10-Q 1 fhlb-atlq12013.htm 10-Q FHLB-ATL Q1 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________
  
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51845
 _____________________________________ 
FEDERAL HOME LOAN BANK OF ATLANTA
(Exact name of registrant as specified in its charter)
_____________________________________  

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

Registrant’s telephone number, including area code: (404) 888-8000
_____________________________________  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of April 30, 2013 was 46,025,199.



Table of Contents
 





PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CONDITION
(Unaudited)
(In millions, except par value)
 
As of March 31, 2013
 
As of December 31, 2012
Assets
 
 
 
Cash and due from banks
$
23

 
$
4,083

Interest-bearing deposits (including deposits with other FHLBank of $1 as of March 31, 2013 and December 31, 2012)
1,006

 
1,005

Securities purchased under agreements to resell

 
250

Federal funds sold
7,760

 
7,235

Trading securities (includes other FHLBank’s bond of $75 and $77 as of March 31, 2013 and December 31, 2012, respectively)
2,348

 
2,370

Available-for-sale securities
2,636

 
2,676

Held-to-maturity securities (fair value of $16,151 and $17,124 as of March 31, 2013 and December 31, 2012, respectively)
15,947

 
16,918

Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $13 and $11 as of March 31, 2013 and December 31, 2012, respectively
1,154

 
1,244

Advances
80,260

 
87,503

Accrued interest receivable
232

 
240

Premises and equipment, net
31

 
32

Derivative assets
5

 
13

Other assets
145

 
136

Total assets
$
111,547

 
$
123,705

Liabilities
 
 
 
Interest-bearing deposits
$
2,037

 
$
2,094

Consolidated obligations, net:
 
 
 
Discount notes
20,040

 
31,737

Bonds
82,858

 
82,947

Total consolidated obligations, net
102,898

 
114,684

Mandatorily redeemable capital stock
34

 
40

Accrued interest payable
289

 
229

Affordable Housing Program payable
78

 
80

Derivative liabilities
185

 
158

Other liabilities
146

 
145

Total liabilities
105,667

 
117,430

Commitments and contingencies (Note 13)

 

Capital
 
 
 
Capital stock Class B putable ($100 par value) issued and outstanding shares:
 
 
 
Subclass B1 issued and outstanding shares: 10 and 12 as of March 31, 2013 and December 31, 2012, respectively
941

 
1,160

Subclass B2 issued and outstanding shares: 34 and 37 as of March 31, 2013 and December 31, 2012, respectively
3,439

 
3,738

Total capital stock Class B putable
4,380

 
4,898

Retained earnings:
 
 
 
Restricted
87

 
73

Unrestricted
1,390

 
1,362

Total retained earnings
1,477

 
1,435

Accumulated other comprehensive income (loss)
23

 
(58
)
Total capital
5,880

 
6,275

Total liabilities and capital
$
111,547

 
$
123,705

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

3


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF INCOME
(Unaudited)
(In millions)
 
 
For the Three Months Ended March 31,
 
2013
 
2012
Interest income
 
 
 
Advances
$
63

 
$
66

Prepayment fees on advances, net

 
2

Interest-bearing deposits
2

 
1

Federal funds sold
3

 
5

Trading securities
28

 
35

Available-for-sale securities
33

 
41

Held-to-maturity securities
63

 
83

Mortgage loans held for portfolio
16

 
21

Total interest income
208

 
254

Interest expense
 
 
 
Consolidated obligations:
 
 
 
 Discount notes
8

 
3

 Bonds
113

 
165

Mandatorily redeemable capital stock

 
1

Total interest expense
121

 
169

Net interest income
87

 
85

Provision for credit losses
2

 
3

Net interest income after provision for credit losses
85

 
82

Noninterest income (loss)
 
 
 
Total other-than-temporary impairment losses
(1
)
 

Net amount of impairment losses recorded in (reclassified from) other comprehensive income (loss)
1

 
(7
)
Net impairment losses recognized in earnings

 
(7
)
Net losses on trading securities
(24
)
 
(29
)
Net gains on derivatives and hedging activities
42

 
54

Letters of credit fees
5

 
5

Other
1

 

Total noninterest income
24

 
23

Noninterest expense
 
 
 
Compensation and benefits
16

 
15

Other operating expenses
10

 
8

Finance Agency
3

 
3

Office of Finance
1

 
1

Total noninterest expense
30

 
27

Income before assessments
79

 
78

  Affordable Housing Program assessments
8

 
8

Net income
$
71

 
$
70


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

4


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
 
For the Three Months Ended March 31,
 
2013
 
2012
Net income
$
71

 
$
70

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
(1
)
 

Net change in fair value on other-than-temporary impairment available-for-sale securities
82

 
119

Reclassification of noncredit portion of impairment losses included in net income

 
7

Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities
81

 
126

Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities:
 
 
 
Noncredit losses on held-to-maturity securities
(1
)
 

Reclassification of noncredit portion from held-to-maturity securities to available-for-sale securities
1

 

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

 

Total other comprehensive income
81

 
126

Total comprehensive income
$
152

 
$
196


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

5


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CAPITAL
(Unaudited)
(In millions)
 
 
Capital Stock Class B Putable
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Capital    
 
Shares        
 
Par Value
 
Restricted    
 
Unrestricted    
 
Total        
 
Balance, December 31, 2011
57

 
$
5,718

 
$
19

 
$
1,235

 
$
1,254

 
$
(411
)
 
$
6,561

Issuance of capital stock
2

 
233

 

 

 

 

 
233

Net shares reclassified to mandatorily redeemable capital stock

 
(52
)
 

 

 

 

 
(52
)
Comprehensive income

 

 
14

 
56

 
70

 
126

 
196

Cash dividends on capital stock

 

 

 
(18
)
 
(18
)
 

 
(18
)
Balance, March 31, 2012
59

 
$
5,899

 
$
33

 
$
1,273

 
$
1,306

 
$
(285
)
 
$
6,920

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
49

 
$
4,898

 
$
73

 
$
1,362

 
$
1,435

 
$
(58
)
 
$
6,275

Issuance of capital stock
8

 
763

 

 

 

 

 
763

Repurchase/redemption of capital stock
(13
)
 
(1,277
)
 

 

 

 

 
(1,277
)
Net shares reclassified to mandatorily redeemable capital stock

 
(4
)
 

 

 

 

 
(4
)
Comprehensive income

 

 
14

 
57

 
71

 
81

 
152

Cash dividends on capital stock

 

 

 
(29
)
 
(29
)
 

 
(29
)
Balance, March 31, 2013
44

 
$
4,380

 
$
87

 
$
1,390

 
$
1,477

 
$
23

 
$
5,880


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

6


FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
 
For the Three Months Ended March 31,
 
2013
 
2012
Operating activities
 
 
 
Net income
$
71

 
$
70

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
(18
)
 
(10
)
  Provision for credit losses
2

 
3

  (Gain) loss due to change in net fair value adjustment on derivative and hedging activities
(25
)
 
33

  Net change in fair value adjustment on trading securities
24

 
29

  Net impairment losses recognized in earnings

 
7

Net change in:
 
 
 
  Accrued interest receivable
8

 
55

  Other assets
(3
)
 
12

  Affordable Housing Program payable
(4
)
 
(1
)
  Accrued interest payable
60

 
29

  Other liabilities

 
(15
)
  Total adjustments
44

 
142

Net cash provided by operating activities
115

 
212

Investing activities
 
 
 
Net change in:
 
 
 
  Interest-bearing deposits
285

 
377

  Securities purchased under agreements to resell
250

 

  Federal funds sold
(525
)
 
2,269

Trading securities:
 
 
 
  Proceeds from maturities

 
690

Available-for-sale securities:
 
 
 
  Proceeds from maturities
133

 
147

Held-to-maturity securities:
 
 
 
  Net change in short-term
450

 
(200
)
  Proceeds from maturities of long-term
948

 
852

  Purchases of long-term
(437
)
 
(2,017
)
Advances:
 
 
 
  Proceeds from principal collected
32,103

 
52,060

  Made
(25,249
)
 
(38,029
)
Mortgage loans held for portfolio:
 
 
 
  Proceeds from principal collected
80

 
102

Proceeds from sale of foreclosed assets
2

 
5

Purchase of premise, equipment, and software
(1
)
 
(1
)
Net cash provided by investing activities
8,039

 
16,255

 
 
 
 

7


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

 
For the Three Months Ended March 31,
 
2013
 
2012
Financing activities
 
 
 
Net change in deposits
(25
)
 
489

Net payments on derivatives containing a financing element
(42
)
 
(115
)
Proceeds from issuance of consolidated obligations:
 
 
 
 Discount notes
46,063

 
84,231

 Bonds
17,634

 
17,402

Payments for debt issuance costs
(2
)
 
(1
)
Payments for maturing and retiring consolidated obligations:
 
 
 
 Discount notes
(57,759
)
 
(92,383
)
 Bonds
(17,530
)
 
(26,296
)
Proceeds from issuance of capital stock
763

 
233

Payments for repurchase/redemption of capital stock
(1,277
)
 

Payments for repurchase/redemption of mandatorily redeemable capital stock
(10
)
 
(10
)
Cash dividends paid
(29
)
 
(18
)
Net cash used in financing activities
(12,214
)
 
(16,468
)
Net decrease in cash and due from banks
(4,060
)
 
(1
)
Cash and due from banks at beginning of the period
4,083

 
6

Cash and due from banks at end of the period
$
23

 
$
5

Supplemental disclosures of cash flow information:
 
 
 
 Cash paid for:
 
 
 
Interest
$
66

 
$
147

Affordable Housing Program assessments, net
$
10

 
$
8

 Noncash investing and financing activities:
 
 
 
Net shares reclassified to mandatorily redeemable capital stock
$
4

 
$
52

Held-to-maturity securities acquired with accrued liabilities
$

 
$
50

Transfer of held-to-maturity securities to available-for-sale securities
$
11

 
$
6

Transfers of mortgage loans to real estate owned
$
8

 
$
3


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

 


8


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

Note 1—Basis of Presentation

The accompanying unaudited interim financial statements of the Federal Home Loan Bank of Atlanta (Bank) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities 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, 2013, 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, 2012, which are contained in the Bank’s 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 22, 2013 (Form 10-K).

The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to enforceable master netting arrangements or similar agreements. The Bank has elected to offset its derivative asset and liability positions, as well as cash collateral received or pledged, when it has the legal right of offset under these master agreements. The Bank does not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged. There may be a delay for excess collateral to be returned.  For derivative instruments, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset based on the terms of the individual master agreement between the Bank and its derivative counterparty.  Additional information regarding these agreements is provided in Note 11–Derivatives and Hedging Activities. Based on the fair value of the related securities held as collateral, the securities purchased under agreements to resell were fully collateralized for the periods presented. Additional information about the Bank's investments in securities purchased under agreements to resell is disclosed in Note 2–Summary of Significant Accounting Policies to the 2012 audited financial statements contained in the Bank's Form 10-K.

A description of all of the Bank’s significant accounting policies is included in Note 2–Summary of Significant Accounting Policies to the 2012 audited financial statements contained in the Bank’s Form 10-K. There have been no material changes to these policies as of March 31, 2013.

Note 2—Recently Issued and Adopted Accounting Guidance
Recently Issued Accounting Guidance

Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.  In February 2013, the Financial Accounting Standards Board (FASB) issued guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This guidance requires an entity to measure these obligations as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance is effective for interim and annual periods beginning on or after December 15, 2013 and will be applied retrospectively to obligations with joint and several liabilities existing at the beginning of an entity's fiscal year of adoption. This guidance is not expected to materially affect the Bank's financial condition or results of operations. 
Recently Adopted Accounting Guidance

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. In January 2013, the FASB issued amended guidance to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. For public entities, this amended guidance is effective for reporting periods beginning after December 15, 2012. The Bank adopted this guidance effective January 1, 2013, which resulted in additional disclosures. The adoption of this guidance did not have any effect on the Bank's financial condition or results of operations.

9

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



Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. In January 2013, the FASB issued guidance to clarify the scope of transactions that are subject to previously issued guidance on disclosures about offsetting assets and liabilities. The disclosure guidance on offsetting assets and liabilities applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with GAAP or subject to a master netting arrangement or similar agreement. This guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Bank adopted and applied this guidance retrospectively effective January 1, 2013 for all comparative periods presented, which resulted in additional disclosures. The adoption of this guidance did not have any effect on the Bank's financial condition or results of operations.
Disclosures about Offsetting Assets and Liabilities. In December 2011, FASB issued disclosure requirements that are intended to help investors and other financial statement users 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 annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Bank adopted and applied this guidance retrospectively effective January 1, 2013 for all comparative periods presented, which resulted in additional disclosures. 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 March 31, 2013
 
As of December 31, 2012
Government-sponsored enterprises debt obligations
$
2,272

 
$
2,291

Other FHLBank’s bond (1)
75

 
77

State or local housing agency debt obligations
1

 
2

Total
$
2,348

 
$
2,370

 ____________
(1) 
The Federal Home Loan Bank of Chicago is the primary obligor of this consolidated obligation bond.
Net unrealized and realized losses on trading securities were as follows:
 
 
For the Three Months Ended March 31,
 
2013
 
2012
Net unrealized losses on trading securities held at period end
$
(24
)
 
$
(22
)
Net unrealized/realized losses on trading securities sold/matured during the period

 
(7
)
Net losses on trading securities
$
(24
)
 
$
(29
)

Note 4—Available-for-sale Securities
During the three-month periods ended March 31, 2013 and 2012, the Bank transferred certain private-label 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.

10

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


The following table presents information on private-label MBS transferred. The amounts below represent the values as of the transfer date.
 
2013
 
2012
 
Amortized    
Cost
 
Other-than-temporary
Impairment
Recognized in
Accumulated Other
Comprehensive Income (Loss)
 
Estimated
Fair Value
 
Amortized    
Cost
 
Other-than-temporary
Impairment
Recognized in
Accumulated Other
Comprehensive Income (Loss)
 
Estimated
Fair Value
Transferred at March 31,
$
12

 
$
1

 
$
11

 
$
6

 
$

 
$
6


Major Security Types. Available-for-sale securities were as follows:
 
 
As of March 31, 2013
 
Amortized    
Cost
 
Other-than-temporary
Impairment
Recognized in
Accumulated Other
Comprehensive Income (Loss)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair Value
Private-label MBS
$
2,596

 
$
68

 
$
108

 
$

 
$
2,636


 
As of December 31, 2012
 
Amortized  
Cost
 
Other-than-temporary  
Impairment
Recognized in
Accumulated Other
Comprehensive Income (Loss)
 
Gross
  Unrealized  
Gains
 
Gross
  Unrealized  
Losses
 
Estimated Fair Value  
Private-label MBS
$
2,717

 
$
120

 
$
79

 
$

 
$
2,676


The following tables summarize the available-for-sale securities with unrealized losses. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
 
 
As of March 31, 2013
 
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

 
$

 
$

 
19

 
$
808

 
$
68

 
19

 
$
808

 
$
68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
Less than 12 Months
 
12 Months or More
 
Total
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized   
Losses
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
Private-label MBS
3

 
$
154

 
$
1

 
26

 
$
1,240

 
$
119

 
29

 
$
1,394

 
$
120



11

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


A summary of available-for-sale MBS issued by members or affiliates of members follows:
 
 
As of March 31, 2013
 
Amortized  
Cost
 
Other-than-temporary  
Impairment
Recognized in
Other Accumulated
Comprehensive Income (Loss)
 
Gross
  Unrealized  
Gains
 
Gross
  Unrealized  
Losses
 
Estimated
  Fair  Value  
Bank of America Corporation, Charlotte, NC
$
1,632

 
$
63

 
$
62

 
$

 
$
1,631

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
Amortized
Cost
 
Other-than-temporary
Impairment
Recognized in
Other Accumulated
Comprehensive Income (Loss)
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Bank of America Corporation, Charlotte, NC
$
1,712

 
$
112

 
$
41

 
$

 
$
1,641


Note 5—Held-to-maturity Securities
Major Security Types. Held-to-maturity securities were as follows:
 
 
As of March 31, 2013
 
As of December 31, 2012
 
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
$
100

 
$

 
$

 
$
100

 
$
550

 
$

 
$

 
$
550

State or local housing agency debt obligations
102

 
1

 

 
103

 
106

 
2

 

 
108

Government-sponsored enterprises debt obligations
2,133

 
1

 

 
2,134

 
2,133

 

 

 
2,133

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed
576

 
9

 

 
585

 
622

 
8

 

 
630

Government-sponsored enterprises
10,508

 
169

 
2

 
10,675

 
10,763

 
184

 
2

 
10,945

Private-label
2,528

 
36

 
10

 
2,554

 
2,744

 
36

 
22

 
2,758

Total
$
15,947

 
$
216

 
$
12

 
$
16,151

 
$
16,918

 
$
230

 
$
24

 
$
17,124


The following tables summarize the held-to-maturity securities with unrealized losses. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.
 
 
As of March 31, 2013
 
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
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
2

 
$
186

 
$
2

 

 
$

 
$

 
2

 
$
186

 
$
2

Private-label
7

 
206

 

 
26

 
564

 
10

 
33

 
770

 
10

Total
9

 
$
392

 
$
2

 
26

 
$
564

 
$
10

 
35

 
$
956

 
$
12

 

12

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


 
As of December 31, 2012
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair  Value
 
Gross
Unrealized
Losses
Government-sponsored enterprises debt obligations
3

 
$
750

 
$

 

 
$

 
$

 
3

 
$
750

 
$

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises
1

 
154

 
1

 
1

 
13

 
1

 
2

 
167

 
2

Private-label

 

 

 
43

 
974

 
22

 
43

 
974

 
22

Total
4

 
$
904

 
$
1

 
44

 
$
987

 
$
23

 
48

 
$
1,891

 
$
24


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

 
As of March 31, 2013
 
As of December 31, 2012
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Non-mortgage-backed securities:
 
 
 
 
 
 
 
Due in one year or less
$
641

 
$
641

 
$
1,092

 
$
1,093

Due after one year through five years
1,694

 
1,696

 
1,697

 
1,698

Total non-mortgage-backed securities
2,335

 
2,337

 
2,789

 
2,791

Mortgage-backed securities
13,612

 
13,814

 
14,129

 
14,333

Total
$
15,947

 
$
16,151

 
$
16,918

 
$
17,124


The amortized cost of the Bank’s MBS classified as held-to-maturity includes net discounts of $7 and $8 as of March 31, 2013 and December 31, 2012, respectively.

A summary of held-to-maturity MBS issued by members or affiliates of members follows:
 
 
As of March 31, 2013
 
As of December 31, 2012
 
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
$
828

 
$
11

 
$
4

 
$
835

 
$
896

 
$
11

 
$
8

 
$
899


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.

13

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


Mortgage-backed Securities. The Bank’s investments in MBS consist of U.S. agency guaranteed securities and senior tranches of private-label MBS. The Bank has increased exposure to the risk of loss on its investments in MBS when the loans backing the MBS exhibit high rates of delinquency and foreclosures, as well as losses on the sale of foreclosed properties. The Bank regularly requires high levels of credit enhancements from the structure of the collateralized mortgage obligation to reduce its risk of loss on such securities. Credit enhancements are defined as the percentage of subordinate tranches, overcollateralization, or excess spread, or the support of monoline insurance, if any, in a security structure that will absorb the losses before the security the Bank purchased will take a loss. The Bank does not purchase credit enhancements for its MBS from monoline insurance companies.
The Bank’s investments in private-label MBS were rated “AAA” (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P), at purchase date. The “AAA”-rated securities achieved their ratings through credit enhancement, 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 are caused by interest rate changes and not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises and the Bank does not expect these securities to be settled at a price less than the amortized cost basis. In addition, the Bank does not intend to sell these investments and it is not more likely than not that the Bank will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of March 31, 2013.
Private-label MBS. To assess whether the entire amortized cost basis of its private-label MBS will be recovered, the Bank performs a cash flow analysis for each of its private-label MBS. In performing the cash flow analysis for each of these securities, the Bank uses two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which are based upon an assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast as of March 31, 2013 included seven short-term projections with changes ranging from negative four percent to four percent over the 12 month period beginning January 1, 2013.
For the vast majority of markets, the short-term forecast has changes from negative one percent to one percent. Thereafter, home prices were projected to recover using one of five different recovery paths. The following table presents projected home price recovery ranges by months as of March 31, 2013:
 
Months
 
Annualized Rates (%)    
1 to 6
 
0.00 to 3.00
7 to 12
 
1.00 to 4.00
13 to 18  
 
2.00 to 4.00
19 to 30  
 
2.00 to 5.00
31 to 42  
 
2.00 to 6.00
43 to 54
 
2.00 to 6.00
Thereafter  
 
2.30 to 5.60
 
The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults, and loss severities, were then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. The model classifies securities, as noted in the below table, based on current characteristics and performance, which may be different from the securities’ classification as determined by the originator at the time of origination.

14

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


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 the security for which an other-than-temporary impairment was determined to have occurred during the three-month period ended March 31, 2013, as well as related current credit enhancement:
 
 
 
Significant Inputs
 
 
 
Prepayment Rate
 
Default Rates
 
Loss Severities
 
Current Credit Enhancement
Year of
Securitization
 
Weighted    
Average
(%)
 
Weighted    
Average
(%)
 
Weighted    
Average
(%)
 
Weighted    
Average
(%)
Alt-A:
 
 
 
 
 
 
 
 
   2004 and prior
 
12.08
 
22.32
 
44.43
 
18.89

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 income (loss):
 
 
For the Three Months Ended March 31,
 
2013
 
2012
Balance of credit losses previously recognized in earnings, beginning of period
$
586

 
$
582

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

 
7

Balance of cumulative credit losses recognized in earnings, end of period
$
586

 
$
589


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. This assessment is based on the fact that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.


15

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


Note 7—Advances
Redemption Terms. The Bank had advances outstanding, as summarized below.  
 
As of March 31, 2013
 
As of December 31, 2012
Overdrawn demand deposit accounts
$

 
$
2

Due in one year or less
36,190

 
41,482

Due after one year through two years
7,588

 
7,915

Due after two years through three years
4,119

 
4,735

Due after three years through four years
5,830

 
5,821

Due after four years through five years
9,496

 
8,758

Due after five years
13,797

 
15,157

Total par value
77,020

 
83,870

Discount on AHP (1)
(10
)
 
(11
)
Discount on EDGE(2) advances
(7
)
 
(8
)
Hedging adjustments
3,262

 
3,658

Deferred commitment fees
(5
)
 
(6
)
Total
$
80,260

 
$
87,503

___________
(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 March 31, 2013
 
As of December 31, 2012
Overdrawn demand deposit accounts
$

 
$
2

Due or convertible in one year or less
40,471

 
46,198

Due or convertible after one year through two years
7,625

 
7,886

Due or convertible after two years through three years
4,115

 
4,748

Due or convertible after three years through four years
5,121

 
5,368

Due or convertible after four years through five years
7,359

 
6,570

Due or convertible after five years
12,329

 
13,098

Total par value
$
77,020

 
$
83,870


Interest-rate Payment Terms. The following table details interest-rate payment terms for advances:
 
 
As of March 31, 2013
 
As of December 31, 2012
Fixed-rate:
 
 
 
 Due in one year or less
$
33,512

 
$
38,307

 Due after one year
32,375

 
33,425

Total fixed-rate
65,887

 
71,732

Variable-rate:
 
 
 
 Due in one year or less
2,678

 
3,177

 Due after one year
8,455

 
8,961

Total variable-rate
11,133

 
12,138

Total par value
$
77,020

 
$
83,870



16

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


Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, thrifts, and credit unions and further is concentrated in certain larger borrowing relationships. As of March 31, 2013 and December 31, 2012, the concentration of the Bank’s advances was $57,453 and $62,488 respectively, to 10 member institutions, representing 74.6 percent and 74.5 percent, respectively, of total advances outstanding.
Based on the collateral pledged as security for advances, the Bank's credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of March 31, 2013 and December 31, 2012. No advance was past due as of March 31, 2013 and December 31, 2012.

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 March 31, 2013
 
As of December 31, 2012
Fixed-rate
$
74,433

 
$
76,212

Step up/down
6,299

 
4,419

Simple variable-rate
1,250

 
1,250

Variable-rate capped floater
20

 
20

Total par value
$
82,002

 
$
81,901


Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding, by year of contractual maturity:
 
 
As of March 31, 2013
 
As of December 31, 2012
 
Amount
 
Weighted-
average
Interest Rate (%)    
 
Amount
 
Weighted-
average
Interest Rate (%)    
Due in one year or less
$
46,658

 
0.73
 
$
55,397

 
0.79
Due after one year through two years
8,846

 
1.90
 
7,587

 
2.08
Due after two years through three years
3,679

 
1.34
 
2,507

 
1.92
Due after three years through four years
3,520

 
4.17
 
3,344

 
4.25
Due after four years through five years
9,215

 
2.25
 
6,298

 
2.82
Due after five years
10,084

 
2.11
 
6,768

 
2.31
Total par value
82,002

 
1.37
 
81,901

 
1.36
Premiums
84

 
 
 
91

 
 
Discounts
(32
)
 
 
 
(34
)
 
 
Hedging adjustments
804

 
 
 
989

 
 
Total
$
82,858

 
 
 
$
82,947

 
 


17

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


The Bank’s consolidated obligation bonds outstanding by call feature:
 
 
As of March 31, 2013
 
As of December 31, 2012
Noncallable
$
63,976

 
$
71,880

Callable
18,026

 
10,021

Total par value
$
82,002

 
$
81,901


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 March 31, 2013
 
As of December 31, 2012
Due or callable in one year or less
$
62,490

 
$
62,540

Due or callable after one year through two years
7,388

 
6,550

Due or callable after two years through three years
1,624

 
2,136

Due or callable after three years through four years
3,065

 
3,024

Due or callable after four years through five years
6,006

 
6,028

Due or callable after five years
1,429

 
1,623

Total par value
$
82,002

 
$
81,901


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 March 31, 2013
$
20,040

 
$
20,044

 
0.13
As of December 31, 2012
$
31,737

 
$
31,745

 
0.12

Note 9—Capital and Mandatorily Redeemable Capital Stock
Capital. The Bank was in compliance with the Finance Agency's regulatory capital rules and requirements as shown in the following table:
 
 
As of March 31, 2013
 
As of December 31, 2012
 
Required    
 
Actual        
 
Required    
 
Actual        
Risk based capital
$
1,783

 
$
5,891

 
$
1,625

 
$
6,373

Total capital-to-assets ratio
4.00
%
 
5.28
%
 
4.00
%
 
5.15
%
Total regulatory capital (1)
$
4,462

 
$
5,891

 
$
4,948

 
$
6,373

Leverage ratio
5.00
%
 
7.92
%
 
5.00
%
 
7.73
%
Leverage capital
$
5,577

 
$
8,837

 
$
6,185

 
$
9,560

___________
(1) 
Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $34 and $40 in mandatorily redeemable capital stock as of March 31, 2013 and December 31, 2012, respectively.


18

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


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

 
For the Three Months Ended March 31,
 
2013
 
2012
Balance, beginning of period
$
40

 
$
286

Capital stock subject to mandatory redemption reclassified from equity during the period due to:
 
 
 
  Attainment of non-member status
4

 
80

  Withdrawal

 
1

Repurchase/redemption of mandatorily redeemable capital stock
(10
)
 
(10
)
Capital stock no longer subject to redemption due to the transfer of stock from a non-member to a member

 
(29
)
Balance, end of period
$
34


$
328


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 March 31, 2013
 
As of December 31, 2012
Due in one year or less
$
1

 
$

Due after one year through two years
7

 
12

Due after two years through three years
10

 
9

Due after three years through four years
15

 
17

Due after four years through five years

 
1

Due after five years
1

 
1

Total
$
34

 
$
40


Note 10—Accumulated Other Comprehensive Income (Loss)
Components comprising accumulated other comprehensive income (loss) were as follows:
 
 
Pension and
Postretirement
Benefits
 
Noncredit Portion
of Other-than-
temporary
Impairment  Losses
on Available-for-
sale Securities
 
Noncredit Portion of Other-than-temporary Impairment Losses on Held-to-maturity Securities
 
Total  Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2011
$
(13
)
 
$
(398
)
 
$

 
$
(411
)
Other comprehensive loss before reclassifications:
 
 
 
 
 
 
 
     Net change in fair value

 
119

 

 
119

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

 
7

 

 
7

Net current period other comprehensive income

 
126

 

 
126

Balance, March 31, 2012
$
(13
)
 
$
(272
)
 
$

 
$
(285
)
Balance, December 31, 2012
$
(17
)
 
$
(41
)
 
$

 
$
(58
)
Other comprehensive loss before reclassifications:
 
 
 
 
 
 
 
     Noncredit other-than-temporary impairment losses

 

 
(1
)
 
(1
)
Noncredit other-than-temporary impairment losses transferred

 
(1
)
 
1

 

     Net change in fair value

 
82

 

 
82

Net current period other comprehensive income

 
81

 

 
81

Balance, March 31, 2013
$
(17
)
 
$
40

 
$

 
$
23



19

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


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 2012 audited financial statements contained in the Bank’s Form 10-K.

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 counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

20

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


The following table summarizes the fair value of derivative instruments. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.
 
 
As of March 31, 2013
 
As of December 31, 2012
 
Notional
Amount of Derivatives    
 
Derivative Assets    
 
Derivative Liabilities    
 
Notional
Amount of Derivatives    
 
Derivative Assets    
 
Derivative Liabilities    
Derivatives in hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
$
103,205

 
$
1,032

 
$
(3,345
)
 
$
102,660

 
$
1,129

 
$
(3,689
)
Total derivatives in hedging relationships
103,205

 
1,032

 
(3,345
)
 
102,660

 
1,129

 
(3,689
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
9,039

 
31

 
(460
)
 
9,570

 
29

 
(497
)
  Interest rate caps or floors
12,500

 
32

 
(25
)
 
12,500

 
32

 
(22
)
Total derivatives not designated as hedging instruments
21,539

 
63

 
(485
)
 
22,070

 
61

 
(519
)
Total derivatives before netting and collateral adjustments
$
124,744

 
1,095

 
(3,830
)
 
$
124,730

 
1,190

 
(4,208
)
Netting adjustments
 
 
(970
)
 
970

 
 
 
(1,089
)
 
1,089

Cash collateral and related accrued interest
 
 
(120
)
 
2,675

 
 
 
(88
)
 
2,961

Total collateral and netting adjustments (1)
 
 
(1,090
)
 
3,645

 
 
 
(1,177
)
 
4,050

Derivative assets and derivative liabilities
 
 
$
5

 
$
(185
)
 
 
 
$
13

 
$
(158
)
___________
(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.
The following tables present the components of net gains on derivatives and hedging activities as presented in the Statements of Income:
 
 
For the Three Months Ended March 31,
 
2013
 
2012
Derivatives and hedged items in fair value hedging relationships:
 
 
 
  Interest rate swaps
$
42

 
$
51

Total net gains related to fair value hedge ineffectiveness
42

 
51

Derivatives not designated as hedging instruments:
 
 
 
  Interest rate swaps
25

 
27

  Interest rate caps or floors
(3
)
 
6

  Net interest settlements
(22
)
 
(30
)
Total net gains related to derivatives not designated as hedging instruments

 
3

Net gains on derivatives and hedging activities
$
42

 
$
54


The following tables present, by type of hedged item, the gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income:
 
 
 
For the Three Months Ended March 31, 2013
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

 
$
(334
)
 
$
47

 
$
(274
)
Consolidated obligations bonds
 
(182
)
 
177

 
(5
)
 
160

Total
 
$
199

 
$
(157
)
 
$
42

 
$
(114
)
____________
(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

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


 
 
For the Three Months Ended March 31, 2012
Hedged Item Type
 
Gains (Losses) on Derivative       
 
Gains (Losses) on Hedged Item  
 
Net Fair Value
Hedge Ineffectiveness
 
Effect of Derivatives on Net Interest Income (1)
Advances
 
$
497

 
$
(431
)
 
$
66

 
$
(386
)
Consolidated obligations bonds
 
(50
)
 
35

 
(15
)
 
143

Total
 
$
447

 
$
(396
)
 
$
51

 
$
(243
)
____________
(1) 
The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

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. The Bank requires collateral agreements with collateral delivery thresholds on all derivatives. Additionally, collateral related to derivatives with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement and held by the member institution for the benefit of the Bank. Based on credit analyses and collateral requirements, the Bank presently does not anticipate any credit losses on its existing derivative agreements with counterparties as of March 31, 2013.

The Bank enters into enforceable master netting arrangements for all of its derivative instruments that contain provisions allowing the legal right of offset. Under these agreements, the Bank has elected to offset at the individual master agreement level, the gross derivative assets and gross derivative liabilities and the related received or pledged cash collateral and associated accrued interest.

The following table presents the fair value of derivative instruments with the legal right of offset, including the related collateral received from or pledged to counterparties, based on the terms of the Bank's master netting arrangements or similar agreements.
 
 
As of March 31, 2013
 
As of December 31, 2012
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
Gross recognized amount
$
1,095

 
$
(3,830
)
 
$
1,190

 
$
(4,208
)
Gross amounts of netting adjustments and cash collateral
(1,090
)
 
3,645

 
(1,177
)
 
4,050

Total derivative assets and total derivative liabilities
5

 
(185
)
 
13

 
(158
)
Non-cash collateral received or pledged not offset(1):


 
 
 


 
 
     Cannot be sold or repledged

 

 
1

 

Net unsecured amount (2)
$
5

 
$
(185
)
 
$
12

 
$
(158
)
____________ 
(1) 
Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.
(2) 
The Bank had net credit exposure of $3 and $8 as of March 31, 2013 and December 31, 2012, 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 NRSRO, the Bank may be required to deliver additional collateral on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) as of March 31, 2013 was $2,857 for which the Bank has posted collateral with a fair value of $2,675 in the normal course of business. If the Bank’s credit ratings had been lowered from its current rating to the next lower rating that would have triggered additional collateral to be delivered, the Bank would have been required to deliver an additional $118 of collateral (at fair value) to its derivative counterparties as of March 31, 2013.


22

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


Note 12—Estimated Fair Values

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

A fair value hierarchy is used to prioritize the inputs of valuation techniques used to measure fair value. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of how market-observable the fair value measurement is and defines the level of disclosure. The fair value hierarchy defines fair value in terms of a price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability at the measurement date (an exit price). In order to determine the fair value or the exit price, entities must determine the unit of account, highest and best use, principal market, and market participants. These determinations allow the reporting entity to define the inputs for fair value and level of hierarchy.

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

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. As of March 31, 2013 and December 31, 2012, the Bank carried grantor trust assets at fair value hierarchy Level 1.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. As of March 31, 2013 and December 31, 2012, the Bank carried trading securities and derivatives at fair value hierarchy Level 2.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by little or no market activity and reflect the entity's own assumptions. As of March 31, 2013 and December 31, 2012, the Bank carried available-for-sale securities at fair value hierarchy Level 3.

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



23

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 March 31, 2013