bank's management, with the participation of the Certifying Officers, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on that evaluation, the Certifying Officers have concluded that the Bank's disclosure controls and procedures (as defined in Rules 13a-15(a) and 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed by the Bank in the reports that it files or submits under the Exchange Act (1) is accumulated and communicated to the Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure; and (2) is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

In designing and evaluating the Bank's disclosure controls and procedures, the Bank's Certifying Officers recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2016, there were no changes in the Bank's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank's internal control over financial reporting.


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PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

The Bank is subject to various legal proceedings and actions in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material adverse effect on the Bank’s financial condition or results of operations.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, the factors discussed in Part I, “Item 1A. Risk Factors” in the Bank’s Form 10-K, should be carefully considered as they could materially affect the Bank’s business, financial condition, and/or operating results. The risks described in the Bank’s Form 10-K are not the only risks facing the Bank. Additional risks and uncertainties not currently known to the Bank or that the Bank currently deems to be immaterial also may materially adversely affect the Bank’s business, financial condition, and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosure.

Not applicable.

Item 5. Other Information.

PricewaterhouseCoopers LLP (PwC) serves as the independent registered public accounting firm for the Bank. Rule 201(c)(1)(ii)(A) of Regulation S-X (the Loan Rule) prohibits an accounting firm, such as PwC, from having certain financial relationships with its audit clients and affiliated entities. Specifically, the Loan Rule provides, in relevant part, that an accounting firm generally would not be independent if it receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.”

PwC has advised the Bank as of December 31, 2015 and September 30, 2016 that it has a borrowing relationship with a Bank member (referred below as the “lender”) who owns more than ten percent of the Bank’s capital stock, which could call into question PwC’s independence with respect to the Bank. The Bank is providing this disclosure to explain the facts and circumstances, as well as PwC’s and the Audit Committee’s conclusions, concerning PwC’s objectivity and impartiality with respect to the audit of the Bank.
PwC advised the Audit Committee of the Bank that it believes that, in light of the facts of this borrowing relationship, its ability to exercise objective and impartial judgment on all matters encompassed within PwC’s audit engagement has not been impaired and that a reasonable investor with knowledge of all relevant facts and circumstances would reach the same conclusion. PwC has advised the Audit Committee that this conclusion is based in part on the following considerations:
the borrowings are in good standing and the lender does not have the right to take action against PwC, as borrower, in connection with the financings;
the debt balances outstanding are immaterial to PwC and to the lender;
PwC has borrowing relationships with a diverse group of lenders, therefore PwC is not dependent on any single lender or group of lenders; and
the PwC audit engagement team has no involvement in PwC’s treasury function and PwC’s treasury function has no oversight or ability to influence the PwC audit engagement team.


65


Additionally, the Audit Committee of the Bank assessed PwC’s ability to perform an objective and impartial audit, including consideration of the ownership structure of the Bank, the limited voting rights of the Bank’s members and the composition of the board of directors. In addition to the above listed considerations, the Audit Committee considered the following:
although the lender owned more than ten percent of the Bank’s capital stock, the lender’s voting rights are less than ten percent;
as of December 31, 2015 and September 30, 2016, no officer or director of the lender served on the board of directors of the Bank; and
the lender is subject to the same terms and conditions for conducting business with the Bank as any other member.

Based on the Audit Committee’s evaluation, the Audit Committee has concluded that PwC’s ability to exercise objective and impartial judgment on all issues encompassed within PwC’s audit engagement has not been impaired.

Item 6. Exhibits.
Exhibit No.
Description
 
 
3.1
Amended and Restated Organization Certificate of the Federal Home Loan Bank of Atlanta1
 
 
3.2
Bylaws of the Federal Home Loan Bank of Atlanta (Revised and Restated through January 28, 2016)2
 
 
4.1
Capital Plan of the Federal Home Loan Bank of Atlanta3
 
 
31.1
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2
Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1
Certification of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101
Unaudited financial statements from the Quarterly Report on Form 10-Q of Federal Home Loan Bank of Atlanta for the quarter ended September 30, 2016, filed on November 8, 2016, formatted in XBRL: (i) the Statements of Condition, (ii) Statements of Income, (iii) the Statements of Capital, (iv) the Statements of Cash Flows and (v) the Notes to Financial Statements.
 
 
 
 
1
Filed on October 26, 2012 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
2
Filed on February 1, 2016 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
 
3
Filed on August 5, 2011 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
 

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 Atlanta
 
 
 
Date:
November 8, 2016
By /s/ W. Wesley McMullan                   
 
 
    Name: W. Wesley McMullan
    Title: President and Chief Executive Officer
 
 
 
Date:
November 8, 2016
By /s/ Kirk R. Malmberg                        
 
 
    Name: Kirk R. Malmberg
    Title: Executive Vice President and Chief Financial Officer



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