10-K 1 fhlb-atl10xk2014.htm 10-K FHLB-ATL 10-K 2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

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


For the fiscal year ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
                                                                              For the transition period from to
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
____________________________

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class B Stock, par value $100
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes   x  No
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 requirements 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 if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 Act).    ¨  Yes   x  No

Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2014, the aggregate par value of the stock held by current and former members of the registrant was $4,927,857,000. At February 28, 2015, 47,191,460 total shares were outstanding.



Table of Contents
 
 
PART I.
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
PART II.
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9
Item 9A.
Item 9B.
 
PART III.
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
PART IV.
 
Item 15.
 
 
 



Important Notice About Information in this Annual Report
In this annual report on Form 10-K (Report), unless the context suggests otherwise, references to the “Bank” mean the Federal Home Loan Bank of Atlanta. “FHLBanks” means the 12 district Federal Home Loan Banks, including the Bank, and “FHLBank System” means the FHLBanks and the Federal Home Loan Banks Office of Finance (Office of Finance), as regulated by the Federal Housing Finance Agency (Finance Agency). “FHLBank Act” means the Federal Home Loan Bank Act of 1932, as amended.
The information contained in this Report is accurate only as of the date of this Report and as of the dates specified herein.
The product and service names used in this Report are the property of the Bank and, in some cases, the other FHLBanks. Where the context suggests otherwise, the products, services, and company names mentioned in this Report are the property of their respective owners.

Special Cautionary Notice Regarding Forward-looking Statements

Some of the statements made in this Report may be “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided by the same. Forward-looking statements include statements with respect to the Bank’s beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, 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. 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, dividends, 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 Securities and Exchange Commission (SEC).

It is important to note that the description of the Bank’s business is a statement about the Bank’s operations as of a specific date. It is not meant to be construed as a policy, and the Bank’s operations, including the portfolio of assets held by the Bank, are subject to reevaluation and change without notice.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, any one or more of the following factors:

•
future economic and market conditions, including, for example, inflation and deflation, the timing and volume of market activity, general consumer confidence and spending habits, the strength of local economies in which the Bank conducts its business, and interest-rate changes that affect the housing markets;

•
demand for Bank advances resulting from changes in members’ deposit flows and credit demands, as well as from changes in other sources of funding and liquidity available to members;

•
volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for the obligations of Bank members and counterparties to derivatives and similar agreements;

•
the risk of changes in interest rates on the Bank’s interest-rate sensitive assets and liabilities;


3

•
changes in various governmental monetary or fiscal policies, as well as legislative and regulatory changes, including changes in accounting principles generally accepted in the United States of America (GAAP) and related industry practices and standards, or the application thereof;

•
changes in the credit ratings of the U.S. government and/or the FHLBanks;

•
political, national, and world events, including acts of war, terrorism, natural disasters or other catastrophic events, and legislative, regulatory, judicial, or other developments that affect the economy, the Bank’s market area, the Bank, its members, counterparties, its federal regulator, and/or investors in the consolidated obligations of the FHLBanks;

•
competitive forces, including other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled individuals;

•
the Bank’s ability to develop, implement, promote the efficient performance of, and support and safeguard, technology and information systems, including the internet, sufficient to measure and effectively manage the risks of the Bank’s business without significant interruption;

•
changes in investor demand for consolidated obligations of the FHLBanks and/or the terms of derivatives and similar agreements, including changes in investor preference and demand for certain terms of these instruments, which may be less attractive to the Bank, or which the Bank may be unable to offer;

•
the Bank’s ability to introduce, support, and manage the growth of new products and services and to successfully manage the risks associated with those products and services;

•
the Bank’s ability to successfully manage the risks associated with any new types of collateral securing advances;

•
the availability from acceptable counterparties, upon acceptable terms, of swaps, options, and other derivative financial instruments of the types and in the quantities needed for investment funding and risk-management purposes;

•
the uncertainty and costs of litigation, including litigation filed against one or more of the FHLBanks;

•
changes in the FHLBank Act or Finance Agency regulations that affect FHLBank operations and regulatory oversight;

•
adverse developments or events, including financial restatements, affecting or involving one or more other FHLBanks or the FHLBank System in general; and

•
other factors and other information discussed herein under the caption “Risk Factors” and elsewhere in this Report, as well as information included in the Bank’s future 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 this Report and in future reports and other filings made by the Bank with the SEC. The Bank operates in a changing economic environment, and new risk factors emerge from time to time. Management cannot accurately predict any new factors, nor can it assess the effect, if any, of any new factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ from those implied by any forward-looking statements.
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 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 may be required by law.
 








4


PART I.

Item 1. Business.

Overview

The Bank is a federally chartered corporation organized in 1932 and one of 12 district FHLBanks. The FHLBanks, along with the Finance Agency and the Office of Finance, comprise the FHLBank System. The FHLBanks are U.S. government-sponsored enterprises (GSEs) organized under the authority of the FHLBank Act. Each FHLBank operates as a separate entity within a defined geographic district and has its own management, employees, and board of directors. The Bank's defined geographic district includes Alabama, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and the District of Columbia.

The Bank is a cooperative owned by member institutions that are required to purchase capital stock in the Bank as a condition of membership. All federally insured depository institutions, insurance companies, and community development financial institutions (CDFIs) chartered in the Bank's defined geographic district and engaged in residential housing finance are eligible to apply for membership. The Bank's stock is owned entirely by current or former members, and certain non-members that own the Bank's capital stock as a result of a merger or acquisition of a Bank member, and is not publicly traded. As of December 31, 2014, the Bank's membership totaled 958 financial institutions, comprising 664 commercial banks, 93 thrifts, 183 credit unions, 16 insurance companies, and two CDFIs.

The primary function of the Bank is to provide readily available, competitively priced funding to these member institutions. The Bank serves the public by providing its member institutions with a source of liquidity, thereby enhancing the availability of credit for residential mortgages and targeted community development.

The primary source of funds for the Bank is proceeds from the sale to the public of FHLBank debt instruments, known as “consolidated obligations,” or “COs,” which are the joint and several obligations of all of the FHLBanks. The Office of Finance, a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks' debt instruments and prepares the combined quarterly and annual financial reports of the FHLBanks.

Deposits, other borrowings, and the issuance of capital stock provide additional funds to the Bank. The Bank accepts deposits from both member and eligible non-member financial institutions and federal instrumentalities. The Bank also provides members and non-members with correspondent banking services such as cash management and other services, as discussed below.

The Bank is exempt from ordinary federal, state, and local taxation, except real property taxes, and it does not have any subsidiaries nor does it sponsor any off-balance sheet special purpose entities.

The Bank manages its operations as one business segment. Management and the Bank's board of directors review enterprise-wide financial information in order to make operating decisions and assess performance. As of December 31, 2014, the Bank had total assets of $138.3 billion, total advances of $99.6 billion, total investments of $36.5 billion, total COs of $129.3 billion, total deposits of $1.1 billion, and a retained earnings balance of $1.7 billion. The Bank's net income for the year ended December 31, 2014 was $271 million. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the Bank's financial condition, changes in financial condition, and results of operations.

The Finance Agency was established as the independent regulator of the FHLBanks effective July 30, 2008 with the passage of the Housing and Economic Recovery Act of 2008 (Housing Act). Pursuant to the Housing Act, all regulations, orders, determinations, and resolutions that were issued, made, prescribed, or allowed to become effective by the former Federal Housing Finance Board (Finance Board) will remain in effect until modified, terminated, set aside, or superseded by the Finance Agency Director, any court of competent jurisdiction, or operation of law. The Finance Agency's stated mission with respect to the FHLBanks is to provide effective supervision, regulation, and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.




5

Products and Services

The Bank's products and services include the following:

•
Credit Products;
•
Community Investment Services; and
•
Cash Management and Other Services.

Credit Products

The credit products that the Bank offers to its members include advances and standby letters of credit.

Advances

Advances are the Bank's primary product. Advances are fully secured loans made to members and eligible housing finance agencies, authorities, and organizations called “housing associates” (non-members that are approved mortgagees under Title II of the National Housing Act). The carrying value of the Bank's outstanding advances was $99.6 billion and $89.6 billion as of December 31, 2014 and 2013, respectively, and advances represented 72.0 percent and 73.2 percent of total assets as of December 31, 2014 and 2013, respectively. Advances generated 26.5 percent, 29.5 percent, and 30.2 percent of total interest income for the years ended December 31, 2014, 2013, and 2012, respectively.

Advances serve as a funding source to the Bank's members for a variety of conforming and nonconforming mortgages. Thus, advances support important housing markets, including those focused on low- and moderate-income households. For those members that choose to sell or securitize their mortgages, advances can supply interim funding.

Generally, member institutions use the Bank's advances for one or more of the following purposes:
•
providing funding for single-family mortgages and multifamily mortgages held in the member's portfolio, including both conforming and nonconforming mortgages;

•
providing temporary funding during the origination, packaging, and sale of mortgages into the secondary market;

•
providing funding for commercial real estate loans;

•
assisting with asset-liability management by matching the maturity and prepayment characteristics of mortgage loans or adjusting the sensitivity of the member's balance sheet to interest-rate changes;

•
providing a cost-effective alternative to meet contingent liquidity needs and liquidity management strategies; and

•
providing funding for community investment and economic development.

Pursuant to statutory and regulatory requirements, the Bank may make long-term advances only for the purpose of enabling a member to purchase or fund new or existing residential housing finance assets, which may include, for community financial institutions, defined small business loans, small farm loans, small agri-business loans, and community development loans. The Bank indirectly monitors the purpose for which members use advances through limitations on eligible collateral and as described below.
 
The Bank obtains a security interest in eligible collateral to secure a member's advance prior to the time the Bank originates or renews an advance. Eligible collateral is defined by the FHLBank Act, Finance Agency regulations, and the Bank's credit and collateral policy. The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank's security interest in all collateral pledged by the borrower. The Bank perfects its security interest in collateral prior to making an advance to the borrower. As additional security for a member's indebtedness, the Bank has a statutory and contractual lien on the member's capital stock in the Bank. The Bank also may require additional or substitute collateral from a borrower, as provided in the FHLBank Act and the financing documents between the Bank and its borrowers.

The Bank assesses member creditworthiness and financial condition typically on a quarterly basis to determine the term and maximum dollar amount of advances the Bank will lend to a particular member. In addition, the Bank discounts eligible collateral and periodically revalues the collateral pledged by each member to secure its outstanding advances. The Bank has never experienced a credit loss on an advance.

6


The FHLBank Act affords any security interest granted to the Bank by any member of the Bank, or any affiliate of any such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), other than claims and rights of a party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with applicable state law.

Pursuant to its regulations, the Federal Deposit Insurance Corporation (FDIC) has recognized the priority of an FHLBank's security interest under the FHLBank Act, and the right of an FHLBank to require delivery of collateral held by the FDIC as receiver for a failed depository institution.

The Bank offers standard and customized advances to fit a variety of member needs. Generally, the Bank offers maturities as described below, but longer maturities are available subject to a member's financial condition and available funding. The Bank's advances include, among other products, the following:

Adjustable or variable rate indexed advances. Adjustable or variable rate indexed advances include:

•
Daily Rate Credit Advance (DRC Advance). The DRC Advance provides short-term funding with rate resets on a daily basis, similar to federal funds lines. The DRC Advance is available generally from one day to 12 months.

•
Adjustable Rate Credit Advance (ARC Advance). The ARC Advance is a long-term advance available for a term generally of up to 10 years with rate resets at specified intervals.

•
Float-to-Fixed Advance. This advance is an advance that floats to London Interbank Offered Rate (LIBOR) and changes to a predetermined fixed rate on a predetermined date prior to maturity. The Bank offers this product with a maturity generally of up to 15 years.

Fixed rate advances. Fixed rate advances include:

•
Fixed Rate Credit Advance (FRC Advance). The FRC Advance offers fixed-rate funds with principal due at maturity generally from one month to 20 years.

•
Callable Advance. The callable advance is a fixed-rate advance with a fixed maturity and the option for the borrower to prepay the advance on an option exercise date(s) before maturity without a fee. The options can be Bermudan (periodically during the life of the advance) or European (one-time). The Bank offers this product with a maturity generally of up to 10 years with options generally from three months to 10 years.

•
Expander Advance. The expander advance is a fixed-rate advance with a fixed maturity and an option by the borrower to increase the amount of the advance in the future at a predetermined interest rate. The option may be Bermudan or European. The Bank has established internal limits on the amount of such options that may be sold to mature in any given quarter. The Bank offers this product with a maturity generally of two years to 20 years with an option exercise date that can be set generally from one month to 10 years.

•
Principal Reducing Advance. The principal reducing advance is a fixed-rate advance with a final maturity generally up to 20 years and predetermined principal reductions on specific dates. The reduction schedule is predetermined by the borrower and may be scheduled on a monthly, quarterly, semi-annual, or annual basis. Amortization options include equal payments or structures similar to a mortgage.

Hybrid advances. The hybrid advance is a fixed- or variable-rate advance that allows the inclusion of interest-rate caps and/or floors. The Bank offers this product with a maturity generally of up to 10 years with options generally from three months to 10 years.

Convertible advances. In a convertible advance, the Bank purchases an option from the borrower that allows the Bank to modify the interest rate on the advance from fixed to variable on certain specified dates. The Bank's option can be Bermudan or European. The Bank offers this product with a maturity generally of up to 15 years with options generally from three months to 15 years.

Forward starting advances. With the forward starting advance, the borrower may enter into the terms of any structured advance, including the fixed-rate Hybrid, ARC Advance, Expander Advance, or Float-to-Fixed Advance, with a future

7

settlement date. Interest accrues beginning on the settlement date. A termination fee applies if the borrower voluntarily terminates the advance prior to the settlement date.

The following table sets forth the par value of outstanding advances by product characteristics (dollars in millions). See Note 10—Advances to the Banks 2014 audited financial statements for further information on the distinction between par value and carrying value of outstanding advances.


 
As of December 31,
 
2014
 
2013
 
Amount
 
Percent of Total  
 
Amount
 
Percent of Total  
Fixed rate (1)
$
50,975

 
52.08
 
$
49,768

 
56.63
Adjustable or variable rate indexed
24,501

 
25.03
 
12,584

 
14.32
Hybrid
17,679

 
18.06
 
20,333

 
23.14
Convertible
3,040

 
3.11
 
3,510

 
3.99
Amortizing (2)
1,687

 
1.72
 
1,687

 
1.92
Total par value
$
97,882

 
100.00
 
$
87,882

 
100.00
 ____________
(1) Includes convertible advances whose conversion options have expired.
(2) Principal reducing advances, described above.

The Bank establishes interest rates on advances using the Bank's cost of funds on COs and the interest-rate swap market. The Bank establishes an interest rate applicable to each type of advance each day and then adjusts those rates during the day to reflect changes in the cost of funds and interest rates.

The Bank includes prepayment fee provisions in most advance transactions. With respect to callable advances, prepayment fees apply to prepayments on dates other than option exercise dates. As required by Finance Agency regulations, the prepayment fee is intended to make the Bank financially indifferent to a borrower's decision to prepay an advance before maturity or, with respect to a callable advance, on a date other than an option exercise date.

The following table presents information on the Bank's 10 largest borrowers of advances (dollars in millions):
 
 
 
 
As of December 31, 2014
Institution
 
City, State
 
Advances
 Par Value
 
Percent of Total Advances
 
Weighted-average Interest
Rate
(%) (1)
 
 
Bank of America, National Association
 
Charlotte, NC
 
$
17,512

 
17.89
 
0.24
Capital One, National Association
 
McLean, VA
 
17,265

 
17.64
 
0.27
Navy Federal Credit Union
 
Vienna, VA
 
9,942

 
10.16
 
2.40
SunTrust Bank
 
Atlanta, GA
 
8,010

 
8.18
 
0.81
Branch Banking and Trust Company
 
Winston Salem, NC
 
6,552

 
6.69
 
3.37
EverBank
 
Jacksonville, FL
 
4,004

 
4.09
 
1.16
BankUnited, National Association
 
Miami Lakes, FL
 
3,310

 
3.38
 
0.39
Compass Bank
 
Birmingham, AL
 
2,982

 
3.05
 
1.48
Pentagon Federal Credit Union
 
Alexandria, VA
 
1,846

 
1.89
 
2.84
Synovus
 
Columbus, GA
 
1,375

 
1.40
 
0.54
Subtotal (10 largest borrowers)
 
 
 
72,798

 
74.37
 
1.07
Subtotal (all other borrowers)
 
 
 
25,084

 
25.63
 
1.58
Total par value
 
 
 
$
97,882

 
100.00
 
1.20
 ____________
(1) The average interest rate of the member's advance portfolio weighted by each advance's outstanding balance.


8

A description of the Bank's credit risk management and collateral valuation methodology as it relates to its advance activity is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Advances.

Standby Letters of Credit

The Bank provides members with irrevocable standby letters of credit to support certain obligations of the members to third parties. Members may use standby letters of credit for residential housing finance and community lending or for liquidity and asset-liability management. In particular, members often use standby letters of credit as collateral for deposits from public sector entities. Standby letters of credit are generally available for nonrenewable terms up to five years or for a one-year term renewable annually with a final expiration date up to ten years after issuance. The Bank requires members to fully collateralize the face amount of any letter of credit issued by the Bank during the term of the letter of credit, and the Bank charges the member an annual fee based on the face amount of the letter of credit. If the Bank is required to make payment for a beneficiary's draw, these amounts must be reimbursed by the member immediately or, subject to the Bank's discretion, may be converted into an advance to the member. The Bank's underwriting and collateral requirements for standby letters of credit are the same as the underwriting and collateral requirements for advances. Letters of credit are not subject to activity-based capital stock purchase requirements. The Bank has never experienced a credit loss related to a standby letter of credit reimbursement obligation. Unlike advances, standby letters of credit are accounted for as financial guarantees because a standby letter of credit may expire in accordance with its terms without ever being drawn upon by the beneficiary. The Bank had $30.9 billion and $27.8 billion of outstanding standby letters of credit as of December 31, 2014 and 2013, respectively.

Advances and Standby Letters of Credit Combined

The following table presents information on the Bank's 10 largest borrowers of advances and standby letters of credit combined (dollars in millions):

 
 
 
 
As of December 31, 2014
Institution
 
City, State
 
Advances Par Value and Standby Letters of Credit Balance
 
Percent of Total Advances Par Value and Standby Letters of Credit
Bank of America, National Association
 
Charlotte, NC
 
$
30,860

 
23.96
Capital One, National Association
 
McLean, VA
 
17,721

 
13.76
SunTrust Bank
 
Atlanta, GA
 
15,895

 
12.34
Navy Federal Credit Union
 
Vienna, VA
 
9,942

 
7.72
Compass Bank
 
Birmingham, AL
 
7,529

 
5.84
Branch Banking and Trust Company
 
Winston Salem, NC
 
6,552

 
5.09
EverBank
 
Jacksonville, FL
 
4,104

 
3.19
BankUnited, National Association
 
Miami Lakes, FL
 
3,711

 
2.88
Regions Bank
 
Birmingham, AL
 
2,138

 
1.66
Pentagon Federal Credit Union
 
Alexandria, VA
 
1,846

 
1.43
Subtotal (10 largest borrowers)
 
 
 
100,298

 
77.87
Subtotal (all other borrowers)
 
 
 
28,512

 
22.13
Total advances par value and standby letters of credit
 
$
128,810

 
100.00

Community Investment Services

Each FHLBank contributes 10 percent of its annual regulatory income to its Affordable Housing Program (AHP), or such additional prorated sums as may be required to assure that the aggregate annual contribution of the FHLBanks is not less than $100 million. Regulatory income is defined as GAAP income before interest expense related to mandatorily redeemable capital stock and the assessment for AHP discussed under the heading Taxation/Assessments below.


9

AHP provides direct subsidy funds or subsidized advances to members to support the financing of rental and for-sale housing for very low-, low-, and moderate-income individuals and families. The Bank offers a Competitive AHP, a Set-aside AHP, and a discounted advance program that supports projects that provide affordable housing and economic development benefiting those individuals and families. A description of each program is as follows:

•
the Competitive AHP is offered annually through a competitive application process and provides funds for either rental or ownership projects submitted through member financial institutions;

•
the Set-aside AHP currently consists of eight distinct products: First-time Homebuyer, Community Partners, Foreclosure Recovery, Veterans Purchase, Returning Veterans Purchase, Veterans Rehabilitation, Returning Veterans Rehabilitation, and Structured Partnership Product. The Set-aside AHP products are available on a first-come, first-served basis and provide funds through member financial institutions to be used for down payments, closing costs, and other costs associated with the purchase, purchase/rehabilitation, or rehabilitation of homes for families at or below 80 percent of the area median income; and

•
the discounted advance program consists of the Community Investment Program and the Economic Development Program, each of which provides the Bank's members with access to low-cost funding to create affordable rental and homeownership opportunities and to engage in commercial and economic development activities that benefit low- and moderate-income individuals and neighborhoods.

For the years ended December 31, 2014, 2013, and 2012, AHP assessments were $30 million, $37 million, and $30 million, respectively.

Cash Management and Other Services

The Bank provides a variety of services to help members meet day-to-day cash management needs. These services include cash management services that support member advance activity, such as daily investment accounts, automated clearing house (ACH) transactions, and custodial mortgage accounts. In addition to cash management services, the Bank provides other noncredit services, including wire transfer services and safekeeping services. These cash management, wire transfer, and safekeeping services do not generate material amounts of income and are performed primarily as ancillary services for the Bank's members.

The Bank also acts as an intermediary to meet the derivatives needs of its smaller members that have limited or no access to the capital markets. This service assists members with asset-liability management by giving them indirect access to the capital markets. These intermediary transactions involve the Bank entering into a derivative with a member and then entering into a mirror-image derivative with one of the Bank's approved counterparties. The derivatives entered into by the Bank as a result of its intermediary activities do not qualify for hedge accounting treatment and are separately marked to fair value through earnings. The Bank attempts to earn income from this service sufficient to cover its operating expenses through the minor difference in rates on these mirror-image derivatives. The net result of the accounting for these derivatives is not material to the operating results of the Bank. The Bank may require both the member and the counterparty to post collateral for any market value exposure that may exist during the life of the transaction.

Mortgage Loan Purchase Programs

The Bank’s mortgage loan purchase programs provide members an alternative to holding mortgage loans in portfolio or selling them into the secondary market. Prior to 2008, the Bank purchased loans directly from member participating financial institutions (PFIs) through the Mortgage Partnership Finance® Program (MPF® Program), a program developed by FHLBank Chicago, and the Mortgage Purchase Program (MPP), a program separately established by the Bank. The Bank ceased directly purchasing new mortgage assets under these mortgage programs in 2008. However, the Bank continues to support its existing MPP and MPF Program mortgage loan portfolios. In 2014, the Bank renewed its participation in the MPF Program. The Bank now offers an MPF Program product, MPF Xtra, through which the Bank facilitates third parties' purchases of PFI loans rather than holding such loans as Bank assets.

MPF Program

The Bank has from time to time offered various products to members through the MPF Program. FHLBank Chicago, as the MPF provider, is responsible for providing transaction processing services, as well as developing and maintaining the underwriting criteria and program servicing guide. The Bank pays FHLBank Chicago a fee for providing these services. Conventional loans purchased from PFIs under the MPF Program are subject to varying levels of loss allocation and credit

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enhancement structures. Federal Housing Administration (FHA)-insured and Department of Veterans Affairs (VA)-guaranteed loans are not subject to the credit enhancement obligations applicable to conventional loans under the MPF Program. The PFI may retain the right and responsibility for servicing the loans or sell the servicing rights, and the PFI may be required to repurchase a loan in the event of a breach of eligibility requirement or other warranty.

Traditional MPF Products. The Bank maintains a portfolio of mortgage loans that were historically purchased directly from PFIs and are recorded on the balance sheet. As of December 31, 2014, three of the Bank's PFIs under the traditional MPF products, Branch Banking and Trust Company, SunTrust Bank, and Capital One, National Association, were among the Bank's top 10 borrowers.

MPF Xtra. In 2014, the Bank began to offer the MPF Xtra product to members. Under the MPF Xtra product, FHLBank Chicago will purchase residential conforming fixed-rate mortgage loans from the Bank’s PFIs and concurrently sell these loans to Fannie Mae. The Bank will receive a counterparty fee from FHLBank Chicago for each PFI loan sold to FHLBank Chicago through the MPF Xtra product in exchange for the Bank's role in facilitating the sale. The MPF Xtra loans are passed through to Fannie Mae as a third-party investor and do not become Bank assets.

Mortgage Partnership Finance® Program, “Mortgage Partnership Finance”, “MPF” and “MPF Xtra” are registered trademarks of FHLBank Chicago.

MPP

The Bank’s MPP is independent of other FHLBanks. Therefore, the Bank has greater control over pricing, quality of customer service, relationships with any third-party service providers, and program changes. Certain benefits of greater Bank control include the Bank's ability to control operating costs and to manage its regulatory relationship directly with the Finance Agency.
As of December 31, 2014, there were no MPP PFIs that were among the Bank's top 10 borrowers.

The MPF Program and MPP are authorized under applicable regulations. Regulatory interpretive guidance provides that an FHLBank may sell loans acquired through its mortgage loan purchase programs so long as it also sells the related credit enhancement obligation. The Bank currently is not selling loans it has acquired through these mortgage loan purchase programs. The MPF Program and MPP mortgage loan portfolios will eventually be reduced to zero in the ordinary course of the maturities and prepayments of the assets. The contractual maturity dates of some of the purchased loans extend out to 2038.

Descriptions of the MPF Program and MPP underwriting and eligibility standards and credit enhancement structures are contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Mortgage Loan Programs.

Investments

The Bank maintains a portfolio of short- and long-term investments for liquidity purposes, to provide for the availability of funds to meet member credit needs, and to provide additional earnings for the Bank. The Bank's short-term investments consist of interest-bearing deposits, overnight and term federal funds sold and securities purchased under agreements to resell. The Bank's long-term investments consist of mortgage-backed securities (MBS) issued by GSEs or private label securities that, at purchase, carried the highest rating from Moody's Investors Service (Moody's) or Standard and Poor's Ratings Services (S&P), securities issued by the U.S. government or U.S. government agencies, state and local housing agency obligations, and COs issued by another FHLBank. The Bank ceased purchasing private label MBS on January 31, 2008. The long-term investment portfolio generally provides the Bank with higher returns than those available in short-term investments. As of December 31, 2014, 64.7 percent of the Bank's investments were in U.S. agency and GSE securities as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments. Investments generated 66.2 percent, 62.8 percent, and 61.9 percent of total interest income for the years ended December 31, 2014, 2013 and 2012, respectively.

The Bank's MBS investment practice is to purchase MBS from a group of Bank-approved dealers, which may include “primary dealers.” Primary dealers are banks and securities brokerages that trade in U.S. government securities with the Federal Reserve System. The Bank does not purchase MBS from its members, except in the case in which a member or its affiliate is on the Bank's list of approved dealers. The Bank bases its investment decisions in all cases on the relative rates of return of competing investments and does not consider whether an MBS is being purchased from or issued by a member or an affiliate of a member. The MBS balance as of December 31, 2014 and 2013 included MBS with a carrying value of $1.7 billion and $2.1 billion, respectively, issued by one of the Bank's members and its affiliates with dealer relationships. See Note 6—Available-for-sale

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Securities and Note 7—Held-to-maturity Securities to the Bank's 2014 audited financial statements for a tabular presentation of the available-for-sale and held-to-maturity securities issued by members or affiliates of members.

Finance Agency regulations prohibit the Bank from investing in certain types of securities. These restrictions are discussed in more detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Investments.
 
The Finance Agency regulations prohibit an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities exceeds 300 percent of the FHLBank’s previous month-end regulatory capital on the day it purchases the securities. For discussion regarding the Bank's compliance with this regulatory requirement, refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments.

From time to time, the Bank purchases COs issued by other FHLBanks through third-party dealers as long-term investments, consistent with the Bank's investment strategy and Finance Agency regulations and guidelines. The terms of these purchased COs generally are similar to the COs that are issued by the Bank. The Bank's purchase of these investments is funded by a pool of liabilities and capital of the Bank and is not funded by specific or “matched” COs issued by the Bank. In making such purchases, the Bank considers the same factors that it considers in connection with the Bank's purchase of long-term debt issued by other GSEs, including the maturity, rate of return and liquid nature of the instrument. The Bank has not purchased any additional COs issued by other FHLBanks since 2002. As of December 31, 2014 and 2013, the Bank held one inverse variable-rate CO bond of which the FHLBank Chicago was the primary obligor. The carrying value of this CO bond as of December 31, 2014 and 2013 was $60 million and $65 million, respectively.

The Bank is subject to credit and market risk on its investments. For discussion as to how the Bank manages these risks, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Investments.

Funding Sources

Consolidated Obligations

Consolidated obligations, or COs, consisting of bonds and discount notes, are the joint and several obligations of the FHLBanks, backed only by the financial resources of the FHLBanks. COs are not obligations of the U.S. government, and the United States does not guarantee the COs. The Office of Finance has responsibility for facilitating and executing the issuance of COs for all the FHLBanks. It also services all outstanding debt. The Bank is primarily liable for its portion of COs (i.e., those issued on its behalf); however, the Bank is also jointly and severally liable with the other FHLBanks for the payment of principal and interest on COs of all the FHLBanks. If the principal or interest on any CO issued on behalf of the Bank is not paid in full when due, the Bank may not pay any extraordinary expenses or pay dividends to, or redeem or repurchase shares of stock from, any member of the Bank. The Finance Agency may at any time require any FHLBank to make principal or interest payments due on any CO, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation.

To the extent that an FHLBank makes any payment on a CO on behalf of another FHLBank, the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank. However, if the Finance Agency determines that the noncomplying FHLBank is unable to satisfy its obligations, the Finance Agency may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all COs outstanding or on any other basis the Finance Agency may determine.

Finance Agency regulations also state that the Bank must maintain the following types of assets free from any lien or pledge in an aggregate amount at least equal to the amount of the Bank's portion of the COs outstanding, provided that any assets that are subject to a lien or pledge for the benefit of the holders of any issue of COs shall be treated as if they were assets free from any lien or pledge for purposes of this negative pledge requirement:

•
cash;

•
obligations of, or fully guaranteed by, the United States;
 
•
secured advances;

•
mortgages that have any guaranty, insurance, or commitment from the United States or any agency of the United States; and

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•
investments described in Section 16(a) of the FHLBank Act which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.

The Bank was in compliance with this Finance Agency regulation as of December 31, 2014 and 2013.

Consolidated obligations are issued with either fixed-rate coupon payment terms or variable-rate coupon payment terms that may use a variety of indices.
 
Consolidated Obligation Bonds. Consolidated obligation bonds satisfy longer-term funding requirements. Typically, the maturity of these securities ranges from one year to 10 years, but the maturity is not subject to any statutory or regulatory limit. Consolidated obligation bonds can be issued and distributed through negotiated or competitively bid transactions with approved underwriters or selling group members. The FHLBanks also use the TAP issue program for fixed-rate, noncallable bonds. Under this program, the FHLBanks offer debt obligations at specific maturities that may be reopened daily, generally during a three-month period through competitive auctions. The goal of the TAP program is to aggregate frequent smaller issues into a larger bond issue that may have greater market liquidity.

Consolidated Obligation Discount Notes. Through the Office of Finance, the FHLBanks also issue consolidated obligation discount notes to provide short-term funds for advances to members, for the Bank's short-term investments, and for the Bank's variable-rate and convertible advance programs. These securities have maturities up to 366 days and are offered daily through a consolidated obligation discount-note selling group. Discount notes are issued at a discount and mature at par.

Certification and Reporting Obligations. Under Finance Agency regulations, before the end of each calendar quarter and before paying any dividends for that quarter, the president of the Bank must certify to the Finance Agency that, based upon known current facts and financial information, the Bank will remain in compliance with applicable liquidity requirements and will remain capable of making full and timely payment of all current obligations (which includes the Bank's obligation to pay principal and interest on COs issued on its behalf through the Office of Finance) coming due during the next quarter. The Bank is required to provide notice to the Finance Agency upon the occurrence of any of the following:

•
the Bank is unable to provide the required certification;

•
the Bank projects at any time that it will fail to comply with its liquidity requirements or will be unable to meet all of its current obligations due during the quarter;

•
the Bank actually fails to comply with its liquidity requirements or to meet all of its current obligations due during the quarter; or

•
the Bank negotiates to enter or enters into an agreement with one or more other FHLBanks to obtain financial assistance to meet its current obligations due during the quarter.

The Bank must file a CO payment plan for Finance Agency approval upon the occurrence of any of the following:
 
•
the Bank becomes a noncomplying FHLBank as a result of failing to provide a required certification related to liquidity requirements and ability to meet all current obligations;

•
the Bank becomes a noncomplying FHLBank as a result of being required to provide notice to the Finance Agency of certain matters related to liquidity requirements or inability to meet current obligations; or

•
the Finance Agency determines that the Bank will cease to be in compliance with its liquidity requirements or will lack the capacity to meet all of its current obligations due during the quarter.

Regulations permit a noncompliant FHLBank to continue to incur and pay normal operating expenses in the regular course of business. However, a noncompliant FHLBank may not incur or pay any extraordinary expenses, declare or pay dividends, or redeem any capital stock until such time as the Finance Agency has approved the FHLBank's CO payment plan or inter-FHLBank assistance agreement or has ordered another remedy, and the noncompliant FHLBank has paid all its direct obligations.


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The Bank, working through the Office of Finance, is able to customize COs to meet investor demands. Customized features can include different indices and embedded derivatives. The Bank offsets these customized features predominately by derivatives to reduce the market risk associated with the COs.

Deposits

The FHLBank Act allows the Bank to accept deposits from its members, any institution for which it is providing correspondent services, other FHLBanks, or other governmental instrumentalities. Deposits provide some of the Bank's funding resources while also giving members a low-risk earning asset that satisfies their regulatory liquidity requirements. As of December 31, 2014 and 2013, the Bank had demand and overnight deposits of $1.1 billion and $1.8 billion, respectively.

To support its member deposits, the FHLBank Act requires the Bank to have as a reserve an amount equal to or greater than the current deposits received from members. These reserves are required to be invested in obligations of the United States, deposits in eligible banks or trust companies or advances with maturities not exceeding five years. As of December 31, 2014 and 2013, the Bank had excess deposit reserves of $94.6 billion and $81.8 billion, respectively.

Capital and Capital Rules

The Bank must comply with regulatory requirements for total capital, leverage capital, and risk-based capital. To satisfy these capital requirements, the Bank maintains a capital plan, as last amended by the board of directors on May 13, 2011. Each member's minimum stock requirement is an amount equal to the sum of a “membership” stock component and an “activity-based” stock component under the plan. The FHLBank Act and applicable regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum leverage and risk-based capital requirements. If necessary, the Bank may adjust the minimum stock requirement from time to time within the ranges established in the capital plan. Each member is required to comply promptly with any adjustment to the minimum stock requirement.

As of December 31, 2014, the membership stock requirement was 0.09 percent (nine basis points) of the member's total assets, subject to a cap of $15 million.

As of December 31, 2014, the activity-based stock requirement was the sum of the following:

•
4.50 percent of the member's outstanding par value of advances; and

•
8.00 percent of any outstanding targeted debt/equity investment (such as multifamily residential mortgage loan assets) sold by the member to the Bank on or after December 17, 2004.

In addition, the activity-based stock requirement may include a percentage of any outstanding balance of acquired member assets (such as single-family residential mortgage loan assets), although this percentage was set at zero as of December 31, 2014. As of December 31, 2014, the Bank did not have any multifamily residential mortgage loan assets purchased from members or other targeted debt/equity investments outstanding; therefore, the 8.00 percent activity-based stock requirement was inapplicable.

In January 2015, the Bank's board of directors approved a decrease, effective March 20, 2015, in the factor used to calculate a member's activity-based stock requirement from 4.50 percent to 4.25 percent of the member's outstanding par value of advances. The membership stock requirement will remain at 0.09 percent of the member's total assets, subject to a cap of $15 million.

Although applicable regulations allow the Bank to issue Class A stock or Class B stock, or both, to its members, the Bank's capital plan allows it to issue only Class B stock.

The Bank has established a capital management plan to help preserve the value of the members' investment in the Bank and reasonably mitigate the effect on capital of unanticipated operating and accounting events. For additional information regarding the Bank's capital and capital requirements, as well as information regarding the Bank's retained earnings and dividends, refer to Item 5, Market for Registrant's Common Equity—Related Stockholder Matters and Issuer Purchases of Equity Securities; Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital; and Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's 2014 audited financial statements.


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Derivatives

Finance Agency regulations and the Bank's Risk Management Policy (RMP) establish guidelines for derivatives. These policies and regulations prohibit trading in or the speculative use of these instruments and limit permissible credit risk arising from these instruments. The Bank enters into derivatives to manage the interest-rate risk exposures inherent in otherwise unhedged assets and funding positions, and to achieve the Bank's risk management objectives. These derivatives consist of interest-rate swaps (including callable swaps and putable swaps), swaptions, interest-rate cap and floor agreements, and forward contracts. Generally, the Bank uses derivatives in its overall interest-rate risk management to accomplish one or more of the following objectives:

•
preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance) by converting both fixed-rate instruments to a variable rate using interest-rate swaps;
•
reduce funding costs by combining a derivative with a consolidated obligation because the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation bond;
•
reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;
•
mitigate the adverse earnings effects of the shortening or extension of certain assets (e.g., mortgage assets);
•
protect the value of existing asset or liability positions;
•
manage embedded options in assets and liabilities; and
•
achieve overall asset/liability management objectives.

The total notional amount of the Bank's outstanding derivatives was $125.9 billion and $101.7 billion as of December 31, 2014 and 2013, respectively. The contractual or notional amount of a derivative is not a measure of the amount of credit risk from that transaction. Rather, the notional amount serves as a basis for calculating periodic interest payments or cash flows.

The Bank may enter into derivatives concurrently with the issuance of COs with embedded options. When issuing bonds, the Bank generally simultaneously enters into derivatives to, in effect, convert fixed-rate liabilities into variable-rate liabilities. The continued attractiveness of such debt depends on price relationships in both the bond market and derivatives markets. If conditions in these markets change, the Bank may alter the types or terms of the bonds issued. Similarly, the Bank may enter into derivatives in conjunction with the origination of advances with embedded options. Issuing fixed-rate advances while simultaneously entering into derivatives in effect converts fixed-rate advances into variable-rate earning assets.

The Bank is subject to credit risk in all derivatives due to potential nonperformance by the derivative counterparty. For further discussion as to how the Bank manages its credit risk and market risk on its derivatives, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation—Risk Management.

Competition

Advances. A number of factors affect demand for the Bank's advances, including, but not limited to, the availability and cost of other sources of liquidity for the Bank's members, such as demand deposits, brokered deposits and the repurchase market. The Bank individually competes with other suppliers of secured and unsecured wholesale funding. Such other suppliers may include investment banks, commercial banks, and in certain circumstances, other FHLBanks. Smaller members may have access to alternative funding sources through sales of securities under agreements to repurchase, while larger members may have access to all the alternatives listed above. Larger members also may have independent access to the national and global credit markets. The availability of alternative funding sources to members can significantly influence the demand for the Bank's advances and can vary as a result of a number of factors, including market conditions, members' creditworthiness, and availability of collateral. Members continue to experience significant levels of liquidity due to higher FDIC deposit insurance limits which in 2010 were permanently increased to $250,000 per depositor, members' ability under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) to pay interest on and thus attract commercial demand deposit accounts, and the FDIC assessment system, revised in 2011, that eliminates an adjustment to the base assessment rate paid for secured liabilities, including FHLBank advances. To the extent that these assessment changes result in increased assessments and thus indirectly increase the cost of advances for some members, it may negatively impact their demand for advances.

Debt Issuance. The Bank competes with Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities for funds raised through the issuance of unsecured debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than otherwise would be the case. In addition, the availability and cost of funds raised through the issuance of certain types of unsecured debt may be affected adversely by regulatory initiatives that tend to reduce investments by certain depository institutions in unsecured debt with greater price volatility or interest-rate sensitivity than

15

fixed-rate, fixed-maturity instruments of the same maturity. Further, a perceived or actual higher level of government support for other GSEs may increase demand for their debt securities relative to similar FHLBank securities.

Interest-rate Exchange Agreements. The sale of callable debt and the simultaneous execution of callable interest-rate swaps that mirror the debt have been important sources of competitive funding for the Bank. As such, the availability of markets for callable debt and interest-rate swaps may be an important determinant of the Bank's relative cost of funds. There is considerable competition among high credit quality issuers in the markets for these instruments.

Regulatory Oversight, Audits, and Examinations

The Finance Agency supervises and regulates the FHLBanks. The Finance Agency is responsible for ensuring that (1) the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive and resilient national housing finance markets; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. In this capacity, the Finance Agency issues regulations and policies that govern, among other things, the permissible activities, powers, investments, risk-management practices, and capital requirements of the FHLBanks, and the authorities and duties of FHLBank directors. The Finance Agency conducts annual, on-site examinations of the Bank as well as periodic off-site reviews. In addition, the Bank must submit to the Finance Agency monthly financial information on the condition and results of operations of the Bank.

In 2006, in accordance with the Finance Board's regulation, the Bank registered its Class B stock with the SEC under Section 12(g)(1) of the Securities Exchange Act of 1934, as amended (Exchange Act). The Housing Act codified the regulatory requirement that each FHLBank register a class of its common stock under Section 12(g) of the Exchange Act. As a result of this registration, the Bank is required to comply with the disclosure and reporting requirements of the Exchange Act and to file with the SEC annual, quarterly, and current reports, as well as meet other SEC requirements, subject to certain exemptive relief obtained from the SEC and under the Housing Act.

The Government Corporation Control Act provides that, before a government corporation (which includes each of the FHLBanks) issues and offers obligations to the public, the Secretary of the Treasury shall prescribe (1) the form, denomination, maturity, interest rate, and conditions of the obligations; (2) the time and manner in which issued; and (3) the selling price. Under the FHLBank Act, the Secretary of the Treasury has the authority, at his discretion, to purchase COs up to an aggregate principal amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977. The U.S. Department of the Treasury (Treasury) receives the Finance Agency's annual report to Congress, weekly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.

The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the Bank and to decide the extent to which they fairly and effectively fulfill the purposes of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of the financial statements conducted by an independent registered public accounting firm. If the Comptroller General conducts such a review, he must report the results and provide his recommendations to Congress, the Office of Management and Budget, and the FHLBank in question. The Comptroller General also may conduct his own audit of any financial statements of the Bank.

The Bank has an internal audit department, the Bank's board of directors has an audit committee, and an independent registered public accounting firm audits the annual financial statements of the Bank. The independent registered public accounting firm conducts these audits following the standards of the Public Company Accounting Oversight Board (United States) and Government Auditing Standards issued by the Comptroller General. The Finance Agency receives the Bank's Report and audited financial statements. The Bank must submit annual management reports to Congress, the President of the United States, the Office of Management and Budget, and the Comptroller General. These reports include audited financial statements, a statement of internal accounting and administrative control systems, and the report of the independent registered public accounting firm on the financial statements.


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Available Information

Our website is located at www.fhlbatl.com, and our investor relations website is located at http://corp.fhlbatl.com/who-we-are/investor-relations/. We post our annual reports on Form 10-K on our investor relations website as soon as reasonably practicable after we file them with the SEC, and we also provide a link to the page on the SEC website at www.sec.gov that has all of our SEC filings, including our annual reports, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as any amendments. These reports may also be read and copied at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Further information about the operation of the Public Reference Room may be obtained at 1-800-SEC-0330. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, dividend announcements, press and earnings releases as part of our latest news website at http://corp.fhlbatl.com/who-we-are/news/. The content of our websites is not incorporated by reference into this Report or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

Personnel

As of December 31, 2014, the Bank employed 333 full-time and 6 part-time employees.

Taxation/Assessments

The Bank is exempt from ordinary federal, state, and local taxation except for real property tax. Each year the Bank must set aside for its AHP 10 percent of its income subject to assessment (net income before assessments, plus interest expense related to mandatorily redeemable capital stock), or such prorated sums as may be required to assure that the aggregate contribution of the FHLBanks is not less than $100 million. If an FHLBank experienced a net loss for a full year, the FHLBank would have no obligation to the AHP for that year, since each FHLBank's required annual AHP contribution is limited to its annual income subject to assessment. AHP assessments for the Bank were $30 million, $37 million, and $30 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Item 1A.    Risk Factors.

The following discussion summarizes some of the more important risks that the Bank faces. This discussion is not exhaustive, and there may be other risks that the Bank faces, which are not described below. These risks should be read in conjunction with the other information included in this Report, including, without limitation, in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial statements and notes, and “Special Cautionary Notice Regarding Forward-looking Statements.” The risks described below, if realized, could negatively affect the Bank's business operations, financial condition, and future results of operations and, among other things, could result in the Bank's inability to pay dividends on its capital stock.

The Bank is subject to a complex body of laws and regulations, which could change in a manner detrimental to the Bank's operations.

The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and governed by federal laws and regulations as adopted and applied by the Finance Agency. From time to time, Congress has amended the FHLBank Act in ways that have affected the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on the Bank's ability to conduct business or on the cost of doing business.

Changes in regulatory requirements could result in, among other things, an increase in the FHLBanks' cost of funding and regulatory compliance, a change in membership or permissible business activities, or a decrease in the size, scope, or nature of the FHLBanks' lending activities, which could affect the Bank's financial condition and results of operations.

The statutory and regulatory framework under which most financial institutions, including the Bank and its members, operate continues to change as a result of the enactment of the Dodd-Frank Act and subsequent implementing regulations. In addition, certain regulations affecting our members could impact the extent to which they can engage in business with the Bank. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments for a discussion of recent legislative and regulatory activity that could affect the Bank.


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The Bank is jointly and severally liable for payment of principal and interest on the COs issued by the other FHLBanks.

Each of the FHLBanks relies upon the issuance of COs as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether the Bank receives all or any portion of the proceeds from any particular issuance of COs.

The Finance Agency by regulation may require any FHLBank to make principal or interest payments due on any CO at any time, whether or not the FHLBank that was the primary obligor has defaulted on the payment of that obligation. The Finance Agency may allocate the liability among one or more FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. Accordingly, the Bank could incur significant liability beyond its primary obligation under COs due to the failure of other FHLBanks to meet their obligations, which could negatively affect the Bank's financial condition and results of operations.

The Bank's funding depends upon its ability to regularly access the capital markets.

The Bank seeks to be in a position to meet its members' credit and liquidity needs and pay its obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. The Bank's primary source of funds is the sale of COs in the capital markets, including the short-term discount note market. The Bank's ability to obtain funds through the sale of COs depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets, which are beyond the Bank's control.

Changes in the Bank's credit ratings may adversely affect the Bank's ability to issue COs on acceptable terms, and such changes may be outside the Bank's control due to changes in the U.S. sovereign ratings.

The Bank is rated Aaa with a stable outlook by Moody's and AA+ with a stable outlook by S&P. In addition, the COs of the FHLBanks are rated Aaa with a stable outlook/P-1 by Moody's and AA+ with a stable outlook/A-1+ by S&P. Historically, the Bank and the FHLBanks' COs enjoyed the highest ratings from Moody's and S&P; however, the credit rating agencies view these ratings as constrained by the sovereign credit of the U.S., which is beyond the Bank's control, and in the third quarter of 2011, the credit rating agencies revised their ratings for the individual FHLBanks and the COs concurrently with their downgrades of the U.S. credit rating. In 2013, the credit rating agencies revised their outlook levels to stable. These ratings are subject to further revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Further negative ratings actions or negative guidance, as a consequence of U.S. debt levels or the U.S. fiscal budget process, may adversely affect the Bank's cost of funds and ability to issue COs on acceptable terms, trigger additional collateral requirements under the Bank's derivative contracts, and reduce the attractiveness of the Bank's standby letters of credit. This could have a negative effect on the Bank's financial condition and results of operations, including the Bank's ability to make advances on acceptable terms, pay dividends, or redeem or repurchase capital stock.

Competition for advances, and refinancing risk on short-term advances, could have an adverse effect on earnings.

Advances represent the Bank's primary product offering. For the year ended December 31, 2014, advances represented 72.0 percent of the Bank's total assets. The Bank competes with other suppliers of wholesale funding, including investment banks, commercial banks, and in certain circumstances, other FHLBanks, which provide secured and unsecured loans to the Bank's members. From time to time, these alternative funding sources may offer more favorable terms on their loans than the Bank does on its advances. During 2014, the Bank's members continued to experience high deposit levels, which reduces member demand for advances. Any change made by the Bank in the pricing of its advances in an effort to effectively compete with these competitive funding sources may decrease the Bank's profitability on advances, which could have a material adverse effect on the Bank's financial condition and results of operations, including dividend yields to members.

The prolonged low interest rate environment has resulted in an increased concentration of short-term advances. For the year ended December 31, 2014, advances due in one year or less comprised 58.9 percent of the Bank's total advances. If members do not extend or renew these short-term advances as they come due, the Bank may experience a significant reduction in advances, which could have a material adverse effect on the Bank's financial condition and results of operations.

18


The Bank is exposed to risks because of customer concentration.

The Bank is subject to customer concentration risk as a result of the Bank's reliance on a relatively small number of member institutions for a large portion of the Bank's total advances and resulting interest income. The Bank's largest borrowers as of December 31, 2014 were Bank of America, National Association, which accounted for $17.5 billion, or 17.9 percent, and Capital One, National Association, which accounted for $17.3 billion, or 17.6 percent, of the Bank's total advances then outstanding. As of December 31, 2013, the Bank's largest borrower, Bank of America, National Association, accounted for $17.3 billion, or 19.6 percent, of the Bank's total advances then outstanding. In addition, as of December 31, 2014 and 2013, 10 of the Bank's member institutions (including Bank of America, National Association and Capital One, National Association) collectively accounted for $72.8 billion and $65.5 billion, respectively, of the Bank's total advances then outstanding, which represented 74.4 percent and 74.5 percent, respectively, of the Bank's total advances then outstanding. If, for any reason, the Bank were to lose, or experience a decrease in the amount of, its business relationships with its largest borrower or a combination of several of its large borrowers - whether as the result of any such member becoming a party to a merger or other transaction, or as a result of market conditions, competition or otherwise - the Bank's financial condition and results of operations could be negatively affected.

Changes in interest rates could significantly affect the Bank's earnings.

Like many financial institutions, the Bank realizes income primarily from the spread between interest earned on the Bank's outstanding loans and investments and interest paid on the Bank's borrowings and other liabilities. Although the Bank uses a number of measures to monitor and manage changes in interest rates, the Bank may experience “gaps” in the interest-rate sensitivities of its assets and liabilities resulting from both duration and convexity mismatches. The existence of gaps in interest-rate sensitivities means that either the Bank's interest-bearing liabilities will be more sensitive to changes in interest rates than its interest-earning assets, or vice versa. In either case, if interest rates move contrary to the Bank's position, any such gap could adversely affect the net present value of the Bank's interest-sensitive assets and liabilities, which could negatively affect the Bank's financial condition and results of operations.

The Bank’s businesses and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies, including the Federal Reserve Board's policies to depress short-term and long-term interest rates to help stabilize the U.S. economy. The prolonged period of low interest rates could negatively impact the Bank's earnings and dividend yield as the Bank's interest rate spread remains low and the Bank's higher yielding assets mature or prepay in a low yield environment. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Net Interest Income for further discussion of the Bank's yield on assets, interest-rate spread, and reinvestment risk.

Prepayment or refinancing of mortgage assets, as well as foreclosure prevention efforts such as principal writedowns, could affect earnings.

The Bank invests in both MBS and whole mortgage loans. Changes in interest rates can significantly affect the prepayment patterns of these assets, and such prepayment patterns could affect the Bank's earnings. In the Bank's experience, it is difficult to hedge prepayment risk in mortgage loans. Therefore, prepayments of mortgage assets could have an adverse effect on the income of the Bank.

Federal agencies including the Finance Agency, Fannie Mae, and Freddie Mac have implemented various measures and programs during the past few years intended to prevent foreclosure, such as lowering a home owner's monthly payments through mortgage modifications or refinancings, providing temporary reductions or suspensions of mortgage payments, and helping homeowners transition to more affordable housing. These programs, proposals, and other measures could negatively impact investments in MBS, including the timing of cash flows and yield the Bank realizes from those investments. Additional developments could result in further increases to loss projections from these investments. Additionally, these developments could result in a significant number of prepayments on mortgage loans underlying investments in agency MBS. If that should occur, these investments would be paid off in advance of original expectations, subjecting the Bank to acceleration of premium amortization and reinvestment risk.


19

The Bank's exposure to credit risk could have an adverse effect on the Bank's financial condition and results of operations.

The Bank faces credit risk on advances, investments, derivatives, and mortgage loan assets. The Bank requires advances and other extensions of credit to be fully secured with collateral. The Bank evaluates the types of collateral pledged by the member and assigns a borrowing capacity to the collateral, based on the risk associated with that type of collateral. If the Bank has insufficient collateral before or after an event of payment default or failure of the member, or the Bank is unable to liquidate the collateral for the value assigned to it in the event of a payment default or failure of a member, the Bank could experience a credit loss on advances, which could adversely affect its financial condition and results of operations.

The Bank assumes secured and unsecured credit risk exposure associated with securities transactions, money market transactions, supplemental mortgage insurance agreements, and derivative contracts. The Bank routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. The insolvency or other inability of a significant counterparty to perform its obligations under a derivative contract or other agreement could have an adverse effect on the Bank's financial condition and results of operations. The Bank's credit risk may be exacerbated based on market movements that impact the value of the derivative or collateral positions, the failure of a counterparty to return collateral owed by the counterparty to the Bank, or when the collateral pledged to the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any failure to properly perfect the Bank's security interest in collateral or any disruptions in the servicing of collateral in the event of a default could create credit losses for the Bank.

The Bank invests in U.S. agency (Fannie Mae, Freddie Mac, and Ginnie Mae) MBS and has historically invested in private-label MBS rated AAA by S&P or Fitch Ratings or Aaa by Moody's at the time of purchase. As of December 31, 2014, 18.0 percent of the Bank's MBS portfolio consisted of private-label MBS. Market prices for many of these private-label MBS have improved recently; however, given continued uncertainty in market conditions and the significant judgments involved in determining market value, there is a risk that declines in fair value in the Bank's MBS portfolio may occur and that the Bank may record additional other-than-temporary impairment losses in future periods, which could materially adversely affect the Bank's financial condition and results of operation.

The Bank uses master derivative contracts that contain provisions that require the Bank to net the exposure under all transactions with the counterparty to one amount to calculate collateral requirements. At times, the Bank enters into derivative contracts with U.S. branches or agency offices of foreign commercial banks in jurisdictions in which it is uncertain whether the netting provisions would be enforceable in the event of insolvency of the foreign commercial bank. Although the Bank attempts to monitor the creditworthiness of all counterparties, it is possible that the Bank may not be able to terminate the agreement with a foreign commercial bank before the counterparty would become subject to an insolvency proceeding.

The Bank relies upon derivative instruments to reduce its interest-rate risk associated with certain assets and liabilities on the Bank's balance sheet, including MBS and advances, and the Bank may be required to change its investment strategies and advance product offerings if it is not able to enter into effective derivative instruments on acceptable terms.

The Bank uses a significant amount of derivative instruments to attempt to reduce its interest-rate risk and mortgage prepayment risk. The Bank determines the nature and quantity of hedging transactions based on various factors, including market conditions and the expected volume and terms of advances. As a result, the Bank's effective use of these instruments depends on the ability of the Bank to determine the appropriate hedging positions in light of the Bank's assets, liabilities, and prevailing and anticipated market conditions. In addition, the effectiveness of the Bank's hedging strategy depends upon the Bank's ability to enter into these instruments with acceptable parties, upon terms satisfactory to the Bank, and in the quantities necessary to hedge the Bank's corresponding obligations.

The Dodd-Frank Act resulted in new statutory and regulatory requirements for derivative transactions, including those transactions used by the Bank to hedge interest-rate risk and other risks. As a result of these requirements, certain interest-rate swap transactions, whether they are initially executed with a swap dealer or subject to mandatory execution through a swap execution facility, are required to be cleared through a third-party central clearinghouse. Additionally, initial margin and variation margin are required to be posted for cleared derivatives. Furthermore, in 2014, the Commodity Futures Trading Commission proposed a rule, along with other regulators, that would subject non-cleared swaps to a mandatory two-way initial margin requirement, among other things. Any of these margin and capital requirements could adversely affect the liquidity and pricing of derivative transactions entered into by the Bank, making derivative trades more costly and less attractive as risk management tools.

20


If the Bank is unable to manage its hedging positions properly or is unable to enter into hedging instruments upon acceptable terms, the Bank may be unable to manage its interest-rate and other risks, or may be required to change its investment strategies and advance product offerings, which could affect the Bank's financial condition and results of operations.

The financial models and the underlying assumptions used to value financial instruments may differ materially from actual results.

The Bank makes significant use of business and financial models for managing risk. For example, the Bank uses models to measure and monitor exposures to various risks, including interest rate, prepayment, and other market risks, as well as credit risk. The Bank also uses models in determining the fair value of certain financial instruments when independent price quotations are not available or reliable. The degree of judgment in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on the Bank's best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities. While models used by the Bank to value instruments and measure risk exposures are subject to periodic validation by independent parties, rapid changes in market conditions could impact the value of the Bank's instruments, as well as the Bank's financial condition and results of operations. Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Changes in any models or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be materially different from actual results.

If the models are not reliable or the Bank does not use them appropriately, the Bank could make poor business decisions, including asset and liability management decisions, or other decisions, which could result in an adverse financial impact. Further, any strategies that the Bank employs to attempt to manage the risks associated with the use of models may not be effective.

The Bank may not be able to pay dividends at rates consistent with target ratios or to repurchase or redeem members' capital stock.

The Bank's board of directors may declare dividends on the Bank's capital stock, payable to members, from the Bank's unrestricted retained earnings and current net earnings. The Bank's ability to pay dividends and to repurchase or redeem capital stock is subject to statutory and regulatory liquidity requirements. The Bank has adopted a capital management plan to address regulatory guidance issued to all FHLBanks regarding retained earnings. The Bank's capital management plan requires the Bank to establish a target amount of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives and trading securities, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank's control. Events such as changes in interest rates, collateral value, credit quality of members, and any future other-than-temporary impairment losses may affect the adequacy of the Bank's retained earnings and may require the Bank to reduce its dividends from its target ratios or suspend dividends altogether to achieve and maintain the targeted amount of retained earnings or to limit capital stock repurchases and redemptions to achieve and maintain the targeted amount of retained earnings. These actions could cause a reduction in members' demand for advances, or make it difficult for the Bank to retain existing members or to attract new members.

An economic downturn or natural disaster in the Bank's region could adversely affect the Bank's profitability and financial condition.

Economic recession over a prolonged period or other unfavorable economic conditions in the Bank's region (including on a state or local level) could have an adverse effect on the Bank's business, including the demand for Bank products and services, and the value of the Bank's collateral securing advances, investments, and mortgage loans held in portfolio. Portions of the Bank's region also are subject to risks from hurricanes, tornadoes, floods or other natural disasters. These natural disasters, including those resulting from significant climate changes, could damage or dislocate the facilities of the Bank's members, may damage or destroy collateral that members have pledged to secure advances or the mortgages the Bank holds for portfolio, or the livelihood of borrowers of the Bank's members, or otherwise could cause significant economic dislocation in the affected areas of the Bank's region.


21

The Bank relies heavily upon information systems and other technology, and any disruption or failure of such information systems or other technology could adversely impact our reputation, financial condition, and results of operations.

The Bank relies heavily upon information systems and other technology to conduct and manage its business. The Bank owns some of these systems and technology, and third parties own and provide to the Bank some of the systems and technology. Computer systems, software and networks can be vulnerable to failures and interruptions, including as the result of any “cyberattacks” (e.g., breaches, unauthorized access, misuse, computer viruses or other malicious code and other events) or other breaches of technology security, that may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. These failures, interruptions or cyberattacks could jeopardize the confidentiality or integrity of information, including personally identifiable information related to the Bank's advances collateral and AHP and MPF program activities, or otherwise interrupt the Bank's ability to conduct and manage its business effectively, including, without limitation, its hedging and advances activities. The Bank can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of, any such failure, interruption or cyberattack. Any failure or interruption could significantly harm the Bank's customer relations, risk management, and profitability, and could result in financial losses, legal and regulatory sanctions or other harm.

The Bank’s controls and procedures may fail or be circumvented, and risk management policies and procedures may be inadequate.

The Bank may fail to identify and manage risks related to a variety of aspects of its business, including operational risk, legal and compliance risk, interest-rate risk, liquidity risk, market risk and credit risk. The Bank has adopted controls, procedures, policies and systems to monitor and manage these risks. The Bank’s management cannot provide complete assurance that those controls, procedures, policies and systems are adequate to identify and manage the risks inherent in the Bank’s business. In addition, because the Bank’s business continues to evolve, the Bank may fail to fully understand the implications of changes in the business, and therefore, it may fail to enhance Bank’s risk governance framework to timely or adequately address those changes. Failed or inadequate controls and risk management practices could have an adverse effect on our financial condition and results of operations.

An increase in the percentage of AHP contributions that the Bank is required to make could decrease the Bank’s dividends payable to its members.
If the aggregate AHP contributions of the FHLBanks were to fall below $100 million, the Finance Agency would prorate the remaining sums among the FHLBanks, subject to certain conditions, as may be required to meet the minimum $100 million annual contribution. Increasing the Bank’s AHP contribution in such a scenario would reduce the Bank’s earnings and potentially reduce the dividend paid to members.

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

The Bank owns approximately 235,514 square feet of office space at 1475 Peachtree Street, NE, Atlanta, Georgia 30309. The Bank occupies approximately 189,412 square feet of this space. The Bank leases 11,093 square feet of office space in an off-site backup facility located in Marietta, Georgia and 384 square feet of off-site backup space in Norcross, Georgia for the Bank's disaster recovery data center. The Bank also leases 3,193 square feet of office space located in Washington, D.C. The Bank believes these facilities are well maintained and are adequate for the purposes for which they currently are used.

Item 3.
Legal Proceedings.
The Bank is subject to various other legal proceedings and actions from time to time in the ordinary course of its business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of those matters presently known to the Bank will have a material adverse effect on the Bank’s financial condition or results of operations.
 
Item 4.    Mine Safety Disclosure.

Not applicable.


22

PART II.

Item 5.
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Bank's members own substantially all of the capital stock of the Bank. Former members, and certain non-members that own the Bank's capital stock as a result of a merger or acquisition of the Bank's member, own the remaining capital stock to support business transactions still carried on the Bank's balance sheet. The Bank's stock is not publicly traded or quoted, and there is no established marketplace for it, nor does the Bank expect a market to develop. The FHLBank Act and the Bank's capital plan prohibit the trading of its capital stock, except in connection with merger or acquisition activity.

A member may request in writing that the Bank redeem its excess capital stock at par value. Any such redemption request is subject to a five year redemption period after the Bank receives the request, subject to certain regulatory requirements and to the satisfaction of any ongoing stock investment requirements applicable to the member. In addition, any member may withdraw from membership upon five years written notice to the Bank. Subject to the member's satisfaction of any outstanding indebtedness and other statutory requirements, the Bank redeems at par value the member's capital stock upon withdrawal from membership. The Bank, in its discretion, may repurchase shares held by a member in excess of its required stock holdings, subject to certain limitations and thresholds in the Bank's capital plan. Since November 20, 2012, the Bank has repurchased activity-based excess capital stock on a daily basis. The par value of all capital stock is $100 per share, and the operating threshold for daily excess capital stock repurchases is $100 thousand. As of February 28, 2015, the Bank had 962 member and non-member shareholders and 47 million shares of its capital stock outstanding (including mandatorily redeemable shares).

The Bank declares and pays any dividends only after net income is calculated for the preceding quarter. The Bank declared quarterly cash dividends in 2014 and 2013 as outlined in the table below (dollars in millions).

 
 
2014
 
2013
Quarter
 
Amount
 
Annualized Rate (%) (1)
 
Amount
 
Annualized Rate (%) (2)
First
 
$
44

 
3.74
 
$
29

 
2.32
Second
 
44

 
3.74
 
26

 
2.29
Third
 
43

 
3.73
 
29

 
2.53
Fourth
 
51

 
4.23
 
32

 
2.76
____________
(1) Dividend rate was equal to the average three-month LIBOR for the preceding quarter plus 350 basis points for the first, second, and third quarters of 2014 and 400 basis points for the fourth quarter of 2014.
(2) Dividend rate was equal to the average three-month LIBOR for the preceding quarter plus 200, 200, 225, and 250 basis points for the first, second, third, and fourth quarters of 2013, respectively.

The Bank may pay dividends on its capital stock only out of its unrestricted retained earnings account or out of its current net income. The Bank's board of directors has discretion to declare or not declare dividends and to determine the rate of any dividends declared. The Bank's board of directors may neither declare nor require the Bank to pay dividends when it is not in compliance with all of its capital requirements or if, after giving effect to the dividend, the Bank would fail to meet any of its capital requirements or it is determined that the dividend would create a financial safety and soundness issue for the Bank.

Finance Agency regulations prohibit any FHLBank from issuing dividends in the form of stock or otherwise issuing new "excess stock" if that FHLBank has excess stock greater than one percent of that FHLBank's total assets or if issuing such dividends or new excess stock would cause that FHLBank to exceed the one percent excess stock limitation. Excess stock is FHLBank capital stock not required to be held by the member to meet its minimum stock requirement under an FHLBank's capital plan. As of December 31, 2014, the Bank's excess capital stock did not exceed one percent of its total assets. Historically, the Bank has not issued dividends in the form of stock or issued new "excess stock," and a member's existing excess activity-based stock is applied to any activity-based stock requirements related to new advances.

The Bank's board of directors has adopted a capital management plan that includes a targeted amount of retained earnings separate and apart from the restricted retained earnings account. For further discussion of the Bank's capital management plan, dividends, and the Amended Joint Capital Enhancement Agreement (Capital Agreement) pursuant to which the restricted retained earnings account was established, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Capital.


23

Because only member, former member, and certain non-member institutions, not individuals, may own the Bank's capital stock, the Bank has no equity compensation plans.

The Bank also issues standby letters of credit in the ordinary course of its business. From time to time, the Bank provides standby letters of credit to support members' obligations, members' letters of credit or obligations issued to support unaffiliated, third-party offerings of notes, bonds, or other securities. The Bank issued $19.5 billion, $13.9 billion, and $6.3 billion in standby letters of credit in 2014, 2013, and 2012, respectively. To the extent that these standby letters of credit are securities for purposes of the Securities Act of 1933, the issuance of the standby letter of credit by the Bank is exempt from registration pursuant to section 3(a)(2) thereof.


24

Item 6.     Selected Financial Data.

The following selected historical financial data of the Bank should be read in conjunction with the Banks 2014 audited financial statements and related notes thereto, and with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, which are included elsewhere in this Report. The following data, insofar as it relates to each of the years 2010 to 2014, have been derived from annual financial statements, including the statements of condition as of December 31, 2014 and 2013 and the related statements of income for the years ended December 31, 2014, 2013, and 2012 and notes thereto appearing elsewhere in this Report. The financial information presented in the following table, and in the financial statements included in this Report, is not necessarily indicative of the financial condition or results of operations of any other interim or yearly periods (dollars in millions):
 
As of and for the Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Statements of Condition (as of year end)
 
 
 
 
 
 
 
 
 
Total assets
$
138,344

 
$
122,316

 
$
123,705

 
$
125,270

 
$
131,798

Investments (1)
36,502

 
26,944

 
30,454

 
36,138

 
39,879

Mortgage loans held for portfolio
749

 
929

 
1,255

 
1,639

 
2,040

Allowance for credit losses on mortgage loans
(3
)
 
(11
)
 
(11
)
 
(6
)
 
(1
)
Advances
99,644

 
89,588

 
87,503

 
86,971

 
89,258

Interest-bearing deposits
1,110

 
1,752

 
2,094

 
2,655

 
3,093

Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
  Discount notes
37,162

 
32,202

 
31,737

 
24,330

 
23,915

  Bonds
92,088

 
80,728

 
82,947

 
90,662

 
95,198

Total consolidated obligations, net (2)
129,250

 
112,930

 
114,684

 
114,992

 
119,113

Mandatorily redeemable capital stock
19

 
24

 
40

 
286

 
529

Affordable Housing Program payable
65

 
74

 
80

 
109

 
126

Payable to REFCORP
—

 
—

 
—

 
—

 
20

Capital stock - putable
5,150

 
4,883

 
4,898

 
5,718

 
7,224

Retained earnings
1,746

 
1,657

 
1,435

 
1,254

 
1,124

Accumulated other comprehensive income (loss)
95

 
112

 
(58
)
 
(411
)
 
(402
)
Total capital
6,991

 
6,652

 
6,275

 
6,561

 
7,946

Statements of Income (for the year ended)
 
 
 
 
 
 
 
 
 
Net interest income
323

 
341

 
376

 
459

 
544

(Reversal) provision for credit losses
(5
)
 
5

 
6

 
5

 
—

Net impairment losses recognized in earnings
(3
)
 
—

 
(16
)
 
(118
)
 
(143
)
Net (losses) gains on trading securities
(60
)
 
(100
)
 
(67
)
 
2

 
31

Net gains (losses) on derivatives and hedging activities
120

 
204

 
117

 
(9
)
 
8

Letters of credit fees
26

 
20

 
18

 
19

 
14

Other income (3)
22

 
42

 
3

 
2

 
3

Noninterest expense (4)
132

 
127

 
125

 
123

 
79

Income before assessments
301

 
375

 
300

 
227

 
378

Assessments (5)
30

 
37

 
30

 
43

 
100

Net income
271

 
338

 
270

 
184

 
278

Performance Ratios (%)
 
 
 
 
 
 
 
 
 
Return on equity (6)
4.11

 
5.42

 
4.26

 
2.52

 
3.42

Return on assets (7)
0.21

 
0.28

 
0.22

 
0.15

 
0.19

Net interest margin (8)
0.25

 
0.29

 
0.31

 
0.37

 
0.38

Regulatory capital ratio (as of year end) (9)
5.00

 
5.37

 
5.15

 
5.79

 
6.74

Equity to assets ratio (10)
5.09

 
5.18

 
5.25

 
5.91

 
5.63

Dividend payout ratio (11)
67.30

 
34.52

 
32.82

 
29.48

 
9.63


25

____________
(1) 
Investments consist of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, and securities classified as trading, available-for-sale, and held-to-maturity.
(2) 
The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. The par value of the other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was as follows (in millions):
December 31, 2014
$
718,218

December 31, 2013
654,076

December 31, 2012
574,257

December 31, 2011
578,118

December 31, 2010
678,528


(3) 
Other income includes service fees and other. For the years ended December 31, 2014 and 2013, amount includes $15 million and $6 million net gain on early extinguishment of debt, respectively, For the years ended December 31, 2014 and 2013, amount includes a $4 million and $33 million gain on litigation settlements, net, respectively.
(4) 
For the year ended December 31, 2010, amount includes $51 million which represents the reversal of a portion of the provision for credit losses established on a receivable due from Lehman Brothers Special Financing Inc..
(5) 
On August 5, 2011, the Finance Agency certified that the FHLBanks have satisfied their Resolution Funding Corporation (REFCORP)
obligation.
(6) 
Calculated as net income divided by average total equity.
(7) 
Calculated as net income divided by average total assets.
(8) 
Net interest margin is net interest income as a percentage of average earning assets.
(9) 
Regulatory capital ratio is regulatory capital, which does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock, as a percentage of total assets as of year end.
(10) 
Calculated as average total equity divided by average total assets.
(11) 
Calculated as dividends declared during the year divided by net income during the year.


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis relates to the Bank's financial condition as of December 31, 2014 and 2013, and results of operations for the years ended December 31, 2014, 2013, and 2012. This section explains the changes in certain key items in the Bank's financial statements from year to year, the primary factors driving those changes, the Bank's risk management processes and results, known trends or uncertainties that the Bank believes may have a material effect on the Bank's future performance, as well as how certain accounting principles affect the Bank's financial statements.

This discussion should be read in conjunction with the Bank's audited financial statements and related notes for the year ended December 31, 2014 included in Item 8 of this Report. Readers also should review carefully “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A, Risk Factors, for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank's actual results to differ, perhaps materially, from these forward-looking statements.

Executive Summary

Financial Condition
As of December 31, 2014, total assets were $138.3 billion, an increase of $16.0 billion or 13.1 percent, from December 31, 2013. This increase was primarily due to a $10.1 billion, or 11.2 percent, increase in advances and a $9.6 billion, or 35.5 percent increase in total investments, partially offset by a $3.5 billion, or 79.1 percent, decrease in cash and due from banks.
As of December 31, 2014, total liabilities were $131.4 billion, an increase of $15.7 billion, or 13.6 percent, from December 31, 2013. This increase was primarily due to a $16.3 billion, or 14.5 percent, increase in COs to fund the increase in advances.
As of December 31, 2014, total capital was $7.0 billion, an increase of $339 million, or 5.10 percent, from December 31, 2013. The increase in total capital from December 31, 2013 to December 31, 2014 was primarily due to the issuance of $5.0 billion in capital stock related to new advance activity and $254 million in comprehensive income during the period. Comprehensive income consists of $271 million of net income and $17 million in other comprehensive loss. This increase was partially offset by the repurchase/redemption of $4.8 billion in excess capital stock, excluding capital stock classified as mandatorily redeemable capital stock, and the payment of $182 million in dividends.


26

Results of Operations
The Bank recorded net income of $271 million for 2014, a decrease of $67 million, or 19.9 percent, from net income of $338 million for 2013. Interest income decreased by $113 million primarily due to decreased yields on advances and long-term investments. This decrease was offset by a $95 million decrease in interest expense, which resulted in a decrease in net interest income of $18 million for 2014. Noninterest income decreased $61 million during 2014, compared to 2013, primarily due to higher litigation settlements related to MBS during 2013 and decreases in net gains on derivatives and hedging activities resulting from lower long-term interest rates during 2014. This decrease was partially offset by a decrease in net losses on trading securities, as well as by the prepayment of previously restructured advances prior to their maturity.
One way in which the Bank analyzes its performance is by comparing its annualized return on equity (ROE) to three-month average LIBOR. The Bank’s ROE was 4.11 percent for 2014 compared to 5.42 percent for 2013. ROE decreased for 2014, compared to 2013, primarily as a result of a decrease in net income, and an increase in average total capital during the year. ROE spread to three-month average LIBOR decreased to 388 basis points for 2014 compared to 515 basis points for 2013. The decrease in the ROE spread to LIBOR was primarily due to the decrease in ROE.
The Bank’s interest rate spread was relatively stable at 24 basis points and 26 basis points for 2014 and 2013, respectively.

Business Outlook
During 2014, the Bank maintained its focus on an advances-driven, conservative-risk, steady-return business model, which enabled the Bank to report net income, pay dividends and repurchase excess stock consistently throughout the year despite continued uncertainties in the market.
The state of the economy is the single largest driver in determining the Bank's overall business outlook and impacts advance demand, asset and collateral values, member financial stability, funding costs, and many other facets of the Bank's portfolio. While certain areas of the economy are experiencing improvement, such as unemployment, consumer confidence, and housing, the improvement is modest. In addition, the outcome of certain factors, such as fiscal and monetary policies or performance of global economies, could have a significant effect - either positive or negative - on the national economy and the Bank's economic performance.
The prolonged low interest rate environment has resulted in borrowers strongly favoring short-term advances, and the Bank expects this preference to continue during 2015. Although the Bank experienced an overall increase in advances during 2014 compared to 2013, the high proportion of short-term advances subjects the Bank to significant advance rollover risk. In addition, members continue to experience high levels of liquidity and low-to-modest loan demand, which may reduce overall member demand for advances. Given the economic uncertainties discussed above, the Bank cannot accurately predict its ability to refinance or grow advances during the year. The Bank continues to focus on developing additional products and services that enhance members' ability to respond to economic conditions and their increasing regulatory compliance requirements such as liquidity requirements based on Basel III.
The continued low rate environment also creates challenges for the Bank's investment portfolio, as higher-yielding investments mature or prepay in an environment with few attractive reinvestment opportunities, and for the Bank's debt portfolio, as maturing debt is refinanced at less attractive spreads. The Bank expects these trends to continue while interest rates remain low, which could continue to negatively affect net interest income. Although a higher interest rate environment is more favorable for the Bank's total profitability, it may have a negative impact on ROE spread to LIBOR.


27

Financial Condition
The following table presents the distribution of the Bank’s total assets, liabilities, and capital by major class as of the dates indicated (dollars in millions). These items are discussed in more detail below.
 
 
As of December 31,
 
 
 
 
 
2014
 
2013
 
Increase (Decrease)
 
Amount
 
Percent
of Total
 
Amount
 
Percent
of Total
 
Amount
 
Percent
Advances
$
99,644

 
72.03
 
$
89,588

 
73.24
 
$
10,056

 
11.22

Long-term investments
27,147

 
19.62
 
24,142

 
19.74
 
3,005

 
12.45

Short-term investments
9,355

 
6.76
 
2,802

 
2.29
 
6,553

 
233.84

Mortgage loans, net
746

 
0.54
 
918

 
0.75
 
(172
)
 
(18.70
)
Other assets
1,452

 
1.05
 
4,866

 
3.98
 
(3,414
)
 
(70.17
)
Total assets
$
138,344

 
100.00
 
$
122,316

 
100.00
 
$
16,028

 
13.10

Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
  Discount notes
$
37,162

 
28.29
 
$
32,202

 
27.84
 
$
4,960

 
15.40

  Bonds
92,088

 
70.11
 
80,728

 
69.80
 
11,360

 
14.07

Deposits
1,110

 
0.84
 
1,752

 
1.51
 
(642
)
 
(36.64
)
Other liabilities
993

 
0.76
 
982

 
0.85
 
11

 
1.08

Total liabilities
$
131,353

 
100.00
 
$
115,664

 
100.00
 
$
15,689

 
13.56

Capital stock
$
5,150

 
73.67
 
$
4,883

 
73.41
 
$
267

 
5.47

Retained earnings
1,746

 
24.96
 
1,657

 
24.90
 
89

 
5.34

Accumulated other comprehensive income
95

 
1.37
 
112

 
1.69
 
(17
)
 
(14.64
)
Total capital
$
6,991

 
100.00
 
$
6,652

 
100.00
 
$
339

 
5.10


Advances

The following table sets forth the Bank's advances outstanding by year of maturity and the related weighted-average interest rate (dollars in millions):
 
As of December 31,
 
2014
 
2013
 
Amount
 
Weighted-average Interest Rate (%)
 
Amount
 
Weighted-average Interest Rate (%)
Overdrawn demand deposit accounts
$
—

 
—
 
$
2

 
5.36
Due in one year or less
57,675

 
0.38
 
51,331

 
0.51
Due after one year through two years
12,283

 
1.00
 
5,366

 
1.77
Due after two years through three years
9,435

 
2.26
 
6,136

 
1.75
Due after three years through four years
5,146

 
3.07
 
8,495

 
2.04
Due after four years through five years
2,910

 
2.39
 
5,088

 
3.18
Due after five years
10,433

 
3.86
 
11,464

 
3.91
Total par value
97,882

 
1.21
 
87,882

 
1.42
Discount on AHP advances
(7
)
 
 
 
(8
)
 
 
Discount on EDGE(1) advances
(5
)
 
 
 
(7
)
 
 
Hedging adjustments
1,778

 
 
 
1,726

 
 
Deferred commitment fees
(4
)
 
 
 
(5
)
 
 
Total
$
99,644

 
 
 
$
89,588

 
 
____________ 
(1) Economic Development and Growth Enhancement Program

28

Advances outstanding as of December 31, 2014 increased by 11.2 percent compared to December 31, 2013. As a result of the prolonged low interest rate environment, the majority of new advances are short-term advances. As of December 31, 2014, 74.5 percent of the Bank's advances were fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of advances to convert the rates on them, in effect, into a short-term variable interest rate, the majority of which are based on LIBOR. As of December 31, 2014 and 2013, 41.9 percent and 41.7 percent, respectively, of the Bank's fixed-rate advances were swapped and 2.56 percent and 28.2 percent, respectively, of the Bank's variable-rate advances were swapped. The Bank also offers variable-rate advances that may be tied to indices such as the federal funds rate, prime rate, or constant maturity swap rates.

As of December 31, 2014, 74.4 percent of the Bank's total advances were outstanding to its 10 largest borrowing member institutions. Further information regarding the Bank's 10 largest borrowing member institutions and breakdown of their individual advance balances as of December 31, 2014 is contained in Item 1, Business—Credit Products—Advances. Management believes that the Bank holds sufficient collateral, on a member-specific basis, to secure the advances to all borrowers, including these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.

Supplementary financial data on the Bank's advances is set forth under Item 8, Financial Statements and Supplementary Information (Unaudited).

Investments
The following table sets forth more detailed information regarding short- and long-term investments held by the Bank (dollars in millions):
 
 
As of December 31,
 
Increase (Decrease)
 
2014
 
2013
 
Amount    
 
Percent    
Short-term investments:
 
 
 
 
 
 
 
Interest-bearing deposits (1)
$
1,010

 
$
1,007

 
$
3

 
0.28

Securities purchased under agreements to resell
1,960

 
—

 
1,960

 
100.00

Federal funds sold
6,385

 
1,795

 
4,590

 
255.71

Total short-term investments
9,355

 
2,802

 
6,553

 
233.84

Long-term investments:
 
 
 
 
 
 
 
State or local housing agency debt obligations
82

 
93

 
(11
)
 
(11.24
)
U.S. government agency debt obligations
7,935

 
5,404

 
2,531

 
46.83

Mortgage-backed securities:
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed single family residential
366

 
465

 
(99
)
 
(21.36
)
Government-sponsored enterprises single family residential
13,665

 
13,311

 
354

 
2.65

Government-sponsored enterprises multi-family commercial
1,663

 
641

 
1,022

 
159.50

Private-label residential
3,436

 
4,228

 
(792
)
 
(18.71
)
Total mortgage-backed securities
19,130

 
18,645

 
485

 
2.60

Total long-term investments
27,147

 
24,142

 
3,005

 
12.45

Total investments
$
36,502

 
$
26,944

 
$
9,558

 
35.47

____________ 
(1) 
As of December 31, 2014 and 2013, interest-bearing deposits includes a $1.0 billion business money market account with Branch Banking and Trust Company, one of the Bank’s ten largest borrowers.

The increase in short-term investments from December 31, 2013 to December 31, 2014 was primarily due to an increase in federal funds sold and securities purchased under agreements to resell as a result of increased liquidity requirements to meet expected advances demand. The amount held in federal funds sold or securities purchased under agreements to resell will vary each day based on the Bank’s liquidity requirements as a result of advances demand, the earning rates, and the availability of high quality counterparties. Throughout 2014, the federal funds rate on federal funds sold was at or above the Bank's minimum investment target rate, as determined by the Bank's internal policy, which allowed the Bank to invest its available cash in federal funds sold or in securities purchased under agreements to resell.

The increase in long-term investments from December 31, 2013 to December 31, 2014 was primarily due to an increase in GSE MBS, partially offset by a decrease in private-label MBS. The Bank suspended new purchases of private-label MBS beginning

29

in the first quarter of 2008, resulting in a greater percentage of GSE MBS as of December 31, 2014 compared to December 31, 2013.
 
The Finance Agency regulations prohibits an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities exceeds 300 percent of the FHLBank’s previous month-end regulatory capital on the day it purchases the securities. The Bank was in compliance with this regulatory requirement as of as of December 31, 2014 and 2013, as these investments amounted to 275 percent and 282 percent of regulatory capital, respectively.
Refer to Note 6—Available-for-sale Securities and Note 7—Held-to-maturity Securities to the Bank’s 2014 audited financial statements for information on securities with unrealized losses as of December 31, 2014 and 2013.
The Bank evaluates its individual investment securities for other-than-temporary impairment on a quarterly basis, as described in Note 8—Other-than-temporary Impairment to the Bank’s 2014 audited financial statements.

Mortgage Loans Held for Portfolio
The decrease in mortgage loans held for portfolio from December 31, 2013 to December 31, 2014 was primarily due to the maturity and prepayment of these assets during the year. The Bank ceased purchasing new mortgage loans in 2008. In addition, during the third quarter of 2013, the Bank reclassified its multifamily mortgage loan portfolio from the held-for-portfolio classification to mortgage loans held for sale. Subsequently, in August 2013, these loans, with an unpaid principal balance of $18 million, were sold, which resulted in a gain of less than $1 million.
As of December 31, 2014 and 2013, the Bank’s conventional mortgage loan portfolio was concentrated in the southeastern United States because those members selling loans to the Bank were located primarily in that region. The following table provides the percentage of unpaid principal balance of conventional single-family residential mortgage loans held for portfolio for the five largest state concentrations.
 
 
As of December 31,
 
2014
 
2013
 
Percent of Total
 
Percent of Total
Florida
26.98

 
27.04

South Carolina
25.26

 
24.59

Georgia
14.14

 
14.34

North Carolina
10.57

 
10.92

Virginia
8.04

 
7.95

All other
15.01

 
15.16

Total
100.00

 
100.00


Supplementary financial data on the Bank's mortgage loans is set forth under Item 8, Financial Statements and Supplementary Data—Supplementary Financial Information (Unaudited).

Consolidated Obligations
The Bank funds its assets primarily through the issuance of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. The increase in COs from December 31, 2013 to December 31, 2014 is a result of an increase in advances outstanding during the period. As of December 31, 2014, CO issuances financed 93.4 percent of the $138.3 billion in total assets, remaining relatively stable compared to the financing ratio of 92.3 percent as of December 31, 2013.
As of December 31, 2014 and December 31, 2013, COs outstanding were primarily fixed rate. However, the Bank often simultaneously enters into derivatives with the issuance of CO bonds to convert the interest rates, in effect, into short-term variable interest rates, usually based on LIBOR. As of December 31, 2014 and 2013, 88.6 percent and 77.5 percent, respectively, of the Bank’s fixed-rate CO bonds were swapped and 0.33 percent and 0.34 percent, respectively, of the Bank’s variable-rate CO bonds were swapped. As of December 31, 2014, 4.65 percent of the Bank's fixed-rate CO discount notes were swapped, and no discount notes were swapped to a variable rate as of December 31, 2013.
As of December 31, 2014, callable CO bonds constituted 24.6 percent of the total par value of CO bonds outstanding, compared to 29.8 percent as of December 31, 2013. This decrease was due to market conditions during 2013 that favored the issuance of callable CO bonds. The derivatives that the Bank may employ to hedge against the interest-rate risk associated with the Bank’s callable CO bonds are callable by the counterparty; if the call feature of the derivative is exercised, the Bank in turn

30

will generally call the hedged CO bond. These call features pose risk that the Bank could be required to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Swap spreads typically tend to decrease as interest rates decrease, resulting in less favorable funding costs for the Bank. Call options on unhedged callable CO bonds generally are exercised when the bond can be replaced at a lower economic cost.
Supplementary financial data on the Bank's short-term borrowings is set forth under Item 8, Financial Statements and Supplementary Data—Supplementary Financial Information (Unaudited).

Deposits

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

Capital
The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain (1) total capital in an amount equal to at least four percent of its total assets; (2) leverage capital in an amount equal to at least five percent of its total assets; and (3) permanent capital in an amount equal to at least its regulatory risk-based capital requirement. Permanent capital is defined by the FHLBank Act and applicable regulations as the sum of paid-in capital for Class B stock and retained earnings. Mandatorily redeemable capital stock is considered capital for regulatory purposes. These regulatory capital requirements, and the Bank's compliance with these requirements, are shown in detail in Note 15—Capital and Mandatorily Redeemable Capital Stock to the Bank's 2014 audited financial statements.
Finance Agency regulations establish criteria based on the amount and type of capital held by an FHLBank for four capital classifications as follows:
•
Adequately Capitalized - FHLBank meets both risk-based and minimum capital requirements;
•
Undercapitalized - FHLBank does not meet one or both of its risk-based or minimum capital requirements;
•
Significantly Undercapitalized - FHLBank has less than 75 percent of one or both of its risk-based or minimum capital requirements; and
•
Critically Undercapitalized - FHLBank total capital is two percent or less of total assets.
Under the regulations, the Director of the Finance Agency (Director) will make a capital classification for each FHLBank at least quarterly and notify the FHLBank in writing of any proposed action and provide an opportunity for the FHLBank to submit information relevant to such action. The Director is permitted to make discretionary classifications. An FHLBank must provide written notice to the Finance Agency within 10 days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level required to maintain its most recent capital classification or reclassification. The regulations delineate the types of prompt corrective actions the Director may order in the event an FHLBank is not adequately capitalized, including submission of a capital restoration plan by the FHLBank and restrictions on its dividends, stock redemptions, executive compensation, new business activities, or any other actions the Director determines will ensure safe and sound operations and capital compliance by the FHLBank. On December 19, 2014, the Bank received notification from the Director that, based on September 30, 2014 data, the Bank meets the definition of “adequately capitalized.”
As of December 31, 2014 and 2013, the Bank had capital stock subject to mandatory redemption from 12 and 17 members and former members, respectively, consisting of B1 membership stock and B2 activity-based capital stock. The Bank is not required to redeem or repurchase such capital stock until the expiration of the five-year redemption period or, with respect to activity-based capital stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding. The Bank, in its discretion, may repurchase excess capital stock subject to certain limitations and thresholds in the Bank's capital plan.

Prior to November 20, 2012, the Bank made its determination regarding the repurchase of excess capital stock on a quarterly basis, after financial results were known for the preceding quarter. On November 19, 2012, the Bank repurchased all membership excess capital stock and activity-based excess capital stock. Shareholders with excess capital stock on the

31

repurchase date were not permitted to opt out of the repurchase. Effective November 20, 2012, the Bank began repurchasing activity-based excess capital stock on a daily basis. The operational threshold for daily excess stock repurchases is $100 thousand. The change to daily excess stock repurchases helps reduce the volatility of capital stock balances due to large advance maturities and reduces pressure on the Bank to invest large amounts of capital in a low rate environment.

The FHLBanks entered into a Capital Agreement, which is intended to enhance the capital position of each FHLBank. Under the Capital Agreement each FHLBank allocates 20 percent of its net income each quarter to a separate retained earnings account until the account balance equals at least one percent of the FHLBank’s average balance of outstanding consolidated obligations for the previous quarter. Restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.

Effective October 28, 2013, the Finance Agency issued a final rule that requires each FHLBank to implement stress testing under baseline, adverse, and severely adverse scenarios on its consolidated earnings, capital, and other related factors, over a nine-quarter forward horizon based on its portfolio as of September 30 of the previous year. Under the rule, the Finance Agency will annually issue guidance on the scenarios, assumptions and methodologies to be used in conducting the stress test. The Bank is required to annually disclose publicly the results of its severely adverse economic conditions stress test. The Bank filed a report on Form 8-K disclosing the results of the severely adverse economic conditions stress test on July 17, 2014. The Bank expects to disclose its 2015 severely adverse economic conditions stress test results between July 15 and July 30, 2015.
Under its capital management plan, the Bank targets a capital-to-assets ratio of 4.75 percent to 5.25 percent, and retained earnings equal to the restricted retained earnings account balance plus extremely stressed scenario losses. The Bank also attempts to maintain additional retained earnings equal to two quarters of dividends, based on the current dividend rate and current stock balance. The Bank believes that daily excess stock repurchases and consistent dividends give members greater certainty of a return of their principal or the receipt of a dividend, which in turn may have a positive impact on members' appetite for advances. The Bank targets the payment of dividends each quarter that are consistent with an attractive rate of return on capital to its member shareholders relative to an established benchmark, LIBOR, after providing for retained earnings as discussed above. Historically, the Bank's dividend rate has increased with increases in LIBOR, while the spread between the dividend rate and LIBOR may shrink. Conversely, the dividend rate may decrease during periods of lower LIBOR, while the spread may increase. The Bank's ability to maintain dividends consistent with its recent trend depends on LIBOR remaining relatively stable, the Bank's actual financial performance, its ability to maintain adequate retained earnings, and the discretion of the Bank's board of directors. Information about the Bank's dividends declared during 2014 and 2013 is contained in Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.


32

Results of Operations

The following is a discussion and analysis of the Bank's results of operations for the years ended December 31, 2014, 2013, and 2012.

Net Income
The following table sets forth the Bank’s significant income items for the years ended December 31, 2014, 2013, and 2012, and provides information regarding the changes during the periods (dollars in millions). These items are discussed in more detail below.
 
 
 
 
 
 
 
 
Increase (Decrease)    
 
For the Years Ended December 31,
 
2014 vs. 2013
 
2013 vs. 2012
 
2014
 
2013
 
2012
 
Amount
 
Percent
 
Amount
 
Percent
Net interest income
$
323

 
$
341

 
$
376

 
$
(18
)
 
(5.63
)
 
$
(35
)
 
(8.95
)
(Reversal) provision for credit losses
(5
)
 
5

 
6

 
(10
)
 
(194.82
)
 
(1
)
 
(19.24
)
Noninterest income
105

 
166

 
55

 
(61
)
 
(36.65
)
 
111

 
200.17

Noninterest expense
132

 
127

 
125

 
5

 
3.22

 
2

 
2.64

Total assessments
30

 
37

 
30

 
(7
)
 
(19.83
)
 
7

 
23.86

Net income
$
271

 
$
338

 
$
270

 
$
(67
)
 
(19.93
)
 
$
68

 
24.93



Net Interest Income
The primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including COs, deposits, and other borrowings). Also included in net interest income are miscellaneous related items such as prepayment fees earned and the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments. The Bank also recognizes significant improvements in expected cash flows related to other-than-temporary impairment securities through net interest income.
The decrease in net interest income during 2014, compared to 2013, was primarily due to an eight basis points decrease in yield on the Bank's advances and a 39 basis points decrease in yield on the Bank's long-term investments portfolio. The decrease in yield on advances was primarily due to $48 million of accelerated amortization related to prepayments of previously restructured advances during the third quarter of 2014, as well as a reduction in rates on advances due to the issuance of shorter-term advances during the year. The yield on the Bank’s long-term investment portfolio continued to decline primarily due to the maturity or prepayment of higher yielding investments and the purchase of lower yielding instruments, as well as due to hybrid investments converting from a fixed interest rate to a lower variable interest rate. The decrease in net interest income was partially offset by a reduction in rates on the Bank's long-term debt during the year.
The decrease in net interest income during 2013, compared to 2012, was primarily due to a 50 basis points decrease in yield on the Bank’s long-term investments portfolio during the year due to the same reasons as stated above. The decrease in net interest income was partially offset by a reduction in rates on the Bank's long-term debt during 2013.

33

The following table summarizes key components of net interest income for the years presented (in millions):
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Interest income:
 
 
 
 
 
   Advances
$
180

 
$
233

 
$
294

   Investments
448

 
497

 
603

   Mortgage loans
50

 
61

 
76

Total interest income
678

 
791

 
973

 
 
 
 
 
 
Interest expense:
 
 
 
 
 
   Consolidated obligations
354

 
448

 
593

   Interest-bearing deposits
—

 
1

 
1

   Mandatorily redeemable capital stock
1

 
1

 
3

Total interest expense
355

 
450

 
597

Net interest income
$
323

 
$
341

 
$
376

As discussed above, net interest income includes components of hedging activity. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability. Also, when hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. As shown in the table summarizing the net effect of derivatives and hedging activity on the Bank’s results of operations, the impact of hedging on net interest income was a decrease of $608 million, $623 million, and $1.0 billion during the years ended December 31, 2014, 2013 and 2012, respectively.

The following table presents spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 2014, 2013, and 2012 (dollars in millions). The interest-rate spread is affected by the inclusion or exclusion of net interest income or expense associated with the Bank's derivatives. For example, as discussed above, if the derivatives qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is included in net interest income and in the calculation of interest-rate spread. If the derivatives do not qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is excluded from net interest income and the calculation of the interest-rate spread and recorded in noninterest income (loss) as "Net gains on derivatives and hedging activities." Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread. The Bank's interest-rate spread was 24 basis points, 26 basis points, and 27 basis points for 2014, 2013, and 2012, respectively. The decrease in interest-rate spread from 2013 to 2014, was primarily due to a decrease in yield on advances primarily due to accelerated amortization related to prepayments of previously restructured advances and a reduction in rates on advances due to the issuance of shorter-term advances during the year. The decrease in interest rate-spread from 2012 to 2013, was primarily due to a decrease in yield on the Bank's long-term investments portfolio.

34


 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
Average        
Balance
 
Interest
 
Yield/    
Rate
(%)
 
Average        
Balance
 
Interest
 
Yield/    
Rate
(%)
 
Average        
Balance
 
Interest
 
Yield/    
Rate
(%)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits (1)
$
2,685

 
$
4

 
0.15
 
$
3,204

 
$
5

 
0.15
 
$
4,279

 
$
7

 
0.17
Certificates of deposit
—

 
—

 
—
 
219

 
—

 
0.20
 
702

 
2

 
0.30
Securities purchased under agreements to resell
1,715

 
1

 
0.08
 
1,089

 
1

 
0.08
 
293

 
1

 
0.20
Federal funds sold
8,213

 
8

 
0.10
 
7,424

 
9

 
0.12
 
10,356

 
18

 
0.17
Long-term investments (2)
24,220

 
435

 
1.80
 
21,987

 
482

 
2.19
 
21,333

 
575

 
2.69
Advances
90,290

 
180

 
0.20
 
84,452

 
233

 
0.28
 
81,857

 
294

 
0.36
Mortgage loans (3)
836

 
50

 
5.92
 
1,079

 
61

 
5.67
 
1,438

 
76

 
5.33
Loans to other FHLBanks
3

 
—

 
0.07
 
1

 
—

 
0.09
 
1

 
—

 
0.12
Total interest-earning assets
127,962

 
678

 
0.53
 
119,455

 
791

 
0.66
 
120,259

 
973

 
0.81
Allowance for credit losses on mortgage loans
(5
)
 
 
 
 
 
(11
)
 
 
 
 
 
(9
)
 
 
 
 
Other assets
1,409

 
 
 
 
 
1,068

 
 
 
 
 
799

 
 
 
 
Total assets
$
129,366

 
 
 
 
 
$
120,512

 
 
 
 
 
$
121,049

 
 
 
 
Liabilities and Capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits (4)
$
1,435

 
—

 
0.01
 
$
2,227

 
1

 
0.02
 
$
2,482

 
1

 
0.05
Short-term debt
29,903

 
29

 
0.10
 
23,421

 
27

 
0.11
 
22,316

 
25

 
0.11
Long-term debt
89,014

 
325

 
0.37
 
85,466

 
421

 
0.49
 
85,550

 
568

 
0.66
Other borrowings
22

 
1

 
4.24
 
30

 
1

 
2.51
 
154

 
3

 
1.92
Total interest-bearing liabilities
120,374

 
355

 
0.29
 
111,144

 
450

 
0.40
 
110,502

 
597

 
0.54
Other liabilities
2,412

 
 
 
 
 
3,129

 
 
 
 
 
4,195

 
 
 
 
Total capital
6,580

 
 
 
 
 
6,239

 
 
 
 
 
6,352

 
 
 
 
Total liabilities and capital
$
129,366

 
 
 
 
 
$
120,512

 
 
 
 
 
$
121,049

 
 
 
 
Net interest income and net yield on interest-earning assets
 
 
$
323

 
0.25
 
 
 
$
341

 
0.29
 
 
 
$
376

 
0.31
Interest rate spread
 
 
 
 
0.24
 
 
 
 
 
0.26
 
 
 
 
 
0.27
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
106.30
 
 
 
 
 
107.48
 
 
 
 
 
108.83
___________ 
(1) 
Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.
(2) 
Includes trading securities at fair value and available-for-sale securities at amortized cost.
(3) 
Nonperforming loans are included in average balances used to determine average rate.
(4) 
Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.


35

Net interest income for the years presented was affected by changes in average balances (volume change) and changes in average rates (rate change) of interest-earning assets and interest-bearing liabilities. The following table presents the extent to which volume changes and rate changes affected the Bank’s interest income and interest expense (in millions). As noted in the table below, the overall change in net interest income between 2014 and 2013, and between 2013 and 2012, was primarily rate related.
 
2014 vs. 2013
 
2013 vs. 2012
 
Volume (1)
 
Rate (1)
 
Increase (Decrease)    
 
Volume (1)
 
Rate (1)
 
Increase (Decrease)
Increase (decrease) in interest income:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
$
(1
)
 
$
—

 
$
(1
)
 
$
(2
)
 
$
—

 
$
(2
)
 Certificates of deposit
—

 
—

 
—

 
(1
)
 
(1
)
 
(2
)
 Securities purchased under agreements to resell
—

 
—

 
—

 
1

 
(1
)
 
—

 Federal funds sold
1

 
(2
)
 
(1
)
 
(5
)
 
(4
)
 
(9
)
 Long-term investments
45

 
(92
)
 
(47
)
 
17

 
(110
)
 
(93
)
 Advances
16

 
(69
)
 
(53
)
 
9

 
(70
)
 
(61
)
    Mortgage loans
(14
)
 
3

 
(11
)
 
(20
)
 
5

 
(15
)
Total
47

 
(160
)
 
(113
)
 
(1
)
 
(181
)
 
(182
)
Increase (decrease) in interest expense:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
—

 
(1
)
 
(1
)
 
—

 
—

 
—

 Short-term debt
6

 
(4
)
 
2

 
2

 
—

 
2

 Long-term debt
17

 
(113
)
 
(96
)
 
(1
)
 
(146
)
 
(147
)
 Other borrowings
—

 
—

 
—

 
(3
)
 
1

 
(2
)
Total
23

 
(118
)
 
(95
)
 
(2
)
 
(145
)
 
(147
)
Increase (decrease) in net interest income
$
24

 
$
(42
)
 
$
(18
)
 
$
1

 
$
(36
)
 
$
(35
)
____________ 
(1) 
Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is the change in rate multiplied by the previous volume. The rate/volume change, change in rate multiplied by change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of its total.
Noninterest Income (Loss)
The following table presents the components of noninterest income (loss) (dollars in millions):
 
 
 
 
 
 
 
 
Increase (Decrease)
 
For the Years Ended December 31,
 
2014 vs. 2013
 
2013 vs. 2012
 
2014
 
2013
 
2012
 
Amount
 
Percent
 
Amount
 
Percent
Net impairment losses recognized in earnings
$
(3
)
 
$
—

 
$
(16
)
 
$
(3
)
 
*

 
$
16

 
99.96

Net losses on trading securities
(60
)
 
(100
)
 
(67
)
 
40

 
39.66

 
(33
)
 
(49.01
)
Net gains on derivatives and hedging activities
120

 
204

 
117

 
(84
)
 
(41.05
)
 
87

 
74.03

Gain on early extinguishment of debt
15

 
6

 
—

 
9

 
168.82

 
6

 
100.00

Letters of credit fees
26

 
20

 
18

 
6

 
33.51

 
2

 
9.79

Gain on litigation settlements, net
4

 
33

 
—

 
(29
)
 
(87.56
)
 
33

 
100.00

Other
3

 
3

 
3

 
—

 
(6.89
)
 
—

 
(12.60
)
Total noninterest income
$
105

 
$
166

 
$
55

 
$
(61
)
 
(36.65
)
 
$
111

 
200.17

____________
* Not meaningful

The $84 million decrease in net gains on derivatives and hedging activities during 2014, compared to 2013, was primarily due to a decrease in gains on effective hedges of $76 million as well as a decrease in gains of $37 million on stand-alone derivatives that hedge the trading securities. There was also a $27 million decrease in gains associated with the Bank's stand-alone derivatives used to macro hedge the MBS portfolio. The decrease in long-term interest rates during 2014 was the primary driver of the reduced fair value and resulting decreased income in these items. The decrease in net gains on derivatives and hedging activities was partially offset by the prepayment of previously restructured advances prior to their maturity.
 
The $87 million increase in net gains on derivatives and hedging activities during 2013, compared to 2012, was primarily due to an increase in gains on effective hedges of $56 million as well as an increase in gains of $40 million on stand-alone derivatives that hedge the trading securities. There was also a $17 million increase in gains associated with the Bank's stand-

36

alone derivatives used to macro hedge the MBS portfolio. This increase was partially offset by a $23 million decrease in gains associated with geography related amortizations and interest reclassifications that are offset in net interest income.

The $33 million increase in net losses on trading securities during 2013, compared to 2012, was primarily due to a decrease in the fair value of securities due to changes in rates during 2013. As noted above, the increase in the loss on the trading securities was offset by an increase in the gains on the derivatives hedging these securities of $40 million.

In 2014 and 2013, the Bank agreed with certain of its defendants to settle claims against them arising from certain investments in private-label MBS.  As a result of these settlement agreements, during 2014 and 2013 the Bank recorded gains on litigation settlements of $4 million and $33 million, respectively, which are net of legal fees and expenses.

The following tables summarize the net effect of derivatives and hedging activity on the Bank’s results of operations (in millions): 
 
For the Year Ended December 31, 2014
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
 
Balance Sheet         
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(234
)
 
$
—

 
$
4

 
$
—

 
$
(230
)
Net interest settlements included in net interest income (2)
(875
)
 
—

 
497

 
—

 
(378
)
Total effect on net interest (expense) income
$
(1,109
)
 
$
—

 
$
501

 
$
—

 
$
(608
)
Net gains (losses) on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
 Gains on fair value hedges
$
145

 
$
—

 
$
2

 
$
—

 
$
147

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

 
(9
)
 
1

 
(19
)
 
(27
)
Total net gains (losses) on derivatives and hedging activities
145

 
(9
)
 
3

 
(19
)
 
120

Net losses on trading securities (3)
—

 
(60
)
 
—

 
—

 
(60
)
Total effect on noninterest income (loss)
$
145

 
$
(69
)
 
$
3

 
$
(19
)
 
$
60

____________ 
(1) Represents the amortization or accretion of hedging fair value adjustments for both open and closed hedge positions.
(2) Represents interest income or expense on derivatives included in net interest income.
(3) Includes only those gains or losses on trading securities or financial instruments held at fair value that have an economic derivative “assigned,” therefore, this line item may not agree to the income statement.
 
For the Year Ended December 31, 2013
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
 
Balance Sheet         
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(216
)
 
$
—

 
$
24

 
$
—

 
$
(192
)
Net interest settlements included in net interest income (2)
(1,033
)
 
—

 
602

 
—

 
(431
)
Total effect on net interest (expense) income
$
(1,249
)
 
$
—

 
$
626

 
$
—

 
$
(623
)
Net gains (losses) on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
Gains (losses) on fair value hedges
$
202

 
$
—

 
$
(22
)
 
$
—

 
$
180

Gains on derivatives not receiving hedge accounting including net interest settlements
7

 
5

 
1

 
11

 
24

Total net gains (losses) on derivatives and hedging activities
209

 
5

 
(21
)
 
11

 
204

Net losses on trading securities (3)
—

 
(100
)
 
—

 
—

 
(100
)
Total effect on noninterest income (loss)
$
209

 
$
(95
)
 
$
(21
)
 
$
11

 
$
104

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


37

 
For the Year Ended December 31, 2012
 
Advances
 
Investments
 
Consolidated
Obligation
Bonds
 
Balance Sheet         
 
Total
Net interest income:
 
 
 
 
 
 
 
 
 
Amortization or accretion of hedging activities in net interest income (1)
$
(245
)
 
$
—

 
$
32

 
$
—

 
$
(213
)
Net interest settlements included in net interest income (2)
(1,397
)
 
—

 
574

 
—

 
(823
)
Total effect on net interest (expense) income
$
(1,642
)
 
$
—

 
$
606

 
$
—

 
$
(1,036
)
Net gains (losses) on derivatives and hedging activities:
 
 
 
 
 
 
 
 
 
Gains (losses) on fair value hedges
$
199

 
$
—

 
$
(32
)
 
$
—

 
$
167

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

 
(46
)
 
3

 
(7
)
 
(50
)
Total net gains (losses) on derivatives and hedging activities
199

 
(46
)
 
(29
)
 
(7
)
 
117

Net losses on trading securities (3)
—

 
(67
)
 
—

 
—

 
(67
)
Total effect noninterest income (loss)
$
199

 
$
(113
)
 
$
(29
)
 
$
(7
)
 
$
50

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


Noninterest Expense and Assessments
 
For the Years Ended December 31,
 
 Increase (Decrease)
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Noninterest expense:
 
 
 
 
 
 
 
 
 
Compensation and benefits
$
73

 
$
69

 
$
68

 
$
4

 
$
1

Cost of quarters
5

 
5

 
5

 
—

 
—

Other operating expenses
36

 
39

 
35

 
(3
)
 
4

Total operating expenses
114

 
113

 
108

 
1

 
5

Finance Agency and Office of Finance
14

 
14

 
16

 
—

 
(2
)
Other
4

 
—

 
1

 
4

 
(1
)
Total noninterest expense
132

 
127

 
125

 
5

 
2

 
 
 
 
 
 
 
 
 
 
Affordable Housing Program assessments
30

 
37

 
30

 
(7
)
 
7

Total noninterest expense and assessments
$
162

 
$
164

 
$
155

 
$
(2
)
 
$
9


Total noninterest expense remained relatively stable during 2014, 2013, and 2012.

The increase in assessments during 2013, compared to 2014 and 2012, was due to an increase in income before assessments during the year.

Liquidity and Capital Resources
Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called COs, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, and the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank complies with operational liquidity and contingent liquidity, and other regulatory requirements. The Bank also performs a separate and independent measure of liquidity, a 45-day liquidity measurement, to validate the level of liquidity reserves.
Finance Agency regulations require the Bank to maintain operational liquidity (generally, the ready cash and borrowing capacity available to meet the Bank's intraday needs), and contingent liquidity in an amount sufficient to meet its liquidity needs for five business days if it is unable to access the capital markets. The Bank met these regulatory liquidity requirements throughout 2014. The Finance Agency has also provided liquidity guidance to the FHLBanks generally to provide ranges of days within which each FHLBank should maintain positive cash balances based upon different assumptions and scenarios. The Bank has operated within these ranges since the Finance Agency issued this guidance.

38

The Bank has established an internal liquidity measurement separate from the Finance Agency requirements described above. The Bank performs a supplemental analysis to confirm that liquidity reserves are sufficient to service debt obligations for at least 45 days. This analysis assumes no access to debt market issuance and other management assumptions which are completely independent of the operational and contingent liquidity calculation measured above. The Bank met its 45 day internal liquidity goal throughout 2014.
The Bank’s principal source of liquidity is CO debt instruments. To provide liquidity, the Bank also may use other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and loans from other FHLBanks. These funding sources depend on the Bank’s ability to access the capital markets at competitive market rates. Although the Bank maintains secured and unsecured lines of credit with money market counterparties, the Bank’s income and liquidity would be adversely affected if it were not able to access the capital markets at competitive rates for an extended period. Historically, the FHLBanks have had excellent capital market access, although pricing and investor appetite tend to favor short-term discount notes during times of market volatility.
Contingency plans are in place that prioritize the allocation of liquidity resources in the event of operational disruptions at the Bank or the Office of Finance, as well as systemic Federal Reserve wire transfer system disruptions. Under the FHLBank Act, the Secretary of Treasury has the authority, at his discretion, to purchase COs up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.

Off-balance Sheet Commitments
The Bank’s primary off-balance sheet commitments are as follows:
•
the Bank’s joint and several liability for all FHLBank COs; and
•
the Bank’s outstanding commitments arising from standby letters of credit.
Should an FHLBank be unable to satisfy its payment obligation under a CO for which it is the primary obligor, any of the other FHLBanks, including the Bank, could be called upon to repay all or any part of such payment obligation, as determined or approved by the Finance Agency. As of December 31, 2014, none of the other FHLBanks defaulted on their consolidated obligations, the Finance Agency was not required to allocate any obligation among the FHLBanks, and no amount of the joint and several obligation was fixed. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ COs as of December 31, 2014 and 2013. As of December 31, 2014, the FHLBanks had $847.2 billion in aggregate par value of COs issued and outstanding, $129.0 billion of which was attributable to the Bank. No FHLBank has ever defaulted on its principal or interest payments under any CO, and the Bank has never been required to make payments under any CO as a result of the failure of another FHLBank to meet its obligations.
The Bank generally requires standby letters of credit to contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. The Bank may issue standby letters of credit for terms of longer than one year without annual renewals, or that have no stated maturity and are subject to renewal on an annual basis, based on the creditworthiness of the member applicant and appropriate additional fees. Letters of credit increased $3.1 billion, or 11.3 percent from December 31, 2013 to December 31, 2014, as a number of member institutions increased their use of the Bank's letters of credit in connection with their management of recent liquidity coverage ratio requirements.
Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit for the account of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have an allowance for credit losses for these unfunded standby letters of credit as of December 31, 2014. Management regularly reviews its standby letter of credit pricing in light of several factors, including the Bank’s potential liquidity needs related to draws on its standby letters of credit.
Refer to Note 20—Commitments and Contingencies to the Bank's 2014 audited financial statements for more information about the Bank's outstanding letters of credit.


39

Contractual Obligations

The tables below present the payment due dates or expiration terms of the Bank's contractual obligations and commitments as of December 31, 2014 (in millions):

 
One year or less
 
After one year
through three years
 
After three years
through five years
 
After five years
 
Total
Long-term debt
$
52,081

 
$
25,799

 
$
8,065

 
$
5,843

 
$
91,788

Standby letters of credit
7,409

 
2,151

 
8,531

 
12,837

 
30,928

Mandatorily redeemable capital stock
9

 
9

 
1

 
—

 
19

Commitments to fund additional advances
189

 
20

 
—

 
—

 
209

Pension and post-retirement contributions
11

 
6

 
7

 
22

 
46

Operating leases
1

 
1

 
—

 
—

 
2

Total
$
59,700

 
$
27,986

 
$
16,604

 
$
18,702

 
$
122,992


Refer to the respective footnotes in Item 8, Financial Statements and Supplementary Data for more information on each of the contractual obligations and commitments listed in the above table.

Critical Accounting Policies and Estimates

The preparation of the Bank's financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that affect the Bank's reported results and disclosures. Several of the Bank's accounting policies inherently are subject to valuation assumptions and other subjective assessments and are more critical than others to the Bank's results. The Bank has identified the following policies that, given the assumptions and judgment used, are critical to an understanding of the Bank's financial condition and results of operations:

•
Fair Value Measurements;
•
Other-than-temporary Impairment;
•
Allowance for Credit Losses; and
•
Derivatives and Hedging Activities.

Fair Value Measurements

The Bank carries certain assets and liabilities, including investments classified as trading and available-for-sale, and all derivatives on the balance sheet at fair value. Fair value 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, representing an exit price.

Fair values play an important role in the valuation of certain of the assets, liabilities and hedging transactions of the Bank. Fair values are based on quoted market prices or market-based prices, if such prices are available, even in situations in which trading volume may be low when compared with prior periods as has been the case during the current market environment. If quoted market prices or market-based prices are not available, the Bank determines fair values based on valuation models that use discounted cash flows, using market estimates of interest rates and volatility.

Valuation models and their underlying assumptions are based on the best estimates of management of the Bank with respect to:

•
market indices (primarily LIBOR and the Fed Funds Effective Swap Rate (OIS));
•
discount rates;
•
prepayments;
•
market volatility; and
•
other factors, including default and loss rates.

These assumptions, particularly estimates of market indices and discount rates, may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the income and expense related thereto. The use of different assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings. The assumptions used in the models are corroborated by and independently verified against market observable data where possible.


40

The Bank categorizes its financial instruments carried at fair value into a three-level classification in accordance with GAAP. The valuation hierarchy is based upon the transparency (observable or unobservable) of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank's market assumptions. The Bank utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

As of December 31, 2014 and 2013, the fair value of the Bank's available-for-sale private-label MBS investment portfolio was determined using unobservable inputs due to a lack of significant market activity for private-label MBS.

Refer to Note 19—Estimated Fair Values to the Bank's 2014 audited financial statements for further discussion regarding how the Bank measures financial assets and financial liabilities at fair value.

Other-than-temporary Impairment

The Bank evaluates its individual available-for-sale and held-to-maturity investment securities in unrealized loss positions for other-than-temporary impairment on a quarterly basis. The Bank recognizes an other-than-temporary impairment loss when the Bank determines it will not recover the entire amortized cost basis of a security. Securities in the Bank's private-label MBS portfolio that are in an unrealized loss position are evaluated by estimating the projected cash flows using a model that incorporates projections and assumptions based on the structure of the security and certain economic environment assumptions such as delinquency and default rates, loss severity, home price appreciation, interest rates, and securities prepayment speeds while factoring in the underlying collateral and credit enhancement.

If the present value of the expected cash flows of a particular security is less than the security's amortized cost basis, the security is considered to be other-than temporarily impaired. The amount of the other-than-temporary impairment is separated into two components: (1) the amount of the total impairment related to credit loss; and (2) the amount of the total impairment related to all other factors. The portion of the other-than-temporary impairment loss that is attributable to the credit loss (that is, the difference between the present value of the cash flows expected to be collected and the amortized cost basis) is recognized in noninterest income (loss). The credit loss on a debt security is limited to the amount of that security's unrealized loss. If the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis, the portion of the impairment loss that is not attributable to the credit loss is recognized through other comprehensive income.

If the Bank determines that an other-than-temporary impairment exists, the Bank accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment loss at an amortized cost basis equal to the previous amortized cost basis less the other-than-temporary impairment recognized in income. For debt securities classified as held-to-maturity, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted into interest income prospectively over the remaining life of the security.

In periods subsequent to an other-than-temporary impairment, if the present value of cash flows expected to be collected is greater than amortized cost by a significant amount, an adjustment is made to the security's yield on a prospective basis. Therefore, the Bank recognizes significant improvements in expected cash flows through interest income.

Allowance for Credit Losses

The Bank is required to assess potential credit losses and establish an allowance for credit losses, if required, for each identified portfolio segment of financing receivables. A portfolio segment is the level at which the Bank develops and documents a systematic method for determining its allowance for credit losses. The Bank has established a reserve methodology for each of the following portfolio segments of financing receivables: advances and letters of credit, conventional single-family residential mortgage loans, government-guaranteed or insured single-family residential mortgage loans, multifamily residential mortgage loans, term federal funds sold, and term securities purchased under agreements to resell.

The Bank considers the application of these standards to its advance, mortgage loan, federal fund portfolio, and securities purchased under agreements to resell a critical accounting policy, as determining the appropriate amount of the allowance for credit losses requires the Bank to make a number of assumptions. The Bank's assumptions are based on information available as of the date of the financial statements. Actual results may differ from these estimates.

41


Advances and Letters of Credit

Finance Agency regulations require the Bank to obtain eligible collateral from borrowing members to protect against potential credit losses. Eligible collateral is defined by statute and regulation. The Bank monitors the financial condition of borrowers and regularly verifies the existence and characteristics of a risk-based sample of mortgage collateral pledged to secure advances. Each borrower's collateral requirements and the scope and frequency of its collateral verification reviews are dependent upon certain risk factors. Since its establishment in 1932, the Bank has never experienced a credit loss on an advance or letter of credit. Based on the collateral held as security, its collateral policies, management's credit analysis and the repayment history on advances, the Bank did not anticipate any credit losses on advances or letters of credit as of December 31, 2014 and 2013. Accordingly, the Bank has not recorded any allowance for credit losses on advances or letters of credit. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk for further discussion regarding the Bank's credit risk policies and practice.

Conventional Single-family Residential Mortgage Loans

Modified loans that are considered a troubled debt restructuring are evaluated individually for impairment. All other conventional single-family residential mortgage loans are evaluated collectively for impairment. The allowance for conventional single-family residential mortgage loans is determined by an analysis (performed at least quarterly) that includes segregating the portfolio into various aging groups. For loans that are 60 days or less past due, the Bank calculates a loss severity, default rate, and the expected loss based on individual loan characteristics. For loans that are more than 60 days past due, the allowance is determined using an automated valuation model. Prior to January 1, 2014, the overall allowance for credit losses on conventional single-family residential mortgage loans was determined by an analysis (performed at least quarterly) that included consideration of various data, such as past performance, current performance, loan portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. Inherent in the Bank's evaluation of past performance is an analysis of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.

A modified loan that is considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate) incurred as of the reporting date, as well as the economic loss attributable to delaying the original contractual principal and interest due dates.

Government-guaranteed or Insured Single-family Residential Mortgage Loans

The Bank also invests in government-guaranteed or insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured mortgage loans are mortgage loans guaranteed or insured by the VA or the FHA. Any losses from such loans are expected to be recovered from those entities. Any losses from such loans that are not recovered from those entities are absorbed by the servicers. Therefore, there is no allowance for credit losses on government-guaranteed or insured mortgage loans.

Multifamily Residential Mortgage Loans

The Bank sold its multifamily residential mortgage loan portfolio in August 2013. Prior to the sale, multifamily residential mortgage loans were individually evaluated for impairment. An independent third-party loan review was performed annually on all the Bank's multifamily residential mortgage loans to identify credit risks and to assess the overall ability of the Bank to collect on those loans. The allowance for credit losses related to multifamily residential mortgage loans was comprised of specific reserves and a general reserve.
The Bank established a specific reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. A loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan. The loans were collateral dependent; that is, the ability to repay the loan was dependent on amounts generated by the collateral. Therefore, should a loan be classified as impaired, the loan would be adjusted to reflect the fair value of the underlying collateral less cost to sell.

To identify the loans that would be subject to review for impairment, the Bank reviewed all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. The Bank used six grade categories when assigning credit ratings to individual loans. These credit ratings involved a high degree of judgment in estimating the amount and timing of

42

future cash flows and collateral values. While the Bank's allowance for credit losses was sensitive to the credit ratings assigned to a loan, a hypothetical one-level downgrade or upgrade in the Bank's credit ratings for all multifamily residential mortgage loans would not result in a change in the allowance for credit losses that would be material as a proportion of the unpaid principal balance of the Bank's mortgage loan portfolio.

A general reserve was maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigned a risk classification to this population of loans. A specified percentage was allocated to the general reserve for designated risk classification levels. The loans and risk classification designations were reviewed by the Bank on an annual basis.

Term Federal Funds Sold
Term federal funds sold are generally short-term, their recorded balance approximates fair value, and they are transacted with counterparties that are considered by the Bank to be of investment quality. The Bank's investment in federal funds sold are evaluated for purposes of an allowance for credit losses only if the investment is not paid when due. All investments in federal funds sold are unsecured and were repaid or expected to be repaid according to the contracted terms as of December 31, 2014 and 2013.

Term Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans transacted with counterparties that are considered by the Bank to be of investment quality. The terms of these loans are structured such that if the fair value of the underlying securities decrease below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is recognized in earnings. Based upon the collateral held as security, the Bank determined that no allowance for credit losses was needed for the securities purchased under agreements to resell as of December 31, 2014 and 2013.

See Note 2—Summary of Significant Accounting Policies—Allowance for Credit Losses to the Bank's 2014 audited financial statements and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk for a further discussion of management's estimate of credit losses.

Derivatives and Hedging Activities

General

The Bank records all derivatives on the balance sheet at fair value with changes in fair value recognized in current period earnings. The Bank designates derivatives as either fair-value hedging instruments or non-qualifying hedging instruments for which hedge accounting is not applied. The Bank has not entered into any cash-flow hedges as of December 31, 2014 and 2013. The Bank uses derivatives in its risk management program for the following purposes:

•
conversion of a fixed rate to a variable rate;
•
conversion of a variable rate with a fixed component to another variable rate; and
•
macro hedging of balance sheet risks.

To qualify for hedge accounting, the Bank documents the following concurrently with the execution of each hedging relationship:

•
the hedging strategy;
•
identification of the hedging instrument and the hedged item;
•
determination of the appropriate accounting designation;
•
the method used for the determination of effectiveness for transactions qualifying for hedge accounting; and
•
the method for recording ineffectiveness for hedging relationships.

The Bank also evaluates each debt issuance, advance made, and financial instrument purchased to determine whether the cash item contains embedded derivatives that meet the criteria for bifurcation. If, after evaluation, it is determined that an embedded derivative must be bifurcated, the Bank will measure the fair value of the embedded derivative.


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Assessment of Hedge Effectiveness

An assessment must be made to determine the effectiveness of qualifying hedging relationships; the Bank uses two methods to make such an assessment. If the hedging instrument is a swap and meets specific criteria, the hedging relationship may qualify for the short-cut method of assessing effectiveness. The short-cut method allows for an assumption of no ineffectiveness, which means that the change in the fair value of the hedged item is assumed to be equal and offsetting of the change in fair value of the hedging instrument. For periods beginning after May 31, 2005, the Bank determined that it would no longer apply the short-cut method to new hedging relationships.

The long-haul method of effectiveness is used to assess effectiveness for hedging relationships that qualify for hedge accounting, but do not meet the criteria for the use of the short-cut method. The long-haul method requires separate valuations of both the hedged item and the hedging instrument. If the hedging relationship is determined to be highly effective, the change in fair value of the hedged item related to the designated risk is recognized in current period earnings in the same period as the change in fair value of the hedging instrument. If the hedging relationship is determined not to be highly effective, hedge accounting either will not be allowed or will cease at that point. The Bank performs effectiveness testing on a monthly basis and uses statistical regression analysis techniques to determine whether a long-haul hedging relationship is highly effective.

Accounting for Ineffectiveness and Hedge De-designation

The Bank accounts for any ineffectiveness for all long-haul fair-value hedges using the dollar offset method. In the case of non-qualifying hedges that do not qualify for hedge accounting, the Bank reports only the change in fair value of the derivative. The Bank reports all ineffectiveness for qualifying hedges and non-qualifying hedges in the income statement caption “Net gains on derivatives and hedging activities” which is included in the “Noninterest income (loss)” section of the Statements of Income.

The Bank may discontinue hedge accounting for a hedging transaction (de-designation) if it fails effectiveness testing or for other asset-liability-management reasons. The Bank also treats modifications to hedged items as a discontinuance of a hedging relationship. When a hedge relationship is discontinued, the Bank will cease marking the hedged item to fair value and will amortize the cumulative basis adjustment resulting from hedge accounting. The Bank reports related amortization as interest income or expense over the remaining life of the associated hedged item. The associated derivative will continue to be marked to fair value through earnings until it matures or is terminated.

Recently Issued and Adopted Accounting Guidance
See Note 3—Recently Issued and Adopted Accounting Guidance to the Bank's 2014 audited financial statements for a discussion of recently issued and adopted accounting guidance.

Legislative and Regulatory Developments

The legislative and regulatory environment in which the Bank and its members operate continues to evolve as a result of regulations enacted pursuant to the Housing Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Bank’s business operations, funding costs, rights, obligations, and/or the environment in which the Bank carries out its housing finance and community lending mission are likely to continue to be significantly impacted by these changes. Significant regulatory actions and developments for the period covered by this report are summarized below.

Significant Finance Agency Developments

FHLBank Membership. On September 12, 2014, the Finance Agency issued a proposed rule that would:

•
Impose a new test on all Bank members that requires them to maintain at least one percent of their assets in long-term first-lien home mortgage loans, including MBS, on an ongoing basis, with maturities of five years or more to maintain their membership in the Bank. The proposal also suggests the possibility of a two percent or a five percent test as options.

•
Require all insured depository members (other than FDIC-insured depositories with less than $1.1 billion in assets) to maintain, on an ongoing basis (rather than only at the time of application for membership as required by current regulations), at least 10 percent of their assets in a broader range of residential mortgage loans, including those secured by junior liens and MBS, in order to maintain their membership in the Bank.


44

•
Eliminate all currently eligible captive insurance companies from Bank membership. Current captive insurance company members would have their memberships terminated five years after this rule is finalized. There would be restrictions on the level and maturity of advances that the Bank could make to these members during the sunset period. Under the proposed rule, a captive insurance company is defined as a company that is authorized under state law to conduct an insurance business but whose primary business is not the underwriting of insurance for nonaffiliated persons or entities.

•
Clarify how the Bank should determine the principal place of business of certain insurance companies or community development financial institutions for purposes of membership. The proposed rule would also change the way the principal place of business is determined for an institution that becomes a member of an FHLBank after issuance of the final rule. Current rules define an institution’s principal place of business as the state in which it maintains its home office. The proposal would add a second component requiring an institution to conduct business operations from the home office for that state to be considered its principal place of business. The changes would apply prospectively.

Although a number of Bank members may not meet one or more of the new tests if the proposed rule is adopted, the potential impact of the proposed rule on the Bank’s membership is currently unknown.

Margin and Capital Requirements for Covered Swap Entities.  On September 3, 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Farm Credit Administration, and the Finance Agency (collectively, the Agencies) jointly proposed a rule to establish minimum margin and capital requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants (collectively, Swap Entities) that are subject to the jurisdiction of one of the Agencies (the Proposed Rule). In addition, the Proposed Rule affords the Agencies discretion to subject other persons to the Proposed Rule’s requirements (such persons, together with Swap Entities, the Covered Swap Entities).

The Proposed Rule would subject non-cleared swaps and non-cleared security-based swaps between Covered Swap Entities, and between Covered Swap Entities and financial end users that have material swaps exposure to a mandatory two-way initial margin requirement.  The amount of initial margin required to be posted or collected would be either the amount calculated using a standardized schedule set forth in the Proposed Rule, which provides the gross initial margin (as a percentage of total notional exposure) for certain asset classes, or an internal margin model conforming to the requirements of the Proposed Rule that is approved by the applicable Agency. The Proposed Rule specifies the types of collateral that may be posted or collected as initial margin (generally, cash, certain government securities, certain liquid debt, certain equity securities and gold); and sets forth haircuts for certain collateral asset classes. Initial margin must be segregated with an independent, third-party custodian and may not be rehypothecated.

The Proposed Rule would require variation margin to be exchanged daily for non-cleared swaps and non-cleared security-based
swaps between Covered Swap Entities and between Covered Swap Entities and all financial end users (without regard to the swaps exposure of the particular financial end-user). The variation margin amount is the daily mark-to-market change in the value of the swap to the Covered Swap Entity, taking into account variation margin previously paid or collected. Variation margin may only be paid or collected in cash, is not subject to segregation with an independent, third-party custodian, and may, if permitted by contract, be rehypothecated.

Under the Proposed Rule, the variation margin requirement would become effective on December 1, 2015, and the initial margin requirement would be phased in over a four-year period commencing on that date. For entities that have less than a $1 trillion notional amount of non-cleared derivatives, the Proposed Rule’s initial margin requirement would not come into effect until December 1, 2019.

The Bank would not be a Covered Swap Entity under the Proposed Rule, although the Finance Agency has discretion to designate the Bank as a Covered Swap Entity. Rather, the Bank would be a financial end-user under the Proposed Rule, and it would likely have material swaps exposure upon the effective date of the Proposed Rule’s initial margin requirement.

Since the Bank is currently posting and collecting variation margin in cash, daily, on its non-cleared swaps, it is not anticipated that the Proposed Rule’s variation margin requirement, if adopted, would have a material impact on the Bank’s costs. However, if the Proposed Rule’s initial margin requirement is adopted, the Bank’s cost of engaging in non-cleared swaps may increase.

In addition, on September 17, 2014, the Commodity Futures Trading Commission (CFTC) published its version of the Proposed Rule (“CFTC Proposed Rule”) that generally mirrors the Proposed Rule. The CFTC Proposed Rule will only apply to a limited number of registered swap dealers and major swap participants that are not subject to the jurisdiction of one of the Agencies. Comments on the CFTC Proposed Rule were due by December 2, 2014.

45


Proposed Rule on Responsibilities of Boards of Directors; Corporate Practices and Corporate Governance Matters. On January 28, 2014, the Finance Agency published a proposed rule to relocate and consolidate existing Federal Housing Finance Board and Office of Federal Housing Enterprise Oversight regulations pertaining to director responsibilities, corporate practices, and corporate governance matters for Fannie Mae and Freddie Mac (together, the Enterprises) and the FHLBanks (together with the Enterprises, the "regulated entities"). In addition, the proposed rule would make certain amendments or additions, including provisions to:

•
Revise existing risk management provisions to better align them with more recent proposals of the Federal Reserve Board, including requirements that each regulated entity adopts an enterprise wide risk management program and appoints a Chief Risk Officer with certain enumerated responsibilities;

•
Require each regulated entity to maintain a compliance program headed by a compliance officer who reports directly to the chief executive officer and must regularly report to the board of directors (or a board committee);

•
Require each regulated entity’s board to include committees specifically responsible for the following matters: (a) risk management; (b) audit; (c) compensation; and (d) corporate governance; and

•
Require each FHLBank to designate in its bylaws a body of law to follow for its corporate governance practices and procedures that may arise for which no federal law controls, choosing from (a) the law of the jurisdiction in which the FHLBank maintains its principal office; (b) the Delaware General Corporation Law; or (c) the Revised Model Business Corporation Act. The proposed rule states that the Finance Agency has the authority to review a regulated entity's indemnification policies, procedures and practices and may limit or prohibit indemnification payments in furtherance of the safe and sound operations of the regulated entity.

Final Rule on Executive Compensation. On January 28, 2014, the Finance Agency issued a final rule, effective February 27, 2014, setting forth requirements and processes with respect to compensation provided to executive officers of the FHLBanks and the Office of Finance. The final rule addresses the authority of the Director of the Finance Agency to: (1) approve executive officer agreements that provide for compensation in connection with termination of employment and (2) review the compensation arrangements of executive officers of the FHLBanks and to prohibit an FHLBank or the Office of Finance from providing compensation to any executive officer that the Director determines is not reasonable and comparable with compensation for employment in other similar businesses involving similar duties and responsibilities.

Final Rule on Golden Parachute Payments. On January 28, 2014, the Finance Agency issued a final rule, effective February 27, 2014, setting forth the standards that the Finance Agency would take into consideration when limiting or prohibiting golden parachute payments. The primary impact of this rule would be to better conform existing Finance Agency regulations on golden parachutes with FDIC golden parachute regulations and to further limit golden parachute payments made by an FHLBank or the Office of Finance that is assigned a less than satisfactory composite Finance Agency examination rating.

Other Significant Developments

Basel Committee on Bank Supervision - Liquidity Coverage Ratio. On September 3, 2014, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation finalized the liquidity coverage ratio (LCR) rule, applicable to: (i) U.S. banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in total on-balance sheet foreign exposure, and their consolidated subsidiary depository institutions with $10 billion or more in total consolidated assets; and (ii) certain other U.S. bank or savings and loan holding companies having at least $50 billion in total consolidated assets (which will be subject to less stringent requirements under the LCR rule). The LCR rule requires such covered companies to maintain an amount of high quality liquid assets (HQLA) that is no less than 100 percent of their total net cash outflows over a prospective 30-day stress period. Among other things, the final rule defines the various categories of HQLA, called Levels 1, 2A, or 2B. The treatment of HQLAs for the LCR is most favorable under the Level 1 category, less favorable under the Level 2A category, and least favorable under the Level 2B category.

Under the final rule, collateral pledged to the Bank but not securing existing borrowings may be considered eligible HQLA to the extent the collateral itself qualifies as eligible HQLA; qualifying FHLBank System consolidated obligations are categorized as Level 2A HQLAs; and the amount of a covered company’s funding that is assumed to run off includes 25 percent of FHLBank advances maturing within 30 days, to the extent such advances are not secured by level 1 or level 2A HQLA, where 0 percent and 15 percent run-off assumptions apply, respectively.  At this time, the impact of the final rule is uncertain. The final rule became effective January 1, 2015, and requires that all covered companies be fully compliant by January 1, 2017.

46


Money Market Mutual Fund Reform. On July 23, 2014, the SEC approved final regulations governing money market mutual funds under the Investment Company Act of 1940. The final regulations, which became effective on October 14, 2014, will among other things:

•
Require institutional prime money market funds (including institutional municipal money market funds), to sell and redeem shares based on their floating net asset value, which would result in the daily share prices of these money market funds fluctuating along with changes in the market-based value of the funds’ investments.

•
Allow money market fund boards of directors to directly address a run on a fund by imposing liquidity fees or suspending redemptions temporarily if the money market fund's level of weekly liquid assets falls below 30 percent of its total assets.

•
Include enhanced diversification, disclosure and stress testing requirements, as well as provide updated reporting by money market funds and private funds that operate like money market funds.

The final regulations do not change the existing regulatory treatment of government agency debt (including FHLBank COs) as liquid assets. FHLBank consolidated obligation discount notes continue to be included in the definition of “daily liquid assets,” and the definition of “weekly liquid assets” continues to include FHLBank consolidated obligation discount notes with a remaining maturity up to 60 days. The future impact of these regulations on demand for FHLBank consolidated obligations is unknown.

Joint Final Rule on Credit Risk Retention for Asset-backed Securities. On October 22, 2014, the Finance Agency and other U.S. federal regulators jointly approved a final rule requiring sponsors of asset-backed securities (ABS) to retain credit risk in those transactions. The final rule largely retains the risk retention framework contained in the proposal issued by the agencies in August 2013 and generally requires sponsors of ABS to retain a minimum 5 percent economic interest in a portion of the credit risk of the assets collateralizing the ABS, unless all the securitized assets satisfy specified qualifications. The final rule specifies criteria for qualified residential mortgage (QRM), commercial real estate, auto, and commercial loans that would make them exempt from the risk retention requirement. The definition of QRM is aligned with the definition of “qualified mortgage” (QM) as provided in Section 129C of the Truth in Lending Act, and its implementing regulations, as adopted by the Consumer Financial Protection Bureau. The QM definition requires, among other things, full documentation and verification of consumers’ debt and income and a debt-to-income ratio that does not exceed 43 percent; and restricts the use of certain product features, such as negative amortization and interest-only and balloon payments.

Other exemptions from the credit risk requirement include certain owner-occupied mortgage loans secured by three-to-four unit residential properties that meet the criteria for QM and certain types of community-focused residential mortgages (including extensions of credit made by community development financial institutions). The final rule also includes a provision that requires the agencies to periodically review the definition of QRM, the exemption for certain community-focused residential mortgages, and the exemption for certain three-to-four unit residential mortgage loans and consider whether they should be modified.

The final rule exempts agency MBS from the risk retention requirements as long as the sponsoring agency is operating under the conservatorship or receivership of the Finance Agency and fully guarantees the timely payment of principal and interest on all assets in the issued security. Further, MBS issued by any limited-life regulated entity succeeding to either Fannie Mae or Freddie Mac operating with capital support from the United States would be exempt from the risk retention requirements. The final rule became effective on February 23, 2015. Compliance with the rule with respect to asset-backed securities collateralized by residential mortgages is required beginning December 24, 2015, and compliance with the rule with regard to all other classes of asset-backed securities is required beginning December 24, 2016. The Bank has not yet determined the effect, if any, that this rule, may have on the Bank’s operations.


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

47

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

•
Capital Adequacy - maintain adequate levels of capital components (retained earnings and capital stock) that protect against the risks inherent on the Bank's balance sheet and provide sufficient resiliency to withstand potential stressed losses.

•
Market Risk/Earnings - produce an ROE spread to 3-month LIBOR of 270 to 500 basis points, while providing attractive funding for advance products, consistent payment of dividends, reliable access to funding, and maintenance of retained earnings in excess of stressed retained earnings targets.

•
Liquidity Risk - maintain sufficient liquidity and funding sources to allow the Bank to meet expected and unexpected obligations.

•
Credit Risk - avoid credit losses by managing credit and collateral risk exposures within acceptable parameters. Achieve this objective through data-driven analysis (and when appropriate perform shareholder-specific analysis), monitoring, and verification.

•
Governance/Compliance/Legal - comply with all applicable laws and regulations.

•
Mission/Business Model - deliver financial services and consistent access to affordable funds in the size and structure members desire, helping members to manage risk and extend credit in their communities, while achieving its affordable housing mission goals; and provide value through the consistent payment of dividends and the repurchasing of excess stock.

•
Operational Risk - manage the key risks associated with operational availability of critical systems, the integrity and security of the Bank's information, and the alignment of technology investment with key business objectives through enterprise-wide risk management practices and governance based on Committee of Sponsoring Organizations of the Treadway Commission (COSO) and Control Objectives for Information and Related Technology standards; and deliver an employment value proposition that allows the Bank to build, retain, engage, and develop staff capable of meeting the evolving needs of its key stakeholders and the ability to effectively manage enterprise-wide risks.

•
Reputation - recognize the importance of and advance positive awareness and perception of the Bank and its mission among key external stakeholders impacting the Bank's ability to achieve its mission.

•
Diversification and Concentration - monitor through enhanced reporting any elevated risk concentrations, and when appropriate, manage and mitigate the increased risk.

The board and management recognize risk and risk producing events are dynamic and constantly being presented. Accordingly, reporting, analyzing, and mitigating risks are paramount to successful corporate governance.

The RMP also governs the Bank's approach to managing the above risks. The Bank's board of directors reviews the RMP annually and formally re-adopts the RMP at least once every three years. It also reviews and approves amendments to the RMP from time to time as necessary. To ensure compliance with the RMP, the Bank has established internal management committees to provide oversight of these risks. The Bank produces a comprehensive risk assessment report on an annual basis that is reviewed by the board of directors. In addition to the established risk appetite and the RMP, the Bank also is subject to Finance Agency regulations and policies regarding risk management.

Below is a more specific discussion of how the Bank manages its market risk, liquidity risk, credit risk, operational risk, and business risk within this risk management and appetite framework.


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Market Risk

General

The Bank is exposed to market risk in that changes in interest rates and spreads can have a direct effect on the value of the Bank's assets and liabilities. As a result of the volume of its interest-earning assets and interest-bearing liabilities, the component of market risk having the greatest effect on the Bank's financial condition and results of operations is interest-rate risk.

Interest-rate risk represents the risk that the aggregate market value or estimated fair value of the Bank's asset, liability, and derivative portfolios will decline as a result of interest-rate volatility or that net earnings will be affected significantly by interest-rate changes. Interest-rate risk can occur in a variety of forms. These include repricing risk, yield-curve risk, basis risk, and option risk. The Bank faces repricing risk whenever an asset and a liability reprice at different times and with different rates, resulting in interest-margin sensitivity to changes in market interest rates. Yield-curve risk reflects the possibility that changes in the shape of the yield curve may affect the market value of the Bank's assets and liabilities differently because a liability used to fund an asset may be short-term while the asset is long-term, or vice versa. Basis risk occurs when yields on assets and costs on liabilities are based on different bases, such as LIBOR, versus the Bank's cost of funds. Different bases can move at different rates or in different directions, which can cause erratic changes in revenues and expenses. Option risk is presented by the optionality that is embedded in some assets and liabilities. Mortgage assets represent the primary source of option risk.

The primary goal of the Bank's interest-rate risk measurement and management efforts is to control the above risks through prudent asset-liability management strategies so that the Bank may provide members with dividends that consistently are competitive with existing market interest rates on alternative short-term and variable-rate investments. The Bank attempts to manage interest-rate risk exposure by using appropriate funding instruments and hedging strategies. Hedging may occur at the micro level, for one or more specifically identified transactions, or at the macro level. Management evaluates the Bank's macro hedge position and funding strategies on a daily basis and makes adjustments as necessary.

The Bank measures its potential market risk exposure in a number of ways. These include asset, liability, and equity duration analyses; earnings forecast scenario analyses that reflect repricing gaps; and convexity characteristics under assumed changes in interest rates, the shape of the yield curve, and market basis relationships. The Bank establishes tolerance limits for these financial metrics and uses internal models to measure each of these risk exposures at least monthly.

Use of Derivatives

The Bank enters into derivatives to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions. The Bank does not engage in speculative trading of these instruments. The Bank attempts to use derivatives to reduce interest-rate exposure in the most cost-efficient manner. The Bank's derivative position includes interest-rate swaps, options, swaptions, interest-rate cap and floor agreements, and forward contracts. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk-management objectives. Within its risk management strategy, the Bank uses derivative financial instruments in two ways:

•
As a fair-value hedge of an underlying financial instrument or a firm commitment. For example, the Bank uses derivatives to reduce the interest-rate net sensitivity of COs, advances, investments, and mortgage loans by, in effect, converting them to a short-term interest rate, usually based on LIBOR. The Bank also uses derivatives to manage embedded options in assets and liabilities, and to hedge the market value of existing assets and liabilities. The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques used or adopt new strategies as deemed prudent.

•
As an asset-liability management tool, for which hedge accounting is not applied (non-qualifying hedge). The Bank may enter into derivatives that do not qualify for hedge accounting. As a result, the Bank recognizes the change in fair value and interest income or expense of these derivatives in the “Noninterest income (loss)” section of the Statements of Income as “Net gains (losses) on derivatives and hedging activities” with no offsetting fair-value adjustments of the hedged asset, liability, or firm commitment. Consequently, these transactions can introduce earnings volatility.



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The following table summarizes the notional amounts of derivative financial instruments (in millions). The category "Fair value hedges" represents hedge strategies for which hedge accounting is achieved. The category "Non-qualifying hedges" represents hedge strategies for which the derivatives are not in designated hedge relationships that formally meet the hedge accounting requirements under GAAP.
 
 
 
 
 
 
As of December 31,
 
 
 
 
 
 
2014
 
2013
Hedged Item / Hedging Instrument
 
Hedging Objective
 
Hedge
Accounting
Designation
 
Notional Amount
 
Notional Amount
Advances
 
 
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap (without options)
 
Converts the advance’s fixed rate to a variable rate index.
 
Fair value
hedges
 
$
9,488

 
$
6,919

Non-qualifying
hedges
 
2

 
—

Pay fixed, receive variable interest rate swap (with options)
 
Converts the advance’s fixed rate to a variable rate index and offsets option risk in the advance.
 
Fair value
hedges
 
21,223

 
23,715

Non-qualifying
hedges
 
60

 
740

Pay variable with embedded features, receive variable interest rate swap (non-callable)
 
Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index and/or offsets embedded option risk in the advance.
 
Fair value
hedges
 
505

 
3,522

Pay variable, receive variable basis swap
 
Reduces interest rate sensitivity and repricing gaps by converting the advance’s variable rate to a different variable rate index.
 
Non-qualifying
hedges
 
135

 
145

 
 
 
 
Total
 
31,413

 
35,041

Investments
 
 
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap
 
Converts the investment’s fixed rate to a variable rate index.
 
Non-qualifying
hedges
 
1,123

 
1,380

Pay variable, receive variable interest rate swap
 
Converts the investment’s variable rate to a different variable rate index.
 
Non-qualifying
hedges
 
50

 
50

 
 
 
 
Total
 
1,173

 
1,430

Consolidated Obligation Bonds
 
 
 
 
 
 
 
 
Receive fixed, pay variable interest rate swap (without options)
 
Converts the bond’s fixed rate to a variable rate index.
 
Fair value
hedges
 
48,314

 
26,581

Non-qualifying
hedges
 
3,700

 
1,900

Receive fixed, pay variable interest rate swap (with options)
 
Converts the bond’s fixed rate to a variable rate index and offsets option risk in the bond.
 
Fair value
hedges
 
21,699

 
23,983

Non-qualifying
hedges
 
1,000

 
—

Receive variable with embedded features, pay variable interest rate swap (callable)
 
Reduces interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index and/or offsets embedded option risk in the bond.
 
Fair value
hedges
 
—

 
20

Receive variable, pay variable basis swap
 
Reduces interest rate sensitivity and repricing gaps by converting the bond’s variable rate to a different variable rate index.
 
Non-qualifying
hedges
 
25

 
25

 
 
 
 
Total
 
74,738

 
52,509


50

 
 
 
 
 
 
As of December 31,
 
 
 
 
 
 
2014
 
2013
Hedged Item / Hedging Instrument
 
Hedging Objective
 
Hedge
Accounting
Designation
 
Notional Amount
 
Notional Amount
Consolidated Obligation Discount Notes
 
 
 
 
 
 
 
 
Receive fixed, pay variable interest rate swap
 
Converts the discount note's fixed rate to a variable rate index.
 
Fair value hedges
 
1,775

 
—

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

 
125

Interest rate cap or floor
 
Protects against changes in income of certain assets due to changes in interest rates.
 
Non-qualifying hedges
 
16,500

 
12,500

 
 
 
 
Total
 
16,605

 
12,625

Intermediary Positions and Other
 
 
 
 
 
 
Pay fixed, receive variable interest rate swap, and receive-fixed, pay variable interest rate swap
 
To offset interest rate swaps executed with members by executing interest rate swaps with derivatives counterparties.
 
Non-qualifying
hedges
 
148

 
49

Interest rate swaption
 
To offset swaptions executed with members by executing swaptions with derivatives counterparties.
 
Non-qualifying
hedges
 
—

 
40

 
 
 
 
Total
 
148

 
89

Total notional amount
 
 
 
 
 
$
125,852

 
$
101,694


Interest-rate Risk Exposure Measurement

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

Effective duration of equity aggregates the estimated sensitivity of market value for each of the Bank's financial assets and liabilities to changes in interest rates. Effective duration of equity is computed by taking the market value-weighted effective duration of assets, less the market value-weighted effective duration of liabilities, and dividing the remainder by the market value of equity. Market value of equity is not indicative of the market value of the Bank as a going concern or the value of the Bank in a liquidation scenario. An effective duration gap is the measure of the difference between the estimated effective durations of portfolio assets and liabilities and summarizes the extent to which the estimated cash flows for assets and liabilities are matched, on average, over time and across interest-rate scenarios.

A positive effective duration of equity or a positive effective duration gap results when the effective duration of assets is greater than the effective duration of liabilities. A negative effective duration of equity or a negative effective duration gap results when the effective duration of assets is less than the effective duration of liabilities. A positive effective duration of equity or a positive effective duration gap generally indicates that the Bank has some exposure to interest-rate risk in a rising rate environment, and a negative effective duration of equity or a negative effective duration gap indicates some exposure to interest-rate risk in a declining interest-rate environment. Higher effective duration numbers, whether positive or negative, indicate greater volatility of market value of equity in response to changing interest rates.


51

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

The table below reflects the Bank’s effective duration exposure measurements as calculated in accordance with Bank policy (in years).
 
As of December 31,
 
2014
 
2013
 
Up 200 Basis Points    
 
Current    
 
Down 200 Basis
 Points (1)    
 
Up 200 Basis Points    
 
Current
 
Down 200 Basis 
Points (1)    
Assets
0.48

 
0.36

 
0.23

 
0.62

 
0.47

 
0.26

Liabilities
0.29

 
0.39

 
0.27

 
0.37

 
0.48

 
0.36

Equity
4.00

 
(0.27
)
 
(0.39
)
 
5.21

 
0.28

 
(1.44
)
Effective duration gap
0.19

 
(0.03
)
 
(0.04
)
 
0.25

 
(0.01
)
 
(0.10
)
____________ 
(1) The “down 200 basis points” scenarios shown above are considered to be “constrained shocks,” intended to prevent the possibility of negative interest rates when a designated low rate environment exists.

The Bank uses both sophisticated computer models and an experienced professional staff to measure the amount of interest-rate risk in the balance sheet, thus allowing management to monitor the risk against policy and regulatory limits. Management regularly reviews the major assumptions and methodologies used in the Bank's models, and makes adjustments to the Bank's models in response to rapid changes in economic conditions. Management believes that the use of market spreads calculated from estimates of current market prices (which include large embedded liquidity spreads), as opposed to valuation spreads that existed at the time the Bank acquired the MBS and mortgage loans (acquisition spreads), results in a disconnect between measured interest-rate risk and the actual interest-rate risks faced by the Bank. Because the Bank intends to and is able to hold its MBS and mortgage loans to maturity, the impact on effective duration of risks of value loss implied by current market prices of MBS and mortgage loans is overstated. As a result, management does not believe that the increased sensitivity indicates a fundamental change in interest-rate risk.

The prepayment risk in both advances and investment assets can significantly affect the Bank's effective duration of equity and effective duration gap. Current regulations require the Bank to mitigate advance prepayment risk by establishing prepayment fees that make the Bank financially indifferent to a borrower's decision to prepay an advance that carries a rate above current market rates unless the advance contains explicit par value prepayment options. The Bank's prepayment fees for advances without embedded options generally are based on the present value of the difference between the rate on the prepaid advance and the current rate for an advance with an identical maturity date. Prepayment fees for advances that contain embedded options generally are based on the inverse of the market value of the derivative instrument that the Bank used to hedge the advance.
The prepayment options embedded in mortgage loan and mortgage security assets may result in extensions or contractions of both actual and expected cash flows when interest rates change. Current Finance Agency policies limit this source of interest-rate risk by limiting the types of MBS the Bank may own to those with defined estimated average life changes under specific interest-rate shock scenarios. These limits do not apply to mortgage loans purchased from members. The Bank typically hedges mortgage prepayment uncertainty by using callable debt as a funding source and by using interest-rate cap, floor, and swaption transactions. The Bank also uses derivatives to reduce effective duration and option risks for investment securities other than MBS. Effective duration and option risk exposures are measured on a regular basis for all investment assets under alternative rate scenarios.

The Bank also analyzes its interest-rate risk and market exposure by evaluating the theoretical market value of equity. The market value of equity represents the net result of the present value of future cash flows discounted to arrive at the theoretical market value of each balance sheet item. By using the discounted present value of future cash flows, the Bank is able to factor in the various maturities of assets and liabilities, similar to the effective duration analysis discussed above. The Bank determines the theoretical market value of assets and liabilities utilizing a Level 3 pricing approach as more fully described in Note 19—Estimated Fair Values to the Bank's 2014 audited financial statements. The difference between the market value of total assets and the market value of total liabilities is the market value of equity. A more volatile market value of equity under different shock scenarios tends to result in a higher effective duration of equity, indicating increased sensitivity to interest rate changes.


52

The table below reflects the Bank’s market value of equity measurements as calculated in accordance with Bank policy (in millions). 
 
As of December 31,
 
2014
 
2013
 
Up 200 Basis Points    
 
Current
 
Down 200 Basis
Points (1)    
 
Up 200 Basis Points    
 
Current
 
Down 200 Basis
Points (1)  
Assets
$
135,393

 
$
136,525

 
$
137,087

 
$
118,940

 
$
120,261

 
$
120,863

Liabilities
128,589

 
129,432

 
129,827

 
112,686

 
113,632

 
114,242

Equity
6,804

 
7,093

 
7,260

 
6,254

 
6,629

 
6,621

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

Under the Bank's RMP, the Bank's market value of equity must not decline by more than 15 percent, assuming an immediate, parallel, and sustained interest-rate shock of 200 basis points in either direction.

If effective duration of equity or market value of equity is approaching the boundaries of the Bank's RMP ranges, management will initiate remedial action or review alternative strategies at the next meeting of the board of directors or appropriate committee thereof.

The Bank supplements its interest rate risk analysis by measuring convexity, or the rate of change of effective duration given changes in interest rates. Convexity represents the majority of the change in price not explained by effective duration.

Liquidity Risk

Liquidity risk is the risk that the Bank will be unable to meet its obligations as they come due or meet the credit needs of its members and borrowers in a timely and cost-efficient manner. The Bank's objective is to meet operational and member liquidity needs under all reasonable economic and operational situations. The Bank uses liquidity to absorb fluctuations in asset and liability balances and to provide an adequate reservoir of funding to support attractive and stable advance pricing. The Bank meets its liquidity needs from both asset and liability sources.

The Bank faces two basic types of liquidity risk: operational and contingent. The Bank maintains operational and contingent liquidity in compliance with regulatory requirements, and performs a supplemental analysis to confirm that the Bank has sufficient liquidity reserves, as discussed in further detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources above.

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

Advances

Secured advances to member financial institutions account for the largest category of Bank assets; thus, advances are a major source of the Bank’s credit risk exposure. The Bank uses a risk-focused approach to credit and collateral underwriting. The Bank attempts to reduce credit risk on advances by monitoring the financial condition of borrowers and the quality and value of the assets borrowers pledge as eligible collateral.
The Bank utilizes a credit risk rating system for its members, which focuses primarily on an institution’s overall financial health and takes into account quality of assets, earnings, and capital position. The Bank assigns each borrower that is an insured depository institution or an insurance company a credit risk rating from one to 10 according to the relative amount of credit risk such borrower poses to the Bank (one being the least amount of credit risk and 10 the greatest amount of credit risk). In general, borrowers in category 10 may have more restrictions on the types of collateral they may use to secure advances, may be required to maintain higher collateral maintenance levels and deliver loan collateral, may be restricted from obtaining further advances, and may face more stringent collateral reporting requirements. At times, the Bank may place more restrictive requirements on a borrower than those generally applicable to borrowers with the same rating based upon the Bank's assessment of the borrower and its collateral. Beginning March 31, 2014, the Bank assigns each borrower that is not an insured depository institution or insurance company, such as housing associates, community development financial institutions, and corporate credit unions, a risk level rating based on a risk matrix developed for each entity type. Each matrix has risk levels that

53

generally correspond to the 1-10 credit risk rating for insured depository institutions and insurance companies. Development of these risk matrices for borrowers that are not insured depository institutions or insurance companies enables the Bank to monitor and analyze the financial condition of these borrowers in a more consistent and complete manner.
The following table sets forth the number of borrowers and the par amount of advances outstanding to borrowers with the specified ratings as of the specified dates (dollars in millions).
 
 
 
As of December 31,
 
 
2014
 
2013
Rating                 
 
Number of        
Borrowers
 
Outstanding        
Advances
 
Number of        
Borrowers
 
Outstanding        
Advances
1
 
10

 
$
3,717

 
7

 
$
63

2
 
21

 
1,473

 
32

 
4,742

3
 
63

 
26,500

 
48

 
9,919

4
 
101

 
27,290

 
50

 
14,433

5
 
127

 
32,825

 
114

 
13,792

6
 
106

 
2,944

 
101

 
21,296

7
 
52

 
1,281

 
92

 
20,333

8
 
22

 
501

 
56

 
1,063

9
 
17

 
381

 
27

 
883

10
 
37

 
596

 
52

 
898


The Bank establishes a credit limit for each borrower. The credit limit is not a committed line of credit, but rather an indication of the borrower’s general borrowing capacity with the Bank. The Bank determines the credit limit in its sole and absolute discretion, by evaluating a wide variety of factors indicating the borrower’s overall creditworthiness. The credit limit generally is expressed as a percentage equal to the ratio of the borrower’s total liabilities to the Bank (including the face amount of outstanding standby letters of credit, the principal amount of outstanding advances and the total exposure of the Bank to the borrower under any derivative contract) to the borrower’s total assets. Generally, borrowers are held to a credit limit of no more than 30 percent. However, the Bank’s board of directors, or a relevant committee thereof, may approve a higher limit at its discretion, and such borrowers may be subject to certain additional collateral reporting and maintenance requirements. As of December 31, 2014, seven borrowers have been approved for a credit limit higher than 30 percent, and their total outstanding advance balance was $16.3 billion.

Each borrower must maintain an amount of qualifying collateral that, when discounted to the lendable collateral value (LCV), is equal to at least 100 percent of the outstanding principal amount of all advances and other liabilities of the borrower to the Bank. The LCV is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support. For each type of qualifying collateral, the Bank discounts the market value of the qualifying collateral to calculate the LCV. The Bank regularly reevaluates the appropriate level of discounting. For more information about the types of collateral held for the Bank’s advances refer to Note 10—Advances to the Bank’s 2014 audited financial statements.
For purposes of determining each member's LCV, the Bank estimates the current market value of all residential first mortgage loans, multifamily and commercial real estate loans, and home equity loans and lines of credit pledged as collateral based on information provided by the member on individual loans or its loan portfolio through the regular collateral reporting process. The estimated market value is discounted to account for the price volatility of loans as well as a model risk component that takes into account model data uncertainty and estimated liquidation and servicing costs in the event of the member's default. Market values, and thus LCVs, change monthly. The use of this market-based valuation methodology allows the Bank to establish its collateral discounts with greater precision and provides greater transparency with respect to the valuation of collateral pledged for advances and other credit products offered by the Bank.
The FHLBank Act affords any security interest granted to the Bank by any member of the Bank, or any affiliate of any such member, priority over the claims and rights of any party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), other than claims and rights of a party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with applicable state law.
In its history, the Bank has never experienced a credit loss on an advance. In consideration of this, and the Bank’s policies and practices detailed above, the Bank has not established an allowance for credit losses on advances as of December 31, 2014 and 2013.

54


Investments
The Bank is subject to credit risk on unsecured investments, such as interest-bearing deposits, certificates of deposit, and federal funds sold.
The Bank follows guidelines approved by its board of directors regarding unsecured extensions of credit, in addition to Finance Agency regulations with respect to term limits and eligible counterparties.
Finance Agency regulations prohibit the Bank from investing in any of the following securities:
•
instruments such as common stock that represent an ownership interest in an entity, other than stock in small business investment companies or certain investments targeted to low-income people or communities;
•
instruments issued by non-United States entities, other than those issued by United States branches and agency offices of foreign commercial banks;
•
debt instruments that are not investment quality, other than certain investments targeted to low-income people or communities and instruments that the Bank determined became less than investment quality because of developments or events that occurred after purchase by the Bank;
•
whole mortgages or other whole loans, other than (1) those acquired under the Bank’s mortgage purchase programs; (2) certain investments targeted to low-income people or communities; (3) certain marketable direct obligations of state, local, or tribal government units or agencies that are investment quality; (4) MBS or asset-backed securities backed by manufactured housing loans or home equity loans; and (5) certain foreign housing loans authorized under section 12(b) of the FHLBank Act;
•
interest-only or principal-only stripped MBS, collateralized mortgage obligations (CMOs), collateralized debt obligations, and real estate mortgage investment conduits (REMICs);
•
residual-interest or interest-accrual classes of CMOs and REMICs;
•
fixed-rate or variable-rate MBS, CMOs, and REMICs that on the trade date are at rates equal to their contractual cap and that have average lives that vary by more than six years under an assumed instantaneous interest-rate change of 300 basis points; and
•
non-U.S. dollar denominated securities.
Effective May 7, 2014, the Finance Agency regulations no longer permit the Bank to rely exclusively on nationally recognized statistical rating organization (NRSRO) ratings with respect to its investments. The Bank is required to make a determination of whether a security is investment quality based on its own documented analysis, which includes the NRSRO rating as one of the factors that is assessed to determine investment quality. The Bank monitors the financial condition of investment counterparties to ensure that they are in compliance with the Bank's RMP and Finance Agency regulations. Unsecured credit exposure to any counterparty is limited by the credit quality and capital of the counterparty and by the capital of the Bank. On a regular basis, management produces financial monitoring reports detailing the financial condition of the Bank’s counterparties. These reports are reviewed by the Bank’s board of directors. The Bank may further limit or suspend overnight and term trading in addition to RMP and regulatory requirements. Limiting or suspending counterparties limits the pool of available counterparties, shifts the geographical distribution of counterparty exposure, and may reduce the Bank’s overall short-term investment opportunities.


55

The Bank enters into investments only with U.S. counterparties or U.S. branch offices of foreign banks that have been approved by the Bank through its internal approval process, but may have exposure to foreign entities if a counterparty’s parent entity is located in another country. The tables below represent the Bank’s gross exposure, by instrument type, according to the location of the parent company of the counterparty (in millions):
 
 
As of December 31, 2014
 
Federal Funds Sold         
 
Interest-bearing  
Deposits
 
Net Derivative Exposure (1)    
 
Total 
Australia
$
845

 
$
—

 
$
—

 
$
845

Canada
1,650

 
—

 
—

 
1,650

Germany
1,150

 
—

 
29

 
1,179

Netherlands
1,140

 
—

 
—

 
1,140

Sweden
600

 
—

 
—

 
600

United States of America
1,000

 
1,010

 
—

 
2,010

Total
$
6,385

 
$
1,010

 
$
29

 
$
7,424

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

 
As of December 31, 2013
 
Federal Funds Sold         
 
Interest-bearing  
Deposits
 
Net Derivative Exposure (1)     
 
Total 
Canada
$
250

 
$
—

 
$
—

 
$
250

Germany
—

 
—

 
67

 
67

United Kingdom
510

 
—

 
—

 
510

United States of America
1,035

 
1,007

 
4

 
2,046

Total
$
1,795

 
$
1,007

 
$
71

 
$
2,873

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

The Bank experienced an increase in unsecured credit exposure in its investment portfolio related to non-U.S. government and non-U.S. government agency counterparties from $2.8 billion as of December 31, 2013 to $7.4 billion as of December 31, 2014. There were five such counterparties, Landesbank Baden-Wuerttemberg, Branch Banking and Trust Company, Bank of Nova Scotia, Rabobank Nederland, and Australia & New Zealand Banking Group that each represented greater than 10 percent, and collectively represented 71.6 percent of the total unsecured credit exposure to non-U.S. government or non-U.S. government agencies counterparties. Branch Banking and Trust was one of the Bank's top 10 advances borrowers as of December 31, 2014 and 2013. As of December 31, 2014, the Bank’s unsecured credit portfolio consisted primarily of federal funds sold with overnight maturities.
The Bank’s RMP permits the Bank to invest in U.S. agency (Fannie Mae, Freddie Mac and Ginnie Mae) obligations, including CMOs and REMICS backed by such securities, and other MBS, CMOs, and REMICS rated AAA by S&P or Aaa by Moody’s at the time of purchase. The private-label MBS purchased by the Bank originally attained their triple-A ratings through credit enhancements, which primarily consisted of the subordination of the claims of the other tranches of these securities. In addition to NRSRO ratings, the Bank considers a variety of credit quality factors when analyzing potential investments, such as collateral performance, marketability, asset class considerations, local and regional economic conditions, and the financial health of the underlying issuer.

56

The tables below provide information on the credit ratings of the Bank’s investments held as of December 31, 2014 and 2013, based on their credit ratings as of December 31, 2014 and 2013 (in millions), respectively. The credit ratings reflect the lowest long-term credit rating as reported by an NRSRO.
 
 
As of December 31, 2014
 
 
 
Carrying Value (1)
 
 
 
Investment Grade
 
Below Investment Grade
 
 
 
 
 
AAA
 
AA
 
A
 
BBB
 
BB
 
B
 
CCC
 
CC
 
C
 
D
 
Unrated
 
Total
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest-bearing deposits
$
—

 
$
2

 
$
1,008

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,010

Securities purchased under agreements to resell
—

 
—

 
250

 
1,000

 
710

 
—

 
—

 
—

 
—

 
—

 
—

 
1,960

  Federal funds sold
—

 
1,945

 
3,815

 
625

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,385

Total short-term investments
—

 
1,947

 
5,073

 
1,625

 
710

 
—

 
—

 
—

 
—

 
—

 
—

 
9,355

Long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State or local housing agency debt obligations
—

 
82

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
82

U.S. government agency debt obligations
—

 
7,935

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7,935

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

 
366

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
366

Government-sponsored enterprises single family residential
—

 
13,665

 
—

 


 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
13,665

Government-sponsored enterprises multi-family commercial
465

 
1,198

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,663

Private-label residential
—

 
14

 
56

 
388

 
591

 
424

 
844

 
219

 
129

 
765

 
6

 
3,436

Total mortgage-backed securities
465

 
15,243

 
56

 
388

 
591

 
424

 
844

 
219

 
129

 
765

 
6

 
19,130

Total long-term investments
465

 
23,260

 
56

 
388

 
591

 
424

 
844

 
219

 
129

 
765

 
6

 
27,147

Total investments
$
465

 
$
25,207

 
$
5,129

 
$
2,013

 
$
1,301

 
$
424

 
$
844

 
$
219

 
$
129

 
$
765

 
$
6

 
$
36,502

____________
(1)
Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $42 million as of December 31, 2014.


57

 
As of December 31, 2013
 
 
 
 
 
Carrying Value (1)
 
 
 
 
 
Investment Grade
 
Below Investment Grade
 
 
 
 
 
AAA
 
AA
 
A
 
BBB
 
BB
 
B
 
CCC
 
CC
 
C
 
D
 
Unrated
 
Total
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest-bearing deposits
$
—

 
$
1

 
$
1,006

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,007

  Federal funds sold
—

 
—

 
1,395

 
400

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,795

Total short-term investments
—

 
1

 
2,401

 
400

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,802

Long-term investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

State or local housing agency debt obligations
—

 
93

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
93

U.S. government agency debt obligations
—

 
5,404

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5,404

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

U.S. agency obligations-guaranteed single family residential
—

 
465

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
465

Government-sponsored enterprises single family residential
—

 
13,311

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
13,311

Government-sponsored enterprises multi-family commercial
466

 
175

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
641

Private-label residential
—

 
62

 
123

 
511

 
523

 
809

 
534

 
323

 
161

 
1,176

 
6

 
4,228

Total mortgage-backed securities
466

 
14,013

 
123

 
511

 
523

 
809

 
534

 
323

 
161

 
1,176

 
6

 
18,645

Total long-term investments
466

 
19,510

 
123

 
511

 
523

 
809

 
534

 
323

 
161

 
1,176

 
6

 
24,142

Total investments
$
466

 
$
19,511

 
$
2,524

 
$
911

 
$
523

 
$
809

 
$
534

 
$
323

 
$
161

 
$
1,176

 
$
6

 
$
26,944

____________
(1) 
Investment amounts noted in the above table represent the carrying value and do not include related accrued interest receivable of $49 million as of December 31, 2013.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term secured loans with investment-grade counterparties. The Bank also from time to time enters into these transactions with members on the same terms as advances. Since transactions with members are secured, members are not required to have an investment grade rating. The Bank is inherently exposed to credit risk associated with the risk of default by, or insolvency of, any counterparty with whom it conducts business. However, based upon the collateral held as security and the investment-grade of the related counterparties, the Bank considers its credit exposure related to these investments to be minimal.
Non-Private-label MBS
The unrealized losses related to U.S. agency and GSE MBS are caused by interest rate changes. Because these securities are guaranteed by government agencies or GSEs, it is expected that these securities would not be settled at a price less than the amortized cost basis. The Bank does not consider these investments to be other-than-temporarily impaired as of December 31, 2014 because the decline in fair value is attributable to changes in interest rates and not credit quality, the Bank does not intend to sell the investments, and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.


58

Private-label MBS

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

The tables below provide information, including changes in ratings since the original purchase date, on the Bank’s private-label MBS by year of securitization as of December 31, 2014 (dollars in millions).
 
Year of Securitization - Prime
 
2008
 
2007
 
2006
 
2005
 
2004 and  
Prior
 
Total      
Investment Ratings:
 
 
 
 
 
 
 
 
 
 
 
AA
$
—

 
$
—

 
$
—

 
$
—

 
$
14

 
$
14

A
—

 
—

 
—

 
9

 
47

 
56

BBB
—

 
—

 
—

 
93

 
256

 
349

BB
—

 
7

 
—

 
258

 
242

 
507

B
—

 
14

 
2

 
118

 
200

 
334

CCC
—

 
266

 
22

 
363

 
160

 
811

CC
30

 
134

 
39

 
43

 
—

 
246

C
74

 
11

 
49

 
10

 
—

 
144

D
—

 
280

 
375

 
107

 
—

 
762

Unrated
—

 
—

 
—

 
—

 
6

 
6

Total unpaid principal balance
$
104

 
$
712

 
$
487

 
$
1,001

 
$
925

 
$
3,229

Amortized cost
$
86

 
$
555

 
$
397

 
$
913

 
$
913

 
$
2,864

Gross unrealized losses
$
—

 
$
(3
)
 
$
—

 
$
(2
)
 
$
(10
)
 
$
(15
)
Fair value
$
91

 
$
606

 
$
430

 
$
944

 
$
912

 
$
2,983

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

 
$
(2
)
 
$
—

 
$
(1
)
 
$
—

 
$
(3
)
 Non-credit-related losses
—

 
(2
)
 
—

 
(1
)
 
—

 
(3
)
Total other-than-temporary impairment losses
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Weighted average percentage of fair value to unpaid principal balance
88.06
%
 
85.20
%
 
88.10
%
 
94.39
%
 
98.67
%
 
92.44
%
Original weighted average credit support
15.72
%
 
14.45
%
 
10.46
%
 
7.07
%
 
3.86
%
 
8.57
%
Weighted average credit support
2.40
%
 
0.78
%
 
0.63
%
 
5.44
%
 
10.81
%
 
5.13
%
Weighted average collateral delinquency
13.85
%
 
17.18
%
 
17.16
%
 
10.03
%
 
8.32
%
 
12.32
%

59

 
Year of Securitization – Alt-A
 
2008
 
2007
 
2006
 
2005
 
2004 and  
Prior
 
Total      
Investment Ratings:
 
 
 
 
 
 
 
 
 
 
 
AA
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

A
—

 
—

 
—

 
—

 
—

 
—

BBB
—

 
—

 
—

 
—

 
40

 
40

BB
—

 
—

 
—

 
—

 
83

 
83

B
—

 
—

 
—

 
—

 
92

 
92

CCC
—

 
—

 
—

 
141

 
8

 
149

   D
—

 
36

 
—

 
112

 
—

 
148

Total unpaid principal balance
$
—

 
$
36

 
$
—

 
$
253

 
$
223

 
$
512

Amortized cost
$
—

 
$
26

 
$
—

 
$
204

 
$
224

 
$
454

Gross unrealized losses
$
—

 
$
—

 
$
—

 
$
(13
)
 
$
(1
)
 
$
(14
)
Fair value
$
—

 
$
29

 
$
—

 
$
198

 
$
225

 
$
452

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

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 Non-credit-related losses
—

 
—

 
—

 
—

 
—

 
—

Total other-than-temporary impairment losses
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Weighted average percentage of fair value to unpaid principal balance
0.00
%
 
80.15
%
 
0.00
%
 
78.36
%
 
100.69
%
 
88.23
%
Original weighted average credit support
0.00
%
 
12.29
%
 
0.00
%
 
28.09
%
 
8.63
%
 
18.48
%
Weighted average credit support
0.00
%
 
0.00
%
 
0.00
%
 
8.41
%
 
12.96
%
 
9.80
%
Weighted average collateral delinquency
0.00
%
 
28.47
%
 
0.00
%
 
24.81
%
 
9.31
%
 
18.31
%

The following table represents a summary of the significant inputs used to evaluate each of the Bank’s private-label MBS for other-than-temporary impairment as of December 31, 2014:
 

 
 
Significant Inputs (1)
 
 
 
Prepayment Rate
 
Default Rates
 
Loss Severities
 
Current Credit Enhancement
Year of
Securitization
 
Weighted    
Average
(%)
 
Weighted    
Average
(%)
 
Weighted    
Average
(%)
 
Weighted    
Average
(%)
Total Prime
 
16.78
 
6.08
 
32.36
 
7.41
Total Alt-A
 
14.36
 
20.68
 
37.93
 
3.69
Total
 
15.70
 
12.59
 
34.85
 
5.75
____________
(1) The classification (prime and Alt-A) is based on the model used to run the estimated cash flows for the individual securities, which may not necessarily be the same as the classification at the time of origination.

For those securities for which an other-than-temporary impairment was determined to have occurred during 2014, a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings is contained in Note 8—Other-than-temporary Impairment to the Bank’s 2014 audited financial statements.
In addition to the cash flow analysis of the Bank’s private-label MBS under a base case (best estimate) housing price scenario as described in Note 8—Other-than-temporary Impairment to the Bank’s 2014 audited financial statements, a cash flow analysis was also performed based on a housing price scenario that is more adverse than the base case (adverse case housing price scenario). This more stressful scenario was primarily based on a short-term housing price forecast, which was five percentage points lower than the base case, followed by a recovery path with annual rates of housing price growth that were 33.0 percent lower than the base case. For the three months ended December 31, 2014 base case and adverse scenarios for credit losses on all other-than temporary impaired private-label MBS were $0 and $1 million, respectively.

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

60

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

Derivatives

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

Over-the-counter derivative transactions may be either executed with a counterparty (bilateral derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent), with a Derivative Clearing Organization (cleared derivatives). Derivative transactions may then be accepted for clearing by a Derivative Clearing Organization (Clearinghouse).

For bilateral derivative transactions, the Bank is subject to nonperformance by counterparties to its bilateral derivative transactions. The Bank generally requires collateral on bilateral derivative transactions. The amount of net unsecured credit exposure that is permissible with respect to each counterparty depends on the credit rating of that counterparty. A counterparty must deliver collateral to the Bank if the total market value of the Bank's exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its bilateral derivative transactions as of December 31, 2014.

For cleared derivatives, the Bank is subject to credit risk due to non-performance by the Clearinghouse and clearing agent. The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties and collateral is posted daily for changes in the value of cleared derivatives through a clearing agent. The Bank does not anticipate any credit losses on its cleared derivatives as of December 31, 2014.

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

61

The tables below provide information on the credit ratings of, and the Bank’s credit exposure to, its derivative counterparties (in millions). The credit ratings reflect the lowest long-term credit rating by an NRSRO.
 
 
As of December 31, 2014
 
 
Notional Amount
 
Derivatives Fair Value Before Collateral
 
Cash Collateral Pledged To (From) Counterparty
 
Other Collateral Pledged To (From) Counterparty
 
Net Credit Exposure to Counterparties
Non-member counterparties:
 
 
 
 
 
 
 
 
 
 
Asset positions with credit exposure:
 
 
 
 
 
 
 
 
 
 
Single-A
 
$
11,781

 
$
29

 
$
(29
)
 
$
—

 
$
—

Cleared derivatives
 
6,708

 
—

 
3

 
—

 
3

  Liability positions with credit exposure:
 
 
 
 
 
 
 
 
 
 
Cleared derivatives
 
48,187

 
(335
)
 
443

 
—

 
108

Total derivative positions with non-member counterparties to which the Bank had credit exposure
 
66,676

 
(306
)
 
417

 
—

 
111

Member institutions (1)
 
74

 
1

 
—

 
(1
)
 
—

Total
 
$
66,750

 
$
(305
)
 
$
417

 
$
(1
)
 
$
111

____________
(1)
Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.
 
 
As of December 31, 2013
 
 
Notional Amount
 
Derivatives Fair Value Before Collateral
 
Cash Collateral Pledged To (From) Counterparty
 
Net Credit Exposure to Counterparties
Non-member counterparties:
 
 
 
 
 
 
 
 
Asset positions with credit exposure:
 
 
 
 
 
 
 
 
     Single-A
 
$
11,026

 
$
67

 
$
(65
)
 
$
2

     Cleared derivatives
 
1,965

 
4

 
1

 
5

  Liability positions with credit exposure:
 
 
 
 
 
 
 
 
     Cleared derivatives
 
11,030

 
(94
)
 
140

 
46

Total derivative positions with non-member counterparties to which the Bank had credit exposure
 
24,021

 
(23
)
 
76

 
53

Member institutions (1)
 
44

 
—

 
—

 
—

Total
 
$
24,065

 
$
(23
)
 
$
76

 
$
53

____________
(1)
Collateral held with respect to derivatives with member institutions where the Bank is acting as an intermediary represents the amount of eligible collateral physically held by or on behalf of the Bank or collateral assigned to the Bank, as evidenced by a written security agreement, and held by the member institution for the benefit of the Bank.
Certain of the Bank's bilateral derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is a deterioration in the Bank's credit rating. If the Bank’s credit 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 $98 million of collateral (at fair value) to its bilateral derivative counterparties as of December 31, 2014.
The net exposure after collateral is treated as unsecured credit consistent with the Bank's RMP and Finance Agency regulations if the counterparty has an NRSRO rating. If the counterparty does not have an NRSRO rating, the Bank requires collateral for the full amount of the exposure.


62

Mortgage Loan Programs

The Bank seeks to manage the credit risk associated with the MPP and the MPF Program by maintaining underwriting and eligibility standards and structuring possible losses into several layers to be shared with the PFI. In some cases, a portion of the credit support for MPP and MPF loans is provided under a primary and/or supplemental mortgage insurance policy. Currently, eight mortgage insurance companies provide primary and/or supplemental mortgage insurance for loans in which the Bank has a retained interest. As of December 31, 2014, five of the Bank’s eight mortgage insurance providers have been rated below "A" by one or more NRSROs for their claims paying ability or insurer financial strength, and three are no longer rated. Ratings downgrades imply an increased risk that these mortgage insurers may be unable to fulfill their obligations to pay claims that may be made under the insurance policies. The Bank holds additional risk-based capital to mitigate the incremental risk, if any, that results from the supplemental mortgage insurance providers.
MPF Program

Mortgage loans purchased under the MPF Program must comply with the underwriting and eligibility standards established and maintained by FHLBank Chicago. In some circumstances, the Bank, with the concurrence of FHLBank Chicago, may grant a PFI a waiver exempting it from complying with these standards. The Bank has granted a limited number of such waivers related to documentation requirements or accepted alternate underwriting criteria in circumstances in which such waivers would not affect materially the value of the asset.

The Bank manages MPF Program credit risk through underwriting and eligibility guidelines and sharing of potential losses with the PFI. The Bank and PFI share the risk of losses on MPF loans by structuring potential losses on conventional MPF loans into layers with respect to each master commitment. The general allocation of losses under the MPF program is divided into the following loss layers:

Borrower's Equity. The first layer of protection against loss is the borrower's equity in the real property securing the MPF loan.

Primary Mortgage Insurance. The second layer of protection comes from primary mortgage insurance (PMI) that is required for any MPF loan with a loan-to-value ratio (LTV) ratio greater than 80 percent at the time of origination.

First Loss Account. Third, losses for each master commitment that are not paid by PMI, up to an agreed-upon amount, are incurred by the Bank up to a pre-specified amount that is tracked in what is called a “First Loss Account,” or “FLA.” The FLA represents the amount of expected losses that the Bank incurs before the PFI's credit enhancement becomes available to cover losses. For MPF products with performance based credit enhancement fees (e.g., MPF Plus), the Bank may withhold credit enhancement fees to recover losses at the FLA level, essentially transferring a portion of the first layer risk of credit loss to the PFI.

Member Credit Enhancement. Fourth, losses for loans purchased under each master commitment in excess of the FLA, up to an agreed-upon amount, called the credit enhancement, or “CE Amount,” are incurred by the PFI, which, for MPF Plus, includes supplemental mortgage insurance (SMI). The member's CE Amount is sized using the MPF Program methodology to limit the amount of the Bank's losses in excess of, or including, the FLA (depending on the MPF product) to those that would be expected to be experienced by an investor in an MBS rated AA under the S&P LEVELS ratings methodology (although the assets are not rated by S&P or any other agency). The CE Amount is determined at inception of each loan pool master commitment and is reassessed and increased, if necessary, after the “fill up period” for each master commitment that has been completed but is not increased thereafter. In one MPF product, the PFI is required to obtain and pay for SMI, for which the Bank is the insured party. The Bank pays the PFI a monthly credit enhancement fee for managing credit risk on the MPF Program loans. In most cases, the credit enhancement fees are performance based, which further motivates the PFI to minimize loan losses on MPF Program loans.

MPF Bank. Fifth, the Bank absorbs any remaining unallocated losses.

The unpaid principal balance of MPF Program mortgage loans was $659 million and $815 million as of December 31, 2014 and 2013, respectively. The allowance for credit losses on MPF loans was $3 million and $11 million as of December 31, 2014 and 2013, respectively. The decrease in the allowance for credit losses was related to certain enhancements to the Bank's allowance for credit loss calculation and the improvement of the credit quality of the portfolio.
    

63

MPP

Mortgage loans purchased under MPP must comply with the underwriting and eligibility standards set forth in the MPP guidelines established by the Bank. In some circumstances, the Bank may grant a PFI a waiver exempting it from complying with specified provisions of the MPP guidelines.

The Bank manages MPP credit risk by sharing potential losses with the PFI. The general allocation of losses under the MPP is divided into the following loss layers:

Borrower's Equity and Primary Mortgage Insurance. The first layer of protection against loss is the borrower's equity in the real property securing the MPP loan and PMI where applicable.

Lender Risk Account. Second, the Bank establishes a Lender Risk Account (LRA) for each master commitment to cover losses that are not paid by PMI or borrower's equity. The Bank can establish the amount of the LRA balance either up front as a portion of the purchase proceeds (Fixed LRA) or as a portion of the monthly interest paid by the borrower (Spread LRA).

The Bank historically has offered only the Spread LRA option, so the Bank funds the LRA through a portion of the monthly interest paid by the borrower. The PFI's recourse is limited to this predetermined LRA amount, so that the PFI has no further obligation to make additional contributions to the LRA, regardless of any losses or deterioration of the mortgage pool exceeding such amount in the LRA. Once the LRA has reached the required amount, but not before five years in the case of the Fixed LRA, the Bank will pay to the PFI on an annual basis in accordance with a step-down schedule that is established at the time of a master commitment contract any unused amounts of the LRA that are no longer required to cover expected losses.

Supplemental Mortgage Insurance. Third, losses for each master commitment in excess of the LRA, up to a specified LTV ratio, are covered by SMI obtained by the PFI. In MPP, SMI generally covers mortgages with an LTV ratio of 45 percent or greater. In addition, SMI policies for master commitments in excess of $35 million contain an aggregate loss limit whereby the total amount payable by the SMI insurer under the policy is less than the total unpaid principal balances on the insured loans.

The Bank has established formal policies and procedures to monitor its exposure to mortgage insurance companies, including an aggregate cap on the amount of permissible exposure to SMI at each provider.

The Bank. Fourth, the Bank absorbs any remaining unallocated losses.

Total credit enhancement is sized to provide the equivalent of an AA rating under the S&P LEVELS rating methodology (although the assets are not rated by S&P or any other agency).

The unpaid principal balance of MPP mortgage loans was $92 million and $115 million as of December 31, 2014 and 2013, respectively. The allowance for credit losses on MPP loans was less than $1 million as of December 31, 2014 and 2013.

Affordable Multifamily Participation Program

In August 2013, the Bank sold its multifamily mortgage loan portfolio, with an unpaid principal balance of $18 million, which resulted in a gain of less than $1 million.
                                                             
Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. Operational risk for the Bank also includes reputation and legal risks associated with business practices or market conduct the Bank may undertake. Operational risk inherently is greatest where transaction processes include numerous processing steps, require greater subjectivity or are non-routine. As the Bank's activities and business environment are becoming increasingly complex due to changing regulatory requirements, the Bank is experiencing increased operational risk.

The Bank identifies risk through daily operational monitoring, independent reviews, and the strategic planning and risk assessment programs, both of which consider the operational risk ramifications of the Bank’s business strategies and environment. The Bank has established comprehensive financial and operating policies and procedures to mitigate the likelihood of loss resulting from the identified operational risks. In addition, the Bank’s operational risk committee is responsible for overseeing the Bank’s risk management policies, procedures, strategies and activities related to operational risks and overseeing the monitoring process and review of risk assessments related to operational risk. This oversight also includes compliance risk and reputational risk. The Bank effects related changes in processes, information systems, lines of

64

communication, and other internal controls as deemed appropriate in response to identified or anticipated increases in operational risk.

The efficiencies offered by information technology (IT) and networks are a necessary component of Bank operations. The information systems architecture of the Bank is client/server-based to support the multiple operating systems and servers, which are a mixture of vendor-licensed and in-house developed applications. The Bank's IT division maintains and regularly reviews a number of controls to ensure that the IT assets of the Bank are well managed and secure from unauthorized access. Exposure from the internet (and accompanying network security issues, including software virus risk) is a factor that shapes the Bank's risk profile. This exposure results from the Bank's e-commerce activity and an increasing number of specialized vendor-provided solutions that are supported by web-based servers. Management monitors and maintains controls against attempted spyware and anti-virus attacks against Bank systems. The Bank utilizes firewalls to protect the network from internet based attacks while also employing firewalls on laptops that may operate outside of the Bank's network. Additionally, the Bank has systems to detect an intrusion in the event that it is not stopped by one of the firewalls. The Bank also has an information security department that is responsible for the policy, procedures, reviews, education and management of entitlement requests. One key objective of the information security department is to protect the Bank's sensitive business information from unauthorized access. A security governance committee provides independent and integrated oversight of the information security program, the physical security program, security policies and procedures and security exceptions and violations. The security governance committee reviews all information security-related incidents and escalates them to the executive management committee or the board as appropriate.

The board of directors has an Enterprise Risk and Operations Committee to advise and assist the board with respect to enterprise risk management, operations, information technology and other related matters. In addition, the Bank's internal Enterprise Risk Committee is responsible for management and oversight of the Bank's risk management programs and practices discussed above. Additionally, the Bank's Internal Audit department, which reports directly to the Audit Committee of the Bank's board of directors, regularly monitors compliance with the policies and procedures related to managing operational risks.

Business Risk

Business risk is the risk of an adverse effect on the Bank's profitability resulting from external factors that may occur in both the short- and the long-term. Business risk includes political, strategic, reputation, and regulatory events that are beyond the Bank's control. In particular, during 2014 and continuing in 2015, the Bank faces the following business risks:

•
competition for advances from traditional and nontraditional sources; and

•
legislative and regulatory changes that could affect the Bank's cost of doing business or alter the Bank's business model.

For discussion of the Bank's competition for advances, see Item 1, Business—Competition above. For discussion of recent regulatory activity that may have a material impact on the Bank's operations, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Legislative and Regulatory Developments. The Bank attempts to mitigate these risks through long-term strategic planning and through continually monitoring economic indicators and the external environment.

Cyclicality and Seasonality

The demand for advances from the Bank, and the Bank's business, generally are not subject to the effects of cyclical or seasonal variations.

Effects of Inflation

The majority of the Bank's assets and liabilities are, and will continue to be, monetary in nature. Although interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services, higher rates of inflation generally result in corresponding increases in interest rates. Inflation, coupled with increasing interest rates, generally has the following effect on the Bank:

•
the cost of the Bank's funds and operating overhead increases;

•
the yield on variable rate assets held by the Bank increases;


65

•
the fair value of fixed-rate investments and mortgage loans held in portfolio decreases; and

•
mortgage loan prepayment rates decrease and result in lower levels of mortgage loan refinance activity, which may result in the reduction of Bank advances to members as increased rates tend to slow home sales.

Conversely, lower rates of inflation or deflation have the opposite effect of the above on the Bank and its holdings.


Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

A discussion of the Bank's market risk is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Market Risk.


66

Item 8. Financial Statements and Supplementary Data.


Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders
of the Federal Home Loan Bank of Atlanta:

In our opinion, the accompanying statements of condition and the related statements of income, comprehensive income, capital, and cash flows present fairly, in all material respects, the financial position of the Federal Home Loan Bank of Atlanta (The FHLBank) at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the FHLBank maintained, in all material aspects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in the Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The FHLBank’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the FHLBank’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Atlanta, Georgia
March 13, 2015

67

FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CONDITION
(In millions, except par value)
 
As of December 31,
 
2014
 
2013
Assets
 
 
 
Cash and due from banks
$
915

 
$
4,374

Interest-bearing deposits (including deposits with another FHLBank of $2 and $1 as of December 31, 2014 and 2013, respectively)
1,010

 
1,007

Securities purchased under agreements to resell
1,960

 
—

Federal funds sold
6,385

 
1,795

Investment securities:
 
 
 
     Trading securities (includes another FHLBank’s bond of $60 and $65 as of December 31, 2014 and 2013, respectively)
1,269

 
1,667

Available-for-sale securities
1,981

 
2,299

Held-to-maturity securities (fair value of $23,988 and $20,146 as of December 31, 2014 and 2013, respectively)
23,897

 
20,176

Total investment securities
27,147

 
24,142

Advances
99,644

 
89,588

Mortgage loans held for portfolio, net:
 
 
 
Mortgage loans held for portfolio
749

 
929

Allowance for credit losses on mortgage loans
(3
)
 
(11
)
Total mortgage loans held for portfolio, net
746

 
918

Accrued interest receivable
179

 
199

Derivative assets
112

 
53

Premises and equipment, net
27

 
29

Other assets
219

 
211

Total assets
$
138,344


$
122,316

Liabilities
 
 
 
Interest-bearing deposits
$
1,110

 
$
1,752

Consolidated obligations, net:
 
 
 
Discount notes
37,162

 
32,202

Bonds
92,088

 
80,728

Total consolidated obligations, net
129,250

 
112,930

Mandatorily redeemable capital stock
19

 
24

Accrued interest payable
145

 
183

Affordable Housing Program payable
65

 
74

Derivative liabilities
184

 
187

Other liabilities
580

 
514

Total liabilities
131,353

 
115,664

Commitments and contingencies (Note 20)

 

Capital
 
 
 
Capital stock Class B putable ($100 par value) issued and outstanding shares:
 
 
 
Subclass B1 issued and outstanding shares: 7 and 10 as of December 31, 2014 and 2013, respectively
726

 
946

Subclass B2 issued and outstanding shares: 45 and 39 as of December 31, 2014 and 2013, respectively
4,424

 
3,937

Total capital stock Class B putable
5,150

 
4,883

Retained earnings:
 
 
 
Restricted
195

 
141

Unrestricted
1,551

 
1,516

Total retained earnings
1,746

 
1,657

Accumulated other comprehensive income
95

 
112

Total capital
6,991

 
6,652

Total liabilities and capital
$
138,344

 
$
122,316


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

68

FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF INCOME
(In millions)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Interest income
 
 
 
 
 
Advances
$
178

 
$
230

 
$
281

Prepayment fees on advances, net
2

 
3

 
13

Interest-bearing deposits
4

 
5

 
7

Securities purchased under agreements to resell
1

 
1

 
1

Federal funds sold
8

 
9

 
18

Trading securities
75

 
101

 
118

Available-for-sale securities
122

 
129

 
160

Held-to-maturity securities
238

 
252

 
299

Mortgage loans
50

 
61

 
76

Total interest income
678

 
791

 
973

Interest expense
 
 
 
 
 
Consolidated obligations:
 
 
 
 
 
 Discount notes
29

 
27

 
25

 Bonds
325

 
421

 
568

Interest-bearing deposits
—

 
1

 
1

Mandatorily redeemable capital stock
1

 
1

 
3

Total interest expense
355

 
450

 
597

Net interest income
323

 
341

 
376

(Reversal) provision for credit losses
(5
)
 
5

 
6

Net interest income after (reversal) provision for credit losses
328

 
336

 
370

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

 
(1
)
 
—

Net amount of impairment losses (reclassified from) recorded in accumulated other comprehensive income
(3
)
 
1

 
(16
)
Net impairment losses recognized in earnings
(3
)
 
—

 
(16
)
Net losses on trading securities
(60
)
 
(100
)
 
(67
)
Net gains on derivatives and hedging activities
120

 
204

 
117

Gain on extinguishment of debt
15

 
6

 
—

Letters of credit fees
26

 
20

 
18

Gain on litigation settlements, net
4

 
33

 
—

Other
3

 
3

 
3

Total noninterest income
105

 
166

 
55

Noninterest expense
 
 
 
 
 
Compensation and benefits
73

 
69

 
68

Other operating expenses
41

 
44

 
40

Finance Agency
9

 
8

 
10

Office of Finance
5

 
6

 
6

Other
4

 
—

 
1

Total noninterest expense
132

 
127

 
125

Income before assessments
301

 
375

 
300

Affordable Housing Program assessments
30

 
37

 
30

Net income
$
271

 
$
338

 
$
270


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

69

FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Net income
$
271

 
$
338

 
$
270

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-temporarily impaired available-for-sale securities
(10
)
 
167

 
341

Reclassification of noncredit portion of impairment losses included in net income
3

 
—

 
16

Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities
(7
)
 
166

 
357

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
—

 
—

 
—

Other comprehensive (loss) income related to pension and postretirement benefit plans
(10
)
 
4

 
(4
)
Total other comprehensive (loss) income
(17
)
 
170

 
353

Total comprehensive income
$
254

 
$
508

 
$
623


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

70

FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CAPITAL
(In millions)
 
 
Capital Stock Class B Putable
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income
 
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
18

 
1,797

 
—

 
—

 
—

 
—

 
1,797

Repurchase/redemption of capital stock
(25
)
 
(2,555
)
 
—

 
—

 
—

 
—

 
(2,555
)
Net shares reclassified to mandatorily redeemable capital stock
(1
)
 
(62
)
 
—

 
—

 
—

 
—

 
(62
)
Comprehensive income
—

 
—

 
54

 
216

 
270

 
353

 
623

Cash dividends on capital stock
—

 
—

 
—

 
(89
)
 
(89
)
 
—

 
(89
)
Balance, December 31, 2012
49

 
4,898

 
73

 
1,362

 
1,435

 
(58
)
 
6,275

Issuance of capital stock
50

 
4,960

 
—

 
—

 
—

 
—

 
4,960

Repurchase/redemption of capital stock
(50
)
 
(4,966
)
 
—

 
—

 
—

 
—

 
(4,966
)
Net shares reclassified to mandatorily redeemable capital stock
—

 
(9
)
 
—

 
—

 
—

 
—

 
(9
)
Comprehensive income
—

 
—

 
68

 
270

 
338

 
170

 
508

Cash dividends on capital stock
—

 
—

 
—

 
(116
)
 
(116
)
 
—

 
(116
)
Balance, December 31, 2013
49

 
4,883

 
141

 
1,516

 
1,657

 
112

 
6,652

Issuance of capital stock
50

 
5,034

 
—

 
—

 
—

 
—

 
5,034

Repurchase/redemption of capital stock
(47
)
 
(4,760
)
 
—

 
—

 
—

 
—

 
(4,760
)
Net shares reclassified to mandatorily redeemable capital stock
—

 
(7
)
 
—

 
—

 
—

 
—

 
(7
)
Comprehensive income (loss)
—

 
—

 
54

 
217

 
271

 
(17
)
 
254

Cash dividends on capital stock
—

 
—

 
—

 
(182
)
 
(182
)
 
—

 
(182
)
Balance, December 31, 2014
52

 
$
5,150

 
$
195

 
$
1,551

 
$
1,746

 
$
95

 
$
6,991


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

71

FEDERAL HOME LOAN BANK OF ATLANTA
STATEMENTS OF CASH FLOWS
(In millions)
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Operating activities
 
 
 
 
 
Net income
$
271

 
$
338

 
$
270

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
(110
)
 
(84
)
 
(50
)
  (Reversal) provision for credit losses
(5
)
 
5

 
6

  Loss due to change in net fair value adjustment on derivative and hedging activities
62

 
54

 
111

  Net change in fair value adjustment on trading securities
61

 
100

 
67

  Net impairment losses recognized in earnings
3

 
—

 
16

Gain on extinguishment of debt
(15
)
 
(6
)
 
—

 Loss on disposal of fixed assets and capital software costs
—

 
—

 
1

Net change in:
 
 
 
 
 
  Accrued interest receivable
20

 
41

 
74

  Other assets
(17
)
 
(78
)
 
12

  Affordable Housing Program payable
(12
)
 
(10
)
 
(32
)
  Accrued interest payable
(38
)
 
(46
)
 
(57
)
  Other liabilities
17

 
63

 
4

  Total adjustments
(34
)
 
39

 
152

Net cash provided by operating activities
237

 
377

 
422

Investing activities
 
 
 
 
 
Net change in:
 
 
 
 
 
  Interest-bearing deposits
143

 
1,200

 
706

  Securities purchased under agreements to resell
(1,960
)
 
250

 
(250
)
  Federal funds sold
(4,590
)
 
5,440

 
5,395

Trading securities:
 
 
 
 
 
  Proceeds from maturities
345

 
611

 
690

Available-for-sale securities:
 
 
 
 
 
  Proceeds from maturities
342

 
565

 
617

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

 
550

 
100

  Proceeds from maturities of long-term
3,183

 
4,034

 
4,220

  Purchases of long-term
(6,862
)
 
(7,540
)
 
(5,000
)
Advances:
 
 
 
 
 
  Proceeds from principal collected
176,124

 
161,781

 
164,894

  Made
(186,125
)
 
(165,786
)
 
(165,990
)
Mortgage loans:
 
 
 
 
 
  Proceeds from principal collected
158

 
277

 
368

     Proceeds from sale
—

 
18

 
—

Proceeds from sale of foreclosed assets
24

 
27

 
13

Purchase of premise, equipment, and software
(5
)
 
(3
)
 
(4
)
Net cash (used in) provided by investing activities
(19,223
)
 
1,424

 
5,759

 
 
 
 
 
 

72

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

 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Financing activities
 
 
 
 
 
Net change in interest-bearing deposits
(688
)
 
(352
)
 
(500
)
Net payments on derivatives containing a financing element
(101
)
 
(157
)
 
(347
)
Proceeds from issuance of consolidated obligations:
 
 
 
 
 
 Discount notes
470,192

 
312,401

 
331,292

 Bonds
84,624

 
74,635

 
67,479

Payments for debt issuance costs
(9
)
 
(8
)
 
(10
)
Payments for maturing and retiring consolidated obligations:
 
 
 
 
 
 Discount notes
(465,234
)
 
(311,935
)
 
(323,892
)
 Bonds
(73,337
)
 
(75,947
)
 
(74,971
)
Proceeds from issuance of capital stock
5,034

 
4,960

 
1,797

Payments for repurchase/redemption of capital stock
(4,760
)
 
(4,966
)
 
(2,555
)
Payments for repurchase/redemption of mandatorily redeemable capital stock
(12
)
 
(25
)
 
(308
)
Cash dividends paid
(182
)
 
(116
)
 
(89
)
Net cash provided by (used in) financing activities
15,527

 
(1,510
)
 
(2,104
)
Net (decrease) increase in cash and due from banks
(3,459
)
 
291

 
4,077

Cash and due from banks at beginning of the year
4,374

 
4,083

 
6

Cash and due from banks at end of the year
$
915

 
$
4,374

 
$
4,083

Supplemental disclosures of cash flow information:
 
 
 
 
 
 Cash paid for:
 
 
 
 
 
Interest
$
402

 
$
516

 
$
679

Affordable Housing Program assessments, net
$
39

 
$
43

 
$
59

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

 
$
9

 
$
62

Held-to-maturity securities acquired with accrued liabilities
$
348

 
$
309

 
$
—

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

 
$
11

 
$
6

Transfers of mortgage loans to real estate owned
$
18

 
$
28

 
$
16


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

 


73

FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)

Note 1—Nature of Operations

The Federal Home Loan Bank of Atlanta (Bank), a federally chartered corporation, is one of 12 district Federal Home Loan Banks (FHLBanks). The FHLBanks are government-sponsored enterprises that serve the public by enhancing the availability of credit for residential mortgages and targeted community development. The Bank provides a readily available, competitively priced source of funds to its member institutions. The Bank is a cooperative whose member institutions own substantially all of the capital stock of the Bank. Former members, and certain non-members that own the Bank's capital stock as a result of a merger or acquisition of the Bank's member, 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 are entitled to receive dividends on their capital stock, to the extent declared by the Bank's board of directors.

All federally insured depository institutions, insurance companies, and community development financial institutions chartered in the Bank's defined geographic district and engaged in residential housing finance are eligible to apply for membership. State and local housing authorities that meet certain statutory criteria may also borrow from the Bank. While eligible to borrow, housing associates are not members of the Bank and are not allowed to hold capital stock. All members must purchase and hold capital stock of the Bank. A member's stock requirement is based on the amount of its total assets, as well as the amount of certain of its business activities with the Bank.

The Federal Housing Finance Agency (Finance Agency) is the independent federal regulator of the FHLBanks and is responsible for ensuring that (1) the FHLBanks operate in a safe and sound manner, including maintenance of adequate capital and internal controls; (2) the operations and activities of the FHLBanks foster liquid, efficient, competitive and resilient national housing finance markets; (3) the FHLBanks comply with applicable laws and regulations; and (4) the FHLBanks carry out their housing finance mission through authorized activities that are consistent with the public interest. The Finance Agency also establishes policies and regulations covering the operations of the FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors. The Bank does not have any special purpose entities or any other types of off-balance sheet conduits.

The Federal Home Loan Banks Office of Finance (Office of Finance), a joint office of the FHLBanks, facilitates the issuance and servicing of the FHLBanks' debt instruments, known as consolidated obligations, and prepares the combined quarterly and annual financial reports of the FHLBanks. As provided by the Federal Home Loan Bank Act of 1932 (FHLBank Act), as amended, and applicable regulations, the Bank's consolidated obligations are backed only by the financial resources of the FHLBanks. Consolidated obligations are the primary source of funds for the Bank in addition to deposits, other borrowings, and capital stock issued to members. The Bank primarily uses these funds to provide advances to members. The Bank also provides members and non-members with correspondent banking services, such as safekeeping, wire transfer, and cash management services.

Note 2—Summary of Significant Accounting Policies

Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires the Bank to make subjective assumptions and estimates, which are based upon the information then available to the Bank and are inherently uncertain and subject to change. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ significantly from these estimates.

Estimated Fair Values. The estimated fair value amounts, recorded on the Statements of Condition and in the note disclosures for the periods presented, have been determined by the Bank using available market and other pertinent information and reflect the Bank's best judgment of appropriate valuation methods. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any valuation technique. Therefore, these fair values may not be indicative of the amounts that would have been realized in market transactions at the reporting dates.

Financial Instruments Meeting Netting Requirements. The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to offset under master netting arrangements or by operation of law. 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.

74
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)



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 18—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.

Interest-bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold. These investments provide short-term liquidity and are carried at cost. The Bank treats securities purchased under agreements to resell as short-term collateralized loans which are classified as assets in the Statements of Condition. Securities purchased under agreements to resell are held in safekeeping in the name of the Bank by third-party custodians approved by the Bank. Should the fair value of the underlying securities decrease below the fair value required as collateral, the counterparty has the option to (1) place an equivalent amount of additional securities in safekeeping in the name of the Bank or (2) remit an equivalent amount of cash; otherwise, the dollar value of the resale agreement will be decreased accordingly. Federal funds sold consist of short-term, unsecured loans transacted with counterparties that are considered by the Bank to be of investment quality. Interest on interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold is accrued as earned and recorded in interest income on the Statements of Income.

Investment Securities. The Bank classifies certain investments acquired for purposes of liquidity and asset-liability management as trading investments and carries these securities at their estimated fair value. The Bank records changes in the fair value of these investments in noninterest income (loss) as “Net losses on trading securities” on the Statements of Income, along with gains and losses on sales of investment securities using the specific identification method. The Bank does not participate in speculative trading practices in these investments and generally holds them until maturity, except to the extent management deems necessary to manage the Bank's liquidity position.

The Bank carries at amortized cost, and classifies as held-to-maturity, investments for which it has both the ability and intent to hold to maturity, adjusted for periodic principal repayments, amortization of premiums, and accretion of discounts. Amortization of premiums and accretion of discounts are computed using the contractual level-yield method (contractual interest method), adjusted for actual prepayments. The contractual interest method recognizes the income effects of premiums and discounts over the contractual life of the securities based on the actual behavior of the underlying assets, including adjustments for actual prepayment activities, and reflects the contractual terms of the securities without regard to changes in estimated prepayments based on assumptions about future borrower behavior.

The Bank classifies certain securities that are not held-to-maturity or trading as available-for-sale and carries these securities at their estimated fair value. The Bank records changes in the fair value of these investments in other comprehensive income. The Bank intends to hold its available-for-sale securities for an indefinite period of time, but may sell them prior to maturity in response to changes in interest rates, changes in prepayment risk, or other factors.
Certain changes in circumstances may cause the Bank to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security to another investment classification due to certain changes in circumstances, such as evidence of significant deterioration in the issuer's creditworthiness, is not considered inconsistent with its original classification.

Other-than-temporary Impairment of Investment Securities. The Bank evaluates its individual available-for-sale and held-to-maturity securities in unrealized loss positions for other-than-temporary impairment on a quarterly basis. A security is considered impaired when its fair value is less than its amortized cost. The Bank considers an other-than-temporary impairment to have occurred under any of the following circumstances:

•
the Bank has an intent to sell the impaired debt security;
•
if, based on available evidence, the Bank believes it is more likely than not that it will be required to sell the impaired debt security before the recovery of its amortized cost basis; or
•
the Bank does not expect to recover the entire amortized cost basis of the impaired debt security.


75
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


If either of the first two conditions above is met, the Bank recognizes an other-than-temporary impairment loss in earnings 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 the first two conditions, the Bank performs a cash flow analysis to determine if it will recover the entire amortized cost basis of each of these securities. The present value of the cash flows expected to be collected is compared to the amortized cost basis of the debt security to determine whether a credit loss exists. If there is a credit loss (the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security), the carrying value of the debt security is adjusted to its fair value. However, rather than recognizing the entire difference between the amortized cost basis and fair value in earnings, only the amount of the impairment representing the credit loss (i.e., the credit component) is recognized in earnings, while the amount related to all other factors (i.e., the non-credit component) is recognized in other comprehensive income. The credit loss on a debt security is limited to the amount of that security's unrealized losses. The total other-than-temporary impairment is presented in the Statements of Income with an offset for the amount of the non-credit component of other-than-temporary impairment that is recognized in other comprehensive income. The remaining amount in the Statements of Income represents the credit loss for the period.

For subsequent accounting of an other-than-temporarily impaired security, the Bank records an additional other-than-temporary impairment if the present value of cash flows expected to be collected is less than the amortized cost of the security. The total amount of this additional other-than-temporary impairment (both credit and non-credit component, if any) is determined as the difference between the security's amortized cost less the amount of other-than-temporary impairment recognized in other comprehensive income prior to the determination of this additional other-than-temporary impairment and its fair value. Any additional credit loss is limited to that security's unrealized losses, or the difference between the security's amortized cost and its fair value as of the Statements of Condition date. This additional credit loss, up to the amount in other comprehensive income related to the security, is reclassified out of other comprehensive income and recognized in earnings. Any credit loss in excess of the related other comprehensive income is recorded as additional total other-than-temporary impairment loss and recognized in earnings.

For debt securities classified as available-for-sale, the Bank does not accrete the other-than-temporary impairment recognized in accumulated other comprehensive income to the carrying value. Rather, subsequent related increases and decreases (if not an other-than-temporary impairment) in the fair value of available-for-sale securities are netted against the non-credit component of other-than-temporary impairment recognized previously in accumulated other comprehensive income.

Upon subsequent evaluation of a debt security where there is no additional other-than-temporary impairment, the Bank adjusts the accretable yield on a prospective basis if there is a significant increase in the security's expected cash flows. As of the impairment measurement date, a new accretable yield is calculated for the impaired investment security. This adjusted yield is then used to calculate the interest income recognized over the remaining life of the security so as to match the amount and timing of future cash flows expected to be collected. Subsequent significant increases in estimated cash flows change the accretable yield on a prospective basis.

Advances. The Bank reports advances (secured loans to members, former members, or housing associates), net of discounts on advances related to the Affordable Housing Program (AHP) and the Economic Development and Growth Enhancement Program (EDGE), unearned commitment fees, and hedging basis adjustments. The Bank accretes the discounts on advances and amortizes the recognized unearned commitment fees and hedging adjustments to interest income using the level-yield method. The Bank records interest on advances to interest income as earned.

Prepayment Fees. The Bank charges a borrower a prepayment fee when the borrower prepays certain advances before the original maturity date. The Bank records prepayment fees net of basis adjustments related to hedging activities included in the carrying value of the advance as “Prepayment fees on advances, net” in the interest income section of the Statements of Income. In cases in which the Bank funds a new advance within a short period of time from the prepayment of an existing advance, the Bank evaluates whether the new advance meets the accounting criteria to qualify as a modification of an existing advance or whether it constitutes a new advance. If the new advance qualifies as a modification of the existing advance, the hedging basis adjustments and the net prepayment fee on the prepaid advance are recorded in the carrying value of the modified advance and amortized over the life of the modified advance using a level-yield method. This amortization is recorded in advance interest income.


76
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


If the Bank determines that the transaction does not qualify as a modification of an existing advance, it is treated as an advance termination with subsequent funding of a new advance and the Bank records the net fees as “Prepayment fees on advances, net” in the interest income section of the Statements of Income.

Mortgage Loans Held for Portfolio. The Bank classifies mortgage loans that it has the intent and ability to hold for the foreseeable future or until maturity or payoff as held for portfolio. Accordingly, these mortgage loans are reported net of unamortized premiums, unaccreted discounts, mark-to-market basis adjustments on loans initially classified as mortgage loan commitments, and any allowance for credit losses.

The Bank defers and amortizes premiums and accretes discounts paid to and received by the participating financial institutions (PFI), and mark-to-market basis adjustments on loans initially classified as mortgage loan commitments, as interest income using the contractual interest method.

A mortgage loan is considered past due when the principal or interest payment is not received in accordance with the contractual terms of the loan. The Bank places a conventional mortgage loan on nonaccrual status when the collection of the contractual principal or interest from the borrower is 90 days or more past due. When a mortgage loan is placed on nonaccrual status, accrued but uncollected interest is reversed against interest income. The Bank records cash payments received on nonaccrual loans as interest income and a reduction of principal as specified in the contractual agreement. A loan on nonaccrual status may be restored to accrual status when the contractual principal and interest are less than 90 days past due. A government-guaranteed or insured loan is not placed on nonaccrual status when the collection of the contractual principal or interest is 90 days or more past due because of the (1) U.S. government guarantee or insurance on the loan and (2) the contractual obligation of the loan servicer to repurchase the loan when certain criteria are met.

A mortgage loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the mortgage loan agreement. Interest income is recognized in the same manner as nonaccrual loans.

Finance Agency regulations require that mortgage loans held in the Bank's portfolios be credit enhanced so that the Bank's risk of loss is limited to the losses of an investor in at least an investment-grade category, such as “BBB.” For conventional mortgage loans, PFIs retain a portion of the credit risk on the loans they sell to the Bank by providing credit enhancement either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide supplemental mortgage insurance. PFIs are paid a credit enhancement fee (CE Fee) for assuming credit risk and in some instances all or a portion of the CE Fee may be performance based. CE Fees are paid monthly based on the remaining unpaid principal balance of the loans in a master commitment. CE Fees are recorded as an offset to mortgage loan interest income. To the extent the Bank experiences losses in a master commitment, it may be able to recapture CE Fees paid to the PFI to offset these losses.

Allowance for Credit Losses. The allowance for credit losses is a valuation allowance separately established for each identified portfolio segment of financing receivables, if necessary, to provide for probable incurred losses in the Bank's portfolio as of the Statements of Condition date. A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology for determining its allowance for credit losses. The Bank has developed and documented a systematic methodology for determining an allowance for credit losses for each of its portfolio segments of financing receivables: advances and letters of credit, government-guaranteed or insured single-family residential mortgage loans held for portfolio, conventional single-family residential mortgage loans held for portfolio, multifamily residential mortgage loans held for portfolio, term federal funds sold, and term securities purchased under agreements to resell.

A portfolio segment may be further disaggregated into classes of financing receivables to the extent that it is needed to understand the exposure to credit risk arising from these financing receivables. The Bank determined that no further disaggregation of the portfolio segments identified above is needed as the credit risk arising from these financing receivables is assessed and measured by the Bank at the portfolio segment level.

The Bank manages its credit exposure to advances through an integrated approach that includes establishing a credit limit for each borrower, an ongoing review of each borrower's financial condition, and conservative collateral and lending policies to limit risk of loss while balancing each borrower's needs for a reliable source of funding. In addition, the Bank lends to financial institutions within its district and housing associates in accordance with federal statutes and Finance Agency regulations. Specifically, the Bank complies with the FHLBank Act, which requires the Bank to obtain sufficient collateral to fully secure

77
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


advances. The estimated value of the collateral required to secure each borrower's advances is calculated by applying discounts to the fair value or unpaid principal balance of the collateral, as applicable. The Bank accepts certain investment securities, residential mortgage loans, deposits, and other real estate related assets as collateral. The Bank's capital stock owned by its member borrower is also pledged as additional collateral. Collateral arrangements may vary depending upon borrower credit quality, financial condition and performance, borrowing capacity, and the Bank's overall credit exposure to the borrower. The Bank can call for additional or substitute collateral to protect its security interest. The Bank believes that these policies effectively manage credit risk from advances.

Based upon the financial condition of the borrower, the Bank either allows a borrower to retain physical possession of the collateral pledged to it, or requires the borrower to specifically assign or place physical possession of the collateral with the Bank or its safekeeping agent. The Bank requires its borrowers to execute an advances and security agreement that establishes the Bank's security interest in all collateral pledged by the borrower to the Bank. The Bank perfects its security interest in all pledged collateral. The FHLBank Act affords any security interest granted to the Bank by a borrower priority over the claims or rights of any other party (including any receiver, conservator, trustee, or similar party having rights of a lien creditor), except for claims or rights of a third party that (1) would be entitled to priority under otherwise applicable law; and (2) is an actual bona fide purchaser for value or is an actual secured party whose security interest is perfected in accordance with state law.

Using a risk-based approach and taking into consideration each borrower's financial strength, the Bank considers the types and amounts of pledged collateral to be the primary indicator of credit quality on its advances. As of December 31, 2014 and 2013, the Bank had rights to collateral on a borrower-by-borrower basis with an estimated value equal to or greater than its outstanding extensions of credit.

The Bank continues to evaluate and make changes to its collateral policies, as necessary, based on current market conditions. As of December 31, 2014 and 2013, no advance was past due, on nonaccrual status, or considered impaired. In addition, there were no troubled debt restructurings related to advances.

Based upon the collateral held as security, the Bank's collateral policies, credit analysis, and the repayment history on advances, the Bank did not anticipate any credit losses on advances as of December 31, 2014 and 2013. Accordingly, as of December 31, 2014 and 2013, the Bank has not recorded any allowance for credit losses on advances, nor has the Bank recorded any liability to reflect an allowance for credit losses for off-balance sheet credit exposure.

The Bank invested in government-guaranteed or insured fixed-rate mortgage loans secured by one-to-four family residential properties. Government-guaranteed or insured mortgage loans are mortgage loans guaranteed or insured by the Department of Veterans Affairs or the Federal Housing Administration. The servicer provides and maintains insurance or a guarantee from the applicable government agency. The servicer is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable insurance or guarantee with respect to defaulted government-guaranteed or insured mortgage loans. Any losses incurred on these loans that are not recovered from the issuer or the guarantor are absorbed by the servicers. Therefore, the Bank only has credit risk for these loans if the servicer fails to pay for losses not covered by insurance, or guarantees. Based on the Bank's assessment of its servicers, the Bank did not establish an allowance for credit losses for its government-guaranteed or insured mortgage loan portfolio as of December 31, 2014 and 2013.

Modified loans that are considered a troubled debt restructuring are evaluated individually for impairment. All other conventional single-family residential mortgage loans are evaluated collectively for impairment. The allowance for conventional single-family residential mortgage loans is determined by an analysis (performed at least quarterly) that includes segregating the portfolio into various aging groups.  For loans that are 60 days or less past due, the Bank calculates a loss severity, default rate, and the expected loss based on individual loan characteristics.  For loans that are more than 60 days past due, the allowance is determined using an automated valuation model. Prior to January 1, 2014, the overall allowance for credit losses on conventional single-family residential mortgage loans was determined by an analysis (performed at least quarterly) that included consideration of various data, such as past performance, current performance, loan portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. This change did not have a material effect on the Bank's financial condition or results of operations. Inherent in the Bank's evaluation of past performance is an analysis of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.

A modified loan that is considered a troubled debt restructuring is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash shortfalls (i.e., loss severity rate)

78
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


incurred as of the reporting date as well as the economic loss attributable to delaying the original contractual principal and interest due dates.

The Bank sold its multifamily residential mortgage loan portfolio in August 2013. Prior to the sale, multifamily residential mortgage loans were individually evaluated for impairment. An independent third-party loan review was performed annually on all the Bank's multifamily residential mortgage loans to identify credit risks and to assess the overall ability of the Bank to collect on those loans. The allowance for credit losses related to multifamily residential mortgage loans was comprised of specific reserves and a general reserve. The Bank established a specific reserve for all multifamily residential mortgage loans with a credit rating at or below a predetermined classification. A general reserve was maintained on multifamily residential mortgage loans not subject to specific reserve allocations to recognize the economic uncertainty and the imprecision inherent in estimating and measuring losses when evaluating reserves for individual loans. To establish the general reserve, the Bank assigned a risk classification to this population of loans. A specified percentage was allocated to the general reserve for designated risk classification levels. The loans and risk classification designations were reviewed by the Bank on an annual basis.

A charge-off is recorded if the recorded investment in the loan will not be recovered. The Bank evaluates whether to record a charge-off on a conventional single-family residential mortgage loan upon the occurrence of a confirming event. Beginning January 1, 2014, the Bank began to classify as a loss and charge-off the portion of outstanding conventional single-family residential mortgage loan balances in excess of the fair value of the underlying property, less costs to sell and adjusted for any available credit enhancements, once the loans are 180 days delinquent. This change did not have a material effect on the Bank's financial condition or results of operations. Prior to January 1, 2014, confirming events included, but were not limited to, the occurrence of foreclosure or notification of a claim against any of the credit enhancements.
Term federal funds sold are generally short-term, their recorded balance approximates fair value, and they are transacted with counterparties that are considered by the Bank to be of investment quality. The Bank's investment in federal funds sold are evaluated for purposes of an allowance for credit losses only if the investment is not paid when due. All investments in federal funds sold are unsecured and were repaid or expected to be repaid according to the contracted terms as of December 31, 2014 and 2013.

Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans transacted with counterparties that are considered by the Bank to be of investment quality. The terms of these loans are structured such that if the fair value of the underlying securities decrease below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is recognized in earnings. Based upon the collateral held as security, the Bank determined that no allowance for credit losses was needed for the securities purchased under agreements to resell as of December 31, 2014 and 2013.

Real estate owned (REO) includes assets that have been received in satisfaction of debt through foreclosures. REO is initially recorded at fair value less estimated selling costs and is subsequently carried at the lower of that amount or current fair value less estimated selling costs. The Bank recognizes a charge-off to the allowance for credit losses if the fair value of the REO less estimated selling costs is less than the recorded investment in the loan at the date of transfer from loans to REO. Any subsequent realized gains, realized or unrealized losses, and carrying costs are included in noninterest income (loss) on the Statements of Income. REO is recorded in “Other assets” on the Statements of Condition. As of December 31, 2014 and 2013, REO was $11 and $15, respectively.

Derivatives. All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral, including initial and variation margin, and accrued interest received from or pledged to clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent and/or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities in the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative. Derivatives not used for intermediary purposes are designated as either (1) a hedge of the fair value of (a) a recognized asset or liability or (b) an unrecognized firm commitment (a fair-value hedge); or (2) a non-qualifying hedge of an asset or liability for asset-liability management purposes. Changes in the fair value of a derivative that are effective as, and that are designated and qualify as, a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in noninterest income (loss) as “Net gains on derivatives and hedging activities.” Any hedge ineffectiveness (which represents the amount by which the change

79
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


in the fair value of the derivative differs from the change in the fair value of the hedged item) is recorded in noninterest income (loss) as “Net gains on derivatives and hedging activities.” A non-qualifying hedge is a derivative hedging specific or non-specific underlying assets, liabilities, or firm commitments that is an acceptable hedging strategy under the Bank's risk management program and Finance Agency regulatory requirements, but does not qualify or was not designated for fair value or cash flow hedge accounting. A non-qualifying hedge introduces the potential for earnings variability because only the change in fair value of the derivative is recorded and is not offset by corresponding changes in the fair value of the non-qualifying hedged asset, liability, or firm commitment, unless such asset, liability, or firm commitment is required to be accounted for at fair value through earnings. Both the net interest on the derivative and the fair value adjustments of a non-qualifying hedge are recorded in noninterest income (loss) as “Net gains on derivatives and hedging activities” on the Statements of Income.

The derivatives used in intermediary activities do not qualify for hedge accounting treatment and are separately marked-to-market through earnings. These amounts are recorded in noninterest income (loss) as “Net gains on derivatives and hedging activities” on the Statements of Income. The net result of the accounting for these derivatives does not significantly affect the operating results of the Bank.

The net settlement of interest receivables and payables related to derivatives designated as fair-value hedges are recognized as adjustments to the interest income or interest expense of the designated hedged item. The net settlement of interest receivables and payables related to intermediated derivatives for members and other non-qualifying hedges are recognized in noninterest income (loss) as “Net gains on derivatives and hedging activities” on the Statements of Income.

The Bank discontinues hedge accounting prospectively when (1) it determines that the derivative is no longer expected to be effective in offsetting changes in the fair value of a hedged risk, including hedged items such as firm commitments; (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (3) a hedged firm commitment no longer meets the definition of a firm commitment; or (4) management determines that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued due to the Bank's determination that a derivative no longer qualifies as an effective fair-value hedge of an existing hedged item, or when management decides to cease the specific hedging activity, the Bank will either terminate the derivative or continue to carry the derivative on the Statements of Condition at its fair value, cease to adjust the hedged asset or liability for changes in fair value, and amortize the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield method. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Bank will carry the derivative at its fair value on the Statements of Condition, recognizing changes in the fair value of the derivative in current-period earnings.

The Bank may issue debt, make advances, or purchase financial instruments in which a derivative instrument may be “embedded.” Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance, debt or purchased financial instruments (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative instrument pursuant to a non-qualifying hedge. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current-period earnings (e.g., an investment security classified as “trading”), or if the Bank could not identify and measure reliably the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the Statements of Condition at fair value and no portion of the contract could be designated as a hedging instrument.

Premises, Equipment, and Software. The Bank records premises and equipment at cost less accumulated depreciation. The Bank's accumulated depreciation was $63 as of December 31, 2014 and 2013. The Bank computes depreciation using the straight-line method over the estimated useful lives of assets. The estimated useful lives in years are generally as follows: automobiles and computer hardware-three; office equipment-eight; office furniture and building improvements-10; and building-40. The Bank amortizes leasehold improvements using the straight-line method over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The Bank capitalizes improvements and expenses ordinary maintenance and repairs when incurred. Depreciation expense was $4 for the year ended December 31, 2014 and $5 for the

80
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


years ended December 31, 2013 and 2012. The Bank includes gains and losses on disposal of premises and equipment in noninterest income (loss).

The Bank records the cost of purchased software and certain costs incurred in developing computer software for internal use at cost, less accumulated amortization. The Bank amortizes capitalized computer software cost using the straight-line method over an estimated useful life of 5 years. As of December 31, 2014 and 2013, the gross carrying amount of computer software included in other assets was $56 and $60, and accumulated amortization was $46 and $48, respectively. Amortization of computer software was $5 for the years ended December 31, 2014 and 2013, and $6 for the year ended December 31, 2012. The Bank includes gains and losses on disposal of capitalized software cost in noninterest income (loss).

Consolidated Obligations. The Bank records consolidated obligations at amortized cost. The Bank accretes discounts and amortizes premiums as well as hedging basis adjustments on consolidated obligations to interest expense using the contractual interest method over the contractual terms to maturity of the consolidated obligations.

The Bank defers and amortizes the concessions paid to dealers in connection with the sale of consolidated obligations using the contractual interest method over the contractual term of the corresponding consolidated obligation. When consolidated obligations are called prior to contractual maturity, the related unamortized concessions are written off to interest expense. The Office of Finance prorates the amount of these concessions to the Bank based upon the percentage of the debt issued that is assumed by the Bank. Unamortized concessions are included in “Other assets” on the Statements of Condition and the amortization of such concessions is included in consolidated obligations interest expense.

Mandatorily Redeemable Capital Stock. The Bank reclassifies stock subject to redemption from capital to a liability after a member submits a written redemption request, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership, since the member shares will then meet the definition of a mandatorily redeemable financial instrument. Member shares meeting this definition are reclassified to a liability at fair value. Dividends declared on shares classified as a liability are accrued at the expected dividend rate and reflected as interest expense in the Statements of Income. The repurchase or redemption of these mandatorily redeemable financial instruments is reflected as cash outflows in the financing activities section of the Statements of Cash Flows.

If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to capital. After the reclassification, dividends on the capital stock no longer will be classified as interest expense.

Restricted Retained Earnings. The FHLBanks entered into a Joint Capital Enhancement Agreement, as amended (Capital Agreement), which is intended to enhance the capital position of each FHLBank. Under the Capital Agreement each FHLBank allocates 20 percent of its net income each quarter to a separate retained earnings account until the account balance equals at least one percent of the FHLBank’s average balance of outstanding consolidated obligations for the previous quarter. Restricted retained earnings are not available to pay dividends and are presented separately on the Statements of Condition.

Finance Agency and Office of Finance Expenses. The Finance Agency allocates the FHLBanks' portion of its expenses and working capital fund among the FHLBanks based on the ratio between each FHLBank's minimum required regulatory capital and the aggregate minimum required regulatory capital of every FHLBank. Each FHLBank's proportionate share of Office of Finance operating and capital expenditures is calculated using a formula that is based upon the following components: (1) two-thirds based upon each FHLBank's share of total consolidated obligations outstanding and (2) one-third based upon an equal pro rata allocation.

Affordable Housing Program. The FHLBank Act requires each FHLBank to establish and fund an AHP, providing subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-to-moderate-income households. The Bank charges the required funding for AHP against earnings and establishes a corresponding liability. The Bank issues AHP advances at interest rates below the customary interest rate for non-subsidized advances. A discount on the AHP advance and charge against the AHP liability is recorded for the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and the Bank's related cost of funds for comparable maturity funding. As an alternative, the Bank has the authority to make the AHP subsidy available to members as a grant. The discount on AHP advances is accreted to interest income on advances using the level-yield method over the life of the advance.


81
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Note 3—Recently Issued and Adopted Accounting Guidance
Recently Issued Accounting Guidance

Amendments to the Consolidation Analysis. In February 2015, the Financial Accounting Standards Board (FASB) issued amended guidance intended to enhance consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The new guidance places more emphasis on risk of loss when determining a controlling financial interest. The guidance also reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. This guidance becomes effective for the Bank for the interim and annual periods ending after December 15, 2015, and early adoption is permitted. The adoption of this guidance is not expected to effect the Bank's financial condition or results of operations.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. In January 2015, the FASB issued amended guidance which eliminates from GAAP the concept of extraordinary items. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amended guidance prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted, provided that the amended guidance is applied from the beginning of the fiscal year of adoption. The adoption of this guidance will have no effect on the Bank’s financial condition or results of operations.

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

Revenue from Contracts with Customers. In May 2014, the FASB issued guidance on the recognition of revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, or lease contracts. This guidance is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and will be applied retrospectively either to each prior reporting period or with a cumulative effect recognized at the date of initial application. The Bank is in the process of evaluating this guidance, but its effect on the Bank’s financial condition or results of operations is not expected to be material.
Recently Adopted Accounting Guidance

Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. In August 2014, the FASB issued amended guidance related to the classification and measurement of certain government-guaranteed mortgage loans upon foreclosure. The amendments in this guidance require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2015, and was adopted prospectively. The adoption of this guidance did not have a material effect on the Bank’s financial condition or results of operations.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. In June 2014, the FASB issued amended guidance for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings. Specifically, this guidance requires entities to account for (1) repurchase-to-maturity transactions as secured borrowings rather than as sales with forward repurchase agreements; and (2) repurchase agreements executed contemporaneously with the initial transfer of the underlying financial asset with the same counterparty as separate transactions only. In addition, this guidance requires a transferor to disclose additional information about certain transactions, including those in which it retains substantially all of the exposure to the economic returns of the underlying transferred asset over the transaction’s term. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2015. The adoption of this guidance had no effect on the Bank’s financial condition or results of operations.


82
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. In January 2014, the FASB issued guidance intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The guidance clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This guidance became effective for the Bank for interim and annual periods beginning on January 1, 2015, and was adopted prospectively. The adoption of this guidance is not expected to have a material effect on the Bank’s financial condition or results of operations.

Note 4—Cash and Due from Banks

As of December 31, 2014 and 2013, the balances include $408 and $4,363, respectively, held at a Federal Reserve Bank.

The Bank maintains a collected cash balance with a commercial bank in return for certain services and there are no legal restrictions regarding the withdrawal of funds. The average collected cash balances were $8 and $7 for the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014 and 2013, interest-bearing deposits include $1,008 and $1,006, respectively, in a business money market account with one of the Bank's members.

Note 5—Trading Securities
Major Security Types. Trading securities were as follows:
 
 
As of December 31,
 
2014
 
2013
Government-sponsored enterprises debt obligations
$
1,208

 
$
1,601

Another FHLBank’s bond (1)
60

 
65

State or local housing agency debt obligations
1

 
1

Total
$
1,269

 
$
1,667

 ____________
(1) 
The Federal Home Loan Bank of Chicago is the primary obligor of this consolidated obligation bond.
Net losses on trading securities were as follows:
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Net losses on trading securities held at year end
$
(53
)
 
$
(84
)
 
$
(60
)
Net losses on trading securities sold or matured during the year
(7
)
 
(16
)
 
(7
)
Net losses on trading securities
$
(60
)
 
$
(100
)
 
$
(67
)

Note 6—Available-for-sale Securities
During the year ended December 31, 2014, there were no transfers of securities from the Bank's held-to-maturity portfolio to its available-for-sale portfolio. The Bank transferred certain private-label mortgage-backed securities (MBS) from its held-to-maturity portfolio to its available-for-sale portfolio on March 31, 2013 and 2012. 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.

83
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The following table presents information on private-label residential 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 Type. Private-label residential MBS were as follows:

 
Amortized  
Cost
 
Other-than-temporary  
Impairment
Recognized in
Accumulated Other
Comprehensive Income
 
Gross
  Unrealized  
Gains
 
Gross
  Unrealized  
Losses
 
Estimated
  Fair Value  
As of December 31, 2014
$
1,863

 
$
19

 
$
137

 
$
—

 
$
1,981

 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
$
2,174

 
$
27

 
$
152

 
$
—

 
$
2,299


The following tables summarize the private-label residential MBS 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.
 
 
Less than 12 Months
 
12 Months or More
 
Total
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
 
  Number of  
Positions
 
Estimated
  Fair  Value  
 
Gross
  Unrealized  
Losses
As of December 31, 2014
4

 
$
140

 
$
2

 
9

 
$
191

 
$
17

 
13

 
$
331

 
$
19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
6

 
$
137

 
$
1

 
10

 
$
243

 
$
26

 
16

 
$
380

 
$
27



84
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Interest-rate Payment Terms. The following table details interest-rate payment terms for investment securities classified as available-for-sale:
 
 
 
As of December 31,
 
 
2014
 
2013
Variable-rate
 
$
1,830

 
$
2,133

Fixed-rate
 
33

 
41

Total amortized cost
 
$
1,863

 
$
2,174

A summary of available-for-sale MBS issued by members or affiliates of members, Bank of America Corporation, Charlotte, NC, follows:
 
 
Amortized
Cost
 
Other-than-temporary
Impairment
Recognized in
 Accumulated Other
Comprehensive Income
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
As of December 31, 2014
$
1,213

 
$
17

 
$
90

 
$
—

 
$
1,286

 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
$
1,390

 
$
26

 
$
98

 
$
—

 
$
1,462


Note 7—Held-to-maturity Securities
Major Security Types. Held-to-maturity securities were as follows:
 
 
As of December 31,
 
2014
 
2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
State or local housing agency debt obligations
$
81

 
$
1

 
$
—

 
$
82

 
$
92

 
$
1

 
$
—

 
$
93

Government-sponsored enterprises debt obligations
6,667

 
2

 
13

 
6,656

 
3,738

 
—

 
24

 
3,714

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. agency obligations-guaranteed single-family residential
366

 
5

 
—

 
371

 
465

 
7

 
—

 
472

Government-sponsored enterprises single-family residential
13,665

 
125

 
24

 
13,766

 
13,311

 
109

 
97

 
13,323

Government-sponsored enterprises multi-family commercial
1,663

 
3

 
7

 
1,659

 
641

 
—

 
18

 
623

Private-label residential
1,455

 
9

 
10

 
1,454

 
1,929

 
12

 
20

 
1,921

Total
$
23,897

 
$
145

 
$
54

 
$
23,988

 
$
20,176

 
$
129

 
$
159

 
$
20,146



85
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


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 December 31, 2014
 
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
4

 
$
899

 
$
1

 
6

 
$
1,233

 
$
12

 
10

 
$
2,132

 
$
13

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises single-family residential
8

 
496

 
1

 
26

 
1,828

 
23

 
34

 
2,324

 
24

Government-sponsored enterprises multi-family commercial
14

 
758

 
1

 
2

 
285

 
6

 
16

 
1,043

 
7

Private-label residential
22

 
229

 
1

 
32

 
415

 
9

 
54

 
644

 
10

Total
48

 
$
2,382

 
$
4

 
66

 
$
3,761

 
$
50

 
114

 
$
6,143

 
$
54

 
 
As of December 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
Government-sponsored enterprises debt obligations
9

 
$
1,970

 
$
24

 
—

 
$
—

 
$
—

 
9

 
$
1,970

 
$
24

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises single-family residential
55

 
3,479

 
97

 
—

 
—

 
—

 
55

 
3,479

 
97

Government-sponsored enterprises multi-family commercial
10

 
453

 
11

 
1

 
147

 
7

 
11

 
600

 
18

Private-label residential
40

 
817

 
12

 
18

 
241

 
8

 
58

 
1,058

 
20

Total
114

 
$
6,719

 
$
144

 
19

 
$
388

 
$
15

 
133

 
$
7,107

 
$
159



86
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


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 December 31,
 
2014
 
2013
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Non-mortgage-backed securities:
 
 
 
 
 
 
 
Due in one year or less
$
1,166

 
$
1,166

 
$
430

 
$
430

Due after one year through five years
5,582

 
5,572

 
3,400

 
3,377

Total non-mortgage-backed securities
6,748

 
6,738

 
3,830

 
3,807

Mortgage-backed securities
17,149

 
17,250

 
16,346

 
16,339

Total
$
23,897

 
$
23,988

 
$
20,176

 
$
20,146



Interest-rate Payment Terms. The following table details interest-rate payment terms for investment securities classified as held-to-maturity:
 
 
As of December 31,
 
 
2014
 
2013
Non-mortgage-backed securities:
 
 
 
 
   Fixed-rate
 
$
2,555

 
$
1,586

   Variable-rate
 
4,193

 
2,244

Total non-mortgage-backed securities
 
6,748

 
3,830

 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
   Fixed-rate
 
3,248

 
3,624

   Variable-rate
 
13,901

 
12,722

Total mortgage-backed securities
 
17,149

 
16,346

Total amortized cost
 
$
23,897

 
$
20,176

A summary of held-to-maturity MBS issued by members or affiliates of members, Bank of America Corporation, Charlotte, NC, follows:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
As of December 31, 2014
$
419

 
$
2

 
$
4

 
$
417

 
 
 
 
 
 
 
 
As of December 31, 2013
$
619

 
$
4

 
$
8

 
$
615


Note 8—Other-than-temporary Impairment
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.

87
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The Bank’s investments in private-label MBS were rated “AAA” (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P), at their purchase dates. The “AAA”-rated securities achieved their ratings through credit enhancement, overcollateralization and senior-subordinated shifting interest features; the latter results in subordination of payments by junior classes to ensure cash flows to the senior classes. The ratings on all of the Bank’s private-label MBS have changed since their purchase dates.
Non-private-label MBS. The unrealized losses related to U.S. agency MBS are caused by interest rate changes 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 their amortized cost basis. In addition, the Bank does not intend to sell these investments and it is not more likely than not that the Bank will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of December 31, 2014.
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 third-party model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (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 with a population of 10,000 or more people. The Bank’s housing price forecast as of December 31, 2014 included a short-term housing price forecast with projected changes ranging from a decrease of four percent to an increase of seven percent over the twelve month period beginning October 1, 2014. For the vast majority of markets, the projected short-term housing price changes range from a decrease of one percent to an increase of six percent. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.
 
The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, defaults, and loss severities, were then input into a second model 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 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 year ended December 31, 2014, as well as related current credit enhancement:
 
 
 
Significant Inputs
 
Year of
Securitization
 
Prepayment Rates (%)
 
Default Rates (%)
 
Loss Severities (%)
 
Current Credit Enhancement (%)
Prime:
 
 
 
 
 
 
 
 
2005
 
15.79
 
7.96
 
32.82
 
0.16
Alt-A
 
 
 
 
 
 
 
 
2007
 
13.49
 
26.94
 
40.27
 
0.00


88
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The following table presents a roll-forward of the amount of credit losses on the Bank’s investment securities recognized in earnings during the life of the securities for which a portion of the other-than-temporary loss was recognized in accumulated other comprehensive income:
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Balance, beginning of year
$
574

 
$
586

 
$
582

Amount related to credit loss for which an other-than-temporary impairment was previously recognized
3

 
—

 
16

Increase in cash flows expected to be collected, (accreted as interest income over the remaining lives of the applicable securities)
(35
)
 
(12
)
 
(12
)
Balance, end of year
$
542

 
$
574

 
$
586


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.

Note 9—Advances
Redemption Terms. The Bank had advances outstanding, at interest rates ranging from zero percent to 8.52% percent, as summarized below. Advances with interest rates of zero percent are AHP and EDGE subsidized advances, and certain structured advances.
 
 
As of December 31,
 
2014
 
2013
Overdrawn demand deposit accounts
$
—

 
$
2

Due in one year or less
57,675

 
51,331

Due after one year through two years
12,283

 
5,366

Due after two years through three years
9,435

 
6,136

Due after three years through four years
5,146

 
8,495

Due after four years through five years
2,910

 
5,088

Due after five years
10,433

 
11,464

Total par value
97,882

 
87,882

Discount on AHP advances
(7
)
 
(8
)
Discount on EDGE advances
(5
)
 
(7
)
Hedging adjustments
1,778

 
1,726

Deferred commitment fees
(4
)
 
(5
)
Total
$
99,644

 
$
89,588


The Bank offers advances to members that may be prepaid on prescribed dates (call dates) without incurring prepayment or termination fees (callable advances). Other advances may be prepaid only by paying a fee to the Bank that makes the Bank financially indifferent to the prepayment of the advance. The Bank had callable advances outstanding of $1,252 and $39 as of December 31, 2014 and 2013, respectively.


89
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The following table summarizes advances by year of contractual maturity or next call date for callable advances:
 
As of December 31,
 
2014
 
2013
Overdrawn demand deposit accounts
$
—

 
$
2

Due or callable in one year or less
58,908

 
51,339

Due or callable after one year through two years
12,202

 
5,375

Due or callable after two years through three years
8,785

 
6,159

Due or callable after three years through four years
4,846

 
8,495

Due or callable after four years through five years
2,752

 
5,088

Due or callable after five years
10,389

 
11,424

Total par value
$
97,882

 
$
87,882


Convertible advances offered by the Bank allow the Bank to convert the fixed-rate advance to a variable-rate advance at the current market rate on certain specified dates. The Bank had convertible advances outstanding of $3,040 and $3,510 as of December 31, 2014 and 2013, respectively.

The following table summarizes advances by year of contractual maturity or, for convertible advances, next conversion date:
 
 
As of December 31,
 
2014
 
2013
Overdrawn demand deposit accounts
$
—

 
$
2

Due or convertible in one year or less
60,551

 
54,522

Due or convertible after one year through two years
12,040

 
5,414

Due or convertible after two years through three years
7,866

 
5,867

Due or convertible after three years through four years
4,241

 
6,643

Due or convertible after four years through five years
2,900

 
4,168

Due or convertible after five years
10,284

 
11,266

Total par value
$
97,882

 
$
87,882


Interest-rate Payment Terms. The following table details interest-rate payment terms for advances:
 
 
As of December 31,
 
2014
 
2013
Fixed-rate:
 
 
 
 Due in one year or less
$
42,839

 
$
46,343

 Due after one year
30,089

 
28,535

Total fixed-rate
72,928

 
74,878

Variable-rate:
 
 
 
 Due in one year or less
14,836

 
4,990

 Due after one year
10,118

 
8,014

Total variable-rate
24,954

 
13,004

Total par value
$
97,882

 
$
87,882


Security Terms. The Bank obtains collateral on advances to protect against losses and Finance Agency regulations permit the Bank to accept only certain types of collateral. The lendable collateral value (LCV) is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support.


90
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The following table provides information about the types of collateral held for the Bank's advances:
 
Total Par Value of Outstanding Advances
 
LCV of Collateral Pledged by Members
 
First Mortgage Collateral (%)
 
Securities Collateral (%)
 
Other Real Estate Related Collateral (%)
As of December 31, 2014
$
97,882

 
$
265,103

 
72.29
 
3.68
 
24.03
As of December 31, 2013
87,882

 
231,342

 
67.20
 
8.18
 
24.62

Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, thrifts, and credit unions and further is concentrated in certain larger borrowing relationships. The concentration of the Bank's advances to its 10 largest borrowers was $72,799 and $65,472, as of December 31, 2014 and 2013 respectively. This concentration represented 74.4 percent and 74.5 percent of total advances outstanding as of December 31, 2014 and 2013, respectively.
Based on the collateral pledged as security for advances, the Bank's credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of December 31, 2014 and 2013. No advance was past due as of December 31, 2014 and 2013.

For additional information related to the Bank's credit risk on advances and allowance for credit losses, see Note 11—Allowance for Credit Losses.

Note 10—Mortgage Loans Held for Portfolio

Prior to 2009, the Bank purchased single-family residential mortgage loans directly from PFIs. The total dollar amount of the Bank's single-family residential mortgage loans represents held-for-portfolio loans whereby the PFIs service and credit enhance residential mortgage loans that they sell to the Bank. Prior to August 30, 2013, mortgage loans also included multifamily residential mortgage loans, which are investments by the Bank in participation interests in loans on affordable multifamily rental properties. In August 2013, the Bank sold its multifamily mortgage loan portfolio, with an unpaid principal balance of $18, to a member which resulted in a gain of less than $1.

The following table presents information on mortgage loans held for portfolio by contractual maturity at the time of purchase:
 
 
As of December 31,
 
 
2014
 
2013
Fixed-rate medium-term (1) single-family residential mortgage loans
 
$
103

 
$
150

Fixed-rate long-term single-family residential mortgage loans
 
648

 
781

Total unpaid principal balance
 
751

 
931

Premiums
 
2

 
3

Discounts
 
(4
)
 
(5
)
Total
 
$
749

 
$
929

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

The following table details the unpaid principal balance of mortgage loans held for portfolio by collateral or guarantee type:
 
 
As of December 31,
 
 
2014
 
2013
Conventional loans
 
$
698

 
$
864

Government-guaranteed or insured loans
 
53

 
67

Total unpaid principal balance
 
$
751

 
$
931


The Bank records credit enhancement fees related to single-family residential mortgage loans as a reduction to mortgage loan interest income. Credit enhancement fees totaled $1 for the years ended December 31, 2014 and 2013, and $2 for the year ended December 31, 2012.


91
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


For information related to the Bank's credit risk on mortgage loans and allowance for credit losses, see Note 11—Allowance for Credit Losses.

Note 11—Allowance for Credit Losses

The activity in the allowance for credit losses was as follows:

 
 
For the Year Ended December 31, 2014
 
 
Conventional Single-family Residential Mortgage Loans
Balance, beginning of year
 
$
11

Reversal of provision for credit losses
 
(5
)
Charge-offs
 
(3
)
Balance, end of year
 
$
3


 
 
For the Year Ended December 31, 2013
 
 
Conventional Single-family Residential Mortgage Loans
 
Multifamily Residential Mortgage Loans
 
Total
Balance, beginning of year
 
$
10

 
$
1

 
$
11

Provision for credit losses
 
5

 
—

 
5

Charge-offs
 
(4
)
 
—

 
(4
)
Mortgage loans transferred to held for sale
 
—

 
(1
)
 
(1
)
Balance, end of year
 
$
11

 
$
—

 
$
11


 
 
For the Year Ended December 31, 2012
 
 
Conventional Single-family Residential Mortgage Loans
 
Multifamily Residential Mortgage Loans
 
Total
Balance, beginning of year
 
$
5

 
$
1

 
$
6

Provision for credit losses
 
6

 
—

 
6

Charge-offs
 
(1
)
 
—

 
(1
)
Balance, end of year
 
$
10

 
$
1

 
$
11


The recorded investment in conventional single-family residential mortgage loans by impairment methodology was as follows:
 
 
As of December 31,
 
 
2014
 
2013
Allowance for credit losses:
 
 
 
 
   Individually evaluated for impairment
 
$
1

 
$
2

   Collectively evaluated for impairment
 
2

 
9

Total allowance for credit losses
 
$
3

 
$
11

Recorded investment:
 
 
 
 
   Individually evaluated for impairment
 
$
15

 
$
15

   Collectively evaluated for impairment
 
685

 
851

Total recorded investment
 
$
700

 
$
866


92
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)



Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The tables below summarize the Bank's recorded investment in mortgage loans by these key credit quality indicators:
 
As of December 31, 2014
 
Conventional Single-family Residential Mortgage Loans
 
Government-guaranteed or Insured Single-family Residential Mortgage Loans
 
Total
Past due 30-59 days
$
22

 
$
6

 
$
28

Past due 60-89 days
6

 
2

 
8

Past due 90 days or more
33

 
6

 
39

Total past due mortgage loans
61

 
14

 
75

Total current mortgage loans
639

 
39

 
678

Total mortgage loans (1)
$
700

 
$
53

 
$
753

Other delinquency statistics:
 
 
 
 
 
  In process of foreclosure (2)
$
19

 
$
1

 
$
20

  Seriously delinquent rate (3)
4.73
%
 
10.33
%
 
5.13
%
  Past due 90 days or more and still accruing interest (4)
$
—

 
$
5

 
$
5

  Loans on nonaccrual status (5)
$
33

 
$
—

 
$
33

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


93
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


 
As of December 31, 2013
 
Conventional Single-family Residential Mortgage Loans
 
Government-guaranteed or Insured Single-family Residential Mortgage Loans
 
Total
Past due 30-59 days
$
30

 
$
7

 
$
37

Past due 60-89 days
9

 
3

 
12

Past due 90 days or more
51

 
9

 
60

Total past due mortgage loans
90

 
19

 
109

Total current mortgage loans
776

 
48

 
824

Total mortgage loans (1)
$
866

 
$
67

 
$
933

Other delinquency statistics:
 
 
 
 
 
  In process of foreclosure (2)
$
38

 
$
3

 
$
41

  Seriously delinquent rate (3)
5.90
%
 
13.13
%
 
6.42
%
Past due 90 days or more and still accruing interest (4)
$
—

 
$
9

 
$
9

  Loans on nonaccrual status (5)
$
51

 
$
—

 
$
51

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

A troubled debt restructuring is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower's financial difficulties and that concession would not have been considered otherwise. The Bank has granted a concession when it does not expect to collect all amounts due under the original contract as a result of the restructuring. The Bank's conventional single-family residential mortgage loan troubled debt restructurings primarily involve modifying the borrower's monthly payment for a period of up to 36 months to achieve a target housing expense ratio of 31.0 percent of their qualifying monthly income. The outstanding principal balance is first re-amortized to reflect a principal and interest payment for a term not to exceed 40 years. This would result in a balloon payment at the original maturity date of the loan as the maturity date and number of remaining monthly payments are not adjusted. If the 31.0 percent housing expense ratio is not achieved through re-amortization, the interest rate is reduced in 0.125 percent increments below the original note rate, to a floor rate of 3.00 percent, resulting in reduced principal and interest payments, for the temporary payment modification period of up to 36 months, until the target 31.0 percent housing expense ratio is met. A conventional single-family residential mortgage loan in which the borrower filed for Chapter 7 bankruptcy and the bankruptcy court discharged the borrower's obligation to the Bank is considered a troubled debt restructuring. Troubled debt restructurings are evaluated individually for impairment.

The table below presents the Bank's recorded investment balance in troubled debt restructured loans as of December 31, 2014 and 2013:
 
 
Performing
 
Non-performing
 
Total
Conventional single-family residential loans
 
$
11

 
$
4

 
$
15


Due to the minimal change in terms of modified loans (i.e., no write-offs of principal), the Bank's pre-modification recorded investment was not materially different than the post-modification recorded investment in troubled debt restructuring during the years ended December 31, 2014, 2013, and 2012.

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



94
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)



Note 12—Interest-bearing Deposits

The Bank offers demand and overnight deposits for members and qualifying non-members. A member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of such funds to the owners of the mortgage loans. The Bank classifies these items as interest-bearing deposits on the Statements of Condition.

The Bank pays interest on demand and overnight deposits based on a daily interest rate.

Note 13—Consolidated Obligations
Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are the joint and several obligations of the FHLBanks and are backed only by the financial resources of the FHLBanks.

The Bank is primarily liable for its portion of consolidated obligations (i.e., those issued on its behalf), and also is jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks. The Finance Agency, at its discretion, may require any FHLBank to make principal or interest payments due on any consolidated obligation, whether or not the consolidated obligation represents a primary liability of such FHLBank. Although it has never occurred, to the extent that an FHLBank makes any payment on a consolidated obligation on behalf of another FHLBank that is primarily liable for such consolidated obligation, Finance Agency regulations provide that the paying FHLBank is entitled to reimbursement from the noncomplying FHLBank for any payments made on its behalf and other associated costs (including interest to be determined by the Finance Agency). If, however, the Finance Agency determines that the noncomplying FHLBank is unable to satisfy its repayment obligations, the Finance Agency may allocate the outstanding liabilities of the noncomplying FHLBank among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank's participation in all consolidated obligations outstanding. The Finance Agency reserves the right to allocate the outstanding liabilities for the consolidated obligations among the FHLBanks in any other manner it may determine to ensure that the FHLBanks operate in a safe and sound manner.

The par value of the FHLBanks' outstanding consolidated obligations, including consolidated obligations issued by the Bank, was $847,175 and $766,837 as of December 31, 2014 and 2013, respectively. Regulations require each FHLBank to maintain, in the aggregate, unpledged qualifying assets equal to that FHLBank's consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; obligations of or fully guaranteed by the United States; mortgages guaranteed or insured by the United States or its agencies; participations, mortgages, or other securities of or issued by certain government-sponsored enterprises; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. The Bank held unpledged qualifying assets of $137,987 and $122,024 as of December 31, 2014 and 2013, respectively, compared to a book value of $129,250 and $112,930 in consolidated obligations as of December 31, 2014 and 2013, respectively.

General Terms. Consolidated obligations are issued with either fixed-rate coupon payment terms or variable-rate coupon payment terms that use a variety of indices for interest-rate resets including the London Interbank Offered Rate (LIBOR), Constant Maturity Treasury, and others. To meet the expected specific needs of certain investors in consolidated obligations, both fixed-rate consolidated obligation bonds and variable-rate consolidated obligation bonds also may contain certain features, which may result in complex coupon payment terms and call options. When such consolidated obligations are issued, the Bank generally enters into derivatives containing offsetting features that, in effect, convert the terms of the consolidated obligation bond to those of a simple variable-rate consolidated obligation bond.

These consolidated obligations, beyond having fixed-rate or simple variable-rate coupon payment terms, also may have the following broad term regarding either principal repayment or coupon payment terms:

Optional Principal Redemption Consolidated Obligation Bonds (callable bonds) that the Bank may redeem in whole or in part at its discretion on predetermined call dates according to the terms of the consolidated obligation bond offerings.

With respect to interest payments, consolidated obligation bonds also may have the following terms:

Step-up/down Consolidated Obligation Bonds have coupons at fixed rates for specified intervals over the lives of the consolidated obligation bonds. At the end of each specified interval, the coupon rate increases (decreases) or steps up (steps

95
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


down). These consolidated obligation bond issues generally contain call provisions enabling the bonds to be called at the Bank's discretion; and

Variable-rate Capped Floater Consolidated Obligation Bonds pay interest at variable rates subject to an interest-rate ceiling.
Interest-rate Payment Terms. The following table details the Bank’s consolidated obligation bonds by interest-rate payment type: 
 
As of December 31,
 
2014
 
2013
Fixed-rate
$
77,912

 
$
59,885

Step up/down
6,301

 
7,617

Simple variable-rate
7,550

 
13,005

Variable-rate capped floater
25

 
45

Total par value
$
91,788

 
$
80,552


Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding, by year of contractual maturity:
 
 
As of December 31,
 
2014
 
2013
 
Amount
 
Weighted-
average
Interest Rate (%)    
 
Amount
 
Weighted-
average
Interest Rate (%)    
Due in one year or less
$
52,081

 
0.24
 
$
41,725

 
0.50
Due after one year through two years
16,116

 
1.27
 
9,485

 
0.67
Due after two years through three years
9,683

 
2.22
 
7,503

 
2.21
Due after three years through four years
4,971

 
1.67
 
6,355

 
2.81
Due after four years through five years
3,094

 
1.56
 
5,150

 
1.67
Due after five years
5,843

 
2.12
 
10,334

 
1.92
Total par value
91,788

 
0.86
 
80,552

 
1.13
Premiums
73

 
 
 
82

 
 
Discounts
(21
)
 
 
 
(24
)
 
 
Hedging adjustments
248

 
 
 
118

 
 
Total
$
92,088

 
 
 
$
80,728

 
 

The following presents the Bank’s consolidated obligation bonds outstanding by call feature:
 
 
As of December 31,
 
2014
 
2013
Noncallable
$
69,164

 
$
56,569

Callable
22,624

 
23,983

Total par value
$
91,788

 
$
80,552



96
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


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 December 31,
 
2014
 
2013
Due or callable in one year or less
$
67,980

 
$
59,458

Due or callable after one year through two years
12,220

 
7,795

Due or callable after two years through three years
7,796

 
4,491

Due or callable after three years through four years
2,177

 
6,095

Due or callable after four years through five years
875

 
1,571

Due or callable after five years
740

 
1,142

Total par value
$
91,788

 
$
80,552


Consolidated Obligation Discount Notes. Consolidated obligation discount notes are issued to raise short-term funds. Consolidated obligation discount notes are consolidated obligations with original contractual maturities of up to one year. These consolidated obligation discount notes are issued at less than their face amounts and redeemed at par value when they mature.
The Bank’s participation in consolidated obligation discount notes was as follows:
 
 
Book Value
 
Par Value
 
Weighted-average
Interest Rate (%)
As of December 31, 2014
$
37,162

 
$
37,169

 
0.10
As of December 31, 2013
$
32,202

 
$
32,208

 
0.11

Note 14—Assessments
Affordable Housing Program. Annually, the FHLBanks must set aside for the AHP the greater of the aggregate of $100 or 10 percent of each FHLBank's income subject to assessment. For purposes of the AHP calculation, each FHLBank's income subject to assessment is defined as the individual FHLBank's net income before assessments, plus interest expense related to mandatorily redeemable capital stock. The Bank accrues this expense monthly based on its income subject to assessment. The Bank reduces the AHP liability as members use subsidies.

If the Bank experienced a net loss during a quarter, but still had income subject to assessment for the year, the Bank's obligation to the AHP would be calculated based on the Bank's year-to-date income subject to assessment. If the Bank had income subject to assessment in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the Bank experienced a net loss for a full year, the Bank would have no obligation to the AHP for the year, since each FHLBank's required annual AHP contribution is limited to its annual income subject to assessment. If the aggregate 10 percent calculation described above was less than $100 for all the FHLBanks, each FHLBank would be required to assure that the aggregate contribution of the FHLBanks equals $100. The proration would be made on the basis of an FHLBank's income in relation to the income of all FHLBanks for the previous year. There was no shortfall in the years ended December 31, 2014, 2013, or 2012. If an FHLBank finds that its required contributions are contributing to the financial instability of that FHLBank, it may apply to the Finance Agency for a temporary suspension of its contributions. No FHLBank made such an application in the years ended December 31, 2014, 2013, or 2012. The Bank had outstanding principal in AHP-related advances of $36 and $41 as of December 31, 2014 and 2013, respectively.


97
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


A rollforward of the Bank's AHP liability is as follows:

 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Balance, beginning of year
 
$
74

 
$
80

 
$
109

AHP assessments
 
30

 
37

 
30

Subsidy usage, net
 
(39
)
 
(43
)
 
(59
)
Balance, end of year
 
$
65

 
$
74

 
$
80


Note 15—Capital and Mandatorily Redeemable Capital Stock
Capital. The Bank is subject to three regulatory capital requirements under its capital plan, the FHLBank Act, and Finance Agency regulations. First, the Bank must maintain permanent capital at all times in an amount at least equal to the sum of its credit risk capital requirement, its market risk capital requirement, and its operations risk capital requirement, calculated in accordance with the rules and regulations of the Finance Agency. Only “permanent capital,” defined by the FHLBank Act and regulations as retained earnings (determined in accordance with GAAP) and the amounts paid-in for Class B stock, satisfies the risk-based capital requirement. The Finance Agency may require the Bank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined.

Second, the FHLBank Act requires the Bank to maintain at all times total regulatory capital in an amount equal to at least four percent of total assets.

Third, the FHLBank Act requires the Bank to maintain at all times leverage capital in an amount equal to at least five percent of total assets. “Total capital” is defined in the regulations as the sum of permanent capital, the amount paid-in for Class A stock (if any), the amount of the Bank's general allowance for losses (if any), and the amount of any other instruments identified in the capital plan and approved by the Finance Agency. As of December 31, 2014, the Bank has not issued any Class A stock and has no general allowance for losses or any other instruments identified in the capital plan and approved by the Finance Agency; therefore, the Bank's total capital is equal to its permanent capital. Leverage capital is defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times. It should be noted that, although mandatorily redeemable capital stock is not included in capital for financial reporting purposes, such outstanding stock is considered capital for determining compliance with these regulatory capital requirements.

The Bank was in compliance with the Finance Agency's regulatory capital rules and requirements as shown in the following table:
 
 
As of December 31,
 
2014
 
2013
 
Required    
 
Actual        
 
Required    
 
Actual        
Risk based capital
$
2,113

 
$
6,914

 
$
2,246

 
$
6,563

Total regulatory capital-to-assets ratio
4.00
%
 
5.00
%
 
4.00
%
 
5.37
%
Total regulatory capital (1)
$
5,534

 
$
6,914

 
$
4,893

 
$
6,563

Leverage ratio
5.00
%
 
7.50
%
 
5.00
%
 
8.05
%
Leverage capital
$
6,917

 
$
10,371

 
$
6,116

 
$
9,845

___________
(1) 
Total regulatory capital does not include accumulated other comprehensive income, but does include mandatorily redeemable capital stock.

The Bank offers two subclasses of Class B stock, each of which is issued, redeemed, and repurchased at a par value of $100 per share. Member shares cannot be purchased or sold except between the Bank and its members at $100 per share par value. Shares of subclass B1 capital stock are issued to meet the membership stock requirement under the capital plan and shares of subclass B2 capital stock are issued to meet the activity-based stock requirement under the capital plan. Activity-based stock held by a member is that amount of subclass B2 capital stock that the member is required to own for as long as certain transactions between the Bank and the member remain outstanding. The manner in which the activity-based stock requirement is determined under the capital plan is set forth below.

98
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The minimum stock requirement for each member is the sum of the membership stock requirement and the activity-based stock requirement. The capital plan permits the Bank's board of directors to set the membership and activity-based stock requirements within a range as set forth in the capital plan. As of December 31, 2014, the membership stock requirement was an amount of subclass B1 capital stock equal to 0.09 percent (nine basis points) of the member's total assets as of December 31, 2013, subject to a cap of $15. The membership stock requirement is recalculated at least annually by March 31, using the member's total assets as of the preceding calendar year-end. As of December 31, 2014, the activity-based stock requirement was an amount of subclass B2 capital stock equal to the sum of the following:
•
4.50 percent of the member's outstanding par value of advances; and
•
8.00 percent of targeted debt/equity investments (such as multifamily residential mortgage loan assets) sold by the member to the Bank on or after December 17, 2004.

The activity-based stock requirement also may include a percentage of any outstanding balance of acquired member assets (such as single-family residential mortgage loan assets), although this percentage was set at zero as of December 31, 2014 and 2013.

The FHLBank Act and Finance Agency regulations require that the minimum stock requirement for members must be sufficient to enable the Bank to meet its minimum regulatory capital requirement. Therefore, from time to time the Bank's board of directors may adjust the membership stock requirement and the activity-based stock requirement within specified ranges set forth in the capital plan. Any adjustment outside the ranges would require an amendment to the capital plan and Finance Agency approval. Each member is required to comply promptly with any adjustment to the minimum stock requirement. The FHLBank Act provides that the Bank may repurchase, at its sole discretion, any member's capital stock investment that exceeds the required minimum amount (excess capital stock). Finance Agency rules limit the ability of the Bank to create member excess stock under certain circumstances. The Bank may not pay dividends in the form of capital stock or issue excess capital stock to any member if the Bank's excess capital stock exceeds one percent of its total assets or if the issuance of excess capital stock would cause the Bank's excess capital stock to exceed one percent of its total assets. As of December 31, 2014 and 2013, the Bank's excess capital stock did not exceed one percent of its total assets.

A member may obtain redemption of its excess Class B capital stock at par value payable in cash five years after providing written notice to the Bank. The Bank, at its option, may repurchase a member's excess capital stock before expiration of the five-year notice period. The Bank's authority to redeem or repurchase capital stock is subject to a number of limitations.

The Bank's board of directors may, but is not required to, declare and pay non-cumulative dividends out of unrestricted retained earnings and current earnings in either cash or capital stock in compliance with Finance Agency rules. All shares of capital stock share in any dividend without preference. Dividends are computed on the average daily balance of capital stock outstanding during the relevant time period. The Bank may not pay a dividend if the Bank is not in compliance with any of its regulatory capital requirements or if the payment, if made, would cause the Bank to fail to meet any of its regulatory capital requirements.

As of December 31, 2014 and 2013, the 10 largest holders of capital stock held $3,436, or 66.5 percent, and $3,139, or 64.0 percent, respectively, of the total regulatory capital stock of the Bank.
Mandatorily Redeemable Capital Stock. Dividends on mandatorily redeemable capital stock, recorded as interest expense, were $1 for the years ended December 31, 2014 and 2013, respectively and $3 for December 31, 2012, respectively.
The following table provides the activity in mandatorily redeemable capital stock:
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Balance, beginning of year
$
24

 
$
40

 
$
286

Capital stock subject to mandatory redemption reclassified from equity
8

 
9

 
91

Capital stock previously subject to mandatory redemption reclassified to capital
(1
)
 
—

 
(29
)
Repurchase/redemption of mandatorily redeemable capital stock
(12
)
 
(25
)
 
(308
)
Balance, end of year
$
19


$
24


$
40



99
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


As of December 31, 2014, the Bank's outstanding mandatorily redeemable capital stock consisted of B1 membership stock and B2 activity-based stock. The Bank is not required to redeem activity-based stock until the later of the expiration of the redemption period, which is five years after notification is received, or until the activity no longer remains outstanding.

The following table shows the amount of mandatorily redeemable capital stock by year of redemption. The year of redemption in the table is the end of the five-year redemption period, or with respect to activity-based stock, the later of the expiration of the five-year redemption period or the activity’s maturity date.
 
 
As of December 31,
 
2014
 
2013
Due in one year or less
$
9

 
$
5

Due after one year through two years
8

 
9

Due after two years through three years
1

 
8

Due after three years through four years
—

 
1

Due after four years through five years
1

 
—

Due after five years
—

 
1

Total
$
19

 
$
24


A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership at any time prior to the end of the five-year redemption period, subject to payment of a cancellation fee as set forth in the capital plan. If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to capital. After the reclassification, dividends on the capital stock would no longer be classified as interest expense.


100
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Note 16—Accumulated Other Comprehensive Income
Components comprising accumulated other comprehensive income 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
Balance, December 31, 2011
$
(13
)
 
$
(398
)
 
$
—

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

 
341

 
—

 
341

   Actuarial loss
(5
)
 
—

 
—

 
(5
)
Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
 
 
   Noncredit other-than-temporary impairment losses
—

 
16

 
—

 
16

   Amortization of pension and postretirement (1)
1

 
—

 
—

 
1

Net current period other comprehensive (loss) income
(4
)
 
357

 
—

 
353

Balance, December 31, 2012
(17
)
 
(41
)
 
—

 
(58
)
Other comprehensive income before reclassifications:
 
 
 
 
 
 
 
   Noncredit other-than-temporary impairment losses
—

 
—

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

 
(1
)
 
1

 
—

   Net change in fair value
—

 
167

 
—

 
167

   Actuarial gain
3

 
—

 
—

 
3

Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
 
 
   Amortization of pension and postretirement (1)
1

 
—

 
—

 
1

Net current period other comprehensive income
4

 
166

 
—

 
170

Balance, December 31, 2013
(13
)
 
125

 
—

 
112

Other comprehensive income before reclassifications:
 
 
 
 
 
 
 
   Net change in fair value
—

 
(10
)
 
—

 
(10
)
   Actuarial loss
(11
)
 
—

 
—

 
(11
)
Reclassification from accumulated other comprehensive income to net income:
 
 
 
 
 
 
 
   Noncredit other-than-temporary impairment losses
—

 
3

 
—

 
3

   Amortization of pension and postretirement (1)
1

 
—

 
—

 
1

Net current period other comprehensive loss
(10
)
 
(7
)
 
—

 
(17
)
Balance, December 31, 2014
$
(23
)
 
$
118

 
$
—

 
$
95

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


Note 17—Pension and Postretirement Benefit Plans


101
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (Pentegra Plan), a tax-qualified defined-benefit pension plan. The Pentegra Plan is treated as a multiemployer plan for accounting purposes, but operates as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures are not applicable to the Pentegra Plan. Under the Pentegra Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer.  Also, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. The Pentegra Plan covers substantially all officers and employees of the Bank hired before March 1, 2011.

The Pentegra Plan operates on a fiscal year from July 1 through June 30. The Pentegra Plan files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333. There are no collective bargaining agreements in place at the Bank.

The Pentegra Plan's annual valuation process includes calculating the plan's funded status and separately calculating the funded status of each participating employer. The funded status is defined as the fair value of assets divided by the funding target (100% of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra Plan accepts contributions for the prior plan year up to eight and a half months after the asset valuation date. As a result, the fair value of assets at the valuation date (July 1) will increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.

The most recent Form 5500 available for the Pentegra Plan is for the year ended June 30, 2013. For the Pentegra Plan years ended June 30, 2013 and 2012, the Bank's contribution was more than five percent and less than five percent, respectively, of the total contributions to the Pentegra Plan.

The following table presents information on Pentegra Plan net pension cost and funded status:
 
 
2014
 
2013
 
2012
Net pension cost charged to compensation and benefit expense for the year ended December 31
 
$
10

 
$
7

 
$
9

Pentegra Plan funded status as of July 1(1)
 
111.31
%
 
101.31
%
 
108.39
%
Bank's funded status as of the plan year end
 
114.16
%
 
99.60
%
 
105.26
%
____________
(1) The Pentegra Plan's funded status as of July 1 is preliminary and may increase because the plan's participants were permitted to make contributions through March 15 of the following year (i.e. through March 15, 2015 for the plan year ended June 30, 2014 and through March 15, 2014 for the plan year ended June 30, 2013). Contributions made before the March 15th deadline may be credited to the plan for the plan year ended June 30 of the previous year and included in the final valuation as of July 1 of the year the plan ended. The final funded status as of July 1 will not be available until the Form 5500 for the plan year July 1 through June 30 is filed. Form 5500 is due to be filed no later than April 2016 for the plan year July 1, 2014 through June 30, 2015 and April 2015 for the plan year July 1, 2013 through June 2014. Form 5500 was filed in April 2014 for the plan year July 1, 2012 through June 30, 2013.

The Bank also participates in a qualified, defined contribution plan. The Bank's contribution to this plan is equal to a percentage of voluntary contributions, subject to certain limitations, plus contributions for all employees hired on or after March 1, 2011. The Bank contributed $2 to this plan during the years ended December 31, 2014, 2013, and 2012.

The Bank offers a supplemental nonqualified defined contribution retirement plan to eligible executives. The Bank's contribution to this plan is equal to a percentage of voluntary contributions. The Bank contributed less than $1 to this plan during the years ended December 31, 2014, 2013, and 2012.

In addition, the Bank maintains a nonqualified deferred compensation plan, available to Bank directors and officers at the senior vice president level and above, which is, in substance, an unfunded supplemental savings plan. The plan's liability consists of the accumulated compensation deferrals and accrued earnings on the deferrals. The Bank's minimum obligation from this plan was $1 as of December 31, 2014 and 2013. Operating expense includes deferred compensation and accrued earnings of less than $1 during the years ended December 31, 2014, 2013, and 2012.


102
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The Bank offers a supplemental nonqualified defined benefit pension plan to eligible executives and a postretirement health benefit plan to eligible retirees. There are no funded plan assets that have been designated to provide supplemental retirement plan or postretirement health benefits.

Amounts recognized in other liabilities (funded status) in the Statements of Condition for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan were $48 and $36 as of December 31, 2014 and 2013, respectively. The net periodic benefit costs recognized in “Compensation and benefits” on the Statements of Income for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan were $4, $5, and $4 for the years ended December 31, 2014, 2013 and 2012, respectively. The amounts recognized in other comprehensive income related to pension and postretirement benefit plans on the Statements of Comprehensive Income for the Bank’s supplemental defined benefit pension plan and postretirement health benefit plan was a loss of $10, income of $4, and a loss of $4 for the years ended December 31, 2014, 2013 and 2012, respectively.

The financial amounts related to the Bank's supplemental nonqualified defined benefit pension plan and postretirement health benefit plan are not material to the Bank's financial condition or results of operations.

Note 18—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.
The Bank enters into derivatives to manage the interest-rate risk exposure inherent in its otherwise unhedged assets and funding sources, to achieve the Bank's risk management objectives, and to act as an intermediary between its members and counterparties. Finance Agency regulations and the Bank's risk management policy prohibit trading in or the speculative use of these derivative instruments and limit credit risk arising from these instruments. The use of derivatives is an integral part of the Bank's financial management strategy.

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

•
preserve a favorable interest-rate spread between the yield of an asset (e.g., an advance) and the cost of the related liability (e.g., the consolidated obligation bond used to fund the advance) by converting both fixed-rate instruments to a variable rate using interest-rate swaps;
•
reduce funding costs by combining a derivative with a consolidated obligation because the cost of a combined funding structure can be lower than the cost of a comparable consolidated obligation bond;
•
reduce the interest-rate sensitivity and repricing gaps of assets and liabilities;
•
mitigate the adverse earnings effects of the shortening or extension of certain assets (e.g., mortgage assets);
•
protect the value of existing asset or liability positions;
•
manage embedded options in assets and liabilities; and
•
achieve overall asset/liability management objectives.
Application of Derivatives
General. The Bank may use derivatives to, in effect, adjust the term, repricing frequency, or option characteristics of financial instruments to achieve its risk management and funding objectives. The Bank uses derivatives in three ways: (1) as a fair value hedge of an underlying financial instrument or a firm commitment; (2) as an intermediary transaction; or (3) as a non-qualifying hedge for purposes of asset or liability management. In addition to using derivatives to manage mismatches of interest rates between assets and liabilities, the Bank also uses derivatives to manage embedded options in assets and liabilities, to hedge the fair value of existing assets and liabilities, to hedge the duration risk of prepayable instruments, to offset exactly other derivatives executed with members (when the Bank serves as an intermediary) and to reduce funding costs.

103
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The Bank reevaluates its hedging strategies from time to time and may change the hedging techniques it uses or adopt new strategies.
The Bank transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. Over-the-counter derivative transactions may be either executed with a counterparty (bilateral derivatives) or cleared through a Futures Commission Merchant (i.e., clearing agent), with a Derivative Clearing Organization (cleared derivatives).

Once a derivative transaction has been accepted for clearing by a Derivative Clearing Organization (Clearinghouse), the derivative transaction is novated and the executing counterparty is replaced with the Clearinghouse. The Bank is not a derivative dealer and does not trade derivatives for short-term profit.
The Bank uses derivatives when they are considered to be the most cost-effective alternative to achieve the Bank's financial and risk management objectives. Accordingly, the Bank may enter into derivatives that do not qualify for hedge accounting (non-qualifying hedges).
Types of Derivatives
The Bank may use the following derivatives to reduce funding costs and to manage its exposure to interest-rate risks inherent in the normal course of business.
Interest-Rate Swaps. An interest-rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest-rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, this party receives cash flows equivalent to the interest on the same notional principal amount at a variable-rate for the same period of time. The variable rate received or paid by the Bank in most derivative transactions agreements is LIBOR.
Swaptions. A swaption is an option on a swap that gives the buyer the right to enter into a specified interest-rate swap at a certain time in the future. When used as a hedge, a swaption can protect the Bank when it is planning to lend or borrow funds in the future against future interest rate changes. The Bank may enter into both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

Interest-Rate Cap and Floor Agreements. In an interest-rate cap agreement, a cash flow is generated if the price or rate of an underlying variable rises above a certain threshold (or cap) price. In an interest-rate floor agreement, a cash flow is generated if the price or rate of an underlying variable falls below a certain threshold (or floor) price. Caps may be used in conjunction with liabilities and floors may be used in conjunction with assets. Caps and floors are designed as protection against the interest rate on a variable-rate asset or liability rising above or falling below a certain level.
Types of Hedged Items
The Bank documents at inception all relationships between derivatives designated as hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing effectiveness. This process includes linking all derivatives that are designated as fair value hedges to (1) assets and liabilities on the Statements of Condition or (2) firm commitments. The Bank also formally assesses (both at the hedge's inception and at least quarterly on an ongoing basis) whether the derivatives that it uses in hedging relationships have been effective in offsetting changes in the fair value of hedged items attributable to the hedged risk and whether those derivatives may be expected to remain effective in future periods. The Bank uses regression analyses to assess the effectiveness of its hedges.

Consolidated Obligations. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank has consolidated obligations for which it is the primary obligor. The Bank enters into derivatives to hedge the interest-rate risk associated with its specific debt issuances in conjunction with associated interest-rate risk on advances. The Bank manages the risk arising from changing market prices and volatility of a consolidated obligation by matching the cash inflow on the derivative with the cash outflow on the consolidated obligation. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for the Bank, and the Bank simultaneously enters into a matching derivative in which the counterparty pays fixed cash flows to the Bank designed to mirror in timing and amount the cash outflows the Bank pays on the

104
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


consolidated obligation. The Bank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate advances (typically one- or three-month LIBOR). These transactions are typically treated as fair-value hedges. This intermediation between the capital and swap markets permits the Bank to raise funds at lower costs than otherwise would be available through the issuance of simple fixed-rate consolidated obligations in the capital markets.
Advances. The Bank offers a variety of advance structures to meet members' funding needs. These advances may have maturities of up to 30 years with variable or fixed rates and may include early termination features or options. The Bank may use derivatives to adjust the repricing and/or options characteristics of advances in order to more closely match the characteristics of the Bank's funding liabilities. In general, whenever a member executes a fixed-rate advance or a variable-rate advance with embedded options, the Bank simultaneously will execute a derivative with terms that offset the terms and embedded options in the advance. For example, the Bank may hedge a fixed-rate advance with an interest-rate swap where the Bank pays a fixed-rate coupon and receives a variable-rate coupon, effectively converting the fixed-rate advance to a variable-rate advance. This type of hedge is typically treated as a fair-value hedge.
Mortgage Assets. The Bank has invested in mortgage assets. The prepayment options embedded in mortgage assets may result in extensions or contractions in the expected repayment of these investments, depending on changes in estimated prepayment speeds. The Bank manages the interest-rate and prepayment risk associated with mortgages through a combination of debt issuance and derivatives. The Bank issues both callable and non-callable debt to achieve cash flow patterns and liability durations similar to those expected on the mortgage loans. The Bank may use derivatives to match the expected prepayment characteristics of the mortgages.
Options (interest-rate caps, interest-rate floors and/or options) also may be used to hedge prepayment risk on the mortgages, many of which are not identified to specific mortgages and, therefore, do not receive fair-value or cash-flow hedge accounting treatment. The Bank also may purchase interest-rate caps and floors, swaptions, callable swaps, calls, and puts to minimize the prepayment risk embedded in the mortgage loans. Although these derivatives are valid non-qualifying hedges against the prepayment risk of the loans, they do not receive either fair-value or cash-flow hedge accounting. These derivatives are marked-to-market through earnings.
Firm Commitments. Certain mortgage purchase commitments are considered derivatives. Mortgage purchase commitments are recorded on the balance sheet at fair value, with changes in fair value recognized in current-period earnings. When the mortgage purchase commitment derivative settles, the current fair value of the commitment is included with the basis of the mortgage loan and amortized accordingly.
The Bank also may enter into a fair value hedge of a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap will function as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be recorded as a basis adjustment of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance using the level-yield method.
Investments. The Bank invests in MBS, U.S. agency obligations, certificates of deposit, and the taxable portion of state or local housing finance agency obligations. The interest-rate and prepayment risks associated with these investment securities are managed through a combination of debt issuance and derivatives. The Bank may manage the prepayment and interest-rate risks by funding investment securities with consolidated obligations that have call features, or by hedging the prepayment risk with caps or floors, or by adjusting the duration of the securities by using derivatives to modify the cash flows of the securities. Investment securities may be classified as trading, available-for-sale or held-to-maturity.
The Bank also may manage the risk arising from changing market prices and volatility of investment securities classified as trading by entering into derivatives (non-qualifying hedges) that offset the changes in fair value of the securities.
Financial Statement Effect and Additional Financial Information
Derivative Notional Amounts. The notional amount of derivatives serves as a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit and market risk; the overall risk is much smaller. The risks of derivatives can be measured meaningfully on a portfolio basis that takes into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

105
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The following table summarizes the fair value of derivative instruments, including the effect of netting adjustments and cash collateral. For purposes of this disclosure, the derivative values include the fair value of derivatives and the related accrued interest.
 
 
As of December 31,
 
2014
 
2013
 
Notional
Amount of Derivatives    
 
Derivative Assets    
 
Derivative Liabilities    
 
Notional
Amount of Derivatives    
 
Derivative Assets    
 
Derivative Liabilities    
Derivatives in hedging relationships:
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
$
103,004

 
$
454

 
$
(1,995
)
 
$
84,740

 
$
800

 
$
(2,336
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
6,348

 
12

 
(131
)
 
4,414

 
14

 
(309
)
Interest rate swaptions
—

 
—

 
—

 
40

 
1

 
(1
)
  Interest rate caps or floors
16,500

 
20

 
(13
)
 
12,500

 
44

 
(28
)
Total derivatives not designated as hedging instruments
22,848

 
32

 
(144
)
 
16,954

 
59

 
(338
)
Total derivatives before netting and collateral adjustments
$
125,852

 
486

 
(2,139
)
 
$
101,694

 
859

 
(2,674
)
Netting adjustments and cash collateral (1)
 
 
(374
)
 
1,955

 
 
 
(806
)
 
2,487

Derivative assets and derivative liabilities
 
 
$
112

 
$
(184
)
 
 
 
$
53

 
$
(187
)
___________
(1) 
Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty. Cash collateral posted and related accrued interest was $1,613 and $1,758 as of December 31, 2014 and 2013, respectively. Cash collateral received and related accrued interest was $32 and $77 as of December 31, 2014 and 2013, respectively.
The following tables present the components of net gains on derivatives and hedging activities as presented in the Statements of Income:
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Derivatives and hedged items in fair value hedging relationships:
 
 
 
 
 
  Interest rate swaps
$
147

 
$
180

 
$
167

Derivatives not designated as hedging instruments:
 
 
 
 
 
  Interest rate swaps
57

 
102

 
52

  Interest rate caps or floors
(14
)
 
6

 
(1
)
  Net interest settlements
(70
)
 
(84
)
 
(101
)
Total net (losses) gains related to derivatives not designated as hedging instruments
(27
)
 
24

 
(50
)
Net gains on derivatives and hedging activities
$
120

 
$
204

 
$
117


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 Year Ended December 31, 2014
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
)
 
$
297

 
$
145

 
$
(875
)
Consolidated obligations bonds
 
135

 
(133
)
 
2

 
497

Total
 
$
(17
)
 
$
164

 
$
147

 
$
(378
)
____________
(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.


106
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


 
 
For the Year Ended December 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
 
$
1,880

 
$
(1,678
)
 
$
202

 
$
(1,033
)
Consolidated obligations bonds
 
(868
)
 
846

 
(22
)
 
602

Total
 
$
1,012

 
$
(832
)
 
$
180

 
$
(431
)
____________
(1) 
The net interest on derivatives in fair value hedge relationships is presented in the interest income or expense line item of the respective hedged item.

 
 
For the Year Ended December 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
 
$
554

 
$
(355
)
 
$
199

 
$
(1,397
)
Consolidated obligation bonds
 
(191
)
 
159

 
(32
)
 
574

Total
 
$
363

 
$
(196
)
 
$
167

 
$
(823
)
____________
(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 the risk of nonperformance by counterparties to its derivative transactions and manages credit risk through credit analysis, collateral requirements, and adherence to the requirements set forth in its policies, U.S. Commodity Futures Trading Commission regulations, and Finance Agency regulations. For bilateral derivatives, the degree of credit risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank requires collateral agreements with collateral delivery thresholds on all bilateral 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.

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

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


107
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


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

 
As of December 31,
 
2014
 
2013
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
Gross recognized amount:
 
 
 
 
 
 
 
     Bilateral derivatives
$
439

 
$
(1,757
)
 
$
820

 
$
(2,545
)
     Cleared derivatives
47

 
(382
)
 
39

 
(129
)
Total gross recognized amount
486

 
(2,139
)
 
859

 
(2,674
)
Gross amounts of netting adjustments and cash collateral:
 
 
 
 
 
 
 
     Bilateral derivatives
(438
)
 
1,573

 
(818
)
 
2,358

     Cleared derivatives
64

 
382

 
12

 
129

Total gross amounts of netting adjustments and cash collateral
(374
)
 
1,955

 
(806
)
 
2,487

Derivative assets and derivative liabilities:
 
 
 
 
 
 
 
     Bilateral derivatives
1

 
(184
)
 
2

 
(187
)
     Cleared derivatives
111

 
—

 
51

 
—

Total derivative assets and total derivative liabilities
112

 
(184
)
 
53

 
(187
)
Non-cash collateral received or pledged not offset- cannot be sold or repledged: (1)
 
 
 
 
 
 
 
     Bilateral derivatives
1

 
—

 
—

 
—

Net unsecured amounts: (2)
 
 
 
 
 
 
 
 Bilateral derivatives
—

 
(184
)
 
2

 
(187
)
 Cleared derivatives
111

 
—

 
51

 
—

Total net unsecured amount
$
111

 
$
(184
)
 
$
53

 
$
(187
)
____________ 
(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 $110 and $47 as of December 31, 2014 and 2013, respectively, due to instances where the Bank’s pledged collateral to a counterparty exceeds the Bank’s net derivative liability position.
Certain of the Bank’s bilateral 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 bilateral derivative instruments in net liability positions. The aggregate fair value of all bilateral derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) as of December 31, 2014 was $1,348, for which the Bank has posted collateral with a fair value of $1,167 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 $98 of collateral at fair value to its derivative counterparties as of December 31, 2014.


Note 19—Estimated Fair Values

The Bank records trading securities, available-for-sale securities, derivative assets and liabilities, and grantor trust assets (publicly-traded mutual funds) at estimated fair value on a recurring basis. Fair value is a market-based measurement and is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the 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.


108
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


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 December 31, 2014, 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 December 31, 2014, 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 December 31, 2014, 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.

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


109
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Estimated Fair Value Measurements. 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 or nonrecurring basis on its Statements of Condition. The Bank measures certain impaired mortgage loans held for portfolio and real estate owned at Level 3 on a nonrecurring basis. Impaired mortgage loans are subject to being measured at fair value as a result of becoming impaired during the reported period. Real estate owned is measured at fair value when its fair value, less cost to sell, is lower than its carrying value as of the Statements of Condition date.
 
 
As of December 31, 2014
 
Fair Value Measurements Using
 
Netting Adjustment (1)
 
 
 
Level 1        
 
Level 2        
 
Level 3        
 
Total
Recurring fair value measurements - Assets
 
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
 
  Government-sponsored enterprises debt obligations
$
—

 
$
1,208

 
$
—

 
$
—

 
$
1,208

  Another FHLBank’s bond
—

 
60

 
—

 
—

 
60

  State or local housing agency debt obligations
—

 
1

 
—

 
—

 
1

Total trading securities
—

 
1,269

 
—

 
—

 
1,269

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

 
—

 
1,981

 
—

 
1,981

Derivative assets:
 
 
 
 
 
 
 
 
 
  Interest-rate related
—

 
486

 
—

 
(374
)
 
112

Grantor trust (included in Other assets)
25

 
—

 
—

 
—

 
25

Total recurring assets at fair value
$
25

 
$
1,755

 
$
1,981

 
$
(374
)
 
$
3,387

Recurring fair value measurements - Liabilities
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
Interest-rate related
$
—

 
$
(2,139
)
 
$
—

 
$
1,955

 
$
(184
)
Total recurring liabilities at fair value
$
—

 
$
(2,139
)
 
$
—

 
$
1,955

 
$
(184
)
Nonrecurring fair value measurements - Assets
 
 
 
 
 
 
 
 
 
Real estate owned
$
—

 
$
—

 
$
7

 
$
—

 
$
7

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


110
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


 
As of December 31, 2013
 
Fair Value Measurements Using
 
Netting Adjustment (1)    
 
 
 
Level 1        
 
Level 2        
 
Level 3        
 
Total
Recurring fair value measurements - Assets
 
 
 
 
 
 
 
 
 
Trading securities:
 
 
 
 
 
 
 
 
 
Government-sponsored enterprises debt obligations
$
—

 
$
1,601

 
$
—

 
$
—

 
$
1,601

  Another FHLBank’s bond
—

 
65

 
—

 
—

 
65

  State or local housing agency debt obligations
—

 
1

 
—

 
—

 
1

Total trading securities
—

 
1,667

 
—

 
—

 
1,667

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

 
—

 
2,299

 
—

 
2,299

Derivative assets:
 
 
 
 
 
 
 
 
 
  Interest-rate related
—

 
859

 
—

 
(806
)
 
53

Grantor trust (included in Other assets)
21

 
—

 
—

 
—

 
21

Total recurring assets at fair value
$
21

 
$
2,526

 
$
2,299

 
$
(806
)
 
$
4,040

Total recurring liabilities at fair value
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
Interest-rate related
$
—

 
$
(2,674
)
 
$
—

 
$
2,487

 
$
(187
)
Total recurring liabilities at fair value
$
—

 
$
(2,674
)
 
$
—

 
$
2,487

 
$
(187
)
Nonrecurring fair value measurements - Assets
 
 
 
 
 
 
 
 
 
Real estate owned
$
—

 
$
—

 
$
9

 
$
—

 
$
9

____________ 
(1) 
Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions and also cash collateral held or placed with the same clearing agents and/or counterparties.
The following table presents a reconciliation of available-for-sale securities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
Balance, beginning of year
$
2,299

 
$
2,676

 
$
2,942

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

 
11

 
6

Total (losses) gains realized and unrealized: (1)
 
 
 
 
 
  Included in net impairment losses recognized in earnings
(3
)
 
—

 
(16
)
 Included in other comprehensive income (2)
(7
)
 
167

 
357

     Accretion of credit losses in net interest income
34

 
10

 
4

Settlements
(342
)
 
(565
)
 
(617
)
Balance, end of year
$
1,981

 
$
2,299

 
$
2,676

____________ 
(1) 
Related to available-for-sale securities held at year end.
(2) 
This amount is included in other comprehensive income 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.

Described below are the Bank's fair value measurement methodologies for financial assets and liabilities measured or disclosed at fair value.
Cash and Due from Banks. The estimated fair value approximates the recorded carrying value.

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


111
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


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

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

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

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

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

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

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

As of December 31, 2014 and 2013, four vendor prices were received for a majority of the Bank's investment securities holdings and the final prices for those securities were computed by averaging the prices received. Based on the Bank's review of the pricing methods and controls employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or, in those instances in which there were outliers or significant yield variances, the Bank's additional analyses), the Bank believes its final prices are representative of the prices that would have been received if the assets had been sold at the measurement date (i.e., exit prices) and further that the fair value measurements are classified appropriately in the fair value hierarchy. Based on the lack of significant market activity for private-label MBS, the fair value measurement for those securities were classified as Level 3 within the fair value hierarchy as of December 31, 2014 and 2013.

As an additional step for certain securities, the Bank reviewed the final fair value estimates of its private-label MBS holdings for reasonableness using an implied yield test. The Bank calculated an implied yield for certain of its private-label MBS using the estimated fair value derived from the process described above and the security's projected cash flows from the Bank's other-than-temporary impairment process and compared such yield to the market yield for comparable securities according to a third source to the extent comparable market yield data was available. This analysis did not indicate that any material adjustments to the fair value estimates were necessary.
Mortgage Loans Held for Portfolio. The estimated fair values for mortgage loans are determined based on quoted market prices of similar mortgage loans available in the pass-through securities market. These prices, however, can change rapidly based upon market conditions and are highly dependent upon the underlying prepayment assumptions. The estimated fair values of impaired mortgage loans are based on the current property value, as provided by a third party vendor, adjusted for estimated selling costs.

112
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Advances. The Bank determines the estimated fair values of advances by calculating the present value of expected future cash flows from the advances and excluding the amount of the accrued interest receivable. The discount rates used in these calculations are the equivalent to the replacement advance rates for advances with similar terms as of December 31, 2014 and 2013. The Bank calculates its replacement advance rates at a spread to its cost of funds. The Bank's cost of funds approximates the consolidated obligation curve. To estimate the fair values of advances with optionality, market-based expectations of future interest rate volatility implied from current market prices for similar options are also used. In accordance with the advances regulations, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient to make the Bank financially indifferent to the borrower's decision to prepay the advances, thereby removing prepayment risk from the fair value calculation. The Bank did not adjust the fair value measurement of advances for creditworthiness because advances were fully collateralized as described in Note 9–Advances.
Accrued Interest Receivable and Payable. The estimated fair value approximates the recorded carrying value.
Derivative Assets and Liabilities. The Bank calculates the fair value of derivatives using a present value of future cash flows discounted by a market observable rate. The Bank used the Overnight Index Swap curve to discount future cash flows for collateralized derivatives.
Derivative instruments are transacted primarily in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point. The Bank does not provide a credit valuation adjustment based on aggregate exposure by derivative counterparty when measuring the fair value of its derivatives. This is because the collateral provisions pertaining to the Bank's derivatives obviate the need to provide such a credit valuation adjustment. The fair values of the Bank's derivatives take into consideration the effects of legally enforceable master netting agreements, where applicable, that allow the Bank to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The Bank and each bilateral derivative counterparty have bilateral collateral thresholds that take into account both the Bank's and the counterparty's credit ratings. As a result of these practices and agreements, the Bank has concluded that the impact of the credit differential between the Bank and its derivative counterparties was mitigated to an immaterial level and no further adjustments were deemed necessary to the recorded fair values of derivative assets and liabilities on the Statements of Condition as of December 31, 2014 and 2013.
Grantor Trust Assets. Grantor trust assets, included as a component of "Other assets," are carried at estimated fair value based on quoted market prices.
Interest-bearing Deposits. The Bank determines estimated fair values of Bank deposits by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rate used in these calculations is based on LIBOR.
Consolidated Obligations. The Bank calculates the fair value of consolidated obligation bonds and discount notes by using the present value of future cash flows using a cost of funds as the discount rate. The Office of Finance constructs an internal curve, referred to as the consolidated obligation curve, using the U.S. Treasury curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent government-sponsored enterprise trades, and secondary market activity. To estimate the fair values of consolidated obligations with optionality the Bank uses market based expectations of future interest rate volatility implied from current market prices for similar options.
Mandatorily Redeemable Capital Stock. The fair value of mandatorily redeemable capital stock is par value, including estimated dividends earned at the time of reclassification from capital to liabilities, until such amount is paid. Capital stock can be acquired by members only at par value and redeemed by the Bank at par value. Capital stock is not traded and no market mechanism exists for the exchange of capital stock outside the cooperative structure.
The following estimated fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of December 31, 2014 and 2013. 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

113
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


would estimate the fair value. The fair value tables presented below do not represent an estimate of the overall fair value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.
The carrying values and estimated fair values of the Bank’s financial instruments were as follows:
 
 
As of December 31, 2014
 
 
 
Estimated Fair Value
 
Carrying Value
 
Total        
 
Level 1        
 
Level 2        
 
Level 3        
 
Netting Adjustment (1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 Cash and due from banks
$
915

 
$
915

 
$
915

 
$
—

 
$
—

 
$
—

 Interest bearing-deposits
1,010

 
1,010

 
—

 
1,010

 
—

 
—

 Securities purchased under agreements to resell
1,960

 
1,960

 
—

 
1,960

 
—

 
—

 Federal funds sold
6,385

 
6,385

 
—

 
6,385

 
—

 
—

 Trading securities
1,269

 
1,269

 
—

 
1,269

 
—

 
—

 Available-for-sale securities
1,981

 
1,981

 
—

 
—

 
1,981

 
—

 Held-to-maturity securities
23,897

 
23,988

 
—

 
22,534

 
1,454

 
—

 Mortgage loans held for portfolio, net
746

 
828

 
—

 
828

 
—

 
—

 Advances
99,644

 
99,579

 
—

 
99,579

 
—

 
—

 Accrued interest receivable
179

 
179

 
—

 
179

 
—

 
—

 Derivative assets
112

 
112

 
—

 
486

 
—

 
(374
)
    Grantor trust assets (included in Other assets)
25

 
25

 
25

 
—

 
—

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
(1,110
)
 
(1,110
)
 
—

 
(1,110
)
 
—

 
—

 Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
Discount notes
(37,162
)
 
(37,162
)
 
—

 
(37,162
)
 
—

 
—

Bonds
(92,088
)
 
(92,211
)
 
—

 
(92,211
)
 
—

 
—

 Mandatorily redeemable capital stock
(19
)
 
(19
)
 
(19
)
 
—

 
—

 
—

 Accrued interest payable
(145
)
 
(145
)
 
—

 
(145
)
 
—

 
—

 Derivative liabilities
(184
)
 
(184
)
 
—

 
(2,139
)
 
—

 
1,955

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

114
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)



 
As of December 31, 2013
 
 
 
Estimated Fair Value
 
Carrying Value
 
Total        
 
Level 1        
 
Level 2        
 
Level 3        
 
Netting Adjustment (1)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 Cash and due from banks
$
4,374

 
$
4,374

 
$
4,374

 
$
—

 
$
—

 
$
—

 Interest bearing-deposits
1,007

 
1,007

 
—

 
1,007

 
—

 
—

 Federal funds sold
1,795

 
1,795

 
—

 
1,795

 
—

 
—

 Trading securities
1,667

 
1,667

 
—

 
1,667

 
—

 
—

 Available-for-sale securities
2,299

 
2,299

 
—

 
—

 
2,299

 
—

 Held-to-maturity securities
20,176

 
20,146

 
—

 
18,225

 
1,921

 
—

 Mortgage loans held for portfolio, net
918

 
1,004

 
—

 
1,004

 
—

 
—

 Advances
89,588

 
89,413

 
—

 
89,413

 
—

 
—

 Accrued interest receivable
199

 
199

 
—

 
199

 
—

 
—

 Derivative assets
53

 
53

 
—

 
859

 
—

 
(806
)
    Grantor trust assets (included in Other assets)
21

 
21

 
21

 
—

 
—

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 Interest-bearing deposits
(1,752
)
 
(1,752
)
 
—

 
(1,752
)
 
—

 
—

 Consolidated obligations, net:
 
 
 
 
 
 
 
 
 
 
 
Discount notes
(32,202
)
 
(32,203
)
 
—

 
(32,203
)
 
—

 
—

Bonds 
(80,728
)
 
(80,733
)
 
—

 
(80,733
)
 
—

 
—

 Mandatorily redeemable capital stock
(24
)
 
(24
)
 
(24
)
 
—

 
—

 
—

 Accrued interest payable
(183
)
 
(183
)
 
—

 
(183
)
 
—

 
—

 Derivative liabilities
(187
)
 
(187
)
 
—

 
(2,674
)
 
—

 
2,487

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

Note 20—Commitments and Contingencies
As described in Note 13–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 other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $718,218 and $654,076 as of December 31, 2014 and 2013, respectively, exclusive of the Bank’s own outstanding consolidated obligations. As of December 31, 2014 and 2013, none of the other FHLBanks defaulted on their consolidated obligations, the Finance Agency was not required to allocate any obligation among the FHLBanks, and no amount of the joint and several obligation was fixed. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to the other FHLBanks' consolidated obligations as of December 31, 2014 and 2013.

115
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


The following table shows the Bank’s outstanding commitments, which represent off-balance sheet obligations:
 
 
As of December 31, 2014
 
As of December 31, 2013
 
 
Expire Within One Year
 
Expire After One Year
 
Total
 
Expire Within One Year
 
Expire After One Year
 
Total
Standby letters of credit (1)
 
$
7,409

 
$
23,519

 
$
30,928

 
$
4,785

 
$
23,004

 
$
27,789

Commitments to fund additional advances
 
189

 
20

 
209

 
110

 
34

 
144

Unsettled consolidated obligation bonds, at par (2)
 
100

 
—

 
100

 
171

 
—

 
171

Unsettled consolidated obligation discount notes, at par (2)
 
50

 
—

 
50

 
467

 
—

 
467

____________
(1) 
Expire within one year includes 17 standby letters of credit for a total of $25 and 14 standby letters of credit for a total of $20 as of December 31, 2014 and 2013, respectively, that have no stated maturity date and are subject to renewal on an annual basis.
(2) 
Expiration is based on settlement period rather than underlying contractual maturity of consolidated obligations. As of December 31, 2014 and 2013, $100 and $145 of the Bank's unsettled consolidated obligation bonds were hedged with associated interest rate swaps that had traded but not yet settled, respectively. As of December 31, 2014 and 2013, $50 and $0 of the Bank's unsettled consolidated obligation discount notes were hedged with associated interest rate swaps that had traded but not yet settled, respectively.

The Bank issues standby letters of credit for the account of its members for a fee. A standby letter of credit is a financing arrangement between the Bank and its member. If the Bank is required to make payment for a beneficiary's draw, the Bank in its discretion may convert such paid amount to an advance to the member and will require a corresponding activity-based capital stock purchase.

The carrying value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to $152 and $137 as of December 31, 2014 and 2013, respectively. Based on the Bank's credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments.
The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the member. In addition, standby letters of credit are fully collateralized from the time of issuance. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit that results in an internal credit rating, which focuses primarily on an institution’s overall financial health and takes into account 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 had no commitments that unconditionally obligate the Bank to purchase closed mortgage loans as of December 31, 2014 and 2013. Such commitments would be recorded as derivatives at their fair values.

The Bank charged to operating expenses net rental costs of $2 for the years ended December 31, 2014, 2013, and 2012.

Lease agreements for Bank premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the Bank's results of operations.
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.


116
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Note 21—Transactions with Members and their Affiliates and with Housing Associates
The Bank is a cooperative whose member institutions own substantially all of the capital stock of the Bank. Former members, and certain non-members that own the Bank's capital stock as a result of a merger or acquisition of the Bank's member, 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 FHLBank Act, and mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loan purchases.
Transactions with any member that has an officer or director who also is a director of the Bank are subject to the same Bank policies as transactions with other members, and transactions with members which are entered into in the ordinary course of the Bank's business are not considered related party transactions subject to disclosure.
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 the Bank's total regulatory capital stock. Based on this definition, two member institutions, Bank of America, National Association and Capital One, National Association, which held 15.5 percent and 15.3 percent, respectively, of the Bank’s total regulatory capital stock as of December 31, 2014, were considered related parties.
Total advances outstanding to Bank of America, National Association were $17,512 and $17,263 as of December 31, 2014 and 2013, respectively. Total deposits held in the name of Bank of America, National Association were less than $1 as of December 31, 2014 and 2013. No mortgage loans or mortgage-backed securities were acquired from Bank of America, National Association during the three years ended December 31, 2014.
Total advances outstanding to Capital One, National Association were $17,265 and $8,506 as of December 31, 2014 and 2013, respectively. Total deposits held in the name of Capital One, National Association were $2 and $4 as of December 31, 2014 and 2013. No mortgage loans or mortgage-backed securities were acquired from Capital One, National Association during the three years ended December 31, 2014.
During 2013, the Bank agreed with certain of its defendants to settle claims arising from certain investments in private-label mortgage-backed securities.  The gross settlement of these claims was $40, resulting in a gain of $33, net of legal fees and expenses, which is recorded in Noninterest income (loss) as "Gain on litigation settlements, net." Included in these settlements was $25 (net of legal fees and expenses) related to one of the Bank’s members.

Note 22—Transactions with Other FHLBanks

The Bank's activities with other FHLBanks are summarized below and have been identified in the Statements of Condition, Statements of Income and Statements of Cash Flows.

Borrowings with Other FHLBanks. Occasionally, the Bank loans (or borrows) short-term funds to (from) other FHLBanks. There were no loans to or borrowings from other FHLBanks outstanding as of December 31, 2014 and 2013. Interest income on loans to other FHLBanks and interest expense on borrowings from other FHLBanks was less than $1 for the years ended December 31, 2014, 2013, and 2012.

The following table summarizes the cash flow activities for loans to and borrowings from other FHLBanks:
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
Investing activities:
 
 
 
 
 
 
Loans made to other FHLBanks
 
$
(990
)
 
$
(305
)
 
$
(484
)
Principal collected on loans to other FHLBanks
 
990

 
305

 
484

Net change in loans to other FHLBanks
 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
Financing activities:
 
 
 
 
 
 
Proceeds from short-term borrowings from other FHLBanks
 
$
1,038

 
$
2,270

 
$
446

Payments of short-term borrowings from other FHLBanks
 
(1,038
)
 
(2,270
)
 
(446
)
Net change in borrowings from other FHLBanks
 
$
—

 
$
—

 
$
—



117
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)


Investment in Another FHLBank's Consolidated Obligation Bond. The Bank's trading investment securities portfolio includes a consolidated obligation bond for which FHLBank Chicago is the primary obligor. The balance of this investment is presented in Note 5—Trading Securities. This consolidated obligation bond was purchased in the open market from a third party and is accounted for in the same manner as other similarly classified investments (see Note 2—Summary of Significant Accounting Policies). Interest income earned on the consolidated obligation bond on which FHLBank Chicago is the primary obligor totaled $9 for the years ended December 31, 2014 and 2013, and $10 for the year ended December 31, 2012.
 
MPF Program® Service Fees and Loan Participations. Beginning in 2005, the Bank began paying a fee to FHLBank Chicago for services performed by it under the MPF Program, one of the programs through which the Bank historically purchased mortgage loans. These fees totaled less than $1 for the years ended December 31, 2014 and 2013, and $1 for the year ended December 31, 2012.

MPF Program Purchase of Participation Interests from Other FHLBanks. In 2000 and 2001, the Bank, together with FHLBank Pittsburgh and FHLBank Chicago, participated in the funding of one master commitment with a member of FHLBank Pittsburgh. As of December 31, 2014, the Bank's outstanding balance related to these MPF Program assets was $1.

Standby Letters of Credit Participation. In 2013, the Bank, together with the FHLBank of Seattle, entered into a participation agreement whereby FHLBank of Seattle guaranteed a standby letter of credit in the amount of $150. Fees paid to FHLBank Seattle associated with this agreement totaled less than $1 for the years ended December 31, 2014 and 2013.

118
FEDERAL HOME LOAN BANK OF ATLANTA
NOTES TO FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)



Supplementary Financial Information (Unaudited)

Selected Quarterly Financial Data

Supplementary financial information for each quarter in the years ended December 31, 2014 and 2013 is included in the following tables (in millions).

 
For the Year Ended December 31, 2014
 
Fourth Quarter
 
Third Quarter
 
Second Quarter
 
First Quarter
 
Total
Interest income
$
180

 
$
134

 
$
178

 
$
186

 
$
678

Interest expense
85

 
88

 
86

 
96

 
355

Net interest income
95

 
46

 
92

 
90

 
323

(Reversal) provision for credit losses
(1
)
 
(2
)
 
2

 
(4
)
 
(5
)
Noninterest income
5

 
67

 
10

 
23

 
105

Noninterest expense
37

 
32

 
32

 
31

 
132

Affordable Housing Program assessments
6

 
9

 
6

 
9

 
30

Net income
$
58

 
$
74

 
$
62

 
$
77


$
271

 
 
 
 
 
 
 
 
 
 
 
For the Year Ended December 31, 2013
 
Fourth Quarter
 
Third Quarter
 
Second Quarter
 
First Quarter
 
Total
Interest income
$
187

 
$
196

 
$
200

 
$
208

 
$
791

Interest expense
105

 
110

 
114

 
121

 
450

Net interest income
82

 
86

 
86

 
87


341

Provision for credit losses
1

 
1

 
1

 
2

 
5

Noninterest income (1)
76

 
25

 
41

 
24

 
166

Noninterest expense
35

 
31

 
31

 
30

 
127

Affordable Housing Program assessments
12

 
8

 
9

 
8

 
37

Net income
$
110

 
$
71

 
$
86

 
$
71


$
338

____________
(1) 
For the quarter ended December 31, 2013, amount includes a $33 million gain on litigation settlements, net.



119

Investment Portfolio

Supplementary financial information on the Bank's investments is included in the tables below (dollars in millions):
 
 
As of December 31,
 
 
2014
 
2013
 
2012
 
 
Due in one year or less
 
Due after one year through five years
 
Due after five through 10 years
 
Due after 10 years
 
Total
Trading securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Government-sponsored enterprises debt obligations
 
$
—

 
$
1,208

 
$
—

 
$
—

 
$
1,208

 
$
1,601

 
$
2,291

   Another FHLBank's bond
 
—

 
60

 
—

 
—

 
60

 
65

 
77

 State and local housing agency debt obligations
 
—

 
1

 
—

 
—

 
1

 
1

 
2

Total trading securities
 
—

 
1,269

 
—

 
—

 
1,269

 
1,667

 
2,370

Yield on trading securities
 
0.00
%
 
2.31
%
 
0.00
%
 
0.00
%
 
 

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

 
$
3

 
$
4

 
$
1,974

 
1,981

 
2,299

 
2,676

Yield on available-for-sale securities
 
0.00
%
 
4.75
%
 
5.95
%
 
5.29
%
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
 
$
—

 
$
—

 
$
—

 
$
—

 
—

 
—

 
550

State and local housing agency debt obligations
 
2

 
79

 
—

 
—

 
81

 
92

 
106

Government-sponsored enterprises debt obligations
 
1,164

 
5,503

 
—

 
—

 
6,667

 
3,738

 
2,133

   Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 

 
 
 
 

U.S. agency obligations- guaranteed single family residential
 
—

 
—

 
4

 
362

 
366

 
465

 
622

Government-sponsored enterprises single family residential
 
—

 
83

 
537

 
13,045

 
13,665

 
13,311

 
10,608

Government-sponsored enterprises multi-family commercial
 
—

 
338

 
1,325

 
—

 
1,663

 
641

 
155

      Private-label residential
 
—

 
149

 
12

 
1,294

 
1,455

 
1,929

 
2,744

Total held-to-maturity securities
 
1,166

 
6,152

 
1,878

 
14,701

 
23,897

 
20,176

 
16,918

Yield on held-to-maturity securities
 
0.21
%
 
0.75
%
 
1.47
%
 
1.41
%
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total investment securities
 
$
1,166

 
$
7,424

 
$
1,882

 
$
16,675

 
27,147

 
24,142

 
21,964

Yield on total investment securities
 
0.21
%
 
1.01
%
 
1.48
%
 
1.84
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits
 
$
1,010

 
$
—

 
$
—

 
$
—

 
1,010

 
1,007

 
1,005

Securities purchased under agreements to resell
 
1,960

 
—

 
—

 
—

 
1,960

 
—

 
250

Federal funds sold
 
6,385

 
—

 
—

 
—

 
6,385

 
1,795

 
7,235

Total investments
 
$
10,521

 
$
7,424

 
$
1,882

 
$
16,675

 
$
36,502

 
$
26,944

 
$
30,454


120

The Bank held securities of the following issuers with a carrying value greater than 10 percent of the Bank's total capital. These amounts include securities issued by the issuer's holding company, along with its subsidiaries and affiliate trusts (in millions):
 
As of December 31, 2014
 
Total Carrying Value
 
Total Fair Value
Bank of America Corporation, Charlotte, NC
$
1,705

 
$
1,703


Loan Portfolio

The Bank's outstanding domestic loans, nonaccrual loans, loans 90 days or more past due and accruing interest, and restructured loans were as follows (in millions):
 
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Advances
$
99,644

 
$
89,588

 
$
87,503

 
$
86,971

 
$
89,258

Real estate mortgages (1)
$
749

 
$
929

 
$
1,255

 
$
1,639

 
$
2,040

Nonaccrual real estate mortgages, unpaid principal balance
$
33

 
$
51

 
$
77

 
$
88

 
$
82

Real estate mortgages past due 90 days or more and still accruing interest, unpaid principal balance (2)
$
5

 
$
9

 
$
10

 
$
15

 
$
21

Troubled debt restructurings, unpaid principal balance (not included above) (3)
$
11

 
$
11

 
$
9

 
$
6

 
$
3

Interest contractually due during the year
$
3

 
 
 
 
 
 
 
 
Interest actually received during the year
$
—

 
 
 
 
 
 
 
 
___________ 
(1) Amounts include single-family residential loans and Affordable Multifamily Participation Program loans classified as substandard. In August 2013, the Bank sold its Affordable Multifamily Participation Program.
(2) Only government loans (e.g., FHA, VA) continue to accrue interest after 90 days or more delinquent.
(3) Represents troubled debt restructured loans that are still performing as of year end.

The Bank places a conventional mortgage loan on nonaccrual status when the collection of the contractual principal or interest from the borrower is 90 days or more past due.

Summary of Loan Loss Experience

The allowance for credit losses on domestic real estate mortgage loans was as follows (in millions):
 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Balance, beginning of year
$
11

 
$
11

 
$
6

 
$
1

 
$
1

(Reversal) provision for credit losses
(5
)
 
5

 
6

 
5

 
—

Charge-offs
(3
)
 
(4
)
 
(1
)
 
—

 
—

Mortgage loans transferred to held for sale
—

 
(1
)
 
—

 
—

 
—

Balance, end of year
$
3

 
$
11

 
$
11

 
$
6

 
$
1

Ratio of net charge-offs during the period to average loans outstanding during the period (in basis points)
39

 
35

 
4

 
—

 
—


121


The allocation of the allowance for credit losses on mortgage loans was as follows (dollars in millions):
 
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
Amount (1)
 
% of Total Loans (2)
 
Amount (1)
 
% of Total Loans (2)
 
Amount (1)
 
% of Total Loans (2)
 
Amount (1)
 
% of Total Loans (2)
 
Amount (1)
 
% of Total Loans (2)
Single-family residential mortgages
$
3

 
100
 
$
11

 
100
 
$
10

 
98
 
$
5

 
99
 
$
—

 
99
Multifamily residential mortgages
—

 
—
 
—

 
—
 
1

 
2
 
1

 
1
 
1

 
1
Total
$
3

 
100
 
$
11

 
100
 
$
11

 
100
 
$
6

 
100
 
$
1

 
100
____________ 
(1) Amount allocated for credit losses on mortgage loans.
(2) Mortgage loans outstanding as a percentage of total mortgage loans.

Short-term Borrowings

Borrowings with original maturities of one year or less are classified as short-term. The following table provides information regarding the Bank's short-term borrowings (dollars in millions):

 
As of and for the Years Ended December 31,
 
2014
 
2013
 
2012
Consolidated obligation discount notes:
 
 
 
 
 
Amount outstanding at the end of the year
$
37,162

 
$
32,202

 
$
31,737

Weighted average interest rate at the end of the year
0.10
%
 
0.11
%
 
0.12
%
Daily average outstanding for the year
$
29,899

 
$
23,408

 
$
22,314

Weighted average interest rate for the year
0.10
%
 
0.11
%
 
0.11
%
Maximum amount outstanding at any month-end during the year
$
37,162

 
$
32,202

 
$
31,737

 
 
 
 
 
 
Consolidated obligation bonds:
 
 
 
 
 
Amount outstanding at the end of the year
$
31,138

 
$
24,139

 
$
26,186

Weighted average interest rate at the end of the year
0.11
%
 
0.13
%
 
0.19
%
Daily average outstanding for the year
$
31,461

 
$
25,217

 
$
25,366

Weighted average interest rate for the year
0.14
%
 
0.16
%
 
0.20
%
Maximum amount outstanding at any month-end during the year
$
36,529

 
$
30,692

 
$
28,235


Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.
Disclosure Controls and Procedures

The Bank's President and Chief Executive Officer and the Bank's Executive Vice President and Chief Financial Officer (Certifying Officers) are responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

As of December 31, 2014, the Bank's management, with the participation of the Certifying Officers has evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on that evaluation, the Certifying Officers have concluded that the Bank's disclosure controls and procedures (as defined in Rules 13a-15(a) and 15d-15(e) under

122

the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed by the Bank in the reports that it files or submits under the Exchange Act (1) is accumulated and communicated to the Bank's management, including the Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure; and (2) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

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

Management's Assessment of Internal Control Over Financial Reporting

The Bank's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Bank, as defined in Rule 13a-15(f) under the Exchange Act. The Bank's management assessed the effectiveness of the Bank's internal control over financial reporting as of December 31, 2014. In making this assessment, the Bank's management utilized the criteria set forth by COSO in Internal Control-Integrated Framework (2013). Based upon that evaluation, management has concluded that the Bank's internal control over financial reporting was effective as of December 31, 2014.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The effectiveness of the Bank's internal control over financial reporting as of December 31, 2014, has been audited by PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, as stated in their report which appears within.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2014, there were no changes in the Bank's internal control over financial reporting that have affected materially, or are reasonably likely to affect materially, the Bank's internal control over financial reporting.

Item 9B. Other Information.

None.



123

PART III.

Item 10.     Directors, Executive Officers and Corporate Governance.

Executive Officers

The following table sets forth the names, ages, and titles of the executive officers of the Bank and all persons chosen to become executive officers as of the date of this Report. No executive officer has any family relationship with any other executive officer or director of the Bank.
Executive Officer
 
Age
 
Title
W. Wesley McMullan
 
51
 
President and Chief Executive Officer
Kirk R. Malmberg
 
54
 
Executive Vice President and Chief Financial Officer
Cathy C. Adams
 
55
 
Executive Vice President and Chief Operations Officer
Robert F. Dozier, Jr.
 
46
 
Executive Vice President and Chief Business Officer
Robert C. Bennett
 
60
 
Senior Vice President and Chief Information Officer
Julia S. Brown
 
50
 
Senior Vice President and Corporate Secretary
M. Bryan Delong
 
51
 
Senior Vice President, Director of Human Resources and Staff Services
Arthur L. Fleming
 
56
 
Senior Vice President, Director of Community Investment Services
Annette Hunter
 
50
 
Senior Vice President, Director of Accounting Operations
Haig H. Kazazian, III
 
49
 
Senior Vice President, Treasurer
Robert S. Kovach
 
51
 
Senior Vice President, Chief Credit Officer
Eric M. Mondres
 
60
 
Senior Vice President, Director of Government and Industry Relations
Reginald T. O'Shields
 
44
 
Senior Vice President and General Counsel
Richard A. Patrick
 
59
 
Senior Vice President, Chief Audit Officer
Ken Yoo
 
44
 
Senior Vice President and Chief Risk Officer

W. Wesley McMullan was appointed president and chief executive officer in December 2010. Previously, he served as executive vice president and director of financial management since 2004, with responsibility for sales, MPP sales, asset-liability management, liquidity management, other mission-related investments, customer systems and operations, and member education. Mr. McMullan joined the Bank as a credit analyst in 1988 and later earned promotions to assistant vice president in 1993, vice president in 1995, group vice president in 1998, and senior vice president in 2001. He is a chartered financial analyst and earned a B.S. in finance from Clemson University.

Kirk R. Malmberg was appointed executive vice president and chief financial officer effective April 1, 2011. He oversees accounting, financial reporting, investment and derivatives operations, and treasury as well as the Bank's credit and collateral services. From December 2007 through March 2011, he served as executive vice president and chief credit officer, overseeing collateral services, credit services, community investment services and mortgage program operations. Prior to that, Mr. Malmberg served as senior vice president responsible for the Bank's mortgage programs. He joined the Bank in February 2001 as senior vice president, asset-liability management, after having served for five years as senior vice president, treasury, at FHLBank Chicago. Mr. Malmberg earned an M.B.A. from Rice University and a B.A. from Trinity University.

Cathy C. Adams was appointed executive vice president and chief operations officer effective March 1, 2011. She is responsible for overseeing all Bank programs related to information technology, human resources, administrative services, and financial operations management. Ms. Adams was named executive vice president and chief administrative officer in August 2008. Previously, she served as senior vice president of staff services from January 2004 through August 2008. Ms. Adams joined the Bank in 1986. She earned an M.B.A. in management from Georgia State University and a B.A. in business administration from Tift College.

Robert F. Dozier, Jr. was appointed executive vice president and chief business officer effective June 6, 2011. Mr. Dozier oversees the Bank's member sales and outreach, community investment services, corporate communications, and government and industry relations. Prior to joining the Bank, Mr. Dozier was president and chief operating officer for Homeowners Mortgage Enterprises, a subsidiary of CoastalStates Bank, where he began as a loan officer in 1992. Mr. Dozier also served on the board of directors for CoastalSouth Bancshares, the holding company of CoastalStates Bank. From 2002 to 2004, Mr. Dozier served as a member director of the Bank. He earned a B.A. in political science from the University of South Carolina.


124

Robert C. Bennett has served as senior vice president, chief information officer, overseeing the Bank's information technology division, since joining the Bank in 2009. Prior to that, Mr. Bennett was executive vice president and chief information officer for Homebanc Corporation from 1998 through 2007. During a 17-year career from 1981 through 1998 with BellSouth Telecommunications, Mr. Bennett served as chief information officer for various divisions, including corporate marketing and small business services. Mr. Bennett earned a B.A. in English literature from Ohio University.

Julia S. Brown serves as senior vice president and corporate secretary. The board of directors appointed Ms. Brown to serve as corporate secretary in April 2011. Prior to her appointment as corporate secretary, she served as associate general counsel, assistant corporate secretary beginning in 2005, deputy general counsel, assistant corporate secretary beginning in 2007, and first vice president, deputy general counsel for governance beginning in 2009. Before joining the Bank in August 2001 as a senior attorney, Ms. Brown practiced commercial real estate law with Sutherland Asbill & Brennan, LLP, in Atlanta, Georgia. She received a B.S. in Spanish and anthropology from Wellesley College, and her J.D. from Harvard Law School.

M. Bryan Delong has served as senior vice president, director of human resources and staff services, since September 1, 2011. Mr. Delong is responsible for developing and executing the Bank's human resources and total reward strategies. Mr. Delong also leads the Bank's staff services functions, which include facilities operations, print and mail services, and procurement. A 20-year veteran of the Bank, Mr. Delong previously served as the assistant director of human resources with responsibility for managing the Bank's compensation, benefits, human resources information systems, and employee development programs. Prior to joining the Bank in March 1993, Mr. Delong worked at LOMA as a compensation consultant and AT&T as a training specialist. Mr. Delong holds an M.S. in industrial and organizational psychology from Radford University, an M.A. in human resources development from Georgia State University, and a B.A. in English from Earlham College. He holds a certification as a Professional in Human Resources.

Arthur L. Fleming has served as senior vice president, director of community investment services, directing the Bank's community investment, economic development, and affordable housing products and services, since November 2007. Mr. Fleming has experience in a variety of financial services, legal, housing development, and academic roles. Before joining the Bank, Mr. Fleming was chief lending and investment officer for the Opportunity Finance Network, Inc., a national community development financial institution. He also served as the senior director for the southeast region and director of housing finance for the Fannie Mae Foundation; the senior vice president, managing director of housing initiatives at GMAC; founder and executive director of the Community Financing Consortium, Inc; and an attorney/senior associate for the FAU/FIU Joint Center for Environmental and Urban Problems. Mr. Fleming earned his undergraduate degree from Florida State University, and a master's degree in Urban and Regional Planning and a J.D. from the University of Florida.

Annette Hunter has served as director of accounting operations since 2006. On January 1, 2015, she was promoted from first vice president to senior vice president. In that role, Ms. Hunter is responsible for the daily accounting operations of the derivatives, investments, consolidated obligations, advances and purchased mortgage portfolios. Ms. Hunter joined the Bank in 2002 as manager of derivative and investment operations. Prior to joining the Bank, she served in various managerial accounting roles at Mirant Corporation, Louis Dreyfus Energy Corporation and Continental Hydraulic Hose. Ms. Hunter earned a B.S. in Business Administration from The Ohio State University and an M.B.A. from Kennesaw State University. She is a certified public accountant.

Haig H. Kazazian, III has served as treasurer since June 3, 2013, and was promoted to senior vice president, treasurer effective January 1, 2014. Mr. Kazazian joined the Bank as a credit analyst in 1992 and earned promotions to manager of national accounts and product development in 2001, first vice president in 2005, manager of national accounts and capital markets trading in 2009, and manager of treasury analysis and national accounts sales and trading in 2011. He is a chartered financial analyst and earned an M.B.A. and a B.A. in economics, each from Emory University. Mr. Kazazian was an M.B.A. Fellowship Recipient.

Robert S. Kovach has served as senior vice president, chief credit officer since January 2012, directing the Bank's credit and collateral services and collateral risk management operations. Prior to joining the Bank in 2010 as director of collateral services, Mr. Kovach served a variety of roles with FHLBank Pittsburgh from January 2008 to October 2010, including director of collateral services, chief investment officer, and director of internal audit. He also served as a field manager and a senior examiner for the Office of Thrift Supervision. Mr. Kovach holds a chartered financial analyst designation and earned a B.S. in chemistry from Dickinson College.

Eric M. Mondres has served as senior vice president, director of government and industry relations since 2009. Mr. Mondres oversees the Bank's efforts related to public policy development and strategy, as well as its relationships with industry members and groups as it relates to the Bank's business and mission. He joined the Bank in 2003 as vice president and director of government relations. Before joining the Bank, he worked for America's Community Bankers, the Thrift Depositor Protection Oversight Board, the Environmental Protection Agency as a consultant, the U.S. Department of Agriculture, and the U.S. House of Representatives' House Administration

125

Committee as assistant minority counsel. Mr. Mondres earned a B.A. degree in history and political science from Bridgewater College and a J.D. from Cumberland School of Law.

Reginald T. O'Shields has served as senior vice president and general counsel since April 2, 2011. Mr. O'Shields manages the delivery of legal services by the Bank's legal department covering a wide variety of corporate, securities, finance, and regulatory matters. He joined the Bank in 2003 as a senior attorney and earned promotions to assistant general counsel in 2005, associate general counsel in 2006 and deputy general counsel in 2007. He was named senior vice president, deputy general counsel and director of legal services January 1, 2011. Before joining the Bank, Mr. O'Shields was in private legal practice with Sutherland Asbill & Brennan, LLP in Atlanta, Georgia, Haynsworth Sinkler Boyd in Greenville, South Carolina, and Simpson, Thacher & Bartlett in New York, New York. Mr. O'Shields earned a J.D. from Vanderbilt University and a B.A. in economics from Furman University.

Richard A. Patrick has served as senior vice president and chief audit officer since 2002. He is responsible for providing an independent audit of the Bank by evaluating the internal control system and testing for compliance with internal policies and procedures as well as with applicable laws and directives from the Finance Agency. Mr. Patrick reports directly to the audit committee of the board of directors. Mr. Patrick joined the Bank in 1991 as the vice president and director of internal audit and was promoted to his senior position in 2002. Prior to joining the Bank, Mr. Patrick was a vice president and audit manager for C&S/Sovran Corporation, which is now known as Bank of America. Previously, he was a branch and operations audit officer for National Bank of Georgia. A certified public accountant, certified fraud examiner, certified financial services auditor, and certified bank auditor, Mr. Patrick earned a B.A. in business administration from Appalachian State University. He is also an honors graduate of the Bank Administration Institute's School for Bank Administration.

Ken Yoo has served as first vice president and chief risk officer since April 1, 2011, and was promoted to senior vice president and chief risk officer effective January 1, 2013. Mr. Yoo directs the Bank's enterprise risk management function and is responsible for overseeing enterprise-wide risk assessment and reporting functions as well as model validation efforts for the Bank. Mr. Yoo joined the Bank in 2006 as manager of risk reporting and analysis and financial risk modeling and was promoted to director of enterprise risk management and then deputy chief risk officer prior to his current position. Prior to joining the Bank, Mr. Yoo was employed by the Office of Federal Housing Enterprise Oversight (which was subsequently merged into the Finance Agency pursuant to the Housing Act), where he was a senior member of its supervisory group since 2005. Previously, Mr. Yoo was employed in various senior risk management consulting positions at BearingPoint, Inc. and at Merrill Lynch & Co. Mr. Yoo earned a Masters in International Affairs from George Washington University, an M.B.A. from Yonsei University in Seoul, Korea, and a B.A. in Economics from Virginia Tech.

Directors

The FHLBank Act provides that an FHLBank's board of directors is to comprise 13 directors, or such other number as the Director determines appropriate. For 2015, the Director has designated 14 directorships for the Bank, eight of which are member directorships and six of which are independent directorships. At least two of the independent directors must be public interest directors.

All individuals serving as Bank directors must be United States citizens. At least a majority of the directors must be member directors and not less than two-fifths must be independent directors. Under the FHLBank Act, as amended by the Housing Act, and Finance Agency regulations, the term of office of each director is four years, subject to certain adjustments to achieve a staggered board. Any director that has been elected to three consecutive full terms is not eligible for election to directorship for any term that begins within two years of the expiration of the third term.

Member Directors

Candidates for member directorships in a particular state are nominated by members in that state. FHLBank Boards are not permitted to nominate or elect member directors, except for vacant member directorships. Finance Agency regulations require that:
•
a member directorship be held only by an officer or director of a member institution located within the Bank's district
•
the member institution meet all minimum capital requirements established by its regulator(s), and
•
the member institution be a member as of the record date established for the election of the member director.
The Bank is not permitted to establish additional eligibility criteria or qualifications for member directorships. With respect to member directors, under Finance Agency regulations, no director, officer, employee, attorney, or agent of the Bank (except in his/her personal capacity) may, directly or indirectly, support the nomination or election of a particular individual for a member directorship.

For each member director position to be filled, an eligible member may cast one vote for each share of capital stock it was required to hold as of the record date, except that an eligible member's votes for each member director position to be filled may not exceed the average number of shares of capital stock required to be held by all of the members in that state as of the record date.


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The regulations permit, but do not require, the board of directors to conduct an annual assessment of the skills and experience possessed by the members of its board of directors as a whole and to determine whether the capabilities of the board would be enhanced through the addition of individuals with particular skills and experience. The Bank may identify those qualifications and so inform the members as part of its election notification process, but the Bank may not exclude a member director candidate from the election ballot on the basis of such qualifications. For the 2014 elections, the board of directors did not identify any particular qualifications as part of its election notification process.

Independent Directors

Candidates for independent directorships are nominated by the Bank's board of directors. Finance Agency regulations require that an independent directorship be held only by an individual:
•
who is a bona fide resident of the Bank's district,
•
who is not a director, officer, or employee of a member institution or of any recipient of advances from the Bank, and
•
who is not an officer of any FHLBank.

At least two of the independent directors must be public interest directors. Finance Agency regulations define a public interest independent director as someone having more than four years of experience representing consumer or community interests in banking services, credit needs, housing or consumer financial protection. The other independent directors must have experience in, or knowledge of, one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk management practices, and the law.

Any individual may submit an application form and request to be considered by the Bank to be an independent director candidate. Before nominating any individual for an independent directorship, other than for a public interest directorship, the Board must determine that the candidate's knowledge or experience is commensurate with that needed to oversee a financial institution with a size and complexity that is comparable to the Bank's. Finance Agency regulations require the board to consult with the Bank's Affordable Housing Advisory Council with respect to the independent directorship candidates. Further, the Bank must submit information about independent directorship candidates to the Finance Agency for its review prior to their nomination. After the independent director candidates are approved by the board, the candidates are then presented to the Bank's membership for a district-wide vote. Finance Agency regulations permit the Bank's directors, officers, attorneys, employees, agents, and Advisory Council to support the candidacy of the board's candidates for independent directorships.

For independent directorships, candidates are elected on a district-wide basis, with the candidate receiving the most votes being declared the winner. Candidates running unopposed must receive at least 20% of the number of votes eligible to be cast. If an unopposed candidate receives less than 20% of eligible votes, a new election must be conducted.

Board Vacancies

When the board has a vacancy, Finance Agency regulations require the board to elect a director to fill the vacancy by a majority vote of the remaining directors.

The Bank has determined that all directors meet the regulatory eligibility requirements for directors. Because of the laws and regulations governing member directorship elections that are described above, the Bank is not in a position to know what specific factors the Bank's member institutions may consider in selecting member director candidates or electing member directors. For the Bank's independent directors and the two member directors who hold their current directorships due to vacancy and appointment by the board, the board considered the experience, qualifications, attributes or skills described in the biographical paragraphs provided below in determining to nominate or appoint that person as a director for the Bank. In addition the board has at times considered the importance of maintaining a continuity of relevant knowledge, leadership and experience on the board and diversity of perspective, thought and experience when nominating or appointing a candidate.



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The following table sets forth information regarding each of the Bank's directors, and all persons nominated or chosen to become directors, as of the date of this Report. Except as otherwise indicated, each director has been engaged in the principal occupation described below for at least five years. No director has any family relationship with any other director or executive officer of the Bank.

Name
 
 
Age
 
Director Since
 
Expiration of Current Term
as Director
Travis Cosby, III (1)
 
 
56
 
2014
 
12/31/2017
Suzanne S. DeFerie (1) (6)
 
 
58
 
2015
 
12/31/2016
Michael P. Fitzgerald (1) (4)
 
 
58
 
2014
 
12/31/2017
F. Gary Garczynski (2) (3)
 
 
68
 
2007
 
12/31/2016
William C. Handorf (2)
 
 
70
 
2007
 
12/31/2015
J. Thomas Johnson (1)
 
 
68
 
2004
 
12/31/2015
Jonathan Kislak (2)
 
 
66
 
2008
 
12/31/2018
LaSalle D. Leffall, III (2)
 
 
52
 
2007
 
12/31/2016
Kim C. Liddell (1) 
 
 
54
 
2015
 
12/31/2018
Miriam Lopez (1)
 
 
64
 
2008
 
12/31/2018
John C. Neal (1)
 
 
65
 
2013
 
12/31/2016
Henry Gary Pannell (2)
 
 
77
 
2008
 
12/31/2015
Robert L. Strickland, Jr. (2) (3) (5)
 
 
63
 
2007
 
12/31/2017
Richard A. Whaley (1)
 
 
55
 
2013
 
12/31/2018
____________
(1) 
Member Director
(2) 
Independent Director
(3) 
Public Interest Director
(4) 
On February 14, 2014, Mr. Fitzgerald was elected to fill the vacant member directorship designated for the District of Columbia seat, effective March 26, 2014.
(5) 
Mr. Strickland previously served on the Bank's board of directors from 2002-2004.
(6) 
On December 12, 2014, Ms. DeFerie was elected to fill the vacant member directorship designated for the North Carolina seat, effective January 1, 2015.

Chairman of the board, F. Gary Garczynski, has served as the president of National Capital Land and Development, Inc., a construction and real estate development company in Woodbridge, Virginia, since 1997. Mr. Garczynski has served as chairman of the National Housing Endowment since 2004 and previously served as the 2002 President of the National Association of Home Builders (NAHB). Mr. Garczynski serves as a Senior Life Director of NAHB, a Life Director of the Home Builders Association of Virginia, and a Senior Life Director of the Northern Virginia Building Industry Association. He also is a member of the Prince William County, Virginia, Affordable Housing Task Force and a three-term appointee to the Virginia Housing Commission. Mr. Garczynski serves a gubernatorial appointment through 2016 as the Northern Virginia Director to the Commonwealth Transportation Board and the Northern Virginia Transportation Authority. Mr. Garczynski's public interest experience in housing, affordable housing and housing policy supported his nomination as a public interest director.

Vice chairman of the board, Richard A. Whaley, has served as president, chief executive officer, and director of Citizens Bank of Americus in Americus, Georgia, since 2001. From 1989 to 2001, he served as market manager and commercial lender for Wachovia Bank. Mr. Whaley served as chairman of the Georgia Bankers Association from October 2010 to June 2012. Mr. Whaley also served as chairman of the South Georgia Technical College Foundation from 2008 to 2010. He has been a member of the Georgia Municipal Association and Georgia Cities Foundation Special Downtown Task Force since 2011, and has served as a director of the Georgia Bankers Association Insurance Trust, Inc. since June 2013.

Travis Cosby, III has served as chairman of the board of First Community Bank of Central Alabama in Wetumpka, Alabama, since January 1, 2013, having previously served as president from 2001 - 2011 as well as chief executive officer from 2004 - 2012. He has over 30 years of banking experience and served in operations, lending, investment portfolio management, and funds management positions. He worked at Union Planters Bank from 1998 - 2001, achieving the title of city president, after rising to executive vice president during his tenure at First National Bank of Wetumpka from 1982 - 1998. From 1980 - 1982, Mr. Cosby worked at Jackson Thornton and Co., CPAs. He earned a B.S. in accounting from Auburn University, and became a certified public accountant in June 1982. Mr. Cosby is a past chairman and current board member of the Alabama Bankers Association, Inc.

Suzanne S. DeFerie has served as president and chief executive officer of Asheville Savings Bank, S.S.B. in Asheville, North Carolina, since January 2008 and its holding company, ASB Bancorp. Inc. since its incorporation in May 2011. Ms. DeFerie also serves a member of the boards of directors for both Asheville Savings Bank and ASB Bancorp. Inc. Prior to becoming Chief

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Executive Officer, Ms. DeFerie was Executive Vice President and Chief Financial Officer of Asheville Savings Bank for 16 years. Ms. DeFerie's experience in auditing, accounting and SEC reporting supported her appointment to fill the membership directorship vacancy.

Michael P. Fitzgerald is chairman, president and chief executive officer of Bank of Georgetown, located in Washington, D.C. Mr. Fitzgerald co-founded Bank of Georgetown in 2005 and oversees strategic planning, overall bank management and daily operations. Mr. Fitzgerald has more than 32 years of experience in commercial banking in the Greater Washington, D.C. area. From 1998 through 2003, he served as senior vice president of Sequoia Bank, overseeing all commercial banking operations in Maryland as well as government contractor banking efforts throughout the region. Mr. Fitzgerald began his banking career with Riggs Bank, where he served for 15 years in several capacities, including corporate banking, special assistant to the chairman, and from 1988 through 1994, was named president and chief executive officer of The Riggs National Bank of Maryland. Throughout his career, Mr. Fitzgerald has been active in a number of civic, cultural and educational organizations. He currently serves on the board of trustees of Marymount University and Providence Hospital, as a board member and former president of The Friendly Sons of St. Patrick of Washington, D.C. Mr. Fitzgerald also serves as a member of the Community Depository Institutions Advisory Council of the Federal Reserve Bank of Richmond. Mr. Fitzgerald's experience in accounting, financial management, organizational management, project development, credit and collateral, board service, and community banking supported his appointment to fill the membership directorship vacancy.

William C. Handorf, Ph.D. has served as a professor of finance and real estate at The George Washington University's School of Business in Washington, D.C. since 1975. From 2001 to 2006, Mr. Handorf served as a director of the Federal Reserve Bank of Richmond's Baltimore branch, including two years as chair. From 1992 to 1995, Mr. Handorf served as a private citizen director of the FHLBanks Office of Finance. Mr. Handorf's experience in financial markets, banking, real estate investment, accounting, and derivatives supported his nomination as an independent director.

J. Thomas Johnson is president and chief executive officer of Citizens Building and Loan, SSB in Greer, South Carolina, a position he has held since May 2009. Mr. Johnson is also vice chairman of the board of First Community Bank and its holding company, First Community Corporation, a position he has held since October 2004. From 1984 to 2004, Mr. Johnson was chief executive officer of Newberry Federal Savings Bank, and was chairman of the board of its holding company, Dutch Fork Bancshares, Inc., from its inception in 2000 until its acquisition by First Community Corporation in 2004. Mr. Johnson had previously been with Newberry Federal Savings Bank since 1977. Mr. Johnson is chairman of Business Carolina Inc., a statewide economic development lender, and serves on the boards of the South Carolina Bankers Association and a number of other civic and professional organizations. Mr. Johnson served as vice chairman of the board of the Bank from 2008 through 2010.

Jonathan Kislak has served as principal and chairman of the board of Antares Capital Corporation, a venture capital firm investing equity capital in expansion stage companies and management buyout opportunities, since 1999. From 1993 to 2005, Mr. Kislak served as president and chairman of the board of Kislak Financial Corporation, a community bank holding company in Miami, Florida. Since October 2013, Mr. Kislak has served on the board of directors and chair of the audit committee of Cherry Hill Mortgage Investment Corp. (NYSE - CHMI). Mr. Kislak's experience in economics and finance supported his nomination as an independent director.

LaSalle D. Leffall, III is president of LDL Financial, a corporate advisory and investment firm he founded in 2006. From 2002 to 2006, he was a senior executive of The NHP Foundation, one of the nation's largest nonprofit owners of affordable multifamily housing, and served as president, chief operating officer, and chief financial officer. In October and November 2008, he served as acting chief executive officer. From 1996 to 2002, Mr. Leffall was an investment banker in the mergers and acquisitions divisions of UBS and Credit Suisse First Boston in New York, New York. In 1992, Mr. Leffall began his career as an attorney in the corporate department of Cravath, Swaine & Moore in New York, New York. Mr. Leffall has served on the board of directors for Mutual of America Investment Corporation and Mutual of America Institutional Funds from 2011 through the present. He is a member of the New York State Bar, District of Columbia Bar, Council on Foreign Relations, The Federal City Council, and The Economic Club of Washington, D.C. Mr. Leffall earned a B.A., magna cum laude, in History from Harvard College followed by the simultaneous completion of a J.D., cum laude, from Harvard Law School and M.B.A. from Harvard Business School. Mr. Leffall's experience in finance, law, and affordable multifamily housing, and derivatives knowledge supported his nomination as an independent director.

Kim C. Liddell has served as president and chief executive officer of 1880 Bank, formerly known as the National Bank of Cambridge, in Cambridge, Maryland, since 2010. He was elected chairman of the board of directors in April 2011. From 2004 to 2009, Mr. Liddell served as chief operating officer and executive vice president of Cardinal Financial Corporation (CFNL) and Cardinal Bank. Mr. Liddell has served as a board member of the Virginia Bankers Association's Member Services, Inc., Junior Achievement of the National Capital Area, Business in Education Partnership with the Falls Church City Public Schools, Arlington County Chamber of Commerce, Celebrate Fairfax, and Leadership Fairfax. Mr. Liddell currently serves on the boards of the Maryland Bankers Association and Dorchester General Hospital Foundation. He previously served on the board of the Dorchester County Chamber of Commerce.


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Miriam Lopez has served as president, chief lending officer, and director of Marquis Bank in Coral Gables, Florida since July 2010. She previously served as chief executive officer of TransAtlantic Bank in Miami, Florida for 24 years and as TransAtlantic's chairman of the board from 2003 to 2007. She is a former president (non-executive position) of the Florida Bankers Association and former member of the American Bankers Association's Government Relations Council and Executive Committee.

John C. Neal has served as president and director of Union Bank & Trust, formerly known as Union First Market Bank, in Richmond, Virginia, since 2010. He also serves as chief banking officer of Union Bankshares Corporation. From 2004 to 2010, he served as president and chief executive officer of Union Bank and Trust Company. Mr. Neal has served as Union Bankshares Corporation's executive vice president and chief banking officer since 2005. Currently, Mr. Neal serves on the board of directors of the Benefits Corporation, a subsidiary of the Virginia Bankers Association. He also serves on the board of trustees of the Virginia Commonwealth University Foundation and the board of directors of the Fredericksburg Regional Alliance. He is a past board member and chairman of the Virginia Association of Community Banks. Mr. Neal has been active in numerous community development organizations, including the Rappahannock Economic Development Commission, and the Fredericksburg Industrial Development Authority.

Henry Gary Pannell has served as special counsel with the law firm Jones, Walker, L.L.P. in Atlanta, Georgia since September 2008, previously having been a member with the law firm Miller Hamilton Snider & Odom, LLC in Atlanta, Georgia since 2001. He served as a trustee with the Atlanta Nehemiah Housing Trust, a fund to provide interest-free construction loans to build affordable housing for municipal employees from 2003 through 2009. From 1973 to 2000, he held leadership positions with the Office of the Comptroller of the Currency in Atlanta, Georgia, including district counsel for the Southeastern District and regional counsel, 6th National Bank Region. From 1988 through 2009, he served as treasurer of the Episcopal Diocese of Atlanta, and continues to serve as a trustee of the Diocesan Foundation, Inc., a non-profit corporation that makes loans for church buildings and homes for clerics. Mr. Pannell's experience in federal banking law, corporate governance, bank accounting, and community development supported his nomination as an independent director.

Robert L. Strickland, Jr. is executive director of the Alabama Housing Finance Authority, an independent public corporation dedicated to serving the housing needs of low- and moderate-income Alabamians, a position he has held since 1987. Mr. Strickland served as president of the National Council of State Housing Agencies for two terms. He has also served on the National Association of Home Builders Mortgage Finance Roundtable and as a member of Fannie Mae's National Advisory Council. He currently serves as a director of the Alabama MultiFamily Loan Consortium. Mr. Strickland's experience in affordable housing finance supported his nomination as a public interest director.

Code of Conduct

The board has adopted a Code of Conduct that applies to the Bank's principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions, in each case, who are employees of the Bank. The Code of Conduct is posted on the Who We Are - Investor Relations -Governance section of the Bank's Internet website at http://corp.fhlbatl.com/who-we-are/investor-relations/. Any amendments to, or waivers under, the Bank's Code of Conduct that are required to be disclosed pursuant to the SEC's rules will be disclosed on the Bank's website.

Director Independence, Compensation Committee, Audit Committee, and Audit Committee Financial Expert

General

The board of directors of the Bank is required to evaluate the independence of the directors of the Bank under two distinct director independence standards. First, Finance Agency regulations establish independence criteria for directors who serve as members of the Bank's Audit Committee. Second, SEC rules require that the Bank's board of directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of its directors.

As of the date of this Report, the Bank has 14 directors, eight of whom are member directors and six of whom are independent directors. None of the Bank's directors is an “inside” director. That is, none of the Bank's directors is a Bank employee or officer. Further, as the Bank's stock may only be owned by members, former members, and certain non-members, the Bank's directors cannot personally own stock or stock options in the Bank. However, each of the member directors is an officer or director of an institution that is a member of the Bank and that is encouraged to engage in transactions with the Bank on a regular basis.

Finance Agency Regulations Regarding Independence

The Finance Agency's director independence standards prohibit an individual from serving as a member of the Bank's Audit Committee if he or she has one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual's independent judgment. Disqualifying relationships considered by the board are: employment with the

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Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter, or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The board assesses the independence of each director under the Finance Agency's independence standards, regardless of whether he or she serves on the Audit Committee. As of March 12, 2015, each of the Bank's directors was independent under these criteria.

SEC Rules Regarding Independence

SEC rules require the Bank's board of directors to adopt a standard of independence to evaluate its directors. The board has adopted the independence standards of the New York Stock Exchange (NYSE) to determine which of its directors are independent, including members of its Governance and Compensation Committee and Audit Committee, and whether the Bank's Audit Committee's financial experts are independent.

After applying the NYSE independence standards, the board determined that, as of March 12, 2015, directors Garczynski, Handorf, Kislak, Leffall, and Pannell, each an independent director, were independent. Based upon the fact that each member director is a senior official of an institution that is a member of the Bank (and thus is an equity holder in the Bank), that each such institution routinely engages in transactions with the Bank, and that such transactions occur frequently and are encouraged, the board determined that for the present time it would conclude that none of the member directors meets the independence criteria under the NYSE independence standards. For the same reasons, because Mr. Strickland is a senior official of a housing associate that is able to transact business with the Bank, the board has determined that he does not meet the independence criteria under the NYSE independence standards.

It is possible that under a strict reading of the NYSE objective criteria for independence (particularly the criterion regarding the amount of business conducted with the Bank by the director's institution), a member director could meet the independence standard on a particular day. However, because the amount of business conducted by a member director's institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the member directors based upon the amount of business conducted with the Bank by any director's institution at a specific time. The same reasoning applies to Mr. Strickland.

Compensation Committee

The board has a Governance and Compensation Committee, composed of directors Cosby, Liddell, Garczynski, Johnson, Neal, Pannell, Strickland and Whaley. As the Bank's Governance and Compensation Committee may only recommend actions to the full board regarding governance practices, compensation and benefits programs, which the full board may approve or disapprove, the board assesses the independence of the full board under the NYSE's standards for compensation committees. The board determined that, as of March 12, 2015, each of directors Garczynski, Handorf, Kislak, Leffall, and Pannell, was independent under the NYSE independence standards for compensation committee members, but for the reasons noted above, none of the member directors or Mr. Strickland was independent under such standards.

Audit Committee

The board has a standing Audit Committee, composed of directors Cosby, DeFerie, Fitzgerald, Garczynski, Handorf, Kislak, Leffall, and Whaley. The board determined that, as of March 12, 2015, each of directors Garczynski, Handorf, Kislak, and Leffall was independent under the NYSE independence standards for audit committee members, but, for the reasons noted above, none of the member directors serving on the Audit Committee was independent under such standards. The board also determined that each of directors DeFerie, Handorf, Kislak, Leffall, and Whaley is an “audit committee financial expert” within the meaning of the SEC rules.

The board also assesses the independence of the Audit Committee members under Section 10A(m)(3) of the Exchange Act. As of March 12, 2015, each of the Bank's directors was independent under these criteria. As stated above, the board determined that each member of the Audit Committee was independent under the Finance Agency's standards applicable to the Bank's Audit Committee.

Board Leadership Structure and Risk Oversight

The directors are nominated and elected in accordance with applicable law and Finance Agency regulations. As required by applicable law, the chairman and vice chairman of the board are elected by a majority of all the directors of the Bank from among the directors of the Bank for two year terms, and since Bank officers may not serve as directors of the Bank, neither the board chairman or vice chairman position can be filled by the president and chief executive officer of the Bank.


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The board of directors establishes the Bank's risk management culture, including risk tolerances and risk management philosophies, by establishing its risk management system, overseeing its risk management activities, and adopting its risk appetite and RMP. The board reviews the risk appetite report on a quarterly basis and approves any changes as appropriate. The board receives regular updates on the Bank's key risks including an independent risk assessment. The board reviews the RMP at least annually, approves any amendments to it as appropriate, and re-adopts it at least every three years. For further discussion of the risk appetite and the RMP, please see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Management. The board works with management to align the Bank's strategic activities and objectives within the parameters of the risk appetite framework and the RMP. The board utilizes committees as an integral part of overseeing risk management, including an audit committee, a credit and member services committee, an enterprise risk and operations committee, an executive committee, a finance committee, a governance and compensation committee, and a housing and community investment committee, with the following oversight responsibilities:

•
Audit Committee oversees the Bank's financial reporting process, system of internal control, audit process, policies and procedures for assessing and monitoring implementation of the strategic plan, and the Bank's process for monitoring compliance with laws and regulations.

•
Credit and Member Services Committee oversees the Bank's credit and collateral policies and related programs, services, products and documentation, and the Bank's credit and collateral risk management program, strategies, and activities.

•
Enterprise Risk and Operations Committee oversees the Bank's enterprise risk management functions, operations, information technology, and other related matters.

•
Executive Committee exercises most of the powers of the board in the management and direction of the affairs of the Bank during the intervals between board meetings.
 
•
Finance Committee oversees matters affecting the Bank's financial performance, capital management and other related matters, including the Bank's market and liquidity risk management program, strategies, and activities.
 
•
Governance and Compensation Committee oversees the Bank's governance practices, compensation and benefits programs, and other related matters.

•
Housing and Community Investment Committee oversees the Bank's housing and community investment policies, programs, and other relevant matters, including any other Bank products, services, and programs that may provide grants, subsidies, or other forms of assistance to support affordable housing and community economic development for low- and moderate-income individuals and communities.

The Bank's internal management is overseen by the president and delegated to other senior managers and internal management committees. The Bank has determined that this leadership structure is the most effective means of actively engaging the board of directors in risk management oversight while utilizing Bank management to implement and maintain sound risk management practices.

Compensation Committee Interlocks and Insider Participation

The board has a Governance and Compensation Committee that recommends actions to the full board regarding governance practices, compensation and benefits programs, which the full board of directors may approve or disapprove. None of the directors serving on the board in 2014 has at any time been an officer or employee with the Bank. None of the Bank's executive officers served during 2014 or is serving on the board of directors or the compensation committee of any entity whose executive officers served on the board of directors.

Item 11.     Executive Compensation.

Compensation Discussion and Analysis

Introduction

This section describes and analyzes the Bank's 2014 compensation program for its chief executive officer, chief financial officer, and three other most highly-compensated executive officers. These executive officers are collectively referred to as the Bank's “named executive officers.”

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In 2014 the Bank's named executive officers were as follows:

Name
 
Title
W. Wesley McMullan
 
President and Chief Executive Officer
Kirk R. Malmberg
 
Executive Vice President and Chief Financial Officer
Cathy C. Adams
 
Executive Vice President and Chief Operations Officer
Robert F. Dozier, Jr.
 
Executive Vice President and Chief Business Officer
Robert C. Bennett
 
Senior Vice President and Chief Information Officer
 
Philosophy and Objectives

The Bank's compensation philosophy and objectives are to attract, motivate, and retain high caliber financial services executives capable of achieving strategic business initiatives that lead to enhanced business performance and shareholder value. The Bank's compensation program is designed to reward this performance and enhanced value and to offer competitive compensation elements that align its executives' incentives with the interests of its members. To mitigate unnecessary or excessive risk-taking by executive management, the Bank's incentive compensation plan contains overall Bank performance thresholds that are dependent on an aggregation of transactions throughout the Bank and that cannot be individually altered by executive management. The incentive compensation plan contains quantitative components that are evaluated by the board of directors. Additionally, the board of directors maintains discretionary authority over all incentive compensation awards, giving the board of directors the flexibility to review Bank performance throughout the year and to adjust incentive compensation accordingly.

Elements of Compensation

To achieve the goals described above, the Bank compensates its executive officers with a combination of base salary, incentive compensation, and benefits. The Bank is unable to offer equity-related compensation because it is a cooperative, and only member financial institutions may own its capital stock. Accordingly, the Bank offers other compensation elements, such as qualified and non-qualified defined benefit and defined contribution pension plans, to motivate long-term performance and encourage retention. Because the Bank is exempt from federal taxes, the deductibility of compensation is not relevant to compensation plan design. The elements of the Bank's compensation program for executive officers, and the objective of each compensation element, are described below.

Base salary. Base salary is established on the basis of the ongoing duties associated with managing a particular set of functions at the Bank and provides an amount of fixed compensation. Each executive's base salary also is used as a basis in calculating the executive's annual incentive award opportunity, as described below.

Incentive compensation. The Bank provides an annual cash award opportunity (ICP) to executive officers based on the achievement of quantitative goals set and evaluated by the board of directors. The ICP is designed to promote and reward achievement of annual corporate performance goals set by the board. To promote consistently high corporate performance on a long-term basis and enhance the retention of key senior executive officers, payment of a portion of any ICP granted is deferred and distributed over a three-year period, together with positive or negative returns (Deferred Incentive). If, as of the time any payment of the Deferred Incentive otherwise would be due, the board of directors has made a good faith determination that the Bank has not achieved certain financial performance requirements, the board of directors may in its sole discretion elect to reduce or eliminate such payment of Deferred Incentive.

Benefits. The Bank provides retirement benefits to promote executive retention, and the executive officers are eligible to participate in the same benefit plans that are made available to other employees of the Bank, such as medical, group term life and long-term disability coverage. The Bank also provides limited perquisites to executive officers.

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Executive Compensation Process

Board and committee consideration of executive compensation. The Bank's board of directors establishes the Bank's executive compensation philosophy and objectives and has final approval of any compensation decisions related to the Bank's chief executive officer and all officers reporting directly to the chief executive officer who are senior vice presidents or higher. The governance and compensation committee of the board of directors advises and assists the board and makes recommendations to the board relating to compensation of such officers.

The chief executive officer reviews and recommends to the board the base salary of the senior vice president and higher level officers that report directly to him. The chief executive officer also determines the base salary of all other senior vice president officers (other than the chief audit officer) within an overall budget approved by the board of directors.

Use of compensation consultant. The governance and compensation committee of the board of directors selected and engaged Towers Watson to provide assistance in evaluating the Bank's executive compensation programs for 2014. Towers Watson reports directly to the committee with respect to executive compensation.

Consideration of competitive compensation levels. The Bank's executive compensation program is designed to be appropriately competitive with prevailing practices in the broader financial services industry, consistent with the Bank's business and risk profile. As part of each compensation review process, the board considers (1) the total cash compensation, including base salary, target incentive compensation, retirement benefits, perquisites and other benefits, severance agreements, and change in control agreements, at FHLBanks of similar size and complexity based on total assets, advance activity, membership, and scope of operations, and (2) the median and 75th percentiles for base pay, bonus pay, and total cash compensation offered at certain comparable commercial banks and financial services organizations. The companies that were included in the peer groups for 2014 are listed below in "Compensation Decisions in 2014 - Overview." The board uses this data to assess competitive levels of compensation for our executives and did not target any named executive officer's compensation to a specific percentile of such executive officer's comparable position in the peer groups.

The board does not evaluate specifically the internal pay relationship among the executives and other employees when setting executive cash compensation, or the multiples by which a named executive officer's cash compensation is greater than that of non-executive employees. The Bank is exempt from SEC proxy rules and does not provide shareholder advisory “say on pay” votes regarding executive compensation.

Finance Agency oversight of executive compensation. Pursuant to the Housing Act, the Director prohibits the FHLBanks from providing compensation to any executive officer that is not reasonable and comparable with compensation for employment in other similar businesses involving similar duties and responsibilities. Pursuant to this authority and a Finance Agency final rule on executive compensation, effective February 27, 2014, the FHLBanks are required to report to the Director all compensation actions relating to the president, the chief financial officer, and the three other most highly compensated officers at least 30 days in advance of any planned board decision with respect to those actions, and at least 60 days prior to entering into any written arrangement that provides incentive awards to any executive officer. At any time before an executive compensation action is taken, the Director may require an FHLBank to withhold any payment, transfer, or disbursement of compensation to an executive officer, or to place such compensation in an escrow account, or prohibit the action. The Housing Act also authorizes the Director to prohibit the Bank from making any golden parachute payments to its officers, employees, and directors.

In addition, Finance Agency Advisory Bulletin 2009-AB-02 establishes five principles for executive compensation by the FHLBanks and the Office of Finance:

•
executive compensation must be reasonable and comparable to that offered to executives in similar positions at other comparable financial institutions;

•
executive incentive compensation should be consistent with sound risk management and preservation of the par value of the FHLBank's capital stock;

•
a significant percentage of an executive's incentive-based compensation should be tied to longer-term performance and outcome indicators;

•
a significant percentage of an executive's incentive-based compensation should be deferred and made contingent upon the FHLBank's financial performance over several years; and


134

•
the FHLBank's board of directors should promote accountability and transparency in the process of setting compensation.

Under the capital classifications rules issued by the Finance Agency, a significantly undercapitalized FHLBank is prohibited from paying any bonus to an executive officer, or giving any salary increase to an executive officer without the prior written approval of the Director. The Bank was not undercapitalized during 2014.

Compensation Decisions in 2014
Overview
The board of directors bases its compensation decisions on both objective criteria related to the Bank's performance and subjective criteria related to general executive performance. Among the various criteria the board considered in evaluating the named executive officers' performance in 2014 were:
•
achievement of performance objectives for 2014 as determined by the board;
 
•
fulfillment of the Bank's public policy mission;

•
demonstration of leadership and vision for the Bank;

•
implementation and maintenance of effective business strategies and operations, legal and regulatory compliance programs, risk management activities, and internal controls commensurate with the Bank's size, scope, and complexity;
 
•
establishment and maintenance of strong relationships between the Bank and its customers, shareholders, employees, regulators, and other stakeholders; and

•
the Bank's 2014 financial results.

Base Salary

Mr. McMullan was appointed president and chief executive officer effective December 16, 2010. His base salary during 2014 was $722,000, which represents a 5.79% increase from 2013. In determining the base salary for Mr. McMullan, the board considered data developed by Towers Watson regarding the cash compensation provided by two different groups:

(1) the following FHLBanks deemed to be of similar size and complexity based on total assets, advance activity, membership, and scope of operations (FHLB Peers):

•
FHLBank Chicago
•
FHLBank Dallas
•
FHLBank New York
•
FHLBank San Francisco

and (2) the following commercial banks with assets between $20 billion and $65 billion (Commercial Bank Peers):

Ÿ Associated Banc-Corp        Ÿ First Horizon National
Ÿ Bank of the West        Ÿ Huntington Bancshares
Ÿ City National Bank        Ÿ People’s Bank
Ÿ Comerica            Ÿ Popular
Ÿ East West Bank        Ÿ Webster Bank
Ÿ First Citizens Bank        Ÿ Zion’s Bancorporation

The median asset size for the Commercial Bank Peers was $29.5 billion. According to the historical data provided to the board by Towers Watson, Mr. McMullan's 2014 salary was below the median base salary for the presidents of the FHLB Peers and the Commercial Bank Peers.

In determining the 2014 base salary for Mr. Malmberg, the board considered the same comparative compensation data provided by Towers Watson listed above. In order to review sufficient market data in determining the base salaries for Ms. Adams and Mr. Dozier, whose positions are not as precisely mirrored at other institutions, the board also considered compensation data supplied by Towers Watson from the following financial services organizations with assets between $20 billion and $65 billion (Financial Service Peers):

135


Ÿ Associated Banc-Corp        Ÿ Huntington Bancshares
Ÿ Assurant            Ÿ Navy Federal Credit Union
Ÿ Bank of the West        Ÿ People’s United Financial Inc.
Ÿ Chubb            Ÿ Phoenix Companies
Ÿ Cigna            Ÿ Popular
Ÿ City National Bank        Ÿ Progressive
Ÿ CNO Financial        Ÿ Protective Life
Ÿ Comerica            Ÿ RGA Reinsurance Group
Ÿ Commerce Bancshares        Ÿ Synovus Financial Corporation
Ÿ Cullen Frost Bankers        Ÿ Unum Group
Ÿ East West Bank        Ÿ Visa
Ÿ First Citizens Bank        Ÿ Webster Bank
Ÿ First Horizon National        Ÿ Wellpoint
Ÿ Great American Insurance    Ÿ Zion’s Bancorporation

The median asset size for the Financial Service Peers was $34.1 billion.

Following this review, the board opted to increase the existing base salaries of Mr. Malmberg, Ms. Adams, and Mr. Dozier to $455,000 (a 6.31% increase), $440,000 (a 6.28% increase), and $435,000 (a 6.36% increase), respectively, for 2014. According to the historical data provided to the board by Towers Watson, the 2014 base salaries of Mr. Malmberg, Ms. Adams, and Mr. Dozier were below the median base salaries for comparable positions at the considered FHLB Peers, Commercial Bank Peers and Financial Service Peers. As discussed above, the chief executive officer determines the base salary of all senior vice president officers (other than those officers reporting directly to him, whose base salaries are established by the board of directors, and the chief audit officer). Mr. Bennett's base salary for 2014 was $368,000, which represented a 3.81% increase from 2013.

Incentive Compensation

The 2014 award opportunities, as established by the board under the ICP, expressed as a percentage of base pay earnings during the year, were as follows:

2014 Award Opportunities
 
 
Percent of Base Salary
Title
 
Threshold (%)
 
Target (%)
 
Maximum (%)
President and Chief Executive Officer
 
40.00
 
75.00
 
98.00
Executive Vice President
 
30.00
 
55.00
 
80.00
Senior Vice President
 
24.00
 
48.00
 
70.00

The 2014 award opportunities were increased from 2013 to ensure the Bank’s total direct compensation package remains market competitive and aligned with the Bank's overall executive compensation philosophy. In approving these adjustments, the board reviewed comparative market data from the peer reference groups noted above and considered the Bank’s inability to provide equity-based compensation.

For 2014, the board established three incentive goals under the ICP, which correlate to the shareholder focus and risk management performance priorities reflected in the Bank's strategic plan. Each of these goals is described in more detail below. Awards for senior vice presidents also included individual and team goals. The board of directors established threshold, target, and maximum performance levels for each quantitative incentive goal. Each goal's “target” performance level is consistent with the assumptions set forth in the annual operating budget, forecasts, and strategic plan. The “threshold” and “maximum” performance levels are designed to reward partial attainment of the goal and performance beyond the forecasted levels, respectively. Factors considered in setting threshold and maximum performance levels include management's projections concerning economic conditions, interest rates, demand for advances products, and balance sheet structure.


136

The following tables provide the weights and awards for each performance target as a percentage of base salary that the board established for 2014. A description of each of the performance metrics, and the performance against such metrics in 2014, is provided following the tables.

2014 Weights and Awards
President and Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 
 
Percent of Base Salary
Goal
 
Weight (%)
 
Threshold (%)
 
Target (%)
 
Maximum (%)
Shareholder Focus - Shareholder Activity
 
40.00
 
16.00
 
30.00
 
39.20
Risk Management - Risk Appetite
 
30.00
 
12.00
 
22.50
 
29.40
Risk Management - ROE Spread to 3-Month LIBOR
 
30.00
 
12.00
 
22.50
 
29.40
Total
 
100.00
 
40.00
 
75.00
 
98.00
 
 
 
 
 
 
 
 
 
Executive Vice President
 
 
 
 
 
 
 
 
 
 
 
 
Percent of Base Salary
Goal
 
Weight (%)
 
Threshold (%)
 
Target (%)
 
Maximum (%)
Shareholder Focus - Shareholder Activity
 
40.00
 
12.00
 
22.00
 
32.00
Risk Management - Risk Appetite
 
30.00
 
9.00
 
16.50
 
24.00
Risk Management - ROE Spread to 3-Month LIBOR
 
30.00
 
9.00
 
16.50
 
24.00
Total
 
100.00
 
30.00
 
55.00
 
80.00
 
 
 
 
 
 
 
 
 
Senior Vice President
 
 
 
 
 
 
 
 
 
 
 
 
Percent of Base Salary
Goal
 
Weight (%)
 
Threshold (%)
 
Target (%)
 
Maximum (%)
Shareholder Focus - Shareholder Activity
 
30.00
 
7.20
 
14.40
 
21.00
Risk Management - Risk Appetite
 
25.00
 
6.00
 
12.00
 
17.50
Risk Management - ROE Spread to 3-Month LIBOR
 
25.00
 
6.00
 
12.00
 
17.50
Individual and Team Goals
 
20.00
 
4.80
 
9.60
 
14.00
Total
 
100.00
 
24.00
 
48.00
 
70.00

The Shareholder Focus - Shareholder Activity goal measures the increase in the number of products and services utilized by members during 2014. Performance under this measure was determined by calculating the percentage increase in product utilization as of December 31, 2014, over a product utilization baseline established as of December 31, 2013. The performance goals were 7.02 percent product utilization increase (threshold), 9.14 percent (target), and 13.37 percent (maximum). This goal was substantially the same for each named executive officer, and performance was determined on an overall basis. Based on 2014 performance, the board awarded the maximum level for this goal.

The Risk Management - Risk Appetite goal involves managing the Bank’s key risks at appropriate tolerance levels. Under this measure, the board and management defined the Bank’s key risks and the tolerance levels with respect to those risks. The Bank then scored each key risk based upon whether the Bank was satisfying the defined tolerance level. If the Bank was performing at or better than the defined tolerance level for all key risks, a risk appetite performance score of 100 was achieved. A deduction was applied to the risk appetite performance score for each key risk performing below the defined tolerance level. The amount that was deducted depended upon the extent of the underperformance. This goal was substantially the same for each named executive officer, and performance under these measures was determined on an overall basis. As of December 31, 2014, the Bank achieved a risk appetite performance score of 99.2%. Based upon that score, the board awarded an amount between the target and maximum level for this goal.

The Risk Management - ROE Spread to 3-Month LIBOR performance goal relates to the ROE amount in excess of average three-month LIBOR, excluding the impact of other-than-temporary impairment losses on private-label MBS. This performance measure reflects the Bank's ability to pay quarterly dividends to its members and was established with a sliding scale so that the spread performance metrics become smaller as LIBOR increases. The board of directors could reduce the award for this measure or increase

137

the required ROE spread to LIBOR under certain economic scenarios. No adjustments were made for 2014. For 2014, the performance goals were 365 basis points (threshold), 400 basis points (target), and 430 basis points (maximum). In 2014 the Bank's ROE spread to three-month LIBOR, excluding litigation settlement gains, was 387 basis points. Based upon that calculation, the board awarded an amount between the threshold and target level for this goal.

In 2014, the board of directors did not establish individual performance award opportunities for the Bank's president and executive vice presidents.

The following table provides the final award level associated with each performance goal and total award amounts for each named executive officer.

2014 Incentive Compensation Plan Awards
Name
 
Shareholder Activity (%)
 
Risk Appetite (%)
 
ROE Spread to 3-Month LIBOR (%)
 
Individual/Team Goals (%)
 
Total Award (%) of Base Salary
 
Overall Award Level
 
Total Calculated Award
 
Deferred Incentive
W. Wesley McMullan
 
39.20
 
28.85
 
18.60
 
—
 
86.65
 
Target-Max
$
625,613

 
$
312,806

Kirk R. Malmberg
 
32.00
 
23.40
 
13.71
 
—
 
69.11
 
Target-Max
 314,451

 
157,225

Cathy C. Adams
 
32.00
 
23.40
 
13.71
 
—
 
69.11
 
Target-Max
 304,084

 
152,042

Robert F. Dozier, Jr.
 
32.00
 
23.40
 
13.71
 
—
 
69.11
 
Target-Max
 300,629

 
150,314

Robert C. Bennett
 
21.00
 
17.06
 
9.77
 
14.00
 
61.83
 
Target-Max
 227,534

 
113,767


The amount of incentive compensation earned by each of the named executive officers under the ICP, as shown in the “Total Calculated Award” column in the preceding table is reflected under the “Non-Equity Incentive Compensation Plan” column in the Summary Compensation Table below. The Deferred Incentive portion was subtracted from the total calculated award value and will be paid, together with positive or negative returns (equal to the Bank's return on equity for the applicable year) over three years (2016-2018) on the following schedule, subject to certain restrictions discussed above:

Deferred Incentive Fee Payout Schedule
Payment Year
 
Payment
2016
 
1/3 of balance (± 1-year return)
2017
 
1/2 of balance (± 2-year return)
2018
 
Remaining balance (± 3-year return)

If a named executive officer's employment with the Bank terminates for any reason prior to payment of any earned incentive compensation, all remaining payments (including Deferred Incentive) shall be forfeited, subject to certain limited exceptions if the named executive officer dies, becomes disabled, or retires with a combination of age and years of service to the Bank totaling at least 70.
 
Retirement Benefits

The named executive officers are eligible to participate in certain tax-qualified and non-qualified defined benefit pension plans and defined contribution/deferred compensation plans. These plans are described in more detail below in the sections entitled "Executive Compensation," "Pension Benefits," and "Deferred Compensation."

The Bank's retirement benefit plans are a vital component of the Bank's retention strategy for executive officers and are important to the Bank's strategy to compete with other organizations that provide executive officers with economic benefits based on equity interests in the employer, especially recognizing that some of those organizations also may provide similar retirement benefits.

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Perquisites and Other Benefits

All named executive officers are eligible to participate in the benefit plans that are made available to all other employees of the Bank including medical, dental, and vision insurance coverage, group term life and long-term disability insurance coverage, and paid vacation and sick leave. The named executive officers generally participate in these plans on the same basis and terms as all other employees.

The Bank offers its named executive officers a limited number of perquisites, including an annual physical examination, guest travel to certain business functions, business club memberships, and financial planning services. For Mr. McMullan, the Bank also provides an automobile allowance of up to $1,500 per month. Because perquisites generally are limited, the board does not specifically consider perquisites when reviewing total compensation for any of the named executive officers.

Employment Arrangements and Severance Benefits

Other than the specific contractual arrangements discussed below, all Bank employees are employed under an “at will” arrangement. Accordingly, an employee may resign employment at any time, and the Bank may terminate the employee's employment at any time for any reason, with or without cause.

The board of directors may, in its discretion, provide severance benefits to an executive officer in the event of termination of his/her employment. In determining whether severance compensation is appropriate, the board of directors considers both the factors underlying the termination of employment and the employment history of the executive officer. The Bank does not provide a “gross up” benefit on taxes incurred with respect to any severance.

Employment Agreement. The Bank entered into an Employment Agreement with Mr. McMullan, effective January 1, 2014 (Employment Agreement). Under the Employment Agreement, Mr. McMullan's employment with the Bank may be terminated by the Bank with or without “cause,” or by Mr. McMullan with or without “good reason,” as defined in the Employment Agreement. Unless earlier terminated by either party as provided therein, the Employment Agreement has a three-year term and will extend automatically for subsequent one-year periods unless either party elects not to renew. The Employment Agreement established Mr. McMullan's base salary at $722,000 per year, which amount may be increased from year to year by the Bank's board of directors. Pursuant to the Employment Agreement, the Bank provides Mr. McMullan with a $1,500 per month automobile allowance. Mr. McMullan is entitled to participate in all incentive, savings, and retirement plans and programs available to senior executives of the Bank.

The Bank has a formal severance arrangement with Mr. McMullan, which is discussed below under “Potential Payments upon Termination or Change in Control.” This severance arrangement was an integral and necessary component of the Bank's strategy to recruit Mr. McMullan to the president and chief executive officer position.

139


Report of the Board of Directors

The board of directors of the Bank has reviewed and discussed the Compensation Discussion and Analysis above with management, and based on such review and discussion, the board of directors has determined that the Compensation Discussion and Analysis above should be included in the Bank's Annual Report on Form 10-K.

The board of directors of the Bank has primary responsibility for establishing and determining the Bank's compensation program. Therefore, this report is submitted by the full board of directors.

BOARD OF DIRECTORS

F. Gary Garczynski, Chairman
 
Richard A. Whaley, Vice Chairman
Travis Cosby, III
 
LaSalle D. Leffall, III
Suzanne S. DeFerie
 
Kim C. Liddell
Michael P. Fitzgerald
 
Miriam Lopez
William C. Handorf
 
John C. Neal
J. Thomas Johnson
 
Henry Gary Pannell
Jonathan Kislak
 
Robert L. Strickland, Jr.

Executive Compensation

Summary Compensation Tables

The following table provides a summary of cash and other compensation earned by the named executive officers for the years ended December 31, 2014, 2013, and 2012. It is important to read this table, and the other tables that follow, closely and in conjunction with the Compensation Discussion and Analysis. The narratives following the tables and the footnotes accompanying each table are important parts of each table.







140

2014 Summary Compensation Table
Name and Principal
Position
(a)
 
Year
(b)
 
Salary
(c)
 
Bonus (d) (2)
 
Non-Equity
Incentive Plan
Compensation (e) (3)
 
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (f) (4)
 
All Other
Compensation (g) (5)
 
Total
(h)
W. Wesley McMullan
President and Chief Executive Officer
 
2014
 
$
722,000

 
$
100

 
$
651,166

 
$
2,545,955

 
$
62,401

 
$
3,981,622

 
2013
 
682,500

 
1,100

 
681,764

 
154,640

 
59,980

 
1,579,984

 
2012
 
650,000

 
100

 
634,959

 
888,648

 
58,112

 
2,231,819

Kirk R. Malmberg
Executive Vice President and Chief Financial Officer
 
2014
 
455,000

 
100

 
327,033

 
964,617

 
28,301

 
1,775,051

 
2013
 
428,000

 
100

 
334,624

 
3,730

 
25,730

 
792,184

 
2012
 
411,950

 
100

 
315,086

 
298,740

 
28,815

 
1,054,691

Cathy C. Adams
Executive Vice President and Chief Operations Officer
 
2014
 
440,000

 
100

 
316,213

 
1,556,293

 
26,840

 
2,339,446

 
2013
 
414,000

 
100

 
323,601

 
348

 
25,158

 
763,207

 
2012
 
395,625

 
100

 
302,625

 
481,352

 
24,288

 
1,203,990

Robert F. Dozier, Jr.
Executive Vice President and Chief Business Officer
 
2014
 
435,000

 
100

 
311,992

 
66,000

 
26,050

 
839,142

 
2013
 
409,000

 
100

 
316,927

 
25,000

 
25,550

 
776,577

 
2012
 
390,000

 
100

 
294,840

 
18,000

 
25,048

 
727,988

Robert C. Bennett Senior Vice President and Chief Information Officer(1)
 
2014
 
368,000

 
200

 
236,608

 
122,000

 
22,865

 
749,673

 
2013
 
354,500

 
100

 
240,396

 
34,000

 
22,805

 
651,801

 
 
 
 
 
 
 
 
 
 
 
 
 
 
____________
(1) Mr. Bennett was not a named executive officer in 2012.
(2) The amounts in column (d) reflect an annual $100 employee appreciation bonus provided to all employees of the Bank. The Bank provides the named executive officers a tax gross-up on this bonus, which amount is included in column (g). The 2014 bonus amount for Mr. Bennett and the 2013 bonus amount for Mr. McMullan also include award payments of $100 and $1,000, respectively, under the Bank's Service Award Program to recognize employees with five or more years of service. The Service Award Program is administered by the Bank's human resources department and is available to all employees of the Bank under the same general terms and conditions. To the extent the Bank provided a tax gross-up on such awards, those amounts are included in column (g).
(3) The amounts in column (e) reflect the dollar value of all earnings for services performed during the fiscal years ended December 31, 2014, 2013, and 2012 pursuant to awards under the ICP, subject to certain mandatory deferral requirements. Fifty percent of the ICP awards for each year were subject to mandatory deferral over three years. As discussed in the Compensation Discussion and Analysis, the 2014 non-equity incentive compensation awards are subject to a 30 day review period and receipt of non-objection by the Finance Agency. The Bank received written non-objection from the Finance Agency on February 24, 2015. The amounts in column (e) also include the dollar value of all interest during each year earned on Deferred Incentive related to ICP awards for prior fiscal years.
(4) The amounts in column (f) reflect the sum of (i) the actuarial increase during each fiscal year in present value of the named executive officer's aggregate pension benefits under the Bank's Qualified and Excess Plans, computed as described in footnote (1) to the 2014 Pension Benefits table, and (ii) all "above market" earnings earned under the Bank's non-qualified deferred compensation plans. Under SEC rules, "above-market" earnings result when deferrals are credited with interest in excess of 120 percent of the Applicable Federal Rate. The 2014 above-market amounts for Mr. McMullan, Mr. Malmberg, and Ms. Adams were $5,955, $617, and $293, respectively. These plans are described in greater detail below under “Pension Benefits” and “Deferred Compensation.”
(5) The amounts in column (g) for 2014 consist of the following amounts:
Name
 
Contributions under the Bank's qualified 401(k) Plan (1)
 
Matching contributions under the Bank's non-qualified defined contribution benefit equalization plan
 
Perquisite (2)
 
Tax Gross-ups
 
Total
W. Wesley McMullan
 
$
14,114

 
$
29,206

 
$
19,031

 
$
50

 
$
62,401

 
 
 
 
 
 
 
 
 
 
 
Kirk R. Malmberg
 
9,000

 
18,300

 
951

 
50

 
28,301

 
 
 
 
 
 
 
 
 
 
 
Cathy C. Adams
 
8,123

 
18,277

 
402

 
38

 
26,840

 
 
 
 
 
 
 
 
 
 
 
Robert F. Dozier, Jr.
 
26,000

 
—

 
—

 
50

 
26,050

 
 
 
 
 
 
 
 
 
 
 
Robert C. Bennett
 
15,600

 
6,480

 
685

 
100

 
22,865

____________
(1) The Bank provided Mr. Dozier with $15,600 in matching 401(k) contributions and $10,400 in automatic 401(k) contributions.

141

(2) Perquisites are valued at the actual amounts paid by the Bank, and the value of each perquisite for each executive was less than $25,000. The Bank provided Mr. McMullan reimbursement for travel-related expenses, including an airline program membership, reimbursement for guest travel to certain business functions, and a $1,500 per month car allowance. The Bank provided Mr. Malmberg reimbursement for travel-related expenses, including an airline program membership, as well as reimbursement for guest travel to certain business functions. The Bank provided Ms. Adams reimbursement for guest travel to certain business functions and Mr. Bennett reimbursement for financial and tax planning services.


Awards of Incentive Compensation in 2014

The following table provides information concerning each grant of an award to a named executive officer in 2014 under the ICP.

2014 Grants of Plan-Based Awards
 
 
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
Name
(a)
 
Threshold
(b) (1)
 
Target
(c) (1)
 
Maximum
(d) (1)
W. Wesley McMullan
 
$
288,800

 
$
541,500

 
$
707,560

Kirk R. Malmberg
 
136,500

 
250,250

 
364,000

Cathy C. Adams
 
132,000

 
242,000

 
352,000

Robert F. Dozier, Jr.
 
130,500

 
239,250

 
348,000

Robert C. Bennett
 
88,320

 
176,640

 
257,600

____________
(1) Columns (b-d) reflect threshold, target, and maximum payment opportunities under the Bank's ICP for the fiscal year ended December 31, 2014. The actual amounts earned pursuant to the ICP during 2014 are reported under column (e) of the summary compensation table. Fifty percent of the actual amount earned is subject to mandatory deferral. For information on these awards, see “Compensation Discussion and Analysis.”

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Retirement Benefits

Pension Benefits

The 2014 Pension Benefits table below provides information with respect to the Pentegra Plan, the Bank's tax-qualified pension plan (Qualified Plan), and the Bank's non-qualified excess benefit pension plan (Excess Plan). The table shows the actuarial present value of accumulated benefits as of December 31, 2014, payable to each of the named executive officers, including the number of years of service credited to each named executive under each plan.

Qualified Plan

The pension benefits payable under the Qualified Plan are based on a pre-established defined benefit formula that provides for an annual retirement allowance and a retirement death benefit. A participant's benefit in the plan vests upon completion of five years of service with the Bank, and the participant then may retire under the plan at the times described below.

Employees hired before July 1, 2005

For participants hired on or before July 1, 2005, the Qualified Plan generally provides an annual retirement allowance equal to 2.5 percent of the participant's highest consecutive three-year average compensation for each year of credited service under the plan (not to exceed 30 years). Average compensation is defined as base salary and annual short-term incentive compensation.

For these participants, the standard retirement age is 65, with reduced early retirement benefits available at age 45. If the participant continues to work for the Bank until the sum of the participant's age and years of service with the Bank equals at least 70, the annual benefit payable following retirement is reduced by 1.5 percent for each year that retirement precedes normal retirement age. If the participant terminates employment before the participant's age and years of service with the Bank total 70, the annual benefit payable following retirement is reduced by six percent for each year between age 65 and 60, by four percent for each year between age 60 and 55, and by three percent for each year between age 55 and 45, in each case, that retirement precedes normal retirement age. For these participants, lump sum payments are available beginning at age 50.

Mr. McMullan, Mr. Malmberg, and Ms. Adams participate in the Qualified Plan on these terms because they were hired on or before July 1, 2005. Each of Mr. McMullan, Mr. Malmberg, and Ms. Adams has attained eligibility for immediate early retirement.

Employees hired between July 1, 2005 and February 28, 2011

For participants hired between July 1, 2005 and February 28, 2011, the Qualified Plan generally provides an annual retirement allowance equal to 1.5 percent of the participant's highest consecutive five-year average compensation for each year of credited service under the plan (not to exceed 30 years). Average compensation is defined as base salary only. For these participants, the standard retirement age is 65, with reduced early retirement benefits available at age 55. If the participant terminates employment before reaching age 65, the annual benefit payable following retirement is reduced by six percent for each year between age 65 and 60, by four percent for each year between age 60 and 55, in each case, that retirement precedes normal retirement age. For these participants, lump sum payments are not available. Mr. Bennett, hired in 2009, participates in the Qualified Plan under these terms and satisfied the plan vesting requirements as of January 1, 2015.

Employees hired on or after March 1, 2011

The Qualified Plan was closed to new participants effective March 1, 2011. Accordingly, Mr. Dozier does not participate in the Qualified Plan.

Excess Plan

Payments under the Qualified Plan may be limited due to federal tax code limitations. The Excess Plan exists to restore those benefits that executives otherwise would forfeit due to these limitations. The Excess Plan operates using the same benefit formula and retirement eligibility provisions as described above under the Qualified Plan. Because the Excess Plan is a non-qualified plan, the benefits received from this plan do not receive the same tax treatment and funding protection associated with the Qualified Plan.


143

Mr. Dozier participates solely in the Excess Plan because he was hired after March 1, 2011. As approved by the board of directors, Mr. Dozier participates in the Excess Plan to the same extent as if he were participating in the Qualified Plan (as if an employee hired between July 1, 2005 and February 28, 2011). Based on his length of employment, Mr. Dozier has not yet satisfied the plan vesting requirements and therefore is not yet eligible to retire under the Excess Plan.

Death Benefits

Death benefits, which do not vary based on date of hire, also are available under the Qualified Plan and the Excess Plan. If an employee dies while in active service, his/her beneficiary is entitled to a lump sum amount equal to the commuted value of 120 monthly retirement payments. If a former employee dies while in retirement, having elected the normal form of retirement benefits, his/her beneficiary also is entitled to a lump sum amount equal to the commuted value of 120 monthly retirement payments less payments received before the former employee died.

2014 Pension Benefits
Name
(a)
 
Plan Name
(b)
 
Number of Years of
Credited Service
(c)
 
Present Value of
Accumulated Benefit (d) (1)
 
Payments during last fiscal year
(e)
W. Wesley McMullan
 
Qualified Plan
 
26.8
 
$
1,525,000

 
$
—

 
 
 Excess Plan
 
26.8
 
5,088,000

 
—

Kirk R. Malmberg(2)
 
Qualified Plan
 
17.8
 
1,064,000

 
—

 
 
Excess Plan
 
17.8
 
1,699,000

 
—

Cathy C. Adams
 
Qualified Plan
 
28.3
 
1,879,000

 
—

 
 
Excess Plan
 
28.3
 
2,886,000

 
—

Robert F. Dozier, Jr.
 
Qualified Plan
 
—
 
—

 
—

 
 
Excess Plan
 
2.5
 
109,000

 
—

Robert C. Bennett
 
Qualified Plan
 
4.9
 
228,000

 
—

 
 
 Excess Plan
 
4.9
 
87,000

 
—

____________
(1) The “Present Value of Accumulated Benefit” is the present value of the annual pension benefit that was earned as of December 31, 2014, assuming retirement at age 65. Benefits under the Qualified Plan were calculated using a 3.95 percent discount rate; 4.12 percent was used to calculate benefits under the Excess Plan.
(2) In accordance with plan provisions, the years of credited service for Mr. Malmberg include 4.0 years credited for prior service earned while employed by FHLBank Chicago. The incremental value of this prior service, as valued in the Bank's Excess Plan, using the methodology described in note 1, is $384,000.

Deferred Compensation

Each named executive officer of the Bank is eligible to participate in the Bank's non-qualified, elective deferred compensation plan. Each named executive officer is also eligible to participate in the defined contribution benefit equalization plan, with the exception of Mr. Dozier. Directors are eligible to participate in the deferred compensation plan but are not eligible to participate in the defined contribution benefit equalization plan.

The deferred compensation plan permits a participant to defer all or a portion of his/her compensation, including base salary and awards under the ICP, and to direct such compensation into a range of mutual fund options designed to mirror the Bank's 401(k) Plan. Directors, and beginning in 2014, all deferred compensation plan participants, may select an interest crediting rate based on the Bank's return on equity. Distributions from the deferred compensation plan may be made either in a specific year, whether or not a participant's employment has ended, or at a time that begins at or after the participant's retirement or separation. Participants may elect to receive either a lump sum distribution or annual installment payments over periods ranging from two to five years. The Bank does not match contributions to the deferred compensation plan. Mr. McMullan and Ms. Adams participated in the deferred compensation plan for the year ended December 31, 2014.

Named executive officers are permitted to defer up to 40 percent of salary under the Bank's qualified 401(k) and non-qualified defined benefit equalization contribution plans. The Bank matches the amount contributed by a participant up to six percent of base salary. For employees hired on or after March 1, 2011, including Mr. Dozier, the Bank automatically contributes four percent of base salary into the 401(k) plan on behalf of the employee, in addition to the six percent match described above. All Bank contributions are subject to a two-year vesting period.


144

The defined contribution benefit equalization plan, like the 401(k) plan, is self-directed and provides participants with a range of mutual fund options through the Vanguard Group. Participants earn a market rate of return based on the mutual funds selected. Distributions from the defined contribution benefit equalization plan begin when a participant's employment has ended. Participants may elect to receive either a lump sum distribution or annual installment payments over periods ranging from two to five years. These plans are designed to encourage additional voluntary savings and to offer a valuable financial planning tool.

The amounts shown in the table below include compensation earned and deferred in 2014, and earnings on, or distributions of, such amounts. In accordance with SEC rules, the amounts shown in the table do not include any amounts in respect of the 401(k) plan.

2014 Nonqualified Deferred Compensation
Name
(a)
 
Executive Contributions in Last Fiscal Year
(b) (1)
 
Bank
Contributions in Last Fiscal Year
(c) (2)
 
Aggregate Earnings
In Last Fiscal Year
(d) (3)
 
Aggregate
Withdrawals / Distributions
(e)
 
 Aggregate Balance
at Last Fiscal Year End
(f) (4) (5)
W. Wesley McMullan
 
$
376,800

 
$
29,206

 
$
65,294

 
$
—

 
$
1,277,445

Kirk R. Malmberg
 
49,800

 
18,300

 
72,912

 
—

 
758,421

Cathy C. Adams
 
73,800

 
18,277

 
32,330

 
—

 
803,377

Robert F. Dozier, Jr.
 
—

 
—

 
—

 
—

 
—

Robert C. Bennett
 
2,760

 
6,480

 
4,565

 
—

 
58,949

____________
(1) Amounts under column (b) are included in salary reported for 2014 in column (c) of the 2014 Summary Compensation Table for all named executive officers. In addition, for Mr. McMullan, a portion of the amount under column (b) is included in non-equity incentive plan compensation reported in column (e) of the 2014 Summary Compensation Table.
(2) Amounts under column (c) are included in all other compensation amounts reported for 2014 in column (g) of the 2014 Summary Compensation Table.
(3) Amounts under column (d) reflect actual market returns for mutual funds selected by participants and interest credit received under the Bank's core economic income return on equity interest crediting rate.
(4) The aggregate balance includes $360,177 for Mr. McMullan and $16,936 for Ms. Adams under the deferred compensation plan at December 31, 2013. In addition, the aggregate balance includes $2,158 under the defined contribution benefit equalization plan at December 31, 2013 for Ms. Adams.
(5) Portions of this amount also are reported in the Summary Compensation Table; the year end 2014 aggregate balance for Mr. McMullan includes $22,000 and $45,250 included in salary reported in column (c) of the Summary Compensation Table for 2012 and 2013, respectively, and $312,000 included in non-equity incentive plan compensation reported in column (e) of the Summary Compensation Table for 2013. The year end 2014 aggregate balance for Mr. Malmberg includes $14,575 and $41,200, and for Ms. Adams includes $28,931 and $54,180, in each case included in salary reported in column (c) of the Summary Compensation Table for 2012 and 2013, respectively. The year end 2014 aggregate balance for Mr. Bennett includes $1,815 included in salary reported in column (c) of the Summary Compensation Table for 2013.

Potential Payments upon Termination or Change in Control
No executive officer has a change-in-control agreement with the Bank. With the exception of Mr. McMullan, none of the current executive officers has a severance arrangement with the Bank.

For Mr. McMullan, the board approved a severance arrangement providing that upon the Bank's termination of his employment for any reason other than “cause,” or upon Mr. McMullan's termination of his employment for “good reason,” the Bank shall pay a total of one year's base salary in effect at the date of termination in a lump sum within 30 days after Mr. McMullan executes and delivers a general release of claims to the Bank, plus an amount equal to the amount that would have been payable pursuant to Mr. McMullan's incentive compensation award for the year in which the date of termination occurs, prorated based upon the number of days Mr. McMullan was employed that year. The incentive compensation award is payable at the time such incentive compensation awards are paid to other senior executives. In addition, Mr. McMullan is entitled to receive certain healthcare replacement costs and other amounts required to be paid or provided under any other Bank plan, program, policy or practice or contract or agreement.

Under Mr. McMullan's Employment Agreement, “cause” is defined to include Mr. McMullan's willful failure to perform substantially his duties; his engagement in illegal conduct or gross misconduct injurious to the Bank; a written request from the Finance Agency or any other regulatory agency or body requesting that the Bank terminate his employment; crimes involving fraud or other dishonest acts; certain other notices from or actions by the Finance Agency; his breach of fiduciary duty or breach of certain covenants in the Employment Agreement; his refusal to comply with a lawful directive from the Chairman of the board of directors or from the board of directors; or his material breach of the Employment Agreement. In addition, the Employment Agreement defines “good reason” to include a material diminution in Mr. McMullan's base salary or in his authority; the Bank requiring Mr. McMullan to be based at any office or location other than in Atlanta, Georgia; or a material breach of the Employment Agreement by the Bank.


145

The following table provides information about potential payments to Mr. McMullan in the event his employment had terminated on December 31, 2014. He is not entitled to any tax gross-up payments in the event of termination, whether under the 280G "golden parachute" tax rules or otherwise.

 Potential Payments upon Termination
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cause
 
Severance
 
Medical, Dental, and Life Insurance Benefits
 
Pension Benefit Enhancements
 
Other Perquisites
 
Total
 
2014 ICP Award
 
Deferred Incentive for Prior Periods (1)
 
Annual Base Salary
Resignation without Good Reason
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Involuntary For Cause
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Involuntary Without Cause
 
625,613

 
647,109

 
722,000

 
—

 
—

 
—

 
1,994,722

Resignation For Good Reason
 
625,613

 
647,109

 
722,000

 
—

 
—

 
—

 
1,994,722

____________
(1) Mr. McMullan has reached a combination of age and years of service to the Bank totaling at least 70.

The other named executive officers are entitled to receive amounts earned during their terms of employment, regardless of the manner in which their employment terminated, on the same terms generally applicable to all employees of the Bank. These amounts include:

•
Severance, if and as determined at the sole discretion of the board.
•
Amounts accrued and vested through the Bank's Qualified Plan and the Excess Plan (the Bank's qualified and non-qualified defined benefit plans). Up to three months of incremental service under the Bank's pension plan may be granted, in the sole discretion of the board, if an employee is provided with severance pay.
•
Amounts accrued and vested through the 401(k) Plan and the defined contribution benefit equalization plan (the Bank's qualified and non-qualified defined contribution plans) and amounts contributed and associated earnings under the Bank's deferred compensation plan.
•
Accrued vacation and applicable retiree medical benefits and applicable retiree life insurance.
In the event of the death or disability of an employee, including a named executive officer, in conjunction with the benefits above, the employee or his/her beneficiary may receive benefits under the Bank's disability plan or payments under the Bank's life insurance plan, as appropriate.

Director Compensation
The FHLBank Act provides that each FHLBank may pay its directors reasonable compensation for the time required of them, and their necessary expenses, in the performance of their duties, subject to approval by the Director. In accordance with the FHLBank Act, the Bank has adopted a policy governing the compensation and travel expense reimbursement provided to its directors. Under this policy, directors receive fees paid for attendance at each meeting of the board of directors and meeting of a committee of the board of directors, as further described below. These fees are subject to the annual caps established under the policy. Directors do not receive separate retainers.

Directors are reimbursed for reasonable Bank-related travel expenses in accordance with Bank policy. In specified instances, the Bank may reimburse a director for the transportation and other ordinary travel expenses of the director's guest; in 2014, these expenses totaled $10,908.


146

During 2014, directors received fees for attendance at each board and committee meeting as described below. The following annual compensation limits applied.

2014 Annual Compensation Limits
Title
 
Amount
Chairman of the Board
 
$
85,000

Vice Chairman of the Board
 
80,000

Chairman of the Audit Committee
 
80,000

Other Committee Chairmen (excluding Audit and Executive)
 
75,000

All Other Directors
 
65,000


Under the 2014 Directors' Compensation Policy, each director had an opportunity to receive a payment of approximately one-seventh of that director's annual cap for attendance at no less than 75 percent of the board meeting and meetings of each committee of the board on which the director serves during each interim period. The first interim period began on December 15, 2013 and ended January 30, 2014 (the day of the first scheduled in-person board meeting for 2014). Each successive interim period began on the calendar day immediately following a scheduled board meeting through and including the day of the next scheduled board meeting, with the seventh interim period ending on December 13, 2014 after the seventh scheduled in-person board meeting. Under the policy, after the end of the seventh interim period and before the seventh payment was made, the governance and compensation committee of the board reviewed the cumulative attendance and performance of each director during 2014 and, in consultation with the chair of the board, recommended to the board a reduction, elimination or increase in the final payment opportunity. No increase could exceed the applicable annual compensation cap.

The following table sets forth the cash and other compensation earned or paid by the Bank to the members of the board of directors for all services in all capacities during 2014.

2014 Director Compensation
Name
(a)
 
Fees Earned or Paid in Cash (b)
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings (c) (2)
 
All Other Compensation (d) (3)
 
Total
(e)
John M. Bond, Jr.
 
$
75,000

 
$
5,352

 
$
667

 
$
81,019

Travis Cosby, III
 
65,000

 
—

 
454

 
65,454

Michael P. Fitzgerald(4)
 
55,714

 
—

 
672

 
56,386

F. Gary Garczynski
 
75,000

 
—

 
1,237

 
76,237

Donna C. Goodrich(1)
 
85,000

 
—

 
240

 
85,240

William C. Handorf
 
80,000

 
—

 
—

 
80,000

J. Thomas Johnson
 
65,000

 
—

 
1,227

 
66,227

Jonathan Kislak(1)
 
80,000

 
—

 
—

 
80,000

LaSalle D. Leffall III
 
75,000

 
—

 
—

 
75,000

Miriam Lopez
 
65,000

 
—

 
400

 
65,400

John C. Neal
 
65,000

 
—

 
488

 
65,488

Henry Gary Pannell
 
65,000

 
124

 
1,292

 
66,416

Robert L. Strickland, Jr.
 
75,000

 
—

 
2,485

 
77,485

Richard A. Whaley
 
75,000

 
—

 
1,746

 
76,746

____________
(1) At the request of the director, this amount was paid to a charity of his or her choosing.
(2) Directors are eligible to participate in the Bank's deferred compensation plan. Directors Bond and Pannell elected to defer compensation during 2014. Amounts reported for Directors Bond and Pannell represent above-market earnings on amounts deferred during prior years.
(3) Directors may be reimbursed for certain guest transportation, and other ordinary travel expenses and activities.
(4) Director Fitzgerald was elected by the board of directors effective March 26, 2014 to fill a vacant member director seat.


147



In December 2014, the board of directors approved the 2015 Directors' Compensation Policy, which is substantially similar to the 2014 policy but increased the annual compensation limits as reflected in the following table.

2015 Annual Compensation Limits
Title
 
Amount

Chairman of the Board
 
$
95,000

Vice Chairman of the Board
 
90,000

Chairman of the Audit Committee
 
90,000

Other Committee Chairmen (excluding Audit and Executive)
 
85,000

All Other Directors
 
75,000



148


Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The Bank is a cooperative whose members own substantially all of the outstanding capital stock of the Bank and elect the directors of the Bank. The exclusive voting right of members is for the election of the Bank's board of directors. A member is eligible to vote for the number of open member director seats in the state in which its principal place of business is located, and all members are eligible to vote for the number of open independent director seats. Membership is voluntary, and a member must give notice of its intent to withdraw from membership. A member that withdraws from membership may not acquire shares of any FHLBank before the end of the five-year period beginning on the date of the completion of its divestiture of Bank stock.

The Bank does not offer any compensation plan under which equity securities of the Bank are authorized for issuance. Ownership of the Bank's capital stock is concentrated within the financial services industry and is stratified across various institution types as noted in the following table (in millions).

 
 
 
Commercial
Banks
 
Thrifts
 
Credit
Unions
 
Insurance
Companies
 
CDFIs
 
Mandatorily Redeemable Capital Stock
 
Total
December 31, 2014
$
3,821

 
$
381

 
$
872

 
$
75

 
$
1

 
$
19

 
$
5,169

December 31, 2013
3,766

 
290

 
739

 
86

 
2

 
24

 
4,907

December 31, 2012
3,641

 
342

 
810

 
104

 
1

 
40

 
4,938

December 31, 2011
4,133

 
675

 
810

 
98

 
2

 
286

 
6,004

December 31, 2010
5,273

 
996

 
847

 
107

 
1

 
529

 
7,753


The following table sets forth information about those members that are beneficial owners of more than five percent of the Bank's capital stock as of February 28, 2015.
Name and Address
 
Number of Shares Owned
 
Percent of
Total Capital Stock
Bank of America, National Association
 
7,355,464

 
15.59
100 North Tryon Street
 
 
 
 
Charlotte, NC 28255
 
 
 
 
Capital One, National Association
 
5,240,514

 
11.10
1680 Capital One Drive
 
 
 
 
McLean, VA 22102
 
 
 
 
Navy Federal Credit Union
 
4,660,440

 
9.88
820 Follin Lane
 
 
 
 
Vienna, VA 22180
 
 
 
 
Branch Banking and Trust Company
 
3,097,965

 
6.56
200 W 2nd Street
 
 
 
 
Winston Salem, NC 27104
 
 
 
 
SunTrust Bank
 
2,404,111

 
5.09
25 Park Place
 
 
 
 
Atlanta, GA 30302
 
 
 
 


149

Additionally, member directors, which comprise a majority of the board of directors of the Bank, are officers or directors of member institutions that own the Bank's capital stock. The following table lists these institutions as of February 28, 2015.

Member Name
 
City, State
 
Number of Shares Owned
 
Percent of Total Capital Stock
Union Bank & Trust
 
Richmond, VA
 
294,454

 
0.62
Bank of Georgetown
 
Washington, DC
 
42,100

 
0.09
Asheville Savings Bank, S.S.B.
 
Asheville, NC
 
29,019

 
0.06
First Community Bank
 
Lexington, SC
 
19,462

 
0.04
Marquis Bank
 
Coral Gables, FL
 
6,966

 
0.01
Citizens Bank of Americus
 
Americus, GA
 
4,566

 
0.01
First Community Bank of Central Alabama
 
Wetumpka, AL
 
2,777

 
0.01
1880 Bank
 
Cambridge, MD
 
1,715

 
*
Citizens Building and Loan, SSB
 
Greer, SC
 
1,551

 
*
____________
* Represents less than 0.01 percent.

Item 13.     Certain Relationships, Related Transactions and Director Independence.

Because the Bank is a cooperative, capital stock ownership is a prerequisite to transacting any business with the Bank. The Bank's member directors are officers or directors of member institutions. As a result, all members and most directors would be classified as related parties, as defined by securities law and SEC regulations. In the ordinary course of its business, the Bank transacts business with each of the members that has an officer or director serving as a director of the Bank. All such transactions:

•
have been made in the ordinary course of the Bank's business;
•
have been made subject to the same Bank policies as transactions with the Bank's members generally; and
•
in the opinion of management, do not involve more than the normal risk of collection or present other unfavorable features.

The Bank has adopted a written related person transaction policy which requires the Governance and Compensation Committee of the board of directors to review and, if appropriate, to approve any transaction between the Bank and any related person (as defined by applicable SEC regulations). Pursuant to the policy, the committee will review any transaction the Bank would be required to disclose in filings with the SEC in which the Bank is or will be a participant and the amount involved exceeds $120,000, and in which any related person had, has, or will have a direct or indirect material interest. The Bank has exemptive relief, pursuant to an SEC no-action letter, from disclosing certain related person transactions that arise in the ordinary course of the Bank's business. The committee may approve those transactions that are in, or are not inconsistent with, the best interests of the Bank and its shareholders.

In addition, the Bank has a written Code of Conduct applicable to all employees and a Code of Conduct and Ethics for Directors as well as other written policies and procedures that also may apply to or prohibit certain related person transactions.

Director Independence

For a discussion of director independence, refer to Item 10, Directors, Executive Officers and Corporate Governance-Director Independence, Compensation Committee, Audit Committee and Audit Committee Financial Expert.


150

Item 14.     Principal Accountant Fees and Services.

The aggregate fees billed to the Bank by PwC are set forth in the following table for each of the years ended December 31, 2014 and 2013 (in thousands).
 
 
For the Years Ended December 31,
 
2014
 
2013
Audit fees(1)
$
867

 
$
796

Audit-related fees(2)
42

 
58

Total fees
$
909

 
$
854

____________
(1) Audit fees and expenses for the years ended December 31, 2014 and 2013 were for professional services rendered by PwC in connection with the Bank's annual audits and quarterly reviews of the Bank's financial statements.
(2) Audit-related fees and expenses for the years ended December 31, 2014 and 2013 were for assurance and related services primarily related to accounting and consultations.

The Bank is exempt from federal, state and local taxation. Therefore, no tax related fees were paid during the years ended December 31, 2014 and 2013.

The Audit Committee of the board of directors has adopted the Audit Committee Pre-Approval Policy (Pre-Approval Policy). In accordance with the Pre-Approval Policy and applicable law, the Audit Committee pre-approves audit services, audit-related services, tax services and non-audit services to be provided by the Bank's independent registered public accounting firm. The term of any pre-approval is 12 months from the date of pre-approval unless the Audit Committee specifically provides otherwise. On an annual basis, the Audit Committee reviews the list of specific services and projected fees for services to be provided for the next 12 months and pre-approves services as the Audit Committee deems necessary. Under the Pre-Approval Policy, the Audit Committee has granted pre-approval authority to the Chairman and the Vice-Chairman of the Audit Committee, subject to limitation as set forth in the Pre-Approval Policy. The Chairman or the Vice-Chairman must report any pre-approval decisions to the Audit Committee at its next regularly scheduled meeting. New services that have not been pre-approved by the Audit Committee that are in excess of the pre-approval fee level established by the Audit Committee must be presented to the entire Audit Committee for pre-approval. In the years ended December 31, 2014 and 2013, 100 percent of the audit fees and audit-related fees were pre-approved by the Audit Committee.





151

PART IV.

Item 15.     Exhibits and Financial Statement Schedules.

(a)
Financial Statements. The following financial statements of the Federal Home Loan Bank of Atlanta, set forth in Item 8 above, are filed as part of this Report.

Report of Independent Registered Public Accounting Firm
Statements of Condition as of December 31, 2014 and 2013
Statements of Income for the Years Ended December 31, 2014, 2013, and 2012
Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013, and 2012
Statements of Capital Accounts for the Years Ended December 31, 2014, 2013, and 2012
Statements of Cash Flows for the Years Ended December 31, 2014, 2013, and 2012
Notes to Financial Statements


152

(b)
Exhibits. The following exhibits are filed as a part of this Report:

Exhibit No.
Description
 
 
3.1
Amended and Restated Organization Certificate of the Federal Home Loan Bank of Atlanta1
 
 
3.2
Bylaws of the Federal Home Loan Bank of Atlanta (Revised and Restated through October 25, 2012)1
 
 
4.1
Capital Plan of the Federal Home Loan Bank of Atlanta2
 
 
10.1
Federal Home Loan Bank of Atlanta Benefit Equalization Plan (2011 revision) 3
 
 
10.2
Federal Home Loan Bank of Atlanta Deferred Compensation Plan (2009 revision)4
 
 
10.3
Form of Officer and Director Indemnification Agreement5
 
 
10.4
Federal Home Loan Bank of Atlanta 2015 Directors' Compensation Policy
 
 
10.5
Federal Home Loan Bank of Atlanta Omnibus Annual Incentive Compensation Plan (as amended January 26, 2012)6
 
 
10.6
Employment Agreement, effective as of January 1, 2014, between the Bank and W. Wesley McMullan7
 
 
10.7
Federal Home Loan Banks P&I Funding and Contingency Plan Agreement, effective as of July 20, 2006, by and among the Office of Finance and each of the Federal Home Loan Banks8
 
 
10.8
Amended Joint Capital Enhancement Agreement by and among each of the Federal Home Loan Banks9
 
 
12.1
Statement regarding computation of ratios of earnings to fixed charges
 
 
31.1
Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2
Certification of the Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1
Certification of the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 135, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
99.1
Audit Committee Report
 
 
101
Audited financial statements from the Annual Report on Form 10-K of Federal Home Loan Bank of Atlanta for the year ended December 31, 2014, filed on March 13, 2015, formatted in XBRL: (i) the Statements of Condition, (ii) Statements of Income, (iii) the Statements of Capital, (iv) the Statements of Cash Flows and (v) the Notes to Financial Statements.
 
 
 
 
1
Filed on October 26, 2012 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
2
Filed on August 5, 2011 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
 
3
Filed on March 23, 2012 with the SEC in the Bank's Form 10-K and incorporated herein by reference.
 
4
Filed on March 30, 2009 with the SEC in the Bank's Form 10-K and incorporated herein by reference.
 
5
Filed on March 17, 2006 with the SEC in the Bank's Form 10 Registration Statement and incorporated herein by reference.
 
6
Filed on March 23, 2012 with the SEC in the Bank's Form 10-K and incorporated herein by reference.
 
7
Filed on March 14, 2014 with the SEC in the Bank's Form 10-K and incorporated herein by reference.
 
8
Filed on June 27, 2006 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
 
9
Filed on August 5, 2011 with the SEC in the Bank's Form 8-K and incorporated herein by reference.
 


153

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
Federal Home Loan Bank of Atlanta
 
 
 
Date:
March 13, 2015
By /s/ W. Wesley McMullan
 
 
    Name: W. Wesley McMullan
    Title: President and Chief Executive Officer


154

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Date:
March 13, 2015
By /s/ W. Wesley McMullan 
 
 
    Name: W. Wesley McMullan
 
 
    Title: President and Chief Executive Officer
 
 
 
Date:
March 13, 2015
By /s/ Kirk R. Malmberg
 
 
    Name: Kirk R. Malmberg
 
 
    Title: Executive Vice President
                and Chief Financial Officer
 
 
 
Date:
March 13, 2015
By /s/ William T. Shaw
 
 
    Name: William T. Shaw
 
 
    Title: First Vice President and Controller
 
 
 
Date:
March 13, 2015
By /s/ F. Gary Garczynski
 
 
    Name: F. Gary Garczynski
 
 
    Title: Chairman of the Board of Directors
 
 
 
Date:
March 13, 2015
By /s/ Richard A. Whaley
 
 
    Name: Richard A. Whaley
 
 
    Title: Vice Chairman of the Board of Directors
 
 
 
Date:
March 13, 2015
By /s/ Travis Cosby, III
 
 
    Name: Travis Cosby, III
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ Suzanne S. DeFerie
 
 
    Name: Suzanne S. DeFerie
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ Michael P. Fitzgerald
 
 
    Name: Michael P. Fitzgerald
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ William C. Handorf
 
 
    Name: William C. Handorf
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ J. Thomas Johnson
 
 
    Name: J. Thomas Johnson
 
 
    Title: Director
 
 
 

155

 
 
 
Date:
March 13, 2015
By /s/ Jonathan Kislak
 
 
    Name: Jonathan Kislak
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ LaSalle D. Leffall, III
 
 
    Name: LaSalle D. Leffall, III
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ Kim C. Liddell
 
 
    Name: Kim C. Liddell
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ Miriam Lopez
 
 
    Name: Miriam Lopez
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ John C. Neal
 
 
    Name: John C. Neal
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ Henry Gary Pannell
 
 
    Name: Henry Gary Pannell
 
 
    Title: Director
 
 
 
Date:
March 13, 2015
By /s/ Robert L. Strickland, Jr.
 
 
    Name: Robert L. Strickland, Jr.
 
 
    Title: Director


156