10-Q 1 d233065d10q.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2011

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.    x  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).    x  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    x  No

The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of October 31, 2011, was 62,477,400.

 

 

 


Table of Contents

Table of Contents

 

PART I.   FINANCIAL INFORMATION      1   
Item 1.   Financial Statements (Unaudited)      1   
  STATEMENTS OF CONDITION (Unaudited)      1   
  STATEMENTS OF INCOME (Unaudited)      2   
  STATEMENTS OF CAPITAL (Unaudited)      3   
  STATEMENTS OF CASH FLOWS (Unaudited)      4   
  NOTES TO FINANCIAL STATEMENTS (Unaudited)      6   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      33   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      71   
Item 4.   Controls and Procedures      74   
PART II.   OTHER INFORMATION      75   
Item 1.   Legal Proceedings      75   
Item 1A.   Risk Factors      75   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      75   
Item 3.   Defaults Upon Senior Securities      76   
Item 4.   (Removed and Reserved)      76   
Item 5.   Other Information      76   
Item 6.   Exhibits      76   
SIGNATURES      77   


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, 2011      

           December 31, 2010        

Assets

     

Cash and due from banks

       $ 4             $ 5     

Interest-bearing deposits (including deposits with other FHLBank of $2 as of September 30, 2011 and December 31, 2010)

     1,302           2     

Federal funds sold

     16,440           15,701     

Trading securities (includes $0 and $37 pledged as collateral as of September 30, 2011 and December 31, 2010, respectively, that may be repledged and includes other FHLBank’s bond of $83 and $74 as of September 30, 2011 and December 31, 2010, respectively)

     3,137           3,383     

Available-for-sale securities

     3,102           3,319     

Held-to-maturity securities, net (fair value of $17,262 and $17,511 as of September 30, 2011 and December 31, 2010, respectively)

     17,223           17,474     

Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $1 as of September 30, 2011 and December 31, 2010

     1,742           2,039     

Advances, net

     75,363           89,258     

Accrued interest receivable

     318           388     

Premises and equipment, net

     33           35     

Derivative assets

     33           5     

Other assets

     155           189     
  

 

 

    

 

 

 

Total assets

       $ 118,852             $ 131,798     
  

 

 

    

 

 

 

Liabilities

     

Interest-bearing deposits

       $ 3,170             $ 3,093     

Consolidated obligations, net:

     

Discount notes

     16,057           23,915     

Bonds

     91,720           95,198     
  

 

 

    

 

 

 

Total consolidated obligations, net

     107,777           119,113     
  

 

 

    

 

 

 

Mandatorily redeemable capital stock

     319           529     

Accrued interest payable

     340           357     

Affordable Housing Program payable

     115           126     

Payable to REFCORP

     —           20     

Derivative liabilities

     206           455     

Other liabilities

     129           159     
  

 

 

    

 

 

 

Total liabilities

     112,056           123,852     
  

 

 

    

 

 

 

Commitments and contingencies (Note 13)

     

Capital

     

Capital stock Class B putable ($100 par value) issued and outstanding shares:

     

Subclass B1 issued and outstanding shares: 13 and 15 as of September 30, 2011 and December 31, 2010, respectively

     1,330           1,466     

Subclass B2 issued and outstanding shares: 46 and 57 as of September 30, 2011 and December 31, 2010, respectively

     4,580           5,758     
  

 

 

    

 

 

 

Total capital stock Class B putable

     5,910           7,224     

Retained earnings:

     

Restricted

     6           —     

Unrestricted

     1,197           1,124     
  

 

 

    

 

 

 

Total retained earnings

     1,203           1,124     
  

 

 

    

 

 

 

Accumulated other comprehensive loss

     (317)           (402)     
  

 

 

    

 

 

 

Total capital

     6,796           7,946     
  

 

 

    

 

 

 

Total liabilities and capital

       $ 118,852             $ 131,798     
  

 

 

    

 

 

 

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

 

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Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In millions)

 

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

 

    2011    

         2010              2011              2010      

Interest income

           

Advances

       $ 57             $ 107             $ 195             $ 255     

Prepayment fees on advances, net

     2           2           7           7     

Interest-bearing deposits

     1           2           3           5     

Federal funds sold

     6           9           18           22     

Trading securities

     37           42           118           125     

Available-for-sale securities

     42           50           131           134     

Held-to-maturity securities

     95           130           309           450     

Mortgage loans held for portfolio

     24           30           75           93     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     264           372           856           1,091     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

           

Consolidated obligations:

           

Discount notes

     4           10           15           19     

Bonds

     144           222           472           642     

Deposits

     —           1           1           2     

Mandatorily redeemable capital stock

     1           1           3           1     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     149           234           491           664     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     115           138           365           427     
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest income (loss)

           

Total other-than-temporary impairment losses

     (8)           (5)           (45)           (200)     

Portion of impairment losses recognized in other comprehensive loss

     (11)           (9)           (63)           68     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net impairment losses recognized in earnings

     (19)           (14)           (108)           (132)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gains on trading securities

     36           38           22           118     

Net losses on derivatives and hedging activities

     (67)           (30)           (41)           (105)     

Other

     —           1           2           2     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest loss

     (50)           (5)           (125)           (117)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest expense

           

Compensation and benefits

     15           18           50           47     

Other operating expenses

     10           12           29           35     

Finance Agency

     2           2           8           6     

Office of Finance

     1           1           4           4     

Reversal of provision for credit losses on receivable

     —           (2)           —           (51)     

Other

     1           1           (8)           1     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest expense

     29           32           83           42     
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before assessments

     36           101           157           268     
  

 

 

    

 

 

    

 

 

    

 

 

 

Affordable Housing Program

     4           9           14           22     

REFCORP

     —           18           22           49     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assessments

     4           27           36           71     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

       $ 32             $ 74             $ 121             $ 197     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited)

(In millions)

 

    Capital Stock Class B Putable     Retained Earnings     Accumulated Other
     Comprehensive Loss    
       
        Shares             Par Value             Restricted             Unrestricted             Total               Total Capital      

Balance, December 31, 2009

    81            $ 8,124            $ —            $ 873            $ 873            $ (744)            $ 8,253     

Issuance of capital stock

    2          203          —          —          —          —          203     

Repurchase/redemption of capital stock

    (5)          (507)          —          —          —          —          (507)     

Net shares reclassified to mandatorily redeemable capital stock

    (3)          (340)          —          —          —          —          (340)     

Comprehensive income:

             

Net income

    —          —          —          197          197          —          197     

Other comprehensive income

    —          —          —          —          —          293          293     
             

 

 

 

Total comprehensive income

    —          —          —          —          —          —          490     
             

 

 

 

Cash dividends on capital stock

    —          —          —          (19)          (19)          —          (19)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2010

    75            $ 7,480            $ —            $ 1,051            $ 1,051            $ (451)            $ 8,080     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2010

    72            $ 7,224            $ —            $ 1,124            $ 1,124            $ (402)            $ 7,946     

Issuance of capital stock

    2          173          —          —          —          —          173     

Repurchase/redemption of capital stock

    (14)          (1,440)          —          —          —          —          (1,440)     

Net shares reclassified to mandatorily redeemable capital stock

    (1)          (47)          —          —          —          —          (47)     

Comprehensive income:

             

Net income

    —          —          6          115          121          —          121     

Other comprehensive income

    —          —          —          —          —          85          85     
             

 

 

 

Total comprehensive income

    —          —          —          —          —          —          206     
             

 

 

 

Cash dividends on capital stock

    —          —          —          (42)          (42)          —          (42)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2011

    59            $ 5,910            $ 6            $ 1,197            $ 1,203            $ (317)            $ 6,796     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

 

         Nine Months Ended September 30,      
         2011              2010      

Operating activities

     

Net income

       $ 121             $ 197     

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

     (24)           (45)     

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

     376           765     

Net change in fair value adjustment on trading securities

     (22)           (118)     

Net impairment losses recognized in earnings

     108           132     

Reversal of provision for credit losses on receivable

     —           (51)     

Net change in:

     

Accrued interest receivable

     70           105     

Other assets

     31           (4)     

Affordable Housing Program payable

     (12)           —     

Accrued interest payable

     (17)           (148)     

Payable to REFCORP

     (20)           (2)     

Other liabilities

     (30)           8     
  

 

 

    

 

 

 

Total adjustments

     460           642     
  

 

 

    

 

 

 

Net cash provided by operating activities

     581           839     
  

 

 

    

 

 

 

Investing activities

     

Net change in:

     

Interest-bearing deposits

     (1,910)           (752)     

Federal funds sold

     (739)           (5,732)     

Trading securities:

     

Proceeds from maturities

     272           207     

Available-for-sale securities:

     

Proceeds from maturities

     589           407     

Held-to-maturity securities:

     

Net change in short-term

     90           (1,350)     

Proceeds from maturities of long-term

     3,394           3,904     

Purchases of long-term

     (3,634)           (3,333)     

Advances:

     

Proceeds from principal collected

     54,701           51,654     

Made

     (40,277)           (35,417)     

Mortgage loans held for portfolio:

     

Proceeds from principal collected

     284           329     

Proceeds from sale of foreclosed assets

     12           —     

Purchase of premise, equipment and software

     (4)           (8)     
  

 

 

    

 

 

 

Net cash provided by investing activities

     12,778           9,909     
  

 

 

    

 

 

 

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

 

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     Nine Months Ended September 30,  
         2011              2010      

Financing activities

     

Net change in deposits

     39           3,167     

Net payments on derivatives containing a financing element

     (379)           (556)     

Proceeds from issuance of consolidated obligations:

     

Discount notes

     780,788           792,092     

Bonds

     61,612           69,127     

Bonds transferred from other FHLBanks

     —           162     

Payments for debt issuance costs

     (12)           (14)     

Payments for maturing and retiring consolidated obligations:

     

Discount notes

     (788,638)           (781,575)     

Bonds

     (65,204)           (93,247)     

Proceeds from issuance of capital stock

     173           203     

Payments for repurchase/redemption of capital stock

     (1,440)         (507)     

Payment for repurchase/redemption of mandatorily redeemable capital stock

     (257)           (36)     

Cash dividends paid

     (42)           (19)     
  

 

 

    

 

 

 

Net cash used in financing activities

     (13,360)           (11,203)     
  

 

 

    

 

 

 

Net decrease in cash and cash equivalents

     (1)           (455)     

Cash and cash equivalents at beginning of the period

     5           465     
  

 

 

    

 

 

 

Cash and cash equivalents at end of the period

       $ 4             $ 10     
  

 

 

    

 

 

 

Supplemental disclosures of cash flow information:

     

Cash paid for:

     

Interest

       $ 536             $ 827     
  

 

 

    

 

 

 

AHP assessments, net

       $ 24             $ 20     
  

 

 

    

 

 

 

REFCORP assessments

       $ 42             $ 51     
  

 

 

    

 

 

 

Noncash investing and financing activities:

     

Net shares reclassified to mandatorily redeemable capital stock

       $ 47             $ 340     
  

 

 

    

 

 

 

Held-to-maturity securities acquired with accrued liabilities

       $ —             $ 8     
  

 

 

    

 

 

 

Transfer of held-to-maturity securities to available-for-sale securities

       $ 369             $ 1,298     
  

 

 

    

 

 

 

Transfers of mortgage loans to real estate owned

       $ 13             $ 13     
  

 

 

    

 

 

 

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

 

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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 at 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, 2011, 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, 2010, which are contained in the Bank’s 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 25, 2011 (Form 10-K).

A description of the Bank’s significant accounting policies is included in Note 1 to the 2010 audited financial statements contained in the Bank’s Form 10-K. There have been no material changes to these policies as of September 30, 2011.

Note 2—Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

Compensation Retirement Benefits – Multiemployer Plans: Disclosures about an Employer’s Participation in a Multiemployer Plan. In September 2011, the Financial Accounting Standards Board (FASB) issued amended guidance that provides new requirements for the disclosures that an employer should provide related to its participation in multiemployer pension plans. For public entities, this amended guidance is effective for fiscal years ending after December 15, 2011 (December 31, 2011 for the Bank) and should be applied retrospectively for all prior periods presented. Early adoption is permitted. The adoption of this guidance will result in enhanced disclosures, but will have no effect on the Bank’s financial condition or results of operations.

Presentation of Comprehensive Income. In June 2011, the FASB issued amended guidance that eliminates the current option to report other comprehensive income and its components in the statement of change in equity. The main provisions of this amended guidance provide that an entity that reports items of other comprehensive income present comprehensive income in either: (1) a single financial statement that presents the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and total comprehensive income; or (2) a two-statement approach, where the components of net income and total net income are presented in the first statement, immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and total comprehensive income. For public entities, this

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

amended guidance is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011 (January 1, 2012 for the Bank). Early adoption is permitted. The adoption of this guidance will have no effect on the Bank’s financial condition or results of operations.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued amended guidance to converge fair value measurement and disclosure guidance in GAAP with the fair value measurement guidance concurrently issued by the International Accounting Standards Board for International Financial Reporting Standards (IFRS). The amended guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required or permitted under GAAP. While many of the changes are clarifications of existing guidance or wording changes to align with IFRS, the amended guidance changes some fair value measurement principles and disclosure requirements. For public entities, this guidance is effective prospectively for interim and annual periods beginning on or after December 15, 2011 (January 1, 2012 for the Bank). Early adoption is not permitted. Bank management does not believe that the adoption of this guidance will have a material effect on the Bank’s financial condition or results of operations.

Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued guidance to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The new guidance removes certain criteria from the assessment of effective control. This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2012. This guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. Bank management does not believe that the adoption of this guidance will have a material effect on the Bank’s financial condition or results of operations.

Recently Adopted Accounting Guidance

A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. In April 2011, the FASB issued amended guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. The amended guidance clarifies whether (1) the creditor has granted a concession and (2) whether the debtor is experiencing financial difficulties, which are the two criteria used to determine whether a modification or restructuring is a troubled debt restructuring. For public entities, this guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Bank adopted this guidance effective July 1, 2011. The adoption of this guidance did not have any effect on the Bank’s financial condition or results of operations.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. In July 2010, the FASB issued amended guidance to enhance disclosures about an entity’s allowance for credit losses and the credit quality of its financing receivables. The amended guidance requires entities with financing receivables, including loans, lease receivables and other long-term receivables, to provide additional disclosure related to the nature of credit risk inherent in financing receivables and how that risk is analyzed and assessed in arriving at the allowance for credit losses. The Bank fully adopted this guidance effective January 1, 2011, which resulted in enhanced disclosure, but had no effect on the Bank’s financial condition or results of operations.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Fair Value Measurements and Disclosures. In January 2010, the FASB issued guidance that requires new disclosures related to transfers in and out of Level 1 and 2 fair value hierarchy, and activity in Level 3 fair value hierarchy, and clarifies some existing disclosure requirements about fair value measurement. The Bank fully adopted this guidance effective January 1, 2011, which resulted in enhanced fair value disclosures, but had no effect on the Bank’s financial condition or results of operation.

Note 3—Trading Securities

Major Security Types. Trading securities were as follows:

 

        As of September 30, 2011             As of December 31, 2010      

Government-sponsored enterprises debt obligations

      $ 3,051            $ 3,306     

Other FHLBank’s bond*

    83          74     

State or local housing agency debt obligations

    3          3     
 

 

 

   

 

 

 

Total

      $ 3,137            $ 3,383     
 

 

 

   

 

 

 

 

* The Federal Home Loan Bank of Chicago is the primary obligor of this consolidated obligation bond.

Net unrealized and realized gains (losses) on trading securities were as follows:

 

        Three Months Ended September 30,             Nine Months Ended September 30,      
    2011     2010     2011     2010  

Net unrealized gains on trading securities held at period end

      $ 36            $ 38            $ 28            $ 119     

Net unrealized/realized losses on trading securities sold/matured during the period

    —          —          (6)          (1)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net gains on trading securities

      $ 36            $ 38            $ 22            $ 118     
 

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2011 and December 31, 2010, 99.9 percent of the Bank’s fixed-rate trading securities were swapped and all of the Bank’s variable-rate trading securities were swapped.

Note 4—Available-for-sale Securities

During the nine-month periods ended September 30, 2011 and 2010, the Bank transferred certain private-label mortgage-backed securities (MBS) from its held-to-maturity portfolio to its available-for-sale portfolio. These securities represent private-label MBS in the Bank’s held-to-maturity portfolio for which the Bank has recorded an other-than-temporary impairment loss. The Bank believes the other-than-temporary impairment losses constitute evidence of a significant deterioration in the issuers’ creditworthiness. The Bank has no current plans to sell these securities nor is the Bank under any requirement to sell these securities.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following table presents information on private-label MBS transferred. The amounts below represent the values as of the transfer dates.

 

     2011      2010  
       Amortized  
Cost
     Other-Than-Temporary
Impairment

Recognized in
Accumulated Other

  Comprehensive Loss  
       Estimated  
Fair Value
       Amortized  
Cost
     Other-Than-Temporary
Impairment

Recognized in
Accumulated Other

  Comprehensive Loss  
     Estimated
Fair Value
 

Transferred at March 31,

       $ 321             $ 19             $ 302             $ 467             $ 58             $ 409     

Transferred at June 30,

     53           7           46           908           97           811     

Transferred at September 30,

     23           2           21           83           5           78     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 397             $ 28             $ 369             $ 1,458             $ 160             $ 1,298     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Major Security Types. Available-for-sale securities were as follows:

 

     As of September 30, 2011  
       Amortized  
Cost
     Other-Than-Temporary
Impairment

Recognized in
Accumulated Other
  Comprehensive Loss  
     Gross
    Unrealized    
Gains
     Gross
    Unrealized    
Losses
         Estimated    
Fair Value
 

Private-label MBS

       $ 3,409             $ 309             $ 14                 $ 12             $ 3,102     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31, 2010  
     Amortized
Cost
     Other-Than-Temporary
Impairment

Recognized in
Accumulated Other
Comprehensive Loss
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair Value
 

Private-label MBS

       $ 3,711             $ 396             $ 5             $ 1             $ 3,319     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following tables summarize the available-for-sale securities with unrealized losses. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

 

        As of September 30, 2011  
        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
 

Private-label MBS

    4            $ 286            $ 3          42             $ 2,183            $ 318          46            $ 2,469            $ 321     
 

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

     As of December 31, 2010  
     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
 

Private-label MBS

     1             $ 17             $ 1           43             $ 2,976             $ 396           44             $ 2,993             $ 397     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost of the Bank’s MBS classified as available-for-sale includes net discounts of $14 and $11 as of September 30, 2011 and December 31, 2010, respectively.

The Bank did not swap any of its available-for-sale securities as of September 30, 2011 and December 31, 2010.

A summary of available-for-sale MBS issued by members or affiliates of members follows:

 

         As of September 30, 2011  
       Amortized  
Cost
     Other-Than-Temporary
Impairment
Recognized in
Other Accumulated
Comprehensive Loss
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair  Value
 

Bank of America Corporation, Charlotte, NC

       $ 2,091             $ 232             $ 4             $ 9             $ 1,854     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31, 2010  
     Amortized
Cost
     Other-Than-Temporary
Impairment
Recognized in
Other Accumulated
Comprehensive Loss
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair  Value
 

Bank of America Corporation, Charlotte, NC

       $ 2,128             $ 294             $ 1             $ 1             $ 1,834     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 5—Held-to-maturity Securities

Major Security Types. Held-to-maturity securities were as follows:

 

    As of September 30, 2011     As of December 31, 2010  
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair  Value
    Amortized
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Estimated
Fair  Value
 

Certificates of deposit

      $ 1,100            $ —            $ —            $ 1,100            $ 1,190            $ —            $ —            $ 1,190     

State or local housing agency debt obligations

    107          2          —          109          108          3          —          111     

Government-sponsored enterprises debt obligations

    829          —          —          829          873          —          3          870     

Mortgage-backed securities:

               

U.S. agency obligations-guaranteed

    843          7          —          850          960          9          —          969     

Government-sponsored enterprises

    10,251          203          3          10,451          8,716          210          14          8,912     

Private label

    4,093          35          205          3,923          5,627          49          217          5,459     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 17,223            $ 247            $ 208            $ 17,262            $ 17,474            $ 271            $ 234            $ 17,511     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following tables summarize the held-to-maturity securities with unrealized losses. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

 

    As of September 30, 2011  
    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
 

Certificates of deposit

    7            $ 1,000            $ —          —            $ —            $ —          7            $ 1,000            $ —     

Government-sponsored enterprises debt obligations

    1          48          —          —          —          —          1          48          —     

Mortgage-backed securities:

                 

Government-sponsored enterprises

    12          1,403          2          7          562          1          19          1,965          3     

Private label

    20          438          8          60          1,836          197          80          2,274          205     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    40            $ 2,889            $ 10          67            $ 2,398            $ 198          107            $ 5,287            $ 208     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    As of December 31, 2010  
    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
 

Certificates of deposit

    1            $ 125            $ —          —            $ —            $ —          1            $ 125            $ —     

State or local housing agency debt obligations

    1          7          —          —          —          —          1          7          —     

Government-sponsored enterprises debt obligations

    6          870          3          —          —          —          6          870          3     

Mortgage-backed securities:

                 

U.S. agency obligations-guaranteed

    1          173          —          —          —          —          1          173          —     

Government-sponsored enterprises

    25          2,833          14          —          —          —          25          2,833          14     

Private label

    16          475          4          80          2,883          213          96          3,358          217     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    50            $ 4,483            $ 21          80            $ 2,883            $ 213          130            $ 7,366            $ 234     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Redemption Terms. The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity are shown below. 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, 2011      As of December 31, 2010  
     Amortized
Cost
     Estimated
Fair  Value
     Amortized
Cost
     Estimated
Fair  Value
 

Non-mortgage-backed securities:

           

Due in one year or less

       $ 1,155             $ 1,155             $ 1,191             $ 1,191     

Due after one year through five years

     880           882           978           978     

Due after 10 years

     1           1           2           2     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-mortgage-backed securities

     2,036           2,038           2,171           2,171     

Mortgage-backed securities

     15,187           15,224           15,303           15,340     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 17,223             $ 17,262             $ 17,474             $ 17,511     
  

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost of the Bank’s MBS classified as held-to-maturity includes net discounts of $16 and $24 as of September 30, 2011 and December 31, 2010, respectively.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

A summary of held-to-maturity MBS issued by members or affiliates of members follows:

 

     As of September 30, 2011      As of December 31, 2010  
       Amortized  
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair  Value
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
  Fair  Value  
 

Bank of America Corporation, Charlotte, NC

       $ 1,337             $ 12             $ 52             $ 1,297             $ 2,035             $ 17             $ 75             $ 1,977     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 the Bank will be required to sell the security before its anticipated recovery. 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 at the Statements of Condition date. For securities in an unrealized loss position that meet neither of these conditions, the Bank evaluates whether 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. The Bank regularly requires high levels of credit enhancements from the structure of the collateralized mortgage obligation to reduce its risk of loss on such securities. 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 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 purchase date. The “AAA”-rated securities achieved their ratings through credit enhancement, over-collateralization 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 a significant number of the Bank’s private-label MBS have changed since their purchase date.

Non-private-label MBS. The unrealized losses related to U.S. agency MBS and government-sponsored enterprises MBS are caused by interest rate changes and not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises and Bank management does not expect these securities to be settled at a price less than the amortized cost basis. In addition, 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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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, 2011.

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. In performing the cash flow analysis for each of these securities, the Bank uses two third-party models. The first 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 (CBSAs), 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 of 10,000 or more people. The Bank’s housing price forecast as of September 30, 2011 assumed current-to-trough home price declines ranging from zero percent (for those housing markets that are believed to have reached their trough) to 8.00 percent. For those markets for which further home price declines are anticipated, such declines were projected to occur over the next three to nine months beginning July 1, 2011. From the trough, home prices were projected to recover using one of five different recovery paths that vary by housing market.

The following table presents projected home price recovery ranges by year:

 

    

Range (%)

Year one

   0.00 to 2.80

Year two

   0.00 to 3.00

Year three

   1.50 to 4.00

Year four

   2.00 to 5.00

Years five and six

   2.00 to 6.00

Thereafter

   2.30 to 5.60

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 that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. The model classifies securities, as noted in the below table, based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.

At each quarter end, the Bank compares the present value of the cash flows 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.

 

13


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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following table represents 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, 2011:

 

    Significant Inputs  
    Prepayment Rate     Default Rates     Loss Severities     Current Credit Enhancement  
    Weighted
Average
      (%)      
        Range (%)         Weighted
Average
        (%)        
          Range (%)         Weighted
Average
        (%)        
          Range (%)         Weighted
Average
        (%)        
          Range (%)      

Year of

Securitization

               
               

Prime:

               

2007

    8.25          8.07 to 9.14          23.95          9.54 to 26.83          46.83          38.45 to 48.51          8.25          4.89 to 8.92     

2006

    8.42          7.70 to 9.31          22.52          14.97 to 36.39          51.21          46.79 to 54.44          3.98          3.44 to 4.99     

2005

    8.29          6.35 to 10.63          24.84          14.69 to 34.84          45.93          41.40 to 50.50          7.59          4.62 to 9.55     

2004

    9.04          8.49 to 9.68          28.71          24.26 to 34.50          43.51          42.56 to 45.16          9.79          8.69 to 12.64     

Total Prime

    8.56          6.35 to 10.63          25.23          9.54 to 36.39          46.86          38.45 to 54.44          7.36          3.44 to 12.64     

Alt-A:

               

2007

    6.61          4.77 to 7.38          60.85          55.05 to 66.03          48.27          45.27 to 53.32          9.18          0.04 to 13.63     

2006

    5.82          5.82 to 5.82          64.19          64.19 to 64.19          50.74          50.74 to 50.74          5.17          5.17 to 5.17     

2005

    7.84          6.17 to 7.99          29.01          28.05 to 39.67          50.98          42.54 to 51.75          2.82          2.29 to 8.68     

Total Alt-A

    6.89          4.77 to 7.99          52.64          28.05 to 66.03          49.11          42.54 to 53.32          7.30          0.04 to 13.63     

Total

    7.76          4.77 to 10.63          38.38          9.54 to 66.03          47.94          38.45 to 54.44          7.33          0.04 to 13.63     

The following table presents a roll-forward of the amount of credit losses on the Bank’s investment securities recognized in earnings for which a portion of the other-than-temporary loss was recognized in accumulated other comprehensive loss:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2011     2010     2011     2010  

Balance of credit losses previously recognized in earnings, beginning of period

      $ 553            $ 439            $ 464            $ 321     

Amount related to credit loss for which an other-than-temporary impairment was not previously recognized

    —          —          10          38     

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

    19          14          98          94     
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance of cumulative credit losses recognized in earnings, end of period

      $ 572            $ 453            $ 572            $ 453     
 

 

 

   

 

 

   

 

 

   

 

 

 

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, illiquidity in the marketplace, and general disruption in the U.S. mortgage markets. 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 the securities and it is not more likely than not that the Bank will be required to sell the securities before the anticipated recovery of the securities’ remaining amortized cost basis, which may be at maturity. The 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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Note 7—Advances

Redemption Terms. The Bank had advances outstanding, as summarized below.

 

            As of September 30, 2011             As of December 31, 2010      

Overdrawn demand deposit accounts

      $ 1            $ 1     

Due in one year or less

    20,429          26,628     

Due after one year through two years

    12,291          16,186     

Due after two years through three years

    10,137          10,938     

Due after three years through four years

    4,840          6,369     

Due after four years through five years

    4,802          3,678     

Due after five years

    18,142          21,251     
   

 

 

   

 

 

 

Total par value

    70,642          85,051     

Discount on AHP* advances

    (12)          (13)     

Discount on EDGE** advances

    (10)          (11)     

Hedging adjustments

    4,749          4,238     

Deferred commitment fees

    (6)          (7)     
   

 

 

   

 

 

 

Total

      $ 75,363            $ 89,258     
   

 

 

   

 

 

 

 

* The Affordable Housing Program
** The Economic Development and Growth Enhancement program

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

 

            As of September 30, 2011             As of December 31, 2010      

Overdrawn demand deposit accounts

      $ 1            $ 1     

Due or convertible in one year or less

    26,402          36,487     

Due or convertible after one year through two years

    13,218          14,302     

Due or convertible after two years through three years

    9,944          11,374     

Due or convertible after three years through four years

    4,531          6,065     

Due or convertible after four years through five years

    3,933          3,023     

Due or convertible after five years

    12,613          13,799     
   

 

 

   

 

 

 

Total par value

      $ 70,642            $ 85,051     
   

 

 

   

 

 

 

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

 

         As of September 30, 2011              As of December 31, 2010      

Fixed-rate:

     

Due in one year or less

       $ 16,785             $ 24,033     

Due after one year

     42,208           50,907     
  

 

 

    

 

 

 

Total fixed-rate

     58,993           74,940     
  

 

 

    

 

 

 

Variable-rate:

     

Due in one year or less

     3,646           2,596     

Due after one year

     8,003           7,515     
  

 

 

    

 

 

 

Total variable-rate

     11,649           10,111     
  

 

 

    

 

 

 

Total par value

       $ 70,642             $ 85,051     
  

 

 

    

 

 

 

 

15


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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

At September 30, 2011 and December 31, 2010, 81.8 percent and 87.4 percent, respectively, of the Bank’s fixed-rate advances were swapped and 3.15 percent and 9.42 percent, respectively, of the Bank’s variable-rate advances were swapped.

Based on the collateral pledged as security for advances, management’s credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by management as of September 30, 2011 and December 31, 2010. No advance was past due as of September 30, 2011 and December 31, 2010.

The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and credit unions and further is concentrated in certain larger borrowing relationships. As of September 30, 2011 and December 31, 2010, the concentration of the Bank’s advances was $44,856 and $58,043, respectively, to 10 member institutions, and this represented 63.5 percent and 68.3 percent, respectively, of total advances outstanding.

Note 8—Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the Federal Home Loan Banks (FHLBanks) and are backed only by the financial resources of the FHLBanks. The FHLBanks Office of Finance (Office of Finance) tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of consolidated obligations for which it is the primary obligor.

Interest-rate Payment Terms. The following table details the Bank’s consolidated obligation bonds by interest-rate payment type:

 

         As of September 30, 2011              As of December 31, 2010      

Fixed-rate

       $ 81,559             $ 73,779     

Step up/down

     5,355           7,686     

Simple variable-rate

     3,382           12,432     

Variable-rate capped floater

     20           30     
  

 

 

    

 

 

 

Total par value

       $ 90,316             $ 93,927     
  

 

 

    

 

 

 

At September 30, 2011 and December 31, 2010, 81.2 percent and 77.3 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped and 3.53 percent and 0.24 percent, respectively, of the Bank’s variable-rate consolidated obligation bonds were swapped.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding, by year of contractual maturity:

 

         As of September 30, 2011              As of December 31, 2010      
         Amount          Weighted-
average
Interest
    Rate (%)    
         Amount          Weighted-
average
Interest
    Rate (%)    
 

Due in one year or less

       $ 49,660           0.50             $ 46,987           0.76     

Due after one year through two years

     14,275           2.47           13,751           1.50     

Due after two years through three years

     12,203           2.31           14,097           2.63     

Due after three years through four years

     2,271           2.17           4,378           3.70     

Due after four years through five years

     4,363           3.33           4,660           1.89     

Due after five years

     7,544           3.97           10,054           4.19     
  

 

 

       

 

 

    

Total par value

     90,316           1.51           93,927           1.70     

Premiums

     110              127        

Discounts

     (39)              (48)        

Hedging adjustments

     1,333              1,192        
  

 

 

       

 

 

    

Total

       $ 91,720                $ 95,198        
  

 

 

       

 

 

    

The Bank’s consolidated obligation bonds outstanding by type:

 

         As of September 30, 2011              As of December 31, 2010      

Noncallable

       $ 59,381             $ 69,248     

Callable

     30,935           24,679     
  

 

 

    

 

 

 

Total par value

       $ 90,316             $ 93,927     
  

 

 

    

 

 

 

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

 

            As of September 30, 2011             As of December 31, 2010      

Due or callable in one year or less

      $ 64,468            $ 61,505     

Due or callable after one year through two years

    11,683          11,329     

Due or callable after two years through three years

    5,676          10,477     

Due or callable after three years through four years

    860          2,685     

Due or callable after four years through five years

    2,520          1,062     

Due or callable after five years

    5,109          6,869     
   

 

 

   

 

 

 

Total par value

      $ 90,316            $ 93,927     
   

 

 

   

 

 

 

Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds. Consolidated obligation discount notes are consolidated obligations with 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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The Bank’s participation in consolidated obligation discount notes, all of which are due within one year, was as follows:

 

Weighted-average Weighted-average Weighted-average
         Book Value              Par Value          Weighted-average
    Interest Rate (%)    
 

As of September 30, 2011

       $ 16,057             $ 16,059               0.06     
  

 

 

    

 

 

    

 

 

 

As of December 31, 2010

       $ 23,915             $ 23,919               0.14     
  

 

 

    

 

 

    

 

 

 

At September 30, 2011 and December 31, 2010, 7.03 percent and 5.41 percent, respectively, of the Bank’s fixed-rate consolidated obligation discount notes were swapped.

Note 9—Capital and Mandatorily Redeemable Capital Stock

Capital. The Bank was in compliance with the Federal Housing Finance Agency (Finance Agency) regulatory capital rules and requirements, as shown in the following table:

 

Required Required Required Required
         As of September 30, 2011              As of December 31, 2010      
         Required              Actual              Required              Actual      

Risk based capital

       $ 2,155             $ 7,432             $ 2,377             $ 8,877     

Total capital-to-assets ratio

     4.00%           6.25%           4.00%           6.74%     

Total regulatory capital*

       $ 4,754             $ 7,432             $ 5,272             $ 8,877     

Leverage ratio

     5.00%           9.38%           5.00%           10.10%     

Leverage capital

       $ 5,943             $ 11,148             $ 6,590             $ 13,316     

 

* Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $319 and $529 in mandatorily redeemable capital stock at September 30, 2011 and December 31, 2010, respectively.

Mandatorily Redeemable Capital Stock. The following table provides the activity in mandatorily redeemable capital stock:

 

          Three Months Ended September 30,         Nine Months Ended September 30,    
            2011             2010             2011             2010      

Balance, beginning of period

      $ 385            $ 508            $ 529            $ 188     

Capital stock subject to mandatory redemption reclassified from equity during the period due to:

       

Attainment of nonmember status

    32          24          69          359     

Withdrawal

    —          —          1          —     

Repurchase/redemption of mandatorily redeemable capital stock

    (85)          (36)          (257)          (36)     

Capital stock no longer subject to redemption due to the transfer of stock from a nonmember to a member

    (13)          (4)          (23)          (19)     
   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

      $ 319            $ 492            $ 319            $ 492     
   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following table shows the amount of mandatorily redeemable capital stock by year of redemption:

 

             As of September 30, 2011              As of December 31, 2010      

Due in one year or less

       $ 5             $ —     

Due after one year through two years

     2           8     

Due after two years through three years

     49           12     

Due after three years through four years

     159           137     

Due after four years through five years

     98           366     

Due after five years

     6           6     
    

 

 

    

 

 

 

Total

       $ 319             $ 529     
    

 

 

    

 

 

 

The Bank is not required to redeem activity-based stock until the later of the expiration of the redemption period, which is five years after notification is received, or until the activity no longer remains outstanding.

Each FHLBank has been required to contribute 20 percent of its earnings toward payment of the interest on Resolution Funding Corporation (REFCORP) bonds until the REFCORP obligation has been satisfied. On August 5, 2011, the Finance Agency certified that the FHLBanks have fully satisfied their REFCORP obligation. In accordance with the Joint Capital Enhancement Agreement among the 12 FHLBanks, effective February 28, 2011 (as amended August 5, 2011, the Amended Joint Capital Agreement), starting in the third quarter of 2011, each FHLBank is required to allocate 20 percent of its net income each quarter to a separate restricted retained earnings account. The Amended Joint Capital Agreement is intended to enhance the capital position of each FHLBank and to allocate that portion of each FHLBank’s earnings historically paid to satisfy its REFCORP obligation to its restricted retained earnings.

Note 10—Accumulated Other Comprehensive Loss

Components comprising other comprehensive (loss) income were as follows:

 

          Three Months Ended September 30,         Nine Months Ended September 30,    
        2011     2010     2011     2010  

Noncredit portion of other-than-temporary impairment losses on available-for-sale securities:

       

Change in unrealized losses on available-for-sale securities

      $ (32)            $ 152            $ 22            $ 361     

Reclassification adjustment of noncredit portion of impairment losses included in net income related to available-for-sale securities

    13          14          91          93     
   

 

 

   

 

 

   

 

 

   

 

 

 

Noncredit portion of other-than-temporary impairment losses on available-for-sale securities, net

    (19)          166          113          454     
   

 

 

   

 

 

   

 

 

   

 

 

 

Noncredit portion of other-than-temporary impairment losses on held-to-maturity securities

    (2)          (5)          (28)          (161)     
   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

      $ (21)            $ 161            $ 85            $ 293     
   

 

 

   

 

 

   

 

 

   

 

 

 

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Components comprising accumulated other comprehensive loss were as follows:

 

         Benefit    
Plans
         Available-for-sale    
Securities

Noncredit Other-
Than-Temporary-
Impairment Losses
         Held-to-maturity    
Securities
Noncredit  Other-
Than-Temporary-
Impairment Losses
             Total          

Balance, December 31, 2010

       $ (10)             $ (392)             $ —             $ (402)     

Other comprehensive income (loss) during the period

     —           113           (28)           85     

Reclassification of noncredit portion of other-than-temporary impairment losses on held-to-maturity securities to available-for-sale securities

     —           (28)           28           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance, September 30, 2011

       $ (10)             $ (307)             $ —             $ (317)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 11—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 funding sources which finance these assets.

The Bank enters into derivatives to manage the interest-rate risk exposures inherent in its otherwise unhedged assets and funding positions, to achieve the Bank’s risk management objectives, and to act as an intermediary between its members and counterparties. Finance Agency regulations and the Bank’s risk management policy prohibit trading in or the speculative use of these derivative instruments and limit credit risk arising from these instruments. The use of derivatives is an integral part of the Bank’s financial management strategy.

The most common ways in which the Bank uses derivatives are to:

 

   

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

 

   

reduce funding costs by combining a derivative with a consolidated obligation as the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation bond;

 

   

preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance);

 

   

mitigate the adverse earnings effects of the shortening or extension of certain assets (e.g., mortgage assets);

 

   

protect the value of existing asset or liability positions;

 

   

manage embedded options in assets and liabilities; and

 

   

achieve overall asset/liability management objectives.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Application of Derivatives

General. The Bank may use derivatives to, in effect, adjust the term, repricing frequency, or option characteristics of financial instruments to achieve its risk management and funding objectives. The Bank uses derivatives in three ways: (1) as a fair value hedge of an underlying financial instrument or a firm commitment; (2) as an intermediary transaction; or (3) as a non-qualifying hedge for purposes of asset/liability management. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the Bank also uses derivatives to manage embedded options in assets and liabilities, to hedge the market value of existing assets and liabilities, to hedge the duration risk of prepayable instruments, to offset exactly other derivatives executed with members (when the Bank serves as an intermediary) and to reduce funding costs.

The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.

Bank management uses derivatives when they are considered to be the most cost-effective alternative to achieve the Bank’s financial and risk management objectives. Accordingly, the Bank may enter into derivatives that do not qualify for hedge accounting (non-qualifying hedges).

Types of Derivatives

The Bank may use the following derivatives to reduce funding costs and to manage its exposure to interest-rate risks inherent in the normal course of business.

Interest-rate Swaps. An interest-rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest-rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable rate for the same period of time. The variable rate received by the Bank in most interest-rate swap agreements is London Interbank Offered Rate (LIBOR).

Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest-rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank when it is planning to lend or borrow funds in the future against future interest rate changes. The Bank purchases both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

Interest-rate Cap and Floor Agreements. In an interest-rate cap agreement, a cash flow is generated if the price or rate of an underlying variable rises above a certain threshold (or cap) price. In an interest-rate floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold (or floor) price. Caps may be used in conjunction with liabilities and floors may be used in conjunction with assets. Caps and floors are designed as protection against the interest rate on a variable-rate asset or liability rising above or falling below a certain level.

 

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Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Types of Hedged Items

The Bank documents at inception all relationships between derivatives designated as hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value hedges to (1) assets and liabilities on the Statements of Condition, or (2) firm commitments. The Bank also formally assesses (both at the hedge’s inception and at least quarterly on an ongoing basis) whether the derivatives that it uses in hedging relationships have been effective in offsetting changes in the fair value of hedged items attributable to the risk being hedged and whether those derivatives may be expected to remain effective in future periods. The Bank uses regression analyses to assess the effectiveness of its hedges.

Consolidated Obligations. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank has consolidated obligations for which it is the primary obligor. The Bank enters into derivatives to hedge the interest-rate risk associated with its specific debt issuances in conjunction with associated interest-rate risk on advances. The Bank manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflow on the derivative with the cash outflow on the consolidated obligation. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for the Bank, and the Bank simultaneously enters into a matching derivative in which the counterparty pays fixed cash flows to the Bank designed to mirror in timing and amount the cash outflows the Bank pays on the consolidated obligation. The Bank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate advances (typically one- or three-month LIBOR). These transactions are typically treated as fair-value hedges. This intermediation between the capital and swap markets permits the Bank to raise funds at lower costs than otherwise would be available through the issuance of simple fixed-rate consolidated obligations in the capital markets.

Advances. The Bank offers a variety of advance structures to meet members’ funding needs. These advances may have maturities of up to 30 years with variable or fixed rates and may include early termination features or options. The Bank may use derivatives to adjust the repricing and/or options characteristics of advances in order to more closely match the characteristics of the Bank’s funding liabilities. In general, whenever a member executes a fixed-rate advance or a variable-rate advance with embedded options, the Bank simultaneously will execute a derivative with terms that offset the terms and embedded options in the advance. For example, the Bank may hedge a fixed-rate advance with an interest-rate swap where the Bank pays a fixed-rate coupon and receives a variable-rate coupon, effectively converting the fixed-rate advance to a variable-rate advance. This type of hedge is typically treated as a fair-value hedge.

Mortgage Assets. The Bank has invested in mortgage assets. The prepayment options embedded in mortgage assets may result in extensions or contractions in the expected repayment of these investments, depending on changes in estimated prepayment speeds. The Bank manages the interest-rate and prepayment risk associated with mortgages through a combination of debt issuance and derivatives. The Bank issues both callable and noncallable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may use derivatives to match the expected prepayment characteristics of the mortgages.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Options (interest-rate caps, interest-rate floors and/or options) also may be used to hedge prepayment risk on the mortgages, many of which are not identified to specific mortgages and, therefore, do not receive fair-value or cash-flow hedge accounting treatment. The Bank also may purchase interest-rate caps and floors, swaptions, callable swaps, calls, and puts to minimize the prepayment risk embedded in the mortgage loans. Although these derivatives are valid non-qualifying hedges against the prepayment risk of the loans, they do not receive either fair-value or cash-flow hedge accounting. These derivatives are marked-to-market through earnings.

Firm Commitments. Certain mortgage purchase commitments are considered derivatives. Mortgage purchase commitments are recorded on the balance sheet at fair value, with changes in fair value recognized in current-period earnings. When the mortgage purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized accordingly.

The Bank also may enter into a fair value hedge of a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be rolled into the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance using the level-yield method.

Investments. The Bank invests in MBS, U.S. agency obligations, certificates of deposit, and the taxable portion of state or local housing finance agency obligations. The interest-rate and prepayment risks associated with these investment securities are managed through a combination of debt issuance and derivatives. The Bank may manage the prepayment and interest-rate risks by funding investment securities with consolidated obligations that have call features, or by hedging the prepayment risk with caps or floors, or by adjusting the duration of the securities by using derivatives to modify the cash flows of the securities. Investment securities may be classified as trading, available-for-sale or held-to-maturity.

The Bank also may manage the risk arising from changing market prices and volatility of investment securities classified as trading by entering into derivatives (non-qualifying hedges) that offset the changes in fair value of the securities.

Managing Credit Risk on Derivatives

The Bank is subject to credit risk due to nonperformance by counterparties to the derivative agreements. The amount of counterparty risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank manages counterparty credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in Bank policies and Finance Agency regulations. Based on credit analyses and collateral requirements, Bank management presently does not anticipate any credit losses on its existing derivative agreements with counterparties as of September 30, 2011.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following table presents credit risk exposure on derivative instruments, excluding circumstances where a counterparty’s pledged collateral to the Bank exceeds the Bank’s net position.

 

As of September 30, 2011 As of September 30, 2011 As of September 30, 2011
             As of September 30, 2011              As of December 31, 2010      

Total net exposure at fair value *

       $ 61             $ 71     

Cash collateral held

     28           66     
    

 

 

    

 

 

 

Net positive exposure after cash collateral

     33           5     

Other collateral

     6           5     
    

 

 

    

 

 

 

Net exposure after collateral

       $ 27             $ —     
    

 

 

    

 

 

 

 

* Includes net accrued interest receivable of $29 and $22 as of September 30, 2011 and December 31, 2010, respectively.

Certain of the Bank’s 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 a major credit rating agency, the Bank would be required to deliver additional collateral on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) at September 30, 2011 was $3,902 for which the Bank has posted collateral of $3,705 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 up to an additional $144 of collateral (at fair value) to its derivative counterparties at September 30, 2011.

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 is not a derivatives dealer and thus does not trade derivatives for short-term profit.

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 risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the derivatives, the item being hedged and any offsets between the two.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following table summarizes the fair value of derivative instruments. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.

 

$140,038 $140,038 $140,038 $140,038 $140,038 $140,038
        As of September 30, 2011             As of December 31, 2010      
    Notional
Amount of
    Derivatives    
        Derivative    
Assets
        Derivative    
Liabilities
    Notional
Amount of
    Derivatives    
        Derivative    
Assets
        Derivative    
Liabilities
 

Derivatives in hedging relationships:

           

Interest rate swaps

      $ 122,972            $ 1,489            $ (4,780)            $ 126,484            $ 1,466            $ (4,460)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives in hedging relationships

    122,972          1,489          (4,780)          126,484          1,466          (4,460)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives not designated as hedging instruments:

           

Interest rate swaps

    4,566          18          (592)          7,725          26          (526)     

Interest rate caps or floors

    12,500          56          (41)          8,000          53          (38)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

    17,066          74          (633)          15,725          79          (564)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives before netting and collateral adjustments

      $ 140,038          1,563          (5,413)            $ 142,209          1,545          (5,024)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Netting adjustments

      (1,502)          1,502            (1,473)          1,473     

Cash collateral and related accrued interest

      (28)          3,705            (67)          3,096     
   

 

 

   

 

 

     

 

 

   

 

 

 

Total collateral and netting adjustments *

      (1,530)          5,207            (1,540)          4,569     
   

 

 

   

 

 

     

 

 

   

 

 

 

Derivative assets and derivative liabilities

        $ 33            $ (206)              $ 5            $ (455)     
   

 

 

   

 

 

     

 

 

   

 

 

 

 

* Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same counterparties.

The following tables present the components of net losses on derivatives and hedging activities as presented in the Statements of Income:

 

Amount of Gain (Loss) Amount of Gain (Loss) Amount of Gain (Loss)
        Three Months Ended September 30,    
    2011     2010  
    Amount of Gain (Loss)
Recognized in Net

Losses on
Derivatives and
Hedging Activities
    Amount of Gain (Loss)
Recognized in Net

Losses on
Derivatives and
Hedging Activities
 

Derivatives and hedged items in fair value hedging relationships:

   

Interest rate swaps

      $ 28            $ 45     
   

 

 

   

 

 

 

Total net gain related to fair value hedge ineffectiveness

    28          45     
   

 

 

   

 

 

 

Derivatives not designated as hedging instruments:

   

Interest rate swaps

    (40)          (36)     

Interest rate caps or floors

    (20)          (7)     

Net interest settlements

    (35)          (32)     
   

 

 

   

 

 

 

Total net loss related to derivatives not designated as hedging instruments

    (95)          (75)     
   

 

 

   

 

 

 

Net losses on derivatives and hedging activities

      $ (67)            $ (30)     
   

 

 

   

 

 

 

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Amount of Gain (Loss) Amount of Gain (Loss) Amount of Gain (Loss)
            Nine Months Ended September 30,      
    2011     2010  
        Amount of Gain (Loss)    
Recognized in Net

Losses on
Derivatives and
Hedging Activities
        Amount of Gain (Loss)    
Recognized in Net

Losses on
Derivatives and
Hedging Activities
 

Derivatives and hedged items in fair value hedging relationships:

   

Interest rate swaps

      $ 101            $ 139     
   

 

 

   

 

 

 

Total net gain related to fair value hedge ineffectiveness

    101          139     
   

 

 

   

 

 

 

Derivatives not designated as hedging instruments:

   

Interest rate swaps

    (15)          (114)     

Interest rate caps or floors

    (19)          (21)     

Net interest settlements

    (108)          (109)     
   

 

 

   

 

 

 

Total net loss related to derivatives not designated as hedging instruments

    (142)          (244)     
   

 

 

   

 

 

 

Net losses on derivatives and hedging activities

      $ (41)            $ (105)     
   

 

 

   

 

 

 

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:

 

         Three Months Ended September 30, 2011      

              Hedged

            Item Type            

       Gain (Loss) on    
Derivative
         Gain (Loss) on    
Hedged Item
         Net Fair Value    
Hedge
Ineffectiveness
     Effect of
    Derivatives on Net Interest    
Income *
 

Advances

       $ (889)         $ 912             $ 23             $ (491)     

Consolidated obligations:

           

Bonds

     169           (164)           5           200     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ (720)             $ 748             $ 28             $ (291)     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* 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.

 

         Three Months Ended September 30, 2010      

              Hedged

            Item Type            

       Gain (Loss) on    
Derivative
         Gain (Loss) on    
Hedged Item
     Net Fair Value
Hedge
    Ineffectiveness    
     Effect of
    Derivatives on Net Interest    
Income *
 

Advances

       $ (515)             $ 582             $ 67             $ (708)     

Consolidated obligations:

           

Bonds

     204           (226)           (22)           237     

Discount notes

     2           (2)           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ (309)             $ 354             $ 45             $ (471)     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* 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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

            Nine Months Ended September 30, 2011      

              Hedged

            Item Type             

    Gain (Loss) on  
Derivative
      Gain (Loss) on  
Hedged Item
    Net Fair  Value
Hedge
  Ineffectiveness  
    Effect of
Derivatives on Net Interest
Income *
 

Advances

      $ (508)            $ 618            $ 110            $ (1,622)     

Consolidated obligations:

       

Bonds

    162          (171)          (9)          634     

Discount notes

    (2)          2          —          2     
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

        $ (348)            $ 449            $ 101            $ (986)     
   

 

 

   

 

 

   

 

 

   

 

 

 

 

* 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.

 

        Nine Months Ended September 30, 2010  

              Hedged

            Item Type             

    Gain (Loss) on  
Derivative
      Gain (Loss) on  
Hedged Item
    Net Fair  Value
Hedge
  Ineffectiveness  
    Effect of
Derivatives on Net Interest
Income *
 

Advances

      $ (1,013)            $ 1,186            $ 173            $ (2,410)     

Consolidated obligations:

       

Bonds

    488          (519)          (31)          932     

Discount notes

    (6)          3          (3)          8     
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

        $ (531)            $ 670            $ 139            $ (1,470)     
   

 

 

   

 

 

   

 

 

   

 

 

 

 

* 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.

Note 12—Estimated Fair Values

The Bank records trading securities, available-for-sale securities and derivative assets and liabilities at fair value. A fair value hierarchy is used to prioritize the inputs of valuation techniques used to measure fair value. A description of the application of the fair value hierarchy, valuation techniques, and significant inputs is disclosed in Note 18 to the 2010 audited financial statements contained in the Bank’s Form 10-K. There have been no changes in the fair value hierarchy classification of financial assets and liabilities, valuation techniques or significant inputs during the nine-month period ended September 30, 2011.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Fair Value 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, 2011      
         Fair Value Measurements Using          Netting
   Adjustment*  
           Total        
         Level 1              Level 2              Level 3            

Assets

              

Trading securities:

              

Government-sponsored enterprises debt obligations

       $ —             $ 3,051             $ —             $ —             $ 3,051     

Other FHLBank’s bond

     —           83           —           —           83     

State or local housing agency debt obligations

     —           3           —           —           3     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trading securities

     —           3,137           —           —           3,137     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities:

              

Private-label MBS

     —           —           3,102           —           3,102     

Derivative assets:

              

Interest-rate related

     —           1,563           —           (1,530)           33     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

       $ —             $ 4,700             $ 3,102             $ (1,530)             $ 6,272     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

              

Derivative liabilities:

              

Interest-rate related

       $ —             $ (5,413)             $ —             $ 5,207             $ (206)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

       $ —             $ (5,413)             $ —             $ 5,207             $ (206)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same counterparties.

 

         As of December 31, 2010      
         Fair Value Measurements Using          Netting
   Adjustment*  
           Total        
         Level 1              Level 2              Level 3            

Assets

              

Trading securities:

              

Government-sponsored enterprises debt obligations

       $ —             $ 3,306             $ —             $ —             $ 3,306     

Other FHLBank’s bond

     —           74           —           —           74     

State or local housing agency debt obligations

     —           3           —           —           3     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trading securities

     —           3,383           —           —           3,383     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities:

              

Private-label MBS

     —           —           3,319           —           3,319     

Derivative assets:

              

Interest-rate related

     —           1,545           —           (1,540)           5     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

       $ —             $ 4,928             $ 3,319             $ (1,540)             $ 6,707     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

              

Derivative liabilities:

              

Interest-rate related

       $ —             $ (5,024)             $ —             $ 4,569             $ (455)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

       $ —             $ (5,024)             $ —             $ 4,569             $ (455)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Amounts represent the effect of legally enforceable master netting agreements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same counterparties.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The following tables present a reconciliation of available-for-sale securities that are measured at fair value using significant unobservable inputs (Level 3):

 

             Three Months Ended September 30,      
                 2011                      2010          

Balance, beginning of period

       $ 3,308             $ 3,452     

Transfer of private-label MBS from held-to-maturity to available-for-sale

     21           78     

Total (losses) gains realized and unrealized:*

     

Included in net impairment losses recognized in earnings

     (19)           (14)     

Included in other comprehensive loss

     (23)           163     

Settlements

     (185)           (193)     
    

 

 

    

 

 

 

Balance, end of period

       $ 3,102             $ 3,486     
    

 

 

    

 

 

 

 

* Related to available-for-sale securities held at period end.

 

             Nine Months Ended September 30,      
                 2011                      2010          

Balance, beginning of period

       $ 3,319             $ 2,256     

Transfer of private-label MBS from held-to-maturity to available-for-sale

     369           1,298     

Total (losses) gains realized and unrealized:*

     

Included in net impairment losses recognized in earnings

     (101)           (108)     

Included in other comprehensive loss

     104           447     

Settlements

     (589)           (407)     
    

 

 

    

 

 

 

Balance, end of period

       $ 3,102             $ 3,486     
    

 

 

    

 

 

 

 

* Related to available-for-sale securities held at period end.

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 at September 30, 2011 and December 31, 2010. 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. 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 table presented below does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The carrying values and estimated fair values of the Bank’s financial instruments were as follows:

 

            As of September 30, 2011             As of December 31, 2010      
            Carrying    
Value
        Estimated    
Fair Value
        Carrying    
Value
        Estimated    
Fair Value
 

Assets:

         

Cash and due from banks

      $ 4            $ 4            $ 5            $ 5     

Interest-bearing deposits

    1,302          1,302          2          2     

Federal funds sold

    16,440          16,440          15,701          15,701     

Trading securities

    3,137          3,137          3,383          3,383     

Available-for-sale securities

    3,102          3,102          3,319          3,319     

Held-to-maturity securities

    17,223          17,262          17,474          17,511     

Mortgage loans held for portfolio, net

    1,742          1,909          2,039          2,189     

Advances, net

    75,363          75,683          89,258          89,330     

Accrued interest receivable

    318          318          388          388     

Derivative assets

    33          33          5          5     

Liabilities:

       

Interest-bearing deposits

    (3,170)          (3,170)          (3,093)          (3,093)     

Consolidated obligations, net:

       

Discount notes

    (16,057)          (16,058)          (23,915)          (23,916)     

Bonds

    (91,720)          (92,771)          (95,198)          (95,993)     

Mandatorily redeemable capital stock

    (319)          (319)          (529)          (529)     

Accrued interest payable

    (340)          (340)          (357)          (357)     

Derivative liabilities

    (206)          (206)          (455)          (455)     

Note 13—Commitments and Contingencies

As described in Note 8, consolidated obligations are backed only by the financial resources of the 12 FHLBanks. The Finance Agency may at any time require any FHLBank to make principal or interest payments due on any consolidated obligations, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has had to assume or pay the consolidated obligation of another FHLBank.

The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $590,231 and $678,528 at September 30, 2011 and December 31, 2010, respectively, exclusive of the Bank’s own outstanding consolidated obligations.

The Bank’s outstanding standby letters of credit were as follows:

 

         As of September 30, 2011             As of December 31, 2010      

Outstanding notional

       $ 21,764          $ 22,333   

Original terms

     Less than 12 months to 20 years     Less than two months to 20 years

Final expiration year

     2030        2030   

 

* The Bank had outstanding one standby letter of credit for less than $1 as of September 30, 2011 and December 31, 2010, that has no stated maturity date and is subject to renewal on an annual basis.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The carrying value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to $77 and $92 as of September 30, 2011 and December 31, 2010, respectively. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the guaranteed entity. 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 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 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 Bank did not have any commitments that unconditionally obligate the Bank to purchase closed mortgage loans as of September 30, 2011 and December 31, 2010. Such commitments would be recorded as derivatives at their fair values.

The Bank executes derivatives with major banks and broker-dealers and generally enters into bilateral collateral agreements. As of September 30, 2011 and December 31, 2010, the Bank had pledged, as collateral to broker-dealers who have market risk exposure from the Bank related to derivatives, securities with a carrying value of $0 and $37, respectively, which can be sold or repledged by those counterparties.

At September 30, 2011, the Bank had committed to the issuance of $4,055 (par value) in consolidated obligation bonds, all of which were hedged with associated interest rate swaps that had traded but not yet settled. At December 31, 2010, the Bank had committed to the issuance of $118 (par value) in consolidated obligation bonds, of which $115 were hedged with associated interest rate swaps that had traded but not yet settled.

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 14—Transactions with Members and their Affiliates and with Housing Associates

The Bank is a cooperative whose member institutions own almost all of the capital stock of the Bank. Former members 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 may 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. All transactions with members are entered into in the ordinary course of the

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Bank’s business. Transactions with any member that has an officer or director who also is a director of the Bank are subject to the same Bank policies as transactions with other members.

The Bank defines related parties as each of the other FHLBanks and those members with regulatory capital stock outstanding in excess of 10 percent of total regulatory capital stock. Based on this definition, one member institution, Bank of America, N.A., which held 20.1 percent of the Bank’s total regulatory capital stock as of September 30, 2011, was considered a related party. Total advances outstanding to Bank of America, N.A. were $15,439 and $25,040 as of September 30, 2011 and December 31, 2010, respectively. Total deposits held in the name of Bank of America, N.A. were less than $1 at September 30, 2011 and December 31, 2010. No mortgage loans or mortgage-backed securities were acquired from Bank of America, N.A. during the nine-month periods ended September 30, 2011 and 2010.

Note 15—Subsequent Events

On October 27, 2011, the Bank’s board of directors approved a cash dividend for the third quarter of 2011 in the amount of $12. The Bank paid the third quarter 2011 dividend on November 3, 2011.

On October 27, 2011, the Bank sent a notice to each current shareholder of the Bank announcing that it will repurchase up to $700 of excess capital stock on November 17, 2011. The amount of excess stock to be repurchased from any individual shareholder will be based on the shareholder’s total excess capital stock as of November 10, 2011.

 

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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 which 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 results of operations and financial condition for the third quarter and the first nine months ended September 30, 2011 and 2010. 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, 2010.

 

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Executive Summary

General Overview

The Bank is a cooperative whose primary business activity is providing competitively-priced loans, which the Bank refers to as “advances,” to its members and eligible housing associates to help them meet the credit needs of their communities. The Bank also makes grants and subsidized advances under the Affordable Housing Program, and provides certain cash management services to members and eligible nonmembers. The consolidated obligations (COs) issued by the Office of Finance on behalf of the FHLBanks are the principal funding source for Bank assets. The Bank is primarily liable for repayment of COs issued on its behalf and is jointly and severally liable for the COs issued on behalf of the other FHLBanks. Deposits, other borrowings, and the issuance of capital stock provide additional funding to the Bank. The Bank also maintains a portfolio of investments for liquidity purposes, to provide available funds to meet member credit needs and to provide additional earnings.

Financial Condition

As of September 30, 2011, total assets were $118.9 billion, a decrease of $12.9 billion, or 9.82 percent, from December 31, 2010. This decrease was due primarily to a $13.9 billion, or 15.6 percent, decrease in advances, partially offset by a $1.9 billion increase in short-term investments. Advances, the largest asset on the Bank’s balance sheet, decreased consistent with recent trends. The increase in short-term investments was due primarily to a $1.3 billion increase in interest-bearing deposits during the period, as further discussed in “Management’s Discussion and Analysis – Financial Condition – Investments” below.

As of September 30, 2011, total liabilities were $112.1 billion, a decrease of $11.8 billion, or 9.52 percent, from December 31, 2010. This decrease was due primarily to an $11.3 billion, or 9.52 percent, decrease in COs. The decrease in COs corresponds to the decrease in demand for advances by the Bank’s members during the period.

As of September 30, 2011, total capital was $6.8 billion, a decrease of $1.2 billion, or 14.5 percent, from December 31, 2010. This decrease was due primarily to the repurchase of $1.4 billion of excess capital stock and the payment of $42 million in dividends during the period.

 

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Results of Operations

The Bank recorded net income of $32 million for the third quarter of 2011, a decrease of $42 million, or 57.5 percent, from net income of $74 million for the third quarter of 2010. This decrease was due primarily to a $37 million increase in net losses on derivatives and hedging activities, a $23 million decrease in net interest income, and a $5 million increase in net impairment losses recognized in earnings, partially offset by a $23 million decrease in total assessments during the period.

The Bank recorded net income of $121 million for the first nine months of 2011, a decrease of $76 million, or 39.0 percent, from net income of $197 million for the same period in 2010. This decrease was due primarily to a $62 million decrease in net interest income and a $41 million increase in noninterest expense, partially offset by a $27 million decrease in REFCORP assessments during the period.

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 1.78 percent for the third quarter of 2011, compared to 3.71 percent for the third quarter of 2010. This decrease in ROE was due primarily to a decrease in net income during the period as discussed above. ROE spread to three-month average LIBOR decreased to 1.48 percent for the third quarter of 2011 compared to 3.32 percent for the third quarter of 2010. This decrease was due primarily to a 193 basis point decrease in ROE compared to a nine basis point decrease in LIBOR during the period.

The Bank’s annualized ROE was 2.13 percent for the first nine months of 2011, compared to 3.23 percent for the first nine months of 2010. This decrease in ROE was due primarily to a decrease in net income during the period as discussed above. ROE spread to three-month average LIBOR decreased to 1.84 percent for the first nine months of 2011 compared to 2.87 percent for the same period in 2010. This decrease was due primarily to a 110 basis point decrease in ROE compared to a seven basis point decrease in LIBOR during the period.

The Bank’s interest rate spread was 33 basis points and 32 basis points for the third quarter of 2011 and 2010, respectively, and 35 basis points and 33 basis points for the first nine months of 2011 and 2010, respectively. The Bank’s interest rate spread has remained relatively stable during the reported periods.

Business Outlook

The U.S. debt ceiling debate during early August, concerns about the continued weaknesses of the U.S. economy and stress in the European financial markets during the third quarter of 2011 continued to create a challenging environment in which to operate.

Advances continued to decrease during the third quarter of 2011, and the Bank expects this trend to continue for the near future. Standby letters of credit balances have been and are expected to continue to be relatively stable for the near future.

Other continuing challenges for the Bank include low short-term yields in the Bank’s investment portfolio as a result of the prolonged low interest rate environment, uncertainty with respect to the Bank’s private-label MBS portfolio and limited investment opportunities. Without notable improvements in home prices, unemployment and the interest rate environment, the Bank will continue to experience these challenges.

 

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The Federal Reserve has taken several measures intended to depress interest rates, including an announcement that it expects to maintain short-term interest rates near zero until mid-2013 as well as to implement “Operation Twist” pursuant to which the Federal Reserve intends to drive down longer-term interest rates by purchasing longer-dated assets and selling shorter-dated assets. These measures are intended to spur business activity. These measures could adversely impact the Bank in various ways, including through lower market yields on investments, and faster prepayments on Bank investments with associated reinvestment risk. The Bank’s investment income and, in turn, the Bank’s financial condition and results of operations, could be adversely impacted to the extent that the foregoing, or similar, risks are realized. However, the Bank could also experience increased demand for advances if these measures result in increased business activity with associated demand for loans from Bank members that choose to fund such loans with advances. Increased demand for advances would tend to increase net interest income and offset any adverse impact on investment income. Accordingly, the Bank is not able to predict the full impact of the Federal Reserve’s measures to depress interest rates.

In the face of these challenges, the Bank continues to focus on protecting members’ investment in the Bank and positioning the Bank for future growth. The board of directors remains focused on supporting repurchases of excess capital stock and payments of dividends.

Selected Financial Data

The following table presents a summary of certain financial information for the Bank for the periods indicated (dollars in millions):

 

September 30, September 30, September 30, September 30, September 30,
         As of and for the Three Months Ended      
         September 30,    
2011
         June 30,    
2011
         March 31,    
2011
         December 31,    
2010
         September 30,    
2010
 

Statements of Condition (at period end)

              

Total assets

       $ 118,852             $ 116,817             $ 123,633             $ 131,798             $ 141,492     

Investments (1)

     41,204           36,979