Federal Home Loan Bank of Atlanta - FORM 10-Q

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EX-32.1 - EXHIBIT - Federal Home Loan Bank of Atlanta	fhlb-atlq22014ex321.htm
EX-31.2 - EXHIBIT - Federal Home Loan Bank of Atlanta	fhlb-atlq22014ex312.htm
EX-31.1 - EXHIBIT - Federal Home Loan Bank of Atlanta	fhlb-atlq22014ex311.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

_____________________________________



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

For the quarterly period ended June 30, 2014



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

Commission File Number: 000-51845

_____________________________________

FEDERAL HOME LOAN BANK OF ATLANTA

(Exact name of registrant as specified in its charter)

_____________________________________



Federally chartered corporation		56-6000442
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

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

_____________________________________

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

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

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



Large accelerated filer	¨	Accelerated filer	¨

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

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

The number of shares outstanding of the registrant’s Class B Stock, par value $100, as of July 31, 2014 was 49,517,834.

Table of Contents



PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
	STATEMENTS OF CONDITION	3
	STATEMENTS OF INCOME	4
	STATEMENTS OF COMPREHENSIVE INCOME	5
	STATEMENTS OF CAPITAL	6
	STATEMENTS OF CASH FLOWS	7
	NOTES TO FINANCIAL STATEMENTS	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	67
PART II. OTHER INFORMATION		69
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosure	69
Item 5.	Other Information	69
Item 6.	Exhibits	69
SIGNATURES		70

Table of Contents

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CONDITION

(Unaudited)

(In millions, except par value)



	As of June 30, 2014			As of December 31, 2013
Assets
Cash and due from banks	$	1,563		$	4,374
Interest-bearing deposits (including deposits with another FHLBank of $2 and $1 as of June 30, 2014 and December 31, 2013, respectively)	1,009			1,007
Securities purchased under agreements to resell	1,000			—
Federal funds sold	4,660			1,795
Investment securities:
Trading securities (includes another FHLBank’s bond of $63 and $65 as of June 30, 2014 and December 31, 2013, respectively)	1,444			1,667
Available-for-sale securities	2,155			2,299
Held-to-maturity securities (fair value of $20,672 and $20,146 as of June 30, 2014 and December 31, 2013, respectively)	20,626			20,176
Total investment securities	24,225			24,142
Advances	95,128			89,588
Mortgage loans held for portfolio, net:
Mortgage loans held for portfolio	838			929
Allowance for credit losses on mortgage loans	(6		)	(11		)
Total mortgage loans held for portfolio, net	832			918
Accrued interest receivable	192			199
Derivative assets	106			53
Premises and equipment, net	27			29
Other assets	200			211
Total assets	$	128,942		$	122,316
Liabilities
Interest-bearing deposits	$	1,432		$	1,752
Consolidated obligations, net:
Discount notes	30,679			32,202
Bonds	89,438			80,728
Total consolidated obligations, net	120,117			112,930
Mandatorily redeemable capital stock	21			24
Accrued interest payable	176			183
Affordable Housing Program payable	71			74
Derivative liabilities	189			187
Other liabilities	192			514
Total liabilities	122,198			115,664
Commitments and contingencies (Note 15)
Capital
Capital stock Class B putable ($100 par value) issued and outstanding shares:
Subclass B1 issued and outstanding shares: 7 and 10 as of June 30, 2014 and December 31, 2013, respectively	728			946
Subclass B2 issued and outstanding shares: 42 and 39 as of June 30, 2014 and December 31, 2013, respectively	4,178			3,937
Total capital stock Class B putable	4,906			4,883
Retained earnings:
Restricted	169			141
Unrestricted	1,539			1,516
Total retained earnings	1,708			1,657
Accumulated other comprehensive income	130			112
Total capital	6,744			6,652
Total liabilities and capital	$	128,942		$	122,316

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

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF INCOME

(Unaudited)

(In millions)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
Interest income
Advances	$	51		$	61		$	108		$	124
Prepayment fees on advances, net	1			1			1			1
Interest-bearing deposits	1			1			2			3
Federal funds sold	2			3			4			6
Trading securities	19			25			38			53
Available-for-sale securities	31			32			63			65
Held-to-maturity securities	60			60			122			123
Mortgage loans	13			17			26			33
Total interest income	178			200			364			408
Interest expense
Consolidated obligations:
Discount notes	6			6			14			14
Bonds	79			108			167			221
Mandatorily redeemable capital stock	1			—			1			—
Total interest expense	86			114			182			235
Net interest income	92			86			182			173
Provision (reversal) for credit losses	2			1			(2		)	3
Net interest income after provision (reversal) for credit losses	90			85			184			170
Noninterest income (loss)
Total other-than-temporary impairment losses	—			—			—			(1		)
Net amount of impairment losses (reclassified from) recorded in accumulated other comprehensive income	—			—			(1		)	1
Net impairment losses recognized in earnings	—			—			(1		)	—
Net losses on trading securities	(13		)	(40		)	(27		)	(64		)
Net gains on derivatives and hedging activities	16			75			31			117
Gain on early extinguishment of debt	—			—			15			—
Letters of credit fees	6			5			13			10
Other	1			1			2			2
Total noninterest income	10			41			33			65
Noninterest expense
Compensation and benefits	18			17			34			33
Other operating expenses	9			11			19			21
Finance Agency	2			1			5			4
Office of Finance	2			2			3			3
Other	1			—			2			—
Total noninterest expense	32			31			63			61
Income before assessments	68			95			154			174
Affordable Housing Program assessments	6			9			15			17
Net income	$	62		$	86		$	139		$	157

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

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2014		2013		2014		2013
Net income	$	62	$	86	$	139	$	157
Other comprehensive income:
Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities:
Noncredit losses transferred from held-to-maturity securities	—		—		—		(1		)
Net change in fair value on other-than-temporarily impaired available-for-sale securities	12		43		16		125
Reclassification of noncredit portion of impairment losses included in net income	—		—		1		—
Net noncredit portion of other-than-temporary impairment losses on available-for-sale securities	12		43		17		124
Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities:
Noncredit losses on held-to-maturity securities	—		—		—		(1		)
Reclassification of noncredit portion from held-to-maturity securities to available-for-sale securities	—		—		—		1
Net noncredit portion of other-than-temporary impairment losses on held-to-maturity securities	—		—		—		—
Other comprehensive income related to pension and postretirement benefit plans	1		1		1		1
Total other comprehensive income	13		44		18		125
Total comprehensive income	$	75	$	130	$	157	$	282

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

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CAPITAL

(Unaudited)

(In millions)



	Capital Stock Class B Putable					Retained Earnings								Accumulated Other Comprehensive Income			Total Capital
	Shares		Par Value			Restricted		Unrestricted			Total			Accumulated Other Comprehensive Income			Total Capital
Balance, December 31, 2012	49		$	4,898		$	73	$	1,362		$	1,435		$	(58	)	$	6,275
Issuance of capital stock	23		2,327			—		—			—			—			2,327
Repurchase/redemption of capital stock	(24	)	(2,371		)	—		—			—			—			(2,371		)
Net shares reclassified to mandatorily redeemable capital stock	—		(7		)	—		—			—			—			(7		)
Comprehensive income	—		—			32		125			157			125			282
Cash dividends on capital stock	—		—			—		(55		)	(55		)	—			(55		)
Balance, June 30, 2013	48		$	4,847		$	105	$	1,432		$	1,537		$	67		$	6,451

Balance, December 31, 2013	49		$	4,883		$	141	$	1,516		$	1,657		$	112		$	6,652
Issuance of capital stock	23		2,296			—		—			—			—			2,296
Repurchase/redemption of capital stock	(23	)	(2,272		)	—		—			—			—			(2,272		)
Net shares reclassified to mandatorily redeemable capital stock	—		(1		)	—		—			—			—			(1		)
Comprehensive income	—		—			28		111			139			18			157
Cash dividends on capital stock	—		—			—		(88		)	(88		)	—			(88		)
Balance, June 30, 2014	49		$	4,906		$	169	$	1,539		$	1,708		$	130		$	6,744

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

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FEDERAL HOME LOAN BANK OF ATLANTA

STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)



	For the Six Months Ended June 30,
	2014			2013
Operating activities
Net income	$	139		$	157
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	(63		)	(39		)
(Reversal) provision for credit losses	(2		)	3
Loss (gain) due to change in net fair value adjustment on derivative and hedging activities	64			(24		)
Net change in fair value adjustment on trading securities	27			64
Net impairment losses recognized in earnings	1			—
Gain on early extinguishment of debt	(15		)	—
Net change in:
Accrued interest receivable	7			20
Other assets	11			(9		)
Affordable Housing Program payable	(5		)	(8		)
Accrued interest payable	(7		)	9
Other liabilities	(322		)	(2		)
Total adjustments	(304		)	14
Net cash (used in) provided by operating activities	(165		)	171
Investing activities
Net change in:
Interest-bearing deposits	(51		)	894
Securities purchased under agreements to resell	(1,000		)	(750		)
Federal funds sold	(2,865		)	1,893
Trading securities:
Proceeds from maturities	200			250
Available-for-sale securities:
Proceeds from maturities	176			277
Held-to-maturity securities:
Net change in short-term	—			50
Proceeds from maturities of long-term	1,216			1,964
Purchases of long-term	(1,664		)	(3,904		)
Advances:
Proceeds from principal collected	84,917			71,397
Made	(90,217		)	(74,744		)
Mortgage loans:
Proceeds from principal collected	78			162
Proceeds from sale of foreclosed assets	11			14
Purchase of premise, equipment, and software	(2		)	(1		)
Net cash used in investing activities	(9,201		)	(2,498		)

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FEDERAL HOME LOAN BANK OF ATLANTA STATEMENTS OF CASH FLOWS—(Continued) (Unaudited) (In millions)
	For the Six Months Ended June 30,
	2014			2013
Financing activities
Net change in deposits	(339		)	70
Net payments on derivatives containing a financing element	(51		)	(84		)
Proceeds from issuance of consolidated obligations:
Discount notes	199,451			105,474
Bonds	43,678			44,572
Payments for debt issuance costs	(6		)	(5		)
Payments for maturing and retiring consolidated obligations:
Discount notes	(200,971		)	(111,045		)
Bonds	(35,139		)	(40,594		)
Proceeds from issuance of capital stock	2,296			2,327
Payments for repurchase/redemption of capital stock	(2,272		)	(2,371		)
Payments for repurchase/redemption of mandatorily redeemable capital stock	(4		)	(22		)
Cash dividends paid	(88		)	(55		)
Net cash provided by (used in) financing activities	6,555			(1,733		)
Net decrease in cash and due from banks	(2,811		)	(4,060		)
Cash and due from banks at beginning of the period	4,374			4,083
Cash and due from banks at end of the period	$	1,563		$	23
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	200		$	239
Affordable Housing Program assessments, net	$	20		$	22
Noncash investing and financing activities:
Net shares reclassified to mandatorily redeemable capital stock	$	1		$	7
Held-to-maturity securities acquired with accrued liabilities	$	—		$	83
Transfer of held-to-maturity securities to available-for-sale securities	$	—		$	11
Transfers of mortgage loans to real estate owned	$	10		$	16

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

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 1—Basis of Presentation

The accompanying unaudited interim financial statements of the Federal Home Loan Bank of Atlanta (Bank) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could be different from these estimates. The foregoing interim financial statements are unaudited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods, have been included. The results of operations for interim periods are not necessarily indicative of results to be expected for the year ending December 31, 2014, 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, 2013, which are contained in the Bank’s 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 14, 2014 (Form 10-K).

The Bank has certain financial instruments, including derivative instruments and securities purchased under agreements to resell, that are subject to offset under master netting arrangements or by operation of law. Additional information regarding derivative instruments is provided in Note 13—Derivatives and Hedging Activities to the Bank’s interim financial statements. The Bank does not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented. Based on the fair value of the related securities held as collateral, the securities purchased under agreements to resell were fully collateralized for the periods presented.

During the three-month period ended March 31, 2014, the Bank made certain enhancements to its allowance for credit loss calculation related to the Bank’s conventional single-family residential mortgage loan portfolio. The allowance for conventional single-family residential mortgage loans is determined by an analysis (at least quarterly) that includes segregating the portfolio into various aging groups. For loans that are 60 days or less past due, the Bank calculates a loss severity, default rate, and the expected loss based on individual loan characteristics. For loans that are more than 60 days past due, the allowance is determined using an automated valuation model. Inherent in the Bank’s evaluation of loan performance is an analysis of various credit enhancements at the individual master commitment level to determine the credit enhancement available to recover losses on conventional single-family residential mortgage loans under each individual master commitment.

Additionally, during the three-month period ended March 31, 2014, the Bank began to classify as a loss and charge-off the portion of outstanding conventional single-family residential mortgage loan balances in excess of the fair value of the underlying property, less costs to sell and adjusted for any available credit enhancements, once the loans are 180 days delinquent. These changes did not have a material effect on the Bank's financial condition or results of operations.

A description of all of the Bank’s significant accounting policies is included in Note 2—Summary of Significant Accounting Policies to the 2013 audited financial statements contained in the Bank’s Form 10-K. There have been no other material changes to these policies as of June 30, 2014.

Note 2—Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. In June 2014, the Financial Accounting Standards Board (FASB) issued amended guidance for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings. Specifically, this guidance requires entities to account for (1) repurchase-to-maturity transactions as secured borrowings rather than as sales with forward repurchase agreements; and (2) repurchase agreements executed contemporaneously with the initial transfer of the underlying financial asset with the same counterparty as separate transactions only. In addition, this guidance requires a transferor to disclose additional information about certain transactions, including those in which it retains substantially all of the exposure to the economic returns of the underlying transferred asset over the transaction’s term. This guidance becomes effective for the Bank for the first interim or annual period beginning after December 15, 2014. The changes in accounting for transactions outstanding on the effective date are required to be presented on a cumulative-effect approach. The adoption of this guidance is not expected to materially effect the Bank’s financial condition or results of operations.

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. In January 2014, the FASB issued guidance intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The guidance clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This guidance is effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2014. The adoption of this guidance will result in increased disclosures, but is not expected to materially affect the Bank’s financial condition or results of operations.

Recently Adopted Accounting Guidance

Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. In February 2013, the FASB issued guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This guidance requires an entity to measure these obligations as the sum of (1) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The Bank adopted this guidance effective January 1, 2014. The adoption of this guidance did not have any effect on the Bank's financial condition or results of operations.

Note 3—Trading Securities

Major Security Types. Trading securities were as follows:



	As of June 30, 2014		As of December 31, 2013
Government-sponsored enterprises debt obligations	$	1,380	$	1,601
Another FHLBank’s bond ⁽¹⁾	63		65
State or local housing agency debt obligations	1		1
Total	$	1,444	$	1,667

____________


⁽¹⁾	The Federal Home Loan Bank of Chicago is the primary obligor of this consolidated obligation bond.

Net losses on trading securities were as follows:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
Net losses on trading securities held at period end	$	(13	)	$	(40	)	$	(27	)	$	(62	)
Net losses on trading securities sold or matured during the period	—			—			—			(2		)
Net losses on trading securities	$	(13	)	$	(40	)	$	(27	)	$	(64	)

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Note 4—Available-for-sale Securities

The Bank transferred a private-label residential mortgaged-backed security (MBS) from its held-to-maturity portfolio to its available-for-sale portfolio on March 31, 2013. This security represents a private-label residential 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 this security nor is the Bank under any requirement to sell this security.

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



	2014						2013
	Amortized Cost		Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income		Estimated Fair Value		Amortized Cost		Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income		Estimated Fair Value
Transferred at March 31,	$	—	$	—	$	—	$	12	$	1	$	11
Transferred at June 30,	—		—		—		—		—		—
Total	$	—	$	—	$	—	$	12	$	1	$	11

Major Security Types. Private-label residential MBS were as follows:



	Amortized Cost		Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
As of June 30, 2014	$	2,013	$	19	$	161	$	—	$	2,155



As of December 31, 2013	$	2,174	$	27	$	152	$	—	$	2,299

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



	Less than 12 Months					12 Months or More					Total
	Number of Positions	Estimated Fair Value		Gross Unrealized Losses		Number of Positions	Estimated Fair Value		Gross Unrealized Losses		Number of Positions	Estimated Fair Value		Gross Unrealized Losses
As of June 30, 2014	1	$	4	$	—	10	$	229	$	19	11	$	233	$	19

As of December 31, 2013	6	$	137	$	1	10	$	243	$	26	16	$	380	$	27

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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, Bank of America Corporation, Charlotte, NC, follows:



	Amortized Cost		Other-than-temporary Impairment Recognized in Accumulated Other Comprehensive Income		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
As of June 30, 2014	$	1,294	$	18	$	106	$	—	$	1,382

As of December 31, 2013	$	1,390	$	26	$	98	$	—	$	1,462

Note 5—Held-to-maturity Securities

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



	As of June 30, 2014								As of December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
State or local housing agency debt obligations	$	87	$	1	$	—	$	88	$	92	$	1	$	—	$	93
Government-sponsored enterprises debt obligations	4,718		1		12		4,707		3,738		—		24		3,714
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential	414		5		—		419		465		7		—		472
Government-sponsored enterprises residential	13,705		108		64		13,749		13,952		109		115		13,946
Private-label residential	1,702		17		10		1,709		1,929		12		20		1,921
Total	$	20,626	$	132	$	86	$	20,672	$	20,176	$	129	$	159	$	20,146

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



	As of June 30, 2014
	Less than 12 Months					12 Months or More					Total
	Number of Positions	Estimated Fair Value		Gross Unrealized Losses		Number of Positions	Estimated Fair Value		Gross Unrealized Losses		Number of Positions	Estimated Fair Value		Gross Unrealized Losses
Government-sponsored enterprises debt obligations	2	$	250	$	—	5	$	1,132	$	12	7	$	1,382	$	12
Mortgage-backed securities:
Government-sponsored enterprises residential	36	1,556		6		28	2,633		58		64	4,189		64
Private-label residential	6	58		—		34	533		10		40	591		10
Total	44	$	1,864	$	6	67	$	4,298	$	80	111	$	6,162	$	86

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)



	As of December 31, 2013
	Less than 12 Months					12 Months or More					Total
	Number of Positions	Estimated Fair Value		Gross Unrealized Losses		Number of Positions	Estimated Fair Value		Gross Unrealized Losses		Number of Positions	Estimated Fair Value		Gross Unrealized Losses
Government-sponsored enterprises debt obligations	9	$	1,970	$	24	—	$	—	$	—	9	$	1,970	$	24
Mortgage-backed securities:
Government-sponsored enterprises residential	65	3,932		108		1	147		7		66	4,079		115
Private-label residential	40	817		12		18	241		8		58	1,058		20
Total	114	$	6,719	$	144	19	$	388	$	15	133	$	7,107	$	159

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 June 30, 2014				As of December 31, 2013
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Non-mortgage-backed securities:
Due in one year or less	$	748	$	748	$	430	$	430
Due after one year through five years	4,057		4,047		3,400		3,377
Total non-mortgage-backed securities	4,805		4,795		3,830		3,807
Mortgage-backed securities	15,821		15,877		16,346		16,339
Total	$	20,626	$	20,672	$	20,176	$	20,146

A summary of held-to-maturity MBS issued by members or affiliates of members, Bank of America Corporation, Charlotte, NC, follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
As of June 30, 2014	$	531	$	4	$	5	$	530

As of December 31, 2013	$	619	$	4	$	8	$	615

Note 6—Other-than-temporary Impairment

The Bank evaluates its individual available-for-sale and held-to-maturity securities holdings in an unrealized loss position for other-than-temporary impairment on a quarterly basis. As part of this process, the Bank considers its intent to sell each debt security and whether it is more likely than not the Bank will be required to sell the security before its anticipated recovery. If either of these conditions is met, the Bank recognizes the maximum impairment loss in earnings which is equal to the entire difference between the security’s amortized cost basis and its fair value as of the Statements of Condition dates. For securities in an unrealized loss position that meet neither of these conditions, the Bank evaluates whether there is other-than-temporary impairment by performing an analysis to determine if any of these securities will incur a credit loss, which could be up to the difference between the security’s amortized cost basis and its fair value.

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Mortgage-backed Securities. The Bank’s investments in MBS consist of U.S. agency guaranteed securities and senior tranches of private-label MBS. The Bank has increased exposure to the risk of loss on its investments in MBS when the loans backing the MBS exhibit high rates of delinquency and foreclosures, as well as losses on the sale of foreclosed properties. The Bank regularly requires high levels of credit enhancements from the structure of the collateralized mortgage obligation to reduce its risk of loss on such securities. Credit enhancements are defined as the percentage of subordinate tranches, overcollateralization, or excess spread, or the support of monoline insurance, if any, in a security structure that will absorb the losses before the security the Bank purchased will take a loss. The Bank does not purchase credit enhancements for its MBS from monoline insurance companies.

The Bank’s investments in private-label MBS were rated “AAA” (or its equivalent) by a nationally recognized statistical rating organization (NRSRO), such as Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Services (S&P), at their purchase dates. The “AAA”-rated securities achieved their ratings through credit enhancement, overcollateralization, and senior-subordinated shifting interest features; the latter results in subordination of payments by junior classes to ensure cash flows to the senior classes. The ratings on all of the Bank’s private-label MBS have changed since their purchase dates.

Non-private-label MBS. The unrealized losses related to U.S. agency MBS are caused by interest rate changes and not credit quality. These securities are guaranteed by government agencies or government-sponsored enterprises (GSEs) and the Bank does not expect these securities to be settled at a price less than their amortized cost basis. In addition, the Bank does not intend to sell these investments and it is not more likely than not that the Bank will be required to sell these investments before recovery of their amortized cost basis, which may be at maturity. The Bank does not consider these investments to be other-than-temporarily impaired as of June 30, 2014.

Private-label MBS. To assess whether the entire amortized cost basis of its private-label MBS will be recovered, the Bank performs a cash flow analysis for each of its private-label MBS. In performing the cash flow analysis for each of these securities, the Bank uses two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core based statistical areas (CBSAs), which are based upon an assessment of the individual housing markets. The term CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget; as currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast as of June 30, 2014 included a short-term housing price forecast with projected changes ranging from a decrease of four percent to an increase of nine percent over the 12 month period beginning April 1, 2014. For the vast majority of markets, the projected short-term housing price changes range from a decrease of two percent to an increase of four percent.

Previously, home price projections following the short-term period were projected to recover using one of five different recovery paths. Starting this quarter, a unique path was projected for each geographic area based on an internally developed framework derived from historical data.

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

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

The following table represents a summary of the significant inputs used to measure the amount of the credit loss recognized in earnings for the one Alt-A security for which an other-than-temporary impairment was determined to have occurred during the three-month period ended June 30, 2014:

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)



	Significant Inputs
	Prepayment Rate	Default Rates	Loss Severities	Current Credit Enhancement
Year of Securitization	Weighted Average (%)	Weighted Average (%)	Weighted Average (%)	Weighted Average (%)
2007	13.71	25.86	39.92	0.00

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
Balance, beginning of period	$	567		$	586		$	574		$	586
Amount related to credit loss for which an other-than-temporary impairment was previously recognized	—			—			1			—
Increase in cash flows expected to be collected, recognized over the remaining life of the securities	(8		)	(2		)	(16		)	(2		)
Balance, end of period	$	559		$	584		$	559		$	584

Certain other private-label MBS that have not been designated as other-than-temporarily impaired have experienced unrealized losses and decreases in fair value due to interest rate volatility, illiquidity in the marketplace, and general disruption in the U.S. mortgage markets. These declines in fair value are considered temporary as the Bank expects to recover the amortized cost basis of the securities, the Bank does not intend to sell these securities, and it is not more likely than not that the Bank will be required to sell these securities before the anticipated recovery of the securities’ remaining amortized cost basis, which may be at maturity. This assessment is based on the fact that the Bank has sufficient capital and liquidity to operate its business and has no need to sell these securities, nor has the Bank entered into any contractual constraints that would require the Bank to sell these securities.

Note 7—Advances

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



	As of June 30, 2014			As of December 31, 2013
Overdrawn demand deposit accounts	$	—		$	2
Due in one year or less	49,222			51,331
Due after one year through two years	13,379			5,366
Due after two years through three years	8,954			6,136
Due after three years through four years	6,897			8,495
Due after four years through five years	3,105			5,088
Due after five years	11,624			11,464
Total par value	93,181			87,882
Discount on AHP⁽¹⁾advances	(7		)	(8		)
Discount on EDGE⁽²⁾advances	(6		)	(7		)
Hedging adjustments	1,964			1,726
Deferred commitment fees	(4		)	(5		)
Total	$	95,128		$	89,588

___________

⁽¹⁾ The Affordable Housing Program

⁽²⁾ The Economic Development and Growth Enhancement program

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

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



	As of June 30, 2014		As of December 31, 2013
Overdrawn demand deposit accounts	$	—	$	2
Due or convertible in one year or less	52,336		54,522
Due or convertible after one year through two years	13,341		5,414
Due or convertible after two years through three years	8,073		5,867
Due or convertible after three years through four years	5,309		6,643
Due or convertible after four years through five years	2,680		4,168
Due or convertible after five years	11,442		11,266
Total par value	$	93,181	$	87,882

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



	As of June 30, 2014		As of December 31, 2013
Fixed-rate:
Due in one year or less	$	38,313	$	46,343
Due after one year	31,251		28,535
Total fixed-rate	69,564		74,878
Variable-rate:
Due in one year or less	10,909		4,990
Due after one year	12,708		8,014
Total variable-rate	23,617		13,004
Total par value	$	93,181	$	87,882

Credit Risk. The Bank’s potential credit risk from advances is concentrated in commercial banks, thrifts, and credit unions and further is concentrated in certain larger borrowing relationships. As of June 30, 2014 and December 31, 2013, the concentration of the Bank’s advances was $69,966 and $65,472, respectively, to 10 member institutions, representing 75.1 percent and 74.5 percent, respectively, of total advances outstanding.

Based on the collateral pledged as security for advances, the Bank's credit analysis of members’ financial condition, and prior repayment history, no allowance for credit losses on advances was deemed necessary by the Bank as of June 30, 2014 and December 31, 2013. No advance was past due as of June 30, 2014 and December 31, 2013.

Note 8—Mortgage Loans Held for Portfolio

The following table presents information on mortgage loans held for portfolio by contractual maturity at the time of purchase:



	As of June 30, 2014			As of December 31, 2013
Fixed-rate medium-term⁽¹⁾ single-family residential mortgage loans	$	125		$	150
Fixed-rate long-term single-family residential mortgage loans	715			781
Total unpaid principal balance	840			931
Premiums	2			3
Discounts	(4		)	(5		)
Total	$	838		$	929

____________

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

Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The following table details the unpaid principal balance of mortgage loans held for portfolio by collateral or guarantee type:



	As of June 30, 2014		As of December 31, 2013
Conventional loans	$	780	$	864
Government-guaranteed or insured loans	60		67
Total unpaid principal balance	$	840	$	931

For information related to the Bank's credit risk on mortgage loans and allowance for credit losses, see Note 9—Allowance for Credit Losses to the Bank’s interim financial statements.

Note 9—Allowance for Credit Losses

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



	For the Three Months Ended June 30,
	2014		2013
	Conventional Single-family Residential Mortgage Loans		Conventional Single-family Residential Mortgage Loans			Multifamily Residential Mortgage Loans		Total
Balance, beginning of period	$	4	$	12		$	1	$	13
Provision for credit losses	2		1			—		1
Charge-offs	—		(2		)	—		(2		)
Balance, end of period	$	6	$	11		$	1	$	12



	For the Six Months Ended June 30,
	2014			2013
	Conventional Single-family Residential Mortgage Loans			Conventional Single-family Residential Mortgage Loans			Multifamily Residential Mortgage Loans		Total
Balance, beginning of period	$	11		$	10		$	1	$	11
(Reversal) provision for credit losses	(2		)	3			—		3
Charge-offs	(3		)	(2		)	—		(2		)
Balance, end of period	$	6		$	11		$	1	$	12

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FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

The recorded investment in mortgage loans by impairment methodology was as follows:



	As of June 30, 2014
	Conventional Single-family Residential Mortgage Loans		Government-guaranteed or Insured Residential Mortgage Loans		Total
Allowance for credit losses:
Individually evaluated for impairment	$	1	$	—	$	1
Collectively evaluated for impairment	5		—		5
Total allowance for credit losses	$	6	$	—	$	6
Recorded investment:
Individually evaluated for impairment	$	15	$	—	$	15
Collectively evaluated for impairment	767		60		827
Total recorded investment ⁽¹⁾	$	782	$	60	$	842

____________

⁽¹⁾ The difference between the recorded investment and the carrying value of total mortgage loans of $4 relates to accrued interest.



	As of December 31, 2013
	Conventional Single-family Residential Mortgage Loans		Government-guaranteed or Insured Residential Mortgage Loans		Total
Allowance for credit losses:
Individually evaluated for impairment	$	2	$	—	$	2
Collectively evaluated for impairment	9		—		9
Total allowance for credit losses	$	11	$	—	$	11
Recorded investment:
Individually evaluated for impairment	$	15	$	—	$	15
Collectively evaluated for impairment	851		67		918
Total recorded investment ⁽¹⁾	$	866	$	67	$	933

____________

⁽¹⁾ The difference between the recorded investment and the carrying value of total mortgage loans of $4 relates to accrued interest.

Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)

Key credit quality indicators for mortgage loans include the migration of past due loans, nonaccrual loans, loans in process of foreclosure, and impaired loans. The tables below summarize the Bank's recorded investment in mortgage loans by these key credit quality indicators:



	As of June 30, 2014
	Conventional Single-family Residential Mortgage Loans			Government-guaranteed or Insured Single-family Residential Mortgage Loans			Total
Past due 30-59 days	$	21		$	6		$	27
Past due 60-89 days	6			1			7
Past due 90 days or more	41			7			48
Total past due mortgage loans	68			14			82
Total current mortgage loans	714			46			760
Total mortgage loans ⁽¹⁾	$	782		$	60		$	842
Other delinquency statistics:
In process of foreclosure ⁽²⁾	$	27		$	2		$	29
Seriously delinquent rate ⁽³⁾	5.23		%	11.22		%	5.66		%
Past due 90 days or more and still accruing interest ⁽⁴⁾	$	—		$	7		$	7
Loans on nonaccrual status ⁽⁵⁾	$	41		$	—		$	41

____________

⁽¹⁾ The difference between the recorded investment and the carrying value of total mortgage loans of $4 relates to accrued interest.

⁽²⁾ Includes loans where the decision of foreclosure or similar alternative such as pursuit of deed-in lieu has been reported. Loans in the process of foreclosure are included in past due or current loans depending on their delinquency status.

⁽³⁾ Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio segment.

⁽⁴⁾ Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.

⁽⁵⁾ Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.

Table of Contents

FEDERAL HOME LOAN BANK OF ATLANTA

NOTES TO FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions)



	As of December 31, 2013
	Conventional Single-family Residential Mortgage Loans			Government-guaranteed or Insured Single-family Residential Mortgage Loans			Total
Past due 30-59 days	$	30		$	7		$	37
Past due 60-89 days	9			3			12
Past due 90 days or more	51			9			60
Total past due mortgage loans	90			19			109
Total current mortgage loans	776			48			824
Total mortgage loans ⁽¹⁾	$	866		$	67		$	933
Other delinquency statistics:
In process of foreclosure ⁽²⁾	$	38		$	3		$	41
Seriously delinquent rate ⁽³⁾	5.90		%	13.13		%	6.42		%
Past due 90 days or more and still accruing interest ⁽⁴⁾	$	—		$	9		$	9
Loans on nonaccrual status ⁽⁵⁾	$	51		$	—		$	51

____________

⁽¹⁾ The difference between the recorded investment and the carrying value of total mortgage loans of $4 relates to accrued interest.

⁽³⁾ Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total loan portfolio segment.

⁽⁴⁾Mortgage loans insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs.

⁽⁵⁾ Represents mortgage loans with contractual principal or interest payments 90 days or more past due and not accruing interest.

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

The table below presents the Bank's recorded investment balance in troubled debt restructured loans as of June 30, 2014 and December 31, 2013:

Federal Home Loan Bank of Atlanta - FORM 10-Q - August 8, 2014

Attached files