Federal Home Loan Bank of Atlanta - FORM 10-Q

Attached files

file	filename
EX-32.1 - SECTION 906 CERTIFICATIONS - Federal Home Loan Bank of Atlanta	dex321.htm
EX-31.2 - SECTION 302 CERTIFICATION OF THE EXECUTIVE VP & CFO - Federal Home Loan Bank of Atlanta	dex312.htm
EX-31.1 - SECTION 302 CERTIFICATION OF THE INTERIM PRESIDENT & CHIEF EXECUTIVE OFFICER - Federal Home Loan Bank of Atlanta	dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

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

Commission File Number: 000-51845

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)

Federally chartered corporation

56-6000442

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨ Yes ¨ No

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


Large accelerated filer ¨		Accelerated filer ¨

Non-accelerated filer x (Do not check if a smaller reporting company)		Smaller reporting company ¨

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

The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of April 30, 2010, was 83,388,076.

Table of Contents


PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	STATEMENTS OF CONDITION	1
	STATEMENTS OF INCOME	2
	STATEMENTS OF CAPITAL	3
	STATEMENTS OF CASH FLOWS	4
	NOTES TO FINANCIAL STATEMENTS	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	66
Item 4.	Controls and Procedures	69
PART II.	OTHER INFORMATION	70
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	(Removed and Reserved)	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
SIGNATURES		72

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CONDITION

(Unaudited)

(In millions, except par value)


	As of
	March 31, 2010		December 31, 2009
ASSETS
Cash and due from banks	$	4	$	465
Deposit with other FHLBanks		2		3
Federal funds sold		15,230		10,043
Trading securities (includes $113 and $137 pledged as collateral as of March 31, 2010 and December 31, 2009, respectively, that may be repledged and includes other FHLBanks’ bonds of $71 and $72 as of March 31, 2010 and December 31, 2009, respectively)		3,358		3,553
Available-for-sale securities		2,660		2,256
Held-to-maturity securities, net (fair value of $15,765 and $16,442 as of March 31, 2010 and December 31, 2009, respectively)		16,087		17,085
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $1 as of March 31, 2010 and December 31, 2009		2,418		2,522
Advances, net		105,474		114,580
Accrued interest receivable		465		515
Premises and equipment, net		34		34
Derivative assets		23		39
Other assets		526		216

TOTAL ASSETS	$	146,281	$	151,311

LIABILITIES
Interest-bearing deposits	$	2,941	$	2,989
Loans from other FHLBanks		35		—
Consolidated obligations, net:
Discount notes		17,778		17,127
Bonds		115,492		121,450

Total consolidated obligations, net		133,270		138,577


Mandatorily redeemable capital stock		481		188
Accrued interest payable		619		612
Affordable Housing Program payable		128		125
Payable to REFCORP		14		21
Derivative liabilities		469		409
Other liabilities		225		137

Total liabilities		138,182		143,058


Commitments and contingencies (Note 13)

CAPITAL
Capital stock Class B putable ($100 par value) issued and outstanding shares:
Subclass B1 issued and outstanding shares: 15 as of March 31, 2010 and December 31, 2009		1,497		1,520
Subclass B2 issued and outstanding shares: 63 and 66 as of March 31, 2010 and December 31, 2009, respectively		6,355		6,604

Total capital stock Class B putable		7,852		8,124
Retained earnings		916		873
Accumulated other comprehensive loss		(669)		(744)

Total capital		8,099		8,253

TOTAL LIABILITIES AND CAPITAL	$	146,281	$	151,311

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

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In millions)


	Three Months Ended March 31,
	2010		2009
INTEREST INCOME
Advances	$	69	$	432
Prepayment fees on advances, net		3		3
Interest-bearing deposits		1		3
Federal funds sold		5		8
Trading securities		42		54
Available-for-sale securities		39		—
Held-to-maturity securities		172		275
Mortgage loans held for portfolio		32		42

Total interest income		363		817


INTEREST EXPENSE
Consolidated obligations:
Discount notes		3		163
Bonds		207		615
Deposits		—		2
Mandatorily redeemable capital stock		—		2

Total interest expense		210		782


NET INTEREST INCOME		153		35


OTHER INCOME (LOSS)
Total other-than-temporary impairment losses		(64)		(698)
Portion of impairment losses recognized in other comprehensive loss		18		609

Net impairment losses recognized in earnings		(46)		(89)


Net gains (losses) on trading securities		4		(34)
Net (losses) gains on derivatives and hedging activities		(17)		112
Other		—		1

Total other loss		(59)		(10)


OTHER EXPENSE
Compensation and benefits		14		16
Other operating expenses		11		8
Finance Agency		2		2
Office of Finance		2		1

Total other expense		29		27


INCOME (LOSS) BEFORE ASSESSMENTS		65		(2)

Affordable Housing Program		5		—
REFCORP		12		—


Total assessments		17		—

NET INCOME (LOSS)	$	48	$	(2)

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

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

(In millions)


	Capital Stock Class B Putable			Retained Earnings		Accumulated Other Comprehensive Loss
	Shares	Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Capital
BALANCE, DECEMBER 31, 2008	85	$	8,463	$	435	$	(5)	$	8,893

Cumulative effect of adjustment to opening balance relating to other-than-temporary impairment guidance	—		—		179		(179)		—
Issuance of capital stock	7		655		—		—		655
Repurchase/redemption of capital stock	(11)		(1,062)		—		—		(1,062)
Net shares reclassified to mandatorily redeemable capital stock	(19)		(1,867)		—		—		(1,867)
Comprehensive loss:
Net loss	—		—		(2)		—		(2)
Other comprehensive loss	—		—		—		(602)		(602)

Total comprehensive loss	—		—		—		—		(604)

BALANCE, MARCH 31, 2009	62	$	6,189	$	612	$	(786)	$	6,015


BALANCE, DECEMBER 31, 2009	81	$	8,124	$	873	$	(744)	$	8,253
Issuance of capital stock	—		25		—		—		25
Repurchase/redemption of capital stock	—		(4)		—		—		(4)
Net shares reclassified to mandatorily redeemable capital stock	(3)		(293)		—		—		(293)
Comprehensive income:
Net income	—		—		48		—		48
Other comprehensive income	—		—		—		75		75

Total comprehensive income	—		—		—		—		123

Cash dividends on capital stock	—		—		(5)		—		(5)

BALANCE, MARCH 31, 2010	78	$	7,852	$	916	$	(669)	$	8,099

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

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)


	Three Months Ended March 31,
	2010		2009
OPERATING ACTIVITIES
Net income (loss)	$	48	$	(2)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		(27)		21
Loss due to change in net fair value adjustment on derivative and hedging activities		205		37
Net change in fair value adjustment on trading securities		(4)		60
Net impairment losses recognized in earnings		46		89
Net change in:
Accrued interest receivable		50		132
Other assets		(311)		(20)
Affordable Housing Program payable		2		(8)
Accrued interest payable		7		5
Payable to REFCORP		(7)		—
Other liabilities		5		—

Total adjustments		(34)		316


Net cash provided by operating activities		14		314


INVESTING ACTIVITIES
Net change in:
Interest-bearing deposits		189		849
Federal funds sold		(5,187)		(976)
Trading securities:
Proceeds from sales		—		300
Proceeds from maturities		200		128
Available-for-sale securities:
Proceeds from maturities		95		—
Held-to-maturity securities:
Net change in short-term		(355)		—
Proceeds from maturities		1,449		1,036
Purchases		(481)		(227)
Advances:
Proceeds from principal collected		19,278		37,080
Made		(10,203)		(20,678)
Mortgage loans held for portfolio:
Proceeds from principal collected		104		171
Purchase of premise, equipment and software		(3)		(1)


Net cash provided by investing activities		5,086		17,682

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


	Three Months Ended March 31,
	2010		2009
FINANCING ACTIVITIES
Net change in deposits
Deposits		(64)		1,324
Borrowings from other FHLBanks		35		—
Net payments from derivatives containing a financing element		(201)		(199)
Proceeds from issuance of consolidated obligations:
Discount notes		231,354		54,716
Bonds		24,696		23,034
Bonds transferred from other FHLBanks		—		351
Payments for debt issuance costs		(6)		(10)
Payments for maturing and retiring consolidated obligations:
Discount notes		(230,667)		(60,346)
Bonds		(30,724)		(36,469)
Proceeds from issuance of capital stock		25		655
Payments for repurchase/redemption of capital stock		(4)		(1,062)
Payments for repurchase/redemption of mandatorily redeemable capital stock		—		(10)
Cash dividends paid		(5)		—

Net cash used in financing activities		(5,561)		(18,016)


Net decrease in cash and cash equivalents		(461)		(20)

Cash and cash equivalents at beginning of the period		465		28


Cash and cash equivalents at end of the period	$	4	$	8


Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	209	$	623

AHP assessments, net	$	3	$	8

REFCORP assessments	$	19	$	3


Noncash investing and financing activities:
Net shares reclassified to mandatorily redeemable capital stock	$	293	$	1,867

Held-to-maturity securities acquired with accrued liabilities	$	84	$	—

Transfer of held-to-maturity securities to available-for-sale securities	$	409	$	1,604

Transfers of mortgage loans to real estate owned	$	10	$	1

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

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 1—Basis of Presentation

The accompanying unaudited interim financial statements of the Federal Home Loan Bank of Atlanta (the “Bank”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could be different from these estimates. The foregoing interim financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods, have been included. The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending December 31, 2010, or for other interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2009, which are contained in the Bank’s 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 25, 2010 (“Form 10-K”).

A description of the Bank’s significant accounting policies is included in Note 1 to the 2009 audited financial statements contained in the Bank’s Form 10-K. There have been no material changes to these policies as of March 31, 2010.

Note 2—Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

Scope Exception Related to Embedded Credit Derivatives. In March 2010, the Financial Accounting Standards Board (“FASB”) issued amended guidance to clarify that the only type of embedded credit derivative feature related to the transfer of credit risk that is exempt from derivative bifurcation requirements is one that is in the form of subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination will need to assess these embedded credit derivatives to determine if bifurcation and separate accounting as a derivative is required. This guidance is effective at the beginning of the first interim reporting period beginning after June 15, 2010 (July 1, 2010 for the Bank). Early adoption is permitted at the beginning of an entity’s first interim reporting period beginning after issuance of this guidance. Bank management does not believe that the adoption of this guidance will have a material effect on the Bank’s financial condition or results of operations.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Recently Adopted Accounting Guidance

Fair Value Measurements and Disclosures. In January 2010, the FASB issued guidance that requires new disclosures related to transfers in and out of Level 1 and 2 fair value hierarchy, and activity in Level 3 fair value hierarchy, and clarifies some existing disclosure requirements about fair value measurement. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about activity in Level 3 fair value hierarchy. Those disclosures are effective for fiscal years beginning after December 15, 2010 (January 1, 2011 for the Bank), and for interim periods within those fiscal years. Except for the disclosures about activity in Level 3 fair value hierarchy, the Bank adopted this guidance, effective January 1, 2010, which resulted in enhanced fair value disclosures but had no effect on the Bank’s financial condition or results of operation. Bank management does not believe that the adoption of the new disclosures about activity in Level 3 fair value hierarchy will have a material effect on the Bank’s financial condition and results or operations.

Subsequent Events. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. The amended disclosure requirement was effective upon issuance. The adoption of this guidance modified the Bank’s subsequent events disclosures, but had no effect on the Bank’s financial condition or results of operations.

Accounting for the Consolidation of Variable Interest Entities. In June 2009, the FASB issued guidance to improve financial reporting by enterprises involved with variable interest entities (“VIEs”) and to provide more relevant and reliable information to users of financial statements. This guidance amends the manner in which entities evaluate whether consolidation is required for VIEs. An entity must first perform a qualitative analysis in determining whether it must consolidate a VIE, and if the qualitative analysis is not determinative, the entity must perform a quantitative analysis. The guidance also requires that an entity continually evaluate VIEs for consolidation, rather than making such an assessment based upon the occurrence of triggering events. Additionally, the guidance requires enhanced disclosures about how an entity’s involvement with a VIE affects its financial statements and its exposure to risks. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Bank adopted this guidance effective January 1, 2010. The adoption of this guidance did not have any effect on the Bank’s financial condition or results of operations.

Accounting for Transfers of Financial Assets. In June 2009, the FASB issued guidance to change how entities account for transfers of financial assets by (1) eliminating the concept of a qualifying special-purpose entity; (2) defining the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale; (3) clarifying the isolation analysis to ensure that an entity considers all of its continuing involvements with transferred financial assets to determine whether a transfer may be accounted for as a sale; (4) eliminating an exception that currently permits an entity to derecognize certain transferred mortgage loans when that entity has not surrendered control over those loans; and (5) requiring enhanced disclosures about transfers of financial assets and a transferor’s continuing involvement with transfers of financial assets accounted for as sales. This guidance is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. The Bank adopted this guidance effective January 1, 2010. The adoption of this guidance did not have any effect on the Bank’s financial condition or results of operations.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 3—Trading Securities

Major Security Types. Trading securities were as follows:


	As of March 31, 2010		As of December 31, 2009
Government-sponsored enterprises debt obligations	$	3,277	$	3,470
Other FHLBank’s bond*		71		72
State or local housing agency obligations		10		11

Total	$	3,358	$	3,553

* The Federal Home Loan Bank (“FHLBank”) of Chicago is the primary obligor of this consolidated obligation bond.

Net gains (losses) on trading securities for the three-month periods ended March 31, 2010 and 2009 included net unrealized holding gains (losses) of $5 and $(31), respectively.

Note 4—Available-for-sale Securities

During the three-month periods ended March 31, 2010 and 2009, the Bank transferred certain private-label mortgage-backed securities (“MBS”) from its held-to-maturity portfolio to its available-for-sale portfolio. These securities represent private-label MBS in the Bank’s held-to-maturity portfolio for which the Bank has recorded an other-than-temporary impairment loss. The Bank believes the other-than-temporary impairment loss constitutes evidence of a significant deterioration in the issuer’s creditworthiness. The Bank has no current plans to sell these securities nor is the Bank under any requirement to sell these securities.

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


	2010						2009
	Amortized Cost		Other-Than- Temporary Impairment Recognized in Accumulated Other Comprehensive Loss		Estimated Fair Value		Amortized Cost		Other-Than- Temporary Impairment Recognized in Accumulated Other Comprehensive Loss		Estimated Fair Value
Transferred at March 31,	$	467	$	58	$	409	$	2,386	$	782	$	1,604

Total	$	467	$	58	$	409	$	2,386	$	782	$	1,604

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010

	Amortized Cost		Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Loss		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Private label	$	3,324	$	664	$	—	$	—	$	2,660

Total	$	3,324	$	664	$	—	$	—	$	2,660


	As of December 31, 2009

	Amortized Cost		Other-Than-Temporary Impairment Recognized in Accumulated Other Comprehensive Loss		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Private label	$	2,995	$	739	$	—	$	—	$	2,256

Total	$	2,995	$	739	$	—	$	—	$	2,256

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


	As of March 31, 2010
	Less than 12 Months					12 Months or More					Total

	Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
Private label	—	$	—	$	—	37	$	2,660	$	664	37	$	2,660	$	664

Total	—	$	—	$	—	37	$	2,660	$	664	37	$	2,660	$	664


	As of December 31, 2009
	Less than 12 Months					12 Months or More					Total

	Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
Private label	—	$	—	$	—	32	$	2,256		$ 739	32	$	2,256		$ 739

Total	—	$	—	$	—	32	$	2,256		$ 739	32	$	2,256		$ 739

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010

	Amortized Cost		Other-Than-Temporary Impairment Recognized in Other Accumulated Comprehensive Loss		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Bank of America Corporation, Charlotte, NC	$	2,205	$	505	$	—	$	—	$	1,700

Total	$	2,205	$	505	$	—	$	—	$	1,700


	As of December 31, 2009

	Amortized Cost		Other-Than-Temporary Impairment Recognized in Other Accumulated Comprehensive Loss		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Bank of America Corporation, Charlotte, NC	$	2,259	$	600	$	—	$	—	$	1,659

Total	$	2,259	$	600	$	—	$	—	$	1,659

The amortized cost of the Bank’s MBS classified as available-for-sale includes net discounts of $3 and $2 as of March 31, 2010 and December 31, 2009, respectively.

Note 5—Held-to-maturity Securities

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


	As of March 31, 2010								As of December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Certificates of deposit	$	655	$	—	$	—	$	655	$	300	$	—	$	—	$	300
State or local housing agency obligations		111		3		—		114		115		3		—		118
Mortgage-backed securities:
U.S. agency obligations-guaranteed		739		4		—		743		777		2		1		778
Government-sponsored enterprises		6,376		233		2		6,607		6,598		226		2		6,822
Private label		8,206		16		576		7,646		9,295		9		880		8,424

Total	$	16,087	$	256	$	578	$	15,765	$	17,085	$	240	$	883	$	16,442

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010
	Less than 12 Months					12 Months or More					Total

	Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses
State or local housing agency obligations	1	$	17	$	—	—	$	—	$	—	1	$	17	$	—
Mortgage-backed securities:
U.S. agency obligations-guaranteed	1		144		—	—		—		—	1		144		—
Government-sponsored enterprises	4		427		2	1		18		—	5		445		2
Private label	13		448		6	140		5,756		570	153		6,204		576

Total	19	$	1,036	$	8	141	$	5,774	$	570	160	$	6,810	$	578


	As of December 31, 2009
	Less than 12 Months					12 Months or More					Total

	Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses		Number of Positions	Fair Value		Gross Unrealized Losses
Mortgage-backed securities:
U.S. agency obligations-guaranteed	1	$	148	$	1	1	$	1	$	—	2	$	149	$	1
Government-sponsored enterprises	3		220		2	2		145		—	5		365		2
Private label	14		492		7	166		7,154		873	180		7,646		880

Total	18	$	860	$	10	169	$	7,300	$	873	187	$	8,160	$	883

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


	As of March 31, 2010								As of December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Bank of America Corporation, Charlotte, NC	$	2,751	$	6	$	176	$	2,581	$	2,982	$	3	$	236	$	2,749

Total	$	2,751	$	6	$	176	$	2,581	$	2,982	$	3	$	236	$	2,749

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010				As of December 31, 2009
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Year of maturity:
Due in one year or less	$	661	$	662	$	302	$	302
Due after one year through five years		103		105		96		99
Due after 10 years		2		2		17		17

		766		769		415		418
Mortgage-backed securities		15,321		14,996		16,670		16,024

Total	$	16,087	$	15,765	$	17,085	$	16,442

The amortized cost of the Bank’s MBS classified as held-to-maturity includes net discounts of $48 and $49 as of March 31, 2010 and December 31, 2009, respectively.

Note 6—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.

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 & Poor’s Rating Services (“S&P”), at purchase date. The “AAA”-rated securities achieved their ratings through credit enhancement, over-collateralization and senior-subordinated shifting interest features; the latter results in subordination of payments by junior classes to ensure cash flows to the senior classes. The ratings on a significant number of the Bank’s private-label MBS have changed since their purchase date.

Non-Private-label MBS. The unrealized losses related to U.S. agency MBS and government-sponsored enterprises MBS are caused by interest rate changes and not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises and Bank management does not expect these securities to be settled at a price less than the amortized cost basis. In addition, the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of March 31, 2010.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Private-label MBS. The Bank evaluates its individual private-label MBS holdings for other-than-temporary impairment on a quarterly basis, or more frequently if events or changes in circumstances indicate that these investments may be other-than-temporarily impaired.

To assess whether the entire amortized cost bases of its private-label MBS will be recovered, the Bank performed a cash flow analysis for each of its private-label MBS. In performing the cash flow analysis for each of these securities, the Bank used two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (“CBSAs”), which are based upon an assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast assumed current-to-trough home price declines ranging from zero percent to 12 percent over the next six to 12 months (resulting in peak-to-trough home price declines of up to 65 percent). Thereafter, home prices are projected to remain flat for the first six months following the trough, increase by 0.5 percent for the following six months, increase by three percent in the second year and increase by four percent in each subsequent year.

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

At each quarter end, the Bank compares the present value of the cash flows expected to be collected with respect to its private-label MBS to the amortized cost basis of the security to determine whether a credit loss exists. For the Bank’s variable rate and hybrid private-label MBS, the Bank uses a forward interest rate curve to project the future estimated cash flows. The Bank then uses the current effective interest rate for the security in 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.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

For those securities for which an other-than-temporary impairment was determined to have occurred during the three-month period ended March 31, 2010 (that is, a determination was made that less than all of the entire amortized cost bases will likely be recovered), the following table represents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings:


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

Year of Securitization

Prime:

2008	9.4	9.4 to 9.4	27.7	27.7 to 27.7	43.9	43.9 to 43.9	15.8	15.8 to 15.8

2006	8.3	8.1 to 9.0	12.6	12.2 to 12.7	40.1	39.9 to 40.6	8.3	7.2 to 8.6

2005	9.9	9.9 to 9.9	14.4	14.4 to 14.4	52.1	52.1 to 52.1	8.0	8.0 to 8.0

Total prime	9.0	8.1 to 9.9	19.1	12.2 to 27.7	43.2	39.9 to 52.1	11.3	7.2 to 15.8

Alt-A:

2007	10.0	8.2 to 13.3	55.2	51.8 to 59.8	46.3	43.9 to 48.5	15.0	8.1 to 19.4

2006	9.8	8.9 to 11.7	55.6	52.9 to 58.8	48.6	46.2 to 52.1	10.8	6.7 to 13.0

2005	11.1	6.7 to 13.8	42.2	24.3 to 69.9	45.7	35.5 to 51.2	9.4	4.5 to 13.3

2004 and prior	16.0	15.1 to 19.8	27.4	9.6 to 32.5	47.9	41.6 to 49.4	13.3	11.6 to 15.5

Total Alt-A	10.7	6.7 to 19.8	49.8	9.6 to 69.9	46.7	35.5 to 52.1	12.5	4.5 to 19.4

Total	10.4	6.7 to 19.8	43.9	9.6 to 69.9	46.0	35.5 to 52.1	12.3	4.5 to 19.4

Based on the Bank’s impairment analysis for the three-month periods ended March 31, 2010 and 2009, the Bank recognized total other-than-temporary impairment losses of $64 and $698, respectively. The credit related portion of $46 and $89, respectively, of these other-than-temporary impairment losses is reported in the Statements of Income as “Net impairment losses recognized in earnings.” The noncredit related portion of $18 and $609, respectively, of the other-than-temporary impairment losses is recorded as a component of other comprehensive loss.

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


	Three Months Ended March 31,
	2010		2009
Balance of credit losses previously recognized in earnings, beginning of period	$	321	$	5

Amount related to credit loss for which an other-than-temporary impairment was not previously recognized		3		74

Amount related to credit loss for which an other-than-temporary impairment was previously recognized		43		15


Balance of cumulative credit losses recognized in earnings, end of period	$	367	$	94

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The remainder of the Bank’s private-label MBS that has not been designated as other-than-temporarily impaired has 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. This decline in fair value is considered temporary as the Bank expects to recover the amortized cost bases of the securities, the Bank does not intend to sell the securities and it is not more likely than not that the Bank will be required to sell the securities before the anticipated recovery of the securities’ remaining amortized cost basis, which may be at maturity. The assessment is based on the fact that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.

Note 7—Advances

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


	As of March 31, 2010		As of December 31, 2009
Year of contractual maturity:
Overdrawn demand deposit accounts	$	18	$	—
Due in one year or less		28,407		32,808
Due after one year through two years		19,777		21,565
Due after two years through three years		15,192		14,665
Due after three years through four years		8,836		10,757
Due after four years through five years		5,391		5,910
Due after five years		23,132		24,108

Total par value		100,753		109,813
Discount on AHP* advances		(13)		(13)
Discount on EDGE** advances		(12)		(12)
Hedging adjustments		4,751		4,798
Deferred commitment fees		(5)		(6)

Total	$	105,474	$	114,580

*	The Affordable Housing Program

**	The Economic Development and Growth Enhancement program

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


	As of March 31, 2010		As of December 31, 2009
Year of contractual maturity or next conversion date:
Overdrawn demand deposit accounts	$	18	$	—
Due or convertible in one year or less		41,613		46,848
Due or convertible after one year through two years		19,015		21,999
Due or convertible after two years through three years		13,340		11,802
Due or convertible after three years through four years		8,471		10,035
Due or convertible after four years through five years		4,748		5,463
Due or convertible after five years		13,548		13,666

Total par value	$	100,753	$	109,813

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Based on the collateral pledged as security for advances, management’s credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by management as of March 31, 2010 and December 31, 2009, respectively. No advance was past due as of March 31, 2010 or December 31, 2009.

The Bank’s potential credit risk from advances is concentrated in commercial banks, savings institutions and credit unions and further concentrated in certain larger borrowing relationships. As of March 31, 2010 and December 31, 2009, the concentration of the Bank’s advances to its 10 largest borrowers was $68,709 and $75,418, respectively, representing 68.2 percent and 68.7 percent, respectively, of total advances.

Interest-rate Payment Terms. The following table details advances by interest-rate payment type:


	As of March 31, 2010		As of December 31, 2009
Fixed-rate	$	89,227	$	97,743
Variable-rate		11,526		12,070

Total par value	$	100,753	$	109,813

Note 8—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 FHLBanks Office of Finance (“Office of Finance”) tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of consolidated obligations for which it is the primary obligor.

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


	As of March 31, 2010		As of December 31, 2009
Fixed-rate	$	83,929	$	93,441
Simple variable-rate		18,127		16,312
Step up/down		11,927		10,334
Fixed-rate that converts to variable-rate		70		—
Variable-rate capped floater		60		60
Variable-rate that converts to fixed-rate		25		25

Total par value	$	114,138	$	120,172

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010			As of December 31, 2009
	Amount		Weighted- average Interest Rate (%)	Amount		Weighted- average Interest Rate (%)
Year of contractual maturity:
Due in one year or less	$	47,478	1.34	$	63,383	1.27
Due after one year through two years		24,225	1.20		17,743	1.76
Due after two years through three years		15,908	2.27		11,806	2.39
Due after three years through four years		8,837	3.51		9,726	3.60
Due after four years through five years		6,561	3.58		6,016	3.67
Due after five years		11,129	4.40		11,498	4.43

Total par value		114,138	2.04		120,172	2.05
Premiums		110			116
Discounts		(58)			(60)
Hedging adjustments		1,302			1,222

Total	$	115,492		$	121,450

The Bank’s consolidated obligation bonds outstanding included:


	As of March 31, 2010		As of December 31, 2009
Noncallable	$	79,053	$	86,905
Callable		35,085		33,267

Total par value	$	114,138	$	120,172

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


	As of March 31, 2010
Year of contractual maturity or next call date:
Due or callable in one year or less	$	69,741
Due or callable after one year through two years		19,467
Due or callable after two years through three years		9,433
Due or callable after three years through four years		5,612
Due or callable after four years through five years		2,781
Due or callable after five years		7,104

Total par value	$	114,138

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	Book Value		Par Value		Weighted-average Interest Rate (%)
As of March 31, 2010	$	17,778	$	17,780	0.16

As of December 31, 2009	$	17,127	$	17,130	0.38

Note 9—Capital and Mandatorily Redeemable Capital Stock

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


	As of March 31, 2010				As of December 31, 2009
	Required		Actual		Required		Actual
Regulatory capital requirements:
Risk based capital	$	2,716	$	9,249	$	3,010	$	9,185
Total capital-to-assets ratio		4.00%		6.32%		4.00%		6.07%
Total regulatory capital*	$	5,851	$	9,249	$	6,052	$	9,185
Leverage ratio		5.00%		9.48%		5.00%		9.11%
Leverage capital	$	7,314	$	13,873	$	7,566	$	13,777

Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $481 and $188 in mandatorily redeemable capital stock at March 31, 2010 and December 31, 2009, respectively.

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


	Three Months Ended March 31,
	2010		2009
Balance, beginning of period	$	188	$	44
Capital stock subject to mandatory redemption reclassified from equity during the period due to:
Attainment of nonmember status		293		1,867
Withdrawal		—		1
Repurchase/redemption of mandatorily redeemable capital stock		—		(10)
Capital stock no longer subject to redemption due to the transfer of stock from a nonmember to a member		—		(1)

Balance, end of period	$	481	$	1,901

The Bank reclassified $1,848 in capital stock held by Countrywide Bank, FSB (“Countrywide”) from capital to mandatorily redeemable capital stock upon termination of its membership with the Bank during the first quarter of 2009. Bank of America Corporation converted Countrywide into a national bank and merged it into Bank of America, National Association, a member of the Bank, on April 27, 2009. Upon the merger, the mandatorily redeemable capital stock of Countrywide became capital stock of Bank of America, National Association under the Bank’s Capital Plan and was reclassified from mandatorily redeemable capital stock to capital stock.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010		As of December 31, 2009
Contractual year of redemption:
Due after one year through two years	$	11	$	—
Due after two years through three years		3		11
Due after three years through four years		18		10
Due after four years through five years		431		148
Due after five years		18		19

Total	$	481	$	188

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.

Note 10— Accumulated Other Comprehensive Loss

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


	Three Months Ended March 31,
	2010		2009
Noncredit portion of other-than-temporary losses on available-for-sale securities:
Change in unrealized losses on available-for-sale securities	$	93	$	7
Reclassification adjustment of noncredit portion of impairment losses included in net income related to available-for-sale securities		40		—

Noncredit portion of other-than-temporary impairment losses on available-for-sale securities, net		133		7


Noncredit portion of other-than-temporary impairment losses on held-to-maturity securities		(58)		(609)

Other comprehensive income (loss)	$	75	$	(602)

Components comprising accumulated other comprehensive loss were as follows:


	Benefit Plans		Available-for-sale Noncredit Other- Than-Temporary- Impairment Losses		Held-to- maturity Noncredit Other-Than- Temporary- Impairment Losses		Total
Balance, beginning of the period	$	(5)	$	(739)	$	—	$	(744)
Net change during the period		—		133		(58)		75
Reclassification of noncredit portion of other-than-temporary impairment losses on held-to-maturity securities to available-for-sale securities		—		(58)		58		—

Balance, end of the period	$	(5)	$	(664)	$	—	$	(669)

The amount shown in the above table as the noncredit portion of other-than-temporary impairment losses does not directly correspond to the amount reported on the Statements of Income as “Portion of impairment losses recognized in other comprehensive loss.” The balance shown in the above table reflects all fair value changes related to available-for-sale securities for which an other-than-temporary impairment loss has been recorded, including fair value changes for available-for-sale securities impaired in previous reporting periods. The above noncredit portion of other-than-temporary impairment losses includes subsequent increases in fair value in previously impaired available-for-sale securities, which are not reflected in the amounts reported on the Statements of Income.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 11—Derivatives and Hedging Activities

Nature of Business Activity

The Bank is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and funding sources which finance these assets.

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

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

•

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

•

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

•

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

•

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

•

protect the value of existing asset or liability positions;

•

manage embedded options in assets and liabilities; and

•

achieve its overall asset/liability management objectives.

Types of Derivatives

The Bank’s risk management policy establishes guidelines for its use of derivatives. The Bank may enter into interest-rate swaps, swaptions, interest-rate cap and floor agreements, calls, puts and forward contracts (collectively derivatives) to manage its exposure to changes in interest rates. The goal of the Bank’s interest rate risk management strategy 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.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

One strategy the Bank uses to manage interest-rate risk is to acquire and maintain a portfolio of assets and liabilities which, together with their associated interest-rate derivatives, are reasonably matched with respect to the expected maturities or repricing of the assets and liabilities. The Bank also may use interest-rate derivatives to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments (such as advances, mortgage loans, MBS, and consolidated obligations) to achieve risk management objectives.

The Bank uses either derivative strategies or embedded options in its funding to minimize hedging costs. Swaps, swaptions, caps and floors are used to manage interest-rate exposure.

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 index for the same period of time. The variable rate received by the Bank in most interest-rate swap 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 purchases both payer swaptions and receiver swaptions. A payer swaption is the option to make fixed interest payments at a later date and a receiver swaption is the option to receive fixed interest payments at a later date.

Interest-Rate Caps and Floors. In a 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 a 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 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.

Foreign Currencies. At times, the Bank has issued some consolidated obligations denominated in currencies other than U.S. dollars. The Bank uses forward exchange contracts to hedge currency risk on such consolidated obligations. These contracts exchange different currencies at specified rates on specified dates in the future. These contracts effectively simulate the conversion of consolidated obligations denominated in foreign currencies into ones denominated in U.S. dollars. As of March 31, 2010 and December 31, 2009, there were no outstanding consolidated obligations denominated in foreign currencies.

Application of Derivatives

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

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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

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

Types of Assets and Liabilities Hedged

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

Consolidated Obligations. While consolidated obligations are the joint and several obligations of the FHLBanks, each FHLBank has consolidated obligations for which it is the primary obligor. The Bank enters into derivatives to hedge the interest-rate risk associated with its specific debt issuances. 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. In addition, the Bank requires collateral on derivatives at specified levels correlated to counterparty credit ratings. For instance, in a typical transaction, fixed-rate consolidated obligations are issued for the Bank, and the Bank simultaneously enters into a matching derivative in which the counterparty pays fixed cash flows to the Bank designed to mirror in timing and amount the cash outflows the Bank pays on the consolidated obligation. The Bank pays a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate advances (typically one- or three-month LIBOR). These transactions are 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 treated as a fair-value hedge.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Mortgage Assets. The Bank has invested in fixed-rate 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. Finance Agency regulation limits this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life changes under certain interest-rate shock scenarios and by establishing limitations on duration of equity and change in market value of equity. The Bank manages prepayment and duration risk by funding some mortgage assets with consolidated obligations that have call features. In addition, the Bank may use derivatives to manage the prepayment and duration variability of mortgage assets. Net income could be reduced if the Bank replaces the mortgages with lower-yielding assets and if the Bank’s higher funding costs are not reduced concomitantly.

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 options are marked-to-market through current-period earnings and presented in the Statements of Income as “Net (losses) gains on derivatives and hedging activities.” 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. The derivatives are marked-to-market through earnings.

The Bank analyzes the duration, convexity, and earnings risk of the mortgage portfolio on a regular basis under various rate scenarios.

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

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

Investments. The Bank invests in U.S. agency obligations, MBS, 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.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The Bank also may manage the risk arising from changing market prices and volatility of investment securities classified as trading by entering into derivatives (non-qualifying hedges) that offset the changes in fair value of the securities. The market value changes of both the trading securities and the associated derivatives are included in “Other Income (Loss)” in the Statements of Income and presented as part of the “Net gains (losses) on trading securities” and “Net (losses) gains on derivatives and hedging activities.”

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

Managing Credit Risk on Derivatives

The Bank is subject to credit risk due to nonperformance by counterparties to the derivative agreements. The amount of counterparty risk depends on the extent to which master netting arrangements are included in such contracts to mitigate the risk. The Bank manages counterparty credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in Bank policies and regulations. Based on credit analyses and collateral requirements, Bank management presently does not anticipate any credit losses on its existing derivative agreements with counterparties as of March 31, 2010.

The contractual or notional amount of derivatives reflects the involvement of the Bank in the various classes of financial instruments. The notional amount of derivatives does not measure the credit risk exposure of the Bank, and the maximum credit exposure of the Bank is substantially less than the notional amount. The Bank requires collateral agreements that establish collateral delivery thresholds for all derivatives. The maximum credit risk is the estimated cost of replacing interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors that have a net positive market value, if the counterparty defaults and the related collateral, if any, is of no value to the Bank. As of March 31, 2010, the Bank has not sold or repledged any such collateral.

As of March 31, 2010 and December 31, 2009, the Bank’s maximum credit risk, as defined above, was $100 and $117, respectively. These totals include $46 and $88, respectively, of net accrued interest receivable. In determining maximum credit risk, the Bank considers accrued interest receivables and payables, and the legal right to offset derivative assets and liabilities by counterparty. Cash held by the Bank as collateral for derivatives was $77 and $92 as of March 31, 2010 and December 31, 2009, respectively. Additionally, collateral with respect 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.

Certain of the Bank’s derivative instruments contain provisions that require the Bank to post additional collateral with its counterparties if there is deterioration in the Bank’s credit rating. If the Bank’s credit rating is lowered by a major credit rating agency, the Bank would be required to deliver additional collateral on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position (before cash collateral and related accrued interest) at March 31, 2010 was $3,835 for which the Bank has posted collateral of $3,476 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 and the Bank would have been required to deliver up to an additional $180 of collateral (at fair value) to its derivatives counterparties at March 31, 2010. However, the Bank’s credit rating has not changed during the three-month period ended March 31, 2010.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The Bank transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell and distribute consolidated obligations. Note 13 discusses assets pledged by the Bank to these counterparties.

Intermediation

To assist its members in meeting their hedging needs, the Bank acts as an intermediary between the members and other counterparties by entering into offsetting derivatives. This intermediation allows smaller members indirect access to the derivatives market.

Derivatives in which the Bank is an intermediary may arise when the Bank: (1) enters into derivatives with members and offsetting derivatives with other counterparties to meet the needs of its members; and (2) enters into derivatives to offset the economic effect of other derivatives that are no longer designated to either advances, investments or consolidated obligations.

Total notional principal of derivatives for the Bank as an intermediary was $2,226 and $2,208 at March 31, 2010 and December 31, 2009, respectively.

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.

The following table summarizes fair value of derivative instruments without effect of netting arrangements or collateral. For purposes of this disclosure, the derivative values include fair value of derivatives and related accrued interest.


	As of March 31, 2010						As of December 31, 2009
	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities		Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives in hedging relationships:
Interest rate swaps	$	159,105	$	1,643	$	(4,930)	$	178,532	$	1,661	$	(5,071)

Total derivatives in hedging relationships		159,105		1,643		(4,930)		178,532		1,661		(5,071)

Derivatives not designated as hedging instruments:
Interest rate swaps		7,704		14		(492)		7,997		14		(463)
Interest rate caps or floors		7,000		62		(33)		5,500		59		(33)

Total derivatives not designated as hedging instruments		14,704		76		(525)		13,497		73		(496)

Total derivatives before netting and collateral adjustments	$	173,809		1,719		(5,455)	$	192,029		1,734		(5,567)

Netting adjustments				(1,619)		1,619				(1,603)		1,603
Cash collateral and related accrued interest				(77)		3,367				(92)		3,555

Total collateral and netting adjustments *				(1,696)		4,986				(1,695)		5,158

Derivative assets and derivative liabilities			$	23	$	(469)			$	39	$	(409)

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

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following table presents the components of net (losses) gains on derivatives and hedging activities as presented in the Statements of Income.


	Three Months Ended March 31,
	2010		2009
	Amount of Gain (Loss) Recognized in Net Gains (Losses) on Derivatives and Hedging Activities		Amount of Gain (Loss) Recognized in Net Gains (Losses) on Derivatives and Hedging Activities
Derivatives and hedged items in fair value hedging relationships:
Interest rate swaps	$	46	$	100

Total net gain related to fair value hedge ineffectiveness		46		100


Derivatives not designated as hedging instruments:
Non-qualifying hedges:
Interest rate swaps		(62)		11
Interest rate caps or floors		(1)		1

Total net (loss) gain related to derivatives not designated as hedging		(63)		12

Net (losses) gains on derivatives and hedging activities	$	(17)	$	112

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


	Three Months Ended March 31, 2010

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

Hedged item type:
Advances	$	40	$	23	$	63	$	(891)
Consolidated Obligations:

Bonds		82		(96)		(14)		376

Discount notes		(7)		4		(3)		7

Total	$	115	$	(69)	$	46	$	(508)


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

	Three Months Ended March 31, 2009
	Gain/(Loss) on Derivative		Gain/(Loss) on Hedged Item		Net Fair Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income *

Hedged item type:
Advances	$	1,246	$	(1,162)	$	84	$	(766)
Consolidated Obligations:
Bonds		(309)		328		19		365
Discount notes		(26)		23		(3)		7

Total	$	911	$	(811)	$	100	$	(394)

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

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 12—Estimated Fair Values

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

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

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

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. As of March 31, 2010, the Bank did not carry any financial assets or liabilities at fair value hierarchy Level 1.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. As of March 31, 2010, the types of financial assets and liabilities the Bank carried at fair value hierarchy Level 2 included trading securities and derivatives.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are supported by little or no market activity and reflect the entity’s own assumptions. As of March 31, 2010, 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.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Netting Adjustment*		Total
Assets
Trading securities:
Government-sponsored enterprises debt obligations	$	—	$	3,277	$	—	$	—	$	3,277
Other FHLBanks’ bonds		—		71		—		—		71
State or local housing agency obligations		—		10		—		—		10

Total trading securities		—		3,358		—		—		3,358

Available-for-sale:
Private-label MBS		—		—		2,660		—		2,660
Derivative assets:
Interest-rate related		—		1,719		—		(1,696)		23

Total assets at fair value	$	—	$	5,077	$	2,660	$	(1,696)	$	6,041

Liabilities
Derivative liabilities:
Interest-rate related	$	—	$	(5,455)	$	—	$	4,986	$	(469)

Total liabilities at fair value	$	—	$	(5,455)	$	—	$	4,986	$	(469)


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

	As of December 31, 2009
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Netting Adjustment*		Total
Assets
Trading securities:
Government-sponsored enterprises debt obligations	$	—	$	3,470	$	—	$	—	$	3,470
Other FHLBanks’ bonds		—		72		—		—		72
State or local housing agency obligations		—		11		—		—		11

Total trading securities		—		3,553		—		—		3,553

Available-for-sale:
Private-label MBS		—		—		2,256		—		2,256
Derivative assets		—		1,734		—		(1,695)		39

Total assets at fair value	$	—	$	5,287	$	2,256	$	(1,695)	$	5,848

Liabilities
Derivative liabilities	$	—	$	(5,567)	$	—	$	5,158	$	(409)

Total liabilities at fair value	$	—	$	(5,567)	$	—	$	5,158	$	(409)

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

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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 and/or out at fair value in the quarter in which the changes occur. Transfers are reported as of the beginning of the period. There were no financial instruments for which the fair value classification changed during the three-month periods ended March 31, 2010 and 2009.

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


	Three Months Ended March 31,
	2010		2009
Balance, beginning of period	$	2,256	$	—
Transfer of private-label MBS from held-to-maturity to available-for-sale		409		1,604
Total gains (losses) realized and unrealized:
Included in net impairment losses recognized in earnings		(43)		—
Included in other comprehensive loss		38		—

Balance, end of period	$	2,660	$	1,604

Described below are the Bank’s fair value measurement methodologies for financial assets and liabilities measured or disclosed at fair value. For assets and liabilities measured at fair value, the disclosures below include a summary of the significant inputs used to determine fair value.

Cash and due from banks and interest-bearing deposits. The estimated fair value approximates the recorded book balance.

Investment securities. The estimated fair value of investment securities is determined based on independent market-based prices received from up to four designated third-party pricing vendors, when available. These third-party pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing. The Bank establishes a preliminary estimated fair value for each of its investment securities by calculating the median of the prices received. The median price is generally accepted as an appropriate estimate of fair value unless the median price falls outside of certain tolerance thresholds established by the Bank or evidence suggests that using the median price would not be appropriate. If only one third-party price is received or if no third-party price is available, the Bank estimates the fair value of the security using an approved internal discounted cash flow model.

Preliminary estimated fair values that are outside the tolerance thresholds established by the Bank, or those that management believes may not be appropriate based on all available information (including those limited instances in which only one price is received), are subject to further analysis. This further analysis includes, but is not limited to, a comparison of the preliminary fair value estimate to prices of similar securities, a comparison to non-binding dealer estimates, or the use of an internal model.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

As of March 31, 2010, four third-party vendor prices were received for substantially all of the Bank’s investment securities and substantially all of those prices fell within the specified thresholds. The relative proximity of the prices received supports the Bank’s conclusion that the final estimated fair values are reasonable. Based on the current lack of significant market activity for private-label MBS, the fair value measurements for such securities as of March 31, 2010 and December 31, 2009 fell within Level 3 of the fair value hierarchy. The inputs to all other investment securities are classified as Level 2 in the fair value hierarchy.

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.

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 replacement advance rates based on the market observable LIBOR curve for advances with similar terms as of March 31, 2010 and December 31, 2009, respectively. 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.

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.

Accrued interest receivable and payable. The estimated fair value approximates the recorded book 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, predominately LIBOR. The fair values are based on a AA credit rating, which is maintained through the use of collateral agreements.

Derivative instruments are primarily transacted 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 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 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 at March 31, 2010 and December 31, 2009.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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 rates used in these calculations are based on LIBOR.

Borrowings. The Bank determines the estimated fair value of borrowings by calculating the present value of expected future cash flows from the borrowings and reducing this amount for accrued interest payable. The discount rates used in these calculations are based on market observable rates, predominantly 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 cost of funds discount curves are based primarily on the market observable LIBOR and to some extent on the Office of Finance cost of funds curve, which also is market observable.

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 equity 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 at March 31, 2010 and December 31, 2009. Although the Bank uses its best judgment in estimating the fair values of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology.

For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment of how a market participant would estimate the fair value. The fair value table presented below does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of assets versus liabilities.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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


	As of March 31, 2010				As of December 31, 2009

	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Instruments
Assets:
Cash and due from banks	$	4	$	4	$	465	$	465
Deposits with other FHLBanks		2		2		3		3
Federal funds sold		15,230		15,230		10,043		10,043
Trading securities		3,358		3,358		3,553		3,553
Available-for-sale securities		2,660		2,660		2,256		2,256
Held-to-maturity securities		16,087		15,765		17,085		16,442
Mortgage loans held for portfolio, net		2,418		2,551		2,522		2,633
Advances, net		105,474		105,292		114,580		114,572
Accrued interest receivable		465		465		515		515
Derivative assets		23		23		39		39

Liabilities:
Deposits		(2,941)		(2,941)		(2,989)		(2,989)
Loans from other FHLBanks		(35)		(35)		—		—
Consolidated obligations, net:
Discount notes		(17,778)		(17,777)		(17,127)		(17,127)
Bonds		(115,492)		(116,105)		(121,450)		(122,056)
Mandatorily redeemable capital stock		(481)		(481)		(188)		(188)
Accrued interest payable		(619)		(619)		(612)		(612)
Derivative liabilities		(469)		(469)		(409)		(409)

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 13—Commitments and Contingencies

As described in Note 8, consolidated obligations are backed only by the financial resources of the 12 FHLBanks. The Finance Agency, under 12 CFR Section 966.9(d), may at any time require any FHLBank to make principal or interest payments due on any consolidated obligations, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. No FHLBank has had to assume or pay the consolidated obligation of another FHLBank.

The par value of the FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was $739,010 and $793,314 as of March 31, 2010 and December 31, 2009, respectively, exclusive of the outstanding consolidated obligations for which the Bank is the primary obligor.

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


	As of March 31, 2010	As of December 31, 2009
Outstanding notional	$ 19,785	$ 18,909
Original terms	Less than three months to 19 years	Less than four months to 19 years
Final expiration year	2025	2025

The value of the guarantees related to standby letters of credit is recorded in other liabilities and amounted to $94 and $91 as of March 31, 2010 and December 31, 2009, respectively. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to record any additional liability on these commitments.

The Bank monitors the creditworthiness of its standby letters of credit based on an evaluation of the guaranteed entity. The Bank has established parameters for the measurement, review, classification, and monitoring of credit risk related to these standby letters of credit that results in an internal credit rating, which focuses primarily on an institution’s overall financial health and takes into account quality of assets, earnings and capital position. In general, borrowers categorized into the higher risk rating categories have more restrictions on the types of collateral they may use to secure standby letters of credit, may be required to maintain higher collateral maintenance levels and deliver loan collateral and may face more stringent collateral reporting requirements.

The Bank did not have any commitments that unconditionally obligate the Bank to purchase closed mortgage loans as of March 31, 2010 and December 31, 2009. Commitments are generally for periods not to exceed 45 days. Such commitments are recorded as derivatives at their fair values.

The Bank executes derivatives with major banks and broker-dealers and generally enters into bilateral collateral agreements. As of March 31, 2010 and December 31, 2009, the Bank had pledged, as collateral to broker-dealers who have market risk exposure from the Bank related to derivatives, securities with a carrying value of $113 and $137, respectively, which can be sold or repledged by those counterparties.

At March 31, 2010, the Bank had committed to the issuance of $3,164 (par value) in consolidated obligation bonds, of which $2,145 were hedged with associated interest rate swaps, and $149 (par value) in consolidated obligation discount notes, none of which were hedged with associated interest rate swaps that had traded but not yet settled. At December 31, 2009, the Bank had committed to the issuance of $2,780 (par value) in consolidated obligation bonds of which $2,775 were hedged with associated interest rate swaps, and $753 (par value) in consolidated obligation discount notes, none of which were hedged with associated interest rate swaps that had traded but not yet settled.

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The Bank is subject to legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate, as of the date of the financial statements, that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.

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

The Bank is a cooperative whose member institutions own almost all of the capital stock of the Bank. Former members own the remaining capital stock to support business transactions still carried on the Bank’s Statements of Condition. All holders of the Bank’s capital stock are able to receive dividends on their investments, to the extent declared by the Bank’s board of directors. All advances are issued to members and eligible “housing associates” under the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”), and mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts primarily to facilitate settlement activities that are related directly to advances and mortgage loan purchases. All transactions with members are entered into in the ordinary course of the Bank’s business. Transactions with any member that has an officer or director who also is a director of the Bank are subject to the same Bank policies as transactions with other members.

The Bank defines related parties as each of the other FHLBanks and those members with regulatory capital stock outstanding in excess of 10 percent of total regulatory capital stock. Based on this definition, one member institution, Bank of America, National Association, which held 23.0 percent of the Bank’s total regulatory capital stock as of March 31, 2010, was considered a related party. Total advances outstanding to Bank of America, National Association were $37,063 and $37,363 as of March 31, 2010 and December 31, 2009, respectively. Total deposits held in the name of Bank of America, National Association were $2 and less than $1 at March 31, 2010 and December 31, 2009 respectively. No mortgage loans or MBS were acquired from Bank of America, National Association during the three-month periods ended March 31, 2010 and 2009.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Some of the statements made in this quarterly report on Form 10-Q may be “forward-looking statements,” which include statements with respect to the plans, objectives, expectations, estimates and future performance of the Bank and involve known and unknown risks, uncertainties, and other factors, many of which may be beyond the Bank’s control and which may cause the Bank’s actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. The reader can identify these forward-looking statements through the Bank’s use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “target,” and other similar words and expressions of the future. Such forward-looking statements include statements regarding any one or more of the following topics:

•

The Bank’s business strategy and changes in operations, including, without limitation, product growth and change in product mix

•

Future performance, including profitability, developments, or market forecasts

•

Forward-looking accounting and financial statement effects

•

Those other factors identified and discussed in the Bank’s public filings with the SEC.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation, those risk factors provided under Item 1A of the Bank’s Form 10-K and those risk factors presented under Item 1A in Part II of this quarterly report on Form 10-Q.

All written or oral statements that are made by or are attributable to the Bank are expressly qualified in their entirety by this cautionary notice. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. The Bank has no obligation and does not undertake publicly to update, revise, or correct any of the forward-looking statements after the date of this quarterly report, or after the respective dates on which these statements otherwise are made, whether as a result of new information, future events, or otherwise, except as otherwise may be required by law.

The discussion presented below provides an analysis of the Bank’s results of operations and financial condition for the quarters ended March 31, 2010 and 2009. Management’s discussion and analysis should be read in conjunction with the financial statements and accompanying notes presented elsewhere in the report, as well as the Bank’s audited financial statements for the year ended December 31, 2009.

Executive Summary

General Overview

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

Financial Condition

As of March 31, 2010, total assets were $146.3 billion, a decrease of $5.0 billion, or 3.32 percent, from December 31, 2009. This decrease was due primarily to a $9.1 billion, or 7.95 percent, decrease in advances and a $998 million, or 5.84 percent, decrease in held-to-maturity securities, partially offset by a $5.2 billion increase in federal funds sold during the period. Advances, the largest asset on the Bank’s balance sheet, decreased during the period due to maturing advances, prepayments as a result of member failures, and decreased demand for new advances resulting from members’ increased deposit balances, slower loan growth, and access to alternative sources of funding. The decrease in held-to-maturity securities during the period was due primarily to $1.4 billion in proceeds received for principal repayments and maturities, partially offset by the purchase of $481 million in securities classified as held-to-maturity. The increase in federal funds sold during the period was due to the availability of these short-term investments at attractive rates.

As of March 31, 2010, total liabilities were $138.2 billion, a decrease of $4.9 billion, or 3.41 percent, from December 31, 2009. This decrease was due primarily to a $5.3 billion, or 3.83 percent, decrease in COs during the period. The decrease in COs corresponds to the decrease in demand for advances by the Bank’s members during the first quarter of 2010.

Results of Operations

The Bank’s net income for the first quarter of 2010 was $48 million, an increase of $50 million from a net loss of $2 million for the first quarter of 2009. The increase in net income was due primarily to a $43 million reduction in credit related other-than-temporary impairment losses recognized in earnings during the first quarter of 2010 compared to the first quarter of 2009.

For the first quarters of 2010 and 2009, the Bank recognized total other-than-temporary impairment of $64 million and $698 million, respectively. The credit related portion of $46 million and $89 million, respectively, of these other-than-temporary impairment losses is recognized in earnings. The noncredit related portion of $18 million and $609 million, respectively, of the other-than-temporary impairment losses is recorded as a component of other comprehensive loss.

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 2.36 percent for the first quarter of 2010 compared to a negative 0.08 percent for the first quarter of 2009. The increase in ROE is due primarily to an increase in net income during the period as discussed above. ROE spread to three-month average LIBOR increased to 2.10 percent for the first quarter of 2010 compared to a negative 1.32 percent for the first quarter of 2009. This increase was due primarily to an increase in ROE and a decrease in LIBOR during the period.

The Bank’s interest rate spread increased by 41 basis points for the first quarter of 2010 compared to the first quarter of 2009. This comparative increase was due primarily to lower yields on advances during the first quarter of 2009 due to the write-off of hedging-related basis adjustments on advances that were prepaid.

Business Outlook

Advance demand decreased during the first quarter of 2010, and the Bank expects this trend to continue throughout 2010. Although the decrease in credit related other-than-temporary impairment losses recognized in earnings during the first quarter of 2010 compared to the first quarter of 2009 and the Bank’s net income for the first quarter of 2010 reflect improvements in the financial markets, overall economic conditions remain uncertain. This continued uncertainty, increasing financial institution failures, and high levels of member liquidity could continue to impact negatively advance demand and the market value of the Bank’s private-label MBS portfolio, which could affect the Bank’s financial condition and results of operations.

The Bank maintained significantly higher capital ratios during the first quarter of 2010 compared to previous years. The board of directors continues to consider repurchasing excess activity-based stock on a quarterly basis. A discussion of the board of directors’ recent capital management and dividend decisions is contained in the Bank’s Form 10-K.

Summary of Selected Financial Data

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


	As of and for the Three Months Ended

	March 31, 2010		December 31, 2009		September 30, 2009		June 30, 2009		March 31, 2009
Statements of Condition (at period end)
Total assets	$	146,281	$	151,311	$	163,410	$	170,206	$	189,445
Investments (1)		37,337		32,940		34,165		32,016		37,368
Mortgage loans		2,419		2,523		2,645		2,834		3,081
Allowance for loan losses		(1)		(1)		(1)		(1)		(1)
Advances, net		105,474		114,580		125,823		134,503		148,090
REFCORP prepayment		—		—		—		—		17
Deposits		2,941		2,989		3,353		4,148		4,896
Consolidated obligations, net :
Discount notes		17,778		17,127		28,418		38,672		49,523
Bonds		115,492		121,450		121,777		117,756		124,780
Total consolidated obligations, net (2)		133,270		138,577		150,195		156,428		174,303
Mandatorily redeemable capital stock		481		188		130		106		1,901
Affordable Housing Program payable		128		125		123		138		132
Payable to REFCORP		14		21		1		30		—
Capital stock - putable		7,852		8,124		8,156		8,119		6,189
Retained earnings		916		873		799		804		612
Accumulated other comprehensive loss		(669)		(744)		(791)		(1,065)		(786)
Total capital		8,099		8,253		8,164		7,858		6,015

Statements of Income
Net interest income		153		162		102		105		35
Net impairment losses recognized in earnings		(46)		(52)		(129)		(46)		(89)
Net gains (losses) on trading securities		4		(52)		25		(74)		(34)
Net (losses) gains on derivatives and hedging activities		(17)		81		45		305		112
Other income (loss) (3)		—		—		1		1		1
Other expenses		29		27		29		30		27
Income (loss) before assessments		65		112		15		261		(2)
Assessments		17		30		4		69		—
Net income (loss)		48		82		11		192		(2)

Return on equity (4)		2.36%		3.95%		0.55%		10.3%		(0.08)%
Return on assets (5)		0.13%		0.20%		0.03%		0.41%		0.00%
Net interest margin (6)		0.41%		0.40%		0.24%		0.23%		0.07%
Regulatory capital ratio (at period end) (7)		6.32%		6.07%		5.56%		5.30%		4.59%
Equity to assets ratio (8)		5.43%		5.07%		4.65%		3.98%		3.82%
Dividend payout ratio (9)		11.5%		10.2%		142.1%		0.00%		0.00%

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

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


March 31, 2010	$	739,010
December 31, 2009		793,314
September 30, 2009		825,080
June 30, 2009		900,968
March 31, 2009		963,100

(3)	Other income (loss) includes service fees and other.

(4)	Calculated as net income divided by average total equity.

(5)	Calculated as net income divided by average total assets.

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

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

(8)	Calculated as average equity divided by average total assets.

(9)	Calculated as dividends declared divided by net income.

Financial Condition

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

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 March 31, 2010			As of December 31, 2009			Increase/(Decrease)
	Amount		Percent of Total	Amount		Percent of Total	Amount		Percent
Advances, net	$	105,474	72.11	$	114,580	75.72	$	(9,106)	(7.95)
Long-term investments		21,450	14.66		22,594	14.93		(1,144)	(5.06)
Short-term investments		15,887	10.86		10,346	6.84		5,541	53.56
Mortgage loans, net		2,418	1.65		2,522	1.67		(104)	(4.12)
Other assets		1,052	0.72		1,269	0.84		(217)	(17.08)


Total assets	$	146,281	100.00	$	151,311	100.00	$	(5,030)	(3.32)


Consolidated obligations, net:
Discount notes	$	17,778	12.87	$	17,127	11.97	$	651	3.80
Bonds		115,492	83.57		121,450	84.90		(5,958)	(4.91)
Loans from other FHLBanks		35	0.03		—	—		35	(NM)
Deposits		2,941	2.13		2,989	2.09		(48)	(1.62)
Other liabilities		1,936	1.40		1,492	1.04		444	29.79


Total liabilities	$	138,182	100.00	$	143,058	100.00	$	(4,876)	(3.41)


Capital stock	$	7,852	96.95	$	8,124	98.44	$	(272)	(3.34)
Retained earnings		916	11.30		873	10.58		43	4.90
Accumulated other comprehensive loss		(669)	(8.25)		(744)	(9.02)		75	10.13


Total capital	$	8,099	100.00	$	8,253	100.00	$	(154)	(1.86)

(NM)-Not meaningful

Advances

Advances were $105.5 billion at March 31, 2010, a decrease of $9.1 billion, or 7.95 percent, from December 31, 2009. This decrease was due to maturing advances, prepayments as a result of member failures and decreased demand for new advances resulting from members’ increased deposit balances, slower loan growth, and access to alternative sources of funding. At March 31, 2010, 88.6 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, usually based on LIBOR. Of the par value of $100.8 billion of advances outstanding as of March 31, 2010, $84.2 billion, or 83.6 percent, had their terms reconfigured through the use of interest rate exchange agreements. Of the par value of $109.8 billion of advances outstanding at December 31, 2009, $91.1 billion, or 82.9 percent, had their terms reconfigured through the use of interest-rate exchange agreements. The majority of the Bank’s variable-rate advances were indexed to LIBOR. The Bank also offers variable-rate advances tied to the federal funds rate, prime rate and CMS (constant maturity swap) rates.

The concentration of the Bank’s advances to its 10 largest borrowing institutions was as follows (dollars in millions):


	Advances to 10 largest borrowing member institutions		Percent of total advances outstanding
March 31, 2010	$	68,709	68.2
December 31, 2009		75,418	68.7

Investments

The Bank maintains a portfolio of investments for liquidity purposes, to provide for the availability of funds to meet member credit needs and to provide additional earnings. Investment income also enhances the Bank’s capacity to meet its commitment to affordable housing and community investment, to cover operating expenses, and to satisfy the Bank’s annual Resolution Funding Corporation (“REFCORP”) assessment.

The Bank’s short-term investments consist of overnight and term federal funds, certificates of deposit and interest-bearing deposits. The Bank’s long-term investments consist of MBS issued by government-sponsored mortgage agencies or private securities that, at purchase, carried the highest rating from Moody’s or S&P, securities issued by the U.S. government or U.S. government agencies, state and local housing agency obligations, and consolidated obligations issued by other FHLBanks. The long-term investment portfolio generally provides the Bank with higher returns than those available in the short-term money markets. The following table sets forth more detailed information regarding short- and long-term investments held by the Bank (dollars in millions):


					Increase/ (Decrease)
	As of March 31, 2010		As of December 31, 2009		Amount		Percent
Short-term investments:
Deposits with other FHLBanks	$	2	$	3	$	(1)	(3.75)
Held-to-maturity-Certificates of deposit		655		300		355	118.33
Federal funds sold		15,230		10,043		5,187	51.64

Total short-term investments		15,887		10,346		5,541	53.56


Long-term investments:
State or local housing agency obligations		121		126		(5)	(3.36)
U.S. government agency securities		3,348		3,542		(194)	(5.49)
Mortgage-backed securities:
U.S. government agency securities		7,115		7,375		(260)	(3.52)
Private label		10,866		11,551		(685)	(5.93)

Total mortgage-backed securities		17,981		18,926		(945)	(4.99)

Total long-term investments		21,450		22,594		(1,144)	(5.06)


Total investments	$	37,337	$	32,940	$	4,397	13.35

Short-term investments were $15.9 billion at March 31, 2010, an increase of $5.5 billion, or 53.6 percent, from December 31, 2009. The increase in short-term investments was due primarily to a $5.3 billion increase in overnight federal funds available at attractive rates and a $355 million increase in certificates of deposit during the period.

Long-term investments were $21.5 billion at March 31, 2010, a decrease of $1.1 billion, or 5.06 percent, from December 31, 2009. The decrease in long-term investments was due primarily to principal repayments and maturities during the period and the lack of quality MBS at attractive prices. In addition, during the first quarter of 2010, the Bank recorded total other-than-temporary impairment losses of $64 million related to its private-label MBS, of which $46 million was recognized in earnings.

The Finance Agency limits an FHLBank’s investment in MBS and asset-backed securities by requiring that the total book value of MBS owned by the FHLBank generally may not exceed 300 percent, or in certain circumstances 600 percent, of the FHLBank’s previous month-end capital plus its mandatorily redeemable capital stock on the day it purchases the securities. In light of current market conditions, the Bank attempts to maintain this ratio between 250 percent and 275 percent to help maximize and stabilize earnings. These investments amounted to 210 percent and 224 percent of total capital plus mandatorily redeemable capital stock at March 31, 2010 and December 31, 2009, respectively. The Bank was below its target range at March 31, 2010 due to the lack of quality MBS at attractive prices.

As of March 31, 2010, the Bank had a total of 37 securities classified as available-for-sale in an unrealized loss position, with total gross unrealized losses of $664 million and a total of 160 securities classified as held-to-maturity in an unrealized loss position, with total gross unrealized losses of $578 million. As of December 31, 2009, the Bank had a total of 32 securities classified as available-for-sale in an unrealized loss position, with total gross unrealized losses of $739 million, and a total of 187 securities classified as held-to-maturity in an unrealized loss position, with total gross unrealized losses of $883 million.

The Bank evaluates its individual investment securities holdings for other-than-temporary impairment on a quarterly basis, or more frequently if events or changes in circumstances indicate that these investments may be other-than-temporarily impaired. 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 are evaluated by estimating the present value of cash flows the Bank expects to collect 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 underlying collateral and credit enhancement.

Based on the impairment analysis described above, for the first quarters of 2010 and 2009, the Bank recognized total other-than-temporary impairment losses of $64 million and $698 million, respectively, related to private-label MBS in its investment securities portfolio. The total amount of other-than-temporary impairment is calculated as the difference between the security’s amortized cost basis and its fair value. The credit related portion of $46 million and $89 million, respectively, of these other-than-temporary impairment losses is reported in the Statements of Income as “Net impairment losses recognized in earnings.” The noncredit related portion of $18 million and $609 million, respectively, of the other-than-temporary impairment losses is recorded as a component of other comprehensive loss.

The remainder of the Bank’s investment securities portfolio that has not been designated as other-than-temporarily impaired has experienced unrealized losses and decreases in fair value due to interest-rate volatility, illiquidity in the marketplace, and credit deterioration in the U.S. mortgage markets. This decline in fair value is considered temporary as the Bank presently expects to collect all contractual cash flows and the Bank does not intend to sell the securities and it is not more likely than not that the Bank will be required to sell the security before the anticipated recovery of its remaining amortized cost basis, which may be at maturity. This assessment is based on the determination 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.

Mortgage Loans Held for Portfolio

Mortgage loans held for portfolio were $2.4 billion at March 31, 2010, a decrease of $104 million, or 4.12 percent, from December 31, 2009. The decrease in mortgage loans held was due to the maturity of these assets during the period. In 2006, the Bank ceased purchasing assets under the Affordable Multifamily Participation Program, and in 2008 the Bank ceased purchasing assets under the Mortgage Partnership Finance Program (“MPF Program) and suspended acquisitions of mortgage loans under the Mortgage Purchase Program (“MPP”). If the Bank does not resume purchasing mortgage loans under these programs, each of the existing mortgage loans held for portfolio will mature according to the terms of its note. The Bank purchased loans with maturity dates extending out to 2038.

As of March 31, 2010 and December 31, 2009, the Bank’s 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 MPF Program and MPP loans held for portfolio for the five largest state concentrations.


	As of March 31, 2010	As of December 31, 2009
	Percent of Total	Percent of Total
South Carolina	22.8	23.0
Florida	18.8	19.0
North Carolina	15.5	16.0
Georgia	14.8	15.0
Virginia	9.7	10.0
All other	18.4	17.0

Total	100.0	100.0

Consolidated Obligations

The Bank funds its assets primarily through the issuance of consolidated obligation bonds and, to a lesser extent, consolidated obligation discount notes. Consolidated obligation issuances financed 91.1 percent of the $146.3 billion in total assets at March 31, 2010, remaining relatively stable from the financing ratio of 91.6 percent as of December 31, 2009.

Consolidated obligation bonds were $115.5 billion at March 31, 2010, a decrease of $6.0 billion, or 4.91 percent, from December 31, 2009. Consolidated obligation discount notes were $17.8 billion at March 31, 2010, an increase of $651 million, or 3.80 percent, from December 31, 2009. The net decrease in consolidated obligations corresponds to the decrease in demand for advances by the Bank’s members during the first quarter of 2010 and the increase in liquidity from advance prepayments as a result of member failures. Consolidated obligation bonds outstanding at March 31, 2010 and December 31, 2009 were primarily fixed-rate. However, the Bank often simultaneously enters into derivatives with the issuance of consolidated obligation bonds to convert the rates on them, in effect, into short-term variable interest rates, usually based on LIBOR. Of the par value of $114.1 billion of consolidated obligation bonds outstanding at March 31, 2010, $76.8 billion, or 67.3 percent, had their terms reconfigured through the use of interest-rate exchange agreements. The comparable notional amount of such outstanding derivatives at December 31, 2009 was $85.2 billion, or 70.9 percent, of the par value of consolidated obligation bonds.

As of March 31, 2010, callable consolidated obligation bonds constituted 30.7 percent of the total par value of consolidated obligation bonds outstanding, compared to 27.7 percent at December 31, 2009. This increase was due to market conditions that made the issuance of callable fixed maturity debt more attractive to the Bank. The derivatives that the Bank may employ to hedge against the interest-rate risk associated with the Bank’s consolidated obligation bonds generally are callable by the counterparty. The Bank generally would call the hedged consolidated obligation bond if the call features of the derivatives were exercised. These call features could require the Bank to refinance a substantial portion of outstanding liabilities during times of decreasing interest rates. Call options on unhedged callable consolidated obligation bonds generally are exercised when the bond can be replaced at a lower economic cost.

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. Deposits totaled $2.9 billion as of March 31, 2010, compared to $3.0 billion as of December 31, 2009.

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. The Bank was in compliance with this depository liquidity requirement as of March 31, 2010.

Capital

Total capital was $8.1 billion at March 31, 2010, a decrease of $154 million, or 1.86 percent, from December 31, 2009. This decrease was due primarily to the reclassification of $293 million in capital stock to mandatorily redeemable capital stock (a liability) as a result of nine member institutions obtaining nonmember status during the period. Members obtain nonmember status as a result of a merger into, or acquisition of all or substantially all of the member’s assets and liabilities by, a nonmember, or through transfer by the FDIC of a failed member’s assets and liabilities to a nonmember purchaser. This decrease was partially offset by a $75 million decrease in accumulated other comprehensive loss, $48 million in net income recorded in earnings, and the issuance of $25 million in capital stock during the period.

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank was in compliance with these regulatory capital rules and requirements as shown in the following table (dollars in millions):


	As of March 31, 2010				As of December 31, 2009
	Required		Actual		Required		Actual
Regulatory capital requirements:
Risk based capital	$	2,716	$	9,249	$	3,010	$	9,185
Total capital-to-assets ratio		4.00%		6.32%		4.00%		6.07%
Total regulatory capital*	$	5,851	$	9,249	$	6,052	$	9,185
Leverage ratio		5.00%		9.48%		5.00%		9.11%
Leverage capital	$	7,314	$	13,873	$	7,566	$	13,777

*	Mandatorily redeemable capital stock is considered capital for regulatory purposes, and “total regulatory capital” includes the Bank’s $481 million and $188 million in mandatorily redeemable capital stock at March 31, 2010 and December 31, 2009, respectively.

On August 4, 2009, the Finance Agency issued a final rule that established 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

•

Critically Undercapitalized - FHLBank total capital is two percent or less of total assets.

The regulation provides that the Director will make a capital classification for each FHLBank at least quarterly and delineates the types of prompt corrective actions the Director may order in the event an FHLBank is not adequately capitalized. On March 31, 2010, the Bank received notification from the Director that, based on December 31, 2009 data, the Bank meets the definition of “adequately capitalized.”

As of March 31, 2010, the Bank had capital stock subject to mandatory redemption from 54 members and former members, consisting of B1 membership stock and B2 activity-based stock, compared to 45 members and former members as of December 31, 2009. The Bank is not required to redeem or repurchase such stock until the expiration of the five-year redemption period or, with respect to activity-based stock, until the later of the expiration of the five-year redemption period or the activity no longer remains outstanding.

As of March 31, 2010 and December 31, 2009, the Bank’s activity-based stock included $2.6 billion and $1.9 billion, respectively, of excess shares subject to repurchase by the Bank at its discretion. The Bank’s board of directors determines on a quarterly basis any discretionary repurchases of excess shares.

Results of Operations

Net Income

The following table sets forth the Bank’s significant income items for the first quarters of 2010 and 2009, and provides information regarding the changes during the periods (dollars in millions). These items are discussed in more detail below.


	Three Months Ended March 31,				Increase/ (Decrease)		Increase/ (Decrease) %
	2010		2009		Increase/ (Decrease)		Increase/ (Decrease) %
Net interest income	$	153	$	35	$	118	328.80

Other loss		(59)		(10)		(49)	(485.55)

Other expense		29		27		2	3.75

Total assessments		17		–		17	(NM)

Net income (loss)		48		(2)		50	(NM)

(NM)-Not meaningful

Net Interest Income

A 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 consolidated obligations, 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 derivative instruments and hedging activities related adjustments.

Net interest income was $153 million for the first quarter of 2010, an increase of $118 million compared to the first quarter of 2009. The increase in net interest income was due primarily to the accelerated write-off of hedging-related basis adjustments due to the prepayment of advances as well as other hedging related adjustments that decreased net interest income during the first quarter of 2009.

The following table presents spreads between the average yield on total interest-earning assets and the average cost of interest-bearing liabilities for the first quarters of 2010 and 2009 (dollars in millions). The interest rate spread is affected by the inclusion or exclusion of net interest income/expense associated with the Bank’s derivatives. For example, if the derivatives qualify for fair-value hedge accounting under GAAP, the net interest income/expense associated with the derivative 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 net interest income/expense associated with the derivatives is excluded from net interest income and the calculation of the interest rate spread. Amortization associated with hedging-related basis adjustments also are reflected in net interest income, which affect interest rate spread. As noted in the below tables, during the first quarter of 2010, compared to the first quarter of 2009, the interest rate spread increased by 41 basis points. The increase in interest rate spread during the periods is due primarily to large write-offs of basis adjustments associated with hedging on prepaid advances reducing interest income as well as other hedging-related adjustments during the first quarter of 2009.

Spread and Yield Analysis


	Three Months Ended March 31,
	2010					2009
	Average				Yield/	Average				Yield/

	Balance		Interest		Rate (%)	Balance		Interest		Rate (%)
Assets

Federal funds sold	$	11,552	$	5	0.16	$	15,833	$	8	0.21

Interest-bearing deposits (1)		3,562		1	0.14		5,408		3	0.19

Certificates of deposit		576		—	0.22		—		—	—

Long-term investments (2)		22,488		253	4.56		26,774		329	4.99

Advances		111,170		72	0.26		155,402		435	1.13

Mortgage loans held for portfolio (3)		2,465		32	5.28		3,181		42	5.41

Loans to other FHLBanks		1		—	0.13		1		—	0.29

Total interest-earning assets		151,814		363	0.97		206,599		817	1.60


Allowance for credit losses on mortgage loans		(1)					(1)

Other assets		1,083					2,408


Total assets	$	152,896				$	209,006


Liabilities and Capital

Demand and overnight deposits	$	2,814		—	0.05	$	4,345		2	0.14

Federal Home Loan Bank of Atlanta - FORM 10-Q - May 11, 2010

Attached files