10-Q 1 d327364d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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 March 31, 2012

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   (I.R.S. Employer
incorporation or organization)   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 April 30, 2012, was 57,424,334.

 

 

 


Table of Contents

Table of Contents

 

PART I. FINANCIAL INFORMATION

     1   
Item 1.   Financial Statements      1   
  STATEMENTS OF CONDITION      1   
  STATEMENTS OF INCOME      2   
  STATEMENTS OF COMPREHENSIVE INCOME      3   
  STATEMENTS OF CAPITAL      4   
  STATEMENTS OF CASH FLOWS      5   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      32   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      64   
Item 4.   Controls and Procedures      68   
PART II. OTHER INFORMATION      68   
Item 1.   Legal Proceedings      68   
Item 1A.   Risk Factors      69   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      69   
Item 3.   Defaults Upon Senior Securities      70   
Item 4.   Mine Safety Disclosure      70   
Item 5.   Other Information      70   
Item 6.   Exhibits      70   
SIGNATURES      71   

 


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  
            March 31, 2012                    December 31, 2011        

Assets

   

Cash and due from banks

              $ 5                    $ 6     

Interest-bearing deposits (including deposits with other FHLBank of $2 as of March 31, 2012 and December 31, 2011)

    1,203          1,203     

Federal funds sold

    10,361          12,630     

Trading securities (includes other FHLBank’s bond of $79 and $82 as of March 31, 2012 and December 31, 2011, respectively)

    2,402          3,120     

Available-for-sale securities

    2,918          2,942     

Held-to-maturity securities (fair value of $17,717 and $16,242 as of March 31, 2012 and December 31, 2011, respectively)

    17,652          16,243     

Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $9 and $6 as of March 31, 2012 and December 31, 2011, respectively

    1,525          1,633     

Advances

    72,441          86,971     

Accrued interest receivable

    259          314     

Premises and equipment, net

    34          35     

Derivative assets

    199          18     

Other assets

    138          155     
 

 

 

   

 

 

 

Total assets

              $ 109,137                    $ 125,270     
 

 

 

   

 

 

 

Liabilities

   

Interest-bearing deposits

              $ 3,078                    $ 2,655     

Consolidated obligations, net:

   

Discount notes

    16,178          24,330     

Bonds

    81,719          90,662     
 

 

 

   

 

 

 

Total consolidated obligations, net

    97,897          114,992     
 

 

 

   

 

 

 

Mandatorily redeemable capital stock

    328          286     

Accrued interest payable

    315          286     

Affordable Housing Program payable

    109          109     

Derivative liabilities

    315          241     

Other liabilities

    175          140     
 

 

 

   

 

 

 

Total liabilities

    102,217          118,709     
 

 

 

   

 

 

 

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 12 as of March 31, 2012 and December 31, 2011, respectively

    1,257          1,250     

Subclass B2 issued and outstanding shares: 46 and 45 as of March 31, 2012 and December 31, 2011, respectively

    4,642          4,468     
 

 

 

   

 

 

 

Total capital stock Class B putable

    5,899          5,718     

Retained earnings:

   

Restricted

    33          19     

Unrestricted

    1,273          1,235     
 

 

 

   

 

 

 

Total retained earnings

    1,306          1,254     
 

 

 

   

 

 

 

Accumulated other comprehensive loss

    (285)          (411)     
 

 

 

   

 

 

 

Total capital

    6,920          6,561     
 

 

 

   

 

 

 

Total liabilities and capital

              $ 109,137                    $ 125,270     
 

 

 

   

 

 

 

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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In millions)

 

     Three Months Ended March 31,  
                 2012                              2011               

Interest income

    

Advances

           $ 66                $ 69     

Prepayment fees on advances, net

     2          2     

Interest-bearing deposits

     1          1     

Federal funds sold

     5          8     

Trading securities

     35          41     

Available-for-sale securities

     41          45     

Held-to-maturity securities

     83          113     

Mortgage loans held for portfolio

     21          26     
  

 

 

   

 

 

 

Total interest income

     254          305     
  

 

 

   

 

 

 

Interest expense

    

Consolidated obligations:

    

Discount notes

     3          7     

Bonds

     165          169     

Deposits

     —          1     

Mandatorily redeemable capital stock

     1          1     
  

 

 

   

 

 

 

Total interest expense

     169          178     
  

 

 

   

 

 

 

Net interest income

     85          127     

Provision for credit losses

     3          —     
  

 

 

   

 

 

 

Net interest income after provision for credit losses

     82          127     
  

 

 

   

 

 

 

Noninterest income (loss)

    

Total other-than-temporary impairment losses

     —          (25)     

Net amount of impairment losses reclassified from other comprehensive loss

     (7)          (27)     
  

 

 

   

 

 

 

Net impairment losses recognized in earnings

     (7)          (52)     
  

 

 

   

 

 

 

Net losses on trading securities

     (29)          (34)     

Net gains on derivatives and hedging activities

     54          46     

Letters of credit fees

     5          4     

Other

     —          1     
  

 

 

   

 

 

 

Total noninterest income (loss)

     23          (35)     
  

 

 

   

 

 

 

Noninterest expense

    

Compensation and benefits

     15          17     

Other operating expenses

     8          9     

Finance Agency

     3          3     

Office of Finance

     1          2     

Other

     —          (9)     
  

 

 

   

 

 

 

Total noninterest expense

     27          22     
  

 

 

   

 

 

 

Income before assessments

     78          70     
  

 

 

   

 

 

 

Assessments:

    

Affordable Housing Program

     8          6     

REFCORP

     —          13     
  

 

 

   

 

 

 

Total assessments

     8          19     
  

 

 

   

 

 

 

Net income

           $ 70                $ 51     
  

 

 

   

 

 

 

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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

 

     Three Months Ended March 31,  
                 2012                              2011               

Net income

         $ 70              $ 51     

Other comprehensive income:

    

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

    

Noncredit losses transferred from held-to-maturity securities

     —          (20)     

Net change in fair value on other-than-temporary impairment available-for-sale securities

     119          52     

Reclassification of noncredit portion of impairment losses included in net income

     7          47     
  

 

 

   

 

 

 

Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities

     126          79     
  

 

 

   

 

 

 

Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities:

    

Noncredit losses on held-to-maturity securities

     —          (20)     

Reclassification of noncredit portion from held-to-maturity securities to available-for-sale securities

     —          20     
  

 

 

   

 

 

 

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

     —          —     
  

 

 

   

 

 

 

Total other comprehensive income

     126          79     
  

 

 

   

 

 

 

Total comprehensive income

         $ 196              $ 130     
  

 

 

   

 

 

 

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 THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Unaudited)

(In millions)

 

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

Balance, December 31, 2010

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

Issuance of capital stock

    1          41          —          —          —          —          41     

Net shares reclassified to mandatorily redeemable capital stock

    —          (2)          —          —          —          —          (2)     

Comprehensive income

    —          —          —          51          51          79          130     

Cash dividends on capital stock

    —          —          —          (15)          (15)          —          (15)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2011

    73                $ 7,263                $ —                $ 1,160                $ 1,160                $ (323)                $ 8,100     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

    57                $ 5,718                $ 19                $ 1,235                $ 1,254                $ (411)                $ 6,561     

Issuance of capital stock

    2          233          —          —          —          —          233     

Net shares reclassified to mandatorily redeemable capital stock

    —          (52)          —          —          —          —          (52)     

Comprehensive income

    —          —          14          56          70          126          196     

Cash dividends on capital stock

    —          —          —          (18)          (18)          —          (18)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

                         59                $     5,899                $             33                $         1,273                $         1,306                $         (285)                $         6,920     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

         Three Months Ended March 31,      
     2012     2011  

Operating activities

    

Net income

           $ 70                $ 51     

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

    

Depreciation and amortization

     (10)          (4)     

Provision for credit losses

     3          —     

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

     33          44     

Net change in fair value adjustment on trading securities

     29          34     

Net impairment losses recognized in earnings

     7          52     

Net change in:

    

Accrued interest receivable

     55          31     

Other assets

     12          15     

Affordable Housing Program payable

     (1)          —     

Accrued interest payable

     29          37     

Payable to REFCORP

     —          (7)     

Other liabilities

     (15)          (25)     
  

 

 

   

 

 

 

Total adjustments

     142          177     
  

 

 

   

 

 

 

Net cash provided by operating activities

     212          228     
  

 

 

   

 

 

 

Investing activities

    

Net change in:

    

Interest-bearing deposits

     377          515     

Federal funds sold

     2,269          (962)     

Trading securities:

    

Proceeds from maturities

     690          50     

Available-for-sale securities:

    

Proceeds from maturities

     147          204     

Held-to-maturity securities:

    

Net change in short-term

     (200)          495     

Proceeds from maturities of long-term

     852          1,458     

Purchases of long-term

     (2,017)          (819)     

Advances:

    

Proceeds from principal collected

     52,060          19,070     

Made

     (38,029)          (11,733)     

Mortgage loans held for portfolio:

    

Proceeds from principal collected

     102          124     

Proceeds from sale of foreclosed assets

     5          —     

Purchase of premise, equipment and software

     (1)          —     
  

 

 

   

 

 

 

Net cash provided by investing activities

     16,255          8,402     
  

 

 

   

 

 

 

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

 

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        Three Months Ended March 31,      
    2012     2011  

Financing activities

   

Net change in deposits

    489          (158)     

Net payments on derivatives containing a financing element

    (115)          (137)     

Proceeds from issuance of consolidated obligations:

   

Discount notes

    84,231          258,901     

Bonds

    17,402          15,045     

Payments for debt issuance costs

    (1)          (4)     

Payments for maturing and retiring consolidated obligations:

   

Discount notes

    (92,383)          (267,115)     

Bonds

    (26,296)          (15,179)     

Proceeds from issuance of capital stock

    233          41     

Payments for repurchase/redemption of mandatorily redeemable capital stock

    (10)          —     

Cash dividends paid

    (18)          (15)     
 

 

 

   

 

 

 

Net cash used in financing activities

    (16,468)          (8,621)     
 

 

 

   

 

 

 

Net (decrease) increase in cash and due from banks

    (1)          9     

Cash and due from banks at beginning of the period

    6          5     
 

 

 

   

 

 

 

Cash and due from banks at end of the period

          $ 5                $ 14     
 

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

   

Cash paid for:

   

Interest

          $ 147                $ 148     
 

 

 

   

 

 

 

AHP assessments, net

          $ 8                $ 5     
 

 

 

   

 

 

 

REFCORP assessments

          $   —                $ 20     
 

 

 

   

 

 

 

Noncash investing and financing activities:

   

Net shares reclassified to mandatorily redeemable capital stock

          $ 52                $ 2     
 

 

 

   

 

 

 

Held-to-maturity securities acquired with accrued liabilities

          $ 50                $ 433     
 

 

 

   

 

 

 

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

          $ 6                $ 302     
 

 

 

   

 

 

 

Transfers of mortgage loans to real estate owned

          $ 3                $ 4     
 

 

 

   

 

 

 

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, 2012, 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, 2011, which are contained in the Bank’s 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 23, 2012 (Form 10-K).

A description of the Bank’s significant accounting policies is included in Note 2—Summary of Significant Accounting Policies to the 2011 audited financial statements contained in the Bank’s Form 10-K. There have been no material changes to these policies as of March 31, 2012.

Note 2—Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

Disclosures about Offsetting Assets and Liabilities. In December 2011, the Financial Accounting Standards Board (FASB) issued disclosure requirements that are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on an entity’s financial position. Entities are required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, entities are required to disclose collateral received and posted in connection with master netting agreements or similar arrangements. This guidance is effective for interim and annual periods beginning on or after January 1, 2013 and will be applied retrospectively for all comparative periods presented. The adoption of this guidance will result in increased disclosures, but will have no effect on the Bank’s financial condition or results of operations.

Recently Adopted Accounting Guidance

Presentation of Comprehensive Income. In June 2011, the FASB issued amended guidance that eliminates the 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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 amended guidance is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Bank adopted this guidance effective January 1, 2012. The adoption of this guidance did not have any 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. The Bank adopted this guidance effective January 1, 2012. The adoption of this guidance did not have any 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 first interim or annual periods beginning on or after December 15, 2011. This guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The Bank adopted this guidance effective January 1, 2012. The adoption of this guidance did not have any effect on the Bank’s financial condition or results of operations.

Note 3—Trading Securities

Major Security Types. Trading securities were as follows:

 

000000000000000000 000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Government-sponsored enterprises debt obligations

               $ 2,321                     $ 3,035     

Other FHLBank’s bond (1)

     79           82     

State or local housing agency debt obligations

     2           3     
  

 

 

    

 

 

 

Total

               $ 2,402                     $ 3,120     
  

 

 

    

 

 

 

 

(1)

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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

     Three Months Ended March 31,  
     2012      2011  

Net unrealized losses on trading securities held at period end

             $            (22)                   $            (33)     

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

     (7)           (1)     
  

 

 

    

 

 

 

Net losses on trading securities

             $            (29)                   $            (34)     
  

 

 

    

 

 

 

As of March 31, 2012 and December 31, 2011, 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 three-month periods ended March 31, 2012 and 2011, 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 loss constitutes evidence of a significant deterioration in the issuer’s creditworthiness. The Bank has no current plans to sell these securities nor is the Bank under any requirement to sell these securities.

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

 

     2012      2011  
     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 as of March 31,

                 $    6                       $            —                       $    6               $    322                       $            20               $    302     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of March 31, 2012  
     Amortized
Cost
     Other-Than-Temporary
Impairment

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

Private-label MBS

             $        3,190                       $        287                       $        19                       $        4                       $        2,918     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 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

             $        3,340                       $        392                       $        12                       $      18                       $        2,942     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

9


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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 March 31, 2012  
    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

                6                  $        332                  $        9                      41              $  1,952                  $  282                      47              $  2,284                      $  291     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    As of December 31, 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

    10          $        635          $      26                      42              $  2,053                  $  384                      52              $  2,688                      $  410     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The amortized cost of the Bank’s MBS classified as available-for-sale includes net discounts of $14 as of March 31, 2012 and December 31, 2011.

The Bank did not swap any of its available-for-sale securities as of March 31, 2012 and December 31, 2011.

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

 

Other-Than-Temp Other-Than-Temp Other-Than-Temp Other-Than-Temp Other-Than-Temp
    As of March 31, 2012  
    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

      $         1,957            $                     219            $         6                $         2            $         1,742     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    As of December 31, 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

      $         2,027            $                     287            $         1                $       12            $         1,729     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

10


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Note 5—Held-to-maturity Securities

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

 

    As of March 31, 2012     As of December 31, 2011  
    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

      $          850            $      —            $      —            $          850            $          650            $      —            $      —            $      650     

State or local housing agency debt obligations

    94          1          —          95          100          1          —          101     

Government-sponsored enterprises debt obligations

    1,708          1          —          1,709          1,111          1          —          1,112     

Mortgage-backed securities:

               

U.S. agency obligations-guaranteed

    762          8          —          770          803          8          —          811     

Government-sponsored enterprises

    10,806          177          4          10,979          9,886          185          5          10,066     

Private label

    3,432          28          146          3,314          3,693          28          219          3,502     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $     17,652            $     215            $     150            $     17,717            $     16,243            $     223            $     224            $     16,242     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 March 31, 2012  
    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            $      100            $       —          —            $          —            $      —          1            $      100            $      —     

Government-sponsored enterprises debt obligations

    4          344          —          —          —          —          4          344          —     

Mortgage-backed securities:

                 

Government-sponsored enterprises

    11          1,159          2          7          562          2          18          1,721          4     

Private label

    17          284          2          58          1,642          144          75          1,926          146     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

                33            $     1,887            $         4                      65            $     2,204            $     146                      98            $   4,091            $     150     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    As of December 31, 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

    3            $      350            $      —          —            $          —            $      —          3            $      350            $      —     

Government-sponsored enterprises debt obligations

    3          194          —          —          —          —          3          194          —     

Mortgage-backed securities:

                 

Government-sponsored enterprises

    9          1,104          3          10          804          2          19          1,908          5     

Private label

    23          437          8          59          1,656          211          82          2,093          219     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    38            $     2,085            $      11          69            $     2,460            $     213          107            $   4,545            $     224     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

    As of March 31, 2012     As of December 31, 2011  
    Amortized
Cost
    Estimated
Fair  Value
    Amortized
Cost
    Estimated
Fair  Value
 

Non-mortgage-backed securities:

       

Due in one year or less

      $              904            $              904            $              703            $              702     

Due after one year through five years

    1,748          1,750          1,158          1,161     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-mortgage-backed securities

    2,652          2,654          1,861          1,863     

Mortgage-backed securities

    15,000          15,063          14,382          14,379     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $       17,652            $       17,717            $       16,243            $       16,242     
 

 

 

   

 

 

   

 

 

   

 

 

 

The amortized cost of the Bank’s MBS classified as held-to-maturity includes net discounts of $13 as of March 31, 2012 and December 31, 2011.

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

 

    As of March 31, 2012     As of December 31, 2011  
    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

      $       1,137            $       9            $       36            $     1,110            $       1,226            $       10            $       56            $     1,180     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 these investments and it is not more likely than not that the Bank will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of March 31, 2012.

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 March 31, 2012 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 three- to nine-month period beginning January 1, 2012.

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 months as of March 31, 2012:

 

        Months        

 

 

         Annualized Rates (%)    

  1 to 6

       0.00 to 2.80

  7 to 18

       0.00 to 3.00

  19 to 24

       1.00 to 4.00

  25 to 30

       2.00 to 4.00

  31 to 42

       2.00 to 5.00

  43 to 66

       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

 

13


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 (discounted at the securities effective yield) expected to be collected with respect to its private-label MBS to the amortized cost basis of the security to determine whether a credit loss exists. For the Bank’s variable rate and hybrid private-label MBS, the Bank uses a forward interest rate curve to project the future estimated cash flows. The Bank then uses the effective interest rate for the security prior to impairment for determining the present value of the future estimated cash flows. For securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future estimated cash flows on a quarterly basis.

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 March 31, 2012 as well as related current credit enhancement:

 

0000000000000 0000000000000 0000000000000 0000000000000 0000000000000 0000000000000 0000000000000 0000000000000
     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      9.71           9.47 to 9.74           22.75           21.05 to 22.99           41.35           38.44 to 41.75           2.17           1.87 to 4.36     
    2006      8.58           6.09 to 9.20           21.06           18.37 to 25.07           47.36           41.53 to 54.79           3.85           0.26 to 6.28     
    2005      10.94           10.94 to 10.94           23.65           23.65 to 23.65           37.92           37.92 to 37.92           5.73           5.73 to 5.73     
    2004      9.14           9.14 to 9.14           12.60           12.60 to 12.60           33.26           33.26 to 33.26           4.81           4.81 to 4.81     
Total      9.14           6.09 to 10.94           21.74           12.60 to 25.07           44.46           33.26 to 54.79           3.39           0.26 to 6.28     

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 March 31,  
    2012     2011  

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

          $ 582                $ 464     

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

    —          6     

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

    7          46     
 

 

 

   

 

 

 

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

          $ 589                $ 516     
 

 

 

   

 

 

 

 

14


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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 these securities and it is not more likely than not that the Bank will be required to sell these securities before the anticipated recovery of the securities’ remaining amortized cost basis, which may be at maturity. 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.

Note 7—Advances

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

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Overdrawn demand deposit accounts

           $ —                 $ 3     

Due in one year or less

     26,125           36,542     

Due after one year through two years

     9,522           11,173     

Due after two years through three years

     7,011           7,851     

Due after three years through four years

     3,335           3,881     

Due after four years through five years

     5,799           5,836     

Due after five years

     16,761           17,283     
  

 

 

    

 

 

 

Total par value

     68,553           82,569     

Discount on AHP (1) advances

     (12)           (12)     

Discount on EDGE (2) advances

     (9)           (10)     

Hedging adjustments

     3,915           4,431     

Deferred commitment fees

     (6)           (7)     
  

 

 

    

 

 

 

Total

           $ 72,441                 $ 86,971     
  

 

 

    

 

 

 

 

(1) The Affordable Housing Program

     

(2) The Economic Development and Growth Enhancement program

  

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

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Overdrawn demand deposit accounts

           $ —                 $ 3     

Due or convertible in one year or less

     31,692           42,376     

Due or convertible after one year through two years

     10,102           11,946     

Due or convertible after two years through three years

     6,820           7,716     

Due or convertible after three years through four years

     3,174           3,464     

Due or convertible after four years through five years

     4,743           5,021     

Due or convertible after five years

     12,022           12,043     
  

 

 

    

 

 

 

Total par value

           $ 68,553                 $ 82,569     
  

 

 

    

 

 

 

 

15


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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Fixed-rate:

     

Due in one year or less

           $ 22,963                 $ 32,389     

Due after one year

     36,452           38,811     
  

 

 

    

 

 

 

Total fixed-rate

     59,415           71,200     
  

 

 

    

 

 

 

Variable-rate:

     

Due in one year or less

     3,162           4,156     

Due after one year

     5,976           7,213     
  

 

 

    

 

 

 

Total variable-rate

     9,138           11,369     
  

 

 

    

 

 

 

Total par value

           $ 68,553                 $ 82,569     
  

 

 

    

 

 

 

As of March 31, 2012 and December 31, 2011, 72.8 percent and 65.7 percent, respectively, of the Bank’s fixed-rate advances were swapped and 12.0 percent and 9.79 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 March 31, 2012 and December 31, 2011. No advance was past due as of March 31, 2012 and December 31, 2011.

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 March 31, 2012 and December 31, 2011, the concentration of the Bank’s advances was $46,060 and $56,991, respectively, to 10 member institutions, and representing 67.2 percent and 69.0 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 12 Federal Home Loan Banks (FHLBanks) and are backed only by the financial resources of the FHLBanks. The Federal Home Loan Banks 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:

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Fixed-rate

           $ 77,735                 $ 84,571     

Step up/down

     2,662           2,978     

Simple variable-rate

     100           1,850     

Variable-rate capped floater

     20           20     
  

 

 

    

 

 

 

Total par value

           $ 80,517                 $ 89,419     
  

 

 

    

 

 

 

 

16


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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

As of March 31, 2012 and December 31, 2011, 81.3 percent and 81.9 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped and 16.7 percent and 6.42 percent, respectively, of the Bank’s variable-rate consolidated obligation bonds were swapped.

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

 

00000000000 00000000000 00000000000 00000000000
     As of March 31, 2012      As of December 31, 2011  
     Amount      Weighted-
average
Interest
Rate (%)
            Weighted-
average
Interest
Rate (%)
 
           Amount     

Due in one year or less

           $ 43,322           0.75                 $ 48,163           0.57     

Due after one year through two years

     18,642           1.55           20,987           1.83     

Due after two years through three years

     6,832           2.65           7,927           2.40     

Due after three years through four years

     1,628           2.72           2,083           2.65     

Due after four years through five years

     4,034           3.81           4,005           3.79     

Due after five years

     6,059           3.96           6,254           3.97     
  

 

 

       

 

 

    

Total par value

     80,517           1.52           89,419           1.46     

Premiums

     97              101        

Discounts

     (35)              (38)        

Hedging adjustments

     1,140              1,180        
  

 

 

       

 

 

    

Total

           $ 81,719                    $ 90,662        
  

 

 

       

 

 

    

The Bank’s consolidated obligation bonds outstanding by call feature:

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Noncallable

           $ 62,272                 $ 60,794     

Callable

     18,245           28,625     
  

 

 

    

 

 

 

Total par value

           $ 80,517                 $ 89,419     
  

 

 

    

 

 

 

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:

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Due or callable in one year or less

           $ 50,925                 $ 60,321     

Due or callable after one year through two years

     17,852           17,467     

Due or callable after two years through three years

     3,674           3,284     

Due or callable after three years through four years

     975           1,110     

Due or callable after four years through five years

     2,949           2,870     

Due or callable after five years

     4,142           4,367     
  

 

 

    

 

 

 

Total par value

           $ 80,517                 $ 89,419     
  

 

 

    

 

 

 

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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.

The Bank’s participation in consolidated obligation discount notes was as follows:

 

00000000000000000 00000000000000000 00000000000000000
     Book Value      Par Value      Weighted-average Interest
Rate (%)
 

As of March 31, 2012

           $ 16,178                 $ 16,182           0.10     
  

 

 

    

 

 

    

 

 

 

As of December 31, 2011

           $ 24,330                 $ 24,331           0.03     
  

 

 

    

 

 

    

 

 

 

As of March 31, 2012 and December 31, 2011, 0.62 percent and 4.64 percent, respectively, of the Bank’s fixed-rate consolidated obligation discount notes were swapped to a variable rate.

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:

 

000000000000 000000000000 000000000000 000000000000
     As of March 31, 2012      As of December 31, 2011  
     Required      Actual      Required      Actual  

Risk based capital

           $ 1,939                 $ 7,533                 $ 1,951                 $ 7,258     

Total capital-to-assets ratio

     4.00%           6.90%           4.00%           5.79%     

Total regulatory capital (1)

           $ 4,365                 $ 7,533                 $ 5,011                 $ 7,258     

Leverage ratio

     5.00%           10.35%           5.00%           8.69%     

Leverage capital

           $ 5,457                 $ 11,300                 $ 6,264                 $ 10,887     

 

(1) 

Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $328 and $286 in mandatorily redeemable capital stock as of March 31, 2012 and December 31, 2011, respectively.

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

 

000000 000000
     Three Months Ended March 31,  
     2012      2011  

Balance, beginning of period

         $ 286               $ 529     

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

     

Attainment of nonmember status

     80           4     

Withdrawal

     1           —     

Redemption of mandatorily redeemable capital stock

     (10)           —     

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

     (29)           (2)     
  

 

 

    

 

 

 

Balance, end of period

         $ 328               $ 531     
  

 

 

    

 

 

 

 

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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. The year of redemption in the table is the later of the end of the five-year redemption period, or with respect to activity-based stock, the later of the expiration of the five-year redemption period or the activity’s maturity date.

 

00000000000000000000 00000000000000000000
     As of March 31, 2012      As of December 31, 2011  

Due in one year or less

                   $ 2                         $ 4     

Due after one year through two years

     7           8     

Due after two years through three years

     123           52     

Due after three years through four years

     47           122     

Due after four years through five years

     148           99     

Due after five years

     1           1     
  

 

 

    

 

 

 

Total

                   $ 328                         $ 286     
  

 

 

    

 

 

 

Note 10—Accumulated Other Comprehensive Loss

Components comprising accumulated other comprehensive loss were as follows:

 

0000000000000000 0000000000000000 0000000000000000
     Pension and
Postretirement
Benefits
     Noncredit
Portion of  Other-

than-temporary
Impairment
Losses on
Available-for-sale
Securities
     Total
Accumulated
Other
Comprehensive
Loss
 

Balance, December 31, 2010

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

Current period other comprehensive income

     —           79           79     
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2011

               $ (10)                     $ (313)                     $ (323)     
  

 

 

    

 

 

    

 

 

 

Balance, December 31, 2011

               $ (13)                     $ (398)                     $ (411)     

Current period other comprehensive income

     —           126           126     
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2012

               $ (13)                     $ (272)                     $ (285)     
  

 

 

    

 

 

    

 

 

 

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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 because 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.

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 or 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

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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.

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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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.

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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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.

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.

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.

 

Derivatives Derivatives Derivatives Derivatives Derivatives Derivatives
     As of March 31, 2012      As of December 31, 2011  
     Notional
Amount of
Derivatives
     Derivative
Assets
     Derivative
Liabilities
     Notional
Amount of
Derivatives
     Derivative
Assets
     Derivative
Liabilities
 
                 

Derivatives in hedging relationships:

                 

Interest rate swaps

           $ 107,943                 $ 1,281                 $ (3,906)                 $ 120,999                 $ 1,344                 $ (4,467)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives in hedging relationships

     107,943           1,281           (3,906)           120,999           1,344           (4,467)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

                 

Interest rate swaps

     5,392           16           (521)           6,221           14           (567)     

Interest rate caps or floors

     12,500           63           (46)           12,500           64           (53)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

     17,892           79           (567)           18,721           78           (620)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives before netting and collateral adjustments

           $ 125,835           1,360           (4,473)                 $ 139,720           1,422           (5,087)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Netting adjustments

        (1,067)           1,067              (1,377)           1,377     

Cash collateral and related accrued interest

        (94)           3,091              (27)           3,469     
     

 

 

    

 

 

       

 

 

    

 

 

 

Total collateral and netting adjustments (1)

        (1,161)           4,158              (1,404)           4,846     
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivative assets and derivative liabilities

              $ 199                 $ (315)                    $ 18                 $ (241)     
     

 

 

    

 

 

       

 

 

    

 

 

 

 

 

(1)

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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

00000000000000 00000000000000
         Three Months Ended March 31,      
     2012      2011  

Derivatives and hedged items in fair value hedging relationships:

     

Interest rate swaps

           $ 51                 $ 38     
  

 

 

    

 

 

 

Total net gains related to fair value hedge ineffectiveness

     51           38     
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Interest rate swaps

     27           42     

Interest rate caps or floors

     6           3     

Net interest settlements

     (30)           (37)     
  

 

 

    

 

 

 

Total net gains related to derivatives not designate as hedging instruments

     3           8     
  

 

 

    

 

 

 

Net gains on derivatives and hedging activities

           $ 54                 $ 46     
  

 

 

    

 

 

 

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:

 

Derivatives on Net Interest Derivatives on Net Interest Derivatives on Net Interest Derivatives on Net Interest
    Three Months Ended March 31, 2012  

Hedged

Item Type

      Gains (Losses) on    
Derivative
        Gains (Losses) on    
Hedged Item
        Net Fair Value    
Hedge
Ineffectiveness
    Effect of
  Derivatives on Net Interest  
Income (1)
 

Advances

      $ 497            $ (431)            $ 66            $ (386)     

Consolidated obligations:

       

Bonds

    (50)          35          (15)          143     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 447            $ (396)            $ 51            $ (243)     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

          

    Three Months Ended March 31, 2011  

Hedged

Item Type

  Gains (Losses) on
Derivative
    Gains (Losses) on
Hedged Item
    Net Fair Value
Hedge
Ineffectiveness
    Effect of
Derivatives on Net Interest
Income (1)
 

Advances

      $ 652            $ (605)            $ 47            $ (590)     

Consolidated obligations:

       

Bonds

    (200)          191          (9)          216     

Discount notes

    (1)          1          —          1     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 451            $ (413)            $ 38            $ (373)     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 March 31, 2012.

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 December 31, 2011 00 As of December 31, 2011 00
       As of March 31, 2012          As of December 31, 2011    

Total net exposure at fair value (1)

       $     292             $ 45     

Cash collateral held

     93           27     
  

 

 

    

 

 

 

Net positive exposure after cash collateral

     199           18     

Other collateral

     4           5     
  

 

 

    

 

 

 

Net exposure after collateral

       $     195             $ 13     
  

 

 

    

 

 

 

 

(1) 

Includes net accrued interest receivable of $30 and $1 as of March 31, 2012 and December 31, 2011, 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) as of March 31, 2012 was $3,211 for which the Bank has posted collateral of $3,091 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 $127 of collateral (at fair value) to its derivative counterparties as of March 31, 2012.

The Bank transacts most of its derivatives with large banks and major broker-dealers and generally enters into bilateral collateral agreements. 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.

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 19 — Estimated Fair Values to the 2011 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 three-month period ended March 31, 2012.

 

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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:

 

000000000000 000000000000 000000000000 000000000000 000000000000
    As of March 31, 2012  
    Fair Value Measurements Using     Netting        
    Level 1     Level 2     Level 3       Adjustment  (1)       Total  

Assets

         

Trading securities:

         

Government-sponsored enterprises debt obligations

      $         —            $ 2,321            $ —            $ —            $ 2,321     

Other FHLBank’s bond

    —          79          —          —          79     

State or local housing agency debt obligations

    —          2          —          —          2     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading securities

    —          2,402          —          —          2,402     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale securities:

         

Private-label MBS

    —          —          2,918          —          2,918     

Derivative assets:

         

Interest-rate related

    —          1,360          —          (1,161)          199     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets at fair value

      $         —            $ 3,762            $ 2,918            $ (1,161)            $ 5,519     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

         

Derivative liabilities:

         

Interest-rate related

      $         —            $ (4,473)            $ —            $ 4,158            $ (315)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities at fair value

      $         —            $ (4,473)            $ —            $ 4,158            $ (315)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) 

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.

000000000000 000000000000 000000000000 000000000000 000000000000
    As of December 31, 2011  
    Fair Value Measurements Using     Netting        
    Level 1     Level 2     Level 3       Adjustment  (1)       Total  

Assets

         

Trading securities:

         

Government-sponsored enterprises debt obligations

      $         —            $ 3,035            $ —            $ —            $ 3,035     

Other FHLBank’s bond

    —          82          —          —          82     

State or local housing agency debt obligations

    —          3          —          —          3     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading securities

    —          3,120          —          —          3,120     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale securities:

         

Private-label MBS

    —          —          2,942          —          2,942     

Derivative assets:

         

Interest-rate related

    —          1,422          —          (1,404)          18     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets at fair value

      $         —            $ 4,542            $ 2,942            $ (1,404)            $ 6,080     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

         

Derivative liabilities:

         

Interest-rate related

      $         —            $ (5,087)            $ —            $ 4,846            $ (241)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities at fair value

      $         —            $ (5,087)            $ —            $ 4,846            $ (241)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) 

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 table presents a reconciliation of available-for-sale securities that are measured at fair value using significant unobservable inputs (Level 3):

 

0000000000 0000000000
     Three Months Ended March 31,  
     2012     2011  

Balance, beginning of period

           $ 2,942                $ 3,319     

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

     6          302     

Total (losses) gains realized and unrealized: (1)

    

Included in net impairment losses recognized in earnings

     (7)          (47)     

Included in other comprehensive loss (2)

     126          99     

Included in interest income

     (2)          (3)     

Settlements

     (147)          (204)     
  

 

 

   

 

 

 

Balance, end of period

           $     2,918                $     3,466     
  

 

 

   

 

 

 
    

 

    
(1) 

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

(2) 

This amount is included in other comprehensive loss within the net change in fair value on other-than-temporary impairment available-for-sale securities and reclassification of noncredit portion of impairment losses included in net income.

The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of March 31, 2012 and December 31, 2011. Although the Bank uses its best judgment in estimating the fair values of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology.

For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment of how a market participant would estimate the fair value. The fair value 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:

 

00000000000 00000000000 00000000000 00000000000 00000000000 00000000000
     As of March 31, 2012  
            Fair Value  
     Carrying
Value
     Total      Level 1      Level 2      Level 3      Netting
Adjustment
 

Assets:

                 

Cash and due from banks

       $ 5             $ 5             $ 5             $ —             $ —             $ —     

Interest bearing-deposits

     1,203           1,203           —           1,203           —           —     

Federal funds sold

     10,361           10,360           —           10,360           —           —     

Trading securities

     2,402           2,402           —           2,402           —           —     

Available-for-sale securities

     2,918           2,918           —           —           2,918           —     

Held-to-maturity securities

     17,652           17,717           —           14,403           3,314           —     

Mortgage loans held for portfolio, net

     1,525           1,678           —           1,678           —           —     

Advances

     72,441           72,957           —           72,957           —           —     

Accrued interest receivable

     259           259           —           259           —           —     

Derivative assets

     199           199           —           1,360           —           (1,161)     

Liabilities:

                 

Interest-bearing deposits

     (3,078)           (3,078)           —           (3,078)           —           —     

Consolidated obligations, net:

                 

Discount notes

     (16,178)           (16,178)           —           (16,178)           —           —     

Bonds

     (81,719)           (82,672)           —           (82,672)           —           —     

Mandatorily redeemable capital stock

     (328)           (328)           (328)           —           —           —     

Accrued interest payable

     (315)           (315)           —           (315)           —           —     

Derivative liabilities

     (315)           (315)           —           (4,473)           —           4,158     

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

000000000000 000000000000
     As of December 31, 2011  
     Carrying      Estimated  
     Value      Fair Value  

Assets:

     

Cash and due from banks

       $ 6             $ 6     

Interest-bearing deposits

     1,203           1,203     

Federal funds sold

     12,630           12,629     

Trading securities

     3,120           3,120     

Available-for-sale securities

     2,942           2,942     

Held-to-maturity securities

     16,243           16,242     

Mortgage loans held for portfolio, net

     1,633           1,796     

Advances

     86,971           87,655     

Accrued interest receivable

     314           314     

Derivative assets

     18           18     

Liabilities:

     

Interest-bearing deposits

     (2,655)           (2,655)     

Consolidated obligations, net:

     

Discount notes

     (24,330)           (24,330)     

Bonds

     (90,662)           (91,839)     

Mandatorily redeemable capital stock

     (286)           (286)     

Accrued interest payable

     (286)           (286)     

Derivative liabilities

     (241)           (241)     

Note 13—Commitments and Contingencies

As described in Note 8–Consolidated Obligations, consolidated obligations are backed only by the financial resources of the 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 ever 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 $561,317 and $578,118 as of March 31, 2012 and December 31, 2011, respectively, exclusive of the Bank’s own outstanding consolidated obligations.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

     As of March 31, 2012      As of December 31, 2011  

Outstanding notional

                             $         20,171                                   $         21,510     

Original terms (1)

         Less than four months to 20 years               Less than 12 months to 20 years     

Final expiration year

     2030           2030     

 

 

(1) 

The bank had two standby letters of credit for a total of $3 as of March 31, 2012 and no standby letters of credit as of December 31, 2011, that have no stated maturity date and are subject to renewal on an annual basis.

The carrying value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to $71 and $80 as of March 31, 2012 and December 31, 2011, 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 member. 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 March 31, 2012 and December 31, 2011. Such commitments would be recorded as derivatives at their fair values.

As of March 31, 2012, the Bank had committed to the issuance of $1,285 (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, 2011, the Bank had committed to the issuance of $3,492 (par value) in consolidated obligation bonds, of which $3,475 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.

 

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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 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, 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 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 17.1 percent of the Bank’s total regulatory capital stock as of March 31, 2012, was considered a related party. Total advances outstanding to Bank of America, N.A. were $12,889 and $16,039 as of March 31, 2012 and December 31, 2011, respectively. Total deposits held in the name of Bank of America, N.A. were less than $1 as of March 31, 2012 and December 31, 2011. No mortgage loans or mortgage-backed securities were acquired from Bank of America, N.A. during the three-month periods ended March 31, 2012 and 2011.

Note 15—Subsequent Events

On April 9, 2012, the Bank repurchased $700 of subclass B1 membership and B2 activity-based excess capital stock based on the shareholders’ total capital stock as of March 30, 2012.

 

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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 quarters ended March 31, 2012 and 2011. 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, 2011.

 

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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 March 31, 2012, total assets were $109.1 billion, a decrease of $16.1 billion, or 12.9 percent, from December 31, 2011. This decrease was primarily due to a $14.5 billion, or 16.7 percent, decrease in advances. Advances, the largest asset on the Bank’s balance sheet, decreased as a result of scheduled maturities, prepayments, and members’ significant liquidity.

As of March 31, 2012, total liabilities were $102.2 billion, a decrease of $16.5 billion, or 13.9 percent, from December 31, 2011. This decrease was primarily due to a $17.1 billion, or 14.9 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 March 31, 2012, total capital was $6.9 billion, an increase of $359 million, or 5.49 percent, from December 31, 2011. This increase was primarily due to the issuance of $207 million in activity-based capital stock and $26 million of membership capital stock, the time lag between fluctuations in advances and repurchases of excess capital stock, and a $126 million decrease in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was primarily due to improvements in the fair value of the Bank’s available-for-sale securities.

Results of Operations

The Bank recorded net income of $70 million for the first quarter of 2012, an increase of $19 million, or 38.8 percent, from net income of $51 million for the first quarter of 2011. The increase in net income was primarily due to a $45 million decrease in net impairment losses recognized in earnings and an $11 million decrease in total assessments, partially offset by a $42 million decrease in net interest income. These items are discussed in more detail in Management’s Discussion and Analysis–Results of Operations below.

One way in which the Bank analyzes its performance is by comparing its annualized return on equity (ROE) to three-month average LIBOR. The Bank’s ROE was 4.18 percent for the first quarter of 2012, compared to 2.56 percent for the first quarter of 2011. ROE increased in the first quarter of 2012, compared to the first quarter of 2011, primarily as a result of an increase in net income, as discussed above, and a decrease in average total capital during the period. ROE spread to three-month average

 

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LIBOR increased in the first quarter of 2012, compared to the first quarter of 2011, equaling 367 basis points for the first quarter of 2012 as compared to 225 basis points for the first quarter of 2011. The increase in the spread to LIBOR was primarily due to the increase in ROE as previously discussed.

The Bank’s interest rate spread was 23 basis points for the first quarter of 2012 compared to 34 basis points for the first quarter of 2011. The 11 basis points decrease in the Bank’s interest rate spread was primarily due to a decrease in yield on the Bank’s long-term investment portfolio during the first quarter of 2012 compared to the first quarter of 2011, as well as advance restructures and prepayments that created accelerated amortization that reduced advance interest income.

Business Outlook

The Bank’s business outlook remains largely unchanged from the outlook discussion in the Bank’s Form 10-K. As expected, advances declined during the first quarter of 2012 primarily due to scheduled maturities. However, the Bank saw moderate demand for new advances among previously less active borrowers and signs of improving financial health throughout the Bank’s membership. The Bank expects overall advances to decline over the course of the year.

The Bank has recently seen recovery in fair market values for some of its private-label MBS and the credit related portion of other-than-temporary impairment losses recognized in earnings was lower for the first quarter of 2012 compared to the first quarter of 2011. However, other-than-temporary impairment losses have been highly volatile. If the loans underlying the Bank’s securities further deteriorate or if certain assumptions related to forecasts of home prices, prepayments, defaults, or loss severities continue to decline, the Bank could record additional other-than-temporary impairment losses.

The Bank continues to face challenges to net income as advances and investments decline in a low interest rate environment with few attractive reinvestment opportunities.

 

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Selected Financial Data

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

 

000000000000 000000000000 000000000000 000000000000 000000000000
    As of and for the Three Months Ended  
    March 31,
2012
    December 31,
2011
    September 30,
2011
    June 30,
2011
    March 31,
2011
 

Statements of Condition (at period end)

         

Total assets

      $ 109,137            $ 125,270            $ 118,852            $ 116,817            $ 123,633     

Investments (1)

    34,536          36,138          41,204          36,979          39,876     

Mortgage loans held for portfolio

    1,534          1,639          1,743          1,828          1,916     

Allowance for credit losses on mortgage loans

    (9)          (6)          (1)          (1)          (1)     

Advances

    72,441          86,971          75,363          77,427          81,257     

Interest-bearing deposits

    3,078          2,655          3,170          3,008          2,955     

Consolidated obligations, net:

         

Discount notes

    16,178          24,330          16,057          20,573          15,700     

Bonds

    81,719          90,662          91,720          84,640          94,854     

Total consolidated obligations, net (2)

    97,897          114,992          107,777          105,213          110,554     

Mandatorily redeemable capital stock

    328          286          319          385          531     

Affordable Housing Program payable

    109          109          115          121          127     

Payable to REFCORP

    —          —          —          10          13     

Capital stock - putable

    5,899          5,718          5,910          6,333          7,263     

Retained earnings

    1,306          1,254          1,203          1,184          1,160     

Accumulated other comprehensive loss

    (285)          (411)          (317)          (296)          (323)     

Total capital

    6,920          6,561          6,796          7,221          8,100     

Statements of Income (for the period ended)

         

Net interest income

    85          108          109          115          127     

Provision for credit losses

    3          5          —          —          —     

Net impairment losses recognized in earnings

    (7)          (10)          (19)          (37)          (52)     

Net (losses) gains on trading securities

    (29)          (20)          36          20          (34)     

Net gains (losses) on derivatives and hedging activities

    54          32          (67)          (20)          46     

Letters of credit fees

    5          5          6          4          4     

Other income (3)

    —          —          —          1          1     

Noninterest expense

    27          40          29          32          22     

Income before assessments

    78          70          36          51          70     

Assessments (4)

    8          7          4          13          19     

Net income

    70          63          32          38          51     

Performance Ratios (%)

         

Return on equity (5)

    4.18          3.85          1.78          2.01          2.56     

Return on assets (6)

    0.23          0.21          0.10          0.13          0.16     

Net interest margin (7)

    0.28          0.35          0.36          0.38          0.40     

Regulatory capital ratio (at year end) (8)

    6.90          5.79          6.25          6.76          7.24     

Equity to assets ratio (9)

    5.43          5.39          5.77          6.27          6.21     

Dividend payout ratio (10)

    24.94          19.70          40.09          37.89          28.74     

 

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  (1)

Investments consist of interest-bearing deposits, federal funds sold, and securities classified as trading, available-for-sale, and held-to-maturity.

 

  (2)

The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was as follows (in millions):

 

March 31, 2012

   $   561,317     

December 31, 2011

     578,118     

September 30, 2011

     590,231     

June 30, 2011

     623,513     

March 31, 2011

     656,491     

 

  (3)

Other income includes service fees and other.

 

  (4)

On August 5, 2011, the Finance Agency certified that the FHLBanks have satisfied their REFCORP obligation.

 

  (5)

Calculated as net income divided by average total equity.

 

  (6)

Calculated as net income divided by average total assets.

 

  (7)

Net interest margin is net interest income as a percentage of average earning assets.

 

  (8)

Regulatory capital ratio is regulatory capital stock plus retained earnings as a percentage of total assets at period end.

 

  (9)

Calculated as average equity divided by average total assets.

 

(10) 

Calculated as dividends declared during the period divided by net income during the period.

Financial Condition

The Bank’s principal assets consist of advances, short- and long-term investments, and mortgage loans held for portfolio. The Bank obtains funding to support its business primarily through the issuance of debt securities in the form of COs by the Office of Finance on the Bank’s behalf.

The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated (dollars in millions). These items are discussed in more detail below.

 

00000000000 00000000000 00000000000 00000000000 00000000000 00000000000
     As of March 31, 2012      As of December 31, 2011      Increase (Decrease)  
     Amount      Percent
of
Total
     Amount      Percent
of
Total
     Amount      Percent  

Advances

       $ 72,441           66.38             $ 86,971           69.43             $ (14,530)           (16.71)     

Long-term investments

     22,122           20.27           21,655           17.29           467           2.16     

Short-term investments

     12,414           11.37           14,483           11.56           (2,069)           (14.28)     

Mortgage loans, net

     1,525           1.40           1,633           1.30           (108)           (6.60)     

Other assets

     635           0.58           528           0.42           107           20.04     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total assets

       $ 109,137           100.00             $ 125,270           100.00             $ (16,133)           (12.88)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Consolidated obligations, net:

                 

Discount notes

       $ 16,178           15.83             $ 24,330           20.50             $ (8,152)           (33.51)     

Bonds

     81,719           79.95           90,662           76.37           (8,943)           (9.86)     

Deposits

     3,078           3.01           2,655           2.24           423           15.92     

Other liabilities

     1,242           1.21           1,062           0.89           180           16.87     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total liabilities

       $ 102,217           100.00             $ 118,709           100.00             $ (16,492)           (13.89)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Capital stock

       $ 5,899           85.24             $ 5,718           87.15             $ 181           3.17     

Retained earnings

     1,306           18.88           1,254           19.11           52           4.21     

Accumulated other comprehensive loss

     (285)           (4.12)           (411)           (6.26)           126           30.70