10-Q 1 d381460d10q.htm 10-Q 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 June 30, 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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1475 Peachtree Street, NE, Atlanta, Ga.   30309
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (404) 888-8000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

   Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of July 31, 2012, was 51,386,791.

 

 

 


Table of Contents

Table of Contents

 

PART I. FINANCIAL INFORMATION      1   
Item 1.   Financial Statements (Unaudited)      1   
  STATEMENTS OF CONDITION      1   
  STATEMENTS OF INCOME      2   
  STATEMENTS OF COMPREHENSIVE INCOME      3   
  STATEMENTS OF CAPITAL      4   
  STATEMENTS OF CASH FLOWS      5   
  NOTES TO FINANCIAL STATEMENTS      7   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      30   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      65   
Item 4.   Controls and Procedures      69   
PART II. OTHER INFORMATION      69   
Item 1.   Legal Proceedings      69   
Item 1A.   Risk Factors      69   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      70   
Item 3.   Defaults Upon Senior Securities      71   
Item 4.   Mine Safety Disclosure      71   
Item 5.   Other Information      71   
Item 6.   Exhibits      71   
SIGNATURES      72   


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  
    June 30, 2012         December 31, 2011      

Assets

   

 

Cash and due from banks

      $ 13            $ 6     

 

Interest-bearing deposits (including deposits with other FHLBank of $2 as of June 30, 2012 and December 31, 2011)

    1,104          1,203     

 

 

Federal funds sold

    13,048          12,630     

 

Trading securities (includes other FHLBank’s bond of $81 and $82 as of June 30, 2012 and December 31, 2011, respectively)

    2,400          3,120     

 

Available-for-sale securities

    2,741          2,942     

 

Held-to-maturity securities (fair value of $16,506 and $16,242 as of June 30, 2012 and December 31, 2011, respectively)

    16,408          16,243     

 

Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $9 and $6 as of June 30, 2012 and December 31, 2011, respectively

    1,423          1,633     

 

Advances

    81,842          86,971     

 

Accrued interest receivable

    274          314     

 

Premises and equipment, net

    33          35     

 

Derivative assets

    10          18     

 

Other assets

    144          155     
 

 

 

   

 

 

 

Total assets

      $ 119,440            $ 125,270     
 

 

 

   

 

 

 

 

Liabilities

   

 

Interest-bearing deposits

      $ 2,133            $ 2,655     

 

Consolidated obligations, net:

   

 

Discount notes

    21,427          24,330     

 

Bonds

    89,079          90,662     
 

 

 

   

 

 

 

Total consolidated obligations, net

    110,506          114,992     
 

 

 

   

 

 

 

 

 

Mandatorily redeemable capital stock

    115          286     

 

Accrued interest payable

    256          286     

 

Affordable Housing Program payable

    98          109     

 

Derivative liabilities

    140          241     

Other liabilities

    127          140     
 

 

 

   

 

 

 

Total liabilities

    113,375          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: 12 as of June 30, 2012 and December 31, 2011

    1,185          1,250     

 

Subclass B2 issued and outstanding shares: 38 and 45 as of June 30, 2012 and December 31, 2011, respectively

    3,822          4,468     
 

 

 

   

 

 

 

 

Total capital stock Class B putable

    5,007          5,718     

 

Retained earnings:

   

 

Restricted

    45          19     

 

Unrestricted

    1,299          1,235     
 

 

 

   

 

 

 

 

Total retained earnings

    1,344          1,254     
 

 

 

   

 

 

 

 

Accumulated other comprehensive loss

    (286)          (411)     
 

 

 

   

 

 

 

 

Total capital

    6,065          6,561     
 

 

 

   

 

 

 

 

Total liabilities and capital

      $     119,440            $ 125,270     
 

 

 

   

 

 

 

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

 

1


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In millions)

 

                                                   
         Three Months Ended June 30,              Six Months Ended June 30,      
     2012      2011      2012      2011  

Interest income

           

Advances

       $ 76             $ 61             $ 142             $ 130     

Prepayment fees on advances, net

     3           3           5           5     

Interest-bearing deposits

     2           1           3           2     

Federal funds sold

     5           4           10           12     

Trading securities

     27           40           62           81     

Available-for-sale securities

     44           44           85           89     

Held-to-maturity securities

     78           101           161           214     

Mortgage loans held for portfolio

     20           25           41           51     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest income

     255           279           509           584     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

           

Consolidated obligations:

           

Discount notes

     6           4           9           11     

Bonds

     144           159           309           328     

Deposits

     1           —           1           1     

Mandatorily redeemable capital stock

     1           1           2           2     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     152           164           321           342     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     103           115           188           242     

Provision for credit losses

     —           —           3           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for credit losses

     103           115           185           242     
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest income (loss)

           

Total other-than-temporary impairment losses

     —           (12)           —           (37)     

Net amount of impairment losses reclassified from other comprehensive loss

     (8)           (25)           (15)           (52)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net impairment losses recognized in earnings

     (8)           (37)           (15)           (89)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (losses) gains on trading securities

     (4)           20           (33)           (14)     

Net (losses) gains on derivatives and hedging activities

     (1)           (20)           53           26     

Letters of credit fees

     4           4           9           8     

Other

     3           1           3           2     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest (loss) income

     (6)           (32)           17           (67)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest expense

           

Compensation and benefits

     16           18           31           35     

Other operating expenses

     10           10           18           19     

Finance Agency

     3           3           6           6     

Office of Finance

     1           1           2           3     

Other

     —           —           —           (9)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest expense

     30           32           57           54     
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before assessments

     67           51           145           121     
  

 

 

    

 

 

    

 

 

    

 

 

 

Assessments:

           

Affordable Housing Program

     7           4           15           10     

REFCORP

     —           9           —           22     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assessments

     7           13           15           32     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

       $ 60             $ 38             $ 130           $ 89     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

2


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

 

         Three Months Ended June 30,              Six Months Ended June 30,      
     2012      2011      2012      2011  

Net income

       $ 60             $ 38             $ 130             $ 89     

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

     —           (6)           —           (26)     

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

     (10)           2           109           54     

Reclassification of noncredit portion of impairment losses included in net income

     8           31           15           78     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     (2)           27           124           106     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

           

Noncredit losses on held-to-maturity securities

     —           (6)           —           (26)     

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

     —           6           —           26     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Pension and postretirement benefits:

           

Total other comprehensive income

     1           —           1           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive (loss) income

     (1)           27           125           106     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

       $ 59             $ 65             $ 255             $ 195     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

3


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)

(In millions)

 

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

Balance, December 31, 2010

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

Issuance of capital stock

        1              64              —              —              —              —              64     

Repurchase/redemption of capital stock

        (10)              (927)              —              —              —              —              (927)     

Net shares reclassified to mandatorily redeemable capital stock

        —              (28)              —              —              —              —              (28)     

Comprehensive income

        —              —              —              89              89              106              195     

Cash dividends on capital stock

        —              —              —              (29)              (29)              —              (29)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

        63            $ 6,333            $ —            $ 1,184            $ 1,184            $ (296)            $ 7,221     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

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

Issuance of capital stock

        6              531              —              —              —              —              531     

Repurchase/redemption of capital stock

        (12)              (1,189)              —              —              —              —              (1,189)     

Net shares reclassified to mandatorily redeemable capital stock

        (1)              (53)              —              —              —              —              (53)     

Comprehensive income

        —              —              26              104              130              125              255     

Cash dividends on capital stock

        —              —              —              (40)              (40)              —              (40)     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2012

        50            $ 5,007            $ 45            $ 1,299            $ 1,344            $ (286)            $ 6,065     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

 

     Six Months Ended June 30,  
         2012              2011      

Operating activities

     

Net income

       $                 130             $                 89     

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

     

Depreciation and amortization

     (24)           (9)     

Provision for credit losses

     3           —     

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

     146           199     

Net change in fair value adjustment on trading securities

     33           14     

Net impairment losses recognized in earnings

     15           89     

Net change in:

     

Accrued interest receivable

     40           50     

Other assets

     6           21     

Affordable Housing Program payable

     (13)           (6)     

Accrued interest payable

     (29)           (20)     

Payable to REFCORP

     —           (11)     

Other liabilities

     (14)           (22)     
  

 

 

    

 

 

 

Total adjustments

     163           305     
  

 

 

    

 

 

 

Net cash provided by operating activities

     293           394     
  

 

 

    

 

 

 

Investing activities

     

Net change in:

     

Interest-bearing deposits

     153           231     

Federal funds sold

     (418)           1,591     

Trading securities:

     

Proceeds from maturities

     690           272     

Available-for-sale securities:

     

Proceeds from maturities

     318           404     

Held-to-maturity securities:

     

Net change in short-term

     25           155     

Proceeds from maturities of long-term

     1,946           2,555     

Purchases of long-term

     (2,142)           (1,929)     

Advances:

     

Proceeds from principal collected

     97,168           34,047     

Made

     (92,177)           (22,598)     

Mortgage loans held for portfolio:

     

Proceeds from principal collected

     200           204     

Proceeds from sale of foreclosed assets

     7           6     

Purchase of premise, equipment and software

     (1)           (2)     
  

 

 

    

 

 

 

Net cash provided by investing activities

     5,769           14,936     
  

 

 

    

 

 

 

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

 

5


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS—(Continued)

(Unaudited)

(In millions)

 

     Six Months Ended June 30,  
         2012              2011      

Financing activities

     

Net change in deposits

     (512)           (102)     

Net payments on derivatives containing a financing element

     (185)           (268)     

Proceeds from issuance of consolidated obligations:

     

Discount notes

     187,553           533,302     

Bonds

     42,643           27,852     

Payments for debt issuance costs

     (6)           (9)     

Payments for maturing and retiring consolidated obligations:

     

Discount notes

     (190,457)           (536,641)     

Bonds

     (44,169)           (38,380)     

Proceeds from issuance of capital stock

     531           64     

Payments for repurchase/redemption of capital stock

     (1,189)           (927)     

Payments for repurchase/redemption of mandatorily redeemable capital stock

     (224)           (172)     

Cash dividends paid

     (40)           (29)     
  

 

 

    

 

 

 

Net cash used in financing activities

     (6,055)           (15,310)     
  

 

 

    

 

 

 

Net increase in cash and due from banks

     7           20     

Cash and due from banks at beginning of the period

     6           5     
  

 

 

    

 

 

 

Cash and due from banks at end of the period

       $                 13             $                 25     
  

 

 

    

 

 

 

Supplemental disclosures of cash flow information:

     

Cash paid for:

     

Interest

       $ 365             $ 379     
  

 

 

    

 

 

 

AHP assessments, net

       $ 26             $ 15     
  

 

 

    

 

 

 

REFCORP assessments

       $ —             $ 33     
  

 

 

    

 

 

 

Noncash investing and financing activities:

     

Net shares reclassified to mandatorily redeemable capital stock

       $ 53             $ 28     
  

 

 

    

 

 

 

Held-to-maturity securities acquired with accrued liabilities

       $ —             $ 146     
  

 

 

    

 

 

 

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

       $ 6             $ 348     
  

 

 

    

 

 

 

Transfers of mortgage loans to real estate owned

       $ 6             $ 9     
  

 

 

    

 

 

 

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

 

6


Table of Contents

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 June 30, 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

 

7


Table of Contents

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:

 

                                                                                 
             As of June 30, 2012                   As of December 31, 2011      

Government-sponsored enterprises debt obligations

       $ 2,318             $ 3,035     

Other FHLBank’s bond (1)

     81           82     

State or local housing agency debt obligations

     1           3     
  

 

 

    

 

 

 

Total

       $ 2,400             $ 3,120     
  

 

 

    

 

 

 

 

(1) 

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

 

8


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

                                                   
     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Net unrealized (losses) gains on trading securities held at period end

       $ (4)             $ 22             $ (26)             $ (8)     

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

     —           (2)           (7)           (6)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net (losses) gains on trading securities

       $ (4)             $ 20             $ (33)             $ (14)     
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 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 six-month periods ended June 30, 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 at March 31,

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

Transferred at June 30,

    —          —          —          52          6          46     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 6            $ —            $ 6            $ 374            $ 26            $ 348     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

                                                                
     As of June 30, 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

       $ 3,015             $ 285             $ 15             $ 4             $ 2,741     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

9


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

     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     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 June 30, 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

        5            $ 263            $ 7              42            $ 1,838            $ 282              47            $ 2,101            $ 289     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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 Bank did not swap any of its available-for-sale securities as of June 30, 2012 and December 31, 2011.

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

 

     As of June 30, 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

       $ 1,878             $  228             $ 7             $ 2             $ 1,655     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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 June 30, 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

      $ 625            $ —            $ —            $ 625            $ 650            $ —            $ —            $ 650     

State or local housing agency debt obligations

    115          1          —          116          100          1          —          101     

Government-sponsored enterprises debt
obligations

    1,565          1          —          1,566          1,111          1          —          1,112     

Mortgage-backed securities:

               

U.S. agency obligations-guaranteed

    720          8          —          728          803          8          —          811     

Government-sponsored enterprises

    10,210          178          2          10,386          9,886          185          5          10,066     

Private label

    3,173          27          115          3,085          3,693          28          219          3,502     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 16,408            $ 215            $ 117            $ 16,506            $ 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 June 30, 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
 

Government-sponsored enterprises debt obligations

    1            $ 150            $ —          —            $ —            $ —              1            $ 150            $ —     

Mortgage-backed securities:

                 

Government-sponsored enterprises

    1          68          1          3          150          1          4          218          2     

Private label

    11          154          1          63          1,715          114          74          1,869          115     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

        13            $ 372            $ 2              66            $ 1,865            $ 115              79            $ 2,237            $ 117     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                                                                                    
     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.

 

11


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

 

     As of June 30, 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

       $ 628             $ 628             $ 703             $ 702     

Due after one year through five years

     1,677           1,679           1,158           1,161     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-mortgage-backed securities

     2,305           2,307           1,861           1,863     

Mortgage-backed securities

     14,103           14,199           14,382           14,379     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $     16,408             $     16,506             $     16,243             $     16,242     
  

 

 

    

 

 

    

 

 

    

 

 

 

The amortized cost of the Bank’s MBS classified as held-to-maturity includes net discounts of $12 and $13 as of June 30, 2012 and December 31, 2011, respectively.

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

 

     As of June 30, 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

       $ 1,052             $ 11             $ 33             $ 1,030             $ 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 as of 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

 

12


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

ratings through credit enhancement, overcollateralization and senior-subordinated shifting interest features; the latter results in subordination of payments by junior classes to ensure cash flows to the senior classes. The ratings on 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 June 30, 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 June 30, 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 six 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 April 1, 2012. For the vast majority of markets where further home price declines are anticipated, the declines were projected to range from one percent to four percent over the three-month period beginning April 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 June 30, 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

 

13


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults and loss severities, were then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. The model classifies securities, as noted in the below table, based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.

At each quarter end, the Bank compares the present value of the cash flows (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 June 30, 2012 as well as related current credit enhancement:

 

     Significant Inputs  
     Prepayment Rate      Default Rates      Loss Severities      Current Credit Enhancement  

Year of

Securitization

       Weighted    
Average
(%)
         Range (%)              Weighted    
Average
(%)
         Range (%)              Weighted    
Average
(%)
         Range (%)              Weighted    
Average
(%)
         Range (%)      

Prime:

                       

2007

     9.85           9.85 to 9.85           20.77           20.77 to 20.77           47.25           47.25 to 47.25           3.67           3.67 to 3.67     

2006

     7.42           5.95 to 8.80           30.13           25.91 to 36.24           40.63           39.18 to 49.31           2.77           0.26 to 5.66     

2005

     8.09           6.85 to 8.94           20.80           18.03 to 26.50           43.54           43.48 to 44.10           5.06           4.67 to 6.08     

Total Prime

     7.74           5.95 to 9.85           27.04           18.03 to 36.24           41.79           39.18 to 49.31           3.46           0.26 to 6.08     

Alt-A:

                       

2006

     6.03           6.03 to 6.03           60.35           60.35 to 60.35           58.78           58.78 to 58.78           0.02           0.02 to 0.02     

2005

     8.76           4.58 to 9.26           33.07           29.46 to 63.54           49.78           48.56 to 60.08           0.40           (0.02) to 3.95     

Total Alt-A

     8.02           4.58 to 9.26           40.42           29.46 to 63.54           52.20           48.56 to 60.08           0.30           (0.02) to 3.95     

Total

     7.85           4.58 to 9.85           32.20           18.03 to 63.54           45.80           39.18 to 60.08           2.24           (0.02) to 6.08     

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 June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

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

       $ 589             $ 516             $ 582             $ 464     

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

     —           1           —           7     

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

     8           36           15           82     
  

 

 

    

 

 

    

 

 

    

 

 

 

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

       $ 597             $ 553             $ 597             $ 553     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

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.

 

            As of June 30, 2012                  As of December 31, 2011      

Overdrawn demand deposit accounts

      $ —            $ 3     

Due in one year or less

    30,174          36,542     

Due after one year through two years

    9,889          11,173     

Due after two years through three years

    8,051          7,851     

Due after three years through four years

    4,654          3,881     

Due after four years through five years

    8,254          5,836     

Due after five years

    16,590          17,283     
 

 

 

   

 

 

 

Total par value

    77,612          82,569     

Discount on AHP (1) advances

    (12)          (12)     

Discount on EDGE (2) advances

    (9)          (10)     

Hedging adjustments

    4,257          4,431     

Deferred commitment fees

    (6)          (7)     
 

 

 

   

 

 

 

Total

      $ 81,842            $ 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:

 

        As of June 30, 2012             As of December 31, 2011      

Overdrawn demand deposit accounts

      $ —            $ 3     

Due or convertible in one year or less

    35,515          42,376     

Due or convertible after one year through two years

    10,220          11,946     

Due or convertible after two years through three years

    8,102          7,716     

Due or convertible after three years through four years

    4,265          3,464     

Due or convertible after four years through five years

    7,003          5,021     

Due or convertible after five years

    12,507          12,043     
 

 

 

   

 

 

 

Total par value

      $ 77,612            $ 82,569     
 

 

 

   

 

 

 

 

15


Table of Contents

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:

 

                As of June 30,  2012                       As of December 31, 2011         

Fixed-rate:

   

Due in one year or less

      $ 27,271            $ 32,389     

Due after one year

    38,806          38,811     
 

 

 

   

 

 

 

Total fixed-rate

    66,077          71,200     
 

 

 

   

 

 

 

Variable-rate:

   

Due in one year or less

    2,903          4,156     

Due after one year

    8,632          7,213     
 

 

 

   

 

 

 

Total variable-rate

    11,535          11,369     
 

 

 

   

 

 

 

Total par value

      $ 77,612            $ 82,569     
 

 

 

   

 

 

 

As of June 30, 2012 and December 31, 2011, 65.8 percent and 65.7 percent, respectively, of the Bank’s fixed-rate advances were swapped and 32.6 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 June 30, 2012 and December 31, 2011. No advance was past due as of June 30, 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 June 30, 2012 and December 31, 2011, the concentration of the Bank’s advances was $56,664 and $56,991, respectively, to 10 member institutions, and representing 73.0 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:

 

                                                                                 
                 As of June 30,  2012                        As of December 31, 2011         

Fixed-rate

       $ 83,476             $ 84,571     

Step up/down

     3,791           2,978     

Simple variable-rate

     600           1,850     

Variable-rate capped floater

     20           20     
  

 

 

    

 

 

 

Total par value

       $ 87,887             $ 89,419     
  

 

 

    

 

 

 

 

16


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

As of June 30, 2012 and December 31, 2011, 81.8 percent and 81.9 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped and 3.23 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:

 

     As of June 30, 2012      As of December 31, 2011  
         Amount          Weighted-
average
Interest
    Rate (%)    
     Amount      Weighted-
average
Interest
    Rate (%)    
 

Due in one year or less

       $ 50,404           0.70             $ 48,163           0.57     

Due after one year through two years

     19,273           1.40           20,987           1.83     

Due after two years through three years

     2,874           4.16           7,927           2.40     

Due after three years through four years

     2,895           4.17           2,083           2.65     

Due after four years through five years

     7,664           2.49           4,005           3.79     

Due after five years

     4,777           3.09           6,254           3.97     
  

 

 

       

 

 

    

Total par value

     87,887           1.38           89,419           1.46     

Premiums

     91              101        

Discounts

     (39)              (38)        

Hedging adjustments

     1,140              1,180        
  

 

 

       

 

 

    

Total

       $     89,079                $     90,662        
  

 

 

       

 

 

    

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

 

                                                                                 
             As of June 30, 2012                   As of December 31, 2011      

Noncallable

       $ 75,112             $ 60,794     

Callable

     12,775           28,625     
  

 

 

    

 

 

 

Total par value

       $ 87,887             $ 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:

 

             As of June 30, 2012                   As of December 31, 2011      

Due or callable in one year or less

       $ 56,982             $ 60,321     

Due or callable after one year through two years

     17,473           17,467     

Due or callable after two years through three years

     2,469           3,284     

Due or callable after three years through four years

     2,462           1,110     

Due or callable after four years through five years

     6,019           2,870     

Due or callable after five years

     2,482           4,367     
  

 

 

    

 

 

 

Total par value

       $ 87,887             $ 89,419     
  

 

 

    

 

 

 

 

17


Table of Contents

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:

 

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

As of June 30, 2012

       $ 21,427             $ 21,434               0.11     
  

 

 

    

 

 

    

 

 

 

As of December 31, 2011

       $ 24,330             $ 24,331               0.03     
  

 

 

    

 

 

    

 

 

 

As of June 30, 2012 and December 31, 2011, 0.47 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:

 

     As of June 30, 2012      As of December 31, 2011  
         Required                  Actual                  Required                  Actual          

Risk based capital

       $ 1,749             $ 6,466             $ 1,951             $ 7,258     

Total capital-to-assets ratio

     4.00%           5.41%           4.00%           5.79%     

Total regulatory capital (1)

       $ 4,778             $ 6,466             $ 5,011             $ 7,258     

Leverage ratio

     5.00%           8.12%           5.00%           8.69%     

Leverage capital

       $ 5,972             $ 9,699             $ 6,264             $ 10,887     

 

(1) 

Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $115 and $286 in mandatorily redeemable capital stock as of June 30, 2012 and December 31, 2011, respectively.

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

 

                                                                   
    Three Months Ended June 30,     Six Months Ended June 30,  
    2012     2011     2012     2011  

Balance, beginning of period

      $ 328            $ 531            $ 286            $ 529     

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

       

Attainment of nonmember status

    1          33          81          37     

Withdrawal

    —          1          1          1     

Repurchase/redemption of mandatorily redeemable capital stock

    (214)          (172)          (224)          (172)     

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

    —          (8)          (29)          (10)     
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

      $ 115            $ 385            $ 115            $ 385     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

                                                                                 
             As of June 30, 2012                   As of December 31, 2011      

Due in one year or less

       $ 1             $ 4     

Due after one year through two years

     4           8     

Due after two years through three years

     28           52     

Due after three years through four years

     15           122     

Due after four years through five years

     66           99     

Due after five years

     1           1     
  

 

 

    

 

 

 

Total

       $ 115             $ 286     
  

 

 

    

 

 

 

Note 10—Accumulated Other Comprehensive Loss

Components comprising accumulated other comprehensive loss were as follows:

 

                                                                                                           
     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

     —           106           106     
  

 

 

    

 

 

    

 

 

 

Balance, June 30, 2011

       $ (10)             $ (286)             $ (296)     
  

 

 

    

 

 

    

 

 

 

Balance, December 31, 2011

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

Current period other comprehensive income

     1           124           125     
  

 

 

    

 

 

    

 

 

 

Balance, June 30, 2012

       $ (12)             $ (274)             $ (286)     
  

 

 

    

 

 

    

 

 

 

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 its funding sources that finance these assets. The goal of the Bank’s interest-rate risk management strategies is not to eliminate interest-rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, the Bank has established policies and procedures, which include guidelines on the amount of exposure to interest rate changes it is willing to accept. In addition, the Bank monitors the risk to its interest income, net interest margin, and average maturity of interest-earning assets and funding sources. For additional information on the Bank’s derivatives and hedging activities, see Note 18—Derivatives and Hedging Activities to the 2011 audited financial statements contained in the Bank’s Form 10-K.

 

19


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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.

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.

 

     As of June 30, 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

       $   115,250             $   1,265             $   (4,249)             $   120,999             $   1,344             $   (4,467)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives in hedging relationships

     115,250           1,265           (4,249)           120,999           1,344           (4,467)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

                 

Interest rate swaps

     5,742           10           (542)           6,221           14           (567)     

Interest rate caps or floors

     12,500           38           (31)           12,500           64           (53)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

     18,242           48           (573)           18,721           78           (620)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives before netting and collateral adjustments

       $ 133,492           1,313           (4,822)             $ 139,720           1,422           (5,087)     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Netting adjustments

        (1,266)           1,266              (1,377)           1,377     

Cash collateral and related accrued interest

        (37)           3,416              (27)           3,469     
     

 

 

    

 

 

       

 

 

    

 

 

 

Total collateral and netting adjustments (1)

        (1,303)           4,682              (1,404)           4,846     
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivative assets and derivative liabilities

          $   10             $   (140)                $   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.

 

20


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

                 Three Months Ended  June 30,              
     2012      2011  

Derivatives and hedged items in fair value hedging relationships:

     

Interest rate swaps

       $ 36             $ 35     
  

 

 

    

 

 

 

Total net gains related to fair value hedge ineffectiveness

     36           35     
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Interest rate swaps

     (3)           (17)     

Interest rate caps or floors

     (10)           (2)     

Net interest settlements

     (24)           (36)     
  

 

 

    

 

 

 

Total net losses related to derivatives not designate as hedging instruments

     (37)           (55)     
  

 

 

    

 

 

 

Net losses on derivatives and hedging activities

       $ (1)             $ (20)     
  

 

 

    

 

 

 
     Six Months Ended June 30,  
     2012      2011  

Derivatives and hedged items in fair value hedging relationships:

     

Interest rate swaps

       $ 87             $ 73     
  

 

 

    

 

 

 

Total net gains related to fair value hedge ineffectiveness

     87           73     
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Interest rate swaps

     24           25     

Interest rate caps or floors

     (4)           1     

Net interest settlements

     (54)           (73)     
  

 

 

    

 

 

 

Total net losses related to derivatives not designate as hedging instruments

     (34)           (47)     
  

 

 

    

 

 

 

Net gains on derivatives and hedging activities

       $ 53             $ 26     
  

 

 

    

 

 

 

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

 

    Three Months Ended June 30, 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

      $ (345)             $ 386             $ 41             $ (362)     

Consolidated obligations:

          

Bonds

    5           (10)           (5)           146     
 

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ (340)             $ 376             $ 36             $ (216)     
 

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

21


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

    Three Months Ended June 30, 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

      $ (271)             $ 311             $ 40             $ (541)     

Consolidated obligations:

          

Bonds

    193           (198)           (5)           218     

Discount notes

    (1)           1           —           1     
 

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ (79)             $ 114             $ 35             $ (322)     
 

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

     

    Six Months Ended June 30, 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

      $ 152             $ (45)             $ 107             $ (748)     

Consolidated obligations:

          

Bonds

    (45)           25           (20)           289     
 

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 107             $ (20)             $ 87             $ (459)     
 

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

     

    Six Months Ended June 30, 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

      $ 381             $ (294)             $ 87             $ (1,131)     

Consolidated obligations:

          

Bonds

    (7)           (7)           (14)           434     

Discount notes

    (2)           2           —           2     
 

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 372             $ (299)             $ 73             $ (695)     
 

 

 

    

 

 

    

 

 

    

 

 

 

 

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

     

Managing Credit Risk on Derivatives

The Bank is subject to credit risk 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 June 30, 2012.

 

22


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

                 As of June 30,  2012                      As of December 31, 2011      

Total net exposure at fair value (1)

       $ 46             $ 45     

Cash collateral held

     36           27     
  

 

 

    

 

 

 

Net positive exposure after cash collateral

     10           18     

Other collateral

     1           5     
  

 

 

    

 

 

 

Net exposure after collateral (2)

       $ 9             $ 13     
  

 

 

    

 

 

 

 

(1) 

Includes net accrued interest (payable) receivable of $(4) and $1 as of June 30, 2012 and December 31, 2011, respectively.

(2) 

The Bank had net credit exposure of $7 and $0 at June 30, 2012 and December 31, 2011, respectively, due to instances where the Bank’s pledged collateral to a counterparty exceeds the Bank’s net position.

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 June 30, 2012 was $3,548 for which the Bank has posted collateral of $3,415 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 $126 of collateral (at fair value) to its derivative counterparties as of June 30, 2012.

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 six-month period ended June 30, 2012.

 

23


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

Fair Value on a Recurring Basis. The following tables present for each fair value hierarchy level, the Bank’s financial assets and liabilities that are measured at fair value on a recurring basis on its Statements of Condition:

 

    As of June 30, 2012  
    Fair Value Measurements Using      Netting
     Adjustment (1)    
        
            Level 1                      Level 2                      Level 3                             Total               

Assets

             

Trading securities:

             

Government-sponsored enterprises debt obligations

      $   —             $ 2,318             $ —             $ —             $ 2,318     

Other FHLBank’s bond

    —           81           —           —           81     

State or local housing agency debt obligations

    —           1           —           —           1     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trading securities

    —           2,400           —           —           2,400     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities:

             

Private-label MBS

    —           —           2,741           —           2,741     

Derivative assets:

             

Interest-rate related

    —           1,313           —           (1,303)           10     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

      $   —             $ 3,713             $ 2,741             $ (1,303)             $ 5,151     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

             

Derivative liabilities:

             

Interest-rate related

      $   —             $ (4,822)             $ —             $ 4,682             $ (140)     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

      $   —             $ (4,822)             $ —             $ 4,682             $ (140)     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

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

 

24


Table of Contents

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):

 

             Six Months Ended June 30,           
     2012      2011  

Balance, beginning of period

       $ 2,942             $ 3,319     

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

     6           348     

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

     

Included in net impairment losses recognized in earnings

     (15)           (82)     

Included in other comprehensive loss (2)

     124           132     

Included in interest income

     2           (5)     

Settlements

     (318)           (404)     
  

 

 

    

 

 

 

Balance, end of period

       $ 2,741             $ 3,308     
  

 

 

    

 

 

 

 

(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 June 30, 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.

 

25


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

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

 

                                                                             
     As of June 30, 2012  
            Estimated Fair Value  
             Carrying        
Value
             Total                      Level 1                      Level 2                      Level 3              Netting
    Adjustment    
 

Assets:

                 

Cash and due from banks

       $ 13             $ 13             $ 13             $ —             $ —             $ —     

Interest bearing-deposits

     1,104           1,104           —           1,104           —           —     

Federal funds sold

     13,048           13,048           —           13,048           —           —     

Trading securities

     2,400           2,400           —           2,400           —           —     

Available-for-sale securities

     2,741           2,741           —           —           2,741           —     

Held-to-maturity securities

     16,408           16,506           —           13,421           3,085           —     

Mortgage loans held for portfolio, net

     1,423           1,570           —           1,570           —           —     

Advances

     81,842           82,685           —           82,685           —           —     

Accrued interest receivable

     274           274           —           274           —           —     

Derivative assets

     10           10           —           1,313           —           (1,303)     

Liabilities:

                 

Interest-bearing deposits

     (2,133)           (2,133)           —           (2,133)           —           —     

Consolidated obligations, net:

                 

Discount notes

     (21,427)           (21,427)           —           (21,427)           —           —     

Bonds

     (89,079)           (90,001)           —           (90,001)           —           —     

Mandatorily redeemable capital stock

     (115)           (115)           (115)           —           —           —     

Accrued interest payable

     (256)           (256)           —           (256)           —           —     

Derivative liabilities

     (140)           (140)           —           (4,822)           —           4,682     

 

26


Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

 

    As of December 31, 2011  
            Carrying        
Value
             Estimated        
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 $575,874 and $578,118 as of June 30, 2012 and December 31, 2011, respectively, exclusive of the Bank’s own outstanding consolidated obligations.

 

27


Table of Contents

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 June 30, 2012                   As of December 31, 2011      

Outstanding notional

         $            18,988               $            21,510     

Original terms (1)

     Less than six 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 June 30, 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 $68 and $80 as of June 30, 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 June 30, 2012 and December 31, 2011. Such commitments would be recorded as derivatives at their fair values.

As of June 30, 2012, the Bank had committed to the issuance of $55 (par value) in consolidated obligation bonds, of which $45 were hedged with associated interest rate swaps that had traded but not yet settled. As of 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.

 

28


Table of Contents

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, National Association, which held 13.8 percent of the Bank’s total regulatory capital stock as of June 30, 2012, was considered a related party. Total advances outstanding to Bank of America, National Association were $13,889 and $16,039 as of June 30, 2012 and December 31, 2011, respectively. Total deposits held in the name of Bank of America, National Association were less than $1 as of June 30, 2012 and December 31, 2011. No mortgage loans or mortgage-backed securities were acquired from Bank of America, National Association during the six-month periods ended June 30, 2012 and 2011.

Note 15—Subsequent Events

On July 26, 2012, the Bank’s board of directors approved a cash dividend for the second quarter of 2012 in the amount of $19. The Bank paid the second quarter 2012 dividend on August 3, 2012.

On July 30, 2012, the Bank sent a notice to each current shareholder of the Bank announcing that it will repurchase up to $700 of excess capital stock on August 15, 2012. The amount of excess stock to be repurchased from any individual shareholder will be based on the shareholder’s total excess capital stock as of August 14, 2012.

 

29


Table of Contents
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 second quarter and the first six months ended June 30, 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.

 

30


Table of Contents

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 June 30, 2012, total assets were $119.4 billion, a decrease of $5.8 billion, or 4.65 percent, from December 31, 2011. This decrease was primarily due to a $5.1 billion, or 5.90 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 June 30, 2012, total liabilities were $113.4 billion, a decrease of $5.3 billion, or 4.49 percent, from December 31, 2011. This decrease was primarily due to a $4.5 billion, or 3.90 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 June 30, 2012, total capital was $6.1 billion, a decrease of $496 million, or 7.55 percent, from December 31, 2011. This decrease was primarily due to the repurchase of $1.2 billion in excess capital stock, excluding capital stock classified as mandatorily redeemable capital stock, partially offset by the issuance of $497 million of activity-based capital stock and $34 million of membership capital stock, and a $125 million decrease in accumulated other comprehensive loss during the period. 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 $60 million for the second quarter of 2012, an increase of $22 million, or 55.8 percent, from net income of $38 million for the second quarter of 2011. The increase in net income was primarily due to a $29 million decrease in net impairment losses recognized in earnings and a $6 million decrease in total assessments, partially offset by a $12 million decrease in net interest income. These items are discussed in more detail in Management’s Discussion and Analysis–Results of Operations below.

 

31


Table of Contents

The Bank recorded net income of $130 million for the first six months of 2012, an increase of $41 million, or 46.1 percent, from net income of $89 million during the same period in 2011. The increase in net income was primarily due to a $74 million decrease in net impairment losses recognized in earnings and a $17 million decrease in total assessments, partially offset by a $54 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 London Interbank Offered Rate (LIBOR). The Bank’s ROE was 3.76 percent for the second quarter of 2012, compared to 2.01 percent for the second quarter of 2011. ROE increased for the second quarter of 2012, compared to the second 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 LIBOR increased to 329 basis points for the second quarter of 2012, compared to 175 basis points for the second quarter of 2011. The increase in the ROE spread to LIBOR was primarily due to the increase in ROE as previously discussed.

The Bank’s annualized ROE was 3.97 percent for the first six months of 2012, compared to 2.29 percent during the same period in 2011. ROE increased for the first six months of 2012, compared to the same period in 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 LIBOR increased to 348 basis points for the first six months of 2012, compared to 200 basis points for the same period in 2011. The increase in the ROE spread to LIBOR was primarily due to the increase in ROE as previously discussed.

The Bank’s interest rate spread was 30 basis points and 33 basis points for the second quarter of 2012 and 2011, respectively, and 26 basis points and 34 basis points for the first six months of 2012 and 2011, respectively. The decrease in the Bank’s interest rate spread during the second quarter and first six months of 2012, compared to the same periods in 2011, was primarily due to a decrease in yield on the Bank’s long-term investment portfolio during the periods.

Business Outlook

The Bank’s business outlook remains largely unchanged from the outlook discussion in the Bank’s Form 10-K. The increase in advances from the first quarter of 2012 and from the second quarter of 2011 reflects moderate demand for new advances among previously less active borrowers and signs of improving financial health throughout the Bank’s membership, although the majority of these new advances are short-term advances subject to refinancing risk. 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 second quarter of 2012 compared to the second 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.

 

32


Table of Contents

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.

Selected Financial Data

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

 

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

Statements of Condition (at period end)

              

Total assets

       $ 119,440             $ 109,137             $ 125,270             $ 118,852             $ 116,817     

Investments (1)

     35,701           34,536           36,138           41,204           36,979     

Mortgage loans held for portfolio

     1,432           1,534           1,639           1,743           1,828     

Allowance for credit losses on mortgage loans